FS Investments, KKR to Create Super-Sized BDC

The partnership "provides the scale, infrastructure and credit expertise necessary to succeed as an investor in the private credit markets."
Matthew HellerDecember 11, 2017

Alternative investment manager FS Investments is partnering with KKR to create a super-sized business development company with $18 billion in assets.

BDCs typically are closed-end investment companies that invest primarily in debt and equity of private companies but the product has fallen off its peak in 2014, when brokers sold $5.5 billion of nontraded BDCs.

Non-traded BDCs raised just $624 million over the first nine months of the year, compared with last year’s 12-month sales total of $1.5 billion, according to Robert A. Stanger & Co. Inc.

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FS, which launched its first non-traded BDC in 2009, said Monday it will no longer work with longtime sub-advisers to its funds, GSO Blackstone, partnering instead with KKR Credit and Markets. GSO Blackstone currently sub-advises four BDCs in the FS Investments funds family, one of which is listed and three of which are not.

“As the market has evolved, we’ve recognized the need to also evolve our approach to the business and we believe this partnership with KKR provides the scale, infrastructure and credit expertise necessary to succeed as an investor in the private credit markets,” Michael Forman, CEO of FS Investments, said in a news release.

The four BDCs sub-advised by GSO Blackstone have roughly $14 billion in assets. When combined with KKR’s Corporate Capital Trust, they will have $18 billion in assets and be the largest BDC on the market.

Forman told Investment News that the combination will provide liquidity to investors in the three non-traded BDCs with the FSIC brand and the scale of the new company would enable the BDCs to borrow money at more favorable terms and reduce expenses.

“The change at FS Investments comes at a time when sales of BDCs are on track to decline for a third consecutive year and are on the way to posting their worst year for equity raising since 2010, when the product was just beginning to be widely sold by independent broker-dealers,” Investment News said.

KKR Credit and Markets CEO Todd Builione said the partnership would increase KKR Credit’s assets under management by 33% to $55 billion.