Collective Exchange Fund Overview

Over the past ten years, the average time to IPO for a venture-backed, private growth company has increased and many of the most successful venture-backed, private growth companies have remained private. In 1999 a start-up's average time to IPO was 5 years; but by 2020 the average time was 12.5 years. As a result, significant value creation has accrued to private market investors.

More than 1,000 unicorns (private companies with valuations in excess of $1 billion) have been created, with an aggregate market cap in excess of $3 trillion.

The Collective Exchange Fund is principally exposed to a portfolio of unicorn stocks diversified across technology sectors. The Fund enables shareholders and employees of selected unicorn companies to diversify out of over concentrated positions in a single stock by exchanging their shares, tax-deferred, for a limited partnership interest of equal value in the Collective Exchange Fund.

Apart from its investment in the unicorn portfolio, the Exchange Fund also invests in real estate in order to preserve the tax deferred treatment of exchanges into the Fund under U.S. tax law.

Typically, after a one-year holding period, Exchange Fund LP interests can be redeemed quarterly for cash at NAV subject to a gate. Or, for more immediate liquidity, limited partners can borrow tax-free against their LP interest on a non-recourse basis.

For Allocators: Institutions, Family Office, & High Net Worth Investors
The Collective Exchange Fund provides access to a diversified portfolio of ~100 of the most attractive unicorn companies, in high growth sectors, and backed by top-tier venture capital firms. With its digital model and unique tax advantaged solution, Collective has developed the most cost-effective approach to acquire these unicorn shares at scale directly from employees and founders. The Exchange Fund’s design offers the most efficient, transparent, and relatively cost-effective way for allocators to get exposure to this critical asset class. The fund is an evergreen structure as opposed to the typical fixed life venture capital fund. Interested in learning more? Please leave your details and we will be in touch.

Investable Universe

The Collective Exchange Fund uses a passive management approach to provide efficient exposure to private growth asset category and manage risk through diversification.

The Collective Investment Committee’s target portfolio selection process includes both quantitative and qualitative criteria including:

• Private growth companies that have closed a primary financing with an enterprise value of at least $1 billion
• The financing must have included at least one venture capital firm recognized by Collective's Investment Committee
• The financing must have raised at least $100 million in equity capital or $200 million from prior financings.
• Initially, the company must be domiciled in the United States

In addition, the Collective Investment Committee considers other factors such as the company’s leverage and other financial characteristics, customer concentration risk, quality of the available data and receptivity to shareholder liquidity.

In order to comply with U.S. tax laws for tax-deferred exchanges, the Exchange Fund must hold “Qualifying Assets” equal to twenty percent or more of its gross assets. The Exchange Fund satisfies this requirement by holding private real estate partnership interests. These partnership interests are selected for their expected stability in value. Generally, the partnerships will hold real estate diversified by segment (e.g., commercial, multi-family, industrial, etc.) and geography.

Portfolio Exposure

The Collective Exchange Fund seeks to acquire a portfolio of 100 leading private growth companies. The Fund will target a portfolio diversified across technology sectors and, within these sectors, across individual companies. Generally, the fund will hold no more than twenty percent of its assets in any one technology sector and no company will represent more than five percent of fund assets. As described below, the Collective Exchange Fund will also hold twenty percent or more of its assets in the form of real estate partnerships.

(*) Actual asset allocations will vary from time to time. Note also that the Fund will hold material amounts of cash to fund purchases of securities and real estate limited partnership interests, redemptions by limited partners and for other purposes.

Portfolio Management

Utilizing a supervised, algorithm driven approach, the Collective Exchange Fund is systematically rebalanced on a rolling basis to meet liquidity, diversification and risk targets. The valuation and investment process are overseen by the Collective Liquidity Investment Committee.

The Collective Liquidity Private Market Algorithm values unicorn shares and allocates capital across the target portfolio for the purpose of:

• Pricing fund exchanges and purchases
• Establishing loan-to-value ratios
• Identifying net asset values
• Valuing limited partnership interests for quarterly redemptions

The algorithm is designed to produce valuations representative of the market price at a point in time (as opposed to determining the company’s intrinsic or future value based on fundamental analysis). This is accomplished primarily by:

• Analyzing private market pricing signals (e.g., financing valuations, secondary market trading prices, etc.) along with other company data to produce an enterprise value
• Weighting those enterprise values based on the signal’s quality and recency and integrating them into a single enterprise value
• Applying a waterfall to the enterprise values to set per share prices for each share class.

Collective's Private Market Algorithm also dynamically allocates capital and exchange eligibility to meet the Fund's diversification objectives and to rebalance the portfolio on a rolling basis. The algorithm’s capital allocation is also influenced by the quality of the data used in the valuation process - the higher the data quality for a portfolio company, the more capital the algorithm will allocate to the company.

Exchange funds like the Collective Exchange Fund were created in 1953 to enable investors to diversify away from over concentrated, highly appreciated stock holdings and reduce their risk without triggering taxes. Exchange funds holding publicly traded securities are well established and hold significant assets estimated to be in excess of $100 billion .

As a general rule, so long as twenty percent or more of the Exchange Fund's gross assets are held in “Qualifying Assets,” exchanges of unicorn shares into the fund for a limited partnership interest of equal value are not treated as taxable events. The fund intends to purchase equity interests in real estate funds (see description above) that meet this Qualifying Assets requirement such that, at all times, exchanges into the fund do not trigger tax obligation to the exchangers.

To provide its limited partners with liquidity, the Collective Exchange Fund permits redemptions of limited partnership interests at the end of each quarter. After a one-year hold, a limited partner may typically submit a redemption request for some or all of their interest in the Fund. Fund interests are redeemed for cash at a purchase price implied by the fund’s Net Asset Value at the end of the quarter. The fund’s redemption obligations in any given quarter are limited to four percent of the fund’s Net Asset Value. Redemptions made to payoff Exchange Loans are not subject to such limitation, but proceeds must be used to payoff Exchange Loans before any distribution can be made to the limited partner.