Franklin Templeton’s $1.5 Billion CFO Opens New Route for Secondaries Capital

Franklin Templeton has raised $1.5 billion through its first collateralized fund obligation, adding momentum to the use of securitization as a capital-raising tool for private equity secondaries managers seeking access to insurance companies and other institutional investors.

Franklin Templeton Structured Solutions 2026 combines private equity secondaries and continuation vehicles managed by Lexington Partners with U.S. middle-market direct lending assets managed by Benefit Street Partners. Franklin Templeton Investment Solutions serves as collateral manager.

The transaction, which closed Aug. 20, represents more than a standalone fundraising event. Collateralized fund obligations, or CFOs, are increasingly being used to transform portfolios of illiquid private-market assets into securities with different levels of credit risk, potentially widening the pool of capital available to secondaries managers.

How CFOs Expand the Secondaries Investor Base

A CFO typically places private fund interests or other alternative assets into a special-purpose vehicle and issues securities supported by cash flows from the underlying portfolio. Those securities can be divided into senior and subordinated tranches carrying different risk and return profiles.

The structure has particular relevance for insurers. Rather than holding private equity interests directly, insurance investors can potentially purchase rated debt backed by diversified private-market portfolios, subject to applicable regulatory capital and investment requirements.

Franklin Templeton said in its official announcement of the $1.5 billion CFO that the transaction attracted global investors and is intended to provide diversified exposure across multiple investment vintages and portfolio companies.

Registered investment advisers, family offices, insurance companies and wealth distributors are among the investor groups Franklin Templeton identified as potential users of structured private-market solutions.

For secondaries managers, the significance is the potential creation of another capital-formation channel alongside conventional closed-end fundraising, NAV financing and other structured liquidity products.

That expansion comes as private equity investors increasingly use structured transactions to generate liquidity without selling entire positions. PE NEWSWIRE previously reported that structured private equity fund transactions reached approximately $9 billion in 2025, compared with $6 billion a year earlier, as investors explored preferred equity and other alternatives to outright secondary sales.

Securitization Moves Deeper Into Fund Finance

CFOs are not a new invention, but their role within private fund finance is becoming more prominent.

A 2026 industry survey cited by Private Equity Law Report found that only 8% of respondents had closed CFO transactions during 2025, well below the adoption rates for subscription facilities and NAV loans. At the same time, insurers have been increasing their involvement in structured fund finance, creating a potentially larger investor base for rated products.

Legal advisers have also been preparing for broader adoption. Debevoise & Plimpton said secondaries funds were increasingly examining rated feeders and CFOs as both fundraising tools and sources of leverage as regulatory treatment for U.S. insurers became clearer.

The development is part of a wider convergence between securitization and fund finance. Managers are increasingly combining techniques historically associated with fixed-income markets with portfolios containing private equity, private credit and other alternative assets.

For secondaries managers in particular, those structures can be useful because acquired fund interests are often more seasoned than primary commitments. Investors buying secondary positions typically enter later in a fund’s life, when portfolios are more developed and potential distributions may be easier to model than in a newly established blind-pool fund.

Insurance Regulation Will Shape CFO Growth

Greater insurer participation also brings greater regulatory scrutiny.

The National Association of Insurance Commissioners has been reviewing how insurers should account for and hold capital against structured investments containing private assets. The central regulatory question is whether an instrument genuinely behaves like debt or effectively transfers equity-like private-market risk into a security carrying a fixed-income label.

The NAIC said following its August 2026 Summer National Meeting that state regulators had adopted changes to risk-based capital treatment for collateralized loan obligations and continued work around complex investments and private-credit exposures.

The distinction matters because favorable regulatory capital treatment is one of the features that can make rated structured products attractive to insurers.

As CFO issuance grows, managers will therefore need to demonstrate that portfolio diversification, structural protections, cash-flow waterfalls and credit enhancement justify the ratings assigned to individual tranches.

The equity or most subordinated portion of a CFO absorbs losses before senior creditors, while higher-ranking tranches benefit from that first-loss protection. This allows investors to select different levels of exposure to the same underlying private-market portfolio.

Secondaries Growth Creates Need for More Capital

The rise of securitization is occurring as secondaries managers need increasingly large pools of capital to finance transactions.

Private equity sponsors are holding portfolio companies for longer periods, while limited partners continue to seek distributions and portfolio rebalancing options. Those pressures have expanded both LP-led secondary sales and GP-led continuation vehicles.

The growing importance of secondaries has also increased demand for specialist advisory capabilities. PE NEWSWIRE’s coverage of Lazard’s $575 million acquisition of Campbell Lutyens noted that the two firms had collectively advised on more than $100 billion of secondary transactions over the preceding two years, illustrating the scale the market has reached.

CFOs could give large secondaries platforms another way to fund that expansion without relying exclusively on traditional LP commitments.

Franklin Templeton is particularly well positioned to test the model at scale. The company reported $295 billion of alternative assets under management as of July 31, including Lexington Partners, Benefit Street Partners and Clarion Partners.

Lexington is one of the industry’s largest secondaries specialists, while Benefit Street adds private credit assets that can provide contractual income alongside less predictable private equity distributions.

Combining the two strategies in a structured vehicle may also improve diversification across asset classes, vintages and underlying companies.

The broader implication is that secondaries fundraising is beginning to intersect more directly with structured credit markets. If CFO issuance continues expanding, the sector could attract investors that historically participated in private equity only indirectly or in limited amounts.

That would give large secondaries managers another source of scalable capital while creating a new distribution channel for private-market exposure.

The opportunity comes with additional complexity. CFOs introduce ratings, tranche structures, creditor protections and regulatory considerations that conventional private equity funds do not face. Their long-term adoption will therefore depend not simply on investor demand but on whether the structures perform as expected through weaker exit environments and periods of declining private-market valuations.

Franklin Templeton’s $1.5 billion transaction nevertheless provides another indication that securitization is moving from a specialized fund-finance technique toward a more established component of private-market capital formation.