DERIVATIVE FINANCIAL INSTRUMENTS

3 Months Ended

Mar. 31, 2016

DERIVATIVE FINANCIAL INSTRUMENTS

6. DERIVATIVE FINANCIAL INSTRUMENTS

Blackstone and the consolidated Blackstone Funds enter into derivative contracts in the normal course of business to achieve certain risk management objectives and for general investment purposes. Blackstone may enter into derivative contracts in order to hedge its interest rate risk exposure against the effects of interest rate changes. Additionally, Blackstone may also enter into derivative contracts in order to hedge its foreign currency risk exposure against the effects of a portion of its non-U.S. dollar denominated currency net investments. 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.

Net Investment Hedges

To manage the potential exposure from adverse changes in currency exchange rates arising from Blackstone’s net investment in foreign operations, during December 2014, Blackstone entered into several foreign currency forward contracts to hedge a portion of the net investment in Blackstone’s non-U.S. dollar denominated foreign operations.

Blackstone uses foreign currency forward contracts to hedge portions of Blackstone’s net investments in foreign operations. The gains and losses due to change in fair value attributable to changes in spot exchange rates on foreign currency derivatives designated as net investment hedges were recognized in Other Comprehensive Income (Loss), Net of Tax — Currency Translation Adjustment. For the three months ended March 31, 2016 the resulting loss was $2.1 million.

Freestanding Derivatives

Freestanding 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 interest rate swaps, foreign exchange contracts, equity swaps, options, futures and other derivative contracts.

In June 2012, Blackstone removed the fair value hedge designation of its interest rate swaps that were previously used to hedge a portion of the interest rate risk on the Partnership’s fixed rate borrowings. Changes in the fair value of the interest rate swaps subsequent to the date of de-designation are reflected within Freestanding Derivatives within Interest Rate Contracts in the table below.

The table below summarizes the aggregate notional amount and fair value of the derivative financial instruments. The notional amount represents the absolute value amount of all outstanding derivative contracts.

	March 31, 2016								December 31, 2015
	Assets				Liabilities				Assets				Liabilities
	Notional		Fair Value		Notional		Fair Value		Notional		Fair Value		Notional		Fair Value
Net Investment Hedges
Foreign Currency Contracts	$	6,087	$	9	$	53,191	$	1,677	$	53,627	$	319	$	138	$	1
Freestanding Derivatives
Blackstone
Interest Rate Contracts		603,327		900		724,087		5,765		1,681,533		2,212		1,054,465		4,288
Foreign Currency Contracts		163,031		2,902		127,891		1,063		158,684		2,088		271,891		2,042
Credit Default Swaps		2,275		12		—		—		—		—		19,250		2,411
Investments of Consolidated Blackstone Funds
Foreign Currency Contracts		197,087		11,562		26,253		2,846		124,595		1,400		92,094		6,490
Credit Default Swaps		—		—		122,682		7,647		—		—		108,786		6,275
		965,720		15,376		1,000,913		17,321		1,964,812		5,700		1,546,486		21,506
Total	$	971,807	$	15,385	$	1,054,104	$	18,998	$	2,018,439	$	6,019	$	1,546,624	$	21,507

The table below summarizes the impact to the Condensed Consolidated Statements of Operations from derivative financial instruments:

	Three Months Ended March 31,
	2016			2015
Net Investment Hedges — Foreign Currency Contracts
Hedge Ineffectiveness	$	129		$	240
Freestanding Derivatives
Realized Gains (Losses)
Interest Rate Contracts	$	(7,358	)	$	(3,735	)
Foreign Currency Contracts		(4,310	)		12,064
Credit Default Swaps		(3,811	)		1,826
Total	$	(15,479	)	$	10,155
Freestanding Derivatives
Net Change in Unrealized Gains (Losses)
Interest Rate Contracts	$	(2,666	)	$	(746	)
Foreign Currency Contracts		15,322			(11,024	)
Credit Default Swaps		(4,276	)		(2,922	)
Total	$	8,380		$	(14,692	)

As of March 31, 2016 and December 31, 2015, the Partnership had not designated any derivatives as cash flow hedges.