Case Study 2 – How do Family Offices determine whether to invest by way of debt or equity?

The Patel family are a Mumbai based family office.  They are regularly given the opportunity to co-invest alongside U.S. based hedge funds in various private equity deals.  The family’s holdings are structured out of India, Dubai and the U.S.

They have access to capital in each of these locations and have been shown a particular deal where the portfolio company, a NY based fintech business operating via a Delaware Corporation, is open to taking a portion of the capital being raised as debt.  For the Patel Family, they need to determine which entity should make the investment and whether they should take up debt or equity or a combination of both.

In this instance they have decided that their Dubai based holding company will take a combination of equity and debt because the debt can qualify for the portfolio interest exemption.

The portfolio interest exemption was critical to the debt issuance, because without it the interest would have been subject to withholding tax at a rate of 30%.  With the portfolio interest exemption the interest payments will be exempt from U.S. tax.


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