Form 10-Q
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 SEPTEMBER 30, 2011

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 October 28, 2011 was 370,529,222. The number of the Registrant’s non-voting common units representing limited partner interests outstanding as of October 28, 2011 was 109,083,468.

 

 

 


Table of Contents

TABLE OF CONTENTS

 

          Page  

PART I.

  

FINANCIAL INFORMATION

  

ITEM 1.

  

FINANCIAL STATEMENTS

     4   
  

Unaudited Condensed Consolidated Financial Statements — September 30, 2011 and 2010:

  
  

Condensed Consolidated Statements of Financial Condition as of September 30, 2011 and December  31, 2010

     4   
  

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September  30, 2011 and 2010

     6   
  

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September  30, 2011 and 2010

     7   
  

Notes to Condensed Consolidated Financial Statements

     9   

ITEM 1A.

  

UNAUDITED SUPPLEMENTAL PRESENTATION OF STATEMENTS OF FINANCIAL CONDITION

     50   

ITEM 2.

  

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

     53   

ITEM 3.

  

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     110   

ITEM 4.

  

CONTROLS AND PROCEDURES

     113   

PART II.

  

OTHER INFORMATION

  

ITEM 1.

  

LEGAL PROCEEDINGS

     114   

ITEM 1A.

  

RISK FACTORS

     115   

ITEM 2.

  

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

     115   

ITEM 3.

  

DEFAULTS UPON SENIOR SECURITIES

     115   

ITEM 4.

  

(REMOVED AND RESERVED)

     116   

ITEM 5.

  

OTHER INFORMATION

     116   

ITEM 6.

  

EXHIBITS

     116   

SIGNATURES

     117   

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, 2010 and in this report, as such factors may be updated from time to time in our periodic filings with the 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. “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 three publicly registered closed-end management 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 arranged by us that were made by limited partners of our funds in portfolio companies of such funds and on which we receive fees or a carried interest allocation);

 

  (b) the net asset value of our funds of hedge funds, hedge funds and our 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 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 incentive fees. Our fee-earning assets under management equal the sum of:

 

  (a) for our Blackstone Capital Partners (“BCP”) and Blackstone Real Estate Partners (“BREP”) funds where the investment period has not expired, the amount of capital commitments;

 

  (b) for our BCP and BREP funds where the investment period has expired, the remaining amount of invested capital plus binding investment commitments;

 

  (c) for our real estate debt investment funds (“BREDS”), the remaining amount of invested capital;

 

  (d) for our credit-oriented carry funds, the amount of invested capital (which may be calculated to include leverage) or net asset value;

 

  (e) the invested capital of co-investments arranged by us that were made by limited partners of our funds in portfolio companies of such funds and on which we receive fees;

 

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

 

  (g) the fair value of assets we manage pursuant to separately managed accounts;

 

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  (h) the gross amount of underlying assets of our CLOs at cost; and

 

  (i) the gross amount of assets (including leverage) for 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 plus binding investment commitments, generally 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)

 

     September 30,
2011
    December 31,
2010
 

Assets

    

Cash and Cash Equivalents

   $ 592,982     $ 588,621  

Cash Held by Blackstone Funds and Other

     1,066,613       790,399  

Investments (including assets pledged of $210,154 and $62,670 at September 30, 2011 and December 31, 2010, respectively)

     14,848,396       11,974,472  

Accounts Receivable

     441,671       495,893  

Reverse Repurchase Agreements

     194,931       181,425  

Due from Affiliates

     743,618       795,395  

Intangible Assets, Net

     678,291       779,311  

Goodwill

     1,703,602       1,703,602  

Other Assets

     330,975       293,194  

Deferred Tax Assets

     1,467,717       1,242,293  
  

 

 

   

 

 

 

Total Assets

   $ 22,068,796     $ 18,844,605  
  

 

 

   

 

 

 

Liabilities and Partners’ Capital

    

Loans Payable

   $ 9,412,191     $ 7,198,898  

Due to Affiliates

     1,944,273       1,762,287  

Accrued Compensation and Benefits

     1,035,342       821,568  

Securities Sold, Not Yet Purchased

     195,557       116,688  

Repurchase Agreements

     210,591       62,672  

Accounts Payable, Accrued Expenses and Other Liabilities

     698,583       629,135  
  

 

 

   

 

 

 

Total Liabilities

     13,496,537       10,591,248  
  

 

 

   

 

 

 

Commitments and Contingencies

    

Redeemable Non-Controlling Interests in Consolidated Entities

     723,948       600,836  
  

 

 

   

 

 

 

Partners’ Capital

    

Partners’ Capital (common units: 482,011,358 issued and outstanding as of September 30, 2011; 416,092,022 issued and outstanding as of December 31, 2010)

     4,181,368       3,888,211  

Appropriated Partners’ Capital (Deficit)

     (50,111     470,583  

Accumulated Other Comprehensive Income

     1,845       4,302  

Non-Controlling Interests in Consolidated Entities

     1,337,180       870,908  

Non-Controlling Interests in Blackstone Holdings

     2,378,029       2,418,517  
  

 

 

   

 

 

 

Total Partners’ Capital

     7,848,311       7,652,521  
  

 

 

   

 

 

 

Total Liabilities and Partners’ Capital

   $ 22,068,796     $ 18,844,605  
  

 

 

   

 

 

 

 

 

continued…

See notes to condensed consolidated financial statements.

 

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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.

 

     September 30,
2011
     December 31,
2010
 

Assets

     

Cash Held by Blackstone Funds and Other

   $ 773,736      $ 707,622  

Investments

     9,000,078        7,424,329  

Accounts Receivable

     35,333        22,380  

Due from Affiliates

     35,925        30,182  

Other Assets

     27,569        19,823  
  

 

 

    

 

 

 

Total Assets

   $ 9,872,641      $ 8,204,336  
  

 

 

    

 

 

 

Liabilities

     

Loans Payable

   $ 8,348,099      $ 6,154,179  

Due to Affiliates

     347,299        304,969  

Accounts Payable, Accrued Expenses and Other

     252,666        330,675  
  

 

 

    

 

 

 

Total Liabilities

   $ 8,948,064      $ 6,789,823  
  

 

 

    

 

 

 

See notes to condensed consolidated financial statements.

 

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THE BLACKSTONE GROUP L.P.

Condensed Consolidated Statements of Operations (Unaudited)

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

 

    Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
    2011     2010     2011     2010  

Revenues

       

Management and Advisory Fees

  $ 425,193     $ 362,521     $ 1,335,971     $ 1,123,403  
 

 

 

   

 

 

   

 

 

   

 

 

 

Performance Fees

       

Realized

    6,605       66,142       164,571       171,941  

Unrealized

    (462,902     199,824       659,987       312,304  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Performance Fees

    (456,297     265,966       824,558       484,245  
 

 

 

   

 

 

   

 

 

   

 

 

 

Investment Income (Loss)

       

Realized

    45,596       13,542       77,682       29,493  

Unrealized

    (145,990     127,428       70,116       371,691  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Investment Income (Loss)

    (100,394     140,970       147,798       401,184  
 

 

 

   

 

 

   

 

 

   

 

 

 

Interest and Dividend Revenue

    9,085       10,075       27,423       25,922  

Other

    (1,666     4,468       1,721       573  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Revenues

    (124,079     784,000       2,337,471       2,035,327  
 

 

 

   

 

 

   

 

 

   

 

 

 

Expenses

       

Compensation and Benefits

       

Compensation

    494,478       664,004       1,853,393       2,556,665  

Performance Fee Compensation

       

Realized

    10,542       24,962       52,797       55,582  

Unrealized

    (111,435     104,324       169,188       158,032  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Compensation and Benefits

    393,585       793,290       2,075,378       2,770,279  

General, Administrative and Other

    124,929       114,291       380,433       341,853  

Interest Expense

    13,785       11,766       41,773       26,633  

Fund Expenses

    8,635       6,422       19,045       15,484  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Expenses

    540,934       925,769       2,516,629       3,154,249  
 

 

 

   

 

 

   

 

 

   

 

 

 

Other Income (Loss)

       

Net Gains (Losses) from Fund Investment Activities

    (329,399     285,071       (449,244     397,625  
 

 

 

   

 

 

   

 

 

   

 

 

 

Income (Loss) Before Provision (Benefit) for Taxes

    (994,412     143,302       (628,402     (721,297

Provision (Benefit) for Taxes

    (7,637     (4,225     95,412       24,802  
 

 

 

   

 

 

   

 

 

   

 

 

 

Net Income (Loss)

    (986,775     147,527       (723,814     (746,099

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

    (44,776     23,623       (22,891     47,171  

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

    (265,353     242,723       (450,842     320,816  

Net Loss Attributable to Non-Controlling Interests in Blackstone Holdings

    (402,079     (74,461     (104,455     (755,031
 

 

 

   

 

 

   

 

 

   

 

 

 

Net Loss Attributable to The Blackstone Group L.P.

  $ (274,567   $ (44,358   $ (145,626   $ (359,055
 

 

 

   

 

 

   

 

 

   

 

 

 

Net Loss Per Common Unit — Basic and Diluted

  $ (0.56   $ (0.12   $ (0.31   $ (1.02
 

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-Average Common Units Outstanding — Basic and Diluted

    487,189,657       370,101,582       470,551,727       352,794,385  
 

 

 

   

 

 

   

 

 

   

 

 

 

Revenues Earned from Affiliates

       

Management and Advisory Fees

  $ 56,900     $ 34,242     $ 245,854     $ 110,356  
 

 

 

   

 

 

   

 

 

   

 

 

 

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)

 

     Nine Months Ended
September 30,
 
     2011     2010  

Operating Activities

    

Net Loss

   $ (723,814   $ (746,099

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

    

Blackstone Funds Related:

    

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

     603,613        (533,466

Net Realized Gains on Investments

     (468,588     (140,095

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

     (66,607     (352,506

Unrealized Depreciation (Appreciation) on Hedge Activities

     (1,544     (4,060

Non-Cash Performance Fees

     (492,930     (192,208

Non-Cash Performance Fee Compensation

     221,985       213,614  

Equity-Based Compensation Expense

     1,075,012       1,924,358  

Amortization of Intangibles

     124,764       121,206  

Other Non-Cash Amounts Included in Net Income (Loss)

     (4,559     19,349  

Cash Flows Due to Changes in Operating Assets and Liabilities:

    

Cash Held by Blackstone Funds and Other

     215,051       (48,376

Cash Relinquished with Continuing Liquidation of Partnership

     (666     (3,136

Accounts Receivable

     87,655       (79,622

Reverse Repurchase Agreements

     (13,506     (287,445

Due from Affiliates

     24,359       13,107  

Other Assets

     53,585       (47,374

Accrued Compensation and Benefits

     (15,460     62,520  

Securities Sold, Not Yet Purchased

     75,907       262,395  

Accounts Payable, Accrued Expenses and Other Liabilities

     (233,579     114,530  

Repurchase Agreements

     147,920       139,456  

Due to Affiliates

     (111,613     (33,600

Short Term Investments Purchased

     (2,428,326     (1,785,838

Proceeds from Sale of Investments

     2,256,425       1,390,991  

Blackstone Funds Related:

    

Investments Purchased

     (4,639,948     (2,344,140

Proceeds from Sale of Investments

     5,073,303        2,652,554  
  

 

 

   

 

 

 

Net Cash Provided by Operating Activities

     758,439       316,115  
  

 

 

   

 

 

 

Investing Activities

    

Purchase of Furniture, Equipment and Leasehold Improvements

     (25,963     (30,587

Net Cash Paid for Acquisition of Management Contracts

     (23,744     (21,898

Changes in Restricted Cash

     331       35  
  

 

 

   

 

 

 

Net Cash Used in Investing Activities

     (49,376     (52,450
  

 

 

   

 

 

 

 

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)

 

     Nine Months Ended
September 30,
 
     2011     2010  

Financing Activities

    

Distributions to Non-Controlling Interest Holders in Consolidated Entities

   $ (294,755   $ (77,039

Contributions from Non-Controlling Interest Holders in Consolidated Entities

     742,940       117,896  

Purchase of Interests from Certain Non-Controlling Interest Holders

     (2,099     (153

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

     (33,814     (21,955

Proceeds from Loans Payable

     16,977       408,574  

Repayment of Loans Payable

     (27,981     (34,207

Distributions to Unitholders

     (592,536     (489,271

Blackstone Funds Related:

    

Proceeds from Loans Payable

     342,183       14,014  

Repayment of Loans Payable

     (855,601     (93,099
  

 

 

   

 

 

 

Net Cash Used in Financing Activities

     (704,686     (175,240
  

 

 

   

 

 

 

Effect of Exchange Rate Changes on Cash and Cash Equivalents

     (16     (24,292
  

 

 

   

 

 

 

Net Increase in Cash and Cash Equivalents

     4,361       64,133  

Cash and Cash Equivalents, Beginning of Period

     588,621       952,096  
  

 

 

   

 

 

 

Cash and Cash Equivalents, End of Period

   $ 592,982     $ 1,016,229  
  

 

 

   

 

 

 

Supplemental Disclosure of Cash Flows Information

    

Payments for Interest

   $ 2,399     $ 2,966  
  

 

 

   

 

 

 

Payments for Income Taxes

   $ 40,147     $ 51,319  
  

 

 

   

 

 

 

Supplemental Disclosure of Non-Cash Investing and Financing Activities

    

Net Activities Related to Capital Transactions of Consolidated Blackstone Funds

   $ (2,817   $ 4,037  
  

 

 

   

 

 

 

Net Assets Related to the Consolidation of CLO Vehicles

   $ 73,984     $ 406,914  
  

 

 

   

 

 

 

Reclassification of Capital Due to Non-Controlling Interest Holders

   $ —        $ (60,197
  

 

 

   

 

 

 

In-kind Redemption of Capital

   $ (2,433   $ —     
  

 

 

   

 

 

 

In-kind Contribution of Capital

   $ 2,433     $ 75,516  
  

 

 

   

 

 

 

Notes Issuance Costs

   $ —        $ 2,000  
  

 

 

   

 

 

 

Transfer of Interests to Non-Controlling Interest Holders

   $ 1,924     $ (15,927
  

 

 

   

 

 

 

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

   $ (6,245   $ (8,460
  

 

 

   

 

 

 

Net Settlement of Vested Common Units

   $ 107,365     $ 133,907  
  

 

 

   

 

 

 

Conversion of Blackstone Holdings Units to Common Units

   $ 217,275     $ 120,880  
  

 

 

   

 

 

 

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

    

Deferred Tax Asset

   $ (288,229   $ (184,831
  

 

 

   

 

 

 

Due to Affiliates

   $ 234,365     $ 150,416  
  

 

 

   

 

 

 

Partners’ Capital

   $ 53,864     $ 34,415  
  

 

 

   

 

 

 

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, publicly traded closed-end mutual funds 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, 2010 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.

Certain reclassifications have been made to prior year amounts to conform to the current year presentation as follows:

 

   

In January 2011, Blackstone separated its Credit and Marketable Alternatives segment into two new segments: Hedge Fund Solutions and Credit Businesses. The Hedge Fund Solutions segment is comprised primarily of Blackstone Alternative Asset Management, an institutional solutions provider utilizing hedge funds across a variety of strategies, and the Indian-focused and Asian-focused closed-end mutual funds. The Credit Businesses segment, which is comprised principally of GSO Capital Partners LP (“GSO”), manages credit-oriented funds, CLOs, credit-focused separately managed accounts and publicly registered debt-focused investment companies. This change in Blackstone’s segment reporting aligns it to its management reporting and organization structure and is consistent with the manner in which resource deployment and compensation decisions are made. Blackstone’s segment results have been retrospectively presented for all periods reported.

 

   

As of March 31, 2011, Blackstone elected to aggregate changes in assets and liabilities relating to hedging activities within Unrealized Depreciation (Appreciation) on Hedge Activities in the Condensed Consolidated Statements of Cash Flows. Previously, amounts relating to changes in hedging instruments had been presented in Cash Flows Due to Changes in Operating Assets and Liabilities — Other Assets. The reclassification of amounts in 2010 had no impact on Net Cash Provided by Operating Activities.

 

   

As of June 30, 2011, Blackstone elected to separately present Repurchase Agreements in the Condensed Consolidated Statements of Financial Condition. Previously, these amounts were included in Accounts Payable, Accrued Expenses and Other Liabilities. The reclassification had no impact on Total Liabilities.

 

   

As of June 30, 2011, Blackstone elected to separately present changes in operating assets and liabilities relating to repurchase agreements in the Condensed Consolidated Statements of Cash Flows. Previously, amounts relating to changes in repurchase agreements had been presented in Cash Flows Due to Changes in Operating Assets and Liabilities — Accounts Payable, Accrued Expenses and Other Liabilities. The reclassification had no impact on Net Cash Provided by Operating Activities.

 

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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)

 

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 variable interest entity 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 variable interest entity. The consolidation guidance requires an analysis to (a) determine 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 give it a controlling financial interest. Performance of that analysis requires the exercise of judgment. Variable interest entities qualify for the deferral of this 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

 

  (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.

 

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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)

 

Assets of consolidated VIEs 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 securities, certain over-the-counter derivatives where the fair value is based on observable inputs, and certain fund of hedge funds 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

 

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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)

 

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. 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.

 

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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)

 

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.

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 certain 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 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 from Fund Investment Activities. Amounts attributable to Non-Controlling Interests in Consolidated Entities have a corresponding adjustment to Appropriated Partners’ Capital.

 

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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)

 

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.

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. Other equity method investments are reviewed for impairment.

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 customer 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.

 

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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)

 

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 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 the same caption in the Condensed Consolidated Statements of Operations as the hedged item. 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. For freestanding derivative contracts, the Partnership presents changes in fair value 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.

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 January 2010, the FASB issued guidance on improving disclosures about fair value measurements. The guidance required additional disclosure on transfers in and out of Levels I and II fair value measurements in the fair value hierarchy and the reasons for such transfers. In addition, for fair value measurements using significant unobservable inputs (Level III), the guidance required the reconciliation of beginning and ending balances be presented on a gross basis, with separate disclosure of gross purchases, sales, issuances and settlements and transfers in and transfers out of Level III. The guidance also required enhanced disclosures on the fair value hierarchy to disaggregate disclosures by each class of assets and liabilities. In addition, the guidance required an entity to provide further disclosures on valuation techniques and inputs used to measure fair value for fair value measurements that fall in either Level II or Level III. The guidance was effective for interim and annual periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements

 

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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)

 

in the roll forward of activity in Level III fair value measurements, which was effective for fiscal years beginning after December 15, 2010. Adoption of the guidance, including the gross presentation of activity in Level III, did not have a material impact on the Partnership’s financial statements.

In December 2010, the FASB issued enhanced guidance on when to perform step two of the goodwill impairment test for reporting units with zero or negative carrying amounts. The updated guidance modified existing requirements under step one of the goodwill impairment test for reporting units with zero or negative carrying amounts and required step two to be performed if it is more likely than not that a goodwill impairment exists. The guidance was effective for interim and annual reporting periods beginning after December 15, 2010. Adoption did not have a material impact on the Partnership’s financial statements.

In December 2010, the FASB issued guidance on disclosures around business combinations for public entities that present comparative financial statements. The guidance specified that an entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period. The guidance was effective prospectively for business combinations for which the acquisition date was on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. As the Partnership has not had any business combinations since January 2011, adoption did not have a material impact on the Partnership’s financial statements.

In April 2011, the 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 remove 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 is effective for the first interim or annual period beginning on or after December 15, 2011. Blackstone enters into repurchase agreements that are currently accounted for as collateralized financing transactions. Adoption is not expected to 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 specifies 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 include 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 is 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 clarify 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 requires 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

 

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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)

 

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 amends 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 is effective for interim and annual periods beginning after December 15, 2011. As the impact of the guidance is primarily limited to enhanced disclosures, adoption is not expected to 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 provide 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 is 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. The guidance is effective for fiscal years, and interim periods within those years beginning after December 15, 2011 and should be applied on a retrospective basis. As the amendments are limited to presentation only, adoption is not expected to have a material impact on the Partnership’s financial statements.

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. Blackstone is evaluating the impact of the amended guidance on its annual and interim goodwill impairment tests. The amended guidance is not expected to 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)

 

3. ACQUISITION, GOODWILL AND INTANGIBLE ASSETS

Acquisition

On May 16, 2011, the Partnership, through GSO, completed the acquisition of management agreements relating to four collateralized loan obligation vehicles previously managed by Allied Irish Bank for net consideration of $23.4 million. The assets acquired are finite-lived contractual rights.

Goodwill and Intangible Assets

In January 2011, Blackstone separated its Credit and Marketable Alternatives segment into two new segments. Goodwill previously allocated to the Credit and Marketable Alternatives segment has been reallocated to the Hedge Fund Solutions and Credit Businesses segments. 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 September 30, 2011 and December 31, 2010. As of September 30, 2011 and December 31, 2010, the fair value of the Partnership’s operating segments substantially exceeded their respective carrying values.

Intangible Assets, Net consists of the following:

 

     September 30,
2011
    December 31,
2010
 

Finite-Lived Intangible Assets / Contractual Rights

   $ 1,394,026     $ 1,370,255  

Accumulated Amortization

     (715,735     (590,944
  

 

 

   

 

 

 

Intangible Assets, Net

   $ 678,291     $ 779,311  
  

 

 

   

 

 

 

Amortization expense associated with Blackstone’s intangible assets was $42.4 million and $124.8 million for the three and nine month periods ended September 30, 2011, respectively, and $40.9 million and $121.2 million for the three and nine month periods ended September 30, 2010, respectively.

Amortization of Intangible Assets held at September 30, 2011 is expected to be $167.1 million, $114.6 million, $63.1 million, $58.2 million, and $52.0 million for each of the years ending December 31, 2011, 2012, 2013, 2014, and 2015, respectively. Blackstone’s intangible assets as of September 30, 2011 are expected to amortize over a weighted-average period of 9.6 years.

 

4. INVESTMENTS

Investment

Investments consist of the following:

 

     September 30,
2011
     December 31,
2010
 

Investments of Consolidated Blackstone Funds

   $ 10,161,033      $ 8,192,327  

Equity Method Investments

     2,042,710        1,921,665  

Blackstone’s Treasury Cash Management Strategies

     1,080,232        896,367  

Performance Fees

     1,535,637        937,227  

Other Investments

     28,784        26,886  
  

 

 

    

 

 

 
   $ 14,848,396      $ 11,974,472  
  

 

 

    

 

 

 

 

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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)

 

Blackstone’s share of Investments of Consolidated Blackstone Funds totaled $449.5 million and $500.2 million at September 30, 2011 and December 31, 2010, respectively.

At September 30, 2011 and December 31, 2010, 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 September 30, 2011 and December 31, 2010, no investment exceeded the 5% threshold.

Investments of Consolidated Blackstone Funds

Net Gains (Losses) from Fund Investment Activities on the Condensed Consolidated Statements of Operations includes net realized gains (losses) from realizations and sales of investments and the net change in unrealized gains (losses) resulting from changes in the fair value of the consolidated Blackstone Funds’ investments. The following table presents the realized and net change in unrealized gains (losses) on investments held by the consolidated Blackstone Funds:

 

    Three Months Ended September 30,     Nine Months Ended September 30,  
          2011                 2010                 2011                 2010        

Realized Gains (Losses)

  $ 121,297     $ (40,063   $ 228,052     $ (60,500

Net Change in Unrealized Gains (Losses)

    (496,696     296,049       (774,527     387,571  
 

 

 

   

 

 

   

 

 

   

 

 

 
  $ (375,399   $ 255,986     $ (546,475   $ 327,071  
 

 

 

   

 

 

   

 

 

   

 

 

 

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 September 30,     Nine Months Ended September 30,  
           2011                 2010               2011                 2010         

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

  $ (375,399   $ 255,986     $ (546,475   $ 327,071  

Interest, Dividend and Other Revenue Attributable to Consolidated Blackstone Funds

    46,000       29,085       97,231       70,554  
 

 

 

   

 

 

   

 

 

   

 

 

 

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

  $ (329,399   $ 285,071     $ (449,244   $ 397,625  
 

 

 

   

 

 

   

 

 

   

 

 

 

Equity Method Investments

The Partnership recognized net gains related to its equity method investments of $97.2 million and $343.6 million for the nine months ended September 30, 2011 and 2010, 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.

 

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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)

 

Blackstone evaluates each of its equity method investments to determine if any were significant. As of September 30, 2011, one investment met this criteria. The summarized financial information for this investment is shown below:

 

     Nine Months Ended September 30,  
               2011                          2010             

Statements of Income

    

Interest Income

   $ 251     $ 212  

Other Income

     34,401       —     

Interest Expense

     (315     (387

Other Expenses

     (1,410     (1,646

Net Realized and Unrealized Gain from Investments

     537,432       1,014,488  
  

 

 

   

 

 

 

Net Income

   $ 570,359     $ 1,012,667  
  

 

 

   

 

 

 

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 and other investment and non-investment grade securities. These strategies are 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 September 30,     Nine Months Ended September 30,  
       2011           2010               2011                   2010         

Realized Gains

  $ 6,002     $ 1,080     $ 7,022     $ 2,652  

Net Change in Unrealized Gains (Losses)

    (746     8,205       1,475       15,096  
 

 

 

   

 

 

   

 

 

   

 

 

 
  $ 5,256     $ 9,285     $ 8,497     $ 17,748  
 

 

 

   

 

 

   

 

 

   

 

 

 

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, 2010

   $ 573,042     $ 65,477     $ 9,534     $ 289,174     $ 937,227  

Change in Fair Value of Funds

     25,152       676,413       1,890       97,491       800,946  

Fund Cash Distributions

     (85,353     (33,446     (10,506     (73,231     (202,536
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Performance Fees, September 30, 2011

   $ 512,841     $ 708,444     $ 918     $ 313,434     $ 1,535,637  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

21


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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)

 

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
September 30,
    Nine Months Ended
September 30,
 
     2011     2010     2011     2010  

Realized Gains (Losses)

   $ 421     $ 36     $ 820     $ 978  

Net Change in Unrealized Gains (Losses)

     (22,292     (335     (21,000     592  
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ (21,871   $ (299   $ (20,180   $ 1,570  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

5. NET ASSET VALUE AS FAIR VALUE

Certain 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. 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 September 30, 2011 is presented below:

 

Strategy

   Fair Value      Unfunded
Commitments
     Redemption
Frequency

(if currently
eligible)
    Redemption
Notice
Period
 

Diversified Instruments

   $ 205,680      $ 7,697        (a     (a

Credit Driven

     194,979        1,980        (b     (b

Event Driven

     119,239        —           (c     (c

Equity

     251,179        —           (d     (d

Commodities

     51,071        —           (e     (e
  

 

 

    

 

 

      
   $ 822,148      $ 9,677       
  

 

 

    

 

 

      

 

(a) Diversified Instruments include investments in hedge funds that invest across multiple strategies. Investments representing 98% of the value of the investments in this 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. As of the reporting date, the investee fund manager had elected to side-pocket 18% of Blackstone’s investments. The time at which this redemption restriction may lapse cannot be estimated. The remaining 2% 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.

 

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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)

 

(b) The Credit Driven category includes investments in hedge funds that invest primarily in domestic and international bonds. Investments representing 59% of the value of the investments in this category may not be redeemed at, or within three months of, the reporting date. Investments representing 20% 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 3% of the value in the credit driven 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 18% 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 83% of the total value of investments in this category may not be redeemed at, or within three months of, the reporting date. The remaining 17% 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. 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 liability, are recorded within General, Administrative and Other in the Condensed Consolidated Statements of Operations. The fair value of the derivative instrument is reflected within Other Assets in the Condensed Consolidated Statements of Financial Condition.

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

 

23


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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)

 

contracts, equity swaps, options, futures and other derivative contracts. 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.

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 based on each contract’s fair value at the reporting date.

 

    September 30, 2011     December 31, 2010  
    Assets     Liabilities     Assets     Liabilities  
    Notional     Fair
Value
    Notional     Fair
Value
    Notional     Fair
Value
    Notional     Fair
Value
 

Fair Value Hedges

               

Interest Rate Swaps

  $ 450,000     $ 57,820     $ —        $ —        $ 450,000     $ 26,192     $ —        $ —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Freestanding Derivatives

               

Blackstone — Other

               

Interest Rate Contracts

    485,885       735       551,650       858       57,200       56       366,857       922  

Foreign Currency Contracts

    34,681       1,451       12,169       371       10,088       283       13,221       74  

Credit Default Swaps

    10,000       1,336       —          —          —          —          —          —     

Investments of Consolidated Blackstone Funds

               

Foreign Currency Contracts

    287,434       35,738       103,995       3,492       —          —          —          —     

Interest Rate Contracts

    81,109       6,113       162,500       12,425       —          —          —          —     

Other

    266       1       217       137       409       2       212       2  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Freestanding Derivatives

    899,375       45,374       830,531       17,283       67,697       341       380,290       998  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 1,349,375     $ 103,194     $ 830,531     $ 17,283     $ 517,697     $ 26,533     $ 380,290     $ 998  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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 impact to the Condensed Consolidated Statements of Operations from derivative financial instruments:

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2011     2010     2011     2010  

Fair Value Hedges — Interest Rate Swaps

        

Hedge Ineffectiveness

   $ 4,191     $ 2,065     $ 4,788     $ 6,704  

Excluded from Assessment of Effectiveness

     (10,490     (7,639     (10,864     (9,743

Freestanding Derivatives

        

Realized Gains (Losses)

        

Interest Rate Contracts

   $ (2,558   $ (1,119   $ (3,578   $ (1,920

Foreign Currency Contracts

     944       (867     137       363  

Other

     (43     (35     (65     (160
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ (1,657   $ (2,021   $ (3,506   $ (1,717
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Change in Unrealized Gain (Loss)

        

Interest Rate Contracts

   $ 3,822     $ 1,849     $ 6,007     $ 489  

Foreign Currency Contracts

     (19,075     383       (15,087     (76

Credit Default Swaps

     42       —          42       —     

Other

     (83     87       (101     64  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ (15,294   $ 2,319     $ (9,139   $ 477  
  

 

 

   

 

 

   

 

 

   

 

 

 

As of September 30, 2011 and December 31, 2010, 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:

 

     September 30,
2011
     December 31,
2010
 

Assets

     

Loans and Receivables

   $ 65,186      $ 131,290  

Assets of Consolidated CLO Vehicles

     

Corporate Loans

     7,999,853        6,351,966  

Corporate Bonds

     140,436        157,997  

Other

     40,830        12,076  
  

 

 

    

 

 

 
   $ 8,246,305      $ 6,653,329  
  

 

 

    

 

 

 

Liabilities

     

Liabilities of Consolidated CLO Vehicles

     

Senior Secured Notes

   $ 7,869,252      $ 5,877,957  

Subordinated Notes

     790,962        555,632  
  

 

 

    

 

 

 
   $ 8,660,214      $ 6,433,589  
  

 

 

    

 

 

 

 

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)

 

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

 

     Three Months Ended September 30,  
     2011     2010  
     Realized
Gains (Losses)
    Net Change
in Unrealized
Gains (Losses)
    Realized
Gains (Losses)
    Net Change
in Unrealized
Gains (Losses)
 

Assets

        

Loans and Receivables

   $ —        $ 50     $ 5,310     $ (1,837

Equity Securities

     —          —          (349     (501

Assets of Consolidated CLO Vehicles

        

Corporate Loans

     16,928       (453,095     (8,133     62,484  

Corporate Bonds

     65       (11,129     (1,005     9,695  

Other

     10,996       (16,205     —          (2,171
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 27,989     $ (480,379   $ (4,177   $ 67,670  
  

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities

        

Liabilities of Consolidated CLO Vehicles

        

Senior Secured Notes

   $ 1,915     $ 222,379     $ (1,139   $ 106,708   

Subordinated Notes

     (4,694     (32,581     —          (267
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ (2,779   $ 189,798     $ (1,139   $ 106,441  
  

 

 

   

 

 

   

 

 

   

 

 

 
     Nine Months Ended September 30,  
     2011     2010  
     Realized
Gains (Losses)
    Net Change
in Unrealized
Gains (Losses)
    Realized
Gains (Losses)
    Net Change
in Unrealized
Gains (Losses)
 

Assets

        

Loans and Receivables

   $ —        $ (237   $ 5,695     $ (101

Debt Securities

     —          —          (16     —     

Equity Securities

     —          —          (350     —     

Assets of Consolidated CLO Vehicles

        

Corporate Loans

     82,040       (486,816     (14,935     123,770  

Corporate Bonds

     2,214       (12,452     (1,005     3,255  

Other

     11,476       (12,077     702       (2,469
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 95,730     $ (511,582   $ (9,909   $ 124,455  
  

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities

        

Liabilities of Consolidated CLO Vehicles

        

Senior Secured Notes

   $ (5,798   $ (110,097   $ (2,513   $ 105,194  

Subordinated Notes

     (4,694     (100,285     —          (87,423
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ (10,492   $ (210,382   $ (2,513   $ 17,771  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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 for those financial instruments on which the fair value option was elected, the uncollected principal balance on the financial instruments that exceeded the fair value and the fair value and principal balance on the financial instruments that were past due:

 

     As of September 30, 2011     As of December 31, 2010  
           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

   $ 1,214     $ —         $ —        $ 1,391     $ —         $ —     

Assets of Consolidated CLO Vehicles

              

Corporate Loans

     (762,368     11,059        (24,138     (244,233     5,393        (2,164

Corporate Bonds

     (14,438     8,057        (3,409     (1,545     5,630        (2,082
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 
   $ (775,592   $ 19,116      $ (27,547   $ (244,387   $ 11,023      $ (4,246
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

 

(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 September 30, 2011 and December 31, 2010, 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 September 30, 2011 and December 31, 2010, respectively:

 

     September 30, 2011  
     Level I      Level II      Level III      Total  

Assets

           

Investments of Consolidated Blackstone Funds (a)

           

Investment Funds

   $ —         $ 5,549      $ 816,599      $ 822,148  

Equity Securities

     72,414        22,053        135,947        230,414  

Partnership and LLC Interests

     37,296        —           532,444        569,740  

Debt Instruments

     100        348,075        9,437        357,612  

Assets of Consolidated CLO Vehicles

           

Corporate Loans

     —           7,638,311        319,691        7,958,002  

Corporate Bonds

     —           140,436        —           140,436  

Freestanding Derivatives — Foreign Currency Contracts

     —           35,738        —           35,738  

Freestanding Derivatives — Interest Rate Contracts

     —           6,113        —           6,113  

Other

     —           36,543        4,287        40,830  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Investments of Consolidated Blackstone Funds

     109,810        8,232,818        1,818,405        10,161,033  

Blackstone’s Treasury Cash Management Strategies

     303,887        776,145        200        1,080,232  

Money Market Funds

     163,417        —           —           163,417  

Freestanding Derivatives

           

Interest Rate Contracts

     628        107        —           735  

Foreign Currency Contracts

     —           1,451        —           1,451  

Credit Default Swaps

     —           1,336        —           1,336  

Derivative Instruments Used as Fair Value Hedges

     —           57,820        —           57,820  

Loans and Receivables

     —           —           65,186        65,186  

Other Investments

     9,020        649        19,115        28,784  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 586,762      $ 9,070,326      $ 1,902,906      $ 11,559,994  
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Liabilities of Consolidated CLO Vehicles (a)

           

Senior Secured Notes

   $ —         $ —         $ 7,869,252      $ 7,869,252  

Subordinated Notes

     —           —           790,962        790,962  

Freestanding Derivatives — Foreign Currency Contracts

     —           3,492        —           3,492  

Freestanding Derivatives — Interest Rate Contracts

     —           12,425        —           12,425  

Freestanding Derivatives

           

Interest Rate Contracts

     553        305        —           858  

Foreign Currency Contracts

     —           371        —           371  

Securities Sold, Not Yet Purchased

     761        194,796        —           195,557  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 1,314      $ 211,389      $ 8,660,214      $ 8,872,917  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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, 2010  
     Level I      Level II      Level III      Total  

Assets

           

Investments of Consolidated Blackstone Funds (a)

           

Investment Funds

   $ —         $ 2,333      $ 723,583      $ 725,916  

Equity Securities

     133,483        24,007        136,614        294,104  

Partnership and LLC Interests

     —           —           500,162        500,162  

Debt Instruments

     107        138,518        11,481        150,106  

Assets of Consolidated CLO Vehicles

           

Corporate Loans

     —           6,131,106        220,860        6,351,966  

Corporate Bonds

     —           157,997        —           157,997  

Other

     —           2,405        9,671        12,076  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Investments of Consolidated Blackstone Funds

     133,590        6,456,366        1,602,371        8,192,327  

Blackstone’s Treasury Cash Management Strategies

     442,700        453,667        —           896,367  

Money Market Funds

     165,957        —           —           165,957  

Freestanding Derivatives

           

Interest Rate Contracts

     13        43        —           56  

Foreign Currency Contracts

     —           283        —           283  

Derivative Instruments Used as Fair Value Hedges

     —           26,192        —           26,192  

Loans and Receivables

     —           —           131,290        131,290  

Other Investments

     6,852        362        19,672        26,886  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 749,112      $ 6,936,913      $ 1,753,333      $ 9,439,358  
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Liabilities of Consolidated CLO Vehicles (a)

           

Senior Secured Notes

   $ —         $ —         $ 5,877,957      $ 5,877,957  

Subordinated Notes

     —           —           555,632        555,632  

Freestanding Derivatives

           

Interest Rate Contracts

     19        903        —           922  

Foreign Currency Contracts

     —           74        —           74  

Securities Sold, Not Yet Purchased

     531        116,157        —           116,688  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 550      $ 117,134      $ 6,433,589      $ 6,551,273  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(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.

There were no significant transfers between Level I and Level II during the three months ended September 30, 2011.

 

29


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 valuation methodology used in the determination of the fair value of financial instruments for which Level III inputs were used as of September 30, 2011:

 

Valuation Methodology

   Private
Equity
    Real
Estate
    Hedge  Fund
Solutions
    Credit
Businesses
    Total  

Third-Party Fund Managers

     —          —          41     —          41

Specific Valuation Metrics

     14     24     1     20     59
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     14     24     42     20     100
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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 September 30,  
    2011     2010  
    Investments  of
Consolidated
Funds
    Loans  and
Receivables
    Other
Investments
    Total     Investments  of
Consolidated
Funds
    Loans  and
Receivables
    Other
Investments
    Total  

Balance, Beginning of Period

  $ 1,837,853     $ 127,108     $ 138,713     $ 2,103,674     $ 1,414,606     $ 26,844     $ 18,875     $ 1,460,325  

Transfer In Due to Consolidation and Acquisition (a)

    13,506       —          —          13,506       200       —          —          200  

Transfer In to Level III (b)

    120,184       —          —          120,184       11,526       —          —          11,526  

Transfer Out of Level III (b)

    (13,153     —          —          (13,153     (7,782     —          —          (7,782

Purchases

    135,916       58,153       —          194,069       N/A        N/A        N/A        N/A   

Sales

    (178,082     (120,315     (118,175     (416,572     N/A        N/A        N/A        N/A   

Settlements

    —          (92     —          (92     N/A        N/A        N/A        N/A   

Purchases (Sales), Net

    N/A        N/A        N/A        N/A        (60,156     (29,126     (233     (89,515

Realized Gains (Losses), Net

    39,601       —          947       40,548       (11,938     5,310       (851     (7,479

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

    (137,420     332       (2,170     (139,258     126,132       (3,028     (291     122,813  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, End of Period

  $ 1,818,405     $ 65,186     $ 19,315     $ 1,902,906     $ 1,472,588     $ —        $ 17,500     $ 1,490,088  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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)

 

    Level III Financial Assets at Fair Value  
    Nine Months Ended September 30,  
    2011     2010  
    Investments
of

Consolidated
Funds
    Loans
and
Receivables
    Other
Investments
    Total     Investments
of

Consolidated
Funds
    Loans
and
Receivables
    Other
Investments
    Total  

Balance, Beginning of Period

  $ 1,602,371     $ 131,290     $ 19,672     $ 1,753,333     $ 1,192,464     $ 68,549     $ 46,578     $ 1,307,591  

Transfer In Due to Consolidation and Acquisition (a)

    23,076       —          —          23,076       227,794       —          —          227,794  

Transfer In to Level III (b)

    126,398       —          —          126,398       11,706       —          —          11,706  

Transfer Out of Level III (b)

    (129,330     —          —          (129,330     (28,329     —          —          (28,329

Purchases

    526,796       184,243       117,200       828,239       N/A        N/A        N/A        N/A   

Sales

    (350,261     (250,214     (118,706     (719,181     N/A        N/A        N/A        N/A   

Settlements

    —          (1,391     —          (1,391     N/A        N/A        N/A        N/A   

Purchases (Sales), Net

    N/A        N/A        N/A        N/A        (145,720     (74,244     (29,701     (249,665

Realized Gains (Losses), Net

    43,598       —          1,706        45,304        (29,331     5,695       104       (23,532

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

    (24,243     1,258       (557     (23,542     244,004       —          519       244,523  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, End of Period

  $ 1,818,405     $ 65,186     $ 19,315     $ 1,902,906     $ 1,472,588     $ —        $ 17,500     $ 1,490,088  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

    Level III Financial Liabilities at Fair Value  
    Three Months Ended September 30,  
    2011     2010  
    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

  $ 7,859,527     $ 706,649     $ 8,566,176     $ 5,483,483     $ 443,847     $ 5,927,330  

Transfer In Due to Consolidation and Acquisition (a)

    625,480       57,170       682,650       102,631       —          102,631  

Issuances

    360,007       42,026       402,033       N/A        N/A        N/A   

Settlements

    (640,049     (31,033     (671,082     N/A        N/A        N/A   

Purchases (Sales), Net

    N/A        N/A        N/A        (55,875     —          (55,875

Realized Gains (Losses), Net

    (1,915     4,694       2,779       —          —          —     

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

    (333,798     11,456       (322,342     (75,482     2,297       (73,185
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, End of Period

  $ 7,869,252     $ 790,962     $ 8,660,214     $ 5,454,757     $ 446,144     $ 5,900,901  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

31


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  
   Nine Months Ended September 30,  
  
   2011     2010  
     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

   $ 5,877,957     $ 555,632     $ 6,433,589     $ —        $ —         $ —     

Transfer In Due to Consolidation and Acquisition (a)

     2,455,379       152,736       2,608,115       5,751,806       364,829        6,116,635  

Issuances

     360,411       42,026       402,437       N/A        N/A         N/A   

Settlements

     (875,322     (43,513     (918,835     N/A        N/A         N/A   

Purchases (Sales), Net

     N/A        N/A        N/A        (79,085     —           (79,085

Realized Gains (Losses), Net

     5,798       4,694       10,492       —          —           —     

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

     45,029       79,387       124,416       (217,964     81,315        (136,649
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Balance, End of Period

   $ 7,869,252     $ 790,962     $ 8,660,214     $ 5,454,757     $ 446,144      $ 5,900,901  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

N/A Not applicable.
(a) Represents the transfer into Level III of financial assets and liabilities held by CLO vehicles as a result of the application of consolidation guidance effective January 1, 2010 and as a result of the acquisition of management contracts on April 1, 2010, July 20, 2010 and May 16, 2011.
(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 advisor, 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.

 

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)

 

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

 

     September 30, 2011      December 31, 2010  
     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

   $ 647,597      $ 126,139      $ 773,736      $ 662,776      $ 44,846      $ 707,622  

Investments

     8,181,120        818,958        9,000,078        6,522,038        902,291        7,424,329  

Accounts Receivable

     35,127        206        35,333        21,669        711        22,380  

Due from Affiliates

     —           35,925        35,925        —           30,182        30,182  

Other Assets

     26,395        1,174        27,569        17,651        2,172        19,823  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Assets

   $ 8,890,239      $ 982,402      $ 9,872,641      $ 7,224,134      $ 980,202      $ 8,204,336  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

                 

Loans Payable

   $ 8,330,711      $ 17,388      $ 8,348,099      $ 6,144,490      $ 9,689      $ 6,154,179  

Due to Affiliates

     329,503        17,796        347,299        289,099        15,870        304,969  

Accounts Payable, Accrued Expenses and Other

     246,702        5,964        252,666        311,965        18,710        330,675  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Liabilities

   $ 8,906,916      $ 41,148      $ 8,948,064      $ 6,745,554      $ 44,269      $ 6,789,823  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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:

 

     September 30,
2011
     December 31,
2010
 

Investments

   $ 193,567      $ 89,743  

Receivables

     72,554        178,719  
  

 

 

    

 

 

 

Total VIE Assets

     266,121        268,462  

VIE Liabilities

     —           168  

Potential Clawback Obligation

     8,545        4,717  
  

 

 

    

 

 

 

Maximum Exposure to Loss

   $ 274,666      $ 273,347  
  

 

 

    

 

 

 

 

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)

 

10. REVERSE REPURCHASE AND REPURCHASE AGREEMENTS

At September 30, 2011, 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 $194.8 million and cash as collateral for reverse repurchase agreements that could be repledged, delivered or otherwise used. Securities with a fair value of $194.8 million were repledged, delivered or used to settle Securities Sold, Not Yet Purchased. The Partnership also pledged securities with a carrying value of $210.2 million and cash to collateralize its repurchase agreements. Such securities can be repledged, delivered or otherwise used by the counterparty.

 

11. BORROWINGS

On April 8, 2011, indirect subsidiaries of Blackstone entered into an amendment to the $1.02 billion revolving credit facility (the “Credit Facility”) with Citibank, N.A., as Administrative Agent. The amendment extended the maturity date of the Credit Facility from March 23, 2013 to April 8, 2016. As of September 30, 2011, Blackstone had no outstanding borrowings under the Credit Facility.

The carrying value and fair value of the Blackstone issued notes as of September 30, 2011 and December 31, 2010 were:

 

     September 30, 2011      December 31, 2010  
     Carrying
Value
     Fair
Value
     Carrying
Value
     Fair
Value
 

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

   $ 398,201      $ 401,680      $ 398,097      $ 398,097  

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

   $ 650,786      $ 638,040      $ 612,814      $ 612,814  

Included within Loans Payable and Due to Affiliates are amounts due to holders of debt securities issued by Blackstone’s consolidated CLO vehicles. At September 30, 2011 and December 31, 2010, the Partnership’s borrowings through consolidated CLO vehicles consisted of the following:

 

     September 30, 2011      December 31, 2010  
     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

   $ 8,513,974        1.68     4.2      $ 6,466,794        1.33     5.2  

Subordinated Notes

     1,170,076        (a     6.4        895,300        (a     7.7  
  

 

 

         

 

 

      
   $ 9,684,050           $ 7,362,094       
  

 

 

         

 

 

      

 

(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 September 30, 2011 are amounts due to non-consolidated affiliates of $112.8 million and $300.0 million, respectively. The fair value of Senior Secured and Subordinated Notes as of September 30, 2011 was $7.9 billion and $791.0 million, respectively, of which $109.4 million and $220.1 million represents the amounts due to affiliates.

 

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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)

 

Included within Senior Secured Notes and Subordinated Notes as of December 31, 2010 are amounts due to non-consolidated affiliates of $99.3 million and $293.4 million, respectively. The fair value of Senior Secured and Subordinated Notes as of December 31, 2010 was $5.9 billion and $555.6 million, respectively, of which $78.0 million and $211.1 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 September 30, 2011 and December 31, 2010, the fair value of the consolidated CLO assets was $8.9 billion and $7.2 billion, respectively. This collateral consisted of Cash, Corporate Loans, Corporate Bonds and other securities.

Scheduled principal payments for borrowings as of September 30, 2011 were as follows:

 

     Operating
Borrowings
     Blackstone Fund
Facilities / CLO
Vehicles
     Total
Borrowings
 

2011

   $ 297      $ —         $ 297  

2012

     7,849        13,489        21,338  

2013

     1,920        83,558        85,478  

2014

     5,041        350,607        355,648  

2015

     —           680,746        680,746  

Thereafter

     1,000,000        8,573,038        9,573,038  
  

 

 

    

 

 

    

 

 

 

Total

   $ 1,015,107      $ 9,701,438      $ 10,716,545  
  

 

 

    

 

 

    

 

 

 

 

12. INCOME TAXES

Blackstone’s effective tax rate was 0.77% and (2.95)% for the three months ended September 30, 2011 and 2010, respectively, and (15.18)% and (3.44)% for the nine months ended September 30, 2011 and 2010, respectively. Blackstone’s income tax provision was a benefit of $7.6 million and a benefit of $4.2 million for the three months ended September 30, 2011 and 2010, respectively, and an expense of $95.4 million and an expense of $24.8 million for the nine months ended September 30, 2011 and 2010, respectively.

Blackstone’s effective tax rate for the three and nine months ended September 30, 2011 and 2010 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.

 

13. NET INCOME (LOSS) PER COMMON UNIT

Basic and diluted net income (loss) per common unit for the three and nine months ended September 30, 2011 and September 30, 2010 was calculated as follows:

 

     Three Months Ended September 30,     Nine Months Ended September 30,  
             2011                     2010                     2011                     2010          

Net Income (Loss) Attributable to The Blackstone Group L.P.

   $ (274,567   $ (44,358   $ (145,626   $ (359,055
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (Loss) Per Common Unit

   $ (0.56   $ (0.12   $ (0.31   $ (1.02
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Weighted-Average Common Units Outstanding

     487,189,657       370,101,582       470,551,727       352,794,385  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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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 summarizes the anti-dilutive securities for the three and nine months ended September 30, 2011 and 2010:

 

     Three Months Ended September 30,      Nine Months Ended September 30,  
               2011                           2010                           2011                           2010             

Weighted-Average Unvested Deferred Restricted Common Units

     20,767,022        23,636,653        23,121,018        26,542,362  

Weighted-Average Blackstone Holdings Partnership Units

     616,168,175        727,528,593        633,174,021        745,006,116  

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 nine months ended September 30, 2011, Blackstone repurchased 116,270 vested Blackstone Holdings Partnership Units as part of the unit repurchase program for a total cost of $2.1 million. The repurchase resulted in a decrease in Blackstone’s ownership interest in Blackstone Holdings equity of $1.7 million. As of September 30, 2011, the amount remaining available for repurchases under this program was $335.8 million.

During the nine months ended September 30, 2010, Blackstone repurchased 84,888 vested Blackstone Common Units as part of the unit repurchase program for a total cost of $1.2 million.

 

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 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, 2011, the Partnership had the ability to grant 162,380,981 units under the Equity Plan.

For the three and nine months ended September 30, 2011, the Partnership recorded compensation expense of $240.1 million and $1.1 billion, respectively, in relation to its equity-based awards with corresponding tax benefits of $5.1 million and $13.8 million, respectively. For the three and nine months ended September 30, 2010, the Partnership recorded compensation expense of $457.4 million and $1.9 billion, respectively, in relation to its equity-based awards with corresponding tax benefits of $2.8 million and $7.4 million, respectively. As of September 30, 2011, there was $2.8 billion of estimated unrecognized compensation expense related to unvested awards. This cost is expected to be recognized over a weighted-average period of 3.5 years.

 

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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)

 

Total vested and unvested outstanding units, including Blackstone Common Units, Blackstone Holdings Partnership Units and deferred restricted common units, were 1,123,891,420 as of September 30, 2011. Total outstanding unvested phantom units were 218,583 as of September 30, 2011.

A summary of the status of the Partnership’s unvested equity-based awards as of September 30, 2011 and a summary of changes during the period January 1, 2011 through September 30, 2011 is presented below:

 

Unvested Units

   Blackstone Holdings      The Blackstone Group L.P.  
   Partnership
Units
    Weighted-
Average
Grant
Date Fair
Value
     Equity Settled Awards      Cash Settled Awards  
        Deferred
Restricted
Common
Units and
Options
    Weighted-
Average
Grant Date
Fair Value
     Phantom
Units
    Weighted-
Average
Grant
Date Fair
Value
 

Balance, December 31, 2010

     149,225,318     $ 30.58        19,118,949     $ 21.00        225,841     $ 13.98  

Granted

     3,077,026       14.49        3,793,917       15.10        532       14.84  

Vested

     (49,803,927     30.63        (4,298,032     24.98        (2,842     13.98  

Forfeited

     (9,339,015     30.41        (1,163,904     21.50        (4,948     15.81  
  

 

 

      

 

 

      

 

 

   

Balance, September 30, 2011

     93,159,402     $ 30.04        17,450,930     $ 18.69        218,583     $ 12.62  
  

 

 

      

 

 

      

 

 

   

Units Expected to Vest

The following unvested units, after expected forfeitures, as of September 30, 2011, are expected to vest:

 

     Units      Weighted-Average
Service Period in
Years
 

Blackstone Holdings Partnership Units

     86,866,268        3.6  

Deferred Restricted Blackstone Common Units and Options

     14,508,043        2.9  
  

 

 

    

 

 

 

Total Equity-Based Awards

     101,374,311        3.5  
  

 

 

    

 

 

 

Phantom Units

     200,164        3.7  
  

 

 

    

 

 

 

 

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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)

 

15. RELATED PARTY TRANSACTIONS

Affiliate Receivables and Payables

As of September 30, 2011 and December 31, 2010, Due from Affiliates and Due to Affiliates comprised the following:

 

     September 30,
2011
     December 31,
2010
 

Due from Affiliates

     

Accrual for Potential Clawback of Previously Distributed Carried Interest

   $ 162,731      $ 180,672  

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

     230,283        169,413  

Amounts Due from Portfolio Companies and Funds

     169,268        175,872  

Investments Redeemed in Non-Consolidated Funds of Funds

     4,384        43,790  

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

     71,631        107,547  

Payments Made on Behalf of Non-Consolidated Entities

     95,675        81,689  

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

     9,646        36,412  
  

 

 

    

 

 

 
   $ 743,618      $ 795,395  
  

 

 

    

 

 

 
     September 30,
2011
     December 31,
2010
 

Due to Affiliates

     

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

   $ 1,301,227      $ 1,114,609  

Accrual for Potential Repayment of Previously Received Performance Fees

     261,956        273,829  

Due to Note-Holders of Consolidated CLO Vehicles

     329,502        274,020  

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

     22,136        77,362  

Distributions Received on Behalf of Non-Consolidated Entities

     18,704        15,970  

Payments Made by Non-Consolidated Entities

     10,748        6,497  
  

 

 

    

 

 

 
   $ 1,944,273      $ 1,762,287  
  

 

 

    

 

 

 

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 September 30, 2011 and December 31, 2010, the founder’s, other senior managing directors’ and employees’ investments aggregated $883.5 million and $832.8 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 $(36.2) million and $60.4 million for the three months ended September 30, 2011 and 2010, respectively, and $95.6 million and $142.1 million for the nine months ended September 30, 2011 and 2010, 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 $56.9 million and $34.2 million for the three months ended September 30, 2011 and 2010, respectively. Management and Advisory Fees earned from affiliates totaled $245.9 million and $110.4 million for the nine months ended September 30, 2011 and 2010, 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 $0.6 million and $0.4 million for the three months ended September 30, 2011 and 2010, respectively, and $1.9 million and $1.5 million for the nine months ended September 30, 2011 and 2010, 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 September 30, 2011. 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 $1,301.2 million over the next 15 years. The after-tax net present value of these estimated payments totals $350.3 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 September 30, 2011 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 $29.9 million as of September 30, 2011 which includes $9.8 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 $5.2 million as of September 30, 2011.

 

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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)

 

Contingent Performance Fees

There were $103.5 million of segment level Performance Fees related to the hedge funds in the Hedge Fund Solutions, Credit Businesses and Real Estate segments through the period ended September 30, 2011 attributable to arrangements where the measurement period had not ended. Measurement periods may be greater than the current reporting period. On a consolidated basis, after eliminations, such Performance Fees were $103.5 million for the nine months ended September 30, 2011.

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 adversely affect its results of operations, financial position or cash flows.

Contingent Obligations (Clawback)

Carried Interest earned by Blackstone 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:

 

     September 30, 2011      December 31, 2010  

Segment

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

Private Equity

   $ 68,601      $ 122,430      $ 191,031      $ 62,534      $ 118,845      $ 181,379  

Real Estate

     30,624        40,301        70,925        30,623        61,827        92,450  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 99,225      $ 162,731      $ 261,956      $ 93,157      $ 180,672      $ 273,829  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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 September 30, 2011, $492.8 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.

As described in Note 2. “Summary of Significant Accounting Policies — Basis of Presentation”, in January 2011, Blackstone separated its Credit and Marketable Alternatives segment into two new segments: Hedge Fund Solutions and Credit Businesses.

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.

 

   

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 and the Indian-focused and Asian-focused closed-end mutual funds.

 

   

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 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 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 for the three months ended September 30, 2011 and 2010:

 

     Three Months Ended September 30, 2011  
     Private
Equity
    Real
Estate
    Hedge Fund
Solutions
    Credit
Businesses
    Financial
Advisory
    Total
Segments
 

Segment Revenues

            

Management and Advisory Fees

            

Base Management Fees

   $ 85,534     $ 97,925     $ 79,355     $ 59,557     $ —        $ 322,371  

Advisory Fees

     —          —          —          —          86,178       86,178  

Transaction and Other Fees, Net

     21,430       19,551       740       (26     98       41,793  

Management Fee Offsets

     (6,498     (880     (258     (67     —          (7,703
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Management and Advisory Fees

     100,466       116,596       79,837       59,464       86,276       442,639  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Performance Fees

            

Realized

     (17,966     5,308       5,764       14,791       —          7,897  

Unrealized

     (270,014     (120,176     (19,861     (55,125     —          (465,176
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Performance Fees

     (287,980     (114,868     (14,097     (40,334     —          (457,279
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Investment Income (Loss)

            

Realized

     20,548       7,313       1,023       2,807       (44     31,647  

Unrealized

     (121,688     (26,060     (10,034     (7,800     (171     (165,753
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Investment Income (Loss)

     (101,140     (18,747     (9,011     (4,993     (215     (134,106

Interest and Dividend Revenue

     3,396       3,195       500       1,404       1,615       10,110  

Other

     141       (1,390     18       (132     (304     (1,667
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Revenues

     (285,117     (15,214     57,247       15,409       87,372       (140,303
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Expenses

   <