Financial Experts Opine on Diversifying Illiquid Trusts


Bankruptcy Expert WitnessThis case involves the bankruptcy of a family trust in Utah that was comprised entirely of stock in a large company, and comprised the trust’s bankruptcy. The trust was established for the descendants of one of the founders of the company. The company was a very closely held, illiquid, and publicly traded company on the capital market. The trust was never diversified throughout the years and was effectively worth nothing, despite once being valued at over $500,000,000. An investment banker experienced in financial transactions focused on diversifying similarly concentrated trusts of closely held, illiquid, publicly traded securities was needed to comment on how the divestment could have been performed from a logistical and practical standpoint.

Question(s) For Expert Witness

  • 1. What is your experience divesting/diversifying large trusts comprised of an illiquid, single holding in a publicly traded company that is family owned?
  • 2. What are the potential steps and transactions that could be performed to diversify a large trust?

Expert Witness Response E-063483

I spent the majority of my career as a financial attorney and was also an Investment Banker for several years. As a lawyer, I was involved with a single-asset family trust that owned approximately $1 billion in restricted shares of a major communications company and needed to diversify. We received proposals from multiple investment banks, which included total equity return swaps, repurchase agreements, and 144 sales programs, all of which would apply to the situation present in this case. I have provided advice both as a lawyer and a banker in connection with techniques to diversify illiquid positions, though not always in the specific context of trust diversification. I am knowledgeable about the options that would be available to a trust, which are the same as what would be available to others. A trust might have different risk tolerances than some other investors, but that would not have a bearing on the available methodologies.

Expert Witness Response E-135521

I am a Chartered Financial Analyst with experience in the same or similar litigation and investment analysis issues. I previously worked as a trust investment officer in charge of illiquid investments. I worked on the sale and diversification of concentrated portfolios as part of my job. I currently consult with institutional fiduciaries and other parties involved in similar issues in valuing these types of investments and have participated in examining strategies to diversify these concentrations. Methods of diversification include dribble-out sales of the subject stock, secondary offerings, repurchase negotiations, option strategies, and placement of stock in certain types of diversification funds run by investment banking firms.

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