Collateralized fund obligations (CFOs) backed by private equity fund assets or hedge fund assets are bond securities similar to collateralized debt obligation (CDO), except that they are based not on cash flows from "traditional" debt obligations, but on interest payments tied to the performance of a pool of hedge funds or private equity funds.

Just like CDOs, CFOs are financial securities that compensate an investor based on multiple tranches that are more or less exposed to the risk of default or underperformance of the underlying assets.

However, unlike CDOs, CFOs offer returns that are weakly correlated with traditional equity or credit markets. To achieve this, the special investment vehicle is collateralized by a portfolio of shares in several hedge funds.