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Blackstone Targets $3B-$3.75B For Mezzanine Fund

Firm: The Blackstone Group LP

Fund: GSO Capital Opportunities Fund II LP

Target: $3 billion to $3.75 billion

Amount raised: $420 million

Placement agent: None

The Blackstone Group LP plans to raise $3 billion to $3.75 billion for mezzanine investments, according to an investor.

The GSO Capital Opportunities Fund II LP plans to focus on mezzanine, secured debt and high-yield debt, according to the New Jersey Division of Investment, which made a $150 million commitment to the fund.

New Jersey invested $100 million in the first GSO Capital Opportunities Fund, which closed at $2 billion in 2008, far beyond its original $750 million target. As of March 31, Fund I has returned New Jersey a 1.40x multiple and a net IRR of 16 percent.

For the new fund, GSO expects to make 20 to 30 investments in the United States and Europe, with private equity sponsors involved in a majority of its investments. The fund will charge a 1.5 percent management fee during its five-year investment period and 1.25 percent afterward on the aggregate invested capital, including leverage. The management fee can be offset 100 percent by transaction fees and other fees.

The firm has closed on $420 million in commitments for the fund, according to a regulatory filing in May.

The fund manager is to receive a 20 percent carried interest after investors have seen the return of 75 percent of their capital contributions. After that, the GP will catch up at 80 percent and the LP 20 percent until the GP has achieved the 20 percent carry rate, according to the New Jersey documents.

GSO Capital Partners was formed as a hedge fund in 2004 by Bennett Goodman, the former high-yield debt chief at Credit Suisse, and colleagues Albert Smith and Douglas Ostrover. The trio launched their investment firm with a $1.5 billion fund that closed in July 2005. Blackstone acquired GSO for $930 million in March 2008.

GSO has 184 employees in New York, London and Houston. The firm did not respond to a request for comment.