GSO seeks capital for distressed investments

The vehicle has been opened to investors from the firm’s distressed debt hedge fund, which was shuttered earlier this year.

GSO Capital Partners is raising its third closed-end distressed debt fund, a vehicle that will aim to invest in financially-troubled companies, at a time when it is favouring long-term drawdown funds over open-ended funds.

The New York-based firm, which is Blackstone's credit arm, is raising GSO Capital Solutions Fund III, according to a regulatory filing with the US Securities and Exchange Commission. The Wall Street Journal reported in March that GSO was targeting $6.5 billion, which would be a 30 percent increase from Fund II’s final close on $5 billion, beating its $4 billion target.

The firm declined to comment.

Fund III will have the same terms as its predecessor fund, a source familiar with the matter said. Fund II was a 10-year vehicle, with possible extensions, that listed a 1.5 percent management fee along with a 20 percent carried interest and an 8 percent hurdle rate, according to an investment note from San Diego County Employees' Retirement Association, which committed $90 million. The southern California pension fund was an investor in Fund I as well, to which it committed $50 million. The strategy’s debut fund raised $3.25 billion.

Among the limited partners making contributions to Fund II was the California Public Employees’ Retirement System, which pledged $250 million, according to PDI data. The Florida State Board of Administration and the Teacher Retirement System of Texas each committed $200 million.

Fund III is also looking to expand its investor base following its decision to shut down its open-ended distressed debt hedge fund, GSO Special Situations Fund, as Private Debt Investor reported in March. The SSF investors were given the opportunity to shift their capital committed to the hedge fund to Capital Solutions Fund III.

“We have decided to transition the investment activities of our hedge fund into our other distressed funds with longer duration, drawdown structures,” Blackstone spokeswoman Paula Chirhart said in an email at the time.

That was the same note that Blackstone chief operating officer Tony James struck on the firm’s first-quarter earnings call in April, noting, “We’ve shifted a capital pool that was short-term trading oriented in our hedge fund strategies to long-term drawdown fund because it serves our LPs so much better.”