GSO readies next direct lending vehicle as assets fall from losing BDC money

The New York-based credit behemoth saw $5.7bn raised over the second quarter.

GSO Capital Partners, the Blackstone Group’s debt arm, saw its total assets under management fall by $16.9 billion over the second quarter as it formally ended its sub-advisory relationship with FS Investments’ business development companies, but still posted a year-on-year gain in credit AUM.

In April, GSO parted ways with FS after nearly a decade, during which the former provided investment recommendations to FS’s flagship publicly traded BDC – FS Investment Corporation – and several other such private vehicles. Losing the BDC capital amounted to a total capital decrease of $17.8 billion for GSO, according to Blackstone’s second-quarter earnings results released Thursday.

Blackstone expects GSO to soon hold an initial close on its new direct lending platform, which will comprise SMAs for institutional investors along with a BDC that will target retail investors. The firm has set a $10 billion target for equity and debt contributions, according to a Bloomberg report, which would make the BDC potentially the second-largest single BDC, behind Ares Capital Corporation.

GSO could not be immediately reached for comment regarding the new direct lending platform.

Despite losing its BDC capital, GSO’s AUM still increased by 30 percent from the same time last year.

Alongside the FS assets, other outflows and realisations included $2.9 billion in distressed debt; $1.2 billion in long only and master limited partnerships; $575 million of disbursements from collateralised loan obligations outside their investment period; $416 million from mezzanine funds; and $316 million from Blackstone Insurance Solutions.

Those outflows were offset by $5.7 billion raised during the three months ending 30 June. Among that total were $1.5 billion across one European CLO and one US CLO, $721 million in two leveraged loan separately managed accounts and $435 million for GSO’s next credit alpha fund. In addition, the firm raised $890 million for its second energy-focused vehicle: the $5 billion GSO Energy Select Opportunities Fund II.

GSO’s performing credit, which includes mezzanine debt and direct lending, returned a gross 4.5 percent in the second quarter. For its part, distressed credit – which includes the credit alpha vehicles, rescue-lending funds and energy debt – returned a gross 3.8 percent.

Blackstone has firmwide dry powder amounting to $88 billion, of which $36.4 billion comes from private equity and some $21.8 billion from credit. GSO could provide Blackstone with the biggest boost in management-fee-earning assets – of the $44.3 billion in assets not currently generating that income