Cegelski should enter into an equity swap where he would exchange the return on Reston Technologies stock for the return on some other asset in a private, over-the-counter contract. He does not want to send a negative signal by selling the stock outright. An exchange fund would not allow him to sell his shares in three years. In an exchange fund, the investor contributes their shares to a common diversified pool of stock that similar investors have contributed to. The investor makes a commitment to keep their shares in the fund for a period of time (usually seven years) after which they can withdraw a proportionate share of the fund. He does not currently have the liquidity necessary to enter into a completion fund. He also does not want to increase his risk so he should not borrow against his Reston shares to enter the completion fund. To raise the funds to invest in a completion fund, the individual borrows funds against his or her stock or uses the dividends from his or her current stock. In the former case, the increased leverage increases the investor’s risk. In the latter case, obtaining the funds necessary to invest in the completeness fund may take substantial time. Cegelski has stated that he wants to diversify in a timely manner |
