FS Investments Partners with KKR, Plans to Merge and List Four BDCs

FS Investments, a leading alternative investment manager, and global investment firm KKR & Co. are partnering to create the largest business development company in the market with $18 billion in combined assets under management. As part of the transaction, FS Investments will no longer be working with GSO Blackstone, which currently provides sub-advisory services to a number of FS-sponsored funds. GSO, FS Investments, and KKR said that they plan to work together to ensure a smooth transition.

In addition, FS has agreed to form a new partnership with EIG Global Energy Partners to manage FS Energy and Power Fund, and has hired a liquid credit portfolio manager to manage FS Global Credit Opportunities Fund.

FS Investments and KKR will seek stockholder approval for the partnership to provide investment advisory services to the four BDCs sponsored by FS Investments, including FS Investment Corporation (NYSE: FSIC), FS Investment Corporation II, FS Investment Corporation III, and FS Investment Corporation IV, as well as Corporate Capital Trust Inc. (NYSE: CCT), a recently listed BDC currently advised by KKR.

“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,” said Michael Forman, chairman and chief executive officer of FS Investments.

Corporate Capital Trust II, a non-traded BDC advised by CNL and sub-advised by KKR, will also be offered the opportunity to be included, subject to board and shareholder approval. The FSIC funds will be able to co-invest with KKR’s other funds and accounts.

In an interview with Investment News’ Bruce Kelly, Forman explained that the first step in the two-step transaction is to garner shareholder approvals for each of the funds, followed by merging the funds together to create a single $18 billion company. “We need to get a liquidity event for FSIC shareholders and it makes sense to combine them all,” he said.

The board of directors or trustees have approved the new investment advisory agreements for each FSIC fund and CCT, and each fund will seek stockholder approval. The funds currently intend to begin soliciting stockholder approval of the new investment advisory agreements in January 2018.

KKR will provide non-advisory services to FS Investments through a sourcing and administrative services agreement until stockholder approvals for the new investment advisory agreements are obtained.

Separately, FS Investments plans to form a joint venture with alternative investment firm EIG Global Energy Partners to manage FS Energy and Power Fund, a $4 billion non-traded BDC.

“As a leading provider of institutional capital in the global energy industry, EIG is a perfect partner to jointly manage FSEP given the firm’s sector expertise, global reach and scale,” said Forman. “We look forward to working together to transition the FSEP portfolio with an eye toward enhancing returns, reducing risk, and creating a liquidity event for our investors through a public listing.”

Following shareholder approval, FS Investments and EIG will provide investment advisory services to FS Energy and Power Fund. In addition, EIG has filed an application for a new exemptive relief order that will allow the fund to co-invest with EIG’s other funds and accounts.

The company intends to begin soliciting shareholder approval of the new investment advisory agreement in January 2018. EIG will provide non-advisory services until the company enters into the new investment advisory agreement with the joint venture

Lastly, FS Investments has hired Andrew Beckman as head of liquid credit and portfolio manager. He will lead the firm’s investment team primarily responsible for providing investment advisory services to FS Global Credit Opportunities Fund, a $2 billion closed-end fund. As such, FS Global Advisor LLC, a subsidiary of FS Investments, will serve as the sole investment adviser to the fund.

Beckman joins FS from DW Partners, a $3 billion alternative credit manager, where he was a partner and head of corporate credit and special situations. Prior to joining DW Partners, he built and managed Magnetar Capital’s event-driven credit business and was the head of its Event Credit and Credit Opportunities Fund, managing more than $2 billion. Earlier in his career, he was co-head of Goldman Sachs’ Special Situations Multi-Strategy Investing Group.

FS Credit Income Fund, FS Credit Real Estate Income Trust Inc., FS Energy Total Return Fund, and FS MultiStrategy Alternatives Fund will not be impacted by the advisory changes.

FS Investments is headquartered in Philadelphia, PA with offices in New York, NY, Orlando, FL and Washington, DC. The firm had more than $20 billion in assets under management as of September 30, 2017.

For more FS Investments news, visit their directory page here.