While the securitization of hedge funds might not be the newest concept on the block, it's certainly an area that has seen limited expansion in Europe. However, as investors gain an appetite for this paper, the sector is expected to see more growth in 2007.

"CFO CDOs seem to becoming slightly more familiar within the European CDO market with three deals pricing last year and one in 2004," Dresdner Kleinwort analysts said in a report. At a Moody's Investors Service conference held in London earlier this year, analysts said they expected a good year for collateralized fund obligations (CFOs) with the increased investor interest in hedge fund products and new structures in the pipeline.

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