The power of partnering

A few weeks ago, PDI opined about the merits of joint ventures. As if to illustrate the point, Franklin Square Capital Partners has launched its latest fund in partnership with credit behemoth GSO Capital Partners.

Franklin Square’s new fund will be its fourth to feature GSO as a sub-advisor. Franklin Square co-founder Michael Forman explained to Private Debt Investor how the relationship came about: in his former guise as a partner of FB Capital Partners, a private equity and private debt manager for institutional clients, Forman knew GSO managing director Brad Marshall. Following the launch of Franklin Square, he and Marshall developed the tie-up. 

In practice, GSO has an origination platform dedicated to sourcing deals for the Franklin Square funds – the two firms do not co-invest together. In return, GSO takes 50 percent of the Franklin Square fund fees, which are structured on a traditional 2-and-20 basis.  

For Forman and his team, the relationship yields access to GSO’s brand and market knowledge, with the implications both bring from an origination perspective.  

“We’re the fund’s adviser, so we’re responsible for product design, legal, finance, compliance, other back office functions, and capital raising. In the ‘inside baseball’ parlance, they’re the manufacturer – they source deals which they recommend to us. We then have final say on all investments,” Forman said.

“For GSO, the arrangement gives them a channel they wouldn’t otherwise have access to – mainstream America.”

That last point is an interesting one, for it speaks to a desire to broaden access to alternative assets. Blackstone of course went public in 2007, but this tie-up with a BDC manager gives investors more focused access to its expertise. In partnering with Franklin, GSO is essentially broadening its LP base to include the smallest of investors who wouldn’t normally meet its minimum investment thresholds,  thereby granting the group access to an even stronger pool of capital. 

The Franklin Square team’s aspiration is to provide public investors with access to best-in-class alternative assets they wouldn’t normally be able to tap into. It’s a strategy which appears to have borne fruit: since its inception in 2007, the firm has scaled rapidly to the point where a cool $10 billion in assets under management is within reach. It rather proves the power of pragmatic partnership.