Market headwinds hit GSO returns

Performance for all three of GSO’s alternative credit strategies fell in Q4 as energy pricing, credit turbulence and the year-end equity sell-off took their toll.  

GSO Capital Partners, the Blackstone-owned credit firm, reported negative performance in its three credit strategies as falling energy prices, turbulence in the credit market and technical pressure from year-end hit returns.

Mezzanine funds were down 7.7 percent in the fourth quarter, while its rescue lending funds lost 11.2 percent and hedge fund strategies were down 5.7 percent gross.

Speaking on the firm’s earnings call, executives said that they remain confident in the creditworthiness of GSO’s underlying portfolio and the firm continues to gather assets and dry powder across its credit segment and other platforms.

The credit arm deployed about $2.6 billion in Q4, making up about 20 percent of Blackstone’s $15.7 billion deployment volume in those three months. This was a record for GSO and most of the money went towards mezzanine investments.

“GSO’s existing investments are being negatively impacted on mark-to-market basis, but that doesn’t represent the inherent creditworthiness of the portfolio or the ability of borrowers to repay loans and interest,” said chairman Steve Schwarzman.

The firm is also seeing opportunities in European direct lending and the energy sector.

At the same time, lower marks on energy assets across the firm caused some of the poor financials.

Schwarzman said dedicated funds raised for energy investments across the credit and private equity segments amount to about $8.5 billion, though most of that capital remains undeployed for now. Of Blackstone’s total $336.4 billion in assets, current energy holdings are in the low teens as a percentage.

Other GSO financials showed that fee revenue was up 3 percent from the previous quarter. The firm has experienced growth across private funds and its business development company platform and it also launched five US and three European CLOs in 2015. Economic income dropped to $5.7 million from $45.4 million year-on-year, while assets under management increased to $79 billion from about $73 billion in the same period.

Blackstone has been raising several private equity, credit and real estate funds and has about $80 billion in dry powder.

Despite market volatility, Schwarzman said he was certain Blackstone will come out ahead.

“We’ve seen this movie before and it’s always had the same outcome: outsize returns for someone,” he said. “The temporary decline in value should normalise over time and we have strong momentum in every area.”