Edgar Filing: Blackstone Group L.P.

Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2010

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO

Commission File Number: 001-33551

The Blackstone Group L.P.

(Exact name of Registrant as specified in its charter)

Delaware

20-8875684

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

345 Park Avenue

New York, New York 10154

(Address of principal executive offices)(Zip Code)

(212) 583-5000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer x		Accelerated filer ¨
Non-accelerated filer ¨		Smaller reporting company ¨
(Do not check if a smaller reporting company)

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The number of the Registrant’s voting common units representing limited partner interests outstanding as of July 30, 2010 was 254,485,146. The number of the Registrant’s non-voting common units representing limited partner interests outstanding as of July 30, 2010 was 109,083,468.

TABLE OF CONTENTS


		Page
PART I	FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS	4

	Unaudited Condensed Consolidated Financial Statements — June 30, 2010 and 2009:

	Condensed Consolidated Statements of Financial Condition as of June 30, 2010 and December 31, 2009	4

	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2010 and 2009	5

	Condensed Consolidated Statement of Changes in Partners’ Capital for the Six Months Ended June 30, 2010	6

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2010 and 2009	7

	Notes to Condensed Consolidated Financial Statements	9

ITEM 1A.	UNAUDITED SUPPLEMENTAL PRESENTATION OF STATEMENTS OF FINANCIAL CONDITION	48

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	50

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	98

ITEM 4.	CONTROLS AND PROCEDURES	100

PART II	OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	101

ITEM 1A.	RISK FACTORS	101

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	103

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	103

ITEM 4.	(REMOVED AND RESERVED)	103

ITEM 5.	OTHER INFORMATION	103

ITEM 6.	EXHIBITS	104

SIGNATURES		105

Forward-Looking Statements

This report may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 which reflect our current views with respect to, among other things, our operations and financial performance. You can identify these forward-looking statements by the use of words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. We believe these factors include but are not limited to those described under the section entitled “Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2009 and in this report, as such factors may be updated from time to time in our periodic filings with the SEC, which are accessible on the SEC’s website at www.sec.gov. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this report and in our other periodic filings. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.

In this report, references to “Blackstone,” the “Partnership”, “we,” “us” or “our” refer to The Blackstone Group L.P. and its consolidated subsidiaries. Unless the context otherwise requires, references in this report to the ownership of Mr. Stephen A. Schwarzman, our co-founder, and other Blackstone personnel include the ownership of personal planning vehicles and family members of these individuals.

“Blackstone Funds,” “our funds” and “our investment funds” refer to the private equity funds, real estate funds, funds of hedge funds, credit-oriented funds, collateralized loan obligations (“CLO”), and closed-end mutual funds that are managed by Blackstone. “Our carry funds” refer to the private equity funds, real estate funds and certain of the credit-oriented funds (with multi-year drawdown, commitment-based structures that only receive carry on the realization of an investment) that are managed by Blackstone. “Our hedge funds” refer to our funds of hedge funds, certain of our real estate debt investment funds and certain other credit-oriented funds that are managed by Blackstone.

“Assets under management” refers to the assets we manage. Our assets under management equals the sum of:

(a)

the fair value of the investments held by our carry funds plus the capital that we are entitled to call from investors in those funds pursuant to the terms of their capital commitments to those funds (plus the fair value of co-investments arranged by us that were made by limited partners of our funds in portfolio companies of such funds and on which we receive fees or a carried interest allocation);

(b)

the net asset value of our funds of hedge funds, hedge funds and our closed-end mutual funds;

(c)

the fair value of assets we manage pursuant to separately managed accounts; and

(d)

the amount of capital raised for our CLOs.

Our carry funds are commitment-based drawdown structured funds that do not permit investors to redeem their interests at their election. Interests related to our funds of hedge funds and certain of our credit-oriented funds are generally subject to annual, semi-annual or quarterly withdrawal or redemption by investors upon advance written notice, with the majority of our funds requiring from 60 days up to 95 days’ notice, depending on the fund and the liquidity profile of the underlying assets. Investment advisory agreements related to separately managed accounts may generally be terminated by an investor on 30 to 90 days’ notice.

“Fee-earning assets under management” refers to the assets we manage on which we derive management and / or incentive fees. Our fee-earning assets under management equal the sum of:

(a)

for our Blackstone Capital Partners (“BCP”) and Blackstone Real Estate Partners (“BREP”) funds where the investment period has not expired, the amount of capital commitments;

(b)

for our BCP and BREP funds where the investment period has expired, the remaining amount of invested capital;

(c)

for our real estate debt investment funds, the remaining amount of invested capital;

(d)

for our credit-oriented carry funds, the amount of invested capital (which may be calculated to include leverage) or net asset value;

(e)

the invested capital of co-investments arranged by us that were made by limited partners of our funds in portfolio companies of such funds and on which we receive fees;

(f)

the net asset value of our funds of hedge funds, hedge funds and our closed-end mutual funds;

(g)

the fair value of assets we manage pursuant to separately managed accounts; and

(h)

the gross amount of assets of our CLOs at cost.

Our calculations of assets under management and fee-earning assets under management may differ from the calculations of other asset managers, and as a result this measure may not be comparable to similar measures presented by other asset managers. In addition, our calculation of assets under management includes commitments to, and the fair value of, invested capital in our funds from Blackstone and our personnel, regardless of whether such commitments or invested capital are subject to fees. Our definitions of assets under management or fee-earning assets under management are not based on any definition of assets under management or 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, whereas fee-earning assets under management includes the amount of capital commitments or the remaining amount of invested capital at cost, depending on whether the investment period has or has not expired. As such, fee-earning assets under management may be greater than total assets under management when the aggregate fair value of the remaining investments is less than the cost of those investments.

PART I FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

THE BLACKSTONE GROUP L.P.

Condensed Consolidated Statements of Financial Condition (Unaudited)

(Dollars in Thousands, Except Unit Data)


	June 30, 2010		December 31, 2009
Assets
Cash and Cash Equivalents	$	506,739	$	952,096
Cash Held by Blackstone Funds and Other ($339,072)		390,176		86,084
Investments ($7,516,622)		10,501,480		3,565,483
Accounts Receivable ($120,781)		411,316		306,307
Due from Affiliates ($36,229)		753,229		759,907
Intangible Assets, Net		860,634		919,477
Goodwill		1,703,602		1,703,602
Other Assets ($58,348)		259,965		172,556
Deferred Tax Assets		1,086,168		943,512

Total Assets	$	16,473,309	$	9,409,024

Liabilities and Partners’ Capital
Loans Payable ($5,696,085)	$	6,352,671	$	657,623
Due to Affiliates ($265,128)		1,748,093		1,410,066
Accrued Compensation and Benefits		574,665		488,945
Accounts Payable, Accrued Expenses and Other Liabilities ($273,143)		671,300		308,857

Total Liabilities		9,346,729		2,865,491

Commitments and Contingencies

Redeemable Non-Controlling Interests in Consolidated Entities		542,487		526,311

Partners’ Capital
Partners’ Capital (common units: 355,111,330 issued and outstanding as of June 30, 2010; 319,939,772 issued and outstanding as of December 31, 2009)		3,465,288		3,376,707
Appropriated Partners’ Capital		373,731		—
Accumulated Other Comprehensive Income		1,610		2,420
Non-Controlling Interests in Consolidated Entities		608,010		540,283
Non-Controlling Interests in Blackstone Holdings		2,135,454		2,097,812

Total Partners’ Capital		6,584,093		6,017,222

Total Liabilities and Partners’ Capital	$	16,473,309	$	9,409,024

Asset and liability amounts in parentheses represent the portion of the June 30, 2010 consolidated balance attributable to Blackstone Fund entities which are variable interest or voting interest entities.

See notes to condensed consolidated financial statements.

THE BLACKSTONE GROUP L.P.

Condensed Consolidated Statements of Operations (Unaudited)

(Dollars in Thousands, Except Unit and Per Unit Data)


	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
Revenues
Management and Advisory Fees	$	406,062		$	340,829		$	760,882		$	682,001
Performance Fees and Allocations
Realized		51,750			4,810			105,799			5,456
Unrealized		(19,299	)		66,361			112,480			(148,533	)

Total Performance Fees and Allocations		32,451			71,171			218,279			(143,077	)

Investment Income (Loss)
Realized		10,225			1,346			15,951			1,277
Unrealized		95,043			(12,295	)		244,263			(94,679	)

Total Investment Income (Loss)		105,268			(10,949	)		260,214			(93,402	)

Interest and Dividend Revenue		6,952			2,294			15,847			4,421
Other		(645	)		3,071			(3,895	)		1,387

Total Revenues		550,088			406,416			1,251,327			451,330

Expenses
Compensation and Benefits
Base Compensation		967,711			962,082			1,892,661			1,882,295
Performance Fee Related
Realized		22,879			(463	)		30,620			1,726
Unrealized		(892	)		(23,868	)		53,708			(133,923	)

Total Compensation and Benefits		989,698			937,751			1,976,989			1,750,098
General, Administrative and Other		121,183			112,276			227,562			217,876
Interest Expense		7,682			87			14,867			1,486
Fund Expenses		9,203			1,592			9,062			4,604

Total Expenses		1,127,766			1,051,706			2,228,480			1,974,064

Other Income (Loss)
Net Gains (Losses) from Fund Investment Activities		(59,250	)		58,304			112,554			23,541

Income (Loss) Before Provision for Taxes		(636,928	)		(586,986	)		(864,599	)		(1,499,193	)
Provision for Taxes		19,392			10,885			29,027			28,616

Net Income (Loss)		(656,320	)		(597,871	)		(893,626	)		(1,527,809	)
Net Income (Loss) Attributable to Redeemable Non-Controlling Interests in Consolidated Entities		(421	)		37,638			23,548			40,234
Net Income (Loss) Attributable to Non-Controlling Interests in Consolidated Entities		(57,873	)		3,959			78,093			(37,072	)
Net Income (Loss) Attributable to Non-Controlling Interests in Blackstone Holdings		(404,706	)		(475,184	)		(680,570	)		(1,135,113	)

Net Income (Loss) Attributable to The Blackstone Group L.P.	$	(193,320	)	$	(164,284	)	$	(314,697	)	$	(395,858	)

Net Loss Attributable to The Blackstone Group L.P. Per Common Unit — Basic and Diluted
Common Units	$	(0.55	)				$	(0.91	)

Common Units Entitled to Priority Distributions				$	(0.60	)				$	(1.44	)

Common Units Not Entitled to Priority Distributions				$	(0.90	)				$	(2.04	)

Weighted-Average Common Units Outstanding — Basic and Diluted
Common Units		354,399,780						344,084,390

Common Units Entitled to Priority Distributions					275,199,027						274,416,111

Common Units Not Entitled to Priority Distributions					385,796						1,003,238

Revenues Earned from Affiliates
Management and Advisory Fees	$	37,347		$	25,181		$	76,114		$	45,465

See notes to condensed consolidated financial statements.

THE BLACKSTONE GROUP L.P.

Condensed Consolidated Statement of Changes in Partners’ Capital (Unaudited)

(Dollars in Thousands, Except Unit Data)


	Common Units		Partners’ Capital			Appropriated Partners’ Capital			Accumulated Other Comprehensive Income (Loss)			Non- Controlling Interests in Consolidated Entities			Non- Controlling Interests in Blackstone Holdings			Total Partners’ Capital			Redeemable Non- Controlling Interests in Consolidated Entities			Comprehensive Income (Loss)
Balance at December 31, 2009	319,939,772		$	3,376,707		$	—		$	2,420		$	540,283		$	2,097,812		$	6,017,222		$	526,311		$	(2,387,985	)

Transition and Acquisition Adjustments Relating to Consolidation of CLO Entities	—			—			400,006			—			53			—			400,059			—			—
Net Income (Loss)	—			(314,697	)		(17,189	)		—			95,282			(680,570	)		(917,174	)		23,548			(893,626	)
Currency Translation Adjustment	—			—			(9,086	)		(810	)		—			—			(9,896	)		—			(9,896	)
Net Unrealized Gain on Investment Activity	—			—			—			—			—			—			—			641			—
Reclassification of Capital Due to Non-Controlling Interest Holders	—			—			—			—			(60,197	)		—			(60,197	)		—			—
Capital Contributions	—			—			—			—			78,007			—			78,007			32,099			—
Capital Distributions	—			(134,512	)		—			—			(28,743	)		(244,782	)		(408,037	)		(42,577	)		—
Transfer of Non-Controlling Interests in Consolidated Entities	—			—			—			—			(16,675	)		16,675			—			—			—
Purchase of Interests from Certain Non-Controlling Interest Holders	—			(138	)		—			—			—			—			(138	)		—			—
Deferred Tax Effects Resulting from Acquisition of Ownership Interests from Non-Controlling Interest Holders	—			25,211			—			—			—			—			25,211			—			—
Equity-Based Compensation	—			456,466			—			—			—			1,023,813			1,480,279			—			—
Relinquished in Deconsolidation of Partnership	—			—			—			—			—			—			—			2,465			—
Net Delivery of Vested Common Units	5,270,608			(20,045	)		—			—			—			—			(20,045	)		—			—
Repurchase of Common Units and Blackstone Holdings Partnership Units	(84,888	)		(1,198	)		—			—			—			—			(1,198	)		—			—
Change in The Blackstone Group L.P.’s Ownership Interest	—			(5,393	)		—			—			—			5,393			—			—			—
Conversion of Blackstone Holdings Partnership Units to Blackstone Common Units	29,985,838			82,887			—			—			—			(82,887	)		—			—			—

Balance at June 30, 2010	355,111,330		$	3,465,288		$	373,731		$	1,610		$	608,010		$	2,135,454		$	6,584,093		$	542,487		$	(3,291,507	)

See notes to condensed consolidated financial statements.

THE BLACKSTONE GROUP L.P.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(Dollars in Thousands)


	For the Six Months Ended June 30,
	2010			2009
Operating Activities
Net Income (Loss)	$	(893,626	)	$	(1,527,809	)
Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by (Used in) Operating Activities:
Blackstone Funds Related:
Unrealized Depreciation (Appreciation) on Investments Allocable to Non-Controlling Interests in Consolidated Entities		(125,290	)		39,431
Net Realized (Gains) Losses on Investments		(99,565	)		91,559
Changes in Unrealized (Gains) Losses on Investments Allocable to Blackstone Group		(234,015	)		92,976
Unrealized Depreciation on Hedge Activities		32,935			—
Non-Cash Performance Fees and Allocations		(92,215	)		12,271
Non-Cash Performance Fee Related Compensation		84,328			(132,198	)
Equity-Based Compensation Expense		1,466,979			1,500,566
Amortization of Intangibles		80,334			79,024
Other Non-Cash Amounts Included in Net Income		12,678			12,032
Cash Flows Due to Changes in Operating Assets and Liabilities:
Cash Held by Blackstone Funds and Other		(61,739	)		836,410
Cash Relinquished with Deconsolidation of Partnership		2,465			—
Accounts Receivable		(45,883	)		66,762
Due from Affiliates		(129,431	)		500,106
Other Assets		(104,221	)		72,459
Accrued Compensation and Benefits		2,167			(105,830	)
Accounts Payable, Accrued Expenses and Other Liabilities		220,984			(906,952	)
Due to Affiliates		(17,285	)		(251,064	)
Short Term Investments Purchased		(722,882	)		—
Cash Proceeds from Sale of Investments		448,340			—
Blackstone Funds Related:
Investments Purchased		(1,595,325	)		(261,084	)
Cash Proceeds from Sale of Investments		1,797,107			573,927

Net Cash Provided by Operating Activities		26,840			692,586

Investing Activities
Purchase of Furniture, Equipment and Leasehold Improvements		(18,807	)		(12,893	)
Net Cash Paid for Acquisition of Management Contracts		(21,492	)		—
Changes in Restricted Cash		26			1,399

Net Cash Used in Investing Activities		(40,273	)		(11,494	)

Financing Activities
Distributions to Non-Controlling Interest Holders in Consolidated Entities		(71,320	)		(45,373	)
Contributions from Non-Controlling Interest Holders in Consolidated Entities		89,938			99,049

continued...

See notes to condensed consolidated financial statements.

THE BLACKSTONE GROUP L.P.

Condensed Consolidated Statements of Cash Flows (Unaudited)—(Continued)

(Dollars in Thousands)


	For the Six Months Ended June 30,
	2010			2009
Purchase of Interests from Certain Non-Controlling Interest Holders	$	(140	)	$	(6,258	)
Net Settlement of Vested Common Units and Repurchase of Common and Holdings Units		(21,243	)		(56,142	)
Proceeds from Loans Payable		3,312			1,218
Repayment of Loans Payable		(53,177	)		(310,172	)
Distributions to Unitholders		(379,294	)		(82,572	)

Net Cash Provided by (Used in) Financing Activities		(431,924	)		(400,250	)

Net Increase (Decrease) in Cash and Cash Equivalents		(445,357	)		280,842
Cash and Cash Equivalents, Beginning of Period		952,096			503,737

Cash and Cash Equivalents, End of Period	$	506,739		$	784,579

Supplemental Disclosure of Cash Flows Information
Payments for Interest	$	1,366		$	1,456

Payments for Income Taxes	$	42,813		$	27,726

Supplemental Disclosure of Non-Cash Financing Activities
Net Activities Related to Capital Transactions of Consolidated Blackstone Funds	$	4,794		$	3,936

Net Assets Related to the Consolidation of CLO Vehicles	$	400,059		$	—

Reclassification of Capital Due to Non-Controlling Interest Holders	$	(60,197	)	$	—

Reduction of Due to Limited Partners Account to Fund Sidepocket Investment	$	1		$	(5	)

Contributions Related to Transfers by Affiliated Partners	$	(1	)	$	5

In-kind Redemption of Capital	$	(14,862	)	$	(907	)

In-kind Contribution of Capital	$	41,053		$	907

Transfer of Interests to Non-Controlling Interest Holders	$	(16,675	)	$	15,438

Change in The Blackstone Group L.P.’s Ownership Interest	$	(5,393	)	$	—

Net Settlement of Vested Common Units	$	116,610		$	135,491

Conversion of Blackstone Holdings Units to Common Units	$	82,887		$	11,306

Exchange of Founders’ and Non-Controlling Interest Holders’ Interests in Blackstone Holdings:

Deferred Tax Asset	$	(145,080	)	$	(15,674	)

Due to Affiliates	$	119,869		$	13,323

Partners’ Capital	$	25,211		$	2,351

See notes to condensed consolidated financial statements.

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

1.	ORGANIZATION

The Blackstone Group L.P., together with its subsidiaries, (“Blackstone” or the “Partnership”) is a leading global manager of private capital and provider of financial advisory services. The alternative asset management business includes the management of private equity funds, real estate funds, funds of hedge funds, credit-oriented funds, separately managed accounts and publicly traded closed-end mutual funds (collectively referred to as the “Blackstone Funds”). Blackstone also provides various financial advisory services, including financial advisory, restructuring and reorganization advisory and fund placement services. Blackstone’s business is organized into four segments: private equity; real estate; credit and marketable alternatives; and financial advisory.

The Partnership was formed as a Delaware limited partnership on March 12, 2007. The Partnership is managed and operated by its general partner, Blackstone Group Management L.L.C., which is in turn wholly-owned and controlled by one of Blackstone’s founders, Stephen A. Schwarzman (the “Founder”), and Blackstone’s other senior managing directors.

The activities of the Partnership are conducted through its holding partnerships: Blackstone Holdings I L.P.; Blackstone Holdings II L.P.; Blackstone Holdings III L.P. and Blackstone Holdings IV L.P. (collectively, “Blackstone Holdings”, “Blackstone Holdings Partnerships” or the “Holding Partnerships”). On June 18, 2007, in preparation for an initial public offering (“IPO”), the predecessor owners (“Predecessor Owners”) of the Blackstone business completed a reorganization (the “Reorganization”) whereby, with certain limited exceptions, the operating entities of the predecessor organization and the intellectual property rights associated with the Blackstone name were contributed (“Contributed Businesses”) to five holding partnerships (Blackstone Holdings I L.P., Blackstone Holdings II L.P., Blackstone Holdings III L.P., Blackstone Holdings IV L.P. and Blackstone Holdings V L.P.) either directly or indirectly via a sale to certain wholly-owned subsidiaries of the Partnership and then a contribution to the Holding Partnerships. The Partnership, through its wholly-owned subsidiaries, is the sole general partner in each of these Holding Partnerships. The reorganization was accounted for as an exchange of entities under common control for the component of interests contributed by the Founders and the other senior managing directors (collectively, the “Control Group”) and as an acquisition of non-controlling interests using the purchase method of accounting for all the predecessor owners other than the Control Group.

On January 1, 2009, the number of Holding Partnerships was reduced from five to four through the transfer of assets and liabilities of Blackstone Holdings III L.P. to Blackstone Holdings IV L.P. In connection therewith, Blackstone Holdings IV L.P. was renamed Blackstone Holdings III L.P. and Blackstone Holdings V L.P. was renamed Blackstone Holdings IV L.P. Blackstone Holdings refers to the five holding partnerships prior to the January 2009 reorganization and the four holding partnerships subsequent to the January 2009 reorganization.

Holders of the limited partner interests in the four Holding Partnerships may, up to four times each year, exchange their limited partnership interests (“Partnership Units”) for Blackstone Common Units, on a one-to-one basis, exchanging one Partnership Unit in each of the four Holding Partnerships for one Blackstone Common Unit.

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Partnership have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions to Form 10-Q. The condensed consolidated financial statements, including these notes, are unaudited and exclude some of the disclosures required in annual financial statements. Management believes it has made all necessary adjustments (consisting of only normal recurring items) so that the condensed consolidated financial statements are presented fairly and that estimates made in

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—(Continued)

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

preparing its condensed consolidated financial statements are reasonable and prudent. The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Partnership’s Annual Report on Form 10-K filed with the Securities and Exchange Commission.

The condensed consolidated financial statements include the accounts of the Partnership, its wholly-owned or majority-owned subsidiaries, the consolidated entities which are considered to be variable interest entities and for which the Partnership is considered the primary beneficiary, and certain partnerships or similar entities which are not considered variable interest entities but in which the Partnership has a controlling financial interest.

All intercompany balances and transactions have been eliminated in consolidation.

Certain reclassifications have been made to prior year amounts to conform to the current year presentation as follows:

•

Beginning in 2010, Blackstone elected to separately present performance fee related unrealized and realized compensation expense as an Adjustment to Reconcile Net Income (Loss) to Net Cash Provided by (Used in) Operating Activities in the Condensed Consolidated Statements of Cash Flows. Previously, amounts were included in Cash Flows Due to Changes in Operating Assets and Liabilities within Due to Affiliates, Due from Affiliates and/or Accrued Compensation and Benefits. The reclassification has no impact on Net Cash Provided by Operating Activities.

Consolidation

The Partnership consolidates all entities that it controls through a majority voting interest or otherwise, including those Blackstone Funds in which the general partner is presumed to have control. Although the Partnership has a non-controlling interest in the Blackstone Holdings Partnerships, the limited partners do not have the right to dissolve the partnerships or have substantive kick out rights or participating rights that would overcome the presumption of control by the Partnership. Accordingly, the Partnership consolidates Blackstone Holdings and records non-controlling interests to reflect the economic interests of the limited partners of Blackstone Holdings.

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—(Continued)

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

time it becomes involved with a variable interest entity and reconsiders that conclusion continuously. In evaluating whether the Partnership is the primary beneficiary, Blackstone evaluates its economic interests in the entity held either directly by the Partnership or indirectly through employees. The consolidation analysis can generally be performed qualitatively; however, if it is not readily apparent that the Partnership is not the primary beneficiary, a quantitative analysis may also be performed. Investments and redemptions (either by the Partnership, affiliates of the Partnership or third parties) or amendments to the governing documents of the respective Blackstone Funds could affect an entity’s status as a VIE or the determination of the primary beneficiary. At each reporting date, the Partnership assesses whether it is the primary beneficiary and will consolidate or deconsolidate accordingly.

Blackstone’s other disclosures regarding VIEs are discussed in Note 9. “Variable Interest Entities”.

Fair Value of Financial Instruments

GAAP establishes a hierarchal disclosure framework which prioritizes and ranks the level of market price observability used in measuring financial instruments at fair value. Market price observability is affected by a number of factors, including the type of financial instrument, the characteristics specific to the financial instrument and the state of the marketplace, including the existence and transparency of transactions between market participants. Financial instruments with readily available quoted prices in active markets generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.

Financial instruments measured and reported at fair value are classified and disclosed based on the observability of inputs used in the determination of fair values, as follows:

•

Level I — Quoted prices are available in active markets for identical financial instruments as of the reporting date. The type of financial instruments in Level I include listed equities and listed derivatives. The Partnership does not adjust the quoted price for these investments, even in situations where Blackstone holds a large position and a sale could reasonably impact the quoted price.

•

Level II — Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of models or other valuation methodologies. Financial instruments which are generally included in this category include corporate bonds and loans, less liquid and restricted equity securities, certain over-the-counter derivatives where the fair value is based on observable inputs, and certain fund of hedge funds investments in which Blackstone has the ability to redeem its investment at net asset value at, or within three months of, the reporting date.

•

Level III — Pricing inputs are unobservable for the financial instruments and includes situations where there is little, if any, market activity for the financial instrument. The inputs into the determination of fair value require significant management judgment or estimation. Financial instruments that are included in this category generally include general and limited partnership interests in private equity and real estate funds, credit-oriented funds, distressed debt and non-investment grade residual interests in securitizations, collateralized loan obligations, certain over the counter derivatives where the fair value is based on unobservable inputs and certain funds of hedge funds which use net asset value per share to determine fair value in which Blackstone may not have the ability to redeem its investment at net asset value at, or within three months of, the reporting date. Blackstone may not have the ability to redeem its investment at net asset value at, or within three months of, the reporting date if an investee fund manager has the ability to limit the amount of redemptions, and/or the ability to side-pocket investments, irrespective of whether such ability has been exercised.

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—(Continued)

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the determination of which category within the fair value hierarchy is appropriate for any given financial instrument is based on the lowest level of input that is significant to the fair value measurement. The Partnership’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the financial instrument.

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, market transactions in comparable investments and various relationships between investments.

In the absence of observable market prices, Blackstone values its investments using valuation methodologies applied on a consistent basis. For some investments little market activity may exist; management’s determination of fair value is then based on the best information available in the circumstances, and may incorporate management’s own assumptions and involves a significant degree of judgment, taking into consideration a combination of internal and external factors, including the appropriate risk adjustments for non-performance and liquidity risks. Investments for which market prices are not observable include private investments in the equity of operating companies, real estate properties or certain funds of hedge funds. The valuation technique for each of these investments is described below:

Private Equity Investments — The fair values of private equity investments are determined by reference to projected net earnings, earnings before interest, taxes, depreciation and amortization (“EBITDA”), the discounted cash flow method, public market or private transactions, valuations for comparable companies and other measures which, in many cases, are unaudited at the time received. Valuations may be derived by reference to observable valuation measures for comparable companies or transactions (e.g., multiplying a key performance metric of the investee company such as EBITDA by a relevant valuation multiple observed in the range of comparable companies or transactions), adjusted by management for differences between the investment and the referenced comparables, and in some instances by reference to option pricing models or other similar methods. Private equity investments may also be valued at cost for a period of time after an acquisition as the best indicator of fair value.

Real Estate Investments — The fair values of real estate investments are determined by considering projected operating cash flows, sales of comparable assets, if any, and replacement costs among other measures. The methods used to estimate the fair value of real estate investments include the discounted cash flow method and/or capitalization rates (“cap rates”) analysis. Valuations may be derived by reference to observable valuation measures for comparable companies or assets (e.g., multiplying a key performance metric of the investee company or asset, such as EBITDA, by a relevant valuation multiple observed in the range of comparable companies or transactions), adjusted by management for differences between the investment and the referenced comparables, and in some instances by reference to option pricing models or other similar methods. Additionally, where applicable, projected distributable cash flow through debt maturity will also be considered in support of the investment’s carrying value.

Funds of Hedge Funds — Blackstone Funds’ direct investments in funds of hedge funds (“Investee Funds”) are valued at net asset value (“NAV”) per share of the Investee Fund. If the Partnership determines, based on its own due diligence and investment procedures, that NAV per share does not represent fair value, the Partnership will estimate the fair value in good faith and in a manner that it reasonably chooses, in accordance with its valuation policies.

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—(Continued)

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

Credit-Oriented Investments — The fair values of credit-oriented investments are generally determined on the basis of prices between market participants provided by reputable dealers or pricing services. In some instances, Blackstone may utilize other valuation techniques, including the discounted cash flow method.

Investments, at Fair Value

The Blackstone Funds are accounted for as investment companies under the AICPA Audit and Accounting Guide, Investment Companies, and reflect their investments, including majority-owned and controlled investments (the “Portfolio Companies”), at fair value. Blackstone has retained the specialized accounting for the consolidated Blackstone Funds. Thus, such consolidated funds’ investments are reflected in Investments on the Condensed Consolidated Statements of Financial Condition at fair value, with unrealized gains and losses resulting from changes in fair value reflected as a component of Net Gains (Losses) from Fund Investment Activities in the Condensed Consolidated Statements of Operations. Fair value is the amount that would be received to sell an asset or paid to transfer a liability, in an orderly transaction between market participants at the measurement date (i.e., the exit price).

Blackstone’s principal investments are presented at fair value with unrealized appreciation or depreciation and realized gains and losses recognized in the Condensed Consolidated Statements of Operations within Investment Income (Loss).

For certain instruments, the Partnership has elected the fair value option. Such election is irrevocable and is applied on an investment by investment basis at initial recognition. The Partnership has applied the fair value option for certain loans and receivables and certain investments in private debt and equity securities, that otherwise would not have been carried at fair value with gains and losses recorded in net income, to consistently account for principal investments held by the Partnership. Loans extended to third parties are recorded within Accounts Receivable within the Condensed Consolidated Statements of Financial Condition. Debt and equity securities for which the fair value option has been elected are recorded within Investments. The methodology for measuring the fair value of such investments is consistent with the methodology applied to private equity, real estate, credit-oriented and funds of hedge funds investments. Changes in the fair value of such instruments are recognized in Investment Income (Loss) in the Condensed Consolidated Statements of Operations. Interest income on interest bearing loans and receivables and debt securities on which the fair value option has been elected is based on stated coupon rates adjusted for the accretion of purchase discounts and the amortization of purchase premiums. This interest income is recorded within Interest and Dividend Revenue.

In addition, the Partnership has elected the fair value option for the assets and liabilities of certain collateralized loan obligations (“CLO”) vehicles that are consolidated as of January 1, 2010, as a result of the initial adoption of revised variable interest entity consolidation rules. The Partnership has also elected the fair value option for CLO vehicles consolidated as of April 1, 2010 as a result of the acquisitions of CLO management contracts as described in Note 3. “Acquisitions, Goodwill and Intangibles.” The transition adjustment resulting from the difference between the fair value of assets and liabilities for each of these events is presented within the Condensed Consolidated Statement of Changes in Partners’ Capital as Appropriated Partners’ Capital. Assets of the consolidated CLOs are presented within Investments within the Condensed Consolidated Statements of Financial Condition and Liabilities within Loans Payable for the amounts due to unaffiliated third parties and Due to Affiliates for the amounts held by non-consolidated affiliates. Changes in the fair value of consolidated CLO assets and liabilities and related interest, dividend and other income subsequent to adoption are presented within Net Gains (Losses) from Fund Investment Activities and are attributable to Non-Controlling Interests in Consolidated Entities in the Condensed Consolidated Statements of Operations.

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—(Continued)

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

Further disclosure on instruments for which the fair value option has been elected is presented in Note 7. “Fair Value Option” to the Condensed Consolidated Financial Statements.

Security and loan transactions are recorded on a trade date basis.

Equity Method Investments

Investments where the Partnership is deemed to exert significant influence, but not control, are accounted for using the equity method of accounting. Under the equity method of accounting, the Partnership’s share of earnings (losses) from equity method investments is included in Investment Income (Loss) in the Condensed Consolidated Statements of Operations. The carrying amounts of equity method investments are reflected in Investments in the Condensed Consolidated Statements of Financial Condition. As the underlying investments of the Partnership’s equity method investments are reported at fair value, the carrying value of the Partnership’s equity method investments are at fair value.

Derivative Instruments

The Partnership recognizes all derivatives as assets or liabilities on its Condensed Consolidated Statements of Financial Condition at fair value. On the date the Partnership enters into a derivative contract, it designates and documents each derivative contract as one of the following: (a) a hedge of a recognized asset or liability (“fair value hedge”), (b) a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow hedge”); (c) a hedge of a net investment in a foreign operation; or (d) a derivative instrument not designated as a hedging instrument (“free standing derivative”). For a fair value hedge, Blackstone records changes in the fair value of the derivative and, to the extent that it is highly effective, changes in the fair value of the hedged asset or liability attributable to the hedged risk, in current period earnings in the same caption in the Condensed Consolidated Statements of Operations as the hedged item. Changes in the fair value of derivatives designated as hedging instruments caused by factors other than changes in the risk being hedged, which are excluded from the assessment of hedge effectiveness, are recognized in current period earnings. For free standing derivative contracts, the Partnership presents changes in fair value in current period earnings.

The Partnership formally documents at inception its hedge relationships, including identification of the hedging instruments and the hedged items, its risk management objectives, strategy for undertaking the hedge transaction and the Partnership’s evaluation of effectiveness of its hedged transaction. On a monthly basis, the Partnership also formally assesses whether the derivative it designated in each hedging relationship is expected to be, and has been, highly effective in offsetting changes in estimated fair values or cash flows of the hedged items using either the regression analysis or the dollar offset method. If it is determined that a derivative is not highly effective at hedging the designated exposure, hedge accounting is discontinued.

Blackstone’s other disclosures regarding derivative financial instruments are discussed in Note 6. “Derivative Financial Instruments”.

Cash Distribution Policy

Blackstone’s current intention is to distribute to its common unitholders substantially all of The Blackstone Group L.P.’s net after-tax share of annual Distributable Earnings in excess of amounts determined by Blackstone’s general partner to be necessary or appropriate to provide for the conduct of the Partnership’s business, to make appropriate investments in the business and funds, to comply with applicable law, any of Blackstone’s debt instruments or other agreements, or to provide for future distributions to Blackstone’s common unitholders for any ensuing quarter. Because Blackstone will not know what Distributable Earnings will be for

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—(Continued)

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

any fiscal year until the end of such year, the Partnership expects that the first three quarterly distributions in respect of any given year will be based on the anticipated annualized Net Fee Related Earnings only. As such, the distribution for the first three quarters will likely be smaller than the final quarterly distribution in respect of such year. Blackstone expects to also reflect realized Performance Fees and Allocations net of related compensation and realized net investment income in its determination of the amount of the fourth quarter distribution.

In most years the aggregate amounts of distributions to unitholders will not equal Distributable Earnings for that year. Distributable Earnings will only be a starting point for the determination of the amount to be distributed to unitholders because as noted above, in determining the amount to be distributed Blackstone will subtract from Distributable Earnings any amounts determined by its general partner to be necessary or appropriate to provide for the conduct of its business, to make appropriate investments in its business and its funds, to comply with applicable law, any of its debt instruments or other agreements, or to provide for future distributions to its unitholders for any ensuing quarter.

All of the foregoing is subject to the qualification that the declaration and payment of any distributions are at the sole discretion of the general partner and the general partner may change the distribution policy at any time.

Because The Blackstone Group L.P. is a holding partnership and has no material assets other than its ownership of partnership units in Blackstone Holdings held through wholly-owned subsidiaries, distributions by The Blackstone Group L.P., if any, are funded in three steps:

•

First, Blackstone Holdings makes distributions to partners, including The Blackstone Group L.P.’s wholly-owned subsidiaries. If Blackstone Holdings makes such distributions, the limited partners of Blackstone Holdings will be entitled to receive equivalent distributions pro rata based on their partnership interests in Blackstone Holdings (except as set forth in the following paragraph);

•

Second, The Blackstone Group L.P.’s wholly-owned subsidiaries distribute to The Blackstone Group L.P. the share of such distributions, net of the taxes and amounts under the tax receivable agreement by such wholly-owned subsidiaries; and

•

Third, The Blackstone Group L.P. distributes the net share of such distributions to the common unitholders on a pro rata basis.

As a result of the expiration on December 31, 2009 of the distribution priority previously accorded to holders of Blackstone common units, the Partnership no longer has two classes of equity. The calculation of net loss per common unit is presented using one class of equity for the period ended June 30, 2010, as shown in Note 12. “Net Loss Per Common Unit.”

Because the wholly-owned subsidiaries of The Blackstone Group L.P. must pay taxes and make payments under the tax receivable agreements described in Note 14. “Related Party Transactions”, the amounts ultimately distributed by The Blackstone Group L.P. to common unitholders in respect of fiscal 2010 and subsequent years are expected to be different, and likely less, on a 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.

In addition, the partnership agreements of the Blackstone Holdings partnerships provide for cash distributions, which are referred to as “tax distributions,” to the partners of such partnerships if the wholly-owned subsidiaries of The Blackstone Group L.P. which are the general partners of the Blackstone Holdings partnerships determine that the taxable income of the relevant partnership will give rise to taxable income for the partners. Generally, these tax distributions will be computed based on the Partnership’s estimate of the net

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—(Continued)

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

taxable income of the relevant partnership allocable to a partner multiplied by an assumed tax rate equal to the highest effective marginal combined U.S. federal, state and local income tax rate prescribed for an individual or corporate resident in New York, New York (taking into account the nondeductibility of certain expenses and the character of the Partnership’s income). The Blackstone Holdings partnerships will make tax distributions only to the extent distributions from such partnerships for the relevant year were otherwise insufficient to cover such estimated assumed tax liabilities.

Recent Accounting Developments

On January 1, 2010, the Partnership adopted guidance issued by the Financial Accounting Standards Board (“FASB”) on issues related to variable interest entities (“VIEs”). The amendments significantly affect the overall consolidation analysis, changing the approach taken by companies in identifying which entities are VIEs and in determining which party is the primary beneficiary. The guidance requires continuous assessment of the reporting entity’s involvement with such VIEs. The revised guidance also enhances the disclosure requirements for a reporting entity’s involvement with VIEs, including presentation on the Condensed Consolidated Statements of Financial Condition of assets and liabilities of consolidated VIEs which meet the separate presentation criteria and disclosure of assets and liabilities recognized in the Condensed Consolidated Statements of Financial Condition and the maximum exposure to loss for those VIEs in which a reporting entity is determined to not be the primary beneficiary but in which it has a variable interest. The guidance provides a limited scope deferral for a reporting entity’s interest in an entity that meets all of the following conditions: (a) the entity has all the attributes of an investment company as defined under AICPA Audit and Accounting Guide, Investment Companies, or does not have all the attributes of an investment company but is an entity for which it is acceptable based on industry practice to apply measurement principles that are consistent with the AICPA Audit and Accounting Guide, Investment Companies, (b) the reporting entity does not have explicit or implicit obligations to fund any losses of the entity that could potentially be significant to the entity, and (c) the entity is not a securitization entity, asset-backed financing entity or an entity that was formerly considered a qualifying special-purpose entity. The reporting entity is required to perform a consolidation analysis for entities that qualify for the deferral in accordance with previously issued guidance on variable interest entities. Blackstone’s involvement with its funds is such that all three of the above conditions are met with the exception of certain CLO vehicles which fail condition (c) above and certain funds in which leveraged employee interests in dedicated funds are financed by third parties with Blackstone acting as an intermediary which fail condition (b) above. Such employee funds are currently consolidated as it is concluded that Blackstone is the primary beneficiary based on its implicit interest. The incremental impact of the revised consolidation rules has resulted in the consolidation of certain CLO vehicles managed by Blackstone. Additional disclosures relating to Blackstone’s involvement with VIEs are presented in Note 9. “Variable Interest Entities” of the Partnership’s financial statements.

In January 2010, the FASB issued guidance on improving disclosures about fair value measurements. The guidance requires additional disclosure on transfers in and out of Levels I and II fair value measurements in the fair value hierarchy and the reasons for such transfers. In addition, for fair value measurements using significant unobservable inputs (Level III), the reconciliation of beginning and ending balances shall be presented on a gross basis, with separate disclosure of gross purchases, sales, issuances and settlements and transfers in and transfers out of Level III. The new guidance also requires enhanced disclosures on the fair value hierarchy to disaggregate disclosures by each class of assets and liabilities. In addition, an entity is required to provide further disclosures on valuation techniques and inputs used to measure fair value for fair value measurements that fall in either Level II or Level III. The guidance is effective for interim and annual periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level III fair value measurements, which are effective for fiscal years beginning after December 15, 2010. The

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—(Continued)

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

Partnership adopted the guidance, excluding the reconciliation of Level III activity, with the issuance of its March 31, 2010 financial statements. As the guidance is limited to enhanced disclosures, adoption did not have a material impact on the Partnership’s financial statements.

In April 2010, the FASB issued guidance on the accounting for stock awards to employees of a foreign operation or employees whose pay is denominated in a currency other than the one in which the equity security trades. The guidance clarifies that share-based payment awards with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trade shall not be considered to contain a condition that is not a market, performance, or service condition. Such an award shall not be classified as a liability if it otherwise qualifies for equity classification. The guidance is effective for fiscal years and interim periods ending after December 15, 2010. Blackstone makes share-based payment awards to employees in foreign operations. The guidance is not expected to have a material impact on the Partnership’s financial statements.

3.	ACQUISITION, GOODWILL AND INTANGIBLE ASSETS

Acquisition

On April 1, 2010, the Partnership, through GSO Capital Partners LP, completed the acquisition of management agreements relating to eight collateralized debt obligations (“CDO”) and CLO vehicles previously managed by Callidus Capital Management LLC for a total consideration of $21.5 million. The assets acquired are finite-lived contractual rights.

Pursuant to GAAP consolidation rules, the Partnership has been identified as the primary beneficiary in the CDO and CLO vehicles underlying the acquired management agreements. As a result, the CDO and CLO vehicles have been consolidated in the Partnership’s financial statements from April 1, 2010. The results of the acquired CDO and CLO vehicles from the date of acquisition have been included in the Condensed Consolidated Statements of Operations within Net Gain (Losses) from Fund Investment Activities and Fund Expenses, as applicable.

Goodwill and Intangible Assets

The carrying value of goodwill was $1.7 billion as of June 30, 2010 and December 31, 2009. No indicators of impairment have been identified during the six months ended June 30, 2010.

Total goodwill has been allocated to each of the Partnership’s segments as follows: Private Equity ($694.5 million), Real Estate ($421.7 million), Credit and Marketable Alternatives ($518.5 million) and Financial Advisory ($68.9 million).

Intangible Assets, Net consists of the following:


	June 30, 2010			December 31, 2009
Finite-Lived Intangible Assets / Contractual Rights	$	1,348,370		$	1,348,370
Contractual Rights Acquired		21,491			—
Accumulated Amortization		(509,227	)		(428,893	)

Intangible Assets, Net	$	860,634		$	919,477

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—(Continued)

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

Amortization expense associated with Blackstone’s intangible assets was $40.8 million and $80.3 million for the three and six month periods ended June 30, 2010, respectively, and $39.5 million and $79.0 million for the three and six month periods ended June 30, 2009, respectively. Amortization expense is included within General, Administrative and Other in the accompanying Condensed Consolidated Statements of Operations.

Amortization of Intangible Assets held at June 30, 2010 is expected to be $162.0 million for the years ending December 31, 2010 and $163.3 million, $108.5 million, $56.9 million, and $52.1 million for each of the years ending December 31, 2011, 2012, 2013, and 2014, respectively.

4.	INVESTMENTS

Investments

Investments consists of the following:


	June 30, 2010		December 31, 2009
Investments of Consolidated Blackstone Funds	$	7,516,622	$	1,306,445
Equity Method Investments		1,431,441		1,104,701
High Grade Liquid Debt Strategies		843,692		534,777
Performance Fees and Allocations		680,317		554,463
Other Investments		29,408		65,097

	$	10,501,480	$	3,565,483

Blackstone’s share of Investments of Consolidated Blackstone Funds totaled $376.1 million and $407.1 million at June 30, 2010 and December 31, 2009, respectively.

At June 30, 2010 and December 31, 2009, consideration was given as to whether any individual investment, including derivative instruments, had a fair value which exceeded 5% of Blackstone’s net assets. At June 30, 2010 and December 31, 2009, no investments exceeded the 5% threshold.

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—(Continued)

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

Investments of Consolidated Blackstone Funds

The following table presents a condensed summary of the investments held by the consolidated Blackstone Funds that are reported at fair value. These investments are presented as a percentage of Investments of Consolidated Blackstone Funds:


	Fair Value				Percentage of Investments of Consolidated Blackstone Funds
Geographic Region / Instrument Type / Industry Description or Investment Strategy	June 30, 2010		December 31, 2009		June 30, 2010		December 31, 2009
United States and Canada
Investment Funds, principally related to credit and marketable alternatives
Credit Driven	$	216,497	$	277,388	2.9	%	21.3	%
Diversified Investments		264,938		300,907	3.5	%	23.1	%
Equity		82,204		80,956	1.1	%	6.2	%
Event-Driven		117,120		95,760	1.6	%	7.4	%
Other		—		408	—		—

Investment Funds Total (Cost: 2010 — $713,026; 2009 — $819,638)		680,759		755,419	9.1	%	58.0	%

Equity Securities, principally related to credit and marketable alternatives and private equity funds
Manufacturing		33,584		21,491	0.5	%	1.7	%
Services		97,018		86,600	1.3	%	6.7	%
Natural Resources		974		649	—		—
Real Estate Assets		711		462	—		—

Equity Securities Total (Cost: 2010 — $97,867; 2009 — $112,364)		132,287		109,202	1.8	%	8.4	%

Partnership and LLC Interests, principally related to private equity and real estate funds
Real Estate Assets		176,399		149,523	2.4	%	11.5	%
Services		121,727		87,406	1.6	%	6.7	%
Manufacturing		33,632		25,691	0.4	%	2.0	%
Natural Resources		1,200		357	—		—

Partnership and LLC Interests Total (Cost: 2010 — $440,306; 2009 — $426,678)		332,958		262,977	4.4	%	20.2	%

Debt Instruments, principally related to credit and marketable alternatives
Credit Driven		28,262		29,330	0.4	%	2.2	%
Manufacturing		31,193		3,203	0.4	%	0.2	%
Services		47,792		7,837	0.6	%	0.6	%
Real Estate Assets		3,278		2,458	—		0.2	%
Natural Resources		956		—	—		—

Debt Instruments Total (Cost: 2010 — $109,424; 2009 — $37,983)		111,481		42,828	1.4	%	3.2	%

Assets of Consolidated CLO Vehicles
Corporate Loans		5,111,474		—	68.0	%	—
Corporate Bonds		96,197		—	1.3	%	—
Other		1,733		—	—		—

Assets of Consolidated CLO Vehicles Total (Cost: 2010 — $5,296,131; 2009 —$ —)		5,209,404		—	69.3	%	—

United States and Canada Total (Cost: 2010 — $6,656,755; 2009 — $1,396,663)		6,466,889		1,170,426	86.0	%	89.8	%

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—(Continued)

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)


	Fair Value				Percentage of Investments of Consolidated Blackstone Funds
Geographic Region / Instrument Type / Industry Description or Investment Strategy	June 30, 2010		December 31, 2009		June 30, 2010		December 31, 2009
Europe
Equity Securities, principally related to private equity funds
Manufacturing	$	3,180	$	2,681	—		0.2	%
Real Estate Assets		1,004		365	—		—
Services		28,393		31,711	0.4	%	2.4	%

Equity Securities Total (Cost: 2010 — $40,619; 2009 — $40,353)		32,577		34,757	0.4	%	2.6	%
Partnership and LLC Interests, principally related to private equity and real estate funds
Services		32,401		29,270	0.5	%	2.2	%
Real Estate Assets		9,976		10,741	0.1	%	0.8	%

Partnership and LLC Interests Total (Cost: 2010 — $48,411; 2009 — $48,334)		42,377		40,011	0.6	%	3.0	%
Debt Instruments, principally related to credit and marketable alternatives
Manufacturing		527		544	—		—
Services		1,283		1,259	—		0.1	%

Debt Instruments Total (Cost: 2010 — $1,577; 2009 — $1,623)		1,810		1,803	—		0.1	%
Assets of Consolidated CLO Vehicles
Corporate Loans		887,532		—	11.8	%	—
Corporate Bonds		19,371		—	0.3	%	—
Other		7,860		—	0.1	%	—

Assets of Consolidated CLO Vehicles Total (Cost: 2010 — $993,821; 2009 — $—)		914,763		—	12.2	%	—

Europe Total (Cost: 2010 — $1,084,428; 2009 — $90,310)		991,527		76,571	13.2	%	5.7	%

Asia
Equity Securities, principally related to credit and marketable alternatives and private equity funds
Services		11,510		8,031	0.2	%	0.6	%
Manufacturing		10,002		10,501	0.1	%	0.8	%
Real Estate Assets		269		—	—		—
Diversified Investments		2,875		6,262	—		0.5	%

Equity Securities Total (Cost: 2010 — $22,038; 2009 — $20,794)		24,656		24,794	0.3	%	1.9	%
Partnership and LLC Interests, principally related to private equity and real estate funds
Manufacturing		1,343		1,183	—		0.1	%
Real Estate Assets		458		457	—		—
Services		98		82	—		—

Partnership and LLC Interests Total (Cost: 2010 — $1,666; 2009 — $1,833)		1,899		1,722	—		0.1	%

Debt Instruments, principally related to private equity funds (Cost: 2010 — $112; 2009 — $114)		95		111	—		—

Asia Total (Cost: 2010 — $23,816; 2009 — $22,741)		26,650		26,627	0.3	%	2.0	%

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—(Continued)

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)


	Fair Value				Percentage of Investments of Consolidated Blackstone Funds
Geographic Region / Instrument Type / Industry Description or Investment Strategy	June 30, 2010		December 31, 2009		June 30, 2010		December 31, 2009
Other
Equity Securities, principally related to private equity funds
Natural Resources	$	1,872	$	1,583	—		0.1	%
Services		3,013		4,560	0.1	%	0.3	%

Equity Securities Total (Cost: 2010 — $3,010; 2009 — $2,777)		4,885		6,143	0.1	%	0.4	%

Partnership and LLC Interests, principally related to private equity and real estate funds
Natural Resources		26,586		26,586	0.4	%	2.0	%
Services		85		92	—		—

Partnership and LLC Interests Total (Cost: 2010 — $9,244; 2009 — $9,249)		26,671		26,678	0.4	%	2.0	%

Other Total (Cost: 2010 — $12,254; 2009 — $12,026)		31,556		32,821	0.5	%	2.5	%

Total Investments of Consolidated Blackstone Funds (Cost: 2010 — $7,777,253; 2009 — $1,521,740)	$	7,516,622	$	1,306,445	100.0	%	100.0	%

Net Gains (Losses) from Fund Investment Activities on the Condensed Consolidated Statements of Operations include net realized gains (losses) from realizations and sales of investments and the net change in unrealized gains (losses) resulting from changes in the fair value of the consolidated Blackstone Funds’ investments. The following table presents the realized and net change in unrealized gains (losses) on investments held by the consolidated Blackstone Funds:


	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
Realized Gains (Losses)	$	3,087		$	(44,055	)	$	(20,437	)	$	(104,408	)
Net Change in Unrealized Gains (Losses)		(93,162	)		92,624			91,522			96,877

	$	(90,075	)	$	48,569		$	71,085		$	(7,531	)

The following reconciles the Realized and Net Change in Unrealized Gains (Losses) from Blackstone Funds presented above to Other Income (Loss) — Net Gains (Losses) from Fund Investment Activities in the Condensed Consolidated Statements of Operations:


	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010		2009
Realized and Net Change in Unrealized Gains (Losses) from Blackstone Funds	$	(90,075	)	$	48,569		$	71,085	$	(7,531	)
Reclassification to Investment Income (Loss) and Other Attributable to Blackstone Side-by-Side Investment Vehicles		17,453			(1,945	)		—		14,872
Interest and Dividend Revenue Attributable to Consolidated Blackstone Funds		27,793			4,305			41,469		16,200
Investment Income Attributable to Non-Controlling Interest Holders		(14,421	)		7,375			—		—

Other Income — Net Gains (Losses) from Fund Investment Activities	$	(59,250	)	$	58,304		$	112,554	$	23,541

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—(Continued)

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

Equity Method Investments

The Partnership recognized net gains (losses) related to its equity method investments of $227.4 million and $(102.1) million for the six months ended June 30, 2010 and 2009, respectively.

Blackstone’s equity method investments include its investments in private equity funds, real estate funds, funds of hedge funds and credit-oriented funds, which are not consolidated but in which the Partnership exerts significant influence. As of June 30, 2010 and December 31, 2009, no single equity method investment held by Blackstone exceeded 20% of its total consolidated assets. As such, Blackstone is not required to present separate financial statements for any of its equity method investees.

The summarized financial information of the funds in which the Partnership has an equity method investment is as follows:


	As of June 30, 2010 and the Six Months Then Ended
	Private Equity			Real Estate			Credit and Marketable Alternatives			Total
Statement of Financial Condition
Assets
Investments	$	21,738,952		$	11,903,159		$	16,251,121		$	49,893,232
Other Assets		298,644			841,254			2,860,398			4,000,296

Total Assets	$	22,037,596		$	12,744,413		$	19,111,519		$	53,893,528

Liabilities and Partners’ Capital
Debt	$	478,757		$	262,072		$	1,098,230		$	1,839,059
Other Liabilities		73,872			170,995			2,087,257			2,332,124

Total Liabilities		552,629			433,067			3,185,487			4,171,183

Partners’ Capital		21,484,967			12,311,346			15,926,032			49,722,345

Total Liabilities and Partners’ Capital	$	22,037,596		$	12,744,413		$	19,111,519		$	53,893,528

Statement of Income
Interest Income	$	9		$	16,262		$	219,444		$	235,715
Other Income		172,193			57,989			19,609			249,791
Interest Expense		(5,494	)		(2,833	)		(22,839	)		(31,166	)
Other Expenses		(12,685	)		(33,920	)		(68,531	)		(115,136	)
Net Realized and Unrealized Gain from Investments		3,321,159			3,156,765			402,878			6,880,802

Net Income	$	3,475,182		$	3,194,263		$	550,561		$	7,220,006

High Grade Liquid Debt Strategies

High Grade Liquid Debt Strategies represents the Partnership’s liquid investments in government and other investment grade securities, managed by third-party institutions. The Partnership has managed its credit risk through diversification of its investments among major financial institutions, all of which have investment grade ratings.

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—(Continued)

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

During the three and six months ended June 30, 2010, the Partnership recognized realized gains (losses) of $0.3 million and $1.7 million, respectively, and net change in unrealized gains (losses) of $3.8 million and $6.6 million, respectively. There were no realized gains (losses) or net change in unrealized gains (losses) for the three and six months ended June 30, 2009.

Performance Fees and Allocations

Performance Fees and Allocations to the general partner in respect of performance of certain Carry Funds, funds of hedge funds and credit-oriented funds were as follows:


	June 30, 2010		December 31, 2009
Performance Fees and Allocations
Private Equity	$	472,600	$	425,615
Real Estate		33,010		7,900
Credit and Marketable Alternatives		174,707		120,948

	$	680,317	$	554,463

Other Investments

Other Investments consist primarily of investment securities held by Blackstone for its own account. The following table presents Blackstone’s realized and net change in unrealized gains (losses) in other investments:


	Three Months Ended June 30,					Six Months Ended June 30,
	2010			2009		2010		2009
Realized Gains (Losses)	$	(237	)	$	12	$	942	$	(1,654	)
Net Change in Unrealized Gains (Losses)		457			1,482		927		1,623

	$	220		$	1,494	$	1,869	$	(31	)

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—(Continued)

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

5.	NET ASSET VALUE AS FAIR VALUE

Certain of the consolidated Blackstone funds of hedge funds and credit-oriented funds measure their investments in underlying funds at fair value using NAV per share without adjustment. The terms of the investee’s investment generally provide for minimum holding periods or lock-ups, the institution of gates on redemptions or the suspension of redemptions or an ability to side-pocket investments, at the discretion of the investee’s fund manager, and as a result, investments may not be redeemable at, or within three months of, the reporting date. A side pocket is used by hedge funds and funds of hedge funds to separate investments that may lack a readily ascertainable value, are illiquid or are subject to liquidity restriction. Redemptions are generally not permitted until the investments within a side pocket are liquidated or it is deemed that the conditions existing at the time that required the investment to be included in the side pocket no longer exist. As the timing of either of these events is uncertain, the timing at which the Partnership may redeem an investment held in a side pocket cannot be estimated. A summary of fair value by strategy type alongside the consolidated funds of hedge funds’ remaining unfunded commitments and ability to redeem such investments as of June 30, 2010 is presented below.


Strategy	Fair Value		Unfunded Commitments		Redemption Frequency (if currently eligible)		Redemption Notice Period
Diversified Instruments	$	264,938	$	10,616	(a	)	(a	)
Credit Driven		216,497		29,558	(b	)	(b	)
Event Driven		117,120		—	(c	)	(c	)
Equity		82,204		—	(d	)	(d	)

	$	680,759	$	40,174

(a)

Diversified Instruments includes investments in hedge funds that invest across multiple strategies. Investments representing 98% of the value of the investments in this category are subject to redemption restrictions at the discretion of the investee fund manager who may choose (but may not have exercised such ability) to side-pocket such investments. As of the reporting date, the investee fund manager had elected to side-pocket 15% of Blackstone’s investments. The time at which this redemption restriction may lapse cannot be estimated. The remaining 2% of investments within this category represent investments in hedge funds that are in the process of liquidating. Distributions from these funds will be received as underlying investments are liquidated.

(b)

The Credit Driven category includes investments in hedge funds that invest primarily in domestic and international bonds. Investments representing 48% of the value of the investments in this category may not be redeemed at, or within three months of, the reporting date. Investments representing 34% of the value in the credit driven category are subject to redemption restrictions at the discretion of the investee fund manager who may choose (but may not have exercised such ability) to side-pocket such investments. As of the reporting date, the investee fund manager had elected to side-pocket 1% of Blackstone’s investments. Investments representing 17% of the value within this category represents an investment in a fund of hedge funds that is in the process of liquidation. Distributions from this fund will be received as underlying investments are liquidated. The remaining 1% of investments within this category are redeemable as of the reporting date.

(c)	Included within the Event Driven category are investments in hedge funds whose primary investing strategy is to identify certain event-driven investments. Withdrawals are not permitted in this category. Distributions will be received as the underlying investments are liquidated.

(d)

The Equity category includes investments in hedge funds that invest primarily in domestic and international equity securities. Investments representing 42% of the total value of investments in this category may not be redeemed at, or within three months of, the reporting date. The remaining 58% are subject to redemption restrictions at the discretion of the investee fund manager who may choose (but may not have elected such ability) to side-pocket such investments. As of the reporting date, the investee fund manager had not elected to side-pocket Blackstone’s investments.

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—(Continued)

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

6.	DERIVATIVE FINANCIAL INSTRUMENTS

Blackstone enters into derivative contracts in order to hedge its interest rate risk exposure against the effects of interest rate changes. Additionally, Blackstone and the Blackstone Funds enter into derivative contracts in the normal course of business to achieve certain other risk management objectives and for general investment purposes. As a result of the use of derivative contracts, Blackstone and the consolidated Blackstone Funds are exposed to the risk that counterparties will fail to fulfill their contractual obligations. To mitigate such counterparty risk, Blackstone and the consolidated Blackstone Funds enter into contracts with certain major financial institutions, all of which have investment grade ratings. Counterparty credit risk is evaluated in determining the fair value of derivative instruments.

Fair Value Hedges

The Partnership uses interest rate swaps to hedge all or a portion of the interest rate risk associated with its fixed rate borrowings. The Partnership has designated these financial instruments as fair value hedges. Changes in fair value of the derivative and, to the extent that it is highly effective, changes in the fair value of the hedged liability, are recorded within General, Administrative and Other in the Condensed Consolidated Statements of Operations. The fair value of the derivative instrument is reflected within Other Assets in the Condensed Consolidated Statements of Financial Condition.

Free Standing Derivatives

Free standing derivatives are instruments that Blackstone and certain of the consolidated Blackstone Funds have entered into as part of their overall risk management and investment strategies. These derivative contracts are not designated as hedging instruments for accounting purposes. Such contracts may include foreign exchange contracts, equity swaps, options and other derivative contracts. Changes in the fair value of derivative instruments held by consolidated Blackstone Funds are reflected in Net Gains (Losses) from Funds Investment Activities or, where derivative instruments are held by the Partnership, within Investment Income (Loss), in the Condensed Consolidated Statements of Operations. The fair value of free standing derivative assets are recorded within Investments and free standing derivative liabilities are recorded within Accounts Payable, Accrued Expenses and Other Liabilities in the Condensed Consolidated Statements of Financial Condition.

The table below summarizes the aggregate notional amount and fair value of the derivative financial instruments.


	June 30, 2010								December 31, 2009
	Assets				Liabilities				Assets				Liabilities
	Notional		Fair Value		Notional		Fair Value		Notional		Fair Value		Notional		Fair Value
Fair Value Hedges
Interest Rate Swaps	$	450,000	$	35,451	$	—	$	—	$	—	$	—	$	450,000	$	19

Free Standing Derivatives
Free Standing Derivatives		—		—		213,621		2,015		2,039		653		656		4

Total	$	450,000	$	35,451	$	213,621	$	2,015	$	2,039	$	653	$	450,656	$	23

Where hedge accounting is applied, hedge effectiveness testing is performed at least monthly to monitor ongoing effectiveness of the hedge relationships. During the three and six months ended June 30, 2010, the amount of ineffectiveness related to the interest rate swap hedges was a gain of $3.7 million and $4.6 million, respectively. During the three and six months ended June 30, 2010, the portion of hedging instruments’ gain or

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—(Continued)

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

loss excluded from the assessment of effectiveness for its fair value hedges was a gain (loss) of $4.9 million and $(2.1) million, respectively. The Partnership had no derivatives designated as fair value hedges during the quarter ended June 30, 2009.

During the three and six months ended June 30, 2010, the Partnership recognized $0.2 million and $0.5 million, respectively, of realized loss and $(1.6) million and $(1.7) million, respectively, in net change in unrealized gains (losses) related to free standing derivative instruments. Amounts recognized in the three and six months ended June 30, 2009 were not material.

As of June 30, 2010 and December 31, 2009, the Partnership had not designated any derivatives as cash flow hedges or hedges of net investments in foreign operations.

7.	FAIR VALUE OPTION

The following table summarizes the financial instruments for which the fair value option has been elected:


	June 30, 2010		December 31, 2009		Six Months Ended June 30, 2010
	June 30, 2010		December 31, 2009		Realized Gains (Losses)			Net Change in Unrealized Gains (Losses)
Assets
Loans and Receivables	$	26,844	$	68,550	$	385		$	1,767
Debt Securities		—		26,466		(16	)		—
Equity Securities		1,084		1,905		—			501
Assets of Consolidated CLOs
Corporate Loans		5,999,006		—		(6,802	)		61,286
Corporate Bonds		115,569		—		—			(6,441	)
Other		9,592		—		702			(298	)

	$	6,152,095	$	96,921	$	(5,731	)	$	56,815

Liabilities
Liabilities of Consolidated CLOs
Senior Secured Notes	$	5,483,483	$	—	$	(1,374	)	$	(1,514	)
Subordinated Notes		443,847		—		—			(87,156	)

	$	5,927,330	$	—	$	(1,374	)	$	(88,670	)

The Partnership held no financial instruments on which the fair value option was elected during the six months ended June 30, 2009.

As of June 30, 2010, the fair value of Loans and Receivables for which the fair value option was elected exceeded the principal amounts due by $1.8 million. The uncollected principal balance on Corporate Loans and Corporate Bonds exceeded the fair value by $456.0 million and $8.9 million, respectively. No Loans and Receivables or Corporate Bonds for which the fair value option was elected were past due and no Loans and Receivables were placed in non-accrual status. The fair value of Corporate Loans that were more than one day past due as of June 30, 2010 was $32.3 million. The principal balance related to such past due Corporate Loans exceeded the fair value by $24.1 million. Included within the Other category are structured finance obligations with contractual principal balances. The uncollected principal balance of such obligations exceeded the fair value by $0.2 million. No obligations were past due.

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—(Continued)

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

As of December 31, 2009, the fair value of Loans and Receivables and Debt Securities for which the fair value option was elected exceeded their principal amounts due by $0.5 million. No Loans and Receivables and Debt Securities on which the fair value option was elected were past due or in non-accrual status.

8.	FAIR VALUE MEASUREMENTS OF FINANCIAL INSTRUMENTS

The following tables summarize the valuation of the Partnership’s financial assets and liabilities by the fair value hierarchy as of June 30, 2010 and December 31, 2009, respectively:


	June 30, 2010
	Level I		Level II		Level III		Total
Assets
Investments of Consolidated Blackstone Funds
Investment Funds	$	—	$	2,631	$	678,128	$	680,759
Equity Securities		94,309		621		99,475		194,405
Partnership and LLC Interests		12,107		—		391,798		403,905
Debt Instruments		95		99,199		14,092		113,386
Assets of Consolidated CLO Vehicles		—		5,893,054		231,113		6,124,167

Total Investments of Blackstone Consolidated Funds		106,511		5,995,505		1,414,606		7,516,622
High Grade Liquid Debt Strategies		385,699		457,993		—		843,692
Loans and Receivables		—		—		26,844		26,844
Derivative Instruments Used as Fair Value Hedges		—		35,451		—		35,451
Other Investments (a)		9,095		1,438		18,875		29,408

	$	501,305	$	6,490,387	$	1,460,325	$	8,452,017

Liabilities
Liabilities of Consolidated CLO Vehicles	$	—	$	—	$	5,927,330	$	5,927,330
Free Standing Derivatives		1,493		522		—		2,015
Securities Sold, Not Yet Purchased		685		389		—		1,074

	$	2,178	$	911	$	5,927,330	$	5,930,419


	December 31, 2009
	Level I		Level II		Level III		Total
Assets
Investments of Consolidated Blackstone Funds	$	80,610	$	33,355	$	1,192,463	$	1,306,428
High Grade Liquid Debt Strategies		398,487		136,290		—		534,777
Loans and Receivables		—		—		68,550		68,550
Free Standing Derivatives, Net		2		279		368		649
Other Investments (b)		8,711		10,176		46,210		65,097

	$	487,810	$	180,100	$	1,307,591	$	1,975,501

Liabilities
Derivative Instruments Used for Fair Value Hedges	$	—	$	19	$	—	$	19
Securities Sold, Not Yet Purchased		357		—		—		357

	$	357	$	19	$	—	$	376

(a)	Included within Level III of Other Investments are investments in equity securities of $1.1 million for which the fair value option has been elected.

(b)	Included within Level III of Other Investments are investments in debt and equity securities of $26.5 million and $1.9 million, respectively, for which the fair value option has been elected.

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—(Continued)

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

There were no significant transfers between Level I and Level II during the six months ended June 30, 2010.

The following table summarizes the valuation methodology used in the determination of the fair value of financial instruments for which Level III inputs were used as of June 30, 2010.


Valuation Methodology	Private Equity		Real Estate		Credit and Marketable Alternatives		Total
Third-Party Fund Managers	—		—		46	%	46	%
Specific Valuation Metrics	20	%	17	%	17	%	54	%

	20	%	17	%	63	%	100	%

The following tables summarize the changes in financial assets and liabilities measured at fair value for which the Partnership has used Level III inputs to determine fair value and does not include gains or losses that were reported in Level III in prior years or for instruments that were transferred out of Level III prior to the end of the current reporting period. Total realized and unrealized gains and losses recorded for Level III investments are reported in Investment Income (Loss) and Net Gains (Losses) from Fund Investment Activities in the Condensed Consolidated Statements of Operations.


	Level III Financial Assets at Fair Value Three Months Ended June 30,
	2010												2009
	Investments of Consolidated Funds			Loans and Receivables			Other Investments			Total			Investments of Consolidated Funds			Other Investments			Total
Balance, Beginning of Period	$	1,371,701		$	65,972		$	18,207		$	1,455,880		$	1,175,186		$	15,458		$	1,190,644
Transfer In (Out) of Level III, Net		61,080			—			—			61,080			(2,334	)		—			(2,334	)
Purchases (Sales), Net		(46,342	)		(42,543	)		(252	)		(89,137	)		(63,337	)		(128	)		(63,465	)
Realized Gains (Losses), Net		(18,360	)		304			501			(17,555	)		(93,138	)		—			(93,138	)
Changes in Unrealized Gains (Losses) Included in Earnings Related to Investments Still Held at the Reporting Date		46,527			3,111			419			50,057			112,895			719			113,614

Balance, End of Period	$	1,414,606		$	26,844		$	18,875		$	1,460,325		$	1,129,272		$	16,049		$	1,145,321

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—(Continued)

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)


	Level III Financial Assets at Fair Value Six Months Ended June 30,
	2010												2009
	Investments of Consolidated Funds			Loans and Receivables			Other Investments			Total			Investments of Consolidated Funds			Other Investments			Total
Balance, Beginning of Period	$	1,192,464		$	68,549		$	46,578		$	1,307,591		$	1,521,912		$	16,095		$	1,538,007
Transfer In (Out) of Level III, Net		207,227			—			—			207,227			(2,386	)		—			(2,386	)
Purchases (Sales), Net		(85,564	)		(45,118	)		(29,468	)		(160,150	)		(371,507	)		(765	)		(372,272	)
Realized Gains (Losses), Net		(17,393	)		385			955			(16,053	)		(98,360	)		—			(98,360	)
Changes in Unrealized Gains (Losses) Included in Earnings Related to Investments Still Held at the Reporting Date		117,872			3,028			810			121,710			79,613			719			80,332

Balance, End of Period	$	1,414,606		$	26,844		$	18,875		$	1,460,325		$	1,129,272		$	16,049		$	1,145,321


	Level III Financial Liabilities at Fair Value
	Three Months Ended June 30, 2010								Six Months Ended June 30, 2010
	Collateralized Loan Obligations Senior Notes			Collateralized Loan Obligations Subordinated Notes		Total			Collateralized Loan Obligations Senior Notes			Collateralized Loan Obligations Subordinated Notes		Total
Balance, Beginning of Period	$	3,254,543		$	281,146	$	3,535,689		$	—		$	—	$	—
Transfer In (Out) of Level III, Net		2,377,947			103,285		2,481,232			5,649,175			364,829		6,014,004
Purchases (Sales), Net		(23,210	)		—		(23,210	)		(23,210	)		—		(23,210	)
Changes in Unrealized Gains (Losses) Included in Earnings Related to Liabilities Still Held at the Reporting Date		(125,797	)		59,416		(66,381	)		(142,482	)		79,018		(63,464	)

Balance, End of Period	$	5,483,483		$	443,847	$	5,927,330		$	5,483,483		$	443,847	$	5,927,330

For the six months ended June 30, 2010, the transfer in, net, of Level III financial assets and liabilities was principally due to the consolidation of various CLO vehicles.

For the three and six months ended June 30, 2009, there were no Level III financial liabilities.

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—(Continued)

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

9.	VARIABLE INTEREST ENTITIES

The Partnership consolidates certain VIEs in which it is determined that the Partnership is the primary beneficiary either directly or indirectly, through a consolidated entity or affiliate. VIEs include certain private equity, real estate, credit oriented or funds of hedge funds entities and CLO vehicles. The purpose of such VIEs is to provide strategy specific investment opportunities for investors in exchange for management and performance based fees. The investment strategies of the Blackstone Funds differ by product; however, the fundamental risks of the Blackstone Funds have similar characteristics, including loss of invested capital and loss of management fees and performance based fees. In Blackstone’s role as general partner or investment advisor, it generally considers itself the sponsor of the applicable Blackstone Fund. The Partnership does not provide performance guarantees and has no other financial obligation to provide funding to consolidated VIEs other than its own capital commitments.

The gross assets and liabilities of consolidated VIEs reflected in the Condensed Consolidated Statements of Financial Condition as of June 30, 2010 and December 31, 2009 were as follows:


	June 30, 2010		December 31, 2009
Gross Assets
Consolidated Blackstone Funds Excluding CLO Vehicles	$	788,360	$	741,024
Consolidated CLO Vehicles		6,457,278		—

	$	7,245,638	$	741,024

Gross Liabilities
Consolidated Blackstone Funds Excluding CLO Vehicles	$	43,067	$	37,974
Consolidated CLO Vehicles		6,092,204		—

	$	6,135,271	$	37,974

There is no recourse to the Partnership for the consolidated VIEs’ liabilities. The assets and liabilities of consolidated VIEs comprise primarily investments and notes payable and are included within Investments and Loans Payable, respectively, in the Condensed Consolidated Statements of Financial Condition.

The Partnership holds variable interests in certain VIEs which are not consolidated as it is determined that the Partnership is not the primary beneficiary. The assets under management of VIEs in which Blackstone was not the primary beneficiary but in which Blackstone held a variable interest was $27.5 billion as of June 30, 2010. The Partnership’s involvement with such entities is in the form of direct equity interests and fee arrangements. As of June 30, 2010, assets and liabilities recognized in the Partnership’s Condensed Consolidated Statement of Financial Condition related to the Partnership’s interest in these non-consolidated VIEs were $187.2 million and zero, respectively. Assets consisted of $99.8 million of investments and $87.4 million of receivables. As of December 31, 2009, assets and liabilities recognized in the Partnership’s Condensed Consolidated Statement of Financial Condition related to the Partnership’s interest in these non-consolidated VIEs were $133.9 million and $0.1 million, respectively. Assets consisted of $21.7 million of investments and $112.2 million of receivables. The Partnership’s maximum exposure to loss relating to non-consolidated VIEs as of June 30, 2010 and December 31, 2009 was $189.6 million and $133.9 million, respectively. The maximum exposure to loss represents the loss of assets recognized by Blackstone relating to non-consolidated entities and any clawback obligation relating to previously distributed Carried Interest.

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—(Continued)

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

10.

BORROWINGS

On March 23, 2010, an indirect, wholly-owned subsidiary of Blackstone entered into a new $1.07 billion revolving credit facility (the “Credit Facility”) with Citibank, N.A., as Administrative Agent. The unsecured Credit Facility provides for revolving credit borrowings, with a final maturity date of March 23, 2013. Interest on the borrowings is based on an adjusted LIBOR rate or alternate base rate, in each case plus a margin, and undrawn commitments bear a commitment fee. Borrowings may also be made in U.K. Sterling or Euros, 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 generating assets under management, each tested quarterly. As of June 30, 2010, the Partnership had no outstanding borrowings under this Credit Facility.

Included within Loans Payable and Due to Affiliates are amounts due to holders of debt securities issued by Blackstone’s consolidated CLO vehicles. As of June 30, 2010, the Partnership’s borrowings through consolidated CLO vehicles consisted of the following:


	Borrowing Outstanding		Weighted Average Interest Rate		Weighted Average Remaining Maturity in Years
Senior Secured Notes	$	6,075,318	1.25	%	5.8
Subordinated Notes		819,181	(a	)	8.7

	$	6,894,499

(a)	The Subordinated Notes do not have contractual interest rates, but instead receive distributions from the excess cash flows of the CLO vehicles.

Included within Senior Secured Notes and Subordinated Notes are amounts due to non-consolidated affiliates of $84.8 million and $274.0 million, respectively. The fair value of Senior Secured and Subordinated Notes as of June 30, 2010 was $5.5 billion and $451.5 million, respectively, of which $59.3 million and $179.4 million represents the amounts Due to Affiliates. The contractual maturities of Senior Secured Notes are greater than five years.

The Loans Payable of the consolidated CLO vehicles are collateralized by assets held by the CLO vehicle and assets of one vehicle may not be used to satisfy the liabilities of another. As of June 30, 2010, the fair value of the CLO assets was $6.5 billion. This collateral consisted of Cash, Corporate Loans, Corporate Bonds and other securities.

11.

INCOME TAXES

Blackstone’s effective tax rate was (3.04)% and (1.85)% for the three months ended June 30, 2010 and 2009, respectively, and (3.36)% and (1.91)% for the six months ended June 30, 2010 and 2009, respectively. Blackstone’s income tax provision was $19.4 million and $10.9 million for the three months ended June 30, 2010 and 2009, respectively, and $29.0 million and $28.6 million for the six months ended June 30, 2010 and 2009, respectively.

Blackstone’s effective tax rate for the three and six months ended June 30, 2010 and 2009 was substantially due to the following: (a) certain corporate subsidiaries are subject to federal, state, local and foreign income taxes as applicable and other subsidiaries are subject to New York City unincorporated business taxes, and (b) a portion of the compensation charges that contribute to Blackstone’s net loss are not deductible for tax purposes.

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—(Continued)

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

12.

NET LOSS PER COMMON UNIT

Basic and diluted net loss per common unit for the three and six months ended June 30, 2010 and basic and diluted net loss per common unit entitled to priority distributions and per common unit not entitled to priority distributions for the three and six months ended June 30, 2009 was calculated as follows:


	Basic and Diluted
	Three Months Ended June 30, 2010			Six Months Ended June 30, 2010
Net Loss Attributable to The Blackstone Group L.P.	$	(193,320	)	$	(314,697	)

Net Loss Per Common Unit	$	(0.55	)	$	(0.91	)

Total Weighted-Average Common Units Outstanding		354,399,780			344,084,390


	Basic and Diluted
	Three Months Ended June 30, 2009			Six Months Ended June 30, 2009
Total Undistributed Loss
Net Loss Allocable to Common Unitholders	$	(164,284	)	$	(395,858	)
Less: Distributions to Common Unitholders		(83,371	)		(165,517	)

Total Undistributed Loss	$	(247,655	)	$	(561,375	)

Allocation of Total Undistributed Loss
Undistributed Loss — Common Unitholders Entitled to Priority Distributions	$	(247,308	)	$	(559,330	)
Undistributed Loss — Common Unitholders Not Entitled to Priority Distributions		(347	)		(2,045	)

Total Undistributed Loss	$	(247,655	)	$	(561,375	)

Net Loss Per Common Unit — Common Units Entitled to Priority Distributions
Undistributed Loss per Common Unit	$	(0.90	)	$	(2.04	)
Priority Distributions (a)		0.30			0.60

Net Loss Per Common Unit — Common Units Entitled to Priority Distributions	$	(0.60	)	$	(1.44	)

Net Loss Per Common Unit — Common Units Not Entitled to Priority Distributions
Undistributed Loss per Common Unit	$	(0.90	)	$	(2.04	)
Priority Distributions		—			—

Net Loss Per Common Unit — Common Units Not Entitled to Priority Distributions	$	(0.90	)	$	(2.04	)

Weighted-Average Common Units Outstanding — Common Units Entitled to Priority Distributions		275,199,027			274,416,111
Common Units Not Entitled to Priority Distributions		385,796			1,003,238

Total Weighted-Average Common Units Outstanding		275,584,823			275,419,349

(a)	Undistributed Loss per Common Unit — Priority Distributions are forecast based upon common units outstanding at the end of the reporting period and differ from actual distributions paid to common unitholders which are based on common units outstanding at the time priority distributions are made.

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—(Continued)

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

For the three months ended June 30, 2010 and 2009, a total of 27,418,933 and 24,175,810 unvested deferred restricted common units and 743,034,050 and 823,827,409 Blackstone Holdings Partnership Units were anti-dilutive and as such have been excluded from the calculation of diluted earnings per unit, respectively. For the six months ended June 30, 2010 and 2009, a total of 28,019,298 and 25,185,306 unvested deferred restricted common units and 753,889,719 and 827,280,867 Blackstone Holdings Partnership Units were anti-dilutive and as such have been excluded from the calculation of diluted earnings per unit, respectively.

Unit Repurchase Program

In January 2008, Blackstone announced that the Board of Directors of its general partner, Blackstone Group Management L.L.C., had authorized the repurchase by Blackstone of up to $500 million of Blackstone Common Units and Blackstone Holdings Partnership Units. Under this unit repurchase program, units may be repurchased from time to time in open market transactions, in privately negotiated transactions or otherwise. The timing and the actual number of Blackstone Common Units and Blackstone Holdings Partnership Units repurchased will depend on a variety of factors, including legal requirements, price and economic and market conditions. This unit repurchase program may be suspended or discontinued at any time and does not have a specified expiration date. During the six months ended June 30, 2010, Blackstone repurchased 84,888 vested Blackstone Common Units as part of the unit repurchase program for a total cost of $1.2 million. The repurchase resulted in a decrease in Blackstone’s ownership interest in Blackstone Holdings equity of $1.0 million. As of June 30, 2010, the amount remaining available for repurchases under this program was $338.3 million.

During the six months ended June 30, 2009, Blackstone repurchased a combination of 4,629,866 Blackstone Common Units and Blackstone Holdings Partnership Units as part of the unit repurchase program for a total cost of $29.6 million. During the three months ended June 30, 2009, Blackstone repurchased 218,164 Blackstone Common Units and Blackstone Holdings Partnership Units as part of the unit repurchase program for a total cost of $2.4 million. The repurchase resulted in a decrease in Blackstone’s ownership interest in Blackstone Holdings equity of $16.6 million. As of June 30, 2009, the amount remaining available for repurchases was $340.3 million under this program.

13.

EQUITY-BASED COMPENSATION

The Partnership has granted equity-based compensation awards to Blackstone’s senior managing directors, non-partner professionals, non-professionals and selected external advisors under the Partnership’s 2007 Equity Incentive Plan (the “Equity Plan”), the majority of which to date were granted in connection with the IPO. The Equity Plan allows for the granting of options, unit appreciation rights or other unit-based awards (units, restricted units, restricted common units, deferred restricted common units, phantom restricted common units or other unit-based awards based in whole or in part on the fair value of the Blackstone Common Units or Blackstone Holdings Partnership Units) which may contain certain service or performance requirements. As of January 1, 2010, the Partnership had the ability to grant 162,126,007 units under the Equity Plan for the year ending December 31, 2010.

For the three and six months ended June 30, 2010, the Partnership recorded compensation expense of $743.8 million and $1.5 billion, respectively, in relation to its equity-based awards with corresponding tax benefits of $3.0 million and $4.6 million, respectively. For the three and six months ended June 30, 2009, the Partnership recorded compensation expense of $762.7 million and $1.5 billion, respectively, in relation to its equity-based awards with corresponding tax benefits of $4.1 million and $6.5 million, respectively. As of June 30, 2010, there was $4.9 billion of estimated unrecognized compensation expense related to unvested awards. This cost is expected to be recognized over a weighted-average period of 4.0 years.

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—(Continued)

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

Total vested and unvested outstanding units, including Blackstone Common Units, Blackstone Holdings Partnership Units and deferred restricted common units, were 1,123,902,642 as of June 30, 2010. Total outstanding unvested phantom units were 22,881 as of June 30, 2010.

A summary of the status of the Partnership’s unvested equity-based awards as of June 30, 2010 and a summary of changes during the period January 1, 2010 through June 30, 2010 is presented below:


	Blackstone Holdings				The Blackstone Group L.P.
Unvested Units	Partnership Units		Weighted- Average Grant Date Fair Value		Equity Settled Awards				Cash Settled Awards
Unvested Units	Partnership Units		Weighted- Average Grant Date Fair Value		Deferred Restricted Common Units and Options		Weighted- Average Grant Date Fair Value		Phantom Units		Weighted- Average Grant Date Fair Value
Balance, December 31, 2009	270,458,725		$	30.76	23,742,693		$	23.10	208,592		$	25.07
Granted	422,768			13.85	701,148			11.27	(31	)		14.65
Vested	(78,196,241	)		30.84	(4,258,955	)		27.38	(177,234	)		14.65
Forfeited	(1,498,488	)		31.00	(804,671	)		25.75	(8,446	)		14.60

Balance, June 30, 2010	191,186,764		$	30.69	19,380,215		$	21.42	22,881		$	14.65

Units Expected to Vest

The following unvested units, after expected forfeitures, as of June 30, 2010, are expected to vest:


	Units	Weighted-Average Service Period in Years
Blackstone Holdings Partnership Units	180,417,007	4.0
Deferred Restricted Blackstone Common Units and Options	16,143,562	3.9

Total Equity-Based Awards	196,560,569	4.0

Phantom Units	21,045	1.9

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—(Continued)

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

14.

RELATED PARTY TRANSACTIONS

Affiliate Receivables and Payables

Blackstone considers its Founders, senior managing directors, employees, the Blackstone Funds and the Portfolio Companies to be affiliates. As of June 30, 2010 and December 31, 2009, Due from Affiliates and Due to Affiliates comprised the following:


	June 30, 2010		December 31, 2009
Due from Affiliates
Accrual for Potential Clawback of Previously Distributed Interest	$	259,897	$	308,378
Primarily Interest Bearing Advances Made on Behalf of Certain Non-Controlling Interest Holders and Blackstone Employees for Investments in Blackstone Funds		119,443		127,669
Amounts Due from Portfolio Companies and Funds		152,854		115,441
Investments Redeemed in Non-Consolidated Funds of Funds		64,359		77,600
Management and Performance Fees Due from Non-Consolidated Funds of Funds		62,085		68,649
Payments Made on Behalf of Non-Consolidated Entities		64,613		53,581
Advances Made to Certain Non-Controlling Interest Holders and Blackstone Employees		29,978		8,589

	$	753,229	$	759,907

Due to Affiliates
Due to Certain Non-Controlling Interest Holders in Connection with the Tax Receivable Agreement	$	948,150	$	830,517
Accrual for Potential Repayment of Previously Received Performance Fees and Allocations		477,984		485,253
Due to Note-Holders of Consolidated CLO’s		238,713		—
Distributions Received on Behalf of Certain Non-Controlling Interest Holders and Blackstone Employees		64,288		58,083
Distributions Received on Behalf of Non-Consolidated Entities		14,309		31,692
Payments Made by Non-Consolidated Entities		4,649		4,521

	$	1,748,093	$	1,410,066

Interests of the Co-Founder, Senior Managing Directors and Employees

The Co-Founder, senior managing directors and employees invest on a discretionary basis in the Blackstone Funds both directly and through consolidated entities. Their investments may be subject to preferential management fee and performance fee and allocation arrangements. As of June 30, 2010 and December 31, 2009, the Co-Founder’s, other senior managing directors’ and employees’ investments aggregated $719.5 million and $649.4 million, respectively, and the Co-Founder’s, other senior managing directors’ and employees’ share of the Net Income (Loss) Attributable to Redeemable Non-Controlling and Non-Controlling Interests in Consolidated Entities aggregated $24.9 million and $12.4 million for the three months ended June 30, 2010 and 2009, respectively, and $81.7 million and $(21.6) million for the six months ended June 30, 2010 and 2009, respectively.

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—(Continued)

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

Revenues Earned from Affiliates

Management and Advisory Fees earned from affiliates totaled $37.3 million and $25.2 million for the three months ended June 30, 2010 and 2009, respectively. Management and Advisory Fees earned from affiliates totaled $76.1 million and $45.5 million for the six months ended June 30, 2010 and 2009, respectively. Fees relate primarily to transaction and monitoring fees which are made in the ordinary course of business and under terms that would have been obtained from unaffiliated third parties.

Loans to Affiliates

Loans to affiliates consist of interest-bearing advances to certain Blackstone individuals to finance their investments in certain Blackstone Funds. These loans earn interest at Blackstone’s cost of borrowing and such interest totaled $0.4 million and $0.5 million for the three months ended June 30, 2010 and 2009, respectively, and $1.1 million and $0.9 million for the six months ended June 30, 2010 and 2009, respectively. No such loans to any director or executive officer of Blackstone have been made or were outstanding since March 22, 2007, the date of Blackstone’s initial filing with the Securities and Exchange Commission of a registration statement relating to its initial public offering.

Contingent Repayment Guarantee

Blackstone and its personnel who have received Carried Interest distributions have guaranteed payment on a several basis (subject to a cap) to the Carry Funds of any clawback obligation with respect to the excess Carried Interest allocated to the general partners of such funds and indirectly received thereby to the extent that either Blackstone or its personnel fails to fulfill its clawback obligation, if any. The Accrual for Possible Repayment of Previously Received Performance Fees and Allocations represents amounts previously paid to Blackstone Holdings and non-controlling interest holders that would need to be repaid to the Blackstone Funds if the Carry Funds were to be liquidated based on the fair value of their underlying investments as of June 30, 2010. See Note 15. “Commitments and Contingencies — Contingencies — Contingent Obligations (Clawback)”.

Aircraft and Other Services

In the normal course of business, Blackstone personnel have made use of aircraft owned as personal assets by Stephen A. Schwarzman (“Personal Aircraft”). In addition, on occasion, Mr. Schwarzman and his family have made use of an aircraft in which Blackstone owns a fractional interest, as well as other assets of Blackstone. Mr. Schwarzman paid for his purchases of the aircraft himself and bears all operating, personnel and maintenance costs associated with their operation. In addition, Mr. Schwarzman is charged for his and his family’s personal use of Blackstone assets based on market rates and usage. Payment by Blackstone for the use of the Personal Aircraft by other Blackstone employees are made at market rates. Personal use of Blackstone resources are also reimbursed to Blackstone at market rates. The transactions described herein are not material to the Condensed Consolidated Financial Statements.

Tax Receivable Agreement

Blackstone used a portion of the proceeds from the IPO and the sale of non-voting common units to Beijing Wonderful Investments to purchase interests in the predecessor businesses from the predecessor owners. In addition, holders of Blackstone Holdings Partnership Units may exchange their Blackstone Holdings Partnership Units for Blackstone Common Units on a one-for-one basis. The purchase and subsequent exchanges are expected to result in increases in the tax basis of the tangible and intangible assets of Blackstone Holdings and therefore reduce the amount of tax that Blackstone’s wholly-owned subsidiaries would otherwise be required to pay in the future.

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—(Continued)

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

Certain subsidiaries of the Partnership which are corporate taxpayers have entered into tax receivable agreements with each of the predecessor owners and additional tax receivable agreements have been executed, and will continue to be executed, with newly-admitted senior managing directors and others who acquire Blackstone Holdings Partnership Units. The agreements provide for the payment by the corporate taxpayers to such owners of 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax that the corporate taxpayers actually realize as a result of the aforementioned increases in tax basis and of certain other tax benefits related to entering into these tax receivable agreements. For purposes of the tax receivable agreements, cash savings in income tax will be computed by comparing the actual income tax liability of the corporate taxpayers to the amount of such taxes that the corporate taxpayers would have been required to pay had there been no increase to the tax basis of the tangible and intangible assets of Blackstone Holdings as a result of the exchanges and had the corporate taxpayers not entered into the tax receivable agreements.

Assuming no material changes in the relevant tax law and that the corporate taxpayers earn sufficient taxable income to realize the full tax benefit of the increased amortization of the assets, the expected future payments under the tax receivable agreements (which are taxable to the recipients) will aggregate $948.2 million over the next 15 years. The after-tax net present value of these estimated payments totals $252.8 million assuming a 15% discount rate and using Blackstone’s most recent projections relating to the estimated timing of the benefit to be received. Future payments under the tax receivable agreements in respect of subsequent exchanges would be in addition to these amounts. The payments under the tax receivable agreement are not conditioned upon continued ownership of Blackstone equity interests by the pre-IPO owners and the others mentioned above.

Other

Blackstone does business with and on behalf of some of its Portfolio Companies; all such arrangements are on a negotiated basis.

15.

COMMITMENTS AND CONTINGENCIES

Commitments

Investment Commitments

The consolidated Blackstone Funds had signed investment commitments of $14.6 million as of June 30, 2010 which includes $1.3 million of signed investment commitments for portfolio company acquisitions in the process of closing. In addition, the general partners of the Blackstone Funds had unfunded commitments to each of their respective funds of $1.3 billion as of June 30, 2010.

Contingencies

Guarantees

Certain of Blackstone’s consolidated real estate funds guarantee payments to third parties in connection with the on-going business activities and/or acquisitions of their Portfolio Companies. There is no direct recourse to the Partnership to fulfill such obligations. To the extent that underlying funds are required to fulfill guarantee obligations, the Partnership’s invested capital in such funds is at risk. Total investments at risk in respect of guarantees extended by real estate funds was $5.0 million as of June 30, 2010.

Contingent Performance Fees and Allocations

There were $86.5 million of segment level Performance Fees and Allocations related to the hedge funds in the Credit and Marketable Alternatives and Real Estate segments through the period ended June 30, 2010

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—(Continued)

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

attributable to arrangements where the measurement period had not ended. Measurement periods may be greater than the current reporting period. On a consolidated basis, after eliminations, such Performance Fees and Allocations were $85.3 million through the period ended June 30, 2010.

Litigation

From time to time, Blackstone is named as a defendant in legal actions relating to transactions conducted in the ordinary course of business. Although there can be no assurance of the outcome of such legal actions, in the opinion of management, Blackstone does not have a potential liability related to any current legal proceeding or claim that would individually or in the aggregate materially adversely affect its results of operations, financial position or cash flows.

Contingent Obligations (Clawback)

Included within Net Gains (Losses) from Fund Investment Activities in the Condensed Consolidated Statements of Operations are gains (losses) from Blackstone Fund investments. The portion of net gains (losses) attributable to non-controlling interest holders is included within Non-Controlling Interests in Income of Consolidated Entities. Net gains (losses) attributable to non-controlling interest holders are net of Carried Interest earned by Blackstone. Carried Interest is subject to clawback to the extent that the Carried Interest received to date exceeds the amount due to Blackstone based on cumulative results.

The actual clawback liability, however, does not become realized until the end of a fund’s life except for Blackstone’s real estate funds which may have an interim clawback liability come due after a realized loss is incurred, depending on the fund. The lives of the carry funds with a potential clawback obligation, including available contemplated extensions, are currently anticipated to expire at various points beginning toward the end of 2012 and extending through 2018. Further extensions of such terms may be implemented under given circumstances.

For financial reporting purposes, the general partners have recorded a liability for potential clawback obligations to the limited partners of some of the carry funds due to changes in the unrealized value of a fund’s remaining investments and where the fund’s general partner has previously received Carried Interest distributions with respect to such fund’s realized investments.

As of June 30, 2010, the clawback obligations were $478.0 million, of which $218.1 million related to Blackstone Holdings and $259.9 million related to current and former Blackstone personnel. Of the clawback obligation accrued, $15.7 million is due and payable on September 30, 2010 of which $9.0 million will be paid by current and former Blackstone personnel. This amount relates to an interim clawback obligation owed to a real estate fund. As of December 31, 2009, the clawback obligations were $485.3 million, of which $217.4 million related to Blackstone Holdings and $267.9 million related to current and former Blackstone personnel. The Accrual for Potential Repayment of Previously Received Performance Fees and Allocations is included in Due to Affiliates.

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—(Continued)

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

The following table presents the clawback obligations by segment:


	June 30, 2010						December 31, 2009
Segment	Blackstone Holdings		Current and Former Personnel		Total		Blackstone Holdings		Current and Former Personnel		Total
Private Equity	$	67,665	$	130,012	$	197,677	$	65,237	$	120,208	$	185,445
Real Estate		150,422		129,885		280,307		152,142		147,666		299,808

Total	$	218,087	$	259,897	$	477,984	$	217,379	$	267,874	$	485,253

A portion of the Carried Interest paid to current and former Blackstone personnel is held in segregated accounts in the event of a cash clawback obligation. These segregated accounts are not included in the Condensed Consolidated Financial Statements of the Partnership, except to the extent a portion of the assets held in the segregated accounts may be allocated to a consolidated Blackstone fund of hedge funds. At June 30, 2010, $477.1 million was held in segregated accounts for the purpose of meeting any clawback obligations of current and former personnel if such payments are required.

16.

SEGMENT REPORTING

Blackstone transacts its primary business in the United States and substantially all of its revenues are generated domestically.

Blackstone conducts its alternative asset management and financial advisory businesses through four segments:

•

Private Equity — Blackstone’s Private Equity segment comprises its management of private equity funds.

•

Real Estate — Blackstone’s Real Estate segment primarily comprises its management of general real estate funds and internationally focused real estate funds. In addition, the segment has debt investment funds targeting non-controlling real estate debt-related investment opportunities in the public and private markets, primarily in the United States and Europe.

•

Credit and Marketable Alternatives — Blackstone’s Credit and Marketable Alternatives segment, whose consistent focus is current earnings, comprises its management of funds of hedge funds, credit-oriented funds, CLO vehicles, separately managed accounts and publicly-traded closed-end mutual funds.

•

Financial Advisory — Blackstone’s Financial Advisory segment comprises its financial advisory services, restructuring and reorganization advisory services and Park Hill Group, which provides fund placement services for alternative investment funds.

These business segments are differentiated by their various sources of income, with the Private Equity, Real Estate and Credit and Marketable Alternatives segments primarily earning their income from management fees and investment returns on assets under management, while the Financial Advisory segment primarily earns its income from fees related to investment banking services and advice and fund placement services.

Economic Net Income (“ENI”) is a key performance measure used by management. ENI represents segment net income before taxes excluding transaction-related charges. Transaction-related charges include principally charges associated with equity-based compensation, the amortization of intangibles and corporate actions

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—(Continued)

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

including acquisitions. Blackstone uses Economic Net Income, or “ENI”, as a key measure of value creation and as a benchmark of its performance. ENI represents segment net income excluding the impact of income taxes and initial public offering (“IPO”) and acquisition-related items, including charges associated with equity-based compensation, the amortization of intangibles and corporate actions including acquisitions. For segment reporting purposes, revenues and expenses are presented on a basis that deconsolidates the investment funds we manage. Total Segment ENI equals the aggregate of ENI for all segments. ENI is used by management primarily in making resource deployment and compensation decisions across Blackstone’s four segments.

Management makes operating decisions and assesses the performance of each of Blackstone’s business segments based on financial and operating metrics and data that is presented without the consolidation of any of the Blackstone Funds that are consolidated into the Condensed Consolidated Financial Statements. Consequently, all segment data excludes the assets, liabilities and operating results related to the Blackstone Funds.

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—(Continued)

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

The following table presents the financial data for Blackstone’s four segments for the three months ended June 30, 2010 and 2009:


	Three Months Ended June 30, 2010
	Private Equity			Real Estate			Credit and Marketable Alternatives			Financial Advisory			Total Segments
Segment Revenues
Management and Advisory Fees
Base Management Fees	$	66,795		$	82,916		$	113,203		$	—		$	262,914
Advisory Fees		—			—			—			134,099			134,099
Transaction and Other Fees, Net		16,367			2,979			1,169			102			20,617
Management Fee Offsets		—			(110	)		(69	)		—			(179	)

Total Management and Advisory Fees		83,162			85,785			114,303			134,201			417,451

Performance Fees and Allocations
Realized		1,106			16,319			28,949			—			46,374
Unrealized		(24,020	)		21,117			(17,835	)		—			(20,738	)

Total Performance Fees and Allocations		(22,914	)		37,436			11,114			—			25,636

Investment Income (Loss)
Realized		3,141			3,900			8,729			(49	)		15,721
Unrealized		17,275			79,543			(10,193	)		561			87,186

Total Investment Income (Loss)		20,416			83,443			(1,464	)		512			102,907
Interest and Dividend Revenue		2,728			2,178			756			1,268			6,930
Other		460			(390	)		(372	)		(342	)		(644	)

Total Revenues		83,852			208,452			124,337			135,639			552,280

Expenses
Compensation and Benefits
Base Compensation		46,612			44,528			53,370			76,152			220,662
Performance Fee Related
Realized		128			8,895			13,856			—			22,879
Unrealized		(10,296	)		15,999			(6,595	)		—			(892	)

Total Compensation and Benefits		36,444			69,422			60,631			76,152			242,649
Other Operating Expenses		28,677			17,647			24,520			17,316			88,160

Total Expenses		65,121			87,069			85,151			93,468			330,809

Economic Net Income	$	18,731		$	121,383		$	39,186		$	42,171		$	221,471

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—(Continued)

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)


	Three Months Ended June 30, 2009
	Private Equity			Real Estate			Credit and Marketable Alternatives			Financial Advisory			Total Segments
Segment Revenues
Management and Advisory Fees
Base Management Fees	$	67,740		$	81,517		$	96,293		$	—		$	245,550
Advisory Fees		—			—			—			82,503			82,503
Transaction and Other Fees, Net		15,145			2,879			687			—			18,711
Management Fee Offsets		—			(486	)		(4,365	)		—			(4,851	)

Total Management and Advisory Fees		82,885			83,910			92,615			82,503			341,913

Performance Fees and Allocations
Realized		—			4,590			587			—			5,177
Unrealized		97,185			(51,960	)		21,832			—			67,057

Total Performance Fees and Allocations		97,185			(47,370	)		22,419			—			72,234

Investment Income (Loss)
Realized		102			1,345			(4,268	)		—			(2,821	)
Unrealized		17,118			(59,408	)		29,049			—			(13,241	)

Total Investment Income (Loss)		17,220			(58,063	)		24,781			—			(16,062	)
Interest and Dividend Revenue		824			197			279			1,118			2,418
Other		472			2,405			315			(122	)		3,070

Total Revenues		198,586			(18,921	)		140,409			83,499			403,573

Expenses
Compensation and Benefits
Base Compensation		40,667			39,207			49,304			54,239			183,417
Performance Fee Related
Realized		(3	)		(542	)		82			—			(463	)
Unrealized		13,599			(45,489	)		8,020			—			(23,870	)

Total Compensation and Benefits		54,263			(6,824	)		57,406			54,239			159,084
Other Operating Expenses		20,553			12,978			16,461			21,734			71,726

Total Expenses		74,816			6,154			73,867			75,973			230,810

Economic Net Income (Loss)	$	123,770		$	(25,075	)	$	66,542		$	7,526		$	172,763

The following table reconciles the Total Segments to Blackstone’s Income (Loss) Before Provision for Taxes as of and for the three months ended June 30, 2010 and 2009:


	Three Months Ended June 30, 2010
	Total Segments		Consolidation Adjustments and Reconciling Items			Blackstone Consolidated
Revenues	$	552,280	$	(2,192	)(a)	$	550,088
Expenses	$	330,809	$	796,957	(b)	$	1,127,766
Other Income (Loss)	$	—	$	(59,250	)(c)	$	(59,250	)
Economic Net Income (Loss)	$	221,471	$	(858,399	)(d)	$	(636,928	)

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—(Continued)

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)


	Three Months Ended June 30, 2009
	Total Segments		Consolidation Adjustments and Reconciling Items			Blackstone Consolidated
Revenues	$	403,573	$	2,843	(a)	$	406,416
Expenses	$	230,810	$	820,896	(b)	$	1,051,706
Other Income	$	—	$	58,304	(c)	$	58,304
Economic Net Income (Loss)	$	172,763	$	(759,749	)(d)	$	(586,986	)

(a)	The Revenues adjustment principally represents management and performance fees and allocations earned from Blackstone Funds which were eliminated in consolidation to arrive at Blackstone consolidated revenues.

(b)	The Expenses adjustment represents the addition of expenses of the consolidated Blackstone Funds to the Blackstone unconsolidated expenses, amortization of intangibles and expenses related to transaction-related equity-based compensation to arrive at Blackstone consolidated expenses.

(c)	The Other Income adjustment results from the following:


	Three Months Ended June 30,
	2010			2009
Fund Management Fees and Performance Fees and Allocations Eliminated in Consolidation	$	(8,428	)	$	(3,150	)
Fund Expenses Added in Consolidation		10,072			2,491
Non-Controlling Interests in Income (Loss) of Consolidated Entities		(58,294	)		41,596
Transactional Other Income		(2,600	)		17,367

Total Consolidation Adjustments	$	(59,250	)	$	58,304

(d)	The reconciliation of Economic Net Income to Income (Loss) Before Benefit for Taxes as reported in the Condensed Consolidated Statements of Operations consists of the following:


	Three Months Ended June 30,
	2010			2009
Economic Net Income	$	221,471		$	172,763

Adjustments:
Amortization of Intangibles		(40,822	)		(39,511	)
IPO and Acquisition-Related Charges		(749,930	)		(761,834	)
Management Fee Revenues Associated with Consolidated CLO Vehicles		(9,353	)		—
Non-Controlling Interests in Income (Loss) of Consolidated Entities		(58,294	)		41,596

Total Adjustments		(858,399	)		(759,749	)

Income (Loss) Before Provision for Taxes	$	(636,928	)	$	(586,986	)

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—(Continued)

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

The following table presents financial data for Blackstone’s four segments for the six months ended June 30, 2010 and 2009:


	Six Months Ended June 30, 2010
	Private Equity			Real Estate			Credit and Marketable Alternatives			Financial Advisory			Total Segments
Segment Revenues
Management and Advisory Fees
Base Management Fees	$	132,227		$	165,976		$	216,682		$	—		$	514,885
Advisory Fees		—			—			—			210,667			210,667
Transaction and Other Fees, Net		48,339			4,921			2,514			103			55,877
Management Fee Offsets		—			(599	)		(758	)		—			(1,357	)

Total Management and Advisory Fees		180,566			170,298			218,438			210,770			780,072

Performance Fees and Allocations
Realized		47,281			22,267			30,707			—			100,255
Unrealized		21,529			32,508			57,558			—			111,595

Total Performance Fees and Allocations		68,810			54,775			88,265			—			211,850

Investment Income
Realized		2,646			6,532			11,712			138			21,028
Unrealized		101,959			126,435			9,522			791			238,707

Total Investment Income		104,605			132,967			21,234			929			259,735
Interest and Dividend Revenue		6,156			4,896			1,904			2,664			15,620
Other		560			(2,266	)		(914	)		(1,274	)		(3,894	)

Total Revenues		360,697			360,670			328,927			213,089			1,263,383

Expenses
Compensation and Benefits
Base Compensation		93,522			84,678			102,455			130,644			411,299
Performance Fee Related
Realized		6,133			10,419			14,068			—			30,620
Unrealized		(3,952	)		22,936			34,724			—			53,708

Total Compensation and Benefits		95,703			118,033			151,247			130,644			495,627
Other Operating Expenses		53,108			31,937			44,095			32,043			161,183

Total Expenses		148,811			149,970			195,342			162,687			656,810

Economic Net Income	$	211,886		$	210,700		$	133,585		$	50,402		$	606,573

Segment Assets as of June 30, 2010	$	3,636,522		$	2,374,061		$	2,353,853		$	528,253		$	8,892,689

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—(Continued)

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)


	Six Months Ended June 30, 2009
	Private Equity			Real Estate			Credit and Marketable Alternatives			Financial Advisory			Total Segments
Segment Revenues
Management and Advisory Fees
Base Management Fees	$	136,171		$	161,715		$	192,796		$	—		$	490,682
Advisory Fees		—			—			—			173,443			173,443
Transaction and Other Fees, Net		25,473			6,019			1,130			—			32,622
Management Fee Offsets		—			(1,679	)		(8,578	)		—			(10,257	)

Total Management and Advisory Fees		161,644			166,055			185,348			173,443			686,490

Performance Fees and Allocations
Realized		—			5,236			587			—			5,823
Unrealized		102,003			(281,179	)		31,754			—			(147,422	)

Total Performance Fees and Allocations		102,003			(275,943	)		32,341			—			(141,599	)

Investment Income (Loss)
Realized		(242	)		2,742			(16,266	)		—			(13,766	)
Unrealized		1,953			(126,647	)		37,139			—			(87,555	)

Total Investment Income (Loss)		1,711			(123,905	)		20,873			—			(101,321	)
Interest and Dividend Revenue		672			581			988			2,162			4,403
Other		652			1,736			62			(1,065	)		1,385

Total Revenues		266,682			(231,476	)		239,612			174,540			449,358

Expenses
Compensation and Benefits
Base Compensation		77,515			75,209			103,011			105,191			360,926
Performance Fee Related
Realized		(9	)		1,596			139			—			1,726
Unrealized		(28,367	)		(120,948	)		15,390			—			(133,925	)

Total Compensation and Benefits		49,139			(44,143	)		118,540			105,191			228,727
Other Operating Expenses		40,661			25,593			40,106			34,710			141,070

Total Expenses		89,800			(18,550	)		158,646			139,901			369,797

Economic Net Income (Loss)	$	176,882		$	(212,926	)	$	80,966		$	34,639		$	79,561

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—(Continued)

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

The following table reconciles the Total Segments to Blackstone’s Income (Loss) Before Provision for Taxes and Total Assets as and for the six months ended June 30, 2010 and 2009:


	June 30, 2010 and the Six Months then Ended
	Total Segments		Consolidation Adjustments and Reconciling Items			Blackstone Consolidated
Revenues	$	1,263,383	$	(12,056	)(a)	$	1,251,327
Expenses	$	656,810	$	1,571,670	(b)	$	2,228,480
Other Income	$	—	$	112,554	(c)	$	112,554
Economic Net Income (Loss)	$	606,573	$	(1,471,172	)(d)	$	(864,599	)
Total Assets	$	8,892,689	$	7,580,620	(e)	$	16,473,309


	Six Months Ended June 30, 2009
	Total Segments		Consolidation Adjustments and Reconciling Items			Blackstone Consolidated
Revenues	$	449,358	$	1,972	(a)	$	451,330
Expenses	$	369,797	$	1,604,267	(b)	$	1,974,064
Other Income	$	—	$	23,541	(c)	$	23,541
Economic Net Income (Loss)	$	79,561	$	(1,578,754	)(d)	$	(1,499,193	)

(a)	The Revenues adjustment principally represents management and performance fees and allocations earned from Blackstone Funds which were eliminated in consolidation to arrive at Blackstone consolidated revenues.

(b)	The Expenses adjustment represents the addition of expenses of the consolidated Blackstone Funds to the Blackstone unconsolidated expenses, amortization of intangibles and expenses related to transaction-related equity-based compensation to arrive at Blackstone consolidated expenses.

(c)	The Other Income adjustment results from the following:


	Six Months Ended June 30,
	2010			2009
Fund Management Fees and Performance Fees and Allocations Eliminated in Consolidation	$	(5,666	)	$	(4,752	)
Fund Expenses Added in Consolidation		10,780			6,073
Non-Controlling Interests in Income of Consolidated Entities		101,641			3,162
Transactional Other Income		5,799			19,058

Total Consolidation Adjustments	$	112,554		$	23,541

THE BLACKSTONE GROUP L.P.

Notes to Condensed Consolidated Financial Statements—(Continued)

(All Dollars Are in Thousands, Except Unit and Per Unit Data, Except Where Noted)

(d)	The reconciliation of Economic Net Income to Income (Loss) Before Provision for Taxes as reported in the Condensed Consolidated Statements of Operations consists of the following:


	Six Months Ended June 30,
	2010			2009
Economic Net Income	$	606,573		$	79,561

Adjustments:
Amortization of Intangibles		(80,334	)		(79,024	)
IPO and Acquisition-Related Charges		(1,476,652	)		(1,502,891	)
Management Fee Revenues Associated with Consolidated CLO Vehicles		(15,827	)		—
Non-Controlling Interests in Income of Consolidated Entities		101,641			3,161

Total Adjustments		(1,471,172	)		(1,578,754	)

Income (Loss) Before Provision for Taxes	$	(864,599	)	$	(1,499,193	)

(e)	The Total Assets adjustment represents the addition of assets of the consolidated Blackstone funds to the Blackstone unconsolidated assets to arrive at Blackstone consolidated assets.

17.

SUBSEQUENT EVENTS

There have been no events since June 30, 2010 that require recognition or disclosure in the Condensed Consolidated Financial Statements.

ITEM 1A.

UNAUDITED SUPPLEMENTAL PRESENTATION OF STATEMENTS OF FINANCIAL CONDITION

THE BLACKSTONE GROUP L.P.

Unaudited Consolidating Statements of Financial Condition

(Dollars in Thousands)


	June 30, 2010
	Consolidated Operating Partnerships		Consolidated Blackstone Funds (a)		Reclasses and Eliminations			Consolidated
Assets
Cash and Cash Equivalents	$	506,739	$	—	$	—		$	506,739
Cash Held by Blackstone Funds and Other		—		390,176		—			390,176
Investments		3,450,081		7,227,083		(175,684	)		10,501,480
Accounts Receivable		342,493		68,823		—			411,316
Due from Affiliates		731,684		97,723		(76,178	)		753,229
Intangible Assets, Net		860,634		—		—			860,634
Goodwill		1,703,602		—		—			1,703,602
Other Assets		211,288		48,677		—			259,965
Deferred Tax Assets		1,086,168		—		—			1,086,168

Total Assets	$	8,892,689	$	7,832,482	$	(251,862	)	$	16,473,309

Liabilities and Partners’ Capital
Loans Payable	$	656,586	$	5,696,085	$	—		$	6,352,671
Due to Affiliates		1,450,010		323,807		(25,724	)		1,748,093
Accrued Compensation and Benefits		573,064		1,601		—			574,665
Accounts Payable, Accrued Expenses and Other Liabilities		399,827		321,928		(50,455	)		671,300

Total Liabilities		3,079,487		6,343,421		(76,179	)		9,346,729

Redeemable Non-Controlling Interests in Consolidated Entities		—		542,487		—			542,487

Partners’ Capital
Partners’ Capital		3,481,178		164,880		(180,770	)		3,465,288
Appropriated Partners’ Capital		—		373,731		—			373,731
Accumulated Other Comprehensive Income		1,610		—		—			1,610
Non-Controlling Interests in Consolidated Entities		194,960		407,963		5,087			608,010
Non-Controlling Interests in Blackstone Holdings		2,135,454		—		—			2,135,454

Total Partners’ Capital		5,813,202		946,574		(175,683	)		6,584,093

Total Liabilities and Partners’ Capital	$	8,892,689	$	7,832,482	$	(251,862	)	$	16,473,309

THE BLACKSTONE GROUP L.P.

Unaudited Consolidating Statements of Financial Condition—(Continued)

(Dollars in Thousands)


	December 31, 2009
	Consolidated Operating Partnerships		Consolidated Blackstone Funds (a)		Reclasses and Eliminations			Consolidated
Assets
Cash and Cash Equivalents	$	952,096	$	—	$	—		$	952,096
Cash Held by Blackstone Funds and Other		—		86,084		—			86,084
Investments		2,772,489		999,792		(206,798	)		3,565,483
Accounts Receivable		305,846		461		—			306,307
Due from Affiliates		735,471		64,384		(39,948	)		759,907
Intangible Assets, Net		919,477		—		—			919,477
Goodwill		1,703,602		—		—			1,703,602
Other Assets		171,463		1,141		(48	)		172,556
Deferred Tax Assets		943,512		—		—			943,512

Total Assets	$	8,503,956	$	1,151,862	$	(246,794	)	$	9,409,024

Liabilities and Partners’ Capital
Loans Payable	$	651,993	$	5,630	$	—		$	657,623
Due to Affiliates		1,362,781		65,776		(18,491	)		1,410,066
Accrued Compensation and Benefits		486,951		1,994		—			488,945
Accounts Payable, Accrued Expenses and Other Liabilities		235,673		94,688		(21,504	)		308,857

Total Liabilities		2,737,398		168,088		(39,995	)		2,865,491

Redeemable Non-Controlling Interests in Consolidated Entities		—		526,311		—			526,311

Partners’ Capital
Partners’ Capital		3,376,707		206,799		(206,799	)		3,376,707
Accumulated Other Comprehensive Income		2,420		—		—			2,420
Non-Controlling Interests in Consolidated Entities		289,619		250,664		—			540,283
Non-Controlling Interests in Blackstone Holdings		2,097,812		—		—			2,097,812

Total Partners’ Capital		5,766,558		457,463		(206,799	)		6,017,222

Total Liabilities and Partners’ Capital	$	8,503,956	$	1,151,862	$	(246,794	)	$	9,409,024

(a)	The consolidated Blackstone Funds consisted of the following:

Blackstone Distressed Securities Fund L.P.

Blackstone Market Opportunities Fund L.P.

Blackstone Strategic Alliance Fund L.P.

Blackstone Strategic Equity Fund L.P.

Blackstone Value Recovery Fund L.P.

Blackstone/GSO Secured Trust Ltd*

BTD CP Holdings, LP

GSO Co-Investment Partners LLC

GSO Legacy Associates 2 LLC

GSO Legacy Associates LLC

The Asia Opportunities Fund L.P.

Private equity side-by-side, general partners’ and affiliated limited partners’ investment vehicles

Real estate side-by-side, general partners’ and affiliated limited partners’ investment vehicles

Mezzanine side-by-side, general partners’ and affiliated limited partners’ investment vehicles

Collateralized loan obligation vehicles*

Consolidated as of June 30, 2010 only.

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 The Blackstone Group L.P.’s Condensed Consolidated Financial Statements and the related notes included within this Quarterly Report on Form 10-Q.

Our Business

Blackstone is one of the largest independent managers of private capital in the world. We also provide a wide range of financial advisory services, including financial advisory, restructuring and reorganization advisory and fund placement services.

Our business is organized into four business segments:

•

Private Equity. We are a world leader in private equity investing, having managed five general private equity funds, as well as one specialized fund focusing on media and communications-related investments, since we established this business in 1987. In addition, we are in the process of raising our seventh private equity fund. We have also launched a new investment fund focused on clean technology investments and are seeking to launch an investment fund targeting infrastructure investments. Through our private equity funds we pursue transactions throughout the world, including leveraged buyout acquisitions of seasoned companies, transactions involving growth equity or start-up businesses in established industries, minority investments, corporate partnerships, distressed debt, structured securities and industry consolidations, in all cases in strictly friendly transactions.

•

Real Estate. We are a world leader in real estate investing with an assortment of real estate funds that are diversified geographically and across a variety of sectors. We launched our first real estate fund in 1994 and have managed six opportunistic real estate funds, two internationally focused real estate funds, a European focused real estate fund and a number of real estate debt investment funds. Our real estate funds have made significant investments in lodging, major urban office buildings and a variety of real estate operating companies. In addition, our debt investment funds target real estate non-controlling debt related investment opportunities in the public and private markets, primarily in the United States and Europe.

•

Credit and Marketable Alternatives. Our credit and marketable alternatives segment is comprised of our management of funds of hedge funds, credit-oriented funds, collateralized loan obligation (“CLO”) vehicles and publicly-traded closed-end mutual funds. Our funds of hedge funds operation was organized in 1990 and has developed into a leading manager of institutional fund of hedge fund assets across a wide variety of strategies. Our credit-oriented funds and CLOs are managed by our subsidiary, GSO Capital Partners (“GSO”), a major participant in the leveraged finance market. GSO manages a variety of credit-oriented funds including senior credit-oriented funds, distressed debt funds, mezzanine funds and general credit-oriented funds. These products are intended to provide investors with greater levels of current income and for certain products, a greater level of liquidity.

•

Financial Advisory. Our financial advisory segment serves a diverse and global group of clients with financial advisory services, restructuring and reorganization advisory services and fund placement services for alternative investment funds.

We generate our revenue from fees earned pursuant to contractual arrangements with funds, fund investors and fund portfolio companies (including management, transaction and monitoring fees), and from financial advisory services, restructuring and reorganization advisory services and fund placement services for alternative investment funds. We invest in the funds we manage and, in most cases, receive a preferred allocation of income (i.e., a “Carried Interest”) or an incentive fee from an investment fund in the event that specified cumulative investment returns are achieved. 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 resultant investment income generated by the Blackstone Funds, principally private equity and real estate funds, are driven by value created

by our operating and strategic initiatives as well as overall market conditions. Our funds initially record fund investments at cost and then such investments are subsequently recorded at fair value. Fair values are affected by changes in the fundamentals of the portfolio company, the portfolio company’s industry, the overall economy as well as other market conditions.

Business Environment

Global equity and credit markets retreated in the second quarter of 2010, as investors became more risk averse, responding to growing concerns over the strength of the economic recovery, European sovereign debt issues and regulatory uncertainty. Most global equity indices declined 10-25% during the quarter and volatility spiked. Equity funds saw meaningful outflows. In credit, the high yield and leveraged loan indices were flat to slightly down and spreads moderately widened. Bank loan and high yield mutual funds experienced outflows, removing much of the technical strength that had been driving markets higher.

In the United States, the S&P 500 declined 12% in the second quarter after four consecutive quarters of increases. The employment picture has improved moderately but not to the extent that some economists were expecting. The consensus expectation for GDP growth for 2010 is 3.0%, which is lower than the expectation earlier in the year.

In real estate, the fundamental picture continued to improve in the second quarter. In the office sector, certain markets continue to show improvements in occupancy trends and an increasing level of leasing activity. In the hospitality sector, industry RevPAR (Revenue Per Available Room), an important hospitality industry metric, grew 6% in the second quarter, and has increased for four consecutive months, following nearly two years of declines.

Commodity prices generally declined in the second quarter. The exception to this was precious metals, which benefited from safe haven buying as investors reduced risk. Energy and industrial metals were sharply lower driven mostly by macro concerns, and oil prices in particular declined 10% during the quarter. The U.S. dollar rose against each of the Euro and Pound Sterling by 10.4% and 1.6%, respectively.

Monetary policy in the U.S. has remained generally accommodative, although several foreign governments are starting to emphasize contraction as they become more focused on controlling budget deficits, particularly in Europe.

Blackstone’s businesses are materially affected by conditions in the financial markets and economic conditions in the U.S., Western Europe, Asia and, to a lesser extent, elsewhere in the world.

Significant Transaction

Acquisition of Management Agreements Related to CDO and CLO Vehicles

On April 1, 2010, the Partnership acquired, through GSO, management agreements relating to certain collateralized debt obligations (“CDO”) and CLO vehicles previously managed by Callidus Capital Management, LLC. The acquisition of the management agreements resulted in the consolidation of the respective CDO and CLO vehicles. On April 1, 2010, the fair value of the CDO and CLO assets and liabilities managed under such contracts was $2.7 billion and $2.5 billion, respectively. There was no material impact to the Condensed Consolidated Statement of Operations or the Condensed Consolidated Statement of Cash Flows.

Key Financial Measures and Indicators

Our key financial measures and indicators are discussed below.

Revenues

Revenues primarily consist of management and advisory fees, performance fees and allocations, investment income, interest and dividend revenue and other. Please refer to “Part I. Item 1. Business, Incentive Arrangements / Fee Structure” and “— Critical Accounting Policies, Revenue Recognition” in our 2009 Annual

Report on Form 10-K for additional information regarding the manner in which Base Management Fees and Performance Fees and Allocations are generated.

Management and Advisory Fees — Management and Advisory Fees are comprised of management fees, including base management fees, transaction and other fees, management fee reductions and offsets, and advisory fees.

The Partnership earns base management fees from the limited partners of funds in each of its managed funds on any of the following bases: as a fixed percentage of assets under management, net asset value, total assets, committed capital or invested capital. Base management fees are based on contractual terms specified in the underlying investment advisory agreements.

Transaction and other fees (including monitoring fees) are fees charged directly to portfolio companies. The investment advisory agreements generally require that the investment advisor reduce the amount of management fees payable by the limited partners to the Partnership (“management fee reduction”) by an amount equal to a portion of the transaction and other fees directly paid to the Partnership by the portfolio companies. The amount of the reduction varies by fund, the type of fee paid by the portfolio company and the previously incurred expenses of the fund.

Management fee offsets are reductions to management fees payable by our limited partners, which are granted based on the amount of expense incurred by our limited partners for placement fees.

Advisory fees consist of advisory retainer and transaction-based fee arrangements related to merger, acquisition, restructuring and divestiture activities and fund placement services for alternative investment funds. Advisory retainer fees are recognized when services for the transactions are complete, in accordance with terms set forth in individual agreements. Transaction-based fees are recognized when (a) there is evidence of an arrangement with a client, (b) agreed upon services have been provided, (c) fees are fixed or determinable and (d) collection is reasonably assured. Fund placement fees are recognized as earned upon the acceptance by a fund of capital or capital commitments.

Accrued but unpaid Management and Advisory Fees, net of management fee reductions and management fee offsets, as of the reporting date, are included in Accounts Receivable or Due From Affiliates in the Condensed Consolidated Statements of Financial Condition.

Performance Fees and Allocations — Performance fees earned on the performance of Blackstone’s hedge fund structures are recognized based on fund performance during the period, subject to the achievement of minimum return levels, or high water marks, in accordance with the respective terms set out in each hedge fund’s governing agreements. Accrued but unpaid performance fees charged directly to investors in Blackstone’s offshore hedge funds as of the reporting date are recorded within Due from Affiliates in the Condensed Consolidated Statements of Financial Condition. Performance fees arising on Blackstone’s onshore hedge funds are allocated to the general partner. Accrued but unpaid performance fees on onshore funds as of the reporting date are reflected in Investments in the Condensed Consolidated Statements of Financial Condition.

In certain fund structures, specifically in private equity, real estate and certain credit-oriented funds (“Carry Funds”), performance fees (“Carried Interest”) are allocated to the general partner based on cumulative fund performance to date, subject to a preferred return to limited partners. At the end of each reporting period, the Partnership calculates the Carried Interest that would be due to the Partnership for each fund, pursuant to the fund agreements, as if the fair value of the underlying investments were realized as of such date, irrespective of whether such amounts have been realized. As the fair value of underlying investments varies between reporting periods, it is necessary to make adjustments to amounts recorded as Carried Interest to reflect either (a) positive performance resulting in an increase in the Carried Interest allocated to the general partner or (b) negative performance resulting in a negative adjustment to Carried Interest allocated to the general partner, that would

cause the amount due to the Partnership to be less than the amount previously recognized as revenue. In each scenario, it is necessary to calculate the Carried Interest on cumulative results compared to the Carried Interest recorded to date and make the required positive or negative adjustments. The Partnership ceases to record negative Carried Interest allocations once previously recognized Carried Interest allocations for such fund have been fully reversed. The Partnership is not obligated to pay guaranteed returns or hurdles, and therefore cannot have negative Carried Interest over the life of a fund. Accrued but unpaid Carried Interest as of the reporting date is reflected in Investments in the Condensed Consolidated Statements of Financial Condition.

Carried Interest is realized when an underlying investment is profitably disposed of and the fund’s cumulative returns are in excess of the preferred return. Performance fees earned on hedge fund structures are realized at the end of each fund’s measurement period.

Carried Interest is subject to clawback to the extent that the Carried Interest actually distributed to date exceeds the amount due to Blackstone based on cumulative results. As such, the accrual for potential repayment of previously received performance fees and allocations, which is a component of Due to Affiliates, represents all amounts previously distributed to Blackstone Holdings and non-controlling interest holders that would need to be repaid to the Blackstone Funds if the Blackstone Carry Funds were to be liquidated based on the current fair value of the underlying funds’ investments as of the reporting date. Generally, the actual clawback liability does not become realized until the end of a fund’s life or, for our real estate funds, after a realized loss is incurred, depending on the fund.

Investment Income (Loss) — Investment Income (Loss) represents the unrealized and realized gains and losses on the Partnership’s principal investments, including its investments in Blackstone Funds that are not consolidated, its equity method investments, and other principal investments. Investment Income (Loss) is realized when the Partnership redeems all or a portion of its investment or when the Partnership receives cash income, such as dividends or distributions, from its non-consolidated funds. Unrealized Investment Income (Loss) results from changes in the fair value of the underlying investment as well as the reversal of unrealized gain (loss) at the time an investment is realized.

Interest and Dividend Revenue — Interest and Dividend Revenue comprises primarily interest and dividend income earned on principal investments held by Blackstone.

Other Revenue — Other Revenue comprises primarily foreign exchange gains and losses arising on transactions denominated in currencies other than U.S. dollars.

Expenses

Compensation and Benefits — Base Compensation — Base compensation and benefits consists of (a) employee compensation, comprising salary and bonus, and benefits paid and payable to employees, including senior managing directors and (b) equity-based compensation associated with the grants of equity-based awards to employees, including senior managing directors.

Equity-Based Compensation — Compensation cost relating to the issuance of share-based awards to employees, including senior managing directors, is measured at fair value at the grant date, taking into consideration expected forfeitures, and expensed over the vesting period on a straight line basis. Equity-based awards that do not require future service are expensed immediately. Cash settled equity-based awards are classified as liabilities and are re-measured at the end of each reporting period.

performance fee allocations (see “Revenue Recognition”). Such compensation expense is recognized in the same manner as Carried Interest and performance fee allocations and is subject to both positive and negative adjustments as a result of changes in underlying fund performance.

Other Operating Expenses. Other operating expenses represent general and administrative expenses including interest expense, occupancy and equipment expenses and other expenses, which consist principally of professional fees, public company costs, travel and related expenses, communications and information services and depreciation and amortization.

Fund Expenses. The expenses of our consolidated Blackstone Funds consist primarily of interest expense, professional fees and other third-party expenses.

Non-Controlling Interests in Consolidated Entities

Non-Controlling Interests in Consolidated Entities represent the component of Partners’ Capital in consolidated entities held by third party investors. Such interests are adjusted for general partner allocations and by subscriptions and redemptions in funds of hedge funds and certain credit-oriented funds which occur during the reporting period. Non-controlling interests related to funds of hedge funds and certain other credit-oriented funds are subject to annual, semi-annual or quarterly redemption by investors in these funds following the expiration of a specified period of time (typically between one and three years), or may be withdrawn subject to a redemption fee in the funds of hedge funds and certain credit-oriented funds during the period when capital may not be withdrawn. As limited partners in these types of funds have been granted redemption rights, amounts relating to third party interests in such consolidated funds are presented as Redeemable Non-Controlling Interests in Consolidated Entities within the Condensed Consolidated Statements of Financial Condition. When redeemable amounts become legally payable to investors, they are classified as a liability. For all consolidated funds in which redemption rights have not been granted, non-controlling interests are presented within Partners’ Capital in the Condensed Consolidated Statements of Financial Condition as Non-Controlling Interests in Consolidated Entities.

Income Taxes

The Blackstone Holdings partnerships and certain of their subsidiaries operate in the U.S. as partnerships for U.S. federal income tax purposes and generally as corporate entities in non-U.S. jurisdictions. Accordingly, these entities in some cases are subject to New York City unincorporated business taxes or non-U.S. income taxes. In addition, certain of the wholly-owned subsidiaries of the Partnership and the Blackstone Holdings partnerships will be subject to federal, state and local corporate income taxes at the entity level and the related tax provision attributable to the Partnership’s share of this income is reflected in the Condensed Consolidated Financial Statements.

Income taxes are accounted for using the liability method of accounting. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax basis, using currently enacted tax rates. The effect on deferred assets and liabilities of a change in tax rates is recognized in income in the period when the change is enacted. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is required in determining tax expense and in evaluating tax positions including evaluating uncertainties under accounting principles generally accepted in the United States of America (“GAAP”). Blackstone reviews its tax positions quarterly and adjusts its tax balances as new information becomes available.

Blackstone analyzes its tax filing positions in all of the U.S. federal, state, local and foreign tax jurisdictions where it is required to file income tax returns, as well as for all open tax years in these jurisdictions. If, based on this analysis, the Partnership determines that uncertainties in tax positions exist, a reserve is established. Blackstone recognizes accrued interest and penalties related to uncertain tax positions in General, Administrative, and Other expenses within the Condensed Consolidated Statements of Operations.

There remains some uncertainty regarding Blackstone’s future taxation levels. In 2007, Congress considered legislation that would tax as corporations publicly traded partnerships that directly or indirectly derive income from investment adviser or asset management services.

In 2008, the U.S. House of Representatives passed a bill that would generally (a) treat Carried Interest as non-qualifying income under the tax rules applicable to publicly traded partnerships, which would generally require us to hold interests in entities earning such income through taxable subsidiary corporations by the end of 2010, and (b) tax Carried Interest as ordinary income for U.S. federal income tax purposes, rather than in accordance with the character of income derived by the underlying fund, which is in many cases capital gain, starting with our 2008 taxable year.

In December 2009, the U.S. House of Representatives passed substantially similar legislation. Such legislation would tax Carried Interest as ordinary income starting this taxable year. However, under a transition rule, the portion of such legislation treating Carried Interest as non-qualifying income under the tax rules applicable to publicly traded partnerships would not apply until our first taxable year beginning ten years after the date of the enactment of the legislation.

In May 2010, the U.S. House of Representatives passed similar legislation that would generally tax, after 2010, income and gains, including gain on sale, attributable to an interest in an investment services partnership interest, or “ISPI”, as income subject to a new blended tax rate that is higher than the capital gains rate applicable to such income under current law, except to the extent an ISPI is considered to be qualified capital interest under the legislation. The interests we hold in entities that are entitled to receive Carried Interest would likely be classified as ISPIs for purposes of this legislation. The legislation provides that, for taxable years beginning ten years after the date of enactment, income derived with respect of an ISPI that is not a qualified capital interest and that is treated as ordinary income under this legislation will not be qualifying income under the tax rules applicable to publicly traded partnerships. Therefore, if this or similar legislation is passed, we generally would be required to hold interests in entities earning income from Carried Interest through taxable subsidiary corporations following such ten-year period.

The Obama administration has indicated it supports the adoption of the May 2010 legislation or legislation that similarly changes the treatment of Carried Interest for U.S. federal income tax purposes. In its published revenue proposals for both 2010 and 2011, the Obama administration proposed that the current law regarding the treatment of Carried Interest be changed to subject such income to ordinary income tax. In June 2010, the U.S. Senate considered but did not pass legislation that is generally similar to the legislation passed by the U.S. House of Representatives in May 2010. It is unclear when or whether the U.S. Senate will act on such legislation or if enacted, what provision will be included in any final legislation.

If we were taxed as a corporation or were forced to hold interests in entities earning income from Carried Interest through taxable subsidiary corporations, our effective tax rate could increase significantly. The federal statutory rate for corporations is currently 35%, and the state and local tax rates, net of the federal benefit, aggregate approximately 10%. If a variation of the above described legislation or any other change in the tax laws, rules, regulations or interpretations preclude us from qualifying for treatment as a partnership for U.S. federal income tax purposes under the publicly traded partnership rules or force us to hold interests in entities earning income from Carried Interest through taxable subsidiary corporations, this could materially increase our tax liability, and could well result in a reduction in the market price of our common units.

It is not possible at this time to meaningfully quantify the potential impact on Blackstone of this potential future legislation or any similar legislation. Multiple versions of legislation in this area have been proposed over

the last few years that have included significantly different provisions regarding effective dates and the treatment of invested capital, tiered entities and cross-border operations, among other matters. Depending upon what version of the legislation, if any, were enacted, the potential impact on a public company such as Blackstone in a given year could differ dramatically and could be material. In addition, these legislative proposals would not themselves impose a tax on a publicly traded partnership such as Blackstone. Rather, they could force Blackstone and other publicly traded partnerships to restructure their operations so as to prevent disqualifying income from reaching the publicly traded partnership in amounts that would disqualify the partnership from treatment as a partnership for U.S. federal income tax purposes. Such a restructuring could result in more income being earned in corporate subsidiaries, thereby increasing corporate income tax liability indirectly borne by the publicly traded partnership. The nature of any such restructuring would depend on the precise provisions of the legislation that was ultimately enacted, as well as the particular facts and circumstances of Blackstone’s operations extant at the time any such legislation were to take effect, making the task of predicting the amount of additional tax highly speculative.

Economic Net Income

Blackstone uses Economic Net Income, or “ENI”, as a key measure of value creation and as a benchmark of its performance. ENI represents segment net income excluding the impact of income taxes and initial public offering (“IPO”) and acquisition-related items, including charges associated with equity-based compensation, the amortization of intangibles and corporate actions including acquisitions. For segment reporting purposes, revenues and expenses are presented on a basis that deconsolidates the investment funds we manage. Total Segment ENI equals the aggregate of ENI for all segments. ENI is used by management primarily in making resource deployment and compensation decisions across Blackstone’s four segments. (See Note 16. “Segment Reporting” in the “Notes to the Condensed Consolidated Financial Statements” in Part I. Item 1. Financial Statements.)

Distributable Earnings

Distributable Earnings, which is derived from our segment reported results, is a supplemental measure to assess performance and amounts available for distributions to Blackstone unitholders, including Blackstone personnel and others who are limited partners of the Blackstone Holdings partnerships. Distributable Earnings, which is a non-GAAP measure, is intended to show the amount of net realized earnings without the effects of the consolidation of the Blackstone Funds. Distributable Earnings is derived from, but not equivalent to, its most directly comparable GAAP measure of Income (Loss) Before Provision for Taxes. See “— Liquidity and Capital Resources — Liquidity and Capital Resources” below for our detailed discussion of Distributable Earnings.

Distributable Earnings, which is a component of Economic Net Income, is the sum across all Total Segments of: (a) Total Management and Advisory Fees, (b) Interest and Dividend Revenue, (c) Other Revenue, (d) Realized Performance Fees and Allocations, and (e) Realized Investment Income (Loss); less (a) Base Compensation, (b) Realized Performance Fee Related Compensation, (c) Other Operating Expenses and (d) Cash Taxes and Payables Under the Tax Receivable Agreement. Distributable Earnings is reconciled to Blackstone’s Consolidated Statement of Operations. It is Blackstone’s current intention that on an annual basis it will distribute to unitholders all of its Distributable Earnings in excess of amounts determined by its general partner to be necessary or appropriate to provide for the conduct of its business, to make appropriate investments in its business and funds, to comply with applicable law, any of its debt instruments or other agreements, or to provide for future distributions to its unitholders for any ensuing quarter.

Net Fee Related Earnings from Operations

Blackstone uses Net Fee Related Earnings from Operations as a key measure to highlight earnings from operations excluding: (a) the income related to performance fees and allocations and related performance fee related compensation costs, (b) income earned from Blackstone’s investments in the Blackstone Funds, and (c) realized and unrealized gains (losses) from other investments except for such gains (losses) from Blackstone’s

Treasury cash management strategies. Management uses Net Fee Related Earnings from Operations as a measure to assess whether recurring revenue from our businesses is sufficient to adequately cover all of our operating expenses and generate profits. Net Fee Related Earnings from Operations equals contractual fee revenues and interest income, less (a) compensation expenses (which includes amortization of non-IPO and non-acquisition-related equity-based awards, but excludes amortization of IPO and acquisition-related equity-based awards, Carried Interest and incentive fee compensation), (b) other operating expenses and (c) cash taxes due on earnings from operations as calculated using a similar methodology as applied in calculating the current tax provision (benefit) for The Blackstone Group L.P. See “— Liquidity and Capital Resources — Liquidity and Capital Resources” below for a detailed discussion of Net Fee Related Earnings from Operations.

Operating Metrics

The alternative asset management business is a complex business that is primarily based on managing third party capital and does not require substantial capital investment to support rapid growth. However, there also can be volatility associated with its earnings and cash flows. Since our inception, we have developed and used various key operating metrics to assess and monitor the operating performance of our various alternative asset management businesses in order to monitor the effectiveness of our value creating strategies.

Assets Under Management. Assets Under Management refers to the assets we manage. Our Assets Under Management equal the sum of:

(a)

(b)

the net asset value of our funds of hedge funds, hedge funds and our closed-end mutual funds;

(c)

the fair value of assets we manage pursuant to separately managed accounts; and

(d)

the amount of capital raised for our CLOs.

Fee-Earning Assets Under Management. Fee-Earning Assets Under Management refers to the assets we manage on which we derive management and / or incentive fees. Our Fee-Earning Assets Under Management generally equal the sum of:

(a)

for our Blackstone Capital Partners (“BCP”) and Blackstone Real Estate Partners (“BREP”) funds where the investment period has not expired, the amount of capital commitments;

(b)

for our BCP and BREP funds where the investment period has expired, the remaining amount of invested capital;

(c)

for our real estate debt investment funds, the remaining amount of invested capital;

(d)

for our credit-oriented carry funds, the amount of invested capital (which may be calculated to include leverage) or net asset value;

(e)

the invested capital of co-investments arranged by us that were made by limited partners of our funds in portfolio companies of such funds and on which we receive fees;

(f)

the net asset value of our funds of hedge funds, hedge funds and our closed-end mutual funds;

(g)

the fair value of assets we manage pursuant to separately managed accounts; and

(h)

the gross amount of assets of our CLOs at cost.

Limited Partner Capital Invested. Limited Partner Capital Invested represents the amount of Limited Partner capital commitments which were invested by our carry funds during each period presented, plus the capital invested through co-investments arranged by us that were made by limited partners in investments of our carry funds on which we receive fees or a Carried Interest allocation.

We manage our business using traditional financial measures and our key operating metrics since we believe that these metrics measure the productivity of our investment activities.

Consolidated Results of Operations

Following is a discussion of our consolidated results of operations for the three and six months ended June 30, 2010 and 2009. For a more detailed discussion of the factors that affected the results of our four business segments (which are presented on a basis that deconsolidates the investment funds we manage) in these periods, see “— Segment Analysis” below.

The following table sets forth information regarding our consolidated results of operations and certain key operating metrics for the three and six months ended June 30, 2010 and 2009.


	Three Months Ended June 30,						2010 vs. 2009					Six Months Ended June 30,						2010 vs. 2009
	2010			2009			$			%		2010			2009			$			%
	(Dollars in Thousands)
Revenues
Management and Advisory Fees	$	406,062		$	340,829		$	65,233		19	%	$	760,882		$	682,001		$	78,881		12	%
Performance Fees and Allocations
Realized		51,750			4,810			46,940		N/M			105,799			5,456			100,343		N/M
Unrealized		(19,299	)		66,361			(85,660	)	N/M			112,480			(148,533	)		261,013		N/M

Total Performance Fees and Allocations		32,451			71,171			(38,720	)	-54	%		218,279			(143,077	)		361,356		N/M

Investment Income (Loss)
Realized		10,225			1,346			8,879		N/M			15,951			1,277			14,674		N/M
Unrealized		95,043			(12,295	)		107,338		N/M			244,263			(94,679	)		338,942		N/M

Total Investment Income (Loss)		105,268			(10,949	)		116,217		N/M			260,214			(93,402	)		353,616		N/M

Interest and Dividend Revenue		6,952			2,294			4,658		N/M			15,847			4,421			11,426		N/M
Other		(645	)		3,071			(3,716	)	N/M			(3,895	)		1,387			(5,282	)	N/M

Total Revenues		550,088			406,416			143,672		35	%		1,251,327			451,330			799,997		177	%

Expenses
Compensation and Benefits
Base Compensation		967,711			962,082			5,629		1	%		1,892,661			1,882,295			10,366		1	%
Performance Fee Related
Realized		22,879			(463	)		23,342		N/M			30,620			1,726			28,894		N/M
Unrealized		(892	)		(23,868	)		22,976		96	%		53,708			(133,923	)		187,631		N/M

Total Compensation and Benefits		989,698			937,751			51,947		6	%		1,976,989			1,750,098			226,891		13	%
General, Administrative and Other		121,183			112,276			8,907		8	%		227,562			217,876			9,686		4	%
Interest Expense		7,682			87			7,595		N/M			14,867			1,486			13,381		N/M
Fund Expenses		9,203			1,592			7,611		N/M			9,062			4,604			4,458		97	%

Total Expenses		1,127,766			1,051,706			76,060		7	%		2,228,480			1,974,064			254,416		13	%

Other Income (Loss)
Net Gains (Losses) from Fund Investment Activities		(59,250	)		58,304			(117,554	)	N/M			112,554			23,541			89,013		N/M

Income (Loss) Before Provision for Taxes		(636,928	)		(586,986	)		(49,942	)	-9	%		(864,599	)		(1,499,193	)		634,594		42	%
Provision for Taxes		19,392			10,885			8,507		78	%		29,027			28,616			411		1	%

Net Income (Loss)		(656,320	)		(597,871	)		(58,449	)	-10	%		(893,626	)		(1,527,809	)		634,183		42	%
Net Income (Loss) Attributable to Redeemable Non-Controlling Interests in Consolidated Entities		(421	)		37,638			(38,059	)	N/M			23,548			40,234			(16,686	)	-41	%
Net Income (Loss) Attributable to Non- Controlling Interests in Consolidated Entities		(57,873	)		3,959			(61,832	)	N/M			78,093			(37,072	)		115,165		N/M
Net Income (Loss) Attributable to Non- Controlling Interests in Blackstone Holdings		(404,706	)		(475,184	)		70,478		15	%		(680,570	)		(1,135,113	)		454,543		40	%

Net Income (Loss) Attributable to The Blackstone Group L.P.	$	(193,320	)	$	(164,284	)	$	(29,036	)	-18	%	$	(314,697	)	$	(395,858	)	$	81,161		21	%

Revenues

Total Revenues were $550.1 million for the three months ended June 30, 2010, an increase of $143.7 million compared to Total Revenues for the three months ended June 30, 2009 of $406.4 million. The increase in revenues was primarily attributable to an increase of $116.2 million in Investment Income (Loss) and an increase of $65.2 million in Management and Advisory Fees which were partially offset by a decrease of $38.7 million in Performance Fees and Allocations. The improvement in Investment Income (Loss) was driven by increases in the underlying portfolio investments in our Real Estate segment. The increase in Management and Advisory Fees was primarily due to increases in Advisory fees from our fund placement business and our restructuring and reorganization business which are included in our Financial Advisory segment as well as increases in Base Management Fees in our Credit and Marketable Alternatives segment driven by higher Fee-Earning Assets Under Management from positive inflows in our funds of hedge funds business. The decrease in Performance Fees and Allocations was primarily driven by our Private Equity segment in which certain funds reversed previously accrued performance fees and allocations primarily due to a decrease in the share price of certain public investments. This decrease in Performance Fees and Allocations was partially offset by an increase in our Real Estate segment which was driven by improved performance of our real estate carry funds as operating performance and projected cash flows improved in certain portfolio investments. Our real estate carry funds had a net IRR of 17% in the second quarter of 2010 compared to negative 20% in the second quarter of 2009. The Realized Performance Fees and Allocations of $51.8 million were primarily attributable to the Real Estate and Credit and Marketable Alternatives segments with $16.3 million and $28.9 million, respectively.

Total Revenues were $1.3 billion for the six months ended June 30, 2010, an increase of $800.0 million compared to Total Revenues for the six months ended June 30, 2009 of $451.3 million. The increase in revenues was primarily attributable to an increase of $361.4 million in Performance Fees and Allocations, an increase of $353.6 million in Investment Income (Loss) and an increase of $78.9 million in Management and Advisory Fees. The increase in Performance Fees and Allocations was primarily driven by improved performance of our real estate carry funds in our Real Estate segment and our credit oriented funds and funds of hedge funds in our Credit and Marketable Alternatives segment. Investment Income (Loss) improved primarily due to increases in the underlying portfolio investments in our Real Estate and Private Equity segments. The increase in Management and Advisory Fees was primarily due to increases in Advisory Fees from our fund placement business which is included in our Financial Advisory segment, increases in Base Management Fees in our Credit and Marketable Alternatives segment driven by higher Fee-Earning Assets Under Management from positive inflows in our funds of hedge funds business and an increase in Transaction Fees in our Private Equity segment driven by a one-time fee related to the exit of one of our BCP investments.

Expenses

Expenses were $1.1 billion for the three months ended June 30, 2010, an increase of $76.1 million, or 7%, compared to $1.1 billion for the three months ended June 30, 2009. The increase was primarily attributable to an increase in Compensation and Benefits to $989.7 million from $937.8 million in 2009. Performance Fee Related Compensation was $22.0 million for the current year, an increase of $46.3 million, and Base Compensation was $967.7 million for the current year, an increase of $5.6 million. General, Administrative and Other expenses were $121.2 million for the current year, an increase of $8.9 million driven by an increase in costs related to our fund-raising efforts in our Private Equity segment and the launching of new products in our Credit and Marketable Alternatives segment. Our expenses are primarily driven by levels of business activity, revenue growth and headcount.

Expenses were $2.2 billion for the six months ended June 30, 2010, an increase of $254.4 million, or 13%, compared to $2.0 billion for the six months ended June 30, 2009. The increase was primarily attributable to an increase of $226.9 million in Compensation and Benefits driven by an increase in Performance Fee Related Compensation due to improved performance in our Real Estate segment and our credit oriented funds and funds of hedge funds in our Credit and Marketable Alternatives segment. Base Compensation was $1.9 billion,

relatively unchanged from the prior year period. General Administrative and Other expenses were $227.6 million for the current year, an increase of $9.7 million driven by the same factors as for the quarterly period noted above.

Other Income (Loss)

Other Income (Loss) was $(59.3) million for the three months ended June 30, 2010, a decrease of $117.6 million compared to $58.3 million for the three months ended June 30, 2009. The change was due to negative performance of our consolidated CLO vehicles for the three months ended June 30, 2010.

Other Income (Loss) was $112.6 million for the six months ended June 30, 2010, an increase of $89.0 million compared to $23.5 million for the six months ended June 30, 2009. The change was principally driven by an increase in income generated by our Private Equity and Real Estate consolidated side-by-side entities.

Operating Metrics

The following table presents certain operating metrics for the three and six months ended June 30, 2010 and 2009. For a description of how Assets Under Management and Fee-Earning Assets Under Management are determined, please see “— Key Financial Measures and Indicators — Operating Metrics — Assets Under Management and Fee-Earning Assets Under Management.”


	Three Months Ended June 30,						2010 vs. 2009					Six Months Ended June 30,						2010 vs. 2009
	2010			2009			$			%		2010			2009			$			%
	(Dollars in Thousands)
Fee-Earning Assets Under Management
Balance, Beginning of Period	$	98,070,172		$	92,227,566		$	5,842,606		6	%	$	96,096,997		$	91,041,057		$	5,055,940		6	%
Inflows, including Commitments (a)		6,282,532			1,223,055			5,059,477		N/M			8,783,150			3,889,780			4,893,370		126	%
Outflows, including Distributions (b)		(1,966,897	)		(2,517,887	)		550,990		22	%		(2,931,235	)		(3,524,147	)		592,912		17	%
Market Appreciation (Depreciation) (c)		(965,826	)		2,572,668			(3,538,494	)	N/M			(528,931	)		2,098,712			(2,627,643	)	N/M

Balance, End of Period (d)	$	101,419,981		$	93,505,402		$	7,914,579		8	%	$	101,419,981		$	93,505,402		$	7,914,579		8	%

Assets Under Management (End of Period) (d)	$	111,148,410		$	93,468,481		$	17,679,929		19	%	$	111,148,410		$	93,468,481		$	17,679,929		19	%

Capital Deployed
Limited Partner Capital Invested	$	1,377,717		$	703,056		$	674,661		96	%	$	2,347,541		$	1,322,678		$	1,024,863		77	%

(a)

Inflows represent contributions in our hedge funds and closed-end mutual funds, increases in available capital for our carry funds (capital raises, recallable capital and increased side-by-side commitments) and CLOs and increases in the capital we manage pursuant to separately managed account programs.

(b)

Outflows represent redemptions in our hedge funds and closed-end mutual funds, client withdrawals from our separately managed account programs, decreases in available capital for our carry funds (expired capital, expense drawdowns and decreased side-by-side commitments) and realizations from the disposition of assets by our carry funds. Also included is the distribution of funds associated with the discontinuation of our proprietary single manager hedge funds.

(c)	Market appreciation (depreciation) includes realized and unrealized gains (losses) on portfolio investments and the impact of foreign exchange rate fluctuations.

(d)	Fee-Earning Assets Under Management and Assets Under Management include $505.0 million from a joint venture in which we are the minority interest holder.

Fee-Earning Assets Under Management

Fee-Earning Assets Under Management were $101.4 billion at June 30, 2010, an increase of $7.9 billion, or 8%, compared with $93.5 billion at June 30, 2009. The $7.9 billion increase was attributed to a $7.7 billion increase

in our Credit and Marketable Alternatives segment driven primarily by net inflows of $4.0 billion which included the acquisition on April 1, 2010 of $3.5 billion of collateralized debt obligations and CLO vehicles and $2.8 billion of market appreciation primarily driven by our funds of hedge funds business.

Assets Under Management

Assets Under Management were $111.1 billion at June 30, 2010, an increase of $17.7 billion, or 19%, compared with $93.5 billion at June 30, 2009. The $17.7 billion increase was attributed to a $9.5 billion increase in our Credit and Marketable Alternatives segment driven by market appreciation of $4.1 billion primarily in our funds of hedge funds and credit-oriented funds and the acquisition on April 1, 2010 of $3.5 billion of collateralized debt obligations and CLO vehicles. A $4.5 billion increase in our Private Equity segment was driven by market appreciation of $5.8 billion and net inflows of $1.1 billion which was partially offset by $2.3 billion of realizations, while a $3.7 billion increase in our Real Estate segment was driven by market appreciation of $2.8 billion and net inflows of $0.9 billion.

Limited Partner Capital Invested

Limited Partner Capital Invested was $1.4 billion for the three months ended June 30, 2010, an increase of $674.7 million, or 96%, compared to $703.1 million for the three months ended June 30, 2009. Limited Partner Capital Invested was $2.3 billion for the six months ended June 30, 2010, an increase of $1.0 billion, or 77%, compared to $1.3 billion for the six months ended June 30, 2009. The change reflected an increase in the size and volume of consummated transactions compared to the prior year.

Segment Analysis

Discussed below is our ENI 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.

For segment reporting purposes, revenues and expenses are presented on a basis that deconsolidates the investment funds we manage. As a result, segment revenues are greater than those presented on a consolidated GAAP basis because fund management fees recognized in certain segments are received from the Blackstone Funds and eliminated in consolidation when presented on a consolidated GAAP basis. Furthermore, segment expenses are lower than related amounts presented on a consolidated GAAP basis due to the exclusion of fund expenses that are paid by Limited Partners and the elimination of non-controlling interests.

Private Equity

The following table presents our results of operations for our Private Equity segment:


	Three Months Ended June 30,						2010 vs. 2009					Six Months Ended June 30,						2010 vs. 2009
	2010			2009			$			%		2010			2009			$			%
	(Dollars in Thousands)
Segment Revenues
Management Fees
Base Management Fees	$	66,795		$	67,740		$	(945	)	-1	%	$	132,227		$	136,171		$	(3,944	)	-3	%
Transaction and Other Fees, Net		16,367			15,145			1,222		8	%		48,339			25,473			22,866		90	%

Total Management Fees		83,162			82,885			277		0	%		180,566			161,644			18,922		12	%

Performance Fees and Allocations
Realized		1,106			—			1,106		N/M			47,281			—			47,281		N/M
Unrealized		(24,020	)		97,185			(121,205	)	N/M			21,529			102,003			(80,474	)	-79	%

Total Performance Fees and Allocations		(22,914	)		97,185			(120,099	)	N/M			68,810			102,003			(33,193	)	-33	%

Investment Income (Loss)
Realized		3,141			102			3,039		N/M			2,646			(242	)		2,888		N/M
Unrealized		17,275			17,118			157		1	%		101,959			1,953			100,006		N/M

Total Investment Income (Loss)		20,416			17,220			3,196		19	%		104,605			1,711			102,894		N/M
Interest and Dividend Revenue		2,728			824			1,904		N/M			6,156			672			5,484		N/M
Other		460			472			(12	)	-3	%		560			652			(92	)	-14	%

Total Revenues		83,852			198,586			(114,734	)	-58	%		360,697			266,682			94,015		35	%

Expenses
Compensation and Benefits
Base Compensation		46,612			40,667			5,945		15	%		93,522			77,515			16,007		21	%
Performance Fee Related
Realized		128			(3	)		131		N/M			6,133			(9	)		6,142		N/M
Unrealized		(10,296	)		13,599			(23,895	)	N/M			(3,952	)		(28,367	)		24,415		86	%

Total Compensation and Benefits		36,444			54,263			(17,819	)	-33	%		95,703			49,139			46,564		95	%
Other Operating Expenses		28,677			20,553			8,124		40	%		53,108			40,661			12,447		31	%

Total Expenses		65,121			74,816			(9,695	)	-13	%		148,811			89,800			59,011		66	%

Economic Net Income	$	18,731		$	123,770		$	(105,039	)	-85	%	$	211,886		$	176,882		$	35,004		20	%

Revenues

Revenues were $83.9 million for the three months ended June 30, 2010, a decrease of $114.7 million compared to $198.6 million for the three months ended June 30, 2009. The decrease in revenues was primarily attributed to a decrease of $120.1 million in Performance Fees and Allocations which was partially offset by an increase of $3.2 million in Investment Income (Loss). Total Management Fees remained relatively unchanged.

Performance Fees and Allocations, which are determined on a fund by fund basis, were $(22.9) million for the three months ended June 30, 2010, a decrease of $120.1 million, compared to $97.2 million for the three months ended June 30, 2009, principally driven by BCP IV and BCOM, which generated gross returns of (1.1)%

and (8.7)%, respectively, for the three months ended June 30, 2010 compared to 11.5% and (1.3)%, respectively, for the three months ended June 30, 2009. Investment Income (Loss) was $20.4 million, an increase of $3.2 million, compared to $17.2 million for the three months ended June 30, 2009, principally driven by BCP V, which generated a gross return of 4.5% for the three months ended June 30, 2010 compared to approximately flat performance for the three months ended June 30, 2009. Overall, our BCP funds had a net IRR of 2.3% for the quarter, compared to 4.2% in the second quarter of 2009. Continued improvement in the performance of our private portfolio was offset by decreases in the share prices of certain of our public investments and foreign exchange rates. The fair value appreciation for the current quarter in our private portfolio was primarily due to continued improvement in operating performance driven by companies in the hospitality, leisure and healthcare sectors. At a fund level, the appreciation in fair value of our private portfolio was primarily attributed to BCP V generating $19.5 million in Investment Income while BCP IV had $(11.3) million and $(1.4) million in Performance Fees and Allocations and Investment Income (Loss), respectively, and BCOM had $(11.6) million in Performance Fees and Allocations and $(2.0) million in Investment Income (Loss). At June 30, 2010, the unrealized value and cumulative realized proceeds, before Carried Interest, fees and expenses, of our contributed private equity funds represented 1.4 times investors’ original investments; excluding funds which are still in their Investment Period, the historical returns were 2.2 times investors’ original investments.

Realized Investment Income (Loss) was $3.1 million for the three months ended June 30, 2010, an increase of $3.0 million compared to $0.1 million for the three months ended June 30, 2009.

Total Management Fees were $83.2 million for the three months ended June 30, 2010, an increase of $0.3 million compared to $82.9 million for the three months ended June 30, 2009. Base Management Fees and Transaction and Other Fees remained relatively unchanged at $66.8 million and $16.4 million, respectively.

Revenues were $360.7 million for the six months ended June 30, 2010, an increase of $94.0 million compared to $266.7 million for the six months ended June 30, 2009. The increase was primarily due to an increase of $102.9 million in Investment Income (Loss), partially offset by a reduction in Performance Fees and Allocations of $33.2 million. The increase in Investment Income (Loss) was due to the overall increase in the unrealized value for our BCP funds, which resulted in a net IRR of 18.1% for the six months ended June 30, 2010 compared to negative 1% for the six months ended June 30, 2009. In 2009, BCP IV contributed $124.0 million of Performance Fees and Allocations compared to $81.0 million in the six months ended June 30, 2010. Additionally, Total Management Fees rose $18.9 million from the prior year to $180.6 million in the six months ended June 30, 2010, primarily due to a one-time fee earned in the first quarter related to the exit of one of our fund investments.

The Realized Performance Fees and Allocations for the six months ended June 30, 2010 of $47.3 million was primarily attributable to the secondary offering of TRW Automotive, one of our publicly traded portfolio investments, and distributions from certain of our investments in the financial services industries. Realized Investment Income (Loss) was $2.6 million for the six months ended June 30, 2010, an increase of $2.9 million compared to $(0.2) million for the six months ended June 30, 2009.

Expenses

Expenses were $65.1 million for the three months ended June 30, 2010, a decrease of $9.7 million, compared to $74.8 million for the three months ended June 30, 2009. The $9.7 million decrease was primarily attributed to a $23.8 million decrease in Performance Fee Related Compensation, which was partially offset by increases of $8.1 million and $5.9 million in Other Operating Expenses and Base Compensation, respectively. Performance Fee Related Compensation decreased $23.8 million to $(10.2) million compared to the prior year period, primarily due to the negative performance in BCP IV and BCOM which resulted in the reversal of prior period accrued performance fees related to unrealized valuation reductions on certain investments. Other Operating Expenses increased $8.1 million to $28.7 million, principally due to an increase in interest expense and fund raising costs.

Expenses were $148.8 million for the six months ended June 30, 2010, an increase of $59.0 million compared to $89.8 million for the six months ended June 30, 2009. The $59.0 million increase was primarily attributed to a $46.6 million increase in Compensation and Benefits and a $12.4 million increase in Other Operating Expenses. Performance Fee Related Compensation increased $30.6 million primarily due to the fact that the six months ended June 30, 2009 included a $28.4 million reversal of prior period Carried Interest allocations to certain personnel, a result of the net depreciation in fair value of certain portfolio investments, compared with a reversal of $4.0 million in the six months ended June 30, 2010. Base Compensation increased $16.0 million. Other Operating Expenses increased $12.4 million, driven principally by an increase in interest expense and fund-raising costs.

Operating Metrics

The following operating metrics are used in the management of this business segment:


	Three Months Ended June 30,						2010 vs. 2009					Six Months Ended June 30,						2010 vs. 2009
	2010			2009			$			%		2010			2009			$			%
	(Dollars in Thousands)
Fee-Earning Assets Under Management
Balance, Beginning of Period	$	25,173,936		$	25,461,139		$	(287,203	)	-1	%	$	24,521,394		$	25,509,163		$	(987,769	)	-4	%
Inflows, including Commitments		49,452			39,552			9,900		25	%		866,350			76,675			789,675		N/M
Outflows, including Distributions		(8,828	)		—			(8,828	)	N/M			(180,458	)		(9,745	)		(170,713	)	N/M
Market Appreciation (Depreciation)		(24,365	)		(256,641	)		232,276		91	%		(17,091	)		(332,043	)		314,952		95	%

Balance, End of Period (a)	$	25,190,195		$	25,244,050		$	(53,855	)	-0	%	$	25,190,195		$	25,244,050		$	(53,855	)	-0	%

Assets Under Management (End of Period) (a)	$	28,360,282		$	23,866,087		$	4,494,195		19	%	$	28,360,282		$	23,866,087		$	4,494,195		19	%

Capital Deployed
Limited Partner Capital Invested	$	469,808		$	338,269		$	131,539		39	%	$	857,712		$	534,409		$	323,303		60	%

(a)	Fee-Earning Assets Under Management and Assets Under Management include $505.0 million from a joint venture in Korea in which we are the minority interest holder.

Fee-Earning Assets Under Management

Fee-Earning Assets Under Management were $25.2 billion at June 30, 2010, relatively unchanged from June 30, 2009. Inflows of $49.5 million and outflows of $8.8 million were both driven by investment activity in our funds that charge management fees based on invested capital. Market depreciation of $24.4 million in the second quarter of 2010 was due to the foreign exchange impact on management fees earned from our joint venture in Korea, which has no impact on the performance of our funds. In the second quarter of 2009, market depreciation of $256.6 million represented certain assets in our BCP IV and BCOM funds that were valued at zero and for which we are no longer entitled to charge a management fee. Despite valuing these assets at zero (reduced from their previous nominal carrying value), BCP IV and BCOM achieved net returns of 11% and 1%, respectively, and generated a combined $97.2 million in performance fees and allocations in the second quarter of 2009.

Assets Under Management

Assets Under Management were $28.4 billion at June 30, 2010, an increase of $4.5 billion, or 19%, compared with $23.9 billion at June 30, 2009. The increase was primarily due to net appreciation of $5.8 billion in the fair value of our portfolio investments and inflows of $1.1 billion, partially offset by realizations of $2.3 billion.

Limited Partner Capital Invested

Limited Partner Capital Invested was $469.8 million for the three months ended June 30, 2010, an increase of $131.5 million, or 39%, compared to $338.3 million for the three months ended June 30, 2009. Limited Partner Capital Invested was $857.7 million for the six months ended June 30, 2010, an increase of $323.3 million, or 60%, compared to $534.4 million for the six months ended June 30, 2009. The increases were primarily attributable to an increase in the average transaction size for the three and six months ended June 30, 2010 compared to the three and six months ended June 30, 2009, respectively.

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 The Blackstone Group L.P. and is also not necessarily indicative of the future performance of any particular fund. An investment in The Blackstone Group L.P. 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 Net Internal Rates of Return of our significant BCP funds:


	Net Total Change in Carrying Value (Realized and Unrealized) (a)
	Three Months Ended June 30,				Six Months Ended June 30,				June 30, 2010 Inception to Date
Fund	2010		2009		2010		2009		Total		Realized (b)
BCP IV	-1	%	11	%	8	%	12	%	39	%	62	%
BCP V	4	%	1	%	25	%	-5	%	-2	%	15	%

The returns presented herein represent those of the applicable Blackstone Funds and not those of The Blackstone Group L.P.

(a)	Net total change in carrying value (realized and unrealized) is after management fees, expenses and Carried Interest allocations.

(b)	Includes partially realized investments. Investments are considered partially realized when distributed proceeds, excluding current income (dividends, interest, etc.), are a material portion of invested capital.

The net internal rate of return for BCP IV for the quarter ended June 30, 2010 was negative compared to the positive returns in the same quarter last year due to unfavorable fluctuations in the share prices of certain of its public investments and foreign exchange rates, offset by an increase in value due to an agreement to sell a portion of an investment in the leisure sector. The net internal rate of return for BCP V for the quarter ended June 30, 2010 was higher compared to the positive returns in the same quarter last year due to continued improvement in operating performance of its private investments driven by companies in the hospitality, leisure and healthcare sectors.

The following table presents the investment record of the private equity funds from inception through June 30, 2010 for funds with closed investment periods:


	Fully Invested Funds
	Total Investments							Realized / Partially Realized Investments (a)
	Total				Net IRR (c)		MOIC (d)	Total				Net IRR (c)		MOIC (d)
Fund (Investment Period)	Invested Capital		Carrying Value (b)		Net IRR (c)		MOIC (d)	Invested Capital		Carrying Value (b) (e)		Net IRR (c)		MOIC (d)
	(Dollars in Millions)							(Dollars in Millions)
BCP I (Oct 1987 / Oct 1993)	$	679	$	1,742	19	%	2.6	$	679	$	1,742	19	%	2.6
BCP II (Oct 1993 / Aug 1997)		1,292		3,251	32	%	2.5		1,201		3,123	37	%	2.6
BCP III (Aug 1997 / Nov 2002)		4,026		7,956	13	%	2.0		3,402		6,938	18	%	2.0
BCOM (June 2000 / Jun 2006)		2,132		2,841	7	%	1.3		1,215		2,149	24	%	1.8
BCP IV (Nov 2002 / Dec 2005)		7,219		17,399	39	%	2.4		4,373		13,342	62	%	3.1

The returns presented herein represent those of the applicable Blackstone Funds and not those of The Blackstone Group L.P.

(a)	Investments are considered partially realized when distributed proceeds, excluding current income (dividends, interest, etc.), are a material portion of invested capital.

(b)	Carrying value includes realized proceeds and unrealized fair value.

(c)	The internal rate of return (“IRR”) represents the annualized inception to date IRR on total invested capital based on realized proceeds and unrealized value. Net IRR is after management fees, expenses and Carried Interest.

(d)	Multiple of Invested Capital (“MOIC”) represents carrying value, before management fees, expenses and Carried Interest, divided by total invested capital.

(e)	The Realized / Partially Realized Carrying Value includes remaining unrealized value of $1.7 billion.

The following table presents the investment record of the private equity funds from inception through June 30, 2010 for funds with open investment periods:


			Funds in the Investment Period
			Total Investments							Realized / Partially Realized Investments (a)
			Total							Total
Fund (Investment Period)	Available Capital (b)		Invested Capital		Carrying Value (c)		Net IRR (d)		MOIC (e)	Invested Capital		Carrying Value (c) (f)		Net IRR (d)		MOIC (e)
	(Dollars in Millions)									(Dollars in Millions)
BCP V (Dec 2005 / Dec 2011)	$	3,906	$	17,428	$	17,233	-2	%	1.0	$	1,504	$	2,225	15	%	1.5

The returns presented herein represent those of the applicable Blackstone Funds and not those of The Blackstone Group L.P.

(a)	Investments are considered partially realized when distributed proceeds, excluding current income (dividends, interest, etc.) are a material portion of invested capital.

(b)

Available Capital represents total capital commitments adjusted for certain expenses and expired or recallable capital, less invested capital, and includes $864.3 million committed to deals but not yet invested. The segment has $913.7 million of Available Capital that has been reserved for add-on investments in funds that are fully invested and $505.0 million in a joint venture.

(c)	Carrying value includes realized proceeds and unrealized fair value.

(d)	IRR represents the annualized inception to date IRR on total invested capital based on realized proceeds and unrealized value. Net IRR is after management fees, expenses and Carried Interest.

(e)	MOIC represents carrying value, before management fees, expenses and Carried Interest, divided by total invested capital.

(f)	The Realized / Partially Realized Carrying Value includes remaining unrealized value of $819.3 million.

The Private Equity segment has two funds with closed investment periods, BCP IV and BCOM. As of June 30, 2010, 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 deemed worthless. BCOM is below its Carried Interest threshold but above the level at which all previously recorded clawback will have reversed. Any further Carried Interest reversals for BCOM will be allocated to current and former Blackstone personnel and have no effect on our results of operations.

The following table presents the Carried Interest status of our private equity funds in their investment period which are currently not generating performance fees as of June 30, 2010:


			Gain to Cross Carried Interest Threshold (a)
Funds in the Investment Period	Available Capital (b)		Amount		% Change in Total Enterprise Value (c)
	(Dollars in Millions)
BCP V (Dec 2005 / Dec 2011)	$	3,906	$	4,599	11	%

(a)

The general partner of each fund is allocated Carried Interest when the annualized returns, net of management fees and expenses, exceed the preferred return as dictated by the fund agreements. The preferred return is calculated for each limited partner individually. The Gain to Cross Carried Interest Threshold represents the increase in equity at the fund level (excluding our side-by-side investments) that is required for the general partner to begin accruing Carried Interest, assuming the gain is earned pro-rata across the fund’s investments and is achieved at the reporting date.

(b)	Available Capital represents total capital commitments, adjusted for certain expenses and expired or recallable capital, less invested capital (including side-by-side investments).

(c)	Total Enterprise Value is the respective fund’s pro rata ownership of the privately held portfolio companies’ Enterprise Value and the Equity Value of the public portfolio companies based on fair values at the reporting date.

Real Estate

The following table presents our results of operations for our Real Estate segment:


	Three Months Ended June 30,						2010 vs. 2009					Six Months Ended June 30,						2010 vs. 2009
	2010			2009			$			%		2010			2009			$			%
	(Dollars in Thousands)
Segment Revenues
Management Fees
Base Management Fees	$	82,916		$	81,517		$	1,399		2	%	$	165,976		$	161,715		$	4,261		3	%
Transaction and Other Fees, Net		2,979			2,879			100		3	%		4,921			6,019			(1,098	)	-18	%
Management Fee Offsets		(110	)		(486	)		376		77	%		(599	)		(1,679	)		1,080		64	%

Total Management Fees		85,785			83,910			1,875		2	%		170,298			166,055			4,243		3	%

Performance Fees and Allocations
Realized		16,319			4,590			11,729		N/M			22,267			5,236			17,031		N/M
Unrealized		21,117			(51,960	)		73,077		N/M			32,508			(281,179	)		313,687		N/M

Total Performance Fees and Allocations		37,436			(47,370	)		84,806		N/M			54,775			(275,943	)		330,718		N/M

Investment Income (Loss)
Realized		3,900			1,345			2,555		190	%		6,532			2,742			3,790		138	%
Unrealized		79,543			(59,408	)		138,951		N/M			126,435			(126,647	)		253,082		N/M

Total Investment Income (Loss)		83,443			(58,063	)		141,506		N/M			132,967			(123,905	)		256,872		N/M
Interest and Dividend Revenue		2,178			197			1,981		N/M			4,896			581			4,315		N/M
Other		(390	)		2,405			(2,795	)	N/M			(2,266	)		1,736			(4,002	)	N/M

Total Revenues		208,452			(18,921	)		227,373		N/M			360,670			(231,476	)		592,146		N/M

Expenses
Compensation and Benefits
Base Compensation		44,528			39,207			5,321		14	%		84,678			75,209			9,469		13	%
Performance Fee Related
Realized		8,895			(542	)		9,437		N/M			10,419			1,596			8,823		N/M
Unrealized		15,999			(45,489	)		61,488		N/M			22,936			(120,948	)		143,884		N/M

Total Compensation and Benefits		69,422			(6,824	)		76,246		N/M			118,033			(44,143	)		162,176		N/M
Other Operating Expenses		17,647			12,978			4,669		36	%		31,937			25,593			6,344		25	%

Total Expenses		87,069			6,154			80,915		N/M			149,970			(18,550	)		168,520		N/M

Economic Net Income (Loss)	$	121,383		$	(25,075	)	$	146,458		N/M		$	210,700		$	(212,926	)	$	423,626		N/M

Revenues

Revenues were $208.5 million for the three months ended June 30, 2010, a significant improvement of $227.4 million compared to $(18.9) million for the three months ended June 30, 2009. The increase in revenues was attributable to an improvement of $141.5 million in Investment Income (Loss), an improvement of $84.8 million in Performance Fees and Allocations, and an increase of $1.9 million in Total Management Fees.

Investment Income (Loss) was $83.4 million for the three months ended June 30, 2010, an improvement of $141.5 million compared to $(58.1) million for the three months ended June 30, 2009. Performance Fees and Allocations, which are determined on a fund by fund basis, were $37.4 million for the three months ended

June 30, 2010, an improvement of $84.8 million compared to $(47.4) million for the prior year. These improvements were driven by the improved performance of our carry funds, which had a net IRR of 17% for the second quarter of 2010 compared to a net IRR of (20)% in the second quarter of 2009. The improved performance in the real estate carry funds, specifically our holdings in Hilton and EOP, was due to both improved current operating performance and projected cash flows across our investments. BREP IV, BREP Europe III and our real estate debt investment funds contributed to the improvement in Performance Fees and Allocations for the three months ended June 30, 2010. Investment Income (Loss) was driven by BREP VI. In the three months ended June 30, 2009, the funds experienced significant unrealized valuation reductions. As a result, prior period performance fees were reversed, primarily in BREP IV, resulting in a loss of $(47.4) million for the second quarter of 2009.

The Realized Performance Fees and Allocations and Investment Income (Loss) for the three months ended June 30, 2010 of $16.3 million and $3.9 million, respectively, were improved from 2009. The increase in realized Performance Fees and Allocations was driven by the positive performance of our real estate debt investment funds.

Total Management Fees were $85.8 million for the three months ended June 30, 2010, an increase of $1.9 million compared to $83.9 million for the three months ended June 30, 2009. Base Management Fees were $82.9 million for the three months ended June 30, 2010, an increase of $1.4 million compared to the prior year, driven by an increase in Fee-Earning Assets Under Management of 1% from the prior year, which was primarily from capital invested by our real estate debt investment funds.

Revenues were $360.7 million for the six months ended June 30, 2010, an increase of $592.1 million compared to $(231.5) million for the six months ended June 30, 2009. The improvement in Performance Fees and Allocations was driven by the improved performance of our carry funds as well as a decrease in the reversal of Blackstone’s prior period Carried Interest allocations. The increase in Investment Income (Loss) was due to improved performance of the segment’s funds, particularly related to our office and lodging sector investments. Specifically, for the six months ended June 30, 2010 the segment’s carry funds had a net IRR of 29% compared to (34)% during the six months ended June 30, 2009. Base Management Fees increased $4.3 million, driven by an increase of 1% in Fee-Earning Assets Under Management from June 30, 2009.

Expenses

Expenses were $87.1 million for the three months ended June 30, 2010, an increase of $80.9 million, compared to $6.2 million for the three months ended June 30, 2009. The $80.9 million increase was primarily attributed to a $70.9 million increase in Performance Fee Related Compensation, a $5.3 million increase in Base Compensation and a $4.7 million increase in Other Operating Expenses. Performance Fee Related Compensation was $24.9 million, an increase of $70.9 million compared to $(46.0) million for the prior year, a result of positive Performance Fees and Allocations revenue in the current year period compared to the reversal of prior period accrued performance fees in the prior year period. Other Operating Expenses increased $4.7 million to $17.6 million, principally due to an increase in interest expense. Realized Performance Fee Related Compensation was driven by the same factors which drove Realized Performance Fees and Allocations Revenue.

Expenses were $150.0 million for the six months ended June 30, 2010, an increase of $168.5 million, compared to $(18.6) million for the six months ended June 30, 2009. The $168.5 million increase was primarily attributed to a $152.7 million increase in Performance Fee Related Compensation, a $9.5 million increase in Base Compensation and a $6.3 million increase in Other Operating Expenses. Performance Fee Related Compensation increased $152.7 million, primarily as a result of positive Performance Fees and Allocations revenue in the current year period compared to the reversal of prior period accrued performance fees in the prior year period. Other Operating Expenses increased $6.3 million due to an increase in interest expense.

Operating Metrics

The following operating metrics are used in the management of this business segment:


	Three Months Ended June 30,						2010 vs. 2009					Six Months Ended June 30,						2010 vs. 2009
	2010			2009			$			%		2010			2009			$			%
	(Dollars in Thousands)
Fee-Earning Assets Under Management
Balance, Beginning of Period	$	23,820,697		$	22,867,992		$	952,705		4	%	$	23,708,057		$	22,970,438		$	737,619		3	%
Inflows, including Commitments		333,072			560,332			(227,260	)	-41	%		608,910			748,656			(139,746	)	-19	%
Outflows, including Distributions		(50,667	)		(135,190	)		84,523		63	%		(59,929	)		(211,956	)		152,027		72	%
Market Appreciation (Depreciation)		(261,742	)		232,047			(493,789	)	N/M			(415,678	)		18,043			(433,721	)	N/M

Balance, End of Period	$	23,841,360		$	23,525,181		$	316,179		1	%	$	23,841,360		$	23,525,181		$	316,179		1	%

Assets Under Management (End of Period)	$	23,922,589		$	20,195,478		$	3,727,111		18	%	$	23,922,589		$	20,195,478		$	3,727,111		18	%

Capital Deployed
Limited Partner Capital Invested	$	643,817		$	252,687		$	391,130		155	%	$	1,068,685		$	467,810		$	600,875		128	%

Fee-Earning Assets Under Management

Fee-Earning Assets Under Management were $23.8 billion at June 30, 2010, an increase of $316.2 million, or 1%, compared with $23.5 billion at June 30, 2009. Current period inflows of $333.1 million were primarily related to capital invested by our real estate debt investment funds. Current period outflows were $50.7 million, primarily due to realizations in our real estate debt funds. Market depreciation in the current year period of $261.7 million was primarily due to the impact of unfavorable foreign exchange fluctuations on committed capital for our European focused real estate fund which was partially offset by net valuation increases for certain of our real estate debt investment funds that charge management fees based on net asset value. Prior year market appreciation of $232.0 million was primarily due to the favorable foreign exchange impact on commitments from our European focused real estate fund. Despite the foreign exchange impact, BREP Europe III was able to achieve a net return of 34% in the second quarter of 2010 (there were no investments during the second quarter of 2009).

Assets Under Management

At June 30, 2010, Assets Under Management were $23.9 billion, an increase of $3.7 billion, or 18%, compared with $20.2 billion at June 30, 2009. The change was primarily due to market appreciation of $2.8 billion and capital raised by our real estate debt investment funds, partially offset by realizations and other outflows.

Limited Partner Capital Invested

For the three months ended June 30, 2010, Limited Partner Capital Invested was $643.8 million, an increase of $391.1 million, or 155%, from $252.7 million for the three months ended June 30, 2009. Limited Partner Capital Invested was $1.1 billion for the six months ended June 30, 2010, an increase of $600.9 million or 128%, from $467.8 million for the six months ended June 30, 2009. These increases primarily reflected increased investment activity by our real estate debt investment funds and add-on investments in our BREP funds.

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 performance of The Blackstone Group L.P. and is also not necessarily indicative of the future performance of any particular fund. An investment in The Blackstone Group L.P. 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 Net Internal Rates of Return of our significant real estate funds:


	Net Total Change in Carrying Value (Realized and Unrealized) (a)
	Three Months Ended June 30,				Six Months Ended June 30,				June 30, 2010 Inception to Date
Fund	2010		2009		2010		2009		Total		Realized (b)
BREP IV	6	%	-18	%	6	%	-33	%	14	%	69	%
BREP V	13	%	-21	%	16	%	-36	%	-2	%	76	%
BREP International II	5	%	-10	%	11	%	-29	%	-20	%	3	%
BREP International	-2	%	8	%	-4	%	7	%	28	%	36	%
BREP VI	31	%	-23	%	62	%	-36	%	-11	%	95	%
BREP Europe III	34	%	N/A		128	%	N/A		23	%	N/A
BSSF II	4	%	N/A		10	%	N/A		22	%	59	%
BSSF I	3	%	9	%	11	%	10	%	15	%	N/A
CMBS	2	%	3	%	12	%	3	%	25	%	N/A

The returns presented herein represent those of the applicable Blackstone Funds and not those of The Blackstone Group L.P.

(a)	Net total change in carrying value (realized and unrealized) is after management fees, expenses and performance fee allocations.

(b)	Includes partially realized investments. Investments are considered partially realized when distributed proceeds, excluding current income (dividends, interest, etc.), are a material portion of invested capital.

The BREP funds’ net internal rates of return for the three and six months ended June 30, 2010 were improved for all funds (except BREP International, BSSF I and CMBS) compared to the negative returns for the BREP funds for the three and six months ended June 30, 2009. Generally, improvement in the fundamentals of the BREP funds’ hotels, improving market conditions in the BREP funds’ office investments and the opportunity to acquire certain property level debt below par, has led to increases in the valuation of our investments.

The following table presents the investment record of the real estate funds from inception through June 30, 2010 for funds with closed investment periods:


	Fully Invested Funds
	Total Investments							Realized /Partially Realized Investments (a)
	Total							Total
Fund (Investment Period)	Invested Capital		Carrying Value (b)		Net IRR (c)		MOIC (d)	Invested Capital		Carrying Value (b) (e)		Net IRR (c)		MOIC (d)
	(Dollars in Millions)							(Dollars in Millions)
Pre-BREP	$	141	$	345	33	%	2.5	$	141	$	345	33	%	2.5
BREP I (Sep 1994 / Oct 1996)		467		1,328	40	%	2.8		467		1,328	40	%	2.8
BREP II (Oct 1996 / Mar 1999)		1,219		2,525	19	%	2.1		1,219		2,525	19	%	2.1
BREP III (Apr 1999 / Apr 2003)		1,415		3,328	22	%	2.4		1,338		3,300	23	%	2.5
BREP Int’l (Jan 2001 / Sep 2005)		757		1,577	28	%	2.1		658		1,514	36	%	2.3
BREP IV (Apr 2003 / Dec 2005)		2,737		3,662	14	%	1.3		1,057		2,477	69	%	2.3
BREP V (Dec 2005 / Feb 2007)		5,183		5,236	-2	%	1.0		951		1,817	76	%	1.9
BREP Int’l II (Sep 2005 / Jun 2008)		1,778		1,114	-20	%	0.6		208		248	4	%	1.2

The returns presented herein represent those of the applicable Blackstone Funds and not those of The Blackstone Group L.P.

(a)	Investments are considered partially realized when distributed proceeds, excluding current income (rent, dividends, interest, etc.), are a material portion of invested capital.

(b)	Carrying value includes realized proceeds and unrealized fair value.

(c)	IRR represents the annualized inception to date IRR on total invested capital based on realized proceeds and unrealized fair value. Net IRR is after management fees, expenses and Carried Interest.

(d)	MOIC represents carrying value, before management fees, expenses and Carried Interest, divided by total invested capital.

(e)	The Total Realized / Partially Realized Carrying Value includes remaining unrealized value of $721.9 million.

The following table presents the investment record of the real estate funds, excluding separately managed accounts, from inception through June 30, 2010 for funds with open investment periods:


	Funds in the Investment Period
			Total Investment
			Total
Fund (Investment Period)	Available Capital (a)		Invested Capital		Carrying Value (b)		Net IRR (c)		MOIC (d)
	(Dollars in Millions)
BREP VI (Feb 2007 / Aug 2012)	$	5,718	$	5,321	$	4,516	-11	%	0.8
BREP Europe III (Jun 2008 / Dec 2013)		3,920		126		320	23	%	2.5
BSSF II (Jul 2009 / Aug 2017)		435		520		624	22	%	1.2

The returns presented herein represent those of the applicable Blackstone Funds and not those of The Blackstone Group L.P.

(a)

Available Capital represents total capital commitments, adjusted for certain expenses and expired or recallable capital, less invested capital, and includes $1.4 billion committed to deals but not yet invested. Additionally, the segment has $1.1 billion of Available Capital that has been reserved for add-on investments in funds that are fully invested.

(b)	Carrying value includes realized proceeds and unrealized fair value.

(c)	IRR represents the annualized inception to date IRR on total invested capital based on realized proceeds and unrealized fair value. Net IRR is after management fees, expenses and Carried Interest.

(d)	MOIC represents carrying value, before management fees, expenses and Carried Interest, divided by total invested capital.

The following table presents the Carried Interest status of our real estate funds with expired investment periods which are currently not generating performance fees as of June 30, 2010:


	Gain to Cross Carried Interest Threshold (b)
Fully Invested Funds (a)	Amount		% Change in Total Enterprise Value (c)
	(Dollars in Millions)
BREP V (Dec 2005 / Feb 2007)	$	1,188	9	%
BREP Int’l II (Sep 2005 / Jun 2008)	$	1,038	18	%

(a)	As of June 30, 2010: (a) BREP International was above its Carried Interest preferred return threshold even if all remaining investments were deemed worthless, and (b) BREP IV was above its Carried Interest preferred return threshold.

(b)

(c)	Total Enterprise Value is the respective fund’s pro rata ownership of the privately held portfolio companies’ Enterprise Value and the Equity Value of the public portfolio companies based on fair values at the reporting date.

The following table presents the Carried Interest status of our real estate funds with open investment periods that are currently not generating performance fees as of June 30, 2010:


			Gain to Cross Carried Interest Threshold (b)
Fund in the Investment Period (a)	Available Capital (c)		Amount		% Change in Total Enterprise Value (d)
	(Dollars in Millions)
BREP VI (Feb 2007 / Aug 2012)	$	5,718	$	2,464	15	%

(a)	As of June 30, 2010, BREP Europe III and BSSF II were above their Carried Interest preferred return threshold.

(b)

(c)	Available Capital represents total capital commitments, adjusted for certain expenses and expired or recallable capital, less invested capital (including side-by-side investments).

(d)	Total Enterprise Value is the respective fund’s pro rata ownership of the privately held portfolio companies’ Enterprise Value and the Equity Value of the public portfolio companies based on fair values at the reporting date.

Credit and Marketable Alternatives

The following table presents our results of operations for our Credit and Marketable Alternatives segment:


	Three Months Ended June 30,						2010 vs. 2009					Six Months Ended June 30,						2010 vs. 2009
	2010			2009			$			%		2010			2009			$			%
	(Dollars in Thousands)
Segment Revenues
Management Fees
Base Management Fees	$	113,203		$	96,293		$	16,910		18	%	$	216,682		$	192,796		$	23,886		12	%
Transaction and Other Fees, Net		1,169			687			482		70	%		2,514			1,130			1,384		122	%
Management Fee Offsets		(69	)		(4,365	)		4,296		98	%		(758	)		(8,578	)		7,820		91	%

Total Management Fees		114,303			92,615			21,688		23	%		218,438			185,348			33,090		18	%

Performance Fees and Allocations
Realized		28,949			587			28,362		N/M			30,707			587			30,120		N/M
Unrealized		(17,835	)		21,832			(39,667	)	N/M			57,558			31,754			25,804		81	%

Total Performance Fees and Allocations		11,114			22,419			(11,305	)	-50	%		88,265			32,341			55,924		173	%

Investment Income (Loss)
Realized		8,729			(4,268	)		12,997		N/M			11,712			(16,266	)		27,978		N/M
Unrealized		(10,193	)		29,049			(39,242	)	N/M			9,522			37,139			(27,617	)	-74	%

Total Investment Income (Loss)		(1,464	)		24,781			(26,245	)	N/M			21,234			20,873			361		2	%
Interest and Dividend Revenue		756			279			477		171	%		1,904			988			916		93	%
Other		(372	)		315			(687	)	N/M			(914	)		62			(976	)	N/M

Total Revenues		124,337			140,409			(16,072	)	-11	%		328,927			239,612			89,315		37	%

Expenses
Compensation and Benefits
Base Compensation		53,370			49,304			4,066		8	%		102,455			103,011			(556	)	-1	%
Performance Fee Related
Realized		13,856			82			13,774		N/M			14,068			139			13,929		N/M
Unrealized		(6,595	)		8,020			(14,615	)	N/M			34,724			15,390			19,334		126	%

Total Compensation and Benefits		60,631			57,406			3,225		6	%		151,247			118,540			32,707		28	%
Other Operating Expenses		24,520			16,461			8,059		49	%		44,095			40,106			3,989		10	%

Total Expenses		85,151			73,867			11,284		15	%		195,342			158,646			36,696		23	%

Economic Net Income	$	39,186		$	66,542		$	(27,356	)	-41	%	$	133,585		$	80,966		$	52,619		65	%

Revenues

Revenues were $124.3 million for the three months ended June 30, 2010, a decrease of $16.1 million compared to the three months ended June 30, 2009. The decrease in revenues was primarily attributed to decreases of $26.2 million in Investment Income (Loss) and an $11.3 million decrease in Performance Fees and Allocations. These decreases were partially offset by an increase of $21.7 million in Total Management Fees to $114.3 million, compared to $92.6 million for the prior year period.

Investment Income (Loss) was $(1.5) million, a decrease of $26.2 million compared to $24.8 million for the three months ended June 30, 2009. The decrease was primarily related to a reduction in returns on our

investments in our funds of hedge funds and certain of our credit-oriented funds. Investment Income (Loss) was negatively impacted by unfavorable conditions in equity and credit markets for the three months ended June 30, 2010 compared to the prior year period. Performance Fees and Allocations were $11.1 million for the three months ended June 30, 2010, a decrease of $11.3 million from the prior year period. The decrease in Performance Fees and Allocations was attributable to reduced returns on the segment’s funds of hedge funds and credit-oriented funds, compared to the three months ended June 30, 2009. The net composite returns in our funds of hedge funds was negative 1.4% in 2010 compared to 5.7% in 2009. Despite this, Fee-Earning Assets Under Management related to funds above their respective high-water marks and/or hurdle, and therefore eligible for Performance Fees and Allocations, increased during the three months ended June 30, 2010 compared to the three months ended June 30, 2009 (see table below).

The Realized Performance Fees and Allocations for the three months ended June 30, 2010 of $28.9 million were driven by our credit oriented funds. The Realized Investment Income (Loss) for the three months ended June 30, 2010 of $8.7 million was driven primarily by our funds of hedge funds.

Total Management Fees were $114.3 million for the three months ended June 30, 2010, an increase of $21.7 million compared to $92.6 million for the three months ended June 30, 2009. Base Management Fees were $113.2 million for the three months ended June 30, 2010, an increase of $16.9 million compared to the prior year period, driven by an increase in Fee-Earning Assets Under Management of 17% from the prior year period, which was primarily from positive net inflows in our funds of hedge funds business, the April 1, 2010 acquisition of $3.5 billion in collateralized debt obligations and CLO vehicles by our credit oriented businesses and market appreciation in our funds of hedge funds.

Revenues were $328.9 million for the six months ended June 30, 2010, an increase of $89.3 million, compared to $239.6 million for the six months ended June 30, 2009. Performance Fees and Allocations increased $55.9 million driven by performance fees generated by certain of our credit-oriented funds and funds of hedge funds. Investment Income (Loss) and Other remained relatively unchanged during the six months ended June 30, 2010 compared to the six months ended June 30, 2009. Base Management Fees increased $23.9 million, principally due to a $7.7 billion increase in Fee-Earning Assets Under Management from June 30, 2009.

Expenses

Expenses were $85.2 million for the three months ended June 30, 2010, an increase of $11.3 million compared to the three months ended June 30, 2009. The $11.3 million increase was primarily attributed to a $3.2 million increase in Total Compensation and Benefits and an $8.1 million increase in Other Operating Expenses. Base Compensation was $53.4 million for the three months ended June 30, 2010, an increase of $4.1 million, compared to $49.3 million for the prior year principally related to the increase in Total Management Fees, as a portion of compensation is directly related to the profitability of each of the segment businesses. Performance Fee Related Compensation was $7.3 million for the three months ended June 30, 2010, a decrease of $0.8 million compared to $8.1 million for the prior year. Other Operating Expenses increased $8.1 million to $24.5 million for the three months ended June 30, 2010, compared to $16.5 million for the three months ended June 30, 2009 primarily due to an increase in professional fees primarily in our credit platform businesses related to the launching of new products and an increase in interest expense.

Expenses were $195.3 million for the six months ended June 30, 2010, an increase of $36.7 million, or 23%, compared to $158.6 million for the six months ended June 30, 2009. The $36.7 million increase was primarily attributed to a $33.3 million increase in Performance Fee Related Compensation and a $4.0 million increase in Other Operating Expenses. The $33.3 million increase in Performance Fee Related Compensation was driven by the positive returns of our credit-oriented funds and our funds of hedge funds. Other Operating Expenses increased $4.0 million principally due to the same factors as for the quarterly period noted above.

Realized Compensation and Benefits — Performance Fee Related is directly attributable to the Realized Performance Fees and Allocations described above.

Operating Metrics

The following operating metrics are used in the management of this business segment:


	Three Months Ended June 30,						2010 vs. 2009					Six Months Ended June 30,						2010 vs. 2009
	2010			2009			$			%		2010			2009			$			%
	(Dollars in Thousands)
Fee-Earning Assets Under Management
Balance, Beginning of Period	$	49,075,539		$	43,898,435		$	5,177,104		12	%	$	47,867,546		$	42,561,456		$	5,306,090		12	%
Inflows, including Commitments		5,900,008			623,171			5,276,837		N/M			7,307,890			3,064,449			4,243,441		138	%
Outflows, including Distributions		(1,907,402	)		(2,382,697	)		475,295		20	%		(2,690,848	)		(3,302,446	)		611,598		19	%
Market Appreciation (Depreciation)		(679,719	)		2,597,262			(3,276,981	)	N/M			(96,162	)		2,412,712			(2,508,874	)	N/M

Balance, End of Period	$	52,388,426		$	44,736,171		$	7,652,255		17	%	$	52,388,426		$	44,736,171		$	7,652,255		17	%

Assets Under Management (End of Period)	$	58,865,539		$	49,406,916		$	9,458,623		19	%	$	58,865,539		$	49,406,916		$	9,458,623		19	%

Capital Deployed
Limited Partner Capital Invested	$	264,092		$	112,100		$	151,992		136	%	$	421,144		$	320,459		$	100,685		31	%

The following table presents information regarding our Fee-Earning Assets Under Management:


	Fee-Earning Assets Under Management Eligible for Incentive Fees				Estimated % Above High Water Mark and/or Hurdle (a)
	As of June 30,				As of June 30,
	2010		2009		2010		2009
	(Dollars in Thousands)
Funds of Hedge Funds	$	13,686,770	$	12,450,727	25	%	13	%

(a)

Estimated % Above High Water Mark and / or Hurdle represents the percentage of Fee-Earning Assets Under Management Eligible for Incentive Fees that as of the dates presented would earn incentive fees when the applicable Blackstone 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 Hurdle, thereby resulting in an increase in Estimated % Above High Water Mark and/or Hurdle. For our funds of hedge funds, at June 30, 2010 the incremental appreciation needed for the 75% of Fee-Earning Assets Under Management below their respective High Water Marks to reach their respective High Water Marks was $687.6 million, a decrease of $1.2 billion, or 62.7%, compared to $1.8 billion at June 30, 2009. 53% of these estimated assets were within 5% of reaching their respective High Water Mark.

Fee-Earning Assets Under Management

Fee-Earning Assets Under Management were $52.4 billion at June 30, 2010, an increase of $7.7 billion, or 17%, compared to $44.7 billion at June 30, 2009. The change was primarily due to net inflows of $4.0 billion, which included the acquisition on April 1, 2010 of $3.5 billion of management agreements relating to collateralized debt obligations and CLO vehicles, and market appreciation of $2.8 billion primarily driven by our funds of hedge funds business. Second quarter inflows of $5.9 billion were primarily related to contributions made in our funds of hedge funds and the debt vehicle acquisitions. Second quarter outflows of $1.9 billion were primarily related to our credit-oriented funds and our funds of hedge funds. Market depreciation was $679.7 million for the three months ended June 30, 2010 and was primarily a result of less favorable market conditions which resulted in reduced returns for virtually all of our funds in the second quarter of 2010.

Fee-Earning Assets Under Management had net inflows of $1.6 billion from July 1 through August 1, 2010 from our funds of hedge funds.

Assets Under Management

Assets Under Management were $58.9 billion at June 30, 2010, an increase of $9.5 billion, or 19%, compared to $49.4 billion at June 30, 2009. The change was primarily due to market appreciation across our funds, the April 1, 2010 acquisition of $3.5 billion in collateralized debt obligations and CLO vehicles and net inflows in our funds of hedge funds of $1.6 billion.

Limited Partner Capital Invested

Limited Partner Capital Invested by our credit-oriented carry funds was $264.1 million, representing 5.7% of total commitments in these funds, for the three months ended June 30, 2010, an increase of $152.0 million compared to $112.1 million for the three months ended June 30, 2009. Limited Partner Capital Invested by our credit-oriented carry funds was $421.1 million for the six months ended June 30, 2010, an increase of $100.7 million compared to $320.5 million for the six months ended June 30, 2009.

Composite and Fund Returns

Composite and fund return information for our significant businesses is included throughout this discussion and analysis to facilitate an understanding of our results of operations for the periods presented. The composite and fund returns information reflected in this discussion and analysis is not indicative of the performance of The Blackstone Group L.P. and is also not necessarily indicative of the future results of any particular fund. An investment in The Blackstone Group L.P. 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.


	Three Months Ended June 30,				Six Months Ended June 30,				Average Annual Net Returns (a)
	Three Months Ended June 30,				Six Months Ended June 30,				Periods Ended June 30, 2010						June 30, 2010 Inception to Date
Composite	2010		2009		2010		2009		One Year		Three Year		Five Year		June 30, 2010 Inception to Date
Funds of Hedge Funds, Core Funds Composite (b)	-1	%	6	%	1	%	7	%	10	%	-1	%	5	%	10	%

The returns presented represent those of the applicable Blackstone Funds and not those of The Blackstone Group L.P.

(a)	Composite returns present a summarized asset weighted return measure to evaluate the overall performance of the applicable class of Blackstone Funds.

(b)	The starting date for the calculation of inception to date returns for the Funds of Hedge Funds, Core Funds Composite is September 1, 1990.

Financial Advisory

The following table presents our results of operations for our Financial Advisory segment:


	Three Months Ended June 30,						2010 vs. 2009					Six Months Ended June 30,						2010 vs. 2009
	2010			2009			$			%		2010			2009			$			%
	(Dollars in Thousands)
Segment Revenues
Advisory Fees	$	134,099		$	82,503		$	51,596		63	%	$	210,667		$	173,443		$	37,224		21	%
Transaction and Other Fees, Net		102			—			102		N/M			103			—			103		N/M
Investment Income
Realized		(49	)		—			(49	)	N/M			138			—			138		N/M
Unrealized		561			—			561		N/M			791			—			791		N/M

Total Investment Income		512			—			512		N/M			929			—			929		N/M
Interest and Dividend Revenue		1,268			1,118			150		13	%		2,664			2,162			502		23	%
Other		(342	)		(122	)		(220	)	-180	%		(1,274	)		(1,065	)		(209	)	-20	%

Total Revenues		135,639			83,499			52,140		62	%		213,089			174,540			38,549		22	%

Expenses
Compensation and Benefits — Base Compensation		76,152			54,239			21,913		40	%		130,644			105,191			25,453		24	%
Other Operating Expenses		17,316			21,734			(4,418	)	-20	%		32,043			34,710			(2,667	)	-8	%

Total Expenses		93,468			75,973			17,495		23	%		162,687			139,901			22,786		16	%

Economic Net Income	$	42,171		$	7,526		$	34,645		N/M		$	50,402		$	34,639		$	15,763		46	%

Revenues

Revenues were $135.6 million for the three months ended June 30, 2010, an increase of $52.1 million, or 62%, compared to $83.5 million for the three months ended June 30, 2009. The increase in segment revenues was primarily driven by an increase of $32.3 million in fees earned from our fund placement business as conditions negatively impacting the fund-raising of capital from institutional investors for alternative investment products improved. Fees generated from our restructuring and reorganization business increased $21.1 million compared to the three months ended June 30, 2009, as several large transactions closed during the quarter. The pipeline for the restructuring and reorganization business remains strong across a diverse group of industries and geographies. Fees generated by Blackstone Advisory Partners, our financial and strategic advisory business, remained relatively unchanged for the three months ended June 30, 2010. The pipeline for the financial and strategic advisory business continues to be strong and includes a significant international component.

Revenues were $213.1 million for the six months ended June 30, 2010, an increase of $38.5 million, or 22%, compared to $174.5 million for the six months ended June 30, 2009. The increase in segment revenues was primarily driven by an increase of $43.8 million in fees earned from our fund placement business due to the same economic factors for the quarterly period noted above and an increase of $5.6 million in fees generated by our financial and strategic advisory business. The increase was partially offset by a decrease of $12.1 million in fees from our restructuring and reorganization business.

The revenues generated by each of the businesses in our financial advisory segment are transactional in nature and therefore results can fluctuate significantly from period to period.

Expenses

Expenses were $93.5 million for the three months ended June 30, 2010, an increase of $17.5 million, or 23%, compared to $76.0 million for the three months ended June 30, 2009. Expenses were $162.7 million for the six months ended June 30, 2010, an increase of $22.8 million compared to $139.9 million for the six months ended June 30, 2009. Base Compensation increased $21.9 million and $25.5 million over the three and six

months ended June 30, 2009, respectively, principally related to the increase in Advisory Fees, as a portion of compensation is directly related to the profitability of each of the services businesses. Other Operating Expenses decreased $4.4 million and $2.7 million over the three and six months ended June 30, 2009, principally due to a reduction of bad debt expenses.

Liquidity and Capital Resources

Liquidity and Capital Resources

Blackstone’s business model derives revenue primarily from third party assets under management and from advisory businesses. 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, which are typically less than 5% of the assets under management of a fund, or pay distributions to unitholders.

Fluctuations in our balance sheet result primarily from activities of the Blackstone Funds which are consolidated as well as business transactions, such as the issuance of senior notes described below. The majority economic ownership interests of the Blackstone Funds are reflected as Non-Controlling Interests in Consolidated Entities in the Condensed Consolidated Financial Statements. The consolidation of these Blackstone Funds has no net effect on the Partnership’s Net Income or Partners’ Capital. Additionally, fluctuations in our balance sheet 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 $16.5 billion as of June 30, 2010, an increase of $7.1 billion from December 31, 2009. The increase in total assets was primarily attributable to a $6.9 million increase in Investments of which $6.5 billion was attributable to the consolidation of certain CLO vehicles which are Blackstone funds. These CLO vehicles are VIEs and under GAAP were required to be consolidated as of January 1, 2010. Total liabilities were $9.3 billion as of June 30, 2010, an increase of $6.4 billion from December 31, 2009. The increase in total liabilities was primarily due to an increase in Loans Payable of $5.7 billion which resulted from the consolidation of the CLO vehicles mentioned above.

For the three months ended June 30, 2010, we had Total Fee Related Revenues of $428.8 million and related expenses of $320.9 million, generating Net Fee Related Earnings from Operations of $107.9 million and Distributable Earnings of $147.6 million. For the six months ended June 30, 2010, we had Total Fee Related Revenues of $800.5 million and related expenses of $593.9 million, generating Net Fee Related Earnings from Operations of $206.7 million and Distributable Earnings of $296.3 million.

We have multiple sources of liquidity to meet our capital needs, including annual cash flows, accumulated earnings in the businesses, investments in our own Treasury and liquid funds and access to our debt capacity, including our $1.07 billion committed revolving credit facility and the proceeds from our 2009 issuance of senior notes. As of June 30, 2010, Blackstone had $506.7 million in cash, $813.2 million invested in Blackstone’s Treasury cash management strategies and $273.8 million invested in liquid Blackstone Funds, against just under $600.0 million in borrowings from our 2009 bond issuance.

We use Distributable Earnings, which is derived from our segment reported results, as a supplemental non-GAAP measure to assess performance and amounts available for distributions to Blackstone unitholders, including Blackstone personnel. Distributable Earnings is derived from, but not equivalent to, its most directly comparable GAAP measure of Income (Loss) Before Provision for Taxes. Distributable Earnings, which is a component of Economic Net Income, is the sum across all Total Segments of: (a) Total Management and Advisory Fees, (b) Interest and Dividend Revenue, (c) Other Revenue, (d) Realized Performance Fees and

Allocations, and (e) Realized Investment Income (Loss); less (a) Base Compensation, (b) Realized Performance Fee Related Compensation, (c) Other Operating Expenses and (d) Cash Taxes and Payables Under the Tax Receivable Agreement. Distributable Earnings is reconciled to Blackstone’s Consolidated Statement of Operations. It is Blackstone’s current intention that on an annual basis it will distribute to unitholders all of its Distributable Earnings in excess of amounts determined by its general partner to be necessary or appropriate to provide for the conduct of its business, to make appropriate investments in its business and funds, to comply with applicable law, any of its debt instruments or other agreements, or to provide for future distributions to its unitholders for any ensuing quarter.

The following table calculates Blackstone’s Distributable Earnings. Distributable Earnings is a supplemental measure of performance to assess amounts available for distributions to Blackstone unitholders, including Blackstone personnel.


	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
	(Dollars in Thousands)
Fee Related Earnings
Revenues
Total Management and Advisory Fees (a)	$	417,451		$	341,913		$	780,072		$	686,490
Interest and Dividend Revenue (a)		6,930			2,418			15,620			4,403
Other (a)		(644	)		3,070			(3,894	)		1,385
Investment Income — Blackstone’s Treasury Cash Management Strategies (b)		5,062			—			8,727			—

Total Revenues		428,799			347,401			800,525			692,278

Expenses
Compensation and Benefits — Base Compensation (a)		220,662			183,417			411,299			360,926
Other Operating Expenses (a)		88,160			71,726			161,183			141,070
Cash Taxes (c)		12,062			5,468			21,383			13,974

Total Expenses		320,884			260,611			593,865			515,970

Net Fee Related Earnings from Operations		107,915			86,790			206,660			176,308

Performance Fees and Allocations, Net of Related Compensation
Performance Fees and Allocations — Realized (a)		46,374			5,177			100,255			5,823
Compensation and Benefits — Performance Fee Related — Realized (a)		(22,879	)		460			(30,620	)		(1,729	)

Total Performance Fees and Allocations, Net of Related Compensation		23,495			5,637			69,635			4,094

Investment Income and Other
Investment Income (Loss) — Realized (a)		15,721			(2,821	)		21,028			(13,766	)
Adjustment Related to Realized Investment Income — Blackstone’s Treasury Cash Management Strategies (d)		512			—			(752	)		—
Other Payables Including Payable Under Tax Receivable Agreement		(68	)		—			(300	)		—

Total Investment Income and Other		16,165			(2,821	)		19,976			(13,766	)

Distributable Earnings	$	147,575		$	89,606		$	296,271		$	166,636

(a)	Represents the total segment amounts of the respective captions.

(b)	Represents the inclusion of Investment Income from Blackstone’s Treasury cash management strategies.

(c)	Represents the provisions for and/or adjustments to income taxes that were calculated using a similar methodology applied in calculating the current provision for The Blackstone Group L.P.

(d)	Represents the elimination of Realized Investment Income attributable to Blackstone’s Treasury cash management strategies which is a component of Net Fee Related Earnings from Operations.

The following table is a reconciliation of Income (Loss) Before Provision for Taxes to Total Segments Economic Net Income, of Total Segments, Economic Net Income to Net Fee Related Earnings from Operations, of Net Fee Related Earnings from Operations to Distributable Earnings and of Earnings Before Interest, Taxes and Depreciation and Amortization from Net Fee Related Earnings from Operations to Net Fee Related Earnings from Operations.


	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
	(Dollars in Thousands)
Income (Loss) Before Provision for Taxes	$	(636,928	)	$	(586,986	)	$	(864,599	)	$	(1,499,193	)
IPO and Acquisition-Related Charges (a)		749,930			761,834			1,476,652			1,502,891
Amortization of Intangibles (b)		40,822			39,511			80,334			79,024
(Income) Loss Associated with Non-Controlling Interests in (Income) Loss of Consolidated Entities (c)		58,294			(41,596	)		(101,641	)		(3,161	)
Management Fee Revenues Associated with Consolidated CLO Entities (d)		9,353			—			15,827			—

Total Segments, Economic Net Income		221,471			172,763			606,573			79,561
Performance Fees and Allocations Adjustment (e)		(25,636	)		(72,234	)		(211,850	)		141,599
Investment Income (Loss) Adjustment (f)		(102,907	)		16,062			(259,735	)		101,321
Investment Income (Loss) — Blackstone’s Treasury Cash Management Strategies (g)		5,062			—			8,727			—
Performance Fee Related Compensation and Benefits Adjustment (h)		21,987			(24,333	)		84,328			(132,199	)
Taxes Payable (i)		(12,062	)		(5,468	)		(21,383	)		(13,974	)

Net Fee Related Earnings from Operations		107,915			86,790			206,660			176,308
Realized Performance Fees and Allocations (j)		23,495			5,637			69,635			4,094
Realized Investment Income (Loss) (k)		15,721			(2,821	)		21,028			(13,766	)
Adjustment Related to Realized Investment Income — Blackstone’s Treasury Cash Management Strategies (l)		512			—			(752	)		—
Other Payables Including Payable Under Tax Receivable Agreement		(68	)		—			(300	)		—

Distributable Earnings	$	147,575		$	89,606		$	296,271		$	166,636

Earnings Before Interest, Taxes and Depreciation and Amortization from Net Fee Related Earnings from Operations (m)	$	132,866		$	97,463		$	253,671		$	202,309

(a)	This adjustment adds back to Income (Loss) Before Provision for Taxes amounts for Transaction-Related Charges which include principally equity-based compensation charges associated with Blackstone’s initial public offering and other corporate actions.

(b)	This adjustment adds back to Income (Loss) Before Provision for Taxes amounts for the Amortization of Intangibles which are associated with Blackstone’s initial public offering and other corporate actions.

(c)	This adjustment adds back to Income (Loss) Before Provision for Taxes the amount of (Income) Loss Associated with Non-Controlling Interests in (Income) Loss of Consolidated Entities.

(d)	This adjustment adds back to Income (Loss) Before Provision for Taxes the amount of Management Fee Revenues associated with Consolidated CLO Entities.

(e)	This adjustment removes from ENI the total segment amount of Performance Fees and Allocations.

(f)	This adjustment removes from ENI the total segment amount of Investment Income (Loss).

(g)	This adjustment represents the realized and unrealized gain (loss) on Blackstone’s Treasury cash management strategies which are a component of Investment Income (Loss) but included in Net Fee Related Earnings.

(h)	This adjustment removes from expenses the compensation and benefit amounts related to Blackstone’s profit sharing plans related to Performance Fees and Allocations.

(i)	Represents an implied payable for income taxes calculated using a similar methodology applied in calculating the current provision for The Blackstone Group L.P.

(j)	Represents the adjustment for realized Performance Fees and Allocations net of corresponding actual amounts due under Blackstone’s profit sharing plans related thereto.

(k)	Represents the adjustment for Blackstone’s Investment Income — Realized.

(l)	Represents the elimination of Realized Investment Income attributable to Blackstone’s Treasury cash management strategies which is a component of both Net Fee Related Earnings from Operations and Realized Investment Income (Loss).

(m)

Earnings Before Interest, Taxes and Depreciation and Amortization from Net Fee Related Earnings from Operations represents Net Fee Related Earnings from Operations adding back the implied cash taxes payable component from the Distributable Earnings reconciliation presented above, which is included in (i), and segment interest and segment depreciation and amortization. The cash taxes payable component of (i) was $12.1 million and $5.5 million for the three months ended June 30, 2010 and 2009, respectively. The cash taxes payable component of (i) was $21.4 million and $14.0 million for the six months ended June 30, 2010 and 2009, respectively. Interest and depreciation and amortization was $12.9 million and $5.2 million for the three months ended June 30, 2010 and 2009, respectively. Interest and depreciation and amortization was $25.6 million and $12.0 million for the six months ended June 30, 2010 and 2009, respectively.

Our Sources of Cash and Liquidity Needs

We expect that our primary liquidity needs will be cash to (a) provide capital to facilitate the growth of our existing businesses which principally includes funding our general partner and co-investment commitments to our funds, (b) provide capital to facilitate our expansion into new businesses that are complementary, (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 and (g) make distributions to our unitholders and the holders of Blackstone Holdings Partnership Units. Our own capital commitments to our funds and funds we invest in as of June 30, 2010 consisted of the following:


Fund	Original Commitment		Remaining Commitment
	(Dollars in Thousands)
Private Equity
BCP VI	$	530,676	$	530,676
BCP V		629,356		152,465
BCP IV		150,000		11,638
BCOM		50,000		5,074
Woori Blackstone Korea I		5,083		5,032
Real Estate Funds
BREP VI		750,000		389,544
BREP V		52,545		7,747
BREP International II		24,437		2,484
BREP IV		50,000		—
BREP International		20,000		3,293
BREP Europe III		100,000		96,905
BSSF II		6,992		—
BSSF I		43,008		4,423
CMBS Fund		4,010		—
BSSF G		2,500		991
Credit and Marketable Alternatives
BMezz II		17,692		2,725
BMezz		41,000		2,590
Strategic Alliance II		50,000		50,000
Strategic Alliance		50,000		12,719
Blackstone Credit Liquidity Partners		32,244		7,428
Blackstone / GSO Capital Solutions		75,000		56,567
Other (a)		14,022		531

Total	$	2,698,565	$	1,342,832

(a)	Represents capital commitments to a number of other Credit and Marketable Alternatives funds.

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. For BCP VI, BREP VI and BREP Europe III it is intended that our senior managing directors and certain other professionals will fund $250 million, $150 million and $35 million, respectively, of the aggregate applicable general partner commitment shown above. In addition, certain senior managing directors and other professionals are required to fund a de minimis amount of the commitment in the other private equity, real estate and credit-oriented 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 below will be more than sufficient to fund our working capital requirements.

In August 2009, Blackstone Holdings Finance Co. L.L.C. issued $600 million in aggregate principal amount of 6.625% Senior Notes which will mature on August 15, 2019, unless earlier redeemed or repurchased. The notes are unsecured and unsubordinated obligations of Blackstone Holdings Finance Co. L.L.C. and are fully and unconditionally guaranteed, jointly and severally, by The Blackstone Group L.P. and each of the Blackstone Holdings partnerships. The notes contain customary covenants and financial restrictions that among other things limit Blackstone Holdings Finance Co. L.L.C. 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.

In addition to the cash we received in connection with our IPO, debt offering and our borrowing facilities, we expect to receive (a) cash generated from operating activities, (b) Carried Interest and incentive income realizations, and (c) realizations on the carry and hedge 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.

Our current intention is to distribute to our common unitholders substantially all of The Blackstone Group L.P.’s net after-tax share of our annual Distributable Earnings in excess of amounts determined by our general partner to be necessary or appropriate to provide for the conduct of our business, to make appropriate investments in our business and our funds, to comply with applicable law, any of our debt instruments or other agreements, or to provide for future distributions to our unitholders for any ensuing quarter. Because we will not know what our Distributable Earnings will be for any fiscal year until the end of such year, we expect that our first three quarterly distributions in respect of any given year will be based on our anticipated annualized Net Fee Related Earnings. As such, the distributions for the first three quarters will likely be smaller than the final quarterly distribution in respect of such year. We expect to also reflect realized Performance Fees and Allocations net of related compensation and realized net investment income in the determination of the amount of the fourth quarter distribution.

In most years the aggregate amounts of our distributions to unitholders will not equal our Distributable Earnings for that year. Distributable Earnings will only be a starting point for our determination of the amount to be distributed to unitholders because as noted above, in determining the amount to be distributed we will subtract from Distributable Earnings any amounts determined by our general partner to be necessary or appropriate to provide for the conduct of our business, to make appropriate investments in our business and our funds, to comply with applicable law, any of our debt instruments or other agreements, or to provide for future distributions to our unitholders for any ensuing quarter.

All of the foregoing is subject to the qualification that the declaration and payment of any distributions are at the sole discretion of our general partner and our general partner may change our distribution policy at any time.

In January 2008, the Board of Directors of our general partner, Blackstone Group Management L.L.C., authorized the repurchase of up to $500 million of our common units and Blackstone Holdings Partnership Units. Under this unit repurchase program, units may be repurchased from time to time in open market transactions, in privately negotiated transactions or otherwise. The timing and the actual number of Blackstone common units and Blackstone Holdings Partnership Units repurchased will depend on a variety of factors, including legal requirements, price and economic and market conditions. This unit repurchase program may be suspended or discontinued at any time and does not have a specified expiration date. During the six months ended June 30, 2010, we repurchased a combination of 84,888 vested and unvested Blackstone Common Units and Blackstone Holdings Partnership Units as part of the unit repurchase program for a total cost of $1.2 million. As of June 30, 2010, the amount remaining available for repurchases was $338.3 million under this program.

We may under certain circumstances use leverage opportunistically and over time to create the most efficient capital structure for Blackstone and our public common unitholders, including through the issuance of debt securities. As of June 30, 2010, we had partners’ capital of $6.6 billion, including $506.7 million in cash, $813.2 million invested in Blackstone’s Treasury cash management strategies and $273.8 million invested in liquid Blackstone Funds, against just under $600.0 million in borrowings from our 2009 bond issuance.

Our private equity funds, real estate funds and funds of hedge funds have not historically utilized substantial leverage at the fund level other than for short-term borrowings between the date of an investment and the receipt of capital from the investing fund’s investors. Our carry funds make direct or indirect investments in companies that utilize leverage in their capital structure. The degree of leverage employed varies among portfolio companies.

Certain of our Credit and Marketable Alternatives funds use leverage in order to obtain additional market exposure, enhance returns on invested capital and/or to bridge short-term cash needs. The forms of leverage primarily employed by these funds include purchasing securities on margin, utilizing collateralized financing and using derivative instruments.

Critical Accounting Policies

We prepare our Condensed Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States. In applying many of these accounting principles, we need to make assumptions, estimates and/or judgments that affect the reported amounts of assets, liabilities, revenues and expenses in our consolidated financial statements. We base our estimates and judgments on historical experience and other assumptions that we believe are reasonable under the circumstances. These assumptions, estimates and/or judgments, however, are often subjective. Actual results may be affected negatively based on changing circumstances. If actual amounts are ultimately different from our estimates, the revisions are included in our results of operations for the period in which the actual amounts become known. We believe the following critical accounting policies could potentially produce materially different results if we were to change underlying assumptions, estimates and/or judgments. (See Note 2. “Summary of Significant Accounting Policies” in the “Notes to the Condensed Consolidated Financial Statements” in “Part I. Item 1. Financial Statements” of this filing.)

Principles of Consolidation

The Partnership consolidates all entities that it controls through a majority voting interest or otherwise, including those Blackstone Funds in which the general partner is presumed to have control. Although the Partnership has a minority interest in the Blackstone Holding partnerships, the limited partners do not have the right to dissolve the partnerships or have substantive kick out rights or participating rights that would overcome the presumption of control by the Partnership. Accordingly, the Partnership consolidates Blackstone Holdings and records non-controlling interests to reflect the economic interests of the limited partners of Blackstone Holdings.

In addition, the Partnership consolidates all variable interest entities (“VIE”) in which it is the primary beneficiary. An enterprise is determined to be the primary beneficiary if it holds a controlling financial interest. A controlling financial interest is defined as (a) the power to direct the activities of a variable interest entity that most significantly impacts the entity’s business, and (b) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the variable interest entity. The revised consolidation rules require an analysis to (a) determine whether an entity in which the Partnership holds a variable interest is a variable interest entity, and (b) whether the Partnership’s involvement, through holding interests directly or indirectly in the entity or contractually through other variable interests (e.g., management and performance related fees), would give it a controlling financial interest. Performance of that analysis requires the exercise of judgment. Where the variable interest entities have qualified for the deferral of the revised consolidation rules as discussed in Note 2. “Summary of Significant Accounting Policies, Recent Accounting Pronouncements” in the “Notes to Condensed Consolidated Financial Statements” in “Part I. Item 1. Financial Statements”, the analysis is based on previous consolidation rules. These rules require an analysis to (a) determine whether an entity in which the Partnership holds a variable interest is a variable interest entity, and (b) whether the Partnership’s involvement, through holding interests directly or indirectly in the entity or contractually through other variable interests (e.g., management and performance related fees), would be expected to absorb a majority of the variability of the entity. Under both guidelines, the Partnership determines whether it is the primary beneficiary of a VIE at the time it becomes involved with a variable interest entity and reconsiders that conclusion continuously. In evaluating whether the Partnership is the primary beneficiary, Blackstone evaluates its economic interests in the entity held either directly by the Partnership or indirectly through employees. The consolidation analysis can generally be performed qualitatively; however, if it is not readily apparent that the Partnership is not the primary beneficiary, a quantitative analysis may also be performed. Investments and redemptions (either by the Partnership, affiliates of the Partnership or third parties) or amendments to the governing documents of the respective Blackstone Fund could affect an entity’s status as a VIE or the determination of the primary beneficiary. At each reporting date, the Partnership assesses whether it is the primary beneficiary and will consolidate or deconsolidate accordingly.

Revenue Recognition

Revenues primarily consist of management and advisory fees, performance fees and allocations, investment income, interest and dividend revenue and other.

Please refer to “Part I. Item 1. Business — Incentive Arrangements / Fee Structure” in our 2009 Annual Report on Form 10-K for additional information regarding the manner in which Base Management Fees and Performance Fees and Allocations are generated.

The Partnership earns base management fees from limited partners of funds in each of its managed funds, at a fixed percentage of assets under management, net asset value, total assets, committed capital or invested capital. Base management fees are based on contractual terms specified in the underlying investment advisory agreements. The range of management fee rates and the calculation base from which they are earned are as follows:

On private equity, real estate, and certain credit-oriented funds:

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1 – 2% of committed capital during the commitment period,

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0.75 – 1.5% of invested capital subsequent to the investment period for private equity and real estate funds, and

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1 – 1.5% of invested capital for certain credit oriented funds.

On credit-oriented funds structured like hedge funds:

•

1.5 – 2 % of net asset value.

On funds of hedge funds and separately managed accounts invested in hedge funds:

•

0.65% to 1.5% of assets under management.

On CLO vehicles:

•

0.50% to 1.25% of total assets.

On closed-end mutual funds:

•

0.75% to 1.1% of fund assets.

Management fee offsets are reductions to management fees payable by our limited partners, which are granted based on the amount of expense incurred by our limited partnership for placement fees.

Accrued but unpaid Management and Advisory Fees, net of management fee reductions, as of the reporting date, are included in Accounts Receivable or Due From Affiliates in the Condensed Consolidated Statements of Financial Condition.

Performance Fees and Allocations — Performance fees earned on the performance of Blackstone’s hedge fund structures are recognized based on fund performance during the period, subject to the achievement of minimum return levels, or high water marks, in accordance with the respective terms set out in each hedge fund’s governing agreements. Accrued but unpaid performance fees charged directly to investors in Blackstone’s offshore hedge funds as of the reporting date are recorded within Due from Affiliates in the Condensed Consolidated Statements of Financial Condition. Performance fees arising on Blackstone’s onshore hedge funds are allocated to the general partner. Accrued but unpaid performance fees on onshore funds as of the reporting date are reflected in Investments in the Condensed Consolidated Statements of Financial Condition.

In certain fund structures, specifically in private equity, real estate and certain credit-oriented funds (“Carry Funds”), performance fees (“Carried Interest”) are allocated to the general partner based on cumulative fund performance to date, subject to a preferred return to limited partners. Carried Interest allocations range between 10% and 20% of fund appreciation. At the end of each reporting period, the Partnership calculates the Carried Interest that would be due to the Partnership for each fund, pursuant to the fund agreements, as if the fair value of the underlying investments were realized as of such date, irrespective of whether such amounts have been realized. As the fair value of underlying investments varies between reporting periods, it is necessary to make adjustments to amounts recorded as Carried Interest to reflect either (a) positive performance resulting in an

increase in the Carried Interest allocated to the general partner or (b) negative performance that would cause the amount due to the Partnership to be less than the amount previously recognized as revenue, resulting in a negative adjustment to Carried Interest allocated to the general partner. In each scenario, it is necessary to calculate the Carried Interest on cumulative results compared to the Carried Interest recorded to date and make the required positive or negative adjustments. The Partnership ceases to record negative Carried Interest allocations once previously recognized Carried Interest allocations for such fund have been fully reversed. The Partnership is not obligated to pay guaranteed returns or hurdles, and therefore cannot have negative Carried Interest over the life of a fund. Accrued but unpaid Carried Interest as of the reporting date is reflected in Investments in the Condensed Consolidated Statements of Financial Condition.

Carried Interest is subject to clawback to the extent that the Carried Interest actually distributed to date exceeds the amount due to Blackstone based on cumulative results. As such, the accrual for potential repayment of previously received performance fees and allocations, which is a component of Due to Affiliates, represents all amounts previously distributed to Blackstone Holdings and non-controlling interest holders that would need to be repaid to the Blackstone Funds if the Blackstone Carry Funds were to be liquidated based on the current fair value of the underlying funds’ investments as of the reporting date. Generally, the actual clawback liability does not become realized until the end of a fund’s life or one year after a realized loss is incurred, depending on the fund.

Interest and Dividend Revenue — Interest and Dividend Revenue comprises primarily interest and dividend income earned on principal investments held by Blackstone.

Other Revenue — Other Revenue comprises primarily foreign exchange gains and losses arising on transactions denominated in currencies other than U.S. dollars.

Expenses

Our expenses include compensation and benefits expense and general and administrative expenses. Our accounting policies related thereto are as follows:

Equity-Based Compensation — Compensation cost relating to the issuance of share-based awards to senior management and employees is measured at fair value at the grant date, taking into consideration expected forfeitures, and expensed over the vesting period on a straight line basis. Equity-based awards that do not require future service are expensed immediately. Cash settled equity-based awards are classified as liabilities and are re-measured at the end of each reporting period.

Compensation and Benefits — Performance Fee Related — Performance fee related compensation and benefits consists of Carried Interest and performance fee allocations to employees, including senior managing directors, participating in certain profit sharing initiatives. Employees participating in such initiatives are allocated a certain portion of Carried Interest and performance fees allocated to the general partner under performance fee allocations (see “Revenue Recognition”). Such compensation expense is recognized in the same manner as Carried Interest and performance fee allocations and is subject to both positive and negative adjustments as a result of changes in underlying fund performance.

Fair Value of Financial Instruments

Financial instruments measured and reported at fair value are classified and disclosed based on the observability of inputs used in the determination of fair values, as follows:

•

particular investment, pricing services may use certain information with respect to transactions in such investments, quotations from dealers, pricing matrices, market transactions in comparable investments and various relationships between investments.

Real Estate Investments — The fair values of real estate investments are determined by considering projected operating cash flows, sales of comparable assets, if any, and replacement costs among other measures. The methods used to estimate the fair value of real estate investments include the discounted cash flow method and/or capitalization rates (“cap rates”) analysis. Valuations may be derived by reference to observable valuation measures for comparable companies or assets (e.g., multiplying a key performance metric of the investee company or asset, such as EBITDA, by a relevant valuation multiple observed in the range of comparable companies or transactions), adjusted by management for differences between the investment and the referenced comparables, and in some instances by reference to option pricing models or other similar methods. Additionally, where applicable, projected distributable cash flow through debt maturity will also be considered in support of the investment’s carrying value.

Funds of Hedge Funds — Blackstone Funds’ direct investments in funds of hedge funds (“Investee Funds”) are valued at net asset value (“NAV”) per share of the Investee Fund. If the Partnership determines, based on its own due diligence and investment procedures, that NAV per share does not represent fair value, the Partnership will estimate the fair value in good faith and in a manner that it reasonably chooses, in accordance with its valuation policies.

Credit-Oriented Investments — The fair values of credit-oriented investments are generally determined on the basis of prices between market participants provided by reputable dealers or pricing services. In some instances, Blackstone may utilize other valuation techniques, including the discounted cash flow method.

Investments, at Fair Value

resulting from changes in fair value reflected as a component of Net Gains (Losses) from Fund Investment Activities in the Condensed Consolidated Statements of Operations. Fair value is the amount that would be received to sell an asset or paid to transfer a liability, in an orderly transaction between market participants at the measurement date (i.e., the exit price).

For certain instruments, the Partnership has elected the fair value option. Such election is irrevocable and is applied on an investment by investment basis at initial recognition. The Partnership has applied the fair value option for certain loans and receivables and certain investments in private debt and equity securities. Loans extended to third parties are recorded within Accounts Receivable within the Condensed Consolidated Statements of Financial Condition. Debt and equity securities for which the fair value option has been elected are recorded within Investments. The methodology for measuring the fair value of such investments is consistent with the methodology applied to private equity, real estate and funds of hedge funds investments. Changes in the fair value of such instruments are recognized in Investment Income (Loss) in the Condensed Consolidated Statements of Operations. Interest income on interest bearing loans and receivables and debt securities on which the fair value option has been elected is based on stated coupon rates adjusted for the accretion of purchase discounts and the amortization of purchase premiums. This interest income is recorded within Interest and Dividend Revenue.

In addition, the Partnership has elected the fair value option for the assets and liabilities of certain CLO vehicles that are consolidated as of January 1, 2010, as a result of the initial adoption of revised consolidation rules for variable interest entities. The transition adjustment resulting from the difference between the fair value of assets and liabilities on the effective date is presented within the Condensed Consolidated Statement of Financial Condition as Appropriated Partners’ Capital. Assets of the consolidated CLOs are presented within Investments within the Condensed Consolidated Statements of Financial Condition, and Liabilities of the consolidated CLOs are presented within Loans Payable for the amounts due to unaffiliated third parties and Due to Affiliates for the amounts held by affiliates. Changes in the fair value of consolidated CLO assets and liabilities and related interest, dividend and other income subsequent to adoption are presented within Net Gains (Losses) from Fund Investment Activities and are attributable to Non-Controlling Interests in Consolidated Entities in the Condensed Consolidated Statements of Operations. Further disclosure on instruments for which the fair value option has been elected is presented in Note 7. “Fair Value Option” in the “Notes to the Condensed Consolidated Financial Statements” in “Part I. Item 1. Financial Statements” of this filing.

Intangibles and Goodwill

Blackstone’s intangible assets consist of contractual rights to earn future fee income, including management and advisory fees and Carried Interest from its Carry Funds. Identifiable finite-lived intangible assets are amortized on a straight line basis over their estimated useful lives, ranging from 5 to 20 years, reflecting the contractual lives of such funds. The Partnership does not hold any indefinite-lived intangible assets.

Goodwill comprises goodwill arising from the Reorganization of the Partnership in 2007 and the acquisition of GSO in 2008.

The carrying value of goodwill was $1.7 billion as of June 30, 2010 and December 31, 2009. Intangibles and goodwill are reviewed for impairment at least annually, or more frequently if circumstances indicate impairment may have occurred. No indicators of impairment have been identified during the six months ended June 30, 2010.

We test goodwill for impairment at the operating segment level (the same as our segments). Management has organized the firm into four operating segments. All of the components in each segment have similar economic characteristics and management makes key operating decisions based on the performance of each

segment. Therefore, we believe that operating segment is the appropriate reporting level for testing the impairment of goodwill. In determining fair value for each of our segments, we utilize a discounted cash flow methodology based on the adjusted cash flows from operations for each segment. We believe this method provides the best approximation of fair value. In calculating the discounted cash flows, we begin with the adjusted cash flows from operations of each segment. We then determine the most likely growth rate by operating segment for each of the next four years and assume a terminal value by segment. We do not apply a control premium. The discounted cash flow analysis includes the Blackstone issued notes and borrowings under the revolving credit facility, if any, and includes an allocation of interest expense to each segment for the unused commitment fee on Blackstone’s revolving credit facility. We use a discount rate that reflects the weighted average cost of capital adjusted for the risks inherent in the future cash flows.

In 2009 and 2008, Blackstone utilized a similar discounted cash flow model, as described above, to approximate the fair value of each of its segments.

Off-Balance Sheet Arrangements

In the normal course of business, we enter into various off-balance sheet arrangements including sponsoring and owning limited or general partner interests in consolidated and non-consolidated funds, entering into derivative transactions, entering into operating leases, and entering into guarantee arrangements. We also have ongoing capital commitment arrangements with certain of our consolidated and non-consolidated drawdown funds. We do not have any off-balance sheet arrangements that would require us to fund losses or guarantee target returns to investors in our funds.

Further disclosure on our off-balance sheet arrangements is presented in the “Notes to the Condensed Consolidated Financial Statements” in “Part I. Item 1. Financial Statements” of this filing as follows:

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Note 6. “Derivative Financial Instruments”,

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Note 9. “Variable Interest Entities”, and

•

Note 15. “Commitments and Contingencies — Commitments, Operating Leases; — Commitments, Investment Commitments; and — Contingencies, Guarantees”.

Recent Accounting Developments

that qualify for the deferral in accordance with previously issued guidance on variable interest entities. Blackstone’s involvement with its funds is such that all three of the above conditions are met with the exception of certain CLO vehicles which fail condition (c) above and certain funds in which leveraged employee interests in dedicated funds are financed by third parties with Blackstone acting as an intermediary which fail condition (b) above. Such employee funds are currently consolidated as it is concluded that Blackstone is the primary beneficiary based on its implicit interest. The incremental impact of the revised consolidation rules has resulted in the consolidation of certain CLO vehicles managed by Blackstone. Additional disclosures relating to Blackstone’s involvement with VIEs are presented in Note 9. “Variable Interest Entities” in “Part I. Item 1. Financial Statements” of this filing.

In April 2010, the FASB issued guidance on the accounting for stock awards to employees of a foreign operation or employees whose pay is denominated in a currency other than the one in which the equity security trades. The guidance clarifies that share based payment awards with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trade shall not be considered to contain a condition that is not a market, performance, or service condition. Such an award shall not be classified as a liability if it otherwise qualifies for equity classification. The guidance is effective for fiscal years and interim periods ending after December 15, 2010. Blackstone makes share-based payment awards to employees in foreign operations. The guidance is not expected to have a material impact on the Partnership’s financial statements.

Contractual Obligations, Commitments and Contingencies

The following table sets forth information relating to our contractual obligations as of June 30, 2010 on a consolidated basis and on a basis deconsolidating the Blackstone funds:


Contractual Obligations	July 1, 2010 to December 31, 2010			2011–2012			2013–2014			Thereafter			Total
	(Dollars in Thousands)
Operating Lease Obligations (a)	$	28,125		$	105,561		$	94,151		$	292,046		$	519,883
Purchase Obligations		7,871			9,664			1,560			670			19,765
Blackstone Issued Notes and Revolving Credit Facility (b)		—			—			—			600,000			600,000
Interest on Blackstone Issued Notes and Revolving Credit Facility (c)		19,875			79,500			79,500			183,844			362,719
Blackstone Operating Entities Loan and Credit Facilities Payable (d)		594			27,164			7,105			—			34,863
Interest on Blackstone Operating Entities Loan and Credit Facilities Payable (e)		239			413			104			—			756
Blackstone Funds Debt Obligations Payable (f)		3,302			4,166			—			6,535,748			6,543,216
Interest on Blackstone Funds Debt Obligations Payable (g)		41,010			163,903			163,732			438,331			806,976
Blackstone Funds Capital Commitments to Investee Funds (h)		14,619			—			—			—			14,619
Due to Certain Non-Controlling Interest Holders in Connection with Tax Receivable Agreement (i)		—			58,502			30,868			918,346			1,007,716
Blackstone Operating Entities Capital Commitments to Blackstone Funds and Other (j)		1,342,832			—			—			—			1,342,832

Consolidated Contractual Obligations		1,458,467			448,873			377,020			8,968,985			11,253,345
Blackstone Funds Debt Obligations Payable (f)		(3,302	)		(4,166	)		—			(6,535,748	)		(6,543,216	)
Interest on Blackstone Funds Debt Obligations Payable (g)		(41,010	)		(163,903	)		(163,732	)		(438,331	)		(806,976	)
Blackstone Funds Capital Commitments to Investee Funds (h)		(14,619	)		—			—			—			(14,619	)

Blackstone Operating Entities Contractual Obligations	$	1,399,536		$	280,804		$	213,288		$	1,994,906		$	3,888,534

(a)

We lease our primary office space under agreements that expire through 2024. In connection with certain lease agreements, we are responsible for escalation payments. The contractual obligation table above includes only guaranteed minimum lease payments for such leases and does not project potential escalation or other lease-related payments. These leases are classified as operating leases for financial statement purposes and as such are not recorded as liabilities on the Condensed Consolidated Statements of Financial Condition. The amounts are presented net of contractual sublease commitments.

(b)	Represents the principal amount due on the 6.625% senior notes we issued. As of June 30, 2010, we had no outstanding borrowings under our revolver.

(c)

Represents interest to be paid over the maturity of our 6.625% senior notes and borrowings under our revolving credit facility which has been calculated assuming no prepayments are made and debt is held until its final maturity date. These amounts exclude commitment fees for unutilized borrowings under our revolver.

(d)	Represents borrowings for employee term facilities program and a capital asset facility.

(e)

Represents interest to be paid over the maturity of the related debt obligation which has been calculated assuming no prepayments are made and debt is held until its final maturity date. The future interest payments are calculated using variable rates in effect as of June 30, 2010, at spreads to market rates pursuant to the financing agreements, and range from 1.24% to 1.50%.

(f)	These obligations are those of the Blackstone Funds including the consolidated CLO vehicles.

(g)

Represents interest to be paid over the maturity of the related Blackstone Funds’ debt obligations which has been calculated assuming no prepayments will be made and debt will be held until its final maturity date. The future interest payments are calculated using variable rates in effect as of June 30, 2010, at spreads to market rates pursuant to the financing agreements, and range from 0.53% to 9.44%. The majority of the borrowings are due on demand and for purposes of this schedule are assumed to mature within one year. Interest on the majority of these borrowings rolls over into the principal balance at each reset date.

(h)	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.

(i)

Represents obligations by the Partnership’s corporate subsidiary to make payments under the Tax Receivable Agreement 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 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 14. “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.

(j)

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

Indemnifications

In many of its service contracts, Blackstone agrees to indemnify the third party service provider under certain circumstances. The terms of the indemnities vary from contract to contract and the amount of indemnification liability, if any, cannot be determined and has not been included in the table above or recorded in our Condensed Consolidated Financial Statements as of June 30, 2010.

Clawback Obligations

During the quarter ended June 30, 2010, the Blackstone general partners paid an interim cash clawback obligation of $3.0 million relating to a real estate fund of which $1.7 million was paid by Blackstone Holdings and $1.3 million by current and former Blackstone personnel. Of the clawback obligation accrued at June 30, 2010, $15.7 million is due and payable on September 30, 2010 of which $9.0 million will be paid by current and former Blackstone personnel. This amount relates to an interim clawback obligation owed to a real estate fund. (See Note 14. “Related Party Transactions” and Note 15. “Commitments and Contingencies” in the “Notes to the Condensed Consolidated Financial Statements” in “Part I. Item 1. Financial Statements” of this filing.)

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our predominant exposure to market risk is related to our role as general partner or investment advisor to the Blackstone Funds and the sensitivities to movements in the fair value of their investments, including the effect on management fees, performance fees and allocations and investment income.

Although the Blackstone Funds share many common themes, each of our alternative asset management operations runs its own investment and risk management processes, subject to our overall risk tolerance and philosophy:

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The investment process of our carry funds involves a detailed analysis of potential investments, and asset management teams are assigned to oversee the operations, strategic development, financing and capital deployment decisions of each portfolio investment. Key investment decisions are subject to approval by the applicable investment committee, which is comprised of Blackstone senior managing directors and senior management.

•

In our capacity as advisor to certain of our credit and marketable alternatives funds, we continuously monitor a variety of markets for attractive trading opportunities, applying a number of traditional and customized risk management metrics to analyze risk related to specific assets or portfolios. In addition, we perform extensive credit and cash-flow analyses of borrowers, credit-based assets and underlying hedge fund managers, and have extensive asset management teams that monitor covenant compliance by, and relevant financial data of, borrowers and other obligors, asset pool performance statistics, tracking of cash payments relating to investments and ongoing analysis of the credit status of investments.

Effect on Fund Management Fees

Our management fees are based on (a) third parties’ capital commitments to a Blackstone Fund, (b) third parties’ capital invested in a Blackstone Fund or (c) the net asset value, or NAV, of a Blackstone Fund, as described in our Condensed Consolidated Financial Statements. Management fees will only be directly affected by short-term changes in market conditions to the extent they are based on NAV or represent permanent impairments of value. These management fees will be increased (or reduced) in direct proportion to the effect of changes in the market value of our investments in the related funds. The proportion of our management fees that are based on NAV is dependent on the number and types of Blackstone Funds in existence and the current stage of each fund’s life cycle. For the six months ended June 30, 2010, approximately 32% of our fund management fees were based on the NAV of the applicable funds. As of June 30, 2009, approximately 28% of our fund management fees were based on the NAV of the applicable funds or separately managed accounts.

Market Risk

The Blackstone Funds hold investments which are reported at fair value. Based on the fair value as of June 30, 2010, we estimate that a 10% decline in fair value of the investments would have the following effects: (a) management fees would decrease by $38.9 million on an annual basis, (b) performance fees and allocations, net of the related compensation expense, would decrease by $169.8 million, and (c) investment income would decrease by $171.2 million. Based on the fair value as of June 30, 2009, we estimated that a 10% decline in fair value of the investments would have the following effects: (a) management fees would decrease by $32.6 million on an annual basis, (b) performance fees and allocations, net of the related compensation expense would decrease by $112.6 million, and (c) investment income would decrease by $115.5 million.

Total assets under management, excluding undrawn capital commitments and the amount of capital raised for our CLOs, by segment, and the percentage amount classified as Level III investments as defined within the fair value standards of GAAP, are: Private Equity $23.0 billion (88% Level III), Real Estate $12.7 billion (93% Level III), and Credit and Marketable Alternatives $38.0 billion (77% Level III), respectively. The fair value of our investments and securities can vary significantly based on a number of factors that take into consideration the

diversity of the Blackstone Funds’ investment portfolio and on a number of factors and inputs such as similar transactions, financial metrics, and industry comparatives, among others. (See “Part I, Item 1A. Risk Factors” in our 2009 Annual Report on Form 10-K. Also see “Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies — Investments, at Fair Value.”) We believe these estimated fair value amounts should be utilized with caution as our intent and strategy is to hold investments and securities until prevailing market conditions are beneficial for investment sales.

Investors in all of our carry funds (and certain of our credit-oriented funds) make capital commitments to those funds that we are entitled to call from those investors at any time during prescribed periods. We depend on investors fulfilling their commitments when we call capital from them in order for those funds to consummate investments and otherwise pay all their related obligations when due, including management fees. We have not had investors fail to honor capital calls to any meaningful extent and any investor that did not fund a capital call would be subject to having a significant amount of its existing investment forfeited in that fund. But if investors were to fail to satisfy a significant amount of capital calls for any particular fund or funds, those funds could be materially and adversely affected.

Exchange Rate Risk

The Blackstone Funds hold investments that are denominated in non-U.S. dollar currencies that may be affected by movements in the rate of exchange between the U.S. dollar and non-U.S. dollar currencies. Additionally, a portion of our management fees are denominated in non-U.S. dollar currencies. We estimate that as of June 30, 2010, a 10% decline in the rate of exchange of all foreign currencies against the U.S. dollar would have the following effects: (a) management fees would decrease by $9.1 million on an annual basis, (b) performance fees and allocations would decrease by $35.6 million, net of the related compensation expense and (c) investment income would decrease by $27.7 million.

As of June 30, 2009, we estimated that a 10% decline in the rate of exchange against the U.S. dollar would have the following effects: (a) management fees would decrease by $8.5 million on an annual basis, (b) performance fees and allocations would decrease by $32.6 million, net of the related compensation expense and (c) investment income would decrease by $17.9 million.

Interest Rate Risk

Blackstone has debt obligations payable that accrue interest at variable rates. Additionally, we have swapped a portion of our 6.625% senior notes into a variable rate instrument. Interest rate changes may therefore affect the amount of interest payments, future earnings and cash flows. Based on our debt obligations payable as of June 30, 2010 and our outstanding interest rate swaps, we estimate that interest expense relating to variable rates would increase by $4.9 million on an annual basis, in the event interest rates were to increase by one percentage point.

Blackstone maintains a diversified portfolio of highly liquid assets to meet the liquidity needs of various businesses (the “Treasury Liquidity Portfolio”). This portfolio includes cash, open-ended money market mutual funds, open-ended bond mutual funds, marketable investment securities, free standing derivative contracts, repurchase and reverse repurchase agreements. We estimate that our investment income would decrease by $9.0 million, or 0.7% of the Treasury Liquidity Portfolio, if interest rates were to increase by one percentage point.

Based on our debt obligations payable as of June, 30 2009, we estimated that interest expense relating to variable rate debt obligations payable would increase by $0.8 million on an annual basis, in the event interest rates were to increase by one percentage point.

Credit Risk

Certain Blackstone Funds and the Investee Funds are subject to certain inherent risks through their investments.

The Treasury Liquidity Portfolio contains certain credit risks including, but not limited to, exposure to uninsured deposits with financial institutions, unsecured corporate bonds and mortgage-backed securities. These exposures are actively monitored on a continuous basis and positions are reallocated based on changes in risk profile, market or economic conditions.

We estimate that our investment income would decrease by $9.3 million, or 0.7% of the Treasury Liquidity Portfolio, if credit spreads were to increase by one percentage point.

Certain of our entities hold derivative instruments that contain an element of risk in the event that the counterparties may be unable to meet the terms of such agreements. We minimize our risk exposure by limiting the counterparties with which we enter into contracts to banks and investment banks who meet established credit and capital guidelines. We do not expect any counterparty to default on its obligations and therefore do not expect to incur any loss due to counterparty default.

ITEM 4.

CONTROLS AND PROCEDURES

We maintain “disclosure controls and procedures,” as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) are effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

No changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act) occurred during our most recent quarter, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

We may from time to time be involved in litigation and claims incidental to the conduct of our business. Our businesses are also subject to extensive regulation, which may result in regulatory proceedings against us. See “Item 1A. Risk Factors” in our 2009 Annual Report on Form 10-K. We are not currently subject to any pending judicial, administrative or arbitration proceedings that we expect to have a material impact on our consolidated financial statements.

In December 2007, a purported class of shareholders in public companies acquired by one or more private equity firms filed a lawsuit against sixteen private equity firms and investment banks, including The Blackstone Group L.P., in the United States District Court in Massachusetts. The suit alleges that from mid-2003 defendants have violated antitrust laws by allegedly conspiring to rig bids, restrict the supply of private equity financing, fix the prices for target companies at artificially low levels, and divide up an alleged market for private equity services for leveraged buyouts. The complaint seeks injunctive relief on behalf of all persons who sold securities to any of the defendants in leveraged buyout transactions. The amended complaint also includes five purported sub-classes of plaintiffs seeking damages and/or restitution and comprised of shareholders of five companies.

In the spring of 2008, six substantially identical complaints were brought against Blackstone and some of its executive officers purporting to be class actions on behalf of purchasers of common units in Blackstone’s June 2007 initial public offering. These suits were subsequently consolidated into one complaint filed in the Southern District of New York in October 2008 against Blackstone, Stephen A. Schwarzman (Blackstone’s Chairman and Chief Executive Officer), Peter G. Peterson (Blackstone’s former Senior Chairman), Hamilton E. James (Blackstone’s President and Chief Operating Officer) and Michael A. Puglisi (Blackstone’s Chief Financial Officer at the time of the IPO). The amended complaint alleged that (1) the IPO prospectus was false and misleading for failing to disclose that (a) certain investments made by Blackstone’s private equity funds were performing poorly at the time of the IPO and were materially impaired and (b) prior to the IPO the U.S. real estate market had started to deteriorate, adversely affecting the value of Blackstone’s real estate investments; and (2) the financial statements in the IPO prospectus were materially inaccurate principally because they overstated the value of the investments referred to in clause (1). In September 2009 the District Court judge dismissed the complaint with prejudice, ruling that even if the allegations in the complaint were assumed to be true, the alleged omissions were immaterial. The plaintiffs have appealed the District Court’s ruling.

Blackstone believes that the foregoing suits are totally without merit and intends to defend them vigorously.

ITEM 1A.

RISK FACTORS

For a discussion of our potential risks and uncertainties, see the information under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2009, which is accessible on the Securities and Exchange Commission’s website at www.sec.gov.

See Part I. Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Business Environment” in this report for a discussion of the conditions in the financial markets and economic conditions affecting our businesses. This discussion updates, and should be read together with, the risk factor entitled “Difficult market conditions can adversely affect our business in many ways, including by reducing the value or performance of the investments made by our investment funds, reducing the ability of our investment funds to raise or deploy capital and reducing the volume of the transactions involving our financial advisory business, each of which could materially reduce our revenue and cash flows and adversely affect our financial condition” in our Annual Report on Form 10-K for the year ended December 31, 2009.

The risks described in our Form 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

101

The disclosure set forth below updates the item under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2009 which is captioned “Legislation has been introduced in the U.S. Congress in various forms that, if enacted, (i) would preclude us from qualifying as a partnership and/or (ii) would require us to hold Carried Interest through taxable subsidiary corporations and tax Carried Interest as ordinary income for U.S. federal income tax purposes. If this or any similar legislation or regulation were to be enacted and apply to us, we would incur a material increase in our tax liability that could result in a reduction in the market price of our common units.”:

The U.S. House of Representatives has passed legislation that, if enacted, (i) would, for taxable years beginning ten years after the date of enactment, preclude us from qualifying as a partnership or require us to hold Carried Interest through taxable subsidiary corporations and (ii) would tax individual holders of common units with respect to certain income and gains at increased rates for taxable years ending after December 31, 2010. If this or any similar legislation were to be enacted and apply to us, we could incur a material increase in our tax liability and a substantial portion of our income could be taxed at a higher rate to the individual holders of our common units.

On May 28, 2010, the U.S. House of Representatives passed legislation that would, in general, treat income and gains, including gain on sale, attributable to an interest in an investment services partnership interest, or “ISPI”, as income subject to a new blended tax rate that is higher than the capital gains rate applicable to such income under current law, except to the extent such ISPI is considered under the legislation to be a qualified capital interest. Our common units that you hold and the interests that we hold in entities that are entitled to receive Carried Interest would likely be classified as ISPIs for purposes of this legislation. In June 2010, the U.S. Senate considered but did not pass legislation that is generally similar to the legislation passed by the U.S. House of Representatives. It is unclear when or whether the U.S. Senate will act on such legislation or what provisions will be included in any final legislation if enacted.

The House bill provides that, for taxable years beginning ten years after the date of enactment, income derived with respect to an ISPI that is not a qualified capital interest and that is treated as ordinary income under the rules discussed above will not meet the qualifying income requirements under the publicly traded partnership rules. Therefore, if this or similar legislation is enacted, following such ten-year period, we would be precluded from qualifying as a partnership for U.S. federal income tax purposes or be required to hold all such ISPIs through corporations. If we were taxed as a U.S. corporation or held all ISPIs through U.S. corporations, our effective tax rate could increase significantly. The federal statutory rate for corporations is currently 35%. In addition, we could be subject to increased state and local taxes. Furthermore, you could be subject to tax on our conversion into a corporation or any restructuring required in order for us to hold our ISPIs through a corporation.

In addition, during such ten-year or other transition period, if you are an individual, 75% of the income and gains attributable to an interest in an ISPI would be taxed at ordinary income tax rates (50% during a two-year transition period) under the House bill. A version considered in the Senate would eliminate the transition period but would reduce the portion of income and gains attributable to an ISPI that are taxed at ordinary income tax rates to 50% for income and gains attributable to assets held by the partnership for more than five years. The deductibility of any losses attributable to any ISPI that is not a qualified capital interest would be subject to limitations. In addition, any dividends that are attributable to an ISPI directly or indirectly held by us would not be considered qualified dividends and therefore would not be entitled to reduced rates of taxation. You also may be subject to additional state and local tax as a result of the legislation. While the legislation does not specifically address whether income or gains that is attributable to an interest in an ISPI is treated as effectively connected income with a U.S. trade or business, or ECI, or as unrelated business taxable income, or UBTI, the technical explanation accompanying the legislation indicates that, under regulations to be promulgated following enactment, such income or gains should only be treated as ECI or UBTI to the extent it would be treated as such under current law. Our senior managing directors and other professionals may face additional adverse tax consequences under the legislation, which may thereby adversely affect our ability to offer attractive incentive opportunities for key personnel.

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The Obama administration has indicated it supports the adoption of the May 28, 2010 legislation or legislation that similarly changes the treatment of Carried Interest for U.S. federal income tax purposes. In its published revenue proposals for both 2010 and 2011 the Obama administration proposed that the current law regarding the treatment of Carried Interest be changed to subject such income to ordinary income tax.

Over the past several years, a number of similar legislative proposals have been introduced and, in certain cases, have been passed by the U.S. House of Representatives. In 2007, legislation was introduced in the U.S. Congress that would tax as corporations publicly traded partnerships that directly or indirectly derive income from investment advisor or asset management services. In 2008, the U.S. House of Representatives passed a bill that would generally (i) treat Carried Interest as non-qualifying income under the tax rules applicable to publicly traded partnerships, which could preclude us from qualifying as a partnership for U.S. federal income tax purposes, and (ii) tax Carried Interest as ordinary income for U.S. federal income taxes, rather than in accordance with the character of income derived by the underlying fund. In December 2009, the U.S. House of Representatives passed substantially similar legislation. Such legislation would tax Carried Interest as ordinary income starting in the year of enactment. The legislation passed in December 2009 and certain other versions of the proposed legislation contain a transition rule that may delay the applicability of certain aspects of the legislation for a partnership that is a publicly traded partnership on the date of enactment of the legislation.

States and other jurisdictions have also considered legislation to increase taxes with respect to Carried Interest. For example, in June, the New York State Assembly passed a bill, which could cause a non-resident of New York who holds our common units to be subject to New York state income tax on Carried Interest earned by entities in which we hold an indirect interest, thereby requiring the non-resident to file a New York state income tax return reporting such Carried Interest income. This legislation would be retroactive to January 1, 2010. It is unclear when or whether this legislation will be enacted.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

In January 2008, the Board of Directors authorized the repurchase of up to $500 million of Blackstone common units and Blackstone Holdings Partnership Units. Under this unit repurchase program, units may be repurchased in open market transactions, in privately negotiated transactions or otherwise. The unit repurchase program may be suspended or discontinued at any time and does not have a final specified date. No purchases of our common units were made by us or on our behalf during the three months ended June 30, 2010. See “Part I. Item 1. Financial Statements — Notes to Condensed Consolidated Financial Statements — Note 12. Net Loss Per Common Unit” and “Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Our Future Sources of Cash and Liquidity Needs” for further information regarding this unit repurchase program.

As permitted by our policies and procedures governing transactions in our securities by our directors, executive officers and other employees, from time to time some of these persons may establish plans or arrangements complying with Rule 10b5-1 under the Exchange Act, and similar plans and arrangements relating to our common units and Holdings units.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4.

(REMOVED AND RESERVED)

ITEM 5.

OTHER INFORMATION

None.

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ITEM 6.

EXHIBITS


Exhibit Number		Exhibit Description
10.8.1		The Blackstone Group L.P. Amended and Restated 2007 Equity Incentive Plan.
10.50		BCVA L.L.C. Amended and Restated Limited Liability Company Agreement Dated as of July 8, 2010.
31.1		Certification of the Chief Executive Officer pursuant to Rule 13a-14(a).
31.2		Certification of the Chief Financial Officer pursuant to Rule 13a-14(a).
32.1		Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
32.2		Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
101.INS*		XBRL Instance Document.
101.SCH*		XBRL Taxonomy Extension Schema Document.
101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*		XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document

*	XBRL (Extensible Business Reporting Language) information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: August 6, 2010


The Blackstone Group L.P.

By:		Blackstone Group Management L.L.C.,
		its general partner

		/S/ LAURENCE A. TOSI
Name:		Laurence A. Tosi
Title:		Chief Financial Officer (Principal Financial Officer and Authorized Signatory)