- Numerous private-equity firms are raising distressed-debt funds as they seek to buy cheap assets that have been throttled by the coronavirus pandemic.
- Of all the PE firms known for their distressed chops, Blackstone has experienced a series of departures from its credit ranks over the past four or five years.
- Many of them were in its distressed division within GSO, after Blackstone decided to shutter its hedge fund and pursue longer-term investments instead.
- We took a look at where 11 of their top distressed alumni have landed. Nowadays they're occupying senior leadership roles at Vista and Ares, and staffing hedge funds to pursue trades.
- Visit Business Insider's homepage for more stories.
It's a hot time for private-equity shops to raise distressed-debt funds, as the coronavirus pandemic tanks companies across energy, retail, and hospitality, presenting opportunities for investors to put capital into businesses they believe will survive and deliver future returns.
Distressed-debt investing can take many forms.
This includes shorter-term trades: buying portions of a company's debt obligations and then selling it off at a higher valuation, days or weeks later. And it also includes longer-term strategies, which can involve buying debt or bankruptcy claims in a struggling company and then taking control during restructuring.
It can be quite lucrative, but it's also a niche of investing that's more complex and inherently riskier than many others, often requiring legal savvy in addition to investing chops.
Some of the largest players include Apollo Global Management, Oaktree Capital, Cerberus Capital Management, and Blackstone GSO.
While many of them have been making headlines for raising billions to finance their credit operations, Blackstone has made news for a different reason.
In a rare public feud, Blackstone this summer took issue with a departing credit leader joining another firm.
It was just the latest of a string of senior Blackstone exits that had come out of GSO since 2017, many of them from its distressed-credit investing team. GSO's distressed business has undergone a significant overhaul in recent years, including disbanding its special situations hedge fund and folding its assets into a longer-term strategy.
It probably didn't help matters that the exodus of senior execs required GSO to renegotiate terms with investors and accept concessions last fall, including lower fees.
After some lean years during the bull market run, distressed investing has ramped back up, leaving insiders to question whether Blackstone may be regretting letting a murderers row of talent walk so easily.
Departing execs have almost universally found success post-GSO, either starting profitable funds themselves or taking high-profile roles at powerhouse investment firms like Ares, Vista, Elliott Management, and Angelo Gordon.
On the other hand, some are quick to point out that distressed investing has always been a small piece of the massive Blackstone profit machine — and though they unquestionably lost top-tier players, it's not as though the firm abandoned the strategy.
At very least, the execs who did leave are having a little bit of schadenfreude, one insider observed, as other areas in which Blackstone is lending, like the energy industry, faces challenges throughout the pandemic.
A Blackstone spokesperson said in a statement that GSO has continued its growth to $129 billion in assets under management and is coming off a strong quarter of performance overall, its best since the global financial crisis.
"The integration of GSO into Blackstone has led to large scale deal opportunities, a rigorous investment process and a culture that prizes teamwork," the statement said.
"Yes, a number of intentional changes have been made to the distressed investing unit which have been quite positive for performance and culture."
[Read more on the backstory of those changes here.]
Below, Business Insider tracked the departures from GSO's distressed unit over the past five years. Here are the firm's 11 top distressed-investing alumni making impressive moves and poised to reap profits for rivals as the economic storm clouds darken.
Darren Richman, Kennedy Lewis
Richman left Blackstone in early 2017 to co-found Kennedy Lewis, an opportunistic credit investor focused on middle-market companies. His firm would later go on to hire other departing GSO executives, including Doug Logigian and Dik Blewitt.
Richman isn't the most gregarious back-slapper of GSO alums, but he's known as one of its wisest investors.
One of his biggest wins was a gamble that MBIA Inc would survive a cash crunch after the 2008 financial crisis and avoid seizure by regulators —a wager worth about $500 million, The Wall Street Journal reported.
One of his friends says Richman has a dry sense of humor, and has a razor-sharp, analytical mind. Before he joined GSO, he held stints at Goldman Sachs and Deloitte and holds an MBA from New York University Leonard N. Stern School of Business and previously studied accounting at University of Hartford.
Jason New, Onex Credit
New, who started off his career as a restructuring lawyer at Sidley Austin, could assess risk well in the bankruptcy context.
One source who has worked with New said he excels at maneuvering through the intricacies of distressed processes, calling him perhaps the best operator in the industry at getting into thorny situations and navigating a way out.
fNew was the driving force behind GSO's massively profitable bet on TXU, the Texas coal and nuclear power company that capsized under the weight of a $45 billion LBO in 2007. New bought up hundreds of millions in TXU debt that paid off handsomely after the company, renamed Energy Future Holdings, filed for bankruptcy in 2014.
But at GSO, he also happened to be the head of distressed debt investing at an inconvenient time, when Blackstone looked to wind down its hedge fund business, according to people who know him.
"I think Jason took a lot of the unfair blame from up top in headquarters," said one source who has worked with him. "He was one of the most fair, down to earth people — always willing to open the aperture and listen to conflicting ideas and different investment theses."
New stayed on at Blackstone until he departed for Onex Credit in April of this year. Some insiders thought he was a possible contender for the top spot at GSO for a time — a role now occupied by Dwight Scott — though others dispute this.
He graduated from Allegheny College and received his law degree from Duke University School of Law.
Scott Eisenberg, Francisco Partners
Eisenberg just helped close a $750 million opportunistic credit fund at Francisco Partners as part of a broader push to invest in technology companies.
Eisenberg, known for having an uncanny pulse on the market with a focus on tech and media, exited GSO in 2017 to head up credit for Francsico Partners.
"He is the smart money," one person who knows him said.
Eisenberg has since been involved in supporting companies like ZocDoc and Talentsoft at Francisco Partners, according to recent media coverage.
Eisenberg graduated from The George Washington University and received his MBA from The Wharton School.
Ryan Mollett, Angelo Gordon
Mollett exited GSO in 2019, joining Angelo Gordon as head of their distressed and corporate special situations group.
By all accounts, he was one of the most senior members of the GSO crew and responsible for some of its biggest trades, including Hovnanian. He marshaled GSO's 2014 bet on casino operator Caesars Entertainment, a messy affair that attracted some of the largest names in investing — including Apollo, Appaloosa Management, Elliott Management, and Oaktree — and resulted in a complicated, protracted bankruptcy proceeding.
"He is a risk taker," said one person close to him.
Mollett, who specialized in leisure and gaming at GSO, also isn't afraid to express his opinions if he's adamant he's right.
At Angelo Gordon, it looks like he's gearing up to take on some more distressed bets, after having raised $3.5 billion from investors for its inaugural AG Credit Solutions Fund.
Jacob Gladstone, Angelo Gordon
Joining Mollett at Angelo Gordon is Jacob Gladstone, a younger exec who Blackstone GSO had held up as a rising star to limited partners.
Gladstone had been a principal at GSO and became a managing director at Angelo Gordon in May.
Word on the street is that Gladstone was Mollett's protégé and he could have written his own ticket at GSO if he had wanted. But he chose to follow his mentor.
One person close to Gladstone said he felt a certain frustration toward management at Blackstone as its execs became more involved in the GSO investment committee.
Gladstone graduated from Franklin & Marshall College in 2010.
Craig Snyder, Ares Management
Snyder saw the writing on the wall in 2017 and joined Ares Management, where he is a partner and the head of distressed trading.
He currently serves as a member of the management committee of Ares Management and the firm's private-equity group's special opportunities investment committee.
His name was also behind a $3.5 billion raise of investor capital announced in June — money that is to be spent on companies undergoing disruption.
"The team pursues a differentiated strategy that pivots opportunistically between private and public market sourced opportunities and seeks to partner with management teams by embracing an 'activist for good' approach," Ares said in an announcement.
At GSO, Snyder headed up trading for the group and served as a portfolio manager and investment committee member for its distressed special situations funds.
He focused on both public and private markets. Previously, he had been a senior trader for a distressed-debt fund at Kingstreet Capital.
Snyder graduated from Bucknell University.
David Flannery, Vista Credit
Flannery joined Vista Credit in 2018, expanding the software investor's debt platform.
He hit the ground running, with Buyouts reporting in 2019 that Vista was gearing up to raise its third credit fund. By October, it had raised $700 million, and media outlets reported that it could raise up to $3 billion.
In his role as president of Vista Credit, Flannery reports directly to founder Robert Smith and has been behind some of its largest loans in the tech, data and software market.
That includes a $175 million global recapitalization of Meltwater, a media intelligence company.
At GSO, he was considered an "adult in the room" given his level of seniority, though he was there for a relatively short period of time compared to other execs: from April 2016 to Nov. 2018, according to his LinkedIn.
Flannery graduated from Villanova University.
Brad Feingerts, Elliott Management
Like Gladstone, Feingerts started out in the junior ranks as an analyst in the special situations hedge fund at GSO, ascending quickly under New and Richman as the division's overall growth exploded.
He exited in early 2017 not long after Ostrover packed his bags, landing at Elliott Management, the prestigious and feared hedge fund run by Paul Singer.
Now, he's set to join another hedge-fund powerhouse. Feingerts is starting at Citadel in September, working to build out the credit business under Pablo Salame, the ex-Goldman Sachs trading honcho who signed on with Citadel last fall.
Feingerts joined Blackstone fresh out of school in 2011 — he got his JD/MBA at the University of Chicago immediately after graduating from the University of Pennsylvania — initially in the restructuring business before shifting over to the distressed-credit team in 2013.
Akshay Shah, Kyma Capital
Referred to by colleagues as "the man of many faces," Shah is the shadowy figure who appeared in the FT profile when Blackstone's default manufacturing practices emerged in the spotlight.
"I don't believe it's classified as insider trading, but it's pretty damn close," one retired trader who came up against Shah and GSO told the FT. "It's quite frankly shocking that they were able to get away with doing that for so long and that no one was prepared to stand up to it."
Shah gave the FT a straight forward enough reason for leaving GSO to launch his own firm, Kyma Capital, in 2018.
"The reason for leaving was simple: the European stressed and distressed opportunity set is a middle-market opportunity set," he said. "These sized companies don't lend themselves to megafunds."
Michael Fabiano, Platinum Equity
Another GSO defector with an entrepreneurial streak, Fabiano left GSO in 2018 to start the credit-investing platform at Platinum Equity, the hedge fund run by billionaire Tom Gores with $19 billion in assets under management.
The new global head of credit didn't wait long to bring aboard a trusted GSO comrade, hiring Patrick Fleury, an ex-GSO managing director who specialized in oil and gas, in 2019, to help trade both public and private high-yield and distressed situations.
Fabiano got his start as an investment banker in Morgan Stanley's leveraged finance group in the early 2000s before getting in on the ground floor with GSO in 2005.
Fabiano graduated from Georgetown and got his MBA at the University of Chicago.
Zachary Crump, Finepoint Capital
Crump, who was based in London, left his post as global head of trading within GSO Capital in early 2019. He's since been the head trader at Boston-based hedge fund Finepoint Capital, which was launched by Baupost alum Herbert Wagner.
The move to Finepoint is a homecoming for Crump, who hails from Dorchester, Massachussetts, and graduated from Boston College in 2009.
After undergrad, Crump joined Barclays distressed-trading desk, where he worked for nearly six years before joining GSO.
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