Collateralized fund obligation

A collateralized fund obligation (CFO) is a form of securitization involving private equity fund or hedge fund assets, similar to collateralized debt obligations. CFOs are a structured form of financing for diversified private equity portfolios, layering several tranches of debt ahead of the equity holders.

The data made available to the rating agencies for analyzing the underlying private equity assets of CFOs are typically less comprehensive than the data for analyzing the underlying assets of other types of structured finance securitizations, including corporate bonds and mortgage-backed securities. Leverage levels vary from one transaction to another, although leverage of 50% to 75% of a portfolio's net assets has historically been common.

The various CFO structures executed in recent years have had a variety of different objectives resulting in a variety of different structures. These differences tend to relate to the amount of equity sold through the structure as well as to the leverage levels.

Private equity CFOs

Since the advent of CFOs (ca. 2002), there have been only a handful of publicly announced private equity securitization transactions. Typically, owners of private equity assets will securitize a portfolio of funds as a way of generating liquidity without an outright secondary sale of the funds.

• In 2006 Temasek Holdings completed $810 million securitization of a portfolio of 46 private equity funds.^[1]

• SVG Capital has executed three CFO securitizations as part of its "Diamond" program, SVG Diamond (2004), SVG Diamond II (2006) and SVG Diamond III (2007).^[2][3]

• Alongside its CLO program, Mizuho IM has launched its first CFO called Vintage I in 2007, a EUR 500 million fund investing in global buyout funds. The investment has proved very successful and a second fund, Vintage II is being raised. ^[4]

• Tenzing (2004) — Securitization of private equity fund assets by Invesco

• Pine Street (2003) — Securitization of private equity fund assets by AIG

• Silver Leaf (2003) — Securitization of private equity fund assets by Deutsche Bank

See also

• Collateralized mortgage obligation
• Private equity secondary market

References

1. ^ Singapore’s Temasek Hits Hard Going (Asia Sentinel, 2007)
2. ^ SVG Diamond Programme
3. ^ SVG Diamond II raises €500m for private equity investment
4. ^ [1]

• Rating Private Equity CFOs: Stochastic Market Cash Flows
• Securitizing private equity