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3: EX-10.2 Material Contract HTML 74K
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5: EX-31.2 Certification -- §302 - SOA'02 HTML 34K
6: EX-32.1 Certification -- §906 - SOA'02 HTML 31K
7: EX-32.2 Certification -- §906 - SOA'02 HTML 31K
13: R1 Cover Page HTML 83K
14: R2 Condensed Consolidated Statements of Financial HTML 144K
Condition
15: R3 Condensed Consolidated Statements of Financial HTML 91K
Condition (Parenthetical)
16: R4 Condensed Consolidated Statements of Operations HTML 158K
17: R5 Condensed Consolidated Statements of Comprehensive HTML 62K
Income
18: R6 Condensed Consolidated Statements of Changes in HTML 157K
Equity
19: R7 Condensed Consolidated Statements of Changes in HTML 34K
Equity (Parenthetical)
20: R8 Condensed Consolidated Statements of Cash Flows HTML 149K
21: R9 Condensed Consolidated Statements of Cash Flows HTML 37K
(Parenthetical)
22: R10 Organization HTML 34K
23: R11 Summary of Significant Accounting Policies HTML 97K
24: R12 Intangible Assets HTML 40K
25: R13 Investments HTML 139K
26: R14 Net Asset Value as Fair Value HTML 53K
27: R15 Derivative Financial Instruments HTML 155K
28: R16 Fair Value Option HTML 128K
29: R17 Fair Value Measurements of Financial Instruments HTML 451K
30: R18 Variable Interest Entities HTML 42K
31: R19 Repurchase Agreements HTML 71K
32: R20 Offsetting of Assets And Liabilities HTML 111K
33: R21 Borrowings HTML 123K
34: R22 Income Taxes HTML 35K
35: R23 Earnings Per Share and Stockholders' Equity HTML 88K
36: R24 Equity-Based Compensation HTML 78K
37: R25 Related Party Transactions HTML 61K
38: R26 Commitments and Contingencies HTML 75K
39: R27 Segment Reporting HTML 637K
40: R28 Subsequent Events HTML 32K
41: R29 Summary of Significant Accounting Policies HTML 134K
(Policies)
42: R30 Intangible Assets (Tables) HTML 38K
43: R31 Investments (Tables) HTML 140K
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45: R33 Derivative Financial Instruments (Tables) HTML 157K
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47: R35 Fair Value Measurements of Financial Instruments HTML 454K
(Tables)
48: R36 Variable Interest Entities (Tables) HTML 43K
49: R37 Repurchase Agreements (Tables) HTML 69K
50: R38 Offsetting of Assets And Liabilities (Tables) HTML 112K
51: R39 Borrowings (Tables) HTML 119K
52: R40 Earnings Per Share and Stockholders' Equity HTML 87K
(Tables)
53: R41 Equity-Based Compensation (Tables) HTML 76K
54: R42 Related Party Transactions (Tables) HTML 51K
55: R43 Commitments and Contingencies (Tables) HTML 60K
56: R44 Segment Reporting (Tables) HTML 627K
57: R45 Organization - Additional Information (Detail) HTML 34K
58: R46 Intangible Assets, Net (Detail) HTML 37K
59: R47 Intangible Assets - Additional Information HTML 47K
(Detail)
60: R48 Investments (Detail) HTML 42K
61: R49 Investments - Additional Information (Detail) HTML 43K
62: R50 Reconciliation of Realized and Net Change in HTML 46K
Unrealized Gains (Losses) to Other Income (Loss) -
Net Gains (Losses) from Fund Investment Activities
in Consolidated Statements of Operations (Detail)
63: R51 Performance Fees Allocated to Funds (Detail) HTML 54K
64: R52 Realized and Net Change in Unrealized Gains HTML 40K
(Losses) on Investments Held by Blackstone's
Treasury Cash Management Strategies (Detail)
65: R53 Realized and Net Change in Unrealized Gains HTML 40K
(Losses) in Other Investments (Detail)
66: R54 Summary of Fair Value by Strategy Type Alongside HTML 43K
Consolidated Funds of Hedge Funds' Remaining
Unfunded Commitments and Ability to Redeem Such
Investments (Detail)
67: R55 Summary of Fair Value by Strategy Type Alongside HTML 47K
Consolidated Funds of Hedge Funds' Remaining
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68: R56 Summary of Aggregate Notional Amount and Fair HTML 66K
Value of Derivative Financial Instruments (Detail)
69: R57 Summary of Impact of Derivative Financial HTML 53K
Instruments to Consolidated Statements of
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Value Option Has Been Elected (Detail)
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72: R60 Information for Financial Instruments on Which HTML 37K
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73: R61 Fair Value Option - Additional Information HTML 35K
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75: R63 Financial Assets and Liabilities at Fair Value HTML 32K
(Parenthetical) (Detail)
76: R64 Summary of Quantitative Inputs and Assumptions for HTML 89K
Items Categorized in Level III of Fair Value
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77: R65 Summary of Changes in Financial Assets Measured at HTML 74K
Fair Value for Which Level III Inputs Were Used
(Detail)
78: R66 Maximum Exposure to Loss Relating to HTML 60K
Non-Consolidated VIEs (Detail)
79: R67 Repurchase Agreements - Additional Information HTML 32K
(Detail)
80: R68 Schedule of Repurchase Agreements Obligation by HTML 62K
Type of Collateral Pledged (Detail)
81: R69 Offsetting of Assets and Liabilities (Detail) HTML 80K
82: R70 Offsetting Of Assets And Liabilities - Additional HTML 36K
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83: R71 Components of Other Assets (Detail) HTML 42K
84: R72 Borrowings - Additional Information (Detail) HTML 56K
85: R73 Carrying Value and Fair Value of Blackstone Issued HTML 87K
Notes (Detail)
86: R74 Carrying Value and Fair Value of Blackstone Issued HTML 79K
Notes (Parenthetical) (Detail)
87: R75 Scheduled Principal Payments for Borrowings HTML 51K
(Detail)
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(Detail)
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91: R79 Schedule of Shares Eligible For Dividends and HTML 41K
Distribution (Detail)
92: R80 Earnings Per Share and Stockholder's Equity - HTML 68K
Additional Information (Detail)
93: R81 Equity-Based Compensation - Additional Information HTML 50K
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Equity-Based Awards (Detail)
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Forfeitures (Detail)
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Information (Detail)
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100: R88 Segment Reporting - Additional Information HTML 33K
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101: R89 Financial Data of Segments (Detail) HTML 89K
102: R90 Reconciliation of Total Segments to Income (Loss) HTML 125K
Before Provision for Taxes and Total Assets
(Detail)
103: R91 Reconciliation of Total Segments to Income (Loss) HTML 56K
Before Provision for Taxes and Total Assets
(Parenthetical) (Detail)
104: R92 Reconciliation of Total Segments to Reported on HTML 95K
the Consolidated Statement of Operations (Detail)
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(Exact name of Registrant as specified in its charter)
iDelaware
(State or other jurisdiction of
incorporation or organization)
i20-8875684
(I.R.S. Employer
Identification No.)
i345
Park Avenue
iNew York, iNew Yorki10154
(Address of principal executive offices)(Zip Code)
(i212)
i583-5000
(Registrant’s telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
iCommon Stock
iBX
iNew York Stock Exchange
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. iYes
☒
No
☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). iYes
☒
No
☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,”“accelerated filer,”“smaller reporting company,” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
iLarge accelerated filer
☒
Accelerated filer
☐
Non-accelerated
filer
☐
Smaller reporting company
i☐
Emerging growth company
i☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the
Registrant is a shell company (as defined in Rule
This report may contain forward-looking statements within the meaning of Section 27A of the U.S. Securities Act of 1933, as amended, and Section 21E of the U.S. Securities Exchange Act of 1934, as amended, which reflect our current views with respect to, among other things, our operations, taxes, earnings and financial performance, and share repurchases and dividends. You can identify these forward-looking statements by the use of words such as “outlook,”“indicator,”“believes,”“expects,”“potential,”“continues,”“may,”“will,”“should,”“seeks,”“approximately,”“predicts,”“intends,”“plans,”“estimates,”“anticipates,”“opportunity,”“leads,”“forecast” or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. We believe these factors include but are not limited to those described under the section entitled “Risk Factors” in our Annual Report on
Form 10-K
for the year ended December 31, 2021, as such factors may be updated from time to time in our periodic filings with the United States Securities and Exchange Commission (“SEC”), which are
accessible on the SEC’s website at www.sec.gov. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this report and in our other periodic filings. The forward-looking statements speak only as of the date of this report, and we undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.
In this report, references to “Blackstone,” the “Company,”“we,”“us” or “our” refer to Blackstone Inc. and its consolidated subsidiaries.
“Series I Preferred Stockholder” refers to Blackstone Partners L.L.C., the holder of the sole outstanding share of our Series I preferred stock.
“Series II Preferred Stockholder” refers to Blackstone Group Management L.L.C., the holder of the sole outstanding share of our Series II preferred stock.
“Blackstone Funds,”“our funds” and “our investment funds” refer to the funds and other vehicles that are managed by Blackstone. “Our carry funds” refers to funds managed by Blackstone that have commitment-based multi-year drawdown structures that pay carry on the realization of an investment.
We
refer to our real estate opportunistic funds as Blackstone Real Estate Partners (“BREP”) funds and our real estate debt investment funds as Blackstone Real Estate Debt Strategies (“BREDS”) funds. We refer to our real estate investment trusts as “REITs,” to Blackstone Mortgage Trust, Inc., our NYSE-listed REIT, as “BXMT,” and to Blackstone Real Estate Income Trust, Inc., our
non-listed
REIT, as “BREIT.” We refer to our real estate funds that target substantially stabilized assets in prime markets, as Blackstone Property Partners (“BPP”) funds and our income-generating European real estate funds as Blackstone European Property Income (“BEPIF”). We refer to BREIT, BPP and BEPIF collectively as our Core+ real estate strategies.
We refer to our flagship corporate private equity funds as Blackstone Capital Partners (“BCP”) funds, our energy-focused private equity funds as Blackstone Energy Partners (“BEP”) funds, our core private equity funds as Blackstone Core Equity Partners (“BCEP”), our opportunistic investment platform that invests globally across asset classes, industries and geographies as Blackstone Tactical Opportunities (“Tactical Opportunities”), our secondary fund of funds business as Strategic Partners Fund Solutions (“Strategic Partners”), our infrastructure-focused funds as Blackstone Infrastructure Partners (“BIP”), our life sciences investment platform, Blackstone Life Sciences (“BXLS”), our growth equity investment platform, Blackstone Growth (“BXG”), our multi-asset investment program for eligible high net worth investors offering exposure to certain of our key illiquid
investment strategies through a single commitment as Blackstone Total Alternatives Solution (“BTAS”) and our capital markets services business as Blackstone Capital Markets (“BXCM”).
“Our hedge funds” refers to our funds of hedge funds, hedge funds, certain of our real estate debt investment funds, including a registered investment company, and certain other credit-focused funds which are managed by Blackstone.
We refer to our business development companies as “BDCs,” to Blackstone Private Credit Fund as “BCRED” and to Blackstone Secured Lending Fund as “BXSL.”
“BIS” refers to Blackstone Insurance Solutions, which partners with insurers to deliver capital-efficient investments tailored to each insurer’s needs and risk profile.
We refer to our separately
managed accounts as “SMAs.”
“Total Assets Under Management” refers to the assets we manage. Our Total 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 Hedge Fund Solutions registered investment companies, BREIT, and BEPIF,
(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 collateralized loan obligations (“CLO”) during the reinvestment period,
(e)
the aggregate par amount of collateral assets, including principal cash, for our CLOs after the reinvestment period,
(f)
the gross or net amount of assets (including leverage where applicable) for our credit-focused registered investment companies,
(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. In our Perpetual Capital vehicles where redemption rights exist, Blackstone has the ability to fulfill redemption requests only (a) in Blackstone’s or the vehicles’ board’s discretion, as applicable, or (b) to the extent there is sufficient new capital. 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. Our BIS separately managed accounts can generally only be terminated for long-term underperformance, cause and certain other limited circumstances, in each case subject to Blackstone’s right to cure.
“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, BEPIF, 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 Total 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 Total 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 Total Assets Under Management and
Fee-Earning
Assets Under Management are not based on any definition of total assets under management and
fee-earning
assets under management that is set forth in the agreements governing the investment funds that we manage.
For our carry funds, Total Assets Under Management includes the fair value of the investments held and uncalled capital commitments, whereas
Fee-Earning
Assets Under Management may 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” refers to the component of assets under management with an indefinite term, that is not in liquidation, and for which there is no requirement to return capital to investors through redemption requests in the ordinary course of business, except where funded by new capital inflows. Perpetual Capital includes
co-investment
capital with an investor right to convert into Perpetual Capital.
This report does not constitute an offer of any Blackstone Fund.
Accounts Payable, Accrued Expenses and Other Liabilities
i991,620
i937,169
Total Liabilities
i20,297,210
i19,490,362
Commitments and Contingencies
i
i
Redeemable
Non-Controlling
Interests in Consolidated Entities
i1,275,491
i68,028
Equity
Stockholders’ Equity of Blackstone Inc.
Common Stock, $ii0.00001/
par value, ii90/ billion shares authorized, (ii706,476,877/
shares issued and outstanding as of June 30, 2022; ii704,339,774/
shares issued and outstanding as of December 31, 2021)
i7
i7
Series I Preferred Stock, $ii0.00001/
par value, ii999,999,000/
shares authorized, (iiii1
///share issued and outstanding as of June 30, 2022 and December 31, 2021)
i—
i—
Series II Preferred Stock, $ii0.00001/
par value, ii1,000/
shares authorized, (iiii1
///share issued and outstanding as of June 30, 2022 and December 31, 2021)
i—
i—
Additional
Paid-in-Capital
i5,870,285
i5,794,727
Retained Earnings
i2,803,100
i3,647,785
Accumulated Other Comprehensive Loss
(i42,225
)
(i19,626
)
Total Stockholders’ Equity of Blackstone Inc.
i8,631,167
i9,422,893
Non-Controlling
Interests in Consolidated Entities
i5,281,244
i5,600,653
Non-Controlling
Interests in Blackstone Holdings
i6,146,196
i6,614,472
Total Equity
i20,058,607
i21,638,018
Total Liabilities and Equity
$
i41,631,308
$
i41,196,408
continued...
See notes to condensed consolidated financial statements.
Condensed Consolidated Statements of Financial Condition (Unaudited)
(Dollars in Thousands)
The following presents the asset and liability portion of the consolidated balances presented in the Condensed Consolidated Statements of Financial Condition attributable to consolidated Blackstone Funds which are variable interest entities. The following assets may only be used to settle obligations of these consolidated Blackstone Funds and these liabilities are only the obligations of these consolidated Blackstone Funds and they do not have recourse to the general credit of
During the period presented, Blackstone also had iione share outstanding/ of each of Series I and Series II preferred stock, with par value of each less than one cent.
continued...
See notes to condensed consolidated financial statements.
During the period presented, Blackstone also had iione share outstanding/ of each of Series I and Series II preferred stock, with par value of each less than one cent.
continued...
See notes to condensed consolidated financial statements.
During the period presented, Blackstone also had iione share outstanding/ of each of Series I and Series II preferred stock, with par value of each less than one cent.
continued...
See notes to condensed consolidated financial statements.
During the period presented, Blackstone also had iione share outstanding/ of each of Series I and Series II preferred stock, with par value of each less than one cent.
See notes to condensed
consolidated financial statements.
Dividends/Distributions to Shareholders and Unitholders
(i3,621,712
)
(i2,278,390
)
Net Cash Used in Financing Activities
(i2,408,726
)
(i2,643,709
)
Effect of Exchange Rate Changes on Cash and Cash Equivalents and Cash Held by Blackstone Funds and Other
(i15,146
)
(i5,084
)
Cash and Cash Equivalents and Cash Held by Blackstone Funds and Other
Net Increase
i2,112,924
i512,664
Beginning of Period
i2,199,732
i2,064,456
End of Period
$
i4,312,656
$
i2,577,120
Supplemental Disclosure of Cash Flows Information
Payments for Interest
$
i123,915
$
i102,524
Payments for Income Taxes
$
i499,136
$
i289,244
Supplemental Disclosure of
Non-Cash
Investing and Financing Activities
Non-Cash
Contributions from
Non-Controlling
Interest Holders
$
i10,276
$
i6,076
Notes Issuance Costs
$
i18,423
$
i—
Transfer of Interests to
Non-Controlling
Interest Holders
$
(i8,744
)
$
(i3,593
)
Change in Blackstone Inc.’s Ownership Interest
$
i28,766
$
i3,877
Net Settlement of Vested Common Stock
$
i199,977
$
i124,386
Conversion of Blackstone Holdings Units to Common Stock
$
i24,707
$
i70,412
Acquisition of Ownership Interests from
Non-Controlling
Interest Holders
Deferred Tax Asset
$
(i58,673
)
$
(i167,433
)
Due to Affiliates
$
i51,144
$
i147,719
Equity
$
i7,529
$
i19,714
The following table provides a reconciliation of Cash and Cash Equivalents and Cash Held by Blackstone Funds and Other reported within the Condensed Consolidated Statements of Financial Condition:
Notes to Condensed Consolidated Financial Statements (Unaudited)
(All Dollars are in Thousands, Except Share and Per Share Data, Except Where Noted)
i
1. Organization
Blackstone Inc., together with its consolidated subsidiaries (“Blackstone” or the “Company”), is one of the world’s leading investment firms. Blackstone’s asset management business includes investment vehicles focused on real estate, private equity, infrastructure, life sciences, growth equity, credit, real assets and secondary funds, all on a global basis. “Blackstone Funds” refers to the funds and other vehicles that are managed by Blackstone. Blackstone’s business is organized intoi
four segments: Real Estate, Private Equity, Hedge Fund Solutions and Credit & Insurance.
Effective August 6, 2021, The Blackstone Group Inc. changed its name to Blackstone Inc. Blackstone Inc. was initially formed as The Blackstone Group L.P., a Delaware limited partnership, on March 12, 2007. Prior to its conversion (effective July 1, 2019) to a Delaware corporation, Blackstone Inc. was managed and operated by Blackstone Group Management L.L.C., which is wholly owned by Blackstone’s senior managing directors and controlled by ione
of Blackstone’s founders, Stephen A. Schwarzman (the “Founder”). Effective February 26, 2021, the Certificate of Incorporation of Blackstone Inc. was amended and restated to rename Blackstone’s Class A common stock as “common stock” and reclassify Blackstone’s Class B common stock and Class C common stock into a new Series I preferred stock and a new Series II preferred stock, respectively. All references to common stock, Series I preferred stock and Series II preferred stock prior to such date refer to Class A, Class B and Class C common stock, respectively. See Note 13. “Income Taxes” and Note 14. “Earnings Per Share and Stockholders’ Equity — Stockholders’ Equity.”
The activities of Blackstone are conducted through its holding partnerships: Blackstone Holdings I L.P., Blackstone
Holdings AI L.P., Blackstone Holdings II L.P., Blackstone Holdings III L.P. and Blackstone Holdings IV L.P. (collectively, “Blackstone Holdings,”“Blackstone Holdings Partnerships” or the “Holding Partnerships”). Blackstone, through its wholly owned subsidiaries, is the sole general partner of each of the Holding Partnerships. Generally, holders of the limited partner interests in the Holding Partnerships may, four times each year, exchange their limited partnership interests (“Partnership Units”) for Blackstone common stock, on a
one-to-one
basis, exchanging one Partnership Unit from each of the Holding Partnerships for one share of Blackstone common stock.
/i
2. Summary
of Significant Accounting Policies
i
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of Blackstone have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions to
Form 10-Q.
The condensed consolidated financial statements, including these notes,
are unaudited and exclude some of the disclosures required in audited financial statements. Management believes it has made all necessary adjustments (consisting of only normal recurring items) so that the condensed consolidated financial statements are presented fairly and that estimates made in preparing its condensed consolidated financial statements are reasonable and prudent. The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in Blackstone’s Annual Report on
Form 10-K
for the year ended December 31, 2021 filed with the Securities and Exchange Commission.
The condensed consolidated
financial statements include the accounts of Blackstone, its wholly owned or majority owned subsidiaries, the consolidated entities which are considered to be variable interest entities and for which Blackstone is considered the primary beneficiary, and certain partnerships or similar entities which are not considered variable interest entities but in which the general partner is determined to have control.
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
(All
Dollars are in Thousands, Except Share and Per Share Data, Except Where Noted)
All intercompany balances and transactions have been eliminated in consolidation.
i
Consolidation
Blackstone consolidates all entities that it controls through a majority voting interest or otherwise, including those Blackstone Funds in which the general partner has a controlling financial interest. Blackstone has a controlling financial interest in Blackstone Holdings because
the limited partners do not have the right to dissolve the partnerships or have substantive
kick-out
rights or participating rights that would overcome the control held by Blackstone. Accordingly, Blackstone consolidates Blackstone Holdings and records
non-controlling
interests to reflect the economic interests of the limited partners of Blackstone Holdings.
In addition, Blackstone consolidates all variable interest entities (“VIE”) for which it is the primary beneficiary. An enterprise is determined to be the primary beneficiary if it holds a controlling financial interest. A controlling financial interest is defined as (a) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and (b) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. The consolidation
guidance requires an analysis to determine (a) whether an entity in which Blackstone holds a variable interest is a VIE and (b) whether Blackstone’s involvement, through holding interests directly or indirectly in the entity or contractually through other variable interests, would give it a controlling financial interest. Performance of that analysis requires the exercise of judgment.
Blackstone determines whether it is the primary beneficiary of a VIE at the time it becomes involved with a variable interest entity and continuously reconsiders that conclusion. In determining whether Blackstone is the primary beneficiary, Blackstone evaluates its control rights as well as economic interests in the entity held either directly or indirectly by Blackstone. The consolidation analysis can generally be performed qualitatively; however, if it is not readily apparent that Blackstone is not the primary beneficiary, a quantitative analysis may also be performed.
Investments and redemptions (either by Blackstone, affiliates of Blackstone or third parties) or amendments to the governing documents of the respective Blackstone Funds could affect an entity’s status as a VIE or the determination of the primary beneficiary. At each reporting date, Blackstone assesses whether it is the primary beneficiary and will consolidate or deconsolidate accordingly.
Assets of consolidated VIEs that can only be used to settle obligations of the consolidated VIE and liabilities of a consolidated VIE for which creditors (or beneficial interest holders) do not have recourse to the general credit of Blackstone are presented in a separate section in the Condensed Consolidated Statements of Financial Condition.
Blackstone’s other disclosures regarding VIEs are discussed in Note 9. “Variable Interest Entities.”
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Revenue
Recognition
Revenues primarily consist of management and advisory fees, incentive fees, investment income, interest and dividend revenue and other.
Management and advisory fees and incentive fees are accounted for as contracts with customers. Under the guidance for contracts with customers, an entity is required to (a) identify the contract(s) with a customer, (b) identify the performance obligations in the contract, (c) determine the transaction price, (d) allocate the transaction price to the performance obligations in the contract,
and (e) recognize revenue when (or as) the entity satisfies a performance obligation. In determining the transaction price, an entity may include variable consideration only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized would not occur when the uncertainty associated with the variable consideration is resolved. See Note 18. “Segment Reporting” for a disaggregated presentation of revenues from contracts with customers.
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
(All
Dollars are in Thousands, Except Share and Per Share Data, Except Where Noted)
Management and Advisory Fees, Net
— Management and Advisory Fees, Net are comprised of management fees, including base management fees, transaction and other fees and advisory fees net of management fee reductions and offsets.
Blackstone earns base management fees from its customers, at a fixed percentage of a calculation base which is typically assets under management, net asset value, gross asset value, total assets, committed capital or invested capital. Blackstone identifies its customers on a fund by fund basis in accordance with the terms and circumstances of the individual fund. Generally, the customer is identified as the investors in its managed funds and investment vehicles, but for certain widely held funds or vehicles, the fund or vehicle
itself may be identified as the customer. These customer contracts require Blackstone to provide investment management services, which represents a performance obligation that Blackstone satisfies over time. Management fees are a form of variable consideration because the fees Blackstone is entitled to vary based on fluctuations in the basis for the management fee. The amount recorded as revenue is generally determined at the end of the period because these management fees are payable on a regular basis (typically quarterly) and are not subject to clawback once paid.
Transaction, advisory and other fees are principally fees charged to the investors of funds indirectly through the managed funds and portfolio companies. The investment advisory agreements generally require that the investment adviser reduce the amount of management fees payable by the investors
to Blackstone (“management fee reductions”) by an amount equal to a portion of the transaction and other fees paid to Blackstone by the portfolio companies. The amount of the reduction varies by fund, the type of fee paid by the portfolio company and the previously incurred expenses of the fund. These fees and associated management fee reductions are a component of the transaction price for Blackstone’s performance obligation to provide investment management services to the investors of funds and are recognized as changes to the transaction price in the period in which they are charged and the services are performed.
Management fee offsets are reductions to management fees payable by the investors of the Blackstone Funds, which are based on the amount such investors reimburse the Blackstone Funds or Blackstone primarily for placement fees. Providing investment management services requires Blackstone to arrange for services on behalf of its
customers. In those situations where Blackstone is acting as an agent on behalf of the investors of funds, it presents the cost of services as net against management fee revenue. In all other situations, Blackstone is primarily responsible for fulfilling the services and is therefore acting as a principal for those arrangements. As a result, the cost of those services is presented as Compensation or General, Administrative and Other expense, as appropriate, with any reimbursement from the investors of the funds recorded as Management and Advisory Fees, Net. In cases where the investors of the funds are determined to be the customer in an arrangement, placement fees may be capitalized as a cost to acquire a customer contract. Capitalized placement fees are amortized over the life of the customer contract,
are recorded within Other Assets in the Condensed Consolidated Statements of Financial Condition and amortization is recorded within General, Administrative and Other within the Condensed Consolidated Statements of Operations.
Accrued but unpaid Management and Advisory Fees, net of management fee reductions and management fee offsets, as of the reporting date are included in Accounts Receivable or Due from Affiliates in the Condensed Consolidated Statements of Financial Condition.
Incentive Fees
— Contractual fees earned based on the performance of Blackstone Funds (“Incentive Fees”) are a form of variable consideration in Blackstone’s contracts with customers to provide investment management services. Incentive Fees are earned based on fund performance during the period, subject to
the achievement of minimum return levels, or high water marks, in accordance with the respective terms set out in each fund’s governing agreements. Incentive Fees will not be recognized as revenue until (a) it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur, or (b) the uncertainty associated with the variable consideration is subsequently resolved. Incentive Fees are typically recognized as revenue when realized at the end of the measurement period. Once realized, such fees are not subject to clawback or reversal. Accrued but unpaid Incentive Fees charged directly to investors in Blackstone Funds as of the reporting date are recorded within Due from Affiliates in the Condensed Consolidated Statements of Financial Condition.
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
(All Dollars are in Thousands, Except Share and Per Share Data, Except Where Noted)
Investment Income (Loss)
— Investment Income (Loss) represents the unrealized and realized gains and losses on Blackstone’s Performance Allocations and Principal Investments.
In carry fund structures, Blackstone, through its subsidiaries, invests alongside its limited partners in a partnership and is entitled to its
pro-rata
share of the results of the fund (a
“pro-rata
allocation”).
In addition to a
pro-rata
allocation, and assuming certain investment returns are achieved, Blackstone is entitled to a disproportionate allocation of the income otherwise allocable to the limited partners, commonly referred to as carried interest (“Performance Allocations”).
Performance Allocations are made to the general partner based on cumulative fund performance to date, subject to a preferred return to limited partners. At the end of each reporting period, Blackstone calculates the balance of accrued Performance Allocations (“Accrued Performance Allocations”) that would be due to Blackstone for each fund, pursuant to the fund agreements, as if the fair value of the underlying investments were realized as of such date, irrespective of whether such amounts have been realized. As the fair value of underlying investments varies between reporting periods, it is necessary to make adjustments to amounts recorded
as Accrued Performance Allocations to reflect either (a) positive performance resulting in an increase in the Accrued Performance Allocation to the general partner or (b) negative performance that would cause the amount due to Blackstone to be less than the amount previously recognized as revenue, resulting in a negative adjustment to the Accrued Performance Allocation to the general partner. In each scenario, it is necessary to calculate the Accrued Performance Allocation on cumulative results compared to the Accrued Performance Allocation recorded to date and make the required positive or negative adjustments. Blackstone ceases to record negative Performance Allocations once previously Accrued Performance Allocations for such fund have been fully reversed. Blackstone is not obligated to pay guaranteed returns or hurdles, and therefore, cannot have negative Performance Allocations over the life of a fund. Accrued Performance Allocations as of the reporting date are
reflected in Investments in the Condensed Consolidated Statements of Financial Condition.
Performance Allocations are realized when an underlying investment is profitably disposed of and the fund’s cumulative returns are in excess of the preferred return or, in limited instances, after certain thresholds for return of capital are met. Performance Allocations are subject to clawback to the extent that the Performance Allocation received to date exceeds the amount due to Blackstone based on cumulative results. As such, the accrual for potential repayment of previously received Performance Allocations, which is a component of Due to Affiliates, represents all amounts previously distributed to Blackstone Holdings and
non-controlling
interest holders that would need to be repaid to the Blackstone carry funds if the Blackstone carry funds were to be liquidated based on the current fair value of the underlying funds’ investments as
of the reporting date. The actual clawback liability, however, generally does not become realized until the end of a fund’s life except for certain funds, including certain Blackstone real estate funds, multi-asset class investment funds and credit-focused funds, which may have an interim clawback liability.
Principal Investments include the unrealized and realized gains and losses on Blackstone’s principal investments, including its investments in Blackstone Funds that are not consolidated and receive
pro-rata
allocations, its equity method investments, and other principal investments. Income (Loss) on Principal Investments is realized when Blackstone redeems all or a portion of its investment or when Blackstone receives cash income, such as dividends or distributions. Unrealized Income (Loss) on Principal Investments results from changes in the fair value of the underlying investment as well as the reversal of unrealized gain
(loss) at the time an investment is realized.
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
(All Dollars are in Thousands, Except Share and Per Share Data, Except Where Noted)
Interest and Dividend Revenue
— Interest and Dividend Revenue comprises primarily of interest and dividend income earned on principal investments not accounted for under the equity method held by Blackstone.
Other Revenue
— Other Revenue consists of miscellaneous income and
foreign exchange gains and losses arising on transactions denominated in currencies other than U.S. dollars.
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Fair Value of Financial Instruments
GAAP establishes a hierarchical disclosure framework which prioritizes and ranks the level of market price observability used in measuring financial instruments at fair value. Market price observability is affected by a number of factors, including the type of financial instrument, the characteristics specific to the financial instrument and the state of the marketplace, including the existence and transparency
of transactions between market participants. Financial instruments with readily available quoted prices in active markets generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.
Financial instruments measured and reported at fair value are classified and disclosed based on the observability of inputs used in the determination of fair values, as follows:
●
Level I – Quoted prices are available in active markets for identical financial instruments as of the reporting date. The types of financial instruments in Level I include listed equities, listed derivatives and mutual funds with quoted prices. Blackstone does not adjust the quoted price for these investments, even in situations where Blackstone holds a large position and a sale could reasonably impact the quoted price.
●
Level II – Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of models or other valuation methodologies. Financial instruments which are generally included in this category include corporate bonds and loans, including corporate bonds and loans held within CLO vehicles, government and agency securities, less liquid and restricted equity securities, and certain
over-the-counter
derivatives where the fair value is based on observable inputs.
●
Level III – Pricing inputs are unobservable for the financial instruments and includes situations where there is little, if any, market activity for the financial instrument. The inputs into the determination of fair value require significant management judgment or estimation. Financial instruments that are included in this category generally include general and limited partnership interests in private equity and real estate funds, credit-focused funds, distressed debt and
non-investment
grade residual interests in securitizations, certain corporate bonds and loans held within CLO vehicles and certain
over-the-counter
derivatives where the fair value is based on unobservable inputs.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the determination of which
category within the fair value hierarchy is appropriate for any given financial instrument is based on the lowest level of input that is significant to the fair value measurement. Blackstone’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the financial instrument.
Level II Valuation Techniques
Financial instruments classified within Level II of the fair value hierarchy comprise of debt instruments, including debt securities sold, not yet purchased and certain equity securities and derivative instruments valued using observable inputs.
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
(All Dollars are in Thousands, Except Share and Per Share Data, Except Where Noted)
The valuation techniques used to value financial instruments classified within Level II of the fair value hierarchy are as follows:
●
Debt Instruments and Equity Securities are valued on the basis of prices from an orderly transaction between market participants provided by reputable dealers or pricing services. In determining the value of a particular investment, pricing services may use certain information with respect to transactions in such investments, quotations from dealers, pricing matrices and market transactions in comparable investments and various relationships between investments. The valuation of certain equity securities is based on an observable price for an identical security adjusted for the effect of a restriction.
●
Freestanding Derivatives are valued using contractual cash flows and observable inputs comprising yield curves, foreign currency rates and credit spreads.
Level III Valuation Techniques
In the absence of observable market prices, Blackstone values its investments using valuation methodologies applied on a consistent basis. For some investments little market activity may exist; management’s determination of fair value is then based on the best information available in the circumstances, and may incorporate management’s own assumptions and involves a significant degree of judgment, taking into consideration a combination of internal and external factors, including the appropriate risk adjustments for
non-performance
and liquidity risks. Investments for which market prices are not observable include private investments
in the equity of operating companies, real estate properties, certain funds of hedge funds and credit-focused investments.
Real Estate Investments –
The fair values of real estate investments are determined by considering projected operating cash flows, sales of comparable assets, if any, and replacement costs, among other measures. The methods used to estimate the fair value of real estate investments include the discounted cash flow method and/or capitalization rates analysis. Valuations may be derived by reference to observable valuation measures for comparable companies or assets (for example, multiplying a key performance metric of the investee company or asset, such as earnings before interest, taxes, depreciation and amortization (“EBITDA”), by a relevant valuation multiple observed in the range of comparable companies or transactions), adjusted by management for differences between the
investment and the referenced comparables, and in some instances by reference to option pricing models or other similar methods. Where a discounted cash flow method is used, a terminal value is derived by reference to an exit EBITDA multiple or capitalization rate. Additionally, where applicable, projected distributable cash flow-through debt maturity will be considered in support of the investment’s fair value.
Private Equity Investments –
The fair values of private equity investments are determined by reference to projected net earnings, EBITDA, the discounted cash flow method, public market or private transactions, valuations for comparable companies and other measures which, in many cases, are based on unaudited information at the time received. Valuations may be derived by reference to observable valuation measures for comparable companies or transactions (for example, multiplying a key performance
metric of the investee company, such as EBITDA, by a relevant valuation multiple observed in the range of comparable companies or transactions), adjusted by management for differences between the investment and the referenced comparables, and in some instances by reference to option pricing models or other similar methods. Where a discounted cash flow method is used, a terminal value is derived by reference to EBITDA or price/earnings exit multiples.
Credit-Focused Investments
– The fair values of credit-focused investments are generally determined on the basis of prices between market participants provided by reputable dealers or pricing services. For credit-focused investments that are not publicly traded or whose market prices are not readily available, Blackstone may utilize other valuation techniques, including the discounted cash flow method or a market approach. The discounted cash flow method
projects the expected cash flows of the debt instrument based on contractual terms, and discounts such cash flows back to the valuation date using a market-based yield. The market-based yield is estimated using yields of publicly traded debt instruments issued by companies operating in similar industries as the subject investment, with similar leverage statistics and time to maturity.
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
(All Dollars are in Thousands, Except Share and Per Share Data, Except Where Noted)
The market approach is generally
used to determine the enterprise value of the issuer of a credit investment, and considers valuation multiples of comparable companies or transactions. The resulting enterprise value will dictate whether or not such credit investment has adequate enterprise value coverage. In cases of distressed credit instruments, the market approach may be used to estimate a recovery value in the event of a restructuring.
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Investments, at Fair Value
The Blackstone Funds are accounted for as investment companies under the American Institute of Certified Public Accountants Accounting and Auditing
Guide,
Investment Companies
, and in accordance with the GAAP guidance on investment companies and reflect their investments, including majority owned and controlled investments (the “Portfolio Companies”), at fair value. Such consolidated funds’ investments are reflected in Investments on the Condensed Consolidated Statements of Financial Condition at fair value, with unrealized gains and losses resulting from changes in fair value reflected as a component of Net Gains from Fund Investment Activities in the Condensed Consolidated Statements of Operations. Fair value is the amount that would be received to sell an asset or paid to transfer a liability, in an orderly transaction between market participants at the measurement date, at current market conditions (i.e., the exit price).
Blackstone’s principal investments are presented at fair value with unrealized appreciation or depreciation and realized
gains and losses recognized in the Condensed Consolidated Statements of Operations within Investment Income (Loss).
For certain instruments, Blackstone has elected the fair value option. Such election is irrevocable and is applied on an investment by investment basis at initial recognition or other eligible election dates. Blackstone has applied the fair value option for certain loans and receivables, unfunded loan commitments and certain investments in private debt securities that otherwise would not have been carried at fair value with gains and losses recorded in net income. The methodology for measuring the fair value of such investments is consistent with the methodology applied to private equity, real estate, credit-focused and funds of hedge funds investments. Changes in the fair value of such instruments are recognized in Investment Income (Loss) in the Condensed Consolidated Statements of Operations. Interest income on interest bearing
loans and receivables and debt securities on which the fair value option has been elected is based on stated coupon rates adjusted for the accretion of purchase discounts and the amortization of purchase premiums. This interest income is recorded within Interest and Dividend Revenue.
Blackstone has elected the fair value option for certain proprietary investments that would otherwise have been accounted for using the equity method of accounting. The fair value of such investments is based on quoted prices in an active market or using the discounted cash flow method. Changes in fair value are recognized in Investment Income (Loss) in the Condensed Consolidated Statements of Operations.
Further disclosure on instruments for which the fair value option has been elected is presented in Note 7. “Fair Value Option.”
The investments of consolidated Blackstone Funds in funds of hedge funds (“Investee
Funds”) are valued at net asset value (“NAV”) per share of the Investee Fund. In limited circumstances, Blackstone may determine, based on its own due diligence and investment procedures, that NAV per share does not represent fair value. In such circumstances, Blackstone will estimate the fair value in good faith and in a manner that it reasonably chooses, in accordance with the requirements of GAAP.
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
(All Dollars are in Thousands, Except Share and Per Share Data, Except Where Noted)
Certain investments of Blackstone and of the consolidated Blackstone funds of hedge funds and credit-focused funds measure their investments in underlying funds at fair value using NAV per share without adjustment. The terms of the investee’s investment generally provide for minimum holding periods or
lock-ups,
the institution of gates on redemptions or the suspension of redemptions or an ability to side-pocket investments, at the discretion of the investee’s fund manager, and as a result, investments may not be redeemable at, or within three months of, the reporting date. A side-pocket is used by hedge funds and funds of hedge funds to separate investments that may lack a readily ascertainable value, are illiquid or are subject to liquidity restriction. Redemptions are generally not permitted until the investments within a side-pocket are liquidated or it is deemed that the conditions existing at the time
that required the investment to be included in the side-pocket no longer exist. As the timing of either of these events is uncertain, the timing at which Blackstone may redeem an investment held in a side-pocket cannot be estimated. Further disclosure on instruments for which fair value is measured using NAV per share is presented in Note 5. “Net Asset Value as Fair Value.”
Security and loan transactions are recorded on a trade date basis.
Blackstone may elect to measure certain proprietary investments in equity securities without readily determinable fair values under the measurement alternative, which reflects cost less impairment, with adjustments in value resulting from observable price changes arising from orderly transactions of the same or a similar security from the same issuer. If the measurement alternative election is not made, the equity security is measured at fair value. The measurement alternative election
is made on an instrument by instrument basis.
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Equity Method Investments
Investments in which Blackstone is deemed to exert significant influence, but not control, are accounted for using the equity method of accounting except in cases where the fair value option has been elected. Blackstone has significant influence over all Blackstone Funds in which it invests but does not consolidate. Therefore, its investments in such Blackstone Funds, which include both a proportionate and disproportionate allocation of the profits and losses (as is the case with carry funds that
include a Performance Allocation), are accounted for under the equity method. Under the equity method of accounting, Blackstone’s share of earnings (losses) from equity method investments is included in Investment Income (Loss) in the Condensed Consolidated Statements of Operations.
In cases where Blackstone’s equity method investments provide for a disproportionate allocation of the profits and losses (as is the case with carry funds that include a Performance Allocation), Blackstone’s share of earnings (losses) from equity method investments is determined using a balance sheet approach referred to as the hypothetical liquidation at book value (“HLBV”) method. Under the HLBV method, at the end of each reporting period, Blackstone calculates the Accrued Performance Allocations that would be due to Blackstone for each fund pursuant to the fund agreements as if the fair value of the underlying investments were realized as of such date, irrespective
of whether such amounts have been realized. As the fair value of underlying investments varies between reporting periods, it is necessary to make adjustments to amounts recorded as Accrued Performance Allocations to reflect either (a) positive performance resulting in an increase in the Accrued Performance Allocation to the general partner, or (b) negative performance that would cause the amount due to Blackstone to be less than the amount previously recognized as revenue, resulting in a negative adjustment to the Accrued Performance Allocation to the general partner. In each scenario, it is necessary to calculate the Accrued Performance Allocation on cumulative results compared to the Accrued Performance Allocation recorded to date and make the required positive or negative adjustments. Blackstone ceases to record negative Performance Allocations once previously Accrued Performance Allocations for such fund have been fully reversed. Blackstone is not obligated to pay
guaranteed returns or hurdles, and therefore, cannot have negative Performance Allocations over the life of a fund. The carrying amounts of equity method investments are reflected in Investments in the Condensed Consolidated Statements of Financial Condition.
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
(All Dollars are in Thousands, Except Share and Per Share Data, Except Where Noted)
Strategic Partners’ results presented in Blackstone’s financial statements are reported on a three month lag from Strategic
Partners’ fund financial statements, which report the performance of underlying investments generally on a same quarter basis, if available. Therefore, Strategic Partners’ results presented herein do not reflect the impact of economic and market activity in the current quarter. Current quarter market activity of Strategic Partners’ underlying investments is expected to affect Blackstone’s reported results in upcoming periods. Effective September 30, 2021, Strategic Partners’ fund financial reporting process was updated to report the performance of underlying fund investments generally on a same-quarter basis, if available. Previously, such fund financial reporting in Strategic Partners’ fund financial statements generally reported on a three month lag. This update to Strategic Partners’ fund financial reporting process has permitted Strategic Partners’ appreciation to be reported in Blackstone’s financial statements on
a more current basis.
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Compensation and Benefits
Compensation and Benefits
—
Compensation
— Compensation consists of (a) salary and bonus, and benefits paid and payable to employees and senior managing directors and (b) equity-based compensation associated with the grants of equity-based awards to employees and senior managing directors. Compensation cost relating to the issuance of equity-based awards to senior managing directors and
employees is measured at fair value at the grant date, and expensed over the vesting period on a straight-line basis, taking into consideration expected forfeitures, except in the case of (a) equity-based awards that do not require future service, which are expensed immediately, and (b) certain awards to recipients that meet criteria making them eligible for retirement (allowing such recipient to keep a percentage of those awards upon departure from Blackstone after becoming eligible for retirement), for which the expense for the portion of the award that would be retained in the event of retirement is either expensed immediately or amortized to the retirement date. Cash settled equity-based awards and awards settled in a variable number of shares are classified as liabilities and are remeasured at the end of each reporting period.
Compensation and Benefits
—
Incentive Fee Compensation
—
Incentive Fee Compensation consists of compensation paid based on Incentive Fees.
Compensation and Benefits
— Performance Allocations Compensation
—
Performance Allocation Compensation consists of compensation paid based on Performance Allocations (which may be distributed in cash or
in-kind).
Such compensation expense is subject to both positive and negative adjustments. Unlike Performance Allocations, compensation expense is based on the performance of individual investments held by a fund rather than on a fund by fund basis. These amounts may also include allocations of investment income from Blackstone’s principal investments, to senior managing directors and employees participating in
certain profit sharing initiatives.
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Non-Controlling
Interests in Consolidated Entities
Non-Controlling
Interests in Consolidated Entities represent the component of Equity in general partner entities and consolidated Blackstone Funds held by third party investors and employees. The percentage interests in consolidated Blackstone Funds held by third parties and employees is adjusted for general partner allocations and by subscriptions and redemptions in funds of
hedge funds and certain credit-focused funds which occur during the reporting period. Income (Loss) and other comprehensive income, if applicable, arising from the respective entities is allocated to
non-controlling
interests in consolidated entities based on the relative ownership interests of third party investors and employees after considering any contractual arrangements that govern the allocation of income (loss) such as fees allocable to Blackstone Inc.
Notes to Condensed Consolidated Financial
Statements (Unaudited) - Continued
(All Dollars are in Thousands, Except Share and Per Share Data, Except Where Noted)
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Redeemable
Non-Controlling
Interests in Consolidated Entities
Investors in certain consolidated funds may be granted redemption rights that allow for quarterly or monthly redemption, as outlined in the relevant fund governing documents. Such redemption rights may include limitations on the amounts that may be redeemed
in a given period, may only allow for redemption following the expiration of a specified period of time, or may be withdrawn subject to a redemption fee during the period when capital may not be withdrawn. As a result, amounts relating to third party interests in such consolidated funds are presented as Redeemable
Non-Controlling
Interests in Consolidated Entities within the Condensed Consolidated Statements of Financial Condition. When redeemable amounts become legally payable to investors, they are classified as a liability and included in Accounts Payable, Accrued Expenses and Other Liabilities in the Condensed Consolidated Statements of Financial Condition. For all consolidated funds in which redemption rights have not been granted,
non-controlling
interests are presented within Equity in the Condensed Consolidated Statements of Financial Condition as
Non-Controlling
Interests in Consolidated Entities.
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Non-Controlling
Interests in Blackstone Holdings
Non-Controlling
Interests in Blackstone Holdings represent the component of Equity in the consolidated Blackstone Holdings Partnerships held by Blackstone personnel and others who are limited partners of the Blackstone Holdings Partnerships.
Certain costs and expenses are borne directly by the Holdings Partnerships. Income (Loss), excluding those costs directly borne by and attributable to the Holdings Partnerships,
is attributable to
Non-Controlling
Interests in Blackstone Holdings. This residual attribution is based on the year to date average percentage of Blackstone Holdings Partnership Units and unvested participating Holdings Partnership Units held by Blackstone personnel and others who are limited partners of the Blackstone Holdings Partnerships. Unvested participating Holdings Partnership Units are excluded from the attribution in periods of loss as they are not contractually obligated to share in losses of the Holdings Partnerships.
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Income Taxes
Provision
of Income Taxes
Income taxes are provided for using the asset and liability method under which deferred tax assets and liabilities are recognized for temporary differences between the financial reporting and tax bases of assets and liabilities, resulting in all pretax amounts being appropriately tax effected in the period, irrespective of which tax return year items will be reflected. Blackstone reports interest expense and tax penalties related to income tax matters in provision for income taxes.
Deferred Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences between the financial reporting and tax bases of assets and liabilities. These temporary differences result in taxable or deductible
amounts in future years and are measured using the tax rates and laws that will be in effect when such differences are expected to reverse. Valuation allowances are established to reduce the deferred tax assets to the amount that is more likely than not to be realized. Deferred tax assets are separately stated, and deferred tax liabilities are included in Accounts Payable, Accrued Expenses, and Other Liabilities in the financial statements.
Unrecognized Tax Benefits
Blackstone recognizes tax positions in the condensed consolidated financial statements when it is more likely than not that the position will be sustained on examination by the relevant taxing authority based on the technical merits of the position. A position that meets this standard is measured at the largest amount of benefit what
will more likely than not be realized on settlement. A liability is established for differences between positions taken in the return and amounts recognized in the condensed consolidated financial statements.
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
(All Dollars are in Thousands, Except Share and Per Share Data, Except Where Noted)
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Net
Income (Loss) Per Share of Common Stock
Basic Income (Loss) Per Share of Common Stock is calculated by dividing Net Income (Loss) Attributable to Blackstone Inc. by the weighted-average shares of common stock, unvested participating shares of common stock outstanding for the period and vested deferred restricted shares of common stock that have been earned for which issuance of the related shares of common stock is deferred until future periods. Diluted Income (Loss) Per Share of Common Stock reflects the impact of all dilutive securities. Unvested participating shares of common stock are excluded from the computation in periods of loss as they are not contractually obligated to share in losses.
Blackstone applies the treasury stock method to determine the dilutive weighted-average common shares outstanding for certain equity-based compensation awards. Blackstone applies the
“if-converted”
method to the Blackstone Holdings Partnership Units to determine the dilutive impact, if any, of the exchange right included in the Blackstone Holdings Partnership Units. Blackstone applies the contingently issuable share model to contracts that may require the issuance of shares.
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Reverse Repurchase and Repurchase Agreements
Securities purchased under agreements to resell (“reverse repurchase agreements”) and securities sold under agreements to repurchase (“repurchase agreements”), comprised
primarily of U.S. and
non-U.S.
government and agency securities, asset-backed securities and corporate debt, represent collateralized financing transactions. Such transactions are recorded in the Condensed Consolidated Statements of Financial Condition at their contractual amounts and include accrued interest. The carrying value of reverse repurchase and repurchase agreements approximates fair value.
Blackstone manages credit exposure arising from reverse repurchase agreements and repurchase agreements by, in appropriate circumstances, entering into master netting agreements and collateral arrangements with counterparties that provide Blackstone, in the event of a counterparty default, the right to liquidate collateral and the right to offset a counterparty’s rights and obligations.
Blackstone takes possession of securities purchased under reverse repurchase agreements and is permitted to repledge, deliver
or otherwise use such securities. Blackstone also pledges its financial instruments to counterparties to collateralize repurchase agreements. Financial instruments pledged that can be repledged, delivered or otherwise used by the counterparty are recorded in Investments in the Condensed Consolidated Statements of Financial Condition. Additional disclosures relating to repurchase agreements are discussed in Note 10. “Repurchase Agreements.”
Blackstone does not offset assets and liabilities relating to reverse repurchase agreements and repurchase agreements in its Condensed Consolidated Statements of Financial Condition. Additional disclosures relating to offsetting are discussed in Note 11. “Offsetting of Assets and Liabilities.”
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Securities
Sold, Not Yet Purchased
Securities Sold, Not Yet Purchased consist of equity and debt securities that Blackstone has borrowed and sold. Blackstone is required to “cover” its short sale in the future by purchasing the security at prevailing market prices and delivering it to the counterparty from which it borrowed the security. Blackstone is exposed to loss in the event that the price at which a security may have to be purchased to cover a short sale exceeds the price at which the borrowed security was sold short.
Securities Sold, Not Yet Purchased are recorded at fair value in the Condensed Consolidated Statements of Financial Condition.
Notes
to Condensed Consolidated Financial Statements (Unaudited) - Continued
(All Dollars are in Thousands, Except Share and Per Share Data, Except Where Noted)
i
Derivative Instruments
Blackstone recognizes all derivatives as assets or liabilities on its Condensed Consolidated Statements of Financial Condition at fair value. On the date Blackstone enters into a derivative contract, it designates and documents each derivative contract
as one of the following: (a) a hedge of a recognized asset or liability (“fair value hedge”), (b) a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow hedge”), (c) a hedge of a net investment in a foreign operation, or (d) a derivative instrument not designated as a hedging instrument (“freestanding derivative”).
For freestanding derivative contracts, Blackstone presents changes in fair value in current period earnings. Changes in the fair value of derivative instruments held by consolidated Blackstone Funds are reflected in Net Gains from Fund Investment Activities or, where derivative instruments are held by Blackstone, within Investment Income (Loss) in the Condensed Consolidated Statements of Operations. The fair value of freestanding
derivative assets of the consolidated Blackstone Funds are recorded within Investments, the fair value of freestanding derivative assets that are not part of the consolidated Blackstone Funds are recorded within Other Assets and the fair value of freestanding derivative liabilities are recorded within Accounts Payable, Accrued Expenses and Other Liabilities in the Condensed Consolidated Statements of Financial Condition.
Blackstone has elected to not offset derivative assets and liabilities or financial assets in its Condensed Consolidated Statements of Financial Condition, including cash, that may be received or paid as part of collateral arrangements, even when an enforceable master netting agreement is in place that provides Blackstone, in the event of counterparty default, the right to liquidate collateral and the right to offset a counterparty’s rights and obligations.
Blackstone’s other disclosures regarding derivative
financial instruments are discussed in Note 6. “Derivative Financial Instruments.”
Blackstone’s disclosures regarding offsetting are discussed in Note 11. “Offsetting of Assets and Liabilities.”
i
Affiliates
Blackstone considers its Founder, senior managing directors, employees, the Blackstone Funds and the Portfolio Companies to be affiliates.
i
Dividends
Dividends are reflected in the condensed consolidated financial statements when declared.
Amortization expense associated with Blackstone’s intangible assets was $i18.7 million and $i37.4 million
for the three and six month periods ended June 30, 2022, respectively, and $i18.7 million and $i37.5 million for the three and six month periods
ended June 30, 2021, respectively.
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
(All Dollars are in Thousands, Except Share and Per Share Data, Except Where Noted)
Amortization
of Intangible Assets held at June 30, 2022 is expected to be $i67.1 million, $i38.1 million,
$i30.5 million, $i30.5 million, and $i30.4 million
for each of the years ending December 31, 2022, 2023, 2024, 2025 and 2026, respectively. Blackstone’s Intangible Assets as of June 30, 2022 are expected to amortize over a weighted-average period of i7.2 years.
Where appropriate, the accounting for Blackstone’s investments incorporates the changes in fair value of those investments as determined under GAAP. The significant inputs and assumptions required to determine the change in fair value of the investments of Consolidated Blackstone Funds, Corporate Treasury Investments and Other Investments are discussed in more detail in Note 8. “Fair Value Measurements of Financial Instruments.”
Investments of Consolidated Blackstone Funds
i
The
following table presents the Realized and Net Change in Unrealized Gains (Losses) on investments held by the consolidated Blackstone Funds and a reconciliation to Other Income (Loss) – Net Gains (Losses) from Fund Investment Activities in the Condensed Consolidated Statements of Operations:
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
(All Dollars are in Thousands, Except Share and Per Share Data, Except Where Noted)
Equity Method Investments
Blackstone’s equity method investments include Partnership Investments, which represent the
pro-rata
investments, and any associated Accrued Performance Allocations, in Blackstone Funds, excluding any equity method investments for which the fair value option has been elected. Blackstone evaluates each of its equity method investments, excluding Accrued Performance Allocations, to determine if any were significant as defined by guidance from the United States Securities and Exchange Commission. As of and for the six months ended June 30, 2022 and 2021, no individual equity method investment held by Blackstone met the significance criteria. As such, Blackstone is not required to present separate financial
statements for any of its equity method investments.
Partnership Investments
Blackstone recognized net gains (losses) related to its Partnership Investments accounted for under the equity method of $(i138.7) million and $i423.3 million
for the three months ended June 30, 2022 and 2021, respectively. Blackstone recognized net gains related to its equity method investments of $i197.6 million and $i1.1 billion
for the six months ended June 30, 2022 and 2021, respectively.
Accrued Performance Allocations
i
Accrued Performance Allocations to Blackstone were as follows:
The portion of corporate treasury investments included in Investments represents Blackstone’s investments into primarily fixed income securities, mutual fund interests, and other fund interests. These strategies are managed by a combination of Blackstone personnel and third party advisors. iThe
following table presents the Realized and Net Change in Unrealized Gains (Losses) on these investments:
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
(All Dollars are in Thousands, Except Share and Per Share Data, Except Where Noted)
Other Investments
Other
Investments consist of equity method investments where Blackstone has elected the fair value option and other proprietary investment securities held by Blackstone, including equity securities carried at fair value, equity investments without readily determinable fair values, and subordinated notes in
non-consolidated
CLO vehicles. Equity investments without a readily determinable fair value had a carrying value of $i2.5 billion as of June 30, 2022, including the investment in Corebridge Financial, Inc., formerly known as American International
Group, Inc.’s Life and Retirement business (“Corebridge”). In the period of acquisition and upon remeasurement in connection with an observable transaction, such investments are
reported
at fair value. See Note 8. “Fair Value Measurements of Financial Instruments” for additional detaili. The following table presents Blackstone’s Realized and Net Change in
A
summary of fair value by strategy type and ability to redeem such investments as of June 30, 2022 is presented below:
Redemption
Frequency
Redemption
Strategy (a)
Fair Value
(if currently eligible)
Notice Period
Equity
$
i433,281
(b)
(b)
Real Estate
i118,606
(c)
(c)
Credit Driven
i25,778
(d)
(d)
Commodities
i1,119
(e)
(e)
Diversified Instruments
i17
(f)
(f)
$
i578,801
(a)
As of June 30, 2022, Blackstone had no unfunded commitments.
(b)
The Equity category includes investments in hedge funds that invest primarily in domestic and international equity securities. Investment representing i100% of the fair value of the investments in this category may not be redeemed at, or within three months of, the reporting date. Investments representing less than i1%
of the fair value of the investments in this category are in liquidation. As of the reporting date, the investee fund manager had elected to side-pocket less than 1% of Blackstone’s investments in the category.
(c)
The Real Estate category includes
investments in funds that primarily invest in real
estate
assets. Investments representing i100% of fair value of the investments in this category are redeemable as of the reporting date.
(d)
The Credit Driven category includes investments in hedge funds that invest primarily in domestic and international bonds. Investments representing i83% of the fair value of the investments in this category are in liquidation. The remaining i17%
of investments in this category may not be redeemed at, or within three months of, the reporting date.
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
(All
Dollars are in Thousands, Except Share and Per Share Data, Except Where Noted)
(e)
The Commodities category includes investments in commodities-focused funds that primarily invest in futures and physical-based commodity driven strategies. Investments representing i100% of the fair value of the investments in this category may not be redeemed at, or within three months of, the reporting date.
(f)
Diversified Instruments include investments in funds that invest across multiple strategies. Investments representing i100% of the fair value of the investments in this category may not be redeemed at, or within three months of, the reporting date.
i
6. Derivative
Financial Instruments
Blackstone and the consolidated Blackstone Funds enter into derivative contracts in the normal course of business to achieve certain risk management objectives and for general investment purposes. Blackstone may enter into derivative contracts in order to hedge its interest rate risk exposure against the effects of interest rate changes. Additionally, Blackstone may also enter into derivative contracts in order to hedge its foreign currency risk exposure against the effects of a portion of its
non-U.S.
dollar denominated currency net investments. As a result of the use of derivative contracts,
Blackstone and the consolidated Blackstone Funds are exposed to the risk that counterparties will fail to fulfill their contractual obligations. To mitigate such counterparty risk, Blackstone and the consolidated Blackstone Funds enter into contracts with certain major financial institutions, all of which have investment grade ratings. Counterparty credit risk is evaluated in determining the fair value of derivative instruments.
Freestanding Derivatives
Freestanding derivatives are instruments that Blackstone and certain of the consolidated Blackstone Funds have entered into as part of their overall risk management and investment strategies. These derivative contracts are not designated as hedging instruments for accounting
purposes. Such contracts may include interest rate swaps, foreign exchange contracts, equity swaps, options, futures and other derivative contracts.
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
(All
Dollars are in Thousands, Except Share and Per Share Data, Except Where Noted)
i
The table below summarizes the aggregate notional amount and fair value of the derivative financial instruments. The notional amount represents the absolute value amount of all outstanding derivative contracts.
The following tables present the Realized and Net Change in Unrealized Gains (Losses) on financial instruments on which the fair value option was elected:
Total Accounts Payable, Accrued Expenses and Other Liabilities
i323
i147,485
i636
—
i148,444
$
i4,615
$
i171,042
$
i636
$
—
$
i176,293
LLC Limited Liability Company.
(a)
Equity Securities, Partnership and LLC Interest includes investments in investment funds. Prior period amounts have been reclassified to this presentation.
(b)
Corporate Treasury Commitments are measured using third party pricing.
(c)
Level III Other Investments includes Blackstone’s $i2.2 billion equity interest in Corebridge and other investments that were remeasured as the result of an observable transaction. These fair value measurements are nonrecurring and are measured as of either the date of acquisition, which was November 2, 2021 for Corebridge, or as of the date of the observable transaction.
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
(All Dollars are in Thousands, Except Share and Per Share Data, Except Where Noted)
i
The following table summarizes the quantitative inputs
and assumptions used for items categorized in Level III of the fair value hierarchy as of June 30, 2022:
Fair Value
Valuation
Techniques
Unobservable
Inputs
Ranges
Weighted- Average (a)
Impact to Valuation from an Increase in Input
Financial Assets
Investments of Consolidated Blackstone Funds
Equity Securities, Partnership and LLC Interests
$
i2,724,955
Discounted Cash Flows
Discount Rate
i4.1% - i40.0%
i8.2%
Lower
Exit Multiple - EBITDA
i4.0x - i31.4x
i14.9x
Higher
Exit Capitalization Rate
i2.8% - i17.3%
i4.4%
Lower
Debt Instruments
i66,857
Discounted Cash Flows
Discount Rate
i6.5% - i19.3%
i12.0%
Lower
Third Party Pricing
n/a
Transaction Price
n/a
Total Investments of Consolidated Blackstone Funds
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
(All Dollars are in Thousands, Except Share and Per Share Data, Except Where Noted)
The following table summarizes the quantitative
inputs and assumptions used for items categorized in Level III of the fair value hierarchy as of December 31, 2021:
Fair Value
Valuation
Techniques
Unobservable
Inputs
Ranges
Weighted- Average (a)
Impact to Valuation from an Increase in Input
Financial Assets
Investments of Consolidated Blackstone Funds
Equity Securities, Partnership and LLC Interests
$
i1,170,362
Discounted Cash Flows
Discount Rate
i1.3% - i43.3%
i10.4%
Lower
Exit Multiple - EBITDA
i3.7x - i31.4x
i14.7x
Higher
Exit Capitalization Rate
i1.3% - i17.3%
i4.9%
Lower
Debt Instruments
i29,953
Discounted Cash Flows
Discount Rate
i6.5% - i19.3%
i9.0%
Lower
Third Party Pricing
n/a
Total Investments of Consolidated Blackstone Funds
i1,200,315
Corporate Treasury Investments
i477
Discounted Cash Flows
Discount Rate
i9.4%
n/a
Lower
Third Party Pricing
n/a
Loans and Receivables
i392,732
Discounted Cash Flows
Discount Rate
i6.5% - i12.2%
i7.6%
Lower
Other Investments
i2,518,032
Third Party Pricing
n/a
Transaction Price
n/a
$
i4,111,556
n/a
Not applicable.
EBITDA
Earnings before interest, taxes, depreciation and amortization.
Exit Multiple
Ranges include the last twelve months EBITDA and forward EBITDA multiples.
Third Party Pricing
Third Party Pricing is generally determined on the basis of unadjusted prices between market participants provided by reputable dealers or pricing services.
Transaction Price
Includes recent acquisitions or transactions.
(a)
Unobservable inputs were weighted based on the fair value of the investments included in the range.
For the six months ended June 30, 2022, there have been no changes in valuation techniques within Level II and Level III that have had a material impact on the valuation of financial instruments.
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
(All Dollars are in Thousands, Except Share and Per Share Data, Except Where Noted)
The following tables summarize the changes in financial assets and liabilities measured at fair value for which Blackstone has used Level III inputs to determine fair value and does not include gains or losses that were reported in Level III in prior years or for instruments that were transferred out of Level III prior to the end of the respective reporting period. These tables also exclude financial assets and liabilities measured at fair value on a
non-recurring
basis. Total realized and unrealized gains and losses recorded for Level III investments are reported in either Investment Income (Loss) or Net Gains from Fund
Investment Activities in the Condensed Consolidated Statements of Operations.
Changes in Unrealized Gains (Losses) Included in Earnings Related to Financial Assets Still Held at the Reporting Date
$
(i20,852
)
$
(i7,883
)
$
(i10,971
)
$
(i39,706
)
$
i125,918
$
(i3,110
)
$
(i71
)
$
i122,737
/
(a)
Represents corporate treasury investments and Other Investments.
(b)
Transfers in and out of Level III financial assets and liabilities were due to changes in the observability of inputs used in the valuation of such assets and liabilities.
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
(All Dollars are in Thousands, Except Share and Per Share Data, Except Where Noted)
i
9. Variable
Interest Entities
Pursuant to GAAP consolidation guidance, Blackstone consolidates certain VIEs for which it is the primary beneficiary either directly or indirectly, through a consolidated entity or affiliate. VIEs include certain private equity, real estate, credit-focused or funds of hedge funds entities and CLO vehicles. The purpose of such VIEs is to provide strategy specific investment opportunities for investors in exchange for management and performance-based fees. The investment strategies of the Blackstone Funds differ by product; however, the fundamental risks of the Blackstone Funds are similar, including loss of invested capital and loss of management fees and performance-based fees. In Blackstone’s role as general partner, collateral manager or investment adviser, it generally considers itself the sponsor of the applicable Blackstone Fund. Blackstone does not provide performance guarantees and has
no other financial obligation to provide funding to consolidated VIEs other than its own capital commitments.
The assets of consolidated variable interest entities may only be used to settle obligations of these entities. In addition, there is no recourse to Blackstone for the consolidated VIEs’ liabilities.
Blackstone holds variable interests in certain VIEs which are not consolidated as it is determined that Blackstone is not the primary beneficiary. Blackstone’s involvement with such entities is in the form of direct and indirect equity interests and fee arrangements. The maximum exposure to loss represents the loss of assets recognized by Blackstone relating to
non-consolidated
VIEs and any clawback obligation relating to previously distributed Performance Allocations. iBlackstone’s
maximum exposure to loss relating to
At June 30, 2022 and December 31, 2021, Blackstone pledged securities with a carrying value of $i152.5 million
and $i63.0 million, respectively, and cash to collateralize its repurchase agreements. Such securities can be repledged, delivered or otherwise used by the counterparty.
i
The
following tables provide information regarding Blackstone’s Repurchase Agreements obligation by type of collateral pledged:
Amounts presented are inclusive of both legally enforceable master netting agreements, and financial instruments received or pledged as collateral. Financial instruments received or pledged as collateral offset derivative counterparty risk exposure, but do not reduce net balance sheet exposure.
Repurchase Agreements are presented separately in the Condensed Consolidated Statements of Financial Condition. Freestanding Derivative assets are included in Other Assets in the Condensed Consolidated Statements of Financial Condition. iThe following
table presents the components of Other Assets:
Furniture, Equipment and Leasehold Improvements, Net
$
i316,389
$
i244,608
Prepaid Expenses
i183,518
i92,359
Freestanding Derivatives
i152,653
i145,401
Other
i5,738
i10,568
$
i658,298
$
i492,936
Freestanding Derivative liabilities are included in Accounts Payable, Accrued Expenses and Other Liabilities in the Condensed Consolidated Statements of Financial Condition.
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
(All Dollars are in Thousands, Except Share and Per Share Data, Except Where Noted)
Notional Pooling Arrangements
Blackstone has notional cash pooling arrangements with financial institutions for cash management purposes. These arrangements allow for cash withdrawals based upon aggregate cash balances on deposit at the same financial institution. Cash withdrawals cannot exceed aggregate cash balances on deposit. The net balance of cash on deposit and overdrafts is used as a basis for calculating net interest expense or income. As of June 30, 2022, the aggregate cash balance on deposit relating to the cash pooling arrangements wa
s $i1.3 billion,
which was offset and reported net of the accompanying overdraft of $i1.3
through its indirect subsidiary Blackstone Holdings Finance Co. L.L.C. (the “Issuer”), issued
€
i500 million aggregate principal amount of senior notes due iJune
1, 2034 (the “2034 Notes”). The 2034 Notes have an interest rate of i3.500% per annum accruing from June 1, 2022. iInterest
on the 2034 Notes is payable iannually in arrears on June 1 of each year commencing on June 1, 2023./
All of Blackstone’s outstanding senior notes as of June 30, 2022 are unsecured and unsubordinated obligations of the Issuer that are fully and unconditionally guaranteed by Blackstone Inc. and its indirect subsidiaries,
Blackstone Holdings I L.P., Blackstone Holdings AI L.P., Blackstone Holdings II L.P., Blackstone Holdings III L.P. and Blackstone Holdings IV L.P. (the “Guarantors”). The guarantees are unsecured and unsubordinated obligations of the Guarantors. Transaction costs related to senior note issuances have been capitalized and are amortized over the life of each respective note.
On June 3, 2022, Blackstone, through the Issuer, entered into an amended and restate
d $i4.1 billion
revolving credit facility with Citibank, N.A., as administrative agent, and the lenders party thereto. The amendment and restatement, among other things, increased the amount of available borrowings and extended the maturity
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
(All Dollars are in Thousands, Except Share and Per Share Data, Except Where Noted)
i
The
following table presents the general characteristics of each of Blackstone’s notes as of June 30, 2022 and December 31, 2021, as well as their carrying value and fair value. The notes are included in Loans Payable within the Condensed Consolidated Statements of Financial Condition. Each of the notes were issued at a discount, accrue interest from the issue date thereof, and pay interest in arrears on a semi-annual basis or annual basis.
Fair value is determined by broker quote and these notes would be classified as Level II within the fair value hierarchy.
i
Scheduled principal payments for borrowings as of June 30, 2022 were as follows:
Total
Borrowings
2022
$
i—
2023
i400,000
2024
i—
2025
i314,520
2026
i629,040
Thereafter
i8,153,240
$
i9,496,800
/i
13. Income Taxes
Blackstone’s net deferred tax assets relate primarily to basis differences resulting from a
step-up
in tax basis of certain assets at the time of its conversion to a corporation, as well as ongoing exchanges of units for common shares by founders and partners.
As of June 30, 2022, Blackstone had no material valuation allowance recorded against deferred tax assets.
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
(All Dollars are in Thousands, Except Share and Per Share Data, Except Where Noted)
Blackstone is subject to examination by the U.S. Internal Revenue Service and other taxing authorities where Blackstone
has significant business operations such as the United Kingdom, and various state and local jurisdictions such as New York State and New York City. The tax years under examination vary by jurisdiction. Blackstone does not expect the completion of these audits to have a material impact on its financial condition, but it may be material to operating results for a particular period, depending on the operating results for that period. Blackstone believes the liability established for unrecognized tax benefits is adequate in relation to the potential for additional assessments. It is reasonably possible that changes in the balance of unrecognized tax benefits may occur within the next 12 months; however, it is not possible to reasonably estimate the expected change to the total amount of unrecognized tax benefits and the impact on Blackstone’s effective tax rate over the next 12 months.
As of June 30,
2022, the major jurisdictions and the earliest tax years that remain subject to examination are U.S. federal i2018, New York State i2015, New York City i2009,
and the United Kingdom i2011.
i
14. Earnings Per Share and Stockholders’ Equity
Earnings Per Share
i
Basic
and diluted net income per share of common stock for the three and six months ended June 30, 2022 and 2021 was calculated as follows:
Net Income (Loss) for Per Share of Common Stock Calculations
Net Income (Loss) Attributable to Blackstone Inc., Basic and Diluted
$
(i29,393
)
$
i1,309,152
$
i1,187,481
$
i3,057,024
Shares/Units Outstanding
Weighted-Average Shares of Common Stock Outstanding, Basic
i707,382,293
i721,141,954
i738,752,489
i715,121,029
Weighted-Average Shares of Unvested Deferred Restricted Common Stock
i—
i123,226
i388,373
i501,179
Weighted-Average Shares of Common Stock Outstanding, Diluted
i707,382,293
i721,265,180
i739,140,862
i715,622,208
Net Income (Loss) Per Share of Common Stock
Basic
$
(i0.04
)
$
i1.82
$
i1.61
$
i4.27
Diluted
$
(i0.04
)
$
i1.82
$
i1.61
$
i4.27
Dividends Declared Per Share of Common Stock (a)
$
i1.32
$
i0.82
$
i2.77
$
i1.78
(a)
Dividends declared reflects the calendar date of the declaration for each distribution.
/
In computing the dilutive effect that the exchange of Blackstone Holdings Partnership Units would have on Net Income Per Share of Common Stock, Blackstone considered that net income available to holders of shares of common stock would increase due to the elimination of
non-controlling
interests in Blackstone Holdings, inclusive of any tax impact. The hypothetical conversion may be dilutive to the extent there is activity at the Blackstone Inc. level that has not previously been attributed to the
non-controlling
interests or if there is a change in tax rate as a result of a hypothetical conversion.
Weighted-Average Shares of Unvested Deferred Restricted Common Stock
i35,883,883
i—
i—
i—
Weighted-Average Blackstone Holdings Partnership Units
i466,817,529
i488,569,471
i467,303,495
i490,857,143
/
Stockholders’ Equity
In connection with the share reclassification, effective February 26, 2021, the Certificate of Incorporation of Blackstone was amended and restated to: (a) rename the Class A common stock as “common stock,” which has the same rights and powers (including, without limitation, with respect to voting) that Blackstone’s Class A common stock formerly had, (b) reclassify the “Class B common stock” into a new “Series I preferred stock,” which has the same rights and powers that the Class B
common stock formerly had, and (c) reclassify the Class C common stock into a new “Series II preferred stock,” which has the same rights and powers that the Class C common stock formerly had. In connection with such share reclassification, Blackstone authorized i10 billion shares of preferred stock with a par value of $i0.00001,
of which (a) i999,999,000 shares are designated as Series I preferred stock and (b) i1,000
shares are designated as Series II preferred stock. The remaining i9 billion shares may be designated from time to time in accordance with Blackstone’s certificate of incorporation. There was ii1/
share of Series I preferred stock and ii1/
share of Series II preferred stock issued and outstanding as of June 30, 2022.
Under Blackstone’s certificate of incorporation and Delaware law, holders of Blackstone’s common stock are entitled to vote, together with holders of Blackstone’s Series I preferred stock, voting as a single class, on a number of significant matters, including certain sales, exchanges or other dispositions of all or substantially all of Blackstone’s assets, a merger, consolidation or other business combination, the removal of the Series II Preferred Stockholder and forced transfer by the Series II Preferred Stockholder of its shares of Series II preferred stock and the designation of a successor Series II Preferred Stockholder. The Series II Preferred Stockholder elects Blackstone’s directors. Holders of Blackstone’s Series I preferred
stock and Series II preferred stock are not entitled to dividends from Blackstone, or receipt of any of Blackstone’s assets in the event of any dissolution, liquidation or winding up. Blackstone Partners L.L.C. is the sole holder of the Series I preferred stock and Blackstone Group Management L.L.C. is the sole holder of the Series II preferred stock.
Share Repurchase Program
On December 7, 2021, Blackstone’s board of directors authorized the repurchase of up to $i2.0 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 numbers repurchased will depend on a variety of factors, including legal requirements, price and economic and market conditions. The repurchase program may be changed, suspended or discontinued at any time and does not have a specified expiration date.
During the three and six months ended June 30, 2022, Blackstone repurchased ii1.9/ million
shares of common stock at a total cost of $ii195.3/ million.
During the three and six months ended June 30, 2021, Blackstone repurchased ii3.2/ million
shares of common stock at a total cost of $ii289.1/ million.
As of June 30, 2022, the amount remaining available for repurchases under the program was $i1.3 billion.
Notes to Condensed Consolidated Financial Statements (Unaudited)
- Continued
(All Dollars are in Thousands, Except Share and Per Share Data, Except Where Noted)
Shares Eligible for Dividends and Distributions
i
As of June 30, 2022, the total shares of common stock and Blackstone Holdings Partnership Units entitled to participate in dividends and distributions were as follows:
Shares/Units
Common Stock Outstanding
i706,476,877
Unvested Participating Common Stock
i35,710,961
Total Participating Common Stock
i742,187,838
Participating Blackstone Holdings Partnership Units
i466,568,377
i1,208,756,215
/i
15. Equity-Based Compensation
Blackstone has granted equity-based compensation awards to Blackstone’s senior managing directors,
non-partner
professionals,
non-professionals
and selected external advisers under Blackstone’s
Amended and Restated 2007 Equity Incentive Plan (the “Equity Plan”). The Equity Plan allows for the granting of options, share appreciation rights or other share-based awards (shares, restricted shares, restricted shares of common stock, deferred restricted shares of common stock, phantom restricted shares of common stock or other share-based awards based in whole or in part on the fair value of shares of common stock or Blackstone Holdings Partnership Units) which may contain certain service or performance requirements. As of January 1, 2022, Blackstone had the ability to grant i171,096,250 shares
under the Equity Plan.
For the three and six months ended June 30, 2022, Blackstone recorded compensation expense of $i210.8 million and $i429.9 million,
respectively, in relation to its equity-based awards with corresponding tax benefits of $i12.2 million and $i72.9 million,
respectively. For the three and six months ended June 30, 2021, Blackstone recorded compensation expense of
$
i141.6 million and $i305.4 million, respectively,
in relation to its equity-based awards with corresponding tax benefits of $i18.8 million and $i40.7 million,
respectively.
As of June 30, 2022, there was $i2.1 billion of estimated unrecognized compensation expense related to unvested awards, including compensation with performance conditions where it is probable that the performance condition will be met. This cost is expected to be recognized over a weighted-average period of i3.4 years.
Total vested and unvested outstanding shares, including common stock, Blackstone Holdings Partnership Units and deferred restricted shares of common stock, were i1,208,883,091 as of June 30, 2022. Total outstanding phantom shares were i62,405
as of June 30, 2022.
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
(All Dollars are in Thousands, Except Share and Per Share Data, Except Where Noted)
i
A
summary of the status of Blackstone’s unvested equity-based awards as of June 30, 2022 and of changes during the period January 1, 2022 through June 30, 2022 is presented below:
Interest Holders in Connection with the Tax Receivable Agreements
$
i1,561,842
$
i1,558,393
Due to
Non-Consolidated
Entities
i185,689
i181,341
Due to Certain
Non-Controlling
Interest Holders and Blackstone Employees
i151,183
i77,664
Accrual for Potential Repayment of Previously Received Performance Allocations
i102,677
i88,700
$
i2,001,391
$
i1,906,098
Interests of the Founder, Senior Managing Directors, Employees and Other Related Parties
The Founder, senior managing directors, employees and certain other related parties invest on a discretionary basis in the consolidated Blackstone Funds both directly and through consolidated entities. These investments generally are subject to preferential management fee and performance allocation or incentive fee arrangements. As of June 30, 2022 and December 31, 2021, such investments aggregated $i1.6 billion
and $i1.6 billion, respectively. Their share of the Net Income Attributable to Redeemable
Non-Controlling
and
Non-Controlling
Interests in Consolidated Entities aggregated to $(i74.8) million
and $i116.2 million for the three months ended June 30, 2022 and 2021, respectively, and $(i10.4) million
and $i233.6 million for the six months ended June 30, 2022 and 2021, respectively.
Loans to Affiliates
Loans to affiliates consist of interest bearing advances to certain Blackstone individuals to finance their investments in certain Blackstone Funds. These loans earn interest at Blackstone’s cost of borrowing
and such interest totaled $i1.4 million and $i1.0 million for the three
months ended June 30, 2022 and 2021, respectively, and $i3.8 million and $i3.3 million
for the six months ended June 30, 2022 and 2021, respectively.
Contingent Repayment Guarantee
Blackstone and its personnel who have received Performance Allocation distributions have guaranteed payment on a several basis (subject to a cap) to the carry funds of any clawback obligation with respect to the excess Performance Allocation allocated to the general partners of such funds and indirectly received thereby to the extent that either Blackstone or its personnel fails to fulfill its clawback obligation, if any. The Accrual for Potential Repayment of Previously Received Performance Allocations represents amounts previously paid to Blackstone Holdings and
non-controlling
interest holders that would need to be repaid to the Blackstone Funds if the carry funds were to be liquidated based
on the fair value of their underlying investments as of June 30, 2022. See Note 17. “Commitments and Contingencies — Contingencies — Contingent Obligations (Clawback).”
Tax Receivable Agreements
Blackstone used a portion of the proceeds from the IPO and other sales of shares to purchase interests in the predecessor businesses from the predecessor owners. In addition, holders of Blackstone Holdings Partnership Units may exchange their Blackstone Holdings Partnership Units for shares of Blackstone common stock on a
one-for-one
basis. The purchase and subsequent exchanges are expected to result in increases in the tax basis of the tangible and intangible assets of Blackstone Holdings and therefore reduce the amount of tax that Blackstone would otherwise be required to pay in the future.
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
(All Dollars are in Thousands, Except Share and Per Share Data, Except Where Noted)
Blackstone has entered into tax receivable agreements with each of the predecessor owners and additional tax receivable agreements have been executed, and will continue to be executed, with newly-admitted senior managing directors and others
who acquire Blackstone Holdings Partnership Units. The agreements provide for the payment by the corporate taxpayer to such owners of i85% of the amount of cash savings, if any, in U.S. federal, state and local income tax that the corporate taxpayers actually realize as a result of the aforementioned increases in tax basis and of certain other tax benefits related to entering into these tax receivable agreements. For purposes of the tax receivable agreements, cash savings in income tax will be computed by comparing the actual income tax liability of the corporate taxpayers to
the amount of such taxes that the corporate taxpayers would have been required to pay had there been no increase to the tax basis of the tangible and intangible assets of Blackstone Holdings as a result of the exchanges and had the corporate taxpayers not entered into the tax receivable agreements.
Assuming no future material changes in the relevant tax law and that the corporate taxpayers earn sufficient taxable income to realize the full tax benefit of the increased amortization of the assets, the expected future payments under the tax receivable agreements (which are taxable to the recipients) will aggregate $i1.6 billion
over the next i15 years. The
after-tax
net present value of these estimated payments totals $i438.4 million assuming a i15%
discount rate and using Blackstone’s most recent projections relating to the estimated timing of the benefit to be received. Future payments under the tax receivable agreements in respect of subsequent exchanges would be in addition to these amounts. The payments under the tax receivable agreements are not conditioned upon continued ownership of Blackstone equity interests by the
pre-IPO
owners and the others mentioned above.
Amounts related to the deferred tax asset resulting from the increase in tax basis from the exchange of Blackstone Holdings Partnership Units to shares of Blackstone common stock, the resulting remeasurement of net deferred tax assets at the Blackstone ownership percentage at the balance sheet date, the due to affiliates for the future payments resulting from the tax receivable agreements and resulting adjustment to partners’ capital are included as Acquisition of Ownership Interests from
Non-Controlling
Interest Holders in the Supplemental Disclosure of
Non-Cash
Investing and Financing Activities in the Condensed Consolidated Statements of Cash Flows.
Other
Blackstone does business with and on behalf of some of its Portfolio Companies; all such arrangements are on a negotiated basis.
Additionally, please see Note 17. “Commitments and Contingencies — Contingencies — Guarantees” for information regarding guarantees provided to a lending institution for certain loans held by employees.
i
17.
Commitments and Contingencies
Commitments
Investment Commitments
Blackstone had $i5.7 billion of investment commitments as of June 30, 2022 representing general partner capital funding commitments to the Blackstone Funds, limited partner capital funding to other funds and Blackstone principal investment commitments, including loan commitments. The consolidated Blackstone
Funds had signed investment commitments of $i206.8 million as of June 30, 2022, which includes $i68.4 million
of signed investment
commitments for fund investments in the process of closing.
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
(All Dollars are in Thousands, Except Share and Per Share Data, Except Where Noted)
Contingencies
Guarantees
Certain of Blackstone’s consolidated real estate funds guarantee payments to third parties in connection with the ongoing business activities and/or acquisitions of their Portfolio Companies. There is no direct recourse to Blackstone to fulfill such obligations. To the extent that underlying funds are required to fulfill guarantee obligations, Blackstone’s invested capital in such funds is at risk. Total investments at risk in respect of guarantees extended by consolidated real estate funds was $i36.0 million
as of June 30, 2022.
The Blackstone Holdings Partnerships provided guarantees to a lending institution for certain loans held by employees either for investment in Blackstone Funds or for members’ capital contributions to The Blackstone Group International Partners LLP. The amount guaranteed as of June 30, 2022 was $i86.0 million.
Litigation
Blackstone may from time to time be involved in litigation and claims incidental to the conduct of its business. Blackstone’s businesses are also subject to extensive regulation, which may result in regulatory proceedings against Blackstone.
Blackstone accrues a liability for legal proceedings only when those matters present loss contingencies that are both probable and reasonably estimable. In such cases, there may be an exposure to loss in excess of any amounts accrued. Although there can be no assurance of the outcome of such legal actions, based on information known by management, Blackstone does not have a potential liability related to any current legal proceeding or claim that would individually or in the aggregate materially affect
its results of operations, financial position or cash flows.
Blackstone continues to believe that the following suits against Blackstone are totally without merit and intends to defend them vigorously.
In December 2017, eight pension plan members of the Kentucky Retirement System (“KRS”) filed a derivative lawsuit on behalf of KRS in the Franklin County Circuit Court of the Commonwealth of Kentucky (the “Mayberry Action”). The Mayberry Action alleged various breaches of fiduciary duty and other violations of Kentucky state law in connection with KRS’s investment in three hedge funds of funds, including a fund managed by Blackstone Alternative Asset Management L.P. (“BLP”). The suit named more than 30 defendants, including, among others, The Blackstone Group L.P. (now Blackstone Inc.); BLP; Stephen A. Schwarzman, as Chairman and CEO of
Blackstone; and J. Tomilson Hill, as
then-CEO
of BLP (collectively, the “Blackstone Defendants”). In July 2020, the Kentucky Supreme Court directed the Circuit Court to dismiss the action due to the plaintiffs’ lack of standing.
Over the objection of the Blackstone Defendants and others, in December 2020, the Circuit Court permitted the Attorney General of the Commonwealth of Kentucky (the “AG”) to intervene in the Mayberry Action. Motions to dismiss are currently pending in the Mayberry Action and discovery has begun. The Blackstone Defendants and others are also pursuing an interlocutory appeal asserting that the Circuit Court did not have jurisdiction to continue the Mayberry Action after the ruling of the Kentucky Supreme Court.
In January 2021, certain former plaintiffs in the Mayberry Action filed a separate
action (“Taylor I”), against the Blackstone Defendants and other defendants named in the Mayberry Action, asserting allegations substantially similar to those made in the Mayberry Action, and in July 2021 they amended their complaint to add class action allegations. Defendants removed Taylor I to the U.S. District Court for the Eastern District of Kentucky, and in March 2022, the District Court stayed Taylor I pending the resolution of the AG’s suit in the Mayberry Action.
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
(All
Dollars are in Thousands, Except Share and Per Share Data, Except Where Noted)
In August 2021, a group of KRS members—including those that filed Taylor I—filed a new action in Franklin County Circuit Court (“Taylor II”), against the Blackstone Defendants, other defendants named in the Mayberry Action, and other KRS officials. The filed complaint is substantially similar to that filed in Taylor I and the Mayberry Action. Motions to dismiss are pending.
In May 2022, the presiding judge recused himself from the Mayberry Action and Taylor II and the cases were reassigned to another judge in the Franklin County Circuit Court.
In April 2021,
the AG filed an action (the “Declaratory Judgment Action”), against BLP and the other fund manager defendants from the Mayberry Action in Franklin County Circuit Court. The action sought to have certain provisions in the subscription agreements between KRS and the fund managers declared to be in violation of the Kentucky Constitution. In March 2022, the Circuit Court granted summary judgment to the AG. BLP’s appeal is currently pending.
In July 2021, BLP filed a breach of contract action against defendants affiliated with KRS alleging that the Mayberry Action and the Declaratory Judgment Action breach the parties’ subscription agreements governing KRS’s investment with BLP. The action seeks damages, including legal fees and expenses incurred in defending against the above actions. In April 2022, the Circuit
Court dismissed BLP’s complaint without prejudice to refiling, on the grounds that the action was not yet ripe for adjudication. BLP’s appeal is currently pending.
Contingent Obligations (Clawback)
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 i2032. 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.
i
The following table presents the clawback obligations by segment:
The split of clawback between Blackstone Holdings and Current and Former Personnel is based on the performance of individual investments held by a fund rather than on a fund by fund basis.
(b)
Total is a component of Due to Affiliates. See Note 16. “Related Party Transactions — Affiliate Receivables and Payables — Due to Affiliates.”
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
(All
Dollars are in Thousands, Except Share and Per Share Data, Except Where Noted)
For Private Equity, Real Estate, and certain Credit & Insurance Funds, a portion of the Performance Allocations paid to current and former Blackstone personnel is held in segregated accounts in the event of a cash clawback obligation. These segregated accounts are not included in the Condensed Consolidated Financial Statements of Blackstone, except to the extent a portion of the assets held in the segregated accounts may be allocated to a consolidated Blackstone fund of hedge funds. At June 30, 202
2, $i1.2 billion
was held in segregated accounts for the purpose of meeting any clawback obligations of current and former personnel if such payments are required.
In the Credit & Insurance segment, payment of Performance Allocations to Blackstone by the majority of the stressed/distressed, mezzanine and credit alpha strategies funds are substantially deferred under the terms of the partnership agreements. This deferral mitigates the need to hold funds in segregated accounts in the event of a cash clawback obligation.
If, at June 30, 2022, all of the investments held by Blackstone’s carry funds were deemed worthless, a possibility that management views as remote, the amount of Performance Allocations subject to potential clawback would be $i6.2 billion,
on an
after-tax
basis where applicable, of which Blackstone Holdings is potentially liable for $i5.8 billion if current and former Blackstone personnel default on their share of the liability, a possibility that management also views as remote.
i
18.
Segment Reporting
Blackstone conducts its alternative asset management businesses through four segments:
•
Real Estate – Blackstone’s Real Estate segment primarily comprises its management of opportunistic real estate funds, Core+ real estate funds, high-yield real estate debt funds and liquid real estate debt funds.
•
Private Equity – Blackstone’s Private Equity segment includes its management of flagship corporate private equity funds, sector and geographically-focused corporate private equity funds, core private equity funds, an opportunistic investment platform, a secondary fund of funds business, infrastructure-focused funds, a life sciences investment platform, a growth equity investment platform, a multi-asset investment program for eligible high net worth investors and a capital markets services business.
•
Hedge Fund Solutions – The largest component of Blackstone’s Hedge Fund Solutions segment is Blackstone Alternative Asset Management, which manages a broad range of commingled and customized hedge fund of fund solutions. The segment also includes a GP Stakes business and investment platforms that invest directly, as well as investment platforms that seed new hedge fund businesses and create alternative solutions through daily liquidity products.
•
Credit & Insurance – Blackstone’s Credit & Insurance segment consists principally of Blackstone Credit, which is organized into two overarching strategies: private credit (which includes mezzanine and direct lending funds, private placement strategies and energy strategies, including our sustainable resources platform) and liquid credit (which consists of CLOs, closed-ended funds, open-ended funds and separately managed accounts). In addition, the segment includes an insurer-focused platform, an asset-based finance platform and publicly traded master limited partnership investment platform.
These business segments are differentiated by their various investment strategies. Each of the segments primarily earns its income from management fees and investment returns on assets under management.
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
(All Dollars are in Thousands, Except Share and Per Share Data, Except Where Noted)
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.
For segment
reporting purposes, Segment Distributable Earnings is presented along with its major components, Fee Related Earnings and Net Realizations. Fee Related Earnings is used to assess Blackstone’s ability to generate profits from revenues that are measured and received on a recurring basis and not subject to future realization events. Net Realizations is the sum of Realized Principal Investment Income and Realized Performance Revenues less Realized Performance Compensation. Performance Allocations and Incentive Fees are presented together and referred to collectively as Performance Revenues or Performance Compensation.
Segment Presentation
i
The
following tables present the financial data for Blackstone’s
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
(All Dollars are in Thousands, Except Share and Per Share Data, Except Where Noted)
The following tables present the financial data for Blackstone’s four segments as of June 30, 2022 and for the six months ended June 30, 2022 and 2021:
The following tables reconcile the Total Segment Revenues, Expenses and Distributable Earnings to their equivalent GAAP measure for the three and six months ended June 30, 2022 and 2021 along with Total Assets as of June 30, 2022:
Segment basis presents revenues and expenses on a basis that deconsolidates the investment funds Blackstone manages and excludes the amortization of intangibles and Transaction-Related Charges.
(a)
This adjustment removes Unrealized Performance Revenues on a segment basis.
(b)
This adjustment removes Unrealized Principal Investment Income (Loss) on a segment basis.
(c)
This adjustment removes Interest and Dividend Revenue on a segment basis.
(d)
This adjustment removes Other Revenue on a segment basis. For the three months ended June 30, 2022 and 2021, Other Revenue on a GAAP basis was $i155.6 million and $i27.9 million,
and included $i155.5 million and $i27.3 million of foreign exchange gains, respectively. For the six months ended June 30, 2022
and 2021, Other Revenue on a GAAP basis was $i228.5 million and $i88.2 million, and included $i228.2 million
and $i86.9 million of foreign exchange gains, respectively.
(e)
This adjustment reverses the effect of consolidating Blackstone Funds, which are excluded from Blackstone’s segment presentation. This adjustment includes the elimination of Blackstone’s interest in these funds, the removal of revenue from the reimbursement of certain expenses by the Blackstone Funds, which are presented gross under GAAP but netted against Management and Advisory Fees, Net in the Total Segment measures, and the removal of amounts associated with the ownership of Blackstone consolidated operating partnerships held by
Notes to Condensed Consolidated
Financial Statements (Unaudited) - Continued
(All Dollars are in Thousands, Except Share and Per Share Data, Except Where Noted)
(f)
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.
(g)
Total Segment Revenues is comprised of the following:
Total Segment Realized Principal Investment Income
i43,509
i63,132
i200,604
i361,288
Total Segment Revenues
$
i4,153,793
$
i2,117,701
$
i7,655,131
$
i4,164,553
(h)
This adjustment removes Unrealized Performance Allocations Compensation.
(i)
This adjustment removes Equity-Based Compensation on a segment basis.
(j)
This adjustment adds back Interest Expense on a segment basis, excluding interest expense related to the Tax Receivable Agreement.
(k)
This adjustment removes the amortization of transaction-related intangibles, which are excluded from Blackstone’s segment presentation.
(l)
This adjustment adds an amount equal 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.
(m)
Total Segment Expenses is comprised of the following:
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
(All Dollars are in Thousands, Except Share and Per Share Data, Except Where Noted)
Reconciliations of Total Segment Components
i
The
following tables reconcile the components of Total Segments to their equivalent GAAP measures, reported on the Condensed Consolidated Statement of Operations for the three and six months ended June 30, 2022 and 2021:
Segment basis presents revenues and expenses on a basis that deconsolidates the investment funds Blackstone manages and excludes the amortization of intangibles, the expense of equity-based awards and Transaction-Related Charges.
(a)
Represents (1) the add back of net management fees earned from consolidated Blackstone Funds which have been eliminated in consolidation, and (2) the removal of revenue from the reimbursement of certain expenses by the Blackstone Funds, which are presented gross under GAAP but netted against Management and Advisory Fees, Net in the Total Segment measures.
(b)
Represents the removal of Transaction-Related Charges that are not recorded in the Total Segment measures.
(c)
Represents the (1) removal of amortization of transaction-related intangibles, (2) removal of certain expenses reimbursed by the Blackstone Funds, which are presented gross under GAAP but netted against Management and Advisory Fees, Net in the Total Segment measures, and (3) a reduction equal to an administrative fee collected on a quarterly basis from certain holders of Blackstone Holdings Partnership Units which is accounted for as a capital contribution under GAAP, but is reflected as a reduction of Other Operating Expenses in Blackstone’s segment presentation.
(d)
Fee related performance compensation may include equity-based compensation based on fee related performance revenues.
(e)
Represents (1) the add back of Principal Investment Income, including general partner income, earned from consolidated Blackstone Funds which have been eliminated in consolidation, and (2) the removal of amounts associated with the ownership of Blackstone consolidated operating partnerships held by
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with Blackstone Inc.’s condensed consolidated financial statements and the related notes included within this Quarterly Report on
Form 10-Q.
In this report, references to “Blackstone,” the “Company,”“we,”“us” or “our” refer to Blackstone Inc. and its consolidated subsidiaries.
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 Americas, Europe and Asia. Our real estate investment teams seek to utilize our global expertise and presence to generate attractive risk-adjusted returns for our investors.
Our Blackstone Real Estate Partners (“BREP”) business is geographically diversified and targets a broad range of opportunistic real estate and real estate-related investments. The BREP funds include global funds as well as funds focused
specifically on Europe or Asia investments. BREP seeks to invest thematically in high-quality assets, focusing where we see outsized growth potential driven by global economic and demographic trends. BREP has made significant investments in logistics, office, rental housing, hospitality and retail properties around the world, as well as in a variety of real estate operating companies.
Our Core+ strategy invests in substantially stabilized real estate globally with long-term growth potential. Our institutional North America, Europe and Asia Core+ strategies, Blackstone Property Partners (“BPP”), focus on logistics, residential, office, life science office and retail assets in global gateway cities. The Core+ Real Estate business also comprises strategies tailored for income-focused individual investors including, Blackstone Real Estate Income Trust, Inc. (“BREIT”), a U.S.
non-listed
REIT, and Blackstone European
Property Income (“BEPIF”) funds.
Our Blackstone Real Estate Debt Strategies (“BREDS”) vehicles primarily target real estate-related debt investment opportunities. BREDS invests in both public and private markets, primarily in the U.S. and Europe. BREDS’ scale and investment mandates enable it to provide a variety of lending options for our borrowers and investment options for our investors, including commercial real estate and mezzanine loans, residential mortgage loan pools and liquid real estate-related debt securities. The BREDS platform includes high-yield real estate debt funds, liquid real estate debt funds and Blackstone Mortgage Trust, Inc. (“BXMT”), a NYSE-listed real
estate investment trust (“REIT”).
Private Equity
Our Private Equity segment includes our corporate private equity business, which consists of (a) our global private equity funds, Blackstone Capital Partners (“BCP”), (b) our sector-focused funds, including our energy-focused funds, Blackstone Energy Partners (“BEP”), (c) our Asia-focused private equity funds, Blackstone Capital Partners Asia and (d) our core private equity funds, Blackstone Core Equity Partners (“BCEP”). Our Private Equity segment also includes (a) our opportunistic investment platform that invests globally across asset classes, industries and geographies, Blackstone Tactical Opportunities (“Tactical Opportunities”), (b) our secondary fund of funds business, Strategic Partners Fund Solutions (“Strategic Partners”), (c) our infrastructure-focused
funds, Blackstone Infrastructure Partners (“BIP”), (d) our life sciences 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”).
We are a global leader in private equity investing. Our corporate private equity business pursues transactions across industries on a global basis. It strives to create value by investing in great businesses where our capital, strategic insight, global relationships and operational support can drive transformation. Our corporate private equity business’s investment strategies and core
themes continually evolve in anticipation of, or in response to, changes in the global economy, local markets, regulation, capital flows and geopolitical trends. We seek to construct a differentiated portfolio of investments with a well-defined, post-acquisition value creation strategy. Similarly, we seek investments that can generate strong unlevered returns regardless of entry or exit cycle timing. Blackstone Core Equity Partners pursues 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 pursues a thematically driven, opportunistic investment strategy. Our flexible, global mandate enables us to find differentiated opportunities across asset classes, industries, and geographies and invest behind them with the frequent use of structure to generate attractive risk-adjusted returns.
With a focus on businesses and/or asset-backed investments in market sectors that are benefitting from long-term transformational tailwinds, Tactical Opportunities seeks to leverage the full power of Blackstone to help those businesses grow and improve. Tactical Opportunities’ ability to dynamically shift focus to the most compelling opportunities in any market environment, combined with the business’ expertise in structuring complex transactions, enables Tactical Opportunities to invest behind attractive market areas often with securities that provide downside protection and maintain upside return.
Strategic Partners, our secondary fund of funds business, is a total fund solutions provider. As a secondary investor it acquires interests in high-quality private funds from original holders seeking liquidity. Strategic Partners focuses on a range of opportunities in underlying funds such as private equity, real estate, infrastructure, venture
and growth capital, credit and other types of funds, as well as general
partner-led
transactions and primary investments and
co-investments
with financial sponsors. Strategic Partners also provides investment advisory services to separately managed account clients investing in primary and secondary investments in private funds and
BIP targets a diversified mix of core+, core and public-private partnership investments across all infrastructure sectors, including energy infrastructure, transportation, digital infrastructure, and water and waste with a primary focus in the U.S. BIP applies a disciplined, operationally intensive investment approach to
investments, seeking to apply a long-term
buy-and-hold
strategy to large-scale infrastructure assets with a focus on delivering stable, long-term capital appreciation together with a predictable annual cash flow yield.
BXLS is our investment platform with capabilities to invest across the life cycle of companies and products within the life sciences sector. BXLS primarily focuses on investments in life sciences products in late stage clinical development within the pharmaceutical and biotechnology sectors.
BXG is our growth equity platform that 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 (a) our GP Stakes business (“GP Stakes”), which targets minority investments in the general partners of private equity and other private-market alternative asset management firms globally, with a focus on delivering a combination of recurring annual cash flow yield and long-term capital appreciation, (b) investment platforms that invest directly, including our Blackstone Strategic Opportunity Fund, which seeks to produce attractive long-term, risk-adjusted returns by investing in a wide variety of securities, assets and instruments, often sourced and/or managed by third party subadvisors or affiliated Blackstone
managers, (c) our hedge fund seeding business and (d) registered funds that provide alternative asset solutions through daily liquidity products. Hedge Fund Solutions’ overall investment philosophy is to grow investors’ assets through both commingled and custom-tailored investment strategies designed to deliver compelling risk-adjusted returns. Diversification, risk management and due diligence are key tenets of our approach.
Credit & Insurance
Our Credit & Insurance segment includes Blackstone Credit (“BXC”). BXC is one of the largest credit-oriented managers in the world. The investment portfolios of the funds BXC manages or
sub-advises
consist of loans and securities of
non-investment
and investment grade 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. BXC’s private credit strategies include mezzanine and direct lending funds, private placement strategies, stressed/distressed strategies and energy strategies (including our sustainable resources platform). BXC’s direct lending funds include Blackstone Private Credit Fund (“BCRED”) and Blackstone Secured Lending Fund (“BXSL”), both of which are business development companies (“BDCs”). BXC’s liquid credit strategies consist of collateralized loan obligations (“CLOs”), closed-ended funds, open-ended funds, systematic strategies and separately managed accounts.
Our Credit & Insurance segment also includes our insurer-focused platform, Blackstone Insurance Solutions (“BIS”). BIS focuses on providing full investment management services for insurers’ general accounts,
seeking to deliver 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.
In addition, our Credit & Insurance segment includes our asset-based finance
platform and our publicly traded midstream energy infrastructure, listed 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, listed infrastructure, renewables and MLPs holding primarily midstream energy assets in North America.
Revenue
We generate revenue from fees earned pursuant to contractual arrangements with funds, fund investors and fund portfolio companies (including management, transaction and monitoring fees), and from capital markets services. We also invest in the funds we manage and we are entitled to a
pro-rata
share of the results of the fund
(a “pro-rata
allocation”). In addition to a
pro-rata
allocation, and assuming certain investment returns are achieved, we are entitled to a disproportionate allocation of the income otherwise allocable to the limited partners, commonly referred to as carried interest (“Performance Allocations”). In certain structures, we receive a contractual incentive fee from an investment fund in the event that specified cumulative investment returns are achieved (an “Incentive Fee,” and together with Performance Allocations, “Performance Revenues”). The composition of our revenues will vary based on market conditions and the cyclicality of the different businesses in which we operate. Net investment gains and investment income generated by the Blackstone Funds are driven by value created by our operating and strategic initiatives as well as overall market conditions. Fair values are affected by changes in the fundamentals of our portfolio company
and other investments, the industries in which they operate, the overall economy and other market conditions.
Business Environment
Blackstone’s businesses are materially affected by conditions in the financial markets and economic conditions in the U.S., Europe, Asia and, to a lesser extent, elsewhere in the world.
The second quarter of 2022 was characterized by steep declines and significant volatility in global markets, driven by investor concerns over inflation, rising interest rates, slowing economic growth and geopolitical uncertainty. Inflation across many key economies reached generational highs, prompting central banks to take monetary policy tightening actions that are likely to create headwinds to economic growth. Continued global supply chain disruption, including due to China’s recurrent
COVID-19
restrictions
and the ongoing war between Russia and Ukraine, are also contributing to mounting inflationary pressure. In the U.S., annual inflation rose to 9.1% in June, the highest level in over 40 years, up from 8.3% in April. Concurrently, Europe experienced 8.6% year-over-year inflation in June. In response to rising inflation, the Federal Reserve raised the fed funds target range to
2.25-2.50%
and the European Central Bank raised rates for the first time in 11 years by 0.50%. Both central banks reiterated expectations for additional increases in the coming months. While several key economic factors, including employment, wage growth and household savings, have demonstrated resilience, the U.S. economic contraction in the first and second quarters of 2022 has opened a debate among economists as to whether the U.S. has entered, or in the near term will enter, a recession.
For
the first six months of 2022, the S&P 500 declined 20% — the largest first-half decline since 1970, with declines in every sector except energy. The consumer discretionary sector experienced the largest decline, down 33%
year-to-date,
driven in part by margin pressures, including due to persistent inflation and supply chain issues. Energy was the best performing sector
year-to-date,
up 32%, and among the most resilient in the second quarter, down 5%. The price of West Texas Intermediate crude oil increased 5% to $106 per barrel in the second quarter, marking a 41% jump since the start of the year.
Volatility increased in the second quarter, with the CBOE Volatility Index rising 40%, contributing to a material slowdown in capital markets activity. U.S. IPO volumes decreased 93% compared to the second quarter of 2021 while U.S. announced merger and
acquisition deal volumes declined 37% over the same period.
Treasury yield increased 67 basis points to 3.01% in the second quarter. Three-month LIBOR increased 132 basis points to 2.29% in the second quarter and has since climbed to 2.80% as of August 1, 2022.
In credit markets, the S&P leveraged loan index declined by 4.5% and the Credit Suisse high yield bond index declined by 9.7% in the second quarter. High yield spreads expanded by 217 basis points, while issuance decreased 82% compared to the second quarter of 2021.
The U.S. unemployment rate remained stable since the
first quarter at 3.6% as of June 2022. Wages, however continued to rise, increasing 5.1% year-over-year in June and exceeding the
15-year
average of 2.9%. Retail sales increased 8.4% in June 2022 compared to June 2021, on a seasonally adjusted basis, driven in part by higher prices. The Institute for Supply Management Purchasing Managers’ Index decreased to 53.0 in the second quarter from 60.6 in June 2021, signaling slowing expansion in the U.S. manufacturing sector.
Headline economic measures were generally healthy in the second quarter. Inflation continues to rise and will likely cause the Federal Reserve to continue raising interest rates. Additionally, rising rates, increasing costs and supply chain issues may dampen consumer spending and slow corporate profit growth, which may negatively impact equity values. There is a debate among economists as to whether such factors, coupled with economic contraction
in the U.S. in the first and second quarters of 2022, indicate that the U.S. has entered, or in the near term will enter, a recession.
Notable Transactions
On June 1, 2022, Blackstone, through its indirect subsidiary Blackstone Holdings Finance Co. L.L.C. (the “Issuer”), issued
€
500 million aggregate principal amount of 3.500% senior notes due June 1, 2034.
On June 3, 2022, Blackstone, through the Issuer, entered into an amended and restated $4.1 billion revolving credit facility with Citibank, N.A., as administrative agent, and the lenders party thereto. The amendment and restatement, among other things, increased the amount of available borrowings
and extended the maturity date from November 24, 2025 to June 3, 2027.
For additional information see Note 12. “Borrowings” in the “Notes to Condensed Consolidated Financial Statements” in “Part I. Item 1. Financial Statements.”
Organizational Structure
Effective February 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 14. “Earnings Per Share and Stockholders’ Equity — Stockholders’ Equity” in the “Notes to Condensed Consolidated Financial Statements” in “— Item 1. Financial Statements” of this filing.
Effective August 6, 2021, The Blackstone Group Inc. changed its name to Blackstone Inc. For additional information, see Note 1. “Organization” in the “Notes to Condensed Consolidated Financial Statements” in “— Item 1. Financial Statements.”
The simplified diagram below depicts our current organizational structure. The diagram does not depict all of our subsidiaries,
including intermediate holding companies through which certain of the subsidiaries depicted are held.
Key Financial Measures and Indicators
We manage our business using certain financial measures and key operating metrics since we believe these metrics measure the productivity of our investment activities. We prepare our Condensed Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”). See Note 2. “Summary of Significant Accounting Policies” in the “Notes to Condensed Consolidated Financial Statements” in “Part I. Item 1. Financial Statements” and “— Critical Accounting Policies.” Our key
non-GAAP
financial measures and operating indicators and metrics are discussed below.
Distributable
Earnings
Distributable Earnings is derived from Blackstone’s segment reported results. Distributable Earnings is used to assess performance and amounts available for dividends to Blackstone shareholders, including Blackstone personnel and others who are limited partners of the Blackstone Holdings Partnerships. Distributable Earnings is the sum of Segment Distributable Earnings plus Net Interest and Dividend 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 Before Provision (Benefit) for Taxes. See “—
Non-GAAP
Financial Measures” for our reconciliation of Distributable Earnings.
Net Interest and Dividend 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 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 Condensed 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 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).
Realized
Performance Compensation reflects an increase in the aggregate Realized Performance Compensation paid to certain of our professionals above the amounts allocable to them based upon the percentage participation in the relevant performance plans previously awarded to them as a result of a new compensation program that commenced during the three months ended June 30, 2021. The expectation is that for the full year 2022, Fee Related Compensation will be decreased by the total amount of additional Performance Compensation awarded for the year. In the three and six months ended June 30, 2022 the increase to Realized Performance Compensation of $50.0 million and $65.0 million, respectively, was greater than the decrease to Fee Related Compensation of $20.0 million and $40.0 million, respectively. These changes to Realized Performance Compensation and Fee Related Compensation
reduced Net Realizations, increased Fee Related Earnings and had a negative impact to Income Before Provision (Benefit) for Taxes and Distributable Earnings in the three and six months ended June 30, 2022. These changes are not expected to impact Income Before Provision (Benefit) for Taxes and Distributable Earnings for the full year. In the three months ended June 30, 2021 Realized Performance Compensation was increased, and Fee Related Compensation was decreased, by $15.0 million. This reduced Net Realizations, increased Fee Related Earnings, was neutral to Income Before Provision (Benefit) for Taxes and had no impact to Distributable Earnings for such period.
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 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 from Perpetual 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 Before Provision (Benefit) for Taxes. See “—
Non-GAAP
Financial Measures” for our reconciliation of Adjusted EBITDA.
Net Accrued Performance Revenues
Net Accrued Performance Revenues is a financial measure used as an indicator of potential future realized performance revenues based on the current investment portfolio of the funds and vehicles we manage. Net Accrued Performance Revenues represents the accrued performance revenues receivable by Blackstone, net of the related accrued performance compensation payable by Blackstone, excluding Performance Revenues that have been realized but not yet distributed as of the reporting date and clawback amounts, if any. Net Accrued Performance Revenues is derived from and reconciled to, but not equivalent to, its most directly comparable GAAP measure of Investments. See “—
Non-GAAP
Financial Measures” for our reconciliation of Net Accrued Performance Revenues and Note 2. “Summary of Significant Accounting Policies — Equity Method Investments” in the “Notes to Condensed Consolidated Financial Statements” in “— Item 1. Financial Statements” for additional information on the calculation of Investments — Accrued Performance Allocations.
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.
Total Assets Under Management refers to the assets we manage. Our Total 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 Hedge Fund Solutions registered investment companies, BREIT, and BEPIF,
(c)
the invested capital, fair value or net asset value of assets we manage pursuant to separately managed accounts,
(d)
the amount of debt and equity outstanding for our CLOs during the reinvestment period,
(e)
the aggregate par amount of collateral assets, including principal cash, for our CLOs after the reinvestment period,
(f)
the gross or net amount of assets (including leverage where applicable) for our credit-focused registered investment companies,
(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. In our Perpetual Capital vehicles where redemption rights exist, Blackstone has the ability to fulfill redemption requests only (a) in Blackstone’s or the vehicles’
board’s discretion, as applicable, or (b) to the extent there is sufficient new capital. 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. Our BIS separately managed accounts can generally only be terminated for long-term underperformance, cause and certain other limited circumstances, in each case subject to Blackstone’s right to cure.
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,
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, BEPIF, 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 Total 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 Total 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 Total Assets Under Management and
Fee-Earning
Assets Under Management are not based on any definition of total assets under management and
fee-earning
assets under management that is set forth in the agreements governing the investment funds that we manage.
For our carry funds, Total Assets Under Management includes the fair value of the investments held and uncalled capital commitments, whereas
Fee-Earning
Assets Under Management may 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 into Perpetual Capital.
Dry Powder
Dry Powder represents the amount of capital available for investment or reinvestment, including general partner and employee capital, and is an indicator of the capital we have available for future investments.
Performance 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.
Following is a discussion of our consolidated results of operations. 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, eliminates
non-controlling
ownership interests in
Blackstone’s consolidated operating partnerships and removes the amortization of intangibles assets and Transaction-Related Charges) in these periods, see “— Segment Analysis” below.
The following table sets forth information regarding our consolidated results of operations and certain key operating metrics for the three and six months ended June 30, 2022 and 2021:
Revenues were $629.2 million for the three months ended June 30, 2022, a decrease of $4.7 billion, compared
to $5.3 billion for the three months ended June 30, 2021. The decrease in Revenues was primarily attributable to a decrease of $5.2 billion in Investment Income (Loss), which is composed of a decrease of $7.0 billion in Unrealized Investment Income (Loss) and an increase of $1.8 billion in Realized Investment Income (Loss).
The $7.0 billion decrease in Unrealized Investment Income (Loss) was primarily attributable to net unrealized depreciation of investments in the three months ended June 30, 2022 compared to net unrealized appreciation of investments in the three months ended June 30, 2021. Principal drivers of the decrease were:
•
The decrease of $3.4 billion in our Real Estate segment was primarily attributable to significant realizations and net unrealized depreciation of investments in BREP and lower net unrealized appreciation of investments in Core+ real estate during the three months ended June 30, 2022. BREP and Core+ real estate’s carrying value decreased 1.0% and increased 2.3%, respectively, in the three months ended June 30, 2022 compared to increases of 9.4% and 5.7%, respectively, in the three months ended June 30, 2021.
•
The decrease of $2.7 billion in our Private Equity segment was primarily attributable to net unrealized depreciation of investments in corporate private equity and Tactical Opportunities in the three months ended June 30, 2022 compared to net unrealized appreciation of investments in the three months ended June 30, 2021. Corporate private equity and Tactical Opportunities carrying value decreased 6.7% and 2.4%, respectively, in the three months ended June 30, 2022 compared to increases of 13.8% and 7.2%, respectively, in the three months ended June 30, 2021.
The $1.8 billion increase in Realized Investment Income (Loss) was primarily attributable
to higher realized gains in our Real Estate segment, partially offset by lower realized gains in our Private Equity segment.
Expenses
Expenses were $744.1 million for the three months ended June 30, 2022, a decrease of $1.5 billion, compared to $2.3 billion for the three months ended June 30, 2021. The decrease was primarily attributable to a decrease of $1.6 billion in Total Compensation and Benefits, which is composed of a decrease of $1.8 billion in Performance Allocations Compensation and an increase of $178.9 million in Compensation. The decrease in Performance Allocations Compensation was primarily due to the decrease in Investment Income (Loss), on which a portion of compensation is based. The increase in Compensation was primarily due to the increase in
Management and Advisory Fees, Net, on which a portion of compensation is based.
Other Income (Loss)
Other Income (Loss) was $(104.3) million for the three months ended June 30, 2022, a decrease of $231.1 million, compared to $126.7 million for the three months ended June 30, 2021. The decrease in Other Income was due to a decrease of $231.4 million in Net Gains (Losses) from Fund Investment Activities.
The decrease in Net Gains (Losses) from Fund Investment Activities was principally driven by decreases of $123.2 million, $70.0 million, $19.3 million and $18.9 million in our Private Equity, Hedge Fund Solutions, Real Estate and Credit & Insurance segments, respectively. The decrease in our Private Equity segment
was primarily due to unrealized depreciation of investments and lower realized gains of investments in our consolidated private equity funds. The decrease in our Hedge Fund Solutions segment was primarily due to unrealized depreciation of investments in our consolidated hedge fund solutions funds. The decrease in our Real Estate segment was primarily due to unrealized depreciation of investments, partially offset by higher realized gains of investments in our consolidated real estate funds. The decrease in our Credit & Insurance segment was primarily due to unrealized depreciation of investments and realized losses of investments in our consolidated credit funds.
Revenues were $5.8 billion for the six months ended June 30, 2022, a decrease of $4.8 billion, compared to $10.6 billion for the six months ended June 30, 2021. The decrease in Revenues was primarily attributable to a decrease of $5.8 billion in Investment Income (Loss), which is composed of a decrease of $8.7 billion in Unrealized Investment Income (Loss) and an increase of $2.9 billion in Realized Investment Income (Loss), partially offset by an increase of $646.8 million in Management and Advisory Fees, Net.
The $8.7 billion decrease
in Unrealized Investment Income (Loss) was primarily attributable to net unrealized depreciation of investments in the six months ended June 30, 2022 compared to net unrealized appreciation of investments in the six months ended June 30, 2021. Principal drivers of the decrease were:
•
The decrease of $4.3 billion in our Private Equity segment was primarily attributable to net unrealized depreciation of investments in corporate private equity and Tactical Opportunities in the six months ended June 30, 2022 compared to net unrealized appreciation of investments in the six months ended June 30, 2021. Corporate private equity and Tactical Opportunities carrying value decreased 3.9% and 0.4%, respectively, in the six months ended June 30, 2022 compared to increases of 29.0% and 22.1%, respectively, in the six months ended June 30, 2021.
•
The decrease of $3.0 billion in our Real Estate segment which was primarily attributable to significant realizations in BREP during the three months ended June 30, 2022, partially offset by lower net unrealized appreciation of investments in BREP in the six months ended June 30, 2022 compared to the six months ended June 30, 2021. BREP’s carrying value increased 9.1% in the six months ended June 30, 2022 compared to 14.9% in the six months ended June 30, 2021.
The $2.9 billion increase in Realized Investment Income (Loss) was primarily attributable to higher realized gains in our Real Estate segment, partially
offset by the gain recognized in connection with the Pátria Investments Limited and Pátria Investimentos Ltda. (collectively, “Pátria”) sale transaction in the first quarter of 2021. On January 26, 2021, Pátria completed its IPO, pursuant to which Blackstone sold a portion of its interests and no longer has representatives or the right to designate representatives on Pátria’s board of directors. As a result of Pátria’s
pre-IPO
reorganization transactions (which included Blackstone’s sale of 10% of Pátria’s
pre-IPO
shares to Pátria’s controlling shareholder) and the consummation of the IPO, Blackstone was deemed to no longer have significant influence over Pátria due to Blackstone’s decreased ownership and lack of board representation.
The $646.8 million increase in Management and Advisory Fees, Net was primarily due to increases in our Real Estate
and Credit & Insurance segments of $334.9 million and $275.8 million, respectively. The increase in our Real Estate segment was primarily due to
Fee-Earning
Assets Under Management growth in Core+ real estate and BREDS. The increase in our Credit & Insurance segment was primarily due to an increase in inflows in BCRED and BIS.
Expenses
Expenses were $2.9 billion for the six months ended June 30, 2022, a decrease of $1.4 billion, compared to $4.3 billion for the six months ended June 30, 2021. The decrease was primarily attributable a decrease of $1.6 billion in Total Compensation and Benefits, which is composed of a decrease of $1.9 billion in Performance Allocations Compensation and an increase of $292.8 million in Compensation, partially
offset by an increase of $139.8 million in General, Administrative and Other. The decrease in Performance Allocations Compensation was primarily due to the decrease in Investment Income, on which a portion of compensation is based. The increase in Compensation was primarily due to the increase in Management and Advisory Fees, Net, on which a portion of compensation is based. The increase in General, Administrative and Other was primarily due to travel and entertainment, occupancy and technology related expenses, and professional fees.
Other Income (Loss) was $(52.7) million for the six months ended June 30, 2022,
a decrease of $302.7 million, compared to $250.0 million for the six months ended June 30, 2021. The decrease in Other Income was due to a decrease of $300.9 million in Net Gains (Losses) from Fund Investment Activities.
The decrease in Net Gains (Losses) from Fund Investment Activities was principally driven by decreases of $193.2 million, $85.9 million and $31.3 million in our Private Equity, Hedge Fund Solutions and Credit & Insurance segments, respectively, partially offset by an increase of $9.4 million in our Real Estate segment. The decrease in our Private Equity segment was primarily due to unrealized depreciation of investments and lower realized gains of investments in our consolidated private equity funds. The decrease in our Hedge Fund Solutions segment was primarily due to unrealized depreciation of investments in our consolidated hedge fund solutions funds.
The decrease in our Credit & Insurance segment was primarily due to unrealized depreciation of investments and realized losses of investments in our consolidated credit funds. The increase in our Real Estate segment was primarily due to higher realized gains of investments, partially offset by unrealized depreciation of investments in our consolidated real estate funds.
Blackstone’s Provision for Taxes for the three months ended June 30, 2022 and 2021 was $36.5 million and $288.3 million, respectively.
This resulted in an effective tax rate of
-16.7%
and 9.2%, respectively, based on our Income (Loss) Before Provision for Taxes of $(219.2) million and $3.1 billion. The decrease in Blackstone’s effective tax rate for the three months ended June 30, 2022, compared to the three months ended June 30, 2021, resulted primarily from the portion of the reported Income (Loss) Before Provision for Taxes that is attributable to
Blackstone’s Provision for Taxes for the six months ended June 30, 2022
and 2021 was $519.8 million and $287.8 million, respectively. This resulted in an effective tax rate of 18.8% and 4.4%, respectively, based on our Income (Loss) Before Provision for Taxes of $2.8 billion and $6.5 billion. The increase in Blackstone’s effective tax rate for the six months ended June 30, 2022, compared to the six months ended June 30, 2021, resulted primarily from the reduction of valuation allowances previously recorded against deferred tax assets during 2021, and an increase in state tax provision due to recent developments affecting the allocation of income among multiple tax jurisdictions.
Additional information regarding our income taxes can be found in Note 13. “Income Taxes” in the “Notes to Condensed Consolidated Financial Statements” in “Part I.
Item 1. Financial Statements” 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 to Blackstone Inc.
Interests in Blackstone Holdings is derived from the Income Before Provision (Benefit) for Taxes at the Blackstone 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 of Blackstone Holdings and Blackstone after considering any contractual arrangements that govern the allocation of income such as fees allocable to Blackstone.
For the three months ended June 30, 2022 and 2021, the Net Income Before Taxes allocated to Blackstone personnel and other limited partners of Blackstone Holdings was 39.8% and 41.4%, respectively. For the six months ended June 30, 2022
and 2021, the Net Income Before Taxes allocated to Blackstone personnel and others who are limited partners of Blackstone Holdings was 39.8% and 41.6%, respectively. The respective decreases of 1.6% and 1.8% were primarily due to the conversion 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 to Blackstone Inc.
Assets Under Management by Segment and Total Assets Under Management by Segment, followed by a rollforward of activity for the three and six months ended June 30, 2022 and 2021. 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 — Total and
Inflows include contributions, capital raised, other increases in available capital (recallable capital and 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)
Total and
Fee-Earning
Assets Under Management are reported in the segment where the assets are managed.
(f)
Annualized Base Management Fee Rate represents 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.
(g)
For the three months ended June 30, 2022, the impact to
Fee-Earning
Assets Under Management due to foreign exchange rate fluctuations was $(2.9) billion, $(1.5) billion and $(4.5) billion for the Real Estate, Credit & Insurance and Total segments, respectively. For the three months ended June 30, 2021, such impact was $332.1 million, $262.1 million and $599.8 million for the Real Estate, Credit & Insurance and Total segments, respectively.
(h)
For the six months ended June 30, 2022, the impact to
Fee-Earning
Assets Under Management due to foreign exchange rate fluctuations was $(3.8) billion, $(1.9) billion and $(5.9) billion for the Real Estate, Credit & Insurance and Total segments, respectively. For the six months ended June 30, 2021, such impact was $(777.3) million, $130.7 million and $(659.6) million for the Real Estate, Credit & Insurance and Total segments, respectively.
(i)
For the three months ended June 30, 2022, the impact to Total Assets Under Management due to foreign exchange rate fluctuations was $(4.8) billion, $(1.4) billion, $(1.8) billion and $(8.0) billion for the Real Estate, Private Equity, Credit & Insurance and Total segments, respectively. For the three months ended June 30, 2021, such impact was $452.1 million, $68.4 million, $361.8 million and $882.3 million for the Real Estate, Private Equity, Credit & Insurance and Total segments, respectively.
(j)
For the six months ended June 30, 2022, the impact to Total Assets Under Management due to foreign exchange rate fluctuations was $(6.7) billion, $(1.9) billion, $(2.2) billion and $(10.8) billion for the Real Estate, Private Equity, Credit & Insurance and Total segments, respectively. For the six months ended June 30, 2021, such impact was $(1.2) billion, $(262.2) million, $115.5 million and $(1.3) billion for the Real Estate, Private Equity, Credit & Insurance and Total segments, respectively.
Fee-Earning
Assets Under Management
Fee-Earning
Assets Under Management were $683.8 billion at June 30, 2022,
an increase of $5.9 billion, compared to $677.9 billion at March 31, 2022. The net increase was due to:
•
Inflows of $44.4 billion related to:
o
$24.7 billion in our Real Estate segment driven by $9.4 billion from BREIT, $9.4 billion from BPP and
co-investment,
$4.9 billion from BREDS and $868.6 million from BREP and
co-investment,
o
$12.1 billion in our Credit & Insurance segment driven by $6.4 billion from direct lending, $1.7 billion from CLOs, $1.5 billion from asset-based finance, $1.4 billion from our energy strategies, $1.4 billion from certain liquid credit strategies and $531.8 million from stressed/distressed strategies, partially offset by net allocations to other segments of $1.3 billion across Credit & Insurance strategies,
o
$6.0 billion in our Private Equity segment driven by $2.2 billion from Strategic Partners, $2.0 billion from BIP, $1.1 billion from corporate private equity and $823.1 million from Tactical Opportunities, and
o
$1.6 billion in our Hedge Fund Solutions segment driven by $894.7 million from individual investor and specialized solutions and $649.1 million from customized solutions.
$8.9 billion in our Real Estate segment driven by $3.1 billion from BREIT, $3.0 billion from BREDS, $1.6 billion from BREP and
co-investment
and $1.2 billion from BPP and
co-investment,
o
$3.0 billion in our Private Equity segment driven by $1.4 billion from Tactical Opportunities, $703.1 million from Strategic Partners and $688.3 million from corporate private equity, and
o
$1.8 billion in our Credit & Insurance segment driven by $496.4 million from CLOs, $393.9 million from our energy strategies, $335.2 million from direct lending, $208.4 million from mezzanine funds and $186.1 million from certain liquid credit strategies.
•
Outflows of $13.5 billion primarily attributable to:
o
$6.7 billion in our Credit & Insurance segment driven by $4.4 billion from certain liquid credit strategies, $972.0 million from BIS, $580.1 million from MLP strategies, $315.1 million from direct lending and $309.4 million from CLOs,
o
$3.5 billion in our Real Estate segment driven by $2.9 billion from BREIT and $518.7 million from BPP and
co-investment,
and
o
$3.2 billion in our Hedge Fund Solutions segment driven by $1.4 billion from commingled products, $1.1 billion from customized solutions and $709.9 million from individual investor and specialized solutions.
•
Market activity of $11.0 billion primarily attributable to:
o
$8.7 billion of market depreciation in our Credit & Insurance segment driven by depreciation of $4.6 billion from certain liquid credit strategies, $1.1 billion from direct lending, $976.1 million from private placement credit, $674.2 million from CLOs and $594.9 million from asset-based finance, all of which included $1.5 billion of foreign exchange depreciation across the segment,
o
$999.6 million of market depreciation in our Hedge Fund Solutions segment driven by market activity in individual investor and specialized solutions, and
o
$774.1 million of market depreciation in our Real Estate segment driven by depreciation of $1.4 billion from BREDS and foreign exchange depreciation of $554.0 million from BREP and
co-investment,
partially offset by appreciation of $1.2 billion from Core+ real estate (which included $2.2 billion of foreign exchange depreciation).
Fee-Earning
Assets Under Management were $683.8 billion at June 30, 2022, an increase of $33.9 billion, compared to $650.0 billion at December 31, 2021. The net increase was due to:
•
Inflows of $89.8 billion related to:
o
$47.5 billion in our Real Estate segment driven by $19.2 billion from BREIT, $10.6 billion from BPP and
co-investment,
$8.8 billion from BREP and
co-investment
and $8.2 billion from BREDS,
o
$25.0 billion in our Credit & Insurance segment driven by $12.8 billion from direct lending, $3.5 billion from CLOs, $2.7 billion from certain liquid credit strategies, $1.9 billion from asset-based finance, $1.5 billion from our energy strategies, $773.6 million from BIS, $725.3 million from stressed/distressed strategies, $385.6 million from mezzanine funds and $303.5 million from MLP strategies,
$11.5 billion in our Private Equity segment driven by $4.5 billion from BIP, $3.1 billion from Strategic Partners, $2.0 billion from Tactical Opportunities, $986.3 million from corporate private equity and $874.3 million from multi-asset products, and
o
$5.8 billion in our Hedge Fund Solutions segment driven by $4.4 billion from individual investor and specialized solutions, $1.1 billion from customized solutions and $263.8 million from commingled products.
Offsetting these increases were:
•
Realizations of $25.9 billion primarily driven by:
o
$14.2 billion in our Real Estate segment driven by $5.0 billion from BREIT, $4.2 billion from BREDS, $2.9 billion from BREP and
co-investment
and $2.0 billion from BPP and
co-investment,
o
$5.7 billion in our Private Equity segment driven by $1.9 billion from Strategic Partners, $1.8 billion from Tactical Opportunities and $1.5 billion from corporate private equity, and
o
$5.3 billion in our Credit & Insurance segment driven by $1.8 billion from CLOs, $1.7 billion from direct lending, $542.3 million from our energy strategies, $402.9 million from mezzanine funds, $356.4 million from stressed/distressed strategies and $349.6 million from certain liquid credit strategies.
•
Outflows of $24.3 billion primarily attributable to:
o
$9.8 billion in our Credit & Insurance segment driven by $5.7 billion from certain liquid credit strategies, $1.5 billion from MLP strategies, $1.3 billion from BIS, $561.2 million from direct lending and $329.4 million from CLOs,
o
$7.8 billion in our Real Estate segment driven by $4.2 billion from BREIT, $2.1 billion from BREP and
co-investment
and $1.4 billion from BPP and
co-investment,
and
o
$5.8 billion in our Hedge Fund Solutions segment driven by $3.1 billion from customized solutions, $1.5 billion from commingled products and $1.3 billion from individual investor and specialized solutions.
•
Market activity of $5.7 billion primarily attributable to:
o
$12.3 billion of market depreciation in our Credit & Insurance segment driven by depreciation of $7.9 billion from certain liquid credit strategies, $2.2 billion from private placement credit, $1.1 billion from asset-based finance and $908.3 million from CLOs, $807.6 million from direct lending, partially offset by market appreciation of $991.6 million from MLP strategies, all of which included $1.9 billion of foreign exchange depreciation across the segment,
o
Partially offset by $5.2 billion of market appreciation in our Real Estate segment driven by appreciation of $8.8 billion from Core+ real estate (which included $2.9 billion of foreign exchange depreciation), partially offset by depreciation of $2.8 billion from BREDS and foreign exchange depreciation of $856.8 million from BREP and
co-investment,
and
o
$2.1 billion of market appreciation in our Private Equity segment driven by appreciation of $1.3 billion from BIP and $737.8 million from Strategic Partners.
Total Assets Under Management were $940.8 billion at June 30, 2022, an increase of $25.3 billion, compared to $915.5 billion at March 31, 2022. The net increase was due to:
•
Inflows of $88.3 billion primarily related to:
o
$48.9 billion in our Real Estate segment driven by $26.5 billion from BREP and
co-investment,
$9.6 billion from BPP and
co-investment,
$9.4 billion from BREIT and $3.2 billion from BREDS,
o
$20.2 billion in our Private Equity segment driven by $10.0 billion from corporate private equity, $3.1 billion from BIP, $3.0 billion from Strategic Partners, $2.9 billion from BXG and $1.0 billion from Tactical Opportunities,
o
$17.1 billion in our Credit & Insurance segment driven by $11.6 billion from direct lending, $2.1 billion from asset-based finance, $1.7 billion from CLOs, $1.4 billion from our energy strategies and $1.4 billion from certain liquid credit strategies, partially offset by net allocations to other segments of $1.4 billion across Credit & Insurance strategies, and
o
$2.0 billion in our Hedge Fund Solutions segment driven by $1.4 billion from individual investor and specialized solutions and $570.3 million from customized solutions.
Total Assets Under Management inflows exceeds
Fee-Earning
Assets Under Management inflows due to the following reasons:
•
For BREP, corporate private equity and BXG, due to BREP X, BCP IX and BXG II’s first closings during the three months ended June 30, 2022. Total Assets Under Management inflows are reported at each fund closing, whereas
Fee-Earning
Assets Under Management inflows are reported when a fund’s investment period commences and in each subsequent close.
•
For our direct lending funds, Total Assets Under Management inflows are reported at their gross value while, for certain funds,
Fee-Earning
Assets Under Management are reported as net assets, which is the basis on which fees are charged.
Offsetting these increases were:
•
Realizations of $29.3 billion primarily driven by:
o
$19.8 billion in our Real Estate segment driven by $14.5 billion from BREP and
co-investment,
$3.1 billion from BREIT, $1.3 billion from BPP and
co-investment
and $1.0 billion from BREDS,
o
$5.6 billion in our Private Equity segment driven by $2.2 billion from Tactical Opportunities, $1.8 billion from Strategic Partners, and $1.3 billion from corporate private equity, and
o
$3.4 billion in our Credit & Insurance segment driven by $1.4 billion from direct lending, $677.1 million from our energy strategies, $496.4 million from CLOs, $336.5 million from mezzanine funds and $237.6 million from stressed/distressed 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.
•
Market activity of $19.3 billion primarily driven by:
o
$8.6 billion of market depreciation in our Credit & Insurance segment driven by depreciation of $4.7 billion from certain liquid credit strategies, $976.1 million from private placement credit, $722.5 million from direct lending, $719.1 million from CLOs, $627.4 million from MLP strategies, $594.9 million from asset-based finance, $250.4 million from BIS, all of which included $1.8 billion of foreign exchange depreciation across the segment,
$6.2 billion of market depreciation in our Private Equity segment driven by carrying value decreases in corporate private equity, BIP, Tactical Opportunities and BXG of 6.7%, 4.2%, 2.4% and 8.6%, respectively, partially offset by carrying value increases in Strategic Partners of 5.7%, all of which included $1.4 billion of foreign exchange depreciation across the segment,
o
$3.3 billion of market depreciation in our Real Estate segment driven by carrying value decreases in BREDS and BREP and
co-investment
of 1.5% and 1.0%, respectively, partially offset by carrying value increases in Core+ real estate of 2.3%, all of which included $4.8 billion of foreign exchange depreciation across the segment, and
o
$1.1 billion of market depreciation in our Hedge Fund Solutions segment driven by market activity within individual investor and specialized solutions.
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.
•
Outflows of $14.4 billion primarily attributable to:
o
$6.7 billion in our Credit & Insurance segment driven by $4.5 billion from certain liquid credit strategies, $990.3 million from BIS, $654.9 million from MLP strategies, $269.1 million from CLOs and $245.2 million from direct lending,
o
$3.8 billion in our Real Estate segment driven by $2.9 billion from BREIT, $518.7 million from BPP and
co-investment
and $436.3 million from BREDS, and
o
$3.3 billion in our Hedge Fund Solutions segment driven by $1.4 billion from commingled products, $1.1 billion from customized solutions and $711.3 million from individual investor and specialized solutions.
Total Assets Under Management were $940.8 billion at June 30, 2022, an increase of $59.9 billion, compared to $880.9 billion at December 31, 2021. The net increase was due to:
•
Inflows of $138.1 billion primarily related to:
o
$65.9 billion in our Real Estate segment driven by $28.9 billion from BREP and
co-investment,
$19.2 billion from BREIT, $11.5 billion from BPP and
co-investment
and $5.7 billion from BREDS,
o
$36.7 billion in our Credit & Insurance segment driven by $25.2 billion from direct lending, $3.5 billion from CLOs, $2.7 billion from certain liquid credit strategies, $2.4 billion from asset-based finance, $1.5 billion from our energy strategies and $785.0 million from BIS,
o
$29.5 billion in our Private Equity segment driven by $11.5 billion from corporate private equity, $5.8 billion from Strategic Partners, 5.6 billion from BIP, $3.1 billion from BXG, $2.3 billion from Tactical Opportunities and $1.1 billion from multi-asset products, and
o
$6.0 billion in our Hedge Fund Solutions segment driven by $4.8 billion from individual investor and specialized solutions, $973.7 million from customized solutions and $251.6 million from commingled products.
Total Assets Under Management inflows may exceed
Fee-Earning
Assets Under Management inflows due to the reasons discussed above.
Realizations of $52.5 billion primarily driven by:
o
$29.4 billion in our Real Estate segment driven by $20.2 billion from BREP and
co-investment,
$5.0 billion from BREIT, $2.1 billion from BPP and
co-investment
and $2.0 billion from BREDS,
o
$13.3 billion in our Private Equity segment driven by $5.3 billion from corporate private equity, $4.2 billion from Strategic Partners, $3.1 billion from Tactical Opportunities and $493.5 million from BIP, and
o
$8.9 billion in our Credit & Insurance segment driven by $4.2 billion from direct lending, $1.8 billion from CLOs, $1.1 billion from our energy strategies, $732.8 million from stressed/distressed strategies and $673.3 million from mezzanine funds.
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 $24.4 billion primarily attributable to:
o
$10.2 billion in our Credit & Insurance segment driven by $5.9 billion from certain liquid credit strategies, $1.7 billion from MLP strategies, $1.3 billion from BIS and $653.4 million from direct lending,
o
$6.1 billion in our Real Estate segment driven by $4.2 billion from BREIT, $1.4 billion from BPP and
co-investment
and $530.3 million from BREDS,
o
$6.0 billion in our Hedge Fund Solutions segment driven by $3.2 billion from customized solutions, $1.5 billion from commingled products and $1.3 billion from individual investor and specialized solutions, and
o
$2.0 billion in our Private Equity segment driven by $548.3 million from Tactical Opportunities, $433.9 million from Strategic Partners, $428.6 million from multi-asset products and $352.8 million from corporate private equity.
•
Market activity of $1.3 billion primarily driven by:
o
$11.4 billion of market depreciation in our Credit & Insurance segment driven by depreciation of $7.9 billion from certain liquid credit strategies, $2.2 billion from private placement credit, $1.1 billion from asset-based finance and $918.7 million from CLOs, partially offset by market appreciation of $1.1 billion from MLP strategies, all of which included $2.2 billion of foreign exchange depreciation across the segment, and
o
Partially offset by $10.2 billion of market appreciation in our Real Estate segment driven by carrying value increases in Core+ real estate and BREP and
co-investment
of 9.8% and 9.1%, respectively, partially offset by carrying value decreases in BREDS of 0.4%, all of which included $6.7 billion of foreign exchange depreciation across the segment.
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
The following presents our Dry Powder as of quarter end of each period:
Note:
Totals may not add due to rounding.
(a)
Represents illiquid drawdown funds, a component of Perpetual Capital and
fee-paying
co-investments;
includes
fee-paying
third party capital as well as general partner and employee capital that does not earn fees. Amounts are reduced by outstanding capital commitments, for which capital has not yet been invested.
The following table presents the Accrued Performance Revenues, net of performance compensation, of the Blackstone Funds as of June 30, 2022
and 2021. Net Accrued Performance Revenues presented do not include clawback amounts, if any, which are disclosed in Note 17. “Commitments and Contingencies — Contingencies — Contingent Obligations (Clawback)” in the “Notes to Condensed Consolidated Financial Statements” in “Part I. Item 1. Financial Statements” of this filing. See “—
Non-GAAP
Financial Measures” for our reconciliation of Net Accrued Performance Revenues.
For the twelve months ended June 30, 2022, Net Accrued Performance Revenues receivable increased due to Net Performance Revenues of $6.0 billion offset by net realized distributions of $5.3 billion.
Invested Performance Eligible Assets Under Management
The following presents our Invested Performance Eligible Assets Under Management as of quarter end for each period:
The following presents our Perpetual Capital Total Assets Under Management as of quarter end for each period:
Note:
Totals may not add due to rounding.
Perpetual Capital Total Assets Under Management were $355.9 billion as of June 30, 2022, an increase of $17.8 billion, compared to $338.2 billion as of March 31, 2022. Perpetual Capital Total Assets Under Management in our Real Estate, Credit & Insurance and Private Equity segments increased $12.6 billion, $3.2 billion and $2.4 billion, respectively. Principal drivers of these increases were:
•
In our Real Estate segment, net Total Assets Under Management growth in BREIT and BPP and
co-investment
resulted in increases of $5.0 billion and $7.7 billion, respectively.
•
In our Credit & Insurance segment, net Total Assets Under Management growth in direct lending resulted in an increase of $8.9 billion, partially offset by a decrease of $5.6 billion related to BIS.
•
In our Private Equity segment, net Total Assets Under Management growth in BIP resulted in an increase of $2.3 billion.
Perpetual Capital Total Assets Under Management were $355.9 billion as of June 30, 2022, an increase of $42.6 billion, or 14%, compared to $313.4 billion as of December 31, 2021. Perpetual Capital Total Assets Under Management in our Real Estate, Credit & Insurance and Private Equity segments increased $28.1 billion, $8.0 billion and $6.6 billion, respectively. Principal drivers of these
increases were:
•
In our Real Estate segment, net Total Assets Under Management growth in BREIT and BPP and
co-investment
resulted in increases of $14.2 billion and $12.8 billion, respectively.
•
In our Credit & Insurance segment, net Total Assets Under Management growth in direct lending resulted in an increase of $18.3 billion, partially offset by a decrease of $10.1 billion related to BIS.
•
In our Private Equity segment, net Total Assets Under Management growth in BIP resulted in an increase of $6.7 billion.
Investment Records
Fund returns information for our significant funds is included throughout this discussion and analysis to facilitate an understanding of our results of operations for the periods presented. The fund returns information reflected in this discussion and analysis is not indicative of the financial performance of Blackstone and is also not necessarily indicative of the future performance of any particular fund. An investment in Blackstone is not an investment in any of our funds. There can be no assurance that any of our funds or our other existing and future funds will achieve similar returns.
The following table presents the investment record of our significant carry/drawdown funds and selected perpetual capital strategies from inception through June 30, 2022:
BSCH - Blackstone Strategic Capital Holdings (2014) (q)
GP Stakes
10,245,103
16
%
Credit
BXSL - Blackstone Secured Lending Fund (2018) (r)
U.S. Direct Lending
10,691,421
10
%
BCRED - Blackstone Private Credit Fund (2021) (s)
U.S. Direct Lending
53,085,115
8
%
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.
SMA
Separately managed account.
*
Represents funds that are currently in their investment period.
(a)
Excludes investment vehicles where Blackstone does not earn fees.
(b)
Available Capital represents total investable capital commitments, including
side-by-side,
adjusted for certain expenses and expired or recallable capital and may include leverage, less invested capital. This amount is not reduced by outstanding commitments to investments.
(c)
Multiple of Invested Capital (“MOIC”) represents carrying value, before management fees, expenses and Performance Revenues, divided by invested capital.
(d)
Unless otherwise indicated, Net Internal Rate of Return (“IRR”) represents the annualized inception to June 30, 2022 IRR on total invested capital based on realized proceeds and unrealized value, as applicable, after management fees, expenses and Performance Revenues. IRRs are calculated using actual timing of limited partner cash flows. Initial inception date of cash flows may differ from the Investment Period Beginning Date.
(e)
The 8% Realized Net IRR and 8% Total Net IRR exclude investors that opted out of the Hilton investment opportunity. Overall BREP International II performance reflects a 7% Realized Net IRR and a 7% Total Net IRR.
(f)
BREP
Co-Investment
represents
co-investment
capital raised for various BREP investments. The Net IRR reflected is calculated by aggregating each
co-investment’s
realized proceeds and unrealized value, as applicable, after management fees, expenses and Performance Revenues.
(g)
BREDS High-Yield represents the flagship real estate debt drawdown funds only.
(h)
Blackstone Core Equity Partners is a core private equity strategy which invests with a more modest risk profile and longer hold period than traditional private equity.
(i)
Realizations are treated as return of capital until fully recovered and therefore unrealized and realized MOICs are not applicable. Returns are calculated from results that are reported on a three month lag from Strategic Partners’ fund financial statements and therefore do not include the impact of economic and market activities in the current quarter.
(j)
Funds presented represent the flagship credit drawdown funds only. The Total Credit Net IRR is the combined IRR of the credit drawdown funds presented.
Represents the performance for select Perpetual Capital Strategies; strategies excluded consist primarily of (1) investment strategies that have been investing for less than one year, (2) most perpetual capital assets managed for insurance clients, and (3) investment vehicles where Blackstone does not earn fees.
(l)
Unless otherwise indicated, Total Net Return represents the annualized inception to June 30, 2022 IRR on total invested capital based on realized proceeds and unrealized value, as applicable, after management fees, expenses and Performance Revenues. IRRs are calculated using actual timing of investor cash flows. Initial inception date of cash flows occurred during the Inception Year.
(m)
BPP includes certain vehicles managed as part of the BPP Platform but not classified as Perpetual Capital. As of June 30, 2022, these vehicles represented $3.2 billion of Total Assets Under Management.
(n)
The BREIT Total Net Return reflects a per share blended return, assuming BREIT had a single share class, reinvestment of all dividends received during the period, and no upfront selling commission, net of all fees and expenses incurred by BREIT. These returns are not representative of the returns experienced by any particular investor or share class. Total Net Returns are presented on an annualized basis and are from January 1, 2017.
(o)
The BXMT return reflects annualized market return of a shareholder invested in BXMT since inception through June 30, 2022, assuming reinvestment of all dividends received during the period. Return incorporates the closing NYSE stock price as of June 30, 2022. Total Net Return is from May 22, 2013.
(p)
Including
co-investment
vehicles that do not pay fees, BIP Total Assets Under Management is $29.7 billion.
(q)
BSCH represents the aggregate Total Assets Under Management and Total Net Return of BSCH I and BSCH II funds that invest as part of the GP Stakes strategy, which targets minority investments in the general partners of private equity and other private-market alternative asset management firms globally. Including
co-investment
vehicles that do not pay fees, BSCH Total Assets Under Management is $11.1 billion.
(r)
The BXSL Total Assets Under Management and Total Net Return are presented as of March 31, 2022. BXSL Total Net Return reflects the change in NAV per share, plus distributions per share (assuming dividends and distributions are reinvested in accordance with BXSL’s dividend reinvestment plan) divided by the beginning NAV per share. Total Net Returns are presented on an annualized basis and are from November 20, 2018.
(s)
The BCRED Total Net Return reflects a per share blended return, assuming BCRED 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 BCRED. These returns are not representative of the returns experienced by any particular investor or share class. Total Net Returns are presented on an annualized basis and are from January 7, 2021. Total Assets Under Management reflects gross asset value plus amounts borrowed or available to be borrowed under certain credit facilities. BCRED net asset value as of June 30, 2022 was $21.0 billion.
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.
Segment Distributable Earnings were $1.8 billion for the three months ended June 30, 2022, an increase of $1.2 billion, or 207%, compared to $572.6 million for the three months ended June 30, 2021. The increase in Segment Distributable Earnings was attributable to increases of $213.0 million in Fee Related Earnings and $971.2 million in Net Realizations.
Segment
Distributable Earnings in our Real Estate segment in the second quarter of 2022 were higher compared to the second quarter of 2021. This was primarily driven by increased Net Realizations due to higher Realized Performance Revenues in BREP, as well as increased Fee Related Earnings due to the quarterly crystallization of BREIT performance revenues and growth in
Fee-Earning
Assets Under Management in Core+ real estate and BREDS. Perpetual capital strategies, including certain retail strategies such as BREIT, represent an increasing percentage of our Total Assets Under Management in our Real Estate segment. While in the second quarter we experienced meaningful net inflows, fundraising in our retail strategies moderated and market volatility and investor liquidity needs led to an increase in repurchase requests driven by Asia-based investors. A worsening, or potentially a continuation,
of this challenging market environment would adversely affect our net flows in the near term. We believe the long-term trends remain positive, however, with compelling performance, continued inflows, and well-disclosed liquidity and structural protections.
Despite significant market volatility globally, including as a result of the high rate of inflation and escalating interest rates, our real estate business is demonstrating fundamental strength. Select areas, however, are continuing to see challenges. The hospitality sector is experiencing a material growth in wages, but has also benefitted from high demand in travel and the inflationary environment. Our real estate strategies have generally oriented their portfolios in sectors and markets, such as rental housing and logistics, that are better insulated from inflationary pressures because of opportunities for stronger relative cash flow growth. Moreover, our real estate
strategies have focused on assets with shorter duration leases, which provide more opportunity to capture growth in an inflationary environment. As a result, such investments have largely been able to offset the pressure of rising inflation and interest rates. Nonetheless, portions of our real estate portfolio have exposure to long-term leases which may be more exposed to rising inflation and interest rates. Additionally, in the second half of 2022 and beyond inflation could be higher than generally anticipated. This is likely to contribute to more significant interest rate hikes and market volatility, which may lead to downward pressure on the value of our real estate portfolio. These factors, in combination with continued
uncertainty and a difficult market environment, are likely to lead to muted realizations for some time. See “Part I. Item 1A. Risk Factors — Risks Related to Our Business — Difficult market and geopolitical conditions can adversely affect our business in many ways, each of which could materially reduce our revenue, earnings and cash flow and adversely affect our financial prospects and condition” and “— A period of economic slowdown, which may be across one or more industries, sectors or geographies, 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” in our Annual Report on Form
Fee
Related Earnings were $561.3 million for the three months ended June 30, 2022, an increase of $213.0 million, or 61%, compared to $348.3 million for the three months ended June 30, 2021. The increase in Fee Related Earnings was primarily attributable to increases of $231.7 million in Fee Related Performance Revenues and $166.8 million in Management Fees, Net, partially offset by increases of $151.9 million in Fee Related Compensation and $33.6 million in Other Operating Expenses.
Fee Related Performance Revenues were $265.5 million for the three months ended June 30, 2022, an increase of $231.7 million, compared to $33.8 million for the three months ended June 30, 2021. The increase was primarily due to the crystallization of BREIT
performance revenues, which, beginning in the three months ended March 31, 2022, crystallizes on a quarterly basis in lieu of annually.
Management Fees, Net were $658.0 million for the three months ended June 30, 2022, an increase of $166.8 million, compared to $491.3 million for the three months ended June 30, 2021, primarily driven by an increase in Base Management Fees. Base Management Fees increased $158.1 million primarily due to
Fee-Earning
Assets Under Management growth in Core+ real estate.
Fee Related Compensation was $273.9 million for the three months ended June 30, 2022, an increase of $151.9 million, compared to $122.0 million for the three months ended June 30, 2021.
The increase was primarily due to an increase in Fee Related Performance Revenues and Management Fees, Net, on which a portion of Fee Related Compensation is based.
Other Operating Expenses were $88.3 million for the three months ended June 30, 2022, an increase of $33.6 million, compared to $54.8 million for the three months ended June 30, 2021. The increase was primarily due to travel and entertainment, occupancy and technology related expenses, and professional fees.
Net Realizations
Net Realizations were $1.2 billion for the three months ended June 30, 2022, an increase of $971.2 million, or 433%, compared to $224.3 million for the three months ended June 30,
2021. The increase in Net Realizations was attributable to an increase of $1.6 billion in Realized Performance Revenues, partially offset by an increase of $676.5 million in Realized Performance Compensation.
Realized Performance Revenues were $2.0 billion for the three months ended June 30, 2022, an increase of $1.6 billion, compared to $351.1 million for the three months ended June 30, 2021. The increase was primarily due to higher Realized Performance Revenues in BREP.
Realized Performance Compensation was $831.4 million for the three months ended June 30,
2022, an increase of $676.5 million, compared to $154.9 million for the three months ended June 30, 2021. The increase was primarily due to the increase in Realized Performance Revenues.
Segment Distributable Earnings were $3.0 billion for the six months ended June 30, 2022, an increase of $1.9 billion, or 172%, compared to $1.1 billion for the six months ended June 30, 2021. The increase in Segment Distributable Earnings was attributable to increases of $539.3 million in Fee Related Earnings and $1.4 billion in Net Realizations.
Fee Related Earnings
Fee Related Earnings were $1.3 billion for the six months ended June 30, 2022, an increase of $539.3 million, or 75%, compared to $722.4 million for the six months ended June 30, 2021. The increase in Fee Related Earnings was attributable to increases of $567.9 million in Fee Related Performance Revenues and $334.9 million in Management Fees, Net, partially offset by increases of $308.3 million in Fee Related Compensation and $55.2 million in Other Operating Expenses.
Fee Related Performance Revenues were $757.0 million for the six months ended June 30, 2022, an increase of $567.9 million, compared to $189.2 million for the six months ended June 30, 2021.
The increase was primarily due to the crystallization of BREIT performance revenues, which, beginning in the three months ended March 31, 2022, crystallizes on a quarterly basis in lieu of annually.
Management Fees, Net were $1.3 billion for the six months ended June 30, 2022, an increase of $334.9 million, compared to $942.8 million for the six months ended June 30, 2021, primarily driven by an increase in Base Management Fees. Base Management Fees increased $311.1 million primarily due to
Fee-Earning
Assets Under Management growth in Core+ real estate and BREDS.
The annualized Base Management Fee Rate decreased from 1.12% at June 30, 2021 to 1.00% at June 30,
2022. The decrease was primarily due to growth in BREDS insurance vehicles, which have a lower management fee rate.
Fee Related Compensation was $618.7 million for the six months ended June 30, 2022, an increase of $308.3 million, compared to $310.4 million for the six months ended June 30, 2021. The increase was primarily due to an increase in Fee Related Performance Revenues and Management Fees, Net, on which a portion of Fee Related Compensation is based.
Other Operating Expenses were $154.3 million for the six months ended June 30, 2022, an increase of $55.2 million, compared to $99.1 million for the six months ended June 30, 2021. The increase was primarily due to travel and
entertainment, occupancy and technology related expenses, and professional fees.
Net Realizations
Net Realizations were $1.8 billion for the six months ended June 30, 2022, an increase of $1.4 billion, or 351%, compared to $391.0 million for the six months ended June 30, 2021. The increase in Net Realizations was attributable to an increase of $2.4 billion in Realized Performance Revenues, partially offset by an increase of $943.7 million in Realized Performance Compensation and a decrease of $45.9 million in Realized Principal Investment Income.
Realized Performance Revenues were $2.8 billion for the six months ended June 30, 2022, an increase of $2.4 billion, compared
to $439.7 million for the six months ended June 30, 2021. The increase was primarily due to higher Realized Performance Revenues in BREP.
Realized Performance Compensation was $1.1 billion for the six months ended June 30, 2022, an increase of $943.7 million, compared to $177.7 million for the six months ended June 30, 2021. The increase was primarily due to the increase in Realized Performance Revenues.
Realized Principal Investment Income was $83.1 million for the six months ended June 30, 2022,
a decrease of $45.9 million, compared to $128.9 million for the six months ended June 30, 2021. The decrease was primarily due to the segment’s allocation of the gain recognized in connection with the Pátria Sale Transaction during the three months ended March 31, 2021. For additional information, see “— Consolidated Results of Operations — Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021
— 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.
The following table presents the internal rates of return, except where noted, of our significant real estate funds:
BPP represents the Core+ real estate funds which invest with a more modest risk profile and lower leverage.
(e)
Reflects a per share blended return for each respective period, assuming BREIT had a single share class, reinvestment of all dividends received during the period, and no upfront selling commission, net of all fees and expenses incurred by BREIT. These returns are not representative of the returns experienced by any particular investor or share class. Inception to date returns are presented on an annualized basis and are from January 1, 2017.
(f)
BREDS High-Yield represents the flagship real estate debt drawdown funds only. Inception to date returns are from July 1, 2009.
(g)
Reflects annualized return of a shareholder invested in BXMT as of the beginning of each period presented, assuming reinvestment of all dividends received during the period, and net of all fees and expenses incurred by BXMT. Return incorporates the closing NYSE stock price as of each period end. Inception to date returns are from May 22, 2013.
Funds With Closed Investment Periods
The Real Estate segment has eleven funds with closed investment periods as of June 30, 2022: BREP VIII, BREP VII, BREP VI, BREP V, BREP IV, BREP Europe V, BREP Europe IV, BREP Europe III, BREP Asia II, BREP Asia I and BREDS III. As of June 30, 2022,
BREP VII, BREP VI, BREP V, BREP IV, BREP Europe IV and BREP Europe III were above their carried interest thresholds (i.e., the preferred return payable to its limited partners before the general partner is eligible to receive carried interest) 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 II, BREP Asia I and BREDS III were above their carried interest thresholds. Funds are considered above their carried interest thresholds based on the aggregate fund position, although individual limited partners may be below their respective carried interest thresholds in certain funds.
Segment Distributable Earnings were $276.4 million for the three months ended June 30, 2022, a decrease of $170.5 million, compared to $446.9 million for the three months ended June 30, 2021. The decrease in Segment Distributable Earnings was attributable to a decrease of $177.0 million in Net Realizations, partially offset by an increase of $6.5 million in Fee Related Earning.
Segment Distributable Earnings in our Private Equity segment in the second quarter of 2022 were lower compared to the second quarter of 2021. This was primarily driven by a decrease in Net Realizations, partially offset by an increase in Fee Related Earnings. The high rate of inflation, supply chain issues and heightened energy prices and input costs, including wages and materials, have continued to put profit margin pressure on our private equity portfolio companies, such as those in the manufacturing sector, that have high exposure to these input costs. The impact of such pressures, however, on our overall private equity portfolio has been to some extent mitigated by its focus on investing in companies that are less impacted by rising input costs or that benefit from pricing power. In addition, higher than expected rates of inflation and the expectation of significant interest rate increases in 2022 have contributed and are likely to continue to contribute to significant
market volatility. This has disproportionately impacted the value of future cash flows of technology and growth companies, whose values fell materially in the second quarter of 2022. These companies may be subject to continued depressed, or even further declines in, values in a challenging market environment. Continued uncertainty and a difficult market environment are likely to lead to muted realizations for some time and negatively impact Segment Distributable Earnings in our Private Equity segment. Moreover, in private equity, we are facing an increasingly competitive fundraising environment, as well as certain limited partners being subject to allocation constraints due to private equity’s relative strong performance.
In energy, favorable market conditions contributed to a meaningful increase in the value of certain energy investments, as energy, oil and gas prices continued to increase in the second quarter of 2022. This short-term trend, in part due to decreased supply because of the ongoing war between Russia and Ukraine and heightened global demand, has had a positive impact on our energy portfolio. Beyond this short-term trend, however, increased scrutiny from regulators, investors and other market participants on the climate impact of oil and gas energy investments has weakened long-term market fundamentals for traditional energy. The persistence of these weakened market fundamentals could negatively impact the performance of certain investments in our energy and corporate private equity funds. See “Part I. Item 1A. Risk Factors — Risks Related to Our Business — An increase in interest rates and other changes in the financial markets could
negatively impact the values of certain assets or investments and the ability of our funds and their portfolio companies to access the capital markets on attractive terms, which could adversely affect investment and realization opportunities, lead to lower-yielding investments and potentially decrease our net income,”“— 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” in our Annual Report on Form
Fee Related Earnings were $202.0 million for the three months ended June 30, 2022, an increase of $6.5 million, compared to $195.5 million for the three months ended June 30, 2021. The increase in Fee Related Earnings was attributable to an increase of $44.6 million in Management and Advisory Fees, Net, partially offset by increases of $22.2 million in Other Operating Expenses and $15.9 million in Fee Related Compensation.
Management and Advisory Fees, Net were $437.9 million for the three months ended June 30, 2022, an increase of $44.6 million, compared to $393.3 million for the three months ended June 30, 2021,
primarily driven by an increase in Base Management Fees, partially offset by an increase in Management Fee Offsets. Base Management Fees increased $68.9 million primarily due to (a) the commencement of Strategic Partners IX’s investment period during the three months ended December 31, 2021 and
(b) Fee-Earning
Assets Under Management Growth in BIP. Management Fee Offsets increased $19.6 million primarily due to the launch of Strategic Partners IX during the three months ended December 31, 2021.
Other Operating Expenses were $83.2 million for the three months ended June 30, 2022, an increase of $22.2 million, compared to $61.0 million for the three months ended June 30, 2021. The increase was primarily due to travel
and entertainment, occupancy and technology related expenses, and professional fees.
Fee Related Compensation was $152.6 million for the three months ended June 30, 2022, an increase of $15.9 million, compared to $136.8 million for the three months ended June 30, 2021. The increase was primarily due to an increase in Base Management Fees on which a portion of Fee Related Compensation is based.
Net Realizations
Net Realizations were $74.4 million for the three months ended June 30, 2022, a decrease of $177.0 million, compared to $251.4 million for the three months ended June 30, 2021. The decrease in Net Realizations was attributable
to decreases of $260.1 million in Realized Performance Revenues and $18.9 million in Realized Principal Investment Income, partially offset by a decrease of $102.0 million in Realized Performance Compensation.
Realized Performance Revenues were $122.9 million for the three months ended June 30, 2022, a decrease of $260.1 million, compared to $383.0 million for the three months ended June 30, 2021. The decrease was primarily due to lower Realized Performance Revenues in corporate private equity and Tactical Opportunities.
Realized Principal Investment Income
was $8.9 million for the three months ended June 30, 2022, a decrease of $18.9 million, compared to $27.8 million for the three months ended June 30, 2021. The decrease was primarily due to a decrease of Realized Principal Investment Income in corporate private equity.
Realized Performance Compensation was $57.4 million for the three months ended June 30, 2022, a decrease of $102.0 million, compared to $159.4 million for the three months ended June 30, 2021. The decrease was primarily due to the decrease in Realized Performance Revenues.
Segment Distributable Earnings were $772.9 million for the six months ended June 30, 2022, a decrease of $148.8 million, compared to $921.7 million for the six months ended June 30, 2021. The decrease in Segment Distributable Earnings was attributable to decreases of $20.7 million in Fee Related Earnings and $128.1 million in Net Realizations.
Fee Related Earnings
Fee Related Earnings were $389.5 million for the six months ended June 30, 2022, a decrease of $20.7 million, compared to $410.3 million for the six months ended June 30, 2021. The decrease in Fee Related Earnings was attributable to increases of $38.9 million
in Other Operating Expenses and $26.3 million in Fee Related Compensation, partially offset by an increase of $45.1 million in Management and Advisory Fees, Net.
Other Operating Expenses were $151.0 million for the six months ended June 30, 2022, an increase of $38.9 million, compared to $112.1 million for the six months ended June 30, 2021. The increase was primarily due to travel and entertainment, occupancy and technology related expenses, and professional fees.
Fee Related Compensation was $303.7 million for the six months ended June 30, 2022, an increase of $26.3 million, compared to $277.4 million for the six months ended June 30, 2021. The increase was primarily due to an increase
in Base Management Fees on which a portion of Fee Related Compensation is based.
Management and Advisory Fees, Net were $844.8 million for the six months ended June 30, 2022, an increase of $45.1 million, compared to $799.7 million for the six months ended June 30, 2021, primarily driven by an increase in Base Management Fees, partially offset by a decrease in Transaction, Advisory and Other Fees, Net and an increase in Management Fee Offsets. Base Management Fees increased $112.7 million primarily due to (a) the commencement of Strategic Partners GP Solutions and Strategic Partners IX’s investment periods during the three months ended June 30, 2021 and the three months ended December 31, 2021, respectively, and
(b) Fee-Earning
Assets Under Management Growth in BIP, partially offset by (c) the end of BXG’s fee holiday during the three months ended March 31, 2021. Transaction, Advisory and Other Fees, Net decreased $34.8 million primarily due to deal activity in BXCM. Management Fee Offsets increased $32.8 million primarily due to the launch of Strategic Partners IX during the three months ended December 31, 2021.
Net Realizations
Net Realizations were $383.4 million for the six months ended June 30, 2022, a decrease of $128.1 million, compared to $511.5 million for the six months ended June 30, 2021. The decrease in Net Realizations was attributable to decreases of $68.9 million in Realized
Principal Investment Income and $65.7 million in Realized Performance Revenues.
Realized Principal Investment Income was $74.3 million for the six months ended June 30, 2022, a decrease of $68.9 million, compared to $143.2 million for the six months ended June 30, 2021. The decrease was primarily due to the segment’s allocation of the gain recognized in connection with the Pátria Sale Transaction during the three months ended March 31, 2021. For additional information, see “— Consolidated Results of Operations — Six Months Ended June 30, 2022
Compared to Six Months Ended June 30, 2021
— Revenues.”
Realized Performance Revenues were $573.1 million for the six months ended June 30, 2022, a decrease of $65.7 million, compared to $638.9 million for the six months ended June 30, 2021. The decrease was primarily due to lower Realized Performance Revenues in Tactical Opportunities, partially offset by higher Realized Performance Revenues in Strategic Partners.
Fund Returns
Fund returns information for our significant funds is included throughout this discussion and analysis to facilitate an understanding of our results of operations
for the periods presented. The fund returns information reflected in this discussion and analysis is not indicative of the financial performance of Blackstone and is also not necessarily indicative of the future performance of any particular fund. An investment in Blackstone is not an investment in any of our funds. There can be no assurance that any of our funds or our other existing and future funds will achieve similar returns.
The 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.
SMA
Separately managed account.
(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. Returns are calculated from results that are reported on a three month lag from Strategic Partners’ fund financial statements and therefore do not include the impact of economic and market activities in the current quarter.
The corporate private equity funds within the Private Equity segment have nine funds with closed investment periods: BCP IV, BCP V, BCP VI, BCP VII, BCOM, BEP I, BEP II, BCEP I
and BCP Asia I. As of June 30, 2022, 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, the BCP V “main fund” and
BCP V-AC
fund. Within these fund classes, the general partner is subject to equalization such that (a) the general partner accrues carried interest when the respective carried interest for either fund class is positive and (b) the general partner realizes carried interest so long as clawback obligations, if any, for either of the respective fund classes are fully satisfied. BCP V, BCP VI, BCP VII, BCOM, BEP I, BEP II, BCEP I and BCP Asia I were above their respective carried interest thresholds. Funds are considered
above their carried interest thresholds based on the aggregate fund position, although individual limited partners may be below their respective carried interest thresholds in certain funds. 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.
Hedge Fund Solutions
The following table presents the results of operations for our Hedge Fund Solutions segment:
Segment Distributable Earnings were $68.1 million for the three months ended June 30, 2022, a decrease of $41.5 million, compared to $109.6 million for the three months ended June 30, 2021. The decrease in Segment Distributable Earnings was attributable to decreases of $31.5 million in Fee Related Earnings and $10.0 million in Net Realizations.
Segment Distributable Earnings in our Hedge Fund Solutions segment in the second quarter of 2022 were lower compared to the second quarter of 2021. This decrease was primarily driven by decreases in Fee Related Earnings and Net Realizations. Strategies across our Hedge Fund Solutions segment navigated a period of significant market volatility caused by high inflation and escalating interest rates to generally outperform the broader market. Despite such a challenging environment adversely impacting the performance of some of the underlying managers in our Hedge Fund Solutions segment, the segment demonstrated significantly less volatility than the broader markets in the second quarter of 2022 and an ability to provide downside protection in a difficult
global market environment. Segment Distributable Earnings in the Hedge Fund Solutions segment would likely be negatively impacted by a significant or sustained weak market environment or decline in asset prices, including as a result of concerns over macroeconomic and geopolitical factors such as the war between Russia and Ukraine, or by withdrawal of assets by investors as a result of liquidity needs, performance or other reasons.
Prior to the recent meaningful equity market volatility, the equity market environment has in recent years generally been characterized by relatively low volatility, which could result in investors continuing to seek 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
depend in part on our ability to successfully grow such existing diverse business lines and strategies and to identify and scale new ones to meet evolving investor appetites. In recent years we have shifted the mix of our product offerings to include more products whose performance-based fees represent a more significant proportion of the fees earned from such products than has historically been the case. In addition, given market turbulence, we expect fundraising in our Hedge Fund Solutions segment to continue, but potentially at a slower pace, which may result in a delay in management fees. See “Part I. Item 1A. Risk Factors — Risks Related to Our Business — Difficult market and geopolitical conditions can adversely affect our business in many ways, each of which could materially reduce our revenue, earnings and cash flow and adversely affect our financial prospects and condition” and “— A period of economic slowdown, which may be across one or more industries,
sectors or geographies, 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” in our Annual Report on Form
Fee Related Earnings were $64.6 million for the three months ended June 30, 2022, a decrease of $31.5 million, compared to $96.1 million for the three months ended June 30, 2021. The decrease in Fee Related Earnings was primarily attributable to decreases of $19.2 million in Fee Related Compensation and $8.1 million in Management Fees, Net.
Fee Related
Compensation was $57.9 million for the three months ended June 30, 2022, an increase of $19.2 million, compared to $38.6 million for the three months ended June 30, 2021. The increase was primarily due to changes in compensation accruals.
Management Fees, Net were $148.5 million for the three months ended June 30, 2022, a decrease of $8.1 million, compared to $156.6 million for the three months ended June 30, 2021, primarily due to a decrease in Base Management Fees. Base Management Fees decreased $10.2 million primarily driven by a decrease in
Fee-Earning
Assets Under Management in customized solutions and commingled products.
Net Realizations
Net
Realizations were $3.6 million for the three months ended June 30, 2022, a decrease of $10.0 million, compared to $13.6 million for the three months ended June 30, 2021. The decrease in Net Realizations was primarily attributable to decreases of $9.9 million in Realized Performance Revenues and $3.7 million in Realized Principal Investment Income (Loss), partially offset by a decrease of $3.5 million in Realized Performance Compensation.
Realized Performance Revenues were $7.2 million for the three months ended June 30, 2022, a decrease of $9.9 million, compared
to $17.1 million for the three months ended June 30, 2021. The decrease was primarily due to lower Realized Performance Revenues in our customized solutions and commingled products.
Realized Principal Investment Income (Loss) was $(1.5) million for the three months ended June 30, 2022, a decrease of $3.7 million, compared to $2.1 million for the three months ended June 30, 2021. The decrease was primarily due to lower Realized Principal Investment Income in individual investor and specialized solutions.
Realized Performance Compensation was $2.1 million for the three months ended June 30, 2022, a decrease of $3.5 million, compared to $5.6 million for the three months ended June 30,
2021. The decrease was primarily due to the decrease in Realized Performance Revenues.
Segment Distributable Earnings were $179.0 million for the six months ended June 30, 2022, a decrease of $87.7 million, compared to $266.7 million for the six months ended June 30, 2021. The decrease in Segment Distributable Earnings was attributable to decreases of $52.3 million in Fee Related Earnings and $35.4 million in Net Realizations.
Fee Related Earnings
Fee Related Earnings were $140.6 million
for the six months ended June 30, 2022, a decrease of $52.3 million, compared to $192.9 million for the six months ended June 30, 2021. The decrease in Fee Related Earnings was attributable to an increase of $27.6 million in Fee Related Compensation and a decrease of $16.5 million in Management Fees, Net.
Fee Related Compensation was $105.1 million for the six months ended June 30, 2022, an increase of $27.6 million, compared to $77.5 million for the six months ended June 30, 2021. The increase was primarily due to changes in compensation accruals.
Management Fees, Net were $294.9 million for the six months ended June 30, 2022, a decrease of $16.5 million,
compared to $311.4 million for the six months ended June 30, 2021, primarily due to a decrease in Base Management Fees. Base Management Fees decreased $15.7 million primarily driven by a decrease in
Fee-Earning
Assets Under Management in customized solutions and commingled products.
Net Realizations
Net Realizations were $38.4 million for the six months ended June 30, 2022, a decrease of $35.4 million, compared to $73.8 million for the six months ended June 30, 2021. The decrease in Net Realizations was attributable to decreases of $24.3 million in Realized Principal Investment Income and $12.5 million in Realized Performance Revenues.
Realized Principal Investment Income
(Loss) was $13.4 million for the six months ended June 30, 2022, a decrease of $24.3 million, compared to $37.7 million for the six months ended June 30, 2021. The decrease was primarily due to the segment’s allocation of the gain recognized in connection with the Pátria Sale Transaction during the three months ended March 31, 2021. For additional information, see “— Consolidated Results of Operations — Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021
Realized Performance Revenues were $36.1 million for the six months ended June 30, 2022, a decrease of $12.5 million, compared to $48.6 million for the six months ended June 30, 2021. The decrease was primarily due to lower Realized Performance Revenues in customized solutions and commingled products, partially offset by increased Realized Performance Revenues in individual investor and specialized solutions.
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:
The returns presented herein represent those of the applicable Blackstone Funds and not those of Blackstone.
(a)
Composite returns present a summarized asset-weighted return measure to evaluate the overall performance of the applicable class of Blackstone Funds.
(b)
BAAM’s Principal Solutions (“BPS”) Composite covers the period from January 2000 to present, although BAAM’s inception date is September 1990. The BPS Composite includes only BAAM-managed commingled and customized multi-manager funds and accounts and does not include BAAM’s individual investor solutions (liquid alternatives), strategic capital (seeding and GP minority stakes), strategic opportunities
(co-invests),
and advisory
(non-discretionary)
platforms, except for investments by BPS funds directly into those platforms. BAAM-managed funds in liquidation and, in the case of net returns,
non-fee-paying
assets are also excluded. 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 stand-alone
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.
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 their respective High Water Mark or clear a benchmark return, thereby resulting in an increase in Estimated % Above High Water Mark/Benchmark.
(b)
For the Hedge Fund Solutions managed funds, at June 30, 2022, the incremental appreciation needed for the 36% of Invested Performance Eligible Assets Under Management below their respective High Water Marks/Benchmarks to reach their respective High Water Marks/Benchmarks was $834.1 million, an increase of $572.5 million, compared to $261.5 million at June 30, 2021. Of the Invested Performance Eligible Assets Under Management below their respective High Water Marks/Benchmarks as of June 30, 2022, 93% were within 5% of reaching their respective High Water Mark.
Segment Distributable Earnings were $242.6 million for the three months ended June 30, 2022, an increase of $149.8 million, or 162%, compared to $92.8 million for the three months ended June 30, 2021. The increase in Segment Distributable Earnings was attributable to increases of $128.5 million in Fee Related Earnings and $21.3 million in Net Realizations.
Segment Distributable Earnings in our Credit & Insurance segment in the second quarter of 2022 were higher compared to the second quarter of 2021, driven by an increase in Fee Related Earnings and an increase in Net Realizations. While public spreads widened amid market volatility and heightened uncertainty, generally healthy economic activity and solid underlying company performance favorably impacted returns in our private credit strategies. Perpetual capital strategies, including certain retail strategies such as BCRED, represent an increasing percentage of our Total Assets Under Management in our Credit & Insurance segment. While in the second quarter we experienced meaningful net inflows, fundraising in our retail strategies moderated and market volatility and investor liquidity needs led to an increase in repurchase requests. A worsening, or potentially a continuation, of this challenging market environment would adversely affect our net
flows in the near term. We believe the long-term trends, however, remain positive.
In the U.S., rising interest rates and the resulting higher cost of capital has the potential to negatively impact the free cash flow and credit quality of certain borrowers. In addition, rising costs resulting from supply chain issues and heightened energy prices and input costs are contributing to margin pressures at certain of our Credit & Insurance segment investments. Such investments would continue to be negatively impacted by a sustained high rate of inflation if they are unable to mitigate margin pressures, especially if concurrent with an increase in their debt service costs. If higher than expected rates of inflation and expected significant interest rate increases in 2022 occur concurrently with a period of economic weakness or a slowdown in growth, portfolio performance in our
Credit & Insurance segment may be negatively impacted. Although rising interest rates have the potential to negatively impact the financial performance of certain borrowers, we believe our current debt portfolio’s performance may benefit from increased interest rates because a substantial majority of the portfolio is senior secured with relatively low
loan-to-value,
floating rate and/or short duration. Nonetheless, significant market dislocation could limit the liquidity of certain assets traded in the credit markets, and this would impact our funds’ ability to sell such assets at attractive prices or in a timely manner.
In energy, oil and gas prices continued to increase meaningfully in the second
quarter of 2022, in part due to decreased supply as a result of the ongoing war between Russia and Ukraine and heightened global demand. This short-term trend has had a positive impact on our energy portfolio. Beyond this short-term trend, however, increased scrutiny from regulators, investors and other market participants on the climate impact of oil and gas energy investments has weakened long-term market fundamentals for traditional energy. The persistence of these weakened market fundamentals could negatively impact the performance of certain investments in our credit funds, although our funds actively managed exposure to upstream energy through exits of certain investments in 2021. See “Part I. Item 1A. Risk Factors — Risks Related to Our Business — Difficult market and geopolitical conditions can adversely affect our business in many ways, each of which could materially reduce our revenue, earnings and cash flow and adversely affect our financial prospects and
condition” and “— A period of economic slowdown, which may be across one or more industries, sectors or geographies, 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.” in our Annual Report on Form
Fee Related Earnings were $192.7 million for the three months ended June 30, 2022, an increase of $128.5 million, or 200%, compared to $64.2 million for the three months ended June 30, 2021. The increase in Fee Related Earnings was primarily attributable to increases of $140.9 million in Management
Fees, Net and $66.0 million in Fee Related Performance Revenues, partially offset by increases of $59.0 million in Fee Related Compensation and $19.4 million in Other Operating Expenses.
Management Fees, Net were $312.5 million for the three months ended June 30, 2022, an increase of $140.9 million, compared to $171.6 million for the three months ended June 30, 2021, primarily driven by an increase in Base Management Fees. Base Management Fees increased $140.1 million primarily due to an increase in inflows in BCRED and BIS.
Fee Related Performance Revenues were $81.1 million for the three months ended June 30, 2022, an increase of $66.0 million, compared to $15.1 million for the three months ended June 30,
2021. The increase was primarily due to performance and growth in BCRED, including the expiration of BCRED’s fee holiday during the three months ended September 30, 2021.
Fee Related Compensation was $137.0 million for the three months ended June 30, 2022, an increase of $59.0 million, compared to $78.0 million for the three months ended June 30, 2021. 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.
Other Operating Expenses were $63.9 million for the three months ended June 30, 2022, an increase of $19.4 million, compared to $44.5 million for the three months ended June 30, 2021.
The increase was primarily due to travel and entertainment, occupancy and technology related expenses.
Net Realizations were $49.9 million for the three months ended June 30, 2022, an increase of $21.3 million, or 75%, compared to $28.6 million for the three months ended June 30, 2021. The increase in Net Realizations was primarily attributable to an increase of $37.2 million in Realized Performance Revenues, partially offset by an increase of $17.8 million in Realized Performance Compensation.
Realized
Performance Revenues were $79.0 million for the three months ended June 30, 2022, an increase of $37.2 million, compared to $41.8 million for the three months ended June 30, 2021. The increase was primarily due to increases in our mezzanine opportunistic funds, energy strategies and direct lending separately managed accounts.
Realized Performance Compensation was $36.1 million for the three months ended June 30, 2022, an increase of $17.8 million, compared to $18.3 million for the three months ended June 30, 2021. The increase was primarily due to the increase in Realized Performance Revenues.
Segment Distributable Earnings were $465.6 million for the six months ended June 30, 2022, an increase of $256.2 million, or 122%, compared to $209.5 million for the six months ended June 30, 2021. The increase in Segment Distributable Earnings was attributable to an increase of $256.3 million in Fee Related Earnings, partially offset by a decrease of $0.1 million in Net Realizations.
Fee Related Earnings
Fee Related Earnings were $375.6 million for the six months ended June 30, 2022, an increase of $256.3 million, or 215%, compared to $119.3 million for the six months ended
June 30, 2021. The increase in Fee Related Earnings was attributable to increases of $275.8 million in Management Fees, Net and $119.4 million in Fee Related Performance Revenues, partially offset by increases of $109.2 million in Fee Related Compensation and $29.7 million in Other Operating Expenses.
Management Fees, Net were $612.8 million for the six months ended June 30, 2022, an increase of $275.8 million, compared to $337.0 million for the six months ended June 30, 2021, primarily driven by an increase in Base Management Fees. Base Management Fees increased $270.6 million primarily due to an increase in inflows in BCRED and BIS.
Fee Related Performance Revenues were $148.3 million for the six months ended June 30, 2022,
an increase of $119.4 million, compared to $28.9 million for the six months ended June 30, 2021. The increase was primarily due to performance and growth in BCRED, including the expiration of BCRED’s fee holiday during the three months ended September 30, 2021.
Fee Related Compensation was $264.4 million for the six months ended June 30, 2022, an increase of $109.2 million, compared to $155.2 million for the six months ended June 30, 2021. 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.
Other Operating Expenses were $121.0 million for the six months ended June 30, 2022,
an increase of $29.7 million, compared to $91.3 million for the six months ended June 30, 2021. The increase was primarily due to travel and entertainment, occupancy and technology related expenses.
Net Realizations were $90.0 million for the six months ended June 30, 2022, a decrease of $0.1 million, compared to $90.2 million for the six months ended June 30, 2021. The decrease in Net Realizations was attributable to a decrease of $21.7 million in Realized Principal
Investment Income and an increase of $21.1 million in Realized Performance Compensation, partially offset by an increase of $42.6 million in Realized Performance Revenues.
Realized Principal Investment Income was $29.8 million for the six months ended June 30, 2022, a decrease of $21.7 million, compared to $51.5 million for the six months ended June 30, 2021. The decrease was primarily due to the segment’s allocation of the gain recognized in connection with the Pátria Sale Transaction during the three months ended March 31, 2021. For additional information, see “— Consolidated Results of Operations — Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021
— Revenues.”
Realized Performance Compensation was $49.5 million for the six months ended June 30, 2022, an increase of $21.1 million, compared to $28.4 million for the six months ended June 30, 2021. The increase was primarily due to the increase in Realized Performance Revenues.
Realized Performance Revenues were $109.7 million for the six months ended June 30, 2022, an increase of $42.6 million, compared to $67.1 million for the six months ended June 30, 2021. The increase was primarily due to higher realized carry interest in our energy strategies and our direct lending separately managed accounts.
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 Private Credit and Liquid Credit composites:
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)
Private Credit returns include mezzanine lending funds and middle market direct lending funds (including BXSL and BCRED), stressed/distressed strategies (including stressed/distressed funds and credit alpha strategies) and energy strategies. Liquid Credit returns include CLOs, closed-ended funds, open-ended funds and separately managed accounts. Only
fee-earning
funds exceeding $100 million of fair value at the beginning of each respective
quarter-end
are included. Funds in liquidation, funds investing primarily in investment grade corporate credit and asset-based finance are excluded. Blackstone Funds that were contributed to BXC as part of Blackstone’s acquisition of BXC in March 2008 and the
pre-acquisition
date performance for funds and vehicles acquired by BXC subsequent to March 2008, are also excluded. Private Credit and Liquid Credit’s inception to date returns are from
December 31, 2005.
Effective June 30, 2022, for Euro-denominated funds included in the Private Credit composite return, cash flows are translated using a historical rate instead of the daily spot rate to more closely reflect the actual performance of foreign-denominated funds in the composite returns. Under the prior methodology, gross and net returns would have been (1)% and (1)%, 1% and 0%, and 11% and 7% for the three months ended, six months ended and inception to date periods ended June 30, 2022, respectively. Prior periods have been recast but such recast did not change the returns presented herein.
Operating Metrics
The following table presents information regarding our Invested Performance
Eligible Assets Under Management:
Estimated % Above High Water Mark/Hurdle represents the percentage of Invested Performance Eligible Assets Under Management that as of the dates presented would earn performance fees when the applicable Credit & Insurance managed fund has positive investment performance relative to a hurdle, where applicable. Incremental positive performance in the applicable Blackstone Funds may cause additional assets to reach their respective High Water Mark or clear a hurdle return, thereby resulting in an increase in Estimated % Above High Water Mark/Hurdle.
(b)
For the Credit & Insurance managed funds, at June 30, 2022, the incremental appreciation needed for the 8% of Invested Performance Eligible Assets Under Management below their respective High Water Marks/Hurdles to reach their respective High Water Marks/Hurdles was $2.3 billion, a decrease of $(174.3) million, compared to $2.4 billion at June 30, 2021. Of the Invested Performance Eligible Assets Under Management below their respective High Water Marks/Hurdles as of June 30, 2022, 35% were within 5% of reaching their respective High Water Mark.
Non-GAAP
Financial Measures
These
non-GAAP
financial measures are presented
without the consolidation of any Blackstone Funds that are consolidated into the Condensed Consolidated Financial Statements. Consequently, all
non-GAAP
financial measures exclude the assets, liabilities and operating results related to the Blackstone Funds. See “— Key Financial Measures and Indicators” for our definitions of Distributable Earnings, Segment Distributable Earnings, Fee Related Earnings and Adjusted EBITDA.
The following table is a reconciliation of Net Income (Loss) Attributable to Blackstone Inc. to Distributable Earnings, Total Segment Distributable Earnings, Fee Related Earnings and Adjusted EBITDA:
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.
This adjustment removes the amortization of transaction-related intangibles, which are excluded from Blackstone’s segment presentation.
(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 Allocations.
(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
GAAP Unrealized Principal Investment Income (Loss)
$
(500,490
)
$
328,835
$
(426,529
)
$
968,150
Segment Adjustment
297,202
(224,177
)
249,999
(439,558
)
Unrealized Principal Investment Income (Loss)
$
(203,288
)
$
104,658
$
(176,530
)
$
528,592
(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.
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 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.
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. For interim periods, taxes are calculated using the preferred annualized effective tax rate approach. 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.
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.
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:
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 Resources
General
Blackstone’s business model derives revenue primarily from third party assets under management. Blackstone is not a capital or balance sheet intensive business and targets operating expense levels such that total management and advisory fees exceed total operating expenses each period. As a result, we require limited capital resources to support the working capital or operating needs of our businesses. We draw primarily on the long-term committed capital of our limited partner
investors to fund the investment requirements of the Blackstone Funds and use our own realizations and cash flows to invest in growth initiatives, make commitments to our own funds, where our minimum general partner commitments are generally less than 5% of the limited partner commitments of a fund, and pay dividends to shareholders.
Fluctuations in our statement of financial condition result primarily from activities of the Blackstone Funds 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 that are consolidated are reflected as Redeemable
Non-Controlling
Interests in Consolidated Entities and
Non-Controlling
Interests in Consolidated Entities in the Condensed Consolidated Financial Statements. The consolidation of these Blackstone Funds has no net effect on Blackstone’s Net
Income or Equity. Additionally, fluctuations in our statement of financial condition also include appreciation or depreciation in Blackstone investments in the Blackstone Funds, additional investments and redemptions of such interests in the Blackstone Funds and the collection of receivables related to management and advisory fees.
Total Assets were $41.6 billion as of June 30, 2022, an increase of $434.9 million, from December 31, 2021. The increase in Total Assets was principally due to an increase of $1.8 billion in total assets attributable to consolidated Blackstone funds, partially offset by a decrease of $763.1 million
in total assets attributable to consolidated operating partnerships. The increase in total assets attributable to consolidated Blackstone funds was primarily due to an increase of $1.7 billion in Investments. The increase in Investments was primarily due to the consolidation of five Blackstone funds. The decrease in total assets attributable to consolidated operating partnerships was primarily due to decreases of $2.5 billion in Investments and $717.2 million in Due from Affiliates, partially offset by an increase of $2.1 billion in Cash and Cash Equivalents. The decrease in Investments was primarily due to depreciation in the value of Blackstone’s interests in its real estate and private equity investments. The decrease in Due from Affiliates was primarily due to a decrease in the receivable due from
non-consolidated
entities and portfolio companies. The increase in Cash and Cash Equivalents was primarily due to the issuance of $1.5 billion of notes
on January 10, 2022 and
€
500 million of notes on June 1, 2022. The other net variances of the assets attributable to the consolidated operating partnerships and consolidated Blackstone funds were relatively unchanged.
Total Liabilities were $20.3 billion as of June 30, 2022, an increase of $806.8 million, from December 31, 2021. The increase in Total Liabilities was principally due to an increase of $822.6 million in total liabilities attributable to consolidated operating partnerships. The increase in total liabilities attributable to the consolidated operating partnerships was primarily due to an increase of $1.6 billion in Loans Payable, partially offset by a decrease of $1.1 billion in Accrued Compensation and Benefits. The
increase in Loans Payable was primarily due to the issuance of $1.5 billion of notes on January 10, 2022 and
€
500 million of notes on June 1, 2022. The decrease in Accrued Compensation and Benefits was primarily due to a decrease in performance compensation. The other net variances of the liabilities attributable to the consolidated operating partnerships were relatively unchanged.
Sources and Uses of Liquidity
We have multiple sources of liquidity to meet our capital needs, including annual cash flows, accumulated earnings in our businesses, the proceeds from our issuances of senior notes, liquid investments we hold on our balance sheet and access to our $4.1 billion committed revolving credit facility. On June 3,
2022, Blackstone, through the Issuer, amended and restated its revolving credit facility to, among other things, increase the amount of available borrowings to $4.1 billion and extended the maturity date from November 24, 2025 to June 3, 2027. As of June 30, 2022, Blackstone had $4.2 billion in Cash and Cash Equivalents, $810.7 million invested in Corporate Treasury Investments and $3.8 billion in Other Investments (which included $1.3 billion of liquid investments), against $9.5 billion in borrowings from our bond issuances, and no borrowings outstanding under our revolving credit facility.
On June 1, 2022, Blackstone, through the Issuer, issued
€
500 million aggregate principal amount of 3.500% senior notes due June 1,
2034. For additional information on Blackstone’s senior notes see Note 12. “Borrowings” in the “Notes to Condensed Consolidated Financial Statements” in “Part I. Item 1. Financial Statements” of this filing and “— Notable Transactions.”
In addition to the cash we received from our notes offerings and availability under our revolving credit facility, we expect to receive (a) cash generated from operating activities, (b) Performance Allocations and Incentive Fee realizations, and (c) realizations on the fund investments that we make. The amounts received from these three sources in particular may vary substantially from year to year and quarter to quarter depending on the frequency and size of realization events or net returns experienced by our investment funds. Our available capital could be adversely affected if there are prolonged periods of few substantial realizations from our investment funds
accompanied by substantial capital calls for new investments from those investment funds. Therefore, Blackstone’s commitments to our funds are taken into consideration when managing our overall liquidity and cash position.
We expect that our primary liquidity needs will be cash to (a) provide capital to facilitate the growth of our existing businesses, which principally includes funding our general partner and
co-investment
commitments to our funds, (b) provide capital for business expansion, (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 shares of our common stock and Blackstone Holdings Partnership Units pursuant to our repurchase program and (h) pay dividends to our shareholders and distributions to the holders of Blackstone Holdings Partnership Units. For a tabular presentation of Blackstone’s contractual obligations and the expected timing of such see “— Contractual Obligations.”
Capital Commitments
Our own capital commitments to our funds, the funds we invest in and our investment strategies as of June 30, 2022 consisted of the following:
For some of the general partner commitments shown in the table above, we require our senior managing directors and certain other professionals to fund a portion of the commitment even though the ultimate obligation to fund the aggregate commitment is ours pursuant to the governing agreements of the respective funds. The amounts of the aggregate applicable general partner original and remaining commitment are shown in the table above. In addition, certain senior managing directors and other professionals may be required to fund a de minimis amount of the commitment in certain carry funds. We expect our commitments to be drawn down over time and to be funded by available cash and cash generated from operations and realizations. Taking into account prevailing market conditions and both the liquidity and cash or liquid investment balances, we believe that the sources of liquidity described above will be more than sufficient to
fund our working capital requirements.
(b)
Represents capital commitments to a number of other funds in each respective segment.
(c)
Real Estate and Private Equity include
co-investments,
as applicable.
(d)
Represents loan origination commitments, revolver commitments and capital market commitments.
For a tabular presentation of the timing of Blackstone’s remaining capital commitments to our funds, the funds we invest in and our investment strategies see “— Contractual Obligations.”
As of June 30, 2022, 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
1.625%, Due 8/5/2028
$
650,000
1.500%, Due 4/10/2029
€
600,000
2.500%, Due 1/10/2030
$
500,000
1.600%, Due 3/30/2031
$
500,000
2.000%, Due 1/30/2032
$
800,000
2.550%, Due 3/30/2032
$
500,000
3.500%, Due 6/1/2034
€
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
2.850%, Due 8/5/2051
$
550,000
3.200%, Due 1/30/2052
$
1,000,000
$
9,496,800
(a)
The Notes are unsecured and unsubordinated obligations of the Issuer and are fully and unconditionally guaranteed, jointly and severally, by Blackstone Inc. and each of the Blackstone Holdings Partnerships. The Notes contain customary covenants and financial restrictions that, among other things, limit the Issuer and the guarantors’ ability, subject to certain exceptions, to incur indebtedness secured by liens on voting stock or profit participating equity interests of their subsidiaries or merge, consolidate or sell, transfer or lease assets. The Notes also contain customary events of default. All or a portion of the Notes may be redeemed at our option, in whole or in part, at any time and from time to time, prior to their stated maturity, at the make-whole redemption price set forth in the Notes. If a change of control repurchase
event occurs, the Notes are subject to repurchase at the repurchase price as set forth in the Notes.
Blackstone, through the Issuer, has a $4.1 billion unsecured revolving credit facility (the “Credit Facility”) with Citibank, N.A., as administrative agent with a maturity date of June 3, 2027. Borrowings may also be made in U.K. sterling, euros, Swiss francs, Japanese yen or Canadian dollars, in each case subject to certain
sub-limits.
The Credit Facility contains customary representations, covenants and events of default. Financial covenants consist of a maximum net leverage ratio and a requirement to keep a minimum amount of
For a tabular presentation of the payment timing of principal and interest due on Blackstone’s issued notes and revolving credit facility see “— Contractual Obligations.”
Contractual Obligations
The following table sets forth information relating to our contractual obligations as of June 30, 2022 on a consolidated basis and on a basis deconsolidating the Blackstone Funds:
We lease our primary office space and certain office equipment under agreements that expire through 2032. 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 and tenant improvement allowances.
(b)
Represents the principal amount due on the senior notes we issued assuming no
pre-payments
are made and the notes are held until their final maturity. As of June 30, 2022, we had no outstanding borrowings under our revolver.
(c)
Represents interest to be paid over the maturity of our senior notes which has been calculated assuming no
pre-payments
are made and debt is held until its final maturity date. These amounts include commitment fees for unutilized borrowings under our revolver.
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 Condensed Consolidated Financial Statements and shown in Note 16. “Related Party Transactions” (see “Part I. Item 1. Financial Statements”) differs to reflect the net present value of the payments due to certain
non-controlling
interest holders.
(f)
As of June 30, 2022, there were no Unrecognized Tax Benefits, including Interest and Penalties. 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 $99.2 million and interest of $29.6 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 17. “Commitments and Contingencies — Contingencies
— Guarantees” in the “Notes to Condensed Consolidated Financial Statements” in “Part I. Item 1. Financial Statements” of this filing.
Indemnifications
In many of its service contracts, Blackstone agrees to indemnify the third party service provider under certain circumstances. The terms of the indemnities vary from contract to contract and the amount of indemnification liability, if any, cannot be determined and has not been included in the above contractual obligations table or recorded in our Condensed Consolidated Financial Statements as of June 30,
2022.
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 amounts and nature of Blackstone’s clawback obligations are described in Note 17. “Commitments and Contingencies — Contingencies — Contingent Obligations (Clawback)” in the “Notes to Condensed Consolidated Financial Statements” in “Part I. Item 1. Financial Statements” of this filing.
Share Repurchase Program
On December 7, 2021, Blackstone’s board of directors authorized the repurchase of up to
$2.0 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.
During the three and six months ended June 30, 2022, Blackstone repurchased 1.9 million shares of common stock at a total cost of $195.3 million. As of June 30, 2022,
the amount remaining available for repurchases under the program was $1.3 billion.
Dividends
Our intention is to pay to holders of common stock a quarterly dividend representing approximately 85% of Blackstone 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 by Blackstone 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 the Blackstone Holdings Partnerships to the Blackstone personnel
and others who are limited partners of the Blackstone Holdings Partnerships in respect of their Blackstone Holdings Partnership Units. Following Blackstone’s conversion from a limited partnership to a corporation, 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 2022 and 2021. Dividends are declared and paid in the quarter subsequent to the quarter in which they are earned.
With respect to the second quarter of fiscal year 2022, we paid to shareholders of our common stock a dividend of $1.27 per share, aggregating to $2.59 per share of common stock in respect of the six months ended June 30, 2022. With respect to fiscal year 2021, we paid shareholders aggregate dividends of $4.06 per share.
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 note issuances and our revolving credit facility, we may use reverse repurchase agreements, repurchase agreements
and securities sold, not yet purchased. 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.
We prepare our Condensed Consolidated Financial Statements in accordance with GAAP. In applying many of these accounting principles, we need to make assumptions, estimates and/or judgments that affect the reported amounts of assets, liabilities, revenues and expenses in our Condensed Consolidated Financial Statements. We base our estimates and judgments on historical experience and other assumptions that we believe are reasonable under the circumstances. These assumptions, estimates and/or judgments, however, are often subjective. Actual results may be affected negatively based on changing circumstances. If actual amounts are ultimately different from our estimates, the revisions are included in our results of operations for the period in which the actual amounts become
known. We believe the following critical accounting policies could potentially produce materially different results if we were to change underlying assumptions, estimates and/or judgments. For a description of our accounting policies, see Note 2. “Summary of Significant Accounting Policies” in the “Notes to Condensed Consolidated Financial Statements” in “Part I. Item 1. Financial Statements” of this filing.
Principles of Consolidation
For a description of our accounting policy on consolidation, see Note 2. “Summary of Significant Accounting Policies — Consolidation” and Note 9. “Variable Interest Entities” in the “Notes to Condensed Consolidated Financial Statements” in “Part I. Item 1. Financial Statements” of this filing for detailed information on Blackstone’s 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 condensed consolidated financial statements. In our Condensed Consolidated Statements of Financial Position included in this filing, we present 100% of the assets and liabilities of consolidated VIEs along with a
non-controlling
interest which represents the portion of the consolidated vehicle’s interests held by third parties. However, assets of our consolidated VIEs can only be used to settle obligations of the consolidated VIE and are not available for general use by Blackstone. Further, the liabilities of our
consolidated VIEs do not have recourse to the general credit of Blackstone. In the Condensed Consolidated Statements of Operations, we eliminate any management fees, Incentive Fees, or Performance Allocations received or accrued from consolidated VIEs as they are considered intercompany transactions. We recognize 100% of the consolidated VIE’s investment income (loss) and allocate the portion of that income (loss) attributable to third party ownership to
non-controlling
interests in arriving at Net Income Attributable to Blackstone 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:
•
Determining whether our management fees, Incentive Fees or Performance Allocations represent variable interests – We make judgments as to whether the fees we earn are commensurate with the level of effort required for those fees and at market rates. In making this judgment, we consider, among other things, the extent of third party investment in the entity and the terms of any other interests we hold in the VIE.
•
Determining whether
kick-out
rights are substantive – We make judgments as to whether the third party investors in a partnership entity have the ability to remove the general partner, the investment manager or its equivalent, or to dissolve (liquidate) the partnership entity, through a simple majority vote. This includes an evaluation of whether barriers to exercise these rights exist.
•
Concluding whether Blackstone has an obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE – As there is no explicit threshold in GAAP to define “potentially significant,” management must apply judgment and evaluate both quantitative and qualitative factors to conclude whether this threshold is met.
Revenue Recognition
For a description of our accounting policy on revenue recognition, see Note 2. “Summary of Significant Accounting Policies — Revenue Recognition” in the “Notes to Condensed Consolidated Financial Statements” in “Part I. Item 1. Financial Statements.” For an 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” in our Annual Report on
Form 10-K
for the year ended December 31, 2021. 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 its customers at a fixed percentage of a calculation base which is typically assets under management, net asset value, gross 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
•
1.00% 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 and credit-focused funds structured like hedge funds:
•
0.50% to 1.00% of net asset value.
On credit separately managed accounts:
•
0.20% to 1.35% 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 Insurance separately managed accounts and investment vehicles:
•
0.25% to 1.00% of net asset value.
On funds of hedge funds, certain hedge funds and separately managed accounts invested in hedge funds:
•
0.20% to 1.50% of net asset value.
On CLO vehicles:
•
0.20% 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 1.25% 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 advisers of BREIT and BEPIF receive 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
Condensed Consolidated Financial Statements” in “Part I. Item 1. Financial Statements” of this filing. The following discussion is intended to provide supplemental information about how the application of fair value principles impact our financial results, and management’s process for implementing those principles including areas of significant judgment.
The fair value of the investments held by Blackstone Funds is the primary input to the calculation of certain of our management fees, Incentive Fees, Performance Allocations and the related Compensation we recognize. The Blackstone Funds are accounted for as investment companies under the American Institute of Certified Public Accountants Accounting and Auditing Guide,
Investment
Companies
, and in accordance with the GAAP guidance on investment companies and reflect their investments, including majority owned and controlled investments (the “Portfolio Companies”), at fair value. In the absence of observable market prices, we utilize valuation methodologies applied on a consistent basis and assumptions that we believe market participants would use to determine the fair value of the investments. For 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 and other proprietary investments. Blackstone is required to measure certain financial instruments at fair value, including debt instruments, equity securities and freestanding derivatives.
Fair Value of Investments or Instruments that are Publicly Traded
Securities that are publicly traded and for which a quoted market exists will be valued at the closing price of such securities in the principal market in which the security trades, or in the absence of a principal market, in the most advantageous market on the valuation date. When a quoted price in an active market exists, no block discounts or control premiums are permitted regardless of the size of the public security held. In some cases, securities will include legal 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 condensed consolidated financial statements and the significant judgment required to be applied in arriving at those fair values, we have developed a process
around valuation that incorporates several levels of approval and review from both internal and external sources. 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.
For investments valued utilizing the income method, and where Blackstone has information rights, we generally have a direct line of communication with each of the portfolio 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 by Blackstone 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.
Income Tax
For a description of our accounting policy on taxes and additional information on taxes see Note 2. “Summary of Significant Accounting Policies” in “Part II. Item 8. Financial Statements and Supplementary Data” in our Annual Report on Form
10-K
for the year ended December 31, 2021. For additional information on taxes see Note 13. “Income Taxes” in the “Notes to Condensed Consolidated Financial Statements”
in “— Item 8. Financial Statements and Supplementary Data” of this filing and Note 15. “Income Taxes” in “Part II. Item 8. Financial Statements and Supplementary Data” in our Annual Report on Form
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. Blackstone’s conversion from a limited partnership to a corporation 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.
Recent Accounting Developments
Information regarding recent accounting developments and their impact on Blackstone, if any, can be found in Note 2. “Summary of Significant Accounting Policies” in the “Notes to Condensed Consolidated Financial Statements” in “Part I. Item 1. Financial Statements” of this filing.
Interbank Offered Rates Transition
Certain jurisdictions are currently reforming or phasing out their benchmark interest rates, most notably the London Interbank Offered Rates (“LIBOR”) across multiple currencies. Many such reforms and phase outs became effective at the end of calendar year 2021 with select U.S. dollar LIBOR tenors persisting through June 2023. Blackstone has taken steps to prepare for and mitigate the impact of changing base rates and continues to evaluate the impact of prospective changes on existing transactions and contractual arrangements and manage 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.” in our Annual Report on Form
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our predominant exposure to market risk is related to our role as general partner or investment adviser to the Blackstone Funds and the sensitivities to movements in the fair value of their investments, including the effect on management fees, performance revenues and investment income. There were no material changes in our market risks as of June 30, 2022 as compared to March 31, 2022 and December 31, 2021. For additional information, refer to our Quarterly Report on Form
10-Q
for the quarter ended March 31, 2022 and our Annual
Report on
We maintain “disclosure controls and procedures,” as such term is defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to
allow timely decisions regarding required disclosure. In designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired objectives.
Our management, including our Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to
Rule 13a-15
under the Exchange Act as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures (as defined in
Rule 13a-15(e)
under the Exchange Act) are effective at the reasonable assurance level to accomplish their objectives of ensuring that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure.
No change in our internal control over financial reporting (as such term is defined in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act) occurred during our most recent quarter, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Part II. Other Information
Item 1. Legal Proceedings
We may from time to time be involved in litigation and claims incidental to the conduct of our business. Our businesses are also subject to extensive regulation, which may result in regulatory proceedings against us. See “Part I. Item 1A. Risk
Factors” in our Annual Report on
Form 10-K
for the year ended December 31, 2021. We are not currently subject to any pending legal (including judicial, regulatory, administrative or arbitration) proceedings that we expect to have a material impact on our condensed consolidated financial statements. However, given the inherent unpredictability of these types of proceedings and the potentially large and/or indeterminate amounts that could be sought, an adverse outcome in certain matters could have a material effect on Blackstone’s financial results in any particular period. See “Part I. Item 1. Financial Statements — Notes to Condensed Consolidated Financial Statements — Note 17. Commitments and Contingencies — Contingencies — Litigation.”
Item 1A. Risk Factors
For a discussion of our potential risks and uncertainties, see the information under the heading “Risk Factors” in our Annual Report on
Form 10-K
for the year ended December 31, 2021 and in our subsequently filed periodic reports as such factors may be updated from time to time, all of which are accessible on the Securities and Exchange Commission’s website at www.sec.gov.
See “Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Business Environment” in this report for a discussion of the conditions in the financial markets and economic conditions affecting our businesses. This discussion updates, and should be read together with, the risk factor entitled “Difficult market 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.” in our Annual Report on
and in our subsequently filed periodic reports are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
On December 7, 2021, Blackstone’s board of directors authorized the repurchase of up to $2.0 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 numbers repurchased will depend on a variety of factors, including legal requirements, price and economic and market conditions. The repurchase program may be changed, suspended or discontinued at any time and does not have a specified expiration date. See “Part I. Item 1. Financial Statements – Notes to Condensed Consolidated Financial Statements – Note 14. Earnings Per Share and Stockholders’ Equity — Share Repurchase Program” and “Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
– Liquidity and Capital Resources – Share Repurchase Program” for further information regarding this repurchase program.
As permitted by our policies and procedures governing transactions in our securities by our directors, executive officers and other employees, from time to time some of these persons may establish plans or arrangements complying with
Rule 10b5-1
under the Exchange Act, and similar plans and arrangements relating to our common stock and Blackstone Holdings Partnership Units.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Election of Directors
On August 2, 2022, Blackstone Group Management L.L.C., by a written consent as the sole holder of our Series II preferred stock, elected Stephen A. Schwarzman, Jonathan D. Gray, Joseph P. Baratta, William G. Parrett, Kelly A. Ayotte, James W. Breyer, Reginald J. Brown, Sir John Antony Hood, Rochelle B. Lazarus, Jay O. Light, The Right Honorable Brian Mulroney and Ruth Porat as directors of Blackstone Inc. Each director was serving as a director of Blackstone Inc. at the time of election.
We will hold our 2022 annual meeting of stockholders (the “Annual Meeting”) at 9:00 a.m., Eastern Time, on September 22, 2022. The Annual Meeting will be held in a virtual meeting format only. Stockholders of record at the close of business on August 19, 2022 (the “Record Date”) can attend the meeting at https://event.webcasts.com/starthere.jsp?ei=1556945&tp_key=87dc132bea. In order to access the Annual Meeting, please be prepared to confirm your ownership
of common stock as of the Record Date. Please note that there will not be any matter for stockholders to vote on at the Annual Meeting, and, as such, no action is expected to be taken at the Annual Meeting. Please note that we are not planning on providing any update on our business during the Annual Meeting.
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
