Insurance companies are structuring and purchasing PE collateralized fund obligations (CFOs) as a way to gain exposure to private funds while complying with their industry restrictions. As CFOs are a new product in the insurance space, however, the National Association of Insurance Commissioners (NAIC) and other regulators are still developing regulations related to them. The future is uncertain, however, due to how the NAIC has oscillated between skepticism and support for CFOs, which has a profound impact on the trajectory of the CFO market. That topic was addressed at length by an expert panel at the Practising Law Institute’s Fund Finance 2021 Program. Moderated by Matthew K. Kerfoot, former head of fund financing and investments (Americas) at UBS Securities LLC, the panel featured Greg Fayvilevich, head of U.S. funds and asset management group at Fitch Ratings; Daniel A. Rabinowitz, partner at Kramer Levin; and Phillip Titolo, head of direct private investments at MassMutual. This second article in a two-part series explores NAIC’s stance toward CFOs and the likelihood of the product receiving favorable regulatory treatment. The first article
outlined 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 net asset value facilities. See “A Comparison Between Two Liquidity Solution Tools: Preferred Equity and NAV Facilities
” (Oct. 13, 2020); and “Five Obstacles When Negotiating NAV Facilities and Potential Ways to Overcome Them (Part Two of Two)
” (Mar. 24, 2020).