Blackstone’s GSO nears final close for $2bn fund

The Blackstone Group expects to close its GSO fund for credit investments sometime in May, and has already collected $1.5 billion on its way to its $2 billion target.

An investment staff member with the San Diego County Employees Retirement Association said during a videotaped meeting earlier this week the fund is scheduled to close in May, but the final closing could be extended.

SDCERA committed $50 million to the fund, which will target investments in rescue loans, distressed for control and opportunistic transactions like bankruptcy loans. In select cases, the fund will invest alongside core Blackstone funds, according to pension documents.

Blackstone/GSO Capital Solutions Fund has a 1.5 percent management fee, which will be offset 100 percent by transaction fees, pension documents said. The fund started marketing in March 2009. Blackstone acquired GSO, an independent spin-out from Donaldson Lufkin & Jenrette, in 2008.

GSO has made three investments from the fund from September 2009 through January 2010 for more than $240 million. GSO looks for investments in the $20 million to $150 million range, with an average of about $80 million.

GSO’s fund will look for investments across industries, including infrastructure, transportation, finance and housing-related, among others. The bulk of the investments will be in the US and Western Europe.

Some of the “distressed situations” GSO will focus on include excessive leverage from underperforming leverage buyouts, an inability to access capital markets with approaching near-term debt maturities, declining profitability because of the economic environment and sales from distressed sellers.

“Such financings may be structured as convertible secured debt or secured debt with warrants, unsecured debt, or preferred equity that is convertible into common equity or that carries warrants,” the firm said in pension documents.

“GSO believes that its competitive advantages in these situations stem from its significant origination capability, deal structuring expertise, longstanding reputation as a ‘friendly’ provider of capital, flexibility to invest across the capital structure, and, importantly, ability to act within tight time frames,” the firm said.

The fund is prohibited from investing in companies in which Blackstone funds own an equity interest, other than an equity interest from a co-investment with Fund VI with the fund. SDCERA said GSO used Blackstone’s Park Hill Group as a placement agent for the fundraising.

Other investors in the fund include the California State Teachers’ Retirement System, the Illinois Teachers’ Retirement System, the Korea Investment Corporation and the Teachers’ Retirement System of Texas.

GSO was created in 2005 after three executives spun out of DLJ. The team manages an about $24 billion credit-related portfolio.