Edgar Filing: Blackstone Group L.P.

Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2009

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

Commission File Number: 001-33551

The Blackstone Group L.P.

(Exact name of Registrant as specified in its charter)

Delaware

20-8875684

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

345 Park Avenue

New York, New York 10154

(Address of principal executive offices)(Zip Code)

(212) 583-5000

(Registrant’s telephone number, including area code)

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

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

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


Large accelerated filer x		Accelerated filer ¨
Non-accelerated filer ¨		Smaller reporting company ¨
(Do not check if a smaller reporting company)

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

The number of the Registrant’s voting common units representing limited partner interests outstanding as of October 30, 2009 was 187,466,352. The number of the Registrant’s non-voting common units representing limited partner interests outstanding as of October 30, 2009 was 109,083,468.

TABLE OF CONTENTS


		Page
PART I	FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS	1

	Unaudited Condensed Consolidated Financial Statements—September 30, 2009 and 2008:

	Condensed Consolidated Statements of Financial Condition as of September 30, 2009 and December 31, 2008	1

	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2009 and 2008	2

	Condensed Consolidated Statements of Changes in Partners’ Capital for the Nine Months Ended September 30, 2009 and 2008	3

	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2009 and 2008	5

	Notes to Condensed Consolidated Financial Statements	7

ITEM 1A.	UNAUDITED SUPPLEMENTAL PRESENTATION OF STATEMENTS OF FINANCIAL CONDITION	39

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	42

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	75

ITEM 4T.	CONTROLS AND PROCEDURES	77

PART II	OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	78

ITEM 1A.	RISK FACTORS	78

ITEM 2.	UNREGISTERED SALES OF SECURITIES AND USE OF PROCEEDS	80

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	81

ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	81

ITEM 5.	OTHER INFORMATION	81

ITEM 6.	EXHIBITS	82

SIGNATURES		83

Forward-Looking Statements

This report may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 which reflect our current views with respect to, among other things, our operations and financial performance. You can identify these forward-looking statements by the use of words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. We believe these factors include but are not limited to those described under the section entitled “Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2008 and in this report, as such factors may be updated from time to time in our periodic filings with the SEC, which are accessible on the SEC’s website at www.sec.gov. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this

report and in our other periodic filings. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.

In this report, references to “Blackstone,” “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 our founder, Mr. Stephen A. Schwarzman, and other Blackstone personnel include the ownership of personal planning vehicles and family members of these individuals.

PART I FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

THE BLACKSTONE GROUP L.P.

Condensed Consolidated Statements of Financial Condition (Unaudited)

(Dollars in Thousands, Except Unit Data)


	September 30, 2009			December 31, 2008
Assets
Cash and Cash Equivalents	$	486,470		$	503,737
Cash Held by Blackstone Funds and Other		73,724			907,324
Investments		3,812,208			2,830,942
Accounts Receivable		243,111			312,067
Due from Brokers		805			48,506
Investment Subscriptions Paid in Advance		238			1,916
Due from Affiliates		353,480			861,434
Intangible Assets, Net		958,989			1,077,526
Goodwill		1,703,602			1,703,602
Other Assets		160,306			169,555
Deferred Tax Assets		937,048			845,578

Total Assets	$	8,729,981		$	9,262,187

Liabilities and Partners’ Capital
Loans Payable	$	673,386		$	387,000
Amounts Due to Non-Controlling Interest Holders		163,009			1,103,423
Securities Sold, Not Yet Purchased		418			894
Due to Affiliates		1,405,464			1,285,577
Accrued Compensation and Benefits		463,744			413,459
Accounts Payable, Accrued Expenses and Other Liabilities		139,743			180,259

Total Liabilities		2,845,764			3,370,612

Commitments and Contingencies

Redeemable Non-Controlling Interests in Consolidated Entities		466,056			362,462

Partners’ Capital
Partners’ Capital (common units: 301,651,099 issued and outstanding as of September 30, 2009; 273,891,358 issued and 272,998,484 outstanding as of December 31, 2008)		3,340,428			3,509,448
Accumulated Other Comprehensive Income (Loss)		(177	)		(291	)
Non-Controlling Interests in Consolidated Entities		182,507			198,197
Non-Controlling Interests in Blackstone Holdings		1,895,403			1,821,759

Total Partners’ Capital		5,418,161			5,529,113

Total Liabilities and Partners’ Capital	$	8,729,981		$	9,262,187

See notes to condensed consolidated financial statements.

THE BLACKSTONE GROUP L.P.

Condensed Consolidated Statements of Operations (Unaudited)

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


	Three Months Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008
Revenues
Management and Advisory Fees	$	367,605		$	447,373		$	1,049,606		$	1,094,941
Performance Fees and Allocations		154,013			(416,076	)		10,936			(618,485	)
Investment Income (Loss)		64,809			(199,485	)		(28,593	)		(238,077	)
Interest Income and Other		10,596			7,934			16,404			23,542

Total Revenues		597,023			(160,254	)		1,048,353			261,921

Expenses
Compensation and Benefits		980,628			991,521			2,730,726			2,997,476
Interest		5,258			5,893			6,744			14,326
General, Administrative and Other		110,641			121,842			328,517			324,580
Fund Expenses		1,267			13,442			5,871			58,187

Total Expenses		1,097,794			1,132,698			3,071,858			3,394,569

Other Income (Loss)
Net Gains (Losses) from Fund Investment Activities		73,812			(550,755	)		97,353			(576,713	)

Income (Loss) Before Provision (Benefit) for Taxes		(426,959	)		(1,843,707	)		(1,926,152	)		(3,709,361	)
Provision (Benefit) for Taxes		52,551			(21,362	)		81,167			(38,232	)

Net Income (Loss)		(479,510	)		(1,822,345	)		(2,007,319	)		(3,671,129	)
Net Income (Loss) Attributable to Redeemable Non-Controlling Interests in Consolidated Entities		50,281			(441,381	)		90,515			(494,207	)
Net Income (Loss) Attributable to Non-Controlling Interests in Consolidated Entities		3,622			(37,208	)		(33,450	)		(45,182	)
Net Income (Loss) Attributable to Non-Controlling Interests in Blackstone Holdings		(357,230	)		(1,003,425	)		(1,492,343	)		(2,383,885	)

Net Income (Loss) Attributable to The Blackstone Group L.P.	$	(176,183	)	$	(340,331	)	$	(572,041	)	$	(747,855	)

Net Loss Attributable to The Blackstone Group L.P.
Per Common Unit — Basic and Diluted
Common Units Entitled to Priority Distributions	$	(0.61	)	$	(1.26	)	$	(2.05	)	$	(2.81	)

Common Units Not Entitled to Priority Distributions	$	(0.91	)	$	(1.56	)	$	(2.95	)	$	(1.56	)

Weighted-Average Common Units Outstanding — Basic and Diluted
Common Units Entitled to Priority Distributions		283,243,485			267,830,881			277,390,904			264,873,560

Common Units Not Entitled to Priority Distributions		8,311,085			3,353,468			3,465,956			1,125,982

Revenues Earned from Affiliates
Management and Advisory Fees	$	23,019		$	87,718		$	68,484		$	140,377

See notes to condensed consolidated financial statements.

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. Unitholders								Non-Controlling Interests in Consolidated Entities			Non-Controlling Interests in Blackstone Holdings			Total Partners’ Capital			Redeemable Non-Controlling Interests in Consolidated Entities			Comprehensive Income (Loss)
	Common Units		Partners’ Capital			Accumulated Other Comprehensive Income (Loss)			Non-Controlling Interests in Consolidated Entities			Non-Controlling Interests in Blackstone Holdings			Total Partners’ Capital						Comprehensive Income (Loss)
Balance at December 31, 2008	272,998,484		$	3,509,448		$	(291	)	$	198,197		$	1,821,759		$	5,529,113		$	362,462
Net Loss	—			(572,041	)		—			(33,450	)		(1,492,343	)		(2,097,834	)		90,515		$	(2,007,319	)
Currency Translation Adjustment	—			—			114			—			—			114			—			114
Capital Contributions	—			—			—			45,217			549			45,766			100,197			—
Capital Distributions	—			(167,398	)		—			(19,789	)		(2	)		(187,189	)		(59,247	)		—
Transfer of Non-Controlling Interests in Consolidated Entities	—			—			—			18,337			(18,337	)		—			—			—
Transfer Due to Reorganization	—			—			—			82,844			—			82,844			—			—
Purchase of Interests from Certain Non-Controlling Interest Holders	—			(8,864	)		—			—			(13	)		(8,877	)		—			—
Deferred Tax Effects Resulting from Acquisition of Ownership Interests from Non-Controlling Interest Holders	—			20,118			—			—			—			20,118			—			—
Equity-Based Compensation, Net of Tax	—			547,829			—			—			1,651,314			2,199,143			—			—
Net Delivery of Vested Common Units	2,699,875			(28,476	)		—			—			—			(28,476	)		—			—
Repurchase of Common Units and Blackstone Holdings Partnership Units	(4,375,094	)		(27,008	)		—			—			(704	)		(27,712	)		—			—
Conversion of Blackstone Holdings Partnership Units to Blackstone Common Units	30,327,834			66,820			—			—			(66,820	)		—			—			—
Certain Partners Allocations of Blackstone Profit Sharing Arrangements	—			—			—			(108,849	)		—			(108,849	)		—			—
Loss Attributable to Consolidated Blackstone Funds in Liquidation	—			—			—			—			—			—			(27,871	)		—

Balance at September 30, 2009	301,651,099		$	3,340,428		$	(177	)	$	182,507		$	1,895,403		$	5,418,161		$	466,056		$	(2,007,205	)

continued…

See notes to condensed consolidated financial statements.

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. Unitholders								Non-Controlling Interests in Consolidated Entities			Non-Controlling Interests in Blackstone Holdings			Total Partners’ Capital			Redeemable Non- Controlling Interests in Consolidated Entities			Compre- hensive Income (Loss)
	Common Units		Partners’ Capital			Accumulated Other Compre- hensive Income (Loss)			Non-Controlling Interests in Consolidated Entities			Non-Controlling Interests in Blackstone Holdings			Total Partners’ Capital						Compre- hensive Income (Loss)
Balance at December 31, 2007	259,826,700		$	4,226,500		$	345		$	515,886		$	3,103,288		$	7,846,019		$	2,438,266
Net Loss	—			(747,855	)		—			(45,182	)		(2,383,885	)		(3,176,922	)		(494,207	)	$	(3,671,129	)
Currency Translation Adjustment	—			—			(630	)		(371	)		—			(1,001	)		—			(1,001	)
Certain Partners Allocations of Blackstone Profit Sharing Arrangements	—			—			—			(151,594	)		—			(151,594	)		—			—
Capital Contributions	—			—			—			59,983			—			59,983			271,614			—
Capital Distributions	—			(241,074	)		—			(133,405	)		(406,756	)		(781,235	)		(204,847	)		—
Consolidation of Partnership	—			—			—			—			—			—			159,032
Acquisition of Consolidated Blackstone Funds	—			—			—			120,874			—			120,874			90,188			—
Purchase of Interests from Certain Non-Controlling Interest Holders	—			(44,615	)		—			—			(35,556	)		(80,171	)		—			—
Repurchase of Common Units	(10,000	)		(195	)		—			—			—			(195	)		—			—
Deferred Tax Effects Resulting from Acquisition of Ownership Interests	—			(666	)		—			—			—			(666	)		—			—
Adjustment to Pre-IPO Reorganization Purchase Price	—			—			—			—			82,028			82,028			—			—
Equity-Based Compensation, Net of Tax	—			609,551			—			—			1,848,317			2,457,868			—			—
Net Delivery of Vested Common Units	4,502,100			(18,545	)		—			—			—			(18,545	)		—			—
Conversion of Blackstone Holdings Partnership Units to Blackstone Common Units	8,383,470			31,041			—			—			(31,041	)		—			—			—

Balance at September 30, 2008	272,702,270		$	3,814,142		$	(285	)	$	366,191		$	2,176,395		$	6,356,443		$	2,260,046		$	(3,672,130	)

See notes to condensed consolidated financial statements.

THE BLACKSTONE GROUP L.P.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(Dollars in Thousands)


	Nine Months Ended September 30,
	2009			2008
Operating Activities
Net Income (Loss)	$	(2,007,319	)	$	(3,671,129	)
Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by (Used in) Operating Activities:
Blackstone Funds Related:
Unrealized Depreciation (Appreciation) on Investments Allocable to Non-Controlling Interests in Consolidated Entities		(219,270	)		478,544
Net Realized (Gains) Losses on Investments		140,377			86,074
Changes in Unrealized (Gains) Losses on Investments Allocable to Blackstone Group		40,993			237,191
Unrealized Depreciation of Hedge Activities		8,799			—
Non-Cash Performance Fees and Allocations		(121,977	)		506,904
Equity-Based Compensation Expense		2,238,970			2,494,699
Intangible Amortization		118,537			113,725
Other Non-Cash Amounts Included in Net Income		17,977			13,417
Cash Flows Due to Changes in Operating Assets and Liabilities:
Cash Held by Blackstone Funds and Other		833,600			20,016
Due from Brokers		47,701			7,949
Accounts Receivable		68,937			63,368
Due from Affiliates		512,713			291,856
Other Assets		55,503			55,279
Accrued Compensation and Benefits		10,458			143,491
Accounts Payable, Accrued Expenses and Other Liabilities		(999,172	)		(108,787	)
Due to Affiliates		(261,449	)		(99,693	)
Amounts Due to Non-Controlling Interest Holders		—			(41,153	)
Cash Acquired from Consolidated Fund		—			3
Investments Purchased		(1,030,000	)		—
Blackstone Funds Related:
Investments Purchased		(295,076	)		(25,885,727	)
Cash Proceeds from Sale of Investments		745,226			25,986,456

Net Cash Provided by (Used in) Operating Activities		(94,472	)		692,483

Investing Activities
Purchase of Furniture, Equipment and Leasehold Improvements		(18,323	)		(37,848	)
Cash Paid for Acquisitions, Net of Cash Acquired		—			(336,571	)
Changes in Restricted Cash		1,239			(4,020	)

Net Cash Used in Investing Activities		(17,084	)		(378,439	)

Financing Activities
Distributions to Non-Controlling Interest Holders in Consolidated Entities		(84,333	)		(779,062	)
Contributions from Non-Controlling Interest Holders in Consolidated Entities		138,785			292,575

continued...

See notes to condensed consolidated financial statements.

THE BLACKSTONE GROUP L.P.

Condensed Consolidated Statements of Cash Flows (Unaudited)—(Continued)

(Dollars in Thousands)


	Nine Months Ended September 30,
	2009			2008
Purchase of Interests from Certain Non-Controlling Interest Holders	$	(8,877	)	$	(80,171	)
Net Settlement of Vested Common Units and Repurchase of Common Units		(56,188	)		(18,740	)
Proceeds from Loans Payable		592,513			1,178,170
Repayment of Loans Payable		(320,213	)		(399,417	)
Distributions to Common Unitholders		(167,398	)		(241,074	)

Net Cash Provided by (Used in) Financing Activities		94,289			(47,719	)

Net Increase (Decrease) in Cash and Cash Equivalents		(17,267	)		266,325
Cash and Cash Equivalents, Beginning of Period		503,737			868,629

Cash and Cash Equivalents, End of Period	$	486,470		$	1,134,954

Supplemental Disclosure of Cash Flows Information
Payments for Interest	$	1,683		$	10,873

Payments for Income Taxes	$	49,898		$	34,606

Supplemental Disclosure of Non-Cash Financing Activities
Net Activities Related to Capital Transactions of Consolidated Blackstone Funds	$	5,018		$	—

Notes Issuance Costs	$	4,663		$	—

Transfer of Interests to Non-Controlling Interest Holders	$	18,337		$	—

Settlement of Vested Common Units	$	140,755		$	170,626

Conversion of Blackstone Holdings Units to Common Units	$	66,820		$	31,041

Reorganization of the Partnership:
Accounts Payable, Accrued Expenses and Other Liabilities	$	—		$	(82,028	)

Non-Controlling Interests in Consolidated Entities	$	—		$	82,028

Exchange of Founders and Senior Managing Directors’ Interests in Blackstone Holdings:
Deferred Tax Asset	$	(134,125	)	$	4,440

Due to Affiliates	$	114,007		$	(3,774	)

Partners’ Capital	$	20,118		$	(666	)

Acquisition of GSO Capital Partners LP:
Fair Value of Assets Acquired	$	—		$	1,018,747
Cash Paid for Acquisition		—			(356,972	)
Fair Value of Non-Controlling Interests in Consolidated Entities and Liabilities Assumed		—			(381,375	)

Acquisition of GSO Capital Partners LP — Units Issued	$	—		$	280,400

See notes to condensed consolidated financial statements.

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 AND BASIS OF PRESENTATION

The Blackstone Group L.P. (the “Partnership”), together with its consolidated subsidiaries (collectively, “Blackstone”), is a leading global alternative asset manager and provider of financial advisory services. The alternative asset management businesses include the management of corporate private equity funds, real estate funds, funds of hedge funds, credit-oriented funds, collateralized loan obligation (“CLO”) vehicles and publicly traded closed-end mutual funds and related entities that invest in such funds, collectively referred to as the “Blackstone Funds”, and separately managed accounts. “Carry Funds” refers to the corporate private equity funds and certain of the real estate funds and credit-oriented funds that are managed by Blackstone. Blackstone also provides various financial advisory services, including corporate and mergers and acquisitions advisory, restructuring and reorganization advisory and fund placement services.

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 annual 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 filed with the Securities and Exchange Commission.

Certain of the Blackstone Funds are included in the condensed consolidated financial statements of the Partnership. Consequently, the condensed consolidated financial statements of the Partnership reflect the assets, liabilities, revenues, expenses and cash flows of these consolidated Blackstone Funds on a gross basis. The majority economic ownership interests in these funds are reflected as Non-Controlling Interests in Consolidated Entities and Redeemable Non-Controlling Interests in Consolidated Entities in the condensed consolidated financial statements. The consolidation of these Blackstone Funds has no net effect on the Partnership’s Net Income (Loss) or Partners’ Capital.

The Partnership’s interest in Blackstone Holdings, defined below, is within the scope of accounting guidelines on determining whether a general partner, or the general partners as a group, controls a limited partnership or similar entity when the limited partners have certain rights. Although the Partnership has a minority economic interest in Blackstone Holdings, it has a majority voting interest and controls the management of Blackstone Holdings. Additionally, although the Blackstone Holdings’ limited partners hold a majority economic interest in Blackstone Holdings, they do not have the right to dissolve the partnership 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 for the economic interests of limited partners of the Blackstone Holdings partnerships in accordance with GAAP.

On January 1, 2009, in order to simplify Blackstone’s structure and ease the related administrative burden and costs, Blackstone effected an internal restructuring to reduce the number of holding partnerships from five to four by causing Blackstone Holdings III L.P. to transfer all of its assets and liabilities to Blackstone Holdings IV L.P. In connection therewith, Blackstone Holdings IV L.P. was renamed Blackstone Holdings III L.P. and Blackstone Holdings V L.P. was renamed Blackstone Holdings IV L.P. The economic interests of the Partnership

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 Blackstone’s business remain entirely unaffected. “Blackstone Holdings” refers to the five holding partnerships prior to the January 2009 reorganization and the four holdings partnerships subsequent to the January 2009 reorganization.

Certain prior period financial statement balances have been reclassified to conform to the current presentation.

Acquisition of GSO Capital Partners LP — On March 3, 2008, the Partnership acquired GSO Capital Partners LP and certain of its affiliates (“GSO”). GSO is an alternative asset manager specializing in the credit markets. GSO manages various multi-strategy credit hedge funds, mezzanine funds, senior debt funds and various CLO vehicles. GSO’s results have been included in the Credit and Marketable Alternatives segment, formerly known as Marketable Alternative Asset Management, from the date of acquisition.

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Investments, At Fair Value — The Blackstone Funds are, for GAAP purposes, investment companies that reflect their investments, including majority-owned and controlled investments (the “Portfolio Companies”), at fair value. The Partnership has retained the specialized accounting under GAAP for the Blackstone Funds with respect to consolidated investments. Thus, such consolidated funds’ investments are reflected 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 (i.e., the exit price).

The fair value of the Partnership’s Investments are based on observable market prices when available. Such prices are based on the last sales price on the measurement date, or, if no sales occurred on such date, at the close of business “bid” price or at the “mid” price depending on the facts and circumstances. Futures and options contracts are valued based on closing market prices. Forward and swap contracts are valued based on market rates or prices obtained from recognized financial data service providers.

A significant number of the investments, including our carry fund investments, have been valued by the Partnership, in the absence of observable market prices, using the valuation methodologies described below. Additional information regarding these investments is provided in Note 4 to the condensed consolidated financial statements. 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, including appropriate risk adjustments for nonperformance and liquidity risks. The Partnership estimates the fair value of investments when market prices are not observable as follows:

Corporate private equity, real estate and debt investments — For investments for which observable market prices do not exist, such investments are reported at fair value as determined by the Partnership. Fair value is determined by reference to projected net earnings, earnings before interest, taxes, depreciation and amortization (“EBITDA”) and balance sheets, public market or private transactions, valuations for comparable companies and other measures which, in many cases, are unaudited at the time received. With respect to real estate investments, in determining fair values management considers projected operating cash flows and balance sheets, sales of comparable assets, if any, and replacement costs, among other measures. The methods used to estimate the fair value of private investments include the discounted cash flow method (using a likely next buyer’s capital structure and not Blackstone’s, or the applicable Blackstone Fund’s existing capital structure) and/or

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)

capitalization rates (“cap rates”) analysis. Valuations may also be derived by reference to observable valuation measures for comparable companies or assets (e.g., multiplying a key performance metric of the investee company or asset, such as EBITDA, by a relevant valuation multiple observed in the range of comparable companies or transactions), adjusted by management for differences between the investment and the referenced comparables and, in some instances, by reference to option pricing models or other similar methods. The Partnership weighs various factors, including but not limited to, sovereign risk, regulatory approval, financing and completion of due diligence, when valuing investments where definitive agreements have been reached between the Partnership and counterparties to sell an investment with an extended settlement. Corporate private equity and real estate investments may also be valued at cost for a period of time after an acquisition as the best indicator of fair value. These valuation methodologies involve a significant degree of management judgment.

Funds of hedge funds — Blackstone Funds’ direct investments in hedge funds (“Investee Funds”) are stated at fair value, based on the information provided by the Investee Funds which reflects the Partnership’s share of the fair value of the net assets of the investment fund. If the Partnership determines, based on its own due diligence and investment procedures, that the valuation for any Investee Fund based on information provided by the Investee Fund’s management does not represent fair value, the Partnership will estimate the fair value of the Investee Fund in good faith and in a manner that it reasonably chooses, in accordance with its valuation policies.

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

Securities transactions are recorded on a trade date basis.

Securities Sold, Not Yet Purchased — Securities Sold, Not Yet Purchased are reflected in the financial statements at fair value. The fair value of Securities Sold, Not Yet Purchased are based on observable market prices when available. Such prices are based on the last sales price on the measurement date, or, if no sales occurred on such date, at the close of business “ask” price.

Certain Blackstone Funds sell securities that they do not own, and will therefore be obligated to purchase such securities at a future date. The value of an open short position is recorded as a liability, and the fund records unrealized appreciation or depreciation to the extent of the difference between the proceeds received and the value of the open short position. The applicable Blackstone Fund records a realized gain or loss when a short position is closed. By entering into short sales, the applicable Blackstone Fund bears the market risk of increases in value of the security sold short. The unrealized appreciation or depreciation as well as the realized gain or loss associated with short positions is included in the Condensed Consolidated Statements of Operations as Net Gains (Losses) from Fund Investment Activities.

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

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 in one of the following categories.

•

Level I — Quoted prices are available in active markets for identical investments as of the reporting date. The type of financial instruments in Level I include listed equities and listed derivatives. As required by the fair value guidance under GAAP, 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, less liquid and restricted equity securities and certain over-the-counter derivatives.

•

Level III — Pricing inputs are unobservable for the instrument and includes situations where there is little, if any, market activity for the 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 corporate private equity and real estate funds, credit-oriented funds, funds of hedge funds, distressed debt and non-investment grade residual interests in securitizations and collateralized debt obligations.

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 investment.

Variable Interest Entities — Blackstone consolidates variable interest entities (“VIEs”) when it is determined that Blackstone, or one of its consolidated entities, is the primary beneficiary of the VIE. The assets of the consolidated VIEs are classified principally within Investments. The liabilities of the consolidated VIEs are non-recourse to Blackstone.

The GAAP guidance on VIEs provides disclosure requirements for enterprises involved with VIEs. Those involvements include when Blackstone (1) consolidates a VIE because it is the primary beneficiary, (2) has a significant variable interest in a VIE, or (3) is the sponsor of a VIE.

These VIEs hold investments in corporate private equity, real estate, credit-oriented and funds of hedge funds assets. Disclosures of Blackstone’s involvement with VIEs are presented on a fully aggregated basis. The investment strategies of Blackstone Funds differ by product; however, the fundamental risks of the Blackstone Funds have similar characteristics, including loss of invested capital and variability in incentive fees and performance fees and allocations. Accordingly, disaggregation of Blackstone’s involvement with VIEs would not provide more useful information. In Blackstone’s role as general partner or investment advisor, it generally considers itself the sponsor of the applicable Blackstone Fund. For certain of these funds, Blackstone is determined to be the primary beneficiary and hence consolidates such funds within the condensed consolidated financial statements.

The GAAP guidance on VIEs requires an analysis to (i) determine whether an entity in which Blackstone holds a variable interest is a variable interest entity, and (ii) whether Blackstone’s involvement, through holding interests directly or indirectly in the entity or contractually through other variable interests (e.g., incentive and

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)

management fees), would be expected to absorb a majority of the expected variability of the entity. Performance of that analysis requires the exercise of judgment. Blackstone 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 based on certain events. In evaluating whether Blackstone is the primary beneficiary, Blackstone evaluates its economic interests in the fund held either directly by Blackstone or indirectly through employees. The consolidation analysis under GAAP can generally be performed qualitatively. However, if it is not readily apparent that Blackstone is not the primary beneficiary, a quantitative expected losses and expected residual returns calculation will be performed. Investments and redemptions (either by Blackstone, affiliates of Blackstone or third parties) or amendments to the governing documents of the respective Blackstone Fund could affect an entity’s status as a VIE or the determination of the primary beneficiary.

Blackstone’s other disclosures regarding VIEs are discussed in Note 4.

Derivative Financial Instruments — Blackstone recognizes all derivative instruments as assets or liabilities on the condensed consolidated statement 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: (i) a hedge of a recognized asset or liability (“fair value hedge”); (ii) 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”); (iii) a hedge of a net investment in a foreign operation, or (iv) a derivative instrument not designated as a hedging instrument (“free standing derivative”). For a fair value hedge, Blackstone records changes in the fair value of the derivative and, to the extent that it is highly effective, changes in the fair value of the hedged asset or liability attributable to the hedged risk in current period earnings in the same caption in the Condensed Consolidated Statement of Operations as the hedged item. Changes in the fair value of derivatives designated as hedging instruments caused by factors other than changes in the risk being hedged, which are excluded from the assessment of hedge effectiveness, are recognized in current period earnings. For free standing derivative contracts, Blackstone presents changes in fair value through current period earnings.

Blackstone 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 Blackstone’s evaluation of the effectiveness of its hedged transaction. Monthly, Blackstone also formally assesses whether the derivative it designated in each hedging relationship is expected to be, and has been, highly effective in offsetting changes in estimated fair values or cash flows of the hedged items using either the regression analysis or the dollar offset method. If it is determined that a derivative is not highly effective at hedging the designated exposure, hedge accounting is discontinued.

Recent Accounting Developments — In December 2007, the Financial Accounting Standards Board (“FASB”) issued guidance on business combinations (originally issued as Statement of Financial Accounting Standards (“SFAS”) No. 141(R) and now referred to as Accounting Standards Codification (“ASC”) 805) providing additional guidance on the accounting for business combinations. The guidance requires the acquiring entity in a business combination to recognize the full fair value of assets, liabilities, contractual contingencies and contingent consideration obtained in the transaction (whether for a full or partial acquisition); establishes the acquisition date fair value as the measurement objective for all assets acquired and liabilities assumed; requires expensing of most transaction and restructuring costs; and requires the acquirer to disclose to investors and other users all of the information needed to evaluate and understand the nature and financial effect of the business combination. The guidance applies to all transactions or other events in which the Partnership obtains control of one or more businesses, including those sometimes referred to as “true mergers” or “mergers of equals” and combinations achieved without the transfer of consideration, for example, by contract alone or through the lapse

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)

of minority veto rights. The guidance applies prospectively to business combinations for which the acquisition date is on or after January 1, 2009. The Partnership had no such transactions for the nine-month period ended September 30, 2009.

In December 2007, the FASB issued guidance on noncontrolling interests in consolidated financial statements (originally issued as SFAS No. 160 and now referred to as ASC 810) providing new guidance on the accounting and financial statement presentation for non-controlling (minority) interests. The guidance requires reporting entities to present non-controlling (minority) interests as equity (as opposed to a liability or mezzanine equity) and provides guidance on the accounting for transactions between an entity and non-controlling interests. The guidance applies prospectively as of January 1, 2009, except for the presentation and disclosure requirements which are applied retrospectively for all periods presented. The Partnership adopted the guidance effective January 1, 2009 and as a result, (a) with respect to the Condensed Consolidated Statements of Financial Condition, the Redeemable Non-Controlling Interests in Consolidated Entities was renamed as such and remained classified as mezzanine equity and the non-redeemable Non-Controlling Interests in Consolidated Entities and Non-Controlling Interests in Blackstone Holdings have been reclassified as components of Partners’ Capital, (b) with respect to the Condensed Consolidated Statements of Operations, Net Income (Loss) is now presented before non-controlling interests, the Net Income (Loss) attributable to the three categories of non-controlling interests discussed in (a) above are now presented separately, and the Condensed Consolidated Statement of Operations now nets to Net Income (Loss) Attributable to The Blackstone Group L.P., and (c) with respect to the Condensed Consolidated Statement of Changes in Partners’ Capital, roll forward columns have now been added for each component of non-controlling interests discussed in (a) above.

In March 2008, the Emerging Issues Task Force (“EITF”) reached a consensus regarding the application of the two-class share method as applied to master limited partnerships (originally issued as EITF Issue No. 07-4 and now referred to as ASC 260-10-45-71) providing guidance on the application of the two-class method of earnings per share to master limited partnerships. The guidance applies to master limited partnerships that make incentive equity distributions. The guidance is to be applied retrospectively beginning with financial statements issued in the interim periods of fiscal years beginning after December 15, 2008. The Partnership adopted the guidance on January 1, 2009. The adoption did not have a material impact on the Partnership’s condensed consolidated financial statements.

In March 2008, the FASB issued guidance regarding disclosures about derivative instruments and hedging activities (originally issued as SFAS No. 161 and now referred to as ASC 815). The purpose of the guidance is to improve financial reporting of derivative instruments and hedging activities. The guidance requires enhanced disclosures to enable investors to better understand how those instruments and activities are accounted for, how and why they are used and their effects on an entity’s financial position, financial performance and cash flows. These additional disclosures are required for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Partnership adopted the guidance effective January 1, 2009. As the guidance requires additional disclosures only, adoption did not have a material impact on the Partnership’s condensed consolidated financial statements.

In April 2008, the FASB issued guidance on the determination of the useful life of intangible assets (originally issued as FASB Staff Position No. FAS 142-3 and now referred to as ASC 350-30-55). The guidance amends the factors an entity should consider in developing renewal or extension assumptions used in determining the useful life of recognized intangible assets. The guidance affects entities with recognized intangible assets and is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The new guidance applies prospectively to (1) intangible assets that are acquired individually or with a group of other assets and (2) both intangible assets acquired in business

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)

combinations and asset acquisitions. The adoption of the guidance effective January 1, 2009 did not have a material impact on the Partnership’s condensed consolidated financial statements.

In June 2008, the FASB issued guidance on determining whether instruments granted in share-based payment transactions are participating securities (originally issued as FASB Staff Position EITF No. 03-6-1 and now referred to as ASC 260-10-45-59A). The guidance addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and therefore need to be included in the earnings allocation in calculating earnings per share under the two-class method of calculation. The guidance requires entities to treat unvested share-based payment awards that have non-forfeitable rights to dividend or dividend equivalents as a separate class of securities in calculating earnings per share. This guidance is effective for fiscal years beginning after December 15, 2008; earlier application is not permitted. The Partnership adopted the guidance effective January 1, 2009 and includes unvested participating Blackstone Common Units as a component of Common Units Entitled to Priority Distributions — Basic in the calculation of earnings per common unit for all periods presented, due to their equivalent distribution rights as Blackstone Common Units. The impact of the adoption and retroactive application on 2008 was as follows:


	Three Months Ended September 30, 2008						Nine Months Ended September 30, 2008						Year Ended December 31, 2008
	Originally Reported			Upon Adoption			Originally Reported			Upon Adoption			Originally Reported			Upon Adoption
Net Loss Per Common Unit — Basic and Diluted
Common Units Entitled to Priority Distributions	$	(1.27	)	$	(1.26	)	$	(2.84	)	$	(2.81	)	$	(4.36	)	$	(4.32	)

Common Units Not Entitled to Priority Distributions	$	(1.57	)	$	(1.56	)	$	(1.57	)	$	(1.56	)	$	(3.09	)	$	(3.06	)

In April 2009, the FASB issued guidance on determining fair value when the volume and level of activity for the asset or liability has significantly decreased and identifying transactions that are not orderly (originally issued as FASB Staff Position No. 157-4 and now referred to as ASC 820-10-65-4). The guidance is effective for financial statements issued for interim or annual periods ending after June 15, 2009. The Partnership adopted the guidance upon its issuance in April 2009. The adoption did not have a material impact on the Partnership’s condensed consolidated financial statements.

In April 2009, the FASB issued guidance on interim disclosures about fair value of financial instruments (originally issued as FASB Staff Position No. Staff Position No. 107-1 and APB 28-1 and now referred to as ASC 825-10-65). Such disclosures were previously required only in annual financial statements. The guidance is effective for financial statements issued for interim or annual periods ending after June 15, 2009. The Partnership adopted the guidance effective with the issuance of its June 30, 2009 financial statements. The adoption of the guidance resulted in the inclusion of interim financial statement disclosures which had previously been annual.

In May 2009, the FASB issued guidance on subsequent events (originally issued as SFAS No. 165 and now referred to as ASC 855). The guidance is intended to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for selecting that date, that is, whether that date represents the date the financial statements

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)

were issued or were available to be issued. The guidance is effective for interim or annual financial periods ending after June 15, 2009. The Partnership adopted the guidance effective with the issuance of its June 30, 2009 financial statements. The adoption resulted in the additional required disclosure regarding subsequent events.

In June 2009, the FASB issued amended guidance on issues related to variable interest entities (“VIEs”) (issued as SFAS No. 167, Amendments to FASB Interpretation No. 46(R)). The amendments will significantly affect the overall consolidation analysis, changing the approach taken by companies in identifying which entities are VIEs and in determining which party is deemed the primary beneficiary. The guidance requires continuous assessment of an entity’s involvement with such VIEs. The guidance is effective as of the beginning of the first fiscal year that begins after November 15, 2009 and early adoption is prohibited. The Partnership is currently evaluating the impact of the guidance on its condensed consolidated financial statements.

In June 2009, the FASB issued guidance on the Accounting Standards Codification and the hierarchy of generally accepted accounting principles (issued as SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162) which established the FASB Standards Accounting Codification (“Codification”) as the source of authoritative GAAP recognized by the FASB to be applied to nongovernmental entities, and rules and interpretive releases of the SEC as authoritative GAAP for SEC registrants. The Codification will supersede all the existing non-SEC accounting and reporting standards upon its effective date and subsequently, the FASB will not issue new standards in the form of Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts. This guidance also replaces the prior guidance regarding the GAAP hierarchy, given that once in effect, the guidance within the Codification will carry the same level of authority. The Codification is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Partnership adopted the guidance effective with the issuance of its September 30, 2009 financial statements. As the guidance is limited to disclosure in the condensed consolidated financial statements and the manner in which the Partnership refers to GAAP authoritative literature there was no material impact on the Partnership’s condensed consolidated financial statements.

In September 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-06, Income Taxes (Topic 740) — Implementation Guidance on Accounting for Uncertainty in Income Taxes and Disclosure Amendments for Nonpublic Entities (“ASU 2009-06”) which amended Accounting Standards Codification Subtopic 740-10, Income Taxes — Overall. The updated guidance considers an entity’s assertion that it is a tax-exempt not for profit or a pass through entity as a tax position that requires evaluation under Subtopic 740-10. In addition, ASU 2009-06 provided implementation guidance on the attribution of income taxes to entities and owners. The revised guidance is effective for periods ending after September 15, 2009. The adoption of ASU 2009-06 did not have a material impact on the condensed consolidated financial statements.

In September 2009, the FASB issued ASU No. 2009-12, Fair Value Measurements and Disclosures (Topic 820) — Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent) (“ASU 2009-12”) which amended Accounting Standards Codification Subtopic 820-10, Fair Value Measurements and Disclosures — Overall. The guidance permits, as a practical expedient, an entity holding investments in certain entities that calculate net asset value per share or its equivalent for which the fair value is not readily determinable, to measure the fair value of such investments on the basis of that net asset value per share or its equivalent without adjustment. The guidance also requires disclosure of the attributes of investments within the scope of the guidance by major category of investment. Such disclosures include the nature of any restrictions on an investor’s ability to redeem its investments at the measurement date, any unfunded commitments and the investment strategies of the investee. The guidance is effective for interim and annual periods ending after December 15, 2009 with early adoption permitted. Adoption is not expected to have a material impact on the fair value determination of applicable investments, however it will result in additional required disclosures.

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—(Continued)

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

3.	GOODWILL AND INTANGIBLE ASSETS

Goodwill

The following table outlines changes to the carrying amount of Goodwill as of September 30, 2009:


	Goodwill
Balance at December 31, 2008	$	1,703,602
Impairment		—

Balance at September 30, 2009	$	1,703,602

Total Goodwill has been allocated to each of the Partnership’s segments as follows: Corporate Private Equity – $694,512; Real Estate – $421,739; Credit and Marketable Alternatives – $518,477; and Financial Advisory – $68,874.

Intangible Assets

The following table outlines changes to the carrying amount of Intangible Assets, Net as of September 30, 2009:


	Intangible Assets
Contractual Rights	$	1,348,370
Accumulated Amortization		(389,381	)

Intangible Assets, Net	$	958,989

Amortization expense associated with intangible assets was $39.5 million for both the three months ended September 30, 2009 and 2008 and $118.5 million and $113.7 million for the nine months ended September 30, 2009 and 2008, respectively, and is included in General, Administrative and Other in the accompanying Condensed Consolidated Statements of Operations. Amortization of intangible assets held at September 30, 2009 is expected to be approximately $158.0 million for the year ended December 31, 2009.

4.	INVESTMENTS

Investments

A summary of Investments is as follows:


	September 30, 2009		December 31, 2008
Investments of Consolidated Blackstone Funds	$	1,256,885	$	1,556,261
Equity Method Investments		1,145,872		1,063,615
High Grade Liquid Debt Strategies		1,037,734		—
Performance Fees and Allocations		334,124		147,421
Other Investments		37,593		63,645

	$	3,812,208	$	2,830,942

Blackstone’s share of Investments of Consolidated Blackstone Funds totaled $371.1 million and $409.2 million at September 30, 2009 and December 31, 2008, respectively. Equity Method Investments represents investments in non-consolidated funds as described below, of which Blackstone’s share totaled $1.1 billion and $1.0 billion at September 30, 2009 and December 31, 2008, respectively.

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—(Continued)

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

Investments of Consolidated Blackstone Funds

The following table presents a condensed summary of the investments held by the consolidated Blackstone Funds that are reported at fair value. These investments are presented as a percentage of Investments of Consolidated Blackstone Funds:


	Fair Value				Percentage of Investments of Consolidated Blackstone Funds
Geographic Region / Instrument Type / Industry Description or Investment Strategy	September 30, 2009		December 31, 2008		September 30, 2009		December 31, 2008
United States and Canada
Investment Funds, principally related to credit and marketable alternative funds
Credit Driven	$	329,439	$	695,620	26.2	%	44.7	%
Diversified Investments		354,765		345,033	28.2	%	22.2	%
Equity		81,999		34,499	6.5	%	2.2	%
Other		495		648	—		0.1	%

Investment Funds Total (Cost: 2009 — $871,291; 2008 — $1,283,697)		766,698		1,075,800	60.9	%	69.2	%

Equity Securities, principally related to credit and marketable alternatives and corporate private equity funds
Manufacturing		20,132		17,782	1.6	%	1.1	%
Services		85,068		81,543	6.8	%	5.2	%
Natural Resources		649		551	0.1	%	—
Real Estate Assets		415		1,769	—		0.1	%

Equity Securities Total (Cost: 2009 — $112,026; 2008 — $112,739)		106,264		101,645	8.5	%	6.4	%

Partnership and LLC Interests, principally related to corporate private equity and real estate funds
Real Estate Assets		129,024		103,453	10.3	%	6.6	%
Services		80,418		98,592	6.4	%	6.3	%
Manufacturing		22,315		23,599	1.8	%	1.5	%
Natural Resources		357		317	—		—
Credit Driven		1,172		19,659	0.1	%	1.3	%

Partnership and LLC Interests Total (Cost: 2009 — $396,369; 2008 — $294,846)		233,286		245,620	18.6	%	15.7	%

Debt Instruments, principally related to credit and marketable alternatives funds
Manufacturing		4,195		4,251	0.3	%	0.3	%
Services		6,627		4,093	0.5	%	0.3	%
Real Estate Assets		2,329		485	0.2	%	—

Debt Instruments Total (Cost: 2009 — $10,722; 2008 — $9,396)		13,151		8,829	1.0	%	0.6	%

United States and Canada Total (Cost: 2009 —$1,390,408; 2008 — $1,700,678)		1,119,399		1,431,894	89.0	%	91.9	%

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				Percentage of Investments of Consolidated Blackstone Funds
Geographic Region / Instrument Type / Industry Description or Investment Strategy	September 30, 2009		December 31, 2008		September 30, 2009		December 31, 2008
Europe
Equity Securities, principally related to credit and marketable alternatives and corporate private equity funds
Manufacturing	$	17,630	$	9,105	1.4	%	0.6	%
Services		27,214		29,635	2.2	%	1.9	%

Equity Securities Total (Cost: 2009 — $45,385; 2008 — $45,295)		44,844		38,740	3.6	%	2.5	%
Partnership and LLC Interests, principally related to corporate private equity and real estate funds
Services		28,578		31,572	2.3	%	2.0	%
Real Estate Assets		8,777		13,674	0.7	%	0.9	%

Partnership and LLC Interests Total (Cost: 2009 — $46,029; 2008 — $46,104)		37,355		45,246	3.0	%	2.9	%
Debt Instruments, principally related to credit and marketable alternatives funds
Manufacturing		318		187	—		—
Services		1,007		—	0.1	%	—

Debt Instruments Total (Cost: 2009 $1,601; 2008 $1,256)		1,325		187	0.1	%	—

Europe Total (Cost: 2009 — $93,015; 2008 — $92,655)		83,524		84,173	6.7	%	5.4	%

Asia
Equity Securities, principally related to credit and marketable alternatives and corporate private equity funds
Services		7,681		11,201	0.6	%	0.8	%
Manufacturing		8,254		8,654	0.7	%	0.6	%
Natural Resources		—		442	—		—
Real Estate Assets		—		368	—		—
Diversified Investments		5,308		—	0.4	%	—

Equity Securities Total (Cost: 2009 — $18,844; 2008 — $22,155)		21,243		20,665	1.7	%	1.4	%
Partnership and LLC Interests, principally related to corporate private equity and real estate funds
Manufacturing		828		1,184	0.1	%	0.1	%
Real Estate Assets		705		707	—		—
Services		79		45	—		—

Partnership and LLC Interests Total (Cost: 2009 — $1,833; 2008 — $1,811)		1,612		1,936	0.1	%	0.1	%

Debt Instruments, principally related to credit and marketable alternatives funds (Cost: 2009 — $288; 2008 — $256)		235		151	—		—

Asia Total (Cost: 2009 — $20,965; 2008 — $24,222)		23,090		22,752	1.8	%	1.5	%

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				Percentage of Investments of Consolidated Blackstone Funds
Geographic Region / Instrument Type / Industry Description or Investment Strategy	September 30, 2009		December 31, 2008		September 30, 2009		December 31, 2008
	September 30, 2009		December 31, 2008		September 30, 2009		December 31, 2008
Other
Equity Securities, principally related to corporate private equity funds
Natural Resources	$	1,844	$	1,022	0.1	%	0.1	%
Services		3,737		2,737	0.3	%	0.3	%

Equity Securities Total (Cost: 2009 — $2,828; 2008 — $2,606)		5,581		3,759	0.4	%	0.4	%

Partnership and LLC Interests, principally related to corporate private equity and real estate funds
Natural Resources		25,197		13,599	2.0	%	0.9	%
Services		94		84	—		0.1	%

Partnership and LLC Interests Total (Cost: 2009 — $8,236; 2008 — $5,063)		25,291		13,683	2.0	%	1.0	%

Other Total (Cost: 2009 — $11,064; 2008 — $7,669)		30,872		17,442	2.5	%	1.2	%

Total Investments of Consolidated Blackstone Funds (Cost: 2009 — $1,515,452; 2008 — $1,825,224)	$	1,256,885	$	1,556,261	100.0	%	100.0	%

At September 30, 2009 and December 31, 2008, consideration was given as to whether any individual investment, including derivative instruments, had a fair value which exceeded 5.0% of Blackstone’s net assets. At September 30, 2009, BMOF I LLC had a fair value of $295.4 million and was the sole investment to exceed the 5.0% threshold. At December 31, 2008, Blackport Capital Fund Ltd. had a fair value of $594.5 million and was the sole investment to exceed the 5.0% threshold. Each of these investments were held in a consolidated feeder fund and represented its investment into the named master fund.

Securities Sold, Not Yet Purchased. The following table presents the Partnership’s Securities Sold, Not Yet Purchased held by the consolidated Blackstone Funds, which were principally held by one of Blackstone’s proprietary hedge funds. These investments are presented as a percentage of Securities Sold, Not Yet Purchased.


	Fair Value				Percentage of Securities Sold Not Yet Purchased
Geographic Region / Instrument Type / Industry Class	September 30, 2009		December 31, 2008		September 30, 2009		December 31, 2008
Geographic Region / Instrument Type / Industry Class	September 30, 2009		December 31, 2008		September 30, 2009		December 31, 2008
Asia — Equity Instruments
Natural Resources	$	129	$	77	30.9	%	8.6	%
Services		289		611	69.1	%	68.3	%
Real Estate Assets		—		206	—		23.1	%

Total (Proceeds: 2009 — $321; 2008 — $782)	$	418	$	894	100.0	%	100.0	%

Realized and Net Change in Unrealized Gains (Losses) from Blackstone Funds. Net Gains (Losses) from Fund Investment Activities on the Condensed Consolidated Statements of Operations include net realized gains (losses) from realizations and sales of investments and the net change in unrealized gains (losses) resulting from

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)

changes in fair value of the consolidated Blackstone Funds’ investments. The following table presents the realized and net change in unrealized gains (losses) on investments held through the consolidated Blackstone Funds:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008
Realized Gains (Losses)	$	(45,087	)	$	(171,242	)	$	(149,495	)	$	(151,340	)
Net Change in Unrealized Gains (Losses)		118,183			(420,691	)		215,060			(551,526	)

	$	73,096		$	(591,933	)	$	65,565		$	(702,866	)

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


	Three Months Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009		2008
Realized and Net Change in Unrealized Gains (Losses) from Blackstone Funds	$	73,096		$	(591,933	)	$	65,565	$	(702,866	)
Reclassification to Investment Income (Loss) and Other Attributable to Blackstone Side-by-Side Investment Vehicles		(8,194	)		19,196			6,678		26,655
Interest and Dividend Income and Other Attributable to Consolidated Blackstone Funds		8,910			21,982			25,110		99,498

Other Income — Net Gains (Losses) from Fund Investment Activities	$	73,812		$	(550,755	)	$	97,353	$	(576,713	)

Variable Interest Entities. At September 30, 2009, Blackstone was the primary beneficiary of VIEs whose gross assets were $692.9 million, which is the carrying amount of such financial assets in the condensed consolidated financial statements. Blackstone is also a significant variable interest holder or sponsor in VIEs which are not consolidated, as Blackstone is not the primary beneficiary. At September 30, 2009, assets recognized in the Partnership’s Condensed Consolidated Statements of Financial Condition related to our variable interests in these unconsolidated entities were $75.4 million with no liabilities. Assets consisted of $54.2 million of receivables and $21.2 million of investments. Blackstone’s aggregate maximum exposure to loss was $75.4 million as of September 30, 2009.

For those VIEs in which Blackstone is the sponsor, Blackstone may have an obligation as general partner to provide commitments to such funds. During the three and nine months ended September 30, 2009, Blackstone did not provide any support other than its obligated amount.

Blackstone’s accounting policies with respect to VIEs is discussed in Note 2.

High Grade Liquid Debt Strategies

High Grade Liquid Debt Strategies represent Partnership liquid investments in third party managed institutional mutual funds invested primarily in government and other investment grade securities. The net change in unrealized gains (losses) on these investments was $4.8 million for the three and nine months ended September 30, 2009, respectively.

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—(Continued)

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

Equity Method Investments

A summary of equity method investments is as follows:


					Equity in Net Income (Loss)
	September 30, 2009		December 31, 2008		Three Months Ended September 30,					Nine Months Ended September 30,
	September 30, 2009		December 31, 2008		2009		2008			2009			2008
Equity Method Investments	$	1,145,872	$	1,063,615	$	18,731	$	(167,706	)	$	(83,347	)	$	(196,755	)

The summarized financial information of the funds in which the Partnership has an equity method investment, presented before any cross-fund eliminations, is as follows:


	September 30, 2009 and the Nine Months Then Ended
	Corporate Private Equity			Real Estate			Credit and Marketable Alternatives			Total
Statement of Financial Condition
Assets
Investments	$	16,910,183		$	7,412,603		$	16,334,162		$	40,656,948
Other Assets		300,284			520,077			2,222,842			3,043,203

Total Assets	$	17,210,467		$	7,932,680		$	18,557,004		$	43,700,151

Liabilities and Partners’ Capital
Debt	$	247,329		$	109,016		$	1,309,730		$	1,666,075
Other Liabilities		71,088			170,018			907,244			1,148,350

Total Liabilities		318,417			279,034			2,216,974			2,814,425

Partners’ Capital		16,892,050			7,653,646			16,340,030			40,885,726

Total Liabilities and Partners’ Capital	$	17,210,467		$	7,932,680		$	18,557,004		$	43,700,151

Statement of Income
Interest Income	$	16,270		$	9,101		$	431,743		$	457,114
Other Income		95,236			108,748			56,493			260,477
Interest Expense		(4,241	)		(3,730	)		(40,153	)		(48,124	)
Other Expenses		(28,724	)		(23,516	)		(118,553	)		(170,793	)
Net Realized and Unrealized Gain (Loss) from Investments		532,830			(3,871,922	)		2,512,571			(826,521	)

Net Income (Loss)	$	611,371		$	(3,781,319	)	$	2,842,101		$	(327,847	)

Performance Fees and Allocations

Blackstone manages corporate private equity funds, real estate funds, funds of hedge funds and credit-oriented funds that are not consolidated. The Partnership records as revenue (and/or adjusts previously recorded revenue) to reflect the amount that would be due pursuant to the fund agreements at each period end as if the fund agreements were terminated at that date. In certain performance fee arrangements related to certain funds of

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 funds and credit-oriented funds in the Credit and Marketable Alternatives segment, Blackstone is entitled to receive performance fees and allocations when the return on assets under management exceeds certain benchmark returns or other performance targets. In such arrangements, performance fees and allocations are accrued monthly or quarterly based on measuring account / fund performance to date versus the performance benchmark stated in the investment management agreement.

Other Investments

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


	Three Months Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008
Realized Gains (Losses)	$	(441	)	$	(251	)	$	(2,095	)	$	104
Net Change in Unrealized Gains (Losses)		6,559			(6,906	)		8,182			(9,115	)

	$	6,118		$	(7,157	)	$	6,087		$	(9,011	)

Fair Value Measurements of Financial Instruments

The following table summarizes the valuation of Blackstone’s financial instruments by the fair value hierarchy levels as of September 30, 2009 and December 31, 2008, respectively:


	September 30, 2009
	Level I		Level II		Level III		Total
Investments of Consolidated Blackstone Funds	$	66,320	$	516	$	1,190,049	$	1,256,885
High Grade Liquid Debt Strategies		1,037,734		—		—		1,037,734
Other Investments		22,309		—		15,284		37,593
Derivative Instruments Used for Fair Value Hedges		—		9,389		—		9,389
Securities Sold, Not Yet Purchased		418		—		—		418

	December 31, 2008
	Level I		Level II		Level III		Total
Investments of Consolidated Blackstone Funds	$	58,406	$	994	$	1,496,861	$	1,556,261
Other Investments		22,499		—		41,146		63,645
Securities Sold, Not Yet Purchased		894		—		—		894

The following table summarizes the Level III investments by valuation methodology as of September 30, 2009:


Fair Value Based on	Corporate Private Equity		Real Estate		Credit and Marketable Alternatives		Total Investment Company Holdings
Third-Party Fund Managers	—		—		64	%	64	%
Specific Valuation Metrics	21	%	13	%	2	%	36	%

	21	%	13	%	66	%	100	%

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 changes in financial instruments measured at fair value for which the Partnership has used Level III inputs to determine fair value are as follows. The following table does not include gains or losses that were reported in Level III in prior years or for instruments that were transferred out of Level III prior to the end of the current reporting period.


	Three Months Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008
Balance, Beginning of Period	$	1,145,321		$	2,463,215		$	1,538,007		$	2,362,542
Transfer In (Out) of Level III, Net		75,288			—			72,902			160,040
Purchases (Sales), Net		(79,337	)		35,826			(451,609	)		65,785
Realized Gains (Losses), Net		(46,708	)		1,935			(145,068	)		11,500
Changes in Unrealized Gains (Losses) Included in Earnings Related to Investments Still Held at the Reporting Date		110,769			(232,577	)		191,101			(331,468	)

Balance, End of Period	$	1,205,333		$	2,268,399		$	1,205,333		$	2,268,399

Total realized and unrealized gains and losses recorded for Level III investments are reported in Net Gains (Losses) from Fund Investment Activities in the Condensed Consolidated Statements of Operations. The Transfer In (Out) of Level III, Net is principally attributable to an asset transfer from a non-consolidated Blackstone Fund to a consolidated Blackstone Fund.

5.	DERIVATIVE FINANCIAL INSTRUMENTS

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

Fair Value Hedges

The Partnership uses interest rate swaps to hedge all or a portion of the interest rate risk associated with its fixed rate borrowings. The Partnership has designated these financial instruments as fair value hedges. Changes in fair value of the derivative and, to the extent that it is highly effective, changes in the fair value of the hedged liability, are recorded within Interest Expense in the Condensed Consolidated Statements of Operations. The fair value of the derivative instrument is reflected within Other Assets in the Condensed Consolidated Statements of Financial Condition.

Free Standing Derivatives

Free standing derivatives are instruments that certain of the consolidated Blackstone Funds have entered into as part of their overall risk management and investment strategies. These derivative contracts are not designated as hedging instruments for accounting purposes. Such contracts may include foreign exchange contracts, equity swaps, options and other types. Changes in the fair value of such derivative instruments are reflected in Net Gains (Losses) from Funds Investment Activities in the Condensed Consolidated Statements of Operations. The fair value of free standing derivative assets are recorded within Investments and free standing

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—(Continued)

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

derivative liabilities are recorded within Accounts Payable, Accrued Expenses and Other Liabilities in the Condensed Consolidated Statements of Financial Condition.

The table below summarizes the aggregate notional amount and fair value of the derivative instruments as of September 30, 2009.


	As of September 30, 2009
	Assets				Liabilities
	Notional		Fair Value		Notional		Fair Value
	(Dollars in thousands)
Fair Value Hedges
Interest Rate Swaps	$	450,000	$	9,389	$	—	$	—
Free Standing Derivatives
Free Standing Derivatives		1,046		38		385		1

Total	$	451,046	$	9,427	$	385	$	1

The Partnership had no material derivative contracts as of December 31, 2008.

Where hedge accounting is applied, hedge effectiveness testing is performed at least quarterly to monitor ongoing effectiveness of the hedge relationships. During the three and nine months ended September 30, 2009, the amount of ineffectiveness related to the interest rate swap hedges was not material to the Condensed Consolidated Statements of Operations. During the three and nine months ended September 30, 2009, the portion of hedging instruments’ gain or loss excluded from the assessment of effectiveness was not material for its fair value hedges.

During the three and nine month periods ended September 30, 2009, Blackstone recognized an immaterial amount of changes in fair value on its free standing derivatives.

6.	LOANS PAYABLE

On August 20, 2009, Blackstone Holdings Finance Co. L.L.C. (the “Issuer”), an indirect subsidiary of the Partnership, issued $600 million of senior notes due August 15, 2019 (the “Notes”). The Notes, which were issued at a discount, have an interest rate of 6.625% per annum, accruing from August 20, 2009. Interest is payable semiannually in arrears on February 15 and August 15 of each year, commencing on February 15, 2010. The Notes are unsecured and unsubordinated obligations of the Issuer. The Notes are fully and unconditionally guaranteed, jointly and severally, by the Partnership, Blackstone Holdings and the Issuer (the “Guarantors”). The guarantees are unsecured and unsubordinated obligations of the Guarantors. Interest expense on the Notes was $4.5 million for the three and nine months ended September 30, 2009, respectively. Transaction costs related to the issuance of the Notes have been capitalized and are being amortized over the life of the Notes. As of September 30, 2009, the fair value of the Notes was $604.3 million.

The indenture includes covenants, including limitations on the Issuer’s and the Guarantors’ ability to, subject to exceptions, incur indebtedness secured by liens on voting stock or profit participating equity interests of their subsidiaries or merge, consolidate or sell, transfer or lease assets. The indenture also provides for events of default and further provides that the trustee or the holders of not less than 25% in aggregate principal amount of the outstanding Notes may declare the Notes immediately due and payable upon the occurrence and during the continuance of any event of default after expiration of any applicable grace period. In the case of specified events of bankruptcy, insolvency, receivership or reorganization, the principal amount of the Notes and any accrued and

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)

unpaid interest on the Notes automatically become due and payable. All or a portion of the Notes may be redeemed at the Issuer’s option in whole or in part, at any time and from time to time, prior to their stated maturity, at the make-whole redemption price set forth in the Notes. If a change of control repurchase event occurs, the holders of the Notes may require the Issuer to repurchase the Notes at a repurchase price in cash equal to 101% of the aggregate principal amount of the Notes repurchased plus any accrued and unpaid interest on the Notes repurchased to, but not including, the date of repurchase.

On May 11, 2009, Blackstone entered into a new committed revolving credit facility for $850 million. As of September 30, 2009, Blackstone had no outstanding borrowings under its revolving credit facility.

7.	INCOME TAXES

The Blackstone Holdings Partnerships operate in the U.S. as partnerships for U.S. federal income tax purposes and generally as corporate entities in non-U.S. jurisdictions; accordingly, these entities in some cases are subject to the New York City unincorporated business tax or, in the case of non-U.S. entities, to non-U.S. corporate income taxes. In addition, certain wholly-owned entities of the Partnership are subject to federal, state and local corporate income taxes.

Blackstone adopted the GAAP guidance regarding the presentation of non-controlling interests effective January 1, 2009. As a result of the adoption, Blackstone is required to calculate its effective tax rate on Consolidated Income (Loss) Before Provision for Taxes as opposed to the Net Income (Loss) Attributable to The Blackstone Group L.P. Accordingly, under this GAAP guidance, Blackstone’s effective tax rate was (12.31)% and 1.16% for the three months ended September 30, 2009 and 2008, respectively, and (4.21)% and 1.03% for the nine months ended September 30, 2009 and 2008, respectively. Blackstone’s income tax provision was an expense of $52.6 million and a benefit of $21.4 million for the three months ending September 30, 2009 and 2008, respectively, and an expense of $81.2 million and a benefit of $38.2 million for the nine months ending September 30, 2009 and 2008, respectively.

Prior to the adoption of the GAAP guidance regarding the presentation of non-controlling interests, after eliminating the effects of non-controlling interests, Blackstone’s effective tax rate would have been (33.16)% for the three months ended September 30, 2009, which is comparable to the 6.89% effective tax rate that was reported for the three months ended September 30, 2008, and (12.42)% for the nine months ended September 30, 2009, which is comparable to the 6.25% effective tax rate that was reported for the nine months ended September 30, 2008. Blackstone’s corresponding income tax provision would have been an expense of $43.9 million for the three months ended September 30, 2009, which is comparable to the benefit of $25.2 million reported for the three months ended September 30, 2008, and an expense of $63.2 million for the nine months ended September 30, 2009, which is comparable to the benefit of $49.9 million reported for the nine months ended September 30, 2008.

Blackstone’s effective tax rates for the three and nine months ended September 30, 2009 were due to the following: (1) certain wholly-owned subsidiaries were subject to federal, state and local corporate income taxes on income allocated to Blackstone, and certain non-U.S. corporate entities continue to be subject to non-U.S. corporate income tax, and (2) a portion of the compensation charges that contribute to Blackstone’s net loss are not deductible for tax purposes.

8.	NET LOSS PER COMMON UNIT

Beginning in the third quarter of 2008, certain unitholders exchanged Blackstone Holdings Partnership Units for Blackstone Common Units. Until the Blackstone Common Units issued in such exchanges are

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)

transferred to third parties, the exchanging unitholders will forego any priority distributions referred to below. As a result, net loss available to the common unitholders was allocated between common units entitled to priority distributions and common units not entitled to priority distributions. The Partnership has calculated net loss per unit in accordance with GAAP guidance specific to participating securities and the two-class method.

Basic and diluted net loss per common unit for the three and nine months ended September 30, 2009 is calculated as follows:


	Three Months Ended September 30, 2009						Nine Months Ended September 30, 2009
	Basic			Diluted			Basic			Diluted
Total Undistributed Loss
Net Loss Allocable to Common Unit Holders	$	(176,183	)	$	(176,183	)	$	(572,041	)	$	(572,041	)
Less: Distributions to Common Unitholders		(89,188	)		(89,188	)		(254,705	)		(254,705	)

Total Undistributed Loss	$	(265,371	)	$	(265,371	)	$	(826,746	)	$	(826,746	)

Allocation of Total Undistributed Loss
Undistributed Loss — Common Unitholders Entitled to Priority Distributions	$	(257,806	)	$	(257,806	)	$	(816,980	)	$	(816,980	)
Undistributed Loss — Common Unitholders Not Entitled to Priority Distributions		(7,565	)		(7,565	)		(9,766	)		(9,766	)

Total Undistributed Loss	$	(265,371	)	$	(265,371	)	$	(826,746	)	$	(826,746	)

Net Loss Per Common Unit — Common Units Entitled to Priority Distributions
Undistributed Loss per Common Unit	$	(0.91	)	$	(0.91	)	$	(2.95	)	$	(2.95	)
Priority Distributions		0.30			0.30			0.90			0.90

Net Loss Per Common Unit — Common Units Entitled to Priority Distributions	$	(0.61	)	$	(0.61	)	$	(2.05	)	$	(2.05	)

Net Loss Per Common Unit — Common Units Not Entitled to Priority Distributions
Undistributed Loss per Common Unit	$	(0.91	)	$	(0.91	)	$	(2.95	)	$	(2.95	)
Priority Distributions		—			—			—			—

Net Loss Per Common Unit — Common Units Not Entitled to Priority Distributions	$	(0.91	)	$	(0.91	)	$	(2.95	)	$	(2.95	)

Weighted-Average Common Units Outstanding — Common Units Entitled to Priority Distributions		283,243,485			283,243,485			277,390,904			277,390,904
Common Units Not Entitled to Priority Distributions		8,311,085			8,311,085			3,465,956			3,465,956

Total Weighted-Average Common Units Outstanding		291,554,570			291,554,570			280,856,859			280,856,859

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)

For the three months ended September 30, 2009, a weighted-average total of 19,750,299 unvested deferred restricted common units and 808,479,683 Blackstone Holdings Partnership Units were anti-dilutive and as such have been excluded from the calculation of diluted earnings per unit. For the nine months ended September 30, 2009, a weighted-average total of 23,353,728 unvested deferred restricted common units and 820,944,937 Blackstone Holdings Partnership Units were anti-dilutive and as such have been excluded from the calculation of diluted earnings per unit.

Basic and diluted net loss per common unit for the three and nine months ended September 30, 2008 was as follows:


	Three Months Ended September 30, 2008						Nine Months Ended September 30, 2008
	Basic			Diluted			Basic			Diluted
Net Loss Allocable to Common Unit Holders	$	(340,331	)	$	(340,331	)	$	(747,855	)	$	(747,855	)

Weighted-Average Common Units Outstanding		271,184,349			271,184,349			265,999,542			265,999,542

Net Loss per Common Unit	$	(1.26	)	$	(1.26	)	$	(2.81	)	$	(2.81	)

For the three months ended September 30, 2008, a weighted-average total of 26,844,556 unvested deferred restricted common units and 831,014,915 Blackstone Holdings Partnership Units were anti-dilutive and as such have been excluded from the calculation of diluted earnings per unit. For the nine months ended September 30, 2008, a weighted-average total of 29,983,203 unvested deferred restricted common units and 832,994,660 Blackstone Holdings Partnership Units were anti-dilutive and as such have been excluded from the calculation of diluted earnings per unit.

Cash Distribution Policy

Blackstone’s current intention is to distribute to its common unitholders substantially all of The Blackstone Group L.P.’s net after-tax share of our annual adjusted cash flows from operations in excess of amounts determined by its general partner to be necessary or appropriate to provide for the conduct of its business, to make appropriate investments in our business and our funds, to comply with applicable law, any of its debt instruments or other agreements, or to provide for future distributions to its common unitholders for any ensuing quarter. The declaration and payment of any distributions will be at the sole discretion of the general partner, which may change the distribution policy at any time.

The partnership agreements of the Blackstone Holdings partnerships provide that until December 31, 2009, the income (and accordingly distributions) of Blackstone Holdings are to be allocated each year:

•

first, to The Blackstone Group L.P.’s wholly-owned subsidiaries until sufficient income has been so allocated to permit The Blackstone Group L.P. to make aggregate distributions to its common unitholders of $1.20 per common unit on an annualized basis for such year;

•

second, to the other partners of the Blackstone Holdings partnerships until an equivalent amount of income on a partnership interest basis has been allocated to such other partners for such year; and

•

thereafter, pro rata to all partners of the Blackstone Holdings partnerships in accordance with their respective partnership interests.

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 agreements of the Blackstone Holdings partnerships will provide for cash distributions, referred to as “tax distributions,” to the partners of such partnerships if the wholly-owned subsidiaries of The Blackstone Group L.P., which are the general partners of the Blackstone Holdings partnerships, determine that the taxable income of the relevant partnership will give rise to taxable income for its partners. Generally, these tax distributions will be computed based on Blackstone’s estimate of the net taxable income of the relevant partnership allocable to a partner multiplied by an assumed tax rate equal to the highest effective marginal combined U.S. federal, state and local income tax rate prescribed for an individual or corporate resident in New York, New York (taking into account the nondeductibility of certain expenses and the character of our income). The Blackstone Holdings partnerships will make tax distributions only to the extent distributions from such partnerships for the relevant year were otherwise insufficient to cover such tax liabilities.

Until December 31, 2009, Blackstone personnel and others with respect to their Blackstone Holdings Partnership Units will not receive any distributions (other than tax distributions in the circumstances specified above) for a year unless and until our common unitholders receive aggregate distributions of $1.20 per common unit for such year. Blackstone does not intend to maintain this priority allocation after December 31, 2009.

Unit Repurchase Program

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

During the nine months ended September 30, 2009, Blackstone repurchased a combination of 4,689,091 Blackstone Common Units and Blackstone Holdings Partnership Units as part of the unit repurchase program for a total cost of $30.5 million. During the three months ended September 30, 2009, Blackstone repurchased 59,225 Blackstone Common Units and Blackstone Holdings Partnership Units as part of the unit repurchase program for a total cost of $0.8 million. As of September 30, 2009, the amount remaining available for repurchases was $339.5 million under this program. The repurchase resulted in a decrease in Blackstone’s ownership interest in Blackstone Holdings equity of $17.3 million.

During the nine months ended September 30, 2008, Blackstone repurchased a combination of 8,329,101 vested and unvested Blackstone Holdings Partnership Units as part of the repurchase program. The repurchase resulted in a decrease in Blackstone’s ownership interest in Blackstone Holdings equity of $89.2 million.

9.	EQUITY-BASED COMPENSATION

The Partnership has granted equity-based compensation awards to Blackstone’s senior managing directors, non-partner professionals, non-professionals and selected external advisors under the Partnership’s 2007 Equity Incentive Plan (the “Equity Plan”), the majority of which to date were granted in connection with the IPO. The Equity Plan allows for the granting of options, unit appreciation rights or other unit-based awards (units, restricted units, restricted common units, deferred restricted common units, phantom restricted common units or other unit-based awards based in whole or in part on the fair value of the Blackstone Common Units or Blackstone Holdings Partnership Units). As of January 1, 2009, the Partnership had the ability to grant 163,574,323 units under the Equity Plan during the year ending December 31, 2009.

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)

For the three and nine months ended September 30, 2009, the Partnership recorded compensation expense of $738.2 million and $2.2 billion, respectively, in relation to its equity-based awards with corresponding tax benefits of $(0.6) million and $5.9 million, respectively. The Partnership recorded compensation expense of $775.4 million and $2.5 billion in relation to its equity-based awards with corresponding tax benefits of $3.2 million and $11.2 million for the three and nine months ended September 30, 2008, respectively. As of September 30, 2009, there was $7.0 billion of estimated unrecognized compensation expense related to unvested awards. That cost is expected to be recognized over a weighted-average period of 4.4 years.

Total vested and unvested outstanding units, including Blackstone Common Units, Blackstone Holdings Partnership Units, deferred restricted common units and options were 1,119,667,585 as of September 30, 2009. Total outstanding unvested phantom units were 208,620 as of September 30, 2009.

A summary of the status of the Partnership’s unvested equity-based awards as of September 30, 2009 and a summary of changes during the period January 1, 2009 through September 30, 2009, are presented below:


	Blackstone Holdings				The Blackstone Group L.P.
					Equity Settled Awards				Cash Settled Awards
Unvested Units	Partnership Units		Weighted- Average Grant Date Fair Value		Deferred Restricted Common Units and Options		Weighted- Average Grant Date Fair Value		Phantom Units		Weighted- Average Grant Date Fair Value
Balance, December 31, 2008	354,311,432		$	30.89	28,569,608		$	25.90	532,794		$	26.09
Granted	2,207,850			8.43	78,741			8.53	—			—
Vested	(77,232,065	)		30.93	(5,015,772	)		28.06	(287,205	)		26.56
Exchanged	—			—	(3,322	)		5.80	3,322			5.80
Forfeited	(7,758,948	)		30.14	(3,882,693	)		25.48	(40,291	)		26.19

Balance, September 30, 2009	271,528,269			30.72	19,746,562			25.57	208,620			25.15

In March 2008, the Partnership modified certain senior managing directors’ Blackstone Holdings Partnership Unit award agreements and subsequently repurchased, under the unit repurchase program, both vested and unvested units in conjunction with the modifications. At the date of such modifications, the Partnership recognized total compensation expense of $167.2 million, which was included in the total equity-based compensation expense of $2.5 billion for the nine months ended September 30, 2008, related to the modifications and cash settlement.

Units Expected to Vest

The following unvested units, as of September 30, 2009, are expected to vest:


	Units	Weighted-Average Service Period in Years
Blackstone Holdings Partnership Units	256,303,485	4.2
Deferred Restricted Blackstone Common Units and Options	16,364,005	4.4

Total Equity-Based Awards	272,667,490	4.2

Phantom Units	183,605	0.8

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—(Continued)

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

10.

RELATED PARTY TRANSACTIONS

Affiliate Receivables and Payables

Blackstone Group considers its Founder, senior managing directors, employees, the Blackstone Funds and the Portfolio Companies to be affiliates. As of September 30, 2009 and December 31, 2008, Due from Affiliates and Due to Affiliates were comprised of the following:


	September 30, 2009		December 31, 2008
Due from Affiliates
Primarily Interest Bearing Advances Made on Behalf of Certain Non-Controlling Interest Holders and Blackstone Employees for Investments in Blackstone Funds	$	136,874	$	175,268
Amounts Due from Portfolio Companies and Funds		99,268		72,376
Payments Made on Behalf of Non-Consolidated Entities		54,182		58,536
Management and Performance Fees Due from Non-Consolidated Funds of Funds		51,134		50,774
Advances Made to Certain Non-Controlling Interest Holders and Blackstone Employees		12,022		8,130
Investments Redeemed in Non-Consolidated Funds of Funds		—		496,350

	$	353,480	$	861,434

Due to Affiliates
Due to Certain Non-Controlling Interest Holders in Connection with the Tax Receivable Agreement	$	822,074	$	722,449
Accrual for Potential Repayment of Previously Received Performance Fees and Allocations		500,376		260,018
Distributions Received on Behalf of Certain Non-Controlling Interest Holders and Blackstone Employees		50,304		262,737
Distributions Received on Behalf of Non-Consolidated Entities		27,038		22,938
Payments Made by Non-Consolidated Entities		5,672		17,435

	$	1,405,464	$	1,285,577

Interests of the Founder, Senior Managing Directors and Employees

In addition, the Founder, senior managing directors and employees invest on a discretionary basis in the Blackstone Funds both directly and through consolidated entities. Their investments may be subject to preferential management fee and performance fee and allocation arrangements. As of September 30, 2009 and December 31, 2008, the Founder’s, other senior managing directors’ and employees’ investments aggregated $604.1 million and $507.2 million, respectively, and the Founder’s, other senior managing directors’ and employees’ share of the Net Income (Loss) Attributable to Redeemable Non-Controlling and Non-Controlling Interests in Consolidated Entities aggregated $23.2 million and $(150.8) million for the three months ended September 30, 2009 and 2008, respectively, and $1.7 million and $(164.7) million for the nine months ended September 30, 2009 and 2008, respectively.

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)

Loans to Affiliates

Loans to affiliates consist of interest-bearing advances to certain Blackstone individuals to finance their investments in certain Blackstone Funds. These loans earn interest at Blackstone’s cost of borrowing and such interest totaled $0.6 million and $1.0 million for the three months ended September 30, 2009 and 2008, respectively, and $1.6 million and $4.1 million for the nine months ended September 30, 2009 and 2008, respectively. The fair value of these loans approximated their carrying value as of September 30, 2009. No such loans that were outstanding as of September 30, 2009 were made to any director or executive officer of Blackstone since March 22, 2007, the date of Blackstone’s initial filing with the Securities and Exchange Commission of a registration statement relating to its initial public offering.

Contingent Repayment Guarantee

Blackstone and its personnel who have received carried interest distributions have guaranteed payment on a several basis (subject to a cap), to the carry funds of any contingent repayment (clawback) obligation with respect to the excess carried interest allocated to the general partners of such funds and indirectly received thereby to the extent that either Blackstone or its personnel fails to fulfill its clawback obligation, if any. Carried interest is subject to clawback to the extent that the carried interest actually distributed to date exceeds the amount due to Blackstone based on cumulative results. The accrual for contingent repayments (“clawback”) a component of Due to Affiliates. Additional disclosures regarding contingent obligations (clawback) are discussed in Note 11.

Tax Receivable Agreement

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

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

Assuming no material changes in the relevant tax law and that the corporate taxpayers earn sufficient taxable income to realize the full tax benefit of the increased amortization of the assets, the expected future payments under the tax receivable agreements (which are taxable to the recipients) will aggregate $822.1 million over the next 15 years. The present value of these estimated payments totals $161.8 million assuming a 15% discount rate and using Blackstone’s most recent projections relating to the estimated timing of the benefit to be

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)

received. Future payments under the tax receivable agreements in respect of subsequent exchanges would be in addition to these amounts. The payments under the tax receivable agreement are not conditioned upon continued ownership of Blackstone equity interests by the pre-IPO owners and the others mentioned above. In January 2009 payments totaling $17.0 million were made to certain pre-IPO owners in accordance with the tax receivable agreement and related to tax benefits we received for the 2007 taxable year.

11.

COMMITMENTS AND CONTINGENCIES

Guarantees — Blackstone had approximately $6.0 million of letters of credit outstanding to provide collateral support related to a credit facility at September 30, 2009.

Certain real estate funds guarantee payments to third parties in connection with the on-going business activities and/or acquisitions of their Portfolio Companies. At September 30, 2009, such guarantees amounted to $7.0 million.

Debt Covenants — Blackstone’s debt obligations contain various customary loan covenants. In management’s opinion, these covenants do not materially restrict Blackstone’s investment or financing strategy. Blackstone was in compliance with all of its loan covenants as of September 30, 2009.

Investment Commitments — The Blackstone Funds had signed investment commitments with respect to investments representing commitments of $27.6 million as of September 30, 2009. Included in this is $0.2 million of signed investment commitments for portfolio company acquisitions in the process of closing.

The general partners of the Blackstone Funds had unfunded commitments to each of their respective funds totaling $1.4 billion as of September 30, 2009.

Certain of Blackstone’s funds of hedge funds not consolidated in these financial statements have unfunded investment commitments to unaffiliated hedge funds of $730.6 million as of September 30, 2009. The funds of hedge funds consolidated in these financial statements may, but are not required to, allocate assets to these funds.

Contingent Obligations (Clawback) — Included within Net Gains (Losses) from Fund Investment Activities in the Condensed Consolidated Statements of Operations are gains from Blackstone Fund investments. The portion of net gains (losses) attributable to non-controlling interest holders is included within Non-Controlling Interests in Income of Consolidated Entities. Net gains (losses) attributable to non-controlling interest holders are net of carried interest earned by Blackstone. Carried interest is subject to clawback to the extent that the carried interest received to date exceeds the amount due to Blackstone based on cumulative results.

If, at September 30, 2009, all of the investments held by the carry funds, which are at fair value, were deemed worthless, a possibility that management views as remote, the amount of carried interest subject to potential clawback would be $1.4 billion, on an after tax basis where applicable, of which $339.3 million related to Blackstone Holdings and $1.0 billion related to current and former Blackstone personnel. The Accrual for Potential Repayment of Previously Received Performance Fees and Allocations included in Due to Affiliates represents all amounts previously distributed to Blackstone Holdings and current and former Blackstone personnel that would need to be repaid to the Blackstone Funds if the Blackstone carry funds were to be liquidated based on the current fair value of the underlying funds’ investments as of September 30, 2009 and December 31, 2008. The actual clawback liability, however, does not become realized until the end of a fund’s

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)

life or one year after a realized loss is incurred, depending on the fund. As of September 30, 2009, such obligations were $500.4 million, of which $219.8 million related to Blackstone Holdings and $280.6 million related to current and former Blackstone personnel. As of December 31, 2008, such obligations were $260.0 million, of which $109.8 million related to Blackstone Holdings and $150.2 million related to current and former Blackstone personnel. A portion of the carried interest paid to current and former Blackstone personnel is held in segregated accounts in the event of a cash clawback obligation. These segregated accounts are not included in the condensed consolidated financial statements of the Partnership, except to the extent a portion of the assets held in the segregated accounts may be allocated to a consolidated Blackstone fund of hedge funds. At September 30, 2009, $473.4 million was held in segregated accounts.

Contingent Performance Fees and Allocations — Through September 30, 2009, $35.3 million of performance fees and allocations has been recorded attributable to hedge funds where the measurement period has not ended.

Litigation — From time to time, Blackstone is named as a defendant in legal actions relating to transactions conducted in the ordinary course of business. After consultation with legal counsel, management believes the ultimate liability arising from such actions that existed as of September 30, 2009, if any, will not materially affect Blackstone’s results of operations, financial position or cash flows.

12.

SEGMENT REPORTING

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

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

•

Corporate Private Equity — Blackstone’s Corporate Private Equity segment comprises its management of corporate private equity funds.

•

Real Estate — Blackstone’s Real Estate segment comprises its management of general real estate funds and internationally focused real estate funds.

•

Credit and Marketable Alternatives — Blackstone’s Credit and Marketable Alternatives segment, whose consistent focus is current earnings, comprises its management of funds of hedge funds, credit-oriented funds, CLO vehicles, publicly-traded closed-end mutual funds and separately managed accounts. GSO’s results have been included in this segment from the date of acquisition. This segment, formerly known as Marketable Alternative Asset Management, has been renamed to better reflect the product mix in this segment. This does not reflect a change to the underlying businesses or how they are reflected in Blackstone’s results of operations.

•

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

These business segments are differentiated by their various sources of income, with the Corporate Private Equity, Real Estate and Credit and Marketable Alternatives segments primarily earning their income from management fees and investment returns on assets under management, while the Financial Advisory segment primarily earns its income from fees related to investment banking services and advice and fund placement services.

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)

Economic Net Income (“ENI”) is a key performance measure used by management. ENI represents segment net income excluding the impact of income taxes and IPO and acquisition-related items, including charges associated with equity-based compensation, the amortization of intangibles and corporate actions including acquisitions. For segment reporting purposes, revenues and expenses are presented on a basis that deconsolidates the investment funds we manage. The aggregate of ENI for all segments equals Total Segment ENI. ENI is used by management primarily in making resource deployment and compensation decisions across Blackstone’s four segments.

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

The following table presents the financial data for Blackstone’s four segments for the three months ended September 30, 2009 and 2008:


	Three Months Ended September 30, 2009
	Corporate Private Equity			Real Estate			Credit and Marketable Alternatives			Financial Advisory		Total Reportable Segments
Segment Revenues
Management Fees
Base Management Fees	$	67,009		$	83,409		$	105,430		$	—	$	255,848
Advisory Fees		—			—			—			94,566		94,566
Transaction and Other Fees		19,303			3,347			778			—		23,428
Management Fee Offsets		(935	)		(415	)		(4,121	)		—		(5,471	)

Total Management and Advisory Fees		85,377			86,341			102,087			94,566		368,371
Performance Fees and Allocations		110,867			12,167			43,736			—		166,770
Investment Income and Other		30,664			1,649			33,573			2,777		68,663

Total Revenues		226,908			100,157			179,396			97,343		603,804

Expenses
Compensation and Benefits		69,901			42,515			79,801			57,686		249,903
Other Operating Expenses		21,318			13,437			18,123			22,666		75,544

Total Expenses		91,219			55,952			97,924			80,352		325,447

Economic Net Income	$	135,689		$	44,205		$	81,472		$	16,991	$	278,357

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—(Continued)

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


	Three Months Ended September 30, 2008
	Corporate Private Equity			Real Estate			Credit and Marketable Alternatives			Financial Advisory		Total Reportable Segments
Segment Revenues
Management Fees
Base Management Fees	$	67,009		$	80,361		$	131,908		$	—	$	279,278
Advisory Fees		—			—			—			157,026		157,026
Transaction and Other Fees		26,090			7,050			3,806			—		36,946
Management Fee Offsets		(9,330	)		(1,435	)		(165	)		—		(10,930	)

Total Management and Advisory Fees		83,769			85,976			135,549			157,026		462,320
Performance Fees and Allocations		(104,653	)		(302,448	)		(12,488	)		—		(419,589	)
Investment Income (Loss) and Other		(47,454	)		(57,180	)		(171,033	)		3,716		(271,951	)

Total Revenues		(68,338	)		(273,652	)		(47,972	)		160,742		(229,220	)

Expenses
Compensation and Benefits		34,192			21,102			60,268			82,295		197,857
Other Operating Expenses		23,957			14,807			26,073			17,352		82,189

Total Expenses		58,149			35,909			86,341			99,647		280,046

Economic Net Income (Loss)	$	(126,487	)	$	(309,561	)	$	(134,313	)	$	61,095	$	(509,266	)

The following table reconciles the Total Segments to Blackstone’s Income (Loss) Before Provision (Benefit) for Taxes for the three months ended September 30, 2009 and 2008:


	Three Months Ended September 30, 2009
	Total Segments		Consolidation Adjustments and Reconciling Items			Blackstone Consolidated
Revenues	$	603,804	$	(6,781	)(a)	$	597,023
Expenses	$	325,447	$	772,347	(b)	$	1,097,794
Other Income	$	—	$	73,812	(c)	$	73,812
Economic Net Income (Loss)	$	278,357	$	(705,316	)(d)	$	(426,959	)


	Three Months Ended September 30, 2008
	Total Segments			Consolidation Adjustments and Reconciling Items			Blackstone Consolidated
Revenues	$	(229,220	)	$	68,966	(a)	$	(160,254	)
Expenses	$	280,046		$	852,652	(b)	$	1,132,698
Other Loss	$	—		$	(550,755	)(c)	$	(550,755	)
Economic Net Income (Loss)	$	(509,266	)	$	(1,334,441	)(d)	$	(1,843,707	)

(a)	The Revenues adjustment principally represents management and performance fees and allocations earned from Blackstone Funds to arrive at Blackstone consolidated revenues which were eliminated in consolidation.

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—(Continued)

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

(b)	The Expenses adjustment represents the addition of expenses of the consolidated Blackstone Funds to the Blackstone unconsolidated expenses, amortization of intangibles and expenses related to equity-based compensation to arrive at Blackstone consolidated expenses.

(c)	The Other Income (Loss) adjustment results from the following:


	Three Months Ended September 30,
	2009		2008
Fund Management Fees and Performance Fees and Allocations Eliminated in Consolidation	$	6,770	$	(75,843	)
Fund Expenses Added in Consolidation		2,106		14,064
Non-Controlling Interests in Income (Loss) of Consolidated Entities		64,936		(488,976	)

Total Consolidation Adjustments	$	73,812	$	(550,755	)

(d)	The reconciliation of Economic Net Income to Income Before Provision for Taxes as reported in the Condensed Consolidated Statements of Operations consists of the following:


	Three Months Ended September 30,
	2009			2008
Economic Net Income (Loss)	$	278,357		$	(509,266	)

Adjustments
Amortization of Intangibles		(39,513	)		(39,512	)
IPO and Acquisition-Related Charges		(719,708	)		(804,055	)
Other Adjustments		—			(12,288	)
Income (Loss) Associated with Non-Controlling Interests in Income (Loss) of Consolidated Entities		53,905			(478,586	)

Total Adjustments		(705,316	)		(1,334,441	)

Income (Loss) Before Provision (Benefit) for Taxes	$	(426,959	)	$	(1,843,707	)

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 financial data for Blackstone’s four segments for the nine months ended September 30, 2009 and 2008:


	Nine Months Ended September 30, 2009
	Corporate Private Equity			Real Estate			Credit and Marketable Alternatives			Financial Advisory		Total Reportable Segments
Segment Revenues
Management Fees
Base Management Fees	$	203,180		$	245,124		$	298,226		$	—	$	746,530
Advisory Fees		—			—			—			268,009		268,009
Transaction and Other Fees		48,996			9,366			1,908			—		60,270
Management Fee Offsets		(5,155	)		(2,094	)		(12,699	)		—		(19,948	)

Total Management and Advisory Fees		247,021			252,396			287,435			268,009		1,054,861
Performance Fees and Allocations		212,870			(263,776	)		76,077			—		25,171
Investment Income (Loss) and Other		33,699			(119,939	)		55,496			3,874		(26,870	)

Total Revenues		493,590			(131,319	)		419,008			271,883		1,053,162

Expenses
Compensation and Benefits		119,040			(1,628	)*		198,341			162,877		478,630
Other Operating Expenses		61,979			39,030			58,229			57,376		216,614

Total Expenses		181,019			37,402			256,570			220,253		695,244

Economic Net Income (Loss)	$	312,571		$	(168,721	)	$	162,438		$	51,630	$	357,918

Segment Assets as of September 30, 2009	$	2,595,451		$	1,597,146		$	2,629,095		$	988,897	$	7,810,589

*	The credit balance in Compensation and Benefits for the Real Estate segment is primarily the result of a reversal of $114.5 million of prior period carried interest allocations made to certain partners that are participating in the Partnership’s profit sharing arrangements.

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)


	Nine Months Ended September 30, 2008
	Corporate Private Equity			Real Estate			Credit and Marketable Alternatives			Financial Advisory		Total Reportable Segments
Segment Revenues
Management Fees
Base Management Fees	$	201,312		$	215,089		$	362,560		$	—	$	778,961
Advisory Fees		—			—			—			296,669		296,669
Transaction and Other Fees		56,088			25,699			7,818			—		89,605
Management Fee Offsets		(32,972	)		(2,165	)		(181	)		—		(35,318	)

Total Management and Advisory Fees		224,428			238,623			370,197			296,669		1,129,917
Performance Fees and Allocations		(246,123	)		(409,643	)		37,597			—		(618,169	)
Investment Income (Loss) and Other		(70,912	)		(69,144	)		(200,531	)		8,139		(332,448	)

Total Revenues		(92,607	)		(240,164	)		207,263			304,808		179,300

Expenses
Compensation and Benefits		(6,277	)*		88,873			200,703			177,836		461,135
Other Operating Expenses		67,037			43,548			69,538			40,950		221,073

Total Expenses		60,760			132,421			270,241			218,786		682,208

Economic Net Income (Loss)	$	(153,367	)	$	(372,585	)	$	(62,978	)	$	86,022	$	(502,908	)

The credit balance in Compensation and Benefits for the Corporate Private Equity segment is primarily the result of a reversal of $107.1million of prior period carried interest allocations made to certain partners that are participating in the Partnership’s profit sharing arrangements due to decreases in the fair value of certain portfolio invesments.

The following table reconciles the Total Segments to Blackstone’s Income (Loss) Before Provision (Benefit) for Taxes and Total Assets for the nine months ended September 30, 2009 and 2008:


	September 30, 2009 and the Nine Months then Ended
	Total Segments		Consolidation Adjustments and Reconciling Items			Blackstone Consolidated
Revenues	$	1,053,162	$	(4,809	)(a)	$	1,048,353
Expenses	$	695,244	$	2,376,614	(b)	$	3,071,858
Other Income	$	—	$	97,353	(c)	$	97,353
Economic Net Income (Loss)	$	357,918	$	(2,284,070	)(d)	$	(1,926,152	)
Total Assets	$	7,810,589	$	919,392	(e)	$	8,729,981

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)


	Nine Months Ended September 30, 2008
	Total Segments			Consolidation Adjustments and Reconciling Items			Blackstone Consolidated
Revenues	$	179,300		$	82,621	(a)	$	261,921
Expenses	$	682,208		$	2,712,361	(b)	$	3,394,569
Other Loss	$	—		$	(576,713	)(c)	$	(576,713	)
Economic Net Income (Loss)	$	(502,908	)	$	(3,206,453	)(d)	$	(3,709,361	)

(a)	The Revenues adjustment principally represents management and performance fees and allocations earned from Blackstone Funds to arrive at Blackstone consolidated revenues which were eliminated in consolidation.

(b)	The Expenses adjustment represents the addition of expenses of the consolidated Blackstone Funds to the Blackstone unconsolidated expenses to arrive at Blackstone consolidated expenses.

(c)	The Other Income (Loss) adjustment results from the following:


	Nine Months Ended September 30,
	2009		2008
Fund Management Fees and Performance Fees and Allocations Eliminated in Consolidation	$	2,018	$	(93,581	)
Fund Expenses Added in Consolidation		8,179		60,966
Non-Controlling Interests in Income (Loss) of Consolidated Entities		87,156		(544,098	)

Total Consolidation Adjustments	$	97,353	$	(576,713	)

(d)	The reconciliation of Economic Net Income to Income Before Benefit for Taxes as reported in the Condensed Consolidated Statements of Operations consists of the following:


	Nine Months Ended September 30,
	2009			2008
Economic Net Income (Loss)	$	357,918		$	(502,908	)

Adjustments
Amortization of Intangibles		(118,537	)		(113,725	)
IPO and Acquisition-Related Charges		(2,222,599	)		(2,541,052	)
Other Adjustments		—			(12,288	)
Income (Loss) Associated with Non-Controlling Interests in Income (Loss) of Consolidated Entities		57,066			(539,388	)

Total Adjustments		(2,284,070	)		(3,206,453	)

Income (Loss) Before Provision (Benefit) for Taxes	$	(1,926,152	)	$	(3,709,361	)

(e)	The Total Assets adjustment represents the addition of assets of the consolidated Blackstone Funds to the Blackstone unconsolidated assets to arrive at Blackstone consolidated assets.

13.

SUBSEQUENT EVENTS

There have been no subsequent events through November 6, 2009, the date that Blackstone’s condensed consolidated financial statements were available to be issued, that require recognition or disclosure in such condensed consolidated financial statements.

ITEM 1A.

UNAUDITED SUPPLEMENTAL PRESENTATION OF STATEMENTS OF FINANCIAL CONDITION

THE BLACKSTONE GROUP L.P.

Unaudited Condensed Consolidated Statements of Financial Condition

(Dollars in Thousands)


	September 30, 2009
	Consolidated Operating Partnerships			Consolidated Blackstone Funds (a)		Reclasses and Eliminations			Consolidated
Assets
Cash and Cash Equivalents	$	486,470		$	—	$	—		$	486,470
Cash Held by Blackstone Funds and Other		59,518			14,206		—			73,724
Investments		2,916,909			1,111,956		(216,657	)		3,812,208
Accounts Receivable		238,203			4,908		—			243,111
Due from Brokers		—			805		—			805
Investment Subscriptions Paid in Advance		238			—		—			238
Due from Affiliates		349,559			15,819		(11,898	)		353,480
Intangible Assets, Net		958,989			—		—			958,989
Goodwill		1,703,602			—		—			1,703,602
Other Assets		160,053			253		—			160,306
Deferred Tax Assets		937,048			—		—			937,048

Total Assets	$	7,810,589		$	1,147,947	$	(228,555	)	$	8,729,981

Liabilities and Partners’ Capital
Loans Payable	$	673,386		$	—	$	—		$	673,386
Amounts Due to Non-Controlling Interest Holders		61,582			101,427		—			163,009
Securities Sold, Not Yet Purchased		—			418		—			418
Due to Affiliates		1,397,305			20,057		(11,898	)		1,405,464
Accrued Compensation and Benefits		461,590			2,154		—			463,744
Accounts Payable, Accrued Expenses and Other Liabilities		135,943			3,800		—			139,743

Total Liabilities		2,729,806			127,856		(11,898	)		2,845,764

Redeemable Non-Controlling Interests in Consolidated Entities		—			—		466,056			466,056

Partners’ Capital
Partners’ Capital		3,340,428			682,713		(682,713	)		3,340,428
Accumulated Other Comprehensive Income		(177	)		—		—			(177	)
Non-Controlling Interests in Consolidated Entities		(154,871	)		337,378		—			182,507
Non-Controlling Interests in Blackstone Holdings		1,895,403			—		—			1,895,403

Total Partners’ Capital		5,080,783			1,020,091		(682,713	)		5,418,161

Total Liabilities and Partners’ Capital	$	7,810,589		$	1,147,947	$	(228,555	)	$	8,729,981

THE BLACKSTONE GROUP L.P.

Unaudited Condensed Consolidated Statements of Financial Condition—(Continued)

(Dollars in Thousands)


	December 31, 2008
	Consolidated Operating Partnerships			Consolidated Blackstone Funds (a)		Reclasses and Eliminations			Consolidated
Assets
Cash and Cash Equivalents	$	503,737		$	—	$	—		$	503,737
Cash Held by Blackstone Funds and Other		57,536			849,788		—			907,324
Investments		1,650,071			1,385,132		(204,261	)		2,830,942
Accounts Receivable		309,201			2,866		—			312,067
Due from Brokers		—			48,506		—			48,506
Investment Subscriptions Paid in Advance		6,697			—		(4,781	)		1,916
Due from Affiliates		1,057,362			216		(196,144	)		861,434
Intangible Assets, Net		1,077,526			—		—			1,077,526
Goodwill		1,703,602			—		—			1,703,602
Other Assets		169,333			222		—			169,555
Deferred Tax Assets		845,578			—		—			845,578

Total Assets	$	7,380,643		$	2,286,730	$	(405,186	)	$	9,262,187

Liabilities and Partners’ Capital
Loans Payable	$	387,000		$	—	$	—		$	387,000
Amounts Due to Non-Controlling Interest Holders		105,942			1,009,780		(12,299	)		1,103,423
Securities Sold, Not Yet Purchased		—			894		—			894
Due to Affiliates		1,064,980			362,526		(141,929	)		1,285,577
Accrued Compensation and Benefits		410,593			2,866		—			413,459
Accounts Payable, Accrued Expenses and Other Liabilities		176,418			112,699		(108,858	)		180,259

Total Liabilities		2,144,933			1,488,765		(263,086	)		3,370,612

Redeemable Non-Controlling Interests in Consolidated Entities		—			—		362,462			362,462

Partners’ Capital
Partners’ Capital		3,509,448			504,562		(504,562	)		3,509,448
Accumulated Other Comprehensive Income		(291	)		—		—			(291	)
Non-Controlling Interests in Consolidated Entities		(95,206	)		293,403		—			198,197
Non-Controlling Interests in Blackstone Holdings		1,821,759			—		—			1,821,759

Total Partners’ Capital		5,235,710			797,965