Product Owners - Which Function?

I'd suggest that Product Owners are part of a value optimization function, and that any existing functions should be modified to better support this.

I have always worked with the Product Owner role being covered by Product Managers.  It has worked well and the developers like that they are getting more insights into the business side. It helps them better understand how the technical work they do impacts the business. There is also less chance of the Product Owner trying to provide the technical implementation details. 

In your setup it seems the Product Owner is more like what most companies call a Technical Lead.  

In my experience, the success of any arrangement is more likely affected by organizational culture and the behaviour of the people involved, rather than which part of the organization they're in.

If Product Owners are distinct to the development part of the organization, what conflicts of interest does this introduce? If there is a Head of Development, how will the behaviour, accountability and responsibilities of that person change?

What would the purpose be of product management that operates distinctly from the Product Owners?

Are Product Owners treated with enough respect to take ownership of their product irrespective of where they sit in the organizational structure, or are they a proxy, representing the will of others?

If seniority is an impediment to Product Owners being granted such respect and authority, which organizational structure will provide the best support to grow Product Owners to that level, and help them become real owners, rather than undermining them?