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Blackstone’s GSO to lose a senior leader

Senior managing director Timothy White will transition out of GSO after the group eliminated its ability to make private equity investments in its second mezzanine fund.

The Blackstone Group’s debt shop GSO Capital Partners is losing a senior member of its team, only a few months after the group closed on $4 billion for its second mezzanine fund.

Timothy White, a senior member of GSO’s management team, plans on leaving the firm over the next few months to pursue a strategy of mid-market buyouts on his own, according to limited partners and industry sources.

White, whose official titles include senior managing director with Blackstone and co-head of US product sourcing and head of private equity with GSO, will continue to work as a senior advisor to GSO and retain a role on the investment committee, according to a letter GSO sent to its LPs that was seen by Private Equity International.

“We will also have a sourcing agreement in place with Tim to facilitate continued deal flow from some of his better LBO sponsor relationships,” according to the LP letter.

Partners Mike Whitman, Dwight Scott and Rob Petrini will continue to oversee the group’s mezzanine business, which earlier this year closed on $4 billion for its second fund. They will be joined by Louis Salvatore, one of GSO’s original partners who helped found the mezzanine business in 2005, the letter said.

Blackstone declined to comment.

Tim leaves with the full support of all of us at GSO and Blackstone. He has been a great colleague and friend over many years, and certain partners at GSO/Blackstone will be investing in his new initiative.

GSO LP letter

White’s departure is tied to a slight strategy change in the second mezzanine fund that was supported by a majority of LPs, but left a few investors scratching their heads. GSO LPs overwhelmingly approved barring the firm from pursuing mid-market private equity control investments in Fund II, which accounted for a small percentage of the capital in the group's first mezzanine investment vehicle.

White led the private equity focus, which helped to slightly boost the team’s debut fund by sprinkling a light layer of equity investments in the mezzanine portfolio. However, Fund I, which is producing a net 15 percent return, would not have been significantly impacted without the private equity investments, according to a person with knowledge of the fund.

“We no longer have pools of capital at GSO from which we can make private equity investments. In connection with raising [Fund II], we agreed to entirely eliminate the ability to pursue control private equity,” according to the LP letter.

The group worked for months to figure out a way to keep White on board, but “mutually [came] to the conclusion that because credit investing will continue to be GSO’s focus, creating an opportunity for Tim to pursue private equity in any meaningful way under the GSO umbrella or Blackstone’s private equity group is not feasible” the letter said.

Some LPs questioned the wisdom of taking away the group’s ability to pursue private equity deals – a request LPs made because they wanted the fund to better reflect their desire for a pure mezzanine vehicle, as opposed to a hybrid model.

Meanwhile, White is expected to set out on his own later this year. He is expected to launch his own fund, according


to sources, and can expect the support of his former partners.

“Tim leaves with the full support of all of us at GSO and Blackstone. He has been a great colleague and friend over many years, and certain partners of GSO/Blackstone will be investing in his new initiative,” the letter said.

Prior to GSO, White was a managing director in the private equity operation at Audax Group. Before that, he was a principal at DLJ Merchant Banking.

GSO's second mezzanine fund, which closed in late March, has already deployed $1.1 billion, representing 26 percent of the fund’s capital.

The fund has been lauded by LPs for its LP-friendly terms, which include a 1.5 percent management fee on invested capital, rather than the more traditional model of charging the management fee on committed capital.

GSO uses 100 percent of any transaction fees to pay down the management fee for LPs and the group uses a “European style” distribution scheme in which the GP only collects carried interest after LPs are paid back 75 percent of committed capital, plus an 8 percent return.

Blackstone acquired GSO in 2007 for almost $1 billion to expand its credit strategies. GSO was formed in 2005 by former DLJ and Credit Suisse colleagues Bennett Goodman, Tripp Smith and Douglas Ostrover.