Key Takeaways
- • Blackstone is considering abandoning a $3 billion collateralized fund obligation (CFO) designed to generate liquidity for investors in one of its secondary funds after months of development work, citing difficulty attracting equity tranche investors.
- • The transaction, internally known as Project Eclipse and advised by Jefferies, would have used stakes in approximately 700 underlying investments as collateral for a package of debt securities.
- • CFO issuance is projected to more than double to around $30 billion in new volume this year, according to Evercore, as private equity managers increasingly turn to structured solutions and secondary transactions to create liquidity amid a prolonged slowdown in traditional exit markets.
- • Blackstone has not made a final decision and may pursue alternative structures to return capital to existing investors, or proceed with a modified version of the transaction.
- • Other major secondary-market investors including AlpInvest (Carlyle), Dawson Partners, and Ardian have successfully pursued or are actively developing CFO vehicles, indicating growing adoption of the structure despite Blackstone's current challenges.
Summary
Blackstone is evaluating whether to scrap a proposed $3 billion collateralized fund obligation designed to provide liquidity to investors in one of its secondary funds, according to Bloomberg reporting on unnamed sources familiar with the matter. The transaction, which had been in development for several months under the internal codename Project Eclipse, would have securitized stakes in approximately 700 underlying investments to generate a package of debt securities. The effort to secure an investor for the deal's equity tranche—typically the riskiest component—has proven unsuccessful, prompting the reconsideration.
Jefferies served as financial advisor on the transaction. Neither Blackstone nor Jefferies commented on the report. The company retains optionality and may either proceed with the CFO under a modified structure or pursue alternative mechanisms to return capital to limited partners in the secondary fund.
The difficulties surrounding Project Eclipse underscore broader challenges confronting private equity managers as they navigate a prolonged slowdown in traditional exit markets. Distributions to limited partners have become constrained, and fundraising has grown more difficult, driving the industry toward secondary transactions and structured credit solutions as alternative liquidity sources.
Despite Blackstone's current difficulties, CFO issuance is gaining significant traction industry-wide. Evercore projects that new CFO volume will more than double to approximately $30 billion this year, reflecting deepening interest in the structure among alternative asset managers. Several marquee secondary-market participants have already launched or are developing CFO vehicles: AlpInvest, the Carlyle-affiliated secondary investor, has raised a CFO for secondary strategies; Dawson Partners has pursued the structure for credit strategies; and Ardian is currently developing a CFO targeting approximately $1 billion in capital. This proliferation suggests that despite Blackstone's setback, CFOs are becoming an increasingly mainstream solution for generating alternative liquidity in a constrained fundraising environment.
Jefferies served as financial advisor on the transaction. Neither Blackstone nor Jefferies commented on the report. The company retains optionality and may either proceed with the CFO under a modified structure or pursue alternative mechanisms to return capital to limited partners in the secondary fund.
The difficulties surrounding Project Eclipse underscore broader challenges confronting private equity managers as they navigate a prolonged slowdown in traditional exit markets. Distributions to limited partners have become constrained, and fundraising has grown more difficult, driving the industry toward secondary transactions and structured credit solutions as alternative liquidity sources.
Despite Blackstone's current difficulties, CFO issuance is gaining significant traction industry-wide. Evercore projects that new CFO volume will more than double to approximately $30 billion this year, reflecting deepening interest in the structure among alternative asset managers. Several marquee secondary-market participants have already launched or are developing CFO vehicles: AlpInvest, the Carlyle-affiliated secondary investor, has raised a CFO for secondary strategies; Dawson Partners has pursued the structure for credit strategies; and Ardian is currently developing a CFO targeting approximately $1 billion in capital. This proliferation suggests that despite Blackstone's setback, CFOs are becoming an increasingly mainstream solution for generating alternative liquidity in a constrained fundraising environment.
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