Blackstone 130/30 Credit Strategy

A new fund managed by Blackstone Group’s credit specialist GSO Capital is to use an approach that is more common in equity investments. The fund will borrow and sell debt securities, then use the proceeds from the sale to buy other loans and bonds.

The short positions may add up to 30% of the total portfolio. The long positions, including purchases using proceeds from short selling, may be as much as 130% of the assets. This type of strategy, known as 130/30 or short extension, includes a kind of inherent leverage because of the short selling. 

The leverage comes with its own risk but also boosts the return. While 130/30 is the standard ratio, exact percentages change over time because the long and short trades depend on market conditions.

At least 60% of assets are to be invested in senior loans and up to 40% in subordinated loans. Long and short positions can be put on using derivatives as well as direct selling or buying of debt securities.

The fund’s common shares are expected to be listed on the New York Stock Exchange.

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