filings.toolsBlackstone 10-K 2019-12-31
Filed 2020-02-28. 23 sections, 1160K characters. Original on sec.gov · Markdown · JSON
Cover and table of contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, 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, 2019 |
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OR
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO |
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Commission File Number:
001-33551
The Blackstone Group Inc.
(Exact name of
r
egistrant as specified in its charter)
| Delaware | 20-8875684 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
345 Park Avenue
New York, New York 10154
(Address of principal executive offices)(Zip Code)
(212)
583-5000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Class A Common Stock | BX | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the
r
egistrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No
☐
Indicate by check mark if the
r
egistrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
☐
No
☒
Indicate by check mark whether the
r
egistrant (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
r
egistrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
☒
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). Yes
☒
No
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, 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.
| Large accelerated filer ☒ | Accelerated filer ☐ | |
| Non-accelerated filer ☐ | Smaller reporting company ☐ | |
| Emerging growth company ☐ |
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
r
egistrant is a shell company (as defined in Rule
12b-2
of the Act). Yes
☐
No ☒
As of June 28, 2019
,
the aggregate market value of the shares of Class A common stock held by
non-affiliates
of the registrant was approximately $29.0 billion.
As of February 21, 2020, there were 673,609,987 shares of Class A common stock, 1 share of Class B common stock and 1 Share of Class C common stock of the registrant outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
Table of Contents
Forward-Looking Statements
This report may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 which reflect our current views with respect to, among other things, our operations, financial performance, and unit repurchase and distribution activities. You can identify these forward-looking statements by the use of words such as “outlook,” “indicator,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. We believe these factors include but are not limited to those described under the section entitled “Risk Factors” in this report, as such factors may be updated from time to time in our periodic filings with the United States Securities and Exchange Commission (“SEC”), which are accessible on the SEC’s website at www.sec.gov. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this report and in our other periodic filings. The forward-looking statements speak only as of the date of this report, and we undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.
Website and Social Media Disclosure
We use our website (www.blackstone.com), Facebook page (www.facebook.com/blackstone), Twitter (www.twitter.com/blackstone), LinkedIn (www.linkedin.com/company/blackstonegroup), Instagram (www.instagram.com/blackstone), SoundCloud (www.soundcloud.com/blackstone-300250613), PodBean (www.blackstone.podbean.com), Spotify (https://spoti.fi/2LJ1tHG), YouTube (www.youtube.com/user/blackstonegroup) and Apple Podcast (https://apple.co/31Pe1Gg) accounts as channels of distribution of company information. The information we post through these channels may be deemed material. Accordingly, investors should monitor these channels, in addition to following our press releases, SEC filings and public conference calls and webcasts. In addition, you may automatically receive email alerts and other information about Blackstone when you enroll your email address by visiting the “Contact Us/Email Alerts” section of our website at http://ir.blackstone.com. The contents of our website, any alerts and social media channels are not, however, a part of this report.
Effective July 1, 2019, The Blackstone Group L.P. (the “Partnership”) converted from a Delaware limited partnership to a Delaware corporation, The Blackstone Group Inc. (the “Conversion”). This report includes the results for the Partnership prior to the Conversion and The Blackstone Group Inc. following the Conversion. In this report, references to “Blackstone,” the “Company,” “we,” “us” or “our” refer to (a) The Blackstone Group Inc. and its consolidated subsidiaries following the Conversion and (b) the Partnership and its consolidated subsidiaries prior to the Conversion. All references to shares or per share amounts prior to the Conversion refer to units or per unit amounts. Unless otherwise noted, all references to shares or per share amounts following the Conversion refer to shares or per share amounts of Class A common stock. All references to dividends prior to the Conversion refer to distributions. See “Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Organizational Structure.”
“Class C Shareholder” refers to Blackstone Group Management L.L.C., the holder of the sole outstanding share of our Class C common 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 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 fund as Blackstone Core Equity Partners (“BCEP”), our opportunistic investment platform that invests globally across asset
classes, industries and geographies as Blackstone Tactical Opportunities (“Tactical Opportunities”), our secondary fund of funds business as Strategic Partners Fund Solutions (“Strategic Partners”), our infrastructure-focused funds as Blackstone Infrastructure Partners (“BIP”), our life sciences private investment platform, Blackstone Life Sciences (“BXLS”), our
multi-asset
investment program for eligible high net worth investors offering exposure to certain of our key illiquid investment strategies through a single commitment as Blackstone Total Alternatives Solution (“BTAS”) and our capital markets services business as Blackstone Capital Markets (“BXCM”).
We refer to our real estate opportunistic funds as Blackstone Real Estate Partners (“BREP”) funds and our real estate debt investment funds as Blackstone Real Estate Debt Strategies (“BREDS”) funds. We refer to our real estate investment trusts as “REITs”, to Blackstone Mortgage Trust, Inc., our
NYSE-listed
REIT, as “BXMT”, and to Blackstone Real Estate Income Trust, Inc., our
non-exchange
traded REIT, as “BREIT”. We refer to our real estate funds which target substantially stabilized assets in prime markets, as Blackstone Property Partners (“BPP”) funds. We refer to BPP and BREIT collectively as our core+ real estate strategies. “Our hedge funds” refers to our funds of hedge funds, hedge funds, certain of our real estate debt investment funds, including a registered investment company, and certain other credit-focused funds which are managed by Blackstone. “BIS” refers to Blackstone Insurance Solutions, which partners with insurers to deliver bespoke, capital-efficient investments tailored to each insurer’s needs and risk profile.
“Assets Under Management” refers to the assets we manage. Our Assets Under Management equals the sum of:
| (a) | the fair value of the investments held by our carry funds and our side-by-side and co-investment entities managed by us, plus (1) the capital that we are entitled to call from investors in those funds and entities pursuant to the terms of their respective capital commitments, including capital commitments to funds that have yet to commence their investment periods, or (2) for certain credit-focused funds the amounts available to be borrowed under asset based credit facilities, |
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| (b) | the net asset value of (1) our hedge funds and real estate debt carry funds, BPP, certain co-investments managed by us, certain credit-focused funds, and our Hedge Fund Solutions drawdown funds (plus, in each case, the capital that we are entitled to call from investors in those funds, including commitments yet to commence their investment periods), and (2) our funds of hedge funds, our Hedge Fund Solutions registered investment companies, and BREIT, |
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| (c) | the invested capital, fair value or net asset value of assets we manage pursuant to separately managed accounts, |
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| (d) | the amount of debt and equity outstanding for our collateralized loan obligations (“CLO”) during the reinvestment period, |
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| (e) | the aggregate par amount of collateral assets, including principal cash, for our CLOs after the reinvestment period, |
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| (f) | the gross or net amount of assets (including leverage where applicable) for our credit-focused registered investment companies, and |
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| (g) | the fair value of common stock, preferred stock, convertible debt, or similar instruments issued by BXMT. |
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Our carry funds are commitment-based drawdown structured funds that do not permit investors to redeem their interests at their election. Our funds of hedge funds, hedge funds, funds structured like hedge funds and other open-ended funds in our Hedge Fund Solutions, Credit and Real Estate segments generally have structures that afford an investor the right to withdraw or redeem their interests on a periodic basis (for example, annually or quarterly), typically with 30 to 95 days’ notice, depending on the fund and the liquidity profile of the underlying assets. Investment advisory agreements related to certain separately managed accounts in our Hedge Fund Solutions and Credit segments, excluding our BIS separately managed accounts, may generally be terminated by an investor on 30 to 90 days’ notice.
“Fee-Earning
Assets Under Management” 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, |
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| (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, |
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| (c) | the remaining invested capital or fair value of assets held in co-investment vehicles managed by us on which we receive fees, |
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| (d) | the net asset value of our funds of hedge funds, hedge funds, BPP, certain co-investments managed by us, certain registered investment companies, BREIT, and certain of our Hedge Fund Solutions drawdown funds, |
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| (e) | the invested capital, fair value of assets or the net asset value we manage pursuant to separately managed accounts, |
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| (f) | the net proceeds received from equity offerings and accumulated core earnings of BXMT, subject to certain adjustments, |
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| (g) | the aggregate par amount of collateral assets, including principal cash, of our CLOs, and |
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| (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. |
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Each of our segments may include certain
Fee-Earning
Assets Under Management on which we earn performance revenues but not management fees.
Our calculations of assets under management and
fee-earning
assets under management may differ from the calculations of other asset managers, and as a result this measure may not be comparable to similar measures presented by other asset managers. In addition, our calculation of assets under management includes commitments to, and the fair value of, invested capital in our funds from Blackstone and our personnel, regardless of whether such commitments or invested capital are subject to fees. Our definitions of assets under management and
fee-earning
assets under management are not based on any definition of assets under management and
fee-earning
assets under management that is set forth in the agreements governing the investment funds that we manage.
For our carry funds, total assets under management includes the fair value of the investments held and uncalled capital commitments, whereas
fee-earning
assets under management includes the total amount of capital commitments or the remaining amount of invested capital at cost depending on whether the investment period has expired or as specified by the fee terms of the fund. As such,
fee-earning
assets under management may be greater than total assets under management when the aggregate fair value of the remaining investments is less than the cost of those investments.
“Perpetual Capital” refers to the component of assets under management with an indefinite term, that is not in liquidation, and for which there is no requirement to return capital to investors through redemption requests in the ordinary course of business, except where funded by new capital inflows. Perpetual Capital includes
co-investment
capital with an investor right to convert into Perpetual Capital.
This report does not constitute an offer of any Blackstone Fund.
Part I.
Item 1. Business
| --- | --- |
Overview
Blackstone is one of the world’s leading investment firms, with Total Assets Under Management of $571.1 billion as of December 31, 2019. We seek to create positive economic impact and long-term value for our investors, the companies we invest in, and the communities in which we work. We do this by utilizing extraordinary people and flexible capital to help companies solve problems. Our asset management businesses include investment vehicles focused on real estate, private equity, public debt and equity, growth equity, opportunistic,
non-investment
grade credit, real assets and secondary funds, all on a global basis.
All of Blackstone’s businesses use a solutions-oriented approach to drive better performance. We believe our scale, diversified business, long record of investment performance, rigorous investment process and strong client relationships, position us to continue to perform well in a variety of market conditions, expand our assets under management and add complementary businesses.
Two of our primary limited partner constituencies are public and corporate pension funds. Our mission is to create long-term value through careful stewardship of their capital. To the extent our funds perform well, we can support a better retirement for tens of millions of pensioners, including teachers, nurses and firefighters.
In addition, because we are a global firm with a footprint on nearly every continent, our investments can make a positive difference around the world.
As of December 31, 2019, we employed approximately 2,905 people, including our 157 senior managing directors, at our headquarters in New York and around the world. Our employees are integral to Blackstone’s culture of integrity, professionalism and excellence. We believe hiring, training and retaining talented individuals, coupled with our rigorous investment process, has supported our excellent investment record over many years. This record, in turn, has enabled us to innovate into new strategies, drive growth and better serve our investors.
Business Segments
Our four business segments are: (a) Real Estate, (b) Private Equity, (c) Hedge Fund Solutions and (d) Credit.
Information about our business segments should be read together with “Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”.
For more information concerning the revenues and fees we derive from our business segments, see “— Fee Structure/Incentive Arrangements”.
Real Estate
Our Real Estate business, founded in 1991, is a global leader in real estate investing, with $163.2 billion of Total Assets Under Management as of December 31, 2019. Our Real Estate segment operates as a globally integrated business with approximately 575 employees and has investments in North America, Europe, Asia and Latin America. Our Real Estate investment teams seek to utilize our global expertise and presence to generate attractive risk-adjusted returns for our investors and to make a positive impact on the communities in which we invest.
Our Blackstone Real Estate Partners 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, rental housing, office, hospitality and retail properties around the world, as well as a variety of real estate operating companies.
We launched Blackstone Real Estate Debt Strategies, our real estate debt platform, in 2008. Our 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 mezzanine loans, senior loans and liquid securities. The BREDS platform includes a number of high-yield and high-grade real estate debt funds, liquid real estate debt funds and Blackstone Mortgage Trust, Inc., a NYSE-listed REIT.
Our core+ real estate business includes Blackstone Property Partners and a
non-exchange
traded REIT, BREIT. We launched BPP in 2013 and have assembled a global portfolio of high-quality investments across North America, Europe and Asia, which target substantially stabilized assets in prime markets with a focus on industrial, multifamily, office and retail assets. The funds generate returns through both current income and value appreciation over the long-term. BREIT, which launched in 2017, invests primarily in stabilized income-oriented commercial real estate in the United States and to a lesser extent in real estate-related securities.
Private Equity
Our Private Equity segment encompasses global businesses with a total of approximately 510 employees managing $182.9 billion of Total Assets Under Management as of December 31, 2019. Our Private Equity segment includes our corporate private equity business, which consists of: (a) our flagship private equity funds, Blackstone Capital Partners, (b) our sector-focused funds, including our energy-focused funds, Blackstone Energy Partners and (c) our Asia-focused private equity fund, Blackstone Capital Partners Asia. In addition, our Private Equity segment includes (a) our core private equity fund, Blackstone Core Equity Partners, (b) our opportunistic investment platform that invests globally across asset classes, industries and geographies, Blackstone Tactical Opportunities, (c) our secondary fund of funds business, Strategic Partners Fund Solutions, (d) our infrastructure-focused funds, Blackstone Infrastructure Partners, (e) our life sciences private investment platform, Blackstone Life Sciences, (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 Solutions and (g) our capital markets services business, Blackstone Capital Markets.
We are a world leader in private equity investing. Our corporate private equity business, established in 1987, pursues transactions across industries in both established and growth-oriented businesses across the globe. It strives to create value by investing in great businesses where our capital, strategic insight, global relationships and operational support can drive transformation. Our 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, interventionist, post-acquisition value creation strategy. Similarly, we seek investments that can generate strong unlevered returns regardless of entry or exit cycle timing. Finally, when we can identify sectors or geographies in which the demand for capital greatly exceeds the readily available supply, our corporate private equity business seeks to make investments at or near book value where it can create goodwill or franchise value through post-acquisition actions.
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 our flagship corporate private equity business.
Tactical Opportunities, our opportunistic investment platform, invests globally across asset classes, industries and geographies, seeking to identify and execute on attractive, differentiated investment opportunities. As part of the strategy, the team leverages the intellectual capital across Blackstone’s various businesses while continuously optimizing its approach in the face of ever-changing market conditions. Tactical Opportunities’ flexible mandate leads to a diversified portfolio of investments across a broad range of structures, including private and public securities and instruments and where the underlying exposure may be to equity and/or debt.
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 leveraged buyout, real estate, infrastructure, venture and growth capital, credit and other types of funds, as well as 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
co-investments.
Blackstone Infrastructure Partners targets a diversified mix of core+, core and public-private partnership investments across all infrastructure sectors, including energy, water and waste, transportation and communications, with a primary focus in the U.S. BIP applies a disciplined operationally intensive investment approach to investments in the infrastructure asset class. BIP seeks 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.
Blackstone Life Sciences is our private 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.
Hedge Fund Solutions
Working with our clients for more than 25 years, our Hedge Fund Solutions group is a leading manager of institutional funds with approximately 280 employees managing $80.7 billion of Total Assets Under Management as of December 31, 2019. 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 hedge fund of fund solutions since its inception in 1990. The Hedge Fund Solution segment also includes investment platforms that seed new hedge fund businesses, purchase minority interests in more established general partners and management companies of funds, invest in special situations opportunities, create alternative solutions in the form of daily liquidity products and invest directly. Hedge Fund Solutions’ overall investment philosophy is to protect and grow investors’ assets through both commingled and custom-tailored investment strategies designed to deliver compelling risk-adjusted returns and mitigate risk. Diversification, risk management, due diligence and a focus on downside protection are key tenets of our approach.
Credit
Our Credit segment, with approximately 460 employees and $144.3 billion of Total Assets Under Management as of December 31, 2019, consists principally of GSO Capital Partners (“GSO”). GSO is one of the largest credit-oriented managers in the world and is the largest manager of CLOs globally. The investment portfolios of the funds GSO manages or
sub-advises
predominantly consist of loans and securities of
non-investment
grade companies spread across the capital structure including senior debt, subordinated debt, preferred stock and common equity.
GSO is organized into three overarching strategies: performing credit, distressed and long only. GSO’s performing credit strategies include mezzanine lending funds, middle market direct lending funds, including our business development company (“BDC”) and other performing credit strategy funds. GSO’s distressed strategies include credit alpha strategies, stressed/distressed funds and energy strategies. GSO’s long only strategies consist of CLOs, closed-ended funds, open-ended funds and separately managed accounts.
In addition, our Credit segment includes our publicly traded master limited partnership (“MLP”) investment platform, which is managed by Harvest Fund Advisors LLC (“Harvest”). Harvest primarily invests capital raised from institutional investors in separately managed accounts and pooled vehicles, investing in publicly traded MLPs holding primarily midstream energy assets in the U.S.
Our Credit segment also includes our insurer-focused platform, Blackstone Insurance Solutions. BIS partners with insurers to deliver customized and diversified portfolios of Blackstone products across asset classes, including the option for full management of insurance companies’ investment portfolios.
Pátria Investments
On October 1, 2010, we purchased a 40% equity interest in Pátria Investments Limited and Pátria Investimentos Ltda. (collectively, “Pátria”). Pátria is a leading alternative asset manager in Latin America that was founded in 1988. As of December 31, 2019, Pátria’s alternative asset management businesses had $14.6 billion in assets under management, including the management of private equity funds ($8.3 billion), infrastructure funds ($4.8 billion), real estate funds ($919.1 million) and new initiatives ($536.5 million). Pátria has approximately 280 employees and is led by a group of three managing partners. Our investment in Pátria is a minority,
non-controlling
investment, which we record using the equity method of accounting. We have representatives on Pátria’s board of directors in proportion to our ownership, but we do not control the
day-to-day
management of the firm or the investment decisions of their funds, all of which continues to reside with the local Brazilian partners. Pátria’s assets under management are not included as part of Blackstone’s assets under management.
Investment Process and Risk Management
We maintain a rigorous investment process across all of our investment vehicles. Each investment vehicle has investment policies and procedures that generally contain requirements and limitations for investments, such as limitations relating to the amount that will be invested in any one investment and the types of assets, industries or geographic regions in which the vehicle will invest, as well as limitations required by law. The review committees and/or investment committees of our businesses review and evaluate investment opportunities in a framework that includes a qualitative and quantitative assessment of the key risks of investments.
Our investment professionals are responsible for selecting, evaluating, underwriting, diligencing, negotiating, executing, managing and exiting investments. Investment professionals generally submit investment opportunities for review and approval by a review committee and/or investment committee, subject to delineated exceptions set forth in the funds’ investment committee charters or resolutions. Review and investment committees are generally comprised of senior leaders and other senior professionals of the applicable investment business, and in many cases, other senior leaders of Blackstone and its businesses. Considerations that review and investment committees take into account when evaluating an investment may include, without limitation and depending on the nature of the investing business and its strategy, the quality of the business or asset in which the fund proposes to invest, the quality of the management team, likely exit strategies and factors that could reduce the value of the business or asset at exit, the ability of the business in which the investment is made to service debt in a range of economic and interest rate environments, macroeconomic trends in the relevant geographic region or industry and the quality of the businesses’ operations. Our review and/or investment committees also incorporate relevant environmental, social and governance (“ESG”) factors into the investment decision-making process, including, for example, sustainability and diversity and inclusion. In addition, before deciding to invest in a new hedge fund or a new alternative asset manager, as applicable, our Hedge Fund Solutions and Strategic Partners teams conduct diligence in a number of areas, which, depending on the nature of the investment, may include, among others, the fund’s/manager’s performance, investment terms, investment strategy and investment personnel, as well as its operations, processes, risk management and internal controls. With respect to customized credit long only clients and other clients whose portfolios are actively traded in our Credit segment, our industry-focused research analysts provide the review and/or investment committee with a formal and comprehensive review of new investment recommendations and portfolio managers and trading professionals discuss, among other things, risks associated with overall portfolio composition. Our Credit segment’s research team monitors the operating performance of underlying issuers, while portfolio managers, together with our traders, focus on optimizing asset composition to maximize value for our investors.
Existing investments are reviewed and monitored on a regular basis by investment and asset management professionals. In addition, our investment professionals and Portfolio Operations team work directly with our portfolio company senior executives to identify opportunities to drive operational efficiencies and growth.
Structure and Operation of Our Investment Vehicles
Our private investment funds are generally organized as limited partnerships with respect to U.S. domiciled vehicles and limited partnerships or other similar limited liability entities with respect to
non-U.S.
domiciled vehicles. In the case of our separately managed accounts, the investor, rather than us, generally controls the investment vehicle that holds or has custody of the investments we advise the vehicle to make. We conduct the sponsorship and management of our carry funds and other similar vehicles primarily through a partnership structure in which limited partnerships organized by us accept commitments and/or subscriptions for investment from institutional investors and, to a more limited extent, high net worth individuals. Such commitments are generally drawn down from investors on an
as-needed
basis to fund investments (or for other permitted purposes) over a specified term. With the exception of certain core+ real estate and real estate debt funds, our private equity and real estate funds are commitment structured funds. For certain BPP and BREDS funds, all or a portion of the investors’ capital may be funded on or promptly after the investor’s subscription date and cash proceeds resulting from the disposition of investments can be reinvested, subject to certain limitations and limited investor withdrawal rights. Our credit-focused funds are generally either commitment structured funds or open-ended funds where the investor’s capital is fully funded on or promptly after the investor’s subscription date. The CLO vehicles we manage are structured investment vehicles that are generally private companies with limited liability. Most of our funds of hedge funds as well as our hedge funds are structured as funds where the investor’s capital is fully funded on the subscription date. BIS is generally structured around separately managed accounts.
Our investment funds, separately managed accounts and other vehicles not domiciled in the European Economic Area (the “EEA”) are each generally advised by a Blackstone entity serving as investment adviser that is registered under the U.S. Investment Advisers Act of 1940, as amended, or the “Advisers Act.” For our investment funds, separately managed accounts and other vehicles domiciled in the EEA, a Blackstone entity domiciled in the EEA generally serves as external alternative investment fund manager (“AIFM”), and the AIFM typically delegates its portfolio management function to a Blackstone-affiliated investment adviser registered under the Advisers Act. Substantially all of the
day-to-day
operations of each investment vehicle are typically carried out by the Blackstone entity serving as investment adviser or AIFM, as applicable, pursuant to an investment advisory, investment management, AIFM or other similar agreement. Generally, the material terms of our investment advisory and AIFM agreements, as applicable, relate to the scope of services to be rendered by the investment adviser or the AIFM to the applicable vehicle, the calculation of management fees to be borne by investors in our investment vehicles, the calculation of and the manner and extent to which other fees received by the investment adviser or the AIFM, as applicable, from funds or fund portfolio companies serve to offset or reduce the management fees payable by investors in our investment vehicles and certain rights of termination with respect to our investment advisory and AIFM agreements. With the exception of the registered funds described below, the investment vehicles themselves do not generally register as investment companies under the U.S. Investment Company Act of 1940, as amended, or the “1940 Act,” in reliance on the statutory exemptions provided by Section 3(c)(7), Section 3(c)(5)(C) or, Section 3(c)(1) thereof. Section 3(c)(7) of the 1940 Act exempts from its registration requirements investment vehicles privately placed in the United States whose securities are beneficially owned exclusively by persons who, at the time of acquisition of such securities, are “qualified purchasers” as defined under the 1940 Act. In addition, under current interpretations of the SEC, Section 3(c)(7) of the 1940 Act exempts from registration any
non-U.S.
investment vehicle all of whose outstanding securities are beneficially owned either by
non-U.S.
residents or by U.S. residents that are qualified purchasers. Section 3(c)(5)(C) of the 1940 Act exempts from its registration requirements certain companies engaged primarily in investment in mortgages and other liens or investments in real estate. Section 3(c)(1) of the 1940 Act exempts from its registration requirements privately placed investment vehicles whose securities are beneficially owned by not more than 100 persons. Additionally, under current interpretations of the SEC, Section 3(c)(1) of the 1940 Act exempts from registration any
non-U.S.
investment vehicle not publicly offered in the U.S. all of whose outstanding securities are beneficially owned by not more than 100 U.S. residents. BXMT is externally managed by a Blackstone-owned entity pursuant to a management agreement, conducts its operations in a manner that allows it to maintain its REIT qualification and also avail itself of the statutory exemption provided by Section 3(c)(5)(C) of the 1940 Act. BREIT is externally advised by a Blackstone-owned entity pursuant to an advisory agreement, conducts its operations in a manner that allows it to maintain its REIT qualification and also avails itself of the statutory exemption provided by Section 3(c)(5)(C) of the 1940 Act. In some cases, one or more of our investment advisers, including advisers within GSO, BAAM and BREDS, advises or
sub-advises
funds registered, or regulated as a BDC, under the 1940 Act.
In addition to having an investment adviser, each investment fund that is a limited partnership, or “partnership” fund, also has a general partner that, apart from partnership funds domiciled in the EEA, generally makes all operational and investment decisions, including the making, monitoring and disposing of investments. The limited partners of the partnership funds generally take no part in the conduct or control of the business of the investment funds, have no right or authority to act for or bind the investment funds and have no influence over the voting or disposition of the securities or other assets held by the investment funds. With the exception of certain of our funds of hedge funds, hedge funds, certain credit-focused and real estate debt funds, and other funds or separately managed accounts for the benefit of one or more specified investors, third party investors in some of our funds have the right to remove the general partner of the fund or to accelerate the termination of the investment fund without cause by a simple majority vote, or by a higher percentage in certain recent funds. In addition, the governing agreements of many of our investment funds provide that in the event certain “key persons” in our investment funds do not meet specified time commitments with regard to managing the fund, then (a) investors in such funds have the right to vote to terminate the investment period by a specified percentage (including, in certain cases a simple majority) vote in accordance with specified procedures, or accelerate the withdrawal of their capital on an
investor-by-investor
basis, or (b) the fund’s investment period will automatically terminate and a specified percentage (including, in certain cases a simple majority) in accordance with specified procedures is required to restart it. In addition, the governing agreements of some of our investment funds provide that investors have the right to terminate the investment period for any reason by a vote of 75% of the investors in such fund.
Fee Structure/Incentive Arrangements
Management Fees
The following is a general description of the management fees earned by Blackstone.
| • | The investment adviser of each of our non-EEA domiciled carry funds and the AIFM of each of our EEA domiciled carry funds generally receives an annual management fee based on a percentage of the fund’s capital commitments, invested capital and/or undeployed capital during the investment period and the fund’s invested capital or investment fair value after the investment period, except that the investment adviser or AIFM to certain of our credit-focused, BPP and BCEP funds receives a management fee based on a percentage of invested capital or net asset value. These management fees are payable on a regular basis (typically quarterly) in the contractually prescribed amounts over the life of the fund. Depending on the base on which management fees are calculated, negative performance of one or more investments in the fund may reduce the total management fee paid for the relevant period, but not the fee rate. Management fees received are not subject to clawback. |
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| • | The investment adviser of each of our funds that are structured like hedge funds, or of our funds of hedge funds, registered mutual funds and separately managed accounts that invest in hedge funds, generally receives a management fee based on a percentage of the fund’s or account’s net asset value. These management fees are payable on a regular basis (typically quarterly). These funds generally permit investors to withdraw or redeem their interests periodically, in some cases following the expiration of a specified period of time when capital may not be withdrawn. Decreases in the net asset value of investor’s capital accounts may reduce the total management fee paid for the relevant period, but not the fee rate. Management fees received are not subject to clawback. In addition, to the extent the mandate of our funds is to invest capital in third party managed funds, as is the case with our funds of hedge funds, our funds will be required to pay management fees to such third party managers, which typically are borne by investors in such investment vehicles. |
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| • | The investment adviser of each of our CLOs typically receives annual management fees based on a percentage of each fund’s assets, subject to certain performance measures related to the underlying assets the vehicle owns, and additional management fees, which are incentive-based (that is, subject to meeting certain return criteria). These management fees are payable on a regular basis (typically quarterly). The term of each CLO varies from deal to deal and may be subject to early redemption or extension; typically, however, a CLO will be wound down within eight to eleven years of being launched. The amount of fees will decrease as the fund deleverages toward the end of its term. |
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| • | The investment adviser of each of our separately managed accounts generally receives annual management fees based on a percentage of each account’s net asset value or invested capital. The management fees we receive from each of our separately managed accounts are generally paid on a regular basis (typically quarterly) such management fees are generally subject to contractual rights the investor has to terminate our management of an account on generally as short as 30 days’ notice. |
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| • | The investment adviser of each of our credit-focused registered and non-registered investment companies typically receives an annual management fee based on a percentage of net asset value or total managed assets. The management fees we receive from the registered investment companies we manage are generally paid on a regular basis (typically quarterly). Such management fees are generally subject to contractual rights the company’s board of directors has to terminate our management of an account on as short as 30 days’ notice. |
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| • | The investment adviser of BXMT receives an annual management fee, paid quarterly, based on a percentage of BXMT’s net proceeds received from equity offerings and accumulated “core earnings” (which is generally equal to its net income, calculated under generally accepted accounting principles in the U.S. (“GAAP”), excluding certain non-cash and other items), subject to certain adjustments. |
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| • | The investment adviser of BREIT receives a management fee based on a percentage of the REIT’s net asset value, payable monthly. |
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For additional information regarding the management fee rates we receive, see “Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies — Revenue Recognition — Management and Advisory Fees, Net.”
Incentive Fees
Incentive fees generally are performance-based allocations of a fund’s net capital appreciation during a measurement period, typically a year, subject to the achievement of minimum return levels, high water marks, and/or other hurdle provisions, in accordance with the respective terms set out in each fund’s governing agreements. Incentive fees are typically realized at the end of the measurement period. Once realized, such fees are typically not subject to clawback or reversal. The following is a general description of the incentive fees earned by Blackstone.
| • | In our Hedge Fund Solutions segment, the investment adviser of our funds of hedge funds, certain hedge funds, separately managed accounts that invest in hedge funds and certain non-U.S. registered investment companies, is entitled to an incentive fee of 0% to 20%, as applicable, of the applicable investment vehicle’s net appreciation, subject to “high water mark” provisions and in some cases a preferred return. In addition, to the extent the mandate of our funds is to invest capital in third party managed hedge funds, as is the case with our funds of hedge funds, our funds will be required to pay incentive fees to such third party managers, which typically are borne by investors in such investment vehicles. |
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| • | The general partners or similar entities of each of our real estate and credit hedge fund structures receive incentive fees of generally up to 20% of the applicable fund’s net capital appreciation per annum. |
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| • | The investment manager of BXMT receives an incentive fee generally equal to 20% of BXMT’s core earnings in excess of a 7% per annum return on stockholder’s equity (excluding stock appreciation or depreciation), provided that BXMT’s core earnings over the prior three years is greater than zero. |
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| • | The investment manager of BREIT receives an incentive fee of 12.5% of BREIT’s total return, subject to a 5% hurdle amount with a catch-up and recouping any loss carryforward amounts, payable annually. |
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| • | The general partner of certain open-ended BPP funds is entitled to an incentive fee allocation of generally 10% of net profit, subject to a hurdle amount generally of 6% to 7%, a loss recovery amount and a catch-up. Incentive Fees for these funds are generally realized every three years from when a limited partner makes its initial investment. |
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Performance Allocations
The general partner or an affiliate of each of our carry funds is entitled to a disproportionate allocation of the income otherwise allocable to the limited partners of such fund, commonly referred to as carried interest (“Performance Allocations”). Our ability to generate carried interest is an important element of our business and has historically accounted for a very significant portion of our income.
Carried interest is typically structured as a net profits interest in the applicable fund. In the case of our carry funds, carried interest is calculated on a “realized gain” basis, and each general partner (or affiliate) is generally entitled to an allocation of up to 20% of the net realized income and gains (generally taking into account realized and unrealized or net unrealized losses) generated by such fund. Net realized income or loss is not generally netted between or among funds, and in some cases our carry funds provide for allocations to be made on current income distributions (subject to certain conditions).
For most carry funds, the carried interest is subject to a preferred limited partner return ranging from 5% to 8% per year, subject to a
catch-up
allocation to the general partner. Some of our carry funds do not provide for a preferred return, and generally the terms of our carry funds vary in certain respects across our business units and vintages. If, at the end of the life of a carry fund (or earlier with respect to certain of our real estate, real estate debt, core+ real estate, credit-focused, multi-asset class and opportunistic investment funds), as a result of diminished performance of later investments in a carry fund’s life, (a) the general partner receives in excess of the relevant carried interest percentage(s) applicable to the fund as applied to the fund’s cumulative net profits over the life of the fund, or (in certain cases) (b) the carry fund has not achieved investment returns that exceed the preferred return threshold (if applicable), then we will be obligated to repay an amount equal to the carried interest that was previously distributed to us that exceeds the amounts to which we were ultimately entitled, up to the amount of carried interest received on an
after-tax
basis. This is known as a “clawback” obligation and is an obligation of any person who received such carried interest, including us and other participants in our carried interest plans.
Although a portion of any dividends paid to our shareholders may include any carried interest received by us, we do not intend to seek fulfillment of any clawback obligation by seeking to have our shareholders return any portion of such dividends attributable to carried interest associated with any clawback obligation. To the extent we are required to fulfill a clawback obligation, however, we may determine to decrease the amount of our dividends to our shareholders. The clawback obligation operates with respect to a given carry fund’s own net investment performance only and carried interest of other funds is not netted for determining this contingent obligation. Moreover, although a clawback obligation is several, the governing agreements of most of our funds provide that to the extent another recipient of carried interest (such as a current or former employee) does not fund his or her respective share of the clawback obligation then due, then we and our employees who participate in such carried interest plans may have to fund additional amounts (generally an additional 50% to 70% beyond our
pro-rata
share of such obligation) although we retain the right to pursue any remedies that we have under such governing agreements against those carried interest recipients who fail to fund their obligations. We have recorded a contingent repayment obligation equal to the amount that would be due on December 31, 2019, if the various carry funds were liquidated at their current carrying value.
For additional information concerning the clawback obligations we could face, see “— Item 1A. Risk Factors — Risks Related to Our Business — We may not have sufficient cash to pay back “clawback” obligations if and when they are triggered under the governing agreements with our investors.”
Advisory and Transaction Fees
Some of our investment advisers or their affiliates, receive customary fees (for example, acquisition, origination and other transaction fees) upon consummation of their funds’ transactions, and may from time to time receive advisory, monitoring and other fees in connection with their activities. For most of the funds where we receive such fees, we are required to reduce the management fees charged to the funds’ limited partners by 50% to 100% of such limited partner’s share of such fees.
Capital Invested In and Alongside Our Investment Funds
To further align our interests with those of investors in our investment funds, we have invested the firm’s capital and that of our personnel in the investment funds we sponsor and manage. Minimum general partner capital commitments to our investment funds are determined separately with respect to each of our investment funds and, generally, are less than 5% of the limited partner commitments of any particular fund. See “Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” for more information regarding our minimum general partner capital commitments to our funds. We determine whether to make general partner capital commitments to our funds in excess of the minimum required commitments based on, among other things, our anticipated liquidity, working capital and other capital needs. In many cases, we require our senior managing directors and other professionals to fund a portion of the general partner capital commitments to our funds. In other cases, we may from time to time offer to our senior managing directors and employees a part of the funded or unfunded general partner commitments to our investment funds. Our general partner capital commitments are funded with cash and not with carried interest or deferral of management fees.
Investors in many of our funds also receive the opportunity to make additional
“co-investments”
with the investment funds. Our personnel, as well as Blackstone itself, also have the opportunity to make investments, in or alongside our funds and other vehicles we manage, in some instances without being subject to management fees, carried interest or incentive fees. In certain cases, limited partner investors may pay additional management fees or carried interest in connection with such
co-investments.
Competition
The asset management industry is intensely competitive, and we expect it to remain so. We compete both globally and on a regional, industry and sector basis. We compete on the basis of a number of factors, including investment performance, transaction execution skills, access to capital, access to and retention of qualified personnel, reputation, range of products and services, innovation and price.
We face competition both in the pursuit of outside investors for our investment funds and in acquiring investments in attractive portfolio companies and making other investments. Although many institutional and individual investors have increased the amount of capital they commit to alternative investment funds, such increases may create increased competition with respect to fees charged by our funds. Certain institutional investors have demonstrated a preference to
in-source
their own investment professionals and to make direct investments in alternative assets without the assistance of private equity advisers like us. We compete for investments with such institutional investors and such institutional investors could cease to be our clients.
Depending on the investment, we face competition primarily from sponsors managing other funds, investment vehicles and other pools of capital, other financial institutions and institutional investors (including sovereign wealth and pension funds), corporate buyers and other parties. Several of these competitors have significant amounts of capital and many of them have investment objectives similar to ours, which may create additional competition for investment opportunities. Some of these competitors may also have a lower cost of capital and access to funding sources or other resources that are not available to us, which may create competitive disadvantages for us with respect to investment opportunities. In addition, some of these competitors may have higher risk tolerances, different risk assessments or lower return thresholds, which could allow them to consider a wider variety of investments and to bid more aggressively than us for investments. Corporate buyers may be able to achieve synergistic cost savings with regard to an investment or be perceived by sellers as otherwise being more desirable bidders, which may provide them with a competitive advantage in bidding for an investment.
In all of our businesses, competition is also intense for the attraction and retention of qualified employees. Our ability to continue to compete effectively in our businesses will depend upon our ability to attract new employees and retain and motivate our existing employees.
For additional information concerning the competitive risks that we face, see “— Item 1A. Risk Factors — Risks Related to Our Business — The asset management business is intensely competitive.”
Employees
As of December 31, 2019, we employed approximately 2,905 people, including our 157 senior managing directors. We strive to maintain a work environment that fosters professionalism, excellence, integrity and cooperation among our employees.
Regulatory and Compliance Matters
Our businesses, as well as the financial services industry generally, are subject to extensive regulation in the United States and elsewhere.
All of the investment advisers of our investment funds operating in the U.S. are registered as investment advisers with the SEC under the Advisers Act (other investment advisers may be registered in
non-U.S.
jurisdictions). Registered investment advisers are subject to the requirements and regulations of the Advisers Act. Such requirements relate to, among other things, fiduciary duties to advisory clients, maintaining an effective compliance program, investment advisory contracts, solicitation agreements, conflicts of interest, recordkeeping and reporting requirements, disclosure, advertising and custody requirements, political contributions, limitations on agency cross and principal transactions between an adviser and advisory clients, and general anti-fraud prohibitions.
Blackstone Advisory Partners L.P. (“BAP”), a subsidiary of ours through which we conduct our capital markets business and certain of our fund marketing and distribution, is registered as a broker-dealer with the SEC and is subject to regulation and oversight by the SEC, is a member of the Financial Industry Regulatory Authority, or “FINRA,” and is registered as a broker-dealer in 50 states, the District of Columbia, the Commonwealth of Puerto Rico and the Virgin Islands. In addition, FINRA, a self-regulatory organization subject to oversight by the SEC, adopts and enforces rules governing the conduct, and examines the activities, of its member firms, including BAP. State securities regulators also have regulatory oversight authority over BAP.
Broker-dealers are subject to regulations that cover all aspects of the securities business, including, among others, the implementation of a supervisory control system over the securities business, advertising and sales practices, conduct of and compensation in connection with public securities offerings, maintenance of adequate net capital, record keeping and the conduct and qualifications of employees. In particular, as a registered broker-dealer and member of FINRA, BAP is subject to the SEC’s uniform net capital rule, Rule
15c3-1.
Rule
15c3-1
specifies the minimum level of net capital a broker-dealer must maintain and also requires that a significant part of a broker-dealer’s assets be kept in relatively liquid form. The SEC and various self-regulatory organizations impose rules that require notification when net capital of a broker-dealer falls below certain predefined criteria, limit the ratio of subordinated debt to equity in the capital structure of a broker-dealer and constrain the ability of a broker-dealer to expand its business under certain circumstances. Additionally, the SEC’s uniform net capital rule imposes certain requirements that may have the effect of prohibiting a broker-dealer from distributing or withdrawing capital and requiring prior notice to the SEC for certain withdrawals of capital.
In addition, certain of the closed-ended and open-ended investment management companies we manage, advise or
sub-advise
are registered, or regulated as a BDC, under the 1940 Act. The 1940 Act and the rules thereunder govern, among other things, the relationship between us and such investment vehicles and limit such investment vehicles’ ability to enter into certain transactions with us or our affiliates, including other funds managed, advised or
sub-advised
by us.
Pursuant to the U.K. Financial Services and Markets Act 2000, or “FSMA,” certain of our subsidiaries are subject to regulations promulgated and administered by the Financial Conduct Authority (“FCA”). The FSMA and rules promulgated thereunder form the cornerstone of legislation which governs all aspects of our investment business in the United Kingdom, including sales, research and trading practices, provision of investment advice, use and safekeeping of client funds and securities, regulatory capital, recordkeeping, approval standards for individuals, anti-money laundering, periodic reporting and settlement procedures. The Blackstone Group International Partners LLP (“BGIP”) acts as a
sub-advisor
to its Blackstone U.S. affiliates in relation to the investment and
re-investment
of Europe, Middle East and Africa (“EMEA”) based assets of Blackstone Funds as well as arranging transactions to be entered into by or on behalf of Blackstone Funds. BGIP also acts as a distributor of Blackstone Funds in EMEA. BGIP has a Markets in Financial Instruments Directive (2014) (“MiFID II”) cross-border passport to provide investment advisory services within the European Economic Area (“EEA”). BGIP’s principal place of business is in London and it has Representative Offices in Abu Dhabi, Milan and Paris. Blackstone Insurance Solutions Europe LLP (“BISE”) is also authorized and regulated by the FCA. BISE has MiFID II cross-border passports for the provision of, amongst others, investment advice and portfolio management in respect of certain investment types within the EEA. BISE’s principal place of business is in London. BGIP and BISE’s MiFID passports will fall away if the U.K. and the European Union do not agree on an arrangement for the provision of cross-border services prior to the expiration of the transition period for the U.K.’s withdrawal from the European Union. BGIP and BISE are subject to the Senior Managers and Certification Regime (“SMCR”), which imposes on BGIP, BISE and certain of their respective employees, documentation and recordkeeping requirements to demonstrate compliance. The SMCR creates a duty of responsibility for individuals identified as “Senior Managers” and personal liability where a Senior Manager does not take reasonable steps to prevent a violation of FCA rules in the area of the business for which they are responsible.
Blackstone / GSO Debt Funds Management Europe Limited (“DFME”) is authorized and regulated by the Central Bank of Ireland (“CBI”) as an Investment Firm under the European Communities (Markets in Financial Instruments) Regulations 2007. DFME’s principal activity is the provision of management and advisory services to certain CLO and
sub-advisory
services to certain affiliates. Blackstone / GSO Debt Funds Management Europe II Limited (“DFME II”) is authorized and regulated by the CBI as an Alternative Investment Fund Manager under the European Union (Alternative Investment Fund Managers Regulations) 2013 (“AIFMRs”). DFME II provides investment management functions including portfolio management, risk management, administration, marketing and related activities to its alternative investment funds in accordance with AIFMRs and the conditions imposed by the CBI as set out in the CBI’s alternative investment fund rulebook.
Blackstone Europe Fund Management S.à r.l. (“BEFM”) is an approved Alternative Investment Fund Manager under the Luxembourg Law of 12 July 2013 on alternative investment fund managers (as amended, “AIFMD”). BEFM may also provide discretionary portfolio management services and investment advice in accordance with article 5(4) of AIFMD. BEFM provides investment management functions including portfolio management, risk management, administration, marketing and related activities to the assets of its alternative investment funds, in accordance with AIFMD and the law and regulatory provisions imposed by the Commission de Surveillance du Secteur Financier (“CSSF”) in Luxembourg. BEFM has a branch entity established in Denmark.
Certain Blackstone operating entities are licensed and subject to regulation by financial regulatory authorities in Japan, Hong Kong, Australia and Singapore: The Blackstone Group Japan K.K., a financial instruments firm, is registered with Kanto Local Finance Bureau (Kin-sho No. 1785) and regulated by the Japan Financial Services Agency; The Blackstone Group (HK) Limited is regulated by the Hong Kong Securities and Futures Commission; The
Blackstone Group (Australia) Pty Limited ACN 149 142 058 and Blackstone Real Estate Australia Pty Limited ACN 604 167 651 each holds an Australian financial services license authorizing it to provide financial services in Australia (AFSL 408376 and AFSL 485716, respectively) and is regulated by the Australian Securities and Investments Commission; and Blackstone Singapore Pte. Ltd. is regulated by the Monetary Authority of Singapore (Company Registration Number: 201020503E).
Certain investment advisers are also registered with international regulators in connection with their management of products that are locally distributed and/or regulated.
The SEC and various self-regulatory organizations and state securities regulators have in recent years increased their regulatory activities, including regulation, examination and enforcement in respect of asset management firms.
As described above, certain of our businesses are subject to compliance with laws and regulations of U.S. federal and state governments,
non-U.S.
governments, their respective agencies and/or various self-regulatory organizations or exchanges, and any failure to comply with these regulations could expose us to liability and/or damage our reputation. Our businesses have operated for many years within a legal framework that requires us to monitor and comply with a broad range of legal and regulatory developments that affect our activities. However, additional legislation, changes in rules promulgated by financial regulatory authorities or self-regulatory organizations or changes in the interpretation or enforcement of existing laws and rules, either in the United States or elsewhere, may directly affect our mode of operation and profitability.
Rigorous legal and compliance analysis of our businesses and investments is endemic to our culture and risk management. Our Chief Legal Officer and Global Head of Compliance, together with the Chief Compliance Officers of each of our businesses, supervise our compliance personnel, who are responsible for addressing all regulatory and compliance matters that affect our activities. We strive to maintain a culture of compliance through the use of policies and procedures including a code of ethics, electronic compliance systems, testing and monitoring, communication of compliance guidance and employee education and training. Our compliance policies and procedures address a variety of regulatory and compliance matters such as the handling of material
non-public
information, personal securities trading, marketing practices, gifts and entertainment, anti-money laundering, anti-bribery and sanctions, valuation of investments on a fund-specific basis, recordkeeping, potential conflicts of interest, the allocation of investment opportunities, collection of fees and expense allocation.
Our compliance group also monitors the information barriers that we maintain between Blackstone’s businesses. We believe that our various businesses’ access to the intellectual knowledge and contacts and relationships that reside throughout our firm benefits all of our businesses. As described above, to maximize that access and related synergies without compromising compliance with our legal and contractual obligations, our compliance group oversees and monitors the communications between groups that are on the private side of our information barrier and groups that are on the public side, as well as between different public side groups. Our compliance group also monitors contractual obligations that may be impacted and potential conflicts that may arise in connection with these inter-group discussions.
In addition, disclosure controls and procedures and internal controls over financial reporting are documented, tested and assessed for design and operating effectiveness in accordance with the U.S. Sarbanes-Oxley Act of 2002. Internal Audit, which independently reports to the audit committee of our board of directors, operates with a global mandate and is responsible for the examination and evaluation of the adequacy and effectiveness of the organization’s governance and risk management processes and internal controls, as well as the quality of performance in carrying out assigned responsibilities to achieve the organization’s stated goals and objectives.
Our enterprise risk management framework is designed to manage non-investment risk areas across the firm, such as strategic, financial, human capital, legal, operational, regulatory, reputational and technology risks. Our enterprise risk committee aims to identify, assess, monitor and mitigate such key enterprise risks at the corporate, business unit and fund level. The enterprise risk committee is chaired by our Chief Financial Officer and is comprised of senior management across business units, corporate functions and regional locations.
Senior management reports regularly to the audit committee of our board of directors on risk matters evaluated by the enterprise risk committee, including by providing periodic risk reports, an overview of management’s views on key risks to the firm and detailed assessments of selected risks. Our firmwide valuation committee reviews the valuation process for investments held by us and our investment vehicles, including the application of appropriate valuation standards on a consistent basis. The firmwide valuation committee is chaired by our Chief Financial Officer and is comprised of senior heads of Blackstone’s businesses and representatives from legal and finance. The review committees and/or investment committees of our businesses review and evaluate investment opportunities in a framework that includes a qualitative and quantitative assessment of the key risks of investments. See “— Investment Process and Risk Management.”
There are a number of pending or recently enacted legislative and regulatory initiatives that could significantly affect our business. Please see “— Item 1A. Risk Factors — Risks Related to Our Business — Financial regulatory changes in the United States could adversely affect our business” and “— Item 1A. Risk Factors — Risks Related to Our Business — Regulatory changes in jurisdictions outside the United States could adversely affect our business.”
Available Information
Effective July 1, 2019, The Blackstone Group Inc. converted from a Delaware limited partnership to a Delaware corporation. Blackstone was formed as a Delaware limited partnership on March 12, 2007.
We file annual, quarterly and current reports and other information with the SEC. These filings are available to the public over the internet at the SEC’s website at www.sec.gov.
Our principal internet address is www.blackstone.com. We make available free of charge on or through www.blackstone.com our annual reports on Form
10-K,
quarterly reports on Form
10-Q,
current reports on Form
8-K,
and amendments to those reports, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The contents of our website are not, however, a part of this report.
Item 1A. Risk Factors
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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.
Our business is materially affected by financial market and economic conditions and events throughout the world that are outside our control. We may not be able to or may choose not to manage our exposure to these conditions and/or events. Such conditions and/or events can adversely affect our business in many ways, including by reducing the ability of our funds to raise or deploy capital, reducing the value or performance of the investments made by our funds and making it more difficult to fund opportunities for our funds to exist and realize value from existing investment. This could in turn materially reduce our revenue, earnings and cash flow and adversely affect our financial prospects and condition. In addition, in the face of a difficult market or economic environment, we may need to reduce our fixed costs and other expenses in order to maintain profitability, including by cutting back or eliminating the use of certain services or service providers, or terminating the employment of a significant number of our personnel that, in each case, could be important to our business and without which our operating results could be adversely affected. A failure to manage or reduce our costs and other expenses within a time frame sufficient to match any decrease in profitability would adversely affect our operating performance.
Turmoil in the global financial markets can provoke significant volatility of equity and debt securities prices. This can have a material and rapid impact on our
mark-to-market
valuations, particularly with respect to our public holdings and credit investments. As publicly traded equity securities have in recent years represented a significant proportion of the assets of many of our carry funds, stock market volatility, including a sharp decline in the stock market, such as the one experienced in the fourth quarter of 2018, may adversely affect our results, including our
revenues and net income. In addition, our public equity holdings have at times been and are currently concentrated in a few large positions, thereby making our unrealized
mark-to-market
valuations particularly sensitive to sharp changes in the price of any of these positions. Further, although the equity markets are not the only means by which we exit investments, should we experience another period of challenging equity markets, our funds may experience increased difficulty in realizing value from investments.
Geopolitical concerns and other global events, including, without limitation, trade conflict, national and international political circumstances (including wars, terrorist acts or security operations) and pandemics or other severe public health events, have contributed and may continue to contribute to volatility in global equity and debt markets. 2019 was a year of significant geopolitical concerns, including, among other things, uncertainty regarding
re-opening
of the U.S. government after a shutdown in early 2019, trade tensions, most notably between China and the U.S., resulting from the implementation of tariffs by the U.S. and retaliatory tariffs by other countries on the U.S., continued tensions with North Korea over its ballistic missile testing and nuclear programs, ongoing hostilities in the Middle East and the possibility of their escalation, uncertainty regarding the U.K.’s ongoing negotiation of the circumstances surrounding its withdrawal from the European Union and impeachment proceedings of President Trump in the United States. Such concerns have contributed and may continue to contribute to volatility in global equity and debt markets.
Recently, the outbreak of the novel coronavirus in many countries continues to adversely impact global commercial activity, particularly in China, and has contributed to significant volatility in financial markets. The global impact of the outbreak has been rapidly evolving, and as cases of the virus have continued to be identified in additional countries, many countries have reacted by instituting quarantines and restrictions on travel. Such actions are creating disruption in global supply chains, and adversely impacting a number of industries, such as transportation, hospitality and entertainment. The outbreak could have a continued adverse impact on economic and market conditions and trigger a period of global economic slowdown. The rapid development and fluidity of this situation precludes any prediction as to the ultimate adverse impact of the novel coronavirus. Nevertheless, the novel coronavirus presents material uncertainty and risk with respect to our and our funds’ performance and financial results.
In addition to the factors described above, other factors described herein that may affect market, economic and geopolitical conditions, and thereby adversely affect our business include, without limitation:
| • | economic slowdown in the U.S. and internationally; |
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| • | changes in interest rates and/or a lack of availability of credit in the U.S. and internationally; |
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| • | commodity price volatility; and |
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| • | changes in law and/or regulation, and uncertainty regarding government and regulatory policy. |
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A period of economic slowdown, which may be across one or more industries, sectors or geographies, could contribute to adverse operating performance for certain of our funds’ investments, which would adversely affect our operating results and cash flows.
In recent years we have experienced buoyant markets and positive economic conditions. Although such conditions have increasingly made it more difficult and competitive to find suitable capital deployment opportunities for our funds, they have also in many cases contributed to positive operating performance at our funds’ portfolio companies. To the extent global markets enter a period of slower growth relative to recent years, such period of economic slowdown (which may be across one or more industries, sectors or geographies), may contribute to poor financial results at our funds’ portfolio companies, which may result in lower investment returns for our funds. For example, periods of economic weakness have in the past and may in the future contribute to a decline in commodity prices and/or volatility in the oil and natural gas markets, each of which would have an adverse effect on our energy investments. The performance of our funds’ portfolio companies would also likely be negatively impacted if pressure on wages and other inputs increasingly pressure profit margins. To the extent the performance of those portfolio companies (as well as valuation multiples) do not improve, our funds may sell those assets at values that are less than we projected or even a loss, thereby significantly affecting those investment funds’ performance. In addition, as the governing agreements of our funds contain only limited requirements regarding diversification of fund investments (by, for example, sector or geographic region), during periods of economic slowdown in certain sectors or regions, the impact on our funds may be exacerbated by concentration of investments in such sector or region. As a result, our ability to raise new funds, as well as our operating results and cash flows could be adversely affected.
In addition, during periods of weakness, our funds’ portfolio companies may also have difficulty expanding their businesses and operations or meeting their debt service obligations or other expenses as they become due, including expenses payable to us. Furthermore, such negative market conditions could potentially result in a portfolio company entering bankruptcy proceedings, thereb
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Item 1B. Unresolved Staff Comments
| --- | --- |
None.
Item 2. Properties
| --- | --- |
Our principal executive offices are located in leased office space at 345 Park Avenue, New York, New York. As of December 31, 2019, we also leased offices in Dublin, Hong Kong, London, Mumbai, Singapore, Sydney, Tokyo and other cities around the world. We consider these facilities to be suitable and adequate for the management and operations of our business.
Item 3. 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 “— Item 1A. Risk Factors” above. We are not currently subject to any pending legal (including judicial, regulatory, administrative or arbitration) proceedings that we expect to have a material impact on our consolidated financial statements. However, given the inherent unpredictability of these types of proceedings and the potentially large and/or indeterminate amounts that could be sought, an adverse outcome in certain matters could have a material effect on Blackstone’s financial results in any particular period.
In December 2017, a purported derivative suit (
Mayberry v. KKR & Co., L.P., et al.
) was filed in the Commonwealth of Kentucky Franklin County Circuit Court on behalf of the Kentucky Retirement System (“KRS”) by eight of its members and beneficiaries alleging various breaches of fiduciary duty and other violations of Kentucky state law in connection with KRS’s investment in three hedge funds of funds, including a fund managed by Blackstone Alternative Asset Management L.P. (“BAAM L.P.”). The suit names more than 30 defendants, including The Blackstone Group L.P.; BAAM L.P.; Stephen A. Schwarzman, as Chairman and CEO of Blackstone; and
J. Tomilson Hill, as then-President and CEO of the Hedge Fund Solutions Group, Vice Chairman of Blackstone and CEO of BAAM (collectively, the “Blackstone Defendants”). Aside from the Blackstone Defendants, the action also names current and former KRS trustees and former KRS officers and various other service providers to KRS and their related persons.
The plaintiffs filed an amended complaint in January 2018. In November 2018, the Circuit Court granted one defendant’s motion to dismiss and denied all other defendants’ motions to dismiss, including those of the Blackstone Defendants. In January 2019, certain of the KRS trustee and officer defendants noticed appeals from the denial of the motions to dismiss to the Kentucky Court of Appeals, and also filed a motion to stay the Mayberry proceedings in Circuit Court pending the outcome of those appeals. In addition, several defendants, including Blackstone and BAAM L.P., filed petitions in the Kentucky Court of Appeals for a writ of prohibition against the ongoing Mayberry proceedings on the ground that the plaintiffs lack standing. In April 2019, the KRS trustee and officer defendants’ appeals were transferred to the Kentucky Supreme Court.
On April 23, 2019, the Kentucky Court of Appeals granted the Blackstone Defendants’ petition for a writ of prohibition and vacated the Circuit Court’s November 30, 2018 Opinion and Order denying the motion to dismiss for lack of standing. On April 24, 2019, the Mayberry Plaintiffs filed a notice of appeal of that order to the Kentucky Supreme Court. The Kentucky Supreme Court heard oral argument on the appeal on October 24, 2019.
Blackstone believes that this suit is totally without merit and intends to defend it vigorously.
Item 4. Mine Safety Disclosures
| --- | --- |
Not applicable.
Part II.
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
| --- | --- |
Our Class A common stock is traded on the New York Stock Exchange (“NYSE”) under the symbol “BX.”
The number of holders of record of our Class A common stock as of February 21, 2020 was 70. This does not include the number of shareholders that hold shares in “street name” through banks or broker-dealers. Blackstone Partners L.L.C. is the sole holder of the single share of Class B common stock outstanding and Blackstone Group Management L.L.C. is the sole holder of the single share of Class C common stock outstanding.
The following table sets forth the quarterly per share dividends earned for the periods indicated. Each quarter’s dividends are declared and paid in the following quarter.
| 2019 | 2018 | |||||||
| First Quarter | $ | 0.37 | $ | 0.35 | ||||
| Second Quarter | 0.48 | 0.58 | ||||||
| Third Quarter | 0.49 | 0.64 | ||||||
| Fourth Quarter | 0.61 | 0.58 | ||||||
| $ | 1.95 | $ | 2.15 | |||||
Dividend Policy
Our intention is to pay to holders of Class A common stock a quarterly dividend representing approximately 85% of The Blackstone Group Inc.’s share of Distributable Earnings, subject to adjustment by amounts determined by Blackstone’s board of directors to be necessary or appropriate to provide for the conduct of its business, to make appropriate investments in its business and funds, to comply with applicable law, any of its debt instruments or other agreements, or to provide for future cash requirements such as
tax-related
payments, clawback obligations and dividends to shareholders for any ensuing quarter. The dividend amount could also be adjusted upwards or downwards in any one quarter. 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.
For Blackstone’s definition of Distributable Earnings, see “— Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Key Financial Measures and Indicators.”
Because The Blackstone Group Inc. is a holding company and has no material assets other than its ownership of partnership units in Blackstone Holdings (held through wholly owned subsidiaries), we fund any dividends by The Blackstone Group Inc. by causing Blackstone Holdings to make distributions to its partners, including The Blackstone Group Inc. (through its wholly owned subsidiaries). If Blackstone Holdings makes such distributions, the limited partners of Blackstone Holdings will be entitled to receive equivalent distributions
pro-rata
based on their partnership interests in Blackstone Holdings. The Blackstone Group Inc. then dividends its share of such distributions, net of taxes and amounts payable under the tax receivable agreements, to our shareholders on a
pro-rata
basis.
Because the publicly traded entity and/or its wholly owned subsidiaries must pay taxes and make payments under the tax receivable agreements described in “— Item 8. Financial Statements and Supplementary Data — Notes to the Consolidated Financial Statements — Note 18. Related Party Transactions,” the amounts ultimately paid as dividends by The Blackstone Group Inc. to common shareholders in respect of each fiscal year are generally expected to be less, on a per 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 the Conversion, we expect to pay more corporate income taxes than we would have as a limited partnership, which will increase this difference in the dividend and/or distribution amounts on a per share or per unit basis.
Dividends are treated as qualified dividends to the extent of Blackstone’s current and accumulated earnings and profits, with any excess dividends treated as a return of capital to the extent of the shareholder’s basis.
In addition, the partnership agreements of the Blackstone Holdings Partnerships provide for cash distributions, which we refer to as “tax distributions,” to the partners of such partnerships if the wholly owned subsidiaries of The Blackstone Group Inc. which are the general partners of the Blackstone Holdings Partnerships determine that the taxable income of the relevant partnership will give rise to taxable income for its partners. Generally, these tax distributions will be computed based on our estimate of the net taxable income of the relevant partnership allocable to a partner multiplied by an assumed tax rate equal to the highest effective marginal combined U.S. federal, state and local income tax rate prescribed for an individual or corporate resident in New York, New York (taking into account the
non-deductibility
of certain expenses and the character of our income). The Blackstone Holdings Partnerships will make tax distributions only to the extent distributions from such partnerships for the relevant year were otherwise insufficient to cover such estimated assumed tax liabilities.
Unit Repurchases in the Fourth Quarter of 2019
The following table sets forth information regarding repurchases of shares of our Class A common stock during the quarter ended December 31, 2019:
| Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (a) | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (Dollars in Thousands) (a) | ||||||||||||
| Oct. 1 - Oct. 31, 2019 | — | $ | — | — | $ | 864,012 | ||||||||||
| Nov. 1 - Nov. 30, 2019 | — | $ | — | — | $ | 864,012 | ||||||||||
| Dec. 1 - Dec. 31, 2019 | 1,500,000 | $ | 55.22 | 1,500,000 | $ | 781,182 | ||||||||||
| 1,500,000 | 1,500,000 | |||||||||||||||
| (a) | On July 16, 2019, our board of directors authorized the repurchase of up to $1.0 billion of Class A common stock and Blackstone Holdings Partnership Units. Under the repurchase program, repurchases may be made from time to time in open market transactions, in privately negotiated transactions or otherwise. The timing and the actual 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 “— Item 8. Financial Statements and Supplementary Data — Notes to Consolidated Financial Statements — Note 16. Earnings Per Share and Stockholder’s Equity” and “— Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Sources and Uses of Liquidity” for further information regarding this unit repurchase program. |
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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 shares and Blackstone Holdings Partnership Units.
Item 6. Selected Financial Data
| --- | --- |
The consolidated statements of financial condition and income data as of and for each of the five years ended December 31, 2019 have been derived from our consolidated financial statements. The audited Consolidated Statements of Financial Condition as of December 31, 2019 and 2018 and the Consolidated Statements of Operations for the years ended December 31, 2019, 2018 and 2017 are included in “Part II. Item 8. Financial Statements and Supplementary Data” of this filing. The audited Consolidated Statements of Financial Condition as of December 31, 2017, 2016 and 2015 and the Consolidated Statements of Operations for the years ended December 31, 2016 and 2015 are not included in this Form
10-K.
Historical results are not necessarily indicative of results for any future period.
Effective January 1, 2018, Blackstone adopted new GAAP guidance on revenue recognition and implemented a change in accounting principal related to carried interest and incentive allocations, which are now accounted for under the GAAP guidance for equity method investments and are presented within Total Investment Income in the table below. Historical results for 2017, 2016 and 2015 have been recast to reflect these changes.
The selected consolidated financial data should be read in conjunction with “— Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this Form
10-K:
| Year Ended December 31, | ||||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||
| (Dollars in Thousands, Except Per Share Data) | ||||||||||||||||||||
| Revenues | ||||||||||||||||||||
| Management and Advisory Fees, Net | $ | 3,472,155 | $ | 3,027,796 | $ | 2,751,322 | $ | 2,464,290 | $ | 2,566,449 | ||||||||||
| Incentive Fees | 129,911 | 57,540 | 242,514 | 149,928 | 168,554 | |||||||||||||||
| Total Investment Income | 3,473,813 | 2,903,659 | 4,144,712 | 2,381,604 | 1,844,930 | |||||||||||||||
| Interest and Dividend Revenue and Other | 262,391 | 844,264 | 6,467 | 150,477 | 102,739 | |||||||||||||||
| Total Revenues | 7,338,270 | 6,833,259 | 7,145,015 | 5,146,299 | 4,682,672 | |||||||||||||||
| Expenses | ||||||||||||||||||||
| Total Compensation and Benefits | 3,067,857 | 2,674,691 | 2,933,523 | 2,202,986 | 2,296,515 | |||||||||||||||
| General, Administrative and Other | 679,408 | 594,873 | 488,582 | 541,624 | 600,047 | |||||||||||||||
| Interest Expense | 199,648 | 163,990 | 197,486 | 152,654 | 144,522 | |||||||||||||||
| Fund Expenses | 17,738 | 78,486 | 132,787 | 52,181 | 79,499 | |||||||||||||||
| Total Expenses | 3,964,651 | 3,512,040 | 3,752,378 | 2,949,445 | 3,120,583 | |||||||||||||||
| Other Income | ||||||||||||||||||||
| Change in Tax Receivable Agreement Liability | 161,567 | — | 403,855 | — | 82,707 | |||||||||||||||
| Net Gains from Fund Investment Activities | 282,829 | 191,722 | 321,597 | 184,750 | 176,364 | |||||||||||||||
| Total Other Income | 444,396 | 191,722 | 725,452 | 184,750 | 259,071 | |||||||||||||||
| Income Before Provision (Benefit) for Taxes | 3,818,015 | 3,512,941 | 4,118,089 | 2,381,604 | 1,821,160 | |||||||||||||||
| Provision (Benefit) for Taxes | (47,952 | ) | 249,390 | 743,147 | 132,362 | 190,398 | ||||||||||||||
| Net Income | 3,865,967 | 3,263,551 | 3,374,942 | 2,249,242 | 1,630,762 | |||||||||||||||
| Net Income (Loss) Attributable to Redeemable Non-Controlling Interests in Consolidated Entities | (121 | ) | (2,104 | ) | 13,806 | 3,977 | 11,145 | |||||||||||||
| Net Income Attributable to Non-Controlling Interests in Consolidated Entities | 476,779 | 358,878 | 497,439 | 246,152 | 219,900 | |||||||||||||||
| Net Income Attributable to Non-Controlling Interests in Blackstone Holdings | 1,339,627 | 1,364,989 | 1,392,323 | 960,099 | 686,529 | |||||||||||||||
| Net Income Attributable to The Blackstone Group Inc. | $ | 2,049,682 | $ | 1,541,788 | $ | 1,471,374 | $ | 1,039,014 | $ | 713,188 | ||||||||||
| Year Ended December 31, | ||||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||
| (Dollars in Thousands, Except Per Share Data) | ||||||||||||||||||||
| Net Income Per Share of Class A Common Stock | ||||||||||||||||||||
| Basic | $ | 3.03 | $ | 2.27 | $ | 2.21 | $ | 1.60 | $ | 1.12 | ||||||||||
| Diluted | $ | 3.03 | $ | 2.26 | $ | 2.21 | $ | 1.56 | $ | 1.04 | ||||||||||
| Dividends Declared Per Share of Class A Common Stock (a) | $ | 1.92 | $ | 2.42 | $ | 2.32 | $ | 1.66 | $ | 2.90 | ||||||||||
| (a) | Dividends declared reflects the calendar date of declaration for each dividend. The fourth quarter dividend, if any, for any fiscal year will be declared and paid in the subsequent fiscal year. |
|---|
| December 31, | ||||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||
| (Dollars in Thousands) | ||||||||||||||||||||
| Statement of Financial Condition Data | ||||||||||||||||||||
| Total Assets (a) | $ | 32,585,506 | $ | 28,924,650 | $ | 34,415,919 | $ | 26,386,650 | $ | 22,510,246 | ||||||||||
| Senior Notes | $ | 4,600,856 | $ | 3,471,151 | $ | 3,514,815 | $ | 3,399,922 | $ | 2,797,060 | ||||||||||
| Total Liabilities (a) | $ | 17,482,454 | $ | 15,170,564 | $ | 20,692,828 | $ | 13,879,169 | $ | 10,286,836 | ||||||||||
| Redeemable Non-Controlling Interests in Consolidated Entities | $ | 87,651 | $ | 141,779 | $ | 210,944 | $ | 185,390 | $ | 183,459 | ||||||||||
| Total Equity/Partners’ Capital | $ | 15,015,401 | $ | 13,612,307 | $ | 13,512,147 | $ | 12,322,091 | $ | 12,039,951 |
| (a) | The decrease in Total Assets and Total Liabilities from December 31, 2017 to December 31, 2018 is primarily due to the deconsolidation of CLOs and other fund entities, partially offset by the launch of new consolidated CLOs. The increase in Total Assets and Total Liabilities from December 31, 2016 to December 31, 2017 is principally due to new consolidated CLO vehicles managed by our Credit segment. |
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
| --- | --- |
The following discussion and analysis should be read in conjunction with The Blackstone Group Inc.’s consolidated financial statements and the related notes included within this Annual Report on Form
10-K.
This section of this Form
10-K
generally discusses 2019 and 2018 items and year to year comparisons between 2019 and 2018. For the discussion of 2018 compared to 2017 see “Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of Blackstone’s Annual Report on Form
10-K
for the year ended December 31, 2018, which specific discussion is incorporated herein by reference.
Effective July 1, 2019, The Blackstone Group L.P. (the “Partnership”) converted from a Delaware limited partnership to a Delaware corporation, The Blackstone Group Inc. (the “Conversion”). This report includes the results for the Partnership prior to the Conversion and The Blackstone Group Inc. following the Conversion. In this report, references to “Blackstone,” the “Company,” “we,” “us” or “our” refer to (a) The Blackstone Group Inc. and its consolidated subsidiaries following the Conversion and (b) the Partnership and its consolidated subsidiaries prior to the Conversion. All references to shares or per share amounts prior to the Conversion refer to units or per unit amounts. Unless otherwise noted, all references to shares or per share amounts following the Conversion refer to shares or per share amounts of Class A common stock. All references to dividends prior to the Conversion refer to distributions. See “— Organizational Structure.”
Our Business
Blackstone is one of the world’s leading investment firms. Our business is organized into four segments:
| • | Real Estate. Our real estate business is a global leader in real estate investing. Our real estate segment operates as one globally integrated business, with investments in North America, Europe, Asia and Latin America. Our real estate investment teams seek to utilize our global expertise and presence to generate attractive risk-adjusted returns for our investors and to make a positive impact on the communities in which we invest. |
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Our Blackstone Real Estate Partners (“BREP”) funds are geographically diversified and target a broad range of “opportunistic” real estate and real estate-related investments. The BREP funds include global funds as well as funds focused specifically on Europe or Asia investments. BREP seeks to invest thematically in high-quality assets, focusing where we see outsized growth potential driven by global economic and demographic trends. BREP has made significant investments in logistics, rental housing, office hospitality and retail properties around the world, as well as a variety of real estate operating companies.
Our Blackstone Real Estate Debt Strategies (“BREDS”) vehicles primarily target real estate-related debt investment opportunities. BREDS’ scale and investment mandates enable it to provide a variety of lending and investment options including mezzanine loans, senior loans and liquid securities. The BREDS platform includes a number of high-yield real estate debt funds, liquid real estate debt funds and BXMT, a NYSE-listed real estate investment trust (“REIT”).
Our core+ real estate business includes Blackstone Property Partners (“BPP”) and a
non-exchange
traded REIT (“BREIT”). BPP has assembled a global portfolio of high-quality investments across North America, Europe and Asia, which target substantially stabilized assets in prime markets with a focus on industrial, multifamily, office and retail assets. BREIT invests primarily in stabilized income-oriented commercial real estate in the U.S. and to a lesser extent in real estate-related securities.
| • | Private Equity. Our Private Equity segment includes our corporate private equity business, which consists of (a) our flagship private equity funds (Blackstone Capital Partners (“BCP”) funds), (b) our sector-focused private equity funds, including our energy-focused funds (Blackstone Energy Partners (“BEP”) funds) and (c) our Asia-focused fund (Blackstone Capital Partners Asia (“BCP Asia”) fund). In addition, our Private Equity segment includes (a) our core private equity fund, Blackstone Core Equity Partners (“BCEP”), |
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| (b) our opportunistic investment platform that invests globally across asset classes, industries and geographies, Blackstone Tactical Opportunities (“Tactical Opportunities”), (c) our secondary fund of funds business, Strategic Partners Fund Solutions (“Strategic Partners”), (d) our infrastructure-focused funds, Blackstone Infrastructure Partners (“BIP”), (e) our life sciences private investment platform, Blackstone Life Sciences (“BXLS”), (f) a multi-asset investment program for eligible high net worth investors offering exposure to certain of Blackstone’s key illiquid investment strategies through a single commitment, Blackstone Total Alternatives Solution (“BTAS”) and (g) our capital markets services business, Blackstone Capital Markets (“BXCM”). |
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We are a world leader in private equity investing. Our corporate private equity business, established in 1987, pursues transactions across industries in both established and growth-oriented businesses across the globe. It strives to create value by investing in great businesses where our capital, strategic insight, global relationships and operational support can drive transformation. Our core private equity fund targets control-oriented investments in high-quality companies with durable businesses and seeks to offer a lower level of risk and a longer hold period than traditional private equity.
Tactical Opportunities invests globally across asset classes, industries and geographies, seeking to identify and execute on attractive, differentiated investment opportunities, leveraging the intellectual capital across our various businesses while continuously optimizing its approach in the face of ever-changing market conditions. Strategic Partners is a total fund solutions provider that acquires interests in high-quality private funds from original holders seeking liquidity, makes primary investments and
co-investments
with financial sponsors and provides investment advisory services to clients investing in primary and secondary investments in private funds and
co-investments.
BIP focuses on investments across all infrastructure sectors, including energy, water and waste and communications. BXLS is our private investment platform with capabilities to invest across the life cycle of companies and products within the life sciences sector.
| • | Hedge Fund Solutions. The principal component of our Hedge Fund Solutions segment is Blackstone Alternative Asset Management (“BAAM”). BAAM is the world’s largest discretionary allocator to hedge funds, managing a broad range of commingled and customized fund solutions since its inception in 1990. The Hedge Fund Solutions segment also includes investment platforms that seed new hedge fund businesses, purchase minority interests in more established general partners and management companies of funds, invest in special situation opportunities, create alternative solutions in the form of daily liquidity products and invest directly. |
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| • | Credit. The principal component of our Credit segment is GSO Capital Partners (“GSO”). GSO is one of the largest credit-oriented managers in the world and is the largest manager of collateralized loan obligations (“CLOs”) globally. The investment portfolios of the funds GSO manages or sub-advises predominantly consist of loans and securities of non-investment grade companies spread across the capital structure including senior debt, subordinated debt, preferred stock and common equity. |
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GSO is organized into three overarching str
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
| --- | --- |
Our predominant exposure to market risk is related to our role as general partner or investment adviser to the Blackstone Funds and the sensitivities to movements in the fair value of their investments, including the effect on management fees, performance revenues and investment income. See “Part I. — Item 1. Business — Investment Process and Risk Management.”
Effect on Fund Management Fees
Our management fees are based on (a) third parties’ capital commitments to a Blackstone Fund, (b) third parties’ capital invested in a Blackstone Fund or (c) the net asset value, or NAV, of a Blackstone Fund, as described in our Consolidated Financial Statements. Management fees will only be directly affected by short-term changes in market conditions to the extent they are based on NAV or represent permanent impairments of value. These management fees will be increased (or reduced) in direct proportion to the effect of changes in the fair value of our investments in the related funds. The proportion of our management fees that are based on NAV is dependent on the number and types of Blackstone Funds in existence and the current stage of each fund’s life cycle. For the years ended December 31, 2019 and December 31, 2018, the percentages of our fund management fees based on the NAV of the applicable funds or separately managed accounts, were as follows:
| Year Ended December 31, | |||||||||
| 2019 | 2018 | ||||||||
| Fund Management Fees Based on the NAV of the Applicable Funds or Separately Managed Accounts | 35 | % | 38 | % |
Market Risk
The Blackstone Funds hold investments which are reported at fair value. Based on the fair value as of December 31, 2019 and December 31, 2018, we estimate that a 10% decline in fair value of the investments would result in the following declines in Management Fees, Performance Revenues, Net of Related Compensation Expense and Investment Income:
| December 31, | |||||||||||||||||||||||||
| 2019 | 2018 | ||||||||||||||||||||||||
| Management Fees (a) | Performance Revenues, Net of Related Compensation Expense (b) | Investment Income (b) | Management Fees (a) | Performance Revenues, Net of Related Compensation Expense (b) | Investment Income (b) | ||||||||||||||||||||
| (Dollars in Thousands) | |||||||||||||||||||||||||
| 10% Decline in Fair Value of the Investments | $ | 129,020 | $ | 1,659,753 | $ | 177,934 | $ | 104,582 | $ | 1,475,206 | $ | 199,072 |
| (a) | Represents the annualized effect of the 10% decline. |
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| (b) | Represents the reporting date effect of the 10% decline. |
|---|
Total Assets Under Management, excluding undrawn capital commitments and the amount of capital raised for our CLOs, by segment, and the percentage amount classified as Level III investments as defined within the fair value standards of GAAP, are as follows:
| December 31, 2019 | ||||||||
| Total Assets Under Management, Excluding Undrawn Capital Commitments and the Amount of Capital Raised for CLOs | Percentage Amount Classified as Level III Investments | |||||||
| (Dollars in Thousands) | ||||||||
| Real Estate | $ 115,766,929 | 87% | ||||||
| Private Equity | $ 87,325,460 | 67% | ||||||
| Hedge Fund Solutions | $ 78,205,986 | 10% | ||||||
| Credit | $ 79,522,359 | 28% |
The fair value of our investments and securities can vary significantly based on a number of factors that take into consideration the diversity of the Blackstone Funds’ investment portfolio and on a number of factors and inputs such as similar transactions, financial metrics, and industry comparatives, among others. See “Part I. Item 1A. Risk Factors” above. Also see “— Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies — Fair Value.” We believe these fair value amounts should be utilized with caution as our intent and strategy is to hold investments and securities until prevailing market conditions are beneficial for investment sales.
Investors in our carry funds (and certain other of our funds) make capital commitments to those funds that we are entitled to call from those investors at any time during prescribed periods. We depend on investors fulfilling their commitments when we call capital from them in order for those funds to consummate investments and otherwise pay their related obligations when due, including management fees. We have not had investors fail to honor capital calls to any meaningful extent and any investor that did not fund a capital call would be subject to having a significant amount of its existing investment forfeited in that fund; however, if investors were to fail to satisfy a significant amount of capital calls for any particular fund or funds, those funds could be materially and adversely affected.
Exchange Rate Risk
The Blackstone Funds hold investments that are denominated in
non-U.S.
dollar currencies that may be affected by movements in the rate of exchange between the U.S. dollar and
non-U.S.
dollar currencies. Additionally, a portion of our management fees are denominated in
non-U.S.
dollar currencies. We estimate that as of December 31, 2019 and December 31, 2018, a 10% decline in the rate of exchange of all foreign currencies against the U.S. dollar would result in the following declines in Management Fees, Performance Revenues, Net of Related Compensation Expense and Investment Income:
| December 31, | ||||||||||||||||||||||||
| 2019 | 2018 | |||||||||||||||||||||||
| Management Fees (a) | Performance Revenues, Net of Related Compensation Expense (b) | Investment Income (b) | Management Fees (a) | Performance Revenues, Net of Related Compensation Expense (b) | Investment Income (b) | |||||||||||||||||||
| (Dollars in Thousands) | ||||||||||||||||||||||||
| 10% Decline in the Rate of Exchange of All Foreign Currencies Against the U.S. Dollar | $ | 22,883 | $ | 555,767 | $ | 43,802 | $ | 18,289 | $ | 339,152 | $ | 32,810 |
| (a) | Represents the annualized effect of the 10% decline. |
|---|
| (b) | Represents the reporting date effect of the 10% decline. |
|---|
Interest Rate Risk
Blackstone has debt obligations payable that accrue interest at variable rates. Interest rate changes may therefore affect the amount of our interest payments, future earnings and cash flows. Based on our debt obligations payable as of December 31, 2019 and December 31, 2018, we estimate that interest expense relating to variable rates would increase on an annual basis, in the event interest rates were to increase by one percentage point, as follows:
| December 31, | |||||||||
| 2019 | 2018 | ||||||||
| (Dollars in Thousands) | |||||||||
| Annualized Increase in Interest Expense Due to a One Percentage Point Increase in Interest Rates (a) | $ | — | $ | — |
| (a) | As of December 31, 2019 and 2018 Blackstone had no such debt obligations payable outstanding. |
|---|
Blackstone has a diversified portfolio of liquid assets to meet the liquidity needs of various businesses. This portfolio includes cash, open-ended money market mutual funds, open-ended bond mutual funds, marketable investment securities, freestanding derivative contracts, repurchase and reverse repurchase agreements and other investments. If interest rates were to increase by one percentage point, we estimate that our annualized investment income would decrease, offset by an estimated increase in interest income on an annual basis from interest on floating rate assets, as follows:
| December 31, | |||||||||||||||||
| 2019 | 2018 | ||||||||||||||||
| Annualized Decrease in Investment Income | Annualized Increase in Interest Income from Floating Rate Assets | Annualized Decrease in Investment Income | Annualized Increase in Interest Income from Floating Rate Assets | ||||||||||||||
| (Dollars in Thousands) | |||||||||||||||||
| One Percentage Point Increase in Interest Rates | $ | 6,855 | (a) | $ | 28,404 | $ | 6,641 | (a) | $ | 24,602 |
| (a) | As of December 31, 2019 and 2018, this represents 0.2% and 0.1% of our portfolio of liquid assets, respectively. |
|---|
Blackstone has U.S. dollar and
non-U.S.
dollar based interest rate derivatives whose future cash flows and present value may be affected by movement in their respective underlying yield curves. We estimate that as of December 31, 2019 and December 31, 2018, a one percentage point increase parallel shift in global yield curves would result in the following impact on Other Revenue:
| December 31, | |||||||||
| 2019 | 2018 | ||||||||
| (Dollars in Thousands) | |||||||||
| Annualized Increase in Other Revenue Due to a One Percentage Point Increase in Interest Rates | $ | 13,957 | $ | 14,210 |
Credit Risk
Certain Blackstone Funds and the Investee Funds are subject to certain inherent risks through their investments.
Our portfolio of liquid assets contains certain credit risks including, but not limited to, exposure to uninsured deposits with financial institutions, unsecured corporate bonds and mortgage-backed securities. These exposures are actively monitored on a continuous basis and positions are reallocated based on changes in risk profile, market or economic conditions.
We estimate that our annualized investment income would decrease, if credit spreads were to increase by one percentage point, as follows:
| December 31, | |||||||||
| 2019 | 2018 | ||||||||
| (Dollars in Thousands) | |||||||||
| Decrease in Annualized Investment Income Due to a One Percentage Point Increase in Credit Spreads (a) | $ | 42,135 | $ | 52,051 |
| (a) | As of December 31, 2019 and 2018, this represents 1.2% and 1.1% of our portfolio of liquid assets, respectively. |
|---|
Certain of our entities hold derivative instruments that contain an element of risk in the event that the counterparties may be unable to meet the terms of such agreements. We minimize our risk exposure by limiting the counterparties with which we enter into contracts to banks and investment banks that meet established credit and capital guidelines. We do not expect any counterparty to default on its obligations and therefore do not expect to incur any loss due to counterparty default.
Item 8. Financial Statements and Supplementary Data
| --- | --- |
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of The Blackstone Group Inc.:
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated statements of financial condition of The Blackstone Group Inc. and subsidiaries (“Blackstone”) as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive income, changes in equity, and cash flows for each of the three years in the period ended December 31, 2019, and the related notes (collectively referred to as the “financial statements”). We also have audited Blackstone’s internal control over financial reporting as of December 31, 2019, based on criteria established in
Internal Control — Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Blackstone as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, Blackstone maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in
Internal Control — Integrated Framework (2013)
issued by COSO.
Basis for Opinions
Blackstone’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying management report on internal control over financial reporting. Our responsibility is to express an opinion on these financial statements and an opinion on Blackstone’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to Blackstone in accordance with the US federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (b) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (c) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (a) relate to accounts or disclosures that are material to the financial statements and (b) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Fair Value of Underlying Investments to determine Performance Allocations and Accrued Performance Allocations — Refer to Notes 2 and 4 to the financial statements
Critical Audit Matter Description
Blackstone, as a general partner, is entitled to an allocation of income from certain Blackstone Funds (“Blackstone Funds”), assuming certain investment returns are achieved, referred to as “Performance Allocations.” Performance Allocations are made based on cumulative fund performance to date, subject to a preferred return to limited partners. The change in the fair value of the underlying investments held by the Blackstone Funds is the significant input into this calculation.
As the fair value of underlying investments varies between reporting periods, adjustments are made to amounts recorded as “Accrued Performance Allocations” to reflect either (a) positive performance resulting in an increase in the Accrued Performance Allocation or (b) negative performance that would cause the amount due to the general partner to be less than th
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Item 8A. Unaudited Supplemental Presentation of Statements of Financial Condition
| --- | --- |
The Blackstone Group Inc.
Unaudited Consolidating Statements of Financial Condition
(Dollars in Thousands)
| December 31, 2019 | |||||||||||||||||
| Consolidated Operating Partnerships | Consolidated Blackstone Funds (a) | Reclasses and Eliminations | Consolidated | ||||||||||||||
| Assets | |||||||||||||||||
| Cash and Cash Equivalents | $ | 2,172,441 | $ | — | $ | — | $ | 2,172,441 | |||||||||
| Cash Held by Blackstone Funds and Other | — | 351,210 | — | 351,210 | |||||||||||||
| Investments | 14,535,685 | 8,380,698 | (634,701 | ) | 22,281,682 | ||||||||||||
| Accounts Receivable | 754,703 | 220,372 | — | 975,075 | |||||||||||||
| Due from Affiliates | 2,606,563 | 8,818 | (20,508 | ) | 2,594,873 | ||||||||||||
| Intangible Assets, Net | 397,508 | — | — | 397,508 | |||||||||||||
| Goodwill | 1,869,860 | — | — | 1,869,860 | |||||||||||||
| Other Assets | 381,289 | 1,204 | — | 382,493 | |||||||||||||
| Right-of-Use Assets | 471,059 | — | — | 471,059 | |||||||||||||
| Deferred Tax Assets | 1,089,305 | — | — | 1,089,305 | |||||||||||||
| Total Assets | $ | 24,278,413 | $ | 8,962,302 | $ | (655,209 | ) | $ | 32,585,506 | ||||||||
| Liabilities and Equity | |||||||||||||||||
| Loans Payable | $ | 4,600,856 | $ | 6,479,867 | $ | — | $ | 11,080,723 | |||||||||
| Due to Affiliates | 885,655 | 509,681 | (368,465 | ) | 1,026,871 | ||||||||||||
| Accrued Compensation and Benefits | 3,796,044 | — | — | 3,796,044 | |||||||||||||
| Securities Sold, Not Yet Purchased | 20,256 | 55,289 | — | 75,545 | |||||||||||||
| Repurchase Agreements | — | 154,118 | — | 154,118 | |||||||||||||
| Operating Lease Liabilities | 542,994 | — | — | 542,994 | |||||||||||||
| Accounts Payable, Accrued Expenses and Other Liabilities | 504,804 | 301,355 | — | 806,159 | |||||||||||||
| Total Liabilities | 10,350,609 | 7,500,310 | (368,465 | ) | 17,482,454 | ||||||||||||
| Redeemable Non-Controlling Interests in Consolidated Entities | 22,002 | 65,649 | — | 87,651 | |||||||||||||
| Equity | |||||||||||||||||
| Class A Common Stock | 7 | — | — | 7 | |||||||||||||
| Class B Common Stock | — | — | — | — | |||||||||||||
| Class C Common Stock | — | — | — | — | |||||||||||||
| Additional Paid-in-Capital | 6,428,647 | 283,339 | (283,339 | ) | 6,428,647 | ||||||||||||
| Retained Earnings | 609,625 | 3,405 | (3,405 | ) | 609,625 | ||||||||||||
| Accumulated Other Comprehensive Loss | (28,495 | ) | — | — | (28,495 | ) | |||||||||||
| Non-Controlling Interests in Consolidated Entities | 3,076,470 | 1,109,599 | — | 4,186,069 | |||||||||||||
| Non-Controlling Interests in Blackstone Holdings | 3,819,548 | — | — | 3,819,548 | |||||||||||||
| Total Equity | 13,905,802 | 1,396,343 | (286,744 | ) | 15,015,401 | ||||||||||||
| Total Liabilities and Equity | $ | 24,278,413 | $ | 8,962,302 | $ | (655,209 | ) | $ | 32,585,506 | ||||||||
The Blackstone Group Inc.
Unaudited Consolidating Statements of Financial Condition—Continued
(Dollars in Thousands)
| December 31, 2018 | |||||||||||||||||
| Consolidated Operating Partnerships | Consolidated Blackstone Funds (a) | Reclasses and Eliminations | Consolidated | ||||||||||||||
| Assets | |||||||||||||||||
| Cash and Cash Equivalents | $ | 2,207,841 | $ | — | $ | — | $ | 2,207,841 | |||||||||
| Cash Held by Blackstone Funds and Other | — | 337,320 | — | 337,320 | |||||||||||||
| Investments | 12,596,138 | 8,376,338 | (595,445 | ) | 20,377,031 | ||||||||||||
| Accounts Receivable | 455,308 | 180,930 | — | 636,238 | |||||||||||||
| Due from Affiliates | 2,011,324 | 7,405 | (24,606 | ) | 1,994,123 | ||||||||||||
| Intangible Assets, Net | 468,507 | — | — | 468,507 | |||||||||||||
| Goodwill | 1,869,860 | — | — | 1,869,860 | |||||||||||||
| Other Assets | 290,366 | 3,882 | — | 294,248 | |||||||||||||
| Deferred Tax Assets | 739,482 | — | — | 739,482 | |||||||||||||
| Total Assets | $ | 20,638,826 | $ | 8,905,875 | $ | (620,051 | ) | $ | 28,924,650 | ||||||||
| Liabilities and Partners’ Capital | |||||||||||||||||
| Loans Payable | $ | 3,471,151 | $ | 6,480,711 | $ | — | $ | 9,951,862 | |||||||||
| Due to Affiliates | 907,748 | 470,780 | (342,752 | ) | 1,035,776 | ||||||||||||
| Accrued Compensation and Benefits | 2,942,128 | — | — | 2,942,128 | |||||||||||||
| Securities Sold, Not Yet Purchased | 50,014 | 92,603 | — | 142,617 | |||||||||||||
| Repurchase Agreements | — | 222,202 | — | 222,202 | |||||||||||||
| Accounts Payable, Accrued Expenses and Other Liabilities | 622,490 | 253,489 | — | 875,979 | |||||||||||||
| Total Liabilities | 7,993,531 | 7,519,785 | (342,752 | ) | 15,170,564 | ||||||||||||
| Redeemable Non-Controlling Interests in Consolidated Entities | 22,000 | 119,779 | — | 141,779 | |||||||||||||
| Partners’ Capital | |||||||||||||||||
| Partners’ Capital | 6,415,700 | 277,299 | (277,299 | ) | 6,415,700 | ||||||||||||
| Accumulated Other Comprehensive Loss | (36,476 | ) | — | — | (36,476 | ) | |||||||||||
| Non-Controlling Interests in Consolidated Entities | 2,659,754 | 989,012 | — | 3,648,766 | |||||||||||||
| Non-Controlling Interests in Blackstone Holdings | 3,584,317 | — | — | 3,584,317 | |||||||||||||
| Total Partners’ Capital | 12,623,295 | 1,266,311 | (277,299 | ) | 13,612,307 | ||||||||||||
| Total Liabilities and Partners’ Capital | $ | 20,638,826 | $ | 8,905,875 | $ | (620,051 | ) | $ | 28,924,650 | ||||||||
| (a) | The Consolidated Blackstone Funds consisted of the following: |
|---|
Blackstone / GSO Global Dynamic Credit Feeder Fund (Cayman) LP
Blackstone / GSO Global Dynamic Credit Funding Designated Activity Company
Blackstone / GSO Global Dynamic Credit Master Fund
Blackstone / GSO Global Dynamic Credit USD Feeder Fund (Ireland)
Blackstone Real Estate Special Situations Fund L.P.*
Blackstone Real Estate Special Situations Offshore Fund Ltd.
Blackstone Strategic Alliance Fund L.P.
BSSF I AIV L.P.*
BTD CP Holdings LP
Collateralized loan obligation vehicles
Mezzanine
side-by-side
investment vehicles
Private equity
side-by-side
investment vehicles
Real estate
side-by-side
investment vehicles
Hedge Fund Solutions
side-by-side
investment vehicles
| * | Consolidated as of December 31, 2018 only. |
|---|
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
| --- | --- |
None.
Item 9A. Controls and Procedures
| --- | --- |
We maintain “disclosure controls and procedures,” as such term is defined in Rules
13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired objectives.
Our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule
13a-15
under the Exchange Act as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures (as defined in Rule
13a-15(e)
under the Exchange Act) are effective at the reasonable assurance level to accomplish their objectives of ensuring that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
No change in our internal control over financial reporting (as such term is defined in Rules 13a–15(f) and 15d–15(f) under the Exchange Act) occurred during our most recent quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
Management of The Blackstone Group Inc. and subsidiaries (“Blackstone”) is responsible for establishing and maintaining adequate internal control over financial reporting. Blackstone’s internal control over financial reporting is a process designed under the supervision of its principal executive and principal financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of its consolidated financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America.
Blackstone’s internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and the directors; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of Blackstone’s assets that could have a material effect on its financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
Management conducted an assessment of the effectiveness of Blackstone’s internal control over financial reporting as of December 31, 2019 based on the framework established in
Internal Control — Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has determined that Blackstone’s internal control over financial reporting as of December 31, 2019 was effective.
Deloitte & Touche LLP, an independent registered public accounting firm, has audited Blackstone’s financial statements included in this report on Form
10-K
and issued its report on the effectiveness of Blackstone’s internal control over financial reporting as of December 31, 2019, which is included herein.
Item 9B. Other Information
| --- | --- |
On February 25, 2020, Joseph P. Baratta, Senior Managing Director and Global Head of Private Equity, was appointed to our board of directors, effective March 2, 2020. For more information, see “Item 10. Directors, Executive Officers and Corporate Governance”, “Item 13. Certain Relationships and Related Transactions, and Director Independence — Transactions with Related Persons — Tax Receivable Agreements”, “Item 13. Certain Relationships and Related Transactions, and Director Independence — Transactions with Related Persons — Joseph P. Baratta” and “Item 13. Certain Relationships and Related Transactions, and Director Independence — Transactions with Related Persons — Investment in or Alongside Our Funds”.
Part III.
Item 10. Directors, Executive Officers and Corporate Governance
| --- | --- |
Directors and Executive Officers of The Blackstone Group Inc.
Our directors and executive officers as of the date of this filing are:
| Name | Age | Position | ||||
| Stephen A. Schwarzman | 73 | Founder, Chairman and Chief Executive Officer and Director | ||||
| Jonathan D. Gray | 50 | President, Chief Operating Officer and Director | ||||
| Hamilton E. James | 69 | Executive Vice Chairman and Director | ||||
| Michael S. Chae | 51 | Chief Financial Officer | ||||
| John G. Finley | 63 | Chief Legal Officer | ||||
| Joseph P. Baratta | 49 | Global Head of Private Equity and Director* | ||||
| Kelly A. Ayotte | 51 | Director | ||||
| James W. Breyer | 58 | Director | ||||
| Sir John Antony Hood | 68 | Director | ||||
| Rochelle B. Lazarus | 72 | Director | ||||
| Jay O. Light | 78 | Director | ||||
| The Right Honorable Brian Mulroney | 80 | Director | ||||
| William G. Parrett | 74 | Director |
| * | Appointment to board of directors effective March 2, 2020. |
|---|
Stephen A. Schwarzman
is the Chairman, Chief Executive Officer and
Co-Founder
of Blackstone and the Chairman of our board of directors. Mr. Schwarzman was elected Chairman of the board of directors effective March 20, 2007. He also sits on the firm’s Management Committee. Mr. Schwarzman has been involved in all phases of the firm’s development since its founding in 1985. Mr. Schwarzman is an active philanthropist with a history of supporting education, as well as culture and the arts, among other things. In 2020, he signed The Giving Pledge, committing to give the majority of his wealth to philanthropic causes. In both business and philanthropy, Mr. Schwarzman has dedicated himself to tackling big problems with transformative solutions. In June 2019, he donated £150 million to the University of Oxford to help redefine the study of the humanities for the 21st century. His gift – the largest single donation to Oxford since the renaissance – will create a new Centre for the Humanities which unites all humanities faculties under one roof for the first time in Oxford’s history, and will offer new performing arts and exhibition venues as well as a new Institute for Ethics in AI. In October 2018, he announced a foundational $350 million gift to establish the MIT Schwarzman College of Computing, an interdisciplinary hub which will reorient MIT to address the opportunities and challenges presented by the rise of artificial intelligence, including critical ethical and policy considerations to ensure that the technologies are employed for the common good. In 2015, Mr. Schwarzman donated $150 million to Yale University to establish the Schwarzman Center, a
first-of-its-kind
campus center in Yale’s historic “Commons” building, and also gave a founding gift of $40 million to the Inner-City Scholarship Fund, which provides tuition assistance to underprivileged children attending Catholic schools in the Archdiocese of New York. In 2013, he founded an international scholarship program, “Schwarzman Scholars,” at Tsinghua University in Beijing to educate future leaders about China. At over $575 million, the program is modeled on the Rhodes Scholarship and is the single largest philanthropic effort in China’s history coming largely from international donors. Mr. Schwarzman is
Co-Chair
of the Board of Trustees of Schwarzman Scholars. In 2007, Mr. Schwarzman donated $100 million to the New York Public Library on whose board he serves. In 2019, Mr. Schwarzman published his first book What It Takes: Lessons in the Pursuit of Excellence, a New York Times Best Seller which draws from his experience in business, philanthropy and public service. Mr. Schwarzman is a member of The Council on Foreign Relations, The Business Council, The Business Roundtable, and The International Business Council of the World Economic Forum. He is the former
co-chair
of the Partnership for New York City and serves on the boards of The Asia Society and New York Presbyterian Hospital, as well as on The Advisory Board of the School of Economics and Management at Tsinghua University, Beijing. He is a Trustee of The Frick Collection in New York City and Chairman Emeritus of the board of directors of The John F. Kennedy Center for the Performing Arts. In 2007, Mr. Schwarzman was included in TIME’s “100 Most Influential People.” In 2016, he topped Forbes Magazine’s list of the most influential people in finance and in 2018 was ranked in the Top 50 on Forbes’ list of the “World’s Most Powerful People”. The Republic of France has
awarded Mr. Schwarzman both the Légion d’Honneur and the Ordre des Arts et des Lettres at the Commandeur level. Mr. Schwarzman is one of the only Americans to receive both awards recognizing significant contributions to France. He was also awarded the Order of the Aztec Eagle, Mexico’s highest honor for foreigners. He is also the former Chairman of the President’s Strategic and Policy Forum, which was charged with providing direct input to the President of the United States from business leaders through a
non-partisan,
non-bureaucratic
exchange of ideas. Mr. Schwarzman holds a BA from Yale University and an MBA from Harvard Business School. He has served as an adjunct professor at the Yale School of Management and on the Harvard Business School Board of Dean’s Advisors.
Jonathan D. Gray
is President and Chief Operating Officer of Blackstone and a member of our board of directors. Mr. Gray was elected to the board of directors effective February 24, 2012. He also sits on the firm’s Management Committee and previously served as Global Head of Real Estate, which he helped build into the largest real estate platform in the world. Mr. Gray joined Blackstone in 1992. He currently serves as Chairman of the board of directors of Hilton Worldwide Holdings Inc. and Nevada Property 1 LLC (The Cosmopolitan of Las Vegas). Mr. Gray also previously served as a board member of Invitation Homes Inc., Brixmor Property Group Inc. and La Quinta Holdings Inc. He also serves on the board of Harlem Village Academies. Mr. Gray and his wife, Mindy, established the Basser Center for BRCA at the University of Pennsylvania School of Medicine focused on the prevention and treatment of certain genetically caused cancers. They also established NYC Kids RISE in partnership with the City of New York to accelerate college savings for low income children. Mr. Gray received a BS in Economics from the Wharton School, as well as a BA in English from the College of Arts and Sciences at the University of Pennsylvania.
Hamilton E. James
is Executive Vice Chairman of Blackstone and a member of our board of directors. Mr. James was elected to the board of directors effective March 20, 2007. He is also a member of Blackstone’s Management Committee and sits on various Blackstone investment committees. Mr. James previously served as President and Chief Operating Officer of Blackstone. Prior to joining Blackstone in 2002, Mr. James was Chairman of Global Investment Banking and Private Equity at Credit Suisse First Boston and a member of its executive board. Prior to the acquisition of Donaldson, Lufkin & Jenrette, Inc. (“DLJ”) by Credit Suisse First Boston in 2000, Mr. James was the Chairman of DLJ’s Banking Group, responsible for all the firm’s investment banking and merchant banking activities. Mr. James joined DLJ in 1975, became head of DLJ’s global mergers and acquisitions group in 1982, founded DLJ Merchant Banking, Inc. in 1985, and was named Chairman of the Banking Group in 1995. Mr. James is the Chairman of the Board of Directors of Costco Wholesale Corporation, and has served on a number of other corporate boards. Mr. James is Chairman of the Finance Committee of The Metropolitan Museum of Art, Chairman of the finance committee of the Mount Sinai Health System, a member of the Center for American Progress Board of Trustees, Vice Chairman of Trout Unlimited’s Coldwater Conservation Fund, Vice Chairman of the Board of Trustees of the Wildlife Conservation Society, Advisory Board Member of The Montana Land Reliance, Advisory Council member of the Monetary Authority of Singapore, Chairman of the Education Finance Institute, Advisory Board member of the Max S. Baucus Institute at the University of Montana and Chairman Emeritus of the Board of Trustees of the American Ballet Theatre. He is also a former member of the President’s Export Council and a former Commissioner of The Port Authority of New York and New Jersey. In 2018, Mr. James
co-authored
the second edition of
Rescuing Retirement
, a book proposing a solution to America’s looming retirement crisis. The first edition was published in 2016. Mr. James has also published articles in The New York Times, The Wall Street Journal, Financial Times, The Harvard Business Review and other major publications. Mr. James graduated magna cum laude with a BA from Harvard College in 1973 and was a John Harvard Scholar. He earned an MBA with high distinction from the Harvard Business School and graduated as a Baker Scholar in 1975.
Joseph P. Baratta
is Global Head of Private Equity at Blackstone and a member of the board of directors. Mr. Baratta was elected to the board of directors effective March 2, 2020. He also sits on the firm’s Management Committee. Mr. Baratta joined Blackstone in 1998 and in 2001 he moved to London to help establish Blackstone’s corporate private equity business in Europe. Before joining Blackstone, Mr. Baratta was with Tinicum Incorporated and McCown De Leeuw & Company. Mr. Baratta also worked at Morgan Stanley in its mergers and acquisitions department. Mr. Baratta has served on the boards of a number of Blackstone portfolio companies and currently serves as a member or observer on the boards of directors of First Eagle Investment Management, Refinitiv, SESAC and Merlin Entertainments Group. He is also a member of the Board of Trustees of Georgetown University, is a trustee of the Tate Foundation, serves on the board of Year Up, an organization focused on youth employment, and serves on the Board of Trustees of Trinity School in New York City.
Michael S. Chae
is Blackstone’s Chief Financial Officer and a member of the firm’s Management Committee. Mr. Chae has management responsibility over the firm’s global finance, treasury, technology and corporate development functions. Since joining Blackstone in 1997, Mr. Chae has served in a broad range of leadership roles including Head of International Private Equity from 2012 through 2015, Head of Private Equity for Asia/Pacific from 2011 through 2015, and overseeing Private Equity investments in various sectors and the investment process for Tactical Opportunities. Mr. Chae led or was involved in numerous Blackstone investments over that time period.
Before joining Blackstone, Mr. Chae worked at The Carlyle Group, L.P. and prior to that at Dillon, Read & Co. He has served on numerous boards of private and publicly traded portfolio companies and is President of the Board of Trustees of the Lawrenceville School. He is also a member of the Council on Foreign Relations and the Board of Trustees of the Asia Society and the St. Bernard’s School. Mr. Chae received an AB from Harvard College, an MPhil. in International Relations from Cambridge University and a JD from Yale Law School.
John G. Finley
is a Senior Managing Director and Chief Legal Officer of Blackstone and a member of the firm’s Management Committee. Before joining Blackstone in 2010, Mr. Finley had been a partner with Simpson Thacher & Bartlett for 22 years where he was a member of that law firm’s Executive Committee and
Co-Head
of Global Mergers & Acquisitions. Mr. Finley is an Adviser on the American Law Institute’s Restatement of the Law, Corporate Governance project and a member of the Dean’s Advisory Board of Harvard Law School. Mr. Finley is a member of the National Advisory Board of the Netter Center for Community Partnerships of the University of Pennsylvania and the Board of Advisors of the University of Pennsylvania Institute of Law and Economics. He is also a guest lecturer at Harvard Law School. He has served on the Committee of Securities Regulation of the New York State Bar Association, the Board of Advisors of the Knight-Bagehot Fellowship in Economics and Business Journalism at Columbia University, the Lawyers Committee for Human Rights and as a Trustee of the Jewish Board of Family and Children Services. He has also served as Chairman of the Annual International Mergers & Acquisitions Conference of the International Bar Association. Mr. Finley received a BS in Economics from the Wharton School of the University of Pennsylvania, a BA in History from the College of Arts and Sciences of the University of Pennsylvania, and a JD from Harvard Law School.
Kelly A. Ayotte
is a member of our board of directors. Ms. Ayotte was elected to the board of directors effective May 13, 2019. Ms. Ayotte represented New Hampshire in the United States Senate from 2011 to 2016, where she chaired the Armed Services Subcommittee on Readiness and the Commerce Subcommittee on Aviation Operations. Ms. Ayotte also served on the Budget, Homeland Security and Governmental Affairs, Small Business and Entrepreneurship, and Aging Committees. Ms. Ayotte served as the “Sherpa” for Justice Neil Gorsuch, leading the effort to secure his confirmation to the United States Supreme Court. From 2004 to 2009, Ms. Ayotte served as New Hampshire’s first female Attorney General having been appointed to that position by Republican Governor Craig Benson and reappointed twice by Democratic Governor John Lynch. Prior to that, she served as the Deputy Attorney General, Chief of the Homicide Prosecution Unit and as Legal Counsel to Governor Craig Benson. Ms. Ayotte began her career as a law clerk to the New Hampshire Supreme Court and as an associate at the Mclane Middleton law firm. Ms. Ayotte serves on the board of directors of Caterpillar Inc. and its nomination, governance and public policy committee, the board of directors of News Corporation and its nomination and governance committee and the board of directors of Boston Properties, Inc. and its compensation and nomination and governance committees. She also serves on the board of directors of Blink Health LLC and BAE Systems Inc., and previously on the board of directors of Bloom Energy Corporation and chaired its nomination and governance committee. Ms. Ayotte also serves on the advisory boards of Microsoft Corporation, Chubb Insurance and Cirtronics. Ms. Ayotte is a Senior Advisor to United Against Nuclear Iran and Citizens for Responsible Energy Solutions. She also serves on the
non-profit
boards of the One Campaign, the International Republican Institute, the McCain Institute, Winning for Women, NH Veteran’s Count and NH Swim with a Mission. Ms. Ayotte
co-chairs
the Commission on Health Security at the Center for Strategic and International Studies and is member of the Taskforce on Extremism in Fragile States at the United States Institute of Peace. She is a member of the Board of Advisors for the Center on Military and Political Power at the Foundation for Defense of Democracies and the Aspen lnstitute’s Homeland Security and Economic Strategy Groups.
James W. Breyer
is a member of our board of directors. Mr. Breyer was elected to the board of directors effective July 14, 2016. Mr. Breyer is the Founder and Chief Executive Officer of Breyer Capital, a premier venture capital firm based in Menlo Park, California. Mr. Breyer has been an early investor in over 40 technology companies that have completed successful public offerings or mergers. He served as Partner at Accel Partners from 1990 to 2016 and Managing Partner from 1995 to 2011. Mr. Breyer also has a long record of investing in China and partnering with Chinese entrepreneurs. He is
Co-Chairman
of IDG Capital, based in Beijing and the first firm to bring venture capital into China. Over the past several years, Mr. Breyer has developed a deep personal and investment interest in long-term oriented entrepreneurs and teams working in artificial/augmented intelligence
and human-assisted intelligence and has made numerous investments in this space. Mr. Breyer previously served on the board of directors of Twenty-First Century Fox, Inc. from 2011 to 2019, Facebook, Inc. from 2005 to 2013, Etsy, Inc. from 2008 to 2016, Dell, Inc. from 2009 to 2013 and
Wal-Mart
Stores, Inc. from 2001 to 2013, as well as a number of other technology companies. Mr. Breyer is currently the Chairman of the Advisory Board at the Tsinghua University School of Economics and Management, a member of Harvard Business School’s Board of Dean’s Advisors, a member of Harvard University’s Global Advisory Council, a founding member of the Dean’s Advisory Board of Stanford University’s School of Engineering, Chairman of the Stanford Engineering Venture Fund and founding member of the Stanford Institute for Human-Assisted Artificial Intelligence Advisory Board. In addition, Mr. Breyer is a long-time active volunteer as a Trustee of the San Francisco Museum of Modern Art, the Metropolitan Museum of Art, the American Film Institute and Stanford’s Center for Philanthropy and Civil Society.
Sir John Antony Hood
is a member of our board of directors. Sir John was elected to the board of directors effective May 14, 2018. Sir John is the President and Chief Executive Officer of the Robertson Foundation. Sir John previously served as the Chair of the Rhodes Trust, on the board of the Mandela Rhodes Foundation and as Chairman of BMT Group, Ltd. He currently serves as a director of WPP plc and Aurora Energy Research. In addition, Sir John serves on the boards of the Fletcher Trust and the Said Business School Foundation, and on the advisory board for the African Leadership Academy. From 2004 to 2009, Sir John served as Vice-Chancellor of the University of Oxford, and from 1999 to 2004, he served as Vice-Chancellor of The University of Auckland. Sir John earned a Bachelor of Engineering and a PhD in Civil Engineering from The University of Auckland. Upon completing his doctorate, he was awarded a Rhodes Scholarship to study at the University of Oxford. There he read for an MPhil in Management Studies and was a member of Worcester College. Sir John has been appointed a Knight Companion to the New Zealand Order of Merit.
Rochelle B. Lazarus
is a member of our board of directors. Ms. Lazarus was elected to the board of directors effective July 9, 2013. Ms. Lazarus is Chairman Emeritus of Ogilvy & Mather and served as Chairman of that company from 1997 to June 2012. Prior to becoming Chief Executive Officer and Chairman, she also served as President of O&M Direct North America, Ogilvy & Mather New York, and Ogilvy & Mather North America. Ms. Lazarus currently serves on the boards of Merck & Co., Inc., Rockefeller Capital Management, World Wildlife Fund, Lincoln Center for the Performing Arts and the Partnership for New York City. She also previously served on the board of General Electric Company. Ms. Lazarus is a trustee of the New York Presbyterian Hospital and is a member of the Board of Overseers of Columbia Business School. She is also a member of the Council on Foreign Relations and The Women’s Forum, Inc.
Jay O. Light
is a member of our board of directors. Mr. Light was elected to the board of directors effective September 18, 2008. Mr. Light is the Dean Emeritus of Harvard Business School and the George F. Baker Professor of Administration Emeritus. Prior to that, Mr. Light was the Dean of Harvard Business School from 2006 to 2010. Before becoming the Dean of Harvard Business School, Mr. Light was Senior Associate Dean, Chairman of the Finance Area, and a professor teaching Investment Management, Capital Markets, and Entrepreneurial Finance for 30 years. Mr. Light was also previously the lead director of the board of directors of HCA Holdings, Inc., a director of the Harvard Management Company and a director of Partners HealthCare (the Mass General and Brigham & Women’s Hospitals), where he served as Chairman of its Investment Committee until 2015. In prior years until 2008, Mr. Light was a Trustee of the GMO Trusts, a family of mutual funds for institutional investors.
The Right Honorable Brian Mulroney
is a member of our board of directors. Mr. Mulroney was elected to the board of directors effective June 21, 2007. Mr. Mulroney is a senior partner for Norton Rose Fulbright Canada LLP. Prior to joining Norton Rose Fulbright Canada, Mr. Mulroney was the eighteenth Prime Minister of Canada from 1984 to 1993 and leader of the Progressive Conservative Party of Canada from 1983 to 1993. He served as the Executive Vice President of the Iron Ore Company of Canada and President beginning in 1977. Prior to that, Mr. Mulroney served on the Cliché Commission of Inquiry in 1974. Mr. Mulroney is a Senior Advisor of Global Affairs at Barrick Gold Corporation, where he previously served as a member of the board of directors, and is the Chairman of their International Advisory Board. Mr. Mulroney is also Chairman of the board of directors of Quebecor Inc. and previously served on the board of directors of Wyndham Hotels & Resorts, Inc., Archer Daniels Midland Company and Quebecor World Inc.
William G. Parrett
is a member of our board of directors. Mr. Parrett was elected to the board of directors effective November 9, 2007. Until May 31, 2007, Mr. Parrett served as the Chief Executive Officer of Deloitte Touche Tohmatsu and Senior Partner of Deloitte (USA). Certain of the member firms of Deloitte Touche Tohmatsu or their subsidiaries and affiliates provide professional services to Blackstone or its affiliates. Mr. Parrett
co-founded
the Global Financial Services Industry practice of Deloitte and served as its first Chairman. Mr. Parrett is a member of the board of directors of Oracle Corporation, where he is a member of the nominating and governance committee, and Eastman Kodak Company, where he chairs the audit and finance committee. Mr. Parrett was also previously a member of the board of directors of Thermo Fisher Scientific Inc., UBS AG and Conduent Inc. Mr. Parrett is a Senior Trustee of the United States Council for International Business and a past Chairman of the Board of Trustees of United Way Worldwide and New York Foundation for Senior Citizens. Mr. Parrett is a Certified Public Accountant with an active license.
Governance and Board Composition
Our common stock consists of Class A common stock, Class B common stock and Class C common stock. Under our certificate of incorporation and Delaware law, holders of our Class A common stock are entitled to vote, together with holders of our Class B common stock, voting as a single class, on a number of matters. However, the Class C common stock is the only class of the Company’s common stock entitled to vote for the election of our directors. The single share of outstanding Class C common stock is currently held by Blackstone Group Management L.L.C (the “Class C Shareholder”), an entity owned by our senior managing directors and controlled by our founder, Mr. Schwarzman.
The Class C Shareholder elects our board of directors in accordance with the Class C Shareholder’s limited liability company agreement, where our senior managing directors have agreed that our founder, Mr. Schwarzman will have the power to vote upon, act upon, consent to, approve or otherwise determine any matters to be voted upon, acted upon, consented to, approved or otherwise determined by the members of the Class C Shareholder. The limited liability company agreement of our Class C Shareholder provides that at such time as Mr. Schwarzman should cease to be a founding member, Jonathan D. Gray will thereupon succeed Mr. Schwarzman as the sole founding member of our Class C Shareholder, and thereafter such power will revert to the members of Class C Shareholder holding a majority in interest in the Class C Shareholder.
In identifying candidates for membership on the board of directors, Mr. Schwarzman, acting on behalf of the Class C Shareholder, takes into account (a) minimum individual qualifications, such as strength of character, mature judgment, industry knowledge or experience and an ability to work collegially with the other members of the board of directors, and (b) all other factors he considers appropriate.
After conducting an initial evaluation of a candidate, Mr. Schwarzman will interview that candidate if he believes the candidate might be suitable to be a director and may also ask the candidate to meet with other directors and senior management. If, following such interview and any consultations with directors and senior management, Mr. Schwarzman believes a candidate would be a valuable addition to the board of directors, he will appoint that individual to the board of directors.
When considering whether the board’s directors have the experience, qualifications, attributes and skills, taken as a whole, to enable the board to satisfy its oversight responsibilities effectively in light of Blackstone’s business and structure, Mr. Schwarzman focused on the information described in each of the board members’ biographical information set forth above. In particular, with regard to Ms. Ayotte, Mr. Schwarzman considered her distinguished career in government and public service, especially her service as a United States Senator and as New Hampshire Attorney General. With regard to Mr. Breyer, Mr. Schwarzman considered his extensive financial background and significant investment experience at Breyer Capital and Accel Partners. With regard to Sir John, Mr. Schwarzman considered his distinguished experience playing a key role in the management and oversight of leading, complex institutions and philanthropic organizations around the world. With regard to Ms. Lazarus, Mr. Schwarzman considered her extensive business background and her management experience in a variety of
senior leadership roles at Ogilvy & Mather. With regard to Mr. Light, Mr. Schwarzman considered his distinguished career as a professor and dean at Harvard Business School with extensive knowledge and expertise of the investment management and capital markets industries. With regard to Mr. Mulroney, Mr. Schwarzman considered his distinguished career of government service, especially his service as the Prime Minister of Canada. With regard to Mr. Parrett, Mr. Schwarzman considered his significant experience, expertise and background with regard to auditing and accounting matters, his leadership role at Deloitte and his extensive experience serving as a director on boards of directors. With regard to Messrs. Gray, James and Baratta, Mr. Schwarzman considered their leadership and extensive knowledge of our business and operations gained through their years of service at our firm and with regard to himself, Mr. Schwarzman considered his role as founder and long-time Chief Executive Officer of our firm.
Controlled Company Exception and Director Independence
Because the Class C Shareholder holds more than 50% of the voting power for the election of directors, we are a “controlled company” within the meaning of the corporate governance standards of the NYSE. Under these standards, a “controlled company” may elect not to comply with certain corporate governance standards, including the requirements (a) that a majority of its board of directors consist of independent directors, (b) that its board of directors have a compensation committee that is comprised entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities and (c) that its board of directors have a nominating and corporate governance committee that is comprised entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities. See “Risk Factors — Risks Related to Our Organizational Structure — We are a controlled company and as a result fall within the exceptions from certain corporate governance and other requirements under the rules of the New York Stock Exchange.” We currently utilize the second and third of these exemptions. In the event that we cease to be a “controlled company” and our shares of Class A common stock continue to be listed on the NYSE, we will be required to comply with these provisions within the applicable transition periods. While we are exempt from the NYSE rules requiring a majority of independent directors, we currently have and intend to continue to maintain a majority independent board of directors.
Our board of directors has a total of ten members, including seven members, Messrs. Breyer, Hood, Light, Mulroney and Parrett, and Mses. Ayotte and Lazarus, who are independent under NYSE rules relating to corporate governance matters and the independence standards described in our governance policy.
Board Committees
Our board of directors has three standing committees: the audit committee, the compensation committee and the executive committee.
Audit Committee
. The audit committee consists of Messrs. Parrett (Chairman), Breyer, Hood and Light and Mses. Ayotte and Lazarus. The purpose of the audit committee is, among other things, to assist the board of directors in fulfilling its responsibility with respect to its oversight of (a) the quality and integrity of our financial statements, (b) our compliance with legal and regulatory requirements, (c) our independent auditor’s qualification, independence and performance, and (d) the performance of our internal audit function. The audit committee’s responsibilities also include reviewing with management, the independent auditors and internal audit, the areas of material risk to our operations and financial results, including major financial risks and exposures and our guidelines and policies with respect to risk assessment and risk management. The members of the audit committee meet the independence standards and financial literacy requirements for service on an audit committee of a board of directors pursuant to the NYSE listing standards and SEC rules applicable to audit committees. The board of directors has determined that Mr. Parrett is an “audit committee financial expert” within the meaning of Item 407(d)(5) of Regulation
S-K.
The audit committee has a charter, which is available on our website at http://ir.blackstone.com under “Corporate Governance.”
Compensation Committee
. The compensation committee consists of Mr. Schwarzman. The purpose of the compensation committee is, among other things, to fix, and establish policies for, the compensation of officers and employees of the Company and its subsidiaries.
Executive Committee
. The executive committee consists of Messrs. Schwarzman, Gray, James and Baratta (effective March 2, 2020). The board of directors has delegated all of the power and authority of the full board of directors to the executive committee to act when the board of directors is not in session.
Code of Business Conduct and Ethics
We have a Code of Business Conduct and Ethics and a Code of Ethics for Financial Professionals, which apply to our principal executive officer, principal financial officer and principal accounting officer. Each of these codes is available on our website at http://ir.blackstone.com under “Corporate Governance.” We intend to disclose any amendment to or waiver of the Code of Ethics for Financial Professionals and any waiver of our Code of Business Conduct and Ethics on behalf of an executive officer or director either on our website or in an
8-K
filing.
Corporate Governance Guidelines
The board of directors has a Governance Policy, which addresses matters such as the board of directors’ responsibilities and duties and the board of directors’ composition and compensation. The Governance Policy is available on our website at http://ir.blackstone.com under “Corporate Governance.”
Communications to the Board of Directors
The
non-management
members of our board of directors meet at least quarterly. The presiding director at these
non-management
board member meetings is Mr. Parrett. All interested parties, including any employee or shareholder, may send communications to the
non-management
members of our board of directors by writing to: The Blackstone Group Inc., Attn: Audit Committee, 345 Park Avenue, New York, New York 10154.
Delinquent Section 16(a) Reports
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors, and persons who own more than ten percent of a registered class of The Blackstone Group Inc.’s equity securities to file initial reports of ownership and reports of changes in ownership with the SEC and furnish us with copies of all Section 16(a) forms they file. To our knowledge, based solely on our review of the copies of such reports furnished to us or written representations from such persons that they were not required to file a Form 5 to report previously unreported ownership or changes in ownership, we believe that, with respect to the fiscal year ended December 31, 2019, such persons complied with all such filing requirements.
Item 11. Executive Compensation
| --- | --- |
Compensation Discussion and Analysis
Overview of Compensation Philosophy and Program
The intellectual capital collectively possessed by our senior managing directors (including our named executive officers) and other employees is the most important asset of our firm. We invest in people. We hire qualified people, train them, encourage them to provide their best thinking to the firm for the benefit of the investors in the funds we manage, and compensate them in a manner designed to retain and motivate them and align their interests with those of the investors in our funds.
Our overriding compensation philosophy for our senior managing directors and certain other employees is that compensation should be composed primarily of (a) annual cash bonus payments tied to the performance of the applicable business unit(s) in which such employee works, (b) performance interests (composed primarily of Performance Allocations, commonly referred to as carried interest, and incentive fee interests) tied to the performance of the investments made by the funds in the business unit in which such employee works or for which he or she has responsibility, (c) deferred equity awards reflecting the value of our Class A common stock, and (d) additional cash payments and equity awards tied to extraordinary performance of such employee or other circumstances (for example, if there has been a change of role or responsibility). We believe base salary should represent a significantly lesser component of total compensation. We believe the appropriate combination of annual cash bonus payments and performance interests or deferred equity awards encourages our senior managing directors and other employees to focus on the underlying performance of our investment funds, as well as the overall performance of the firm and interests of holders of our shareholders. To that end, the primary form of compensation to our senior managing directors and other employees who work in operations related to our carry funds or funds that pay incentive fees is generally a combination of annual cash bonus payments related to the performance of those carry fund operations, carried interest or incentive fee interests and, in specified cases, deferred equity awards. Along the same lines, the primary form of compensation to our senior managing directors and other employees who do not work in such fund operations is generally a combination of annual cash bonus payments tied to the performance of the applicable business unit in which such employee works and deferred equity awards.
Employees at higher total compensation levels are generally targeted to receive a greater percentage of their total compensation payable in annual cash bonuses, participation in performance interests, and deferred equity awards and a lesser percentage in the form of base salary compared to employees at lower total compensation levels. We believe that the proportion of compensation that is “at risk” should increase as an employee’s level of responsibility rises.
Our compensation program includes significant elements that discourage excessive risk-taking and aligns the compensation of our employees with the long-term performance of the firm. For example, notwithstanding the fact that for accounting purposes we accrue compensation for the Performance Plans (as defined below) related to our carry funds as increases in the carrying value of the portfolio investments are recorded in those carry funds, we only make cash payments to our employees related to carried interest when profitable investments have been realized and cash is distributed first to the investors in our funds, followed by the firm and only then to employees of the firm. Moreover, if a carry fund fails to achieve specified investment returns due to diminished performance of later investments, our Performance Plans entitle us to “clawback” carried interest payments previously made to an employee for the benefit of the limited partner investors in that fund, and we escrow a portion of all carried interest payments made to employees to help fund their potential future “clawback” obligations, all of which further discourages excessive risk-taking by our employees. Similarly, for our investment funds that pay incentive fees, those incentive fees are only paid to the firm and employees of the firm to the extent an applicable fund’s portfolio of investments has profitably appreciated in value (in most cases above a specified level) during the applicable period. In addition, and as noted below with respect to our named executive officers, the requirement that we have our professional employees invest in certain of the funds they manage directly aligns the interests of our professionals and our investors. In most cases, these investments represent a significant percentage of
employees’
after-tax
compensation. Lastly, because our equity awards have significant vesting or deferral provisions, the actual amount of compensation realized by the recipient will be tied directly to the long-term performance of our Class A common stock. In addition, in applicable jurisdictions, specifically in the European Union, our compensation program includes additional remuneration policies that may limit or otherwise alter the compensation for certain employees consistent with local regulatory requirements and aimed at, among other things, discouraging inappropriate risk-taking and aligning compensation with the firm’s strategy and long-term interests consistent with our general compensation program.
We believe our current compensation and benefit allocations for senior professionals are best in class and are consistent with companies in the alternative asset management industry. We do not generally rely on compensation surveys or compensation consultants. Our senior management periodically reviews the effectiveness and competitiveness of our compensation program, and such reviews may in the future involve the assistance of independent consultants.
Personal Investment Obligations
. As part of our compensation philosophy and program, we require our named executive officers to personally invest their own capital in and alongside the funds that we manage. We believe that this strengthens the alignment of interests between our named executive officers and the investors in those investment funds. (See “— Item 13. Certain Relationships and Related Transactions, and Director Independence — Investment in or Alongside Our Funds.”) In determining compensation for our named executive officers, we do not take into account the gains or losses attributable to the personal investments by our named executive officers in our investment funds.
Minimum Retained Ownership Requirements
. We believe the continued ownership by our named executive officers of significant amounts of our equity affords significant alignment of interests with our shareholders. In 2019, in order to further balance retention incentives, we modified our minimum retained ownership requirements for equity awards granted from 2019 and onward to require our named executive officers to hold 25% of their vested equity (other than vested common stock awarded under our Bonus Deferral Plan) for two years after each vesting event, unless the named executive officer’s employment terminates prior to release, in which case the vested equity will be released two years after termination of employment.
The minimum retained ownership requirements for our named executive officers are further described below under “— Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards in 2019 — Terms of Blackstone Holdings Partnership Units Granted in 2019 and Prior Years — Minimum Retained Ownership Requirements.”
Named Executive Officers
In 2019, our named executive officers were:
| Executive | Title | |
| Stephen A. Schwarzman | Chairman and Chief Executive Officer | |
| Jonathan D. |
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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
| --- | --- |
Our Class A common stock and our Class B common stock are generally
non-voting,
except as provided in our certificate of incorporation and bylaws or required by Delaware law. The Class C common stock is the only class of our common stock that is entitled to vote on any matter that is submitted to a vote of our shareholders generally. There is only one share of Class C common stock outstanding, which is held by Blackstone Group Management L.L.C., as the Class C Stockholder. Mr. Schwarzman, our founder, Chairman and Chief Executive Officer, controls Blackstone Group Management L.L.C.
The following table sets forth information regarding the beneficial ownership of our Class A common stock and Blackstone Holdings Partnership Units as of February 21, 2020 by:
| • | each person known to us to beneficially own 5% of any class of the outstanding voting securities of The Blackstone Group Inc.; |
|---|
| • | each member of our board of directors; |
|---|
| • | each of our named executive officers; and |
|---|
| • | all our directors and executive officers as a group. |
|---|
The amounts and percentage of Class A common stock and Blackstone Holdings Partnership Units beneficially owned are reported on the basis of regulations of the SEC governing the determination of beneficial ownership of securities. Under the rules of the SEC, a person is deemed to be a “beneficial owner” of a security if that person has or shares “voting power,” which includes the power to vote or to direct the voting of such security, or “investment power,” which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which that person has a right to acquire beneficial ownership within 60 days of February 21, 2020. Under these rules, more than one person may be deemed a beneficial owner of the same securities and a person may be deemed a beneficial owner of securities as to which he has no economic interest. Except as indicated by footnote, the persons named in the table below have sole voting and investment power with respect to all securities shown as beneficially owned by them, subject to community property laws where applicable. Unless otherwise included, for purposes of this table, the principal business address for each such person is c/o The Blackstone Group Inc., 345 Park Avenue, New York, New York 10154.
| Class A Common Stock Beneficially Owned | Blackstone Holdings Partnership Units Beneficially Owned (a) | ||||||||||||||||
| Name of Beneficial Owner | Number | % of Class | Number | % of Class | |||||||||||||
| 5% Stockholders | |||||||||||||||||
| The Vanguard Group, Inc. (b) | 37,649,030 | 5.6 | % | — | — | ||||||||||||
| Directors and Executive Officers (c)(d) | |||||||||||||||||
| Stephen A. Schwarzman (e)(f) | — | — | 231,924,793 | 48.8 | % | ||||||||||||
| Jonathan D. Gray (f) | 438,315 | * | 40,585,300 | 8.5 | % | ||||||||||||
| Hamilton E. James (f) | 20,497 | * | 28,880,300 | 6.1 | % | ||||||||||||
| Michael S. Chae (f) | 35,880 | * | 5,995,079 | 1.3 | % | ||||||||||||
| John G. Finley (f) | 135,306 | * | 440,789 | * | |||||||||||||
| Kelly A. Ayotte | — | — | — | — | |||||||||||||
| James W. Breyer | 14,625 | * | — | — | |||||||||||||
| Sir John Hood | 3,344 | * | — | — | |||||||||||||
| Rochelle B. Lazarus (f) | 42,540 | * | — | — | |||||||||||||
| Jay O. Light | 58,513 | * | — | — | |||||||||||||
| The Right Honorable Brian Mulroney | 164,724 | * | — | — | |||||||||||||
| William G. Parrett (g) | 84,903 | * | — | — | |||||||||||||
| All executive officers and directors as a group (12 persons) | 998,647 | * | 307,826,261 | 64.7 | % |
| * | Less than one percent |
|---|
| (a) | Subject to certain requirements and restrictions, the partnership units of Blackstone Holdings are exchangeable for shares of our Class A common stock on a one-for-one basis. A Blackstone Holdings limited partner must exchange one partnership unit in each of the five Blackstone Holdings Partnerships to effect an exchange for a share of our Class A common stock. See “— Item 13. Certain Relationships and Related Transactions, and Director Independence — Exchange Agreement.” Beneficial ownership of Blackstone Holdings Partnership Units reflected in this table has not been also reflected as beneficial ownership of our shares of Class A common stock for which such units may be exchanged. |
|---|
| (b) | Reflects shares of Class A common stock beneficially owned by The Vanguard Group, Inc. and its subsidiaries based on the Schedule 13G filed by The Vanguard Group, Inc. on February 11, 2020. The address of The Vanguard Group, Inc. is 100 Vanguard Boulevard, Malvern, Pennsylvania 19355. |
|---|
| (c) | The shares of Class A common stock and Blackstone Holdings Partnership Units beneficially owned by the directors and executive officers reflected above do not include the following number of securities that will be delivered to the respective individual more than 60 days after February 28, 2020: Mr. Gray — 708,601 deferred restricted Blackstone Holdings Partnership Units and 57,596 deferred restricted common stock units; Mr. Chae — 865,477 deferred restricted Blackstone Holdings Partnership Units and 59,919 deferred restricted common stock units; Mr. Finley — 136,987 deferred restricted Blackstone Holdings Partnership Units and 100,706 deferred restricted common stock units; Ms. Ayotte — 5,392 deferred restricted common stock units; Mr. Mulroney — 4,651 deferred restricted common stock units; Mr. Parrett — 4,268 deferred restricted common stock units; Ms. Lazarus — 4,566 deferred restricted common stock units; Mr. Light — 3,955 deferred restricted common stock units; Mr. Breyer — 4,564 deferred restricted common stock units; and Mr. Hood — 5,370 deferred restricted common stock units. |
|---|
| (d) | The Blackstone Holdings Partnership Units shown in the table above include the following number of vested units being held back under our minimum retained ownership requirements: Mr. Schwarzman — 24,489,796 Blackstone Holdings Partnership Units; Mr. Gray — 11,477,971 Blackstone Holdings Partnership Units; Mr. James — 14,648,744 Blackstone Holdings Partnership Units; Mr. Chae — 3,223,072 Blackstone Holdings Partnership Units; and Mr. Finley — 165,445 Blackstone Holdings Partnership Units. |
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| (e) | On those few matters that may be submitted for a vote of the sole holder of the Class B common stock, Blackstone Partners L.L.C., an entity owned by senior managing directors of Blackstone and controlled by Mr. Schwarzman, is entitled to an aggregate number of votes on any matter that may be submitted for a vote of our Class A common stock that is equal to the aggregate number of vested and unvested Blackstone Holdings Partnership Units held by the limited partners of Blackstone Holdings on the relevant record date and entitles it to participate in the vote on the same basis as our Class A common stock. Our senior managing directors have agreed in the limited liability company agreement of Blackstone Partners L.L.C. that our founder, Mr. Schwarzman, will have the power to determine how the Class B common stock held by Blackstone Partners L.L.C. will be voted. Following the withdrawal, death or disability of Mr. Schwarzman (and any successor founder), this power will revert to the members of Blackstone Partners L.L.C. holding a majority in interest in that entity. The limited liability company agreement of Blackstone Partners L.L.C. provides that at such time as Mr. Schwarzman should cease to be a founding member, Jonathan D. Gray will thereupon succeed Mr. Schwarzman as the sole founding member of Blackstone Partners L.L.C. If Blackstone Partners L.L.C. directs us to do so, we will issue shares of Class B common stock to each of the limited partners of Blackstone Holdings, whereupon each holder of Class B common stock will be entitled to a number of votes that is equal to the number of vested and unvested Blackstone Holdings Partnership Units held by such Class B common stockholder on the relevant record date. |
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| (f) | The Blackstone Holdings Partnership Units shown in the table above for such named executive officers and directors include (a) the following units held for the benefit of family members with respect to which the named executive officer or director, as applicable, disclaims beneficial ownership: Mr. Schwarzman — 1,873,140 units held in various trusts for which Mr. Schwarzman is the investment trustee, Mr. James — 9,157,207 units held in various trusts for which Mr. James and his brother are trustees (but Mr. James does not have or share investment control with respect to the units), Mr. Gray — 7,218,465 units held in a trust for which Mr. Gray is the investment trustee and Mr. Chae — 1,150,070 units held in various trusts for which Mr. Chae is the investment trustee, (b) the following units held in grantor retained annuity trusts for which the named executive officer or director, as applicable, is the investment trustee: Mr. Schwarzman — 2,723,913 units and Mr. Gray — 15,141,837 units, (c) the following units held by a corporation for which the named executive officer is a controlling shareholder: Mr. Schwarzman — 1,438,529 units and (d) 5,000,000 units that have been pledged by Mr. Schwarzman as security to a third party to secure payment for a loan made by such third party. Mr. Schwarzman also directly, or through a corporation for which he is the controlling shareholder, beneficially owns an additional 364,278 partnership units in each of Blackstone Holdings II L.P., Blackstone Holdings III L.P. and Blackstone Holdings IV L.P. In addition, with respect to Mr. Schwarzman, the above table excludes partnership units of Blackstone Holdings held by his children or in trusts for the benefit of his family as to which he has no voting or investment control. The Blackstone Class A common stock shown in the table above for each named executive officer and director include (a) the following shares held for the benefit of family members with respect to which the named executive officer or director, as applicable, disclaims beneficial ownership: Mr. James — 20,497 shares held in a family limited liability company, Mr. Finley — 62,523 shares held in a family limited liability company and 2,000 shares held in a trust for the benefit of family members of which he is a trustee, and Ms. Lazarus — 2,950 shares held in trusts for the benefit of family members over which she shares investment control and (b) 11,000 shares held in a trust for the benefit of Mr. Finley and of which he is the trustee. |
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| (g) | The Class A common stock shown in the table above for Mr. Parrett includes 13,000 shares that are pledged to a third party to secure payment for a loan. |
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Securities Authorized for Issuance under Equity Compensation Plans
The table set forth below provides information concerning the awards that may be issued under the 2007 Equity Incentive Plan as of December 31, 2019:
| Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (a) | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (excluding securities reflected in column (a)) | ||||||||||
| Equity Compensation Plans Approved by Security Holders | 53,502,880 | — | 158,769,854 | |||||||||
| Equity Compensation Plans Not Approved by Security Holders | — | — | — | |||||||||
| 53,502,880 | — | 158,769,854 | ||||||||||
| (a) | Reflects the outstanding number of our deferred restricted common stock units and deferred restricted Blackstone Holdings Partnership Units granted under the 2007 Equity Incentive Plan as of December 31, 2019. |
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| (b) | The aggregate number of our Class A common stock and Blackstone Holdings Partnership Units covered by the 2007 Equity Incentive Plan is increased on the first day of each fiscal year during its term by a number of shares of Class A common stock equal to the positive difference, if any, of (a) 15% of the aggregate number of shares of our Class A common stock and Blackstone Holdings Partnership Units outstanding on the last day of the immediately preceding fiscal year (excluding Blackstone Holdings Partnership Units held by The Blackstone Group Inc. or its wholly owned subsidiaries) minus (b) the aggregate number of shares of our Class A common stock and Blackstone Holdings Partnership Units covered by the 2007 Equity Incentive Plan as of such date (unless the administrator of the 2007 Equity Incentive Plan should decide to increase the number of shares of our Class A common stock and Blackstone Holdings Partnership Units covered by the plan by a lesser amount). As of January 1, 2020, pursuant to this formula, 171,085,619 shares of Class A common stock, which is equal to 0.15 times the number of shares of our Class A common stock and Blackstone Holdings Partnership Units outstanding on December 31, 2019, were available for issuance under the 2007 Equity Incentive Plan. We have filed a registration statement and intend to file additional registration statements on Form S-8 under the Securities Act to register shares of Class A common stock covered by the 2007 Equity Incentive Plan (including pursuant to automatic annual increases). Any such Form S-8 registration statement will automatically become effective upon filing. Accordingly, shares of Class A common stock registered under such registration statement will be available for sale in the open market. |
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Item 13. Certain Relationships and Related Transactions, and Director Independence
| --- | --- |
Transactions with Related Persons
Tax Receivable Agreements
We used a portion of the proceeds from the IPO and the sale of
non-voting
common units to Beijing Wonderful Investments to purchase interests in the predecessor businesses from the predecessor owners. In addition, holders of Blackstone Holdings Partnership Units (other than The Blackstone Group Inc.’s wholly owned subsidiaries), subject to the vesting and minimum retained ownership requirements and transfer restrictions set forth in the partnership agreements of the Blackstone Holdings partnerships, may up to four times each year
(subject to the terms of the exchange agreement) exchange their Blackstone Holdings Partnership Units for shares of our Class A common stock on a
one-for-one
basis. A Blackstone Holdings limited partner must exchange one partnership unit in each of the Blackstone Holdings partnerships to effect an exchange for a share of Class A common stock. Blackstone Holdings I L.P. and Blackstone Holdings II L.P. have made an election under Section 754 of the Internal Revenue Code effective for each taxable year in which an exchange of partnership units for a share of Class A common stock occurs, which may result in an adjustment to the tax basis of the assets of such Blackstone Holdings Partnerships at the time of an exchange of partnership units. Other Blackstone Holdings Partnerships and certain subsidiary partnerships are expected to make such elections for the 2019 taxable year with the filing of their federal income tax returns for such tax year. The purchase and subsequent exchanges of Blackstone Holdings Partnership Units are expected to result in increases in the tax basis of the tangible and intangible assets of Blackstone Holdings that otherwise would not have been available. These increases in tax basis may increase (for tax purposes) depreciation and amortization and therefore reduce the amount of tax that we would otherwise be required to pay in the future. We have entered into a tax receivable agreement with holders of Blackstone Holdings Partnership Units that provides for the payment by us to such holders of 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax that we actually realize (or are deemed to realize in the case of an early termination payment by the corporate taxpayers or a change in control, as discussed below) as a result of these increases in tax basis and of certain other tax benefits related to our entering into tax receivable agreements, including tax benefits attributable to payments under the tax receivable agreement. Additional tax receivable agreements have been executed, and will continue to be executed, with newly-admitted Blackstone senior managing directors and certain others who acquire Blackstone Holdings Partnership Units. This payment obligation is an obligation of us (and certain of our subsidiaries that are treated as corporations for U.S. federal income tax purposes which we refer to as “the corporate taxpayers”) and not of Blackstone Holdings. The corporate taxpayers expect to benefit from the remaining 15% of cash savings, if any, in income tax that they realize. For purposes of the tax receivable agreement, 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 taxpayer 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 agreement. The term of the tax receivable agreement commenced upon consummation of our IPO and will continue until all such tax benefits have been utilized or expired, unless the corporate taxpayers exercise their right to terminate the tax receivable agreement for an amount based on the agreed payments remaining to be made under the agreement.
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 agreement (which are taxable to the recipients) in respect of the purchase and exchanges will aggregate $672.9 million over the next 15 years. The
after-tax
net present value of these estimated payments totals $191.2 million assuming a 15% discount rate and using an estimate of timing of the benefit to be received. Future payments under the tax receivable agreement in respect of subsequent exchanges would be in addition to these amounts. The payments under the tax receivable agreement are not conditioned upon continued ownership of Blackstone equity interests by the
pre-IPO
owners and the others mentioned above.
Subsequent to December 31, 2019, payments totaling $73.9 million were made to certain
pre-IPO
owners and others mentioned above in accordance with the tax receivable agreement and related to tax benefits the Partnership received for the 2018 taxable year. Those payments included payments of $8.7 million to Mr. Schwarzman and investment vehicles controlled by relatives of Mr. Schwarzman; $2.4 million to Mr. James and a trust for which Mr. James is the investment trustee and $0.6 million to Mr. Chae.
In addition, the tax receivable agreement provides that upon certain mergers, asset sales, other forms of business combinations or other changes of control, the corporate taxpayers’ (or their successors’) obligations with respect to exchanged or acquired units (whether exchanged or acquired before or after such transaction) would be based on certain assumptions, including that the corporate taxpayers would have sufficient taxable income to fully utilize the benefits arising from the increased tax deductions and tax basis and other similar benefits. Upon a subsequent actual exchange, any additional increase in tax deductions, tax basis and other similar benefits in excess of the amounts assumed at the change in control will also result in payments under the tax receivable agreement.
Decisions we make in the course of running our business, such as with respect to mergers, asset sales, other forms of business combinations or other changes in control, may influence the timing and amount of payments that are received by an exchanging or selling holder of Blackstone Holdings Partnership Units, under the tax receivable agreement. For example, the earlier disposition of assets following an exchange or acquisition transaction will generally accelerate payments under a tax receivable agreement and increase the present value of such payments, and the disposition of assets before an exchange or acquisition transaction will increase the tax liability of a holder of Blackstone Holdings Partnership Units without giving rise to any rights of a holder of Blackstone Holdings Partnership Units to receive payments under any tax receivable agreements.
Although we are not aware of any issue that would cause the IRS to challenge a tax basis increase, the corporate taxpayers will not be reimbursed for any payments previously made under a tax receivable agreement. As a result, in certain circumstances, payments could be made under a tax receivable agreement in excess of the corporate taxpayers’ cash tax savings.
Registration Rights Agreement
In connection with the restructuring and IPO, we entered into a registration rights agreement with our
pre-IPO
owners, which was subsequently amended in connection with the Conversion, pursuant to which we granted them, their affiliates and certain of their transferees the right, under certain circumstances and subject to certain restrictions, to require us to register under the Securities Act shares of Class A common stock delivered in exchange for Blackstone Holdings Partnership Units or shares of Class A common stock (and other securities convertible into or exchangeable or exercisable for our shares of Class A common stock) otherwise held by them. In addition, newly-admitted Blackstone senior managing directors and certain others who acquire Blackstone Holdings Partnership Units have subsequently become parties to the registration rights agreement. Under the registration rights agreement, we agreed to register the exchange of Blackstone Holdings Partnership Units for shares of Class A common stock by our holders of Blackstone Holdings Partnership Units. In June 2008, we filed a registration statement on Form
S-3
with the Securities and Exchange Commission to cover future issuances from time to time of up to 818,008,105 common units to holders of Blackstone Holdings Partnership Units upon exchange of up to an equal number of such Blackstone Holdings Partnership Units. In addition, our founder, Stephen A. Schwarzman, has the right to request that we register the sale of shares of Class A common stock held by holders of Blackstone Holdings Partnership Units an unlimited number of times and may require us to make available shelf registration statements permitting sales of shares of Class A common stock into the market from time to time over an extended period. In addition, Mr. Schwarzman has the ability to exercise certain piggyback registration rights in respect of shares of Class A common stock held by holders of Blackstone Holdings Partnership Units in connection with registered offerings requested by other registration rights holders or initiated by us.
Tsinghua University Education Foundation
As part of an initiative announced in 2013, Mr. Schwarzman, through the Stephen A. Schwarzman Education Foundation, personally committed $100 million to create and endow a post-graduate scholarship program at Tsinghua University in Beijing, entitled “Schwarzman Scholars,” and fund the construction of a residential and academic building. He is leading a fundraising campaign to raise $600 million to support the “Schwarzman Endowment Fund.” The Tsinghua University Education Foundation (“TUEF”) will hold the Schwarzman Endowment Fund and has agreed to delegate management of the fund to Blackstone. We have agreed that TUEF, and certain entities affiliated with TUEF, will not be required to pay Blackstone a management fee for managing the Schwarzman Endowment Fund and, to the extent Blackstone allocates and invests assets of the Schwarzman Endowment Fund in our funds, which may take the form of funded or unfunded general partner commitments to our investment funds, we anticipate that such investments will be subject to reduced or waived management fees and/or carried interest.
Joseph P. Baratta
On February 25, 2020, Joseph P. Baratta was appointed to our board of directors, effective March 2, 2020. Mr. Baratta joined Blackstone in 1998 and is a Senior Managing Director and Global Head of Private Equity. For 2019, Mr. Baratta received a base salary of $350,000 and an annual cash bonus payment of $8,542,333. The cash payment was based upon the performance of the Private Equity business, including the contribution of all current and past funds within the business dating back to before the IPO. The ultimate cash payment to Mr. Baratta was, however, determined in the discretion of Mr. Schwarzman and Mr. Gray. On January 1, 2020, Mr. Baratta was granted 2,007 shares of deferred restricted common stock with a grant date fair value of $112,272, reflecting the portion of his annual cash bonus payment mandatorily deferred into deferred restricted common stock pursuant to the Deferred Compensation Plan. In January 2019, Mr. Baratta was awarded a discretionary award of 11,811 deferred restricted Blackstone Holdings Partnership Units with a grant date fair value of $550,156. This award reflected 2018 performance and was intended to further promote retention and to incentivize future performance. The award was granted under the 2007 Equity Incentive Plan on July 1, 2019, subject to Mr. Baratta’s continued employment through such date. The award will vest 20% on July 1, 2022, 30% on July 1, 2023 and 50% on July 1, 2024.
Mr. Baratta also participated in the performance fees of our funds, consisting of carried interest in our carry funds and incentive fees in our funds that pay incentive fees. The compensation paid to Mr. Baratta in respect of carried interest in our carry funds primarily relates to Mr. Baratta’s participation in the private equity funds (which were formed both before and after the IPO). The amount of distributions, whether cash or
in-kind,
in respect of carried interest or incentive fee allocations to Mr. Baratta for 2019 was $4,406,042. Any
in-kind
distributions in respect of carried interest are reported based on the market value of the securities distributed as of the date of distribution. See “Executive Compensation — Compensation Elements for Named Executive Officers” in this report for additional discussion of the elements of our compensation program.
Bennett J. Goodman
On February 24, 2015, Bennett J. Goodman was appointed to our board of directors. Mr. Goodman joined Blackstone in 2008 and served as a Senior Managing Director and
Co-Founder
of GSO Capital Partners. On August 28, 2019, we entered into a withdrawal agreement and senior advisor agreement with Mr. Goodman. Pursuant to the agreements, Mr. Goodman continued to serve as a director and as a senior managing director of Blackstone until January 1, 2020, at which time he stepped down from the Blackstone board of directors and ceased serving as a senior managing director and became a Senior Advisor to GSO Capital Partners and retained the title of Chairman of Blackstone/GSO Secured Lending Fund.
The senior advisor agreement we entered into with Mr. Goodman has a term of not less than one year and will automatically renew for successive one year terms unless either party provides notice of
non-renewal
at least thirty days prior to the expiration of the then-current term. For 45 days following the termination of Mr. Goodman’s services as a senior advisor, Mr. Goodman has agreed not to invest in or with, serve or provide advice in any capacity to a competitor of GSO, other than limited passive
co-investments.
The senior advisor agreement provides that for so long as Mr. Goodman serves as a senior advisor to GSO, he will receive an annual retainer of $250,000 and incentive fees or carried interest allocations of five points in GSO’s U.S. direct lending strategies. The senior advisor agreement also provides that with respect to the 957,804 outstanding deferred stock restricted Blackstone Holdings Partnership Units that would have otherwise been forfeited in connection with his termination of employment, such units will remain outstanding and 150,000 will vest on each anniversary of January 1, 2020, subject to Mr. Goodman’s continued service as a senior advisor to GSO through each applicable date.
In connection with his withdrawal as a senior managing director, Mr. Goodman also entered into a customary withdrawal agreement with us. Under the terms of the withdrawal agreement, Mr. Goodman agreed to enter into a general release of claims in favor of Blackstone and its related parties on terms generally comparable to other departing senior managing directors and affirmed his
non-competition,
non-solicitation,
non-disparagement
and confidentiality covenants contained in his
non-competition
and
non-solicitation
agreement.
For 2019, Mr. Goodman received a base salary of $350,000 and an annual cash bonus payment of $2,650,000. The cash payment was based upon the performance of the Credit segment, including the contribution of all current and past funds within the segment. The ultimate cash payment to Mr. Goodman was, however, determined in the discretion of Mr. Schwarzman and Mr. Gray.
Mr. Goodman also participated in the performance fees of our funds, consisting of carried interest in our carry funds and incentive fees in our funds that pay incentive fees. The compensation paid to Mr. Goodman in respect of carried interest in our carry funds primarily relates to Mr. Goodman’s participation in the credit funds (which were formed both before and after the acquisition of GSO Capital Partners by Blackstone). The amount of cash payments in respect of carried interest or incentive fee allocations to Mr. Goodman for 2019 was $1,291,990. See “Executive Compensation — Compensation Elements for Named Executive Officers” in this report for additional discussion of the elements of our compensation program.
Pursuant to the terms of the arrangement we entered into with him in November 2018, in connection with Mr. Goodman’s termination of employment on January 1, 2020, 638,539 of his outstanding deferred restricted Blackstone Holdings Partnership Units vested on January 1, 2020, 638,539 of his outstanding deferred restricted Blackstone Holdings Partnership Units will remain outstanding and become fully vested on January 1, 2021 and 319,269 of his outstanding deferred restricted Blackstone Holdings Partnership Units will remain outstanding and become fully vested on January 1, 2022. In addition, Mr. Goodman also remains eligible to participate in Blackstone’s
side-by-side
and similar investment programs for up to five years following his retirement, in some cases without being subject to management fees, carried interest or incentive fees.
Blackstone Holdings Partnership Agreements
As a result of the reorganization and the IPO, The Blackstone Group Inc. (at that time, The Blackstone Group, L.P.) became a holding partnership and, through wholly owned subsidiaries, held equity interests in the five holdings partnerships (i.e., Blackstone Holdings I L.P., Blackstone Holdings II L.P., Blackstone Holdings III L.P., Blackstone Holdings IV L.P. and Blackstone Holdings V L.P.). On January 1, 2009, in order to simplify our structure and ease the related administrative burden and costs, we effected an internal restructuring to reduce the number of holding partnerships from five to four by causing Blackstone Holdings III L.P. to transfer all of its assets and liabilities to Blackstone Holdings IV L.P. In connection therewith, Blackstone Holdings IV L.P. was renamed Blackstone Holdings III L.P. and Blackstone Holdings V L.P. was renamed Blackstone Holdings IV L.P. On October 1, 2015, Blackstone formed a new holding partnership, Blackstone Holdings AI L.P., which holds certain operating entities and operates in a manner similar to the other Blackstone Holdings Partnerships. The economic interests of The Blackstone Group Inc. in Blackstone’s business remains entirely unaffected. “Blackstone Holdings” refers to (a) Blackstone Holdings I L.P., Blackstone Holdings II L.P., Blackstone Holdings III L.P., Blackstone Holdings IV L.P. and Blackstone Holdings V L.P. prior to the January 2009 reorganization, (b) Blackstone Holdings I L.P., Blackstone Holdings II L.P., Blackstone Holdings III L.P. and Blackstone Holdings IV L.P. from January 1, 2009 through October 1, 2015 and (c) Blackstone Holdings I L.P., Blackstone Holdings II L.P., Blackstone Holdings III L.P., Blackstone Holdings IV L.P. and Blackstone Holdings AI L.P. subsequent to the October 2015 creation of Blackstone Holdings AI L.P.
Wholly owned subsidiaries of The Blackstone Group Inc. which are the general partners of those partnerships have the right to determine when distributions will be made to the partners of Blackstone Holdings and the amount of any such distributions. If a distribution is authorized, such distribution will be made to the partners of Blackstone Holdings
pro-rata
in accordance with the percentages of their respective partnership interests as described under “Part II. Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities — Dividend Policy.”
Each of the Blackstone Holdings Partnerships has an identical number of partnership units outstanding, and we use the terms “Blackstone Holdings Partnership Unit” or “partnership unit in/of Blackstone Holdings” to refer, collectively, to a partnership unit in each of the Blackstone Holdings Partnerships. The holders of partnership units in Blackstone Holdings, including The Blackstone Group Inc.’s wholly owned subsidiaries, will incur U.S. federal, state and local income taxes on their proportionate share of any net taxable income of Blackstone Holdings. Net
profits and net losses of Blackstone Holdings will generally be allocated to its partners (including The Blackstone Group Inc.’s wholly owned subsidiaries)
pro-rata
in accordance with the percentages of their respective partnership interests as described under “Part II. Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities — Dividend Policy.” The partnership agreements of the Blackstone Holdings Partnerships provide for cash distributions, which we refer to as “tax distributions,” to the partners of such partnerships if the wholly owned subsidiaries of The Blackstone Group Inc. which are the general partners of the Blackstone Holdings Partnerships determine that the taxable income of the relevant partnership will give rise to taxable income for its partners. Generally, these tax distributions are computed based on our estimate of the net taxable income of the relevant partnership allocable to a partner multiplied by an assumed tax rate equal to the highest effective marginal combined U.S. federal, state and local income tax rate prescribed for an individual or corporate resident in New York, New York (taking into account the
non-deductibility
of certain expenses and the character of our income). Tax distributions are made only to the extent all distributions from such partnerships for the relevant year are insufficient to cover such tax liabilities.
Subject to the vesting and minimum retained ownership requirements and transfer restrictions set forth in the partnership agreements of the Blackstone Holdings Partnerships, Blackstone Holdings Partnership Units may be exchanged for shares of Class A common stock as described under “— Exchange Agreement” below. In addition, the Blackstone Holdings partnership agreements authorize the wholly owned subsidiaries of The Blackstone Group Inc. which are the general partners of those partnerships to issue an unlimited number of additional partnership securities of the Blackstone Holdings Partnerships with such designations, preferences, rights, powers and duties that are different from, and may be senior to, those applicable to the Blackstone Holdings Partnership Units, and which may be exchangeable for shares of our Class A common stock.
See “— Item 11. Executive Compensation — Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards in 2019 — Terms of Blackstone Holdings Partnership Units Granted in 2019 and Prior Years” for a discussion of vesting provisions applicable to Blackstone personnel in respect of the Blackstone Holdings Partnership Units received by them in the reorganization and for a discussion of minimum retained ownership requirements and transfer restrictions applicable to the Blackstone Holdings Partnership Units. The generally applicable vesting and minimum retained ownership requirements and transfer restrictions are outlined in the sections referenced in the preceding sentence. There may be some different arrangements for some individuals in some instances. In addition, we may waive these requirements and restrictions from time to time.
In addition, substantially all of our expenses, including substantially all expenses solely incurred by or attributable to The Blackstone Group Inc. but not including obligations incurred under the tax receivable agreement by The Blackstone Group Inc.’s wholly owned subsidiaries, income tax expenses of The Blackstone Group Inc.’s wholly owned subsidiaries and payments on indebtedness incurred by The Blackstone Group Inc.’s wholly owned subsidiaries, are borne by Blackstone Holdings.
Exchange Agreement
In connection with the reorganization and IPO, we entered into an exchange agreement with the holders of partnership units in Blackstone Holdings (other than The Blackstone Group Inc.’s wholly owned subsidiaries), which was subsequently amended in connection with the Conversion. In addition, newly-admitted Blackstone senior managing directors and certain others who acquire Blackstone Holdings Partnership Units also become parties to the exchange agreement. Under the exchange agreement, subject to the vesting and minimum retained ownership requirements and transfer restrictions set forth in the partnership agreements of the Blackstone Holdings Partnerships, each such holder of Blackstone Holdings Partnership Units (and certain transferees thereof) may up to four times each year (subject to the terms of the exchange agreement) exchange these partnership units for shares of our Class A common stock on a
one-for-one
basis, subject to customary conversion rate adjustments for splits, unit distributions and reclassifications. Under the exchange agreement, to effect an exchange a holder of partnership units in Blackstone Holdings must simultaneously exchange one partnership unit in each of the Blackstone Holdings Partnerships. As a holder exchanges its Blackstone Holdings Partnership Units, The Blackstone Group Inc.’s indirect interest in the Blackstone Holdings Partnerships will be correspondingly increased.
Firm Use of Private Aircraft
Certain entities controlled by Mr. Schwarzman wholly own aircraft that we use for business purposes in the course of our operations, and in 2019, we made payments of $3.0 million for the use of such aircraft, which included $1.6 million paid directly to the managers of the aircraft. An entity controlled by Mr. Gray wholly owns aircraft that we use for business purposes in the course of our operations, and in 2019, we made payments of $1.2 million for the use of such aircraft, which included $0.7 million paid directly to the manager of the aircraft for such use. An entity jointly controlled by Mr. James and another individual wholly owned aircraft that we used for business purposes in the course of our operations, and in 2019, we made payments of $0.3 million to the manager of the aircraft for such use. An entity jointly controlled by Mr. Baratta and two other individuals, owns aircraft that we use for business purposes in the course of our operations, and in 2019, we made payments of $0.1 million for the use of such aircraft. An entity controlled by Mr. Goodman, jointly with an entity controlled by another individual, owns aircraft that we use for business purposes in the course of our operations, and in 2019, we made payments of $0.4 million for the use of such aircraft. Each of Messrs. Schwarzman, Gray, James, Baratta and Goodman paid for his respective ownership interest in his aircraft himself and bore his respective share of all operating, personnel and maintenance costs associated with the operation of such aircraft. The hourly payments we made for use of such aircraft were based on current market rates.
Investment in or Alongside Our Funds
Our directors and executive officers may invest their own capital in or alongside our funds and other vehicles we manage, in some instances, without being subject to management fees, carried interest or incentive fees. For our carry funds, these investments may be made through the applicable fund general partner and fund a portion of the general partner capital commitments to our funds. These investment opportunities are available to all of our senior managing directors and to those of our employees whom we have determined to have a status that reasonably permits us to offer them these types of investments and in compliance with applicable laws. During the year ended December 31, 2019, our directors and executive officers (and, in some cases, certain investment trusts or other family vehicles or charitable organizations controlled by them or their immediate family members) had the following gross contributions relating to their personal investments (and the investments of any such trusts) in Blackstone funds and other Blackstone-managed vehicles: Mr. Schwarzman, Mr. James, Mr. Gray, Mr. Goodman, Mr. Chae, Mr. Breyer, Mr. Baratta, Ms. Solotar, Mr. Finley, Mr. Light, Mr. Parrett and Mr. Mulroney made gross contributions of $347.3 million, $109.1 million, $40.0 million, $12.2 million, $10.1 million, $8.4 million, $5.1 million, $3.9 million, $1.0 million, $0.3 million, $0.3 million, and $0.2 million, respectively.
Statement of Policy Regarding Transactions with Related Persons
Our board of directors has adopted a written statement of policy regarding transactions with related persons, which we refer to as our “related person policy.” Our related person policy requires that a “related person” (as defined as in paragraph (a) of Item 404 of Regulation
S-K)
must promptly disclose to the Chief Legal Officer any “related person transaction” (defined as any transaction that is reportable by us under Item 404(a) of Regulation S-K in which we were or are to be a participant and the amount involved exceeds $120,000 and in which any related person had or will have a direct or indirect material interest) and all material facts with respect thereto. The Chief Legal Officer will then promptly communicate that information to the board of directors. No related person transaction will be consummated without the approval or ratification of the board of directors or any committee of the board of directors consisting exclusively of disinterested directors. It is our policy that directors interested in a related person transaction will recuse themselves from any vote of a related person transaction in which they have an interest.
Non-Competition
and
Non-Solicitation
Agreements
We have entered into a
non-competition
and
non-solicitation
agreement with each of our professionals and other senior employees, including each of our executive officers. See “— Item 11. Executive Compensation —
Non-Competition
and
Non-Solicitation
Agreements” for a description of the material terms of such agreements.
Director Independence
See “— Item 10. Directors, Executive Officers and Corporate Governance — Controlled Company Exception and Director Independence” for information on director independence.
Item 14. Principal Accounting Fees and Services
| --- | --- |
The following table summarizes the aggregate fees for professional services provided by Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu and their respective affiliates (collectively, the “Deloitte Entities”):
| Year Ended December 31, 2019 | |||||||||||||||||
| The Blackstone Group Inc. | Blackstone Entities, Principally Fund Related (c) | Blackstone Funds, Transaction Related (d) | Total | ||||||||||||||
| (Dollars in Thousands) | |||||||||||||||||
| Audit Fees | $ | 10,185 | (a) | $ | 41,395 | $ | — | $ | 51,580 | ||||||||
| Audit-Related Fees | — | 2,946 | 19,257 | 22,203 | |||||||||||||
| Tax Fees | 1,222 | (b) | 63,424 | 10,873 | 75,519 | ||||||||||||
| All Other Fees | — | 172 | — | 172 | |||||||||||||
| $ | 11,407 | $ | 107,937 | $ | 30,130 | $ | 149,474 | ||||||||||
| Year Ended December 31, 2018 | |||||||||||||||||
| The Blackstone Group Inc. | Blackstone Entities, Principally Fund Related (c) | Blackstone Funds, Transaction Related (d) | Total | ||||||||||||||
| (Dollars in Thousands) | |||||||||||||||||
| Audit Fees | $ | 9,500 | (a) | $ | 37,306 | $ | — | $ | 46,806 | ||||||||
| Audit-Related Fees | — | 191 | 25,473 | 25,664 | |||||||||||||
| Tax Fees | 1,316 | (b) | 54,216 | 14,145 | 69,677 | ||||||||||||
| All Other Fees | — | 739 | — | 739 | |||||||||||||
| $ | 10,816 | $ | 92,452 | $ | 39,618 | $ | 142,886 | ||||||||||
| (a) | Audit Fees consisted of fees for (1) the audits of our consolidated financial statements in our Annual Report on Form 10-K and services attendant to, or required by, statute or regulation, (2) reviews of the interim condensed consolidated financial statements included in our quarterly reports on Form 10-Q, and (3) consents and other services related to SEC and other regulatory filings. |
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| (b) | Tax Fees consisted of fees for services rendered for tax compliance and tax planning and advisory services. |
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| (c) | The Deloitte Entities also provide audit, audit-related and tax services (primarily tax compliance and related services) to certain Blackstone Funds and other corporate entities. |
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| (d) | Audit-Related and Tax Fees included merger and acquisition due diligence services provided in connection with potential acquisitions of portfolio companies for investment purposes primarily to certain private equity and real estate funds managed by Blackstone in its capacity as the general partner. In addition, the Deloitte Entities provide audit, audit-related, tax and other services to the portfolio companies, which are approved directly by the portfolio company’s management and are not included in the amounts presented here. |
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Our audit committee charter, which is available on our website at http://ir.blackstone.com under “Corporate Governance,” requires the audit committee to approve in advance all audit and
non-audit
related services to be provided by our independent registered public accounting firm in accordance with the audit and
non-audit
related services
pre-approval
policy. All services reported in the Audit, Audit-Related, Tax and All Other Fees categories above were approved by the audit committee.
Part IV.
Item 15. Exhibits, Financial Statement Schedules
| --- | --- |
| (a) | The following documents are filed as part of this annual report. |
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| 1. | Financial Statements: |
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See Item 8 above.
| 2. | Financial Statement Schedules: |
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Schedules for which provision is made in the applicable accounting regulations of the SEC are not required under the related instructions or are not applicable, and therefore have been omitted.
| 3. | Exhibits: |
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Showing the first 8K of 63K characters. Open the full section
Item 16. Form 10- K Summary
| --- | --- |
None.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: February 28, 2020
| The Blackstone Group Inc. | ||
| /s/ Michael S. Chae | ||
| Name: | Michael S. Chae | |
| Title: | Chief Financial Officer | |
| (Principal Financial Officer and Authorized Signatory) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on this 28th day of February, 2020.
| /s/ Stephen A. Schwarzman Stephen A. Schwarzman, Chief Executive Officer and Chairman of the Board of Directors (Principal Executive Officer) | /s/ James W. Breyer James W. Breyer, Director | |
| /s/ Jonathan D. Gray Jonathan D. Gray, President, Chief Operating Officer and Director | /s/ Sir John Antony Hood Sir John Antony Hood, Director | |
| /s/ Hamilton E. James Hamilton E. James, Executive Vice Chairman and Director | /s/ Rochelle B. Lazarus Rochelle B. Lazarus, Director | |
| /s/ Michael S. Chae Michael S. Chae, Chief Financial Officer (Principal Financial Officer) | /s/ Jay O. Light Jay O. Light, Director | |
| /s/ Christopher Striano Christopher Striano, Principal Accounting Officer (Principal Accounting Officer) | /s/ Brian Mulroney Brian Mulroney, Director | |
| /s/ Kelly A. Ayotte Kelly A. Ayotte, Director | /s/ William G. Parrett William G. Parrett, Director |