Insurance companies are becoming more active in the fund finance space, not only as lenders under net asset value (NAV) facilities but also as structurers and purchasers of PE collateralized fund obligations (CFOs). Given the substantial coffers wielded by insurance companies, their involvement with CFOs could inject meaningful amounts of capital into the private funds industry. An expert panel at the Practising Law Institute (PLI) Fund Finance 2021 Program examined the structure, development and use of PE CFOs by insurance companies. The panel was moderated by Matthew K. Kerfoot, former head of fund financing and investments (Americas) at UBS Securities LLC, and featured Greg Fayvilevich, head of U.S. funds and asset management group at Fitch Ratings; and Phillip Titolo, head of direct private investments at MassMutual. This first article in a two-part series provides an overview of the mechanics of PE CFOs, their appeal to insurance companies, ways they can be structured, the current state of the CFO market and how they compare to NAV facilities. The second article
will look at the regulatory treatment of CFOs by the National Association of Insurance Commissioners and the likelihood of insurance companies being authorized to take advantage of the structure going forward. For coverage of another PLI panel moderated by Kerfoot, see our two-part series: “Common Structures, Applications and Trends in the Use of NAV Facilities by Secondary Funds
” (Mar. 17, 2020); and “Five Obstacles When Negotiating NAV Facilities and Potential Ways to Overcome Them
” (Mar. 24, 2020).