Cache, an exchange-fund company, will begin launching funds benchmarked to the S&P 500 and rebalanced using an ETF created by a Section 351 in-kind transfer. The strategy will make a diversification tool for concentrated stock positions more accessible and attractive to a greater number of investors, and it has caught interest from family offices and their beneficiaries, Cache told Modus.
Exchange funds, also known as “swap” funds, take various stocks from multiple investors, pool them into a single fund, then give each investor a stake in the fund, deferring a taxable event and delivering some diversification in the process.
Historically, exchange funds have been characterized as clunky, expensive (fees can be as high as 2%) and only worth the trouble for certain investors who have significant single-stock positions (minimum investments can be as high as $1 million or more). A short list of asset managers, including Goldman Sachs and Morgan Stanley, offer the funds, but many are closed to new investors and new funds launched fill up quickly.
Srikanth Narayan, a software engineer at Uber and other tech companies who had the fortunate problem of suddenly owning many shares of valuable stocks, founded Cache in 2022 with the goal of improving the exchange fund. The company has already made it cheaper and more accessible. Cache will take mounds of shares valued as low as $100,000 and charges as little as 50 basis points.
In February, Cache had a total of more than $300 million in assets under management and Narayan told Modus that hundreds of investors, including family offices, were waiting to contribute a total of more than $1 billion in shares to its funds.
Now, Cache is expanding the universe of stocks eligible for its exchange funds by launching ones benchmarked to the S&P 500. Previous funds have been benchmarked to the Nasdaq 100, creating funds that were tech-heavy and not a fit for many investors in the Bay Area. Paying a fee to swap more concentration for less is technically de-risking but not optimal.
“A lot of the family offices around here, they just have so much exposure to tech already that it wasn't an investment that they were strongly considering. But once word spread that we are launching an S&P 500 fund, our phones have been ringing,” Narayan, who is based in San Francisco, said.
An S&P 500 fund is an effective way to get exposure to a variety of large-cap U.S. stocks (about 32% are technology, 13% are financial, and nine other distinct sectors account for roughly 10% to 2% of the index).
In addition to S&P 500 exchange funds, Cache has also partnered with Alpha Architect, the firm founded by Wesley Gray that manages $15 billion in assets and operates a platform for launching new ETFs, to make exchange funds even more efficient.
Exchange fund structures can have supply-demand imbalances. To address this, the partnering companies plan to acquire all the shares from investors and then use them to seed an ETF with a Section 351 in-kind transfer within the exchange fund. This way, the fund can track the benchmark with more precision, be rebalanced daily, and do it tax-efficiently. The funds will also have greater capacity and be able to diversify more quickly, according to Cache. Investors can withdraw their ETF shares after seven years. (Brent Sullivan, a software developer who previously worked at PIMCO and Parametric and now runs Tax Alpha Insider, wrote a more detailed explanation of how it all works.)
Section 351 in-kind transfers are an uncommon way to seed an ETF, but the strategy is not a secret. Tema ETFs filed to launch two exchange-traded funds specifically for family offices — the Tema Family Office Compounding ETF and Tema Family Office Tax Aware Compounding ETF — that can take advantage of in-kind transfers, Modus reported in December.
“I've been connected to Alpha Architect and Wes for, I think, two years now…I think we have a similar philosophy on products that we offer, so it's been kindred spirits,” Narayan said.
More eligible stocks and lower minimum investments mean that more family offices, just like other investors, could take advantage of exchange funds. Consider an office supporting many beneficiaries who all have concentrated positions in the same stock. The same number of shares could result in different levels of concentration risk for each beneficiary. Or, the risk could be equally significant to all of them, but the holdings were too small for a traditional exchange fund by the time all the shares were divvied up.
Cache onboards funds every couple of weeks, but offices might still have to wait. The firm is approaching $500 million in assets under management and others are eager to diversify their capital, too.
Julia, you went to the University of Miami School of Law, practiced at firms, and were an attorney and trust officer at the Dalio’s family office. Why join Luminary, a software company?
I’ve had the opportunity to work in a sophisticated family office environment as well as in both large and small law firms. Across those experiences, I noticed a common theme: the tools available to manage complex planning felt outdated and inefficient. The processes were time-consuming and clunky.
When I came across Luminary, I got really excited because I instantly thought, “This would’ve helped me so much in my practice.” It would’ve freed up a lot of time, and most importantly, made me a more effective advisor. As the quarterback for planning, your role is to ensure that best practices are being followed. Luminary ups the ante for what that looks like.
Can you tell me more about how Luminary is solving those problems?
Luminary sits at the intersection of planning documents and financial assets. The users — whether they are family offices, financial advisors at a wealth management firm, or attorneys at a law firm — have a digital data record and holistic view of a client's estate plan and their wealth. Luminary houses all of a client’s documents, summarizes them, pulls information from integrated sources into a balance sheet, and provides you with client- or prospect-ready presentation materials.
And because you aren't relying on Excel, PowerPoint, Numbercruncher, ecetera, you can play with different strategies and hypotheticals in a dynamic way in the waterfall. You can quickly jump to making strategic plans. It’s simply amazing.
We have to talk about AI. The company was founded in 2022 — that wasn’t in response to the launch of ChatGPT, right? But have the advancements and broader accessibility of AI improved Luminary’s tools?
Luminary’s founding coincided with the release of ChatGPT and the acceleration of AI, but it wasn’t a reaction to it. [Luminary CEO] David Barnard's vision was taking shape long before that, inspired by his experience as head of private wealth at AllianceBernstein. He saw firsthand how fragmented information, disjointed workflows, and a lack of shared infrastructure created drag in an otherwise high-value, deeply human advisory service.
AI advancements have supercharged our software. Luminary was among the first companies in the space to thoughtfully integrate AI with a human-in-the-loop design. Our technology augments, rather than replaces, the expertise of legal, tax, and wealth advisors.
And we never train on client data. We learn from customer feedback and continually improve how our tools surface insights, reduce administrative friction, and make complex planning easier to understand and execute.
What’s something Luminary does that surprises users the most?
People are very impressed with how accurate and in-depth our AI summaries are. I was a born skeptic, and when I first tried it, I figured it wouldn’t pull out all the information that I needed. But I was impressed with the level of nuance it was able to understand about provisions and subtrusts. And this is something we hear every day from users. It’s a lot of fun to see their reactions.
The other thing that surprises users is how advanced our waterfall feature is. Everyone sees it and assumes it can run the calculations, but are especially impressed with how easy it is to input all the different hypothetical scenarios. We make it really easy and quick to choose from a dropdown the strategy, your beneficiaries, how much you want to fund it with, and see in real-time the impact these changes have on an estate. The ease of use is something we’re focused on and proud of.
How can people learn more about Luminary?
I’m doing a short live presentation and answering questions next week (Wednesday, June 17 at 9 a.m. PT/12 p.m. ET). If you can't make it, you should still sign up — we'll send you a recording!
Other News
- Trust companies are falling behind on AI, according to an F2 Strategy report.
- Kenneth Eyler has joined Emigrant Bank to be a managing director of family office services. He previously held a similar position at Cresst and was the CEO of Aquilance.
- Ludovic Phalippou, a professor at the University of Oxford and the bête noire of private equity, says ChatGPT has killed one of his blockbuster “debt role play” lectures. “This tool just did in 30 seconds what takes students hours to master,” he said in a post with the AI deal analysis. “It even spotted that a sale-and-leaseback was planned three years out—but the cash flow wasn’t reflected in the projections. That, of course, changes the debt capacity. [ChatGPT caught that.”
- The Risky Mission to Salvage Mike Lynch’s Sunken Superyacht.
- Barking up the right tree: Inside Japan’s billion-Yen luxury pet lifestyle boom.
- The Billionaire Behind Japan’s Art Islands Has One Final Jewel in His Crown.
- The New Yorker dragged the Apple TV+ series “Your Friends and Neighbors,” in which Jon Hamm plays a hedge-fund manager-turned-thief. Unlike “Succession” or “White Lotus,” the show is “luxury porn in the guise of social critique.” (Ouch!)
- How a Family Toy Business Is Fighting Donald Trump’s Tariffs.
- Can You Ever Really Know a Person? Biographers Keep Trying.
- Everything Is LinkedIn Now. (This is totally true.)
Jobs
- Soros Fund Management, the $28 billion global asset manager and family office founded by George Soros in 1970, is hiring a family office controller to join the existing team in New York and a portfolio and asset allocation strategist in the U.K. The controller job pays up to $200,000 plus a bonus. No comp details in the posting for the strategist.
- The Conrad N. Hilton Foundation, established by the hotelier in 1944 to help people living in poverty and experiencing disadvantage worldwide, is hiring an investment associate. The foundation has awarded grants totaling more than $3.2 billion and is one of the world’s largest, with approximately $7 billion in assets.
- The W.K. Kellogg Foundation, the independent private foundation established in 1930 by breakfast cereal innovator and entrepreneur Will Keith Kellogg, is hiring a summer investment analyst.
Reminders
- Follow Modus on LinkedIn for articles and updates between newsletters.
- Here’s what makes a good news tip. If you have one, you can reply to this email and share information with me in confidence, or message me on Signal using a personal device that is not accessible by your employer.
I'll be in...
- Tarrytown, New York, which was the home of Washington Irving, the diplomat and author and of "Rip Van Winkle" and "The Legend of Sleepy Hollow."
- NYC.
- Northeast Ohio for
Fourth of July weekendSwenson’s. (IYKYK.)
