Swap Fund (Exchange Fund) ROI Calculator

Exchange fund mechanics: What it is: a partnership pooling shares from multiple investors with concentrated single-stock positions; investors contribute stock, receive pro-rata partnership interest; after 7-year hold, investors receive diversified portfolio of all contributed stocks; Tax treatment: no taxable gain at contribution (tax-free exchange); low basis transfers to partnership interest; after 7 years, can receive diversified portfolio with same low basis; carryover basis: investor who contributes $1M stock with $0 basis receives $1M partnership interest with $0 basis; Requirements (IRS rules): at least 20% of fund must be "qualifying assets" (real estate, other non-securities); 7-year minimum hold period; minimum fund size: $50M+ (to have enough participants); Fees: management: 1.0-1.75%/year; partnership admin: $10,000-50,000/year; available through: Goldman Sachs, Morgan Stanley, Eaton Vance, Parametric.

Exchange fund ideal candidates: Who qualifies: concentrated single-stock position ($2M+ typically minimum contribution); very low cost basis (ideally <20% of current value); long-term hold horizon (7+ years); accredited investor; qualified purchaser ($5M+ investable assets for most funds); Best use cases: founder with employer stock ($10M+, $0 basis); executive with RSUs that have vested over many years; inherited stock (partial step-up, still concentrated); Alternatives to compare: charitable remainder trust: diversify, defer tax, get income stream, remainder to charity; collared borrowing: borrow against position, invest diversified; exchange fund is often superior because: no charitable gift required; full economic participation in upside if stock continues to perform; Comparison: direct sale: pay $2.38M capital gains tax now; exchange fund: defer tax, diversify, hold 7 years; estate planning: die with exchange fund interest, heirs get stepped-up basis (eliminating all deferred gains); exchange fund + estate plan = ultimate tax optimization for concentrated positions.

Family offices (single or multi) make sense at $50M+ in investable assets. Below that, private banking (JP Morgan Private Bank, Goldman Sachs PWM, UBS) offers similar services with lower minimums ($5-25M). Family offices provide consolidated reporting, direct deal access, and custom investment mandates unavailable at private banks. Multi-family offices (Bessemer Trust, Glenmede) offer a middle ground at $10M+ with family-office-level service at lower cost.

Most wealth advisors recommend 3-5% of liquid net worth in cash/cash equivalents for UHNW individuals — enough to cover 12-24 months of lifestyle expenses plus opportunistic investments. Excess cash above this benchmark costs 5-8% annually in opportunity cost vs. diversified portfolios. Treasury bills, money market funds, and short-duration bonds provide liquidity with yield while maintaining capital preservation objectives.