Blackstone 10Q 2019 Q3 Quarterly report

Blackstone (BX) 10-Q2019 Q3 Quarterly report

Content analysis

0001393818 bx:FreestandingDerivativesMember us-gaap:TotalReturnSwapMember 2018-01-01 2018-09-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM

10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2019

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

Commission File Number:

001-33551

The Blackstone Group Inc.

(Exact name of Registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)		20-8875684 (I.R.S. Employer Identification No.)

345 Park Avenue

New York, New York 10154

(Address of principal executive offices)(Zip Code)

(212)

583-5000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock	BX	New York Stock Exchange

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes

☒

☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation

S-T

(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes

☒

☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a

non-accelerated

filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule

12b-2

of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule

12b-2

of the Exchange Act). Yes

☐

☒

As of November 1, 2019, there were 659,349,978 shares of Class A common stock, 1 share of Class B common stock and 1 share of Class C common stock of the registrant outstanding.

Table of Contents


		Page
Part I.	Financial Information

Item 1.	Financial Statements		5

	Unaudited Condensed Consolidated Financial Statements:

	Condensed Consolidated Statements of Financial Condition as of September 30, 2019 and December 31, 2018		5

	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2019 and 2018		7

	Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2019 and 2018		8

	Condensed Consolidated Statements of Changes in Equity for the Three and Nine Months Ended September 30, 2019 and 2018		9

	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018		13

	Notes to Condensed Consolidated Financial Statements		15

Item 1A.	Unaudited Supplemental Presentation of Statements of Financial Condition		68

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		70

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		136

Item 4.	Controls and Procedures		140

Part II.	Other Information

Item 1.	Legal Proceedings		14 1

Item 1A.	Risk Factors		141

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		14 2

Item 3.	Defaults Upon Senior Securities		142

Item 4.	Mine Safety Disclosures		142

Item 5.	Other Information		142

Item 6.	Exhibits		14 3

Signatures			14 6

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Forward-Looking Statements

This report may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 which reflect our current views with respect to, among other things, our operations, taxes, earnings and financial performance, share repurchases and dividends. You can identify these forward-looking statements by the use of words such as “outlook,” “indicator,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. We believe these factors include but are not limited to those described under the section entitled “Risk Factors” in our Annual Report on Form

10-K

for the year ended December 31, 2018, in our Quarterly Report on Form

10-Q

for the quarter ended March 31, 2019 and in this report, as such factors may be updated from time to time in our periodic filings with the United States Securities and Exchange Commission (“SEC”), which are accessible on the SEC’s website at www.sec.gov. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this report and in our other periodic filings. The forward-looking statements speak only as of the date of this report, and we undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.

Website and Social Media Disclosure

We use our website (www.blackstone.com), Facebook page (www.facebook.com/blackstone), Twitter (www.twitter.com/blackstone), LinkedIn (www.linkedin.com/company/blackstonegroup), Instagram (www.instagram.com/blackstone), SoundCloud (www.soundcloud.com/blackstone-300250613), PodBean (www.blackstone.podbean.com), Spotify (https://open.spotify.com/show/1PqaIgd12KgRN8rlijBhE7) and YouTube (www.youtube.com/user/blackstonegroup) accounts as channels of distribution of company information. The information we post through these channels may be deemed material. Accordingly, investors should monitor these channels, in addition to following our press releases, SEC filings and public conference calls and webcasts. In addition, you may automatically receive email alerts and other information about Blackstone when you enroll your email address by visiting the “Contact Us/Email Alerts” section of our website at http://ir.blackstone.com. The contents of our website, any alerts and social media channels are not, however, a part of this report.

Effective July 1, 2019, The Blackstone Group L.P. (the “Partnership”) converted from a Delaware limited partnership to a Delaware corporation, The Blackstone Group Inc. (the “Conversion”). This report includes the results for the Partnership prior to the Conversion and The Blackstone Group Inc. following the Conversion. In this report, references to “Blackstone,” the “Corporation,” “we,” “us” or “our” refer to (a) The Blackstone Group Inc. and its consolidated subsidiaries following the Conversion and (b) the Partnership and its consolidated subsidiaries prior to the Conversion. Unless the context otherwise requires, references in this report to the ownership of Mr. Stephen A. Schwarzman, our founder, and other Blackstone personnel include the ownership of personal planning vehicles and family members of these individuals. All references to shares or per share amounts prior to the Conversion refer to units or per unit amounts. Unless otherwise noted, all references to shares or per share amounts following the Conversion refer to shares or per share amounts of Class A common stock. All references to dividends prior to the Conversion refer to distributions. See “Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Organizational Structure.”

“Blackstone Funds,” “our funds” and “our investment funds” refer to the private equity funds, real estate funds, funds of hedge funds, hedge funds, credit-focused funds, collateralized loan obligations (“CLO”), real estate investment trusts and registered investment companies that are managed by Blackstone. “Our carry funds” refers to the private equity funds, real estate funds and certain of the hedge fund solutions and credit-focused funds (with multi-year drawdown, commitment-based structures that only pay carry on the realization of an investment) that are managed by Blackstone. We refer to our general corporate private equity funds as Blackstone Capital

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Partners (“BCP”) funds, our

energy-focused

private equity funds as Blackstone Energy Partners (“BEP”) funds, our core private equity fund as Blackstone Core Equity Partners (“BCEP”), our opportunistic investment platform that invests globally across asset classes, industries and geographies as Blackstone Tactical Opportunities (“Tactical Opportunities”), our secondary fund of funds business as Strategic Partners Fund Solutions (“Strategic Partners”), our infrastructure-focused funds as Blackstone Infrastructure Partners (“BIP”), our life sciences private investment platform, Blackstone Life Sciences (“BXLS”), our

multi-asset

investment program for eligible high net worth investors offering exposure to certain of our key illiquid investment strategies through a single commitment as Blackstone Total Alternatives Solution (“BTAS”) and our capital markets services business as Blackstone Capital Markets (“BXCM”). We refer to our real estate opportunistic funds as Blackstone Real Estate Partners (“BREP”) funds and our real estate debt investment funds as Blackstone Real Estate Debt Strategies (“BREDS”) funds. We refer to our core+ real estate funds, which target substantially stabilized assets in prime markets, as Blackstone Property Partners (“BPP”) funds. We refer to our real estate investment trusts as “REITs”, to Blackstone Mortgage Trust, Inc., our

NYSE-listed

REIT, as “BXMT”, and to Blackstone Real Estate Income Trust, Inc., our

non-exchange

traded REIT, as “BREIT”. “Our hedge funds” refers to our funds of hedge funds, hedge funds, certain of our real estate debt investment funds, including a registered investment company, and certain other credit-focused funds which are managed by Blackstone. “BIS” refers to Blackstone Insurance Solutions, which partners with insurers to deliver bespoke, capital-efficient investments tailored to each insurer’s needs and risk profile.

“Assets Under Management” refers to the assets we manage. Our Assets Under Management equals the sum of:

(a)

the fair value of the investments held by our carry funds and our

side-by-side

and

co-investment

entities managed by us, plus (1) the capital that we are entitled to call from investors in those funds and entities pursuant to the terms of their respective capital commitments, including capital commitments to funds that have yet to commence their investment periods, or (2) for certain credit-focused funds the amounts available to be borrowed under asset based credit facilities,

(b)

the net asset value of (1) our hedge funds and real estate debt carry funds, BPP, certain

co-investments

managed by us, and our Hedge Fund Solutions and certain credit-focused carry and drawdown funds (plus, in each case, the capital that we are entitled to call from investors in those funds, including commitments yet to commence their investment periods), and (2) our funds of hedge funds, our Hedge Fund Solutions registered investment companies, and BREIT,

(c)

the invested capital, fair value or net asset value of assets we manage pursuant to separately managed accounts,

(d)

the amount of debt and equity outstanding for our CLOs during the reinvestment period,

(e)

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

(f)

the gross or net amount of assets (including leverage where applicable) for our credit-focused registered investment companies, and

(g)

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

Our carry funds are commitment-based drawdown structured funds that do not permit investors to redeem their interests at their election. Our funds of hedge funds, hedge funds, funds structured like hedge funds and other open ended funds in our Hedge Fund Solutions, Credit and Real Estate segments generally have structures that afford an investor the right to withdraw or redeem their interests on a periodic basis (for example, annually or quarterly), typically with 30 to 95 days’ notice, depending on the fund and the liquidity profile of the underlying assets. Investment advisory agreements related to certain separately managed accounts in our Hedge Fund Solutions and Credit segments, excluding our BIS separately managed accounts, may generally be terminated by an investor on 30 to 90 days’ notice.

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“Fee-Earning

Assets Under Management” refers to the assets we manage on which we derive management fees and/or performance revenues. Our

Fee-Earning

Assets Under Management equals the sum of:

(a)

for our Private Equity segment funds and Real Estate segment carry funds including certain BREDS and Hedge Fund Solutions funds, the amount of capital commitments, remaining invested capital, fair value, net asset value or par value of assets held, depending on the fee terms of the fund,

(b)

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

(c)

the remaining invested capital or fair value of assets held in

co-investment

vehicles managed by us on which we receive fees,

(d)

the net asset value of our funds of hedge funds, hedge funds, BPP, certain

co-investments

managed by us, certain registered investment companies, BREIT, and certain of our Hedge Fund Solutions drawdown funds,

(e)

the invested capital, fair value of assets or the net asset value we manage pursuant to separately managed accounts,

(f)

the net proceeds received from equity offerings and accumulated core earnings of BXMT, subject to certain adjustments,

(g)

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

(h)

the gross amount of assets (including leverage) or the net assets (plus leverage where applicable) for certain of our credit-focused registered investment companies.

Each of our segments may include certain

Fee-Earning

Assets Under Management on which we earn performance revenues but not management fees.

Our calculations of assets under management and

fee-earning

assets under management may differ from the calculations of other asset managers, and as a result this measure may not be comparable to similar measures presented by other asset managers. In addition, our calculation of assets under management includes commitments to, and the fair value of, invested capital in our funds from Blackstone and our personnel, regardless of whether such commitments or invested capital are subject to fees. Our definitions of assets under management and

fee-earning

assets under management are not based on any definition of assets under management and

fee-earning

assets under management that is set forth in the agreements governing the investment funds that we manage.

For our carry funds, total assets under management includes the fair value of the investments held and uncalled capital commitments, whereas

fee-earning

assets under management includes the total amount of capital commitments or the remaining amount of invested capital at cost depending on whether the investment period has expired or as specified by the fee terms of the fund. As such,

fee-earning

assets under management may be greater than total assets under management when the aggregate fair value of the remaining investments is less than the cost of those investments.

“Perpetual Capital” refers to the component of assets under management with an indefinite term, that is not in liquidation, and for which there is no requirement to return capital to investors through redemption requests in the ordinary course of business, except where funded by new capital inflows. Perpetual Capital includes

co-investment

capital with an investor right to convert into Perpetual Capital.

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

Table of Contents

Part I. Financial Information

Item 1.

Financial Statements

The Blackstone Group Inc.

Condensed Consolidated Statements of Financial Condition (Unaudited)

(Dollars in Thousands, Except Share Data)


	September 30,			December 31,
	2019			2018
Assets
Cash and Cash Equivalents	$	2,468,563		$	2,207,841
Cash Held by Blackstone Funds and Other		375,981			337,320
Investments (including assets pledged of $211,235 and $279,502 at September 30, 2019 and December 31, 2018, respectively)		22,204,460			20,377,031
Accounts Receivable		755,777			636,238
Due from Affiliates		2,464,163			1,994,123
Intangible Assets, Net		415,257			468,507
Goodwill		1,869,860			1,869,860
Other Assets		402,670			294,248
Right-of-Use Assets		490,882			—
Deferred Tax Assets		938,158			739,482

Total Assets	$	32,385,771		$	28,924,650


Liabilities and Equity
Loans Payable	$	11,270,245		$	9,951,862
Due to Affiliates		984,969			1,035,776
Accrued Compensation and Benefits		3,623,258			2,942,128
Securities Sold, Not Yet Purchased		87,051			142,617
Repurchase Agreements		163,059			222,202
Operating Lease Liabilities		558,253			—
Accounts Payable, Accrued Expenses and Other Liabilities		1,069,475			875,979

Total Liabilities		17,756,310			15,170,564


Commitments and Contingencies

Redeemable Non-Controlling Interests in Consolidated Entities		93,667			141,779


Equity
Stockholders’ Equity of The Blackstone Group Inc.
The Blackstone Group L.P. Partners’ Capital ( 663,212,830 common units issued and outstanding as of December 31, 2018)		—			6,415,700
Class A Common Stock, $ 0.00001 par value, 90 billion shares authorized, ( 666,257,305 shares issued and outstanding as of September 30, 2019)		7			—
Class B Common Stock, $ 0.00001 par value, 999,999,000 shares authorized, ( 1 share issued and outstanding as of September 30, 2019)		—			—
Class C Common Stock, $ 0.00001 par value, 1,000 shares authorized, ( 1 share issued and outstanding as of September 30, 2019)		—			—
Additional Paid-in-Capital		6,292,765			—
Retained Earnings		456,814			—
Accumulated Other Comprehensive Loss		(35,173	)		(36,476	)

Total Stockholders’ Equity of The Blackstone Group Inc.		6,714,413			6,379,224
Non-Controlling Interests in Consolidated Entities		4,035,513			3,648,766
Non-Controlling Interests in Blackstone Holdings		3,785,868			3,584,317

Total Equity		14,535,794			13,612,307

Total Liabilities and Equity	$	32,385,771		$	28,924,650

continued...

See notes to condensed consolidated financial statements.

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The Blackstone Group Inc.

Condensed Consolidated Statements of Financial Condition (Unaudited)

(Dollars in Thousands)

The following presents the asset and liability portion of the consolidated balances presented in the Condensed Consolidated Statement

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


	September 30,		December 31,
	2019		2018
Assets
Cash Held by Blackstone Funds and Other	$	375,981	$	337,030
Investments		8,472,399		8,363,669
Accounts Receivable		219,161		179,863
Due from Affiliates		7,069		6,303
Other Assets		1,450		3,880

Total Assets	$	9,076,060	$	8,890,745


Liabilities
Loans Payable	$	6,492,685	$	6,480,711
Due to Affiliates		191,438		129,370
Securities Sold, Not Yet Purchased		62,467		92,603
Repurchase Agreements		163,059		222,202
Accounts Payable, Accrued Expenses and Other Liabilities		353,930		252,176

Total Liabilities	$	7,263,579	$	7,177,062

See notes to condensed consolidated financial statements.

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The Blackstone Group Inc.

Condensed Consolidated Statements of Operations (Unaudited)

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


	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2019			2018		2019			2018
Revenues
Management and Advisory Fees, Net	$	878,151		$	780,009	$	2,528,255		$	2,230,242

Incentive Fees		8,254			9,799		42,301			41,743

Investment Income
Performance Allocations
Realized		446,550			592,103		1,021,445			1,365,119
Unrealized		176,370			299,238		998,101			1,367,678
Principal Investments
Realized		74,642			134,619		292,943			305,961
Unrealized		15,391			52,840		147,090			268,082

Total Investment Income		712,953			1,078,800		2,459,579			3,306,840

Interest and Dividend Revenue		42,482			48,604		130,252			124,062
Other		93,273			9,368		86,403			625,394

Total Revenues		1,735,113			1,926,580		5,246,790			6,328,281

Expenses
Compensation and Benefits
Compensation		462,766			419,285		1,372,684			1,236,167
Incentive Fee Compensation		5,419			7,251		19,711			23,656
Performance Allocations Compensation
Realized		155,663			200,442		367,883			498,902
Unrealized		94,907			178,184		446,440			622,610

Total Compensation and Benefits		718,755			805,162		2,206,718			2,381,335
General, Administrative and Other		171,067			168,813		492,437			441,354
Interest Expense		53,362			41,355		138,960			119,346
Fund Expenses		4,036			2,302		12,509			74,909

Total Expenses		947,220			1,017,632		2,850,624			3,016,944

Other Income
Reduction of Tax Receivable Agreement Liability		174,606			—		174,606			—
Net Gains from Fund Investment Activities		48,450			66,838		239,906			250,956

Total Other Income		223,056			66,838		414,512			250,956

Income Before Provision for Taxes		1,010,949			975,786		2,810,678			3,562,293
Provision (Benefit) for Taxes		(156,786	)		26,798		(76,895	)		220,024

Net Income		1,167,735			948,988		2,887,573			3,342,269
Net Income (Loss) Attributable to Redeemable Non-Controlling Interests in Consolidated Entities		(8	)		2,569		3,567			2,199
Net Income Attributable to Non-Controlling Interests in Consolidated Entities		88,406			143,101		355,983			427,678
Net Income Attributable to Non-Controlling Interests in Blackstone Holdings		299,900			360,576		961,490			1,359,736

Net Income Attributable to The Blackstone Group Inc.	$	779,437		$	442,742	$	1,566,533		$	1,552,656


Net Income Per Share of Class A Common Stock
Basic	$	1.15		$	0.65	$	2.32		$	2.28

Diluted	$	1.15		$	0.64	$	2.32		$	2.27


Weighted-Average Shares of Class A Common Stock Outstanding
Basic		675,963,129			682,435,177		674,714,040			679,598,629

Diluted		676,219,758			1,205,877,983		674,979,047			1,209,113,244

See notes to condensed consolidated financial statements.

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The Blackstone Group Inc.

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

(Dollars in Thousands)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019		2018
Net Income	$	1,167,735		$	948,988		$	2,887,573	$	3,342,269
Other Comprehensive Income (Loss), Net of Tax — Currency Translation Adjustment		(13,507	)		(7,412	)		2,429		(33,660	)

Comprehensive Income		1,154,228			941,576			2,890,002		3,308,609
Less:
Comprehensive Income (Loss) Attributable to Redeemable Non-Controlling Interests in Consolidated Entities		(8	)		2,569			3,567		2,199
Comprehensive Income Attributable to Non-Controlling Interests in Consolidated Entities		88,406			143,101			355,983		425,288
Comprehensive Income Attributable to Non-Controlling Interests in Blackstone Holdings		294,024			331,850			962,616		1,331,010

Comprehensive Income Attributable to The Blackstone Group Inc.	$	771,806		$	464,056		$	1,567,836	$	1,550,112

See notes to condensed consolidated financial statements.

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The Blackstone Group Inc.

Condensed Consolidated Statements of Changes in Equity (Unaudited)

(Dollars in Thousands, Except Share Data)


	Shares of The Blackstone Group Inc. (a)						The Blackstone Group Inc. (a)
																		Accumulated															Redeemable
																		Other						Non-			Non-						Non-
																		Compre-						Controlling			Controlling						Controlling
				Class A						Class A		Additional						hensive						Interests in			Interests in						Interests in
	Common			Common			Partners’			Common		Paid-in-			Retained			Income						Consolidated			Blackstone			Total			Consolidated
	Units			Stock			Capital			Stock		Capital			Earnings			(Loss)			Total			Entities			Holdings			Equity			Entities
Balance at June 30, 2019		660,588,369			—		$	6,335,897		$	—	$	—		$	—		$	(27,542	)	$	6,308,355		$	3,869,303		$	3,786,118		$	13,963,776		$	101,310
Reclassifications Resulting from Conversion to a Corporation		(660,588,369	)		660,588,369			(6,335,897	)		7		6,335,890			—			—			—			—			—			—			—
Net Income (Loss)		—			—			—			—		—			779,437			—			779,437			88,406			299,900			1,167,743			(8	)
Currency Translation Adjustment		—			—			—			—		—			—			(7,631	)		(7,631	)		—			(5,876	)		(13,507	)		—
Capital Contributions		—			—			—			—		—			—			—			—			237,640			—			237,640			—
Capital Distributions		—			—			—			—		—			(322,623	)		—			(322,623	)		(158,703	)		(287,562	)		(768,888	)		(7,635	)
Transfer of Non-Controlling Interests in Consolidated Entities		—			—			—			—		—			—			—			—			(1,133	)		—			(1,133	)		—
Deferred Tax Effects Resulting from Acquisition of Ownership Interests from Non-Controlling Interest Holders		—			—			—			—		(30,055	)		—			—			(30,055	)		—			—			(30,055	)		—
Equity-Based Compensation		—			—			—			—		79,845			—			—			79,845			—			62,757			142,602			—
Net Delivery of Vested Blackstone Holdings Partnership Units and Blackstone Common Shares		—			887,507			—			—		(8,529	)		—			—			(8,529	)		—			—			(8,529	)		—
Repurchase of Common Shares and Blackstone Holdings Partnership Units		—			(3,150,000	)		—			—		(153,855	)		—			—			(153,855	)		—			—			(153,855	)		—
Change in The Blackstone Group Inc.’s Ownership Interest		—			—			—			—		11,976			—			—			11,976			—			(11,976	)		—			—
Conversion of Blackstone Holdings Partnership Units to Blackstone Common Shares		—			7,931,429			—			—		57,493			—			—			57,493			—			(57,493	)		—			—

Balance at September 30, 2019		—			666,257,305		$	—		$	7	$	6,292,765		$	456,814		$	(35,173	)	$	6,714,413		$	4,035,513		$	3,785,868		$	14,535,794		$	93,667

(a)

Following the conversion to a corporation, Blackstone also has one share outstanding of each of Class B and Class C common stock, with par value of each less than one cent. After initial issuance, there have been no changes to the amounts related to Class B and Class C common stock during the period presented.

continued...

See notes to condensed consolidated financial statements.

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The Blackstone Group Inc.

Condensed Consolidated Statements of Changes in Equity (Unaudited)

(Dollars in Thousands, Except Share Data)


				The Blackstone Group L.P.
							Accumulated															Redeemable
							Other						Non-			Non-						Non-
							Compre-						Controlling			Controlling						Controlling
							hensive						Interests in			Interests in			Total			Interests in
	Common			Partners’			Income						Consolidated			Blackstone			Partners’			Consolidated
	Units			Capital			(Loss)			Total			Entities			Holdings			Capital			Entities
Balance at June 30, 2018		673,544,082		$	7,105,225		$	(57,876	)	$	7,047,349		$	3,492,621		$	3,936,827		$	14,476,797		$	158,799
Net Income		—			442,742			—			442,742			143,101			360,576			946,419			2,569
Currency Translation Adjustment		—			—			21,314			21,314			—			(28,726	)		(7,412	)		—
Capital Contributions		—			—			—			—			193,213			—			193,213			1,880
Capital Distributions		—			(395,718	)		—			(395,718	)		(154,468	)		(377,751	)		(927,937	)		(9,744	)
Transfer of Non-Controlling Interests in Consolidated Entities		—			—			—			—			(1,332	)		—			(1,332	)		—
Deferred Tax Effects Resulting from Acquisition of Ownership Interests from Non-Controlling Interest Holders		—			1,221			—			1,221			—			—			1,221			—
Equity-Based Compensation		—			54,245			—			54,245			—			42,775			97,020			—
Net Delivery of Vested Blackstone Holdings Partnership Units and Blackstone Common Units		1,003,987			(3,389	)		—			(3,389	)		—			(2,740	)		(6,129	)		—
Repurchase of Common Units and Blackstone Holdings Partnership Units		(6,000,000	)		(218,381	)		—			(218,381	)		—			—			(218,381	)		—
Change in The Blackstone Group L.P.’s Ownership Interest		—			31,601			—			31,601			—			(31,601	)		—			—
Conversion of Blackstone Holdings Partnership Units to Blackstone Common Units		863,146			6,533			—			6,533			—			(6,533	)		—			—

Balance at September 30, 2018		669,411,215		$	7,024,079		$	(36,562	)	$	6,987,517		$	3,673,135		$	3,892,827		$	14,553,479		$	153,504

See notes to condensed consolidated financial statements.

continued...

Table of Contents

The Blackstone Group Inc.

Condensed Consolidated Statements of Changes in Equity (Unaudited)

(Dollars in Thousands, Except Share Data)


	Shares of The Blackstone
	Group Inc. (a)						The Blackstone Group Inc. (a)
																		Accumulated															Redeemable
																		Other						Non-			Non-						Non-
																		Compre-						Controlling			Controlling						Controlling
				Class A						Class A		Additional						hensive						Interests in			Interests in						Interests in
	Common			Common			Partners’			Common		Paid-in-			Retained			Income						Consolidated			Blackstone			Total			Consolidated
	Units			Stock			Capital			Stock		Capital			Earnings			(Loss)			Total			Entities			Holdings			Equity			Entities
Balance at December 31, 2018		663,212,830			—		$	6,415,700		$	—	$	—		$	—		$	(36,476	)	$	6,379,224		$	3,648,766		$	3,584,317		$	13,612,307		$	141,779
Net Income		—			—			787,096			—		—			779,437			—			1,566,533			355,983			961,490			2,884,006			3,567
Currency Translation Adjustment		—			—			—			—		—			—			1,303			1,303			—			1,126			2,429			—
Capital Contributions		—			—			—			—		—			—			—			—			526,916			—			526,916			—
Capital Distributions		—			—			(639,210	)		—		—			(322,623	)		—			(961,833	)		(493,723	)		(832,038	)		(2,287,594	)		(51,679	)
Transfer of Non-Controlling Interests in Consolidated Entities		—			—			—			—		—			—			—			—			(2,429	)		—			(2,429	)		—
Deferred Tax Effects Resulting from Acquisition of Ownership Interests from Non-Controlling Interest Holders		—			—			5,016			—		(30,055	)		—			—			(25,039	)		—			—			(25,039	)		—
Equity-Based Compensation		—			—			101,200			—		79,845			—			—			181,045			—			142,370			323,415			—
Net Delivery of Vested Blackstone Holdings Partnership Units and Blackstone Common Shares		1,853,730			887,507			(10,613	)		—		(8,529	)		—			—			(19,142	)		—			(6	)		(19,148	)		—
Repurchase of Common Shares and Blackstone Holdings Partnership Units		(8,100,000	)		(3,150,000	)		(325,214	)		—		(153,855	)		—			—			(479,069	)		—			—			(479,069	)		—
Change in The Blackstone Group Inc.’s Ownership Interest		—			—			(23,270	)		—		11,976			—			—			(11,294	)		—			11,294			—			—
Conversion of Blackstone Holdings Partnership Units to Blackstone Common Shares		3,621,809			7,931,429			25,192			—		57,493			—			—			82,685			—			(82,685	)		—			—
Reclassification Resulting from Conversion to a Corporation		(660,588,369	)		660,588,369			(6,335,897	)		7		6,335,890			—			—						—			—						—

Balance at September 30, 2019		—			666,257,305		$	—		$	7	$	6,292,765		$	456,814		$	(35,173	)	$	6,714,413		$	4,035,513		$	3,785,868		$	14,535,794		$	93,667

(a)

continued...

See notes to condensed consolidated financial statements.

Table of Contents

The Blackstone Group Inc.

Condensed Consolidated Statements of Changes in Equity (Unaudited)

(Dollars in Thousands, Except Share Data)


				The Blackstone Group L.P.
							Accumulated															Redeemable
							Other						Non-			Non-						Non-
							Compre-						Controlling			Controlling						Controlling
							hensive						Interests in			Interests in			Total			Interests in
	Common			Partners’			Income						Consolidated			Blackstone			Partners’			Consolidated
	Units			Capital			(Loss)			Total			Entities			Holdings			Capital			Entities
Balance at December 31, 2017		659,526,093		$	6,668,511		$	(34,018	)	$	6,634,493		$	3,253,148		$	3,624,506		$	13,512,147		$	210,944
Transfer Out Due to Deconsolidation of Fund Entities		—			—			—			—			(197,091	)		—			(197,091	)		—
Net Income		—			1,552,656			—			1,552,656			427,678			1,359,736			3,340,070			2,199
Currency Translation Adjustment		—			—			(2,544	)		(2,544	)		(2,390	)		(28,726	)		(33,660	)		—
Capital Contributions		—			—			—			—			617,345			—			617,345			2,980
Capital Distributions		—			(1,202,488	)		—			(1,202,488	)		(446,431	)		(1,060,315	)		(2,709,234	)		(62,619	)
Transfer of Non-Controlling Interests in Consolidated Entities		—			—			—			—			20,876			—			20,876			—
Deferred Tax Effects Resulting from Acquisition of Ownership Interests from Non-Controlling Interest Holders		—			12,143			—			12,143			—			—			12,143			—
Equity-Based Compensation		—			154,764			—			154,764			—			122,675			277,439			—
Net Delivery of Vested Blackstone Holdings Partnership Units and Blackstone Common Units		4,036,359			(17,885	)		—			(17,885	)		—			(3,575	)		(21,460	)		—
Repurchase of Blackstone Common Units and Blackstone Holdings Partnership Units		(8,200,000	)		(290,066	)		—			(290,066	)		—			—			(290,066	)		—
Change in The Blackstone Group L.P.’s Ownership Interest		—			32,436			—			32,436			—			(32,436	)		—			—
Conversion of Blackstone Holdings Partnership Units to Blackstone Common Units		13,298,024			89,038			—			89,038			—			(89,038	)		—			—
Issuance of Blackstone Common Units		750,739			24,970			—			24,970			—			—			24,970			—

Balance at September 30, 2018		669,411,215		$	7,024,079		$	(36,562	)	$	6,987,517		$	3,673,135		$	3,892,827		$	14,553,479		$	153,504

See notes to condensed consolidated financial statements.

Table of Contents

The Blackstone Group Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(Dollars in Thousands)


	Nine Months Ended September 30,
	2019			2018
Operating Activities
Net Income	$	2,887,573		$	3,342,269
Adjustments to Reconcile Net Income to Net Cash Provided by (Used in) Operating Activities
Blackstone Funds Related
Net Realized Gains on Investments		(1,340,914	)		(1,740,100	)
Changes in Unrealized Gains on Investments		(257,207	)		(343,488	)
Non-Cash Performance Allocations		(998,101	)		(1,367,678	)
Non-Cash Performance Allocations and Incentive Fee Compensation		826,701			1,137,152
Equity-Based Compensation Expense		331,826			282,733
Amortization of Intangibles		53,250			43,460
Other Non-Cash Amounts Included in Net Income		(451,894	)		110,103
Cash Flows Due to Changes in Operating Assets and Liabilities
Cash Acquired with Consolidation of Fund Entity		—			31,422
Cash Relinquished with Deconsolidation of Fund Entities		—			(899,959	)
Accounts Receivable		(8,973	)		(118,225	)
Due from Affiliates		(448,962	)		(343,696	)
Other Assets		(85,412	)		(53,689	)
Accrued Compensation and Benefits		(153,980	)		(345,264	)
Securities Sold, Not Yet Purchased		(61,406	)		15,893
Accounts Payable, Accrued Expenses and Other Liabilities		(89,159	)		(293,314	)
Repurchase Agreements		(59,144	)		80,647
Due to Affiliates		26,809			44,987
Investments Purchased		(6,468,249	)		(11,609,707	)
Cash Proceeds from Sale of Investments		7,670,471			10,686,644

Net Cash Provided by (Used in) Operating Activities		1,373,229			(1,339,810	)

Investing Activities
Purchase of Furniture, Equipment and Leasehold Improvements		(49,141	)		(8,760	)

Net Cash Used in Investing Activities		(49,141	)		(8,760	)

Financing Activities
Distributions to Non-Controlling Interest Holders in Consolidated Entities		(545,383	)		(503,060	)
Contributions from Non-Controlling Interest Holders in Consolidated Entities		520,040			615,561
Payments Under Tax Receivable Agreement		(84,640	)		—
Net Settlement of Vested Class A Common Stock and Repurchase of Class A Common Stock and Blackstone Holdings Partnership Units		(498,217	)		(311,526	)
Proceeds from Loans Payable		1,551,410			3,218,399

continued...

See notes to condensed consolidated financial statements.

Table of Contents

The Blackstone Group Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(Dollars in Thousands)


	Nine Months Ended September 30,
	2019			2018
Financing Activities (Continued)
Repayment and Repurchase of Loans Payable	$	(177,610	)	$	(1,007,479	)
Dividends/Distributions to Shareholders and Unitholders		(1,793,871	)		(2,262,803	)

Net Cash Used in Financing Activities		(1,028,271	)		(250,908	)

Effect of Exchange Rate Changes on Cash and Cash Equivalents and Cash Held by Blackstone Funds and Other		3,566			9,513

Cash and Cash Equivalents and Cash Held by Blackstone Funds and Other
Net Increase (Decrease)		299,383			(1,589,965	)
Beginning of Period		2,545,161			3,936,489

End of Period	$	2,844,544		$	2,346,524


Supplemental Disclosure of Cash Flows Information
Payments for Interest	$	124,437		$	126,963

Payments for Income Taxes	$	67,867		$	136,686

Supplemental Disclosure of Non-Cash Investing and Financing Activities
Non-Cash Contributions from Non-Controlling Interest Holders	$	4,496		$	—

Non-Cash Distributions to Non-Controlling Interest Holders	$	(18	)	$	(5,924	)

Notes Issuance Costs	$	12,159		$	—

Transfer of Interests to Non-Controlling Interest Holders	$	(2,429	)	$	20,876

Change in The Blackstone Group Inc.’s Ownership Interest	$	(11,294	)	$	32,436

Net Settlement of Vested Class A Common Stock	$	99,079		$	131,857

Conversion of Blackstone Holdings Units to Class A Common Stock	$	82,685		$	89,038

Acquisition of Ownership Interests from Non-Controlling Interest Holders
Deferred Tax Asset	$	(41,005	)	$	(80,942	)

Due to Affiliates	$	66,043		$	68,799

Equity	$	(25,039	)	$	12,143

Issuance of New Shares/Units	$	—		$	24,970

The following table provides a reconciliation of Cash and Cash Equivalents and Cash Held by Blackstone Funds and Other reported within the Condensed Consolidated Statements of Financial Condition:
	September 30,			December 31,
	2019			2018
Cash and Cash Equivalents	$	2,468,563		$	2,207,841
Cash Held by Blackstone Funds and Other		375,981			337,320

	$	2,844,544		$	2,545,161

See notes to condensed consolidated financial statements.

Table of Contents

The Blackstone Group Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

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

1. Organization

As a result of the Conversion, the financial impact to the condensed consolidated financial statements contained herein consist of (a) a partial

step-up

in the tax basis of certain assets resulting in the recognition of a net income tax benefit and (b) reclassification from partnership equity accounts to equity accounts appropriate for a corporation. See Note 14. “Income Taxes” for additional information and Note 15. “Earnings Per Share and Stockholder’s Equity”.

Blackstone, together with its subsidiaries, is one of the largest independent managers of private capital in the world. Blackstone’s alternative asset management business includes the management of private equity funds, real estate funds, real estate investment trusts (“REITs”), funds of hedge funds, hedge funds, credit-focused funds, collateralized loan obligation (“CLO”) vehicles, separately managed accounts and registered investment companies (collectively referred to as the “Blackstone Funds”). Blackstone’s business is organized into

segments: Real Estate, Private Equity, Hedge Fund Solutions and Credit.

Blackstone was formed on March 12, 2007, and, until the Conversion, was managed and operated by Blackstone Group Management L.L.C., which is in turn wholly owned by Blackstone’s senior managing directors and controlled by 1 of Blackstone’s founders, Stephen A.

Schwarzman (the “Founder”). Following the Conversion, the Corporation’s equity consists of shares of Class A, B and C common stock. Blackstone Partners L.L.C. is the sole holder of the single share of Class B common stock outstanding and Blackstone Group Management L.L.C. is the sole holder of the single share of Class C common stock outstanding. See Note 15. “Earnings Per Share and Stockholder’s Equity”.

The activities of Blackstone are conducted through its holding partnerships: Blackstone Holdings I L.P., Blackstone Holdings AI L.P., Blackstone Holdings II L.P., Blackstone Holdings III L.P. and Blackstone Holdings IV L.P. (collectively, “Blackstone Holdings”, “Blackstone Holdings Partnerships” or the “Holding Partnerships”). Blackstone, through its wholly owned subsidiaries, is the sole general partner in each of these Holding Partnerships. Generally, holders of the limited partner interests in the Holding Partnerships may, four times each year, exchange their limited partnership interests (“Partnership Units”) for Blackstone Class A common stock, on a

one-to-one

basis, exchanging one Partnership Unit from each of the Holding Partnerships for one share of Blackstone Class A common stock.

2. Summary of Significant Accounting Policies

Basis of Presentation

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

10-Q.

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

10-K

for the year ended December 31, 2018 filed with the Securities and Exchange Commission.

Table of Contents

The Blackstone Group Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

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

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

All intercompany balances and transactions have been eliminated in consolidation.

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

Consolidation

Blackstone consolidates all entities that it controls through a majority voting interest or otherwise, including those Blackstone Funds in which the general partner has a controlling financial interest. Blackstone has a controlling financial interest in Blackstone Holdings because the limited partners do not have the right to dissolve the partnerships or have substantive

kick-out

rights or participating rights that would overcome the control held by Blackstone. Accordingly, Blackstone consolidates Blackstone Holdings and records

non-controlling

interests to reflect the economic interests of the limited partners of Blackstone Holdings.

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

Blackstone determines whether it is the primary beneficiary of a VIE at the time it becomes involved with a variable interest entity and continuously reconsiders that conclusion. In determining whether Blackstone is the primary beneficiary, Blackstone evaluates its control rights as well as economic interests in the entity held either directly or indirectly by Blackstone. The consolidation analysis can generally be performed qualitatively; however, if it is not readily apparent that Blackstone is not the primary beneficiary, a quantitative analysis may also be performed. Investments and redemptions (either by Blackstone, affiliates of Blackstone or third parties) or amendments to the governing documents of the respective Blackstone Funds could affect an entity’s status as a VIE or the determination of the primary beneficiary. At each reporting date, Blackstone assesses whether it is the primary beneficiary and will consolidate or deconsolidate accordingly.

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

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

Revenue Recognition

Revenues primarily consist of management and advisory fees, incentive fees, investment income, interest and dividend revenue and other.

Table of Contents

The Blackstone Group Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

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

Management and advisory fees and incentive fees are accounted for as contracts with customers. Under the guidance for contracts with customers, an entity is required to (a) identify the contract(s) with a customer, (b) identify the performance obligations in the contract, (c) determine the transaction price, (d) allocate the transaction price to the performance obligations in the contract, and (e) recognize revenue when (or as) the entity satisfies a performance obligation. In determining the transaction price, an entity may include variable consideration only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized would not occur when the uncertainty associated with the variable consideration is resolved. See Note 19. “Segment Reporting” for a disaggregated presentation of revenues from contracts with customers.

Investment Income represents the unrealized and realized gains and losses on Blackstone’s Performance Allocations and Principal Investments. Interest and Dividend Revenue comprises primarily interest and dividend income earned on principal investments held by Blackstone. Other Revenue consists of miscellaneous income and foreign exchange gains and losses arising on transactions denominated in currencies other than U.S. dollars.

Management and Advisory Fees, Net

— Management and Advisory Fees, Net are comprised of management fees, including base management fees, transaction and other fees and advisory fees net of management fee reductions and offsets.

Blackstone earns base management fees from limited partners of funds in each of its managed funds, at a fixed percentage of assets under management, net asset value, total assets, committed capital or invested capital. These customer contracts require Blackstone to provide investment management services, which represents a performance obligation that Blackstone satisfies over time. Management fees are a form of variable consideration because the fees Blackstone is entitled to vary based on fluctuations in the basis for the management fee. The amount recorded as revenue is generally determined at the end of the period because these management fees are payable on a regular basis (typically quarterly) and are not subject to clawback once paid.

Transaction, advisory and other fees (including monitoring fees) are principally fees charged to the limited partners of funds indirectly through the managed funds and portfolio companies. The investment advisory agreements generally require that the investment adviser reduce the amount of management fees payable by the limited partners to Blackstone (“management fee reductions”) by an amount equal to a portion of the transaction and other fees paid to Blackstone by the portfolio companies. The amount of the reduction varies by fund, the type of fee paid by the portfolio company and the previously incurred expenses of the fund. These fees and associated management fee reductions are a component of the transaction price for Blackstone’s performance obligation to provide investment management services to the limited partners of funds and are recognized as changes to the transaction price in the period in which they are charged and the services are performed.

Management fee offsets are reductions to management fees payable by the limited partners of the Blackstone Funds, which are based on the amount such limited partners reimburse the Blackstone Funds or Blackstone primarily for placement fees. Providing investment management services requires Blackstone to arrange for services on behalf of its customers. In those situations where Blackstone is acting as an agent on behalf of the limited partners of funds, it presents the cost of services as net against management fee revenue. In all other situations, Blackstone is primarily responsible for fulfilling the services and is therefore acting as a principal for those arrangements. As a result, the cost of those services is presented gross as Compensation or General, Administrative and Other expense, as appropriate, with any reimbursement from the limited partners of the funds recorded as Management and Advisory Fees, Net.

Accrued but unpaid Management and Advisory Fees, net of management fee reductions and management fee offsets, as of the reporting date are included in Accounts Receivable or Due from Affiliates in the Condensed Consolidated Statements of Financial Condition.

Table of Contents

The Blackstone Group Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

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

Incentive Fees

— Contractual fees earned based on the performance of Blackstone Funds (“Incentive Fees”) are a form of variable consideration in Blackstone’s contracts with customers to provide investment management services. Incentive Fees are earned based on fund performance during the period, subject to the achievement of minimum return levels, or high water marks, in accordance with the respective terms set out in each fund’s governing agreements. Incentive Fees will not be recognized as revenue until (a) it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur, or (b) the uncertainty associated with the variable consideration is subsequently resolved. Incentive Fees are typically recognized as revenue when realized at the end of the measurement period. Once realized, such fees are not subject to clawback or reversal. Accrued but unpaid Incentive Fees charged directly to investors in Blackstone Funds as of the reporting date are recorded within Due from Affiliates in the Condensed Consolidated Statements of Financial Condition.

Investment Income (Loss)

— Investment Income (Loss) represents the unrealized and realized gains and losses on Blackstone’s Performance Allocations and Principal Investments.

In certain fund structures across private equity, real estate, hedge fund solutions and credit-focused funds (“carry funds”), Blackstone, through its subsidiaries, invests alongside its limited partners in a partnership and is entitled to its

pro-rata

share of the results of the fund (a

“pro-rata

allocation”). In addition to a

pro-rata

allocation, and assuming certain investment returns are achieved, Blackstone is entitled to a disproportionate allocation of the income otherwise allocable to the limited partners, commonly referred to as carried interest (“Performance Allocations”).

Performance Allocations are made to the general partner based on cumulative fund performance to date, subject to a preferred return to limited partners. At the end of each reporting period, Blackstone calculates the balance of accrued Performance Allocations (“Accrued Performance Allocations”) that would be due to Blackstone for each fund, pursuant to the fund agreements, as if the fair value of the underlying investments were realized as of such date, irrespective of whether such amounts have been realized. As the fair value of underlying investments varies between reporting periods, it is necessary to make adjustments to amounts recorded as Accrued Performance Allocations to reflect either (a) positive performance resulting in an increase in the Accrued Performance Allocation to the general partner or (b) negative performance that would cause the amount due to Blackstone to be less than the amount previously recognized as revenue, resulting in a negative adjustment to the Accrued Performance Allocation to the general partner. In each scenario, it is necessary to calculate the Accrued Performance Allocation on cumulative results compared to the Accrued Performance Allocation recorded to date and make the required positive or negative adjustments. Blackstone ceases to record negative Performance Allocations once previously Accrued Performance Allocations for such fund have been fully reversed. Blackstone is not obligated to pay guaranteed returns or hurdles, and therefore, cannot have negative Performance Allocations over the life of a fund. Accrued Performance Allocations as of the reporting date are reflected in Investments in the Condensed Consolidated Statements of Financial Condition.

Performance Allocations are realized when an underlying investment is profitably disposed of and the fund’s cumulative returns are in excess of the preferred return or, in limited instances, after certain thresholds for return of capital are met. Performance Allocations are subject to clawback to the extent that the Performance Allocation received to date exceeds the amount due to Blackstone based on cumulative results. As such, the accrual for potential repayment of previously received Performance Allocations, which is a component of Due to Affiliates, represents all amounts previously distributed to Blackstone Holdings and

non-controlling

interest holders that would need to be repaid to the Blackstone carry funds if the Blackstone carry funds were to be liquidated based on the current fair value of the underlying funds’ investments as of the reporting date. The actual clawback liability, however, generally does not become realized until the end of a fund’s life except for certain funds, including certain Blackstone real estate funds, multi-asset class investment funds and credit-focused funds, which may have an interim clawback liability.

Principal Investments include the unrealized and realized gains and losses on Blackstone’s principal investments, including its investments in Blackstone Funds that are not consolidated and receive

pro-rata

allocations, its equity method investments, and other principal investments. Income (Loss) on Principal Investments is realized when Blackstone redeems all or a portion of its investment or when Blackstone receives cash income, such as dividends or distributions. Unrealized Income (Loss) on Principal Investments results from changes in the fair value of the underlying investment as well as the reversal of unrealized gain (loss) at the time an investment is realized.

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Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

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

Interest and Dividend Revenue

— Interest and Dividend Revenue comprises primarily interest and dividend income earned on principal investments not accounted for under the equity method held by Blackstone.

Other Revenue

— Other Revenue consists of miscellaneous income and foreign exchange gains and losses arising on transactions denominated in currencies other than U.S. dollars.

Fair Value of Financial Instruments

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

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

●

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

●

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

over-the-counter

derivatives where the fair value is based on observable inputs. Senior and subordinated notes issued by CLO vehicles are classified within Level II of the fair value hierarchy.

●

Level III – Pricing inputs are unobservable for the financial instruments and includes situations where there is little, if any, market activity for the financial instrument. The inputs into the determination of fair value require significant management judgment or estimation. Financial instruments that are included in this category generally include general and limited partnership interests in private equity and real estate funds, credit-focused funds, distressed debt and

non-investment

grade residual interests in securitizations, certain corporate bonds and loans held within CLO vehicles, and certain

over-the-counter

derivatives where the fair value is based on unobservable inputs.

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

Level II Valuation Techniques

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

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Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

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

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

●

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

●

Freestanding Derivatives are valued using contractual cash flows and observable inputs comprising yield curves, foreign currency rates and credit spreads.

●

Senior and subordinate notes issued by CLO vehicles are classified based on the more observable fair value of CLO assets less (a) the fair value of any beneficial interests held by Blackstone, and (b) the carrying value of any beneficial interests that represent compensation for services.

Level III Valuation Techniques

In the absence of observable market prices, Blackstone values its investments using valuation methodologies applied on a consistent basis. For some investments little market activity may exist; management’s determination of fair value is then based on the best information available in the circumstances, and may incorporate management’s own assumptions and involves a significant degree of judgment, taking into consideration a combination of internal and external factors, including the appropriate risk adjustments for

non-performance

and liquidity risks. Investments for which market prices are not observable include private investments in the equity of operating companies, real estate properties, certain funds of hedge funds and credit-focused investments.

Real Estate Investments –

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

Private Equity Investments –

The fair values of private equity investments are determined by reference to projected net earnings, earnings before interest, taxes, depreciation and amortization (“EBITDA”), the discounted cash flow method, public market or private transactions, valuations for comparable companies and other measures which, in many cases, are based on unaudited information at the time received. Valuations may be derived by reference to observable valuation measures for comparable companies or transactions (for example, multiplying a key performance metric of the investee company, such as EBITDA, by a relevant valuation multiple observed in the range of comparable companies or transactions), adjusted by management for differences between the investment and the referenced comparables, and in some instances by reference to option pricing models or other similar methods. Where a discounted cash flow method is used, a terminal value is derived by reference to EBITDA or price/earnings exit multiples.

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Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

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

Credit-Focused Investments

– The fair values of credit-focused investments are generally determined on the basis of prices between market participants provided by reputable dealers or pricing services. For credit-focused investments that are not publicly traded or whose market prices are not readily available, Blackstone may utilize other valuation techniques, including the discounted cash flow method or a market approach. The discounted cash flow method projects the expected cash flows of the debt instrument based on contractual terms, and discounts such cash flows back to the valuation date using a market-based yield. The market-based yield is estimated using yields of publicly traded debt instruments issued by companies operating in similar industries as the subject investment, with similar leverage statistics and time to maturity.

The market approach is generally used to determine the enterprise value of the issuer of a credit investment, and considers valuation multiples of comparable companies or transactions. The resulting enterprise value will dictate whether or not such credit investment has adequate enterprise value coverage. In cases of distressed credit instruments, the market approach may be used to estimate a recovery value in the event of a restructuring.

Investments, at Fair Value

The Blackstone Funds are accounted for as investment companies under the American Institute of Certified Public Accountants Accounting and Auditing Guide,

Investment Companies

, and in accordance with the GAAP guidance on investment companies and reflect their investments, including majority-owned and controlled investments (the “Portfolio Companies”), at fair value. Such consolidated funds’ investments are reflected in Investments on the Condensed Consolidated Statements of Financial Condition at fair value, with unrealized gains and losses resulting from changes in fair value reflected as a component of Net Gains from Fund Investment Activities in the Condensed Consolidated Statements of Operations. Fair value is the amount that would be received to sell an asset or paid to transfer a liability, in an orderly transaction between market participants at the measurement date, at current market conditions (i.e., the exit price).

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

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

Blackstone has elected the fair value option for the assets of consolidated CLO vehicles. As permitted under GAAP, Blackstone measures the liabilities of consolidated CLO vehicles as (a) the sum of the fair value of the consolidated CLO assets and the carrying value of any

non-financial

assets held temporarily, less (b) the sum of the fair value of any beneficial interests retained by Blackstone (other than those that represent compensation for services) and Blackstone’s carrying value of any beneficial interests that represent compensation for services. As a result of this measurement alternative, there is no attribution of amounts to

Non-Controlling

Interests for consolidated CLO vehicles. Assets of the consolidated CLOs are presented within Investments within the Condensed Consolidated Statements of Financial Condition and Liabilities within Loans Payable for the amounts due to unaffiliated third parties and Due to Affiliates for the amounts held by

non-consolidated

affiliates. Changes in the fair value of consolidated CLO assets and liabilities and related interest, dividend and other income are presented within Net Gains from Fund Investment Activities. Expenses of consolidated CLO vehicles are presented in Fund Expenses.

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The Blackstone Group Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

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

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

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

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

Certain investments of Blackstone and of the consolidated Blackstone funds of hedge funds and credit-focused funds measure their investments in underlying funds at fair value using NAV per share without adjustment. The terms of the investee’s investment generally provide for minimum holding periods or

lock-ups,

the institution of gates on redemptions or the suspension of redemptions or an ability to side-pocket investments, at the discretion of the investee’s fund manager, and as a result, investments may not be redeemable at, or within three months of, the reporting date. A side-pocket is used by hedge funds and funds of hedge funds to separate investments that may lack a readily ascertainable value, are illiquid or are subject to liquidity restriction. Redemptions are generally not permitted until the investments within a side-pocket are liquidated or it is deemed that the conditions existing at the time that required the investment to be included in the side-pocket no longer exist. As the timing of either of these events is uncertain, the timing at which Blackstone may redeem an investment held in a side-pocket cannot be estimated. Further disclosure on instruments for which fair value is measured using NAV per share is presented in Note 5. “Net Asset Value as Fair Value”.

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

Equity Method Investments

Investments in which Blackstone is deemed to exert significant influence, but not control, are accounted for using the equity method of accounting except in cases where the fair value option has been elected. Blackstone has significant influence over all Blackstone Funds in which it invests but does not consolidate. Therefore, its investments in such Blackstone Funds, which include both a proportionate and disproportionate allocation of the profits and losses (as is the case with carry funds that include a Performance Allocation), are accounted for under the equity method. Under the equity method of accounting, Blackstone’s share of earnings (losses) from equity method investments is included in Investment Income (Loss) in the Condensed Consolidated Statements of Operations.

In cases where Blackstone’s equity method investments provide for a disproportionate allocation of the profits and losses (as is the case with carry funds that include a Performance Allocation), Blackstone’s share of earnings (losses) from equity method investments is determined using a balance sheet approach referred to as the hypothetical liquidation at book value (“HLBV”) method. Under the HLBV method, at the end of each reporting period, Blackstone calculates the Accrued Performance Allocations that would be due to Blackstone for each fund pursuant to the fund agreements as if the fair value of the underlying investments were realized as of such date, irrespective of whether such amounts have been realized. As the fair value of underlying investments varies between reporting periods, it is necessary to make adjustments to amounts recorded as Accrued Performance Allocations to reflect either (a) positive performance resulting in an increase in the Accrued Performance Allocation to the general partner, or (b) negative performance that would cause the amount due to Blackstone to be less than the amount previously recognized as revenue, resulting in a negative adjustment to the Accrued Performance Allocation to the general partner. In each scenario, it is necessary to calculate the Accrued Performance Allocation on cumulative results compared to the Accrued Performance Allocation recorded to date and make the required positive or negative adjustments. Blackstone ceases to record negative Performance Allocations once previously Accrued Performance Allocations for such fund have been fully reversed. Blackstone is not obligated to pay guaranteed returns or hurdles, and therefore, cannot have negative Performance Allocations over the life of a fund. The carrying amounts of equity method investments are reflected in Investments in the Condensed Consolidated Statements of Financial Condition.

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Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

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

Results from Blackstone’s investments in Strategic Partners funds are reported on a three month lag.

Compensation and Benefits

—

Compensation

— Compensation consists of (a) salary and bonus, and benefits paid and payable to employees and senior managing directors and (b) equity-based compensation associated with the grants of equity-based awards to employees and senior managing directors. Compensation cost relating to the issuance of equity-based awards to senior managing directors and employees is measured at fair value at the grant date, and expensed over the vesting period on a straight-line basis, taking into consideration expected forfeitures, except in the case of (a) equity-based awards that do not require future service, which are expensed immediately, and (b) certain awards to recipients that meet criteria making them eligible for retirement (allowing such recipient to keep a percentage of those awards upon departure from Blackstone after becoming eligible for retirement), for which the expense for the portion of the award that would be retained in the event of retirement is either expensed immediately or amortized to the retirement date. Cash settled equity-based awards are classified as liabilities and are remeasured at the end of each reporting period.

Compensation and Benefits — Incentive Fee Compensation —

Incentive Fee Compensation consists of compensation paid based on Incentive Fees.

Compensation and Benefits — Performance Allocations Compensation —

Performance Allocation Compensation consists of compensation paid based on Performance Allocations (which may be distributed in cash or

in-kind).

Such compensation expense is subject to both positive and negative adjustments. Unlike Performance Allocations, compensation expense is based on the performance of individual investments held by a fund rather than on a fund by fund basis. These amounts may also include allocations of investment income from Blackstone’s principal investments, to senior managing directors and employees participating in certain profit sharing initiatives.

Reverse Repurchase and Repurchase Agreements

Securities purchased under agreements to resell (“reverse repurchase agreements”) and securities sold under agreements to repurchase (“repurchase agreements”), comprised primarily of U.S. and

non-U.S.

government and agency securities, asset-backed securities and corporate debt, represent collateralized financing transactions. Such transactions are recorded in the Condensed Consolidated Statements of Financial Condition at their contractual amounts and include accrued interest. The carrying value of reverse repurchase and repurchase agreements approximates fair value.

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

Blackstone takes possession of securities purchased under reverse repurchase agreements and is permitted to repledge, deliver or otherwise use such securities. Blackstone also pledges its financial instruments to counterparties to collateralize repurchase agreements. Financial instruments pledged that can be repledged, delivered or otherwise used by the counterparty are recorded in Investments in the Condensed Consolidated Statements of Financial Condition. Additional disclosures relating to repurchase agreements are discussed in Note 10. “Repurchase Agreements”.

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

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The Blackstone Group Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

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

Securities Sold, Not Yet Purchased

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

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

Derivative Instruments

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

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

For freestanding derivative contracts, Blackstone presents changes in fair value in current period earnings. Changes in the fair value of derivative instruments held by consolidated Blackstone Funds are reflected in Net Gains from Fund Investment Activities or, where derivative instruments are held by Blackstone, within Investment Income (Loss) in the Condensed Consolidated Statements of Operations. The fair value of freestanding derivative assets of the consolidated Blackstone Funds are recorded within Investments, the fair value of freestanding derivative assets that are not part of the consolidated Blackstone Funds are recorded within Other Assets and the fair value of freestanding derivative liabilities are recorded within Accounts Payable, Accrued Expenses and Other Liabilities in the Condensed Consolidated Statements of Financial Condition.

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

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The Blackstone Group Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

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

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

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

Leases

Blackstone determines if an arrangement is a lease at inception of the arrangement. Blackstone primarily enters into operating leases, as the lessee, for office space. Operating leases are included in

Right-of-Use

(“ROU”) Assets and Operating Lease Liabilities on our Condensed Consolidated Statement of Financial Condition. ROU Assets and Operating Lease Liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. Blackstone determines the present value of the lease payments using an incremental borrowing rate based on information available at the inception date. Leases may include options to extend or terminate the lease which are included in the ROU Assets and Operating Lease Liability when they are reasonably certain of exercise.

Certain leases include lease and nonlease components, which are accounted for as one single lease component. Occupancy lease agreements, in addition to contractual rent payments, generally include additional payments for certain costs incurred by the landlord, such as building expenses and utilities. To the extent these are fixed or determinable, they are included as part of the minimum lease payments used to measure the Operating Lease Liability. Operating lease expense associated with minimum lease payments is recognized on a straight-line basis over the lease term. When additional payments are based on usage or vary based on other factors, they are expensed when incurred as variable lease expense.

Minimum lease payments for leases with an initial term of twelve months or less are not recorded on the Condensed Consolidated Statement of Financial Condition. Blackstone recognizes lease expense for these leases on a straight-line basis over the lease term.

Affiliates

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

Dividends

Dividends are reflected in the condensed consolidated financial statements when declared.

Recent Accounting Developments

In February 2016, the Financial Accounting Standards Board issued amended guidance on the accounting for leases. The new guidance was effective for Blackstone beginning January 1, 2019 and was adopted on a modified retrospective basis. Blackstone elected to apply the guidance to each lease that had commenced as of the adoption date. As a result, periods prior to January 1, 2019 are presented in accordance with previous GAAP. Blackstone also elected a package of practical expedients which resulted in no requirement to reassess (a) whether any expired or existing contracts are or contain leases, (b) the lease classification for any expired or existing leases and (c) the recognition requirements for initial direct costs for any existing leases. Blackstone also elected a practical expedient to account for lease and nonlease components as a single lease component. Short-term leases, which have a stated lease term of twelve months or less, have been excluded from the Operating Lease Liability and ROU Assets as a result of a policy election made by Blackstone.

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The Blackstone Group Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

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

The guidance requires the recognition of lease assets and lease liabilities for those leases previously classified as operating leases and it retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases are similar, but not identical, to the classification criteria for distinguishing between capital leases and operating leases under previous GAAP. For operating leases, a lessee is required to do the following: (a) recognize a

right-of-use

asset and a lease liability, initially measured at the present value of the lease payments, in the Condensed Consolidated Statement of Financial Condition, (b) recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a generally straight-line basis, and (c) classify all cash payments within operating activities in the Condensed Consolidated Statements of Cash Flows. Upon adoption of the new guidance, Blackstone recognized Operating Lease Liabilities of $601.7 million and corresponding ROU Assets of $540.7 million on the Condensed Consolidated Statement of Financial Condition. These amounts were calculated as the present value of remaining lease payments on existing leases as of January 1, 2019, discounted using an incremental borrowing rate for each lease as of the adoption date. The guidance did not have a material impact on the Condensed Consolidated Statements of Operations or the Condensed Consolidated Statements of Cash Flows.

In June 2016, the FASB issued amended guidance on how to measure credit losses for most financial assets. The guidance requires entities to recognize their estimate of lifetime expected credit losses based on reasonable and supportable forecasts, current conditions, and historical experience. The guidance is effective for fiscal periods beginning after December 15, 2019 and requires a modified retrospective transition method that will result in a cumulative-effect adjustment in retained earnings upon adoption. Blackstone is evaluating the impact of this guidance.

3. Intangible Assets

Intangible Assets, Net consists of the following:


	September 30,			December 31,
	2019			2018
Finite-Lived Intangible Assets / Contractual Rights	$	1,712,576		$	1,712,576
Accumulated Amortization		(1,297,319	)		(1,244,069	)

Intangible Assets, Net	$	415,257		$	468,507

Amortization expense associated with Blackstone’s intangible assets was $17.7 million and $53.2 million for the three and nine month periods ended September 30, 2019, respectively, and $14.5 million and $43.5 million for the three and nine month periods ended September 30, 2018, respectively.

Amortization of Intangible Assets held at September 30, 2019 is expected to be $71.0 million, $71.0 million, $71.0 million, $63.3 million, and $34.3 million for each of the years ending December 31, 2019, 2020, 2021, 2022 and 2023, respectively. Blackstone’s intangible assets as of September 30, 2019 are expected to amortize over a weighted-average period of 8.1 years.

4. Investments

Investments consist of the following:


	September 30,		December 31,
	2019		2018
Investments of Consolidated Blackstone Funds	$	8,481,233	$	8,376,338
Equity Method Investments
Partnership Investments		3,864,453		3,649,423
Accrued Performance Allocations		7,003,889		5,883,924
Corporate Treasury Investments		2,588,529		2,206,493
Other Investments		266,356		260,853

	$	22,204,460	$	20,377,031

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The Blackstone Group Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

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

Blackstone’s share of Investments of Consolidated Blackstone Funds totaled $361.5 million and $366.5 million at September 30, 2019 and December 31, 2018, respectively.

Investments of Consolidated Blackstone Funds

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


	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2019			2018		2019		2018
Realized Gains	$	9,620		$	23,475	$	11,906	$	57,853
Net Change in Unrealized Gains (Losses)		(2,143	)		415		110,117		75,378

Realized and Net Change in Unrealized Gains from Consolidated Blackstone Funds		7,477			23,890		122,023		133,231
Interest and Dividend Revenue Attributable to Consolidated Blackstone Funds		40,973			42,948		117,883		117,725

Other Income — Net Gains from Fund Investment Activities	$	48,450		$	66,838	$	239,906	$	250,956

Equity Method Investments

Blackstone’s equity method investments include Partnership Investments, which represent the

pro-rata

investments, and any associated Accrued Performance Allocations, in private equity funds, real estate funds, funds of hedge funds and credit-focused funds. Partnership Investments also includes the 40%

non-controlling

interest in Pátria Investments Limited and Pátria Investimentos Ltda. (collectively, “Pátria”).

Blackstone evaluates each of its equity method investments, excluding Accrued Performance Allocations, to determine if any were significant as defined by guidance from the United States Securities and Exchange Commission. As of and for the nine months ended September 30, 2019 and 2018, no individual equity method investment held by Blackstone met the significance criteria. As such, Blackstone is not required to present separate financial statements for any of its equity method investments.

Partnership Investments

Blackstone recognized net gains related to its Partnership Investments accounted for under the equity method of $82.0 million and $137.6 million for the three months ended September 30, 2019 and 2018, respectively. Blackstone recognized net gains related to its equity method investments of $309.7 million and $465.6 million for the nine months ended September 30, 2019 and 2018, respectively.

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Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

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

Accrued Performance Allocations

Accrued Performance Allocations to Blackstone were as follows:


	Real			Private			Hedge Fund
	Estate			Equity			Solutions			Credit			Total
Accrued Performance Allocations, December 31, 2018	$	2,853,261		$	2,642,119		$	22,921		$	365,623		$	5,883,924
Performance Allocations as a Result of Changes in Fund Fair Values		1,294,846			645,646			71,222			97,860			2,109,574
Foreign Exchange Loss		(32,358	)		—			—			—			(32,358	)
Fund Distributions		(487,558	)		(436,941	)		(1,635	)		(31,117	)		(957,251	)

Accrued Performance Allocations, September 30, 2019	$	3,628,191		$	2,850,824		$	92,508		$	432,366		$	7,003,889

Corporate Treasury Investments

The portion of corporate treasury investments included in Investments represents Blackstone’s investments into primarily fixed income securities, mutual fund interests, and other fund interests. These strategies are managed by a combination of Blackstone personnel and third party advisors. The following table presents the Realized and Net Change in Unrealized Gains (Losses) on these investments:


	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2019		2018			2019		2018
Realized Gains (Losses)	$	2,644	$	(2,504	)	$	25,944	$	4,609
Net Change in Unrealized Gains (Losses)		6,142		14,691			55,359		(205	)

	$	8,786	$	12,187		$	81,303	$	4,404

Other Investments

Other Investments consist primarily of proprietary investment securities held by Blackstone. Other Investments include equity investments without readily determinable fair values which have a carrying value of $48.8 million as of September 30, 2019. The following table presents Blackstone’s Realized and Net Change in Unrealized Gains (Losses) in Other Investments:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Realized Gains	$	1	$	30,618	$	45,728	$	46,937
Net Change in Unrealized Gains		278		3,683		7,067		49,094

	$	279	$	34,301	$	52,795	$	96,031

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The Blackstone Group Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

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

5. Net Asset Value as Fair Value

A summary of fair value by strategy type alongside the remaining unfunded commitments and ability to redeem such investments as of September 30, 2019 is presented below:


					Redemption
			Unfunded		Frequency		Redemption
Strategy	Fair Value		Commitments		(if currently eligible)		Notice Period
Diversified Instruments	$	220,534	$	126		(a)		(a)
Credit Driven		82,891		268		(b)		(b)
Equity		6,274		—		(c)		(c)
Commodities		1,709		—		(d)		(d)

	$	311,408	$	394

(a)

Diversified Instruments include investments in funds that invest across multiple strategies. Investments representing 3% of the fair value of the investments in this category may not be redeemed at, or within three months of, the reporting date. The remaining 97% of investments in this category are redeemable as of the reporting date.

(b)

The Credit Driven category includes investments in hedge funds that invest primarily in domestic and international bonds. Investments representing 26% of the fair value of the investments in this category may not be redeemed at, or within three months of, the reporting date. The remaining 74% of investments in this category are redeemable as of the reporting date.

(c)

The Equity category includes investments in hedge funds that invest primarily in domestic and international equity securities. Investments representing 100% of the fair value of the investments in this category may not be redeemed at, or within three months of, the reporting date. As of the reporting date, the investee fund manager had elected to side-pocket 70% of Blackstone’s investments in the category.

(d)

The Commodities category includes investments in commodities-focused funds that primarily invest in futures and physical-based commodity driven strategies. Investments representing 100% of the fair value of the investments in this category may not be redeemed at, or within three months of, the reporting date.

6. Derivative Financial Instruments

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

non-U.S.

dollar denominated currency net investments. As a result of the use of derivative contracts, Blackstone and the consolidated Blackstone Funds are exposed to the risk that counterparties will fail to fulfill their contractual obligations. To mitigate such counterparty risk, Blackstone and the consolidated Blackstone Funds enter into contracts with certain major financial institutions, all of which have investment grade ratings. Counterparty credit risk is evaluated in determining the fair value of derivative instruments.

Net Investment Hedges

Blackstone uses foreign currency forward contracts to hedge portions of Blackstone’s net investments in foreign operations. The gains and losses due to change in fair value attributable to changes in spot exchange rates on foreign currency derivatives designated as net investment hedges were recognized in Other Comprehensive Income, Net of Tax — Currency Translation Adjustment.

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The Blackstone Group Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

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

Freestanding Derivatives

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

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


	September 30, 2019								December 31, 2018
	Assets				Liabilities				Assets				Liabilities
			Fair				Fair				Fair				Fair
	Notional		Value		Notional		Value		Notional		Value		Notional		Value
Freestanding Derivatives
Blackstone
Interest Rate Contracts	$	952,693	$	87,024	$	476,734	$	74,250	$	798,137	$	43,632	$	844,620	$	39,164
Foreign Currency Contracts		52,959		934		210,065		961		224,841		1,286		245,371		1,636
Credit Default Swaps		2,533		93		25,807		968		—		—		34,060		4,004
Investments of Consolidated Blackstone Funds
Foreign Currency Contracts		122,633		2,920		—		—		108,271		524		16,952		164
Interest Rate Contracts		—		—		33,000		2,734		—		—		10,000		311
Credit Default Swaps		12,151		319		54,186		1,621		20,952		55		46,685		5,710
Total Return Swaps		4,566		18		26,744		449		—		—		31,440		1,855
Other		1		138		1		26		—		—		—		—

	$	1,147,536	$	91,446	$	826,537	$	81,009	$	1,152,201	$	45,497	$	1,229,128	$	52,844
					��

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The Blackstone Group Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

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

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


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Net Investment Hedges - Foreign Currency Contracts
Hedge Ineffectiveness	$	—		$	—		$	—		$	(8	)


Freestanding Derivatives
Realized Gains (Losses)
Interest Rate Contracts	$	(1,784	)	$	401		$	(4,448	)	$	2,471
Foreign Currency Contracts		(815	)		3,583			(669	)		11,821
Credit Default Swaps		455			(333	)		2,446			(841	)
Total Return Swaps		(207	)		(37	)		(602	)		137
Other		(61	)		—			(193	)		—

	$	(2,412	)	$	3,614		$	(3,466	)	$	13,588


Net Change in Unrealized Gains (Losses)
Interest Rate Contracts	$	20,804		$	7,076		$	9,649		$	7,037
Foreign Currency Contracts		2,676			(5,248	)		2,885			(7,520	)
Credit Default Swaps		(6	)		2,368			3,641			2,856
Total Return Swaps		(64	)		(173	)		1,307			(121	)
Other		(46	)		(99	)		19			(99	)

	$	23,364		$	3,924		$	17,501		$	2,153

As of September 30, 2019 and December 31, 2018, Blackstone had not designated any derivatives as cash flow hedges.

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The Blackstone Group Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

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

7. Fair Value Option

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


	September 30,		December 31,
	2019		2018
Assets
Loans and Receivables	$	290,136	$	304,173
Equity and Preferred Securities		226,115		390,095
Debt Securities		530,314		529,698
Assets of Consolidated CLO Vehicles
Corporate Loans		6,888,906		6,766,700
Other		988		—

	$	7,936,459	$	7,990,666


Liabilities
Liabilities of Consolidated CLO Vehicles
Senior Secured Notes
Loans Payable	$	6,450,548	$	6,473,233
Due to Affiliates		55,217		3,201
Subordinated Notes
Loans Payable		41,849		7,478
Due to Affiliates		46,397		52,811

	$	6,594,011	$	6,536,723

The following tables present the Realized and Net Change in Unrealized Gains (Losses) on financial instruments on which the fair value option was elected:


	Three Months Ended September 30,
	2019						2018
				Net Change						Net Change
	Realized			in Unrealized			Realized			in Unrealized
	Gains (Losses)			Gains (Losses)			Gains (Losses)			Gains (Losses)
Assets
Loans and Receivables	$	(918	)	$	1,540		$	—		$	—
Equity and Preferred Securities		—			(1,759	)		—			20,329
Debt Securities		472			(7,426	)		(2,461	)		325
Assets of Consolidated CLO Vehicles
Corporate Loans		(2,406	)		(33,427	)		(3,030	)		(14,095	)

	$	(2,852	)	$	(41,072	)	$	(5,491	)	$	6,559

Liabilities
Liabilities of Consolidated CLO Vehicles
Senior Secured Notes	$	—		$	12,749		$	—		$	—
Subordinated Notes		—			23,024			—			36,021

	$	—		$	35,773		$	—		$	36,021

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The Blackstone Group Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

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


	Nine Months Ended September 30,
	2019						2018
	Realized Gains (Losses)			Net Change in Unrealized Gains (Losses)			Realized Gains (Losses)			Net Change in Unrealized Gains (Losses)
Assets
Loans and Receivables	$	(2,749	)	$	(1,117	)	$	—		$	—
Equity and Preferred Securities		9,908			20,539			—			18,462
Debt Securities		(2,888	)		9,323			(1,634	)		(1,973	)
Assets of Consolidated CLO Vehicles
Corporate Loans		(16,806	)		128,350			(7,429	)		(21,134	)
Corporate Bonds		—			—			(24,056	)		9,693
Other		—			350			—			6

	$	(12,535	)	$	157,445		$	(33,119	)	$	5,054

Liabilities
Liabilities of Consolidated CLO Vehicles
Senior Secured Notes	$	—		$	(32,144	)	$	—		$	—
Subordinated Notes		—			(27,957	)		—			96,481

	$	—		$	(60,101	)	$	—		$	96,481

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


	September 30, 2019							December 31, 2018
				For Financial Assets							For Financial Assets
				Past Due (a)							Past Due (a)
	Excess (Deficiency)					Excess		Excess (Deficiency)					Excess
	of Fair Value			Fair		of Fair Value		of Fair Value			Fair		of Fair Value
	Over Principal			Value		Over Principal		Over Principal			Value		Over Principal
Loans and Receivables	$	520		$	—	$	—	$	2,421		$	—	$	—
Debt Securities		(14,857	)		—		—		(26,660	)		—		—
Assets of Consolidated CLO Vehicles
Corporate Loans		(190,295	)		—		—		(301,085	)		—		—

	$	(204,632	)	$	—	$	—	$	(325,324	)	$	—	$	—

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

As of September 30, 2019 and December 31, 2018, 0 Loans and Receivables for which the fair value option was elected were past due or in

non-accrual

status. As of September 30, 2019 and December 31, 2018, 0 Corporate Bonds included within the Assets of Consolidated CLO Vehicles for which the fair value option was elected were past due or in

non-accrual

status.

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The Blackstone Group Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

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

8.	Fair Value Measurements of Financial Instruments

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


	September 30, 2019
	Level I		Level II		Level III		NAV		Total
Assets
Cash and Cash Equivalents - Money Market Funds and Short-Term Investments	$	666,147	$	—	$	—	$	—	$	666,147

Investments
Investments of Consolidated Blackstone Funds (a)
Investment Funds		—		—		—		28,378		28,378
Equity Securities		30,252		47,820		231,898		—		309,970
Partnership and LLC Interests		—		10,859		399,356		—		410,215
Debt Instruments		—		749,698		89,683		—		839,381
Freestanding Derivatives
Foreign Currency Contracts		—		2,920		—		—		2,920
Credit Default Swaps		—		319		—		—		319
Total Return Swaps		—		18		—		—		18
Other		—		138		��		—		138
Assets of Consolidated CLO Vehicles
Corporate Loans		—		6,436,248		452,658		—		6,888,906
Other		—		—		988		—		988

Total Investments of Consolidated Blackstone Funds		30,252		7,248,020		1,174,583		28,378		8,481,233

Corporate Treasury Investments
Equity Securities		418,845		—		—		—		418,845
Debt Instruments		494,889		1,380,171		18,182		—		1,893,242
Other		—		—		776		275,666		276,442

Total Corporate Treasury Investments		913,734		1,380,171		18,958		275,666		2,588,529

Other Investments		189,000		—		21,205		7,364		217,569

Total Investments		1,132,986		8,628,191		1,214,746		311,408		11,287,331

Accounts Receivable - Loans and Receivables		—		—		290,136		—		290,136

Other Assets
Freestanding Derivatives
Interest Rate Contracts		619		86,405		—		—		87,024
Foreign Currency Contracts		—		934		—		—		934
Credit Default Swaps		—		93		—		—		93

Total Other Assets		619		87,432		—		—		88,051

	$	1,799,752	$	8,715,623	$	1,504,882	$	311,408	$	12,331,665

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The Blackstone Group Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

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


	September 30, 2019
	Level I		Level II		Level III		Total
Liabilities
Loans Payable - Liabilities of Consolidated CLO Vehicles (a)
Senior Secured Notes (b)	$	—	$	6,450,548	$	—	$	6,450,548
Subordinated Notes (b)		—		41,849		—		41,849

Total Loans Payable		—		6,492,397		—		6,492,397

Due to Affiliates - Liabilities of Consolidated CLO Vehicles (a)
Senior Secured Notes (b)		—		55,217		—		55,217
Subordinated Notes (b)		—		46,397		—		46,397

Total Due to Affiliates		—		101,614		—		101,614

Securities Sold, Not Yet Purchased		22,285		64,766		—		87,051

Accounts Payable, Accrued Expenses and Other Liabilities
Liabilities of Consolidated Blackstone Funds - Freestanding Derivatives (a)
Credit Default Swaps		—		1,621		—		1,621
Total Return Swaps		—		449		—		449
Interest Rate Swaps		—		2,734		—		2,734
Other		—		26		—		26

Total Liabilities of Consolidated Blackstone Funds		—		4,830		—		4,830

Freestanding Derivatives
Interest Rate Contracts		297		73,953		—		74,250
Foreign Currency Contracts		—		961		—		961
Credit Default Swaps		—		968		—		968

Total Freestanding Derivatives		297		75,882		—		76,179

Total Accounts Payable, Accrued Expenses and Other Liabilities		297		80,712		—		81,009

	$	22,582	$	6,739,489	$	—	$	6,762,071

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The Blackstone Group Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

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


	December 31, 2018
	Level I		Level II		Level III		NAV		Total
Assets
Cash and Cash Equivalents - Money Market Funds and Short-Term Investments	$	623,526	$	—	$	—	$	—	$	623,526

Investments
Investments of Consolidated Blackstone Funds (a)
Investment Funds		—		—		—		80,726		80,726
Equity Securities		42,937		34,946		201,566		—		279,449
Partnership and LLC Interests		—		7,170		355,273		—		362,443
Debt Instruments		—		752,622		133,819		—		886,441
Freestanding Derivatives
Foreign Currency Contracts		—		524		—		—		524
Credit Default Swaps		—		55		—		—		55
Assets of Consolidated CLO Vehicles
Corporate Loans		—		6,093,342		673,358		—		6,766,700

Total Investments of Consolidated Blackstone Funds		42,937		6,888,659		1,364,016		80,726		8,376,338

Corporate Treasury Investments
Equity Securities		233,834		—		—		—		233,834
Debt Instruments		243,297		1,444,968		24,568		—		1,712,833
Other		—		—		—		259,826		259,826

Total Corporate Treasury Investments		477,131		1,444,968		24,568		259,826		2,206,493

Other Investments		176,432		—		31,617		7,581		215,630

Total Investments		696,500		8,333,627		1,420,201		348,133		10,798,461

Accounts Receivable - Loans and Receivables		—		—		304,173		—		304,173

Other Assets
Freestanding Derivatives
Interest Rate Contracts		1,274		42,358		—		—		43,632
Foreign Currency Contracts		—		1,286		—		—		1,286

Total Other Assets		1,274		43,644		—		—		44,918

	$	1,321,300	$	8,377,271	$	1,724,374	$	348,133	$	11,771,078

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The Blackstone Group Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

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


	December 31, 2018
	Level I		Level II		Level III		Total
Liabilities
Loans Payable - Liabilities of Consolidated CLO Vehicles (a)
Senior Secured Notes (b)	$	—	$	6,473,233	$	—	$	6,473,233
Subordinated Notes (b)		—		7,478		—		7,478

Total Loans Payable		—		6,480,711		—		6,480,711

Due to Affiliates - Liabilities of Consolidated CLO Vehicles (a)
Senior Secured Notes (b)		—		3,201		—		3,201
Subordinated Notes (b)		—		52,811		—		52,811

Total Due to Affiliates		—		56,012		—		56,012

Securities Sold, Not Yet Purchased		35,959		106,658		—		142,617

Accounts Payable, Accrued Expenses and Other Liabilities
Liabilities of Consolidated Blackstone Funds - Freestanding Derivatives (a)
Foreign Currency Contracts		—		164		—		164
Credit Default Swaps		—		5,710		—		5,710
Total Return Swaps		—		1,855		—		1,855
Interest Rate Swaps		—		311		—		311

Total Liabilities of Consolidated Blackstone Funds		—		8,040		—		8,040

Freestanding Derivatives
Interest Rate Contracts		3,080		36,084		—		39,164
Foreign Currency Contracts		—		1,636		—		1,636
Credit Default Swaps		—		4,004		—		4,004

Total Freestanding Derivatives		3,080		41,724		—		44,804

Total Accounts Payable, Accrued Expenses and Other Liabilities		3,080		49,764		—		52,844

	$	39,039	$	6,693,145	$	—	$	6,732,184

(a)

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

(b)	Senior and subordinated notes issued by CLO vehicles are classified based on the more observable fair value of CLO assets less (1) the fair value of any beneficial interests held by Blackstone, and (2) the carrying value of any beneficial interests that represent compensation for services.

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The Blackstone Group Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

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

The following table summarizes the quantitative inputs and assumptions used for items categorized in Level III of the fair value hierarchy as of September 30, 2019:

Fair Value

Valuation

Techniques

Unobservable Inputs

Ranges

Weighted-
Average (a)

Financial Assets

Investments of Consolidated
Blackstone Funds

Equity Securities

186,041

Discounted Cash Flows

Discount Rate

7.3% - 32.1%

13.1%

Revenue CAGR

-3.1% - 26.6%

9.9%

Book Value Multiple

0.9x - 9.5x

6.0x

EBITDA Multiple

1.1x - 12.9x

11.2x

Exit Capitalization Rate

7.3% - 11.4%

8.6%

Exit Multiple - EBITDA

0.1x - 19.7x

10.3x

Exit Multiple - NOI

13.7x

N/A

Exit Multiple - P/E

17.0x

N/A

1,350

Market Comparable Companies

Book Value Multiple

1.1x

N/A

Dollar/Acre Multiple

$7.0

N/A

28,091

Other

N/A

16,207

Transaction Price

N/A

209

Third Party Pricing

N/A

Partnership and LLC Interests

341,116

Discounted Cash Flows

Discount Rate

2.6% - 26.5%

9.4%

Revenue CAGR

-3.4% - 27.5%

17.9%

EBITDA Multiple

14.3x

N/A

Exit Capitalization Rate

2.7% - 25.0%

5.7%

Exit Multiple - EBITDA

4.0x - 36.7x

12.2x

Exit Multiple - NOI

13.0x

N/A

3,074

Market Comparable Companies

Book Value Multiple

1.2x

N/A

Dollar/Acre Multiple

$12.0

N/A

1,901

Other

N/A

290

Third Party Pricing

N/A

52,975

Transaction Price

N/A

Debt Instruments

8,486

Discounted Cash Flows

Discount Rate

7.1% - 51.2%

12.5%

Exit Capitalization Rate

5.5% - 8.0%

6.7%

Exit Multiple - EBITDA

6.5x - 12.5x

8.6x

79,677

Third Party Pricing

N/A

1,520

Transaction Price

N/A

Assets of Consolidated CLO Vehicles

Discounted Cash Flows

Discount Rate

4.7%

N/A

453,606

Third Party Pricing

N/A

Total Investments of Consolidated Blackstone Funds

1,174,583

continued...

Table of Contents

The Blackstone Group Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

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

Fair Value

Valuation

Techniques

Unobservable

Inputs

Ranges

Weighted-
Average (a)

Corporate Treasury Investments

10,199

Discounted Cash Flows

Discount Rate

3.4% - 7.5%

5.9%

Default Rate

2.0%

N/A

Pre-payment

Rate

20.0%

N/A

Recovery Lag

12 Months

N/A

Recovery Rate

11.5% - 70.0%

67.9%

Reinvestment Rate

LIBOR + 400 bps

N/A

776

Market Comparable Companies

EBITDA Multiple

6.7x

N/A

7,983

Third Party Pricing

N/A

Loans and Receivables

290,136

Discounted Cash Flows

Discount Rate

6.2% - 8.3%

6.6%

Other Investments

21,205

Discounted Cash Flows

Discount Rate

0.9% - 18.7%

3.0%

Default Rate

2.0%

N/A

Pre-payment

Rate

20.0%

N/A

Recovery Lag

onths

N/A

Recovery Rate

70.0%

N/A

Reinvestment Rate

LIBOR + 400 bps

N/A

1,504,882

Table of Contents

The Blackstone Group Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

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

The following table summarizes the quantitative inputs and assumptions used for items categorized in Level III of the fair value hierarchy as of December 31, 2018:

Fair Value

Valuation

Techniques

Unobservable

Inputs

Ranges

Weighted-
Average (a)

Financial Assets

Investments of Consolidated Blackstone Funds

Equity Securities

138,725

Discounted Cash Flows

Discount Rate

7.1% - 26.1%

12.6%

Revenue CAGR

-0.8% - 32.4%

6.6%

Book Value Multiple

0.9x - 9.5x

8.3x

Exit Capitalization Rate

5.0% - 11.4%

8.0%

Exit Multiple - EBITDA

0.1x - 17.5x

10.3x

Exit Multiple - NOI

12.8x

N/A

Exit Multiple - P/E

17.0x

N/A

21,050

Market Comparable

Companies

Book Value Multiple

0.8x - 8.0x

1.3x

Dollar/Acre Multiple

$7.0 - $44.1

$32.9

21,492

Other

N/A

20,250

Transaction Price

N/A

Third Party Pricing

N/A

Partnership and LLC Interests

295,251

Discounted Cash Flows

Discount Rate

4.1% - 26.5%

9.7%

Revenue CAGR

-1.1% - 48.4%

26.9%

Book Value Multiple

8.5x - 9.3x

9.2x

Exit Capitalization Rate

2.9% - 15.0%

6.3%

Exit Multiple - EBITDA

0.1x - 15.3x

10.0x

Exit Multiple - NOI

13.3x

N/A

9,444

Market Comparable

Companies

Book Value Multiple

1.1x

N/A

Dollar/Acre Multiple

$5.3 - $12.0

$7.5

9,390

Other

N/A

41,188

Transaction Price

N/A

Debt Instruments

8,342

Discounted Cash Flows

Discount Rate

7.0% - 19.3%

9.8%

Revenue CAGR

0.7%

N/A

Exit Multiple - EBITDA

6.5x

N/A

120,843

Third Party Pricing

N/A

4,634

Transaction Price

N/A

Assets of Consolidated CLO Vehicles

Discounted Cash Flows

Discount Rate

5.0%

N/A

673,317

Third Party Pricing

N/A

Total Investments of Consolidated Blackstone Funds

1,364,016

continued...

Table of Contents

The Blackstone Group Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

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

Fair Value

Valuation

Techniques

Unobservable

Inputs

Ranges

Weighted-

Average (a)

Corporate Treasury Investments

7,947

Discounted Cash Flows

Discount Rate

4.4% - 7.5%

6.6%

Default Rate

2.0%

N/A

Pre-payment

Rate

20.0%

N/A

Recovery Lag

12 Months

21 Months

13 Months

Recovery Rate

17.5% - 70.0%

67.7%

Reinvestment Rate

LIBOR + 400 bps

N/A

16,621

Third Party Pricing

N/A

Loans and Receivables

304,173

Discounted Cash Flows

Discount Rate

6.1% - 12.8%

8.7%

Other Investments

26,631

Discounted Cash Flows

Discount Rate

1.0% - 15.0%

2.8%

Default Rate

2.0%

N/A

Pre-payment

Rate

20.0%

N/A

Recovery Lag

12 Months

N/A

Recovery Rate

70.0%

N/A

Reinvestment Rate

LIBOR + 400 bps

N/A

4,986

Transaction Price

N/A

1,724,374


N/A		Not applicable.
CAGR		Compound annual growth rate.
EBITDA		Earnings before interest, taxes, depreciation and amortization.
Exit Multiple		Ranges include the last twelve months EBITDA, forward EBITDA and price/earnings exit multiples.
LIBOR		London Interbank Offered Rate
NOI		Net operating income.
P/E		Price-earnings ratio.
Third Party Pricing		Third Party Pricing is generally determined on the basis of unadjusted prices between market participants provided by reputable dealers or pricing services.
Transaction Price		Includes recent acquisitions or transactions.
(a)		Unobservable inputs were weighted based on the fair value of the investments included in the range.

The significant unobservable inputs used in the fair value measurement of corporate treasury investments, debt instruments and other investments as of the reporting date are discount rates, default rates, recovery rates, recovery lag,

pre-payment

rates and reinvestment rates. Increases (decreases) in any of the discount rates, default rates, recovery lag and

pre-payment

rates in isolation would have resulted in a lower (higher) fair value measurement. Increases (decreases) in any of the recovery rates and reinvestment rates in isolation would have resulted in a higher (lower) fair value measurement. Generally, a change in the assumption used for default rates may be accompanied by a directionally similar change in the assumption used for recovery lag and a directionally opposite change in the assumption used for recovery rates and

pre-payment

rates.

The significant unobservable inputs used in the fair value measurement of equity securities, partnership and limited liability company (“LLC”) interests, debt instruments, assets of consolidated CLO vehicles and loans and receivables are discount rates, exit capitalization rates, exit multiples, EBITDA multiples and revenue compound annual growth rates. Increases (decreases) in any of discount rates and exit capitalization rates in isolation could have resulted in a lower (higher) fair value measurement. Increases (decreases) in any of exit multiples and revenue compound annual growth rates in isolation could have resulted in a higher (lower) fair value measurement.

Table of Contents

The Blackstone Group Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

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

Since December 31, 2018, there have been 0 changes in valuation techniques within Level II and Level III that have had a material impact on the valuation of financial instruments.

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


	Level III Financial Assets at Fair Value
	Three Months Ended September 30,
	2019												2018
	Investments												Investments
	of			Loans			Other						of			Loans			Other
	Consolidated			and			Investments						Consolidated			and			Investments
	Funds			Receivables			(a)			Total			Funds			Receivables			(a)			Total
Balance, Beginning of Period	$	1,140,096		$	187,831		$	49,052		$	1,376,979		$	1,086,724		$	346,603		$	114,723		$	1,548,050
Transfer In to Level III (b)		216,782			—			—			216,782			255,398			—			5,299			260,697
Transfer Out of Level III (b)		(173,495	)		—			(8,193	)		(181,688	)		(221,162	)		—			(11,192	)		(232,354	)
Purchases		136,384			283,492			3,022			422,898			156,527			347,890			15,754			520,171
Sales		(151,958	)		(182,584	)		(2,522	)		(337,064	)		(119,593	)		(274,817	)		(69,272	)		(463,682	)
Settlements		—			(2,042	)		—			(2,042	)		—			(8,397	)		—			(8,397	)
Changes in Gains Included in Earnings		6,774			3,439			(1,196	)		9,017			12,764			8,524			35,207			56,495

Balance, End of Period	$	1,174,583		$	290,136		$	40,163		$	1,504,882		$	1,170,658		$	419,803		$	90,519		$	1,680,980


Changes in Unrealized Gains (Losses) Included in Earnings Related to Financial Assets Still Held at the Reporting Date	$	3,020		$	1,540		$	(230	)	$	4,330		$	8,229		$	8,523		$	5,431		$	22,183


	Level III Financial Assets at Fair Value
	Nine Months Ended September 30,
	2019												2018
	Investments												Investments
	of			Loans			Other						of			Loans			Other
	Consolidated			and			Investments						Consolidated			and			Investments
	Funds			Receivables			(a)			Total			Funds			Receivables			(a)			Total
Balance, Beginning of Period	$	1,364,016		$	304,173		$	56,185		$	1,724,374		$	1,029,371		$	239,659		$	119,642		$	1,388,672
Transfer In Due to Consolidation and Acquisition		—			—			—			—			50,043			—						50,043
Transfer Out Due to Deconsolidation		—			—			—			—			(217,182	)		—			—			(217,182	)
Transfer In to Level III (b)		168,479			—			12,935			181,414			160,125			—			5,299			165,424
Transfer Out of Level III (b)		(405,498	)		—			(35,363	)		(440,861	)		(117,372	)		—			(26,909	)		(144,281	)
Purchases		323,449			554,264			15,842			893,555			590,153			718,811			35,567			1,344,531
Sales		(321,574	)		(566,400	)		(8,663	)		(896,637	)		(374,479	)		(538,520	)		(92,751	)		(1,005,750	)
Settlements		—			(12,231	)		—			(12,231	)		—			(17,376	)		(4	)		(17,380	)
Changes in Gains Included in Earnings		45,711			10,330			(773	)		55,268			49,999			17,229			49,675			116,903

Balance, End of Period	$	1,174,583		$	290,136		$	40,163		$	1,504,882		$	1,170,658		$	419,803		$	90,519		$	1,680,980


Changes in Unrealized Gains (Losses) Included in Earnings Related to Financial Assets Still Held at the Reporting Date	$	32,415		$	(1,117	)	$	(29	)	$	31,269		$	11,670		$	17,229		$	5,049		$	33,948

(a)	Represents corporate treasury investments and Other Investments.

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

Table of Contents

The Blackstone Group Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

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

There were no Level III financial liabilities as of and for the three and nine months ended September 30, 2019 and 2018.

9.	Variable Interest Entities

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

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

Blackstone holds variable interests in certain VIEs which are not consolidated as it is determined that Blackstone is not the primary beneficiary. Blackstone’s involvement with such entities is in the form of direct and indirect equity interests and fee arrangements. The maximum exposure to loss represents the loss of assets recognized by Blackstone relating to

non-consolidated

VIEs and any clawback obligation relating to previously distributed Performance Allocations. Blackstone’s maximum exposure to loss relating to

non-consolidated

VIEs were as follows:


	September 30,		December 31,
	2019		2018
Investments	$	1,110,903	$	942,700
Due from Affiliates		312,266		254,744
Potential Clawback Obligation		96,331		159,691

Maximum Exposure to Loss	$	1,519,500	$	1,357,135


Amounts Due to Non-Consolidated VIEs	$	214	$	207

10.	Repurchase Agreements

At September 30, 2019, Blackstone pledged securities with a carrying value of $211.2 million and cash to collateralize its repurchase agreements. Such securities can be repledged, delivered or otherwise used by the counterparty.

At December 31, 2018, Blackstone pledged securities with a carrying value of $279.5 million and cash to collateralize its repurchase agreements. Such securities can be repledged, delivered or otherwise used by the counterparty.

Table of Contents

The Blackstone Group Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

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

The following tables provide information regarding Blackstone’s Repurchase Agreements obligation by type of collateral pledged:


	September 30, 2019
	Remaining Contractual Maturity of the Agreements
	Overnight						Greater
	and		Up to		30 - 90		than
	Continuous		30 Days		Days		90 days		Total
Repurchase Agreements
Asset-Backed Securities	$	—	$	15,916	$	108,437	$	38,706	$	163,059


Gross Amount of Recognized Liabilities for Repurchase Agreements in Note 11. “Offsetting of Assets and Liabilities”									$	163,059


Amounts Related to Agreements Not Included in Offsetting Disclosure in Note 11. “Offsetting of Assets and Liabilities”									$	—


	December 31, 2018
	Remaining Contractual Maturity of the Agreements
	Overnight						Greater
	and		Up to		30 - 90		than
	Continuous		30 Days		Days		90 days		Total
Repurchase Agreements
Asset-Backed Securities	$	—	$	42,908	$	144,731	$	34,563	$	222,202


Gross Amount of Recognized Liabilities for Repurchase Agreements in Note 11. “Offsetting of Assets and Liabilities”									$	222,202


Amounts Related to Agreements Not Included in Offsetting Disclosure in Note 11. “Offsetting of Assets and Liabilities”									$	—

11.	Offsetting of Assets and Liabilities

The following tables present the offsetting of assets and liabilities as of September 30, 2019 and December 31, 2018:

September 30, 2019

Gross and Net

Amounts of

Gross Amounts Not Offset

Assets Presented

in the Statement of

in the Statement

Financial Condition

of Financial

Financial

Cash Collateral

Condition

Instruments (a)

Received

Net Amount

Assets

Freestanding Derivatives

89,928

69,016

—

20,912

Table of Contents

The Blackstone Group Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

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


	September 30, 2019
	Gross and Net
	Amounts of
	Liabilities		Gross Amounts Not Offset
	Presented in the		in the Statement of
	Statement of		Financial Condition
	Financial		Financial		Cash Collateral
	Condition		Instruments (a)		Pledged		Net Amount
Liabilities
Freestanding Derivatives	$	81,009	$	63,178	$	16,621	$	1,210
Repurchase Agreements		163,059		163,059		—		—

	$	244,068	$	226,237	$	16,621	$	1,210

December 31, 2018

Gross and Net

Amounts of

Assets

Gross Amounts Not Offset

Presented in the

in the Statement of

Statement of

Financial Condition

Financial

Cash Collateral

Condition

Instruments (a)

Received

Net Amount

Assets

Freestanding Derivatives

45,416

37,788

5,547

2,081



	December 31, 2018
	Gross and Net
	Amounts of
	Liabilities		Gross Amounts Not Offset
	Presented in the		in the Statement of
	Statement of		Financial Condition
	Financial		Financial		Cash Collateral
	Condition		Instruments (a)		Pledged		Net Amount
Liabilities
Freestanding Derivatives	$	52,844	$	35,905	$	15,377	$	1,562
Repurchase Agreements		222,202		222,202		—		—

	$	275,046	$	258,107	$	15,377	$	1,562

(a)	Amounts presented are inclusive of both legally enforceable master netting agreements, and financial instruments received or pledged as collateral. Financial instruments received or pledged as collateral offset derivative counterparty risk exposure, but do not reduce net balance sheet exposure.

Table of Contents

The Blackstone Group Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

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

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


	September 30,		December 31,
	2019		2018
Furniture, Equipment and Leasehold Improvements, Net	$	150,907	$	120,372
Prepaid Expenses		149,129		110,732
Freestanding Derivatives		88,051		44,918
Other		14,583		18,226

	$	402,670	$	294,248

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

Notional Pooling Arrangement

Blackstone has a notional cash pooling arrangement with a financial institution for cash management purposes. This arrangement allows for cash withdrawals based upon aggregate cash balances on deposit at the same financial institution. Cash withdrawals cannot exceed aggregate cash balances on deposit. The net balance of cash on deposit and overdrafts is used as a basis for calculating net interest expense or income. As of September 30, 2019, the aggregate cash balance on deposit relating to the cash pooling arrangement was $1.1 billion, which was offset with an accompanying overdraft of $1.1 billion.

12.	Borrowings

On September 3, 2019, Blackstone, through its indirect subsidiary Blackstone Holdings Finance Co. L.L.C. (the “Issuer”),

commenced a cash tender offer (the “Tender Offer”) for any and all

of its

5.875

% Senior Notes maturing on

March 15, 2021

(the “

2021

Notes”). On September

2019

, the

ender

ffer expired and $

175.0

million aggregate principal amount of the

2021

Notes were validly tendered for payment. Payment for the tendered notes was made on September

2019

On September 10, 2019, the Issuer exercised its rights under the optional redemption provisions of the 2021 Notes to notice all of the outstanding 2021 Notes, that were not previously tendered in the Tender Offer, for redemption. On October 10, 2019, the Issuer redeemed all such remaining 2021 Notes. As of September 30, 2019, the

non-tendered

2021 Notes remained outstanding and therefore are included in Blackstone’s consolidated financial statements in accordance with their terms.

On September 10, 2019, the Issuer issued $500 million aggregate principal amount of senior notes maturing January 10, 2030 (the “2030 Notes”) and $400 million aggregate principal amount of senior notes maturing September 10, 2049 (the “2049 Notes”). The 2030 Notes have an interest rate of 2.500% per annum, accruing from September 10, 2019. The 2049 Notes have an interest rate of 3.500% per annum, accruing from September 10, 2019. Interest on the 2030 Notes is payable semi-annually in arrears on January 10 and July 10 of each year, commencing on January 10, 2020. Interest on the 2049 Notes is payable semi-annually in arrears on March 10 and September 10 of each year, commencing on March 10, 2020.

The 2030 Notes and 2049 Notes are unsecured and unsubordinated obligations of the Issuer. The 2030 Notes and 2049 Notes are fully and unconditionally guaranteed by The Blackstone Group Inc. and its indirect subsidiaries, Blackstone Holdings I L.P., Blackstone Holdings AI L.P., Blackstone Holdings II L.P., Blackstone Holdings III L.P. and Blackstone Holdings IV L.P. (the “Guarantors”). The guarantees are unsecured and unsubordinated obligations of the Guarantors. Transaction costs related to the issuance of the 2030 Notes and 2049 Notes have been capitalized and are being amortized over the life of the 2030 Notes and 2049 Notes.

Table of Contents

The Blackstone Group Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

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

The following table presents the general characteristics of each of our notes, as well as their carrying value and fair value. The notes are included in Loans Payable within the Condensed Consolidated Statements of Financial Condition. All of the notes were issued at a discount. All of the notes accrue interest from the issue date thereof and all pay interest in arrears on a semi-annual basis or annual basis.


	September 30, 2019				December 31, 2018
	Carrying		Fair		Carrying		Fair
Senior Notes	Value		Value (a)		Value		Value (a)
5.875%, Due 3/15/2021 (b)	$	223,229	$	236,680	$	398,947	$	421,720
4.750%, Due 2/15/2023		395,972		430,600		395,166		417,600
2.000%, Due 5/19/2025		322,856		360,125		339,959		352,197
1.000%, Due 10/5/2026		645,495		681,536		679,193		647,564
3.150%, Due 10/2/2027		296,963		307,590		296,717		285,030
1.500%, Due 4/10/2029		648,465		702,266		—		—
2.500%, Due 1/10/2030		490,465		483,850		—		—
6.250%, Due 8/15/2042		238,382		332,125		238,221		289,225
5.000%, Due 6/15/2044		488,912		598,600		488,747		490,150
4.450%, Due 7/15/2045		344,127		391,090		344,038		329,770
4.000%, Due 10/2/2047		290,298		315,120		290,163		262,800
3.500%, Due 9/10/2049		392,396		387,960		—		—

	$	4,777,560	$	5,227,542	$	3,471,151	$	3,496,056

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

(b)	On October 10, 2019, Blackstone re deemed the then outstanding aggregate principal amount of the 2021 Notes.

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

September 30, 2019

December 31, 2018

Weighted-

Average

Weighted-

Average

Remaining

Average

Remaining

Borrowing

Interest

Maturity in

Borrowing

Interest

Maturity in

Outstanding

Rate

Years

Outstanding

Rate

Years

Senior Secured Notes

6,528,738

3.86%

6.3

6,531,550

4.20%

7.5

Subordinated Notes

321,866

(a)

N/A

331,735

(a)

N/A

6,850,604

6,863,285

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

Table of Contents

The Blackstone Group Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

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

Senior Secured Notes and Subordinated Notes comprise the following amounts:


	September 30, 2019						December 31, 2018
			Amounts Due to Non-						Amounts Due to Non-
			Consolidated Affiliates						Consolidated Affiliates
			Borrowing						Borrowing
	Fair Value		Outstanding		Fair Value		Fair Value		Outstanding		Fair Value
Senior Secured Notes	$	6,505,765	$	55,250	$	55,217	$	6,476,434	$	3,250	$	3,201
Subordinated Notes		88,246		77,965		46,397		60,289		111,659		52,811

	$	6,594,011	$	133,215	$	101,614	$	6,536,723	$	114,909	$	56,012

The Loans Payable of the consolidated CLO vehicles are collateralized by assets held by each respective CLO vehicle and assets of one vehicle may not be used to satisfy the liabilities of another. This collateral consisted of Cash, Corporate Loans, Corporate Bonds and other securities. As of September 30, 2019 and December 31, 2018, the fair value of the consolidated CLO assets was $7.2 billion and $7.1 billion, respectively.

Scheduled principal payments for borrowings as of September 30, 2019 were as follows:

			Blackstone Fund
	Operating		Facilities/CLO		Total
	Borrowings		Vehicles		Borrowings
2019	$	—	$	288	$	288
2020		—		—		—
2021 (a)		225,045		—		225,045
2022		—		—		—
2023		400,000		—		400,000
Thereafter		4,234,850		6,850,604		11,085,454

	$	4,859,895	$	6,850,892	$	11,710,787

(a)	The Operating Borrowings balance in 2021 represents the 2021 Notes. As noted above, the 2021 Notes were re deemed on October 10, 2019.

13. Leases

Blackstone enters into

non-cancelable

lease and sublease agreements primarily for office space, which expire on various dates through 2030. As of September 30, 2019, the weighted-average remaining lease term was 7.6 years, and the weighted-average discount rate was 2.5%.

The components of lease expense were as follows:


	Three Months Ended			Nine Months Ended
	September 30, 2019			September 30, 2019
Operating Lease Cost
Straight-Line Lease Cost (a)	$	22,229		$	66,639
Variable Lease Cost		3,992			10,892
Sublease Income		(59	)		(391	)

	$	26,162		$	77,140

(a)	Straight-line lease cost includes short-term leases, which are immaterial.

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The Blackstone Group Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

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

Supplemental cash flow information related to leases were as follows:


	Three Months Ended		Nine Months Ended
	September 30, 2019		September 30, 2019
Operating Cash Flows f or Operating Leases	$	23,410	$	69,825
N on-Cash Right-of-Use Assets Obtained in Exchange for New Operating Lease Liabilities		4,069		11,452

The following table shows the undiscounted cash flows on an annual basis for Operating Lease Liabilities as of September 30, 2019:


2019	$	20,526
2020		81,144
2021		85,896
2022		77,830
2023		75,623
Thereafter		272,271

Total Lease Payments (a)		613,290
Less: Imputed Interest		(55,037	)

Present Value of Operating Lease Liabilities	$	558,253

(a)	Excludes $128.6 million of lease payments for signed leases that have not yet commenced.

As of December 31, 2018, the aggregate minimum future payments, net of sublease income, required on operating leases are as follows:


2019	$	78,506
2020		72,191
2021		80,914
2022		79,094
2023		77,248
Thereafter		273,347

Total	$	661,300

14.	Income Taxes

Prior to the Conversion, Blackstone and certain of its subsidiaries operated in the U.S. as partnerships for income tax purposes (

partnerships

generally are not subject to federal income taxes) and generally as corporate entities in

non-U.S.

jurisdictions. Subsequent to the Conversion, all income attributable to Blackstone is subject to U.S. corporate income taxes.

The termination of the status of Blackstone as a partnership for tax purposes in the Conversion has been treated as a change in tax status under the GAAP guidance on accounting for income taxes. This guidance requires that the deferred tax effects of a change in tax status be recorded to income from continuing operations on the date the Partnership status terminates. Blackstone has calculated the estimated effect of the change in tax status to be a tax benefit of $231.1 million, net of a valuation allowance of $812.0 million

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The Blackstone Group Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

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

The Conversion resulted in a

step-up

in the tax basis of certain assets that will be recovered as those assets are sold or the basis is amortized. The basis information currently available represents an estimate of the basis in Blackstone’s subsidiaries at July 1, 2019. The final amount of the

step-up

in tax basis may differ as the basis information becomes available and is finalized.

In evaluating the ability to realize deferred tax assets, Blackstone considers projections of taxable income (including the character of such income), beginning with historic results and incorporating assumptions of the amount of future pretax operating income. These assumptions about future taxable income require significant judgment and are consistent with the plans and estimates that Blackstone uses to manage its business. A portion of the deferred tax assets are not considered to be more likely than not to be realized due to the character of income. For that portion of the deferred tax assets, a valuation allowance was recorded upon conversion.

Blackstone’s effective tax rate was

-15.5%

and 2.7% for the three months ended September 30, 2019 and 2018, respectively, and

-2.7%

and 6.2% for the nine months ended September 30, 2019 and 2018, respectively. Blackstone’s income tax provision was $(156.8) million and $26.8 million for the three months ended September 30, 2019 and 2018, respectively, and $(76.9) million and $220.0 million for the nine months ended September 30, 2019 and 2018, respectively. The effective tax rate differs from the statutory rate primarily

because: (a) Blackstone received the benefit of a portion of the step-up in basis resulting from the Conversion on July 1, 2019, (b) a portion of the reported net income (loss) before taxes is attributable to non-controlling interest holders, and (c) a portion of the reported net income (loss) before taxes is attributable to the period prior to which Blackstone converted to a corporation.

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The Blackstone Group Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

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

15. Earnings Per Share and Stockholder’s Equity

Earnings Per Share

Basic and diluted net income per share of Class A common stock for the three and nine months ended September 30, 2019 and September 30, 2018 was calculated as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Net Income for Per Share of Class A Common Stock Calculations
Net Income Attributable to The Blackstone Group Inc., Basic	$	779,437	$	442,742	$	1,566,533	$	1,552,656
Incremental Net Income from Assumed Exchange of Blackstone Holdings Partnership Units		—		327,850		—		1,187,908

Net Income Attributable to The Blackstone Group Inc., Diluted	$	779,437	$	770,592	$	1,566,533	$	2,740,564


Shares/Units Outstanding
Weighted-Average Shares of Class A Common Stock Outstanding, Basic		675,963,129		682,435,177		674,714,040		679,598,629
Weighted-Average Shares of Unvested Deferred Restricted Class A Common Stock		256,629		230,759		265,007		215,270
Weighted-Average Blackstone Holdings Partnership Units		—		523,212,047		—		529,299,345

Weighted-Average Shares of Class A Common Stock Outstanding, Diluted		676,219,758		1,205,877,983		674,979,047		1,209,113,244


Net Income Per Share of Class A Common Stock
Basic	$	1.15	$	0.65	$	2.32	$	2.28

Diluted	$	1.15	$	0.64	$	2.32	$	2.27

Dividends Declared Per Share of Class A Common Stock (a)	$	0.48	$	0.58	$	1.43	$	1.78

(a)	Dividends declared reflects the calendar date of the declaration for each dividend.

In computing the dilutive effect that the exchange of Blackstone Holdings Partnership Units would have on Net Income Per Share of Class A Common Stock, Blackstone considered that net income available to holders of shares of Class A common stock would increase due to the elimination of

non-controlling

interests in Blackstone Holdings, inclusive of any tax impact. Because the hypothetical conversion may result in a different tax rate, the Blackstone Holdings Partnership Units are considered anti-dilutive in certain periods may be dilutive in other periods.

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The Blackstone Group Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

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

The following table summarizes the anti-dilutive securities for the three and nine months ended September 30, 2019 and 2018:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Weighted-Average Blackstone Holdings Partnership Units		524,859,672		—		525,779,901		—

Stockholder’s Equity

In connection with the Conversion, effective July 1, 2019, each common unit of the Partnership outstanding immediately prior to the Conversion converted into

one issued and outstanding

, fully paid and

nonassessable

share of Class A common stock, $

0.00001

par value per share, of the Corporation. The special voting unit of the Partnership outstanding immediately prior to the Conversion converted into

one issued and outstanding

, fully paid and

nonassessable

share of Class B common stock, $

0.00001

par value per share, of the Corporation. The general partner units of the Partnership outstanding immediately prior to the Conversion converted into

one issued and outstanding

, fully paid and

nonassessable

share of Class C common stock, $

0.00001

par value per share, of the Corporation.

The Class A and Class B common stock generally are

non-voting.

The Class B common stock generally will vote together with the Class A common stock as a single class on those few matters that may be submitted for a vote of the Class A common stock. The Class C common stock is the only class of the Corporation’s common stock entitled to vote at a meeting of shareholders (or take similar action by written consent) in the election of directors and generally with respect to all other matters submitted to a vote of shareholders. The Class B and Class C common stock holders are not entitled to dividends from the Corporation, or receipt of any of the Corporation’s assets in the event of any dissolution, liquidation or winding up. Blackstone Partners L.L.C. is the sole holder of the Class B common stock and Blackstone Group Management L.L.C. is the sole holder of the Class C common stock.

In connection with the Conversion on July 1, 2019, the Corporation authorized 9 billion shares of preferred stock with a par value of $0.00001. There were 0 shares of preferred stock issued and outstanding as of September 30, 2019.

Share Repurchase Program

On July 16, 2019, the board of directors of the Corporation authorized the repurchase of up to $1.0

billion of

Class A common stock and Blackstone Holdings Partnership Units, which replaced the prior repurchase authorization. Under the repurchase program, repurchases may be made from time to time in open market transactions, in privately negotiated transactions or otherwise. The timing and the actual numbers repurchased will depend on a variety of factors, including legal requirements, price and economic and market conditions. The repurchase program may be changed, suspended or discontinued at any time and does not have a specified expiration date.

During the three and nine months ended September 30, 2019, Blackstone repurchased 2.8 million and 11.3 million shares of Blackstone Class A common stock, respectively, at a total cost of $136.0 million and $479.1 million, respectively. During the three and nine months ended September 30, 2018, Blackstone repurchased 6.0 million and 8.2 million shares of Blackstone Class A common stock, respectively, at a total cost of $218.4 million and $290.1 million, respectively. As of September 30, 2019, the amount remaining available for repurchases under the program was $864.0 million. Class A common stock repurchased in the quarter ended September 30, 2019 excludes shares for which trades were executed during the three months ended June 30, 2019 and settlement occurred in July 2019.

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The Blackstone Group Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

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

Shares Eligible for Dividends and Distributions

As of September 30, 2019, the total number of shares of Class A common stock and Blackstone Holdings Partnership Units entitled to participate in dividends and distributions were as follows:


	Shares
Class A Common Stock Outstanding		666,257,305
Unvested Participating Common Stock		9,382,814

Total Participating Common Stock		675,640,119
Participating Blackstone Holdings Partnership Units		523,338,040

		1,198,978,159

16. Equity-Based Compensation

Blackstone has granted equity-based compensation awards to Blackstone’s senior managing directors,

non-partner

professionals,

non-professionals

and selected external advisers under Blackstone’s Amended and Restated 2007 Equity Incentive Plan (the “Equity Plan”). The Equity Plan allows for the granting of options, share appreciation rights or other share-based awards (shares, restricted shares, restricted shares of Class A common stock, deferred restricted shares of Class A common stock, phantom restricted shares of Class A common stock or other share-based awards based in whole or in part on the fair market value of shares of Blackstone Class A common stock or Blackstone Holdings Partnership Units) which may contain certain service or performance requirements. As of January 1, 2019, Blackstone had the ability to grant 171,502,746 shares under the Equity Plan.

For the three and nine months ended September 30, 2019, Blackstone recorded compensation expense of $107.8 million and $331.8 million, respectively, in relation to its equity-based awards with corresponding tax benefits of $3.4 million and $38.0 million, respectively. For the three and nine months ended September 30, 2018, Blackstone recorded compensation expense of $73.7 million and $282.7 million, respectively, in relation to its equity-based awards with corresponding tax benefits of $11.7 million and $46.3 million, respectively.

As of September 30, 2019, there was $918.1 million of estimated unrecognized compensation expense related to unvested awards. This cost is expected to be recognized over a weighted-average period of 4.1 years.

Total vested and unvested outstanding shares, including Blackstone Class A common stock, Blackstone Holdings Partnership Units and deferred restricted shares of Class A common stock, were 1,199,368,357 as of September 30, 2019. Total outstanding unvested phantom shares were 47,904 as of September 30, 2019.

A summary of the status of Blackstone’s unvested equity-based awards as of September 30, 2019 and of changes during the period January 1, 2019 through September 30, 2019 is presented below:


	Blackstone Holdings					The Blackstone Group Inc.
						Equity Settled Awards					Cash Settled Awards
				Weighted-		Deferred			Weighted-					Weighted-
				Average		Restricted Shares			Average					Average
	Partnership			Grant Date		of Class A			Grant Date		Phantom			Grant Date
Unvested Shares/Units	Units			Fair Value		Common Stock			Fair Value		Shares			Fair Value
Balance, December 31, 2018		31,554,127		$	34.38		9,312,268		$	31.43		46,808		$	34.66
Granted		8,634,416			43.38		3,376,642			38.17		10,661			48.71
Vested		(5,960,837	)		36.25		(3,173,977	)		31.22		(9,473	)		48.01
Forfeited		(178,247	)		31.99		(367,093	)		31.53		(4,787	)		47.95

Balance, September 30, 2019		34,049,459		$	36.04		9,147,840		$	34.04		43,209		$	48.63

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The Blackstone Group Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

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

Shares/Units Expected to Vest

The following unvested shares and units, after expected forfeitures, as of September 30, 2019, are expected to vest:


			Weighted-
			Average
			Service Period
	Shares/Units		in Years
Blackstone Holdings Partnership Units		27,622,630		3.4
Deferred Restricted Shares of Class A Common Stock		7,218,878		2.3

Total Equity-Based Awards		34,841,508		3.2

Phantom Shares		32,885		2.7

17. Related Party Transactions

Affiliate Receivables and Payables

Due from Affiliates and Due to Affiliates consisted of the following:


	September 30,		December 31,
	2019		2018
Due from Affiliates
Management Fees, Performance Revenues, Reimbursable Expenses and Other Receivables from Non-Consolidated Entities and Portfolio Companies	$	1,833,036	$	1,520,100
Due from Certain Non-Controlling Interest Holders and Blackstone Employees		615,083		462,475
Accrual for Potential Clawback of Previously Distributed Performance Allocations		16,044		11,548

	$	2,464,163	$	1,994,123


	September 30,		December 31,
	2019		2018
Due to Affiliates
Due to Certain Non-Controlling Interest Holders in Connection with the Tax Receivable Agreements	$	604,800	$	796,902
Due to Non-Consolidated Entities		141,036		99,728
Due to Note-Holders of Consolidated CLO Vehicles		101,614		56,012
Due to Certain Non-Controlling Interest Holders and Blackstone Employees		48,139		53,613
Accrual for Potential Repayment of Previously Received Performance Allocations		89,380		29,521

	$	984,969	$	1,035,776

Interests of the Founder, Senior Managing Directors, Employees and Other Related Parties

The Founder, senior managing directors, employees and certain other related parties invest on a discretionary basis in the consolidated Blackstone Funds both directly and through consolidated entities. These investments generally are subject to preferential management fee and performance allocation or incentive fee arrangements. As of September 30, 2019 and December 31, 2018, such investments aggregated $911.6 million and $842.9 million, respectively. Their share of the Net Income Attributable to Redeemable

Non-Controlling

and

Non-Controlling

Interests in Consolidated Entities aggregated $6.2 million and $21.2 million for the three months ended September 30, 2019 and 2018, respectively, and $54.8 million and $87.1 million for the nine months ended September 30, 2019 and 2018, respectively.

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The Blackstone Group Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

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

Loans to Affiliates

Loans to affiliates consist of interest bearing advances to certain Blackstone individuals to finance their investments in certain Blackstone Funds. These loans earn interest at Blackstone’s cost of borrowing and such interest totaled $1.1 million and $1.3 million for the three months ended September 30, 2019 and 2018, respectively, and $5.3 million and $3.8 million for the nine months ended September��30, 2019 and 2018, respectively.

Contingent Repayment Guarantee

Blackstone and its personnel who have received Performance Allocation distributions have guaranteed payment on a several basis (subject to a cap) to the carry funds of any clawback obligation with respect to the excess Performance Allocation allocated to the general partners of such funds and indirectly received thereby to the extent that either Blackstone or its personnel fails to fulfill its clawback obligation, if any. The Accrual for Potential Repayment of Previously Received Performance Allocations represents amounts previously paid to Blackstone Holdings and

non-controlling

interest holders that would need to be repaid to the Blackstone Funds if the carry funds were to be liquidated based on the fair value of their underlying investments as of September 30, 2019. See Note 18. “Commitments and Contingencies — Contingencies — Contingent Obligations (Clawback)”.

Aircraft and Other Services

In the normal course of business, Blackstone personnel make use of aircraft owned as personal assets by Stephen A. Schwarzman; an aircraft owned as a personal asset by Jonathan D. Gray, Blackstone’s President and Chief Operating Officer and a Director of Blackstone; and an aircraft owned jointly as a personal asset by Bennett J. Goodman,

Co-Founder

of GSO Capital and a Director of Blackstone, and a former senior managing director (each such aircraft, “Personal Aircraft”). Mr. Schwarzman paid for his purchases of his Personal Aircraft. Mr. Goodman paid for his interest in his jointly owned Personal Aircraft. Mr. Gray paid for his purchase of his Personal Aircraft. Mr. Schwarzman, Mr. Gray and Mr. Goodman respectively bear operating, personnel and maintenance costs associated with the operation of such Personal Aircraft. Payment by Blackstone for the use of the Personal Aircraft by Blackstone employees is made based on market rates.

In addition, on occasion, certain of Blackstone’s executive officers and employee directors and their families may make personal use of aircraft in which Blackstone owns a fractional interest, as well as other assets of Blackstone. Any such personal use of Blackstone assets is charged to the executive officer or employee director based on market rates and usage. Personal use of Blackstone resources is also reimbursed to Blackstone based on market rates.

The transactions described herein are not material to the Condensed Consolidated Financial Statements.

Tax Receivable Agreements

Blackstone used a portion of the proceeds from the IPO and the sale of

non-voting

common units to Beijing Wonderful Investments to purchase interests in the predecessor businesses from the predecessor owners. In addition, holders of Blackstone Holdings Partnership Units may exchange their Blackstone Holdings Partnership Units for shares of Blackstone Class A common stock on a

one-for-one

basis. The purchase and subsequent exchanges are expected to result in increases in the tax basis of the tangible and intangible assets of Blackstone Holdings and therefore reduce the amount of tax that Blackstone would otherwise be required to pay in the future.

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Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

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

Blackstone

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

As a result of the Conversion, there was a reduction of $174.6 million of the tax receivable agreement liability.

Assuming no future material changes in the relevant tax law and that the corporate taxpayers earn sufficient taxable income to realize the full tax benefit of the increased amortization of the assets, the expected future payments under the tax receivable agreements (which are taxable to the recipients) will aggregate $

604.8

million over the next

years. The

after-tax

net present value of these estimated payments totals $

171.0

million assuming a

% discount rate and using Blackstone’s most recent projections relating to the estimated timing of the benefit to be received. Future payments under the tax receivable agreements in respect of subsequent exchanges would be in addition to these amounts. The payments under the tax receivable agreements are not conditioned upon continued ownership of Blackstone equity interests by the

pre-IPO

owners and the others mentioned above.

Amounts related to the deferred tax asset resulting from the increase in tax basis from the exchange of Blackstone Holdings Partnership Units to shares of Blackstone Class A common stock, the resulting remeasurement of net deferred tax assets at the Blackstone ownership percentage at the balance sheet date, the due to affiliates for the future payments resulting from the tax receivable agreements and resulting adjustment to partners’ capital are included as Acquisition of Ownership Interests from

Non-Controlling

Interest Holders in the Supplemental Disclosure of

Non-Cash

Investing and Financing Activities in the Condensed Consolidated Statements of Cash Flows.

Other

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

Additionally, please see Note 18. “Commitments and Contingencies — Contingencies — Guarantees” for information regarding guarantees provided to a lending institution for certain loans held by employees.

18. Commitments and Contingencies

Commitments

Investment Commitments

Blackstone had $4.2 billion of investment commitments as of September 30, 2019 representing general partner capital funding commitments to the Blackstone Funds, limited partner capital funding to other funds and Blackstone principal investment commitments. The consolidated Blackstone Funds had signed investment commitments of $122.5

illion as of September 30, 2019 which includes $63.2

illion of signed investment commitments for portfolio company acquisitions in the process of closing.

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The Blackstone Group Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

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

Contingencies

Guarantees

Certain of Blackstone’s consolidated real estate funds guarantee payments to third parties in connection with the

on-going

business activities and/or acquisitions of their Portfolio Companies. There is no direct recourse to Blackstone to fulfill such obligations. To the extent that underlying funds are required to fulfill guarantee obligations, Blackstone’s invested capital in such funds is at risk. Total investments at risk in respect of guarantees extended by consolidated real estate funds was $15.8 million as of September 30, 2019.

The Blackstone Holdings Partnerships provided guarantees to a lending institution for certain loans held by employees either for investment in Blackstone Funds or for members’ capital contributions to The Blackstone Group International Partners LLP. The amount guaranteed as of September 30, 2019 was $179.8 million.

Litigation

Blackstone may from time to time be involved in litigation and claims incidental to the conduct of its business. Blackstone’s businesses are also subject to extensive regulation, which may result in regulatory proceedings against Blackstone.

Blackstone accrues a liability for legal proceedings only when those matters present loss contingencies that are both probable and reasonably estimable. In such cases, there may be an exposure to loss in excess of any amounts accrued. Although there can be no assurance of the outcome of such legal actions, based on information known by management, Blackstone does not have a potential liability related to any current legal proceeding or claim that would individually or in the aggregate materially affect its results of operations, financial position or cash flows.

In December 2017, a purported derivative suit (Mayberry v. KKR & Co., L.P., et al.) was filed in the Commonwealth of Kentucky Franklin County Circuit Court on behalf of the Kentucky Retirement System (“KRS”) by eight of its members and beneficiaries alleging various breaches of fiduciary duty and other violations of Kentucky state law in connection with KRS’s investment in three hedge funds of funds, including a fund managed by Blackstone Alternative Asset Management L.P. (“BAAM L.P.”). The suit names more than 30 defendants, including The Blackstone Group L.P.; BAAM L.P.; Stephen A. Schwarzman, as Chairman and CEO of Blackstone; and J. Tomilson Hill, as then-President and CEO of the Hedge Fund Solutions Group, Vice Chairman of Blackstone and CEO of BAAM (collectively, the “Blackstone Defendants”). Aside from the Blackstone Defendants, the action also names current and former KRS trustees and former KRS officers and various other service providers to KRS and their related persons.

The plaintiffs filed an amended complaint in January 2018. In November 2018, the Circuit Court granted one defendant’s motion to dismiss and denied all other defendants’ motions to dismiss, including those of the Blackstone Defendants. In January 2019, certain of the KRS trustee and officer defendants noticed appeals from the denial of the motions to dismiss to the Kentucky Court of Appeals, and also filed a motion to stay the Mayberry proceedings in Circuit Court pending the outcome of those appeals. In addition, several defendants, including Blackstone and BAAM L.P., filed petitions in the Kentucky Court of Appeals for a writ of prohibition against the ongoing Mayberry proceedings on the ground that the plaintiffs lack standing. In April 2019, the KRS trustee and officer defendants’ appeals were transferred to the Kentucky Supreme Court.

On April 23, 2019, the Kentucky Court of Appeals granted the Blackstone Defendants’ petition for a writ of prohibition and vacated the Circuit Court’s November 30, 2018 Opinion and Order denying the motion to dismiss for lack of standing. On April 24, 2019, the Mayberry Plaintiffs filed a notice of appeal of that order to the Kentucky Supreme Court. The Kentucky Supreme Court heard oral argument on the appeal on October 24, 2019.

Blackstone believes that this suit is totally without merit and intends to defend it vigorously.

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The Blackstone Group Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

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

Contingent Obligations (Clawback)

liability. The lives of the carry funds, including available contemplated extensions, for which a liability for potential clawback obligations has been recorded for financial reporting purposes, are currently anticipated to expire at various points through 2028. Further extensions of such terms may be implemented under given circumstances.

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

The following table presents the clawback obligations by segment:


	September 30, 2019							December 31, 2018
			Current and							Current and
	Blackstone		Former					Blackstone		Former
Segment	Holdings		Personnel (a)			Total		Holdings		Personnel (a)			Total
Real Estate	$	18,104	$	11,542		$	29,646	$	15,770	$	10,053		$	25,823
Private Equity		55,398		(3,462	)		51,936		13,296		(12,448	)		848
Credit		3,296		4,502			7,798		1,355		1,495			2,850

	$	76,798	$	12,582		$	89,380	$	30,421	$	(900	)	$	29,521

(a)	The split of clawback between Blackstone Holdings and Current and Former Personnel is based on the performance of individual investments held by a fund rather than on a fund by fund basis.

For Private Equity, Real Estate, and certain Credit Funds, a portion of the Performance Allocations paid to current and former Blackstone personnel is held in segregated accounts in the event of a cash clawback obligation. These segregated accounts are not included in the Condensed Consolidated Financial Statements of Blackstone, except to the extent a portion of the assets held in the segregated accounts may be allocated to a consolidated Blackstone fund of hedge funds. At September 30, 2019, $701.6 million was held in segregated accounts for the purpose of meeting any clawback obligations of current and former personnel if such payments are required.

In the Credit segment, payment of Performance Allocations to Blackstone by the majority of the stressed/distressed, mezzanine and credit alpha strategies funds are substantially deferred under the terms of the partnership agreements. This deferral mitigates the need to hold funds in segregated accounts in the event of a cash clawback obligation.

If, at September 30, 2019, all of the investments held by our carry funds were deemed worthless, a possibility that management views as remote, the amount of Performance Allocations subject to potential clawback would be $7.3 billion, on an

after-tax

19. Segment Reporting

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

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The Blackstone Group Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

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

Blackstone conducts its alternative asset management businesses through 4 segments:

•

Real Estate – Blackstone’s Real Estate segment primarily comprises its management of global, Europe and Asia-focused opportunistic real estate funds, high-yield real estate debt funds, liquid real estate debt funds, core+ real estate funds, a NYSE-listed REIT and a

non-exchange

traded REIT.

•

Private Equity – Blackstone’s Private Equity segment primarily comprises its management of flagship corporate private equity funds, sector and geographically-focused corporate private equity funds, including energy and Asia-focused funds, a core private equity fund, an opportunistic investment platform, a secondary fund of funds business, infrastructure-focused funds, a life sciences private investment platform, a multi-asset investment program for eligible high net worth investors and a capital markets services business.

•

Hedge Fund Solutions – The largest component of Blackstone’s Hedge Fund Solutions segment is Blackstone Alternative Asset Management, which manages a broad range of commingled and customized hedge fund of fund solutions. The segment also includes investment platforms that seed new hedge fund businesses, purchase minority ownership interests in more established hedge funds, invest in special situation opportunities, create alternative solutions in the form of mutual funds and UCITS and trade directly.

•

Credit – Blackstone’s Credit segment consists principally of GSO Capital Partners LP, which is organized into performing credit strategies (which include mezzanine lending funds, middle market direct lending funds, including our business development company, and other performing credit strategy funds), distressed strategies (which include credit alpha strategies, stressed/distressed funds and energy strategies) and long only strategies (which consist of CLOs, closed end funds, open end funds and separately managed accounts). In addition, the segment includes a publicly traded master limited partnership investment platform, Harvest, and our insurer-focused platform, Blackstone Insurance Solutions.

These business segments are differentiated by their various investment strategies. The Real Estate, Private Equity, Hedge Fund Solutions and Credit segments primarily earn their income from management fees and investment returns on assets under management.

Segment Distributable Earnings is Blackstone’s segment profitability measure used to make operating decisions and assess performance across Blackstone’s four segments. Blackstone’s segments are presented on a basis that deconsolidates Blackstone Funds, eliminates

non-controlling

ownership interests in Blackstone’s consolidated operating partnerships, removes the amortization of intangible assets and removes Transaction-Related Charges. Transaction-Related Charges arise from corporate actions including acquisitions, divestitures and Blackstone’s initial public offering. They consist primarily of equity-based compensation charges, gains and losses on contingent consideration arrangements, changes in the balance of the Tax Receivable Agreement resulting from a change in tax law or similar event, transaction costs and any gains or losses associated with these corporate actions.

For segment reporting purposes, Segment Distributable Earnings is presented along with its major components, Fee Related Earnings and Net Realizations. Fee Related Earnings is used to assess Blackstone’s ability to generate profits from revenues that are measured and received on a recurring basis and not subject to future realization events. Net Realizations is the sum of Realized Principal Investment Income and Realized Performance Revenues less Realized Performance Compensation. Performance Allocations and Incentive Fees are presented together and referred to collectively as Performance Revenues or Performance Compensation.

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The Blackstone Group Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

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

Segment Presentation

The following tables present the financial data for Blackstone’s four segments for the three months ended September 30, 2019 and 2018:


	Three Months Ended September 30, 2019
	Real			Private			Hedge Fund						Total
	Estate			Equity			Solutions			Credit			Segments
Management and Advisory Fees, Net
Base Management Fees	$	266,779		$	252,510		$	140,694		$	149,746		$	809,729
Transaction, Advisory and Other Fees, Net		73,385			14,657			691			3,969			92,702
Management Fee Offsets		(7,635	)		(11,889	)		(18	)		(2,544	)		(22,086	)

Total Management and Advisory Fees, Net		332,529			255,278			141,367			151,171			880,345
Fee Related Performance Revenues		30,600			—			—			3,625			34,225
Fee Related Compensation		(132,183	)		(105,773	)		(38,898	)		(52,980	)		(329,834	)
Other Operating Expenses		(43,897	)		(38,235	)		(20,495	)		(41,724	)		(144,351	)

Fee Related Earnings		187,049			111,270			81,974			60,092			440,385

Realized Performance Revenues		282,379			124,231			1,848			12,382			420,840
Realized Performance Compensation		(85,544	)		(52,034	)		(1,000	)		(5,292	)		(143,870	)
Realized Principal Investment Income		17,968			11,977			1,480			4,723			36,148

Total Net Realizations		214,803			84,174			2,328			11,813			313,118

Total Segment Distributable Earnings	$	401,852		$	195,444		$	84,302		$	71,905		$	753,503


	Three Months Ended September 30, 2018
	Real			Private			Hedge Fund						Total
	Estate			Equity			Solutions			Credit			Segments
Management and Advisory Fees, Net
Base Management Fees	$	254,088		$	205,893		$	129,554		$	132,071		$	721,606
Transaction, Advisory and Other Fees, Net		45,678			21,709			766			5,791			73,944
Management Fee Offsets		(8,265	)		(4,973	)		—			(3,093	)		(16,331	)

Total Management and Advisory Fees, Net		291,501			222,629			130,320			134,769			779,219
Fee Related Performance Revenues		30,299			—			—			—			30,299
Fee Related Compensation		(128,342	)		(105,621	)		(43,443	)		(57,139	)		(334,545	)
Other Operating Expenses		(39,787	)		(36,654	)		(20,753	)		(31,551	)		(128,745	)

Fee Related Earnings		153,671			80,354			66,124			46,079			346,228

Realized Performance Revenues		273,309			290,012			3,985			4,853			572,159
Realized Performance Compensation		(79,309	)		(106,400	)		(1,922	)		(3,142	)		(190,773	)
Realized Principal Investment Income		16,197			44,408			2,024			2,991			65,620

Total Net Realizations		210,197			228,020			4,087			4,702			447,006

Total Segment Distributable Earnings	$	363,868		$	308,374		$	70,211		$	50,781		$	793,234

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The Blackstone Group Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

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

The following tables present the financial data for Blackstone’s four segments as of September 30, 2019 and for the nine months ended September 30, 2019 and 2018:


	September 30, 2019 and the Nine Months Then Ended
	Real			Private			Hedge Fund						Total
	Estate			Equity			Solutions			Credit			Segments
Management and Advisory Fees, Net
Base Management Fees	$	782,660		$	737,066		$	415,012		$	437,824		$	2,372,562
Transaction, Advisory and Other Fees, Net		121,286			83,474			1,732			12,855			219,347
Management Fee Offsets		(9,601	)		(34,563	)		(18	)		(9,164	)		(53,346	)

Total Management and Advisory Fees, Net		894,345			785,977			416,726			441,515			2,538,563
Fee Related Performance Revenues		48,348			—			—			7,280			55,628
Fee Related Compensation		(344,794	)		(318,467	)		(118,474	)		(165,964	)		(947,699	)
Other Operating Expenses		(122,997	)		(112,865	)		(59,492	)		(114,429	)		(409,783	)

Fee Related Earnings		474,902			354,645			238,760			168,402			1,236,709

Realized Performance Revenues		558,134			403,737			17,899			29,225			1,008,995
Realized Performance Compensation		(183,186	)		(154,671	)		(4,588	)		(12,131	)		(354,576	)
Realized Principal Investment Income		63,257			80,022			13,503			28,831			185,613

Total Net Realizations		438,205			329,088			26,814			45,925			840,032

Total Segment Distributable Earnings	$	913,107		$	683,733		$	265,574		$	214,327		$	2,076,741

Segment Assets	$	8,952,459		$	8,917,445		$	2,248,509		$	3,854,831		$	23,973,244


	Nine Months Ended September 30, 2018
	Real			Private			Hedge Fund						Total
	Estate			Equity			Solutions			Credit			Segments
Management and Advisory Fees, Net
Base Management Fees	$	730,294		$	584,375		$	388,335		$	418,673		$	2,121,677
Transaction, Advisory and Other Fees, Net		92,625			45,583			1,923			11,791			151,922
Management Fee Offsets		(13,718	)		(12,517	)		—			(9,107	)		(35,342	)

Total Management and Advisory Fees, Net		809,201			617,441			390,258			421,357			2,238,257
Fee Related Performance Revenues		80,317			—			—			(666	)		79,651
Fee Related Compensation		(349,735	)		(289,357	)		(123,615	)		(174,155	)		(936,862	)
Other Operating Expenses		(105,230	)		(103,852	)		(58,032	)		(91,189	)		(358,303	)

Fee Related Earnings		434,553			224,232			208,611			155,347			1,022,743

Realized Performance Revenues		741,999			505,306			21,432			59,337			1,328,074
Realized Performance Compensation		(230,140	)		(207,958	)		(7,391	)		(33,007	)		(478,496	)
Realized Principal Investment Income		81,086			83,346			10,430			14,098			188,960

Total Net Realizations		592,945			380,694			24,471			40,428			1,038,538

Total Segment Distributable Earnings	$	1,027,498		$	604,926		$	233,082		$	195,775		$	2,061,281

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The Blackstone Group Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

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

Reconciliations of Total Segment Amounts

The following tables reconcile the Total Segment Revenues, Expenses and Distributable Earnings to their equivalent GAAP measure for the three and nine months ended September 30, 2019 and 2018 along with Total Assets as of September 30, 2019:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Revenues
Total GAAP Revenues	$	1,735,113		$	1,926,580		$	5,246,790		$	6,328,281
Less: Unrealized Performance Revenues (a)		(176,604	)		(298,931	)		(998,335	)		(1,367,694	)
Less: Unrealized Principal Investment (Income) Loss (b)		5,219			(28,704	)		(78,353	)		(94,808	)
Less: Interest and Dividend Revenue (c)		(45,048	)		(49,936	)		(137,738	)		(128,048	)
Less: Other Revenue (d)		(92,843	)		(9,092	)		(85,882	)		(42,614	)
Impact of Consolidation (e)		120,214			(92,092	)		15,246			(278,368	)
Amortization of Intangibles (f)		387			387			1,161			1,161
Transaction-Related Charges (g)		(176,623	)		(2,168	)		(179,329	)		(586,855	)
Intersegment Eliminations		1,743			1,253			5,239			3,887

Total Segment Revenue (h)	$	1,371,558		$	1,447,297		$	3,788,799		$	3,834,942


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Expenses
Total GAAP Expenses	$	947,220		$	1,017,632		$	2,850,624		$	3,016,944
Less: Unrealized Performance Allocations Compensation (i)		(94,907	)		(178,184	)		(446,440	)		(622,610	)
Less: Equity-Based Compensation (j)		(58,570	)		(36,576	)		(178,451	)		(115,118	)
Less: Interest Expense (k)		(52,815	)		(40,923	)		(137,683	)		(118,046	)
Impact of Consolidation (e)		(14,444	)		(13,260	)		(39,716	)		(99,447	)
Amortization of Intangibles (f)		(16,096	)		(14,469	)		(48,288	)		(43,441	)
Transaction-Related Charges (g)		(94,076	)		(81,410	)		(293,227	)		(248,508	)
Intersegment Eliminations		1,743			1,253			5,239			3,887

Total Segment Expenses (l)	$	618,055		$	654,063		$	1,712,058		$	1,773,661


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Other Income
Total GAAP Other Income	$	223,056		$	66,838		$	414,512		$	250,956
Impact of Consolidation (e)		(223,056	)		(66,838	)		(414,512	)		(250,956	)

Total Segment Other Income	$	—		$	—		$	—		$	—

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The Blackstone Group Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

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


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Income Before Provision for Taxes
Total GAAP Income Before Provision for Taxes	$	1,010,949		$	975,786		$	2,810,678		$	3,562,293
Less: Unrealized Performance Revenues (a)		(176,604	)		(298,931	)		(998,335	)		(1,367,694	)
Less: Unrealized Principal Investment (Income) Loss (b)		5,219			(28,704	)		(78,353	)		(94,808	)
Less: Interest and Dividend Revenue (c)		(45,048	)		(49,936	)		(137,738	)		(128,048	)
Less: Other Revenue (d)		(92,843	)		(9,092	)		(85,882	)		(42,614	)
Plus: Unrealized Performance Allocations Compensation (i)		94,907			178,184			446,440			622,610
Plus: Equity-Based Compensation (j)		58,570			36,576			178,451			115,118
Plus: Interest Expense (k)		52,815			40,923			137,683			118,046
Impact of Consolidation (e)		(88,398	)		(145,670	)		(359,550	)		(429,877	)
Amortization of Intangibles (f)		16,483			14,856			49,449			44,602
Transaction-Related Charges (g)		(82,547	)		79,242			113,898			(338,347	)

Total Segment Distributable Earnings	$	753,503		$	793,234		$	2,076,741		$	2,061,281


	As of
	September 30,
	2019
Total Assets
Total GAAP Assets	$	32,385,771
Impact of Consolidation (e)		(8,412,527	)

Total Segment Assets	$	23,973,244

Segment basis presents revenues and expenses on a basis that deconsolidates the investment funds Blackstone manages and excludes the amortization of intangibles and Transaction-Related Charges.

(a)	This adjustment removes Unrealized Performance Revenues on a segment basis.

(b)	This adjustment removes Unrealized Principal Investment Income on a segment basis.

(c)	This adjustment removes Interest and Dividend Revenue on a segment basis.

(d)	This adjustment removes Other Revenue on a segment basis.

(e)

This adjustment reverses the effect of consolidating Blackstone Funds, which are excluded from Blackstone’s segment presentation. This adjustment includes the elimination of Blackstone’s interest in these funds, the removal of revenue from the reimbursement of certain expenses by the Blackstone Funds, which are presented gross under GAAP but netted against Management and Advisory Fees, Net in the Total Segment measures, and the removal of amounts associated with the ownership of Blackstone consolidated operating partnerships held by

non-controlling

interests.

(f)	This adjustment removes the amortization of transaction-related intangibles, which are excluded from Blackstone’s segment presentation. This amount includes amortization of intangibles associated with Blackstone’s investment in Pátria, which is accounted for under the equity method.

(g)

This adjustment removes Transaction-Related Charges, which are excluded from Blackstone’s segment presentation. Transaction-Related Charges arise from corporate actions including acquisitions, divestitures, and Blackstone’s initial public offering. They consist primarily of equity-based compensation charges, gains and losses on contingent consideration arrangements, changes in the balance of the Tax Receivable Agreement resulting from a change in tax law or similar event, transaction costs and any gains or losses associated with these corporate actions.

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The Blackstone Group Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

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

(h)	Total Segment Revenues is comprised of the following:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Total Segment Management and Advisory Fees, Net	$	880,345	$	779,219	$	2,538,563	$	2,238,257
Total Segment Fee Related Performance Revenues		34,225		30,299		55,628		79,651
Total Segment Realized Performance Revenues		420,840		572,159		1,008,995		1,328,074
Total Segment Realized Principal Investment Income		36,148		65,620		185,613		188,960

Total Segment Revenues	$	1,371,558	$	1,447,297	$	3,788,799	$	3,834,942

(i)	This adjustment removes Unrealized Performance Allocations Compensation.

(j)	This adjustment removes Equity-Based Compensation on a segment basis.

(k)	This adjustment removes Interest Expense, excluding interest expense related to the Tax Receivable Agreement.

(l)	Total Segment Expenses is comprised of the following:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Total Segment Fee Related Compensation	$	329,834	$	334,545	$	947,699	$	936,862
Total Segment Realized Performance Compensation		143,870		190,773		354,576		478,496
Total Segment Other Operating Expenses		144,351		128,745		409,783		358,303

Total Segment Expenses	$	618,055	$	654,063	$	1,712,058	$	1,773,661

Reconciliations of Total Segment Components

The following tables reconcile the components of Total Segments to their equivalent GAAP measures, reported on the Condensed Consolidated Statement of Operations for the three and nine months ended September 30, 2019 and 2018:


	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2019		2018			2019		2018
Management and Advisory Fees, Net
GAAP	$	878,151	$	780,009		$	2,528,255	$	2,230,242
Segment Adjustment (a)		2,194		(790	)		10,308		8,015

Total Segment	$	880,345	$	779,219		$	2,538,563	$	2,238,257

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The Blackstone Group Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

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


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
GAAP Realized Performance Revenues to Total Segment Fee Related Performance Revenues
GAAP
Incentive Fees	$	8,254		$	9,799		$	42,301		$	41,743
Investment Income - Realized Performance Allocations		446,550			592,103			1,021,445			1,365,119

GAAP		454,804			601,902			1,063,746			1,406,862
Total Segment
Less: Realized Performance Revenues		(420,840	)		(572,159	)		(1,008,995	)		(1,328,074	)
Segment Adjustment (b)		261			556			877			863

Total Segment	$	34,225		$	30,299		$	55,628		$	79,651


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
GAAP Compensation to Total Segment Fee Related Compensation
GAAP
Compensation	$	462,766		$	419,285		$	1,372,684		$	1,236,167
Incentive Fee Compensation		5,419			7,251			19,711			23,656
Realized Performance Allocations Compensation		155,663			200,442			367,883			498,902

GAAP		623,848			626,978			1,760,278			1,758,725
Total Segment
Less: Realized Performance Compensation		(143,870	)		(190,773	)		(354,576	)		(478,496	)
Less: Equity-Based Compensation - Operating Compensation		(56,139	)		(33,514	)		(170,072	)		(105,245	)
Less: Equity-Based Compensation - Performance Compensation		(2,431	)		(3,062	)		(8,379	)		(9,873	)
Segment Adjustment (c)		(91,574	)		(65,084	)		(279,552	)		(228,249	)

Total Segment	$	329,834		$	334,545		$	947,699		$	936,862


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
GAAP General, Administrative and Other to Total Segment Other Operating Expenses
GAAP	$	171,067		$	168,813		$	492,437		$	441,354
Segment Adjustment (d)		(26,716	)		(40,068	)		(82,654	)		(83,051	)

Total Segment	$	144,351		$	128,745		$	409,783		$	358,303

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The Blackstone Group Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

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


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Realized Performance Revenues
GAAP
Incentive Fees	$	8,254		$	9,799		$	42,301		$	41,743
Investment Income - Realized Performance Allocations		446,550			592,103			1,021,445			1,365,119

GAAP		454,804			601,902			1,063,746			1,406,862
Total Segment
Less: Fee Related Performance Revenues		(34,225	)		(30,299	)		(55,628	)		(79,651	)
Segment Adjustment (b)		261			556			877			863

Total Segment	$	420,840		$	572,159		$	1,008,995		$	1,328,074


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Realized Performance Compensation
GAAP
Incentive Fee Compensation	$	5,419		$	7,251		$	19,711		$	23,656
Realized Performance Allocation Compensation		155,663			200,442			367,883			498,902

GAAP		161,082			207,693			387,594			522,558
Total Segment
Less: Fee Related Performance Compensation		(14,781	)		(13,858	)		(24,639	)		(34,189	)
Less: Equity-Based Compensation - Performance Compensation		(2,431	)		(3,062	)		(8,379	)		(9,873	)

Total Segment	$	143,870		$	190,773		$	354,576		$	478,496


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Realized Principal Investment Income
GAAP	$	74,642		$	134,619		$	292,943		$	305,961
Segment Adjustment (e)		(38,494	)		(68,999	)		(107,330	)		(117,001	)

Total Segment	$	36,148		$	65,620		$	185,613		$	188,960

Segment basis presents revenues and expenses on a basis that deconsolidates the investment funds Blackstone manages and excludes the amortization of intangibles, the expense of equity-based awards and Transaction-Related Charges.

(a)

Represents (1) the add back of net management fees earned from consolidated Blackstone Funds which have been eliminated in consolidation, and (2) the removal of revenue from the reimbursement of certain expenses by the Blackstone Funds, which are presented gross under GAAP but netted against Management and Advisory Fees, Net in the Total Segment measures.

(b)	Represents the add back of Performance Revenues earned from consolidated Blackstone Funds which have been eliminated in consolidation.

(c)	Represents the removal of Transaction-Related Charges that are not recorded in the Total Segment measures.

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The Blackstone Group Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

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

(d)	Represents the removal of (1) the amortization of transaction-related intangibles, and (2) certain expenses reimbursed by the Blackstone Funds, which are presented gross under GAAP but netted against Management and Advisory Fees, Net in the Total Segment measures.

(e)

Represents (1) the add back of Principal Investment Income, including general partner income, earned from consolidated Blackstone Funds which have been eliminated in consolidation, and (2) the removal of amounts associated with the ownership of Blackstone consolidated operating partnerships held by

non-controlling

interests.

20. Subsequent Events

non-tendered

2021 Notes remained outstanding and therefore are included in Blackstone’s consolidated financial statements in accordance with their terms. See Note 12. “Borrowings” for additional information.

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Item 1A. Unaudited Supplemental Presentation of Statements of Financial Condition

The Blackstone Group Inc.

Unaudited Consolidating Statements of Financial Condition

(Dollars in Thousands)


	September 30, 2019
	Consolidated			Consolidated
	Operating			Blackstone		Reclasses and
	Partnerships			Funds (a)		Eliminations			Consolidated
Assets
Cash and Cash Equivalents	$	2,468,563		$	—	$	—		$	2,468,563
Cash Held by Blackstone Funds and Other		—			375,981		—			375,981
Investments		14,364,978			8,481,233		(641,751	)		22,204,460
Accounts Receivable		536,616			219,161		—			755,777
Due from Affiliates		2,487,710			7,952		(31,499	)		2,464,163
Intangible Assets, Net		415,257			—		—			415,257
Goodwill		1,869,860			—		—			1,869,860
Other Assets		401,220			1,450		—			402,670
Right-of-Use Assets		490,882			—		—			490,882
Deferred Tax Assets		938,158			—		—			938,158

Total Assets	$	23,973,244		$	9,085,777	$	(673,250	)	$	32,385,771


Liabilities and Equity
Loans Payable	$	4,777,560		$	6,492,685	$	—		$	11,270,245
Due to Affiliates		794,873			582,046		(391,950	)		984,969
Accrued Compensation and Benefits		3,623,258			—		—			3,623,258
Securities Sold, Not Yet Purchased		24,584			62,467		—			87,051
Repurchase Agreements		—			163,059		—			163,059
Operating Lease Liabilities		558,253			—		—			558,253
Accounts Payable, Accrued Expenses and Other Liabilities		715,545			353,930		—			1,069,475

Total Liabilities		10,494,073			7,654,187		(391,950	)		17,756,310


Redeemable Non-Controlling Interests in Consolidated Entities		22,002			71,665		—			93,667


Equity
Class A Common Stock		7			—		—			7
Class B Common Stock		—			—		—			—
Class C Common Stock		—			—		—			—
Additional Paid-in-Capital		6,292,765			279,620		(279,620	)		6,292,765
Retained Earnings		456,814			1,680		(1,680	)		456,814
Accumulated Other Comprehensive Loss		(35,173	)		—		—			(35,173	)
Non-Controlling Interests in Consolidated Entities		2,956,888			1,078,625		—			4,035,513
Non-Controlling Interests in Blackstone Holdings		3,785,868			—		—			3,785,868

Total Equity		13,457,169			1,359,925		(281,300	)		14,535,794

Total Liabilities and Equity	$	23,973,244		$	9,085,777	$	(673,250	)	$	32,385,771

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The Blackstone Group Inc.

Unaudited Consolidating Statements of Financial Condition

(Dollars in Thousands)


	December 31, 2018
	Consolidated			Consolidated
	Operating			Blackstone		Reclasses and
	Partnerships			Funds (a)		Eliminations			Consolidated
Assets
Cash and Cash Equivalents	$	2,207,841		$	—	$	—		$	2,207,841
Cash Held by Blackstone Funds and Other		—			337,320		—			337,320
Investments		12,596,138			8,376,338		(595,445	)		20,377,031
Accounts Receivable		455,308			180,930		—			636,238
Due from Affiliates		2,011,324			7,405		(24,606	)		1,994,123
Intangible Assets, Net		468,507			—		—			468,507
Goodwill		1,869,860			—		—			1,869,860
Other Assets		290,366			3,882		—			294,248
Deferred Tax Assets		739,482			—		—			739,482

Total Assets	$	20,638,826		$	8,905,875	$	(620,051	)	$	28,924,650


Liabilities and Partners’ Capital
Loans Payable	$	3,471,151		$	6,480,711	$	—		$	9,951,862
Due to Affiliates		907,748			470,780		(342,752	)		1,035,776
Accrued Compensation and Benefits		2,942,128			—		—			2,942,128
Securities Sold, Not Yet Purchased		50,014			92,603		—			142,617
Repurchase Agreements		—			222,202		—			222,202
Accounts Payable, Accrued Expenses and Other Liabilities		622,490			253,489		—			875,979

Total Liabilities		7,993,531			7,519,785		(342,752	)		15,170,564


Redeemable Non-Controlling Interests in Consolidated Entities		22,000			119,779		—			141,779


Partners’ Capital
Partners’ Capital		6,415,700			277,299		(277,299	)		6,415,700
Accumulated Other Comprehensive Loss		(36,476	)		—		—			(36,476	)
Non-Controlling Interests in Consolidated Entities		2,659,754			989,012		—			3,648,766
Non-Controlling Interests in Blackstone Holdings		3,584,317			—		—			3,584,317

Total Partners’ Capital		12,623,295			1,266,311		(277,299	)		13,612,307

Total Liabilities and Partners’ Capital	$	20,638,826		$	8,905,875	$	(620,051	)	$	28,924,650

(a)	The Consolidated Blackstone Funds consisted of the following:

Blackstone / GSO Global Dynamic Credit Feeder Fund (Cayman) LP

Blackstone / GSO Global Dynamic Credit Funding Designated Activity Company

Blackstone / GSO Global Dynamic Credit Master Fund

Blackstone / GSO Global Dynamic Credit USD Feeder Fund (Ireland)

Blackstone Real Estate Special Situations Fund L.P.*

Blackstone Real Estate Special Situations Offshore Fund Ltd.

Blackstone Strategic Alliance Fund L.P.

BSSF I AIV L.P.*

BTD CP Holdings LP

Collateralized loan obligation vehicles

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Mezzanine

side-by-side

investment vehicles

Private equity

side-by-side

investment vehicles

Real estate

side-by-side

investment vehicles

* Consolidated as of December 31, 2018 only.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with The Blackstone Group Inc.’s condensed consolidated financial statements and the related notes included within this Quarterly Report on Form

10-Q.

Effective July 1, 2019, The Blackstone Group L.P. (the “Partnership”) converted from a Delaware limited partnership to a Delaware corporation, The Blackstone Group Inc. (the “Conversion”). This report includes the results for the Partnership prior to the Conversion and The Blackstone Group Inc. following the Conversion. In this report, references to “Blackstone,” the “Corporation,” “we,” “us” or “our” refer to (a) The Blackstone Group Inc. and its consolidated subsidiaries following the Conversion and (b) the Partnership and its consolidated subsidiaries prior to the Conversion. All references to shares or per share amounts prior to the Conversion refer to units or per unit amounts. Unless otherwise noted, all references to shares or per share amounts following the Conversion refer to shares or per share amounts of Class A common stock. All references to dividends prior to the Conversion refer to distributions. See “– Organizational Structure.”

Our Business

Blackstone is one of the largest independent managers of private capital in the world. Our business is organized into four segments:

•

Real Estate.

Our real estate group is one of the largest real estate investment managers in the world. We operate as one globally integrated business, with investments in North America, Europe, Asia and Latin America. Our real estate investment team seeks to establish a differentiated view and capitalizes on our scale and proprietary information advantages to invest with conviction and generate attractive risk-adjusted returns for our investors over the long-term.

Our Blackstone Real Estate Partners (“BREP”) funds are geographically diversified and target a broad range of “opportunistic” real estate and real estate related investments. The BREP funds include global funds as well as funds focused specifically on Europe or Asia investments. We seek to acquire high quality, well-located yet undermanaged assets at an attractive basis, address any property or business issues through active asset management and sell the assets once our business plan is accomplished. BREP has made significant investments in hotels, office buildings, industrial assets, residential and shopping centers, as well as a variety of real estate operating companies.

Our core+ real estate business, Blackstone Property Partners (“BPP”) has assembled a global portfolio of high quality core+ investments across the U.S., Europe and Asia. We manage several core+ real estate funds, which target substantially stabilized assets in prime markets with a focus on industrial, multifamily, office and retail assets.

BREIT, a

non-exchange

traded real estate investment trust (“REIT”), is focused on investing primarily in stabilized income-oriented commercial real estate in the U.S.

Our Blackstone Real Estate Debt Strategies (“BREDS”) vehicles target debt investment opportunities collateralized by commercial real estate in both public and private markets, primarily in the U.S. and Europe. BREDS’ scale and investment mandates enable it to provide a variety of lending and investment options including mezzanine loans, senior loans and liquid securities. The BREDS platform includes a number of high-yield real estate debt funds, liquid real estate debt funds and BXMT, a NYSE-listed REIT.

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•

Private Equity.

We are a world leader in private equity investing, having managed eight general private equity funds, as well as four sector-focused funds and a geographically-focused fund, since we established this business in 1987. Our Private Equity segment includes our corporate private equity business, which consists of (a) our flagship private equity funds (Blackstone Capital Partners (“BCP”) funds), (b) our sector-focused private equity funds, including our energy-focused funds (Blackstone Energy Partners (“BEP”) funds), (c) our Asia-focused funds (Blackstone Capital Partners Asia (“BCP Asia”) funds) and (d) our core private equity fund, Blackstone Core Equity Partners (“BCEP”). In addition, our Private Equity segment includes (a) our opportunistic investment platform that invests globally across asset classes, industries and geographies, Blackstone Tactical Opportunities (“Tactical Opportunities”), (b) our secondary fund of funds business, Strategic Partners Fund Solutions (“Strategic Partners”), (c) our infrastructure-focused funds, Blackstone Infrastructure Partners (“BIP”), (d) our life sciences private investment platform, Blackstone Life Sciences (“BXLS”), (e) a multi-asset investment program for eligible high net worth investors offering exposure to certain of Blackstone’s key illiquid investment strategies through a single commitment, Blackstone Total Alternatives Solution (“BTAS”) and (f) our capital markets services business, Blackstone Capital Markets (“BXCM”).

Our corporate private equity business pursues transactions throughout the world across a variety of transaction types, including large buyouts,

mid-cap

buyouts, buy and build platforms (which involve multiple acquisitions behind a single management team and platform) and growth equity/development projects (which involve significant minority investments in mature companies and greenfield development projects in energy and power). Within our corporate private equity business, our core private equity fund targets control-oriented investments in high quality companies with durable businesses and seeks to offer a lower level of risk and a longer hold period than traditional private equity. Tactical Opportunities invests globally across asset classes, industries and geographies, seeking to identify and execute on attractive, differentiated investment opportunities, leveraging the intellectual capital across our various businesses while continuously optimizing its approach in the face of ever-changing market conditions. Strategic Partners is a total fund solutions provider that acquires interests in high quality private funds from original holders seeking liquidity,

co-investments

alongside financial sponsors and provides investment advisory services to clients investing in primary and secondary investments in private funds and

co-investments.

BIP focuses on infrastructure investments in the energy, transportation, communications and water and waste sectors. BXLS is a private investment platform with capabilities to invest across the life cycle of companies and products within the life sciences sector.

•

Hedge Fund Solutions.

The largest component of our Hedge Fund Solutions segment is Blackstone Alternative Asset Management (“BAAM”). BAAM is the world’s largest discretionary allocator to hedge funds, managing a broad range of commingled and customized fund solutions since its inception in 1990. The Hedge Fund Solutions segment also includes investment platforms that seed new hedge fund businesses, purchase minority ownership interests in more established hedge funds, invest in special situation opportunities, create alternative solutions in the form of mutual funds and UCITS and trade directly.

•

Credit.

Our Credit segment consists principally of GSO Capital Partners LP (“GSO”). GSO is one of the largest credit alternative asset managers in the world and is the largest manager of collateralized loan obligations (“CLOs”) globally. The investment portfolios of the funds GSO manages or

sub-advises

predominantly consist of loans and securities of

non-investment

grade companies spread across the capital structure including senior debt, subordinated debt, preferred stock and common equity.

The GSO business is organized into three overarching strategies: performing credit, distressed and long only. Our performing credit strategies include mezzanine lending funds, middle market direct lending funds, including our business development company (“BDC”), and other performing credit strategy funds. Our distressed strategies include credit alpha strategies, stressed/distressed funds and energy strategies. GSO’s long only strategies consist of CLOs, closed end funds, open ended funds and separately managed accounts.

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In addition, our Credit segment includes our publicly traded master limited partnership (“MLP”) investment platform, which is managed by Harvest. Harvest, which was founded in 2005 and subsequently acquired by Blackstone in 2017, primarily invests capital raised from institutional investors in separately managed accounts and pooled vehicles, investing in publicly traded MLPs holding primarily midstream energy assets in the U.S.

Our insurer-focused platform, BIS, also a part of our Credit segment, delivers to insurers bespoke,

capital-efficient

investments and diversified portfolios of Blackstone products across asset classes tailored to their needs and risk profile.

We generate revenue from fees earned pursuant to contractual arrangements with funds, fund investors and fund portfolio companies (including management, transaction and monitoring fees), and from capital markets services. We invest in the funds we manage and we are entitled to a

pro-rata

share of the results of the fund (a

“pro-rata

allocation”). In addition to a

pro-rata

allocation, and assuming certain investment returns are achieved, we are entitled to a disproportionate allocation of the income otherwise allocable to the limited partners, commonly referred to as carried interest (“Performance Allocations”). In certain structures, we receive a contractual incentive fee from an investment fund in the event that specified cumulative investment returns are achieved (an “Incentive Fee”, and together with Performance Allocations, “Performance Revenues”). The composition of our revenues will vary based on market conditions and the cyclicality of the different businesses in which we operate. Net investment gains and investment income generated by the Blackstone Funds, principally private equity and real estate funds, are driven by value created by our operating and strategic initiatives as well as overall market conditions. Fair values are affected by changes in the fundamentals of the portfolio company, the portfolio company’s industry, the overall economy and other market conditions.

Business Environment

Blackstone’s businesses are materially affected by conditions in the financial markets and economic conditions in the U.S., Europe, Asia and, to a lesser extent, elsewhere in the world.

The third quarter of 2019 was characterized by continued volatility in global markets largely due to concerns over economic growth and uncertainty regarding ongoing trade disputes, with the CBOE Volatility Index up 8% in the quarter, although still 55% below its peak in December 2018. Even with elevated market volatility, developed markets finished the quarter in positive territory.

In the U.S., the S&P 500 increased 2% in the third quarter, while the Dow Jones rose 1% and Nasdaq indices were roughly flat. Global and regional equity indices were mixed in the quarter, with the MSCI World Index roughly flat and the MSCI Europe Index up 2%, while the MSCI Asia Index declined 2% and the MSCI Emerging Markets Index declined 5%.

Most U.S. equity market sectors posted positive returns during the quarter, but the energy and healthcare sectors of the S&P 500 were weaker, returning

-7%

and -3%, respectively. The price of crude oil declined 8% to $54 per barrel, which is still well below historical averages, while the Henry Hub Natural Gas spot price declined 2%. Spot prices for other commodities were mixed, with the Bloomberg Commodity Index down 2%.

In fixed income, dovish U.S. monetary policy led government bond yields lower as the U.S. Federal Reserve lowered the federal funds target range in two separate rate cuts during the third quarter, citing muted inflation and capital expenditures despite a strong labor market and moderately rising economic activity. Subsequent to the third quarter, the Federal Reserve again lowered the federal funds target range to

1.5%-1.75%,

noting that the current level would likely be held steady for the foreseeable future given the outlook for moderate economic growth, a strong labor market and low inflation. Ten year U.S. Treasury yields declined 35 basis points to 1.66% during the quarter and lower interest rates are expected to persist in the near to medium term. The Bloomberg Barclays U.S. Aggregate Index rose 2.3% and U.S. high yield advanced 1.0%. High yield spreads increased 8 basis points, while issuance increased 54% year-over-year.

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Market volatility weighed on global equity issuance, which declined 16% from the second quarter of 2019 and 16% year-over-year for the year-to-date period. Merger and acquisition (M&A) activity was also lower, with global announced M&A volumes down 26% from the second quarter of 2019 and down 5% year-over-year for the year-to-date period.

Industrial production rose at an annual rate of 1.2% for the third quarter of 2019 following declines in the first two quarters of 2019. Despite being 0.1% lower at the end of the third quarter compared to a year earlier, industrial production remains at 109.5% percent of its 2012 average. The Institute for Supply Management (“ISM”) Manufacturing Purchasing Managers’ Index declined in the third quarter of 2019 to the lowest level since June 2009, signaling a contraction in the U.S. manufacturing sector. The ISM Non-Manufacturing Index also continued to decline in the third quarter of 2019, ending the quarter less than one point from the low since February 2010.

The U.S. continues to experience low unemployment, with the jobless rate dropping to 3.5% in September 2019, the lowest since December 1969. Wages continued to grow in the third quarter, with average hourly earnings growing at 3.5%, the fastest rate of growth since March 2009, based on the three-month average for production and nonsupervisory employees.

The global growth cycle is in a mature phase and signs of slowing are evident in certain regions around the world. However, most economists continue to expect moderate economic growth in the near term, with limited signals of an imminent recession in the U.S. as consumer and government spending remain healthy. Although the broader outlook remains constructive, global trade tensions and geopolitical instability continue to pose risks.

Notable Transactions

Effective July 1, 2019, The Blackstone Group L.P. converted from a Delaware limited partnership to a Delaware corporation, The Blackstone Group Inc. See “– Organizational Structure.”

On September 3, 2019, Blackstone commenced a cash tender offer (the “Tender Offer”) for any and all of its 5.875% Senior Notes maturing on March 15, 2021 (the “2021 Notes”). On September 9, 2019, the Tender Offer expired and $175.0 million aggregate principal amount of the 2021 Notes were validly tendered for payment. Payment for the tendered notes was made on September 10, 2019. On October 10, 2019, in accordance with the optional redemption provision under the indenture governing the 2021 Notes, Blackstone redeemed the 2021 Notes that were not previously tendered in the Tender Offer.

On September 10, 2019, Blackstone issued $500 million aggregate principal amount of 2.500% Senior Notes maturing on January 10, 2030 (the “2030 Notes”) and $400 million aggregate principal amount of 3.500% Senior Notes maturing on September 10, 2049 (the “2049 Notes”). For additional information see Note 12. “Borrowings” in the “Notes to Condensed Consolidated Financial Statements” in “Part I. Item 1. Financial Statements” of this filing.

Organizational Structure

Effective July 1, 2019, The Blackstone Group L.P. converted from a Delaware limited partnership to a Delaware corporation, The Blackstone Group Inc.

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The simplified diagram below depicts our current organizational structure. The diagram does not depict all of our subsidiaries, including intermediate holding companies through which certain of the subsidiaries depicted are held.

Key Financial Measures and Indicators

We manage our business using certain financial measures and key operating metrics since we believe these metrics measure the productivity of our investment activities. We prepare our Condensed Consolidated Financial Statements in accordance with GAAP. See Note 2. “Summary of Significant Accounting Policies” in the “Notes to Condensed Consolidated Financial Statements” in “Part I. Item 1. Financial Statements” and “— Critical Accounting Policies.” Our key

non-GAAP

financial measures and operating indicators and metrics are discussed below.

Distributable Earnings

Distributable Earnings is derived from Blackstone’s segment reported results. Distributable Earnings is used to assess performance and amounts available for dividends to Blackstone shareholders, including Blackstone personnel and others who are limited partners of the Blackstone Holdings Partnerships. Distributable Earnings is the sum of Segment Distributable Earnings plus Net Interest Income (Loss) less Taxes and Related Payables. Distributable Earnings excludes unrealized activity and is derived from and reconciled to, but not equivalent to, its most directly comparable GAAP measure of Income (Loss) Before Provision for Taxes. See “—

Non-GAAP

Financial Measures” for our reconciliation of Distributable Earnings.

Net Interest Income (Loss) is presented on a segment basis and is equal to Interest and Dividend Revenue less Interest Expense, adjusted for the impact of consolidation of Blackstone Funds, and interest expense associated with the Tax Receivable Agreement.

Taxes and Related Payables represent the total GAAP tax provision adjusted to include only the current tax provision (benefit) calculated on Income (Loss) Before Provision for Taxes excluding the tax impact of any divestitures and including the Payable under the Tax Receivable Agreement.

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Segment Distributable Earnings

Segment Distributable Earnings is Blackstone’s segment profitability measure used to make operating decisions and assess performance across Blackstone’s four segments. Segment Distributable Earnings represents the net realized earnings of Blackstone’s segments and is the sum of Fee Related Earnings and Net Realizations for each segment. Blackstone’s segments are presented on a basis that deconsolidates Blackstone Funds, eliminates

non-controlling

Non-GAAP

Financial Measures” for our reconciliation of Segment Distributable Earnings.

Net Realizations is presented on a segment basis and is the sum of Realized Principal Investment Income and Realized Performance Revenues (which refers to Realized Performance Revenues excluding Fee Related Performance Revenues), less Realized Performance Compensation (which refers to Realized Performance Compensation excluding Fee Related Performance Compensation and Equity-Based Performance Compensation).

Fee Related Earnings

Fee Related Earnings is a performance measure used to assess Blackstone’s ability to generate profits from revenues that are measured and received on a recurring basis and not subject to future realization events. Fee Related Earnings equals management and advisory fees (net of management fee reductions and offsets) plus Fee Related Performance Revenues, less (a) Fee Related Compensation on a segment basis, and (b) Other Operating Expenses. Fee Related Earnings is derived from and reconciled to, but not equivalent to, its most directly comparable GAAP measure of Income (Loss) Before Provision for Taxes. See “—

Non-GAAP

Financial Measures” for our reconciliation of Fee Related Earnings.

Fee Related Compensation is presented on a segment basis and refers to the compensation expense, excluding Equity-Based Compensation, directly related to (a) Management and Advisory Fees, Net and (b) Fee Related Performance Revenues, referred to as Fee Related Performance Compensation.

Fee Related Performance Revenues refers to the realized portion of Performance Revenues from Perpetual Capital that are (a) measured and received on a recurring basis, and (b) not dependent on realization events from the underlying investments.

Adjusted Earnings Before Interest, Taxes and Depreciation and Amortization

Adjusted Earnings Before Interest, Taxes and Depreciation and Amortization (“Adjusted EBITDA”), is a supplemental measure used to assess performance derived from Blackstone’s segment results and may be used to assess its ability to service its borrowings. Adjusted EBITDA represents Distributable Earnings plus the addition of (a) Interest Expense on a segment basis, (b) Taxes and Related Payables, and (c) Depreciation and Amortization. Adjusted EBITDA is derived from and reconciled to, but not equivalent to, its most directly comparable GAAP measure of Income (Loss) Before Provision for Taxes. See “—

Non-GAAP

Financial Measures” for our reconciliation of Adjusted EBITDA.

Operating Metrics

The alternative asset management business is primarily based on managing third party capital and does not require substantial capital investment to support rapid growth. Since our inception, we have developed and used various key operating metrics to assess and monitor the operating performance of our various alternative asset management businesses in order to monitor the effectiveness of our value creating strategies.

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Assets Under Management.

Assets Under Management refers to the assets we manage. Our Assets Under Management equals the sum of:

(a)

the fair value of the investments held by our carry funds and our

side-by-side

and

co-investment

(b)

the net asset value of (1) our hedge funds and real estate debt carry funds, BPP, certain

co-investments

(c)

the invested capital, fair value or net asset value of assets we manage pursuant to separately managed accounts,

(d)

the amount of debt and equity outstanding for our CLOs during the reinvestment period,

(e)

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

(f)

the gross or net amount of assets (including leverage where applicable) for our credit-focused registered investment companies, and

(g)

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

Fee-Earning Assets Under Management

Fee-Earning

Assets Under Management refers to the assets we manage on which we derive management fees and/or performance revenues. Our

Fee-Earning

Assets Under Management equals the sum of:

(a)

for our Private Equity segment funds and Real Estate segment carry funds, including certain BREDS and Hedge Fund Solutions funds, the amount of capital commitments, remaining invested capital, fair value, net asset value or par value of assets held, depending on the fee terms of the fund,

(b)

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

(c)

the remaining invested capital or fair value of assets held in

co-investment

vehicles managed by us on which we receive fees,

(d)

the net asset value of our funds of hedge funds, hedge funds, BPP, certain

co-investments

managed by us, certain registered investment companies, BREIT, and certain of our Hedge Fund Solutions drawdown funds,

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(e)

the invested capital, fair value of assets or the net asset value we manage pursuant to separately managed accounts,

(f)

the net proceeds received from equity offerings and accumulated core earnings of BXMT, subject to certain adjustments,

(g)

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

(h)

the gross amount of assets (including leverage) or the net assets (plus leverage where applicable) for certain of our credit-focused registered investment companies.

Each of our segments may include certain

Fee-Earning

Assets Under Management on which we earn performance revenues but not management fees.

Our calculations of assets under management and

fee-earning

assets under management are not based on any definition of assets under management and

fee-earning

assets under management that is set forth in the agreements governing the investment funds that we manage.

For our carry funds, total assets under management includes the fair value of the investments held and uncalled capital commitments, whereas

fee-earning

assets under management may be greater than total assets under management when the aggregate fair value of the remaining investments is less than the cost of those investments.

Perpetual Capital

. Perpetual Capital refers to the component of assets under management with an indefinite term, that is not in liquidation, and for which there is no requirement to return capital to investors through redemption requests in the ordinary course of business, except where funded by new capital inflows. Perpetual Capital includes

co-investment

capital with an investor right to convert into Perpetual Capital.

Limited Partner Capital Invested.

Limited Partner Capital Invested represents the aggregate amount of third party capital invested by our funds and vehicles, including investments closed but not yet funded by investors during each period presented, including (a) capital invested by our carry and drawdown funds and vehicles, (b) certain Perpetual Capital invested including undistributed proceeds that are reinvested, and (c) capital invested through

fee-paying

co-investments

made by third parties in investments of our carry and perpetual funds and vehicles.

Dry Powder

. Dry Powder represents the amount of capital available for investment or reinvestment, including general partner and employee capital, and is an indicator of the capital we have available for future investments.

Performance Revenue Eligible Assets Under Management

. Performance Revenue Eligible Assets Under Management represents invested and to be invested capital at fair value, including capital closed for funds whose investment period has not yet commenced, on which performance revenues could be earned if certain hurdles are met.

Income Tax Current Developments

Prior to the Conversion, certain of our share of investment income and carried interest was not subject to U.S. corporate income taxes. Subsequent to the Conversion, all income earned by us is subject to U.S. corporate income taxes, which we believe will result in an overall higher income tax expense (or benefit) over time when compared to periods prior to the Conversion.

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States and other jurisdictions have considered legislation to increase taxes with respect to carried interest. For example, New Jersey recently enacted legislation which eliminates an exclusion from New Jersey source income (for

non-residents)

for carried interest and income from providing investment management services, which is not expected to materially affect our common shareholders, and authorizes a contingent 17% surtax on such management income for gross income tax and corporate income tax purposes. These carried interest provisions remain

non-operative

as they are dependent upon Connecticut, New York and Massachusetts enacting legislation with identical provisions. In addition, New York State recently introduced legislation which would tax income from certain investment management services provided by a partner (whether or not a New York resident). As part of that legislation, New York also proposed a state tax surcharge of 19% on carried interest in addition to the personal income tax. Similar to the New Jersey legislation, the New York legislation would not take effect until similar legislation is enacted by Connecticut, New Jersey and Massachusetts. Similar proposals are under consideration in other jurisdictions such as California. Whether or when similar legislation will be enacted is unclear. Although these proposals do not apply to the Corporation following the Conversion, if enacted, they could increase the amount of taxes that our employees and other key personnel would be required to pay and, as a result, could impact our ability to recruit, retain and motivate employees and key personnel in the relevant jurisdictions.

Finally, several state and local jurisdictions are evaluating ways to subject partnerships to entity level taxation through the imposition of state or local income, franchise or other forms of taxation or to increase the amount of such taxation. Although these proposals do not apply to the Corporation following the Conversion, they may apply to any of our subsidiaries which are partnerships. For example, although we believe it would not affect us materially, Connecticut recently enacted an income tax on pass through entities doing business in Connecticut, and states in which we do business may consider similar tax changes. These and other proposals have recently been under heightened consideration in light of U.S. federal income tax legislation, known as the Tax Cuts and Jobs Act, which was signed into law on December 22, 2017 (the “Tax Reform Bill”).

The Tax Reform Bill has resulted in fundamental changes to the Internal Revenue Code. Changes to U.S. tax laws resulting from the Tax Reform Bill, including partial limitation on the deductibility of business interest expense, and a longer three-year holding period requirement for carried interest to be treated as long-term capital gain could have an adverse effect on our business operations and our funds’ investment activities. These and other changes from the Tax Reform Bill—including limitations on the use, carryback and carryforward of net operating losses and changes relating to the scope and timing of U.S. taxation on earnings from international business operations—could also have an adverse effect on our portfolio companies. The exact impact of the Tax Reform Bill for future years is difficult to quantify, but these changes could have an adverse effect on our business, results of operations and financial condition. In addition, other changes could be enacted in the future to increase the corporate tax rate, limit further the deductibility of interest, subject carried interest to more onerous taxation or effect other changes that could have a material adverse effect on our business, results of operations and financial condition.

Congress, the Organization for Economic

Co-operation

and Development (“OECD”) and other government agencies in jurisdictions in which we and our affiliates invest or do business have maintained a focus on issues related to the taxation of multinational companies. The OECD, which represents a coalition of member countries, is contemplating changes to numerous long-standing tax principles through its base erosion and profit shifting (“BEPS”) project, which is focused on a number of issues, including the shifting of profits between affiliated entities in different tax jurisdictions, interest deductibility and eligibility for the benefits of double tax treaties. Several of the proposed measures are potentially relevant to some of our structures and could have an adverse tax impact on our funds, investors and/or our portfolio companies. Some member countries have been moving forward on the BEPS agenda but, because timing of implementation and the specific measures adopted will vary among participating states, significant uncertainty remains regarding the impact of BEPS proposals. If implemented, these proposals could result in a loss of tax treaty benefits and increased taxes on income from our investments.

A number of European jurisdictions have enacted taxes on financial transactions, and the European Commission has proposed legislation to harmonize these taxes under the

so-called

“enhanced cooperation procedure,” which provides for adoption of

EU-level

legislation applicable to some but not all EU Member States.

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These contemplated changes, if adopted by individual countries, could increase tax uncertainty and/or costs faced by us, our portfolio companies and our investors, and cause other adverse consequences. The timing or impact of these proposals is unclear at this point. In addition, tax laws, regulations and interpretations are subject to continual changes, which could adversely affect our structures or returns to our investors. For instance, various countries have adopted or proposed tax legislation that may adversely affect portfolio companies and investment structures in countries in which our funds have invested and may limit the benefits of additional investments in those countries.

In addition, legislation enacted in 2015 significantly changed the rules for U.S. federal income tax audits of partnerships. This legislation applies to any taxable years in which we were a partnership commencing after December 31, 2017 and will apply to audits of taxable years of The Blackstone Group L.P. prior to the Conversion (which such audits may occur after the Conversion) and will continue to apply to any of our subsidiaries which are partnerships. Such U.S. federal income tax audits will be conducted at the partnership level, and unless a partnership qualifies for and affirmatively elects an alternative procedure, any adjustments to the amount of tax due (including interest and penalties) will be payable by the partnership. Under an elective alternative procedure, a partnership would issue information returns to persons who were partners in the audited year, who would then be required to take the adjustments into account in calculating their own tax liability, and the partnership would not be liable for the adjustments. If a partnership elects the alternative procedure for a given adjustment, the amount of taxes for which its partners would be liable would be increased by any applicable penalties and a special interest charge. There can be no assurance that we will be eligible to make such an election or that we will, in fact, make such an election for any given adjustment. If we do not or are not able to make such an election, then (a) our then-current common shareholders, in the aggregate, could indirectly bear income tax liabilities in excess of the aggregate amount of taxes that would have been due had we elected the alternative procedure, and (b) a given common shareholders may indirectly bear taxes attributable to income allocable to other common shareholders or former common shareholders, including taxes (as well as interest and penalties) with respect to periods prior to such holder’s ownership of shares of Class A common stock. Amounts available for dividends to our common shareholders may be reduced as a result of our obligation to pay any taxes associated with an adjustment. Many issues with respect to, and the overall effect of, this legislation on us (with respect to any taxable years in which we were a partnership commencing after December 31, 2017), and on our partnership subsidiaries are uncertain, and common shareholders should consult their own tax advisors regarding all aspects of this legislation as it affects their particular circumstances.

Please see “Part II. Item 1A. Risk Factors — Following the Conversion, we expect to pay more corporate income taxes than we would have as a limited partnership.” and “— Conversion to a Corporation” in our Quarterly Report on Form

10-Q

for the quarter ended March 31, 2019 for a further discussion of certain tax consequences of the Conversion.

Consolidated Results of Operations

Following is a discussion of our consolidated results of operations for the three and nine months ended September 30, 2019 and 2018. For a more detailed discussion of the factors that affected the results of our four business segments (which are presented on a basis that deconsolidates the investment funds we manage) in these periods, see “— Segment Analysis” below.

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The following table sets forth information regarding our consolidated results of operations and certain key operating metrics for the three and nine months ended September 30, 2019 and 2018:


	Three Months Ended										Nine Months Ended
	September 30,					2019 vs. 2018					September 30,					2019 vs. 2018
	2019			2018		$			%		2019			2018		$			%

	(Dollars in Thousands)
Revenues
Management and Advisory Fees, Net	$	878,151		$	780,009	$	98,142			13%	$	2,528,255		$	2,230,242	$	298,013			13%

Incentive Fees		8,254			9,799		(1,545	)		-16%		42,301			41,743		558			1%

Investment Income
Performance Allocations
Realized		446,550			592,103		(145,553	)		-25%		1,021,445			1,365,119		(343,674	)		-25%
Unrealized		176,370			299,238		(122,868	)		-41%		998,101			1,367,678		(369,577	)		-27%
Principal Investments
Realized		74,642			134,619		(59,977	)		-45%		292,943			305,961		(13,018	)		-4%
Unrealized		15,391			52,840		(37,449	)		-71%		147,090			268,082		(120,992	)		-45%

Total Investment Income		712,953			1,078,800		(365,847	)		-34%		2,459,579			3,306,840		(847,261	)		-26%

Interest and Dividend Revenue		42,482			48,604		(6,122	)		-13%		130,252			124,062		6,190			5%
Other		93,273			9,368		83,905			896%		86,403			625,394		(538,991	)		-86%

Total Revenues		1,735,113			1,926,580		(191,467	)		-10%		5,246,790			6,328,281		(1,081,491	)		-17%

Expenses
Compensation and Benefits
Compensation		462,766			419,285		43,481			10%		1,372,684			1,236,167		136,517			11%
Incentive Fee Compensation		5,419			7,251		(1,832	)		-25%		19,711			23,656		(3,945	)		-17%
Performance Allocations
Compensation
Realized		155,663			200,442		(44,779	)		-22%		367,883			498,902		(131,019	)		-26%
Unrealized		94,907			178,184		(83,277	)		-47%		446,440			622,610		(176,170	)		-28%

Total Compensation and Benefits		718,755			805,162		(86,407	)		-11%		2,206,718			2,381,335		(174,617	)		-7%
General, Administrative and Other		171,067			168,813		2,254			1%		492,437			441,354		51,083			12%
Interest Expense		53,362			41,355		12,007			29%		138,960			119,346		19,614			16%
Fund Expenses		4,036			2,302		1,734			75%		12,509			74,909		(62,400	)		-83%

Total Expenses		947,220			1,017,632		(70,412	)		-7%		2,850,624			3,016,944		(166,320	)		-6%

Other Income
Reduction of Tax Receivable Agreement Liability		174,606			—		174,606			N/M		174,606			—		174,606			N/M
Net Gains from Fund Investment Activities		48,450			66,838		(18,388	)		-28%		239,906			250,956		(11,050	)		-4%

Total Other Income		223,056			66,838		156,218			234%		414,512			250,956		163,556			65%

Income Before Provision for Taxes		1,010,949			975,786		35,163			4%		2,810,678			3,562,293		(751,615	)		-21%
Provision (Benefit) for Taxes		(156,786	)		26,798		(183,584	)		N/M		(76,895	)		220,024		(296,919	)		N/M

Net Income		1,167,735			948,988		218,747			23%		2,887,573			3,342,269		(454,696	)		-14%
Net Income (Loss) Attributable to Redeemable Non-Controlling Interests in Consolidated Entities		(8	)		2,569		(2,577	)		N/M		3,567			2,199		1,368			62%
Net Income Attributable to Non-Controlling Interests in Consolidated Entities		88,406			143,101		(54,695	)		-38%		355,983			427,678		(71,695	)		-17%
Net Income Attributable to Non-Controlling Interests in Blackstone Holdings		299,900			360,576		(60,676	)		-17%		961,490			1,359,736		(398,246	)		-29%

Net Income Attributable to The Blackstone Group Inc.	$	779,437		$	442,742	$	336,695			76%	$	1,566,533		$	1,552,656	$	13,877			1%

N/M Not meaningful.

Three Months Ended September 30, 2019 Compared to Three Months Ended September 30, 2018

Revenues

Revenues were $1.7 billion for the three months ended September 30, 2019, a decrease of $191.5 million, compared to $1.9 billion for the three months ended September 30, 2018. The decrease in Revenues was primarily attributable to a decrease of $365.8 million in Investment Income, partially offset by increases of $98.1 million in Management and Advisory Fees, Net and $83.9 million in Other Revenue.

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The decrease in Investment Income was primarily attributable to decreases in our Private Equity, Credit and Hedge Fund Solutions segments of $382.0 million, $30.5 million and $20.3 million, respectively, partially offset by an increase in our Real Estate segment of $101.1 million. The decrease in our Private Equity segment was primarily due to lower appreciation in corporate private equity relative to the comparative quarter. Corporate private equity carrying value increased 2.6% in the three months ended September 30, 2019 compared to 7.5% in the three months ended September 30, 2018. The decrease in our Credit segment was primarily attributable to lower returns in our performing credit strategies and distressed strategies. The decrease in our Hedge Fund Solutions segment was primarily driven by lower net appreciation of investments of which Blackstone owns a share. The increase in our Real Estate segment was primarily attributable to higher net appreciation of investment holdings in our BREP opportunistic funds compared to the comparable period in 2018. The carrying value of investments for our BREP opportunistic funds increased 3.8% in the three months ended September 30, 2019 compared to 3.0% in the three months ended September 30, 2018.

The increase in Management and Advisory Fees, Net was primarily due to increases in our Real Estate, Private Equity, Credit and Hedge Fund Solutions segments of $41.0 million, $32.6 million, $16.4 million and $11.0 million, respectively. The increase in our Real Estate segment was primarily due to

Fee-Earning

Asset Under Management growth in our core+ real estate funds and an increase in transaction fees. The increase in our Private Equity segment was primarily due to increases in

Fee-Earning

Assets Under Management in Strategic Partners, BIP and BXLS. The increase in our Credit segment was primarily due to the launch of several GSO and BIS funds subsequent to the three months ended September 30, 2018, including our BDC, successor flagship funds and multiple long only funds. The increase in our Hedge Fund Solutions segment was primarily due to

Fee-Earning

Asset Under Management growth in our individual investor and specialized solutions.

The increase in Other Revenue was primarily due to a foreign exchange gain on our euro denominated bonds.

Expenses

Expenses were $947.2 million for the three months ended September 30, 2019, a decrease of $70.4 million, compared to $1.0 billion for the three months ended September 30, 2018. The decrease was primarily attributable to a decrease in Performance Allocations Compensation, partially offset by increases in Compensation and Interest Expense. The decrease of $128.1 million in Performance Allocations Compensation was primarily due to a decrease in Investment Income. The increase of $43.5 million in Compensation was primarily due to the increase in Management and Advisory Fees, Net. The increase of $12.0 million in Interest Expense was primarily due to the consummation of a cash tender offer for the 2021 Notes.

Nine Months Ended September 30, 2019 Compared to Nine Months Ended September 30, 2018

Revenues

Revenues were $5.2 billion for the nine months ended September 30, 2019, a decrease of $1.1 billion, compared to $6.3 billion for the nine months ended September 30, 2018. The decrease in Revenues was primarily attributable to decreases of $847.3 million in Investment Income and $539.0 million in Other Revenue, partially offset by an increase of $298.0 million in Management and Advisory Fees, Net.

The decrease in Investment Income was primarily attributable to decreases in our Private Equity and Credit segments of $1.2 billion and $47.4 million, respectively, partially offset by increases in our Real Estate and Hedge Fund Solutions segments of $405.5 million and $61.4 million, respectively. The decrease in our Private Equity segment was primarily due to lower appreciation in corporate private equity. Corporate private equity carrying value increased 7.9% in the nine months ended September 30, 2019 compared to 23.4% in the nine months ended September 30, 2018. The decrease in our Credit segment was primarily attributable to lower returns in our performing credit strategies and distressed strategies. The increase in our Real Estate segment was primarily attributable to higher net appreciation of investment holdings in our BREP opportunistic funds. The carrying value

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of investments for our BREP opportunistic funds increased 12.9% in the nine months ended September 30, 2019 compared to 9.2% in the nine months ended September 30, 2018. The increase in our Hedge Fund Solutions segment was primarily driven by higher net appreciation of investments of which Blackstone owns a share.

The decrease in Other Revenue was primarily due to proceeds received during the nine months ended September 30, 2018 from the conclusion of our

sub-advisory

relationship with FS Investments’ funds, partially offset by a foreign exchange gain on our euro denominated bonds.

The increase in Management and Advisory Fees, Net was primarily due to increases in our Private Equity, Real Estate, Hedge Fund Solutions and Credit segments of $168.5 million, $85.1 million, $26.5 million and $20.2 million, respectively. The increase in our Private Equity segment was primarily due to increases in

Fee-Earning

Assets Under Management in Strategic Partners, BIP, Tactical Opportunities and BXLS. The increase in our Real Estate segment was primarily due to

Fee-Earning

Asset Under Management growth in our core+ real estate funds and an increase in transaction fees. The increase in our Hedge Fund Solutions segment was primarily due to

Fee-Earning

Asset Under Management growth in our individual investor and specialized solutions funds and a reduction of placement fees, which offset Base Management Fees. The increase in our Credit segment was primarily due to the launch of several GSO and BIS funds subsequent to the nine months ended September 30, 2018, including our BDC, successor flagship funds and multiple long only funds, partially offset by the contractual agreement with FS Investments pursuant to which, in connection with the conclusion of our

sub-advisory

relationship with respect to the BDCs, we received a fixed payment in the first quarter of 2018.

Expenses

Expenses were $2.9 billion for the nine months ended September 30, 2019, a decrease of $166.3 million, compared to $3.0 billion for the nine months ended September 30, 2018. The decrease was primarily attributable to decreases in Performance Allocations Compensation and Fund Expenses, partially offset by an increase in Compensation. The decrease of $307.2 million in Performance Allocations Compensation was primarily due to the decrease in Investment Income. The decrease of $62.4 million in Fund Expenses was due to a decrease of $64.0 million in our Credit segment primarily from the deconsolidation of certain CLO and other vehicles in 2018. The increase of $136.5 million in Compensation was due to the increase in Management and Advisory Fees, Net, on which a portion of compensation is based.

Other Income

Three Months Ended September 30, 2019 Compared to Three Months Ended September 30, 2018

Other Income was $223.1 million for the three months ended September 30, 2019, an increase of $156.2 million, compared to $66.8 million for the three months ended September 30, 2018. The increase in Other Income was due to an increase of $174.6 million in Reduction of Tax Receivable Agreement Liability, partially offset by a decrease of $18.4 million in Net Gains from Fund Investment Activities.

The increase in Other Income – Reduction of Tax Receivable Agreement Liability was attributable to the Conversion.

The decrease in Other Income – Net Gain from Fund Investment Activities was principally driven by decreases of $13.4 million and $8.9 million in our Private Equity and Credit segments, respectively, partially offset by an increase of $5.5 million in our Real Estate segment. The decrease in our Private Equity segment was primarily due to lower appreciation of investments across our Private Equity funds. The decrease in our Credit segment was primarily driven by a year-over-year net decrease in appreciation of CLOs and other vehicles. The increase in our Real Estate segment was primarily due to a year-over-year net increase in the appreciation of investments in our BREP opportunistic funds.

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Nine Months Ended September 30, 2019 Compared to Nine Months Ended September 30, 2018

Other Income was $414.5 million for the nine months ended September 30, 2019, an increase of $163.6 million, compared to $251.0 million for the nine months ended September 30, 2018. The increase in Other Income was due to an increase of $174.6 million in Reduction of Tax Receivable Agreement Liability, partially offset by a decrease of $11.1 million in Net Gains from Fund Investment Activities.

The increase in Other Income – Reduction of Tax Receivable Agreement Liability was attributable to the Conversion.

The decrease in Other Income – Net Gain from Fund Investment Activities was principally driven by decreases of $36.9 million and $2.9 million in our Private Equity and Credit segments, respectively, partially offset by an increase of $27.5 million in our Real Estate segment. The decrease in our Private Equity segment was primarily due to lower appreciation of investments across the Private Equity funds. The decrease in our Credit segment was primarily driven by the deconsolidation of certain CLO and other vehicles, partially offset by a year-over-year net increase in appreciation of CLOs and other vehicles. The increase in our Real Estate segment was primarily due to a year-over-year net increase in the appreciation of investments in our BREP opportunistic funds.

Provision for Taxes

The following table summarizes Blackstone’s tax position:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
	(Dollars in Thousands)
Income Before Provision for Taxes	$	1,010,949		$	975,786		$	2,810,678		$	3,562,293
Provision for Taxes	$	(156,786	)	$	26,798		$	(76,895	)	$	220,024
Effective Income Tax Rate		-15.5	%		2.7	%		-2.7	%		6.2	%

The following table reconciles the effective income tax rate to the U.S. federal statutory tax rate:


	Three Months Ended				2019		Nine Months Ended				2019
	September 30,				vs.		September 30,				vs.
	2019		2018		2018		2019		2018		2018
Statutory U.S. Federal Income Tax Rate		21.0%		21.0%		-		21.0%		21.0%		-
Income Passed Through to Common Unitholders and Non-Controlling Interest Holders (a)		-8.7%		-17.2%		8.5%		-13.8%		-15.8%		2.0%
State and Local Income Taxes		2.5%		0.3%		2.2%		1.6%		1.5%		0.1%
Conversion Benefit		-22.9%		-		-22.9%		-8.2%		-		-8.2%
Change in Valuation Allowance		-3.0%		-		-3.0%		-1.1%		-		-1.1%
Other		-4.4%		-1.4%		-3.0%		-2.2%		-0.5%		-1.7%

Effective Income Tax Rate		-15.5%		2.7%		-18.2%		-2.7%		6.2%		-8.9%

(a)	Includes income that is not taxable to Blackstone and its subsidiaries. Such income is directly taxable to Blackstone’s common unitholders for the period prior to the Conversion and to Blackstone’s non-controlling interest holders.

Three Months Ended September 30, 2019 Compared to Three Months Ended September 30, 2018

Blackstone’s Provision for Taxes for the three months ended September 30, 2019 and 2018 was $(156.8) million and $26.8 million, respectively. This resulted in an effective tax rate of

-15.5%

and 2.7%, respectively.

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The decrease in Blackstone’s effective tax rate for the three months ended September 30, 2019 compared to the three months ended September 30, 2018 resulted primarily from the tax benefit recorded on the date of the Conversion, which was partially offset by a higher level of income being subject to U.S. federal (and state and local) corporate income taxes following the Conversion.

Nine Months Ended September 30, 2019 Compared to Nine Months Ended September 30, 2018

Blackstone’s Provision for Taxes for the nine months ended September 30, 2019 and 2018 was $(76.9) million and $220.0 million, respectively. This resulted in an effective tax rate of

-2.7%

and 6.2%, respectively.

The decrease in Blackstone’s effective tax rate for the nine months ended September 30, 2019, compared to the nine months ended September 30, 2018 resulted primarily from the tax benefit recorded on the date of the Conversion, which was partially offset by a higher level of income being subject to U.S. federal (and state and local) corporate income taxes following the Conversion.

Additional information regarding our income taxes can be found in Note 14. “Income Taxes” in the “Notes to Condensed Consolidated Financial Statements” in “Part I. Item 1. Financial Statements” of this filing.

On July 1, 2019, we completed our Conversion from a Delaware limited partnership to the Corporation. See “Part II. Item 1A. Risk Factors — Following the Conversion, we expect to pay more corporate income taxes than we would have as a limited partnership” and “— Conversion to a Corporation” in our Quarterly Report on Form

10-Q

for the quarter ended March 31, 2019.

Non-Controlling

Interests in Consolidated Entities

The Net Income Attributable to Redeemable

Non-Controlling

Interests in Consolidated Entities and Net Income Attributable to

Non-Controlling

Interests in Consolidated Entities is attributable to the consolidated Blackstone Funds. The amounts of these items vary directly with the performance of the consolidated Blackstone Funds and largely eliminate the amount of Other Income – Net Gains from Fund Investment Activities from the Net Income (Loss) Attributable to The Blackstone Group Inc.

Net Income Attributable to

Non-Controlling

Interests in Blackstone Holdings is derived from the Income Before Provision for Taxes, excluding the Net Gains from Fund Investment Activities and the percentage allocation of the income between Blackstone personnel and others who are limited partners of Blackstone Holdings and Blackstone after considering any contractual arrangements that govern the allocation of income such as fees allocable to Blackstone.

For the three months ended September 30, 2019 and 2018, the Net Income Before Taxes allocated to Blackstone Holdings was 43.9% and 43.7%, respectively. For the nine months ended September 30, 2019 and 2018, the net income before taxes allocated to Blackstone personnel and others who are limited partners of Blackstone Holdings was 44.0% and 44.0%, respectively. The increase of 0.2% in the three month period was primarily due to repurchases of shares of Class A common stock and the vesting of shares of Class A common stock.

The Other Income — Reduction of Tax Receivable Agreement Liability was entirely allocated to Blackstone.

Operating Metrics

The following graphs and tables summarize the

Fee-Earning

and Total Assets Under Management by Segment, followed by a rollforward of activity for the three and nine months ended September 30, 2019 and 2018. For a description of how Assets Under Management and

Fee-Earning

Assets Under Management are determined, please see “— Key Financial Measures and Indicators — Operating Metrics — Assets Under Management and

Fee-Earning

Assets Under Management”:

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Note: Totals may not add due to rounding.

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	Three Months Ended
	September 30, 2019															September 30, 2018
				Private			Hedge Fund												Private			Hedge Fund
	Real Estate			Equity			Solutions			Credit			Total			Real Estate			Equity			Solutions			Credit			Total
	(Dollars in Thousands)
Fee-Earning Assets Under Management
Balance, Beginning of Period	$	112,287,094		$	96,467,272		$	74,653,420		$	104,456,856		$	387,864,642		$	88,776,501		$	78,045,697		$	71,889,290		$	94,266,657		$	332,978,145
Inflows, including Commitments (a)		7,452,469			3,192,294			2,933,919			4,394,501			17,973,183			3,619,799			2,213,913			3,281,639			7,588,255			16,703,606
Outflows, including Distributions (b)		(552,062	)		(107,764	)		(2,411,329	)		(1,845,621	)		(4,916,776	)		(208,373	)		(477,894	)		(1,482,849	)		(1,547,917	)		(3,717,033	)

Net Inflows		6,900,407			3,084,530			522,590			2,548,880			13,056,407			3,411,426			1,736,019			1,798,790			6,040,338			12,986,573
Realizations (c)		(2,897,640	)		(1,734,713	)		(264,575	)		(1,648,338	)		(6,545,266	)		(2,335,870	)		(1,585,310	)		(66,874	)		(2,241,691	)		(6,229,745	)
Market Appreciation (Depreciation) (d)(g)		459,444			119,782			(33,459	)		(783,107	)		(237,340	)		920,678			(1,334	)		937,393			669,413			2,526,150

Balance, End of Period (e)	$	116,749,305		$	97,936,871		$	74,877,976		$	104,574,291		$	394,138,443		$	90,772,735		$	78,195,072		$	74,558,599		$	98,734,717		$	342,261,123

Increase	$	4,462,211		$	1,469,599		$	224,556		$	117,435		$	6,273,801		$	1,996,234		$	149,375		$	2,669,309		$	4,468,060		$	9,282,978
Increase		4	%		2	%		-			-			2	%		2	%		-			4	%		5	%		3	%

	Nine Months Ended
	September 30, 2019															September 30, 2018
				Private			Hedge Fund												Private			Hedge Fund
	Real Estate			Equity			Solutions			Credit			Total			Real Estate			Equity			Solutions			Credit			Total
	(Dollars in Thousands)
Fee-Earning Assets Under Management
Balance, Beginning of Period	$	93,252,724		$	80,008,166		$	72,280,606		$	96,986,011		$	342,527,507		$	83,984,824		$	70,140,883		$	69,914,061		$	111,304,230		$	335,343,998
Inflows, including Commitments (a)		35,316,594			25,578,739			8,146,690			15,808,592			84,850,615			13,108,067			12,675,628			9,477,141			18,719,427			53,980,263
Outflows, including Distributions (b)		(6,388,317	)		(1,280,707	)		(8,422,705	)		(7,319,669	)		(23,411,398	)		(1,800,831	)		(1,565,169	)		(6,740,849	)		(25,141,026	)		(35,247,875	)

Net Inflows (Outflows)		28,928,277			24,298,032			(276,015	)		8,488,923			61,439,217			11,307,236			11,110,459			2,736,292			(6,421,599	)		18,732,388
Realizations (c)		(7,486,830	)		(6,399,686	)		(705,027	)		(3,816,607	)		(18,408,150	)		(6,289,487	)		(3,321,845	)		(222,751	)		(5,650,666	)		(15,484,749	)
Market Appreciation (Depreciation) (d)(h)		2,055,134			30,359			3,578,412			2,915,964			8,579,869			1,770,162			265,575			2,130,997			(497,248	)		3,669,486

Balance, End of Period (e)	$	116,749,305		$	97,936,871		$	74,877,976		$	104,574,291		$	394,138,443		$	90,772,735		$	78,195,072		$	74,558,599		$	98,734,717		$	342,261,123

Increase (Decrease)	$	23,496,581		$	17,928,705		$	2,597,370		$	7,588,280		$	51,610,936		$	6,787,911		$	8,054,189		$	4,644,538		$	(12,569,513	)	$	6,917,125
Increase (Decrease)		25	%		22	%		4	%		8	%		15	%		8	%		11	%		7	%		-11	%		2	%
Annualized Base Management Fee Rate (f)		0.91	%		1.03	%		0.75	%		0.57	%		0.82	%		1.12	%		1.05	%		0.70	%		0.54	%		0.84	%

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	Three Months Ended
	September 30, 2019															September 30, 2018
				Private			Hedge Fund												Private			Hedge Fund
	Real Estate			Equity			Solutions			Credit			Total			Real Estate			Equity			Solutions			Credit			Total
	(Dollars in Thousands)
Total Assets Under Management
Balance, Beginning of Period	$	153,604,820		$	171,171,687		$	81,435,680		$	139,270,150		$	545,482,337		$	119,399,973		$	119,524,518		$	77,403,078		$	123,059,087		$	439,386,656
Inflows, including Commitments (a)		6,745,847			3,254,530			3,164,093			7,226,533			20,391,003			2,609,037			6,997,499			3,702,238			10,757,146			24,065,920
Outflows, including Distributions (b)		(565,777	)		(349,478	)		(3,069,993	)		(2,023,018	)		(6,008,266	)		(734,945	)		(346,209	)		(1,993,964	)		(1,672,101	)		(4,747,219	)

Net Inflows		6,180,070			2,905,052			94,100			5,203,515			14,382,737			1,874,092			6,651,290			1,708,274			9,085,045			19,318,701
Realizations (c)		(4,575,981	)		(2,812,162	)		(305,905	)		(2,053,920	)		(9,747,968	)		(4,039,437	)		(4,033,482	)		(70,986	)		(2,574,741	)		(10,718,646	)
Market Appreciation (Depreciation) (d)(i)		1,867,364			2,593,823			(69,485	)		(486,465	)		3,905,237			2,707,401			4,042,042			964,770			990,908			8,705,121

Balance, End of Period (e)	$	157,076,273		$	173,858,400		$	81,154,390		$	141,933,280		$	554,022,343		$	119,942,029		$	126,184,368		$	80,005,136		$	130,560,299		$	456,691,832

Increase (Decrease)	$	3,471,453		$	2,686,713		$	(281,290	)	$	2,663,130		$	8,540,006		$	542,056		$	6,659,850		$	2,602,058		$	7,501,212		$	17,305,176
Increase (Decrease)		2	%		2	%		-			2	%		2	%		-			6	%		3	%		6	%		4	%

	Nine Months Ended
	September 30, 2019															September 30, 2018
				Private			Hedge Fund												Private			Hedge Fund
	Real Estate			Equity			Solutions			Credit			Total			Real Estate			Equity			Solutions			Credit			Total
	(Dollars in Thousands)
Total Assets Under Management
Balance, Beginning of Period	$	136,247,229		$	130,665,286		$	77,814,516		$	127,515,286		$	472,242,317		$	115,340,363		$	105,560,576		$	75,090,834		$	138,136,470		$	434,128,243
Inflows, including Commitments (a)		26,144,532			48,532,796			9,545,687			24,186,221			108,409,236			11,356,304			16,814,684			10,637,875			23,525,665			62,334,528
Outflows, including Distributions (b)		(2,315,886	)		(771,379	)		(9,292,182	)		(8,919,680	)		(21,299,127	)		(1,885,608	)		(1,126,165	)		(7,665,062	)		(25,280,144	)		(35,956,979	)

Net Inflows (Outflows)		23,828,646			47,761,417			253,505			15,266,541			87,110,109			9,470,696			15,688,519			2,972,813			(1,754,479	)		26,377,549
Realizations (c)		(11,623,877	)		(11,233,505	)		(788,589	)		(4,956,581	)		(28,602,552	)		(11,033,062	)		(7,133,993	)		(253,073	)		(6,858,577	)		(25,278,705	)
Market Appreciation (d)(j)		8,624,275			6,665,202			3,874,958			4,108,034			23,272,469			6,164,032			12,069,266			2,194,562			1,036,885			21,464,745

Balance, End of Period (e)	$	157,076,273		$	173,858,400		$	81,154,390		$	141,933,280		$	554,022,343		$	119,942,029		$	126,184,368		$	80,005,136		$	130,560,299		$	456,691,832

Increase (Decrease)	$	20,829,044		$	43,193,114		$	3,339,874		$	14,417,994		$	81,780,026		$	4,601,666		$	20,623,792		$	4,914,302		$	(7,576,171	)	$	22,563,589
Increase (Decrease)		15	%		33	%		4	%		11	%		17	%		4	%		20	%		7	%		-5	%		5	%

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(a)

Inflows represent contributions in our hedge funds and closed end mutual funds, increases in available capital for our carry funds (capital raises, recallable capital and increased

side-by-side

commitments) and CLOs, increases in the capital we manage pursuant to separately managed account programs, allocations from multi-asset products to other strategies and acquisitions.

(b)	Outflows represent redemptions in our hedge funds and closed end mutual funds, client withdrawals from our separately managed account programs and decreases in available capital for our carry funds (expired capital, expense drawdowns and decreased side-by-side commitments).

(c)	Realizations represent realizations from the disposition of assets or capital returned to investors from CLOs.

(d)	Market appreciation (depreciation) includes realized and unrealized gains (losses) on portfolio investments and the impact of foreign exchange rate fluctuations.

(e)	Assets Under Management are reported in the segment where the assets are managed.

(f)	Represents the annualized current quarter’s Base Management Fee divided by period end Fee-Earning Assets Under Management.

(g)

For the three months ended September 30, 2019, the impact to

Fee-Earning

Assets Under Management due to foreign exchange rate fluctuations was $(709.0) million, $(416.1) million and $(1.1) billion for the Real Estate, Credit and Total segments, respectively. For the three months ended September 30, 2018, such impact was $138.8 million, $(135.7) million and $3.1 million for the Real Estate, Credit and Total segments, respectively.

(h)

For the nine months ended September 30, 2019, the impact to

Fee-Earning

Assets Under Management due to foreign exchange rate fluctuations was $(791.1) million, $(688.1) million and $(1.5) billion for the Real Estate, Credit and Total segments, respectively. For the nine months ended September 30, 2018, such impact was $(572.6) million, $(436.2) million and $(1.0) billion for the Real Estate, Credit and Total segments, respectively.

(i)

For the three months ended September 30, 2019, the impact to Total Assets Under Management due to foreign exchange rate fluctuations was $(2.1) billion, $(411.8) million, $(434.2) million and $(2.9) billion for the Real Estate, Private Equity, Credit and Total segments, respectively. For the three months ended September 30, 2018, such impact was $(155.3) million, $(80.5) million, $(116.4) million and $(352.2) million for the Real Estate, Private Equity, Credit and Total segments, respectively.

(j)

For the nine months ended September 30, 2019, the impact to Total Assets Under Management due to foreign exchange rate fluctuations was $(2.4) billion, $(304.5) million, $(731.1) million and $(3.4) billion for the Real Estate, Private Equity, Credit and Total segments, respectively. For the nine months ended September 30, 2018, such impact was $(1.7) billion, $(350.7) million, $(556.3) million and $(2.6) billion for the Real Estate, Private Equity, Credit and Total segments, respectively.

Fee-Earning

Assets Under Management

Fee-Earning

Assets Under Management were $394.1 billion at September 30, 2019, an increase of $6.3 billion, compared to $387.9 billion at June 30, 2019. The net increase was due to:

•

Inflows of $18.0 billion related to:

$7.5 billion in our Real Estate segment driven by $2.5 billion from BREP opportunistic funds and

co-investment,

$2.4 billion from BREIT, $1.4 billion from BREDS and $1.2 billion in BPP,

$4.4 billion in our Credit segment driven by $1.8 billion from certain long only and MLP strategies, $1.2 billion from direct lending, $939.4 million from new CLOs and $819.3 million from BIS, partially offset by $782.8 million of allocations to various strategies,

$3.2 billion in our Private Equity segment driven by $1.8 billion from Tactical Opportunities, $978.1 million from core private equity, $515.6 million from Strategic Partners and $156.4 million from corporate private equity, partially offset by $270.9 million from multi-asset products, and

$2.9 billion in our Hedge Fund Solutions segment driven by $1.6 billion from individual investor and specialized solutions, $1.1 billion from customized solutions and $280.8 million from commingled products.

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Offsetting these increases were:

•

Realizations of $6.5 billion primarily driven by:

$2.9 billion in our Real Estate segment driven by $1.1 billion from BREP opportunistic funds and

co-investment,

$1.1 billion from BREDS and $662.9 million from core+ real estate funds,

$1.7 billion in our Private Equity segment driven by $756.8 million from Tactical Opportunities, $738.9 million from corporate private equity and $239.0 million from Strategic Partners, and

$1.6 billion in our Credit segment driven by $513.0 million from our mezzanine funds, $460.9 million from our distressed strategies, $311.1 million from capital returned to investors from CLOs that are post their reinvestment periods, $202.8 million from certain long only and MLP strategies, and $160.5 million from direct lending.

•

Outflows of $4.9 billion primarily attributable to:

$2.4 billion in our Hedge Fund Solutions segment driven by $1.9 billion from customized solutions and $485.7 million from individual investor and specialized solutions,

$1.8 billion in our Credit segment driven by $1.5 billion from certain long only and MLP strategies and $113.9 million from BIS, and

$552.1 million in our Real Estate segment driven by $409.3 million from core+ real estate funds and $142.8 million from BREDS.

•

Market depreciation of $237.3 million due to:

$783.1 million of depreciation in our Credit segment driven by $416.1 million of foreign exchange depreciation and $367.0 million of market depreciation primarily in our distressed strategies, and

$459.4 million of appreciation in our Real Estate segment driven by $555.1 million of appreciation from our core+ real estate funds ($1.0 billion from market appreciation and $444.9 million from foreign exchange depreciation) and $168.2 million of market appreciation from BREDS, partially offset by $264.0 million of foreign exchange depreciation from BREP opportunistic funds.

Hedge Fund Solutions had net outflows of $434.9 million from October 1 through November 1, 2019.

Fee-Earning

Assets Under Management were $394.1 billion at September 30, 2019, an increase of $51.6 billion, or 15%, compared to $342.5 billion at December 31, 2018. The net increase was due to:

•

Inflows of $84.9 billion related to:

$35.3 billion in our Real Estate segment driven by $20.0 billion from BREP IX, which started its investment period on June 3, 2019 (this amount was reflected in Total Assets Under Management at each capital closing of the fund), $5.4 billion from BREIT, $3.8 billion from BREDS, $2.6 billion from BPP U.S. and

co-investment,

$839.3 million from BPP Europe and

co-investment

and $706.8 million from BPP Asia,

$25.6 billion in our Private Equity segment driven by $11.6 billion from Strategic Partners, $8.1 billion from BIP, $3.4 billion from Tactical Opportunities, $1.6 billion from core private equity, $652.5 million from multi-asset products and $173.6 million from corporate private equity,

$15.8 billion in our Credit segment driven by $16.9 billion from certain long only and MLP strategies, $3.7 billion from BIS, $3.5 billion from direct lending, $2.5 billion from new CLOs, $2.3 billion from our distressed strategies and $882.0 million from mezzanine funds, partially offset by $14.2 billion of allocations to various strategies, and

$8.1 billion in our Hedge Fund Solutions segment driven by $4.7 billion from individual investor and specialized solutions, $2.2 billion from customized solutions and $1.3 billion from commingled products.

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•

Market appreciation of $8.6 billion due to:

$3.6 billion of appreciation in our Hedge Fund Solutions segment driven by returns from BAAM’s Principal Solutions Composite of 5.9% gross (5.2% net),

$2.9 billion of appreciation in our Credit segment driven by $3.6 billion of market appreciation (primarily in certain long only and MLP strategies and BIS), partially offset by $688.1 million of foreign exchange depreciation, and

$2.1 billion of appreciation in our Real Estate segment driven by $1.8 billion of appreciation from our core+ real estate funds ($2.3 billion from market appreciation and $486.9 million from foreign exchange depreciation) and $619.0 million of market appreciation from BREDS, partially offset by $304.4 million of foreign exchange depreciation from BREP opportunistic funds.

Offsetting these increases were:

•

Outflows of $23.4 billion primarily attributable to:

$8.4 billion in our Hedge Fund Solutions segment driven by $4.6 billion from customized solutions, $2.6 billion from individual investor and specialized solutions and $1.2 billion from commingled products,

$7.3 billion in our Credit segment driven by $5.1 billion from certain long only and MLP strategies, $1.3 billion from BIS and $355.4 million from our distressed strategies,

$6.4 billion in our Real Estate segment driven by $5.4 billion of uninvested reserves at the end of BREP VIII’s investment period (this amount is still classified as available capital and included in Total Assets Under Management), $539.5 million of redemptions from the core+ funds and $390.0 million of redemptions from the BREDS liquids funds, and

$1.3 billion in our Private Equity segment driven by $387.2 million from multi-asset products, $369.2 million from corporate private equity, $246.0 million from Tactical Opportunities and $194.1 million from BXLS.

•

Realizations of $18.4 billion primarily driven by:

$7.5 billion in our Real Estate segment driven by $3.6 billion from BREP opportunistic funds and

co-investment,

$2.1 billion from BREDS and $1.7 billion from core+ real estate funds,

$6.4 billion in our Private Equity segment driven by $3.4 billion from corporate private equity, $1.7 billion from Tactical Opportunities and $1.1 billion from Strategic Partners and $226.7 million from core private equity, and

$3.8 billion in our Credit segment driven by $1.4 billion from our distressed strategies, $984.5 million from our mezzanine funds, $571.6 million from certain long only and MLP strategies, $556.3 million from capital returned to investors from CLOs that are post their reinvestment periods and $333.2 million from direct lending.

Total Assets Under Management

Total Assets Under Management were $554.0 billion at September 30, 2019, an increase of $8.5 billion, compared to $545.5 billion at June 30, 2019. The net increase was due to:

•

Inflows of $20.4 billion related to:

$7.2 billion in our Credit segment driven by $2.8 billion from direct lending, $1.9 billion from certain long only and MLP strategies, $1.6 billion from BIS, $939.4 million from new CLOs, $307.1 million from our distressed strategies and $259.1 million from mezzanine funds, partially offset by $807.2 million of allocations to various strategies,

$6.7 billion in our Real Estate segment driven by $2.4 billion from BREIT, $1.3 billion from BREDS, $1.1 billion capital raised from the sixth European opportunistic fund (total commitments of $9.5 billion for the fund will be reflected in

Fee-Earning

Assets Under Management when the investment period commences on October 9, 2019), $905.8 million capital raised from BREP IX and $890.7 million from BPP funds,

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$3.3 billion in our Private Equity segment driven by $1.3 billion from Tactical Opportunities, $1.3 billion from corporate private equity and $718.0 million from Strategic Partners, and

$3.2 billion in our Hedge Fund Solutions segment driven by $1.5 billion from individual investor and specialized solutions, $1.3 billion from customized solutions and $294.1 million from commingled products.

•

Market appreciation of $3.9 billion due to:

$2.6 billion of appreciation in our Private Equity segment driven by carrying value increase in Strategic Partners, corporate private equity and Tactical Opportunities of 9.6%, 2.6% and 1.0%, respectively, which included $411.8 million of foreign exchange depreciation across the segment,

$1.9 billion of appreciation in our Real Estate segment driven by carrying value increases in our opportunistic and core+ real estate funds of 3.8% and 2.3%, respectively, which includes $2.1 billion of foreign exchange depreciation across the segment, and

$486.5 million of depreciation in our Credit segment driven by $296.1 million of market depreciation from our distressed strategies and $202.7 million of foreign exchange depreciation from CLOs.

Total Assets Under Management market appreciation (depreciation) in our Real Estate and Private Equity segments generally represents the change in fair value of the investments held and typically exceeds the Fee-Earning Assets Under Management market appreciation (depreciation).

Offsetting these increases were:

•

Realizations of $9.7 billion primarily driven by:

$4.6 billion in our Real Estate segment driven by $2.9 billion from BREP opportunistic and

co-investment,

$993.2 million from BREDS and $690.1 million from core+ real estate funds,

$2.8 billion in our Private Equity segment driven by continued disposition activity across the segment, mainly related to $1.1 billion from corporate private equity, $977.4 million from Tactical Opportunities, $646.2 million from Strategic Partners and $66.9 million from BXLS, and

$2.1 billion in our Credit segment driven by $632.0 million from our mezzanine funds, $616.3 million from our distressed strategies, $311.1 million from capital returned to investors from CLOs that are post their reinvestment periods, $274.3 million from direct lending and $212.3 million from certain long only and MLP strategies.

Total Assets Under Management realizations in our Real Estate and Private Equity segments generally represent the total proceeds and typically exceed the Fee-Earning Assets Under Management realizations which generally represent only the invested capital.

•

Outflows of $6.0 billion primarily attributable to:

$3.1 billion in our Hedge Fund Solutions segment driven by $2.5 billion from customized solutions and $484.7 million from individual investor and specialized solutions,

$2.0 billion in our Credit segment driven by $1.7 billion from certain long only and MLP strategies and $113.9 million from BIS, and

$565.8 million in our Real Estate segment driven by redemptions from BPP U.S. and BREDS liquids funds.

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Total Assets Under Management were $554.0 billion at September 30, 2019, an increase of $81.8 billion, or 17%, compared to $472.2 billion at December 31, 2018. The net increase was due to:

•

Inflows of $108.4 billion related to:

$48.5 billion in our Private Equity segment driven by $26.2 billion from corporate private equity primarily due to the initial close for the eighth flagship private equity fund in the first quarter of 2019 (this amount will be reflected in

Fee-Earning

Assets Under Management when the investment period commences), $9.7 billion from Strategic Partners, $8.3 billion from BIP, $4.3 billion from Tactical Opportunities and $324.3 million from core private equity, partially offset by $195.4 million from BXLS,

$26.1 billion in our Real Estate segment driven by $9.5 billion capital raised from the sixth European opportunistic fund (this amount will be reflected in

Fee-Earning

Assets Under Management when the investment period commences on October 9, 2019), $5.0 billion capital raised from BREP IX, $5.2 billion capital raised from BREIT, $2.9 billion total inflows from BREDS and $2.6 billion from BPP funds,

$24.2 billion in our Credit segment driven by $17.3 billion from certain long only and MLP strategies, $7.3 billion from BIS, $6.8 billion from direct lending, $3.8 billion from our distressed strategies, $2.5 billion from new CLOs and $528.5 million from mezzanine funds, partially offset by $14.2 billion of allocations to various strategies, and

$9.5 billion in our Hedge Fund Solutions segment driven by $4.3 billion from individual investor and specialized solutions, $4.0 billion from customized solutions, and $1.3 billion from commingled products.

•

Market appreciation of $23.3 billion due to:

$8.6 billion of appreciation in our Real Estate segment driven by carrying value increases in our opportunistic and core+ real estate funds of 12.9% and 6.5%, respectively, which includes $2.4 billion of foreign exchange depreciation across the segment,

$6.7 billion of appreciation in our Private Equity segment driven by carrying value increase in Strategic Partners, corporate private equity and Tactical Opportunities of 11.5%, 7.9% and 5.2%, respectively, which included $304.5 million of foreign exchange deprecation across the segment,

$4.1 billion of appreciation in our Credit segment driven by $4.8 billion of market appreciation (primarily in certain long only and MLP strategies, BIS, and mezzanine funds), partially offset by $731.1 million of foreign exchange depreciation, and

$3.9 billion of appreciation in our Hedge Fund Solutions segment driven by reasons noted above in

Fee-Earning

Assets Under Management.

Offsetting these increases were:

•

Realizations of $28.6 billion primarily driven by:

$11.6 billion in our Real Estate segment driven by $8.1 billion from BREP opportunistic and

co-investment,

$1.8 billion from core+ real estate funds and $1.7 billion from BREDS,

$11.2 billion in our Private Equity segment driven by continued disposition activity across the segment, mainly related to $5.9 billion from corporate private equity, $2.8 billion from Tactical Opportunities, $1.8 billion from Strategic Partners, $378.0 million from core private equity, and $350.7 million from BXLS, and

$5.0 billion in our Credit segment driven by $1.8 billion from our distressed strategies, $1.3 billion from our mezzanine funds, $643.1 million from direct lending, $590.3 million from certain long only and MLP strategies and $556.3 million from capital returned to investors from CLOs that are post their reinvestment periods.

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•

Outflows of $21.3 billion primarily attributable to:

$9.3 billion in our Hedge Fund Solutions segment driven by $5.3 billion from customized solutions, $2.6 billion from individual investor and specialized solutions and $1.4 billion from commingled products,

$8.9 billion in our Credit segment driven by $5.3 billion from certain long only and MLP strategies, $1.4 billion from direct lending and $1.3 billion from BIS, and

$2.3 billion in our Real Estate segment driven by redemptions from BREDS liquids funds and BPP U.S., the release of uninvested capital for both a core+ vehicle and BREDS drawdown vehicle.

Limited Partner Capital Invested

The following presents the Limited Partner Capital Invested for each of the respective three month periods:

Note: Totals may not add due to rounding.


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2018		2019		2018		2019
	(Dollars in Thousands)
Limited Partner Capital Invested
Real Estate	$	3,977,693	$	8,016,457	$	12,770,048	$	14,943,614
Private Equity		2,981,402		5,229,292		8,640,311		17,971,936
Hedge Fund Solutions		226,086		1,264,167		1,094,657		2,473,974
Credit		2,173,242		1,410,118		4,203,434		5,836,314

	$	9,358,423	$	15,920,034	$	26,708,450	$	41,225,838

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Dry Powder

The following presents our Dry Powder as of quarter end of each period:

Note:

Totals may not add due to rounding.

(a)

Represents illiquid drawdown funds, a component of Perpetual Capital and

fee-paying

co-investments;

includes

fee-paying

third party capital as well as general partner and employee capital that does not earn fees. Amounts are reduced by outstanding capital commitments, for which capital has not yet been invested.


	September 30,
	2018		2019
	(Dollars in Thousands)
Dry Powder Available for Investment
Real Estate	$	25,972,044	$	44,836,092
Private Equity		40,487,283		71,826,624
Hedge Fund Solutions		3,595,061		2,245,166
Credit		24,766,080		29,141,930

	$	94,820,468	$	148,049,812

Net Accrued Performance Revenues

The following table presents the Accrued Performance Revenues, net of performance compensation, of the Blackstone Funds as of September 30, 2019 and 2018. Net Accrued Performance Revenues presented do not include clawback amounts, if any, which are disclosed in Note 18. “Commitments and Contingencies — Contingencies — Contingent Obligations (Clawback)” in the “Notes to Condensed Consolidated Financial Statements” in “Part I. Item 1. Financial Statements” of this filing. The Net Accrued Performance Revenues as of each reporting date were principally unrealized; if realized, such amount can be a significant component of Distributable Earnings. See “—

Non-GAAP

Financial Measures” for our reconciliation of Net Accrued Performance Revenues.

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	September 30,
	2019		2018
	(Dollars in Millions)
Real Estate
BREP IV	$	11	$	12
BREP V		47		91
BREP VI		92		106
BREP VII		501		592
BREP VIII		597		386
BREP International II		44		—
BREP Europe III		—		1
BREP Europe IV		222		201
BREP Europe V		174		86
BREP Asia I		162		103
BPP		273		207
BREIT		59		18
BREDS		29		21
BTAS		45		29

Total Real Estate (a)		2,256		1,853


Private Equity
BCP IV		24		111
BCP V		—		44
BCP VI		724		1,008
BCP VII		382		166
BCP Asia		7		—
BEP I		133		155
BEP II		8		66
Tactical Opportunities		114		161
Strategic Partners		133		95
BCEP		36		11
BTAS		53		32
Other		4		—

Total Private Equity (a)		1,616		1,849


Hedge Fund Solutions		61		32


Credit		238		301


Total Blackstone Net Accrued Performance Revenues	$	4,171	$	4,035

Note: Totals may not add due to rounding.

(a)	Real Estate and Private Equity include Co-Investments, as applicable.

For the twelve months ended September 30, 2019, Net Accrued Performance Revenues receivable was increased by Net Accrued Performance Revenues of $1.1 billion and decreased by net realized distributions of $975.2 million.

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Invested Performance Revenue Eligible Assets Under Management

The following presents our Invested Performance Revenue Eligible Assets Under Management as of quarter end for each period:

Note: Totals may not add due to rounding.

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Perpetual Capital

The following presents our Perpetual Capital as of quarter end for each period:

Note:

Totals may not add due to rounding.

Investment Record

Fund returns information for our significant 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 this discussion and analysis is not indicative of the financial performance of Blackstone and is also not necessarily indicative of the future performance of any particular fund. An investment in Blackstone is not an investment in any of our funds. There can be no assurance that any of our funds or our other existing and future funds will achieve similar returns.

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The following table presents the investment record of our significant drawdown funds from inception through September 30, 2019:




					Unrealized Investments						Realized Investments				Total Investments
Fund (Investment Period	Committed		Available						%										Net IRRs (d)
Beginning Date / Ending Date) (a)	Capital		Capital (b)		Value		MOIC (c)		Public		Value		MOIC (c)		Value		MOIC (c)		Realized		Total
	(Dollars in Thousands, Except Where Noted)

Real Estate
Pre-BREP	$	140,714	$	—	$	—		N/A		-	$	345,190		2.5x	$	345,190		2.5x		33%		33%
BREP I (Sep 1994 / Oct 1996)		380,708		—		—		N/A		-		1,327,708		2.8x		1,327,708		2.8x		40%		40%
BREP II (Oct 1996 / Mar 1999)		1,198,339		—		—		N/A		-		2,531,614		2.1x		2,531,614		2.1x		19%		19%
BREP III (Apr 1999 / Apr 2003)		1,522,708		—		—		N/A		-		3,330,406		2.4x		3,330,406		2.4x		21%		21%
BREP IV (Apr 2003 / Dec 2005)		2,198,694		—		76,765		0.1x		46%		4,511,354		2.2x		4,588,119		1.7x		28%		12%
BREP V (Dec 2005 / Feb 2007)		5,539,418		—		277,154		1.0x		51%		13,008,509		2.4x		13,285,663		2.3x		12%		11%
BREP VI (Feb 2007 / Aug 2011)		11,060,444		—		940,414		2.6x		64%		26,845,418		2.5x		27,785,832		2.5x		13%		13%
BREP VII (Aug 2011 / Apr 2015)		13,496,564		1,906,659		8,170,449		1.7x		14%		21,559,665		2.1x		29,730,114		2.0x		23%		16%
BREP VIII (Apr 2015 / Jun 2019)		16,607,049		3,548,251		17,779,455		1.4x		1%		5,643,169		1.6x		23,422,624		1.4x		27%		15%
BREP IX (Jun 2019 / Dec 2024)		20,468,154		18,849,963		1,618,192		1.0x		-		—		N/A		1,618,192		1.0x		N/A		N/M

Total Global BREP	$	72,612,792	$	24,304,873	$	28,862,429		1.4x		7%	$	79,103,033		2.2x	$	107,965,462		1.9x		18%		16%

BREP Int’l (Jan 2001 / Sep 2005)	€	824,172	€	—	€	—		N/A		-	€	1,370,659		2.1x	€	1,370,659		2.1x		23%		23%
BREP Int’l II (Sep 2005 / Jun 2008) (e)		1,629,748		—		10,637		2.7x		-		2,555,171		1.8x		2,565,808		1.8x		8%		8%
BREP Europe III (Jun 2008 / Sep 2013)		3,205,167		471,297		583,882		0.8x		-		5,557,290		2.5x		6,141,172		2.1x		21%		14%
BREP Europe IV (Sep 2013 / Dec 2016)		6,709,145		1,377,104		4,219,471		1.7x		16%		7,705,285		2.0x		11,924,756		1.9x		24%		17%
BREP Europe V (Dec 2016 / Jun 2022)		8,153,287		2,717,984		6,907,803		1.3x		-		431,777		2.3x		7,339,580		1.4x		45%		16%
BREP Europe VI (Oct 2019 / Apr 2025)		8,484,843		8,484,843		—		N/A		-		—		N/A		—		N/A		N/A		N/A

Total Euro BREP	€	29,006,362	€	13,051,228	€	11,721,793		1.4x		6%	€	17,620,182		2.1x	€	29,341,975		1.8x		16%		14%

BREP Asia I (Jun 2013 / Dec 2017)	$	5,096,361	$	1,728,965	$	4,205,495		1.5x		12%	$	3,466,115		1.9x	$	7,671,610		1.7x		21%		15%
BREP Asia II (Dec 2017 / Jun 2023)		7,183,487		4,984,309		2,484,758		1.1x		-		5,584		N/M		2,490,342		1.1x		N/M		6%
BREP Co-Investment (f)		7,045,918		151,982		1,611,092		2.2x		17%		12,962,096		2.1x		14,573,188		2.1x		16%		16%

Total BREP	$	126,546,964	$	45,658,621	$	50,823,345		1.4x		7%	$	117,901,242		2.2x	$	168,724,587		1.9x		17%		15%

BPP (Various) (g)		27,194,838		915,347		31,556,095		1.2x		-		5,096,623		2.2x		36,652,718		1.3x		N/M		10%
BREDS High-Yield (Various) (h)		12,011,230		2,699,492		3,213,907		1.1x		-		11,528,445		1.3x		14,742,352		1.3x		11%		11%

continued...

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					Unrealized Investments						Realized Investments				Total Investments
Fund (Investment Period	Committed		Available						%										Net IRRs (d)
Beginning Date / Ending Date) (a)	Capital		Capital (b)		Value		MOIC (c)		Public		Value		MOIC (c)		Value		MOIC (c)		Realized		Total
	(Dollars in Thousands, Except Where Noted)

Private Equity
BCP I (Oct 1987 / Oct 1993)	$	859,081	$	—	$	—		N/A		-	$	1,741,738		2.6x	$	1,741,738		2.6x		19%		19%
BCP II (Oct 1993 / Aug 1997)		1,361,100		—		—		N/A		-		3,256,819		2.5x		3,256,819		2.5x		32%		32%
BCP III (Aug 1997 / Nov 2002)		3,967,422		—		—		N/A		-		9,184,688		2.3x		9,184,688		2.3x		14%		14%
BCOM (Jun 2000 / Jun 2006)		2,137,330		24,575		13,150		N/A		-		2,953,649		1.4x		2,966,799		1.4x		6%		6%
BCP IV (Nov 2002 / Dec 2005)		6,773,182		198,964		175,763		2.5x		-		21,417,821		2.9x		21,593,584		2.9x		36%		36%
BCP V (Dec 2005 / Jan 2011)		21,013,586		1,039,733		787,587		0.7x		49%		37,164,778		1.9x		37,952,365		1.9x		9%		8%
BCP VI (Jan 2011 / May 2016)		15,192,244		1,760,758		12,994,521		1.7x		37%		14,467,088		2.1x		27,461,609		1.9x		18%		13%
BEP I (Aug 2011 / Feb 2015)		2,435,285		224,784		1,897,585		1.9x		63%		2,677,532		1.9x		4,575,117		1.9x		17%		13%
BEP II (Feb 2015 / Feb 2021)		4,909,004		827,274		4,390,305		1.3x		-		271,835		1.8x		4,662,140		1.3x		42%		8%
BCP VII (May 2016 / May 2022)		18,781,046		6,494,315		15,599,523		1.4x		N/M		1,179,341		1.7x		16,778,864		1.4x		45%		20%
BCP Asia (Dec 2017 / Dec 2023)		2,378,855		1,333,070		989,766		1.2x		N/M		—		N/A		989,766		1.2x		N/A		23%
BEP III (TBD)		3,994,781		3,994,781		—		N/A		-		—		N/A		—		N/A		N/A		N/A
BCP VIII (TBD)		24,036,991		24,036,991		—		N/A		-		—		N/A		—		N/A		N/A		N/A

Total Corporate Private Equity	$	107,839,907	$	39,935,245	$	36,848,200		1.5x		17%	$	94,315,289		2.1x	$	131,163,489		1.9x		16%		15%

Tactical Opportunities (Various)		23,830,203		10,086,741		10,140,457		1.2x		9%		8,616,711		1.7x		18,757,168		1.4x		19%		10%
Tactical Opportunities Co-Investment and Other (Various)		6,268,265		1,686,983		4,524,239		1.2x		4%		1,846,940		1.6x		6,371,179		1.3x		24%		13%

Total Tactical Opportunities	$	30,098,468	$	11,773,724	$	14,664,696		1.2x		8%	$	10,463,651		1.7x	$	25,128,347		1.3x		20%		10%

Strategic Partners I-V (Various) (i)		11,862,636		1,739,914		1,258,026		N/M		-		16,433,139		N/M		17,691,165		1.5x		N/A		13%
Strategic Partners VI (Apr 2014 / Apr 2016) (i)		4,362,750		1,116,568		1,546,801		N/M		-		3,058,583		N/M		4,605,384		1.5x		N/A		17%
Strategic Partners VII (May 2016 / Mar 2019) (i)		7,489,970		2,532,867		5,723,979		N/M		-		1,185,979		N/M		6,909,958		1.4x		N/A		25%
Strategic Partners RA II (May 2017 / Mar 2022) (i)		1,749,807		661,916		833,571		N/M		-		170,334		N/M		1,003,905		1.2x		N/A		20%
Strategic Partners VIII (Mar 2019 / Jul 2023) (i)		10,763,600		6,261,019		1,852,344		N/M		-		—		N/A		1,852,344		1.3x		N/A		N/M
Strategic Partners RE, SMA and Other (Various) (i)		6,066,764		2,032,618		2,185,606		N/M		-		1,035,880		N/M		3,221,486		1.3x		N/A		18%

Total Strategic Partners	$	42,295,527	$	14,344,902	$	13,400,327		N/M		-	$	21,883,915		N/M	$	35,284,242		1.5x		N/A		14%

BCEP (Jan 2017 / Jan 2021) (j)		4,755,099		2,278,502		3,226,244		1.3x		-		378,007		1.6x		3,604,251		1.3x		36%		14%
BIP (Various)		13,659,163		11,955,845		1,729,806		1.0x		50%		—		N/A		1,729,806		1.0x		N/A		N/M

continued...

Table of Contents




					Unrealized Investments						Realized Investments				Total Investments
Fund (Investment Period	Committed		Available						%										Net IRRs (d)
Beginning Date / Ending Date) (a)	Capital		Capital (b)		Value		MOIC (c)		Public		Value		MOIC (c)		Value		MOIC (c)		Realized		Total
	(Dollars in Thousands, Except Where Noted)

Hedge Fund Solutions
Strategic Capital Holdings (Dec 2013 / Jun 2020) (k)	$	3,378,575	$	723,050	$	1,705,207		1.1x		-	$	431,655		N/M	$	2,136,862		1.4x		N/A		9%


Credit (l)
Mezzanine I (Jul 2007 / Oct 2011)	$	2,000,000	$	97,114	$	20,702		1.1x		33%	$	4,772,270		1.6x	$	4,792,972		1.6x		N/A		17%
Mezzanine II (Nov 2011 / Nov 2016)		4,120,000		1,081,205		1,558,118		0.9x		7%		5,086,796		1.6x		6,644,914		1.3x		N/A		11%
Mezzanine III (Sep 2016 / Sep 2021)		6,639,133		2,927,128		4,135,451		1.1x		1%		1,557,284		1.5x		5,692,735		1.2x		N/A		12%
Stressed / Distressed Investing I (Sep 2009 / May 2013)		3,253,143		85,000		189,921		0.3x		-		5,766,478		1.6x		5,956,399		1.4x		N/A		10%
Stressed / Distressed Investing II (Jun 2013 / Jun 2018)		5,125,000		594,808		1,378,356		0.7x		11%		4,102,362		1.3x		5,480,718		1.1x		N/A		1%
Stressed / Distressed Investing III (Dec 2017 / Dec 2022)		7,356,380		5,795,460		1,577,943		1.0x		2%		773,872		1.3x		2,351,815		1.1x		N/A		10%
Energy Select Opportunities (Nov 2015 / Nov 2018)		2,856,867		1,154,254		2,023,003		1.2x		-		703,185		1.7x		2,726,188		1.3x		N/A		11%
Energy Select Opportunities II (Feb 2019 / Feb 2024)		3,536,818		3,047,594		504,959		1.0x		-		21,773		2.4x		526,732		1.1x		N/A		N/M
Euro
European Senior Debt Fund (Feb 2015 / Feb 2019)	€	1,964,689	€	444,379	€	1,981,602		1.1x		2%	€	1,116,137		1.4x	€	3,097,739		1.2x		N/A		10%
European Senior Debt Fund II (Jun 2019 / Jun 2024)	€	2,183,891	€	1,913,446	€	289,256		1.0x		-	€	—		N/A	€	289,256		1.0x		N/A		N/M

Total Credit	$	39,631,921	$	17,353,064	$	13,867,520		1.0x		3%	$	24,055,122		1.5x	$	37,922,642		1.3x		N/A		11%

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The returns presented herein represent those of the applicable Blackstone Funds and not those of Blackstone.

N/M	Not meaningful generally due to the limited time since initial investment.

N/A	Not applicable.

(a)	Excludes investment vehicles where Blackstone does not earn fees.

(b)	Available Capital represents total investable capital commitments, including side-by-side, adjusted for certain expenses and expired or recallable capital and may include leverage, less invested capital. This amount is not reduced by outstanding commitments to investments.

(c)	Multiple of Invested Capital (“MOIC”) represents carrying value, before management fees, expenses and Performance Revenues, divided by invested capital.

(d)

Net Internal Rate of Return (“IRR”) represents the annualized inception to September 30, 2019 IRR on total invested capital based on realized proceeds and unrealized value, as applicable, after management fees, expenses and Performance Revenues. IRRs are calculated using actual timing of limited partner cash flows. Initial inception date cash flow may differ from the Investment Period Beginning Date.

(e)	The 8% Realized Net IRR and 8% Total Net IRR exclude investors that opted out of the Hilton investment opportunity. Overall BREP International II performance reflects a 7% Realized Net IRR and a 7% Total Net IRR.

(f)	BREP Co-Investment represents co-investment capital raised for various BREP investments. The Net IRR reflected is calculated by aggregating each co-investment’s realized proceeds and unrealized value, as applicable, after management fees, expenses and Performance Revenues.

(g)	BPP represents the core+ real estate funds which invest with a more modest risk profile and lower leverage. Excludes BREIT.

(h)	BREDS High-Yield represents the flagship real estate debt drawdown funds only and excludes BREDS High-Grade.

(i)	Realizations are treated as return of capital until fully recovered and therefore unrealized and realized MOICs are not meaningful. If information is not available on a timely basis, returns are calculated from results that are reported on a three month lag.

(j)	BCEP, or Blackstone Core Equity Partners, is a core private equity fund which invests with a more modest risk profile and longer hold period.

(k)	Represents Blackstone Strategic Capital Holdings (including Co-investment) which is focused on acquiring strategic minority positions in alternative asset managers.

(l)	Funds presented represent the flagship credit drawdown funds only. The Total Credit Net IRR is the combined IRR of the credit drawdown funds presented.

Segment Analysis

Discussed below is our Segment Distributable Earnings for each of our segments. This information is reflected in the manner utilized by our senior management to make operating decisions, assess performance and allocate resources. References to “our” sectors or investments may also refer to portfolio companies and investments of the underlying funds that we manage.

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Real Estate

The following table presents the results of operations for our Real Estate segment:


	Three Months Ended												Nine Months Ended
	September 30,						2019 vs. 2018						September 30,						2019 vs. 2018
	2019			2018			$			%			2019			2018			$			%
	(Dollars in Thousands)
Management Fees, Net
Base Management Fees	$	266,779		$	254,088		$	12,691			5	%	$	782,660		$	730,294		$	52,366			7	%
Transaction and Other Fees, Net		73,385			45,678			27,707			61	%		121,286			92,625			28,661			31	%
Management Fee Offsets		(7,635	)		(8,265	)		630			-8	%		(9,601	)		(13,718	)		4,117			-30	%

Total Management Fees, Net		332,529			291,501			41,028			14	%		894,345			809,201			85,144			11	%
Fee Related Performance Revenues		30,600			30,299			301			1	%		48,348			80,317			(31,969	)		-40	%
Fee Related Compensation		(132,183	)		(128,342	)		(3,841	)		3	%		(344,794	)		(349,735	)		4,941			-1	%
Other Operating Expenses		(43,897	)		(39,787	)		(4,110	)		10	%		(122,997	)		(105,230	)		(17,767	)		17	%

Fee Related Earnings		187,049			153,671			33,378			22	%		474,902			434,553			40,349			9	%

Realized Performance Revenues		282,379			273,309			9,070			3	%		558,134			741,999			(183,865	)		-25	%
Realized Performance Compensation		(85,544	)		(79,309	)		(6,235	)		8	%		(183,186	)		(230,140	)		46,954			-20	%
Realized Principal Investment Income		17,968			16,197			1,771			11	%		63,257			81,086			(17,829	)		-22	%

Net Realizations		214,803			210,197			4,606			2	%		438,205			592,945			(154,740	)		-26	%

Segment Distributable Earnings	$	401,852		$	363,868		$	37,984			10	%	$	913,107		$	1,027,498		$	(114,391	)		-11	%

N/M Not meaningful.

Three Months Ended September 30, 2019 Compared to Three Months Ended September 30, 2018

Segment Distributable Earnings were $401.9 million for the three months ended September 30, 2019, an increase of $38.0 million, compared to $363.9 million for the three months ended September 30, 2018. The increase in Segment Distributable Earnings was primarily attributable to increases of $33.4 million in Fee Related Earnings and $4.6 million in Net Realizations.

Segment Distributable Earnings in our Real Estate segment in the third quarter of 2019 were higher compared to the third quarter of 2018. This was primarily driven by increased transaction fees from investment activity in our BREP global funds, growth in

Fee-Earning

Assets Under Management in our core+ real estate funds, as well as higher realization activity in the third quarter of 2019 compared to the third quarter of 2018. The market environment continues to be characterized by volatility and macroeconomic and geopolitical concerns, such as concerns regarding trade conflict with China and the rate of global growth. We have also seen an increasing focus in growing urban areas in certain markets in the U.S. and Western Europe toward rent regulation as a means to address residential affordability caused by undersupply. Such conditions (which may be across industries, sectors or geographies) may contribute to adverse operating performance, including by moderating rent growth in certain markets in our residential portfolio. Such conditions may also limit attractive realization opportunities for our Real Estate segment. Overall, operating trends in our Real Estate portfolio remain stable and supply-demand fundamentals remain positive in most markets, although decelerating growth in certain sectors, including retail, may contribute to a more challenging operating environment. Factors such as increasing wages and a tight labor market create profit margin pressure in certain sectors in the U.S., including hospitality. Capital deployment in opportunistic investments in the U.S. continues to be challenging, as distress levels are low and asset values are relatively high. Nonetheless, our Real Estate funds were particularly active in the third quarter of 2019, deploying or committing an aggregate of $12.2 billion of capital in the third quarter of 2019, primarily in North America. See “Part I. Item 1A. Risk Factors — Risks Related to Our Business — Difficult market conditions can adversely affect our business in many ways, including by reducing the value or performance of the investments made by our investment funds, making it more difficult to find opportunities for our funds to exit and realize value from existing investments and reducing the ability of our investment funds to raise or deploy capital, each of which could materially reduce our revenue, earnings and cash flow and adversely affect our financial prospects and condition.” in our Annual Report on Form

10-K

for the year ended December 31, 2018.

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Fee Related Earnings

Fee Related Earnings were $187.0 million for the three months ended September 30, 2019, an increase of $33.4 million, or 22%, compared to $153.7 million for the three months ended September 30, 2018. The increase in Fee Related Earnings was primarily attributable to an increase of $41.0 million in Management Fees, Net, partially offset by increases of $4.1 million in Other Operating Expenses and $3.8 million in Fee Related Compensation.

Management Fees, Net were $332.5 million for the three months ended September 30, 2019, an increase of $41.0 million, compared to $291.5 million for the three months ended September 30, 2018, primarily driven by increases in Transaction and Other Fees, net and Base Management Fees. Transaction and Other Fees, Net were $73.4 million for the three months ended September 30, 2019, an increase of $27.7 million, compared to $45.7 million for the three months ended September 30, 2018, primarily due to increased transaction fees from investment activity in our BREP global funds. Base Management Fees were $266.8 million for the three months ended September 30, 2019, an increase of $12.7 million, compared to $254.1 million for the three months ended September 30, 2018, primarily due to

Fee-Earning

Assets Under Management growth in our core+ real estate funds.

Other Operating Expenses were $43.9 million for the three months ended September 30, 2019, an increase of $4.1 million, compared to $39.8 million for the three months ended September 30, 2018. The increase was primarily due to consulting fees and other business development costs.

Fee Related Compensation was $132.2 million for the three months ended September 30, 2019, an increase of $3.8 million, compared to $128.3 million for the three months ended September 30, 2018. The increase was due to the increase in Management Fees, Net, on which a portion of Fee Related Compensation is based.

Net Realizations

Net Realizations were $214.8 million for the three months ended September 30, 2019, an increase of $4.6 million, compared to $210.2 million for the three months ended September 30, 2018. The increase in Net Realizations was primarily attributable to an increase of $9.1 million in Realized Performance Revenues, partially offset by an increase of $6.2 million in Realized Performance Compensation.

Realized Performance Revenues were $282.4 million for the three months ended September 30, 2019, an increase of $9.1 million, compared to $273.3 million for the three months ended September 30, 2018. The increase was due to higher realization activity in the three months ended September 30, 2019.

Realized Performance Compensation was $85.5 million for the three months ended September 30, 2019, an increase of $6.2 million, compared to $79.3 million for the three months ended September 30, 2018. The increase was due to the increase in Realized Performance Revenues.

Nine Months Ended September 30, 2019 Compared to Nine Months Ended September 30, 2018

Segment Distributable Earnings were $913.1 million for the nine months ended September 30, 2019, a decrease of $114.4 million, compared to $1.0 billion for the nine months ended September 30, 2018. The decrease in Segment Distributable Earnings was primarily attributable to a decrease of $154.7 million in Net Realizations, partially offset by an increase of $40.3 million in Fee Related Earnings.

Fee Related Earnings

Fee Related Earnings were $474.9 million for the nine months ended September 30, 2019, an increase of $40.3 million, compared to $434.6 million for the nine months ended September 30, 2018. The increase in Fee Related Earnings was primarily attributable to an increase of $85.1 million in Management Fees, Net and a decrease of $4.9 million in Fee Related Compensation, partially offset by a decrease of $32.0 million in Fee Related Performance Revenues and an increase of $17.8 million in Other Operating Expenses.

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Management Fees, Net were $894.3 million for the nine months ended September 30, 2019, an increase of $85.1 million, compared to $809.2 million for the nine months ended September 30, 2018, primarily driven by increases in Base Management Fees and Transaction and Other Fees, Net. Base Management Fees were $782.7 million for the nine months ended September 30, 2019, an increase of $52.4 million, compared to $730.3 million for the nine months ended September 30, 2018, primarily due to

Fee-Earning

Assets Under Management growth in our core+ real estate funds. Transaction and Other Fees, Net were $121.3 million for the nine months ended September 30, 2019, an increase of $28.7 million, compared to $92.6 million for the nine months ended September 30, 2018, primarily due to increased transaction fees from investment activity in BREP global funds.

The Annualized Base Management Fee Rate decreased from 1.12% at September 30, 2018 to 0.91% at September 30, 2019. The decrease was principally due to the commencement of the investment period of BREP IX in the second quarter of 2019, which added

Fee-Earning

Assets Under Management, the majority of which are under a Base Management Fee holiday until the fourth quarter of 2019.

Fee Related Compensation was $344.8 million for the nine months ended September 30, 2019, a decrease of $4.9 million, compared to $349.7 million for the nine months ended September 30, 2018. The decrease was primarily due to a decrease in Fee Related Performance Fee Revenues, offset by an increase in Management and Advisory Fees, Net, on which a portion of Fee Related Compensation is based.

Fee Related Performance Revenues were $48.3 million for the nine months ended September 30, 2019, a decrease of $32.0 million, compared to $80.3 million for the nine months ended September 30, 2018. The decrease was primarily due to timing of crystallizations in BPP U.S.

Other Operating Expenses were $123.0 million for the nine months ended September 30, 2019, an increase of $17.8 million, compared to $105.2 million for the nine months ended September 30, 2018. The increase was primarily due to consulting fees and other business development costs.

Net Realizations

Net Realizations were $438.2 million for the nine months ended September 30, 2019, a decrease of $154.7 million, compared to $592.9 million for the nine months ended September 30, 2018. The decrease in Net Realizations was primarily attributable to decreases of $183.9 million in Realized Performance Revenues and $17.8 million in Realized Principal Investment Income, partially offset by a decrease of $47.0 million in Realized Performance Compensation.

Realized Performance Revenues were $558.1 million for the nine months ended September 30, 2019, a decrease of $183.9 million, compared to $742.0 million for the nine months ended September 30, 2018. The decrease was due to lower Realized Performance Revenues in BREP and BREDS.

Realized Principal Investment Income was $63.3 million for the nine months ended September 30, 2019, a decrease of $17.8 million, compared to $81.1 million for the nine months ended September 30, 2018. The decrease was primarily due to lower Realized Principal Investment Income for BREP VI.

Realized Performance Compensation was $183.2 million for the nine months ended September 30, 2019, a decrease of $47.0 million, compared to $230.1 million for the nine months ended September 30, 2018. The decrease was due to the decrease in Realized Performance Revenues.

Fund Returns

Fund return information for our significant 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 this discussion and analysis is not indicative of the financial performance of Blackstone and is also not necessarily indicative of the future performance of any particular fund. An investment in Blackstone is not an investment in any of our funds. There can be no assurance that any of our funds or our other existing and future funds will achieve similar returns.

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The following table presents the internal rates of return, except where noted, of our significant real estate funds:


	Three Months Ended								Nine Months Ended								September 30, 2019
	September 30,								September 30,								Inception to Date
	2019				2018				2019				2018				Realized				Total
Fund / Composite (a)	Gross		Net		Gross		Net		Gross		Net		Gross		Net		Gross		Net		Gross		Net
BREP IV		14%		12%		-4%		-3%		65%		43%		4%		4%		48%		28%		22%		12%
BREP V		-7%		-6%		-9%		-8%		9%		6%		1%		-		15%		12%		14%		11%
BREP VI		9%		8%		4%		3%		24%		21%		4%		3%		18%		13%		17%		13%
BREP VII		2%		2%		2%		2%		13%		10%		7%		5%		32%		23%		23%		16%
BREP VIII		5%		4%		5%		5%		12%		9%		15%		11%		37%		27%		23%		15%
BREP International II (b)(c)(i)		3%		-12%		4%		3%		142%		54%		19%		16%		10%		8%		10%		8%
BREP Europe III (b)		-3%		-3%		-10%		-7%		-2%		-3%		-6%		-5%		30%		21%		23%		14%
BREP Europe IV (b)		5%		4%		5%		4%		10%		8%		17%		13%		33%		24%		23%		17%
BREP Europe V (b)		5%		3%		5%		4%		15%		11%		18%		13%		61%		45%		25%		16%
BREP Asia I		4%		3%		2%		1%		14%		11%		6%		4%		29%		21%		22%		15%
BREP Asia II		4%		2%		N/M		N/M		17%		10%		N/M		N/M		N/M		N/M		20%		6%
BREP Co-Investment (d)		6%		5%		2%		2%		35%		31%		5%		4%		17%		16%		18%		16%
BPP (e)		2%		2%		3%		2%		6%		5%		8%		7%		N/M		N/M		12%		10%
BREDS High-Yield (f)		4%		3%		2%		1%		12%		9%		7%		5%		15%		11%		15%		11%
BREDS High-Grade (f)		2%		2%		1%		-		6%		5%		7%		5%		10%		9%		8%		6%
BREDS Liquid (g)		2%		2%		2%		2%		11%		9%		8%		6%		N/A		N/A		11%		8%
BXMT (h)		N/A		3%		N/A		9%		N/A		19%		N/A		10%		N/A		N/A		N/A		14%
BREIT (j)		N/A		4%		N/A		2%		N/A		10%		N/A		7%		N/A		N/A		N/A		10%

The returns presented herein represent those of the applicable Blackstone Funds and not those of Blackstone.

N/M	Not meaningful generally due to the limited time since initial investment.

N/A	Not applicable.

(a)	Net returns are based on the change in carrying value (realized and unrealized) after management fees, expenses and Performance Revenues.

(b)	Euro-based internal rates of return.

(c)	The 8% Realized Net IRR and 8% Total Net IRR exclude investors that opted out of the Hilton investment opportunity. Overall BREP International II Performance reflects a 7% Realized Net IRR and a 7% Total Net IRR.

(d)	Excludes fully realized co-investments prior to Blackstone’s IPO.

(e)	BPP represents the core+ real estate funds which invest with a more modest risk profile and lower leverage. Excludes BREIT.

(f)

Effective March 31, 2019, the former BREDS Drawdown composite is being presented by its components, BREDS High-Yield and BREDS High-Grade. BREDS High-Yield represents the flagship real estate debt drawdown funds and excludes the BREDS High-Grade drawdown fund, which has a different risk-return profile. Inception to date returns are from July 1, 2009 and July 1, 2017 for BREDS High-Yield and BREDS High-Grade, respectively. Prior periods have been updated to reflect this presentation.

(g)

BREDS Liquid represents BREDS funds that invest in liquid real estate debt securities, except funds in liquidation and insurance mandates with specific investment objectives. Effective June 30, 2018, the returns presented represent summarized asset-weighted gross and net rates of return. Inception to Date returns are presented on an annualized basis. Prior periods have been updated to reflect such rates of return.

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(h)

Reflects annualized return of a shareholder invested in the REIT as of the beginning of each period presented, assuming reinvestment of all dividends received during the period, and net of all fees and expenses incurred by the REIT. Return incorporates the closing NYSE stock price as of each period end. Inception to date returns are from May 22, 2013.

(i)	For the three and nine months ended September 30, 2019, the appreciation of our remaining assets has resulted in the fund exceeding the preferred return.

(j)

Effective September 30, 2019, the BREIT return reflects a per share blended return for each respective period, assuming BREIT had a single share class, reinvestment of all dividends received during the period, and no upfront selling commission, net of all fees and expenses incurred by BREIT. These returns are not representative of the returns experienced by any particular investor or share class. Inception to date returns are presented on an annualized basis and are from January 1, 2017. Prior periods have been updated to reflect BREIT’s per share blended return. The BREIT returns previously presented were for BREIT’s Class S investors.

As of September 30, 2019, the investment period for BREP International II had expired and the fund was not above its carried interest threshold. BREP International II Investors that opted out of the Hilton investment opportunity are not expected to exceed the carried interest threshold in future periods. However, since gains are not earned

pro-rata,

certain BREP International II investors who participated in the Hilton investment opportunity have exceeded the carried interest threshold this quarter.

As of September 30, 2019, BREP Asia II was not above its carried interest threshold at the fund level. However, certain BREP Asia II investors have a reduced base management fee due to a larger capital commitment amount, thereby resulting in higher net gains and have exceeded the carried interest threshold this quarter.

The Real Estate segment has two funds in their investment period, which were above their respective carried interest thresholds as of September 30, 2019: BREP Europe V and BREDS III.

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Private Equity

The following table presents the results of operations for our Private Equity segment:


	Three Months Ended											Nine Months Ended
	September 30,						2019 vs. 2018					September 30,						2019 vs. 2018
	2019			2018			$			%		2019			2018			$			%
	(Dollars in Thousands)
Management and Advisory Fees, Net
Base Management Fees	$	252,510		$	205,893		$	46,617			23%	$	737,066		$	584,375		$	152,691			26	%
Transaction, Advisory and Other Fees, Net		14,657			21,709			(7,052	)		-32%		83,474			45,583			37,891			83	%
Management Fee Offsets		(11,889	)		(4,973	)		(6,916	)		139%		(34,563	)		(12,517	)		(22,046	)		176	%

Total Management and Advisory Fees, Net		255,278			222,629			32,649			15%		785,977			617,441			168,536			27	%
Fee Related Compensation		(105,773	)		(105,621	)		(152	)		-		(318,467	)		(289,357	)		(29,110	)		10	%
Other Operating Expenses		(38,235	)		(36,654	)		(1,581	)		4%		(112,865	)		(103,852	)		(9,013	)		9	%

Fee Related Earnings		111,270			80,354			30,916			38%		354,645			224,232			130,413			58	%

Realized Performance Revenues		124,231			290,012			(165,781	)		-57%		403,737			505,306			(101,569	)		-20	%
Realized Performance Compensation		(52,034	)		(106,400	)		54,366			-51%		(154,671	)		(207,958	)		53,287			-26	%
Realized Principal Investment Income		11,977			44,408			(32,431	)		-73%		80,022			83,346			(3,324	)		-4	%

Net Realizations		84,174			228,020			(143,846	)		-63%		329,088			380,694			(51,606	)		-14	%

Segment Distributable Earnings	$	195,444		$	308,374		$	(112,930	)		-37%	$	683,733		$	604,926		$	78,807			13	%

N/M	Not meaningful.

Three Months Ended September 30, 2019 Compared to Three Months Ended September 30, 2018

Segment Distributable Earnings were $195.4 million for the three months ended September 30, 2019, a decrease of $112.9 million, compared to $308.4 million for the three months ended September 30, 2018. The decrease in Segment Distributable Earnings was primarily attributable to a decrease of $143.8 million in Net Realizations, partially offset by an increase of $30.9 million in Fee Related Earnings.

Segment Distributable Earnings in our Private Equity segment in the third quarter of 2019 were lower compared to the third quarter of 2018, primarily driven by a decrease in Realized Performance Revenue in corporate private equity, partially offset by an increase in Fee Related Earnings from growth in

Fee-Earning

Assets Under Management in Strategic Partners, BIP and BXLS. Healthy underlying performance in the private corporate private equity portfolio was partially offset by modest declines in public holdings. The persistence of weakened market fundamentals in certain energy subsectors, particularly upstream, would negatively impact the performance of certain investments in our energy and corporate private equity funds. The market environment has continued to be characterized by volatility and macroeconomic and geopolitical concerns, such as concerns regarding trade conflict with China and the rate of global growth. Such conditions (which may be across industries, sectors or geographies) may contribute to adverse operating performance at our portfolio companies and limit attractive realization opportunities for our Private Equity segment. Factors such as increasing wages, a tight labor market, the imposition of tariffs and overall uncertainty regarding trade policy, create challenges to increasing or maintaining profit margins for U.S. companies, particularly in the industrials and retail sectors. In that connection, adverse wage and trade developments put pressure on our ability to increase profit margins at our U.S. portfolio companies through operational initiatives. The market environment continues to be generally characterized by high prices, and this can make deployment of capital more difficult. Nonetheless, we deployed or committed an aggregate of $8.4 billion of capital across the segment in the third quarter of 2019. See “Part I. Item 1A. Risk Factors — Risks Related to Our Business — Difficult market conditions can adversely affect our business in many ways, including by reducing the value or performance of the investments made by our investment funds, making it

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more difficult to find opportunities for our funds to exit and realize value from existing investments and reducing the ability of our investment funds to raise or deploy capital, each of which could materially reduce our revenue, earnings and cash flow and adversely affect our financial prospects and condition.” in our Annual Report on Form

10-K

for the year ended December 31, 2018.

Fee Related Earnings

Fee Related Earnings were $111.3 million for the three months ended September 30, 2019, an increase of $30.9 million, or 38%, compared to $80.4 million for the three months ended September 30, 2018. The increase in Fee Related Earnings was primarily attributable to an increase of $32.6 million in Management and Advisory Fees, Net.

Management and Advisory Fees, Net were $255.3 million for the three months ended September 30, 2019, an increase of $32.6 million, compared to $222.6 million for the three months ended September 30, 2018, primarily driven by an increase in Base Management Fees. Base Management Fees were $252.5 million for the three months ended September 30, 2019, an increase of $46.6 million, compared to $205.9 million for the three months ended September 30, 2018, primarily due to increases in

Fee-Earning

Assets Under Management in Strategic Partners, BIP and BXLS.

Net Realizations

Net Realizations were $84.2 million for the three months ended September 30, 2019, a decrease of $143.8 million, compared to $228.0 million for the three months ended September 30, 2018. The decrease in Net Realizations was primarily attributable to decreases of $165.8 million in Realized Performance Revenues and $32.4 million in Realized Principal Investment Income, partially offset by a decrease of $54.4 million in Realized Performance Compensation.

Realized Performance Revenues were $124.2 million for the three months ended September 30, 2019, a decrease of $165.8 million, compared to $290.0 million for the three months ended September 30, 2018. The decrease was primarily due to lower Realized Performance Revenues in corporate private equity.

Realized Principal Investment Income was $12.0 million for the three months ended September 30, 2019, a decrease of $32.4 million, compared to $44.4 million for the three months ended September 30, 2018. The decrease was primarily due to a decrease of Realized Principal Investment Income in corporate private equity.

Realized Performance Compensation was $52.0 million for the three months ended September 30, 2019, a decrease of $54.4 million, compared to $106.4 million for the three months ended September 30, 2018. The decrease was due to the decrease in Realized Performance Revenues.

Nine Months Ended September 30, 2019 Compared to Nine Months Ended September 30, 2018

Segment Distributable Earnings were $683.7 million for the nine months ended September 30, 2019, an increase of $78.8 million, or 13%, compared to $604.9 million for the nine months ended September 30, 2018. The increase in Segment Distributable Earnings was primarily attributable to an increase of $130.4 million in Fee Related Earnings, partially offset by a decrease of $51.6 million in Net Realizations.

Fee Related Earnings

Fee Related Earnings were $354.6 million for the nine months ended September 30, 2019, an increase of $130.4 million, or 58%, compared to $224.2 million for the nine months ended September 30, 2018. The increase in Fee Related Earnings was primarily attributable to an increase of $168.5 million in Management and Advisory Fees, Net, partially offset by an increase of $29.1 million in Fee Related Compensation.

Management and Advisory Fees, Net were $786.0 million for the nine months ended September 30, 2019, an increase of $168.5 million, compared to $617.4 million for the nine months ended September 30, 2018, primarily driven by an increase in Base Management Fees. Base Management Fees were $737.1 million for the nine months

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ended September 30, 2019, an increase of $152.7 million, compared to $584.4 million for the nine months ended September 30, 2018, primarily due to increases in

Fee-Earning

Assets Under Management in Strategic Partners, BIP, Tactical Opportunities and BXLS.

Fee Related Compensation was $318.5 million for the nine months ended September 30, 2019, an increase of $29.1 million, compared to $289.4 million for the nine months ended September 30, 2018. The increase was primarily due to the increase in Management and Advisory Fees, Net, on which a portion of Fee Related Compensation is based.

Net Realizations

Net Realizations were $329.1 million for the nine months ended September 30, 2019, a decrease of $51.6 million, compared to $380.7 million for the nine months ended September 30, 2018. The decrease in Net Realizations was primarily attributable to a decrease of $101.6 million in Realized Performance Revenues, partially offset by a decrease of $53.3 million in Realized Performance Compensation.

Realized Performance Revenues were $403.7 million for the nine months ended September 30, 2019, a decrease of $101.6 million, compared to $505.3 million for the nine months ended September 30, 2018. The decrease was primarily due to lower Realized Performance Revenues in corporate private equity and Strategic Partners.

Realized Performance Compensation was $154.7 million for the nine months ended September 30, 2019, a decrease of $53.3 million, compared to $208.0 million for the nine months ended September 30, 2018. The decrease was due to the decrease in Realized Performance Revenues.

Fund Returns

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The following table presents the internal rates of return of our significant private equity funds:


	Three Months Ended								Nine Months Ended								September 30, 2019
	September 30,								September 30,								Inception to Date
	2019				2018				2019				2018				Realized				Total
Fund (a)	Gross		Net		Gross		Net		Gross		Net		Gross		Net		Gross		Net		Gross		Net
BCP IV		1%		1%		10%		9%		56%		42%		28%		24%		50%		36%		50%		36%
BCP V		-2%		-1%		-2%		-2%		-9%		-2%		11%		8%		11%		9%		10%		8%
BCP VI		-		-		7%		6%		4%		3%		24%		20%		24%		18%		17%		13%
BCP VII		7%		6%		12%		8%		18%		13%		35%		22%		63%		45%		32%		20%
BEP I		-1%		-1%		7%		6%		13%		11%		27%		23%		22%		17%		17%		13%
BEP II		-2%		-		10%		7%		-4%		-3%		29%		18%		57%		42%		15%		8%
BCOM		-4%		-5%		2%		2%		-24%		-24%		4%		3%		13%		6%		13%		6%
Tactical Opportunities		1%		-		5%		3%		6%		2%		12%		9%		24%		19%		14%		10%
Tactical Opportunities Co-Investment and Other		1%		1%		2%		1%		5%		5%		14%		11%		26%		24%		15%		13%
Strategic Partners I-V (b)		6%		5%		-		-		-1%		-2%		4%		3%		N/A		N/A		16%		13%
Strategic Partners VI (b)		2%		1%		-		-		-2%		-3%		15%		13%		N/A		N/A		22%		17%
Strategic Partners VII (b)		6%		5%		2%		2%		9%		7%		22%		19%		N/A		N/A		32%		25%
Strategic Partners RA II (b)		7%		6%		2%		1%		18%		16%		25%		18%		N/A		N/A		26%		20%
Strategic Partners RE, SMA and Other (b)		8%		8%		3%		-		14%		14%		15%		10%		N/A		N/A		22%		18%

The returns presented herein represent those of the applicable Blackstone Funds and not those of Blackstone.

N/M	Not meaningful generally due to the limited time since initial investment.

N/A	Not applicable.

(a)	Net returns are based on the change in carrying value (realized and unrealized) after management fees, expenses and Performance Revenues.

(b)	Realizations are treated as return of capital until fully recovered and therefore inception to date realized returns are not applicable. Returns are calculated from results that are reported on a three month lag.

The corporate private equity funds within the Private Equity segment have five funds with closed investment periods: BCP IV, BCP V, BCP VI, BCOM and BEP I. As of September 30, 2019, BCP IV was above its carried interest threshold (i.e., the preferred return payable to its limited partners before the general partner is eligible to receive carried interest) and would still be above its carried interest threshold even if all remaining investments were valued at zero. BCP V is comprised of two fund classes based on the timings of fund closings, the BCP V “main fund” and BCP

V-AC

fund. Within these fund classes, the general partner is subject to equalization such that (a) the general partner accrues carried interest when the respective carried interest for either fund class is positive and (b) the general partner realizes carried interest so long as clawback obligations, if any, for either of the respective fund classes are fully satisfied. During the quarter, BCP V is currently below its carried interest threshold, while BCP

V-AC

is above its carried interest threshold. BCP VI is currently above its carried interest threshold. BCOM is currently above its carried interest threshold. We are entitled to retain previously realized carried interest up to 20% of BCOM’s net gains. As a result, Performance Revenues are recognized from BCOM on current period gains and losses. BEP I is currently above its carried interest threshold.

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Hedge Fund Solutions

The following table presents the results of operations for our Hedge Fund Solutions segment:


	Three Months Ended											Nine Months Ended
	September 30,						2019 vs. 2018					September 30,						2019 vs. 2018
	2019			2018			$			%		2019			2018			$			%
	(Dollars in Thousands)
Management Fees, Net
Base Management Fees	$	140,694		$	129,554		$	11,140			9%	$	415,012		$	388,335		$	26,677			7%
Transaction and Other Fees, Net		691			766			(75	)		-10%		1,732			1,923			(191	)		-10%
Management Fee Offsets		(18	)		—			(18	)		N/M		(18	)		—			(18	)		N/M

Total Management Fees, Net		141,367			130,320			11,047			8%		416,726			390,258			26,468			7%
Fee Related Compensation		(38,898	)		(43,443	)		4,545			-10%		(118,474	)		(123,615	)		5,141			-4%
Other Operating Expenses		(20,495	)		(20,753	)		258			-1%		(59,492	)		(58,032	)		(1,460	)		3%

Fee Related Earnings		81,974			66,124			15,850			24%		238,760			208,611			30,149			14%

Realized Performance Revenues		1,848			3,985			(2,137	)		-54%		17,899			21,432			(3,533	)		-16%
Realized Performance Compensation		(1,000	)		(1,922	)		922			-48%		(4,588	)		(7,391	)		2,803			-38%
Realized Principal Investment Income		1,480			2,024			(544	)		-27%		13,503			10,430			3,073			29%

Net Realizations		2,328			4,087			(1,759	)		-43%		26,814			24,471			2,343			10%

Segment Distributable Earnings	$	84,302		$	70,211		$	14,091			20%	$	265,574		$	233,082		$	32,492			14%

N/M	Not meaningful.

Three Months Ended September 30, 2019 Compared to Three Months Ended September 30, 2018

Segment Distributable Earnings were $84.3 million for the three months ended September 30, 2019, an increase of $14.1 million, or 20%, compared to $70.2 million for the three months ended September 30, 2018. The increase in Segment Distributable Earnings was primarily attributable to an increase of $15.8 million in Fee Related Earnings, partially offset by a decrease of $1.8 million in Net Realizations.

Segment Distributable Earnings in our Hedge Fund Solutions segment in the third quarter of 2019 were higher compared to the third quarter of 2018. This increase was primarily driven by an increase in Fee Related Earnings as a result of growth in

Fee-Earning

Assets Under Management in individual investor and specialized solutions. Segment Distributable Earnings in the Hedge Fund Solutions segment would likely be negatively impacted in the event of a significant or sustained decline in global, regional or sector asset prices, deterioration of global market conditions, or withdrawal of assets by investors as a result of liquidity needs, performance or other reasons. In addition, Segment Distributable Earnings in our Hedge Fund Solutions segment may be negatively impacted by a prolonged weak equity market environment, which may be caused by concerns over macroeconomic and geopolitical factors such as trade conflict with China and the rate of global growth. See “Part I. Item 1A. Risk Factors — Risks Related to Our Business — Difficult market conditions can adversely affect our business in many ways, including by reducing the value or performance of the investments made by our investment funds, making it more difficult to find opportunities for our funds to exit and realize value from existing investments and reducing the ability of our investment funds to raise or deploy capital, each of which could materially reduce our revenue, earnings and cash flow and adversely affect our financial prospects and condition” and “— Hedge fund investments are subject to numerous additional risks.” in our Annual Report on Form

10-K

for the year ended December 31, 2018. The segment operates multiple business lines, manages strategies that are both long and short asset classes and generates a majority of its revenue through management fees, which we believe may provide a level of downside protection to Hedge Fund Solutions Segment Distributable Earnings. Over time we anticipate an increasing change in the mix of our product offerings to products whose performance based fees represent a more significant proportion of the fees than has historically been the case for such products.

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Fee Related Earnings

Fee Related Earnings were $82.0 million for the three months ended September 30, 2019, an increase of $15.8 million, or 24%, compared to $66.1 million for the three months ended September 30, 2018. The increase in Fee Related Earnings was primarily attributable to an increase of $11.0 million in Management Fees, Net and a decrease of $4.5 million in Fee Related Compensation.

Management Fees, Net were $141.4 million for the three months ended September 30, 2019, an increase of $11.0 million, compared to $130.3 million for the three months ended September 30, 2018, primarily driven by an increase in Base Management Fees. Base Management Fees were $140.7 million for the three months ended September 30, 2019, an increase of $11.1 million, compared to $129.6 million for the three months ended September 30, 2018, primarily due to

Fee-Earning

Asset Under Management growth in our individual investor and specialized solutions.

Fee Related Compensation was $38.9 million for the three months ended September 30, 2019, a decrease of $4.5 million, compared to $43.4 million for the three months ended September 30, 2018. The decrease was primarily due to changes in compensation accruals.

Net Realizations

Net Realizations were $2.3 million for the three months ended September 30, 2019, a decrease of $1.8 million, compared to $4.1 million for the three months ended September 30, 2018. The decrease in Net Realizations was primarily attributable to decreases of $2.1 million in Realized Performance Revenues, partially offset by a decrease of $0.9 million in Realized Performance Compensation.

Realized Performance Revenues were $1.8 million for the three months ended September 30, 2019, a decrease of $2.1 million, compared to $4.0 million for the three months ended September 30, 2018. The decrease was primarily due to lower returns across a number of strategies compared to the three months ended September 30, 2018.

Realized Performance Compensation was $1.0 million for the three months ended September 30, 2019, a decrease of $0.9 million, compared to $1.9 million for the three months ended September 30, 2018. The decrease was primarily due to the decrease in Realized Performance Revenues.

Nine Months Ended September 30, 2019 Compared to Nine Months Ended September 30, 2018

Segment Distributable Earnings were $265.6 million for the nine months ended September 30, 2019, an increase of $32.5 million, or 14%, compared to $233.1 million for the nine months ended September 30, 2018. The increase in Segment Distributable Earnings was primarily attributable to increases of $30.1 million in Fee Related Earnings and $2.3 million in Net Realizations.

Fee Related Earnings

Fee Related Earnings were $238.8 million for the nine months ended September 30, 2019, an increase of $30.1 million, or 14%, compared to $208.6 million for the nine months ended September 30, 2018. The increase in Fee Related Earnings was primarily attributable to an increase of $26.5 million in Management Fees, Net and a decrease of $5.1 million in Fee Related Compensation.

Management Fees, Net were $416.7 million for the nine months ended September 30, 2019, an increase of $26.5 million, compared to $390.3 million for the nine months ended September 30, 2018, primarily driven by an increase in Base Management Fees. Base Management Fees were $415.0 million for the nine months ended September 30, 2019, an increase of $26.7 million, compared to $388.3 million for the nine months ended September 30, 2018, primarily due to

Fee-Earning

Asset Under Management growth in our individual investor and specialized solutions and a reduction in placement fees, which offset Base Management Fees.

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Fee Related Compensation was $118.5 million for the nine months ended September 30, 2019, a decrease of $5.1 million, compared to $123.6 million for the nine months ended September 30, 2018. The decrease was primarily due to changes in compensation accruals.

Net Realizations

Net Realizations were $26.8 million for the nine months ended September 30, 2019, an increase of $2.3 million, compared to $24.5 million for the nine months ended September 30, 2018. The increase in Net Realizations was primarily attributable to an increase of $3.1 million in Realized Principal Investment Income and a decrease of $2.8 million in Realized Performance Compensation, partially offset by a decrease of $3.5 million in Realized Performance Revenues.

Realized Principal Investment Income was $13.5 million for the nine months ended September 30, 2019, an increase of $3.1 million, compared to $10.4 million for the nine months ended September 30, 2018. The increase was driven by realized gains on our Corporate Treasury Investments.

Realized Performance Compensation was $4.6 million for the nine months ended September 30, 2019, a decrease of $2.8 million, compared to $7.4 million for the nine months ended September 30, 2018. The decrease was due to the decrease in Realized Performance Revenues.

Realized Performance Revenues were $17.9 million for the nine months ended September 30, 2019, a decrease of $3.5 million, compared to $21.4 million for the nine months ended September 30, 2018. The decrease was primarily driven by funds entering 2019 with loss carryforward balances.

Operating Metrics

The following table presents information regarding our Invested Performance Revenue Eligible Assets Under Management:


	Invested Performance				Estimated % Above
	Revenue Eligible Assets				High Water Mark/
	Under Management				Benchmark (a)
	As of September 30,				As of September 30,
	2019		2018		2019		2018
	(Dollars in Thousands)
Hedge Fund Solutions Managed Funds (b)		$ 43,901,366		$ 44,823,114		75%		92%

(a)

Estimated % Above High Water Mark/Benchmark represents the percentage of Invested Performance Revenue Eligible Assets Under Management that as of the dates presented would earn performance fees when the applicable Hedge Fund Solutions managed fund has positive investment performance relative to a benchmark, where applicable. Incremental positive performance in the applicable Blackstone Funds may cause additional assets to reach their respective High Water Mark or clear a benchmark return, thereby resulting in an increase in Estimated % Above High Water Mark/Benchmark.

(b)

For the Hedge Fund Solutions managed funds, at September 30, 2019, the incremental appreciation needed for the 25% of Invested Performance Revenue Eligible Assets Under Management below their respective High Water Marks/Benchmarks to reach their respective High Water Marks/Benchmarks was $439.3 million, an increase of $28.9 million, compared to $410.4 million at September 30, 2018. Of the Invested Performance Revenue Eligible Assets Under Management below their respective High Water Marks/Benchmarks as of September 30, 2019, 86% were within 5% of reaching their respective High Water Mark.

Composite Returns

Composite returns information is included throughout this discussion and analysis to facilitate an understanding of our results of operations for the periods presented. The composite returns information reflected in this discussion and analysis is not indicative of the financial performance of Blackstone and is also not

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necessarily indicative of the future results of any particular fund. An investment in Blackstone is not an investment in any of our funds or composites. There can be no assurance that any of our funds or composites or our other existing and future funds or composites will achieve similar returns.

The following table presents the return information of the BAAM Principal Solutions Composite:

Three

Nine

Average Annual Returns (a)

Months Ended

Periods Ended

September 30,

September 30, 2019

2019

2018

2019

2018

One Year

Three Year

Five Year

Historical

Composite

Gross

Net

Gross

Net

Gross

Net

Gross

Net

Gross

Net

Gross

Net

Gross

Net

Gross

Net

BAAM Principal Solutions Composite (b)

The returns presented herein represent those of the applicable Blackstone Funds and not those of Blackstone.

(a)	Composite returns present a summarized asset-weighted return measure to evaluate the overall performance of the applicable class of Blackstone Funds.

(b)

BAAM’s Principal Solutions (“BPS”) Composite covers the period from January 2000 to present, although BAAM’s inception date is September 1990. The BPS Composite includes only BAAM-managed commingled and customized multi-manager funds and accounts. None of the other platforms/strategies managed through the Blackstone Hedge Fund Solutions Group are included in the composite (except for investments by BPS funds/accounts directly into those platforms/strategies). BAAM-managed funds in liquidation and

non-fee-paying

assets (in the case of net returns) are excluded from the composite. The historical return is from January 1, 2000.

Credit

The following table presents the results of operations for our Credit segment:


	Three Months Ended											Nine Months Ended
	September 30,						2019 vs. 2018					September 30,						2019 vs. 2018
	2019			2018			$			%		2019			2018			$			%
	(Dollars in Thousands)
Management Fees, Net
Base Management Fees	$	149,746		$	132,071		$	17,675			13%	$	437,824		$	418,673		$	19,151			5%
Transaction and Other Fees, Net		3,969			5,791			(1,822	)		-31%		12,855			11,791			1,064			9%
Management Fee Offsets		(2,544	)		(3,093	)		549			-18%		(9,164	)		(9,107	)		(57	)		1%

Total Management Fees, Net		151,171			134,769			16,402			12%		441,515			421,357			20,158			5%
Fee Related Performance Revenues		3,625			—			3,625			N/M		7,280			(666	)		7,946			N/M
Fee Related Compensation		(52,980	)		(57,139	)		4,159			-7%		(165,964	)		(174,155	)		8,191			-5%
Other Operating Expenses		(41,724	)		(31,551	)		(10,173	)		32%		(114,429	)		(91,189	)		(23,240	)		25%

Fee Related Earnings		60,092			46,079			14,013			30%		168,402			155,347			13,055			8%

Realized Performance Revenues		12,382			4,853			7,529			155%		29,225			59,337			(30,112	)		-51%
Realized Performance Compensation		(5,292	)		(3,142	)		(2,150	)		68%		(12,131	)		(33,007	)		20,876			-63%
Realized Principal Investment Income		4,723			2,991			1,732			58%		28,831			14,098			14,733			105%

Net Realizations		11,813			4,702			7,111			151%		45,925			40,428			5,497			14%

Segment Distributable Earnings	$	71,905		$	50,781		$	21,124			42%	$	214,327		$	195,775		$	18,552			9%

N/M	Not meaningful.

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Three Months Ended September 30, 2019 Compared to Three Months Ended September 30, 2018

Segment Distributable Earnings were $71.9 million for the three months ended September 30, 2019, an increase of $21.1 million, or 42%, compared to $50.8 million for the three months ended September 30, 2018. The increase in Segment Distributable Earnings was primarily attributable to increases of $14.0 million in Fee Related Earnings and $7.1 million in Net Realizations.

Segment Distributable Earnings in our Credit segment in the third quarter of 2019 were higher compared to the third quarter of 2018, driven in part by higher Fee Related Earnings as a result of growth in BIS and certain other GSO vehicles, including our U.S. direct lending platform. Against a muted market backdrop, our performing credit strategies delivered a 0.9% gross return in the quarter and our distressed strategies declined 3.9%, largely driven by decreases in certain upstream energy positions. The persistence of weakened market fundamentals in certain energy subsectors, particularly upstream, would continue to negatively impact the performance of certain Credit segment investments. Our Credit segment deployed or committed $3.4 billion of capital in the third quarter of 2019. See “Part I. Item 1A. Risk Factors — Risks Related to Our Business — Difficult market conditions can adversely affect our business in many ways, including by reducing the value or performance of the investments made by our investment funds, making it more difficult to find opportunities for our funds to exit and realize value from existing investments and reducing the ability of our investment funds to raise or deploy capital, each of which could materially reduce our revenue, earnings and cash flow and adversely affect our financial prospects and condition.” in our Annual Report on Form

10-K

for the year ended December 31, 2018.

Fee Related Earnings

Fee Related Earnings were $60.1 million for the three months ended September 30, 2019, an increase of $14.0 million, or 30%, compared to $46.1 million for the three months ended September 30, 2018. The increase in Fee Related Earnings was primarily attributable to increases of $16.4 million in Management Fees, Net and $3.6 million in Fee Related Performance Revenues and a decrease of $4.2 million in Fee Related Compensation, partially offset by an increase of $10.2 million in Other Operating Expenses.

Management Fees, Net were $151.2 million for the three months ended September 30, 2019, an increase of $16.4 million, compared to $134.8 million for the three months ended September 30, 2018, primarily driven by an increase in Base Management Fees. Base Management Fees were $149.7 million for the three months ended September 30, 2019, an increase of $17.7 million, compared to $132.1 million for the three months ended September 30, 2018, primarily due to the launch of several GSO and BIS funds subsequent to the three months ended September 30, 2018, including our BDC, successor flagship funds and multiple long only funds.

Fee Related Performance Revenues were $3.6 million for the three months ended September 30, 2019, an increase of $3.6 million, compared to the three months ended September 30, 2018. The increase was due to the ramp up of our BDC within the new direct lending platform.

Fee Related Compensation was $53.0 million for the three months ended September 30, 2019, a decrease of $4.2 million, compared to $57.1 million for the three months ended September 30, 2018. The decrease was primarily due to changes in compensation accruals.

Other Operating Expenses were $41.7 million for the three months ended September 30, 2019, an increase of $10.2 million, compared to $31.6 million for the three months ended September 30, 2018. The increase was primarily due to the growth in our new business initiatives, including BIS and the direct lending platform.

Net Realizations

Net Realizations were $11.8 million for the three months ended September 30, 2019, an increase of $7.1 million, or 151%, compared to $4.7 million for the three months ended September 30, 2018. The increase in Net Realizations was primarily attributable to increases of $7.5 million in Realized Performance Revenues and $1.7 million in Realized Principal Investment Income, partially offset by an increase of $2.2 million in Realized Performance Compensation.

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Realized Performance Revenues were $12.4 million for the three months ended September 30, 2019, an increase of $7.5 million, compared to $4.9 million for the three months ended September 30, 2018. The increase was primarily attributable to increased realizations in our mezzanine fund during the three months ended September 30, 2019.

Realized Principal Investment Income was $4.7 million for the three months ended September 30, 2019, an increase of $1.7 million, compared to $3.0 million for the three months ended September 30, 2018. The increase was due to realized gains in our corporate treasury investments.

Realized Performance Compensation was $5.3 million for the three months ended September 30, 2019, an increase of $2.2 million, compared to $3.1 million for the three months ended September 30, 2018. The increase was primarily attributable to the increase in Realized Performance Revenues.

Nine Months Ended September 30, 2019 Compared to Nine Months Ended September 30, 2018

Segment Distributable Earnings were $214.3 million for the nine months ended September 30, 2019, an increase of $18.6 million, compared to $195.8 million for the nine months ended September 30, 2018. The increase in Segment Distributable Earnings was primarily attributable to increases of $13.1 million in Fee Related Earnings and $5.5 million in Net Realizations.

Fee Related Earnings

Fee Related Earnings were $168.4 million for the nine months ended September 30, 2019, an increase of $13.1 million, compared to $155.3 million for the nine months ended September 30, 2018. The increase in Fee Related Earnings was primarily attributable to increases of $20.2 million in Management Fees, Net and $7.9 million in Fee Related Performance Revenues along with a decrease of $8.2 million in Fee Related Compensation, partially offset by an increase of $23.2 million in Other Operating Expenses.

Management Fees, Net were $441.5 million for the nine months ended September 30, 2019, an increase of $20.2 million, compared to $421.4 million for the nine months ended September 30, 2018, primarily driven by an increase in Base Management Fees. Base Management Fees were $437.8 million for the nine months ended September 30, 2019, an increase of $19.2 million, compared to $418.7 million for the nine months ended September 30, 2018. The increase was primarily due to the launch of several GSO and BIS funds subsequent to the nine months ended September 30, 2018, including our BDC, successor flagship funds and multiple long only funds, partially offset by the contractual agreement with FS Investments pursuant to which, in connection with the conclusion of our

sub-advisory

relationship with respect to the BDCs, we received a fixed payment in the first quarter of 2018.

Fee Related Performance Revenues were $7.3 million for the nine months ended September 30, 2019, an increase of $7.9 million, compared to $(0.7) million for the nine months ended September 30, 2018. The increase was due to the ramp up of our BDC within the new direct lending platform.

Fee Related Compensation was $166.0 million for the nine months ended September 30, 2019, a decrease of $8.2 million, compared to $174.2 million for the nine months ended September 30, 2018. The decrease was primarily due to changes in compensation accruals.

Other Operating Expenses were $114.4 million for the nine months ended September 30, 2019, an increase of $23.2 million, compared to $91.2 million for the nine months ended September 30, 2018. The increase was primarily due to the growth in our new business initiatives, including BIS and the direct lending platform.

Net Realizations

Net Realizations were $45.9 million for the nine months ended September 30, 2019, an increase of $5.5 million, compared to $40.4 million for the nine months ended September 30, 2018. The increase in Net Realizations was primarily attributable to a decrease of $20.9 million in Realized Performance Compensation and an increase of $14.7 million in Realized Principal Investment Income, partially offset by a decrease of $30.1 million in Realized Performance Revenues.

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Realized Performance Compensation was $12.1 million for the nine months ended September 30, 2019, a decrease of $20.9 million, compared to $33.0 million for the nine months ended September 30, 2018. The decrease was due to the decrease in Realized Performance Revenues.

Realized Principal Investment Income was $28.8 million for the nine months ended September 30, 2019, an increase of $14.7 million, compared to $14.1 million for the nine months ended September 30, 2018. The increase was driven by the realized gain on our Corporate Treasury Investments.

Realized Performance Revenues were $29.2 million for the nine months ended September 30, 2019, a decrease of $30.1 million, compared to $59.3 million for the nine months ended September 30, 2018. The decrease was primarily attributable to a mezzanine fund crossing its carry threshold during the fourth quarter of 2017, resulting in higher Realized Performance Revenues in the nine months ended September 30, 2018 compared to the nine months ended September 30, 2019.

Fund Returns

Fund return information for our significant businesses 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 this discussion and analysis is not indicative of the financial performance of Blackstone and is also not necessarily indicative of the future results of any particular fund. An investment in Blackstone is not an investment in any of our funds. There can be no assurance that any of our funds or our other existing and future funds will achieve similar returns.

The following table presents combined internal rates of return of the segment’s performing credit and distressed strategies funds:


	Three Months Ended								Nine Months Ended
	September 30,								September 30,								September 30, 2019
	2019				2018				2019				2018				Inception to Date
Composite (a)	Gross		Net		Gross		Net		Gross		Net		Gross		Net		Gross		Net
Performing Credit Strategies (b)		1%		-		1%		1%		9%		6%		9%		7%		14%		8%
Distressed Strategies (c)		-4%		-4%		1%		-		-2%		-4%		4%		2%		9%		5%

The returns presented herein represent those of the applicable Blackstone Funds and not those of Blackstone.

(a)	Net returns are based on the change in carrying value (realized and unrealized) after management fees, expenses and Performance Allocations, net of tax advances.

(b)

Performing Credit Strategies include mezzanine lending funds, middle market direct lending funds, including our BDC, and other performing credit strategy funds. Performing Credit Strategies’ returns represent the IRR of the combined cash flows of the

fee-earning

funds exceeding $100 million of fair value at each respective quarter end excluding the Blackstone Funds that were contributed to GSO as part of Blackstone’s acquisition of GSO in March 2008. The inception to date returns are from July 16, 2007.

(c)

Distressed Strategies include stressed/distressed funds, credit alpha strategies and energy strategies. Distressed Strategies’ returns represent the IRR of the combined cash flows of the

fee-earning

funds exceeding $100 million of fair value at each respective quarter end. The inception to date returns are from August 1, 2005.

As of September 30, 2019, there was $17.3 billion of Performance Revenue Eligible Assets Under Management invested in Credit strategies that were above the hurdle necessary to generate Incentive Fees or Performance Allocations. This represented 36% of the total Performance Revenue Eligible Assets Under Management across all Credit strategies.

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Non-GAAP

Financial Measures

These

non-GAAP

financial measures are presented without the consolidation of any Blackstone Funds that are consolidated into the Condensed Consolidated Financial Statements. Consequently, all

non-GAAP

financial measures exclude the assets, liabilities and operating results related to the Blackstone Funds. See “— Key Financial Measures and Indicators” for our definitions of Distributable Earnings, Segment Distributable Earnings, Fee Related Earnings and Adjusted EBITDA.

The following table is a reconciliation of Net Income Attributable to The Blackstone Group Inc. to Distributable Earnings, Total Segment Distributable Earnings, Fee Related Earnings and Adjusted EBITDA:

(a)	This adjustment removes Transaction-Related Charges, which are excluded from Blackstone’s segment presentation. Transaction-Related Charges arise from corporate actions including acquisitions, divestitures, and

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Blackstone’s initial public offering. They consist primarily of equity-based compensation charges, gains and losses on contingent consideration arrangements, changes in the balance of the Tax Receivable Agreement resulting from a change in tax law or similar event, transaction costs and any gains or losses associated with these corporate actions.

(b)	This adjustment removes the amortization of transaction-related intangibles, which are excluded from Blackstone’s segment presentation. This amount includes amortization of intangibles associated with Blackstone’s investment in Pátria, which is accounted for under the equity method.

(c)

This adjustment reverses the effect of consolidating Blackstone Funds, which are excluded from Blackstone’s segment presentation. This adjustment includes the elimination of Blackstone’s interest in these funds and the removal of amounts associated with the ownership of Blackstone consolidated operating partnerships held by

non-controlling

interests.

(d)	This adjustment removes Unrealized Performance Revenues on a segment basis. The Segment Adjustment represents the add back of performance revenues earned from consolidated Blackstone Funds which have been eliminated in consolidation.


	Three Months Ended September 30,					Nine Months Ended September 30,
	2019		2018			2019		2018
	(Dollars in Thousands)
GAAP Unrealized Performance Allocations	$	176,370	$	299,238		$	998,101	$	1,367,678
Segment Adjustment		234		(307	)		234		16

Unrealized Performance Revenues	$	176,604	$	298,931		$	998,335	$	1,367,694

(e)	This adjustment removes Unrealized Performance Allocations Compensation.

(f)

This adjustment removes Unrealized Principal Investment Income (Loss) on a segment basis. The Segment Adjustment represents (1) the add back of Principal Investment Income, including general partner income, earned from consolidated Blackstone Funds which have been eliminated in consolidation, and (2) the removal of amounts associated with the ownership of Blackstone consolidated operating partnerships held by

non-controlling

interests.


	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
	(Dollars in Thousands)
GAAP Unrealized Principal Investment Income	$	15,391		$	52,840		$	147,090		$	268,082
Segment Adjustment		(20,610	)		(24,136	)		(68,737	)		(173,274	)

Unrealized Principal Investment Income (Loss)	$	(5,219	)	$	28,704		$	78,353		$	94,808

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(g)

This adjustment removes Other Revenues on a segment basis. The Segment Adjustment represents (1) the add back of Other Revenues earned from consolidated Blackstone Funds which have been eliminated in consolidation, and (2) the removal of certain Transaction-Related Charges. For the nine months ended September 30, 2018, Transaction-Related Charges included $580.9 million of Other Revenues received upon the conclusion of Blackstone’s investment

sub-advisory

relationship with FS Investments’ funds.


	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
	(Dollars in Thousands)
GAAP Other Revenue	$	93,273		$	9,368		$	86,403		$	625,394
Segment Adjustment		(430	)		(276	)		(521	)		(582,780	)

Other Revenues	$	92,843		$	9,092		$	85,882		$	42,614

(h)	This adjustment removes Equity-Based Compensation on a segment basis.

(i)

Taxes represent the total GAAP tax provision adjusted to include only the current tax provision (benefit) calculated on Income (Loss) Before Provision for Taxes and adjusted to exclude the tax impact of any divestitures. Related Payables represent

tax-related

payables including the amount payable under the Tax Receivable Agreement.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
	(Dollars in Thousands)
Taxes	$	26,933	$	12,793	$	76,486	$	51,047
Related Payables		8,882		20,170		43,569		48,755

Taxes and Related Payables	$	35,815	$	32,963	$	120,055	$	99,802

(j)

This adjustment removes Interest and Dividend Revenue less Interest Expense on a segment basis. The Segment Adjustment represents (1) the add back of Other Revenues earned from consolidated Blackstone Funds which have been eliminated in consolidation, and (2) the removal of interest expense associated with the Tax Receivable Agreement.


	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
	(Dollars in Thousands)
GAAP Interest and Dividend Revenue	$	42,482		$	48,604		$	130,252		$	124,062
Segment Adjustment		2,566			1,332			7,486			3,986

Interest and Dividend Revenue		45,048			49,936			137,738			128,048

GAAP Interest Expense		53,362			41,355			138,960			119,346
Segment Adjustment		(547	)		(432	)		(1,277	)		(1,300	)

Interest Expense		52,815			40,923			137,683			118,046

Net Interest Income (Loss)	$	(7,767	)	$	9,013		$	55		$	10,002

(k)	This adjustment removes the total segment amounts of Realized Performance Revenues.

(l)	This adjustment removes the total segment amounts of Realized Performance Compensation.

(m)	This adjustment removes the total segment amount of Realized Principal Investment Income.

(n)	This adjustment adds back Interest Expense on a segment basis.

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The following tables are a reconciliation of Total GAAP Investments to Net Accrued Performance Revenues. Total GAAP Investments and Net Accrued Performance Revenues consist of the following:


	September 30,
	2019			2018
Investments of Consolidated Blackstone Funds	$	8,481,233		$	8,503,423
Equity Method Investments
Partnership Investments		3,864,453			3,690,841
Accrued Performance Allocations		7,003,889			6,722,430
Corporate Treasury Investments		2,588,529			2,883,610
Other Investments		266,356			294,616

Total GAAP Investments	$	22,204,460		$	22,094,920


Accrued Performance Allocations - GAAP	$	7,003,889		$	6,722,430
Impact of Consolidation (a)		237			229
Due from Affiliates - GAAP (b)		18,955			13,546
Less: Accrued Performance Compensation - GAAP (c)		(2,851,817	)		(2,700,828	)

Net Accrued Performance Revenues	$	4,171,264		$	4,035,377

(a)	This adjustment adds back investments in consolidated Blackstone Funds which have been eliminated in consolidation.

(b)	Represents GAAP accrued performance revenue recorded within Due from Affiliates.

(c)	Represents GAAP accrued performance compensation associated with Accrued Performance Allocations and is recorded within Accrued Compensation and Benefits and Due to Affiliates.

Liquidity and Capital Resources

General

Blackstone’s business model derives revenue primarily from third party assets under management. Blackstone is not a capital or balance sheet intensive business and targets operating expense levels such that total management and advisory fees exceed total operating expenses each period. As a result, we require limited capital resources to support the working capital or operating needs of our businesses. We draw primarily on the long-term committed capital of our limited partner investors to fund the investment requirements of the Blackstone Funds and use our own realizations and cash flows to invest in growth initiatives, make commitments to our own funds, where our minimum general partner commitments are generally less than 5% of the limited partner commitments of a fund, and pay dividends to shareholders.

Fluctuations in our statement of financial condition result primarily from activities of the Blackstone Funds which are consolidated as well as business transactions, such as the issuance of senior notes described below. The majority economic ownership interests of the Blackstone Funds are reflected as Redeemable

Non-Controlling

Interests in Consolidated Entities and

Non-Controlling

Interests in Consolidated Entities in the Condensed Consolidated Financial Statements. The consolidation of these Blackstone Funds has no net effect on Blackstone’s Net Income or Partners’ Capital. Additionally, fluctuations in our statement of financial condition also include appreciation or depreciation in Blackstone investments in the Blackstone Funds, additional investments and redemptions of such interests in the Blackstone Funds and the collection of receivables related to management and advisory fees.

Total assets were $32.4 billion as of September 30, 2019, an increase of $3.5 billion, or 12%, from December 31, 2018. The increase in total assets was principally due to an increase of $3.3 billion in total assets attributable to the consolidated operating partnerships. The increase in total assets attributable to the consolidated operating partnerships was primarily due to increases of $1.8 billion in Investments and $490.9 million in

Right-of-Use

Assets. The increase in Investments was primarily due to appreciation in the value of

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Blackstone’s interests in its real estate and private equity investments. Effective January 1, 2019, Blackstone adopted new GAAP guidance on the accounting for leases on a modified retrospective basis. See Note 2. “Summary of Significant Accounting Policies” in the “Notes to Condensed Consolidated Financial Statements” in “Part I. Item 1. Financial Statements” of this filing. The adoption resulted in the recognition of

Right-of-Use

Assets of $490.9 million as of September 30, 2019. The other net variances of the assets attributable to the consolidated operating partnerships were relatively unchanged.

Total liabilities were $17.8 billion as of September 30, 2019, an increase of $2.6 billion, or 17%, from December 31, 2018. The increase in total liabilities was principally due to an increase of $2.5 billion in total liabilities attributable to the consolidated operating partnerships. The increase in total liabilities attributable to the consolidated operating partnerships was primarily due to increases of $1.3 billion in Loans Payable, $681.1 million in Accrued Compensation and Benefits and $558.3 million in Operating Lease Liability. The increase in Loans Payable was due to the issuance of

€

600 million of notes on April 10, 2019 and $500 million and $400 million of notes on September 10, 2019. The increase in Accrued Compensation and Benefits was due to the accrual of bonus payments, which are typically paid prior to year end. Effective January 1, 2019, Blackstone adopted new GAAP guidance on the accounting for leases on a modified retrospective basis. The adoption resulted in the recognition of Operating Lease Liabilities of $558.3 million as of September 30, 2019. The other net variances of the liabilities attributable to the consolidated operating partnerships were relatively unchanged.

Sources and Uses of Liquidity

We have multiple sources of liquidity to meet our capital needs, including annual cash flows, accumulated earnings in the businesses, the proceeds from our issuances of senior notes, liquid investments we hold on our balance sheet for our own use and access to our $1.6 billion committed revolving credit facility. As of September 30, 2019, Blackstone had $2.5 billion in cash and cash equivalents, $3.1 billion invested in corporate treasury investments, $1.8 billion invested in Blackstone Funds and other investments, against $4.9 billion in borrowings from our senior notes issuances, and no borrowings outstanding under our revolving credit facility.

On September 3, 2019, Blackstone commenced the Tender Offer for any and all of its 2021 Notes. On September 9, 2019, the Tender Offer expired and $175.0 million aggregate principal amount of the 2021 Notes were validly tendered for payment. Payment for the tendered notes was made on September 10, 2019. On October 10, 2019, in accordance with the optional redemption provision under the indenture governing the 2021 Notes, Blackstone redeemed the 2021 Notes that were not previously tendered in the Tender Offer.

On September 10, 2019, Blackstone issued $500 million aggregate principal amount of 2.500% Senior Notes maturing on January 10, 2030 and $400 million aggregate principal amount of 3.500% Senior Notes maturing on September 10, 2049. Blackstone used the proceeds from the notes offering, together with cash on hand or available liquidity, to effectuate the Tender Offer and subsequent redemption of the 2021 Notes and to pay related fees and expenses. Remaining proceeds will be used for general corporate purposes.

In addition to the cash we received from our debt offerings and availability under our committed revolving credit facility, we expect to receive (a) cash generated from operating activities, (b) Performance Allocations and Incentive Fee realizations, and (c) realizations on the carry and hedge fund investments that we make. The amounts received from these three sources in particular may vary substantially from year to year and quarter to quarter depending on the frequency and size of realization events or net returns experienced by our investment funds. Our available capital could be adversely affected if there are prolonged periods of few substantial realizations from our investment funds accompanied by substantial capital calls for new investments from those investment funds. Therefore, Blackstone’s commitments to our funds are taken into consideration when managing our overall liquidity and cash position.

We expect that our primary liquidity needs will be cash to (a) provide capital to facilitate the growth of our existing businesses which principally includes funding our general partner and

co-investment

commitments to our funds, (b) provide capital to facilitate our expansion into new businesses that are complementary, (c) pay operating expenses, including cash compensation to our employees and other obligations as they arise, (d) fund

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modest capital expenditures, (e) repay borrowings and related interest costs, (f) pay income taxes, (g) repurchase our common stock and Blackstone Holdings Partnership Units pursuant to our repurchase program, and (h) pay dividends to our shareholders and the holders of Blackstone Holdings Partnership Units.

On July 1, 2019, we announced our Conversion from a Delaware limited partnership to the Corporation. Following the Conversion, all of the net income attributable to the Corporation will be subject to U.S. federal (and state and local) corporate income taxes. See “Part II. Item 1A. Risk Factors — Following the Conversion, we expect to pay more corporate income taxes than we would have as a limited partnership.” and “— Conversion to a Corporation” in our Quarterly Report on Form

10-Q

for the quarter ended March 31, 2019.

Our own capital commitments to our funds, the funds we invest in and our investment strategies as of September 30, 2019 consisted of the following:


					Senior Managing Directors
	Blackstone and				and Certain Other
	General Partner				Professionals (a)
	Original		Remaining		Original		Remaining
Fund	Commitment		Commitment		Commitment		Commitment
	(Dollars in Thousands)
Real Estate
BREP VII	$	300,000	$	41,987	$	100,000	$	13,996
BREP VIII		300,000		62,987		100,000		20,996
BREP IX		300,000		277,117		100,000		92,372
BREP Europe III		100,000		13,231		35,000		4,410
BREP Europe IV		130,000		23,842		43,333		7,947
BREP Europe V		150,000		51,525		43,333		14,885
BREP Europe VI		130,000		130,000		43,333		43,333
BREP Asia I		50,000		14,806		16,667		4,935
BREP Asia II		70,707		49,087		23,569		16,362
BREDS II		50,000		6,227		16,667		2,076
BREDS III		50,000		22,063		16,667		7,354
BPP		99,670		6,322		—		—
Other (b)		9,753		2,687		—		—
Private Equity
BCP V		629,356		30,642		—		—
BCP VI		719,718		91,540		250,000		31,797
BCP VII		500,000		197,926		225,000		89,067
BCP VIII		500,000		500,000		225,000		225,000
BEP I		50,000		4,728		—		—
BEP II		80,000		21,813		26,667		7,271
BEP III		78,329		78,329		26,110		26,110
BCEP		120,000		57,825		18,992		9,102
BCP Asia		40,000		26,153		13,333		8,718
Tactical Opportunities		437,310		196,576		128,037		65,525
Strategic Partners		669,025		423,061		90,627		55,673
BIP		168,632		146,175		—		—
BXLS		10,500		7,103		—		—
Other (b)		262,711		31,075		—		—

continued...

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					Senior Managing Directors
	Blackstone and				and Certain Other
	General Partner				Professionals (a)
	Original		Remaining		Original		Remaining
Fund	Commitment		Commitment		Commitment		Commitment
	(Dollars in Thousands)
Hedge Fund Solutions
Strategic Alliance	$	50,000	$	2,033	$	—	$	—
Strategic Alliance II		50,000		1,482		—		—
Strategic Alliance III		22,000		11,880		—		—
Strategic Holdings LP		154,610		85,987		—		—
Strategic Holdings II LP		50,000		50,000		—		—
Other (b)		6,774		2,653		—		—
Credit
Capital Opportunities Fund II LP		120,000		31,406		110,101		28,815
Capital Opportunities Fund III LP		130,783		70,074		30,688		16,837
GSO European Senior Debt Fund LP		63,000		17,796		56,992		16,099
GSO European Senior Debt Fund II LP		45,714		45,714		15,238		15,238
GSO Capital Solutions		50,000		5,008		27,666		2,771
GSO Capital Solutions II		125,000		52,036		119,959		49,938
GSO Capital Solutions III		151,000		131,206		31,395		27,394
GSO Energy Select Opportunities Fund		80,000		41,259		74,739		38,546
GSO Energy Select Opportunities Fund II		70,736		67,178		23,579		22,393
GSO Credit Alpha Fund LP		52,102		7,465		50,394		7,221
GSO Credit Alpha Fund II LP		25,500		16,800		5,907		3,880
Blackstone / GSO Secured Lending Fund		55,000		26,900		—		—
Other (b)		167,940		58,390		22,731		6,503
Other
Treasury (c)		1,240,699		950,307		—		—

	$	8,716,569	$	4,190,401	$	2,111,724	$	982,564

(a)

For some of the general partner commitments shown in the table above, we require our senior managing directors and certain other professionals to fund a portion of the commitment even though the ultimate obligation to fund the aggregate commitment is ours pursuant to the governing agreements of the respective funds. The amounts of the aggregate applicable general partner original and remaining commitment are shown in the table above. In addition, certain senior managing directors and other professionals are required to fund a de minimis amount of the commitment in the other private equity, real estate and credit-focused carry funds. We expect our commitments to be drawn down over time and to be funded by available cash and cash generated from operations and realizations. Taking into account prevailing market conditions and both the liquidity and cash or liquid investment balances, we believe that the sources of liquidity described above will be more than sufficient to fund our working capital requirements.

(b)	Represents capital commitments to a number of other funds in each respective segment.

(c)	Represents loan origination commitments, which are typically funded within 60-90 days of making a commitment, and capital market commitments.

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As of September 30, 2019, Blackstone Holdings Finance Co. L.L.C. (the “Issuer”), an indirect subsidiary of Blackstone, had issued and outstanding the following senior notes (collectively the “Notes”):


	Aggregate
	Principal
	Amount
	(Dollars/Euros
Senior Notes (a)	in Thousands)
5.875%, Due 3/15/2021 (b)	$	225,045
4.750%, Due 2/15/2023	$	400,000
2.000%, Due 5/19/2025	€	300,000
1.000%, Due 10/5/2026	€	600,000
3.150%, Due 10/2/2027	$	300,000
1.500%, Due 4/10/2029	€	600,000
2.500%, Due 1/10/2030	$	500,000
6.250%, Due 8/15/2042	$	250,000
5.000%, Due 6/15/2044	$	500,000
4.450%, Due 7/15/2045	$	350,000
4.000%, Due 10/2/2047	$	300,000
3.500%, Due 9/10/2049	$	400,000

(a)

The Notes are unsecured and unsubordinated obligations of the Issuer and are fully and unconditionally guaranteed, jointly and severally, by Blackstone and each of the Blackstone Holdings Partnerships. The Notes contain customary covenants and financial restrictions that, among other things, limit the Issuer and the guarantors’ ability, subject to certain exceptions, to incur indebtedness secured by liens on voting stock or profit participating equity interests of their subsidiaries or merge, consolidate or sell, transfer or lease assets. The Notes also contain customary events of default. All or a portion of the Notes may be redeemed at our option, in whole or in part, at any time and from time to time, prior to their stated maturity, at the make-whole redemption price set forth in the Notes. If a change of control repurchase event occurs, the Notes are subject to repurchase at the repurchase price as set forth in the Notes.

(b)	On October 10, 2019, Blackstone redeemed the then outstanding aggregate principal amount of the 2021 Notes. For additional information see Note 12. “Borrowings” in the “Notes to Condensed Consolidated Financial Statements” in “Part I. Item 1. Financial Statements” of this filing.

Blackstone, through indirect subsidiaries, has a $1.6 billion unsecured revolving credit facility (the “Credit Facility”) with Citibank, N.A., as administrative agent with a maturity date of September 21, 2023. Borrowings may also be made in U.K. sterling, euros, Swiss francs, Japanese yen or Canadian dollars, in each case subject to certain

sub-limits.

The Credit Facility contains customary representations, covenants and events of default. Financial covenants consist of a maximum net leverage ratio and a requirement to keep a minimum amount of

fee-earning

assets under management, each tested quarterly.

During the three and nine months ended September 30, 2019, we repurchased 2.8 million and 11.3 million shares of Blackstone Class A common stock as part of the repurchase program at a total cost of $136.0 million and $479.1 million, respectively. As of September 30, 2019, the amount remaining available for repurchases under the program was $864.0 million. Class A common stock repurchased in the quarter ended September 30, 2019 excludes shares for which trades were executed during the three months ended June 30, 2019 and settlement occurred in July 2019.

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Dividends

Our intention is to pay to holders of Class A common stock a quarterly dividend representing approximately 85% of The Blackstone Group Inc.’s share of Distributable Earnings, subject to adjustment by amounts determined by Blackstone’s board of directors to be necessary or appropriate to provide for the conduct of its business, to make appropriate investments in its business and funds, to comply with applicable law, any of its debt instruments or other agreements, or to provide for future cash requirements such as

tax-related

payments, clawback obligations and dividends to shareholders for any ensuing quarter. The dividend amount could also be adjusted upward in any one quarter.

For Blackstone’s definition of Distributable Earnings, see “— Key Financial Measures and Indicators”.

All of the foregoing is subject to the qualification that the declaration and payment of any dividends are at the sole discretion of our board of directors and our board of directors may change our dividend policy at any time, including, without limitation, to reduce such quarterly dividends or even to eliminate such dividends entirely.

Because the publicly traded entity and/or its wholly owned subsidiaries must pay taxes and make payments under the tax receivable agreements, the amounts ultimately paid as dividends by The Blackstone Group Inc. to common shareholders in respect of each fiscal year are generally expected to be less, on a per unit or share 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 Blackstone Holdings Partnership Units. Following the Conversion, we expect to pay more corporate income taxes than we would have as a limited partnership, which will increase this difference in the dividend and/or distribution amounts on a per unit or share basis.

Dividends are treated as qualified dividends to the extent of Blackstone’s current and accumulated earnings and profits, with any excess dividends treated as a return of capital to the extent of the shareholder’s basis.

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The following graph shows fiscal quarterly and annual per common shareholder dividends for 2018 and 2019. Dividends are declared and paid in the quarter subsequent to the quarter in which they are earned.

With respect to the third quarter of fiscal year 2019, we have paid to common shareholders a dividend of $0.49 per share of Class A common stock, aggregating to $1.34 per share of Class A common stock in respect of the nine months ended September 30, 2019. With respect to fiscal year 2018, we paid common shareholders aggregate dividends of $2.15 per share of Class A common stock. The second, third and fourth quarter fiscal 2018 per share of Class A common stock dividends of $0.58, $0.64 and $0.58 each include a $0.10 per share of Class A common stock dividend from a portion of the

after-tax

proceeds received in connection with the conclusion of Blackstone’s

sub-advisory

relationship with FS Investments.

Leverage

We may under certain circumstances use leverage opportunistically and over time to create the most efficient capital structure for Blackstone and our public common shareholders. In addition to the borrowings from our bond issuances and our revolving credit facility, we may use reverse repurchase agreements, repurchase agreements and securities sold, not yet purchased. All of these positions are held in a separately managed portfolio. Reverse repurchase agreements are entered into primarily to take advantage of opportunistic yields otherwise absent in the overnight markets and also to use the collateral received to cover securities sold, not yet purchased. Repurchase agreements are entered into primarily to opportunistically yield higher spreads on purchased securities. The balances held in these financial instruments fluctuate based on Blackstone’s liquidity needs, market conditions and investment risk profiles.

Generally our funds in our Private Equity segment, our opportunistic real estate funds, funds of hedge funds and certain credit-focused funds have not utilized substantial leverage at the fund level other than for (a) short-term borrowings between the date of an investment and the receipt of capital from the investing fund’s investors, and (b) long-term borrowings for certain investments in aggregate amounts which are generally 1% to 25% of the capital commitments of the respective fund. Our carry funds make direct or indirect investments in companies that utilize leverage in their capital structure. The degree of leverage employed varies among portfolio companies.

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Certain of our Real Estate debt hedge funds, Hedge Fund Solutions funds and

credit-focused

funds use leverage in order to obtain additional market exposure, enhance returns on invested capital and/or to bridge short-term cash needs. The forms of leverage primarily employed by these funds include purchasing securities on margin, utilizing collateralized financing and using derivative instruments.

The following table presents information regarding these financial instruments in our Condensed Consolidated Statements of Financial Condition:


			Securities
	Repurchase		Sold, Not Yet
	Agreements		Purchased
	(Dollars in Millions)
Balance, September 30, 2019	$	163.1	$	87.1
Balance, December 31, 2018	$	222.2	$	142.6
Nine Months Ended September 30, 2019
Average Daily Balance	$	203.3	$	123.8
Maximum Daily Balance	$	224.6	$	142.9

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Contractual Obligations, Commitments and Contingencies

The following table sets forth information relating to our contractual obligations as of September 30, 2019 on a consolidated basis and on a basis deconsolidating the Blackstone Funds:


	October 1, 2019 to
Contractual Obligations	December 31, 2019			2020-2021			2022-2023			Thereafter			Total
	(Dollars in Thousands)
Operating Lease Obligations (a)	$	20,984		$	193,316		$	188,089		$	340,517		$	742,906
Purchase Obligations		14,727			36,778			163			—			51,668
Blackstone Issued Notes and Revolving Credit Facility (b)		—			225,045			400,000			4,234,850			4,859,895
Interest on Blackstone Issued Notes and Revolving Credit Facility (c)		29,764			309,825			282,576			2,014,627			2,636,792
Blackstone Funds and CLO Vehicles Debt Obligations Payable (d)		288			—			—			6,850,604			6,850,892
Interest on Blackstone Funds and CLO Vehicles Debt Obligations Payable (e)		62,932			503,435			503,435			1,599,945			2,669,747
Blackstone Funds Capital Commitments to Investee Funds (f)		122,517			—			—			—			122,517
Due to Certain Non-Controlling Interest Holders in Connection with Tax Receivable Agreements (g)		—			122,789			43,373			447,495			613,657
Unrecognized Tax Benefits, Including Interest and Penalties (h)		—			892			—			—			892
Blackstone Operating Entities Capital Commitments to Blackstone Funds and Other (i)		4,190,401			—			—			—			4,190,401

Consolidated Contractual Obligations		4,441,613			1,392,080			1,417,636			15,488,038			22,739,367
Blackstone Funds and CLO Vehicles Debt Obligations Payable (d)		(288	)		—			—			(6,850,604	)		(6,850,892	)
Interest on Blackstone Funds and CLO Vehicles Debt Obligations Payable (e)		(62,932	)		(503,435	)		(503,435	)		(1,599,945	)		(2,669,747	)
Blackstone Funds Capital Commitments to Investee Funds (f)		(122,517	)		—			—			—			(122,517	)

Blackstone Operating Entities Contractual Obligations	$	4,255,876		$	888,645		$	914,201		$	7,037,489		$	13,096,211

(a)

We lease our primary office space and certain office equipment under agreements that expire through 2030. Occupancy lease agreements, in addition to contractual rent payments, generally include additional payments for certain costs incurred by the landlord, such as building expenses, and utilities. To the extent these are fixed or determinable they are included in the table above. The table above includes operating leases that are recognized as Operating Lease Liabilities, short-term leases that are not recorded as Operating Lease Liabilities and leases that have been signed but not yet commenced which are not recorded as Operating Lease Liabilities. The amounts in this table are presented net of contractual sublease commitments.

(b)

Represents the principal amount due on the senior notes we issued. As of September 30, 2019, we had no outstanding borrowings under our revolver. The Contractual Obligation of $225.0 million for the 2020-2021 period reflects the balance of the 2021 Notes that were not tendered in the Tender Offer. On October 10, 2019, Blackstone redeemed such 2021 Notes. For additional information see Note 12. “Borrowings” in the “Notes to Condensed Consolidated Financial Statements” in “Part I. Item 1. Financial Statements” of this filing.

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(c)

Represents interest to be paid over the maturity of our senior notes and borrowings under our revolving credit facility which has been calculated assuming no

pre-payments

are made and debt is held until its final maturity date. These amounts exclude commitment fees for unutilized borrowings under our revolver. As noted above, Blackstone redeemed the remaining amount of the 2021 Notes on October 10, 2019. The amounts presented here include interest on the 2021 Notes in the amount of $19.8 million for the 2020-2021 period. The October 10, 2019 redemption resulted in an interest payment on the 2021 Notes of $0.4 million and a premium paid under the optional redemption of $12.2 million. For additional information see Note 12. “Borrowings” in the “Notes to Condensed Consolidated Financial Statements” in “Part I. Item 1. Financial Statements” of this filing.

(d)	These obligations are those of the Blackstone Funds including the consolidated CLO vehicles.

(e)

Represents interest to be paid over the maturity of the related consolidated Blackstone Funds’ and CLO vehicles’ debt obligations which has been calculated assuming no

pre-payments

will be made and debt will be held until its final maturity date. The future interest payments are calculated using variable rates in effect as of September 30, 2019, at spreads to market rates pursuant to the financing agreements, and range from 0.8% to 8.7%. The majority of the borrowings are due on demand and for purposes of this schedule are assumed to mature within one year. Interest on the majority of these borrowings rolls over into the principal balance at each reset date.

(f)	These obligations represent commitments of the consolidated Blackstone Funds to make capital contributions to investee funds and portfolio companies. These amounts are generally due on demand and are therefore presented in the less than one year category.

(g)

Represents obligations by Blackstone’s corporate subsidiary to make payments under the Tax Receivable Agreements to certain

non-controlling

interest holders for the tax savings realized from the taxable purchases of their interests in connection with the reorganization at the time of Blackstone’s IPO in 2007 and subsequent purchases. The obligation represents the amount of the payments currently expected to be made, which are dependent on the tax savings actually realized as determined annually without discounting for the timing of the payments. As required by GAAP, the amount of the obligation included in the Condensed Consolidated Financial Statements and shown in Note 17. “Related Party Transactions” (see “Part I. Item 1 Financial Statements”) differs to reflect the net present value of the payments due to certain

non-controlling

interest holders.

(h)

The total represents gross unrecognized tax benefits of $0.5 million and interest and penalties of $0.4 million. In addition, Blackstone is not able to make a reasonably reliable estimate of the timing of payments in individual years in connection with gross unrecognized benefits of $24.6 million and interest of $2.0 million; therefore, such amounts are not included in the above contractual obligations table.

(i)

These obligations represent commitments by us to provide general partner capital funding to the Blackstone Funds, limited partner capital funding to other funds and Blackstone principal investment commitments. These amounts are generally due on demand and are therefore presented in the less than one year category; however, a substantial amount of the capital commitments are expected to be called over the next three years. We expect to continue to make these general partner capital commitments as we raise additional amounts for our investment funds over time.

Guarantees

Blackstone and certain of its consolidated funds provide financial guarantees. The amounts and nature of these guarantees are described in Note 18. “Commitments and Contingencies – Contingencies – Guarantees” in the “Notes to Condensed Consolidated Financial Statements” in “Part I. Item 1. Financial Statements” of this filing.

Indemnifications

In many of its service contracts, Blackstone agrees to indemnify the third party service provider under certain circumstances. The terms of the indemnities vary from contract to contract and the amount of indemnification liability, if any, cannot be determined and has not been included in the table above or recorded in our Condensed Consolidated Financial Statements as of September 30, 2019.

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Clawback Obligations

Performance Allocations are subject to clawback to the extent that the Performance Allocations received to date with respect to a fund exceeds the amount due to Blackstone based on cumulative results of that fund. The actual clawback liability, however, generally does not become realized until the end of a fund’s life except for certain Blackstone real estate funds, multi-asset class investment funds and credit-focused funds, which may have an interim clawback liability. The lives of the carry funds, including available contemplated extensions, for which a liability for potential clawback obligations has been recorded for financial reporting purposes, are currently anticipated to expire at various points through 2028. Further extensions of such terms may be implemented under given circumstances.

As of September 30, 2019, the total clawback obligations were $89.4 million, of which $76.8 million was related to Blackstone Holdings and $12.6 million was related to current and former Blackstone personnel. The split of clawback between Blackstone Holdings and current and former personnel is based on the performance of individual investments held by a fund rather than on a fund by fund basis. If, at September 30, 2019, all of the investments held by our carry funds were deemed worthless, a possibility that management views as remote, the amount of Performance Allocations subject to potential clawback would be $7.3 billion, on an

after-tax

basis where applicable, of which Blackstone Holdings is potentially liable for $6.6 billion if current and former Blackstone personnel default on their share of the liability, a possibility that management also views as remote. See Note 17. “Related Party Transactions” and Note 18. “Commitments and Contingencies” in the “Notes to Condensed Consolidated Financial Statements” in “Part I. Item 1. Financial Statements” of this filing.

Critical Accounting Policies

We prepare our Condensed Consolidated Financial Statements in accordance with GAAP. In applying many of these accounting principles, we need to make assumptions, estimates and/or judgments that affect the reported amounts of assets, liabilities, revenues and expenses in our condensed consolidated financial statements. We base our estimates and judgments on historical experience and other assumptions that we believe are reasonable under the circumstances. These assumptions, estimates and/or judgments, however, are often subjective. Actual results may be affected negatively based on changing circumstances. If actual amounts are ultimately different from our estimates, the revisions are included in our results of operations for the period in which the actual amounts become known. We believe the following critical accounting policies could potentially produce materially different results if we were to change underlying assumptions, estimates and/or judgments. For a description of our accounting policies, see Note 2. “Summary of Significant Accounting Policies” in the “Notes to Condensed Consolidated Financial Statements” in “Part I. Item 1. Financial Statements” of this filing.

Principles of Consolidation

For a description of our accounting policy on consolidation, see Note 2. “Summary of Significant Accounting Policies — Consolidation” and Note 9. “Variable Interest Entities” in the “Notes to Condensed Consolidated Financial Statements” in “Part I. Item 1. Financial Statements” of this filing for detailed information on Blackstone’s consolidation policy and its involvement with VIEs. The following discussion is intended to provide supplemental information about how the application of consolidation principles impact our financial results, and management’s process for implementing those principles including areas of significant judgment.

The determination that Blackstone holds a controlling financial interest in a Blackstone Fund significantly changes the presentation of our condensed consolidated financial statements. In our Condensed Consolidated Statements of Financial Position included in this filing, we present 100% of the assets and liabilities of consolidated VIEs along with a

non-controlling

interest which represents the portion of the consolidated vehicle’s interests held by third parties. However, assets of our consolidated VIEs can only be used to settle obligations of the consolidated

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VIE and are not available for general use by Blackstone. Further, the liabilities of our consolidated VIEs do not have recourse to the general credit of Blackstone. In the Condensed Consolidated Statements of Operations, we eliminate any management fees, Incentive Fees, or Performance Allocations received or accrued from consolidated VIEs as they are considered intercompany transactions. We recognize 100% of the consolidated VIE’s investment income (loss) and allocate the portion of that income (loss) attributable to third party ownership to

non-controlling

interests in arriving at Net Income Attributable to The Blackstone Group Inc.

The assessment of whether we consolidate a Blackstone Fund we manage requires the application of significant judgment. These judgments are applied both at the time we become involved with the VIE and on an ongoing basis and include, but are not limited to:

•

Determining whether our management fees, Incentive Fees or Performance Allocations represent variable interests – We make judgments as to whether the fees we earn are commensurate with the level of effort required for those fees and at market rates. In making this judgment, we consider, among other things, the extent of third party investment in the entity and the terms of any other interests we hold in the VIE.

•

Determining whether

kick-out

rights are substantive – We make judgments as to whether the third party investors in a partnership entity have the ability to remove the general partner, the investment manager or its equivalent, or to dissolve (liquidate) the partnership entity, through a simple majority vote. This includes an evaluation of whether barriers to exercise these rights exist.

•

Concluding whether Blackstone has an obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE – As there is no explicit threshold in GAAP to define “potentially significant,” management must apply judgment and evaluate both quantitative and qualitative factors to conclude whether this threshold is met.

Revenue Recognition

For a description of our accounting policy on revenue recognition, see Note 2. “Summary of Significant Accounting Policies — Revenue Recognition” in the “Notes to Condensed Consolidated Financial Statements” in “Part I. Item 1. Financial Statements”. For additional description of the nature of our revenue arrangements, including how management fees, Incentive Fees, and Performance Allocations are generated, please refer to “Part I. Item 1. Business — Incentive Arrangements / Fee Structure” in our Annual Report on Form

10-K

for the year ended December 31, 2018. The following discussion is intended to provide supplemental information about how the application of revenue recognition principles impact our financial results, and management’s process for implementing those principles including areas of significant judgment.

Management and Advisory Fees, Net

— Blackstone earns base management fees from the investors in each of its managed funds and investment vehicles, at a fixed percentage of a calculation base which is typically assets under management, net asset value, total assets, committed capital or invested capital. The range of management fee rates and the calculation base from which they are earned, generally, are as follows:

On private equity, real estate, and certain of our hedge fund solutions and credit-focused funds:

•

0.25% to 1.75% of committed capital or invested capital during the investment period,

•

0.25% to 2.00% of invested capital, committed capital and investment fair value subsequent to the investment period for private equity and real estate funds, and

•

0.75% to 1.50% of invested capital or net asset value subsequent to the investment period for certain of our hedge fund solutions and

credit-focused

funds.

On real estate, credit and

MLP-focused

funds structured like hedge funds:

•

0.50% to 1.50% of net asset value.

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On credit and

MLP-focused

separately managed accounts:

•

0.25% to 1.50% of net asset value or total assets.

On real estate separately managed accounts:

•

0.50% to 2.00% of invested capital, net operating income or net asset value.

On funds of hedge funds, certain hedge funds and separately managed accounts invested in hedge funds:

•

0.25% to 1.50% of net asset value.

On CLO vehicles:

•

0.40% to 0.65% of the aggregate par amount of collateral assets, including principal cash.

On credit-focused registered and

non-registered

investment companies:

•

0.35% to 1.50% of total assets or net asset value.

The investment adviser of BXMT receives annual management fees based upon 1.50% of BXMT’s net proceeds received from equity offerings and accumulated “core earnings” (which is generally equal to its GAAP net income excluding certain

non-cash

and other items), subject to certain adjustments. The investment adviser of BREIT receives a management fee of 1.25% per annum of net asset value, payable monthly.

Management fee calculations based on committed capital or invested capital are mechanical in nature and therefore do not require the use of significant estimates or judgments. Management fee calculations based on net asset value, total assets, or investment fair value depend on the fair value of the underlying investments within the funds. Estimates and assumptions are made when determining the fair value of the underlying investments within the funds and could vary depending on the valuation methodology that is used as well as economic conditions. See “— Fair Value” below for further discussion of the judgment required for determining the fair value of the underlying investments.

Investment Income (Loss)

— Performance Allocations are made to the general partner based on cumulative fund performance to date, subject to a preferred return to limited partners. Blackstone has concluded that investments made alongside its limited partners in a partnership which entitle Blackstone to a Performance Allocation represent equity method investments that are not in the scope of the GAAP guidance on accounting for revenues from contracts with customers. Blackstone accounts for these arrangements under the equity method of accounting. Under the equity method Blackstone’s share of earnings (losses) from equity method investments is determined using a balance sheet approach referred to as the hypothetical liquidation at book value (“HLBV”) method. Under the HLBV method, at the end of each reporting period Blackstone calculates the accrued Performance Allocations that would be due to Blackstone for each fund pursuant to the fund agreements as if the fair value of the underlying investments were realized as of such date, irrespective of whether such amounts have been realized. Performance Allocations are subject to clawback to the extent that the Performance Allocation received to date exceeds the amount due to Blackstone based on cumulative results.

The change in the fair value of the investments held by certain Blackstone Funds is a significant input into the accrued Performance Allocation calculation and accrual for potential repayment of previously received Performance Allocations. Estimates and assumptions are made when determining the fair value of the underlying investments within the funds. See “— Fair Value” below for further discussion related to significant estimates and assumptions used for determining fair value of the underlying investments.

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Fair Value

Blackstone uses fair value throughout the reporting process. For a description of our accounting policies related to valuation, see Note 2. “Summary of Significant Accounting Policies — Fair Value of Financial Instruments” and “Summary of Significant Accounting Policies — Investments, at Fair Value” in the “Notes to Condensed Consolidated Financial Statements” in “Part I. Item 1. Financial Statements” of this filing. The following discussion is intended to provide supplemental information about how the application of fair value principles impact our financial results, and management’s process for implementing those principles including areas of significant judgment.

The fair value of the investments held by Blackstone Funds is the primary input to the calculation of certain of our management fees, Incentive Fees, Performance Allocations and the related Compensation we recognize. The Blackstone Funds are accounted for as investment companies under the American Institute of Certified Public Accountants Accounting and Auditing Guide,

Investment Companies

, and in accordance with the GAAP guidance on investment companies and reflect their investments, including majority-owned and controlled investments (the “Portfolio Companies”), at fair value. In the absence of observable market prices, we utilize valuation methodologies applied on a consistent basis and assumptions that we believe market participants would use to determine the fair value of the investments. For some investments where little market activity may exist management’s determination of fair value is then based on the best information available in the circumstances, may incorporate management’s own assumptions and involves a significant degree of judgment, taking into consideration a combination of internal and external factors, including the appropriate risk adjustments for

non-performance

and liquidity risks.

Blackstone has also elected the fair value option for certain instruments it owns directly, including loans and receivables and investments in private debt securities, the assets of consolidated CLO vehicles and other proprietary investments. Blackstone is required to measure certain financial instruments at fair value, including debt instruments, equity securities and freestanding derivatives.

Fair Value of Investments or Instruments that are Publicly Traded

Securities that are publicly traded and for which a quoted market exists will be valued at the closing price of such securities in the principal market in which the security trades, or in the absence of a principal market, in the most advantageous market on the valuation date. When a quoted price in an active market exists, no block discounts or control premiums are permitted regardless of the size of the public security held. In some cases, securities will include legal and contractual restrictions limiting their purchase and sale for a period of time, such as may be required under SEC Rule 144 or by underwriters in certain transactions. A discount to publicly traded price may be appropriate in those cases; the amount of the discount shall be determined based on the time period that must pass before the restricted security becomes unrestricted or otherwise available for sale.

Fair Value of Investments or Instruments that are not Publicly Traded

Investments for which market prices are not observable include private investments in the equity or debt of operating companies or real estate properties. Our primary methodology for determining the fair values of such investments is the income approach which provides an indication of fair value based on the present value of cash flows that a business, security, or property is expected to generate in the future. The most widely used methodology under the income approach is the discounted cash flow method which includes significant assumptions about the underlying investment’s projected net earnings or cash flows, discount rate, capitalization rate and exit multiple. Our secondary methodology, generally used to corroborate the results of the income approach, is the market approach. The most widely used methodology under the market approach relies upon valuations for comparable public companies, transactions, or assets, and includes making judgments about which companies, transactions, or assets are comparable.

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

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Management Process on Fair Value

Due to the importance of fair value throughout the condensed consolidated financial statements and the significant judgment required to be applied in arriving at those fair values, we have developed a process around valuation that incorporates several levels of approval and review from both internal and external sources. Blackstone Fund investments are valued on a quarterly basis by our internal valuation teams, which are independent from our investment teams.

For investments valued utilizing the income method, our valuation team generally has a direct line of communication with each of the Portfolio Company finance teams and collects financial data used to support projections used in a discounted cash flow analysis. The valuation team then analyzes the data received and updates the valuation models reflecting any changes in the underlying discounted cash flow projections, weighted-average cost of capital, exit multiple, and any other valuation input relevant economic conditions.

The results of all valuations of investments held by Blackstone Fund and investment vehicles are reviewed by the relevant business unit’s

sub-committee,

which is made up of key personnel, typically the chief investment officer, chief operating officer, chief financial officer, chief compliance officer (or their respective equivalents where applicable) and other senior managing directors in the business. Following review and approval by each business unit’s

sub-committee,

the results are reviewed and must be approved by Blackstone’s firm-wide valuation committee chaired by Blackstone’s Chief Financial Officer and including senior heads of each of Blackstone’s businesses, as well as representatives from legal and finance. To further corroborate our results, we generally obtain a positive assurance opinion by an independent valuation party, at least annually for all investments and quarterly for certain investments. Each quarter, the valuations of Blackstone’s investments are also reviewed by the audit committee comprised of our

non-employee

directors in a meeting attended by the chairman of the valuation committee.

Income Tax

Our provision for income taxes is composed of current and deferred taxes. Current income taxes approximate taxes to be paid or refunded for the current period. Deferred income taxes reflect the net tax effects of temporary differences between the financial reporting and tax bases of assets and liabilities and are measured using the applicable enacted tax rates and laws that will be in effect when such differences are expected to reverse. During the current quarter, the Conversion resulted in a step-up in the tax basis of certain assets that will be recovered as those assets are sold or the basis is amortized. The final amount of the step-up in tax basis may differ as the basis information becomes available and is finalized.

Additionally, significant judgment is required in estimating the provision for (benefit from) income taxes, current and deferred tax balances (including valuation allowance, if any), accrued interest or penalties and uncertain tax positions. In evaluating these judgments, we consider, among other items, projections of taxable income (including the character of such income), beginning with historic results and incorporating assumptions of the amount of future pretax operating income. These assumptions about future taxable income require significant judgment and are consistent with the plans and estimates that Blackstone uses to manage its business. A portion of the deferred tax assets are not considered to be more likely than not to be realized due to the character of income. For that portion of the deferred tax assets, a valuation allowance has been recorded.

Revisions in estimates and/or actual costs of a tax assessment may ultimately be materially different from the recorded accruals and unrecognized tax benefits, if any.

Off-Balance

Sheet Arrangements

In the normal course of business, we engage in

off-balance

sheet arrangements, including transactions in derivatives, guarantees, commitments, indemnifications and potential contingent repayment obligations. We do not have any

off-balance

sheet arrangements that would require us to fund losses or guarantee target returns to investors in our funds.

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Further disclosure on our

off-balance

sheet arrangements is presented in the “Notes to Condensed Consolidated Financial Statements” in “Part I. Item 1. Financial Statements” of this filing as follows:

•

Note 9. “Variable Interest Entities”, and

•

Note 18. “Commitments and Contingencies — Commitments — Investment Commitments” and “— Contingencies — Guarantees”.

Recent Accounting Developments

Information regarding recent accounting developments and their impact on Blackstone can be found in Note 2. “Summary of Significant Accounting Policies” in the “Notes to Condensed Consolidated Financial Statements” in “Part I. Item 1. Financial Statements” of this filing.

Interbank Offered Rates Transition

Certain jurisdictions are currently reforming or phasing out their Interbank Offered Rates (“IBORs”), including, without limitation, the London Interbank Offered Rates, Euro Interbank Offered Rate, Tokyo Interbank Offered Rate, Hong Kong Interbank Offered Rate and Singapore Interbank Offered Rate. The timing of the anticipated reforms or phase-outs vary by jurisdiction, with most of the reforms or phase-outs currently scheduled to take effect at the end of calendar year 2021. Blackstone is evaluating the operational impact of such changes on existing transactions and contractual arrangements and managing transition efforts.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our predominant exposure to market risk is related to our role as general partner or investment adviser to the Blackstone Funds and the sensitivities to movements in the fair value of their investments, including the effect on management fees, performance revenues and investment income.

Although the Blackstone Funds share many common themes, each of our alternative asset management operations runs its own investment and risk management processes, subject to our overall risk tolerance and philosophy:

•

The investment process of our carry funds involves a detailed analysis of potential investments, and asset management teams are assigned to oversee the operations, strategic development, financing and capital deployment decisions of each portfolio investment. Key investment decisions are subject to approval by the applicable investment committee, which is comprised of Blackstone senior managing directors and senior management.

•

In our capacity as adviser to certain funds in our Hedge Fund Solutions and Credit segments, we continuously monitor a variety of markets for attractive trading opportunities, applying a number of traditional and customized risk management metrics to analyze risk related to specific assets or portfolios. In addition, we perform extensive credit and cash flow analyses of borrowers, credit-based assets and underlying hedge fund managers, and have extensive asset management teams that monitor covenant compliance by, and relevant financial data of, borrowers and other obligors, asset pool performance statistics, tracking of cash payments relating to investments and ongoing analysis of the credit status of investments.

Effect on Fund Management Fees

Our management fees are based on (a) third parties’ capital commitments to a Blackstone Fund, (b) third parties’ capital invested in a Blackstone Fund or (c) the net asset value, or NAV, of a Blackstone Fund, as described in our Condensed Consolidated Financial Statements. Management fees will only be directly affected by short-term changes in market conditions to the extent they are based

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on NAV or represent permanent impairments of value. These management fees will be increased (or reduced) in direct proportion to the effect of changes in the fair value of our investments in the related funds. The proportion of our management fees that are based on NAV is dependent on the number and types of Blackstone Funds in existence and the current stage of each fund’s life cycle. For the nine months ended September 30, 2019 and September 30, 2018, the percentages of our fund management fees based on the NAV of the applicable funds or separately managed accounts, were as follows:


	Nine Months Ended September 30,
	2019		2018
Fund Management Fees Based on the NAV of the Applicable Funds or Separately Managed Accounts		36%		38%

Market Risk

The Blackstone Funds hold investments which are reported at fair value. Based on the fair value as of September 30, 2019 and September 30, 2018, we estimate that a 10% decline in fair value of the investments would result in the following declines in Management Fees, Performance Revenues, Net of Related Compensation Expense and Investment Income:


	September 30,
	2019						2018
			Performance						Performance
			Revenues,						Revenues,
			Net of Related						Net of Related
	Management		Compensation		Investment		Management		Compensation		Investment
	Fees (a)		Expense (b)		Income (b)		Fees (a)		Expense (b)		Income (b)
	(Dollars in Thousands)
10% Decline in Fair Value of the Investments	$	123,888	$	1,612,040	$	172,619	$	112,478	$	1,548,245	$	229,853

(a)	Represents the annualized effect of the 10% decline.

(b)	Represents the reporting date effect of the 10% decline.

Total Assets Under Management, excluding undrawn capital commitments and the amount of capital raised for our CLOs, by segment, and the percentage amount classified as Level III investments as defined within the fair value standards of GAAP, are as follows:


	September 30, 2019
	Total Assets Under Management, Excluding Undrawn Capital Commitments and the Amount of Capital Raised for CLOs		Percentage Amount Classified as Level III Investments
	(Dollars in Thousands)
Real Estate	$	107,797,628		85%
Private Equity	$	81,209,505		68%
Hedge Fund Solutions	$	78,062,255		10%
Credit	$	80,613,732		34%

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The fair value of our investments and securities can vary significantly based on a number of factors that take into consideration the diversity of the Blackstone Funds’ investment portfolio and on a number of factors and inputs such as similar transactions, financial metrics, and industry comparatives, among others. See “Part I. Item 1A. Risk Factors” in our Annual Report on Form

10-K

for the year ended December 31, 2018. Also see “Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies — Investments, at Fair Value”. We believe these fair value amounts should be utilized with caution as our intent and strategy is to hold investments and securities until prevailing market conditions are beneficial for investment sales.

Investors in all of our carry funds (and certain of our credit-focused funds and funds of hedge funds) make capital commitments to those funds that we are entitled to call from those investors at any time during prescribed periods. We depend on investors fulfilling their commitments when we call capital from them in order for those funds to consummate investments and otherwise pay their related obligations when due, including management fees. We have not had investors fail to honor capital calls to any meaningful extent and any investor that did not fund a capital call would be subject to having a significant amount of its existing investment forfeited in that fund; however, if investors were to fail to satisfy a significant amount of capital calls for any particular fund or funds, those funds could be materially and adversely affected.

Exchange Rate Risk

The Blackstone Funds hold investments that are denominated in

non-U.S.

dollar currencies that may be affected by movements in the rate of exchange between the U.S. dollar and

non-U.S.

dollar currencies. Additionally, a portion of our management fees are denominated in

non-U.S.

dollar currencies. We estimate that as of September 30, 2019 and September 30, 2018, a 10% decline in the rate of exchange of all foreign currencies against the U.S. dollar would result in the following declines in Management Fees, Performance Revenues, Net of Related Compensation Expense and Investment Income:


	September 30,
	2019						2018
			Performance						Performance
			Revenues,						Revenues,
			Net of Related						Net of Related
	Management		Compensation		Investment		Management		Compensation		Investment
	Fees (a)		Expense (b)		Income (b)		Fees (a)		Expense (b)		Income (b)
	(Dollars in Thousands)
10% Decline in the Rate of Exchange of All Foreign Currencies Against the U.S. Dollar	$	19,941	$	413,625	$	37,458	$	19,211	$	333,935	$	65,720

(a)	Represents the annualized effect of the 10% decline.

(b)	Represents the reporting date effect of the 10% decline.

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Interest Rate Risk

Blackstone has debt obligations payable that accrue interest at variable rates. Interest rate changes may therefore affect the amount of our interest payments, future earnings and cash flows. Based on our debt obligations payable as of September 30, 2019 and September 30, 2018, we estimate that interest expense relating to variable rates would increase on an annual basis, in the event interest rates were to increase by one percentage point, as follows:


	September 30,
	2019		2018
	(Dollars in Thousands)
Annualized Increase in Interest Expense Due to a One Percentage Point Increase in Interest Rates (a)	$	—	$	—

(a)	As of September 30, 2019 and 2018, Blackstone had no such debt obligations payable outstanding.

Blackstone has a diversified portfolio of liquid assets to meet the liquidity needs of various businesses. This portfolio includes cash, open ended money market mutual funds, open ended bond mutual funds, marketable investment securities, freestanding derivative contracts, repurchase and reverse repurchase agreements and other investments. If interest rates were to increase by one percentage point, we estimate that our annualized investment income would decrease, offset by an estimated increase in interest income on an annual basis from interest on floating rate assets, as follows:


	September 30,
	2019					2018
	Annualized Decrease in Investment Income			Annualized Increase in Interest Income from Floating Rate Assets		Annualized Decrease in Investment Income			Annualized Increase in Interest Income from Floating Rate Assets
	(Dollars in Thousands)
One Percentage Point Increase in Interest Rates	$	5,613	(a)	$	34,630	$	15,291	(a)	$	24,158

(a)	As of September 30, 2019 and 2018, this represents 0.2% and 0.3% of our portfolio of liquid assets, respectively.

Blackstone has U.S. dollar and

non-U.S.

dollar based interest rate derivatives whose future cash flows and present value may be affected by movement in their respective underlying yield curves. We estimate that as of September 30, 2019, a one percentage point increase parallel shift in global yield curves would result in the following impact on Other Revenue:


	September 30,
	2019		2018
	(Dollars in Thousands)
Annualized Increase in Other Revenue Due to a One Percentage Point Increase in Interest Rates	$	15,374	$	18,973

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Credit Risk

Certain Blackstone Funds and the Investee Funds are subject to certain inherent risks through their investments.

Our portfolio of liquid assets contain certain credit risks including, but not limited to, exposure to uninsured deposits with financial institutions, unsecured corporate bonds and mortgage-backed securities. These exposures are actively monitored on a continuous basis and positions are reallocated based on changes in risk profile, market or economic conditions.

We estimate that our annualized investment income would decrease, if credit spreads were to increase by one percentage point, as follows:


	September 30,
	2019		2018
	(Dollars in Thousands)
Decrease in Annualized Investment Income Due to a One Percentage Point Increase in Credit Spreads (a)	$	69,439	$	41,868

(a)	As of September 30, 2019 and 2018, this represents 2.0% and 0.8% of our portfolio of liquid assets, respectively.

Certain of our entities hold derivative instruments that contain an element of risk in the event that the counterparties may be unable to meet the terms of such agreements. We minimize our risk exposure by limiting the counterparties with which we enter into contracts to banks and investment banks that meet established credit and capital guidelines. We do not expect any counterparty to default on its obligations and therefore do not expect to incur any loss due to counterparty default.

Item 4. Controls and Procedures

We maintain “disclosure controls and procedures,” as such term is defined in Rules

13a-15(e)

and

15d-15(e)

under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired objectives.

Our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule

13a-15

under the Exchange Act as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures (as defined in Rule

13a-15(e)

under the Exchange Act) are effective at the reasonable assurance level to accomplish their objectives of ensuring that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

No change in our internal control over financial reporting (as such term is defined in Rules

13a-15(f)

and

15d-15(f)

under the Exchange Act) occurred during our most recent quarter, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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Part II. Other Information

Item 1. Legal Proceedings

We may from time to time be involved in litigation and claims incidental to the conduct of our business. Our businesses are also subject to extensive regulation, which may result in regulatory proceedings against us. See “Part I. Item 1A. Risk Factors” in our Annual Report on Form

10-K

for the year ended December 31, 2018. We are not currently subject to any pending legal (including judicial, regulatory, administrative or arbitration) proceedings that we expect to have a material impact on our consolidated financial statements. However, given the inherent unpredictability of these types of proceedings and the potentially large and/or indeterminate amounts that could be sought, an adverse outcome in certain matters could have a material effect on Blackstone’s financial results in any particular period.

In December 2017, a purported derivative suit (

Mayberry v. KKR & Co., L.P., et al.

) was filed in the Commonwealth of Kentucky Franklin County Circuit Court on behalf of the Kentucky Retirement System (“KRS”) by eight of its members and beneficiaries alleging various breaches of fiduciary duty and other violations of Kentucky state law in connection with KRS’s investment in three hedge funds of funds, including a fund managed by Blackstone Alternative Asset Management L.P. (“BAAM L.P.”). The suit names more than 30 defendants, including The Blackstone Group L.P.; BAAM L.P.; Stephen A. Schwarzman, as Chairman and CEO of Blackstone; and J. Tomilson Hill, as then-President and CEO of the Hedge Fund Solutions Group, Vice Chairman of Blackstone and CEO of BAAM (collectively, the “Blackstone Defendants”). Aside from the Blackstone Defendants, the action also names current and former KRS trustees and former KRS officers and various other service providers to KRS and their related persons.

Blackstone believes that this suit is totally without merit and intends to defend it vigorously.

Item 1A. Risk Factors

For a discussion of our other potential risks and uncertainties, see the information under the heading “Risk Factors” in our Annual Report on Form

10-K

for the year ended December 31, 2018, in our Quarterly Report on Form

10-Q

for the quarter ended March 31, 2019 and in our subsequently filed Quarterly Reports on Form

10-Q,

all of which are accessible on the Securities and Exchange Commission’s website at www.sec.gov.

See “Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Business Environment” in this report for a discussion of the conditions in the financial markets and economic conditions affecting our businesses. This discussion updates, and should be read together with, the risk factor entitled “Difficult market conditions can adversely affect our business in many ways, including by reducing the value or performance of the investments made by our investment funds and reducing the ability of our investment funds to raise or deploy capital, each of which could materially reduce our revenue, earnings and cash flow and adversely affect our financial prospects and condition.” in our Annual Report on Form

10-K

for the year ended December 31, 2018.

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The risks described, in our Annual Report on Form

10-K,

in our Quarterly report on Form

10-Q

for the quarter ended March 31, 2019 and in our subsequently filed Quarterly Reports on Form

10-Q,

are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table sets forth information regarding repurchases of shares of our Class A common stock during the quarter ended September 30, 2019:


Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (a)		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (Dollars in Thousands) (a)
Jul. 1 - Jul. 31, 2019 (b)		366,666	$	48.92		366,666	$	982,063
Aug. 1 - Aug. 31, 2019		1,344,442	$	47.77		1,344,442	$	917,840
Sep. 1 - Sep. 30, 2019		1,038,892	$	51.81		1,038,892	$	864,012

		2,750,000				2,750,000

(a)

On July 16, 2019, the board of directors of the Corporation authorized the repurchase of up to $1.0 billion of Class A common stock and Blackstone Holdings Partnership Units, which replaced the prior repurchase authorization. Under the repurchase program, repurchases may be made from time to time in open market transactions, in privately negotiated transactions or otherwise. The timing and the actual numbers repurchased will depend on a variety of factors, including legal requirements, price and economic and market conditions. The repurchase program may be changed, suspended or discontinued at any time and does not have a specified expiration date. See “Part I. Item 1. Financial Statements – Notes to Condensed Consolidated Financial Statements – Note 15. Earnings Per Share and Stockholder’s Equity” and “Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Sources and Uses of Liquidity” for further information regarding this repurchase program.

(b)	Class A common stock repurchased in the quarter ended September 30, 2019 excludes shares for which trades were executed during the three months ended June 30, 2019 and settlement occurred in July 2019.

As permitted by our policies and procedures governing transactions in our securities by our directors, executive officers and other employees, from time to time some of these persons may establish plans or arrangements complying with Rule

10b5-1

under the Exchange Act, and similar plans and arrangements relating to our Class A common stock and Blackstone Holdings Partnership Units.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

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Item 6. Exhibits


Exhibit Number		Exhibit Description

	4.1	Thirteenth Supplemental Indenture dated as of September 10, 2019 among Blackstone Holdings Finance Co. L.L.C., The Blackstone Group Inc., Blackstone Holdings I L.P., Blackstone Holdings AI L.P., Blackstone Holdings II L.P., Blackstone Holdings III L.P., Blackstone Holdings IV L.P. and The Bank of New York Mellon, as trustee (incorporated herein by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on September 10, 2019).

	4.2	Form of 2.500% Senior Note due 2030 (included in Exhibit 4.1 hereto).

	4.3	Fourteenth Supplemental Indenture dated as of September 10, 2019 among Blackstone Holdings Finance Co. L.L.C., The Blackstone Group Inc., Blackstone Holdings I L.P., Blackstone Holdings AI L.P., Blackstone Holdings II L.P., Blackstone Holdings III L.P., Blackstone Holdings IV L.P. and The Bank of New York Mellon, as trustee (incorporated herein by reference to Exhibit 4.4 to the Registrant’s Current Report on Form 8-K filed with the SEC on September 10, 2019).

	4.4	Form of 3.500% Senior Note due 2049 (included in Exhibit 4.3 hereto).

	10.1	Second Amended and Restated Limited Partnership Agreement of Blackstone Holdings I L.P., dated as of July 1, 2019, by and among Blackstone Holdings I/II GP L.L.C. and the limited partners of Blackstone Holdings I L.P. party thereto (incorporated herein by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on July 5, 2019).

	10.2	Second Amended and Restated Limited Partnership Agreement of Blackstone Holdings II L.P., dated as of July 1, 2019, by and among Blackstone Holdings I/II GP L.L.C. and the limited partners of Blackstone Holdings II L.P. party thereto (incorporated herein by reference to Exhibit 99.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on July 5, 2019).

	10.3	Third Amended and Restated Limited Partnership Agreement of Blackstone Holdings III L.P., dated as of July 1, 2019, by and among Blackstone Holdings III GP L.P. and the limited partners of Blackstone Holdings III L.P. party thereto (incorporated herein by reference to Exhibit 99.3 to the Registrant’s Current Report on Form 8-K filed with the SEC on July 5, 2019).

	10.4	Third Amended and Restated Limited Partnership Agreement of Blackstone Holdings IV L.P., dated as of July 1, 2019, by and among Blackstone Holdings IV GP L.P. and the limited partners of Blackstone Holdings IV L.P. party thereto (incorporated herein by reference to Exhibit 99.4 to the Registrant’s Current Report on Form 8-K filed with the SEC on July 5, 2019).

	10.5	Second Amended and Restated Limited Partnership Agreement of Blackstone Holdings AI L.P., dated as of July 1, 2019, by and among Blackstone Holdings I/II GP L.L.C. and the limited partners of Blackstone Holdings AI L.P. party thereto (incorporated herein by reference to Exhibit 99.5 to the Registrant’s Current Report on Form 8-K filed with the SEC on July 5, 2019).

	10.6	Amendment to Tax Receivable Agreement, dated as of July 1, 2019, by and among Blackstone Holdings I/II GP L.L.C., Blackstone Holdings I L.P., Blackstone Holdings II L.P., Blackstone Holdings AI L.P. and the limited partners of Blackstone Holdings I L.P., Blackstone Holdings II L.P. and Blackstone Holdings AI L.P. party thereto (incorporated herein by reference to Exhibit 99.6 to the Registrant’s Current Report on Form 8-K filed with the SEC on July 5, 2019).

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Exhibit Number		Exhibit Description

	10.7	Fourth Amended and Restated Exchange Agreement, dated as of July 1, 2019, by and among The Blackstone Group Inc., Blackstone Holdings AI L.P., Blackstone Holdings I L.P., Blackstone Holdings II L.P., Blackstone Holdings III L.P., Blackstone Holdings IV L.P. and the Blackstone Holdings Limited Partners party thereto (incorporated herein by reference to Exhibit 99.7 to the Registrant’s Current Report on Form 8-K filed with the SEC on July 5, 2019).

	10.8	Amendment to Registration Rights Agreement, dated as of July 1, 2019 (incorporated herein by reference to Exhibit 99.8 to the Registrant’s Current Report on Form 8-K filed with the SEC on July 5, 2019).

	10.9+	Letter Agreement, dated as of July 1, 2019, amending Amended and Restated Founding Member Agreement of Stephen A. Schwarzman, dated as of March 1, 2018, by and among Blackstone Holdings I L.P. and Stephen A. Schwarzman (incorporated herein by reference to Exhibit 99.9 to the Registrant’s Current Report on Form 8-K filed with the SEC on July 5, 2019).

	10.10+	The Blackstone Group Inc. Amended and Restated 2007 Equity Incentive Plan (incorporated herein by reference to Exhibit 4.4 of The Blackstone Group Inc. Post-Effective Amendment No. 1 to Form S-8 filed on July 1, 2019).

	10.11+	The Blackstone Group Inc. Seventh Amended and Restated Bonus Deferral Plan (incorporated herein by reference to Exhibit 99.11 to the Registrant’s Current Report on Form 8-K filed with the SEC on July 5, 2019).

	10.12+*	Amended and Restated Limited Partnership Agreement of Blackstone EMA III GP L.P., dated as of November 6, 2019 and deemed effective as of August 17, 2018.

	10.13+*	Amended and Restated Limited Partnership Agreement of BMA VIII GP L.P., dated as of November 6, 2019 and deemed effective as of March 29, 2019.

	10.14+*	Withdrawal Agreement between Blackstone Holdings I L.P. and Bennett J. Goodman, dated August 28, 2019.

	10.15+*	Senior Advisor Agreement between The Blackstone Group Inc. and Bennett J. Goodman, dated August 28, 2019.

	31.1*	Certification of the Chief Executive Officer pursuant to Rule 13a-14(a).

	31.2*	Certification of the Chief Financial Officer pursuant to Rule 13a-14(a).

	32.1*	Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).

	32.2*	Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).

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Exhibit Number		Exhibit Description

	101.INS*	Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

	101.SCH*	Inline XBRL Taxonomy Extension Schema Document.

	101.CAL*	Inline XBRL Taxonomy Extension Calculation Linkbase Document.

	101.DEF*	Inline XBRL Taxonomy Extension Definition Linkbase Document.

	101.LAB*	Inline XBRL Taxonomy Extension Label Linkbase Document.

	101.PRE*	Inline XBRL Taxonomy Extension Presentation Linkbase Document.

	104.	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

*	Filed herewith.

+	Management contract or compensatory plan or arrangement in which directors or executive officers are eligible to participate.

The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: November 8, 2019


The Blackstone Group Inc.

/s/ Michael S. Chae
Name:		Michael S. Chae
Title:		Chief Financial Officer
		(Principal Financial Officer and
		Authorized Signatory)

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