Edgar Filing: Blackstone Group L.P.

Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2014

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

Commission File Number: 001-33551

LOGO

The Blackstone Group L.P.

(Exact name of Registrant as specified in its charter)

Delaware

20-8875684

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

345 Park Avenue

New York, New York 10154

(Address of principal executive offices)(Zip Code)

(212) 583-5000

(Registrant’s telephone number, including area code)

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

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

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


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

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

The number of the Registrant’s voting common units representing limited partner interests outstanding as of April 30, 2014 was 511,616,604. The number of the Registrant’s non-voting common units representing limited partner interests outstanding as of April 30, 2014 was 69,083,468.

TABLE OF CONTENTS


		Page
PART I.	FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS		4

	Unaudited Condensed Consolidated Financial Statements — March 31, 2014 and 2013:

	Condensed Consolidated Statements of Financial Condition as of March 31, 2014 and December 31, 2013		4

	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2014 and 2013		6

	Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2014 and 2013		7

	Condensed Consolidated Statements of Changes in Partners’ Capital for the Three Months Ended March 31, 2014 and 2013		8

	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2014 and 2013		10

	Notes to Condensed Consolidated Financial Statements		12

ITEM 1A.	UNAUDITED SUPPLEMENTAL PRESENTATION OF STATEMENTS OF FINANCIAL CONDITION		52

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

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		114

ITEM 4.	CONTROLS AND PROCEDURES		117

PART II.	OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS		118

ITEM 1A.	RISK FACTORS		118

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		119

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES		119

ITEM 4.	MINE SAFETY DISCLOSURES		119

ITEM 5.	OTHER INFORMATION		119

ITEM 6.	EXHIBITS		120



SIGNATURES					121

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, 2013 and in this report, as such factors may be updated from time to time in our periodic filings with the United States Securities and Exchange Commission (“SEC”), which are accessible on the SEC’s website at www.sec.gov. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this report and in our other periodic filings. The forward-looking statements speak only as of the date of this report, and we undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.

Website and Social Media Disclosure

We use our website (www.blackstone.com), 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, real estate investment trusts 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 corporate private equity funds (including our sector and regional focused funds), which we refer to collectively as our Blackstone Capital Partners (“BCP”) funds, certain multi-asset class investment funds which we collectively refer to as our Blackstone Tactical Opportunities Accounts (“Tactical Opportunities”), and Strategic Partners Fund Solutions (“Strategic Partners”), a secondary private fund of funds business. 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 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 debt and equity outstanding for our CLOs and CDOs during the reinvestment period,

(e)

the aggregate par amount of collateral assets, including principal cash, for our CLOs and CDOs after the reinvestment period,

(f)

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

(g)

the fair value of common stock, preferred stock, convertible debt, or similar instruments issued by our public REIT.

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 Real Estate segment carry funds including certain real estate debt investment funds and certain of our Hedge Fund Solutions funds, the amount of capital commitments, remaining invested capital, fair value 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, subject to certain adjustments,

(g)

the aggregate par amount of collateral assets, including principal 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, the remaining amount of invested capital at cost depending on whether the investment period has or has not expired or the fee terms of the fund. As such, fee-earning assets under management may be greater than total assets under management when the aggregate fair value of the remaining investments is less than the cost of those investments.

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

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, 2014		December 31, 2013
Assets
Cash and Cash Equivalents	$	787,521	$	831,998
Cash Held by Blackstone Funds and Other		1,210,586		1,045,882
Investments (including assets pledged of $240,334 and $316,564 at March 31, 2014 and December 31, 2013, respectively)		21,905,850		21,729,523
Accounts Receivable		1,108,848		888,356
Reverse Repurchase Agreements		162,708		148,984
Due from Affiliates		956,449		1,192,044
Intangible Assets, Net		534,490		560,748
Goodwill		1,787,392		1,787,392
Other Assets		348,375		284,472
Deferred Tax Assets		1,226,326		1,209,207

Total Assets	$	30,028,545	$	29,678,606

Liabilities and Partners’ Capital
Loans Payable	$	9,987,304	$	10,466,504
Due to Affiliates		1,366,052		1,436,859
Accrued Compensation and Benefits		1,971,434		2,132,939
Securities Sold, Not Yet Purchased		296,434		76,195
Repurchase Agreements		216,861		316,352
Accounts Payable, Accrued Expenses and Other Liabilities		1,418,699		872,086

Total Liabilities		15,256,784		15,300,935

Commitments and Contingencies

Redeemable Non-Controlling Interests in Consolidated Entities		2,176,354		1,950,442

Partners’ Capital
Partners’ Capital (common units: 584,091,792 issued and outstanding as of March 31, 2014; 572,592,279 issued and outstanding as of December 31, 2013)		6,108,525		6,002,592
Appropriated Partners’ Capital		234,509		300,708
Accumulated Other Comprehensive Income		2,418		3,466
Non-Controlling Interests in Consolidated Entities		2,563,146		2,464,047
Non-Controlling Interests in Blackstone Holdings		3,686,809		3,656,416

Total Partners’ Capital		12,595,407		12,427,229

Total Liabilities and Partners’ Capital	$	30,028,545	$	29,678,606

continued…

See notes to condensed consolidated financial statements.

THE BLACKSTONE GROUP L.P.

Condensed Consolidated Statements of Financial Condition (Unaudited)

(Dollars in Thousands, Except Unit Data)

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, 2014		December 31, 2013
Assets
Cash Held by Blackstone Funds and Other	$	829,263	$	618,881
Investments		9,423,931		9,700,804
Accounts Receivable		589,371		231,052
Due from Affiliates		20,958		27,022
Other Assets		23,803		29,755

Total Assets	$	10,887,326	$	10,607,514

Liabilities
Loans Payable	$	8,124,054	$	8,802,155
Due to Affiliates		120,323		143,444
Accounts Payable, Accrued Expenses and Other		975,074		284,818

Total Liabilities	$	9,219,451	$	9,230,417

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,
	2014		2013
Revenues
Management and Advisory Fees, Net	$	573,160	$	482,133

Performance Fees
Realized
Carried Interest		333,623		294,170
Incentive Fees		43,794		23,741
Unrealized
Carried Interest		330,394		177,347
Incentive Fees		64,233		105,798

Total Performance Fees		772,044		601,056

Investment Income
Realized		153,026		42,353
Unrealized		13,500		106,230

Total Investment Income		166,526		148,583

Interest and Dividend Revenue		14,069		12,557
Other		869		2,144

Total Revenues		1,526,668		1,246,473

Expenses
Compensation and Benefits
Compensation		485,351		451,430
Performance Fee Compensation
Realized
Carried Interest		149,398		89,437
Incentive Fees		23,635		10,508
Unrealized
Carried Interest		40,730		95,472
Incentive Fees		23,531		44,478

Total Compensation and Benefits		722,645		691,325
General, Administrative and Other		135,554		109,306
Interest Expense		24,667		27,062
Fund Expenses		4,985		7,408

Total Expenses		887,851		835,101

Other Income
Net Gains from Fund Investment Activities		70,155		67,210

Income Before Provision for Taxes		708,972		478,582
Provision for Taxes		54,097		50,993

Net Income		654,875		427,589
Net Income Attributable to Redeemable Non-Controlling Interests in Consolidated Entities		45,792		62,316
Net Income (Loss) Attributable to Non-Controlling Interests in Consolidated Entities		43,961		(9,452	)
Net Income Attributable to Non-Controlling Interests in Blackstone Holdings		299,505		207,090

Net Income Attributable to The Blackstone Group L.P.	$	265,617	$	167,635

Distributions Declared Per Common Unit	$	0.58	$	0.42

Net Income Per Common Unit — Basic and Diluted	$	0.44	$	0.29

Weighted-Average Common Units Outstanding
Common Units, Basic		601,527,299		582,322,183

Common Units, Diluted		605,669,164		585,699,899

Revenues Earned from Affiliates
Management and Advisory Fees, Net	$	74,032	$	39,371

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,
	2014			2013
Net Income	$	654,875		$	427,589
Other Comprehensive Loss, Net of Tax — Currency Translation Adjustment		(1,166	)		(11,950	)

Comprehensive Income		653,709			415,639
Less:
Comprehensive Income Attributable to Redeemable Non-Controlling Interests in Consolidated Entities		45,792			62,316
Comprehensive Income (Loss) Attributable to Non-Controlling Interests in Consolidated Entities		43,843			(17,280	)
Comprehensive Income Attributable to Non-Controlling Interests in Blackstone Holdings		299,505			207,090

Comprehensive Income Attributable to The Blackstone Group L.P.	$	264,569		$	163,513

See notes to condensed consolidated financial statements.

THE BLACKSTONE GROUP L.P.

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

(Dollars in Thousands, Except Unit Data)


			The Blackstone Group L.P.
	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			Redeemable Non- Controlling Interests in Consolidated Entities
Balance at December 31, 2013		572,592,279	$	6,002,592		$	300,708		$	3,466		$	2,464,047		$	3,656,416		$	12,427,229		$	1,950,442
Transition and Acquisition Adjustments Relating to Consolidation of CLO Entities		—		—			8,398			—			—			—			8,398			—
Consolidation of Fund Entity		—		—			—			—			4,511			—			4,511			30,922
Net Income		—		265,617			—			—			43,961			299,505			609,083			45,792
Allocation of Losses of Consolidated CLO Entities		—		—			(39,019	)		—			39,019			—			—			—
Currency Translation Adjustment		—		—			—			(1,048	)		(118	)		—			(1,166	)		—
Allocation of Currency Translation Adjustment of Consolidated CLO Entities		—		—			(118	)		—			118			—			—			—
Reclassification of Currency Translation Adjustment Due to Deconsolidation of CLO Entities		—		(2,695	)		—			—			—			—			(2,695	)		—
Capital Contributions		—		—			—			—			147,862			—			147,862			282,641
Capital Distributions		—		(341,318	)		—			—			(135,987	)		(367,544	)		(844,849	)		(133,443	)
Transfer of Non-Controlling Interests in Consolidated Entities		—		—			—			—			(212	)		—			(212	)		—
Purchase of Interests from Certain Non-Controlling Interest Holders		—		(6	)		—			—			—			—			(6	)		—
Deferred Tax Effects Resulting from Acquisition of Ownership Interests from Non-Controlling Interest Holders		—		12,645			—			—			—			—			12,645			—
Equity-Based Compensation		—		142,117			—			—			—			133,128			275,245			—
Relinquished with Deconsolidation and Liquidation of Partnership		—		—			(35,460	)		—			(55	)		—			(35,515	)		—
Net Delivery of Vested Blackstone Holdings Partnership Units and Blackstone Common Units		4,759,747		(19,129	)		—			—			—			—			(19,129	)		—
Excess Tax Benefits Related to Equity-Based Compensation, Net		—		14,006			—			—			—			—			14,006			—
Change in The Blackstone Group L.P.’s Ownership Interest		—		(10,354	)		—			—			—			10,354			—			—
Conversion of Blackstone Holdings Partnership Units to Blackstone Common Units		6,739,766		45,050			—			—			—			(45,050	)		—			—

Balance at March 31, 2014		584,091,792	$	6,108,525		$	234,509		$	2,418		$	2,563,146		$	3,686,809		$	12,595,407		$	2,176,354

continued…

See notes to condensed consolidated financial statements.

THE BLACKSTONE GROUP L.P.

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

(Dollars in Thousands, Except Unit Data)


			The Blackstone Group L.P.
	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			Redeemable Non- Controlling Interests in Consolidated Entities
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

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,
	2014			2013
Operating Activities
Net Income	$	654,875		$	427,589
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		(108,233	)		(125,897	)
Net Realized Gains on Investments		(543,367	)		(425,967	)
Changes in Unrealized Gains on Investments Allocable to The Blackstone Group L.P.		3,833			(86,763	)
Non-Cash Performance Fees		(276,508	)		(134,220	)
Non-Cash Performance Fee Compensation		237,294			239,896
Equity-Based Compensation Expense		194,645			195,343
Excess Tax Benefits Related to Equity-Based Compensation		(16,513	)		—
Amortization of Intangibles		26,258			22,913
Other Non-Cash Amounts Included in Net Income		53,939			51,607
Cash Flows Due to Changes in Operating Assets and Liabilities
Cash Held by Blackstone Funds and Other		(52,120	)		153,381
Cash Relinquished in Deconsolidation and Liquidation of Partnership		(75,327	)		(103,985	)
Accounts Receivable		364,988			178,416
Reverse Repurchase Agreements		(13,724	)		(10,025	)
Due from Affiliates		275,550			44,438
Other Assets		(81,645	)		9,333
Accrued Compensation and Benefits		(288,791	)		(289,260	)
Securities Sold, Not Yet Purchased		70,318			(12,762	)
Accounts Payable, Accrued Expenses and Other Liabilities		(223,761	)		(386,227	)
Repurchase Agreements		(138,678	)		(39,412	)
Due to Affiliates		(28,278	)		(53,020	)
Treasury Cash Management Strategies
Investments Purchased		(808,884	)		(931,481	)
Cash Proceeds from Sale of Investments		1,020,997			1,199,355
Blackstone Funds Related
Investments Purchased		(1,652,358	)		(1,564,358	)
Cash Proceeds from Sale or Pay Down of Investments		2,385,748			2,745,408

Net Cash Provided by Operating Activities		980,258			1,104,302

Investing Activities
Purchase of Furniture, Equipment and Leasehold Improvements		(6,123	)		(7,344	)
Changes in Restricted Cash		5,841			5,852

Net Cash Used in Investing Activities		(282	)		(1,492	)

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,
	2014			2013
Financing Activities
Distributions to Non-Controlling Interest Holders in Consolidated Entities	$	(258,361	)	$	(197,563	)
Contributions from Non-Controlling Interest Holders in Consolidated Entities		419,332			186,147
Purchase of Interests from Certain Non-Controlling Interest Holders		(6	)		(11	)
Payments Under Tax Receivable Agreement		(80,565	)		—
Net Settlement of Vested Common Units and Repurchase of Common and Blackstone Holdings Partnership Units		(19,129	)		(9,741	)
Excess Tax Benefits Related to Equity-Based Compensation		16,513			—
Proceeds from Loans Payable		2,206			479
Repayment and Repurchase of Loans Payable		(6,488	)		(435	)
Distributions to Unitholders		(708,862	)		(561,515	)
Blackstone Funds Related
Proceeds from Loans Payable		—			1,844
Repayment of Loans Payable		(389,097	)		(416,241	)

Net Cash Used in Financing Activities		(1,024,457	)		(997,036	)

Effect of Exchange Rate Changes on Cash and Cash Equivalents		4			(10	)

Net Increase (Decrease) in Cash and Cash Equivalents		(44,477	)		105,764
Cash and Cash Equivalents, Beginning of Period		831,998			709,502

Cash and Cash Equivalents, End of Period	$	787,521		$	815,266

Supplemental Disclosure of Cash Flows Information
Payments for Interest	$	49,282		$	53,785

Payments for Income Taxes	$	47,547		$	17,212

Supplemental Disclosure of Non-Cash Investing and Financing Activities
Non-Cash Contributions from Non-Controlling Interest Holders	$	10,933		$	—

Non-Cash Distributions to Non-Controlling Interest Holders	$	(11,069	)	$	—

Net Activities Related to Capital Transactions of Consolidated Blackstone Funds	$	808		$	109

Net Assets Related to the Consolidation of CLO Vehicles	$	8,398		$	—

Net Assets Related to the Consolidation of Certain Fund Entities	$	35,433		$	—

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

Transfer of Interests to Non-Controlling Interest Holders	$	(212	)	$	(207	)

Change in The Blackstone Group L.P.’s Ownership Interest	$	(10,354	)	$	(9,748	)

Net Settlement of Vested Common Units	$	22,325		$	9,981

Conversion of Blackstone Holdings Partnership Units to Common Units	$	45,050		$	1,902

Acquisition of Ownership Interests from Non-Controlling Interest Holders
Deferred Tax Asset	$	(46,023	)	$	(78,972	)

Due to Affiliates	$	33,378		$	1,272

Partners’ Capital	$	12,645		$	77,700

See notes to condensed consolidated financial statements.

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements

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

1.	ORGANIZATION

The Blackstone Group L.P., together with its subsidiaries (“Blackstone” or the “Partnership”), is a leading global manager of private capital and provider of financial advisory services. The alternative asset management business includes the management of private equity funds, real estate funds, real estate investment trusts (“REITs”), funds of hedge funds, credit-focused funds, collateralized loan obligation (“CLO”) vehicles, collateralized debt obligation (“CDO”) 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, capital markets 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.

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Partnership have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions to Form 10-Q. The condensed consolidated financial statements, including these notes, are unaudited and exclude some of the disclosures required in audited financial statements. Management believes it has made all necessary adjustments (consisting of only normal recurring items) so that the condensed consolidated financial statements are presented fairly and that estimates made in preparing its condensed consolidated financial statements are reasonable and prudent. The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2013 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)

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 determine (a) whether an entity in which the Partnership holds a variable interest is a VIE and (b) whether the Partnership’s involvement, through holding interests directly or indirectly in the entity or contractually through other variable interests (for example, management and performance related fees), would give it a controlling financial interest. Performance of that analysis requires the exercise of judgment. 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 in the 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 continually. In evaluating whether the Partnership is the primary beneficiary, Blackstone evaluates its economic interests in the entity held either directly by the Partnership and its affiliates or indirectly through employees. The consolidation analysis can generally be performed qualitatively; however, if it is not readily apparent that the Partnership is not the primary beneficiary, a quantitative analysis may also be performed. Investments and redemptions (either by the Partnership, affiliates of the Partnership or third parties) or amendments to the governing documents of the respective Blackstone Funds could affect an entity’s status as a VIE or the determination of the primary beneficiary. At each reporting date, the Partnership assesses whether it is the primary beneficiary and will consolidate or deconsolidate accordingly.

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

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

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

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 funds 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, certain 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 that use net asset value per share to determine fair value in which Blackstone may not have the ability to redeem its investment at net asset value at, or within three months of, the reporting date. Blackstone may not have the ability to redeem its investment at net asset value at, or within three months of, the reporting date if an investee fund manager has the ability to limit the amount of redemptions, and/or the ability to side pocket investments, irrespective of whether such ability has been exercised. Senior and subordinate notes issued by CLO vehicles 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.

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)

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.

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. Where a discounted cash flow method is used, a terminal value is derived by reference to EBITDA or price/earnings exit multiples.

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)

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

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

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

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

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)

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. 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 (Losses) from Fund Investment Activities in the Condensed Consolidated Statements of Operations. Fair value is the amount that would be received to sell an asset or paid to transfer a liability, in an orderly transaction between market participants at the measurement date (i.e., the exit price).

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 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 on which the fair value option has been elected is based on stated coupon rates adjusted for the accretion of purchase discounts and the amortization of purchase premiums. This interest income is recorded within Interest and Dividend Revenue.

In addition, the Partnership has elected the fair value option for the assets and liabilities of CLO vehicles that are consolidated as of January 1, 2010, as a result of the initial adoption of variable interest entity consolidation guidance. The Partnership has also elected the fair value option for CLO vehicles consolidated as a result of the acquisitions of CLO management contracts 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

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, 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 (Losses) 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 Condensed Consolidated Statements of Operations.

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

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

Equity Method Investments

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

Repurchase and Reverse Repurchase Agreements

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

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

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

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

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

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

Securities 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.

For freestanding derivative contracts, the Partnership presents changes in fair value in current period earnings. Changes in the fair value of derivative instruments held by consolidated Blackstone Funds are reflected in Net Gains (Losses) from Fund Investment Activities or, where derivative instruments are held by the Partnership, within Investment Income (Loss) in the Condensed Consolidated Statements of Operations. The fair value of freestanding derivative assets 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 in its Condensed Consolidated Statements of Financial Condition, including cash and securities, 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.

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 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 declared.

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. 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 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 instruments and derivative instruments that are either (a) offset, or (b) subject to a master netting

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)

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 did not 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 did not have a material impact on the Partnership’s financial statements.

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

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)

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 did not have a material impact on the Partnership’s financial statements.

In June 2013, the FASB issued guidance to clarify the characteristics of an investment company and to provide guidance for assessing whether an entity is an investment company. Consistent with existing guidance for investment companies, all investments are to be measured at fair value including non-controlling ownership interests in other investment companies. There are no changes to the current requirements relating to the retention of specialized accounting in the consolidated financial statements of a non-investment company parent. The guidance is effective for interim and annual periods beginning after December 15, 2013 and early application is prohibited. Adoption did not have a material impact on the Partnership’s financial statements.

3.	INTANGIBLE ASSETS

Intangible Assets, Net consists of the following:


	March 31, 2014			December 31, 2013
Finite-Lived Intangible Assets/Contractual Rights	$	1,464,017		$	1,594,128
Accumulated Amortization		(929,527	)		(1,033,380	)

Intangible Assets, Net	$	534,490		$	560,748

Amortization expense associated with Blackstone’s intangible assets was $26.3 million for the three months ended March 31, 2014 and $22.9 million for the three months ended March 31, 2013.

Amortization of Intangible Assets held at March 31, 2014 is expected to be $102.3 million, $95.8 million, $85.6 million, $46.5 million, and $46.5 million for each of the years ending December 31, 2014, 2015, 2016, 2017 and 2018, respectively. Blackstone’s intangible assets as of March 31, 2014 are expected to amortize over a weighted-average period of 7.3 years.

4.	INVESTMENTS

Investments consists of the following:


	March 31, 2014		December 31, 2013
Investments of Consolidated Blackstone Funds	$	12,521,552	$	12,521,248
Equity Method Investments		3,291,797		3,309,879
Blackstone’s Treasury Cash Management Strategies		996,806		1,104,800
Performance Fees		4,979,453		4,674,792
Other Investments		116,242		118,804

	$	21,905,850	$	21,729,523

Blackstone’s share of Investments of Consolidated Blackstone Funds totaled $758.8 million and $487.8 million at March 31, 2014 and December 31, 2013, respectively.

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

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

Investments of Consolidated Blackstone Funds

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


	Three Months Ended March 31,
	2014			2013
Realized Gains	$	13,713		$	67,788
Net Change in Unrealized Gains (Losses)		(27,214	)		(42,495	)

Realized and Net Change in Unrealized Gains (Losses) from Consolidated Blackstone Funds		(13,501	)		25,293
Interest and Dividend Revenue Attributable to Consolidated Blackstone Funds		83,656			41,917

Other Income — Net Gains from Fund Investment Activities	$	70,155		$	67,210

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, 2014 and 2013, 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 $97.2 million and $107.9 million for the three months ended March 31, 2014 and 2013, respectively.

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,
	2014		2013
Realized Gains	$	3,094	$	3,911
Net Change in Unrealized Gains (Losses)		8,970		(971	)

	$	12,064	$	2,940

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

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

Performance Fees

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


	Private Equity			Real Estate			Hedge Fund Solutions			Credit			Total
Performance Fees, December 31, 2013	$	971,860		$	3,268,606		$	9,468		$	424,858		$	4,674,792
Performance Fees Allocated as a Result of Changes in Fund Fair Values		286,726			335,470			23,259			74,214			719,669
Foreign Exchange Gain		—			454			—			—			454
Fund Distributions		(118,775	)		(209,887	)		(15,681	)		(71,119	)		(415,462	)

Performance Fees, March 31, 2014	$	1,139,811		$	3,394,643		$	17,046		$	427,953		$	4,979,453

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,
	2014			2013
Realized Gains (Losses)	$	6,307		$	(648	)
Net Change in Unrealized Gains (Losses)		(6,504	)		5,204

	$	(197	)	$	4,556

5.	NET ASSET VALUE AS FAIR VALUE

A summary of fair value by strategy type alongside the remaining unfunded commitments and ability to redeem such investments as of March 31, 2014 is presented below:


Strategy	Fair Value		Unfunded Commitments		Redemption Frequency (if currently eligible)		Redemption Notice Period
Diversified Instruments	$	132,135	$	3,590		(a)		(a)
Credit Driven		201,711		—		(b)		(b)
Event Driven		122,941		—		(c)		(c)
Equity		428,613		—		(d)		(d)
Commodities		58,260		—		(e)		(e)
Private Equity		72,337		—		(f)		(f)

	$	1,015,997	$	3,590

(a)

Diversified Instruments include investments in funds that invest across multiple strategies. Investments representing 64% of the fair value of the investments in this category may not be redeemed at, or within three months of, the reporting date. Investments representing 28% of the fair value of the investments in 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. The remaining 8% of investments in this category are redeemable as of the reporting date. As of the reporting date, the investee fund manager had elected to side pocket 19% of Blackstone’s investments in this category.

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

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

(b)

The Credit Driven category includes investments in hedge funds that invest primarily in domestic and international bonds. Investments representing 83% of the fair value of the investments in this category may not be redeemed at, or within three months of, the reporting date. Investments representing 13% of the fair value of the investments in this category are redeemable as of the reporting date. Investments representing 4% of the total fair 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. 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. Withdrawals are generally not permitted for investments in this category. Distributions will be received as the underlying investments are liquidated.

(e)

The Commodities category includes investments in commodities-focused funds that primarily invest in futures and physical-based commodity driven strategies. Withdrawals are not permitted for investments representing 95% of the fair value of investments in this category. Distributions will be received as the underlying investments are liquidated. The remaining 5% of the fair value of the investments in this category may not be redeemed at, or within three months of, the reporting date.

(f)	The Private Equity category includes investments in private equity funds that primarily invest in private equity, revenue interests and other private investments. Withdrawals are not permitted for investments in this category.

6.	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 BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

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

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


	March 31, 2014								December 31, 2013
	Assets				Liabilities				Assets				Liabilities
	Notional		Fair Value		Notional		Fair Value		Notional		Fair Value		Notional		Fair Value
Freestanding Derivatives
Blackstone — Other Interest Rate Contracts	$	1,825,971	$	4,834	$	1,509,350	$	1,545	$	1,994,276	$	8,521	$	1,083,140	$	2,676
Foreign Currency Contracts		93,600		846		111,512		737		166,066		1,480		163,787		1,015
Total Return Swaps		—		—		—		—		326,929		342		—		—
Credit Default Swaps		—		—		34,000		2,763		—		—		10,000		591
Investments of Consolidated Blackstone Funds
Foreign Currency Contracts		324,312		24,919		163,567		12,197		396,569		30,830		239,037		10,018
Interest Rate Contracts		25,684		2,857		—		—		62,193		3,726		—		—
Credit Default Swaps		—		—		113,119		7,912		—		—		—		—

Total	$	2,269,567	$	33,456	$	1,931,548	$	25,154	$	2,946,033	$	44,899	$	1,495,964	$	14,300

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


	Three Months Ended March 31,
	2014			2013
Freestanding Derivatives
Realized Gains (Losses)
Interest Rate Contracts	$	(833	)	$	(526	)
Foreign Currency Contracts		1,439			(1,236	)
Credit Default Swaps		286			8

Total	$	892		$	(1,754	)

Net Change in Unrealized Gains (Losses)
Interest Rate Contracts	$	(2,542	)	$	(6,686	)
Foreign Currency Contracts		(8,117	)		7,379
Credit Default Swaps		1,813			(23	)

Total	$	(8,846	)	$	670

As of March 31, 2014 and December 31, 2013, the Partnership had not designated any derivatives as cash flow hedges or hedges of net investments in foreign operations.

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)

7.	FAIR VALUE OPTION

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


	March 31, 2014		December 31, 2013
Assets
Loans and Receivables	$	61,573	$	137,788
Equity and Preferred Securities		92,463		88,568
Assets of Consolidated CLO Vehicles
Corporate Loans		7,914,869		8,466,889
Corporate Bonds		143,333		161,382
Other		29,820		41,061

	$	8,242,058	$	8,895,688

Liabilities
Liabilities of Consolidated CLO Vehicles
Senior Secured Notes	$	7,795,523	$	8,302,572
Subordinated Notes		619,188		610,435

	$	8,414,711	$	8,913,007

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,
	2014						2013
	Realized Gains (Losses)			Net Change in Unrealized Gains (Losses)			Realized Gains (Losses)			Net Change in Unrealized Gains (Losses)
Assets
Loans and Receivables	$	—		$	—		$	43		$	(50	)
Equity and Preferred Securities		(584	)		5,118			(793	)		3,150
Assets of Consolidated CLO Vehicles
Corporate Loans		(38,242	)		15,059			39,575			79,146
Corporate Bonds		1,098			252			2,882			(3,788	)
Other		14,997			(3,118	)		889			1,609

	$	(22,731	)	$	17,311		$	42,596		$	80,067

Liabilities
Liabilities of Consolidated CLO Vehicles
Senior Secured Notes	$	(2,538	)	$	(55,874	)	$	—		$	(227,911	)
Subordinated Notes		—			36,955			—			36,742

	$	(2,538	)	$	(18,919	)	$	—		$	(191,169	)

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

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

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


	March 31, 2014
				For Financial Assets Past Due (a)					For Financial Assets with Non-Accrual Status
	Excess (Deficiency) of Fair Value Over Principal			Fair Value		Excess (Deficiency) of Fair Value Over Principal			Fair Value		Excess (Deficiency) of Fair Value Over Principal
Loans and Receivables	$	(1,322	)	$	—	$	—		$	—	$	(1,703	)
Assets of Consolidated CLO Vehicles
Corporate Loans		(198,893	)		25,269		(69,176	)		—		—
Corporate Bonds		(325	)		—		—			—		—

	$	(200,540	)	$	25,269	$	(69,176	)	$	—	$	(1,703	)


	December 31, 2013
				For Financial Assets Past Due (a)					For Financial Assets with Non-Accrual Status
	Excess (Deficiency) of Fair Value Over Principal			Fair Value		Excess (Deficiency) of Fair Value Over Principal			Fair Value		Excess (Deficiency) of Fair Value Over Principal
Loans and Receivables	$	(533	)	$	—	$	—		$	—	$	—
Assets of Consolidated CLO Vehicles
Corporate Loans		(281,254	)		57,837		(176,379	)		—		—
Corporate Bonds		(1,789	)		—		—			—		—

	$	(283,576	)	$	57,837	$	(176,379	)	$	—	$	—

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

As of December 31, 2013, no Loans and Receivables for which the fair value option was elected were past due or in non-accrual status. As of March 31, 2014 and December 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)

8.	FAIR VALUE MEASUREMENTS OF FINANCIAL INSTRUMENTS

The following tables summarize the valuation of the Partnership’s financial assets and liabilities by the fair value hierarchy:


	March 31, 2014
	Level I		Level II		Level III		Total
Assets
Investments of Consolidated Blackstone Funds (a)
Investment Funds	$	—	$	—	$	970,477	$	970,477
Equity Securities		74,543		106,643		207,217		388,403
Partnership and LLC Interests		—		163,401		1,283,903		1,447,304
Debt Instruments		2,708		1,442,482		154,380		1,599,570
Assets of Consolidated CLO Vehicles
Corporate Loans		—		7,147,823		767,046		7,914,869
Corporate Bonds		—		143,333		—		143,333
Freestanding Derivatives — Foreign Currency Contracts		—		24,919		—		24,919
Freestanding Derivatives — Interest Rate Contracts		—		2,857		—		2,857
Other		21		—		29,799		29,820

Total Investments of Consolidated Blackstone Funds		77,272		9,031,458		3,412,822		12,521,552
Blackstone’s Treasury Cash Management Strategies		90,586		857,359		48,861		996,806
Money Market Funds		196,428		—		—		196,428
Freestanding Derivatives
Interest Rate Contracts		4,049		785		—		4,834
Foreign Currency Contracts		—		846		—		846
Loans and Receivables		—		—		61,573		61,573
Other Investments		20,873		7,319		88,050		116,242

	$	389,208	$	9,897,767	$	3,611,306	$	13,898,281

Liabilities
Liabilities of Consolidated Blackstone Funds (a)
Freestanding Derivatives — Credit Default Swaps	$	—	$	7,912	$	—	$	7,912
Liabilities of Consolidated CLO Vehicles
Senior Secured Notes		—		—		7,795,523		7,795,523
Subordinated Notes		—		—		619,188		619,188
Freestanding Derivatives – Foreign Currency Contracts		—		12,197		—		12,197

Total Liabilities of Consolidated Blackstone Funds		—		20,109		8,414,711		8,434,820
Freestanding Derivatives
Interest Rate Contracts		1,502		43		—		1,545
Foreign Currency Contracts		—		737		—		737
Credit Default Swaps		—		2,763		—		2,763
Securities Sold, Not Yet Purchased		—		296,434		—		296,434

	$	1,502	$	320,086	$	8,414,711	$	8,736,299

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, 2013
	Level I		Level II		Level III		Total
Assets
Investments of Consolidated Blackstone Funds (a)
Investment Funds	$	—	$	—	$	897,843	$	897,843
Equity Securities		51,147		130,816		193,699		375,662
Partnership and LLC Interests		—		88,555		1,254,903		1,343,458
Debt Instruments		—		1,154,902		45,495		1,200,397
Assets of Consolidated CLO Vehicles
Corporate Loans		—		7,537,661		929,228		8,466,889
Corporate Bonds		—		161,382		—		161,382
Freestanding Derivatives — Foreign Currency Contracts		—		30,830		—		30,830
Freestanding Derivatives — Interest Rate Contracts		—		3,726		—		3,726
Other		3,477		—		37,584		41,061

Total Investments of Consolidated Blackstone Funds		54,624		9,107,872		3,358,752		12,521,248
Blackstone’s Treasury Cash Management Strategies		19,629		1,041,039		44,132		1,104,800
Money Market Funds		173,781		—		—		173,781
Freestanding Derivatives
Interest Rate Contracts		7,423		1,098		—		8,521
Foreign Currency Contracts		—		1,480		—		1,480
Total Return Swaps		—		342		—		342
Loans and Receivables		—		—		137,788		137,788
Other Investments		87,068		17,270		14,466		118,804

	$	342,525	$	10,169,101	$	3,555,138	$	14,066,764

Liabilities
Liabilities of Consolidated CLO Vehicles (a)
Senior Secured Notes	$	—	$	—	$	8,302,572	$	8,302,572
Subordinated Notes		—		—		610,435		610,435
Freestanding Derivatives — Foreign Currency Contracts		—		10,018		—		10,018
Freestanding Derivatives
Interest Rate Contracts		2,484		192		—		2,676
Foreign Currency Contracts		—		1,015		—		1,015
Credit Default Swaps		—		591		—		591
Securities Sold, Not Yet Purchased		—		76,195		—		76,195

	$	2,484	$	88,011	$	8,913,007	$	9,003,502

(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 existed as of March 31, 2014 and 2013, respectively:


	Three Months Ended March 31,
	2014		2013
Transfers from Level I into Level II (a)	$	—	$	75,134
Transfers from Level II into Level I (b)	$	18,029	$	—

(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 BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

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

The following table summarizes the quantitative inputs and assumptions used for items categorized in Level III of the fair value hierarchy as of March 31, 2014:

Fair Value

Valuation
Techniques

Unobservable
Inputs

Ranges

Weighted-
Average (a)

Financial Assets

Investments of Consolidated Blackstone Funds

Investment Funds

970,477

NAV as Fair Value

N/A

Equity Securities

119,884

Discounted Cash Flows

Discount Rate

8.4% - 26.1%

12.4%

Revenue CAGR

-0.2% - 33.9%

6.5%

Exit Multiple -EBITDA

5.0x - 14.0x

9.0x

Exit Multiple - P/E

8.5x - 17.0x

9.8x

80,370

Transaction Price

N/A

248

Market Comparable Companies

EBITDA Multiple

6.5x - 7.8x

7.1x

572

Third Party Pricing

N/A

6,143

Other

N/A

Partnership and LLC Interests

591,893

Discounted Cash Flows

Discount Rate

4.0% - 20.0%

9.0%

Revenue CAGR

-0.8% - 34.3%

6.3%

Exit Multiple - EBITDA

0.1x - 23.3x

9.4x

Exit Capitalization Rate

4.3% - 10.5%

7.0%

677,538

Transaction Price

N/A

9,335

Third Party Pricing

N/A

5,137

Other

N/A

Debt Instruments

12,220

Discounted Cash Flows

Discount Rate

9.8% - 21.0%

19.2%

Revenue CAGR

0.1% - 8.0%

4.5%

Exit Multiple - EBITDA

4.0x - 11.1x

10.4x

Exit Capitalization Rate

6.4% - 8.4%

6.5%

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

141,425

Third Party Pricing

N/A

537

Transaction Price

N/A

198

Market Comparable Companies

EBITDA Multiple

5.9x - 8.0x

5.9x

Assets of Consolidated CLO Vehicles

491,051

Third Party Pricing

N/A

252,990

Market Comparable

EBITDA Multiple

3.5x - 15.0x

7.1x

Companies

46,724

Discounted Cash Flows

Discount Rate

7.0% - 8.5%

7.6%

6,080

Transaction Price

N/A

Total Investments of Consolidated Blackstone Funds

3,412,822

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

17,070

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

Reinvestment Rate

LIBOR + 400 bps

N/A

Discount Rate

5.7% - 7.7%

6.2%

21,124

Third Party Pricing

N/A

623

Transaction Price

N/A

10,044

NAV as Fair Value

N/A

Loans and Receivables

61,573

Discounted Cash Flows

Discount Rate

11.6% - 14.0%

12.7%

Other Investments

11,932

Transaction Price

N/A

72,776

Discounted Cash Flows

Discount Rate

1.5% - 12.5%

3.3%

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

3,342

NAV as Fair Value

N/A

Total

3,611,306

Financial Liabilities

Liabilities of Consolidated CLO Vehicles

8,414,711

Discounted Cash Flows

Default Rate

2.0% - 3.0%

2.2%

Recovery Rate

70.0%

N/A

Recovery Lag

12 months

N/A

Pre-payment Rate

20.0%

N/A

Discount Rate

0.4% - 24.2%

2.5%

Reinvestment Rate

LIBOR + 400 bps

N/A

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

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

The following table summarizes the quantitative inputs and assumptions used for items categorized in Level III of the fair value hierarchy as of December 31, 2013:

Fair Value

Valuation
Techniques

Unobservable
Inputs

Ranges

Weighted-
Average (a)

Financial Assets

Investments of Consolidated Blackstone Funds

Investment Funds

897,843

NAV as Fair Value

N/A

Equity Securities

112,117

Discounted Cash Flows

Discount Rate

9.2% - 26.3%

12.4%

Revenue CAGR

0.9% - 46.2%

6.8%

Exit Multiple -
EBITDA

5.0x - 14.0x

8.9x

Exit Multiple - P/E

8.5x - 17.0x

9.8x

78,154

Transaction Price

N/A

275

Market Comparable Companies

EBITDA Multiple

6.3x - 7.5x

6.9x

Third Party Pricing

N/A

3,103

Other

N/A

Partnership and LLC Interests

557,534

Discounted Cash Flows

Discount Rate

5.0% - 22.5%

9.0%

Revenue CAGR

-0.7% - 17.7%

5.5%

Exit Multiple -
EBITDA

3.0x - 23.3x

9.4x

Exit Capitalization
Rate

4.3% - 10.5%

7.0%

687,246

Transaction Price

N/A

9,181

Third Party Pricing

N/A

942

Other

N/A

Debt Instruments

11,814

Discounted Cash Flows

Discount Rate

10.7% - 21.0%

19.2%

Revenue CAGR

4.8% - 5.5%

4.8%

Exit Multiple -
EBITDA

5.8x - 11.1x

10.8x

Exit Capitalization
Rate

6.4% - 7.5%

6.7%

Default Rate

2.0%

N/A

Recovery Rate

67.0%

N/A

Recovery Lag

12 months

N/A

Pre-payment Rate

20.0%

N/A

Reinvestment Rate

LIBOR + 400 bps

N/A

31,675

Third Party Pricing

N/A

1,772

Transaction Price

N/A

234

Market Comparable Companies

EBITDA Multiple

6.2x - 8.0x

6.2x

Assets of Consolidated CLO Vehicles

615,414

Third Party Pricing

N/A

293,382

Market Comparable Companies

EBITDA Multiple

3.5x - 11.3x

7.3x

57,936

Discounted Cash Flows

Discount Rate

7.0% - 14.0%

7.8%

Revenue CAGR

4.2%

N/A

Exit Multiple -
EBITDA

8.0x

N/A

Transaction Price

N/A

Total Investments of Consolidated Blackstone Funds

3,358,752

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

17,040

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

20.0%

N/A

Reinvestment Rate

LIBOR + 400 bps

N/A

Discount Rate

6.0% - 8.6%

6.6%

16,993

Third Party Pricing

N/A

10,099

NAV as Fair Value

N/A

Loans and Receivables

137,788

Discounted Cash Flows

Discount Rate

11.0% - 14.8%

12.6%

Other Investments

7,927

Transaction Price

N/A

3,725

NAV as Fair Value

N/A

2,814

Discounted Cash Flows

Discount Rate

12.5%

N/A

Total

3,555,138

Financial Liabilities

Liabilities of Consolidated CLO Vehicles

8,913,007

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

0.4% - 24.2%

2.6%

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, 2013, 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 respective reporting period. Total realized and unrealized gains and losses recorded for Level III investments are reported in Investment Income 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,
	2014												2013
	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	$	3,358,752		$	137,788		$	58,598		$	3,555,138		$	3,017,699		$	30,663		$	28,104		$	3,076,466
Transfer In Due to Consolidation and Acquisition (a)		276,806			—			—			276,806			—			—			—			—
Transfer In (Out) Due to Deconsolidation		(83,867	)		—			—			(83,867	)		(98,559	)		—			11,960			(86,599	)
Transfer In to Level III (b)		195,607			—			3,679			199,286			207,476			—			—			207,476
Transfer Out of Level III (b)		(244,308	)		—			(1,009	)		(245,317	)		(322,764	)		—			—			(322,764	)
Purchases		159,613			81,241			77,637			318,491			172,968			2,873			62,774			238,615
Sales		(290,782	)		(156,719	)		(4,067	)		(451,568	)		(129,725	)		(29,462	)		(39,462	)		(198,649	)
Settlements		—			(1,170	)		(155	)		(1,325	)		—			(332	)		(1,559	)		(1,891	)
Realized Gains, Net		17,015			—			102			17,117			8,042			43			849			8,934
Changes in Unrealized Gains (Losses) Included in Earnings Related to Investments Still Held at the Reporting Date		23,986			433			2,126			26,545			82,160			82			383			82,625

Balance, End of Period	$	3,412,822		$	61,573		$	136,911		$	3,611,306		$	2,937,297		$	3,867		$	63,049		$	3,004,213


	Level III Financial Liabilities at Fair Value Three Months Ended March 31,
	2014									2013
	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	$	8,302,572		$	610,435		$	8,913,007		$	10,695,136		$	846,471		$	11,541,607
Transfer In Due to Consolidation and Acquisition (a)		472,019			86,182			558,201			—			—			—
Transfer Out Due to Deconsolidation		(639,091	)		(39,798	)		(678,889	)		(757,450	)		(83,296	)		(840,746	)
Issuances		—			—			—			1,063			781			1,844
Settlements		(388,987	)		(110	)		(389,097	)		(404,392	)		(349	)		(404,741	)
Realized Losses, Net		2,538			—			2,538			—			—			—
Changes in Unrealized (Gains) Losses Included in Earnings Related to Liabilities Still Held at the Reporting Date		46,472			(37,521	)		8,951			100,390			(43,055	)		57,335

Balance, End of Period	$	7,795,523		$	619,188		$	8,414,711		$	9,634,747		$	720,552		$	10,355,299

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)

(a)	Represents the transfer into Level III of financial assets and liabilities as a result of the consolidation of certain fund entities.

(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.

9.	VARIABLE INTEREST ENTITIES

Pursuant to GAAP consolidation guidance, the Partnership consolidates certain VIEs in which it is determined that the Partnership is the primary beneficiary either directly or indirectly, through a consolidated entity or affiliate. VIEs include certain private equity, real estate, credit-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 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, 2014		December 31, 2013
Investments	$	901,243	$	758,304
Accounts Receivable		78,013		166,908
Due from Affiliates		35,483		86,246

Total VIE Assets		1,014,739		1,011,458
Due to Affiliates		172		397
Accounts Payable, Accrued Expenses and Other Liabilities		—		2
Potential Clawback Obligation		63,392		63,290

Maximum Exposure to Loss	$	1,078,303	$	1,075,147

10.

REVERSE REPURCHASE AND REPURCHASE AGREEMENTS

At March 31, 2014, 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 $162.5 million and cash as collateral for reverse repurchase agreements that could be repledged, delivered or otherwise used. Securities with a fair value of

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—Continued

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

$162.5 million were used to cover Securities Sold, Not Yet Purchased. The Partnership also pledged securities with a carrying value of $239.2 million and cash to collateralize its repurchase agreements. Such securities can be repledged, delivered or otherwise used by the counterparty.

At December 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 $148.4 million and cash as collateral for reverse repurchase agreements that could be repledged, delivered or otherwise used. Securities with a fair value of $148.4 million were used to cover Securities Sold, Not Yet Purchased and Repurchase Agreements. The Partnership also pledged securities with a carrying value of $316.6 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, 2014:


	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	$	5,680	$	1,983	$	478	$	3,219
Reverse Repurchase Agreements		162,708		162,513		—		195

Total	$	168,388	$	164,496	$	478	$	3,414


	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	$	12,957	$	1,983	$	10,739	$	235
Repurchase Agreements		216,861		216,252		609		—

Total	$	229,818	$	218,235	$	11,348	$	235

The following tables present the offsetting of assets and liabilities as of December 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	$	10,343	$	3,025	$	582	$	6,736
Reverse Repurchase Agreements		148,984		148,394		—		590

Total	$	159,327	$	151,419	$	582	$	7,326

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	$	4,282	$	3,025	$	1,257	$	—
Repurchase Agreements		316,352		316,352		—		—

Total	$	320,634	$	319,377	$	1,257	$	—

Reverse Repurchase Agreements and Repurchase Agreements are presented separately on the Condensed Consolidated Statements of Financial Condition. Freestanding Derivative assets are included in Other Assets in the Condensed Consolidated Statements of Financial Condition. The following table presents the components of Other Assets:


	March 31, 2014		December 31, 2013
Furniture, Equipment and Leasehold Improvements, Net	$	131,715	$	137,088
Prepaid Expenses		145,098		61,226
Other Assets		65,882		75,815
Freestanding Derivatives		5,680		10,343

	$	348,375	$	284,472

Freestanding Derivative liabilities are included in Accounts Payable, Accrued Expenses and Other Liabilities in the Condensed Consolidated 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 within the Condensed Consolidated Statements of Financial Condition, were:


	March 31, 2014				December 31, 2013
	Carrying Value		Fair Value (a)		Carrying Value		Fair Value (a)
Blackstone Issued 6.625%, $600 Million Par, Notes Due 8/15/2019 (b)	$	630,914	$	686,673	$	632,823	$	684,860
Blackstone Issued 5.875%, $400 Million Par, Notes Due 3/15/2021	$	398,584	$	457,240	$	398,543	$	447,120
Blackstone Issued 4.750%, $400 Million Par, Notes Due 2/15/2023	$	393,350	$	425,760	$	393,202	$	415,760
Blackstone Issued 6.250%, $250 Million Par, Notes Due 8/15/2042	$	239,768	$	300,475	$	239,738	$	278,550

(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.

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 Loans Payable and Due to Affiliates within the Condensed Consolidated Statements of Financial Condition are amounts due to holders of debt securities issued by Blackstone’s consolidated CLO vehicles. Borrowings through the consolidated CLO vehicles consisted of the following:


	March 31, 2014							December 31, 2013
	Borrowing Outstanding		Weighted- Average Interest Rate			Weighted- Average Remaining Maturity in Years		Borrowing Outstanding		Weighted- Average Interest Rate			Weighted- Average Remaining Maturity in Years
Senior Secured Notes	$	8,104,418		1.05	%		3.9	$	8,605,553		1.09	%		4.1
Subordinated Notes		1,159,366		(a	)		N/A		1,221,068		(a	)		N/A

	$	9,263,784						$	9,826,621

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

Senior Secured Notes and Subordinated Notes comprise the following amounts:


	March 31, 2014						December 31, 2013
			Amounts Due to Non- Consolidated Affiliates						Amounts Due to Non- Consolidated Affiliates
	Fair Value		Borrowing Outstanding		Fair Value		Fair Value		Borrowing Outstanding		Fair Value
Senior Secured Notes	$	7,795,523	$	14,500	$	13,730	$	8,302,572	$	14,500	$	13,732
Subordinated Notes	$	619,188	$	183,742	$	85,086	$	610,435	$	224,444	$	110,197

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, 2014 and December 31, 2013, the fair value of the consolidated CLO assets was $9.3 billion and $9.5 billion, respectively. This collateral consisted of Cash, Corporate Loans, Corporate Bonds and other securities.

Scheduled principal payments for borrowings as of March 31, 2014 were as follows:


	Operating Borrowings		Blackstone Fund Facilities/CLO Vehicles		Total Borrowings
2014	$	—	$	3,762	$	3,762
2015		—		5,030		5,030
2016		—		350,000		350,000
2017		—		240,000		240,000
After 2018		1,635,000		8,673,784		10,308,784

Total	$	1,635,000	$	9,272,576	$	10,907,576

13.

INCOME TAXES

Blackstone’s effective tax rate was 7.6% and 10.7% for the three months ended March 31, 2014 and 2013, respectively. Blackstone’s income tax provision was $54.1 million and $51.0 million for the three months ended March 31, 2014 and 2013, 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 effective tax rate for the three months ended March 31, 2014 and 2013 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.

14.

NET INCOME PER COMMON UNIT

Basic and diluted net income per common unit for the three months ended March 31, 2014 and March 31, 2013 was calculated as follows:


	Three Months Ended March 31,
	2014		2013
Net Income Attributable to The Blackstone Group L.P.	$	265,617	$	167,635

Basic Net Income Per Common Unit
Weighted-Average Common Units Outstanding		601,527,299		582,322,183

Basic Net Income Per Common Unit	$	0.44	$	0.29

Diluted Net Income Per Common Unit
Weighted-Average Common Units Outstanding	<