I study the incentives of the collateral managers who selected securities for ABS CDOs—securitizations that figured prominently in the financial crisis. Specialized managers without other businesses that could suffer negative reputational consequences invested in low‐quality securities underwritten by the CDO's arranger. These securities performed significantly worse than observationally similar securities. Managers investing in these securities were rewarded with additional collateral management assignments. Diversified managers who did assemble CDOs suffered negative reputational consequences during the crisis: institutional investors withdrew from their mutual funds. Overall, the results are consistent with a quid pro quo between collateral managers and CDO underwriters.