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 2020 and 2019 items and year to year comparisons between 2020 and 2019. For the discussion of 2019 compared to 2018 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, 2019 , 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 common stock. All references to dividends prior to the Conversion refer to distributions. See "- Organizational Structure." 78
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Table of Contents EffectiveJanuary 1, 2020 , the Credit segment was renamed Credit & Insurance. There was no change to the composition of the segment or historical results. EffectiveFebruary 26, 2021 , Blackstone effectuated changes to rename its Class A common stock as "common stock," and to reclassify its Class B and Class C common stock into a new "Series I preferred stock" and "Series II preferred stock," respectively. Each new stock has the same rights and powers of its predecessor. See "Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Organizational Structure" and "Part II. Item 9B. Other Information." 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 the
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.
OurBlackstone 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 onEurope orAsia 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, office, rental housing, 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 commercial real estate and mezzanine loans, residential mortgage loan pools and liquid real estate-related debt 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").Blackstone Real Estate began its Core+ strategy in 2013. Blackstone's Core+ strategy invests in substantially stabilized real estate globally through regional open-ended funds focused on high-quality assets, theBlackstone Property Partners funds ("BPP"), andBlackstone Real Estate Income Trust, Inc. ("BREIT"), a non-listed REIT which was launched in 2017 and invests inU.S. income-generating assets. InNovember 2020 , we launchedBlackstone BioMed Life Science Real Estate L.P. ("BPP Life Sciences"), a long-term, perpetual capital, core+ return fund that ownsBioMed Realty and is focused on life science office investments primarily across theU.S.
• 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), (c) our
Partners ("BCEP"). In addition, our Private Equity segment includes (a) our
opportunistic investment platform that invests globally across asset
classes, industries and geographies, Blackstone Tactical Opportunities
("Tactical Opportunities"), (b) our secondary fund of funds business,
Strategic Partners Fund Solutions ("
infrastructure-focused funds,
(d) our life sciences private investment platform, Blackstone Life Sciences
("BXLS"), (e) our growth equity investment platform, Blackstone Growth
("BXG"), (f) our 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").
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Table of Contents We are a global 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 funds target 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 infrastructure, transportation, digital infrastructure, and water and waste with a primary focus in theU.S. BXLS is our private investment platform with capabilities to invest across the life cycle of companies and products within the life sciences sector. BXG seeks to deliver attractive risk-adjusted returns by investing in dynamic, growth-stage businesses, with a focus on the consumer, enterprise solutions, financial services and healthcare sectors.
• 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. The
Hedge Fund 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
& Insurance.The principal component of our Credit & Insurance segment is Blackstone
Credit ("BXC"), formerly known as
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 BXC 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.
BXC is organized into two overarching strategies: private credit and liquid credit. Private credit strategies include mezzanine lending funds, middle market direct lending funds (includingBlackstone Secured Lending Fund ("BXSL") andBlackstone Private Credit Fund ("BCRED"), both of which are business development companies ("BDCs")), our structured products group, stressed/distressed strategies (including stressed/distressed funds and credit alpha strategies) and energy strategies. Liquid credit strategies consist of CLOs, closed-ended funds, open-ended funds and separately managed accounts. InDecember 2020 , BXC acquiredDCI LLC ("DCI"), aSan Francisco based systematic credit investment firm. As part of the transaction, DCI will be integrated into BXC as systematic strategies within its liquid credit strategies unit. Our Credit & Insurance segment includes our insurer-focused platform,Blackstone Insurance Solutions ("BIS"). BIS focuses on providing full investment management services for insurers' general accounts, delivering customized and diversified portfolios that include allocations to Blackstone managed products and strategies across asset classes and Blackstone's private credit origination capabilities. BIS provides its clients tailored portfolio construction and strategic asset allocation, seeking to generate risk-managed, capital-efficient returns, diversification and capital preservation that meets clients' objectives. BIS also provides similar services to clients through separately managed accounts or by sub-managing assets for certain insurance-dedicated funds and special purpose vehicles.
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Our Credit & Insurance segment also includes our publicly traded midstream
energy infrastructure and master limited partnership ("MLP") investment
platform, which is managed by Harvest Fund Advisors LLC ("Harvest"). Harvest
primarily invests capital raised from institutional investors in separately
managed accounts and pooled vehicles, investing in publicly traded energy
infrastructure and MLPs holding primarily midstream energy assets in North
America .
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.
Our Response to
COVID-19
As the global response to novel coronavirus
("COVID-19")
continues to evolve, our primary focus has been the safety and wellbeing of our
employees and their families, as well as the seamless functioning of the firm in
serving our limited partner investors who have entrusted us with their capital,
and our shareholders. In accordance with local government guidance and social
distancing recommendations, the majority of our employees globally have been
working remotely. Our technology infrastructure has proven to be robust and
capable of supporting this model. We have implemented rigorous protocols for
remote work across the firm, including increased cadence of group calls and
updates, and frequent communication across leadership and working levels. We are
leveraging technology to ensure our teams stay connected and productive, and
that our culture remains strong even in these unusual circumstances. While we
are generally not meeting with our clients in person, we continue to actively
communicate with our clients through videoconference, teleconference and email.
Investment committees continue to convene as needed, and the firm continues to
operate across investment, asset management and corporate support functions.
Since July 2020 , employees in our U.S. and European offices began returning to
the office on a voluntary basis, consistent with local government guidelines,
with testing, contact-tracing and social distancing and other safety protocols
in place. We continue to closely monitor applicable public health and government
guidance.
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.
Global economic conditions in 2020 were significantly impacted by the
COVID-19
pandemic. Following dramatic declines in global equity and credit markets in the
first quarter of the year coupled with certain liquidity issues, markets
generally experienced sharp recoveries later in the year as governments around
the world implemented fiscal and monetary stimulus to counter the economic
impacts of the pandemic. The recovery has been more recently aided by progress
on
COVID-19
vaccine production and distribution. The global economy has, with certain
setbacks, begun reopening and wider distribution of vaccines will likely
encourage greater economic activity. Nonetheless, the recovery could remain
uneven, particularly given uncertainty with respect to the distribution and
acceptance of the vaccines.
In the U.S. , the S&P 500 increased 18% in 2020, with positive returns across
most sectors and particular strength in technology stocks, which were up 44%.
The S&P energy, real estate and financial sectors posted negative returns in
2020, with energy in particular down 34% as commodity prices remained
suppressed. Despite rising during the second half of 2020, the price of West
Texas ended the year at $48.52 per barrel, 21% below the 2019
year-end
price of $61 . The Bloomberg Commodity Index finished the year down 4%.
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Table of Contents Volatility increased sharply during the year, with the CBOE Volatility index averaging 29 in 2020, up 89% from the prior-year average of 15. Global equity issuance increased 60% in 2020. Merger and acquisition activity decreased slightly in 2020, with announced volumes down 4% compared to 2019. Debt markets largely retraced their declines from early in 2020, withU.S. leveraged loans declining 0.5% overall in 2020 and high yield bonds increasing 5.5%. High yield spreads ended the year roughly in line with pre-COVID levels and issuance increased 51% year-over-year. TheFederal Reserve maintained the federal funds target range at 0.0%-0.25% and expanded its balance sheet sincemid-March 2020 by more than$3 trillion to support new credit and liquidity facilities. TheFederal Reserve expects to maintain the current pace of purchasing in the coming months. Three-month LIBOR ended the year at 0.24%, near historical lows. TheU.S. Treasury yield curve steepened towards the end of 2020, with ten-year yields rising 41 basis points from their trough in August to 0.91% by the end of 2020. Two-yearU.S. Treasury yields remained relatively stable since their decline in the first quarter of 2020, ending the year at 0.12%. TheU.S. unemployment rate was 6.7% at the end of 2020, representing a decline from 11.1% at the end of June, although it remains at an elevated level. Wages grew, with average hourly earnings increasing 5.1% year-over-year based on the three-month average for production and nonsupervisory employees. New orders for durable goods in December increased for the eighth consecutive month, whileU.S. retail sales increased 3.2% in 2020 compared to 2019. The industrial sector continued to show mixed signals, as industrial production declined 3.6% in the fourth quarter from the year-ago period. However, theInstitute for Supply Management Purchasing Managers' Index increased in the fourth quarter, rising to 60.7 from 55.4 in the third quarter, signaling moderate expansion in theU.S. manufacturing sector. Countries around the world continue to grapple with the economic impacts of the COVID-19 pandemic. Although a recovery is partially underway, it continues to be gradual, uneven and characterized by meaningful dispersion across sectors and regions, and could be hindered by persistent or resurgent infection rates. A potential next round ofU.S. fiscal stimulus could provide meaningful support, along with continued accommodative monetary policy and wider distribution of vaccines. Issues with respect to the distribution and acceptance of vaccines or the spread of new variants of the virus could adversely impact the recovery. Overall, there remains significant uncertainty regarding the timing and duration of the economic recovery, which precludes any prediction as to the ultimate adverse impact of COVID-19 on economic and market conditions. Notable Transactions OnSeptember 29, 2020 , Blackstone issued$500 million aggregate principal amount of 1.600% senior notes dueMarch 30, 2031 (the "2031 Notes") and$400 million aggregate principal amount of 2.800% senior notes dueSeptember 30, 2050 (the "2050 Notes"). OnNovember 24, 2020 , Blackstone entered into an amended and restated$2.25 billion revolving credit facility. The amendment and restatement to the credit facility, among other things, increased the amount of available borrowings and extended the maturity date fromSeptember 21, 2023 toNovember 24, 2025 . For additional information see Note 13. "Borrowings" in the "Notes to Consolidated Financial Statements" in "- Item 8. Financial Statements and Supplementary Data." InDecember 2020 , Blackstone acquired DCI, aSan Francisco based systematic credit investment firm. As part of the transaction, DCI will be integrated into BXC as systematic strategies within its liquid credit strategies unit. OnJanuary 26, 2021 , Pátria completed its IPO, pursuant to which we sold a portion of our interest. For additional information, see "Part I. Item 1. Business - Pátria Investments" and Note 4. "Investments - Equity Method Investments" 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 EffectiveFebruary 26, 2021 , Blackstone effectuated changes to its common stock as described in the immediately following section "Organizational Structure." Organizational Structure EffectiveJuly 1, 2019 ,The Blackstone Group L.P. converted from aDelaware limited partnership to aDelaware corporation,The Blackstone Group Inc. EffectiveFebruary 26, 2021 , Blackstone effectuated changes to rename its Class A common stock as "Common Stock," and to reclassify its Class B and Class C common stock into a new "Series I Preferred Stock" and "Series II Preferred Stock," respectively. Each new stock has the same rights and powers of its predecessor. For additional information, see Note 1. "Organization" and Note 16. "Earnings Per Share and Stockholder's Equity - Stockholder's Equity" in the "Notes to Consolidated Financial Statements" in "- Item 8. Financial Statements and Supplementary Data" of this filing and "- Item 9B. Other Information." 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.
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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 and including the Payable under the Tax
Receivable Agreement. Further, the current tax provision utilized when
calculating Taxes and Related Payables and Distributable Earnings reflects the
benefit of deductions available to the company on certain expense items that are
excluded from the underlying calculation of Segment Distributable Earnings and
Total Segment Distributable Earnings, such as equity-based compensation charges
and certain Transaction-Related Charges where there is a current tax provision
or benefit. The economic assumptions and methodologies that impact the implied
income tax provision are the same as those methodologies and assumptions used in
calculating the current income tax provision for Blackstone's consolidated
statements of operations under GAAP, excluding the impact of divestitures and
accrued tax contingencies and refunds which are reflected when paid or received.
Management believes that including the amount payable under the tax receivable
agreement and utilizing the current income tax provision adjusted as described
above when calculating Distributable Earnings is meaningful as it increases
comparability between periods and more accurately reflects earnings that are
available for distribution to shareholders.
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).
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Table of Contents 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. Other Operating Expenses is presented on a segment basis and is equal to General, Administrative and Other Expenses, adjusted to (a) remove the amortization of transaction-related intangibles, (b) remove certain expenses reimbursed by the Blackstone Funds which are netted against Management and Advisory Fees, Net in Blackstone's segment presentation, and (c) give effect to an administrative fee collected on a quarterly basis from certain holders of Blackstone Holdings Partnership Units. The administrative fee is accounted for as a capital contribution under GAAP, but is reflected as a reduction of Other Operating Expenses in Blackstone's segment presentation. 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. Assets Under Management. Assets Under Management refers to the assets we manage. Our Assets Under Management equals the sum of: (a) the fair value of the investments held by our carry funds and our side-by-side and co-investment
entities managed by us plus the capital that we are entitled to call from
investors in those funds and entities pursuant to the terms of their
respective capital commitments, including capital commitments to funds that
have yet to commence their investment periods,
(b) the net asset value of (1) our hedge funds, 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,
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(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,
(g) the fair value of common stock, preferred stock, convertible debt, term
loans or similar instruments issued by BXMT, and
(h) borrowings under and any amounts available to be borrowed under certain
credit facilities of our funds.
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 Real Estate, Hedge Fund Solutions and Credit & Insurance 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 & Insurance 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,
(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
distributable 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.
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Table of Contents For our carry funds, total assets under management includes the fair value of the investments held and uncalled capital commitments, whereas fee-earning assets under management may include 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, in certain carry funds 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 intoPerpetual 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 Eligible Assets Under Management . Performance 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. 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, 2020 . 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, 2020 , 2019 and 2018: Year Ended December 31, 2020 vs. 2019 2019 vs. 2018 2020 2019 2018 $ % $ % (Dollars in Thousands) Revenues Management and Advisory Fees, Net$ 4,092,549 $ 3,472,155 $ 3,027,796 $ 620,394 18%$ 444,359 15% Incentive Fees 138,661 129,911 57,540 8,750 7% 72,371 126% Investment Income (Loss) Performance Allocations Realized 2,106,000 1,739,000 1,876,507 367,000 21% (137,507 ) -7% Unrealized (384,393 ) 1,126,332 561,373 (1,510,725 ) N/M 564,959 101% Principal Investments Realized 391,628 393,478 415,862 (1,850 ) - (22,384 ) -5% Unrealized (114,607 ) 215,003 49,917 (329,610 ) N/M 165,086 331% Total Investment Income 1,998,628 3,473,813
2,903,659 (1,475,185 ) -42% 570,154 20%
Interest and Dividend Revenue 125,231 182,398 171,947 (57,167 ) -31% 10,451 6% Other (253,142 ) 79,993 672,317 (333,135 ) N/M (592,324 ) -88% Total Revenues 6,101,927 7,338,270 6,833,259 (1,236,343 ) -17% 505,011 7% Expenses Compensation and Benefits Compensation 1,855,619 1,820,330 1,609,957 35,289 2% 210,373 13% Incentive Fee Compensation 44,425 44,300 33,916 125 - 10,384 31% Performance Allocations Compensation Realized 843,230 662,942 711,076 180,288 27% (48,134 ) -7% Unrealized (154,516 ) 540,285 319,742 (694,801 ) N/M 220,543 69%
Total Compensation and Benefits 2,588,758 3,067,857
2,674,691 (479,099 ) -16% 393,166 15% General, Administrative and Other 711,782
679,408 594,873 32,374 5% 84,535 14%
Interest Expense 166,162 199,648 163,990 (33,486 ) -17% 35,658 22%
Fund Expenses 12,864 17,738 78,486 (4,874 ) -27% (60,748 ) -77%
Total Expenses 3,479,566 3,964,651 3,512,040 (485,085 ) -12% 452,611 13%
Other Income (Loss)
Change in Tax Receivable Agreement
Liability (35,383 ) 161,567 - (196,950 ) N/M 161,567 N/M
Net Gains from Fund Investment
Activities 30,542 282,829 191,722 (252,287 ) -89% 91,107 48%
Total Other Income (Loss) (4,841 ) 444,396
191,722 (449,237 ) N/M 252,674 132%
Income Before Provision (Benefit) for Taxes 2,617,520 3,818,015 3,512,941 (1,200,495 ) -31% 305,074 9% Provision (Benefit) for Taxes 356,014 (47,952 ) 249,390 403,966 N/M (297,342 ) N/M Net Income 2,261,506 3,865,967 3,263,551 (1,604,461 ) -42% 602,416 18% Net Loss Attributable to Redeemable Non-Controlling Interests in Consolidated Entities (13,898 ) (121 ) (2,104 ) (13,777 ) N/M 1,983 -94% Net Income Attributable to Non-Controlling Interests in Consolidated Entities 217,117 476,779 358,878 (259,662 ) -54% 117,901 33% Net Income Attributable to Non-Controlling Interests in Blackstone Holdings 1,012,924 1,339,627
1,364,989 (326,703 ) -24% (25,362 ) -2%
Net Income Attributable to The Blackstone Group Inc.$ 1,045,363 $ 2,049,682 $ 1,541,788 $ (1,004,319 ) -49%$ 507,894 33% N/M Not meaningful. Year EndedDecember 31, 2020 Compared to Year EndedDecember 31, 2019 Revenues Revenues were$6.1 billion for the year endedDecember 31, 2020 , a decrease of$1.2 billion compared to$7.3 billion for the year endedDecember 31, 2019 . The decrease in Revenues was primarily attributable to decreases of$1.5 billion in Investment Income (Loss) and$333.1 million in Other Revenue, partially offset by an increase of$620.4 million in Management and Advisory Fees, Net.
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Table of Contents The decrease in Investment Income (Loss) was primarily driven by the impacts of COVID-19. Investment Income (Loss) in our Real Estate and Credit & Insurance segments decreased$1.7 billion and$287.7 million , respectively, partially offset by an increase in our Private Equity segment of$494.2 million . The decrease in our Real Estate segment was primarily attributable to lower net unrealized appreciation of investment holdings in BREP opportunistic funds and lower realized gains in the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 . BREP opportunistic funds' carrying value increased 3.4% in the year endedDecember 31, 2020 compared to 17.6% in the year endedDecember 31, 2019 . The decrease in our Credit & Insurance segment was primarily attributable to net unrealized depreciation of investments in our private credit strategies in the year endedDecember 31, 2020 compared to net unrealized appreciation in the year endedDecember 31, 2019 . The increase in our Private Equity segment was primarily attributable to higher realized gains and higher net unrealized appreciation of investment holdings in corporate private equity in the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 . Corporate private equity carrying value increased 11.9% in the year endedDecember 31, 2020 compared to 10.3% in the year endedDecember 31, 2019 . The decrease in Other Revenue was primarily due to foreign exchange losses on our euro denominated bonds and cross-currency swaps. The increase in Management and Advisory Fees, Net was primarily due to increases in our Real Estate and Private Equity segments of$373.5 million and$205.5 million , respectively. The increase in our Real Estate segment was primarily due to the end of BREP IX's fee holiday in 2019, the commencement of BREP Europe VI's investment period in the fourth quarter of 2019 along with the end of its fee holiday in the first quarter of 2020 and Fee-Earning Assets Under Management growth in core+ real estate. The increase in our Private Equity segment was primarily due to the end of BCP VIII,BEP III and BXLS V's fee holiday during the third quarter of 2020 and a full year of Base Management Fees from Strategic Partners VIII. Expenses Expenses were$3.5 billion for the year endedDecember 31, 2020 , a decrease of$485.1 million , compared to$4.0 billion for the year endedDecember 31, 2019 . The decrease was primarily attributable to a decrease of$479.1 million in Total Compensation and Benefits, which was primarily due to a decrease of$514.5 million in Performance Allocations Compensation. The decrease in Performance Allocations Compensation was primarily due to the decrease in Investment Income (Loss) - Performance Allocations, on which the compensation is based. Other Income (Loss) Year EndedDecember 31, 2020 Compared to Year EndedDecember 31, 2019 Other Income (Loss) was$(4.8) million for the year endedDecember 31, 2020 , a decrease of$449.2 million , compared to$444.4 million for the year endedDecember 31, 2019 . The decrease in Other Income (Loss) was due to decreases of$252.3 million inNet Gains (Losses) from Fund Investment Activities and$197.0 million in Change in Tax Receivable Agreement Liability. The decrease inNet Gain (Losses) from Fund Investment Activities was primarily due to decreases of$188.9 million in our Credit & Insurance segment and$86.2 million in our Real Estate segment, partially offset by an increase of$19.0 million in our Private Equity segment. The decrease in our Credit & Insurance segment was primarily driven by depreciation of consolidated CLOs and other vehicles during the first six months of 2020 and the deconsolidation of nine CLO vehicles during the third quarter of 2020. See Note 9. "Variable Interest Entities" in the "Notes to Consolidated Financial Statements" in "- Item 8. Financial Statements and Supplementary Data" of this filing. The decrease in our Real Estate segment was primarily driven by depreciation of investments in our consolidated Real Estate segment funds. The increase in our Private Equity segment was primarily due to appreciation of investments in our consolidated Private Equity segment funds.
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Table of Contents The decrease in Change in Tax Receivable Agreement Liability was primarily due to the reduction of the estimated cash savings to be realized by Blackstone recorded in relation to the Conversion during the year endedDecember 31, 2019 . Provision (Benefit) for Taxes The following table summarizes Blackstone's tax position: Year Ended December 31, 2020 2019 2018 (Dollars in Thousands)
Income Before Provision (Benefit) for Taxes
$ 356,014 $ (47,952 ) $ 249,390 Effective Income Tax Rate 13.6 % -1.3 % 7.1 % The following table reconciles the effective income tax rate to theU.S. federal statutory tax rate: Year Ended December 31, 2020 vs. 2019 vs. 2020 2019 2018 2019 2018 StatutoryU.S. Federal Income Tax Rate 21.0 % 21.0 % 21.0 % - - Income Passed Through to Common Shareholders and Non-Controlling Interest Holders (a) -8.6 % -13.5 % -15.5 % 4.9 % 2.0 % State and Local Income Taxes 2.4 % 1.6 % 1.8 % 0.8 % -0.2 % Foreign Income Taxes -1.2 % -0.6 % -0.3 % -0.6 % -0.3 % Change to a Taxable Corporation 1.4 % -10.3 % - 11.7 % -10.3 % Change in Valuation Allowance (b) -2.8 % -0.8 % - -2.0 % -0.8 % Other 1.4 % 1.3 % 0.1 % 0.1 % 1.2 % Effective Income Tax Rate 13.6 % -1.3 % 7.1 % 14.9 % -8.4 %
(a) Includes income that was not taxable to Blackstone and its subsidiaries. Such
income was directly taxable to shareholders of Blackstone's 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.
Blackstone's Provision (Benefit) for Taxes for the years endedDecember 31, 2020 and 2019 was$356.0 million and$(48.0) million , respectively. This resulted in an effective tax rate of 13.6% and -1.3%, respectively, based on our Income Before Provision (Benefit) for Taxes of$2.6 billion and$3.8 billion , respectively. The increase in Blackstone's effective tax rate for the year endedDecember 31, 2020 , compared to the year endedDecember 31, 2019 , resulted primarily from the Conversion in 2019. For the year endedDecember 31, 2020 , Blackstone was a corporation subject to federal and state corporate income taxes while for the first six months of the year endedDecember 31, 2019 ,The Blackstone Group L.P. was a publicly traded partnership with income directly taxable to common unitholders. The estimated tax benefit recorded on the date of the Conversion was reflected in the year endedDecember 31, 2019 . Upon finalization of the 2019 tax returns, an adjustment was made to the tax basis step up related to the Conversion, resulting in an increase to the effective tax rate for the period endedDecember 31, 2020 . In addition, the effective tax rate for the year endedDecember 31, 2020 benefited from a reduction in Blackstone's valuation allowance, due to the tax basis utilization attributable to asset dispositions during the year. 90
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Table of Contents 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 (Loss) -Net Gains (Losses) 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 at theBlackstone Holdings level, excluding the Net Gains (Losses) 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, 2020 and 2019, the Net Income Before Taxes allocated to Blackstone personnel and others who are limited partners ofBlackstone Holdings was 42.7% and 43.9%, respectively. The decrease of 1.2% was primarily due to conversions of Blackstone Holdings Partnership Units to shares of common stock and the vesting of shares of common stock. The Other Income (Loss) - Change in Tax Receivable Agreement Liability was entirely allocated toThe Blackstone Group Inc. 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, 2020 , 2019 and 2018. For a description of how Assets Under Management and Fee-Earning Assets Under Management are determined, please see "-Key Financial Measures and Indicators - Operating Metrics - Assets Under Management and Fee-Earning Assets Under Management." 91
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[[Image Removed]]Note: Totals may not add due to rounding.
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Year Ended December 31,
2020 2019
Private
Hedge Fund Credit & Private Hedge Fund Credit &
Real Estate Equity Solutions Insurance Total Real Estate Equity Solutions Insurance Total
(Dollars in Thousands)
Fee-Earning
Assets Under Management
Balance, Beginning of Period $128,214,137$ 97,773,964 $ 75,636,004 $ 106,450,747 $ 408,074,852 $ 93,252,724 $ 80,008,166 $ 72,280,606 $ 96,986,011 $ 342,527,507 Inflows (a) 28,071,474 45,359,946 9,712,930 26,035,009 109,179,359 52,424,662 27,260,480 11,488,234 21,069,189 112,242,565 Outflows (b) (3,517,881 ) (5,956,364 ) (12,538,753 ) (9,417,126 ) (31,430,124 ) (9,690,143 ) (2,352,716 ) (11,928,940 ) (9,067,554 ) (33,039,353 ) Net Inflows (Outflows) 24,553,593 39,403,582 (2,825,823 ) 16,617,883 77,749,235 42,734,519 24,907,764 (440,706 ) 12,001,635 79,203,212 Realizations (c)
(9,007,492 ) (7,290,931 ) (1,346,147 ) (5,506,288 ) (23,150,858 ) (11,353,675 ) (7,212,993 ) (1,153,785 ) (5,629,089 ) (25,349,542 ) Market Activity (d)(g)
5,361,223 (346,985 ) 2,662,576 (916,929 ) 6,759,885 3,580,569 71,027 4,949,889 3,092,190 11,693,675
Balance, End of Period (e) $
149,121,461
Increase (Decrease) $
20,907,324
16 % 32 % -2 % 10 % 15 % 37 % 22 % 5 % 10 % 19 %
Annualized Base Management Fee Rate (f) 1.14 % 1.00 % 0.81 % 0.57 % 0.91 % 1.02 % 1.08 % 0.75 % 0.57 % 0.86 %
Year Ended December 31,
2018
Private Hedge Fund Credit &
Real Estate Equity Solutions Insurance Total
(Dollars in Thousands)
Fee-Earning
Assets Under Management
Balance, Beginning of Period $ 83,984,824 $ 70,140,883 $ 69,914,061 $ 111,304,230 $ 335,343,998
Inflows (a) 17,961,223 16,096,543 12,354,410 24,587,957 71,000,133
Outflows (b) (2,000,367 ) (1,888,223 ) (10,278,403 ) (27,640,908 ) (41,807,901 )
Net Inflows (Outflows) 15,960,856 14,208,320 2,076,007 (3,052,951 ) 29,192,232
Realizations (c) (8,781,140 ) (4,729,843 ) (429,912 ) (6,672,539 ) (20,613,434 )
Market Activity (d)(g) 2,088,184 388,806 720,450 (4,592,729 ) (1,395,289 )
Balance, End of Period (e)
Increase (Decrease)$ 9,267,900 $ 9,867,283 $ 2,366,545 $ (14,318,219 ) $ 7,183,509 Increase (Decrease) 11 % 14 % 3 % -13 % 2 % Annualized Base Management Fee Rate (f) 1.11 % 1.04 % 0.72 % 0.54 % 0.84 % 93
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Year Ended December 31,
2020 2019
Private Private
Hedge Fund Credit & Hedge Fund Credit &
Real Estate Equity Solutions Insurance Total Real Estate Equity Solutions Insurance Total
(Dollars in Thousands)
Total Assets Under Management
Balance, Beginning of Period $ 163,156,064 $ 182,886,109 $ 80,738,112 $ 144,342,178 $ 571,122,463 $ 136,247,229 $ 130,665,286 $ 77,814,516 $ 127,515,286 $ 472,242,317
Inflows (a) 33,426,600 23,030,463 10,415,356 28,141,077 95,013,496 34,190,566 56,836,570 12,242,855 31,107,288 134,377,279
Outflows (b) (3,836,842 ) (2,707,863 ) (13,353,437 ) (9,380,391 ) (29,278,533 ) (2,664,717 ) (1,065,445 ) (13,433,702 ) (11,629,269 ) (28,793,133 )
Net Inflows (Outflows) 29,589,758 20,322,600 (2,938,081 ) 18,760,686 65,734,963 31,525,849 55,771,125 (1,190,847 ) 19,478,019 105,584,146
Realizations (c) (16,256,579 ) (17,304,777 ) (1,392,894 ) (7,670,738 ) (42,624,988 ) (18,097,899 ) (13,540,914 ) (1,271,968 ) (7,291,045 ) (40,201,826 )
Market Activity (d)(h)(i) 10,702,004 11,645,290 3,015,732 (1,038,536 ) 24,324,490 13,480,885 9,990,612 5,386,411
4,639,918 33,497,826
Balance, End of Period (e) $
187,191,247
Increase (Decrease)$ 24,035,183 $ 14,663,113 $ (1,315,243 ) $ 10,051,412 $ 47,434,465 $ 26,908,835 $ 52,220,823 $ 2,923,596 $ 16,826,892 $ 98,880,146 Increase (Decrease) 15 % 8 % -2 % 7 % 8 % 20 % 40 % 4 % 13 % 21 % Year Ended December 31, 2018 Private Hedge Fund Credit & Real Estate Equity Solutions Insurance Total (Dollars in Thousands) Total Assets Under Management Balance, Beginning of Period$ 115,340,363 $ 105,560,576 $ 75,090,834 $ 138,136,470 $ 434,128,243 Inflows (a) 31,478,431 26,639,963 13,278,327 29,578,890 100,975,611 Outflows (b) (2,162,958 ) (1,617,585 ) (10,780,055 ) (28,057,658 ) (42,618,256 ) Net Inflows 29,315,473 25,022,378 2,498,272 1,521,232 58,357,355 Realizations (c) (14,675,095 ) (10,396,611 )
(471,931 ) (8,516,996 ) (34,060,633 ) Market Activity (d)(h)(i)
6,266,488 10,478,943 697,341 (3,625,420 ) 13,817,352
Balance, End of Period (e)$ 136,247,229 $ 130,665,286
Increase (Decrease)$ 20,906,866 $ 25,104,710 $ 2,723,682 $ (10,621,184 ) $ 38,114,074 Increase (Decrease) 18 % 24 % 4 % -8 % 9 % 94
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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 realization proceeds from the disposition or other
monetization of assets, current income 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) Effective
follows: annualized year to date Base Management Fee divided by the average
of the beginning of year and each quarter end's
Fee-Earning
Assets Under Management in the reporting period. Prior periods have been
recast for this update
(g) For the year ended
Fee-Earning
Assets Under Management due to foreign exchange rate fluctuations was
$2.4 billion , $1.0 billion and $3.5 billion for the Real Estate, Credit &
Insurance and Total segments, respectively. For the year ended
December 31, 2019 , the impact to
Fee-Earning
Assets Under Management due to foreign exchange rate fluctuations wasCredit & Insurance and Total segments, respectively. For the year ended
respectively.
(h) For the year ended
Management due to foreign exchange rate fluctuations was
Equity, Credit & Insurance and Total segments, respectively. For the year
ended
foreign exchange rate fluctuations was
Credit & Insurance and Total segments, respectively. For the year ended
Credit & Insurance and Total segments, respectively.
(i) Effective in the three months ended
Total Assets Under Management was updated with respect to the relevant
segment for certain real estate, secondaries and credit funds to include
permanent fund level leverage (as this represents additional capital the fund
is managing), to include uncalled capital commitments until they are legally
expired and to exclude certain uncalled capital commitments where the
investors have complete discretion over investment. Funds without an
adjustment were either already applying that methodology in reporting Total
Assets Under Management or the updates were not applicable. Additional detail
on these adjustments is included below:
Year Ended December 31, 2020
Private Hedge Fund Credit &
Real Estate Equity Solutions Insurance Total
(Dollars in Thousands)
Market Activity $ 6,923,489 $ 9,776,454 $ 3,015,732 $ 475,847 $ 20,191,522
One-Time
Methodology Adjustment 3,778,515 1,868,836 - (1,514,383 ) 4,132,968
Reported Market Activity $ 10,702,004 $ 11,645,290 $ 3,015,732 $ (1,038,536 ) $ 24,324,490
Subsequent to December 31, 2020 , increases/decreases in permanent fund level
leverage and uncalled capital commitments that have not legally expired where
investors do not have complete discretion over investment for the aforementioned
funds will be reflected as inflows, outflows, realization and/or market
activity, as the case may be.
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Table of Contents Fee-Earning Assets Under Management Fee-Earning Assets Under Management were$469.4 billion atDecember 31, 2020 , an increase of$61.4 billion , or 15%, compared to$408.1 billion atDecember 31, 2019 . The net increase was due to: • Inflows of$109.2 billion related to:
o
corporate private equity, primarily related to the commencement of BCP
VIII and
to the commencement of BXLS V's investment period,
Opportunities and $504.1 million from multi-asset products,
o $28.1 billion in our Real Estate segment driven by $9.5 billion from
BREIT,
BPP Life Sciences, $5.9 billion from BREDS, $2.1 billion from BREP
opportunistic funds and
co-investment,
$1.3 billion from BPP Europe and
co-investment,
$1.2 billion from BPP Asia and
co-investment
and $1.1 billion from BPP U.S. and
co-investment,
o
from certain liquid credit and MLP strategies (including
related to the DCI acquisition),
raised from CLOs,
funds,
and
o
from individual investor and specialized solutions,
customized solutions and $1.2 billion from commingled products.
• Market activity of $6.8 billion primarily attributable to:
o
exchange appreciation) and $1.1 billion from BREP opportunistic and
co-investment,
o
driven by returns from BAAM's Principal Solutions Composite of 5.5%
gross and 4.6% net, and
o Partially offset by $916.9 million of market depreciation in our
Credit & Insurance segment driven by depreciation of $1.1 billion from
certain liquid credit and MLP strategies, $1.0 billion from
stressed/distressed strategies, partially offset by
market appreciation from CLOs, $388.9 million from direct lending and
$360.3 million from BIS, all of which included $1.0 billion of foreign
exchange appreciation across the segment.
Offsetting these increases were:
• Outflows of$31.4 billion primarily attributable to: o$12.5 billion in our Hedge Fund Solutions segment driven by$5.7 billion from individual investor and specialized solutions,$4.0 billion from customized solutions and$2.8 billion from commingled products, o$9.4 billion in our Credit & Insurance segment driven by$6.8 billion from certain liquid credit and MLP strategies,$1.1 billion from direct lending and$809.9 million from stressed/distressed strategies, o$6.0 billion in our Private Equity segment driven by$4.6 billion from corporate private equity primarily due to the end of BCP VII andBEP II's investment periods,$706.8 million fromStrategic Partners ,$497.5 million from BXLS due to the end of Clarus IV's investment period and$237.2 million from multi-asset products, and 96
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o $3.5 billion in our Real Estate segment driven by $1.5 billion from
BREIT, $1.5 billion from BREDS, $336.0 million from BPP U.S. and
co-investment
and $160.3 million from BPP Europe.
• Realizations of $23.2 billion primarily driven by:
o
opportunistic funds and
co-investment,
$3.1 billion from core+ real estate and $2.7 billion from BREDS,
o
Tactical Opportunities,
$1.7 billion fromStrategic Partners , and o$5.5 billion in our Credit & Insurance segment driven by$1.2 billion
from direct lending,
$1.0 billion from CLOs,$978.6 million from mezzanine funds,$583.8 million from energy strategies and$551.7 million from certain liquid credit and MLP strategies. Total Assets Under Management Total Assets Under Management were$618.6 billion atDecember 31, 2020 , an increase of$47.4 billion , compared to$571.1 billion atDecember 31, 2019 . The net increase was due to: • Inflows of$95.0 billion related to: o$33.4 billion in our Real Estate segment driven by$9.5 billion from BREIT,$8.8 billion from BREDS,$8.0 billion from the launch of a new perpetual capital vehicle, BPP Life Sciences,$2.3 billion from BREP opportunistic funds and co-investment,$1.9 billion from BPP Asia and co-investment,$1.8 billion from BPP Europe and co-investment and$1.1 billion from BPPU.S. and co-investment, o$28.1 billion in our Credit & Insurance segment driven by$14.1 billion from certain liquid credit and MLP strategies (including$7.8 billion related to the DCI acquisition),$7.3 billion from our structured products group,$5.1 billion from direct lending,$4.2 billion of capital raised from CLOs,$3.5 billion from mezzanine funds and$2.7 billion from BIS, all partially offset by$9.6 billion of allocations to various strategies and other segments,
o
corporate private equity, including
second core private equity fund,
$3.5 billion from BXG,$2.1 billion from Tactical Opportunities,$2.1 billion from BXLS and$888.0 million from BIP, and
o
from individual investor and specialized solutions, $2.3 billion from
customized solutions and $1.6 billion from commingled products.
• Market activity of $24.3 billion primarily driven by:
o
driven by carrying value increases in corporate private equity and
Tactical Opportunities of 11.9% and 14.1%, respectively, which includes
o
by carrying value increases in opportunistic and core+ real estate of
3.4% and 7.9%, during the year, respectively, which includes
$4.2 billion of foreign exchange appreciation across the segment,
o
driven by reasons noted above in
Fee-Earning
Assets Under Management, and
o Partially offset by
Insurance segment driven by depreciation of
liquid credit and MLP strategies,
and $616.7 million from stressed/distressed strategies, partially offset
by market appreciation of $1.2 billion from direct lending and
$554.8 million from CLOs, all of which included $1.2 billion of foreign
exchange appreciation across the segment.
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Table of Contents 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$42.6 billion primarily driven by:
o
corporate private equity,
$2.5 billion fromStrategic Partners and$446.6 million from BXLS, o$16.3 billion in our Real Estate segment driven by$11.1 billion from BREP opportunistic and co-investment,$3.2 billion from core+ real estate and$1.9 billion from BREDS, and o$7.7 billion in our Credit & Insurance segment driven by$2.2 billion from direct lending,$1.9 billion from mezzanine funds,$1.3 billion from stressed/distressed strategies,$1.0 billion from CLOs,$638.5 million from energy strategies and$617.3 million from certain liquid credit and MLP strategies. Total Assets Under Management realizations in our Real Estate and Private Equity segments generally represents the total proceeds and typically exceeds the Fee-Earning Assets Under Management realizations which generally represents only the invested capital. • Outflows of$29.3 billion primarily attributable to: o$13.4 billion in our Hedge Fund Solutions segment driven by$5.8 billion from individual investor and specialized solutions,$4.1 billion from customized solutions and$3.4 billion from commingled products, o$9.4 billion in our Credit & Insurance segment driven by$7.3 billion from certain liquid credit and MLP strategies,$1.1 billion from direct lending and$508.5 million from CLOs, o$3.8 billion in our Real Estate segment driven by$2.1 billion from core+ real estate,$1.3 billion from BREP opportunistic funds and co-investment and$467.2 million from BREDS, and
o
multi-asset products, $705.9 million from Strategic Partners ,
$658.1 million from corporate private equity, $337.2 million from
Tactical Opportunities and $171.7 million from BXLS.
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Table of Contents 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.
Net Accrued Performance Revenues The following table presents the Accrued Performance Revenues, net of performance compensation, of the Blackstone Funds as ofDecember 31, 2020 and 2019. 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. See "- Non-GAAP Financial Measures" for our reconciliation of Net Accrued Performance Revenues.
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December 31,
2020 2019
(Dollars in Millions)
Real Estate
BREP IV $ 9 $ 11
BREP V 13 19
BREP VI 42 76
BREP VII 236 445
BREP VIII 475 674
BREP IX 137 6
BREP Europe IV 97 158
BREP Europe V 211 193
BREP Asia I 127 152
BREP Asia II - 22
BPP 264 281
BREDS 23 33
BTAS 21 42
Total Real Estate (a) 1,656 2,112
Private Equity
BCP IV 18 23
BCP VI 680 705
BCP VII 688 471
BCP Asia 72 17
BEP I 29 102
BEP III 16 -
BCEP 105 46
Tactical Opportunities (b) 204 157
Strategic Partners 105 144
BXLS 10 7
BTAS/Other 45 62
Total Private Equity (a) 1,971 1,735
Hedge Fund Solutions 29 15
Credit & Insurance 170 237
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
(b) Tactical Opportunities includes Blackstone Growth.
For the year endedDecember 31, 2020 Net Accrued Performance Revenues receivable decreased due to net realized distributions of$1.4 billion in excess of Net Accrued Performance Revenues of$1.1 billion .
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Table of Contents Invested Performance Eligible Assets Under Management The following presents our Invested Performance Eligible Assets Under Management as ofDecember 31 of each year: [[Image Removed]] Note: Totals may not add due to rounding. 101
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Table of ContentsPerpetual Capital The following presents our Perpetual Capital Assets Under Management as ofDecember 31 of each year: [[Image Removed]] Note: Totals may not add due to rounding. Investment Record Fund returns information for our significant funds is included throughout this discussion and analysis to facilitate an understanding of our results of operations for the periods presented. The fund returns information reflected in this discussion and analysis is not indicative of the financial performance of Blackstone and is also not necessarily indicative of the future performance of any particular fund. An investment in Blackstone is not an investment in any of our funds. There can be no assurance that any of our funds or our other existing and future funds will achieve similar returns.
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Table of Contents The following table presents the investment record of our significant drawdown funds from inception throughDecember 31, 2020 : Fund (Investment Period Committed Available Unrealized Investments Realized Investments Total Investments Net IRRs (d) Beginning Date / Ending Date) (a) Capital Capital (b) Value MOIC (c) % Public Value MOIC (c) Value MOIC (c) Realized Total (Dollars/Euros in Thousands, Except Where Noted) Real Estate Pre-BREP$ 140,714 $ - $ - N/A -$ 345,190
2.5x
380,708 - - N/A - 1,327,708
2.8x 1,327,708 2.8x 40 % 40 %
BREP II (
1,198,339 - - N/A - 2,531,614
2.1x 2,531,614 2.1x 19 % 19 %
BREP III (
1,522,708 - - N/A - 3,330,406
2.4x 3,330,406 2.4x 21 % 21 %
BREP IV (
2,198,694 - 89,243 1.8x 27 % 4,544,926
1.7x 4,634,169 1.7x 13 % 12 %
BREP V (
5,539,418 231,919 191,895 0.8x 50 % 13,080,463
2.4x 13,272,358 2.3x 12 % 11 %
BREP VI (
11,060,444 550,734 512,439 2.3x 77 % 27,223,779
2.5x 27,736,218 2.5x 13 % 13 %
BREP VII (
13,496,823 1,525,946 5,584,753 1.2x 6 % 23,030,962
2.1x 28,615,715 1.8x 22 % 14 %
BREP VIII (
16,567,256 2,729,536 13,706,200 1.2x - 13,362,963
2.3x 27,069,163 1.6x 29 % 14 %
*BREP IX (
20,891,658 14,175,042 8,173,444 1.2x 6 % 1,204,084 1.4x 9,377,528 1.3x N/M 20 %
Total Global BREP$ 72,996,762 $ 19,213,177 $ 28,257,974 1.2x 5 %$ 89,982,095
2.3x
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 ) (f) 1,629,748 - - N/A - 2,576,670 1.8x 2,576,670 1.8x 8 % 8 % BREP Europe III (Jun 2008 / Sep 2013) (e) 3,205,167 456,744 362,083 0.6x - 5,738,120
2.5x 6,100,203 2.1x 20 % 14 %
BREP Europe IV (
6,710,146 1,308,972 2,441,555 1.3x - 9,045,059
2.0x 11,486,614 1.8x 22 % 14 %
BREP Europe V (
7,949,959 1,563,722 8,006,708 1.3x - 853,905
2.8x 8,860,613 1.4x 51 % 9 %
*BREP Europe VI (
9,786,439 7,021,025 2,670,641 1.1x 3 % 4,800 N/A 2,675,441 1.1x N/M -
Total BREP Europe € 30,105,631 € 10,350,463 € 13,480,987 1.2x 1 % € 19,591,724 2.1x € 33,072,711 1.6x 16 % 12 %
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/Euros in Thousands, Except Where Noted)
Real Estate (continued)
BREP Asia I (Jun 2013 / Dec 2017) $ 4,598,089
7,302,307 3,989,162 3,830,476 1.2x 10 % 267,905 1.5x 4,098,381 1.2x 47 % 7 %
BREP
Co-Investment
(g) 7,055,974 52,499 556,811 1.4x - 14,780,923 2.2x 15,337,734 2.2x 16 % 16 %
Total BREP $ 128,730,171 $ 37,176,041 $ 51,343,542 1.2x 5 % $ 134,129,927 2.2x $ 185,473,469 1.8x 17 % 15 %
*Core+ BPP (Various) (h) $ N/A $ N/A $ 43,373,269 N/A - $ 7,884,244 N/A $ 51,257,513 N/A N/M 9 %
*Core+ BREIT (Various) (i) N/A N/A 21,046,096 N/A - 706,600 N/A 21,752,696 N/A N/A 9 %
*BREDS High-Yield (Various) (j) 19,991,345 9,009,057 3,983,786 1.0x - 13,213,838 1.3x 17,197,624 1.2x 11 % 10 %
Private Equity
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 12,891 N/A - 2,953,649 1.4x 2,966,540 1.4x 6 % 6 %
BCP IV (Nov 2002 / Dec 2005) 6,773,182 188,664 161,420 2.0x - 21,417,821 2.9x 21,579,241 2.9x 36 %
36 % BCP V (Dec 2005 /Jan 2011 ) 21,009,112
1,035,259 534,817 5.9x 44 % 37,465,460 1.9x 38,000,277 1.9x
8 % 8 %
BCP VI (Jan 2011 / May 2016 ) 15,202,400 1,164,970 10,785,320 1.8x 48 % 18,844,732 2.2x 29,630,052 2.0x 17 %
13 %
BCP VII (May 2016 / Feb 2020) 18,853,440 1,500,064 23,833,391 1.5x 3 %
2,127,704 1.4x 25,961,095 1.5x 20 % 15 %
*BCP VIII (
24,839,835 24,780,233 55,918 N/A 100 % - N/A 55,918 N/A N/A N/A
Energy I (Aug 2011 / Feb 2015) 2,441,558
142,138 707,832 1.0x 20 % 3,332,406 1.9x 4,040,238 1.7x 15 % 10 %
Energy II (
4,913,589 452,250 3,542,696 0.9x 8 %
538,308 0.8x 4,081,004 0.9x -18 % -9 %
*Energy III (
4,230,317 3,659,611 740,313 1.5x 87 % - N/A 740,313 1.5x N/A N/M
*BCP Asia (Dec 2017 / Dec 2023) 2,407,749
1,314,996 1,882,785 1.8x 11 % 160,023 2.2x 2,042,808 1.8x 145 % 35 %
*Core Private Equity I (
4,756,127 1,704,858 5,140,800 1.6x - 1,007,863 1.9x 6,148,663 1.7x 33 % 20 % Core Private Equity II (TBD) (k)
8,160,000 8,160,000 - N/A - - N/A - N/A N/A N/A
Total Corporate Private Equity $ 121,912,242 $ 44,127,618 $ 47,398,183 1.5x 16 % $ 102,031,211 2.1x $ 149,429,394 1.8x 16 % 15 %
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/Euros in Thousands, Except Where Noted)
Private Equity (continued)
Tactical Opportunities
*Tactical Opportunities (Various) $ 23,059,743 $ 9,485,052 $ 13,781,064 1.3x 11 % $ 11,484,767 1.8x $ 25,265,831 1.4x 17 % 11 %
*Tactical Opportunities
Co-Investment
and Other (Various) 8,752,000 2,219,611 3,412,302 1.2x 7 % 5,404,166 1.7x 8,816,468 1.5x 19 % 15 %
Total Tactical Opportunities$ 31,811,743
12 %
*Blackstone Growth (Jul 2020 /Jul 2025 )$ 3,378,427 $ 2,590,318 $ 480,643 N/M - $ - N/A$ 480,643 N/M N/A N/MStrategic Partners (Secondaries)Strategic Partners I-V (Various) (l) 11,863,351 1,163,562 767,152 N/M - 17,047,367 N/M 17,814,519 1.5x N/A 13 % Strategic Partners VI (Apr 2014 /Apr 2016 ) (l) 4,362,750 1,231,443 1,140,668 N/M - 3,420,227 N/M 4,560,895 1.4x N/A 13 % Strategic Partners VII (May 2016 /Mar 2019 ) (l) 7,489,970 2,236,145 4,502,593 N/M - 2,501,199 N/M 7,003,792 1.4x N/A 13 % Strategic Partners Real Assets II (May 2017 /Jun 2020 ) (l) 1,749,807 342,200 1,146,290 N/M - 457,411 N/M 1,603,701 1.2x N/A 12 % *Strategic Partners VIII (Mar 2019 /Jul 2023 ) (l) 10,763,600 6,057,212 3,116,224 N/M - 349,817 N/M 3,466,041 1.3x N/A 25 % *Strategic Partners Real Estate , SMA and Other (Various) (l) 7,678,498 2,637,711 2,721,040 N/M - 1,515,801 N/M 4,236,841 1.2x N/A 12 % *Strategic Partners Infra III (Jun 2020 /Jul 2024 ) (l) 3,250,100 2,945,629 95,680 N/M - - N/A 95,680 1.9x N/A N/MTotal Strategic Partners (Secondaries)$ 47,158,076 $ 16,613,902 $ 13,489,647 N/M -$ 25,291,822 N/M$ 38,781,469 1.4x N/A
13 %
*Infrastructure (Various)$ 13,658,063 $ 10,643,283 $ 3,221,714 1.1x 19 % $ - N/A$ 3,221,714 1.1x N/A - Life Sciences Clarus IV (Jan 2018 /Jan 2020 ) 910,000 376,877 620,930 1.3x 3 % 25,626 1.3x 646,556 1.3x 15 % 11 % *BXLS V (Jan 2020 /Jan 2025 ) 4,711,227 4,124,901 659,008 1.2x 15 % - N/A 659,008 1.2x N/A N/M continued ... 105
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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/Euros in Thousands, Except Where Noted)
Credit
Mezzanine / Opportunistic I (Jul 2007 / Oct 2011) $ 2,000,000
N/A 17 %
Mezzanine / Opportunistic II (Nov 2011 / Nov 2016 ) 4,120,000 1,033,222 837,744 0.6x - 5,741,374 1.6x 6,579,118 1.3x N/A 10 %
*Mezzanine / Opportunistic III (Sep 2016 / Sep 2021 ) 6,639,133 1,523,459 5,183,034 1.1x - 2,714,002 1.7x 7,897,036 1.2x N/A 10 %
Stressed / Distressed I (Sep 2009 / May 2013 ) 3,253,143 76,000 - N/A - 5,775,572 1.3x 5,775,572 1.3x N/A 9 %
Stressed / Distressed II (Jun 2013 / Jun 2018 ) 5,125,000 552,970 887,348 0.7x - 4,511,189 1.2x 5,398,537 1.0x N/A -1 %
*Stressed / Distressed III (Dec 2017 / Dec 2022 ) 7,356,380 3,913,986 2,167,831 0.9x - 1,502,127 1.4x 3,669,958 1.1x N/A 2 %
Energy I (Nov 2015 / Nov 2018 ) 2,856,867 999,173 1,459,608 0.9x - 1,236,203 1.7x 2,695,811 1.2x N/A 4 %
*Energy II (Feb 2019 / Feb 2024 ) 3,616,081 2,797,654 890,262 1.1x - 227,003 1.6x 1,117,265 1.2x N/A 23 %
European Senior Debt I (Feb 2015 / Feb 2019) € 1,964,689 € 267,442 € 1,684,033 1.0x 2 % € 1,428,233 1.5x € 3,112,266 1.2x
N/A 5 %
*European Senior Debt II (Jun 2019 / Jun 2024 ) € 4,088,344 € 3,362,428 € 921,206 1.1x - € 267,489 1.1x € 1,188,695 1.1x N/A 16 %
Total Credit Drawdown Funds (m)$ 41,872,262
N/A 9 %
*Direct Lending BDC BXSL (Various) (n)$ 3,926,295 $ 713,254 $ 3,267,808 N/A -$ 267,134 N/A$ 3,534,942 N/A N/A 9 % 106
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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) Unless otherwise indicated, Net Internal Rate of Return ("IRR") represents
the annualized inception to
based on realized proceeds and unrealized value, as applicable, after
management fees, expenses and Performance Revenues. IRRs are calculated
using actual timing of limited partner cash flows. Initial inception date of
cash flows may differ from the Investment Period Beginning Date.
(e) Effective
uncalled capital commitments until they are legally expired, which increased
(f) 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.
(g) 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.
(h) BPP represents the core+ real estate funds which invest with a more modest
risk profile and lower leverage.
not regularly reported to investors in our core+ strategy and are not
applicable in the context of these funds.
(i) Unrealized Investment Value reflects BREIT's net asset value as of
December 31, 2020 . Realized Investment Value represents BREIT's cash
distributions, net of servicing fees. The BREIT net return reflects a pershare 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
are not regularly reported to investors in our core+ strategy and are not
applicable in the context of this vehicle.
(j) BREDS High-Yield represents the flagship real estate debt drawdown funds
only and excludes BREDS High-Grade.
(k)
invests with a more modest risk profile and longer hold period than
traditional private equity.
(l) Realizations are treated as return of capital until fully recovered andtherefore 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 and therefore do not include the impact of
economic and market activities in the quarter in which such events occur.
(m) Funds presented represent the flagship credit drawdown funds only. The Total
Credit Net IRR is the combined IRR of the credit drawdown funds presented.
(n) Unrealized Investment Value reflects BXSL's net asset value as of
December 31, 2020 . Realized Investment Value represents BXSL's cash
distributions. BXSL's net return is annualized and calculated since
inception starting on
("NAV") per share during the period, plus distributions per share (assuming
dividends and distributions are reinvested in accordance with the Company's
dividend reinvestment plan) divided by the beginning NAV per share.
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, 2020 vs. 2019 2019 vs. 2018
2020 2019 2018 $ % $ %
(Dollars in Thousands)
Management Fees, Net
Base Management Fees $ 1,553,483 $ 1,116,183
98,225 175,831 152,513 (77,606 ) -44 % 23,318 15 % Management Fee Offsets
(13,020 ) (26,836 ) (11,442 ) 13,816 -51 % (15,394 ) 135 %
Total Management Fees, Net 1,638,688 1,265,178 1,126,470 373,510 30 % 138,708 12 % Fee Related Performance Revenues
338,161 198,237 124,502 139,924 71 % 73,735 59 % Fee Related Compensation
(618,105 ) (531,259 ) (459,430 ) (86,846 ) 16 % (71,829 ) 16 % Other Operating Expenses
(183,132 ) (168,332 ) (146,260 ) (14,800 ) 9 % (22,072 ) 15 %
Fee Related Earnings 1,175,612 763,824 645,282 411,788 54 % 118,542 18 %
Realized Performance Revenues 787,768 1,032,337 914,984 (244,569 ) -24 % 117,353 13 % Realized Performance Compensation
(312,698 ) (374,096 ) (284,319 ) 61,398 -16 % (89,777 ) 32 % Realized Principal Investment Income 24,764
79,733 92,525 (54,969 ) -69 % (12,792 ) -14 %
Net Realizations 499,834 737,974 723,190 (238,140 ) -32 % 14,784 2 %
Segment Distributable Earnings
$ 1,368,472 $ 173,648 12 %$ 133,326 10 % N/M Not meaningful. Year EndedDecember 31, 2020 Compared to Year EndedDecember 31, 2019 Segment Distributable Earnings were$1.7 billion for the year endedDecember 31, 2020 , an increase of$173.6 million , or 12%, compared to$1.5 billion for the year endedDecember 31, 2019 . The increase in Segment Distributable Earnings was primarily attributable to an increase of$411.8 million in Fee Related Earnings, partially offset by a decrease of$238.1 million in Net Realizations. Segment Distributable Earnings in our Real Estate segment in 2020 were higher compared to 2019. This was primarily driven by increased Fee Related Earnings due to the end of BREP IX's fee holiday in 2019, the commencement of BREP Europe VI's investment period in the fourth quarter of 2019 along with the end of its fee holiday in the first quarter of 2020 and growth in Fee-Earning Assets Under Management in core+ real estate, partially offset by decreased Net Realizations. The global economy has, with certain setbacks, continued to reopen following the onset of the COVID-19 pandemic and the related shutdowns or limitations in the operations of certain non-essential businesses. Market rebounds across many asset classes have contributed to capital deployment, realization and fundraising activity. Progress on COVID-19 vaccine production and distribution, together with continued support from previously implemented fiscal and monetary stimulus, have aided the continuing economic recovery and could potentially accelerate such recovery. Although certain investments in our real estate portfolio, such as those in the hospitality and retail sectors and in select office and residential assets in urban locations, have been materially impacted and could continue to be adversely affected, the majority of our aggregate global real estate portfolio in BREP and core+ real estate businesses is in sectors that we believe are more resilient to the impact of COVID-19. Nevertheless, the recovery could remain uneven and characterized by
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Table of Contents meaningful dispersion across sectors and regions, particularly given uncertainty with respect to the distribution and acceptance of the vaccines. The resurgence in COVID-19 infection levels in certain geographies and a potential resulting market downturn may pose material risks. These risks potentially create additional pressure for certain of our portfolio companies' and investments' liquidity needs and their ability to meet financial obligations, including by adversely impacting operational performance. We have not experienced a period of significant dislocation since the first quarter of 2020, during which the liquidity of certain assets traded in the credit markets was limited. Nonetheless, another period of such dislocation would impact the value of certain assets held by our funds, such funds' ability to sell assets at attractive prices or in a timely manner in order to avoid losses and the likelihood of margin calls from credit providers. A continuing market recovery, however, could contribute to increased activity over the longer term. We have also seen a continuing focus toward rent regulation as a means to address residential affordability caused by undersupply of housing in certain markets in theU.S. andEurope , as well as an increasing focus on the institution of eviction limitations in response to the COVID-19 pandemic in theU.S. In addition, the new Presidential administration and theU.S. Congress may introduce new or enforce existing policies and regulations that may create uncertainty for our business and investment strategies and could have an adverse impact on us and our portfolio companies. Such conditions (which may be across industries, sectors or geographies) may contribute to adverse operating performance, including moderated rent growth in certain markets in our residential portfolio. See "Part I. Item 1A. Risk Factors - Risks Related to Our Business - The global outbreak of the novel coronavirus, or COVID-19, has caused severe disruptions in theU.S. and global economies and has adversely impacted, and may continue to adversely impact, our performance and results of operations", "- 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, has contributed and could in the future 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$1.2 billion for the year endedDecember 31, 2020 , an increase of$411.8 million , or 54%, compared to$763.8 million for the year endedDecember 31, 2019 . The increase in Fee Related Earnings was primarily attributable to increases of$373.5 million in Management Fees, Net and$139.9 million in Fee Related Performance Revenues, partially offset by an increase of$86.8 million in Fee Related Compensation. Management Fees, Net were$1.6 billion for the year endedDecember 31, 2020 , an increase of$373.5 million compared to$1.3 billion for the year endedDecember 31, 2019 , primarily driven by an increase in Base Management Fees. Base Management Fees increased$437.3 million primarily due to the end of BREP IX's fee holiday in 2019, the commencement of BREP Europe VI's investment period in the fourth quarter of 2019 along with the end of its fee holiday in the first quarter of 2020 and Fee-Earning Assets Under Management growth in core+ real estate. The annualized Base ManagementFee Rate increased from 1.02% atDecember 31, 2019 to 1.14% atDecember 31, 2020 . The increase was principally due to BREP IX, the majority of which was under a Base Management Fee holiday in 2019, and BREP Europe VI, which commenced its investment period in the fourth quarter of 2019 and came out of its fee holiday in the first quarter of 2020. Fee Related Performance Revenues were$338.2 million for the year endedDecember 31, 2020 , an increase of$139.9 million , compared to$198.2 million for the year endedDecember 31, 2019 . The increase was primarily due to crystallization events in BPP Europe, a BPPU.S. co-investment and an increase in BREIT's net asset value. Fee Related Compensation was$618.1 million for the year endedDecember 31, 2020 , an increase of$86.8 million , compared to$531.3 million for the year endedDecember 31, 2019 . The increase was primarily due to increases in Management Fees, Net and Fee Related Performance Revenues, on which a portion of Fee Related Compensation is based.
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Table of Contents Net Realizations Net Realizations were$499.8 million for the year endedDecember 31, 2020 , a decrease of$238.1 million , compared to$738.0 million for the year endedDecember 31, 2019 . The decrease in Net Realizations was primarily attributable to decreases of$244.6 million in Realized Performance Revenues and$55.0 million in Realized Principal Investment Income, partially offset by a decrease of$61.4 million in Realized Performance Compensation. Realized Performance Revenues were$787.8 million for the year endedDecember 31, 2020 , a decrease of$244.6 million , compared to$1.0 billion for the year endedDecember 31, 2019 . The decrease was due to lower realized gains as a result of market impacts of COVID-19 in the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 . Realized Principal Investment Income was$24.8 million for the year endedDecember 31, 2020 , a decrease of$55.0 million , compared to$79.7 million for the year endedDecember 31, 2019 . The decrease was primarily due to redemptions in BREDS funds in the year endedDecember 31, 2019 and lower realized gains in BREP funds in the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 . Realized Performance Compensation was$312.7 million for the year endedDecember 31, 2020 , a decrease of$61.4 million , compared to$374.1 million for the year endedDecember 31, 2019 . The decrease was primarily due to the decrease in Realized Performance Revenues. Fund Returns Fund return information for our significant funds is included throughout this discussion and analysis to facilitate an understanding of our results of operations for the periods presented. The fund returns information reflected in this discussion and analysis is not indicative of the financial performance of Blackstone and is also not necessarily indicative of the future performance of any particular fund. An investment in Blackstone is not an investment in any of our funds. There can be no assurance that any of our funds or our other existing and future funds will achieve similar returns.
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The following table presents the internal rates of return, except where noted,
of our significant real estate funds:
December 31, 2020
Year Ended December 31, Inception to Date
2020 2019 2018 Realized Total Fund (a) Gross Net Gross Net Gross Net Gross Net Gross Net BREP IV 66 % 106 % 90 % 66 % -14 % -12 % 23 % 13 % 22 % 12 % BREP V -13 % -11 % 16 % 13 % -6 % -5 % 15 % 12 % 14 % 11 % BREP VI -16 % -15 % 34 % 28 % 7 % 5 % 18 % 13 % 17 % 13 % BREP VII -22 % -20 % 15 % 12 % 3 % 2 % 30 % 22 % 21 % 14 % BREP VIII 10 % 7 % 20 % 15 % 20 % 14 % 36 % 29 % 20 % 14 % BREP IX 35 % 21 % N/ M N/ M N/ A N/ A N/ M N/ M 35 % 20 % BREP Europe III (b) -14 % -11 % 1 % -1 % -18 % -15 % 30 % 20 % 22 % 14 % BREP Europe IV (b) -17 % -15 % 13 % 10 % 20 % 14 % 31 % 22 % 21 % 14 % BREP Europe V (b) 1 % - 20 % 14 % 25 % 17 % 67 % 51 % 15 % 9 % BREP Europe VI (b) 14 % - N/ M N/ M N/ A N /A N/ M N/ M 11 % - BREP Asia I -5 % -5 % 19 % 14 % 10 % 7 % 29 % 21 % 18 % 12 % BREP Asia II 8 % 4 % 27 % 16 % N/ M N/ M 74 % 47 % 14 % 7 %
BREP
Co-Investment
(c) 33 % 32 % 20 % 13 % -1 % - 18 % 16 % 18 % 16 % BPP (d) 7 % 6 % 10 % 8 % 11 % 10 % N/ M N/ M 11 % 9 % BREDS High-Yield (e) 5 % 1 % 17 % 13 % 9 % 4 % 15 % 11 % 14 % 10 % BREDS High-Grade (e) 2 % 1 % 8 % 7 % 7 % 5 % 8 % 6 % 5 % 4 % BREDS Liquid (f) -10 % -11 % 13 % 10 % 6 % 4 % N /A N /A 9 % 6 % BXMT (g) N /A -18 % N/ A 25 % N /A 7 % N /A N /A N /A 9 % BREIT (h) N /A 7 % N/ A 12 % N /A 8 % N /A N /A N /A 9 %
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) 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.
(d) BPP represents the core+ real estate funds which invest with a more modest
risk profile and lower leverage.
(e) 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
(f) BREDS Liquid represents BREDS funds that invest in liquid real estate debt
securities, except funds in liquidation and insurance mandates with specific
investment objectives. The returns presented represent summarized
asset-weighted gross and net rates of return from
to Date returns are presented on an annualized basis.
(g) Reflects annualized return of a shareholder invested in BXMT as of thebeginning 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 .
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Table of Contents (h) Reflects a per share blended return for each respective period, assuming
BREIT had a single share class, reinvestment of all dividends received
during the period, and no upfront selling commission, net of all fees and
expenses incurred by BREIT. These returns are not representative of thereturns experienced by any particular investor or share class. Inception to
date returns are presented on an annualized basis and are from
Funds With Closed Investment PeriodsThe Real Estate segment has eleven funds with closed investment periods as ofDecember 31, 2020 : BREP VIII, BREP VII, BREP VI, BREP V, BREP IV, BREP Europe V, BREP Europe IV, BREP Europe Ill, BREP Asia I, BREDS Ill and BREDS II. As ofDecember 31, 2020 , BREP VII, BREP VI, BREP V, BREP IV, BREP Europe IV, BREP Europe Ill and BREDS II were above their carried interest thresholds and would have been above their carried interest thresholds even if all remaining investments were valued at zero. BREP VIII, BREP Europe V, BREP Asia I and BREDS III were above their carried interest thresholds. Private Equity The following table presents the results of operations for our Private Equity segment: Year Ended December 31, 2020 vs. 2019 2019 vs. 2018 2020 2019 2018 $ % $ % (Dollars in Thousands) Management and Advisory Fees, Net Base Management Fees$ 1,232,028 $
986,482
26 % Transaction, Advisory and Other Fees, Net 82,440 115,174 58,165 (32,734 ) -28 % 57,009 98 % Management Fee Offsets (44,628 ) (37,327 ) (13,504 ) (7,301 ) 20 % (23,823 ) 176 % Total Management and Advisory Fees, Net 1,269,840 1,064,329 829,884 205,511 19 % 234,445 28 % Fee Related Compensation (455,538 ) (423,752 ) (375,446 ) (31,786 ) 8 % (48,306 ) 13 % Other Operating Expenses (195,213 ) (160,010 ) (133,096 ) (35,203 ) 22 % (26,914 ) 20 % Fee Related Earnings 619,089 480,567 321,342 138,522 29 % 159,225 50 % Realized Performance Revenues 877,493
468,992 757,406 408,501 87 % (288,414 )
-38 %
Realized Performance Compensation (366,949 ) (192,566 ) (318,167 ) (174,383 ) 91 % 125,601
-39 %
Realized Principal Investment Income 72,089 90,249 109,731 (18,160 ) -20 % (19,482 ) -18 %
Net Realizations 582,633 366,675 548,970 215,958 59 % (182,295 ) -33 %
Segment Distributable Earnings $ 1,201,722 $ 847,242 $ 870,312 $ 354,480 42 % $ (23,070 ) -3 %
N/M Not meaningful.
Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
Segment Distributable Earnings were $1.2 billion for the year ended
December 31, 2020 , an increase of $354.5 million , or 42%, compared to
$847.2 million for the year ended December 31, 2019 . The increase in Segment
Distributable Earnings was primarily attributable to increases of $138.5 million
in Fee Related Earnings and $216.0 million in Net Realizations.
Segment Distributable Earnings in our Private Equity segment in 2020 were higher
compared to 2019. This was primarily driven by an increase in Fee Related
Earnings from growth in
Fee-Earning
Assets Under Management and an increase in Net Realizations due to higher
Realized Performance Revenue, partially offset by an increase in Realized
Performance Compensation. The global economy has, with certain setbacks,
continued to reopen following the onset of the
COVID-19
pandemic and the related shutdowns or limitations in the operations of certain
non-essential
businesses. Market rebounds across many asset classes have contributed to
capital deployment, realization and fundraising activity. Progress on
COVID-19
vaccine production and distribution,
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Table of Contents together with continued support from previously implemented fiscal and monetary stimulus, have aided the continuing economic recovery and could potentially accelerate such recovery. Although certain investments in our private equity portfolio, such as those in the travel, leisure and events sectors, have experienced material reductions in value and could continue to be adversely impacted, the majority of our aggregate non-energy portfolio in our corporate private funds is in sectors that we believe are more resilient to the impact of COVID-19. Nevertheless, the recovery could remain uneven and characterized by meaningful dispersion across sectors and regions, particularly given uncertainty with respect to the distribution and acceptance of the vaccines. The resurgence in COVID-19 infection levels in certain geographies and a potential resulting market downturn may pose material risks. These risks potentially create additional pressure for certain of our portfolio companies' liquidity needs and their ability to meet financial obligations. A continuing market recovery, however, could contribute to increased activity over the longer term. In energy, oil prices have stabilized since the significant declines experienced in the first quarter of 2020. Nonetheless, weakened market fundamentals continue to pose challenges, particularly in upstream energy, which represents 3% of the Private Equity segment's investment portfolio and less than 2% of Blackstone's aggregate investment portfolio. An increased focus on energy sustainability due to concerns about climate change and the impact of carbon emissions, including potential alternatives to fossil fuels, has also exacerbated the impact of such weakened market fundamentals. The persistence of these weakened market fundamentals would further negatively impact the performance of certain investments in our energy and corporate private equity funds. In addition, the new Presidential administration and theU.S. Congress may introduce new or enforce existing policies and regulations that may create uncertainty for our business and investment strategies and could have an adverse impact on us and our portfolio companies. For example, new policies seeking to increase the corporate tax rate or raise the minimum wage could adversely affect our business and the profitability of our portfolio companies. See "Part I. Item 1A. Risk Factors - Risks Related to Our Business - The global outbreak of the novel coronavirus, or COVID-19, has caused severe disruptions in theU.S. and global economies and has adversely impacted, and may continue to adversely impact, our performance and results of operations", "- 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, has contributed and could in the future 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$619.1 million for the year endedDecember 31, 2020 , an increase of$138.5 million , or 29%, compared to$480.6 million for the year endedDecember 31, 2019 . The increase in Fee Related Earnings was primarily attributable to an increase of$205.5 million in Management and Advisory Fees, Net, partially offset by increases of$35.2 million in Other Operating Expenses and$31.8 million in Fee Related Compensation. Management and Advisory Fees, Net were$1.3 billion for the year endedDecember 31, 2020 , an increase of$205.5 million compared to$1.1 billion for the year endedDecember 31, 2019 , primarily driven by an increase in Base Management Fees. Base Management Fees increased$245.5 million primarily due to the end of BCP VIII,BEP III and BXLS V's fee holidays during the third quarter of 2020 and a full year of Base Management Fees from Strategic Partners VIII. Other Operating Expenses were$195.2 million for the year endedDecember 31, 2020 , an increase of$35.2 million , compared to$160.0 million for the year endedDecember 31, 2019 . The increase was primarily due to growth in our BIP, Tactical Opportunities and BXLS businesses, partially offset by less travel and entertainment expenses in the year endedDecember 31, 2020 due to COVID-19. 113
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Table of Contents Fee Related Compensation was$455.5 million for the year endedDecember 31, 2020 , an increase of$31.8 million , compared to$423.8 million for the year endedDecember 31, 2019 . The increase was primarily due to an increase in Management and Advisory Fees, Net on which a portion of Fee Related Compensation is based. Net Realizations Net Realizations were$582.6 million for the year endedDecember 31, 2020 , an increase of$216.0 million , or 59%, compared to$366.7 million for the year endedDecember 31, 2019 . The increase in Net Realizations was primarily attributable to an increase of$408.5 million in Realized Performance Revenues, partially offset by an increase of$174.4 million in Realized Performance Compensation and a decrease of$18.2 million inRealized Principal Investment Income. Realized Performance Revenues were$877.5 million for the year endedDecember 31, 2020 , an increase of$408.5 million , compared to$469.0 million for the year endedDecember 31, 2019 . The increase was primarily due to higher Realized Performance Revenues in corporate private equity and Tactical Opportunities. Realized Performance Compensation was$366.9 million for the year endedDecember 31, 2020 , an increase of$174.4 million , compared to$192.6 million for the year endedDecember 31, 2019 . The increase was primarily due to the increase in Realized Performance Revenues. Realized Principal Investment Income was$72.1 million for the year endedDecember 31, 2020 , a decrease of$18.2 million , compared to$90.2 million for the year endedDecember 31, 2019 . The decrease was primarily due to a decrease of Realized Principal Investment Income in corporate private equity. 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.
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Table of Contents
The following table presents the internal rates of return of our significant
private equity funds:
December 31, 2020
Year Ended December 31, Inception to Date
2020 2019 2018 Realized Total
Fund (a) Gross Net Gross Net Gross Net Gross Net Gross Net
BCP IV -15 % -15 % 68 % 51 % 6 % 5 % 50 % 36 % 50 % 36 %
BCP V 14 % 5 % -14 % -4 % -6 % -5 % 10 % 8 % 10 % 8 %
BCP VI 18 % 16 % 4 % 3 % 17 % 14 % 22 % 17 % 17 % 13 %
BCP VII 11 % 9 % 24 % 18 % 43 % 28 % 32 % 20 % 23 % 15 %
BCP Asia 56 % 42 % 43 % 24 % N/ M N/ M 292 % 145 % 56 % 35 %
BEP I -19 % -18 % - - 18 % 15 % 19 % 15 % 13 % 10 %
BEP II -31 % -31 % -5 % -3 % 32 % 20 % -8 % -18 % -5 % -9 %
BCOM -4 % -5 % -22 % -23 % 3 % 2 % 13 % 6 % 13 % 6 %
BCEP I (b) 33 % 29 % 24 % 20 % N/ M N/ M 37 % 33 % 23 % 20 %
BIP 6 % 1 % N/ M N/ M N/ A N/ A N/ A N/ A 6 % -
Clarus IV 3 % - 68 % 46 % N/ M N/ M 26 % 15 % 24 % 11 %
Tactical Opportunities 19 % 15 % 10 % 6 % 13 % 9 % 21 % 17 % 15 % 11 %
Tactical Opportunities
Co-Investment
and Other 14 % 11 % 15 % 14 % 13 % 11 % 21 % 19 % 18 % 15 %
Strategic Partners
I-V
(c) -4 % -5 % - -1 % 9 % 6 % N/ A N/ A 16 % 13 %
Strategic Partners VI (c) -9 % -9 % -4 % -5 % 18 % 15 % N/ A N/ A 18 % 13 %
Strategic Partners VII (c) -7 % -8 % 12 % 10 % 32 % 26 % N/ A N/ A 18 % 13 %
Strategic Partners Real Assets II (c) 10 % 6 % 21 % 17 % 33 % 22 % N/ A N/ A 18 % 12 %
Strategic Partners VIII (c) 6 % 2 % N/ M N/ M N/ A N/ A N/ A N/ A 38 % 25 %
Strategic Partners RE, SMA and Other (c) 2 % 2 % 19 % 18 % 15 % 13 % N/ A N/ A
16 % 12 %
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) BCEP is a core private equity strategy which invests with a more modest risk
profile and longer hold period than traditional private equity.
(c) Realizations are treated as return of capital until fully recovered and
therefore inception to date realized returns are not applicable. If
information is not available on a timely basis, returns are calculated from
results that are reported on a three month lag and therefore do not include
the impact of economic and market activities in the quarter in which such
events occur.
Funds With Closed Investment Periods The corporate private equity funds within the Private Equity segment have seven funds with closed investment periods: BCP IV, BCP V, BCP VI, BCP VII, BCOM, BEP I andBEP II . As ofDecember 31, 2020 , 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 115
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Table of Contents 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. As ofDecember 31, 2020 , BCP V was below its carried interest threshold, while BCP V-AC was above its carried interest threshold. BCP VI, BCP VII, BCOM and BEP I were above their respective carried interest thresholds. 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 II was below its carried interest threshold. Hedge Fund Solutions The following table presents the results of operations for ourHedge Fund Solutions segment: Year Ended December 31, 2020 vs. 2019 2019 vs. 2018 2020 2019 2018 $ % $ % (Dollars in Thousands) Management Fees, Net Base Management Fees$ 582,830 $ 556,730 $ 519,782 $ 26,100 5%$ 36,948 7% Transaction and Other Fees, Net 5,899 3,533 3,180 2,366 67% 353 11% Management Fee Offsets (650 ) (138 ) (93 ) (512 ) 371% (45 ) 48% Total Management Fees, Net 588,079 560,125 522,869 27,954 5% 37,256 7% Fee Related Compensation (161,713 ) (151,960 ) (162,172 ) (9,753 ) 6% 10,212 -6% Other Operating Expenses (79,758 ) (81,999 ) (77,772 ) 2,241 -3% (4,227 ) 5% Fee Related Earnings 346,608 326,166 282,925 20,442 6% 43,241 15% Realized Performance Revenues 179,789 126,576 42,419 53,213 42% 84,157 198%
Realized Performance Compensation (31,224 ) (24,301 )
(21,792 ) (6,923 ) 28% (2,509 ) 12% Realized Principal Investment Income 54,110 21,707 17,039 32,403 149% 4,668 27% Net Realizations 202,675 123,982 37,666 78,693 63% 86,316 229%
Segment Distributable Earnings
320,591$ 99,135 22%$ 129,557 40% N/M Not meaningful. Year EndedDecember 31, 2020 Compared to Year EndedDecember 31, 2019 Segment Distributable Earnings were$549.3 million for the year endedDecember 31, 2020 , an increase of$99.1 million , or 22%, compared to$450.1 million for the year endedDecember 31, 2019 . The increase in Segment Distributable Earnings was primarily attributable to increases of$20.4 million in Fee Related Earnings and$78.7 million in Net Realizations. Segment Distributable Earnings in our Hedge Fund Solutions segment in 2020 were higher compared to 2019. This increase was primarily driven by increased Realized Performance Revenues and Realized Principal Investment Income, partially offset by increased Realized Performance Compensation. The global economy has, with certain setbacks, continued to reopen following the onset of the COVID-19 pandemic and the related shutdowns or limitations in the operations of certain non-essential businesses. Following a more muted period since the onset of the COVID-19 pandemic, the market has experienced rebounds across many asset classes, and our Hedge Fund Solutions segment largely recovered from the losses in composite returns experienced in the first quarter of 2020. The segment has also benefited from the recovery of liquidity in the market during the second half of 2020. Progress on COVID-19 vaccine production and distribution, together with continued support from previously implemented fiscal and monetary stimulus, have aided the continuing economic recovery and could potentially accelerate such recovery. Nevertheless, the recovery could remain uneven and characterized by meaningful dispersion across sectors and regions, particularly given uncertainty with respect to the distribution and acceptance of the vaccines. The resurgence in COVID-19 infection levels in certain geographies and a potential resulting market downturn may pose material risks to our Hedge Fund Solutions segment, including by potentially causing investors to seek liquidity in the form of redemptions from our funds and adversely impacting management fees. We have not experienced a period of significant dislocation since the first quarter of 2020,
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Table of Contents during which the liquidity of certain assets traded in the credit markets was limited. Nonetheless, another period of such dislocation would impact the value of certain assets held by our funds, such funds' ability to sell such assets at attractive prices or in a timely manner in order to avoid losses and the likelihood of margin calls from credit providers. In addition, future market uncertainty could slow the pace of fundraising in our Hedge Fund Solutions segment, which may result in a delay in management fees. A continuing market recovery, however, could contribute to increased activity over the longer term. In an equity market environment that generally has 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 expect 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. In addition, the new Presidential administration and theU.S. Congress may introduce new or enforce existing policies and regulations that may create uncertainty for our business and investment strategies and may adversely affect the profitability of certain of our investments. See "Part I. Item 1A. Risk Factors - Risks Related to Our Business - The global outbreak of the novel coronavirus, or COVID-19, has caused severe disruptions in theU.S. and global economies and has adversely impacted, and may continue to adversely impact, our performance and results of operations", "- 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, has contributed and could in the future 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$346.6 million for the year endedDecember 31, 2020 , an increase of$20.4 million , compared to$326.2 million for the year endedDecember 31, 2019 . The increase in Fee Related Earnings was primarily attributable to an increase of$28.0 million in Management Fees, Net, partially offset by an increase of$9.8 million in Fee Related Compensation. Management Fees, Net were$588.1 million for the year endedDecember 31, 2020 , an increase of$28.0 million , compared to$560.1 million for the year endedDecember 31, 2019 , primarily driven by an increase in Base Management Fees. Base Management Fees increased$26.1 million primarily driven by Fee-Earning Assets Under Management growth in our individual investor and specialized solutions platform. Fee Related Compensation was$161.7 million for the year endedDecember 31, 2020 , an increase of$9.8 million , compared to$152.0 million for the year endedDecember 31, 2019 . The increase was primarily due to an increase in Management Fees, Net, on which a portion of Fee Related Compensation is based. Net Realizations Net Realizations were$202.7 million for the year endedDecember 31, 2020 , an increase of$78.7 million , or 63%, compared to$124.0 million for the year endedDecember 31, 2019 . The increase in Net Realizations was primarily attributable to increases of$53.2 million in Realized Performance Revenues and$32.4 million in Realized Principal Investment Income, partially offset by an increase of$6.9 million in Realized Performance Compensation. Realized Performance Revenues were$179.8 million for the year endedDecember 31, 2020 , an increase of$53.2 million , compared to$126.6 million for the year endedDecember 31, 2019 . The increase was primarily driven by higher returns in our individual investor and specialized solutions platform compared to the year endedDecember 31, 2019 .
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Table of Contents Realized Principal Investment Income was$54.1 million for the year endedDecember 31, 2020 , an increase of$32.4 million , compared to$21.7 million for the year endedDecember 31, 2019 . The increase was primarily due to the realized gains on our corporate treasury investments allocated to the segment. Realized Performance Compensation was$31.2 million for the year endedDecember 31, 2020 , an increase of$6.9 million , compared to$24.3 million for the year endedDecember 31, 2019 . The increase was primarily due to the increase in Realized Performance Revenues. 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 or composite. 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 December 31, 2020 One Year Three Year Five Year Historical Composite Gross Net
Gross Net Gross Net Gross Net BAAM Principal Solutions Composite (b) 5 %
5 % 5 % 4 % 5 % 5 % 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
funds/accounts that comprise the BPS Composite are not managed within a
single fund or account and are managed with different mandates. There is no
guarantee that BAAM would have made the same mix of investments in a
standalone fund/account. The BPS Composite is not an investible product and,
as such, the performance of the BPS Composite does not represent the
performance of an actual fund or account. The historical return is from
January 1, 2000 .
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Operating Metrics
The following table presents information regarding our Invested Performance
Eligible Assets Under Management:
Invested Performance Estimated % Above
Eligible Assets Under High Water
Management Mark/Benchmark (a)
December 31, December 31,
2020 2019 2018 2020 2019 2018
(Dollars in Thousands)
Hedge Fund Solutions Managed Funds (b)
$ 42,393,275 75 % 91 % 46 %
(a) Estimated % Above High Water Mark/Benchmark represents the percentage of
Invested Performance Eligible Assets Under Management that as of the dates
presented would earn performance fees when the applicable Hedge Fund
Solutions managed fund has positive investment performance relative to a
benchmark, where applicable. Incremental positive performance in the
applicable Blackstone Funds may cause additional assets to reach 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 25% of Invested Performance Eligible
Assets Under Management below their respective High Water Marks/Benchmarks to
reach their respective High Water Marks/Benchmarks was
increase of
Of the Invested Performance Eligible Assets Under Management below their
respective High Water Marks/ Benchmarks as of
within 5% of reaching their respective High Water Mark.
Credit & Insurance The following table presents the results of operations for our Credit & Insurance segment:
Year Ended December 31, 2020 vs. 2019 2019 vs. 2018
2020 2019 2018 $ % $ %
(Dollars in Thousands)
Management Fees, Net
Base Management Fees $ 603,713 $ 586,535 $ 553,921 $ 17,178 3% $ 32,614 6%
Transaction and Other Fees, Net 21,311 19,882 15,640 1,429 7% 4,242 27%
Management Fee Offsets (10,466 ) (11,813 ) (12,332 ) 1,347 -11% 519 -4%
Total Management Fees, Net 614,558 594,604 557,229 19,954 3% 37,375 7%
Fee Related Performance Revenues 40,515 13,764 (666 ) 26,751 194% 14,430 N/M
Fee Related Compensation (261,214 ) (229,607 ) (219,098 ) (31,607 ) 14% (10,509 ) 5%
Other Operating Expenses (165,114 ) (160,801 ) (131,200 ) (4,313 ) 3% (29,601 ) 23%
Fee Related Earnings 228,745 217,960 206,265 10,785 5% 11,695 6%
Realized Performance Revenues 20,943 32,737 96,962 (11,794 ) -36% (64,225 ) -66%
Realized Performance Compensation (3,476 ) (12,972 ) (53,863 ) 9,496 -73% 40,891 -76%
Realized Principal Investment Income 7,970 32,466 16,763 (24,496 ) -75% 15,703 94%
Net Realizations 25,437 52,231 59,862 (26,794 ) -51% (7,631 ) -13%
Segment Distributable Earnings
266,127$ (16,009 ) -6%$ 4,064 2% N/M Not meaningful. 119
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Table of Contents Year EndedDecember 31, 2020 Compared to Year EndedDecember 31, 2019 Segment Distributable Earnings were$254.2 million for the year endedDecember 31, 2020 , a decrease of$16.0 million , compared to$270.2 million for the year endedDecember 31, 2019 . The decrease in Segment Distributable Earnings was primarily attributable to a decrease of$26.8 million in Net Realizations, partially offset by an increase of$10.8 million in Fee Related Earnings. Segment Distributable Earnings in our Credit & Insurance segment in 2020 were lower compared to 2019, driven by lower Net Realizations due to lower Realized Principal Investment Income and Realized Performance Revenues. The global economy has, with certain setbacks, continued to reopen following the onset of the COVID-19 pandemic and the related shutdowns or limitations in the operations of certain non-essential businesses. Although the pandemic has adversely impacted and could continue to adversely impact the performance of our Credit & Insurance segment, the majority of the segment's portfolio is in sectors that we believe are more resilient to the impact of COVID-19. The market has experienced rebounds across many asset classes, and our Credit & Insurance segment largely recovered from the losses in composite returns experienced in the first quarter of 2020. The segment has also benefited from the recovery of liquidity in the market during the second half of 2020. The continuing recovery has also contributed to capital deployment, realization and fundraising activity. Progress on COVID-19 vaccine production and distribution, together with continued support from previously implemented fiscal and monetary stimulus, have also aided the continuing recovery and could potentially accelerate such recovery. Nevertheless, the recovery could remain uneven and characterized by meaningful dispersion across sectors and regions, particularly given uncertainty with respect to the distribution and acceptance of the vaccines. The resurgence in COVID-19 infection levels in certain geographies and a potential resulting market downturn may pose material risks, which potentially create additional pressure for borrowers with respect to their ability to meet their debt payment obligations or increase their focus on deleveraging. Our Credit & Insurance funds have, however, continued to actively manage their portfolios in order to limit downside and protect capital. Further, we have not experienced a period of significant dislocation since the first quarter of 2020, during which the liquidity of certain assets traded in the credit markets was limited. Nonetheless, another period of such dislocation would impact the value of certain assets held by our funds and such funds' ability to sell such assets at attractive prices or in a timely manner, each of which would adversely impact performance revenues in our Credit & Insurance segment. A continuing market recovery, however, could contribute to increased activity over the longer term. In energy, oil prices have stabilized since the significant declines experienced in the first quarter of 2020. Nonetheless, weakened market fundamentals continue to pose challenges, particularly in upstream energy, which represents 3% of the Credit & Insurance segment's investment portfolio and less than 2% of Blackstone's aggregate investment portfolio. An increased focus on energy sustainability due to concerns about climate change and the impact of carbon emissions, including potential alternatives to fossil fuels, has also exacerbated the impact of such weakened market fundamentals. The persistence of these weakened market fundamentals in the energy sector or in the credit markets more broadly would further negatively impact the performance of certain investments in our credit funds. In addition, the new Presidential administration and theU.S. Congress may introduce new or enforce existing policies and regulations that may create uncertainty for our business and investment strategies and may adversely affect the profitability of certain of our investments. See "Part I. Item 1A. Risk Factors - Risks Related to Our Business - The global outbreak of the novel coronavirus, or COVID-19, has caused severe disruptions in theU.S. and global economies and has adversely impacted, and may continue to adversely impact, our performance and results of operations", "- 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, has contributed and could in the future 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$228.7 million for the year endedDecember 31, 2020 , an increase of$10.8 million , compared to$218.0 million for the year endedDecember 31, 2019 . The increase in Fee Related Earnings was primarily attributable to increases of$26.8 million in Fee Related Performance Revenues and$20.0 million in Management Fees, Net, partially offset by an increase of$31.6 million in Fee Related Compensation.
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Table of Contents Fee Related Performance Revenues were$40.5 million for the year endedDecember 31, 2020 , an increase of$26.8 million , compared to$13.8 million for the year endedDecember 31, 2019 . The increase was primarily due to performance and growth in assets in our BDC. Management Fees, Net were$614.6 million for the year endedDecember 31, 2020 , an increase of$20.0 million , compared to$594.6 million for the year endedDecember 31, 2019 , primarily driven by an increase in Base Management Fees. Base Management Fees increased$17.2 million primarily due to increased capital deployed in our most recently launched credit funds and vehicles, including our BDC, and inflows in our liquid credit business, partially offset by a decrease in Harvest. Fee Related Compensation was$261.2 million for the year endedDecember 31, 2020 , an increase of$31.6 million , compared to$229.6 million for the year endedDecember 31, 2019 . The increase was primarily due to increases in Management Fees, Net and Fee Related Performance Revenues, on which a portion of Fee Related Compensation is based. Net Realizations Net Realizations were$25.4 million for the year endedDecember 31, 2020 , a decrease of$26.8 million , compared to$52.2 million for the year endedDecember 31, 2019 . The decrease in Net Realizations was primarily attributable to decreases of$24.5 million in Realized Principal Investment Income and$11.8 million in Realized Performance Revenues, partially offset by a decrease of$9.5 million in Realized Performance Compensation. Realized Principal Investment Income was$8.0 million for the year endedDecember 31, 2020 , a decrease of$24.5 million , compared to$32.5 million for the year endedDecember 31, 2019 . The decrease was primarily due to higher realized gains in our corporate treasury investments in the year endedDecember 31, 2019 compared to the year endedDecember 31, 2020 . Realized Performance Revenues were$20.9 million for the year endedDecember 31, 2020 , a decrease of$11.8 million , compared to$32.7 million for the year endedDecember 31, 2019 . The decrease was primarily attributable to a decrease in realized carry compared to the year endedDecember 31, 2019 . Realized Performance Compensation was$3.5 million for the year endedDecember 31, 2020 , a decrease of$9.5 million , compared to$13.0 million for the year endedDecember 31, 2019 . The decrease was primarily due to the decrease in Realized Performance Revenues. 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 or composite. 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 for the Credit Composite: Inception to Year Ended December 31, December 31, 2020 2020 2019 2018 Total Composite (a) Gross Net Gross Net
Gross Net Gross Net
Credit Composite (b) 4 % 3 % 9 % 8 % 2 % 1 % 9 % 6 %
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Table of Contents 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) Effective
composite return instead of separate returns for performing credit strategies
and distressed strategies. The Credit Composite now also includes the liquid
credit strategy. The Credit Composite return is a weighted-average of (a) the
return based on the combined quarterly cash flows of the private credit
fee-earning
funds and (b) the weighted-average quarterly return of all liquid credit
strategy
fee-earning
funds. Only
fee-earning
funds exceeding $100 million of fair value at the beginning of eachrespective quarter end are included and funds in liquidation are excluded.
Credit returns exclude Blackstone Funds that were contributed to BXC as part
of Blackstone's acquisition of BXC in
pre-acquisition
date performance for funds and vehicles acquired by BXC subsequent to March
2008. The inception to date returns are from
have been updated to reflect this presentation.
Operating Metrics The following table presents information regarding our Invested Performance Eligible Assets Under Management:
Estimated % Above
Invested Performance High Water
Eligible Assets Under
Management Mark/Hurdle
December 31, December 31,
2020 2019 2018 2020 2019 2018
(Dollars in Thousands)
Credit & Insurance $ 28,944,333 $ 26,004,779 $ 22,943,261 58 % 72 % 67 %
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: Year Ended December 31, 2020 2019 2018 (Dollars in Thousands) Net Income Attributable to The Blackstone Group Inc.$ 1,045,363 $ 2,049,682 $ 1,541,788 Net Income Attributable to Non-Controlling Interests in Blackstone Holdings 1,012,924 1,339,627 1,364,989 Net Income Attributable to Non-Controlling Interests in Consolidated Entities 217,117 476,779 358,878 Net Loss Attributable to Redeemable Non-Controlling Interests in Consolidated Entities (13,898 ) (121 ) (2,104 ) Net Income 2,261,506 3,865,967 3,263,551 Provision (Benefit) for Taxes 356,014 (47,952 ) 249,390 Net Income Before Provision (Benefit) for Taxes 2,617,520 3,818,015 3,512,941 Transaction-Related Charges (a) 240,729 208,613 (261,916 ) Amortization of Intangibles (b) 65,984 65,931 59,994 Impact of Consolidation (c) (203,219 ) (476,658 ) (356,774 ) Unrealized Performance Revenues (d) 384,758 (1,126,668 ) (561,163 ) Unrealized Performance Allocations Compensation (e) (154,516 ) 540,285 319,742 Unrealized Principal Investment (Income) Loss (f) 101,742 (113,327 ) 65,851 Other Revenues (g) 253,693 (79,447 ) (89,468 ) Equity-Based Compensation (h) 333,767 230,194 158,220 Administrative Fee Adjustment (i) 5,265 - - Taxes and Related Payables (j) (304,127 )
(196,159 ) (153,865 )
Distributable Earnings 3,341,596 2,870,779 2,693,562 Taxes and Related Payables (j) 304,127 196,159 153,865 Net Interest (Income) Loss (k) 34,910 2,441 (21,925 ) Total Segment Distributable Earnings 3,680,633 3,069,379 2,825,502 Realized Performance Revenues (l) (1,865,993 ) (1,660,642 ) (1,811,771 ) Realized Performance Compensation (m) 714,347 603,935 678,141 Realized Principal Investment Income (n) (158,933 )
(224,155 ) (236,058 )
Fee Related Earnings$ 2,370,054 $
1,788,517
Adjusted EBITDA Reconciliation Distributable Earnings$ 3,341,596 $ 2,870,779 $ 2,693,562 Interest Expense (o) 165,022 195,034 159,838 Taxes and Related Payables (j) 304,127 196,159 153,865 Depreciation and Amortization 35,136 26,350 23,882 Adjusted EBITDA$ 3,845,881 $ 3,288,322 $ 3,031,147
(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.
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Table of Contents (b) This adjustment removes the amortization of transaction-related intangibles,
which are excluded from Blackstone's segment presentation. This amount
includes amortization of intangibles associated with Blackstone's investment
in Pátria, which is accounted for under the equity method.
(c) This adjustment reverses the effect of consolidating Blackstone Funds, which
are excluded from Blackstone's segment presentation. This adjustment includes
the elimination of Blackstone's interest in these funds and the removal of
amounts associated with the ownership of Blackstone consolidated operating
partnerships held by
non-controlling
interests.
(d) This adjustment removes Unrealized Performance Revenues on a segment basis.
The Segment Adjustment represents the add back of performance revenues earned
from consolidated Blackstone Funds which have been eliminated in
consolidation.
Year Ended December 31,
2020 2019 2018
(Dollars in Thousands)
GAAP Unrealized Performance Allocations
(365 ) 336 (210 )
Unrealized Performance Revenues$ (384,758 ) $ 1,126,668 $ 561,163
(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,
2020 2019 2018
(Dollars in Thousands)
GAAP Unrealized Principal Investment Income (Loss) $ (114,607 ) $ 215,003 $ 49,917
Segment Adjustment 12,865 (101,676 ) (115,768 )
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,
2020 2019 2018
(Dollars in Thousands)
GAAP Other Revenue $ (253,142 ) $ 79,993 $ 672,317
Segment Adjustment (551 ) (546 ) (582,849 )
Other Revenues $ (253,693 ) $ 79,447 $ 89,468 (h) This adjustment removes Equity-Based Compensation on a segment basis.
(i) This adjustment adds an amount equal to an administrative fee collected on a
quarterly basis from certain holders of
Units. The administrative fee is accounted for as a capital contribution
under GAAP, but is reflected as a reduction of Other Operating Expenses in
Blackstone's segment presentation.
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Table of Contents (j) 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. See
"- Key Financial Measures and Indicators - Distributable Earnings" for the
full definition of Taxes and Related Payables.
Year Ended December 31,
2020 2019 2018
(Dollars in Thousands)
Taxes $ 260,569 $ 140,416 $ 90,022
Related Payables 43,558 55,743 63,843
Taxes and Related Payables
(k) This adjustment removes Interest and Dividend Revenue less Interest Expense
on a segment basis. The Segment Adjustment represents (1) the add back of
Interest and Dividend Revenue 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,
2020 2019 2018
(Dollars in Thousands)
GAAP Interest and Dividend Revenue $ 125,231 $ 182,398 $ 171,947
Segment Adjustment 4,881 10,195 9,816
Interest and Dividend Revenue 130,112 192,593 181,763
GAAP Interest Expense 166,162 199,648 163,990
Segment Adjustment (1,140 ) (4,614 ) (4,152 )
Interest Expense 165,022 195,034 159,838
Net Interest Income (Loss) $ (34,910 ) $ (2,441 ) $ 21,925 (l) This adjustment removes the total segment amount of Realized Performance
Revenues.
(m) This adjustment removes the total segment amount of Realized Performance
Compensation.
(n) This adjustment removes the total segment amount of Realized Principal
Investment Income.
(o) This adjustment adds back Interest Expense on a segment basis, excluding
interest expense related to the Tax Receivable Agreement.
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The following tables are a reconciliation of Total GAAP Investments to Net
Accrued Performance Revenues. Total GAAP Investments and Net Accrued Performance
Revenues consist of the following:
December 31,
2020 2019
(Dollars in Thousands)
Investments of Consolidated Blackstone Funds $ 1,455,008 $ 8,380,698
Equity Method Investments
Partnership Investments 4,353,234 4,035,675
Accrued Performance Allocations 6,891,262
7,180,449
Corporate Treasury Investments 2,579,716 2,419,587 Other Investments 337,922 265,273 Total GAAP Investments$ 15,617,142 $ 22,281,682 Accrued Performance Allocations - GAAP$ 6,891,262 $
7,180,449
Impact of Consolidation (a) 1
384
Due From Affiliates - GAAP (b) 165,678
154,980
Less: Net Realized Performance Revenues (c) (313,610 )
(214,662 ) Less: Accrued Performance Compensation - GAAP (d) (2,917,609 ) (3,021,899 )
Net Accrued Performance Revenues$ 3,825,722 $ 4,099,252
(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 Performance Revenues realized but not yet distributed as of the
reporting date and are included in Distributable Earnings in the period they
are realized.
(d) Represents GAAP accrued performance compensation associated with Accrued
Performance Allocations and is recorded within Accrued Compensation and
Benefits and Due to Affiliates.
Liquidity and Capital 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.
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Table of Contents During the year endedDecember 31, 2020 , Blackstone deconsolidated nine CLO vehicles. See Note 9. "Variable Interest Entities" in the "Notes to Consolidated Financial Statements" in "- Item 8. Financial Statements and Supplementary Data" of this filing for additional details. Total assets were$26.3 billion as ofDecember 31, 2020 , a decrease of$6.3 billion , fromDecember 31, 2019 . The decrease in total assets was principally due to a decrease of$7.3 billion in total assets attributable to the consolidated Blackstone funds. The decrease in total assets attributable to the consolidated Blackstone funds was primarily due to a decrease of$6.9 billion in Investments which was primarily due to the deconsolidation of nine CLO vehicles. The other net variances of the assets attributable to the consolidated operating partnerships were relatively unchanged. Total liabilities were$11.7 billion as ofDecember 31, 2020 , a decrease of$5.8 billion , fromDecember 31, 2019 . The decrease in total liabilities was principally due to a decrease of$7.3 billion in total liabilities attributable to the consolidated Blackstone funds, partially offset by an increase of$1.1 billion in total liabilities attributable to consolidated operating partnerships. The decrease in total liabilities attributable to consolidated Blackstone funds was primarily due to a decrease of$6.5 billion in Loans Payable. The decrease in Loans Payable was primarily due to the deconsolidation of nine CLO vehicles. The increase in total liabilities attributable to the consolidated operating partnerships was primarily due to an increase of$1.0 billion in Loans Payable. The increase in Loans Payable was primarily due to the issuance of$900 million of notes onSeptember 29, 2020 . The other net variances of the liabilities attributable to the consolidated operating partnerships were relatively unchanged. We have multiple sources of liquidity to meet our capital needs as described in "- Sources and Uses of Liquidity." While our liquidity has not been materially impacted by the COVID-19 pandemic to date, we continue to closely monitor developments in the impact of the COVID-19 pandemic and actively evaluate our sources and uses of liquidity in light of such developments. See "Part I. Item IA. Risk Factors - The global outbreak of the novel coronavirus, or COVID-19, has caused severe disruptions in theU.S. and global economies and has adversely impacted, and may continue to adversely impact, our performance and results of operations." 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$2.25 billion committed revolving credit facility. OnNovember 24, 2020 , Blackstone amended and restated its revolving credit facility to, among other things, increase the amount of the revolving credit facility from$1.6 billion to$2.25 billion and to extend the maturity date of the revolving credit facility fromSeptember 21, 2023 toNovember 24, 2025 . As ofDecember 31, 2020 , Blackstone had$2.0 billion in cash and cash equivalents,$2.6 billion invested in corporate treasury investments, against$5.7 billion in borrowings from our bond issuances, and no borrowings outstanding under our revolving credit facility. OnSeptember 29, 2020 , Blackstone issued$500 million aggregate principal amount of 1.600% senior notes dueMarch 30, 2031 and$400 million aggregate principal amount of 2.800% senior notes dueSeptember 30, 2050 . Blackstone intends to use the net proceeds from the sale of the notes for general corporate purposes. For additional information see Note 13. "Borrowings" in the "Notes to Consolidated Financial Statements" in "- Item 8. Financial Statements and Supplementary Data." 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.
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Table of Contents 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 andBlackstone Holdings Partnership Units pursuant to our repurchase program and (h) pay dividends to our shareholders and distributions to the holders ofBlackstone Holdings Partnership Units.
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Our own capital commitments to our funds, the funds we invest in and our
investment strategies as of
Blackstone and Senior Managing Directors
and Certain Other
General Partner Professionals (a)
Original Remaining Original Remaining
Fund Commitment Commitment Commitment Commitment
(Dollars in Thousands)
Real Estate
BREP V (b) $ 52,545 $ 2,185 $ - $ -
BREP VI (b) 750,000 36,809 150,000 12,270
BREP VII 300,000 33,652 100,000 11,217
BREP VIII 300,000 51,159 100,000 17,053
BREP IX 300,000 205,693 100,000 68,564
BREP Europe III (b) 100,000 13,231 35,000 4,410
BREP Europe IV 130,000 24,074 43,333 8,025
BREP Europe V 150,000 33,779 43,333 9,758
BREP Europe VI 130,000 97,024 43,333 32,341
BREP Asia I 50,000 10,335 16,667 3,445
BREP Asia II 70,707 39,063 23,569 13,021
BREDS II 50,000 6,227 16,667 2,076
BREDS III 50,000 17,659 16,667 5,886
BREDS IV 50,000 40,894 - -
BPP 176,226 17,639 - -
Other (c) 23,199 15,054 - -
Total Real Estate 2,682,677 644,477 688,569 188,066
Private Equity
BCP V 629,356 30,642 - -
BCP VI 719,718 82,829 250,000 28,771
BCP VII 500,000 41,787 225,000 18,804
BCP VIII 500,000 500,000 225,000 225,000
BEP I 50,000 4,728 - -
BEP II 80,000 8,259 26,667 2,753
BEP III 80,000 69,798 26,667 23,266
BCEP I 120,000 42,944 18,992 6,797
BCEP II 160,000 160,000 32,640 32,640
BCP Asia 40,000 21,962 13,333 7,321
Tactical Opportunities 409,661 161,546 136,554 53,849
Strategic Partners 770,838 475,641 118,907 71,733
BIP 168,632 113,140 - -
BXLS 110,000 85,376 26,667 23,752
BXG 64,638 59,326 21,546 19,775
Other (c) 273,139 31,438 - -
Total Private Equity 4,675,982 1,889,416 1,121,973 514,461
continued...
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Blackstone and Senior Managing Directors
and Certain Other
General Partner Professionals (a)
Original Remaining Original Remaining
Fund Commitment Commitment Commitment Commitment
(Dollars in Thousands)
Hedge Fund Solutions
Strategic Alliance I $ 50,000 $ 2,033 $ - $ -
Strategic Alliance II 50,000 1,482 - -
Strategic Alliance III 22,000 1,193 - -
Strategic Holdings I 154,610 63,159 - -
Strategic Holdings II 50,000 43,617 - -
Other (c) 18,178 9,646 - -
Total Hedge Fund Solutions 344,788 121,130 - -
Credit & Insurance
Mezzanine / Opportunistic II 120,000 30,217 110,101 27,725
Mezzanine / Opportunistic III 130,783 41,513 31,081 9,866
Mezzanine / Opportunistic IV 122,000 122,000 33,333 33,333
European Senior Debt I 63,000 16,521 56,955 14,936
European Senior Debt II 93,350 78,168 24,142 20,030
Stressed / Distressed I 50,000 4,869 27,666 2,694
Stressed / Distressed II 125,000 51,695 121,050 50,061
Stressed / Distressed III 151,000 113,042 31,840 23,836
Energy I 80,000 38,026 75,555 35,913
Energy II 150,000 139,722 25,423 23,681
Credit Alpha Fund 52,102 19,752 50,624 19,192
Credit Alpha Fund II 25,500 11,396 6,034 2,696
BXSL 80,000 8,000 - -
Other (c) 149,315 53,607 21,583 4,472
Total Credit & Insurance 1,392,050 728,528 615,387 268,435
Other
Treasury (d) 801,580 387,753 - -
$ 9,897,077 $ 3,771,304 $ 2,425,929 $ 970,962 (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) Effective
uncalled capital commitments until they are legally expired, which increased
Remaining Commitments.
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Table of Contents (c) Represents capital commitments to a number of other funds in each respective
segment.
(d) Represents loan origination commitments, revolver commitments and capital
market commitments.
As ofDecember 31, 2020 ,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 1.600%, Due 3/30/2031$ 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 2.800%, Due 9/30/2050$ 400,000 $ 5,732,400
(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 subsidiaryBlackstone Holdings Finance Co. L.L.C. , has a$2.25 billion unsecured revolving credit facility (the "Credit Facility") withCitibank, N.A ., as administrative agent with a maturity date ofNovember 24, 2025 . Borrowings may also be made inU.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. OnJuly 16, 2019 , our board of directors authorized the repurchase of up to$1.0 billion of 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. 131
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Table of Contents During the year endedDecember 31, 2020 , we repurchased 9.0 million shares of common stock as part of the repurchase program at a total cost of$474.0 million . As ofDecember 31, 2020 , the amount remaining available for repurchases under the program was$307.2 million . Dividends Our intention is to pay to holders of common stock a quarterly dividend representing approximately 85% ofThe 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 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 theirBlackstone 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 between the per share dividend and per unit distribution amounts. 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 2020, 2019 and 2018. Dividends are declared and paid in the quarter subsequent to the quarter in which they are earned.
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With respect to fiscal year 2020, we paid to shareholders of our common stock a
dividend of $0.39 , $0.37 , $0.54 and $0.96 per share in respect of the first,
second, third and fourth quarters, respectively, aggregating $2.26 per share.
With respect to fiscal years 2019 and 2018, we paid shareholders of our common
stock aggregate dividends of $1.95 per share and $2.15 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.
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.
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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, 2020 $ 76.8 $ 51.0
Balance, December 31, 2019 $ 154.1 $ 75.5
Year Ended December 31, 2020
Average Daily Balance $ 94.2 $ 56.1
Maximum Daily Balance $ 152.8 $ 75.7
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.
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 a
Blackstone 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 The Blackstone Group Inc.
The assessment of whether we consolidate a Blackstone 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:
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• 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-outrights 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 its managed funds
and investment vehicles, at a fixed percentage of a calculation base which is
typically assets under management, net asset value, total assets, committed
capital or invested capital. The range of management fee rates and the
calculation base from which they are earned, generally, are as follows:
On private equity, real estate, and certain of our hedge fund solutions and
credit-focused funds:
• 0.25% to 1.75% of committed capital or invested capital during the
investment period,
• 0.25% to 1.50% of invested capital, committed capital or 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:
• 0.24% to 1.50% of net asset value.
On credit and MLP-focused separately managed accounts:
• 0.24% to 1.50% of net asset value or total assets.
On real estate separately managed accounts:
• 0.65% 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.
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Table of Contents On CLO vehicles:
• 0.40% to 0.50% of the aggregate par amount of collateral assets, including
principal cash.
On credit-focused registered and non-registered investment companies:
• 0.25% to 1.20% 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 "distributable earnings" (which is generally equal to its GAAP net income excluding certain non-cash and other items), subject to certain adjustments. The investment adviser of BREIT receives a management fee of 1.25% per annum of net asset value, payable monthly. Management fee calculations based on committed capital or invested capital are mechanical in nature and therefore do not require the use of significant estimates or judgments. Management fee calculations based on net asset value, total assets, or investment fair value depend on the fair value of the underlying investments within the funds. Estimates and assumptions are made when determining the fair value of the underlying investments within the funds and could vary depending on the valuation methodology that is used as well as economic conditions. See "-Fair Value " below for further discussion of the judgment required for determining the fair value of the underlying investments. Investment Income (Loss) - Performance Allocations are made to the general partner based on cumulative fund performance to date, subject to a preferred return to limited partners. Blackstone has concluded that investments made alongside its limited partners in a partnership which entitle Blackstone to a Performance Allocation represent equity method investments that are not in the scope of the GAAP guidance on accounting for revenues from contracts with customers. Blackstone accounts for these arrangements under the equity method of accounting. Under the equity method, Blackstone's share of earnings (losses) from equity method investments is determined using a balance sheet approach referred to as the hypothetical liquidation at book value ("HLBV") method. Under the HLBV method, at the end of each reporting period Blackstone calculates the accrued Performance Allocations that would be due to Blackstone for each fund pursuant to the fund agreements as if the fair value of the underlying investments were realized as of such date, irrespective of whether such amounts have been realized. Performance Allocations are subject to clawback to the extent that the Performance Allocation received to date exceeds the amount due to Blackstone based on cumulative results. The change in the fair value of the investments held by certain Blackstone Funds is a significant input into the accrued Performance Allocation calculation and accrual for potential repayment of previously received Performance Allocations. Estimates and assumptions are made when determining the fair value of the underlying investments within the funds. See "-Fair Value " below for further discussion related to significant estimates and assumptions used for determining fair value of the underlying investments. 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
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Table of Contents "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. A discount to publicly traded price may be appropriate in those cases; the amount of the discount, if taken, 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 generally the income approach which provides an indication of fair value based on the present value of cash flows that a business, security, or property is expected to generate in the future. The most widely used methodology under the income approach is the discounted cash flow method which includes significant assumptions about the underlying investment's projected net earnings or cash flows, discount rate, capitalization rate and exit multiple. Our secondary methodology, generally used to corroborate the results of the income approach, is typically 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. Depending on the facts and circumstances associated with the investment, different primary and secondary methodologies may be used including option value, contingent claims or scenario analysis, yield analysis, projected cash flow through maturity or expiration, probability weighted methods or recent round of financing. 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. Investments held by Blackstone Funds and investment vehicles are valued on at least a quarterly basis by our internal valuation or asset management teams, which are independent from our investment teams.
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Table of Contents 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 business unit's 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 results, each business unit also generally obtains either a positive assurance opinion or a range of value from an independent valuation party, at least annually for internally prepared valuations for investments that have been held by Blackstone Funds and investment vehicles for greater than a year and quarterly for certain investments. Our firmwide valuation committee, chaired by our Chief Financial Officer and comprised of senior members of our businesses and representatives from corporate functions, including 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 valuation process is also reviewed by the audit committee of our board of directors, which is comprised of our employee directors. The global outbreak of COVID-19 required management to make significant judgments about the ultimate adverse impact of COVID-19 on financial markets and economic conditions, which is uncertain and may change over time. These judgments and estimates were incorporated into the valuation process outlined herein. Management's policies were unchanged and critical processes were executed in a remote working environment. 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 year endedDecember 31, 2019 , 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. 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.
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Table of Contents 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 theirInterbank Offered Rates ("IBORs"), including, without limitation, the London Interbank Offered Rates, Euro Interbank Offered Rate, Tokyo Interbank Offered Rate, Hong Kong Interbank Offered Rate and Singapore Interbank Offered Rate. The timing of the anticipated reforms or phase-outs vary by jurisdiction, with most of the reforms or phase-outs currently scheduled to take effect at the end of calendar year 2021. Blackstone is evaluating the operational impact of such changes on existing transactions and contractual arrangements and managing transition efforts. 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." 139
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Contractual Obligations, Commitments and Contingencies
The following table sets forth information relating to our contractual
obligations as of
Contractual Obligations 2021 2022-2023 2024-2025 Thereafter Total
(Dollars in Thousands)
Operating Lease Obligations (a) $ 93,815 $ 212,647 $ 185,136 $ 186,710 $ 678,308
Purchase Obligations 63,708 45,157 8,736 - 117,601
Blackstone Issued Notes and Revolving
Credit Facility (b) - 400,000 366,480 4,965,920 5,732,400
Interest on Blackstone Issued Notes
and Revolving Credit Facility (c) 168,004 326,507 298,007 2,090,082 2,882,600
Blackstone Funds Debt Obligations
Payable 99 - - - 99
Blackstone Funds Capital Commitments
to Investee Funds (d) 140,185 - - - 140,185
Due to Certain
Non-Controlling
Interest Holders in Connection with
Tax Receivable Agreements (e) 51,366 98,321 89,940 617,848 857,475
Unrecognized Tax Benefits, Including
Interest and Penalties (f) 1,055 - - - 1,055
Blackstone Operating Entities Capital
Commitments to Blackstone Funds and
Other (g) 3,771,304 - - - 3,771,304
Consolidated Contractual Obligations 4,289,536 1,082,632
948,299 7,860,560 14,181,027 Blackstone Funds Debt Obligations Payable (99 ) - - - (99 ) Blackstone Funds Capital Commitments to Investee Funds (d) (140,185 ) - - - (140,185 ) Blackstone Operating Entities Contractual Obligations $ 4,149,252 $ 1,082,632 $ 948,299 $ 7,860,560 $ 14,040,743
(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, 2020, 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 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.
(e) 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.
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Table of Contents (f) The total represents gross unrecognized tax benefits of $0.5 million and
interest and penalties of $0.5 million. In addition, Blackstone is not able
to make a reasonably reliable estimate of the timing of payments in
individual years in connection with gross unrecognized benefits of
$32.4 million and interest of $3.4 million; therefore, such amounts are not
included in the above contractual obligations table.
(g) 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 of December 31, 2020. 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 2029. Further extensions of such terms may be implemented under given circumstances. For financial reporting purposes, when applicable, the general partners record a liability for potential clawback obligations to the limited partners of some of the carry funds due to changes in the unrealized value of a fund's remaining investments and where the fund's general partner has previously received Performance Allocation distributions with respect to such fund's realized investments. As of December 31, 2020, the total clawback obligations were $108.6 million, of which $83.9 million was related toBlackstone Holdings and $24.6 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, at December 31, 2020, 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 $4.0 billion, on an after-tax basis where applicable, of whichBlackstone Holdings is potentially liable for $3.8 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.
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