Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2017

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

 

LOGO

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  ☒    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  ☒    No  ☐

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

 

Large accelerated filer  ☒

   Accelerated filer  ☐

Non-accelerated filer  ☐

   Smaller reporting company  ☐

(Do not check if a smaller reporting company)

   Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

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

The number of the Registrant’s voting common units representing limited partner interests outstanding as of August 1, 2017 was 617,906,597. The number of the Registrant’s non-voting common units representing limited partner interests outstanding as of August 1, 2017 was 31,019,086.

 

 

 


Table of Contents

TABLE OF CONTENTS

 

          Page  
PART I.   

FINANCIAL INFORMATION

  
ITEM 1.   

FINANCIAL STATEMENTS

     5  
  

Unaudited Condensed Consolidated Financial Statements — June 30, 2017 and 2016:

  
  

Condensed Consolidated Statements of Financial Condition as of June 30, 2017 and December  31, 2016

     5  
  

Condensed Consolidated Statements of Operations for the Three and Six Months Ended June  30, 2017 and 2016

     7  
  

Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June  30, 2017 and 2016

     8  
  

Condensed Consolidated Statements of Changes in Partners’ Capital for the Six Months Ended June 30, 2017 and 2016

     9  
  

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2017 and 2016

     11  
  

Notes to Condensed Consolidated Financial Statements

     13  
ITEM 1A.   

UNAUDITED SUPPLEMENTAL PRESENTATION OF STATEMENTS OF FINANCIAL CONDITION

     60  
ITEM 2.   

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

     62  
ITEM 3.   

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     132  
ITEM 4.   

CONTROLS AND PROCEDURES

     136  
PART II.   

OTHER INFORMATION

  
ITEM 1.   

LEGAL PROCEEDINGS

     137  
ITEM 1A.   

RISK FACTORS

     137  
ITEM 2.   

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

     137  
ITEM 3.   

DEFAULTS UPON SENIOR SECURITIES

     138  
ITEM 4.   

MINE SAFETY DISCLOSURES

     138  
ITEM 5.   

OTHER INFORMATION

     138  
ITEM 6.   

EXHIBITS

     138  

SIGNATURES

     139  

 

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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,” “indicator,” “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, 2016 and in this report, as such factors may be updated from time to time in our periodic filings with the United States Securities and Exchange Commission (“SEC”), which are accessible on the SEC’s website at www.sec.gov. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this report and in our other periodic filings. The forward-looking statements speak only as of the date of this report, and we undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.

Website and Social Media Disclosure

We use our website (www.blackstone.com), Facebook page (www.facebook.com/blackstone), Twitter (www.twitter.com/blackstone), LinkedIn (www.linkedin.com/company/the-blackstone-group), Instagram (www.instagram.com/blackstone), YouTube (www.youtube.com/user/blackstonegroup) and Medium (www.medium.com/@blackstonebx) accounts as channels of distribution of company information. The information we post through these channels may be deemed material. Accordingly, investors should monitor these channels, in addition to following our press releases, SEC filings and public conference calls and webcasts. In addition, you may automatically receive e-mail alerts and other information about Blackstone when you enroll your e-mail address by visiting the “Contact Us/Email Alerts” section of our website at http://ir.blackstone.com. The contents of our website, any alerts and social media channels are not, however, a part of this report.

 

 

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-focused funds, collateralized loan obligation (“CLO”), real estate investment trusts and registered investment companies that are managed by Blackstone. “Our carry funds” refers to the private equity funds, real estate funds and certain of the hedge fund solutions and credit-focused funds (with multi-year drawdown, commitment-based structures that only pay carry on the realization of an investment) that are managed by Blackstone. We refer to our general corporate private equity funds as Blackstone Capital Partners (“BCP”) funds, our energy-focused private equity funds as Blackstone Energy Partners (“BEP”) funds, our core private equity fund as Blackstone Core Equity Partners (“BCEP”), our opportunistic investment platform that invests globally across asset classes, industries and geographies as Blackstone Tactical Opportunities (“Tactical Opportunities”), our secondary private equity fund of funds business as Strategic Partners Fund Solutions (“Strategic Partners”), a multi-asset investment program for eligible high net worth investors offering exposure to certain of our key illiquid investment strategies through a single commitment as Blackstone Total Alternatives Solution (“BTAS”) and our capital markets services business as Blackstone Capital Markets (“BXCM”). We refer to our real estate opportunistic funds as Blackstone Real Estate Partners (“BREP”) funds and our real estate debt investment funds as Blackstone Real Estate Debt Strategies (“BREDS”) funds. We refer to our core+ real estate funds, which target substantially stabilized assets in prime markets, as Blackstone Property Partners (“BPP”) funds. We refer to our real

 

2


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estate investment trusts as “REITs”, to Blackstone Mortgage Trust, Inc., our NYSE-listed REIT, as “BXMT”, and to Blackstone Real Estate Income Trust, Inc., our non-exchange traded REIT, as “BREIT”. “Our hedge funds” refers to our funds of hedge funds, certain of our real estate debt investment funds, including a registered investment company, and certain other credit-focused funds 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 and our side-by-side and co-investment entities managed by us, plus the capital that we are entitled to call from investors in those funds and entities pursuant to the terms of their respective capital commitments, including capital commitments to funds that have yet to commence their investment periods, plus for certain credit-oriented funds the amounts available to be borrowed under asset based credit facilities,

 

  (b) the net asset value of (1) our hedge funds, real estate debt carry funds, open ended core+ real estate fund, and our Hedge Fund Solutions carry and drawdown funds (plus, in each case, the capital that we are entitled to call from investors in those funds, including commitments yet to commence their investment periods), and (2) our funds of hedge funds, our Hedge Fund Solutions registered investment companies, and our non-exchange traded REIT,

 

  (c) the invested capital, fair value or net asset value of assets we manage pursuant to separately managed accounts,

 

  (d) the amount of debt and equity outstanding for our CLOs during the reinvestment period,

 

  (e) the aggregate par amount of collateral assets, including principal cash, for our CLOs after the reinvestment period,

 

  (f) the gross or net amount of assets (including leverage where applicable) for our credit-focused registered investment companies, and

 

  (g) the fair value of common stock, preferred stock, convertible debt, or similar instruments issued by BXMT.

Our carry funds are commitment-based drawdown structured funds that do not permit investors to redeem their interests at their election. Our funds of hedge funds, hedge funds, funds structured like hedge funds and other open ended funds in our Hedge Fund Solutions, Credit and Real Estate segments generally have structures that afford an investor the right to withdraw or redeem their interests on a periodic basis (for example, annually or quarterly), typically with 30 to 95 days’ notice, depending on the fund and the liquidity profile of the underlying assets. Investment advisory agreements related to certain separately managed accounts in our Hedge Fund Solutions and Credit segments may generally be terminated by an investor on 30 to 90 days’ notice.

“Fee-Earning Assets Under Management” refers to the assets we manage on which we derive management and/or performance fees. Our Fee-Earning Assets Under Management equals the sum of:

 

  (a) for our Private Equity segment funds and Real Estate segment carry funds including certain real estate debt investment funds and certain of our Hedge Fund Solutions funds, the amount of capital commitments, remaining invested capital, fair value, net asset value or par value of assets held, depending on the fee terms of the fund,

 

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

 

  (c) the remaining invested capital or fair value of assets held in co-investment vehicles managed by us on which we receive fees,

 

  (d) the net asset value of our funds of hedge funds, hedge funds, open ended core+ real estate fund, co-investments managed by us on which we receive fees, certain registered investment companies, our non-exchange traded REIT, and certain of our Hedge Fund Solutions drawdown funds,

 

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  (e) the invested capital, fair value of assets or the net asset value we manage pursuant to separately managed accounts,

 

  (f) the net proceeds received from equity offerings and accumulated core earnings of BXMT, subject to certain adjustments,

 

  (g) the aggregate par amount of collateral assets, including principal cash, of our CLOs, and

 

  (h) the gross amount of assets (including leverage) or the net assets (plus leverage where applicable) for certain of our credit-focused registered investment companies.

Each of our segments may include certain Fee-Earning Assets Under Management on which we earn performance fees but not management fees.

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, the remaining amount of invested capital at cost depending on whether the investment period has or has not expired or the fee terms of the fund. 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.

 

4


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)

 

     June 30,
2017
    December 31,
2016
 

Assets

    

Cash and Cash Equivalents

   $ 1,745,547     $ 1,837,253  

Cash Held by Blackstone Funds and Other

     1,526,033       1,005,161  

Investments (including assets pledged of $91,340 and $119,139 at June 30, 2017 and December 31, 2016, respectively)

     20,549,367       17,694,975  

Accounts Receivable

     1,109,316       772,695  

Reverse Repurchase Agreements

     —         118,495  

Due from Affiliates

     1,711,574       1,442,378  

Intangible Assets, Net

     240,677       262,604  

Goodwill

     1,718,519       1,718,519  

Other Assets

     234,175       264,788  

Deferred Tax Assets

     1,292,723       1,286,469  
  

 

 

   

 

 

 

Total Assets

   $ 30,127,931     $ 26,403,337  
  

 

 

   

 

 

 

Liabilities and Partners’ Capital

    

Loans Payable

   $ 11,188,779     $ 8,866,366  

Due to Affiliates

     1,296,896       1,321,772  

Accrued Compensation and Benefits

     2,441,469       2,327,762  

Securities Sold, Not Yet Purchased

     143,819       215,398  

Repurchase Agreements

     60,611       75,324  

Accounts Payable, Accrued Expenses and Other Liabilities

     1,739,358       1,081,782  
  

 

 

   

 

 

 

Total Liabilities

     16,870,932       13,888,404  
  

 

 

   

 

 

 

Commitments and Contingencies

    

Redeemable Non-Controlling Interests in Consolidated Entities

     190,700       185,390  
  

 

 

   

 

 

 

Partners’ Capital

    

The Blackstone Group L.P. Partners’ Capital

    

Partners’ Capital (common units: 653,801,394 issued and outstanding as of June 30, 2017; 643,459,542 issued and outstanding as of December 31, 2016)

     6,558,159       6,523,929  

Accumulated Other Comprehensive Loss

     (47,479     (62,887
  

 

 

   

 

 

 

Total The Blackstone Group L.P. Partners’ Capital

     6,510,680       6,461,042  

Non-Controlling Interests in Consolidated Entities

     3,123,171       2,428,964  

Non-Controlling Interests in Blackstone Holdings

     3,432,448       3,439,537  
  

 

 

   

 

 

 

Total Partners’ Capital

     13,066,299       12,329,543  
  

 

 

   

 

 

 

Total Liabilities and Partners’ Capital

   $ 30,127,931     $ 26,403,337  
  

 

 

   

 

 

 

 

5

continued…

See notes to condensed consolidated financial statements.


Table of Contents

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, after intercompany eliminations, 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.

 

     June 30,
2017
     December 31,
2016
 

Assets

     

Cash Held by Blackstone Funds and Other

   $ 1,348,206      $ 740,760  

Investments

     9,159,542        6,459,355  

Accounts Receivable

     550,908        355,364  

Due from Affiliates

     25,421        21,300  

Other Assets

     3,666        2,602  
  

 

 

    

 

 

 

Total Assets

   $ 11,087,743      $ 7,579,381  
  

 

 

    

 

 

 

Liabilities

     

Loans Payable

   $ 7,710,507      $ 5,466,444  

Due to Affiliates

     66,038        72,609  

Securities Sold, Not Yet Purchased

     82,229        81,309  

Repurchase Agreements

     60,611        66,221  

Accounts Payable, Accrued Expenses and Other Liabilities

     1,248,784        545,481  
  

 

 

    

 

 

 

Total Liabilities

   $ 9,168,169      $ 6,232,064  
  

 

 

    

 

 

 

See notes to condensed consolidated financial statements.

 

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Table of Contents

THE BLACKSTONE GROUP L.P.

Condensed Consolidated Statements of Operations (Unaudited)

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

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2017     2016     2017     2016  

Revenues

        

Management and Advisory Fees, Net

   $ 686,586     $ 607,823     $ 1,328,728     $ 1,216,729  
  

 

 

   

 

 

   

 

 

   

 

 

 

Performance Fees

        

Realized

        

Carried Interest

     602,160       323,734       1,713,416       554,643  

Incentive Fees

     40,805       29,441       87,965       57,860  

Unrealized

        

Carried Interest

     65,197       88,292       (89,486     135,878  

Incentive Fees

     48,235       7,776       107,644       15,355  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Performance Fees

     756,397       449,243       1,819,539       763,736  
  

 

 

   

 

 

   

 

 

   

 

 

 

Investment Income

        

Realized

     125,058       65,037       376,402       53,036  

Unrealized

     7,275       40,102       (32,913     43,595  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Investment Income

     132,333       105,139       343,489       96,631  
  

 

 

   

 

 

   

 

 

   

 

 

 

Interest and Dividend Revenue

     33,703       22,286       62,198       45,361  

Other

     (59,664     7,935       (63,876     2,323  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Revenues

     1,549,355       1,192,426       3,490,078       2,124,780  
  

 

 

   

 

 

   

 

 

   

 

 

 

Expenses

        

Compensation and Benefits

        

Compensation

     367,203       355,424       718,792       701,427  

Performance Fee Compensation

        

Realized

        

Carried Interest

     195,289       87,580       561,480       146,084  

Incentive Fees

     21,481       15,250       44,233       29,374  

Unrealized

        

Carried Interest

     74,500       75,202       70,113       105,203  

Incentive Fees

     20,600       2,689       43,739       6,137  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Compensation and Benefits

     679,073       536,145       1,438,357       988,225  

General, Administrative and Other

     115,281       130,988       221,325       254,033  

Interest Expense

     41,089       36,878       81,335       74,234  

Fund Expenses

     49,669       8,592       73,745       13,821  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Expenses

     885,112       712,603       1,814,762       1,330,313  
  

 

 

   

 

 

   

 

 

   

 

 

 

Other Income

        

Net Gains from Fund Investment Activities

     110,054       30,703       176,186       49,845  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income Before Provision for Taxes

     774,297       510,526       1,851,502       844,312  

Provision for Taxes

     29,608       47,415       87,045       56,561  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Income

     744,689       463,111       1,764,457       787,751  

Net Income (Loss) Attributable to Redeemable

        

Non-Controlling Interests in Consolidated Entities

     991       (2,049     2,991       (8,450

Net Income Attributable to Non-Controlling

        

Interests in Consolidated Entities

     112,944       64,729       251,629       104,815  

Net Income Attributable to Non-Controlling

        

Interests in Blackstone Holdings

     287,979       201,805       705,237       333,007  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Income Attributable to The Blackstone Group L.P.

   $ 342,775     $ 198,626     $ 804,600     $ 358,379  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Income Per Common Unit

        

Common Units, Basic

   $ 0.52     $ 0.31     $ 1.21     $ 0.55  
  

 

 

   

 

 

   

 

 

   

 

 

 

Common Units, Diluted

   $ 0.51     $ 0.30     $ 1.20     $ 0.54  
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-Average Common Units Outstanding

        

Common Units, Basic

     664,681,299       646,933,698       662,820,839       645,915,774  
  

 

 

   

 

 

   

 

 

   

 

 

 

Common Units, Diluted

     1,200,006,339       1,194,478,212       1,199,756,390       1,194,375,807  
  

 

 

   

 

 

   

 

 

   

 

 

 

Distributions Declared Per Common Unit

   $ 0.87     $ 0.28     $ 1.34     $ 0.89  
  

 

 

   

 

 

   

 

 

   

 

 

 

Revenues Earned from Affiliates

        

Management and Advisory Fees, Net

   $ 30,051     $ 44,148     $ 64,448     $ 100,823  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

See notes to condensed consolidated financial statements.

 

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Table of Contents

THE BLACKSTONE GROUP L.P.

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

(Dollars in Thousands)

 

     Three Months Ended
June  30,
    Six Months Ended
June 30,
 
     2017      2016     2017      2016  

Net Income

   $ 744,689      $ 463,111     $ 1,764,457      $ 787,751  

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

     35,089        (5,768     46,593        11,844  
  

 

 

    

 

 

   

 

 

    

 

 

 

Comprehensive Income

     779,778        457,343       1,811,050        799,595  

Less:

          

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

     991        (2,049     2,991        (8,450

Comprehensive Income Attributable to Non-Controlling Interests in Consolidated Entities

     140,311        58,783       282,814        110,026  

Comprehensive Income Attributable to Non-Controlling Interests in Blackstone Holdings

     287,979        201,805       705,237        333,007  
  

 

 

    

 

 

   

 

 

    

 

 

 

Comprehensive Income Attributable to The Blackstone Group L.P.

   $ 350,497      $ 198,804     $ 820,008      $ 365,012  
  

 

 

    

 

 

   

 

 

    

 

 

 

See notes to condensed consolidated financial statements.

 

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Table of Contents

THE BLACKSTONE GROUP L.P.

Condensed Consolidated Statements of Changes in Partners’ Capital (Unaudited)

(Dollars in Thousands, Except Unit Data)

 

          The Blackstone Group L.P.                          
    Common
Units
    Partners’
Capital
    Accumulated
Other
Compre-
hensive
Income
(Loss)
    Total     Non-
Controlling
Interests in
Consolidated
Entities
    Non-
Controlling
Interests in
Blackstone
Holdings
    Total
Partners’
Capital
    Redeemable
Non-
Controlling
Interests in
Consolidated
Entities
 

Balance at December 31, 2016

    643,459,542     $ 6,523,929     $ (62,887   $ 6,461,042     $ 2,428,964     $ 3,439,537     $ 12,329,543     $ 185,390  

Net Income

    —         804,600       —         804,600       251,629       705,237       1,761,466       2,991  

Currency Translation Adjustment

    —         —         15,408       15,408       31,185       —         46,593       —    

Consolidation of a Fund Entity

    —         —         —         —         387,006       —         387,006       —    

Capital Contributions

    —         —         —         —         375,308       —         375,308       21,354  

Capital Distributions

    —         (882,889     —         (882,889     (348,513     (754,398     (1,985,800     (19,035

Transfer of Non-Controlling Interests in Consolidated Entities

    —         —         —         —         (2,408     —         (2,408     —    

Deferred Tax Effects Resulting from Acquisition of Ownership Interests from Non-Controlling Interest Holders

    —         7,286       —         7,286       —         —         7,286       —    

Equity-Based Compensation

    —         87,964       —         87,964       —         72,561       160,525       —    

Net Delivery of Vested Blackstone Holdings Partnership Units and Blackstone Common Units

    3,775,544       (12,430     —         (12,430     —         (790     (13,220     —    

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

    —         (13,821     —         (13,821     —         13,821       —         —    

Conversion of Blackstone Holdings Partnership Units to Blackstone Common Units

    6,566,308       43,520       —         43,520       —         (43,520     —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2017

    653,801,394     $ 6,558,159     $ (47,479   $ 6,510,680     $ 3,123,171     $ 3,432,448     $ 13,066,299     $ 190,700  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

9

continued…

See notes to condensed consolidated financial statements.


Table of Contents

THE BLACKSTONE GROUP L.P.

Condensed Consolidated Statements of Changes in Partners’ Capital (Unaudited)

(Dollars in Thousands, Except Unit Data)

 

          The Blackstone Group L.P.                          
    Common
Units
    Partners’
Capital
    Accumulated
Other
Compre-
hensive
Income
(Loss)
    Total     Non-
Controlling
Interests in
Consolidated
Entities
    Non-
Controlling
Interests in
Blackstone
Holdings
    Total
Partners’
Capital
    Redeemable
Non-
Controlling
Interests in
Consolidated
Entities
 

Balance at December 31, 2015

    624,450,162     $ 6,322,307     $ (52,519   $ 6,269,788     $ 2,408,701     $ 3,368,509     $ 12,046,998     $ 183,459  

Net Income (Loss)

    —         358,379       —         358,379       104,815       333,007       796,201       (8,450

Currency Translation Adjustment

    —         —         6,632       6,632       5,211       —         11,843       —    

Capital Contributions

    —         —         —         —         185,952       —         185,952       —    

Capital Distributions

    —         (569,794     —         (569,794     (160,529     (505,969     (1,236,292     (1,004

Transfer of Non-Controlling Interests in Consolidated Entities

    —         —         —         —         (5,591     —         (5,591     —    

Deferred Tax Effects Resulting from Acquisition of Ownership Interests from Non-Controlling Interest Holders

    —         208       —         208       —         —         208       —    

Equity-Based Compensation

    —         78,052       —         78,052       —         78,458       156,510       —    

Net Delivery of Vested Blackstone Holdings Partnership Units and Blackstone Common Units

    4,139,648       (14,414     —         (14,414     —         —         (14,414     —    

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

    —         3,836       —         3,836       —         (3,836     —         —    

Conversion of Blackstone Holdings Partnership Units to Blackstone Common Units

    4,944,571       29,813       —         29,813       —         (29,813     —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2016

    633,534,381     $ 6,208,387     $ (45,887   $ 6,162,500     $ 2,538,559     $ 3,240,356     $ 11,941,415     $ 174,005  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See notes to condensed consolidated financial statements.

 

10


Table of Contents

THE BLACKSTONE GROUP L.P.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(Dollars in Thousands)

 

     Six Months Ended
June 30,
 
     2017     2016  

Operating Activities

    

Net Income

   $ 1,764,457     $ 787,751  

Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities

    

Blackstone Funds Related

    

Net Realized Gains on Investments

     (2,284,430     (670,157

Change in Unrealized (Gains) Losses on Investments

     41,952       (112,675

Non-Cash Performance Fees

     (18,158     (73,806

Non-Cash Performance Fee Compensation

     719,565       286,797  

Equity-Based Compensation Expense

     179,729       164,124  

Amortization of Intangibles

     21,927       45,655  

Other Non-Cash Amounts Included in Net Income

     131,935       33,514  

Cash Flows Due to Changes in Operating Assets and Liabilities

    

Cash Held by Blackstone Funds and Other

     (448,740     (140,795

Cash Relinquished in Deconsolidation and Liquidation of Fund Entity

     (33,566     —    

Accounts Receivable

     191,454       73,459  

Reverse Repurchase Agreements

     118,495       161,008  

Due from Affiliates

     (131,421     14,424  

Other Assets

     9,772       18,883  

Accrued Compensation and Benefits

     (621,807     (234,646

Securities Sold, Not Yet Purchased

     (73,633     (68,611

Accounts Payable, Accrued Expenses and Other Liabilities

     (700,207     (247,201

Repurchase Agreements

     (14,713     15,414  

Due to Affiliates

     (26,290     13,682  

Investments Purchased

     (7,991,469     (2,921,777

Cash Proceeds from Sale of Investments

     8,279,495       3,101,900  
  

 

 

   

 

 

 

Net Cash Provided by (Used in) Operating Activities

     (885,653     246,943  
  

 

 

   

 

 

 

Investing Activities

    

Purchase of Furniture, Equipment and Leasehold Improvements

     (13,663     (16,165

Changes in Restricted Cash

     18,038       5,843  
  

 

 

   

 

 

 

Net Cash Provided by (Used in) Investing Activities

     4,375       (10,322
  

 

 

   

 

 

 

 

11

continued…

See notes to condensed consolidated financial statements.


Table of Contents

THE BLACKSTONE GROUP L.P.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(Dollars in Thousands)

 

     Six Months Ended
June 30,
 
     2017     2016  

Financing Activities

    

Distributions to Non-Controlling Interest Holders in Consolidated Entities

   $ (330,209   $ (161,533

Contributions from Non-Controlling Interest Holders in Consolidated Entities

     392,983       179,657  

Payments Under Tax Receivable Agreement

     (59,667     (78,985

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

     (13,220     (14,414

Proceeds from Loans Payable

     2,550,559       717,545  

Repayment and Repurchase of Loans Payable

     (127,464     (145,149

Distributions to Unitholders

     (1,637,287     (1,075,763
  

 

 

   

 

 

 

Net Cash Provided by (Used in) Financing Activities

     775,695       (578,642
  

 

 

   

 

 

 

Effect of Exchange Rate Changes on Cash and Cash Equivalents

     13,877       163  
  

 

 

   

 

 

 

Net Decrease in Cash and Cash Equivalents

     (91,706     (341,858

Cash and Cash Equivalents, Beginning of Period

     1,837,253       1,837,324  
  

 

 

   

 

 

 

Cash and Cash Equivalents, End of Period

   $ 1,745,547     $ 1,495,466  
  

 

 

   

 

 

 

Supplemental Disclosure of Cash Flows Information

    

Payments for Interest

   $ 77,111     $ 80,979  
  

 

 

   

 

 

 

Payments for Income Taxes

   $ 46,919     $ 33,454  
  

 

 

   

 

 

 

Supplemental Disclosure of Non-Cash Investing and Financing Activities

    

Non-Cash Contributions from Non-Controlling Interest Holders

   $ 1,327     $ 740  
  

 

 

   

 

 

 

Non-Cash Distributions to Non-Controlling Interest Holders

   $ (37,339   $ —    
  

 

 

   

 

 

 

Net Assets Related to the Consolidation of a Fund Entity

   $ 387,006     $ —    
  

 

 

   

 

 

 

Transfer of Interests to Non-Controlling Interest Holders

   $ (2,408   $ (5,591
  

 

 

   

 

 

 

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

   $ (13,821   $ 3,836  
  

 

 

   

 

 

 

Net Settlement of Vested Common Units

   $ 62,631     $ 64,309  
  

 

 

   

 

 

 

Conversion of Blackstone Holdings Partnership Units to Common Units

   $ 43,520     $ 29,813  
  

 

 

   

 

 

 

Acquisition of Ownership Interests from Non-Controlling Interest Holders

    

Deferred Tax Asset

   $ (48,017   $ (25,553
  

 

 

   

 

 

 

Due to Affiliates

   $ 40,731     $ 25,345  
  

 

 

   

 

 

 

Partners’ Capital

   $ 7,286     $ 208  
  

 

 

   

 

 

 

See notes to condensed consolidated financial statements.

 

12


Table of Contents

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. The alternative asset management business includes the management of private equity funds, real estate funds, real estate investment trusts (“REITs”), funds of hedge funds, hedge funds, credit-focused funds, collateralized loan obligation (“CLO”) vehicles, separately managed accounts and registered investment companies (collectively referred to as the “Blackstone Funds”). Blackstone’s business is organized into four segments: private equity, real estate, hedge fund solutions and credit.

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 AI 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”). The Partnership, through its wholly owned subsidiaries, is the sole general partner in each of these Holding Partnerships.

Generally, holders of the limited partner interests in the Holding Partnerships may, 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 from each of the 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 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, 2016 filed with the Securities and Exchange Commission. As disclosed in the audited consolidated financial statements, the Partnership adopted certain accounting guidance for the quarter ended June 30, 2016 and any adjustments were reflected prospectively as of January 1, 2016. As such, the condensed consolidated financial statements for the three months ended March 31, 2016 were recast from the amounts originally reported in the Partnership’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016.

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.

 

13


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)

 

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

Consolidation

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

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

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 continually. In evaluating whether the Partnership is the primary beneficiary, Blackstone evaluates its economic interests in the entity held either directly or indirectly by the Partnership. The consolidation analysis can generally be performed qualitatively; however, if it is not readily apparent that the Partnership is not the primary beneficiary, a quantitative analysis may also be performed. Investments and redemptions (either by the Partnership, affiliates of the Partnership or third parties) or amendments to the governing documents of the respective Blackstone Funds could affect an entity’s status as a VIE or the determination of the primary beneficiary. At each reporting date, the Partnership assesses whether it is the primary beneficiary and will consolidate or deconsolidate accordingly.

Assets of consolidated 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 hierarchical 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.

 

14


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)

 

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 types 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, including corporate bonds and loans held within CLO vehicles, government and agency securities, less liquid and restricted equity securities, and certain over-the-counter derivatives where the fair value is based on observable inputs. Senior and subordinated notes issued by CLO vehicles are classified within Level II of the fair value hierarchy.

 

   

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-focused funds, distressed debt and non-investment grade residual interests in securitizations, certain corporate bonds and loans held within CLO vehicles, and certain over-the-counter derivatives where the fair value is based on unobservable inputs.

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

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

Level II Valuation Techniques

Financial instruments classified within Level II of the fair value hierarchy comprise debt instruments, including certain corporate loans and bonds held by Blackstone’s consolidated CLO vehicles and debt securities sold, not yet purchased. Certain equity securities and derivative instruments valued using observable inputs are also classified as Level II.

The valuation techniques used to value financial instruments classified within Level II of the fair value hierarchy are as follows:

 

   

Debt Instruments 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 and market transactions in comparable investments and various relationships between investments. The valuation of certain equity securities is based on an observable price for an identical security adjusted for the effect of a restriction.

 

15


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)

 

   

Freestanding Derivatives are valued using contractual cash flows and observable inputs comprising yield curves, foreign currency rates and credit spreads.

 

   

Senior and subordinate notes issued by CLO vehicles are classified based on the more observable fair value of CLO assets less (a) the fair value of any beneficial interests held by Blackstone, and (b) the carrying value of any beneficial interests that represent compensation for services.

Level III Valuation Techniques

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, certain funds of hedge funds and credit-focused investments.

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 based on unaudited information at the time received. Valuations may be derived by reference to observable valuation measures for comparable companies or transactions (for example, 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. Where a discounted cash flow method is used, a terminal value is derived by reference to EBITDA or price/earnings exit multiples.

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 (for example, 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. Where a discounted cash flow method is used, a terminal value is derived by reference to an exit EBITDA multiple or capitalization rate. Additionally, where applicable, projected distributable cash flow through debt maturity will be considered in support of the investment’s fair value.

Credit-Focused Investments — The fair values of credit-focused investments are generally determined on the basis of prices between market participants provided by reputable dealers or pricing services. For credit-focused investments that are not publicly traded or whose market prices are not readily available, Blackstone may utilize other valuation techniques, including the discounted cash flow method or a market approach. The discounted cash flow method projects the expected cash flows of the debt instrument based on contractual terms, and discounts such cash flows back to the valuation date using a market-based yield. The market-based yield is estimated using yields of publicly traded debt instruments issued by companies operating in similar industries as the subject investment, with similar leverage statistics and time to maturity.

 

16


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 market approach is generally used to determine the enterprise value of the issuer of a credit investment, and considers valuation multiples of comparable companies or transactions. The resulting enterprise value will dictate whether or not such credit investment has adequate enterprise value coverage. In cases of distressed credit instruments, the market approach may be used to estimate a recovery value in the event of a restructuring.

Level III Valuation Process

Investments classified within Level III of the fair value hierarchy are valued on a quarterly basis, taking into consideration factors including any changes in Blackstone’s weighted-average cost of capital assumptions, discounted cash flow projections and exit multiple assumptions, as well as any changes in economic and other relevant conditions, and valuation models are updated accordingly. The valuation process also includes a review by an independent valuation party, at least annually for all investments, and quarterly for certain investments, to corroborate the values determined by management. The valuations of Blackstone’s investments are reviewed quarterly by a valuation committee chaired by Blackstone’s Vice Chairman and includes senior heads of each of Blackstone’s businesses, as well as representatives of legal and finance. Each quarter, the valuations of Blackstone’s investments are also reviewed by the Audit Committee in a meeting attended by the chairman of the valuation committee. The valuations are further tested by comparison to actual sales prices obtained on disposition of the investments.

Investments, at Fair Value

The Blackstone Funds are accounted for as investment companies under the American Institute of Certified Public Accountants Accounting and Auditing Guide, Investment Companies, and reflect their investments, including majority-owned and controlled investments (the “Portfolio Companies”), at fair value. 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 (Losses) 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, at current market conditions (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 securities that otherwise would not have been carried at fair value with gains and losses recorded in net income. Accounting for these financial instruments at fair value 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 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-focused 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.

 

17


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)

 

In addition, the Partnership has elected the fair value option for the assets and liabilities of CLO vehicles that are consolidated as of January 1, 2010, as a result of the initial adoption of variable interest entity consolidation guidance. The Partnership has also elected the fair value option for CLO vehicles consolidated as a result of the acquisitions of CLO management contracts or the acquisition of the share capital of CLO managers. Historically, the adjustment resulting from the difference between the fair value of assets and liabilities for each of these events was presented as a transition and acquisition adjustment to Appropriated Partners’ Capital. Assets of the consolidated CLOs are presented within Investments within the Condensed Consolidated Statements of Financial Condition and Liabilities within Loans Payable for the amounts due to unaffiliated third parties and Due to Affiliates for the amounts held by non-consolidated affiliates. Changes in the fair value of consolidated CLO assets and liabilities and related interest, dividend and other income subsequent to adoption and acquisition are presented within Net Gains (Losses) from Fund Investment Activities. Expenses of consolidated CLO vehicles are presented in Fund Expenses. Historically, amounts attributable to Non-Controlling Interests in Consolidated Entities had a corresponding adjustment to Appropriated Partners’ Capital. On the adoption of the new CLO measurement guidance, there is no attribution of amounts to Non-Controlling Interests and no corresponding adjustments to Appropriated Partners’ Capital.

The Partnership has elected the fair value option for certain proprietary investments that would otherwise have been accounted for using the equity method of accounting. The fair value of such investments is based on quoted prices in an active market or using the discounted cash flow method. Changes in fair value are recognized in Investment Income (Loss) in the Condensed Consolidated Statements of Operations.

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

The investments of consolidated Blackstone Funds in funds of hedge funds (“Investee Funds”) are valued at net asset value (“NAV”) per share of the Investee Fund. In limited circumstances, the Partnership may determine, based on its own due diligence and investment procedures, that NAV per share does not represent fair value. In such circumstances, the Partnership will estimate the fair value in good faith and in a manner that it reasonably chooses, in accordance with the requirements of GAAP.

Certain investments of Blackstone and of the consolidated Blackstone funds of hedge funds and credit-focused 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. Further disclosure on instruments for which fair value is measured using NAV per share is presented in Note 5. “Net Asset Value as Fair Value”.

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

Equity Method Investments

Investments in which 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

 

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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)

 

(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 approximates fair value.

Repurchase and Reverse Repurchase Agreements

Securities purchased under agreements to resell (“reverse repurchase agreements”) and securities sold under agreements to repurchase (“repurchase agreements”), comprised primarily of 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 carrying value of repurchase and reverse repurchase agreements approximates fair value.

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

The Partnership takes possession of securities purchased under reverse repurchase agreements and is permitted to repledge, deliver or otherwise use such securities. The Partnership also pledges its financial instruments to counterparties to collateralize repurchase agreements. Financial instruments pledged that can be repledged, delivered or otherwise used by the counterparty are recorded in Investments in the Condensed Consolidated Statements of Financial Condition. Additional disclosures relating to reverse repurchase and repurchase agreements are discussed in Note 10. “Reverse Repurchase and Repurchase Agreements”.

Blackstone does not offset assets and liabilities relating to reverse repurchase agreements and repurchase agreements in its Condensed Consolidated Statements of Financial Condition. Additional disclosures relating to offsetting are discussed in Note 11. “Offsetting of Assets and Liabilities”.

Securities Sold, Not Yet Purchased

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

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

Derivative Instruments

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

 

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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)

 

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

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

For freestanding derivative contracts, the Partnership presents changes in fair value in current period earnings. Changes in the fair value of derivative instruments held by consolidated Blackstone Funds are reflected in Net Gains (Losses) from Fund 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 of the consolidated Blackstone Funds are recorded within Investments, the fair value of freestanding derivative assets that are not part of the consolidated Blackstone Funds are recorded within Other Assets and the fair value of freestanding derivative liabilities are recorded within Accounts Payable, Accrued Expenses and Other Liabilities in the Condensed Consolidated Statements of Financial Condition.

The Partnership has elected to not offset derivative assets and liabilities or financial assets in its Condensed Consolidated Statements of Financial Condition, including cash, that may be received or paid as part of collateral arrangements, even when an enforceable master netting agreement is in place that provides the Partnership, in the event of counterparty default, the right to liquidate collateral and the right to offset a counterparty’s rights and obligations.

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

Blackstone’s disclosures regarding offsetting are discussed in Note 11. “Offsetting of Assets and Liabilities”.

Affiliates

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

 

Distributions

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

Recent Accounting Developments

In May 2014, the Financial Accounting Standards Board (“FASB”) issued amended guidance on revenue from contracts with customers. The guidance requires that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity is required to (a) identify the contract(s) with a customer, (b) identify the performance obligations in the contract, (c) determine the transaction price, (d) allocate the transaction price to the performance obligations in the contract, and (e) recognize revenue when (or as) the entity satisfies a performance obligation. In determining the transaction price, an entity may include variable consideration only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized would not occur when the uncertainty associated with the variable consideration is resolved.

The guidance introduces new qualitative and quantitative disclosure requirements about contracts with customers including revenue and impairments recognized, disaggregation of revenue and information about contract balances and performance obligations. Information is required about significant judgments and changes in judgments in determining the timing of satisfaction of performance obligations and determining the transaction price and amounts allocated to performance obligations. Additional disclosures are required about assets recognized from the costs to obtain or fulfill a contract.

In August 2015, the FASB issued new guidance deferring the effective date of the new revenue recognition standard by one year. The new guidance should be applied for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period.

Blackstone has concluded that capital allocation-based Performance Fees (“Capital Allocation-Based Arrangements”) represent equity method investments that are not in the scope of the amended revenue recognition guidance. Therefore, effective January 1, 2018, Blackstone will amend the recognition and measurement of Capital Allocation-Based Arrangements. This accounting change will not change the timing or amount of revenue recognized related to Capital Allocation-Based Arrangements. These amounts are currently recognized within Realized and Unrealized Performance Fees — Carried Interest and Incentive Fees in the Consolidated Statements of Operations. Under the equity method of accounting Blackstone will recognize its allocations of Carried Interest or Incentive Fees within Investment Income along with the allocations proportionate to Blackstone’s ownership interests in the Blackstone Funds. Blackstone will apply a retrospective application and prior periods shall be restated. The impact of adoption is a reclassification of Carried Interest to Investment Income. This change will have no impact on Net Income Attributable to The Blackstone Group L.P. Blackstone has concluded that the majority of its Incentive Fees are not part of a Capital Allocation-Based Arrangement (“Contractual Incentive Fees”), and are within the scope of the amended revenue recognition guidance. This accounting change will delay recognition of Contractual Incentive Fees compared to our current accounting treatment, and it is not expected to have a material impact on Blackstone’s financial statements.

The Partnership has evaluated the impact of the amended revenue recognition guidance on other revenue streams including management fees and it is not expected to have a material impact on Blackstone’s financial statements. The Partnership is still evaluating considerations for reporting revenue gross versus net.

In February 2016, the FASB issued amended guidance on the accounting for leases. The guidance requires the recognition of lease assets and lease liabilities for those leases classified as operating leases under previous GAAP.

 

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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 guidance retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases under previous GAAP. The recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee have not changed significantly from previous GAAP.

For operating leases, a lessee is required to do the following: (a) recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in the Statement of Financial Condition, (b) recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a generally straight-line basis, and (c) classify all cash payments within operating activities in the statement of cash flows.

The guidance is effective for fiscal periods beginning after December 15, 2018. Early application is permitted. Blackstone is evaluating the impact of the amended guidance on the Consolidated Statement of Financial Condition. It is not expected to have a material impact on the Consolidated Statements of Operations or the Consolidated Statements of Cash Flows.

 

3. INTANGIBLE ASSETS

Intangible Assets, Net consists of the following:

 

     June 30,
2017
     December 31,
2016
 

Finite-Lived Intangible Assets/Contractual Rights

   $ 1,400,876      $ 1,400,876  

Accumulated Amortization

     (1,160,199      (1,138,272
  

 

 

    

 

 

 

Intangible Assets, Net

   $ 240,677      $ 262,604  
  

 

 

    

 

 

 

Amortization expense associated with Blackstone’s intangible assets was $11.0 million and $21.9 million for the three and six month periods ended June 30, 2017, respectively, and $22.8 million and $45.7 million for the three and six month periods ended June 30, 2016, respectively.

Amortization of Intangible Assets held at June 30, 2017 is expected to be $43.9 million, $43.8 million, $43.8 million, $43.8 million, and $43.8 million for each of the years ending December 31, 2017, 2018, 2019, 2020 and 2021, respectively. Blackstone’s intangible assets as of June 30, 2017 are expected to amortize over a weighted-average period of 5.6 years.

 

4. INVESTMENTS

Investments consist of the following:

 

     June 30,
2017
     December 31,
2016
 

Investments of Consolidated Blackstone Funds

   $ 9,171,258      $ 6,480,674  

Equity Method Investments

     2,990,128        3,092,378  

Corporate Treasury Investments

     2,849,749        2,518,438  

Performance Fees

     5,233,854        5,320,994  

Other Investments

     304,378        282,491  
  

 

 

    

 

 

 
   $ 20,549,367      $ 17,694,975  
  

 

 

    

 

 

 

 

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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 $475.4 million and $384.4 million at June 30, 2017 and December 31, 2016, respectively.

Investments of Consolidated Blackstone Funds

The following table presents the Realized and Net Change in Unrealized Gains (Losses) on investments held by the consolidated Blackstone Funds and a reconciliation to Other Income — Net Gains from Fund Investment Activities in the Condensed Consolidated Statements of Operations:

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2017      2016      2017      2016  

Realized Gains (Losses)

   $ 51,777      $ (2,435    $ 107,685      $ 10,947  

Net Change in Unrealized Gains (Losses)

     19,483        16,893        (9,039      (8,348
  

 

 

    

 

 

    

 

 

    

 

 

 

Realized and Net Change in Unrealized Gains from Consolidated Blackstone Funds

     71,260        14,458        98,646        2,599  

Interest and Dividend Revenue Attributable to Consolidated Blackstone Funds

     38,794        16,245        77,540        47,246  
  

 

 

    

 

 

    

 

 

    

 

 

 

Other Income — Net Gains from Fund Investment Activities

   $ 110,054      $ 30,703      $ 176,186      $ 49,845  
  

 

 

    

 

 

    

 

 

    

 

 

 

Equity Method Investments

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

Blackstone evaluates each of its equity method investments to determine if any were significant as defined by guidance from the United States Securities and Exchange Commission. As of and for the six months ended June 30, 2017 and 2016, no individual equity method investment held by Blackstone met the significance criteria. As such, Blackstone is not required to present separate financial statements for any of its equity method investments.

The Partnership recognized net gains related to its equity method investments of $124.1 million and $52.0 million for the three months ended June 30, 2017 and 2016, respectively. The Partnership recognized net gains related to its equity method investments of $292.6 million and $69.7 million for the six months ended June 30, 2017 and 2016, 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)

 

Corporate Treasury Investments

The portion of corporate treasury investments included in Investments represents the Partnership’s investments into primarily fixed income securities, mutual fund interests, and other fund interests. These strategies are managed by a combination of Blackstone personnel and third party advisors. The following table presents the Realized and Net Change in Unrealized Gains (Losses) on these investments:

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2017      2016      2017      2016  

Realized Gains (Losses)

   $ 2,252      $ 9,364      $ (3,429    $ (9,245

Net Change in Unrealized Gains

     12,815        12,913        43,295        14,695  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 15,067      $ 22,277      $ 39,866      $ 5,450  
  

 

 

    

 

 

    

 

 

    

 

 

 

Performance Fees

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

 

     Private     Real     Hedge Fund              
     Equity     Estate     Solutions     Credit     Total  

Performance Fees, December 31, 2016

   $ 1,984,792     $ 2,970,448     $ 6,132     $ 359,622     $ 5,320,994  

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

     598,107       945,904       34,693       67,564       1,646,268  

Foreign Exchange Gain

     —         43,968       —         —         43,968  

Fund Distributions

     (857,819     (896,060     (3,347     (20,150     (1,777,376
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Performance Fees, June 30, 2017

   $ 1,725,080     $ 3,064,260     $ 37,478     $ 407,036     $ 5,233,854  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other Investments

Other Investments consist primarily of proprietary investment securities held by Blackstone. The following table presents Blackstone’s Realized and Net Change in Unrealized Gains (Losses) in other investments:

 

     Three Months Ended June 30,     Six Months Ended June 30,  
             2017                      2016                     2017                      2016          

Realized Gains (Losses)

   $ 2,865      $ (256   $ 2,870      $ 4,477  

Net Change in Unrealized Gains (Losses)

     4,803        3,283       10,291        (2,952
  

 

 

    

 

 

   

 

 

    

 

 

 
   $ 7,668      $ 3,027     $ 13,161      $ 1,525  
  

 

 

    

 

 

   

 

 

    

 

 

 

 

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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)

 

5. NET ASSET VALUE AS FAIR VALUE

A summary of fair value by strategy type alongside the remaining unfunded commitments and ability to redeem such investments as of June 30, 2017 is presented below:

 

Strategy

   Fair Value      Unfunded
Commitments
     Redemption
Frequency
(if currently
eligible)
    Redemption
Notice
Period
 

Diversified Instruments

   $ 182,910      $ 125        (a     (a

Credit Driven

     151,555        268        (b     (b

Equity

     59,082        —          (c     (c

Commodities

     2,124        —          (d     (d
  

 

 

    

 

 

      
   $ 395,671      $ 393       
  

 

 

    

 

 

      

 

(a) Diversified Instruments include investments in funds that invest across multiple strategies. Investments representing 4% of the fair value of the investments in this category may not be redeemed at, or within three months of, the reporting date. The remaining 96% of investments in this category are redeemable as of the reporting date.
(b) The Credit Driven category includes investments in hedge funds that invest primarily in domestic and international bonds. Investments representing 58% of the fair value of the investments in this category may not be redeemed at, or within three months of, the reporting date. The remaining 42% of investments in this category are redeemable as of the reporting date.
(c) The Equity category includes investments in hedge funds that invest primarily in domestic and international equity securities. Investments representing 100% of the fair value of the investments in this category may not be redeemed at, or within three months of, the reporting date.
(d) The Commodities category includes investments in commodities-focused funds that primarily invest in futures and physical-based commodity driven strategies. Investments representing 100% of the fair value of the investments in this category may not be redeemed at, or within three months of, the reporting date.

 

6. DERIVATIVE FINANCIAL INSTRUMENTS

Blackstone and the consolidated Blackstone Funds enter into derivative contracts in the normal course of business to achieve certain risk management objectives and for general investment purposes. Blackstone may enter into derivative contracts in order to hedge its interest rate risk exposure against the effects of interest rate changes. Additionally, Blackstone may also enter into derivative contracts in order to hedge its foreign currency risk exposure against the effects of a portion of its non-U.S. dollar denominated currency net investments. 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.

Net Investment Hedges

To manage the potential exposure from adverse changes in currency exchange rates arising from Blackstone’s net investment in foreign operations, during December 2014, Blackstone entered into several foreign currency forward contracts to hedge a portion of the net investment in Blackstone’s non-U.S. dollar denominated foreign operations.

 

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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 uses foreign currency forward contracts to hedge portions of Blackstone’s net investments in foreign operations. The gains and losses due to change in fair value attributable to changes in spot exchange rates on foreign currency derivatives designated as net investment hedges were recognized in Other Comprehensive Income (Loss), Net of Tax — Currency Translation Adjustment. For the three months ended June 30, 2017 the resulting loss was $4.6 million. For the six months ended June 30, 2017 the resulting loss was $5.2 million.

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 interest rate swaps, foreign exchange contracts, equity swaps, options, futures and other derivative contracts.

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.

 

    June 30, 2017     December 31, 2016  
    Assets     Liabilities     Assets     Liabilities  
    Notional     Fair
Value
    Notional     Fair
Value
    Notional     Fair
Value
    Notional     Fair
Value
 

Net Investment Hedges

               

Foreign Currency Contracts

  $ 465     $ 7     $ 53,664     $ 1,260     $ —       $ —       $ 51,267     $ 587  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Freestanding Derivatives

               

Blackstone

               

Interest Rate Contracts

    270,100       627       305,280       1,873       2,651,583       2,356       546,211       2,355  

Foreign Currency Contracts

    208,266       4,160       257,758       5,109       164,247       1,037       127,444       966  

Credit Default Swaps

    2,073       —         2,073       —         —         —         3,819       215  

Investments of Consolidated

               

Blackstone Funds

               

Foreign Currency Contracts

    455,303       36,591       97,611       2,493       254,162       25,050       136,025       3,903  

Credit Default Swaps

    37,598       5,521       54,990       7,187       —         —         113,057       3,350  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    973,340       46,899       717,712       16,662       3,069,992       28,443       926,556       10,789  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 973,805     $ 46,906     $ 771,376     $ 17,922     $ 3,069,992     $ 28,443     $ 977,823     $ 11,376  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2017     2016     2017     2016  

Net Investment Hedges — Foreign Currency Contracts

 

     

Hedge Ineffectiveness

   $ (13   $ (257   $ (35   $ (128
  

 

 

   

 

 

   

 

 

   

 

 

 

Freestanding Derivatives

        

Realized Gains (Losses)

        

Interest Rate Contracts

   $ (3,007   $ 546     $ (3,947   $ (6,812

Foreign Currency Contracts

     (6,663     (410     (3,312     (4,720

Credit Default Swaps

     268       (738     (1,658     (4,549
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ (9,402   $ (602   $ (8,917   $ (16,081
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Change in Unrealized Gains (Losses)

        

Interest Rate Contracts

   $ (426   $ (4,576   $ (643   $ (7,242

Foreign Currency Contracts

     14,642       8,869       12,682       24,191  

Credit Default Swaps

     1,214       794       3,161       (3,482
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 15,430     $ 5,087     $ 15,200     $ 13,467  
  

 

 

   

 

 

   

 

 

   

 

 

 

As of June 30, 2017 and December 31, 2016, the Partnership had not designated any derivatives as cash flow hedges.

 

7. FAIR VALUE OPTION

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

 

     June 30,
2017
     December 31,
2016
 

Assets

 

  

Loans and Receivables

   $ 306,279      $ 211,359  

Equity and Preferred Securities

     472,299        444,713  

Assets of Consolidated CLO Vehicles

     

Corporate Loans

     7,477,166        4,762,071  

Corporate Bonds

     700,177        710,947  

Other

     1,708        —    
  

 

 

    

 

 

 
   $ 8,957,629      $ 6,129,090  
  

 

 

    

 

 

 

Liabilities

     

Liabilities of Consolidated CLO Vehicles

     

Senior Secured Notes

   $ 7,254,854      $ 5,125,804  

Subordinated Notes

     

Loans Payable

     452,873        337,846  

Due to Affiliates

     7,088        7,748  
  

 

 

    

 

 

 
   $ 7,714,815      $ 5,471,398  
  

 

 

    

 

 

 

 

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)

 

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 June 30,  
     2017     2016  
     Realized
Gains (Losses)
    Net Change
in Unrealized
Gains (Losses)
    Realized
Gains (Losses)
    Net Change
in Unrealized
Gains (Losses)
 

Assets

        

Loans and Receivables

   $ —       $ —       $ —       $ 1,085  

Equity and Preferred Securities

     1       7,116       (296     5,256  

Debt Securities

     —         —         —         (365

Assets of Consolidated CLO Vehicles

        

Corporate Loans

     (543     25,084       (15,253     36,564  

Corporate Bonds

     2,580       (927     247       (1,214

Other

     65       129       88       —    
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 2,103     $ 31,402     $ (15,214   $ 41,326  
  

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities

        

Liabilities of Consolidated CLO Vehicles

        

Subordinated Notes

   $ —       $ 24,800     $ —       $ (14,281
  

 

 

   

 

 

   

 

 

   

 

 

 

 

     Six Months Ended June 30,  
     2017     2016  
     Realized
Gains
     Net Change
in Unrealized
Gains (Losses)
    Realized
Gains (Losses)
    Net Change
in Unrealized
Gains (Losses)
 

Assets

         

Loans and Receivables

   $ —        $ 7,418     $ —       $ (2,693

Equity and Preferred Securities

     1        20,225       (293     1,424  

Debt Securities

     —          —         —         (1,054

Assets of Consolidated CLO Vehicles

         

Corporate Loans

     1,329        13,695       (28,960     37,521  

Corporate Bonds

     8,214        (6,801     437       (943

Other

     65        129       266       —    
  

 

 

    

 

 

   

 

 

   

 

 

 
   $ 9,609      $ 34,666     $ (28,550   $ 34,255  
  

 

 

    

 

 

   

 

 

   

 

 

 

Liabilities

         

Liabilities of Consolidated CLO Vehicles —

         

Subordinated Notes

   $ —        $ 32,712     $ —       $ (1,868
  

 

 

    

 

 

   

 

 

   

 

 

 

 

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)

 

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

 

     June 30, 2017      December 31, 2016  
           For Financial Assets
Past Due (a)
           For Financial Assets
Past Due (a)
 
     Excess
of Fair Value
Over Principal
    Fair
Value
     Excess
of Fair Value
Over Principal
     Excess
(Deficiency)
of Fair Value
Over Principal
    Fair
Value
     Excess
of Fair Value
Over Principal
 

Loans and Receivables

   $ 2,240     $ —        $ —        $ (6,476   $ —        $ —    

Assets of Consolidated CLO Vehicles

               

Corporate Loans

     18,273       —          —          2,616       —          —    

Corporate Bonds

     7,729       —          —          7,259       —          —    

Other

     (46     —          —          —         —          —    
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 
   $ 28,196     $ —        $ —        $ 3,399     $ —        $ —    
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

 

(a) 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 June 30, 2017 and December 31, 2016, no Loans and Receivables for which the fair value option was elected were past due or in non-accrual status. As of June 30, 2017 and December 31, 2016, no Corporate Bonds included within the Assets of Consolidated CLO Vehicles for which the fair value option was elected were past due or in non-accrual status.

 

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)

 

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:

 

    June 30, 2017  
    Level I     Level II     Level III     NAV     Total  

Assets

         

Cash and Cash Equivalents — Money Market Funds

  $ 560,893     $ —       $ —       $ —       $ 560,893  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Investments

         

Investments of Consolidated Blackstone Funds (a)

         

Investment Funds

    —         —         —         147,778       147,778  

Equity Securities

    52,208       50,435       109,997       —         212,640  

Partnership and LLC Interests

    —         1,588       351,865       —         353,453  

Debt Instruments

    —         229,238       6,986       —         236,224  

Freestanding Derivatives

         

Foreign Currency Contracts

    —         1,772       —         —         1,772  

Credit Default Swaps

    —         5,521       —         —         5,521  

Assets of Consolidated CLO Vehicles

         

Corporate Loans

    —         7,231,978       245,188       —         7,477,166  

Corporate Bonds

    —         700,177       —         —         700,177  

Freestanding Derivatives — Foreign Currency Contracts

    —         34,819       —         —         34,819  

Other

    —         —         1,708       —         1,708  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Investments of Consolidated Blackstone Funds

    52,208       8,255,528       715,744       147,778       9,171,258  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Corporate Treasury Investments

         

Equity Securities

    295,956       —         —         —         295,956  

Debt Instruments

    —         2,306,345       19,739       —         2,326,084  

Other

    —         —         —         227,709       227,709  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Corporate Treasury Investments

    295,956       2,306,345       19,739       227,709       2,849,749  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other Investments

    176,744       11,500       95,950       20,184       304,378  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Investments

    524,908       10,573,373       831,433       395,671       12,325,385  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Accounts Receivable — Loans and Receivables

    —         —         306,279       —         306,279  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other Assets

         

Freestanding Derivatives

         

Interest Rate Contracts

    574       53       —         —         627  

Foreign Currency Contracts

    —         4,160       —         —         4,160  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Freestanding Derivatives

    574       4,213       —         —         4,787  

Net Investment Hedges — Foreign Currency Contracts

    —         7       —         —         7  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Other Assets

    574       4,220       —         —         4,794  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 1,086,375     $ 10,577,593     $ 1,137,712     $ 395,671     $ 13,197,351  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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)

 

     June 30, 2017  
     Level I      Level II      Level III      Total  

Liabilities

           

Loans Payable — Liabilities of Consolidated CLO Vehicles (a)

           

Senior Secured Notes (b)

   $ —        $ 7,254,854      $ —        $ 7,254,854  

Subordinated Notes (b)

     —          452,873        —          452,873  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Loans Payable

     —          7,707,727        —          7,707,727  
  

 

 

    

 

 

    

 

 

    

 

 

 

Due to Affiliates — Liabilities of Consolidated CLO Vehicles (a)

           

Subordinated Notes (b)

     —          7,088        —          7,088  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Due to Affiliates

     —          7,088        —          7,088  
  

 

 

    

 

 

    

 

 

    

 

 

 

Securities Sold, Not Yet Purchased

     —          143,819        —          143,819  
  

 

 

    

 

 

    

 

 

    

 

 

 

Accounts Payable, Accrued Expenses and Other Liabilities

           

Liabilities of Consolidated Blackstone Funds — Freestanding Derivatives (a)

           

Foreign Currency Contracts

     —          2,493        —          2,493  

Credit Default Swaps

     —          7,187        —          7,187  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Liabilities of Consolidated Blackstone Funds

     —          9,680        —          9,680  
  

 

 

    

 

 

    

 

 

    

 

 

 

Freestanding Derivatives

           

Interest Rate Contracts

     140        1,733        —          1,873  

Foreign Currency Contracts

     —          5,109        —          5,109  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Freestanding Derivatives

     140        6,842        —          6,982  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net Investment Hedges — Foreign Currency Contracts

     —          1,260        —          1,260  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Accounts Payable, Accrued Expenses and Other Liabilities

     140        17,782        —          17,922  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 140      $ 7,876,416      $ —        $ 7,876,556  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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)

 

     December 31, 2016  
     Level I      Level II      Level III      NAV      Total  

Assets

              

Cash and Cash Equivalents — Money Market Funds

   $ 443,442      $ —        $ —        $ —        $ 443,442  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Investments

              

Investments of Consolidated Blackstone Funds (a)

              

Investment Funds

     —          —          —          148,993        148,993  

Equity Securities

     76,381        70,544        93,657        —          240,582  

Partnership and LLC Interests

     —          29,430        337,230        —          366,660  

Debt Instruments

     —          219,049        7,322        —          226,371  

Freestanding Derivatives — Foreign Currency Contracts

     —          2,327        —          —          2,327  

Assets of Consolidated CLO Vehicles

              

Corporate Loans

     —          4,514,407        247,664        —          4,762,071  

Corporate Bonds

     —          710,947        —          —          710,947  

Freestanding Derivatives — Foreign Currency Contracts

     —          22,723        —          —          22,723  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Investments of Consolidated Blackstone Funds

     76,381        5,569,427        685,873        148,993        6,480,674  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Corporate Treasury Investments

              

Equity Securities

     281,505        —          —          —          281,505  

Debt Instruments

     —          1,944,171        30,424        54,907        2,029,502  

Other

     —          —          —          207,431        207,431  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Corporate Treasury Investments

     281,505        1,944,171        30,424        262,338        2,518,438  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other Investments

     163,548        —          100,164        18,779        282,491  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Investments

     521,434        7,513,598        816,461        430,110        9,281,603  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Accounts Receivable — Loans and Receivables

     —          —          211,359        —          211,359  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other Assets

              

Freestanding Derivatives

              

Interest Rate Contracts

     1,883        473        —          —          2,356  

Foreign Currency Contracts

     —          1,037        —          —          1,037  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Freestanding Derivatives

     1,883        1,510        —          —          3,393  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Other Assets

     1,883        1,510        —          —          3,393  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 966,759      $ 7,515,108      $ 1,027,820      $ 430,110      $ 9,939,797  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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)

 

     December 31, 2016  
     Level I      Level II      Level III      Total  

Liabilities

           

Loans Payable — Liabilities of Consolidated CLO Vehicles (a)

           

Senior Secured Notes (b)

   $ —        $ 5,125,804      $ —        $ 5,125,804  

Subordinated Notes (b)

     —          337,846        —          337,846  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Loans Payable

     —          5,463,650        —          5,463,650  
  

 

 

    

 

 

    

 

 

    

 

 

 

Due to Affiliates — Liabilities of Consolidated CLO Vehicles (a)

           

Subordinated Notes (b)

     —          7,748        —          7,748  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Due to Affiliates

     —          7,748        —          7,748  
  

 

 

    

 

 

    

 

 

    

 

 

 

Securities Sold, Not Yet Purchased

     —          215,398        —          215,398  
  

 

 

    

 

 

    

 

 

    

 

 

 

Accounts Payable, Accrued Expenses and Other Liabilities

           

Liabilities of Consolidated Blackstone Funds — Freestanding Derivatives (a)

           

Foreign Currency Contracts

     —          3,903        —          3,903  

Credit Default Swaps

     —          3,350        —          3,350  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Liabilities of Consolidated Blackstone Funds

     —          7,253        —          7,253  
  

 

 

    

 

 

    

 

 

    

 

 

 

Freestanding Derivatives

           

Interest Rate Contracts

     750        1,605        —          2,355  

Foreign Currency Contracts

     —          966        —          966  

Credit Default Swaps

     —          215        —          215  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Freestanding Derivatives

     750        2,786        —          3,536  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net Investment Hedges — Foreign Currency Contracts

     —          587        —          587  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Accounts Payable, Accrued Expenses and Other Liabilities

     750        10,626        —          11,376  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 750      $ 5,697,422      $ —        $ 5,698,172  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(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 certain CLO vehicles, and other funds in which a consolidated entity of the Partnership, as the general partner of the fund, has a controlling financial interest. 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.
(b) Senior and subordinate notes issued by CLO vehicles are classified based on the more observable fair value of CLO assets less (a) the fair value of any beneficial interests held by Blackstone, and (b) the carrying value of any beneficial interests that represent compensation for services.

The following table summarizes the fair value transfers between Level I and Level II for positions that existed as of June 30, 2017 and 2016, respectively:

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
          2017                2016                2017                2016       

Transfers from Level I into Level II (a)

   $ 762      $ —        $ 762      $ 2,114  

Transfers from Level II into Level I (b)

   $ —        $ —        $ —        $ 28,346  

 

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

 

33


Table of Contents

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

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

 

The following table summarizes the quantitative inputs and assumptions used for items categorized in Level III of the fair value hierarchy as of June 30, 2017:

 

    Fair Value     Valuation
Techniques
    Unobservable
Inputs
    Ranges     Weighted
Average (a)
 

Financial Assets

         

Investments of Consolidated Blackstone Funds

         

Equity Securities

  $ 68,064       Discounted Cash Flows       Discount Rate       7.3% - 31.7%       12.5%  
        Revenue CAGR       0.0% - 41.7%       6.6%  
        Exit Capitalization Rate       5.3% - 11.4%       8.4%  
        Exit Multiple - EBITDA       4.0x - 19.0x       10.0x  
        Exit Multiple - P/E       9.5x - 17.0x       10.1x  
    3,098       Market Comparable Companies       Book Value Multiple       0.8x - 0.9x       0.9x  
        Exit Multiple - EBITDA       8.0x       N/A  
    17,262       Other       N/A       N/A       N/A  
    19,895       Transaction Price       N/A       N/A       N/A  
    1,678       Third Party Pricing       N/A       N/A       N/A  

Partnership and LLC Interests

    307,299       Discounted Cash Flows       Discount Rate       4.7% - 26.4%       9.5%  
        Revenue CAGR       -20.0% - 31.5%       5.7%  
        Exit Capitalization Rate       1.6% - 11.5%       5.9%  
        Exit Multiple - EBITDA       0.1x - 18.7x       10.1x  
        Exit Multiple - P/E       9.3x       N/A  
    530       Market Comparable Companies       Book Value Multiple       0.9x       N/A  
    23,508       Other       N/A       N/A       N/A  
    236       Third Party Pricing       N/A       N/A       N/A  
    20,292       Transaction Price       N/A       N/A       N/A  

Debt Instruments

    5,072       Discounted Cash Flows       Discount Rate       7.8% - 20.0%       10.6%  
        Revenue CAGR       -3.8% - 5.1%       1.9%  
        Exit Capitalization Rate       4.2% - 8.3%       7.2%  
        Exit Multiple - EBITDA       12.0x       N/A  
    1,914       Transaction Price       N/A       N/A       N/A  

Assets of Consolidated CLO Vehicles

    3,141       Discounted Cash Flows       Discount Rate       6.3%       N/A  
    11,727       Market Comparable Companies       EBITDA Multiple       7.0x       N/A  
    232,028       Third Party Pricing       N/A       N/A       N/A  
 

 

 

         

Total Investments of Consolidated Blackstone Funds

    715,744          

 

continued …

 

34


Table of Contents

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

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

 

    Fair Value     Valuation
Techniques
    Unobservable
Inputs
    Ranges     Weighted
Average (a)
 

Corporate Treasury Investments

  $ 6,911       Discounted Cash Flows       Discount Rate       5.1% - 6.2%       5.8%  
        Default Rate       2.0%       N/A  
        Pre-payment Rate       20.0%       N/A  
        Recovery Lag       12 Months       N/A  
        Recovery Rate       30.0% - 70.0%       68.4%  
        Reinvestment Rate       LIBOR +400 bps       N/A  
    12,828       Third Party Pricing       N/A       N/A       N/A  

Loans and Receivables

    306,279       Discounted Cash Flows       Discount Rate       9.1% - 15.1%       11.5%  

Other Investments

    63,379       Discounted Cash Flows       Discount Rate       0.9% - 13.1%       2.6%  
        Default Rate       2.0%       N/A  
        Pre-payment Rate       20.0%       N/A  
        Recovery Lag       12 Months       N/A  
        Recovery Rate       70.0%       N/A  
        Reinvestment Rate       LIBOR +400 bps       N/A  
    32,571       Transaction Price       N/A       N/A       N/A  
 

 

 

         
  $ 1,137,712          
 

 

 

         

 

35


Table of Contents

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

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

 

The following table summarizes the quantitative inputs and assumptions used for items categorized in Level III of the fair value hierarchy as of December 31, 2016:

 

    Fair Value     Valuation
Techniques
    Unobservable
Inputs
    Ranges     Weighted
Average (a)
 

Financial Assets

         

Investments of Consolidated Blackstone Funds

         

Equity Securities

  $ 58,826       Discounted Cash Flows       Discount Rate       7.3% - 28.7%       12.7%  
        Revenue CAGR       -0.2% - 20.1%       6.3%  
        Exit Capitalization Rate       5.0% - 11.4%       8.5%  
        Exit Multiple - EBITDA       4.0x - 20.0x       10.0x  
        Exit Multiple - P/E       10.5x - 17.0x       11.0x  
    2,032       Market Comparable Companies       Book Value Multiple       0.9x       N/A  
    22,843       Other       N/A       N/A       N/A  
    9,956       Transaction Price       N/A       N/A       N/A  

Partnership and LLC Interests

    303,281       Discounted Cash Flows       Discount Rate       3.4% - 27.6%       9.4%  
        Revenue CAGR       -27.1% - 47.3%       7.2%  
        Exit Capitalization Rate       3.0% - 11.0%       6.0%  
        Exit Multiple - EBITDA       3.9x - 18.3x       10.5x  
        Exit Multiple - P/E       9.3x       N/A  
    13,945       Market Comparable Companies       Capitalization Rate       5.0% - 5.6%       5.2%  
    12,916       Other       N/A       N/A       N/A  
    1,238       Third Party Pricing       N/A       N/A       N/A  
    5,850       Transaction Price       N/A       N/A       N/A  

Debt Instruments

    5,002       Discounted Cash Flows       Discount Rate       8.3% - 20.0%       12.9%  
        Revenue CAGR       4.8% - 70.8%       33.8%  
        Exit Capitalization Rate       4.7% - 8.3%       7.5%  
        Exit Multiple - EBITDA       9.6x - 12.0x       11.0x  
    2,227       Third Party Pricing       N/A       N/A       N/A  
    93       Transaction Price       N/A       N/A       N/A  

Assets of Consolidated CLO Vehicles

    13,723       Market Comparable Companies       EBITDA Multiple       9.6x       N/A  
    233,941       Third Party Pricing       N/A       N/A       N/A  
 

 

 

         

Total Investments of Consolidated Blackstone Funds

    685,873          

 

36


Table of Contents

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

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

 

     Fair Value      Valuation
Techniques
   Unobservable
Inputs
    

Ranges

   Weighted
Average (a)

Corporate Treasury Investments

   $ 9,783      Discounted Cash Flows      Discount Rate      6.1% - 10.0%    7.1%
           Default Rate      1.0% - 2.0%    1.8%
           Pre-payment Rate      20.0%    N/A
           Recovery Lag      12 Months    N/A
           Recovery Rate      18.5% - 76.5%    66.4%
           Reinvestment Rate      LIBOR +350 bps -     LIBOR +390 bps
            LIBOR +400 bps   
     20,641      Third Party Pricing      N/A      N/A    N/A

Loans and Receivables

     211,359      Discounted Cash Flows      Discount Rate     </