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Managing a concentrated stock position
If you’re like many successful executives, you own a big chunk of stock in the company you work for. But staying so completely invested in one company might put your personal financial future at risk. At the very least, it can hamper your ability to access credit and liquidity. But what’s the best approach to diversifying a classic concentrated portfolio? Our specialists can help you think through all your choices. And help you develop a more balanced wealth plan. So you can take advantage of the financial freedom you’ve earned.
Finding the perfect balance between staying invested in your company and diversifying your portfolio can be tricky. But when it comes to managing a classic concentrated position, you have choices. Hedge. Monetize. Diversify. Or some combination of all three. We’ll help you find an approach that works for you.
Don’t let a concentrated stock position hold you back
At J.P. Morgan Private Bank, our advisors work closely with corporate executives like you. We’re here to help you explore your choices—and identify strategic asset allocation and liquidation opportunities. And we’ll be your advocate every step of the way.
We have deep experience working to diversify or liquidate concentrated positions. And like everything we do, we do it with your bigger picture in mind.
To access liquidity, our monetization strategies include:
- Call overwriting. This provides an upfront payment in exchange for selling partial upside gains above a predetermined price.
- Securities-based line of credit. This provides a line of credit using your concentrated company stock as collateral.
Our diversification and portfolio rebalancing strategies for concentrated stock positions include:
- Sale of shares. We can facilitate sales of shares through a 10(b)5-1 program, or an immediate or staged outright sale.
- Principal installment stock monetization (PRISM strategy). This private contract allows you to receive attractive upfront liquidity, downside protection, and flexibility in how you use the investment proceeds.
- Private placement exchange fund. Together with other investors holding concentrated positions of low-basis stock, you can pool your securities with marketable securities in a fund. After a period of time, you can redeem your shares of the fund for a pro-rata share of a diversified basket of securities. (It sounds complicated, but we can walk you through it to help you decide if it’s the right strategy for your situation.)
- Personal exchange fund. Using this approach, you can exchange your company stock for units in a fund. This can be an easy way to diversify while also deferring capital gains taxes.
- Charitable remainder trust. This is another tax-efficient way to diversify. Investing in a trust allows you to benefit from a charitable income deduction and collect an income stream from the trust over a set period of time. Meanwhile, your trustee can sell the trust’s assets and diversify your portfolio with the proceeds. When the set time limit expires, the remainder of the assets go to charity.
After you’ve left your company, we can help you protect a potentially vulnerable concentrated position with hedging strategies.
- Puts provide downside protection by giving you the right to sell shares at a fixed price in exchange for an upfront premium.
- Collars offer downside protection in exchange for sacrificing some potential upside appreciation.
Optimizing executive compensation
Managing a concentrated stock position
Our advisors have deep experience working with corporate executives to diversify or liquidate their concentrated positions. And like everything we do, we do it with their overall wealth plans in mind.
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