Pacific Investment Management Co. President Christian Stracke warned that investors in complex structured products like collateralized fund obligations (CFOs) and significant risk transfers (SRTs) may be underpricing risk, drawing parallels to pre-2008 subprime mortgage structures. Speaking in Sydney, Stracke said the problem isn't systemic and Pimco isn't bracing for another global financial crisis, but highlighted complacency in pockets of the over-$1 trillion fund finance market. CFOs, one of the fastest-growing instruments, allow money managers to transform fund equity into credit, often sold to cash-rich insurance companies seeking high-rated debt.

Major firms including Blackstone Inc., Carlyle Group Inc., and Vista Equity Partners have created CFO structures. In July, Seviora Holdings Pte Ltd, a Temasek Holdings-owned asset manager, and Churchill Asset Management closed a $400 million CFO in Asia. Pimco's July note cited "evidence of excess" across markets, though overall global borrowing levels remain low.

Stracke emphasized the key difference from pre-GFC: today lacks the "leverage-on-leverage" that amplified the 2008 meltdown. Some private equity firms have struggled to complete CFO deals as investors pushed back on excessive leverage.