GSO looks outside US as energy prices dampen returns

Blackstone’s credit arm expects to close its third distressed fund by the end of 2017.

While its energy exposure caused a slight loss on its distressed credit portfolio during the second quarter, Blackstone GSO capitalised on investment opportunities in Europe, executives on Thursday’s earnings call said.

The distressed strategies bucket in GSO’s portfolio showed a net loss of 1.2 percent, which the firm attributed to the “decrease in commodity prices in the energy portfolio,” the earnings release stated.

The negative distressed credit performance resulted from the fluctuation of global commodity prices only, and not from the performance of the underlying companies, Michael Chae, chief financial officer at the firm, said on the call.

GSO’s exposure to energy – including investments in upstream projects, power generation and renewable sources – amounts to about 20 percent of its assets under management, which reached a total of $94.5 billion as of 30 June. Comparatively, energy represents 10 percent of Blackstone’s overall AUM, which topped the end of the quarter at $371.1 billion.

“We feel good about the portfolio, though we’re going to watch if commodity prices stay or fluctuate the rest of the year,” he added. In contrast to its distressed counterpart, the performing credit bucket showed a gross return of 1.5 percent over the quarter.

The credit arm expects to close its third distressed fund by the end of the year, Chae said. In March, the firm shifted its distressed debt capital in its GSO Special Situations Fund, an open-ended hedge fund structure, to closed-end vehicles.

Meanwhile, GSO deployed or committed $2.7 billion in capital during the quarter, predominantly in Europe, an earnings statement showed. The firm has already deployed $4 billion so far this year and $6 billion in the twelve months ending 30 June.

Half of the total capital Blackstone deployed the first half of this year – $20.2 billion across all platforms – was invested outside the US, particularly in credit and real estate investments in Europe, as “opportunistic investments in the US remains challenging,” Chae added.

The total portfolio garnered $2.68 million in net investment income over the quarter and has earned $13.19 million the first half of the year.  That’s substantially lower than the $19.74 million and $793 million of net investment income the firm earned in second quarter and the first half of 2016, respectively.