Jul 1, 2010 12:00 PM

The rigorous process required to fulfill the fiduciary's duty of oversight in the new complex reality

By Pascal Levensohn

Sophisticated trust portfolios often benefit from direct exposure to active and passive investments made in venture capital (VC) and private equity. However, if a trustee isn't a lead sponsor of such investments and can't control the terms of subsequent financings, challenges often arise in determining whether to continue to fund these investments and how to properly assess the economic impact of a pending financing. As a result, it's critical that the fiduciary show the completion of a process of diligent review prior to making such decisions to fulfill a trustee's duty of oversight. Looking forward, ongoing investment participation may also benefit from a trustee's active board representation or, if a trustee isn't a professional experienced in assessing, managing and exiting illiquid investments, delegation of such duties to one who is.

The complex reality of the global financial crisis poses particular problems for professional trustees and other family office fiduciaries that may be responsible for the illiquid private equity investment in a trust. No fiduciary will make the right call all of the time when it comes to deciding whether to continue to support or walk away from a private equity investment. But the absence of process in reaching this decision not only opens up the specter of litigation from angry beneficiaries, it also may lead to inappropriate conclusions based on incomplete data. Trustees will benefit from expert advice that is unburdened by personal relationships and other entanglements that may make arriving at a decision even more difficult than it should be. It's unlikely that we will see a secular rising equity tide lifting all private equity ships anytime soon. As a result, applying rigorous process discipline to illiquid investment evaluation, supported by experts, can optimize future investment outcomes during these challenging times.

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Estate Tax	Donor Advised Funds
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Private Foundations	Life Insurance
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Topics of Interest

Estate Tax	Donor Advised Funds
GSTs	Family Offices
Private Foundations	Life Insurance
2010 Tax Act News	Industry Trends Surveys

E-Newsletter Signup

2011 Trust Glossary

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50 years ago, in May 1962, we featured articles such as: "Future of Canadian Trusteeship" by Arthur H. Mingay", "Training Trust Employees" by Ian M. Marr, "What is a Trust Officer?" by Eric J. Brown, and "Selling Services" by Donald I. Webb.

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