Diversify without a giant tax bill
Holding on to highly appreciated stocks in your portfolio?
Exchange your stock for a diversified fund without triggering taxes. It's a technique used by the ultra-wealthy, now available for you.
What’s an exchange fund?
A diversified fund created by pooling investors with concentrated stock positions. Investors contribute stocks in specific ratios to mimic an index fund, and each investor receives fund shares in exchange for their stocks. Qualifying assets (e.g. real estate) are held in the fund to maintain an exchange fund status.
A Cache Exchange Fund lets you
Keep more of your money
Keep more of your money
With an exchange fund, you get a tax-deferred diversified portfolio in 7 years. Here's how the timeline compares with other tax-advantaged instruments.
Exchange Funds
7YRS
Charitable Trusts
20yrs
IRA
30 – 40yrs
401K
30 – 40yrs
Contributions and redemptions aren’t taxable events under the current IRS code (IRC 721). The money you would have paid in taxes stays invested and compounds over time.
Keep more of your money
With an exchange fund, you get a tax-deferred diversified portfolio in 7 years. Here's how the timeline compares with other tax-advantaged instruments.
Exchange Funds
7YRS
Charitable Trusts
20yrs
IRA
30 – 40yrs
401K
30 – 40yrs
Minimize your risk
Minimize your risk
Most stocks don’t outperform a broader index over a long time horizon, and just a handful see higher risk-adjusted returns.
NASDAQ-100 vs Individual Stocks, 2002–2022
Diversified portfolios have far lower business risk and perform better across measures like volatility, beta, and drawdown.
Minimize your risk
Most stocks don’t outperform a broader index over a long time horizon, and just a handful see higher risk-adjusted returns.
NASDAQ-100 vs Individual Stocks, 2002–2022
Invest in quality portfolios
Our first exchange fund aims to provide an exposure similar to the NASDAQ-100, an index comprised of flourishing companies across modern industries.
See the difference
Let’s say you want to diversify $300K in stock. Doing it through an exchange fund defers tax liabilities, creating significant growth over time.
40.8%
potential incremental pre-tax gain with an exchange fund.
Keep more of your money
With an exchange fund, you get a tax-deferred diversified portfolio in 7 years. Here's how the timeline compares with other tax-advantaged instruments.
Exchange Funds
7YRS
Charitable Trusts
20yrs
IRA
30 – 40yrs
401K
30 – 40yrs
How does redemption affect my gains?
How redemption works
Exchange fund redemptions is not the same as selling stocks. At redemption, investors receive an optimized basket of stocks that matches their ownership percentage and cost basis. Investors will need to meet the 7-year investment timeframe to receive a diversified portfolio. The distribution is not a taxable event as investors continue to own their stocks.
A redeemed portfolio can continue to grow on a tax-deferred basis, or continue to grow in an exchange fund. Heirs can inherit the diversified portfolio at a stepped-up cost basis.
Simulated results for illustrative purposes only. Assumes a tax status of married filing jointly in CA with a combined annual income of $600,000+. Effective capital gains tax rate: 34.75%. Initial cost basis: $50,000. Expected annual portfolio return: 10%. Investment Term: 7 years. The expected annual portfolio return of 10% is hypothetical, gross of fees, and used to illustrate the benefits of potential tax deferral.
Making exchange funds more accessible
$100k minimum investment
Others: $500K – $1M
All accredited investors
Others: Qualified Purchasers only ($5M+ in Investments)
0.4% – 0.8% fee based on contribution
(wholesale discounts through your financial advisor)
Others: Higher fees + sales fees + performance fees
How it works
Enroll
Tell us about your concentrated stock holdings and cost basis. It only takes a few minutes. We will make sure you are eligible and match you to the right pool.
Contribute
We’ll notify you when there’s a match for a Cache Exchange Fund. Our simple and precise stock transfer experience will help you transfer over the right stocks from your current brokerage.
Exchange
You’ll receive shares that represent your contribution to the fund. Watch your investments compound tax-deferred, and redeem in seven years for a diversified portfolio.
Trusted by leaders in tech
According to SEC filings, executives and board members at major public companies have regularly utilized exchange funds.
Cache makes the powerful, tax-efficient diversification of exchange funds widely accessible and easy to use for anyone with a concentrated stock position. From employees to venture capitalists, everyone can benefit.
Bill Trenchard
PARTNER, FIRST ROUND CAPITAL AND CACHE INVESTOR
Exchange funds have certainly benefited myself and my family by allowing us to diversify our concentrated holdings and reduce risk. Given their long-term investment focus, exchange funds are an excellent shareholder for the company I am pouring my energy into.
Scott Dietzen
FORMEr CEO and CHAIRMAN, PURE STORAGE ($PSTG)
Compare exchange fund providers
Other Exchange Fund Providers
(Large Wall St Investment Banks)
Minimum investment
$100k
$500k – $1M
Eligibility requirements
Accredited Investors
$200k+
income for the last 2 years
OR
$300k+
with spouse
OR
$1M+
net worth excluding primary residence
Qualified Purchasers
$5M+
in investments
Fees
0.4% – 0.8% fee based on contribution
$100K+
0.8%
$250K+
0.65%
$500K+
0.6%
$1M+
0.5%
$5M+
0.4%
Zero sales fee or performance fee.
Available directly through Cache.
Wholesale discounts through your advisor.
1.5% – 2.25% overall annual fee
1.50%+
sales fee
0.85%+
management fee
Available for private wealth clients only
Variable performance fee
Minimum holding period
2 years
3 years
Holding period for tax advantages (required by the tax code)
7 years
What if I want to redeem earlier?
Before two years, you won’t be able to redeem. We institute a two-year lockup to encourage long-term investors to participate. Each pool is carefully weighted to achieve certain investment goals, and redemptions hurt your fellow investors.
After two years but before seven years, redemption requests are satisfied by distributing your original contribution back to you at a rate that is the lower of the contributed stock value at the time of redemption or the value of your fund shares based on the fund’s net asset value. The rest is retained until term commitments are met. Note that early redemptions incur a penalty fee. Please refer to the fund documents for a full set of redemption terms.
After seven years, you can redeem a diversified portfolio on a tax-deferred basis.
What if I want to redeem earlier?
What if I want to redeem earlier?
Before two years, you won’t be able to redeem. We institute a two-year lockup to encourage long-term investors to participate. Each pool is carefully weighted to achieve certain investment goals, and redemptions hurt your fellow investors.
After two years but before seven years, redemption requests are satisfied by distributing your original contribution back to you at a rate that is the lower of the contributed stock value at the time of redemption or the value of your fund shares based on the fund’s net asset value. The rest is retained until term commitments are met. Note that early redemptions incur a penalty fee. Please refer to the fund documents for a full set of redemption terms.
After seven years, you can redeem a diversified portfolio on a tax-deferred basis.
7 years
Minimum investment
$100k
Eligibility requirements
Accredited Investors
$200k+
income for the last 2 years
OR
$300k+
with spouse
OR
$1M+
net worth excluding primary residence
Fees
0.4% - 0.8% fee based on contribution
Zero sales fee or performance fee.
Available directly through Cache.
Wholesale discounts through your advisor.
Minimum holding period
2 years
Holding period for tax advantages (required by the tax code)
7 years
What if I want to redeem earlier?
Before two years, you won’t be able to redeem. We institute a two-year lockup to encourage long-term investors to participate. Each pool is carefully weighted to achieve certain investment goals, and redemptions hurt your fellow investors.
After two years but before seven years, redemption requests are satisfied by distributing your original contribution back to you at a rate that is the lower of the contributed stock value at the time of redemption or the value of your fund shares based on the fund’s net asset value. The rest is retained until term commitments are met. Note that early redemptions incur a penalty fee. Please refer to the fund documents for a full set of redemption terms.
After seven years, you can redeem a diversified portfolio on a tax-deferred basis.
What if I want to redeem earlier?
What if I want to redeem earlier?
Before two years, you won’t be able to redeem. We institute a two-year lockup to encourage long-term investors to participate. Each pool is carefully weighted to achieve certain investment goals, and redemptions hurt your fellow investors.
After two years but before seven years, redemption requests are satisfied by distributing your original contribution back to you at a rate that is the lower of the contributed stock value at the time of redemption or the value of your fund shares based on the fund’s net asset value. The rest is retained until term commitments are met. Note that early redemptions incur a penalty fee. Please refer to the fund documents for a full set of redemption terms.
After seven years, you can redeem a diversified portfolio on a tax-deferred basis.
Minimum investment
$500k – $1M
Eligibility requirements
Qualified Purchasers
$5M+
in investments
Fees
1.5% – 2.25% overall annual fee
1.50%+
sales fee
0.85%+
management fee
Available for private wealth clients only
Variable performance fee
Minimum holding period
3 years
Holding period for tax advantages (required by the tax code)
7 years
The data for the key terms of other exchange fund providers are sourced from certain large institutional providers of exchange funds which Cache believes to be relevant competitors for its own exchange fund. However, key terms are not meant to be representative of any particular competitor or other provider of exchange funds. Cache makes no representation as to the accuracy of this information nor does Cache create an implication that such data has been updated as of any particular time from when such data was originally sourced.
Learn
Common questions
The basics
How does the Cache exchange fund work?
Eligibility
Is an exchange fund right for me?
BEnefits
Why should I choose Cache?
Getting started
What’s next if I choose to participate?
What's the main benefit of participating in a Cache Exchange Fund?
What are the investment goals of this fund?
Is there a taxable event after seven years? What will I receive, and what are the redemption fees?
What do you mean when you say your fund “approximates the Nasdaq 100”?
What happens when the stock I contribute to the fund goes up or down?
How are dividends and other income treated?
What tax considerations may come up while I’m in the fund? Is there an annual K-1?
Who can participate in the Cache Exchange Fund – and which stocks are accepted?
How is an Exchange Fund different from an ETF?
What if I don’t meet the minimum investment amount?
May I contribute stock for a company I work at? Can I contribute unvested equity?
What happens to my cost basis over the course of the fund?
How does the real estate investment work? What happens to it after seven years?
Do you rebalance the fund quarterly, like the actual Nasdaq 100?
How are investors protected if Cache is no longer viable?
Is the Cache Exchange Fund designed to improve my returns?
How does a Cache Exchange Fund compare to products from other providers?
How does the Exchange Fund help me avoid tax drag?
How does the Exchange Fund reduce my concentration risk?
How does Cache determine and charge fees?
How does the seven-year holding requirement compare to other providers?
Do you offer multiple funds, or is it one fund with different enrollment windows?
How does the reservation and formation process work?
How do you determine who gets an allocation and how big each fund is?
What happens when the fund closes?
Why do you institute a two-year lockup?
How do redemptions work before the seven-year mark? Are there any fees?
How do redemptions work once the fund “matures” after seven years? Are there any fees?
Can I transfer my shares in the fund shares or borrow against them? What are the details?
Common Questions
What's the main benefit of participating in a Cache Exchange Fund?
The main benefit is tax-advantaged diversification. Overexposure to a single company stock means higher risk, more volatility, and statistically less growth.
The probability of any stock outperforming the market is low. In 2022, only 12% of stocks in the Nasdaq-100 index meaningfully outperformed the index, and only 1% outperformed the index by more than 50%.
On a longer timespan, index funds have produced higher risk-adjusted returns than all but a handful of stocks. The average equity investor underperformed the S&P 500 by 4.32% over the 20 year period from 1992–2011. Since 2002, over 80% of Nasdaq-100 stocks underperformed the index over a 5-year period, and 85% underperformed over a 7-year period.
With Cache as your exchange fund provider, you’ll exchange your equity for a diverse set of investments, all without triggering taxes. This tax deferral ensures that the full value of your equity stays invested in the market, compounding over time. Assuming historic stock returns, this could add to a sizable advantage over time.
What are the eligibility requirements for a Collar Advance transaction?
An ETF ("exchange-traded fund") is a fund that can be bought and sold on public exchanges. They typically hold a pool of stocks and/or bonds towards a particular investment objective. You can buy ETFs with your money at most brokerages.
An exchange fund is a tax-efficient private fund owned by investors who exchange their individual stock for shares in the fund. Exchange funds only accept “in-kind” stock contributions, not money. Also, shares in the fund cannot be bought or sold on public exchanges.
The understandable confusion between “exchange fund” and “ETF” is caused by the two very different definitions of “exchange” in their respective names.
We've rethought exchange funds from the ground up, turning a mostly manually-run operation into a highly precise and automated solution accessible to a much larger audience.
What's the regulatory framework under which exchange funds are offered?
Exchange Funds are private placement offerings under Regulation D of the Securities Act. Other well-known Reg D offerings include Venture Capital, Private Equity, and Hedge funds. Like these investments, exchange funds are intended for sophisticated investors who understand the risks and benefits of investing in these vehicles. As such, Reg D funds are limited to Accredited Investors only.
What's the investment objective of the exchange funds? Which stocks do you accept?
We accept high-quality stocks that help us meet our investment criteria built around popular stock indices. In general, the stock has to be listed on a major exchange with a market cap of at least $1B.
We prevent any adverse selection by acting as gatekeepers of quality. Rest assured, you'll have an opportunity to review the portfolio before confirming to participate in an exchange fund.
To meet the regulatory requirements for a properly structured exchange fund, the fund needs to hold at least 20% of its assets in qualifying illiquid assets such as real estate. We work with leading institutional real-estate investment managers, and each exchange fund will aim to hold high-quality income-generating real estate. Complete details of the qualifying assets are available in individual fund documents.
How does the reservation process work?
Please enroll for an upcoming fund by clicking on "Get Started". You’ll share some info about your concentrated stock holdings and cost basis. Our team will make sure you’re eligible to participate, and our algorithms will carefully put together a pool of investors for the fund. When we find the right match for you, you’ll get notified to proceed with the contribution.
How does the fund formation process work?
Once investors have signed-off on their contributions, the stocks are pooled in a fund registered as a Delaware Limited Partnership. Our independent third-party fund administrator will set the Net Asset Value for the fund, which helps determine each investor's percentage ownership. Certain qualifying asset investments, such as real estate investments, are made to ensure compliance with the regulatory requirements of an exchange fund.
Fund shares will be issued through our transfer agent and show up on your Cache brokerage account. The fund assets will be held at BNY Mellon, an institution with decades of experience in asset custody.
My stock has a significant correlation to Nasdaq-100? Should I still diversify?
When you own a Nasdaq-100-like exposure, you will own a diversified portfolio of stocks. The return and risk of the investment will be realized through the performance of the portfolio. Some stocks in the portfolio will do better than others, but an individual stock will not represent 100% of your investment risk or return.
On the other hand, when owning a single stock, 100% of your risk and return is tied to that single stock. While any individual stock may do well, without knowing the future, there is inherently more risk to have 100% of your exposure in a single stock versus a diversified portfolio. A single challenging quarter, change in customer tastes, or company misallocation of resources can change a company’s forward-looking prospects.
Lastly, if you hold a tech stock that seems to correlate with the Nasdaq-100, you are able to trade your single-stock risk to a diversified exposure while maintaining a similar return profile with the Cache Exchange Fund. Elimination of business risk and concentration risk, while maintaining a similar upside.
Can I meet my $100K minimum with more than one company’s stock?
Yes, you can contribute vested stocks from multiple companies.
How will redemptions work once the fund “matures”?
At redemption, we’ll distribute a diversified basket of stocks to each investor, while matching their ownership percentage and cost basis, so long as you’ve met the minimum investment timeframe. We don’t charge any redemption fees.
All our exchange funds are perpetual-life vehicles, which means they will continue to grow in a tax-deferred manner, even after seven years. You can also roll over your redemptions to another exchange fund.
Is there a taxable event at the end of 7 years? What will I receive and what are the redemption fees?
There isn’t a “sale” at the end of 7 years, and thus, there isn't a taxable event at withdrawal either. The investor places a withdrawal request, which is satisfied by distributing a basket of shares that matches their pro-rata ownership.
When investors withdraw from the fund, they receive a diversified basket of shares, usually consisting of 15-25 different stocks, in exchange for their original contribution. The basket of disbursed shares will have a cost basis equal to the original contribution, with possible optimizations to tax-loss harvest within the distributed basket.
Cache does not charge a redemption fee after the investor has spent seven years.
How will redemptions work if I haven’t completed the required time commitment?
We institute a two-year lockup on the shares contributed to the fund and generally encourage long-term investors to participate. The reason: each pool is carefully weighted to achieve certain investment goals, and redemptions hurt your fellow investors. If you have short-term liquidity needs, this investment is not for you.
To gain the full benefits of the exchange fund, regulations require a seven-year holding period. Redemption requests after the lockup but before the seven-year mark are satisfied by distributing your original contribution back to you at a rate that is the lower of the contributed stock value at the time of redemption or the value of your fund shares based on the fund’s net asset value. The rest is retained until term commitments are met. Note that early redemptions incur a 2% penalty fee. Please refer to the fund documents for a full set of redemption terms.
How does the seven-year holding requirement compare to other options?
The requirement is significantly shorter than alternative tax-advantaged investments. Charitable trusts terms require a 20+ year holding period. Depending on your age, an IRA or 401(k) might require up to 40 years before you can withdraw your investment without penalties.
Can I borrow against my fund shares?
If you need to access liquidity against your exchange fund shares, we can arrange for you to borrow against these shares directly with Cache.
Can I sell or transfer my fund shares?
Like any private funds, such as hedge funds or VC funds, there are no public exchanges for these shares. Fund shares will be redeemed by Cache only, or through the custodian and fund administrator in the event that Cache is no longer operational. Fund shares can be transferred through gifts or inheritances.
How are dividends and other income treated?
When you contribute the stock to a fund, any dividends that are received from the stock are additive to the fund balance sheet. Generally, Nasdaq-100 is not a high-dividend yielding basket, and the generated cash will be used to help achieve the investment objective through portfolio management techniques such as hedging and synthetic exposures.
Income earned through dividends, stock lending, real estate dividends, and real estate appreciation are distributed to the investors on a discretionary basis upon determining the best use for the cash balance.
Can I participate through my trust or LLC?
Yes, Cache allows legal entities such as trusts and LLCs to register for a brokerage account, and participate in the Exchange Funds.
What if I don’t meet the minimum investment amount?
Even if you don’t meet the minimum, you can reserve a spot. Our team will be able to waive the minimum on a case-by-case basis for select stocks that help with overall investment objectives.
Why do you institute a two-year lockup?
We have a 2-year lockup to ensure only long-term investors contribute to the fund. Since the tax benefits do not kick in until seven years, it is customary to institute forced illiquidity to disincentivize short-term investors.
Is it okay to contribute a company’s stock if I still work there?
Probably, but it depends on your company’s policy and your position in the company. If you’re not sure, that’s okay. We’ll make sure you’re eligible to participate before you contribute. Many large firms like Apple, Nvidia, Microsoft, Meta, Tesla, and Amazon have friendly policies.
Generally, we encourage companies to follow the standards set by Apple. In their 2022 Proxy Statement, they include, "We allow for certain portfolio diversification transactions, such as investments in exchange funds."
Can I contribute unvested equity?
No, we can only accept fully vested stocks. Exchange funds are a good fit if you have taxable gains on those holdings.
How does Cache determine and charge fees?
Our fees are considerably lower than other exchange funds. We determine fees based on the gross assets in the fund, and management fees are charged quarterly.
Our fee is mainly charged from the income generated from the funds, and as a general principle, we don’t sell any stock with taxable gains to generate cash for our fee. Compare fees
How are investors and their investments protected if Cache is no longer viable?
Our legal documents provide higher investor protections in these instances (than customary).
“Anything in this Agreement to the contrary notwithstanding, the Manager may at any time resign if (i) the Manager has designated and admitted to the Fund as a successor Manager any corporation, trust, business trust, limited liability company, partnership or other entity that is wholly owned, directly or indirectly, by Cache (provided that such corporation, trust, business trust, limited liability company, partnership or other entity has, or its personnel have, similar management experience to Cache) and each of the Shareholders, by acquiring Shares of the Fund, hereby consents to the admission of such successor Manager; or (ii) the Manager, with the Consent of the Shareholders, has designated and admitted a substitute Manager; provided that any such succession or substitution shall be effective upon such resignation and shall not in the opinion of tax counsel to the Fund adversely affect the classification of the Fund as a partnership for federal income tax purposes. In the case of the Bankruptcy of the Manager (herein in such event called a “Bankrupt Manager”), those Shareholders holding a majority of the outstanding Shares shall have the right to designate and admit to the Fund a substitute Manager by filing written consents to such action with the records of the Fund.”
"Shareholders will have the limited right to consent to… (ii) the designation of a substitute manager of the Fund upon the bankruptcy of the Manager or if the Manager resigns as manager and does not designate a Cache affiliate as substitute manager."