Alex Billias, Zoe Buck, Josh Lerner, TzuHwan Seet, and Cody Wilson · March 2026
Abstract
Private markets have become a significant component of investor portfolios, offering the potential for enhanced risk-adjusted returns relative to public assets. However, structural features like illiquidity, irregular cash flows, information asymmetries, performance dispersion, and constrained access to private markets complicate portfolio construction and risk management practices.
This paper examines the rise of private asset-linked structured products, particularly collateralized fund obligations (CFOs), as a mechanism for transforming portfolios of private assets into securities with distinct risk-return profiles. We analyze how these structures approach diversification, utilize tranching, alter cash flow timing, and address regulatory capital considerations, while also highlighting important limitations of these products.
Drawing on academic literature, industry evidence, and quantitative analysis, we evaluate the role of CFOs within a broader portfolio context, showcasing potential benefits and structural complexities. The paper contributes a consolidated framework for assessing the investment implications of this emerging segment of structured finance.
Josh Lerner and Bella Private Markets (“Bella”) have received compensation for advising institutional investors in private capital funds, private capital groups, and governments designing policies relevant to private capital. This report and the analyses contained herein were conducted independently and reflect the views of Bella only. This report is not meant to serve as an endorsement of any investment group or its services. This report is not meant to provide investment advice and should be viewed as educational in nature only. All errors and omissions are our own.
