WO2002029676A1

WO2002029676A1 - Unitized market for private securities

Info

Publication number: WO2002029676A1
Application number: PCT/US2001/030875
Authority: WO
Inventors: Barnett Gary; Buchbinder ANDREW; Chintalapati DUTT; Charles S. GITTLESMAN; Mark K HYLAND; Luchetti PETER; Kenneth A. MASOTTI; Paul S. SCHREIBER; Sharp THAXTER; Steven E. SHERMAN
Original assignee: Global Funding Partnerscom Inc
Current assignee: Global Funding Partnerscom Inc
Priority date: 2000-10-04
Filing date: 2001-10-03
Publication date: 2002-04-11
Anticipated expiration: 2003-04-04
Also published as: AU2002211371A1

Abstract

Disclosed is a method and a system for investors to acquire and/or trade liquid undivided interests in diversified portfolios of private financial assets. At the center of the invention is a portfolios of assets grouped by an investment strategy. These assets are divided into units, each unit representing an undivided ownership interest in the portfolio. The system may facilitate a primary market for originators of the assets and investors and may facilitate a secondary market in the units for investors. The system may dynamically replenish the portfolio by adding additional series of units from time to time in response to demand from investors and availability of assets from originators. Also, when an asset in the porfolio matures and converts into cash, the money may be used to replenish the portfolio with an asset that meets the portfolio-specific investment strategy or distributed pro rata to the owners of the units. The invention may also capitalize on the unique information-exchange efficiencies of the Internet.

Description

UNlTIZED MARKET FOR PRIVATE SECURITIES

BACKGROUND

Originators of private financial assets continuously seek to efficiently sell these assets in order to rationalize their balance sheets and consummate financings. Purchasers of assets, such as insurance companies and pension funds, have a constant and increasing need to acquire such assets, but are constrained in their ability to allocate an increasing percentage of their investments for the purchase of such assets by an illiquid market in assets and an inability to easily assemble and maintain a diversified portfolio. The present invention will provide originators a structure for efficiently selling their assets and provide purchasers of assets with a structure for efficiently investing in and trading interests in diversified portfolios of assets.

SUMMARY OF THE INVENTION

Disclosed is a method and system whereby private financial assets are grouped into various portfolios according to portfolio-specific investment strategies. The sale of interests in a portfolio to investors is facilitated by dividing the portfolio into saleable units, whereby each unit represents a share of the value of the assets in the portfolio. When an asset in a portfolio matures and converts into cash, the money is used to replenish the portfolio with an asset that meets the portfolio-specific investment strategy or may be distributed pro rata to the owners of the units. The sale of assets is facilitated by collecting both originator and investor commitments and matching interested investors and willing originators. In another embodiment, a market for the sale of the units is created by facilitating the exchange of information between prospective sellers and prospective purchasers of the units. This facilitation may be the posting of the terms for the respective sale and purchase of units and consummating a unit sale-purchase transaction when sellers and purchasers agree on their terms; providing easy access to tools for analysis and management of the portfolios; and issuing additional units if and when the total value of the portfolio is increased through the addition of an asset that meets the portfolio-specific investment strategy. In another embodiment, the sale of interests in the portfolio takes place on the Internet, where the units are sold on an Internet web site designed to facilitate such sales. A web site marketplace can be created where the owners of units can communicate the price at which they would be willing sell their units directly to buyers and can consummate such buy-sell transactions. On the web site asset originators and investors have access to tools for portfolio analysis and management. Additional units are issued if and when the total value of the portfolio is increased through the addition of an asset that meets the portfolio-specific investment strategy.

Disclosed also is a method and system whereby private financial assets are grouped into a portfolio according to a portfolio-specific investment strategy; the sale of interests in the portfolio to investors is facilitated by dividing the portfolio into saleable units, whereby each unit represents a share of the value of the assets in the portfolio; a market for the secondary sale of the units is created, wherein prospective sellers and prospective purchasers can exchange information concerning the terms for their respective sale and purchase of units and consummate a unit sale-purchase transaction when they agree on their terms; and, when an asset in the portfolio matures and converts into cash, the money is used to replenish the portfolio with an asset that meets the portfolio-specific investment strategy or may be distributed pro rata to the owners of the units. This method or system may also include the facilitation of the sale of assets by collecting both originator and investor commitments and then matching interested investors and willing originators. Or, this method or system may also include providing easy access to tools for analysis and management of the portfolios; and issuing additional units if and when the total value of the portfolio is increased through the addition of an asset that meets the portfolio- specific investment strategy. In an alternative embodiment, the sale of interests in the portfolio may take place on the Internet and the sale of assets may be facilitated by collecting both originator and investor commitments and then matching interested investors and willing originators.

Also disclosed is a method and system wherein a trust is created that issues unitized ownership interests in itself and uses those proceeds to purchase financial assets from originators; and a holding company is formed to facilitate the sale of the unitized interests on behalf of the trust, whereby the holding company is the majority shareholder of: (a) a broker- dealer, which facilitates the acquisition of the assets on behalf of the trust from originators and the trading of the unitized interests to and among investors; and (b) a management company, which undertakes an auditing and compliance role in the ongoing management of the assets on behalf of the trust. In an alternate embodiment, the holding company is also the majority shareholder of a foreign company that would be an intermediary through which foreign investors would invest in the unitized interests. In another embodiment, a bankruptcy remote limited liability company is formed, the sole member of which being the trust.

DESCRIPTION OF THE DRAWINGS

In the drawings, which illustrate in a non-limiting fashion the best mode presently contemplated for carrying out the invention:

Fig. 1 is a diagram showing the primary and secondary unitized markets according to the present invention;

Fig. 2 is a diagram showing the features in an alternative embodiment of the present invention; and

Fig. 3 is a diagram showing the screening, management, unit creation and trading functions of another embodiment according to the present invention.

DESCRIPTION

The method and system for investors 2 to acquire and/or trade liquid undivided interests in diversified portfolios of private financial assets 3, such as bank loans, financings pursuant to Securities and Exchange Commission ("SEC") rule 144A, private placements of debt and private equity, originated by originators 1, such as commercial and investment banks, is shown in FIG 1.

Units

As shown in FIG. 1, portfolios of assets 4 that meet specific investment policies are divided into "units" (or "unit entitlements") 6 for sale to investors 2. The assets 3 (and the related series of units 6) may be differentiated by credit quality, industry and geography. A unitized portfolio 4 may be established to acquire investment-grade senior obligations of various U.S: based energy companies or similar obligations of U.S. or offshore-based telecommunications companies or technology companies, while another portfolio 4 may contain similar obligations of a diversified group of industries. As will be evident to those skilled in the art, any number of portfolios may be created depending upon the investment goals of investors 2 and the availability of assets 3 from originators 1. Individual or groups of originators 1 can be linked or matched with individual or groups of investors 2 who may purchase and trade units 6 with other investors 2.

The investment performance of the units is dependent upon the performance of the underlying assets 3 of the unitized portfolio 4, and investors 2 have recourse to these assets 3. In one embodiment, there are multiple portfolios 4 and accompanying series of units 6. The claims of holders of units 6 of any one series will be enforceable only against the assets 3 underlying that series, and not against assets 3 in another series.

Also, as shown in FIG. 2 and discussed below, the assets 3 may be acquired and aggregated, and units 6 may be issued by a business trust 35, whereby each unit represents an undivided ownership interest in one of a series of beneficial interests in the trust 35.

Originators

The purchase of assets 3 from originators 1 begins with investors 2 executing an investor agreement in which the investors 2 will commit to purchase over a predetermined time period a specified amount of units 6 in specified series. After a predetermined aggregate volume of commitments from investors 2 is received, originators 1 will be notified of the purchase commitments and the investors' 2 intent to acquire assets 3. The originators 1 and the investors 2 need not be matched in a 1 : 1 ratio and, in one embodiment, the investors 2 may remain anonymous to the originators 1.

In one embodiment, as in FIG. 2, a broker-dealer 30 will collect the investor 2 commitments and notify the originators 1 of its intent to acquire, on behalf of the investors 2 series of units of the trust 35, the amount of specified assets 3 substantially equal to the available purchase commitment of the investors 2. After originators 1 either respond to a notice from the broker-dealer 30 or independently notify the broker-dealer 30 of assets 3 for sale, the broker- dealer 30 will screen 14 the assets 3 offered for sale, as seen in FIG. 3, to evaluate whether they satisfy its diligence criteria. Such diligence criteria may include those typical in the industry, including: (a) an asset selection, portfolio management and exchange model based on fundamental credit and cash flow techniques, (b) algorithmic techniques and/or (c) matrix pricing algorithms similar to those used in the public bonds market.

After assets 3 are determined to satisfy the relevant diligence criteria, the broker- dealer 30 will notify the respective originators 1 that it will purchase, on behalf of and with respect to a specific series of the trust 35, those assets 3 and notify the respective investors 2 that such assets 3 will be purchased by the trust 35 and the portion of such investor's 2 commitment to be funded. When investors 2 or foreign investors 32 fund their commitments to purchase units - either to a clearing broker 11 directly or a foreign registrar 33 in the case of investments by foreign investors 32 - the trust 35 will concurrently purchase the applicable assets 3 from originators 1 and distribute units 6 in the respective series of the trust 35 to such investors 2 or foreign investors 32 - either directly or, in the case of foreign investors 32, through shares 39 of a foreign company 31. Such ownership by investors 2 of units 6 in the trust 35 will be reflected on the books of the clearing broker 11, or, in the case of foreign investors 32, on the books of the registrar 33.

In one embodiment the method and system utilize the Internet, as shown in FIG. 3, where the broker-dealer 30 may also update a website 8 to reflect that such units 6 have been distributed.

Investors

For a potential investor 2 or foreign investor 32 to participate, it may be required to be (i) a "Qualified Purchaser" under the Investment Company Act of 1940, as amended (the "Investment Company Act"), (ii) an "accredited investor" under the Securities Act of 1933, as amended (the "Securities Act"), (iii) a "Qualified Institutional Buyer" under Rule 144A and, in one embodiment, (iv) pass any higher test of its adequacy to participate in the exchange of units 6. The potential investor 2 may be required to sign agreements to confirm these requirements. In an Internet-based embodiment, such as in FIG. 3, once it has been determined that a potential investor 2 has met such thresholds, it will be issued a password to the website 8 and thereafter the investor 2 can either subscribe for issuances of units 6 in specified series on a forward commitment basis, discussed below, or simply obtain the right to trade units 6 with other investors 2 on the website 8.

The actual purchase of units 6 from a trust 35 by investors 2 may occur concurrently with the purchase of the respective assets 3 from originators 1. In this embodiment, the broker-dealer 30 in effect runs a matched book without any independent liability with respect to the purchase of assets 3. After the broker-dealer 30 has been able to identify and screen 14 the assets 3 to be purchased, an investor 2 will be obligated to fund all or the respective portion of its commitment. The clearing broker 11 will then transfer the purchase price by such investor 2 to the originator 1 and in return credit the account of the investor 2 with ownership interests in the units 6 purchased.

Secondary Trading in Units

With respect to the secondary market in units by pre-qualified investors, the prospective seller or purchaser will make known the terms and conditions by which it offers to sell or buy specified units. The prospective seller or purchaser of units 6 can post such terms at any time on the website 8. The seller/purchaser can indicate whether its interest is firm or merely an indication of interest subject to a firm quote at the time of trade. Each asset portfolio 4 may be updated daily with analytic tools 22 to assist investors 2 in valuing units 6, which may be provided by third-party analytical providers 25 or third-party market data providers 26.

After the two investors 2 acknowledge their agreement of a trade of units 6, which may be done on the website 8, the trade will automatically be reported to the broker-dealer 30, which will monitor its terms for regulatory compliance. After the broker-dealer 30 has approved the transaction, it will notify the investors 2 and the clearing broker 11 and instruct the purchaser to wire transfer the purchase price to the clearing broker 11. Only after the purchase price has been received, the clearing broker 11 will amend its record-keeping entries to debit the account of the seller and credit the account of the purchaser with the appropriate units 6, notify the investors 2 and the broker-dealer 30 of the completion of the transaction and wire the proceeds of such sale to the seller's account. The broker-dealer 30 will then post the terms of such transaction on the website 8.

Leveraged Units

In one embodiment, as shown in FIG. 2, investors 2 will also be able to acquire units 6 that are leveraged, which represent interests in leveraged series where the underlying assets 3 were acquired on a leveraged basis. To accomplish this, the trust 35 may establish one or more bankruptcy remote limited liability companies 36 (each an "LLC") (with the trust 35 in each case as the sole or majority member) to acquire assets 3 from originators 1. For each LLC 36, the trust 35 will establish a separate leveraged series which will have the exclusive rights to the economic benefits of such LLC 36. The funds for each such acquisition of assets 3 by an LLC 36 will come in part from the proceeds of sales of units 6 that are leveraged (which will track the respective leveraged series) to investors 2 and in part from the proceeds of borrowings from commercial banks or in the capital markets 37.

Corporate Structure

In one embodiment, the trust 35 may from time to time form one or more subsidiaries to perform the functions of any of the embodiments of this invention. The trust 35 may be the sole or majority shareholder of the broker-dealer 30, a management company 29, as discussed below, and the foreign company 31. The trust 35 would be the issuer of the units 6 in each series, and the legal owner of assets 3 in each portfolio (other than assets 3 in a leveraged series, which will be owned by the respective LLC 36), and the sole or majority member of each LLC 36.

The principal responsibilities of the broker-dealer 30 may include (a) the qualification of potential investors 2 as approved investors 2, (b) the identification, screening and acquisition of assets 3 from originators 1, (c) the establishment of criteria for each portfolio 4, (d) monitoring the placement with investors 2, (e) the receipt on behalf of investors 2 of payments in respect of assets 3 and, as applicable, either the reinvestment of such payments or their transfer to the clearing broker 11 for distribution to investors 2, and/or (f) the provision, either directly or through contractual arrangements with the management company 29 or other third parties, of analytic tools 22 to enable investors 2 to continually monitor the performance of their investments. Other responsibilities of the broker-dealer 30 may include the monitoring of sales of units 6 by the trust 35 and among investors 2 to the extent needed to ensure compliance with applicable law. In an Internet-related embodiment, the broker-dealer 30 may own and/or maintain the restricted-access listing and trading website 8 for units 6 and some of these functions may be done automatically on the Internet.

A management company 29 may be formed to, inter alia, undertake an auditing and compliance role involving the ongoing management of the assets 3 owned by the trust 35 (or, in the case of portfolios that are leveraged, by the respective LLC 36). It will review the assets 3 in each series of units 6 against the investment policy of that series as set by the broker- dealer 30 and from time to time, as necessary, will instruct the broker-dealer 30 to liquidate any asset 3 which does not satisfy its respective portfolio policy. In addition, on behalf of the trust 35 (or the respective LLC 36, as applicable) as owner of an asset 3, it will vote on matters which require action by the owners of such asset 3 (e.g. waivers or amendments) and will monitor all payments received in respect of such asset 3. For an Internet-related embodiment, it may also be responsible for keeping the website 8 current as to the net asset value of each portfolio of assets 3, as well as other appropriate information as to each such portfolio (e.g. the amount of accrued interest, capital gains and uninvested assets in such portfolio). It may also monitor the aggregate investment of each investor 2 and provide applicable tax statements to investors 2 about their units 6.

A foreign company 31 may be the intermediary through which foreign investors

32 invest in units 6. For example, as explained in further detail below, it could be a Bermuda corporation with the trust 35 as the sole voting shareholder.

The Web Portal

In one embodiment, as in FIG. 3, a web site 8 is a portal to the system and includes one or more of the following functions: the screening and purchasing 9 of assets, portfolio management 10, the distributing of units 13, and the trading of units 12. The screening and purchasing function 9 would offer access to an integrated document management and control system 20 that includes key documents and/or regular updates and research reports for each of the assets 3 included in a particular series. The portfolio management function 10 would offer a web-based analytic platform accessible to originators 1 and investors 2 that provides a set of tools that enables portfolio analysis 23 and management 19.

Forward Purchase Commitments

In one embodiment, an investor 2 makes a commitment to purchase a certain dollar amount of units 6 of a specified series. This commitment may be irrevocable for a certain period of time. The investor 2 will be obligated to fund the purchase price for such units 6 upon notification by the broker-dealer 30 that the appropriate amount and type of assets 3 are to be purchased from originators 1. In this case, the investor agreement will contain representations between the trust 35 and the investor 2 as of the date of the investor agreement (which will be reconfirmed on each date units 6 are purchased by the investor 2) and a description of the mechanics for the purchase of units 6.

Original Issuances of Units to U.S. Investors

Once the broker-dealer 30 has been able to locate and screen 14 assets 3 which meet the investment policies of the portfolio 4 in which a U.S. investor 2 has agreed to invest, the broker-dealer 30 will provide each respective investor 2 notice of the proposed issuance date of the appropriate units 6. On the proposed issuance date, the broker-dealer 30 will instruct each such investor 2 to make available to the clearing broker 11 funds corresponding to the purchase price for its units 6 (by, e.g., wire transfer). The clearing broker 11 will then forward the proceeds of such sale of units 6 to the account of the respective originator 1, the broker-dealer 30 will acquire 15 the assets 3 from the originator 1 on behalf of the respective series of the trust 35, and the trust 35 will simultaneously issue a global unit 38, discussed below, to the clearing broker 11, for the ratable account of each investor 2, in accordance with the process described below. The broker-dealer 30 may also post on the website 8 that such units 6 have been issued.

Each series of units 6 will be represented by a non-voting global unit 38 in physical or registered form issued by the trust 35 and deposited with the clearing broker 11, as the registered owner of such global unit 38. When a U.S. investor 2 purchases units of a particular series upon original issuance from the trust 35 and the purchase price for the units 6 has been received by the clearing broker 11 as described above, the broker-dealer 30 will instruct the clearing broker 11 to credit to the account of the investor 2 a unit entitlement 6 representing the investor's 2 ownership interest in the respective series. Unit entitlements 6 will be credited in electronic form, and the clearing broker 11 will maintain an electronic book-entry record- keeping system that reflects on a current basis all credits and debits of unit entitlements 6 to or from the accounts of U.S. investors 2. Like global units 38, unit entitlements 6 will not carry voting rights. The broker-dealer 30, as agent for the trust 35, will have access to the records of the clearing broker 11 at all times, in order to be able to monitor ownership of the unit entitlements 6 for regulatory compliance.

Original Issuances of Units to Foreign Investors

For foreign investors 32, a foreign corporation 31 may be interposed between such foreign investors 32 and the clearing broker 11, such that the foreign corporation 31, and not the foreign investor 32, will be the registered owner of unit entitlements 6 in the records of the clearing broker 11. For example, the foreign corporation 31 may be a wholly-owned Bermuda subsidiary of the trust 35, whose capital structure will consist of voting common stock, all of which will be owned by the trust 35, and several series of non-voting preferred stock 39, all of which will be owned by the foreign investors 32, either directly or, as described in more detail below, indirectly through a foreign registrar 33. Each series of preferred stock 39 will represent interests in a specific global unit 38, and each share of the preferred stock 39 within such series will correspond, preferably on a one-for-one basis, to a unit entitlement 6. Like unit entitlements 6, the preferred stock 39 may be issued in registered, not physical, form.

When a foreign investor 32 desires to purchase interests in a series of units 6, it would be subject to the similar procedures and requirements as a U.S. investor 2 would. Once the appropriate assets 3 are available to be purchased, the foreign investor 32 would make the purchase price for the respective units 6 available to the foreign corporation 31, which purchase price would then be transferred to the clearing broker 11. The clearing broker 11 would then forward such purchase price (together with the proceeds of related sales) to the originator 1. The foreign corporation 31 would simultaneously issue to the foreign investor 32 a number of shares of the series of the preferred stock 39, which track the unit entitlements 6 and the clearing broker 11 would credit the respective account of the foreign corporation 31 as the beneficial owner of such unit entitlements 6. The foreign corporation 31 may utilize the services of a foreign registrar 33 which will maintain an electronic book-entry record-keeping system that reflects, preferably on a current basis, all credits and debits of shares of the preferred stock 39 to or from the accounts of foreign investors 32. In this embodiment, the foreign investors' 32 interest in the shares of the preferred stock 39 may be share entitlements 40. Also in this embodiment, the broker-dealer 30 would have access to the records of the transfer agent 33 at all times, in order to be able to monitor ownership of the preferred stock 39 for regulatory compliance. The broker-dealer 30 would also have continuous linkage to the transfer agent 33 and the clearing broker 11, such that the broker-dealer 30 would be able to effect trades in ownership interests in units 6 among U.S. investors 2 and foreign investors 32 at all times.

Leveraged Series

In an alternative embodiment including leveraged series, the broker-dealer 30 may establish, on behalf of the trust 35, a bankruptcy remote LLC 36 as a subsidiary of the trust 35, with the trust 35 being the sole or majority member of each LLC 36. The broker-dealer 30, on behalf of each LLC 36, may enter into a fixed-term non-amortizing credit facility with the respective credit providers 37, pursuant to which such credit providers 37 will commit to provide up to a certain percentage of the value of the assets 3 to be acquired by the respective LLC 36. When the broker-dealer 30 identifies the appropriate assets 3 available from originators 1, those assets 3 will then be acquired by the respective LLC 36 with the before-mentioned percentage of the purchase price being provided by the respective credit providers 37 and the rest being provided from the proceeds of sale of the respective units 6 that are leveraged. In one embodiment, the respective credit providers 37 may receive a first priority security interest in the assets 3 of the respective LLC 36, but have no recourse against the trust 35, any of its other assets 3 or any investor 2.

Distributions to holders of units 6 that are leveraged may be made periodically from monies in the respective LLC 36 received on account of the assets 3 therein during the prior quarter less a reserve for interest, fees and other amounts to be due during the upcoming month under the respective credit facility. The broker-dealer 30 may renew or refinance each credit facility upon its maturity. In the event the broker-dealer 30 is not able to renew or refinance a credit facility upon the maturity thereof, the broker-dealer 30 would be required to liquidate sufficient assets 3 in the respective LLC 36 to repay such credit facility when due. The leveraged financing contemplated herein could be effected through one or more capital market vehicles or transactions, such as the issuance of bonds by the LLC, in lieu of the credit facility described above.

Payments Received in Respect of Underlying Assets

As the owner of the assets 3, the trust 35 (or an LLC 36, as the case may be) may regularly receive payments from the underlying obligors in respect of such assets 3. These payments may be made directly to the broker-dealer 30, on behalf of the trust 35 (or the LLC 36) and may either be the regular interest payments or loan (or similar) fees paid by the underlying obligors or may be proceeds realized when an asset 3 matures according to its terms, is prepaid in whole or in part by the obligor, or is sold. In one embodiment, each investor 2 will maintain a bank account at the clearing broker 11 for the administration of payments to and from such investor 2 as well as to hold monies of such investor 2 pending their distribution to such investor 2 or acquisition of units 6 by such investor 2.

Distribution of Interest or Fees to Investors

In one embodiment, for each series of units 6, the management company will create and post two accounts on the website 8. The first account will track the current net asset value of such series. The second account will track all interest payments and loan (or similar) fees in respect of the assets 3 related to such series received by the broker-dealer 30. Interest payments or loan (or similar) fees on the assets 3 in respect of each series will be paid to investors 2 monthly on a designated distribution date each month in respect of such interest received during a one-month period that ends on a designated record date (such as the fifth business day before the end of each month). Pending their distribution to investors 2 as described below, interest payments or loan (or similar) fees on the assets 3 in such series received by the broker-dealer 30 may be invested in any of a variety of investment securities, such as short-term investment grade securities, commercial paper, interest-rate swaps, and high- yield notes.

The aggregate amount in each interest account, including proceeds from investing in investment securities may be updated daily by the management company and, in an Internet- related embodiment, posted on the website 8. In this way, investors 2 will be able to track the amounts in the net asset value account and the interest account for each series. On the record date, the aggregate amount in the interest account will be distributed ratably to the respective accounts of the investors 2 in such series at the clearing broker 11 and the net asset value of such series will be reduced by such amount. Such amounts in the interest account will be invested in investment securities and will be distributed, together with the earnings thereon, to such investors 2 on the distribution date. As different types of assets 3, such as equity interests, are held in series of the trust 35, distributions in respect of such assets 3 would be handled similarly as described herein.

Reinvestment of Asset Proceeds

The trust 35 may receive payments (other than interest and fees) with respect to the assets 3 (a) if an asset 3 matures according to its terms; (b) if an asset 3 is prepaid either in part or in full; or (c) if, in one embodiment, the management company 29 instructs the broker- dealer 30 to sell an asset 3, either because the asset 3 is no longer performing in accordance with the policies of its portfolio or because the asset 3 has appreciated in value and the trust 35 can realize a gain in the sale of such asset 3.

In one embodiment, proceeds of these payments in respect of assets 3 (including the sale of such asset 3) will not be distributed to the respective investors 2, but instead will be applied by the broker-dealer 30 to acquire additional assets 3 for the respective series, except in the case of capital gains on the sale of assets 3 to the extent described below. Pending the acquisition of such assets 3 for a series, the broker-dealer 30 would invest such proceeds in investment securities for the account of such series. Daily, the net asset 3 value account of such series would reflect the amount of the assets 3 therein which constitute cash or investment securities - that is, uninvested assets.

If, for any designated period (such as 12 months), the average daily percentage of uninvested assets 3 for a series is greater than a certain percentage of the average daily net asset value of such series during such period (such as 30%), the broker-dealer 30 may so notify all holders of units 6 in that series before the end of the designated period (such as 30 days prior) and any such holders would have time between the notice and the end of the designated period (such as 15 days from the date of such notice) to notify the broker-dealer 30 that it has irrevocably elected to have the broker-dealer 30 distribute its pro rata share of the uninvested assets as of the date after the broker-dealer 30 receives such notice. The broker-dealer 30 would as soon as practicable thereafter distribute to such investor 2 such uninvested assets.

In one embodiment, in the event that the sale of an asset 3 in a series results in a capital gain, the ratable portion of such gain attributable to each holder of units 6 of that series will be transferred to the account of such investor 2 at the clearing broker 11 on the date such gain is realized. Such amount, together with the investment earnings thereon, would be ratably distributed on the succeeding distribution date to the respective investors 2 who held units 6 in such series on the date of sale of such asset 3. However, an investor 2 could elect in its investor agreement that its ratable portion of capital gains for a specific series be reinvested in units 6 of such series to the extent at the time of any such gain it has an unfunded commitment to acquire additional units 6 in that series. If an investor 2 makes this election and such investor's 2 commitment for units 6 in such series has not yet been fully funded, then the broker-dealer 30 would transfer such investor's 2 portion of such capital gain to such investor's 2 account at the clearing broker 11 to be invested in investment securities pending its application to acquire additional units 6. Upon such acquisition of additional units 6, such investor's 2 forward purchase commitment for units 6 of such series would be accordingly reduced and its account at the clearing broker 11 would reflect the additional unit entitlements 6.

Redemption of Units

The trust 35 may provide for redemption of units 6 in one or more of the following circumstances.

First, in the event that there is a change in U.S. tax laws such that the trust 35 is no longer treated as a trust 35 and is instead taxed as a corporation, all issued and outstanding units 6 of all series will be redeemed by the trust 35. The redemption process will entail the broker-dealer 30 liquidating as soon as practicable all of the assets 3 of each portfolio on behalf of the trust 35 and distributing the proceeds, after deducting any unpaid fees, pro rata to the investors 2 of such corresponding series.

Second, if for any designated period (such as 24 months), the average daily number of investors 2 authorized to trade units 6 is less than a predetermined number or if for any such period, the average number of units 6 traded is less than a predetermined number, then the broker-dealer 30 would notify at the end of such period all investors 2 then holding units 6 and any such investor 2 can elect to have all or a portion of its units 6 redeemed by providing the broker-dealer 30 with notice of such election, which may be irrevocable, within a predetermined period of time (such as 30 days) of such notice being posted on the website 8. Upon such notification by such investor 2, such investor 2 would no longer be able to trade its units 6 designated for redemption. The broker-dealer 30, on behalf of the trust 35, would then have a predetermined period of time (such as 3 or 6 months) to redeem such units 6 at the net asset value of such units 6 on the date of redemption. The trust 35 would obtain the funds for such redemption from uninvested assets of the respective series or by liquidating assets 3 in such series.

Third, from time to time the schedule of fees charged by each trust-related entity could be reviewed for a possible increase or decrease, including a review of such fees as compared to market practice. In the event that it is determined that the management fees for a series should be increased by greater than a predetermined percentage, a notice to all affected investors 2 of such proposed fee increase would be posted on the website 8 prior to its effectiveness. Any such investor 2 could elect to have all or a portion of its units 6 in the respective series redeemed before the effective date of increase of such fee by providing the broker-dealer 30 with notice of such election, which may be irrevocable. Upon such notification by such investor 2, such investor 2 would no longer be able to trade its units 6 designated for redemption. The broker-dealer 30, on behalf of the trust 35, would then have a limited period of time (such as 60 days) to redeem such units 6 at the net asset value of such units 6 on the date of redemption. The trust 35 would obtain the funds for such redemption from uninvested assets of the respective series or by liquidating assets 3 in such series.

Fourth, in the event that any of the other redemption provisions above are proposed to be amended, the broker-dealer 30 could notify on the website 8 all affected investors 2 (such as not less than 90 days prior to the effectiveness of such amendment). Any such investor 2 could then elect to have its units 6 redeemed before the effective date of such amendment by providing the broker-dealer 30 with irrevocable notice of such election (such as within 30 days of such notice being posted on the website 8). Upon such notification, such investor 2 would no longer be able to trade its units 6. The broker-dealer 30, on behalf of the trust 35, would then have a limited time (such as 60 days) to redeem such units 6 at the net asset value of such units 6 on the date of redemption. The trust 35 would obtain the funds for such redemption from uninvested assets of the respective series or by liquidating assets 3 in such series. This redemption provision could be amended at any time during the existence of the trust 35.

Secondary Trading in Units

In one embodiment, the secondary trading in units 6 will take the following format. The prospective seller or purchaser of units 6 would post its interest and the terms and conditions of the sale/purchase at any time on the website 8. The seller/purchaser would indicate whether its interest is firm or merely an indication of interest subject to a firm quote at the time of trade. Each asset 3 portfolio would be updated daily with the analytic tools 22 to assist investors 2 in evaluating the units 6 offered. When the two parties have agreed on the trade, they would confirm on the website 8 their respective representations and warranties and the transfer would be reported to the broker-dealer 30, which would monitor its terms only to ensure that the completion of the transaction is compliant with all applicable laws. Once the broker-dealer 30 has approved the transaction, it would notify the investors 2 and the clearing broker 11 and instruct the purchaser to transfer the purchase price to the clearing broker 11. After the purchase price has been received, the clearing broker 11 would amend its record-keeping entries to debit the account of the seller and credit the account of the purchaser and notify the investors 2 and the broker-dealer 30 of the completion of the transaction. In an Internet-related embodiment, the broker-dealer 30 could then post the terms of such transaction on the website 8.

Secondary trading with foreign investors 32 would occur in the manner described above, except that the foreign corporation 31 would purchase or sell the unit entitlements 6 on behalf of the foreign investor 32 and the foreign investor 32 would be issued or would surrender its preferred stock 39 (or, in an alternate embodiment, share entitlements 40) that corresponds to the relevant unit entitlements 6.

The Website

The website 8 may include, but not exclusively, some or all of the following functions: The website 8 may have a publicly accessible home page. This page may provide personalization and categorization capabilities. It may also provide visitors with the capability to register for pre-qualification and the capability to contact staff. Also, the website 8 may have a login page. This page would enable qualified investors 2 and originators 1 (in possession of valid login ID and password) to login to the website 8 and access non-public information. Also, the website 8 may have some or all of the following functions: view account holdings of units 6; view trade history; submit orders for purchase of additional units 6; participate in the unit 6 trading; review product and market news; analyze key performance metrics; analytical interfaces 23 for valuating assets; view information on individual assets 3, including historical (real) prices; upload real and/or hypothetical unit holdings and organize them into portfolios; value real and hypothetical unit portfolios using available analytical tools 22 and compare them to other units 6; send messages to staff via e-mail or chat online; and/or view trust 35 corporate documents.

Also, the website 8 may enable originators 1 to submit assets 3 for screening 14. Also, the website 8 may allow the viewing of information related to unit 6 holdings as a whole (such as documentation 20) and perform manual mark-to-market functions (such as through analytical interfaces 23). Also, the website 8 may allow the review of assets 3 submitted for screening 14 by originators 1. Also, the website 8 may allow the designation of assets 3 as accepted, rejected or requiring further review. Also, the website 8 may allow for seamless integration between the site administrators, and back office, custody and accounting systems.

Although the invention has been described in detail for the purposes of illustration, it is to be understood that such detail is solely for that purpose and that variations can be made therein by those skilled in the art without departing from the spirit and scope of the present invention.

Claims

1. A method comprising the steps of:

grouping private financial assets into a portfolio according to a portfolio-specific investment strategy;

facilitating the sale of interests in the portfolio to investors by dividing the portfolio into saleable units, whereby each unit represents a share of the value of the assets in the portfolio; and

when an asset in the portfolio matures and converts into cash, either using the money to replenish the portfolio with an asset that meets the portfolio-specific investment strategy or distributing the cash pro rata to the owners of the units.

2. The method of claim 1, further comprising the step of facilitating the sale of assets by collecting both originator and investor commitments and matching interested investors and willing originators.

3. The method of claim 1, further comprising the step of creating a market for the sale of the units, by facilitating the exchange of information between prospective sellers and prospective purchasers of the units.

4. The method of claim 3, wherein the facilitation comprises posting the terms for the respective sal and purchase of units and consummating a unit sale-purchase transaction when sellers and purchasers agree on their terms; providing easy access to tools for analysis and management of the portfolios; and issuing additional units if and when the total value of the portfolio is increased through the addition of an asset that meets the portfolio-specific investment strategy.

5. The method of claim 3, wherein the sale of interests in the portfolio takes place on the Internet and the method further comprising the steps of selling the units on an Internet web site designed to facilitate such sales; creating on the web site marketplace whereby owners of units can communicate the price at which they would be willing sell their units directly to buyers and can consummate such buy-sell transactions; on the web site, providing asset originators and investors access to tools for portfolio analysis and management; and issuing additional units if and when th total value of the portfolio is increased through the addition of an asset that meets the portfolio- specific investment strategy.

6. A method comprising the steps of:

facilitating the sale of interests in the portfolio to investors by dividing the portfolio into saleable units, whereby each unit represents a share of the value of the assets in the portfolio;

creating a market for the secondary sale of the units, wherein prospective sellers and prospective purchasers can exchange information concerning the terms for their respective sale and purchase of units and consummate a unit sale-purchase transaction when they agree on their terms; and

7. The method of claim 6, further comprising the step of facilitating the sale of assets by collecting both originator and investor commitments and then matching interested investors and willing originators.

8. The method of claim 6, further comprising the steps of providing easy access to tools for analysis and management of the portfolios; and issuing additional units if and when the total value of the portfolio is increased through the addition of an asset that meets the portfolio-specific investment strategy.

9. The method of claim 6, wherein the sale of interests in the portfolio takes place on the Internet and further comprising facilitating the sale of assets by collecting both originator and investor commitments and then matching interested investors and willing originators.

10. A method comprising the steps of:

forming a trust that issues unitized ownership interests in the trust and uses those proceeds to purchase financial assets from originators; and

forming a holding company to facilitate the sale of the unitized interests on behalf of the trust, whereby the holding company is the majority shareholder of:

a broker-dealer, which facilitates the acquisition of the assets on behalf of the trust from originators and the trading of the unitized interests to and among investors; and

a management company, which undertakes an auditing and compliance role in the ongoin management of the assets on behalf of the trust.

11. The method of claim 10, wherein the holding company is also the majority shareholder of a foreign company that would be the intermediary through which foreign investors would invest in the unitized interests.

12. The method of claim 10, further comprising forming a bankruptcy remote limited liability company, the sole member of which being the trust.

13. A system comprising:

a means for grouping private financial assets into a portfolio according to a portfolio-specific investment strategy;

a means facilitating the sale of interests in the portfolio to investors by dividing the portfolio into saleable units, whereby each unit represents a share of the value of the assets in the portfolio; and

a means for, when an asset in the portfolio matures and converts into cash, either using the mone} to replenish the portfolio with an asset that meets the portfolio-specific investment strategy or distributing the cash pro rata to the owners of the units.

14. The system of claim 13, further comprising a means for facilitating the sale of assets by collectinj both originator and investor commitments and matching interested investors and willing originators.

15. The system of claim 13, further comprising a means for creating a market for the sale of the units by facilitating the exchange of information between prospective sellers and prospective purchasers of the units.

16. The system of claim 15, wherein the facility comprises a means for posting the terms for the respective sale and purchase of units and consummating a unit sale-purchase transaction when sellers and purchasers agree on their terms; a means for providing easy access to tools for analysi and management of the portfolios; and a means for issuing additional units if and when the total value of the portfolio is increased through the addition of an asset that meets the portfolio-specifii investment strategy.

17. The system of claim 15, wherein the sale of interests in the portfolio takes place on the Internet and the further comprising a means for selling the units on an Internet web site designed to facilitate such sales; a means for creating on the web site a marketplace whereby owners of units can communicate the price at which they would be willing sell their units directly to buyers and can consummate such buy-sell transactions; on the web site, a means for providing asset originators and investors access to tools for portfolio analysis and management; and a means for issuing additional units if and when the total value of the portfolio is increased through the addition of an asset that meets the portfolio-specific investment strategy.

18. A system comprising:

a means for facilitating the sale of interests in the portfolio to investors by dividing the portfolio into saleable units, whereby each unit represents a share of the value of the assets in the portfolio; a means for creating a market for the secondary sale of the units, wherein prospective sellers and prospective purchasers can exchange information concerning the terms for their respective sale and purchase of units and consummate a unit sale-purchase transaction when they agree on their terms; and

a means for, when an asset in the portfolio matures and converts into cash, either using the monej to replenish the portfolio with an asset that meets the portfolio-specific investment strategy or distributing the cash pro rata to the owners of the units.

19. The system of claim 18, further comprising a means for facilitating the sale of assets by collecting both originator and investor commitments and then matching interested investors and willing originators.

20. The system of claim 18, further comprising a means for providing easy access to tools for analysi and management of the portfolios; and a means for issuing additional units if and when the total value of the portfolio is increased through the addition of an asset that meets the portfolio-specific investment strategy.

21. The system of claim 18, wherein the sale of interests in the portfolio takes place on the Internet and further comprising a means for facilitating the sale of assets by collecting both originator and investor commitments and then matching interested investors and willing originators.

22. A system comprising:

a trust that issues unitized ownership interests in the trust and uses those proceeds to purchase financial assets from originators;

a holding company to facilitate the sale of the unitized interests on behalf of the trust, whereby thi holding company is the majority shareholder of:

a broker-dealer, which facilitates the acquisition of the assets on behalf of the trust from originators and the trading of the unitized interests to and among investors; and a management company, which undertakes an auditing and compliance role in the ongoi management of the assets on behalf of the trust.

23. The system of claim 22, wherein the holding company is also the majority shareholder of a foreign company that would be an intermediary through which foreign investors would invest in the unitized interests.

24. The system of claim 22, further comprising a bankruptcy remote limited liability company, the sole member of which being the trust.

25. A method comprising the steps of: forming a trust that issues unitized ownership interests in the trusts and uses those proceeds to purchase private financial assets from originators, and groups the financial assets int a portfolio according to a portfolio-specific investment strategy; forming a holding company to facilitate the sale of the unitized interests to investors on behalf of the trust, each unit representing a share of the value of the assets in the portfolio whereby the holding company is the majority shareholder of: a broker-dealer, which facilitates the acquisition of the assets on behalf of the trust from originators and the trading of the unitized interests to an among investors; and a management company, which undertakes an auditing and compliance role in the ongoin management of the assets on behalf of the trust; creating a market for the secondary sale of the units, wherein prospective sellers and prospective purchasers can exchange information concerning the terms for their respective sale and purchase of units and consummate a unit sale-purchase transaction when they agree on their terms; and when an asset in the portfolio matures and converts into cash, either using the money to replenish the portfolio with an asset that meets the portfolio specific investment strategy or distributing the cash pro rata to the owners of the units.