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 MARCH 31, 2012

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

Commission File Number: 001-33551

The Blackstone Group L.P.

(Exact name of Registrant as specified in its charter)

Delaware

20-8875684

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

345 Park Avenue

New York, New York 10154

(Address of principal executive offices)(Zip Code)

(212) 583-5000

(Registrant’s telephone number, including area code)

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

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

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


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

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

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

TABLE OF CONTENTS


		Page
PART I.	FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS		4

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

	Condensed Consolidated Statements of Financial Condition as of March 31, 2012 and December 31, 2011		4

	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2012 and 2011		6

	Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2012 and 2011		7

	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2012 and 2011		8

	Notes to Condensed Consolidated Financial Statements		10

ITEM 1A.	UNAUDITED SUPPLEMENTAL PRESENTATION OF STATEMENTS OF FINANCIAL CONDITION		48

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		51

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		104

ITEM 4.	CONTROLS AND PROCEDURES		107

PART II.	OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS		108

ITEM 1A.	RISK FACTORS		109

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		109

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES		110

ITEM 4.	MINE SAFETY DISCLOSURES		110

ITEM 5.	OTHER INFORMATION		110

ITEM 6.	EXHIBITS		110

SIGNATURES			111

Forward-Looking Statements

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

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

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

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

(a)

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

(b)

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

(c)

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

(d)

the amount of capital raised for our CLOs.

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

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

(a)

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

(b)

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

(c)

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

(d)

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

(e)

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

(f)

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

(g)

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

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

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

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

PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

THE BLACKSTONE GROUP L.P.

Condensed Consolidated Statements of Financial Condition (Unaudited)

(Dollars in Thousands, Except Unit Data)


	March 31, 2012		December 31, 2011
Assets
Cash and Cash Equivalents	$	391,304	$	754,744
Cash Held by Blackstone Funds and Other		784,086		724,762
Investments (including assets pledged of $187,884 and $101,298 at March 31, 2012 and December 31, 2011, respectively)		19,748,524		15,128,299
Accounts Receivable		576,566		406,140
Reverse Repurchase Agreements		83,761		139,485
Due from Affiliates		822,495		860,514
Intangible Assets, Net		689,565		595,488
Goodwill		1,703,602		1,703,602
Other Assets		455,888		337,396
Deferred Tax Assets		1,290,570		1,258,699

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

Liabilities and Partners’ Capital
Loans Payable	$	12,693,529	$	8,867,568
Due to Affiliates		1,723,993		1,811,468
Accrued Compensation and Benefits		820,683		903,260
Securities Sold, Not Yet Purchased		82,733		143,825
Repurchase Agreements		189,146		101,849
Accounts Payable, Accrued Expenses and Other Liabilities		1,011,428		828,873

Total Liabilities		16,521,512		12,656,843

Commitments and Contingencies

Redeemable Non-Controlling Interests in Consolidated Entities		618,417		585,606

Partners’ Capital
Partners’ Capital (common units: 504,801,275 issued and outstanding as of March 31, 2012; 489,430,907 issued and outstanding as of December 31, 2011)		4,380,744		4,281,841
Appropriated Partners’ Capital		764,741		386,864
Accumulated Other Comprehensive Income		3,297		1,958
Non-Controlling Interests in Consolidated Entities		1,738,063		1,535,497
Non-Controlling Interests in Blackstone Holdings		2,519,587		2,460,520

Total Partners’ Capital		9,406,432		8,666,680

Total Liabilities and Partners’ Capital	$	26,546,361	$	21,909,129

continued…

See notes to condensed consolidated financial statements.

THE BLACKSTONE GROUP L.P.

Condensed Consolidated Statements of Financial Condition (Unaudited)

(Dollars in Thousands)

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


	March 31, 2012		December 31, 2011
Assets
Cash Held by Blackstone Funds and Other	$	705,575	$	598,441
Investments		13,134,899		8,961,960
Accounts Receivable		46,318		33,405
Due from Affiliates		34,214		36,502
Other Assets		129,867		12,031

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

Liabilities
Loans Payable	$	11,639,749	$	7,801,136
Due to Affiliates		224,782		311,909
Accounts Payable, Accrued Expenses and Other		483,695		244,488

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

See notes to condensed consolidated financial statements.

THE BLACKSTONE GROUP L.P.

Condensed Consolidated Statements of Operations (Unaudited)

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


	Three Months Ended March 31,
	2012			2011
Revenues
Management and Advisory Fees, Net	$	471,676		$	412,738

Performance Fees
Realized		18,839			96,203
Unrealized		365,931			512,401

Total Performance Fees		384,770			608,604

Investment Income
Realized		16,335			12,783
Unrealized		72,826			107,395

Total Investment Income		89,161			120,178

Interest and Dividend Revenue		7,636			9,490
Other		(1,207	)		2,259

Total Revenues		952,036			1,153,269

Expenses
Compensation and Benefits
Compensation		495,255			659,483
Performance Fee Compensation
Realized		12,190			14,543
Unrealized		97,322			162,525

Total Compensation and Benefits		604,767			836,551
General, Administrative and Other		142,766			129,386
Interest Expense		14,518			13,803
Fund Expenses		21,742			11,124

Total Expenses		783,793			990,864

Other Income
Net Gains (Losses) from Fund Investment Activities		288,142			(45,191	)

Income Before Provision for Taxes		456,385			117,214
Provision for Taxes		38,753			38,850

Net Income		417,632			78,364
Net Income Attributable to Redeemable Non-Controlling Interests in Consolidated Entities		39,609			22,025
Net Income (Loss) Attributable to Non-Controlling Interests in Consolidated Entities		212,293			(93,081	)
Net Income Attributable to Non-Controlling Interests in Blackstone Holdings		107,405			106,716

Net Income Attributable to The Blackstone Group L.P.	$	58,325		$	42,704

Net Income Per Common Unit, Basic	$	0.12		$	0.10

Net Income Per Common Unit, Diluted	$	0.11		$	0.09

Weighted-Average Common Units Outstanding — Basic		506,985,529			447,742,389

Weighted-Average Common Units Outstanding — Diluted		517,389,558			457,652,916

Revenues Earned from Affiliates
Management and Advisory Fees	$	47,984		$	70,038

See notes to condensed consolidated financial statements.

THE BLACKSTONE GROUP L.P.

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

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


	Three Months Ended March 31,
	2012			2011
Net Income	$	417,632		$	78,364
Other Comprehensive Income (Loss), Net of Tax — Currency Translation Adjustment		(2,174	)		3,505

Comprehensive Income		415,458			81,869
Less:
Comprehensive Income Attributable to Redeemable Non-Controlling Interests in Consolidated Entities		39,609			22,025
Comprehensive Income (Loss) Attributable to Non-Controlling Interests in Consolidated Entities		208,780			(88,375	)
Comprehensive Income Attributable to Non-Controlling Interests in Blackstone Holdings		107,405			106,716

Comprehensive Income Attributable to The Blackstone Group L.P.	$	59,664		$	41,503

See notes to condensed consolidated financial statements.

THE BLACKSTONE GROUP L.P.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(Dollars in Thousands)


	Three Months Ended March 31,
	2012			2011
Operating Activities
Net Income	$	417,632		$	78,364
Adjustments to Reconcile Net Income to Net Cash Provided by (Used in) Operating Activities:
Blackstone Funds Related:
Unrealized Appreciation on Investments Allocable to Non-Controlling Interests in Consolidated Entities		(259,698	)		(20,698	)
Net Realized Gains on Investments		(79,174	)		(179,148	)
Changes in Unrealized Gains on Investments Allocable to The Blackstone Group L.P.		(46,967	)		(89,106	)
Unrealized Depreciation (Appreciation) on Hedge Activities		(794	)		561
Non-Cash Performance Fees		(287,776	)		(375,102	)
Non-Cash Performance Fee Compensation		109,512			177,069
Equity-Based Compensation Expense		222,444			426,280
Amortization of Intangibles		48,142			40,846
Other Non-Cash Amounts Included in Net Income		34,134			14,806
Cash Flows Due to Changes in Operating Assets and Liabilities:
Cash Held by Blackstone Funds and Other		241,973			141,787
Cash Relinquished with Deconsolidation and Liquidation of Partnership		19,155			395
Accounts Receivable		(131,943	)		130,920
Reverse Repurchase Agreements		55,725			(48,298	)
Due from Affiliates		(4,466	)		(984	)
Other Assets		80,161			32,723
Accrued Compensation and Benefits		(102,276	)		(273,284	)
Securities Sold, Not Yet Purchased		(52,859	)		93,711
Accounts Payable, Accrued Expenses and Other Liabilities		(513,451	)		(283,179	)
Repurchase Agreements		87,298			9,223
Due to Affiliates		(58,313	)		22,307
Treasury Cash Management Strategies:
Investments Purchased		(715,090	)		(733,450	)
Cash Proceeds from Sale of Investments		842,199			708,437
Blackstone Funds Related:
Investments Purchased		(1,534,651	)		(1,953,083	)
Cash Proceeds from Sale or Pay Down of Investments		1,763,311			2,520,410

Net Cash Provided by Operating Activities		134,228			441,507

Investing Activities
Purchase of Furniture, Equipment and Leasehold Improvements		(13,086	)		(5,710	)
Net Cash Paid for Acquisitions, Net of Cash Acquired		(156,972	)		—
Changes in Restricted Cash		(166	)		321

Net Cash Used in Investing Activities		(170,224	)		(5,389	)

continued…

See notes to condensed consolidated financial statements

THE BLACKSTONE GROUP L.P.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(Dollars in Thousands)


	Three Months Ended March 31,
	2012			2011
Financing Activities
Distributions to Non-Controlling Interest Holders in Consolidated Entities	$	(47,338	)	$	(135,412	)
Contributions from Non-Controlling Interest Holders in Consolidated Entities		157,381			118,434
Purchase of Interests from Certain Non-Controlling Interest Holders		(16	)		(2,056	)
Net Settlement of Vested Common Units and Repurchase of Common and Holdings Units		(8,821	)		(6,823	)
Proceeds from Loans Payable		1,365			2,246
Repayment of Loans Payable		(8,952	)		(17,713	)
Distributions to Unitholders		(279,224	)		(371,994	)
Blackstone Funds Related:
Proceeds from Loans Payable		3,839			200
Repayment of Loans Payable		(145,673	)		(155,810	)

Net Cash Used in Financing Activities		(327,439	)		(568,928	)

Effect of Exchange Rate Changes on Cash and Cash Equivalents		(5	)		—

Net Decrease in Cash and Cash Equivalents		(363,440	)		(132,810	)
Cash and Cash Equivalents, Beginning of Period		754,744			588,621

Cash and Cash Equivalents, End of Period	$	391,304		$	455,811

Supplemental Disclosure of Cash Flows Information
Payments for Interest	$	37,409		$	635

Payments for Income Taxes	$	6,866		$	17,611

Supplemental Disclosure of Non-Cash Investing and Financing Activities
Net Activities Related to Capital Transactions of Consolidated Blackstone Funds	$	(2,633	)	$	1,721

Net Assets Related to the Consolidation of CLO Vehicles	$	233,541		$	—

In-kind Redemption of Capital	$	(2,017	)	$	—

In-kind Contribution of Capital	$	2,017		$	—

Transfer of Interests to Non-Controlling Interest Holders	$	(1,191	)	$	(1,111	)

Change in The Blackstone Group L.P.’s Ownership Interest	$	(8,867	)	$	(5,772	)

Net Settlement of Vested Common Units	$	6,328		$	4,369

Conversion of Blackstone Holdings Units to Common Units	$	40,273		$	137,961

Exchange of Founders’ and Non-Controlling Interest Holders’ Interests in Blackstone Holdings:
Deferred Tax Asset	$	(41,029	)	$	(176,013	)

Due to Affiliates	$	34,122		$	142,212

Partners’ Capital	$	6,907		$	33,801

See notes to condensed consolidated financial statements.

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements

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

1.	ORGANIZATION

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

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

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

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

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

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

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

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)

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

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

All intercompany balances and transactions have been eliminated in consolidation.

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

Consolidation

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

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

(a)

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

(b)

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

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)

(c)

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

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

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

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

Fair Value of Financial Instruments

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

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

•

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

•

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

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

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

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

•

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

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

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

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

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

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

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

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

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

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

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

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

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

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

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

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

Investments, at Fair Value

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

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

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

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

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

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

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

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

Equity Method Investments

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

Repurchase and Reverse Repurchase Agreements

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

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

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

Securities Sold, Not Yet Purchased

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

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

Derivative Instruments

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

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)

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

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

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

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

Affiliates

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

Distributions

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

Recent Accounting Developments

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

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

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

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

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

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

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

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

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

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

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

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

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

3.	ACQUISITIONS, GOODWILL AND INTANGIBLE ASSETS

Acquisition of Harbourmaster

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

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


Purchase Price — Cash	$	232,044

Fair Value of Assets Acquired and Liabilities Assumed
Assets
Cash	$	75,072
Investments in CLOs		9,305
Accounts Receivable		9,329
Other Assets		17,651
Intangible Assets		142,221

		253,578
Liabilities Assumed
Accounts Payable, Accrued Expenses and Other Liabilities		21,534

Net Assets Acquired	$	232,044

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

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

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


	Three Months Ended
	March 31, 2011
	(Unaudited)
Total Revenues	$	1,171,279

Net Income Attributable to The Blackstone Group L.P.	$	50,817

Net Income Per Common Unit — Basic and Diluted	$	0.11

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

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

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

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

Goodwill and Intangible Assets

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

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

Intangible Assets, Net consists of the following:


	March 31, 2012			December 31, 2011
Finite-Lived Intangible Assets / Contractual Rights	$	1,536,244		$	1,394,023
Accumulated Amortization		(846,679	)		(798,535	)

Intangible Assets, Net	$	689,565		$	595,488

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

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

4.	INVESTMENTS

Investment

Investments consist of the following:


	March 31, 2012		December 31, 2011
Investments of Consolidated Blackstone Funds	$	14,628,978	$	10,306,795
Equity Method Investments		2,309,689		2,218,103
Blackstone’s Treasury Cash Management Strategies		595,634		685,859
Performance Fees		2,185,896		1,889,152
Other Investments		28,327		28,390

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

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

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

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

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

Investments of Consolidated Blackstone Funds

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


	Three Months Ended March 31,
	2012		2011
Realized Gains	$	44,350	$	70,101
Net Change in Unrealized Gains (Losses)		155,685		(134,890	)

	$	200,035	$	(64,789	)

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


	Three Months Ended March 31,
	2012		2011
Realized and Net Change in Unrealized Gains (Losses) from Blackstone Funds	$	200,035	$	(64,789	)
Interest and Dividend Revenue Attributable to Consolidated Blackstone Funds		88,107		19,598

Other Income — Net Gains (Losses) from Fund Investment Activities	$	288,142	$	(45,191	)

Equity Method Investments

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

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

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

Blackstone’s Treasury Cash Management Strategies

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


	Three Months Ended March 31,
	2012			2011
Realized Losses	$	(2,157	)	$	(301	)
Net Change in Unrealized Gains (Losses)		(4,419	)		629

	$	(6,576	)	$	328

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

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

Performance Fees

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


	Private Equity			Real Estate			Hedge Fund Solutions			Credit Businesses			Total
Performance Fees, December 31, 2011	$	620,359		$	943,859		$	1,858		$	323,076		$	1,889,152
Performance Fees Allocated as a Result of Changes in Fund Fair Values		43,321			235,485			13,783			66,054			358,643
Foreign Exchange Gain		—			1,278			—			—			1,278
Fund Cash Distributions		(3,349	)		(2,152	)		(1,858	)		(55,818	)		(63,177	)

Performance Fees, March 31, 2012	$	660,331		$	1,178,470		$	13,783		$	333,312		$	2,185,896

Other Investments

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


	Three Months Ended March 31,
	2012		2011
Realized Gains (Losses)	$	255	$	—
Net Change in Unrealized Gains (Losses)		2,737		949

	$	2,992	$	949

5.	NET ASSET VALUE AS FAIR VALUE

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


Strategy	Fair Value		Unfunded Commitments		Redemption Frequency (if currently eligible)			Redemption Notice Period
Diversified Instruments	$	158,687	$	7,912		(a	)		(a	)
Credit Driven		172,505		1,980		(b	)		(b	)
Event Driven		108,689		—		(c	)		(c	)
Equity		299,992		—		(d	)		(d	)
Commodities		48,335		—		(e	)		(e	)

	$	788,208	$	9,892

(a)

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

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

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

(b)

The Credit Driven category includes investments in hedge funds that invest primarily in domestic and international bonds. Investments representing 64% of the value of the investments in this category may not be redeemed at, or within three months of, the reporting date. Investments representing 18% of the value in the credit driven category are subject to redemption restrictions at the discretion of the investee fund manager who may choose (but may not have exercised such ability) to side-pocket such investments. Investments representing 1% of the value within this category represents an investment in a fund of hedge funds that is in the process of liquidation. Distributions from this fund will be received as underlying investments are liquidated. The remaining 17% of investments within this category are redeemable as of the reporting date.

(c)	The Event Driven category includes investments in hedge funds whose primary investing strategy is to identify certain event-driven investments. Withdrawals are not permitted in this category. Distributions will be received as the underlying investments are liquidated.

(d)

The Equity category includes investments in hedge funds that invest primarily in domestic and international equity securities. Investments representing 85% of the total value of investments in this category may not be redeemed at, or within three months of, the reporting date. The remaining 15% are subject to redemption restrictions at the discretion of the investee fund manager who may choose (but may not have elected such ability) to side-pocket such investments. As of the reporting date, the investee fund manager had not elected to side-pocket Blackstone’s investments.

(e)	The Commodities category includes investments in commodities-focused hedge funds that primarily invest in futures and physical-based commodity driven strategies. Withdrawals are not permitted in this category. Distributions will be received as the underlying investments are liquidated.

6.	DERIVATIVE FINANCIAL INSTRUMENTS

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

Fair Value Hedges

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

Freestanding Derivatives

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

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

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

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


	March 31, 2012								December 31, 2011
	Assets				Liabilities				Assets				Liabilities
	Notional		Fair Value		Notional		Fair Value		Notional		Fair Value		Notional		Fair Value
Fair Value Hedges
Interest Rate Swaps	$	450,000	$	55,813	$	—	$	—	$	450,000	$	67,668	$	—	$	—

Freestanding Derivatives
Blackstone — Other
Interest Rate Contracts		160,300		1,172		146,100		157		221,350		768		502,200		1,291
Foreign Currency Contracts		7,395		125		8,407		477		22,698		1,016		7,293		103
Credit Default Swaps		—		—		850		91		—		—		—		—
Investments of Consolidated Blackstone Funds
Foreign Currency Contracts		575,470		38,742		157,646		7,596		177,453		22,016		159,409		7,687
Interest Rate Contracts		182,734		7,948		176,400		5,318		95,482		7,270		191,400		10,867

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

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

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


	Three Months Ended March 31,
	2012			2011
Fair Value Hedges — Interest Rate Swaps
Hedge Ineffectiveness	$	(794	)	$	(567	)

Excluded from Assessment of Effectiveness	$	(5,888	)	$	(7,423	)


Freestanding Derivatives
Realized Gains (Losses)
Interest Rate Contracts	$	136		$	1,002
Foreign Currency Contracts		1,725			(701	)
Other		—			(77	)

Total	$	1,861		$	224

Net Change in Unrealized Gain (Loss)
Interest Rate Contracts	$	6,597		$	(1,181	)
Foreign Currency Contracts		13,721			(270	)
Credit Default Swaps		4			—
Other		—			3

Total	$	20,322		$	(1,448	)

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

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

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

7.	FAIR VALUE OPTION

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


	As of March 31, 2012		As of December 31, 2011
Assets
Loans and Receivables	$	105,004	$	8,555
Assets of Consolidated CLO Vehicles
Corporate Loans		11,904,542		7,901,020
Corporate Bonds		282,768		153,653
Other		84,631		77,295

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

Liabilities
Liabilities of Consolidated CLO Vehicles
Senior Secured Notes	$	10,984,018	$	7,449,766
Subordinated Notes		857,772		630,236

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

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


	Three Months Ended March 31,
	2012						2011
	Realized Gains (Losses)			Net Change in Unrealized Gains (Losses)			Realized Gains (Losses)			Net Change in Unrealized Gains (Losses)
Assets
Loans and Receivables	$	—		$	6		$	—		$	—
Assets of Consolidated CLO Vehicles
Corporate Loans		39,274			289,231			42,232			50,219
Corporate Bonds		407			12,682			2,047			(29	)
Other		119			3,481			480			5,375

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

Liabilities
Liabilities of Consolidated CLO Vehicles
Senior Secured Notes	$	(44	)	$	(93,203	)	$	(5,395	)	$	(239,958	)
Subordinated Notes		—			(34,483	)		—			(24,057	)

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

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

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

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


	As of March 31, 2012								As of December 31, 2011
				For Financial Assets Past Due (a)								For Financial Assets Past Due (a)
	Excess (Deficiency) of Fair Value Over Principal			Fair Value		Excess (Deficiency) of Fair Value Over Principal			Excess (Deficiency) of Fair Value Over Principal			Fair Value		Excess (Deficiency) of Fair Value Over Principal
Loans and Receivables	$	368		$	—	$	—		$	(162	)	$	—	$	—
Assets of Consolidated CLO Vehicles
Corporate Loans		(840,081	)		140,300		(115,580	)		(674,496	)		17,574		(29,384	)
Corporate Bonds		(6,764	)		7,560		(2,656	)		(9,360	)		7,560		(2,656	)

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

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

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

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

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

8.	FAIR VALUE MEASUREMENTS OF FINANCIAL INSTRUMENTS

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


	March 31, 2012
	Level I		Level II		Level III		Total
Assets
Investments of Consolidated Blackstone Funds (a)
Investment Funds	$	—	$	4,477	$	759,143	$	763,620
Equity Securities		115,762		17,981		219,985		353,728
Partnership and LLC Interests		—		548		512,951		513,499
Debt Instruments		—		707,094		19,096		726,190
Assets of Consolidated CLO Vehicles
Corporate Loans		—		11,032,922		871,620		11,904,542
Corporate Bonds		—		282,768		—		282,768
Freestanding Derivatives — Foreign Currency Contracts		—		38,742		—		38,742
Freestanding Derivatives — Interest Rate Contracts		—		7,948		—		7,948
Other		258		30,202		7,481		37,941

Total Investments of Consolidated Blackstone Funds		116,020		12,122,682		2,390,276		14,628,978
Blackstone’s Treasury Cash Management Strategies		163,630		431,804		200		595,634
Money Market Funds		101,516		—		—		101,516
Freestanding Derivatives
Interest Rate Contracts		1,133		39		—		1,172
Foreign Currency Contracts		—		125		—		125
Derivative Instruments Used as Fair Value Hedges		—		55,813		—		55,813
Loans and Receivables		—		—		105,004		105,004
Other Investments		6,367		369		21,591		28,327

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

Liabilities
Liabilities of Consolidated CLO Vehicles (a)
Senior Secured Notes	$	—	$	—	$	10,984,018	$	10,984,018
Subordinated Notes		—		—		857,772		857,772
Freestanding Derivatives — Foreign Currency Contracts		—		7,596		—		7,596
Freestanding Derivatives — Interest Rate Contracts		—		5,318		—		5,318
Freestanding Derivatives
Interest Rate Contracts		95		62		—		157
Foreign Currency Contracts		—		477		—		477
Credit Default Swaps		—		91		—		91
Securities Sold, Not Yet Purchased		—		82,733		—		82,733

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

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

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


	December 31, 2011
	Level I		Level II		Level III		Total
Assets
Investments of Consolidated Blackstone Funds (a)
Investment Funds	$	—	$	5,119	$	723,951	$	729,070
Equity Securities		113,007		608		232,172		345,787
Partnership and LLC Interests		—		—		492,911		492,911
Debt Instruments		—		594,276		12,783		607,059
Assets of Consolidated CLO Vehicles
Corporate Loans		—		7,259,204		635,944		7,895,148
Corporate Bonds		—		150,653		3,000		153,653
Freestanding Derivatives — Foreign Currency Contracts		—		22,016		—		22,016
Freestanding Derivatives — Interest Rate Contracts		—		7,270		—		7,270
Other		28,900		21,973		3,008		53,881

Total Investments of Consolidated Blackstone Funds		141,907		8,061,119		2,103,769		10,306,795
Blackstone’s Treasury Cash Management Strategies		176,297		509,362		200		685,859
Money Market Funds		257,423		—		—		257,423
Freestanding Derivatives
Interest Rate Contracts		159		609		—		768
Foreign Currency Contracts		—		1,016		—		1,016
Derivative Instruments Used as Fair Value Hedges		—		67,668		—		67,668
Loans and Receivables		—		—		8,555		8,555
Other Investments		8,066		360		19,964		28,390

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

Liabilities
Liabilities of Consolidated CLO Vehicles (a)
Senior Secured Notes	$	—	$	—	$	7,449,766	$	7,449,766
Subordinated Notes		—		—		630,236		630,236
Freestanding Derivatives — Foreign Currency Contracts		—		7,687		—		7,687
Freestanding Derivatives — Interest Rate Contracts		—		10,867		—		10,867
Freestanding Derivatives
Interest Rate Contracts		1,105		186		—		1,291
Foreign Currency Contracts		—		103		—		103
Securities Sold, Not Yet Purchased		—		143,825		—		143,825

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

(a)

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

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

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

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


	Three Months Ended March 31, 2012
Transfers from Level I into Level II (a)	$	29,516
Transfers from Level II into Level I (b)		271

(a)	Transfers out of Level I represent those financial instruments for which restrictions exist and adjustments were made to an otherwise observable price to reflect fair value at the reporting date.

(b)	Transfers into Level I represent those financial instruments for which an unadjusted quoted price in an active market became available for the identical asset.

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


	Fair Value at March 31, 2012		Valuation Techniques	Unobservable Inputs	Ranges
Financial Assets
Equity Securities	$	150,756	Discounted Cash Flows	Discount Rate Revenue CAGR Exit Multiple	8.0% - 23.4% 1.9% - 32.5% 6.0x - 17.0x

		5,084	Market Comparable Companies	Book Value Multiple EBITDA Multiple	0.9x - 1.2x 3.8x - 6.8x

Partnership and LLC Interests		492,338	Discounted Cash Flows	Discount Rate Revenue CAGR Exit Multiple Exit Capitalization Rate	5.6% - 22.0% -8.2% - 22.1% 4.5x - 13.9x 5.3% - 10.5%

Debt Instruments		11,892	Discounted Cash Flows	Discount Rate Revenue CAGR Exit Multiple Exit Capitalization Rate Default Rate Recovery Rate Recovery Lag Pre-payment Rate Reinvestment Rate Reinvestment Price	7.9% - 30.5% -5.6% - 7.0% 10.2x 6.3% - 8.0% 1.5% - 3.0% 65.0% 12 months 15.0% - 25.0% 4.3% - 5.0% 98.5% - 99.0%

		598	Market Comparable Companies	EBITDA Multiple Liquidity Discount	5.0x - 8.5x 25.0% - 30.0%

Assets of Consolidated CLO Vehicles		103,852	Discounted Cash Flows	Discount Rate	6.5% - 18.0%
		66,472	Market Comparable Companies	EBITDA Multiple Liquidity Discount	4.0x - 12.0x 0.5% - 15.0%

Loans and Receivables		46,649	Discounted Cash Flows	Discount Rate	8.5% - 29.8%

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

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


	Fair Value at March 31, 2012		Valuation Techniques	Unobservable Inputs	Ranges
Financial Liabilities
CLOs	$	11,841,790	Discounted Cash Flows	Default Rate Recovery Rate Recovery Lag Pre-payment Rate Reinvestment Rate Reinvestment Price Discount Rate	1.5% - 3.0% 65.0% 12 months 15.0% - 25.0% 4.3% - 5.0% 98.5% - 99.0% 1.5% - 30.5%


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

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

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

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

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

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

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


	Level III Financial Assets at Fair Value
	Three Months Ended March 31, 2012
	Investments of Consolidated Funds			Loans and Receviables			Other Investments		Total
Balance, Beginning of Period	$	2,103,769		$	8,555		$	20,164	$	2,132,488
Transfer In Due to Consolidation and Acquisition (a)		122,565			—			—		122,565
Transfer In to Level III (b)		135,998			—			—		135,998
Transfer Out of Level III (b)		(94,296	)		—			—		(94,296	)
Purchases		88,320			103,251			—		191,571
Sales		(60,083	)		(7,379	)		—		(67,462	)
Settlements		—			(46	)		—		(46	)
Realized Gains (Losses), Net		3,532			—			99		3,631
Changes in Unrealized Gains (Losses) Included in Earnings Related to Investments Still Held at the Reporting Date		90,471			623			1,528		92,622

Balance, End of Period	$	2,390,276		$	105,004		$	21,791	$	2,517,071


	Level III Financial Assets at Fair Value
	Three Months Ended March 31, 2011
	Investments of Consolidated Funds			Loans and Receviables			Other Investments		Total
Balance, Beginning of Period	$	1,602,371		$	131,290		$	19,672	$	1,753,333
Transfer In to Level III (b)		6,555			—			—		6,555
Transfer Out of Level III (b)		(21,732	)		—			—		(21,732	)
Purchases		128,099			6,228			—		134,327
Sales		(62,965	)		(122,180	)		—		(185,145	)
Settlements		(4,933	)		(1,370	)		—		(6,303	)
Realized Gains (Losses), Net		7,851			—			—		7,851
Changes in Unrealized Gains (Losses) Included in Earnings Related to Investments Still Held at the Reporting Date		86,446			66			1,298		87,810

Balance, End of Period	$	1,741,692		$	14,034		$	20,970	$	1,776,696

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

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


	Level III Financial Liabilities at Fair Value
	Three Months Ended March 31,
	2012									2011
	Collateralized Loan Obligations Senior Notes			Collateralized Loan Obligations Subordinated Notes			Total			Collateralized Loan Obligations Senior Notes			Collateralized Loan Obligations Subordinated Notes			Total
Balance, Beginning of Period	$	7,449,766		$	630,236		$	8,080,002		$	5,877,957		$	555,632		$	6,433,589
Transfer In Due to Consolidation and Acquisition (a)		3,419,084			149,225			3,568,309			—			—			—
Issuances		4,393			838			5,231			200			—			200
Settlements		(131,873	)		(2,746	)		(134,619	)		(161,442	)		(12,253	)		(173,695	)
Realized (Gains) Losses, Net		44			—			44			5,395			—			5,395
Changes in Unrealized (Gains) Losses Included in Earnings Related to Liabilities Still Held at the Reporting Date		242,604			80,219			322,823			301,782			24,057			325,839

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

(a)	Represents the transfer into Level III of financial assets and liabilities held by CLO vehicles as a result of the Harbourmaster acquisition on January 5, 2012.

(b)	Transfers in and out of Level III financial assets and liabilities were due to changes in the observability of inputs used in the valuation of such assets and liabilities.

9.	VARIABLE INTEREST ENTITIES

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

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

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

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


	March 31, 2012						December 31, 2011
	Consolidated CLO Vehicles		All Other Consolidated Blackstone Funds		Total		Consolidated CLO Vehicles		All Other Consolidated Blackstone Funds		Total
Assets
Cash Held by Blackstone Funds and Other	$	677,008	$	28,567	$	705,575	$	562,388	$	36,053	$	598,441
Investments		12,271,942		862,957		13,134,899		8,131,968		829,992		8,961,960
Accounts Receivable		46,232		86		46,318		31,971		1,434		33,405
Due from Affiliates		—		34,214		34,214		—		36,502		36,502
Other Assets		127,430		2,437		129,867		9,581		2,450		12,031

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

Liabilities
Loans Payable	$	11,626,208	$	13,541	$	11,639,749	$	7,787,630	$	13,506	$	7,801,136
Due to Affiliates		215,582		9,200		224,782		292,372		19,537		311,909
Accounts Payable, Accrued Expenses and Other		477,599		6,096		483,695		241,670		2,818		244,488

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

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

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


	March 31, 2012		December 31, 2011
Investments	$	290,638	$	238,503
Receivables		76,023		94,050

Total VIE Assets		366,661		332,553
VIE Liabilities		1,309		48
Potential Clawback Obligation		35,017		14,876

Maximum Exposure to Loss	$	402,987	$	347,477

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

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

10.

REVERSE REPURCHASE AND REPURCHASE AGREEMENTS

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

11.

BORROWINGS

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


	March 31, 2012				December 31, 2011
	Carrying Value		Fair Value (a)		Carrying Value		Fair Value (a)
Blackstone Issued 5.875%, $400 Million Par, Notes Due 3/15/2021	$	398,273	$	411,640	$	398,237	$	404,160
Blackstone Issued 6.625%, $600 Million Par, Notes Due 8/15/2019	$	648,388	$	647,520	$	653,467	$	640,440

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

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


	March 31, 2012							December 31, 2011
	Borrowing Outstanding		Weighted Average Interest Rate			Weighted Average Remaining Maturity in Years		Borrowing Outstanding		Weighted Average Interest Rate			Weighted Average Remaining Maturity in Years
Senior Secured Notes	$	12,288,214		1.79	%		4.2	$	8,250,418		1.96	%		4.3
Subordinated Notes		1,447,851		(a	)		7.6		1,117,571		(a	)		7.2

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

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

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

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

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

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

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

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

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


	Operating Borrowings		Blackstone Fund Facilities / CLO Vehicles		Total Borrowings
2012	$	891	$	13,541	$	14,432
2013		1,188		76,607		77,795
2014		5,040		301,035		306,075
2015		—		652,128		652,128
Thereafter		1,000,000		12,700,602		13,700,602

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

12.

INCOME TAXES

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

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

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

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

13.

NET INCOME (LOSS) PER COMMON UNIT

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


	Three Months Ended March 31,
	2012		2011
Net Income Attributable to The Blackstone Group L.P.	$	58,325	$	42,704

Basic Net Income Per Common Unit:
Weighted-Average Common Units Outstanding		506,985,529		447,742,389

Basic Net Income Per Common Unit	$	0.12	$	0.10

Diluted Net Income Per Common Unit:
Weighted-Average Common Units Outstanding		506,985,529		447,742,389
Weighted-Average Unvested Deferred Restricted Common Units		10,404,029		9,910,527

Weighted-Average Diluted Common Units Outstanding		517,389,558		457,652,916

Diluted Net Income Per Common Unit	$	0.11	$	0.09

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


	Three Months Ended March 31,
	2012		2011
Weighted-Average Blackstone Holdings Partnership Units		602,817,069		658,290,684

Unit Repurchase Program

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

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

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

14.

EQUITY-BASED COMPENSATION

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

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

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

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

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

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

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


	Blackstone Holdings					The Blackstone Group L.P.
	Partnership Units			Weighted- Average Grant Date Fair Value		Equity Settled Awards					Cash Settled Awards
Unvested Units	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, 2011		89,644,650		$	29.88		17,635,945		$	18.50		218,583	$	13.88
Granted		1,612,611			14.04		1,040,485			12.56		815		12.05
Vested		(848,201	)		13.26		(1,187,227	)		5.33		—		—
Forfeited		(2,011,653	)		31.00		(260,079	)		17.07		—		—

Balance, March 31, 2012		88,397,407		$	29.72		17,229,124		$	19.07		219,398	$	15.11

Units Expected to Vest

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


	Units		Weighted-Average Service Period in Years
Blackstone Holdings Partnership Units		83,361,721		3.0
Deferred Restricted Blackstone Common Units and Options		14,870,659		2.6

Total Equity-Based Awards		98,232,380		3.0

Phantom Units		202,875		3.2

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

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

15.

RELATED PARTY TRANSACTIONS

Affiliate Receivables and Payables

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


	March 31, 2012		December 31, 2011
Due from Affiliates
Accrual for Potential Clawback of Previously Distributed Carried Interest	$	170,712	$	167,415
Primarily Interest Bearing Advances Made on Behalf of Certain Non-Controlling Interest Holders and Blackstone Employees for Investments in Blackstone Funds		198,085		223,281
Amounts Due from Portfolio Companies and Funds		261,224		234,254
Investments Redeemed in Non-Consolidated Funds of Funds		3,576		67,608
Management and Performance Fees Due from Non-Consolidated Funds of Funds		83,788		71,162
Payments Made on Behalf of Non-Consolidated Entities		98,176		87,711
Advances Made to Certain Non-Controlling Interest Holders and Blackstone Employees		6,934		9,083

	$	822,495	$	860,514


	March 31, 2012		December 31, 2011
Due to Affiliates
Due to Certain Non-Controlling Interest Holders in Connection with the Tax Receivable Agreements	$	1,136,816	$	1,112,330
Accrual for Potential Repayment of Previously Received Performance Fees		269,702		266,300
Due to Note-Holders of Consolidated CLO Vehicles		215,582		292,372
Distributions Received on Behalf of Certain Non-Controlling Interest Holders and Blackstone Employees		26,293		20,526
Payable to Affiliates for Consolidated Funds in Liquidation		47,721		58,793
Distributions Received on Behalf of Blackstone Entities		21,864		42,620
Payments Made by Non-Consolidated Entities		6,015		18,527

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

Interests of the Founder, Senior Managing Directors and Employees

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

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

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

Revenues Earned from Affiliates

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

Loans to Affiliates

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

Contingent Repayment Guarantee

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

Aircraft and Other Services

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

Tax Receivable Agreements

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

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

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

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

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

Other

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

16.

COMMITMENTS AND CONTINGENCIES

Commitments

Investment Commitments

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

Contingencies

Guarantees

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

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

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

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

Litigation

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

Contingent Obligations (Clawback)

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

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

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

The following table presents the clawback obligations by segment:


	March 31, 2012						December 31, 2011
Segment	Blackstone Holdings		Current and Former Personnel		Total		Blackstone Holdings		Current and Former Personnel		Total
Private Equity	$	68,150	$	133,990	$	202,140	$	68,044	$	128,756	$	196,800
Real Estate		30,840		36,722		67,562		30,841		38,659		69,500

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

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

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

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

17.

SEGMENT REPORTING

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

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

•

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

•

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

•

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

•

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

•

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

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

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

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

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

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

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


	Three Months Ended March 31, 2012
	Private Equity			Real Estate			Hedge Fund Solutions			Credit Businesses			Financial Advisory			Total Segments
Segment Revenues
Management and Advisory Fees, Net
Base Management Fees	$	85,789		$	147,802		$	81,821		$	80,094		$	—		$	395,506
Advisory Fees		—			—			—			—			75,846			75,846
Transaction and Other Fees, Net		18,097			14,412			92			5,725			145			38,471
Management Fee Offsets		(3,782	)		(8,627	)		(335	)		(306	)		—			(13,050	)

Total Management and Advisory Fees, Net		100,104			153,587			81,578			85,513			75,991			496,773

Performance Fees
Realized		3,933			8,616			3,298			2,992			—			18,839
Unrealized		34,051			229,414			23,187			80,265			—			366,917

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

Investment Income (Loss)
Realized		13,911			7,812			503			683			583			23,492
Unrealized		16,469			25,912			8,371			9,211			(49	)		59,914

Total Investment Income		30,380			33,724			8,874			9,894			534			83,406
Interest and Dividend Revenue		2,420			2,552			386			2,425			1,562			9,345
Other		(215	)		(709	)		(127	)		(238	)		82			(1,207	)

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

Expenses
Compensation and Benefits
Compensation		52,547			68,889			28,233			37,143			67,960			254,772
Performance Fee Compensation
Realized		320			4,079			1,378			6,413			—			12,190
Unrealized		(1,052	)		58,043			7,294			33,037			—			97,322

Total Compensation and Benefits		51,815			131,011			36,905			76,593			67,960			364,284
Other Operating Expenses		28,881			28,924			13,934			17,096			20,686			109,521

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

Economic Net Income	$	89,977		$	267,249		$	66,357		$	87,162		$	(10,477	)	$	500,268

Segment Assets as of March 31, 2012	$	3,883,401		$	4,356,603		$	833,839		$	1,793,851		$	548,554		$	11,416,248

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

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


	Three Months Ended March 31, 2011
	Private Equity			Real Estate			Hedge Fund Solutions			Credit Businesses			Financial Advisory		Total Segments
Segment Revenues
Management and Advisory Fees, Net
Base Management Fees	$	79,935		$	95,439		$	75,612		$	54,601		$	—	$	305,587
Advisory Fees		—			—			—			—			70,252		70,252
Transaction and Other Fees, Net		35,342			21,543			727			745			6		58,363
Management Fee Offsets		(7,889	)		(505	)		(124	)		(18	)		—		(8,536	)

Total Management and Advisory Fees, Net		107,388			116,477			76,215			55,328			70,258		425,666

Performance Fees
Realized		82,389			2,593			893			9,725			—		95,600
Unrealized		32,537			368,104			19,253			85,303			—		505,197

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

Investment Income
Realized		17,907			2,919			1,341			1,235			97		23,499
Unrealized		29,126			61,406			7,120			4,532			393		102,577

Total Investment Income		47,033			64,325			8,461			5,767			490		126,076
Interest and Dividend Revenue		3,505			3,288			516			453			1,686		9,448
Other		811			860			104			98			386		2,259

Total Revenues		273,663			555,647			105,442			156,674			72,820		1,164,246

Expenses
Compensation and Benefits
Compensation		54,924			57,627			28,093			29,549			54,339		224,532
Performance Fee Compensation
Realized		7,718			1,230			300			5,295			—		14,543
Unrealized		5,464			106,501			5,358			45,202			—		162,525

Total Compensation and Benefits		68,106			165,358			33,751			80,046			54,339		401,600
Other Operating Expenses		28,713			28,366			13,008			15,357			17,531		102,975

Total Expenses		96,819			193,724			46,759			95,403			71,870		504,575

Economic Net Income	$	176,844		$	361,923		$	58,683		$	61,271		$	950	$	659,671

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 reconciles the Total Segments to Blackstone’s Income (Loss) Before Provision for Taxes and Total Assets as of and for the three months ended March 31, 2012 and 2011:


	March 31, 2012 and the Three Months Then Ended
	Total Segments		Consolidation Adjustments and Reconciling Items			Blackstone Consolidated
Revenues	$	974,073	$	(22,037	)(a)	$	952,036
Expenses	$	473,805	$	309,988	(b)	$	783,793
Other Income	$	—	$	288,142	(c)	$	288,142
Economic Net Income	$	500,268	$	(43,883	)(d)	$	456,385
Total Assets	$	11,416,248	$	15,130,113	(e)	$	26,546,361

	Three Months Ended March 31, 2011
	Total Segments		Consolidation Adjustments and Reconciling Items			Blackstone Consolidated
Revenues	$	1,164,246	$	(10,977	)(a)	$	1,153,269
Expenses	$	504,575	$	486,289	(b)	$	990,864
Other Income	$	—	$	(45,191	)(c)	$	(45,191	)
Economic Net Income (Loss)	$	659,671	$	(542,457	)(d)	$	117,214

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

(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 transaction-related equity-based compensation to arrive at Blackstone consolidated expenses.

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


		Three Months Ended March 31,
		2012