Wednesday, June 19, 2013

Who is GSO?

The Franklin Square business development companies (BDCs) are the 800-pound gorillas in the world of non-traded BDCs.  Franklin Square's association with Blackstone Group is touted as a key competitive advantage for its three BDCs.  Look closer, and you'll find that the Franklin Square BDCs are managed by a company Blackstone Group purchased in 2008 called GSO Capital.  GSO is a leader in alternative credit financing, which is a fancy way to say it's now funding companies that banks stopped lending to after the credit crisis of 2008.

Here is a link to a fascinating, detailed Institutional Investor article on GSO.  It's a must-read piece for anyone working with or buying alternative credit investments, which for retail investors have arrived in the form of BDCs.  The principals of GSO have deep pedigrees in junk and alternative credit, dating back to the 1980s and early 1990s with Drexel Burnham Lambert and DLJ.  (I use the term alternative credit to describe debt investments that are not bank loans or traditional bond financing.) 

GSO is more than just a sub-advisor for the Franklin Square BDCs.  According to the article, it manages $58 billion in assets and has grown five-fold since Blackstone acquired it: 
With $58 billion in assets under management and 235 employees, GSO has grown fivefold under the Blackstone umbrella. Today it offers $27 billion in alternative-investment funds, including the now $4 billion hedge fund, $8 billion in mezzanine funds — financing buyouts for private equity — $8 billion in rescue lending and $7 billion in small-cap direct lending. The firm’s long-only strategies include a $24 billion CLO business, making GSO the largest institutional investor in leveraged loans, as well as closed-end and other funds.

For perspective, the three GSO-managed Franklin Square BDCs have raised approximately $5 billion in equity.

There is plenty of information to absorb in the article, including GSO's thoughts on the current domestic credit markets (cautious) and where it's looking for opportunities (Europe).  The main point I took away is that alternative credit is a big business that's not going away.

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