Over the previous a number of years as Collateralized Mortgage Obligations (“CLOs”) reached new and dizzying heights in issuance quantity, CFOs have been quietly, and beneath the radar, gaining market acceptance and momentum amongst asset managers, homeowners and buyers. The CFO is a transformational expertise for automobiles designed to finance restricted partnership pursuits in non-public funds (“LP pursuits”) and different belongings (along with LP pursuits, the “Non-public Monetary Property”). CFOs have their roots within the early 2000s and had hitherto been extra of a distinct segment product centered totally on offering liquidity for restricted partnership pursuits of personal fairness funds. Nonetheless, a confluence of things have piqued curiosity within the product. Chief amongst these are (i) the rising (however nonetheless inefficient) secondaries market which may make gross sales of LP pursuits unattractive, (ii) the power to collateralize CFOs with a wide range of completely different monetary belongings (together with credit score alternative funds, buy-out funds, infrastructure funds, actual property funds, non-public credit score funds, co-investments, asset-based securitizations (“ABS”), CLO fairness, and residuals in securitizations) and (iii) the will of sure lessons of buyers akin to insurers, sovereign wealth funds and different regulated buyers to realize publicity to Non-public Monetary Property in a structured and capital environment friendly rated format.
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