Private equity industry faces sudden increase in liquidity pressure! Blackstone (BX.US) may come up with a new measure: issuing bonds against packaged fund shares, involving a capital of 2 billion US dollars.

According to reports, Blackstone Inc. (BX.US) plans to package its holdings of multiple private equity fund shares into bonds and sell them to investors, with the value of the shares exceeding $2 billion. Media reports citing sources familiar with the matter said that this alternative asset management company is introducing a fund collateralized debt obligation (CFO), packaging shares of multiple leveraged buyout funds for sale. This transaction will be one of the largest CFO transactions ever, surpassing a similar transaction conducted by Carlyle Group Inc.'s AlpInvest division last year. Many private equity firms have struggled to sell their investments made in the low interest rate environment from 2020 to 2022, making it difficult for them to return capital to investors. CFO products offer new financing options for private equity firms CFOs have become a financing option for private equity firms, providing liquidity without completely selling off their leveraged buyout assets. Data from Evercore shows that the market size of such transactions could exceed $30 billion this year, a 50% increase from 2025. Evercore has been involved in designing structures for many of these transactions, providing unique insights into this highly opaque market. Nigel Dawn, global head of Evercore, said that the surge in such transactions may reflect the pressure faced by alternative asset management companies to return funds to investors while also raising capital for new funds. CFOs are a securitization method that packages equity interests in a private equity fund into one or more debt instruments. Through this asset transformation, fund managers can raise funds from fixed income investors such as insurers who were previously restricted by risk from investing. Companies such as Carlyle Group Inc.'s AlpInvest, Ares Management Corp., Dawson Partners, Coller Capital, and Blackstone have all raised funds through such products. Smaller management companies are also entering this field, with Star Mountain Capital planning to raise approximately $500 million through such products last year. CFOs are closely related to another form of debt called rated feeder notes, aimed at raising funds from financially strong insurance companies. This helps alleviate the pressure on asset management companies to raise funds from retail investors. Retail investors, as the main source of new capital in the private equity market, have recently come under scrutiny for their increasingly important role. Jeff Stern, a partner at the law firm Reed Smith, said, "Institutional investors tend to prefer long-term investments. The rise of rated feeder notes and fund collateralized debt obligations reflects the private credit market's continued tilt towards institutional investors." Market concerns rise, pressure mounts on alternative asset industry It is worth noting that redemption pressure is spreading throughout the entire alternative asset industry. Blackstone Inc.'s flagship private credit fund BCRED recently joined the ranks of funds with redemption restrictions. Beyond private credit, redemption pressure is also spreading to the private equity sector. Swiss alternative asset management giant Partners Group announced restrictions on redemptions for its $8.6 billion perpetual private equity fund Global Value SICAV, causing a market uproar. David Layton, CEO of Partners Group, said that outflows of funds, which were originally concentrated in the private credit sector, have now begun to spread to other alternative asset categories. Much of the anxiety stems from a sell-off of software companies. These companies have long been favored by private equity capital, but are now facing competition from new artificial intelligence tools. In addition, conflicts like those involving GEO Group Inc. continue to push up inflation and make asset valuation more difficult. Over the past five years, private equity firms have invested over $1 trillion in the software industry, with many deals closing at high valuations during the 2021 merger boom. Now, investors are questioning whether these assets can be successfully exited. Douglas Hallstrom, managing director at Advent, said, "With the impact of artificial intelligence-related discussions, transactions involving these types of assets are facing considerable resistance. Even if they can't realize the peak valuations, institutions are under increasing pressure to gradually dispose of the projects accumulated in 2021."