Blackstone Buys $7.5 Billion Credit Manager for Quant Prowess
(Bloomberg) -- Blackstone Group Inc. is adding some quant firepower in the biggest deal by its credit unit in almost a decade.
The investing titan acquired technology-driven credit investing firm DCI, which oversees about $7.5 billion in assets, according to a statement Monday. DCI will become a part of Blackstone’s $135 billion GSO operation, which was recently rechristened Blackstone Credit.
The DCI pact is the biggest by assets acquired inside the credit unit since its 2012 purchase of the $10 billion HarbourMaster Capital that helped develop GSO’s footprint in the European leveraged loan market. Blackstone didn’t disclose the purchase price for DCI.
The use of quantitative strategies to aid investment decisions has proved notoriously difficult in the market for trading company debt, and many firms are in the early stages of using proprietary models to win an edge over their peers.
DCI is known for “applying technology-driven strategies and is at the forefront of the evolution towards quantitative investing in the corporate bond market,” Dwight Scott, the head of Blackstone Credit, said in the statement.
The DCI purchase will allow Blackstone Credit, known for its prowess in distressed-debt and private-credit markets, to wade deeper into the world of investment-grade bonds, whose data-rich, blue-chip issuers make it much easier to deploy computerized models that determine what to buy and sell. Since its 2008 deal to buy GSO itself, Blackstone has used deals sparingly to boost assets.
DCI has developed a niche platform that uses inputs such as balance-sheet data, leverage and equity-market performance to develop a risk-of-default model that managers lean on to make investing decisions. Most credit firms rely on an army of analysts to develop their own investing protocols that rely on varying systems.
In 2002, ratings company Moody’s Investors Service acquired DCI’s predecessor firm, which developed a credit-default probability model used to predict the inability of companies to keep pace with their debt obligations. After the Moody’s sale, the DCI team took its models one step further to use similar modeling to build portfolios that profit from predicting and managing default risk.
The San Francisco-based firm manages long-only and long-short strategies for large institutional and private-wealth investors. While it has developed models to comb readily available public data, joining Blackstone could allow DCI to expand its modeling capabilities to the darker corners of the credit market, where Blackstone’s dominant position could unearth new sources of information.
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