BLACKSTONE INC. 
The following discussion and analysis should be read in conjunction withThe Blackstone Group Inc.'s consolidated financial statements and the related notes included within this Annual Report on Form
10-K.
This section of this Form
10-K
generally discusses 2019 and 2018 items and year to year comparisons between 2019 and 2018. For the discussion of 2018 compared to 2017 see "Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of Blackstone's Annual Report on Form
10-K
for the year endedDecember 31, 2018 , which specific discussion is incorporated herein by reference. EffectiveJuly 1, 2019 ,The Blackstone Group L.P. (the "Partnership") converted from aDelaware limited partnership to aDelaware corporation, TheBlackstone Group Inc. (the "Conversion"). This report includes the results for the Partnership prior to theConversion andThe Blackstone Group Inc. following the Conversion. In this report, references to "Blackstone," the "Company," "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 world's leading investment firms. Our business is organized into four segments:
• Real Estate.
Our real estate business is a global leader in real estate investing. Our
real estate segment operates as one globally integrated business, with
investments in North America , Europe , Asia and Latin America . Our realestate investment teams seek to utilize our global expertise and presence to
generate attractive risk-adjusted returns for our investors and to make a
positive impact on the communities in which we invest.
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. BREP seeks to invest
thematically in high-quality assets, focusing where we see outsized growth
potential driven by global economic and demographic trends. BREP has made
significant investments in logistics, rental housing, office hospitality and
retail properties around the world, as well as a variety of real estate
operating companies.
Our Blackstone Real Estate Debt Strategies ("BREDS") vehicles primarily target
real estate-related debt investment opportunities. 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 real estate investment trust ("REIT").
Our core+ real estate business includes Blackstone Property Partners ("BPP") and
a
non-exchange
traded REIT ("BREIT"). BPP has assembled a global portfolio of high-quality
investments across North America , Europe and Asia , which target substantially
stabilized assets in prime markets with a focus on industrial, multifamily,
office and retail assets. BREIT invests primarily in stabilized income-oriented
commercial real estate in the U.S. and to a lesser extent in real estate-related
securities.
• Private Equity.
Our Private Equity segment includes our corporate private equity business,
which consists of (a) our flagship private equity funds (
Partners ("BCP") funds), (b) our sector-focused private equity funds,
including our energy-focused funds (
funds) and (c) our
private equity fund, Blackstone Core Equity Partners ("BCEP"),
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(b) our opportunistic investment platform that invests globally across asset
classes, industries and geographies, Blackstone Tactical Opportunities
("Tactical Opportunities"), (c) our secondary fund of funds business,
Strategic Partners Fund Solutions ("
infrastructure-focused funds,
(e) our life sciences private investment platform, Blackstone Life Sciences
("BXLS"), (f) 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 (g) our capital markets services
business, Blackstone Capital Markets ("BXCM").
We are a world leader in private equity investing. Our corporate private equity
business, established in 1987, pursues transactions across industries in both
established and growth-oriented businesses across the globe. It strives to
create value by investing in great businesses where our capital, strategic
insight, global relationships and operational support can drive transformation.
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, makes primary investments and
co-investments
with financial sponsors and provides investment advisory services to clients
investing in primary and secondary investments in private funds and
co-investments.
BIP focuses on investments across all infrastructure sectors, including energy,
water and waste and communications. BXLS is our private investment platform with
capabilities to invest across the life cycle of companies and products within
the life sciences sector.
• Hedge Fund Solutions.
The principal 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.
Solutions segment also includes investment platforms that seed new hedge
fund businesses, purchase minority interests in more established general
partners and management companies of funds, invest in special situation
opportunities, create alternative solutions in the form of daily liquidity
products and invest directly.
• Credit.
The principal component of our Credit segment is GSO Capital Partners ("GSO"). GSO is one of the largest credit-oriented 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-investmentgrade companies spread across the capital structure including senior debt,
subordinated debt, preferred stock and common equity.
GSO is organized into three overarching strategies: performing credit,
distressed and long only. GSO's performing credit strategies include mezzanine
lending funds, middle market direct lending funds, including our business
development company ("BDC") and other performing credit strategy funds. GSO's
distressed strategies include credit alpha strategies, stressed/distressed funds
and energy strategies. GSO's long only strategies consist of CLOs, closed-ended
funds, open-ended funds and separately managed accounts.
In addition, our Credit segment includes our publicly traded master limited
partnership ("MLP") investment platform, which is managed by Harvest. Harvest
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. 75
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Our insurer-focused platform, BIS, also a part of our Credit segment, partners
with insurers to deliver customized and diversified portfolios of Blackstone
products across asset classes, including the option for full management of
insurance companies' investment portfolios.
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 also
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 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 our portfolio company and other investments, the
industries in which they operate, 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.
2019 was characterized by rising global markets and continued economic
expansion, despite uncertainty related to trade disputes, geopolitical risks,
and yield curve inversions in the U.S. and around the world.
In the U.S. , the S&P 500 increased 29% in 2019. Global and regional equity
indices also appreciated in 2019, with the MSCI World Index rising 25% and the
MSCI Europe Index up 22%. The MSCI Asia and Emerging Markets Indices trailed
slightly, but still finished the year up 16% and 15%, respectively.
All of the major U.S. equity market sectors posted positive returns in 2019,
with particular strength in technology stocks, which were up 48% for 2019.
Energy stocks lagged the overall market, ending the year up only 8%. The price
of West Texas Intermediate crude oil increased 34% in 2019 to $61 per barrel,
but declined to $51 in early 2020, while the Henry Hub Natural Gas spot price
declined 36% in 2019 to $2.09 , and declined further to $1.94 in early 2020. Spot
prices for other commodities were mixed, and the Bloomberg Commodity Index
increased 5% in 2019.
In fixed income, dovish U.S. monetary policy drove government bond yields lower
as the U.S. Federal Reserve lowered the federal funds target range in three rate
cuts to
1.5%-1.75%,
noting that the current level would likely be held steady for the foreseeable
future given an outlook for moderate economic growth, a strong labor market and
low inflation.
Ten-year
U.S. Treasury yields declined 77 basis points to 1.92% in 2019, and declined
another 55 basis points to 1.37% in early 2020. The Bloomberg Barclays U.S.
Aggregate Index rose 9% and the Credit Suisse U.S. High-Yield Index advanced 14%
in 2019. High-yield spreads contracted 161 basis points in 2019, while issuance
increased 62% year-over-year.
Volatility moderated slightly in 2019, with the VIX index averaging 15.4, down
5% from the 2018 average, and ending the year at 13.8. Global equity issuance
was fairly steady, down 1% in 2019. Merger and acquisition (M&A) activity was
also fairly steady, with global announced M&A volumes down 1% in 2019.
The industrial sector remains soft, as industrial production declined 0.9% in
the fourth quarter from the
year-ago
period. The Institute for Supply Management Manufacturing Purchasing Managers'
Index also declined in the fourth quarter to the lowest level since June 2009 ,
signaling ongoing contraction in the U.S. manufacturing sector.
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Table of Contents TheU.S. continues to experience low unemployment, with a jobless rate of 3.5% - the lowest level sinceDecember 1969 . Wage growth continued in the fourth quarter, with average hourly earnings increasing 3.3% year-over-year, based on the three-month average for production and nonsupervisory employees. Although the growth rate moderated from the third quarter of 2019, it remains elevated. The global growth cycle is in a mature phase and signs of slowdown are evident in certain regions around the world, although most economists continue to expect moderate economic growth in the near term, with limited signals of an imminent recession in theU.S. as consumer and government spending remain healthy. Although the broader outlook remains constructive and progress was made on trade, including a phase one deal withChina andthe United States -Mexico -Canada Agreement, geopolitical instability continues to pose risk. In particular, the recent outbreak of the novel coronavirus in many countries, which is a rapidly evolving situation, has disrupted global travel and supply chains, and has adversely impacted global commercial activity and a number of industries, such as transportation, hospitality and entertainment. The rapid development and fluidity of this situation precludes any prediction as to the ultimate adverse impact of the novel coronavirus, which may have a continued adverse impact on economic and market conditions and trigger a period of global economic slowdown. Notable Transactions OnApril 10, 2019 , Blackstone issued € 600 million aggregate principal amount of 1.500% Senior Notes maturing onApril 10, 2029 . EffectiveJuly 1, 2019 ,The Blackstone Group L.P. converted from aDelaware limited partnership to aDelaware corporation,The Blackstone Group Inc. See "- Organizational Structure." OnOctober 10, 2019 , Blackstone completed the retirement of its 5.875% Senior Notes maturing onMarch 15, 2021 (the "2021 Notes"). OnSeptember 3, 2019 , Blackstone commenced a cash tender offer (the "Tender Offer") on the notes and subsequently redeemed the non-tendered notes. OnSeptember 10, 2019 , Blackstone issued$500 million aggregate principal amount of 2.500% Senior Notes maturing onJanuary 10, 2030 and$400 million aggregate principal amount of 3.500% Senior Notes maturing onSeptember 10, 2049 . Organizational Structure EffectiveJuly 1, 2019 ,The Blackstone Group L.P. converted from aDelaware limited partnership to aDelaware 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.
[[Image Removed]]
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 Consolidated Financial Statements in
accordance with GAAP. See "- Item 8. Financial Statements and Supplementary Data
- Notes to Consolidated Financial Statements - Note 2. Summary of Significant
Accounting Policies" 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
(Benefit) 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 (Benefit) for Taxes excluding the tax impact of any
divestitures and including the Payable under the Tax Receivable Agreement.
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Table of Contents 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 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. Segment 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 (Benefit) for Taxes. See "- 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 (Benefit) 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 fromPerpetual 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 (Benefit) 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-investmententities 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, certain credit-focused funds, and our Hedge Fund Solutions
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
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.
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 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
. 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 .
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.
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
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Table of Contents 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 theEuropean 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. These contemplated changes, if adopted by individual countries, could increase tax uncertainty and/or costs faced by us, our funds' portfolio companies and our investors, change our business model 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. Consolidated Results of Operations Following is a discussion of our consolidated results of operations for each of the years in the three-year period endedDecember 31, 2019 . 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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Table of Contents The following table sets forth information regarding our consolidated results of operations and certain key operating metrics for the years endedDecember 31, 2019 , 2018 and 2017: Year Ended December 31, 2019 vs. 2018 2018 vs. 2017 2019 2018 2017 $ % $ % (Dollars in Thousands) Revenues Management and Advisory Fees, Net$ 3,472,155 $ 3,027,796 $ 2,751,322 $ 444,359 15%$ 276,474 10% Incentive Fees 129,911 57,540 242,514 72,371 126% (184,974 ) -76% Investment Income (Loss) Performance Allocations Realized 1,739,000 1,876,507 3,571,811 (137,507 ) -7% (1,695,304 ) -47% Unrealized 1,126,332 561,373 (105,473 ) 564,959 101% 666,846 N/M Principal Investments Realized 393,478 415,862 635,769 (22,384 ) -5% (219,907 ) -35% Unrealized 215,003 49,917 42,605 165,086 331% 7,312 17% Total Investment Income 3,473,813 2,903,659 4,144,712 570,154 20% (1,241,053 ) -30% Interest and Dividend Revenue 182,398 171,947 139,696 10,451 6% 32,251 23% Other 79,993 672,317 (133,229 ) (592,324 ) -88% 805,546 N/M Total Revenues 7,338,270 6,833,259 7,145,015 505,011 7% (311,756 ) -4% Expenses Compensation and Benefits Compensation 1,820,330 1,609,957
1,442,485 210,373 13% 167,472 12% Incentive Fee Compensation
44,300 33,916 105,279 10,384 31% (71,363 ) -68%
Performance Allocations Compensation
Realized 662,942 711,076 1,281,965 (48,134 ) -7% (570,889 ) -45%
Unrealized 540,285 319,742 103,794 220,543 69% 215,948 208%
Total Compensation and Benefits 3,067,857 2,674,691 2,933,523 393,166 15% (258,832 ) -9% General, Administrative and Other
679,408 594,873 488,582 84,535 14% 106,291 22%
Interest Expense 199,648 163,990 197,486 35,658 22% (33,496 ) -17%
Fund Expenses 17,738 78,486 132,787 (60,748 ) -77% (54,301 ) -41%
Total Expenses 3,964,651 3,512,040 3,752,378 452,611 13% (240,338 ) -6%
Other Income
Change in Tax Receivable Agreement
Liability 161,567 - 403,855 161,567 N/M (403,855 ) -100%
Net Gains from Fund Investment
Activities 282,829 191,722 321,597 91,107 48% (129,875 ) -40%
Total Other Income 444,396 191,722 725,452 252,674 132% (533,730 ) -74%
Income Before Provision (Benefit)
for Taxes 3,818,015 3,512,941 4,118,089 305,074 9% (605,148 ) -15%
Provision (Benefit) for Taxes (47,952 ) 249,390 743,147 (297,342 ) N/M (493,757 ) -66%
Net Income 3,865,967 3,263,551 3,374,942 602,416 18% (111,391 ) -3% Net Income (Loss) Attributable to Redeemable Non-Controlling Interests in Consolidated Entities (121 ) (2,104 ) 13,806 1,983 -94% (15,910 ) N/M Net Income Attributable to Non- Controlling Interests in Consolidated Entities 476,779 358,878 497,439 117,901 33% (138,561 ) -28% Net Income Attributable to Non- Controlling Interests in Blackstone Holdings 1,339,627 1,364,989 1,392,323 (25,362 ) -2% (27,334 ) -2% Net Income Attributable to The Blackstone Group Inc.$ 2,049,682 $ 1,541,788 $ 1,471,374 $ 507,894 33%$ 70,414 5% N/M Not meaningful. 83
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Table of Contents Year EndedDecember 31, 2019 Compared to Year EndedDecember 31, 2018 Revenues Revenues were$7.3 billion for the year endedDecember 31, 2019 , an increase of$505.0 million compared to$6.8 billion for the year endedDecember 31, 2018 . The increase in Revenues was primarily attributable to increases of$570.2 million in Investment Income,$444.4 million in Management and Advisory Fees, Net and$72.4 million in Incentive Fees, partially offset by a decrease of$592.3 million in Other Revenue. The increase in Investment Income was primarily attributable to increases in our Real Estate, Credit and Hedge Fund Solutions segments of$1.0 billion ,$173.4 million and$53.7 million , respectively, partially offset by a decrease in our Private Equity segment of$632.8 million . 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 of investments for our BREP opportunistic funds increased 17.6% for the year endedDecember 31, 2019 compared to 9.8% for the year endedDecember 31, 2018 . The increase in our Credit segment was primarily attributable to higher returns in 2019 than in 2018 due to the negative impact of decreases in certain public positions and the volatility in the energy and credit markets in 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 our Private Equity segment was primarily due to lower appreciation in corporate private equity. Corporate private equity carrying value increased 9.3% for the year endedDecember 31, 2019 compared to 19.1% for the year endedDecember 31, 2018 . The increase in Management and Advisory Fees, Net was primarily due to increases in our Private Equity, Real Estate, Credit and Hedge Fund Solutions segments of$234.4 million ,$138.7 million ,$37.4 million and$37.3 million , respectively. The increase in our Private Equity segment was primarily due to increases in Fee-Earning Assets Under Management inStrategic Partners , BIP and Tactical Opportunities. The increase in our Real Estate segment was primarily due to Fee-Earning Asset Under Management growth in our core+ real estate funds and BREDS insurance separately managed accounts, as well as higher management and transaction fees in BXMT. The increase in our Credit segment was primarily due to the launch of several GSO and BIS funds subsequent to the year endedDecember 31, 2018 , including successor flagship funds and multiple long only funds, as well as a full year of management fees on our BDC, partially offset by the receipt of a fixed payment in the first quarter of 2018 in connection with the conclusion of our sub-advisory relationship with FS Investments. 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 Incentive Fees was primarily due to increases in ourHedge Fund Solutions and Credit segments of$52.8 million and$12.8 million , respectively. The increase in our Hedge Fund Solutions segment was primarily due to higher returns across a number of strategies, including customized solutions, commingled products and individual investor solutions and specialized solutions, compared to the year endedDecember 31, 2018 . The increase in our Credit segment was primarily due to the contribution of a full year of fees from our BDC in 2019. The decrease in Other Revenue was primarily due to proceeds received during the year endedDecember 31, 2018 from the conclusion of our sub-advisory relationship with FS Investments, partially offset by a foreign exchange gain on our euro denominated bonds. Expenses Expenses were$4.0 billion for the year endedDecember 31, 2019 , an increase of$452.6 million , compared to$3.5 billion for the year endedDecember 31, 2018 . The increase was primarily attributable to increases in Compensation, Performance Allocations Compensation and General, Administrative and Other Expenses, partially offset by a decrease of$60.7 million in Fund Expenses. The increase of$210.4 million in Compensation was due to the increase in Management and Advisory Fees, Net, on which a portion of compensation is based. The increase of$172.4 million in Performance Allocations Compensation was primarily due to the increase in Investment Income. The increase of$84.5 million in General, Administrative and Other Expenses was primarily due to new business growth, legal and advisory fees associated with the Conversion as well as consulting fees. The decrease of$60.7 million in Fund Expenses was due to a decrease of$61.3 million in our Credit segment primarily from the deconsolidation of certain CLO and other vehicles in 2018.
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Table of Contents Other Income Year EndedDecember 31, 2019 Compared to Year EndedDecember 31, 2018 Other Income was$444.4 million for the year endedDecember 31, 2019 , an increase of$252.7 million , compared to$191.7 million for the year endedDecember 31, 2018 . The increase in Other Income was due to increases of$161.6 million in Change in Tax Receivable Agreement Liability and$91.1 million inNet Gains from Fund Investment Activities. The increase in Other Income - Change in Tax Receivable Agreement Liability was primarily attributable to the Conversion. The increase in Other Income -Net Gain from Fund Investment Activities was principally driven by increases of$58.7 million and$52.2 million in our Real Estate and Credit segments, respectively, partially offset by a decrease of$20.9 million in our Private Equity segment. 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. The increase in our Credit segment was primarily driven by a year-over-year net increase in appreciation of CLOs and other vehicles, partially offset by the deconsolidation of certain CLO and other vehicles during the twelve months endedDecember 31, 2018 . The decrease in our Private Equity segment was primarily due to lower appreciation of investments across the private equity funds. Provision (Benefit) for Taxes The following table summarizes Blackstone's tax position: Year Ended December 31, 2019 2018 2017 (Dollars in Thousands)
Income Before Provision (Benefit) for Taxes
$ 4,118,089 Provision (Benefit) for Taxes$ (47,952 ) $ 249,390 $ 743,147 Effective Income Tax Rate -1.3 % 7.1 % 18.0 % The following table reconciles the effective income tax rate to theU.S. federal statutory tax rate: Year Ended December 31, 2019 vs. 2018 vs. 2019 2018 2017 2018 2017 Statutory U.S. Federal Income Tax Rate 21.0 % 21.0 % 35.0 % - -14.0 % Income Passed Through to Common Shareholders and Non-Controlling Interest Holders (a) -13.5 % -15.5 % -25.9 % 2.0 % 10.4 % State and Local Income Taxes 1.6 % 1.8 % 1.5 % -0.2 % 0.3 % Equity-Based Compensation - - -0.1 % - 0.1 % Change to a Taxable Corporation -10.3 % - - -10.3 % - Impact of the Tax Reform Bill - - 8.3 % - -8.3 % Change in Valuation Allowance (b) -0.8 % - - -0.8 % - Other 0.7 % -0.2 % -0.8 % 0.9 % 0.6 % Effective Income Tax Rate -1.3 % 7.1 % 18.0 % -8.4 % -10.9 %
(a) Includes income that was not taxable to Blackstone and its subsidiaries. Such
income was directly taxable to shareholders of Blackstone's Class A common
stock for the period prior to the Conversion and remains taxable to
Blackstone's
non-controlling
interest holders.
(b) The Change in Valuation Allowance for the year ended
represents the change from
change to a taxable corporation.
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Table of Contents Blackstone's Provision (Benefit) for Taxes for the years endedDecember 31, 2019 , 2018 and 2017 was$(48.0) million ,$249.4 million and$743.1 million , respectively. This resulted in an effective tax rate of -1.3%, 7.1% and 18.0%, respectively, based on our Income Before Provision (Benefit) for Taxes of$3.8 billion ,$3.5 billion and$4.1 billion , respectively. The decrease in Blackstone's effective tax rate for the year endedDecember 31, 2019 , compared with the year endedDecember 31, 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 toU.S. federal (and state and local) corporate income taxes following the Conversion. Additional information regarding our income taxes can be found in "- Item 8. Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 15. Income Taxes" of this filing. 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 toThe Blackstone Group Inc. Net Income Attributable to Non-Controlling Interests inBlackstone Holdings is derived from the Income Before Provision (Benefit) 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 ofBlackstone Holdings and Blackstone after considering any contractual arrangements that govern the allocation of income such as fees allocable to Blackstone. For the years endedDecember 31, 2019 , 2018 and 2017, the Net Income Before Taxes allocated to Blackstone personnel and others who are limited partners ofBlackstone Holdings was 43.9%, 44.0% and 44.9%, respectively. The decrease of 0.1% was primarily due to conversions of Blackstone Holdings Partnership Units to 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 toThe Blackstone Group Inc.
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Table of Contents Operating Metrics The following graphs and tables summarize the Fee-Earning Assets Under Management by Segment and Total Assets Under Management by Segment, followed by a rollforward of activity for the years endedDecember 31, 2019 , 2018 and 2017. 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." [[Image Removed]]
Note: Totals may not add due to rounding.
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Year Ended December 31,
2019 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
52,424,662 27,260,480 11,488,234 21,069,189 112,242,565 17,961,223 16,096,543 12,354,410 24,587,957 71,000,133 Outflows, including Distributions (b)
(9,690,143 ) (2,352,716 ) (11,928,940 ) (9,067,554 ) (33,039,353 ) (2,000,367 ) (1,888,223 ) (10,278,403 ) (27,640,908 ) (41,807,901 )
Net Inflows (Outflows)
42,734,519 24,907,764 (440,706 ) 12,001,635 79,203,212 15,960,856 14,208,320 2,076,007 (3,052,951 ) 29,192,232 Realizations (c)
(11,353,675 ) (7,212,993 ) (1,153,785 ) (5,629,089 ) (25,349,542 ) (8,781,140 ) (4,729,843 ) (429,912 ) (6,672,539 ) (20,613,434 ) Market Activity (d)(g)
3,580,569 71,027 4,949,889 3,092,190 11,693,675 2,088,184 388,806 720,450 (4,592,729 ) (1,395,289 )
Balance, End of Period (e) $
128,214,137
Increase (Decrease) $
34,961,413
37 % 22 % 5 % 10 % 19 % 11 % 14 % 3 % -13 % 2 %
Annualized Base Management Fee Rate (f) 1.04 % 1.02 % 0.75 % 0.56 % 0.86 % 1.09 % 1.00 % 0.73 % 0.56 % 0.84 %
Year Ended December 31,
2017
Private Hedge Fund
Real Estate Equity Solutions Credit Total
(Dollars in Thousands)
Fee-Earning
Assets Under Management
Balance, Beginning of Period $ 72,030,054 $ 69,110,457 $ 66,987,553 $ 68,964,608 $ 277,092,672
Inflows, including Commitments (a) 23,555,866 8,257,430 10,302,444 55,099,845 97,215,585
Outflows, including Distributions (b) (2,773,181 ) (1,196,502 ) (9,777,064 ) (4,364,916 ) (18,111,663 )
Net Inflows 20,782,685 7,060,928 525,380 50,734,929 79,103,922
Realizations (c) (11,851,866 ) (6,558,390 ) (2,182,220 ) (10,396,313 ) (30,988,789 ) Market Activity (d)(g)
3,023,951 527,888 4,583,348 2,001,006 10,136,193
Balance, End of Period (e)$ 83,984,824 $ 70,140,883 $ 69,914,061 $ 111,304,230 $ 335,343,998 Increase$ 11,954,770 $ 1,030,426 $ 2,926,508 $ 42,339,622 $ 58,251,326 Increase 17 % 1 % 4 % 61 % 21 % Annualized Base Management Fee Rate (f) 1.06 % 1.07 % 0.74 % 0.56 % 0.83 % 88
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Year Ended December 31,
2019 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
34,190,566 56,836,570 12,242,855 31,107,288 134,377,279 31,478,431 26,639,963 13,278,327 29,578,890 100,975,611 Outflows, including Distributions (b)
(2,664,717 ) (1,065,445 ) (13,433,702 ) (11,629,269 ) (28,793,133 ) (2,162,958 ) (1,617,585 ) (10,780,055 ) (28,057,658 ) (42,618,256 )
Net Inflows (Outflows)
31,525,849 55,771,125 (1,190,847 ) 19,478,019 105,584,146 29,315,473 25,022,378 2,498,272 1,521,232 58,357,355 Realizations (c)
(18,097,899 ) (13,540,914 ) (1,271,968 ) (7,291,045 ) (40,201,826 ) (14,675,095 ) (10,396,611 ) (471,931 ) (8,516,996 ) (34,060,633 ) Market Activity (d)(h)
13,480,885 9,990,612 5,386,411 4,639,918 33,497,826 6,266,488 10,478,943
697,341 (3,625,420 ) 13,817,352
Balance, End of Period (e) $
163,156,064
Increase (Decrease)$ 26,908,835 $ 52,220,823 $ 2,923,596 $ 16,826,892 $ 98,880,146 $ 20,906,866 $ 25,104,710 $ 2,723,682 $ (10,621,184 ) $ 38,114,074 Increase (Decrease) 20 % 40 % 4 % 13 % 21 % 18 % 24 % 4 % -8 % 9 % Year Ended December 31, 2017 Private Hedge Fund Real Estate Equity Solutions Credit Total (Dollars in Thousands) Total Assets Under Management Balance, Beginning of Period$ 101,963,652 $ 100,189,994 $ 71,119,718 $ 93,280,101 $ 366,553,465 Inflows, including Commitments (a) 23,844,270 12,631,106 12,106,471 59,373,876 107,955,723 Outflows, including Distributions (b) (1,399,741 ) (1,230,409 ) (10,661,542 ) (6,165,216 ) (19,456,908 ) Net Inflows 22,444,529 11,400,697 1,444,929 53,208,660 88,498,815 Realizations (c) (24,527,951 ) (15,760,727 )
(2,409,985 ) (12,487,834 ) (55,186,497 ) Market Activity (d)(h)
15,460,133 9,730,612 4,936,172 4,135,543 34,262,460
Balance, End of Period (e)$ 115,340,363 $ 105,560,576 $ 75,090,834 $ 138,136,470 $ 434,128,243 Increase$ 13,376,711 $ 5,370,582 $ 3,971,116 $ 44,856,369 $ 67,574,778 Increase 13 % 5 % 6 % 48 % 18 % 89
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(a) Inflows represent contributions, capital raised, other increases in available
capital (recallable capital, increased
side-by-side
commitments), purchases, inter-segment allocations and acquisitions.
(b) Outflows represent redemptions, client withdrawals and decreases in available
capital (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 activity 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 year ended
Fee-Earning
Assets Under Management due to foreign exchange rate fluctuations was
million,
and Total segments, respectively. For the year ended
impact to
Fee-Earning
Assets Under Management due to foreign exchange rate fluctuations was
Credit and Total segments, respectively. For the year ended
2017, such impact was
respectively.
(h) For the year ended
Management due to foreign exchange rate fluctuations was
Private Equity, Credit and Total segments, respectively. For the year ended
exchange rate fluctuations was
million and
Total segments, respectively. For the year ended
impact was
Real Estate, Private Equity, Credit and Total segments, respectively.
Fee-Earning
Assets Under Management
Fee-Earning
Assets Under Management were $408.1 billion at December 31, 2019 , an increase of
$65.5 billion , or 19%, compared to $342.5 billion at December 31, 2018 . The net
increase was due to:
• Inflows of $112.2 billion related to:
¡
from BREP IX, which started its investment period on
amount was reflected in Total Assets Under Management at each capital
closing of the fund),
investment period on
Assets Under Management at each capital closing of the fund),
from BREIT, $5.3 billion from BREDS, $3.1 billion from BPP U.S. and
co-investment,
$1.3 billion from BPP Europe and
co-investment
and $970.6 million from BPP Asia,
¡
Opportunities,
corporate private equity and
¡
long only and MLP strategies,
distressed strategies and
offset by $16.0 billion of allocations to various strategies, and
¡
from individual investor and specialized solutions, $2.8 billion from
customized solutions and $1.7 billion from commingled products.
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Table of Contents • Market activity of$11.7 billion due to:
¡
by returns from BAAM's Principal Solutions Composite of 8.2% gross (7.3%
net),
¡ $3.6 billion of market activity in our Real Estate segment driven by
$3.1 billion of appreciation from our core+ real estate funds
(
exchange appreciation) and
BREDS, partially offset by
from BREP opportunistic funds, and
¡ $3.1 billion of market activity in our Credit segment driven by
$3.4 billion of market appreciation (primarily in certain long only and
MLP strategies and BIS), partially offset by
exchange depreciation.
Offsetting these increases were:
• Outflows of$33.0 billion primarily attributable to:
¡
from customized solutions, $3.4 billion from individual investor and
specialized solutions and $2.2 billion from commingled products,
¡ $9.7 billion in our Real Estate segment driven by $5.4 billion of
uninvested reserves at the end of BREP VIII's investment period and
$2.9 billion of uninvested reserves at the end of BREP Europe V'sinvestment period (these amounts are still classified as available capital
and included in Total Assets Under Management),
redemptions from core+ real estate funds and
from BREDS liquids funds,
¡
long only and MLP strategies,
from our distressed strategies, and
¡
core private equity,
Opportunities and $194.1 million from BXLS.
• Realizations of $25.3 billion primarily driven by:
¡
opportunistic funds and
co-investment,
¡
corporate private equity,
equity,
¡ $5.6 billion in our Credit segment driven by $1.9 billion from our
distressed strategies, $1.4 billion from our mezzanine funds,
their reinvestment periods,
strategies and $610.4 million from direct lending, and
¡
from individual investor and specialized solutions.
Hedge Fund Solutions had net inflows of $903.7 million from January 1 through
February 1, 2020 .
Total Assets Under Management
Total Assets Under Management were $571.1 billion at December 31, 2019 , an
increase of $98.9 billion , or 21%, compared to $472.2 billion at December 31,
2018 . The net increase was due to:
• Inflows of $134.4 billion related to:
¡
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),
from Tactical Opportunities, $3.0 billion from BXLS, $608.3 million from
core private equity and $606.9 million from multi-asset products,
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Table of Contents
¡
raised from BREP Europe VI,
BREDS and $3.8 billion from BPP funds,
¡
long only and MLP strategies,
partially offset by
and
¡
from individual investor and specialized solutions,
customized solutions, and $1.6 billion from commingled products.
• Market activity of $33.5 billion due to:
¡ $13.5 billion of market activity in our Real Estate segment driven by
carrying value increases in our opportunistic and BPP funds of 17.6% and
9.2% for the year, respectively, which includes
exchange depreciation across the segment,
¡
carrying value increase in
corporate private equity of 17.0%, 13.1% and 9.3%, respectively, which
included $238.8 million of foreign exchange appreciation across the
segment,
¡
by reasons noted above in
Fee-Earning
Assets Under Management, and
¡ $4.6 billion of market activity in our Credit segment driven by
$4.9 billion of market appreciation (primarily in certain long only and
MLP strategies, BIS, and mezzanine funds), partially offset by
$233.0 million of foreign exchange depreciation.
Total Assets Under Management market activity 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 activity.
Offsetting these increases were:
• Realizations of $40.2 billion primarily driven by:
¡
opportunistic and
co-investment,
¡
across the segment, mainly related to
equity, $3.2 billion from Tactical Opportunities, $2.7 billion from
Strategic Partners , $418.1 million from core private equity, and
$353.9 million from BXLS,
¡ $7.3 billion in our Credit segment driven by $2.8 billion from our
distressed strategies,
from direct lending,
from CLOs that are post their reinvestment periods and
certain long only and MLP strategies, and
¡
from individual investor and specialized solutions.
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.
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Table of Contents • Outflows of$28.8 billion primarily attributable to:
¡
from customized solutions, $3.4 billion from individual investor and
specialized solutions and $2.5 billion from commingled products,
¡
long only and MLP strategies,
¡ $2.7 billion in our Real Estate segment driven by the release ofuninvested capital in BPP and BREDS, and redemptions from BREDS liquid
funds, BPP U.S. and BREIT, and
¡
Strategic Partners ,$365.2 million from Tactical Opportunities,$268.3 million from corporate private equity and$111.0 million from multi-asset products, partially offset by$145.6 million from BXLS. Dry Powder The following presents our Dry Powder as ofDecember 31 of each year: [[Image Removed]]
Note: Totals may not add due to rounding.
(a) Represents illiquid drawdown funds, a component of
fee-paying
co-investments;
includes
fee-payingthird 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.
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Table of Contents
December 31,
2017 2018 2019
(Dollars in Thousands)
Dry Powder Available for Investment
Real Estate $ 32,251,005 $ 40,627,676 $ 45,698,155
Private Equity 36,302,497 44,431,881 74,013,156
Hedge Fund Solutions 3,943,358 3,275,768 2,677,748
Credit 22,285,149 24,542,243 28,716,911
$ 94,782,009 $ 112,877,568 $ 151,105,970
Net Accrued Performance Revenues
The following table presents the Accrued Performance Revenues, net of
performance compensation, of the Blackstone Funds as of December 31, 2019 and
2018. Net Accrued Performance Revenues presented do not include clawback
amounts, if any, which are disclosed in Note 19. "Commitments and Contingencies
- Contingencies - Contingent Obligations (Clawback)" in the "Notes to
Consolidated Financial Statements" in "- Item 8. Financial Statements and
Supplementary Data" of this filing. The Net Accrued Performance Revenues as of
each reporting date were principally unrealized; if realized, such amount would
be a component of Distributable Earnings.
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December 31,
2019 2018
(Dollars in Millions)
Real Estate
BREP IV $ 11 $ 3
BREP V 19 55
BREP VI 81 89
BREP VII 447 484
BREP VIII 674 429
BREP IX 6 -
BREP International II - -
BREP Europe IV 167 200
BREP Europe V 193 110
BREP Asia I 152 114
BREP Asia II 22 -
BPP 282 215
BREIT 79 23
BREDS 47 17
BTAS 42 36
Total Real Estate (a) 2,220 1,775
Private Equity
BCP IV 23 72
BCP VI 705 746
BCP VII 471 225
BCP Asia 17 -
BEP I 102 103
BEP II - 73
Tactical Opportunities 160 155
Strategic Partners 144 94
BCEP 46 19
Clarus 7 -
BTAS 61 41
Other - 1
Total Private Equity (a) 1,737 1,529
Hedge Fund Solutions 105 24
Credit 252 195
Total Blackstone Net Accrued Performance Revenues
Note: Totals may not add due to rounding.
(a) Real Estate and Private Equity include
Co-Investments,
as applicable.
For the year ended December 31, 2019 Net Accrued Performance Revenues receivable
was increased by Net Accrued Performance Revenues of $1.9 billion and decreased
by net realized distributions of $1.1 billion .
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Table of Contents Performance Revenue Eligible Assets Under Management The following presents our Invested Performance Revenue Eligible Assets Under Management as ofDecember 31 of each year: [[Image Removed]] Note: Totals may not add due to rounding. 96
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Table of ContentsPerpetual Capital The following presents ourPerpetual Capital as ofDecember 31 of each year: [[Image Removed]] Note: Totals may not add due to rounding. Investment Record Fund returns information for our significant funds is included throughout this discussion and analysis to facilitate an understanding of our results of operations for the periods presented. The fund returns information reflected in this discussion and analysis is not indicative of the financial performance of Blackstone and is also not necessarily indicative of the future performance of any particular fund. An investment in Blackstone is not an investment in any of our funds. There can be no assurance that any of our funds or our other existing and future funds will achieve similar returns.
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Table of Contents The following table presents the investment record of our significant drawdown funds from inception throughDecember 31, 2019 : Fund (Investment Period Committed Available Unrealized Investments Realized Investments Total Investments Net IRRs (d) Beginning Date / Ending Date) (a) Capital Capital (b) Value MOIC (c) % Public Value MOIC (c) Value MOIC (c) Realized Total (Dollars in Thousands, Except Where Noted) Real Estate Pre-BREP$ 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 - 74,855 0.1x 50 % 4,521,164 2.2x 4,596,019 1.7x 28 % 12 % BREP V (Dec 2005 /Feb 2007 ) 5,539,418 - 272,765 1.0x 54 % 13,030,719 2.4x 13,303,484 2.3x 12 % 11 % BREP VI (Feb 2007 /Aug 2011 ) 11,060,444 - 917,009 2.8x 72 % 26,936,728 2.5x 27,853,737 2.5x 13 % 13 % BREP VII (Aug 2011 /Apr 2015 ) 13,496,564 1,906,699 7,262,924 1.6x 8 % 22,551,604 2.1x 29,814,528 2.0x 22 % 16 % BREP VIII (Apr 2015 /Jun 2019 ) 16,629,914 3,254,163 18,095,903 1.4x - 6,838,570 1.7x 24,934,473 1.5x 26 % 16 % *BREP IX (Jun 2019 /Dec 2024 ) 20,634,398 16,859,273 3,907,608 1.0x - 87,590 N/M 3,995,198 1.0x N/M N/M Total Global BREP$ 72,801,901 $ 22,020,135 $ 30,531,064 1.4x 5 %$ 81,501,293 2.2x$ 112,032,357 1.9x 18 % 16 % BREP Int'l (Jan 2001 /Sep 2005 ) € 824,172 € - € - N/A - € 1,373,170 2.1x € 1,373,170 2.1x 23 % 23 % BREP Int'l II (Sep 2005 /Jun 2008 ) (e) 1,629,748 - 3,566 N/A - 2,572,364 1.8x 2,575,930 1.8x 8 % 8 % BREP Europe III (Jun 2008 /Sep 2013 ) 3,205,167 467,438 581,528 0.8x - 5,579,325 2.5x 6,160,853 2.1x 21 % 14 % BREP Europe IV (Sep 2013 /Dec 2016 ) 6,709,145 1,339,258 3,091,281 1.6x - 8,910,480 2.0x 12,001,761 1.9x 23 % 17 % BREP Europe V (Dec 2016 /Oct 2019 ) 7,935,140 1,780,767 7,935,118 1.3x - 667,050 2.6x 8,602,168 1.4x 51 % 16 % *BREP Europe VI (Oct 2019 /Apr 2025 ) 8,880,497 8,371,719 507,476 1.0x - - N/A 507,476 1.0x N/A N/M Total BREP Europe € 29,183,869 € 11,959,182 € 12,118,969 1.3x - € 19,102,389 2.1x € 31,221,358 1.7x 16 %
14 %
BREP Asia I (Jun 2013 / Dec 2017)$ 5,096,361 $
1,728,289
1.9x$ 7,824,095 1.7x 21 % 15 % *BREP Asia II (Dec 2017 /Jun 2023 ) 7,208,070 4,785,471 2,787,120 1.2x - 62,050 1.6x 2,849,170 1.2x N/M 10 % BREP Co-Investment (f) 7,055,974 170,135 1,587,692 2.1x - 13,263,050 2.1x 14,850,742 2.1x 15 % 16 % Total BREP$ 127,001,719 $ 42,113,862 $ 52,689,535 1.4x 4 %$ 122,989,021 2.2x$ 175,678,556 1.9x 17 % 15 % *Core+ BPP (Various) (g) 29,378,175 689,947 32,420,228 N/A - 5,877,291 N/A 38,297,519 N/A N/M 10 % *Core+ BREIT (Various) (h) 12,532,379 N/M 13,104,041 N/A - 258,935 N/A 13,362,976 N/A N/M 10 % *BREDS High-Yield (Various) (i) 13,856,187 4,489,213 3,310,277 1.1x - 11,889,018 1.3x 15,199,295 1.3x 11 % 11 % continued... 98
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Fund (Investment Period Committed Available Unrealized Investments Realized Investments Total Investments 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)
Corporate 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 13,493 N/A - 2,953,649 1.4x 2,967,142 1.4x 6 % 6 %
BCP IV (Nov 2002 / Dec 2005 ) 6,773,182 198,964 178,378 2.5x - 21,417,821 2.9x 21,596,199 2.9x 36 % 36 %
BCP V (Dec 2005 / Jan 2011) 21,013,658 1,039,805 736,918 0.7x 45 % 37,166,622
1.9x 37,903,540 1.9x 9 % 8 %
BCP VI (Jan 2011 / May 2016) 15,192,447 1,652,514 12,566,484 1.7x 38 % 14,834,583
2.1x 27,401,067 1.9x 18 % 12 %
*BCP VII (May 2016 / May 2022 ) 18,819,853 5,048,792 17,566,425 1.4x 1 % 1,663,648 1.7x 19,230,073 1.4x 45 % 19 %
BCP VIII (TBD) 24,500,000 24,500,000 - N/A - - N/A - N/A N/A N/A
Energy I (Aug 2011 / Feb 2015) 2,435,285 224,784 1,611,101 1.6x 61 % 2,699,524
2.0x 4,310,625 1.8x 18 % 12 %
*Energy II (Feb 2015 / Feb 2021 ) 4,913,607 749,717 4,347,043 1.3x - 278,192 1.8x 4,625,235 1.3x 43 % 7 %
Energy III (TBD) 4,193,015 4,193,015 - N/A - - N/A - N/A N/A N/A
*BCP Asia (Dec 2017 / Dec 2023 ) 2,397,744 1,310,366 1,028,271 1.3x 6 % 54,308 1.7x 1,082,579 1.3x N/M 25 %
Total Corporate Private Equity $ 108,563,724 $
38,942,532
2.1x$ 133,299,705 1.9x 16 % 15 % *Core Private Equity (Jan 2017 /Jan 2021 ) (j) 4,755,077 1,385,354 4,325,980 1.3x - 418,053 1.6x 4,744,033 1.3x 37 % 15 % Tactical Opportunities *Tactical Opportunities (Various) 23,654,242 10,157,252 10,351,985 1.2x 11 % 8,955,179 1.7x 19,307,164 1.4x 19 % 10 % *Tactical Opportunities Co-Investment and Other (Various) 6,885,259 2,352,464 5,409,682 1.3x 4 % 1,894,792 1.6x 7,304,474 1.4x 23 % 14 % Total Tactical Opportunities$ 30,539,501 $ 12,509,716 $ 15,761,667 1.3x 9 %$ 10,849,971 1.7x$ 26,611,638 1.4x 20 % 11 %Strategic Partners (Secondaries) Strategic Partners I-V (Various) (k) 11,862,623 1,732,094 1,092,247 N/M - 16,645,510 N/M 17,737,757 1.5x N/A 13 % Strategic Partners VI (Apr 2014 /Apr 2016 ) (k) 4,362,750 1,140,935 1,488,888 N/M - 3,111,382 N/M 4,600,270 1.5x N/A 16 %
Strategic Partners VII (
N/M - 1,546,950 N/M 7,103,546 1.5x N/A 23 %
*Strategic Partners Real Assets II (May 2017 /
Mar 2022 ) (k) 1,749,807 516,372 817,832 N/M - 271,186 N/M 1,089,018 1.2x N/A 17 %
*Strategic Partners VIII (
N/M - 53,818 N/M 3,220,410 1.3x N/A N/M
*Strategic Partners Real Estate , SMA and Other
(Various) (k) 6,606,978 2,096,602 2,498,143 N/M - 1,189,081 N/M 3,687,224 1.3x N/A 18 %
Total Strategic Partners (Secondaries) $ 42,835,728 $ 13,413,851 $ 14,620,298 N/M - $ 22,817,927 N/M $ 37,438,225 1.5x N/A 14 %
*Infrastructure (Various) 13,659,163 11,309,149 2,407,643 1.0x 53 % - N/A 2,407,643 1.0x N/A N/M
Life Sciences
*Clarus IV (Jan 2018 / Jan 2020 ) 910,000 547,667 467,471 1.5x 4 % 3,323 N/M 470,794 1.5x N/M 29 %
BXLS V (Jan 2020 / Jan 2025 ) 3,194,630 3,194,630 - N/A - - N/A - N/A N/A N/A
continued...
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Fund (Investment Period Committed Available Unrealized Investments Realized Investments Total Investments 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)
Credit (l)
Mezzanine I (Jul 2007 / Oct 2011 ) $ 2,000,000 $ 97,114 $ 23,053 1.2x - $ 4,772,316 1.6x $ 4,795,369 1.6x N/A 17 %
Mezzanine II (Nov 2011 / Nov 2016 ) 4,120,000 1,033,255 1,371,238 0.9x - 5,273,460 1.6x 6,644,698 1.3x N/A 11 %
*Mezzanine III (Sep 2016 / Sep 2021 ) 6,639,133 2,845,176 4,324,259 1.1x 1 % 1,678,739 1.6x 6,002,998 1.2x N/A 12 %
Distressed I (Sep 2009 / May 2013 ) 3,253,143 85,000 121,458 0.2x - 5,772,964 1.6x 5,894,422 1.4x N/A 10 %
Distressed II (Jun 2013 / Jun 2018 ) 5,125,000 573,315 1,160,820 0.6x 9 % 4,300,232 1.3x 5,461,052 1.1x N/A 2 %
*Distressed III (Dec 2017 / Dec 2022 ) 7,356,380 4,962,377 1,772,334 1.0x 1 % 866,528 1.4x 2,638,862 1.1x N/A 11 %
Energy I (Nov 2015 / Nov 2018 ) 2,856,867 1,078,049 1,834,281 1.1x - 1,013,466 1.7x 2,847,747 1.3x N/A 10 %
*Energy II (Feb 2019 / Feb 2024 ) 3,616,081 2,973,803 671,512 1.0x - 30,067 2.3x 701,579 1.1x N/A N/M
Euro
European Senior Debt (Feb 2015 /Feb 2019 ) € 1,964,689 € 381,768 € 2,028,539 1.1x 2 % € 1,159,583 1.5x € 3,188,122 1.2x N/A 9 % *European Senior Debt II (Jun 2019 /Jun 2024 ) € 3,403,585 € 3,117,425 € 292,468 1.0x - € - N/A € 292,468 1.0x N/A N/M Total Credit$ 41,095,232 $ 17,575,933 $ 13,884,286 1.0x 2 %$ 25,026,993 1.5x$ 38,911,279 1.3x N/A 11 % 100
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Table of Contents 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.
* Represents funds that are currently in their investment period and open-ended
funds.
(a) Excludes investment vehicles where Blackstone does not earn fees.
(b)
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
management fees, expenses and Performance Revenues, divided by invested
capital.
(d) Net Internal Rate of Return ("IRR") represents the annualized inception to
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'srealized 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.
(h) Unrealized Investment Value reflects BREIT's net asset value as of
distributions, net of servicing fees. BREIT net return reflects a per share
blended return, 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 net returns are presented on an annualized basis and
are from January 1, 2017 .
(i) BREDS High-Yield represents the flagship real estate debt drawdown funds only
and excludes BREDS High-Grade.
(j) BCEP, or
invests with a more modest risk profile and longer hold period.
(k) 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.
(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:
Year Ended December 31, 2019 vs. 2018 2018 vs. 2017
2019 2018 2017 $ % $ %
(Dollars in Thousands)
Management Fees, Net
Base Management Fees $ 1,116,183 $ 985,399
175,831 152,513 82,781 23,318 15 % 69,732 84 %
Management Fee Offsets (26,836 ) (11,442 ) (15,934 ) (15,394 ) 135 % 4,492 -28 %
Total Management Fees, Net 1,265,178 1,126,470 939,038 138,708 12 % 187,432 20 % Fee Related Performance Revenues
198,237 124,502 79,500 73,735 59 % 45,002 57 %
Fee Related Compensation (531,259 ) (459,430 ) (437,311 ) (71,829 ) 16 % (22,119 ) 5 % Other Operating Expenses
(168,332 ) (146,260 ) (136,042 ) (22,072 ) 15 % (10,218 ) 8 %
Fee Related Earnings 763,824 645,282 445,185 118,542 18 % 200,097 45 %
Realized Performance Revenues 1,032,337 914,984 2,141,374 117,353 13 % (1,226,390 ) -57 % Realized Performance Compensation
(374,096 ) (284,319 ) (751,526 ) (89,777 ) 32 % 467,207 -62 % Realized Principal Investment Income
79,733 92,525 255,903 (12,792 ) -14 % (163,378 ) -64 %
Net Realizations 737,974 723,190 1,645,751 14,784 2 % (922,561 ) -56 %
Segment Distributable Earnings
$ 2,090,936 $ 133,326 10 %$ (722,464 ) -35 % N/M Not meaningful.
Year EndedDecember 31, 2019 Compared to Year EndedDecember 31, 2018 Segment Distributable Earnings were$1.5 billion for the year endedDecember 31, 2019 , an increase of$133.3 million , or 10%, compared to$1.4 billion for the year endedDecember 31, 2018 . The increase in Segment Distributable Earnings was primarily attributable to increases of$118.5 million in Fee Related Earnings and$14.8 million in Net Realizations. Segment Distributable Earnings in our Real Estate segment in 2019 were higher compared to 2018. This was primarily driven by growth in Fee-Earning Assets Under Management in our core+ real estate funds, an increase in management fees from our BREDS liquids funds, and higher Realized Performance Revenues in BREP and BREIT in 2019 compared to 2018. The market environment continues to be characterized by volatility and macroeconomic and geopolitical concerns, such as uncertainty regarding the next stage of trade negotiations between theU.S. andChina and concerns regarding the rate of global growth and the impact of the recent and rapidly evolving outbreak of the novel coronavirus in many countries. We have also seen an increasing focus in certain markets in theU.S. andEurope toward rent regulation as a means to address residential affordability caused by undersupply of housing. 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 theU.S. , including hospitality. Capital deployment in opportunistic investments in theU.S. continues to be challenging, as distress levels are low and asset values are relatively high. Nonetheless, we deployed a record$22.5 billion of capital in our Real Estate segment in 2019, primarily inNorth America . See "Part I. Item 1A. Risk Factors - Risks Related to Our Business - Difficult market and geopolitical conditions can adversely affect our business in many ways, each of which could materially reduce our revenue, earnings and cash flow and adversely affect our financial prospects and condition" and "- A period of economic slowdown, which may be across one or more industries, sectors or geographies, could contribute to adverse operating performance for certain of our funds' investments, which would adversely affect our operating results and cash flows."
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Table of Contents Fee Related Earnings Fee Related Earnings were$763.8 million for the year endedDecember 31, 2019 , an increase of$118.5 million , or 18%, compared to$645.3 million for the year endedDecember 31, 2018 . The increase in Fee Related Earnings was primarily attributable to increases of$138.7 million in Management Fees, Net and$73.7 million in Fee Related Performance Revenues, partially offset by increases of$71.8 million in Fee Related Compensation and$22.1 million in Other Operating Expenses. Management Fees, Net were$1.3 billion for the year endedDecember 31, 2019 , an increase of$138.7 million compared to$1.1 billion for the year endedDecember 31, 2018 , primarily driven by an increase in Base Management Fees. Base Management Fees were$1.1 billion for the year endedDecember 31, 2019 , an increase of$130.8 million compared to$985.4 million for the year endedDecember 31, 2018 , primarily due to Fee-Earning Assets Under Management growth in our core+ real estate funds and BREDS insurance separately managed accounts, as well as higher management and transaction fees in BXMT. Fee Related Performance Revenues were$198.2 million for the year endedDecember 31, 2019 , an increase of$73.7 million , compared to$124.5 million for the year endedDecember 31, 2018 . The increase was primarily due to timing of crystallizations in BPPU.S. and an increase in BREIT net asset value. Fee Related Compensation was$531.3 million for the year endedDecember 31, 2019 , an increase of$71.8 million , compared to$459.4 million for the year endedDecember 31, 2018 . The increase was primarily due to increases in Management and Advisory Fees, Net and Fee Related Performance Fee Revenues on which a portion of Fee Related Compensation is based. Other Operating Expenses were$168.3 million for the year endedDecember 31, 2019 , an increase of$22.1 million , compared to$146.3 million for the year endedDecember 31, 2018 . The increase was primarily due to consulting fees and other business development costs. Net Realizations Net Realizations were$738.0 million for the year endedDecember 31, 2019 , an increase of$14.8 million , compared to$723.2 million for the year endedDecember 31, 2018 . The increase in Net Realizations was primarily attributable to an increase of$117.4 million in Realized Performance Revenues, partially offset by an increase of$89.8 million in Realized Performance Compensation and a decrease of$12.8 million in Realized Principal Investment Income. Realized Performance Revenues were$1.0 billion for the year endedDecember 31, 2019 , an increase of$117.4 million , compared to$915.0 million for the year endedDecember 31, 2018 . The increase was due to higher Realized Performance Revenues in BREP and BREDS. Realized Performance Compensation was$374.1 million for the year endedDecember 31, 2019 , an increase of$89.8 million , compared to$284.3 million for the year endedDecember 31, 2018 . The increase was due to the increase in Realized Performance Revenues. Realized Principal Investment Income was$79.7 million for the year endedDecember 31, 2019 , a decrease of$12.8 million , compared to$92.5 million for the year endedDecember 31, 2018 . The decrease was primarily due to lower Realized Principal Investment Income for BREP VI. 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:
December 31, 2019
Year Ended December 31, Inception to Date
2019 2018 2017 Realized Total
Fund (a) Gross Net Gross Net Gross Net Gross Net Gross Net
BREP IV 90% 66% -14% -12% 3% 3% 48% 28% 22% 12%
BREP V 16% 13% -6% -5% 11% 10% 15% 12% 14% 11%
BREP VI 34% 28% 7% 5% 28% 23% 18% 13% 17% 13%
BREP VII 15% 12% 3% 2% 22% 17% 31% 22% 23% 16%
BREP VIII 20% 15% 20% 14% 24% 16% 36% 26% 23% 16% BREP International II (b)(c)(d) N/A N/A 34% 29%
23% 21% 10% 8% 10% 8%
BREP Europe III (b) 1% -1% -18% -15% 25% 20% 30% 21% 23% 14%
BREP Europe IV (b) 13% 10% 20% 14% 33% 26% 32% 23% 23% 17%
BREP Europe V (b) 20% 14% 25% 17% N/M N/M 68% 51% 24% 16%
BREP Asia I 19% 14% 10% 7% 27% 19% 29% 21% 22% 15%
BREP Asia II 27% 16% N/M N/M N/A N/A N/M N/M 25% 10%
BREP
Co-Investment
(e) 20% 13% -1% - 24% 22% 17% 15% 18% 16%
BPP (f) 10% 8% 11% 10% 13% 10% N/M N/M 12% 10%
BREDS High-Yield (g) 17% 13% 9% 4% 15% 11% 15% 11% 15% 11%
BREDS High-Grade (g) 8% 7% 7% 5% N/M N/M 8% 7% 8% 6%
BREDS Liquid (h) 13% 10% 6% 4% 11% 8% N/A N/A 11% 8%
BXMT (i) N/A 25% N/A 7% N/A 16% N/A N/A N/A 14%
BREIT (j) N/A 12% N/A 8% N/A 10% 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) For the year ended
assets has resulted in the fund exceeding the preferred return.
(e) BREP
Co-Investment
represents
co-investment
capital raised for various BREP investments. The Net IRR reflected is
calculated by aggregating each
co-investment'srealized proceeds and unrealized value, as applicable, after management
fees, expenses and Performance Revenues.
(f) BPP represents the core+ real estate funds which invest with a more modest
risk profile and lower leverage.
(g) Effective
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
High-Yield and BREDS High-Grade, respectively. Prior periods have been
updated to reflect this presentation.
(h) 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
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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Table of Contents (i) Reflects annualized return of a shareholder invested in BXMT 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
BXMT. Return incorporates the closing NYSE stock price as of each period
end. Inception to date returns are from May 22, 2013 .
(j) Effective
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
updated to reflect BREIT's per share blended return. The BREIT returns
presented in filings prior to
investors.
As of December 31, 2019 , BREP IX was not above its carried interest threshold at
the fund level. However, certain BREP IX investors have a reduced management fee
due to completing their capital commitment process as of the initial closing
date, 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 December 31, 2019 : BREP
Asia II and BREDS III.
Private Equity
The following table presents the results of operations for our Private Equity
segment:
Year Ended December 31, 2019 vs. 2018 2018 vs. 2017
2019 2018 2017 $ % $ %
(Dollars in Thousands)
Management and Advisory Fees, Net
Base Management Fees $ 986,482 $ 785,223 $ 724,818 $ 201,259 26 % $ 60,405 8 %
Transaction, Advisory and Other
Fees, Net 115,174 58,165 57,624 57,009 98 % 541 1 %
Management Fee Offsets (37,327 ) (13,504 ) (18,007 ) (23,823 ) 176 % 4,503 -25 %
Total Management and Advisory
Fees, Net 1,064,329 829,884 764,435 234,445 28 % 65,449 9 %
Fee Related Compensation (423,752 ) (375,446 ) (347,562 ) (48,306 ) 13 % (27,884 ) 8 %
Other Operating Expenses (160,010 ) (133,096 ) (120,997 ) (26,914 ) 20 % (12,099 ) 10 %
Fee Related Earnings 480,567 321,342 295,876 159,225 50 % 25,466 9 %
Realized Performance Revenues 468,992 757,406 1,157,188 (288,414 ) -38 % (399,782 ) -35 %
Realized Performance Compensation (192,566 ) (318,167 ) (404,544 ) 125,601 -39 % 86,377 -21 %
Realized Principal Investment
Income 90,249 109,731 154,837 (19,482 ) -18 % (45,106 ) -29 %
Net Realizations 366,675 548,970 907,481 (182,295 ) -33 % (358,511 ) -40 %
Segment Distributable Earnings
N/M Not meaningful. Year EndedDecember 31, 2019 Compared to Year EndedDecember 31, 2018 Segment Distributable Earnings were$847.2 million for the year endedDecember 31, 2019 , a decrease of$23.1 million , compared to$870.3 million for the year endedDecember 31, 2018 . The decrease in Segment Distributable Earnings was primarily attributable to a decrease of$182.3 million in Net Realizations, partially offset by an increase of$159.2 million in Fee Related Earnings.
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Table of Contents Segment Distributable Earnings in our Private Equity segment in 2019 were lower compared to 2018, primarily driven by a decrease in Realized Performance Revenue in corporate private equity andStrategic Partners , partially offset by an increase in Fee Related Earnings from growth in Fee-Earning Assets Under Management inStrategic Partners , BIP and Tactical Opportunities. Stable underlying performance private investment in the corporate private equity portfolio was partially offset by declines in two public holdings. An increased focus on energy sustainability, including potential alternatives to fossil fuels, has exacerbated the impact of weakened market fundamentals in certain energy subsectors, particularly upstream. The persistence of these weakened market fundamentals 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 uncertainty regarding the next stage of trade negotiations between theU.S. andChina and concerns regarding the rate of global growth and the impact of the recent and rapidly evolving outbreak of the novel coronavirus in many countries. 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 forU.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 ourU.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$26.6 billion of capital across the segment in 2019. See "Part I. Item 1A. Risk Factors - Risks Related to Our Business - Difficult market and geopolitical conditions can adversely affect our business in many ways, each of which could materially reduce our revenue, earnings and cash flow and adversely affect our financial prospects and condition" and "- A period of economic slowdown, which may be across one or more industries, sectors or geographies, could contribute to adverse operating performance for certain of our funds' investments, which would adversely affect our operating results and cash flows." Fee Related Earnings Fee Related Earnings were$480.6 million for the year endedDecember 31, 2019 , an increase of$159.2 million , or 50%, compared to$321.3 million for the year endedDecember 31, 2018 . The increase in Fee Related Earnings was primarily attributable to an increase of$234.4 million in Management and Advisory Fees, Net, partially offset by increases of$48.3 million in Fee Related Compensation and$26.9 million in Other Operating Expenses. Management and Advisory Fees, Net were$1.1 billion for the year endedDecember 31, 2019 , an increase of$234.4 million compared to$829.9 million for the year endedDecember 31, 2018 , primarily driven by an increase in Base Management Fees. Base Management Fees were$986.5 million for the year endedDecember 31, 2019 , an increase of$201.3 million compared to$785.2 million for the year endedDecember 31, 2018 , primarily due to increases in Fee-Earning Assets Under Management inStrategic Partners , BIP and Tactical Opportunities. Fee Related Compensation was$423.8 million for the year endedDecember 31, 2019 , an increase of$48.3 million , compared to$375.4 million for the year endedDecember 31, 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. Other Operating Expenses were$160.0 million for the year endedDecember 31, 2019 , an increase of$26.9 million , compared to$133.1 million for the year endedDecember 31, 2018 . The increase was primarily due to consulting fees and growth in our new business initiatives, including BXLS. Net Realizations Net Realizations were$366.7 million for the year endedDecember 31, 2019 , a decrease of$182.3 million , compared to$549.0 million for the year endedDecember 31, 2018 . The decrease in Net Realizations was primarily attributable to decreases of$288.4 million in Realized Performance Revenues and$19.5 million in Realized Principal Investment Income, partially offset by a decrease of$125.6 million in Realized Performance Compensation.
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Table of Contents Realized Performance Revenues were$469.0 million for the year endedDecember 31, 2019 , a decrease of$288.4 million , compared to$757.4 million for the year endedDecember 31, 2018 . The decrease was primarily due to lower Realized Performance Revenues in corporate private equity andStrategic Partners . Realized Principal Investment Income was$90.2 million for the year endedDecember 31, 2019 , a decrease of$19.5 million , compared to$109.7 million for the year endedDecember 31, 2018 . The decrease was primarily due to a decrease of Realized Principal Investment Income in corporate private equity. Realized Performance Compensation was$192.6 million for the year endedDecember 31, 2019 , a decrease of$125.6 million , compared to$318.2 million for the year endedDecember 31, 2018 . The decrease was due to the decrease in Realized Performance Revenues. Fund Returns 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. The following table presents the internal rates of return of our significant private equity funds: December 31, 2019 Year Ended December 31, Inception to Date 2019 2018 2017 Realized Total Fund (a) Gross Net Gross Net Gross Net Gross Net Gross Net BCP IV 68% 51% 6% 5% 1% 1% 50% 36% 50% 36% BCP V -14% -4% -6% -5% 12% 9% 11% 9% 10% 8% BCP VI 4% 3% 17% 14% 27% 22% 24% 18% 17% 12% BCP VII 24% 18% 43% 28% 29% 12% 64% 45% 31% 19% BEP I - - 18% 15% 16% 13% 22% 18% 15% 12% BEP II -5% -3% 32% 20% 15% 6% 59% 43% 13% 7% BCOM -22% -23% 3% 2% -3% -4% 13% 6% 13% 6% BCEP 24% 20% N/M N/M N/M N/M 41% 37% 18% 15% Tactical Opportunities 10% 6% 13% 9% 16% 13% 23% 19% 14% 10% Tactical Opportunities Co-Investment and Other 15% 14% 13% 11% 28% 21% 26% 23% 16% 14% Strategic Partners I-V (b) - -1% 9% 6%
12% 11% N/A N/A 16% 13% Strategic Partners VI (b)
-4% -5% 18% 15% 15% 12% N/A N/A 21% 16% Strategic Partners VII (b)
12% 10% 32% 26% 103% 82% N/A N/A 30% 23% Strategic Partners Real Assets II (b)
21% 17% 33% 22% N/M N/M N/A N/A 23% 17%
Strategic Partners Real Estate ,
SMA and Other (b) 19% 18% 15% 13% 22% 17% N/A N/A 21% 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.
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Table of Contents 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 December 31, 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. Hedge Fund Solutions The following table presents the results of operations for ourHedge Fund Solutions segment: Year Ended December 31, 2019 vs. 2018 2018 vs. 2017 2019 2018 2017 $ % $ % (Dollars in Thousands) Management Fees, Net Base Management Fees$ 556,730 $ 519,782 $
516,048
3,533 3,180 2,980 353 11% 200 7%
Management Fee Offsets (138 ) (93 ) (93 ) (45 ) 48% - -
Total Management Fees, Net 560,125 522,869 518,935 37,256 7% 3,934 1%
Fee Related Compensation (151,960 ) (162,172 ) (146,924 ) 10,212 -6% (15,248 ) 10%
Other Operating Expenses (81,999 ) (77,772 ) (68,265 ) (4,227 ) 5% (9,507 ) 14%
Fee Related Earnings 326,166 282,925 303,746 43,241 15% (20,821 ) -7%
Realized Performance Revenues 126,576 42,419 154,343 84,157 198% (111,924 ) -73%
Realized Performance Compensation (24,301 ) (21,792 ) (40,707 ) (2,509 ) 12% 18,915 -46% Realized Principal Investment Income 21,707
17,039 9,074 4,668 27% 7,965 88%
Net Realizations 123,982 37,666 122,710 86,316 229% (85,044 ) -69%
Segment Distributable Earnings
426,456$ 129,557 40%$ (105,865 ) -25% N/M Not meaningful.
Year EndedDecember 31, 2019 Compared to Year EndedDecember 31, 2018 Segment Distributable Earnings were$450.1 million for the year endedDecember 31, 2019 , an increase of$129.6 million , or 40%, compared to$320.6 million for the year endedDecember 31, 2018 . The increase in Segment Distributable Earnings was primarily attributable to increases of$86.3 million in Net Realizations and$43.2 million in Fee Related Earnings. Segment Distributable Earnings in our Hedge Fund Solutions segment in 2019 were higher compared to 2018. This increase was primarily driven by an increase in Realized Performance Revenues due to higher returns across a number of strategies in 2019 compared to 2018, and growth in Fee-Earning Assets Under Management in
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Table of Contents individual investor and specialized solutions and a reduction in placement fees, which offset Base Management Fees. 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, or a prolonged weak equity market environment, which may be caused by concerns over macroeconomic and geopolitical factors such as uncertainty regarding the next stage of trade negotiations between theU.S. andChina and concerns regarding the rate of global growth and the impact of the recent and rapidly evolving outbreak of the novel coronavirus in many countries. See "Part I. Item 1A. Risk Factors - Risks Related to Our Business - Difficult market and geopolitical conditions can adversely affect our business in many ways, each of which could materially reduce our revenue, earnings and cash flow and adversely affect our financial prospects and condition," "- A period of economic slowdown, which may be across one or more industries, sectors or geographies, could contribute to adverse operating performance for certain of our funds' investments, which would adversely affect our operating results and cash flows" and "- Hedge fund investments are subject to numerous additional risks." In an equity market environment that has in recent years been characterized by relatively low volatility, investors may choose to reallocate capital away from traditional hedge fund strategies. Our Hedge Fund Solutions 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. In that regard, the segment's revenues will depend in part on our ability to successfully grow such existing diverse business lines and strategies, and identify new ones to meet evolving investor appetites. 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. Fee Related Earnings Fee Related Earnings were$326.2 million for the year endedDecember 31, 2019 , an increase of$43.2 million , or 15%, compared to$282.9 million for the year endedDecember 31, 2018 . The increase in Fee Related Earnings was primarily attributable to an increase of$37.3 million in Management Fees, Net and a decrease of$10.2 million in Fee Related Compensation. Management Fees, Net were$560.1 million for the year endedDecember 31, 2019 , an increase of$37.3 million , compared to$522.9 million for the year endedDecember 31, 2018 , primarily driven by an increase in Base Management Fees. Base Management Fees were$556.7 million for the year endedDecember 31, 2019 , an increase of$36.9 million , compared to$519.8 million for the year endedDecember 31, 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. Fee Related Compensation was$152.0 million for the year endedDecember 31, 2019 , a decrease of$10.2 million , compared to$162.2 million for the year endedDecember 31, 2018 . The decrease was primarily due to changes in compensation accruals. Net Realizations Net Realizations were$124.0 million for the year endedDecember 31, 2019 , an increase of$86.3 million , or 229%, compared to$37.7 million for the year endedDecember 31, 2018 . The increase in Net Realizations was primarily attributable to an increase of$84.2 million in Realized Performance Revenues. Realized Performance Revenues were$126.6 million for the year endedDecember 31, 2019 , an increase of$84.2 million , compared to$42.4 million for the year endedDecember 31, 2018 . The increase was primarily driven by higher returns across a number of strategies, including customized solutions, commingled products and individual investor and specialized solutions, compared to the year endedDecember 31, 2018 .
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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
Under Management Mark/Benchmark (a)
December 31, December 31,
2019 2018 2017 2019 2018 2017
(Dollars in Thousands)
Hedge Fund Solutions Managed
Funds (b) $ 43,789,081 $ 42,393,275 $ 41,238,330 91% 46% 91%
(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
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 theirrespective 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
incremental appreciation needed for the 9% of Invested Performance Revenue
Eligible Assets Under Management below their respective High Water
Marks/Benchmarks to reach their respective High Water Marks/Benchmarks was
Management below their respective High Water Marks/Benchmarks as of
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 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:
Average Annual Returns (a)
Periods Ended
One Year Three Year Five Year Historical
Composite Gross Net Gross Net Gross Net Gross Net
BAAM Principal Solutions Composite (b) 8% 7% 6% 5% 5% 4% 7% 6%
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
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-payingassets (in the case of net returns) are excluded from the composite. The
historical return is from January 1, 2000 .
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Credit
The following table presents the results of operations for our Credit segment:
Year Ended December 31, 2019 vs. 2018 2018 vs. 2017
2019 2018 2017 $ % $ %
(Dollars in Thousands)
Management Fees, Net
Base Management Fees $ 586,535 $ 553,921 $
567,334
19,882 15,640 13,431 4,242 27% 2,209 16%
Management Fee Offsets (11,813 ) (12,332 ) (32,382 ) 519 -4% 20,050 -62%
Total Management Fees, Net 594,604 557,229 548,383 37,375 7% 8,846 2% Fee Related Performance Revenues
13,764 (666 ) 89,945 14,430 N/M (90,611 ) N/M
Fee Related Compensation (229,607 ) (219,098 ) (253,842 ) (10,509 ) 5% 34,744 -14%
Other Operating Expenses (160,801 ) (131,200 ) (99,562 ) (29,601 ) 23% (31,638 ) 32%
Fee Related Earnings 217,960 206,265 284,924 11,695 6% (78,659 ) -28%
Realized Performance Revenues 32,737 96,962 194,902 (64,225 ) -66% (97,940 ) -50% Realized Performance Compensation
(12,972 ) (53,863 ) (100,834 ) 40,891 -76% 46,971 -47% Realized Principal Investment Income 32,466
16,763 16,380 15,703 94% 383 2%
Net Realizations 52,231 59,862 110,448 (7,631 ) -13% (50,586 ) -46%
Segment Distributable Earnings
395,372$ 4,064 2%$ (129,245 ) -33% N/M Not meaningful. Year EndedDecember 31, 2019 Compared to Year EndedDecember 31, 2018 Segment Distributable Earnings were$270.2 million for the year endedDecember 31, 2019 , an increase of$4.1 million , compared to$266.1 million for the year endedDecember 31, 2018 . The increase in Segment Distributable Earnings was primarily attributable to an increase of$11.7 million in Fee Related Earnings, partially offset by a decrease of$7.6 million in Net Realizations. Segment Distributable Earnings in our Credit segment in 2019 were higher compared to 2018, driven in part by higher Fee Related Earnings as a result of the launch of several GSO and BIS funds in 2019, as well as a full year of management fees from the BDC. This was partially offset by lower Realized Performance Revenue due to a mezzanine fund crossing its carry threshold at the end of 2017, which resulted in higher Realized Performance in 2018 compared to 2019. In a distressed market that continues to be challenged, our performing credit strategies delivered a 13% gross return in 2019 and our distressed strategies declined 4.0%, largely driven by decreases in certain upstream energy positions. An increased focus on energy sustainability, including potential alternatives to fossil fuels, has exacerbated the impact of weakened market fundamentals in certain energy subsectors, particularly upstream. The persistence of weakened market fundamentals in the energy sector or in the credit markets more broadly, including as a result of concerns regarding the impact of the recent and rapidly evolving outbreak of the novel coronavirus in many countries, would negatively impact the performance of certain Credit segment investments. Our Credit segment deployed$10.2 billion of capital in 2019. See "Part I. Item 1A. Risk Factors - Risks Related to Our Business - Difficult market and geopolitical conditions can adversely affect our business in many ways, each of which could materially reduce our revenue, earnings and cash flow and adversely affect our financial prospects and condition" and "- A period of economic slowdown, which may be across one or more industries, sectors or geographies, could contribute to adverse operating performance for certain of our funds' investments, which would adversely affect our operating results and cash flows."
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Table of Contents Fee Related Earnings Fee Related Earnings were$218.0 million for the year endedDecember 31, 2019 , an increase of$11.7 million , compared to$206.3 million for the year endedDecember 31, 2018 . The increase in Fee Related Earnings was primarily attributable to increases of$37.4 million in Management Fees, Net and$14.4 million in Fee Related Performance Revenues, partially offset increases of$29.6 million in Other Operating Expenses and$10.5 million in Fee Related Compensation. Management Fees, Net were$594.6 million for the year endedDecember 31, 2019 , an increase of$37.4 million , compared to$557.2 million for the year endedDecember 31, 2018 , primarily driven by an increase in Base Management Fees. Base Management Fees were$586.5 million for the year endedDecember 31, 2019 , an increase of$32.6 million , compared to$553.9 million for the year endedDecember 31, 2018 . The increase was primarily due to the launch of several GSO and BIS funds subsequent to the year endedDecember 31, 2018 , including successor flagship funds and multiple long only funds, as well as a full year of management fees on our BDC, partially offset by the receipt of a fixed payment in the first quarter of 2018 in connection with the conclusion of our sub-advisory relationship with FS Investments. Fee Related Performance Revenues were$13.8 million for the year endedDecember 31, 2019 , an increase of$14.4 million , compared to$(0.7) million for the year endedDecember 31, 2018 . The increase was due to the ramp up of our BDC. Other Operating Expenses were$160.8 million for the year endedDecember 31, 2019 , an increase of$29.6 million , compared to$131.2 million for the year endedDecember 31, 2018 . The increase was primarily due to the growth in our new business initiatives, including BIS and the direct lending platform. Fee Related Compensation was$229.6 million for the year endedDecember 31, 2019 , an increase of$10.5 million , compared to$219.1 million for the year endedDecember 31, 2018 . The increase was primarily due to the increase in Management Fees, Net, on which a portion of Fee Related Compensation is based. Net Realizations Net Realizations were$52.2 million for the year endedDecember 31, 2019 , a decrease of$7.6 million , compared to$59.9 million for the year endedDecember 31, 2018 . The decrease in Net Realizations was primarily attributable to a decrease of$64.2 million in Realized Performance Revenues, partially offset by a decrease of$40.9 million in Realized Performance Compensation and an increase of$15.7 million in Realized Principal Investment Income. Realized Performance Revenues were$32.7 million for the year endedDecember 31, 2019 , a decrease of$64.2 million , compared to$97.0 million for the year endedDecember 31, 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 year endedDecember 31, 2018 compared to the year endedDecember 31, 2019 . Realized Performance Compensation was$13.0 million for the year endedDecember 31, 2019 , a decrease of$40.9 million , compared to$53.9 million for the year endedDecember 31, 2018 . The decrease was due to the decrease in Realized Performance Revenues. Realized Principal Investment Income was$32.5 million for the year endedDecember 31, 2019 , an increase of$15.7 million , compared to$16.8 million for the year endedDecember 31, 2018 . The increase was driven by the realized gain on our Corporate Treasury Investments. 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.
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The following table presents combined internal rates of return of the segment's
performing credit and distressed strategies funds:
Inception to
Year Ended December 31, December 31, 2019
2019 2018 2017 Total
Composite (a) Gross Net Gross Net Gross Net Gross Net
Performing Credit Strategies (b) 13% 10% 9% 6% 11% 6% 14% 9%
Distressed Strategies (c) -4% -6% -2% -2% 9% 6% 10% 6%
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
well as the Blackstone Funds that were contributed to GSO as part of
Blackstone's acquisition of GSO in
Performing Credit Strategies' returns exclude funds in liquidation. The
inception to date returns are from
updated to reflect this presentation.
(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
Effective
liquidation. The inception to date returns are from
periods have been updated to reflect this presentation.
As of December 31, 2019 , there was $18.7 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 38% of the total Performance Revenue Eligible Assets Under
Management across all Credit strategies.
Non-GAAP
Financial Measures
These
non-GAAP
financial measures are presented without the consolidation of any Blackstone
Funds that are consolidated into the 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.
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Table of Contents The following table is a reconciliation of Net Income Attributable toThe Blackstone Group Inc. to Distributable Earnings, Total Segment Distributable Earnings, Fee Related Earnings and Adjusted EBITDA: [[Image Removed]]
(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 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.
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Table of Contents (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.
Year Ended December 31,
2019 2018 2017
(Dollars in Thousands)
GAAP Unrealized Performance Allocations
336 (210 ) 41
Unrealized Performance Revenues $ 1,126,668 $ 561,163 $ (105,432 ) (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.
Year Ended December 31,
2019 2018 2017
(Dollars in Thousands)
GAAP Unrealized Principal Investment Income
(101,676 ) (115,768 ) (173,811 )
Unrealized Principal Investment Income (Loss)
(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 year
ended
of Other Revenues received upon the conclusion of Blackstone's investment
sub-advisory
relationship with FS Investments' funds.
Year Ended December 31,
2019 2018 2017
(Dollars in Thousands)
GAAP Other Revenue $ 79,993 $ 672,317 $ (133,229 )
Segment Adjustment (546 ) (582,849 ) (6,822 )
Other Revenues $ 79,447 $ 89,468 $ (140,051 ) (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
(Benefit) 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.
Year Ended December 31,
2019 2018 2017
(Dollars in Thousands)
Taxes $ 140,416 $ 90,022 $ 101,531
Related Payables 55,743 63,843 88,457
Taxes and Related Payables $ 196,159 $ 153,865 $ 189,988
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Table of Contents (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.
Year Ended December 31,
2019 2018 2017
(Dollars in Thousands)
GAAP Interest and Dividend Revenue $ 182,398 $ 171,947 $ 139,696
Segment Adjustment 10,195 9,816 3,224
Interest and Dividend Revenue 192,593 181,763 142,920
GAAP Interest Expense 199,648 163,990 197,486
Segment Adjustment (4,614 ) (4,152 ) (4,648 )
Interest Expense 195,034 159,838 192,838
Net Interest Income (Loss) $ (2,441 ) $ 21,925 $ (49,918 ) (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.
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:
December 31,
2019 2018
(Dollars in Thousands)
Investments of Consolidated Blackstone Funds $ 8,380,698 $ 8,376,338
Equity Method Investments
Partnership Investments 4,035,675 3,649,423
Accrued Performance Allocations 7,180,449
5,883,924
Corporate Treasury Investments 2,419,587 2,206,493 Other Investments 265,273 260,853 Total GAAP Investments$ 22,281,682 $ 20,377,031 Accrued Performance Allocations - GAAP$ 7,180,449 $
5,883,924
Impact of Consolidation (a) 384
-
Due From Affiliates - GAAP (b) 154,980
33,419
Less: Accrued Performance Compensation - GAAP (c) (3,021,899 ) (2,394,747 )
Net Accrued Performance Revenues$ 4,313,914 $ 3,522,596
(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.
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Table of Contents Liquidity and Capital ResourcesGeneral 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 that 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 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$32.6 billion as ofDecember 31, 2019 , an increase of$3.7 billion , or 13%, fromDecember 31, 2018 . The increase in total assets was principally due to an increase of$3.6 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$1.9 billion in Investments,$595.2 million in Due from Affiliates and$471.1 million in Right-of-Use Assets. The increase in Investments was primarily due to appreciation in the value of Blackstone's interests in its real estate and private equity investments. The increase in Due from Affiliates was primarily due to management fees, performance revenues and reimbursable expenses from non-consolidated entities and portfolio companies. EffectiveJanuary 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 Consolidated Financial Statements" in "- Item 8. Financial Statements and Supplementary Data" of this filing. The adoption resulted in the recognition of Right-of-Use Assets of$471.1 million as ofDecember 31, 2019 . The other net variances of the assets attributable to the consolidated operating partnerships were relatively unchanged. Total liabilities were$17.5 billion as ofDecember 31, 2019 , an increase of$2.3 billion , or 15%, fromDecember 31, 2018 . The increase in total liabilities was principally due to an increase of$2.4 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$1.1 billion in Loans Payable,$853.9 million in Accrued Compensation and Benefits and$543.0 million in Operating Lease Liability. The increase in Loans Payable was due to the issuance of € 600 million of notes onApril 10, 2019 and$500 million and$400 million of notes onSeptember 10, 2019 . The increase in Accrued Compensation and Benefits was primarily due to an increase in performance compensation. EffectiveJanuary 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$543.0 million as ofDecember 31, 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 our businesses, the proceeds from our issuances of senior notes, liquid investments we hold on our balance sheet and access to our$1.6 billion committed revolving credit facility. As ofDecember 31, 2019 , Blackstone had$2.2 billion in cash and cash equivalents,$2.4 billion invested in corporate treasury investments, against$4.7 billion in borrowings from our bond issuances, and no borrowings outstanding under our revolving credit facility.
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Table of Contents OnApril 10, 2019 , Blackstone issued € 600 million aggregate principal amount of 1.500% Senior Notes maturing onApril 10, 2029 . OnSeptember 3, 2019 , Blackstone commenced the Tender Offer for any and all of its 2021 Notes. OnSeptember 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 onSeptember 10, 2019 . OnOctober 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. OnSeptember 10, 2019 , Blackstone issued$500 million aggregate principal amount of 2.500% Senior Notes maturing onJanuary 10, 2030 and$400 million aggregate principal amount of 3.500% Senior Notes maturing onSeptember 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 notes offerings and availability under our 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 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, (c) pay operating expenses, including cash compensation to our employees, and other obligations as they arise, (d) fund modest capital expenditures, (e) repay borrowings and related interest costs, (f) pay income taxes, (g) repurchase share of our common stock and Blackstone Holdings Partnership Units pursuant to our repurchase program and (h) pay dividends to our shareholders and distributions to the holders of Blackstone Holdings Partnership Units.
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Table of Contents
Our own capital commitments to our funds, the funds we invest in and our
investment strategies as of
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 56,952 100,000 18,984
BREP IX 300,000 246,615 100,000 82,205
BREP Europe III 100,000 13,231 35,000 4,410
BREP Europe IV 130,000 23,540 43,333 7,847
BREP Europe V 150,000 34,995 43,333 10,110
BREP Europe VI 130,000 122,768 43,333 40,923
BREP Asia I 50,000 14,806 16,667 4,935
BREP Asia II 70,707 47,267 23,569 15,756
BREDS II 50,000 6,227 16,667 2,076
BREDS III 50,000 21,545 16,667 7,182
BREDS IV 50,000 50,000 - -
BPP 75,994 5,327 - -
Other (b) 9,752 3,054 - -
Private Equity
BCP V 629,356 30,642 - -
BCP VI 719,718 91,540 250,000 31,797
BCP VII 500,000 164,618 225,000 74,078
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 80,000 80,000 26,667 26,667
BCEP 120,000 35,179 18,992 5,568
BCP Asia 40,000 26,675 13,333 8,892
Tactical Opportunities 408,657 208,225 136,219 69,408
Strategic Partners 737,539 463,092 90,627 52,595
BIP 168,632 139,709 - -
BXLS 10,500 6,780 - -
Other (b) 265,974 34,676 - -
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 83,379 - -
Strategic Holdings II LP 50,000 50,000 - -
Other (b) 3,239 1,667 - -
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)
Credit
Capital Opportunities Fund II LP $ 120,000 $ 30,218 $ 110,101 $ 27,726
Capital Opportunities Fund III LP 130,783 68,905 30,688 16,569
GSO European Senior Debt Fund LP 63,000 16,547 56,992 14,969
GSO European Senior Debt Fund II LP 77,182 69,773 26,989 25,657
GSO Capital Solutions 50,000 5,008 27,666 2,771
GSO Capital Solutions II 125,000 51,695 119,959 49,610
GSO Capital Solutions III 151,000 123,656 31,395 26,923
GSO Energy Select Opportunities Fund 80,000 41,247 74,741 38,535
GSO Energy Select Opportunities Fund II 150,000 139,917 25,222 23,523
GSO Credit Alpha Fund LP 52,102 7,465 50,394 7,221
GSO Credit Alpha Fund II LP 25,500 15,701 5,907 3,626
Blackstone / GSO Secured Lending Fund 64,500 31,650 - -
Other (b) 164,378 49,883 21,515 3,913
Other
Treasury (c) 748,854 512,352 - -
$ 8,408,977 $ 3,810,449 $ 2,132,643 $ 950,743 (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 may be required to
fund a de minimis amount of the commitment in certain 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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Table of Contents As ofDecember 31, 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) 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 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.
Blackstone, through its indirect subsidiary Blackstone Holdings Finance Co.
L.L.C. , 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.
On July 16, 2019 , our board of directors authorized the repurchase of up to
$1.0 billion of Class A common stock and Blackstone Holdings Partnership Units.
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 number 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 year ended December 31, 2019 , we repurchased 12.8 million shares of
Class A common stock as part of the repurchase program at a total cost of
$561.9 million . As of December 31, 2019 , the amount remaining available for
repurchases under the program was $781.2 million .
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 our board
of directors to be necessary or appropriate to provide for the conduct of our
business, to make
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Table of Contents appropriate investments in our business and funds, to comply with applicable law, any of our 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 byThe Blackstone Group Inc. to common shareholders in respect of each fiscal year are generally expected to be less, on a per share or per unit basis, than the amounts distributed by theBlackstone 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 share or per unit 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. The following graph shows fiscal quarterly and annual per common shareholder dividends for 2017, 2018 and 2019. Dividends are declared and paid in the quarter subsequent to the quarter in which they are earned. [[Image Removed]] With respect to fiscal year 2019, we paid to shareholders of our Class A common stock a dividend of$0.37 ,$0.48 ,$0.49 and$0.61 per share in respect of the first, second, third and fourth quarters, respectively, aggregating$1.95 per share. With respect to fiscal years 2018 and 2017, we paid to shareholders of our Class A common stock an aggregate dividend of$2.15 per share and$2.70 per share, respectively. The dividend for each of the second, third and fourth quarter of 2018 was$0.58 ,$0.64 and$0.58 , respectively, and in each case included a$0.10 per share dividend from a portion of the after-tax proceeds received in connection with the conclusion of Blackstone's sub-advisory relationship with FS Investments.
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Leverage
We may under certain circumstances use leverage opportunistically and over time
to create the most efficient capital structure for Blackstone and our
shareholders. In addition to the borrowings from our notes 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 the 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.
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 Consolidated Statements of Financial Condition:
Securities
Repurchase Sold, Not Yet
Agreements Purchased
(Dollars in Millions)
Balance, December 31, 2019 $ 154.1 $ 75.5
Balance, December 31, 2018 $ 222.2 $ 142.6
Year Ended December 31, 2019
Average Daily Balance $ 191.4 $ 112.8
Maximum Daily Balance $ 224.6 $ 142.9
Critical Accounting Policies
We prepare our 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 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
Consolidated Financial Statements" in "- Item 8. Financial Statements and
Supplementary Data" of this filing.
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Table of Contents 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 Consolidated Financial Statements" in "- Item 8. Financial Statements and Supplementary Data" for detailed information on Blackstone's 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 aBlackstone Fund or investment vehicle significantly changes the presentation of our consolidated financial statements. In our 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 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 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 TheBlackstone Group Inc. The assessment of whether we consolidate aBlackstone Fund or investment vehicle 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 theright 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 Consolidated Financial Statements" in "- Item 8. Financial Statements and
Supplementary Data." 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 - Fee
Structure/Incentive Arrangements." 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:
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Table of Contents 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 1.50% 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:
• 0.30% to 1.50% of net asset value.
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 on 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.
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Table of Contents 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. 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 Consolidated Financial Statements" in "- Item 8. Financial Statements and Supplementary Data" 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 theAmerican 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 investments where little market activity exists management's determination of fair value is based on the best information available in the circumstances, which may incorporate management's own assumptions and involves a significant degree of judgment, and the consideration of 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 arePublicly 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
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Table of Contents 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. Management Process on Fair Value Due to the importance of fair value throughout the 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 and where Blackstone has information rights, we generally have a direct line of communication with each of thePortfolio Company finance teams and collect financial data used to support projections used in a discounted cash flow analysis. The respective businesses' valuation team then analyzes the data received and updates the valuation models reflecting any changes in the underlying 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 byBlackstone Fund and investment vehicles are reviewed and approved by the relevant business unit's valuation sub-committee, which is comprised of key personnel from the business unit, 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. To further corroborate our results, we also generally obtain either a positive assurance opinion or a range of value by an independent valuation party, at least annually for all investments and quarterly for certain investments. Our firmwide valuation committee, chaired by our Chief Financial Officer and comprised of senior heads of our businesses and representatives from legal and finance, reviews the valuation process for investments held by us and our investment vehicles, including the application of appropriate valuation standards on a consistent basis. Each quarter, the valuations of the investment portfolios of Blackstone Funds are presented to the audit committee of our board of directors, which is comprised of our non-employee directors. Income Tax For a description of our accounting policy on taxes and additional information on taxes see Note 2. "Summary of Significant Accounting Policies" and Note 15. "Income Taxes", respectively, in the "Notes to Consolidated Financial Statements" in "- Item 8. Financial Statements and Supplementary Data" of this filing. 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 year, 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.
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Additionally, significant judgment is required in estimating the provision for
(benefit from) income taxes, current and deferred tax balances (including
valuation allowance), 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 necessary
for recovery. 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.
Further disclosure on our
off-balance
sheet arrangements is presented in the "Notes to Consolidated Financial
Statements" in "- Item 8. Financial Statements and Supplementary Data" of this
filing as follows:
• Note 9. "Variable Interest Entities", and
• Note 19. "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 Consolidated Financial Statements" in "- Item 8. Financial
Statements and Supplementary Data" 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. We are actively evaluating operational and other impacts of such
changes and managing transition efforts accordingly. See "Part I. Item 1A. Risk
Factors - Risks Related to Our Business - Interest rates on our and our
portfolio companies' outstanding financial instruments might be subject to
change based on regulatory developments, which could adversely affect our
revenue, expenses and the value of those financial instruments."
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Contractual Obligations, Commitments and Contingencies
The following table sets forth information relating to our contractual
obligations as of
Contractual Obligations 2020 2021-2022
2023-2024 Thereafter Total
(Dollars in Thousands)
Operating Lease Obligations (a) $ 90,569 $ 208,113 $ 182,780 $ 259,311 $ 740,773
Purchase Obligations 39,958 24,388 24 - 64,370
Blackstone Issued Notes and
Revolving Credit
Facility (b) - - 400,000 4,281,950 4,681,950
Interest on Blackstone Issued Notes
and Revolving Credit Facility (c) 146,697 293,395 264,895 1,889,567 2,594,554
Blackstone Funds and CLO Vehicles
Debt Obligations Payable (d) 113 - - 6,859,535 6,859,648
Interest on Blackstone Funds and CLO
Vehicles Debt Obligations Payable
(e) 231,786 463,571 463,571 1,237,518 2,396,446
Blackstone Funds Capital Commitments
to Investee Funds (f) 79,950 - - - 79,950
Due to Certain
Non-Controlling
Interest Holders in Connection with
Tax Receivable Agreements (g) 70,987 78,323 64,233 467,967 681,510
Unrecognized Tax Benefits, Including
Interest and Penalties (h) 912 - - - 912
Blackstone Operating Entities
Capital Commitments to Blackstone
Funds and Other (i) 3,810,449 - - - 3,810,449
Consolidated Contractual Obligations 4,471,421 1,067,790 1,375,503 14,995,848 21,910,562
Blackstone Funds and CLO Vehicles
Debt Obligations Payable (d) (113 ) - - (6,859,535 ) (6,859,648 )
Interest on Blackstone Funds and CLO
Vehicles Debt Obligations Payable
(e) (231,786 ) (463,571 ) (463,571 ) (1,237,518 ) (2,396,446 )
Blackstone Funds Capital Commitments
to Investee Funds (f) (79,950 ) - - - (79,950 )
Blackstone Operating Entities
Contractual Obligations $ 4,159,572 $ 604,219 $ 911,932 $ 6,898,795 $ 12,574,518 (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
December 31, 2019 , we had no outstanding borrowings under our revolver.
(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.
(d) These obligations are those of the Blackstone Funds including the
consolidated CLO vehicles.
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Table of Contents (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
agreements, and range from 2.6% to 8.4%. 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 Consolidated Financial Statements and shown
in Note 18. "Related Party Transactions" (see "- Item 8. Financial Statements
and Supplementary Data") 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
interest and penalties of
to make a reasonably reliable estimate of the timing of payments in
individual years in connection with gross unrecognized benefits of
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 19. "Commitments and Contingencies - Contingencies - Guarantees" in the "Notes to Consolidated Financial Statements" in "- Item 8. Financial Statements and Supplementary Data" 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 Consolidated Financial Statements as ofDecember 31, 2019 . 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.
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Table of Contents 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. As ofDecember 31, 2019 , the total clawback obligations were$126.9 million , of which$105.3 million was related toBlackstone Holdings and$21.6 million was related to current and former Blackstone personnel. The split of clawback betweenBlackstone 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, atDecember 31, 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$7.2 billion , on an after-tax basis where applicable, of whichBlackstone 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 18. "Related Party Transactions" and Note 19. "Commitments and Contingencies" in the "Notes to Consolidated Financial Statements" in "- Item 8. Financial Statements and Supplementary Data" of this filing. Item 7A. 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. See "Part I. - Item 1. Business - Investment Process and Risk Management." Effect on Fund Management Fees Our management fees are based on (a) third parties' capital commitments to aBlackstone Fund , (b) third parties' capital invested in aBlackstone Fund or (c) the net asset value, or NAV, of aBlackstone Fund , as described in our Consolidated Financial Statements. Management fees will only be directly affected by short-term changes in market conditions to the extent they are based 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 years endedDecember 31, 2019 andDecember 31, 2018 , the percentages of our fund management fees based on the NAV of the applicable funds or separately managed accounts, were as follows: Year Ended
2019 2018
Fund Management Fees Based on the NAV of the Applicable Funds or Separately Managed Accounts 35 % 38 % Market Risk The Blackstone Funds hold investments which are reported at fair value. Based on the fair value as ofDecember 31, 2019 andDecember 31, 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:
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December 31,
2019 2018
Performance Performance
Revenues, Net Revenues, Net
of Related 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 $ 129,020 $ 1,659,753 $ 177,934 $ 104,582 $ 1,475,206 $ 199,072 (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:
December 31, 2019
Total Assets Under Management,
Excluding Undrawn Capital Percentage Amount
Commitments and the Amount of Classified as Level III
Capital Raised for CLOs Investments
(Dollars in Thousands)
Real Estate $ 115,766,929 87%
Private Equity $ 87,325,460 67%
Hedge Fund Solutions $ 78,205,986 10%
Credit $ 79,522,359 28%
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" above. Also see "- Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Critical Accounting Policies - 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 our carry funds (and certain other of our 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 December 31, 2019
and December 31, 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:
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December 31,
2019 2018
Performance Performance
Revenues, Net Revenues, Net
of Related 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 $ 22,883 $ 555,767 $ 43,802 $ 18,289 $ 339,152 $ 32,810 (a) Represents the annualized effect of the 10% decline.
(b) Represents the reporting date effect of the 10% decline.
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 ofDecember 31, 2019 andDecember 31, 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:December 31, 2019 2018 (Dollars
in Thousands) Annualized Increase in Interest Expense Due to a One Percentage Point Increase in Interest Rates (a)
$ - $ -
(a) As of
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:
December 31,
2019 2018
Annualized Annualized
Increase in Increase in
Annualized Interest Annualized Interest
Decrease in Income from Decrease in Income from
Investment Floating Rate Investment Floating Rate
Income Assets Income Assets
(Dollars in Thousands)
One Percentage Point Increase in
Interest Rates $ 6,855 (a) $ 28,404 $ 6,641 (a) $ 24,602
(a) As of
portfolio of liquid assets, respectively.
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Table of Contents Blackstone hasU.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 ofDecember 31, 2019 andDecember 31, 2018 , a one percentage point increase parallel shift in global yield curves would result in the following impact on Other Revenue: December 31, 2019 2018 (Dollars in Thousands) Annualized Increase in Other Revenue Due to a One Percentage Point Increase in Interest Rates$ 13,957 $ 14,210 Credit Risk Certain Blackstone Funds and the Investee Funds are subject to certain inherent risks through their investments. Our portfolio of liquid assets contains 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: December 31, 2019 2018 (Dollars in Thousands)
Decrease in Annualized Investment Income Due to a One Percentage Point Increase in Credit Spreads (a)
$ 42,135 $ 52,051
(a) As of
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.
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