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A pair of European-listed, closed-end funds offers individuals a cheap way to invest with prominent hedge-fund managers Bill Ackman and Daniel Loeb.

These closed-ends, Ackman’s Pershing Square Holdings (ticker: PSH.Netherlands, ) and Loeb’s Third Point Offshore Investors (TPOU.UK), both trade at sizable discounts to net asset value. They offer other advantages as well, including daily liquidity and no investment minimums.

The Pershing Square Holdings closed-end, which has a market value of $3.6 billion, trades actively in Amsterdam and more lightly on the Pink Sheets under the ticker PSHZF. At $15, the shares trade at a 16% discount to NAV.

The Third Point fund is smaller, at $700 million, and trades in London. Also recently $15, the shares are priced at a 14% discount to NAV. The fund also has very thinly traded Pink Sheet shares (TPNTF). The fund invests directly in Loeb’s Third Point Offshore hedge fund. “The Third Point fund offers exposure to a world-class money manager at a discount. What’s wrong with that?” says David Feinman, a private investor in Larchmont, N.Y., who has long invested with Loeb.

The two overseas funds can be purchased through many brokerage firms, including Fidelity, Merrill Lynch, and Interactive Brokers. Morgan Stanley, however, restricts purchases to high-net-worth clients because the funds aren’t registered in the U.S. Shareholders in taxable accounts receive a Passive Foreign Investment Company tax form.

THE BIG DISCOUNT ON THE PERSHING SQUARE fund is understandable, given its poor performance; it dropped a total of more than 30% in 2015 and 2016 when the Standard & Poor’s 500 index returned 13%. Ackman also has become a poster child for the hedge-fund industry’s performance and fee issues.

By contrast, Loeb has a great 20-year record during which Third Point’s returns doubled those of the S&P 500. But in the past two years, results have been mediocre. Third Point fell 2.6% in 2015 and rose 6.1% in 2016, trailing the S&P in both years.

Pershing Square is a bet on Ackman’s revival, while Third Point is a play on a return to its historically good performance.

Loeb and other hedge-fund managers are betting that President Trump’s policies will produce market volatility, which is good for nimble active managers. “We do not plan to trade the tweets, but we expect an increasing number of real, and even better, fake dislocations, to create some extremely rewarding investing opportunities,” Loeb wrote in an investment letter earlier this month.

He also notes that most investors “underestimate” the operating leverage of banks in a rising rate environment, both from wider lending spreads and better trading activity. Third Point, like many hedge funds, has a mix of longs and shorts, with a net exposure of 62% at the end of January. This ought to dampen volatility relative to the stock market.

ACKMAN HOLDS just 13 equity positions in the closed-end fund. Three stocks— Mondelez International (MDLZ), Air Products and Chemicals (APD), and Restaurant Brands International (QSR), parent of Burger King and doughnut chain Tim Hortons—account for nearly half the Pershing Square fund. Valeant Pharmaceuticals International (VRX), which torpedoed the fund in 2015-16, can’t do much more damage. After falling 95% from its 2015 high, it’s now just a 3% holding in the fund.

Loeb operates a fairly concentrated portfolio including Baxter International (BAX), Dow Chemical (DOW), Constellation Brands (STZ), and JPMorgan Chase (JPM). It also has significant bond exposure.

The Third Point closed-end offers individual investors a way around the hedge fund’s minimum investment of $10 million. Another way in is Third Point Reinsurance (TPRE), a Bermuda property and casualty reinsurer that went public in 2013. Its investment portfolio is run by Third Point. The reinsurer, now around $11.85, trades at a 13% discount to its third-quarter 2016 book value of $13.55. Fourth-quarter results haven’t yet been reported.

The closed-end fund charges a 2% management fee, plus 20% of profits, while the reinsurer gets lower fees of 1.5% and 20%. In all, Loeb runs more than $14 billion.

INVESTOR DAVID EINHORN of Greenlight Capital has run a similar reinsurer, Greenlight Capital Re (GLRE), since 2007. It trades around $23, a slight premium to its third-quarter book value of $22.

Both companies offer investors a tax-advantaged play on top managers; investment income is virtually untaxed in the tax havens where the two insurers are based. The managers, meanwhile, get more or less permanent capital to invest, which is nice given the risk to hedge funds of withdrawals in bad times.

Neither reinsurer, however, has been a big winner. Third Point trades below its initial public offering price of $12.50, and Greenlight Re is up just 20% in the 10 years since its IPO. Neither has ever paid a dividend. The culprit in both cases has been weak underwriting performance. This validates Warren Buffett’s observation that it’s easy taking in property and casualty insurance premiums but hard to turn a profit; his own Berkshire Hathaway (BRK.A) has long been an exception.

Third Point Re, however, looks appealing given its discount to book value, the company’s intention to repurchase stock at 90% of book value, and good investment returns in January, when the closed-end fund gained 2.6%. The shares trade for about six times projected 2017 earnings of about $2, but that estimate is based on continued strong investment performance.

That said, Third Point Re suffers from an underwriting drag that isn’t present with the closed-end fund.

Indeed, analysts generally are lukewarm on the two reinsurers. “Third Point has a good investment and underwriting team but it’s very hard to get excited about any reinsurer now because it’s a difficult environment,” with pricing under pressure, says Meyer Shields, a KBW analyst who has a Market Perform rating and $14 price target on the shares.

Barron’s featured these investments nearly a year ago (“How to Buy Bill Ackman, Dan Loeb on the Cheap,” March 26, 2016). Since then, Third Point Offshore has returned almost 20%; Greenlight Re, Third Point Re, and Pershing Square Holdings, about 10%.

Pershing Square offers a plus. The fund is way below its peak level, or high-water mark, meaning that investors won’t pay an incentive fee unless the portfolio appreciates by 40%. Investors do have to pay the base annual management fee of 1.5%. Despite Ackman’s woes, he is still running $11 billion.

Investors also could benefit because Ackman is unhappy with the large discount on the closed-end fund, calling it “unacceptable” in a December investor letter. He went on to say that the fund is “exploring potential steps to narrow the discount to NAV.” No plan has been announced yet.

FOR TAX PURPOSES, overseas funds are treated like master limited partnerships. Investors are taxed on the funds’ ordinary income and capital gains whether they’re distributed or not. This assumes they choose “Qualified Election Status,” as most holders do, according to New York tax expert Robert Willens.

In an email, he wrote that as a “practical matter” there isn’t a big difference from a tax standpoint between U.S. mutual funds, which generate 1099 forms, and overseas funds. To retain their tax-favored status, U.S. mutual funds “distribute virtually all of their taxable income.”

There may be a place in investment portfolios for funds run by historically successful managers. The Pershing Square and Third Point closed-end funds offer an attractive way to get that exposure at a discounted price. The Third Point and Greenlight reinsurers offer a similar play for those wanting U.S.-listed shares.

Correction:A previous version of this story stated Pershing Square Holdings fund’s market value as net assets.

Email: editors@barrons.com

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