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Reuters – Blackstone Group LP said on Tuesday it plans to liquidate two hedge funds as a lack of outside investing amid tight credit markets will prevent them from getting big enough to be meaningful to the company.

The private equity firm plans to consolidate its distressed securities fund with GSO Capital Partners, a hedge fund manager it acquired in March for $10 billion.

Blackstone also plans to spin off Blackstone Kailix advisers, the investment manager of its long/short equities fund, to a management team led by Manish Mittal, who plans to form a new fund as an independent entity.

"We believe these measures will enable us to operate more profitably in the current environment," Chief Operating Officer Tony James said.

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West Palm Beach (HedgeCo.net) – The Blackstone Group is making changes to the single manager hedge funds businesses within its Marketable Alternative Asset Management (MAAM) segment.

Blackstone is consolidating its distressed securities fund onto a single operating platform and moving Blackstone Kailix Advisors, the investment manager of Blackstone’s long/short equities fund, which will be spun off to its management team led by Manish Mittal, who intends to form a new fund as an independent entity.

Commenting on the changes, Tony James, President and Chief Operating Officer of Blackstone, said, “We believe these measures will enable us to operate more profitably in the current environment. Although these funds have performed better than the S&P 500 and other global market averages, we expect that adverse fundraising conditions in the hedge fund industry will prevent these two initiatives from scaling up to a size where they are meaningful for our business on a stand alone basis.”

Blackstone will be an investor in the new fund and investors in the existing fund will be offered the option of investing in the new fund on a preferred basis as their interests in the existing fund are liquidated. Although the existing fund has outperformed global equities measures, its size does not make it a core strategic business for Blackstone and it is not anticipated that this will change in the near term. The fund has not imposed any gates or liquidity restrictions on investors.

“We continue to have a significant commitment to the hedge fund business," James continued, "The current market turmoil with its associated dislocation of asset prices presents us with a multitude of compelling opportunities to invest capital. It is during times like these that we need to be especially disciplined to focus both our people and our capital on the largest opportunities.”

Alex Akesson

Tags: asset-prices, blackstone group, chief-operating-officer, current market, dislocation, distressed-securities, fund-business, global-equities, hedgeco, independent entity, investment manager, market averages, market turmoil, mittal, palm-beach, preferred basis