GSO pulls in billions for new direct lending platform in Q3

The firm’s performing credit strategies have returned 9.4% for the last 12 months, significantly outperforming its distressed strategies, which have returned 4% over the same period.

Blackstone has continued what co-founder, chairman and chief executive Stephen Schwarzman has dubbed a fundraising “supercycle”, as the New York-based firm drew in $24.1 billion over the third quarter and $124.6 billion in the last 12 months.

GSO Capital Partners, Blackstone’s credit arm, raised a total of $10.8 billion in the third quarter, including $2.6 billion for its new direct lending platform. The firm is ramping up a new business development company following its split in April from FS Investments, to which GSO served as sub-advisor for multiple FS BDCs.

In addition, GSO raised $1.1 billion for its energy debt platform, which is currently seeking $5 billion for its second commingled fund, and launched three new US collateralised loan obligations totalling $1.6 billion. The firm also closed on $1.2 billion in new leveraged loan separately managed accounts.

Fielding a question from an Evercore ISI analyst on the third-quarter earnings call, one Blackstone executive noted the metrics for its credit portfolio remain strong despite a competitive lending environment.

The executive said that, looking back several years, leverage levels within GSO’s book are slightly lower today and 75 percent of its loans have financial covenants, about the same level from several years ago. “Our peers who have broad credit platforms are in same place,” this person added, saying smaller firms with fewer credit strategies have been driving the degradation of terms and pricing.

The firm’s performing credit investments posted much better results than its distressed investments. The former posted quarterly returns of 1.5 percent, while the latter returned 0.6 percent. For the last 12 months, performing credit returned 9.4 percent and distressed debt returned 4 percent.

On the private equity side, Blackstone raised $6.5 billion mainly for its energy and tactical opportunities funds. That figure elevated the total capital raised over the last 12 months to $19.6 billion. Its investments posted a 7.5 percent carrying value, the highest appreciation since the second quarter of 2014.

The firm also detailed its new life sciences platform, first mentioned among a list of new initiatives by executive vice-chairman Tony James in September. Two weeks later, it announced the launch of Blackstone Life Sciences with the agreement to acquire global life sciences investment firm Clarus.

“Although this business will not initially have a material impact on our financials, it has great potential over time, given the rapid advancements in science and innovation occurring in this sector and the current lack of funding and operational resources,” Schwarzman said on the investor call.

Clarus, which has offices in Boston and San Francisco and focuses on funding growth-stage investments, has raised $2.6 billion since its founding, according to a statement from Blackstone announcing the acquisition.

Blackstone Life Sciences intends to invest “across the life-cycle of companies and products within the key life sciences sectors”, filling a “critical void in the industry, which is seeing unprecedented growth, but lacks the necessary funding to bring medicines and healthcare technologies to market”, according to the statement.

During his investor day presentation, James said the strategy would start with a “few billion” dollars of assets under management, which could scale up to tens of billions.