GSO Capital Partners’ large energy exposure has continued to weaken the credit manager’s financials in the first quarter, management admitted.
The firm’s distressed funds were down 3.3 percent in the quarter, while performing credit, which includes mezzanine and business development companies, was up only 60 basis points, the first quarter earnings report showed.
The Blackstone-owned credit firm’s performance fees were affected as well: posting a 75 percent decline year-on-year, while economic income dropped by 65 percent.
Blackstone executives said the negative numbers were primarily based on mark-to-market declines in its energy portfolio, which is about 14 percent of GSO’s $78.6 billion in assets. Assets under management were up 5 percent from $74.9 billion in the first quarter of last year, but down slightly from $79 billion in Q4 2015.
Many asset management firms with significant energy holdings have been hurt by falling oil prices, though they are rebounding slightly to about $41 per barrel.
Speaking on the earnings call, Blackstone president Tony James (pictured) admitted that challenges in energy, commodities, currencies and the broader equity and credit markets had hit some of Blackstone’s financials.
However, he said the firm’s structure of long-term locked up capital put it in a better position to capitalise on market turmoil.
“GSO endured the second most violent period in leveraged loans in its history this quarter,” James said.
He noted that credit spreads widened to 900 basis points in the quarter, the highest level since 2009. Some of these challenges were leading to increased opportunities across distressed debt and mezzanine, James said.
“GSO’s pipeline has never been stronger. They are really excited about chomping at the bit of market opportunity and pricing looks really attractive,” he added.
GSO put $569 million to work in the first quarter and has about $12 billion in dry powder, including two energy funds focused on liquid and illiquid credit. Most of that capital has yet to be deployed, as finding new energy opportunities has been difficult, the firm said.
On the distressed front, GSO recently hired David Flannery to oversee distressed assets in New York. He will co-manage the area with David Posnick, who has been overseeing rescue lending strategies at Blackstone out of California.
In mezzanine, the firm is raising $6 billion for its third GSO Capital Opportunities fund, which James said he expects to hold a first close on this quarter or next.