A question for those wiser than I: Short Extension Strategies Short Proceeds

CFA Level III
#1

can’t seem to figure this one out…

In the CFAI text on short extension strategy for the 130/30 example it says “for every EUR100 received from the client, the portfolio manager shorts 0.30(100)=30 worth of securities and invests 100+30=130 long-the initial 100 plus 30 provided by short sales proceeds. The costs of a short extension strategy include trade execution costs and stock loan fees paid to brokers lending securities for short sale.”

If the PM shorts, then part of the proceeds are kept by the broker as margin or no? If so, then wouldn’t it be that the PM cannot invest the full 30, so your exposure would not be 130/30. It would be (less than 130)/30.

What am I missing?

#2

The short sale is accomplished by borrowing the securities and selling them. The lender of the securities may want some collateral (in addition to the borrowing costs), but the portfolio manager could pledge some of the long securities as collateral, instead of the cash proceeds from the short sale. It’s similar to posting T-bills in a margin account for futures, instead of tying up cash that could be invested in other securities.

#3

Got it.

Many thanks S2000magician!

#4

My pleasure.