Concentrated Portfolio Lending
Providing liquidity for diversification and risk management
Chances are, you recognize the risk of holding a concentrated, undiversified stock position. However, now may not be an opportune time to divest. If a substantial portion of your wealth is held in a single stock — whether because of the sale of a company you founded, your participation in an executive compensation program, long-term accumulation or inheritance — U.S. Trust can offer strategies to help you diversify without selling your shares.
The benefits of diversification* are well understood by most investors, but this may not be an ideal time for you to sell. In the current economic environment, the market price of your shares may make selling unattractive. You may be an executive whose sales would send the wrong signal to the market, or you may be concerned about the capital gains taxes you would incur. Fortunately, there are timely alternatives for you to consider.
At U.S. Trust, you can consider an array of approaches designed to help manage the risk of a concentrated position. These include 10b5-1 plans1, exchange funds2 and derivative-based3 solutions, each structured to address your specific requirements and concerns. One of the most flexible solutions, and one of the fastest and easiest to implement, is a loan secured by the value of your holdings.3
The Advantages of Borrowing Against Your Position
By pledging your shares as collateral, you gain access to funds that you can use to assemble a diversified portfolio of investments (or for other purposes) without having to sell your shares.4 As a result, you incur no capital gains taxes, and avoid having to sell your shares at a potentially inopportune time (such as a down market or industry event), while continuing to benefit from any dividends paid and potential appreciation of the stock.
U.S. Trust has decades of experience helping clients achieve liquidity through portfolio lending. As a U.S. Trust® client, you can benefit from:
- Flexible, competitive loan pricing and fees
- Custom structures available with potentially higher advance rates on equities than may otherwise be available on standardized products
- Solutions that consider your overall financial objectives
- Multiple loan structures available, tailored to your specific needs
A Sound Strategic Step
If your long-term strategy calls for liquidating your concentrated holdings, borrowing now may be a good first step. You may reduce risk while gaining time to further refine your strategy, await anticipated developments and engineer an orderly liquidation of your holdings in a more favorable market.
In addition, your U.S. Trust® advisor can discuss complementary diversification strategies with you, explaining how a concentrated position loan can work in tandem with sophisticated portfolio and tax management approaches.
Broader Portfolio-Based Liquidity Solutions
You may seek to gain liquidity by borrowing against the value of your entire portfolio. If so, we take a broad view of your credit capacity based on a thorough understanding of your balance sheet. Looking beyond your equity investments, we also consider fixed income securities, managed investments and derivatives to assess your portfolio's total value, create more attractive loan structures and potentially assign a higher collateral value than you might otherwise receive.
* Diversification does not ensure a profit or protect against loss in declining markets.
1 10b5-1 plans are offered through MLPF&S. Implementing a Rule 10b5-1 Trading Plan does not prohibit or prevent legal or regulatory action related to the trades. Trading plans are intended to demonstrate that the purchase or sale of a security of any issuer was not on the basis of material, nonpublic information about that security or issuer and therefore, not in violation of section 10(b) of the Securities Exchange Act of 1934 and Rule 10(b)-5.
2 Exchange funds can provide diversification benefits not obtained from more traditional investments, but should be carefully considered based on your investment objectives, risk tolerance and net worth. Exchange funds can often be long-term, illiquid investments that are not easily valued.
3 Use of derivative instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. Derivatives are subject to a number of risks such as liquidity risk, interest rate risk, market risk, credit risk and management risk.
4 Some restrictions may apply to loans used to purchase, carry or trade securities.
Banking and mortgage products are provided by Bank of America, N.A. and affiliated banks, Members FDIC and wholly owned subsidiaries of Bank of America Corporation.
Investment products:
| Are Not FDIC Insured |
Are Not Bank Guaranteed |
May Lose Value |
Always consult with your independent attorney, tax advisor, investment manager and insurance agent for final recommendations and before changing or implementing any financial, tax or estate planning strategy.
Credit facilities are provided by Bank of America, N.A., Member FDIC, its subsidiaries or other bank subsidiaries of Bank of America Corporation, each an Equal Opportunity Lender. All collateral is subject to credit approval and may require the filing of financing statements or other lien notices in public records. Asset-based and securities-based financing involves special risks and is not for everyone. When considering an asset-based and/or securities-based loan, consideration should be given to individual requirements, asset portfolio composition and risk tolerance as well as capital gains, portfolio performance expectations and investment time horizon. For any loan with securities collateral, the securities or other assets in any collateral account may be sold to meet a collateral call as provided in the definitive loan documents and the client is not entitled to choose which securities or other assets will be sold. A complete description of the loan terms will be found in the individual credit facility documentation and agreements.
Bank of America, N.A., and U.S. Trust Company of Delaware (collectively the "Bank") do not serve in a fiduciary capacity with respect to all products or services. Fiduciary standards or fiduciary duties do not apply, for example, when the Bank is offering or providing credit solutions, banking, custody or brokerage products/services or referrals to other affiliates of the Bank.
