Equity Monetization - Question

Couldn’t reconcile one of the aspects of equity monetization, if s2000magician or others can shed some light.

Volume 2, page 343 all of the equity monetization strategies state one can earn money-market return on a long position? How is that possible - I don’t recall getting mm-return on a long position I have with my brokerage. Is it something just therotical that I’m missing?

Essentially this income offsets the borrowing cost from the margin loan which makes sense.


I guess it is meant that you just park your moniey in a diversified portfolio and the return is always higher than the borrowing cost. Even if you invest in the money market. At least this is my understanding, I am not sure tho that I get your question correctly…

I think you’re missing some of the content.

If I’m not wrong, equity monetization objective is esentially to get an equivalent amount of money (“monetize”) that you have on the long position, without “touching” that long position. To do this, you can implement a short sale, eliminating the risk of your position and investing the proceeds on a risk-free asset (I think the reading assumes this).

So to earn the money market return on a long position, you must take an offsetting one in one of the ways described in the chapeter (short against the box, total return swap, etc.)

Please correct me if you think otherwise.


I tend to agree with you here and seems like CFAI text could have been more clearer here (not having us to assume). Especially with other three strategies they say produce same results as short against the box when TRS sounds like a plain vanilla exchange of cash flows as opposed to it involving any shorts and their proceeds being invested at risk free rate. Unless I’m missing something.