Jan. 13 (Bloomberg) -- GSO Capital Partners LP, Blackstone Group LP’s $25 billion credit hedge fund, plans to close its Asia investment desk after failing to find attractive opportunities in the region, two people familiar with the matter said.

New York-based GSO hasn’t bought any Asian bonds or loans since it opened its Hong Kong office in September because it believes prices are too high, said the people, who declined to be identified because the information is private. Lehman Brothers Holdings Inc.’s collapse pushed the price of U.S. and European debt below that of Asia, which has more regulatory and legal risk that needs to be compensated for, they said.

“Leveraged loans in Europe and the U.S. now offer incredible value, much more compelling than any high-yield paper you can find in Asia,” said Eugene Kim, chief investment officer with Tribridge Investment Partners Ltd., a Hong Kong-based hedge fund managing $160 million. “This situation will last at least 6 months, potentially 12.”

Blackstone, the world’s largest private-equity firm, bought GSO last year for as much as $930 million to expand investments in distressed assets including leveraged loans. In December it said it will liquidate its Distressed Securities Fund, giving clients the option to move their money to GSO, as it seeks to cut costs amid the global credit freeze.

Relocations

GSO, founded in 2005 by Bennett Goodman, Tripp Smith and Doug Ostrover, has more than 210 employees in New York, London, Los Angeles, Houston and Hong Kong, according to Blackstone’s Web site. It invests in leveraged loans, distressed assets, mezzanine debt and credit derivatives, the Web site shows.

The fund intends to relocate Hong Kong-based Asia-Pacific head Tim Donahue, Managing Director Sanjeev Khemlani, Associate Angad Banga and Vice President Abhimanyu Prakash to London or New York, from where they can invest in Asia when conditions improve, the people said today.

Peter Rose, a spokesman for Blackstone, wasn’t immediately available for comment outside business hours in New York.

U.S. leveraged loan prices tumbled 28 cents on the dollar to 66.6 cents last year, wiping out four years of gains, according to Standard & Poor’s LCD unit in New York.

The extra yield investors demand to own Asian corporate dollar bonds instead of U.S. Treasuries more than doubled from the end of August to 8.5 percentage points yesterday, JPMorgan’s Asia Credit Index shows.

Distressed Debt

Debt becomes distressed when investors think a borrower may fail to make payments on its obligations. Distressed debt managers typically seek to profit by buying assets at below their face value, providing high-yield financing that could give rights to equity and opportunities to restructure companies before selling them at a higher value.

GSO will continue to raise money from investors in Asia even after closing its regional investment desk, the people said. Some of the team may choose to stay in Asia, they said.

Carlyle Group, the world’s second-largest private-equity firm, in November said it will shut an Asian leveraged finance investment unit because of a dearth of acquisitions.

To contact the reporters for this story: Patricia Kuo in Hong Kong at pkuo2@bloomberg.net; Bei Hu in Hong Kong at bhu5@bloomberg.net

Last Updated: January 13, 2009 04:03 EST