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Concentrated Portfolio Lending

Providing liquidity for diversification and risk management

Cup of coffee, pen and financial newspaper

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.

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