Securitization is becoming a common feature of secondary fundraising

Securitization is becoming a common feature of secondaries fundraising

Tue, August 25, 2026 at 1:08 AM GMT+3 2 min read

Collateralized fund obligations have quietly become an important fundraising tool for some of the largest managers of secondaries funds.

Last week, Franklin Templeton got in on the act by raising a $1.5 billion CFO, allowing the asset manager to issue tranches of rated debt secured against cash flows generated by a pool of private assets it manages.

Structured Solutions 2026, as the CFO is known, gives investors, including registered investment advisers, family offices and insurance companies, exposure to the returns of a diversified portfolio of private equity fund stakes and continuation funds managed by Franklin Templeton's secondary-investing affiliate, Lexington Partners.

A portfolio of US middle-market loans managed by Benefit Street Partners, a direct-lending subsidiary of the $1.8 trillion asset manager, is also included in the CFO, according to a statement.

Franklin Templeton did not respond to further questions.

While CFO technology has been around for decades, it has hit the secondaries market in a big way over the past 18 months. In addition to announced deals by investment managers such as Ares Management Corporation and Carlyle AlpInvest, Ardian and Blackstone, the world's largest secondary managers alongside Lexington, have reportedly explored raising CFOs in 2026.

The CFO structure opens the door to more risk-averse investors, such as insurance companies, which face regulatory barriers to investing in PE funds but can buy rated securities whose income derives from those funds.

This gives secondaries fund managers access to a new, potentially enormous source of capital. It also allows insurers to invest in highly diversified, long-dated pools of private assets in a way that offers some downside protection. A CFO's debt tranches are graded and allocated to investors based on their risk-return tolerance, with the equity holder absorbing first loss.

The proliferation of CFOs has raised concerns, particularly in the insurance industry. The National Association of Insurance Commissioners, a US standard-setting organization, revised its guidance so that the onus is on insurers to prove that the structured products they back are underpinned by lender-borrower dynamics, rather than just an equity play disguised as fixed income.

Concerns about the true risks being taken by insurers have been brought into sharp relief by events surrounding Los Angeles Lakers owner Mark Walter and his investment firm TWG Global. Walter, who made his billions in the asset management and insurance industry, is currently under federal investigation for allegedly funneling money from two of his insurance companies, Delaware Life Insurance Co. and Clear Spring Life and Annuity Co., into other business interests.

"State insurance regulators have taken a number of steps in recent years to strengthen oversight of complex investments and private credit exposures," including calling for enhanced disclosure requirements and ongoing reviews of credit rating processes, said a spokesperson for the NAIC.

This article originally appeared on PitchBook News