Blackstone weighs abandoning $3bn financing plan for secondaries fund

Blackstone is considering scrapping a proposed $3bn collateralised fund obligation (CFO) that was designed to generate liquidity for investors in one of its older secondary funds, according to a report by Bloomberg citing unnamed people familiar with the matter.

The alternative asset manager has been working for several months on the transaction, which would use stakes in roughly 700 underlying investments as collateral for a package of debt securities. However, efforts to attract an investor for the deal’s equity tranche have proved challenging, the people said.

Blackstone has yet to make a final decision and could still proceed with the CFO or pursue an alternative structure to return capital to existing investors. The firm reportedly declined to comment.

Jefferies has been advising Blackstone on the deal, which was internally known as Project Eclipse. Jefferies reportedly declined to comment.

The difficulties surrounding the transaction highlight the challenges facing private equity managers as they look for new ways to create liquidity amid a prolonged slowdown in traditional exit markets.

The weaker deal environment has constrained distributions to limited partners while making fundraising more difficult, encouraging managers and investors to explore secondary transactions and structured solutions such as CFOs.

CFO issuance is expected to more than double to around $30 billion of new volume this year, according to Evercore, reflecting growing interest in the structure as private capital firms seek alternative sources of liquidity.

Several major secondary-market investors have already turned to CFOs. AlpInvest, part of Carlyle, and Dawson Partners have raised such vehicles for secondary or credit strategies, while Ardian is working on a CFO targeting approximately $1 billion.

Pantheon also launched its first CFO earlier this year, backed by a portfolio spanning secondary funds, co-investment strategies and a seeded private equity portfolio.

Meanwhile, Carlyle arranged an $8.5bn structured financing in May combining bank debt, preferred equity and common equity in a structure resembling a CFO, demonstrating the range of financing solutions emerging as managers seek to unlock value from private-market portfolios.