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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549
FORM 10-K(Mark One)☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2017OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934 FOR THE TRANSITION PERIOD FROM TO
Commission File Number: 001-33551
The Blackstone Group L.P.(Exact name of Registrant as specified in its charter)
Delaware 20-8875684(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
345 Park AvenueNew York, New York 10154
(Address of principal executive offices)(Zip Code)(212) 583-5000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registeredCommonunitsrepresentinglimitedpartnerinterests NewYorkStockExchange
SecuritiesregisteredpursuanttoSection12(g)oftheAct:None
IndicatebycheckmarkiftheRegistrantisawell-knownseasonedissuer,asdefinedinRule405oftheSecuritiesAct.
Yes
☒
No
☐
IndicatebycheckmarkiftheRegistrantisnotrequiredtofilereportspursuanttoSection13orSection15(d)oftheAct.
Yes
☐
No
☒
IndicatebycheckmarkwhethertheRegistrant(1)hasfiledallreportsrequiredtobefiledbySection13or15(d)oftheSecuritiesExchangeActof1934duringthepreceding12months(orforsuchshorterperiodthattheRegistrantwasrequiredtofilesuchreports),and(2)hasbeensubjecttosuchfilingrequirementsforthepast90days.
Yes
☒
No
☐
IndicatebycheckmarkwhethertheregistranthassubmittedelectronicallyandpostedonitscorporateWebsite,ifany,everyInteractiveDataFilerequiredtobesubmittedandpostedpursuanttoRule405ofRegulationS-T(§232.405ofthischapter)duringthepreceding12months(orforsuchshorterperiodthattheregistrantwasrequiredtosubmitandpostsuchfiles).
Yes
☒
No
☐
IndicatebycheckmarkifdisclosureofdelinquentfilerspursuanttoItem405ofRegulationS-K(§229.405ofthischapter)isnotcontainedhereinandwillnotbecontained,tothebestoftheRegistrant’sknowledge,indefinitiveproxyorinformationstatementsincorporatedbyreferenceinPartIIIofthisForm10-KoranyamendmenttothisForm10-K.
☐
IndicatebycheckmarkwhethertheRegistrantisalargeacceleratedfiler,anacceleratedfiler,anon-acceleratedfiler,smallerreportingcompany,oranemerginggrowthcompany.Seethedefinitionsof“largeacceleratedfiler,”“acceleratedfiler,”“smallerreportingcompany,”and“emerginggrowthcompany”inRule12b-2oftheExchangeAct.
Largeacceleratedfiler
☒
Acceleratedfiler
☐Non-acceleratedfiler
☐
Smallerreportingcompany
☐(donotcheckifasmallerreportingcompany)
Emerginggrowthcompany
☐
Ifanemerginggrowthcompany,indicatebycheckmarkiftheregistranthaselectednottousetheextendedtransitionperiodforcomplyingwithanyneworrevisedfinancialaccountingstandardsprovidedpursuanttoSection13(a)oftheExchangeAct.
☐
IndicatebycheckmarkwhethertheRegistrantisashellcompany(asdefinedinRule12b-2oftheAct).
Yes
☐
No
☒
TheaggregatemarketvalueofthecommonunitsoftheRegistrantheldbynon-affiliatesasofJune30,2017wasapproximately$21.4billion,whichincludesnon-votingcommonunitswithavalueofapproximately$1.1billion.
ThenumberoftheRegistrant’svotingcommonunitsrepresentinglimitedpartnerinterestsoutstandingasofFebruary22,2018was659,087,647.
DOCUMENTSINCORPORATEDBYREFERENCENone
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TABLE OF CONTENTS
Page
PART I.
ITEM1.
BUSINESS
5
ITEM1A.
RISKFACTORS
20
ITEM1B.
UNRESOLVEDSTAFFCOMMENTS
73
ITEM2.
PROPERTIES
73
ITEM3.
LEGALPROCEEDINGS
73
ITEM4.
MINESAFETYDISCLOSURES
73
PART II.
ITEM5.
MARKETFORREGISTRANT’SCOMMONEQUITY,RELATEDSTOCKHOLDERMATTERSANDISSUERPURCHASESOFEQUITYSECURITIES
74
ITEM6.
SELECTEDFINANCIALDATA
77
ITEM7.
MANAGEMENT’SDISCUSSIONANDANALYSISOFFINANCIALCONDITIONANDRESULTSOFOPERATIONS
79
ITEM7A.
QUANTITATIVEANDQUALITATIVEDISCLOSURESABOUTMARKETRISK
148
ITEM8.
FINANCIALSTATEMENTSANDSUPPLEMENTARYDATA
152
ITEM8A.
UNAUDITEDSUPPLEMENTALPRESENTATIONOFSTATEMENTSOFFINANCIALCONDITION
225
ITEM9.
CHANGESINANDDISAGREEMENTSWITHACCOUNTANTSONACCOUNTINGANDFINANCIALDISCLOSURE
227
ITEM9A.
CONTROLSANDPROCEDURES
227
ITEM9B.
OTHERINFORMATION
228
PART III.
ITEM10.
DIRECTORS,EXECUTIVEOFFICERSANDCORPORATEGOVERNANCE
229
ITEM11.
EXECUTIVECOMPENSATION
236
ITEM12.
SECURITYOWNERSHIPOFCERTAINBENEFICIALOWNERSANDMANAGEMENTANDRELATEDSTOCKHOLDERMATTERS
257
ITEM13.
CERTAINRELATIONSHIPSANDRELATEDTRANSACTIONS,ANDDIRECTORINDEPENDENCE
260
ITEM14.
PRINCIPALACCOUNTINGFEESANDSERVICES
269
PART IV.
ITEM15.
EXHIBITS,FINANCIALSTATEMENTSCHEDULES
270
ITEM16.
FORM10-KSUMMARY
281
SIGNATURES
282
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Forward-Looking Statements
Thisreportmaycontainforward-lookingstatementswithinthemeaningofSection27AoftheSecuritiesActof1933andSection21EoftheSecuritiesExchangeActof1934whichreflectourcurrentviewswithrespectto,amongotherthings,ouroperationsandfinancialperformance.Youcanidentifytheseforward-lookingstatementsbytheuseofwordssuchas“outlook,”“indicator,”“believes,”“expects,”“potential,”“continues,”“may,”“will,”“should,”“seeks,”“approximately,”“predicts,”“intends,”“plans,”“estimates,”“anticipates”orthenegativeversionofthesewordsorothercomparablewords.Suchforward-lookingstatementsaresubjecttovariousrisksanduncertainties.Accordingly,thereareorwillbeimportantfactorsthatcouldcauseactualoutcomesorresultstodiffermateriallyfromthoseindicatedinthesestatements.Webelievethesefactorsincludebutarenotlimitedtothosedescribedunderthesectionentitled“RiskFactors”inthisreport,assuchfactorsmaybeupdatedfromtimetotimeinourperiodicfilingswiththeUnitedStatesSecuritiesandExchangeCommission(“SEC”),whichareaccessibleontheSEC’swebsiteatwww.sec.gov.Thesefactorsshouldnotbeconstruedasexhaustiveandshouldbereadinconjunctionwiththeothercautionarystatementsthatareincludedinthisreportandinourotherperiodicfilings.Theforward-lookingstatementsspeakonlyasofthedateofthisreport,andweundertakenoobligationtopubliclyupdateorreviewanyforward-lookingstatement,whetherasaresultofnewinformation,futuredevelopmentsorotherwise.
Website and Social Media Disclosure
Weuseourwebsite(www.blackstone.com),Facebookpage(www.facebook.com/blackstone),Twitter(www.twitter.com/blackstone),LinkedIn(www.linkedin.com/company/blackstonegroup),Instagram(www.instagram.com/blackstone),SoundCloud(https://soundcloud.com/blackstone-300250613)andYouTube(www.youtube.com/user/blackstonegroup)accountsaschannelsofdistributionofcompanyinformation.Theinformationwepostthroughthesechannelsmaybedeemedmaterial.Accordingly,investorsshouldmonitorthesechannels,inadditiontofollowingourpressreleases,SECfilingsandpublicconferencecallsandwebcasts.Inaddition,youmayautomaticallyreceivee-mailalertsandotherinformationaboutBlackstonewhenyouenrollyoure-mailaddressbyvisitingthe“ContactUs/EmailAlerts”sectionofourwebsiteathttp://ir.blackstone.com.Thecontentsofourwebsite,anyalertsandsocialmediachannelsarenot,however,apartofthisreport.
Inthisreport,referencesto“Blackstone,”the“Partnership,”“we,”“us”or“our”refertoTheBlackstoneGroupL.P.anditsconsolidatedsubsidiaries.Unlessthecontextotherwiserequires,referencesinthisreporttotheownershipofMr.StephenA.Schwarzman,ourfounder,andotherBlackstonepersonnelincludetheownershipofpersonalplanningvehiclesandfamilymembersoftheseindividuals.
“BlackstoneFunds,”“ourfunds”and“ourinvestmentfunds”refertotheprivateequityfunds,realestatefunds,fundsofhedgefunds,credit-focusedfunds,collateralizedloanobligation(“CLO”),realestateinvestmenttrustsandregisteredinvestmentcompaniesthataremanagedbyBlackstone.“Ourcarryfunds”referstotheprivateequityfunds,realestatefundsandcertainofthehedgefundsolutionsandcredit-focusedfunds(withmulti-yeardrawdown,commitment-basedstructuresthatonlypaycarryontherealizationofaninvestment)thataremanagedbyBlackstone.WerefertoourgeneralcorporateprivateequityfundsasBlackstoneCapitalPartners(“BCP”)funds,ourenergy-focusedprivateequityfundsasBlackstoneEnergyPartners(“BEP”)funds,ourcoreprivateequityfundasBlackstoneCoreEquityPartners(“BCEP”),ouropportunisticinvestmentplatformthatinvestsgloballyacrossassetclasses,industriesandgeographiesasBlackstoneTacticalOpportunities(“TacticalOpportunities”),oursecondaryprivateequityfundoffundsbusinessasStrategicPartnersFundSolutions(“StrategicPartners”),ourmulti-assetinvestmentprogramforeligiblehighnetworthinvestorsofferingexposuretocertainofourkeyilliquidinvestmentstrategiesthroughasinglecommitmentasBlackstoneTotalAlternativesSolution(“BTAS”)andourcapitalmarketsservicesbusinessasBlackstoneCapitalMarkets(“BXCM”).WerefertoourrealestateopportunisticfundsasBlackstoneRealEstatePartners(“BREP”)fundsandourrealestatedebtinvestmentfundsasBlackstoneRealEstateDebtStrategies(“BREDS”)funds.Werefertoourcore+realestatefunds,whichtargetsubstantiallystabilizedassetsinprimemarkets,asBlackstonePropertyPartners(“BPP”)funds.Werefertoourreal
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estateinvestmenttrustsas“REITs,”toBlackstoneMortgageTrust,Inc.,ourNYSE-listedREIT,as“BXMT,”andtoBlackstoneRealEstateIncomeTrust,Inc.,ournon-exchangetradedREIT,as“BREIT.”“Ourhedgefunds”referstoourfundsofhedgefunds,certainofourrealestatedebtinvestmentfunds,includingaregisteredinvestmentcompany,andcertainothercredit-focusedfundswhicharemanagedbyBlackstone.“BIS”referstoBlackstoneInsuranceSolutions,ourbusinessthatdevelops,distributesandmanagestailoredsolutionsforinsurancecompaniesworldwide.
“AssetsUnderManagement”referstotheassetswemanage.OurAssetsUnderManagementequalsthesumof:
(a) thefairvalueoftheinvestmentsheldbyourcarryfundsandourside-by-sideandco-investmententitiesmanagedbyus,plus(1)thecapitalthatweareentitledtocallfrominvestorsinthosefundsandentitiespursuanttothetermsoftheirrespectivecapitalcommitments,includingcapitalcommitmentstofundsthathaveyettocommencetheirinvestmentperiods,or(2)forcertaincredit-orientedfundstheamountsavailabletobeborrowedunderassetbasedcreditfacilities,
(b) thenetassetvalueof(1)ourhedgefunds,realestatedebtcarryfunds,openendedcore+realestatefund,certainco-investmentsmanagedbyus,andourHedgeFundSolutionscarryanddrawdownfunds(plus,ineachcase,thecapitalthatweareentitledtocallfrominvestorsinthosefunds,includingcommitmentsyettocommencetheirinvestmentperiods),and(2)ourfundsofhedgefunds,ourHedgeFundSolutionsregisteredinvestmentcompanies,andournon-exchangetradedREIT,
(c) theinvestedcapital,fairvalueornetassetvalueofassetswemanagepursuanttoseparatelymanagedaccounts,
(d) theamountofdebtandequityoutstandingforourCLOsduringthereinvestmentperiod,
(e) theaggregateparamountofcollateralassets,includingprincipalcash,forourCLOsafterthereinvestmentperiod,
(f) thegrossornetamountofassets(includingleveragewhereapplicable)forourcredit-focusedregisteredinvestmentcompanies,and
(g) thefairvalueofcommonstock,preferredstock,convertibledebt,orsimilarinstrumentsissuedbyBXMT.
Ourcarryfundsarecommitment-baseddrawdownstructuredfundsthatdonotpermitinvestorstoredeemtheirinterestsattheirelection.Ourfundsofhedgefunds,hedgefunds,fundsstructuredlikehedgefundsandotheropenendedfundsinourHedgeFundSolutions,CreditandRealEstatesegmentsgenerallyhavestructuresthataffordaninvestortherighttowithdraworredeemtheirinterestsonaperiodicbasis(forexample,annuallyorquarterly),typicallywith30to95days’notice,dependingonthefundandtheliquidityprofileoftheunderlyingassets.InvestmentadvisoryagreementsrelatedtocertainseparatelymanagedaccountsinourHedgeFundSolutionsandCreditsegments,excludingourBISseparatelymanagedaccounts,maygenerallybeterminatedbyaninvestoron30to90days’notice.
“Fee-EarningAssetsUnderManagement”referstotheassetswemanageonwhichwederivemanagementand/orperformancefees.OurFee-EarningAssetsUnderManagementequalsthesumof:
(a) forourPrivateEquitysegmentfundsandRealEstatesegmentcarryfundsincludingcertainrealestatedebtinvestmentfundsandcertainofour
HedgeFundSolutionsfunds,theamountofcapitalcommitments,remaininginvestedcapital,fairvalue,netassetvalueorparvalueofassetsheld,dependingonthefeetermsofthefund,
(b) forourcredit-focusedcarryfunds,theamountofremaininginvestedcapital(whichmayincludeleverage)ornetassetvalue,dependingonthe
feetermsofthefund,
(c) theremaininginvestedcapitalorfairvalueofassetsheldinco-investmentvehiclesmanagedbyusonwhichwereceivefees,
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(d) thenetassetvalueofourfundsofhedgefunds,hedgefunds,openendedcore+realestatefund,certainco-investmentsmanagedbyus,certain
registeredinvestmentcompanies,ournon-exchangetradedREIT,andcertainofourHedgeFundSolutionsdrawdownfunds,
(e) theinvestedcapital,fairvalueofassetsorthenetassetvaluewemanagepursuanttoseparatelymanagedaccounts,
(f) thenetproceedsreceivedfromequityofferingsandaccumulatedcoreearningsofBXMT,subjecttocertainadjustments,
(g) theaggregateparamountofcollateralassets,includingprincipalcash,ofourCLOs,and
(h) thegrossamountofassets(includingleverage)orthenetassets(plusleveragewhereapplicable)forcertainofourcredit-focusedregistered
investmentcompanies.
EachofoursegmentsmayincludecertainFee-EarningAssetsUnderManagementonwhichweearnperformancefeesbutnotmanagementfees.
Ourcalculationsofassetsundermanagementandfee-earningassetsundermanagementmaydifferfromthecalculationsofotherassetmanagers,andasaresultthismeasuremaynotbecomparabletosimilarmeasurespresentedbyotherassetmanagers.Inaddition,ourcalculationofassetsundermanagementincludescommitmentsto,andthefairvalueof,investedcapitalinourfundsfromBlackstoneandourpersonnel,regardlessofwhethersuchcommitmentsorinvestedcapitalaresubjecttofees.Ourdefinitionsofassetsundermanagementorfee-earningassetsundermanagementarenotbasedonanydefinitionofassetsundermanagementorfee-earningassetsundermanagementthatissetforthintheagreementsgoverningtheinvestmentfundsthatwemanage.
Forourcarryfunds,totalassetsundermanagementincludesthefairvalueoftheinvestmentsheld,whereasfee-earningassetsundermanagementincludestheamountofcapitalcommitments,theremainingamountofinvestedcapitalatcostdependingonwhethertheinvestmentperiodhasorhasnotexpiredorthefeetermsofthefund.Assuch,fee-earningassetsundermanagementmaybegreaterthantotalassetsundermanagementwhentheaggregatefairvalueoftheremaininginvestmentsislessthanthecostofthoseinvestments.
ThisreportdoesnotconstituteanofferofanyBlackstoneFund.
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PART I.
ITEM 1. BUSINESS
Overview
Blackstoneisaleadingglobalalternativeassetmanager,withTotalAssetsUnderManagementof$434.1billionasofDecember31,2017.Asstewardsofpublicfunds,welooktodriveoutstandingresultsforourinvestorsandclientsbydeployingcapitalandideastohelpbusinessessucceedandgrow.Ouralternativeassetmanagementbusinessesincludeinvestmentvehiclesfocusedonprivateequity,realestate,hedgefundsolutions,non-investmentgradecredit,secondaryprivateequityfundsoffundsandmulti-assetclassstrategies.Wealsoprovidecapitalmarketsservices.
AllofBlackstone’sbusinessesuseasolutionsorientedapproachtodrivebetterperformance.Webelieveourscaled,diversifiedbusinesses,coupledwithourlongtrackrecordofinvestmentperformance,proveninvestmentapproachandstrongclientrelationships,positionustocontinuetoperformwellinavarietyofmarketconditions,expandourassetsundermanagementandaddcomplementarybusinesses.
Twoofourprimarylimitedpartnerconstituenciesarepublicandcorporatepensionfunds.Asaresult,totheextentourfundsperformwell,itsupportsabetterretirementformillionsofpensioners.
Inaddition,becauseweareaglobalfirmwithafootprintonnearlyeverycontinent,ourinvestmentscanmakeadifferencearoundtheworld.Wearecommittedtomakingourfamilyofcompaniesstrongerinwaysthatcanhavepositiveimpactsonlocaleconomies.
AsofDecember31,2017,wehad136seniormanagingdirectorsandapproximately2,225otheremployeesatourheadquartersinNewYorkandaroundtheworld.Webelievehiring,trainingandretainingtalentedindividualscoupledwithourrigorousinvestmentprocesshassupportedourexcellentinvestmentrecordovermanyyears.Thisrecordinturnhasallowedustosuccessfullyandrepeatedlyraiseadditionalassetsfromanincreasinglywidevarietyofsophisticatedinvestors.
2017 Highlights
Record Realization Activity and Cash Distributions to Shareholders
• Totalrealizationsreached$55.2billionin2017,arecordforthefirm,withstrongactivityacrossbusinesssegments.Realizationsincludedthe
saleofLogicor,Blackstone’sEuropeanwarehousebusiness,thelargestprivatesaleinthefirm’shistory.
• Blackstonedistributed$3.3billionincashdistributionstoshareholderswithrespectto2017,ourhighestaggregatelevelinhistory.
Record Assets Under Management
• EachofourinvestingbusinessessawpositivegrowthinbothTotalAssetsUnderManagementandFee-EarningAssetsUnderManagementin
2017,despiterecordlevelsofrealizations,givencontinuedstrongfundraising.Fee-EarningAssetsUnderManagementrose21%in2017to$335.3billionandTotalAssetsUnderManagementrose18%to$434.1billion.
• Capitalinflowsacrossourbusinessesreached$108.0billionfor2017,ourbestyearonrecord.Ourlimitedpartnerscontinuetoentrustuswith
largescalecapitalfornewinitiatives.
• BAAMachieved$12.1billionincapitalinflows,itsbestyearonrecord.
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• InourCreditsegmentwelaunchedBlackstoneInsuranceSolutionswith$22billionofAssetsUnderManagement,andclosedontheacquisition
ofHarvest,contributingnearly$11billiontoTotalAssetsUnderManagement.Inaddition,weraised$25.3billionadditionalcapitalacrosslong-onlycreditandperforminganddistressedstrategies.
• OurfifthEurope-focusedrealestatefundobtained€7.8billionofcapitalcommitments,makingitthelargesteverdedicatedEuropeanReal
Estatefund;andoursecondAsiaopportunisticrealestatefundraisednearly$6billion,andisexpectedtosoonhitits$7billionhardcap.
• PrivateEquityraised$1.6billionforitsfirstAsia-focusedprivateequityfund,andTacticalOpportunitieshadcapitalinflowsof$5.9billionin
2017,itssecondbestyearonrecord.
Ongoing Platform Expansion Through New Product Strategies and Channels
• 61%ofourTotalAssetsUnderManagementisfrombusinessesthatdidnotexistatthefirmatthetimeofourinitialpublicoffering(“IPO”).
• OneourlargestnewinitiativesisBlackstoneInsuranceSolutions(“BIS”),whichweestablishedtodevelop,distributeandmanagetailored
solutionsforinsurancecompaniesworldwide.BISincludesourpartnershipwithFidelity&GuarantyLife,whichenteredintoaninvestmentmanagementagreementwithuswithrespectto$22.4billioninAssetsUnderManagement.
• Anothernewinitiative,ourdedicatedinfrastructurefund,willinvestininfrastructureprojectsprincipallyintheUnitedStatesandreceivedin
2017ananchorcommitmentfromasovereigninvestor.
• Ourcore+realestatebusiness,launchedfouryearsago,hasreached$27.0billioninAssetsUnderManagement,includinganewEuropean
vehicleaswellasavehicletomanageLogicoronalong-termbasis.
• Wecontinuedtodiversifyoursourcesofcapitalbyofferingourinstitutionalqualityinvestmentsolutionstoretailinvestors,includingtheprivatewealth/highnetworth,familyoffice,independentbrokerdealerandotherretail-orientedchannels.We’vealsolaunchedseveraldedicatedproductsforthesechannelsoverthepastseveralyears,includingBAAM’sindividualinvestorsolutionsplatform,whichnowmanagesmorethan$8billionandBREIT,ournon-exchangetradedREIT,whichmanagednearly$2billionattheendof2017.Intotal,Blackstoneraised$12billionfromretailinvestorsin2017.
Industry-Leading Credit Rating and Strong Balance Sheet
• Strongbalancesheetwithnonetdebt,$5.1billionintotalcash,cashequivalentsandcorporatetreasuryinvestments,anda$1.5billionundrawn
revolver.
• S&PandFitchhavebothaffirmedBlackstone’sA+/A+creditratings,makingBlackstonethehighestratedalternativeassetmanagerandone
ofthehighestratedglobalfinancialservicesfirms.
• Successfullyexecutedbondissuancesinhighlyoversubscribedofferingsof$300millionof3.150%notesdue2027and$300millionof
4.000%notesdue2047,whichwaspricedatrecordlowcreditspreadstothebenchmarkU.S.Treasuryratesrelativetoourpreviousissuances(0.98%and1.38%forthe10-yearnotesand30-yearnotes,respectively),andrepurchasedthebalanceofour6.625%notesdue2019.
• Theweighted-averagematurityofouroutstandingnotesasofDecember31,2017was14.9years.
Positively Impacting Communities
• TheBlackstoneCharitableFoundationcontinueditsworkwithlocalpartnersintargetedregionstocreateorgrownon-profitprogramsthatsupportnetworksandresourcesforentrepreneurs.InJune2017,workingwiththecityofChicagoandWorldBusinessChicago,itlaunchedtheBlackstoneChallenge,athree-yearpilotprogramfocusedoninclusiveentrepreneurshipthatwillawardupto$3.4millioningrantstocreateacohortofinnovativeorganizationsthateffectivelyrecruitandsupportdiverseentrepreneursandscale
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start-upsintheChicagoarea.InOctober2017,itpartneredwithTechstars,oneoftheworld’slargestacceleratornetworks,tohoststudententrepreneursfromacrossitsBlackstoneLaunchPadnetworkof20universitiesfortwodaysofmentoring,networking,andexclusivecontent.TheFoundationawarded$30,000inprizestothetopstudententrepreneurs.
• TheBlackstoneCharitableFoundationcontinuedBlackstoneConnects,thefirm’svolunteerandcommunityserviceprogram,whichdeliversa
varietyofopportunitiesforemployeestoengagewithandgivebacktotheircommunities.In2017,70%ofouremployeesgloballyvolunteered.
• InMay2017,Blackstoneannouncedithadreacheditsgoalofhiring50,000veterans,caregiversandspousesacrossitsportfolioofcompaniesafullyearaheadoftheoriginalfive-yeartarget.Blackstonedoubleddownwithanewgoalof50,000additionalveteranshiresinthenextfiveyears.ThefirmcontinuestohostannualVeteransHiringSummitsdesignedtohelphiringexecutiveswithincorporationssharebestpracticesonattractingandrecruitingveteransandtoassistrepresentativesfromtheU.S.militaryandgovernmentastheyworkincoordinationwithBlackstoneportfoliocompanies.
Business Segments
Ourfourbusinesssegmentsare:(a)PrivateEquity,(b)RealEstate,(c)HedgeFundSolutionsand(d)Credit.
Informationaboutourbusinesssegmentsshouldbereadtogetherwith“PartII.Item7.Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations”andthehistoricalfinancialstatementsandrelatednotesincludedelsewhereinthisForm10-K.
Private Equity
OurPrivateEquitysegment,establishedin1987,isaglobalbusinesswithapproximately275employeesmanaging$105.6billionofTotalAssetsUnderManagementasofDecember31,2017.Weareaworldleaderinprivateequityinvesting,havingmanagedsevengeneralprivateequityfunds,threesector-focusedfundsandonegeography-focusedfundsinceweestablishedthebusiness.Wearefocusedonidentifying,managingandcreatinglastingvalueforourinvestors.OurPrivateEquitysegmentincludesourcorporateprivateequitybusiness,whichconsistsofourflagshipprivateequityfunds(BlackstoneCapitalPartners(“BCP”)funds),oursector-focusedfunds,includingourenergy-focusedfunds(BlackstoneEnergyPartners(“BEP”)funds)andournewAsia-focusedfund.Inaddition,ourPrivateEquitysegmentincludesourcoreprivateequityfund,whichtargetscontrol-orientedinvestmentsinhigh-qualitycompanieswithdurablebusinessesandseekstoofferalowerlevelofriskandalongerholdperiodthantraditionalprivateequity,ouropportunisticinvestmentplatformthatinvestsgloballyacrossassetclasses,industriesandgeographies,BlackstoneTacticalOpportunities(“TacticalOpportunities”),oursecondaryprivateequityfundoffundsbusiness,StrategicPartnersFundSolutions(“StrategicPartners”),amulti-assetinvestmentprogramforeligiblehighnetworthinvestorsofferingexposuretocertainofBlackstone’skeyilliquidinvestmentstrategiesthroughasinglecommitment,BlackstoneTotalAlternativesSolutions(“BTAS”)andourcapitalmarketsservicesbusiness,BlackstoneCapitalMarkets(“BXCM”).
Ourcorporateprivateequitybusinesspursuestransactionsthroughouttheworldacrossavarietyoftransactiontypes,includinglargebuyouts,mid-capbuyouts,buyandbuildplatforms(whichinvolvemultipleacquisitionsbehindasinglemanagementteamandplatform)andgrowthequity/developmentprojects(whichinvolvesignificantminorityinvestmentsinoperatingcompaniesandgreenfielddevelopmentprojectsinenergyandpower).Ourprivateequitybusiness’sinvestmentstrategiesandcorethemescontinuallyevolve,inanticipationof,orinresponseto,changesintheglobaleconomy,localmarkets,regulation,capitalflowsandgeopoliticaltrends.Weseektoconstructadifferentiatedportfolioofinvestmentswithawell-defined,interventionist,post-acquisitionvaluecreationstrategy.Similarly,weseekinvestmentsthatcangeneratestrongunleveredreturnsregardlessofentryorexitcycletiming.Finally,whenwecanidentifysectorsorgeographiesinwhichthedemandforcapitalgreatlyexceedsthereadilyavailablesupply,ourprivateequitybusinessseekstomakeinvestmentsatornearbookvaluewhereitcancreategoodwillorfranchisevaluethroughpost-acquisitionactions.
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TacticalOpportunitiesisouropportunisticinvestmentplatform.TheTacticalOpportunitiesmandateinvestsgloballyacrossassetclasses,industriesandgeographies,seekingtoidentifyandexecuteonattractive,differentiatedinvestmentopportunities.Aspartofthestrategy,theteamleveragestheintellectualcapitalacrossBlackstone’svariousbusinesseswhilecontinuouslyoptimizingitsapproachinthefaceofever-changingmarketconditions.TacticalOpportunities’flexiblemandateenablesabroadrangeofinvestmentstructures,includingprivateandpublicsecuritiesandinstruments,wheretheunderlyingexposuremaybetoequityordebt,andtheconstructionofadiversifiedportfolioofinvestments.
StrategicPartners,oursecondaryprivateequityfundoffundsbusinesswasestablishedin2000andacquiredbyBlackstonein2013.StrategicPartnersseekscapitalappreciationthroughthepurchaseofsecondaryinterestsinmature,high-qualityprivateequityfundsfrominvestorsseekingliquidity.StrategicPartnersisfocusedoninvestinginarangeofopportunities,leveragingitsproprietarydatabasetoexecutetransactionsrangingfromsinglefundintereststocomplex,structuredportfoliosolutions,inanefficientandtimelymanner.
FormoreinformationconcerningtherevenuesandfeeswederivefromourPrivateEquitysegment,see“—IncentiveArrangements/FeeStructure”inthisItem1.
Real Estate
OurRealEstategroupwasfoundedin1991andisoneofthelargestrealestateinvestmentmanagersintheworld,with$115.3billionofTotalAssetsUnderManagementasofDecember31,2017.Weoperateasonegloballyintegratedbusinesswith320employeesandinvestmentsinNorthAmerica,Europe,AsiaandLatinAmerica.OurRealEstateinvestmentteamseekstoestablishadifferentiatedviewandcapitalizesonourscaleandproprietaryinformationadvantagestoinvestwithconvictionandgenerateattractiverisk-adjustedreturnsforourinvestorsoverthelongterm.
OurBlackstoneRealEstatePartners(“BREP”)fundsaregeographicallydiversifiedandtargetabroadrangeof“opportunistic”realestateandrealestaterelatedinvestments.TheBREPfundsincludeglobalfundsaswellasfundsfocusedspecificallyonEuropeorAsiainvestments.Weseektoacquirehighquality,well-locatedyetundermanagedassetsatanattractivebasis,addressanypropertyorbusinessissuesthroughactiveassetmanagementandselltheassetsonceourbusinessplanisaccomplished.BREPhasmadesignificantinvestmentsinhotels,officebuildings,shoppingcenters,residentialandindustrialassets,aswellasavarietyofrealestateoperatingcompanies.
WelaunchedBlackstoneRealEstateDebtStrategies(“BREDS”),ourrealestatedebtplatform,in2008.OurBREDSvehiclestargetdebtinvestmentopportunitiescollateralizedbycommercialrealestate.BREDSinvestsinbothpublicandprivatemarkets,primarilyintheU.S.andEurope.BREDS’scaleandinvestmentmandatesenableittoprovideavarietyoflendingoptionsforourborrowersandinvestmentoptionsforourinvestors,includingmezzanineloans,seniorloansandliquidsecurities.TheBREDSplatformincludesanumberofhighyieldandhighgraderealestatedebtfunds,liquidrealestatedebtfundsandBlackstoneMortgageTrust,Inc.(“BXMT”),aNYSE-listedREIT.
Welaunchedourcore+realestatebusiness,BlackstonePropertyPartners(“BPP”),in2013andhaveassembledaglobalportfolioofhighqualitycore+investmentsacrosstheU.S.,EuropeandAsia.Wemanageseveralcore+realestatefunds,whichtargetsubstantiallystabilizedassetsinprimemarketswithafocusonoffice,multifamily,industrialandretailassets.Thefundsgeneratereturnsthroughbothcurrentincomeandvalueappreciationoverthelongterm.
WelaunchedBlackstoneRealEstateIncomeTrust(“BREIT”),anon-exchangetradedREIT,in2017.BREITisfocusedoninvestingprimarilyinstabilizedincome-orientedcommercialrealestateintheUnitedStates.
FormoreinformationconcerningtherevenuesandfeeswederivefromourRealEstatesegment,see“—IncentiveArrangements/FeeStructure”inthisItem1.
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Hedge Fund Solutions
OurHedgeFundSolutionsgroupiscomprisedprimarilyofBlackstoneAlternativeAssetManagement(“BAAM”).BAAMistheworld’slargestdiscretionaryallocatortohedgefunds,managingabroadrangeofcommingledandcustomizedhedgefundoffundsolutionssinceitsinceptionin1990.TheHedgeFundSolutionsegmentalsoincludesinvestmentplatformsthatseednewhedgefundbusinesses,purchaseminorityownershipinterestsinmoreestablishedhedgefunds,investinspecialsituationsopportunities,createalternativesolutionsinregulatedstructuresandtradedirectly.Workingwithourclientsoverthepast20plusyears,ourHedgeFundSolutionsgrouphasdevelopedintoaleadingmanagerofinstitutionalfundswithapproximately155employeesmanaging$75.1billionofTotalAssetsUnderManagementasofDecember31,2017.HedgeFundSolutions’overallinvestmentphilosophyistoprotectandgrowinvestors’assetsthroughbothcommingledandcustom-tailoredinvestmentstrategiesdesignedtodelivercompellingrisk-adjustedreturnsandmitigaterisk.Diversification,riskmanagement,duediligenceandafocusondownsideprotectionarekeytenetsofourapproach.FormoreinformationconcerningtherevenuesandfeeswederivefromourHedgeFundSolutionssegment,see“—IncentiveArrangements/FeeStructure”inthisItem1.
Credit
Ourcreditbusiness,with$138.1billionofTotalAssetsUnderManagementasofDecember31,2017andapproximately205employees,consistsprincipallyofGSOCapitalPartnersLP(“GSO”).GSO,whichwasfoundedin2005andsubsequentlyacquiredbyBlackstonein2008,isoneofthelargestleveragedfinance-focusedalternativeassetmanagersintheworldandisthelargestmanagerofCLOsglobally.Theinvestmentportfoliosofthefundswemanageorsub-advisepredominantlyconsistofloansandsecuritiesofnon-investmentgradecompaniesspreadacrossthecapitalstructureincludingseniordebt,subordinateddebt,preferredstockandcommonequity.
TheGSObusinessisorganizedintothreeoverarchingstrategies:performingcredit,distressedandlongonly.Ourperformingcreditstrategiesincludemezzaninelendingfunds,middlemarketdirectlendingfunds(whichwouldincludethebusinessdevelopmentcompanies(“BDCs”)sub-advisorybusiness),andotherperformingcreditstrategyfunds.Ourdistressedstrategiesincludecreditalphastrategies,stressed/distressedfundsandenergystrategies.GSO’slongonlystrategiesconsistofCLOs,closedendfunds,commingledfundsandseparatelymanagedaccounts.
Inaddition,ourcreditbusinessincludesourpubliclytradedmasterlimitedpartnership(“MLP”)andinvestmentplatform,whicharemanagedbyHarvestFundAdvisorsLLC(“Harvest”).Harvest,whichwasfoundedin2005andsubsequentlyacquiredbyBlackstonein2017,primarilyinvestscapitalraisedfrominstitutionalinvestorsinseparatelymanagedaccountsandpooledvehicles,investinginpubliclytradedMLPsholdingprimarilymidstreamenergyassetsintheU.S.
Ourcreditbusinessalsoincludesourinsurer-focusedplatform,BIS.BISpartnerswithinsurerstodelivercustomizableanddiversifiedportfoliosofBlackstoneproductsacrossassetclasses,aswellastheoptionforfullmanagementofinsurancecompanies’investmentportfolios.
Financial and Other Information by Segment
FinancialandotherinformationbysegmentfortheyearsendedDecember31,2017,2016and2015issetforthinNote21.“SegmentReporting”inthe“NotestoConsolidatedFinancialStatements”in“PartII.Item8.FinancialStatementsandSupplementaryData”ofthisfiling.
Pátria Investments
OnOctober1,2010,wepurchaseda40%equityinterestinPátriaInvestmentsLimitedandPátriaInvestimentosLtda.(collectively,“Pátria”).PátriaisaleadingalternativeassetmanagerinLatinAmericathatwasfoundedin1988.AsofDecember31,2017,Pátria’salternativeassetmanagementbusinesseshad$9.9billioninassetsundermanagement,includingthemanagementofprivateequityfunds($4.9billion),infrastructurefunds
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($3.6billion),realestatefunds($1.2billion)andnewinitiatives($184.7million).Pátriahasapproximately250employeesandisledbyagroupofthreemanagingpartners.OurinvestmentinPátriaisaminority,non-controllinginvestment,whichwerecordusingtheequitymethodofaccounting.WehaverepresentativesonPátria’sboardofdirectorsinproportiontoourownership,butwedonotcontroltheday-to-daymanagementofthefirmortheinvestmentdecisionsoftheirfunds,allofwhichcontinuestoresidewiththelocalBrazilianpartners.
Investment Process and Risk Management
Wemaintainarigorousinvestmentprocessacrossallofourfunds,accountsandotherinvestmentvehicles.Eachfund,accountorothervehiclehasinvestmentpoliciesandproceduresthatgenerallycontainrequirementsandlimitationsforinvestments,suchaslimitationsrelatingtotheamountthatwillbeinvestedinanyoneinvestmentandthetypesofindustriesorgeographicregionsinwhichthefund,accountorothervehiclewillinvest,aswellaslimitationsrequiredbylaw.Ourbusiness’investmentcommitteesreviewandevaluateinvestmentopportunitiesinaframeworkthatincludesaqualitativeandquantitativeassessmentofthekeyrisksofeachinvestment.
Private Equity Funds
OurPrivateEquityinvestmentprofessionalsareresponsibleforselecting,evaluating,structuring,diligencing,negotiating,executing,managingandexitinginvestments,aswellaspursuingoperationalimprovementsandvaluecreation.Afteraninitialselection,evaluationanddiligenceprocess,therelevantteamofinvestmentprofessionals(i.e.,thedealteam)submitsaproposedtransactionforreviewbythereviewcommitteeofourprivateequityfunds.ReviewcommitteemeetingsareledbyanexecutivecommitteeofseveralseniormanagingdirectorsofourPrivateEquitysegment.Followingassimilationofthereviewcommittee’sinputanditsdecisiontoproceed,theproposedinvestmentisvettedbytheinvestmentcommittee.TheinvestmentcommitteeofourprivateequityfundsiscomposedofseniorleadersofthefirmandselectedseniormanagingdirectorsofourPrivateEquitysegment,includingindividualsbasedonthelocationandsectoroftheproposedtransaction.Theinvestmentcommitteeisresponsibleforapprovingallinvestmentdecisionsmadeonbehalfofourprivateequityfunds.Considerationsthattheinvestmentcommitteetakesintoaccountwhenevaluatinganinvestmentincludethequalityofabusinessinwhichthefundproposestoinvestandthequalityofthemanagementteamofsuchbusiness,expectedleveredandunleveredreturnsoftheinvestmentinavarietyofinvestmentscenarios,theabilityofthecompanyinwhichtheinvestmentismadetoservicedebtinarangeofeconomicandinterestrateenvironments,environmental,socialandgovernance,orESG,issuesandmacroeconomictrendsintherelevantgeographicregion.
Theinvestmentprofessionalsofourprivateequityfundsareresponsibleformonitoringaninvestmentonceitismadeandformakingrecommendationswithrespecttoexitinganinvestment.Inadditiontomembersofadealteamandourportfoliooperationsgroup,whichisresponsibleforassistinginenhancingportfoliocompanies’operationsandvalue,allprofessionalsinourprivateequitybusinessmeetseveraltimeseachyeartoreviewtheperformanceofthefunds’portfoliocompanies.
OurTacticalOpportunitiesbusinesshasasubstantiallysimilarprocesstothePrivateEquityprocessdescribedabove,withtheexceptionofthecompositionofthereviewandinvestmentcommittee.TheTacticalOpportunitiesreviewcommitteeiscomprisedofseniormanagingdirectorsoftheTacticalOpportunitiesbusinessandaseniormanagingdirectorofourPrivateEquitybusiness,andtheinvestmentcommitteeiscomprisedofMr.Schwarzmanandseniorleadersofthefirmandkeyleadersofeachbusinessunit.
OurStrategicPartnersbusinessfocusesonacquiringsecondaryinterestsinprivateequityfunds.Afterrigorous,highlyanalyticalinvestmentduediligence,theStrategicPartnersinvestmentprofessionalspresentaproposedtransactiontothegroup’sinvestmentcommittee.TheStrategicPartnersinvestmentcommitteeiscomprisedofseniormembersofourStrategicPartnersbusiness.Theinvestmentcommitteemeetstoreview,anddecidewhethertoapproveordeny,transactions.TheinvestmentprofessionalsontheStrategicPartnersteamareresponsibleformonitoringeachinvestmentonceitismade.Inadditiontomembersoftheinvestmentteam,andgiventhelarge
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numberofunderlyinginvestments,theStrategicPartnersFinanceteamwillalsotrackinvestmentvaluationspursuanttothegroup’svaluationpoliciesandprocedures.
Real Estate Funds
OurRealEstateinvestmentprofessionalsareresponsibleforselecting,evaluating,structuring,diligencing,negotiating,executing,managing,monitoringandexitinginvestments,aswellaspursuingoperationalimprovementsandvaluecreation.Ourrealestateoperationhasoneglobalinvestmentcommitteeprocesstoconsiderandapproveallinvestments,similartothatdescribedunder“—PrivateEquityFunds.”Theinvestmentprocessbeginswithateamofinvestmentprofessionals(i.e.,dealteam)submittingaproposedtransactionforreviewbytheapplicablecommittee.Therelevantcommitteescrutinizespotentialtransactions,providesguidanceandinstructionstothedealteamand,ifapplicable,approvestheinvestment.Considerationsthatthecommitteestakeintoaccountwhenevaluatinganinvestmentincludecurrentandanticipatedmarketfundamentals(including,forexample,supplyanddemandfundamentals)andmacroeconomictrendsintherelevantgeographicregion,thequalityoftheassetinwhichthefundorvehicleproposestoinvest,theappropriatenessofexistingorplannedleveragelevelsofthebusinessorassetandourabilitytosuccessfullyimplementoperationalplansandimprovementsandexittheinvestmentatanexpectedrateofreturn.Dealteammembersandourassetmanagementgroupareresponsibleformonitoringandenhancinginvestments’operationsandvalue.
Hedge Fund Solutions
Beforedecidingtoinvestinanewhedgefundorwithanewhedgefundmanager,ourHedgeFundSolutionsteamconductsextensiveduediligence,includinganon-site“frontoffice”reviewofthefund’s/manager’sperformance,investmentterms,investmentstrategyandinvestmentpersonnel,a“backoffice”reviewofthefund’s/manager’soperations,processes,riskmanagementandinternalcontrols,industryreferencechecksandalegalreviewoftheinvestmentstructuresandlegaldocuments.Onceinitialduediligenceproceduresarecompletedandtheinvestmentandotherprofessionalsaresatisfiedwiththeresultsofthereview,theteamwillpresentthepotentialinvestmenttotherelevantHedgeFundSolutionsinvestmentcommittee.Theinvestmentcommitteesarecomprisedofrelevantseniormanagingdirectorsandseniorinvestmentpersonnel.Existinginvestmentsarereviewedandmonitoredonaregularbasis.
Credit
Eachofourcredit-focusedfundshasaninvestmentcommitteesimilartothatdescribedunder“—PrivateEquityFunds.”Theinvestmentcommitteesforthecredit-focusedfundsincludesseniormembersoftherespectiveinvestmentteamsassociatedwitheachcredit-focusedfund.Theinvestmentcommitteesreviewpotentialtransactions,provideinputregardingthescopeofduediligenceandapproverecommendedinvestmentsanddispositions,subjecttodelineatedexceptionssetforthinthefunds’investmentcharters.
Theinvestmentdecisionsforthecustomizedcreditlongonlyclientsandotherclientswhoseportfoliosareactivelytradedaremadebyseparateinvestmentcommittees,eachofwhichiscomposedofcertainofthegroup’srespectiveseniormanagingdirectors,managingdirectorsandotherinvestmentprofessionals.Withlimitedexceptionswheretheportfoliomanagerswishtocapitalizeontimesensitivemarketopportunities,theinvestmentcommitteeapprovesallassetsthatareheldbytheapplicableclient.Theinvestmentteamisstaffedbyprofessionalswithinresearch,portfoliomanagement,tradingandcapitalformationtoensureactivemanagementoftheportfolios.Industry-focusedresearchanalystsprovidethecommitteewithaformalandcomprehensivereviewofanynewinvestmentrecommendation,whileourportfoliomanagersandtradingprofessionalsprovideopinionsonothertechnicalaspectsoftherecommendationaswellastherisksassociatedwiththeoverallportfoliocomposition.Investmentsaresubjecttopredeterminedperiodicreviewstoassesstheircontinuedfitwithinthefunds.Ourresearchteammonitorstheoperatingperformanceoftheunderlyingissuers,whileportfoliomanagers,inconcertwithourtraders,focusonoptimizingassetcompositiontomaximizevalueforourinvestors.
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Structure and Operation of Our Investment Vehicles
OurprivateinvestmentfundsaregenerallyorganizedaslimitedpartnershipswithrespecttoU.S.domiciledvehiclesandlimitedliability(andothersimilar)companieswithrespecttonon-U.S.domiciledvehicles.Inthecaseofourseparatelymanagedaccounts,theinvestor,ratherthanus,generallycontrolstheinvestmentvehiclethatholdsorhascustodyoftheinvestmentsweadvisethevehicletomake.Weconductthesponsorshipandmanagementofourcarryfundsandothersimilarvehiclesprimarilythroughapartnershipstructureinwhichlimitedpartnershipsorganizedbyusacceptcommitmentsand/orfundsforinvestmentfrominstitutionalinvestorsand,toamorelimitedextent,highnetworthindividuals.Suchcommitmentsaregenerallydrawndownfrominvestorsonanas-neededbasistofundinvestmentsoveraspecifiedterm.Withtheexceptionofcertaincore+realestateandrealestatedebtfunds,ourprivateequityandprivaterealestatefundsarecommitmentstructuredfunds.Forcertaincore+realestateandrealestatedebtfunds,alloraportionofthecommittedcapitalisfundedonorpromptlyaftertheinvestor’ssubscriptiondateandcashproceedsresultingfromthedispositionofinvestmentscanbereusedindefinitelyforfurtherinvestment,subjecttocertaininvestorwithdrawalrights.OurRealEstatebusinessalsoincludesBXMT,BREIT,andaregisteredopen-endedinvestmentcompanycomplex,eachofwhichisexternallymanagedoradvisedbyBlackstone-ownedentities.Ourcredit-focusedfundsaregenerallycommitmentstructuredfundsoropen-endedwheretheinvestor’scapitalisfullyfundedintothefunduponorsoonafterthesubscriptionforinterestsinthefund.Tencredit-focusedvehiclesthatwemanageorsub-adviseinwholeorinpartareregisteredinvestmentcompanies(includingBDCs).TheCLOvehicleswemanagearestructuredinvestmentvehiclesthataregenerallyprivatecompanieswithlimitedliability.Mostofourfundsofhedgefundsaswellasourhedgefundsarestructuredasfundswheretheinvestor’scapitalisfullyfundedintothefunduponthesubscriptionforinterestsinthefund.
Ourinvestmentfunds,separatelymanagedaccountsandothervehiclesaregenerallyadvisedbyaBlackstoneentityservingasinvestmentadviserthatisregisteredundertheU.S.InvestmentAdvisersActof1940,or“AdvisersAct.”Substantiallyalloftheday-to-dayoperationsofeachinvestmentvehiclearetypicallycarriedoutbytheBlackstoneentityservingasinvestmentadviserpursuanttoaninvestmentadvisory(orsimilar)agreement.Generally,thematerialtermsofourinvestmentadvisoryagreementsrelatetothescopeofservicestoberenderedbytheinvestmentadvisertotheapplicablevehicle,thecalculationofmanagementfeestobebornebyinvestorsinourinvestmentvehicles,thecalculationofandthemannerandextenttowhichotherfeesreceivedbytheinvestmentadviserfromfundsorfundportfoliocompaniesservetooffsetorreducethemanagementfeespayablebyinvestorsinourinvestmentvehiclesandcertainrightsofterminationwithrespecttoourinvestmentadvisoryagreements.Withtheexceptionoftheregisteredfundsdescribedbelow,theinvestmentvehiclesthemselvesdonotgenerallyregisterasinvestmentcompaniesundertheU.S.InvestmentCompanyActof1940,or“1940Act,”inrelianceonthestatutoryexemptionsprovidedbySection3(c)(7)orSection7(d)thereofor,typicallyinthecaseofvehiclesformedpriorto1997,Section3(c)(1)thereof.Section3(c)(7)ofthe1940ActexemptsfromitsregistrationrequirementsinvestmentvehiclesprivatelyplacedintheUnitedStateswhosesecuritiesareownedexclusivelybypersonswho,atthetimeofacquisitionofsuchsecurities,are“qualifiedpurchasers”asdefinedunderthe1940Act.Section3(c)(1)ofthe1940Actexemptsfromitsregistrationrequirementsprivatelyplacedinvestmentvehicleswhosesecuritiesarebeneficiallyownedbynotmorethan100persons.Inaddition,undercurrentinterpretationsoftheSEC,Section7(d)ofthe1940Actexemptsfromregistrationanynon-U.S.investmentvehicleallofwhoseoutstandingsecuritiesarebeneficiallyownedeitherbynon-U.S.residentsorbyU.S.residentsthatarequalifiedpurchasers.BXMTisexternallymanagedbyaBlackstone-ownedentitypursuanttoamanagementagreement,conductsitsoperationsinamannerthatallowsittomaintainitsREITqualificationandalsoavailitselfofthestatutoryexemptionprovidedbySection3(c)(5)(C)ofthe1940Actforcompaniesengagedprimarilyininvestmentinmortgagesandotherliensorinvestmentsinrealestate.Ournon-exchangetradedREITisexternallyadvisedbyaBlackstone-ownedentitypursuanttoanadvisoryagreement,conductsitsoperationsinamannerthatallowsittomaintainitsREITqualificationandalsoavailsitselfofthestatutoryexemptionprovidedbySection3(c)(5)(C)ofthe1940Act.
Insomecases,oneormoreofourinvestmentadvisers,includingwithinGSO,BAAMandBREDSadvisers,advisesorsub-advisesfundsregisteredunderthe1940Act.Inadditiontohavinganinvestmentadviser,eachinvestmentfundthatisalimitedpartnership,or“partnership”fund,alsohasageneralpartnerthatgenerallymakesalloperationalandinvestmentdecisions,includingthemaking,monitoringanddisposingofinvestments.The
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limitedpartnersofthepartnershipfundstakenopartintheconductorcontrolofthebusinessoftheinvestmentfunds,havenorightorauthoritytoactfororbindtheinvestmentfundsandhavenoinfluenceoverthevotingordispositionofthesecuritiesorotherassetsheldbytheinvestmentfunds.Withtheexceptionofcertainofourfundsofhedgefunds,hedgefunds,certaincredit-focusedandrealestatedebtfunds,andotherfundsorseparatelymanagedaccountsforthebenefitofoneormorespecifiedinvestors,thirdpartyinvestorsinourfundshavetherighttoremovethegeneralpartnerofthefundortoacceleratetheterminationoftheinvestmentfundwithoutcausebyasimplemajorityvote.Inaddition,thegoverningagreementsofourinvestmentfundsprovidethatintheeventcertain“keypersons”inourinvestmentfundsdonotmeetspecifiedtimecommitmentswithregardtomanagingthefund,theninvestorsincertainfundshavetherighttovotetoterminatetheinvestmentperiodbyaspecifiedpercentage(including,incertaincasesasimplemajority)voteinaccordancewithspecifiedprocedures,acceleratethewithdrawaloftheircapitalonaninvestor-by-investorbasis,orthefund’sinvestmentperiodwillautomaticallyterminateandthevoteofaspecifiedpercentage(including,incertaincasesasimplemajority)inaccordancewithspecifiedproceduresisrequiredtorestartit.Inaddition,thegoverningagreementsofsomeofourinvestmentfundsprovidethatinvestorshavetherighttoterminate,foranyreason,theinvestmentperiodbyavoteof75%oftheinvestorsinsuchfund.
Incentive Arrangements / Fee Structure
Management Fees
ThefollowingdescribesthemanagementfeesreceivedbytheBlackstoneinvestmentadvisers.
• Theinvestmentadviserofeachofourcarryfundsgenerallyreceivesanannualmanagementfeebaseduponapercentageofthefund’scapitalcommitments,investedcapitaland/orundeployedcapitalduringtheinvestmentperiodandthefund’sinvestedcapitalorinvestmentfairvalueaftertheinvestmentperiod,exceptthattheinvestmentadviserstocertainofourcredit-focusedcarry/incentivefunds,core+realestatefundsandourcoreprivateequityfundreceiveanannualmanagementfeethatisbaseduponapercentageofinvestedcapitalornetassetvaluethroughoutthetermofthefund.Thesemanagementfeesarepayableonaregularbasis(typicallyquarterly)inthecontractuallyprescribedamountsoverthelifeofthefund.Dependingonthebaseuponwhichmanagementfeesarecalculated,negativeperformanceofoneormoreinvestmentsinthefundmayreducethetotalmanagementfeepaid,butnotthefeerate.
• Theinvestmentadviserofeachofourfundsthatarestructuredlikehedgefunds,orofourfundsofhedgefunds,registeredmutualfundsandseparatelymanagedaccountsthatinvestinhedgefunds,generallyreceivesanannualmanagementfeethatisbaseduponapercentageofthefund’soraccount’snetassetvalue.Thesemanagementfeesarealsopayableonaregularbasis(typicallyquarterly).Thesefundsgenerallyprovideinvestorsliquiditythroughannual,semi-annualorquarterlywithdrawalorredemptionrights,insomecasesfollowingtheexpirationofaspecifiedperiodoftimewhencapitalmaynotbewithdrawn.Dailyredemptionrightsaregenerallyprovidedinthecaseofregisteredmutualfunds.Theamountofmanagementfeestowhichtheinvestmentadviserisentitledwithrespecttheretowillproportionatelyincreaseasthenetassetvalueofeachinvestor’scapitalaccountgrowsandwillproportionatelydecreaseasthenetassetvalueofeachinvestor’scapitalaccountdecreases.
• TheinvestmentadviserofeachofourCLOstypicallyreceivesannualmanagementfeesbaseduponapercentageofeachfund’sassets,subjecttocertainperformancemeasuresrelatedtotheunderlyingassetsthevehicleowns,andadditionalmanagementfeeswhichareincentive-based(thatis,subjecttomeetingcertainreturncriteria).Thesemanagementfeesarealsopayableonaregularbasis(typicallyquarterly).ThetermofeachCLOvariesfromdealtodealandmaybesubjecttoearlyredemptionorextension;typically,however,aCLOwillbewounddownwithineighttoelevenyearsofbeinglaunched.Whilethemanagementfeestendtorangefromapproximately0.40%to0.65%perannumofeachfund’saggregateparamountofcollateralassets,includingprincipalcash,forthetermofthedeal,thequantumoffeeswilldecreaseasthefunddeleveragestowardtheendofitsterm.
• Theinvestmentadviserofourseparatelymanagedaccountsgenerallyreceivesannualmanagementfeestypicallybaseduponapercentageof
eachaccount’snetassetvalueorinvestedcapital.Themanagement
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feeswereceivefromourseparatelymanagedaccountsaregenerallypaidonaregularbasis(typicallyquarterly)andifbasedonnetassetvaluemayproportionatelyincreaseordecreasebasedonthenetassetvalueoftheseparatelymanagedaccount.Themanagementfeeswearepaidformanagingaseparatelymanagedaccountwillgenerallybesubjecttocontractualrightstheinvestorhastoterminateourmanagementofanaccountonasshortas30days’priornotice.
• Theinvestmentadviserofeachofourcredit-focusedregisteredandnon-registeredinvestmentcompaniestypicallyreceivesannualmanagementfeesbaseduponapercentageofeachcompany’snetassetvalueortotalmanagedassets.Themanagementfeeswereceivefromtheregisteredinvestmentcompanieswemanagearegenerallypaidonaregularbasis(typicallyquarterly)andproportionatelyincreaseordecreasebasedonthenetassetvalueorgrossassetsoftheinvestmentcompany.Themanagementfeeswearepaidformanagingtheinvestmentcompanywillgenerallybesubjecttocontractualrightsthecompany’sboardofdirectors(or,inthecaseoftheBDCswesub-advise,theinvestmentadviser)hastoterminateourmanagementofanaccountonasshortas30days’priornotice.
• TheinvestmentadviserofBXMTreceivesannualmanagementfeesbaseduponapercentageofBXMT’snetproceedsreceivedfromequityofferingsandaccumulated“coreearnings”(whichisgenerallyequaltoitsnetincome,calculatedunderaccountingprinciplesgenerallyacceptedintheUnitedStatesofAmerica(“GAAP”),excludingcertainnon-cashandotheritems),subjecttocertainadjustments.ThemanagementfeeswereceivefrommanagingBXMTarepaidquarterlyandincreaseordecreasebasedon,amongotherthings,BXMT’snetproceedsreceivedfromequityofferingsandaccumulatedcoreearnings(subjecttocertainadjustments).
• Theinvestmentadviserofournon-exchangetradedREITreceivesamanagementfeebasedonapercentageoftheREIT’snetassetvalue,
payablemonthly.
Foradditionalinformationregardingthemanagementfeerateswereceive,see“Item7.Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations—CriticalAccountingPolicies—RevenueRecognition—ManagementandAdvisoryFees,Net.”
Incentive Fees
Incentivefeesgenerallyareperformancebasedallocationsofafund’snetcapitalappreciationduringaperiod,typicallyannually,subjecttotheachievementofminimumreturnlevels,highwatermarks,and/orotherhurdleprovisions,inaccordancewiththerespectivetermssetoutineachfund’sgoverningagreements.Incentivefeesaretypicallyrealizedattheendofthemeasurementperiod.Oncerealized,suchfeesaretypicallynotsubjecttoclawbackorreversal.ThefollowingdescribestheincentivefeesearnedgenerallybyBlackstone.
• InourHedgeFundSolutionssegment,theinvestmentadviserofeachofourfundsofhedgefunds,hedgefunds,separatelymanagedaccounts
thatinvestinhedgefundsandcertainnon-U.S.registeredinvestmentcompanies,isentitledtoanincentivefeeofgenerallyupto25%oftheapplicableinvestmentvehicle’snetappreciation,subjecttohighwatermarkhurdleprovisionsandinsomecasesapreferredreturn.
• Thegeneralpartnersorsimilarentitiesofeachofourrealestateandcredithedgefundstructuresreceiveincentivefeesofgenerallyupto20%
oftheapplicablefund’snetcapitalappreciationperannum.
• FortheBDCswesub-advise,wereceiveincentivefeesof10%ofthevehicle’snetappreciationperannum(incertaincasespaidquarterly),
subjecttoapreferredreturn.
• TheexternalmanagerofBXMTisentitledtoanincentivefee,payablequarterly,inanamount,notlessthanzero,equaltotheproductof(a)20%and(b)theexcessof(i)BXMT’scoreearningsfortheprevious12-monthperiodover(ii)anamountequalto7%perannummultipliedbyBXMT’saverageoutstandingequity(asdefinedinthemanagementagreement),providedthatBXMT’scoreearningsoverthepriorthree-yearperiodaregreaterthanzero.
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• Thespeciallimitedpartner,anaffiliateofournon-exchangetradedREIT,isentitledtoaperformanceparticipationinterest,whichispaid
annuallyandaccruesmonthly,inanamountequalto12.5%ofitstotalreturn,subjecttoa5%hurdleamountandahighwatermarkwithacatch-up.
• Thegeneralpartnerofcertainopenendedcore+realestatefundsisentitledtoanincentivefeeallocationofgenerally10%ofnetcapital
appreciation,subjecttoahurdleamountgenerallyof6%to7%,alossrecoveryamountandacatch-up.IncentiveFeesforthesefundsaregenerallyrealizedeverythreeyearsfromwhenalimitedpartnermakesitsinitialinvestment.
Carried Interest
Thegeneralpartneroranaffiliateofeachofourcarryfundsalsoreceivescarriedinterestfromtheinvestmentfund.Carriedinterestentitlesthegeneralpartner(oranaffiliate)toanallocationofincomeandgainsfromafund.Ourabilitytogeneratecarriedinterestisanimportantelementofourbusinessandcarriedinteresthashistoricallyaccountedforaverysignificantportionofourincome.
Thecarriedinterestistypicallystructuredasanetprofitsinterestintheapplicablefund.Inthecaseofourcarryfunds,carriedinterestiscalculatedona“realizedgain”basis,andeachgeneralpartnerisgenerallyentitledtoacarriedinterestequalto20%ofthenetrealizedincomeandgains(generallytakingintoaccountrealizedandunrealizedlosses)generatedbysuchfund,exceptthatthegeneralpartners(oraffiliates)ofcertainofourcredit-focusedfunds,realestatedebtfunds,core+realestatefunds,TacticalOpportunitiesfunds,multi-assetclassinvestmentfundsandsecondaryfundsoffunds,andourcoreprivateequityfund,aregenerallyentitledtoacarriedinterestthatrangesbetween10%and20%,dependingonthespecificfund(subjecttovariationacrossourbusinessunitsandfunds).Netrealizedincomeorlossisnotnettedbetweenoramongfunds,andinsomecasesourcarryfundsprovideforcarriedinterestoncurrentincomedistributions(subjecttocertainconditions).
Formostcarryfunds,thecarriedinterestissubjecttoanannualpreferredlimitedpartnerreturnrangingfrom5%to8%,subjecttoacatch-upallocationtothegeneralpartner.Someofourcarryfunds(e.g.,ourTacticalOpportunitiesfundsgenerally)donotprovideforapreferredreturn,andgenerallythetermsofourcarryfundsvaryincertainrespectsacrossourbusinessunitsandvintages.If,attheendofthelifeofacarryfund(orearlierwithrespecttocertainofourrealestate,realestatedebt,core+realestateandmulti-assetclassand/oropportunisticinvestmentfunds),asaresultofdiminishedperformanceoflaterinvestmentsinacarryfund’slife,(a)thegeneralpartnerreceivesinexcessoftherelevantcarriedinterestpercentage(s)applicabletothefundasappliedtothefund’scumulativenetprofitsoverthelifeofthefund,or(incertaincases)(b)thecarryfundhasnotachievedinvestmentreturnsthatexceedthepreferredreturnthreshold(ifapplicable),thenwewillbeobligatedtorepayanamountequaltothecarriedinterestthatwaspreviouslydistributedtousthatexceedstheamountstowhichtherelevantgeneralpartnerwasultimatelyentitledonanaftertaxbasis.Thisobligationisknownasa“clawback”obligationandisanobligationofanypersonwhodirectlyreceivedsuchcarriedinterest,includingusandouremployeeswhoparticipateinourcarriedinterestplans.
Althoughaportionofanydistributionsbyustoourunitholdersmayincludeanycarriedinterestreceivedbyus,wedonotintendtoseekfulfillmentofanyclawbackobligationbyseekingtohaveourunitholdersreturnanyportionofsuchdistributionsattributabletocarriedinterestassociatedwithanyclawbackobligation.Totheextentwearerequiredtofulfillaclawbackobligation,however,ourgeneralpartnermaydeterminetodecreasetheamountofourdistributionstocommonunitholders.Theclawbackobligationoperateswithrespecttoagivencarryfund’sownnetinvestmentperformanceonlyandcarriedinterestofotherfundsisnotnettedfordeterminingthiscontingentobligation.Moreover,althoughaclawbackobligationisseveral,thegoverningagreementsofmostofourfundsprovidethattotheextentanotherrecipientofcarriedinterest(suchasacurrentorformeremployee)doesnotfundhisorherrespectiveshareoftheclawbackobligationthendue,thenweandouremployeeswhoparticipateinsuchcarriedinterestplansmayhavetofundadditionalamounts(generallyanadditional50%to70%)althoughweretaintherighttopursueanyremediesthatwehaveundersuchgoverningagreementsagainstthosecarriedinterestrecipientswhofailtofundtheirobligations.Wehaverecordedacontingentrepaymentobligationequalto
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theamountthatwouldbedueonDecember31,2017,ifthevariouscarryfundswereliquidatedattheircurrentcarryingvalue.
Foradditionalinformationconcerningtheclawbackobligationswecouldface,see“Item1A.RiskFactors—Wemaynothavesufficientcashtopayback‘clawback’obligationsifandwhentheyaretriggeredunderthegoverningagreementswithourinvestors.”
Advisory and Transaction Fees
Someofourinvestmentadvisersoroneoftheiraffiliates,particularlyprivateequity,realestateandcreditadvisers,receivecustomaryfees(forexample,acquisition,originationandothertransactionfees)uponconsummationoftheirfunds’transactions,andmayfromtimetotimereceiveadvisory,monitoringandotherfeesinconnectionwiththeiractivities.Formostofthefundswherewereceivesuchfees,wearerequiredtoreducethemanagementfeeschargedtothefunds’limitedpartnersby50%to100%ofsuchlimitedpartner’sshareofsuchfees.
Capital Invested In and Alongside Our Investment Funds
Tofurtheralignourinterestswiththoseofinvestorsinourinvestmentfunds,wehaveinvestedthefirm’scapitalandthatofourpersonnelintheinvestmentfundswesponsorandmanage.Minimumgeneralpartnercapitalcommitmentstoourinvestmentfundsaredeterminedseparatelywithrespecttoourinvestmentfundsand,generally,arelessthan5%ofthelimitedpartnercommitmentsofanyparticularfund.See“PartII.Item7.Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations—LiquidityandCapitalResources”formoreinformationregardingourminimumgeneralpartnercapitalcommitmentstoourfunds.Wedeterminewhethertomakegeneralpartnercapitalcommitmentstoourfundsinexcessoftheminimumrequiredcommitmentsbasedon,amongotherthings,ouranticipatedliquidity,workingcapitalandothercapitalneeds.Inmanycases,werequireourseniormanagingdirectorsandotherprofessionalstofundaportionofthegeneralpartnercapitalcommitmentstoourfunds.Inothercases,wemayfromtimetotimeoffertoourseniormanagingdirectorsandemployeesapartofthefundedorunfundedgeneralpartnercommitmentstoourinvestmentfunds.Ourgeneralpartnercapitalcommitmentsarefundedwithcashandnotwithcarriedinterestordeferralofmanagementfees.
Investorsinmanyofourfundsalsoreceivetheopportunitytomakeadditional“co-investments”withtheinvestmentfunds.Ourpersonnel,aswellasBlackstoneitself,alsohavetheopportunitytomakeco-investments,whichwerefertoas“side-by-sideinvestments,”withmanyofourcarryfunds.Co-investmentsandside-by-sideinvestmentsareinvestmentsinportfoliocompaniesorotherassetsonthesametermsandconditionsasthoseacquiredbytheapplicablefund.Co-investmentsrefertoinvestmentsarrangedbyusthataremadebyourlimitedpartnerinvestors(andotherinvestorsinsomeinstances)inaportfoliocompanyorotherassetsalongsideaninvestmentfund.Incertaincases,limitedpartnerinvestorsmaypayadditionalmanagementfeesorcarriedinterestinconnectionwithsuchco-investments.Side-by-sideinvestmentsaresimilartoco-investmentsbutaremadebydirectors,officers,seniormanagingdirectors,employeesandcertainaffiliatesofBlackstone.Theseinvestmentsaregenerallymadepursuanttoabindingelection,subjecttocertainlimitations,madeonceayearfortheestimatedactivityduringtheensuing12monthsunderwhichthosepersonsarepermittedtomakeinvestmentsalongsideaparticularcarryfundinalltransactionsofthatfundforthatyear.Side-by-sideinvestmentsarefundedincashandarenotgenerallysubjecttomanagementfeesorcarriedinterest.
Competition
Theassetmanagementindustryisintenselycompetitive,andweexpectittoremainso.Wecompetebothgloballyandonaregional,industryandsectorbasis.Wecompeteonthebasisofanumberoffactors,includinginvestmentperformance,transactionexecutionskills,accesstocapital,accesstoandretentionofqualifiedpersonnel,reputation,rangeofproductsandservices,innovationandprice.
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Wefacecompetitionbothinthepursuitofoutsideinvestorsforourinvestmentfundsandinacquiringinvestmentsinattractiveportfoliocompaniesandmakingotherinvestments.Althoughmanyinstitutionalandindividualinvestorshaveincreasedtheamountofcapitaltheycommittoalternativeinvestmentfunds,suchincreasesmaycreateincreasedcompetitionwithrespecttofeeschargedbyourfunds.Certaininstitutionalinvestorsaredemonstratingapreferencetoin-sourcetheirowninvestmentprofessionalsandtomakedirectinvestmentsinalternativeassetswithouttheassistanceofprivateequityadviserslikeus.Suchinstitutionalinvestorsmaybecomeourcompetitorsandcouldceasetobeourclients.
Dependingontheinvestment,wefacecompetitionprimarilyfromsponsorsmanagingotherprivateequityfunds,specializedinvestmentfunds,hedgefundsandotherpoolsofcapital,otherfinancialinstitutionsincludingsovereignwealthfunds,corporatebuyersandotherparties.Severalofthesecompetitorshavesignificantamountsofcapitalandmanyofthemhaveinvestmentobjectivessimilartoours,whichmaycreateadditionalcompetitionforinvestmentopportunities.Someofthesecompetitorsmayalsohavealowercostofcapitalandaccesstofundingsourcesorotherresourcesthatarenotavailabletous,whichmaycreatecompetitivedisadvantagesforuswithrespecttoinvestmentopportunities.Inaddition,someofthesecompetitorsmayhavehigherrisktolerances,differentriskassessmentsorlowerreturnthresholds,whichcouldallowthemtoconsiderawidervarietyofinvestmentsandtobidmoreaggressivelythanusforinvestmentsthatwewanttomake.Corporatebuyersmaybeabletoachievesynergisticcostsavingswithregardtoaninvestmentorbeperceivedbysellersasotherwisebeingmoredesirablebidders,whichmayprovidethemwithacompetitiveadvantageinbiddingforaninvestment.
Inallofourbusinesses,competitionisalsointensefortheattractionandretentionofqualifiedemployees.Ourabilitytocontinuetocompeteeffectivelyinourbusinesseswilldependuponourabilitytoattractnewemployeesandretainandmotivateourexistingemployees.
Foradditionalinformationconcerningthecompetitiverisksthatweface,see“Item1A.RiskFactors—RisksRelatedtoOurBusiness—Theassetmanagementbusinessisintenselycompetitive.”
Employees
AsofDecember31,2017,weemployedapproximately2,360people,includingour136seniormanagingdirectors.Westrivetomaintainaworkenvironmentthatfostersprofessionalism,excellence,integrityandcooperationamongouremployees.
Regulatory and Compliance Matters
Ourbusinesses,aswellasthefinancialservicesindustrygenerally,aresubjecttoextensiveregulationintheUnitedStatesandelsewhere.
AlloftheinvestmentadvisersofourinvestmentfundsoperatingintheU.S.areregisteredasinvestmentadviserswiththeSEC(otherinvestmentadvisersareregisteredinnon-U.S.jurisdictions).RegisteredinvestmentadvisersaresubjecttotherequirementsandregulationsoftheAdvisersAct.Suchrequirementsrelateto,amongotherthings,fiduciarydutiestoclients,maintaininganeffectivecomplianceprogram,solicitationagreements,conflictsofinterest,recordkeepingandreportingrequirements,disclosure,advertisingandcustodyrequirements,limitationsonagencycrossandprincipaltransactionsbetweenanadviserandadvisoryclients,andgeneralanti-fraudprohibitions.
BlackstoneAdvisoryPartnersL.P.,asubsidiaryofoursthroughwhichweconductourcapitalmarketsbusinessandcertainofourfundmarketinganddistribution,isregisteredasabroker-dealerwiththeSECandissubjecttoregulationandoversightbytheSEC,isamemberoftheFinancialIndustryRegulatoryAuthority,or“FINRA,”andisregisteredasabroker-dealerin50states,theDistrictofColumbia,theCommonwealthofPuertoRicoandtheVirginIslands.Inaddition,FINRA,aself-regulatoryorganizationsubjecttooversightbytheSEC,adoptsandenforcesrulesgoverningtheconduct,andexaminestheactivities,ofitsmemberfirms,includingourbroker-dealerentity.Statesecuritiesregulatorsalsohaveregulatoryoversightauthorityoverourbroker-dealerentity.
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Broker-dealersaresubjecttoregulationsthatcoverallaspectsofthesecuritiesbusiness,including,amongothers,theimplementationofasupervisorycontrolsystemoverthesecuritiesbusiness,advertisingandsalespractices,conductofandcompensationinconnectionwithpublicsecuritiesofferings,maintenanceofadequatenetcapital,recordkeepingandtheconductandqualificationsofemployees.Inparticular,asaregisteredbroker-dealerandmemberofFINRA,BlackstoneAdvisoryPartnersL.P.issubjecttotheSEC’suniformnetcapitalrule,Rule15c3-1.Rule15c3-1specifiestheminimumlevelofnetcapitalabroker-dealermustmaintainandalsorequiresthatasignificantpartofabroker-dealer’sassetsbekeptinrelativelyliquidform.TheSECandvariousself-regulatoryorganizationsimposerulesthatrequirenotificationwhennetcapitalfallsbelowcertainpredefinedcriteria,limittheratioofsubordinateddebttoequityinthecapitalstructureofabroker-dealerandconstraintheabilityofabroker-dealertoexpanditsbusinessundercertaincircumstances.Additionally,theSEC’suniformnetcapitalruleimposescertainrequirementsthatmayhavetheeffectofprohibitingabroker-dealerfromdistributingorwithdrawingcapitalandrequiringpriornoticetotheSECforcertainwithdrawalsofcapital.
Inaddition,certainoftheclosed-endandopen-endmutualfundsandinvestmentmanagementcompanieswemanage,adviseorsub-adviseareregisteredunderthe1940Act.The1940Actandtherulesthereundergovern,amongotherthings,therelationshipbetweenusandsuchinvestmentvehiclesandlimitsuchinvestmentvehicles’abilitytoenterintocertaintransactionswithusorouraffiliates,includingotherfundsmanaged,advisedorsub-advisedbyus.
PursuanttotheU.K.FinancialServicesandMarketsAct2000,or“FSMA,”certainofoursubsidiariesaresubjecttoregulationspromulgatedandadministeredbytheFinancialConductAuthority(“FCA”).TheBlackstoneGroupInternationalPartnersLLP(“BGIP”)actsasasub-advisortoitsBlackstoneU.S.affiliatesinrelationtotheinvestmentandre-investmentofEurope,MiddleEastandAfrica(“EMEA”)-basedassetsofBlackstonefundsaswellasarrangingtransactionstobeenteredintobyoronbehalfofBlackstonefunds.BGIPalsoactsasadistributorofBlackstonefundsinEMEA.BGIPhasaMarketsinFinancialInstrumentsDirective(2007)(“MiFID”)cross-borderpassporttoprovideinvestmentadvisoryserviceswithintheEuropeanEconomicArea(“EEA”).BGIP’sprincipalplaceofbusinessisinLondonandithasRepresentativeOfficesintheDubaiInternationalFinancialCentre(“DIFC”),MilanandParis.GSOCapitalPartnersInternationalPartnersLLP(“GSOU.K.”)isalsoauthorizedandregulatedbytheFCAintheUnitedKingdom.GSOU.K.actsasasub-advisorandsub-investmentmanagertoitsGSOU.S.affiliatesinrelationtotheinvestmentandre-investmentofEMEA-basedassetsofGSOfundsaswellasarrangingtransactionstobeenteredintobyoronbehalfofGSOfunds.GSOU.K.alsoactsasadiscretionaryinvestmentmanagerforseparatelymanagedaccountsaswellasadistributorofGSOfundsinEMEA.GSOU.K.hasaMiFIDcross-borderpassporttoprovideinvestmentadvisoryservicesandinvestmentmanagementwithintheEEA.GSOU.K.’sprincipalplaceofbusinessisinLondon.TheFSMAandrulespromulgatedthereunderformthecornerstoneoflegislationwhichgovernsallaspectsofourinvestmentbusinessintheUnitedKingdom,includingsales,researchandtradingpractices,provisionofinvestmentadvice,useandsafekeepingofclientfundsandsecurities,regulatorycapital,recordkeeping,approvalstandardsforindividuals,anti-moneylaundering,periodicreportingandsettlementprocedures.BlackstonePropertyManagementLimitedisauthorizedandregulatedbytheFCAintheUnitedKingdomasapropertymanagementandadvisorycompanywiththeabilitytoadministercontractsofinsurance.
Blackstone/GSODebtFundsManagementEuropeLimited(“DFME”)isauthorizedandregulatedbytheCentralBankofIreland(“CBI”)asanInvestmentFirmundertheEuropeanCommunities(MarketsinFinancialInstruments)Regulations2007.DFME’sprincipalactivityistheprovisionofmanagementandadvisoryservicestocertaincollateralizedloanobligationsandsub-advisoryservicestocertainaffiliates.Blackstone/GSODebtFundsManagementEuropeIILimited(“DFMEII”)isauthorizedandregulatedbytheCBIasanAlternativeInvestmentFundManagerundertheEuropeanUnionAlternativeInvestmentFundManagersRegulations2013(“AIFMD”).DFMEIIprovidesinvestmentmanagementfunctionsincludingportfoliomanagement,riskmanagement,administration,marketingandrelatedactivitiestoitsalternativeinvestmentfundsinaccordancewithAIFMDandtheconditionsimposedbytheCBIassetoutintheCBI’salternativeinvestmentfundrulebook.
BlackstoneEuropeFundManagementS.àr.l.(“BEFM”)isanapprovedAlternativeInvestmentFundManagerunderAIFMD.BEFMprovidesinvestmentmanagementfunctionsincludingportfoliomanagement,risk
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management,administration,marketingandrelatedactivitiestoitsalternativeinvestmentfundsinaccordancewithAIFMDandtheconditionsimposedbytheCommissiondeSurveillanceduSecteurFinancier(“CSSF”)inLuxembourg.BEFMhasabranchentityestablishedinDenmark.
CertainBlackstoneoperatingentitiesarelicensedandsubjecttoregulationbyfinancialregulatoryauthoritiesinJapan,HongKong,AustraliaandSingapore:TheBlackstoneGroupJapanK.K.,afinancialinstrumentsfirm,isregisteredwithKantoLocalFinanceBureau(Kin-shoNo.1785)andregulatedbytheJapanFinancialServicesAgency;TheBlackstoneGroup(HK)LimitedisregulatedbytheHongKongSecuritiesandFuturesCommission;TheBlackstoneGroup(Australia)PtyLimitedACN149142058andBlackstoneRealEstateAustraliaPtyLimitedACN604167651eachholdsanAustralianfinancialserviceslicenseauthorizingittoprovidefinancialservicesinAustralia(AFSL408376andAFSL485716,respectively)andisregulatedbytheAustralianSecuritiesandInvestmentsCommission;andBlackstoneSingaporePte.Ltd.isregulatedbytheMonetaryAuthorityofSingapore(CompanyRegistrationNumber:201020503E).
TheSECandvariousself-regulatoryorganizationsandstatesecuritiesregulatorshaveinrecentyearsincreasedtheirregulatoryactivities,includingregulation,examinationandenforcementinrespectofassetmanagementfirms.
Asdescribedabove,certainofourbusinessesaresubjecttocompliancewithlawsandregulationsofU.S.federalandstategovernments,non-U.S.governments,theirrespectiveagenciesand/orvariousself-regulatoryorganizationsorexchangesrelatingto,amongotherthings,marketingofinvestmentproducts,disclosureandtheprivacyofclientinformation,andanyfailuretocomplywiththeseregulationscouldexposeustoliabilityand/ordamageourreputation.Ourbusinesseshaveoperatedformanyyearswithinalegalframeworkthatrequiresustomonitorandcomplywithabroadrangeoflegalandregulatorydevelopmentsthataffectouractivities.However,additionallegislation,changesinrulespromulgatedbyself-regulatoryorganizationsorchangesintheinterpretationorenforcementofexistinglawsandrules,eitherintheUnitedStatesorelsewhere,maydirectlyaffectourmodeofoperationandprofitability.
Rigorouslegalandcomplianceanalysisofourbusinessesandinvestmentsisendemictoourcultureandriskmanagement.OurChiefLegalOfficerandGlobalHeadofCompliance,togetherwiththeChiefComplianceOfficersofeachofourbusinesses,superviseourcompliancepersonnel,whoareresponsibleforaddressingallregulatoryandcompliancemattersthataffectouractivities.Westrivetomaintainacultureofcompliancethroughtheuseofpoliciesandproceduresincludingacodeofethics,electroniccompliancesystems,testingandmonitoring,communicationofcomplianceguidanceandemployeeeducationandtraining.Ourcompliancepoliciesandproceduresaddressavarietyofregulatoryandcompliancematterssuchasthehandlingofmaterialnon-publicinformation,personalsecuritiestrading,marketingpractices,giftsandentertainment,valuationofinvestmentsonafund-specificbasis,recordkeeping,potentialconflictsofinterest,theallocationofinvestmentopportunities,collectionoffeesandexpenseallocation.
OurcompliancegroupalsomonitorstheinformationbarriersthatwemaintainbetweenthepublicandprivatesidesofBlackstone’sbusinesses.Webelievethatourvariousbusinesses’accesstotheintellectualknowledgeandcontactsandrelationshipsthatresidethroughoutourfirmbenefitsallofourbusinesses.Tomaximizethataccesswithoutcompromisingcompliancewithourlegalandcontractualobligations,ourcompliancegroupoverseesandmonitorsthecommunicationsbetweengroupsthatareontheprivatesideofourinformationbarrierandgroupsthatareonthepublicside,aswellasbetweendifferentpublicsidegroups.Ourcompliancegroupalsomonitorscontractualobligationsthatmaybeimpactedandpotentialconflictsthatmayariseinconnectionwiththeseinter-groupdiscussions.
Inaddition,disclosurecontrolsandproceduresandinternalcontrolsoverfinancialreportingaredocumented,testedandassessedfordesignandoperatingeffectivenessincompliancewiththeU.S.Sarbanes-OxleyActof2002(“Sarbanes-Oxley”).WehaveanInternalAuditdepartmentwithaglobalmandateanddedicatedresourcesthatproviderisk-basedaudits,Sarbanes-Oxleycomplianceandadvisorypractices.InternalAudit,whichreportsdirectlytotheauditcommitteeoftheboardofdirectorsofourgeneralpartner,aimstoprovidereasonable,independent,and
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objectiveassurancetoourmanagementandtheboardofdirectorsofourgeneralpartnerthatrisksarewellmanagedandthatcontrolsareappropriateandeffective.
Ourenterpriseriskmanagementpracticesincludereviewandmonitoringofourbusiness,investmentandotherkeyrisksatvariouslevels,includingatthefund,businessunitandcorporatelevel.Committeescomprisedofmembersofmanagementandrepresentativesofvariousbusinessunitsandcorporatefunctionsconsiderandevaluatelegal,reputational,operational,controlandotherrisksattendanttoourbusiness.Inaddition,seniormanagementregularlyreportstotheauditcommitteeoftheboardofdirectorsofourgeneralpartneronriskmatters,includingbyprovidingperiodicriskreports,anoverviewofmanagement’sviewofkeyriskstothefirmanddetailedassessmentsofselectedrisks.
ThereareanumberofpendingorrecentlyenactedlegislativeandregulatoryinitiativesintheUnitedStatesandinEuropethatcouldsignificantlyaffectourbusiness.Pleasesee“Item1A.RiskFactors—RisksRelatedtoOurBusiness—FinancialregulatorychangesintheUnitedStatescouldadverselyaffectourbusiness”and“Item1A.RiskFactors—RisksRelatedtoOurBusiness—RecentregulatorychangesinjurisdictionsoutsidetheUnitedStatescouldadverselyaffectourbusiness.”
Available Information
TheBlackstoneGroupL.P.isaDelawarelimitedpartnershipthatwasformedonMarch12,2007.
Wefileannual,quarterlyandcurrentreportsandotherinformationwiththeSEC.ThesefilingsareavailabletothepublicovertheinternetattheSEC’swebsiteatwww.sec.gov.YoumayalsoreadandcopyanydocumentwefileattheSEC’spublicreferenceroomlocatedat100FStreet,N.E.,Washington,D.C.20549.PleasecalltheSECat1-800-SEC-0330forfurtherinformationonthepublicreferenceroom.
Ourprincipalinternetaddressiswww.blackstone.com.Wemakeavailablefreeofchargeonorthroughwww.blackstone.comourannualreportsonForm10-K,quarterlyreportsonForm10-Q,currentreportsonForm8-K,andamendmentstothosereports,assoonasreasonablypracticableafterweelectronicallyfilesuchmaterialwith,orfurnishitto,theSEC.Thecontentsofourwebsitearenot,however,apartofthisreport.
ITEM 1A. RISK FACTORS
Risks Related to Our Business
Difficult market conditions can adversely affect our business in many ways, including by reducing the value or performance of the investments made byour investment funds and reducing the ability of our investment funds to raise or deploy capital, each of which could materially reduce our revenue,earnings and cash flow and adversely affect our financial prospects and condition.
Ourbusinessismateriallyaffectedbyconditionsintheglobalfinancialmarketsandeconomicconditionsoreventsthroughouttheworldthatareoutsideourcontrol,includingbutnotlimitedtochangesininterestrates,availabilityofcredit,inflationrates,economicuncertainty,changesinlaws(includinglawsrelatingtotaxation),tradebarriers,commodityprices,currencyexchangeratesandcontrolsandnationalandinternationalpoliticalcircumstances(includingwars,terroristactsorsecurityoperations).Thesefactorsmayaffectthelevelandvolatilityofsecuritiespricesandtheliquidityandthevalueofinvestments,andwemaynotbeabletoormaychoosenottomanageourexposuretothesemarketconditionsand/orotherevents.Intheeventofamarketdownturneachofourbusinessescouldbeaffectedindifferentways.
Turmoilintheglobalfinancialmarkets,suchasoccurredin2008-2009,canprovokesignificantvolatilityofequityanddebtsecuritiesprices.Thiscanhaveamaterialandrapidimpactonourmark-to-marketvaluations,particularlywithrespecttoourpublicholdingsandcreditinvestments.Aspubliclytradedequitysecuritieshaveinrecentyearsrepresentedasignificantproportionoftheassetsofmanyofourcarryfunds,stockmarketvolatility
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mayhaveagreaterimpactonourreportedresultsthaninthepastanddeclinesinthestockmarketmayadverselyaffectourresults,includingourrevenuesandnetincome.Alackofcreditresultingfromturmoilintheglobalfinancialmarketsinthefuturemaymateriallyhindertheinitiationofnew,large-sizedtransactionsforourprivateequityandrealestatesegmentsandadverselyimpactouroperatingresults.Althoughoverallfinancingcostsstillremainlowonahistoricalbasis,thereissomeconcernthatthemonetarypolicyofcentralbanks,includingoftheU.S.FederalReserve,strongeconomicgrowth,andinflationaryandothermarketfactorsmayleadtorisinginterestratesandadverselyimpactthecostandavailabilityofcredit,aswellasthevalueofourinvestments.Inaddition,acceleratingeconomicgrowthinmanyinternationaleconomiesmayinthefuturecontributetotightercreditconditions,adecreasedavailabilityofforeigncapitalandrisinginterestrates.AstrongU.S.dollar,whichcouldbeassociatedwithrisinginterestrates,couldhurtU.S.exportsandgrowthandhaveanadverseimpactoneconomicgrowthininternationaleconomies.Inaddition,2017wasayearofsignificantgeopoliticalconcerns,including,amongotherthings,increasedtensionswithNorthKoreaoveritsballisticmissiletestingandnuclearprogram,uncertaintyregardingU.S.recertificationoftheIrannuclearframeworkandtheU.K.’sinitiationinMarch2017ofthetwo-yearnegotiationperiodprecedingitswithdrawalfromtheEuropeanUnion(“Brexit”).Althoughthelong-termimpactoneconomicconditionsisuncertain,BrexitmayhaveanadverseeffectontherateofeconomicgrowthintheU.K.andEurope,whichmaynegativelyimpactrealestateandotherassetvaluesinthoseregions.
Althoughinterestrateshavebeenathistoricallylowlevels,theU.S.FederalReserveraisedratesinlate2016andthroughout2017andhasindicatedanintentiontocontinueraisingratesin2018.Aperiodofsharplyrisinginterestratescouldcreatedownwardpressureonthepriceofrealestateandincreasethecostofdebtfinancingforthetransactionswepursue,eachofwhichmayhaveanadverseimpactonourbusiness.
Manyinvestmentsmadebyourfundsarehighlyilliquid,andwemaynotbeabletorealizeinvestmentsinatimelymanner.Duringearly2016,forexample,volatileequityandcreditmarketsresultedinreducedopportunitiesforourfundstoexitandrealizevaluefromtheirexistinginvestments.Althoughstrongequitycapitalmarketsandgenerallylowvolatilitythroughout2017providedopportunitiesforexitthroughtheequitymarkets,recentvolatilityandrisinginterestratesmayimpactthesemarketconditions.Uncertaintysurroundingpotentialchangestogovernmentalpolicymayalsohavesomeimpactonourexitopportunitiesthroughtheprivatemarkets.Forexample,recentlyintroducedbipartisanlegislationwoulddramaticallyincreasethenumberoftransactionsthataresubjecttothejurisdictionoftheCommitteeonForeignInvestmentintheUnitedStates(“CFIUS”).Iftheproposalbecomeslaw,CFIUSwillhavetheauthoritytoreviewandpotentiallyblockcertainnon-controllinginvestmentsincriticalinfrastructureandtechnologycompaniesandothertransactions,whichmayreducethenumberofpotentialbuyersandlimittheabilityofourfundstorealizevaluefromcertainexistingandfutureinvestments.Althoughtheequitymarketsarenottheonlymeansbywhichweexitinvestments,shouldweexperienceanotherperiodofchallengingequitymarkets,ourfundsmayexperienceincreaseddifficultyinrealizingvaluefrominvestments.Weareunabletopredictwhetherandtowhatextentuncertaintysurroundingeconomicandmarketconditionswillbereduced,andevenintheabsenceofuncertainty,adverseconditionsand/orothereventsinparticularsectorsmaycauseourperformancetosufferfurther.
Buoyantmarketsandpositiveeconomicconditionshavealsomadeitandmayinthefuturemakeitmoredifficultandcompetitivetofindsuitableinvestmentsforthefundstoeffectivelydeploycapital.Thiscouldadverselyaffectourperformanceandabilitytoraisenewfunds.Duringperiodsofdifficultmarketconditionsorslowdowns(whichmaybeacrossoneormoreindustries,sectorsorgeographies),ourfunds’portfoliocompaniesmayexperienceadverseoperatingperformance,decreasedrevenues,creditratingdowngrades,financiallosses,difficultyinobtainingaccesstofinancingandincreasedfundingcosts.Negativefinancialresultsinourinvestmentfunds’portfoliocompaniesmayresultinlowerinvestmentreturnsforourinvestmentfunds,whichcouldmateriallyandadverselyaffectourabilitytoraisenewfundsaswellasouroperatingresultsandcashflow.Totheextenttheoperatingperformanceofthoseportfoliocompanies(aswellasvaluationmultiples)donotimproveorotherportfoliocompaniesexperienceadverseoperatingperformance,ourinvestmentfundsmaysellthoseassetsatvaluesthatarelessthanweprojectedorevenaloss,therebysignificantlyaffectingthoseinvestmentfunds’performanceandconsequentlyouroperatingresultsandcashflow.Duringsuchperiodsofweakness,ourinvestmentfunds’portfoliocompaniesmayalsohavedifficultyexpandingtheirbusinessesandoperationsormeetingtheirdebt
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serviceobligationsorotherexpensesastheybecomedue,includingexpensespayabletous.Furthermore,suchnegativemarketconditionscouldpotentiallyresultinaportfoliocompanyenteringbankruptcyproceedings,therebypotentiallyresultinginacompletelossofthefund’sinvestmentinsuchportfoliocompanyandasignificantnegativeimpacttotheinvestmentfund’sperformanceandconsequentlytoouroperatingresultsandcashflow,aswellastoourreputation.Inaddition,negativemarketconditionswouldalsoincreasetheriskofdefaultwithrespecttoinvestmentsheldbyourinvestmentfundsthathavesignificantdebtinvestments,suchasourcredit-focusedfunds.Estimatesorprojectionsofmarketconditions,commoditypricesandsupplyanddemanddynamicsarekeyfactorsinevaluatingpotentialinvestmentopportunitiesandvaluingtheinvestmentsmadebyourfunds.Theseestimatesaresubjecttowidevariancesbasedonchangesinmarketconditions,underlyingassumptions,commoditypricesandtechnicalorinvestment-relatedassumptions.
Inaddition,theperformanceoftheinvestmentsmadebyourcreditandprivateequityfundsintheenergyandnaturalresourcesmarketsarealsosubjecttoahighdegreeofmarketriskgiven,amongothermatters,thevolatilityofcommodityprices.See“—Investmentsbyourfundsinthepowerandenergyindustriesinvolvevariousoperational,construction,regulatoryandmarketrisksthatmayexposeustoincreasedrisksandliabilitiesandcouldadverselyaffectourresultsofoperations,liquidityandfinancialcondition.”
Ouroperatingperformancemayalsobeadverselyaffectedbyourfixedcostsandotherexpensesandthepossibilitythatwewouldbeunabletoscalebackothercostswithinatimeframesufficienttomatchanydecreasesinrevenuerelatingtochangesinmarketandeconomicconditions.Inordertoreduceexpensesinthefaceofadifficulteconomicenvironment,wemayneedtocutbackoreliminatetheuseofcertainservicesorserviceproviders,orterminatetheemploymentofasignificantnumberofourpersonnelthat,ineachcase,couldbeimportanttoourbusinessandwithoutwhichouroperatingresultscouldbeadverselyaffected.
Changes in the debt financing markets could negatively impact the ability of our funds and their portfolio companies to obtain attractive financing orrefinancing for their investments and could increase the cost of such financing if it is obtained, which could lead to lower-yielding investments andpotentially decrease our net income.
Asignificantcontractioninthemarketfordebtfinancing,suchasthecontractionthatoccurredin2008and2009orotheradversechangerelatingtothetermsofdebtfinancing(suchas,forexample,higherrates,higherequityrequirements,and/ormorerestrictivecovenants),particularlyintheareaofacquisitionfinancingsforprivateequityandrealestatetransactions,couldhaveamaterialadverseimpactonourbusiness.Inaddition,thefinancingofacquisitionsortheoperationsofourfunds’portfoliocompanieswithdebtmaybecomelessattractiveduetolimitationsonthedeductibilityofcorporateinterestexpense.See“—ComprehensiveU.S.federalincometaxreformbecameeffectivein2018,whichcouldadverselyaffectus.”Ifourfundsareunabletoobtaincommitteddebtfinancingforpotentialacquisitions,canonlyobtaindebtfinancingatanincreasedinterestrateoronunfavorabletermsortheabilitytodeductcorporateinterestexpenseissubstantiallylimited,ourfundsmayhavedifficultycompletingotherwiseprofitableacquisitionsormaygenerateprofitsthatarelowerthanwouldotherwisebethecase,eitherofwhichcouldleadtoadecreaseinourrevenues.Similarly,ourfunds’portfoliocompaniesregularlyutilizethecorporatedebtmarketsinordertoobtainfinancingfortheiroperations.Totheextentthatthecreditmarketsand/orregulatoryortaxchangesrendersuchfinancingdifficulttoobtain,moreexpensiveorotherwiselessattractive,thismayalsonegativelyimpactthefinancialresultsofthoseportfoliocompaniesand,therefore,theinvestmentreturnsonourfunds.Inaddition,totheextentthatmarketconditionsand/orregulatorychangesmakeitdifficultorimpossibletorefinancedebtthatismaturinginthenear-term,someofourfunds’portfoliocompaniesmaybeunabletorepaysuchdebtatmaturityandmaybeforcedtosellassets,undergoarecapitalizationorseekbankruptcyprotection.
A decline in the pace or size of investment made by our funds may adversely affect our revenues.
Therevenuesthatweearnaredriveninpartbythepaceatwhichourfundsmakeinvestmentsandthesizeofthoseinvestments,andadeclineinthepaceorthesizeofsuchinvestmentsmayreduceourrevenues.Manyfactors
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couldcausesuchadeclineinthepaceofinvestment,includinghighprices,theinabilityofourinvestmentprofessionalstoidentifyattractiveinvestmentopportunities,competitionforsuchopportunitiesamongotherpotentialacquirers,decreasedavailabilityofcapitalonattractivetermsandourfailuretoconsummateidentifiedinvestmentopportunitiesbecauseofbusiness,regulatoryorlegalcomplexitiesoruncertaintyandadversedevelopmentsintheU.S.orglobaleconomyorfinancialmarkets.Inaddition,anincreaseinthepaceatwhichourfundsexitinvestmentscouldreducethefeerevenueweearnifsuchexitsarenotoffsetbynewcommitmentsandinvestments.
Our revenue, earnings, net income and cash flow are all highly variable, which may make it difficult for us to achieve steady earnings growth on aquarterly basis and may cause the price of our common units to decline.
Ourrevenue,netincomeandcashflowareallhighlyvariable.Forexample,ourcashflowmayfluctuatesignificantlyduetothefactthatwereceivecarriedinterestfromourcarryfundsonlywheninvestmentsarerealizedandachieveacertainpreferredreturn.Inaddition,transactionfeesreceivedbyourcarryfundscanvarysignificantlyfromquartertoquarter.Wemayalsoexperiencefluctuationsinourresults,includingourrevenueandnetincome,fromquartertoquarterduetoanumberofotherfactors,includingchangesinthevaluationsofourfunds’investments,changesintheamountofdistributions,dividendsorinterestpaidinrespectofinvestments,changesinouroperatingexpenses,thedegreetowhichweencountercompetitionandgeneraleconomicandmarketconditions.Inparticular,economicandmarketconditionsmayleadtovolatilityinthemark-to-marketvaluationsofinvestmentsmadebyourfunds,particularlyinrespectofourpublicinvestments.Thevaluationsofinvestmentsmadebyourfundscouldalsobesubjecttohighvolatilityasaresultofuncertaintyregardinggovernmentalpolicywithrespectto,amongotherthings,tax,financialservicesregulation,internationaltrade,immigration,healthcare,labor,infrastructureandenergy.Achievingsteadygrowthinnetincomeandcashflowonaquarterlybasismaybedifficult,whichcouldinturnleadtolargeadversemovementsorgeneralincreasedvolatilityinthepriceofourcommonunits.
Thetimingandreceiptofcarriedinterestgeneratedbyourcarryfundsisuncertainandwillcontributetothevolatilityofourresults.Carriedinterestdependsonourcarryfunds’performanceandopportunitiesforrealizinggains,whichmaybelimited.Ittakesasubstantialperiodoftimetoidentifyattractiveinvestmen