FAIR VALUE MEASUREMENTS OF FINANCIAL INSTRUMENTS

3 Months Ended

Mar. 31, 2014

FAIR VALUE MEASUREMENTS OF FINANCIAL INSTRUMENTS

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:

	March 31, 2014
	Level I		Level II		Level III		Total
Assets
Investments of Consolidated Blackstone Funds (a)
Investment Funds	$	—	$	—	$	970,477	$	970,477
Equity Securities		74,543		106,643		207,217		388,403
Partnership and LLC Interests		—		163,401		1,283,903		1,447,304
Debt Instruments		2,708		1,442,482		154,380		1,599,570
Assets of Consolidated CLO Vehicles
Corporate Loans		—		7,147,823		767,046		7,914,869
Corporate Bonds		—		143,333		—		143,333
Freestanding Derivatives — Foreign Currency Contracts		—		24,919		—		24,919
Freestanding Derivatives — Interest Rate Contracts		—		2,857		—		2,857
Other		21		—		29,799		29,820
Total Investments of Consolidated Blackstone Funds		77,272		9,031,458		3,412,822		12,521,552
Blackstone’s Treasury Cash Management Strategies		90,586		857,359		48,861		996,806
Money Market Funds		196,428		—		—		196,428
Freestanding Derivatives
Interest Rate Contracts		4,049		785		—		4,834
Foreign Currency Contracts		—		846		—		846
Loans and Receivables		—		—		61,573		61,573
Other Investments		20,873		7,319		88,050		116,242
	$	389,208	$	9,897,767	$	3,611,306	$	13,898,281
Liabilities
Liabilities of Consolidated Blackstone Funds (a)
Freestanding Derivatives — Credit Default Swaps	$	—	$	7,912	$	—	$	7,912
Liabilities of Consolidated CLO Vehicles
Senior Secured Notes		—		—		7,795,523		7,795,523
Subordinated Notes		—		—		619,188		619,188
Freestanding Derivatives – Foreign Currency Contracts		—		12,197		—		12,197
Total Liabilities of Consolidated Blackstone Funds		—		20,109		8,414,711		8,434,820
Freestanding Derivatives
Interest Rate Contracts		1,502		43		—		1,545
Foreign Currency Contracts		—		737		—		737
Credit Default Swaps		—		2,763		—		2,763
Securities Sold, Not Yet Purchased		—		296,434		—		296,434
	$	1,502	$	320,086	$	8,414,711	$	8,736,299

	December 31, 2013
	Level I		Level II		Level III		Total
Assets
Investments of Consolidated Blackstone Funds (a)
Investment Funds	$	—	$	—	$	897,843	$	897,843
Equity Securities		51,147		130,816		193,699		375,662
Partnership and LLC Interests		—		88,555		1,254,903		1,343,458
Debt Instruments		—		1,154,902		45,495		1,200,397
Assets of Consolidated CLO Vehicles
Corporate Loans		—		7,537,661		929,228		8,466,889
Corporate Bonds		—		161,382		—		161,382
Freestanding Derivatives — Foreign Currency Contracts		—		30,830		—		30,830
Freestanding Derivatives — Interest Rate Contracts		—		3,726		—		3,726
Other		3,477		—		37,584		41,061
Total Investments of Consolidated Blackstone Funds		54,624		9,107,872		3,358,752		12,521,248
Blackstone’s Treasury Cash Management Strategies		19,629		1,041,039		44,132		1,104,800
Money Market Funds		173,781		—		—		173,781
Freestanding Derivatives
Interest Rate Contracts		7,423		1,098		—		8,521
Foreign Currency Contracts		—		1,480		—		1,480
Total Return Swaps		—		342		—		342
Loans and Receivables		—		—		137,788		137,788
Other Investments		87,068		17,270		14,466		118,804
	$	342,525	$	10,169,101	$	3,555,138	$	14,066,764
Liabilities
Liabilities of Consolidated CLO Vehicles (a)
Senior Secured Notes	$	—	$	—	$	8,302,572	$	8,302,572
Subordinated Notes		—		—		610,435		610,435
Freestanding Derivatives — Foreign Currency Contracts		—		10,018		—		10,018
Freestanding Derivatives
Interest Rate Contracts		2,484		192		—		2,676
Foreign Currency Contracts		—		1,015		—		1,015
Credit Default Swaps		—		591		—		591
Securities Sold, Not Yet Purchased		—		76,195		—		76,195
	$	2,484	$	88,011	$	8,913,007	$	9,003,502

(a) Pursuant to GAAP consolidation guidance, the Partnership is required to consolidate all VIEs in which it has been identified as the primary beneficiary, including certain CLO vehicles, and other funds in which a consolidated entity of the Partnership, as the general partner of the fund, is presumed to have control. While the Partnership is required to consolidate certain funds, including CLO vehicles, for GAAP purposes, the Partnership has no ability to utilize the assets of these funds and there is no recourse to the Partnership for their liabilities since these are client assets and liabilities.

The following table summarizes the fair value transfers between Level I and Level II for positions that existed as of March 31, 2014 and 2013, respectively:

	Three Months Ended March 31,
	2014		2013
Transfers from Level I into Level II (a)	$	—	$	75,134
Transfers from Level II into Level I (b)	$	18,029	$	—

(a) Transfers out of Level I represent those financial instruments for which restrictions exist and adjustments were made to an otherwise observable price to reflect fair value at the reporting date.

(b) Transfers into Level I represent those financial instruments for which an unadjusted quoted price in an active market became available for the identical asset.

The following table summarizes the quantitative inputs and assumptions used for items categorized in Level III of the fair value hierarchy as of March 31, 2014:

	Fair Value		Valuation Techniques	Unobservable Inputs	Ranges	Weighted- Average (a)
Financial Assets
Investments of Consolidated Blackstone Funds
Investment Funds	$	970,477	NAV as Fair Value	N/A	N/A	N/A
Equity Securities		119,884	Discounted Cash Flows	Discount Rate	8.4% - 26.1%	12.4%
				Revenue CAGR	-0.2% - 33.9%	6.5%
				Exit Multiple -EBITDA	5.0x - 14.0x	9.0x
				Exit Multiple - P/E	8.5x - 17.0x	9.8x
		80,370	Transaction Price	N/A	N/A	N/A
		248	Market Comparable Companies	EBITDA Multiple	6.5x - 7.8x	7.1x
		572	Third Party Pricing	N/A	N/A	N/A
		6,143	Other	N/A	N/A	N/A
Partnership and LLC Interests		591,893	Discounted Cash Flows	Discount Rate	4.0% - 20.0%	9.0%
				Revenue CAGR	-0.8% - 34.3%	6.3%
				Exit Multiple - EBITDA	0.1x - 23.3x	9.4x
				Exit Capitalization Rate	4.3% - 10.5%	7.0%
		677,538	Transaction Price	N/A	N/A	N/A
		9,335	Third Party Pricing	N/A	N/A	N/A
		5,137	Other	N/A	N/A	N/A
Debt Instruments		12,220	Discounted Cash Flows	Discount Rate	9.8% - 21.0%	19.2%
				Revenue CAGR	0.1% - 8.0%	4.5%
				Exit Multiple - EBITDA	4.0x - 11.1x	10.4x
				Exit Capitalization Rate	6.4% - 8.4%	6.5%
				Default Rate	2.0%	N/A
				Recovery Rate	70.0%	N/A
				Recovery Lag	12 months	N/A
				Pre-payment Rate	20.0%	N/A
				Reinvestment Rate	LIBOR + 400 bps	N/A
		141,425	Third Party Pricing	N/A	N/A	N/A
		537	Transaction Price	N/A	N/A	N/A
		198	Market Comparable Companies	EBITDA Multiple	5.9x - 8.0x	5.9x
Assets of Consolidated CLO Vehicles		491,051	Third Party Pricing	N/A	N/A	N/A
		252,990	Market Comparable	EBITDA Multiple	3.5x - 15.0x	7.1x
			Companies
		46,724	Discounted Cash Flows	Discount Rate	7.0% - 8.5%	7.6%
		6,080	Transaction Price	N/A	N/A	N/A
Total Investments of Consolidated Blackstone Funds		3,412,822
Blackstone’s Treasury Cash Management Strategies	$	17,070	Discounted Cash Flows	Default Rate	2.0%	N/A
				Recovery Rate	70.0%	N/A
				Recovery Lag	12 months	N/A
				Pre-payment Rate	20.0%	N/A
				Reinvestment Rate	LIBOR + 400 bps	N/A
				Discount Rate	5.7% - 7.7%	6.2%
		21,124	Third Party Pricing	N/A	N/A	N/A
		623	Transaction Price	N/A	N/A	N/A
		10,044	NAV as Fair Value	N/A	N/A	N/A
Loans and Receivables		61,573	Discounted Cash Flows	Discount Rate	11.6% - 14.0%	12.7%
Other Investments		11,932	Transaction Price	N/A	N/A	N/A
		72,776	Discounted Cash Flows	Discount Rate	1.5% - 12.5%	3.3%
				Default Rate	2.0%	N/A
				Recovery Rate	70.0%	N/A
				Recovery Lag	12 months	N/A
				Pre-payment Rate	20.0%	N/A
				Reinvestment Rate	LIBOR + 400 bps	N/A
		3,342	NAV as Fair Value	N/A	N/A	N/A
Total	$	3,611,306
Financial Liabilities
Liabilities of Consolidated CLO Vehicles	$	8,414,711	Discounted Cash Flows	Default Rate	2.0% - 3.0%	2.2%
				Recovery Rate	70.0%	N/A
				Recovery Lag	12 months	N/A
				Pre-payment Rate	20.0%	N/A
				Discount Rate	0.4% - 24.2%	2.5%
				Reinvestment Rate	LIBOR + 400 bps	N/A

The following table summarizes the quantitative inputs and assumptions used for items categorized in Level III of the fair value hierarchy as of December 31, 2013:

	Fair Value		Valuation Techniques	Unobservable Inputs	Ranges	Weighted- Average (a)
Financial Assets
Investments of Consolidated Blackstone Funds
Investment Funds	$	897,843	NAV as Fair Value	N/A	N/A	N/A
Equity Securities		112,117	Discounted Cash Flows	Discount Rate	9.2% - 26.3%	12.4%
				Revenue CAGR	0.9% - 46.2%	6.8%
				Exit Multiple - EBITDA	5.0x - 14.0x	8.9x
				Exit Multiple - P/E	8.5x - 17.0x	9.8x
		78,154	Transaction Price	N/A	N/A	N/A
		275	Market Comparable Companies	EBITDA Multiple	6.3x - 7.5x	6.9x
		50	Third Party Pricing	N/A	N/A	N/A
		3,103	Other	N/A	N/A	N/A
Partnership and LLC Interests		557,534	Discounted Cash Flows	Discount Rate	5.0% - 22.5%	9.0%
				Revenue CAGR	-0.7% - 17.7%	5.5%
				Exit Multiple - EBITDA	3.0x - 23.3x	9.4x
				Exit Capitalization Rate	4.3% - 10.5%	7.0%
		687,246	Transaction Price	N/A	N/A	N/A
		9,181	Third Party Pricing	N/A	N/A	N/A
		942	Other	N/A	N/A	N/A
Debt Instruments		11,814	Discounted Cash Flows	Discount Rate	10.7% - 21.0%	19.2%
				Revenue CAGR	4.8% - 5.5%	4.8%
				Exit Multiple - EBITDA	5.8x - 11.1x	10.8x
				Exit Capitalization Rate	6.4% - 7.5%	6.7%
				Default Rate	2.0%	N/A
				Recovery Rate	67.0%	N/A
				Recovery Lag	12 months	N/A
				Pre-payment Rate	20.0%	N/A
				Reinvestment Rate	LIBOR + 400 bps	N/A
		31,675	Third Party Pricing	N/A	N/A	N/A
		1,772	Transaction Price	N/A	N/A	N/A
		234	Market Comparable Companies	EBITDA Multiple	6.2x - 8.0x	6.2x
Assets of Consolidated CLO Vehicles		615,414	Third Party Pricing	N/A	N/A	N/A
		293,382	Market Comparable Companies	EBITDA Multiple	3.5x - 11.3x	7.3x
		57,936	Discounted Cash Flows	Discount Rate	7.0% - 14.0%	7.8%
				Revenue CAGR	4.2%	N/A
				Exit Multiple - EBITDA	8.0x	N/A
		80	Transaction Price	N/A	N/A	N/A
Total Investments of Consolidated Blackstone Funds		3,358,752
Blackstone’s Treasury Cash Management Strategies	$	17,040	Discounted Cash Flows	Default Rate	2.0%	N/A
				Recovery Rate	30.0% - 70.0%	66.0%
				Recovery Lag	12 months	N/A
				Pre-payment Rate	20.0%	N/A
				Reinvestment Rate	LIBOR + 400 bps	N/A
				Discount Rate	6.0% - 8.6%	6.6%
		16,993	Third Party Pricing	N/A	N/A	N/A
		10,099	NAV as Fair Value	N/A	N/A	N/A
Loans and Receivables		137,788	Discounted Cash Flows	Discount Rate	11.0% - 14.8%	12.6%
Other Investments		7,927	Transaction Price	N/A	N/A	N/A
		3,725	NAV as Fair Value	N/A	N/A	N/A
		2,814	Discounted Cash Flows	Discount Rate	12.5%	N/A
Total	$	3,555,138
Financial Liabilities
Liabilities of Consolidated CLO Vehicles	$	8,913,007	Discounted Cash Flows	Default Rate	2.0% - 3.0%	2.1%
				Recovery Rate	30.0% - 70.0%	66.0%
				Recovery Lag	12 months	N/A
				Pre-payment Rate	5.0% - 20.0%	18.0%
				Discount Rate	0.4% - 24.2%	2.6%
				Reinvestment Rate	LIBOR + 400 bps	N/A

N/A Not applicable.

CAGR Compound annual growth rate.

EBITDA Earnings before interest, taxes, depreciation and amortization.

Exit Multiple Ranges include the last twelve months EBITDA, forward EBITDA and price/earnings exit multiples.

(a) Unobservable inputs were weighted based on the fair value of the investments included in the range.

The significant unobservable inputs used in the fair value measurement of the assets, Blackstone’s Treasury Cash Management Strategies, debt instruments and obligations of consolidated CLO vehicles are discount rates, default rates, recovery rates, recovery lag, pre-payment rates and reinvestment rates. Increases (decreases) in any of the discount rates, default rates, recovery lag and pre-payment rates in isolation would result in a lower (higher) fair value measurement. Increases (decreases) in any of the recovery rates and reinvestment rates in isolation would result in a higher (lower) fair value measurement. Generally, a change in the assumption used for default rates may be accompanied by a directionally similar change in the assumption used for recovery lag and a directionally opposite change in the assumption used for recovery rates and pre-payment rates.

The significant unobservable inputs used in the fair value measurement of equity securities, partnership and LLC interests, debt instruments, assets of consolidated CLO vehicles and loans and receivables are discount rates, exit capitalization rates, exit multiples, book value multiples, EBITDA multiples, liquidity discount and revenue compound annual growth rates. Increases (decreases) in any of discount rates and exit capitalization rates in isolation can result in a lower (higher) fair value measurement. Increases (decreases) in any of exit multiples, book value multiples and revenue compound annual growth rates in isolation can result in a higher (lower) fair value measurement.

Since December 31, 2013, there have been no changes in valuation techniques within Level II and Level III that have had a material impact on the valuation of financial instruments.

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 respective reporting period. Total realized and unrealized gains and losses recorded for Level III investments are reported in Investment Income and Net Gains from Fund Investment Activities in the Condensed Consolidated Statements of Operations.

	Level III Financial Assets at Fair Value Three Months Ended March 31,
	2014												2013
	Investments of Consolidated Funds			Loans and Receivables			Other Investments (c)			Total			Investments of Consolidated Funds			Loans and Receivables			Other Investments (c)			Total
Balance, Beginning of Period	$	3,358,752		$	137,788		$	58,598		$	3,555,138		$	3,017,699		$	30,663		$	28,104		$	3,076,466
Transfer In Due to Consolidation and Acquisition (a)		276,806			—			—			276,806			—			—			—			—
Transfer In (Out) Due to Deconsolidation		(83,867	)		—			—			(83,867	)		(98,559	)		—			11,960			(86,599	)
Transfer In to Level III (b)		195,607			—			3,679			199,286			207,476			—			—			207,476
Transfer Out of Level III (b)		(244,308	)		—			(1,009	)		(245,317	)		(322,764	)		—			—			(322,764	)
Purchases		159,613			81,241			77,637			318,491			172,968			2,873			62,774			238,615
Sales		(290,782	)		(156,719	)		(4,067	)		(451,568	)		(129,725	)		(29,462	)		(39,462	)		(198,649	)
Settlements		—			(1,170	)		(155	)		(1,325	)		—			(332	)		(1,559	)		(1,891	)
Realized Gains, Net		17,015			—			102			17,117			8,042			43			849			8,934
Changes in Unrealized Gains (Losses) Included in Earnings Related to Investments Still Held at the Reporting Date		23,986			433			2,126			26,545			82,160			82			383			82,625
Balance, End of Period	$	3,412,822		$	61,573		$	136,911		$	3,611,306		$	2,937,297		$	3,867		$	63,049		$	3,004,213

	Level III Financial Liabilities at Fair Value Three Months Ended March 31,
	2014									2013
	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	$	8,302,572		$	610,435		$	8,913,007		$	10,695,136		$	846,471		$	11,541,607
Transfer In Due to Consolidation and Acquisition (a)		472,019			86,182			558,201			—			—			—
Transfer Out Due to Deconsolidation		(639,091	)		(39,798	)		(678,889	)		(757,450	)		(83,296	)		(840,746	)
Issuances		—			—			—			1,063			781			1,844
Settlements		(388,987	)		(110	)		(389,097	)		(404,392	)		(349	)		(404,741	)
Realized Losses, Net		2,538			—			2,538			—			—			—
Changes in Unrealized (Gains) Losses Included in Earnings Related to Liabilities Still Held at the Reporting Date		46,472			(37,521	)		8,951			100,390			(43,055	)		57,335
Balance, End of Period	$	7,795,523		$	619,188		$	8,414,711		$	9,634,747		$	720,552		$	10,355,299

(a) Represents the transfer into Level III of financial assets and liabilities as a result of the consolidation of certain fund entities.

(b) Transfers in and out of Level III financial assets and liabilities were due to changes in the observability of inputs used in the valuation of such assets and liabilities.

(c) Represents Blackstone’s Treasury Cash Management Strategies and Other Investments.