Description
Experience shows that the most compelling opportunities to create value often arise at the bottom of an economic cycle.
Finding it.
Investing in it.
Protecting it.
Building it...
AnnualReport2009
Contents
Creating Value, Earning Trust 2
Private Equity 4
A Focus On Health Care 8
Real Estate 10
Energy Independence And
The Environment 14
Blackstone Alternative Asset
Management (BAAM) 16
Credit Business – GSO 17
A Strategic Approach To Building Value 20
Financial Advisory 22
Restructuring 23
The Blackstone Charitable Foundation 26
Financial Highlights 28
Letter To Unitholders 32
Our Guiding Principles/
The Peter G. Peterson Award 38
Financials 39
Leadership Directory 100
Unitholder Information Inside Back cover
Deploying Capital Strategically to Realize Potential Deploying Capital Strategically to Realize Potential Deploying Capital Strategically to Realize Potential
Experienceshowsthatthemostcompelling
opportunities to create value often arise at
thebottomofaneconomiccycle.Webelieve
that2009wasacaseinpoint.Andso,across
Blackstone’s businesses, we committed our
capital, knowledge and talent to identify
new investments, protect existing invest-
mentsandbuildvalueforthelongterm.
Much of our value-creation re?ects our
establishedroleasstewardsofprivatecapi-
talinthepublicinterest.OurPrivateEquity
businessrealizedproceedsfromthesaleor
IPOsofseveralportfolioholdingsandmade
newinvestmentsinqualitycompanieswith
stronggrowthpotential.InRealEstate,we
began late in the year selectively using our
substantialresourcestobuyassetswiththe
potential to benefit as property markets
stabilize.OurBlackstoneAlternativeAsset
Management(BAAM)businessbecamethe
world’slargestfundofhedgefundsmanager,
inpartduetoitsunmatchedsuccessinpre-
serving the value of clients’ assets. Our
Credit business has provided ?nancing at
attractivereturnsinadebt-starvedmarket-
place. Additionally, our Financial Advisory
businessadvisedonhighpro?lerestructur-
ingandM&Atransactionstocreatehealthier,
morecompetitiveenterprises.
Wealsoinvestedinourownbusinesses,
expanding our global footprint, launching
newinitiativesandaddingtalentedpeople
to strengthen our position and leadership
forthefuture.
Throughoureforts,wewillstrivetocreate
a positive impact and long-term value—for
ourinvestors,shareholders,clients,portfolio
companiesandthebroader economy.
Value.
1
Sound
stewardship of
private capital
serves the
public interest.
ThemajorityofthecapitalinvestedbyBlackstoneisentrustedtousbyglobalpublicinstitutions,includingpension
funds,universityendowments,charitableinstitutionsandsovereignwealthfunds.Wehavemorethan1,190limited
partnersin50countries.Whenwedeliversuperiorreturnsforourlimitedpartners,webene?tthelivesofworkers,
retirees,students,grantrecipientsandothersaroundtheworldwhodependontheseinstitutions.
Creating Value, Earning Trust
2 TheBlackstoneGroup AnnualReport2009
Wetakethisresponsibilityseriously,knowingthatbyprotectingandgrowingthecapital
entrusted to us, we are helping governments to reduce pension shortfalls, allowing cur-
rent and future retirees to enjoy a more secure retirement, and advancing the missions
ofnumerousworthyorganizationsineducation,communityservice,healthcareandthe
arts. The fact that nearly 90% of our limited partners invest in successive Blackstone
fundsre?ectsourcommitmenttodeliveringperformanceworthyoftheirtrust.
Bene?tting Pensioners
Morethan37millionpensionersworldwidebene?tfromthereturnsthataregenerated
byBlackstone’sinvestments.Ofthisnumber,nearly23millionliveintheUnitedStates—
morethanhalfofallU.S.pensioners.
Higher Returns for Higher Education
Among Blackstone’s limited partners are U.S. universities with an enrollment of more
than1.25millionstudents.Thisisnearly8%ofthetotalattendanceatU.S.universities.
number of
pensioners worldwide
served by
blackstone’s pension
fund investors
37
million
$4.1
billion
grants made annually by
foundations that
are blackstone clients
Solid Foundations
TheinvestmentreturnsdeliveredbyBlackstonealsobene?tgrant-makingfoundationsthat
commit an aggregate $4.1 billion annually toward causes as diverse as healthcare, commu-
nitydevelopmentandwildlifeconservation.IntheUnitedStatesalone,ourlimitedpartners
accountforapproximately6%ofthetotalgrant-makingactivityeachyear.
Supporting Care
Blackstoneclientsalsoincludehospitalendowments.Their?nancialresourceshelptoof-
settherisingcostsofhealthcareintheU.S.andelsewhere,supporting9.5millionpatient
visitsperyear.
Investing in The Arts
Blackstone’slimitedpartnersalsoincludeartsendowmentssuchasmuseums,orchestras
andperformingartscompaniesthatattract2.8millionpatronsintheU.S.ayear,enriching
thelivesoftheiraudiencesandcommunities.
3
Private Equity
For Blackstone’s private equity business,
the current market environment pre-
sented a number of attractive investment
opportunities. One of our funds acquired
SeaWorld Parks & Entertainment (for-
merly Busch Entertainment), the second
largestthemeparkoperatorintheU.S.We
also participated in the recapitalization of
BankUnited, a major Florida-based bank
positioned to expand into a regional insti-
tution. We supported the acquisition of
BirdsEyeFoodsbyPinnacleFoodsGroup,
aBlackstoneportfoliocompany,tocreatea
powerhouse packaged food business with
morethan$2.5billioninsales.
We also delivered value through real-
izations during the past year despite a
dif cult economy. Distributions to inves-
tors totaled $1.6 billion, or 1.8 times the
original investment, and included Stiefel,
Sithe Goreway, Vanguard, Cineworld
and Orangina. Additional transactions
completed after year end include IPOs of
TeamHealthandGrahamPackaging.
Today, Blackstone operates one of the
world’s pre-eminent private equity fund
Investing in quality
businesses will
fuel growth in the
next cycle
aggregate
revenues of portfolio
companies
$109
billion
4 TheBlackstoneGroup AnnualReport2009
businesses. Our investment strategy aims
to create value by identifying great busi-
nessesandprovidingthemwiththecapital,
expertiseandoperationalsupporttomaxi-
mizetheirpotential.Weforgepartnerships
with talented management teams to
achieve exceptional performance over
time. A unique contributor to the success
of our funds is Blackstone’s Portfolio
Operations Group, which enhances the
performance of our companies through
hands-on operational advice, joint pro-
curementprograms,andotherresources.
Our private equity funds have consis-
tently outperformed their benchmarks,
withnetIRRforeachofBlackstone’sclosed
general private equity funds ranking in
the top quartile. As a result of our perfor-
mance,nearly90%ofourclientsinvestin
successive Blackstone funds. Fee-earning
assets under management in our private
equity funds totaled $24.5 billion as of
December31,2009.
$1.6
billion
of distributions to
investors in 2009
5
Private Equity Private Equity
Creating a
leader in packaged
food brands
Private Equity Private Equity Private Equity Private Equity
6 TheBlackstoneGroup AnnualReport2009
Pinnacle Foods Group
In 2009, Blackstone provided additional
capital to support our portfolio company,
Pinnacle Foods Group, in its $1.3 billion
acquisition of Birds Eye Foods. We rec-
ognized that combining two pre-eminent
brand portfolios would give the resulting
business significantly greater scale and
enhanced opportunities for value creation
both through continued organic growth
andfurtheracquisitions.
With such iconic brands as Duncan
Hines®, Birds Eye®, Vlasic®, Armour®,
Mrs. Butterworth’s, Log Cabin, Hungry
Man®, Mrs. Paul’s® and Van de Kamp’s,
the expanded Pinnacle Foods is well posi-
tioned to increase its market share while
broadening its offerings of healthy prod-
ucts. Combined sales are now in excess of
$2.5 billion. Pinnacle has recorded strong
sales and earnings growth since its acqui-
sition by Blackstone, and is expected to
generateindustry-leadingmarginsandfree
cash?owswiththeadditionofBirdsEye.
7
Innovation is
key to
providing quality,
afordable
health care.
Forfamilies,employers,healthcareprovidersandpayors,andgovernmentatalllevels,providingquality,afordable
healthcareisoneofthecriticalconcernsinoursociety.Webelievewecanplayaroleinimprovingtheefectiveness
ofthehealthcaremarketplace.Byinvestingincompaniesthatoferbest-in-classhealthcareservicesandinnovative
solutions—such as Apria Healthcare Group, Biomet, Catalent Pharma Solutions, DJO, Emcure, HealthMarkets,
Stiefel Laboratories, TeamHealth and Vanguard Health Systems—we can enhance the care available to millions of
familieswhileprovidingstrongreturnsforourinvestors.
A Focus On Health Care
8 TheBlackstoneGroup AnnualReport2009
Equity Healthcare
To improve the quality of health care ofered to portfolio company employees and their
families, we launched Equity Healthcare in 2008. This healthcare purchasing alliance
helpssavemorethanmoney—itscomprehensivehealthandwellnessprogramssavelives.
Personal Nurse Advocates help members manage chronic conditions, access resources,
and make diet and lifestyle changes. Equity Healthcare taught the parents of a young
diabetictomanageherdisease,identi?edpre-strokeconditionsinseveralemployeesand
helpsmemberssticktoprescribedmedicationsandwellnessroutines.Itsprogramsareso
efectivethatother?rmsinourindustryarenowaskingEquityHealthcaretohelpimprove
thelivesofemployeesoftheirportfoliocompanies.
TeamHealth
Exceptionalhealthcaredependsonexceptionalhealthcareprofessionals.Forthisreason,
Blackstone invested in TeamHealth, one of the top U.S. suppliers of outsourced staf ng
servicesforhospitalsandotherhealthcareproviders.OurinvestmenthelpedTeamHealth
grow and expand, eventually providing services such as emergency medicine, hospital
medicine,anesthesia,radiology,urgentcare,andpediatriccaretomorethan530hospitals
andotherlocations.In2009,theIPOofTeamHealthraised$160 million,whichthecom-
panyusedtofurthersupportitscapitalstructure.
Vanguard Health Systems
A leading provider of hospital services, with 15 hospitals in the San Antonio, Phoenix,
Chicago and suburban Boston areas, Vanguard Health Systems combines the principles
of non-pro?t health care with the business acumen of a privately owned organization.
Vanguardcollaboratescloselywiththestafofitshospitalsandrespectstheirautonomy,
tailoringhealthservicestotheneedsofeachcommunity,andinvestinginresourcesand
technology to improve patient care. Blackstone’s investment in Vanguard will help the
companygrowitshospitalnetworkandinvestinadditionalimprovementsincare.
Decoding the Human Genome
BlackstoneisaninvestorinPaci?cBiosciences,acompanypioneeringthedevelopment
of an exciting new DNA sequencing technology. The company’s Single Molecule Real
Time(SMRT™)Biologypromisestorevolutionizethelifesciencesbydecodingcomplex
molecularstructures.Byrevealinggeneticandenvironmentalfactorsthatafecthuman
health, this can lead to new treatments and new hope. This technology, now nearing
commercialization, is also supported by leading life sciences companies, the National
InstitutesofHealthandtheNationalHumanGenomeResearchInstitute.
260
thousand
over 260 thousand employees
and their dependents
that equity
healthcare serves
expected annual cost
savings from the
equity healthcare program
through 2011
$140
million
9
Real Estate Real Estate Real Estate
Staying disciplined
in a challenging
commercial real
estate market
Despitetheturmoilintheglobalrealestate
markets, Blackstone’s Real Estate Group
maintained its strategic vision and com-
pleted the year in a strong position. The
Groupaddedover$700millionoffee-earn-
ing AUM during 2009 with virtually no
realized losses. During 2009, we restruc-
tured billions of dollars of debt, allowing
our real estate funds to benefit from the
nascent recovery. Our funds are heavily
weighted toward “world class” assets that
are highly sought after as markets stabi-
lize. We have some $12 billion to invest in
what we expect to be an opportune point
inthecycle.ThesuccessofBlackstoneReal
EstatePartnersEuropeIII,whichin2009
completedfundraisingofover€3.1billion,
is evidence of our limited partner loyalty
andmarket leadership.
The Group has pursued a disciplined
approach that has achieved excellent
results for our limited partners in good
times and bad for over 18 years. We sold
over $60 billion of assets in 2005–2007,
wellinadvanceofthedownturn,returning
capital to investors and materially reduc-
ing investment debt levels. We avoided
investment in residential real estate and
10 TheBlackstoneGroup AnnualReport2009
in commercial real estate development
projects, which were some of the hardest
hit assets in this cycle. We maintained a
conservative approach to financing our
investments. Most importantly, we did
virtually no investing for nearly two years
asthecommercialrealestatemarketswere
undergoingrapiddeterioration.
In late 2009, with operating funda-
mentals starting to stabilize, we began to
return to acquisitions selectively. At year
end2009,weacquireda50%interestinthe
Broadgate of ce complex in London. The
Group also expanded its focus to a range
of real estate debt opportunities—includ-
ing publicly traded debt securities, whole
loan originations, mezzanine loans, real
estate loan acquisitions, rescue ?nancing
and preferred equity—that we believe are
substantiallymispriced.
We believe that with ample capital to
invest and a patient, thoughtful approach,
we will generate excellent risk-adjusted
returns as real estate markets continue
to improve.
$12.1
billion
available capital
to invest
fee-earning
assets
under management
$23.7
billion
11
Real Estate Real Estate
Selectively
recommitting capital
to resilient
real estate markets
Real Estate Real Estate Real Estate Real Estate
12 TheBlackstoneGroup AnnualReport2009
Broadgate Of ce Park
Recognizing that the “bottoming out”
of the global real estate markets would
pose attractive opportunities, Blackstone
acquired 50% of Broadgate, the largest
office complex in London’s financial dis-
trict, in 2009. Operated as a joint venture
with The British Land Company, the com-
plex includes 14 Broadgate buildings and
tworecentlycompletedsisterbuildings.
Broadgate shares qualities with many
of Blackstone’s most successful prior
real estate transactions: high quality real
estate, a great location, and very attrac-
tive acquisition pricing for the long term
(50% of peak value just two years prior).
We believe that our acquisition will help
stimulatearecoveryoftheCityofLondon
of ce market while leading to well above
averageinvestmentreturns.
13
Addressing
energy needs and
environmental
concerns will provide
attractive investment
opportunities.
Around the world, corporations, governments and consumers are actively seeking means to reliably deliver
alternativepowersources,promoteenergyef ciency,orreducegreenhousegases.AtBlackstone,weaimtoidentify
market-basedsolutionstothesevitalneedsthatwillalsogenerateexceptionalvalueforinvestors.
Energy Independence And The Environment
14 TheBlackstoneGroup AnnualReport2009
Cleantech Venture Fund
Blackstone created Cleantech Venture Partners to invest in businesses focused on
reducing energy consumption and improving the environment. We seek to finance
innovation across a range of categories, including renewable power such as solar, wind
andgeothermal,greenbuildingmaterials,transportationandindustrialef ciency,emis-
sionscontrol,energystorageandothernewtechnologies.
Alternative Clean Power
AmongBlackstone’sinvestmentsinalternativepowerareTransmissionDevelopersInc.
(TDI) and Meerwind. TDI is developing a power transmission line to bring afordable,
renewable power to New York and New England from Canada. Called the Champlain-
Hudson Power Express, the transmission line will help meet the needs of high-demand
areas with clean, renewable energy and will run under waterways to minimize impact
ontheenvironmentandlocalcommunities.Meerwind,developedinpartnershipwitha
Germanenergyenterprise,isoneoftheNorthSea’slargestwindfarmprojects.Thewind
farmwillconsistof80windturbineswithacombinedgenerationcapacityof400mega-
watts,tobelocated80kilometersofthenortherncoastofGermany.
Reducing Deforestation
BlackstoneisinvestinginapioneeringforestryplantationprojectinSouthAmericawith
the potential to limit deforestation and reduce carbon emissions. By establishing large-
scaleeucalyptusforestryplantations,theproject’screatorshopetoprovideanalternative
source of timber for both construction and energy uses, thus reducing the pressure on
nativeforests,suchastheirreplaceableAmazonrainforest.
Global Sustainability Initiatives
Blackstone is actively seeking to improve sustainability across our operations and within
ourportfoliocompanies.Ourongoingefortstoconsolidateour?rm’sdatacenters,includ-
ingenergy-ef cienttechnology,shouldreduceenergyusageandcostsbywellover50%.In
London,ourprivateequityteamisworkingonmeasurestosigni?cantlyreducethecarbon
footprint of our London headquarters. Blackstone Real Estate Partners became the ?rst
privateequityrealestatefundtojointheBetterBuildingsPartnership(BBP),aconsortium
of U.K. property owners dedicated to improving the sustainability of London commercial
buildings and achieving measurable CO2 reductions. Our Portfolio Operations Group is
extendingitsgrouppurchasingactivitiestoencompassmore“green”andenergy-ef cient
products and services. Energy-saving measures adopted in our New York of ces are also
beingsharedwiththebuildingengineersatourotherlocations.
reduction of our data center
energy usage and
costs as a result of ongoing
facility consolidation
over
50%
$8.7
billion
invested by blackstone
in industries being
transformed by clean
technologies
15
In2009,BAAMleditspeersasoneofthefew
fundsofhedgefundsintheindustrytoexpe-
rience positive growth. Fund performance
and asset inflows resulted in 15% annual
AUM growth, compared to a 10% decline
in AUM for the aggregate fund of hedge
funds industry (firms over $1 billion),
accordingtoInvestHedge.
Net in?ows of $500 million raised total
assets under management to $27.1 billion
asofDecember31,2009.BAAM’s2009per-
formance outpaced its peers as well, with
its Composite Index returning over 16.1%
on a net basis, compared to 13.4% for the
HFRXGlobalHedgeFundIndex.
BAAM’s growth re?ects the trust inves-
torshaveplacedinourrigorousduediligence
and risk management procedures, which
have allowed us to manage business risks,
meet clients’ liquidity needs, and avoid
the frauds that have troubled the hedge
fundindustry.
With a sharp focus on client service,
BAAM customizes each portfolio to meet
investor needs. Drawing upon an array of
carefullychosenmanagersandawiderange
of investment strategies, portfolios are
designedtodelivercompellingrisk-adjusted
returnsandmitigatedownsiderisk.
As a result of our prudent approach,
manyoftheworld’slargestandmostsophis-
ticated institutional investors, including
corporate, public and union pension funds,
sovereign wealth funds, central banks,
insurancecompaniesandothers,relyupon
BAAMtoprotectassetsandprovideinvest-
mentsolutions.
$27.1
billion
total assets
under management
The largest
independent
discretionary fund
of hedge
funds manager in
the world
Blackstone Alternative Asset Management (BAAM)
16 TheBlackstoneGroup AnnualReport2009
Ourcreditbusinessperformedexceptionally
wellamidcontinuedvolatilityincreditmar-
kets, due to GSO’s deep experience, strong
riskmanagementcapabilitiesandscale.One
oftheworld’slargestcredit-orientedinvest-
mentmanagers,GSOmanagesabroadarray
ofproductsthatspanbothprivateandpublic
markets, including mezzanine funds, dis-
tressed funds, a multi-strategy credit hedge
fund,collateralizedloanobligations(CLO’s),
permanentcapitalfundsandothercustom-
ized vehicles. GSO ended 2009 with total
AUMof$24.2billion.
Among 2009’s highlights, we raised
$1.1 billion in our new rescue financing
fund and expect the fund to exceed $2 bil-
lionincommitmentsbythe?nalcloselater
this year. Mezzanine lending and rescue
?nancing provide exceptional investment
opportunities today, as committed capital
remainsextremelyscarceformiddle-mar-
ket companies. We also took advantage
of the market strength and our trading
capabilities to sell certain leveraged loan
portfoliosatsubstantialgainsforourinves-
tors. In addition, we recently announced
theacquisitionof$3.2billionofCLOassets
fromCallidus,anAlliedCapitalcompany.
At a time when businesses are in need
of innovative credit solutions, GSO’s
extensive market knowledge, vast pools
of ?exible capital and dominant presence
in the credit market are providing many
opportunitiestocreatevalueforinvestors.
A vital resource in
a credit-constrained
marketplace
Credit Business – GSO
flagship credit
hedge funds
net return in 2009
28%
17
A stable capital
structure to
support growth
Credit Business – GSO
18 TheBlackstoneGroup AnnualReport2009
Crosstex Energy Services
Crosstex Energy, a midstream natural gas
company with an extensive network of
pipelines and processing facilities located
in two of the most attractive natural gas
producing regions in the United States, is
well-positioned to benefit from contin-
ued drilling activity in its core markets.
Beginning in 2008, however, a collapse in
commodity prices and restrictive credit
marketschallengedtheviabilityofthebusi-
nessandnegativelyimpacteditsgrowth.
The Blackstone/GSO Capital Solutions
Fund provided Crosstex with a more sta-
ble capital structure and the resources to
grow,intheformof$125millioninSeries A
Convertible Preferred Units. This in turn
enabled Crosstex to obtain a $725 million
bond issue and new bank credit facility.
With the business now on a solid ?nancial
footingandfocusedongrowth,Blackstone
and GSO look forward to further opportu-
nitiestoinvestwithCrosstex.
19
Positioning
companies
for future growth
and productivity
builds
long-term value.
Blackstone’s focus is on identifying, investing in and enhancing the value of great businesses and attractive assets.
We accomplish this through a patient and persistent application of intellectual and ?nancial capital, guided by
accomplishedmanagementteamsandouractiveinvolvementinthebusiness.Overtime,wehaveprovenourability
tomaximizethepotentialofourportfoliocompaniesbyenhancingproductivityandpro?tability,investingincapital
improvements,makingaccretiveacquisitionsorotherstrategicinitiatives.
A Strategic Approach To Building Value
20 TheBlackstoneGroup AnnualReport2009
Restructuring Drives Success
We advised Ford Motor Company on a major balance sheet tender and exchange ofer
thatreduceditsdebt,strengthenedits?nancialandcompetitivepositionandbolstered
its long-term viability. Blackstone helped develop the complex solution, involving a
tenderforsecuredandunsecureddebtandanexchangeofcashandstockforunsecured
convertible notes, reducing total debt by $9.9 billion. This transaction, along with its
dramaticoperationalturnaround,positionedFordtobetheonlydomesticautomakerto
avoidgovernmentsupportandsucceedduringthe?nancialdownturn.
Realizing Returns
Blackstone’s ability to build the value of our portfolio companies produced distribu-
tions to investors of approximately $1.6 billion in 2009. One of our largest realizations,
Orangina, achieved industry-leading growth under our ownership, and was sold for a
2.4xmultipleofinvestedcapital.Stiefel,anothermajorrealizationlastyear,strengthened
itsleadershipindermatologyproducts,andwassoldtoGlaxoSmithKline.
Financing a Nutrition Leader
The IPO of Vitamin Shoppe, Inc. in October 2009 raised approximately $155 million.
Financingprovidedbyourmezzaninefundhelped?nancetheacquisitionofthecompany,
andsupporteditsgrowthintoaleadingspecialtyretailerofnutritionalproducts.
Improving Operational Performance
OurPortfolioOperationsGroupplaysakeyroleingrowingthevalueofourportfoliocompa-
nies.Withexpertiseinareassuchassupplychain/procurement,leanprocesses,healthcare/
bene?tsandtechnology,theGrouphelpsbusinessesbecomemorecompetitiveandef cient.
ItsCoreTrustandEquityHealthcarenetworkscombinethepurchasingpowerof43portfo-
liocompanies,leadingtoannualizedsavingsofmorethan$275million.
A Unique Entertainment Asset
SeaWorldParks&Entertainment(SPE)isthesecondlargestU.S.themeparkbusiness,known
forsuchdestinationsasSeaWorld,BuschGardensandSesamePlace.WhenAnheuser-Busch
InBevdecidedtodivestthisasset,ourleisure/recreationexpertisemadeBlackstonethelogi-
calpurchaser.WorkingwithSPE’sstrongmanagementteam,weplantogrowthevalueofthe
business by investing in new attractions, enhancing the guest experience, and sharing best
practicesacrossallofourentertainmentandhospitalityproperties.
Buy and Build Strategy
We invested along with experienced management in Summit Materials, creating a plat-
form of scale in the heavy building material, asphalt and aggregates sector. Summit has
already acquired two regional heavy building materials businesses, and with a commit-
ment of $780 million from Blackstone, has extensive resources to consolidate and grow
otherconstructionmaterialsbusinesses.
annualized savings for
our portfolio
companies of more than
$275 million
$275
million
creating value
through operations
65% OperatingImprovement
$14.1billion
24% MultipleExpansion
$5.2billion
11% DebtPaydown
$2.3billion
65%
24%
11%
Re?ectsinvestmentswithgainsonlyandexcludes
unrealizedforeignexchangegains/lossesinBCPand
BCOMfundsasofDecember31,2009.
21
Financial Advisory
Assisting visionary
companies
with strategic
transactions
Financial Advisory Financial Advisory
Blackstone’s Financial Advisory team
was engaged in a number of significant
merger and acquisition assignments in
2009, despite the slowdown in transac-
tions due to the recession. The value of
our announced M&A advisory transac-
tions was approximately $40 billion for
the year. The Financial Advisory group
focuses on a diverse set of industries, with
approximately 30% of revenues coming
frominternationalclients.
Among our assignments, we advised
XeroxCorporationonits$8.3billionacqui-
sition of Affiliated Computer Services,
Inc., which vaulted Xerox into the business
process outsourcing market. We assisted
PublicisGroupSA,oneoftheworld’slargest
communication groups, on its $530 million
purchaseoftheinteractiveagencyRazor?sh
from Microsoft. We advised Nestlé S.A on
theacquisitionofKraftFoods’FrozenPizza
business, a $3.7 billion transaction, helping
Nestlétoexpanditspresenceinthecategory.
The Financial Advisory team helped
clients execute strategic transactions that
werecriticaltotheircorporateand?nancial
objectives, providing value-added advice on
issues of capital structure, carve-outs and
other complex matters. Our success results
from a highly experienced team focused on
ourcoreprinciples,includingprotectingcli-
ent con?dentiality, prioritizing our client’s
interests, avoidance of con?icts and senior-
levelattention.
value of m&a deals
advised
$425
billion
22 TheBlackstoneGroup AnnualReport2009
Restructuring Restructuring Restructuring
At the center of
an active
environment for
reorganization
The rising demand for reorganizations in
a distressed economy drove our restruc-
turing business to record levels in 2009.
Over the past year, our team was active
in distressed situations involving over
$530 billionofliabilitiesinNorthAmerica
andEurope,generatingrecordfeeincome.
Blackstone has advised companies,
creditors, corporate parents, investors
and acquirers of troubled companies
in Chapter 11 reorganizations and out-
of-court restructurings. Recent clients
included: Allied Capital, American Axle &
Manufacturing,BAA,FordMotorCompany,
General Motors, Goodyear, Mauser, MBIA,
Nortek, Northern Rock, Parex Banka, Sea
DragonOfshoreLimitedandSemGroup.
In 2009 we maintained a leading role
in advising financial institutions, as well
as in government-sponsored reorganiza-
tions. In North America, we also were a
top restructuring adviser in the automo-
tive sector and assumed a leadership role
in out-of-court restructurings. In Europe,
we also were at the forefront of advising
onbusinesseswithfailedsyndicationsand
providedclientswithinnovativedebtadvi-
sorysolutions.
Blackstone’s team is well regarded for
its skill in managing complex, high-pro?le
engagements. We are known as an inde-
pendent, conflict-free advisor, with vast
expertiseinanarrayofindustries,asenior-
level team with broad knowledge of global
markets,andtheabilitytocrafthighlyspe-
cializedsolutions.
advised in more than
265 restructurings,
involving liabilities of over
$890
billion
23
Xerox Corporation
Xerox Corporation, a global leader in docu-
mentmanagement,technologyandservices,
turned to Blackstone’s Financial Advisory
team for assistance with its transforma-
tional acquisition of Affiliated Computer
Services,Inc.(ACS)in2009.
By acquiring ACS, the world’s largest
diversi?ed Business Process Outsourcing
(BPO) company, Xerox was able to realize
its strategy to become the leading global
enterprise for end-to-end document
management. The transaction expanded
Xerox’s portfolio of products and services
and its addressable market, while pro-
viding increased scale, higher recurring
revenues and accelerated growth. Valued
atapproximately$8.3billion,thedealwas
the largest M&A transaction in the tech-
nologysectorin2009andthelargestBPO
transactioninhistory.
24 TheBlackstoneGroup AnnualReport2009
A transformational
acquisition for a
technology leader
Financial Advisory
25
The Blackstone Charitable Foundation
Foster
entrepreneurship
as a catalyst
in creating
enduring value.
Blackstone was founded in 1985 by Steve Schwarzman and Pete Peterson with $400,000 in assets and a wealth of
entrepreneurialspiritandvision.Asbe?tsanorganizationwithourenterprisingheritage,Blackstonebelievesinthe
powerofentrepreneurshiptobuildgreatbusinesses,growtheeconomyandcreateenduringvalue.
26 TheBlackstoneGroup AnnualReport2009
27 27
TheBlackstoneCharitableFoundation,establishedin2007atthetimeofthe?rm’sIPO,
wasendowedwithsubstantialpersonalcommitmentsfromouremployees.Recently,the
FoundationannouncedTheBlackstoneEntrepreneurshipInitiative,a$50 million?ve-
yearcommitmenttosupportinnovativeprogramsthatfosterentrepreneurshipand,in
turn,thehigh-growthbusinessesandindustriesthataremostknowntosparkeconomic
growth.TheFoundationwillfocusitsresourcesonproducingenduringresultsingeog-
raphieshardesthitbytheeconomiccrisis.
A Launching Pad for Aspiring Entrepreneurs
TheBlackstoneEntrepreneurshipInitiative’s?rstmajorinvestmentisa$2 milliongrant
tocreate“BlackstoneLaunchPad,”whichwillworkwithhighereducationinstitutionsin
SoutheastMichigantonurtureentrepreneurialactivityamongundergraduateandgrad-
uate students. Presenting entrepreneurship as a viable career option, the program is
modeledafterasuccessfulprogramstartedbytheUniversityofMiami,whichhashelped
1,000 students and alumni develop their ideas for new enterprises. The Blackstone
LaunchPad provides the practical skills, mentorship and professional contacts that
make the diference. The Foundation will replicate the Miami LaunchPad model, in
conjunction with Detroit’s New Economy Initiative for Southeast Michigan, helping
to foster an entrepreneurial environment that draws ambitious young people to create
newbusinessesinDetroit.Thisinvestmentcanplayanimportantpartintheeconomic
recoveryofthisdistressedregion.
In addition to its primary focus on entrepreneurship, the Foundation makes grants to
other organizations that bene?t the communities where we live and work, including
thoseinwhichBlackstone’semployees,clientsandinvestorsarepersonallyengaged.
The Blackstone Charitable Foundation was the single largest contributor to the
National Association for the Advancement of Colored People (NAACP) Centennial
Fund.BlackstonealsodonatedrealestateintwoprimeNewYorkCityofficebuildings
for four years, helping the organization relocate from temporary space it has utilized
sincelosingitsof cesonSeptember11,2001.
the blackstone charitable
foundation is
committing $50 million over
5 years to support
innovative and sustainable
entrepreneurship and
job creation programs in the
united states and around
the world.
$50
million
27
3.1
3.9
8.0
8.4
11.5
13.3
14.1
21.7
27.0
32.1
51.1
69.5
83.2
91.0
96.1
110.8
Blackstone AUM Growth
$inbillions
Committed/AcquiredFunds
CAMAFunds
RealEstate
PrivateEquity
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
Financial Highlights
GraphrepresentstotalBlackstoneAUMthrough2006andfee-earningAUMthereafter.
compound
annual growth
rate
28%
Assets under management
are growing and
increasingly diversi?ed.
1
28 TheBlackstoneGroup AnnualReport2009
11
$111 billion
in fee-earning
aum and
committed/acquired
funds
29
27
$27 billion in dry
powder provides tremendous
investing capacity.
Financial Highlights
30 TheBlackstoneGroup AnnualReport2009
33% RealEstate
$135.2million
24% PrivateEquity
$97.8million
24% CAMA
$99.6million
19% FinancialAdvisory
$77.8million
33%
24%
24%
19%
2009 Net Fee Related Earnings
total
net fee related
earnings
$410
million
37% PublicPension
17% CorporatePension
15% FinancialInstitutions
10% SovereignWealthFunds
8% Private–HighNetWorth/
FamilyOfce
6% FundofFunds
6% Foundations/Endowments
1% Unions
37%
17%
15%
10%
8%
6%
6%
1%
Limited Partners By Type
Blackstone’s business
mix has continued
to provide stability.
88% of blackstone’s
clients invest
in successive funds
88%
31
Letter To Unitholders
“Historically,
our periods of
strongest
performance have
followed economic
downturns.”
Letter To Unitholders Letter To Unitholders
32 TheBlackstoneGroup AnnualReport2009
Stephen A. Schwarzman
Chairman,
ChiefExecutiveOf cer
andCo-Founder
Dear Unitholders,
Blackstone’s conservative business model,
combined with our strong risk controls
and experience investing through several
marketcycles,enabledthe?rmtoweather
thesevereeconomicdownturnandemerge
with our position and potential in our
industry enhanced. Now, as opportunities
arise in a reviving economy, we are using
our deep resources of ?nancial and global
intellectual capital to build value for our
investors, clients, unitholders, portfolio
companies,andthecommunitiesinwhich
weliveandwork.
For the global economy, and particu-
larly for financial institutions and their
investors, the outlook is decidedly more
positive today than it was a year ago.
Marketsthatwerenearcollapsehavebeen
stabilized.Valuationsofmanyassetclasses
have rebounded significantly from their
mid-2009 lows. Credit is more available
and certainly more affordable, although
lending institutions remain highly selec-
tive.Whileabroadeconomicrecoverymay
be sub-optimal in the near term by high
unemployment, weak consumer spending
and uneven corporate performance, the
situationhasimprovedtoadegreethatwas
dif culttoimagineayearago.
Much of the credit for the global eco-
nomic improvement must go to those
governments whose initiatives averted a
worldwide depression. European authori-
tiesweresuccessfulinstabilizingtheirbank-
ing systems. China enacted a significant
stimulus program. The U.S. government’s
response of a combination of low interest
rates, the TARP program and expanded
guarantees for certain bank deposits and
money market fund assets, among other
measures, helped shore up public confi-
dence and pulled our ?nancial system back
fromthebrink.
While the recovery measures were
being deployed, however, considerable
investorwealthwasdestroyedandhasnot
yet recovered fully. Although Blackstone
certainly was tested during this period,
we were able to better preserve investors’
capital,outperformingmarketindices.
33
Blackstone has built a diversified,
soundly capitalized and nimble business
that performs well across market cycles.
Thebusinessissupportedbyaformidable
balance sheet, with a large capital base,
strong liquidity and minimal debt at the
corporate level. 2009 provided us with
an opportunity to further diversify our
capital resources with a highly successful
$600 millionbondofering.
We moved in a prudent fashion to
protect the value of our investments in
portfolio companies as signs of a bubble
becameevident.Severalyearsago,wesold
80%ofourinvestmentsandbeganshifting
our focus in Private Equity to mid-market
transactions, financed our deals with
defensive capital structures and reduced
ourexposuretocyclicalbusinesses.Early
on, we counseled our portfolio company
management teams to begin planning for
a “worst case” scenario. We took advan-
tage of credit market conditions to buy
back, amend or extend the maturities on
more than $50 billion of portfolio com-
panydebtsincethebeginningoflastyear.
We preserved value in Real Estate by
realizing approximately $60 billion from
assetsalesin2005–2007anddeleveraging
the portfolio. Our Blackstone Alternative
Asset Management (BAAM) fund of
hedge funds business has long adhered
to rigorous due diligence and risk man-
agement processes, allowing us to avoid
the controversies that ensnared many of
our peers in that segment. And, our credit
businesses used risk management tools
to outperform and are benefiting from a
greater need for credit availability in the
current environment.
Value Opportunities and the
Business Cycle
Historically, our periods of strongest
performance have followed economic
downturns, as we identify, invest in and
build upon the opportunities created by
market dislocations. We believe the pres-
ent market is no exception and that our
diversified business operations afford
manywaystobene?tfromthethawinthe
economic climate.
For example, we are seeing an increase
in realizations in our Private Equity
business, and the environment for new
acquisitions has improved, as is typically
thecaseatthisstageoftheeconomiccycle.
There are encouraging signs of stability in
Real Estate and opportunities to invest in
high- quality properties at much reduced
prices. Our Credit business is extending
rescue?nancingtoborrowersonattractive
terms.BAAMisuniqueamongitspeersin
experiencingin?ows,asinvestorsseekout
asset managers with proven track records
of preserving wealth. Our Financial
Advisory business is experiencing strong
M&A deal ?ow and restructuring engage-
mentsastheeconomyimproves.
We continue to launch new products
as we identify attractive opportunities
for our limited partners. New initiatives
include specialized funds for corporate
rescue financing, real estate debt, clean-
tech and infrastructure investments, and
a renminbi-denominated fund in China,
all ofering access to a range of emerging
opportunitiesforbuildingvalue.
Left to Right
LaurenceA.Tosi
StephenA.Schwarzman
JonathanD.Gray
J.TomilsonHill
HamiltonE.James
BennettGoodman
34 TheBlackstoneGroup AnnualReport2009
For fiscal 2009, Blackstone declared
quarterly distributions totaling $1.20 per
commonunit.Publiccommonunitholders
received priority distributions ahead of
Blackstonepersonnel.
Business Unit Performance
In Private Equity, our portfolio compa-
nies have largely been able to withstand
economic dislocation. In 2009, approxi-
mately three quarters of the portfolio
companies in private equity experienced
EBITDA growth and 50% had revenue
growth. Our portfolio companies’ record
of rising EBITDA contrasts with less
than half of the S&P 500 companies
reporting earnings growth. In part, this
performance under extremely adverse
conditions was due to our early decision
toorienttheportfoliotowardnon-cyclical
and defensive businesses such as health
care, energy and packaged foods. In addi-
tion, our companies’ management teams
showed great skill in restraining costs and
enhancing productivity.
Programs developed by Blackstone’s
Portfolio Operations Group also played
a key role in improving the performance
of our portfolio companies. We ofer joint
procurement programs for a wide array
of products and services that leverage the
buying power of companies with approxi-
mately $109 billion in aggregate revenues.
Thisyear,welaunchedEquityHealthcare,
an innovative program that allows private
equity sponsored companies to leverage
group health care purchasing to improve
the quality of care for their employees.
Equity Healthcare is currently bene?ting
over 260,000 employees and family mem-
bers at 26 portfolio companies. Through
2009, the total savings generated by our
2009 Financial Performance
Total Revenues were $1.8 billion for 2009,
a signi?cant increase from the prior year
?gure of $(349.4) million. This was largely
due to a $1.5 billion rise in Performance
Fees and Allocations, and a $663.5 mil-
lion improvement in Investment Income.
The year-over-year change was driven
by net appreciation of portfolio invest-
ments in our Private Equity and Credit
andMarketableAlternativessegments,and
stabilization in the fair value of the Real
Estateportfolio.Theseincreaseswerepar-
tially offset by lower Financial Advisory
fees.Incontrast,weexperienceddecreases
invaluesacrossseveralofourportfolioson
amark-to-marketbasisin2008.
EconomicNetIncomewas$703million
for 2009, a sharp turnaround as compared
to the ($1.2) billion reported for the prior
year,primarilydrivenbyperformancefees,
investmentincomeandrealizedgainsfrom
exits.AdjustedCashFlowfromOperations
was $526 million, up from $129 million a
yearago.
The strength of our relationships with
leading global institutions, their confi-
dence in our long-term performance and
theriseinequitymarketsledtoanincrease
inFee-EarningAssetsUnderManagement
to $96.1 billion at the end of 2009, an
increase of $5.1 billion from a year earlier.
Inaddition,weraisedafurther$15billion
during2009,whichwillearnmanagement
feesandcarriedinterestonceinvested.
Our financial capacity is reflected
in Blackstone’s credit ratings: “A” from
Standard & Poor’s and “A+” from Fitch.
Thisallowedustoaccessthedebtmarkets
in 2009 at favorable rates, with a high-
grade bond issuance of $600 million of
10-year6.625%notes.
procurement programs were $275 mil-
lion. The Portfolio Operations Group
also has dedicated teams to assist com-
panies in applying “lean” manufacturing
practices that enhance productivity by
reducing waste and inef ciencies. Several
portfolio companies participated in the
lean process last year, positioning their
operations for strong performance as the
economy revives.
During 2009, sales were completed or
announcedonseveralportfoliocompanies,
such as Stiefel, Sithe Goreway, Cineworld
and Orangina Schweppes. The majority of
these sales were to strategic buyers, pro-
viding further evidence of our ability to
investinandbuildthevalueofqualitycom-
panies.Thesesalesgenerateddistributions
to our investors of approximately $1.6 bil-
lionforBlackstonefunds,yieldinga21.6%
gross IRR,
1
to fund investors with respect
to the divested businesses. In addition,
several IPOs of portfolio companies have
been completed, including TeamHealth
andGrahamPackaging.
Private Equity invested or committed
a total of $2.3 billion of new or add-on
investments during the year. Highlights
included the purchase of Birds Eye Foods,
a strategic acquisition for one of our port-
folio companies, Pinnacle Foods Group;
the acquisition of SeaWorld Parks &
Entertainment, the second largest enter-
tainment park operator in the U.S.; and a
capital investment in Bank United, a pre-
viously distressed Florida-based bank,
which could potentially purchase addi-
tionalbank franchises.
Real Estate fundamentals are demon-
stratingstabilization,suggestingapotential
bottoming in 2010. Occupancy rates and
RevPAR in the lodging sector remain low,
1?Beforedeductingmanagementfees,fundexpensesandcarriedinterest.
35
althoughthelimitedsupplyofnewbuilding
prior to the recession should be a positive
factor in the eventual recovery. Within the
office sector, cash flows remain relatively
stable,althoughvacanciesarestillhighand
rents have declined signi?cantly. In some
markets, such as New York and London,
therehasbeenameaningfulpickupinleas-
ingactivity,whichistypicallyaleadingindi-
catorofrecovery.
We are once again pursuing new real
estate investments, albeit very selec-
tively, after two years of waiting patiently
on the sidelines. We acquired 50% of
Broadgate, the largest office complex in
London's financial district, which we saw
asanopportunitytobuyintooneofthebest
collections of real estate in that market.
Our newest real estate fund is focused on
investments in a variety of real estate debt
strategies,capitalizingonthefactthattradi-
tionalrealestatelendershavelargelyexited
the market while major property owners
facesubstantialliquidityneeds.RealEstate
invested $884.2 million for 2009 with
another $256.6 million committed but not
yet invested, or under letter of intent, as of
December 31, 2009. Our competitive posi-
tioninrealestateremainsextremelystrong,
with $12.1 billion in dry powder across our
realestatefunds.
BAAM, housed within our Credit and
MarketableAlternatives(CAMA)business,
has emerged as the world’s largest fund of
hedge funds manager. BAAM’s total assets
undermanagementroseto$27.1billion,up
17% for the year—one of the few funds of
hedgefundstoseein?owsin2009.BAAM’s
investment performance also has been
favorable, posting a composite net return
of16%for2009.
Our Credit business, GSO, with 28% net
composite return for our flagship hedge
funds in 2009, has delivered strong per-
formance, as prevailing conditions favor
those with the capacity to ofer credit in a
debt-constrained marketplace. GSO has
focused on opportunities to provide rescue
?nancing to companies that require liquid-
ityorbalancesheetrestructuring,aswellas
onpurchasesofdebtforcontrol,assetssold
by distressed sellers and performing debt
withdislocatedpricing.Ournewdebtfund,
which focuses on rescue ?nancing oppor-
tunities,hadaninitialclosingof$1.1 billion.
Weexpecttoholda?nalcloselaterthisyear.
The Financial Advisory business also
had a strong year, largely due to record
fee revenue from restructuring activity.
Major transactions during 2009 included
the comprehensive restructuring of more
than $1 billion in debt for Allied Capital
Corporation and a successful prepackaged
plan of reorganization for Nortek, Inc.
While M&A activity was held back by the
economic downturn, our team advised on
several significant transactions, includ-
ing Xerox’s acquisition of ACS, Chinalco’s
proposed investment in Rio Tinto and the
restructuring of AIG. We expect merger
deal flow to accelerate as we progress
through2010.
The Blackstone Charitable Foundation
Creating value means not only deliver-
ing a return on investment, but also
having a positive impact on the needs of
society. At the time of our IPO, we formed
Left to Right
KennethC.Whitney
ChadR.Pike
JoanSolotar
ArthurB.Newman
GarrettM.Moran
JohnStudzinski
TimColeman
SylviaF.Moss
RobertL.Friedman
36 TheBlackstoneGroup AnnualReport2009
The Blackstone Charitable Foundation to
direct our resources toward the communi-
ties in which we live and work. The prin-
cipal mission of the Foundation reflects
Blackstone’s heritage of entrepreneurship.
As a pioneer in our own industry, we have
a strong belief in the power of entrepre-
neurs to create human opportunity and
exert a positive economic impact. Thus,
the Foundation’s chief focus will be on
funding initiatives that encourage and
support entrepreneurship, and thereby
promote job creation, innovation and
economic opportunity.
Finding, Preserving and Building Value
Blackstoneisinastrongpositiontocreate
valueastheworldeconomyresets.Wehave
a liquidity position of more than $2 bil-
lion to support the growth of our existing
businesses, development of new business
lines or acquisitions. We have dry pow-
der of $27 billion in our investment funds
to deploy over the next several years. We
believeourabilitytooutperformtheindus-
try under the recent extremely adverse
conditions has enhanced the Blackstone
?nancial “brand” in the minds of current
and potential clients, and is a positive fac-
tor in attracting talented team members.
And, we have unique strengths, including
a global scope of operations; unequalled
relationships with key participants in
world markets; and deep knowledge
in a range of disciplines including private
equity, real estate, hedge funds, credit and
?nancialadvisoryservices.
In addition, we believe that our perfor-
mance in comparison to more traditional
asset classes during the downturn will
helpattractnewinstitutionstoalternative
assets. We have demonstrated our ability
topreserveourinvestors’wealth,helpingto
securethefuturesofpublicpensionfunds,
academic and charitable institutions, and
allthosewhodependuponthem.
At this time, government and business
leaders around the world are considering
steps to prevent future ?nancial calamity.
In this context, one thing is certain: noth-
ing will be gained by taking adversarial
positions, or by focusing blame solely on
the?nancialmarketsandinstitutionsthat
provide the vast majority of the capital
for innovation, job creation and economic
growth. I hope that government and the
private sector can demonstrate a shared
sense of purpose in doing what is best
for the global financial system and those
it bene?ts.
I can commit that Blackstone will con-
tinue to vigorously pursue opportunities
to ?nd, protect, invest in and build value—
with our characteristic combination of
entrepreneurship, innovation, excellence,
integrityandconservatism.Thankyou.
Sincerely,
Stephen A. Schwarzman
Chairman,
ChiefExecutiveOf cer
andCo-Founder
37
Everything we do is guided by a set of principles that de?ne our
character and culture; they have been at the core of Blackstone
sinceitsinception.Theseenduringqualitiesarethesharedconvic-
tionsthatwebringtoourprofessionalandpersonalconduct—they
areafundamentalstrengthofourbusiness.
Accountability
Forgingapartnershipwithourinvestorsandclients
Excellence
Strivingtobethebestineverythingwedo
Integrity
Holdingourselvestothehighestprofessionalethics
Teamwork
Workingtogethertoachievesharedgoals
Entrepreneurship
Seeingandseizingopportunitiesoverlookedbyothers
Leadership
In?uencingthecourseofcommerceandglobalafairs
Focus
Bringinghardworkanddeterminationtoeveryendeavor
Commitment
Puttingourcapitalandourreputationsontheline
Meritocracy
Rewardingpeoplebasedontheirperformance
Our Guiding Principles The Peter G. Peterson
Award
Blackstone has established the Peter G. Peterson Award for
ExcellenceinBusinessandCommunityService.TheAwardhon-
ors our co-founder, Peter G. Peterson, who retired as our Senior
Chairmanin2008,andwhosecontributionsinbusiness,govern-
mentandphilanthropyhavebeenaninspirationtoallofus.
The Award is given annually to an employee who has dem-
onstrated a commitment to excellence inside and outside of
the ?rm, especially as it relates to service to the community.
Candidates are nominated by their peers and chosen by our
firm's Executive Committee. They must embody the dedica-
tion and service to charitable causes for which Pete has always
beenknown,aswellasexceptionalprofessionalism.TheAward
recipientfor2008wasErinSprague—associate,BAAM.
The 2009 recipient is Garfield DeBarros—Supervisor, U.S.
Technology Services—who embodies a commitment to service
on many levels. Gar?eld is a partner in the PENCIL program
and has devoted considerable time, energy and efort to men-
toring students and supporting our adopted school, The Bronx
Academy. He is also a board member and volunteer with other
charitableorganizationsservingdisadvantagedyouth.
Award recipients are distinguished by their passion for ser-
viceandwillingnesstocommittime,energyandeforttoahost
oforganizationsandprojectsthatbene?tthecommunity.
These employees are recognized with a donation of $10,000
to a charitable program or programs of their choice and an
inscribedcupdisplayedinBlackstone’sreceptionarea.
1
2
3
4
5
6
7
8
9
2009 Recipient
Gar?eld DeBarros
Supervisor
U.S.TechnologyServices
38 TheBlackstoneGroup AnnualReport2009
39
Economic Net Income, Net Fee Related Earnings from
Operations, Adjusted Cash Flow from Operations and Operating
Metrics 40/ Our Business 42/ Segment Economic Net Income
and Net Fee Related Earnings from Operations 50/
Reconciliation of Adjusted Cash Flow from Operations to Net
Cash Provided by Operating Activities 52/ Report of Independent
Registered Public Accounting Firm 53/ Consolidated and
Combined State ments of Financial Condition 54/ Consolidated
and Combined Statements of Operations 55/ Consolidated and
Combined Statements of Changes in Partners’ Capital 56/
Consolidated and Combined Statements of Cash Flows 59/
Notes to Consolidated and Combined Financial Statements 61
Blackstone Financial Section
40 TheBlackstoneGroup AnnualReport2009
Economic Net Income, Net Fee
Related Earnings from Operations,
Adjusted Cash Flow from
Operations and Operating Metrics
Our Economic Net Income, Net Fee Related Earnings from
Operations and Adjusted Cash Flow from Operations for the
yearsendedDecember31,2009and2008wereasfollows:
Year Ended December 31,
(Dollars in Thousands) 2009 2008
EconomicNetIncome,TotalSegments $723,763 $(1,330,018)
Provision(Bene?t)forIncomeTaxes 20,628 (162,769)
EconomicNetIncome,AfterTaxes $703,135 $(1,167,249)
NetFeeRelatedEarningsfromOperations $410,410 $427,668
AdjustedCashFlowsfromOperations $526,238 $128,801
As of December 31,
(Dollars in Thousands) 2009 2008
Fee-EarningAssetsUnderManagement:
PrivateEquity $24,521,394 $25,509,163
RealEstate 23,708,057 22,970,438
CreditandMarketableAlternatives 47,867,546 42,561,456
TotalFee-EarningAssets
UnderManagement $96,096,997 $91,041,057
AssetsUnderManagement:
PrivateEquity $24,758,992 $23,933,511
RealEstate 20,391,334 24,154,642
CreditandMarketableAlternatives 53,032,802 46,471,064
TotalAssets
UnderManagement $98,183,128 $94,559,217
Year Ended December 31,
(Dollars in Thousands) 2009 2008
LimitedPartnerCapitalInvested
PrivateEquity $1,541,974 $3,760,262
RealEstate 884,151 968,684
CreditandMarketableAlternatives 721,401 1,819,705
TotalLimitedPartner
CapitalInvested $3,147,526 $6,548,651
Blackstone uses Economic Net Income as a key measure
of value creation and as a benchmark of its performance.
Additionally, Blackstone presents certain other key financial
measures which, when presented in conjunction with compa-
rable measures prepared in accordance with generally accepted
accountingprinciplesintheUnitedStatesofAmerica(“GAAP”),
are useful for investors as appropriate measures for evaluating
itsoperatingperformance.
economic net income
EconomicNetIncome,or“ENI,”representssegmentnetincome
excluding the impact of income taxes and initial public offer-
ing (“IPO”) and acquisition-related items, including charges
associated with equity-based compensation, the amortization
of intangibles and corporate actions including acquisitions.
The aggregate of ENI for all reportable segments equals Total
Reportable Segment ENI. ENI is used by management primar-
ily in making resource deployment and compensation decisions
acrossBlackstone’sfoursegments.
net fee related earnings from operations
BlackstoneusesNetFeeRelatedEarningsfromOperations,which
is a component of Adjusted Cash Flows from Operations, as a
key measure to highlight earnings from operations excluding
the income related to performance fees and allocations and
related carry plan costs and income earned from Blackstone’s
investments in the Blackstone Funds and realized and unre-
alized gains (losses) from other investments. Management
uses Net Fee Related Earnings from Operations as a measure
to assess whether recurring revenue from our businesses
more than adequately covers all of our operating expenses and
generates pro?tability.
Net Fee Related Earnings from Operations equals (a) con-
tractual revenues and interest income, (b) less compensation
expenses,whichincludeamortizationofnon-IPOandacquisition-
relatedequity-basedawards,butexcludeamortizationofIPOand
acquisition-based equity awards, carried interest and incentive
fee compensation, (c) less other operating expenses and (d) less
cash taxes due on earnings from operations as calculated using a
similar methodology as applied in calculating the tax provision
(bene?t)forTheBlackstoneGroupL.P.
41
adjusted cash flow from operations
Adjusted Cash Flow from Operations, which is derived from
our segment reported results, is a supplemental non-GAAP
measure we use to assess liquidity and amounts available for
distribution to owners. Adjusted Cash Flow from Operations
is intended to re?ect the cash ?ow attributable to Blackstone
withouttheefectsoftheconsolidationoftheBlackstoneFunds.
TheequivalentGAAPmeasureisNetCashProvidedby(Usedin)
Operating Activities.
Adjusted Cash Flows from Operations represents net cash
flows used in or provided by operating activities adjusted for
(a) IPO and acquisition-related corporate actions, (b) cash
flows relating to changes in operating assets and liabilities,
(c) Blackstone Funds-related investment activity, (d) net real-
ized gains (losses) on illiquid investments, (e) diferences in the
timing of realized gains by The Blackstone Group L.P. versus
the Blackstone Funds, (f) non-controlling interests related to
departed employees, (g) GAAP taxes versus cash income taxes
due on realized income as calculated using a similar method-
ology as applied in calculating the tax provision (benefit) for
The Blackstone Group L.P., (h) non-controlling interests in
incomeofconsolidatedentities,and(i)otheradjustments.
Adjusted Cash Flow from Operations will be retired with
the end of the distribution preference to public unitholders.
Goingforward,BlackstonewilldiscloseDistributableEarnings,
which is a non-GAAP measure intended to show the amount of
net realized earnings without the efects of the consolidation
of the Blackstone Funds. Distributable Earnings, which is a
componentofEconomicNetIncome,isthesumacrossallTotal
Reportable Segments of (a) Total Management and Advisory
Fees, (b) Interest and Dividend Revenue, (c) Other Revenue,
(d) RealizedPerformanceFeesandAllocations,and(e) Realized
Investment Income (Loss) less (a) Base Compensation,
(b) Realized Performance Fee Related Compensation, (c) Other
OperatingExpensesand(e)CashTaxes.DistributableEarnings
will be reconciled to Blackstone’s Consolidated Statement of
Operations.ItisBlackstone’scurrentintentionthatonanannual
basis it will distribute to unitholders all of its Distributable
Earningsinexcessofamountsdeterminedbyitsgeneralpartner
to be necessary or appropriate to provide for the conduct of its
business, to make appropriate investments in its business and
funds,tocomplywithapplicablelaw,anyofitsdebtinstruments
orotheragreements,ortoprovideforfuturedistributionstoits
unitholdersforanyensuingquarter.
operating metrics
Thealternativeassetmanagementbusinessisacomplexbusiness
thatisprimarilybasedonmanagingthirdpartycapitalanddoes
not require substantial capital investment to support rapid
growth.However,therealsocanbevolatilityassociatedwithits
earningsandcash?ows.Sinceourinception,wehavedeveloped
and used various key operating metrics to assess and monitor
theoperatingperformanceofourvariousalternativeassetman-
agement businesses in order to monitor the efectiveness of our
valuecreatingstrategies.
Assets Under Management. AssetsUnderManagementrefers
to the assets we manage. Our Assets Under Management equal
thesumof:
(a) the fair value of the investments held by our carry funds
plus the capital that we are entitled to call from investors in
those funds pursuant to the terms of their capital commit-
ments to those funds (plus the fair value of co-investments
arranged by us that were made by limited partners of our
fundsinportfoliocompaniesofsuchfundsandonwhichwe
receivefeesoracarriedinterestallocation);
(b) the net asset value of our funds of hedge funds, hedge funds
andourclosed-endmutualfunds;
(c) the fair value of assets we manage pursuant to separately
managedaccounts;and
(d) theamountofcapitalraisedforourCLOs.
Our carry funds are commitment-based drawdown struc-
tured funds that do not permit investors to redeem their inter-
estsattheirelection.Interestsrelatedtoourfundsofhedgefunds
andcertainofourcredit-orientedfundsaregenerallysubjectto
annual, semi-annual or quarterly withdrawal or redemption by
investors 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 pro?le 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. Fee-EarningAssets
UnderManagementreferstotheassetswemanageonwhichwe
derive management and incentive fees. Our Fee-Earning Assets
UnderManagementgenerallyequalthesumof:
(a) forourprivateequityandrealestatefundswheretheinvestment
periodhasnotexpired,theamountofcapitalcommitments;
(b) forourprivateequityandrealestatefundswheretheinvestment
period has expired, the remaining amount of invested capital;
(c) forourrealestatedebtinvestmentfunds,theremainingamount
ofinvestedcapital;
42 TheBlackstoneGroup AnnualReport2009
(d) for our credit-oriented carry funds, the amount of invested
capital (which may be calculated to include leverage) or net
assetvalue;
(e) the invested capital of co-investments arranged by us that
weremadebylimitedpartnersofourfundsinportfoliocom-
paniesofsuchfundsandonwhichwereceivefees;
(f ) the net asset value of our funds of hedge funds, hedge funds
andourclosed-endmutualfunds;
(g) the fair value of assets we manage pursuant to separately
managedaccounts;and
(h) thegrossamountofassetsofourCLOsatcost.
Ourcalculationsofassetsundermanagementandfee-earning
assets under management may difer from the calculations of
other asset managers, and as a result this measure may not be
comparable to similar measures presented by other asset man-
agers. 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.Ourde?nitionsofassetsundermanagementorfee-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
investmentfundsthatwemanage.
Forourcarryfunds,totalassetsundermanagementincludes
thefairvalueoftheinvestmentsheld,whereasfee-earningassets
undermanagementincludestheamountofcapitalcommitments
ortheremainingamountofinvestedcapitalatcost,dependingon
whether the investment period has or has not expired. As such,
fee-earningassetsundermanagementmaybegreaterthantotal
assets under management when the aggregate fair value of the
remaininginvestmentsislessthanthecostofthoseinvestments.
Limited Partner Capital Invested. Limited Partner Capital
InvestedrepresentstheamountofLimitedPartnercapitalcom-
mitments which were invested by our carry funds during
each period presented, plus the capital invested through
co-investments arranged by us that were made by limited part-
nersininvestmentsofourcarryfundsonwhichwereceivefees
oracarriedinterestallocation.
Wemanageourbusinessusingtraditional?nancialmeasures
andourkeyoperatingmetricssincewebelievethatthesemetrics
measuretheproductivityofourinvestmentactivities.
Blackstoneisoneofthelargestindependentmanagersofprivate
capital in the world. We also provide a wide range of ?nancial
advisoryservices,includingcorporateandmergersandacquisi-
tions advisory, restructuring and reorganization advisory and
fundplacementservices.
Ourbusinessisorganizedintofourbusinesssegments:
• Private Equity. We are a world leader in private equity invest-
ing, having managed five general private equity funds, as
well as one specialized fund focusing on media and
communications-related investments, since we established
this business in 1987. In addition, we are in the process of
raising our seventh private equity fund and are seeking to
launch new investment funds to make infrastructure and
clean technology investments. Through our private equity
fundswepursuetransactionsthroughouttheworld,including
leveraged buyout acquisitions of seasoned companies, trans-
actions involving growth equity or start-up businesses in
establishedindustries,minorityinvestments,corporatepart-
nerships, distressed debt, structured securities and industry
consolidations,inallcasesinstrictlyfriendlytransactions.
• Real Estate. Weareaworldleaderinrealestateinvestingwith
an assortment of real estate funds that are diversified geo-
graphically and across a variety of sectors. We launched our
?rst real estate fund in 1994 and have managed six opportu-
nisticrealestatefunds,twointernationallyfocusedrealestate
funds,aEuropeanfocusedrealestatefundandanumberofreal
estatedebtinvestmentfunds.Ourrealestatefundshavemade
signi?cantinvestmentsinlodging,majorurbanof cebuildings
and a variety of real estate operating companies. In addition,
our debt investment funds target real estate non-controlling
debtrelatedinvestmentopportunitiesinthepublicandprivate
markets,primarilyintheUnitedStatesandEurope.
• Credit and Marketable Alternatives. Established in 1990,
ourcreditandmarketablealternativessegmentiscomprised
of our management of funds of hedge funds, credit-oriented
funds, collateralized loan obligations (“CLO”) vehicles and
publicly-traded closed-end mutual funds, in many of which
Our Business
43
weareaworldleader.Theseproductsareintendedtoprovide
investorswithgreaterlevelsofcurrentincomeandforcertain
products,agreaterlevelofliquidity.
• Financial Advisory. Our ?nancial advisory segment serves
adiverseandglobalgroupofclientswithcorporateandmerg-
ers and acquisitions advisory services, restructuring and
reorganizationadvisoryservicesandfundplacementservices
foralternativeinvestmentfunds.
We generate our revenue from fees earned pursuant to con-
tractual arrangements with funds, fund investors and fund
portfolio companies (including management, transaction and
monitoring fees), and from corporate and mergers and acqui-
sitions advisory services, restructuring and reorganization
advisory services and fund placement services for alternative
investment funds. We invest in the funds we manage and, in
most cases, receive a preferred allocation of income (i.e., a “car-
riedinterest”)oranincentivefeefromaninvestmentfundinthe
eventthatspeci?edcumulativeinvestmentreturnsareachieved.
Thecompositionofourrevenueswillvarybasedonmarketcon-
ditionsandthecyclicalityofthediferentbusinessesinwhichwe
operate.Netinvestmentgainsandresultantinvestmentincome
generated by the Blackstone Funds, principally private equity
andrealestatefunds,aredrivenbyvaluecreatedbyouroperat-
ingandstrategicinitiativesaswellasoverallmarketconditions.
Ourfundsinitiallyrecordfundinvestmentsatcostandthensuch
investmentsaresubsequentlyrecordedatfairvalue.Fairvalues
areafectedbychangesinthefundamentalsoftheportfoliocom-
pany, the portfolio company’s industry, the overall economy as
wellasothermarketconditions.
business environment
Worldequityanddebtmarketscontinuedtoimproveinthesecond
half of 2009 in anticipation of sustained economic recovery. The
UnitedStatesandseveralotherdevelopedeconomiesreturnedto
growth, bene?ting in part from government spending programs,
and emerging economies grew more sharply. In the U.S., despite
tangible evidence of economic recovery, unemployment remains
highandconsumercredittrendsremainweak.
Equityindicesimproveddramaticallythroughout2009from
multi-year lows reached early in the year, when valuations suf-
feredfrominvestordespondencyandmassivemutualandhedge
fund withdrawals. Global equity indices in developed nations
increased20–30%in2009.Improvementwasmorepronouncedin
developingnations,withequityindicesincreasing60–100%.
Similarly, credit indices rose sharply, fueled by improving
economicdataandasigni?cantincreaseindemandandliquidity.
Highyieldcreditspreadstightenedroughly1,100basispointsin
2009,andimplieddefaultratesdeclinedto2–4%versus12–15%
earlier in 2009. Average leveraged loan prices improved from
62%ofparattheendof2008to87%atyear-end2009.
In real estate, fundamentals are beginning to show signs
of having reached bottom. For of ce properties, where trends
tend to lag the overall economy, vacancy rates appear to have
stabilized, with some markets showing signs of decreasing
vacancy. In hospitality, demand appears to have bottomed as
well, although pricing remains pressured. Revenue per average
room (“RevPAR”), an important hospitality industry metric,
continued to decline, but that decline clearly moderated in the
fourthquarterof2009.U.S.RevPARhashistoricallybeenhighly
correlatedwithchangesinGDPandcorporatepro?ts,whichare
both being forecasted to improve in 2010. The combination of
thesefactorsisexpectedtosetthestageforarecoveryinlodging
fundamentals.However,thetimingandmagnitudeoftherecov-
eryaredif culttodetermine.
Real estate capital markets have improved dramatically.
PublicREITsintheU.S.raised$25 billionofequityin2009,and
theREITIndexmorethandoubledfromitslowinMarch2009.
Publicrealestatedebt(CMBSandREITunsecured)yieldstight-
ened meaningfully. Private real estate markets have recently
started showing signs of improvement, and private debt capital
hasbeguntoreturntothemarket.
Commoditypricesmateriallyincreasedin2009.Oilprices,for
example,rosenearly80%.TheU.S.dollarweakened,pressuredby
historicallylowinterestratescoupledwithheavyborrowing.The
U.S.dollarfellagainsteachoftheEuroandPoundSterlingby2%
and10%,respectively.Globalmonetarypolicyhasremainedvery
accommodative throughout the economic downturn, and there
aresomeinitialsignsofforeigngovernmentstightening,although
theoutlookformonetarypolicyisuncertain.
The extent of the current economic improvement is unknown.
Blackstone’s businesses are materially affected by conditions in
the?nancialmarketsandeconomicconditionsintheU.S.,Western
Europe,Asiaand,toalesserextent,elsewhereintheworld.
segment review
Private Equity
Full Year. Private Equity had full year revenues of $775.2 mil-
lion, compared with revenues of a negative $(286.2) million for
the full year 2008. The principal driver of the year-over-year
change was an increase in Performance Fees and Allocations
and Investment Income as a result of net appreciation in the
fair value of both publicly traded and privately held portfolio
investments.Thecombinedimpactofimprovedperformanceof
the underlying portfolio companies and more favorable global
public markets drove the improved results. During the year,
two-thirds of the portfolio companies in private equity expe-
rienced Earnings Before Interest, Taxes, Depreciation and
44 TheBlackstoneGroup AnnualReport2009
Amortization(“EBITDA”)growthand40%hadrevenuegrowth.
The net internal rate of return (“IRR”) for the segment was
9% for 2009. At December 31, 2009, the unrealized value and
cumulative realized proceeds, before carried interest, fees and
expenses, of our contributed Private Equity funds represented
1.3timesinvestors’originalinvestments.
Results were also positively impacted by increased trans-
actionactivity,particularlyinthesecondhalfoftheyear,includ-
ingseveralmaterialrealizationssuchasStiefelLaboratories,Inc.
and Orangina Schweppes, SAS, as well as new investments in
SeaWorldParks&EntertainmentandthePinnacleFoodGroup’s
acquisition of Bird’s Eye Foods Inc. The funds distributed to
limitedpartnersrealizedproceedsof$1.6 billionfor2009,which
represented 1.8 times investors’ original investment in the
companies that were sold. In addition, Blackstone invested
Limited Partner Capital of $1.5 billion and had $1.3 billion
ofLimitedPartnerCapitalcommittedtodealsbythesegment’s
fundsthathadnotyetclosedasofDecember31,2009.Thiscom-
paredtodistributedproceedsof$0.5 billionandinvestedcapital
of$3.8 billionin2008.
Net Fee Related Earnings from Operations were $97.8 mil-
lionforthefullyear2009,upfrom$81.9 millionforthefullyear
2008. The change from 2008 primarily re?ected an increase in
transaction fees. Economic Net Income was $490.4 million for
thefullyear2009,upfromanegative$(392.5) millionforthefull
year2008.
CompensationandBene?tsexpenseincreasedto$202.3 mil-
lion from $16.2 million for the full year 2008. The change from
2008 was primarily due to an increase in performance fee
related compensation, although Base Compensation levels also
increased.OtherOperatingExpensesof$82.5 millionweredown
from$90.1 millionforthefullyear2008,re?ectingBlackstone’s
ongoingfocusonexpensecontrol.
Fee-EarningAssetsUnderManagementweredownslightlyat
$24.5 billioncomparedwith$25.5 billionfor2008re?ectingthe
impactofmarketdepreciationoncertainassetsonwhichfeesare
nolongerchargedandseveralrealizations.
Fourth Quarter. Private Equity had revenues of $281.6 million
forthefourthquarterof2009,comparedwithrevenuesofanegative
$(193.6) million for the fourth quarter of 2008. The change from
2008wasdrivenprincipallybyanincreaseinPerformanceFeesand
AllocationsandInvestmentIncomewhichincluded$62.4 millionin
realized performance fees and investment income. The net return
forthesegmentwas6%inthefourthquarterof2009versusanega-
tive(19)%inthefourthquarterof2008.
Net Fee Related Earnings from Operations were $32.9 mil-
lion for the fourth quarter of 2009, up from $31.6 million for
the fourth quarter of 2008. The change from 2008 primar-
ily reflected an increase in fee related revenues as a result of
increased transaction activity. Economic Net Income was
$177.8 millionforthefourthquarterof2009,upfromanegative
$(239.1) millionforthefourthquarterof2008.
Compensation and Bene?ts expense increased to $83.3 million
from$22.5 millionforthefourthquarterof2008.Thechangefrom
2008wasprimarilyduetoanincreaseinPerformanceFeeRelated
CompensationandBaseCompensation.OtherOperatingExpenses
of$20.5 millionweredownfrom$23.1 millionforthefourthquarter
of2008,re?ectingBlackstone’songoingfocusonexpensecontrol.
Fee-EarningAssetsUnderManagementweredownslightlyat
$24.5 billioncomparedwith$25.5 billionforthefourthquarter
of2008.
Limited Partner Capital Invested totaled $898.5 million for
the fourth quarter of 2009, including new and follow-on invest-
ments,adecreasefrom$1.1 billioninvestedforthefourthquarter
of2008.
Fund Returns. Fund return information for our signi?cant
funds is included throughout this discussion and analysis to
facilitate an understanding of our results of operations for the
periods presented. The fund returns information reflected in
thisdiscussionandanalysisisnotindicativeoftheperformance
of The Blackstone Group L.P. and is also not necessarily indica-
tiveofthefutureperformanceofanyparticularfund.Aninvest-
mentinTheBlackstoneGroupL.P.isnotaninvestmentinanyof
ourfunds.Therecanbenoassurancethatanyofourfundsorour
otherexistingandfuturefundswillachievesimilarreturns.
Thefollowingtablepresentstheinternalratesofreturnofoursigni?cantPrivateEquityfunds:
Net Total Changes in Carrying Value (Realized and Unrealized)
(a)
Year Ended December 31, Inception to Date
Fund 2009 2008 2007 Total Realized
(b)
BCPIV 35% –17% 21% 40% 72%
BCPV 1% –35% –1% –12% 21%
The returns presented herein represent those of the applicable Blackstone Funds and not those of The Blackstone Group L.P.
(a)
Nettotalchangeincarryingvalue(realizedandunrealized)isaftermanagementfees,expensesandcarriedinterestallocations.
(b)
Includes partially realized investments. Investments are considered partially realized when distributed proceeds, excluding current income (dividends, interest, etc.), are a
materialportionofinvestedcapital.
45
ThePrivateEquityfunds’netinternalratesofreturnfortheyearendedDecember31,2009werepositiveforBCPIVandBCPV
comparedtothenegativereturnsforeachofthesefundsforthepreviousyear.Generally,thefund’sportfoliocompaniessawincreas-
ingstabilizationoverthecourseof2009intheirrevenuesandimprovementinmarginsandEBITDA,animportantvaluationmetricin
PrivateEquity.Thefundsacceptedofersforthesaleofsomeportfoliocompaniesatattractivepricesfromstrategicbuyers,resulting
inanincreaseinthevaluationsofthoseportfoliocompanies.
The following table presents the investment record of the Private Equity funds from inception through December 31, 2009 for
fundswithclosedinvestmentperiods:
Fully Invested Funds
Total Investments Realized/Partially Realized Investments
(a)
Total Total
Fund (Investment Period) Invested Carrying Net Invested Carrying Net
(Dollarsin Millions) Capital Value
(b)
IRR
(c)
MOIC
(d)
Capital Value
(b)(e)
IRR
(c)
MOIC
(d
BCPI(Oct1987/Oct1993) $ 679 $1,742 19% 2.6 $ 679 $1,742 19% 2.6
BCPII(Oct1993/Aug1997) 1,292 3,245 32% 2.5 1,201 3,123 37% 2.6
BCPIII(Aug1997/Nov2002) 4,026 7,722 12% 1.9 3,402 6,939 18% 2.0
BCOM(Jun2000/Jun2006) 2,132 2,904 8% 1.4 1,004 2,139 25% 2.1
BCPIV(Nov2002/Dec2005) 7,088 16,834 40% 2.4 3,765 12,444 72% 3.3
The returns presented herein represent those of the applicable Blackstone Funds and not those of The Blackstone Group L.P.
(a)
Investmentsareconsideredpartiallyrealizedwhendistributedproceeds,excludingcurrentincome(dividends,interest,etc.),areamaterialportionofinvestedcapital.
(b)
Carryingvalueincludesrealizedproceedsandunrealizedfairvalue.
(c)
Theinternalrateofreturn(“IRR”)representstheannualizedinceptiontodateIRRontotalinvestedcapitalbasedonrealizedproceedsandunrealizedfairvalue.NetIRRisafter
managementfees,expensesandcarriedinterest.
(d)
MultipleofInvestedCapital(“MOIC”)representstotalrealizedandunrealizedvalue,beforemanagementfees,expensesandcarriedinterest,dividedbytotalinvestedcapital.
(e)
TheRealized/PartiallyRealizedCarryingValueincludesremainingunrealizedvalueof$1.2 billion.
The following table presents the investment record of the Private Equity funds from inception through December 31, 2009 for
fundswithopeninvestmentperiods:
Funds in the Investment Period
Total Investments Realized / Partially Realized Investments
(a)
Total Total
Fund (Investment Period) Available Invested Carrying Net Invested Carrying Net
(Dollarsin Millions) Capital
(b)
Capital Value
(c)
IRR
(d)
MOIC
(e)
Capital Value
(c)(f)
IRR
(d)
MOIC
(e
BCPV(Dec2005/Dec2011) $4,550 $16,769 $13,529 –12% 0.8 $1,504 $2,385 21% 1.6
The returns presented herein represent those of the applicable Blackstone Funds and not those of The Blackstone Group L.P.
(a)
Investmentsareconsideredpartiallyrealizedwhendistributedproceeds,excludingcurrentincome(dividends,interest,etc.)areamaterialportionofinvestedcapital.
(b)
Available Capital represents total capital commitments less invested capital and includes $1.4 billion committed to deals but not yet invested. Additionally, the segment has
$1.0 billionofAvailableCapitalthathasbeenreservedforadd-oninvestmentsinfundsthatarefullyinvested.
(c)
Carryingvalueincludesrealizedproceedsandunrealizedfairvalue.
(d)
Theinternalrateofreturn(“IRR”)representstheannualizedinceptiontodateIRRontotalinvestedcapitalbasedonrealizedproceedsandunrealizedfairvalue.NetIRRisafter
managementfees,expensesandcarriedinterest.
(e)
MultipleofInvestedCapital(“MOIC”)representstotalrealizedandunrealizedvalue,beforemanagementfees,expensesandcarriedinterest,dividedbytotalinvestedcapital.
(f)
TheRealized/PartiallyRealizedCarryingValueincludesremainingunrealizedvalueof$1.0 billion.
)
)
46 TheBlackstoneGroup AnnualReport2009
Real Estate
Full Year. RealEstatehadrevenuesofanegative$(13.6) million,
comparedwithrevenuesofanegative$(718.0) millionforthefull
year 2008. The principal drivers of the year-over-year change
was a reduction in the reversal of performance fees and a stabi-
lization in the fair value of the segment’s underlying portfolio
investments in the of ce and hospitality sectors during the sec-
ondhalfof2009.Theperformancefeesaccruedinpreviousyears
have now been fully reversed in the two largest funds, BREP V
and BREP VI. The second half of 2009 saw portfolio values sta-
bilize and a return of deal activity at cyclically attractive levels.
Real Estate invested $884.2 million for the full year 2009 with
another$256.6 millioncommittedbutnotyetinvested,orunder
letter of intent, as of December 31, 2009. The net IRR for our
RealEstatecarryfundswasanegative(35)%for2009compared
to a negative (38)% in 2008, while the Real Estate debt invest-
menthedgefundswas21%for2009comparedtoanegative(9)%
in 2008. Despite significant unrealized markdowns over the
last year and a half, the December 31, 2009 unrealized value
andcumulativerealizedproceeds,beforecarriedinterest,feesand
expenses,ofourcontributedRealEstatecarryfundsrepresented
0.9timesinvestors’originalinvestments.
Net Fee Related Earnings from Operations were $135.2 mil-
lioninthefullyear2009,upfrom$119.6 millionforthefullyear
2008duetothefull-yearimpactoftheEuropeanfundlaunched
in2008.EconomicNetIncomewasnegative$(117.5) millionfor
the full year 2009, an improvement from negative $(850.6) mil-
lionforthefullyear2008.
Compensation and Bene?ts were $47.6 million compared to
$76.8 million for the full year 2008. Other Operating Expenses
of $56.3 million for the full year 2009 remained relatively
unchangedfromthefullyear2008.
Fee-Earning Assets Under Management were up $737.6 mil-
lion,or3%,to$23.7 billioncomparedwith$23.0 billionfor2008.
Fourth Quarter. Real Estate had revenues of $117.7 million
forthefourthquarterof2009,comparedwithnegativerevenues
of $(477.8) million for the fourth quarter of 2008. The change
from2008wasprimarilyduetoanimprovementinPerformance
FeesandAllocationsandInvestmentIncome,drivenbythesta-
bilization in the fair value of the segment’s underlying portfolio
investments in the of ce and hospitality sectors during the sec-
ond halfof2009comparedtothefourthquarterof2008.Thenet
returnforourRealEstatecarryfundswasanegative(0.5)%for
the fourth quarter of 2009 compared to a negative (29)% in the
fourth quarter of 2008, while the Real Estate debt investment
hedgefundswas4%forthefourthquarterof2009comparedto
negative(9)%inthefourthquarterof2008.
NetFeeRelatedEarningsfromOperationswere$38.4 million
in the fourth quarter of 2009, down from $43.8 million for the
fourth quarter of 2008. Economic Net Income was $51.2 mil-
lion for the fourth quarter of 2009 compared to a negative
$(478.0) millionforthefourthquarterof2008.
Compensation and Benefits were $49.3 million compared
to a negative $(12.1) million for the fourth quarter of 2008. The
change from 2008 was due to a decrease in reversals of prior
period carried interest allocations in the fourth quarter of
2009.OtherOperatingExpensesof$17.3 millionincreasedfrom
$12.2 millionforthefourthquarterof2008.
Fee-Earning Assets Under Management of $23.7 billion
remained relatively unchanged from the third quarter of 2009
andwereup3%fromthefourthquarterof2008.
Fund Returns. Fund return information for our signi?cant
funds is included throughout this discussion and analysis to
facilitate an understanding of our results of operations for the
periods presented. The fund returns information reflected in
thisdiscussionandanalysisisnotindicativeoftheperformance
of The Blackstone Group L.P. and is also not necessarily indica-
tiveofthefutureperformanceofanyparticularfund.Aninvest-
mentinTheBlackstoneGroupL.P.isnotaninvestmentinanyof
ourfunds.Therecanbenoassurancethatanyofourfundsorour
otherexistingandfuturefundswillachievesimilarreturns.
47
ThefollowingtablepresentstheInternalRatesofReturnofoursigni?cantRealEstatefunds:
Net Total Change in Carrying Value (Realized and Unrealized)
(a)
Year Ended December 31, Inception to Date
Fund 2009 2008 2007 Total Realized
(b)
BREPIV –32% –39% 8% 14% 69%
BREPV –35% –31% 36% –6% 77%
BREPInternational 10% –36% 57% 28% 36%
BREPInternationalII –31% –42% 19% –27% 5%
BREPVI –40% –43% 44% –33% 95%
BSSFI
(c)
21% –9% N/A 17% N/M
BSSFII
(c)
23% N/A N/A 23% 140%
CMBS
(c)
17% N/A N/A 17% N/M
The returns presented herein represent those of the applicable Blackstone Funds and not those of The Blackstone Group L.P.
(a)
Nettotalchangeincarryingvalue(realizedandunrealized)isaftermanagementfees,expensesandperformancefeeallocations.
(b)
Includes partially realized investments. Investments are considered partially realized when distributed proceeds, excluding current income (dividends, interest, etc.), are a
materialportionofinvestedcapital.
(c)
RepresentsreturnsforapartialyearofinvestingwhichcommencedfortheCMBSfundinMay2009,BSSFIIinJuly2009,andBSSFinAugust2008.
TheRealEstatefunds’netinternalratesofreturnfortheyearendedDecember31,2009wereimprovedforallfundsexceptBREPV
comparedtothenegativereturnsforeachofthesefundsfortheyearendedDecember31,2008.Generally,beginninginthesecondhalf
of2009,thefund’sportfoliocompanyoperationshaveseenrelativestabilizationinthefundamentalsoftheBREPfunds’hotelsand
improvedleasingintheBREPfunds’of ceinvestments,whichthereforelimitedthevaluationreductionsofourinvestments.
ThefollowingtablepresentstheinvestmentrecordoftheRealEstatefundsfrominceptionthroughDecember31,2009forfunds
withclosedinvestmentperiods:
Fully Invested Funds
Total Investments Realized / Partially Realized Investments
(a)
Total Total
Fund (Investment Period) Invested Carrying Net Invested Carrying Net
(Dollarsin Millions) Capital Value
(b)
IRR
(c)
MOIC
(d)
Capital Value
(b)(e)
IRR
(c)
MOIC
(d
Pre-BREP $ 141 $ 345 33% 2.5 $ 141 $ 345 33% 2.5
BREPI(Sep1994/Oct1996) 467 1,328 40% 2.8 467 1,328 40% 2.8
BREPII(Oct1996/Mar1999) 1,219 2,525 19% 2.1 1,219 2,525 19% 2.1
BREPIII(Apr1999/Apr2003) 1,415 3,330 21% 2.4 1,338 3,300 23% 2.5
BREPInt’l(Jan2001/Sep2005) 757 1,580 28% 2.1 658 1,521 36% 2.3
BREPIV(Apr2003/Dec2005) 2,737 3,575 14% 1.3 1,058 2,501 69% 2.4
BREPV(Dec2005/Feb2007) 5,183 4,750 –6% 0.9 951 1,748 77% 1.8
BREPInt’lII(Sep2005/Jun2008) 1,739 972 –27% 0.6 208 256 5% 1.2
The returns presented herein represent those of the applicable Blackstone Funds and not those of The Blackstone Group L.P.
(a)
Investmentsareconsideredpartiallyrealizedwhendistributedproceeds,excludingcurrentincome(rent,dividends,interest,etc.),areamaterialportionofinvestedcapital.
(b)
Carryingvalueincludesrealizedproceedsandunrealizedfairvalue.
(c)
Theinternalrateofreturn(“IRR”)representstheannualizedinceptiontodateIRRontotalinvestedcapitalbasedonrealizedproceedsandunrealizedfairvalue.NetIRRisafter
managementfees,expensesandcarriedinterest.
(d)
MultipleofInvestedCapital(“MOIC”)representstotalrealizedandunrealizedvalue,beforemanagementfees,expensesandcarriedinterest,dividedbytotalinvestedcapital.
(e)
TheTotalRealized/PartiallyRealizedCarryingValueincludesremainingunrealizedvalueof$692.2 million.
)
48 TheBlackstoneGroup AnnualReport2009
credit and marketable alternatives (cama)
Full Year. CAMAhadrevenuesof$632.3 millionforthefullyear
2009 compared with revenues of $151.5 million for the full
year 2008. The increase was primarily driven by improved
returns on Blackstone’s investment in its funds of hedge funds
anditscredit-orientedfundsduringthefullyear2009compared
tothefullyear2008andbyanincreaseinPerformanceFeesand
Allocationsinbothbusinesses.
The funds of hedge funds posted a composite net return of
16% for the full year 2009 and approximately 40% of the assets
eligible to earn incentive fees were above their applicable high
watermarksasofDecember31,2009.Thecredit-orientedhedge
funds posted a composite net return of 23% for 2009, a record
year, and approximately three fourths of the assets eligible to
earnincentivefeeswereabovetheirapplicablehighwatermarks
as of December 31, 2009. CAMA’s credit-oriented draw-down
fundspostedacompositenetreturnof61%for2009.
NetFeeRelatedEarningsfromOperationswere$99.6 million
forthefullyear2009,adecreasefrom$130.9 millionforthefull
year 2008 which re?ected lower asset values and the spinout of
thesinglemanagerhedgefundsattheendof2008.EconomicNet
Incomewas$265.2 millionforthefullyear2009comparedtoa
negative$(195.5) millionforthefullyear2008.
Compensation and Benefits were $286.5 million, up from
$241.0 millionforthefullyear2008.Theincreasefromthefull
year 2008 was principally driven by performance fee related
compensationduetopositivereturnsoncertainofBlackstone’s
credit-relatedfunds,partiallyofsetbyadeclineinbasecompen-
sation. Other Operating Expenses of $80.7 million were down
from$106.0 millionforthefullyear2008,re?ectingBlackstone’s
ongoingfocusonexpensecontrol.
Fee-Earning Assets Under Management in 2009 totaled
$47.9 billioncomparedwith$42.6 billionfor2008.Theincrease
from 2008 was principally due to market appreciation in
thefundsofhedgefunds,creditplatformandclosed-endmutual
fundsinadditiontonetin?owsacrossthesegment,ofsetbythe
decreasefromdiscontinuedfunds.
LimitedPartnerCapitalInvestedincertaincreditdrawdown
funds totaled $721.4 million for the full year 2009, down from
$1.8 billionforthefullyear2008.
Fourth Quarter. CAMAhadrevenuesof$213.3 million,com-
pared with a negative $(55.7) million for the fourth quarter of
2008. The change from 2008 was due primarily to improved
returnsonthesegment’sfundofhedgefundsandcredit-oriented
funds,resultinginpositiveperformancefeesandallocationsand
investmentincomeinbothbusinesses.
NetFeeRelatedEarningsfromOperationswere$36.0 million
forthefourthquarterof2009,anincreasefrom$21.7 millionfor
thefourthquarterof2008re?ectinggeneralexpensereductions.
Economic Net Income was $102.8 million for the fourth quar-
ter of 2009 compared to a negative $(132.5) million for the
fourth quarterof2008.
ThefollowingtablepresentstheinvestmentrecordoftheRealEstatefundsfrominceptionthroughDecember31,2009forfunds
withopeninvestmentperiods:
Funds in the Investment Period
Total Investment
Total
Fund (Investment Period) Available Invested Carrying Net
(Dollarsin Millions) Capital
(a)
Capital Value
(b)
IRR
(c)
MOIC
(d
BREPVI(Feb2007/Aug2012) $6,208 $4,817 $2,374 –33% 0.5
BREPEUIII(Jun2008/Dec2013) 4,414 118 115 N/M 1.0
BSSFII(July2009/Aug2017) 147 358 401 23% 1.1
The returns presented herein represent those of the applicable Blackstone Funds and not those of The Blackstone Group L.P.
(a)
AvailableCapitalrepresentstotalcapitalcommitmentslessinvestedcapital.Itincludes$276.0 millioncommittedtodealsbutnotyetinvested.Additionally,thesegmenthas
$1.2 billionofAvailableCapitalthathasbeenreservedforadd-oninvestmentsinfundsthatarefullyinvested.
(b)
Carryingvalueincludesrealizedproceedsandunrealizedfairvalue.
(c)
Theinternalrateofreturn(“IRR”)representstheannualizedinceptiontodateIRRontotalinvestedcapitalbasedonrealizedproceedsandunrealizedfairvalue.NetIRRisafter
managementfees,expensesandcarriedinterest.
(d)
MultipleofInvestedCapital(“MOIC”)representstotalrealizedandunrealizedvalue,beforemanagementfees,expensesandcarriedinterest,dividedbytotalinvestedcapital.
)
49
Compensation and Benefits were $88.1 million, up from
$40.3 million in the fourth quarter of 2008. The increase
fromthefourthquarterof2008wasprincipallydrivenbyperfor-
mancefeerelatedcompensationduetopositivereturnsoncertain
of Blackstone’s credit-related funds, partially ofset by a decline
in base compensation. Other Operating Expenses of $22.4 mil-
lionweredownfrom$36.5 millionforthefourthquarterof2008,
re?ectingBlackstone’songoingfocusonexpensecontrol.
Financial Advisory
Full Year. Revenues were $397.6 million for the year ended
December31,2009,adecreaseof$13.0 million,or3%,compared
to $410.6 million for the year ended December 31, 2008. The
restructuring and reorganization advisory services business
generated record fees of $188.0 million, a 66% increase from
2008,ascontinuedcreditmarketturmoilandlowlevelsofavail-
ableliquidityledtoincreaseddebtdefaults,debtrestructurings
and bankruptcies. Additionally, fees earned from the corpo-
rate and mergers and acquisitions advisory services business
increased $10.1 million, or 7%, to a record $164.0 million as cli-
entsincreasinglylookedtousforindependentadviceincompli-
cated transactions. These increases were ofset by a decrease of
$91.6 millioninfeesgeneratedfromthefundplacementbusiness
compared to 2008 as that business continued to face challenges
inthefund-raisingenvironmentbutdidseeimprovementinthe
fourthquarter.
Net Fee Related Earnings from Operations were $77.8 mil-
lion for the full year 2009, a decrease from $95.2 million for
the full year 2008. The primary catalyst for the decrease from
2008 was a decrease in fees generated from the fund placement
businesscoupledwithanincreaseinbaddebtexpensefromthe
Fee-EarningAssetsUnderManagementinthefourthquarter
of2009totaled$47.9 billionupfrom$42.6 billionforthefourth
quarter of 2008. The increase from 2008 was principally due to
marketappreciationinthefundsofhedgefunds,creditplatform
fundsandclosed-endmutualfunds.
Limited Partner Capital Invested in certain carry credit-
oriented funds totaled $313.6 million for the fourth quarter of
2009,downfrom$333.8 millionforthefourthquarterof2008.
corporate and mergers and acquisitions advisory services busi-
ness.Non-compensationexpensesforthesegment,excludingthe
impact of these one-time items, were essentially ?at. Economic
NetIncomewas$85.7 millionforthefullyear2009comparedto
$108.5 millionforthefullyear2008.
Fourth Quarter. Revenueswere$125.7 millionforthefourth
quarterof2009,anincreasefrom$105.8 millionforthefourthquar-
ter of 2008. The increase in segment revenues was primarily
drivenbyanincreaseinfeesgeneratedbycontinuedstrengthin
Blackstone’srestructuringandreorganizationadvisoryservices
businessaswellasareturntomorenormalizedactivitylevelsin
thefundplacementbusiness.
NetFeeRelatedEarningsfromOperationswere$31.8 million
forthefourthquarterof2009,anincreasefrom$20.8 millionfor
thefourthquarterof2008.Theprimarycatalystfortheincrease
from 2008 was higher advisory fees, partially offset by an
increaseinCompensationandBene?tsasaportionofcompensa-
tionisdirectlyrelatedtothepro?tabilityofeachoftheadvisory
services businesses. Economic Net Income was $34.0 million
for the fourth quarter of 2009 compared to $22.5 million for
thefourthquarterof2008.
Composite Returns. Composite return information for our funds of hedge funds business is included throughout this discussion
andanalysistofacilitateanunderstandingofourresultsofoperationsfortheperiodspresented.Thecompositereturninformation
re?ectedinthisdiscussionandanalysisisnotindicativeoftheperformanceofTheBlackstoneGroupL.P.andisalsonotnecessarily
indicativeofthefutureresultsofanyparticularfund.AninvestmentinTheBlackstoneGroupL.P.isnotaninvestmentinanyofour
fundsorcomposites.Therecanbenoassurancethatanyofourfundsorcompositesorourotherexistingandfuturefundsorcompos-
iteswillachievesimilarreturns.
Average Annual Net Returns
(a)
Periods Ended December 31, 2009
One Three Five Inception
Composite Year Years Year to Date
FundsofHedgeFunds,CoreFundsComposite 16% 2% 5% 10%
The returns presented represent those of the applicable Blackstone Funds and not those of The Blackstone Group L.P.
(a)
CompositereturnspresentasummarizedassetweightedreturnmeasuretoevaluatetheoverallperformanceoftheapplicableclassofBlackstoneFunds.
50 TheBlackstoneGroup AnnualReport2009
segment economic net income and net fee related earnings from operations
The tables below detail Blackstone’s Economic Net Income and Net Fee Related Earnings from Operations. Net Fee Related Earnings
fromOperationsisasupplementalmeasureofaftertaxperformanceusedtohighlightearningsfromoperationsexcludingtheincomefrom
and related pro?t sharing expenses of Blackstone’s performance fees and allocations and investment income, except for interest income.
Private Equity
Year Ended December 31,
(DollarsinThousands) 2009 2008
Revenues
ManagementFees
BaseManagementFees $270,509 $ 268,961
AdvisoryFees
TransactionandOtherFees,Net
*
86,336 51,796
ManagementFeeOfsets
**
– (4,862)
TotalManagementFees 356,845 315,895
PerformanceFeesandAllocations
Realized 34,021 (749)
Unrealized 303,491 (429,736)
TotalPerformanceFeesandAllocations 337,512 (430,485)
InvestmentIncome(Loss)
Realized 36,968 13,687
Unrealized 33,269 (196,200)
TotalInvestmentIncome(Loss) 70,237 (182,513)
InterestIncomeandDividendRevenue 7,756 6,459
Other 2,845 4,474
TotalRevenues 775,195 (286,170)
Expenses
CompensationandBene?ts
BaseCompensation 181,266 146,551
PerformanceFeeRelated
Realized 741 (4,255)
Unrealized 20,307 (126,090)
TotalCompensationandBene?ts 202,314 16,206
OtherOperatingExpenses 82,471 90,130
TotalSegmentExpenses 284,785 106,336
EconomicNetIncome(Loss) $490,410 $(392,506)
NetFeeRelatedEarningsfromOperations $ 97,826 $ 81,928
* TransactionandOtherFees,Net,arenetofamounts,ifany,sharedwithlimitedpartnersincluding,forPrivateEquity,brokendealexpenses.
** Primarilyplacementfees.
51
Credit and Economic Net Income
Real Estate Marketable Alternatives Financial Advisory Recap, Total Segments
Year Ended December 31, Year Ended December 31, Year Ended December 31, Year Ended December 31,
2009 2008 2009 2008 2009 2008 2009 2008
$ 328,447 $ 295,921 $400,873 $ 476,836 $ 999,829 $1,041,718
$390,718 $397,519 390,718 397,519
25,838 36,046 2,866 8,516 – – 115,040 96,358
(2,467) (4,969) (14,694) (6,606) – – (17,161) (16,437)
351,818 326,998 389,045 478,746 390,718 397,519 1,488,426 1,519,158
(3,039) 24,681 43,282 15,081 – – 74,264 39,013
(252,180) (843,704) 114,556 (12,822) – – 165,867 (1,286,262)
(255,219) (819,023) 157,838 2,259 – – 240,131 (1,247,249)
6,164 3,778 (15,031) (82,142) 1,443 – 29,544 (64,677)
(125,624) (238,650) 96,016 (257,084) 219 – 3,880 (691,934)
(119,460) (234,872) 80,985 (339,226) 1,662 – 33,424 (756,611)
6,030 5,880 3,452 8,527 5,254 8,148 22,492 29,014
3,261 3,008 1,025 1,214 (35) 4,899 7,096 13,595
(13,570) (718,009) 632,345 151,520 397,599 410,566 1,791,569 (442,093)
158,115 150,684 198,117 239,436 232,359 234,755 769,857 771,426
3,506 1,090 20,854 8,162 – – 25,101 4,997
(113,981) (74,981) 67,493 (6,643) – – (26,181) (207,714)
47,640 76,793 286,464 240,955 232,359 234,755 768,777 568,709
56,325 55,782 80,661 106,027 79,572 67,277 299,029 319,216
103,965 132,575 367,125 346,982 311,931 302,032 1,067,806 887,925
$(117,535) $(850,584) $265,220 $(195,462) $ 85,668 $108,534 $ 723,763 $(1,330,018)
$ 135,187 $ 119,621 $ 99,646 $ 130,941 $ 77,751 $ 95,178 $ 410,410 $ 427,668
52 TheBlackstoneGroup AnnualReport2009
reconciliation of adjusted cash flow
from operations to net cash provided
by operating activities
The following table provides a reconciliation of Blackstone’s
Adjusted Cash Flow from Operations to Blackstone’s Net Cash
Provided by Operating Activities. Adjusted Cash Flow from
Operations is a supplemental measure of liquidity to assess
liquidity and amounts available for distributions to Blackstone
unitholders,includingBlackstonepersonnel.
Year Ended December 31,
(Dollars in Thousands) 2009 2008
NetCashProvidedbyOperatingActivities $ 411,509 $ 1,890,435
UnrealizedDepreciationonHedgeActivities 6,975 –
ChangesinOperatingAssetsandLiabilities (70,200) (757,084)
ShortTermInvestmentActivity 553,288 –
BlackstoneFundsRelated
InvestmentActivities (446,233) (469,693)
NetRealizedGains(Losses)onInvestments (135,243) (164,726)
Non-ControllingInterestsinIncomeof
ConsolidatedEntities 1,942,838 3,523,697
RealizedGains(Losses)–BlackstoneFunds 13,227 (197,426)
CashFlowsfromOperations–Adjustments
InterestsHeldbyBlackstoneHoldings
LimitedPartners
(a)
(1,792,173) (3,638,799)
IncrementalCashTaxEfect
(b)
42,250 (57,603)
AdjustedCashFlowfromOperations $ 526,238 $ 128,801
Thefollowingtableprovidesthedetailsofthecomponentsof
AdjustedCashFlowfromOperations.AdjustedCashFlowsfrom
Operations is the principal factor in determining the amount of
distributionstounitholders.
Year Ended December 31,
(Dollars in Thousands) 2009 2008
FeeRelatedEarnings
TotalManagementandAdvisoryFees
(c)
$1,530,382 $1,561,766
TotalExpenses
(d)
1,119,972 1,134,098
NetFeeRelatedEarningsfromOperations 410,410 427,668
PerformanceFeesandAllocations
NetofRelatedCompensation
(e)
32,092 33,210
BlackstoneInvestmentIncome
(f)
Liquid 58,362 (327,453)
Illiquid 25,374 (4,624)
83,736 (332,077)
AdjustedCashFlowfromOperations $ 526,238 $ 128,801
(a)
Represents an adjustment to add back net income (loss) allocable to interest
holdersofBlackstoneHoldingsLimitedPartnersaftertheReorganizationrecorded
asNon-ControllingInterests.
(b)
Represents the provisions for and/or adjustments to income taxes that were calcu-
latedusingasimilarmethodologyappliedincalculatingsuchamountsfortheperiod
afterthereorganization.
(c)
ComprisedoftotalsegmentManagementandAdvisoryFeesplusinterestincome.
(d)
Comprised of total segment compensation expense (excluding compensation
expenserelatedtoPerformanceFeesandAllocationspursuanttoBlackstone’spro?t
sharing plans related to carried interest and incentive fees which are included in
(e) below),otheroperatingexpensesandBlackstone’sestimateoftaxespayable.
(e)
RepresentsrealizedPerformanceFeesandAllocationsnetofcorrespondingactual
amounts due under Blackstone’s profit sharing plans related thereto. The nega-
tiveamountsforthequarterandyearendedDecember31,2009aretheresultoftiming
diferences between the tax payment due date on certain taxable Performance Fees
andAllocationsandthecashreceiptdateofsuchPerformanceFeesandAllocations.
(f)
ComprisedofBlackstone’sinvestmentincome(realizedandunrealized)onitsliquid
investmentsfromitsCreditandMarketableAlternativessegment,aswellasitsnet
realizedinvestmentincomeonitsilliquidinvestments,principallyfromitsPrivate
Equity and Real Estate Segments and permanent impairment charges on certain
illiquidinvestments.
53
to the general partner and unitholders of
the blackstone group l.p.:
We have audited the accompanying consolidated and combined
statements of financial condition of The Blackstone Group,
L.P. and subsidiaries (“Blackstone”) as of December 31, 2009
and 2008, and the related consolidated and combined state-
mentsofoperations,changesinpartners’capital,andcash?ows
for each of the three years in the period ended December 31,
2009. We also have audited Blackstone’s internal control over
?nancial reporting as of December 31, 2009, based on criteria
established in Internal Control – Integrated Framework issued
bytheCommitteeofSponsoringOrganizationsoftheTreadway
Commission. Blackstone’s management is responsible for these
?nancial statements, for maintaining efective internal control
over ?nancial reporting, and for its assessment of the efective-
nessofinternalcontrolover?nancialreporting,includedinthe
accompanying Management’s Report on Internal Control over
FinancialReporting. Ourresponsibilityistoexpressanopinion
on these financial statements and an opinion on Blackstone’s
internalcontrolover?nancialreportingbasedonouraudits.
We conducted our audits in accordance with the stan-
dards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and per-
form the audit to obtain reasonable assurance about whether
the ?nancial statements are free of material misstatement and
whether efective internal control over ?nancial reporting was
maintained in all material respects. Our audits of the ?nancial
statements included examining, on a test basis, evidence sup-
portingtheamountsanddisclosuresinthe?nancialstatements,
assessing the accounting principles used and significant esti-
matesmadebymanagement,andevaluatingtheoverall?nancial
statementpresentation. Ourauditofinternalcontrolover?nan-
cial reporting included obtaining an understanding of internal
control over ?nancial reporting, assessing the risk that a mate-
rial weakness exists, and testing and evaluating the design and
operatingefectivenessofinternalcontrolbasedontheassessed
risk. Ourauditsalsoincludedperformingsuchotherprocedures
asweconsiderednecessaryinthecircumstances. Webelievethat
ourauditsprovideareasonablebasisforouropinions.
A company’s internal control over financial reporting is a
process designed by, or under the supervision of, the company’s
principal executive and principal financial officers, or per-
sonsperformingsimilarfunctions,andefectedbythecompany’s
board of directors, management, and other personnel to pro-
vide reasonable assurance regarding the reliability of ?nancial
reporting and the preparation of ?nancial statements for exter-
nal purposes in accordance with generally accepted accounting
principles. A company’s internal control over ?nancial report-
ingincludesthosepoliciesandproceduresthat(1) pertaintothe
maintenanceofrecordsthat,inreasonabledetail,accuratelyand
fairlyre?ectthetransactionsanddispositionsoftheassetsofthe
company;(2) providereasonableassurancethattransactionsare
recorded as necessary to permit preparation of ?nancial state-
ments in accordance with generally accepted accounting prin-
ciples, and that receipts and expenditures of the company are
being made only in accordance with authorizations of manage-
ment and directors of the company; and (3) provide reasonable
assuranceregardingpreventionortimelydetectionofunauthor-
izedacquisition,use,ordispositionofthecompany’sassetsthat
couldhaveamaterialefectonthe?nancialstatements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material misstate-
mentsduetoerrororfraudmaynotbepreventedordetectedon
atimelybasis. Also,projectionsofanyevaluationoftheefective-
ness of the internal control over ?nancial reporting to future
periods are subject to the risk that the controls may become
inadequate because of changes in conditions, or that the degree
ofcompliancewiththepoliciesorproceduresmaydeteriorate.
Inouropinion,theconsolidatedandcombined?nancialstate-
mentsreferredtoabovepresentfairly,inallmaterialrespects,the
?nancialpositionofTheBlackstoneGroupL.P.andsubsidiariesas
ofDecember 31,2009and2008,andtheresultsoftheiroperations
andtheircash?owsforeachofthethreeyearsintheperiodended
December 31, 2009, in conformity with accounting principles
generally accepted in the United States of America. Also, in our
opinion,Blackstonemaintained,inallmaterialrespects,efective
internalcontrolover?nancialreportingasofDecember 31,2009,
based on the criteria established in Internal Control – Integrated
Framework issuedbytheCommitteeofSponsoringOrganizations
oftheTreadwayCommission.
NewYork,NewYork
February26,2010
Report of Independent Registered
Public Accounting Firm
54 TheBlackstoneGroup AnnualReport2009
consolidated and combined statements of financial condition
December 31,
(DollarsinThousands,ExceptUnitData) 2009 2008
Assets
CashandCashEquivalents $ 952,096 $ 503,737
CashHeldbyBlackstoneFundsandOther 86,084 907,324
Investments 3,565,483 2,830,942
AccountsReceivable 306,307 312,067
DuefromAf liates 759,907 1,088,304
IntangibleAssets,Net 919,477 1,077,526
Goodwill ` 1,703,602 1,703,602
OtherAssets 172,556 219,977
DeferredTaxAssets 943,512 845,578
Total Assets $9,409,024 $9,489,057
Liabilities and Partners’ Capital
LoansPayable $ 657,623 $ 387,000
DuetoAf liates 1,410,066 1,285,577
AccruedCompensationandBene?ts 488,945 413,459
AccountsPayable,AccruedExpensesandOtherLiabilities 308,857 1,284,576
Total Liabilities 2,865,491 3,370,612
Commitments and Contingencies
Redeemable Non-Controlling Interests in Consolidated Entities 526,311 362,462
Partners’ Capital
Partners’Capital(commonunits:319,939,772issuedandoutstandingasofDecember 31,2009;
273,891,358issuedand272,998,484outstandingasofDecember 31,2008) 3,376,707 3,509,448
AccumulatedOtherComprehensiveIncome(Loss) 2,420 (291)
Non-ControllingInterestsinConsolidatedEntities 540,283 425,067
Non-ControllingInterestsinBlackstoneHoldings 2,097,812 1,821,759
Total Partners’ Capital 6,017,222 5,755,983
Total Liabilities and Partners’ Capital $9,409,024 $9,489,057
Seenotestoconsolidatedandcombined?nancialstatements.
55
consolidated and combined statements of operations
Year Ended December 31,
(DollarsinThousands,ExceptUnitandPerUnitData) 2009 2008 2007
Revenues
ManagementandAdvisoryFees $ 1,482,226 $ 1,476,357 $1,566,047
PerformanceFeesandAllocations
Realized 70,492 38,941 1,024,566
Unrealized 150,598 (1,286,261) 102,074
TotalPerformanceFeesandAllocations 221,090 (1,247,320) 1,126,640
InvestmentIncome(Loss)
Realized 44,320 (16,425) 223,147
Unrealized (3,716) (606,452) 110,615
TotalInvestmentIncome(Loss) 40,604 (622,877) 333,762
InterestandDividendRevenue 22,680 30,879 23,174
Other 7,099 13,600 525
Total Revenues 1,773,699 (349,361) 3,050,148
Expenses
CompensationandBene?ts
BaseCompensation 3,778,686 4,062,238 2,227,310
PerformanceFeeRelated
Realized 25,102 4,997 91,203
Unrealized (26,182) (207,448) (61,866)
TotalCompensationandBene?ts 3,777,606 3,859,787 2,256,647
General,AdministrativeandOther 443,573 440,776 324,200
InterestExpense 13,384 23,008 32,080
FundExpenses 7,296 63,031 151,917
Total Expenses 4,241,859 4,386,602 2,764,844
Other Income (Loss)
NetGains(Losses)fromFundInvestmentActivities 176,694 (872,336) 5,423,132
Income (Loss) Before Provision (Bene?t) for Taxes (2,291,466) (5,608,299) 5,708,436
Provision (Bene?t) for Taxes 99,230 (14,145) 47,693
Net Income (Loss) (2,390,696) (5,594,154) 5,660,743
Net Income (Loss) Attributable to Redeemable Non-Controlling Interests in Consolidated Entities 131,097 (632,495) 628,354
Net Income (Loss) Attributable to Non-Controlling Interests in Consolidated Entities (14,328) (159,828) 4,510,881
Net Income (Loss) Attributable to Non-Controlling Interests in Blackstone Holdings (1,792,174) (3,638,799) 857,022
Net Income (Loss) Attributable to The Blackstone Group L.P. $ (715,291) $(1,163,032) $ (335,514)
Net Loss Attributable to The Blackstone Group L.P.
Per Common Unit – Basic and Diluted
CommonUnitsEntitledtoPriorityDistributions $ (2.46) $ (4.32) $ (1.28)
CommonUnitsNotEntitledtoPriorityDistributions $ (3.71) $ (3.06) N/A
Weighted-Average Common Units Outstanding – Basic and Diluted
CommonUnitsEntitledtoPriorityDistributions 285,163,954 266,876,031 262,810,720
CommonUnitsNotEntitledtoPriorityDistributions 3,826,233 1,501,373 N/A
Revenues Earned from Af liates
ManagementandAdvisoryFees $ 134,284 $ 188,276 $ 594,967
Seenotestoconsolidatedandcombined?nancialstatements.
56 TheBlackstoneGroup AnnualReport2009
consolidated and combined statements of changes in partners’ capital
Accumulated Redeemable
Other Non- Non- Non-
Compre- Controlling Controlling Controlling Compre-
hensive Interests in Interests in Total Interests in hensive
(DollarsinThousands, Common Partners’ Income Consolidated Blackstone Partners’ Consolidated Income
ExceptUnitData) Units Capital (Loss) Entities Holdings Capital Entities (Loss)
Balance at December 31, 2006 – $?? ????? – $10,274 $ 22,734,450 $ 2,712,604 $ 25,457,328 $ 6,060,444 $ 8,126,628
NetIncome – – – 4,533,944 1,958,751 6,492,695 644,103 $ 7,136,798
CurrencyTranslationAdjustment – – (191) 13,635 – 13,444 – 13,444
NetUnrealizedLosson
CashFlowHedges – – (6,930) – – (6,930) – (6,930)
CapitalContributions – – – 5,740,798 233,659 5,974,457 1,419,261 –
CapitalDistributions – – – (5,209,141) (2,492,352) (7,701,493) (429,311) –
RelinquishedinDeconsolidation
ofPartnership – – – (26,782,715) – (26,782,715) – –
Eliminationof
Non-ContributedEntities – – (2,803) – (161,103) (163,906) – –
TransferofNon-Controlling
InterestsinConsolidatedEntities – 35,276 – (506,186) (35,276) (506,186) (139,241) –
Balance at June 18, 2007 – 35,276 350 524,785 2,216,283 2,776,694 7,555,256 7,143,312
Balance at June 19, 2007 – 35,276 350 524,785 2,216,283 2,776,694 7,555,256 7,143,312
NetLoss – (335,514) – (23,063) (1,101,729) (1,460,306) (15,749) (1,476,055)
CurrencyTranslationAdjustment – – (5) 551 – 546 – 546
CapitalContributions – – – 128,361 – 128,361 223,336 –
CapitalDistributions – (78,794) – (96,455) (49,906) (225,155) 91,133 –
RelinquishedinDeconsolidation
ofPartnership – – – – – – (5,415,730) –
Eliminationof
Non-ContributedEntities – – – 140,167 – 140,167 – –
TransferofNon-Controlling
InterestsinConsolidatedEntities – 1,174,367 – (158,460) (1,549,865) (533,958) 20 –
IssuanceofUnitsinInitialPublic
Ofering,NetofIssuanceCosts 153,333,334 4,501,240 – – – 4,501,240 – –
IssuanceofUnitstoBeijing
WonderfulInvestments 101,334,234 3,000,000 – – – 3,000,000 – –
PurchaseofInterestsfromCertain
Non-ControllingInterestHolders – (4,570,756) – – – (4,570,756) – –
PurchasePriceduetothe
ReorganizationofthePartnership – – – – 2,255,803 2,255,803 – –
DeferredTaxEfectsResultingfrom
AcquisitionofOwnershipInterests – 111,876 – – – 111,876 – –
Equity-basedCompensation – 404,850 – – 1,332,702 1,737,552 – –
NetDeliveryofVested
CommonUnits 5,804,294 – – – – – – –
RepurchaseofCommonUnits (645,162) (16,045) – – – (16,045) – –
Balance at December 31, 2007 259,826,700 $ 4,226,500 $?? 345 $??? 515,886 $ 3,103,288 $ 7,846,019 $ 2,438,266 $ 5,667,803
Seenotestoconsolidatedandcombined?nancialstatements. continued
57
consolidated and combined statements of changes in partners’ capital
Accumulated Redeemable
Other Non- Non- Non-
Compre- Controlling Controlling Controlling Compre-
hensive Interests in Interests in Total Interests in hensive
(DollarsinThousands, Common Partners’ Income Consolidated Blackstone Partners’ Consolidated Income
ExceptUnitData) Units Capital (Loss) Entities Holdings Capital Entities (Loss)
Balance at December 31, 2007 259,826,700 $ 4,226,500 $ 345 $ 515,886 $ 3,103,288 $ 7,846,019 $2,438,266 $ 5,667,803
NetLoss – (1,163,032) – (159,828) (3,638,799) (4,961,659) (632,495)$(5,594,153)
CurrencyTranslationAdjustment – – (636) (532) – (1,168) – (1,168)
CapitalContributions – – – 76,884 76,884 317,884 –
CapitalDistributions – (319,897) – (128,217) (410,104) (858,218) (749,233) –
RelinquishedinDeconsolidation
ofPartnership – – – – – – (612,088) –
IssuanceofBlackstoneHoldings
PartnershipUnitsfor
GSOAcquisition – 14,307 – – 266,092 280,399 – –
PurchaseofInterestsfrom
CertainNon-Controlling
InterestHolders – (74,278) – – (19,511) (93,789) – –
DeferredTaxEfectsResultingfrom
AcquisitionofOwnershipInterests – 5,164 – – – 5,164 – –
Equity-basedCompensation – 818,076 – – 2,473,236 3,291,312 – –
NetDeliveryofVested
CommonUnits 4,601,493 (26,525) – – – (26,525) – –
RepurchaseofCommonUnits (902,874) (5,338) – – – (5,338) – –
ConversionofBlackstoneHoldings
PartnershipUnitsto
BlackstoneCommonUnits 9,473,165 34,471 – – (34,471) – – –
AdjustmenttoPre-IPO
ReorganizationPurchasePrice – – – – 82,028 82,028 – –
Consolidationof
Partnership – – – – – – 159,031 –
PayabletoNon-ControllingInterest
HoldersduetoConsolidated
BlackstoneFundsinLiquidation – – – – – – (649,091) –
AcquisitionofConsolidated
BlackstoneFunds – – – 120,874 – 120,874 90,188 –
Balance at December 31, 2008 272,998,484 $ 3,509,448 $(291) $ 425,067 $ 1,821,759 $ 5,755,983 $ 362,462 $(5,595,321)
Seenotestoconsolidatedandcombined?nancialstatements. continued
58 TheBlackstoneGroup AnnualReport2009
consolidated and combined statements of changes in partners’ capital
Accumulated Redeemable
Other Non- Non- Non-
Compre- Controlling Controlling Controlling Compre-
hensive Interests in Interests in Total Interests in hensive
(DollarsinThousands, Common Partners’ Income Consolidated Blackstone Partners’ Consolidated Income
ExceptUnitData) Units Capital (Loss) Entities Holdings Capital Entities (Loss)
Balance at December 31, 2008 272,998,484 $3,509,448 $ (291) $425,067 $ 1,821,759 $ 5,755,983 $362,462 $(5,595,321)
NetLoss – (715,291) – (14,328) (1,792,174) (2,521,793) 131,097 $(2,390,696)
CurrencyTranslationAdjustment – – 2,711 – – 2,711 – 2,711
CapitalContributions – – – 61,862 549 62,411 138,255 –
CapitalDistributions – (260,629) – (34,806) (1) (295,436) (63,349) –
TransferofNon-Controlling
InterestsinConsolidatedEntities – – – 1,991 (1,991) – – –
TransferDuetoReorganization – – – 100,497 – 100,496 – –
PurchaseofInterestsfromCertain
Non-ControllingInterestHolders – (10,020) – – (13) (10,033) – –
DeferredTaxEfectsResulting
fromAcquisitionofOwnership
InterestsfromNon-Controlling
InterestHolders – 21,447 – – – 21,447 – –
Equity-BasedCompensation – 777,986 – – 2,180,134 2,958,120 – –
NetDeliveryofVested
CommonUnits 3,117,774 (28,974) – – – (28,974) – –
RepurchaseofCommonUnitsand
BlackstoneHoldings
PartnershipUnits (4,375,094) (27,008) – – (703) (27,711) – –
ConversionofBlackstoneHoldings
PartnershipUnitstoBlackstone
CommonUnits 48,198,608 109,748 – – (109,748) – – –
LossAttributabletoConsolidated
BlackstoneFundsinLiquidation – – – – – – (42,153) –
Balance at December 31, 2009 319,939,772 $3,376,707 $2,420 $540,283 $ 2,097,812 $ 6,017,222 $526,311 $(2,387,985)
Seenotestoconsolidatedandcombined?nancialstatements.
59
consolidated and combined statements of cash flows
Year Ended December 31,
(DollarsinThousands) 2009 2008 2007
Operating Activities
NetIncome(Loss) $(2,390,696) $ (5,594,154) $ 5,660,743
AdjustmentstoReconcileNetIncome(Loss)toNetCashProvidedby(Usedin)OperatingActivities:
BlackstoneFundsRelated:
UnrealizedDepreciation(Appreciation)onInvestmentsAllocableto
Non-ControllingInterestsinConsolidatedEntities (267,433) 907,425 (2,537,918)
NetRealized(Gains)LossesonInvestments 135,243 164,726 (3,800,137)
ChangesinUnrealized(Gains)LossesonInvestmentsAllocabletoBlackstoneGroup 15,978 624,061 (13,630)
UnrealizedDepreciationonHedgeActivities (6,975) – –
Non-CashPerformanceFeesandAllocations (269,152) 1,086,058 (187,070)
Equity-BasedCompensationExpense 3,048,108 3,302,617 1,765,188
AmortizationofIntangibles 158,048 153,237 117,607
OtherNon-CashAmountsIncludedinNetIncome 25,243 19,688 11,221
CashFlowsDuetoChangesinOperatingAssetsandLiabilities:
CashHeldbyBlackstoneFundsandOther 821,240 (743,628) 643,410
CashRelinquishedwithDeconsolidationofPartnership – (1,092) (884,480)
AccountsReceivable 35,050 45,281 337,824
DuefromAf liates 385,941 (412,184) (969,055)
OtherAssets 91,397 732,192 (468,700)
AccruedCompensationandBene?ts (14,502) 157,528 95,059
AccountsPayable,AccruedExpensesandOtherLiabilities (987,241) 796,897 273,388
DuetoAf liates (261,685) 182,090 805,687
InvestmentsPurchased (1,196,636) – –
CashProceedsfromSaleofInvestments 643,348 – –
BlackstoneFundsRelated:
InvestmentsPurchased (421,974) (30,242,498) (33,655,862)
CashProceedsfromSaleofInvestments 868,207 30,712,191 31,956,429
NetCashProvidedby(Usedin)OperatingActivities 411,509 1,890,435 (850,296)
Investing Activities
PurchaseofFurniture,EquipmentandLeaseholdImprovements (23,627) (50,113) (32,307)
EliminationofCashforNon-ContributedEntities – – (23,292)
CashPaidforAcquisitions,NetofCashAcquired – (336,571) –
ChangesinRestrictedCash 4,801 5,004 –
NetCashUsedinInvestingActivities (18,826) (381,680) (55,599)
Financing Activities
IssuanceofCommonUnitsinInitialPublicOfering – – 7,501,240
DistributionstoNon-ControllingInterestHoldersinConsolidatedEntities (92,531) (2,124,621) (5,731,806)
ContributionsfromNon-ControllingInterestHoldersinConsolidatedEntities 205,558 520,494 7,132,074
ContributionsfromPredecessorOwners – – 583,773
Seenotestoconsolidatedandcombined?nancialstatements. continued
60 TheBlackstoneGroup AnnualReport2009
consolidated and combined statements of cash flows
Year Ended December 31,
(DollarsinThousands) 2009 2008 2007
DistributionstoPredecessorOwners $ – $ – $(2,932,918)
PurchaseofInterestsfromCertainNon-ControllingInterestHolders (10,033) (109,834) (4,570,756)
NetSettlementofVestedCommonUnitsandRepurchaseofCommonUnits (56,685) (31,863) (16,045)
ProceedsfromLoansPayable 593,989 1,172,236 5,254,787
RepaymentofLoansPayable (323,993) (980,162) (5,497,113)
DistributionstoCommonUnitholders (260,629) (319,897) (78,794)
NetCashProvidedby(Usedin)FinancingActivities 55,676 (1,873,647) 1,644,442
EfectofExchangeRateChangesonCashandCashEquivalents – – 639
Net Increase (Decrease) in Cash and Cash Equivalents 448,359 (364,892) 739,186
CashandCashEquivalents,BeginningofPeriod 503,737 868,629 129,443
CashandCashEquivalents,EndofPeriod $ 952,096 $ 503,737 $ 868,629
Supplemental Disclosure of Cash Flows Information
PaymentsforInterest $ 5,097 $ 22,038 $ 60,326
PaymentsforIncomeTaxes $ 52,035 $ 46,880 $ 75,899
Supplemental Disclosure of Non-Cash Financing Activities
Non-CashDistributionstoNon-ControllingInterestHolders $ – $ – $ (22,169)
Non-CashDistributionstoPartners $ – $ – $ 49,763
EliminationofCapitalofNon-ContributedEntities $ – $ – $ 118,947
EliminationofNon-ControllingInterestsofNon-ContributedEntities $ – $ – $ 163,906
TransferofPartners’CapitaltoNon-ControllingInterests $ 1,991 $ – $ 2,216,284
TransferDuetoReorganization $ 100,497 $ – $ –
DistributionPayabletoPredecessorOwners $ – $ – $ 65,995
ReductionofDuetoLimitedPartnersAccounttoFundSidepocketInvestment $ 6,261 $ – $ –
NotesIssuanceCosts $ 4,761 $ – $ –
SettlementofVestedCommonUnits $ 199,447 $ 170,626 $ –
ConversionofBlackstoneHoldingsUnitstoCommonUnits $ 109,748 $ 34,471 $ –
ReorganizationofthePartnership:
AccountsPayable,AccruedExpensesandOtherLiabilities $ – $ (82,028) $(2,255,804)
Non-ControllingInterestsinConsolidatedEntities $ – $ 82,028 $ 2,255,804
ExchangeofFoundersandSeniorManagingDirectors’InterestsinBlackstoneHoldings:
DeferredTaxAsset $ (142,982) $ (34,427) $ (745,837)
DuetoAf liates $ 121,535 $ 29,263 $ 633,961
Partners’Capital $ 21,447 $ 5,164 $ 111,876
AcquisitionofGSOCapitalPartnersLP–UnitsIssued $ – $ 280,400 $ –
Seenotestoconsolidatedandcombined?nancialstatements.
61
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 businesses includes the
management of private equity funds, real estate funds, funds of
hedge funds, credit-oriented funds, collateralized loan obliga-
tion(“CLO”)vehicles,separatelymanagedaccountsandpublicly
traded closed-end mutual funds (collectively referred to as the
“BlackstoneFunds”).Blackstonealsoprovidesvarious?nancial
advisoryservices,includingcorporateandmergersandacquisi-
tions advisory, restructuring and reorganization advisory and
fundplacementservices.Blackstone’sbusinessisorganizedinto
foursegments
rivateequity;realestate;creditandmarketable
alternatives;and?nancialadvisory.
The Partnership was formed as a Delaware limited partner-
ship on March 12, 2007. The Partnership is managed and oper-
ated by its general partner, Blackstone Group Management
L.L.C., which is in turn wholly-owned and controlled by one of
Blackstone’sfounders,StephenA.Schwarzman,andBlackstone’s
otherseniormanagingdirectors.
TheactivitiesofthePartnershipareconductedthroughitshold-
ing partnerships: Blackstone Holdings I L.P.; Blackstone Holdings
II L.P.; Blackstone Holdings III L.P.; Blackstone Holdings IV
L.P.; and Blackstone Holdings V L.P. (collectively, the “Holding
Partnerships”). On June 18, 2007, in preparation for an initial
public ofering, the predecessor owners of the Blackstone busi-
nesscompletedareorganization(the“Reorganization”)whereby,
withcertainlimitedexceptions,theoperatingentitiesofthepre-
decessororganizationandtheintellectualpropertyrightsasso-
ciatedwiththeBlackstonenamewerecontributed(“Contributed
Businesses”)tothese?veholdingpartnershipseitherdirectlyor
indirectly via a sale to certain wholly-owned subsidiaries of the
PartnershipandthenacontributiontotheHoldingPartnerships.
The Partnership, through its wholly-owned subsidiaries,
isthesolegeneralpartnerineachoftheseHoldingPartnerships.
The reorganization was accounted for as an exchange of enti-
ties under common control for the component of interests con-
tributedbytheFoundersandtheotherseniormanagingdirectors
(collectively, the “Control Group”) and as an acquisition of non-
controllinginterestsusingthepurchasemethodofaccountingfor
allthepredecessorownersotherthantheControlGroup.
Undistributed earnings of the Contributed Businesses
through the date of the Reorganization inured to the bene?t of
predecessorowners.
On January 1, 2009, the number of Holding Partnerships was
reducedfrom?vetofourthroughthetransferofassetsandliabili-
tiesofBlackstoneHoldingsIIIL.P.toBlackstoneHoldingsIVL.P.In
connectiontherewith,BlackstoneHoldingsIVL.P.wasrenamed
BlackstoneHoldingsIIIL.P.andBlackstoneHoldingsVL.P.was
renamedBlackstoneHoldingsIVL.P.BlackstoneHoldingsrefers
tothe?veholdingpartnershipspriortotheJanuary2009reor-
ganization and the four holding partnerships subsequent to the
January2009reorganization.
Holders of the limited partner interests in the four Holding
Partnerships may, up to four times each year, exchange
their limited partnership interests (“Partnership Units”) for
Blackstone Common Units, on a one-to-one basis, exchanging
one Partnership Unit in each of the four Holding Partnerships
foroneBlackstoneCommonUnit.UntiltheBlackstoneCommon
Units issued in such exchanges were sold to third parties, they
were required to forego any priority distributions under the
cash distribution policy as described in Note 13 “Net Loss Per
CommonUnit.”
Initial Public Ofering
On June 27, 2007, the Partnership completed an initial public
ofering(“IPO”)ofitsCommonUnitsrepresentinglimitedpart-
nerinterestsinthePartnership.UponthecompletionoftheIPO,
public investors indirectly owned approximately 14.1% of the
equityinBlackstone.ConcurrentlywiththeIPO,thePartnership
completed the sale of non-voting common units, represent-
ing approximately 9.3% of the equity in Blackstone, to Beijing
Wonderful Investments, an investment vehicle subsequently
transferred to China Investment Corporation. On October 28,
2008, the agreement with Beijing Wonderful Investments was
amended whereby it, and certain of its af liates, are restricted
in the future from engaging in the purchase of Blackstone com-
monunitsthatwouldresultinitsaggregatebene?cialownership
in Blackstone on a fully-diluted (as-converted) basis exceeding
12.5%, an increase from 10% at the date of the IPO. In addi-
tion, Blackstone common units owned by Beijing Wonderful
Investmentsoritsaf liatesinexcessof10%aggregatebene?cial
Notes to Consolidated and
Combined Financial Statements
(AllDollarsAreinThousands,ExceptUnit
andPerUnitData,ExceptWhereNoted)
62 TheBlackstoneGroup AnnualReport2009
ownership in Blackstone on a fully-diluted (as-converted) basis
arenotsubjecttoanyrestrictionsontransferbutarenon-voting
whileheldbyBeijingWonderfulInvestmentsoritsaf liates.
The Partnership contributed the proceeds from the IPO
and the sale of non-voting common units to Beijing Wonderful
Investments to its wholly-owned subsidiaries, which in turn
usedtheseproceedsto(a) purchaseinterestsintheContributed
Businesses from the predecessor owners (which interests were
thencontributedtoBlackstoneHoldingsinexchangefornewly-
issuedBlackstoneHoldingsPartnershipUnits)and(b) purchase
additional newly-issued Blackstone Holdings Partnership Units
fromBlackstoneHoldings.
Consolidation and Deconsolidation of Blackstone Funds
ConcurrentlywiththeReorganization,theContributedBusinesses
that act as a general partner of a consolidated Blackstone Fund
(with the exception of Blackstone’s then existing proprietary
hedge funds and four of the funds of hedge funds) took the nec-
essary steps to grant rights to the unaf liated investors in each
respective fund to provide that a simple majority of the fund’s
unaffiliated investors will have the right, without cause, to
removethegeneralpartnerofthatfundortoacceleratetheliqui-
dation date of that fund in accordance with certain procedures.
The granting of these rights resulted in the deconsolidation
of such investment funds from the Partnership’s consolidated
?nancialstatementsandtheaccountingofBlackstone’sinterest
in these funds under the equity method. With the exception of
certain funds of hedge funds, hedge funds and credit-oriented
funds, these rights became effective on June 27, 2007 for all
BlackstoneFundswheretheserightsweregranted.Theefective
date of these rights for the applicable funds of hedge funds was
July 1, 2007. The consolidated results of these funds have been
re?ectedinthePartnership’sconsolidatedandcombined?nan-
cialstatementsuptotheefectivedateoftheserights.
Acquisitions
On March 3, 2008, the Partnership acquired GSO Capital
PartnersLPandcertainofitsaf liates(“GSO”).GSOisanalter-
native asset manager specializing in the credit markets. GSO
manages various multi-strategy credit hedge funds, mezzanine
funds,seniordebtfunds,separatelymanagedaccountsandvari-
ousCLOvehicles.
2. summary of significant accounting policies
Basis of Presentation
The accompanying consolidated and combined financial
statements have been prepared in accordance with accounting
principles generally accepted in the United States of America
(“GAAP”). The consolidated and combined ?nancial statements
priortotheReorganizationdescribedinNote1includetheentities
engagedintheabovebusinessesunderthecommonownershipof
thetwofoundersofBlackstone,StephenA.SchwarzmanandPeter
G. Peterson (the “Founders”), Blackstone’s other senior manag-
ing directors and selected other individuals engaged in some of
Blackstone’s businesses, personal planning vehicles bene?cially
owned by the families of these individuals and a subsidiary of
AmericanInternationalGroup,Inc.(“AIG”),collectively,together
withtheFounders,referredtoasthe“predecessor owners.”
Subsequent to the Reorganization, the consolidated and
combined financial statements include the accounts of the
Partnership, its wholly-owned subsidiaries, the consolidated
funds which are considered to be variable interest entities and
forwhichthePartnershipisconsideredtheprimarybene?ciary,
and certain partnerships or similar entities which are not con-
sidered variable interest entities but in which the Partnership
hasacontrolling?nancialinterest.
The December 31, 2008 Consolidated and Combined
Statements of Financial Condition re?ect a restatement to cor-
rect the classi?cation of the portion of net gains (losses) from
Blackstone Investment Funds attributable to departed par-
ticipants in Blackstone’s pro?t sharing plans. At December 31,
2008, cumulative distributions to such departed participants
exceeded net gains attributable to them such that Blackstone
had an accrued clawback due from the departed participants
totaling $226.9 million. This amount was previously classi?ed
as Non-Controlling Interests but should properly be, and has
been reclassified as, a component within Due from Affiliates.
TheimmaterialrestatementhadnoimpactontheConsolidated
andCombinedStatementofOperationsortheConsolidatedand
CombinedStatementofCashFlows.
Allintercompanybalancesandtransactionshavebeenelimi-
natedinconsolidation.
Certain reclassifications have been made to prior year
amountstoconformtothecurrentyearpresentationasfollows:
• DuringtheyearendedDecember 31,2008,Blackstoneelected
to classify Management and Advisory Fees in a single line
63
item and reclassify amounts relating to Performance Fees
and Allocations from Management and Advisory Fees and
into Performance Fees and Allocations to re?ect the under-
lyingnatureofthefeearrangements.Inthesecondquarterof
2009,BlackstoneelectedtodisaggregateInvestmentIncome
and Other between Investment Income (Loss) and Interest
Income and Other. Investment Income (Loss) represents
the income (loss) from Blackstone’s proprietary and equity
method investments, and Interest Income and Other repre-
sentsprimarilyinterestanddividendincome.
• Inthefourthquarterof2009,Blackstoneelectedtodisaggre-
gateCompensationandBene?tsintoBaseCompensationand
PerformanceFeeRelatedCompensation.Blackstonethendis-
aggregatedInvestmentIncome(Loss),PerformanceFeesand
Allocations, and Compensation and Bene?ts – Performance
Fee Related into their realized and unrealized components.
Blackstone also disaggregated Interest Income and Other
between Interest and Dividend Revenue and Other. Interest
andDividendRevenueincludesincomeearnedintheformof
interest and dividends and Other includes foreign currency
exchangegains(losses)andotherincome.AsofDecember 31,
2009,Blackstoneelectedtoaggregatecertain?nancialstate-
mentcaptionsontheConsolidatedandCombinedStatements
of Financial Condition into Other Assets and Accounts
Payable, Accrued Expenses and Other Liabilities as such
individualitemsnolongermeetthematerialitythresholdsfor
separate presentation. Accounts Payable, Accrued Expenses
andOtherLiabilitiesincludesamountsduetonon-controlling
interestholders.
Use of Estimates
The preparation of the consolidated and combined financial
statements in accordance with GAAP requires management
to make estimates that afect the amounts reported in the con-
solidatedandcombined?nancialstatementsandaccompanying
notes. Management believes that estimates utilized in the pre-
parationoftheconsolidatedandcombined?nancialstatements
are prudent and reasonable and that it has made all necessary
adjustments (consisting of only normal recurring items) so that
the consolidated and combined financial statements are pre-
sentedfairly.Actualresultscoulddiferfromthoseestimatesand
suchdiferencescouldbematerial.
Consolidation
The Partnership consolidates all entities that it controls
throughamajorityvotinginterestorotherwise,includingthose
Blackstone Funds in which the general partner is presumed to
have control. Although the Partnership has a non-controlling
interest in the Blackstone Holding Partnerships, the limited
partners do not have the right to dissolve the partnerships or
have substantive kick out rights or participating rights that
wouldovercomethepresumptionofcontrolbythePartnership.
Accordingly, the Partnership consolidates Blackstone Holdings
and records non-controlling interests to re?ect the economic
interestsofthelimitedpartnersofBlackstoneHoldings.
Inaddition,thePartnershipconsolidatesallvariableinterest
entities(“VIE”)inwhichitistheprimarybene?ciary.Anenter-
priseisdeterminedtobetheprimarybene?ciaryifitabsorbsthe
majority of the VIE’s expected losses, receives the majority of
theVIE’sexpectedreturns,orboth.
GAAP requires an analysis to (a) determine whether an
entity in which the Partnership holds a variable interest is
a variable interest entity, and (b) whether the Partnership’s
involvement, through holding interests directly or indirectly
in the entity or contractually through other variable interests
(e.g., management and performance related fees), would be
expected to absorb a majority of the variability of the entity.
Performance of that analysis requires the exercise of judgment.
The Partnership determines whether it is the primary ben-
e?ciary of a VIE at the time it becomes involved with a variable
interestentityandreconsidersthatconclusionbasedoncertain
reconsideration events. In evaluating whether the Partnership
is the primary beneficiary, Blackstone evaluates its economic
interests in the fund held either directly by the Partnership
orindirectlythroughemployees.Theconsolidationanalysiscan
generally be performed qualitatively; however, if it is not read-
ilyapparentthatthePartnershipisnottheprimarybene?ciary,
a quantitative expected losses and expected residual returns
calculation is performed. Investments and redemptions (either
bythePartnership,af liatesofthePartnershiporthirdparties)
or amendments to the governing documents of the respective
Blackstone Funds could afect an entity’s status as a VIE or the
determinationoftheprimarybene?ciary.Ateachreportingdate
andontheoccurrenceofreconsiderationevents,thePartnership
assesses whether it is the primary bene?ciary and will consoli-
dateordeconsolidateaccordingly.
Blackstone’s other disclosures regarding VIEs are discussed
inNote9“VariableInterestEntities”.
64 TheBlackstoneGroup AnnualReport2009
Business Combinations
The Partnership accounts for acquisitions using the purchase
method of accounting, under which the purchase price of the
acquisition is allocated to the assets acquired and liabilities
assumed using the fair values determined by management as of
theacquisitiondate.
Revenue Recognition
Revenues primarily consist of management and advisory fees,
performance fees and allocations, investment income, interest
anddividendrevenueandother.
Management and Advisory Fees –ManagementandAdvisory
Feesarecomprisedofmanagementfees,includingbasemanage-
ment fees, transaction and other fees, management fee reduc-
tionsandofsets,andadvisoryfees.
The Partnership earns base management fees from limited
partnersoffundsineachofitsmanagedfunds,ata?xedpercent-
age of assets under management, net asset value, total assets,
committedcapitalorinvestedcapital.Basemanagementfeesare
based on contractual terms speci?ed in the underlying invest-
mentadvisoryagreements.
Transaction and other fees (including monitoring fees) are
fees charged directly to funds and portfolio companies. The
investment advisory agreements generally require that
the investment advisor reduce the amount of management fees
payable by the limited partners to the Partnership (“manage-
ment fee reductions”) by an amount equal to a portion of the
transaction and other fees directly paid to the Partnership by
the portfolio companies. The amount of the reduction varies
by fund, the type of fee paid by the portfolio company and the
previouslyincurredexpensesofthefund.
Management fee ofsets are reductions to management fees
payable by limited partners, which are granted based on the
amounttheyreimburseBlackstoneforplacementfees.
Advisory fees consist of advisory retainer and transaction-
based fee arrangements related to merger, acquisition, restruc-
turing and divestiture activities and fund placement services
for alternative investment funds. Advisory retainer fees are
recognized when services for the transactions are complete,
in accordance with terms set forth in individual agreements.
Transaction-basedfeesarerecognizedwhen(a) thereisevidence
of an arrangement with a client, (b) agreed upon services have
been provided, (c) fees are fixed or determinable and (d) col-
lection is reasonably assured. Fund placement fees are rec-
ognized as earned upon the acceptance by a fund of capital or
capital commitments.
Accrued but unpaid Management and Advisory Fees, net of
management fee reductions and management fee offsets, as
ofthereportingdate,areincludedinAccountsReceivableorDue
FromAf liatesintheConsolidatedandCombinedStatementsof
FinancialCondition.
Performance Fees and Allocations –Performancefeesearned
on the performance of Blackstone’s hedge fund structures are
recognized based on fund performance during the period, sub-
jecttotheachievementofminimumreturnlevels,orhighwater
marks, in accordance with the respective terms set out in each
hedgefundinvestmentadvisoryagreement.Accruedbutunpaid
performance fees charged directly to investors in Blackstone’s
offshore hedge funds as of the reporting date are recorded
within Due from Af liates in the Consolidated and Combined
Statements of Financial Condition. Performance fees arising
on Blackstone’s onshore hedge funds are allocated to the gen-
eral partner. Accrued but unpaid performance fees on onshore
fundsasofthereportingdatearere?ectedinInvestmentsinthe
ConsolidatedandCombinedStatementsofFinancialCondition.
In certain fund structures, specifically in private equity,
real estate and certain credit-oriented funds (“Carry Funds”),
performance fees (“Carried Interest”) are allocated to the gen-
eral partner based on cumulative fund performance to date,
subject to a preferred return to limited partners. At the end of
each reporting period, the Partnership calculates the Carried
Interest that would be due to the Partnership for each fund,
pursuanttothefundagreements,asifthefairvalueoftheunder-
lying investments were realized as of such date, irrespective
ofwhethersuchamountshavebeenrealized.Asthefairvalueof
underlying investments varies between reporting periods, it is
necessarytomakeadjustmentstoamountsrecordedasCarried
Interesttore?ecteither(a) positiveperformanceresultinginan
increaseintheCarriedInterestallocatedtothegeneralpartner
or (b) negative performance that would cause the amount due
to the Partnership to be less than the amount previously recog-
nized as revenue resulting in a negative adjustment to Carried
Interest allocated to the general partner. In each scenario, it is
necessarytocalculatetheCarriedInterestoncumulativeresults
compared to the Carried Interest recorded to date and make
the required positive or negative adjustments. The Partnership
ceases to record negative Carried Interest allocations once pre-
viously recognized Carried Interest allocations for such fund
have been fully reversed. The Partnership is not obligated to
pay guaranteed returns or hurdles, and therefore, cannot have
negative Carried Interest over the life of a fund. Accrued but
unpaid Carried Interest as of the reporting date is re?ected in
65
Investments in the Consolidated and Combined Statements of
FinancialCondition.
Carriedinterestisrealizedwhenanunderlyinginvestmentis
pro?tably disposed of and the fund’s cumulative returns are in
excessofthepreferredreturn.Performancefeesearnedonhedge
fund structures are realized at the end of each fund’s measure-
mentperiod.
Carried Interest is subject to clawback to the extent that
the Carried Interest actually distributed to date exceeds the
amount due to Blackstone based on cumulative results. As
such,theaccrualforpotentialrepaymentofpreviouslyreceived
performance fees and allocations, which is a component of Due
to Af liates, represents all amounts previously distributed to
Blackstone Holdings and non-controlling interest holders that
wouldneedtoberepaidtotheBlackstoneFundsiftheBlackstone
CarryFundsweretobeliquidatedbasedonthecurrentfairvalue
of the underlying funds’ investments as of the reporting date.
Theactualclawbackliability,however,doesnotbecomerealized
until the end of a fund’s life or one year after a realized loss is
incurred,dependingonthefund.
Investment Income (Loss) – Investment Income (Loss) rep-
resents the unrealized and realized gains and losses on the
Partnership’s principal investments, including its investments
inBlackstoneFundsthatarenotconsolidated,itsequitymethod
investments, and other principal investments. Investment
Income (Loss) is realized when the Partnership redeems all or
a portion of its investment or when the Partnership receives
cash income, such as dividends or distributions, from its non-
consolidated funds. Unrealized Investment Income (Loss)
results from changes in the fair value of the underlying invest-
mentaswellasthereversalofunrealizedgain(loss)atthetime
aninvestmentis realized.
Interest and Dividend Revenue – Interest and Dividend
Revenue comprises primarily interest and dividend income
earnedonprincipalinvestmentsheldbyBlackstone.
Other Revenue –OtherRevenuecomprisesprimarilyforeign
exchange gains and losses arising on transactions denominated
incurrenciesotherthanU.S.dollars.
Fair Value of Financial Instruments
GAAP establishes a hierarchal disclosure framework which
prioritizes and ranks the level of market price observability
used in measuring ?nancial instruments at fair value. Market
price observability is afected by a number of factors, including
thetypeof?nancialinstrument,thecharacteristicsspeci?ctothe
?nancial instrument and the state of the marketplace, includ-
ing the existence and transparency of transactions between
market participants. Financial instruments with readily
available quoted prices in active markets generally will have a
higherdegreeofmarketpriceobservabilityandalesserdegreeof
judgmentusedinmeasuringfairvalue.
Financial instruments measured and reported at fair value
are classi?ed and disclosed based on the observability of inputs
usedinthedeterminationoffairvalues,asfollows:
• Level I – Quoted prices are available in active markets for
identical ?nancial instruments as of the reporting date. The
typeof?nancialinstrumentsinLevelIincludelistedequities
and listed derivatives. 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
impactthequotedprice.
• LevelII–Pricinginputsareotherthanquotedpricesinactive
markets,whichareeitherdirectlyorindirectlyobservableas
of the reporting date, and fair value is determined through
theuseofmodelsorothervaluationmethodologies.Financial
instruments which are generally included in this category
include corporate bonds and loans, less liquid and restricted
equitysecurities,certainover-the-counterderivativeswhere
thefairvalueisbasedonobservableinputs,andcertainfund
ofhedgefundsinvestmentsinwhichBlackstonehastheabil-
ity to redeem its investment at net asset value at, or within
threemonthsof,thereportingdate.
• Level III – Pricing inputs are unobservable for the ?nancial
instruments and includes situations where there is little, if
any, market activity for the ?nancial instrument. The inputs
into the determination of fair value require signi?cant man-
agement judgment or estimation. Financial instruments
that are included in this category generally include general
and limited partnership interests in private equity and real
estate funds, credit-oriented funds, distressed debt and non-
investmentgraderesidualinterestsinsecuritizations,collat-
eralizedloanobligations,certainoverthecounterderivatives
wherethefairvalueisbasedonunobservableinputsandcer-
tainfundsofhedgefundswhichusenetassetvaluepershare
todeterminefairvalueinwhichBlackstonemaynothavethe
abilitytoredeemitsinvestmentatnetassetvalueat,orwithin
threemonthsof,thereportingdate.Blackstonemaynothave
the ability to redeem its investment at net asset value at, or
withinthreemonthsof,thereportingdateifaninvesteefund
manager has the ability to limit the amount of redemptions,
and/or the ability to side-pocket investments, irrespective of
whethersuchabilityhasbeenexercised.
Incertaincases,theinputsusedtomeasurefairvaluemayfall
intodiferentlevelsofthefairvaluehierarchy.Insuchcases,the
66 TheBlackstoneGroup AnnualReport2009
determinationofwhichcategorywithinthefairvaluehierarchy
is appropriate for any given financial instrument is based on
thelowestlevelofinputthatissigni?canttothefairvaluemea-
surement. The Partnership’s assessment of the signi?cance of
a particular input to the fair value measurement in its entirety
requiresjudgmentandconsidersfactorsspeci?ctothe?nancial
instrument.
In certain cases, debt and equity securities are valued on
the basis of prices from an orderly transaction between market
participantsprovidedbyreputabledealersorpricingservices.In
determining the value of a particular investment, pricing serv-
ices may use certain information with respect to transactions
in such investments, quotations from dealers, pricing matrices,
market transactions in comparable investments and various
relationshipsbetweeninvestments.
In the absence of observable market prices, Blackstone val-
ues its investments using valuation methodologies applied on a
consistentbasis.Forsomeinvestmentslittlemarketactivitymay
exist; management’s determination of fair value is then based
onthebestinformationavailableinthecircumstances,andmay
incorporate management’s own assumptions and involves a
signi?cantdegreeofjudgment,takingintoconsiderationacom-
binationofinternalandexternalfactors,includingtheappropri-
ate risk adjustments for non-performance and liquidity risks.
Investmentsforwhichmarketpricesarenotobservableinclude
private investments in the equity of operating companies, real
estatepropertiesorcertainfundsofhedgefunds.Thevaluation
techniqueforeachoftheseinvestmentsisdescribedbelow:
Private Equity Investments –Thefairvaluesofprivateequity
investments are determined by reference to projected net earn-
ings, earnings before interest, taxes, depreciation and amor-
tization (“EBITDA”), the discounted cash ?ow method, public
market or private transactions, valuations for comparable com-
paniesandothermeasureswhich,inmanycases,areunaudited
at the time received. Valuations may be derived by reference
to observable valuation measures for comparable companies
or transactions (e.g., multiplying a key performance metric of
the investee company such as EBITDA by a relevant valuation
multiple observed in the range of comparable companies or
transactions), adjusted by management for diferences between
the investment and the referenced comparables, and in some
instancesbyreferencetooptionpricingmodelsorothersimilar
methods. Private equity investments may also be valued at cost
for a period of time after an acquisition as the best indicator
offairvalue.
Real Estate Investments – The fair values of real estate
investments,aredeterminedbyconsideringprojectedoperating
cash ?ows, sales of comparable assets, if any, and replacement
costs among other measures. The methods used to estimate the
fairvalueofrealestateinvestmentsincludethediscountedcash
?ow method and/or capitalization rates (“cap rates”) analysis.
Valuations may be derived by reference to observable valuation
measures for comparable companies or assets (e.g., multiply-
ing 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 diferences between the investment and the
referenced comparables, and in some instances by reference to
option pricing models or other similar methods. Additionally,
whereapplicable,projecteddistributablecash?owthroughdebt
maturity will also be considered in support of the investment’s
carryingvalue.
Funds of Hedge Funds – Blackstone Funds’ direct invest-
ments in funds of hedge funds (“Investee Funds”) are valued at
net asset value (“NAV”) per share of the Investee Fund. If the
Partnership determines, based on its own due diligence and
investment procedures, that NAV per share does not represent
fairvalue,thePartnershipwillestimatethefairvalueingoodfaith
andinamannerthatitreasonablychooses,inaccordancewithits
valuation policies.
Credit-Oriented Investments – The fair values of credit-
oriented investments are generally determined on the basis
of prices between market participants provided by reputable
dealers or pricing services. In some instances, Blackstone may
utilizeothervaluationtechniques,includingthediscountedcash
?ow method.
Investments, at Fair Value
The Blackstone Funds are accounted for as investment compa-
nies under the AICPA Audit and Accounting Guide, Investment
Companies, and re?ect their investments, including majority-
ownedandcontrolledinvestments(the“PortfolioCompanies”),
at fair value. Blackstone has retained the specialized account-
ing for the consolidated Blackstone Funds. Thus, such con-
solidatedfunds’investmentsarere?ectedinInvestmentsonthe
Consolidated and Combined 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 Consolidated
and Combined Statements of Operations. Fair value is the
amountthatwouldbereceivedtosellanassetorpaidtotransfer
aliability,inanorderlytransactionbetweenmarketparticipants
atthemeasurementdate(i.e.,theexitprice).
67
Blackstone’s principal investments are presented at fair
valuewithunrealizedappreciationordepreciationandrealized
gains and losses recognized in the Consolidated and Combined
StatementsofOperationswithinInvestmentIncome(Loss).
For certain instruments, the Partnership has elected the
fair value option. Such election is irrevocable and is applied on
an investment by investment basis at initial recognition. The
Partnership has applied the fair value option for certain loans
and receivables and certain investments in private debt and
equitysecurities,thatotherwisewouldnothavebeencarriedat
fairvaluewithgainsandlossesrecordedinnetincometoconsis-
tentlyaccountforprincipalinvestmentsheldbythePartnership.
Loans extended to third parties are recorded within Accounts
ReceivablewithintheConsolidatedandCombinedStatementsof
FinancialCondition.Debtandequitysecuritiesforwhichthefair
value option has been elected are recorded within Investments.
The methodology for measuring the fair value of such invest-
ments is consistent with the methodology applied to private
equity, real estate, credit-oriented and funds of hedge funds
investments. Changes in the fair value of such instruments are
recognizedinInvestmentIncome(Loss)intheConsolidatedand
CombinedStatementsofOperations.Interestincomeoninterest
bearing loans and receivables and debt securities on which the
fairvalueoptionhasbeenelectedisbasedonstatedcouponrates
adjustedfortheaccretionofpurchasediscountsandtheamorti-
zation of purchase premiums. This interest income is recorded
within Interest and Dividend Revenue. Further disclosure on
instruments for which the fair value option has been elected is
presentedinNote7“FairValueOption”totheConsolidatedand
CombinedFinancialStatements.
Securitiestransactionsarerecordedonatradedatebasis.
Equity Method Investments
Investments where the Partnership is deemed to exert signi?-
cantin?uence,butnotcontrol,areaccountedforusingtheequity
method of accounting. Under the equity method of account-
ing, the Partnership’s share of earnings (losses) from equity
method investments is included in Investment Income in the
ConsolidatedandCombinedStatementsofOperations.Thecar-
rying amounts of equity method investments are reflected in
Investments in the Consolidated and Combined Statements of
FinancialCondition.
ThePartnershipevaluatesitsequitymethodinvestmentsfor
impairment whenever events or changes in circumstances indi-
cate that the carrying amounts of such investments may not be
recoverable. The diference between the carrying value and its
estimated fair value is recognized as impairment when the loss
isdeemedotherthantemporary.
Cash and Cash Equivalents
Cash and cash equivalents represents cash on hand, cash held
in banks and liquid investments with original maturities of
three monthsorless.Interestincomefromcashandcashequiv-
alents is recorded in Interest and Dividend Revenue in the
ConsolidatedandCombinedStatementsofOperations.
Cash Held By Blackstone Funds and Other
Cash held by Blackstone Funds and Other represents cash and
cashequivalentsheldbyconsolidatedBlackstoneFundsandother
consolidated entities. Such amounts are not available to fund the
generalliquidityneedsofBlackstone.
Accounts Receivable
Accounts Receivable includes management fees receivable
from limited partners, receivables related to the redemption
of Partnership interests from underlying funds in the fund of
hedge funds business, placement and advisory fees receiv-
ables,andloansextendedtounaf liatedthirdparties.Accounts
Receivable, excluding those for which the fair value option has
beenelected,areassessedperiodicallyforcollectibility.Amounts
determined to be uncollectible are charged directly to General,
Administrative and Other Expenses in the Consolidated and
CombinedStatementsofOperations.
Intangibles and Goodwill
Blackstone’s intangible assets consist of contractual rights to
earnfuturefeeincome,includingmanagementandadvisoryfees
and Carried Interest from its Carry Funds. Identi?able ?nite-
livedintangibleassetsareamortizedonastraightlinebasisover
theirestimatedusefullives,rangingfrom5to20years,re?ecting
the contractual lives of such funds. The Partnership does not
holdanyinde?nite-livedintangibleassets.
GoodwillcomprisesgoodwillarisingfromtheReorganization
of the Partnership in 2007 and the acquisition of GSO in 2008
(seeNote1“Organization”).
Intangiblesandgoodwillarereviewedforimpairmentatleast
annually, or more frequently if circumstances indicate impair-
mentmayhaveoccurred.
Furniture, Equipment and Leasehold Improvements
Furniture, equipment and leasehold improvements consist pri-
marilyofleaseholdimprovements,furniture,?xturesandequip-
ment,computerhardwareandsoftwareandarerecordedatcost
68 TheBlackstoneGroup AnnualReport2009
less accumulated depreciation and amortization. Depreciation
and amortization are calculated using the straight line method
over the assets’ estimated useful economic lives, which for
leasehold improvements are the lesser of the lease terms or the
lifeoftheasset,generally?fteenyears,andthreetosevenyears
for other fixed assets. The Partnership evaluates long-lived
assets for impairment whenever events or changes in circum-
stances indicate that the carrying amount of an asset may not
be recoverable.
Derivative Instruments
The Partnership recognizes all derivatives as assets or liabili-
ties on its Consolidated and Combined Statements of Financial
Conditionatfairvalue.OnthedatethePartnershipentersintoa
derivativecontract,itdesignatesanddocumentseachderivative
contractasoneofthefollowing
a) ahedgeofarecognizedasset
orliability(“fairvaluehedge”);(b) ahedgeofaforecastedtrans-
action or of the variability of cash ?ows to be received or paid
relatedtoarecognizedassetorliability(“cash?owhedge”);(c) a
hedgeofanetinvestmentinaforeignoperation;or(d) aderiva-
tive instrument not designated as a hedging instrument (“free
standingderivative”).Forafairvaluehedge,Blackstonerecords
changesinthefairvalueofthederivativeand,totheextentthat
itishighlyefective,changesinthefairvalueofthehedgedasset
or liability attributable to the hedged risk, in current period
earningsinthesamecaptionintheConsolidatedandCombined
StatementsofOperationsasthehedgeditem.Changesinthefair
value of derivatives designated as hedging instruments caused
byfactorsotherthanchangesintheriskbeinghedged,whichare
excluded from the assessment of hedge efectiveness, are recog-
nized in current period earnings. For free standing derivative
contracts,thePartnershippresentschangesinfairvalueincur-
rentperiodearnings.
The Partnership formally documents at inception its hedge
relationships, including identification of the hedging instru-
ments and the hedged items, its risk management objec-
tives, strategy for undertaking the hedge transaction and the
Partnership’s evaluation of effectiveness of its hedged trans-
action. On a monthly basis, the Partnership also formally
assesses whether the derivative it designated in each hedging
relationship is expected to be, and has been, highly efective in
ofsetting changes in estimated fair values or cash ?ows of the
hedged items using either the regression analysis or the dollar
ofset method. If it is determined that a derivative is not highly
efective at hedging the designated exposure, hedge accounting
isdiscontinued.
Foreign Currency
Inthenormalcourseofbusiness,thePartnershipmayenterinto
transactions not denominated in United States dollars. Foreign
exchange gains and losses arising on such transactions are
recordedasOtherintheConsolidatedandCombinedStatements
of Operations. In addition, the Partnership consolidates a num-
ber of entities that have a non-U.S. dollar functional currency.
Non-U.S. denominated assets and liabilities are translated to
U.S.dollarsattheexchangerateprevailingatthereportingdate
and income, expenses, gains and losses are translated at the
prevailing exchange rate on the dates that they were recorded.
Cumulative translation adjustments arising from the trans-
lationofnon-U.S.denominatedoperationsarerecordedinOther
ComprehensiveIncome.
Comprehensive Income
Comprehensive Income consists of Net Income and Other
ComprehensiveIncome.ThePartnership’sOtherComprehensive
Income is comprised of unrealized gains and losses on cash ?ow
hedgesandforeigncurrencycumulativetranslationadjustments.
Non-Controlling Interests in Consolidated Entities
Non-Controlling Interests in Consolidated Entities represent
thecomponentofPartner’sCapitalinconsolidatedentitiesheld
by third party investors. Such interests are adjusted for general
partner allocations and by subscriptions and redemptions in
funds of hedge funds and certain credit-oriented funds which
occur during the reporting period. Non-controlling interests
relatedtofundsofhedgefundsandcertainothercredit-oriented
funds are subject to annual, semi-annual or quarterly redemp-
tion by investors in these funds following the expiration of a
speci?edperiodoftime(typicallybetweenoneandthreeyears),
or may be withdrawn subject to a redemption fee in the funds
of hedge funds and certain credit-oriented funds during the
period when capital may not be withdrawn. As limited partners
in these types of funds have been granted redemption rights,
amounts relating to third party interests in such consolidated
funds are presented as Redeemable Non-Controlling Interests
inConsolidatedEntitieswithintheConsolidatedandCombined
Statements of Financial Condition. When redeemable amounts
becomelegallypayabletoinvestors,theyareclassi?edasaliabil-
ity and included in Accounts Payable, Accrued Expenses and
OtherintheConsolidatedandCombinedStatementsofFinancial
Condition.Forallconsolidatedfundsinwhichredemptionrights
have not been granted, non-controlling interests are presented
within Partner’s Capital in the Consolidated and Combined
69
StatementsofFinancialConditionasNon-ControllingInterests
inConsolidatedEntities.Whenfundsarerestructured,theyare
re?ectedasacashdistributionforcash?owpurposes.
Compensation and Bene?ts
Compensation and Bene?ts – Base Compensation – Base com-
pensation and bene?ts consists of (a) employee compensation,
comprising salary and bonus, and bene?ts paid and payable to
employees,includingseniormanagingdirectors,and(b) equity-
based compensation associated with the grants of equity-based
awardstoemployees,includingseniormanaging directors.
Equity-Based Compensation –Compensationcostrelatingto
theissuanceofshare-basedawardstoseniormanagingdirectors
andemployeesismeasuredatfairvalueatthegrantdate,taking
into consideration expected forfeitures, and expensed over the
vestingperiodonastraightlinebasis.Equity-basedawardsthat
do not require future service are expensed immediately. Cash
settled equity-based awards are classi?ed as liabilities and are
re-measuredattheendofeachreportingperiod.
Compensation and Benefits – Performance Fee Related –
Performance fee related compensation and bene?ts consists of
Carried Interest and performance fee allocations to employees,
including senior managing directors, participating in certain
pro?tsharinginitiatives.Employeesparticipatinginsuchinitia-
tivesareallocatedaportionofCarriedInterestandperformance
fees allocated to the general partner under performance fee
allocations (see “Revenue Recognition”). Such compensation
expense is recognized in the same manner as Carried Interest
and performance fee allocations and is subject to both positive
and negative adjustments as a result of changes in underlying
fundperformance.
Income Taxes
The Blackstone Holdings partnerships and certain of their
subsidiaries operate in the U.S. as partnerships for U.S. federal
incometaxpurposesandgenerallyascorporateentitiesinnon-
U.S. jurisdictions. Accordingly, these entities in some cases
are subject to New York City unincorporated business taxes or
non-U.S.incometaxes.Inaddition,certainofthewholly-owned
subsidiaries of the Partnership and the Blackstone Holdings
partnershipswillbesubjecttofederal,stateandlocalcorporate
income taxes at the entity level and the related tax provision
attributabletothePartnership’sshareofthisincomeisre?ected
intheconsolidatedandcombined?nancialstatements.
Income taxes are accounted for using the liability method of
accounting.Underthismethod,deferredtaxassetsandliabilities
are recognized for the expected future tax consequences of dif-
ferences between the carrying amounts of assets and liabilities
andtheirrespectivetaxbasis,usingcurrentlyenactedtaxrates.
The efect on deferred assets and liabilities of a change in tax
rates is recognized in income in the period when the change is
enacted. Deferred tax assets are reduced by a valuation allow-
ancewhenitismorelikelythannotthatsomeportionorallofthe
deferredtaxassetswillnotberealized.
Blackstone analyzes its tax ?ling positions in all of the U.S.
federal,stateandforeigntaxjurisdictionswhereitisrequiredto
?le income tax returns, as well as for all open tax years in these
jurisdictions. If, based on this analysis, the Partnership deter-
minesthatuncertaintiesintaxpositionsexist,areserveisestab-
lished. Blackstone recognizes accrued interest and penalties
related to uncertain tax positions in General, Administrative,
and Other expenses within the Consolidated and Combined
Statementsof Operations.
Taxlawsarecomplexandsubjecttodiferentinterpretations
bythetaxpayerandrespectivegovernmentaltaxingauthorities.
Signi?cantjudgmentisrequiredindeterminingtaxexpenseand
in evaluating tax positions, including evaluating uncertainties
under GAAP. Blackstone reviews its tax positions quarterly and
adjustsitstaxbalancesasnewinformationbecomesavailable.
Earnings Per Unit
Blackstone calculates basic and diluted earnings per unit using
the two class method, which requires an entity to include non-
vested share-based payment awards that have non-forfeitable
rightstodividendsordividendequivalentsasaseparateclassof
securitiesinsuchcalculation.Basicearningsperunitarecalcu-
latedbydividingtotalundistributedlossbytheweighted-average
numberofcommonunitsoutstanding,includingunvestedequity
awards.Dilutedearningsperunitexcludetheanti-dilutiveefect
of unvested deferred restricted common units and Blackstone
HoldingsPartnershipUnits.
Recent Accounting Developments
Effective January 1, 2009, the Partnership adopted account-
ing guidance issued by the Financial Accounting Standards
Board (“FASB”) on business combinations. The guidance
requires the acquiring entity in a business combination, for
whichtheacquisitiondateisonorafterJanuary 1,2009,torec-
ognize the full fair value of assets, liabilities, contingencies and
70 TheBlackstoneGroup AnnualReport2009
contingent consideration obtained in the transaction (whether
for a full or partial acquisition); establishes the acquisition date
fair value as the measurement objective for all assets acquired
and liabilities assumed; requires expensing of most transac-
tion and restructuring costs; and requires the acquirer to dis-
close to investors and other users all of the information needed
to evaluate and understand the nature and financial effect of
the business combination. The guidance applies to all trans-
actionsorothereventsinwhichthePartnershipobtainscontrol
of one or more businesses, including those sometimes referred
to as “true mergers” or “mergers of equals” and combinations
achieved without the transfer of consideration, for example, by
contract alone or through the lapse of minority veto rights. The
Partnership did not enter into any business combination trans-
actionsduringtheyearendedDecember 31,2009.
Effective January 1, 2009, the Partnership adopted guid-
ance on the accounting and financial statement presentation
of non-controlling (minority) interests. The guidance requires
reporting entities to present non-redeemable non-controlling
(minority)interestsasequity(asopposedtoaliabilityormezza-
nineequity)andprovidesguidanceontheaccountingfortrans-
actions between an entity and non-controlling interest holders.
Asaresultofadoption,(a) withrespecttotheConsolidatedand
Combined Statements of Financial Condition, the Redeemable
Non-ControllingInterestsinConsolidatedEntitieswasrenamed
as such and remained classi?ed as mezzanine equity, and the
non-redeemable Non-Controlling Interests in Consolidated
Entities and Non-Controlling Interests in Blackstone Holdings
have been reclassified as components of Partners’ Capital,
(b) with respect to the Consolidated and Combined Statements
of Operations, Net Income (Loss) is now presented before non-
controlling interests, the Net Income (Loss) attributable to
the three categories of non-controlling interests discussed in
(a) above are now presented separately, and the Consolidated
and Combined Statements of Operations now net to Net
Income (Loss) Attributable to The Blackstone Group L.P., and
(c) with respect to the Consolidated and Combined Statements
of Changes in Partners’ Capital, roll forward columns have
now been added for each component of non-controlling inter-
ests discussed in (a) above. The presentation and disclosure
requirements have been applied retrospectively for all periods
presentedinaccordancewiththeissuedguidance.Theguidance
alsoclari?esthescopeofaccountingandreportingfordecreases
inownershipofasubsidiarytoincludegroupsofassetsthatcon-
stituteabusiness.Thescopeclari?cationdidnothaveamaterial
impactonthePartnership’s?nancial statements.
Effective January 1, 2009, the Partnership adopted guid-
ance issued by the Emerging Issues Task Force (“EITF”) on the
applicationofthetwo-classsharemethodofearningspershare
asappliedtomasterlimitedpartnerships.Theguidanceapplies
to master limited partnerships that make incentive equity
distributions. The Partnership has applied the guidance on a
retrospective basis and has presented earnings per unit based
on the two-class share method for all periods presented. The
adoption did not have a material impact on the Partnership’s
?nancial statements.
Effective January 1, 2009, the Partnership adopted guid-
ance issued by the FASB regarding disclosures about derivative
instrumentsandhedgingactivities.Thepurposeoftheguidance
is to improve ?nancial reporting of derivative instruments and
hedging activities. The guidance requires enhanced disclosures
to enable investors to better understand how those instru-
ments and activities are accounted for, how and why they are
used and their efects on an entity’s ?nancial position, ?nancial
performance and cash flows. The adoption resulted in addi-
tionalrequireddisclosuresrelatingtoderivativeinstrumentsas
presented in Note 6 “Derivative Financial Instruments” of the
Partnership’s?nancialstatements.
Efective January 1, 2009, the Partnership adopted guidance
on the determination of the useful life of intangible assets. The
guidanceamendsthefactorsanentityshouldconsiderindevel-
oping renewal or extension assumptions used in determining
theusefullifeofrecognizedintangibleassets.Thenewguidance
applies prospectively to (a) intangible assets that are acquired
individually or with a group of other assets and (b) both intan-
gible assets acquired in business combinations and asset acqui-
sitions. The adoption of the guidance did not have a material
impactonthePartnership’s?nancialstatements.
71
During2009,thePartnershipadoptedguidanceissuedbythe
FASB on determining fair value when the volume and level of
activity for the asset or liability has signi?cantly decreased and
identifying transactions that are not orderly. Adoption did not
haveamaterialimpactonthePartnership’s?nancial statements.
During 2009, the Partnership adopted guidance on interim
disclosures about fair value of ?nancial instruments. Such dis-
closureswerepreviouslyrequiredonlyinannual?nancialstate-
ments.Theadoptionoftheguidanceresultedintheinclusionof
interim financial statement disclosures which had previously
beenannual.
During 2009, the Partnership adopted guidance on subse-
quentevents.Theguidanceisintendedtoestablishgeneralstan-
dardsofaccountingforanddisclosureofeventsthatoccurafter
thebalancesheetdatebutbefore?nancialstatementsareissued
orareavailabletobeissued.Theadoptionresultedinadditional
disclosureregardingsubsequenteventsaspresentedinNote 20
“SubsequentEvents”ofthePartnership’s?nancialstatements.
During 2009, the Partnership adopted guidance issued by
the FASB on the Accounting Standards Codification and the
hierarchy of generally accepted accounting principles which
established the FASB Standards Accounting Codification
(“Codi?cation”)asthesourceofauthoritativeGAAPrecognized
bytheFASBtobeappliedtonongovernmentalentities,andrules
and interpretive releases of the SEC as authoritative GAAP for
SEC registrants. The Codification supersedes all the existing
non-SECaccountingandreportingstandardsandsubsequently,
theFASBwillnotissuenewstandardsintheformofStatements,
FASB Staf Positions or Emerging Issues Task Force Abstracts.
This guidance also replaces the prior guidance regarding the
GAAP hierarchy, given that once in efect, the guidance within
the Codi?cation will carry the same level of authority. As the
guidance is limited to disclosures in the consolidated ?nancial
statements and the manner in which the Partnership refers to
GAAP authoritative literature, adoption did not have a material
impactonthePartnership’s?nancialstatements.
During 2009, the Partnership adopted guidance issued by
theFASBonthemeasurementofthefairvalueofliabilities.The
guidance provides clari?cation that in circumstances in which
a quoted price in an active market for the identical liability is
notavailable,fairvaluemustbemeasuredusingvaluationtech-
niques that use the quoted price of the identical liability when
tradedasanasset,quotedpricesforsimilarliabilitiesorsimilar
liabilities when traded as assets or alternative valuation tech-
niques including an income approach or a market approach. In
addition, guidance is provided on the classi?cation of liabilities
measuredatfairvaluewithinthefairvaluehierarchy.Wherethe
fairvalueofaliabilityisbasedonaquotedpriceinanactivemar-
ketfortheidenticalliabilityoronthequotedpriceforanidenti-
calliabilitywhentradedasanassetinanactivemarketwithout
adjustmenttothequotedprice,thefairvaluemeasurementshall
be classified as Level I. The adoption did not have a material
impactonthePartnership’s?nancialstatements.
EfectiveJanuary 1,2009,thePartnershipadoptedguidanceissuedbytheFASBondeterminingwhetherinstrumentsgrantedin
share-basedpaymenttransactionsareparticipatingsecurities.Theguidanceaddresseswhetherinstrumentsgrantedinshare-based
paymenttransactionsareparticipatingsecuritiespriortovestingandthereforeneedtobeincludedintheearningsallocationincal-
culatingearningspershareunderthetwo-classmethodofcalculation.Theguidancerequiresentitiestotreatunvestedshare-based
payment awards that have non-forfeitable rights to dividends or dividend equivalents as a separate class of securities in calculating
earningspershare.Asaresultofadoption,thePartnershipincludesunvestedparticipatingBlackstoneCommonUnitsasacomponent
ofCommonUnitsEntitledtoPriorityDistributions–Basicinthecalculationofearningspercommonunitforallperiodspresented,
due to their equivalent distribution rights as Blackstone Common Units. The impact of the adoption and retroactive application on
2008and2007wasasfollows:
Year Ended June 19, 2007 through
December 31, 2008 December 31, 2007
Originally Upon Originally Upon
Reported Adoption Reported Adoption
Net Loss Per Common Unit – Basic and Diluted
CommonUnitsEntitledtoPriorityDistributions $(4.36) $(4.32) $(1.29) $(1.28)
CommonUnitsNotEntitledtoPriorityDistributions $(3.09) $(3.06) N/A N/A
72 TheBlackstoneGroup AnnualReport2009
During 2009, the Partnership adopted implementation
guidance issued by the FASB on accounting for uncertainty in
incometaxes.Theupdatedguidanceconsidersanentity’sasser-
tionthatitisatax-exemptnotforpro?torapassthroughentity
as a tax position that requires evaluation. In addition, the guid-
ance provided implementation guidance on the attribution of
income taxes to entities and owners. The adoption of the guid-
ance did not have a material impact on the Partnership’s ?nan-
cialstatements.
In September 2009, the FASB issued guidance on fair value
measurements and disclosures relating to investments in cer-
tainentitiesthatcalculatenetassetvalue(“NAV”)pershare(or
its equivalent). The guidance permits, as a practical expedient,
an entity holding investments in certain entities that either
are investment companies as de?ned by the AICPA Audit and
Accounting Guide, Investment Companies, or have attributes
similartoaninvestmentcompany,andcalculatenetassetvalue
pershareoritsequivalentforwhichthefairvalueisnotreadily
determinable, to measure the fair value of such investments on
thebasisofthatNAVpershare,oritsequivalent,withoutadjust-
ment. The guidance also requires disclosure of the attributes
of investments within the scope of the guidance by major cat-
egory of investment. Such disclosures include the nature of any
restrictions on an investor’s ability to redeem its investments
at the measurement date, any unfunded commitments and the
investment strategies of the investee. Additional guidance is
provided on the classification of investments for which NAV
is used to measure fair value within the fair value hierarchy.
If an entity has the ability to redeem its investment at net
assetvalueatthemeasurementdateorwithinthenearterm,the
fair value measurement of the investment shall be categorized
asaLevelIIfairvaluemeasurement.Ifanentitydoesnotknow
when it will have the ability to redeem its investment or can-
not do so in the near term, the fair value measurement of the
investmentshallbecategorizedasaLevelIIIfairvaluemeasure-
ment. The guidance is efective for interim and annual periods
ending after December 15, 2009. The Partnership has adopted
the guidance effective with the issuance of its December 31,
2009 ?nancial statements with additional disclosure require-
mentspresentedinNote5“NetAssetValueasFairValue”ofthe
Partnership’s?nancialstatements.
In June 2009, the FASB issued amended guidance on issues
related to variable interest entities (“VIEs”). The amend-
ments will signi?cantly afect the overall consolidation analy-
sis, changing the approach taken by companies in identifying
which entities are VIEs and in determining which party is the
primary bene?ciary. The guidance requires continuous assess-
ment of the reporting entity’s involvement with such VIEs. The
revised guidance also enhances the disclosure requirements
for a reporting entity’s involvement with VIEs, irrespective of
whether they qualify for deferral, as noted below. The guidance
isefectiveasofthebeginningofthe?rst?scalyearthatbegins
after November 15, 2009 and early adoption is prohibited. In
February 2010, the FASB issued further guidance which pro-
videdalimitedscopedeferralforareportingentity’sinterestin
an entity that met all of the following conditions: (a) the entity
hasalltheattributesofaninvestmentcompanyasde?nedunder
AICPA Audit and Accounting Guide, Investment Companies, or
does not have all the attributes of an investment company but
isanentityforwhichitisacceptablebasedonindustrypractice
to apply measurement principles that are consistent with the
AICPA Audit and Accounting Guide, Investment Companies,
(b) thereportingentitydoesnothaveexplicitorimplicitobliga-
tions to fund any losses of the entity that could potentially be
significant to the entity, and (c) the entity is not a securitiza-
tion entity, asset-backed ?nancing entity or an entity that was
formerly considered a qualifying special-purpose entity. The
reporting entity is required to perform a consolidation analysis
forentitiesthatqualifyforthedeferralinaccordancewithprevi-
ously issued guidance on variable interest entities. Blackstone’s
involvement with its funds is such that all three of the above
conditions are met with the exception of certain CLO vehicles
which fail condition (c) above and certain funds in which lever-
agedemployeeinterestsindedicatedfundsare?nancedbythird
partieswithBlackstoneactingasanintermediarywhichfailcon-
dition(b) above.Suchemployeefundsarecurrentlyconsolidated
asitisconcludedthatBlackstoneistheprimarybene?ciarybased
on its implicit interest. The incremental impact of the revised
consolidation rules will result in the consolidation of certain
CLO vehicles managed by Blackstone. The impact of consolida-
tionofsuchvehiclesisexpectedtohaveamaterialimpactonthe
ConsolidatedandCombinedStatementsofFinancialCondition.
BasedonthefairvalueofCLOassetsandliabilitiesofimpacted
CLO vehicles managed by Blackstone as of January 1, 2010, the
assets and liabilities of Blackstone would have increased by
approximately$3.7 billionand$3.3 billion, respectively.
InJanuary2010,theFASBissuedguidanceonimprovingdis-
closures about fair value measurements. The guidance requires
additionaldisclosureontransfersinandoutofLevelsIand IIfair
valuemeasurementsinthefairvaluehierarchyandthereasons
forsuchtransfers.Inaddition,forfairvaluemeasurementsusing
signi?cant unobservable inputs (Level III), the reconciliation
73
of beginning and ending balances shall be presented on a gross
basis, with separate disclosure of gross purchases, sales, issu-
ancesandsettlementsandtransfersinandtransfersoutofLevel
III.Thenewguidancealsorequiresenhanceddisclosuresonthe
fair value hierarchy to disaggregate disclosures by each class of
assetsandliabilities.Inaddition,anentityisrequiredtoprovide
further disclosures on valuation techniques and inputs used to
measurefairvalueforfairvaluemeasurementsthatfallineither
Level II or Level III. The guidance is efective for interim and
annualperiodsbeginningafterDecember 15,2009,exceptforthe
disclosuresaboutpurchases,sales,issuances,andsettlementsin
therollforwardofactivityinLevelIIIfairvaluemeasurements,
whichareefectivefor?scalyearsbeginningafterDecember 15,
2010. As the guidance is limited to enhanced disclosures, the
impact of adoption is not expected to have a material impact on
thePartnership’s?nancialstatements.
3. acquisitions, goodwill and intangible assets
Acquisition of Non-Controlling Interests at Reorganization
PursuanttotheReorganizationtransactiondescribedinNote1,
thePartnershipacquiredinterestsinthepredecessorbusinesses
from the predecessor owners. These interests were acquired, in
part, through an exchange of Blackstone Holdings Partnership
Unitsand,inpart,throughthepaymentofcash.
This transaction has been accounted for partially as a trans-
fer of interests under common control and, partially, as an
acquisition of non-controlling interests. The vested Blackstone
Holdings Partnership Units received by the Control Group in
the Reorganization are re?ected in the consolidated and com-
bined ?nancial statements as non-controlling interests at the
historicalcostoftheintereststheycontributed,astheyarecon-
sideredtobetheControlGroupofthepredecessororganization.
The vested Blackstone Holdings Partnership Units received by
holdersnotincludedintheControlGroupintheReorganization
are accounted for using the purchase method of accounting
andre?ectedasnon-controllinginterestsintheconsolidatedand
combined ?nancial statements at the fair value of the interests
contributed as these holders are not considered to have been in
the group controlling Blackstone prior to the Reorganization.
Additionally, ownership interests were purchased with pro-
ceeds from the IPO. The cash paid in excess of the cost basis of
the interests acquired from members of the Control Group has
beenchargedtoequity.Cashpaymentsrelatedtotheacquisition
of interests from holders outside of the Control Group has been
accountedforusingthepurchasemethodofaccounting.
ThetotalconsiderationpaidtoholdersoutsideoftheControl
Group was $2.79 billion and re?ected (a) 69,093,969 Blackstone
HoldingsPartnershipUnitsissuedintheexchange,thefairvalue
of which was $2.14 billion based on the initial public offering
price of $31.00 per common unit and (b) cash of $647.6 million.
Accordingly,thePartnershiphasre?ectedtheacquiredtangible
assetsatthefairvalueoftheconsiderationpaid.Theexcessofthe
purchasepriceoverthefairvalueofthetangibleassetsacquired
approximated $2.34 billion, the remaining balance of which
has been reported in Goodwill and Intangible Assets in the
Consolidated and Combined Statements of Financial Condition
as of December 31, 2009. The finite-lived intangible assets of
$876.3 millionre?ectthevalueascribedforthefuturefeeincome
relatingtocontractualrightsandclientorinvestorrelationships
for management, advisory and incentive fee arrangements as
well as for those rights and relationships associated with the
future carried interest income from the carry funds. The resid-
ualamountrepresentingthepurchasepriceinexcessoftangible
andintangibleassets(includingotherliabilitiesof$55.2 million)
is$1.52 billionandhasbeenrecordedasGoodwill.
During the quarter ended March 31, 2008, the Partnership
?nalized the purchase price allocation, including the determi-
nation of goodwill attributable to the reporting segments, as
providedinthetablebelow,fortheacquisitionofnon-controlling
interestsatReorganization.
PurchasePrice $2,789,469
Goodwill $1,516,720
Finite-LivedIntangibleAssets/ContractualRights 876,270
OtherLiabilities (55,158)
IncreasetoNon-ControllingInterests
inConsolidatedEntities 2,337,832
NetAssetsAcquired,atFairValue 451,637
PurchasePriceAllocation $2,789,469
Acquisition of GSO Capital Partners LP
In March 2008, the Partnership completed the acquisition of
GSOCapitalPartnersLPandcertainofitsaf liates(“GSO”).The
purchase consideration for GSO was $635 million, comprised of
$355 million in cash and $280 million in Blackstone Holdings
PartnershipUnits,plusuptoanadditionaltargeted$310 million
tobepaidoverthenext?veyears,contingentupontherealization
of speci?ed earnings targets over that period. The Partnership
alsoincurred$6.9 millionofacquisitioncosts.Additionally,per-
formance and other compensatory payments subject to perfor-
manceandvestingmaybepaidtoGSOpersonnel.
74 TheBlackstoneGroup AnnualReport2009
During November 2008, in settlement of the Partnership’s
obligation for the purchase of GSO to deliver Blackstone
Holdings Partnership Units valued at closing of $280 million,
thePartnershipdeliveredtocertainpredecessorownersofGSO
15.79 millionBlackstoneHoldingsPartnershipUnitswithavalue
at settlement of $118.6 million. The difference between the
valueatclosingandthevalueatsettlementresultedina$14.3 mil-
lion credit to the Partnership’s capital, re?ecting the dilution of
the Partnership’s interest in Holdings from approximately 25%
toapproximately24.6%.
The ?nal purchase price allocation for the GSO acquisition
wasasfollows:
PurchasePrice $641,894
Finite-LivedIntangibleAssets/ContractualRights $472,100
Goodwill 186,882
OtherLiabilities (17,650)
NetAssetsAcquired,atFairValue 562
PurchasePriceAllocation $641,894
The Consolidated and Combined Statements of Operations
for the year ended December 31, 2008 includes the results of
GSO’s operations from the date of acquisition, March 3, 2008,
throughDecember 31,2008.
Supplemental information on an unaudited pro forma basis,
asiftheGSOacquisitionhadbeenconsummatedasofJanuary 1,
2008andJanuary 1,2007,respectively,isasfollows:
Years Ended December 31,
(Unaudited) 2008 2007
TotalRevenues $ (324,010) $3,213,056
NetIncome(Loss) $(1,168,836) $ (468,232)
NetLossperCommonUnit–Basicand
DilutedCommonUnitsEntitled
toPriorityDistributions $ (4.34) $ (1.78)
CommonUnitsNotEntitledto
PriorityDistributions $ (3.06)
The unaudited pro forma supplemental information is
based on estimates and assumptions, which the Partnership
believes are reasonable; it is not necessarily indicative of the
Partnership’s Consolidated and Combined Financial Condition
orStatementsofOperationsinfutureperiodsortheresultsthat
actuallywouldhavebeenrealizedhadthePartnershipandGSO
beenacombinedentityduringtheperiodspresented.
Goodwill and Intangible Assets
Thecarryingvalueofgoodwillwas$1.7 billionasofDecember 31,
2009 and December 31, 2008. Total goodwill has been allo-
cated to each of the Partnership’s segments as follows: Private
Equity ($694.5 million); Real Estate ($421.7 million); Credit
and Marketable Alternatives ($518.5 million); and Financial
Advisory ($68.9 million). Goodwill has been tested for impair-
ment.Noimpairmenthasbeenidenti?ed.
The following table outlines changes to the carrying amount
ofIntangibleAssets,asofDecember 31,2009and2008:
December 31,
2009 2008
Finite-LivedIntangibleAssets/
ContractualRights $1,348,370 $1,348,370
AccumulatedAmortization (428,893) (270,844)
IntangibleAssets,Net $ 919,477 $1,077,526
Amortization expense associated with Blackstone’s intan-
gibleassetswas$158.0 million,$153.2 millionand$117.6 million
for the years ended December 31, 2009, 2008 and 2007, respec-
tively, and is included in General, Administrative and Other
in the accompanying Consolidated and Combined Statements
of Operations.
Amortization of intangible assets held at December 31, 2009
isexpectedtobeapproximately$158.0 millionintheyearsend-
ing December 31, 2010 and 2011 and $103.2 million, $51.7 mil-
lion, and $50.3 million in the years ending December 31, 2012,
2013 and 2014, respectively. Blackstone’s intangible assets as of
December 31, 2009 are expected to amortize over a weighted-
averageperiodof10years.
4. investments
Investments
Investmentsconsistsofthefollowing:
December 31,
2009 2008
InvestmentsofConsolidatedBlackstoneFunds $1,306,445 $1,556,261
EquityMethodInvestments 1,104,701 1,063,615
HighGradeLiquidDebtStrategies 534,777 –
PerformanceFeesandAllocations 554,463 147,421
OtherInvestments 65,097 63,645
$3,565,483 $2,830,942
75
Investments of Consolidated Blackstone Funds
ThefollowingtablepresentsacondensedsummaryoftheinvestmentsheldbytheconsolidatedBlackstoneFundsthatarereportedat
fairvalue.TheseinvestmentsarepresentedasapercentageofInvestmentsofConsolidatedBlackstoneFunds:
Percentage of
Investments
of Consolidated
Fair Value Blackstone Funds
Geographic Region/Instrument Type/Industry December 31, December 31, December 31, December 31,
Description or Investment Strategy 2009 2008 2009 2008
United States and Canada
InvestmentFunds,principallyrelatedtocreditandmarketablealternativefunds
CreditDriven $ 277,245 $ 695,620 21.3% 44.7%
Diversi?edInvestments 300,907 289,817 23.1% 18.6%
Equity 80,956 34,499 6.2% 2.2%
Other 408 648 – 0.1%
Event-Driven 95,760 55,216 7.4% 3.6%
InvestmentFundsTotal(Cost:2009–$803,771;2008–$1,283,697) 755,276 1,075,800 58.0% 69.2%
EquitySecurities,principallyrelatedtocreditandmarketablealternativesand
privateequityfunds
Manufacturing 21,491 17,782 1.7% 1.1%
Services 86,600 81,543 6.7% 5.2%
NaturalResources 649 551 – –
RealEstateAssets 462 1,769 – 0.1%
EquitySecuritiesTotal(Cost:2009–$112,364;2008–$112,739) 109,202 101,645 8.4% 6.4%
PartnershipandLLCInterests,principallyrelatedto
privateequityandrealestatefunds
RealEstateAssets 149,523 103,453 11.5% 6.6%
Services 87,406 98,592 6.7% 6.3%
Manufacturing 25,691 23,599 2.0% 1.5%
NaturalResources 357 317 – –
CreditDriven 143 19,659 – 1.3%
PartnershipandLLCInterestsTotal(Cost:2009–$442,545;2008–$294,846) 263,120 245,620 20.2% 15.7%
DebtInstruments,principallyrelatedtocreditandmarketablealternativesfunds
CreditDriven 29,330 – 2.2% –
Manufacturing 3,203 4,251 0.2% 0.3%
Services 7,837 4,093 0.6% 0.3%
RealEstateAssets 2,458 485 0.2% –
DebtInstrumentsTotal(Cost:2009–$37,983;2008–$9,396) 42,828 8,829 3.2% 0.6%
United States and Canada Total (Cost: 2009 – $1,396,663; 2008 – $1,700,678) 1,170,426 1,431,894 89.3% 91.9%
Blackstone’sshareofInvestmentsofConsolidatedBlackstone
Fundstotaled$407.1 millionand$409.2 millionatDecember 31,
2009andDecember 31,2008,respectively.
AtDecember 31,2009andDecember 31,2008,consideration
was given as to whether any individual investment, including
derivative instruments, had a fair value which exceeded 5% of
Blackstone’s net assets. At December 31, 2009, no investments
exceeded the 5% threshold. At December 31, 2008, Blackport
CapitalFundLtd.hadafairvalueof$594.5 millionandwasthe
sole investment to exceed the 5% threshold. Blackport Capital
FundLtd.isheldbyaconsolidatedBlackstoneFeederFundand
representsitsinvestmentintoamasterfund.
76 TheBlackstoneGroup AnnualReport2009
Percentage of
Investments
of Consolidated
Fair Value Blackstone Funds
Geographic Region/Instrument Type/Industry December 31, December 31, December 31, December 31,
Description or Investment Strategy 2009 2008 2009 2008
Europe
EquitySecurities,principallyrelatedtocreditandmarketable
alternativesandprivateequityfunds
Manufacturing $ 2,681 $ 9,105 0.2% 0.6%
RealEstateAssets 365 – – –
Services 31,711 29,635 2.4% 1.9%
EquitySecuritiesTotal(Cost:2009–$40,353;2008–$45,295) 34,757 38,740 2.6% 2.5%
PartnershipandLLCInterests,principallyrelatedto
privateequityandrealestatefunds
Services 29,270 31,572 2.2% 2.0%
RealEstateAssets 10,741 13,674 0.8% 0.9%
PartnershipandLLCInterestsTotal(Cost:2009–$48,334;2008–$46,104) 40,011 45,246 3.0% 2.9%
DebtInstruments,principallyrelatedtocreditandmarketablealternativesfunds
Manufacturing 544 187 – –
Services 1,259 – 0.1% –
DebtInstrumentsTotal(Cost:2009–$1,624;2008–$1,256) 1,803 187 0.1% –
Europe Total (Cost: 2009 – $90,311; 2008 – $92,655) 76,571 84,173 5.7% 5.4%
Asia
EquitySecurities,principallyrelatedtocreditandmarketable
alternativesandprivateequityfunds
Services 8,031 11,201 0.6% 0.8%
Manufacturing 10,501 8,654 0.8% 0.6%
NaturalResources – 442 – –
RealEstateAssets – 368 – –
Diversi?edInvestments 6,262 – 0.5% –
EquitySecuritiesTotal(Cost:2009–$20,794;2008–$22,155) 24,794 20,665 1.9% 1.4%
PartnershipandLLCInterests,principallyrelatedto
privateequityandrealestatefunds
Manufacturing 1,183 1,184 0.1% 0.1%
RealEstateAssets 457 707 – –
Services 82 45 – –
PartnershipandLLCInterestsTotal(Cost:2009–$1,833;2008–$1,811) 1,722 1,936 0.1% 0.1%
DebtInstruments,principallyrelatedtocreditand
marketablealternativesfunds(Cost:2009–$114;2008–$256) 111 151 – –
Asia Total (Cost: 2009 – $22,741; 2008 – $24,222) 26,627 22,752 2.0% 1.5%
77
Percentage of
Investments
of Consolidated
Fair Value Blackstone Funds
Geographic Region/Instrument Type/Industry December 31, December 31, December 31, December 31,
Description or Investment Strategy 2009 2008 2009 2008
Other
EquitySecurities,principallyrelatedtoprivateequityfunds
NaturalResources $ 1,583 $ 1,022 0.1% 0.1%
Services 4,560 2,737 0.3% 0.3%
EquitySecuritiesTotal(Cost:2009–$2,777;2008–$2,606) 6,143 3,759 0.4% 0.4%
PartnershipandLLCInterests,principallyrelatedtoprivate
equityandrealestatefunds
NaturalResources 26,586 13,599 2.0% 0.9%
Services 92 84 – 0.1%
PartnershipandLLCInterestsTotal(Cost:2009–$9,249;2008–$5,063) 26,678 13,683 2.0% 1.0%
Other Total (Cost: 2009 – $12,026; 2008 – $7,669) 32,821 17,442 2.5% 1.2%
Total Investments of Consolidated Blackstone Funds
(Cost: 2009 – $1,521,741; 2008 – $1,825,224) $1,306,445 $1,556,261 100.0% 100.0%
NetGains(Losses)fromFundInvestmentActivitiesontheConsolidatedandCombinedStatementsofOperationsincludenetreal-
izedgains(losses)fromrealizationsandsalesofinvestmentsandthenetchangeinunrealizedgains(losses)resultingfromchangesin
thefairvalueoftheconsolidatedBlackstoneFunds’investments.Thefollowingtablepresentstherealizedandnetchangeinunreal-
izedgains(losses)oninvestmentsheldbytheconsolidatedBlackstoneFunds:
Year Ended December 31,
2009 2008 2007
RealizedGains(Losses) $(200,291) $(281,408) $3,509,318
NetChangeinUnrealizedGains(Losses) 342,870 (740,019) 2,796,235
$ 142,579 $(1,021,427) $6,305,553
ThefollowingreconcilestheRealizedandNetChangeinUnrealizedGains(Losses)fromBlackstoneFundspresentedabovetoOther
Income(Loss)–NetGains(Losses)fromFundInvestmentActivitiesintheConsolidatedandCombinedStatementsofOperations:
Year Ended December 31,
2009 2008 2007
RealizedandNetChangeinUnrealizedGains(Losses)fromBlackstoneFunds $142,579 $(1,021,427) $6,305,553
Reclassi?cationtoInvestmentIncome(Loss)andOtherAttributableto
BlackstoneSide-by-SideInvestmentVehicles (1,327) 52,975 (52,142)
Reclassi?cationtoPerformanceFeesandAllocationsandInvestmentIncome(Loss)and
OtherAttributabletoBlackstoneFundsPriortoDeconsolidation – – (1,184,457)
InterestandDividendIncomeandOtherAttributabletoConsolidatedBlackstoneFunds 35,442 96,116 354,178
OtherIncome–NetGains(Losses)fromFundInvestmentActivities $176,694 $(872,336) $5,423,132
78 TheBlackstoneGroup AnnualReport2009
Performance Fees and Allocations
Performance Fees and Allocations to the general partner in
respect of performance of certain Carry Funds, funds of hedge
fundsandcredit-orientedfundsareasfollows:
December 31,
2009 2008
PerformanceFeesandAllocations
PrivateEquity $425,615 $? 92,109
RealEstate 7,900 55,478
CreditandMarketableAlternatives 120,948 (166)
$554,463 $147,421
High Grade Liquid Debt Strategies
High Grade Liquid Debt Strategies represents the Partnership’s
liquid investments in government and other investment grade
securities,managedbythirdpartyinstitutions.ThePartnership
has managed its credit risk through diversi?cation of its invest-
ments among major financial institutions, all of which have
investmentgraderatings.
During the year ended December 31, 2009, the Partnership
recognized realized gains of $10.1 million and the net change in
unrealizedgainswas$1.8 million.
Equity Method Investments
The Partnership recognized net gains (losses) related to its equity method investments of $4.0 million, $(551.8) million, and
$163.5 millionfortheyearsendingDecember 31,2009,2008,and2007,respectively.
Blackstone’s equity method investments include its investments in private equity funds, real estate funds, funds of hedge funds
and credit-oriented funds, which are not consolidated but in which the Partnership exerts signi?cant in?uence. As of December 31,
2009 and 2008, no single equity method investment held by Blackstone exceeded 20% of its total consolidated assets. As such,
Blackstoneisnotrequiredtopresentseparate?nancialstatementsforanyofitsequitymethodinvestees.
Thesummarized?nancialinformationofthefundsinwhichthePartnershiphasanequitymethodinvestmentisasfollows:
December 31, 2009 and the Year Then Ended
Credit and
Marketable
Private Equity Real Estate Alternatives Total
StatementofFinancialCondition
Assets
Investments $18,237,938 $7,862,872 $15,857,948 $41,958,758
OtherAssets 169,200 528,337 3,124,038 3,821,575
TotalAssets $18,407,138 $8,391,209 $18,981,986 $45,780,333
LiabilitiesandPartners’Capital
Debt $ 455,862 $ 224,389 $ 1,312,893 $ 1,993,144
OtherLiabilities 56,957 115,059 2,053,134 2,225,150
TotalLiabilities 512,819 339,448 3,366,027 4,218,294
Partners’Capital 17,894,319 8,051,761 15,615,959 41,562,039
TotalLiabilitiesandPartners’Capital $18,407,138 $8,391,209 $18,981,986 $45,780,333
StatementofIncome
InterestIncome $19,480 $ 12,704 $580,188 $ 612,372
OtherIncome 26,828 133,599 68,472 228,899
InterestExpense (5,590) (5,391) (59,537) (70,518)
OtherExpenses (38,419) (36,794) (158,635) (233,848)
NetRealizedandUnrealizedGain(Loss)fromInvestments 1,775,403 (3,813,103) 3,118,916 1,081,216
NetIncome(Loss) $ 1,777,702 $(3,708,985) $ 3,549,404 $ 1,618,121
79
Other Investments
Other Investments consist primarily of investment securities held by Blackstone for its own account. The following table
presentsBlackstone’srealizedandnetchangeinunrealizedgains(losses)inotherinvestments:
Year Ended December 31,
2009 2008 2007
RealizedGains $2,032 $ (1,432) $10,050
NetChangeinUnrealizedGains(Losses) 6,164 (9,159) 2,803
$8,196 $(10,591) $12,853
5. net asset value as fair value
CertainoftheconsolidatedBlackstonefundsofhedgefundsandcredit-orientedfundsmeasuretheirinvestmentsinunderlyingfunds
atfairvalueusingNAVpersharewithoutadjustment.Thetermsoftheinvestees’partnershipagreementsandoferingmemoranda
generallyprovideforminimumholdingperiodsorlock-ups,theinstitutionofgatesonredemptionsorthesuspensionofredemptions,
atthediscretionoftheinvestee’sfundmanager,andasaresult,investmentsmaynotberedeemableat,orwithinthreemonthsof,the
reportingdate.Asummaryoffairvaluebystrategytypealongsidetheconsolidatedfundsofhedgefunds’remainingunfundedcom-
mitmentsandabilitytoredeemsuchinvestmentsasofDecember 31,2009ispresentedbelow:
Redemption
Frequency Redemption
Unfunded (if currently Notice
Strategy Fair Value Commitments eligible) Period
CreditDriven $274,153 $30,336
(a) (a)
Diversi?edInstruments 300,908 13,040
(b) (b)
Equity 80,956 –
(c) (c)
Other 95,759 –
(d) (d)
$751,776 $43,376
(a)
TheCreditDrivencategoryincludesinvestmentsinhedgefundsthatinvestprimarilyindomesticandinternationalbonds.Investmentsrepresenting34%ofthevalueoftheinvest-
mentsinthiscategorymaynotberedeemedat,orwithinthreemonthsof,thereportingdate.Ofthisbalance,9%ofinvestmentsareredeemableafterJuly 1,2010,onanannualbasis,
subjecttoa60-daynoticeperiod.36%ofthevalueoftheinvestmentsinthecreditdrivencategoryaresubjecttoredemptionrestrictionsatthediscretionoftheinvesteefundman-
agerwhomaychooseto(butmaynothaveexercisedsuchability)side-pocketsuchinvestments.Asofthereportingdate,theinvesteefundmanagerhadnotelectedtoside-pocket
Blackstone’sinvestments.29%ofinvestmentswithinthiscategoryrepresentaninvestmentinafundofhedgefundsthatisintheprocessofliquidating.Distributionsfromthisfund
willbereceivedasunderlyinginvestmentsareliquidated.Theremaining1%ofinvestmentswithinthiscategoryareredeemableasofthereportingdate.
(b)
Diversi?edInstrumentsincludesinvestmentsinhedgefundsthatinvestacrossmultiplestrategies.Investmentsrepresenting98%ofthevalueoftheinvestmentsinthiscategory
aresubjecttoredemptionrestrictionsatthediscretionoftheinvesteefundmanagerwhomaychooseto(butmaynothaveexercisedsuchability)side-pocketsuchinvestments.
Asofthereportingdate,theinvesteefundmanagerhadelectedtoside-pocket12%ofBlackstone’sinvestments.Thetimeatwhichthisredemptionrestrictionmaylapsecannotbe
estimated.Theremaining2%ofinvestmentswithinthiscategoryrepresentinvestmentsinhedgefundsthatareintheprocessofliquidating.Distributionsfromthesefundswillbe
receivedasunderlyinginvestmentsareliquidated.
(c)
TheEquitycategoryincludesinvestmentsinhedgefundsthatinvestprimarilyindomesticandinternationalequitysecurities.Investmentsrepresenting46%ofthetotalvalueof
investmentsinthiscategorymaynotberedeemedat,orwithinthreemonthsof,thereportingdate.Theremaining54%aresubjecttoredemptionrestrictionsatthediscretion
oftheinvesteefundmanagerwhomaychooseto(butmaynothaveelectedsuchability)side-pocketsuchinvestments.Asofthereportingdate,theinvesteefundmanagerhadnot
electedtoside-pocketBlackstone’sinvestments.
(d)
IncludedwithintheOthercategoryareinvestmentsinhedgefundswhoseprimaryinvestingstrategyistoidentifycertainevent-driveninvestments.Withdrawalsarenotper-
mittedinthiscategory.Distributionswillbereceivedastheunderlyinginvestmentsareliquidated.
80 TheBlackstoneGroup AnnualReport2009
Thetablebelowsummarizestheaggregatenotionalamountand
fairvalueofthederivativeinstrumentsasofDecember 31,2009:
As of December 31, 2009
Assets Liabilities
Notional Fair Value Notional Fair Value
Fair Value Hedges
InterestRateSwaps $ – $ – $450,000 $19
Free Standing Derivatives
FreeStandingDerivatives 2,039 653 656 4
Total $2,039 $653 $450,656 $23
The Partnership had no material derivative contracts as of
December 31,2008.
Where hedge accounting is applied, hedge efectiveness test-
ing is performed at least monthly to monitor ongoing effec-
tiveness of the hedge relationships. During the year ended
December 31,2009,theamountofinefectivenessrelatedtothe
interest rate swap hedges was a loss of $1.7 million. During the
year ended December 31, 2009, the portion of hedging instru-
ments’ gain or loss excluded from the assessment of efective-
ness for its fair value hedges was a loss of $8.7 million. The
Partnershiphadnoderivativesdesignatedasfairvaluehedgesin
2008and2007.
During the year ended December 31, 2009, the Partnership
recognized an immaterial amount of realized and unrealized
gains (losses) related to free standing derivative instruments.
AmountsrecognizedintheyearsendedDecember 31,2008and
2007werenotmaterial.
7. fair value option
The following table summarizes the ?nancial instruments for
whichthefairvalueoptionhasbeenelected:
Year Ended
December 31,
2009
As of Net Change
December 31, in Unrealized
2009 Gains
LoansandReceivables $68,550 $101
DebtSecurities 26,466 364
EquitySecurities 1,905 –
$96,921 $465
6. derivative financial instruments
Blackstone enters into derivative instruments in order to hedge
itsinterestrateriskexposureagainsttheefectsofinterestrate
changes. Additionally, Blackstone and the Blackstone Funds
enter into derivative instruments in the normal course of busi-
nesstoachievecertainotherriskmanagementobjectivesandfor
generalinvestmentpurposes.Asaresultoftheuseofderivative
contracts, Blackstone and the consolidated Blackstone Funds
areexposedtotheriskthatcounterpartieswillfailtoful?lltheir
contractual obligations. To mitigate such counterparty risk,
Blackstone and the consolidated Blackstone Funds enter into
contracts with certain major ?nancial institutions, all of which
haveinvestmentgraderatings.Counterpartycreditriskisevalu-
atedindeterminingthefairvalueofderivative instruments.
Fair Value Hedges
ThePartnershipusesinterestrateswapstohedgealloraportion
oftheinterestrateriskassociatedwithits?xedrateborrowings.
The Partnership has designated these ?nancial instruments as
fair value hedges. Changes in fair value of the derivative and, to
the extent that it is highly effective, changes in the fair value
ofthehedgedliability,arerecordedwithinGeneral,Administrative
and Other in the Consolidated and Combined Statements
of Operations. The fair value of the derivative instrument is
re?ectedwithinOtherAssetsintheConsolidatedandCombined
StatementsofFinancialCondition.
Free Standing Derivatives
Free standing derivatives are instruments that Blackstone and
certain of the consolidated Blackstone Funds have entered
into as part of their overall risk management and investment
strategies. These derivative contracts are not designated as
hedging instruments for accounting purposes. Such contracts
may include foreign exchange contracts, equity swaps, options
and other derivative contracts. Changes in the fair value of
derivative instruments held by Blackstone funds are re?ected
in Net Gains (Losses) from Funds Investment Activities or,
where derivative instruments are held by the Partnership,
within Investment Income, in the Consolidated and Combined
StatementsofOperations.Thefairvalueoffreestandingderiva-
tive assets are recorded within Investments, and free standing
derivative liabilities are recorded within Accounts Payable,
AccruedExpensesandOtherLiabilitiesintheConsolidatedand
CombinedStatementsofFinancialCondition.
81
The Partnership did not dispose of any investments for
which the fair value option was elected during the year ending
December 31,2009.ThePartnershipdidnotholdmaterial?nan-
cialinstrumentsonwhichthefairvalueoptionwaselecteddur-
ing2008and2007.
As of December 31, 2009, the fair value of Loans and
Receivables and Debt Securities for which the fair value option
was elected exceeded the principal amount due by $0.5 million.
No loans and receivables on which the fair value option was
electedarepastdueorinnon-accrualstatus.
8. fair value measurements of financial instruments
The following table summarizes the valuation of the Partnership’s ?nancial assets and liabilities by the fair value hierarchy as of
December 31,2009and2008,respectively:
December 31, 2009
Level I Level II Level III Total
Assets
InvestmentsofConsolidatedBlackstoneFunds $ 80,610 $ 33,355 $1,192,463 $1,306,428
HighGradeLiquidDebtStrategies 398,487 136,290 – 534,777
LoansandReceivables – – 68,550 68,550
FreeStandingDerivativeInstruments,Net 2 279 368 649
OtherInvestments
(a)
8,711 10,176 46,210 65,097
$487,810 $180,100 $1,307,591 $1,975,501
Liabilities
DerivativeInstrumentsUsedforFairValueHedges $ – $ 19 $ – $ 19
SecuritiesSold,NotYetPurchased 357 – – 357
$ 357 $ 19 $ – $ 376
December 31, 2008
Level I Level II Level III Total
Assets
InvestmentsofConsolidatedBlackstoneFunds $58,406 $994 $ 1,496,861 $ 1,556,261
OtherInvestments 22,499 – 41,146 63,645
$80,905 $994 $1,538,007 $ 1,619,906
Liabilities
SecuritiesSold,NotYetPurchased $ 894 $ – $ – $ 894
$ 894 $ – $ – $ 894
(a)
IncludedwithinLevelIIIofOtherInvestmentsareinvestmentsindebtandequitysecuritiesof$26.5 millionand$1.9 million,respectively,forwhichthefairvalueoptionhasbeenelected.
82 TheBlackstoneGroup AnnualReport2009
The following table summarizes the changes in ?nancial
instrumentsmeasuredatfairvalueforwhichthePartnership
hasusedLevelIIIinputstodeterminefairvalueanddoesnot
includegainsorlossesthatwerereportedinLevelIIIinprior
yearsorforinstrumentsthatweretransferredoutofLevelIII
priortotheendofthecurrentreportingperiod.
Year Ended December 31,
2009 2008
Balance,BeginningofPeriod $1,538,007 $2,362,542
TransferIn(Out)ofLevelIII,Net 81,640 (323,422)
Purchases(Sales),Net (429,760) 108,838
RealizedGains(Losses),Net (194,495) 2,630
ChangesinUnrealizedGains(Losses)
IncludedinEarningsRelatedto
InvestmentsStillHeldatthe
ReportingDate 312,199 (612,581)
Balance,EndofPeriod $1,307,591 $1,538,007
Total realized and unrealized gains and losses recorded for
Level III investments are reported in Net Gains (Losses) from
Fund Investment Activities in the Consolidated and Combined
StatementsofOperations.
For the year ended December 31, 2009, the transfer in of
Level IIIinvestments,net,wasprincipallyduetoanassettrans-
fer from a non-consolidated Blackstone Fund to a consolidated
Blackstone Fund. For the year ended December 31, 2008, the
transferoutofLevelIIIinvestments,net,wasprincipallydueto
thedeconsolidationofthreeBlackstoneFunds.
9. variable interest entities
The Partnership consolidates certain VIEs in which it is deter-
mined that the Partnership is the primary beneficiary either
directly or indirectly, through a consolidated entity or af liate.
VIEs include certain private equity, real estate, credit oriented
or funds of hedge fund entities. The purpose of such VIEs is to
providestrategyspeci?cinvestmentopportunitiesforinvestors
in exchange for management and performance based fees. The
investmentstrategiesoftheBlackstoneFundsdiferbyproduct;
however, the fundamental risks of the Blackstone Funds have
similarcharacteristics,includinglossofinvestedcapitalandloss
of management fees and performance based fees. Accordingly,
disaggregationofBlackstone’sinvolvementwithVIEswouldnot
providemoreusefulinformation.InBlackstone’sroleasgeneral
partner or investment advisor, it generally considers itself the
sponsoroftheapplicableBlackstoneFund.ThePartnershipdoes
The following table summarizes the valuation methodology used in the determination of the fair value of ?nancial instruments for
whichLevelIIIinputswereusedasofDecember 31,2009.
Credit and
Marketable Financial
Valuation Methodology Private Equity Real Estate Alternatives Advisory Total
Third-PartyFundManagers – – 57% – 57%
Speci?cValuationMetrics 20% 15% 5% 3% 43%
20% 15% 62% 3% 100%
83
not provide performance guarantees and has no other ?nancial
obligationtoprovidefundingtoconsolidatedVIEsotherthanits
owncapitalcommitments.
ThegrossassetsandliabilitiesofconsolidatedVIEsre?ected
in the Consolidated and Combined Statements of Financial
Condition as of December 31, 2009 were $741.0 million and
$38.0 million, respectively. As of December 31, 2008, gross
assets and liabilities of consolidated VIEs were $861.3 mil-
lion and $28.7 million, respectively. There is no recourse to the
Partnership for the consolidated VIEs’ liabilities. The assets
of consolidated VIEs comprise primarily investments and are
includedwithinInvestmentsintheConsolidatedandCombined
StatementsofFinancialCondition.
ThePartnershipholdssigni?cantvariableinterestsoractsas
the sponsor for certain VIEs which are not consolidated as it is
determined that the Partnership is not the primary bene?ciary.
ThePartnership’sinvolvementwithsuchentitiesisintheformof
directequityinterestsandfeearrangements.AsofDecember 31,
2009, assets and liabilities recognized in the Partnership’s
Consolidated and Combined Statements of Financial Condition
related to the Partnership’s interest in these non-consolidated
VIEs were $133.9 million and $0.1 million, respectively. Assets
consisted of $21.7 million of investments and $112.2 million of
receivables.AsofDecember 31,2008,assetsandliabilitiesrecog-
nizedinthePartnership’s?nancialstatementswere$140.0 mil-
lion and $0.2 million, respectively. Assets recognized as of
December 31, 2008 were comprised of investments of $81.1 mil-
lion and receivables of $58.9 million. The Partnership’s maxi-
mum exposure to loss relating to non-consolidated VIEs as of
December 31, 2009 and 2008 was $98.9 million and $140.0 mil-
lion,respectively.
10. other assets and accounts payable, accrued
expenses and other liabilities
OtherAssetsconsistsofthefollowing:
December 31,
2009 2008
Furniture,Equipmentand
LeaseholdImprovements $210,189 $194,576
Less:AccumulatedDepreciation (92,774) (75,610)
Furniture,EquipmentandLeasehold
Improvements,Net 117,415 118,966
PrepaidExpenses 31,232 36,533
OtherAssets 23,909 64,478
$172,556 $219,977
Depreciation expense of $17.2 million, $18.2 million and
$11.2 million related to furniture, equipment and leasehold
improvementsfortheyearsendedDecember 31,2009,2008and
2007, respectively, is included in General, Administrative
and Other in the accompanying Consolidated and Combined
StatementsofOperations.The2009depreciationexpenseisnet
of$6.6 millionofaccumulateddepreciationreversedduringthe
yearduetothedisposalofassets.
Accounts Payable, Accrued Expenses and Other Liabilities
includes $144.0 million and $1,103.4 million as of December 31,
2009 and 2008, respectively, relating to redemptions that were
legallypayabletoinvestorsasofthebalancesheetdates.
84 TheBlackstoneGroup AnnualReport2009
11. borrowings
The Partnership enters into credit agreements for its general operating and investment purposes and certain Blackstone Funds
borrowtomeet?nancingneedsoftheiroperatingandinvestingactivities.Borrowingfacilitieshavebeenestablishedforthebene?tof
selectedfundswithinthosebusinessunits.WhenaBlackstoneFundborrowsfromthefacilityinwhichitparticipates,theproceeds
fromtheborrowingarestrictlylimitedforitsintendedusebytheborrowingfundandnotavailableforotherPartnershippurposes.
ThePartnership’screditfacilitiesconsistofthefollowing:
December 31,
2009 2008
Weighted Weighted
Average Average
Credit Borrowing Borrowing Credit Borrowing Interest
Available Outstanding Rate Available Outstanding Rate
RevolvingCreditFacility
(a)
$ 850,000 $ – – $1,000,000 $250,000 1.97%
BlackstoneIssued6.625%NotesDue8/15/2019
(b)
600,000 600,000 6.63% – – –
OperatingEntitiesFacilities
(c)
63,369 63,369 1.50% 116,750 109,618 2.08%
CorporateDebtCreditFacilites
(d)
– – – 90,000 25,000 3.25%
1,513,369 663,369 6.13% 1,206,750 384,618 2.08%
BlackstoneFundFacilities
(e)
38,809 5,630 2.3% 77,566 2,382 3.28%
$1,552,178 $668,999 6.10% $1,284,316 $387,000 2.09%
(a)
Representsshort-termborrowingsunderarevolvingcreditfacilitythatwereusedtofundtheoperatingandinvestingactivitiesofentitiesofthePartnership.Borrowingsbear
interestatanadjustedLIBORrateoradjustedprimerate.AnyoutstandingborrowingsatMay 11,2010,thematuritydateofthefacility,arepayableatthattime.Thefacilityis
unsecuredandunguaranteed.Thereisacommitmentfeeof0.5% perannum,asde?ned,ontheunusedportionofthisfacility.AsofDecember 31,2009,thePartnershiphadnoout-
standingborrowingsunderthisrevolvingcreditfacility.
(b)
Representslongtermborrowingsintheformofseniornotes(the“Notes”)issuedbyBlackstoneHoldingsFinanceCo.L.L.C.(the“Issuer”),anindirectsubsidiaryofthePartnership,
onAugust 20,2009.SuchnoteshaveacontractualmaturityofAugust 15,2019.TheNotes,whichwereissuedatadiscount,haveaninterestrateof6.625% perannum,accruingfrom
August 20,2009.InterestispaidsemiannuallyinarrearsonFebruary 15andAugust 15ofeachyear,commencingonFebruary 15,2010.TheNotesareunsecuredandunsubordinated
obligationsoftheIssuer.TheNotesarefullyandunconditionallyguaranteed,jointlyandseverally,bythePartnership,BlackstoneHoldings,andtheIssuer(the“Guarantors”).The
guaranteesareunsecuredandunsubordinatedobligationsoftheGuarantors.InterestexpenseontheNoteswas$14.6 millionfortheyearendedDecember 31,2009.Transactioncosts
relatedtotheissuanceoftheNoteshavebeencapitalizedandarebeingamortizedoverthelifeoftheNotes.AsofDecember 31,2009,thefairvalueoftheNoteswas$588.6 million.
Theindentureincludescovenants,includinglimitationsontheIssuer’sandtheGuarantor’sabilityto,subjecttoexceptions,incurindebtednesssecuredbyliensonvotingstockor
pro?tparticipatingequityinterestsoftheirsubsidiariesormerge,consolidateorsell,transferorleaseassets.Theindenturealsoprovidesforeventsofdefault.Inthecaseofspeci?ed
eventsofbankruptcy,insolvency,receivershiporreorganization,theprincipalamountoftheNotesandanyaccruedandunpaidinterestontheNotesautomaticallybecomesdueand
payable.AlloraportionoftheNotesmayberedeemedattheIssuer’soptioninwholeorinpart,atanytime,andfromtimetotime,priortotheirstatedmaturity,atthemake-whole
redemptionpricesetforthintheNotes.Ifachangeofcontrolrepurchaseeventoccurs,theholdersoftheNotesmayrequiretheIssuertorepurchasetheNotesatarepurchasepricein
cashequalto101%oftheaggregateprincipalamountoftheNotesrepurchasedplusanyaccruedandunpaidinterestontheNotesrepurchasedto,butnotincluding,therepurchasedate.
(c)
Representsborrowingsunderaloanandsecurityagreementaswellasacapitalassetpurchasefacility.Theloanandsecurityagreementfacilitybearsinterestatanadjustedrate
belowthelendingbank’sprimecommercialrate.BorrowingsareavailableforthePartnershiptoprovidepartial?nancingtocertainBlackstoneemployeesto?nancethepurchase
oftheirequityinvestmentsincertainBlackstoneFunds.TheadvancestoBlackstoneemployeesaresecuredbyinvestornotes,generallypaidbackovera?ve-yearperiod,andthe
relatedunderlyinginvestment,aswellasfullrecoursetotheemployees’bonusesandreturnsfromotherPartnershipinvestments.Thecapitalassetpurchasefacilityissecuredby
thepurchasedassetandborrowingsbearinterestataspreadtoLIBOR.Theborrowingsarepaiddownthroughtheterminationdateofthefacilityin2014.
(d)
Representsshort-termborrowingsundercreditfacilitiesestablishedto?nanceinvestmentsindebtsecurities.Borrowingsweremadeatthetimeofeachinvestmentandarerequired
toberepaidattheearlierof(a) theinvestment’sdispositionor(b) 120daysafterthedateoftheborrowing.BorrowingsunderthefacilitiesbearinterestatanadjustedLIBORrate.
Borrowingsaresecuredbytheinvestmentsacquiredwiththeproceedsofsuchborrowings.Inaddition,suchcreditfacilitiesaresupportedbylettersofcredit.Oneofthefacilities,with
availablecreditof$50.0 million,carriesacommitmentfeeof0.15% perannumontheunusedportionofthefacility.AsofDecember31,2009,thesefacilitieshavebeenterminated.
(e)
Represents borrowing facilities for the various consolidated Blackstone Funds used to meet liquidity and investing needs. Certain borrowings under these facilities were used
forbridge?nancingandgeneralliquiditypurposes.Otherborrowingswereusedto?nancethepurchaseofinvestmentswiththeborrowingremaininginplaceuntilthedisposi-
tionorre?nancingevent.Suchborrowingshavevaryingmaturitiesandarerolledoveruntilthedispositionorare?nancingevent.Duetothefactthatthetimingofsucheventsis
unknownandmayoccurinthenearterm,theseborrowingsareconsideredshort-terminnature.Borrowingsbearinterestatspreadstomarketrates.Borrowingsweresecured
accordingtothetermsofeachfacilityandaregenerallysecuredbytheinvestmentpurchasedwiththeproceedsoftheborrowingand/ortheuncalledcapitalcommitmentofeach
respectivefund.Certainfacilitieshavecommitmentfees.Whenafundborrows,theproceedsareavailableonlyforusebythatfundandarenotavailableforthebene?tofother
funds.Collateralwithineachfundisalsoavailableonlyagainsttheborrowingsbythatfundandnotagainsttheborrowingsofotherfunds.
85
As part of Blackstone’s long term borrowing arrangements,
the Partnership is subject to certain financial and operating
covenants. The Partnership was in compliance with all of its
loancovenantsasofDecember 31,2009.
Scheduled principal payments for long-term borrowings at
December 31,2009areasfollows:
2010 $ 23,820
2011 22,278
2012 9,985
2013 2,245
2014 5,040
Thereafter 600,000
Total $663,369
12. income taxes
Theprovision(bene?t)forincometaxesconsistsofthefollowing:
Year Ended December 31,
2009 2008 2007
Current
FederalIncomeTax $ 8,027 $ 3,936 $ 11,938
ForeignIncomeTax 4,517 8,304 5,630
StateandLocalIncomeTax 41,219 25,114 47,346
53,763 37,354 64,914
Deferred
FederalIncomeTax 30,581 (34,090) (10,287)
ForeignIncomeTax (597) – –
StateandLocalIncomeTax 15,483 (17,409) (6,934)
45,467 (51,499) (17,221)
TotalProvision(Bene?t)forTaxes $99,230 $ (14,145) $ 47,693
ThePartnership’sefectiveincometaxratewasapproximately
(4.33%), 0.25%, and 0.84% for the years ended December 31,
2009,2008and2007,respectively.
Deferred income taxes re?ect the net tax efects of temporary
diferencesthatmayexistbetweenthecarryingamountsofassets
and liabilities for ?nancial reporting purposes and the amounts
used for income tax purposes using enacted tax rates in effect
for the year in which the differences are expected to reverse.
A summary of the tax effects of the temporary differences is
as follows:
December 31,
2009 2008
Deferred Tax Assets
FundManagementFees $ 12,804 $ 5,860
Equity-basedCompensation 36,087 33,224
UnrealizedLossfromInvestments 38,937 22,464
DepreciationandAmortization 841,086 731,064
NetOperatingLossCarryForward 7,729 49,292
Other 6,869 3,674
TotalDeferredTaxAssets $943,512 $845,578
Deferred Tax Liabilities
DepreciationandAmortization $ 18,251 $ 16,705
Total Deferred Tax Liabilities $ 18,251 $ 16,705
DeferredtaxliabilitiesareincludedwithinAccountsPayable,
Accrued Expenses and Other Liabilities in the accompanying
ConsolidatedandCombinedStatementsofFinancialPosition.
Futurerealizationoftaxbene?tsdependsontheexpectation
of taxable income within a period of time that the tax bene?ts
willreverse.WhilethePartnershipexpectstorecordsigni?cant
net losses from a financial reporting perspective, it does not
expect to record comparable losses on a tax basis. Whereas
the amortization of non-cash equity compensation results in a
signi?cant charge to net income and is a signi?cant contribu-
tor to the expected ?nancial reporting losses, these charges are
largelynottaxdeductibleand,asaresult,donotdecreasetaxable
incomeorcontributetoataxableloss.
ThePartnershiphasrecordedasigni?cantdeferredtaxasset
for the future amortization of tax basis intangibles acquired
fromthepredecessorownersandcurrentowners.Theamortiza-
tionperiodforthesetaxbasisintangiblesis15years;accordingly,
therelateddeferredtaxassetswillreverseoverthesameperiod.
ThePartnershiphadtaxableincomein2007and2009andthus
fully utilized the tax bene?t from the amortization of the tax
basis intangibles for all years since the IPO. The Partnership
hadataxablelossof$21.3 millionattheendof2009thatwillbe
carriedbackandutilizedagainstprioryeartaxableincome.The
Partnership has considered the 15 year amortization period for
the tax basis intangibles and the 20 year carryforward period
for its taxable loss in evaluating whether it should establish a
valuation allowance. In addition, at this time, the Partnership’s
projections of future taxable income that include the efects of
originatingandreversingtemporarydiferences,includingthose
for the tax basis intangibles, indicate that it is more likely than
notthatthebene?tsfromthedeferredtaxassetwillberealized.
86 TheBlackstoneGroup AnnualReport2009
Therefore, the Partnership has determined that no valuation
allowanceisneededatDecember 31,2009.
The following table reconciles the Provision (Benefit) for
TaxestotheU.S.federalstatutorytaxrate:
Year Ended December 31,
2009 2008 2007
StatutoryU.S.FederalIncomeTaxRate 35.00% 35.00% 35.00%
IncomePassedThroughto
CommonUnitholdersand
Non-ControllingInterestHolders
(a)
(33.00)% (32.68)% (35.92)%
InterestExpense 1.84% 0.75% (0.09)%
ForeignIncomeTaxes (0.15)% (0.15)% 0.10%
StateandLocalIncomeTaxes (1.97)% (0.19)% 0.69%
Equity-basedCompensation (6.45)% (2.48)% 1.06%
Other 0.40% – –
EfectiveIncomeTaxRate
(b)
(4.33)% 0.25% 0.84%
(a)
Includes income that is not taxable to the Partnership and its subsidiaries. Such
incomeisdirectlytaxabletothePartnership’sunitholdersandthenon-controlling
interestholders.
(b)
TheefectivetaxrateiscalculatedonIncome(Loss)BeforeProvision(Bene?t)forTaxes.
Currently, the Partnership does not believe it meets the
inde?nite reversal criteria that would cause the Partnership to
not recognize a deferred tax liability with respect to its foreign
subsidiaries.Whereapplicable,Blackstonewillrecordadeferred
taxliabilityforanyoutsidebasisdiferenceofaninvestmentina
foreignsubsidiary.
Blackstone ?les its tax returns as prescribed by the tax laws
ofthejurisdictionsinwhichitoperates.Inthenormalcourseof
business, Blackstone is subject to examination by federal and
certainstate,localandforeigntaxregulators.AsofDecember 31,
2009, Blackstone’s and the predecessor entities’ U.S. federal
income tax returns for the years 2006 through 2008 are open
underthenormalthree-yearstatuteoflimitationsandtherefore
subject to examination. State and local tax returns are gener-
ally subject to audit from 2005 through 2008. Currently, the
City of New York is examining certain subsidiaries’ tax returns
for the years 2003 through 2006. In addition, HM Revenue and
Customs in the U.K. is examining certain U.K. subsidiaries’ tax
returns for the years 2004 through 2007. Blackstone does not
believethattheoutcomeoftheseexaminationswillrequireitto
record reserves for uncertain tax positions or that the outcome
will have a material impact on the consolidated and combined
?nancialstatements.Blackstonedoesnotbelievethatithasany
tax positions for which it is reasonably possible that it will be
requiredtorecordsigni?cantamountsofunrecognizedtaxben-
e?tswithinthenexttwelvemonths.
13. net loss per common unit
Basic and diluted net loss per common unit entitled to priority
distributions and per common unit not entitled to priority dis-
tributions for the years ending December 31, 2009 and 2008 is
calculatedasfollows:
Basic and Diluted
Year Ended December 31,
2009 2008
TotalUndistributedLoss
NetLossAllocableto
CommonUnitholders $ (715,291) $(1,163,032)
Less
istributionsto
CommonUnitholders (356,958) (240,402)
TotalUndistributedLoss $(1,072,249) $(1,403,434)
AllocationofTotalUndistributedLoss
UndistributedLoss–Common
UnitholdersEntitledto
PriorityDistributions $(1,058,052) $(1,394,271)
UndistributedLoss–Common
UnitholdersNotEntitledto
PriorityDistributions (14,197) (9,164)
TotalUndistributedLoss $(1,072,249) $(1,403,434)
NetLossPerCommonUnit–Common
UnitsEntitledtoPriorityDistributions
UndistributedLossperCommonUnit $ (3.71) $ (5.22)
PriorityDistributions
(a)
1.25 0.90
NetLossPerCommonUnit–
CommonUnitsEntitledto
PriorityDistributions $ (2.46) $ (4.32)
NetLossPerCommonUnit–Common
UnitsNotEntitledto
PriorityDistributions
UndistributedLossperCommonUnit $ (3.71) $ (3.06)
PriorityDistributions – –
NetLossPerCommonUnit–
CommonUnitsNotEntitledto
PriorityDistributions $ (3.71) $ (3.06)
Weighted-AverageCommonUnits
Outstanding–CommonUnits
EntitledtoPriorityDistributions 285,163,954 266,876,031
CommonUnitsNotEntitledto
PriorityDistributions 3,826,233 1,501,373
TotalWeighted-AverageCommon
UnitsOutstanding 288,990,187 268,377,404
(a)
UndistributedLossperCommonUnit–PriorityDistributionsisbasedoncommon
unitsoutstandingattheendofthereportingperiodandwilldiferfromactualdistri-
butionspaidtocommonunitholderswhicharebasedoncommonunitsoutstanding
atthetimeprioritydistributionsaremade.
87
For the years ended December 31, 2009 and 2008, a total of
22,453,412 and 29,117,068 unvested deferred restricted com-
monunitsand812,377,553and831,549,761BlackstoneHoldings
Partnership Units were anti-dilutive and as such have been
excluded from the calculation of diluted earnings per unit,
respectively.
Basicanddilutednetlosspercommonunitforthetwelve months
endedDecember 31,2007arecalculatedasfollows:
Basic and Diluted
June 19, 2007
through
December 31, 2007
NetLossAllocabletoCommonUnitholders $(335,514)
Weighted-AverageCommonUnitsOutstanding 262,810,720
NetLossperCommonUnit $ (1.28)
For the year ended December 31, 2007, a total of 31,249,103
unvested deferred restricted common units and 827,151,349
Blackstone Holdings Partnership Units were anti-dilutive and
as such have been excluded from the calculation of diluted
earningsperunit.
Cash Distribution Policy
Blackstone’s current intention is to distribute to its common
unitholders substantially all of The Blackstone Group L.P.’s
net after-tax share of annual Distributable Earnings in excess
of amounts determined by Blackstone’s general partner to
be necessary or appropriate to provide for the conduct of the
Partnership’s business, to make appropriate investments in
the business and funds, to comply with applicable law, any of
Blackstone’sdebtinstrumentsorotheragreements,ortoprovide
forfuturedistributionstoBlackstone’scommonunitholdersfor
anyensuingquarter.BecauseBlackstonewillnotknowwhatthe
DistributableEarningswillbeforany?scalyearuntiltheendof
such year, the Partnership expects that the ?rst three quarterly
distributions in respect of any given year will be based on the
anticipated annualized Net Fee Related Earnings only. As such,
thedistributionforthe?rstthreequarterswilllikelybesmaller
than the final quarterly distribution in respect of such year,
which Blackstone expects to also include realized Performance
Fees and Allocations net of related compensation and realized
netinvestmentincome.
In most years the aggregate amounts of distributions to
unitholders will not equal Distributable Earnings for that year.
DistributableEarningswillonlybeastartingpointforthedeter-
minationoftheamounttobedistributedtounitholdersbecause
as noted above, in determining the amount to be distributed
Blackstone will subtract from Distributable Earnings any
amounts determined by its general partner to be necessary
orappropriatetoprovidefortheconductofitsbusiness,tomake
appropriateinvestmentsinitsbusinessanditsfunds,tocomply
with applicable law, any of its debt instruments or other agree-
ments,ortoprovideforfuturedistributionstoitsunitholdersfor
anyensuingquarter.
Alloftheforegoingissubjecttothequali?cationthatthedec-
larationandpaymentofanydistributionsareatthesolediscre-
tion of the general partner and the general partner may change
thedistributionpolicyatanytime.
Because The Blackstone Group L.P. is a holding partnership
and has no material assets other than its ownership of partner-
ship units in Blackstone Holdings held through wholly-owned
subsidiaries,distributionsarefundedbyTheBlackstoneGroupL.P.,
ifany,inthreesteps:
• First, Blackstone Holdings makes distributions to partners,
including The Blackstone Group L.P.’s wholly-owned subsid-
iaries. If Blackstone Holdings makes such distributions, the
limited partners of Blackstone Holdings will be entitled to
receiveequivalentdistributionsproratabasedontheirpart-
nership interests in Blackstone Holdings (except as set forth
inthefollowingparagraph);
• Second, The Blackstone Group L.P.’s wholly-owned subsidiar-
ies distributes to The Blackstone Group L.P. the share of such
distributions,netofthetaxesandamountspayableunderthetax
receivableagreementbysuchwholly-ownedsubsidiaries;and
• Third, The Blackstone Group L.P. distributes the net share of
suchdistributionstothecommonunitholdersonaproratabasis.
Because the wholly-owned subsidiaries of The Blackstone
Group L.P. must pay taxes and make payments under the tax
receivable agreements described in the Notes to Consolidated
and Combined Financial Statements, Footnote 15 – Related
Party Transactions, the amounts ultimately distributed by The
Blackstone Group L.P. to common unitholders in respect of ?s-
cal 2010 and subsequent years are expected to be diferent, and
in many years likely less, on a per unit basis, than the amounts
distributed by the Blackstone Holdings partnerships to the
Blackstone personnel and others who are limited partners of
the Blackstone Holdings partnerships in respect of their
BlackstoneHoldingspartnershipunits.
In addition, the partnership agreements of the Blackstone
Holdings partnerships provide for cash distributions, which are
referredtoas“taxdistributions,”tothepartnersofsuchpartner-
shipsifthewholly-ownedsubsidiariesofTheBlackstoneGroup
L.P. which are the general partners of the Blackstone Holdings
partnerships determine that the taxable income of the relevant
partnership will give rise to taxable income for the partners.
Generally,thesetaxdistributionswillbecomputedbasedonthe
88 TheBlackstoneGroup AnnualReport2009
Partnership’sestimateofthenettaxableincomeoftherelevant
partnershipallocabletoapartnermultipliedbyanassumedtax
rate equal to the highest efective marginal combined U.S. fed-
eral,stateandlocalincometaxrateprescribedforanindividual
orcorporateresidentinNewYork,NewYork(takingintoaccount
thenondeductibilityofcertainexpensesandthecharacterofthe
Partnership’s income). The Blackstone Holdings partnerships
willmaketaxdistributionsonlytotheextentdistributionsfrom
such partnerships for the relevant year were otherwise insuf -
cienttocoversuchtaxliabilities.
Unit Repurchase Program
In January 2008, Blackstone announced that the Board of
Directorsofitsgeneralpartner,BlackstoneGroupManagement
L.L.C., had authorized the repurchase by Blackstone of up to
$500 million of Blackstone Common Units and Blackstone
Holdings Partnership Units. Under this unit repurchase pro-
gram, units may be repurchased from time to time in open
market transactions, in privately negotiated transactions or
otherwise. The timing and the actual number of Blackstone
Common Units and Blackstone Holdings Partnership Units
repurchased will depend on a variety of factors, including legal
requirements, price and economic and market conditions. This
unit repurchase program may be suspended or discontinued at
any time and does not have a speci?ed expiration date. During
the year ended December 31, 2009, Blackstone repurchased
a combination of 4,689,101 vested and unvested Blackstone
Holdings Partnership Units and Blackstone Common Units as
partoftheunitrepurchaseprogramforatotalcostof$30.5 mil-
lion. As of December 31, 2009, the amount remaining available
forrepurchaseswas$339.5 millionunderthisprogram.
14. equity-based compensation
ThePartnershiphasgrantedequity-basedcompensationawards
to Blackstone’s senior managing directors, non-partner profes-
sionals, non-professionals and selected external advisors under
the Partnership’s 2007 Equity Incentive Plan (the “Equity
Plan”), the majority of which to date were granted in connec-
tion with the IPO. The Equity Plan allows for the granting of
options, unit appreciation rights or other unit-based awards
(units, restricted units, restricted common units, deferred
restricted common units, phantom restricted common units
or other unit-based awards based in whole or in part on the fair
value of the Blackstone Common Units or Blackstone Holdings
Partnership Units) which may contain certain service or per-
formance requirements. As of January 1, 2009, the Partnership
hadtheabilitytogrant163,041,206unitsundertheEquityPlan
fortheyearendedDecember 31,2009.
The Partnership recorded total compensation expense in
relationtoitsequity-basedawardsof$3.0 billionand$3.3 billion
for the years ending December 31, 2009 and 2008, respectively
with corresponding tax bene?ts of $13.7 million and $16.4 mil-
lion,respectively.AsofDecember 31,2009,therewas$6.3 billion
of estimated unrecognized compensation expense related to
unvested awards. This cost is expected to be recognized over a
weighted-averageperiodof4.3 years.
Total vested and unvested outstanding units, including
Blackstone Common Units, Blackstone Holdings Partnership
Unitsanddeferredrestrictedcommonunits,were1,126,974,312
as of December 31, 2009. Total outstanding unvested phantom
unitswere208,592asofDecember 31,2009.
A summary of the status of the Partnership’s unvested equity-based awards as of December 31, 2009 and a summary of changes
duringtheperiodJanuary 1,2009throughDecember 31,2009,arepresentedbelow:
Blackstone Holdings The Blackstone Group L.P.
Equity Settled Awards Cash Settled Awards
Deferred
Weighted- Restricted Weighted- Weighted-
Average Common Average Average
Partnership Grant Date Units and Grant Date Phantom Grant Date
Unvested Units Units Fair Value Options Fair Value Units Fair Value
Balance,December31,2008 354,311,432 $30.89 28,569,608 $25.90 532,794 $26.09
Granted 3,019,136 7.53 7,527,485 12.71 7,380 12.05
Vested (77,736,791) 30.89 (9,634,609) 20.70 (294,130) 26.26
Exchanged (1,186,174) 6.59 1,182,852 6.59 3,322 5.80
Forfeited (7,948,878) 30.16 (3,902,643) 25.47 (40,774) 26.19
Balance,December31,2009 270,458,725 $30.76 23,742,693 $23.10 208,592 $25.07
89
During 2008, the Partnership modified certain senior
managing directors’ Blackstone Holdings Partnership Unit
awardagreementsandsubsequentlyrepurchasedundertheunit
repurchaseprogrambothvestedandunvestedunitsinconjunc-
tionwiththemodi?cations.Apercentageofthecashsettlement
was paid up front to the senior managing directors and the
remaining percentage of the settlement will be held in escrow
and in certain cases earned over a speci?ed service period. At
thedateofsuchmodi?cations,thePartnershiprecognizedtotal
compensationexpenseof$185.5 million,whichisincludedinthe
totalequity-basedcompensationexpenseof$3.3 billion,related
to the modi?cations and cash settlement. Additional compen-
sation expense related to the portion of the settlement held in
escrowwillberecognizedoverthespeci?edserviceperiodwhich
rangesfromapproximately18to50 months.
Units Expected to Vest
The following unvested units, as of December 31, 2009, are
expectedtovest:
Weighted-Average
Service Period
Units in Years
BlackstoneHoldingsPartnershipUnits 256,757,930 3.9
DeferredRestrictedBlackstone
CommonUnitsandOptions 19,670,258 4.1
TotalEquity-BasedAwards 276,428,188 3.9
PhantomUnits 191,128 0.6
Deferred Restricted Common Units and Phantom Units
The Partnership has granted deferred restricted common units
to some senior and non-senior managing director profession-
als, analysts and senior ?nance and administrative personnel
and selected external advisors and phantom units (cash settled
equity-based awards) to other non-senior managing director
employees. Holders of deferred restricted common units and
phantom units are not entitled to any voting rights. Only phan-
tomunitsaretobesettledincash.
Thefairvaluesofdeferredrestrictedcommonunitshavebeen
derivedbasedontheclosingpriceofBlackstone’sCommonUnits
on the date of the grant, multiplied by the number of unvested
awards and expensed over the assumed service period, which
ranges from 1 to 10 years. Additionally, the calculation of the
compensation expense assumes forfeiture rates based upon
historical turnover rates, ranging from 1% to 16% annually by
employee class, and a per unit discount, ranging from $0.01 to
$14.89asamajorityoftheseunvestedawardsdonotcontaindis-
tributionparticipationrights.Inmostcases,thePartnershipwill
not make any distributions with respect to unvested deferred
restricted common units. However, there are certain grantees
whoreceivedistributionsonbothvestedandunvesteddeferred
restrictedcommonunits.
Subjecttoanon-seniormanagingdirectoremployee’scontin-
ued employment with Blackstone, the phantom units will vest
inequalinstallmentsoneachofthe?rst,secondandthirdanni-
versariesoftheIPOor,inthecaseofcertaintermanalysts,ina
singleinstallmentonthedatethattheemployeecompleteshisor
hercurrentcontractperiodwithBlackstone.Oneachsuchvest-
ingdate,Blackstonewilldelivercashtotheholderinanamount
equal to the number of phantom units held multiplied by the
then fair market value of the Blackstone common units on such
date. Additionally, the calculation of the compensation expense
assumes forfeiture rates based upon historical turnover rates,
rangingfrom7%to16%annuallybyemployeeclass.Blackstone
isaccountingforthesecashsettledawardsasaliability.
Blackstonepaid$3.5 million,$6.7 millionand$0.5 millionto
non-seniormanagingdirectoremployeesinsettlementofphan-
tom units for the years ended December 31, 2009, 2008 and for
theperiodJune 19throughDecember 31,2007,respectively.
Blackstone Holdings Partnership Units
At the time of the Reorganization, Blackstone’s predecessor
owners and selected advisors received 827,516,625 Blackstone
Holdings Partnership Units, of which 387,805,088 were vested
and 439,711,537 were to vest over a period of up to 8 years from
theIPOdate.SubsequenttotheReorganization,thePartnership
has granted Blackstone Holdings Partnership Units to newly
hiredseniormanagingdirectors.ThePartnershiphasaccounted
fortheunvestedBlackstoneHoldingsPartnershipUnitsascom-
pensation expense. The fair values have been derived based on
the closing price of Blackstone’s Common Units on the date of
the grant, or $31 (based on the initial public ofering price per
Blackstone Common Unit) for those units issued at the time
of the Reorganization, multiplied by the number of unvested
awards and expensed over the assumed service period which
rangesfrom1to8years.Additionally,thecalculationofthecom-
pensation expense assumes a forfeiture rate of up to 16%, based
onhistoricalexperience.
In November 2009, the Partnership modi?ed equity awards
issued in connection with a deferred compensation plan to,
among other things: (a) provide that deferred compensation
90 TheBlackstoneGroup AnnualReport2009
payments to participating employees and senior managing
directors generally would be satis?ed by delivery of Blackstone
commonunitsinsteadofdeliveryofPartnershipUnits;(b) delay
the delivery of common units (following the applicable vesting
dates)untilanticipatedtradingwindowperiods,tobetterfacili-
tateparticipants’liquiditytomeettaxobligations;and(c) ensure
compliance with deferred compensation taxation rules. As the
fairvalueofPartnershipUnitsongrantdateisbasedontheclos-
ing price of Blackstone Common Units, there was no change in
thefairvalueoftheseawardsasaresultofthemodi?cation.Asa
result,therewasnoadditionalimpacttocompensationexpense.
Equity-Based Awards with Performance Conditions
The Partnership has also granted certain equity-based awards
with performance requirements. These awards are based on
the performance of certain businesses over the ?ve-year period
beginning January 2008, relative to a predetermined thresh-
old. As of December 31, 2009, the thresholds for 2009 were
not met and the Partnership has determined that there is too
much uncertainty in the probability that the threshold will be
exceeded in future periods. As such, the Partnership has not
recordedanyexpenserelatedtotheseawardsfortheyearended
December 31,2009.ThePartnershipwillcontinuetoreviewthe
performance of these businesses, and, if necessary, will record
an expense over the corresponding service period based on the
most probable level of anticipated performance. This award is
accounted for as a liability as required by GAAP as the number
of units to be granted in 2012 is dependent upon variations in
somethingotherthanthefairvalueoftheissuer’sequityshares,
speci?cally,thebusinesses’?ve-yearpro?tability.
Acquisition of GSO Capital Partners LP
In conjunction with the acquisition of GSO, the Partnership
entered into equity-based compensation arrangements with
certainGSOseniormanagingdirectorsandotherpersonnel.The
arrangements stipulate that the recipient receive cash, equity
instrumentsoracombinationofcashandequityinstrumentsto
be earned over service periods ranging from three to ?ve years
or based upon the realization of specified earnings targets
over the period 2008 through 2012. For the non-performance
dependent compensation arrangements, the Partnership will
recognize the estimated expense on a straight-line basis over
the service period. For the performance-based compensation
arrangementstiedtospeci?edearningstargets,thePartnership
estimates compensation expense based upon whether it
is probable that forecasted earnings will meet or exceed the
requiredearningstargetsandifso,recognizestheexpenseover
theearnings period.
15. related party transactions
Af liate Receivables and Payables
Blackstone considers its Founders, senior managing directors,
employees, the Blackstone Funds and the Portfolio Companies
to be affiliates. As of December 31, 2009 and 2008, Due from
Af liatesandDuetoAf liatescomprisedthefollowing:
December 31,
2009 2008
Due from Af liates
AccrualforPotentialClawbackof
PreviouslyDistributedInterest $ 308,378 $ 226,870
PrimarilyInterestBearingAdvancesMade
onBehalfofCertainNon-Controlling
InterestHoldersandBlackstone
EmployeesforInvestmentsin
BlackstoneFunds 127,669 175,268
AmountsDuefromPortfolio
CompaniesandFunds 115,441 72,376
InvestmentsRedeemedin
Non-ConsolidatedFundsofFunds 77,600 496,350
ManagementandPerformanceFees
DuefromNon-Consolidated
FundsofFunds 68,649 50,774
PaymentsMadeonBehalfof
Non-ConsolidatedEntities 53,581 58,536
AdvancesMadetoCertain
Non-ControllingInterestHoldersand
BlackstoneEmployees 8,589 8,130
$ 759,907 $1,088,304
Due to Af liates
DuetoCertainNon-ControllingInterest
HoldersinConnectionwiththe
TaxReceivableAgreement $ 830,517 $ 722,449
AccrualforPotentialRepaymentof
PreviouslyReceivedPerformance
FeesandAllocations 485,253 260,018
DistributionsReceivedonBehalfof
CertainNon-ControllingInterest
HoldersandBlackstoneEmployees 58,083 262,737
DistributionsReceivedonBehalfof
Non-ConsolidatedEntities 31,692 22,938
PaymentsMadeby
Non-ConsolidatedEntities 4,521 17,435
$1,410,066 $1,285,577
91
Interests of the Co-Founder, Senior
Managing Directors and Employees
The Co-Founder, senior managing directors and employees
invest on a discretionary basis in the Blackstone Funds both
directly and through consolidated entities. Their investments
may be subject to preferential management fee and perfor-
mance fee and allocation arrangements. As of December 31,
2009and2008,theCo-Founder’s,otherseniormanagingdirec-
tors’ and employees’ investments aggregated $649.4 million
and $507.2 million, respectively, and the Co-Founder’s, other
senior managing directors’ and employees’ share of the Non-
Controlling Interests in Income (Loss) of Consolidated Entities
aggregated$31.2 million,$(281.7) millionand$279.7 millionfor
theyearsendedDecember 31,2009,2008and2007,respectively.
Revenues Earned from Af liates
Management and Advisory Fees earned from af liates totaled
$134.3 million, $188.3 million and $595.0 million for the years
ended December 31, 2009, 2008 and 2007, respectively. Fees
relate primarily to transaction and monitoring fees which are
made in the ordinary course of business and under terms that
wouldhavebeenobtainedfromunaf liatedthirdparties.
Loans to Af liates
Loanstoaf liatesconsistofinterest-bearingadvancestocertain
Blackstone individuals to finance their investments in cer-
tainBlackstoneFunds.TheseloansearninterestatBlackstone’s
cost of borrowing and such interest totaled $2.2 million,
$6.0 million, and $6.5 million for the years ended December 31,
2009, 2008 and 2007, respectively. No such loans to any direc-
tor or executive of cer of Blackstone have been made or were
outstandingsinceMarch 22,2007,thedateofBlackstone’sinitial
?ling with the Securities and Exchange Commission of a regis-
trationstatementrelatingtoitsinitialpublicofering.
Contingent Repayment Guarantee
BlackstoneanditspersonnelwhohavereceivedCarriedInterest
distributions have guaranteed payment on a several basis (sub-
ject to a cap), to the Carry Funds of any clawback obligation
with respect to the excess Carried Interest allocated to the
general partners of such funds and indirectly received thereby
to the extent that either Blackstone or its personnel fails to
ful?ll its clawback obligation, if any. The Accrual for Possible
Repayment of Previously Received Performance Fees and
Allocations represents amounts previously paid to Blackstone
Holdingsandnon-controllinginterestholdersthatwouldneedto
be repaid to the Blackstone funds if the Carry Funds were
to be liquidated based on the fair value of their underlying
investments as of December 31, 2009. See Note 16 “Contingent
Obligations (Clawback)”.
Aircraft and Other Services
In the normal course of business, Blackstone personnel have
made use of aircraft owned as personal assets by Stephen A.
Schwarzman (“Personal Aircraft”). In addition, on occasion,
Mr. Schwarzman and his family have made use of an aircraft
in which Blackstone owns a fractional interest, as well as other
assets of Blackstone. Mr. Schwarzman paid for his purchases
of the aircraft himself and bears all operating, personnel and
maintenance costs associated with their operation. In addition,
Mr.Schwarzmanischargedforhisandhisfamily’spersonaluse
of Blackstone assets based on market rates and usage. Payment
by Blackstone for the use of the Personal Aircraft by other
Blackstone employees are made at market rates. Personal use
of Blackstone resources are also reimbursed to Blackstone at
marketrates.Thetransactionsdescribedhereinarenotmaterial
totheconsolidatedandcombined?nancialstatements.
Tax Receivable Agreement
BlackstoneusedaportionoftheproceedsfromtheIPOandthesale
of non-voting common units to Beijing Wonderful Investments to
purchaseinterestsinthepredecessorbusinessesfromthepredeces-
sorowners.Inaddition,holdersofBlackstoneHoldingsPartnership
Units may exchange their Blackstone Holdings Partnership Units
for Blackstone Common Units on a one-for-one basis. The
purchase and subsequent exchanges are expected to result in
increases in the tax basis of the tangible and intangible assets
of Blackstone Holdings and therefore reduce the amount of tax
thatBlackstone’swholly-ownedsubsidiarieswouldotherwisebe
requiredtopayinthefuture.
Certain subsidiaries of the Partnership which are corporate
taxpayershaveenteredintotaxreceivableagreementswitheach
of the predecessor owners and additional tax receivable agree-
ments have been executed, and will continue to be executed,
with newly-admitted senior managing directors and others
whoacquireBlackstoneHoldingsPartnershipUnits.Theagree-
ments provide for the payment by the corporate taxpayers to
suchownersof85%oftheamountofcashsavings,ifany,inU.S.
federal, state and local income tax that the corporate taxpayers
actually realize as result of the aforementioned increases in tax
basis and of certain other tax bene?ts related to entering into
thesetaxreceivableagreements.Forpurposesofthetaxreceiv-
ableagreements,cashsavingsinincometaxwillbecomputedby
comparing the actual income tax liability of the corporate tax-
payerstotheamountofsuchtaxesthatthecorporatetaxpayers
would have been required to pay had there been no increase to
the tax basis of the tangible and intangible assets of Blackstone
Holdingsasaresultoftheexchangesandhadthecorporatetax-
payersnotenteredintothetaxreceivableagreements.
Assuming no material changes in the relevant tax law and
that the corporate taxpayers earn suf cient taxable income to
92 TheBlackstoneGroup AnnualReport2009
realize the full tax bene?t of the increased amortization of the
assets, the expected future payments under the tax receivable
agreements (which are taxable to the recipients) will aggregate
$830.5 million over the next 15 years. The after-tax present
valueoftheseestimatedpaymentstotals$228.6 millionassum-
ing a 15% discount rate and using Blackstone’s most recent
projections relating to the estimated timing of the bene?t to be
received.Futurepaymentsunderthetaxreceivableagreements
inrespectofsubsequentexchangeswouldbeinadditiontothese
amounts.Thepaymentsunderthetaxreceivableagreementare
notconditioneduponcontinuedownershipofBlackstoneequity
interestsbythepre-IPOownersandtheothersmentionedabove.
SubsequenttoDecember 31,2009,paymentstotaling$4,076,382
were made to certain pre-IPO owners in accordance with
the tax receivable agreement and related to tax benefits the
Partnershipreceivedforthe2008taxableyear.
Other
BlackstonedoesbusinesswithandonbehalfofsomeofitsPortfolio
Companies;allsucharrangementsareonanegotiatedbasis.
16. commitments and contingencies
Commitments
Operating Leases. The Partnership leases office space under
non-cancelable lease and sublease agreements, which expire
on various dates through 2024. Occupancy lease agreements,
in addition to base rentals, generally are subject to escalation
provisions based on certain costs incurred by the landlord,
and are recognized on a straight-line basis over the term of the
lease agreement. Rent expense includes base contractual rent
and variable costs such as building expenses, utilities, taxes
and insurance. Rent expense for the years ended December 31,
2009, 2008 and 2007, was $63.1 million, $40.7 million and
$30.2 million,respectively.AtDecember 31,2009and2008,the
Partnership maintained irrevocable standby letters of credit
and cash deposits as security for the leases of $9.9 million and
$10.4 million,respectively.AsofDecember 31,2009,theapproxi-
mate aggregate minimum future payments, net of sublease
income,requiredontheoperatingleasesareasfollows:
2010 $ 54,669
2011 49,929
2012 47,709
2013 47,593
2014 44,979
Thereafter 298,352
$543,231
Investment Commitments. The consolidated Blackstone
Funds had signed investment commitments of $24.2 million as
of December 31, 2009. Included in this is $0.4 million of signed
investment commitments for portfolio company acquisitions in
the process of closing. In addition, the general partners of the
Blackstone Funds had unfunded commitments to each of their
respectivefundsof$1.3 billionasofDecember 31,2009.
Contingencies
Guarantees. Certain of Blackstone’s consolidated real estate
fundsguaranteepaymentstothirdpartiesinconnectionwiththe
on-goingbusinessactivitiesand/oracquisitionsoftheirPortfolio
Companies. There is no direct recourse to the Partnership to
fulfill such obligations. To the extent that underlying funds
are required to ful?ll guarantee obligations, the Partnership’s
invested capital in such funds is at risk. Total investments at
risk in respect of guarantees extended by real estate funds was
$6.4 millionasofDecember 31,2009.
Contingent Performance Fees and Allocations. There were
$46.7 million of performance fees and allocations related to the
hedge funds in the credit and marketable alternatives segment
for the year ended December 31, 2009 attributable to arrange-
mentswherethemeasurementperiodhadnotended.
Litigation. Fromtimetotime,Blackstoneisnamedasadefen-
dant in legal actions relating to transactions conducted in the
ordinarycourseofbusiness.Althoughtherecanbenoassurance
of the outcome of such legal actions, in the opinion of manage-
ment,Blackstonedoesnothaveapotentialliabilityrelatedtoany
current legal proceeding or claim that would individually or in
theaggregatemateriallyadverselyafectitsresultsofoperations,
?nancialpositionorcash?ows.
Contingent Obligations (Clawback). IncludedwithinNetGains
(Losses) from Fund Investment Activities in the Consolidated
Statements of Operations are gains from Blackstone Fund
investments. The portion of net gains (losses) attributable
to non-controlling interest holders is included within Non-
Controlling Interests in Income of Consolidated Entities. Net
gains (losses) attributable to non-controlling interest holders
are net of Carried Interest earned by Blackstone. Carried inter-
est is subject to clawback to the extent that the carried interest
receivedtodateexceedstheamountduetoBlackstonebasedon
cumulative results.
Theactualclawbackliability,however,doesnotbecomereal-
ized until the end of a fund’s life except for Blackstone’s real
estate funds which may have a clawback liability come due one
yearafterarealizedlossisincurred,dependingonthefund.The
93
lives of the carry funds with a potential clawback obligation,
including available contemplated extensions, are currently
anticipatedtoexpireatvariouspointsbeginningtowardtheend
of2012andextendingthrough2018.Furtherextensionsofsuch
termsmaybeimplementedundergivencircumstances.
As of December 31, 2009, the current cash clawback obliga-
tion of the Blackstone general partners to the limited partner
investors of the private equity, real estate and credit-oriented
funds is zero. For financial reporting purposes, however, the
generalpartnershaverecordedaliabilityforpotentialclawback
obligations to the limited partners of some of the carry funds
due to changes in the unrealized value of a fund’s remaining
investmentsandwherethefund’sgeneralpartnerhaspreviously
received Carried Interest distributions with respect to such
fund’srealizedinvestments.
AsofDecember 31,2009,theclawbackobligations,whichare
not currently due, were $485.3 million, of which $217.4 million
related to Blackstone Holdings and $267.9 million related to
current and former Blackstone personnel. As of December 31,
2008,suchobligationswere$260.0 million,ofwhich$109.8 mil-
lion related to Blackstone Holdings and $150.2 million related
to current and former Blackstone personnel. The Accrual for
Potential Repayment of Previously Received Performance Fees
andAllocationsisincludedinDuetoAf liates.
A portion of the carried interest paid to current and former
Blackstonepersonnelisheldinsegregatedaccountsintheevent
of a cash clawback obligation. These segregated accounts are
not included in the consolidated and combined ?nancial state-
ments of the Partnership, except to the extent a portion of the
assetsheldinthesegregatedaccountsmaybeallocatedtoacon-
solidatedBlackstonefundofhedgefunds.AtDecember 31,2009,
$474.4 millionwasheldinsegregatedaccountsforthepurposeof
meetinganyclawbackobligationsofcurrentandformerperson-
nelifsuchpaymentsarerequired.
17. employee benefit plans
The Partnership provides a 401(k) plan (the “Plan”) for eligible
employees in the United States. For certain ?nance and admin-
istrative professionals who are participants in the Plan, the
Partnershipcontributes2%ofsuchprofessional’spretaxannual
compensation up to a maximum of one thousand six hundred
dollars. In addition, the Partnership will contribute 50% of the
first 4% of pretax annual compensation contributed by such
professional participants with a maximum matching contribu-
tion of one thousand six hundred dollars. For the years ended
December 31, 2009, 2008 and 2007, the Partnership incurred
expensesof$1.5 million,$1.3 millionand$0.9 millioninconnec-
tionwithsuchPlan.
Thefollowingtablepresentstheclawbackobligationsbysegment:
December 31, 2009 December 31, 2008
Current and Current and
Blackstone Former Blackstone Former
Segment Holdings Personnel Total Holdings Personnel Total
PrivateEquity $ 65,237 $120,208 $185,445 $ 63,643 $118,928 $182,571
RealEstate 152,142 147,666 299,808 46,014 31,145 77,159
CreditandMarketableAlternatives – – – 183 105 288
Total $217,379 $267,874 $485,253 $109,840 $150,178 $260,018
94 TheBlackstoneGroup AnnualReport2009
The Partnership provides a defined contribution plan
for eligible employees in the United Kingdom (“UK Plan”).
All United Kingdom employees are eligible to contribute to
the UK Plan after three months of qualifying service. The
Partnership contributes a percentage of an employee’s annual
salary, subject to United Kingdom statutory restrictions, on a
monthly basis for administrative employees of the Partnership
based upon the age of the employee. For the years ended
December 31, 2009, 2008 and 2007, the Partnership incurred
expenses of $0.3 million, $0.3 million and $0.3 million, respec-
tively,inconnectionwiththeUKPlan.
18. regulated entities
The Partnership has certain entities that are registered broker-
dealers which are subject to the minimum net capital require-
ments of the Securities and Exchange Commission (“SEC”).
The Partnership has continuously operated in excess of these
requirements. The Partnership also has two entities based in
London which are subject to the capital requirements of the
U.K. Financial Services Authority. These entities have continu-
ouslyoperatedinexcessoftheirregulatorycapitalrequirements.
CertainotherU.S.andnon-U.S.entitiesaresubjecttovarious
securitiescommoditypoolandtraderregulations.Thisincludes
a number of U.S. entities which are Registered Investment
AdvisorsundertherulesandauthorityoftheSEC.
The regulatory capital requirements referred to above may
restrict the Partnership’s ability to withdraw capital from its
entities. At December 31, 2009, approximately $25.3 million of
netassetsofconsolidatedentitiesmayberestrictedastothepay-
mentofcashdividendsandadvancestothePartnership.
19. segment reporting
Blackstone transacts its primary business in the United States
andsubstantiallyallofitsrevenuesaregenerateddomestically.
Blackstone conducts its alternative asset management and
?nancialadvisorybusinessesthroughfourreportablesegments:
• Private Equity – Blackstone’s Private Equity segment com-
prisesitsmanagementofprivateequityfunds.
• RealEstate–Blackstone’sRealEstatesegmentcomprisesits
management of general real estate funds and internationally
focusedrealestatefunds.
• CreditandMarketableAlternatives–Blackstone’sCreditand
Marketable Alternatives segment, whose consistent focus is
currentearnings,comprisesitsmanagementoffundsofhedge
funds, credit-oriented funds, CLO vehicles, separately man-
aged accounts and publicly-traded closed-end mutual funds.
ThissegmentwasformerlyknownasMarketableAlternative
AssetManagementandhasbeenrenamedtobetterre?ectthe
product mix in this segment. This does not re?ect a change
to the underlying businesses or how they are reflected in
Blackstone’sresultsofoperation.
• Financial Advisory – Blackstone’s Financial Advisory seg-
ment comprises its corporate and mergers and acquisitions
advisory services, restructuring and reorganization advisory
services and Park Hill Group, which provides fund place-
mentservicesforalternativeinvestmentfunds.
These business segments are differentiated by their vari-
ous sources of income, with the Private Equity, Real Estate and
CreditandMarketableAlternativessegmentsprimarilyearning
their income from management fees and investment returns on
assets under management, while the Financial Advisory seg-
mentprimarilyearnsitsincomefromfeesrelatedtoinvestment
bankingservicesandadviceandfundplacementservices.
Economic Net Income (“ENI”) is a key performance measure
used by management. ENI represents segment income before
taxes excluding transaction-related charges. Transaction-related
charges include principally charges associated with equity-based
compensation, the amortization of intangibles and corporate
actions including acquisitions. Blackstone’s historical combined
?nancial statements for periods prior to the IPO do not include
these transaction-related charges nor do such financial state-
ments re?ect certain compensation expenses including perfor-
mance payment arrangements associated with senior managing
directors,departedpartnersandotherselectedemployees.Those
compensation expenses were accounted for as partnership
distributions prior to the IPO but are included in the ?nancial
statements for the periods following the IPO as a component of
compensation and bene?ts expense. The aggregate of ENI for all
reportable segments equals Total Reportable Segment ENI. ENI
isusedbymanagementprimarilyinmakingresourcedeployment
andcompensationdecisionsacrossBlackstone’sfoursegments.
Management makes operating decisions and assesses the
performance of each of Blackstone’s business segments based
on ?nancial and operating metrics and data that is presented
without the consolidation of any of the Blackstone Funds that
are consolidated into the consolidated and combined ?nancial
statements. Consequently, all segment data excludes the assets,
liabilitiesandoperatingresultsrelatedtotheBlackstoneFunds.
95
Thefollowingtablepresentsthe?nancialdataforBlackstone’sfourreportablesegmentsasofandfortheyearendedDecember 31,2009:
December 31, 2009 and the Year then Ended
Credit and Total
Private Marketable Financial Reportable
Equity Real Estate Alternatives Advisory Segments
SegmentRevenues
ManagementFeesandAdvisoryFees
BaseManagementFees $ 270,509 $ 328,447 $ 400,873 $ – $ 999,829
AdvisoryFees – – – 390,718 390,718
TransactionandOtherFees,Net 86,336 25,838 2,866 – 115,040
ManagementFeeOfsets – (2,467) (14,694) – (17,161)
TotalManagementandAdvisoryFees 356,845 351,818 389,045 390,718 1,488,426
PerformanceFeesandAllocations
Realized 34,021 (3,039) 43,282 – 74,264
Unrealized 303,491 (252,180) 114,556 – 165,867
TotalPerformanceFeesandAllocations 337,512 (255,219) 157,838 – 240,131
InvestmentIncome(Loss)
Realized 36,968 6,164 (15,031) 1,443 29,544
Unrealized 33,269 (125,624) 96,016 219 3,880
TotalInvestmentIncome(Loss) 70,237 (119,460) 80,985 1,662 33,424
InterestandDividendRevenue 7,756 6,030 3,452 5,254 22,492
Other 2,845 3,261 1,025 (35) 7,096
TotalRevenues 775,195 (13,570) 632,345 397,599 1,791,569
Expenses
CompensationandBene?ts
BaseCompensation 181,266 158,115 198,117 232,359 769,857
PerformanceFeeRelated
Realized 741 3,506 20,854 – 25,101
Unrealized 20,307 (113,981) 67,493 – (26,181)
TotalCompensationandBene?ts 202,314 47,640 286,464 232,359 768,777
OtherOperatingExpenses 82,471 56,325 80,661 79,572 299,029
TotalExpenses 284,785 103,965 367,125 311,931 1,067,806
EconomicNetIncome(Loss) $ 490,410 $ (117,535) $ 265,220 $ 85,668 $ 723,763
SegmentAssets $2,870,238 $1,940,925 $2,706,169 $986,624 $8,503,956
96 TheBlackstoneGroup AnnualReport2009
The following table reconciles the Total Reportable Segments
toBlackstone’sIncome(Loss)BeforeProvision(Bene?t)forTaxes
andTotalAssetsasofandfortheyearendedDecember 31,2009:
December 31, 2009 and the Year then Ended
Consolidation
Adjustments
Total and Reconciling Blackstone
Segments Items Consolidated
Revenues $1,791,569 $ (17,870)
(a)
$ 1,773,699
Expenses $1,067,806 $ 3,174,053
(b)
$ 4,241,859
OtherIncome $ – $ 176,694
(c)
$ 176,694
EconomicNet
Income(Loss) $ 723,763 $(3,015,229)
(d)
$( 2,291,466)
TotalAssets $8,503,956 $ 905,068
(e)
$ 9,409,024
(a)
TheRevenuesadjustmentprincipallyrepresentsmanagementandperformancefees
andallocationsearnedfromBlackstoneFundstoarriveatBlackstoneconsolidated
revenueswhichwereeliminatedinconsolidation.
(b)
The Expenses adjustment represents the addition of expenses of the consolidated
Blackstone Funds to the Blackstone unconsolidated expenses, amortization of
intangiblesandexpensesrelatedtotransaction-relatedequity-basedcompensation
toarriveatBlackstoneconsolidatedandcombinedexpenses.
(c) TheOtherIncomeadjustmentresultsfromthefollowing:
Year Ended
December 31, 2009
FundManagementFeesandPerformanceFeesand
AllocationsEliminatedinConsolidation $ 14,870
FundExpensesAddedinConsolidation 10,441
Non-ControllingInterestsinIncomeofConsolidatedEntities 151,383
TotalConsolidationAdjustments $176,694
(d)
ThereconciliationofEconomicNetIncome(Loss)toIncome(Loss)BeforeBene?t
for Taxes as reported in the Consolidated and Combined Statements of Operations
consistsofthefollowing:
Year Ended
December 31, 2009
EconomicNetIncome(Loss) $ 723,763
Adjustments:
AmortizationofIntangibles (158,048)
IPOandAcquisition-RelatedCharges (2,973,950)
Income(Loss)AssociatedwithNon-ControllingInterestsin
Income(Loss)ofConsolidatedEntities 116,769
TotalAdjustments (3,015,229)
Income(Loss)BeforeProvision(Bene?t)forTaxes $(2,291,466)
(e)
The Total Assets adjustment represents the addition of assets of the consolidated
BlackstoneFundstotheBlackstoneunconsolidatedassetstoarriveatBlackstonecon-
solidatedandcombinedassets.
97
Thefollowingtablepresents?nancialdataforBlackstone’sfourreportablesegmentsasofandfortheyearendedDecember 31,2008:
December 31, 2008 and the Year then Ended
Credit and Total
Private Marketable Financial Reportable
Equity Real Estate Alternatives Advisory Segments
SegmentRevenues
ManagementFeesandAdvisoryFees
BaseManagementFees $ 268,961 $ 295,921 $ 476,836 $ – $ 1,041,718
AdvisoryFees – – – 397,519 397,519
TransactionandOtherFees,Net 51,796 36,046 8,516 – 96,358
ManagementFeeOfsets (4,862) (4,969) (6,606) – (16,437)
TotalManagementandAdvisoryFees 315,895 326,998 478,746 397,519 1,519,158
PerformanceFeesandAllocations
Realized (749) 24,681 15,081 – 39,013
Unrealized (429,736) (843,704) (12,822) – (1,286,262)
TotalPerformanceFeesandAllocations (430,485) (819,023) 2,259 – (1,247,249)
InvestmentIncome(Loss)
Realized 13,687 3,778 (82,142) – (64,677)
Unrealized (196,200) (238,650) (257,084) – (691,934)
TotalInvestmentIncome(Loss) (182,513) (234,872) (339,226) – (756,611)
InterestandDividendRevenue 6,459 5,880 8,527 8,148 29,014
Other 4,474 3,008 1,214 4,899 13,595
TotalRevenues (286,170) (718,009) 151,520 410,566 (442,093)
Expenses
CompensationandBene?ts
BaseCompensation 146,551 150,684 239,436 234,755 771,426
PerformanceFeeRelated
Realized (4,255) 1,090 8,162 – 4,997
Unrealized (126,090) (74,981) (6,643) – (207,714)
TotalCompensationandBene?ts 16,206 76,793 240,955 234,755 568,709
OtherOperatingExpenses 90,130 55,782 106,027 67,277 319,216
TotalExpenses 106,336 132,575 346,982 302,032 887,925
EconomicNetIncome(Loss) $ (392,506) $ (850,584) $ (195,462) $108,534 $(1,330,018)
SegmentAssets $ 2,688,398 $1,753,009 $2,615,891 $550,215 $ 7,607,513
98 TheBlackstoneGroup AnnualReport2009
ThefollowingtablereconcilestheTotalReportableSegments
to Blackstone’s Income Before Provision for Taxes as of and for
theyearendedDecember 31,2008:
December 31, 2008 and the Year then Ended
Consolidation
Adjustments
and
Total Reconciling Blackstone
Segments Items Consolidated
Revenues $ (442,093) $ 92,732
(a)
$ (349,361)
Expenses $ 887,925 $ 3,498,677
(b)
$ 4,386,602
OtherLoss $ – $ (872,336)
(c)
$ (872,336)
EconomicNet
Income(Loss) $(1,330,018) $(4,278,281)
(d)
$(5,608,299)
TotalAssets $ 7,607,513 $ 1,881,544
(e)
$ 9,489,057
(a)
TheRevenuesadjustmentprincipallyrepresentsmanagementandperformancefees
andallocationsearnedfromBlackstoneFundstoarriveatBlackstoneconsolidated
revenueswhichwereeliminatedinconsolidation.
(b)
The Expenses adjustment represents the addition of expenses of the consolidated
Blackstone Funds to the Blackstone unconsolidated expenses, amortization of
intangiblesandexpensesrelatedtotransaction-relatedequity-basedcompensation
toarriveatBlackstoneconsolidatedandcombinedexpenses.
(c) TheOtherIncomeadjustmentresultsfromthefollowing:
Year Ended
December 31, 2008
FundManagementFeesandPerformanceFees
andAllocationsEliminatedinConsolidation $(105,418)
FundExpensesAddedinConsolidation 66,046
Non-ControllingInterestsinIncome(Loss)
ofConsolidatedEntities (832,964)
TotalConsolidationAdjustments $(872,336)
(d)
The reconciliation of Economic Net Income to Income Before Provision for Taxes
asreportedintheConsolidatedandCombinedStatementsofOperationsconsistsof
the following:
Year Ended
December 31, 2008
EconomicNetIncome(Loss) $(1,330,018)
Adjustments:
AmortizationofIntangibles (153,237)
IPOandAcquisition-RelatedCharges (3,331,722)
OtherAdjustments (999)
Income(Loss)AssociatedwithNon-Controlling
InterestsinIncome(Loss)ofConsolidatedEntities (792,323)
TotalAdjustments (4,278,281)
Income(Loss)BeforeProvision(Bene?t)forTaxes $(5,608,299)
(e)
TheTotalAssetsadjustmentrepresentstheadditionofassetsoftheconsolidated
BlackstoneFundstotheBlackstoneunconsolidatedassetstoarriveatBlackstone
consolidatedandcombinedassets.
99
Thefollowingtablepresents?nancialdataforBlackstone’sfourreportablesegmentsfortheyearendedDecember 31,2007:
December 31, 2007 and the Year then Ended
Credit and Total
Private Marketable Financial Reportable
Equity Real Estate Alternatives Advisory Segments
SegmentRevenues
ManagementandAdvisoryFees
BaseManagementFees $ 254,843 $ 233,072 $316,337 $ – $ 804,252
AdvisoryFees – – – 360,284 360,284
TransactionandOtherFees,Net 123,770 348,410 6,630 – 478,810
ManagementFeeOfsets (10,734) (11,717) (33) – (22,484)
TotalManagementandAdvisoryFees 367,879 569,765 322,934 360,284 1,620,862
PerformanceFeesandAllocations
Realized 574,274 326,514 154,028 – 1,054,816
Unrealized (194,357) 297,437 2,952 – 106,032
TotalPerformanceFeesandAllocations 379,917 623,951 156,980 – 1,160,848
InvestmentIncome(Loss)
Realized 131,498 68,996 62,363 – 262,857
Unrealized (16,166) 65,472 81,439 – 130,745
TotalInvestmentIncome(Loss) 115,332 134,468 143,802 – 393,602
InterestandDividendRevenue 1,731 1,321 4,249 7,385 14,686
Other 470 38 31 (11) 528
TotalRevenues 865,329 1,329,543 627,996 367,658 3,190,526
Expenses
CompensationandBene?ts
BaseCompensation 132,119 147,829 82,594 132,633 495,175
PerformanceFeeRelated
Realized 14,534 8,560 68,109 – 91,203
Unrealized (50,251) (11,243) (373) – (61,867)
TotalCompensationandBene?ts 96,402 145,146 150,330 132,633 524,511
OtherOperatingExpenses 78,473 54,829 74,728 39,037 247,067
TotalExpenses 174,875 199,975 225,058 171,670 771,578
EconomicNetIncome $ 690,454 $1,129,568 $402,938 $195,988 $2,418,948
100 TheBlackstoneGroup AnnualReport2009
The following table reconciles the Total Reportable
Segments to Blackstone’s Income Before Provision for Taxes
fortheyearendedDecember 31,2007:
Year Ended December 31, 2007
Consolidation
Adjustments Blackstone
and Consolidated
Total Reconciling and
Segments Items Combined
Revenues $3,190,526 $(140,378)
(a)
$3,050,148
Expenses $ 771,578 $1,993,266
(b)
$2,764,844
OtherIncome $ – $5,423,132
(c)
$5,423,132
EconomicNetIncome $2,418,948 $3,289,488
(d)
$5,708,436
(a)
TheRevenuesadjustmentprincipallyrepresentsmanagementandperformancefees
andallocationsearnedfromBlackstoneFundstoarriveatBlackstoneconsolidated
andcombinedrevenueswhichwereeliminatedinconsolidation.
(b)
The Expenses adjustment represents the addition of expenses of the consolidated
Blackstone Funds to the Blackstone unconsolidated expenses, amortization of
intangiblesandexpensesrelatedtotransaction-relatedequity-basedcompensation
toarriveatBlackstoneconsolidatedandcombinedexpenses.
(c) TheOtherIncomeadjustmentresultsfromthefollowing:
Year Ended
December 31, 2007
FundManagementFeesandPerformanceFeesand
AllocationsEliminatedinConsolidation $ 131,978
FundExpensesAddedinConsolidation 151,919
Non-ControllingInterestsinIncomeof
ConsolidatedEntities 5,139,235
TotalConsolidationAdjustments $5,423,132
(d)
The reconciliation of Economic Net Income to Income Before Provision for Taxes
asreportedintheConsolidatedandCombinedStatementsofOperationsconsistsof
the following:
Year Ended
December 31, 2007
EconomicNetIncomeandother $2,418,948
Adjustments:
AmortizationofIntangibles (117,607)
IPOandAcquisition-RelatedCharges (1,732,134)
OtherAdjustments (6)
IncomeAssociatedwithNon-Controlling
InterestsinIncomeofConsolidatedEntities 5,139,235
TotalAdjustments 3,289,488
Income(Loss)BeforeProvision(Bene?t)forTaxes $5,708,436
20. subsequent events
TherehavebeennoeventssinceDecember31,2009thatrequire
recognition or disclosure in the Consolidated and Combined
FinancialStatements.
101
21. quarterly financial data (unaudited)
Three Months Ended
March 31, June 30, September 30, December 31,
2009 2009 2009 2009
Revenues $ 44,914 $ 406,416 $ 597,023 $ 725,346
Expenses 922,358 1,051,706 1,097,794 1,170,001
OtherIncome(Loss) (34,763) 58,304 73,812 79,341
Income(Loss)BeforeProvisionforTaxes $(912,207) $ (586,986) $ (426,959) $ (365,314)
NetIncome(Loss) $(929,938) $ (597,871) $ (479,510) $ (383,377)
NetIncome(Loss)AttributabletoTheBlackstoneGroupL.P. $(231,574) $ (164,284) $ (176,183) $ (143,250)
NetLossPerCommonUnit–BasicandDiluted
CommonUnitsEntitledtoPriorityDistributions $ (0.84) $ (0.59) $ (0.59) $ (0.45)
CommonUnitsNotEntitledtoPriorityDistributions $ (1.14) $ (0.90) $ (0.92) $ (0.76)
PriorityDistributionsDeclared
(a)
$ – $ 0.30 $ 0.30 $ 0.30
Three Months Ended
March 31, June 30, September 30, December 31,
2008 2008 2008 2008
Revenues $ 68,523 $ 353,652 $ (160,254) $ (611,282)
Expenses 1,098,063 1,163,808 1,132,698 992,033
OtherIncome (215,636) 189,678 (550,755) (295,623)
Income(Loss)BeforeProvisionforTaxes (1,245,176) (620,478) (1,843,707) (1,898,938)
NetIncome(Loss) $(1,254,157) $ (594,627) $(1,822,345) $(1,923,025)
NetIncome(Loss)AttributabletoTheBlackstoneGroupL.P. $ (250,993) $ (156,531) $ (340,331) $ (415,177)
NetLossPerCommonUnit–BasicandDiluted
CommonUnitsEntitledtoPriorityDistributions $ (0.95) $ (0.60) $ (1.26) $ (1.51)
CommonUnitsNotEntitledtoPriorityDistributions $ (1.56) $ (1.51)
PriorityDistributionsDeclared
(a)
$ 0.30 $ 0.30 $ 0.30 $ 0.30
(a)
Distributionsdeclaredre?ectsthecalendardateofthedeclarationofeachdistribution.
102 TheBlackstoneGroup AnnualReport2009
Leadership
Directory
Board of Directors
Stephen A. Schwarzman
Chairman,CEOandCo-Founder,
TheBlackstoneGroup
Hamilton E. James
PresidentandChiefOperatingOf cer,
TheBlackstoneGroup
J. Tomilson Hill
ViceChairmanandHeadof
BlackstoneAlternativeAssetManagement
TheBlackstoneGroup
Richard Jenrette
RetiredChairmanandCEO,
TheEquitableLifeAssuranceSociety
Jay O. Light
Dean,HarvardBusinessSchool
The Right Honorable Brian Mulroney
FormerPrimeMinisterofCanada
William G. Parrett
RetiredCEOandSeniorPartner,
Deloitte(DeloitteToucheTohmatsu)
2009 Management,
Executive Committee and
Corporate Of cers
Stephen A. Schwarzman
Chairman,CEOandCo-Founder
Hamilton E. James
PresidentandChiefOperatingOf cer
J. Tomilson Hill
ViceChairmanandHeadof
BlackstoneAlternativeAssetManagement
Tim Coleman
Co-Head,Restructuring&Reorganization
Robert L. Friedman
ChiefLegalOf cer
Bennett Goodman
Co-Founder,Co-Head,GSOCapitalPartners
Jonathan D. Gray
Co-Head,RealEstate
Garrett M. Moran
ChiefOperatingOf cer,PrivateEquity
Sylvia F. Moss
Head,Administration
Arthur B. Newman
Co-Head,Restructuring&Reorganization
Chad R. Pike
Co-Head,RealEstate
Joan Solotar
Head,PublicMarkets
John Studzinski
Head,CorporateAdvisoryand
MergersandAcquisitions
Laurence A. Tosi
ChiefFinancialOf cer
Kenneth C. Whitney
Head,LimitedPartnerRelationsand
FundPlacement
Business Units
Private Equity
CleantechVenturePartners
InfrastructurePartners
ZhonghuaDevelopmentFund
Real Estate
RealEstatePartners
RealEstatePartnersInternational
RealEstateDebtStrategies
Credit and Marketable Alternatives (CAMA)
BlackstoneAlternativeAssetManagement(BAAM)
GSOCapitalPartners
Multi-StrategyCreditFunds
MezzanineFunds
DistressedFunds
CollateralizedLoanObligations(CLO)
ClosedEndMutualFunds
IndiaFund
AsiaTigersFund
Financial Advisory
BlackstoneAdvisoryPartners,LP
Restructuring&ReorganizationAdvisory
ParkHill
ParkHillLLC
ParkHillRealEstateLLC
Blackstone Greater China
Blackstone India
Mumbai
ExpressTowers,5thFloor
NarimanPoint
Mumbai,400021
India
Paris
11-13AvenuedeFriedland
75008Paris
France
San Francisco
101CaliforniaStreet
Suite2880
SanFrancisco,CA94111
Sydney
Level14,MacquarieHouse
167MacquarieStreet
SydneyNSW2000,Australia
Tokyo
11FAIGBuilding
1-1-3Marunouchi,Chiyoda-Ku
Tokyo,100-0005
Japan
GSO Capital Partners
New York
280ParkAvenue
11thFloor
NewYork,NY10017
London
13HanoverSquare
5thFloor
London,W1S1HN
UnitedKingdom
Houston
11GreenwayPlaza
30thFloor,Suite3050
Houston,TX77046
Number of Employees Globally
1,295
Independent Auditors
Deloitte&ToucheLLP
Unitholder
Information
Global Of ces
New York
345ParkAvenue
NewYork,NY10154
Atlanta
4401NorthsideParkway
3rdFloor,Suite375
Atlanta,GA30327
Beijing
WinlandInternationalFinanceCenter
UnitF817-18
No.7,FinanceStreet
XichengDistrict,Beijing,China100140
Boston
ExchangePlace
53StateStreet
29thFloor
Boston,MA02109
Chicago
200WestMadisonStreet
Suite3800
Chicago,IL60606
Dallas
3949MapleAvenue
Suite400
Dallas,TX75219
Hong Kong
TwoInternationalFinanceCentre
Suite901,9thFloor
8FinanceStreet
Central,HongKong
China
London
40BerkeleySquare
London,W1J5AL
UnitedKingdom
Los Angeles
1299OceanAve
Suite320
SantaMonica,CA90401
Menlo Park
2494SandHillRoad
Suite200
MenloPark,CA94025
Transfer Agent
AmericanStockTransfer&TrustCompany
OperationsCenter
620115thAvenue
Brooklyn,NY11230
+1800.937.5449
Investor Relations
TheBlackstoneGroupL.P.
345ParkAvenue
NewYork,NY10154
+1888.756.8443
Additional Financial Information
Pleasevisitwww.blackstone.comforourcomplete
2009AnnualReportonForm10-Kandthe
otherdocumentswehave?ledorfurnishedwith
theSEC,includingourCurrentReporton
Form8-Kcontainingourpressreleasereport-
ingonour?scal2009?nancialresults.
Copyright Information
Copyright2010
TheBlackstoneGroupL.P.
Allrightsreserved.
NYSE Symbol
BX
Common Unit Price
Thefollowingtablesetsforththehighandlow
intra-daysalespricesperunitofourcommon
units,fortheperiodsindicated,asreportedby
theNYSE.
SalesPrice
2009 High Low
First Quarter $ 9.19 $ 3.55
Second Quarter $14.44 $ 6.89
Third Quarter $15.38 $ 8.54
Fourth Quarter $17.22 $12.71
Neither this annual report nor any of the information
contained herein constitutes an ofer of any
Blackstone fund.
D
e
s
i
g
n
b
y
A
d
d
i
s
o
n
w
w
w
.
a
d
d
i
s
o
n
.
c
o
m
The Blackstone
Group
345 Park Avenue
New York,
New York 10154
blackstone.com
doc_622814242.pdf
Experience shows that the most compelling opportunities to create value often arise at the bottom of an economic cycle.
Finding it.
Investing in it.
Protecting it.
Building it...
AnnualReport2009
Contents
Creating Value, Earning Trust 2
Private Equity 4
A Focus On Health Care 8
Real Estate 10
Energy Independence And
The Environment 14
Blackstone Alternative Asset
Management (BAAM) 16
Credit Business – GSO 17
A Strategic Approach To Building Value 20
Financial Advisory 22
Restructuring 23
The Blackstone Charitable Foundation 26
Financial Highlights 28
Letter To Unitholders 32
Our Guiding Principles/
The Peter G. Peterson Award 38
Financials 39
Leadership Directory 100
Unitholder Information Inside Back cover
Deploying Capital Strategically to Realize Potential Deploying Capital Strategically to Realize Potential Deploying Capital Strategically to Realize Potential
Experienceshowsthatthemostcompelling
opportunities to create value often arise at
thebottomofaneconomiccycle.Webelieve
that2009wasacaseinpoint.Andso,across
Blackstone’s businesses, we committed our
capital, knowledge and talent to identify
new investments, protect existing invest-
mentsandbuildvalueforthelongterm.
Much of our value-creation re?ects our
establishedroleasstewardsofprivatecapi-
talinthepublicinterest.OurPrivateEquity
businessrealizedproceedsfromthesaleor
IPOsofseveralportfolioholdingsandmade
newinvestmentsinqualitycompanieswith
stronggrowthpotential.InRealEstate,we
began late in the year selectively using our
substantialresourcestobuyassetswiththe
potential to benefit as property markets
stabilize.OurBlackstoneAlternativeAsset
Management(BAAM)businessbecamethe
world’slargestfundofhedgefundsmanager,
inpartduetoitsunmatchedsuccessinpre-
serving the value of clients’ assets. Our
Credit business has provided ?nancing at
attractivereturnsinadebt-starvedmarket-
place. Additionally, our Financial Advisory
businessadvisedonhighpro?lerestructur-
ingandM&Atransactionstocreatehealthier,
morecompetitiveenterprises.
Wealsoinvestedinourownbusinesses,
expanding our global footprint, launching
newinitiativesandaddingtalentedpeople
to strengthen our position and leadership
forthefuture.
Throughoureforts,wewillstrivetocreate
a positive impact and long-term value—for
ourinvestors,shareholders,clients,portfolio
companiesandthebroader economy.
Value.
1
Sound
stewardship of
private capital
serves the
public interest.
ThemajorityofthecapitalinvestedbyBlackstoneisentrustedtousbyglobalpublicinstitutions,includingpension
funds,universityendowments,charitableinstitutionsandsovereignwealthfunds.Wehavemorethan1,190limited
partnersin50countries.Whenwedeliversuperiorreturnsforourlimitedpartners,webene?tthelivesofworkers,
retirees,students,grantrecipientsandothersaroundtheworldwhodependontheseinstitutions.
Creating Value, Earning Trust
2 TheBlackstoneGroup AnnualReport2009
Wetakethisresponsibilityseriously,knowingthatbyprotectingandgrowingthecapital
entrusted to us, we are helping governments to reduce pension shortfalls, allowing cur-
rent and future retirees to enjoy a more secure retirement, and advancing the missions
ofnumerousworthyorganizationsineducation,communityservice,healthcareandthe
arts. The fact that nearly 90% of our limited partners invest in successive Blackstone
fundsre?ectsourcommitmenttodeliveringperformanceworthyoftheirtrust.
Bene?tting Pensioners
Morethan37millionpensionersworldwidebene?tfromthereturnsthataregenerated
byBlackstone’sinvestments.Ofthisnumber,nearly23millionliveintheUnitedStates—
morethanhalfofallU.S.pensioners.
Higher Returns for Higher Education
Among Blackstone’s limited partners are U.S. universities with an enrollment of more
than1.25millionstudents.Thisisnearly8%ofthetotalattendanceatU.S.universities.
number of
pensioners worldwide
served by
blackstone’s pension
fund investors
37
million
$4.1
billion
grants made annually by
foundations that
are blackstone clients
Solid Foundations
TheinvestmentreturnsdeliveredbyBlackstonealsobene?tgrant-makingfoundationsthat
commit an aggregate $4.1 billion annually toward causes as diverse as healthcare, commu-
nitydevelopmentandwildlifeconservation.IntheUnitedStatesalone,ourlimitedpartners
accountforapproximately6%ofthetotalgrant-makingactivityeachyear.
Supporting Care
Blackstoneclientsalsoincludehospitalendowments.Their?nancialresourceshelptoof-
settherisingcostsofhealthcareintheU.S.andelsewhere,supporting9.5millionpatient
visitsperyear.
Investing in The Arts
Blackstone’slimitedpartnersalsoincludeartsendowmentssuchasmuseums,orchestras
andperformingartscompaniesthatattract2.8millionpatronsintheU.S.ayear,enriching
thelivesoftheiraudiencesandcommunities.
3
Private Equity
For Blackstone’s private equity business,
the current market environment pre-
sented a number of attractive investment
opportunities. One of our funds acquired
SeaWorld Parks & Entertainment (for-
merly Busch Entertainment), the second
largestthemeparkoperatorintheU.S.We
also participated in the recapitalization of
BankUnited, a major Florida-based bank
positioned to expand into a regional insti-
tution. We supported the acquisition of
BirdsEyeFoodsbyPinnacleFoodsGroup,
aBlackstoneportfoliocompany,tocreatea
powerhouse packaged food business with
morethan$2.5billioninsales.
We also delivered value through real-
izations during the past year despite a
dif cult economy. Distributions to inves-
tors totaled $1.6 billion, or 1.8 times the
original investment, and included Stiefel,
Sithe Goreway, Vanguard, Cineworld
and Orangina. Additional transactions
completed after year end include IPOs of
TeamHealthandGrahamPackaging.
Today, Blackstone operates one of the
world’s pre-eminent private equity fund
Investing in quality
businesses will
fuel growth in the
next cycle
aggregate
revenues of portfolio
companies
$109
billion
4 TheBlackstoneGroup AnnualReport2009
businesses. Our investment strategy aims
to create value by identifying great busi-
nessesandprovidingthemwiththecapital,
expertiseandoperationalsupporttomaxi-
mizetheirpotential.Weforgepartnerships
with talented management teams to
achieve exceptional performance over
time. A unique contributor to the success
of our funds is Blackstone’s Portfolio
Operations Group, which enhances the
performance of our companies through
hands-on operational advice, joint pro-
curementprograms,andotherresources.
Our private equity funds have consis-
tently outperformed their benchmarks,
withnetIRRforeachofBlackstone’sclosed
general private equity funds ranking in
the top quartile. As a result of our perfor-
mance,nearly90%ofourclientsinvestin
successive Blackstone funds. Fee-earning
assets under management in our private
equity funds totaled $24.5 billion as of
December31,2009.
$1.6
billion
of distributions to
investors in 2009
5
Private Equity Private Equity
Creating a
leader in packaged
food brands
Private Equity Private Equity Private Equity Private Equity
6 TheBlackstoneGroup AnnualReport2009
Pinnacle Foods Group
In 2009, Blackstone provided additional
capital to support our portfolio company,
Pinnacle Foods Group, in its $1.3 billion
acquisition of Birds Eye Foods. We rec-
ognized that combining two pre-eminent
brand portfolios would give the resulting
business significantly greater scale and
enhanced opportunities for value creation
both through continued organic growth
andfurtheracquisitions.
With such iconic brands as Duncan
Hines®, Birds Eye®, Vlasic®, Armour®,
Mrs. Butterworth’s, Log Cabin, Hungry
Man®, Mrs. Paul’s® and Van de Kamp’s,
the expanded Pinnacle Foods is well posi-
tioned to increase its market share while
broadening its offerings of healthy prod-
ucts. Combined sales are now in excess of
$2.5 billion. Pinnacle has recorded strong
sales and earnings growth since its acqui-
sition by Blackstone, and is expected to
generateindustry-leadingmarginsandfree
cash?owswiththeadditionofBirdsEye.
7
Innovation is
key to
providing quality,
afordable
health care.
Forfamilies,employers,healthcareprovidersandpayors,andgovernmentatalllevels,providingquality,afordable
healthcareisoneofthecriticalconcernsinoursociety.Webelievewecanplayaroleinimprovingtheefectiveness
ofthehealthcaremarketplace.Byinvestingincompaniesthatoferbest-in-classhealthcareservicesandinnovative
solutions—such as Apria Healthcare Group, Biomet, Catalent Pharma Solutions, DJO, Emcure, HealthMarkets,
Stiefel Laboratories, TeamHealth and Vanguard Health Systems—we can enhance the care available to millions of
familieswhileprovidingstrongreturnsforourinvestors.
A Focus On Health Care
8 TheBlackstoneGroup AnnualReport2009
Equity Healthcare
To improve the quality of health care ofered to portfolio company employees and their
families, we launched Equity Healthcare in 2008. This healthcare purchasing alliance
helpssavemorethanmoney—itscomprehensivehealthandwellnessprogramssavelives.
Personal Nurse Advocates help members manage chronic conditions, access resources,
and make diet and lifestyle changes. Equity Healthcare taught the parents of a young
diabetictomanageherdisease,identi?edpre-strokeconditionsinseveralemployeesand
helpsmemberssticktoprescribedmedicationsandwellnessroutines.Itsprogramsareso
efectivethatother?rmsinourindustryarenowaskingEquityHealthcaretohelpimprove
thelivesofemployeesoftheirportfoliocompanies.
TeamHealth
Exceptionalhealthcaredependsonexceptionalhealthcareprofessionals.Forthisreason,
Blackstone invested in TeamHealth, one of the top U.S. suppliers of outsourced staf ng
servicesforhospitalsandotherhealthcareproviders.OurinvestmenthelpedTeamHealth
grow and expand, eventually providing services such as emergency medicine, hospital
medicine,anesthesia,radiology,urgentcare,andpediatriccaretomorethan530hospitals
andotherlocations.In2009,theIPOofTeamHealthraised$160 million,whichthecom-
panyusedtofurthersupportitscapitalstructure.
Vanguard Health Systems
A leading provider of hospital services, with 15 hospitals in the San Antonio, Phoenix,
Chicago and suburban Boston areas, Vanguard Health Systems combines the principles
of non-pro?t health care with the business acumen of a privately owned organization.
Vanguardcollaboratescloselywiththestafofitshospitalsandrespectstheirautonomy,
tailoringhealthservicestotheneedsofeachcommunity,andinvestinginresourcesand
technology to improve patient care. Blackstone’s investment in Vanguard will help the
companygrowitshospitalnetworkandinvestinadditionalimprovementsincare.
Decoding the Human Genome
BlackstoneisaninvestorinPaci?cBiosciences,acompanypioneeringthedevelopment
of an exciting new DNA sequencing technology. The company’s Single Molecule Real
Time(SMRT™)Biologypromisestorevolutionizethelifesciencesbydecodingcomplex
molecularstructures.Byrevealinggeneticandenvironmentalfactorsthatafecthuman
health, this can lead to new treatments and new hope. This technology, now nearing
commercialization, is also supported by leading life sciences companies, the National
InstitutesofHealthandtheNationalHumanGenomeResearchInstitute.
260
thousand
over 260 thousand employees
and their dependents
that equity
healthcare serves
expected annual cost
savings from the
equity healthcare program
through 2011
$140
million
9
Real Estate Real Estate Real Estate
Staying disciplined
in a challenging
commercial real
estate market
Despitetheturmoilintheglobalrealestate
markets, Blackstone’s Real Estate Group
maintained its strategic vision and com-
pleted the year in a strong position. The
Groupaddedover$700millionoffee-earn-
ing AUM during 2009 with virtually no
realized losses. During 2009, we restruc-
tured billions of dollars of debt, allowing
our real estate funds to benefit from the
nascent recovery. Our funds are heavily
weighted toward “world class” assets that
are highly sought after as markets stabi-
lize. We have some $12 billion to invest in
what we expect to be an opportune point
inthecycle.ThesuccessofBlackstoneReal
EstatePartnersEuropeIII,whichin2009
completedfundraisingofover€3.1billion,
is evidence of our limited partner loyalty
andmarket leadership.
The Group has pursued a disciplined
approach that has achieved excellent
results for our limited partners in good
times and bad for over 18 years. We sold
over $60 billion of assets in 2005–2007,
wellinadvanceofthedownturn,returning
capital to investors and materially reduc-
ing investment debt levels. We avoided
investment in residential real estate and
10 TheBlackstoneGroup AnnualReport2009
in commercial real estate development
projects, which were some of the hardest
hit assets in this cycle. We maintained a
conservative approach to financing our
investments. Most importantly, we did
virtually no investing for nearly two years
asthecommercialrealestatemarketswere
undergoingrapiddeterioration.
In late 2009, with operating funda-
mentals starting to stabilize, we began to
return to acquisitions selectively. At year
end2009,weacquireda50%interestinthe
Broadgate of ce complex in London. The
Group also expanded its focus to a range
of real estate debt opportunities—includ-
ing publicly traded debt securities, whole
loan originations, mezzanine loans, real
estate loan acquisitions, rescue ?nancing
and preferred equity—that we believe are
substantiallymispriced.
We believe that with ample capital to
invest and a patient, thoughtful approach,
we will generate excellent risk-adjusted
returns as real estate markets continue
to improve.
$12.1
billion
available capital
to invest
fee-earning
assets
under management
$23.7
billion
11
Real Estate Real Estate
Selectively
recommitting capital
to resilient
real estate markets
Real Estate Real Estate Real Estate Real Estate
12 TheBlackstoneGroup AnnualReport2009
Broadgate Of ce Park
Recognizing that the “bottoming out”
of the global real estate markets would
pose attractive opportunities, Blackstone
acquired 50% of Broadgate, the largest
office complex in London’s financial dis-
trict, in 2009. Operated as a joint venture
with The British Land Company, the com-
plex includes 14 Broadgate buildings and
tworecentlycompletedsisterbuildings.
Broadgate shares qualities with many
of Blackstone’s most successful prior
real estate transactions: high quality real
estate, a great location, and very attrac-
tive acquisition pricing for the long term
(50% of peak value just two years prior).
We believe that our acquisition will help
stimulatearecoveryoftheCityofLondon
of ce market while leading to well above
averageinvestmentreturns.
13
Addressing
energy needs and
environmental
concerns will provide
attractive investment
opportunities.
Around the world, corporations, governments and consumers are actively seeking means to reliably deliver
alternativepowersources,promoteenergyef ciency,orreducegreenhousegases.AtBlackstone,weaimtoidentify
market-basedsolutionstothesevitalneedsthatwillalsogenerateexceptionalvalueforinvestors.
Energy Independence And The Environment
14 TheBlackstoneGroup AnnualReport2009
Cleantech Venture Fund
Blackstone created Cleantech Venture Partners to invest in businesses focused on
reducing energy consumption and improving the environment. We seek to finance
innovation across a range of categories, including renewable power such as solar, wind
andgeothermal,greenbuildingmaterials,transportationandindustrialef ciency,emis-
sionscontrol,energystorageandothernewtechnologies.
Alternative Clean Power
AmongBlackstone’sinvestmentsinalternativepowerareTransmissionDevelopersInc.
(TDI) and Meerwind. TDI is developing a power transmission line to bring afordable,
renewable power to New York and New England from Canada. Called the Champlain-
Hudson Power Express, the transmission line will help meet the needs of high-demand
areas with clean, renewable energy and will run under waterways to minimize impact
ontheenvironmentandlocalcommunities.Meerwind,developedinpartnershipwitha
Germanenergyenterprise,isoneoftheNorthSea’slargestwindfarmprojects.Thewind
farmwillconsistof80windturbineswithacombinedgenerationcapacityof400mega-
watts,tobelocated80kilometersofthenortherncoastofGermany.
Reducing Deforestation
BlackstoneisinvestinginapioneeringforestryplantationprojectinSouthAmericawith
the potential to limit deforestation and reduce carbon emissions. By establishing large-
scaleeucalyptusforestryplantations,theproject’screatorshopetoprovideanalternative
source of timber for both construction and energy uses, thus reducing the pressure on
nativeforests,suchastheirreplaceableAmazonrainforest.
Global Sustainability Initiatives
Blackstone is actively seeking to improve sustainability across our operations and within
ourportfoliocompanies.Ourongoingefortstoconsolidateour?rm’sdatacenters,includ-
ingenergy-ef cienttechnology,shouldreduceenergyusageandcostsbywellover50%.In
London,ourprivateequityteamisworkingonmeasurestosigni?cantlyreducethecarbon
footprint of our London headquarters. Blackstone Real Estate Partners became the ?rst
privateequityrealestatefundtojointheBetterBuildingsPartnership(BBP),aconsortium
of U.K. property owners dedicated to improving the sustainability of London commercial
buildings and achieving measurable CO2 reductions. Our Portfolio Operations Group is
extendingitsgrouppurchasingactivitiestoencompassmore“green”andenergy-ef cient
products and services. Energy-saving measures adopted in our New York of ces are also
beingsharedwiththebuildingengineersatourotherlocations.
reduction of our data center
energy usage and
costs as a result of ongoing
facility consolidation
over
50%
$8.7
billion
invested by blackstone
in industries being
transformed by clean
technologies
15
In2009,BAAMleditspeersasoneofthefew
fundsofhedgefundsintheindustrytoexpe-
rience positive growth. Fund performance
and asset inflows resulted in 15% annual
AUM growth, compared to a 10% decline
in AUM for the aggregate fund of hedge
funds industry (firms over $1 billion),
accordingtoInvestHedge.
Net in?ows of $500 million raised total
assets under management to $27.1 billion
asofDecember31,2009.BAAM’s2009per-
formance outpaced its peers as well, with
its Composite Index returning over 16.1%
on a net basis, compared to 13.4% for the
HFRXGlobalHedgeFundIndex.
BAAM’s growth re?ects the trust inves-
torshaveplacedinourrigorousduediligence
and risk management procedures, which
have allowed us to manage business risks,
meet clients’ liquidity needs, and avoid
the frauds that have troubled the hedge
fundindustry.
With a sharp focus on client service,
BAAM customizes each portfolio to meet
investor needs. Drawing upon an array of
carefullychosenmanagersandawiderange
of investment strategies, portfolios are
designedtodelivercompellingrisk-adjusted
returnsandmitigatedownsiderisk.
As a result of our prudent approach,
manyoftheworld’slargestandmostsophis-
ticated institutional investors, including
corporate, public and union pension funds,
sovereign wealth funds, central banks,
insurancecompaniesandothers,relyupon
BAAMtoprotectassetsandprovideinvest-
mentsolutions.
$27.1
billion
total assets
under management
The largest
independent
discretionary fund
of hedge
funds manager in
the world
Blackstone Alternative Asset Management (BAAM)
16 TheBlackstoneGroup AnnualReport2009
Ourcreditbusinessperformedexceptionally
wellamidcontinuedvolatilityincreditmar-
kets, due to GSO’s deep experience, strong
riskmanagementcapabilitiesandscale.One
oftheworld’slargestcredit-orientedinvest-
mentmanagers,GSOmanagesabroadarray
ofproductsthatspanbothprivateandpublic
markets, including mezzanine funds, dis-
tressed funds, a multi-strategy credit hedge
fund,collateralizedloanobligations(CLO’s),
permanentcapitalfundsandothercustom-
ized vehicles. GSO ended 2009 with total
AUMof$24.2billion.
Among 2009’s highlights, we raised
$1.1 billion in our new rescue financing
fund and expect the fund to exceed $2 bil-
lionincommitmentsbythe?nalcloselater
this year. Mezzanine lending and rescue
?nancing provide exceptional investment
opportunities today, as committed capital
remainsextremelyscarceformiddle-mar-
ket companies. We also took advantage
of the market strength and our trading
capabilities to sell certain leveraged loan
portfoliosatsubstantialgainsforourinves-
tors. In addition, we recently announced
theacquisitionof$3.2billionofCLOassets
fromCallidus,anAlliedCapitalcompany.
At a time when businesses are in need
of innovative credit solutions, GSO’s
extensive market knowledge, vast pools
of ?exible capital and dominant presence
in the credit market are providing many
opportunitiestocreatevalueforinvestors.
A vital resource in
a credit-constrained
marketplace
Credit Business – GSO
flagship credit
hedge funds
net return in 2009
28%
17
A stable capital
structure to
support growth
Credit Business – GSO
18 TheBlackstoneGroup AnnualReport2009
Crosstex Energy Services
Crosstex Energy, a midstream natural gas
company with an extensive network of
pipelines and processing facilities located
in two of the most attractive natural gas
producing regions in the United States, is
well-positioned to benefit from contin-
ued drilling activity in its core markets.
Beginning in 2008, however, a collapse in
commodity prices and restrictive credit
marketschallengedtheviabilityofthebusi-
nessandnegativelyimpacteditsgrowth.
The Blackstone/GSO Capital Solutions
Fund provided Crosstex with a more sta-
ble capital structure and the resources to
grow,intheformof$125millioninSeries A
Convertible Preferred Units. This in turn
enabled Crosstex to obtain a $725 million
bond issue and new bank credit facility.
With the business now on a solid ?nancial
footingandfocusedongrowth,Blackstone
and GSO look forward to further opportu-
nitiestoinvestwithCrosstex.
19
Positioning
companies
for future growth
and productivity
builds
long-term value.
Blackstone’s focus is on identifying, investing in and enhancing the value of great businesses and attractive assets.
We accomplish this through a patient and persistent application of intellectual and ?nancial capital, guided by
accomplishedmanagementteamsandouractiveinvolvementinthebusiness.Overtime,wehaveprovenourability
tomaximizethepotentialofourportfoliocompaniesbyenhancingproductivityandpro?tability,investingincapital
improvements,makingaccretiveacquisitionsorotherstrategicinitiatives.
A Strategic Approach To Building Value
20 TheBlackstoneGroup AnnualReport2009
Restructuring Drives Success
We advised Ford Motor Company on a major balance sheet tender and exchange ofer
thatreduceditsdebt,strengthenedits?nancialandcompetitivepositionandbolstered
its long-term viability. Blackstone helped develop the complex solution, involving a
tenderforsecuredandunsecureddebtandanexchangeofcashandstockforunsecured
convertible notes, reducing total debt by $9.9 billion. This transaction, along with its
dramaticoperationalturnaround,positionedFordtobetheonlydomesticautomakerto
avoidgovernmentsupportandsucceedduringthe?nancialdownturn.
Realizing Returns
Blackstone’s ability to build the value of our portfolio companies produced distribu-
tions to investors of approximately $1.6 billion in 2009. One of our largest realizations,
Orangina, achieved industry-leading growth under our ownership, and was sold for a
2.4xmultipleofinvestedcapital.Stiefel,anothermajorrealizationlastyear,strengthened
itsleadershipindermatologyproducts,andwassoldtoGlaxoSmithKline.
Financing a Nutrition Leader
The IPO of Vitamin Shoppe, Inc. in October 2009 raised approximately $155 million.
Financingprovidedbyourmezzaninefundhelped?nancetheacquisitionofthecompany,
andsupporteditsgrowthintoaleadingspecialtyretailerofnutritionalproducts.
Improving Operational Performance
OurPortfolioOperationsGroupplaysakeyroleingrowingthevalueofourportfoliocompa-
nies.Withexpertiseinareassuchassupplychain/procurement,leanprocesses,healthcare/
bene?tsandtechnology,theGrouphelpsbusinessesbecomemorecompetitiveandef cient.
ItsCoreTrustandEquityHealthcarenetworkscombinethepurchasingpowerof43portfo-
liocompanies,leadingtoannualizedsavingsofmorethan$275million.
A Unique Entertainment Asset
SeaWorldParks&Entertainment(SPE)isthesecondlargestU.S.themeparkbusiness,known
forsuchdestinationsasSeaWorld,BuschGardensandSesamePlace.WhenAnheuser-Busch
InBevdecidedtodivestthisasset,ourleisure/recreationexpertisemadeBlackstonethelogi-
calpurchaser.WorkingwithSPE’sstrongmanagementteam,weplantogrowthevalueofthe
business by investing in new attractions, enhancing the guest experience, and sharing best
practicesacrossallofourentertainmentandhospitalityproperties.
Buy and Build Strategy
We invested along with experienced management in Summit Materials, creating a plat-
form of scale in the heavy building material, asphalt and aggregates sector. Summit has
already acquired two regional heavy building materials businesses, and with a commit-
ment of $780 million from Blackstone, has extensive resources to consolidate and grow
otherconstructionmaterialsbusinesses.
annualized savings for
our portfolio
companies of more than
$275 million
$275
million
creating value
through operations
65% OperatingImprovement
$14.1billion
24% MultipleExpansion
$5.2billion
11% DebtPaydown
$2.3billion
65%
24%
11%
Re?ectsinvestmentswithgainsonlyandexcludes
unrealizedforeignexchangegains/lossesinBCPand
BCOMfundsasofDecember31,2009.
21
Financial Advisory
Assisting visionary
companies
with strategic
transactions
Financial Advisory Financial Advisory
Blackstone’s Financial Advisory team
was engaged in a number of significant
merger and acquisition assignments in
2009, despite the slowdown in transac-
tions due to the recession. The value of
our announced M&A advisory transac-
tions was approximately $40 billion for
the year. The Financial Advisory group
focuses on a diverse set of industries, with
approximately 30% of revenues coming
frominternationalclients.
Among our assignments, we advised
XeroxCorporationonits$8.3billionacqui-
sition of Affiliated Computer Services,
Inc., which vaulted Xerox into the business
process outsourcing market. We assisted
PublicisGroupSA,oneoftheworld’slargest
communication groups, on its $530 million
purchaseoftheinteractiveagencyRazor?sh
from Microsoft. We advised Nestlé S.A on
theacquisitionofKraftFoods’FrozenPizza
business, a $3.7 billion transaction, helping
Nestlétoexpanditspresenceinthecategory.
The Financial Advisory team helped
clients execute strategic transactions that
werecriticaltotheircorporateand?nancial
objectives, providing value-added advice on
issues of capital structure, carve-outs and
other complex matters. Our success results
from a highly experienced team focused on
ourcoreprinciples,includingprotectingcli-
ent con?dentiality, prioritizing our client’s
interests, avoidance of con?icts and senior-
levelattention.
value of m&a deals
advised
$425
billion
22 TheBlackstoneGroup AnnualReport2009
Restructuring Restructuring Restructuring
At the center of
an active
environment for
reorganization
The rising demand for reorganizations in
a distressed economy drove our restruc-
turing business to record levels in 2009.
Over the past year, our team was active
in distressed situations involving over
$530 billionofliabilitiesinNorthAmerica
andEurope,generatingrecordfeeincome.
Blackstone has advised companies,
creditors, corporate parents, investors
and acquirers of troubled companies
in Chapter 11 reorganizations and out-
of-court restructurings. Recent clients
included: Allied Capital, American Axle &
Manufacturing,BAA,FordMotorCompany,
General Motors, Goodyear, Mauser, MBIA,
Nortek, Northern Rock, Parex Banka, Sea
DragonOfshoreLimitedandSemGroup.
In 2009 we maintained a leading role
in advising financial institutions, as well
as in government-sponsored reorganiza-
tions. In North America, we also were a
top restructuring adviser in the automo-
tive sector and assumed a leadership role
in out-of-court restructurings. In Europe,
we also were at the forefront of advising
onbusinesseswithfailedsyndicationsand
providedclientswithinnovativedebtadvi-
sorysolutions.
Blackstone’s team is well regarded for
its skill in managing complex, high-pro?le
engagements. We are known as an inde-
pendent, conflict-free advisor, with vast
expertiseinanarrayofindustries,asenior-
level team with broad knowledge of global
markets,andtheabilitytocrafthighlyspe-
cializedsolutions.
advised in more than
265 restructurings,
involving liabilities of over
$890
billion
23
Xerox Corporation
Xerox Corporation, a global leader in docu-
mentmanagement,technologyandservices,
turned to Blackstone’s Financial Advisory
team for assistance with its transforma-
tional acquisition of Affiliated Computer
Services,Inc.(ACS)in2009.
By acquiring ACS, the world’s largest
diversi?ed Business Process Outsourcing
(BPO) company, Xerox was able to realize
its strategy to become the leading global
enterprise for end-to-end document
management. The transaction expanded
Xerox’s portfolio of products and services
and its addressable market, while pro-
viding increased scale, higher recurring
revenues and accelerated growth. Valued
atapproximately$8.3billion,thedealwas
the largest M&A transaction in the tech-
nologysectorin2009andthelargestBPO
transactioninhistory.
24 TheBlackstoneGroup AnnualReport2009
A transformational
acquisition for a
technology leader
Financial Advisory
25
The Blackstone Charitable Foundation
Foster
entrepreneurship
as a catalyst
in creating
enduring value.
Blackstone was founded in 1985 by Steve Schwarzman and Pete Peterson with $400,000 in assets and a wealth of
entrepreneurialspiritandvision.Asbe?tsanorganizationwithourenterprisingheritage,Blackstonebelievesinthe
powerofentrepreneurshiptobuildgreatbusinesses,growtheeconomyandcreateenduringvalue.
26 TheBlackstoneGroup AnnualReport2009
27 27
TheBlackstoneCharitableFoundation,establishedin2007atthetimeofthe?rm’sIPO,
wasendowedwithsubstantialpersonalcommitmentsfromouremployees.Recently,the
FoundationannouncedTheBlackstoneEntrepreneurshipInitiative,a$50 million?ve-
yearcommitmenttosupportinnovativeprogramsthatfosterentrepreneurshipand,in
turn,thehigh-growthbusinessesandindustriesthataremostknowntosparkeconomic
growth.TheFoundationwillfocusitsresourcesonproducingenduringresultsingeog-
raphieshardesthitbytheeconomiccrisis.
A Launching Pad for Aspiring Entrepreneurs
TheBlackstoneEntrepreneurshipInitiative’s?rstmajorinvestmentisa$2 milliongrant
tocreate“BlackstoneLaunchPad,”whichwillworkwithhighereducationinstitutionsin
SoutheastMichigantonurtureentrepreneurialactivityamongundergraduateandgrad-
uate students. Presenting entrepreneurship as a viable career option, the program is
modeledafterasuccessfulprogramstartedbytheUniversityofMiami,whichhashelped
1,000 students and alumni develop their ideas for new enterprises. The Blackstone
LaunchPad provides the practical skills, mentorship and professional contacts that
make the diference. The Foundation will replicate the Miami LaunchPad model, in
conjunction with Detroit’s New Economy Initiative for Southeast Michigan, helping
to foster an entrepreneurial environment that draws ambitious young people to create
newbusinessesinDetroit.Thisinvestmentcanplayanimportantpartintheeconomic
recoveryofthisdistressedregion.
In addition to its primary focus on entrepreneurship, the Foundation makes grants to
other organizations that bene?t the communities where we live and work, including
thoseinwhichBlackstone’semployees,clientsandinvestorsarepersonallyengaged.
The Blackstone Charitable Foundation was the single largest contributor to the
National Association for the Advancement of Colored People (NAACP) Centennial
Fund.BlackstonealsodonatedrealestateintwoprimeNewYorkCityofficebuildings
for four years, helping the organization relocate from temporary space it has utilized
sincelosingitsof cesonSeptember11,2001.
the blackstone charitable
foundation is
committing $50 million over
5 years to support
innovative and sustainable
entrepreneurship and
job creation programs in the
united states and around
the world.
$50
million
27
3.1
3.9
8.0
8.4
11.5
13.3
14.1
21.7
27.0
32.1
51.1
69.5
83.2
91.0
96.1
110.8
Blackstone AUM Growth
$inbillions
Committed/AcquiredFunds
CAMAFunds
RealEstate
PrivateEquity
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
Financial Highlights
GraphrepresentstotalBlackstoneAUMthrough2006andfee-earningAUMthereafter.
compound
annual growth
rate
28%
Assets under management
are growing and
increasingly diversi?ed.
1
28 TheBlackstoneGroup AnnualReport2009
11
$111 billion
in fee-earning
aum and
committed/acquired
funds
29
27
$27 billion in dry
powder provides tremendous
investing capacity.
Financial Highlights
30 TheBlackstoneGroup AnnualReport2009
33% RealEstate
$135.2million
24% PrivateEquity
$97.8million
24% CAMA
$99.6million
19% FinancialAdvisory
$77.8million
33%
24%
24%
19%
2009 Net Fee Related Earnings
total
net fee related
earnings
$410
million
37% PublicPension
17% CorporatePension
15% FinancialInstitutions
10% SovereignWealthFunds
8% Private–HighNetWorth/
FamilyOfce
6% FundofFunds
6% Foundations/Endowments
1% Unions
37%
17%
15%
10%
8%
6%
6%
1%
Limited Partners By Type
Blackstone’s business
mix has continued
to provide stability.
88% of blackstone’s
clients invest
in successive funds
88%
31
Letter To Unitholders
“Historically,
our periods of
strongest
performance have
followed economic
downturns.”
Letter To Unitholders Letter To Unitholders
32 TheBlackstoneGroup AnnualReport2009
Stephen A. Schwarzman
Chairman,
ChiefExecutiveOf cer
andCo-Founder
Dear Unitholders,
Blackstone’s conservative business model,
combined with our strong risk controls
and experience investing through several
marketcycles,enabledthe?rmtoweather
thesevereeconomicdownturnandemerge
with our position and potential in our
industry enhanced. Now, as opportunities
arise in a reviving economy, we are using
our deep resources of ?nancial and global
intellectual capital to build value for our
investors, clients, unitholders, portfolio
companies,andthecommunitiesinwhich
weliveandwork.
For the global economy, and particu-
larly for financial institutions and their
investors, the outlook is decidedly more
positive today than it was a year ago.
Marketsthatwerenearcollapsehavebeen
stabilized.Valuationsofmanyassetclasses
have rebounded significantly from their
mid-2009 lows. Credit is more available
and certainly more affordable, although
lending institutions remain highly selec-
tive.Whileabroadeconomicrecoverymay
be sub-optimal in the near term by high
unemployment, weak consumer spending
and uneven corporate performance, the
situationhasimprovedtoadegreethatwas
dif culttoimagineayearago.
Much of the credit for the global eco-
nomic improvement must go to those
governments whose initiatives averted a
worldwide depression. European authori-
tiesweresuccessfulinstabilizingtheirbank-
ing systems. China enacted a significant
stimulus program. The U.S. government’s
response of a combination of low interest
rates, the TARP program and expanded
guarantees for certain bank deposits and
money market fund assets, among other
measures, helped shore up public confi-
dence and pulled our ?nancial system back
fromthebrink.
While the recovery measures were
being deployed, however, considerable
investorwealthwasdestroyedandhasnot
yet recovered fully. Although Blackstone
certainly was tested during this period,
we were able to better preserve investors’
capital,outperformingmarketindices.
33
Blackstone has built a diversified,
soundly capitalized and nimble business
that performs well across market cycles.
Thebusinessissupportedbyaformidable
balance sheet, with a large capital base,
strong liquidity and minimal debt at the
corporate level. 2009 provided us with
an opportunity to further diversify our
capital resources with a highly successful
$600 millionbondofering.
We moved in a prudent fashion to
protect the value of our investments in
portfolio companies as signs of a bubble
becameevident.Severalyearsago,wesold
80%ofourinvestmentsandbeganshifting
our focus in Private Equity to mid-market
transactions, financed our deals with
defensive capital structures and reduced
ourexposuretocyclicalbusinesses.Early
on, we counseled our portfolio company
management teams to begin planning for
a “worst case” scenario. We took advan-
tage of credit market conditions to buy
back, amend or extend the maturities on
more than $50 billion of portfolio com-
panydebtsincethebeginningoflastyear.
We preserved value in Real Estate by
realizing approximately $60 billion from
assetsalesin2005–2007anddeleveraging
the portfolio. Our Blackstone Alternative
Asset Management (BAAM) fund of
hedge funds business has long adhered
to rigorous due diligence and risk man-
agement processes, allowing us to avoid
the controversies that ensnared many of
our peers in that segment. And, our credit
businesses used risk management tools
to outperform and are benefiting from a
greater need for credit availability in the
current environment.
Value Opportunities and the
Business Cycle
Historically, our periods of strongest
performance have followed economic
downturns, as we identify, invest in and
build upon the opportunities created by
market dislocations. We believe the pres-
ent market is no exception and that our
diversified business operations afford
manywaystobene?tfromthethawinthe
economic climate.
For example, we are seeing an increase
in realizations in our Private Equity
business, and the environment for new
acquisitions has improved, as is typically
thecaseatthisstageoftheeconomiccycle.
There are encouraging signs of stability in
Real Estate and opportunities to invest in
high- quality properties at much reduced
prices. Our Credit business is extending
rescue?nancingtoborrowersonattractive
terms.BAAMisuniqueamongitspeersin
experiencingin?ows,asinvestorsseekout
asset managers with proven track records
of preserving wealth. Our Financial
Advisory business is experiencing strong
M&A deal ?ow and restructuring engage-
mentsastheeconomyimproves.
We continue to launch new products
as we identify attractive opportunities
for our limited partners. New initiatives
include specialized funds for corporate
rescue financing, real estate debt, clean-
tech and infrastructure investments, and
a renminbi-denominated fund in China,
all ofering access to a range of emerging
opportunitiesforbuildingvalue.
Left to Right
LaurenceA.Tosi
StephenA.Schwarzman
JonathanD.Gray
J.TomilsonHill
HamiltonE.James
BennettGoodman
34 TheBlackstoneGroup AnnualReport2009
For fiscal 2009, Blackstone declared
quarterly distributions totaling $1.20 per
commonunit.Publiccommonunitholders
received priority distributions ahead of
Blackstonepersonnel.
Business Unit Performance
In Private Equity, our portfolio compa-
nies have largely been able to withstand
economic dislocation. In 2009, approxi-
mately three quarters of the portfolio
companies in private equity experienced
EBITDA growth and 50% had revenue
growth. Our portfolio companies’ record
of rising EBITDA contrasts with less
than half of the S&P 500 companies
reporting earnings growth. In part, this
performance under extremely adverse
conditions was due to our early decision
toorienttheportfoliotowardnon-cyclical
and defensive businesses such as health
care, energy and packaged foods. In addi-
tion, our companies’ management teams
showed great skill in restraining costs and
enhancing productivity.
Programs developed by Blackstone’s
Portfolio Operations Group also played
a key role in improving the performance
of our portfolio companies. We ofer joint
procurement programs for a wide array
of products and services that leverage the
buying power of companies with approxi-
mately $109 billion in aggregate revenues.
Thisyear,welaunchedEquityHealthcare,
an innovative program that allows private
equity sponsored companies to leverage
group health care purchasing to improve
the quality of care for their employees.
Equity Healthcare is currently bene?ting
over 260,000 employees and family mem-
bers at 26 portfolio companies. Through
2009, the total savings generated by our
2009 Financial Performance
Total Revenues were $1.8 billion for 2009,
a signi?cant increase from the prior year
?gure of $(349.4) million. This was largely
due to a $1.5 billion rise in Performance
Fees and Allocations, and a $663.5 mil-
lion improvement in Investment Income.
The year-over-year change was driven
by net appreciation of portfolio invest-
ments in our Private Equity and Credit
andMarketableAlternativessegments,and
stabilization in the fair value of the Real
Estateportfolio.Theseincreaseswerepar-
tially offset by lower Financial Advisory
fees.Incontrast,weexperienceddecreases
invaluesacrossseveralofourportfolioson
amark-to-marketbasisin2008.
EconomicNetIncomewas$703million
for 2009, a sharp turnaround as compared
to the ($1.2) billion reported for the prior
year,primarilydrivenbyperformancefees,
investmentincomeandrealizedgainsfrom
exits.AdjustedCashFlowfromOperations
was $526 million, up from $129 million a
yearago.
The strength of our relationships with
leading global institutions, their confi-
dence in our long-term performance and
theriseinequitymarketsledtoanincrease
inFee-EarningAssetsUnderManagement
to $96.1 billion at the end of 2009, an
increase of $5.1 billion from a year earlier.
Inaddition,weraisedafurther$15billion
during2009,whichwillearnmanagement
feesandcarriedinterestonceinvested.
Our financial capacity is reflected
in Blackstone’s credit ratings: “A” from
Standard & Poor’s and “A+” from Fitch.
Thisallowedustoaccessthedebtmarkets
in 2009 at favorable rates, with a high-
grade bond issuance of $600 million of
10-year6.625%notes.
procurement programs were $275 mil-
lion. The Portfolio Operations Group
also has dedicated teams to assist com-
panies in applying “lean” manufacturing
practices that enhance productivity by
reducing waste and inef ciencies. Several
portfolio companies participated in the
lean process last year, positioning their
operations for strong performance as the
economy revives.
During 2009, sales were completed or
announcedonseveralportfoliocompanies,
such as Stiefel, Sithe Goreway, Cineworld
and Orangina Schweppes. The majority of
these sales were to strategic buyers, pro-
viding further evidence of our ability to
investinandbuildthevalueofqualitycom-
panies.Thesesalesgenerateddistributions
to our investors of approximately $1.6 bil-
lionforBlackstonefunds,yieldinga21.6%
gross IRR,
1
to fund investors with respect
to the divested businesses. In addition,
several IPOs of portfolio companies have
been completed, including TeamHealth
andGrahamPackaging.
Private Equity invested or committed
a total of $2.3 billion of new or add-on
investments during the year. Highlights
included the purchase of Birds Eye Foods,
a strategic acquisition for one of our port-
folio companies, Pinnacle Foods Group;
the acquisition of SeaWorld Parks &
Entertainment, the second largest enter-
tainment park operator in the U.S.; and a
capital investment in Bank United, a pre-
viously distressed Florida-based bank,
which could potentially purchase addi-
tionalbank franchises.
Real Estate fundamentals are demon-
stratingstabilization,suggestingapotential
bottoming in 2010. Occupancy rates and
RevPAR in the lodging sector remain low,
1?Beforedeductingmanagementfees,fundexpensesandcarriedinterest.
35
althoughthelimitedsupplyofnewbuilding
prior to the recession should be a positive
factor in the eventual recovery. Within the
office sector, cash flows remain relatively
stable,althoughvacanciesarestillhighand
rents have declined signi?cantly. In some
markets, such as New York and London,
therehasbeenameaningfulpickupinleas-
ingactivity,whichistypicallyaleadingindi-
catorofrecovery.
We are once again pursuing new real
estate investments, albeit very selec-
tively, after two years of waiting patiently
on the sidelines. We acquired 50% of
Broadgate, the largest office complex in
London's financial district, which we saw
asanopportunitytobuyintooneofthebest
collections of real estate in that market.
Our newest real estate fund is focused on
investments in a variety of real estate debt
strategies,capitalizingonthefactthattradi-
tionalrealestatelendershavelargelyexited
the market while major property owners
facesubstantialliquidityneeds.RealEstate
invested $884.2 million for 2009 with
another $256.6 million committed but not
yet invested, or under letter of intent, as of
December 31, 2009. Our competitive posi-
tioninrealestateremainsextremelystrong,
with $12.1 billion in dry powder across our
realestatefunds.
BAAM, housed within our Credit and
MarketableAlternatives(CAMA)business,
has emerged as the world’s largest fund of
hedge funds manager. BAAM’s total assets
undermanagementroseto$27.1billion,up
17% for the year—one of the few funds of
hedgefundstoseein?owsin2009.BAAM’s
investment performance also has been
favorable, posting a composite net return
of16%for2009.
Our Credit business, GSO, with 28% net
composite return for our flagship hedge
funds in 2009, has delivered strong per-
formance, as prevailing conditions favor
those with the capacity to ofer credit in a
debt-constrained marketplace. GSO has
focused on opportunities to provide rescue
?nancing to companies that require liquid-
ityorbalancesheetrestructuring,aswellas
onpurchasesofdebtforcontrol,assetssold
by distressed sellers and performing debt
withdislocatedpricing.Ournewdebtfund,
which focuses on rescue ?nancing oppor-
tunities,hadaninitialclosingof$1.1 billion.
Weexpecttoholda?nalcloselaterthisyear.
The Financial Advisory business also
had a strong year, largely due to record
fee revenue from restructuring activity.
Major transactions during 2009 included
the comprehensive restructuring of more
than $1 billion in debt for Allied Capital
Corporation and a successful prepackaged
plan of reorganization for Nortek, Inc.
While M&A activity was held back by the
economic downturn, our team advised on
several significant transactions, includ-
ing Xerox’s acquisition of ACS, Chinalco’s
proposed investment in Rio Tinto and the
restructuring of AIG. We expect merger
deal flow to accelerate as we progress
through2010.
The Blackstone Charitable Foundation
Creating value means not only deliver-
ing a return on investment, but also
having a positive impact on the needs of
society. At the time of our IPO, we formed
Left to Right
KennethC.Whitney
ChadR.Pike
JoanSolotar
ArthurB.Newman
GarrettM.Moran
JohnStudzinski
TimColeman
SylviaF.Moss
RobertL.Friedman
36 TheBlackstoneGroup AnnualReport2009
The Blackstone Charitable Foundation to
direct our resources toward the communi-
ties in which we live and work. The prin-
cipal mission of the Foundation reflects
Blackstone’s heritage of entrepreneurship.
As a pioneer in our own industry, we have
a strong belief in the power of entrepre-
neurs to create human opportunity and
exert a positive economic impact. Thus,
the Foundation’s chief focus will be on
funding initiatives that encourage and
support entrepreneurship, and thereby
promote job creation, innovation and
economic opportunity.
Finding, Preserving and Building Value
Blackstoneisinastrongpositiontocreate
valueastheworldeconomyresets.Wehave
a liquidity position of more than $2 bil-
lion to support the growth of our existing
businesses, development of new business
lines or acquisitions. We have dry pow-
der of $27 billion in our investment funds
to deploy over the next several years. We
believeourabilitytooutperformtheindus-
try under the recent extremely adverse
conditions has enhanced the Blackstone
?nancial “brand” in the minds of current
and potential clients, and is a positive fac-
tor in attracting talented team members.
And, we have unique strengths, including
a global scope of operations; unequalled
relationships with key participants in
world markets; and deep knowledge
in a range of disciplines including private
equity, real estate, hedge funds, credit and
?nancialadvisoryservices.
In addition, we believe that our perfor-
mance in comparison to more traditional
asset classes during the downturn will
helpattractnewinstitutionstoalternative
assets. We have demonstrated our ability
topreserveourinvestors’wealth,helpingto
securethefuturesofpublicpensionfunds,
academic and charitable institutions, and
allthosewhodependuponthem.
At this time, government and business
leaders around the world are considering
steps to prevent future ?nancial calamity.
In this context, one thing is certain: noth-
ing will be gained by taking adversarial
positions, or by focusing blame solely on
the?nancialmarketsandinstitutionsthat
provide the vast majority of the capital
for innovation, job creation and economic
growth. I hope that government and the
private sector can demonstrate a shared
sense of purpose in doing what is best
for the global financial system and those
it bene?ts.
I can commit that Blackstone will con-
tinue to vigorously pursue opportunities
to ?nd, protect, invest in and build value—
with our characteristic combination of
entrepreneurship, innovation, excellence,
integrityandconservatism.Thankyou.
Sincerely,
Stephen A. Schwarzman
Chairman,
ChiefExecutiveOf cer
andCo-Founder
37
Everything we do is guided by a set of principles that de?ne our
character and culture; they have been at the core of Blackstone
sinceitsinception.Theseenduringqualitiesarethesharedconvic-
tionsthatwebringtoourprofessionalandpersonalconduct—they
areafundamentalstrengthofourbusiness.
Accountability
Forgingapartnershipwithourinvestorsandclients
Excellence
Strivingtobethebestineverythingwedo
Integrity
Holdingourselvestothehighestprofessionalethics
Teamwork
Workingtogethertoachievesharedgoals
Entrepreneurship
Seeingandseizingopportunitiesoverlookedbyothers
Leadership
In?uencingthecourseofcommerceandglobalafairs
Focus
Bringinghardworkanddeterminationtoeveryendeavor
Commitment
Puttingourcapitalandourreputationsontheline
Meritocracy
Rewardingpeoplebasedontheirperformance
Our Guiding Principles The Peter G. Peterson
Award
Blackstone has established the Peter G. Peterson Award for
ExcellenceinBusinessandCommunityService.TheAwardhon-
ors our co-founder, Peter G. Peterson, who retired as our Senior
Chairmanin2008,andwhosecontributionsinbusiness,govern-
mentandphilanthropyhavebeenaninspirationtoallofus.
The Award is given annually to an employee who has dem-
onstrated a commitment to excellence inside and outside of
the ?rm, especially as it relates to service to the community.
Candidates are nominated by their peers and chosen by our
firm's Executive Committee. They must embody the dedica-
tion and service to charitable causes for which Pete has always
beenknown,aswellasexceptionalprofessionalism.TheAward
recipientfor2008wasErinSprague—associate,BAAM.
The 2009 recipient is Garfield DeBarros—Supervisor, U.S.
Technology Services—who embodies a commitment to service
on many levels. Gar?eld is a partner in the PENCIL program
and has devoted considerable time, energy and efort to men-
toring students and supporting our adopted school, The Bronx
Academy. He is also a board member and volunteer with other
charitableorganizationsservingdisadvantagedyouth.
Award recipients are distinguished by their passion for ser-
viceandwillingnesstocommittime,energyandeforttoahost
oforganizationsandprojectsthatbene?tthecommunity.
These employees are recognized with a donation of $10,000
to a charitable program or programs of their choice and an
inscribedcupdisplayedinBlackstone’sreceptionarea.
1
2
3
4
5
6
7
8
9
2009 Recipient
Gar?eld DeBarros
Supervisor
U.S.TechnologyServices
38 TheBlackstoneGroup AnnualReport2009
39
Economic Net Income, Net Fee Related Earnings from
Operations, Adjusted Cash Flow from Operations and Operating
Metrics 40/ Our Business 42/ Segment Economic Net Income
and Net Fee Related Earnings from Operations 50/
Reconciliation of Adjusted Cash Flow from Operations to Net
Cash Provided by Operating Activities 52/ Report of Independent
Registered Public Accounting Firm 53/ Consolidated and
Combined State ments of Financial Condition 54/ Consolidated
and Combined Statements of Operations 55/ Consolidated and
Combined Statements of Changes in Partners’ Capital 56/
Consolidated and Combined Statements of Cash Flows 59/
Notes to Consolidated and Combined Financial Statements 61
Blackstone Financial Section
40 TheBlackstoneGroup AnnualReport2009
Economic Net Income, Net Fee
Related Earnings from Operations,
Adjusted Cash Flow from
Operations and Operating Metrics
Our Economic Net Income, Net Fee Related Earnings from
Operations and Adjusted Cash Flow from Operations for the
yearsendedDecember31,2009and2008wereasfollows:
Year Ended December 31,
(Dollars in Thousands) 2009 2008
EconomicNetIncome,TotalSegments $723,763 $(1,330,018)
Provision(Bene?t)forIncomeTaxes 20,628 (162,769)
EconomicNetIncome,AfterTaxes $703,135 $(1,167,249)
NetFeeRelatedEarningsfromOperations $410,410 $427,668
AdjustedCashFlowsfromOperations $526,238 $128,801
As of December 31,
(Dollars in Thousands) 2009 2008
Fee-EarningAssetsUnderManagement:
PrivateEquity $24,521,394 $25,509,163
RealEstate 23,708,057 22,970,438
CreditandMarketableAlternatives 47,867,546 42,561,456
TotalFee-EarningAssets
UnderManagement $96,096,997 $91,041,057
AssetsUnderManagement:
PrivateEquity $24,758,992 $23,933,511
RealEstate 20,391,334 24,154,642
CreditandMarketableAlternatives 53,032,802 46,471,064
TotalAssets
UnderManagement $98,183,128 $94,559,217
Year Ended December 31,
(Dollars in Thousands) 2009 2008
LimitedPartnerCapitalInvested
PrivateEquity $1,541,974 $3,760,262
RealEstate 884,151 968,684
CreditandMarketableAlternatives 721,401 1,819,705
TotalLimitedPartner
CapitalInvested $3,147,526 $6,548,651
Blackstone uses Economic Net Income as a key measure
of value creation and as a benchmark of its performance.
Additionally, Blackstone presents certain other key financial
measures which, when presented in conjunction with compa-
rable measures prepared in accordance with generally accepted
accountingprinciplesintheUnitedStatesofAmerica(“GAAP”),
are useful for investors as appropriate measures for evaluating
itsoperatingperformance.
economic net income
EconomicNetIncome,or“ENI,”representssegmentnetincome
excluding the impact of income taxes and initial public offer-
ing (“IPO”) and acquisition-related items, including charges
associated with equity-based compensation, the amortization
of intangibles and corporate actions including acquisitions.
The aggregate of ENI for all reportable segments equals Total
Reportable Segment ENI. ENI is used by management primar-
ily in making resource deployment and compensation decisions
acrossBlackstone’sfoursegments.
net fee related earnings from operations
BlackstoneusesNetFeeRelatedEarningsfromOperations,which
is a component of Adjusted Cash Flows from Operations, as a
key measure to highlight earnings from operations excluding
the income related to performance fees and allocations and
related carry plan costs and income earned from Blackstone’s
investments in the Blackstone Funds and realized and unre-
alized gains (losses) from other investments. Management
uses Net Fee Related Earnings from Operations as a measure
to assess whether recurring revenue from our businesses
more than adequately covers all of our operating expenses and
generates pro?tability.
Net Fee Related Earnings from Operations equals (a) con-
tractual revenues and interest income, (b) less compensation
expenses,whichincludeamortizationofnon-IPOandacquisition-
relatedequity-basedawards,butexcludeamortizationofIPOand
acquisition-based equity awards, carried interest and incentive
fee compensation, (c) less other operating expenses and (d) less
cash taxes due on earnings from operations as calculated using a
similar methodology as applied in calculating the tax provision
(bene?t)forTheBlackstoneGroupL.P.
41
adjusted cash flow from operations
Adjusted Cash Flow from Operations, which is derived from
our segment reported results, is a supplemental non-GAAP
measure we use to assess liquidity and amounts available for
distribution to owners. Adjusted Cash Flow from Operations
is intended to re?ect the cash ?ow attributable to Blackstone
withouttheefectsoftheconsolidationoftheBlackstoneFunds.
TheequivalentGAAPmeasureisNetCashProvidedby(Usedin)
Operating Activities.
Adjusted Cash Flows from Operations represents net cash
flows used in or provided by operating activities adjusted for
(a) IPO and acquisition-related corporate actions, (b) cash
flows relating to changes in operating assets and liabilities,
(c) Blackstone Funds-related investment activity, (d) net real-
ized gains (losses) on illiquid investments, (e) diferences in the
timing of realized gains by The Blackstone Group L.P. versus
the Blackstone Funds, (f) non-controlling interests related to
departed employees, (g) GAAP taxes versus cash income taxes
due on realized income as calculated using a similar method-
ology as applied in calculating the tax provision (benefit) for
The Blackstone Group L.P., (h) non-controlling interests in
incomeofconsolidatedentities,and(i)otheradjustments.
Adjusted Cash Flow from Operations will be retired with
the end of the distribution preference to public unitholders.
Goingforward,BlackstonewilldiscloseDistributableEarnings,
which is a non-GAAP measure intended to show the amount of
net realized earnings without the efects of the consolidation
of the Blackstone Funds. Distributable Earnings, which is a
componentofEconomicNetIncome,isthesumacrossallTotal
Reportable Segments of (a) Total Management and Advisory
Fees, (b) Interest and Dividend Revenue, (c) Other Revenue,
(d) RealizedPerformanceFeesandAllocations,and(e) Realized
Investment Income (Loss) less (a) Base Compensation,
(b) Realized Performance Fee Related Compensation, (c) Other
OperatingExpensesand(e)CashTaxes.DistributableEarnings
will be reconciled to Blackstone’s Consolidated Statement of
Operations.ItisBlackstone’scurrentintentionthatonanannual
basis it will distribute to unitholders all of its Distributable
Earningsinexcessofamountsdeterminedbyitsgeneralpartner
to be necessary or appropriate to provide for the conduct of its
business, to make appropriate investments in its business and
funds,tocomplywithapplicablelaw,anyofitsdebtinstruments
orotheragreements,ortoprovideforfuturedistributionstoits
unitholdersforanyensuingquarter.
operating metrics
Thealternativeassetmanagementbusinessisacomplexbusiness
thatisprimarilybasedonmanagingthirdpartycapitalanddoes
not require substantial capital investment to support rapid
growth.However,therealsocanbevolatilityassociatedwithits
earningsandcash?ows.Sinceourinception,wehavedeveloped
and used various key operating metrics to assess and monitor
theoperatingperformanceofourvariousalternativeassetman-
agement businesses in order to monitor the efectiveness of our
valuecreatingstrategies.
Assets Under Management. AssetsUnderManagementrefers
to the assets we manage. Our Assets Under Management equal
thesumof:
(a) the fair value of the investments held by our carry funds
plus the capital that we are entitled to call from investors in
those funds pursuant to the terms of their capital commit-
ments to those funds (plus the fair value of co-investments
arranged by us that were made by limited partners of our
fundsinportfoliocompaniesofsuchfundsandonwhichwe
receivefeesoracarriedinterestallocation);
(b) the net asset value of our funds of hedge funds, hedge funds
andourclosed-endmutualfunds;
(c) the fair value of assets we manage pursuant to separately
managedaccounts;and
(d) theamountofcapitalraisedforourCLOs.
Our carry funds are commitment-based drawdown struc-
tured funds that do not permit investors to redeem their inter-
estsattheirelection.Interestsrelatedtoourfundsofhedgefunds
andcertainofourcredit-orientedfundsaregenerallysubjectto
annual, semi-annual or quarterly withdrawal or redemption by
investors 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 pro?le 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. Fee-EarningAssets
UnderManagementreferstotheassetswemanageonwhichwe
derive management and incentive fees. Our Fee-Earning Assets
UnderManagementgenerallyequalthesumof:
(a) forourprivateequityandrealestatefundswheretheinvestment
periodhasnotexpired,theamountofcapitalcommitments;
(b) forourprivateequityandrealestatefundswheretheinvestment
period has expired, the remaining amount of invested capital;
(c) forourrealestatedebtinvestmentfunds,theremainingamount
ofinvestedcapital;
42 TheBlackstoneGroup AnnualReport2009
(d) for our credit-oriented carry funds, the amount of invested
capital (which may be calculated to include leverage) or net
assetvalue;
(e) the invested capital of co-investments arranged by us that
weremadebylimitedpartnersofourfundsinportfoliocom-
paniesofsuchfundsandonwhichwereceivefees;
(f ) the net asset value of our funds of hedge funds, hedge funds
andourclosed-endmutualfunds;
(g) the fair value of assets we manage pursuant to separately
managedaccounts;and
(h) thegrossamountofassetsofourCLOsatcost.
Ourcalculationsofassetsundermanagementandfee-earning
assets under management may difer from the calculations of
other asset managers, and as a result this measure may not be
comparable to similar measures presented by other asset man-
agers. 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.Ourde?nitionsofassetsundermanagementorfee-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
investmentfundsthatwemanage.
Forourcarryfunds,totalassetsundermanagementincludes
thefairvalueoftheinvestmentsheld,whereasfee-earningassets
undermanagementincludestheamountofcapitalcommitments
ortheremainingamountofinvestedcapitalatcost,dependingon
whether the investment period has or has not expired. As such,
fee-earningassetsundermanagementmaybegreaterthantotal
assets under management when the aggregate fair value of the
remaininginvestmentsislessthanthecostofthoseinvestments.
Limited Partner Capital Invested. Limited Partner Capital
InvestedrepresentstheamountofLimitedPartnercapitalcom-
mitments which were invested by our carry funds during
each period presented, plus the capital invested through
co-investments arranged by us that were made by limited part-
nersininvestmentsofourcarryfundsonwhichwereceivefees
oracarriedinterestallocation.
Wemanageourbusinessusingtraditional?nancialmeasures
andourkeyoperatingmetricssincewebelievethatthesemetrics
measuretheproductivityofourinvestmentactivities.
Blackstoneisoneofthelargestindependentmanagersofprivate
capital in the world. We also provide a wide range of ?nancial
advisoryservices,includingcorporateandmergersandacquisi-
tions advisory, restructuring and reorganization advisory and
fundplacementservices.
Ourbusinessisorganizedintofourbusinesssegments:
• Private Equity. We are a world leader in private equity invest-
ing, having managed five general private equity funds, as
well as one specialized fund focusing on media and
communications-related investments, since we established
this business in 1987. In addition, we are in the process of
raising our seventh private equity fund and are seeking to
launch new investment funds to make infrastructure and
clean technology investments. Through our private equity
fundswepursuetransactionsthroughouttheworld,including
leveraged buyout acquisitions of seasoned companies, trans-
actions involving growth equity or start-up businesses in
establishedindustries,minorityinvestments,corporatepart-
nerships, distressed debt, structured securities and industry
consolidations,inallcasesinstrictlyfriendlytransactions.
• Real Estate. Weareaworldleaderinrealestateinvestingwith
an assortment of real estate funds that are diversified geo-
graphically and across a variety of sectors. We launched our
?rst real estate fund in 1994 and have managed six opportu-
nisticrealestatefunds,twointernationallyfocusedrealestate
funds,aEuropeanfocusedrealestatefundandanumberofreal
estatedebtinvestmentfunds.Ourrealestatefundshavemade
signi?cantinvestmentsinlodging,majorurbanof cebuildings
and a variety of real estate operating companies. In addition,
our debt investment funds target real estate non-controlling
debtrelatedinvestmentopportunitiesinthepublicandprivate
markets,primarilyintheUnitedStatesandEurope.
• Credit and Marketable Alternatives. Established in 1990,
ourcreditandmarketablealternativessegmentiscomprised
of our management of funds of hedge funds, credit-oriented
funds, collateralized loan obligations (“CLO”) vehicles and
publicly-traded closed-end mutual funds, in many of which
Our Business
43
weareaworldleader.Theseproductsareintendedtoprovide
investorswithgreaterlevelsofcurrentincomeandforcertain
products,agreaterlevelofliquidity.
• Financial Advisory. Our ?nancial advisory segment serves
adiverseandglobalgroupofclientswithcorporateandmerg-
ers and acquisitions advisory services, restructuring and
reorganizationadvisoryservicesandfundplacementservices
foralternativeinvestmentfunds.
We generate our revenue from fees earned pursuant to con-
tractual arrangements with funds, fund investors and fund
portfolio companies (including management, transaction and
monitoring fees), and from corporate and mergers and acqui-
sitions advisory services, restructuring and reorganization
advisory services and fund placement services for alternative
investment funds. We invest in the funds we manage and, in
most cases, receive a preferred allocation of income (i.e., a “car-
riedinterest”)oranincentivefeefromaninvestmentfundinthe
eventthatspeci?edcumulativeinvestmentreturnsareachieved.
Thecompositionofourrevenueswillvarybasedonmarketcon-
ditionsandthecyclicalityofthediferentbusinessesinwhichwe
operate.Netinvestmentgainsandresultantinvestmentincome
generated by the Blackstone Funds, principally private equity
andrealestatefunds,aredrivenbyvaluecreatedbyouroperat-
ingandstrategicinitiativesaswellasoverallmarketconditions.
Ourfundsinitiallyrecordfundinvestmentsatcostandthensuch
investmentsaresubsequentlyrecordedatfairvalue.Fairvalues
areafectedbychangesinthefundamentalsoftheportfoliocom-
pany, the portfolio company’s industry, the overall economy as
wellasothermarketconditions.
business environment
Worldequityanddebtmarketscontinuedtoimproveinthesecond
half of 2009 in anticipation of sustained economic recovery. The
UnitedStatesandseveralotherdevelopedeconomiesreturnedto
growth, bene?ting in part from government spending programs,
and emerging economies grew more sharply. In the U.S., despite
tangible evidence of economic recovery, unemployment remains
highandconsumercredittrendsremainweak.
Equityindicesimproveddramaticallythroughout2009from
multi-year lows reached early in the year, when valuations suf-
feredfrominvestordespondencyandmassivemutualandhedge
fund withdrawals. Global equity indices in developed nations
increased20–30%in2009.Improvementwasmorepronouncedin
developingnations,withequityindicesincreasing60–100%.
Similarly, credit indices rose sharply, fueled by improving
economicdataandasigni?cantincreaseindemandandliquidity.
Highyieldcreditspreadstightenedroughly1,100basispointsin
2009,andimplieddefaultratesdeclinedto2–4%versus12–15%
earlier in 2009. Average leveraged loan prices improved from
62%ofparattheendof2008to87%atyear-end2009.
In real estate, fundamentals are beginning to show signs
of having reached bottom. For of ce properties, where trends
tend to lag the overall economy, vacancy rates appear to have
stabilized, with some markets showing signs of decreasing
vacancy. In hospitality, demand appears to have bottomed as
well, although pricing remains pressured. Revenue per average
room (“RevPAR”), an important hospitality industry metric,
continued to decline, but that decline clearly moderated in the
fourthquarterof2009.U.S.RevPARhashistoricallybeenhighly
correlatedwithchangesinGDPandcorporatepro?ts,whichare
both being forecasted to improve in 2010. The combination of
thesefactorsisexpectedtosetthestageforarecoveryinlodging
fundamentals.However,thetimingandmagnitudeoftherecov-
eryaredif culttodetermine.
Real estate capital markets have improved dramatically.
PublicREITsintheU.S.raised$25 billionofequityin2009,and
theREITIndexmorethandoubledfromitslowinMarch2009.
Publicrealestatedebt(CMBSandREITunsecured)yieldstight-
ened meaningfully. Private real estate markets have recently
started showing signs of improvement, and private debt capital
hasbeguntoreturntothemarket.
Commoditypricesmateriallyincreasedin2009.Oilprices,for
example,rosenearly80%.TheU.S.dollarweakened,pressuredby
historicallylowinterestratescoupledwithheavyborrowing.The
U.S.dollarfellagainsteachoftheEuroandPoundSterlingby2%
and10%,respectively.Globalmonetarypolicyhasremainedvery
accommodative throughout the economic downturn, and there
aresomeinitialsignsofforeigngovernmentstightening,although
theoutlookformonetarypolicyisuncertain.
The extent of the current economic improvement is unknown.
Blackstone’s businesses are materially affected by conditions in
the?nancialmarketsandeconomicconditionsintheU.S.,Western
Europe,Asiaand,toalesserextent,elsewhereintheworld.
segment review
Private Equity
Full Year. Private Equity had full year revenues of $775.2 mil-
lion, compared with revenues of a negative $(286.2) million for
the full year 2008. The principal driver of the year-over-year
change was an increase in Performance Fees and Allocations
and Investment Income as a result of net appreciation in the
fair value of both publicly traded and privately held portfolio
investments.Thecombinedimpactofimprovedperformanceof
the underlying portfolio companies and more favorable global
public markets drove the improved results. During the year,
two-thirds of the portfolio companies in private equity expe-
rienced Earnings Before Interest, Taxes, Depreciation and
44 TheBlackstoneGroup AnnualReport2009
Amortization(“EBITDA”)growthand40%hadrevenuegrowth.
The net internal rate of return (“IRR”) for the segment was
9% for 2009. At December 31, 2009, the unrealized value and
cumulative realized proceeds, before carried interest, fees and
expenses, of our contributed Private Equity funds represented
1.3timesinvestors’originalinvestments.
Results were also positively impacted by increased trans-
actionactivity,particularlyinthesecondhalfoftheyear,includ-
ingseveralmaterialrealizationssuchasStiefelLaboratories,Inc.
and Orangina Schweppes, SAS, as well as new investments in
SeaWorldParks&EntertainmentandthePinnacleFoodGroup’s
acquisition of Bird’s Eye Foods Inc. The funds distributed to
limitedpartnersrealizedproceedsof$1.6 billionfor2009,which
represented 1.8 times investors’ original investment in the
companies that were sold. In addition, Blackstone invested
Limited Partner Capital of $1.5 billion and had $1.3 billion
ofLimitedPartnerCapitalcommittedtodealsbythesegment’s
fundsthathadnotyetclosedasofDecember31,2009.Thiscom-
paredtodistributedproceedsof$0.5 billionandinvestedcapital
of$3.8 billionin2008.
Net Fee Related Earnings from Operations were $97.8 mil-
lionforthefullyear2009,upfrom$81.9 millionforthefullyear
2008. The change from 2008 primarily re?ected an increase in
transaction fees. Economic Net Income was $490.4 million for
thefullyear2009,upfromanegative$(392.5) millionforthefull
year2008.
CompensationandBene?tsexpenseincreasedto$202.3 mil-
lion from $16.2 million for the full year 2008. The change from
2008 was primarily due to an increase in performance fee
related compensation, although Base Compensation levels also
increased.OtherOperatingExpensesof$82.5 millionweredown
from$90.1 millionforthefullyear2008,re?ectingBlackstone’s
ongoingfocusonexpensecontrol.
Fee-EarningAssetsUnderManagementweredownslightlyat
$24.5 billioncomparedwith$25.5 billionfor2008re?ectingthe
impactofmarketdepreciationoncertainassetsonwhichfeesare
nolongerchargedandseveralrealizations.
Fourth Quarter. Private Equity had revenues of $281.6 million
forthefourthquarterof2009,comparedwithrevenuesofanegative
$(193.6) million for the fourth quarter of 2008. The change from
2008wasdrivenprincipallybyanincreaseinPerformanceFeesand
AllocationsandInvestmentIncomewhichincluded$62.4 millionin
realized performance fees and investment income. The net return
forthesegmentwas6%inthefourthquarterof2009versusanega-
tive(19)%inthefourthquarterof2008.
Net Fee Related Earnings from Operations were $32.9 mil-
lion for the fourth quarter of 2009, up from $31.6 million for
the fourth quarter of 2008. The change from 2008 primar-
ily reflected an increase in fee related revenues as a result of
increased transaction activity. Economic Net Income was
$177.8 millionforthefourthquarterof2009,upfromanegative
$(239.1) millionforthefourthquarterof2008.
Compensation and Bene?ts expense increased to $83.3 million
from$22.5 millionforthefourthquarterof2008.Thechangefrom
2008wasprimarilyduetoanincreaseinPerformanceFeeRelated
CompensationandBaseCompensation.OtherOperatingExpenses
of$20.5 millionweredownfrom$23.1 millionforthefourthquarter
of2008,re?ectingBlackstone’songoingfocusonexpensecontrol.
Fee-EarningAssetsUnderManagementweredownslightlyat
$24.5 billioncomparedwith$25.5 billionforthefourthquarter
of2008.
Limited Partner Capital Invested totaled $898.5 million for
the fourth quarter of 2009, including new and follow-on invest-
ments,adecreasefrom$1.1 billioninvestedforthefourthquarter
of2008.
Fund Returns. Fund return information for our signi?cant
funds is included throughout this discussion and analysis to
facilitate an understanding of our results of operations for the
periods presented. The fund returns information reflected in
thisdiscussionandanalysisisnotindicativeoftheperformance
of The Blackstone Group L.P. and is also not necessarily indica-
tiveofthefutureperformanceofanyparticularfund.Aninvest-
mentinTheBlackstoneGroupL.P.isnotaninvestmentinanyof
ourfunds.Therecanbenoassurancethatanyofourfundsorour
otherexistingandfuturefundswillachievesimilarreturns.
Thefollowingtablepresentstheinternalratesofreturnofoursigni?cantPrivateEquityfunds:
Net Total Changes in Carrying Value (Realized and Unrealized)
(a)
Year Ended December 31, Inception to Date
Fund 2009 2008 2007 Total Realized
(b)
BCPIV 35% –17% 21% 40% 72%
BCPV 1% –35% –1% –12% 21%
The returns presented herein represent those of the applicable Blackstone Funds and not those of The Blackstone Group L.P.
(a)
Nettotalchangeincarryingvalue(realizedandunrealized)isaftermanagementfees,expensesandcarriedinterestallocations.
(b)
Includes partially realized investments. Investments are considered partially realized when distributed proceeds, excluding current income (dividends, interest, etc.), are a
materialportionofinvestedcapital.
45
ThePrivateEquityfunds’netinternalratesofreturnfortheyearendedDecember31,2009werepositiveforBCPIVandBCPV
comparedtothenegativereturnsforeachofthesefundsforthepreviousyear.Generally,thefund’sportfoliocompaniessawincreas-
ingstabilizationoverthecourseof2009intheirrevenuesandimprovementinmarginsandEBITDA,animportantvaluationmetricin
PrivateEquity.Thefundsacceptedofersforthesaleofsomeportfoliocompaniesatattractivepricesfromstrategicbuyers,resulting
inanincreaseinthevaluationsofthoseportfoliocompanies.
The following table presents the investment record of the Private Equity funds from inception through December 31, 2009 for
fundswithclosedinvestmentperiods:
Fully Invested Funds
Total Investments Realized/Partially Realized Investments
(a)
Total Total
Fund (Investment Period) Invested Carrying Net Invested Carrying Net
(Dollarsin Millions) Capital Value
(b)
IRR
(c)
MOIC
(d)
Capital Value
(b)(e)
IRR
(c)
MOIC
(d
BCPI(Oct1987/Oct1993) $ 679 $1,742 19% 2.6 $ 679 $1,742 19% 2.6
BCPII(Oct1993/Aug1997) 1,292 3,245 32% 2.5 1,201 3,123 37% 2.6
BCPIII(Aug1997/Nov2002) 4,026 7,722 12% 1.9 3,402 6,939 18% 2.0
BCOM(Jun2000/Jun2006) 2,132 2,904 8% 1.4 1,004 2,139 25% 2.1
BCPIV(Nov2002/Dec2005) 7,088 16,834 40% 2.4 3,765 12,444 72% 3.3
The returns presented herein represent those of the applicable Blackstone Funds and not those of The Blackstone Group L.P.
(a)
Investmentsareconsideredpartiallyrealizedwhendistributedproceeds,excludingcurrentincome(dividends,interest,etc.),areamaterialportionofinvestedcapital.
(b)
Carryingvalueincludesrealizedproceedsandunrealizedfairvalue.
(c)
Theinternalrateofreturn(“IRR”)representstheannualizedinceptiontodateIRRontotalinvestedcapitalbasedonrealizedproceedsandunrealizedfairvalue.NetIRRisafter
managementfees,expensesandcarriedinterest.
(d)
MultipleofInvestedCapital(“MOIC”)representstotalrealizedandunrealizedvalue,beforemanagementfees,expensesandcarriedinterest,dividedbytotalinvestedcapital.
(e)
TheRealized/PartiallyRealizedCarryingValueincludesremainingunrealizedvalueof$1.2 billion.
The following table presents the investment record of the Private Equity funds from inception through December 31, 2009 for
fundswithopeninvestmentperiods:
Funds in the Investment Period
Total Investments Realized / Partially Realized Investments
(a)
Total Total
Fund (Investment Period) Available Invested Carrying Net Invested Carrying Net
(Dollarsin Millions) Capital
(b)
Capital Value
(c)
IRR
(d)
MOIC
(e)
Capital Value
(c)(f)
IRR
(d)
MOIC
(e
BCPV(Dec2005/Dec2011) $4,550 $16,769 $13,529 –12% 0.8 $1,504 $2,385 21% 1.6
The returns presented herein represent those of the applicable Blackstone Funds and not those of The Blackstone Group L.P.
(a)
Investmentsareconsideredpartiallyrealizedwhendistributedproceeds,excludingcurrentincome(dividends,interest,etc.)areamaterialportionofinvestedcapital.
(b)
Available Capital represents total capital commitments less invested capital and includes $1.4 billion committed to deals but not yet invested. Additionally, the segment has
$1.0 billionofAvailableCapitalthathasbeenreservedforadd-oninvestmentsinfundsthatarefullyinvested.
(c)
Carryingvalueincludesrealizedproceedsandunrealizedfairvalue.
(d)
Theinternalrateofreturn(“IRR”)representstheannualizedinceptiontodateIRRontotalinvestedcapitalbasedonrealizedproceedsandunrealizedfairvalue.NetIRRisafter
managementfees,expensesandcarriedinterest.
(e)
MultipleofInvestedCapital(“MOIC”)representstotalrealizedandunrealizedvalue,beforemanagementfees,expensesandcarriedinterest,dividedbytotalinvestedcapital.
(f)
TheRealized/PartiallyRealizedCarryingValueincludesremainingunrealizedvalueof$1.0 billion.
)
)
46 TheBlackstoneGroup AnnualReport2009
Real Estate
Full Year. RealEstatehadrevenuesofanegative$(13.6) million,
comparedwithrevenuesofanegative$(718.0) millionforthefull
year 2008. The principal drivers of the year-over-year change
was a reduction in the reversal of performance fees and a stabi-
lization in the fair value of the segment’s underlying portfolio
investments in the of ce and hospitality sectors during the sec-
ondhalfof2009.Theperformancefeesaccruedinpreviousyears
have now been fully reversed in the two largest funds, BREP V
and BREP VI. The second half of 2009 saw portfolio values sta-
bilize and a return of deal activity at cyclically attractive levels.
Real Estate invested $884.2 million for the full year 2009 with
another$256.6 millioncommittedbutnotyetinvested,orunder
letter of intent, as of December 31, 2009. The net IRR for our
RealEstatecarryfundswasanegative(35)%for2009compared
to a negative (38)% in 2008, while the Real Estate debt invest-
menthedgefundswas21%for2009comparedtoanegative(9)%
in 2008. Despite significant unrealized markdowns over the
last year and a half, the December 31, 2009 unrealized value
andcumulativerealizedproceeds,beforecarriedinterest,feesand
expenses,ofourcontributedRealEstatecarryfundsrepresented
0.9timesinvestors’originalinvestments.
Net Fee Related Earnings from Operations were $135.2 mil-
lioninthefullyear2009,upfrom$119.6 millionforthefullyear
2008duetothefull-yearimpactoftheEuropeanfundlaunched
in2008.EconomicNetIncomewasnegative$(117.5) millionfor
the full year 2009, an improvement from negative $(850.6) mil-
lionforthefullyear2008.
Compensation and Bene?ts were $47.6 million compared to
$76.8 million for the full year 2008. Other Operating Expenses
of $56.3 million for the full year 2009 remained relatively
unchangedfromthefullyear2008.
Fee-Earning Assets Under Management were up $737.6 mil-
lion,or3%,to$23.7 billioncomparedwith$23.0 billionfor2008.
Fourth Quarter. Real Estate had revenues of $117.7 million
forthefourthquarterof2009,comparedwithnegativerevenues
of $(477.8) million for the fourth quarter of 2008. The change
from2008wasprimarilyduetoanimprovementinPerformance
FeesandAllocationsandInvestmentIncome,drivenbythesta-
bilization in the fair value of the segment’s underlying portfolio
investments in the of ce and hospitality sectors during the sec-
ond halfof2009comparedtothefourthquarterof2008.Thenet
returnforourRealEstatecarryfundswasanegative(0.5)%for
the fourth quarter of 2009 compared to a negative (29)% in the
fourth quarter of 2008, while the Real Estate debt investment
hedgefundswas4%forthefourthquarterof2009comparedto
negative(9)%inthefourthquarterof2008.
NetFeeRelatedEarningsfromOperationswere$38.4 million
in the fourth quarter of 2009, down from $43.8 million for the
fourth quarter of 2008. Economic Net Income was $51.2 mil-
lion for the fourth quarter of 2009 compared to a negative
$(478.0) millionforthefourthquarterof2008.
Compensation and Benefits were $49.3 million compared
to a negative $(12.1) million for the fourth quarter of 2008. The
change from 2008 was due to a decrease in reversals of prior
period carried interest allocations in the fourth quarter of
2009.OtherOperatingExpensesof$17.3 millionincreasedfrom
$12.2 millionforthefourthquarterof2008.
Fee-Earning Assets Under Management of $23.7 billion
remained relatively unchanged from the third quarter of 2009
andwereup3%fromthefourthquarterof2008.
Fund Returns. Fund return information for our signi?cant
funds is included throughout this discussion and analysis to
facilitate an understanding of our results of operations for the
periods presented. The fund returns information reflected in
thisdiscussionandanalysisisnotindicativeoftheperformance
of The Blackstone Group L.P. and is also not necessarily indica-
tiveofthefutureperformanceofanyparticularfund.Aninvest-
mentinTheBlackstoneGroupL.P.isnotaninvestmentinanyof
ourfunds.Therecanbenoassurancethatanyofourfundsorour
otherexistingandfuturefundswillachievesimilarreturns.
47
ThefollowingtablepresentstheInternalRatesofReturnofoursigni?cantRealEstatefunds:
Net Total Change in Carrying Value (Realized and Unrealized)
(a)
Year Ended December 31, Inception to Date
Fund 2009 2008 2007 Total Realized
(b)
BREPIV –32% –39% 8% 14% 69%
BREPV –35% –31% 36% –6% 77%
BREPInternational 10% –36% 57% 28% 36%
BREPInternationalII –31% –42% 19% –27% 5%
BREPVI –40% –43% 44% –33% 95%
BSSFI
(c)
21% –9% N/A 17% N/M
BSSFII
(c)
23% N/A N/A 23% 140%
CMBS
(c)
17% N/A N/A 17% N/M
The returns presented herein represent those of the applicable Blackstone Funds and not those of The Blackstone Group L.P.
(a)
Nettotalchangeincarryingvalue(realizedandunrealized)isaftermanagementfees,expensesandperformancefeeallocations.
(b)
Includes partially realized investments. Investments are considered partially realized when distributed proceeds, excluding current income (dividends, interest, etc.), are a
materialportionofinvestedcapital.
(c)
RepresentsreturnsforapartialyearofinvestingwhichcommencedfortheCMBSfundinMay2009,BSSFIIinJuly2009,andBSSFinAugust2008.
TheRealEstatefunds’netinternalratesofreturnfortheyearendedDecember31,2009wereimprovedforallfundsexceptBREPV
comparedtothenegativereturnsforeachofthesefundsfortheyearendedDecember31,2008.Generally,beginninginthesecondhalf
of2009,thefund’sportfoliocompanyoperationshaveseenrelativestabilizationinthefundamentalsoftheBREPfunds’hotelsand
improvedleasingintheBREPfunds’of ceinvestments,whichthereforelimitedthevaluationreductionsofourinvestments.
ThefollowingtablepresentstheinvestmentrecordoftheRealEstatefundsfrominceptionthroughDecember31,2009forfunds
withclosedinvestmentperiods:
Fully Invested Funds
Total Investments Realized / Partially Realized Investments
(a)
Total Total
Fund (Investment Period) Invested Carrying Net Invested Carrying Net
(Dollarsin Millions) Capital Value
(b)
IRR
(c)
MOIC
(d)
Capital Value
(b)(e)
IRR
(c)
MOIC
(d
Pre-BREP $ 141 $ 345 33% 2.5 $ 141 $ 345 33% 2.5
BREPI(Sep1994/Oct1996) 467 1,328 40% 2.8 467 1,328 40% 2.8
BREPII(Oct1996/Mar1999) 1,219 2,525 19% 2.1 1,219 2,525 19% 2.1
BREPIII(Apr1999/Apr2003) 1,415 3,330 21% 2.4 1,338 3,300 23% 2.5
BREPInt’l(Jan2001/Sep2005) 757 1,580 28% 2.1 658 1,521 36% 2.3
BREPIV(Apr2003/Dec2005) 2,737 3,575 14% 1.3 1,058 2,501 69% 2.4
BREPV(Dec2005/Feb2007) 5,183 4,750 –6% 0.9 951 1,748 77% 1.8
BREPInt’lII(Sep2005/Jun2008) 1,739 972 –27% 0.6 208 256 5% 1.2
The returns presented herein represent those of the applicable Blackstone Funds and not those of The Blackstone Group L.P.
(a)
Investmentsareconsideredpartiallyrealizedwhendistributedproceeds,excludingcurrentincome(rent,dividends,interest,etc.),areamaterialportionofinvestedcapital.
(b)
Carryingvalueincludesrealizedproceedsandunrealizedfairvalue.
(c)
Theinternalrateofreturn(“IRR”)representstheannualizedinceptiontodateIRRontotalinvestedcapitalbasedonrealizedproceedsandunrealizedfairvalue.NetIRRisafter
managementfees,expensesandcarriedinterest.
(d)
MultipleofInvestedCapital(“MOIC”)representstotalrealizedandunrealizedvalue,beforemanagementfees,expensesandcarriedinterest,dividedbytotalinvestedcapital.
(e)
TheTotalRealized/PartiallyRealizedCarryingValueincludesremainingunrealizedvalueof$692.2 million.
)
48 TheBlackstoneGroup AnnualReport2009
credit and marketable alternatives (cama)
Full Year. CAMAhadrevenuesof$632.3 millionforthefullyear
2009 compared with revenues of $151.5 million for the full
year 2008. The increase was primarily driven by improved
returns on Blackstone’s investment in its funds of hedge funds
anditscredit-orientedfundsduringthefullyear2009compared
tothefullyear2008andbyanincreaseinPerformanceFeesand
Allocationsinbothbusinesses.
The funds of hedge funds posted a composite net return of
16% for the full year 2009 and approximately 40% of the assets
eligible to earn incentive fees were above their applicable high
watermarksasofDecember31,2009.Thecredit-orientedhedge
funds posted a composite net return of 23% for 2009, a record
year, and approximately three fourths of the assets eligible to
earnincentivefeeswereabovetheirapplicablehighwatermarks
as of December 31, 2009. CAMA’s credit-oriented draw-down
fundspostedacompositenetreturnof61%for2009.
NetFeeRelatedEarningsfromOperationswere$99.6 million
forthefullyear2009,adecreasefrom$130.9 millionforthefull
year 2008 which re?ected lower asset values and the spinout of
thesinglemanagerhedgefundsattheendof2008.EconomicNet
Incomewas$265.2 millionforthefullyear2009comparedtoa
negative$(195.5) millionforthefullyear2008.
Compensation and Benefits were $286.5 million, up from
$241.0 millionforthefullyear2008.Theincreasefromthefull
year 2008 was principally driven by performance fee related
compensationduetopositivereturnsoncertainofBlackstone’s
credit-relatedfunds,partiallyofsetbyadeclineinbasecompen-
sation. Other Operating Expenses of $80.7 million were down
from$106.0 millionforthefullyear2008,re?ectingBlackstone’s
ongoingfocusonexpensecontrol.
Fee-Earning Assets Under Management in 2009 totaled
$47.9 billioncomparedwith$42.6 billionfor2008.Theincrease
from 2008 was principally due to market appreciation in
thefundsofhedgefunds,creditplatformandclosed-endmutual
fundsinadditiontonetin?owsacrossthesegment,ofsetbythe
decreasefromdiscontinuedfunds.
LimitedPartnerCapitalInvestedincertaincreditdrawdown
funds totaled $721.4 million for the full year 2009, down from
$1.8 billionforthefullyear2008.
Fourth Quarter. CAMAhadrevenuesof$213.3 million,com-
pared with a negative $(55.7) million for the fourth quarter of
2008. The change from 2008 was due primarily to improved
returnsonthesegment’sfundofhedgefundsandcredit-oriented
funds,resultinginpositiveperformancefeesandallocationsand
investmentincomeinbothbusinesses.
NetFeeRelatedEarningsfromOperationswere$36.0 million
forthefourthquarterof2009,anincreasefrom$21.7 millionfor
thefourthquarterof2008re?ectinggeneralexpensereductions.
Economic Net Income was $102.8 million for the fourth quar-
ter of 2009 compared to a negative $(132.5) million for the
fourth quarterof2008.
ThefollowingtablepresentstheinvestmentrecordoftheRealEstatefundsfrominceptionthroughDecember31,2009forfunds
withopeninvestmentperiods:
Funds in the Investment Period
Total Investment
Total
Fund (Investment Period) Available Invested Carrying Net
(Dollarsin Millions) Capital
(a)
Capital Value
(b)
IRR
(c)
MOIC
(d
BREPVI(Feb2007/Aug2012) $6,208 $4,817 $2,374 –33% 0.5
BREPEUIII(Jun2008/Dec2013) 4,414 118 115 N/M 1.0
BSSFII(July2009/Aug2017) 147 358 401 23% 1.1
The returns presented herein represent those of the applicable Blackstone Funds and not those of The Blackstone Group L.P.
(a)
AvailableCapitalrepresentstotalcapitalcommitmentslessinvestedcapital.Itincludes$276.0 millioncommittedtodealsbutnotyetinvested.Additionally,thesegmenthas
$1.2 billionofAvailableCapitalthathasbeenreservedforadd-oninvestmentsinfundsthatarefullyinvested.
(b)
Carryingvalueincludesrealizedproceedsandunrealizedfairvalue.
(c)
Theinternalrateofreturn(“IRR”)representstheannualizedinceptiontodateIRRontotalinvestedcapitalbasedonrealizedproceedsandunrealizedfairvalue.NetIRRisafter
managementfees,expensesandcarriedinterest.
(d)
MultipleofInvestedCapital(“MOIC”)representstotalrealizedandunrealizedvalue,beforemanagementfees,expensesandcarriedinterest,dividedbytotalinvestedcapital.
)
49
Compensation and Benefits were $88.1 million, up from
$40.3 million in the fourth quarter of 2008. The increase
fromthefourthquarterof2008wasprincipallydrivenbyperfor-
mancefeerelatedcompensationduetopositivereturnsoncertain
of Blackstone’s credit-related funds, partially ofset by a decline
in base compensation. Other Operating Expenses of $22.4 mil-
lionweredownfrom$36.5 millionforthefourthquarterof2008,
re?ectingBlackstone’songoingfocusonexpensecontrol.
Financial Advisory
Full Year. Revenues were $397.6 million for the year ended
December31,2009,adecreaseof$13.0 million,or3%,compared
to $410.6 million for the year ended December 31, 2008. The
restructuring and reorganization advisory services business
generated record fees of $188.0 million, a 66% increase from
2008,ascontinuedcreditmarketturmoilandlowlevelsofavail-
ableliquidityledtoincreaseddebtdefaults,debtrestructurings
and bankruptcies. Additionally, fees earned from the corpo-
rate and mergers and acquisitions advisory services business
increased $10.1 million, or 7%, to a record $164.0 million as cli-
entsincreasinglylookedtousforindependentadviceincompli-
cated transactions. These increases were ofset by a decrease of
$91.6 millioninfeesgeneratedfromthefundplacementbusiness
compared to 2008 as that business continued to face challenges
inthefund-raisingenvironmentbutdidseeimprovementinthe
fourthquarter.
Net Fee Related Earnings from Operations were $77.8 mil-
lion for the full year 2009, a decrease from $95.2 million for
the full year 2008. The primary catalyst for the decrease from
2008 was a decrease in fees generated from the fund placement
businesscoupledwithanincreaseinbaddebtexpensefromthe
Fee-EarningAssetsUnderManagementinthefourthquarter
of2009totaled$47.9 billionupfrom$42.6 billionforthefourth
quarter of 2008. The increase from 2008 was principally due to
marketappreciationinthefundsofhedgefunds,creditplatform
fundsandclosed-endmutualfunds.
Limited Partner Capital Invested in certain carry credit-
oriented funds totaled $313.6 million for the fourth quarter of
2009,downfrom$333.8 millionforthefourthquarterof2008.
corporate and mergers and acquisitions advisory services busi-
ness.Non-compensationexpensesforthesegment,excludingthe
impact of these one-time items, were essentially ?at. Economic
NetIncomewas$85.7 millionforthefullyear2009comparedto
$108.5 millionforthefullyear2008.
Fourth Quarter. Revenueswere$125.7 millionforthefourth
quarterof2009,anincreasefrom$105.8 millionforthefourthquar-
ter of 2008. The increase in segment revenues was primarily
drivenbyanincreaseinfeesgeneratedbycontinuedstrengthin
Blackstone’srestructuringandreorganizationadvisoryservices
businessaswellasareturntomorenormalizedactivitylevelsin
thefundplacementbusiness.
NetFeeRelatedEarningsfromOperationswere$31.8 million
forthefourthquarterof2009,anincreasefrom$20.8 millionfor
thefourthquarterof2008.Theprimarycatalystfortheincrease
from 2008 was higher advisory fees, partially offset by an
increaseinCompensationandBene?tsasaportionofcompensa-
tionisdirectlyrelatedtothepro?tabilityofeachoftheadvisory
services businesses. Economic Net Income was $34.0 million
for the fourth quarter of 2009 compared to $22.5 million for
thefourthquarterof2008.
Composite Returns. Composite return information for our funds of hedge funds business is included throughout this discussion
andanalysistofacilitateanunderstandingofourresultsofoperationsfortheperiodspresented.Thecompositereturninformation
re?ectedinthisdiscussionandanalysisisnotindicativeoftheperformanceofTheBlackstoneGroupL.P.andisalsonotnecessarily
indicativeofthefutureresultsofanyparticularfund.AninvestmentinTheBlackstoneGroupL.P.isnotaninvestmentinanyofour
fundsorcomposites.Therecanbenoassurancethatanyofourfundsorcompositesorourotherexistingandfuturefundsorcompos-
iteswillachievesimilarreturns.
Average Annual Net Returns
(a)
Periods Ended December 31, 2009
One Three Five Inception
Composite Year Years Year to Date
FundsofHedgeFunds,CoreFundsComposite 16% 2% 5% 10%
The returns presented represent those of the applicable Blackstone Funds and not those of The Blackstone Group L.P.
(a)
CompositereturnspresentasummarizedassetweightedreturnmeasuretoevaluatetheoverallperformanceoftheapplicableclassofBlackstoneFunds.
50 TheBlackstoneGroup AnnualReport2009
segment economic net income and net fee related earnings from operations
The tables below detail Blackstone’s Economic Net Income and Net Fee Related Earnings from Operations. Net Fee Related Earnings
fromOperationsisasupplementalmeasureofaftertaxperformanceusedtohighlightearningsfromoperationsexcludingtheincomefrom
and related pro?t sharing expenses of Blackstone’s performance fees and allocations and investment income, except for interest income.
Private Equity
Year Ended December 31,
(DollarsinThousands) 2009 2008
Revenues
ManagementFees
BaseManagementFees $270,509 $ 268,961
AdvisoryFees
TransactionandOtherFees,Net
*
86,336 51,796
ManagementFeeOfsets
**
– (4,862)
TotalManagementFees 356,845 315,895
PerformanceFeesandAllocations
Realized 34,021 (749)
Unrealized 303,491 (429,736)
TotalPerformanceFeesandAllocations 337,512 (430,485)
InvestmentIncome(Loss)
Realized 36,968 13,687
Unrealized 33,269 (196,200)
TotalInvestmentIncome(Loss) 70,237 (182,513)
InterestIncomeandDividendRevenue 7,756 6,459
Other 2,845 4,474
TotalRevenues 775,195 (286,170)
Expenses
CompensationandBene?ts
BaseCompensation 181,266 146,551
PerformanceFeeRelated
Realized 741 (4,255)
Unrealized 20,307 (126,090)
TotalCompensationandBene?ts 202,314 16,206
OtherOperatingExpenses 82,471 90,130
TotalSegmentExpenses 284,785 106,336
EconomicNetIncome(Loss) $490,410 $(392,506)
NetFeeRelatedEarningsfromOperations $ 97,826 $ 81,928
* TransactionandOtherFees,Net,arenetofamounts,ifany,sharedwithlimitedpartnersincluding,forPrivateEquity,brokendealexpenses.
** Primarilyplacementfees.
51
Credit and Economic Net Income
Real Estate Marketable Alternatives Financial Advisory Recap, Total Segments
Year Ended December 31, Year Ended December 31, Year Ended December 31, Year Ended December 31,
2009 2008 2009 2008 2009 2008 2009 2008
$ 328,447 $ 295,921 $400,873 $ 476,836 $ 999,829 $1,041,718
$390,718 $397,519 390,718 397,519
25,838 36,046 2,866 8,516 – – 115,040 96,358
(2,467) (4,969) (14,694) (6,606) – – (17,161) (16,437)
351,818 326,998 389,045 478,746 390,718 397,519 1,488,426 1,519,158
(3,039) 24,681 43,282 15,081 – – 74,264 39,013
(252,180) (843,704) 114,556 (12,822) – – 165,867 (1,286,262)
(255,219) (819,023) 157,838 2,259 – – 240,131 (1,247,249)
6,164 3,778 (15,031) (82,142) 1,443 – 29,544 (64,677)
(125,624) (238,650) 96,016 (257,084) 219 – 3,880 (691,934)
(119,460) (234,872) 80,985 (339,226) 1,662 – 33,424 (756,611)
6,030 5,880 3,452 8,527 5,254 8,148 22,492 29,014
3,261 3,008 1,025 1,214 (35) 4,899 7,096 13,595
(13,570) (718,009) 632,345 151,520 397,599 410,566 1,791,569 (442,093)
158,115 150,684 198,117 239,436 232,359 234,755 769,857 771,426
3,506 1,090 20,854 8,162 – – 25,101 4,997
(113,981) (74,981) 67,493 (6,643) – – (26,181) (207,714)
47,640 76,793 286,464 240,955 232,359 234,755 768,777 568,709
56,325 55,782 80,661 106,027 79,572 67,277 299,029 319,216
103,965 132,575 367,125 346,982 311,931 302,032 1,067,806 887,925
$(117,535) $(850,584) $265,220 $(195,462) $ 85,668 $108,534 $ 723,763 $(1,330,018)
$ 135,187 $ 119,621 $ 99,646 $ 130,941 $ 77,751 $ 95,178 $ 410,410 $ 427,668
52 TheBlackstoneGroup AnnualReport2009
reconciliation of adjusted cash flow
from operations to net cash provided
by operating activities
The following table provides a reconciliation of Blackstone’s
Adjusted Cash Flow from Operations to Blackstone’s Net Cash
Provided by Operating Activities. Adjusted Cash Flow from
Operations is a supplemental measure of liquidity to assess
liquidity and amounts available for distributions to Blackstone
unitholders,includingBlackstonepersonnel.
Year Ended December 31,
(Dollars in Thousands) 2009 2008
NetCashProvidedbyOperatingActivities $ 411,509 $ 1,890,435
UnrealizedDepreciationonHedgeActivities 6,975 –
ChangesinOperatingAssetsandLiabilities (70,200) (757,084)
ShortTermInvestmentActivity 553,288 –
BlackstoneFundsRelated
InvestmentActivities (446,233) (469,693)
NetRealizedGains(Losses)onInvestments (135,243) (164,726)
Non-ControllingInterestsinIncomeof
ConsolidatedEntities 1,942,838 3,523,697
RealizedGains(Losses)–BlackstoneFunds 13,227 (197,426)
CashFlowsfromOperations–Adjustments
InterestsHeldbyBlackstoneHoldings
LimitedPartners
(a)
(1,792,173) (3,638,799)
IncrementalCashTaxEfect
(b)
42,250 (57,603)
AdjustedCashFlowfromOperations $ 526,238 $ 128,801
Thefollowingtableprovidesthedetailsofthecomponentsof
AdjustedCashFlowfromOperations.AdjustedCashFlowsfrom
Operations is the principal factor in determining the amount of
distributionstounitholders.
Year Ended December 31,
(Dollars in Thousands) 2009 2008
FeeRelatedEarnings
TotalManagementandAdvisoryFees
(c)
$1,530,382 $1,561,766
TotalExpenses
(d)
1,119,972 1,134,098
NetFeeRelatedEarningsfromOperations 410,410 427,668
PerformanceFeesandAllocations
NetofRelatedCompensation
(e)
32,092 33,210
BlackstoneInvestmentIncome
(f)
Liquid 58,362 (327,453)
Illiquid 25,374 (4,624)
83,736 (332,077)
AdjustedCashFlowfromOperations $ 526,238 $ 128,801
(a)
Represents an adjustment to add back net income (loss) allocable to interest
holdersofBlackstoneHoldingsLimitedPartnersaftertheReorganizationrecorded
asNon-ControllingInterests.
(b)
Represents the provisions for and/or adjustments to income taxes that were calcu-
latedusingasimilarmethodologyappliedincalculatingsuchamountsfortheperiod
afterthereorganization.
(c)
ComprisedoftotalsegmentManagementandAdvisoryFeesplusinterestincome.
(d)
Comprised of total segment compensation expense (excluding compensation
expenserelatedtoPerformanceFeesandAllocationspursuanttoBlackstone’spro?t
sharing plans related to carried interest and incentive fees which are included in
(e) below),otheroperatingexpensesandBlackstone’sestimateoftaxespayable.
(e)
RepresentsrealizedPerformanceFeesandAllocationsnetofcorrespondingactual
amounts due under Blackstone’s profit sharing plans related thereto. The nega-
tiveamountsforthequarterandyearendedDecember31,2009aretheresultoftiming
diferences between the tax payment due date on certain taxable Performance Fees
andAllocationsandthecashreceiptdateofsuchPerformanceFeesandAllocations.
(f)
ComprisedofBlackstone’sinvestmentincome(realizedandunrealized)onitsliquid
investmentsfromitsCreditandMarketableAlternativessegment,aswellasitsnet
realizedinvestmentincomeonitsilliquidinvestments,principallyfromitsPrivate
Equity and Real Estate Segments and permanent impairment charges on certain
illiquidinvestments.
53
to the general partner and unitholders of
the blackstone group l.p.:
We have audited the accompanying consolidated and combined
statements of financial condition of The Blackstone Group,
L.P. and subsidiaries (“Blackstone”) as of December 31, 2009
and 2008, and the related consolidated and combined state-
mentsofoperations,changesinpartners’capital,andcash?ows
for each of the three years in the period ended December 31,
2009. We also have audited Blackstone’s internal control over
?nancial reporting as of December 31, 2009, based on criteria
established in Internal Control – Integrated Framework issued
bytheCommitteeofSponsoringOrganizationsoftheTreadway
Commission. Blackstone’s management is responsible for these
?nancial statements, for maintaining efective internal control
over ?nancial reporting, and for its assessment of the efective-
nessofinternalcontrolover?nancialreporting,includedinthe
accompanying Management’s Report on Internal Control over
FinancialReporting. Ourresponsibilityistoexpressanopinion
on these financial statements and an opinion on Blackstone’s
internalcontrolover?nancialreportingbasedonouraudits.
We conducted our audits in accordance with the stan-
dards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and per-
form the audit to obtain reasonable assurance about whether
the ?nancial statements are free of material misstatement and
whether efective internal control over ?nancial reporting was
maintained in all material respects. Our audits of the ?nancial
statements included examining, on a test basis, evidence sup-
portingtheamountsanddisclosuresinthe?nancialstatements,
assessing the accounting principles used and significant esti-
matesmadebymanagement,andevaluatingtheoverall?nancial
statementpresentation. Ourauditofinternalcontrolover?nan-
cial reporting included obtaining an understanding of internal
control over ?nancial reporting, assessing the risk that a mate-
rial weakness exists, and testing and evaluating the design and
operatingefectivenessofinternalcontrolbasedontheassessed
risk. Ourauditsalsoincludedperformingsuchotherprocedures
asweconsiderednecessaryinthecircumstances. Webelievethat
ourauditsprovideareasonablebasisforouropinions.
A company’s internal control over financial reporting is a
process designed by, or under the supervision of, the company’s
principal executive and principal financial officers, or per-
sonsperformingsimilarfunctions,andefectedbythecompany’s
board of directors, management, and other personnel to pro-
vide reasonable assurance regarding the reliability of ?nancial
reporting and the preparation of ?nancial statements for exter-
nal purposes in accordance with generally accepted accounting
principles. A company’s internal control over ?nancial report-
ingincludesthosepoliciesandproceduresthat(1) pertaintothe
maintenanceofrecordsthat,inreasonabledetail,accuratelyand
fairlyre?ectthetransactionsanddispositionsoftheassetsofthe
company;(2) providereasonableassurancethattransactionsare
recorded as necessary to permit preparation of ?nancial state-
ments in accordance with generally accepted accounting prin-
ciples, and that receipts and expenditures of the company are
being made only in accordance with authorizations of manage-
ment and directors of the company; and (3) provide reasonable
assuranceregardingpreventionortimelydetectionofunauthor-
izedacquisition,use,ordispositionofthecompany’sassetsthat
couldhaveamaterialefectonthe?nancialstatements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material misstate-
mentsduetoerrororfraudmaynotbepreventedordetectedon
atimelybasis. Also,projectionsofanyevaluationoftheefective-
ness of the internal control over ?nancial reporting to future
periods are subject to the risk that the controls may become
inadequate because of changes in conditions, or that the degree
ofcompliancewiththepoliciesorproceduresmaydeteriorate.
Inouropinion,theconsolidatedandcombined?nancialstate-
mentsreferredtoabovepresentfairly,inallmaterialrespects,the
?nancialpositionofTheBlackstoneGroupL.P.andsubsidiariesas
ofDecember 31,2009and2008,andtheresultsoftheiroperations
andtheircash?owsforeachofthethreeyearsintheperiodended
December 31, 2009, in conformity with accounting principles
generally accepted in the United States of America. Also, in our
opinion,Blackstonemaintained,inallmaterialrespects,efective
internalcontrolover?nancialreportingasofDecember 31,2009,
based on the criteria established in Internal Control – Integrated
Framework issuedbytheCommitteeofSponsoringOrganizations
oftheTreadwayCommission.
NewYork,NewYork
February26,2010
Report of Independent Registered
Public Accounting Firm
54 TheBlackstoneGroup AnnualReport2009
consolidated and combined statements of financial condition
December 31,
(DollarsinThousands,ExceptUnitData) 2009 2008
Assets
CashandCashEquivalents $ 952,096 $ 503,737
CashHeldbyBlackstoneFundsandOther 86,084 907,324
Investments 3,565,483 2,830,942
AccountsReceivable 306,307 312,067
DuefromAf liates 759,907 1,088,304
IntangibleAssets,Net 919,477 1,077,526
Goodwill ` 1,703,602 1,703,602
OtherAssets 172,556 219,977
DeferredTaxAssets 943,512 845,578
Total Assets $9,409,024 $9,489,057
Liabilities and Partners’ Capital
LoansPayable $ 657,623 $ 387,000
DuetoAf liates 1,410,066 1,285,577
AccruedCompensationandBene?ts 488,945 413,459
AccountsPayable,AccruedExpensesandOtherLiabilities 308,857 1,284,576
Total Liabilities 2,865,491 3,370,612
Commitments and Contingencies
Redeemable Non-Controlling Interests in Consolidated Entities 526,311 362,462
Partners’ Capital
Partners’Capital(commonunits:319,939,772issuedandoutstandingasofDecember 31,2009;
273,891,358issuedand272,998,484outstandingasofDecember 31,2008) 3,376,707 3,509,448
AccumulatedOtherComprehensiveIncome(Loss) 2,420 (291)
Non-ControllingInterestsinConsolidatedEntities 540,283 425,067
Non-ControllingInterestsinBlackstoneHoldings 2,097,812 1,821,759
Total Partners’ Capital 6,017,222 5,755,983
Total Liabilities and Partners’ Capital $9,409,024 $9,489,057
Seenotestoconsolidatedandcombined?nancialstatements.
55
consolidated and combined statements of operations
Year Ended December 31,
(DollarsinThousands,ExceptUnitandPerUnitData) 2009 2008 2007
Revenues
ManagementandAdvisoryFees $ 1,482,226 $ 1,476,357 $1,566,047
PerformanceFeesandAllocations
Realized 70,492 38,941 1,024,566
Unrealized 150,598 (1,286,261) 102,074
TotalPerformanceFeesandAllocations 221,090 (1,247,320) 1,126,640
InvestmentIncome(Loss)
Realized 44,320 (16,425) 223,147
Unrealized (3,716) (606,452) 110,615
TotalInvestmentIncome(Loss) 40,604 (622,877) 333,762
InterestandDividendRevenue 22,680 30,879 23,174
Other 7,099 13,600 525
Total Revenues 1,773,699 (349,361) 3,050,148
Expenses
CompensationandBene?ts
BaseCompensation 3,778,686 4,062,238 2,227,310
PerformanceFeeRelated
Realized 25,102 4,997 91,203
Unrealized (26,182) (207,448) (61,866)
TotalCompensationandBene?ts 3,777,606 3,859,787 2,256,647
General,AdministrativeandOther 443,573 440,776 324,200
InterestExpense 13,384 23,008 32,080
FundExpenses 7,296 63,031 151,917
Total Expenses 4,241,859 4,386,602 2,764,844
Other Income (Loss)
NetGains(Losses)fromFundInvestmentActivities 176,694 (872,336) 5,423,132
Income (Loss) Before Provision (Bene?t) for Taxes (2,291,466) (5,608,299) 5,708,436
Provision (Bene?t) for Taxes 99,230 (14,145) 47,693
Net Income (Loss) (2,390,696) (5,594,154) 5,660,743
Net Income (Loss) Attributable to Redeemable Non-Controlling Interests in Consolidated Entities 131,097 (632,495) 628,354
Net Income (Loss) Attributable to Non-Controlling Interests in Consolidated Entities (14,328) (159,828) 4,510,881
Net Income (Loss) Attributable to Non-Controlling Interests in Blackstone Holdings (1,792,174) (3,638,799) 857,022
Net Income (Loss) Attributable to The Blackstone Group L.P. $ (715,291) $(1,163,032) $ (335,514)
Net Loss Attributable to The Blackstone Group L.P.
Per Common Unit – Basic and Diluted
CommonUnitsEntitledtoPriorityDistributions $ (2.46) $ (4.32) $ (1.28)
CommonUnitsNotEntitledtoPriorityDistributions $ (3.71) $ (3.06) N/A
Weighted-Average Common Units Outstanding – Basic and Diluted
CommonUnitsEntitledtoPriorityDistributions 285,163,954 266,876,031 262,810,720
CommonUnitsNotEntitledtoPriorityDistributions 3,826,233 1,501,373 N/A
Revenues Earned from Af liates
ManagementandAdvisoryFees $ 134,284 $ 188,276 $ 594,967
Seenotestoconsolidatedandcombined?nancialstatements.
56 TheBlackstoneGroup AnnualReport2009
consolidated and combined statements of changes in partners’ capital
Accumulated Redeemable
Other Non- Non- Non-
Compre- Controlling Controlling Controlling Compre-
hensive Interests in Interests in Total Interests in hensive
(DollarsinThousands, Common Partners’ Income Consolidated Blackstone Partners’ Consolidated Income
ExceptUnitData) Units Capital (Loss) Entities Holdings Capital Entities (Loss)
Balance at December 31, 2006 – $?? ????? – $10,274 $ 22,734,450 $ 2,712,604 $ 25,457,328 $ 6,060,444 $ 8,126,628
NetIncome – – – 4,533,944 1,958,751 6,492,695 644,103 $ 7,136,798
CurrencyTranslationAdjustment – – (191) 13,635 – 13,444 – 13,444
NetUnrealizedLosson
CashFlowHedges – – (6,930) – – (6,930) – (6,930)
CapitalContributions – – – 5,740,798 233,659 5,974,457 1,419,261 –
CapitalDistributions – – – (5,209,141) (2,492,352) (7,701,493) (429,311) –
RelinquishedinDeconsolidation
ofPartnership – – – (26,782,715) – (26,782,715) – –
Eliminationof
Non-ContributedEntities – – (2,803) – (161,103) (163,906) – –
TransferofNon-Controlling
InterestsinConsolidatedEntities – 35,276 – (506,186) (35,276) (506,186) (139,241) –
Balance at June 18, 2007 – 35,276 350 524,785 2,216,283 2,776,694 7,555,256 7,143,312
Balance at June 19, 2007 – 35,276 350 524,785 2,216,283 2,776,694 7,555,256 7,143,312
NetLoss – (335,514) – (23,063) (1,101,729) (1,460,306) (15,749) (1,476,055)
CurrencyTranslationAdjustment – – (5) 551 – 546 – 546
CapitalContributions – – – 128,361 – 128,361 223,336 –
CapitalDistributions – (78,794) – (96,455) (49,906) (225,155) 91,133 –
RelinquishedinDeconsolidation
ofPartnership – – – – – – (5,415,730) –
Eliminationof
Non-ContributedEntities – – – 140,167 – 140,167 – –
TransferofNon-Controlling
InterestsinConsolidatedEntities – 1,174,367 – (158,460) (1,549,865) (533,958) 20 –
IssuanceofUnitsinInitialPublic
Ofering,NetofIssuanceCosts 153,333,334 4,501,240 – – – 4,501,240 – –
IssuanceofUnitstoBeijing
WonderfulInvestments 101,334,234 3,000,000 – – – 3,000,000 – –
PurchaseofInterestsfromCertain
Non-ControllingInterestHolders – (4,570,756) – – – (4,570,756) – –
PurchasePriceduetothe
ReorganizationofthePartnership – – – – 2,255,803 2,255,803 – –
DeferredTaxEfectsResultingfrom
AcquisitionofOwnershipInterests – 111,876 – – – 111,876 – –
Equity-basedCompensation – 404,850 – – 1,332,702 1,737,552 – –
NetDeliveryofVested
CommonUnits 5,804,294 – – – – – – –
RepurchaseofCommonUnits (645,162) (16,045) – – – (16,045) – –
Balance at December 31, 2007 259,826,700 $ 4,226,500 $?? 345 $??? 515,886 $ 3,103,288 $ 7,846,019 $ 2,438,266 $ 5,667,803
Seenotestoconsolidatedandcombined?nancialstatements. continued
57
consolidated and combined statements of changes in partners’ capital
Accumulated Redeemable
Other Non- Non- Non-
Compre- Controlling Controlling Controlling Compre-
hensive Interests in Interests in Total Interests in hensive
(DollarsinThousands, Common Partners’ Income Consolidated Blackstone Partners’ Consolidated Income
ExceptUnitData) Units Capital (Loss) Entities Holdings Capital Entities (Loss)
Balance at December 31, 2007 259,826,700 $ 4,226,500 $ 345 $ 515,886 $ 3,103,288 $ 7,846,019 $2,438,266 $ 5,667,803
NetLoss – (1,163,032) – (159,828) (3,638,799) (4,961,659) (632,495)$(5,594,153)
CurrencyTranslationAdjustment – – (636) (532) – (1,168) – (1,168)
CapitalContributions – – – 76,884 76,884 317,884 –
CapitalDistributions – (319,897) – (128,217) (410,104) (858,218) (749,233) –
RelinquishedinDeconsolidation
ofPartnership – – – – – – (612,088) –
IssuanceofBlackstoneHoldings
PartnershipUnitsfor
GSOAcquisition – 14,307 – – 266,092 280,399 – –
PurchaseofInterestsfrom
CertainNon-Controlling
InterestHolders – (74,278) – – (19,511) (93,789) – –
DeferredTaxEfectsResultingfrom
AcquisitionofOwnershipInterests – 5,164 – – – 5,164 – –
Equity-basedCompensation – 818,076 – – 2,473,236 3,291,312 – –
NetDeliveryofVested
CommonUnits 4,601,493 (26,525) – – – (26,525) – –
RepurchaseofCommonUnits (902,874) (5,338) – – – (5,338) – –
ConversionofBlackstoneHoldings
PartnershipUnitsto
BlackstoneCommonUnits 9,473,165 34,471 – – (34,471) – – –
AdjustmenttoPre-IPO
ReorganizationPurchasePrice – – – – 82,028 82,028 – –
Consolidationof
Partnership – – – – – – 159,031 –
PayabletoNon-ControllingInterest
HoldersduetoConsolidated
BlackstoneFundsinLiquidation – – – – – – (649,091) –
AcquisitionofConsolidated
BlackstoneFunds – – – 120,874 – 120,874 90,188 –
Balance at December 31, 2008 272,998,484 $ 3,509,448 $(291) $ 425,067 $ 1,821,759 $ 5,755,983 $ 362,462 $(5,595,321)
Seenotestoconsolidatedandcombined?nancialstatements. continued
58 TheBlackstoneGroup AnnualReport2009
consolidated and combined statements of changes in partners’ capital
Accumulated Redeemable
Other Non- Non- Non-
Compre- Controlling Controlling Controlling Compre-
hensive Interests in Interests in Total Interests in hensive
(DollarsinThousands, Common Partners’ Income Consolidated Blackstone Partners’ Consolidated Income
ExceptUnitData) Units Capital (Loss) Entities Holdings Capital Entities (Loss)
Balance at December 31, 2008 272,998,484 $3,509,448 $ (291) $425,067 $ 1,821,759 $ 5,755,983 $362,462 $(5,595,321)
NetLoss – (715,291) – (14,328) (1,792,174) (2,521,793) 131,097 $(2,390,696)
CurrencyTranslationAdjustment – – 2,711 – – 2,711 – 2,711
CapitalContributions – – – 61,862 549 62,411 138,255 –
CapitalDistributions – (260,629) – (34,806) (1) (295,436) (63,349) –
TransferofNon-Controlling
InterestsinConsolidatedEntities – – – 1,991 (1,991) – – –
TransferDuetoReorganization – – – 100,497 – 100,496 – –
PurchaseofInterestsfromCertain
Non-ControllingInterestHolders – (10,020) – – (13) (10,033) – –
DeferredTaxEfectsResulting
fromAcquisitionofOwnership
InterestsfromNon-Controlling
InterestHolders – 21,447 – – – 21,447 – –
Equity-BasedCompensation – 777,986 – – 2,180,134 2,958,120 – –
NetDeliveryofVested
CommonUnits 3,117,774 (28,974) – – – (28,974) – –
RepurchaseofCommonUnitsand
BlackstoneHoldings
PartnershipUnits (4,375,094) (27,008) – – (703) (27,711) – –
ConversionofBlackstoneHoldings
PartnershipUnitstoBlackstone
CommonUnits 48,198,608 109,748 – – (109,748) – – –
LossAttributabletoConsolidated
BlackstoneFundsinLiquidation – – – – – – (42,153) –
Balance at December 31, 2009 319,939,772 $3,376,707 $2,420 $540,283 $ 2,097,812 $ 6,017,222 $526,311 $(2,387,985)
Seenotestoconsolidatedandcombined?nancialstatements.
59
consolidated and combined statements of cash flows
Year Ended December 31,
(DollarsinThousands) 2009 2008 2007
Operating Activities
NetIncome(Loss) $(2,390,696) $ (5,594,154) $ 5,660,743
AdjustmentstoReconcileNetIncome(Loss)toNetCashProvidedby(Usedin)OperatingActivities:
BlackstoneFundsRelated:
UnrealizedDepreciation(Appreciation)onInvestmentsAllocableto
Non-ControllingInterestsinConsolidatedEntities (267,433) 907,425 (2,537,918)
NetRealized(Gains)LossesonInvestments 135,243 164,726 (3,800,137)
ChangesinUnrealized(Gains)LossesonInvestmentsAllocabletoBlackstoneGroup 15,978 624,061 (13,630)
UnrealizedDepreciationonHedgeActivities (6,975) – –
Non-CashPerformanceFeesandAllocations (269,152) 1,086,058 (187,070)
Equity-BasedCompensationExpense 3,048,108 3,302,617 1,765,188
AmortizationofIntangibles 158,048 153,237 117,607
OtherNon-CashAmountsIncludedinNetIncome 25,243 19,688 11,221
CashFlowsDuetoChangesinOperatingAssetsandLiabilities:
CashHeldbyBlackstoneFundsandOther 821,240 (743,628) 643,410
CashRelinquishedwithDeconsolidationofPartnership – (1,092) (884,480)
AccountsReceivable 35,050 45,281 337,824
DuefromAf liates 385,941 (412,184) (969,055)
OtherAssets 91,397 732,192 (468,700)
AccruedCompensationandBene?ts (14,502) 157,528 95,059
AccountsPayable,AccruedExpensesandOtherLiabilities (987,241) 796,897 273,388
DuetoAf liates (261,685) 182,090 805,687
InvestmentsPurchased (1,196,636) – –
CashProceedsfromSaleofInvestments 643,348 – –
BlackstoneFundsRelated:
InvestmentsPurchased (421,974) (30,242,498) (33,655,862)
CashProceedsfromSaleofInvestments 868,207 30,712,191 31,956,429
NetCashProvidedby(Usedin)OperatingActivities 411,509 1,890,435 (850,296)
Investing Activities
PurchaseofFurniture,EquipmentandLeaseholdImprovements (23,627) (50,113) (32,307)
EliminationofCashforNon-ContributedEntities – – (23,292)
CashPaidforAcquisitions,NetofCashAcquired – (336,571) –
ChangesinRestrictedCash 4,801 5,004 –
NetCashUsedinInvestingActivities (18,826) (381,680) (55,599)
Financing Activities
IssuanceofCommonUnitsinInitialPublicOfering – – 7,501,240
DistributionstoNon-ControllingInterestHoldersinConsolidatedEntities (92,531) (2,124,621) (5,731,806)
ContributionsfromNon-ControllingInterestHoldersinConsolidatedEntities 205,558 520,494 7,132,074
ContributionsfromPredecessorOwners – – 583,773
Seenotestoconsolidatedandcombined?nancialstatements. continued
60 TheBlackstoneGroup AnnualReport2009
consolidated and combined statements of cash flows
Year Ended December 31,
(DollarsinThousands) 2009 2008 2007
DistributionstoPredecessorOwners $ – $ – $(2,932,918)
PurchaseofInterestsfromCertainNon-ControllingInterestHolders (10,033) (109,834) (4,570,756)
NetSettlementofVestedCommonUnitsandRepurchaseofCommonUnits (56,685) (31,863) (16,045)
ProceedsfromLoansPayable 593,989 1,172,236 5,254,787
RepaymentofLoansPayable (323,993) (980,162) (5,497,113)
DistributionstoCommonUnitholders (260,629) (319,897) (78,794)
NetCashProvidedby(Usedin)FinancingActivities 55,676 (1,873,647) 1,644,442
EfectofExchangeRateChangesonCashandCashEquivalents – – 639
Net Increase (Decrease) in Cash and Cash Equivalents 448,359 (364,892) 739,186
CashandCashEquivalents,BeginningofPeriod 503,737 868,629 129,443
CashandCashEquivalents,EndofPeriod $ 952,096 $ 503,737 $ 868,629
Supplemental Disclosure of Cash Flows Information
PaymentsforInterest $ 5,097 $ 22,038 $ 60,326
PaymentsforIncomeTaxes $ 52,035 $ 46,880 $ 75,899
Supplemental Disclosure of Non-Cash Financing Activities
Non-CashDistributionstoNon-ControllingInterestHolders $ – $ – $ (22,169)
Non-CashDistributionstoPartners $ – $ – $ 49,763
EliminationofCapitalofNon-ContributedEntities $ – $ – $ 118,947
EliminationofNon-ControllingInterestsofNon-ContributedEntities $ – $ – $ 163,906
TransferofPartners’CapitaltoNon-ControllingInterests $ 1,991 $ – $ 2,216,284
TransferDuetoReorganization $ 100,497 $ – $ –
DistributionPayabletoPredecessorOwners $ – $ – $ 65,995
ReductionofDuetoLimitedPartnersAccounttoFundSidepocketInvestment $ 6,261 $ – $ –
NotesIssuanceCosts $ 4,761 $ – $ –
SettlementofVestedCommonUnits $ 199,447 $ 170,626 $ –
ConversionofBlackstoneHoldingsUnitstoCommonUnits $ 109,748 $ 34,471 $ –
ReorganizationofthePartnership:
AccountsPayable,AccruedExpensesandOtherLiabilities $ – $ (82,028) $(2,255,804)
Non-ControllingInterestsinConsolidatedEntities $ – $ 82,028 $ 2,255,804
ExchangeofFoundersandSeniorManagingDirectors’InterestsinBlackstoneHoldings:
DeferredTaxAsset $ (142,982) $ (34,427) $ (745,837)
DuetoAf liates $ 121,535 $ 29,263 $ 633,961
Partners’Capital $ 21,447 $ 5,164 $ 111,876
AcquisitionofGSOCapitalPartnersLP–UnitsIssued $ – $ 280,400 $ –
Seenotestoconsolidatedandcombined?nancialstatements.
61
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 businesses includes the
management of private equity funds, real estate funds, funds of
hedge funds, credit-oriented funds, collateralized loan obliga-
tion(“CLO”)vehicles,separatelymanagedaccountsandpublicly
traded closed-end mutual funds (collectively referred to as the
“BlackstoneFunds”).Blackstonealsoprovidesvarious?nancial
advisoryservices,includingcorporateandmergersandacquisi-
tions advisory, restructuring and reorganization advisory and
fundplacementservices.Blackstone’sbusinessisorganizedinto
foursegments
rivateequity;realestate;creditandmarketablealternatives;and?nancialadvisory.
The Partnership was formed as a Delaware limited partner-
ship on March 12, 2007. The Partnership is managed and oper-
ated by its general partner, Blackstone Group Management
L.L.C., which is in turn wholly-owned and controlled by one of
Blackstone’sfounders,StephenA.Schwarzman,andBlackstone’s
otherseniormanagingdirectors.
TheactivitiesofthePartnershipareconductedthroughitshold-
ing partnerships: Blackstone Holdings I L.P.; Blackstone Holdings
II L.P.; Blackstone Holdings III L.P.; Blackstone Holdings IV
L.P.; and Blackstone Holdings V L.P. (collectively, the “Holding
Partnerships”). On June 18, 2007, in preparation for an initial
public ofering, the predecessor owners of the Blackstone busi-
nesscompletedareorganization(the“Reorganization”)whereby,
withcertainlimitedexceptions,theoperatingentitiesofthepre-
decessororganizationandtheintellectualpropertyrightsasso-
ciatedwiththeBlackstonenamewerecontributed(“Contributed
Businesses”)tothese?veholdingpartnershipseitherdirectlyor
indirectly via a sale to certain wholly-owned subsidiaries of the
PartnershipandthenacontributiontotheHoldingPartnerships.
The Partnership, through its wholly-owned subsidiaries,
isthesolegeneralpartnerineachoftheseHoldingPartnerships.
The reorganization was accounted for as an exchange of enti-
ties under common control for the component of interests con-
tributedbytheFoundersandtheotherseniormanagingdirectors
(collectively, the “Control Group”) and as an acquisition of non-
controllinginterestsusingthepurchasemethodofaccountingfor
allthepredecessorownersotherthantheControlGroup.
Undistributed earnings of the Contributed Businesses
through the date of the Reorganization inured to the bene?t of
predecessorowners.
On January 1, 2009, the number of Holding Partnerships was
reducedfrom?vetofourthroughthetransferofassetsandliabili-
tiesofBlackstoneHoldingsIIIL.P.toBlackstoneHoldingsIVL.P.In
connectiontherewith,BlackstoneHoldingsIVL.P.wasrenamed
BlackstoneHoldingsIIIL.P.andBlackstoneHoldingsVL.P.was
renamedBlackstoneHoldingsIVL.P.BlackstoneHoldingsrefers
tothe?veholdingpartnershipspriortotheJanuary2009reor-
ganization and the four holding partnerships subsequent to the
January2009reorganization.
Holders of the limited partner interests in the four Holding
Partnerships may, up to four times each year, exchange
their limited partnership interests (“Partnership Units”) for
Blackstone Common Units, on a one-to-one basis, exchanging
one Partnership Unit in each of the four Holding Partnerships
foroneBlackstoneCommonUnit.UntiltheBlackstoneCommon
Units issued in such exchanges were sold to third parties, they
were required to forego any priority distributions under the
cash distribution policy as described in Note 13 “Net Loss Per
CommonUnit.”
Initial Public Ofering
On June 27, 2007, the Partnership completed an initial public
ofering(“IPO”)ofitsCommonUnitsrepresentinglimitedpart-
nerinterestsinthePartnership.UponthecompletionoftheIPO,
public investors indirectly owned approximately 14.1% of the
equityinBlackstone.ConcurrentlywiththeIPO,thePartnership
completed the sale of non-voting common units, represent-
ing approximately 9.3% of the equity in Blackstone, to Beijing
Wonderful Investments, an investment vehicle subsequently
transferred to China Investment Corporation. On October 28,
2008, the agreement with Beijing Wonderful Investments was
amended whereby it, and certain of its af liates, are restricted
in the future from engaging in the purchase of Blackstone com-
monunitsthatwouldresultinitsaggregatebene?cialownership
in Blackstone on a fully-diluted (as-converted) basis exceeding
12.5%, an increase from 10% at the date of the IPO. In addi-
tion, Blackstone common units owned by Beijing Wonderful
Investmentsoritsaf liatesinexcessof10%aggregatebene?cial
Notes to Consolidated and
Combined Financial Statements
(AllDollarsAreinThousands,ExceptUnit
andPerUnitData,ExceptWhereNoted)
62 TheBlackstoneGroup AnnualReport2009
ownership in Blackstone on a fully-diluted (as-converted) basis
arenotsubjecttoanyrestrictionsontransferbutarenon-voting
whileheldbyBeijingWonderfulInvestmentsoritsaf liates.
The Partnership contributed the proceeds from the IPO
and the sale of non-voting common units to Beijing Wonderful
Investments to its wholly-owned subsidiaries, which in turn
usedtheseproceedsto(a) purchaseinterestsintheContributed
Businesses from the predecessor owners (which interests were
thencontributedtoBlackstoneHoldingsinexchangefornewly-
issuedBlackstoneHoldingsPartnershipUnits)and(b) purchase
additional newly-issued Blackstone Holdings Partnership Units
fromBlackstoneHoldings.
Consolidation and Deconsolidation of Blackstone Funds
ConcurrentlywiththeReorganization,theContributedBusinesses
that act as a general partner of a consolidated Blackstone Fund
(with the exception of Blackstone’s then existing proprietary
hedge funds and four of the funds of hedge funds) took the nec-
essary steps to grant rights to the unaf liated investors in each
respective fund to provide that a simple majority of the fund’s
unaffiliated investors will have the right, without cause, to
removethegeneralpartnerofthatfundortoacceleratetheliqui-
dation date of that fund in accordance with certain procedures.
The granting of these rights resulted in the deconsolidation
of such investment funds from the Partnership’s consolidated
?nancialstatementsandtheaccountingofBlackstone’sinterest
in these funds under the equity method. With the exception of
certain funds of hedge funds, hedge funds and credit-oriented
funds, these rights became effective on June 27, 2007 for all
BlackstoneFundswheretheserightsweregranted.Theefective
date of these rights for the applicable funds of hedge funds was
July 1, 2007. The consolidated results of these funds have been
re?ectedinthePartnership’sconsolidatedandcombined?nan-
cialstatementsuptotheefectivedateoftheserights.
Acquisitions
On March 3, 2008, the Partnership acquired GSO Capital
PartnersLPandcertainofitsaf liates(“GSO”).GSOisanalter-
native asset manager specializing in the credit markets. GSO
manages various multi-strategy credit hedge funds, mezzanine
funds,seniordebtfunds,separatelymanagedaccountsandvari-
ousCLOvehicles.
2. summary of significant accounting policies
Basis of Presentation
The accompanying consolidated and combined financial
statements have been prepared in accordance with accounting
principles generally accepted in the United States of America
(“GAAP”). The consolidated and combined ?nancial statements
priortotheReorganizationdescribedinNote1includetheentities
engagedintheabovebusinessesunderthecommonownershipof
thetwofoundersofBlackstone,StephenA.SchwarzmanandPeter
G. Peterson (the “Founders”), Blackstone’s other senior manag-
ing directors and selected other individuals engaged in some of
Blackstone’s businesses, personal planning vehicles bene?cially
owned by the families of these individuals and a subsidiary of
AmericanInternationalGroup,Inc.(“AIG”),collectively,together
withtheFounders,referredtoasthe“predecessor owners.”
Subsequent to the Reorganization, the consolidated and
combined financial statements include the accounts of the
Partnership, its wholly-owned subsidiaries, the consolidated
funds which are considered to be variable interest entities and
forwhichthePartnershipisconsideredtheprimarybene?ciary,
and certain partnerships or similar entities which are not con-
sidered variable interest entities but in which the Partnership
hasacontrolling?nancialinterest.
The December 31, 2008 Consolidated and Combined
Statements of Financial Condition re?ect a restatement to cor-
rect the classi?cation of the portion of net gains (losses) from
Blackstone Investment Funds attributable to departed par-
ticipants in Blackstone’s pro?t sharing plans. At December 31,
2008, cumulative distributions to such departed participants
exceeded net gains attributable to them such that Blackstone
had an accrued clawback due from the departed participants
totaling $226.9 million. This amount was previously classi?ed
as Non-Controlling Interests but should properly be, and has
been reclassified as, a component within Due from Affiliates.
TheimmaterialrestatementhadnoimpactontheConsolidated
andCombinedStatementofOperationsortheConsolidatedand
CombinedStatementofCashFlows.
Allintercompanybalancesandtransactionshavebeenelimi-
natedinconsolidation.
Certain reclassifications have been made to prior year
amountstoconformtothecurrentyearpresentationasfollows:
• DuringtheyearendedDecember 31,2008,Blackstoneelected
to classify Management and Advisory Fees in a single line
63
item and reclassify amounts relating to Performance Fees
and Allocations from Management and Advisory Fees and
into Performance Fees and Allocations to re?ect the under-
lyingnatureofthefeearrangements.Inthesecondquarterof
2009,BlackstoneelectedtodisaggregateInvestmentIncome
and Other between Investment Income (Loss) and Interest
Income and Other. Investment Income (Loss) represents
the income (loss) from Blackstone’s proprietary and equity
method investments, and Interest Income and Other repre-
sentsprimarilyinterestanddividendincome.
• Inthefourthquarterof2009,Blackstoneelectedtodisaggre-
gateCompensationandBene?tsintoBaseCompensationand
PerformanceFeeRelatedCompensation.Blackstonethendis-
aggregatedInvestmentIncome(Loss),PerformanceFeesand
Allocations, and Compensation and Bene?ts – Performance
Fee Related into their realized and unrealized components.
Blackstone also disaggregated Interest Income and Other
between Interest and Dividend Revenue and Other. Interest
andDividendRevenueincludesincomeearnedintheformof
interest and dividends and Other includes foreign currency
exchangegains(losses)andotherincome.AsofDecember 31,
2009,Blackstoneelectedtoaggregatecertain?nancialstate-
mentcaptionsontheConsolidatedandCombinedStatements
of Financial Condition into Other Assets and Accounts
Payable, Accrued Expenses and Other Liabilities as such
individualitemsnolongermeetthematerialitythresholdsfor
separate presentation. Accounts Payable, Accrued Expenses
andOtherLiabilitiesincludesamountsduetonon-controlling
interestholders.
Use of Estimates
The preparation of the consolidated and combined financial
statements in accordance with GAAP requires management
to make estimates that afect the amounts reported in the con-
solidatedandcombined?nancialstatementsandaccompanying
notes. Management believes that estimates utilized in the pre-
parationoftheconsolidatedandcombined?nancialstatements
are prudent and reasonable and that it has made all necessary
adjustments (consisting of only normal recurring items) so that
the consolidated and combined financial statements are pre-
sentedfairly.Actualresultscoulddiferfromthoseestimatesand
suchdiferencescouldbematerial.
Consolidation
The Partnership consolidates all entities that it controls
throughamajorityvotinginterestorotherwise,includingthose
Blackstone Funds in which the general partner is presumed to
have control. Although the Partnership has a non-controlling
interest in the Blackstone Holding Partnerships, the limited
partners do not have the right to dissolve the partnerships or
have substantive kick out rights or participating rights that
wouldovercomethepresumptionofcontrolbythePartnership.
Accordingly, the Partnership consolidates Blackstone Holdings
and records non-controlling interests to re?ect the economic
interestsofthelimitedpartnersofBlackstoneHoldings.
Inaddition,thePartnershipconsolidatesallvariableinterest
entities(“VIE”)inwhichitistheprimarybene?ciary.Anenter-
priseisdeterminedtobetheprimarybene?ciaryifitabsorbsthe
majority of the VIE’s expected losses, receives the majority of
theVIE’sexpectedreturns,orboth.
GAAP requires an analysis to (a) determine whether an
entity in which the Partnership holds a variable interest is
a variable interest entity, and (b) whether the Partnership’s
involvement, through holding interests directly or indirectly
in the entity or contractually through other variable interests
(e.g., management and performance related fees), would be
expected to absorb a majority of the variability of the entity.
Performance of that analysis requires the exercise of judgment.
The Partnership determines whether it is the primary ben-
e?ciary of a VIE at the time it becomes involved with a variable
interestentityandreconsidersthatconclusionbasedoncertain
reconsideration events. In evaluating whether the Partnership
is the primary beneficiary, Blackstone evaluates its economic
interests in the fund held either directly by the Partnership
orindirectlythroughemployees.Theconsolidationanalysiscan
generally be performed qualitatively; however, if it is not read-
ilyapparentthatthePartnershipisnottheprimarybene?ciary,
a quantitative expected losses and expected residual returns
calculation is performed. Investments and redemptions (either
bythePartnership,af liatesofthePartnershiporthirdparties)
or amendments to the governing documents of the respective
Blackstone Funds could afect an entity’s status as a VIE or the
determinationoftheprimarybene?ciary.Ateachreportingdate
andontheoccurrenceofreconsiderationevents,thePartnership
assesses whether it is the primary bene?ciary and will consoli-
dateordeconsolidateaccordingly.
Blackstone’s other disclosures regarding VIEs are discussed
inNote9“VariableInterestEntities”.
64 TheBlackstoneGroup AnnualReport2009
Business Combinations
The Partnership accounts for acquisitions using the purchase
method of accounting, under which the purchase price of the
acquisition is allocated to the assets acquired and liabilities
assumed using the fair values determined by management as of
theacquisitiondate.
Revenue Recognition
Revenues primarily consist of management and advisory fees,
performance fees and allocations, investment income, interest
anddividendrevenueandother.
Management and Advisory Fees –ManagementandAdvisory
Feesarecomprisedofmanagementfees,includingbasemanage-
ment fees, transaction and other fees, management fee reduc-
tionsandofsets,andadvisoryfees.
The Partnership earns base management fees from limited
partnersoffundsineachofitsmanagedfunds,ata?xedpercent-
age of assets under management, net asset value, total assets,
committedcapitalorinvestedcapital.Basemanagementfeesare
based on contractual terms speci?ed in the underlying invest-
mentadvisoryagreements.
Transaction and other fees (including monitoring fees) are
fees charged directly to funds and portfolio companies. The
investment advisory agreements generally require that
the investment advisor reduce the amount of management fees
payable by the limited partners to the Partnership (“manage-
ment fee reductions”) by an amount equal to a portion of the
transaction and other fees directly paid to the Partnership by
the portfolio companies. The amount of the reduction varies
by fund, the type of fee paid by the portfolio company and the
previouslyincurredexpensesofthefund.
Management fee ofsets are reductions to management fees
payable by limited partners, which are granted based on the
amounttheyreimburseBlackstoneforplacementfees.
Advisory fees consist of advisory retainer and transaction-
based fee arrangements related to merger, acquisition, restruc-
turing and divestiture activities and fund placement services
for alternative investment funds. Advisory retainer fees are
recognized when services for the transactions are complete,
in accordance with terms set forth in individual agreements.
Transaction-basedfeesarerecognizedwhen(a) thereisevidence
of an arrangement with a client, (b) agreed upon services have
been provided, (c) fees are fixed or determinable and (d) col-
lection is reasonably assured. Fund placement fees are rec-
ognized as earned upon the acceptance by a fund of capital or
capital commitments.
Accrued but unpaid Management and Advisory Fees, net of
management fee reductions and management fee offsets, as
ofthereportingdate,areincludedinAccountsReceivableorDue
FromAf liatesintheConsolidatedandCombinedStatementsof
FinancialCondition.
Performance Fees and Allocations –Performancefeesearned
on the performance of Blackstone’s hedge fund structures are
recognized based on fund performance during the period, sub-
jecttotheachievementofminimumreturnlevels,orhighwater
marks, in accordance with the respective terms set out in each
hedgefundinvestmentadvisoryagreement.Accruedbutunpaid
performance fees charged directly to investors in Blackstone’s
offshore hedge funds as of the reporting date are recorded
within Due from Af liates in the Consolidated and Combined
Statements of Financial Condition. Performance fees arising
on Blackstone’s onshore hedge funds are allocated to the gen-
eral partner. Accrued but unpaid performance fees on onshore
fundsasofthereportingdatearere?ectedinInvestmentsinthe
ConsolidatedandCombinedStatementsofFinancialCondition.
In certain fund structures, specifically in private equity,
real estate and certain credit-oriented funds (“Carry Funds”),
performance fees (“Carried Interest”) are allocated to the gen-
eral partner based on cumulative fund performance to date,
subject to a preferred return to limited partners. At the end of
each reporting period, the Partnership calculates the Carried
Interest that would be due to the Partnership for each fund,
pursuanttothefundagreements,asifthefairvalueoftheunder-
lying investments were realized as of such date, irrespective
ofwhethersuchamountshavebeenrealized.Asthefairvalueof
underlying investments varies between reporting periods, it is
necessarytomakeadjustmentstoamountsrecordedasCarried
Interesttore?ecteither(a) positiveperformanceresultinginan
increaseintheCarriedInterestallocatedtothegeneralpartner
or (b) negative performance that would cause the amount due
to the Partnership to be less than the amount previously recog-
nized as revenue resulting in a negative adjustment to Carried
Interest allocated to the general partner. In each scenario, it is
necessarytocalculatetheCarriedInterestoncumulativeresults
compared to the Carried Interest recorded to date and make
the required positive or negative adjustments. The Partnership
ceases to record negative Carried Interest allocations once pre-
viously recognized Carried Interest allocations for such fund
have been fully reversed. The Partnership is not obligated to
pay guaranteed returns or hurdles, and therefore, cannot have
negative Carried Interest over the life of a fund. Accrued but
unpaid Carried Interest as of the reporting date is re?ected in
65
Investments in the Consolidated and Combined Statements of
FinancialCondition.
Carriedinterestisrealizedwhenanunderlyinginvestmentis
pro?tably disposed of and the fund’s cumulative returns are in
excessofthepreferredreturn.Performancefeesearnedonhedge
fund structures are realized at the end of each fund’s measure-
mentperiod.
Carried Interest is subject to clawback to the extent that
the Carried Interest actually distributed to date exceeds the
amount due to Blackstone based on cumulative results. As
such,theaccrualforpotentialrepaymentofpreviouslyreceived
performance fees and allocations, which is a component of Due
to Af liates, represents all amounts previously distributed to
Blackstone Holdings and non-controlling interest holders that
wouldneedtoberepaidtotheBlackstoneFundsiftheBlackstone
CarryFundsweretobeliquidatedbasedonthecurrentfairvalue
of the underlying funds’ investments as of the reporting date.
Theactualclawbackliability,however,doesnotbecomerealized
until the end of a fund’s life or one year after a realized loss is
incurred,dependingonthefund.
Investment Income (Loss) – Investment Income (Loss) rep-
resents the unrealized and realized gains and losses on the
Partnership’s principal investments, including its investments
inBlackstoneFundsthatarenotconsolidated,itsequitymethod
investments, and other principal investments. Investment
Income (Loss) is realized when the Partnership redeems all or
a portion of its investment or when the Partnership receives
cash income, such as dividends or distributions, from its non-
consolidated funds. Unrealized Investment Income (Loss)
results from changes in the fair value of the underlying invest-
mentaswellasthereversalofunrealizedgain(loss)atthetime
aninvestmentis realized.
Interest and Dividend Revenue – Interest and Dividend
Revenue comprises primarily interest and dividend income
earnedonprincipalinvestmentsheldbyBlackstone.
Other Revenue –OtherRevenuecomprisesprimarilyforeign
exchange gains and losses arising on transactions denominated
incurrenciesotherthanU.S.dollars.
Fair Value of Financial Instruments
GAAP establishes a hierarchal disclosure framework which
prioritizes and ranks the level of market price observability
used in measuring ?nancial instruments at fair value. Market
price observability is afected by a number of factors, including
thetypeof?nancialinstrument,thecharacteristicsspeci?ctothe
?nancial instrument and the state of the marketplace, includ-
ing the existence and transparency of transactions between
market participants. Financial instruments with readily
available quoted prices in active markets generally will have a
higherdegreeofmarketpriceobservabilityandalesserdegreeof
judgmentusedinmeasuringfairvalue.
Financial instruments measured and reported at fair value
are classi?ed and disclosed based on the observability of inputs
usedinthedeterminationoffairvalues,asfollows:
• Level I – Quoted prices are available in active markets for
identical ?nancial instruments as of the reporting date. The
typeof?nancialinstrumentsinLevelIincludelistedequities
and listed derivatives. 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
impactthequotedprice.
• LevelII–Pricinginputsareotherthanquotedpricesinactive
markets,whichareeitherdirectlyorindirectlyobservableas
of the reporting date, and fair value is determined through
theuseofmodelsorothervaluationmethodologies.Financial
instruments which are generally included in this category
include corporate bonds and loans, less liquid and restricted
equitysecurities,certainover-the-counterderivativeswhere
thefairvalueisbasedonobservableinputs,andcertainfund
ofhedgefundsinvestmentsinwhichBlackstonehastheabil-
ity to redeem its investment at net asset value at, or within
threemonthsof,thereportingdate.
• Level III – Pricing inputs are unobservable for the ?nancial
instruments and includes situations where there is little, if
any, market activity for the ?nancial instrument. The inputs
into the determination of fair value require signi?cant man-
agement judgment or estimation. Financial instruments
that are included in this category generally include general
and limited partnership interests in private equity and real
estate funds, credit-oriented funds, distressed debt and non-
investmentgraderesidualinterestsinsecuritizations,collat-
eralizedloanobligations,certainoverthecounterderivatives
wherethefairvalueisbasedonunobservableinputsandcer-
tainfundsofhedgefundswhichusenetassetvaluepershare
todeterminefairvalueinwhichBlackstonemaynothavethe
abilitytoredeemitsinvestmentatnetassetvalueat,orwithin
threemonthsof,thereportingdate.Blackstonemaynothave
the ability to redeem its investment at net asset value at, or
withinthreemonthsof,thereportingdateifaninvesteefund
manager has the ability to limit the amount of redemptions,
and/or the ability to side-pocket investments, irrespective of
whethersuchabilityhasbeenexercised.
Incertaincases,theinputsusedtomeasurefairvaluemayfall
intodiferentlevelsofthefairvaluehierarchy.Insuchcases,the
66 TheBlackstoneGroup AnnualReport2009
determinationofwhichcategorywithinthefairvaluehierarchy
is appropriate for any given financial instrument is based on
thelowestlevelofinputthatissigni?canttothefairvaluemea-
surement. The Partnership’s assessment of the signi?cance of
a particular input to the fair value measurement in its entirety
requiresjudgmentandconsidersfactorsspeci?ctothe?nancial
instrument.
In certain cases, debt and equity securities are valued on
the basis of prices from an orderly transaction between market
participantsprovidedbyreputabledealersorpricingservices.In
determining the value of a particular investment, pricing serv-
ices may use certain information with respect to transactions
in such investments, quotations from dealers, pricing matrices,
market transactions in comparable investments and various
relationshipsbetweeninvestments.
In the absence of observable market prices, Blackstone val-
ues its investments using valuation methodologies applied on a
consistentbasis.Forsomeinvestmentslittlemarketactivitymay
exist; management’s determination of fair value is then based
onthebestinformationavailableinthecircumstances,andmay
incorporate management’s own assumptions and involves a
signi?cantdegreeofjudgment,takingintoconsiderationacom-
binationofinternalandexternalfactors,includingtheappropri-
ate risk adjustments for non-performance and liquidity risks.
Investmentsforwhichmarketpricesarenotobservableinclude
private investments in the equity of operating companies, real
estatepropertiesorcertainfundsofhedgefunds.Thevaluation
techniqueforeachoftheseinvestmentsisdescribedbelow:
Private Equity Investments –Thefairvaluesofprivateequity
investments are determined by reference to projected net earn-
ings, earnings before interest, taxes, depreciation and amor-
tization (“EBITDA”), the discounted cash ?ow method, public
market or private transactions, valuations for comparable com-
paniesandothermeasureswhich,inmanycases,areunaudited
at the time received. Valuations may be derived by reference
to observable valuation measures for comparable companies
or transactions (e.g., multiplying a key performance metric of
the investee company such as EBITDA by a relevant valuation
multiple observed in the range of comparable companies or
transactions), adjusted by management for diferences between
the investment and the referenced comparables, and in some
instancesbyreferencetooptionpricingmodelsorothersimilar
methods. Private equity investments may also be valued at cost
for a period of time after an acquisition as the best indicator
offairvalue.
Real Estate Investments – The fair values of real estate
investments,aredeterminedbyconsideringprojectedoperating
cash ?ows, sales of comparable assets, if any, and replacement
costs among other measures. The methods used to estimate the
fairvalueofrealestateinvestmentsincludethediscountedcash
?ow method and/or capitalization rates (“cap rates”) analysis.
Valuations may be derived by reference to observable valuation
measures for comparable companies or assets (e.g., multiply-
ing 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 diferences between the investment and the
referenced comparables, and in some instances by reference to
option pricing models or other similar methods. Additionally,
whereapplicable,projecteddistributablecash?owthroughdebt
maturity will also be considered in support of the investment’s
carryingvalue.
Funds of Hedge Funds – Blackstone Funds’ direct invest-
ments in funds of hedge funds (“Investee Funds”) are valued at
net asset value (“NAV”) per share of the Investee Fund. If the
Partnership determines, based on its own due diligence and
investment procedures, that NAV per share does not represent
fairvalue,thePartnershipwillestimatethefairvalueingoodfaith
andinamannerthatitreasonablychooses,inaccordancewithits
valuation policies.
Credit-Oriented Investments – The fair values of credit-
oriented investments are generally determined on the basis
of prices between market participants provided by reputable
dealers or pricing services. In some instances, Blackstone may
utilizeothervaluationtechniques,includingthediscountedcash
?ow method.
Investments, at Fair Value
The Blackstone Funds are accounted for as investment compa-
nies under the AICPA Audit and Accounting Guide, Investment
Companies, and re?ect their investments, including majority-
ownedandcontrolledinvestments(the“PortfolioCompanies”),
at fair value. Blackstone has retained the specialized account-
ing for the consolidated Blackstone Funds. Thus, such con-
solidatedfunds’investmentsarere?ectedinInvestmentsonthe
Consolidated and Combined 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 Consolidated
and Combined Statements of Operations. Fair value is the
amountthatwouldbereceivedtosellanassetorpaidtotransfer
aliability,inanorderlytransactionbetweenmarketparticipants
atthemeasurementdate(i.e.,theexitprice).
67
Blackstone’s principal investments are presented at fair
valuewithunrealizedappreciationordepreciationandrealized
gains and losses recognized in the Consolidated and Combined
StatementsofOperationswithinInvestmentIncome(Loss).
For certain instruments, the Partnership has elected the
fair value option. Such election is irrevocable and is applied on
an investment by investment basis at initial recognition. The
Partnership has applied the fair value option for certain loans
and receivables and certain investments in private debt and
equitysecurities,thatotherwisewouldnothavebeencarriedat
fairvaluewithgainsandlossesrecordedinnetincometoconsis-
tentlyaccountforprincipalinvestmentsheldbythePartnership.
Loans extended to third parties are recorded within Accounts
ReceivablewithintheConsolidatedandCombinedStatementsof
FinancialCondition.Debtandequitysecuritiesforwhichthefair
value option has been elected are recorded within Investments.
The methodology for measuring the fair value of such invest-
ments is consistent with the methodology applied to private
equity, real estate, credit-oriented and funds of hedge funds
investments. Changes in the fair value of such instruments are
recognizedinInvestmentIncome(Loss)intheConsolidatedand
CombinedStatementsofOperations.Interestincomeoninterest
bearing loans and receivables and debt securities on which the
fairvalueoptionhasbeenelectedisbasedonstatedcouponrates
adjustedfortheaccretionofpurchasediscountsandtheamorti-
zation of purchase premiums. This interest income is recorded
within Interest and Dividend Revenue. Further disclosure on
instruments for which the fair value option has been elected is
presentedinNote7“FairValueOption”totheConsolidatedand
CombinedFinancialStatements.
Securitiestransactionsarerecordedonatradedatebasis.
Equity Method Investments
Investments where the Partnership is deemed to exert signi?-
cantin?uence,butnotcontrol,areaccountedforusingtheequity
method of accounting. Under the equity method of account-
ing, the Partnership’s share of earnings (losses) from equity
method investments is included in Investment Income in the
ConsolidatedandCombinedStatementsofOperations.Thecar-
rying amounts of equity method investments are reflected in
Investments in the Consolidated and Combined Statements of
FinancialCondition.
ThePartnershipevaluatesitsequitymethodinvestmentsfor
impairment whenever events or changes in circumstances indi-
cate that the carrying amounts of such investments may not be
recoverable. The diference between the carrying value and its
estimated fair value is recognized as impairment when the loss
isdeemedotherthantemporary.
Cash and Cash Equivalents
Cash and cash equivalents represents cash on hand, cash held
in banks and liquid investments with original maturities of
three monthsorless.Interestincomefromcashandcashequiv-
alents is recorded in Interest and Dividend Revenue in the
ConsolidatedandCombinedStatementsofOperations.
Cash Held By Blackstone Funds and Other
Cash held by Blackstone Funds and Other represents cash and
cashequivalentsheldbyconsolidatedBlackstoneFundsandother
consolidated entities. Such amounts are not available to fund the
generalliquidityneedsofBlackstone.
Accounts Receivable
Accounts Receivable includes management fees receivable
from limited partners, receivables related to the redemption
of Partnership interests from underlying funds in the fund of
hedge funds business, placement and advisory fees receiv-
ables,andloansextendedtounaf liatedthirdparties.Accounts
Receivable, excluding those for which the fair value option has
beenelected,areassessedperiodicallyforcollectibility.Amounts
determined to be uncollectible are charged directly to General,
Administrative and Other Expenses in the Consolidated and
CombinedStatementsofOperations.
Intangibles and Goodwill
Blackstone’s intangible assets consist of contractual rights to
earnfuturefeeincome,includingmanagementandadvisoryfees
and Carried Interest from its Carry Funds. Identi?able ?nite-
livedintangibleassetsareamortizedonastraightlinebasisover
theirestimatedusefullives,rangingfrom5to20years,re?ecting
the contractual lives of such funds. The Partnership does not
holdanyinde?nite-livedintangibleassets.
GoodwillcomprisesgoodwillarisingfromtheReorganization
of the Partnership in 2007 and the acquisition of GSO in 2008
(seeNote1“Organization”).
Intangiblesandgoodwillarereviewedforimpairmentatleast
annually, or more frequently if circumstances indicate impair-
mentmayhaveoccurred.
Furniture, Equipment and Leasehold Improvements
Furniture, equipment and leasehold improvements consist pri-
marilyofleaseholdimprovements,furniture,?xturesandequip-
ment,computerhardwareandsoftwareandarerecordedatcost
68 TheBlackstoneGroup AnnualReport2009
less accumulated depreciation and amortization. Depreciation
and amortization are calculated using the straight line method
over the assets’ estimated useful economic lives, which for
leasehold improvements are the lesser of the lease terms or the
lifeoftheasset,generally?fteenyears,andthreetosevenyears
for other fixed assets. The Partnership evaluates long-lived
assets for impairment whenever events or changes in circum-
stances indicate that the carrying amount of an asset may not
be recoverable.
Derivative Instruments
The Partnership recognizes all derivatives as assets or liabili-
ties on its Consolidated and Combined Statements of Financial
Conditionatfairvalue.OnthedatethePartnershipentersintoa
derivativecontract,itdesignatesanddocumentseachderivative
contractasoneofthefollowing
a) ahedgeofarecognizedassetorliability(“fairvaluehedge”);(b) ahedgeofaforecastedtrans-
action or of the variability of cash ?ows to be received or paid
relatedtoarecognizedassetorliability(“cash?owhedge”);(c) a
hedgeofanetinvestmentinaforeignoperation;or(d) aderiva-
tive instrument not designated as a hedging instrument (“free
standingderivative”).Forafairvaluehedge,Blackstonerecords
changesinthefairvalueofthederivativeand,totheextentthat
itishighlyefective,changesinthefairvalueofthehedgedasset
or liability attributable to the hedged risk, in current period
earningsinthesamecaptionintheConsolidatedandCombined
StatementsofOperationsasthehedgeditem.Changesinthefair
value of derivatives designated as hedging instruments caused
byfactorsotherthanchangesintheriskbeinghedged,whichare
excluded from the assessment of hedge efectiveness, are recog-
nized in current period earnings. For free standing derivative
contracts,thePartnershippresentschangesinfairvalueincur-
rentperiodearnings.
The Partnership formally documents at inception its hedge
relationships, including identification of the hedging instru-
ments and the hedged items, its risk management objec-
tives, strategy for undertaking the hedge transaction and the
Partnership’s evaluation of effectiveness of its hedged trans-
action. On a monthly basis, the Partnership also formally
assesses whether the derivative it designated in each hedging
relationship is expected to be, and has been, highly efective in
ofsetting changes in estimated fair values or cash ?ows of the
hedged items using either the regression analysis or the dollar
ofset method. If it is determined that a derivative is not highly
efective at hedging the designated exposure, hedge accounting
isdiscontinued.
Foreign Currency
Inthenormalcourseofbusiness,thePartnershipmayenterinto
transactions not denominated in United States dollars. Foreign
exchange gains and losses arising on such transactions are
recordedasOtherintheConsolidatedandCombinedStatements
of Operations. In addition, the Partnership consolidates a num-
ber of entities that have a non-U.S. dollar functional currency.
Non-U.S. denominated assets and liabilities are translated to
U.S.dollarsattheexchangerateprevailingatthereportingdate
and income, expenses, gains and losses are translated at the
prevailing exchange rate on the dates that they were recorded.
Cumulative translation adjustments arising from the trans-
lationofnon-U.S.denominatedoperationsarerecordedinOther
ComprehensiveIncome.
Comprehensive Income
Comprehensive Income consists of Net Income and Other
ComprehensiveIncome.ThePartnership’sOtherComprehensive
Income is comprised of unrealized gains and losses on cash ?ow
hedgesandforeigncurrencycumulativetranslationadjustments.
Non-Controlling Interests in Consolidated Entities
Non-Controlling Interests in Consolidated Entities represent
thecomponentofPartner’sCapitalinconsolidatedentitiesheld
by third party investors. Such interests are adjusted for general
partner allocations and by subscriptions and redemptions in
funds of hedge funds and certain credit-oriented funds which
occur during the reporting period. Non-controlling interests
relatedtofundsofhedgefundsandcertainothercredit-oriented
funds are subject to annual, semi-annual or quarterly redemp-
tion by investors in these funds following the expiration of a
speci?edperiodoftime(typicallybetweenoneandthreeyears),
or may be withdrawn subject to a redemption fee in the funds
of hedge funds and certain credit-oriented funds during the
period when capital may not be withdrawn. As limited partners
in these types of funds have been granted redemption rights,
amounts relating to third party interests in such consolidated
funds are presented as Redeemable Non-Controlling Interests
inConsolidatedEntitieswithintheConsolidatedandCombined
Statements of Financial Condition. When redeemable amounts
becomelegallypayabletoinvestors,theyareclassi?edasaliabil-
ity and included in Accounts Payable, Accrued Expenses and
OtherintheConsolidatedandCombinedStatementsofFinancial
Condition.Forallconsolidatedfundsinwhichredemptionrights
have not been granted, non-controlling interests are presented
within Partner’s Capital in the Consolidated and Combined
69
StatementsofFinancialConditionasNon-ControllingInterests
inConsolidatedEntities.Whenfundsarerestructured,theyare
re?ectedasacashdistributionforcash?owpurposes.
Compensation and Bene?ts
Compensation and Bene?ts – Base Compensation – Base com-
pensation and bene?ts consists of (a) employee compensation,
comprising salary and bonus, and bene?ts paid and payable to
employees,includingseniormanagingdirectors,and(b) equity-
based compensation associated with the grants of equity-based
awardstoemployees,includingseniormanaging directors.
Equity-Based Compensation –Compensationcostrelatingto
theissuanceofshare-basedawardstoseniormanagingdirectors
andemployeesismeasuredatfairvalueatthegrantdate,taking
into consideration expected forfeitures, and expensed over the
vestingperiodonastraightlinebasis.Equity-basedawardsthat
do not require future service are expensed immediately. Cash
settled equity-based awards are classi?ed as liabilities and are
re-measuredattheendofeachreportingperiod.
Compensation and Benefits – Performance Fee Related –
Performance fee related compensation and bene?ts consists of
Carried Interest and performance fee allocations to employees,
including senior managing directors, participating in certain
pro?tsharinginitiatives.Employeesparticipatinginsuchinitia-
tivesareallocatedaportionofCarriedInterestandperformance
fees allocated to the general partner under performance fee
allocations (see “Revenue Recognition”). Such compensation
expense is recognized in the same manner as Carried Interest
and performance fee allocations and is subject to both positive
and negative adjustments as a result of changes in underlying
fundperformance.
Income Taxes
The Blackstone Holdings partnerships and certain of their
subsidiaries operate in the U.S. as partnerships for U.S. federal
incometaxpurposesandgenerallyascorporateentitiesinnon-
U.S. jurisdictions. Accordingly, these entities in some cases
are subject to New York City unincorporated business taxes or
non-U.S.incometaxes.Inaddition,certainofthewholly-owned
subsidiaries of the Partnership and the Blackstone Holdings
partnershipswillbesubjecttofederal,stateandlocalcorporate
income taxes at the entity level and the related tax provision
attributabletothePartnership’sshareofthisincomeisre?ected
intheconsolidatedandcombined?nancialstatements.
Income taxes are accounted for using the liability method of
accounting.Underthismethod,deferredtaxassetsandliabilities
are recognized for the expected future tax consequences of dif-
ferences between the carrying amounts of assets and liabilities
andtheirrespectivetaxbasis,usingcurrentlyenactedtaxrates.
The efect on deferred assets and liabilities of a change in tax
rates is recognized in income in the period when the change is
enacted. Deferred tax assets are reduced by a valuation allow-
ancewhenitismorelikelythannotthatsomeportionorallofthe
deferredtaxassetswillnotberealized.
Blackstone analyzes its tax ?ling positions in all of the U.S.
federal,stateandforeigntaxjurisdictionswhereitisrequiredto
?le income tax returns, as well as for all open tax years in these
jurisdictions. If, based on this analysis, the Partnership deter-
minesthatuncertaintiesintaxpositionsexist,areserveisestab-
lished. Blackstone recognizes accrued interest and penalties
related to uncertain tax positions in General, Administrative,
and Other expenses within the Consolidated and Combined
Statementsof Operations.
Taxlawsarecomplexandsubjecttodiferentinterpretations
bythetaxpayerandrespectivegovernmentaltaxingauthorities.
Signi?cantjudgmentisrequiredindeterminingtaxexpenseand
in evaluating tax positions, including evaluating uncertainties
under GAAP. Blackstone reviews its tax positions quarterly and
adjustsitstaxbalancesasnewinformationbecomesavailable.
Earnings Per Unit
Blackstone calculates basic and diluted earnings per unit using
the two class method, which requires an entity to include non-
vested share-based payment awards that have non-forfeitable
rightstodividendsordividendequivalentsasaseparateclassof
securitiesinsuchcalculation.Basicearningsperunitarecalcu-
latedbydividingtotalundistributedlossbytheweighted-average
numberofcommonunitsoutstanding,includingunvestedequity
awards.Dilutedearningsperunitexcludetheanti-dilutiveefect
of unvested deferred restricted common units and Blackstone
HoldingsPartnershipUnits.
Recent Accounting Developments
Effective January 1, 2009, the Partnership adopted account-
ing guidance issued by the Financial Accounting Standards
Board (“FASB”) on business combinations. The guidance
requires the acquiring entity in a business combination, for
whichtheacquisitiondateisonorafterJanuary 1,2009,torec-
ognize the full fair value of assets, liabilities, contingencies and
70 TheBlackstoneGroup AnnualReport2009
contingent consideration obtained in the transaction (whether
for a full or partial acquisition); establishes the acquisition date
fair value as the measurement objective for all assets acquired
and liabilities assumed; requires expensing of most transac-
tion and restructuring costs; and requires the acquirer to dis-
close to investors and other users all of the information needed
to evaluate and understand the nature and financial effect of
the business combination. The guidance applies to all trans-
actionsorothereventsinwhichthePartnershipobtainscontrol
of one or more businesses, including those sometimes referred
to as “true mergers” or “mergers of equals” and combinations
achieved without the transfer of consideration, for example, by
contract alone or through the lapse of minority veto rights. The
Partnership did not enter into any business combination trans-
actionsduringtheyearendedDecember 31,2009.
Effective January 1, 2009, the Partnership adopted guid-
ance on the accounting and financial statement presentation
of non-controlling (minority) interests. The guidance requires
reporting entities to present non-redeemable non-controlling
(minority)interestsasequity(asopposedtoaliabilityormezza-
nineequity)andprovidesguidanceontheaccountingfortrans-
actions between an entity and non-controlling interest holders.
Asaresultofadoption,(a) withrespecttotheConsolidatedand
Combined Statements of Financial Condition, the Redeemable
Non-ControllingInterestsinConsolidatedEntitieswasrenamed
as such and remained classi?ed as mezzanine equity, and the
non-redeemable Non-Controlling Interests in Consolidated
Entities and Non-Controlling Interests in Blackstone Holdings
have been reclassified as components of Partners’ Capital,
(b) with respect to the Consolidated and Combined Statements
of Operations, Net Income (Loss) is now presented before non-
controlling interests, the Net Income (Loss) attributable to
the three categories of non-controlling interests discussed in
(a) above are now presented separately, and the Consolidated
and Combined Statements of Operations now net to Net
Income (Loss) Attributable to The Blackstone Group L.P., and
(c) with respect to the Consolidated and Combined Statements
of Changes in Partners’ Capital, roll forward columns have
now been added for each component of non-controlling inter-
ests discussed in (a) above. The presentation and disclosure
requirements have been applied retrospectively for all periods
presentedinaccordancewiththeissuedguidance.Theguidance
alsoclari?esthescopeofaccountingandreportingfordecreases
inownershipofasubsidiarytoincludegroupsofassetsthatcon-
stituteabusiness.Thescopeclari?cationdidnothaveamaterial
impactonthePartnership’s?nancial statements.
Effective January 1, 2009, the Partnership adopted guid-
ance issued by the Emerging Issues Task Force (“EITF”) on the
applicationofthetwo-classsharemethodofearningspershare
asappliedtomasterlimitedpartnerships.Theguidanceapplies
to master limited partnerships that make incentive equity
distributions. The Partnership has applied the guidance on a
retrospective basis and has presented earnings per unit based
on the two-class share method for all periods presented. The
adoption did not have a material impact on the Partnership’s
?nancial statements.
Effective January 1, 2009, the Partnership adopted guid-
ance issued by the FASB regarding disclosures about derivative
instrumentsandhedgingactivities.Thepurposeoftheguidance
is to improve ?nancial reporting of derivative instruments and
hedging activities. The guidance requires enhanced disclosures
to enable investors to better understand how those instru-
ments and activities are accounted for, how and why they are
used and their efects on an entity’s ?nancial position, ?nancial
performance and cash flows. The adoption resulted in addi-
tionalrequireddisclosuresrelatingtoderivativeinstrumentsas
presented in Note 6 “Derivative Financial Instruments” of the
Partnership’s?nancialstatements.
Efective January 1, 2009, the Partnership adopted guidance
on the determination of the useful life of intangible assets. The
guidanceamendsthefactorsanentityshouldconsiderindevel-
oping renewal or extension assumptions used in determining
theusefullifeofrecognizedintangibleassets.Thenewguidance
applies prospectively to (a) intangible assets that are acquired
individually or with a group of other assets and (b) both intan-
gible assets acquired in business combinations and asset acqui-
sitions. The adoption of the guidance did not have a material
impactonthePartnership’s?nancialstatements.
71
During2009,thePartnershipadoptedguidanceissuedbythe
FASB on determining fair value when the volume and level of
activity for the asset or liability has signi?cantly decreased and
identifying transactions that are not orderly. Adoption did not
haveamaterialimpactonthePartnership’s?nancial statements.
During 2009, the Partnership adopted guidance on interim
disclosures about fair value of ?nancial instruments. Such dis-
closureswerepreviouslyrequiredonlyinannual?nancialstate-
ments.Theadoptionoftheguidanceresultedintheinclusionof
interim financial statement disclosures which had previously
beenannual.
During 2009, the Partnership adopted guidance on subse-
quentevents.Theguidanceisintendedtoestablishgeneralstan-
dardsofaccountingforanddisclosureofeventsthatoccurafter
thebalancesheetdatebutbefore?nancialstatementsareissued
orareavailabletobeissued.Theadoptionresultedinadditional
disclosureregardingsubsequenteventsaspresentedinNote 20
“SubsequentEvents”ofthePartnership’s?nancialstatements.
During 2009, the Partnership adopted guidance issued by
the FASB on the Accounting Standards Codification and the
hierarchy of generally accepted accounting principles which
established the FASB Standards Accounting Codification
(“Codi?cation”)asthesourceofauthoritativeGAAPrecognized
bytheFASBtobeappliedtonongovernmentalentities,andrules
and interpretive releases of the SEC as authoritative GAAP for
SEC registrants. The Codification supersedes all the existing
non-SECaccountingandreportingstandardsandsubsequently,
theFASBwillnotissuenewstandardsintheformofStatements,
FASB Staf Positions or Emerging Issues Task Force Abstracts.
This guidance also replaces the prior guidance regarding the
GAAP hierarchy, given that once in efect, the guidance within
the Codi?cation will carry the same level of authority. As the
guidance is limited to disclosures in the consolidated ?nancial
statements and the manner in which the Partnership refers to
GAAP authoritative literature, adoption did not have a material
impactonthePartnership’s?nancialstatements.
During 2009, the Partnership adopted guidance issued by
theFASBonthemeasurementofthefairvalueofliabilities.The
guidance provides clari?cation that in circumstances in which
a quoted price in an active market for the identical liability is
notavailable,fairvaluemustbemeasuredusingvaluationtech-
niques that use the quoted price of the identical liability when
tradedasanasset,quotedpricesforsimilarliabilitiesorsimilar
liabilities when traded as assets or alternative valuation tech-
niques including an income approach or a market approach. In
addition, guidance is provided on the classi?cation of liabilities
measuredatfairvaluewithinthefairvaluehierarchy.Wherethe
fairvalueofaliabilityisbasedonaquotedpriceinanactivemar-
ketfortheidenticalliabilityoronthequotedpriceforanidenti-
calliabilitywhentradedasanassetinanactivemarketwithout
adjustmenttothequotedprice,thefairvaluemeasurementshall
be classified as Level I. The adoption did not have a material
impactonthePartnership’s?nancialstatements.
EfectiveJanuary 1,2009,thePartnershipadoptedguidanceissuedbytheFASBondeterminingwhetherinstrumentsgrantedin
share-basedpaymenttransactionsareparticipatingsecurities.Theguidanceaddresseswhetherinstrumentsgrantedinshare-based
paymenttransactionsareparticipatingsecuritiespriortovestingandthereforeneedtobeincludedintheearningsallocationincal-
culatingearningspershareunderthetwo-classmethodofcalculation.Theguidancerequiresentitiestotreatunvestedshare-based
payment awards that have non-forfeitable rights to dividends or dividend equivalents as a separate class of securities in calculating
earningspershare.Asaresultofadoption,thePartnershipincludesunvestedparticipatingBlackstoneCommonUnitsasacomponent
ofCommonUnitsEntitledtoPriorityDistributions–Basicinthecalculationofearningspercommonunitforallperiodspresented,
due to their equivalent distribution rights as Blackstone Common Units. The impact of the adoption and retroactive application on
2008and2007wasasfollows:
Year Ended June 19, 2007 through
December 31, 2008 December 31, 2007
Originally Upon Originally Upon
Reported Adoption Reported Adoption
Net Loss Per Common Unit – Basic and Diluted
CommonUnitsEntitledtoPriorityDistributions $(4.36) $(4.32) $(1.29) $(1.28)
CommonUnitsNotEntitledtoPriorityDistributions $(3.09) $(3.06) N/A N/A
72 TheBlackstoneGroup AnnualReport2009
During 2009, the Partnership adopted implementation
guidance issued by the FASB on accounting for uncertainty in
incometaxes.Theupdatedguidanceconsidersanentity’sasser-
tionthatitisatax-exemptnotforpro?torapassthroughentity
as a tax position that requires evaluation. In addition, the guid-
ance provided implementation guidance on the attribution of
income taxes to entities and owners. The adoption of the guid-
ance did not have a material impact on the Partnership’s ?nan-
cialstatements.
In September 2009, the FASB issued guidance on fair value
measurements and disclosures relating to investments in cer-
tainentitiesthatcalculatenetassetvalue(“NAV”)pershare(or
its equivalent). The guidance permits, as a practical expedient,
an entity holding investments in certain entities that either
are investment companies as de?ned by the AICPA Audit and
Accounting Guide, Investment Companies, or have attributes
similartoaninvestmentcompany,andcalculatenetassetvalue
pershareoritsequivalentforwhichthefairvalueisnotreadily
determinable, to measure the fair value of such investments on
thebasisofthatNAVpershare,oritsequivalent,withoutadjust-
ment. The guidance also requires disclosure of the attributes
of investments within the scope of the guidance by major cat-
egory of investment. Such disclosures include the nature of any
restrictions on an investor’s ability to redeem its investments
at the measurement date, any unfunded commitments and the
investment strategies of the investee. Additional guidance is
provided on the classification of investments for which NAV
is used to measure fair value within the fair value hierarchy.
If an entity has the ability to redeem its investment at net
assetvalueatthemeasurementdateorwithinthenearterm,the
fair value measurement of the investment shall be categorized
asaLevelIIfairvaluemeasurement.Ifanentitydoesnotknow
when it will have the ability to redeem its investment or can-
not do so in the near term, the fair value measurement of the
investmentshallbecategorizedasaLevelIIIfairvaluemeasure-
ment. The guidance is efective for interim and annual periods
ending after December 15, 2009. The Partnership has adopted
the guidance effective with the issuance of its December 31,
2009 ?nancial statements with additional disclosure require-
mentspresentedinNote5“NetAssetValueasFairValue”ofthe
Partnership’s?nancialstatements.
In June 2009, the FASB issued amended guidance on issues
related to variable interest entities (“VIEs”). The amend-
ments will signi?cantly afect the overall consolidation analy-
sis, changing the approach taken by companies in identifying
which entities are VIEs and in determining which party is the
primary bene?ciary. The guidance requires continuous assess-
ment of the reporting entity’s involvement with such VIEs. The
revised guidance also enhances the disclosure requirements
for a reporting entity’s involvement with VIEs, irrespective of
whether they qualify for deferral, as noted below. The guidance
isefectiveasofthebeginningofthe?rst?scalyearthatbegins
after November 15, 2009 and early adoption is prohibited. In
February 2010, the FASB issued further guidance which pro-
videdalimitedscopedeferralforareportingentity’sinterestin
an entity that met all of the following conditions: (a) the entity
hasalltheattributesofaninvestmentcompanyasde?nedunder
AICPA Audit and Accounting Guide, Investment Companies, or
does not have all the attributes of an investment company but
isanentityforwhichitisacceptablebasedonindustrypractice
to apply measurement principles that are consistent with the
AICPA Audit and Accounting Guide, Investment Companies,
(b) thereportingentitydoesnothaveexplicitorimplicitobliga-
tions to fund any losses of the entity that could potentially be
significant to the entity, and (c) the entity is not a securitiza-
tion entity, asset-backed ?nancing entity or an entity that was
formerly considered a qualifying special-purpose entity. The
reporting entity is required to perform a consolidation analysis
forentitiesthatqualifyforthedeferralinaccordancewithprevi-
ously issued guidance on variable interest entities. Blackstone’s
involvement with its funds is such that all three of the above
conditions are met with the exception of certain CLO vehicles
which fail condition (c) above and certain funds in which lever-
agedemployeeinterestsindedicatedfundsare?nancedbythird
partieswithBlackstoneactingasanintermediarywhichfailcon-
dition(b) above.Suchemployeefundsarecurrentlyconsolidated
asitisconcludedthatBlackstoneistheprimarybene?ciarybased
on its implicit interest. The incremental impact of the revised
consolidation rules will result in the consolidation of certain
CLO vehicles managed by Blackstone. The impact of consolida-
tionofsuchvehiclesisexpectedtohaveamaterialimpactonthe
ConsolidatedandCombinedStatementsofFinancialCondition.
BasedonthefairvalueofCLOassetsandliabilitiesofimpacted
CLO vehicles managed by Blackstone as of January 1, 2010, the
assets and liabilities of Blackstone would have increased by
approximately$3.7 billionand$3.3 billion, respectively.
InJanuary2010,theFASBissuedguidanceonimprovingdis-
closures about fair value measurements. The guidance requires
additionaldisclosureontransfersinandoutofLevelsIand IIfair
valuemeasurementsinthefairvaluehierarchyandthereasons
forsuchtransfers.Inaddition,forfairvaluemeasurementsusing
signi?cant unobservable inputs (Level III), the reconciliation
73
of beginning and ending balances shall be presented on a gross
basis, with separate disclosure of gross purchases, sales, issu-
ancesandsettlementsandtransfersinandtransfersoutofLevel
III.Thenewguidancealsorequiresenhanceddisclosuresonthe
fair value hierarchy to disaggregate disclosures by each class of
assetsandliabilities.Inaddition,anentityisrequiredtoprovide
further disclosures on valuation techniques and inputs used to
measurefairvalueforfairvaluemeasurementsthatfallineither
Level II or Level III. The guidance is efective for interim and
annualperiodsbeginningafterDecember 15,2009,exceptforthe
disclosuresaboutpurchases,sales,issuances,andsettlementsin
therollforwardofactivityinLevelIIIfairvaluemeasurements,
whichareefectivefor?scalyearsbeginningafterDecember 15,
2010. As the guidance is limited to enhanced disclosures, the
impact of adoption is not expected to have a material impact on
thePartnership’s?nancialstatements.
3. acquisitions, goodwill and intangible assets
Acquisition of Non-Controlling Interests at Reorganization
PursuanttotheReorganizationtransactiondescribedinNote1,
thePartnershipacquiredinterestsinthepredecessorbusinesses
from the predecessor owners. These interests were acquired, in
part, through an exchange of Blackstone Holdings Partnership
Unitsand,inpart,throughthepaymentofcash.
This transaction has been accounted for partially as a trans-
fer of interests under common control and, partially, as an
acquisition of non-controlling interests. The vested Blackstone
Holdings Partnership Units received by the Control Group in
the Reorganization are re?ected in the consolidated and com-
bined ?nancial statements as non-controlling interests at the
historicalcostoftheintereststheycontributed,astheyarecon-
sideredtobetheControlGroupofthepredecessororganization.
The vested Blackstone Holdings Partnership Units received by
holdersnotincludedintheControlGroupintheReorganization
are accounted for using the purchase method of accounting
andre?ectedasnon-controllinginterestsintheconsolidatedand
combined ?nancial statements at the fair value of the interests
contributed as these holders are not considered to have been in
the group controlling Blackstone prior to the Reorganization.
Additionally, ownership interests were purchased with pro-
ceeds from the IPO. The cash paid in excess of the cost basis of
the interests acquired from members of the Control Group has
beenchargedtoequity.Cashpaymentsrelatedtotheacquisition
of interests from holders outside of the Control Group has been
accountedforusingthepurchasemethodofaccounting.
ThetotalconsiderationpaidtoholdersoutsideoftheControl
Group was $2.79 billion and re?ected (a) 69,093,969 Blackstone
HoldingsPartnershipUnitsissuedintheexchange,thefairvalue
of which was $2.14 billion based on the initial public offering
price of $31.00 per common unit and (b) cash of $647.6 million.
Accordingly,thePartnershiphasre?ectedtheacquiredtangible
assetsatthefairvalueoftheconsiderationpaid.Theexcessofthe
purchasepriceoverthefairvalueofthetangibleassetsacquired
approximated $2.34 billion, the remaining balance of which
has been reported in Goodwill and Intangible Assets in the
Consolidated and Combined Statements of Financial Condition
as of December 31, 2009. The finite-lived intangible assets of
$876.3 millionre?ectthevalueascribedforthefuturefeeincome
relatingtocontractualrightsandclientorinvestorrelationships
for management, advisory and incentive fee arrangements as
well as for those rights and relationships associated with the
future carried interest income from the carry funds. The resid-
ualamountrepresentingthepurchasepriceinexcessoftangible
andintangibleassets(includingotherliabilitiesof$55.2 million)
is$1.52 billionandhasbeenrecordedasGoodwill.
During the quarter ended March 31, 2008, the Partnership
?nalized the purchase price allocation, including the determi-
nation of goodwill attributable to the reporting segments, as
providedinthetablebelow,fortheacquisitionofnon-controlling
interestsatReorganization.
PurchasePrice $2,789,469
Goodwill $1,516,720
Finite-LivedIntangibleAssets/ContractualRights 876,270
OtherLiabilities (55,158)
IncreasetoNon-ControllingInterests
inConsolidatedEntities 2,337,832
NetAssetsAcquired,atFairValue 451,637
PurchasePriceAllocation $2,789,469
Acquisition of GSO Capital Partners LP
In March 2008, the Partnership completed the acquisition of
GSOCapitalPartnersLPandcertainofitsaf liates(“GSO”).The
purchase consideration for GSO was $635 million, comprised of
$355 million in cash and $280 million in Blackstone Holdings
PartnershipUnits,plusuptoanadditionaltargeted$310 million
tobepaidoverthenext?veyears,contingentupontherealization
of speci?ed earnings targets over that period. The Partnership
alsoincurred$6.9 millionofacquisitioncosts.Additionally,per-
formance and other compensatory payments subject to perfor-
manceandvestingmaybepaidtoGSOpersonnel.
74 TheBlackstoneGroup AnnualReport2009
During November 2008, in settlement of the Partnership’s
obligation for the purchase of GSO to deliver Blackstone
Holdings Partnership Units valued at closing of $280 million,
thePartnershipdeliveredtocertainpredecessorownersofGSO
15.79 millionBlackstoneHoldingsPartnershipUnitswithavalue
at settlement of $118.6 million. The difference between the
valueatclosingandthevalueatsettlementresultedina$14.3 mil-
lion credit to the Partnership’s capital, re?ecting the dilution of
the Partnership’s interest in Holdings from approximately 25%
toapproximately24.6%.
The ?nal purchase price allocation for the GSO acquisition
wasasfollows:
PurchasePrice $641,894
Finite-LivedIntangibleAssets/ContractualRights $472,100
Goodwill 186,882
OtherLiabilities (17,650)
NetAssetsAcquired,atFairValue 562
PurchasePriceAllocation $641,894
The Consolidated and Combined Statements of Operations
for the year ended December 31, 2008 includes the results of
GSO’s operations from the date of acquisition, March 3, 2008,
throughDecember 31,2008.
Supplemental information on an unaudited pro forma basis,
asiftheGSOacquisitionhadbeenconsummatedasofJanuary 1,
2008andJanuary 1,2007,respectively,isasfollows:
Years Ended December 31,
(Unaudited) 2008 2007
TotalRevenues $ (324,010) $3,213,056
NetIncome(Loss) $(1,168,836) $ (468,232)
NetLossperCommonUnit–Basicand
DilutedCommonUnitsEntitled
toPriorityDistributions $ (4.34) $ (1.78)
CommonUnitsNotEntitledto
PriorityDistributions $ (3.06)
The unaudited pro forma supplemental information is
based on estimates and assumptions, which the Partnership
believes are reasonable; it is not necessarily indicative of the
Partnership’s Consolidated and Combined Financial Condition
orStatementsofOperationsinfutureperiodsortheresultsthat
actuallywouldhavebeenrealizedhadthePartnershipandGSO
beenacombinedentityduringtheperiodspresented.
Goodwill and Intangible Assets
Thecarryingvalueofgoodwillwas$1.7 billionasofDecember 31,
2009 and December 31, 2008. Total goodwill has been allo-
cated to each of the Partnership’s segments as follows: Private
Equity ($694.5 million); Real Estate ($421.7 million); Credit
and Marketable Alternatives ($518.5 million); and Financial
Advisory ($68.9 million). Goodwill has been tested for impair-
ment.Noimpairmenthasbeenidenti?ed.
The following table outlines changes to the carrying amount
ofIntangibleAssets,asofDecember 31,2009and2008:
December 31,
2009 2008
Finite-LivedIntangibleAssets/
ContractualRights $1,348,370 $1,348,370
AccumulatedAmortization (428,893) (270,844)
IntangibleAssets,Net $ 919,477 $1,077,526
Amortization expense associated with Blackstone’s intan-
gibleassetswas$158.0 million,$153.2 millionand$117.6 million
for the years ended December 31, 2009, 2008 and 2007, respec-
tively, and is included in General, Administrative and Other
in the accompanying Consolidated and Combined Statements
of Operations.
Amortization of intangible assets held at December 31, 2009
isexpectedtobeapproximately$158.0 millionintheyearsend-
ing December 31, 2010 and 2011 and $103.2 million, $51.7 mil-
lion, and $50.3 million in the years ending December 31, 2012,
2013 and 2014, respectively. Blackstone’s intangible assets as of
December 31, 2009 are expected to amortize over a weighted-
averageperiodof10years.
4. investments
Investments
Investmentsconsistsofthefollowing:
December 31,
2009 2008
InvestmentsofConsolidatedBlackstoneFunds $1,306,445 $1,556,261
EquityMethodInvestments 1,104,701 1,063,615
HighGradeLiquidDebtStrategies 534,777 –
PerformanceFeesandAllocations 554,463 147,421
OtherInvestments 65,097 63,645
$3,565,483 $2,830,942
75
Investments of Consolidated Blackstone Funds
ThefollowingtablepresentsacondensedsummaryoftheinvestmentsheldbytheconsolidatedBlackstoneFundsthatarereportedat
fairvalue.TheseinvestmentsarepresentedasapercentageofInvestmentsofConsolidatedBlackstoneFunds:
Percentage of
Investments
of Consolidated
Fair Value Blackstone Funds
Geographic Region/Instrument Type/Industry December 31, December 31, December 31, December 31,
Description or Investment Strategy 2009 2008 2009 2008
United States and Canada
InvestmentFunds,principallyrelatedtocreditandmarketablealternativefunds
CreditDriven $ 277,245 $ 695,620 21.3% 44.7%
Diversi?edInvestments 300,907 289,817 23.1% 18.6%
Equity 80,956 34,499 6.2% 2.2%
Other 408 648 – 0.1%
Event-Driven 95,760 55,216 7.4% 3.6%
InvestmentFundsTotal(Cost:2009–$803,771;2008–$1,283,697) 755,276 1,075,800 58.0% 69.2%
EquitySecurities,principallyrelatedtocreditandmarketablealternativesand
privateequityfunds
Manufacturing 21,491 17,782 1.7% 1.1%
Services 86,600 81,543 6.7% 5.2%
NaturalResources 649 551 – –
RealEstateAssets 462 1,769 – 0.1%
EquitySecuritiesTotal(Cost:2009–$112,364;2008–$112,739) 109,202 101,645 8.4% 6.4%
PartnershipandLLCInterests,principallyrelatedto
privateequityandrealestatefunds
RealEstateAssets 149,523 103,453 11.5% 6.6%
Services 87,406 98,592 6.7% 6.3%
Manufacturing 25,691 23,599 2.0% 1.5%
NaturalResources 357 317 – –
CreditDriven 143 19,659 – 1.3%
PartnershipandLLCInterestsTotal(Cost:2009–$442,545;2008–$294,846) 263,120 245,620 20.2% 15.7%
DebtInstruments,principallyrelatedtocreditandmarketablealternativesfunds
CreditDriven 29,330 – 2.2% –
Manufacturing 3,203 4,251 0.2% 0.3%
Services 7,837 4,093 0.6% 0.3%
RealEstateAssets 2,458 485 0.2% –
DebtInstrumentsTotal(Cost:2009–$37,983;2008–$9,396) 42,828 8,829 3.2% 0.6%
United States and Canada Total (Cost: 2009 – $1,396,663; 2008 – $1,700,678) 1,170,426 1,431,894 89.3% 91.9%
Blackstone’sshareofInvestmentsofConsolidatedBlackstone
Fundstotaled$407.1 millionand$409.2 millionatDecember 31,
2009andDecember 31,2008,respectively.
AtDecember 31,2009andDecember 31,2008,consideration
was given as to whether any individual investment, including
derivative instruments, had a fair value which exceeded 5% of
Blackstone’s net assets. At December 31, 2009, no investments
exceeded the 5% threshold. At December 31, 2008, Blackport
CapitalFundLtd.hadafairvalueof$594.5 millionandwasthe
sole investment to exceed the 5% threshold. Blackport Capital
FundLtd.isheldbyaconsolidatedBlackstoneFeederFundand
representsitsinvestmentintoamasterfund.
76 TheBlackstoneGroup AnnualReport2009
Percentage of
Investments
of Consolidated
Fair Value Blackstone Funds
Geographic Region/Instrument Type/Industry December 31, December 31, December 31, December 31,
Description or Investment Strategy 2009 2008 2009 2008
Europe
EquitySecurities,principallyrelatedtocreditandmarketable
alternativesandprivateequityfunds
Manufacturing $ 2,681 $ 9,105 0.2% 0.6%
RealEstateAssets 365 – – –
Services 31,711 29,635 2.4% 1.9%
EquitySecuritiesTotal(Cost:2009–$40,353;2008–$45,295) 34,757 38,740 2.6% 2.5%
PartnershipandLLCInterests,principallyrelatedto
privateequityandrealestatefunds
Services 29,270 31,572 2.2% 2.0%
RealEstateAssets 10,741 13,674 0.8% 0.9%
PartnershipandLLCInterestsTotal(Cost:2009–$48,334;2008–$46,104) 40,011 45,246 3.0% 2.9%
DebtInstruments,principallyrelatedtocreditandmarketablealternativesfunds
Manufacturing 544 187 – –
Services 1,259 – 0.1% –
DebtInstrumentsTotal(Cost:2009–$1,624;2008–$1,256) 1,803 187 0.1% –
Europe Total (Cost: 2009 – $90,311; 2008 – $92,655) 76,571 84,173 5.7% 5.4%
Asia
EquitySecurities,principallyrelatedtocreditandmarketable
alternativesandprivateequityfunds
Services 8,031 11,201 0.6% 0.8%
Manufacturing 10,501 8,654 0.8% 0.6%
NaturalResources – 442 – –
RealEstateAssets – 368 – –
Diversi?edInvestments 6,262 – 0.5% –
EquitySecuritiesTotal(Cost:2009–$20,794;2008–$22,155) 24,794 20,665 1.9% 1.4%
PartnershipandLLCInterests,principallyrelatedto
privateequityandrealestatefunds
Manufacturing 1,183 1,184 0.1% 0.1%
RealEstateAssets 457 707 – –
Services 82 45 – –
PartnershipandLLCInterestsTotal(Cost:2009–$1,833;2008–$1,811) 1,722 1,936 0.1% 0.1%
DebtInstruments,principallyrelatedtocreditand
marketablealternativesfunds(Cost:2009–$114;2008–$256) 111 151 – –
Asia Total (Cost: 2009 – $22,741; 2008 – $24,222) 26,627 22,752 2.0% 1.5%
77
Percentage of
Investments
of Consolidated
Fair Value Blackstone Funds
Geographic Region/Instrument Type/Industry December 31, December 31, December 31, December 31,
Description or Investment Strategy 2009 2008 2009 2008
Other
EquitySecurities,principallyrelatedtoprivateequityfunds
NaturalResources $ 1,583 $ 1,022 0.1% 0.1%
Services 4,560 2,737 0.3% 0.3%
EquitySecuritiesTotal(Cost:2009–$2,777;2008–$2,606) 6,143 3,759 0.4% 0.4%
PartnershipandLLCInterests,principallyrelatedtoprivate
equityandrealestatefunds
NaturalResources 26,586 13,599 2.0% 0.9%
Services 92 84 – 0.1%
PartnershipandLLCInterestsTotal(Cost:2009–$9,249;2008–$5,063) 26,678 13,683 2.0% 1.0%
Other Total (Cost: 2009 – $12,026; 2008 – $7,669) 32,821 17,442 2.5% 1.2%
Total Investments of Consolidated Blackstone Funds
(Cost: 2009 – $1,521,741; 2008 – $1,825,224) $1,306,445 $1,556,261 100.0% 100.0%
NetGains(Losses)fromFundInvestmentActivitiesontheConsolidatedandCombinedStatementsofOperationsincludenetreal-
izedgains(losses)fromrealizationsandsalesofinvestmentsandthenetchangeinunrealizedgains(losses)resultingfromchangesin
thefairvalueoftheconsolidatedBlackstoneFunds’investments.Thefollowingtablepresentstherealizedandnetchangeinunreal-
izedgains(losses)oninvestmentsheldbytheconsolidatedBlackstoneFunds:
Year Ended December 31,
2009 2008 2007
RealizedGains(Losses) $(200,291) $(281,408) $3,509,318
NetChangeinUnrealizedGains(Losses) 342,870 (740,019) 2,796,235
$ 142,579 $(1,021,427) $6,305,553
ThefollowingreconcilestheRealizedandNetChangeinUnrealizedGains(Losses)fromBlackstoneFundspresentedabovetoOther
Income(Loss)–NetGains(Losses)fromFundInvestmentActivitiesintheConsolidatedandCombinedStatementsofOperations:
Year Ended December 31,
2009 2008 2007
RealizedandNetChangeinUnrealizedGains(Losses)fromBlackstoneFunds $142,579 $(1,021,427) $6,305,553
Reclassi?cationtoInvestmentIncome(Loss)andOtherAttributableto
BlackstoneSide-by-SideInvestmentVehicles (1,327) 52,975 (52,142)
Reclassi?cationtoPerformanceFeesandAllocationsandInvestmentIncome(Loss)and
OtherAttributabletoBlackstoneFundsPriortoDeconsolidation – – (1,184,457)
InterestandDividendIncomeandOtherAttributabletoConsolidatedBlackstoneFunds 35,442 96,116 354,178
OtherIncome–NetGains(Losses)fromFundInvestmentActivities $176,694 $(872,336) $5,423,132
78 TheBlackstoneGroup AnnualReport2009
Performance Fees and Allocations
Performance Fees and Allocations to the general partner in
respect of performance of certain Carry Funds, funds of hedge
fundsandcredit-orientedfundsareasfollows:
December 31,
2009 2008
PerformanceFeesandAllocations
PrivateEquity $425,615 $? 92,109
RealEstate 7,900 55,478
CreditandMarketableAlternatives 120,948 (166)
$554,463 $147,421
High Grade Liquid Debt Strategies
High Grade Liquid Debt Strategies represents the Partnership’s
liquid investments in government and other investment grade
securities,managedbythirdpartyinstitutions.ThePartnership
has managed its credit risk through diversi?cation of its invest-
ments among major financial institutions, all of which have
investmentgraderatings.
During the year ended December 31, 2009, the Partnership
recognized realized gains of $10.1 million and the net change in
unrealizedgainswas$1.8 million.
Equity Method Investments
The Partnership recognized net gains (losses) related to its equity method investments of $4.0 million, $(551.8) million, and
$163.5 millionfortheyearsendingDecember 31,2009,2008,and2007,respectively.
Blackstone’s equity method investments include its investments in private equity funds, real estate funds, funds of hedge funds
and credit-oriented funds, which are not consolidated but in which the Partnership exerts signi?cant in?uence. As of December 31,
2009 and 2008, no single equity method investment held by Blackstone exceeded 20% of its total consolidated assets. As such,
Blackstoneisnotrequiredtopresentseparate?nancialstatementsforanyofitsequitymethodinvestees.
Thesummarized?nancialinformationofthefundsinwhichthePartnershiphasanequitymethodinvestmentisasfollows:
December 31, 2009 and the Year Then Ended
Credit and
Marketable
Private Equity Real Estate Alternatives Total
StatementofFinancialCondition
Assets
Investments $18,237,938 $7,862,872 $15,857,948 $41,958,758
OtherAssets 169,200 528,337 3,124,038 3,821,575
TotalAssets $18,407,138 $8,391,209 $18,981,986 $45,780,333
LiabilitiesandPartners’Capital
Debt $ 455,862 $ 224,389 $ 1,312,893 $ 1,993,144
OtherLiabilities 56,957 115,059 2,053,134 2,225,150
TotalLiabilities 512,819 339,448 3,366,027 4,218,294
Partners’Capital 17,894,319 8,051,761 15,615,959 41,562,039
TotalLiabilitiesandPartners’Capital $18,407,138 $8,391,209 $18,981,986 $45,780,333
StatementofIncome
InterestIncome $19,480 $ 12,704 $580,188 $ 612,372
OtherIncome 26,828 133,599 68,472 228,899
InterestExpense (5,590) (5,391) (59,537) (70,518)
OtherExpenses (38,419) (36,794) (158,635) (233,848)
NetRealizedandUnrealizedGain(Loss)fromInvestments 1,775,403 (3,813,103) 3,118,916 1,081,216
NetIncome(Loss) $ 1,777,702 $(3,708,985) $ 3,549,404 $ 1,618,121
79
Other Investments
Other Investments consist primarily of investment securities held by Blackstone for its own account. The following table
presentsBlackstone’srealizedandnetchangeinunrealizedgains(losses)inotherinvestments:
Year Ended December 31,
2009 2008 2007
RealizedGains $2,032 $ (1,432) $10,050
NetChangeinUnrealizedGains(Losses) 6,164 (9,159) 2,803
$8,196 $(10,591) $12,853
5. net asset value as fair value
CertainoftheconsolidatedBlackstonefundsofhedgefundsandcredit-orientedfundsmeasuretheirinvestmentsinunderlyingfunds
atfairvalueusingNAVpersharewithoutadjustment.Thetermsoftheinvestees’partnershipagreementsandoferingmemoranda
generallyprovideforminimumholdingperiodsorlock-ups,theinstitutionofgatesonredemptionsorthesuspensionofredemptions,
atthediscretionoftheinvestee’sfundmanager,andasaresult,investmentsmaynotberedeemableat,orwithinthreemonthsof,the
reportingdate.Asummaryoffairvaluebystrategytypealongsidetheconsolidatedfundsofhedgefunds’remainingunfundedcom-
mitmentsandabilitytoredeemsuchinvestmentsasofDecember 31,2009ispresentedbelow:
Redemption
Frequency Redemption
Unfunded (if currently Notice
Strategy Fair Value Commitments eligible) Period
CreditDriven $274,153 $30,336
(a) (a)
Diversi?edInstruments 300,908 13,040
(b) (b)
Equity 80,956 –
(c) (c)
Other 95,759 –
(d) (d)
$751,776 $43,376
(a)
TheCreditDrivencategoryincludesinvestmentsinhedgefundsthatinvestprimarilyindomesticandinternationalbonds.Investmentsrepresenting34%ofthevalueoftheinvest-
mentsinthiscategorymaynotberedeemedat,orwithinthreemonthsof,thereportingdate.Ofthisbalance,9%ofinvestmentsareredeemableafterJuly 1,2010,onanannualbasis,
subjecttoa60-daynoticeperiod.36%ofthevalueoftheinvestmentsinthecreditdrivencategoryaresubjecttoredemptionrestrictionsatthediscretionoftheinvesteefundman-
agerwhomaychooseto(butmaynothaveexercisedsuchability)side-pocketsuchinvestments.Asofthereportingdate,theinvesteefundmanagerhadnotelectedtoside-pocket
Blackstone’sinvestments.29%ofinvestmentswithinthiscategoryrepresentaninvestmentinafundofhedgefundsthatisintheprocessofliquidating.Distributionsfromthisfund
willbereceivedasunderlyinginvestmentsareliquidated.Theremaining1%ofinvestmentswithinthiscategoryareredeemableasofthereportingdate.
(b)
Diversi?edInstrumentsincludesinvestmentsinhedgefundsthatinvestacrossmultiplestrategies.Investmentsrepresenting98%ofthevalueoftheinvestmentsinthiscategory
aresubjecttoredemptionrestrictionsatthediscretionoftheinvesteefundmanagerwhomaychooseto(butmaynothaveexercisedsuchability)side-pocketsuchinvestments.
Asofthereportingdate,theinvesteefundmanagerhadelectedtoside-pocket12%ofBlackstone’sinvestments.Thetimeatwhichthisredemptionrestrictionmaylapsecannotbe
estimated.Theremaining2%ofinvestmentswithinthiscategoryrepresentinvestmentsinhedgefundsthatareintheprocessofliquidating.Distributionsfromthesefundswillbe
receivedasunderlyinginvestmentsareliquidated.
(c)
TheEquitycategoryincludesinvestmentsinhedgefundsthatinvestprimarilyindomesticandinternationalequitysecurities.Investmentsrepresenting46%ofthetotalvalueof
investmentsinthiscategorymaynotberedeemedat,orwithinthreemonthsof,thereportingdate.Theremaining54%aresubjecttoredemptionrestrictionsatthediscretion
oftheinvesteefundmanagerwhomaychooseto(butmaynothaveelectedsuchability)side-pocketsuchinvestments.Asofthereportingdate,theinvesteefundmanagerhadnot
electedtoside-pocketBlackstone’sinvestments.
(d)
IncludedwithintheOthercategoryareinvestmentsinhedgefundswhoseprimaryinvestingstrategyistoidentifycertainevent-driveninvestments.Withdrawalsarenotper-
mittedinthiscategory.Distributionswillbereceivedastheunderlyinginvestmentsareliquidated.
80 TheBlackstoneGroup AnnualReport2009
Thetablebelowsummarizestheaggregatenotionalamountand
fairvalueofthederivativeinstrumentsasofDecember 31,2009:
As of December 31, 2009
Assets Liabilities
Notional Fair Value Notional Fair Value
Fair Value Hedges
InterestRateSwaps $ – $ – $450,000 $19
Free Standing Derivatives
FreeStandingDerivatives 2,039 653 656 4
Total $2,039 $653 $450,656 $23
The Partnership had no material derivative contracts as of
December 31,2008.
Where hedge accounting is applied, hedge efectiveness test-
ing is performed at least monthly to monitor ongoing effec-
tiveness of the hedge relationships. During the year ended
December 31,2009,theamountofinefectivenessrelatedtothe
interest rate swap hedges was a loss of $1.7 million. During the
year ended December 31, 2009, the portion of hedging instru-
ments’ gain or loss excluded from the assessment of efective-
ness for its fair value hedges was a loss of $8.7 million. The
Partnershiphadnoderivativesdesignatedasfairvaluehedgesin
2008and2007.
During the year ended December 31, 2009, the Partnership
recognized an immaterial amount of realized and unrealized
gains (losses) related to free standing derivative instruments.
AmountsrecognizedintheyearsendedDecember 31,2008and
2007werenotmaterial.
7. fair value option
The following table summarizes the ?nancial instruments for
whichthefairvalueoptionhasbeenelected:
Year Ended
December 31,
2009
As of Net Change
December 31, in Unrealized
2009 Gains
LoansandReceivables $68,550 $101
DebtSecurities 26,466 364
EquitySecurities 1,905 –
$96,921 $465
6. derivative financial instruments
Blackstone enters into derivative instruments in order to hedge
itsinterestrateriskexposureagainsttheefectsofinterestrate
changes. Additionally, Blackstone and the Blackstone Funds
enter into derivative instruments in the normal course of busi-
nesstoachievecertainotherriskmanagementobjectivesandfor
generalinvestmentpurposes.Asaresultoftheuseofderivative
contracts, Blackstone and the consolidated Blackstone Funds
areexposedtotheriskthatcounterpartieswillfailtoful?lltheir
contractual obligations. To mitigate such counterparty risk,
Blackstone and the consolidated Blackstone Funds enter into
contracts with certain major ?nancial institutions, all of which
haveinvestmentgraderatings.Counterpartycreditriskisevalu-
atedindeterminingthefairvalueofderivative instruments.
Fair Value Hedges
ThePartnershipusesinterestrateswapstohedgealloraportion
oftheinterestrateriskassociatedwithits?xedrateborrowings.
The Partnership has designated these ?nancial instruments as
fair value hedges. Changes in fair value of the derivative and, to
the extent that it is highly effective, changes in the fair value
ofthehedgedliability,arerecordedwithinGeneral,Administrative
and Other in the Consolidated and Combined Statements
of Operations. The fair value of the derivative instrument is
re?ectedwithinOtherAssetsintheConsolidatedandCombined
StatementsofFinancialCondition.
Free Standing Derivatives
Free standing derivatives are instruments that Blackstone and
certain of the consolidated Blackstone Funds have entered
into as part of their overall risk management and investment
strategies. These derivative contracts are not designated as
hedging instruments for accounting purposes. Such contracts
may include foreign exchange contracts, equity swaps, options
and other derivative contracts. Changes in the fair value of
derivative instruments held by Blackstone funds are re?ected
in Net Gains (Losses) from Funds Investment Activities or,
where derivative instruments are held by the Partnership,
within Investment Income, in the Consolidated and Combined
StatementsofOperations.Thefairvalueoffreestandingderiva-
tive assets are recorded within Investments, and free standing
derivative liabilities are recorded within Accounts Payable,
AccruedExpensesandOtherLiabilitiesintheConsolidatedand
CombinedStatementsofFinancialCondition.
81
The Partnership did not dispose of any investments for
which the fair value option was elected during the year ending
December 31,2009.ThePartnershipdidnotholdmaterial?nan-
cialinstrumentsonwhichthefairvalueoptionwaselecteddur-
ing2008and2007.
As of December 31, 2009, the fair value of Loans and
Receivables and Debt Securities for which the fair value option
was elected exceeded the principal amount due by $0.5 million.
No loans and receivables on which the fair value option was
electedarepastdueorinnon-accrualstatus.
8. fair value measurements of financial instruments
The following table summarizes the valuation of the Partnership’s ?nancial assets and liabilities by the fair value hierarchy as of
December 31,2009and2008,respectively:
December 31, 2009
Level I Level II Level III Total
Assets
InvestmentsofConsolidatedBlackstoneFunds $ 80,610 $ 33,355 $1,192,463 $1,306,428
HighGradeLiquidDebtStrategies 398,487 136,290 – 534,777
LoansandReceivables – – 68,550 68,550
FreeStandingDerivativeInstruments,Net 2 279 368 649
OtherInvestments
(a)
8,711 10,176 46,210 65,097
$487,810 $180,100 $1,307,591 $1,975,501
Liabilities
DerivativeInstrumentsUsedforFairValueHedges $ – $ 19 $ – $ 19
SecuritiesSold,NotYetPurchased 357 – – 357
$ 357 $ 19 $ – $ 376
December 31, 2008
Level I Level II Level III Total
Assets
InvestmentsofConsolidatedBlackstoneFunds $58,406 $994 $ 1,496,861 $ 1,556,261
OtherInvestments 22,499 – 41,146 63,645
$80,905 $994 $1,538,007 $ 1,619,906
Liabilities
SecuritiesSold,NotYetPurchased $ 894 $ – $ – $ 894
$ 894 $ – $ – $ 894
(a)
IncludedwithinLevelIIIofOtherInvestmentsareinvestmentsindebtandequitysecuritiesof$26.5 millionand$1.9 million,respectively,forwhichthefairvalueoptionhasbeenelected.
82 TheBlackstoneGroup AnnualReport2009
The following table summarizes the changes in ?nancial
instrumentsmeasuredatfairvalueforwhichthePartnership
hasusedLevelIIIinputstodeterminefairvalueanddoesnot
includegainsorlossesthatwerereportedinLevelIIIinprior
yearsorforinstrumentsthatweretransferredoutofLevelIII
priortotheendofthecurrentreportingperiod.
Year Ended December 31,
2009 2008
Balance,BeginningofPeriod $1,538,007 $2,362,542
TransferIn(Out)ofLevelIII,Net 81,640 (323,422)
Purchases(Sales),Net (429,760) 108,838
RealizedGains(Losses),Net (194,495) 2,630
ChangesinUnrealizedGains(Losses)
IncludedinEarningsRelatedto
InvestmentsStillHeldatthe
ReportingDate 312,199 (612,581)
Balance,EndofPeriod $1,307,591 $1,538,007
Total realized and unrealized gains and losses recorded for
Level III investments are reported in Net Gains (Losses) from
Fund Investment Activities in the Consolidated and Combined
StatementsofOperations.
For the year ended December 31, 2009, the transfer in of
Level IIIinvestments,net,wasprincipallyduetoanassettrans-
fer from a non-consolidated Blackstone Fund to a consolidated
Blackstone Fund. For the year ended December 31, 2008, the
transferoutofLevelIIIinvestments,net,wasprincipallydueto
thedeconsolidationofthreeBlackstoneFunds.
9. variable interest entities
The Partnership consolidates certain VIEs in which it is deter-
mined that the Partnership is the primary beneficiary either
directly or indirectly, through a consolidated entity or af liate.
VIEs include certain private equity, real estate, credit oriented
or funds of hedge fund entities. The purpose of such VIEs is to
providestrategyspeci?cinvestmentopportunitiesforinvestors
in exchange for management and performance based fees. The
investmentstrategiesoftheBlackstoneFundsdiferbyproduct;
however, the fundamental risks of the Blackstone Funds have
similarcharacteristics,includinglossofinvestedcapitalandloss
of management fees and performance based fees. Accordingly,
disaggregationofBlackstone’sinvolvementwithVIEswouldnot
providemoreusefulinformation.InBlackstone’sroleasgeneral
partner or investment advisor, it generally considers itself the
sponsoroftheapplicableBlackstoneFund.ThePartnershipdoes
The following table summarizes the valuation methodology used in the determination of the fair value of ?nancial instruments for
whichLevelIIIinputswereusedasofDecember 31,2009.
Credit and
Marketable Financial
Valuation Methodology Private Equity Real Estate Alternatives Advisory Total
Third-PartyFundManagers – – 57% – 57%
Speci?cValuationMetrics 20% 15% 5% 3% 43%
20% 15% 62% 3% 100%
83
not provide performance guarantees and has no other ?nancial
obligationtoprovidefundingtoconsolidatedVIEsotherthanits
owncapitalcommitments.
ThegrossassetsandliabilitiesofconsolidatedVIEsre?ected
in the Consolidated and Combined Statements of Financial
Condition as of December 31, 2009 were $741.0 million and
$38.0 million, respectively. As of December 31, 2008, gross
assets and liabilities of consolidated VIEs were $861.3 mil-
lion and $28.7 million, respectively. There is no recourse to the
Partnership for the consolidated VIEs’ liabilities. The assets
of consolidated VIEs comprise primarily investments and are
includedwithinInvestmentsintheConsolidatedandCombined
StatementsofFinancialCondition.
ThePartnershipholdssigni?cantvariableinterestsoractsas
the sponsor for certain VIEs which are not consolidated as it is
determined that the Partnership is not the primary bene?ciary.
ThePartnership’sinvolvementwithsuchentitiesisintheformof
directequityinterestsandfeearrangements.AsofDecember 31,
2009, assets and liabilities recognized in the Partnership’s
Consolidated and Combined Statements of Financial Condition
related to the Partnership’s interest in these non-consolidated
VIEs were $133.9 million and $0.1 million, respectively. Assets
consisted of $21.7 million of investments and $112.2 million of
receivables.AsofDecember 31,2008,assetsandliabilitiesrecog-
nizedinthePartnership’s?nancialstatementswere$140.0 mil-
lion and $0.2 million, respectively. Assets recognized as of
December 31, 2008 were comprised of investments of $81.1 mil-
lion and receivables of $58.9 million. The Partnership’s maxi-
mum exposure to loss relating to non-consolidated VIEs as of
December 31, 2009 and 2008 was $98.9 million and $140.0 mil-
lion,respectively.
10. other assets and accounts payable, accrued
expenses and other liabilities
OtherAssetsconsistsofthefollowing:
December 31,
2009 2008
Furniture,Equipmentand
LeaseholdImprovements $210,189 $194,576
Less:AccumulatedDepreciation (92,774) (75,610)
Furniture,EquipmentandLeasehold
Improvements,Net 117,415 118,966
PrepaidExpenses 31,232 36,533
OtherAssets 23,909 64,478
$172,556 $219,977
Depreciation expense of $17.2 million, $18.2 million and
$11.2 million related to furniture, equipment and leasehold
improvementsfortheyearsendedDecember 31,2009,2008and
2007, respectively, is included in General, Administrative
and Other in the accompanying Consolidated and Combined
StatementsofOperations.The2009depreciationexpenseisnet
of$6.6 millionofaccumulateddepreciationreversedduringthe
yearduetothedisposalofassets.
Accounts Payable, Accrued Expenses and Other Liabilities
includes $144.0 million and $1,103.4 million as of December 31,
2009 and 2008, respectively, relating to redemptions that were
legallypayabletoinvestorsasofthebalancesheetdates.
84 TheBlackstoneGroup AnnualReport2009
11. borrowings
The Partnership enters into credit agreements for its general operating and investment purposes and certain Blackstone Funds
borrowtomeet?nancingneedsoftheiroperatingandinvestingactivities.Borrowingfacilitieshavebeenestablishedforthebene?tof
selectedfundswithinthosebusinessunits.WhenaBlackstoneFundborrowsfromthefacilityinwhichitparticipates,theproceeds
fromtheborrowingarestrictlylimitedforitsintendedusebytheborrowingfundandnotavailableforotherPartnershippurposes.
ThePartnership’screditfacilitiesconsistofthefollowing:
December 31,
2009 2008
Weighted Weighted
Average Average
Credit Borrowing Borrowing Credit Borrowing Interest
Available Outstanding Rate Available Outstanding Rate
RevolvingCreditFacility
(a)
$ 850,000 $ – – $1,000,000 $250,000 1.97%
BlackstoneIssued6.625%NotesDue8/15/2019
(b)
600,000 600,000 6.63% – – –
OperatingEntitiesFacilities
(c)
63,369 63,369 1.50% 116,750 109,618 2.08%
CorporateDebtCreditFacilites
(d)
– – – 90,000 25,000 3.25%
1,513,369 663,369 6.13% 1,206,750 384,618 2.08%
BlackstoneFundFacilities
(e)
38,809 5,630 2.3% 77,566 2,382 3.28%
$1,552,178 $668,999 6.10% $1,284,316 $387,000 2.09%
(a)
Representsshort-termborrowingsunderarevolvingcreditfacilitythatwereusedtofundtheoperatingandinvestingactivitiesofentitiesofthePartnership.Borrowingsbear
interestatanadjustedLIBORrateoradjustedprimerate.AnyoutstandingborrowingsatMay 11,2010,thematuritydateofthefacility,arepayableatthattime.Thefacilityis
unsecuredandunguaranteed.Thereisacommitmentfeeof0.5% perannum,asde?ned,ontheunusedportionofthisfacility.AsofDecember 31,2009,thePartnershiphadnoout-
standingborrowingsunderthisrevolvingcreditfacility.
(b)
Representslongtermborrowingsintheformofseniornotes(the“Notes”)issuedbyBlackstoneHoldingsFinanceCo.L.L.C.(the“Issuer”),anindirectsubsidiaryofthePartnership,
onAugust 20,2009.SuchnoteshaveacontractualmaturityofAugust 15,2019.TheNotes,whichwereissuedatadiscount,haveaninterestrateof6.625% perannum,accruingfrom
August 20,2009.InterestispaidsemiannuallyinarrearsonFebruary 15andAugust 15ofeachyear,commencingonFebruary 15,2010.TheNotesareunsecuredandunsubordinated
obligationsoftheIssuer.TheNotesarefullyandunconditionallyguaranteed,jointlyandseverally,bythePartnership,BlackstoneHoldings,andtheIssuer(the“Guarantors”).The
guaranteesareunsecuredandunsubordinatedobligationsoftheGuarantors.InterestexpenseontheNoteswas$14.6 millionfortheyearendedDecember 31,2009.Transactioncosts
relatedtotheissuanceoftheNoteshavebeencapitalizedandarebeingamortizedoverthelifeoftheNotes.AsofDecember 31,2009,thefairvalueoftheNoteswas$588.6 million.
Theindentureincludescovenants,includinglimitationsontheIssuer’sandtheGuarantor’sabilityto,subjecttoexceptions,incurindebtednesssecuredbyliensonvotingstockor
pro?tparticipatingequityinterestsoftheirsubsidiariesormerge,consolidateorsell,transferorleaseassets.Theindenturealsoprovidesforeventsofdefault.Inthecaseofspeci?ed
eventsofbankruptcy,insolvency,receivershiporreorganization,theprincipalamountoftheNotesandanyaccruedandunpaidinterestontheNotesautomaticallybecomesdueand
payable.AlloraportionoftheNotesmayberedeemedattheIssuer’soptioninwholeorinpart,atanytime,andfromtimetotime,priortotheirstatedmaturity,atthemake-whole
redemptionpricesetforthintheNotes.Ifachangeofcontrolrepurchaseeventoccurs,theholdersoftheNotesmayrequiretheIssuertorepurchasetheNotesatarepurchasepricein
cashequalto101%oftheaggregateprincipalamountoftheNotesrepurchasedplusanyaccruedandunpaidinterestontheNotesrepurchasedto,butnotincluding,therepurchasedate.
(c)
Representsborrowingsunderaloanandsecurityagreementaswellasacapitalassetpurchasefacility.Theloanandsecurityagreementfacilitybearsinterestatanadjustedrate
belowthelendingbank’sprimecommercialrate.BorrowingsareavailableforthePartnershiptoprovidepartial?nancingtocertainBlackstoneemployeesto?nancethepurchase
oftheirequityinvestmentsincertainBlackstoneFunds.TheadvancestoBlackstoneemployeesaresecuredbyinvestornotes,generallypaidbackovera?ve-yearperiod,andthe
relatedunderlyinginvestment,aswellasfullrecoursetotheemployees’bonusesandreturnsfromotherPartnershipinvestments.Thecapitalassetpurchasefacilityissecuredby
thepurchasedassetandborrowingsbearinterestataspreadtoLIBOR.Theborrowingsarepaiddownthroughtheterminationdateofthefacilityin2014.
(d)
Representsshort-termborrowingsundercreditfacilitiesestablishedto?nanceinvestmentsindebtsecurities.Borrowingsweremadeatthetimeofeachinvestmentandarerequired
toberepaidattheearlierof(a) theinvestment’sdispositionor(b) 120daysafterthedateoftheborrowing.BorrowingsunderthefacilitiesbearinterestatanadjustedLIBORrate.
Borrowingsaresecuredbytheinvestmentsacquiredwiththeproceedsofsuchborrowings.Inaddition,suchcreditfacilitiesaresupportedbylettersofcredit.Oneofthefacilities,with
availablecreditof$50.0 million,carriesacommitmentfeeof0.15% perannumontheunusedportionofthefacility.AsofDecember31,2009,thesefacilitieshavebeenterminated.
(e)
Represents borrowing facilities for the various consolidated Blackstone Funds used to meet liquidity and investing needs. Certain borrowings under these facilities were used
forbridge?nancingandgeneralliquiditypurposes.Otherborrowingswereusedto?nancethepurchaseofinvestmentswiththeborrowingremaininginplaceuntilthedisposi-
tionorre?nancingevent.Suchborrowingshavevaryingmaturitiesandarerolledoveruntilthedispositionorare?nancingevent.Duetothefactthatthetimingofsucheventsis
unknownandmayoccurinthenearterm,theseborrowingsareconsideredshort-terminnature.Borrowingsbearinterestatspreadstomarketrates.Borrowingsweresecured
accordingtothetermsofeachfacilityandaregenerallysecuredbytheinvestmentpurchasedwiththeproceedsoftheborrowingand/ortheuncalledcapitalcommitmentofeach
respectivefund.Certainfacilitieshavecommitmentfees.Whenafundborrows,theproceedsareavailableonlyforusebythatfundandarenotavailableforthebene?tofother
funds.Collateralwithineachfundisalsoavailableonlyagainsttheborrowingsbythatfundandnotagainsttheborrowingsofotherfunds.
85
As part of Blackstone’s long term borrowing arrangements,
the Partnership is subject to certain financial and operating
covenants. The Partnership was in compliance with all of its
loancovenantsasofDecember 31,2009.
Scheduled principal payments for long-term borrowings at
December 31,2009areasfollows:
2010 $ 23,820
2011 22,278
2012 9,985
2013 2,245
2014 5,040
Thereafter 600,000
Total $663,369
12. income taxes
Theprovision(bene?t)forincometaxesconsistsofthefollowing:
Year Ended December 31,
2009 2008 2007
Current
FederalIncomeTax $ 8,027 $ 3,936 $ 11,938
ForeignIncomeTax 4,517 8,304 5,630
StateandLocalIncomeTax 41,219 25,114 47,346
53,763 37,354 64,914
Deferred
FederalIncomeTax 30,581 (34,090) (10,287)
ForeignIncomeTax (597) – –
StateandLocalIncomeTax 15,483 (17,409) (6,934)
45,467 (51,499) (17,221)
TotalProvision(Bene?t)forTaxes $99,230 $ (14,145) $ 47,693
ThePartnership’sefectiveincometaxratewasapproximately
(4.33%), 0.25%, and 0.84% for the years ended December 31,
2009,2008and2007,respectively.
Deferred income taxes re?ect the net tax efects of temporary
diferencesthatmayexistbetweenthecarryingamountsofassets
and liabilities for ?nancial reporting purposes and the amounts
used for income tax purposes using enacted tax rates in effect
for the year in which the differences are expected to reverse.
A summary of the tax effects of the temporary differences is
as follows:
December 31,
2009 2008
Deferred Tax Assets
FundManagementFees $ 12,804 $ 5,860
Equity-basedCompensation 36,087 33,224
UnrealizedLossfromInvestments 38,937 22,464
DepreciationandAmortization 841,086 731,064
NetOperatingLossCarryForward 7,729 49,292
Other 6,869 3,674
TotalDeferredTaxAssets $943,512 $845,578
Deferred Tax Liabilities
DepreciationandAmortization $ 18,251 $ 16,705
Total Deferred Tax Liabilities $ 18,251 $ 16,705
DeferredtaxliabilitiesareincludedwithinAccountsPayable,
Accrued Expenses and Other Liabilities in the accompanying
ConsolidatedandCombinedStatementsofFinancialPosition.
Futurerealizationoftaxbene?tsdependsontheexpectation
of taxable income within a period of time that the tax bene?ts
willreverse.WhilethePartnershipexpectstorecordsigni?cant
net losses from a financial reporting perspective, it does not
expect to record comparable losses on a tax basis. Whereas
the amortization of non-cash equity compensation results in a
signi?cant charge to net income and is a signi?cant contribu-
tor to the expected ?nancial reporting losses, these charges are
largelynottaxdeductibleand,asaresult,donotdecreasetaxable
incomeorcontributetoataxableloss.
ThePartnershiphasrecordedasigni?cantdeferredtaxasset
for the future amortization of tax basis intangibles acquired
fromthepredecessorownersandcurrentowners.Theamortiza-
tionperiodforthesetaxbasisintangiblesis15years;accordingly,
therelateddeferredtaxassetswillreverseoverthesameperiod.
ThePartnershiphadtaxableincomein2007and2009andthus
fully utilized the tax bene?t from the amortization of the tax
basis intangibles for all years since the IPO. The Partnership
hadataxablelossof$21.3 millionattheendof2009thatwillbe
carriedbackandutilizedagainstprioryeartaxableincome.The
Partnership has considered the 15 year amortization period for
the tax basis intangibles and the 20 year carryforward period
for its taxable loss in evaluating whether it should establish a
valuation allowance. In addition, at this time, the Partnership’s
projections of future taxable income that include the efects of
originatingandreversingtemporarydiferences,includingthose
for the tax basis intangibles, indicate that it is more likely than
notthatthebene?tsfromthedeferredtaxassetwillberealized.
86 TheBlackstoneGroup AnnualReport2009
Therefore, the Partnership has determined that no valuation
allowanceisneededatDecember 31,2009.
The following table reconciles the Provision (Benefit) for
TaxestotheU.S.federalstatutorytaxrate:
Year Ended December 31,
2009 2008 2007
StatutoryU.S.FederalIncomeTaxRate 35.00% 35.00% 35.00%
IncomePassedThroughto
CommonUnitholdersand
Non-ControllingInterestHolders
(a)
(33.00)% (32.68)% (35.92)%
InterestExpense 1.84% 0.75% (0.09)%
ForeignIncomeTaxes (0.15)% (0.15)% 0.10%
StateandLocalIncomeTaxes (1.97)% (0.19)% 0.69%
Equity-basedCompensation (6.45)% (2.48)% 1.06%
Other 0.40% – –
EfectiveIncomeTaxRate
(b)
(4.33)% 0.25% 0.84%
(a)
Includes income that is not taxable to the Partnership and its subsidiaries. Such
incomeisdirectlytaxabletothePartnership’sunitholdersandthenon-controlling
interestholders.
(b)
TheefectivetaxrateiscalculatedonIncome(Loss)BeforeProvision(Bene?t)forTaxes.
Currently, the Partnership does not believe it meets the
inde?nite reversal criteria that would cause the Partnership to
not recognize a deferred tax liability with respect to its foreign
subsidiaries.Whereapplicable,Blackstonewillrecordadeferred
taxliabilityforanyoutsidebasisdiferenceofaninvestmentina
foreignsubsidiary.
Blackstone ?les its tax returns as prescribed by the tax laws
ofthejurisdictionsinwhichitoperates.Inthenormalcourseof
business, Blackstone is subject to examination by federal and
certainstate,localandforeigntaxregulators.AsofDecember 31,
2009, Blackstone’s and the predecessor entities’ U.S. federal
income tax returns for the years 2006 through 2008 are open
underthenormalthree-yearstatuteoflimitationsandtherefore
subject to examination. State and local tax returns are gener-
ally subject to audit from 2005 through 2008. Currently, the
City of New York is examining certain subsidiaries’ tax returns
for the years 2003 through 2006. In addition, HM Revenue and
Customs in the U.K. is examining certain U.K. subsidiaries’ tax
returns for the years 2004 through 2007. Blackstone does not
believethattheoutcomeoftheseexaminationswillrequireitto
record reserves for uncertain tax positions or that the outcome
will have a material impact on the consolidated and combined
?nancialstatements.Blackstonedoesnotbelievethatithasany
tax positions for which it is reasonably possible that it will be
requiredtorecordsigni?cantamountsofunrecognizedtaxben-
e?tswithinthenexttwelvemonths.
13. net loss per common unit
Basic and diluted net loss per common unit entitled to priority
distributions and per common unit not entitled to priority dis-
tributions for the years ending December 31, 2009 and 2008 is
calculatedasfollows:
Basic and Diluted
Year Ended December 31,
2009 2008
TotalUndistributedLoss
NetLossAllocableto
CommonUnitholders $ (715,291) $(1,163,032)
Less
istributionstoCommonUnitholders (356,958) (240,402)
TotalUndistributedLoss $(1,072,249) $(1,403,434)
AllocationofTotalUndistributedLoss
UndistributedLoss–Common
UnitholdersEntitledto
PriorityDistributions $(1,058,052) $(1,394,271)
UndistributedLoss–Common
UnitholdersNotEntitledto
PriorityDistributions (14,197) (9,164)
TotalUndistributedLoss $(1,072,249) $(1,403,434)
NetLossPerCommonUnit–Common
UnitsEntitledtoPriorityDistributions
UndistributedLossperCommonUnit $ (3.71) $ (5.22)
PriorityDistributions
(a)
1.25 0.90
NetLossPerCommonUnit–
CommonUnitsEntitledto
PriorityDistributions $ (2.46) $ (4.32)
NetLossPerCommonUnit–Common
UnitsNotEntitledto
PriorityDistributions
UndistributedLossperCommonUnit $ (3.71) $ (3.06)
PriorityDistributions – –
NetLossPerCommonUnit–
CommonUnitsNotEntitledto
PriorityDistributions $ (3.71) $ (3.06)
Weighted-AverageCommonUnits
Outstanding–CommonUnits
EntitledtoPriorityDistributions 285,163,954 266,876,031
CommonUnitsNotEntitledto
PriorityDistributions 3,826,233 1,501,373
TotalWeighted-AverageCommon
UnitsOutstanding 288,990,187 268,377,404
(a)
UndistributedLossperCommonUnit–PriorityDistributionsisbasedoncommon
unitsoutstandingattheendofthereportingperiodandwilldiferfromactualdistri-
butionspaidtocommonunitholderswhicharebasedoncommonunitsoutstanding
atthetimeprioritydistributionsaremade.
87
For the years ended December 31, 2009 and 2008, a total of
22,453,412 and 29,117,068 unvested deferred restricted com-
monunitsand812,377,553and831,549,761BlackstoneHoldings
Partnership Units were anti-dilutive and as such have been
excluded from the calculation of diluted earnings per unit,
respectively.
Basicanddilutednetlosspercommonunitforthetwelve months
endedDecember 31,2007arecalculatedasfollows:
Basic and Diluted
June 19, 2007
through
December 31, 2007
NetLossAllocabletoCommonUnitholders $(335,514)
Weighted-AverageCommonUnitsOutstanding 262,810,720
NetLossperCommonUnit $ (1.28)
For the year ended December 31, 2007, a total of 31,249,103
unvested deferred restricted common units and 827,151,349
Blackstone Holdings Partnership Units were anti-dilutive and
as such have been excluded from the calculation of diluted
earningsperunit.
Cash Distribution Policy
Blackstone’s current intention is to distribute to its common
unitholders substantially all of The Blackstone Group L.P.’s
net after-tax share of annual Distributable Earnings in excess
of amounts determined by Blackstone’s general partner to
be necessary or appropriate to provide for the conduct of the
Partnership’s business, to make appropriate investments in
the business and funds, to comply with applicable law, any of
Blackstone’sdebtinstrumentsorotheragreements,ortoprovide
forfuturedistributionstoBlackstone’scommonunitholdersfor
anyensuingquarter.BecauseBlackstonewillnotknowwhatthe
DistributableEarningswillbeforany?scalyearuntiltheendof
such year, the Partnership expects that the ?rst three quarterly
distributions in respect of any given year will be based on the
anticipated annualized Net Fee Related Earnings only. As such,
thedistributionforthe?rstthreequarterswilllikelybesmaller
than the final quarterly distribution in respect of such year,
which Blackstone expects to also include realized Performance
Fees and Allocations net of related compensation and realized
netinvestmentincome.
In most years the aggregate amounts of distributions to
unitholders will not equal Distributable Earnings for that year.
DistributableEarningswillonlybeastartingpointforthedeter-
minationoftheamounttobedistributedtounitholdersbecause
as noted above, in determining the amount to be distributed
Blackstone will subtract from Distributable Earnings any
amounts determined by its general partner to be necessary
orappropriatetoprovidefortheconductofitsbusiness,tomake
appropriateinvestmentsinitsbusinessanditsfunds,tocomply
with applicable law, any of its debt instruments or other agree-
ments,ortoprovideforfuturedistributionstoitsunitholdersfor
anyensuingquarter.
Alloftheforegoingissubjecttothequali?cationthatthedec-
larationandpaymentofanydistributionsareatthesolediscre-
tion of the general partner and the general partner may change
thedistributionpolicyatanytime.
Because The Blackstone Group L.P. is a holding partnership
and has no material assets other than its ownership of partner-
ship units in Blackstone Holdings held through wholly-owned
subsidiaries,distributionsarefundedbyTheBlackstoneGroupL.P.,
ifany,inthreesteps:
• First, Blackstone Holdings makes distributions to partners,
including The Blackstone Group L.P.’s wholly-owned subsid-
iaries. If Blackstone Holdings makes such distributions, the
limited partners of Blackstone Holdings will be entitled to
receiveequivalentdistributionsproratabasedontheirpart-
nership interests in Blackstone Holdings (except as set forth
inthefollowingparagraph);
• Second, The Blackstone Group L.P.’s wholly-owned subsidiar-
ies distributes to The Blackstone Group L.P. the share of such
distributions,netofthetaxesandamountspayableunderthetax
receivableagreementbysuchwholly-ownedsubsidiaries;and
• Third, The Blackstone Group L.P. distributes the net share of
suchdistributionstothecommonunitholdersonaproratabasis.
Because the wholly-owned subsidiaries of The Blackstone
Group L.P. must pay taxes and make payments under the tax
receivable agreements described in the Notes to Consolidated
and Combined Financial Statements, Footnote 15 – Related
Party Transactions, the amounts ultimately distributed by The
Blackstone Group L.P. to common unitholders in respect of ?s-
cal 2010 and subsequent years are expected to be diferent, and
in many years likely less, on a per unit basis, than the amounts
distributed by the Blackstone Holdings partnerships to the
Blackstone personnel and others who are limited partners of
the Blackstone Holdings partnerships in respect of their
BlackstoneHoldingspartnershipunits.
In addition, the partnership agreements of the Blackstone
Holdings partnerships provide for cash distributions, which are
referredtoas“taxdistributions,”tothepartnersofsuchpartner-
shipsifthewholly-ownedsubsidiariesofTheBlackstoneGroup
L.P. which are the general partners of the Blackstone Holdings
partnerships determine that the taxable income of the relevant
partnership will give rise to taxable income for the partners.
Generally,thesetaxdistributionswillbecomputedbasedonthe
88 TheBlackstoneGroup AnnualReport2009
Partnership’sestimateofthenettaxableincomeoftherelevant
partnershipallocabletoapartnermultipliedbyanassumedtax
rate equal to the highest efective marginal combined U.S. fed-
eral,stateandlocalincometaxrateprescribedforanindividual
orcorporateresidentinNewYork,NewYork(takingintoaccount
thenondeductibilityofcertainexpensesandthecharacterofthe
Partnership’s income). The Blackstone Holdings partnerships
willmaketaxdistributionsonlytotheextentdistributionsfrom
such partnerships for the relevant year were otherwise insuf -
cienttocoversuchtaxliabilities.
Unit Repurchase Program
In January 2008, Blackstone announced that the Board of
Directorsofitsgeneralpartner,BlackstoneGroupManagement
L.L.C., had authorized the repurchase by Blackstone of up to
$500 million of Blackstone Common Units and Blackstone
Holdings Partnership Units. Under this unit repurchase pro-
gram, units may be repurchased from time to time in open
market transactions, in privately negotiated transactions or
otherwise. The timing and the actual number of Blackstone
Common Units and Blackstone Holdings Partnership Units
repurchased will depend on a variety of factors, including legal
requirements, price and economic and market conditions. This
unit repurchase program may be suspended or discontinued at
any time and does not have a speci?ed expiration date. During
the year ended December 31, 2009, Blackstone repurchased
a combination of 4,689,101 vested and unvested Blackstone
Holdings Partnership Units and Blackstone Common Units as
partoftheunitrepurchaseprogramforatotalcostof$30.5 mil-
lion. As of December 31, 2009, the amount remaining available
forrepurchaseswas$339.5 millionunderthisprogram.
14. equity-based compensation
ThePartnershiphasgrantedequity-basedcompensationawards
to Blackstone’s senior managing directors, non-partner profes-
sionals, non-professionals and selected external advisors under
the Partnership’s 2007 Equity Incentive Plan (the “Equity
Plan”), the majority of which to date were granted in connec-
tion with the IPO. The Equity Plan allows for the granting of
options, unit appreciation rights or other unit-based awards
(units, restricted units, restricted common units, deferred
restricted common units, phantom restricted common units
or other unit-based awards based in whole or in part on the fair
value of the Blackstone Common Units or Blackstone Holdings
Partnership Units) which may contain certain service or per-
formance requirements. As of January 1, 2009, the Partnership
hadtheabilitytogrant163,041,206unitsundertheEquityPlan
fortheyearendedDecember 31,2009.
The Partnership recorded total compensation expense in
relationtoitsequity-basedawardsof$3.0 billionand$3.3 billion
for the years ending December 31, 2009 and 2008, respectively
with corresponding tax bene?ts of $13.7 million and $16.4 mil-
lion,respectively.AsofDecember 31,2009,therewas$6.3 billion
of estimated unrecognized compensation expense related to
unvested awards. This cost is expected to be recognized over a
weighted-averageperiodof4.3 years.
Total vested and unvested outstanding units, including
Blackstone Common Units, Blackstone Holdings Partnership
Unitsanddeferredrestrictedcommonunits,were1,126,974,312
as of December 31, 2009. Total outstanding unvested phantom
unitswere208,592asofDecember 31,2009.
A summary of the status of the Partnership’s unvested equity-based awards as of December 31, 2009 and a summary of changes
duringtheperiodJanuary 1,2009throughDecember 31,2009,arepresentedbelow:
Blackstone Holdings The Blackstone Group L.P.
Equity Settled Awards Cash Settled Awards
Deferred
Weighted- Restricted Weighted- Weighted-
Average Common Average Average
Partnership Grant Date Units and Grant Date Phantom Grant Date
Unvested Units Units Fair Value Options Fair Value Units Fair Value
Balance,December31,2008 354,311,432 $30.89 28,569,608 $25.90 532,794 $26.09
Granted 3,019,136 7.53 7,527,485 12.71 7,380 12.05
Vested (77,736,791) 30.89 (9,634,609) 20.70 (294,130) 26.26
Exchanged (1,186,174) 6.59 1,182,852 6.59 3,322 5.80
Forfeited (7,948,878) 30.16 (3,902,643) 25.47 (40,774) 26.19
Balance,December31,2009 270,458,725 $30.76 23,742,693 $23.10 208,592 $25.07
89
During 2008, the Partnership modified certain senior
managing directors’ Blackstone Holdings Partnership Unit
awardagreementsandsubsequentlyrepurchasedundertheunit
repurchaseprogrambothvestedandunvestedunitsinconjunc-
tionwiththemodi?cations.Apercentageofthecashsettlement
was paid up front to the senior managing directors and the
remaining percentage of the settlement will be held in escrow
and in certain cases earned over a speci?ed service period. At
thedateofsuchmodi?cations,thePartnershiprecognizedtotal
compensationexpenseof$185.5 million,whichisincludedinthe
totalequity-basedcompensationexpenseof$3.3 billion,related
to the modi?cations and cash settlement. Additional compen-
sation expense related to the portion of the settlement held in
escrowwillberecognizedoverthespeci?edserviceperiodwhich
rangesfromapproximately18to50 months.
Units Expected to Vest
The following unvested units, as of December 31, 2009, are
expectedtovest:
Weighted-Average
Service Period
Units in Years
BlackstoneHoldingsPartnershipUnits 256,757,930 3.9
DeferredRestrictedBlackstone
CommonUnitsandOptions 19,670,258 4.1
TotalEquity-BasedAwards 276,428,188 3.9
PhantomUnits 191,128 0.6
Deferred Restricted Common Units and Phantom Units
The Partnership has granted deferred restricted common units
to some senior and non-senior managing director profession-
als, analysts and senior ?nance and administrative personnel
and selected external advisors and phantom units (cash settled
equity-based awards) to other non-senior managing director
employees. Holders of deferred restricted common units and
phantom units are not entitled to any voting rights. Only phan-
tomunitsaretobesettledincash.
Thefairvaluesofdeferredrestrictedcommonunitshavebeen
derivedbasedontheclosingpriceofBlackstone’sCommonUnits
on the date of the grant, multiplied by the number of unvested
awards and expensed over the assumed service period, which
ranges from 1 to 10 years. Additionally, the calculation of the
compensation expense assumes forfeiture rates based upon
historical turnover rates, ranging from 1% to 16% annually by
employee class, and a per unit discount, ranging from $0.01 to
$14.89asamajorityoftheseunvestedawardsdonotcontaindis-
tributionparticipationrights.Inmostcases,thePartnershipwill
not make any distributions with respect to unvested deferred
restricted common units. However, there are certain grantees
whoreceivedistributionsonbothvestedandunvesteddeferred
restrictedcommonunits.
Subjecttoanon-seniormanagingdirectoremployee’scontin-
ued employment with Blackstone, the phantom units will vest
inequalinstallmentsoneachofthe?rst,secondandthirdanni-
versariesoftheIPOor,inthecaseofcertaintermanalysts,ina
singleinstallmentonthedatethattheemployeecompleteshisor
hercurrentcontractperiodwithBlackstone.Oneachsuchvest-
ingdate,Blackstonewilldelivercashtotheholderinanamount
equal to the number of phantom units held multiplied by the
then fair market value of the Blackstone common units on such
date. Additionally, the calculation of the compensation expense
assumes forfeiture rates based upon historical turnover rates,
rangingfrom7%to16%annuallybyemployeeclass.Blackstone
isaccountingforthesecashsettledawardsasaliability.
Blackstonepaid$3.5 million,$6.7 millionand$0.5 millionto
non-seniormanagingdirectoremployeesinsettlementofphan-
tom units for the years ended December 31, 2009, 2008 and for
theperiodJune 19throughDecember 31,2007,respectively.
Blackstone Holdings Partnership Units
At the time of the Reorganization, Blackstone’s predecessor
owners and selected advisors received 827,516,625 Blackstone
Holdings Partnership Units, of which 387,805,088 were vested
and 439,711,537 were to vest over a period of up to 8 years from
theIPOdate.SubsequenttotheReorganization,thePartnership
has granted Blackstone Holdings Partnership Units to newly
hiredseniormanagingdirectors.ThePartnershiphasaccounted
fortheunvestedBlackstoneHoldingsPartnershipUnitsascom-
pensation expense. The fair values have been derived based on
the closing price of Blackstone’s Common Units on the date of
the grant, or $31 (based on the initial public ofering price per
Blackstone Common Unit) for those units issued at the time
of the Reorganization, multiplied by the number of unvested
awards and expensed over the assumed service period which
rangesfrom1to8years.Additionally,thecalculationofthecom-
pensation expense assumes a forfeiture rate of up to 16%, based
onhistoricalexperience.
In November 2009, the Partnership modi?ed equity awards
issued in connection with a deferred compensation plan to,
among other things: (a) provide that deferred compensation
90 TheBlackstoneGroup AnnualReport2009
payments to participating employees and senior managing
directors generally would be satis?ed by delivery of Blackstone
commonunitsinsteadofdeliveryofPartnershipUnits;(b) delay
the delivery of common units (following the applicable vesting
dates)untilanticipatedtradingwindowperiods,tobetterfacili-
tateparticipants’liquiditytomeettaxobligations;and(c) ensure
compliance with deferred compensation taxation rules. As the
fairvalueofPartnershipUnitsongrantdateisbasedontheclos-
ing price of Blackstone Common Units, there was no change in
thefairvalueoftheseawardsasaresultofthemodi?cation.Asa
result,therewasnoadditionalimpacttocompensationexpense.
Equity-Based Awards with Performance Conditions
The Partnership has also granted certain equity-based awards
with performance requirements. These awards are based on
the performance of certain businesses over the ?ve-year period
beginning January 2008, relative to a predetermined thresh-
old. As of December 31, 2009, the thresholds for 2009 were
not met and the Partnership has determined that there is too
much uncertainty in the probability that the threshold will be
exceeded in future periods. As such, the Partnership has not
recordedanyexpenserelatedtotheseawardsfortheyearended
December 31,2009.ThePartnershipwillcontinuetoreviewthe
performance of these businesses, and, if necessary, will record
an expense over the corresponding service period based on the
most probable level of anticipated performance. This award is
accounted for as a liability as required by GAAP as the number
of units to be granted in 2012 is dependent upon variations in
somethingotherthanthefairvalueoftheissuer’sequityshares,
speci?cally,thebusinesses’?ve-yearpro?tability.
Acquisition of GSO Capital Partners LP
In conjunction with the acquisition of GSO, the Partnership
entered into equity-based compensation arrangements with
certainGSOseniormanagingdirectorsandotherpersonnel.The
arrangements stipulate that the recipient receive cash, equity
instrumentsoracombinationofcashandequityinstrumentsto
be earned over service periods ranging from three to ?ve years
or based upon the realization of specified earnings targets
over the period 2008 through 2012. For the non-performance
dependent compensation arrangements, the Partnership will
recognize the estimated expense on a straight-line basis over
the service period. For the performance-based compensation
arrangementstiedtospeci?edearningstargets,thePartnership
estimates compensation expense based upon whether it
is probable that forecasted earnings will meet or exceed the
requiredearningstargetsandifso,recognizestheexpenseover
theearnings period.
15. related party transactions
Af liate Receivables and Payables
Blackstone considers its Founders, senior managing directors,
employees, the Blackstone Funds and the Portfolio Companies
to be affiliates. As of December 31, 2009 and 2008, Due from
Af liatesandDuetoAf liatescomprisedthefollowing:
December 31,
2009 2008
Due from Af liates
AccrualforPotentialClawbackof
PreviouslyDistributedInterest $ 308,378 $ 226,870
PrimarilyInterestBearingAdvancesMade
onBehalfofCertainNon-Controlling
InterestHoldersandBlackstone
EmployeesforInvestmentsin
BlackstoneFunds 127,669 175,268
AmountsDuefromPortfolio
CompaniesandFunds 115,441 72,376
InvestmentsRedeemedin
Non-ConsolidatedFundsofFunds 77,600 496,350
ManagementandPerformanceFees
DuefromNon-Consolidated
FundsofFunds 68,649 50,774
PaymentsMadeonBehalfof
Non-ConsolidatedEntities 53,581 58,536
AdvancesMadetoCertain
Non-ControllingInterestHoldersand
BlackstoneEmployees 8,589 8,130
$ 759,907 $1,088,304
Due to Af liates
DuetoCertainNon-ControllingInterest
HoldersinConnectionwiththe
TaxReceivableAgreement $ 830,517 $ 722,449
AccrualforPotentialRepaymentof
PreviouslyReceivedPerformance
FeesandAllocations 485,253 260,018
DistributionsReceivedonBehalfof
CertainNon-ControllingInterest
HoldersandBlackstoneEmployees 58,083 262,737
DistributionsReceivedonBehalfof
Non-ConsolidatedEntities 31,692 22,938
PaymentsMadeby
Non-ConsolidatedEntities 4,521 17,435
$1,410,066 $1,285,577
91
Interests of the Co-Founder, Senior
Managing Directors and Employees
The Co-Founder, senior managing directors and employees
invest on a discretionary basis in the Blackstone Funds both
directly and through consolidated entities. Their investments
may be subject to preferential management fee and perfor-
mance fee and allocation arrangements. As of December 31,
2009and2008,theCo-Founder’s,otherseniormanagingdirec-
tors’ and employees’ investments aggregated $649.4 million
and $507.2 million, respectively, and the Co-Founder’s, other
senior managing directors’ and employees’ share of the Non-
Controlling Interests in Income (Loss) of Consolidated Entities
aggregated$31.2 million,$(281.7) millionand$279.7 millionfor
theyearsendedDecember 31,2009,2008and2007,respectively.
Revenues Earned from Af liates
Management and Advisory Fees earned from af liates totaled
$134.3 million, $188.3 million and $595.0 million for the years
ended December 31, 2009, 2008 and 2007, respectively. Fees
relate primarily to transaction and monitoring fees which are
made in the ordinary course of business and under terms that
wouldhavebeenobtainedfromunaf liatedthirdparties.
Loans to Af liates
Loanstoaf liatesconsistofinterest-bearingadvancestocertain
Blackstone individuals to finance their investments in cer-
tainBlackstoneFunds.TheseloansearninterestatBlackstone’s
cost of borrowing and such interest totaled $2.2 million,
$6.0 million, and $6.5 million for the years ended December 31,
2009, 2008 and 2007, respectively. No such loans to any direc-
tor or executive of cer of Blackstone have been made or were
outstandingsinceMarch 22,2007,thedateofBlackstone’sinitial
?ling with the Securities and Exchange Commission of a regis-
trationstatementrelatingtoitsinitialpublicofering.
Contingent Repayment Guarantee
BlackstoneanditspersonnelwhohavereceivedCarriedInterest
distributions have guaranteed payment on a several basis (sub-
ject to a cap), to the Carry Funds of any clawback obligation
with respect to the excess Carried Interest allocated to the
general partners of such funds and indirectly received thereby
to the extent that either Blackstone or its personnel fails to
ful?ll its clawback obligation, if any. The Accrual for Possible
Repayment of Previously Received Performance Fees and
Allocations represents amounts previously paid to Blackstone
Holdingsandnon-controllinginterestholdersthatwouldneedto
be repaid to the Blackstone funds if the Carry Funds were
to be liquidated based on the fair value of their underlying
investments as of December 31, 2009. See Note 16 “Contingent
Obligations (Clawback)”.
Aircraft and Other Services
In the normal course of business, Blackstone personnel have
made use of aircraft owned as personal assets by Stephen A.
Schwarzman (“Personal Aircraft”). In addition, on occasion,
Mr. Schwarzman and his family have made use of an aircraft
in which Blackstone owns a fractional interest, as well as other
assets of Blackstone. Mr. Schwarzman paid for his purchases
of the aircraft himself and bears all operating, personnel and
maintenance costs associated with their operation. In addition,
Mr.Schwarzmanischargedforhisandhisfamily’spersonaluse
of Blackstone assets based on market rates and usage. Payment
by Blackstone for the use of the Personal Aircraft by other
Blackstone employees are made at market rates. Personal use
of Blackstone resources are also reimbursed to Blackstone at
marketrates.Thetransactionsdescribedhereinarenotmaterial
totheconsolidatedandcombined?nancialstatements.
Tax Receivable Agreement
BlackstoneusedaportionoftheproceedsfromtheIPOandthesale
of non-voting common units to Beijing Wonderful Investments to
purchaseinterestsinthepredecessorbusinessesfromthepredeces-
sorowners.Inaddition,holdersofBlackstoneHoldingsPartnership
Units may exchange their Blackstone Holdings Partnership Units
for Blackstone Common Units on a one-for-one basis. The
purchase and subsequent exchanges are expected to result in
increases in the tax basis of the tangible and intangible assets
of Blackstone Holdings and therefore reduce the amount of tax
thatBlackstone’swholly-ownedsubsidiarieswouldotherwisebe
requiredtopayinthefuture.
Certain subsidiaries of the Partnership which are corporate
taxpayershaveenteredintotaxreceivableagreementswitheach
of the predecessor owners and additional tax receivable agree-
ments have been executed, and will continue to be executed,
with newly-admitted senior managing directors and others
whoacquireBlackstoneHoldingsPartnershipUnits.Theagree-
ments provide for the payment by the corporate taxpayers to
suchownersof85%oftheamountofcashsavings,ifany,inU.S.
federal, state and local income tax that the corporate taxpayers
actually realize as result of the aforementioned increases in tax
basis and of certain other tax bene?ts related to entering into
thesetaxreceivableagreements.Forpurposesofthetaxreceiv-
ableagreements,cashsavingsinincometaxwillbecomputedby
comparing the actual income tax liability of the corporate tax-
payerstotheamountofsuchtaxesthatthecorporatetaxpayers
would have been required to pay had there been no increase to
the tax basis of the tangible and intangible assets of Blackstone
Holdingsasaresultoftheexchangesandhadthecorporatetax-
payersnotenteredintothetaxreceivableagreements.
Assuming no material changes in the relevant tax law and
that the corporate taxpayers earn suf cient taxable income to
92 TheBlackstoneGroup AnnualReport2009
realize the full tax bene?t of the increased amortization of the
assets, the expected future payments under the tax receivable
agreements (which are taxable to the recipients) will aggregate
$830.5 million over the next 15 years. The after-tax present
valueoftheseestimatedpaymentstotals$228.6 millionassum-
ing a 15% discount rate and using Blackstone’s most recent
projections relating to the estimated timing of the bene?t to be
received.Futurepaymentsunderthetaxreceivableagreements
inrespectofsubsequentexchangeswouldbeinadditiontothese
amounts.Thepaymentsunderthetaxreceivableagreementare
notconditioneduponcontinuedownershipofBlackstoneequity
interestsbythepre-IPOownersandtheothersmentionedabove.
SubsequenttoDecember 31,2009,paymentstotaling$4,076,382
were made to certain pre-IPO owners in accordance with
the tax receivable agreement and related to tax benefits the
Partnershipreceivedforthe2008taxableyear.
Other
BlackstonedoesbusinesswithandonbehalfofsomeofitsPortfolio
Companies;allsucharrangementsareonanegotiatedbasis.
16. commitments and contingencies
Commitments
Operating Leases. The Partnership leases office space under
non-cancelable lease and sublease agreements, which expire
on various dates through 2024. Occupancy lease agreements,
in addition to base rentals, generally are subject to escalation
provisions based on certain costs incurred by the landlord,
and are recognized on a straight-line basis over the term of the
lease agreement. Rent expense includes base contractual rent
and variable costs such as building expenses, utilities, taxes
and insurance. Rent expense for the years ended December 31,
2009, 2008 and 2007, was $63.1 million, $40.7 million and
$30.2 million,respectively.AtDecember 31,2009and2008,the
Partnership maintained irrevocable standby letters of credit
and cash deposits as security for the leases of $9.9 million and
$10.4 million,respectively.AsofDecember 31,2009,theapproxi-
mate aggregate minimum future payments, net of sublease
income,requiredontheoperatingleasesareasfollows:
2010 $ 54,669
2011 49,929
2012 47,709
2013 47,593
2014 44,979
Thereafter 298,352
$543,231
Investment Commitments. The consolidated Blackstone
Funds had signed investment commitments of $24.2 million as
of December 31, 2009. Included in this is $0.4 million of signed
investment commitments for portfolio company acquisitions in
the process of closing. In addition, the general partners of the
Blackstone Funds had unfunded commitments to each of their
respectivefundsof$1.3 billionasofDecember 31,2009.
Contingencies
Guarantees. Certain of Blackstone’s consolidated real estate
fundsguaranteepaymentstothirdpartiesinconnectionwiththe
on-goingbusinessactivitiesand/oracquisitionsoftheirPortfolio
Companies. There is no direct recourse to the Partnership to
fulfill such obligations. To the extent that underlying funds
are required to ful?ll guarantee obligations, the Partnership’s
invested capital in such funds is at risk. Total investments at
risk in respect of guarantees extended by real estate funds was
$6.4 millionasofDecember 31,2009.
Contingent Performance Fees and Allocations. There were
$46.7 million of performance fees and allocations related to the
hedge funds in the credit and marketable alternatives segment
for the year ended December 31, 2009 attributable to arrange-
mentswherethemeasurementperiodhadnotended.
Litigation. Fromtimetotime,Blackstoneisnamedasadefen-
dant in legal actions relating to transactions conducted in the
ordinarycourseofbusiness.Althoughtherecanbenoassurance
of the outcome of such legal actions, in the opinion of manage-
ment,Blackstonedoesnothaveapotentialliabilityrelatedtoany
current legal proceeding or claim that would individually or in
theaggregatemateriallyadverselyafectitsresultsofoperations,
?nancialpositionorcash?ows.
Contingent Obligations (Clawback). IncludedwithinNetGains
(Losses) from Fund Investment Activities in the Consolidated
Statements of Operations are gains from Blackstone Fund
investments. The portion of net gains (losses) attributable
to non-controlling interest holders is included within Non-
Controlling Interests in Income of Consolidated Entities. Net
gains (losses) attributable to non-controlling interest holders
are net of Carried Interest earned by Blackstone. Carried inter-
est is subject to clawback to the extent that the carried interest
receivedtodateexceedstheamountduetoBlackstonebasedon
cumulative results.
Theactualclawbackliability,however,doesnotbecomereal-
ized until the end of a fund’s life except for Blackstone’s real
estate funds which may have a clawback liability come due one
yearafterarealizedlossisincurred,dependingonthefund.The
93
lives of the carry funds with a potential clawback obligation,
including available contemplated extensions, are currently
anticipatedtoexpireatvariouspointsbeginningtowardtheend
of2012andextendingthrough2018.Furtherextensionsofsuch
termsmaybeimplementedundergivencircumstances.
As of December 31, 2009, the current cash clawback obliga-
tion of the Blackstone general partners to the limited partner
investors of the private equity, real estate and credit-oriented
funds is zero. For financial reporting purposes, however, the
generalpartnershaverecordedaliabilityforpotentialclawback
obligations to the limited partners of some of the carry funds
due to changes in the unrealized value of a fund’s remaining
investmentsandwherethefund’sgeneralpartnerhaspreviously
received Carried Interest distributions with respect to such
fund’srealizedinvestments.
AsofDecember 31,2009,theclawbackobligations,whichare
not currently due, were $485.3 million, of which $217.4 million
related to Blackstone Holdings and $267.9 million related to
current and former Blackstone personnel. As of December 31,
2008,suchobligationswere$260.0 million,ofwhich$109.8 mil-
lion related to Blackstone Holdings and $150.2 million related
to current and former Blackstone personnel. The Accrual for
Potential Repayment of Previously Received Performance Fees
andAllocationsisincludedinDuetoAf liates.
A portion of the carried interest paid to current and former
Blackstonepersonnelisheldinsegregatedaccountsintheevent
of a cash clawback obligation. These segregated accounts are
not included in the consolidated and combined ?nancial state-
ments of the Partnership, except to the extent a portion of the
assetsheldinthesegregatedaccountsmaybeallocatedtoacon-
solidatedBlackstonefundofhedgefunds.AtDecember 31,2009,
$474.4 millionwasheldinsegregatedaccountsforthepurposeof
meetinganyclawbackobligationsofcurrentandformerperson-
nelifsuchpaymentsarerequired.
17. employee benefit plans
The Partnership provides a 401(k) plan (the “Plan”) for eligible
employees in the United States. For certain ?nance and admin-
istrative professionals who are participants in the Plan, the
Partnershipcontributes2%ofsuchprofessional’spretaxannual
compensation up to a maximum of one thousand six hundred
dollars. In addition, the Partnership will contribute 50% of the
first 4% of pretax annual compensation contributed by such
professional participants with a maximum matching contribu-
tion of one thousand six hundred dollars. For the years ended
December 31, 2009, 2008 and 2007, the Partnership incurred
expensesof$1.5 million,$1.3 millionand$0.9 millioninconnec-
tionwithsuchPlan.
Thefollowingtablepresentstheclawbackobligationsbysegment:
December 31, 2009 December 31, 2008
Current and Current and
Blackstone Former Blackstone Former
Segment Holdings Personnel Total Holdings Personnel Total
PrivateEquity $ 65,237 $120,208 $185,445 $ 63,643 $118,928 $182,571
RealEstate 152,142 147,666 299,808 46,014 31,145 77,159
CreditandMarketableAlternatives – – – 183 105 288
Total $217,379 $267,874 $485,253 $109,840 $150,178 $260,018
94 TheBlackstoneGroup AnnualReport2009
The Partnership provides a defined contribution plan
for eligible employees in the United Kingdom (“UK Plan”).
All United Kingdom employees are eligible to contribute to
the UK Plan after three months of qualifying service. The
Partnership contributes a percentage of an employee’s annual
salary, subject to United Kingdom statutory restrictions, on a
monthly basis for administrative employees of the Partnership
based upon the age of the employee. For the years ended
December 31, 2009, 2008 and 2007, the Partnership incurred
expenses of $0.3 million, $0.3 million and $0.3 million, respec-
tively,inconnectionwiththeUKPlan.
18. regulated entities
The Partnership has certain entities that are registered broker-
dealers which are subject to the minimum net capital require-
ments of the Securities and Exchange Commission (“SEC”).
The Partnership has continuously operated in excess of these
requirements. The Partnership also has two entities based in
London which are subject to the capital requirements of the
U.K. Financial Services Authority. These entities have continu-
ouslyoperatedinexcessoftheirregulatorycapitalrequirements.
CertainotherU.S.andnon-U.S.entitiesaresubjecttovarious
securitiescommoditypoolandtraderregulations.Thisincludes
a number of U.S. entities which are Registered Investment
AdvisorsundertherulesandauthorityoftheSEC.
The regulatory capital requirements referred to above may
restrict the Partnership’s ability to withdraw capital from its
entities. At December 31, 2009, approximately $25.3 million of
netassetsofconsolidatedentitiesmayberestrictedastothepay-
mentofcashdividendsandadvancestothePartnership.
19. segment reporting
Blackstone transacts its primary business in the United States
andsubstantiallyallofitsrevenuesaregenerateddomestically.
Blackstone conducts its alternative asset management and
?nancialadvisorybusinessesthroughfourreportablesegments:
• Private Equity – Blackstone’s Private Equity segment com-
prisesitsmanagementofprivateequityfunds.
• RealEstate–Blackstone’sRealEstatesegmentcomprisesits
management of general real estate funds and internationally
focusedrealestatefunds.
• CreditandMarketableAlternatives–Blackstone’sCreditand
Marketable Alternatives segment, whose consistent focus is
currentearnings,comprisesitsmanagementoffundsofhedge
funds, credit-oriented funds, CLO vehicles, separately man-
aged accounts and publicly-traded closed-end mutual funds.
ThissegmentwasformerlyknownasMarketableAlternative
AssetManagementandhasbeenrenamedtobetterre?ectthe
product mix in this segment. This does not re?ect a change
to the underlying businesses or how they are reflected in
Blackstone’sresultsofoperation.
• Financial Advisory – Blackstone’s Financial Advisory seg-
ment comprises its corporate and mergers and acquisitions
advisory services, restructuring and reorganization advisory
services and Park Hill Group, which provides fund place-
mentservicesforalternativeinvestmentfunds.
These business segments are differentiated by their vari-
ous sources of income, with the Private Equity, Real Estate and
CreditandMarketableAlternativessegmentsprimarilyearning
their income from management fees and investment returns on
assets under management, while the Financial Advisory seg-
mentprimarilyearnsitsincomefromfeesrelatedtoinvestment
bankingservicesandadviceandfundplacementservices.
Economic Net Income (“ENI”) is a key performance measure
used by management. ENI represents segment income before
taxes excluding transaction-related charges. Transaction-related
charges include principally charges associated with equity-based
compensation, the amortization of intangibles and corporate
actions including acquisitions. Blackstone’s historical combined
?nancial statements for periods prior to the IPO do not include
these transaction-related charges nor do such financial state-
ments re?ect certain compensation expenses including perfor-
mance payment arrangements associated with senior managing
directors,departedpartnersandotherselectedemployees.Those
compensation expenses were accounted for as partnership
distributions prior to the IPO but are included in the ?nancial
statements for the periods following the IPO as a component of
compensation and bene?ts expense. The aggregate of ENI for all
reportable segments equals Total Reportable Segment ENI. ENI
isusedbymanagementprimarilyinmakingresourcedeployment
andcompensationdecisionsacrossBlackstone’sfoursegments.
Management makes operating decisions and assesses the
performance of each of Blackstone’s business segments based
on ?nancial and operating metrics and data that is presented
without the consolidation of any of the Blackstone Funds that
are consolidated into the consolidated and combined ?nancial
statements. Consequently, all segment data excludes the assets,
liabilitiesandoperatingresultsrelatedtotheBlackstoneFunds.
95
Thefollowingtablepresentsthe?nancialdataforBlackstone’sfourreportablesegmentsasofandfortheyearendedDecember 31,2009:
December 31, 2009 and the Year then Ended
Credit and Total
Private Marketable Financial Reportable
Equity Real Estate Alternatives Advisory Segments
SegmentRevenues
ManagementFeesandAdvisoryFees
BaseManagementFees $ 270,509 $ 328,447 $ 400,873 $ – $ 999,829
AdvisoryFees – – – 390,718 390,718
TransactionandOtherFees,Net 86,336 25,838 2,866 – 115,040
ManagementFeeOfsets – (2,467) (14,694) – (17,161)
TotalManagementandAdvisoryFees 356,845 351,818 389,045 390,718 1,488,426
PerformanceFeesandAllocations
Realized 34,021 (3,039) 43,282 – 74,264
Unrealized 303,491 (252,180) 114,556 – 165,867
TotalPerformanceFeesandAllocations 337,512 (255,219) 157,838 – 240,131
InvestmentIncome(Loss)
Realized 36,968 6,164 (15,031) 1,443 29,544
Unrealized 33,269 (125,624) 96,016 219 3,880
TotalInvestmentIncome(Loss) 70,237 (119,460) 80,985 1,662 33,424
InterestandDividendRevenue 7,756 6,030 3,452 5,254 22,492
Other 2,845 3,261 1,025 (35) 7,096
TotalRevenues 775,195 (13,570) 632,345 397,599 1,791,569
Expenses
CompensationandBene?ts
BaseCompensation 181,266 158,115 198,117 232,359 769,857
PerformanceFeeRelated
Realized 741 3,506 20,854 – 25,101
Unrealized 20,307 (113,981) 67,493 – (26,181)
TotalCompensationandBene?ts 202,314 47,640 286,464 232,359 768,777
OtherOperatingExpenses 82,471 56,325 80,661 79,572 299,029
TotalExpenses 284,785 103,965 367,125 311,931 1,067,806
EconomicNetIncome(Loss) $ 490,410 $ (117,535) $ 265,220 $ 85,668 $ 723,763
SegmentAssets $2,870,238 $1,940,925 $2,706,169 $986,624 $8,503,956
96 TheBlackstoneGroup AnnualReport2009
The following table reconciles the Total Reportable Segments
toBlackstone’sIncome(Loss)BeforeProvision(Bene?t)forTaxes
andTotalAssetsasofandfortheyearendedDecember 31,2009:
December 31, 2009 and the Year then Ended
Consolidation
Adjustments
Total and Reconciling Blackstone
Segments Items Consolidated
Revenues $1,791,569 $ (17,870)
(a)
$ 1,773,699
Expenses $1,067,806 $ 3,174,053
(b)
$ 4,241,859
OtherIncome $ – $ 176,694
(c)
$ 176,694
EconomicNet
Income(Loss) $ 723,763 $(3,015,229)
(d)
$( 2,291,466)
TotalAssets $8,503,956 $ 905,068
(e)
$ 9,409,024
(a)
TheRevenuesadjustmentprincipallyrepresentsmanagementandperformancefees
andallocationsearnedfromBlackstoneFundstoarriveatBlackstoneconsolidated
revenueswhichwereeliminatedinconsolidation.
(b)
The Expenses adjustment represents the addition of expenses of the consolidated
Blackstone Funds to the Blackstone unconsolidated expenses, amortization of
intangiblesandexpensesrelatedtotransaction-relatedequity-basedcompensation
toarriveatBlackstoneconsolidatedandcombinedexpenses.
(c) TheOtherIncomeadjustmentresultsfromthefollowing:
Year Ended
December 31, 2009
FundManagementFeesandPerformanceFeesand
AllocationsEliminatedinConsolidation $ 14,870
FundExpensesAddedinConsolidation 10,441
Non-ControllingInterestsinIncomeofConsolidatedEntities 151,383
TotalConsolidationAdjustments $176,694
(d)
ThereconciliationofEconomicNetIncome(Loss)toIncome(Loss)BeforeBene?t
for Taxes as reported in the Consolidated and Combined Statements of Operations
consistsofthefollowing:
Year Ended
December 31, 2009
EconomicNetIncome(Loss) $ 723,763
Adjustments:
AmortizationofIntangibles (158,048)
IPOandAcquisition-RelatedCharges (2,973,950)
Income(Loss)AssociatedwithNon-ControllingInterestsin
Income(Loss)ofConsolidatedEntities 116,769
TotalAdjustments (3,015,229)
Income(Loss)BeforeProvision(Bene?t)forTaxes $(2,291,466)
(e)
The Total Assets adjustment represents the addition of assets of the consolidated
BlackstoneFundstotheBlackstoneunconsolidatedassetstoarriveatBlackstonecon-
solidatedandcombinedassets.
97
Thefollowingtablepresents?nancialdataforBlackstone’sfourreportablesegmentsasofandfortheyearendedDecember 31,2008:
December 31, 2008 and the Year then Ended
Credit and Total
Private Marketable Financial Reportable
Equity Real Estate Alternatives Advisory Segments
SegmentRevenues
ManagementFeesandAdvisoryFees
BaseManagementFees $ 268,961 $ 295,921 $ 476,836 $ – $ 1,041,718
AdvisoryFees – – – 397,519 397,519
TransactionandOtherFees,Net 51,796 36,046 8,516 – 96,358
ManagementFeeOfsets (4,862) (4,969) (6,606) – (16,437)
TotalManagementandAdvisoryFees 315,895 326,998 478,746 397,519 1,519,158
PerformanceFeesandAllocations
Realized (749) 24,681 15,081 – 39,013
Unrealized (429,736) (843,704) (12,822) – (1,286,262)
TotalPerformanceFeesandAllocations (430,485) (819,023) 2,259 – (1,247,249)
InvestmentIncome(Loss)
Realized 13,687 3,778 (82,142) – (64,677)
Unrealized (196,200) (238,650) (257,084) – (691,934)
TotalInvestmentIncome(Loss) (182,513) (234,872) (339,226) – (756,611)
InterestandDividendRevenue 6,459 5,880 8,527 8,148 29,014
Other 4,474 3,008 1,214 4,899 13,595
TotalRevenues (286,170) (718,009) 151,520 410,566 (442,093)
Expenses
CompensationandBene?ts
BaseCompensation 146,551 150,684 239,436 234,755 771,426
PerformanceFeeRelated
Realized (4,255) 1,090 8,162 – 4,997
Unrealized (126,090) (74,981) (6,643) – (207,714)
TotalCompensationandBene?ts 16,206 76,793 240,955 234,755 568,709
OtherOperatingExpenses 90,130 55,782 106,027 67,277 319,216
TotalExpenses 106,336 132,575 346,982 302,032 887,925
EconomicNetIncome(Loss) $ (392,506) $ (850,584) $ (195,462) $108,534 $(1,330,018)
SegmentAssets $ 2,688,398 $1,753,009 $2,615,891 $550,215 $ 7,607,513
98 TheBlackstoneGroup AnnualReport2009
ThefollowingtablereconcilestheTotalReportableSegments
to Blackstone’s Income Before Provision for Taxes as of and for
theyearendedDecember 31,2008:
December 31, 2008 and the Year then Ended
Consolidation
Adjustments
and
Total Reconciling Blackstone
Segments Items Consolidated
Revenues $ (442,093) $ 92,732
(a)
$ (349,361)
Expenses $ 887,925 $ 3,498,677
(b)
$ 4,386,602
OtherLoss $ – $ (872,336)
(c)
$ (872,336)
EconomicNet
Income(Loss) $(1,330,018) $(4,278,281)
(d)
$(5,608,299)
TotalAssets $ 7,607,513 $ 1,881,544
(e)
$ 9,489,057
(a)
TheRevenuesadjustmentprincipallyrepresentsmanagementandperformancefees
andallocationsearnedfromBlackstoneFundstoarriveatBlackstoneconsolidated
revenueswhichwereeliminatedinconsolidation.
(b)
The Expenses adjustment represents the addition of expenses of the consolidated
Blackstone Funds to the Blackstone unconsolidated expenses, amortization of
intangiblesandexpensesrelatedtotransaction-relatedequity-basedcompensation
toarriveatBlackstoneconsolidatedandcombinedexpenses.
(c) TheOtherIncomeadjustmentresultsfromthefollowing:
Year Ended
December 31, 2008
FundManagementFeesandPerformanceFees
andAllocationsEliminatedinConsolidation $(105,418)
FundExpensesAddedinConsolidation 66,046
Non-ControllingInterestsinIncome(Loss)
ofConsolidatedEntities (832,964)
TotalConsolidationAdjustments $(872,336)
(d)
The reconciliation of Economic Net Income to Income Before Provision for Taxes
asreportedintheConsolidatedandCombinedStatementsofOperationsconsistsof
the following:
Year Ended
December 31, 2008
EconomicNetIncome(Loss) $(1,330,018)
Adjustments:
AmortizationofIntangibles (153,237)
IPOandAcquisition-RelatedCharges (3,331,722)
OtherAdjustments (999)
Income(Loss)AssociatedwithNon-Controlling
InterestsinIncome(Loss)ofConsolidatedEntities (792,323)
TotalAdjustments (4,278,281)
Income(Loss)BeforeProvision(Bene?t)forTaxes $(5,608,299)
(e)
TheTotalAssetsadjustmentrepresentstheadditionofassetsoftheconsolidated
BlackstoneFundstotheBlackstoneunconsolidatedassetstoarriveatBlackstone
consolidatedandcombinedassets.
99
Thefollowingtablepresents?nancialdataforBlackstone’sfourreportablesegmentsfortheyearendedDecember 31,2007:
December 31, 2007 and the Year then Ended
Credit and Total
Private Marketable Financial Reportable
Equity Real Estate Alternatives Advisory Segments
SegmentRevenues
ManagementandAdvisoryFees
BaseManagementFees $ 254,843 $ 233,072 $316,337 $ – $ 804,252
AdvisoryFees – – – 360,284 360,284
TransactionandOtherFees,Net 123,770 348,410 6,630 – 478,810
ManagementFeeOfsets (10,734) (11,717) (33) – (22,484)
TotalManagementandAdvisoryFees 367,879 569,765 322,934 360,284 1,620,862
PerformanceFeesandAllocations
Realized 574,274 326,514 154,028 – 1,054,816
Unrealized (194,357) 297,437 2,952 – 106,032
TotalPerformanceFeesandAllocations 379,917 623,951 156,980 – 1,160,848
InvestmentIncome(Loss)
Realized 131,498 68,996 62,363 – 262,857
Unrealized (16,166) 65,472 81,439 – 130,745
TotalInvestmentIncome(Loss) 115,332 134,468 143,802 – 393,602
InterestandDividendRevenue 1,731 1,321 4,249 7,385 14,686
Other 470 38 31 (11) 528
TotalRevenues 865,329 1,329,543 627,996 367,658 3,190,526
Expenses
CompensationandBene?ts
BaseCompensation 132,119 147,829 82,594 132,633 495,175
PerformanceFeeRelated
Realized 14,534 8,560 68,109 – 91,203
Unrealized (50,251) (11,243) (373) – (61,867)
TotalCompensationandBene?ts 96,402 145,146 150,330 132,633 524,511
OtherOperatingExpenses 78,473 54,829 74,728 39,037 247,067
TotalExpenses 174,875 199,975 225,058 171,670 771,578
EconomicNetIncome $ 690,454 $1,129,568 $402,938 $195,988 $2,418,948
100 TheBlackstoneGroup AnnualReport2009
The following table reconciles the Total Reportable
Segments to Blackstone’s Income Before Provision for Taxes
fortheyearendedDecember 31,2007:
Year Ended December 31, 2007
Consolidation
Adjustments Blackstone
and Consolidated
Total Reconciling and
Segments Items Combined
Revenues $3,190,526 $(140,378)
(a)
$3,050,148
Expenses $ 771,578 $1,993,266
(b)
$2,764,844
OtherIncome $ – $5,423,132
(c)
$5,423,132
EconomicNetIncome $2,418,948 $3,289,488
(d)
$5,708,436
(a)
TheRevenuesadjustmentprincipallyrepresentsmanagementandperformancefees
andallocationsearnedfromBlackstoneFundstoarriveatBlackstoneconsolidated
andcombinedrevenueswhichwereeliminatedinconsolidation.
(b)
The Expenses adjustment represents the addition of expenses of the consolidated
Blackstone Funds to the Blackstone unconsolidated expenses, amortization of
intangiblesandexpensesrelatedtotransaction-relatedequity-basedcompensation
toarriveatBlackstoneconsolidatedandcombinedexpenses.
(c) TheOtherIncomeadjustmentresultsfromthefollowing:
Year Ended
December 31, 2007
FundManagementFeesandPerformanceFeesand
AllocationsEliminatedinConsolidation $ 131,978
FundExpensesAddedinConsolidation 151,919
Non-ControllingInterestsinIncomeof
ConsolidatedEntities 5,139,235
TotalConsolidationAdjustments $5,423,132
(d)
The reconciliation of Economic Net Income to Income Before Provision for Taxes
asreportedintheConsolidatedandCombinedStatementsofOperationsconsistsof
the following:
Year Ended
December 31, 2007
EconomicNetIncomeandother $2,418,948
Adjustments:
AmortizationofIntangibles (117,607)
IPOandAcquisition-RelatedCharges (1,732,134)
OtherAdjustments (6)
IncomeAssociatedwithNon-Controlling
InterestsinIncomeofConsolidatedEntities 5,139,235
TotalAdjustments 3,289,488
Income(Loss)BeforeProvision(Bene?t)forTaxes $5,708,436
20. subsequent events
TherehavebeennoeventssinceDecember31,2009thatrequire
recognition or disclosure in the Consolidated and Combined
FinancialStatements.
101
21. quarterly financial data (unaudited)
Three Months Ended
March 31, June 30, September 30, December 31,
2009 2009 2009 2009
Revenues $ 44,914 $ 406,416 $ 597,023 $ 725,346
Expenses 922,358 1,051,706 1,097,794 1,170,001
OtherIncome(Loss) (34,763) 58,304 73,812 79,341
Income(Loss)BeforeProvisionforTaxes $(912,207) $ (586,986) $ (426,959) $ (365,314)
NetIncome(Loss) $(929,938) $ (597,871) $ (479,510) $ (383,377)
NetIncome(Loss)AttributabletoTheBlackstoneGroupL.P. $(231,574) $ (164,284) $ (176,183) $ (143,250)
NetLossPerCommonUnit–BasicandDiluted
CommonUnitsEntitledtoPriorityDistributions $ (0.84) $ (0.59) $ (0.59) $ (0.45)
CommonUnitsNotEntitledtoPriorityDistributions $ (1.14) $ (0.90) $ (0.92) $ (0.76)
PriorityDistributionsDeclared
(a)
$ – $ 0.30 $ 0.30 $ 0.30
Three Months Ended
March 31, June 30, September 30, December 31,
2008 2008 2008 2008
Revenues $ 68,523 $ 353,652 $ (160,254) $ (611,282)
Expenses 1,098,063 1,163,808 1,132,698 992,033
OtherIncome (215,636) 189,678 (550,755) (295,623)
Income(Loss)BeforeProvisionforTaxes (1,245,176) (620,478) (1,843,707) (1,898,938)
NetIncome(Loss) $(1,254,157) $ (594,627) $(1,822,345) $(1,923,025)
NetIncome(Loss)AttributabletoTheBlackstoneGroupL.P. $ (250,993) $ (156,531) $ (340,331) $ (415,177)
NetLossPerCommonUnit–BasicandDiluted
CommonUnitsEntitledtoPriorityDistributions $ (0.95) $ (0.60) $ (1.26) $ (1.51)
CommonUnitsNotEntitledtoPriorityDistributions $ (1.56) $ (1.51)
PriorityDistributionsDeclared
(a)
$ 0.30 $ 0.30 $ 0.30 $ 0.30
(a)
Distributionsdeclaredre?ectsthecalendardateofthedeclarationofeachdistribution.
102 TheBlackstoneGroup AnnualReport2009
Leadership
Directory
Board of Directors
Stephen A. Schwarzman
Chairman,CEOandCo-Founder,
TheBlackstoneGroup
Hamilton E. James
PresidentandChiefOperatingOf cer,
TheBlackstoneGroup
J. Tomilson Hill
ViceChairmanandHeadof
BlackstoneAlternativeAssetManagement
TheBlackstoneGroup
Richard Jenrette
RetiredChairmanandCEO,
TheEquitableLifeAssuranceSociety
Jay O. Light
Dean,HarvardBusinessSchool
The Right Honorable Brian Mulroney
FormerPrimeMinisterofCanada
William G. Parrett
RetiredCEOandSeniorPartner,
Deloitte(DeloitteToucheTohmatsu)
2009 Management,
Executive Committee and
Corporate Of cers
Stephen A. Schwarzman
Chairman,CEOandCo-Founder
Hamilton E. James
PresidentandChiefOperatingOf cer
J. Tomilson Hill
ViceChairmanandHeadof
BlackstoneAlternativeAssetManagement
Tim Coleman
Co-Head,Restructuring&Reorganization
Robert L. Friedman
ChiefLegalOf cer
Bennett Goodman
Co-Founder,Co-Head,GSOCapitalPartners
Jonathan D. Gray
Co-Head,RealEstate
Garrett M. Moran
ChiefOperatingOf cer,PrivateEquity
Sylvia F. Moss
Head,Administration
Arthur B. Newman
Co-Head,Restructuring&Reorganization
Chad R. Pike
Co-Head,RealEstate
Joan Solotar
Head,PublicMarkets
John Studzinski
Head,CorporateAdvisoryand
MergersandAcquisitions
Laurence A. Tosi
ChiefFinancialOf cer
Kenneth C. Whitney
Head,LimitedPartnerRelationsand
FundPlacement
Business Units
Private Equity
CleantechVenturePartners
InfrastructurePartners
ZhonghuaDevelopmentFund
Real Estate
RealEstatePartners
RealEstatePartnersInternational
RealEstateDebtStrategies
Credit and Marketable Alternatives (CAMA)
BlackstoneAlternativeAssetManagement(BAAM)
GSOCapitalPartners
Multi-StrategyCreditFunds
MezzanineFunds
DistressedFunds
CollateralizedLoanObligations(CLO)
ClosedEndMutualFunds
IndiaFund
AsiaTigersFund
Financial Advisory
BlackstoneAdvisoryPartners,LP
Restructuring&ReorganizationAdvisory
ParkHill
ParkHillLLC
ParkHillRealEstateLLC
Blackstone Greater China
Blackstone India
Mumbai
ExpressTowers,5thFloor
NarimanPoint
Mumbai,400021
India
Paris
11-13AvenuedeFriedland
75008Paris
France
San Francisco
101CaliforniaStreet
Suite2880
SanFrancisco,CA94111
Sydney
Level14,MacquarieHouse
167MacquarieStreet
SydneyNSW2000,Australia
Tokyo
11FAIGBuilding
1-1-3Marunouchi,Chiyoda-Ku
Tokyo,100-0005
Japan
GSO Capital Partners
New York
280ParkAvenue
11thFloor
NewYork,NY10017
London
13HanoverSquare
5thFloor
London,W1S1HN
UnitedKingdom
Houston
11GreenwayPlaza
30thFloor,Suite3050
Houston,TX77046
Number of Employees Globally
1,295
Independent Auditors
Deloitte&ToucheLLP
Unitholder
Information
Global Of ces
New York
345ParkAvenue
NewYork,NY10154
Atlanta
4401NorthsideParkway
3rdFloor,Suite375
Atlanta,GA30327
Beijing
WinlandInternationalFinanceCenter
UnitF817-18
No.7,FinanceStreet
XichengDistrict,Beijing,China100140
Boston
ExchangePlace
53StateStreet
29thFloor
Boston,MA02109
Chicago
200WestMadisonStreet
Suite3800
Chicago,IL60606
Dallas
3949MapleAvenue
Suite400
Dallas,TX75219
Hong Kong
TwoInternationalFinanceCentre
Suite901,9thFloor
8FinanceStreet
Central,HongKong
China
London
40BerkeleySquare
London,W1J5AL
UnitedKingdom
Los Angeles
1299OceanAve
Suite320
SantaMonica,CA90401
Menlo Park
2494SandHillRoad
Suite200
MenloPark,CA94025
Transfer Agent
AmericanStockTransfer&TrustCompany
OperationsCenter
620115thAvenue
Brooklyn,NY11230
+1800.937.5449
Investor Relations
TheBlackstoneGroupL.P.
345ParkAvenue
NewYork,NY10154
+1888.756.8443
Additional Financial Information
Pleasevisitwww.blackstone.comforourcomplete
2009AnnualReportonForm10-Kandthe
otherdocumentswehave?ledorfurnishedwith
theSEC,includingourCurrentReporton
Form8-Kcontainingourpressreleasereport-
ingonour?scal2009?nancialresults.
Copyright Information
Copyright2010
TheBlackstoneGroupL.P.
Allrightsreserved.
NYSE Symbol
BX
Common Unit Price
Thefollowingtablesetsforththehighandlow
intra-daysalespricesperunitofourcommon
units,fortheperiodsindicated,asreportedby
theNYSE.
SalesPrice
2009 High Low
First Quarter $ 9.19 $ 3.55
Second Quarter $14.44 $ 6.89
Third Quarter $15.38 $ 8.54
Fourth Quarter $17.22 $12.71
Neither this annual report nor any of the information
contained herein constitutes an ofer of any
Blackstone fund.
D
e
s
i
g
n
b
y
A
d
d
i
s
o
n
w
w
w
.
a
d
d
i
s
o
n
.
c
o
m
The Blackstone
Group
345 Park Avenue
New York,
New York 10154
blackstone.com
doc_622814242.pdf