$148 billion: the amount Apple has invested in corporate debt
With its record $257 billion cash pile, Apple has become a major buyer of corporate debt, essentially held abroad. Its holdings are large enough to move markets if it suddenly decides to reallocate its investments.
The World’s largest bond portfolio no longer belongs to traditional asset managers
With $148 billion of AuM held by its corporate debt portfolio, the iPhone-maker has overtaken Vanguard’s Total Bond Market Index Fund, the previous world’s largest fixed-income fund ($145Bn).
In only 3 years, Apple has doubled its investments in corporate bonds, that are 90% held abroad, reflecting a substantive strategy to find legal tax loophole and to face low rates of U.S. government securities.
The asset management is internalized
Assets are managed by Braeburn Capital Inc., Apple’s money management unit, based in Reno, Nevada. Due to the lack of reporting obligations, there’s no public information on the nature of investments.
Apple however specifies that the company is “investing in investment-grade securities and limiting exposure to a particular issuer” and indicates that $124 billion are invested in long maturity bonds, from 1 to 5 years. According to informers, they’ve targeted safer, shorter-dated and more liquid bonds from highly rated financial firms and other companies.
By insourcing its asset management, Apple capture a significant part of asset managers’ revenues.
Apple tends to dry the market…
Apple, as other tech companies, is increasingly approaching corporate issuers to anchor new bond sales. So it's now one of the biggest buyers of short term debt, often taking as much as 20% of issues. So it cuts into traditional investors’ access to issues.
Furthermore, as competition intensifies for bond allocations in an illiquid market, price tension is increasing.
… with the risk of flooding it in a near future
But what would happen if Apple suddenly decides to dump its billions of bonds to do something else with its cash? Its holdings are large enough to move markets. And the threat should be taken seriously:
- Apple is updating its shareholder remuneration policy. In May 4, 2017, it announced that it had sold $7 billion of debt to support its dividend and an increased stock-repurchase program.
- Apple may soon be able to bring its cash back to U.S. with better interest rates and lower tax levy. If the Fed decides to hike its target levels, the company may be tempted to close out its positions favoring safer and more liquid securities like U.S. Treasuries.
This hypothesis could be a serious one if President D. Trump succeeds in passing his tax plan, which includes a repatriation provision, as it has been lobbying for two years by companies including Apple. The market impact could be particularly strong if the facility is time-limited within one and only transaction.
Others tech firms shake up the asset management market
The amount of cash and marketable securities held, primarily overseas, by Apple and nine of its biggest peers, have increased more than three-fold since 2008. They’ve become the World’s biggest buyers of debt, picking up as much as half of some bond issues. For instance, Oracle and Google have respectively invested $25.8 billion and $11.5 billion in corporate bonds.
The AuM of Alibaba’s Yu’e Bao, which has become the World’s largest money market fund, overtakes JPMorgan’s U.S. government funds ($150Bn AUM), and is the 7th biggest fund overall. With 300 million users attracted by high interest rates (3,93%), Alibaba becomes a threat for banks.
The amount of commitments raised by SoftBank Vision Fund, with the ambition to reach the threshold of $100 billion. It has become the world’s largest private equity fund: see the article in the DigiBook #6.
Author: Pascal Buisson
