Blackstone is looking to offload more than $2 billion worth of private fund stakes by packaging them into bonds, according to the Financial Times. The transaction would rank among the largest collateralized fund obligation deals the secondary market has seen in recent years.
Think of it like this: Blackstone owns pieces of various private investment funds, mostly leveraged buyout vehicles, that it wants to move off its books. Rather than selling each stake individually (slow, messy, lots of haggling), the firm is bundling them together into a structured product that institutional investors can buy like a bond.
How a collateralized fund obligation actually works
A collateralized fund obligation, or CFO, takes a portfolio of private fund interests and slices them into tranches with different risk and return profiles. Senior tranches get paid first and carry lower risk. Junior tranches absorb losses first but offer higher potential returns.
The structure is conceptually similar to the collateralized loan obligations (CLOs) that have become a staple of credit markets. The key difference is what sits underneath. Instead of corporate loans, a CFO holds stakes in private equity, venture capital, or real estate funds.
