Blackstone is exploring a $2bn collateralised fund obligation that would package leveraged buyout fund stakes into bonds for investors and insurers. The transaction would direct cash to investors in Blackstone Strategic Partners, the unit that purchases positions in other managers' funds. Market sources say the firm hasn't decided between securitization or a traditional secondary sale.

Private markets face a severe liquidity crunch, with roughly $4tn of unsold assets sitting idle. Most holdings date to 2020-2022 when interest rates hovered near zero. Rising rates, compressed valuations, tariff volatility, and geopolitical tensions have stalled exits across the industry, leaving endowments, pensions, and sovereign wealth funds waiting for returns.

Large secondary investors increasingly turn to securitization as an alternative exit route. Blackstone joins Carlyle's AlpInvest and Franklin Templeton's Lexington Partners in packaging fund stakes into rated securities. These structures slice risk into tranches, attracting insurers seeking credit-rated assets. CFO issuance exploded to $25.9bn in 2024 from just $4.8bn in 2021, per KBRA.

At $2bn, this deal ranks among the largest CFO transactions ever, trailing only Coller Capital's $2.4bn vehicle from April. Still, demand faces headwinds. Buyers have grown selective amid surging issuance, and recent deals struggled to secure commitments quickly. Blackstone remains early in marketing, with uncertainty surrounding appetite for the riskiest equity tranche.