Exchange Fund - Public Vs. Private Equity Exchange Funds

Public Vs. Private Equity Exchange Funds

Private equity exchange funds (those comprising stock in non-public companies) differ from public exchange funds in a few regards:

  • A main objective of private equity exchange funds is providing participants with downside risk protection, in case their own stock becomes worthless before they achieve a liquidity event (an IPO or acquisition.) The need for diversification is much more heightened than it is with public stock which may be sold at any time, if the holder wishes to bear the tax consequences.
  • When liquidity events occur within a private equity fund, proceeds are immediately distributed to limited partners, rather than being held or reinvested. The objective of these funds is liquidity as well as diversification.
  • Fund management fees are assessed on the basis of an expense budget, rather than a percent of the value, since valuation of the private equity holdings is uncertain.

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