GSO aims for mezz fund launch in the new year – exclusive

The Blackstone-owned credit firm is in the pre-marketing stage for its GSO Capital Opportunities Fund III and expects to formally launch it in the beginning of 2016.

GSO Capital Partners, the credit arm of The Blackstone Group, has been approaching investors about its third mezzanine fund and plans to formally launch fundraising in the beginning of next year, according to LPs.

The predecessor GSO Capital Opportunities Fund II finished fundraising in March 2012 at $4 billion. GSO hasn’t formally set a target yet, but the firm would aim to raise a similar or slightly larger amount for its next fund, PDI understands.

GSO declined to comment on fundraising.

The Blackstone credit group is one of the largest US managers in mezzanine strategies. Goldman Sachs also runs large mezzanine funds at GS Mezzanine Partners within its merchant banking group. New York-based Highbridge Principal Strategies, which closed its second mezzanine fund on $5 billion in March 2013, is also in the beginning stages of marketing its next fund. Los Angeles-based Crescent Capital launched fundraising for its seventh mezzanine fund in the summer and expects to hold a first close at about half its $3 billion target this month.

GSO’s Capital Opportunities strategy invests in the junior debt of companies in the US and Europe. The firm also raised its first dedicated European fund earlier this year and the two funds can co-invest in European deals together. GSO has deployed about $1.2 billion in mezzanine strategies this year and is close to finishing investing all of the capital in the second fund, according to sources familiar with the strategy.

Returns in GSO’s mezzanine strategies had fallen in the third quarter due to public market volatility, according to Blackstone’s third quarter earnings report. The vehicles lost 3.2 percent in Q3, though the strategy was still up 6.1 percent year-to-date through 30 September. The second mezzanine fund has so far delivered 19 percent net internal rate of return since inception. GSO is also nominated for PDI’s Junior Lender of the Year award and won in the same category last year.

New York-based GSO handles a variety of other debt strategies in addition to mezzanine. These include rescue lending funds, BDCs, CLOs and credit hedge funds. The firm has about $80 billion in total assets under management.