The product is known as a “collateralised fund obligation” and its aim is to diversify risk by parceling up the companies’ providing returns. CFOs are, in some ways, a private equity variant of “collateralised debt obligations”, the bundles of mortgage-backed securities that only reached the public consciousness when they wreaked havoc during the 2008 financial crisis.

So far, CFOs have flown largely under the radar. Although some of private equity’s largest names such as Blackstone, KKR, Ares and the specialist firm Coller Capital have set up versions, this is often done privately with little or no public disclosure of the vehicle’s contents — or even, in some cases, of its existence, making it all but impossible to build a full picture of who is exposed and on what scale. CFOs introduce a new layer of leverage into a private capital industry already built on debt. Their rise is one illustration of how post-crisis regulation, rather than ending the use of esoteric structures and risky leverage, has shifted it into a quieter, more lightly regulated corner of the financial world.

Eoin Treacy's view

In the world of investment banking everything can be made better with leverage. Private equity offered rich rewards in the decades before zero interest rates. Then the volume of cash available to the sector ballooned and valuations for the assets they acquired rose in tandem. Leverage is the easy answer for how to sustain returns despite high valuations, which would normally compress yields.

The investors in these structures are most at risk from valuation contraction. That’s pension funds, charities and endowments. Companies like Brookfield Asset Management and Goldman Sachs have been among the most successful in selling leveraged structures.

Brookfield Asset Management has just split itself in half. Here is a section from the press release:

Shareholders can now access a leading pure-play global alternative asset management business, through the Manager. The Corporation will continue focusing on deploying capital across its operating businesses, growing its cash flows and compounding capital over the long term.

BAM is now retreating from its listing price. BN remains in a consistent medium-term downtrend.

Goldman Sachs’ asset management division has become the destination for hedge funds who are better at raising capital than managing hedges. Several of the products offered to clients have lock ups approaching 10 years. That suggests clear scope for volatile valuations even in a benign scenario.

The share rebounded very impressively from the October low but is now at least consolidating. A sustained move below $350 would signal more than a temporary pause.