Typically, what are Balance Sheet CDOs constructed from?

Balance Sheet CDOs (Collateralized Debt Obligations) are primarily constructed from loan obligations, which include various types of loans that a financial institution holds on its balance sheet. These loan obligations may consist of corporate loans, mortgage loans, and other forms of debt that have predictable cash flows. The essential characteristic of Balance Sheet CDOs is that they are backed by the cash flows from these loans, which fund the tranches of the CDO structure.

The purpose of a Balance Sheet CDO is to enable financial institutions to manage risk and optimize their capital by converting illiquid loans into tradable securities. This process allows the institution to benefit from the diversification of the cash flows associated with the underlying assets while also freeing up capital.

Other asset classes mentioned in the options, such as corporate equities, real estate assets, and government securities, are not the primary components of Balance Sheet CDOs, which specifically focus on debt instruments resulting in predictable cash flows from loans. Hence, the correct answer reflects the true nature of the assets that constitute Balance Sheet CDOs.