Exchange Fund + 351 Exchange – Cache and Alpha Architect create a new product category

Let’s talk about the largest problems with legacy exchange funds:

1. Exchange fund offerings are typically oversubscribed for tech workers. There just isn’t enough room an SP500 tracking exchange fund for large holders of $AMZN, $META, $NVDA, etc.
2. If you do get your shares placed, at the end of 7 years when you “could” pull out of the exchange fund, the portfolio manager will provide you with their choice of stocks (all with your initial cost basis). You no longer have a concentrated single position, but you are left with stocks that could exhibit high tracking error when compared to the benchmark.

The 351 conversion mechanism now being offered by Cache solves these issues. From my understanding, Cache can literally allow any shares into the fund. They do not have to hand-create a portfolio from subscribers. All subscribers get converted into an ETF via 351.

At the end of 7 years, you can receive shares of the ETF out of the exchange fund. Since it is an ETF, your shares will better reflect the becnhmark you diversified into.

Brilliant.