(Reuters) – Blackstone Group LP said on Tuesday it plans to liquidate two hedge funds as a lack of outside investing amid tight credit markets will prevent them from getting big enough to be meaningful to the company.
The private equity firm plans to consolidate its distressed securities fund with GSO Capital Partners, a hedge fund manager it acquired in March for $10 billion.
Blackstone also plans to spin off Blackstone Kailix advisers, the investment manager of its long/short equities fund, to a management team led by Manish Mittal, who plans to form a new fund as an independent entity.
“We believe these measures will enable us to operate more profitably in the current environment,” Chief Operating Officer Tony James said.
“We expect that adverse fundraising conditions in the hedge fund industry will prevent these two initiatives from scaling up to a size where they are meaningful for our business on a stand alone basis,” James said.
Blackstone will invest in the new fund, and investors in the existing fund will be offered the option of investing in the new fund on a preferred basis as their interests in the existing fund are liquidated.
Investors in the Blackstone Distressed Securities fund can transfer their capital on preferred terms to the fund managed by GSO and the existing fund will be liquidated.
The hedge fund industry has been hit hard by the worst global financial crisis in decades. The average hedge fund lost 17.7 percent in the first 11 months of 2008, the worst-ever performance, according to figures from Hedge Fund Research.
Blackstone’s shares closed at $5.98, up 9 cents Tuesday on the New York Stock Exchange. The stock has fallen 73 percent this year as sliding investment values have hurt the company’s results. (Reporting by Jui Chakravorty Das; editing by Jeffrey Benkoe; 646 223 6033)
The Blackstone Group (NYSE: BX) said today that it is making several changes to the single manager hedge funds businesses within its Marketable Alternative Asset Management (MAAM) segment.
Blackstone is consolidating its distressed securities fund onto a single operating platform with its GSO credit investment business to eliminate duplication, benefit from shared intellectual capital, and better serve its investors. Investors in the Blackstone Distressed Securities Fund will be offered the opportunity to transfer their capital on preferred terms to distressed strategies managed by GSO and the existing Fund will be liquidated.
Blackstone Kailix Advisors, the investment manager of Blackstone’s long/short equities fund, will be spun off to its management team led by Manish Mittal, who intends to form a new fund as an independent entity. Blackstone will be an investor in the new fund and investors in the existing fund will be offered the option of investing in the new fund on a preferred basis as their interests in the existing fund are liquidated. Although the existing fund has outperformed global equities measures, its size does not make it a core strategic business for Blackstone and it is not anticipated that this will change in the near term. The fund has not imposed any gates or liquidity restrictions on investors.
Commenting on these changes, Tony James, President and Chief Operating Officer of Blackstone, said: “We believe these measures will enable us to operate more profitably in the current environment. Although these funds have performed better than the S&P 500 and other global market averages, we expect that adverse fundraising conditions in the hedge fund industry will prevent these two initiatives from scaling up to a size where they are meaningful for our business on a stand alone basis.”
Mr. James continued: “We continue to have a significant commitment to the hedge fund business. The current market turmoil with its associated dislocation of asset prices presents us with a multitude of compelling opportunities to invest capital. It is during times like these that we need to be especially disciplined to focus both our people and our capital on the largest opportunities.”
About The Blackstone Group
Blackstone is one of the world’s leading investment and advisory firms. We seek to create positive economic impact and long-term value for our investors, the companies we invest in, the companies we advise and the broader global economy. We do this through the commitment of our extraordinary people and flexible capital. Our alternative asset management businesses include the management of corporate private equity funds, real estate funds, hedge funds, funds of funds, debt funds, collateralized loan obligation vehicles (CLOs) and closed-end mutual funds. The Blackstone Group also provides various financial advisory services, including mergers and acquisitions advisory, restructuring and reorganization advisory and fund placement services. Further information is available at www.blackstone.com.