Edgar Filing: Blackstone Group L.P.

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

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, 2013

¨	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.

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 30, 2013 was 456,391,557. The number of the Registrant’s non-voting common units representing limited partner interests outstanding as of April 30, 2013 was 99,083,468.

TABLE OF CONTENTS


		Page
PART I.	FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS		4

	Unaudited Condensed Consolidated Financial Statements — March 31, 2013 and 2012:

	Condensed Consolidated Statements of Financial Condition as of March 31, 2013 and December 31, 2012		4

	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2013 and 2012		6

	Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2013 and 2012		7

	Condensed Consolidated Statements of Partners’ Capital for the Three Months Ended March 31, 2013 and 2012		8

	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2013 and 2012		10

	Notes to Condensed Consolidated Financial Statements		12

ITEM 1A.	UNAUDITED SUPPLEMENTAL PRESENTATION OF STATEMENTS OF FINANCIAL CONDITION		51

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		54

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		106

ITEM 4.	CONTROLS AND PROCEDURES		108

PART II.	OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS		110

ITEM 1A.	RISK FACTORS		111

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		111

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES		112

ITEM 4.	MINE SAFETY DISCLOSURES		112

ITEM 5.	OTHER INFORMATION		112

ITEM 6.	EXHIBITS		113

SIGNATURES			114

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, 2012 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.

Website and Social Media Disclosure

We use our website (www.blackstone.com), our corporate Facebook page (www.facebook.com/blackstone) and our corporate Twitter account (@Blackstone) as channels of distribution of company information. The information we post through these channels may be deemed material. Accordingly, investors should monitor these channels, in addition to following our press releases, SEC filings and public conference calls and webcasts. In addition, you may automatically receive e-mail alerts and other information about Blackstone when you enroll your e-mail address by visiting the “E-mail Alerts” section of our website at http://ir.blackstone.com/alerts.cfm?. The contents of our website and social media channels are not, however, a part of this report.

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

“Blackstone Funds,” “our funds” and “our investment funds” refer to the private equity funds, real estate funds, funds of hedge funds, credit-focused funds, collateralized loan obligation (“CLO”) and collateralized debt obligation (“CDO”) vehicles, and registered investment companies that are managed by Blackstone. “Our carry funds” refer to the private equity funds, real estate funds and certain of the credit-focused funds (with multi-year drawdown, commitment-based structures that only pay carry on the realization of an investment) that are managed by Blackstone. 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 which we collectively refer to as our Blackstone Tactical Opportunities Accounts (“Tactical Opportunities”). 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 Blackstone Real Estate Debt Strategies (“BREDS”) funds. We refer to our listed real estate investment trusts as “REITs”. “Our hedge funds” refer to our funds of hedge funds, certain of our real estate debt investment funds and certain other credit-focused funds, which are managed by Blackstone.

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

(a)

the fair value of the investments held by our carry funds, REITs and our side-by-side and co-investment entities managed by us, plus the capital that we are entitled to call from investors in those funds and entities pursuant to the terms of their respective capital commitments, including capital commitments to funds that have yet to commence their investment periods,

(b)

the net asset value of our funds of hedge funds, hedge funds, and certain registered investment companies,

(c)

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

(d)

the amount of capital raised for our CLOs and the amount of debt and equity outstanding for our CDOs, and

(e)

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

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 (for example, 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 including certain real estate debt investment funds in our Real Estate segment, 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-focused carry funds, the amount of remaining invested capital (which may include leverage) or net asset value, depending on the fee terms of the fund,

(c)

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

(d)

the net asset value of our funds of hedge funds, hedge funds and certain registered investment companies,

(e)

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

(f)

the net proceeds received from equity offerings and accumulated core earnings of our REITs,

(g)

the aggregate par amount of collateral assets, including cash, of our CLOs and CDOs, and

(h)

the gross amount of assets (including leverage) for certain of our credit-focused 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, 2013			December 31, 2012
Assets
Cash and Cash Equivalents	$	815,266		$	709,502
Cash Held by Blackstone Funds and Other		1,241,376			1,404,411
Investments (including assets pledged of $102,858 and $141,931 at March 31, 2013 and December 31, 2012, respectively)		19,954,586			20,847,270
Accounts Receivable		706,624			638,164
Reverse Repurchase Agreements		258,043			248,018
Due from Affiliates		1,058,687			1,120,067
Intangible Assets, Net		575,622			598,535
Goodwill		1,703,602			1,703,602
Other Assets		343,085			376,372
Deferred Tax Assets		1,321,108			1,285,611

Total Assets	$	27,977,999		$	28,931,552

Liabilities and Partners’ Capital
Loans Payable	$	11,904,958		$	13,051,404
Due to Affiliates		1,882,827			2,002,644
Accrued Compensation and Benefits		1,121,947			1,254,978
Securities Sold, Not Yet Purchased		212,870			226,425
Repurchase Agreements		102,372			142,266
Accounts Payable, Accrued Expenses and Other Liabilities		1,386,791			1,038,888

Total Liabilities		16,611,765			17,716,605

Commitments and Contingencies

Redeemable Non-Controlling Interests in Consolidated Entities		1,639,127			1,556,185

Partners’ Capital
Partners’ Capital (common units: 561,311,828 issued and outstanding as of March 31, 2013; 556,354,387 issued and outstanding as of December 31, 2012)		5,068,041			4,955,649
Appropriated Partners’ Capital		410,170			509,028
Accumulated Other Comprehensive Income (Loss)		(1,952	)		2,170
Non-Controlling Interests in Consolidated Entities		1,483,112			1,443,559
Non-Controlling Interests in Blackstone Holdings		2,767,736			2,748,356

Total Partners’ Capital		9,727,107			9,658,762

Total Liabilities and Partners’ Capital	$	27,977,999		$	28,931,552

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, 2013		December 31, 2012
Assets
Cash Held by Blackstone Funds and Other	$	1,033,659	$	1,163,915
Investments		11,263,754		12,320,611
Accounts Receivable		212,768		187,343
Due from Affiliates		27,803		27,034
Other Assets		33,093		35,447

Total Assets	$	12,571,077	$	13,734,350

Liabilities
Loans Payable	$	10,229,797	$	11,375,877
Due to Affiliates		154,066		253,546
Accounts Payable, Accrued Expenses and Other		657,104		518,656

Total Liabilities	$	11,040,967	$	12,148,079

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,
	2013			2012
Revenues
Management and Advisory Fees, Net	$	482,133		$	471,676

Performance Fees
Realized
Carried Interest		294,170			13,560
Incentive Fees		23,741			5,279
Unrealized
Carried Interest		177,347			298,796
Incentive Fees		105,798			67,135

Total Performance Fees		601,056			384,770

Investment Income
Realized		42,353			16,335
Unrealized		106,230			72,826

Total Investment Income		148,583			89,161

Interest and Dividend Revenue		12,557			7,636
Other		2,144			(1,207	)

Total Revenues		1,246,473			952,036

Expenses
Compensation and Benefits
Compensation		451,430			495,255
Performance Fee Compensation
Realized
Carried Interest		89,437			7,938
Incentive Fees		10,508			4,252
Unrealized
Carried Interest		95,472			84,543
Incentive Fees		44,478			12,779

Total Compensation and Benefits		691,325			604,767
General, Administrative and Other		109,306			142,766
Interest Expense		27,062			14,518
Fund Expenses		7,408			21,742

Total Expenses		835,101			783,793

Other Income
Net Gains from Fund Investment Activities		67,210			288,142

Income Before Provision for Taxes		478,582			456,385
Provision for Taxes		50,993			38,753

Net Income		427,589			417,632
Net Income Attributable to Redeemable Non-Controlling Interests in Consolidated Entities		62,316			54,259
Net Income (Loss) Attributable to Non-Controlling Interests in Consolidated Entities		(9,452	)		197,643
Net Income Attributable to Non-Controlling Interests in Blackstone Holdings		207,090			107,405

Net Income Attributable to The Blackstone Group L.P.	$	167,635		$	58,325

Distributions Declared per Common Unit	$	0.42		$	0.22

Net Income Per Common Unit — Basic	$	0.29		$	0.12

Net Income Per Common Unit — Diluted	$	0.29		$	0.11

Weighted-Average Common Units Outstanding
Common Units, Basic		582,322,183			506,985,529

Common Units, Diluted		585,699,899			517,389,558

Revenues Earned from Affiliates
Management and Advisory Fees, Net	$	39,371		$	47,984

See notes to condensed consolidated financial statements.

THE BLACKSTONE GROUP L.P.

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

(Dollars in Thousands)


	Three Months Ended March 31,
	2013			2012
Net Income	$	427,589		$	417,632
Other Comprehensive Loss, Net of Tax — Currency Translation Adjustment		(11,950	)		(2,174	)

Comprehensive Income		415,639			415,458
Less:
Comprehensive Income Attributable to Redeemable Non-Controlling Interests in Consolidated Entities		62,316			54,259
Comprehensive Income (Loss) Attributable to Non-Controlling Interests in Consolidated Entities		(17,280	)		194,130
Comprehensive Income Attributable to Non-Controlling Interests in Blackstone Holdings		207,090			107,405

Comprehensive Income Attributable to The Blackstone Group L.P.	$	163,513		$	59,664

See notes to condensed consolidated financial statements.

THE BLACKSTONE GROUP L.P.

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

(Dollars in Thousands, Except Unit Data)


	Common Units		The Blackstone Group L.P.									Non-Controlling Interests in Consolidated Entities			Non-Controlling Interests in Blackstone Holdings			Total Partners’ Capital			Redeemable Non- Controlling Interests in Consolidated Entities
	Common Units		Partners’ Capital			Appro- priated Partners’ Capital			Accumulated Other Compre- hensive Income (Loss)			Non-Controlling Interests in Consolidated Entities			Non-Controlling Interests in Blackstone Holdings			Total Partners’ Capital
Balance at December 31, 2012		556,354,387	$	4,955,649		$	509,028		$	2,170		$	1,443,559		$	2,748,356		$	9,658,762		$	1,556,185
Net Income (Loss)		—		167,635			—			—			(9,452	)		207,090			365,273			62,316
Allocation of Losses of Consolidated CLO Entities		—		—			(81,254	)		—			81,254			—			—			—
Currency Translation Adjustment		—		—			—			(4,122	)		(7,828	)		—			(11,950	)		—
Allocation of Currency Translation Adjustment of Consolidated CLO Entities		—		—			(7,828	)		—			7,828			—			—			—
Capital Contributions		—		—			—			—			34,648			107			34,755			151,450
Capital Distributions		—		(240,498	)		—			—			(66,689	)		(321,017	)		(628,204	)		(130,874	)
Transfer of Non-Controlling Interests in Consolidated Entities		—		—			—			—			(208	)		—			(208	)		—
Purchase of Interests from Certain Non-Controlling Interest Holders		—		(11	)		—			—			—			—			(11	)		—
Deferred Tax Effects Resulting from Acquisition of Ownership Interests from Non- Controlling Interest Holders		—		75,859			—			—			—			—			75,859			—
Equity-Based Compensation		—		126,994			—			—			—			125,354			252,348			—
Relinquished with Deconsolidation and Liquidation of Partnership		—		—			(9,776	)		—			—			—			(9,776	)		50
Net Delivery of Vested Common Units		4,574,312		(9,741	)		—			—			—			—			(9,741	)		—
Change in The Blackstone Group L.P.’s Ownership Interest		—		(9,748	)		—			—			—			9,748			—			—
Conversion of Blackstone Holdings Partnership Units to Blackstone Common Units		383,129		1,902			—			—			—			(1,902	)		—			—

Balance at March 31, 2013		561,311,828	$	5,068,041		$	410,170		$	(1,952	)	$	1,483,112		$	2,767,736		$	9,727,107		$	1,639,127

THE BLACKSTONE GROUP L.P.

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

(Dollars in Thousands, Except Unit Data)


	Common Units		The Blackstone Group L.P.								Non-Controlling Interests in Consolidated Entities			Non-Controlling Interests in Blackstone Holdings			Total Partners’ Capital			Redeemable Non- Controlling Interests in Consolidated Entities
	Common Units		Partners’ Capital			Appro- priated Partners’ Capital			Accumulated Other Compre- hensive Income		Non-Controlling Interests in Consolidated Entities			Non-Controlling Interests in Blackstone Holdings			Total Partners’ Capital
Balance at December 31, 2011		489,430,907	$	4,281,841		$	386,864		$	1,958	$	1,029,270		$	2,460,520		$	8,160,453		$	1,091,833
Transition and Acquisition Adjustments Relating to Consolidation of CLO Entities		—		—			233,386			—		155			—			233,541			—
Net Income		—		58,325			—			—		197,643			107,405			363,373			54,259
Allocation of Income of Consolidated CLO Entities		—		—			148,004			—		(148,004	)		—			—			—
Currency Translation Adjustment		—		—			—			1,339		(3,513	)		—			(2,174	)		—
Allocation of Currency Translation Adjustment of Consolidated CLOs		—		—			(3,513	)		—		3,513			—			—			—
Capital Contributions		—		—			—			—		62,472			—			62,472			98,224
Capital Distributions		—		(111,435	)		—			—		(10,268	)		(167,789	)		(289,492	)		(17,871	)
Transfer of Non-Controlling Interests in Consolidated Entities		—		—			—			—		(1,191	)		3,013			1,822			—
Purchase of Interests from Certain Non-Controlling Interest Holders		—		(16	)		—			—		—			—			(16	)		—
Deferred Tax Effects Resulting from Acquisition of Ownership Interests from Non- Controlling Interest Holders		—		6,907			—			—		—			—			6,907			—
Equity-Based Compensation		—		122,537			—			—		—			147,844			270,381			—
Relinquished in Deconsolidation and Liquidation of Partnership		—		—			—			—		—			—			—			(42	)
Net Delivery of Vested Common Units		5,407,017		(8,821	)		—			—		—			—			(8,821	)		—
Change in The Blackstone Group L.P.’s Ownership Interest		—		(8,867	)		—			—		—			8,867			—			—
Conversion of Blackstone Holdings Partnership Units to Blackstone Common Units		9,963,351		40,273			—			—		—			(40,273	)		—			—

Balance at March 31, 2012		504,801,275	$	4,380,744		$	764,741		$	3,297	$	1,130,077		$	2,519,587		$	8,798,446		$	1,226,403

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,
	2013			2012
Operating Activities
Net Income	$	427,589		$	417,632
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Blackstone Funds Related:
Unrealized Appreciation on Investments Allocable to Non-Controlling Interests in Consolidated Entities		(125,897	)		(259,698	)
Net Realized Gains on Investments		(425,967	)		(79,174	)
Changes in Unrealized Gains on Investments Allocable to The Blackstone Group L.P.		(86,763	)		(46,967	)
Unrealized Appreciation on Hedge Activities		—			(794	)
Non-Cash Performance Fees		(134,220	)		(287,776	)
Non-Cash Performance Fee Compensation		239,896			109,512
Equity-Based Compensation Expense		195,343			222,444
Amortization of Intangibles		22,913			48,142
Other Non-Cash Amounts Included in Net Income		51,607			34,134
Cash Flows Due to Changes in Operating Assets and Liabilities:
Cash Held by Blackstone Funds and Other		153,381			241,973
Cash Relinquished with Deconsolidation and Liquidation of Partnership		(103,985	)		19,155
Accounts Receivable		178,416			(131,943	)
Reverse Repurchase Agreements		(10,025	)		55,725
Due from Affiliates		44,438			(4,466	)
Other Assets		9,333			80,161
Accrued Compensation and Benefits		(289,260	)		(102,276	)
Securities Sold, Not Yet Purchased		(12,762	)		(52,859	)
Accounts Payable, Accrued Expenses and Other Liabilities		(386,227	)		(513,451	)
Repurchase Agreements		(39,412	)		87,298
Due to Affiliates		(53,020	)		(58,313	)
Treasury Cash Management Strategies:
Investments Purchased		(931,481	)		(715,090	)
Cash Proceeds from Sale of Investments		1,199,355			842,199
Blackstone Funds Related:
Investments Purchased		(1,564,358	)		(1,534,651	)
Cash Proceeds from Sale or Pay Down of Investments		2,745,408			1,763,311

Net Cash Provided by Operating Activities		1,104,302			134,228

Investing Activities
Purchase of Furniture, Equipment and Leasehold Improvements		(7,344	)		(13,086	)
Net Cash Paid for Acquisitions, Net of Cash Acquired		—			(156,972	)
Changes in Restricted Cash		5,852			(166	)

Net Cash Used in Investing Activities		(1,492	)		(170,224	)

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,
	2013			2012
Financing Activities
Distributions to Non-Controlling Interest Holders in Consolidated Entities	$	(197,563	)	$	(47,338	)
Contributions from Non-Controlling Interest Holders in Consolidated Entities		186,147			157,381
Purchase of Interests from Certain Non-Controlling Interest Holders		(11	)		(16	)
Net Settlement of Vested Common Units and Repurchase of Common and Holdings Units		(9,741	)		(8,821	)
Proceeds from Loans Payable		479			1,365
Repayment and Repurchase of Loans Payable		(435	)		(8,952	)
Distributions to Unitholders		(561,515	)		(279,224	)
Blackstone Funds Related:
Proceeds from Loans Payable		1,844			3,839
Repayment of Loans Payable		(416,241	)		(145,673	)

Net Cash Used in Financing Activities		(997,036	)		(327,439	)

Effect of Exchange Rate Changes on Cash and Cash Equivalents		(10	)		(5	)

Net Increase in Cash and Cash Equivalents		105,764			(363,440	)
Cash and Cash Equivalents, Beginning of Period		709,502			754,744

Cash and Cash Equivalents, End of Period	$	815,266		$	391,304

Supplemental Disclosure of Cash Flows Information
Payments for Interest	$	53,785		$	37,409

Payments for Income Taxes	$	17,212		$	6,866

Supplemental Disclosure of Non-Cash Investing and Financing Activities
Net Activities Related to Capital Transactions of Consolidated Blackstone Funds	$	109		$	(2,633	)

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

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

In-kind Contribution of Capital	$	2,323		$	2,017

Transfer of Interests to Non-Controlling Interest Holders	$	(207	)	$	(1,191	)

Change in The Blackstone Group L.P.’s Ownership Interest	$	(9,748	)	$	(8,867	)

Net Settlement of Vested Common Units	$	9,981		$	6,328

Conversion of Blackstone Holdings Units to Common Units	$	1,902		$	40,273

Acquisition of Ownership Interests from Non-Controlling Interest Holders:
Deferred Tax Asset	$	(78,972	)	$	(41,029	)

Due to Affiliates	$	1,272		$	34,122

Partners’ Capital	$	77,700		$	6,907

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)

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, real estate investment trusts (“REITs”), funds of hedge funds, credit-focused funds, collateralized loan obligation (“CLO”) vehicles, separately managed accounts, and registered investment companies (collectively referred to as the “Blackstone Funds”). Blackstone also provides various financial advisory services, including financial and strategic 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 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”). The Partnership, through its wholly-owned subsidiaries, is the sole general partner in each of these Holding Partnerships.

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

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Partnership have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions to Form 10-Q. The condensed consolidated financial statements, including these notes, are unaudited and exclude some of the disclosures required in audited financial statements. Management believes it has made all necessary adjustments (consisting of only normal recurring items) so that the condensed consolidated financial statements are presented fairly and that estimates made in preparing its condensed consolidated financial statements are reasonable and prudent. The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2012 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.

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 Condensed Consolidated Statements of Operations for the three months ended March 31, 2012 reflects an increase to Net Income Attributable to Redeemable Non-Controlling Interests in Consolidated Entities of $14.7 million with a corresponding decrease to Net Income Attributable to Non-Controlling Interests in Consolidated Entities to correctly classify the portion of Net Gains from Fund Investment Activities attributable to Redeemable Non-Controlling Interests in Consolidated Entities. This immaterial restatement had no impact on Net Income Attributable to The Blackstone Group L. P., Net Income per Common Unit — Basic or Diluted, or the Condensed Consolidated Statement 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 (for example, 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

(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 (for example, 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

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)

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 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-focused funds, distressed debt and non-investment grade residual interests in securitizations, corporate bonds and loans held within CLO vehicles, 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

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)

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. Senior and subordinate notes issued by CLO vehicles generally are classified within Level III of the fair value hierarchy.

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

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

Level II Valuation Techniques

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

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

•

Debt Instruments and Equity Securities are valued on the basis of prices from an orderly transaction between market participants provided by reputable dealers or pricing services. In determining the value of a particular investment, pricing services may use certain information with respect to transactions in such investments, quotations from dealers, pricing matrices and market transactions in comparable investments and various relationships between investments. The valuation of certain equity securities is based on an observable price for an identical security adjusted for the effect of a restriction.

•

Investment Funds held by the consolidated Blackstone Funds are valued using net asset value per share as described in Level III Valuation Techniques — Funds of Hedge Funds. Certain investments in investment funds are classified within Level II of the fair value hierarchy as the investment can be redeemed at, or within three months of, the reporting date.

•

Freestanding Derivatives and Derivative Instruments Designated as Fair Value Hedges are valued using contractual cash flows and observable inputs comprising yield curves, foreign currency rates and credit spreads.

Level III Valuation Techniques

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

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)

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 (for example, multiplying a key performance metric of the investee company such as EBITDA by a relevant valuation multiple observed in the range of comparable companies or transactions), adjusted by management for differences between the investment and the referenced comparables, and in some instances by reference to option pricing models or other similar methods. 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 (for example, multiplying a key performance metric of the investee company or asset, such as EBITDA, by a relevant valuation multiple observed in the range of comparable companies or transactions), adjusted by management for differences between the investment and the referenced comparables, and in some instances by reference to option pricing models or other similar methods. Additionally, where applicable, projected distributable cash flow through debt maturity will be considered in support of the investment’s fair 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-focused funds measure their investments in underlying funds at fair value using NAV per share without adjustment. The terms of the investee’s investment generally provide for minimum holding periods or lock-ups, the institution of gates on redemptions or the suspension of redemptions or an ability to side-pocket investments, at the discretion of the investee’s fund manager, and as a result, investments may not be redeemable at, or within three months of, the reporting date. A side-pocket is used by hedge funds and funds of hedge funds to separate investments that may lack a readily ascertainable value, are illiquid or are subject to liquidity restriction. Redemptions are generally not permitted until the investments within a side pocket are liquidated or it is deemed that the conditions existing at the time that required the investment to be included in the side pocket no longer exist. As the timing of either of these events is uncertain, the timing at which the Partnership may redeem an investment held in a side-pocket cannot be estimated. 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-Focused Investments — The fair values of credit-focused investments are generally determined on the basis of prices between market participants provided by reputable dealers or pricing services. In some instances, Blackstone may utilize other valuation techniques, including the discounted cash flow method or a market approach.

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements — Continued

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

Credit-Focused Liabilities — Credit-focused liabilities comprise senior and subordinate loans issued by Blackstone’s consolidated CLO vehicles. Such liabilities are valued using a discounted cash flow method.

Level III Valuation Process

Investments classified within Level III of the fair value hierarchy are valued on a quarterly basis, taking into consideration any changes in Blackstone’s weighted average cost of capital assumptions, discounted cash flow projections and exit multiple assumptions, as well as any changes in economic and other relevant conditions, and valuation models are updated accordingly. The valuation process also includes a review by an independent valuation party, at least annually for all investments, and quarterly for certain investments, to corroborate the values determined by management. The valuations of Blackstone’s investments are reviewed quarterly by a valuation committee 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.

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

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

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements — Continued

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

consolidation guidance. The Partnership has also elected the fair value option for CLO vehicles consolidated as a result of the acquisitions of CLO management contracts or the acquisition of the share capital of CLO managers. 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. The recognition of the initial difference between the fair value of assets and liabilities of CLO vehicles consolidated as a result of the acquisition of management contracts or CLO managers subsequent to the initial adoption of revised accounting guidance effective January 1, 2010, as an adjustment to Appropriated Partners’ Capital, is currently under review by the Emerging Issues Task Force (“EITF”). 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-focused investments. Changes in the fair value of consolidated CLO assets and liabilities and related interest, dividend and other income subsequent to adoption and acquisition are presented within Net Gains from Fund Investment Activities. Expenses of consolidated CLO vehicles are presented in Fund Expenses. Amounts attributable to Non-Controlling Interests in Consolidated Entities have a corresponding adjustment to Appropriated Partners’ Capital.

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

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

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

Equity Method Investments

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

Repurchase and Reverse Repurchase Agreements

Securities purchased under agreements 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 carrying value of repurchase and reverse repurchase agreements approximates fair value.

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 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 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.

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

Securities Sold, Not Yet Purchased

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

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

Derivative Instruments

The Partnership recognizes all derivatives as assets or liabilities on its Condensed Consolidated Statements of Financial Condition at fair value. On the date the Partnership enters into a derivative contract, it designates and documents each derivative contract as one of the following: (a) a hedge of a recognized asset or liability (“fair value hedge”), (b) a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow hedge”), (c) a hedge of a net investment in a foreign operation, or (d) a derivative instrument not designated as a hedging instrument (“freestanding derivative”). For a fair value hedge, Blackstone records changes in the fair value of the derivative and, to the extent that it is highly effective, changes in the fair value of the hedged asset or liability attributable to the hedged risk, in current period earnings in General, Administrative and Other in the Condensed Consolidated Statements of Operations. Changes in the fair value of derivatives designated as hedging instruments caused by factors other than changes in the risk being hedged, which are excluded from the assessment of hedge effectiveness, are recognized in current period earnings.

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 Partnership may also at any time remove a designation of a fair value hedge. The fair value of the derivative instrument is reflected within Other Assets in the Condensed Consolidated Statements of Financial Condition.

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements — Continued

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

For 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.

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

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

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

Affiliates

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

Distributions

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

Recent Accounting Developments

In February 2013, the Financial Accounting Standards Board (“FASB”) issued guidance on the reporting of amounts reclassified out of accumulated other comprehensive income. The guidance did not change the requirement for reporting net income or other comprehensive income in financial statements. However, the amendments required an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes to the financial statements, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under GAAP that provide additional detail about those amounts.

The guidance was effective prospectively for periods beginning after December 15, 2012. As the amendments were limited to presentation and disclosure, adoption had no 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

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)

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 was 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 were limited to disclosure only, adoption did not have a material impact on the Partnership’s financial statements.

In January 2013, the FASB issued guidance to clarify the scope of disclosures about offsetting assets and liabilities. The amendments clarified that the scope of guidance issued in December 2011 to enhance disclosures around financial instrument and derivative instruments that are either (a) offset, or (b) subject to a master netting agreement or similar agreement, irrespective of whether they are offset, applies to derivatives, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset or subject to an enforceable master netting arrangement or similar agreement. The amendments were effective for interim and annual periods beginning on or after January 1, 2013. Adoption did not have a material impact on the Partnership’s financial statements.

In February 2013, the FASB issued guidance on the measurement of joint and several liability arrangements in which the total amount of the obligation is fixed at the reporting date. The guidance requires entities to measure obligations from joint and several liability arrangements for which the total amount of the obligation within the scope of the guidance is fixed at the reporting date as the sum of (a) the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and (b) any additional amount the reporting entity expects to pay on behalf of its co-obligors. The guidance also requires an entity to disclose the nature and amount of the obligation as well as other information about those obligations. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. Adoption is not expected to have a material impact on the Partnership’s financial statements.

In March 2013, the FASB issued guidance on a parent entity’s accounting for cumulative translation adjustment upon derecognition of certain subsidiaries or groups of assets within a foreign entity or of an investment in a foreign entity. When a parent entity ceases to have a controlling financial interest in a subsidiary or a group of assets that is a business within a foreign entity, any related portion of the total cumulative translation adjustment should be released into net income if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. For an equity method investment that is a foreign entity, partial sale guidance applies. As such, a pro rata portion of the cumulative translation adjustment should be released into net income upon a partial sale of such an equity method investment. For an equity method investment that is not a foreign entity, the cumulative translation adjustment is released into net income only if the partial sale represents a complete or substantially complete liquidation of the foreign entity that contains the equity method investment. Additionally, the guidance clarifies that the sale of an investment in a foreign entity includes both (a) events that result in the loss of a controlling financial interest in a foreign entity (that is, irrespective of any retained investment) and (b) events that result in an acquirer obtaining control of an acquiree in which it held an equity interest immediately before the acquisition date (sometimes also referred to as a step acquisition). Accordingly, the cumulative translation adjustment should be released into net income upon the occurrence of those events. The guidance shall be applied on a prospective basis for fiscal years, and interim periods within those years, beginning after December 15, 2013. The guidance should be applied to derecognition events occurring after the effective date. Prior periods should not be adjusted. Early adoption is permitted. Adoption is not expected to 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 April 2013, the FASB issued guidance on when and how an entity should prepare its financial statements using the liquidation basis of accounting. The guidance requires an entity to prepare its financial statements using the liquidation basis of accounting when liquidation is imminent. Financial statements prepared using the liquidation basis of accounting shall measure and present assets at the amount of the expected cash proceeds from liquidation. The presentation of assets shall include any items that had not previously been recognized under GAAP but that it expects to either sell in liquidation or use in settling liabilities. Liabilities shall be recognized and measured in accordance with GAAP that otherwise applies to those liabilities. The guidance requires an entity to accrue and separately present the costs that it expects to incur and the income that it expects to earn during the expected duration of the liquidation, including any costs associated with sale or settlement of those assets and liabilities. The guidance requires disclosures about an entity’s plan for liquidation, the methods and significant assumptions used to measure assets and liabilities, the type and amount of costs and income accrued, and the expected duration of the liquidation process. The guidance is effective for entities that determine liquidation is imminent during annual reporting periods beginning after December 15, 2013 and interim periods therein. The guidance should be applied prospectively. Adoption is not expected to have a material impact on the Partnership’s financial statements.

INTANGIBLE ASSETS

Intangible Assets, Net consists of the following:


	March 31, 2013			December 31, 2012
Finite-Lived Intangible Assets / Contractual Rights	$	1,536,244		$	1,536,244
Accumulated Amortization		(960,622	)		(937,709	)

Intangible Assets, Net	$	575,622		$	598,535

Amortization expense associated with Blackstone’s intangible assets was $22.9 million for the three months ended March 31, 2013 and $48.1 million for the three months ended March 31, 2012.

Amortization of Intangible Assets held at March 31, 2013 is expected to be $88.2 million, $83.4 million, $77.1 million, $72.8 million, and $46.4 million for each of the years ending December 31, 2013, 2014, 2015, 2016 and 2017, respectively. Blackstone’s intangible assets as of March 31, 2013 are expected to amortize over a weighted-average period of 8.4 years.

INVESTMENTS

Investments consist of the following:


	March 31, 2013		December 31, 2012
Investments of Consolidated Blackstone Funds	$	12,981,413	$	14,026,745
Equity Method Investments		2,666,295		2,582,504
Blackstone’s Treasury Cash Management Strategies		1,264,637		1,411,680
Performance Fees		2,992,905		2,780,217
Other Investments		49,336		46,124

	$	19,954,586	$	20,847,270

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements — Continued

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

Blackstone’s share of Investments of Consolidated Blackstone Funds totaled $474.5 million and $500.5 million at March 31, 2013 and December 31, 2012, respectively.

At March 31, 2013 and December 31, 2012, 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, 2013 and December 31, 2012, no investment exceeded the 5% threshold.

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,
	2013			2012
Realized Gains	$	67,788		$	44,350
Net Change in Unrealized Gains (Losses)		(42,495	)		155,685

	$	25,293		$	200,035

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


	Three Months Ended March 31,
	2013		2012
Realized and Net Change in Unrealized Gains (Losses) from Blackstone Funds	$	25,293	$	200,035
Interest and Dividend Revenue Attributable to Consolidated Blackstone Funds		41,917		88,107

Other Income — Net Gains from Fund Investment Activities	$	67,210	$	288,142

Equity Method Investments

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

Blackstone evaluates each of its equity method investments to determine if any were significant as defined by guidance from the United States Securities and Exchange Commission. As of and for the three months ended March 31, 2013 and 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.

The Partnership recognized net gains related to its equity method investments of $107.9 million and $58.1 million for the three months ended March 31, 2013 and 2012, 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)

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,
	2013			2012
Realized Gains (Losses)	$	3,911		$	(2,157	)
Net Change in Unrealized Losses		(971	)		(4,419	)

	$	2,940		$	(6,576	)

Performance Fees

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


	Private Equity			Real Estate			Hedge Fund Solutions			Credit			Total
Performance Fees, December 31, 2012	$	780,474		$	1,633,279		$	6,214		$	360,250		$	2,780,217
Performance Fees Allocated as a Result of Changes in Fund Fair Values		42,313			354,943			19,915			102,890			520,061
Foreign Exchange Loss		—			(4,297	)		—			—			(4,297	)
Fund Distributions		(138,671	)		(79,562	)		(3,526	)		(81,317	)		(303,076	)

Performance Fees, March 31, 2013	$	684,116		$	1,904,363		$	22,603		$	381,823		$	2,992,905

Other Investments

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


	Three Months Ended March 31,
	2013			2012
Realized Gains (Losses)	$	(648	)	$	255
Net Change in Unrealized Gains		5,204			2,737

	$	4,556		$	2,992

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)

NET ASSET VALUE AS FAIR VALUE

A summary of fair value by strategy type alongside the remaining unfunded commitments and ability to redeem such investments as of March 31, 2013 is presented below:


Strategy	Fair Value		Unfunded Commitments		Redemption Frequency (if currently eligible)			Redemption Notice Period
Diversified Instruments	$	142,425	$	6,071		(a	)		(a	)
Credit Driven		215,628		1,980		(b	)		(b	)
Event Driven		92,667		—		(c	)		(c	)
Equity		473,514		—		(d	)		(d	)
Commodities		57,425		—		(e	)		(e	)

	$	981,659	$	8,051

(a)

Diversified Instruments include investments in funds that invest across multiple strategies. 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. The remaining 36% 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. The time at which this redemption restriction may lapse cannot be estimated. As of the reporting date, the investee fund manager had elected to side-pocket 24% of Blackstone’s investments in this category.

(b)

The Credit Driven category includes investments in hedge funds that invest primarily in domestic and international bonds. Investments representing 80% of the value of the investments in this category may not be redeemed at, or within three months of, the reporting date. Investments representing 8% of the total 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. The remaining 12% of investments within this category are redeemable as of the reporting date. As of the reporting date, the investee fund manager had not elected to side-pocket any of Blackstone’s investments in this category.

(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 67% of the total value of investments in this category may not be redeemed at, or within three months of, the reporting date. Investments representing 18% of the total value of investments in this category are subject to lock-up restrictions. Investments representing 14% of the total value of investments in this category 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 or gate such investments, whereby limiting the amount of withdrawals from the fund during a redemption period. Investments representing 1% of the total value of investments in this category are in hedge funds that are in the process of liquidating. As of the reporting date, the investee fund manager had elected to side-pocket 2% of Blackstone’s investments in this category.

(e)	The Commodities category includes investments in commodities-focused funds that primarily invest in futures and physical-based commodity driven strategies. Investments in this category may not be redeemed at, or within three months of, the reporting date.

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements — Continued

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

DERIVATIVE FINANCIAL INSTRUMENTS

Blackstone and the Blackstone Funds enter into derivative contracts in the normal course of business to achieve certain risk management objectives and for general investment purposes. Additionally, Blackstone may enter into derivative contracts in order to hedge its interest rate risk exposure against the effects of interest rate changes. 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.

Freestanding Derivatives

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

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


	March 31, 2013								December 31, 2012
	Assets				Liabilities				Assets				Liabilities
	Notional		Fair Value		Notional		Fair Value		Notional		Fair Value		Notional		Fair Value
Freestanding Derivatives
Blackstone — Other
Interest Rate Contracts	$	726,044	$	45,141	$	705,554	$	3,684	$	689,300	$	55,270	$	636,555	$	4,116
Foreign Currency Contracts		6,602		287		20,470		48		16,771		74		7,025		81
Credit Default Swaps		—		—		15,000		2,558		—		—		—		—

Investments of Consolidated Blackstone Funds
Foreign Currency Contracts		413,695		43,926		288,199		14,149		435,229		37,898		301,551		17,101
Interest Rate Contracts		77,704		4,853		31,000		293		165,517		6,132		90,500		772

Freestanding Derivatives		1,224,045		94,207		1,060,223		20,732		1,306,817		99,374		1,035,631		22,070

Total	$	1,224,045	$	94,207	$	1,060,223	$	20,732	$	1,306,817	$	99,374	$	1,035,631	$	22,070

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements — Continued

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

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


	Three Months Ended March 31,
	2013			2012
Fair Value Hedges — Interest Rate Swaps
Hedge Ineffectiveness	$	—		$	(794	)

Excluded from Assessment of Effectiveness	$	—		$	(5,888	)

Freestanding Derivatives
Realized Gains (Losses)
Interest Rate Contracts	$	(526	)	$	136
Foreign Currency Contracts		(1,236	)		1,725
Credit Default Swaps		8			—

Total	$	(1,754	)	$	1,861

Net Change in Unrealized Gain (Loss)
Interest Rate Contracts	$	(6,686	)	$	6,597
Foreign Currency Contracts		7,379			13,721
Credit Default Swaps		(23	)		4

Total	$	670		$	20,322

As of March 31, 2013 and December 31, 2012, the Partnership had not designated any derivatives as cash flow hedges or hedges of net investments in foreign operations.

FAIR VALUE OPTION

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


	As of March 31, 2013		As of December 31, 2012
Assets
Loans and Receivables	$	3,867	$	30,663
Equity and Preferred Securities		18,504		16,147
Assets of Consolidated CLO Vehicles
Corporate Loans		9,964,199		11,053,513
Corporate Bonds		165,148		162,456
Other		19,143		18,285

	$	10,170,861	$	11,281,064

Liabilities
Liabilities of Consolidated CLO Vehicles
Senior Secured Notes	$	9,634,747	$	10,695,136
Subordinated Notes		720,552		846,471

	$	10,355,299	$	11,541,607

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


	Three Months Ended March 31,
	2013						2012
	Realized Gains (Losses)			Net Change in Unrealized Gains (Losses)			Realized Gains (Losses)			Net Change in Unrealized Gains (Losses)
Assets
Loans and Receivables	$	43		$	(50	)	$	—		$	6
Equity and Preferred Securities		(793	)		3,150			—			—
Assets of Consolidated CLO Vehicles
Corporate Loans		39,575			79,146			39,274			289,231
Corporate Bonds		2,882			(3,788	)		407			12,682
Other		889			1,609			119			3,481

	$	42,596		$	80,067		$	39,800		$	305,400

Liabilities
Liabilities of Consolidated CLO Vehicles
Senior Secured Notes	$	—		$	(227,911	)	$	(44	)	$	(93,203	)
Subordinated Notes		—			36,742			—			(34,483	)

	$	—		$	(191,169	)	$	(44	)	$	(127,686	)

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


	As of March 31, 2013								As of December 31, 2012
	Excess (Deficiency) of Fair Value Over Principal			For Financial Assets Past Due (a)					Excess (Deficiency) of Fair Value Over Principal			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	$	(595	)	$	—	$	—		$	(292	)	$	—	$	—
Assets of Consolidated CLO Vehicles
Corporate Loans		(457,448	)		43,683		(155,885	)		(586,450	)		35,322		(73,291	)
Corporate Bonds		(957	)		—		—			(984	)		831		(44	)

	$	(459,000	)	$	43,683	$	(155,885	)	$	(587,726	)	$	36,153	$	(73,335	)

(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, 2013 and December 31, 2012, no Loans and Receivables for which the fair value option was elected were past due or in non-accrual status. As of March 31, 2013, no Corporate Bonds included within the Assets of Consolidated CLO Vehicles for which the fair value option was elected were past due or in non-accrual status.

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 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, 2013 and December 31, 2012, respectively:


	March 31, 2013
	Level I		Level II		Level III		Total
Assets
Investments of Consolidated Blackstone Funds (a)
Investment Funds	$	—	$	1,753	$	929,245	$	930,998
Equity Securities		22,920		99,380		214,169		336,469
Partnership and LLC Interests		205		15,660		603,891		619,756
Debt Instruments		—		858,776		38,145		896,921
Assets of Consolidated CLO Vehicles
Corporate Loans		—		8,861,016		1,103,183		9,964,199
Corporate Bonds		—		134,713		30,435		165,148
Freestanding Derivatives — Foreign Currency Contracts		—		43,926		—		43,926
Freestanding Derivatives — Interest Rate Contracts		—		4,853		—		4,853
Other		—		914		18,229		19,143

Total Investments of Consolidated Blackstone Funds		23,125		10,020,991		2,937,297		12,981,413
Blackstone’s Treasury Cash Management Strategies		383,094		845,165		36,378		1,264,637
Money Market Funds		257,122		—		—		257,122
Freestanding Derivatives
Interest Rate Contracts		587		44,554		—		45,141
Foreign Currency Contracts		—		287		—		287
Loans and Receivables		—		—		3,867		3,867
Other Investments		15,715		6,950		26,671		49,336

	$	679,643	$	10,917,947	$	3,004,213	$	14,601,803

Liabilities
Liabilities of Consolidated CLO Vehicles (a)
Senior Secured Notes	$	—	$	—	$	9,634,747	$	9,634,747
Subordinated Notes		—		—		720,552		720,552
Freestanding Derivatives — Foreign Currency Contracts		—		14,149		—		14,149
Freestanding Derivatives — Interest Rate Contracts		—		293		—		293
Freestanding Derivatives
Interest Rate Contracts		842		2,842		—		3,684
Foreign Currency Contracts		—		48		—		48
Credit Default Swaps		—		2,558		—		2,558
Securities Sold, Not Yet Purchased		—		212,870		—		212,870

	$	842	$	232,760	$	10,355,299	$	10,588,901

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, 2012
	Level I		Level II		Level III		Total
Assets
Investments of Consolidated Blackstone Funds (a)
Investment Funds	$	—	$	1,799	$	890,465	$	892,264
Equity Securities		95,898		28,654		217,060		341,612
Partnership and LLC Interests		212		12,375		581,151		593,738
Debt Instruments		—		903,123		17,724		920,847
Assets of Consolidated CLO Vehicles
Corporate Loans		—		9,775,070		1,278,443		11,053,513
Corporate Bonds		—		146,625		15,831		162,456
Freestanding Derivatives — Foreign Currency Contracts		—		37,898		—		37,898
Freestanding Derivatives — Interest Rate Contracts		—		6,132		—		6,132
Other		—		1,260		17,025		18,285

Total Investments of Consolidated Blackstone Funds		96,110		10,912,936		3,017,699		14,026,745
Blackstone’s Treasury Cash Management Strategies		672,766		737,708		1,206		1,411,680
Money Market Funds		129,549		—		—		129,549
Freestanding Derivatives
Interest Rate Contracts		486		54,784		—		55,270
Foreign Currency Contracts		—		74		—		74
Loans and Receivables		—		—		30,663		30,663
Other Investments		12,443		6,783		26,898		46,124

	$	911,354	$	11,712,285	$	3,076,466	$	15,700,105

Liabilities
Liabilities of Consolidated CLO Vehicles (a)
Senior Secured Notes	$	—	$	—	$	10,695,136	$	10,695,136
Subordinated Notes		—		—		846,471		846,471
Freestanding Derivatives — Foreign Currency Contracts		—		17,101		—		17,101
Freestanding Derivatives — Interest Rate Contracts		—		772		—		772
Freestanding Derivatives
Interest Rate Contracts		277		3,839		—		4,116
Foreign Currency Contracts		—		81		—		81
Securities Sold, Not Yet Purchased		—		226,425		—		226,425

	$	277	$	248,218	$	11,541,607	$	11,790,102

(a)

Pursuant to GAAP consolidation guidance, the Partnership is required to consolidate all VIEs in which it has been identified as the primary beneficiary, including certain CLO vehicles, and other funds in which a consolidated entity of the Partnership, as the general partner of the fund, 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 for positions that exist as of March 31, 2013:


	Three Months Ended March 31, 2013		Three Months Ended March 31, 2012
Transfers from Level I into Level II (a)	$	75,134	$	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, 2013:

Fair Value

Valuation

Techniques

Unobservable
Inputs

Ranges

Weighted
Average (a)

Financial Assets

Investments of Consolidated Blackstone Funds

Investment Funds

929,245

NAV as Fair Value

N/A

Equity Securities

147,902

Discounted Cash Flows

Discount Rate

8.3% - 25.0%

11.3%

Revenue CAGR

1.7% - 21.0%

5.1%

Exit Multiple

5.8x - 17.0x

9.3x

62,077

Transaction Price

N/A

1,663

Market Comparable Companies

Book Value Multiple

1.0x

N/A

EBITDA Multiple

6.8x - 7.5x

7.1x

648

Third Party Pricing

N/A

1,879

Other

N/A

Partnership and LLC Interests

587,157

Discounted Cash Flows

Discount Rate

5.7% - 22.5%

8.9%

Revenue CAGR

-8.2% - 49.8%

4.6%

Exit Multiple

4.5x - 20.0x

10.0x

Exit Capitalization Rate

5.0% - 10.5%

7.0%

10,916

Transaction Price

N/A

5,818

Third Party Pricing

N/A

Debt Instruments

14,192

Discounted Cash Flows

Discount Rate

8.4% - 42.0%

14.5%

Revenue CAGR

1.0% - 4.7%

3.6%

Exit Multiple

5.8x - 11.5x

10.2x

Exit Capitalization Rate

7.5% - 7.7%

7.7%

Default Rate

2.0% - 3.0%

2.4%

Recovery Rate

70.0%

N/A

Recovery Lag

12 months

N/A

Pre-payment Rate

20.0%

N/A

Reinvestment Rate

LIBOR + 375 bps

N/A

23,603

Third Party Pricing

N/A

350

Market Comparable Companies

EBITDA Multiple

6.2x - 7.8x

6.4x

Assets of Consolidated CLO Vehicles

762,805

Third Party Pricing

N/A

272,216

Market Comparable Companies

EBITDA Multiple

3.0x - 11.5x

6.5x

116,817

Discounted Cash Flows

Discount Rate

7.0% - 13.7%

9.4%

Transaction Price

N/A

Total Investments of Consolidated Blackstone Funds

2,937,297

continued...

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements — Continued

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

Fair Value

Valuation

Techniques

Unobservable
Inputs

Ranges

Weighted
Average (a)

Blackstone’s Treasury Cash Management Strategies

13,790

Transaction Price

N/A

18,347

Third Party Pricing

N/A

4,241

Discounted Cash Flows

Default Rate

2.0%

N/A

Recovery Rate

30.0%-70.0%

66.0%

Recovery Lag

12 months

N/A

Pre-payment Rate

10.0%-20.0%

19.0%

Reinvestment Rate

LIBOR + 375 bps

N/A

Discount Rate

6.4%

N/A

Loans and Receivables

3,867

Discounted Cash Flows

Discount Rate

11.0% - 26.1%

14.8%

Other Investments

18,017

NAV as Fair Value

N/A

4,854

Discounted Cash Flows

Discount Rate

12.5%

N/A

3,800

Transaction Price

N/A

Total

3,004,213

Financial Liabilities

CLOs

10,355,299

Discounted Cash Flows

Default Rate

2.0% - 3.0%

2.1%

Recovery Rate

30.0% - 70.0%

66.0%

Recovery Lag

12 months

N/A

Pre-payment Rate

5.0% - 20.0%

18.0%

Discount Rate

0.9% - 60.0%

3.5%

Reinvestment Rate

LIBOR + 375 bps

N/A

The following table summarizes the quantitative inputs and assumptions used for items categorized in Level III of the fair value hierarchy as of December 31, 2012:

Fair Value

Valuation
Techniques

Unobservable
Inputs

Ranges

Weighted
Average (a)

Financial Assets

Investments of Consolidated Blackstone Funds

Investment Funds

890,465

NAV as Fair Value

N/A

Equity Securities

151,899

Discounted Cash Flows

Discount Rate

8.4% - 25.1%

11.2%

Revenue CAGR

0.7% - 83.4%

5.6%

Exit Multiple

5.8x - 17.0x

9.2x

61,479

Transaction Price

N/A

1,602

Market Comparable
Companies

Book Value Multiple

EBITDA Multiple

0.9x

5.0x - 8.7x

N/A

7.8x

200

Third Party Pricing

N/A

1,880

Other

N/A

Partnership and LLC Interests

562,678

Discounted Cash Flows

Discount Rate

5.3% - 22.6%

8.9%

Revenue CAGR

-8.2% - 62.0%

5.3%

Exit Multiple

4.5x - 15.4x

10.0x

Exit Capitalization Rate

1.0% - 10.5%

7.0%

13,316

Transaction Price

N/A

5,157

Third Party Pricing

N/A

Debt Instruments

13,056

Discounted Cash Flows

Discount Rate

7.8% - 42.0%

15.6%

Revenue CAGR

2.9% - 5.1%

3.8%

Exit Multiple

9.5x

N/A

Exit Capitalization Rate

7.0% - 7.5%

7.1%

Default Rate

2.0%

N/A

Recovery Rate

70.0%

N/A

Recovery Lag

12 months

N/A

Pre-payment Rate

20.0%

N/A

Reinvestment Rate

LIBOR + 400 bps

N/A

4,004

Third Party Pricing

N/A

664

Market Comparable
Companies

EBITDA Multiple

6.5x - 7.5x

6.7x

Assets of Consolidated CLO Vehicles

900,146

Third Party Pricing

N/A

278,972

Market Comparable
Companies

EBITDA Multiple
Liquidity Discount

2.0x - 13.0x

1.0% - 25.0%

6.5x

8.4%

132,171

Discounted Cash Flows

Discount Rate

7.0% - 15.7%

9.3%

Transaction Price

N/A

Total Investments of Consolidated Blackstone Funds

3,017,699

continued...

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements — Continued

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

Fair Value

Valuation
Techniques

Unobservable
Inputs

Ranges

Weighted
Average (a)

Blackstone’s Treasury Cash Management Strategies

1,006

Discounted Cash Flows

Default Rate

2.0%

N/A

Recovery Rate

70.0%

N/A

Recovery Lag

12 months

N/A

Pre-payment Rate

20.0%

N/A

Discount Rate

12.0%

N/A

Reinvestment Rate

LIBOR + 400 bps

N/A

200

Transaction Price

N/A

Loans and Receivables

30,620

Discounted Cash Flows

Discount Rate

11.8% - 25.9%

13.7%

Market Comparable
Companies

EBITDA Multiple

8.7x

N/A

Other Investments

17,901

NAV as Fair Value

N/A

5,647

Discounted Cash Flows

Discount Rate

12.5%

N/A

3,350

Transaction Price

N/A

Total

3,076,466

Financial Liabilities

CLOs

11,541,607

Discounted Cash Flows

Default Rate

2.0% - 5.0%

2.1%

Recovery Rate

30.0% - 70.0%

66.0%

Recovery Lag

12 months

N/A

Pre-payment Rate

5.0% - 20.0%

18.0%

Discount Rate

1.1% - 50.0%

3.9%

Reinvestment Rate

LIBOR + 400 bps

N/A


N/A		Not applicable.
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.
(a)		Unobservable inputs were weighted based on the fair value of the investments included in the range.

The significant unobservable inputs used in the fair value measurement of the assets, Blackstone’s Treasury Cash Management Strategies, debt instruments and obligations of consolidated CLO vehicles are discount rates, default rates, recovery rates, recovery lag, pre-payment rates and reinvestment rates. 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 and reinvestment rates 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, 2012, 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,
	2013												2012
	Investments of Consolidated Funds			Loans and Receivables			Other Investments (c)			Total			Investments of Consolidated Funds			Loans and Receivables			Other Investments (c)		Total
Balance, Beginning of Period	$	3,017,699		$	30,663		$	28,104		$	3,076,466		$	2,103,769		$	8,555		$	20,164	$	2,132,488
Transfer In Due to Consolidation and Acquisition (a)		—			—			—			—			122,565			—			—		122,565
Transfer In (Out) Due to Deconsolidation		(98,559	)		—			11,960			(86,599	)		—			—			—		—
Transfer In to Level III (b)		207,476			—			—			207,476			135,998			—			—		135,998
Transfer Out of Level III (b)		(322,764	)		—			—			(322,764	)		(94,296	)		—			—		(94,296	)
Purchases		172,968			2,873			62,774			238,615			88,320			103,251			—		191,571
Sales		(129,725	)		(29,462	)		(39,462	)		(198,649	)		(60,083	)		(7,379	)		—		(67,462	)
Settlements		—			(332	)		(1,559	)		(1,891	)		—			(46	)		—		(46	)
Realized Gains (Losses), Net		8,042			43			849			8,934			3,532			—			99		3,631
Changes in Unrealized Gains (Losses) Included in Earnings Related to Investments Still Held at the Reporting Date		82,160			82			383			82,625			90,471			623			1,528		92,622

Balance, End of Period	$	2,937,297		$	3,867		$	63,049		$	3,004,213		$	2,390,276		$	105,004		$	21,791	$	2,517,071

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,
	2013									2012
	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	$	10,695,136		$	846,471		$	11,541,607		$	7,449,766		$	630,236		$	8,080,002
Transfer In Due to Consolidation and Acquisition (a)		—			—			—			3,419,084			149,225			3,568,309
Transfer Out Due to Deconsolidation		(757,450	)		(83,296	)		(840,746	)		—			—			—
Issuances		1,063			781			1,844			4,393			838			5,231
Settlements		(404,392	)		(349	)		(404,741	)		(131,873	)		(2,746	)		(134,619	)
Realized (Gains) Losses, Net		—			—			—			44			—			44
Changes in Unrealized (Gains) Losses Included in Earnings Related to Liabilities Still Held at the Reporting Date		100,390			(43,055	)		57,335			242,604			80,219			322,823

Balance, End of Period	$	9,634,747		$	720,552		$	10,355,299		$	10,984,018		$	857,772		$	11,841,790

(a)	Represents the transfer into Level III of financial assets and liabilities held by CLO vehicles as a result of the acquisition of management contracts and the Harbourmaster acquisition.

(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.

(c)	Represents Blackstone’s Treasury Cash Management Strategies and Other Investments.

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-focused 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, collateral manager 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 assets of consolidated variable interest entities may only be used to settle obligations of these consolidated Blackstone Funds. In addition, there is no recourse to the Partnership for the consolidated VIEs’ liabilities including the liabilities of the consolidated CLO vehicles.

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

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)

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, 2013		December 31, 2012
Investments	$	437,313	$	364,709
Accounts Receivable		1,334		1,885
Due from Affiliates		190,356		112,686

Total VIE Assets		629,003		479,280
Due to Affiliates		89		2,657
Potential Clawback Obligation		57,183		36,040

Maximum Exposure to Loss	$	686,275	$	517,977

10.

REVERSE REPURCHASE AND REPURCHASE AGREEMENTS

At March 31, 2013, 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 $257.2 million and cash as collateral for reverse repurchase agreements that could be repledged, delivered or otherwise used. Securities with a fair value of $212.9 million were used to cover Securities Sold, Not Yet Purchased. The Partnership also pledged securities with a carrying value of $102.9 million and cash to collateralize its repurchase agreements. Such securities can be repledged, delivered or otherwise used by the counterparty.

At December 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 $247.4 million and cash as collateral for reverse repurchase agreements that could be repledged, delivered or otherwise used. Securities with a fair value of $226.4 million were used to cover Securities Sold, Not Yet Purchased. The Partnership also pledged securities with a carrying value of $141.9 million and cash to collateralize its repurchase agreements. Such securities can be repledged, delivered or otherwise used by the counterparty.

11.

OFFSETTING OF ASSETS AND LIABILITIES

The following tables present the offsetting of assets and liabilities as of March 31, 2013:


	Gross and Net Amounts of Assets Presented in the Statement of Financial Condition		Gross Amounts Not Offset in the Statement of Financial Condition
			Financial Instruments		Cash Collateral Received		Net Amount
Assets
Freestanding Derivatives	$	45,428	$	3,505	$	29,314	$	12,609
Reverse Repurchase Agreements		258,043		258,043		—		—

Total	$	303,471	$	261,548	$	29,314	$	12,609

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)


	Gross and Net Amounts of Liabilities Presented in the Statement of Financial Condition		Gross Amounts Not Offset in the Statement of Financial Condition
			Financial Instruments		Cash Collateral Pledged		Net Amount
Liabilities
Freestanding Derivatives	$	6,290	$	3,505	$	—	$	2,785
Repurchase Agreements		102,372		102,372		—		—

Total	$	108,662	$	105,877	$	—	$	2,785

The following tables present the offsetting of financial and derivative assets and liabilities as of December 31, 2012:


	Gross and Net Amounts of Assets Presented in the Statement of Financial Condition		Gross Amounts Not Offset in the Statement of Financial Condition
			Financial Instruments		Cash Collateral Received		Net Amount
Assets
Freestanding Derivatives	$	55,344	$	3,983	$	36,748	$	14,613
Reverse Repurchase Agreements		248,018		248,018		—		—

Total	$	303,362	$	252,001	$	36,748	$	14,613


	Gross and Net Amounts of Liabilities Presented in the Statement of Financial Condition		Gross Amounts Not Offset in the Statement of Financial Condition
			Financial Instruments		Cash Collateral Pledged		Net Amount
Liabilities
Freestanding Derivatives	$	4,197	$	3,983	$	—	$	214
Repurchase Agreements		142,266		142,266		—		—

Total	$	146,463	$	146,249	$	—	$	214

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)

Reverse Repurchase Agreements, Repurchase Agreements and Securities Sold, Not Yet Purchased are presented separately on the Statements of Financial Condition for the periods presented. Freestanding Derivative assets are included in Other Assets in the Statements of Financial Condition. The following table presents the components of Other Assets:


	March 31, 2013		December 31, 2012
Furniture, Equipment and Leasehold Improvements, Net	$	141,445	$	142,390
Prepaid Expenses		65,925		81,498
Other Assets		90,287		97,140
Freestanding Derivatives		45,428		55,344

	$	343,085	$	376,372

Freestanding Derivative liabilities are included in Accounts Payable, Accrued Expenses and Other Liabilities in the Statements of Financial Condition and are not a significant component thereof.

12.

BORROWINGS

The carrying value and fair value of the Blackstone issued notes, included in Loans Payable, as of March 31, 2013 and December 31, 2012 were:


	March 31, 2013				December 31, 2012
	Carrying Value		Fair Value (a)		Carrying Value		Fair Value (a)
Blackstone Issued 6.625%, $600 Million Par, Notes Due 8/15/2019 (b)	$	638,389	$	695,273	$	640,220	$	682,344
Blackstone Issued 5.875%, $400 Million Par, Notes Due 3/15/2021	$	398,424	$	463,920	$	398,386	$	456,200
Blackstone Issued 4.750%, $400 Million Par, Notes Due 2/15/2023	$	392,769	$	436,200	$	392,629	$	426,160
Blackstone Issued 6.250%, $250 Million Par, Notes Due 8/15/2042	$	239,648	$	280,975	$	239,619	$	275,275

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

(b)	The carrying and fair values are determined using the original $600 million par amount less $15 million attributable to these notes which were acquired but not retired by Blackstone during 2012.

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, 2013 and December 31, 2012, the Partnership’s borrowings through consolidated CLO vehicles consisted of the following:


	March 31, 2013							December 31, 2012
	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	$	10,178,203		1.23	%		4.3	$	11,518,111		1.34	%		4.6
Subordinated Notes		1,291,103		(a	)		N/A		1,449,191		(a	)		2.6

	$	11,469,306						$	12,967,302

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

Included within Senior Secured Notes and Subordinated Notes as of March 31, 2013 are amounts due to non-consolidated affiliates of $22.0 million and $212.1 million, respectively. The fair value of Senior Secured and Subordinated Notes as of March 31, 2013 was $9.6 billion and $720.6 million, respectively, of which $20.5 million and $117.6 million represents the amounts due to affiliates.

Included within Senior Secured Notes and Subordinated Notes as of December 31, 2012 are amounts due to non-consolidated affiliates of $22.0 million and $258.2 million, respectively. The fair value of Senior Secured and Subordinated Notes as of December 31, 2012 was $10.7 billion and $846.5 million, respectively, of which $18.2 million and $172.9 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, 2013 and December 31, 2012, the fair value of the consolidated CLO assets was $11.4 billion and $12.5 billion, respectively. This collateral consisted of Cash, Corporate Loans, Corporate Bonds and other securities.

Scheduled principal payments for borrowings as of March 31, 2013 are as follows:


	Operating Borrowings		Blackstone Fund Facilities / CLO Vehicles		Total Borrowings
2013	$	891	$	12,503	$	13,394
2014		5,040		—		5,040
2018 and Thereafter		1,635,000		11,469,306		13,104,306

Total	$	1,640,931	$	11,481,809	$	13,122,740

13.

INCOME TAXES

Blackstone’s effective tax rate was 10.7% and 8.5% for the three months ended March 31, 2013 and 2012, respectively. Blackstone’s income tax provision was an expense of $51.0 million and an expense of $38.8 million for the three months ended March 31, 2013 and 2012, respectively.

Blackstone’s effective tax rate for the three months ended March 31, 2013 and 2012 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)

14.

NET INCOME PER COMMON UNIT

Basic and diluted net income per common unit for the three months ended March 31, 2013 and March 31, 2012 was calculated as follows:


	Three Months Ended March 31,
	2013		2012
Net Income Attributable to The Blackstone Group L.P.	$	167,635	$	58,325

Basic Net Income Per Common Unit
Weighted-Average Common Units Outstanding		582,322,183		506,985,529

Basic Net Income Per Common Unit	$	0.29	$	0.12

Diluted Net Income Per Common Unit
Weighted-Average Common Units Outstanding		582,322,183		506,985,529
Weighted-Average Unvested Deferred Restricted Common Units		3,377,716		10,404,029

Weighted-Average Diluted Common Units Outstanding		585,699,899		517,389,558

Diluted Net Income Per Common Unit	$	0.29	$	0.11

The following table summarizes the anti-dilutive securities for the three months ended March 31, 2013 and 2012:


	Three Months Ended March 31,
	2013		2012
Weighted-Average Blackstone Holdings Partnership Units		557,463,170		602,817,069

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, 2013, no units were repurchased. As of March 31, 2013, the amount remaining available for repurchases under this program was $335.8 million.

During the three months ended March 31, 2012, no units were repurchased.

15.

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 advisers under the Partnership’s 2007 Equity Incentive Plan (the “Equity Plan”), the majority of which to date were granted in connection with the IPO. The Equity Plan allows for the granting of options, unit appreciation rights or other unit-based awards (units, restricted units, restricted common units, deferred restricted common units, phantom restricted common units or other unit-based awards based in whole or in part on the fair value of the Blackstone Common Units or

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements — Continued

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

Blackstone Holdings Partnership Units) which may contain certain service or performance requirements. As of January 1, 2013, the Partnership had the ability to grant 163,217,431 units under the Equity Plan.

For the three months ended March 31, 2013 and March 31, 2012, the Partnership recorded compensation expense of $195.3 million and $222.4 million, respectively, in relation to its equity-based awards with corresponding tax benefits of $5.5 million and $5.5 million, respectively. As of March 31, 2013, there was $1.7 billion of estimated unrecognized compensation expense related to unvested awards. This cost is expected to be recognized over a weighted-average period of 2.3 years.

Total vested and unvested outstanding units, including Blackstone Common Units, Blackstone Holdings Partnership Units and deferred restricted common units, were 1,146,542,798 as of March 31, 2013. Total outstanding unvested phantom units were 222,605 as of March 31, 2013.

A summary of the status of the Partnership’s unvested equity-based awards as of March 31, 2013 and a summary of changes during the period January 1, 2013 through March 31, 2013 are presented below:


	Blackstone Holdings					The Blackstone Group L.P.
						Equity Settled Awards					Cash Settled Awards
Unvested Units	Partnership Units			Weighted- Average Grant Date Fair Value		Deferred Restricted Common Units and Options			Weighted- Average Grant Date Fair Value		Phantom Units			Weighted- Average Grant Date Fair Value
Balance, December 31, 2012		66,591,089		$	28.19		20,199,382		$	15.76		221,356		$	14.89
Granted		1,112,255			17.74		1,709,923			13.15		5,384			20.63
Vested		(806,188	)		12.16		(847,990	)		11.77		(4,135	)		20.08
Forfeited		(4,372	)		13.75		(437,739	)		16.63		—			—

Balance, March 31, 2013		66,892,784		$	28.21		20,623,576		$	15.69		222,605		$	20.53

Units Expected to Vest

The following unvested units, after expected forfeitures, as of March 31, 2013, are expected to vest:


	Units		Weighted-Average Service Period in Years
Blackstone Holdings Partnership Units		62,970,176		2.3
Deferred Restricted Blackstone Common Units and Options		16,692,411		2.8

Total Equity-Based Awards		79,662,587		2.4

Phantom Units		210,433		2.2

Equity-Based Awards with Performance Conditions

The Partnership has also granted certain equity-based awards with performance requirements. These awards are based on the performance of certain businesses over a three to five year period beginning January 2012, relative to a predetermined threshold. Blackstone has determined that it is probable that the relevant performance thresholds will be exceeded in future periods and, therefore, has recorded compensation expense since the beginning of the performance period of $36.9 million, of which $20.3 million is accounted for as liability awards subject to re-measurement at the end of each reporting period and $16.6 million is accounted for as equity awards.

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)

16.

RELATED PARTY TRANSACTIONS

Affiliate Receivables and Payables

As of March 31, 2013 and December 31, 2012, Due from Affiliates and Due to Affiliates comprised the following:


	March 31, 2013		December 31, 2012
Due from Affiliates
Accrual for Potential Clawback of Previously Distributed Carried Interest	$	145,810	$	165,322
Primarily Interest Bearing Advances Made on Behalf of Certain Non-Controlling Interest Holders and Blackstone Employees for Investments in Blackstone Funds		123,582		155,302
Amounts Due from Portfolio Companies and Funds		356,877		259,196
Investments Redeemed in Non-Consolidated Funds of Funds		43,759		39,507
Management and Performance Fees Due from Non-Consolidated Funds		206,306