What do they mean by borrowing without leverage?

CFA Level III
#1

I have on my cards from one of the tests: An exchange fund creates an opportunity to borrow against stock without leverage.

If you are borrowing, isn’t that leverage?

#2

I need context, but if you buy into a 2x levered ETF you aren’t personally levered, just more exposed to the ups and downs of the market while the fund manages the complexities of constantly buying and selling derivatives, so maybe that is what you’re referring to?

#3

^ It’s leverage without borrowing.

#4

i think if you borrow against stock covering 100% value of borrowed fund, you essentially have put 100% colleteral. wouldn’t that be borrowing without leverage?

#5

Hang on, are you talking about an “Exchange Fund”, a way to diversify concentrated stock, or an “Exchange Traded Fund”, ETF.?

#6

^ sounds like exchange fund, which I don’t remember being a method to diversfy a concentrated position

#7

An exchange fund is an investment fund structured as a partnership in which the partners have each contributed their low-basis concentrated stock positions to the fund. Each partner (contributor to the fund) then _ owns a pro rata interest in the partnership potentially holding a diversified pool of securities. _ Participating in the exchange fund is not considered a taxable event; the partners’ cost basis in the partnership units is identical to the cost basis of the contributed concentrated stock positions. For tax purposes, each partner must remain in the fund for a minimum of seven years, after which he or she has the option to redeem his or her interest in the partnership and receive a basket of securities at the discretion of the fund manager equal in value to the pro rata ownership of the partnership or continue his or her investment in the fund.

From Text

#8

It seems one of the tools per text and also appeared in prior tests. Based on above description of the exchange fund - Not sure if owning partnership units against stock contribution is equivalent to borrowing without leverage. But definitely seems to be one of the monetization strategies for single stock concentrated portfolio.