Blackstone to liquidate two hedge funds

Date: Wednesday, December 24, 2008
Author: Jui Chakravorty Das, Reuters

Blackstone Group LP (BX.N: Quote, Profile, Research) 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)