Exchange fund
Certified Financial Planner glossary · Certified Financial Planner
Definition
A partnership pooling concentrated positions from many contributors, permitting diversification without a current sale.
Exchange fund in plain English
A founder sits on a mountain of one company's stock and hates the tax bill that would come from selling into a diversified ETF. Exchange fund is a partnership that pools concentrated positions from many contributors so each person can hold a slice of a diversified basket without a current taxable sale. It is a diversification tool with partnership and lockup complexity, not a free lunch and not a simple 1031 real-estate swap. Need diversification without a current taxable sale? That is the exchange-fund story, not a brokerage sell-and-rebalance.
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