According to a release, Blackstone will combine the distressedfund with its GSO credit investment business, a move the companysays will eliminate duplication, benefit from shared intellectualcapital and better serve investors. Blackstone had purchased GSOCapital Partners last March for $930 million. Investors inBlackstone's distressed securities fund will be able to transfertheir capital on preferred terms to distressed strategies managedby GSO, while the existing fund will be liquidated.

The investment manager of Blackstone's long/short equities fund,Blackstone Kailix Advisors will be spun off to its management teamled by Manish Mittal, who intends to form a new fund as anindependent entity. Blackstone will be an investor in the new fundand investors in the existing fund will be offered the option ofinvesting in the new fund on a preferred basis as their interestsin the existing fund are liquidated.

"We believe these measures will enable us to operate moreprofitably in the current environment," says Tony James, presidentand COO, in a statement. "Although these funds have performedbetter than the S&P 500 and other global market averages, weexpect that adverse fundraising conditions in the hedge fundindustry will prevent these two initiatives from scaling up to asize where they are meaningful for our business on a stand-alonebasis."