NEW YORK (Reuters) - A top Blackstone Group LP executive said on Tuesday that financial reform regulations forcing Wall Street banks to take less risk are bringing new credit investment opportunities to the world’s largest alternative asset manager.
Assets under management at Blackstone’s credit investment arm, GSO, have more than doubled to $55 billion in just three years as the New York-based firm grew its portfolio of leveraged loans, high yield bonds, distressed debt and other credit assets just as banks scaled back their proprietary investing.
“We really want to thank Mr. Volcker. That rule is a little bit like the Employment Act for GSO and what we do. And it kind of took our competitor prop desk and kind of put them off to the side, so that helps as well,” Bennett Goodman, GSO’s co-founder and a senior managing director at Blackstone told the Bank of America Merrill Lynch banking and financial services conference on Tuesday.
Having served as chairman of the Federal Reserve from 1979 to 1987, Volcker, 85, has been involved in drafting new U.S. financial regulations, due for completion by the end of the year, including the “Volcker rule,” which would ban banks from taking risky bets for their own gain.
Unlike banks that often rely on their balance sheet for proprietary trading, Blackstone and other alternative asset managers have at their disposal long-dated capital they have raised from pension funds, insurance firms and other institutional investors.
“Our best competitor in many of our strategies used to be the Goldman Sachs proprietary trading desk. That, too, of Deutsche Bank, Credit Suisse, Morgan Stanley and all the others,” Bennett said, pointing out that investment banks have been shutting down those activities.
“The business model being adopted by the banks is they want to be syndicators of risk. They don’t want to extend their balance sheet to provide capital to a mid-market single-B rated company, which is usually our target audience. And as a consequence, we want to own that risk.”
As an example, Bennett cited Chesapeake Energy Corp, which sought $500 million in capital to have a more orderly asset sale. Chesapeake “rents” Blackstone’s money for three years, allowing the investment firm to achieve 20 percent rates of return, he said.
Blackstone’s rescue lending fund GSO Capital Solutions Fund II is looking to raise between $4 billion and $5 billion. Bennett said the fund was expected to have secured between $2.5 billion and $3 billion in investor commitments by sometime next month.
Reporting by Greg Roumeliotis in New York. Editing by Andre Grenon