XNYS:BX Blackstone Group LP Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2012

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM                  TO                 

Commission File Number: 001-33551

 

 

The Blackstone Group L.P.

(Exact name of Registrant as specified in its charter)

 

Delaware   20-8875684

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

345 Park Avenue

New York, New York 10154

(Address of principal executive offices)(Zip Code)

(212) 583-5000

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  x

   Accelerated filer  ¨

Non-accelerated filer  ¨

   Smaller reporting company  ¨

(Do not check if a smaller reporting company)

  

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The number of the Registrant’s voting common units representing limited partner interests outstanding as of April 27, 2012 was 410,249,947. The number of the Registrant’s non-voting common units representing limited partner interests outstanding as of April 27, 2012 was 101,334,234.

 

 

 


Table of Contents

TABLE OF CONTENTS

 

          Page  

PART I.

  

FINANCIAL INFORMATION

  

ITEM 1.

  

FINANCIAL STATEMENTS

     4   
  

Unaudited Condensed Consolidated Financial Statements — March 31, 2012 and 2011:

  
  

Condensed Consolidated Statements of Financial Condition as of March 31, 2012 and December 31, 2011

     4   
  

Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2012 and 2011

     6   
  

Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2012 and 2011

     7   
  

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2012 and 2011

     8   
  

Notes to Condensed Consolidated Financial Statements

     10   

ITEM 1A.

  

UNAUDITED SUPPLEMENTAL PRESENTATION OF STATEMENTS OF FINANCIAL CONDITION

     48   

ITEM 2.

  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     51   

ITEM 3.

  

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     104   

ITEM 4.

  

CONTROLS AND PROCEDURES

     107   

PART II.

  

OTHER INFORMATION

  

ITEM 1.

  

LEGAL PROCEEDINGS

     108   

ITEM 1A.

  

RISK FACTORS

     109   

ITEM 2.

  

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

     109   

ITEM 3.

  

DEFAULTS UPON SENIOR SECURITIES

     110   

ITEM 4.

  

MINE SAFETY DISCLOSURES

     110   

ITEM 5.

  

OTHER INFORMATION

     110   

ITEM 6.

  

EXHIBITS

     110   

SIGNATURES

     111   

Forward-Looking Statements

This report may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 which reflect our current views with respect to, among other things, our operations and financial performance. You can identify these forward-looking statements by the use of words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. We believe these factors include but are not limited to those described under the section entitled “Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2011 and in this report, as such factors may be updated from time to time in our periodic filings with the United States Securities and Exchange Commission (“SEC”), which are accessible on the SEC’s website at www.sec.gov. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this report and in our other periodic filings. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.

 

 

 

1


Table of Contents

In this report, references to “Blackstone,” the “Partnership”, “we,” “us” or “our” refer to The Blackstone Group L.P. and its consolidated subsidiaries. Unless the context otherwise requires, references in this report to the ownership of Mr. Stephen A. Schwarzman, our founder, and other Blackstone personnel include the ownership of personal planning vehicles and family members of these individuals.

“Blackstone Funds,” “our funds” and “our investment funds” refer to the private equity funds, real estate funds, funds of hedge funds, credit-oriented funds, collateralized loan obligation (“CLO”) vehicles, and closed-end mutual funds and management investment companies that are managed by Blackstone. “Our carry funds” refer to the private equity funds, real estate funds and certain of the credit-oriented funds (with multi-year drawdown, commitment-based structures that only pay carry on the realization of an investment) that are managed by Blackstone. Blackstone’s Private Equity segment comprises its management of private equity funds (including our sector and regional focused funds), which we refer to collectively as our Blackstone Capital Partners (“BCP”) funds, and certain multi-asset class investment funds. We refer to our real estate opportunistic funds as our Blackstone Real Estate Partners (“BREP”) funds and our real estate debt investment funds as our “BREDS” funds. “Our hedge funds” refer to our funds of hedge funds, certain of our real estate debt investment funds and certain other credit-oriented funds (including four publicly registered investment companies), which are managed by Blackstone.

“Assets under management” refers to the assets we manage. Our assets under management equals the sum of:

 

  (a) the fair value of the investments held by our carry funds plus the capital that we are entitled to call from investors in those funds pursuant to the terms of their capital commitments to those funds plus the fair value of co-investments managed by us,

 

  (b) the net asset value of our funds of hedge funds, hedge funds, closed-end mutual funds and registered investment companies,

 

  (c) the fair value of assets we manage pursuant to separately managed accounts, and

 

  (d) the amount of capital raised for our CLOs.

Our carry funds are commitment-based drawdown structured funds that do not permit investors to redeem their interests at their election. Our funds of hedge funds and hedge funds generally have structures that afford an investor the right to withdraw or redeem their interests on a periodic basis (e.g., annually or quarterly), in most cases upon advance written notice, with the majority of our funds requiring from 60 days up to 95 days’ notice, depending on the fund and the liquidity profile of the underlying assets. Investment advisory agreements related to separately managed accounts may generally be terminated by an investor on 30 to 90 days’ notice.

“Fee-earning assets under management” refers to the assets we manage on which we derive management and / or performance fees. Our fee-earning assets under management equals the sum of:

 

  (a) for our Private Equity segment funds and carry funds in our Real Estate segment, which include certain real estate debt investment funds, the amount of capital commitments, remaining invested capital or par value of assets held, depending on the fee terms of the fund,

 

  (b) for our credit-oriented carry funds, the amount of remaining invested capital (which may include leverage) or net asset value, depending on the fee terms of the fund,

 

  (c) the remaining invested capital of co-investments managed by us on which we receive fees,

 

  (d) the net asset value of our funds of hedge funds, hedge funds, certain credit-oriented closed-end registered investment companies, and our closed-end mutual funds,

 

  (e) the fair value of assets we manage pursuant to separately managed accounts,

 

  (f) the gross amount of underlying assets of our CLOs at cost, and

 

2


Table of Contents
  (g) the gross amount of assets (including leverage) for certain of our credit-oriented closed-end registered investment companies.

Our calculations of assets under management and fee-earning assets under management may differ from the calculations of other asset managers, and as a result this measure may not be comparable to similar measures presented by other asset managers. In addition, our calculation of assets under management includes commitments to, and the fair value of, invested capital in our funds from Blackstone and our personnel, regardless of whether such commitments or invested capital are subject to fees. Our definitions of assets under management or fee-earning assets under management are not based on any definition of assets under management or fee-earning assets under management that is set forth in the agreements governing the investment funds that we manage.

For our carry funds, total assets under management includes the fair value of the investments held, whereas fee-earning assets under management includes the amount of capital commitments or the remaining amount of invested capital at cost depending on whether the investment period has or has not expired. As such, fee-earning assets under management may be greater than total assets under management when the aggregate fair value of the remaining investments is less than the cost of those investments.

This report does not constitute an offer of any Blackstone Fund.

 

3


Table of Contents

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

THE BLACKSTONE GROUP L.P.

Condensed Consolidated Statements of Financial Condition (Unaudited)

(Dollars in Thousands, Except Unit Data)

 

     March 31,
2012
     December 31,
2011
 

Assets

     

Cash and Cash Equivalents

   $ 391,304       $ 754,744   

Cash Held by Blackstone Funds and Other

     784,086         724,762   

Investments (including assets pledged of $187,884 and $101,298 at March 31, 2012 and December 31, 2011, respectively)

     19,748,524         15,128,299   

Accounts Receivable

     576,566         406,140   

Reverse Repurchase Agreements

     83,761         139,485   

Due from Affiliates

     822,495         860,514   

Intangible Assets, Net

     689,565         595,488   

Goodwill

     1,703,602         1,703,602   

Other Assets

     455,888         337,396   

Deferred Tax Assets

     1,290,570         1,258,699   
  

 

 

    

 

 

 

Total Assets

   $ 26,546,361       $ 21,909,129   
  

 

 

    

 

 

 

Liabilities and Partners’ Capital

     

Loans Payable

   $ 12,693,529       $ 8,867,568   

Due to Affiliates

     1,723,993         1,811,468   

Accrued Compensation and Benefits

     820,683         903,260   

Securities Sold, Not Yet Purchased

     82,733         143,825   

Repurchase Agreements

     189,146         101,849   

Accounts Payable, Accrued Expenses and Other Liabilities

     1,011,428         828,873   
  

 

 

    

 

 

 

Total Liabilities

     16,521,512         12,656,843   
  

 

 

    

 

 

 

Commitments and Contingencies

     

Redeemable Non-Controlling Interests in Consolidated Entities

     618,417         585,606   
  

 

 

    

 

 

 

Partners’ Capital

     

Partners’ Capital (common units: 504,801,275 issued and outstanding as of March 31, 2012; 489,430,907 issued and outstanding as of December 31, 2011)

     4,380,744         4,281,841   

Appropriated Partners’ Capital

     764,741         386,864   

Accumulated Other Comprehensive Income

     3,297         1,958   

Non-Controlling Interests in Consolidated Entities

     1,738,063         1,535,497   

Non-Controlling Interests in Blackstone Holdings

     2,519,587         2,460,520   
  

 

 

    

 

 

 

Total Partners’ Capital

     9,406,432         8,666,680   
  

 

 

    

 

 

 

Total Liabilities and Partners’ Capital

   $ 26,546,361       $ 21,909,129   
  

 

 

    

 

 

 

 

continued…

See notes to condensed consolidated financial statements.

 

4


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THE BLACKSTONE GROUP L.P.

Condensed Consolidated Statements of Financial Condition (Unaudited)

(Dollars in Thousands)

 

The following presents the portion of the consolidated balances presented above attributable to consolidated Blackstone Funds which are variable interest entities. The following assets may only be used to settle obligations of these consolidated Blackstone Funds and these liabilities are only the obligations of these consolidated Blackstone Funds and they do not have recourse to the general credit of Blackstone.

 

     March 31,
2012
     December 31,
2011
 

Assets

     

Cash Held by Blackstone Funds and Other

   $ 705,575       $ 598,441   

Investments

     13,134,899         8,961,960   

Accounts Receivable

     46,318         33,405   

Due from Affiliates

     34,214         36,502   

Other Assets

     129,867         12,031   
  

 

 

    

 

 

 

Total Assets

   $ 14,050,873       $ 9,642,339   
  

 

 

    

 

 

 

Liabilities

     

Loans Payable

   $ 11,639,749       $ 7,801,136   

Due to Affiliates

     224,782         311,909   

Accounts Payable, Accrued Expenses and Other

     483,695         244,488   
  

 

 

    

 

 

 

Total Liabilities

   $ 12,348,226       $ 8,357,533   
  

 

 

    

 

 

 

 

See notes to condensed consolidated financial statements.

 

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Table of Contents

THE BLACKSTONE GROUP L.P.

Condensed Consolidated Statements of Operations (Unaudited)

(Dollars in Thousands, Except Unit and Per Unit Data)

 

     Three Months Ended March 31,  
     2012     2011  

Revenues

    

Management and Advisory Fees, Net

   $ 471,676      $ 412,738   
  

 

 

   

 

 

 

Performance Fees

    

Realized

     18,839        96,203   

Unrealized

     365,931        512,401   
  

 

 

   

 

 

 

Total Performance Fees

     384,770        608,604   
  

 

 

   

 

 

 

Investment Income

    

Realized

     16,335        12,783   

Unrealized

     72,826        107,395   
  

 

 

   

 

 

 

Total Investment Income

     89,161        120,178   
  

 

 

   

 

 

 

Interest and Dividend Revenue

     7,636        9,490   

Other

     (1,207     2,259   
  

 

 

   

 

 

 

Total Revenues

     952,036        1,153,269   
  

 

 

   

 

 

 

Expenses

    

Compensation and Benefits

    

Compensation

     495,255        659,483   

Performance Fee Compensation

    

Realized

     12,190        14,543   

Unrealized

     97,322        162,525   
  

 

 

   

 

 

 

Total Compensation and Benefits

     604,767        836,551   

General, Administrative and Other

     142,766        129,386   

Interest Expense

     14,518        13,803   

Fund Expenses

     21,742        11,124   
  

 

 

   

 

 

 

Total Expenses

     783,793        990,864   
  

 

 

   

 

 

 

Other Income

    

Net Gains (Losses) from Fund Investment Activities

     288,142        (45,191
  

 

 

   

 

 

 

Income Before Provision for Taxes

     456,385        117,214   

Provision for Taxes

     38,753        38,850   
  

 

 

   

 

 

 

Net Income

     417,632        78,364   

Net Income Attributable to Redeemable Non-Controlling Interests in Consolidated Entities

     39,609        22,025   

Net Income (Loss) Attributable to Non-Controlling Interests in Consolidated Entities

     212,293        (93,081

Net Income Attributable to Non-Controlling Interests in Blackstone Holdings

     107,405        106,716   
  

 

 

   

 

 

 

Net Income Attributable to The Blackstone Group L.P.  

   $ 58,325      $ 42,704   
  

 

 

   

 

 

 

Net Income Per Common Unit, Basic

   $ 0.12      $ 0.10   
  

 

 

   

 

 

 

Net Income Per Common Unit, Diluted

   $ 0.11      $ 0.09   
  

 

 

   

 

 

 

Weighted-Average Common Units Outstanding — Basic

     506,985,529        447,742,389   
  

 

 

   

 

 

 

Weighted-Average Common Units Outstanding — Diluted

     517,389,558        457,652,916   
  

 

 

   

 

 

 

Revenues Earned from Affiliates

    

Management and Advisory Fees

   $ 47,984      $ 70,038   
  

 

 

   

 

 

 

See notes to condensed consolidated financial statements.

 

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THE BLACKSTONE GROUP L.P.

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

(Dollars in Thousands, Except Unit and Per Unit Data)

 

     Three Months Ended
March 31,
 
     2012     2011  

Net Income

   $ 417,632      $ 78,364   

Other Comprehensive Income (Loss), Net of Tax — Currency Translation Adjustment

     (2,174     3,505   
  

 

 

   

 

 

 

Comprehensive Income

     415,458        81,869   

Less:

    

Comprehensive Income Attributable to Redeemable Non-Controlling Interests in Consolidated Entities

     39,609        22,025   

Comprehensive Income (Loss) Attributable to Non-Controlling Interests in Consolidated Entities

     208,780        (88,375

Comprehensive Income Attributable to Non-Controlling Interests in Blackstone Holdings

     107,405        106,716   
  

 

 

   

 

 

 

Comprehensive Income Attributable to The Blackstone Group L.P.

   $ 59,664      $ 41,503   
  

 

 

   

 

 

 

 

See notes to condensed consolidated financial statements.

 

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THE BLACKSTONE GROUP L.P.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(Dollars in Thousands)

 

     Three Months Ended
March 31,
 
     2012     2011  

Operating Activities

    

Net Income

   $ 417,632      $ 78,364   

Adjustments to Reconcile Net Income to Net Cash Provided by (Used in) Operating Activities:

    

Blackstone Funds Related:

    

Unrealized Appreciation on Investments Allocable to Non-Controlling Interests in Consolidated Entities

     (259,698     (20,698

Net Realized Gains on Investments

     (79,174     (179,148

Changes in Unrealized Gains on Investments Allocable to The Blackstone Group L.P.

     (46,967     (89,106

Unrealized Depreciation (Appreciation) on Hedge Activities

     (794     561   

Non-Cash Performance Fees

     (287,776     (375,102

Non-Cash Performance Fee Compensation

     109,512        177,069   

Equity-Based Compensation Expense

     222,444        426,280   

Amortization of Intangibles

     48,142        40,846   

Other Non-Cash Amounts Included in Net Income

     34,134        14,806   

Cash Flows Due to Changes in Operating Assets and Liabilities:

    

Cash Held by Blackstone Funds and Other

     241,973        141,787   

Cash Relinquished with Deconsolidation and Liquidation of Partnership

     19,155        395   

Accounts Receivable

     (131,943     130,920   

Reverse Repurchase Agreements

     55,725        (48,298

Due from Affiliates

     (4,466     (984

Other Assets

     80,161        32,723   

Accrued Compensation and Benefits

     (102,276     (273,284

Securities Sold, Not Yet Purchased

     (52,859     93,711   

Accounts Payable, Accrued Expenses and Other Liabilities

     (513,451     (283,179

Repurchase Agreements

     87,298        9,223   

Due to Affiliates

     (58,313     22,307   

Treasury Cash Management Strategies:

    

Investments Purchased

     (715,090     (733,450

Cash Proceeds from Sale of Investments

     842,199        708,437   

Blackstone Funds Related:

    

Investments Purchased

     (1,534,651     (1,953,083

Cash Proceeds from Sale or Pay Down of Investments

     1,763,311        2,520,410   
  

 

 

   

 

 

 

Net Cash Provided by Operating Activities

     134,228        441,507   
  

 

 

   

 

 

 

Investing Activities

    

Purchase of Furniture, Equipment and Leasehold Improvements

     (13,086     (5,710

Net Cash Paid for Acquisitions, Net of Cash Acquired

     (156,972     —     

Changes in Restricted Cash

     (166     321   
  

 

 

   

 

 

 

Net Cash Used in Investing Activities

     (170,224     (5,389
  

 

 

   

 

 

 

 

continued…

See notes to condensed consolidated financial statements

 

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THE BLACKSTONE GROUP L.P.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(Dollars in Thousands)

 

     Three Months Ended
March 31,
 
     2012     2011  

Financing Activities

    

Distributions to Non-Controlling Interest Holders in Consolidated Entities

   $ (47,338   $ (135,412

Contributions from Non-Controlling Interest Holders in Consolidated Entities

     157,381        118,434   

Purchase of Interests from Certain Non-Controlling Interest Holders

     (16     (2,056

Net Settlement of Vested Common Units and Repurchase of Common and Holdings Units

     (8,821     (6,823

Proceeds from Loans Payable

     1,365        2,246   

Repayment of Loans Payable

     (8,952     (17,713

Distributions to Unitholders

     (279,224     (371,994

Blackstone Funds Related:

    

Proceeds from Loans Payable

     3,839        200   

Repayment of Loans Payable

     (145,673     (155,810
  

 

 

   

 

 

 

Net Cash Used in Financing Activities

     (327,439     (568,928
  

 

 

   

 

 

 

Effect of Exchange Rate Changes on Cash and Cash Equivalents

     (5     —     
  

 

 

   

 

 

 

Net Decrease in Cash and Cash Equivalents

     (363,440     (132,810

Cash and Cash Equivalents, Beginning of Period

     754,744        588,621   
  

 

 

   

 

 

 

Cash and Cash Equivalents, End of Period

   $ 391,304      $ 455,811   
  

 

 

   

 

 

 

Supplemental Disclosure of Cash Flows Information

    

Payments for Interest

   $ 37,409      $ 635   
  

 

 

   

 

 

 

Payments for Income Taxes

   $ 6,866      $ 17,611   
  

 

 

   

 

 

 

Supplemental Disclosure of Non-Cash Investing and Financing Activities

    

Net Activities Related to Capital Transactions of Consolidated Blackstone Funds

   $ (2,633   $ 1,721   
  

 

 

   

 

 

 

Net Assets Related to the Consolidation of CLO Vehicles

   $ 233,541      $ —     
  

 

 

   

 

 

 

In-kind Redemption of Capital

   $ (2,017   $ —     
  

 

 

   

 

 

 

In-kind Contribution of Capital

   $ 2,017      $ —     
  

 

 

   

 

 

 

Transfer of Interests to Non-Controlling Interest Holders

   $ (1,191   $ (1,111
  

 

 

   

 

 

 

Change in The Blackstone Group L.P.’s Ownership Interest

   $ (8,867   $ (5,772
  

 

 

   

 

 

 

Net Settlement of Vested Common Units

   $ 6,328      $ 4,369   
  

 

 

   

 

 

 

Conversion of Blackstone Holdings Units to Common Units

   $ 40,273      $ 137,961   
  

 

 

   

 

 

 

Exchange of Founders’ and Non-Controlling Interest Holders’ Interests in Blackstone Holdings:

    

Deferred Tax Asset

   $ (41,029   $ (176,013
  

 

 

   

 

 

 

Due to Affiliates

   $ 34,122      $ 142,212   
  

 

 

   

 

 

 

Partners’ Capital

   $ 6,907      $ 33,801   
  

 

 

   

 

 

 

See notes to condensed consolidated financial statements.

 

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THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

 

1. ORGANIZATION

The Blackstone Group L.P., together with its subsidiaries, (“Blackstone” or the “Partnership”) is a leading global manager of private capital and provider of financial advisory services. The alternative asset management business includes the management of private equity funds, real estate funds, funds of hedge funds, credit-oriented funds, collateralized loan obligation (“CLO”) vehicles, separately managed accounts, and registered investment companies (collectively referred to as the “Blackstone Funds”). Blackstone also provides various financial advisory services, including financial advisory, restructuring and reorganization advisory and fund placement services. Blackstone’s business is organized into five segments: private equity, real estate, hedge fund solutions, credit businesses, and financial advisory.

The Partnership was formed as a Delaware limited partnership on March 12, 2007. The Partnership is managed and operated by its general partner, Blackstone Group Management L.L.C., which is in turn wholly-owned and controlled by one of Blackstone’s founders, Stephen A. Schwarzman (the “Founder”), and Blackstone’s other senior managing directors.

The activities of the Partnership are conducted through its holding partnerships: Blackstone Holdings I L.P., Blackstone Holdings II L.P., Blackstone Holdings III L.P. and Blackstone Holdings IV L.P. (collectively, “Blackstone Holdings”, “Blackstone Holdings Partnerships” or the “Holding Partnerships”). On June 18, 2007, in preparation for an initial public offering (“IPO”), the predecessor owners (“Predecessor Owners”) of the Blackstone business completed a reorganization (the “Reorganization”) whereby, with certain limited exceptions, the operating entities of the predecessor organization and the intellectual property rights associated with the Blackstone name were contributed (“Contributed Businesses”) to five holding partnerships (Blackstone Holdings I L.P., Blackstone Holdings II L.P., Blackstone Holdings III L.P., Blackstone Holdings IV L.P. and Blackstone Holdings V L.P.) either directly or indirectly via a sale to certain wholly-owned subsidiaries of the Partnership and then a contribution to the Holding Partnerships. The Partnership, through its wholly-owned subsidiaries, is the sole general partner in each of these Holding Partnerships. The reorganization was accounted for as an exchange of entities under common control for the component of interests contributed by the Founders and the other senior managing directors (collectively, the “Control Group”) and as an acquisition of non-controlling interests using the purchase method of accounting for all the predecessor owners other than the Control Group.

On January 1, 2009, the number of Holding Partnerships was reduced from five to four through the transfer of assets and liabilities of Blackstone Holdings III L.P. to Blackstone Holdings IV L.P. In connection therewith, Blackstone Holdings IV L.P. was renamed Blackstone Holdings III L.P. and Blackstone Holdings V L.P. was renamed Blackstone Holdings IV L.P. Blackstone Holdings refers to the five holding partnerships prior to the January 2009 reorganization and the four holding partnerships subsequent to the January 2009 reorganization.

Generally, holders of the limited partner interests in the four Holding Partnerships may, up to four times each year, exchange their limited partnership interests (“Partnership Units”) for Blackstone Common Units, on a one-to-one basis, exchanging one Partnership Unit in each of the four Holding Partnerships for one Blackstone Common Unit.

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Partnership have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions to Form 10-Q. The condensed consolidated financial

 

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Notes to Condensed Consolidated Financial Statements—Continued

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

 

statements, including these notes, are unaudited and exclude some of the disclosures required in audited financial statements. Management believes it has made all necessary adjustments (consisting of only normal recurring items) so that the condensed consolidated financial statements are presented fairly and that estimates made in preparing its condensed consolidated financial statements are reasonable and prudent. The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2011 filed with the Securities and Exchange Commission.

The condensed consolidated financial statements include the accounts of the Partnership, its wholly-owned or majority-owned subsidiaries, the consolidated entities which are considered to be variable interest entities and for which the Partnership is considered the primary beneficiary, and certain partnerships or similar entities which are not considered variable interest entities but in which the general partner is presumed to have control.

All intercompany balances and transactions have been eliminated in consolidation.

Restructurings within consolidated CLOs are treated as investment purchases or sales, as applicable, in the Condensed Consolidated Statements of Cash Flows.

Consolidation

The Partnership consolidates all entities that it controls through a majority voting interest or otherwise, including those Blackstone Funds in which the general partner is presumed to have control. Although the Partnership has a non-controlling interest in the Blackstone Holdings partnerships, the limited partners do not have the right to dissolve the partnerships or have substantive kick out rights or participating rights that would overcome the presumption of control by the Partnership. Accordingly, the Partnership consolidates Blackstone Holdings and records non-controlling interests to reflect the economic interests of the limited partners of Blackstone Holdings.

In addition, the Partnership consolidates all variable interest entities (“VIE”) in which it is the primary beneficiary. An enterprise is determined to be the primary beneficiary if it holds a controlling financial interest. A controlling financial interest is defined as (a) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and (b) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. The consolidation guidance requires an analysis to (a) determine whether an entity in which the Partnership holds a variable interest is a VIE and (b) whether the Partnership’s involvement, through holding interests directly or indirectly in the entity or contractually through other variable interests (e.g., management and performance related fees), would give it a controlling financial interest. Performance of that analysis requires the exercise of judgment. VIEs qualify for the deferral of the consolidation guidance if all of the following conditions have been met:

 

  (a) The entity has all of the attributes of an investment company as defined under American Institute of Certified Public Accountants Accounting and Auditing Guide, Investment Companies (“Investment Company Guide”), or does not have all the attributes of an investment company but it is an entity for which it is acceptable based on industry practice to apply measurement principles that are consistent with the Investment Company Guide,

 

  (b) The reporting entity does not have explicit or implicit obligations to fund any losses of the entity that could potentially be significant to the entity, and

 

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Notes to Condensed Consolidated Financial Statements—Continued

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

 

  (c) The entity is not a securitization or asset-backed financing entity or an entity that was formerly considered a qualifying special purpose entity.

Where the VIEs have qualified for the deferral of the current consolidation guidance, the analysis is based on previous consolidation guidance. This guidance requires an analysis to determine (a) whether an entity in which the Partnership holds a variable interest is a variable interest entity and (b) whether the Partnership’s involvement, through holding interests directly or indirectly in the entity or contractually through other variable interests (e.g., management and performance related fees), would be expected to absorb a majority of the variability of the entity. Under both guidelines, the Partnership determines whether it is the primary beneficiary of a VIE at the time it becomes involved with a variable interest entity and reconsiders that conclusion continuously. In evaluating whether the Partnership is the primary beneficiary, Blackstone evaluates its economic interests in the entity held either directly by the Partnership and its affiliates or indirectly through employees. The consolidation analysis can generally be performed qualitatively; however, if it is not readily apparent that the Partnership is not the primary beneficiary, a quantitative analysis may also be performed. Investments and redemptions (either by the Partnership, affiliates of the Partnership or third parties) or amendments to the governing documents of the respective Blackstone Funds could affect an entity’s status as a VIE or the determination of the primary beneficiary. At each reporting date, the Partnership assesses whether it is the primary beneficiary and will consolidate or deconsolidate accordingly.

Assets of consolidated variable interest entities that can only be used to settle obligations of the consolidated VIE and liabilities of a consolidated VIE for which creditors (or beneficial interest holders) do not have recourse to the general credit of Blackstone are presented in a separate section in the Condensed Consolidated Statements of Financial Condition.

Blackstone’s other disclosures regarding VIEs are discussed in Note 9. “Variable Interest Entities”.

Fair Value of Financial Instruments

GAAP establishes a hierarchal disclosure framework which prioritizes and ranks the level of market price observability used in measuring financial instruments at fair value. Market price observability is affected by a number of factors, including the type of financial instrument, the characteristics specific to the financial instrument and the state of the marketplace, including the existence and transparency of transactions between market participants. Financial instruments with readily available quoted prices in active markets generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.

Financial instruments measured and reported at fair value are classified and disclosed based on the observability of inputs used in the determination of fair values, as follows:

 

   

Level I — Quoted prices are available in active markets for identical financial instruments as of the reporting date. The type of financial instruments in Level I include listed equities, listed derivatives and mutual funds with quoted prices. The Partnership does not adjust the quoted price for these investments, even in situations where Blackstone holds a large position and a sale could reasonably impact the quoted price.

 

   

Level II — Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of models or other valuation methodologies. Financial instruments which are generally included in this category include corporate bonds and loans, government and agency securities, less liquid and restricted equity

 

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THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

 

 

securities, certain over-the-counter derivatives where the fair value is based on observable inputs, and certain fund of hedge funds and proprietary investments in which Blackstone has the ability to redeem its investment at net asset value at, or within three months of, the reporting date.

 

   

Level III — Pricing inputs are unobservable for the financial instruments and includes situations where there is little, if any, market activity for the financial instrument. The inputs into the determination of fair value require significant management judgment or estimation. Financial instruments that are included in this category generally include general and limited partnership interests in private equity and real estate funds, credit-oriented funds, distressed debt and non-investment grade residual interests in securitizations, collateralized loan obligations, certain over the counter derivatives where the fair value is based on unobservable inputs and certain funds of hedge funds which use net asset value per share to determine fair value in which Blackstone may not have the ability to redeem its investment at net asset value at, or within three months of, the reporting date. Blackstone may not have the ability to redeem its investment at net asset value at, or within three months of, the reporting date if an investee fund manager has the ability to limit the amount of redemptions, and/or the ability to side-pocket investments, irrespective of whether such ability has been exercised.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the determination of which category within the fair value hierarchy is appropriate for any given financial instrument is based on the lowest level of input that is significant to the fair value measurement. The Partnership’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the financial instrument.

Transfers between levels of the fair value hierarchy are recognized at the beginning of the reporting period.

In certain cases, debt and equity securities are valued on the basis of prices from an orderly transaction between market participants provided by reputable dealers or pricing services. In determining the value of a particular investment, pricing services may use certain information with respect to transactions in such investments, quotations from dealers, pricing matrices, market transactions in comparable investments and various relationships between investments.

In the absence of observable market prices, Blackstone values its investments using valuation methodologies applied on a consistent basis. For some investments little market activity may exist; management’s determination of fair value is then based on the best information available in the circumstances, and may incorporate management’s own assumptions and involves a significant degree of judgment, taking into consideration a combination of internal and external factors, including the appropriate risk adjustments for non-performance and liquidity risks. Investments for which market prices are not observable include private investments in the equity of operating companies, real estate properties, or certain funds of hedge funds and credit-oriented investments.

Such investments are valued on a quarterly basis, taking into consideration any changes in key unobservable inputs and changes in economic and other relevant conditions and valuation models are updated accordingly. The valuation process also includes a review by an independent valuation party, at least annually for all investments, and quarterly for certain investments, to corroborate the values determined by management. The valuations of Blackstone’s investments are reviewed quarterly by a valuation committee which is chaired by Blackstone’s Vice Chairman and includes senior heads of each of Blackstone’s businesses, as well as representatives of legal and finance. Each quarter, the valuations of Blackstone’s investments are also reviewed by the Audit Committee in a meeting attended by the chairman of the valuation committee as well as the senior heads of each of Blackstone’s businesses. The valuations are further tested by comparison to actual sales prices obtained on disposition of the investments.

 

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THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

 

The valuation technique for each of these investments is described below:

Private Equity Investments — The fair values of private equity investments are determined by reference to projected net earnings, earnings before interest, taxes, depreciation and amortization (“EBITDA”), the discounted cash flow method, public market or private transactions, valuations for comparable companies and other measures which, in many cases, are unaudited at the time received. Valuations may be derived by reference to observable valuation measures for comparable companies or transactions (e.g., multiplying a key performance metric of the investee company such as EBITDA by a relevant valuation multiple observed in the range of comparable companies or transactions), adjusted by management for differences between the investment and the referenced comparables, and in some instances by reference to option pricing models or other similar methods. Private equity investments may also be valued at cost for a period of time after an acquisition as the best indicator of fair value.

Real Estate Investments — The fair values of real estate investments are determined by considering projected operating cash flows, sales of comparable assets, if any, and replacement costs among other measures. The methods used to estimate the fair value of real estate investments include the discounted cash flow method and/or capitalization rates (“cap rates”) analysis. Valuations may be derived by reference to observable valuation measures for comparable companies or assets (e.g., multiplying a key performance metric of the investee company or asset, such as EBITDA, by a relevant valuation multiple observed in the range of comparable companies or transactions), adjusted by management for differences between the investment and the referenced comparables, and in some instances by reference to option pricing models or other similar methods. Additionally, where applicable, projected distributable cash flow through debt maturity will also be considered in support of the investment’s carrying value.

Funds of Hedge Funds — Blackstone Funds’ direct investments in funds of hedge funds (“Investee Funds”) are valued at net asset value (“NAV”) per share of the Investee Fund. If the Partnership determines, based on its own due diligence and investment procedures, that NAV per share does not represent fair value, the Partnership will estimate the fair value in good faith and in a manner that it reasonably chooses, in accordance with its valuation policies.

Certain investments of Blackstone and of the consolidated Blackstone funds of hedge funds and credit-oriented funds measure their investments in underlying funds at fair value using NAV per share without adjustment. The terms of the investee’s investment generally provide for minimum holding periods or lock-ups, the institution of gates on redemptions or the suspension of redemptions or an ability to side-pocket investments, at the discretion of the investee’s fund manager, and as a result, investments may not be redeemable at, or within three months of, the reporting date. A side-pocket is used by hedge funds and funds of hedge funds to separate investments that may lack a readily ascertainable value, are illiquid or are subject to liquidity restriction. Redemptions are generally not permitted until the investments within a side pocket are liquidated or it is deemed that the conditions existing at the time that required the investment to be included in the side pocket no longer exist. As the timing of either of these events is uncertain, the timing at which the Partnership may redeem an investment held in a side-pocket cannot be estimated. Investments for which fair value is measured using NAV per share are reflected within the fair value hierarchy based on the observability of pricing inputs as described above. Further disclosure on instruments for which fair value is measured using NAV per share is presented in Note 5. “Net Asset Value as Fair Value”.

Credit-Oriented Investments — The fair values of credit-oriented investments are generally determined on the basis of prices between market participants provided by reputable dealers or pricing services. In some instances, Blackstone may utilize other valuation techniques, including the discounted cash flow method.

 

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THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

 

Investments, at Fair Value

The Blackstone Funds are accounted for as investment companies under the Investment Company Guide, and reflect their investments, including majority-owned and controlled investments (the “Portfolio Companies”), at fair value. Blackstone has retained the specialized accounting for the consolidated Blackstone Funds. Thus, such consolidated funds’ investments are reflected in Investments on the Condensed Consolidated Statements of Financial Condition at fair value, with unrealized gains and losses resulting from changes in fair value reflected as a component of Net Gains from Fund Investment Activities in the Condensed Consolidated Statements of Operations. Fair value is the amount that would be received to sell an asset or paid to transfer a liability, in an orderly transaction between market participants at the measurement date (i.e., the exit price).

Blackstone’s principal investments are presented at fair value with unrealized appreciation or depreciation and realized gains and losses recognized in the Condensed Consolidated Statements of Operations within Investment Income (Loss).

For certain instruments, the Partnership has elected the fair value option. Such election is irrevocable and is applied on an investment by investment basis at initial recognition. The Partnership has applied the fair value option for certain loans and receivables and certain investments in private debt and equity securities that otherwise would not have been carried at fair value with gains and losses recorded in net income. Fair valuing these investments is consistent with how the Partnership accounts for its other principal investments. Loans extended to third parties are recorded within Accounts Receivable within the Condensed Consolidated Statements of Financial Condition. Debt and equity securities for which the fair value option has been elected are recorded within Investments. The methodology for measuring the fair value of such investments is consistent with the methodology applied to private equity, real estate, credit-oriented and funds of hedge funds investments. Changes in the fair value of such instruments are recognized in Investment Income (Loss) in the Condensed Consolidated Statements of Operations. Interest income on interest bearing loans and receivables and debt securities on which the fair value option has been elected is based on stated coupon rates adjusted for the accretion of purchase discounts and the amortization of purchase premiums. This interest income is recorded within Interest and Dividend Revenue.

In addition, the Partnership has elected the fair value option for the assets and liabilities of CLO vehicles that are consolidated as of January 1, 2010, as a result of the initial adoption of variable interest entity consolidation guidance. The Partnership has also elected the fair value option for CLO vehicles consolidated as a result of the acquisitions of CLO management contracts. The adjustment resulting from the difference between the fair value of assets and liabilities for each of these events is presented as a transition and acquisition adjustment to Appropriated Partners’ Capital. Assets of the consolidated CLOs are presented within Investments within the Condensed Consolidated Statements of Financial Condition and Liabilities within Loans Payable for the amounts due to unaffiliated third parties and Due to Affiliates for the amounts held by non-consolidated affiliates. The methodology for measuring the fair value of such assets and liabilities is consistent with the methodology applied to private equity, real estate, and credit-oriented investments. Changes in the fair value of consolidated CLO assets and liabilities and related interest, dividend and other income subsequent to adoption and acquisition are presented within Net Gains (Losses) from Fund Investment Activities. Amounts attributable to Non-Controlling Interests in Consolidated Entities have a corresponding adjustment to Appropriated Partners’ Capital.

Further disclosure on instruments for which the fair value option has been elected is presented in Note 7. “Fair Value Option” to the Condensed Consolidated Financial Statements.

 

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THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

 

Security and loan transactions are recorded on a trade date basis.

Equity Method Investments

Investments where the Partnership is deemed to exert significant influence, but not control, are accounted for using the equity method of accounting. Under the equity method of accounting, the Partnership’s share of earnings (losses) from equity method investments is included in Investment Income (Loss) in the Condensed Consolidated Statements of Operations. The carrying amounts of equity method investments are reflected in Investments in the Condensed Consolidated Statements of Financial Condition. As the underlying investments of the Partnership’s equity method investments in Blackstone Funds are reported at fair value, the carrying value of the Partnership’s equity method investments represents fair value.

Repurchase and Reverse Repurchase Agreements

Securities purchased under agreement to resell (“reverse repurchase agreements”) and securities sold under agreements to repurchase (“repurchase agreements”), comprising primarily U.S. and non-U.S. government and agency securities, asset-backed securities and corporate debt, represent collateralized financing transactions. Such transactions are recorded in the Condensed Consolidated Statements of Financial Condition at their contractual amounts and include accrued interest.

The Partnership manages credit exposure arising from repurchase agreements and reverse repurchase agreements by, in appropriate circumstances, entering into master netting agreements and collateral arrangements with counterparties that provide the Partnership, in the event of a counterparty default, the right to liquidate collateral and the right to offset a counterparty’s rights and obligations.

The Partnership takes possession of securities purchased under reverse repurchase agreements and is permitted to repledge, deliver or otherwise use such securities. The Partnership also pledges its financial instruments to counterparties to collateralize repurchase agreements. Financial instruments pledged that can be repledged, delivered or otherwise used by the counterparty are recorded in Investments on the Condensed Consolidated Statements of Financial Condition.

Securities Sold, Not Yet Purchased

Securities Sold, Not Yet Purchased consist of equity and debt securities that the Partnership has borrowed and sold. The Partnership is required to “cover” its short sale in the future by purchasing the security at prevailing market prices and delivering it to the counterparty from which it borrowed the security. The Partnership is exposed to loss in the event that the price at which a security may have to be purchased to cover a short sale exceeds the price at which the borrowed security was sold short.

Securities Sold, Not Yet Purchased are recorded at fair value in the Condensed Consolidated Statements of Financial Condition.

Derivative Instruments

The Partnership recognizes all derivatives as assets or liabilities on its Condensed Consolidated Statements of Financial Condition at fair value. On the date the Partnership enters into a derivative contract, it designates and documents each derivative contract as one of the following: (a) a hedge of a recognized asset or liability (“fair

 

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Notes to Condensed Consolidated Financial Statements—Continued

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

 

value hedge”), (b) a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow hedge”), (c) a hedge of a net investment in a foreign operation, or (d) a derivative instrument not designated as a hedging instrument (“freestanding derivative”). For a fair value hedge, Blackstone records changes in the fair value of the derivative and, to the extent that it is highly effective, changes in the fair value of the hedged asset or liability attributable to the hedged risk, in current period earnings in General, Adminstrative and Other in the Condensed Consolidated Statements of Operations. Changes in the fair value of derivatives designated as hedging instruments caused by factors other than changes in the risk being hedged, which are excluded from the assessment of hedge effectiveness, are recognized in current period earnings.

The Partnership formally documents at inception its hedge relationships, including identification of the hedging instruments and the hedged items, its risk management objectives, strategy for undertaking the hedge transaction and the Partnership’s evaluation of effectiveness of its hedged transaction. At least monthly, the Partnership also formally assesses whether the derivative it designated in each hedging relationship is expected to be, and has been, highly effective in offsetting changes in estimated fair values or cash flows of the hedged items using either the regression analysis or the dollar offset method. If it is determined that a derivative is not highly effective at hedging the designated exposure, hedge accounting is discontinued. The fair value of the derivative instrument is reflected within Other Assets in the Condensed Consolidated Statements of Financial Condition.

For freestanding derivative contracts, the Partnership presents changes in fair value in current period earnings. Changes in the fair value of derivative instruments held by consolidated Blackstone Funds are reflected in Net Gains from Funds Investment Activities or, where derivative instruments are held by the Partnership, within Investment Income (Loss), in the Condensed Consolidated Statements of Operations. The fair value of freestanding derivative assets are recorded within Investments and freestanding derivative liabilities are recorded within Accounts Payable, Accrued Expenses and Other Liabilities in the Condensed Consolidated Statements of Financial Condition.

Blackstone’s other disclosures regarding derivative financial instruments are discussed in Note 6. “Derivative Financial Instruments”.

Affiliates

Blackstone considers its Founder, senior managing directors, employees, the Blackstone Funds and the Portfolio Companies to be affiliates.

Distributions

Distributions are reflected in the condensed consolidated financial statements when paid.

Recent Accounting Developments

In April 2011, the Financial Accounting Standards Board (“FASB”) amended existing guidance for agreements to transfer financial assets that both entitle and obligate the transferor to repurchase or redeem the financial assets before their maturity. The amendments removed from the assessment of effective control (a) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee and (b) the collateral maintenance implementation guidance related to that criterion. The guidance was effective for the first interim or annual period beginning on

 

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THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

 

or after December 15, 2011. Blackstone enters into repurchase agreements that are currently accounted for as collateralized financing transactions. Adoption did not have a material impact on the Partnership’s financial statements.

In May 2011, the FASB issued amended guidance on fair value measurements to achieve common fair value measurement and disclosure requirements in GAAP and International Financial Reporting Standards. The amended guidance specified that the concepts of highest and best use and valuation premise in a fair value measurement are relevant only when measuring the fair value of nonfinancial assets and are not relevant when measuring the fair value of financial assets or of liabilities. The amendments included requirements specific to measuring the fair value of those instruments, such as equity interests used as consideration in a business combination. An entity should measure the fair value of its own equity instrument from the perspective of a market participant that holds the instrument as an asset. With respect to financial instruments that are managed as part of a portfolio, an exception to fair value requirements was provided. That exception permits a reporting entity to measure the fair value of such financial assets and financial liabilities at the price that would be received to sell a net asset position for a particular risk or to transfer a net liability position for a particular risk in an orderly transaction between market participants at the measurement date. The amendments also clarified that premiums and discounts should only be applied if market participants would do so when pricing the asset or liability. Premiums and discounts related to the size of an entity’s holding (e.g., a blockage factor) rather than as a characteristic of the asset or liability (e.g., a control premium) is not permitted in a fair value measurement.

The guidance also required enhanced disclosures about fair value measurements, including, among other things, (a) for fair value measurements categorized within Level III of the fair value hierarchy, (1) a quantitative disclosure of the unobservable inputs and assumptions used in the measurement, (2) the valuation process used by the reporting entity, and (3) a narrative description of the sensitivity of the fair value measurement to changes in unobservable inputs and the interrelationships between those unobservable inputs, if any, and (b) the categorization by level of the fair value hierarchy for items that are not measured at fair value in the statement of financial position but for which the fair value is required to be disclosed (for example, a financial instrument that is measured at amortized cost in the statement of financial position but for which fair value is disclosed). The guidance also amended disclosure requirements for significant transfers between Level I and Level II and now requires disclosure of all transfers between Levels I and II in the fair value hierarchy.

The amended guidance was effective for interim and annual periods beginning after December 15, 2011. As the impact of the guidance is primarily limited to enhanced disclosures, adoption did not have a material impact on the Partnership’s financial statements.

In June 2011, the FASB issued amended guidance on the presentation of comprehensive income. The amendments provided an entity with an option to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity was required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. In addition, an entity was required to present on the face of the financial statements reclassification adjustments for items that were reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income were presented. The guidance was effective for fiscal years, and interim periods within those years beginning after December 15, 2011 and was to be applied on a retrospective basis. As the amendments are limited to presentation only, adoption did not have a material impact on the Partnership’s financial statements.

 

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THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

 

In December 2011, the FASB issued a deferral of the effective date for certain disclosures relating to the comprehensive income, specifically with respect to the presentation of reclassifications of items out of accumulated other comprehensive income. The deferral was effective for fiscal years, and interim periods within those years, beginning after December 15, 2011.

In September 2011, the FASB issued enhanced guidance on testing goodwill for impairment. The amended guidance provides an entity with the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. However, if an entity concludes otherwise, then it is required to perform the first step of the two-step impairment test by calculating the fair value of the reporting unit and comparing the fair value with the carrying amount of the reporting unit. If the carrying amount of a reporting unit exceeds its fair value, then the entity is required to perform the second step of the goodwill impairment test to measure the amount of the impairment loss, if any. Under the amended guidance, an entity has the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the first step of the two-step goodwill impairment test. An entity may resume performing the qualitative assessment in any subsequent period. The amended guidance includes examples of events or circumstances that an entity must consider in evaluating whether it is more likely than not that the fair value of reporting units is less than its carrying amount. The amended guidance no longer permits the carry forward of detailed calculations of a reporting unit’s fair value from a prior year. The guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted. The amended guidance is not expected to have a material impact on the Partnership’s financial statements.

In December 2011, the FASB issued guidance to enhance disclosures about financial instruments and derivative instruments that are either (a) offset or (b) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset. Under the amended guidance, an entity is required to disclose quantitative information relating to recognized assets and liabilities that are offset or subject to an enforceable master netting arrangement or similar agreement, including (a) the gross amounts of those recognized assets and liabilities, (b) the amounts offset to determine the net amount presented in the statement of financial position, and (c) the net amount presented in the statement of financial position. With respect to amounts subject to an enforceable master netting arrangement or similar agreement which are not offset, disclosure is required of (a) the amounts related to recognized financial instruments and other derivative instruments, (b) the amount related to financial collateral (including cash collateral), and (c) the overall net amount after considering amounts that have not been offset. The guidance is effective for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods and retrospective application is required. As the amendments are limited to disclosure only, adoption is not expected to have a material impact on the Partnership’s financial statements.

 

3. ACQUISITIONS, GOODWILL AND INTANGIBLE ASSETS

Acquisition of Harbourmaster

On January 5, 2012, Blackstone completed the acquisition of all of the outstanding share capital of Harbourmaster Capital (Holdings) Limited (“Harbourmaster”), an Island of Jersey entity, in accordance with the sale and purchase agreement entered into on October 6, 2011. The fair value of consideration transferred, comprised entirely of cash, was €181.4 million ($232.0 million). Harbourmaster is a European secured bank loan manager based in Dublin, Ireland. Harbourmaster manages various credit products including CLO vehicles.

 

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Notes to Condensed Consolidated Financial Statements—Continued

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

 

The following is a summary of the estimated fair values of assets acquired and liabilities assumed for the Harbourmaster acquisition:

 

Purchase Price — Cash

   $ 232,044   
  

 

 

 

Fair Value of Assets Acquired and Liabilities Assumed

  

Assets

  

Cash

   $ 75,072   

Investments in CLOs

     9,305   

Accounts Receivable

     9,329   

Other Assets

     17,651   

Intangible Assets

     142,221   
  

 

 

 
     253,578   

Liabilities Assumed

  

Accounts Payable, Accrued Expenses and Other Liabilities

     21,534   
  

 

 

 

Net Assets Acquired

   $ 232,044   
  

 

 

 

Harbourmaster’s results from the date of acquisition have been included in the Credit Businesses segment.

The Partnership incurred $2.1 million of acquisition-related costs which were expensed as incurred and are reflected within the General, Administrative and Other in the Condensed Consolidated Statement of Operations.

The Condensed Consolidated Statement of Operations for the three months ended March 31, 2012 includes the results of Harbourmaster since the date of acquisition, January 5, 2012, through March 31, 2012. Supplemental information on an unaudited pro forma basis, as if the Harbourmaster acquisition had been consummated as of January 1, 2011 is as follows:

 

     Three Months
Ended
 
     March 31, 2011  
     (Unaudited)  

Total Revenues

   $ 1,171,279   
  

 

 

 

Net Income Attributable to The Blackstone Group L.P.

   $ 50,817   
  

 

 

 

Net Income Per Common Unit — Basic and Diluted

   $ 0.11   
  

 

 

 

The results for the period from January 1, 2012 to the acquisition date of January 5, 2012 are not material and, as a result, pro forma unaudited supplemental information has not been provided for 2012 as the amounts are materially consistent with the amounts recognized in the Condensed Consolidated Statements of Operations for the quarter ended March 31, 2012.

The unaudited pro forma supplemental information is based on estimates and assumptions, which the Partnership believes are reasonable. These results are not necessarily indicative of the Partnership’s Condensed Consolidated Financial Condition or Statements of Operations in future periods or the results that actually would have been realized had the Partnership and Harbourmaster been a combined entity during the periods presented.

 

20


Table of Contents

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

 

Goodwill and Intangible Assets

Goodwill has been allocated to each of the Partnership’s five segments as follows: Private Equity ($694.5 million), Real Estate ($421.7 million), Hedge Fund Solutions ($172.1 million), Credit Businesses ($346.4 million) and Financial Advisory ($68.9 million).

The carrying value of goodwill was $1.7 billion as of March 31, 2012 and December 31, 2011. As of March 31, 2012 and December 31, 2011, the fair value of the Partnership’s operating segments substantially exceeded their respective carrying values.

Intangible Assets, Net consists of the following:

 

     March 31,
2012
    December 31,
2011
 

Finite-Lived Intangible Assets / Contractual Rights

   $ 1,536,244      $ 1,394,023   

Accumulated Amortization

     (846,679     (798,535
  

 

 

   

 

 

 

Intangible Assets, Net

   $ 689,565      $ 595,488   
  

 

 

   

 

 

 

Amortization expense associated with Blackstone’s intangible assets was $48.1 million for the three months ended March 31, 2012 and $40.8 million for the three months ended March 31, 2011. Amortization expense is included within General, Administrative and Other in the accompanying Condensed Consolidated Statements of Operations.

Amortization of Intangible Assets held at March 31, 2012 is expected to be $139.3 million, $88.2 million, $83.3 million, $77.1 million, and $72.8 million for each of the years ending December 31, 2012, 2013, 2014, 2015, and 2016, respectively. Blackstone’s intangible assets as of March 31, 2012 are expected to amortize over a weighted-average period of 8.85 years.

 

4. INVESTMENTS

Investment

Investments consist of the following:

 

     March 31,
2012
     December 31,
2011
 

Investments of Consolidated Blackstone Funds

   $ 14,628,978       $ 10,306,795   

Equity Method Investments

     2,309,689         2,218,103   

Blackstone’s Treasury Cash Management Strategies

     595,634         685,859   

Performance Fees

     2,185,896         1,889,152   

Other Investments

     28,327         28,390   
  

 

 

    

 

 

 
   $ 19,748,524       $ 15,128,299   
  

 

 

    

 

 

 

Blackstone’s share of Investments of Consolidated Blackstone Funds totaled $541.6 million and $449.6 million at March 31, 2012 and December 31, 2011, respectively.

At March 31, 2012 and December 31, 2011, consideration was given as to whether any individual investment, including derivative instruments, had a fair value which exceeded 5% of Blackstone’s net assets. At March 31, 2012 and December 31, 2011, no investment exceeded the 5% threshold.

 

21


Table of Contents

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

 

Investments of Consolidated Blackstone Funds

The following table presents the realized and net change in unrealized gains (losses) on investments held by the consolidated Blackstone Funds:

 

    Three Months Ended March 31,  
          2012                 2011        

Realized Gains

  $ 44,350      $ 70,101   

Net Change in Unrealized Gains (Losses)

    155,685        (134,890
 

 

 

   

 

 

 
  $ 200,035      $ (64,789
 

 

 

   

 

 

 

The following reconciles the Realized and Net Change in Unrealized Gains (Losses) from Blackstone Funds presented above to Other Income (Loss) — Net Gains (Losses) from Fund Investment Activities in the Condensed Consolidated Statements of Operations:

 

     Three Months Ended March 31,  
           2012                  2011        

Realized and Net Change in Unrealized Gains (Losses) from Blackstone Funds

   $ 200,035       $ (64,789

Interest and Dividend Revenue Attributable to Consolidated Blackstone Funds

     88,107         19,598   
  

 

 

    

 

 

 

Other Income — Net Gains (Losses) from Fund Investment Activities

   $ 288,142       $ (45,191
  

 

 

    

 

 

 

Equity Method Investments

The Partnership recognized net gains related to its equity method investments of $58.1 million and $89.3 million for the three months ended March 31, 2012 and 2011, respectively.

Blackstone’s equity method investments include its investments in private equity funds, real estate funds, funds of hedge funds and credit-oriented funds and other proprietary investments, which are not consolidated but in which the Partnership exerts significant influence.

Blackstone evaluates each of its equity method investments to determine if any were significant as defined by guidance from the United States Securities and Exchange Commission. As of and for the three months ended March 31, 2012, no individual equity method investment held by Blackstone met the significance criteria. As such, Blackstone is not required to present summarized financial information for any of its equity method investments.

Blackstone’s Treasury Cash Management Strategies

The portion of Blackstone’s Treasury cash management strategies included in Investments represents the Partnership’s liquid investments in government, other investment and non-investment grade securities and other investments. These strategies are primarily managed by third-party institutions. The following table presents the realized and net change in unrealized gains (losses) on investments held by Blackstone’s Treasury cash management strategies:

 

     Three Months Ended March 31,  
        2012           2011     

Realized Losses

   $ (2,157   $ (301

Net Change in Unrealized Gains (Losses)

     (4,419     629   
  

 

 

   

 

 

 
   $ (6,576   $ 328   
  

 

 

   

 

 

 

 

22


Table of Contents

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

 

Performance Fees

Performance Fees allocated to the general partner in respect of performance of certain Carry Funds, funds of hedge funds and credit-oriented funds were as follows:

 

     Private
Equity
    Real
Estate
    Hedge Fund
Solutions
    Credit
Businesses
    Total  

Performance Fees, December 31, 2011

   $ 620,359      $ 943,859      $ 1,858      $ 323,076      $ 1,889,152   

Performance Fees Allocated as a Result of Changes in Fund Fair Values

     43,321        235,485        13,783        66,054        358,643   

Foreign Exchange Gain

     —          1,278        —          —          1,278   

Fund Cash Distributions

     (3,349     (2,152     (1,858     (55,818     (63,177
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Performance Fees, March 31, 2012

   $ 660,331      $ 1,178,470      $ 13,783      $ 333,312      $ 2,185,896   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other Investments

Other Investments consist primarily of investment securities held by Blackstone for its own account. The following table presents Blackstone’s realized and net change in unrealized gains (losses) in other investments:

 

     Three Months Ended
March 31,
 
     2012      2011  

Realized Gains (Losses)

   $ 255       $ —     

Net Change in Unrealized Gains (Losses)

     2,737         949   
  

 

 

    

 

 

 
   $ 2,992       $ 949   
  

 

 

    

 

 

 

 

5. NET ASSET VALUE AS FAIR VALUE

A summary of fair value by strategy type alongside the consolidated funds of hedge funds’ remaining unfunded commitments and ability to redeem such investments as of March 31, 2012 is presented below:

 

Strategy

   Fair Value      Unfunded
Commitments
     Redemption
Frequency

(if currently
eligible)
    Redemption
Notice
Period
 

Diversified Instruments

   $ 158,687       $ 7,912         (a     (a

Credit Driven

     172,505         1,980         (b     (b

Event Driven

     108,689         —           (c     (c

Equity

     299,992         —           (d     (d

Commodities

     48,335         —           (e     (e
  

 

 

    

 

 

      
   $ 788,208       $ 9,892        
  

 

 

    

 

 

      

 

(a) Diversified Instruments include investments in hedge funds that invest across multiple strategies. Investments representing 40% of the value of the investments in this category may not be redeemed at, or within three months of, the reporting date. The remaining 60% of investments within this category represent investments in hedge funds that are in the process of liquidating. Distributions from these funds will be received as underlying investments are liquidated. Of this, the investee fund manager had elected to side-pocket 40% of Blackstone’s investments. The time at which this redemption restriction may lapse cannot be estimated.

 

23


Table of Contents

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

 

(b) The Credit Driven category includes investments in hedge funds that invest primarily in domestic and international bonds. Investments representing 64% of the value of the investments in this category may not be redeemed at, or within three months of, the reporting date. Investments representing 18% of the value in the credit driven category are subject to redemption restrictions at the discretion of the investee fund manager who may choose (but may not have exercised such ability) to side-pocket such investments. Investments representing 1% of the value within this category represents an investment in a fund of hedge funds that is in the process of liquidation. Distributions from this fund will be received as underlying investments are liquidated. The remaining 17% of investments within this category are redeemable as of the reporting date.
(c) The Event Driven category includes investments in hedge funds whose primary investing strategy is to identify certain event-driven investments. Withdrawals are not permitted in this category. Distributions will be received as the underlying investments are liquidated.
(d) The Equity category includes investments in hedge funds that invest primarily in domestic and international equity securities. Investments representing 85% of the total value of investments in this category may not be redeemed at, or within three months of, the reporting date. The remaining 15% are subject to redemption restrictions at the discretion of the investee fund manager who may choose (but may not have elected such ability) to side-pocket such investments. As of the reporting date, the investee fund manager had not elected to side-pocket Blackstone’s investments.
(e) The Commodities category includes investments in commodities-focused hedge funds that primarily invest in futures and physical-based commodity driven strategies. Withdrawals are not permitted in this category. Distributions will be received as the underlying investments are liquidated.

 

6. DERIVATIVE FINANCIAL INSTRUMENTS

Blackstone enters into derivative contracts in order to hedge its interest rate risk exposure against the effects of interest rate changes. Additionally, Blackstone and the Blackstone Funds enter into derivative contracts in the normal course of business to achieve certain other risk management objectives and for general investment purposes. As a result of the use of derivative contracts, Blackstone and the consolidated Blackstone Funds are exposed to the risk that counterparties will fail to fulfill their contractual obligations. To mitigate such counterparty risk, Blackstone and the consolidated Blackstone Funds enter into contracts with certain major financial institutions, all of which have investment grade ratings. Counterparty credit risk is evaluated in determining the fair value of derivative instruments.

Fair Value Hedges

The Partnership uses interest rate swaps to hedge a portion of the interest rate risk associated with its fixed rate borrowings. The Partnership has designated these financial instruments as fair value hedges.

Freestanding Derivatives

Freestanding derivatives are instruments that Blackstone and certain of the consolidated Blackstone Funds have entered into as part of their overall risk management and investment strategies. These derivative contracts are not designated as hedging instruments for accounting purposes. Such contracts may include foreign exchange contracts, equity swaps, options, futures and other derivative contracts.

 

24


Table of Contents

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

 

The table below summarizes the aggregate notional amount and fair value of the derivative financial instruments. The notional amount represents the absolute value amount of all outstanding derivative contracts.

 

    March 31, 2012     December 31, 2011  
    Assets     Liabilities     Assets     Liabilities  
    Notional     Fair
Value
    Notional     Fair
Value
    Notional     Fair
Value
    Notional     Fair
Value
 

Fair Value Hedges

               

Interest Rate Swaps

  $ 450,000      $ 55,813      $ —        $ —        $ 450,000      $ 67,668      $ —        $ —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Freestanding Derivatives

               

Blackstone — Other

               

Interest Rate Contracts

    160,300        1,172        146,100        157        221,350        768        502,200        1,291   

Foreign Currency Contracts

    7,395        125        8,407        477        22,698        1,016        7,293        103   

Credit Default Swaps

    —          —          850        91        —          —          —          —     

Investments of Consolidated Blackstone Funds

               

Foreign Currency Contracts

    575,470        38,742        157,646        7,596        177,453        22,016        159,409        7,687   

Interest Rate Contracts

    182,734        7,948        176,400        5,318        95,482        7,270        191,400        10,867   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Freestanding Derivatives

    925,899        47,987        489,403        13,639        516,983        31,070        860,302        19,948   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 1,375,899      $ 103,800      $ 489,403      $ 13,639      $ 966,983      $ 98,738      $ 860,302      $ 19,948   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The table below summarizes the impact to the Condensed Consolidated Statements of Operations from derivative financial instruments:

 

     Three Months Ended
March 31,
 
     2012     2011  

Fair Value Hedges — Interest Rate Swaps

    

Hedge Ineffectiveness

   $ (794   $ (567
  

 

 

   

 

 

 

Excluded from Assessment of Effectiveness

   $ (5,888   $ (7,423
  

 

 

   

 

 

 

Freestanding Derivatives

    

Realized Gains (Losses)

    

Interest Rate Contracts

   $ 136      $ 1,002   

Foreign Currency Contracts

     1,725        (701

Other

     —          (77
  

 

 

   

 

 

 

Total

   $ 1,861      $ 224   
  

 

 

   

 

 

 

Net Change in Unrealized Gain (Loss)

    

Interest Rate Contracts

   $ 6,597      $ (1,181

Foreign Currency Contracts

     13,721        (270

Credit Default Swaps

     4        —     

Other

     —          3   
  

 

 

   

 

 

 

Total

   $ 20,322      $ (1,448
  

 

 

   

 

 

 

 

25


Table of Contents

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

 

As of March 31, 2012 and December 31, 2011, the Partnership had not designated any derivatives as cash flow hedges or hedges of net investments in foreign operations.

 

7. FAIR VALUE OPTION

The following table summarizes the financial instruments for which the fair value option has been elected:

 

     As of
March 31,
2012
     As of
December 31,
2011
 

Assets

     

Loans and Receivables

   $ 105,004       $ 8,555   

Assets of Consolidated CLO Vehicles

     

Corporate Loans

     11,904,542         7,901,020   

Corporate Bonds

     282,768         153,653   

Other

     84,631         77,295   
  

 

 

    

 

 

 
   $ 12,376,945       $ 8,140,523   
  

 

 

    

 

 

 

Liabilities

     

Liabilities of Consolidated CLO Vehicles

     

Senior Secured Notes

   $ 10,984,018       $ 7,449,766   

Subordinated Notes

     857,772         630,236   
  

 

 

    

 

 

 
   $ 11,841,790       $ 8,080,002   
  

 

 

    

 

 

 

The following table presents the realized and net change in unrealized gains (losses) on financial instruments on which the fair value option was elected:

 

     Three Months Ended March 31,  
     2012     2011  
     Realized
Gains (Losses)
    Net Change
in Unrealized
Gains (Losses)
    Realized
Gains (Losses)
    Net Change
in Unrealized
Gains (Losses)
 

Assets

        

Loans and Receivables

   $ —        $ 6      $ —        $ —     

Assets of Consolidated CLO Vehicles

        

Corporate Loans

     39,274        289,231        42,232        50,219   

Corporate Bonds

     407        12,682        2,047        (29

Other

     119        3,481        480        5,375   
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 39,800      $ 305,400      $ 44,759      $ 55,565   
  

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities

        

Liabilities of Consolidated CLO Vehicles

        

Senior Secured Notes

   $ (44   $ (93,203   $ (5,395   $ (239,958

Subordinated Notes

     —          (34,483     —          (24,057
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ (44   $ (127,686   $ (5,395   $ (264,015
  

 

 

   

 

 

   

 

 

   

 

 

 

 

26


Table of Contents

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

 

The following table presents information for those financial instruments on which the fair value option was elected:

 

     As of March 31, 2012     As of December 31, 2011  
           For Financial Assets
Past Due (a)
          For Financial Assets
Past Due (a)
 
     Excess
(Deficiency)
of Fair Value

Over Principal
    Fair
Value
     Excess
(Deficiency)
of Fair Value
Over Principal
    Excess
(Deficiency)
of Fair Value
Over Principal
    Fair
Value
     Excess
(Deficiency)
of Fair Value
Over Principal
 

Loans and Receivables

   $ 368      $ —         $ —        $ (162   $ —         $ —     

Assets of Consolidated CLO Vehicles

              

Corporate Loans

     (840,081     140,300         (115,580     (674,496     17,574         (29,384

Corporate Bonds

     (6,764     7,560         (2,656     (9,360     7,560         (2,656
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 
   $ (846,477   $ 147,860       $ (118,236   $ (684,018   $ 25,134       $ (32,040
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

 

(a) Past due Corporate Loans and Corporate Bonds within CLO assets are classified as past due if contractual payments are more than one day past due.

As of March 31, 2012 and December 31, 2011, no Loans and Receivables on which the fair value option was elected were past due or in non-accrual status.

 

27


Table of Contents

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

 

8. FAIR VALUE MEASUREMENTS OF FINANCIAL INSTRUMENTS

The following tables summarize the valuation of the Partnership’s financial assets and liabilities by the fair value hierarchy as of March 31, 2012 and December 31, 2011, respectively:

 

     March 31, 2012  
     Level I      Level II      Level III      Total  

Assets

           

Investments of Consolidated Blackstone Funds (a)

           

Investment Funds

   $ —         $ 4,477       $ 759,143       $ 763,620   

Equity Securities

     115,762         17,981         219,985         353,728   

Partnership and LLC Interests

     —           548         512,951         513,499   

Debt Instruments

     —           707,094         19,096         726,190   

Assets of Consolidated CLO Vehicles

           

Corporate Loans

     —           11,032,922         871,620         11,904,542   

Corporate Bonds

     —           282,768         —           282,768   

Freestanding Derivatives — Foreign Currency Contracts

     —           38,742         —           38,742   

Freestanding Derivatives — Interest Rate Contracts

     —           7,948         —           7,948   

Other

     258         30,202         7,481         37,941   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Investments of Consolidated Blackstone Funds

     116,020         12,122,682         2,390,276         14,628,978   

Blackstone’s Treasury Cash Management Strategies

     163,630         431,804         200         595,634   

Money Market Funds

     101,516         —           —           101,516   

Freestanding Derivatives

           

Interest Rate Contracts

     1,133         39         —           1,172   

Foreign Currency Contracts

     —           125         —           125   

Derivative Instruments Used as Fair Value Hedges

     —           55,813         —           55,813   

Loans and Receivables

     —           —           105,004         105,004   

Other Investments

     6,367         369         21,591         28,327   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 388,666       $ 12,610,832       $ 2,517,071       $ 15,516,569   
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Liabilities of Consolidated CLO Vehicles (a)

           

Senior Secured Notes

   $ —         $ —         $ 10,984,018       $ 10,984,018   

Subordinated Notes

     —           —           857,772         857,772   

Freestanding Derivatives — Foreign Currency Contracts

     —           7,596         —           7,596   

Freestanding Derivatives — Interest Rate Contracts

     —           5,318         —           5,318   

Freestanding Derivatives

           

Interest Rate Contracts

     95         62         —           157   

Foreign Currency Contracts

     —           477         —           477   

Credit Default Swaps

     —           91         —           91   

Securities Sold, Not Yet Purchased

     —           82,733         —           82,733   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 95       $ 96,277       $ 11,841,790       $ 11,938,162   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

28


Table of Contents

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

 

     December 31, 2011  
     Level I      Level II      Level III      Total  

Assets

           

Investments of Consolidated Blackstone Funds (a)

           

Investment Funds

   $ —         $ 5,119       $ 723,951       $ 729,070   

Equity Securities

     113,007         608         232,172         345,787   

Partnership and LLC Interests

     —           —           492,911         492,911   

Debt Instruments

     —           594,276         12,783         607,059   

Assets of Consolidated CLO Vehicles

           

Corporate Loans

     —           7,259,204         635,944         7,895,148   

Corporate Bonds

     —           150,653         3,000         153,653   

Freestanding Derivatives — Foreign Currency Contracts

     —           22,016         —           22,016   

Freestanding Derivatives — Interest Rate Contracts

     —           7,270         —           7,270   

Other

     28,900         21,973         3,008         53,881   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Investments of Consolidated Blackstone Funds

     141,907         8,061,119         2,103,769         10,306,795   

Blackstone’s Treasury Cash Management Strategies

     176,297         509,362         200         685,859   

Money Market Funds

     257,423         —           —           257,423   

Freestanding Derivatives

           

Interest Rate Contracts

     159         609         —           768   

Foreign Currency Contracts

     —           1,016         —           1,016   

Derivative Instruments Used as Fair Value Hedges

     —           67,668         —           67,668   

Loans and Receivables

     —           —           8,555         8,555   

Other Investments

     8,066         360         19,964         28,390   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 583,852       $ 8,640,134       $ 2,132,488       $ 11,356,474   
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Liabilities of Consolidated CLO Vehicles (a)

           

Senior Secured Notes

   $ —         $ —         $ 7,449,766       $ 7,449,766   

Subordinated Notes

     —           —           630,236         630,236   

Freestanding Derivatives — Foreign Currency Contracts

     —           7,687         —           7,687   

Freestanding Derivatives — Interest Rate Contracts

     —           10,867         —           10,867   

Freestanding Derivatives

           

Interest Rate Contracts

     1,105         186         —           1,291   

Foreign Currency Contracts

     —           103         —           103   

Securities Sold, Not Yet Purchased

     —           143,825         —           143,825   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 1,105       $ 162,668       $ 8,080,002       $ 8,243,775   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(a) Pursuant to GAAP consolidation guidance, the Partnership is required to consolidate all VIEs in which it has been identified as the primary beneficiary, including its investments in CLO vehicles and other funds in which a consolidated entity of the Partnership, as the general partner of the fund, is presumed to have control. While the Partnership is required to consolidate certain funds, including CLO vehicles, for GAAP purposes, the Partnership has no ability to utilize the assets of these funds and there is no recourse to the Partnership for their liabilities since these are client assets and liabilities.

 

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Table of Contents

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

 

The following table summarizes the fair value transfers between Level I and Level II:

 

     Three Months Ended
March 31, 2012
 

Transfers from Level I into Level II (a)

   $ 29,516   

Transfers from Level II into Level I (b)

     271   

 

(a) Transfers out of Level I represent those financial instruments for which restrictions exist and adjustments were made to an otherwise observable price to reflect fair value at the reporting date.
(b) Transfers into Level I represent those financial instruments for which an unadjusted quoted price in an active market became available for the identical asset.

The following table summarizes the quantitative inputs and assumptions used for items categorized in Level III of the fair value hierarchy as of March 31, 2012. The disclosure below excludes financial instruments for which fair value is based on unobservable but non-quantitative inputs. Such items include financial instruments for which the determination of fair value is based on prices from prior transactions or third party pricing information without adjustment and financial instruments for which fair value is determined by net asset value.

 

    Fair Value at
March 31, 2012
   

Valuation

Techniques

 

Unobservable

Inputs

  Ranges

Financial Assets

       

Equity Securities

  $ 150,756     

Discounted Cash Flows

 

Discount Rate

Revenue CAGR

Exit Multiple

  8.0% - 23.4%

1.9% - 32.5%

6.0x - 17.0x

    5,084     

Market Comparable Companies

 

Book Value Multiple

EBITDA Multiple

  0.9x - 1.2x

3.8x - 6.8x

Partnership and LLC Interests

    492,338      Discounted Cash Flows  

Discount Rate

Revenue CAGR

Exit Multiple

Exit Capitalization Rate

  5.6% - 22.0%

-8.2% - 22.1%

4.5x - 13.9x

5.3% - 10.5%

Debt Instruments

    11,892      Discounted Cash Flows  

Discount Rate

Revenue CAGR

Exit Multiple

Exit Capitalization Rate

Default Rate

Recovery Rate

Recovery Lag

Pre-payment Rate

Reinvestment Rate

Reinvestment Price

  7.9% - 30.5%

-5.6% - 7.0%

10.2x

6.3% - 8.0%

1.5% - 3.0%

65.0%

12 months

15.0% - 25.0%

4.3% - 5.0%

98.5% - 99.0%

    598     

Market Comparable Companies

 

EBITDA Multiple

Liquidity Discount

  5.0x - 8.5x

25.0% - 30.0%

Assets of Consolidated CLO Vehicles

    103,852      Discounted Cash Flows   Discount Rate   6.5% - 18.0%
    66,472     

Market Comparable Companies

 

EBITDA Multiple

Liquidity Discount

  4.0x - 12.0x

0.5% - 15.0%

Loans and Receivables

    46,649     

Discounted Cash Flows

  Discount Rate   8.5% - 29.8%

 

30


Table of Contents

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

 

    Fair Value at
March 31, 2012
   

Valuation

Techniques

 

Unobservable

Inputs

  Ranges

Financial Liabilities

       

CLOs

  $ 11,841,790      Discounted Cash Flows  

Default Rate

Recovery Rate

Recovery Lag

Pre-payment Rate

Reinvestment Rate

Reinvestment Price

Discount Rate

  1.5% - 3.0%

65.0%

12 months

15.0% - 25.0%

4.3% - 5.0%

98.5% - 99.0%

1.5% - 30.5%

 

CAGR    Compound annual growth rate.
EBITDA    Earnings before interest, taxes, depreciation and amortization.
Exit Multiple    Ranges include the last twelve months EBITDA, forward EBITDA and price/earnings exit multiples.

The significant unobservable inputs used in the fair value measurement of the assets and obligations of consolidated CLO vehicles are discount rates, default rates, recovery rates, recovery lag, pre-payment rates, reinvestment rates and reinvestment prices. Increases (decreases) in any of the discount rates, default rates, recovery lag and pre-payment rates in isolation would result in a lower (higher) fair value measurement. Increases (decreases) in any of the recovery rates, reinvestment rates and reinvestment prices in isolation would result in a higher (lower) fair value measurement. Generally, a change in the assumption used for default rates may be accompanied by a directionally similar change in the assumption used for recovery lag and a directionally opposite change in the assumption used for recovery rates and pre-payment rates.

The significant unobservable inputs used in the fair value measurement of equity securities, partnership and LLC interests, debt instruments, assets of consolidated CLO vehicles and loans and receivables are discount rates, exit capitalization rates, exit multiples, book value multiples, EBITDA multiples, liquidity discount and revenue compound annual growth rates. Increases (decreases) in any of discount rates and exit capitalization rates in isolation can result in a lower (higher) fair value measurement. Increases (decreases) in any of exit multiples, book value multiples and revenue compound annual growth rates in isolation can result in a higher (lower) fair value measurement.

Since December 31, 2011, there have been no changes in valuation techniques within Level II and Level III that have had a material impact on the valuation of financial instruments.

 

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Table of Contents

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

 

The following tables summarize the changes in financial assets and liabilities measured at fair value for which the Partnership has used Level III inputs to determine fair value and does not include gains or losses that were reported in Level III in prior years or for instruments that were transferred out of Level III prior to the end of the current reporting period. Total realized and unrealized gains and losses recorded for Level III investments are reported in Investment Income (Loss) and Net Gains from Fund Investment Activities in the Condensed Consolidated Statements of Operations.

 

    Level III Financial Assets at Fair Value  
    Three Months Ended March 31, 2012  
    Investments
of

Consolidated
Funds
    Loans  and
Receviables
    Other
Investments
    Total  

Balance, Beginning of Period

  $ 2,103,769      $ 8,555      $ 20,164      $ 2,132,488   

Transfer In Due to Consolidation and Acquisition (a)

    122,565        —          —          122,565   

Transfer In to Level III (b)

    135,998        —          —          135,998   

Transfer Out of Level III (b)

    (94,296     —          —          (94,296

Purchases

    88,320        103,251        —          191,571   

Sales

    (60,083     (7,379     —          (67,462

Settlements

    —          (46     —          (46

Realized Gains (Losses), Net

    3,532        —          99        3,631   

Changes in Unrealized Gains (Losses) Included in Earnings Related to Investments Still Held at the Reporting Date

    90,471        623        1,528        92,622   
 

 

 

   

 

 

   

 

 

   

 

 

 

Balance, End of Period

  $ 2,390,276      $ 105,004      $ 21,791      $ 2,517,071   
 

 

 

   

 

 

   

 

 

   

 

 

 
    Level III Financial Assets at Fair Value  
    Three Months Ended March 31, 2011  
    Investments
of
Consolidated
Funds
    Loans and
Receviables
    Other
Investments
    Total  

Balance, Beginning of Period

  $ 1,602,371      $ 131,290      $ 19,672      $ 1,753,333   

Transfer In to Level III (b)

    6,555        —          —          6,555   

Transfer Out of Level III (b)

    (21,732     —          —          (21,732

Purchases

    128,099        6,228        —          134,327   

Sales

    (62,965     (122,180     —          (185,145

Settlements

    (4,933     (1,370     —          (6,303

Realized Gains (Losses), Net

    7,851        —          —          7,851   

Changes in Unrealized Gains (Losses) Included in Earnings Related to Investments Still Held at the Reporting Date

    86,446        66        1,298        87,810   
 

 

 

   

 

 

   

 

 

   

 

 

 

Balance, End of Period

  $ 1,741,692      $ 14,034      $ 20,970      $ 1,776,696   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

32


Table of Contents

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

 

    Level III Financial Liabilities at Fair Value  
    Three Months Ended March 31,  
    2012     2011  
    Collateralized
Loan
Obligations
Senior
Notes
    Collateralized
Loan
Obligations
Subordinated
Notes
    Total     Collateralized
Loan
Obligations
Senior
Notes
    Collateralized
Loan
Obligations
Subordinated
Notes
    Total  

Balance, Beginning of Period

  $ 7,449,766      $ 630,236      $ 8,080,002      $ 5,877,957      $ 555,632      $ 6,433,589   

Transfer In Due to Consolidation and Acquisition (a)

    3,419,084        149,225        3,568,309        —          —          —     

Issuances

    4,393        838        5,231        200        —          200   

Settlements

    (131,873     (2,746     (134,619     (161,442     (12,253     (173,695

Realized (Gains) Losses, Net

    44        —          44        5,395        —          5,395   

Changes in Unrealized (Gains) Losses Included in Earnings Related to Liabilities Still Held at the Reporting Date

    242,604        80,219        322,823        301,782        24,057        325,839   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, End of Period

  $ 10,984,018      $ 857,772      $ 11,841,790      $ 6,023,892      $ 567,436      $ 6,591,328   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(a) Represents the transfer into Level III of financial assets and liabilities held by CLO vehicles as a result of the Harbourmaster acquisition on January 5, 2012.
(b) Transfers in and out of Level III financial assets and liabilities were due to changes in the observability of inputs used in the valuation of such assets and liabilities.

 

9. VARIABLE INTEREST ENTITIES

Pursuant to GAAP consolidation guidance, the Partnership consolidates certain VIEs in which it is determined that the Partnership is the primary beneficiary either directly or indirectly, through a consolidated entity or affiliate. VIEs include certain private equity, real estate, credit-oriented or funds of hedge funds entities and CLO vehicles. The purpose of such VIEs is to provide strategy specific investment opportunities for investors in exchange for management and performance based fees. The investment strategies of the Blackstone Funds differ by product; however, the fundamental risks of the Blackstone Funds have similar characteristics, including loss of invested capital and loss of management fees and performance based fees. In Blackstone’s role as general partner or investment adviser, it generally considers itself the sponsor of the applicable Blackstone Fund. The Partnership does not provide performance guarantees and has no other financial obligation to provide funding to consolidated VIEs other than its own capital commitments.

 

33


Table of Contents

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

 

The assets and liabilities of the consolidated VIEs included in the Condensed Consolidated Statements of Financial Condition were as follows:

 

     March 31, 2012      December 31, 2011  
     Consolidated
CLO
Vehicles
     All Other
Consolidated
Blackstone
Funds
     Total      Consolidated
CLO
Vehicles
     All Other
Consolidated
Blackstone
Funds
     Total  

Assets

                 

Cash Held by Blackstone Funds and Other

   $ 677,008       $ 28,567       $ 705,575       $ 562,388       $ 36,053       $ 598,441   

Investments

     12,271,942         862,957         13,134,899         8,131,968         829,992         8,961,960   

Accounts Receivable

     46,232         86         46,318         31,971         1,434         33,405   

Due from Affiliates

     —           34,214         34,214         —           36,502         36,502   

Other Assets

     127,430         2,437         129,867         9,581         2,450         12,031   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Assets

   $ 13,122,612       $ 928,261       $ 14,050,873       $ 8,735,908       $ 906,431       $ 9,642,339   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

                 

Loans Payable

   $ 11,626,208       $ 13,541       $ 11,639,749       $ 7,787,630       $ 13,506       $ 7,801,136   

Due to Affiliates

     215,582         9,200         224,782         292,372         19,537         311,909   

Accounts Payable, Accrued Expenses and Other

     477,599         6,096         483,695         241,670         2,818         244,488   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Liabilities

   $ 12,319,389       $ 28,837       $ 12,348,226       $ 8,321,672       $ 35,861       $ 8,357,533   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

There is no recourse to the Partnership for the consolidated VIEs’ liabilities including the liabilities of the consolidated CLO vehicles. The assets and liabilities of consolidated VIEs comprise primarily investments and notes payable and are included within Investments, Loans Payable and Due to Affiliates, respectively, in the Condensed Consolidated Statements of Financial Condition.

The Partnership holds variable interests in certain VIEs which are not consolidated as it is determined that the Partnership is not the primary beneficiary. The Partnership’s involvement with such entities is in the form of direct equity interests and fee arrangements. The maximum exposure to loss represents the loss of assets recognized by Blackstone relating to non-consolidated entities, any amounts due to non-consolidated entities and any clawback obligation relating to previously distributed Carried Interest. The assets and liabilities recognized in the Partnership’s Condensed Consolidated Statements of Financial Condition related to the Partnership’s interest in these non-consolidated VIEs and the Partnership’s maximum exposure to loss relating to non-consolidated VIEs were as follows:

 

     March 31,
2012
     December 31,
2011
 

Investments

   $ 290,638       $ 238,503   

Receivables

     76,023         94,050   
  

 

 

    

 

 

 

Total VIE Assets

     366,661         332,553   

VIE Liabilities

     1,309         48   

Potential Clawback Obligation

     35,017         14,876   
  

 

 

    

 

 

 

Maximum Exposure to Loss

   $ 402,987       $ 347,477   
  

 

 

    

 

 

 

 

34


Table of Contents

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

 

10. REVERSE REPURCHASE AND REPURCHASE AGREEMENTS

At March 31, 2012, the Partnership received securities, primarily U.S. and non-U.S. government and agency securities, asset-backed securities and corporate debt, with a fair value of $83.2 million and cash as collateral for reverse repurchase agreements that could be repledged, delivered or otherwise used. Securities with a fair value of $83.2 million were repledged, delivered or used to settle Securities Sold, Not Yet Purchased. The Partnership also pledged securities with a carrying value of $187.9 million and cash to collateralize its repurchase agreements. Such securities can be repledged, delivered or otherwise used by the counterparty.

 

11. BORROWINGS

The carrying value and fair value of the Blackstone issued notes as of March 31, 2012 and December 31, 2011 were:

 

     March 31, 2012      December 31, 2011  
     Carrying
Value
     Fair
Value (a)
     Carrying
Value
     Fair
Value (a)
 

Blackstone Issued 5.875%, $400 Million Par, Notes Due 3/15/2021

   $ 398,273       $ 411,640       $ 398,237       $ 404,160   

Blackstone Issued 6.625%, $600 Million Par, Notes Due 8/15/2019

   $ 648,388       $ 647,520       $ 653,467       $ 640,440   

 

(a) Fair value is determined by broker quote and these notes would be classified as Level II within the fair value hierarchy.

Included within Loans Payable and Due to Affiliates are amounts due to holders of debt securities issued by Blackstone’s consolidated CLO vehicles. At March 31, 2012 and December 31, 2011, the Partnership’s borrowings through consolidated CLO vehicles consisted of the following:

 

     March 31, 2012      December 31, 2011  
     Borrowing
Outstanding
     Weighted
Average

Interest
Rate
    Weighted
Average
Remaining

Maturity
in Years
     Borrowing
Outstanding
     Weighted
Average

Interest
Rate
    Weighted
Average
Remaining

Maturity
in Years
 

Senior Secured Notes

   $ 12,288,214         1.79     4.2       $ 8,250,418         1.96     4.3   

Subordinated Notes

     1,447,851         (a     7.6         1,117,571         (a     7.2   
  

 

 

         

 

 

      
   $ 13,736,065            $ 9,367,989        
  

 

 

         

 

 

      

 

(a) The Subordinated Notes do not have contractual interest rates but instead receive distributions from the excess cash flows of the CLO vehicles.

Included within Senior Secured Notes and Subordinated Notes as of March 31, 2012 are amounts due to non-consolidated affiliates of $22.0 million and $308.0 million, respectively. The fair value of Senior Secured and Subordinated Notes as of March 31, 2012 was $11.0 billion and $857.8 million, respectively, of which $16.9 million and $198.7 million represents the amounts due to affiliates.

 

35


Table of Contents

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

 

Included within Senior Secured Notes and Subordinated Notes as of December 31, 2011 are amounts due to non-consolidated affiliates of $101.8 million and $323.6 million, respectively. The fair value of Senior Secured and Subordinated Notes as of December 31, 2011 was $7.4 billion and $630.2 million, respectively, of which $86.9 million and $205.4 million represents the amounts due to affiliates.

The Loans Payable of the consolidated CLO vehicles are collateralized by assets held by each respective CLO vehicle and assets of one vehicle may not be used to satisfy the liabilities of another. As of March 31, 2012 and December 31, 2011, the fair value of the consolidated CLO assets was $13.1 billion and $8.7 billion, respectively. This collateral consisted of Cash, Corporate Loans, Corporate Bonds and other securities.

As part of Blackstone’s borrowing arrangements, the Partnership is subject to certain financial and operating covenants. The Partnership was in compliance with all of its loan covenants as of March 31, 2012.

Scheduled principal payments for borrowings as of March 31, 2012 were as follows:

 

     Operating
Borrowings
     Blackstone Fund
Facilities / CLO
Vehicles
     Total
Borrowings
 

2012

   $ 891       $ 13,541       $ 14,432   

2013

     1,188         76,607         77,795   

2014

     5,040         301,035         306,075   

2015

     —           652,128         652,128   

Thereafter

     1,000,000         12,700,602         13,700,602   
  

 

 

    

 

 

    

 

 

 

Total

   $ 1,007,119       $ 13,743,913       $ 14,751,032   
  

 

 

    

 

 

    

 

 

 

 

12. INCOME TAXES

Blackstone’s effective tax rate was 8.49% and 33.14% for the three months ended March 31, 2012 and 2011, respectively. Blackstone’s income tax provision was an expense of $38.8 million and an expense of $38.9 million for the three months ended March 31, 2012 and 2011, respectively.

Blackstone’s effective tax rate for the three months ended March 31, 2012 and 2011 was substantially due to the following: (a) certain corporate subsidiaries are subject to federal, state, local and foreign income taxes as applicable and other subsidiaries are subject to New York City unincorporated business taxes, and (b) a portion of compensation charges are not deductible for tax purposes.

 

36


Table of Contents

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

 

13. NET INCOME (LOSS) PER COMMON UNIT

Basic and diluted net income (loss) per common unit for the three months ended March 31, 2012 and March 31, 2011 was calculated as follows:

 

     Three Months Ended March 31,  
             2012                      2011          

Net Income Attributable to The Blackstone Group L.P.  

   $ 58,325       $ 42,704   
  

 

 

    

 

 

 

Basic Net Income Per Common Unit:

     

Weighted-Average Common Units Outstanding

     506,985,529         447,742,389   
  

 

 

    

 

 

 

Basic Net Income Per Common Unit

   $ 0.12       $ 0.10   
  

 

 

    

 

 

 

Diluted Net Income Per Common Unit:

     

Weighted-Average Common Units Outstanding

     506,985,529         447,742,389   

Weighted-Average Unvested Deferred Restricted Common Units

     10,404,029         9,910,527   
  

 

 

    

 

 

 

Weighted-Average Diluted Common Units Outstanding

     517,389,558         457,652,916   
  

 

 

    

 

 

 

Diluted Net Income Per Common Unit

   $ 0.11       $ 0.09   
  

 

 

    

 

 

 

The following table summarizes the anti-dilutive securities for the three months ended March 31, 2012 and 2011:

 

     Three Months Ended March 31,  
               2012                           2011             

Weighted-Average Blackstone Holdings Partnership Units

     602,817,069         658,290,684   

Unit Repurchase Program

In January 2008, Blackstone announced that the Board of Directors of its general partner, Blackstone Group Management L.L.C., had authorized the repurchase by Blackstone of up to $500 million of Blackstone Common Units and Blackstone Holdings Partnership Units. Under this unit repurchase program, units may be repurchased from time to time in open market transactions, in privately negotiated transactions or otherwise. The timing and the actual number of Blackstone Common Units and Blackstone Holdings Partnership Units repurchased will depend on a variety of factors, including legal requirements, price and economic and market conditions. This unit repurchase program may be suspended or discontinued at any time and does not have a specified expiration date.

During the three months ended March 31, 2012, no units were repurchased. As of March 31, 2012, the amount remaining available for repurchases under this program was $335.8 million.

During the three months ended March 31, 2011, Blackstone repurchased 116,270 vested Blackstone Common Units as part of the unit repurchase program for a total fair value of $2.1 million. As of March 31, 2011, the amount remaining available for repurchases was $335.8 million under this program.

 

14. EQUITY-BASED COMPENSATION

The Partnership has granted equity-based compensation awards to Blackstone’s senior managing directors, non-partner professionals, non-professionals and selected external advisors under the Partnership’s 2007 Equity Incentive Plan (the “Equity Plan”), the majority of which to date were granted in connection with the IPO. The

 

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THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

 

Equity Plan allows for the granting of options, unit appreciation rights or other unit-based awards (units, restricted units, restricted common units, deferred restricted common units, phantom restricted common units or other unit-based awards based in whole or in part on the fair value of the Blackstone Common Units or Blackstone Holdings Partnership Units) which may contain certain service or performance requirements. As of January 1, 2012, the Partnership had the ability to grant 162,195,378 units under the Equity Plan.

For the three months ended March 31, 2012 and March 31, 2011, the Partnership recorded compensation expense of $222.4 million and $426.3 million, respectively, in relation to its equity-based awards with corresponding tax benefits of $5.5 million and $4.2 million, respectively. As of March 31, 2012, there was $2.3 billion of estimated unrecognized compensation expense related to unvested awards. This cost is expected to be recognized over a weighted-average period of 3.1 years.

Total vested and unvested outstanding units, including Blackstone Common Units, Blackstone Holdings Partnership Units and deferred restricted common units, were 1,129,335,568 as of March 31, 2012. Total outstanding unvested phantom units were 219,398 as of March 31, 2012.

A summary of the status of the Partnership’s unvested equity-based awards as of March 31, 2012 and a summary of changes during the period January 1, 2012 through March 31, 2012 is presented below:

 

      Blackstone Holdings      The Blackstone Group L.P.  
   Partnership
Units
    Weighted-
Average
Grant
Date Fair
Value
     Equity Settled Awards      Cash Settled Awards  

Unvested Units

        Deferred
Restricted
Common
Units and
Options
    Weighted-
Average
Grant Date
Fair Value
     Phantom
Units
     Weighted-
Average
Grant
Date Fair
Value
 

Balance, December 31, 2011

     89,644,650      $ 29.88         17,635,945      $ 18.50         218,583       $ 13.88   

Granted

     1,612,611        14.04         1,040,485        12.56         815         12.05   

Vested

     (848,201     13.26         (1,187,227     5.33         —           —     

Forfeited

     (2,011,653     31.00         (260,079     17.07         —           —     
  

 

 

      

 

 

      

 

 

    

Balance, March 31, 2012

     88,397,407      $ 29.72         17,229,124      $ 19.07         219,398       $ 15.11   
  

 

 

      

 

 

      

 

 

    

Units Expected to Vest

The following unvested units, after expected forfeitures, as of March 31, 2012, are expected to vest:

 

     Units      Weighted-Average
Service Period in
Years
 

Blackstone Holdings Partnership Units

     83,361,721         3.0   

Deferred Restricted Blackstone Common Units and Options

     14,870,659         2.6   
  

 

 

    

 

 

 

Total Equity-Based Awards

     98,232,380         3.0   
  

 

 

    

 

 

 

Phantom Units

     202,875         3.2   
  

 

 

    

 

 

 

 

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Table of Contents

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

 

15. RELATED PARTY TRANSACTIONS

Affiliate Receivables and Payables

As of March 31, 2012 and December 31, 2011, Due from Affiliates and Due to Affiliates comprised the following:

 

     March 31,
2012
     December 31,
2011
 

Due from Affiliates

     

Accrual for Potential Clawback of Previously Distributed Carried Interest

   $ 170,712       $ 167,415   

Primarily Interest Bearing Advances Made on Behalf of Certain Non-Controlling Interest Holders and Blackstone Employees for Investments in Blackstone Funds

     198,085         223,281   

Amounts Due from Portfolio Companies and Funds

     261,224         234,254   

Investments Redeemed in Non-Consolidated Funds of Funds

     3,576         67,608   

Management and Performance Fees Due from Non-Consolidated Funds of Funds

     83,788         71,162   

Payments Made on Behalf of Non-Consolidated Entities

     98,176         87,711   

Advances Made to Certain Non-Controlling Interest Holders and Blackstone Employees

     6,934         9,083   
  

 

 

    

 

 

 
   $ 822,495       $ 860,514   
  

 

 

    

 

 

 
     March 31,
2012
     December 31,
2011
 

Due to Affiliates

     

Due to Certain Non-Controlling Interest Holders in Connection with the Tax Receivable Agreements

   $ 1,136,816       $ 1,112,330   

Accrual for Potential Repayment of Previously Received Performance Fees

     269,702         266,300   

Due to Note-Holders of Consolidated CLO Vehicles

     215,582         292,372   

Distributions Received on Behalf of Certain Non-Controlling Interest Holders and Blackstone Employees

     26,293         20,526   

Payable to Affiliates for Consolidated Funds in Liquidation

     47,721         58,793   

Distributions Received on Behalf of Blackstone Entities

     21,864         42,620   

Payments Made by Non-Consolidated Entities

     6,015         18,527   
  

 

 

    

 

 

 
   $ 1,723,993       $ 1,811,468   
  

 

 

    

 

 

 

Interests of the Founder, Senior Managing Directors and Employees

The founder, senior managing directors and employees invest on a discretionary basis in the Blackstone Funds both directly and through consolidated entities. Their investments may be subject to preferential management fee and performance fee arrangements. As of March 31, 2012 and December 31, 2011, the founder’s, other senior managing directors’ and employees’ investments aggregated $776.9 million and $715.5 million, respectively, and the founder’s, other senior managing directors’ and employees’ share of the Net Income Attributable to Redeemable Non-Controlling and Non-Controlling Interests in Consolidated Entities aggregated $33.4 million and $70.8 million for the three months ended March 31, 2012 and 2011, respectively.

 

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THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

 

Revenues Earned from Affiliates

Management and Advisory Fees earned from affiliates totaled $48.0 million and $70.0 million for the three months ended March 31, 2012 and 2011, respectively. Fees relate primarily to transaction and monitoring fees which are made in the ordinary course of business and under terms that would have been obtained from unaffiliated third parties.

Loans to Affiliates

Loans to affiliates consist of interest-bearing advances to certain Blackstone individuals to finance their investments in certain Blackstone Funds. These loans earn interest at Blackstone’s cost of borrowing and such interest totaled $1.3 million and $0.7 million for the three months ended March 31, 2012 and 2011, respectively. No such loans to any director or executive officer of Blackstone have been made or were outstanding since March 22, 2007, the date of Blackstone’s initial filing with the Securities and Exchange Commission of a registration statement relating to its initial public offering.

Contingent Repayment Guarantee

Blackstone and its personnel who have received Carried Interest distributions have guaranteed payment on a several basis (subject to a cap) to the Carry Funds of any clawback obligation with respect to the excess Carried Interest allocated to the general partners of such funds and indirectly received thereby to the extent that either Blackstone or its personnel fails to fulfill its clawback obligation, if any. The Accrual for Possible Repayment of Previously Received Performance Fees represents amounts previously paid to Blackstone Holdings and non-controlling interest holders that would need to be repaid to the Blackstone Funds if the Carry Funds were to be liquidated based on the fair value of their underlying investments as of March 31, 2012. See Note 16. “Commitments and Contingencies — Contingencies — Contingent Obligations (Clawback)”.

Aircraft and Other Services

In the normal course of business, Blackstone personnel have made use of aircraft owned as personal assets by Stephen A. Schwarzman (“Personal Aircraft”). In addition, on occasion, Mr. Schwarzman and his family have made use of an aircraft in which Blackstone owns a fractional interest, as well as other assets of Blackstone. Mr. Schwarzman paid for his purchases of the aircraft himself and bears all operating, personnel and maintenance costs associated with their operation. In addition, Mr. Schwarzman is charged for his and his family’s personal use of Blackstone assets based on market rates and usage. Payment by Blackstone for the use of the Personal Aircraft by other Blackstone employees are made at market rates. Personal use of Blackstone resources are also reimbursed to Blackstone at market rates. The transactions described herein are not material to the Condensed Consolidated Financial Statements.

Tax Receivable Agreements

Blackstone used a portion of the proceeds from the IPO and the sale of non-voting common units to Beijing Wonderful Investments to purchase interests in the predecessor businesses from the predecessor owners. In addition, holders of Blackstone Holdings Partnership Units may exchange their Blackstone Holdings Partnership Units for Blackstone Common Units on a one-for-one basis. The purchase and subsequent exchanges are expected to result in increases in the tax basis of the tangible and intangible assets of Blackstone Holdings and therefore reduce the amount of tax that Blackstone’s wholly-owned subsidiaries would otherwise be required to pay in the future.

 

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THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

 

One of the subsidiaries of the Partnership which is a corporate taxpayer has entered into tax receivable agreements with each of the predecessor owners and additional tax receivable agreements have been executed, and will continue to be executed, with newly-admitted senior managing directors and others who acquire Blackstone Holdings Partnership Units. The agreements provide for the payment by the corporate taxpayer to such owners of 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax that the corporate taxpayers actually realize as a result of the aforementioned increases in tax basis and of certain other tax benefits related to entering into these tax receivable agreements. For purposes of the tax receivable agreements, cash savings in income tax will be computed by comparing the actual income tax liability of the corporate taxpayers to the amount of such taxes that the corporate taxpayers would have been required to pay had there been no increase to the tax basis of the tangible and intangible assets of Blackstone Holdings as a result of the exchanges and had the corporate taxpayers not entered into the tax receivable agreements.

Assuming no material changes in the relevant tax law and that the corporate taxpayers earn sufficient taxable income to realize the full tax benefit of the increased amortization of the assets, the expected future payments under the tax receivable agreements (which are taxable to the recipients) will aggregate $1,136.8 million over the next 15 years. The after-tax net present value of these estimated payments totals $318.9 million assuming a 15% discount rate and using Blackstone’s most recent projections relating to the estimated timing of the benefit to be received. Future payments under the tax receivable agreements in respect of subsequent exchanges would be in addition to these amounts. The payments under the tax receivable agreements are not conditioned upon continued ownership of Blackstone equity interests by the pre-IPO owners and the others mentioned above.

Other

Blackstone does business with and on behalf of some of its Portfolio Companies; all such arrangements are on a negotiated basis.

 

16. COMMITMENTS AND CONTINGENCIES

Commitments

Investment Commitments

Blackstone had $1.4 billion of investment commitments as of March 31, 2012 representing general partner capital funding commitments to the Blackstone Funds, limited partner capital funding to other funds and Blackstone principal investment commitments. The consolidated Blackstone Funds had signed investment commitments of $34.2 million as of March 31, 2012 which includes $12.3 million of signed investment commitments for portfolio company acquisitions in the process of closing.

Contingencies

Guarantees

Certain of Blackstone’s consolidated real estate funds guarantee payments to third parties in connection with the on-going business activities and/or acquisitions of their Portfolio Companies. There is no direct recourse to the Partnership to fulfill such obligations. To the extent that underlying funds are required to fulfill guarantee obligations, the Partnership’s invested capital in such funds is at risk. Total investments at risk in respect of guarantees extended by consolidated real estate funds was $5.0 million as of March 31, 2012.

 

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THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

 

On March 28, 2012, the Blackstone Holdings Partnerships entered into a guaranty agreement with a lending institution in which the Holdings Partnerships guarantee certain loans held by employees for investment in Blackstone funds. The amount guaranteed as of March 31, 2012 was $27.0 million.

Litigation

From time to time, Blackstone is named as a defendant in legal actions relating to transactions conducted in the ordinary course of business. Although there can be no assurance of the outcome of such legal actions, in the opinion of management, Blackstone does not have a potential liability related to any current legal proceeding or claim that would individually or in the aggregate materially affect its results of operations, financial position or cash flows.

Contingent Obligations (Clawback)

Carried Interest is subject to clawback to the extent that the Carried Interest received to date exceeds the amount due to Blackstone based on cumulative results.

The actual clawback liability, however, does not become realized until the end of a fund’s life except for Blackstone’s real estate funds which may have an interim clawback liability come due after a realized loss is incurred, depending on the fund. The lives of the carry funds with a potential clawback obligation, including available contemplated extensions, are currently anticipated to expire at various points beginning toward the end of 2012 and extending through 2018. Further extensions of such terms may be implemented under given circumstances.

For financial reporting purposes, the general partners have recorded a liability for potential clawback obligations to the limited partners of some of the carry funds due to changes in the unrealized value of a fund’s remaining investments and where the fund’s general partner has previously received Carried Interest distributions with respect to such fund’s realized investments.

The following table presents the clawback obligations by segment:

 

     March 31, 2012      December 31, 2011  

Segment

   Blackstone
Holdings
     Current and
Former Personnel
     Total      Blackstone
Holdings
     Current and
Former Personnel
     Total  

Private Equity

   $ 68,150       $ 133,990       $ 202,140       $ 68,044       $ 128,756       $ 196,800   

Real Estate

     30,840         36,722         67,562         30,841         38,659         69,500   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 98,990       $ 170,712       $ 269,702       $ 98,885       $ 167,415       $ 266,300   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

A portion of the Carried Interest paid to current and former Blackstone personnel is held in segregated accounts in the event of a cash clawback obligation. These segregated accounts are not included in the Condensed Consolidated Financial Statements of the Partnership, except to the extent a portion of the assets held in the segregated accounts may be allocated to a consolidated Blackstone fund of hedge funds. At March 31, 2012, $411.8 million was held in segregated accounts for the purpose of meeting any clawback obligations of current and former personnel if such payments are required.

 

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THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

 

17. SEGMENT REPORTING

Blackstone transacts its primary business in the United States and substantially all of its revenues are generated domestically.

Blackstone conducts its alternative asset management and financial advisory businesses through five segments:

 

   

Private Equity — Blackstone’s Private Equity segment comprises its management of private equity funds and certain multi-asset class investment funds.

 

   

Real Estate — Blackstone’s Real Estate segment primarily comprises its management of general opportunistic real estate funds and internationally focused opportunistic real estate funds. In addition, the segment has debt investment funds targeting non-controlling real estate debt-related investment opportunities in the public and private markets, primarily in the United States and Europe.

 

   

Hedge Fund Solutions — Blackstone’s Hedge Fund Solutions segment is comprised of Blackstone Alternative Asset Management (“BAAM”), an institutional solutions provider utilizing hedge funds across a variety of strategies.

 

   

Credit Businesses — Blackstone’s Credit Businesses segment is comprised principally of GSO and manages credit-oriented funds, CLOs, credit-focused separately managed accounts and publicly registered debt-focused investment companies.

 

   

Financial Advisory — Blackstone’s Financial Advisory segment comprises its financial advisory services, restructuring and reorganization advisory services and Park Hill Group, which provides fund placement services for alternative investment funds.

These business segments are differentiated by their various sources of income. The Private Equity, Real Estate, Hedge Fund Solutions and Credit Businesses segments primarily earn their income from management fees and investment returns on assets under management, while the Financial Advisory segment primarily earns its income from fees related to investment banking services and advice and fund placement services.

Blackstone uses Economic Net Income (“ENI”) as a key measure of value creation, a benchmark of its performance and in making resource deployment and compensation decisions across its five segments. ENI represents segment net income before taxes excluding transaction-related charges. Transaction-related charges arise from Blackstone’s IPO and long-term retention programs outside of annual deferred compensation and other corporate actions, including acquisitions. Transaction-related charges include equity-based compensation charges, the amortization of intangible assets and contingent consideration associated with acquisitions. ENI presents revenues and expenses on a basis that deconsolidates the investment funds Blackstone manages.

Management makes operating decisions and assesses the performance of each of Blackstone’s business segments based on financial and operating metrics and data that is presented without the consolidation of any of the Blackstone Funds that are consolidated into the Condensed Consolidated Financial Statements. Consequently, all segment data excludes the assets, liabilities and operating results related to the Blackstone Funds.

 

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THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

 

The following table presents the financial data for Blackstone’s five segments as of and for the three months ended March 31, 2012 and 2011:

 

    Three Months Ended March 31, 2012  
    Private
Equity
    Real Estate     Hedge Fund
Solutions
    Credit
Businesses
    Financial
Advisory
    Total
Segments
 

Segment Revenues

           

Management and Advisory Fees, Net

           

Base Management Fees

  $ 85,789      $ 147,802      $ 81,821      $ 80,094      $ —        $ 395,506   

Advisory Fees

    —          —          —          —          75,846        75,846   

Transaction and Other Fees, Net

    18,097        14,412        92        5,725        145        38,471   

Management Fee Offsets

    (3,782     (8,627     (335     (306     —          (13,050
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Management and Advisory Fees, Net

    100,104        153,587        81,578        85,513        75,991        496,773   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Performance Fees

           

Realized

    3,933        8,616        3,298        2,992        —          18,839   

Unrealized

    34,051        229,414        23,187        80,265        —          366,917   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Performance Fees

    37,984        238,030        26,485        83,257        —          385,756   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Investment Income (Loss)

           

Realized

    13,911        7,812        503        683        583        23,492   

Unrealized

    16,469        25,912        8,371        9,211        (49     59,914   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Investment Income

    30,380        33,724        8,874        9,894        534        83,406   

Interest and Dividend Revenue

    2,420        2,552        386        2,425        1,562        9,345   

Other

    (215     (709     (127     (238     82        (1,207
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Revenues

    170,673        427,184        117,196        180,851        78,169        974,073   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Expenses

           

Compensation and Benefits

           

Compensation

    52,547        68,889        28,233        37,143        67,960        254,772   

Performance Fee Compensation

           

Realized

    320        4,079        1,378        6,413        —          12,190   

Unrealized

    (1,052     58,043        7,294        33,037        —          97,322   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Compensation and Benefits

    51,815        131,011        36,905        76,593        67,960        364,284   

Other Operating Expenses

    28,881        28,924        13,934        17,096        20,686        109,521   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Expenses

    80,696        159,935        50,839        93,689        88,646        473,805   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Economic Net Income

  $ 89,977      $ 267,249      $ 66,357      $ 87,162      $ (10,477   $ 500,268   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Segment Assets as of March 31, 2012

  $ 3,883,401      $ 4,356,603      $ 833,839      $ 1,793,851      $ 548,554      $ 11,416,248   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

 

    Three Months Ended March 31, 2011  
    Private
Equity
    Real
Estate
    Hedge Fund
Solutions
    Credit
Businesses
    Financial
Advisory
    Total
Segments
 

Segment Revenues

           

Management and Advisory Fees, Net

           

Base Management Fees

  $ 79,935      $ 95,439      $ 75,612      $ 54,601      $ —        $ 305,587   

Advisory Fees

    —          —          —          —          70,252        70,252   

Transaction and Other Fees, Net

    35,342        21,543        727        745        6        58,363   

Management Fee Offsets

    (7,889     (505     (124     (18     —          (8,536
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Management and Advisory
Fees, Net

    107,388        116,477        76,215        55,328        70,258        425,666   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Performance Fees

           

Realized

    82,389        2,593        893        9,725        —          95,600   

Unrealized

    32,537        368,104        19,253        85,303        —          505,197   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Performance Fees

    114,926        370,697        20,146        95,028        —          600,797   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Investment Income

           

Realized

    17,907        2,919        1,341        1,235        97        23,499   

Unrealized

    29,126        61,406        7,120        4,532        393        102,577   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Investment Income

    47,033        64,325        8,461        5,767        490        126,076   

Interest and Dividend Revenue

    3,505        3,288        516        453        1,686        9,448   

Other

    811        860        104        98