Manage exposure to concentrated positions

Investing in a single company may be an excellent way to acquire wealth, but it is a hazardous way to preserve it. Every company has some vulnerability to failure — often for reasons beyond management's control. In a marketplace as competitive as the United States, rapid turnover in industry leadership is endemic, and no sector of the economy is immune.

Recognizing the risk
Many executives have unshakable faith in their companies and feel confident their company stock can only appreciate. Others recognize the risks of excessive concentration but feel unable to act — whether because of tax exposure, legal restrictions or the possibility of a negative market reaction to an insider's sale of stock.

JPMorgan has helped many executives manage their exposure to concentration risk. We can help you evaluate a variety of alternative strategies. Often, the best approach is a combination of several:

• Selling is often the optimal way to mitigate the downside risk of a concentrated position. We can suggest strategies for deferring capital gains tax exposure, and we have a special team experienced in dealing with restricted stock.
• Hedging with derivatives may enable you to protect a concentrated position and unlock its value.
• Monetizing your position through a combination of a hedge and a loan may allow you to begin diversifying your portfolio while deferring capital gains tax.
• Transferring assets tax-efficiently to your heirs through a strategy such as an exchange fund can provide diversification benefits while simultaneously meeting your legacy goals.

We can help you evaluate the costs and benefits of alternative strategies before putting a plan in place.

Contact a JPMorgan Advisor to learn more about strategies that may help mitigate the risk of concentration. Alternatively, you may contact any JPMorgan office.