GSO posts sub-1% return on performing credit, losses on distressed in Q3

The firm returned a gross of almost 9% on performing credit in the previous 12 months, but posted a loss of more than 9% in distressed debt over the same timeframe.

Blackstone’s GSO Capital Partners reported lacklustre returns on performing credit in the third quarter while posting losses on its distressed credit positions, the New York-based alternative asset manager said Wednesday.

Performing credit posted a 0.9 percent gross internal rate of return for the third quarter, though its last 12 months return was 8.9 percent. Distressed investments posted a 3.9 percent loss due to some upstream energy investments, which brought total losses for the last 12 months to 9.3 percent.

The firm’s performing credit definition includes mezzanine debt and mid-market lending funds. Distressed funds includes the GSO Capital Solutions fund series along with its energy debt funds, a strategy in which the firm wrapped up a $4.5 billion fundraise in June.

The negative distressed returns have weighed on GSO Capital Solutions Fund II, which has returned a net IRR of 1 percent and a 1.1x multiple on invested capital. Fund I has returned 10 percent net and a 1.4x MOIC. The mezzanine debt funds have posted stronger performances, with GSO Capital Solutions Fund III – the most recent vehicle, which wrapped up fundraising in October 2016 – reporting a 12 percent net IRR and a 1.2x MOIC.

GSO also held a second close in the third quarter on its latest European direct lending fund, GSO European Senior Debt Fund II, at €2.18 billion. The fund has commitments of €50 million from Taiwan Life Insurance and $50 million each from the Ohio Police and Fire Pension Fund and the State of Wisconsin Investment Board. Fund I has returned a 10 percent net IRR and a 1.2x MOIC.

Fielding a question about the biggest challenges private markets face in the coming years, Blackstone president and chief operating officer Jon Gray said that deployment can be tough but the firm had a lot of outlets through which to put capital to work.

“In terms of the challenges, obviously deployment is a question,” he said. “The good news is it is a big investable world. We have lots of pools of capital, we have lots of geographies we can invest in. But that’s always a challenge, particularly in things that are more fixed-income oriented. So, in infrastructure and real estate, it makes it a little harder to deploy capital. But our scale has been a big advantage for us.”

Blackstone’s assets under management rose slightly from $545.5 billion at the end of the second quarter to $554 billion as of 30 September. The large segment of AUM is private equity at $173.9 billion followed by real estate and credit at $157.1 billion and $141.9 billion, respectively.