filings.toolsItem 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with Blackstone Inc.’s condensed consolidated financial statements and the related notes included within this Quarterly Report on
Form 10-Q.
In this report, references to “Blackstone,” the “Company,” “we,” “us” or “our” refer to Blackstone Inc. and its consolidated subsidiaries.
Our Business
Blackstone is one of the world’s leading investment firms. We generate revenue from fees earned pursuant to contractual arrangements with funds, fund investors and fund portfolio companies (including management, transaction and monitoring fees), and from capital markets services. We also invest in the funds we manage and we are entitled to a
pro-rata
share of the income of the fund
(a “pro-rata
allocation”). In addition to a
pro-rata
allocation, and assuming certain investment returns are achieved, we are entitled to a disproportionate allocation of the income otherwise allocable to the limited partners, commonly referred to as carried interest (“Performance Allocations”). In certain structures, we receive a contractual incentive fee from an investment fund based on achieving certain investment returns (an “Incentive Fee,” and together with Performance Allocations, “Performance Revenues”). The composition of our revenues will vary based on market conditions and the cyclicality of the different businesses in which we operate. Net investment gains and investment income generated by the Blackstone Funds are driven by the performance of the underlying investments as well as overall market conditions. Fair values are affected by changes in the fundamentals of our portfolio company and other investments, the industries in which they operate, the overall economy and other market conditions.
Our business is organized into four segments:
Real Estate
Our real estate business is a global leader in real estate investing. Our Real Estate segment operates as one globally integrated business, with investments in the Americas, Europe and Asia. Our real estate investment teams seek to utilize our global expertise and presence to generate attractive risk-adjusted returns for our investors.
Our Blackstone Real Estate Partners (“BREP”) business is geographically diversified and targets a broad range of opportunistic real estate and real estate-related investments. The BREP funds include global funds as well as funds focused specifically on Europe or Asia investments. BREP seeks to invest thematically in high-quality assets, focusing where we see outsized growth potential driven by global economic and demographic trends. BREP has made significant investments in logistics, office, rental housing, hospitality and retail properties around the world, as well as in a variety of real estate operating companies.
Our Core+ strategy invests in substantially stabilized real estate globally with long-term growth potential. Our institutional North America, Europe and Asia Core+ strategies, Blackstone Property Partners (“BPP”), focus on logistics, residential, office, life science office and retail assets in global gateway cities. The Core+ Real Estate business also comprises strategies tailored for income-focused individual investors including, Blackstone Real Estate Income Trust, Inc. (“BREIT”), a U.S.
non-listed
REIT, and Blackstone European Property Income (“BEPIF”) funds.
Our Blackstone Real Estate Debt Strategies (“BREDS”) vehicles primarily target real estate-related debt investment opportunities. BREDS invests in both public and private markets, primarily in the U.S. and Europe. BREDS’ scale and investment mandates enable it to provide a variety of lending options for our borrowers and investment options for our investors, including commercial real estate and mezzanine loans, residential mortgage loan pools and liquid real estate-related debt securities. The BREDS platform includes high-yield real estate debt funds, liquid real estate debt funds and Blackstone Mortgage Trust, Inc. (“BXMT”), a NYSE-listed real estate investment trust (“REIT”).
Private Equity
Our Private Equity segment includes our corporate private equity business, which consists of (a) our global private equity funds, Blackstone Capital Partners (“BCP”), (b) our sector-focused funds, including our energy-focused funds, Blackstone Energy Partners (“BEP”), (c) our Asia-focused private equity funds, Blackstone Capital Partners Asia and (d) our core private equity funds, Blackstone Core Equity Partners (“BCEP”). Our Private Equity segment also includes (a) our opportunistic investment platform that invests globally across asset classes, industries and geographies, Blackstone Tactical Opportunities (“Tactical Opportunities”), (b) our secondary fund of funds business, Strategic Partners Fund Solutions (“Strategic Partners”), (c) our infrastructure-focused funds, Blackstone Infrastructure Partners (“BIP”), (d) our life sciences investment platform, Blackstone Life Sciences (“BXLS”), (e) our growth equity investment platform, Blackstone Growth (“BXG”), (f) our multi-asset investment program for eligible high net worth investors offering exposure to certain of Blackstone’s key illiquid investment strategies through a single commitment, Blackstone Total Alternatives Solution (“BTAS”) and (g) our capital markets services business, Blackstone Capital Markets (“BXCM”).
We are a global leader in private equity investing. Our corporate private equity business pursues transactions across industries on a global basis. It strives to create value by investing in great businesses where our capital, strategic insight, global relationships and operational support can drive transformation. Our corporate private equity business’s investment strategies and core themes continually evolve in anticipation of, or in response to, changes in the global economy, local markets, regulation, capital flows and geopolitical trends. We seek to construct a differentiated portfolio of investments with a well-defined, post-acquisition value creation strategy. Similarly, we seek investments that can generate strong unlevered returns regardless of entry or exit cycle timing. Blackstone Core Equity Partners pursues control-oriented investments in high-quality companies with durable businesses and seeks to offer a lower level of risk and a longer hold period than traditional private equity.
Tactical Opportunities pursues a thematically driven, opportunistic investment strategy. Our flexible, global mandate enables us to find differentiated opportunities across asset classes, industries, and geographies and invest behind them with the frequent use of structure to generate attractive risk-adjusted returns. With a focus on businesses and/or asset-backed investments in market sectors that are benefitting from long-term
transformational tailwinds, Tactical Opportunities seeks to leverage the full power of Blackstone to help those businesses grow and improve. Tactical Opportunities’ ability to dynamically shift focus to the most compelling opportunities in any market environment, combined with the business’ expertise in structuring complex transactions, enables Tactical Opportunities to invest behind attractive market areas often with securities that provide downside protection and maintain upside return.
Strategic Partners, our secondary fund of funds business, is a total fund solutions provider. As a secondary investor it acquires interests in high-quality private funds from original holders seeking liquidity. Strategic Partners focuses on a range of opportunities in underlying funds such as private equity, real estate, infrastructure, venture and growth capital, credit and other types of funds, as well as general
partner-led
transactions and primary investments and
co-investments
with financial sponsors. Strategic Partners also provides investment advisory services to separately managed account clients investing in primary and secondary investments in private funds and
co-investments.
BIP targets a diversified mix of core+, core and public-private partnership investments across all infrastructure sectors, including energy infrastructure, transportation, digital infrastructure, and water and waste with a primary focus in the U.S. BIP applies a disciplined, operationally intensive investment approach to investments, seeking to apply a long-term
buy-and-hold
strategy to large-scale infrastructure assets with a focus on delivering stable, long-term capital appreciation together with a predictable annual cash flow yield.
BXLS is our investment platform with capabilities to invest across the life cycle of companies and products within the life sciences sector. BXLS primarily focuses on investments in life sciences products in late stage clinical development within the pharmaceutical and biotechnology sectors.
BXG is our growth equity platform that seeks to deliver attractive risk-adjusted returns by investing in dynamic, growth-stage businesses, with a focus on the consumer, enterprise solutions, financial services and healthcare sectors.
Hedge Fund Solutions
The principal component of our Hedge Fund Solutions segment is Blackstone Alternative Asset Management (“BAAM”). BAAM is the world’s largest discretionary allocator to hedge funds, managing a broad range of commingled and customized fund solutions since its inception in 1990. The Hedge Fund Solutions segment also includes (a) our GP Stakes business (“GP Stakes”), which targets minority investments in the general partners of private equity and other private-market alternative asset management firms globally, with a focus on delivering a combination of recurring annual cash flow yield and long-term capital appreciation, (b) investment platforms that invest directly, including our Blackstone Strategic Opportunity Fund, which seeks to produce attractive long-term, risk-adjusted returns by investing in a wide variety of securities, assets and instruments, often sourced and/or managed by third party subadvisors or affiliated Blackstone managers, (c) our hedge fund seeding business and (d) registered funds that provide alternative asset solutions through daily liquidity products. Hedge Fund Solutions’ overall investment philosophy is to grow investors’ assets through both commingled and custom-tailored investment strategies designed to deliver compelling risk-adjusted returns. Diversification, risk management and due diligence are key tenets of our approach.
Credit & Insurance
Our Credit & Insurance segment includes Blackstone Credit (“BXC”). BXC is one of the largest credit-oriented managers in the world. The investment portfolios of the funds BXC manages or
sub-advises
consist of loans and securities of
non-investment
and investment grade companies spread across the capital structure including senior debt, subordinated debt, preferred stock and common equity.
BXC is organized into two overarching strategies: private credit and liquid credit. BXC’s private credit strategies include mezzanine and direct lending funds, private placement strategies, stressed/distressed strategies and energy strategies (including our sustainable resources platform). BXC’s direct lending funds include Blackstone Private Credit Fund (“BCRED”) and Blackstone Secured Lending Fund (“BXSL”), both of which are business development companies (“BDCs”). BXC’s liquid credit strategies consist of collateralized loan obligations (“CLOs”), closed-ended funds, open-ended funds, systematic strategies and separately managed accounts.
Our Credit & Insurance segment also includes our insurer-focused platform, Blackstone Insurance Solutions (“BIS”). BIS focuses on providing full investment management services for insurers’ general accounts, seeking to deliver customized and diversified portfolios that include allocations to Blackstone managed products and strategies across asset classes and Blackstone’s private credit origination capabilities. BIS provides its clients tailored portfolio construction and strategic asset allocation, seeking to generate risk-managed, capital-efficient returns, diversification and capital preservation that meets clients’ objectives. BIS also provides similar services to clients through separately managed accounts or by
sub-managing
assets for certain insurance-dedicated funds and special purpose vehicles.
In addition, our Credit & Insurance segment includes our asset-based finance platform and our publicly traded midstream energy infrastructure, listed infrastructure and master limited partnership (“MLP”) investment platform, which is managed by Harvest Fund Advisors LLC (“Harvest”). Harvest primarily invests capital raised from institutional investors in separately managed accounts and pooled vehicles, investing in publicly traded energy infrastructure, listed infrastructure, renewables and MLPs holding primarily midstream energy assets in North America.
Business Environment
Blackstone’s businesses are materially affected by conditions in the financial markets and economic conditions in the U.S., Europe, Asia and, to a lesser extent, elsewhere in the world.
In the third quarter of 2022, global markets continued to experience significant volatility, driven by concerns over persistent inflation, rising interest rates, slowing economic growth and geopolitical uncertainty. Inflation persisted at multi-decade highs in many major economies around the world, prompting central banks to pursue monetary policy tightening actions that are likely to continue to create headwinds to economic growth. In the U.S., annual inflation was 8.2% in September, down from 9.1% in June but still well above the Federal Reserve’s
long-run
target of 2%. In Eurozone economies, inflation increased to a record 9.9% in September, up from 9.1% in August. The U.S. Federal Reserve raised the federal funds target range to
3.00-3.25%
in the third quarter of 2022 and further to
3.75-4.00%
in November, while the European Central Bank raised its deposit facility rate to 0.75%. Both central banks reiterated expectations for further increases in the coming months.
Nonetheless, several key economic indicators in the U.S., including employment, wage growth and consumer health measures, have demonstrated resilience. The U.S. unemployment rate declined to the
pre-pandemic
level of 3.5% as of September 2022, signaling a strong labor market. Wages increased 5.0% year-over-year in September and exceeded the
15-year
average of 2.9%. Retail sales increased 8.2% year-over-year in September, driven in part by higher prices. In manufacturing, however, the Institute for Supply Management Purchasing Managers’ Index decreased to 50.9 in the third quarter from 61.1 in September 2021, signaling a slowing expansion in the U.S. manufacturing sector. While the U.S. economy has demonstrated resilience, global economies are facing less robust fundamentals. In China, 2022 economic growth is expected to be the second lowest since 1976. In the Eurozone and U.K., many economists are predicting modest economic contraction in 2023.
For the first nine months of 2022, the S&P 500 declined 24% — with declines in every sector except energy. The telecom sector experienced the largest decline, down 39% year to date. Energy was the best performing sector, up 34% year to date. The price of West Texas Intermediate crude oil decreased 25% from the second quarter to $79 per barrel, but has since climbed 9% as of October 31, 2022 following production cuts amid tight supply.
Volatility increased in the third quarter, with the CBOE Volatility Index rising 10% from the second quarter. Capital markets activity experienced a dramatic slowdown. U.S. initial public offering volumes decreased 95% compared to the third quarter of 2021 while U.S. announced merger and acquisition deal volumes declined 62% over the same period.
The
ten-year
Treasury yield increased 82 basis points to 3.83% during the third quarter and has since climbed to 4.05% as of October 31, 2022. Three month LIBOR increased 147 basis points to 3.75% during the third quarter and has since increased to 4.46% as of October 31, 2022.
In credit markets, the S&P leveraged loan index increased by 1.4% and the Credit Suisse high yield bond index declined by 0.4% in the third quarter. High yield spreads contracted by 45 basis points sequentially, while issuance decreased 81% compared to the third quarter of 2021.
While overall headline economic measures remained generally resilient in the third quarter, pervasive inflation is likely to lead to continued central bank tightening. The prospect of slower economic growth, coupled with continued uncertainty regarding the potential for a recession in the U.S., could contribute to prolonged market volatility.
Notable Transactions
On November 3, 2022, Blackstone issued $600 million aggregate principal amount of 5.900% senior notes due November 3, 2027 (the “2027 Notes”) and $900 million aggregate principal amount of 6.200% senior notes due April 22, 2033 (the “2033 Notes”). Blackstone intends to use the net proceeds from the sale of the 2027 Notes and the 2033 Notes for general corporate purposes. For additional information see Note 12. “Borrowings” in the “Notes to Condensed Consolidated Financial Statements” in “Part I. Item 1. Financial Statements.”
Organizational Structure
Effective February 26, 2021, Blackstone effectuated changes to rename its Class A common stock as “common stock,” and to reclassify its Class B and Class C common stock into a new “Series I preferred stock” and “Series II preferred stock,” respectively. Each new stock has the same rights and powers of its predecessor. For additional information, see Note 1. “Organization” and Note 14. “Earnings Per Share and Stockholders’ Equity — Stockholders’ Equity” in the “Notes to Condensed Consolidated Financial Statements” in “— Item 1. Financial Statements” of this filing.
Effective August 6, 2021, The Blackstone Group Inc. changed its name to Blackstone Inc. For additional information, see Note 1. “Organization” in the “Notes to Condensed Consolidated Financial Statements” in “— Item 1. Financial Statements.”
The simplified diagram below depicts our current organizational structure. The diagram does not depict all of our subsidiaries, including intermediate holding companies through which certain of the subsidiaries depicted are held.
Key Financial Measures and Indicators
We manage our business using certain financial measures and key operating metrics since we believe these metrics measure the productivity of our investment activities. We prepare our Condensed Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”). See Note 2. “Summary of Significant Accounting Policies” in the “Notes to Condensed Consolidated Financial Statements” in “Part I. Item 1. Financial Statements” and “— Critical Accounting Policies.” Our key
non-GAAP
financial measures and operating indicators and metrics are discussed below.
Distributable Earnings
Distributable Earnings is derived from Blackstone’s segment reported results. Distributable Earnings is used to assess performance and amounts available for dividends to Blackstone shareholders, including Blackstone personnel and others who are limited partners of the Blackstone Holdings Partnerships. Distributable Earnings is the sum of Segment Distributable Earnings plus Net Interest and Dividend Income (Loss) less Taxes and Related Payables. Distributable Earnings excludes unrealized activity and is derived from and reconciled to, but not equivalent to, its most directly comparable GAAP measure of Income Before Provision (Benefit) for Taxes. See “—
Non-GAAP
Financial Measures” for our reconciliation of Distributable Earnings.
Net Interest and Dividend Income (Loss) is presented on a segment basis and is equal to Interest and Dividend Revenue less Interest Expense, adjusted for the impact of consolidation of Blackstone Funds, and interest expense associated with the Tax Receivable Agreement.
Taxes and Related Payables represent the total GAAP tax provision adjusted to include only the current tax provision (benefit) calculated on Income Before Provision (Benefit) for Taxes and including the Payable under the Tax Receivable Agreement. Further, the current tax provision utilized when calculating Taxes and Related Payables and Distributable Earnings reflects the benefit of deductions available to the company on certain expense items that are excluded from the underlying calculation of Segment Distributable Earnings and Total Segment Distributable Earnings, such as equity-based compensation charges and certain Transaction-Related Charges where there is a current tax provision or benefit. The economic assumptions and methodologies that impact the implied income tax provision are the same as those methodologies and assumptions used in calculating the current income tax provision for Blackstone’s Condensed Consolidated Statements of Operations under GAAP, excluding the impact of divestitures and accrued tax contingencies and refunds which are reflected when paid or received. Management believes that including the amount payable under the Tax Receivable Agreement and utilizing the current income tax provision adjusted as described above when calculating Distributable Earnings is meaningful as it increases comparability between periods and more accurately reflects earnings that are available for distribution to shareholders.
Segment Distributable Earnings
Segment Distributable Earnings is Blackstone’s segment profitability measure used to make operating decisions and assess performance across Blackstone’s four segments. Segment Distributable Earnings represents the net realized earnings of Blackstone’s segments and is the sum of Fee Related Earnings and Net Realizations for each segment. Blackstone’s segments are presented on a basis that deconsolidates Blackstone Funds, eliminates
non-controlling
ownership interests in Blackstone’s consolidated operating partnerships, removes the amortization of intangible assets and removes Transaction-Related Charges. Transaction-Related Charges arise from corporate actions including acquisitions, divestitures and Blackstone’s initial public offering. They consist primarily of equity-based compensation charges, gains and losses on contingent consideration arrangements, changes in the balance of the Tax Receivable Agreement resulting from a change in tax law or similar event, transaction costs and any gains or losses associated with these corporate actions. Segment Distributable Earnings excludes unrealized activity and is derived from and reconciled to, but not equivalent to, its most directly comparable GAAP measure of Income Before Provision (Benefit) for Taxes. See “—
Non-GAAP
Financial Measures” for our reconciliation of Segment Distributable Earnings.
Net Realizations is presented on a segment basis and is the sum of Realized Principal Investment Income and Realized Performance Revenues (which refers to Realized Performance Revenues excluding Fee Related Performance Revenues), less Realized Performance Compensation (which refers to Realized Performance Compensation excluding Fee Related Performance Compensation and Equity-Based Performance Compensation).
Realized Performance Compensation reflects an increase in the aggregate Realized Performance Compensation paid to certain of our professionals above the amounts allocable to them based upon the percentage participation in the relevant performance plans previously awarded to them as a result of a compensation program that commenced during the three months ended June 30, 2021. The expectation is that for the full year 2022, Fee Related Compensation will be decreased by the total amount of additional Performance Compensation awarded for the year. In the three months ended September 30, 2022 the increase to Realized Performance Compensation of $15.0 million was less than the decrease to Fee Related Compensation of $20.0 million, while in the nine months ended September 30, 2022 the increase to Realized Performance Compensation of $80.0 million was greater than the decrease to Fee Related Compensation of $60.0 million. These changes to Realized Performance Compensation and Fee Related Compensation reduced Net Realizations, increased Fee Related Earnings and had a favorable impact to Income Before Provision (Benefit) for Taxes and Distributable Earnings in the three months ended September 30, 2022 and a negative impact to Income Before Provision (Benefit) for Taxes and Distributable Earnings in the nine months ended September 30, 2022. These changes are not expected to impact Income Before Provision (Benefit) for Taxes and Distributable Earnings for the full year. In the three months and nine months ended September 30, 2021 Realized Performance Compensation was increased, and Fee Related Compensation was decreased, by $5.0 million and $20.0 million, respectively. This reduced Net Realizations, increased Fee Related Earnings, was neutral to Income Before Provision (Benefit) for Taxes and had no impact to Distributable Earnings for such period.
Fee Related Earnings
Fee Related Earnings is a performance measure used to assess Blackstone’s ability to generate profits from revenues that are measured and received on a recurring basis and not subject to future realization events. Fee Related Earnings equals management and advisory fees (net of management fee reductions and offsets) plus Fee Related Performance Revenues, less (a) Fee Related Compensation on a segment basis, and (b) Other Operating Expenses. Fee Related Earnings is derived from and reconciled to, but not equivalent to, its most directly comparable GAAP measure of Income Before Provision (Benefit) for Taxes. See “—
Non-GAAP
Financial Measures” for our reconciliation of Fee Related Earnings.
Fee Related Compensation is presented on a segment basis and refers to the compensation expense, excluding Equity-Based Compensation, directly related to (a) Management and Advisory Fees, Net and (b) Fee Related Performance Revenues, referred to as Fee Related Performance Compensation.
Fee Related Performance Revenues refers to the realized portion of Performance Revenues from Perpetual Capital that are (a) measured and received on a recurring basis, and (b) not dependent on realization events from the underlying investments.
Other Operating Expenses is presented on a segment basis and is equal to General, Administrative and Other Expenses, adjusted to (a) remove the amortization of transaction-related intangibles, (b) remove certain expenses reimbursed by the Blackstone Funds which are netted against Management and Advisory Fees, Net in Blackstone’s segment presentation, and (c) give effect to an administrative fee collected on a quarterly basis from certain holders of Blackstone Holdings Partnership Units. The administrative fee is accounted for as a capital contribution under GAAP, but is reflected as a reduction of Other Operating Expenses in Blackstone’s segment presentation.
Adjusted Earnings Before Interest, Taxes and Depreciation and Amortization
Adjusted Earnings Before Interest, Taxes and Depreciation and Amortization (“Adjusted EBITDA”), is a supplemental measure used to assess performance derived from Blackstone’s segment results and may be used to assess its ability to service its borrowings. Adjusted EBITDA represents Distributable Earnings plus the addition of (a) Interest Expense on a segment basis, (b) Taxes and Related Payables, and (c) Depreciation and Amortization. Adjusted EBITDA is derived from and reconciled to, but not equivalent to, its most directly comparable GAAP measure of Income Before Provision (Benefit) for Taxes. See “—
Non-GAAP
Financial Measures” for our reconciliation of Adjusted EBITDA.
Net Accrued Performance Revenues
Net Accrued Performance Revenues is a financial measure used as an indicator of potential future realized performance revenues based on the current investment portfolio of the funds and vehicles we manage. Net Accrued Performance Revenues represents the accrued performance revenues receivable by Blackstone, net of the related accrued performance compensation payable by Blackstone, excluding Performance Revenues that have been realized but not yet distributed as of the reporting date and clawback amounts, if any. Net Accrued Performance Revenues is derived from and reconciled to, but not equivalent to, its most directly comparable GAAP measure of Investments. See “—
Non-GAAP
Financial Measures” for our reconciliation of Net Accrued Performance Revenues and Note 2. “Summary of Significant Accounting Policies — Equity Method Investments” in the “Notes to Condensed Consolidated Financial Statements” in “— Item 1. Financial Statements” for additional information on the calculation of Investments — Accrued Performance Allocations.
Operating Metrics
The alternative asset management business is primarily based on managing third party capital and does not require substantial capital investment to support rapid growth. Since our inception, we have developed and used various key operating metrics to assess and monitor the operating performance of our various alternative asset management businesses in order to monitor the effectiveness of our value creating strategies.
Total and
Fee-Earning
Assets Under Management
Total Assets Under Management refers to the assets we manage. Our Total Assets Under Management equals the sum of:
| (a) | the fair value of the investments held by our carry funds and our side-by-side and co-investment entities managed by us plus the capital that we are entitled to call from investors in those funds and entities pursuant to the terms of their respective capital commitments, including capital commitments to funds that have yet to commence their investment periods, |
|---|
| (b) | the net asset value of (1) our hedge funds, real estate debt carry funds, BPP, certain co-investments managed by us, certain credit-focused funds, and our Hedge Fund Solutions drawdown funds (plus, in each case, the capital that we are entitled to call from investors in those funds, including commitments yet to commence their investment periods), and (2) our funds of hedge funds, our Hedge Fund Solutions registered investment companies, BREIT, and BEPIF, |
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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 CLOs during the reinvestment period, |
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| (e) | the aggregate par amount of collateral assets, including principal cash, for our CLOs after the reinvestment period, |
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| (f) | the gross or net amount of assets (including leverage where applicable) for our credit-focused registered investment companies, |
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| (g) | the fair value of common stock, preferred stock, convertible debt, term loans or similar instruments issued by BXMT, and |
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| (h) | borrowings under and any amounts available to be borrowed under certain credit facilities of our funds. |
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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 Real Estate, Hedge Fund Solutions and Credit & Insurance segments generally have structures that afford an investor the right to withdraw or redeem their interests on a periodic basis (for example,
annually or quarterly), typically with 30 to 95 days’ notice, depending on the fund and the liquidity profile of the underlying assets. In our Perpetual Capital vehicles where redemption rights exist, Blackstone has the ability to fulfill redemption requests only (a) in Blackstone’s or the vehicles’ board’s discretion, as applicable, or (b) to the extent there is sufficient new capital. Investment advisory agreements related to certain separately managed accounts in our Hedge Fund Solutions and Credit & Insurance segments, excluding our BIS separately managed accounts, may generally be terminated by an investor on 30 to 90 days’ notice. Our BIS separately managed accounts can generally only be terminated for long-term underperformance, cause and certain other limited circumstances, in each case subject to Blackstone’s right to cure.
Fee-Earning
Assets Under Management refers to the assets we manage on which we derive management fees and/or performance revenues. Our
Fee-Earning
Assets Under Management equals the sum of:
| (a) | for our Private Equity segment funds and Real Estate segment carry funds, including certain BREDS and Hedge Fund Solutions funds, the amount of capital commitments, remaining invested capital, fair value, net asset value or par value of assets held, depending on the fee terms of the fund, |
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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, BEPIF, 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 distributable 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 Total Assets Under Management and
Fee-Earning
Assets Under Management may differ from the calculations of other asset managers, and as a result this measure may not be comparable to similar measures presented by other asset managers. In addition, our calculation of Total Assets Under Management includes commitments to, and the fair value of, invested capital in our funds from Blackstone and our personnel, regardless of whether such commitments or invested capital are subject to fees. Our definitions of Total Assets Under Management and
Fee-Earning
Assets Under Management are not based on any definition of total assets under management and
fee-earning
assets under management that is set forth in the agreements governing the investment funds that we manage.
For our carry funds, Total Assets Under Management includes the fair value of the investments held and uncalled capital commitments, whereas
Fee-Earning
Assets Under Management may include the total amount of capital commitments or the remaining amount of invested capital at cost, depending on whether the investment period has expired or as specified by the fee terms of the fund. As such, in certain carry funds
Fee-Earning
Assets Under Management may be greater than Total Assets Under Management when the aggregate fair value of the remaining investments is less than the cost of those investments.
Perpetual Capital
Perpetual Capital refers to the component of assets under management with an indefinite term, that is not in liquidation, and for which there is no requirement to return capital to investors through redemption requests in the ordinary course of business, except where funded by new capital inflows. Perpetual Capital includes
co-investment
capital with an investor right to convert into Perpetual Capital.
Dry Powder
Dry Powder represents the amount of capital available for investment or reinvestment, including general partner and employee capital, and is an indicator of the capital we have available for future investments.
Performance Eligible Assets Under Management
Performance Eligible Assets Under Management represents invested and to be invested capital at fair value, including capital closed for funds whose investment period has not yet commenced, on which performance revenues could be earned if certain hurdles are met.
Recent Tax Developments
The Presidential administration and the U.S. Congress may introduce new or enforce existing policies and regulations that may create uncertainty for our business and investment strategies and could have an adverse impact on us. For example, a top legislative priority of the Presidential administration is significant changes to U.S. tax regulations. The administration has recently signed into law the Inflation Reduction Act which, among other things, imposes a minimum “book” tax on certain large corporations and creates a new excise tax on net stock repurchases made by certain publicly traded corporations after December 31, 2022. While the application of this new law is uncertain and we continue to evaluate its potential impact, these changes could materially change the amount and/or timing of tax Blackstone Inc. may be required to pay. For further discussion of potential consequences of changes in tax regulations, please see “Part I. Item 1A. Risk Factors – Risks Related to Our Business – Changes in U.S. and foreign taxation of businesses and other tax laws, regulations or treaties or an adverse interpretation of these items by tax authorities could adversely affect us, including by adversely impacting our effective tax rate and tax liability” in our Annual Report on Form
10-K
for the year ended December 31, 2021.
Consolidated Results of Operations
Following is a discussion of our consolidated results of operations. For a more detailed discussion of the factors that affected the results of our four business segments (which are presented on a basis that deconsolidates the investment funds, eliminates
non-controlling
ownership interests in Blackstone’s consolidated operating partnerships and removes the amortization of intangibles assets and Transaction-Related Charges) in these periods, see “— Segment Analysis” below.
The following table sets forth information regarding our consolidated results of operations and certain key operating metrics for the three and nine months ended September 30, 2022 and 2021:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
| September 30, | 2022 vs. 2021 | September 30, | 2022 vs. 2021 | |||||||||||||||||||||||||||||
| 2022 | 2021 | $ | % | 2022 | 2021 | $ | % | |||||||||||||||||||||||||
| (Dollars in Thousands) | ||||||||||||||||||||||||||||||||
| Revenues | ||||||||||||||||||||||||||||||||
| Management and Advisory Fees, Net | $ | 1,617,754 | $ | 1,320,795 | $ | 296,959 | 22 | % | $ | 4,654,877 | $ | 3,711,159 | $ | 943,718 | 25 | % | ||||||||||||||||
| Incentive Fees | 110,776 | 48,206 | 62,570 | 130 | % | 314,863 | 117,537 | 197,326 | 168 | % | ||||||||||||||||||||||
| Investment Income (Loss) | ||||||||||||||||||||||||||||||||
| Performance Allocations | ||||||||||||||||||||||||||||||||
| Realized | 725,888 | 1,522,495 | (796,607 | ) | -52 | % | 4,946,043 | 2,865,482 | 2,080,561 | 73 | % | |||||||||||||||||||||
| Unrealized | (771,637 | ) | 2,724,366 | (3,496,003 | ) | n/m | (2,946,255 | ) | 7,886,033 | (10,832,288 | ) | n/m | ||||||||||||||||||||
| Principal Investments | ||||||||||||||||||||||||||||||||
| Realized | 193,228 | 325,414 | (132,186 | ) | -41 | % | 743,493 | 832,512 | (89,019 | ) | -11 | % | ||||||||||||||||||||
| Unrealized | (1,069,697 | ) | 183,754 | (1,253,451 | ) | n/m | (1,496,226 | ) | 1,151,904 | (2,648,130 | ) | n/m | ||||||||||||||||||||
| Total Investment Income (Loss) | (922,218 | ) | 4,756,029 | (5,678,247 | ) | n/m | 1,247,055 | 12,735,931 | (11,488,876 | ) | -90 | % | ||||||||||||||||||||
| Interest and Dividend Revenue | 52,420 | 35,048 | 17,372 | 50 | % | 168,980 | 97,477 | 71,503 | 73 | % | ||||||||||||||||||||||
| Other | 199,382 | 64,187 | 135,195 | 211 | % | 427,839 | 152,387 | 275,452 | 181 | % | ||||||||||||||||||||||
| Total Revenues | 1,058,114 | 6,224,265 | (5,166,151 | ) | -83 | % | 6,813,614 | 16,814,491 | (10,000,877 | ) | -59 | % | ||||||||||||||||||||
| Expenses | ||||||||||||||||||||||||||||||||
| Compensation and Benefits | ||||||||||||||||||||||||||||||||
| Compensation | 600,273 | 536,199 | 64,074 | 12 | % | 1,942,790 | 1,585,941 | 356,849 | 23 | % | ||||||||||||||||||||||
| Incentive Fee Compensation | 50,355 | 21,007 | 29,348 | 140 | % | 136,737 | 48,763 | 87,974 | 180 | % | ||||||||||||||||||||||
| Performance Allocations Compensation | ||||||||||||||||||||||||||||||||
| Realized | 313,930 | 631,632 | (317,702 | ) | -50 | % | 2,067,447 | 1,192,082 | 875,365 | 73 | % | |||||||||||||||||||||
| Unrealized | (359,590 | ) | 1,193,853 | (1,553,443 | ) | n/m | (1,273,849 | ) | 3,394,041 | (4,667,890 | ) | n/m | ||||||||||||||||||||
| Total Compensation and Benefits | 604,968 | 2,382,691 | (1,777,723 | ) | -75 | % | 2,873,125 | 6,220,827 | (3,347,702 | ) | -54 | % | ||||||||||||||||||||
| General, Administrative and Other | 270,369 | 217,995 | 52,374 | 24 | % | 800,331 | 608,174 | 192,157 | 32 | % | ||||||||||||||||||||||
| Interest Expense | 80,507 | 52,413 | 28,094 | 54 | % | 216,896 | 141,718 | 75,178 | 53 | % | ||||||||||||||||||||||
| Fund Expenses | 5,517 | 1,260 | 4,257 | 338 | % | 12,144 | 7,417 | 4,727 | 64 | % | ||||||||||||||||||||||
| Total Expenses | 961,361 | 2,654,359 | (1,692,998 | ) | -64 | % | 3,902,496 | 6,978,136 | (3,075,640 | ) | -44 | % | ||||||||||||||||||||
| Other Income (Loss) | ||||||||||||||||||||||||||||||||
| Change in Tax Receivable Agreement Liability | — | (37,321 | ) | 37,321 | -100 | % | 748 | (34,803 | ) | 35,551 | n/m | |||||||||||||||||||||
| Net Gains (Losses) from Fund Investment Activities | 1,178 | 132,312 | (131,134 | ) | -99 | % | (52,272 | ) | 379,781 | (432,053 | ) | n/m | ||||||||||||||||||||
| Total Other Income (Loss) | 1,178 | 94,991 | (93,813 | ) | -99 | % | (51,524 | ) | 344,978 | (396,502 | ) | n/m | ||||||||||||||||||||
| Income Before Provision for Taxes | 97,931 | 3,664,897 | (3,566,966 | ) | -97 | % | 2,859,594 | 10,181,333 | (7,321,739 | ) | -72 | % | ||||||||||||||||||||
| Provision for Taxes | 94,231 | 458,904 | (364,673 | ) | -79 | % | 614,026 | 746,707 | (132,681 | ) | -18 | % | ||||||||||||||||||||
| Net Income | 3,700 | 3,205,993 | (3,202,293 | ) | -100 | % | 2,245,568 | 9,434,626 | (7,189,058 | ) | -76 | % | ||||||||||||||||||||
| Net Income Attributable to Redeemable Non-Controlling Interests in Consolidated Entities | 25,773 | 1,550 | 24,223 | n/m | 56,700 | 2,816 | 53,884 | n/m | ||||||||||||||||||||||||
| Net Income (Loss) Attributable to Non-Controlling Interests in Consolidated Entities | (62,093 | ) | 486,907 | (549,000 | ) | n/m | (62,425 | ) | 1,305,273 | (1,367,698 | ) | n/m | ||||||||||||||||||||
| Net Income Attributable to Non-Controlling Interests in Blackstone Holdings | 37,724 | 1,315,641 | (1,277,917 | ) | -97 | % | 1,061,516 | 3,667,618 | (2,606,102 | ) | -71 | % | ||||||||||||||||||||
| Net Income Attributable to Blackstone Inc. | $ | 2,296 | $ | 1,401,895 | $ | (1,399,599 | ) | -100 | % | $ | 1,189,777 | $ | 4,458,919 | $ | (3,269,142 | ) | -73 | % | ||||||||||||||
n/m Not meaningful.
Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021
Revenues
Revenues were $1.1 billion for the three months ended September 30, 2022, a decrease of $5.2 billion, compared to $6.2 billion for the three months ended September 30, 2021. The decrease in Revenues was primarily attributable to a decrease of $5.7 billion in Investment Income (Loss), which is composed of decreases of $4.7 billion and $928.8 million in Unrealized Investment Income (Loss) and Realized Investment Income (Loss), respectively.
The $4.7 billion decrease in Unrealized Investment Income (Loss) was primarily attributable to net unrealized depreciation of investments in the three months ended September 30, 2022 compared to net unrealized appreciation of investments in the three months ended September 30, 2021. Principal drivers of the decrease were:
| • | The decrease of $2.3 billion in our Real Estate segment was primarily attributable to net unrealized depreciation of investments in BREP and lower net unrealized appreciation of investments in Core+ real estate during the three months ended September 30, 2022. BREP and Core+ real estate’s carrying value decreased 0.6% and increased 2.3%, respectively, in the three months ended September 30, 2022 compared to increases of 16.2% and 7.6%, respectively, in the three months ended September 30, 2021. |
|---|
| • | The decrease of $1.1 billion in our Private Equity segment was primarily attributable to net unrealized depreciation of investments in corporate private equity and Strategic Partners in the three months ended September 30, 2022 compared to net unrealized appreciation of investments in the three months ended September 30, 2021. Corporate private equity and Strategic Partners carrying value decreased 0.3% and 3.5%, respectively, in the three months ended September 30, 2022 compared to increases of 9.9% and 24.6%, respectively, in the three months ended September 30, 2021. |
|---|
| • | The decrease of $972.5 million in our Credit & Insurance segment was primarily attributable to an unrealized loss on the ownership of Corebridge common stock based on the publicly traded price as of September 30, 2022. |
|---|
The $928.8 million decrease in Realized Investment Income (Loss) was primarily attributable to lower realized gains in our Real Estate and Private Equity segments.
Expenses
Expenses were $961.4 million for the three months ended September 30, 2022, a decrease of $1.7 billion, compared to $2.7 billion for the three months ended September 30, 2021. The decrease was primarily attributable to a decrease of $1.8 billion in Total Compensation and Benefits, which is composed of a decrease of $1.9 billion in Performance Allocations Compensation and an increase of $64.1 million in Compensation. The decrease in Performance Allocations Compensation was primarily due to the decrease in Investment Income (Loss), on which a portion of compensation is based. The increase in Compensation was primarily due to the increase in Management and Advisory Fees, Net, on which a portion of compensation is based.
Other Income (Loss)
Other Income (Loss) was $1.2 million for the three months ended September 30, 2022, a decrease of $93.8 million, compared to $95.0 million for the three months ended September 30, 2021. The decrease in Other Income was primarily due to a decrease of $131.1 million in Net Gains (Losses) from Fund Investment Activities.
The decrease in Net Gains (Losses) from Fund Investment Activities was principally driven by decreases of $71.1 million, $40.5 million, $14.0 million and $5.5 million in our Private Equity, Real Estate, Hedge Fund Solutions and Credit & Insurance segments, respectively. The decrease in our Private Equity segment was primarily due to unrealized depreciation of investments and lower realized gains of investments in our consolidated private equity funds. The decrease in our Real Estate segment was primarily due to unrealized depreciation of investments, partially offset by higher realized gains of investments in our consolidated real estate funds. The decrease in our Hedge Fund Solutions segment was primarily due to unrealized depreciation of investments in our consolidated hedge fund solutions funds. The decrease in our Credit & Insurance segment was primarily due to unrealized depreciation of investments and realized losses of investments in our consolidated credit funds.
Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021
Revenues
Revenues were $6.8 billion for the nine months ended September 30, 2022, a decrease of $10.0 billion, compared to $16.8 billion for the nine months ended September 30, 2021. The decrease in Revenues was primarily attributable to a net decrease of $11.5 billion in Investment Income (Loss), which is composed of a decrease of $13.5 billion in Unrealized Investment Income (Loss) and an increase of $2.0 billion in Realized Investment Income (Loss), partially offset by an increase of $943.7 million in Management and Advisory Fees, Net.
The $13.5 billion decrease in Unrealized Investment Income (Loss) was primarily attributable to net unrealized depreciation of investments in the nine months ended September 30, 2022 compared to net unrealized appreciation of investments in the nine months ended September 30, 2021. Principal drivers of the decrease were:
| • | The decrease of $5.5 billion in our Private Equity segment was primarily attributable to net unrealized depreciation of investments in corporate private equity and lower net unrealized appreciation in Strategic Partners in the nine months ended September 30, 2022 compared to net unrealized appreciation of investments in the nine months ended September 30, 2021. Corporate private equity and Strategic Partners carrying value decreased 4.3% and increased 10.3%, respectively, in the nine months ended September 30, 2022 compared to increases of 38.3% and 54.6%, respectively, in the nine months ended September 30, 2021. |
|---|
| • | The decrease of $5.3 billion in our Real Estate segment which was primarily attributable to lower net unrealized appreciation of investments in BREP during the nine months ended September 30, 2022, compared to the net unrealized appreciation of investments in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. BREP’s carrying value increased 8.8% in the nine months ended September 30, 2022 compared to 31.6% in the nine months ended September 30, 2021. |
|---|
| • | The decrease of $1.3 billion in our Credit & Insurance segment was primarily attributable to an unrealized loss on the ownership of Corebridge common stock based on the publicly traded price as of September 30, 2022 and lower net returns in our private credit strategies in the nine months ended September 30, 2022 compared to September 30, 2021. |
|---|
The $2.0 billion increase in Realized Investment Income (Loss) was primarily attributable to higher realized gains in our Real Estate segment, partially offset by lower realized gains in our Private Equity segment.
The $943.7 million increase in Management and Advisory Fees, Net was primarily due to increases in our Real Estate and Credit & Insurance segments of $459.3 million and $393.9 million, respectively. The increase in our Real Estate segment was primarily due to
Fee-Earning
Assets Under Management growth in Core+ real estate and BREDS. The increase in our Credit & Insurance segment was primarily due to an increase in inflows in BCRED and BIS.
Expenses
Expenses were $3.9 billion for the nine months ended September 30, 2022, a decrease of $3.1 billion, compared to $7.0 billion for the nine months ended September 30, 2021. The decrease was primarily attributable a decrease of $3.3 billion in Total Compensation and Benefits, which is composed of a decrease of $3.8 billion in Performance Allocations Compensation and an increase of $356.8 million in Compensation, partially offset by an increase of $192.2 million in General, Administrative and Other. The decrease in Performance Allocations Compensation was primarily due to the decrease in Investment Income, on which a portion of compensation is based. The increase in Compensation was primarily due to the increase in Management and Advisory Fees, Net, on which a portion of compensation is based. The increase in General, Administrative and Other was primarily due to travel and entertainment, occupancy and technology related expenses, and professional fees.
Other Income (Loss)
Other Income (Loss) was $(51.5) million for the nine months ended September 30, 2022, a decrease of $396.5 million, compared to $345.0 million for the nine months ended September 30, 2021. The decrease in Other Income was primarily due to a decrease of $432.1 million in Net Gains (Losses) from Fund Investment Activities.
The decrease in Net Gains (Losses) from Fund Investment Activities was principally driven by decreases of $264.3 million, $99.9 million, $36.9 million and $31.0 million in our Private Equity, Hedge Fund Solutions, Credit & Insurance and Real Estate segments, respectively. The decrease in our Private Equity segment was primarily due to unrealized depreciation of investments and lower realized gains of investments in our consolidated private equity funds. The decrease in our Hedge Fund Solutions segment was primarily due to unrealized depreciation of investments in our consolidated hedge fund solutions funds. The decrease in our Credit & Insurance segment was primarily due to unrealized depreciation of investments and realized losses of investments in our consolidated credit funds. The decrease in our Real Estate segment was primarily due to unrealized depreciation of investments, partially offset by higher realized gains of investments in our consolidated real estate funds.
Provision for Taxes
Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021
Blackstone’s Provision for Taxes for the three months ended September 30, 2022 and 2021 was $94.2 million and $458.9 million, respectively. This resulted in an effective tax rate of 96.2% and 12.5%, respectively, based on our Income (Loss) Before Provision for Taxes of $97.9 million and $3.7 billion. The increase in Blackstone’s effective tax rate for the three months ended September 30, 2022, compared to the three months ended September 30, 2021, includes a portion of the reported Income (Loss) Before Provision for Taxes that is attributable to
non-controlling
interest holders, the state tax provision and deferred tax adjustments.
Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021
Blackstone’s Provision for Taxes for the nine months ended September 30, 2022 and 2021 was $614.0 million and $746.7 million, respectively. This resulted in an effective tax rate of 21.5% and 7.3%, respectively, based on our Income (Loss) Before Provision for Taxes of $2.9 billion and $10.2 billion. The increase in Blackstone’s effective tax rate for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, resulted primarily from the reduction of valuation allowances previously recorded against deferred tax assets during 2021, and an increase in state tax provision due to recent developments affecting the allocation of income among multiple tax jurisdictions.
Additional information regarding our income taxes can be found in Note 13. “Income Taxes” in the “Notes to Condensed Consolidated Financial Statements” in “Part I. Item 1. Financial Statements” of this filing.
Non-Controlling
Interests in Consolidated Entities
The Net Income Attributable to Redeemable
Non-Controlling
Interests in Consolidated Entities and Net Income Attributable to
Non-Controlling
Interests in Consolidated Entities is attributable to the consolidated Blackstone Funds. The amounts of these items vary directly with the performance of the consolidated Blackstone Funds and largely eliminate the amount of Other Income (Loss) – Net Gains (Losses) from Fund Investment Activities from the Net Income (Loss) Attributable to Blackstone Inc.
Net Income Attributable to
Non-Controlling
Interests in Blackstone Holdings is derived from the Income Before Provision (Benefit) for Taxes at the Blackstone Holdings level, excluding the Net Gains (Losses) from Fund Investment Activities and the percentage allocation of the income between Blackstone personnel and others who are limited partners of Blackstone Holdings and Blackstone after considering any contractual arrangements that govern the allocation of income such as fees allocable to Blackstone.
For the three months ended September 30, 2022 and 2021, the Net Income Before Taxes allocated to Blackstone personnel and other limited partners of Blackstone Holdings was 39.7% and 41.2%, respectively. For the nine months ended September 30, 2022 and 2021, the Net Income Before Taxes allocated to Blackstone personnel and others who are limited partners of Blackstone Holdings was 39.8% and 41.5%, respectively. The respective decreases of 1.5% and 1.7% were primarily due to the conversion of Blackstone Holdings Partnership Units to shares of common stock and the vesting of shares of common stock.
The Other Income (Loss) — Change in Tax Receivable Agreement Liability was entirely allocated to Blackstone Inc.
Operating Metrics
Total and
Fee-Earning
Assets Under Management
The following graphs and tables summarize the
Fee-Earning
Assets Under Management by Segment and Total Assets Under Management by Segment, followed by a rollforward of activity for the three and nine months ended September 30, 2022 and 2021. For a description of how Assets Under Management and
Fee-Earning
Assets Under Management are determined, please see “— Key Financial Measures and Indicators — Operating Metrics — Total and
Fee-Earning
Assets Under Management.”
| Note: | Totals may not add due to rounding. |
|---|
| Three Months Ended | ||||||||||||||||||||||||||||||||||||||||
| September 30, 2022 | September 30, 2021 | |||||||||||||||||||||||||||||||||||||||
| Private | Hedge Fund | Credit & | Private | Hedge Fund | Credit & | |||||||||||||||||||||||||||||||||||
| Real Estate | Equity | Solutions | Insurance | Total | Real Estate | Equity | Solutions | Insurance | Total | |||||||||||||||||||||||||||||||
| (Dollars in Thousands) | ||||||||||||||||||||||||||||||||||||||||
| Fee-Earning Assets Under Management | ||||||||||||||||||||||||||||||||||||||||
| Balance, Beginning of Period | $ | 252,125,870 | $ | 163,521,507 | $ | 72,629,621 | $ | 195,548,963 | $ | 683,825,961 | $ | 166,263,493 | $ | 132,475,486 | $ | 72,240,152 | $ | 127,953,395 | $ | 498,932,526 | ||||||||||||||||||||
| Inflows (a) | 35,565,611 | 5,720,545 | 956,594 | 9,236,906 | 51,479,656 | 13,568,086 | 8,372,265 | 3,011,092 | 12,022,947 | 36,974,390 | ||||||||||||||||||||||||||||||
| Outflows (b) | (8,845,200 | ) | (443,618 | ) | (1,614,636 | ) | (6,325,326 | ) | (17,228,780 | ) | (821,127 | ) | (822,292 | ) | (2,282,247 | ) | (1,914,543 | ) | (5,840,209 | ) | ||||||||||||||||||||
| Net Inflows (Outflows) | 26,720,411 | 5,276,927 | (658,042 | ) | 2,911,580 | 34,250,876 | 12,746,959 | 7,549,973 | 728,845 | 10,108,404 | 31,134,181 | |||||||||||||||||||||||||||||
| Realizations (c) | (4,238,668 | ) | (1,932,887 | ) | (431,322 | ) | (1,457,210 | ) | (8,060,087 | ) | (4,228,169 | ) | (2,649,349 | ) | (413,232 | ) | (1,780,911 | ) | (9,071,661 | ) | ||||||||||||||||||||
| Market Activity (d)(g) | (1,159,763 | ) | 407,777 | (102,021 | ) | (3,297,392 | ) | (4,151,399 | ) | 5,385,810 | 1,704,148 | 711,084 | (383,538 | ) | 7,417,504 | |||||||||||||||||||||||||
| Balance, End of Period (e) | $ | 273,447,850 | $ | 167,273,324 | $ | 71,438,236 | $ | 193,705,941 | $ | 705,865,351 | $ | 180,168,093 | $ | 139,080,258 | $ | 73,266,849 | $ | 135,897,350 | $ | 528,412,550 | ||||||||||||||||||||
| Increase (Decrease) | $ | 21,321,980 | $ | 3,751,817 | $ | (1,191,385 | ) | $ | (1,843,022 | ) | $ | 22,039,390 | $ | 13,904,600 | $ | 6,604,772 | $ | 1,026,697 | $ | 7,943,955 | $ | 29,480,024 | ||||||||||||||||||
| Increase (Decrease) | 8 | % | 2 | % | -2 | % | -1 | % | 3 | % | 8 | % | 5 | % | 1 | % | 6 | % | 6 | % |
| Nine Months Ended | ||||||||||||||||||||||||||||||||||||||||
| September 30, 2022 | September 30, 2021 | |||||||||||||||||||||||||||||||||||||||
| Private | Hedge Fund | Credit & | Private | Hedge Fund | Credit & | |||||||||||||||||||||||||||||||||||
| Real Estate | Equity | Solutions | Insurance | Total | Real Estate | Equity | Solutions | Insurance | Total | |||||||||||||||||||||||||||||||
| (Dollars in Thousands) | ||||||||||||||||||||||||||||||||||||||||
| Fee-Earning Assets Under Management | ||||||||||||||||||||||||||||||||||||||||
| Balance, Beginning of Period | $ | 221,476,699 | $ | 156,556,959 | $ | 74,034,568 | $ | 197,900,832 | $ | 649,969,058 | $ | 149,121,461 | $ | 129,539,630 | $ | 74,126,610 | $ | 116,645,413 | $ | 469,433,114 | ||||||||||||||||||||
| Inflows (a) | 83,072,471 | 17,201,200 | 6,736,594 | 34,262,589 | 141,272,854 | 31,963,738 | 15,161,253 | 6,811,947 | 34,943,855 | 88,880,793 | ||||||||||||||||||||||||||||||
| Outflows (b) | (16,659,446 | ) | (1,359,978 | ) | (7,402,333 | ) | (16,116,378 | ) | (41,538,135 | ) | (2,246,364 | ) | (1,887,923 | ) | (11,905,577 | ) | (9,532,557 | ) | (25,572,421 | ) | ||||||||||||||||||||
| Net Inflows (Outflows) | 66,413,025 | 15,841,222 | (665,739 | ) | 18,146,211 | 99,734,719 | 29,717,374 | 13,273,330 | (5,093,630 | ) | 25,411,298 | 63,308,372 | ||||||||||||||||||||||||||||
| Realizations (c) | (18,443,319 | ) | (7,585,363 | ) | (1,255,419 | ) | (6,717,555 | ) | (34,001,656 | ) | (9,153,366 | ) | (9,024,609 | ) | (896,526 | ) | (9,057,779 | ) | (28,132,280 | ) | ||||||||||||||||||||
| Market Activity (d)(h) | 4,001,445 | 2,460,506 | (675,174 | ) | (15,623,547 | ) | (9,836,770 | ) | 10,482,624 | 5,291,907 | 5,130,395 | 2,898,418 | 23,803,344 | |||||||||||||||||||||||||||
| Balance, End of Period (e) | $ | 273,447,850 | $ | 167,273,324 | $ | 71,438,236 | $ | 193,705,941 | $ | 705,865,351 | $ | 180,168,093 | $ | 139,080,258 | $ | 73,266,849 | $ | 135,897,350 | $ | 528,412,550 | ||||||||||||||||||||
| Increase (Decrease) | $ | 51,971,151 | $ | 10,716,365 | $ | (2,596,332 | ) | $ | (4,194,891 | ) | $ | 55,896,293 | $ | 31,046,632 | $ | 9,540,628 | $ | (859,761 | ) | $ | 19,251,937 | $ | 58,979,436 | |||||||||||||||||
| Increase (Decrease) | 23 | % | 7 | % | -4 | % | -2 | % | 9 | % | 21 | % | 7 | % | -1 | % | 17 | % | 13 | % | ||||||||||||||||||||
| Annualized Base Management Fee Rate (f) | 0.97 | % | 1.09 | % | 0.78 | % | 0.62 | % | 0.88 | % | 1.12 | % | 1.11 | % | 0.83 | % | 0.56 | % | 0.93 | % |
| Three Months Ended | ||||||||||||||||||||||||||||||||||||||||
| September 30, 2022 | September 30, 2021 | |||||||||||||||||||||||||||||||||||||||
| Private | Hedge Fund | Credit & | Private | Hedge Fund | Credit & | |||||||||||||||||||||||||||||||||||
| Real Estate | Equity | Solutions | Insurance | Total | Real Estate | Equity | Solutions | Insurance | Total | |||||||||||||||||||||||||||||||
| (Dollars in Thousands) | ||||||||||||||||||||||||||||||||||||||||
| Total Assets Under Management | ||||||||||||||||||||||||||||||||||||||||
| Balance, Beginning of Period | $ | 320,038,428 | $ | 275,886,414 | $ | 80,051,408 | $ | 264,829,491 | $ | 940,805,741 | $ | 207,548,236 | $ | 223,621,359 | $ | 79,145,263 | $ | 173,713,854 | $ | 684,028,712 | ||||||||||||||||||||
| Inflows (a) | 10,106,034 | 14,490,688 | 1,154,963 | 19,092,560 | 44,844,245 | 16,045,781 | 7,355,730 | 3,341,522 | 19,997,259 | 46,740,292 | ||||||||||||||||||||||||||||||
| Outflows (b) | (3,832,277 | ) | (891,533 | ) | (1,494,809 | ) | (6,419,532 | ) | (12,638,151 | ) | (1,116,933 | ) | (449,214 | ) | (2,358,568 | ) | (2,643,752 | ) | (6,568,467 | ) | ||||||||||||||||||||
| Net Inflows (Outflows) | 6,273,757 | 13,599,155 | (339,846 | ) | 12,673,028 | 32,206,094 | 14,928,848 | 6,906,516 | 982,954 | 17,353,507 | 40,171,825 | |||||||||||||||||||||||||||||
| Realizations (c) | (4,077,373 | ) | (5,306,409 | ) | (448,706 | ) | (5,913,377 | ) | (15,745,865 | ) | (7,048,140 | ) | (10,815,305 | ) | (422,694 | ) | (3,466,302 | ) | (21,752,441 | ) | ||||||||||||||||||||
| Market Activity (d)(i) | (2,888,406 | ) | (911,462 | ) | 10,776 | (2,530,364 | ) | (6,319,456 | ) | 14,754,291 | 11,808,232 | 896,734 | 755,359 | 28,214,616 | ||||||||||||||||||||||||||
| Balance, End of Period (e) | $ | 319,346,406 | $ | 283,267,698 | $ | 79,273,632 | $ | 269,058,778 | $ | 950,946,514 | $ | 230,183,235 | $ | 231,520,802 | $ | 80,602,257 | $ | 188,356,418 | $ | 730,662,712 | ||||||||||||||||||||
| Increase (Decrease) | $ | (692,022 | ) | $ | 7,381,284 | $ | (777,776 | ) | $ | 4,229,287 | $ | 10,140,773 | $ | 22,634,999 | $ | 7,899,443 | $ | 1,456,994 | $ | 14,642,564 | $ | 46,634,000 | ||||||||||||||||||
| Increase (Decrease) | — | 3 | % | -1 | % | 2 | % | 1 | % | 11 | % | 4 | % | 2 | % | 8 | % | 7 | % |
| Nine Months Ended | ||||||||||||||||||||||||||||||||||||||||
| September 30, 2022 | September 30, 2021 | |||||||||||||||||||||||||||||||||||||||
| Private | Hedge Fund | Credit & | Private | Hedge Fund | Credit & | |||||||||||||||||||||||||||||||||||
| Real Estate | Equity | Solutions | Insurance | Total | Real Estate | Equity | Solutions | Insurance | Total | |||||||||||||||||||||||||||||||
| (Dollars in Thousands) | ||||||||||||||||||||||||||||||||||||||||
| Total Assets Under Management | ||||||||||||||||||||||||||||||||||||||||
| Balance, Beginning of Period | $ | 279,474,105 | $ | 261,471,007 | $ | 81,334,141 | $ | 258,622,467 | $ | 880,901,720 | $ | 187,191,247 | $ | 197,549,222 | $ | 79,422,869 | $ | 154,393,590 | $ | 618,556,928 | ||||||||||||||||||||
| Inflows (a) | 76,028,056 | 43,964,395 | 7,177,191 | 55,808,400 | 182,978,042 | 33,506,903 | 22,522,400 | 7,605,641 | 51,990,890 | 115,625,834 | ||||||||||||||||||||||||||||||
| Outflows (b) | (9,969,465 | ) | (2,869,020 | ) | (7,524,173 | ) | (16,635,968 | ) | (36,998,626 | ) | (3,505,186 | ) | (2,277,970 | ) | (11,280,914 | ) | (11,152,173 | ) | (28,216,243 | ) | ||||||||||||||||||||
| Net Inflows (Outflows) | 66,058,591 | 41,095,375 | (346,982 | ) | 39,172,432 | 145,979,416 | 30,001,717 | 20,244,430 | (3,675,273 | ) | 40,838,717 | 87,409,591 | ||||||||||||||||||||||||||||
| Realizations (c) | (33,462,061 | ) | (18,611,016 | ) | (1,364,756 | ) | (14,853,399 | ) | (68,291,232 | ) | (14,307,719 | ) | (27,541,846 | ) | (920,598 | ) | (13,483,353 | ) | (56,253,516 | ) | ||||||||||||||||||||
| Market Activity (d)(j) | 7,275,771 | (687,668 | ) | (348,771 | ) | (13,882,722 | ) | (7,643,390 | ) | 27,297,990 | 41,268,996 | 5,775,259 | 6,607,464 | 80,949,709 | ||||||||||||||||||||||||||
| Balance, End of Period (e) | $ | 319,346,406 | $ | 283,267,698 | $ | 79,273,632 | $ | 269,058,778 | $ | 950,946,514 | $ | 230,183,235 | $ | 231,520,802 | $ | 80,602,257 | $ | 188,356,418 | $ | 730,662,712 | ||||||||||||||||||||
| Increase (Decrease) | $ | 39,872,301 | $ | 21,796,691 | $ | (2,060,509 | ) | $ | 10,436,311 | $ | 70,044,794 | $ | 42,991,988 | $ | 33,971,580 | $ | 1,179,388 | $ | 33,962,828 | $ | 112,105,784 | |||||||||||||||||||
| Increase (Decrease) | 14 | % | 8 | % | -3 | % | 4 | % | 8 | % | 23 | % | 17 | % | 1 | % | 22 | % | 18 | % |
| (a) | Inflows include contributions, capital raised, other increases in available capital (recallable capital and increased side-by-side commitments), purchases, inter-segment allocations and acquisitions. |
|---|
| (b) | Outflows represent redemptions, client withdrawals and decreases in available capital (expired capital, expense drawdowns and decreased side-by-side commitments). |
|---|
| (c) | Realizations represent realization proceeds from the disposition or other monetization of assets, current income or capital returned to investors from CLOs. |
|---|
| (d) | Market activity includes realized and unrealized gains (losses) on portfolio investments and the impact of foreign exchange rate fluctuations. |
|---|
| (e) | Total and Fee-Earning Assets Under Management are reported in the segment where the assets are managed. |
|---|
| (f) | Annualized Base Management Fee Rate represents annualized year to date Base Management Fee divided by the average of the beginning of year and each quarter end’s Fee-Earning Assets Under Management in the reporting period. |
|---|
| (g) | For the three months ended September 30, 2022, the impact to Fee-Earning Assets Under Management due to foreign exchange rate fluctuations was $(3.7) billion, $(135.5) million, $(556.0) million, $(1.5) billion and $(5.9) billion for the Real Estate, Private Equity, Hedge Fund Solutions, Credit & Insurance and Total segments, respectively. For the three months ended September 30, 2021, such impact was $(841.1) million, $(13.4) million, $(599.5) million and $(1.5) billion for the Real Estate, Private Equity, Credit & Insurance and Total segments, respectively. |
|---|
| (h) | For the nine months ended September 30, 2022, the impact to Fee-Earning Assets Under Management due to foreign exchange rate fluctuations was $(7.5) billion, $(331.4) million, $(556.0) million, $(3.4) billion and $(11.8) billion for the Real Estate, Private Equity, Hedge Fund Solutions, Credit & Insurance and Total segments, respectively. For the nine months ended September 30, 2021, such impact was $(1.6) billion, $(26.3) million, $(468.8) million and $(2.1) billion for the Real Estate, Private Equity, Credit & Insurance and Total segments, respectively. |
|---|
| (i) | For the three months ended September 30, 2022, the impact to Total Assets Under Management due to foreign exchange rate fluctuations was $(5.7) billion, $(1.3) billion, $(556.0) million, $(1.6) billion and $(9.1) billion for the Real Estate, Private Equity, Hedge Fund Solutions, Credit & Insurance and Total segments, respectively. For the three months ended September 30, 2021, such impact was $(1.3) billion, $(358.2) million, $(689.2) million and $(2.3) billion for the Real Estate, Private Equity, Credit & Insurance and Total segments, respectively. |
|---|
| (j) | For the nine months ended September 30, 2022, the impact to Total Assets Under Management due to foreign exchange rate fluctuations was $(12.4) billion, $(3.2) billion, $(556.0) million, $(3.8) billion and $(19.9) billion for the Real Estate, Private Equity, Hedge Fund Solutions, Credit & Insurance and Total segments, respectively. For the nine months ended September 30, 2021, such impact was $(2.5) billion, $(620.4) million, $(573.8) million and $(3.7) billion for the Real Estate, Private Equity, Credit & Insurance and Total segments, respectively. |
|---|
Fee-Earning
Assets Under Management
Fee-Earning
Assets Under Management were $705.9 billion at September 30, 2022, an increase of $22.0 billion, compared to $683.8 billion at June 30, 2022. The net increase was due to:
| • | Inflows of $51.5 billion related to: |
|---|
| o | $35.6 billion in our Real Estate segment driven by $26.2 billion from BREP and co-investment due to the commencement of BREP X, $5.2 billion from BREIT, $2.0 billion from BREDS and $1.9 billion from BPP and co-investment, |
|---|
| o | $9.2 billion in our Credit & Insurance segment driven by $3.7 billion from direct lending, $2.1 billion from CLOs, $1.6 billion from asset-based finance, $1.0 billion from private placement credit, $798.1 million from BIS, $622.9 million from stressed/distressed strategies and $362.9 million from our energy strategies, partially offset by $1.2 billion from certain liquid credit strategies, |
|---|
| o | $5.7 billion in our Private Equity segment driven by $3.4 billion from Strategic Partners, $980.1 million from Tactical Opportunities, $744.9 million from BIP and $531.2 million from corporate private equity, and |
|---|
| o | $956.6 million in our Hedge Fund Solutions segment driven by $580.0 million from liquid and specialized solutions and $345.6 million from customized solutions. |
|---|
Offsetting these increases were:
| • | Outflows of $17.2 billion primarily attributable to: |
|---|
| o | $8.8 billion in our Real Estate segment driven by $5.0 billion of uninvested reserves at the end of BREP IX’s investment period, $3.1 billion from BREIT and $722.4 million from BPP and co-investment, |
|---|
| o | $6.3 billion in our Credit & Insurance segment driven by $2.6 billion from certain liquid credit strategies, $1.5 billion from direct lending and $898.2 million from BIS, and |
|---|
| o | $1.6 billion in our Hedge Fund Solutions segment driven by $1.0 billion from liquid and specialized solutions and $582.6 million from customized solutions. |
|---|
| • | Realizations of $8.1 billion primarily driven by: |
|---|
| o | $4.2 billion in our Real Estate segment driven by $1.4 billion from BREDS, $1.4 billion from BREIT, $903.5 million from BPP and co-investment and $470.6 million from BREP and co-investment, |
|---|
| o | $1.9 billion in our Private Equity segment driven by $889.2 million from Strategic Partners, $555.3 million from Tactical Opportunities and $278.7 million from BIP, and |
|---|
| o | $1.5 billion in our Credit & Insurance segment driven by $413.6 million from direct lending, $334.6 million from stressed/distressed strategies, $279.9 million from mezzanine funds and $178.1 million from certain liquid credit. |
|---|
| • | Market activity of $4.2 billion primarily attributable to: |
|---|
| o | $3.3 billion of market depreciation in our Credit & Insurance segment driven by depreciation of $2.1 billion from certain liquid credit strategies, $1.1 billion from private placement credit, $903.2 million from CLOs, $341.4 million from direct lending, all of which included $1.5 billion of foreign exchange depreciation across the segment, |
|---|
| o | $1.2 billion of market depreciation in our Real Estate segment driven by depreciation of $1.2 billion from BREDS and foreign exchange depreciation of $665.1 million from BREP and co-investment, partially offset by appreciation of $688.0 million from Core+ real estate (which included $2.9 billion of foreign exchange depreciation), and |
|---|
| o | Partially offset by $407.8 million of market appreciation in our Private Equity segment driven by appreciation of $758.0 million in BIP, partially offset by a $340.8 million depreciation in Strategic Partners. |
|---|
Fee-Earning
Assets Under Management were $705.9 billion at September 30, 2022, an increase of $55.9 billion, compared to $650.0 billion at December 31, 2021. The net increase was due to:
| • | Inflows of $141.3 billion related to: |
|---|
| o | $83.1 billion in our Real Estate segment driven by $35.0 billion from BREP and co-investment due to the commencement of BREP X, $24.5 billion from BREIT, $12.5 billion from BPP and co-investment, $10.2 billion from BREDS and $897.2 million from BEPIF, |
|---|
| o | $34.3 billion in our Credit & Insurance segment driven by $20.1 billion from asset-based finance, $16.5 billion from direct lending, $5.6 billion from CLOs, $1.9 billion from our energy strategies, $1.6 billion from BIS, $1.4 billion from certain liquid credit strategies, $1.3 billion from stressed/distressed strategies and $580.5 million from mezzanine funds, partially offset by net allocations to other segments of $16.1 billion, |
|---|
| o | $17.2 billion in our Private Equity segment driven by $6.5 billion from Strategic Partners, $5.2 billion from BIP, $3.0 billion from Tactical Opportunities, $1.5 billion from corporate private equity and $925.3 million from multi-asset products, and |
|---|
| o | $6.7 billion in our Hedge Fund Solutions segment driven by $5.0 billion from liquid and specialized solutions, $1.4 billion from customized solutions and $294.8 million from commingled products. |
|---|
Offsetting these increases were:
| • | Outflows of $41.5 billion primarily attributable to: |
|---|
| o | $16.7 billion in our Real Estate segment driven by $7.2 billion from BREIT, $7.1 billion from BREP and co-investment from uninvested reserves at the end of BREP Asia III’s and BREP IX’s investment period and $2.1 billion from BPP and co-investment, |
|---|
| o | $16.1 billion in our Credit & Insurance segment driven by $8.3 billion from certain liquid credit strategies, $2.5 billion from MLP strategies, $2.2 billion from BIS, $2.0 billion from direct lending, $341.1 million from CLOs and $303.3 million from stressed/distressed strategies, |
|---|
| o | $7.4 billion in our Hedge Fund Solutions segment driven by $3.6 billion from customized solutions, $2.3 billion from liquid and specialized solutions and $1.5 billion from commingled products, and |
|---|
| o | $1.4 billion in our Private Equity segment driven by $389.3 million in multi-asset products, $329.7 million in corporate private equity, $326.9 million in Tactical Opportunities and $319.0 million from Strategic Partners. |
|---|
| • | Realizations of $34.0 billion primarily driven by: |
|---|
| o | $18.4 billion in our Real Estate segment driven by $6.4 billion from BREIT, $5.7 billion from BREDS, $3.4 billion from BREP and co-investment and $3.0 billion from BPP and co-investment, |
|---|
| o | $7.6 billion in our Private Equity segment driven by $2.8 billion from Strategic Partners, $2.3 billion from Tactical Opportunities and $1.7 billion from corporate private equity, |
|---|
| o | $6.7 billion in our Credit & Insurance segment driven by $2.2 billion from direct lending, $1.9 billion from CLOs, $691.0 million from stressed/distressed strategies, $682.8 million from mezzanine funds and $585.8 million from our energy strategies, and |
|---|
| o | $1.3 billion in our Hedge Fund Solution segment driven by $1.2 billion from liquid and specialized solutions. |
|---|
| • | Market activity of $9.8 billion primarily attributable to: |
|---|
| o | $15.6 billion of market depreciation in our Credit & Insurance segment driven by depreciation of $10.0 billion from certain liquid credit strategies, $3.2 billion from private placement credit and $1.8 billion from CLOs, all of which included $3.4 billion of foreign exchange depreciation across the segment, |
|---|
| o | Partially offset by $4.0 billion of market appreciation in our Real Estate segment driven by appreciation of $9.5 billion from Core+ real estate (which included $5.8 billion of foreign exchange depreciation), partially offset by depreciation of $4.3 billion from BREDS insurance vehicles and foreign exchange depreciation of $1.5 billion from BREP and co-investment, and |
|---|
| o | $2.5 billion of market appreciation in our Private Equity segment driven by appreciation of $2.1 billion from BIP and $397.1 million from Strategic Partners. |
|---|
Total Assets Under Management
Total Assets Under Management were $950.9 billion at September 30, 2022, an increase of $10.1 billion, compared to $940.8 billion at June 30, 2022. The net increase was due to:
| • | Inflows of $44.8 billion primarily related to: |
|---|
| o | $19.1 billion in our Credit & Insurance segment driven by $10.8 billion from direct lending, $3.7 billion from our energy strategies, $2.1 billion from CLOs $1.3 billion from asset-based finance, $1.2 billion from certain liquid credit strategies, $1.0 billion from private placement credit and $770.3 million from BIS, partially offset by net allocations to other segments of $1.5 billion across Credit & Insurance strategies, |
|---|
| o | $14.5 billion in our Private Equity segment driven by $6.4 billion from corporate private equity, $4.9 billion from Strategic Partners and $1.7 billion from Tactical Opportunities, |
|---|
| o | $10.1 billion in our Real Estate segment driven by $5.2 billion from BREIT, $2.5 billion from BREP and co-investment, $1.1 billion from BPP and co-investment and $1.1 billion from BREDS, and |
|---|
| o | $1.2 billion in our Hedge Fund Solutions segment driven by $771.7 million from liquid and specialized solutions and $349.0 million from customized solutions. |
|---|
For certain segments, Total Assets Under Management inflows exceeds
Fee-Earning
Assets Under Management inflows due to the following reasons:
| • | For corporate private equity, due to BCP IX subsequent closings during the three months ended September 30, 2022. Total Assets Under Management inflows are reported at each fund closing, whereas Fee-Earning Assets Under Management inflows are reported when a fund’s investment period commences and in each subsequent close. |
|---|
| • | For our direct lending funds, Total Assets Under Management inflows are reported at their gross value while, for certain funds, Fee-Earning Assets Under Management are reported as net assets, which is the basis on which fees are charged. |
|---|
Offsetting these increases were:
| • | Realizations of $15.7 billion primarily driven by: |
|---|
| o | $5.9 billion in our Credit & Insurance segment driven by $3.9 billion from direct lending, $434.7 million from stressed/distressed strategies, $479.2 million from mezzanine funds, $148.4 million from CLOs and $110.0 million from our energy strategies, |
|---|
| o | $5.3 billion in our Private Equity segment driven by $1.8 billion from Strategic Partners, $1.6 billion from corporate private equity and $1.6 billion from Tactical Opportunities, and |
|---|
| o | $4.1 billion in our Real Estate segment driven by $1.4 billion from BREIT, $1.0 billion from BREP and co-investment, $945.2 million from BPP and co-investment and $687.6 million from BREDS. |
|---|
Total Assets Under Management realizations in our Real Estate and Private Equity segments generally represents the total proceeds and typically exceeds the
Fee-Earning
Assets Under Management realizations which generally represents only the invested capital.
| • | Outflows of $12.6 billion primarily attributable to: |
|---|
| o | $6.4 billion in our Credit & Insurance segment driven by $2.7 billion from certain liquid credit strategies, $1.7 billion from direct lending, $899.9 million from BIS, |
|---|
| o | $3.8 billion in our Real Estate segment driven by $3.1 billion from BREIT and $723.6 million from BPP and co-investment, and |
|---|
| o | $1.5 billion in our Hedge Fund Solutions segment driven by $1.0 billion from liquid and specialized solutions and $432.9 million from customized solutions. |
|---|
| • | Market activity of $6.3 billion primarily driven by: |
|---|
| o | $2.9 billion of market depreciation in our Real Estate segment driven by carrying value decreases in BREDS insurance vehicles and BREP and co-investment of 4.0% and 0.6%, respectively, partially offset by carrying value increases in Core+ real estate of 2.3%, all of which included $5.7 billion of foreign exchange depreciation across the segment, |
|---|
| o | $2.5 billion of market depreciation in our Credit & Insurance segment driven by depreciation of $2.2 billion from certain liquid credit strategies and $1.1 billion from private placement credit all of which included $1.6 billion of foreign exchange depreciation across the segment, and |
|---|
| o | $911.5 million of market depreciation in our Private Equity segment driven by carrying value decreases in Strategic Partners, Tactical Opportunities, BXG and corporate private equity of 3.5%, 1.7%, 1.0% and 0.3%, respectively, partially offset by carrying value increases in BIP of 6.8%, all of which included $1.3 billion of foreign exchange depreciation across the segment. |
|---|
Total Assets Under Management market activity in our Real Estate and Private Equity segments generally represents the change in fair value of the investments held and typically exceeds the
Fee-Earning
Assets Under Management market activity.
Total Assets Under Management were $950.9 billion at September 30, 2022, an increase of $70.0 billion, compared to $880.9 billion at December 31, 2021. The net increase was due to:
| • | Inflows of $183.0 billion primarily related to: |
|---|
| o | $76.0 billion in our Real Estate segment driven by $31.4 billion from BREP and co-investment, $24.5 billion from BREIT, $12.6 billion from BPP and co-investment and $6.7 billion from BREDS, |
|---|
| o | $55.8 billion in our Credit & Insurance segment driven by $36.0 billion from direct lending, $23.4 billion from asset-based finance, $5.7 billion from CLOs, $5.2 billion from our energy strategies, and $1.6 billion from BIS, partially offset by net allocations to other segments of $19.2 billion, |
|---|
| o | $44.0 billion in our Private Equity segment driven by $17.8 billion from corporate private equity, $10.8 billion from Strategic Partners, $6.5 billion from BIP, $3.9 billion from Tactical Opportunities, $3.8 billion from BXG, $881.1 million from multi-asset products and $219.0 million from BXLS, and |
|---|
| o | $7.2 billion in our Hedge Fund Solutions segment driven by $5.6 billion from liquid and specialized solutions, $1.3 billion from customized solutions and $285.8 million from commingled products. |
|---|
Total Assets Under Management inflows may exceed
Fee-Earning
Assets Under Management inflows due to the reasons discussed above.
Offsetting these increases were:
| • | Realizations of $68.3 billion primarily driven by: |
|---|
| o | $33.5 billion in our Real Estate segment driven by $21.2 billion from BREP and co-investment, $6.4 billion from BREIT, $3.0 billion from BPP and co-investment and $2.7 billion from BREDS, |
|---|
| o | $18.6 billion in our Private Equity segment driven by $6.9 billion from corporate private equity, $6.0 billion from Strategic Partners, $4.7 billion from Tactical Opportunities and $839.0 million from BIP, and |
|---|
| o | $14.9 billion in our Credit & Insurance segment driven by $8.1 billion from direct lending, $1.9 billion from CLOs, $1.2 billion from our energy strategies, $1.2 billion from stressed/distressed strategies and $1.2 billion from mezzanine funds. |
|---|
Total Assets Under Management realizations in our Real Estate and Private Equity segments generally represents the total proceeds and typically exceeds the
Fee-Earning
Assets Under Management realizations which generally represents only the invested capital.
| • | Outflows of $37.0 billion primarily attributable to: |
|---|
| o | $16.6 billion in our Credit & Insurance segment driven by $8.6 billion from certain liquid credit strategies, $2.6 billion from MLP strategies, $2.3 billion from direct lending and $2.2 billion from BIS, |
|---|
| o | $10.0 billion in our Real Estate segment driven by $7.2 billion from BREIT, $2.1 billion from BPP and co-investment and $573.9 million from BREDS, |
|---|
| o | $7.5 billion in our Hedge Fund Solutions segment driven by $3.7 billion from customized solutions, $2.3 billion from liquid and specialized solutions and $1.5 billion from commingled products, and |
|---|
| o | $2.9 billion in our Private Equity segment driven by $958.4 million from Strategic Partners, $765.1 million from Tactical Opportunities and $518.0 million from corporate private equity. |
|---|
| • | Market activity of $7.6 billion primarily driven by: |
|---|
| o | $13.9 billion of market depreciation in our Credit & Insurance segment driven by depreciation of $10.1 billion from certain liquid credit strategies and $3.2 billion from private placement credit, all of which included $3.8 billion of foreign exchange depreciation across the segment, and |
|---|
| o | Partially offset by $7.3 billion of market appreciation in our Real Estate segment driven by carrying value increases in Core+ real estate and BREP and co-investment of 12.0% and 8.8%, respectively, partially offset by carrying value decreases in the BREDS insurance vehicles of 12.3%, all of which included $12.4 billion of foreign exchange depreciation across the segment. |
|---|
Total Assets Under Management market activity in our Real Estate and Private Equity segments generally represents the change in fair value of the investments held and typically exceeds the
Fee-Earning
Assets Under Management market activity.
Dry Powder
The following presents our Dry Powder as of quarter end of each period:
| Note: | Totals may not add due to rounding. |
|---|
| (a) | Represents illiquid drawdown funds, a component of Perpetual Capital and fee-paying co-investments; includes fee-paying third party capital as well as general partner and employee capital that does not earn fees. Amounts are reduced by outstanding capital commitments, for which capital has not yet been invested. |
|---|
Net Accrued Performance Revenues
The following table presents the Accrued Performance Revenues, net of performance compensation, of the Blackstone Funds as of September 30, 2022 and 2021. Net Accrued Performance Revenues presented do not include clawback amounts, if any, which are disclosed in Note 17. “Commitments and Contingencies — Contingencies — Contingent Obligations (Clawback)” in the “Notes to Condensed Consolidated Financial Statements” in “Part I. Item 1. Financial Statements” of this filing. See “—
Non-GAAP
Financial Measures” for our reconciliation of Net Accrued Performance Revenues.
| September 30, | ||||||||
| 2022 | 2021 | |||||||
| (Dollars in Millions) | ||||||||
| Real Estate | ||||||||
| BREP IV | $ | 7 | $ | 22 | ||||
| BREP V | 3 | 44 | ||||||
| BREP VI | 24 | 34 | ||||||
| BREP VII | 145 | 476 | ||||||
| BREP VIII | 830 | 713 | ||||||
| BREP IX | 1,002 | 551 | ||||||
| BREP Europe IV | 68 | 90 | ||||||
| BREP Europe V | 96 | 476 | ||||||
| BREP Europe VI | 74 | 176 | ||||||
| BREP Asia I | 105 | 112 | ||||||
| BREP Asia II | 119 | 116 | ||||||
| BPP | 735 | 362 | ||||||
| BREIT | — | 513 | ||||||
| BREDS | 14 | 40 | ||||||
| BTAS | 37 | 23 | ||||||
| Total Real Estate (a) | 3,258 | 3,747 | ||||||
| Private Equity | ||||||||
| BCP IV | 7 | 8 | ||||||
| BCP V | 8 | 57 | ||||||
| BCP VI | 463 | 561 | ||||||
| BCP VII | 870 | 1,278 | ||||||
| BCP VIII | 227 | 216 | ||||||
| BCP Asia I | 137 | 407 | ||||||
| BEP I | 33 | 33 | ||||||
| BEP III | 86 | 64 | ||||||
| BCEP I | 219 | 198 | ||||||
| Tactical Opportunities | 233 | 296 | ||||||
| BXG | — | 45 | ||||||
| Strategic Partners | 548 | 430 | ||||||
| BIP | 126 | 79 | ||||||
| BXLS | 26 | 33 | ||||||
| BTAS/Other | 202 | 195 | ||||||
| Total Private Equity (a) | 3,186 | 3,899 | ||||||
| Hedge Fund Solutions | 320 | 362 | ||||||
| Credit & Insurance | 297 | 302 | ||||||
| Total Blackstone Net Accrued Performance Revenues | $ | 7,060 | $ | 8,311 | ||||
| Note: | Totals may not add due to rounding. |
|---|
| (a) | Real Estate and Private Equity include co-investments, as applicable. |
|---|
For the twelve months ended September 30, 2022, Net Accrued Performance Revenues receivable decreased due to Net Performance Revenues of $3.6 billion offset by net realized distributions of $4.8 billion.
Invested Performance Eligible Assets Under Management
The following presents our Invested Performance Eligible Assets Under Management as of quarter end for each period:
| Note: | Totals may not add due to rounding. |
|---|
Perpetual Capital
The following presents our Perpetual Capital Total Assets Under Management as of quarter end for each period:
| Note: | Totals may not add due to rounding. |
|---|
Perpetual Capital Total Assets Under Management were $359.6 billion as of September 30, 2022, an increase of $3.7 billion, compared to $355.9 billion as of June 30, 2022. Perpetual Capital Total Assets Under Management in our Credit & Insurance, Private Equity and Real Estate segments increased $2.0 billion, $1.4 billion and $158.9 million, respectively. Principal drivers of these increases were:
| • | In our Credit & Insurance segment, net Total Assets Under Management growth in direct lending resulted in an increase of $4.4 billion, partially offset by a decrease of $2.2 billion related to BIS. |
|---|
| • | In our Private Equity segment, net Total Assets Under Management growth in BIP resulted in an increase of $1.4 billion. |
|---|
| • | In our Real Estate segment, net Total Assets Under Management growth in BREIT resulted in an increase of $2.0 billion, partially offset by decreases of $793.5 million in BPP and co-invest due to foreign exchange translation of non-U.S. dollar funds and $736.2 million in BXMT. |
|---|
Perpetual Capital Total Assets Under Management were $359.6 billion as of September 30, 2022, an increase of $46.2 billion, or 15%, compared to $313.4 billion as of December 31, 2021. Perpetual Capital Total Assets Under Management in our Real Estate, Credit & Insurance and Private Equity segments increased $28.3 billion, $10.1 billion and $8.0 billion, respectively. Principal drivers of these increases were:
| • | In our Real Estate segment, net Total Assets Under Management growth in BREIT and BPP and co-investment resulted in increases of $16.2 billion and $12.0 billion, respectively. |
|---|
| • | In our Credit & Insurance segment, net Total Assets Under Management growth in direct lending resulted in an increase of $22.7 billion, partially offset by a decrease of $12.3 billion related to BIS. |
|---|
| • | In our Private Equity segment, net Total Assets Under Management growth in BIP resulted in an increase of $8.1 billion. |
|---|
Investment Records
Fund returns information for our significant funds is included throughout this discussion and analysis to facilitate an understanding of our results of operations for the periods presented. The fund returns information reflected in this discussion and analysis is not indicative of the financial performance of Blackstone and is also not necessarily indicative of the future performance of any particular fund. An investment in Blackstone is not an investment in any of our funds. There can be no assurance that any of our funds or our other existing and future funds will achieve similar returns.
The following table presents the investment record of our significant carry/drawdown funds and selected perpetual capital strategies from inception through September 30, 2022:
| Unrealized Investments | Realized Investments | Total Investments | ||||||||||||||||||||||||||||||||
| Fund (Investment Period | Committed | Available | % | Net IRRs (d) | ||||||||||||||||||||||||||||||
| Beginning Date / Ending Date) (a) | Capital | Capital (b) | Value | MOIC (c) | Public | Value | MOIC (c) | Value | MOIC (c) | Realized | Total | |||||||||||||||||||||||
| (Dollars/Euros in Thousands, Except Where Noted) | ||||||||||||||||||||||||||||||||||
| Real Estate | ||||||||||||||||||||||||||||||||||
| Pre-BREP | $ 140,714 | $ — | $ — | n/a | — | $ 345,190 | 2.5x | $ 345,190 | 2.5x | 33 | % | 33 | % | |||||||||||||||||||||
| BREP I (Sep 1994 / Oct 1996) | 380,708 | — | — | n/a | — | 1,327,708 | 2.8x | 1,327,708 | 2.8x | 40 | % | 40 | % | |||||||||||||||||||||
| BREP II (Oct 1996 / Mar 1999) | 1,198,339 | — | — | n/a | — | 2,531,614 | 2.1x | 2,531,614 | 2.1x | 19 | % | 19 | % | |||||||||||||||||||||
| BREP III (Apr 1999 / Apr 2003) | 1,522,708 | — | — | n/a | — | 3,330,406 | 2.4x | 3,330,406 | 2.4x | 21 | % | 21 | % | |||||||||||||||||||||
| BREP IV (Apr 2003 / Dec 2005) | 2,198,694 | — | 23,471 | n/a | — | 4,640,501 | 1.7x | 4,663,972 | 1.7x | 12 | % | 12 | % | |||||||||||||||||||||
| BREP V (Dec 2005 / Feb 2007) | 5,539,418 | — | 7,046 | n/a | — | 13,450,289 | 2.3x | 13,457,335 | 2.3x | 11 | % | 11 | % | |||||||||||||||||||||
| BREP VI (Feb 2007 / Aug 2011) | 11,060,444 | 550,439 | 253,813 | 1.7x | 72 | % | 27,511,017 | 2.5x | 27,764,830 | 2.5x | 13 | % | 13 | % | ||||||||||||||||||||
| BREP VII (Aug 2011 / Apr 2015) | 13,501,376 | 1,513,376 | 3,386,357 | 0.8x | 5 | % | 27,989,427 | 2.4x | 31,375,784 | 2.0x | 22 | % | 15 | % | ||||||||||||||||||||
| BREP VIII (Apr 2015 / Jun 2019) | 16,592,910 | 2,298,180 | 14,936,814 | 1.6x | — | 21,372,021 | 2.5x | 36,308,835 | 2.1x | 28 | % | 18 | % | |||||||||||||||||||||
| BREP IX (Jun 2019 / Aug 2022) | 21,601,305 | 5,428,469 | 24,944,045 | 1.6x | 1 | % | 7,643,491 | 2.2x | 32,587,536 | 1.7x | 67 | % | 34 | % | ||||||||||||||||||||
| *BREP X (Aug 2022 / Feb 2028) | 26,542,960 | 26,320,364 | 209,582 | 0.9x | 100 | % | — | n/a | 209,582 | 0.9x | n/a | n/m | ||||||||||||||||||||||
| Total Global BREP | $ 100,279,576 | $ 36,110,828 | $ 43,761,128 | 1.5x | 2 | % | $ 110,141,664 | 2.4x | $ 153,902,792 | 2.0x | 18 | % | 16 | % | ||||||||||||||||||||
| BREP Int’l (Jan 2001 / Sep 2005) | € 824,172 | € — | € — | n/a | — | € 1,373,170 | 2.1x | € 1,373,170 | 2.1x | 23 | % | 23 | % | |||||||||||||||||||||
| BREP Int’l II (Sep 2005 / Jun 2008) (e) | 1,629,748 | — | — | n/a | — | 2,583,032 | 1.8x | 2,583,032 | 1.8x | 8 | % | 8 | % | |||||||||||||||||||||
| BREP Europe III (Jun 2008 / Sep 2013) | 3,205,318 | 437,071 | 251,497 | 0.5x | — | 5,811,684 | 2.4x | 6,063,181 | 2.0x | 19 | % | 14 | % | |||||||||||||||||||||
| BREP Europe IV (Sep 2013 / Dec 2016) | 6,673,049 | 1,473,527 | 1,728,575 | 1.2x | — | 9,747,521 | 2.0x | 11,476,096 | 1.8x | 20 | % | 13 | % | |||||||||||||||||||||
| BREP Europe V (Dec 2016 / Oct 2019) | 7,965,078 | 1,430,203 | 5,708,266 | 1.1x | — | 6,537,218 | 4.0x | 12,245,484 | 1.8x | 43 | % | 13 | % | |||||||||||||||||||||
| *BREP Europe VI (Oct 2019 / Apr 2025) | 9,925,135 | 6,426,505 | 4,626,528 | 1.2x | — | 3,273,739 | 2.6x | 7,900,267 | 1.6x | 75 | % | 24 | % | |||||||||||||||||||||
| Total BREP Europe | € 30,222,500 | € 9,767,306 | € 12,314,866 | 1.1x | — | € 29,326,364 | 2.4x | € 41,641,230 | 1.8x | 17 | % | 13 | % | |||||||||||||||||||||
continued...
| Unrealized Investments | Realized Investments | Total Investments | ||||||||||||||||||||||||||||||||
| Fund (Investment Period | Committed | Available | % | Net IRRs (d) | ||||||||||||||||||||||||||||||
| Beginning Date / Ending Date) (a) | Capital | Capital (b) | Value | MOIC (c) | Public | Value | MOIC (c) | Value | MOIC (c) | Realized | Total | |||||||||||||||||||||||
| (Dollars/Euros in Thousands, Except Where Noted) | ||||||||||||||||||||||||||||||||||
| Real Estate (continued) | ||||||||||||||||||||||||||||||||||
| BREP Asia I (Jun 2013 / Dec 2017) | $ 4,263,411 | $ 897,775 | $ 2,212,848 | 1.4x | 8 | % | $ 6,316,167 | 2.1x | $ 8,529,015 | 1.8x | 20 | % | 13 | % | ||||||||||||||||||||
| BREP Asia II (Dec 2017 / Mar 2022) | 7,369,945 | 1,627,900 | 7,256,313 | 1.3x | — | 818,696 | 1.8x | 8,075,009 | 1.3x | 43 | % | 8 | % | |||||||||||||||||||||
| *BREP Asia III (Mar 2022 / Sep 2027) | 8,068,957 | 7,285,192 | 694,80 | 0.9x | — | — | n/a | 694,806 | 0.9x | n/a | n/m | |||||||||||||||||||||||
| BREP Co-Investment (f) | 7,208,136 | 37,995 | 951,100 | 2.3x | — | 15,043,270 | 2.2x | 15,994,370 | 2.2x | 16 | % | 16 | % | |||||||||||||||||||||
| Total BREP | $ 163,184,517 | $ 55,533,602 | $ 69,004,146 | 1.4x | 1 | % | $ 168,186,629 | 2.4x | $ 237,190,775 | 1.9x | 17 | % | 16 | % | ||||||||||||||||||||
| *BREDS High-Yield (Various) (g) | $ 19,981,503 | $ 5,176,958 | $ 5,398,871 | 1.0x | — | $ 16,644,956 | 1.3x | $ 22,043,826 | 1.2x | 10 | % | 9 | % | |||||||||||||||||||||
| Private Equity | ||||||||||||||||||||||||||||||||||
| Corporate Private Equity | ||||||||||||||||||||||||||||||||||
| BCP I (Oct 1987 / Oct 1993) | $ 859,081 | $ — | $ — | n/a | — | $ 1,741,738 | 2.6x | $ 1,741,738 | 2.6x | 19 | % | 19 | % | |||||||||||||||||||||
| BCP II (Oct 1993 / Aug 1997) | 1,361,100 | — | — | n/a | — | 3,256,819 | 2.5x | 3,256,819 | 2.5x | 32 | % | 32 | % | |||||||||||||||||||||
| BCP III (Aug 1997 / Nov 2002) | 3,967,422 | — | — | n/a | — | 9,184,688 | 2.3x | 9,184,688 | 2.3x | 14 | % | 14 | % | |||||||||||||||||||||
| BCOM (Jun 2000 / Jun 2006) | 2,137,330 | 24,575 | 14,208 | n/a | — | 2,953,649 | 1.4x | 2,967,857 | 1.4x | 6 | % | 6 | % | |||||||||||||||||||||
| BCP IV (Nov 2002 / Dec 2005) | 6,773,182 | 157,644 | 136,355 | 1.2x | — | 21,479,599 | 2.9x | 21,615,954 | 2.8x | 36 | % | 36 | % | |||||||||||||||||||||
| BCP V (Dec 2005 / Jan 2011) | 21,009,112 | 1,035,259 | 115,599 | 7.8x | 93 | % | 38,427,169 | 1.9x | 38,542,768 | 1.9x | 8 | % | 8 | % | ||||||||||||||||||||
| BCP VI (Jan 2011 / May 2016) | 15,195,537 | 1,158,107 | 7,117,830 | 1.9x | 40 | % | 24,467,594 | 2.2x | 31,585,424 | 2.1x | 16 | % | 12 | % | ||||||||||||||||||||
| BCP VII (May 2016 / Feb 2020) | 18,860,928 | 1,612,486 | 21,198,399 | 1.6x | 31 | % | 10,590,931 | 2.4x | 31,789,330 | 1.8x | 34 | % | 14 | % | ||||||||||||||||||||
| *BCP VIII (Feb 2020 / Feb 2026) | 25,432,016 | 14,722,928 | 13,633,546 | 1.3x | 9 | % | 573,328 | 3.0x | 14,206,874 | 1.3x | n/m | 18 | % | |||||||||||||||||||||
| BCP IX (TBD) | 14,411,850 | 14,411,850 | — | n/a | — | — | n/a | — | n/a | n/a | n/a | |||||||||||||||||||||||
| Energy I (Aug 2011 / Feb 2015) | 2,441,558 | 142,138 | 661,369 | 1.7x | 48 | % | 3,999,633 | 2.0x | 4,661,002 | 1.9x | 14 | % | 12 | % | ||||||||||||||||||||
| Energy II (Feb 2015 / Feb 2020) | 4,938,719 | 847,680 | 4,865,944 | 1.7x | 52 | % | 2,104,834 | 1.2x | 6,970,778 | 1.5x | 1 | % | 8 | % | ||||||||||||||||||||
| *Energy III (Feb 2020 / Feb 2026) | 4,338,099 | 2,114,159 | 2,918,920 | 1.5x | 42 | % | 533,929 | 2.8x | 3,452,849 | 1.6x | 66 | % | 38 | % | ||||||||||||||||||||
| BCP Asia I (Dec 2017 / Sep 2021) | 2,452,208 | 663,800 | 2,882,092 | 1.8x | 46 | % | 1,404,049 | 4.8x | 4,286,141 | 2.2x | 97 | % | 34 | % | ||||||||||||||||||||
| *BCP Asia II (Sep 2021 / Sep 2027) | 6,554,832 | 6,462,967 | (3,277) | n/a | — | — | n/a | (3,277) | n/a | n/a | n/a | |||||||||||||||||||||||
| Core Private Equity I (Jan 2017 / Mar 2021) (h) | 4,764,469 | 1,093,991 | 7,927,971 | 2.1x | — | 2,260,394 | 4.1x | 10,188,365 | 2.3x | 55 | % | 24 | % | |||||||||||||||||||||
| *Core Private Equity II (Mar 2021 / Mar 2026) (h) | 8,189,963 | 5,720,136 | 2,516,238 | 1.0x | — | 9,592 | n/a | 2,525,830 | 1.0x | n/a | 2 | % | ||||||||||||||||||||||
| Total Corporate Private Equity | $ 143,687,406 | $ 50,167,720 | $ 63,985,194 | 1.6x | 25 | % | $ 122,987,946 | 2.2x | $ 186,973,140 | 1.9x | 16 | % | 15 | % | ||||||||||||||||||||
continued...
| Unrealized Investments | Realized Investments | Total Investments | ||||||||||||||||||||||||||||||||
| Fund (Investment Period | Committed | Available | % | Net IRRs (d) | ||||||||||||||||||||||||||||||
| Beginning Date / Ending Date) (a) | Capital | Capital (b) | Value | MOIC (c) | Public | Value | MOIC (c) | Value | MOIC (c) | Realized | Total | |||||||||||||||||||||||
| (Dollars/Euros in Thousands, Except Where Noted) | ||||||||||||||||||||||||||||||||||
| Private Equity (continued) | ||||||||||||||||||||||||||||||||||
| Tactical Opportunities | ||||||||||||||||||||||||||||||||||
| *Tactical Opportunities (Various) | $ 22,515,577 | $ 6,939,956 | $ 11,653,479 | 1.2x | 7 | % | $ 20,504,793 | 1.9x | $ 32,158,272 | 1.6x | 18 | % | 11 | % | ||||||||||||||||||||
| *Tactical Opportunities Co-Investment and Other (Various) | 16,282,765 | 7,371,547 | 5,015,093 | 1.8x | 5 | % | 8,265,944 | 1.6x | 13,281,037 | 1.6x | 18 | % | 18 | % | ||||||||||||||||||||
| Total Tactical Opportunities | $ 38,798,342 | $ 14,311,503 | $ 16,668,572 | 1.3x | 7 | % | $ 28,770,737 | 1.8x | $ 45,439,309 | 1.6x | 18 | % | 13 | % | ||||||||||||||||||||
| Growth | ||||||||||||||||||||||||||||||||||
| *BXG I (Jul 2020 / Jul 2025) | $ 5,046,626 | $ 1,259,722 | $ 3,642,869 | 1.0x | 5 | % | $ 354,582 | 3.3x | $ 3,997,451 | 1.1x | n/m | — | ||||||||||||||||||||||
| BXG II (TBD) | 3,428,640 | 3,428,640 | — | n/a | — | — | n/a | — | n/a | n/a | n/a | |||||||||||||||||||||||
| Total Growth | $ 8,475,266 | $ 4,688,362 | $ 3,642,869 | 1.0x | 5 | % | $ 354,582 | 3.3x | $ 3,997,451 | 1.1x | n/m | — | ||||||||||||||||||||||
| Strategic Partners (Secondaries) | ||||||||||||||||||||||||||||||||||
| Strategic Partners I-V (Various) (i) | $ 11,447,898 | $ 645,878 | $ 420,496 | n/a | — | $ 16,913,196 | n/a | $ 17,333,692 | 1.7x | n/a | 13 | % | ||||||||||||||||||||||
| Strategic Partners VI (Apr 2014 / Apr 2016) (i) | 4,362,750 | 1,491,955 | 1,088,452 | n/a | — | 4,012,194 | n/a | 5,100,646 | 1.7x | n/a | 15 | % | ||||||||||||||||||||||
| Strategic Partners VII (May 2016 / Mar 2019) (i) | 7,489,970 | 1,794,752 | 4,702,171 | n/a | — | 5,792,772 | n/a | 10,494,943 | 2.0x | n/a | 20 | % | ||||||||||||||||||||||
| Strategic Partners Real Assets II (May 2017 / Jun 2020) (i) | 1,749,807 | 533,829 | 1,099,578 | n/a | — | 975,172 | n/a | 2,074,750 | 1.5x | n/a | 16 | % | ||||||||||||||||||||||
| Strategic Partners VIII (Mar 2019 / Oct 2021) (i) | 10,763,600 | 4,866,535 | 9,062,102 | n/a | — | 5,186,528 | n/a | 14,248,630 | 1.9x | n/a | 43 | % | ||||||||||||||||||||||
| *Strategic Partners Real Estate, SMA and Other (Various) (i) | 8,771,763 | 3,003,592 | 3,462,601 | n/a | — | 3,147,301 | n/a | 6,609,902 | 1.7x | n/a | 19 | % | ||||||||||||||||||||||
| *Strategic Partners Infra III (Jun 2020 / Jul 2024) (i) | 3,250,100 | 1,708,501 | 1,113,984 | n/a | — | 124,956 | n/a | 1,238,940 | 1.4x | n/a | 58 | % | ||||||||||||||||||||||
| *Strategic Partners IX (Oct 2021 / Jul 2026) (i) | 17,196,913 | 12,285,298 | 3,309,826 | n/a | — | 113,017 | n/a | 3,422,843 | 1.4x | n/a | n/m | |||||||||||||||||||||||
| Total Strategic Partners (Secondaries) | $ 65,032,801 | $ 26,330,340 | $ 24,259,210 | n/a | — | $ 36,265,136 | n/a | $ 60,524,346 | 1.7x | n/a | 16 | % | ||||||||||||||||||||||
| Life Sciences | ||||||||||||||||||||||||||||||||||
| Clarus IV (Jan 2018 / Jan 2020) | $ 910,000 | $ 140,770 | $ 904,799 | 1.6x | 1 | % | $ 239,846 | 1.9x | $ 1,144,645 | 1.7x | 23 | % | 15 | % | ||||||||||||||||||||
| *BXLS V (Jan 2020 / Jan 2025) | 4,839,511 | 3,742,428 | 1,178,568 | 1.3x | 3 | % | 71,549 | 1.3x | 1,250,117 | 1.3x | 9 | % | 2 | % |
continued...
| Unrealized Investments | Realized Investments | Total Investments | ||||||||||||||||||||||||||||||||
| Fund (Investment Period | Committed | Available | % | Net IRRs (d) | ||||||||||||||||||||||||||||||
| Beginning Date / Ending Date) (a) | Capital | Capital (b) | Value | MOIC (c) | Public | Value | MOIC (c) | Value | MOIC (c) | Realized | Total | |||||||||||||||||||||||
| (Dollars/Euros in Thousands, Except Where Noted) | ||||||||||||||||||||||||||||||||||
| Credit | ||||||||||||||||||||||||||||||||||
| Mezzanine / Opportunistic I (Jul 2007 / Oct 2011) | $ 2,000,000 | $ 97,114 | $ 22,509 | 1.8x | — | $ 4,786,397 | 1.6x | $ 4,808,906 | 1.6x | n/a | 17 | % | ||||||||||||||||||||||
| Mezzanine / Opportunistic II (Nov 2011 / Nov 2016) | 4,120,000 | 998,027 | 249,574 | 0.3x | — | 6,496,230 | 1.6x | 6,745,804 | 1.4x | n/a | 10 | % | ||||||||||||||||||||||
| Mezzanine / Opportunistic III (Sep 2016 / Jan 2021) | 6,639,133 | 953,406 | 3,796,336 | 1.0x | — | 5,573,791 | 1.6x | 9,370,127 | 1.3x | n/a | 10 | % | ||||||||||||||||||||||
| *Mezzanine / Opportunistic IV (Jan 2021 / Jan 2026) | 5,016,771 | 3,476,787 | 1,622,867 | 1.0x | — | 65,480 | n/m | 1,688,347 | 1.0x | n/a | 10 | % | ||||||||||||||||||||||
| Stressed / Distressed I (Sep 2009 / May 2013) | 3,253,143 | 76,000 | — | n/a | — | 5,777,098 | 1.3x | 5,777,098 | 1.3x | n/a | 9 | % | ||||||||||||||||||||||
| Stressed / Distressed II (Jun 2013 / Jun 2018) | 5,125,000 | 547,430 | 364,069 | 0.5x | — | 5,242,349 | 1.2x | 5,606,418 | 1.1x | n/a | 1 | % | ||||||||||||||||||||||
| *Stressed / Distressed III (Dec 2017 / Dec 2022) | 7,356,380 | 2,646,972 | 2,576,770 | 0.9x | — | 2,796,308 | 1.4x | 5,373,078 | 1.1x | n/a | 7 | % | ||||||||||||||||||||||
| Energy I (Nov 2015 / Nov 2018) | 2,856,867 | 1,045,894 | 842,545 | 1.0x | — | 2,580,579 | 1.7x | 3,423,124 | 1.4x | n/a | 10 | % | ||||||||||||||||||||||
| *Energy II (Feb 2019 / Feb 2024) | 3,616,081 | 1,957,123 | 1,951,379 | 1.2x | — | 1,048,553 | 1.5x | 2,999,932 | 1.3x | n/a | 26 | % | ||||||||||||||||||||||
| European Senior Debt I (Feb 2015 / Feb 2019) | € 1,964,689 | € 352,855 | € 918,765 | 0.8x | — | € 2,278,324 | 1.4x | € 3,197,089 | 1.2x | n/a | 3 | % | ||||||||||||||||||||||
| *European Senior Debt II (Jun 2019 / Jun 2024) | € 4,088,344 | € 1,185,458 | € 4,214,580 | 1.0x | — | € 1,372,464 | 1.6x | € 5,587,044 | 1.1x | n/a | 13 | % | ||||||||||||||||||||||
| Total Credit Drawdown Funds (j) | $ 46,889,033 | $ 13,305,779 | $ 16,454,930 | 0.9x | — | $ 38,548,150 | 1.5x | $ 55,003,080 | 1.2x | n/a | 10 | % | ||||||||||||||||||||||
Selected Perpetual Capital Strategies (k)
| Fund (Inception Year) (a) | Investment Strategy | Total AUM | Total Net Return (l) | |||||||||
| (Dollars in Thousands, Except Where Noted) | ||||||||||||
| Real Estate | ||||||||||||
| BPP - Blackstone Property Partners (2013) (m) | Core+ Real Estate | $ | 72,685,947 | 12 | % | |||||||
| BREIT - Blackstone Real Estate Income Trust (2017) (n) | Core+ Real Estate | 70,314,335 | 13 | % | ||||||||
| BXMT - Blackstone Mortgage Trust (2013) (o) | Real Estate Debt | 6,541,046 | 7 | % | ||||||||
| Private Equity | ||||||||||||
| BIP - Blackstone Infrastructure Partners (2019) (p) | Infrastructure | 25,778,540 | 18 | % | ||||||||
| Hedge Fund Solutions | ||||||||||||
| BSCH - Blackstone Strategic Capital Holdings (2014) (q) | GP Stakes | 10,325,973 | 15 | % | ||||||||
| Credit | ||||||||||||
| BXSL - Blackstone Secured Lending Fund (2018) (r) | U.S. Direct Lending | 11,113,320 | 10 | % | ||||||||
| BCRED - Blackstone Private Credit Fund (2021) (s) | U.S. Direct Lending | 57,469,317 | 8 | % |
The returns presented herein represent those of the applicable Blackstone Funds and not those of Blackstone.
| n/m | Not meaningful generally due to the limited time since initial investment. |
|---|
| n/a | Not applicable. |
|---|
| SMA | Separately managed account. |
|---|
| * | Represents funds that are currently in their investment period. |
|---|
| (a) | Excludes investment vehicles where Blackstone does not earn fees. |
|---|
| (b) | Available Capital represents total investable capital commitments, including side-by-side, adjusted for certain expenses and expired or recallable capital and may include leverage, less invested capital. This amount is not reduced by outstanding commitments to investments. |
|---|
| (c) | Multiple of Invested Capital (“MOIC”) represents carrying value, before management fees, expenses and Performance Revenues, divided by invested capital. |
|---|
| (d) | Unless otherwise indicated, Net Internal Rate of Return (“IRR”) represents the annualized inception to September 30, 2022 IRR on total invested capital based on realized proceeds and unrealized value, as applicable, after management fees, expenses and Performance Revenues. IRRs are calculated using actual timing of limited partner cash flows. Initial inception date of cash flows may differ from the Investment Period Beginning Date. |
|---|
| (e) | The 8% Realized Net IRR and 8% Total Net IRR exclude investors that opted out of the Hilton investment opportunity. Overall BREP International II performance reflects a 7% Realized Net IRR and a 7% Total Net IRR. |
|---|
| (f) | BREP Co-Investment represents co-investment capital raised for various BREP investments. The Net IRR reflected is calculated by aggregating each co-investment’s realized proceeds and unrealized value, as applicable, after management fees, expenses and Performance Revenues. |
|---|
| (g) | BREDS High-Yield represents the flagship real estate debt drawdown funds only. |
|---|
| (h) | Blackstone Core Equity Partners is a core private equity strategy which invests with a more modest risk profile and longer hold period than traditional private equity. |
|---|
| (i) | Realizations are treated as return of capital until fully recovered and therefore unrealized and realized MOICs are not applicable. Returns are calculated from results that are reported on a three month lag from Strategic Partners’ fund financial statements and therefore do not include the impact of economic and market activities in the current quarter. |
|---|
| (j) | Funds presented represent the flagship credit drawdown funds only. The Total Credit Net IRR is the combined IRR of the credit drawdown funds presented. |
|---|
| (k) | Represents the performance for select Perpetual Capital Strategies; strategies excluded consist primarily of (1) investment strategies that have been investing for less than one year, (2) most perpetual capital assets managed for insurance clients, and (3) investment vehicles where Blackstone does not earn fees. |
|---|
| (l) | Unless otherwise indicated, Total Net Return represents the annualized inception to September 30, 2022 IRR on total invested capital based on realized proceeds and unrealized value, as applicable, after management fees, expenses and Performance Revenues. IRRs are calculated using actual timing of investor cash flows. Initial inception date of cash flows occurred during the Inception Year. |
|---|
| (m) | BPP includes certain vehicles managed as part of the BPP Platform but not classified as Perpetual Capital. As of September 30, 2022, these vehicles represented $2.9 billion of Total Assets Under Management. |
|---|
| (n) | The BREIT Total Net Return reflects a per share blended return, assuming BREIT had a single share class, reinvestment of all dividends received during the period, and no upfront selling commission, net of all fees and expenses incurred by BREIT. These returns are not representative of the returns experienced by any particular investor or share class. Total Net Returns are presented on an annualized basis and are from January 1, 2017. |
|---|
| (o) | The BXMT return reflects annualized market return of a shareholder invested in BXMT since inception through September 30, 2022, assuming reinvestment of all dividends received during the period. Return incorporates the closing NYSE stock price as of September 30, 2022. Total Net Return is from May 22, 2013. |
|---|
| (p) | Including co-investment vehicles that do not pay fees, BIP Total Assets Under Management is $31.1 billion. |
|---|
| (q) | BSCH represents the aggregate Total Assets Under Management and Total Net Return of BSCH I and BSCH II funds that invest as part of the GP Stakes strategy, which targets minority investments in the general partners of private equity and other private-market alternative asset management firms globally. Including co-investment vehicles that do not pay fees, BSCH Total Assets Under Management is $11.2 billion. |
|---|
| (r) | The BXSL Total Assets Under Management and Total Net Return are presented as of June 30, 2022. BXSL Total Net Return reflects the change in NAV per share, plus distributions per share (assuming dividends and distributions are reinvested in accordance with BXSL’s dividend reinvestment plan) divided by the beginning NAV per share. Total Net Returns are presented on an annualized basis and are from November 20, 2018. |
|---|
| (s) | The BCRED Total Net Return reflects a per share blended return, assuming BCRED had a single share class, reinvestment of all dividends received during the period, and no upfront selling commission, net of all fees and expenses incurred by BCRED. These returns are not representative of the returns experienced by any particular investor or share class. Total Net Returns are presented on an annualized basis and are from January 7, 2021. Total Assets Under Management reflects gross asset value plus amounts borrowed or available to be borrowed under certain credit facilities. BCRED net asset value as of September 30, 2022 was $22.4 billion. |
|---|
Segment Analysis
Discussed below is our Segment Distributable Earnings for each of our segments. This information is reflected in the manner utilized by our senior management to make operating decisions, assess performance and allocate resources. References to “our” sectors or investments may also refer to portfolio companies and investments of the underlying funds that we manage.
Real Estate
The following table presents the results of operations for our Real Estate segment:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
| September 30, | 2022 vs. 2021 | September 30, | 2022 vs. 2021 | |||||||||||||||||||||||||||||
| 2022 | 2021 | $ | % | 2022 | 2021 | $ | % | |||||||||||||||||||||||||
| (Dollars in Thousands) | ||||||||||||||||||||||||||||||||
| Management Fees, Net | ||||||||||||||||||||||||||||||||
| Base Management Fees | $ | 610,606 | $ | 485,308 | $ | 125,298 | 26 | % | $ | 1,802,543 | $ | 1,366,158 | $ | 436,385 | 32 | % | ||||||||||||||||
| Transaction and Other Fees, Net | 54,342 | 53,876 | 466 | 1 | % | 141,801 | 117,975 | 23,826 | 20 | % | ||||||||||||||||||||||
| Management Fee Offsets | (1,842 | ) | (446 | ) | (1,396 | ) | 313 | % | (3,491 | ) | (2,562 | ) | (929 | ) | 36 | % | ||||||||||||||||
| Total Management Fees, Net | 663,106 | 538,738 | 124,368 | 23 | % | 1,940,853 | 1,481,571 | 459,282 | 31 | % | ||||||||||||||||||||||
| Fee Related Performance Revenues | 260,003 | 35,625 | 224,378 | 630 | % | 1,017,027 | 224,793 | 792,234 | 352 | % | ||||||||||||||||||||||
| Fee Related Compensation | (239,572 | ) | (137,313 | ) | (102,259 | ) | 74 | % | (858,307 | ) | (447,762 | ) | (410,545 | ) | 92 | % | ||||||||||||||||
| Other Operating Expenses | (74,701 | ) | (61,398 | ) | (13,303 | ) | 22 | % | (229,033 | ) | (160,520 | ) | (68,513 | ) | 43 | % | ||||||||||||||||
| Fee Related Earnings | 608,836 | 375,652 | 233,184 | 62 | % | 1,870,540 | 1,098,082 | 772,458 | 70 | % | ||||||||||||||||||||||
| Realized Performance Revenues | 142,794 | 495,727 | (352,933 | ) | -71 | % | 2,943,430 | 935,418 | 2,008,012 | 215 | % | |||||||||||||||||||||
| Realized Performance Compensation | (33,464 | ) | (199,100 | ) | 165,636 | -83 | % | (1,154,897 | ) | (376,790 | ) | (778,107 | ) | 207 | % | |||||||||||||||||
| Realized Principal Investment Income | 45,297 | 42,677 | 2,620 | 6 | % | 128,388 | 171,626 | (43,238 | ) | -25 | % | |||||||||||||||||||||
| Net Realizations | 154,627 | 339,304 | (184,677 | ) | -54 | % | 1,916,921 | 730,254 | 1,186,667 | 163 | % | |||||||||||||||||||||
| Segment Distributable Earnings | $ | 763,463 | $ | 714,956 | $ | 48,507 | 7 | % | $ | 3,787,461 | $ | 1,828,336 | $ | 1,959,125 | 107 | % | ||||||||||||||||
n/m Not meaningful.
Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021
Segment Distributable Earnings were $763.5 million for the three months ended September 30, 2022, an increase of $48.5 million, compared to $715.0 million for the three months ended September 30, 2021. The increase in Segment Distributable Earnings was attributable to an increase of $233.2 million in Fee Related Earnings, partially offset by a decrease of $184.7 million in Net Realizations.
Segment Distributable Earnings in our Real Estate segment in the third quarter of 2022 were higher compared to the third quarter of 2021. This was primarily driven by increased Fee Related Earnings due to the quarterly crystallization of BREIT performance revenues and growth in
Fee-Earning
Assets Under Management in Core+ real estate and BREDS, partially offset by a decrease in Net Realizations. Against a challenging market backdrop and some near-term industry headwinds, our institutional fundraising has remained positive, with particular strength in the largely completed fundraise for our recent global opportunistic real estate flagship strategy. Perpetual capital strategies, including certain private wealth strategies such as BREIT, represent an increasing percentage of Total Assets Under Management in our Real Estate segment. While in the third quarter we experienced net inflows, market volatility and investor capital constraints led to a decline in inflows and an increase in repurchase requests in our private wealth strategies, particularly from our Asia-based private wealth investors. A continuation or worsening of this challenging market environment would further adversely affect our net flows, which could potentially be negative to some extent in the near-term. We believe the long-term trends remain positive, however, with well-disclosed liquidity and structural protections as well as compelling performance. Our current performance has been assisted by interest rate hedges put in place related to debt liabilities, in anticipation of rising interest rates.
Despite significant market volatility globally, including as a result of the high rate of inflation and escalating interest rates, our real estate business is demonstrating fundamental strength. Our real estate strategies have generally oriented their portfolios in sectors and markets, such as logistics and rental housing, that are better insulated from inflationary pressures because of opportunities for stronger relative cash flow growth. Moreover, our real estate strategies have focused on assets with shorter duration leases, which provide more opportunity to capture growth in an inflationary environment. Such investments have largely been able to offset the pressure of rising inflation and interest rates. Nonetheless, portions of our real estate portfolio have exposure to more challenged sectors such as older, traditional office buildings and long-term leases which may be more exposed to rising inflation and interest rates. Elevated inflation is likely to contribute to more significant interest rate hikes and market volatility, which may lead to downward pressure on the value of our real estate portfolio. Capital market volatility and economic uncertainty led to lower realizations and capital deployment in the third quarter of 2022, both of which are likely to be muted until market conditions improve. See “Part I. Item 1A. Risk Factors — Risks Related to Our Business — Difficult market and geopolitical conditions can adversely affect our business in many ways, each of which could materially reduce our revenue, earnings and cash flow and adversely affect our financial prospects and condition” and “— A period of economic slowdown, which may be across one or more industries, sectors or geographies, has contributed and could in the future contribute to adverse operating performance for certain of our funds’ investments, which would adversely affect our operating results and cash flows” in our Annual Report on Form
10-K
for the year ended December 31, 2021.
Fee Related Earnings
Fee Related Earnings were $608.8 million for the three months ended September 30, 2022, an increase of $233.2 million, or 62%, compared to $375.7 million for the three months ended September 30, 2021. The increase in Fee Related Earnings was primarily attributable to increases of $224.4 million in Fee Related Performance Revenues and $124.4 million in Management Fees, Net, partially offset by increases of $102.3 million in Fee Related Compensation and $13.3 million in Other Operating Expenses.
Fee Related Performance Revenues were $260.0 million for the three months ended September 30, 2022, an increase of $224.4 million, compared to $35.6 million for the three months ended September 30, 2021. The increase was primarily due to the crystallization of BREIT performance revenues, which, beginning in the three months ended March 31, 2022, crystallizes on a quarterly basis in lieu of annually.
Management Fees, Net were $663.1 million for the three months ended September 30, 2022, an increase of $124.4 million, compared to $538.7 million for the three months ended September 30, 2021, primarily driven by an increase in Base Management Fees. Base Management Fees increased $125.3 million primarily due to
Fee-Earning
Assets Under Management growth in Core+ real estate.
Fee Related Compensation was $239.6 million for the three months ended September 30, 2022, an increase of $102.3 million, compared to $137.3 million for the three months ended September 30, 2021. The increase was primarily due to an increase in Fee Related Performance Revenues and Management Fees, Net, on which a portion of Fee Related Compensation is based.
Other Operating Expenses were $74.7 million for the three months ended September 30, 2022, an increase of $13.3 million, compared to $61.4 million for the three months ended September 30, 2021. The increase was primarily due to travel and entertainment, occupancy related expenses, and professional fees.
Net Realizations
Net Realizations were $154.6 million for the three months ended September 30, 2022, a decrease of $184.7 million, compared to $339.3 million for the three months ended September 30, 2021. The decrease in Net Realizations was attributable to a decrease of $352.9 million in Realized Performance Revenues, partially offset by an decrease of $165.6 million in Realized Performance Compensation.
Realized Performance Revenues were $142.8 million for the three months ended September 30, 2022, a decrease of $352.9 million, compared to $495.7 million for the three months ended September 30, 2021. The decrease was primarily due to lower Realized Performance Revenues in BREP and
co-investment.
Realized Performance Compensation was $33.5 million for the three months ended September 30, 2022, a decrease of $165.6 million, compared to $199.1 million for the three months ended September 30, 2021. The decrease was primarily due to the decrease in Realized Performance Revenues.
Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021
Segment Distributable Earnings were $3.8 billion for the nine months ended September 30, 2022, an increase of $2.0 billion, or 107%, compared to $1.8 billion for the nine months ended September 30, 2021. The increase in Segment Distributable Earnings was attributable to increases of $1.2 billion in Net Realizations and $772.5 million in Fee Related Earnings.
Fee Related Earnings
Fee Related Earnings were $1.9 billion for the nine months ended September 30, 2022, an increase of $772.5 million, or 70%, compared to $1.1 billion for the nine months ended September 30, 2021. The increase in Fee Related Earnings was attributable to increases of $792.2 million in Fee Related Performance Revenues and $459.3 million in Management Fees, Net, partially offset by increases of $410.5 million in Fee Related Compensation and $68.5 million in Other Operating Expenses.
Fee Related Performance Revenues were $1.0 billion for the nine months ended September 30, 2022, an increase of $792.2 million, compared to $224.8 million for the nine months ended September 30, 2021. The increase was primarily due to the crystallization of BREIT performance revenues, which, beginning in the three months ended March 31, 2022, crystallizes on a quarterly basis in lieu of annually.
Management Fees, Net were $1.9 billion for the nine months ended September 30, 2022, an increase of $459.3 million, compared to $1.5 billion for the nine months ended September 30, 2021, primarily driven by an increase in Base Management Fees. Base Management Fees increased $436.4 million primarily due to
Fee-Earning
Assets Under Management growth in Core+ real estate and BREDS.
The annualized Base Management Fee Rate decreased from 1.12% at September 30, 2021 to 0.97% at September 30, 2022. The decrease was primarily due to growth in BREDS insurance vehicles, which have a lower management fee rate and the commencement of BREP X, which is currently in its management fee holiday period.
Fee Related Compensation was $858.3 million for the nine months ended September 30, 2022, an increase of $410.5 million, compared to $447.8 million for the nine months ended September 30, 2021. The increase was primarily due to an increase in Fee Related Performance Revenues and Management Fees, Net, on which a portion of Fee Related Compensation is based.
Other Operating Expenses were $229.0 million for the nine months ended September 30, 2022, an increase of $68.5 million, compared to $160.5 million for the nine months ended September 30, 2021. The increase was primarily due to travel and entertainment, occupancy and technology related expenses, and professional fees.
Net Realizations
Net Realizations were $1.9 billion for the nine months ended September 30, 2022, an increase of $1.2 billion, or 163%, compared to $730.3 million for the nine months ended September 30, 2021. The increase in Net Realizations was attributable to an increase of $2.0 billion in Realized Performance Revenues, partially offset by an increase of $778.1 million in Realized Performance Compensation and a decrease of $43.2 million in Realized Principal Investment Income.
Realized Performance Revenues were $2.9 billion for the nine months ended September 30, 2022, an increase of $2.0 billion, compared to $935.4 million for the nine months ended September 30, 2021. The increase was primarily due to higher Realized Performance Revenues in BREP.
Realized Performance Compensation was $1.2 billion for the nine months ended September 30, 2022, an increase of $778.1 million, compared to $376.8 million for the nine months ended September 30, 2021. The increase was primarily due to the increase in Realized Performance Revenues.
Realized Principal Investment Income was $128.4 million for the nine months ended September 30, 2022, a decrease of $43.2 million, compared to $171.6 million for the nine months ended September 30, 2021. The decrease was primarily due to the segment’s allocation of the gain recognized in connection with the Pátria sale transaction during the three months ended March 31, 2021.
Fund Returns
Fund return information for our significant funds is included throughout this discussion and analysis to facilitate an understanding of our results of operations for the periods presented. The fund returns information reflected in this discussion and analysis is not indicative of the financial performance of Blackstone and is also not necessarily indicative of the future performance of any particular fund. An investment in Blackstone is not an investment in any of our funds. There can be no assurance that any of our funds or our other existing and future funds will achieve similar returns.
The following table presents the internal rates of return, except where noted, of our significant real estate funds:
| Three Months Ended | Nine Months Ended | September 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||
| September 30, | September 30, | Inception to Date | ||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | Realized | Total | |||||||||||||||||||||||||||||||||||||||||||
| Fund (a) | Gross | Net | Gross | Net | Gross | Net | Gross | Net | Gross | Net | Gross | Net | ||||||||||||||||||||||||||||||||||||
| BREP VII | -4% | -3% | 26% | 22% | 8% | 6% | 39% | 32% | 30% | 22% | 21% | 15% | ||||||||||||||||||||||||||||||||||||
| BREP VIII | - | - | 17% | 14% | 13% | 10% | 36% | 29% | 36% | 28% | 24% | 18% | ||||||||||||||||||||||||||||||||||||
| BREP IX | - | - | 18% | 14% | 17% | 13% | 50% | 38% | 97% | 67% | 48% | 34% | ||||||||||||||||||||||||||||||||||||
| BREP Europe IV (b) | -4% | -4% | 1% | 1% | -2% | -3% | - | - | 28% | 20% | 19% | 13% | ||||||||||||||||||||||||||||||||||||
| BREP Europe V (b) | -2% | -2% | 18% | 15% | 5% | 4% | 29% | 23% | 52% | 43% | 19% | 13% | ||||||||||||||||||||||||||||||||||||
| BREP Europe VI (b) | -3% | -3% | 25% | 19% | 10% | 6% | 52% | 37% | 103% | 75% | 37% | 24% | ||||||||||||||||||||||||||||||||||||
| BREP Asia I | -3% | -2% | 4% | 3% | -3% | -3% | 27% | 21% | 27% | 20% | 19% | 13% | ||||||||||||||||||||||||||||||||||||
| BREP Asia II | -1% | -1% | 6% | 4% | -1% | -1% | 23% | 15% | 63% | 43% | 15% | 8% | ||||||||||||||||||||||||||||||||||||
| BREP Co-Investment (c) | - | - | 19% | 18% | 22% | 21% | 48% | 44% | 18% | 16% | 18% | 16% | ||||||||||||||||||||||||||||||||||||
| BPP (d) | 2% | 2% | 6% | 5% | 14% | 12% | 13% | 11% | n/a | n/a | 14% | 12% | ||||||||||||||||||||||||||||||||||||
| BREIT (e) | n/a | 2% | n/a | 8% | n/a | 9% | n/a | 21% | n/a | n/a | n/a | 13% | ||||||||||||||||||||||||||||||||||||
| BREDS High-Yield (f) | 2% | 2% | 3% | 2% | 2% | - | 13% | 9% | 15% | 10% | 14% | 9% | ||||||||||||||||||||||||||||||||||||
| BXMT (g) | n/a | -13% | n/a | -3% | n/a | -19% | n/a | 17% | n/a | n/a | n/a | 7% |
The returns presented herein represent those of the applicable Blackstone Funds and not those of Blackstone.
| n/m | Not meaningful generally due to the limited time since initial investment. |
|---|
| n/a | Not applicable. |
|---|
| (a) | Net returns are based on the change in carrying value (realized and unrealized) after management fees, expenses and Performance Revenues. |
|---|
| (b) | Euro-based internal rates of return. |
|---|
| (c) | BREP Co-Investment represents co-investment capital raised for various BREP investments. The Net IRR reflected is calculated by aggregating each co-investment’s realized proceeds and unrealized value, as applicable, after management fees, expenses and Performance Revenues. |
|---|
| (d) | BPP represents the Core+ real estate funds which invest with a more modest risk profile and lower leverage. |
|---|
| (e) | Reflects a per share blended return for each respective period, assuming BREIT had a single share class, reinvestment of all dividends received during the period, and no upfront selling commission, net of all fees and expenses incurred by BREIT. These returns are not representative of the returns experienced by any particular investor or share class. Inception to date returns are presented on an annualized basis and are from January 1, 2017. |
|---|
| (f) | BREDS High-Yield represents the flagship real estate debt drawdown funds only. Inception to date returns are from July 1, 2009. |
|---|
| (g) | Reflects annualized return of a shareholder invested in BXMT as of the beginning of each period presented, assuming reinvestment of all dividends received during the period, and net of all fees and expenses incurred by BXMT. Return incorporates the closing NYSE stock price as of each period end. Inception to date returns are from May 22, 2013. |
|---|
Funds With Closed Investment Periods
The Real Estate segment has twelve funds with closed investment periods as of September 30, 2022: BREP IX, BREP VIII, BREP VII, BREP VI, BREP V, BREP IV, BREP Europe V, BREP Europe IV, BREP Europe III, BREP Asia II, BREP Asia I and BREDS III. As of September 30, 2022, BREP VII, BREP VI, BREP V, BREP IV, BREP Europe IV and BREP Europe III were above their carried interest thresholds (i.e., the preferred return payable to its limited partners before the general partner is eligible to receive carried interest) and would have been above their carried interest thresholds even if all remaining investments were valued at zero. BREP IX, BREP VIII, BREP Europe V, BREP Asia II, BREP Asia I and BREDS III were above their carried interest thresholds. Funds are considered above their carried interest thresholds based on the aggregate fund position, although individual limited partners may be below their respective carried interest thresholds in certain funds.
Private Equity
The following table presents the results of operations for our Private Equity segment:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
| September 30, | 2022 vs. 2021 | September 30, | 2022 vs. 2021 | |||||||||||||||||||||||||||||
| 2022 | 2021 | $ | % | 2022 | 2021 | $ | % | |||||||||||||||||||||||||
| (Dollars in Thousands) | ||||||||||||||||||||||||||||||||
| Management and Advisory Fees, Net | ||||||||||||||||||||||||||||||||
| Base Management Fees | $ | 466,474 | $ | 370,083 | $ | 96,391 | 26% | $ | 1,321,405 | $ | 1,112,349 | $ | 209,056 | 19% | ||||||||||||||||||
| Transaction, Advisory and Other Fees, Net | 24,313 | 50,241 | (25,928 | ) | -52% | 64,522 | 125,220 | (60,698 | ) | -48% | ||||||||||||||||||||||
| Management Fee Offsets | (3,634 | ) | 10 | (3,644 | ) | n/m | (53,933 | ) | (17,510 | ) | (36,423 | ) | 208% | |||||||||||||||||||
| Total Management and Advisory Fees, Net | 487,153 | 420,334 | 66,819 | 16% | 1,331,994 | 1,220,059 | 111,935 | 9% | ||||||||||||||||||||||||
| Fee Related Performance Revenues | - | - | - | n/a | (648 | ) | - | (648 | ) | n/m | ||||||||||||||||||||||
| Fee Related Compensation | (142,381 | ) | (139,211 | ) | (3,170 | ) | 2% | (446,053 | ) | (416,575 | ) | (29,478 | ) | 7% | ||||||||||||||||||
| Other Operating Expenses | (76,138 | ) | (56,792 | ) | (19,346 | ) | 34% | (227,115 | ) | (168,888 | ) | (58,227 | ) | 34% | ||||||||||||||||||
| Fee Related Earnings | 268,634 | 224,331 | 44,303 | 20% | 658,178 | 634,596 | 23,582 | 4% | ||||||||||||||||||||||||
| Realized Performance Revenues | 309,326 | 988,331 | (679,005 | ) | -69% | 882,448 | 1,627,186 | (744,738 | ) | -46% | ||||||||||||||||||||||
| Realized Performance Compensation | (164,531 | ) | (417,386 | ) | 252,855 | -61% | (428,614 | ) | (687,970 | ) | 259,356 | -38% | ||||||||||||||||||||
| Realized Principal Investment Income | 38,015 | 77,570 | (39,555 | ) | -51% | 112,357 | 220,769 | (108,412 | ) | -49% | ||||||||||||||||||||||
| Net Realizations | 182,810 | 648,515 | (465,705 | ) | -72% | 566,191 | 1,159,985 | (593,794 | ) | -51% | ||||||||||||||||||||||
| Segment Distributable Earnings | $ | 451,444 | $ | 872,846 | $ | (421,402 | ) | -48% | $ | 1,224,369 | $ | 1,794,581 | $ | (570,212 | ) | -32% | ||||||||||||||||
n/m Not meaningful.
Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021
Segment Distributable Earnings were $451.4 million for the three months ended September 30, 2022, a decrease of $421.4 million, compared to $872.8 million for the three months ended September 30, 2021. The decrease in Segment Distributable Earnings was attributable to a decrease of $465.7 million in Net Realizations, partially offset by an increase of $44.3 million in Fee Related Earnings.
Segment Distributable Earnings in our Private Equity segment in the third quarter of 2022 were lower compared to the third quarter of 2021. This was primarily driven by a decrease in Net Realizations, partially offset by an increase in Fee Related Earnings. Heightened labor and wage inflation have continued to put profit margin pressure on certain of our private equity portfolio companies, including those in labor-intensive businesses. Heightened energy and materials costs have also continued to put profit margin pressure on our materials-intensive private equity portfolio companies. The impact of such pressures, however, on our overall private equity portfolio has been to some extent mitigated by its focus on investing in companies that are less impacted by rising input costs or that benefit from pricing power. In addition, higher than expected rates of inflation and the possibility that inflation could remain elevated for longer than generally anticipated, as well as continued significant interest rate increases, have contributed and are likely to continue to contribute to significant market volatility. This has disproportionately impacted the value of future cash flows of technology and growth companies, whose values fell materially in 2022. These companies may be subject to continued depressed, or even further declines in, values in a challenging market environment. Continued uncertainty and a difficult market environment led to lower realizations and capital deployment in the third quarter of 2022, both of which are likely to be muted until market conditions improve, which would negatively impact Segment Distributable Earnings in
our Private Equity segment. Moreover, challenging market conditions have pressured investors’ ability to allocate to private equity strategies and contributed to an already competitive fundraising environment. Despite these near-term headwinds, our institutional fundraising has remained positive, and we have progressed meaningfully toward our overall flagship fundraise goal.
In energy, favorable market conditions contributed to a meaningful increase in the value of certain energy investments, as energy, oil and gas prices remained elevated in the third quarter of 2022. This short-term trend, in part due to decreased supply because of the ongoing war between Russia and Ukraine and heightened global demand, has had a positive impact on our energy portfolio. Beyond this short-term trend, however, increased scrutiny from regulators, investors and other market participants on the climate impact of oil and gas energy investments has weakened long-term market fundamentals for traditional energy. The persistence of these weakened market fundamentals could negatively impact the performance of certain investments in our energy and corporate private equity funds. See “Part I. Item 1A. Risk Factors — Risks Related to Our Business — An increase in interest rates and other changes in the financial markets could negatively impact the values of certain assets or investments and the ability of our funds and their portfolio companies to access the capital markets on attractive terms, which could adversely affect investment and realization opportunities, lead to lower-yielding investments and potentially decrease our net income,” “— Difficult market and geopolitical conditions can adversely affect our business in many ways, each of which could materially reduce our revenue, earnings and cash flow and adversely affect our financial prospects and condition” and “— A period of economic slowdown, which may be across one or more industries, sectors or geographies, has contributed and could in the future contribute to adverse operating performance for certain of our funds’ investments, which would adversely affect our operating results and cash flows” in our Annual Report on Form
10-K
for the year ended December 31, 2021.
Fee Related Earnings
Fee Related Earnings were $268.6 million for the three months ended September 30, 2022, an increase of $44.3 million, or 20%, compared to $224.3 million for the three months ended September 30, 2021. The increase in Fee Related Earnings was attributable to an increase of $66.8 million in Management and Advisory Fees, Net, partially offset by increases of $19.3 million in Other Operating Expenses and $3.2 million in Fee Related Compensation.
Management and Advisory Fees, Net were $487.2 million for the three months ended September 30, 2022, an increase of $66.8 million, compared to $420.3 million for the three months ended September 30, 2021, primarily driven by an increase in Base Management Fees, partially offset by a decrease in Transaction and Advisory Fees, Net. Base Management Fees increased $96.4 million primarily due to (a) the commencement of Strategic Partners IX’s investment period during the three months ended December 31, 2021 and
(b) Fee-Earning
Assets Under Management Growth in BIP. Transaction and Advisory Fees, Net decreased $25.9 million primarily due to deal activity in BXCM.
Other Operating Expenses were $76.1 million for the three months ended September 30, 2022, an increase of $19.3 million, compared to $56.8 million for the three months ended September 30, 2021. The increase was primarily due to travel and entertainment, occupancy and technology related expenses, and professional fees.
Fee Related Compensation was $142.4 million for the three months ended September 30, 2022, an increase of $3.2 million, compared to $139.2 million for the three months ended September 30, 2021. The increase was primarily due to an increase in Base Management Fees on which a portion of Fee Related Compensation is based.
Net Realizations
Net Realizations were $182.8 million for the three months ended September 30, 2022, a decrease of $465.7 million, compared to $648.5 million for the three months ended September 30, 2021. The decrease in Net Realizations was attributable to decreases of $679.0 million in Realized Performance Revenues and $39.6 million in Realized Principal Investment Income, partially offset by a decrease of $252.9 million in Realized Performance Compensation.
Realized Performance Revenues were $309.3 million for the three months ended September 30, 2022, a decrease of $679.0 million, compared to $988.3 million for the three months ended September 30, 2021. The decrease was primarily due to lower Realized Performance Revenues in corporate private equity and Tactical Opportunities, partially offset by an increase of Realized Performance Revenues in Strategic Partners.
Realized Principal Investment Income was $38.0 million for the three months ended September 30, 2022, a decrease of $39.6 million, compared to $77.6 million for the three months ended September 30, 2021. The decrease was primarily due to a decrease of Realized Principal Investment Income in corporate private equity.
Realized Performance Compensation was $164.5 million for the three months ended September 30, 2022, a decrease of $252.9 million, compared to $417.4 million for the three months ended September 30, 2021. The decrease was primarily due to the decrease in Realized Performance Revenues.
Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021
Segment Distributable Earnings were $1.2 billion for the nine months ended September 30, 2022, a decrease of $570.2 million, compared to $1.8 billion for the nine months ended September 30, 2021. The decrease in Segment Distributable Earnings was attributable to a decrease of $593.8 million in Net Realizations, partially offset by an increase of $23.6 million in Fee Related Earnings.
Fee Related Earnings
Fee Related Earnings were $658.2 million for the nine months ended September 30, 2022, an increase of $23.6 million, compared to $634.6 million for the nine months ended September 30, 2021. The increase in Fee Related Earnings was attributable to an increase of $111.9 million in Management and Advisory Fees, Net, partially offset by increases of $58.2 million in Other Operating Expenses and $29.5 million in Fee Related Compensation.
Management and Advisory Fees, Net were $1.3 billion for the nine months ended September 30, 2022, an increase of $111.9 million, compared to $1.2 billion for the nine months ended September 30, 2021, primarily driven by an increase in Base Management Fees, partially offset by a decrease in Transaction, Advisory and Other Fees, Net and an increase in Management Fee Offsets. Base Management Fees increased $209.1 million primarily due to (a) the commencement of Strategic Partners GP Solutions and Strategic Partners IX’s investment periods during the three months ended June 30, 2021 and the three months ended December 31, 2021, respectively, and
(b) Fee-Earning
Assets Under Management Growth in BIP, partially offset by (c) the end of BXG’s fee holiday during the three months ended March 31, 2021. Transaction, Advisory and Other Fees, Net decreased $60.7 million primarily due to deal activity in BXCM. Management Fee Offsets increased $36.4 million primarily due to the launch of Strategic Partners IX during the three months ended December 31, 2021.
Other Operating Expenses were $227.1 million for the nine months ended September 30, 2022, an increase of $58.2 million, compared to $168.9 million for the nine months ended September 30, 2021. The increase was primarily due to travel and entertainment, occupancy and technology related expenses, and professional fees.
Fee Related Compensation was $446.1 million for the nine months ended September 30, 2022, an increase of $29.5 million, compared to $416.6 million for the nine months ended September 30, 2021. The increase was primarily due to an increase in Base Management Fees on which a portion of Fee Related Compensation is based.
Net Realizations
Net Realizations were $566.2 million for the nine months ended September 30, 2022, a decrease of $593.8 million, compared to $1.2 billion for the nine months ended September 30, 2021. The decrease in Net Realizations was attributable to decreases of $108.4 million in Realized Principal Investment Income and $744.7 million in Realized Performance Revenues, partially offset by a decrease of $259.4 million in Realized Performance Compensation.
Realized Principal Investment Income was $112.4 million for the nine months ended September 30, 2022, a decrease of $108.4 million, compared to $220.8 million for the nine months ended September 30, 2021. The decrease was primarily due to the segment’s allocation of the gain recognized in connection with the Pátria sale transaction during the three months ended March 31, 2021.
Realized Performance Revenues were $882.4 million for the nine months ended September 30, 2022, a decrease of $744.7 million, compared to $1.6 billion for the nine months ended September 30, 2021. The decrease was primarily due to lower Realized Performance Revenues in corporate private equity and Tactical Opportunities, partially offset by higher Realized Performance Revenues in Strategic Partners.
Realized Performance Compensation was $428.6 million for the nine months ended September 30, 2022, a decrease of $259.4 million, compared to $688.0 million for the nine months ended September 30, 2021. The decrease was primarily due to a decrease in Realized Performance Revenues.
Fund Returns
Fund returns information for our significant funds is included throughout this discussion and analysis to facilitate an understanding of our results of operations for the periods presented. The fund returns information reflected in this discussion and analysis is not indicative of the financial performance of Blackstone and is also not necessarily indicative of the future performance of any particular fund. An investment in Blackstone is not an investment in any of our funds. There can be no assurance that any of our funds or our other existing and future funds will achieve similar returns.
The following table presents the internal rates of return of our significant private equity funds:
| Three Months Ended | Nine Months Ended | September 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||
| September 30, | September 30, | Inception to Date | ||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | Realized | Total | |||||||||||||||||||||||||||||||||||||||||||
| Fund (a) | Gross | Net | Gross | Net | Gross | Net | Gross | Net | Gross | Net | Gross | Net | ||||||||||||||||||||||||||||||||||||
| BCP V | 2% | -1% | 27% | 11% | 26% | 15% | 228% | 96% | 10% | 8% | 10% | 8% | ||||||||||||||||||||||||||||||||||||
| BCP VI | 7% | 6% | -2% | -1% | 3% | 3% | 14% | 12% | 20% | 16% | 17% | 12% | ||||||||||||||||||||||||||||||||||||
| BCP VII | -4% | -4% | 7% | 6% | -13% | -12% | 38% | 31% | 45% | 34% | 20% | 14% | ||||||||||||||||||||||||||||||||||||
| BCP VIII | - | -1% | n/a | n/a | -1% | -3% | n/a | n/a | n/m | n/m | 34% | 18% | ||||||||||||||||||||||||||||||||||||
| BEP I | 9% | 8% | 7% | 5% | 45% | 36% | 67% | 52% | 18% | 14% | 15% | 12% | ||||||||||||||||||||||||||||||||||||
| BEP II | 2% | 2% | 7% | 7% | 28% | 27% | 50% | 48% | 6% | 1% | 11% | 8% | ||||||||||||||||||||||||||||||||||||
| BEP III | 9% | 6% | 14% | 11% | 15% | 10% | 79% | 53% | 195% | 66% | 63% | 38% | ||||||||||||||||||||||||||||||||||||
| BCP Asia I | -8% | -7% | 53% | 47% | -39% | -36% | 186% | 156% | 137% | 97% | 49% | 34% | ||||||||||||||||||||||||||||||||||||
| BCEP I (b) | 1% | 1% | 7% | 7% | 6% | 5% | 38% | 35% | 61% | 55% | 27% | 24% | ||||||||||||||||||||||||||||||||||||
| BCEP II (b) | - | -1% | n/a | n/a | 4% | 1% | n/a | n/a | n/a | n/a | 8% | 2% | ||||||||||||||||||||||||||||||||||||
| Tactical Opportunities | -3% | -3% | 1% | 1% | -2% | -2% | 29% | 22% | 22% | 18% | 16% | 11% | ||||||||||||||||||||||||||||||||||||
| Tactical Opportunities Co-Investment and Other | -2% | 1% | 6% | 6% | -1% | 2% | 28% | 24% | 19% | 18% | 21% | 18% | ||||||||||||||||||||||||||||||||||||
| BXG I | -1% | -2% | -5% | -5% | -14% | -14% | 71% | 65% | n/m | n/m | 7% | - | ||||||||||||||||||||||||||||||||||||
| Strategic Partners VI (c) | -6% | -7% | 18% | 17% | -2% | -3% | 49% | 45% | n/a | n/a | 19% | 15% | ||||||||||||||||||||||||||||||||||||
| Strategic Partners VII (c) | -6% | -7% | 24% | 21% | -1% | -2% | 65% | 58% | n/a | n/a | 25% | 20% | ||||||||||||||||||||||||||||||||||||
| Strategic Partners Real Assets II (c) | -1% | -1% | 10% | 9% | 14% | 12% | 18% | 15% | n/a | n/a | 20% | 16% | ||||||||||||||||||||||||||||||||||||
| Strategic Partners VIII (c) | -2% | -2% | 31% | 27% | 6% | 5% | 96% | 80% | n/a | n/a | 54% | 43% | ||||||||||||||||||||||||||||||||||||
| Strategic Partners Real Estate, SMA and Other (c) | 4% | 2% | 13% | 13% | 20% | 16% | 28% | 28% | n/a | n/a | 22% | 19% | ||||||||||||||||||||||||||||||||||||
| Infra III (c) | 3% | 2% | n/m | n/m | 41% | 29% | n/m | n/m | n/a | n/a | 97% | 58% | ||||||||||||||||||||||||||||||||||||
| BIP | 8% | 6% | - | - | 18% | 14% | 35% | 28% | n/a | n/a | 24% | 18% | ||||||||||||||||||||||||||||||||||||
| Clarus IV | 3% | 3% | 6% | 4% | 6% | 4% | 24% | 18% | 30% | 23% | 24% | 15% | ||||||||||||||||||||||||||||||||||||
| BXLS V | 4% | 2% | 12% | 8% | 6% | -1% | 30% | 9% | 18% | 9% | 17% | 2% |
The returns presented herein represent those of the applicable Blackstone Funds and not those of Blackstone.
| n/m | Not meaningful generally due to the limited time since initial investment. |
|---|
| n/a | Not applicable. |
|---|
| SMA | Separately managed account. |
|---|
| (a) | Net returns are based on the change in carrying value (realized and unrealized) after management fees, expenses and Performance Revenues. |
|---|
| (b) | BCEP is a core private equity strategy which invests with a more modest risk profile and longer hold period than traditional private equity. |
|---|
| (c) | Realizations are treated as return of capital until fully recovered and therefore inception to date realized returns are not applicable. Returns are calculated from results that are reported on a three month lag from Strategic Partners’ fund financial statements and therefore do not include the impact of economic and market activities in the current quarter. |
|---|
Funds With Closed Investment Periods
The corporate private equity funds within the Private Equity segment have nine funds with closed investment periods: BCP IV, BCP V, BCP VI, BCP VII, BCOM, BEP I, BEP II, BCEP I and BCP Asia I. As of September 30, 2022, BCP IV was above its carried interest threshold (i.e., the preferred return payable to its limited partners before the general partner is eligible to receive carried interest) and would still be above its carried interest threshold even if all remaining investments were valued at zero. BCP V is comprised of two fund classes, the BCP V “main fund” and
BCP V-AC
fund. Within these fund classes, the general partner is subject to equalization such that (a) the general partner accrues carried interest when the respective carried interest for either fund class is positive and (b) the general partner realizes carried interest so long as clawback obligations, if any, for either of the respective fund classes are fully satisfied. BCP V, BCP VI, BCP VII, BCOM, BEP I, BCEP I and BCP Asia I were above their respective carried interest thresholds. Funds are considered above their carried interest thresholds based on the aggregate fund position, although individual limited partners may be below their respective carried interest thresholds in certain funds. We are entitled to retain previously realized carried interest up to 20% of BCOM’s net gains. As a result, Performance Revenues are recognized from BCOM on current period gains and losses. BEP II was below its carried interest threshold.
Hedge Fund Solutions
The following table presents the results of operations for our Hedge Fund Solutions segment:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
| September 30, | 2022 vs. 2021 | September 30, | 2022 vs. 2021 | |||||||||||||||||||||||||||||
| 2022 | 2021 | $ | % | 2022 | 2021 | $ | % | |||||||||||||||||||||||||
| (Dollars in Thousands) | ||||||||||||||||||||||||||||||||
| Management Fees, Net | ||||||||||||||||||||||||||||||||
| Base Management Fees | $ | 138,818 | $ | 154,884 | $ | (16,066 | ) | -10% | $ | 428,941 | $ | 460,661 | $ | (31,720 | ) | -7% | ||||||||||||||||
| Transaction and Other Fees, Net | 581 | 2,535 | (1,954 | ) | -77% | 5,500 | 8,439 | (2,939 | ) | -35% | ||||||||||||||||||||||
| Management Fee Offsets | (57 | ) | (255 | ) | 198 | -78% | (166 | ) | (516 | ) | 350 | -68% | ||||||||||||||||||||
| Total Management Fees, Net | 139,342 | 157,164 | (17,822 | ) | -11% | 434,275 | 468,584 | (34,309 | ) | -7% | ||||||||||||||||||||||
| Fee Related Compensation | (40,895 | ) | (35,092 | ) | (5,803 | ) | 17% | (145,993 | ) | (112,580 | ) | (33,413 | ) | 30% | ||||||||||||||||||
| Other Operating Expenses | (26,599 | ) | (25,476 | ) | (1,123 | ) | 4% | (75,849 | ) | (66,521 | ) | (9,328 | ) | 14% | ||||||||||||||||||
| Fee Related Earnings | 71,848 | 96,596 | (24,748 | ) | -26% | 212,433 | 289,483 | (77,050 | ) | -27% | ||||||||||||||||||||||
| Realized Performance Revenues | 4,430 | 7,271 | (2,841 | ) | -39% | 40,540 | 55,900 | (15,360 | ) | -27% | ||||||||||||||||||||||
| Realized Performance Compensation | (3,237 | ) | (1,443 | ) | (1,794 | ) | 124% | (14,320 | ) | (13,977 | ) | (343 | ) | 2% | ||||||||||||||||||
| Realized Principal Investment Income | 9,460 | 14,943 | (5,483 | ) | -37% | 22,831 | 52,618 | (29,787 | ) | -57% | ||||||||||||||||||||||
| Net Realizations | 10,653 | 20,771 | (10,118 | ) | -49% | 49,051 | 94,541 | (45,490 | ) | -48% | ||||||||||||||||||||||
| Segment Distributable Earnings | $ | 82,501 | $ | 117,367 | $ | (34,866 | ) | -30% | $ | 261,484 | $ | 384,024 | $ | (122,540 | ) | -32% | ||||||||||||||||
n/m Not meaningful.
Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021
Segment Distributable Earnings were $82.5 million for the three months ended September 30, 2022, a decrease of $34.9 million, compared to $117.4 million for the three months ended September 30, 2021. The decrease in Segment Distributable Earnings was attributable to decreases of $24.7 million in Fee Related Earnings and $10.1 million in Net Realizations.
Segment Distributable Earnings in our Hedge Fund Solutions segment in the third quarter of 2022 were lower compared to the third quarter of 2021. This decrease was primarily driven by decreases in Fee Related Earnings and Net Realizations. Strategies across our Hedge Fund Solutions segment navigated a period of significant market volatility caused by high inflation and escalating interest rates to generally outperform the broader market. Despite such a challenging environment adversely impacting the performance of some of the underlying managers in our Hedge Fund Solutions segment, the segment demonstrated significantly less volatility than the broader markets in the third quarter of 2022 and an ability to provide downside protection in a difficult global market environment. Segment Distributable Earnings in the Hedge Fund Solutions segment would likely be negatively impacted by a significant or sustained weak market environment or decline in asset prices, including as a result of concerns over macroeconomic and geopolitical factors such as the war between Russia and Ukraine, or by withdrawal of assets by investors as a result of liquidity needs, performance or other reasons.
To the extent the meaningful equity market volatility experienced in 2022 subsides and markets experience a prolonged period of low volatility, investors may seek to reallocate capital away from traditional hedge fund strategies. Our Hedge Fund Solutions segment operates multiple business lines, manages strategies that are both long and short asset classes and generates a majority of its revenue through management fees. In that regard, the segment’s revenues depend in part on our ability to successfully grow such existing diverse business lines and strategies and to identify and scale new ones to meet evolving investor appetites. In recent years we have shifted the mix of our product offerings to include more products whose performance-based fees represent a more significant proportion of the fees earned from such products than has historically been the case. In addition, although fundraising in our Hedge Fund Solutions segment may be negatively impacted by market turbulence, which may result in a delay in management fees, continued performance relative to the broader markets could contribute to increased inflows in the segment. See “Part I. Item 1A. Risk Factors — Risks Related to Our Business — Difficult market and geopolitical conditions can adversely affect our business in many ways, each of which could materially reduce our revenue, earnings and cash flow and adversely affect our financial prospects and condition” and “— A period of economic slowdown, which may be across one or more industries, sectors or geographies, has contributed and could in the future contribute to adverse operating performance for certain of our funds’ investments, which would adversely affect our operating results and cash flows” in our Annual Report on Form
10-K
for the year ended December 31, 2021.
Fee Related Earnings
Fee Related Earnings were $71.8 million for the three months ended September 30, 2022, a decrease of $24.7 million, compared to $96.6 million for the three months ended September 30, 2021. The decrease in Fee Related Earnings was primarily attributable to a decrease of $17.8 million in Management Fees, Net and an increase of $5.8 million in Fee Related Compensation.
Management Fees, Net were $139.3 million for the three months ended September 30, 2022, a decrease of $17.8 million, compared to $157.2 million for the three months ended September 30, 2021, primarily due to a decrease in Base Management Fees. Base Management Fees decreased $16.1 million primarily driven by a decrease in
Fee-Earning
Assets Under Management in customized solutions and commingled products.
Fee Related Compensation was $40.9 million for the three months ended September 30, 2022, an increase of $5.8 million, compared to $35.1 million for the three months ended September 30, 2021. The increase was primarily due to changes in compensation accruals.
Net Realizations
Net Realizations were $10.7 million for the three months ended September 30, 2022, a decrease of $10.1 million, compared to $20.8 million for the three months ended September 30, 2021. The decrease in Net Realizations was primarily attributable to decreases of $5.5 million in Realized Principal Investment Income (Loss) and $2.8 million in Realized Performance Revenues, partially offset by an increase of $1.8 million in Realized Performance Compensation.
Realized Performance Revenues were $4.4 million for the three months ended September 30, 2022, a decrease of $2.8 million, compared to $7.3 million for the three months ended September 30, 2021. The decrease was primarily due to lower Realized Performance Revenues in our customized solutions and commingled products.
Realized Principal Investment Income (Loss) was $9.5 million for the three months ended September 30, 2022, a decrease of $5.5 million, compared to $14.9 million for the three months ended September 30, 2021. The decrease was primarily due to lower Realized Principal Investment Income in liquid and specialized solutions.
Realized Performance Compensation was $3.2 million for the three months ended September 30, 2022, an increase of $1.8 million, compared to $1.4 million for the three months ended September 30, 2021. The increase was primarily due to changes in compensation accruals.
Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021
Segment Distributable Earnings were $261.5 million for the nine months ended September 30, 2022, a decrease of $122.5 million, compared to $384.0 million for the nine months ended September 30, 2021. The decrease in Segment Distributable Earnings was attributable to decreases of $77.1 million in Fee Related Earnings and $45.5 million in Net Realizations.
Fee Related Earnings
Fee Related Earnings were $212.4 million for the nine months ended September 30, 2022, a decrease of $77.1 million, compared to $289.5 million for the nine months ended September 30, 2021. The decrease in Fee Related Earnings was primarily attributable to a decrease of $34.3 million in Management Fees, Net and an increase of $33.4 million in Fee Related Compensation.
Management Fees, Net were $434.3 million for the nine months ended September 30, 2022, a decrease of $34.3 million, compared to $468.6 million for the nine months ended September 30, 2021, primarily due to a decrease in Base Management Fees. Base Management Fees decreased $31.7 million primarily driven by a decrease in
Fee-Earning
Assets Under Management in customized solutions and commingled products, partially offset by an increase in
Fee-Earning
Assets Under Management in liquid and specialized solutions.
Fee Related Compensation was $146.0 million for the nine months ended September 30, 2022, an increase of $33.4 million, compared to $112.6 million for the nine months ended September 30, 2021. The increase was primarily due to changes in compensation accruals.
Net Realizations
Net Realizations were $49.1 million for the nine months ended September 30, 2022, a decrease of $45.5 million, compared to $94.5 million for the nine months ended September 30, 2021. The decrease in Net Realizations was attributable to decreases of $29.8 million in Realized Principal Investment Income and $15.4 million in Realized Performance Revenues.
Realized Principal Investment Income (Loss) was $22.8 million for the nine months ended September 30, 2022, a decrease of $29.8 million, compared to $52.6 million for the nine months ended September 30, 2021. The decrease was primarily driven by liquid and specialized solutions.
Realized Performance Revenues were $40.5 million for the nine months ended September 30, 2022, a decrease of $15.4 million, compared to $55.9 million for the nine months ended September 30, 2021. The decrease was primarily due to lower Realized Performance Revenues in customized solutions and commingled products, partially offset by increased Realized Performance Revenues in liquid and specialized solutions.
Composite Returns
Composite returns information is included throughout this discussion and analysis to facilitate an understanding of our results of operations for the periods presented. The composite returns information reflected in this discussion and analysis is not indicative of the financial performance of Blackstone and is also not necessarily indicative of the future results of any particular fund or composite. An investment in Blackstone is not an investment in any of our funds or composites. There can be no assurance that any of our funds or composites or our other existing and future funds or composites will achieve similar returns.
The following table presents the return information of the BAAM Principal Solutions Composite:
| Three | Nine | Average Annual Returns (a) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Months Ended September 30, | Months Ended September 30, | Periods Ended September 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | One Year | Three Year | Five Year | Historical | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Composite | Gross | Net | Gross | Net | Gross | Net | Gross | Net | Gross | Net | Gross | Net | Gross | Net | Gross | Net | ||||||||||||||||||||||||||||||||||||||||||||||||
| BAAM Principal Solutions Composite (b) | 1 | % | 1 | % | 1 | % | 1 | % | 3 | % | 2 | % | 7 | % | 7 | % | 4 | % | 3 | % | 6 | % | 5 | % | 6 | % | 5 | % | 7 | % | 6 | % |
The returns presented herein represent those of the applicable Blackstone Funds and not those of Blackstone.
| (a) | Composite returns present a summarized asset-weighted return measure to evaluate the overall performance of the applicable class of Blackstone Funds. |
|---|
| (b) | BAAM’s Principal Solutions (“BPS”) Composite covers the period from January 2000 to present, although BAAM’s inception date is September 1990. The BPS Composite includes only BAAM-managed commingled and customized multi-manager funds and accounts and does not include BAAM’s individual investor solutions (liquid alternatives), strategic capital (seeding and GP minority stakes), strategic opportunities (co-invests), and advisory (non-discretionary) platforms, except for investments by BPS funds directly into those platforms. BAAM-managed funds in liquidation and, in the case of net returns, non-fee-paying assets are also excluded. The funds/accounts that comprise the BPS Composite are not managed within a single fund or account and are managed with different mandates. There is no guarantee that BAAM would have made the same mix of investments in a stand-alone fund/account. The BPS Composite is not an investible product and, as such, the performance of the BPS Composite does not represent the performance of an actual fund or account. The historical return is from January 1, 2000. |
|---|
Operating Metrics
The following table presents information regarding our Invested Performance Eligible Assets Under Management:
| Invested Performance Eligible Assets Under Management | Estimated % Above High Water Mark/ Benchmark (a) | |||||||||||
| As of September 30, | As of September 30, | |||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||
| (Dollars in Thousands) | ||||||||||||
| Hedge Fund Solutions Managed Funds (b) | $ | 48,764,525 | $ | 45,560,404 | 77% | 91% |
| (a) | Estimated % Above High Water Mark/Benchmark represents the percentage of Invested Performance Eligible Assets Under Management that as of the dates presented would earn performance fees when the applicable Hedge Fund Solutions managed fund has positive investment performance relative to a benchmark, where applicable. Incremental positive performance in the applicable Blackstone Funds may cause additional assets to reach their respective High Water Mark or clear a benchmark return, thereby resulting in an increase in Estimated % Above High Water Mark/Benchmark. |
|---|
| (b) | For the Hedge Fund Solutions managed funds, at September 30, 2022, the incremental appreciation needed for the 23% of Invested Performance Eligible Assets Under Management below their respective High Water Marks/Benchmarks to reach their respective High Water Marks/Benchmarks was $846.6 million, an increase of $504.2 million, compared to $342.4 million at September 30, 2021. Of the Invested Performance Eligible Assets Under Management below their respective High Water Marks/Benchmarks as of September 30, 2022, 61% were within 5% of reaching their respective High Water Mark. |
|---|
Credit & Insurance
The following table presents the results of operations for our Credit & Insurance segment:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
| September 30, | 2022 vs. 2021 | September 30, | 2022 vs. 2021 | |||||||||||||||||||||||||||||
| 2022 | 2021 | $ | % | 2022 | 2021 | $ | % | |||||||||||||||||||||||||
| (Dollars in Thousands) | ||||||||||||||||||||||||||||||||
| Management Fees, Net | ||||||||||||||||||||||||||||||||
| Base Management Fees | $ | 312,663 | $ | 197,591 | $ | 115,072 | 58 | % | $ | 911,697 | $ | 526,039 | $ | 385,658 | 73 | % | ||||||||||||||||
| Transaction and Other Fees, Net | 10,629 | 8,132 | 2,497 | 31 | % | 27,143 | 19,915 | 7,228 | 36 | % | ||||||||||||||||||||||
| Management Fee Offsets | (1,323 | ) | (1,884 | ) | 561 | -30 | % | (4,107 | ) | (5,146 | ) | 1,039 | -20 | % | ||||||||||||||||||
| Total Management Fees, Net | 321,969 | 203,839 | 118,130 | 58 | % | 934,733 | 540,808 | 393,925 | 73 | % | ||||||||||||||||||||||
| Fee Related Performance Revenues | 112,128 | 37,688 | 74,440 | 198 | % | 260,410 | 66,577 | 193,833 | 291 | % | ||||||||||||||||||||||
| Fee Related Compensation | (135,420 | ) | (107,865 | ) | (27,555 | ) | 26 | % | (399,799 | ) | (263,059 | ) | (136,740 | ) | 52 | % | ||||||||||||||||
| Other Operating Expenses | (68,696 | ) | (51,276 | ) | (17,420 | ) | 34 | % | (189,745 | ) | (142,615 | ) | (47,130 | ) | 33 | % | ||||||||||||||||
| Fee Related Earnings | 229,981 | 82,386 | 147,595 | 179 | % | 605,599 | 201,711 | 403,888 | 200 | % | ||||||||||||||||||||||
| Realized Performance Revenues | 12,459 | 6,148 | 6,311 | 103 | % | 122,175 | 73,234 | 48,941 | 67 | % | ||||||||||||||||||||||
| Realized Performance Compensation | (4,992 | ) | (1,145 | ) | (3,847 | ) | 336 | % | (54,487 | ) | (29,532 | ) | (24,955 | ) | 85 | % | ||||||||||||||||
| Realized Principal Investment Income | 46,993 | 15,820 | 31,173 | 197 | % | 76,793 | 67,285 | 9,508 | 14 | % | ||||||||||||||||||||||
| Net Realizations | 54,460 | 20,823 | 33,637 | 162 | % | 144,481 | 110,987 | 33,494 | 30 | % | ||||||||||||||||||||||
| Segment Distributable Earnings | $ | 284,441 | $ | 103,209 | $ | 181,232 | 176 | % | $ | 750,080 | $ | 312,698 | $ | 437,382 | 140 | % | ||||||||||||||||
n/m Not meaningful.
Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021
Segment Distributable Earnings were $284.4 million for the three months ended September 30, 2022, an increase of $181.2 million, or 176%, compared to $103.2 million for the three months ended September 30, 2021. The increase in Segment Distributable Earnings was attributable to increases of $147.6 million in Fee Related Earnings and $33.6 million in Net Realizations.
Segment Distributable Earnings in our Credit & Insurance segment in the third quarter of 2022 were higher compared to the third quarter of 2021, driven by an increase in Fee Related Earnings and an increase in Net Realizations. While public spreads further widened amid market volatility and heightened uncertainty, rising interest rates and solid underlying company performance favorably impacted returns in our private credit strategies. Perpetual capital strategies, including certain private wealth strategies such as BCRED, represent an increasing percentage of our Total Assets Under Management in our Credit & Insurance segment. While in the third quarter we experienced net inflows, market volatility and investor capital constraints led to a decline in inflows and an increase in repurchase requests in our private wealth strategies. A continuation or worsening of this challenging market environment would further adversely affect our net flows, which could potentially be negative to some extent in the near term. We believe the long-term trends, however, remain positive.
In the U.S., rising interest rates and the resulting higher cost of capital has the potential to negatively impact the free cash flow and credit quality of certain borrowers. In addition, rising costs resulting from heightened energy prices and input costs are contributing to margin pressures at certain of our Credit & Insurance segment investments. Such investments would continue to be negatively impacted by a sustained high rate of inflation if they are unable to mitigate margin pressures, especially if concurrent with an increase in their debt service costs. If
higher than expected rates of inflation and expected significant interest rate increases in 2022 occur concurrently with a period of economic weakness or a slowdown in growth, portfolio performance in our Credit & Insurance segment may be negatively impacted. Although rising interest rates have the potential to negatively impact the financial performance of certain borrowers, the performance of our credit funds have generally benefitted from rising interest rates as a substantial majority of the portfolio is floating rate. In addition, continued market dislocation may create attractive deployment opportunities, particularly for our private credit strategies as borrowers seek alternative lending sources. Nonetheless, significant market dislocation could limit the liquidity of certain assets traded in the credit markets, and this would impact our funds’ ability to sell such assets at attractive prices or in a timely manner.
In energy, oil and gas prices remained elevated in the third quarter of 2022, in part due to decreased supply as a result of the ongoing war between Russia and Ukraine and heightened global demand. This short-term trend has had a positive impact on our energy portfolio. Beyond this short-term trend, however, increased scrutiny from regulators, investors and other market participants on the climate impact of oil and gas energy investments has weakened long-term market fundamentals for traditional energy. The persistence of these weakened market fundamentals could negatively impact the performance of certain investments in our credit funds, although our funds actively managed exposure to upstream energy through exits of certain investments in 2021. See “Part I. Item 1A. Risk Factors — Risks Related to Our Business — Difficult market and geopolitical conditions can adversely affect our business in many ways, each of which could materially reduce our revenue, earnings and cash flow and adversely affect our financial prospects and condition” and “— A period of economic slowdown, which may be across one or more industries, sectors or geographies, has contributed and could in the future contribute to adverse operating performance for certain of our funds’ investments, which would adversely affect our operating results and cash flows.” in our Annual Report on Form
10-K
for the year ended December 31, 2021.
Fee Related Earnings
Fee Related Earnings were $230.0 million for the three months ended September 30, 2022, an increase of $147.6 million, or 179%, compared to $82.4 million for the three months ended September 30, 2021. The increase in Fee Related Earnings was primarily attributable to increases of $118.1 million in Management Fees, Net and $74.4 million in Fee Related Performance Revenues, partially offset by increases of $27.6 million in Fee Related Compensation and $17.4 million in Other Operating Expenses.
Management Fees, Net were $322.0 million for the three months ended September 30, 2022, an increase of $118.1 million, compared to $203.8 million for the three months ended September 30, 2021, primarily driven by an increase in Base Management Fees. Base Management Fees increased $115.1 million primarily due to an increase in inflows in BCRED and BIS.
Fee Related Performance Revenues were $112.1 million for the three months ended September 30, 2022, an increase of $74.4 million, compared to $37.7 million for the three months ended September 30, 2021. The increase was primarily due to performance and growth in BCRED, including the expiration of BCRED’s fee holiday during the three months ended September 30, 2021.
Fee Related Compensation was $135.4 million for the three months ended September 30, 2022, an increase of $27.6 million, compared to $107.9 million for the three months ended September 30, 2021. The increase was primarily due to increases in Management Fees, Net and Fee Related Performance Revenues, on which a portion of Fee Related Compensation is based.
Other Operating Expenses were $68.7 million for the three months ended September 30, 2022, an increase of $17.4 million, compared to $51.3 million for the three months ended September 30, 2021. The increase was primarily due to travel and entertainment, occupancy and technology related expenses, and professional fees.
Net Realizations
Net Realizations were $54.5 million for the three months ended September 30, 2022, an increase of $33.6 million, or 162%, compared to $20.8 million for the three months ended September 30, 2021. The increase in Net Realizations was primarily attributable to increases of $31.2 million in Realized Principal Investment Income and $6.3 million in Realized Performance Revenues, partially offset by an increase of $3.8 million in Realized Performance Compensation.
Realized Principal Investment Income was $47.0 million for the three months ended September 30, 2022, an increase of $31.2 million, compared to $15.8 million for the three months ended September 30, 2021. The increase was primarily due to growth in BCRED.
Realized Performance Revenues were $12.5 million for the three months ended September 30, 2022, an increase of $6.3 million, compared to $6.1 million for the three months ended September 30, 2021. The increase was primarily due to increases in our mezzanine opportunistic funds, energy strategies and direct lending separately managed accounts.
Realized Performance Compensation was $5.0 million for the three months ended September 30, 2022, an increase of $3.8 million, compared to $1.1 million for the three months ended September 30, 2021. The increase was primarily due to the increase in Realized Performance Revenues.
Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021
Segment Distributable Earnings were $750.1 million for the nine months ended September 30, 2022, an increase of $437.4 million, or 140%, compared to $312.7 million for the nine months ended September 30, 2021. The increase in Segment Distributable Earnings was primarily attributable to increases of $403.9 million in Fee Related Earnings and $33.5 million in Net Realizations.
Fee Related Earnings
Fee Related Earnings were $605.6 million for the nine months ended September 30, 2022, an increase of $403.9 million, or 200%, compared to $201.7 million for the nine months ended September 30, 2021. The increase in Fee Related Earnings was primarily attributable to increases of $393.9 million in Management Fees, Net and $193.8 million in Fee Related Performance Revenues, partially offset by increases of $136.7 million in Fee Related Compensation and $47.1 million in Other Operating Expenses.
Management Fees, Net were $934.7 million for the nine months ended September 30, 2022, an increase of $393.9 million, compared to $540.8 million for the nine months ended September 30, 2021, primarily driven by an increase in Base Management Fees. Base Management Fees increased $385.7 million primarily due to an increase in inflows in BCRED and BIS.
The annualized Base Management Fee Rate increased from 0.56% at September 30, 2021 to 0.62% at September 30, 2022. The increase was primarily due to BCRED management fee holiday ending.
Fee Related Performance Revenues were $260.4 million for the nine months ended September 30, 2022, an increase of $193.8 million, compared to $66.6 million for the nine months ended September 30, 2021. The increase was primarily due to performance and growth in BCRED, including the expiration of BCRED’s fee holiday during the three months ended September 30, 2021.
Fee Related Compensation was $399.8 million for the nine months ended September 30, 2022, an increase of $136.7 million, compared to $263.1 million for the nine months ended September 30, 2021. The increase was primarily due to increases in Management Fees, Net and Fee Related Performance Revenues, on which a portion of Fee Related Compensation is based.
Other Operating Expenses were $189.7 million for the nine months ended September 30, 2022, an increase of $47.1 million, compared to $142.6 million for the nine months ended September 30, 2021. The increase was primarily due to travel and entertainment, occupancy and technology related expenses, and professional fees.
Net Realizations
Net Realizations were $144.5 million for the nine months ended September 30, 2022, an increase of $33.5 million, or 30%, compared to $111.0 million for the nine months ended September 30, 2021. The increase in Net Realizations was attributable to an increase of $48.9 million in Realized Performance Revenues and an increase of $9.5 million in Realized Principal Investment Income, partially offset by an increase of $25.0 million in Realized Performance Compensation.
Realized Performance Revenues were $122.2 million for the nine months ended September 30, 2022, an increase of $48.9 million, compared to $73.2 million for the nine months ended September 30, 2021. The increase was primarily due to higher realized carry interest in our energy strategies and our direct lending separately managed accounts.
Realized Principal Investment Income was $76.8 million for the nine months ended September 30, 2022, an increase of $9.5 million, compared to $67.3 million for the nine months ended September 30, 2021. The increase was primarily due to the segment’s allocation of the gain recognized in connection with the Pátria sale transaction during the three months ended March 31, 2021.
Realized Performance Compensation was $54.5 million for the nine months ended September 30, 2022, an increase of $25.0 million, compared to $29.5 million for the nine months ended September 30, 2021. The increase was primarily due to the increase in Realized Performance Revenues.
Composite Returns
Composite returns information is included throughout this discussion and analysis to facilitate an understanding of our results of operations for the periods presented. The composite returns information reflected in this discussion and analysis is not indicative of the financial performance of Blackstone and is also not necessarily indicative of the future results of any particular fund or composite. An investment in Blackstone is not an investment in any of our funds or composites. There can be no assurance that any of our funds or composites or our other existing and future funds or composites will achieve similar returns.
The following table presents the return information for the Private Credit and Liquid Credit composites:
| Three Months Ended September 30, | Nine Months Ended September 30, | September 30, 2022 | ||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | Inception to Date | ||||||||||||||||||||||||||||||||||||
| Composite (a) | Gross | Net | Gross | Net | Gross | Net | Gross | Net | Gross | Net | ||||||||||||||||||||||||||||||
| Private Credit (b)(c) | 3 | % | 2 | % | 5 | % | 3 | % | 5 | % | 2 | % | 17 | % | 13 | % | 11 | % | 7 | % | ||||||||||||||||||||
| Liquid Credit (b) | 1 | % | 1 | % | 1 | % | 1 | % | -5 | % | -6 | % | 4 | % | 4 | % | 5 | % | 4 | % |
The returns presented herein represent those of the applicable Blackstone Funds and not those of Blackstone.
| (a) | Net returns are based on the change in carrying value (realized and unrealized) after management fees, expenses and Performance Allocations, net of tax advances. |
|---|
| (b) | Private Credit returns include mezzanine lending funds and middle market direct lending funds (including BXSL and BCRED), stressed/distressed strategies (including stressed/distressed funds and credit alpha strategies) and energy strategies. Liquid Credit returns include CLOs, closed-ended funds, open-ended funds and separately managed accounts. Only fee-earning funds exceeding $100 million of fair value at the beginning of each respective quarter-end are included. Funds in liquidation, funds investing primarily in investment grade corporate credit and asset-based finance are excluded. Blackstone Funds that were contributed to BXC as part of Blackstone’s acquisition of BXC in March 2008 and the pre-acquisition date performance for funds and vehicles acquired by BXC subsequent to March 2008, are also excluded. Private Credit and Liquid Credit’s inception to date returns are from December 31, 2005. |
|---|
| (c) | Effective June 30, 2022, for euro-denominated funds included in the Private Credit composite return, cash flows are translated using a historical rate instead of the daily spot rate to more closely reflect the actual performance of foreign-denominated funds in the composite returns. |
|---|
Operating Metrics
The following table presents information regarding our Invested Performance Eligible Assets Under Management:
| Invested Performance Eligible Assets Under Management | Estimated % Above High Water Mark/ Hurdle (a) | |||||||||||||||
| As of September 30, | As of September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| (Dollars in Thousands) | ||||||||||||||||
| Credit & Insurance (b) | $ | 85,164,349 | $ | 49,934,469 | 93 | % | 87 | % |
| (a) | Estimated % Above High Water Mark/Hurdle represents the percentage of Invested Performance Eligible Assets Under Management that as of the dates presented would earn performance fees when the applicable Credit & Insurance managed fund has positive investment performance relative to a hurdle, where applicable. Incremental positive performance in the applicable Blackstone Funds may cause additional assets to reach their respective High Water Mark or clear a hurdle return, thereby resulting in an increase in Estimated % Above High Water Mark/Hurdle. |
|---|
| (b) | For the Credit & Insurance managed funds, at September 30, 2022, the incremental appreciation needed for the 7% of Invested Performance Eligible Assets Under Management below their respective High Water Marks/Hurdles to reach their respective High Water Marks/Hurdles was $2.1 billion, a decrease of $(224.2) million, compared to $2.4 billion at September 30, 2021. Of the Invested Performance Eligible Assets Under Management below their respective High Water Marks/Hurdles as of September 30, 2022, 40% were within 5% of reaching their respective High Water Mark. |
|---|
Non-GAAP
Financial Measures
These
non-GAAP
financial measures are presented without the consolidation of any Blackstone Funds that are consolidated into the Condensed Consolidated Financial Statements. Consequently, all
non-GAAP
financial measures exclude the assets, liabilities and operating results related to the Blackstone Funds. See “— Key Financial Measures and Indicators” for our definitions of Distributable Earnings, Segment Distributable Earnings, Fee Related Earnings and Adjusted EBITDA.
The following table is a reconciliation of Net Income (Loss) Attributable to Blackstone Inc. to Distributable Earnings, Total Segment Distributable Earnings, Fee Related Earnings and Adjusted EBITDA:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| (Dollars in Thousands) | ||||||||||||||||
| Net Income Attributable to Blackstone Inc. | $ | 2,296 | $ | 1,401,895 | $ | 1,189,777 | $ | 4,458,919 | ||||||||
| Net Income Attributable to Non-Controlling Interests in Blackstone Holdings | 37,724 | 1,315,641 | 1,061,516 | 3,667,618 | ||||||||||||
| Net Income (Loss) Attributable to Non-Controlling Interests in Consolidated Entities | (62,093 | ) | 486,907 | (62,425 | ) | 1,305,273 | ||||||||||
| Net Income Attributable to Redeemable Non-Controlling Interests in Consolidated Entities | 25,773 | 1,550 | 56,700 | 2,816 | ||||||||||||
| Net Income | 3,700 | 3,205,993 | 2,245,568 | 9,434,626 | ||||||||||||
| Provision for Taxes | 94,231 | 458,904 | 614,026 | 746,707 | ||||||||||||
| Net Income Before Provision for Taxes | 97,931 | 3,664,897 | 2,859,594 | 10,181,333 | ||||||||||||
| Transaction-Related Charges (a) | 9,247 | 59,193 | 59,721 | 122,614 | ||||||||||||
| Amortization of Intangibles (b) | 13,238 | 17,044 | 47,326 | 51,212 | ||||||||||||
| Impact of Consolidation (c) | 36,320 | (488,457 | ) | 5,725 | (1,308,089 | ) | ||||||||||
| Unrealized Performance Revenues (d) | 771,637 | (2,724,366 | ) | 2,946,255 | (7,886,033 | ) | ||||||||||
| Unrealized Performance Allocations Compensation (e) | (359,590 | ) | 1,193,853 | (1,273,849 | ) | 3,394,041 | ||||||||||
| Unrealized Principal Investment (Income) Loss (f) | 996,105 | 2,343 | 1,172,635 | (526,249 | ) | |||||||||||
| Other Revenues (g) | (198,546 | ) | (64,109 | ) | (427,069 | ) | (152,252 | ) | ||||||||
| Equity-Based Compensation (h) | 190,197 | 129,254 | 587,386 | 394,948 | ||||||||||||
| Administrative Fee Adjustment (i) | 2,460 | 2,488 | 7,421 | 7,747 | ||||||||||||
| Taxes and Related Payables (j) | (184,130 | ) | (156,867 | ) | (686,571 | ) | (381,762 | ) | ||||||||
| Distributable Earnings | 1,374,869 | 1,635,273 | 5,298,574 | 3,897,510 | ||||||||||||
| Taxes and Related Payables (j) | 184,130 | 156,867 | 686,571 | 381,762 | ||||||||||||
| Net Interest and Dividend Loss (k) | 22,850 | 16,238 | 38,249 | 40,367 | ||||||||||||
| Total Segment Distributable Earnings | 1,581,849 | 1,808,378 | 6,023,394 | 4,319,639 | ||||||||||||
| Realized Performance Revenues (l) | (469,009 | ) | (1,497,477 | ) | (3,988,593 | ) | (2,691,738 | ) | ||||||||
| Realized Performance Compensation (m) | 206,224 | 619,074 | 1,652,318 | 1,108,269 | ||||||||||||
| Realized Principal Investment Income (n) | (139,765 | ) | (151,010 | ) | (340,369 | ) | (512,298 | ) | ||||||||
| Fee Related Earnings | $ | 1,179,299 | $ | 778,965 | $ | 3,346,750 | $ | 2,223,872 | ||||||||
| Adjusted EBITDA Reconciliation | ||||||||||||||||
| Distributable Earnings | $ | 1,374,869 | $ | 1,635,273 | $ | 5,298,574 | $ | 3,897,510 | ||||||||
| Interest Expense (o) | 80,312 | 51,773 | 216,339 | 140,245 | ||||||||||||
| Taxes and Related Payables (j) | 184,130 | 156,867 | 686,571 | 381,762 | ||||||||||||
| Depreciation and Amortization (p) | 14,958 | 12,771 | 44,918 | 37,645 | ||||||||||||
| Adjusted EBITDA | $ | 1,654,269 | $ | 1,856,684 | $ | 6,246,402 | $ | 4,457,162 | ||||||||
| (a) | This adjustment removes Transaction-Related Charges, which are excluded from Blackstone’s segment presentation. Transaction-Related Charges arise from corporate actions including acquisitions, divestitures, and Blackstone’s initial public offering. They consist primarily of equity-based compensation charges, gains and losses on contingent consideration arrangements, changes in the balance of the Tax Receivable Agreement resulting from a change in tax law or similar event, transaction costs and any gains or losses associated with these corporate actions. |
|---|
| (b) | This adjustment removes the amortization of transaction-related intangibles, which are excluded from Blackstone’s segment presentation. |
|---|
| (c) | This adjustment reverses the effect of consolidating Blackstone Funds, which are excluded from Blackstone’s segment presentation. This adjustment includes the elimination of Blackstone’s interest in these funds and the removal of amounts associated with the ownership of Blackstone consolidated operating partnerships held by non-controlling interests. |
|---|
| (d) | This adjustment removes Unrealized Performance Allocations. |
|---|
| (e) | This adjustment removes Unrealized Performance Allocations Compensation. |
|---|
| (f) | This adjustment removes Unrealized Principal Investment Income (Loss) on a segment basis. The Segment Adjustment represents (1) the add back of Principal Investment Income, including general partner income, earned from consolidated Blackstone Funds which have been eliminated in consolidation, and (2) the removal of amounts associated with the ownership of Blackstone consolidated operating partnerships held by non-controlling interests. |
|---|
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| (Dollars in Thousands) | ||||||||||||||||
| GAAP Unrealized Principal Investment Income (Loss) | $ | (1,069,697 | ) | $ | 183,754 | $ | (1,496,226 | ) | $ | 1,151,904 | ||||||
| Segment Adjustment | 73,592 | (186,097 | ) | 323,591 | (625,655 | ) | ||||||||||
| Unrealized Principal Investment Income (Loss) | $ | (996,105 | ) | $ | (2,343 | ) | $ | (1,172,635 | ) | $ | 526,249 | |||||
| (g) | This adjustment removes Other Revenues on a segment basis. The Segment Adjustment represents the removal of certain Transaction-Related Charges. |
|---|
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| (Dollars in Thousands) | ||||||||||||||||
| GAAP Other Revenue | $ | 199,382 | $ | 64,187 | $ | 427,839 | $ | 152,387 | ||||||||
| Segment Adjustment | (836 | ) | (78 | ) | (770 | ) | (135 | ) | ||||||||
| Other Revenues | $ | 198,546 | $ | 64,109 | $ | 427,069 | $ | 152,252 | ||||||||
| (h) | This adjustment removes Equity-Based Compensation on a segment basis. |
|---|
| (i) | This adjustment adds an amount equal to an administrative fee collected on a quarterly basis from certain holders of Blackstone Holdings Partnership Units. The administrative fee is accounted for as a capital contribution under GAAP, but is reflected as a reduction of Other Operating Expenses in Blackstone’s segment presentation. |
|---|
| (j) | Taxes represent the total GAAP tax provision adjusted to include only the current tax provision (benefit) calculated on Income (Loss) Before Provision (Benefit) for Taxes and adjusted to exclude the tax impact of any divestitures. For interim periods, taxes are calculated using the preferred annualized effective tax rate approach. Related Payables represent tax-related payables including the amount payable under the Tax Receivable Agreement. See “— Key Financial Measures and Indicators — Distributable Earnings” for the full definition of Taxes and Related Payables. |
|---|
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| (Dollars in Thousands) | ||||||||||||||||
| Taxes | $ | 163,602 | $ | 140,548 | $ | 613,201 | $ | 337,966 | ||||||||
| Related Payables | 20,528 | 16,319 | 73,370 | 43,796 | ||||||||||||
| Taxes and Related Payables | $ | 184,130 | $ | 156,867 | $ | 686,571 | $ | 381,762 | ||||||||
| (k) | This adjustment removes Interest and Dividend Revenue less Interest Expense on a segment basis. The Segment Adjustment represents (1) the add back of Interest and Dividend Revenue earned from consolidated Blackstone Funds which have been eliminated in consolidation, and (2) the removal of interest expense associated with the Tax Receivable Agreement. |
|---|
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| (Dollars in Thousands) | ||||||||||||||||
| GAAP Interest and Dividend Revenue | $ | 52,420 | $ | 35,048 | $ | 168,980 | $ | 97,477 | ||||||||
| Segment Adjustment | 5,042 | 487 | 9,110 | 2,401 | ||||||||||||
| Interest and Dividend Revenue | 57,462 | 35,535 | 178,090 | 99,878 | ||||||||||||
| GAAP Interest Expense | 80,507 | 52,413 | 216,896 | 141,718 | ||||||||||||
| Segment Adjustment | (195 | ) | (640 | ) | (557 | ) | (1,473 | ) | ||||||||
| Interest Expense | 80,312 | 51,773 | 216,339 | 140,245 | ||||||||||||
| Net Interest and Dividend Loss | $ | (22,850 | ) | $ | (16,238 | ) | $ | (38,249 | ) | $ | (40,367 | ) | ||||
| (l) | This adjustment removes the total segment amount of Realized Performance Revenues. |
|---|
| (m) | This adjustment removes the total segment amount of Realized Performance Compensation. |
|---|
| (n) | This adjustment removes the total segment amount of Realized Principal Investment Income. |
|---|
| (o) | This adjustment adds back Interest Expense on a segment basis, excluding interest expense related to the Tax Receivable Agreement. |
|---|
| (p) | This adjustment adds back Depreciation and Amortization on a segment basis. |
|---|
The following tables are a reconciliation of Total GAAP Investments to Net Accrued Performance Revenues. Total GAAP Investments and Net Accrued Performance Revenues consist of the following:
| September 30, | ||||||||
| 2022 | 2021 | |||||||
| (Dollars in Thousands) | ||||||||
| Investments of Consolidated Blackstone Funds | $ | 3,828,497 | $ | 2,104,705 | ||||
| Equity Method Investments | ||||||||
| Partnership Investments | 5,566,645 | 5,303,334 | ||||||
| Accrued Performance Allocations | 12,938,888 | 15,063,648 | ||||||
| Corporate Treasury Investments | 799,016 | 1,520,426 | ||||||
| Other Investments | 3,123,102 | 1,112,082 | ||||||
| Total GAAP Investments | $ | 26,256,148 | $ | 25,104,195 | ||||
| Accrued Performance Allocations - GAAP | $ | 12,938,888 | $ | 15,063,648 | ||||
| Impact of Consolidation (a) | 2,412 | 1 | ||||||
| Due from Affiliates - GAAP (b) | 154,587 | 59,669 | ||||||
| Less: Net Realized Performance Revenues (c) | (342,922 | ) | (416,336 | ) | ||||
| Less: Accrued Performance Compensation - GAAP (d) | (5,693,325 | ) | (6,395,903 | ) | ||||
| Net Accrued Performance Revenues | $ | 7,059,640 | $ | 8,311,079 | ||||
| (a) | This adjustment adds back investments in consolidated Blackstone Funds which have been eliminated in consolidation. |
|---|
| (b) | Represents GAAP accrued performance revenue recorded within Due from Affiliates. |
|---|
| (c) | Represents Performance Revenues realized but not yet distributed as of the reporting date and are included in Distributable Earnings in the period they are realized. |
|---|
| (d) | Represents GAAP accrued performance compensation associated with Accrued Performance Allocations and is recorded within Accrued Compensation and Benefits and Due to Affiliates. |
|---|
Liquidity and Capital Resources
General
Blackstone’s business model derives revenue primarily from third party assets under management. Blackstone is not a capital or balance sheet intensive business and targets operating expense levels such that total management and advisory fees exceed total operating expenses each period. As a result, we require limited capital resources to support the working capital or operating needs of our businesses. We draw primarily on the long-term committed capital of our limited partner investors to fund the investment requirements of the Blackstone Funds and use our own realizations and cash flows to invest in growth initiatives, make commitments to our own funds, where our minimum general partner commitments are generally less than 5% of the limited partner commitments of a fund, and pay dividends to shareholders.
Fluctuations in our statement of financial condition result primarily from activities of the Blackstone Funds that are consolidated as well as business transactions, such as the issuance of senior notes described below. The majority economic ownership interests of the Blackstone Funds that are consolidated are reflected as Redeemable
Non-Controlling
Interests in Consolidated Entities and
Non-Controlling
Interests in Consolidated Entities in the Condensed Consolidated Financial Statements. The consolidation of these Blackstone Funds has no net effect on Blackstone’s Net Income or Equity. Additionally, fluctuations in our statement of financial condition also include appreciation or depreciation in Blackstone investments in the Blackstone Funds, additional investments and redemptions of such interests in the Blackstone Funds and the collection of receivables related to management and advisory fees.
Total Assets were $40.3 billion as of September 30, 2022, a decrease of $937.1 million, from December 31, 2021. The decrease in Total Assets was principally due to a decrease of $2.2 billion in total assets attributable to consolidated operating partnerships, partially offset by an increase of $1.8 billion in total assets attributable to consolidated Blackstone funds. The decrease in total assets attributable to consolidated operating partnerships was primarily due to a decrease of $3.7 billion in Investments, partially offset by an increase of $1.4 billion in Cash and Cash Equivalents. The decrease in Investments was primarily due to distributions received in real estate and private equity investments. The increase in Cash and Cash Equivalents was primarily due to the issuance of $1.5 billion of notes on January 10, 2022 and
€
500 million of notes on June 1, 2022. The increase in total assets attributable to consolidated Blackstone funds was primarily due to an increase of $1.8 billion in Investments. The increase in Investments was primarily due to the consolidation of five Blackstone funds. The other net variances of the assets attributable to the consolidated operating partnerships and consolidated Blackstone funds were relatively unchanged.
Total Liabilities were $20.5 billion as of September 30, 2022, an increase of $1.0 billion, from December 31, 2021. The increase in Total Liabilities was principally due to an increase of $1.0 billion in total liabilities attributable to consolidated operating partnerships. The increase in total liabilities attributable to the consolidated operating partnerships was primarily due to an increase of $1.5 billion in Loans Payable, partially offset by a decrease of $1.2 billion in Accrued Compensation and Benefits. The increase in Loans Payable was primarily due to the issuance of $1.5 billion of notes on January 10, 2022 and
€
500 million of notes on June 1, 2022. The decrease in Accrued Compensation and Benefits was primarily due to a decrease in performance compensation. The other net variances of the liabilities attributable to the consolidated operating partnerships were relatively unchanged.
Sources and Uses of Liquidity
We have multiple sources of liquidity to meet our capital needs, including annual cash flows, accumulated earnings in our businesses, the proceeds from our issuances of senior notes, liquid investments we hold on our balance sheet and access to our $4.1 billion committed revolving credit facility. As of September 30, 2022, Blackstone had $3.5 billion in Cash and Cash Equivalents, $799.0 million invested in Corporate Treasury Investments and $3.1 billion in Other Investments (which included $2.8 billion of liquid investments), against $9.4 billion in borrowings from our bond issuances, and no borrowings outstanding under our revolving credit facility.
On November 3, 2022, Blackstone issued $600 million aggregate principal amount of 5.900% senior notes due November 3, 2027 and $900 million aggregate principal amount of 6.200% senior notes due April 22, 2033. Blackstone intends to use the net proceeds from the sale of the notes for general corporate purposes. For additional information see Note 12. “Borrowings” in the “Notes to Condensed Consolidated Financial Statements” in “Part I. Item 1. Financial Statements” of this filing and “— Notable Transactions.”
In addition to the cash we received from our notes offerings and availability under our revolving credit facility, we expect to receive (a) cash generated from operating activities, (b) Performance Allocations and Incentive Fee realizations, and (c) realizations on the fund investments that we make. The amounts received from these three sources in particular may vary substantially from year to year and quarter to quarter depending on the frequency and size of realization events or net returns experienced by our investment funds. Our available capital could be adversely affected if there are prolonged periods of few substantial realizations from our investment funds accompanied by substantial capital calls for new investments from those investment funds. Therefore, Blackstone’s commitments to our funds are taken into consideration when managing our overall liquidity and cash position.
We expect that our primary liquidity needs will be cash to (a) provide capital to facilitate the growth of our existing businesses, which principally includes funding our general partner and
co-investment
commitments to our funds, (b) provide capital for business expansion, (c) pay operating expenses, including cash compensation to our employees and other obligations as they arise, (d) fund modest capital expenditures, (e) repay borrowings and related interest costs, (f) pay income taxes, (g) repurchase shares of our common stock and Blackstone Holdings Partnership Units pursuant to our repurchase program and (h) pay dividends to our shareholders and distributions to the holders of Blackstone Holdings Partnership Units. For a tabular presentation of Blackstone’s contractual obligations and the expected timing of such see “— Contractual Obligations.”
Capital Commitments
Our own capital commitments to our funds, the funds we invest in and our investment strategies as of September 30, 2022 consisted of the following:
| Senior Managing Directors | ||||||||||||||||
| Blackstone and | and Certain Other | |||||||||||||||
| General Partner | Professionals (a) | |||||||||||||||
| Original | Remaining | Original | Remaining | |||||||||||||
| Fund | Commitment | Commitment | Commitment | Commitment | ||||||||||||
| (Dollars in Thousands) | ||||||||||||||||
| Real Estate | ||||||||||||||||
| BREP VI | $ | 750,000 | $ | 36,809 | $ | 150,000 | $ | 12,270 | ||||||||
| BREP VII | 300,000 | 33,394 | 100,000 | 11,131 | ||||||||||||
| BREP VIII | 300,000 | 43,060 | 100,000 | 14,353 | ||||||||||||
| BREP IX | 300,000 | 74,696 | 100,000 | 24,899 | ||||||||||||
| BREP X | 300,000 | 297,565 | 100,000 | 99,188 | ||||||||||||
| BREP Europe III | 100,000 | 11,989 | 35,000 | 3,996 | ||||||||||||
| BREP Europe IV | 130,000 | 24,074 | 43,333 | 8,025 | ||||||||||||
| BREP Europe V | 150,000 | 26,592 | 43,333 | 7,682 | ||||||||||||
| BREP Europe VI | 130,000 | 81,097 | 43,333 | 27,032 | ||||||||||||
| BREP Asia I | 50,000 | 9,950 | 16,667 | 3,317 | ||||||||||||
| BREP Asia II | 70,707 | 15,966 | 23,569 | 5,322 | ||||||||||||
| BREP Asia III | 79,663 | 72,204 | 26,124 | 24,068 | ||||||||||||
| BREDS III | 50,000 | 13,499 | 16,667 | 4,500 | ||||||||||||
| BREDS IV | 50,000 | 23,167 | — | — | ||||||||||||
| BPP | 312,725 | 40,805 | — | — | ||||||||||||
| Other (b) | 24,090 | 6,528 | — | — | ||||||||||||
| Total Real Estate (c) | 3,097,185 | 811,395 | 798,026 | 245,783 | ||||||||||||
continued...
| Senior Managing Directors | ||||||||||||||||
| Blackstone and | and Certain Other | |||||||||||||||
| General Partner | Professionals (a) | |||||||||||||||
| Original | Remaining | Original | Remaining | |||||||||||||
| Fund | Commitment | Commitment | Commitment | Commitment | ||||||||||||
| (Dollars in Thousands) | ||||||||||||||||
| Private Equity | ||||||||||||||||
| BCP V | $ | 629,356 | $ | 23,701 | $ | — | $ | — | ||||||||
| BCP VI | 719,718 | 82,829 | 250,000 | 28,771 | ||||||||||||
| BCP VII | 500,000 | 42,980 | 225,000 | 19,341 | ||||||||||||
| BCP VIII | 500,000 | 297,404 | 225,000 | 133,832 | ||||||||||||
| BCP IX | 500,000 | 500,000 | 225,000 | 225,000 | ||||||||||||
| BEP I | 50,000 | 4,728 | — | — | ||||||||||||
| BEP II | 80,000 | 14,633 | 26,667 | 4,878 | ||||||||||||
| BEP III | 80,000 | 43,269 | 26,667 | 14,423 | ||||||||||||
| BEP IV | 17,545 | 17,545 | 5,848 | 5,848 | ||||||||||||
| BCEP I | 120,000 | 27,202 | 18,992 | 4,305 | ||||||||||||
| BCEP II | 160,000 | 112,276 | 32,640 | 22,904 | ||||||||||||
| BCP Asia I | 40,000 | 10,428 | 13,333 | 3,476 | ||||||||||||
| BCP Asia II | 100,000 | 100,000 | 33,333 | 33,333 | ||||||||||||
| Tactical Opportunities | 485,872 | 222,776 | 153,967 | 74,259 | ||||||||||||
| Strategic Partners | 1,165,991 | 753,349 | 161,508 | 97,832 | ||||||||||||
| BIP | 281,967 | 79,204 | — | — | ||||||||||||
| BXLS | 142,057 | 102,947 | 37,353 | 31,927 | ||||||||||||
| BXG | 135,001 | 76,987 | 44,832 | 25,651 | ||||||||||||
| Other (b) | 290,208 | 29,646 | — | — | ||||||||||||
| Total Private Equity (c) | 5,997,715 | 2,541,904 | 1,480,140 | 725,780 | ||||||||||||
| Hedge Fund Solutions | ||||||||||||||||
| Strategic Alliance I | 50,000 | 2,033 | — | — | ||||||||||||
| Strategic Alliance II | 50,000 | 1,482 | — | — | ||||||||||||
| Strategic Alliance III | 22,000 | 9,639 | — | — | ||||||||||||
| Strategic Alliance IV | 15,000 | 15,000 | — | — | ||||||||||||
| Strategic Holdings I | 154,610 | 27,634 | — | — | ||||||||||||
| Strategic Holdings II | 50,000 | 27,125 | — | — | ||||||||||||
| Horizon | 100,000 | 27,765 | — | — | ||||||||||||
| Dislocation | 10,000 | 8,930 | — | — | ||||||||||||
| Other (b) | 17,209 | 7,914 | — | — | ||||||||||||
| Total Hedge Fund Solutions | 468,819 | 127,522 | — | — | ||||||||||||
continued...
| Senior Managing Directors | ||||||||||||||||
| Blackstone and | and Certain Other | |||||||||||||||
| General Partner | Professionals (a) | |||||||||||||||
| Original | Remaining | Original | Remaining | |||||||||||||
| Fund | Commitment | Commitment | Commitment | Commitment | ||||||||||||
| (Dollars in Thousands) | ||||||||||||||||
| Credit & Insurance | ||||||||||||||||
| Mezzanine / Opportunistic II | $ | 120,000 | $ | 29,197 | $ | 110,101 | $ | 26,788 | ||||||||
| Mezzanine / Opportunistic III | 130,783 | 38,898 | 31,776 | 9,451 | ||||||||||||
| Mezzanine / Opportunistic IV | 122,000 | 99,994 | 33,757 | 27,668 | ||||||||||||
| European Senior Debt I | 63,000 | 16,508 | 56,882 | 14,905 | ||||||||||||
| European Senior Debt II | 91,858 | 48,079 | 25,410 | 13,308 | ||||||||||||
| Stressed / Distressed I | 50,000 | 4,869 | 27,666 | 2,694 | ||||||||||||
| Stressed / Distressed II | 125,000 | 51,695 | 119,878 | 49,576 | ||||||||||||
| Stressed / Distressed III | 151,000 | 110,424 | 32,762 | 23,959 | ||||||||||||
| Energy I | 80,000 | 37,630 | 75,445 | 35,487 | ||||||||||||
| Energy II | 150,000 | 118,111 | 26,615 | 20,956 | ||||||||||||
| Credit Alpha Fund | 52,102 | 19,752 | 50,670 | 19,209 | ||||||||||||
| Credit Alpha Fund II | 25,500 | 12,550 | 6,289 | 3,095 | ||||||||||||
| Other (b) | 267,733 | 182,090 | 19,964 | 3,948 | ||||||||||||
| Total Credit & Insurance | 1,428,976 | 769,797 | 617,215 | 251,044 | ||||||||||||
| Other | ||||||||||||||||
| Treasury (d) | 1,227,017 | 740,163 | — | — | ||||||||||||
| $ | 12,219,712 | $ | 4,990,781 | $ | 2,895,381 | $ | 1,222,607 | |||||||||
| (a) | For some of the general partner commitments shown in the table above, we require our senior managing directors and certain other professionals to fund a portion of the commitment even though the ultimate obligation to fund the aggregate commitment is ours pursuant to the governing agreements of the respective funds. The amounts of the aggregate applicable general partner original and remaining commitment are shown in the table above. In addition, certain senior managing directors and other professionals may be required to fund a de minimis amount of the commitment in certain carry funds. We expect our commitments to be drawn down over time and to be funded by available cash and cash generated from operations and realizations. Taking into account prevailing market conditions and both the liquidity and cash or liquid investment balances, we believe that the sources of liquidity described above will be more than sufficient to fund our working capital requirements. |
|---|
| (b) | Represents capital commitments to a number of other funds in each respective segment. |
|---|
| (c) | Real Estate and Private Equity include co-investments, as applicable. |
|---|
| (d) | Represents loan origination commitments, revolver commitments and capital market commitments. |
|---|
For a tabular presentation of the timing of Blackstone’s remaining capital commitments to our funds, the funds we invest in and our investment strategies see “— Contractual Obligations.”
Borrowings
As of September 30, 2022, Blackstone Holdings Finance Co. L.L.C. (the “Issuer”), an indirect subsidiary of Blackstone, had issued and outstanding the following senior notes (collectively the “Notes”):
| Aggregate | ||||
| Principal | ||||
| Amount | ||||
| (Dollars/Euros | ||||
| Senior Notes (a) | in Thousands) | |||
| 4.750%, Due 2/15/2023 | $ | 400,000 | ||
| 2.000%, Due 5/19/2025 | € | 300,000 | ||
| 1.000%, Due 10/5/2026 | € | 600,000 | ||
| 3.150%, Due 10/2/2027 | $ | 300,000 | ||
| 1.625%, Due 8/5/2028 | $ | 650,000 | ||
| 1.500%, Due 4/10/2029 | € | 600,000 | ||
| 2.500%, Due 1/10/2030 | $ | 500,000 | ||
| 1.600%, Due 3/30/2031 | $ | 500,000 | ||
| 2.000%, Due 1/30/2032 | $ | 800,000 | ||
| 2.550%, Due 3/30/2032 | $ | 500,000 | ||
| 3.500%, Due 6/1/2034 | € | 500,000 | ||
| 6.250%, Due 8/15/2042 | $ | 250,000 | ||
| 5.000%, Due 6/15/2044 | $ | 500,000 | ||
| 4.450%, Due 7/15/2045 | $ | 350,000 | ||
| 4.000%, Due 10/2/2047 | $ | 300,000 | ||
| 3.500%, Due 9/10/2049 | $ | 400,000 | ||
| 2.800%, Due 9/30/2050 | $ | 400,000 | ||
| 2.850%, Due 8/5/2051 | $ | 550,000 | ||
| 3.200%, Due 1/30/2052 | $ | 1,000,000 | ||
| $ | 9,360,400 | |||
| (a) | The Notes are unsecured and unsubordinated obligations of the Issuer and are fully and unconditionally guaranteed, jointly and severally, by Blackstone Inc. and each of the Blackstone Holdings Partnerships. The Notes contain customary covenants and financial restrictions that, among other things, limit the Issuer and the guarantors’ ability, subject to certain exceptions, to incur indebtedness secured by liens on voting stock or profit participating equity interests of their subsidiaries or merge, consolidate or sell, transfer or lease assets. The Notes also contain customary events of default. All or a portion of the Notes may be redeemed at our option, in whole or in part, at any time and from time to time, prior to their stated maturity, at the make-whole redemption price set forth in the Notes. If a change of control repurchase event occurs, the Notes are subject to repurchase at the repurchase price as set forth in the Notes. |
|---|
Blackstone, through the Issuer, has a $4.1 billion unsecured revolving credit facility (the “Credit Facility”) with Citibank, N.A., as administrative agent with a maturity date of June 3, 2027. Borrowings may also be made in U.K. sterling, euros, Swiss francs, Japanese yen or Canadian dollars, in each case subject to certain
sub-limits.
The Credit Facility contains customary representations, covenants and events of default. Financial covenants consist of a maximum net leverage ratio and a requirement to keep a minimum amount of
Fee-Earning
Assets Under Management, each tested quarterly.
For a tabular presentation of the payment timing of principal and interest due on Blackstone’s issued notes and revolving credit facility see “— Contractual Obligations.”
Contractual Obligations
The following table sets forth information relating to our contractual obligations as of September 30, 2022 on a consolidated basis and on a basis deconsolidating the Blackstone Funds:
| October 1, 2022 to | ||||||||||||||||||||
| Contractual Obligations | December 31, 2022 | 2023-2024 | 2025-2026 | Thereafter | Total | |||||||||||||||
| (Dollars in Thousands) | ||||||||||||||||||||
| Operating Lease Obligations (a) | $ | 32,589 | $ | 289,062 | $ | 298,188 | $ | 771,694 | $ | 1,391,533 | ||||||||||
| Purchase Obligations | 64,419 | 84,162 | 12,169 | — | 160,750 | |||||||||||||||
| Blackstone Issued Notes and Revolving Credit Facility (b) | — | 400,000 | 882,180 | 8,078,220 | 9,360,400 | |||||||||||||||
| Interest on Blackstone Issued Notes and Revolving Credit Facility (c) | 45,714 | 510,684 | 492,785 | 3,466,243 | 4,515,426 | |||||||||||||||
| Blackstone Funds Debt Obligations Payable | — | — | 30,627 | — | 30,627 | |||||||||||||||
| Interest on Blackstone Funds Debt Obligations Payable | 282 | 2,259 | 604 | — | 3,145 | |||||||||||||||
| Blackstone Funds Capital Commitments to Investee Funds (d) | 198,250 | — | — | — | 198,250 | |||||||||||||||
| Due to Certain Non-Controlling Interest Holders in Connection with Tax Receivable Agreements (e) | — | 156,550 | 218,086 | 1,226,522 | 1,601,158 | |||||||||||||||
| Unrecognized Tax Benefits, Including Interest and Penalties (f) | — | — | — | — | — | |||||||||||||||
| Blackstone Operating Entities Capital Commitments to Blackstone Funds and Other (g) | 4,990,781 | — | — | — | 4,990,781 | |||||||||||||||
| Consolidated Contractual Obligations | 5,332,035 | 1,442,717 | 1,934,639 | 13,542,679 | 22,252,070 | |||||||||||||||
| Blackstone Funds Debt Obligations Payable | — | — | (30,627 | ) | — | (30,627 | ) | |||||||||||||
| Interest on Blackstone Funds Debt Obligations Payable | (282 | ) | (2,259 | ) | (604 | ) | — | (3,145 | ) | |||||||||||
| Blackstone Funds Capital Commitments to Investee Funds (d) | (198,250 | ) | — | — | — | (198,250 | ) | |||||||||||||
| Blackstone Operating Entities Contractual Obligations | $ | 5,133,503 | $ | 1,440,458 | $ | 1,903,408 | $ | 13,542,679 | $ | 22,020,048 | ||||||||||
| (a) | We lease our primary office space and certain office equipment under agreements that expire through 2043. Occupancy lease agreements, in addition to contractual rent payments, generally include additional payments for certain costs incurred by the landlord, such as building expenses, and utilities. To the extent these are fixed or determinable they are included in the table above. The table above includes operating leases that are recognized as Operating Lease Liabilities, short-term leases that are not recorded as Operating Lease Liabilities and leases that have been signed but not yet commenced which are not recorded as Operating Lease Liabilities. The amounts in this table are presented net of contractual sublease commitments and tenant improvement allowances. |
|---|
| (b) | Represents the principal amount due on the senior notes we issued assuming no pre-payments are made and the notes are held until their final maturity. As of September 30, 2022, we had no outstanding borrowings under our revolver. |
|---|
| (c) | Represents interest to be paid over the maturity of our senior notes which has been calculated assuming no pre-payments are made and debt is held until its final maturity date. These amounts include commitment fees for unutilized borrowings under our revolver. |
|---|
| (d) | These obligations represent commitments of the consolidated Blackstone Funds to make capital contributions to investee funds and portfolio companies. These amounts are generally due on demand and are therefore presented in the less than one year category. |
|---|
| (e) | Represents obligations by Blackstone’s corporate subsidiary to make payments under the Tax Receivable Agreements to certain non-controlling interest holders for the tax savings realized from the taxable purchases of their interests in connection with the reorganization at the time of Blackstone’s initial public offering (“IPO”) in 2007 and subsequent purchases. The obligation represents the amount of the payments currently expected to be made, which are dependent on the tax savings actually realized as determined annually without discounting for the timing of the payments. As required by GAAP, the amount of the obligation included in the Condensed Consolidated Financial Statements and shown in Note 16. “Related Party Transactions” (see “Part I. Item 1. Financial Statements”) differs to reflect the net present value of the payments due to certain non-controlling interest holders. |
|---|
| (f) | As of September 30, 2022, there were no Unrecognized Tax Benefits, including Interest and Penalties. In addition, Blackstone is not able to make a reasonably reliable estimate of the timing of payments in individual years in connection with gross unrecognized benefits of $104.1 million and interest of $32.8 million, therefore, such amounts are not included in the above contractual obligations table. |
|---|
| (g) | These obligations represent commitments by us to provide general partner capital funding to the Blackstone Funds, limited partner capital funding to other funds and Blackstone principal investment commitments. These amounts are generally due on demand and are therefore presented in the less than one year category; however, a substantial amount of the capital commitments are expected to be called over the next three years. We expect to continue to make these general partner capital commitments as we raise additional amounts for our investment funds over time. |
|---|
Guarantees
Blackstone and certain of its consolidated funds provide financial guarantees. The amounts and nature of these guarantees are described in Note 17. “Commitments and Contingencies — Contingencies — Guarantees” in the “Notes to Condensed Consolidated Financial Statements” in “Part I. Item 1. Financial Statements” of this filing.
Indemnifications
In many of its service contracts, Blackstone agrees to indemnify the third party service provider under certain circumstances. The terms of the indemnities vary from contract to contract and the amount of indemnification liability, if any, cannot be determined and has not been included in the above contractual obligations table or recorded in our Condensed Consolidated Financial Statements as of September 30, 2022.
Clawback Obligations
Performance Allocations are subject to clawback to the extent that the Performance Allocations received to date with respect to a fund exceeds the amount due to Blackstone based on cumulative results of that fund. The amounts and nature of Blackstone’s clawback obligations are described in Note 17. “Commitments and Contingencies— Contingencies — Contingent Obligations (Clawback)” in the “Notes to Condensed Consolidated Financial Statements” in “Part I. Item 1. Financial Statements” of this filing.
Share Repurchase Program
On December 7, 2021, Blackstone’s board of directors authorized the repurchase of up to $2.0 billion of common stock and Blackstone Holdings Partnership Units. Under the repurchase program, repurchases may be made from time to time in open market transactions, in privately negotiated transactions or otherwise. The timing and the actual number repurchased will depend on a variety of factors, including legal requirements, price and economic and market conditions. The repurchase program may be changed, suspended or discontinued at any time and does not have a specified expiration date.
During the three and nine months ended September 30, 2022, Blackstone repurchased 2.0 million and 3.9 million shares of common stock at a total cost of $196.6 million and $392.0 million, respectively. As of September 30, 2022, the amount remaining available for repurchases under the program was $1.1 billion.
Dividends
Our intention is to pay to holders of common stock a quarterly dividend representing approximately 85% of Blackstone Inc.’s share of Distributable Earnings, subject to adjustment by amounts determined by our board of directors to be necessary or appropriate to provide for the conduct of our business, to make appropriate investments in our business and funds, to comply with applicable law, any of our debt instruments or other agreements, or to provide for future cash requirements such as
tax-related
payments, clawback obligations and dividends to shareholders for any ensuing quarter. The dividend amount could also be adjusted upward in any one quarter.
For Blackstone’s definition of Distributable Earnings, see “— Key Financial Measures and Indicators.”
All of the foregoing is subject to the qualification that the declaration and payment of any dividends are at the sole discretion of our board of directors and our board of directors may change our dividend policy at any time, including, without limitation, to reduce such quarterly dividends or even to eliminate such dividends entirely.
Because the publicly traded entity and/or its wholly owned subsidiaries must pay taxes and make payments under the tax receivable agreements, the amounts ultimately paid as dividends by Blackstone to common shareholders in respect of each fiscal year are generally expected to be less, on a per share or per unit basis, than the amounts distributed by the Blackstone Holdings Partnerships to the Blackstone personnel and others who are limited partners of the Blackstone Holdings Partnerships in respect of their Blackstone Holdings Partnership Units. Following Blackstone’s conversion from a limited partnership to a corporation, we expect to pay more corporate income taxes than we would have as a limited partnership, which will increase this difference between the per share dividend and per unit distribution amounts.
Dividends are treated as qualified dividends to the extent of Blackstone’s current and accumulated earnings and profits, with any excess dividends treated as a return of capital to the extent of the shareholder’s basis.
The following graph shows fiscal quarterly and annual per common shareholder dividends for 2022 and 2021. Dividends are declared and paid in the quarter subsequent to the quarter in which they are earned.
With respect to the third quarter of fiscal year 2022, we paid to shareholders of our common stock a dividend of $0.90 per share, aggregating to $3.49 per share of common stock in respect of the nine months ended September 30, 2022. With respect to fiscal year 2021, we paid shareholders aggregate dividends of $4.06 per share.
Leverage
We may under certain circumstances use leverage opportunistically and over time to create the most efficient capital structure for Blackstone and our shareholders. In addition to the borrowings from our note issuances and our revolving credit facility, we may use reverse repurchase agreements, repurchase agreements and securities sold, not yet purchased. Reverse repurchase agreements are entered into primarily to take advantage of opportunistic yields otherwise absent in the overnight markets and also to use the collateral received to cover securities sold, not yet purchased. Repurchase agreements are entered into primarily to opportunistically yield higher spreads on purchased securities. The balances held in these financial instruments fluctuate based on Blackstone’s liquidity needs, market conditions and investment risk profiles.
The following table presents information regarding these financial instruments in our Condensed Consolidated Statements of Financial Condition:
| Securities | ||||||||
| Repurchase | Sold, Not Yet | |||||||
| Agreements | Purchased | |||||||
| (Dollars in Millions) | ||||||||
| Balance, September 30, 2022 | $ | 313.1 | $ | 26.8 | ||||
| Balance, December 31, 2021 | $ | 58.0 | $ | 27.8 | ||||
| Nine Months Ended September 30, 2022 | ||||||||
| Average Daily Balance | $ | 163.9 | $ | 27.2 | ||||
| Maximum Daily Balance | $ | 419.5 | $ | 27.8 |
Critical Accounting Policies
We prepare our Condensed Consolidated Financial Statements in accordance with GAAP. In applying many of these accounting principles, we need to make assumptions, estimates and/or judgments that affect the reported amounts of assets, liabilities, revenues and expenses in our Condensed Consolidated Financial Statements. We base our estimates and judgments on historical experience and other assumptions that we believe are reasonable under the circumstances. These assumptions, estimates and/or judgments, however, are often subjective. Actual results may be affected negatively based on changing circumstances. If actual amounts are ultimately different from our estimates, the revisions are included in our results of operations for the period in which the actual amounts become known. We believe the following critical accounting policies could potentially produce materially different results if we were to change underlying assumptions, estimates and/or judgments. For a description of our accounting policies, see Note 2. “Summary of Significant Accounting Policies” in the “Notes to Condensed Consolidated Financial Statements” in “Part I. Item 1. Financial Statements” of this filing.
Principles of Consolidation
For a description of our accounting policy on consolidation, see Note 2. “Summary of Significant Accounting Policies — Consolidation” and Note 9. “Variable Interest Entities” in the “Notes to Condensed Consolidated Financial Statements” in “Part I. Item 1. Financial Statements” of this filing for detailed information on Blackstone’s involvement with VIEs. The following discussion is intended to provide supplemental information about how the application of consolidation principles impact our financial results, and management’s process for implementing those principles including areas of significant judgment.
The determination that Blackstone holds a controlling financial interest in a Blackstone Fund or investment vehicle significantly changes the presentation of our condensed consolidated financial statements. In our Condensed Consolidated Statements of Financial Position included in this filing, we present 100% of the assets and liabilities of consolidated VIEs along with a
non-controlling
interest which represents the portion of the consolidated vehicle’s interests held by third parties. However, assets of our consolidated VIEs can only be used to settle obligations of the consolidated VIE and are not available for general use by Blackstone. Further, the liabilities of our consolidated VIEs do not have recourse to the general credit of Blackstone. In the Condensed Consolidated Statements of Operations, we eliminate any management fees, Incentive Fees, or Performance Allocations received or accrued from consolidated VIEs as they are considered intercompany transactions. We recognize 100% of the consolidated VIE’s investment income (loss) and allocate the portion of that income (loss) attributable to third party ownership to
non-controlling
interests in arriving at Net Income Attributable to Blackstone Inc.
The assessment of whether we consolidate a Blackstone Fund or investment vehicle we manage requires the application of significant judgment. These judgments are applied both at the time we become involved with the VIE and on an ongoing basis and include, but are not limited to:
| • | Determining whether our management fees, Incentive Fees or Performance Allocations represent variable interests – We make judgments as to whether the fees we earn are commensurate with the level of effort required for those fees and at market rates. In making this judgment, we consider, among other things, the extent of third party investment in the entity and the terms of any other interests we hold in the VIE. |
|---|
| • | Determining whether kick-out rights are substantive – We make judgments as to whether the third party investors in a partnership entity have the ability to remove the general partner, the investment manager or its equivalent, or to dissolve (liquidate) the partnership entity, through a simple majority vote. This includes an evaluation of whether barriers to exercise these rights exist. |
|---|
| • | Concluding whether Blackstone has an obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE – As there is no explicit threshold in GAAP to define “potentially significant,” management must apply judgment and evaluate both quantitative and qualitative factors to conclude whether this threshold is met. |
|---|
Revenue Recognition
For a description of our accounting policy on revenue recognition, see Note 2. “Summary of Significant Accounting Policies — Revenue Recognition” in the “Notes to Condensed Consolidated Financial Statements” in “Part I. Item 1. Financial Statements.” For an additional description of the nature of our revenue arrangements, including how management fees, Incentive Fees, and Performance Allocations are generated, please refer to “Part I. Item 1. Business — Fee Structure/Incentive Arrangements” in our Annual Report on
Form 10-K
for the year ended December 31, 2021. The following discussion is intended to provide supplemental information about how the application of revenue recognition principles impact our financial results, and management’s process for implementing those principles including areas of significant judgment.
Management and Advisory Fees, Net
— Blackstone earns base management fees from its customers at a fixed percentage of a calculation base which is typically assets under management, net asset value, gross asset value, total assets, committed capital or invested capital. The range of management fee rates and the calculation base from which they are earned, generally, are as follows:
On private equity, real estate, and certain of our hedge fund solutions and credit-focused funds:
| • | 0.25% to 1.75% of committed capital or invested capital during the investment period, |
|---|
| • | 0.25% to 1.50% of invested capital, committed capital or investment fair value subsequent to the investment period for private equity and real estate funds, and |
|---|
| • | 1.00% to 1.50% of invested capital or net asset value subsequent to the investment period for certain of our hedge fund solutions and credit-focused funds. |
|---|
On real estate and credit-focused funds structured like hedge funds:
| • | 0.50% to 1.00% of net asset value. |
|---|
On credit separately managed accounts:
| • | 0.20% to 1.35% of net asset value or total assets. |
|---|
On real estate separately managed accounts:
| • | 0.65% to 2.00% of invested capital, net operating income or net asset value. |
|---|
On Insurance separately managed accounts and investment vehicles:
| • | 0.25% to 1.00% of net asset value. |
|---|
On funds of hedge funds, certain hedge funds and separately managed accounts invested in hedge funds:
| • | 0.20% to 1.50% of net asset value. |
|---|
On CLO vehicles:
| • | 0.20% to 0.50% of the aggregate par amount of collateral assets, including principal cash. |
|---|
On credit-focused registered and
non-registered
investment companies:
| • | 0.25% to 1.25% of total assets or net asset value. |
|---|
The investment adviser of BXMT receives annual management fees based on 1.50% of BXMT’s net proceeds received from equity offerings and accumulated “distributable earnings” (which is generally equal to its GAAP net income excluding certain
non-cash
and other items), subject to certain adjustments. The investment advisers of BREIT and BEPIF receive a management fee of 1.25% per annum of net asset value, payable monthly.
Management fee calculations based on committed capital or invested capital are mechanical in nature and therefore do not require the use of significant estimates or judgments. Management fee calculations based on net asset value, total assets, or investment fair value depend on the fair value of the underlying investments within the funds. Estimates and assumptions are made when determining the fair value of the underlying investments within the funds and could vary depending on the valuation methodology that is used as well as economic conditions. See “— Fair Value” below for further discussion of the judgment required for determining the fair value of the underlying investments.
Investment Income (Loss)
— Performance Allocations are made to the general partner based on cumulative fund performance to date, subject to a preferred return to limited partners. Blackstone has concluded that investments made alongside its limited partners in a partnership which entitle Blackstone to a Performance Allocation represent equity method investments that are not in the scope of the GAAP guidance on accounting for revenues from contracts with customers. Blackstone accounts for these arrangements under the equity method of accounting. Under the equity method, Blackstone’s share of earnings (losses) from equity method investments is determined using a balance sheet approach referred to as the hypothetical liquidation at book value (“HLBV”) method. Under the HLBV method, at the end of each reporting period Blackstone calculates the accrued Performance Allocations that would be due to Blackstone for each fund pursuant to the fund agreements as if the fair value of the underlying investments were realized as of such date, irrespective of whether such amounts have been realized. Performance Allocations are subject to clawback to the extent that the Performance Allocation received to date exceeds the amount due to Blackstone based on cumulative results.
The change in the fair value of the investments held by certain Blackstone Funds is a significant input into the accrued Performance Allocation calculation and accrual for potential repayment of previously received Performance Allocations. Estimates and assumptions are made when determining the fair value of the underlying investments within the funds. See “— Fair Value” below for further discussion related to significant estimates and assumptions used for determining fair value of the underlying investments.
Fair Value
Blackstone uses fair value throughout the reporting process. For a description of our accounting policies related to valuation, see Note 2. “Summary of Significant Accounting Policies — Fair Value of Financial Instruments” and “Summary of Significant Accounting Policies — Investments, at Fair Value” in the “Notes to Condensed Consolidated Financial Statements” in “Part I. Item 1. Financial Statements” of this filing. The following discussion is intended to provide supplemental information about how the application of fair value principles impact our financial results, and management’s process for implementing those principles including areas of significant judgment.
The fair value of the investments held by Blackstone Funds is the primary input to the calculation of certain of our management fees, Incentive Fees, Performance Allocations and the related Compensation we recognize. Generally, Blackstone Funds are accounted for as investment companies under the American Institute of Certified Public Accountants Accounting and Auditing Guide,
Investment Companies
, and in accordance with the GAAP guidance on investment companies and reflect their investments, including majority owned and controlled investments (the “Portfolio Companies”), at fair value. In the absence of observable market prices, we utilize valuation methodologies applied on a consistent basis and assumptions that we believe market participants would use to determine the fair value of the investments. For investments where little market activity exists management’s determination of fair value is based on the best information available in the circumstances, which may incorporate management’s own assumptions and involves a significant degree of judgment, and the consideration of a combination of internal and external factors, including the appropriate risk adjustments for
non-performance
and liquidity risks.
Blackstone has also elected the fair value option for certain instruments it owns directly, including loans and receivables and investments in private debt securities and other proprietary investments. Blackstone is required to measure certain financial instruments at fair value, including debt instruments, equity securities and freestanding derivatives.
Fair Value of Investments or Instruments that are Publicly Traded
Securities that are publicly traded and for which a quoted market exists will be valued at the closing price of such securities in the principal market in which the security trades, or in the absence of a principal market, in the most advantageous market on the valuation date. When a quoted price in an active market exists, no block discounts or control premiums are permitted regardless of the size of the public security held. In some cases, securities will include legal restrictions limiting their purchase and sale for a period of time, such as may be required under SEC Rule 144. A discount to publicly traded price may be appropriate in those cases; the amount of the discount, if taken, shall be determined based on the time period that must pass before the restricted security becomes unrestricted or otherwise available for sale.
Fair Value of Investments or Instruments that are not Publicly Traded
Investments for which market prices are not observable include private investments in the equity or debt of operating companies or real estate properties. Our primary methodology for determining the fair values of such investments is generally the income approach which provides an indication of fair value based on the present value of cash flows that a business, security, or property is expected to generate in the future. The most widely used methodology under the income approach is the discounted cash flow method which includes significant assumptions about the underlying investment’s projected net earnings or cash flows, discount rate, capitalization rate and exit multiple. Our secondary methodology, generally used to corroborate the results of the income approach, is typically the market approach. The most widely used methodology under the market approach relies upon valuations for comparable public companies, transactions, or assets, and includes making judgments about which companies, transactions, or assets are comparable. Depending on the facts and circumstances associated with the investment, different primary and secondary methodologies may be used including option value, contingent claims or scenario analysis, yield analysis, projected cash flow through maturity or expiration, probability weighted methods or recent round of financing.
In certain cases debt and equity securities are valued on the basis of prices from an orderly transaction between market participants provided by reputable dealers or pricing services. In determining the value of a particular investment, pricing services may use certain information with respect to transactions in such investments, quotations from dealers, pricing matrices and market transactions in comparable investments and various relationships between investments.
Management Process on Fair Value
Due to the importance of fair value throughout the condensed consolidated financial statements and the significant judgment required to be applied in arriving at those fair values, we have developed a process around valuation that incorporates several levels of approval and review from both internal and external sources. Investments held by Blackstone Funds and investment vehicles are valued on at least a quarterly basis by our internal valuation or asset management teams, which are independent from our investment teams.
For investments valued utilizing the income method, and where Blackstone has information rights, we generally have a direct line of communication with each of the portfolio company finance teams and collect financial data used to support projections used in a discounted cash flow analysis. The respective business unit’s valuation team then analyzes the data received and updates the valuation models reflecting any changes in the underlying cash flow projections, weighted-average cost of capital, exit multiple, and any other valuation input relevant economic conditions.
The results of all valuations of investments held by Blackstone Fund and investment vehicles are reviewed and approved by the relevant business unit’s valuation
sub-committee,
which is comprised of key personnel from the business unit, typically the chief investment officer, chief operating officer, chief financial officer, chief compliance officer (or their respective equivalents where applicable) and other senior managing directors in the business. To further corroborate results, each business unit also generally obtains either a positive assurance opinion or a range of value from an independent valuation party, at least annually for internally prepared valuations for investments that have been held by Blackstone Funds and investment vehicles for greater than a year and quarterly for certain investments. Our firmwide valuation committee, chaired by our Chief Financial Officer and comprised of senior members of our businesses and representatives from corporate functions, including legal and finance, reviews the valuation process for investments held by us and our investment vehicles, including the application of appropriate valuation standards on a consistent basis. Each quarter, the valuation process is also reviewed by the audit committee of our board of directors, which is comprised of our
non-employee
directors.
Income Tax
For a description of our accounting policy on taxes and additional information on taxes see Note 2. “Summary of Significant Accounting Policies” and Note 13. “Income Taxes” in the “Notes to Condensed Consolidated Financial Statements” in “Part I Item 1.
Our provision for income taxes is composed of current and deferred taxes. Current income taxes approximate taxes to be paid or refunded for the current period. Deferred income taxes reflect the net tax effects of temporary differences between the financial reporting and tax bases of assets and liabilities and are measured using the applicable enacted tax rates and laws that will be in effect when such differences are expected to reverse. Blackstone’s conversion from a limited partnership to a corporation resulted in a
step-up
in the tax basis of certain assets that will be recovered as those assets are sold or the basis is amortized.
Additionally, significant judgment is required in estimating the provision for (benefit from) income taxes, current and deferred tax balances (including valuation allowance), accrued interest or penalties and uncertain tax positions. In evaluating these judgments, we consider, among other items, projections of taxable income (including the character of such income), beginning with historic results and incorporating assumptions of the amount of future pretax operating income. These assumptions about future taxable income require significant judgment and are consistent with the plans and estimates that Blackstone uses to manage its business.
Revisions in estimates and/or actual costs of a tax assessment may ultimately be materially different from the recorded accruals and unrecognized tax benefits, if any.
Recent Accounting Developments
Information regarding recent accounting developments and their impact on Blackstone, if any, can be found in Note 2. “Summary of Significant Accounting Policies” in the “Notes to Condensed Consolidated Financial Statements” in “Part I. Item 1. Financial Statements” of this filing.
Interbank Offered Rates Transition
Certain jurisdictions are currently reforming or phasing out their benchmark interest rates, most notably the London Interbank Offered Rates (“LIBOR”) across multiple currencies. Many such reforms and phase outs became effective at the end of calendar year 2021 with select U.S. dollar LIBOR tenors persisting through June 2023. Blackstone has taken steps to prepare for and mitigate the impact of changing base rates and continues to evaluate the impact of prospective changes on existing transactions and contractual arrangements and manage transition efforts. See “Part I. Item 1A. Risk Factors — Risks Related to Our Business — Interest rates on our and our portfolio companies’ outstanding financial instruments might be subject to change based on regulatory developments, which could adversely affect our revenue, expenses and the value of those financial instruments.” in our Annual Report on Form
10-K
for the year ended December 31, 2021.
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