A return to the risky business at the heart of the Great Recession

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The Economic Insights team takes a look at investment products known as collateralized fund obligations. If they sound suspiciously like the collateralized debt obligations (CDOs) at the heart of the Great Recession, that’s because they are.

Traders work on the floor at the New York Stock Exchange in New York on July 1, 2022.

Private equity firms are increasingly bundling their stakes in firms of varying credit quality and offering them to investors as safe investments with strong credit ratings. If these products, known as collateralized fund obligations , sound suspiciously like the collateralized debt obligations at the heart of the Great Recession, that’s because they are.

The impetus for the re-emergence of CFOs is the private equity industry’s difficulties in raising additional funds. With investors increasingly concerned about a forthcoming economic downturn, the funding market is tougher and so any and all options to bring more cash into the industry are on the table.

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