Wednesday, February 19, 2014

The New Bankers

Here is a great New York Times article on Blackstone's GSO debt financing unit (the same GSO that manages the Franklin Square non-traded BDCs) and its investments in Ireland.  The story is a fascinating read.  The recent financial crisis was, in my opinion, the most significant financial event since the Great Depression, and I believe we still haven't seen all its ramifications.  (And, more importantly, we have not learned the hard lessons the crisis was screaming at us.)

The rise of firms like Blackstone, which neatly stepped into the financial crisis' banking void, is real.  The article ends on an ominous note:
And the type of shadow banking that most concerns regulators — short-term borrowing involving broker dealers, hedge funds and money market funds — does not apply to Blackstone.

But, there is no doubt that its fast-growing credit business is breaking new financial ground.

“If the fund in question knows right up front what the risks are and its exposure is quasi-equity in nature that can be beneficial,” said Adair Turner, formerly Britain’s top financial regulator and co-chairman of a comprehensive study of the shadow banking industry.

“But we also know that the financial industry is forever innovating and when it does it tends to put more leverage in the system so we have to watch this very carefully.”
With firms like Blackstone, which has $265 billion to invest, the new bankers are a major force in business.

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