Blackstone Group L.P. (Form: 10-Q, Received: 08/04/2016 16:10:05)

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, 2016

¨	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

LOGO

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 29, 2016 was 568,971,353. The number of the Registrant’s non-voting common units representing limited partner interests outstanding as of July 29, 2016 was 59,083,468.

TABLE OF CONTENTS


		Page
PART I.	FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS		5

	Unaudited Condensed Consolidated Financial Statements — June 30, 2016 and 2015:

	Condensed Consolidated Statements of Financial Condition as of June 30, 2016 and December 31, 2015		5

	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2016 and 2015		7

	Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2016 and 2015		8

	Condensed Consolidated Statements of Changes in Partners’ Capital for the Six Months Ended June 30, 2016 and 2015		9

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2016 and 2015		11

	Notes to Condensed Consolidated Financial Statements		13

ITEM 1A.	UNAUDITED SUPPLEMENTAL PRESENTATION OF STATEMENTS OF FINANCIAL CONDITION		57

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		59

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		124

ITEM 4.	CONTROLS AND PROCEDURES		128

PART II.	OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS		129

ITEM 1A.	RISK FACTORS		129

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		129

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES		130

ITEM 4.	MINE SAFETY DISCLOSURES		130

ITEM 5.	OTHER INFORMATION		130

ITEM 6.	EXHIBITS		130

SIGNATURES			131

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,” “indicator,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. We believe these factors include but are not limited to those described under the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2015 and in this report, as such factors may be updated from time to time in our periodic filings with the United States Securities and Exchange Commission (“SEC”), which are accessible on the SEC’s website at www.sec.gov. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this report and in our other periodic filings. The forward-looking statements speak only as of the date of this report, and we undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.

Website and Social Media Disclosure

We use our website (www.blackstone.com), Facebook page (www.facebook.com/blackstone), Twitter (www.twitter.com/blackstone), LinkedIn (www.linkedin.com/company/the-blackstone-group), Instagram (instagram.com/Blackstone) and YouTube (www.youtube.com/user/blackstonegroup) accounts as channels of distribution of company information. The information we post through these channels may be deemed material. Accordingly, investors should monitor these channels, in addition to following our press releases, SEC filings and public conference calls and webcasts. In addition, you may automatically receive e-mail alerts and other information about Blackstone when you enroll your e-mail address by visiting the “Contact Us/Email Alerts” section of our website at http://ir.blackstone.com. The contents of our website, any alerts and social media channels are not, however, a part of this report.

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 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-focused funds, collateralized loan obligation (“CLO”) and collateralized debt obligation (“CDO”) vehicles, real estate investment trusts and registered investment companies that are managed by Blackstone. “Our carry funds” refers to the private equity funds, real estate funds and certain of the credit-focused funds (with multi-year drawdown, commitment-based structures that only pay carry on the realization of an investment) that are managed by Blackstone. Blackstone’s Private Equity segment comprises its management of corporate private equity funds (including our sector focused funds), which we refer to collectively as our Blackstone Capital Partners (“BCP”) funds, our Blackstone Core Equity Partners (“BCEP”) fund, our opportunistic investment platform that invests globally across asset classes, industries and geographies, which we collectively refer to as Blackstone Tactical Opportunities (“Tactical Opportunities”), Strategic Partners Fund Solutions (“Strategic Partners”), a secondary private fund of funds business, Blackstone Total Alternatives Solution (“BTAS”), a multi-asset investment program for eligible high net worth investors offering exposure to certain of our key illiquid investment strategies through a single commitment, and our capital markets services business (“BXCM”). We refer to our real estate opportunistic funds as our Blackstone Real Estate Partners (“BREP”) funds and our real estate debt investment funds as our Blackstone Real Estate Debt Strategies (“BREDS”) funds. We refer to our core+ real estate funds, which target substantially stabilized assets generating relatively stable cash flow, as Blackstone Property

Partners (“BPP”) funds. We refer to our listed real estate investment trusts as “REITs.” “Our hedge funds” refers to our funds of hedge funds, certain of our real estate debt investment funds, including a registered investment company, and certain other credit-focused funds which are managed by Blackstone.

“Assets Under Management” refers to the assets we manage. Our Assets Under Management equals the sum of:

(a)

the fair value of the investments held by our carry funds and our side-by-side and co-investment entities managed by us, plus the capital that we are entitled to call from investors in those funds and entities pursuant to the terms of their respective capital commitments, including capital commitments to funds that have yet to commence their investment periods,

(b)

the net asset value of our funds of hedge funds, hedge funds and certain registered investment companies,

(c)

the invested capital or fair value of assets we manage pursuant to separately managed accounts,

(d)

the amount of debt and equity outstanding for our CLOs and CDOs during the reinvestment period,

(e)

the aggregate par amount of collateral assets, including principal cash, for our CLOs and CDOs after the reinvestment period,

(f)

the gross amount of assets (including leverage) for certain of our credit-focused registered investment companies, and

(g)

the fair value of common stock, preferred stock, convertible debt, or similar instruments issued by our public REIT.

Our carry funds are commitment-based drawdown structured funds that do not permit investors to redeem their interests at their election. Our funds of hedge funds and hedge funds generally have structures that afford an investor the right to withdraw or redeem their interests on a periodic basis (for example, annually or quarterly), with the majority of our funds requiring from 60 to 95 days’ notice, depending on the fund and the liquidity profile of the underlying assets. Investment advisory agreements related to separately managed accounts in our Hedge Fund Solutions and Credit segments 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 performance fees. Our Fee-Earning Assets Under Management equals the sum of:

(a)

for our Private Equity segment funds and Real Estate segment carry funds including certain real estate debt investment funds and certain of our Hedge Fund Solutions funds, the amount of capital commitments, remaining invested capital, fair value or par value of assets held, depending on the fee terms of the fund,

(b)

for our credit-focused carry funds, the amount of remaining invested capital (which may include leverage) or net asset value, depending on the fee terms of the fund,

(c)

the remaining invested capital of co-investments managed by us on which we receive fees,

(d)

the net asset value of our funds of hedge funds, hedge funds and certain registered investment companies,

(e)

the invested capital, fair value of assets or the net asset value we manage pursuant to separately managed accounts,

(f)

the net proceeds received from equity offerings and accumulated core earnings of our REITs, subject to certain adjustments,

(g)

the aggregate par amount of collateral assets, including principal cash, of our CLOs, CDOs and certain credit focused separately managed accounts, and

(h)

the gross amount of assets (including leverage) or the net assets (plus leverage where applicable) for certain of our credit-focused registered investment companies.

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, the remaining amount of invested capital at cost depending on whether the investment period has or has not expired or the fee terms of the fund. As such, fee-earning assets under management may be greater than total assets under management when the aggregate fair value of the remaining investments is less than the cost of those investments.

This report does not constitute an offer of any Blackstone Fund.

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, 2016			December 31, 2015
Assets
Cash and Cash Equivalents	$	1,495,466		$	1,837,324
Cash Held by Blackstone Funds and Other		736,261			587,132
Investments (including assets pledged of $86,455 and $64,535 at June 30, 2016 and December 31, 2015, respectively)		15,136,500			14,324,097
Accounts Receivable		690,006			613,153
Reverse Repurchase Agreements		43,885			204,893
Due from Affiliates		1,292,306			1,240,797
Intangible Assets, Net		299,892			345,547
Goodwill		1,718,519			1,718,519
Other Assets		343,561			377,189
Deferred Tax Assets		1,285,262			1,277,429

Total Assets	$	23,041,658		$	22,526,080

Liabilities and Partners’ Capital
Loans Payable	$	6,741,728		$	6,116,747
Due to Affiliates		1,265,863			1,282,700
Accrued Compensation and Benefits		2,091,699			2,029,918
Securities Sold, Not Yet Purchased		115,796			176,667
Repurchase Agreements		56,353			40,929
Accounts Payable, Accrued Expenses and Other Liabilities		654,799			648,662

Total Liabilities		10,926,238			10,295,623

Commitments and Contingencies

Redeemable Non-Controlling Interests in Consolidated Entities		174,005			183,459

Partners’ Capital
The Blackstone Group L.P. Partners’ Capital
Partners’ Capital (common units: 633,534,381 issued and outstanding as of June 30, 2016; 624,450,162 issued and outstanding as of December 31, 2015)		6,208,387			6,322,307
Accumulated Other Comprehensive Loss		(45,887	)		(52,519	)

Total The Blackstone Group L.P. Partners’ Capital		6,162,500			6,269,788
Non-Controlling Interests in Consolidated Entities		2,538,559			2,408,701
Non-Controlling Interests in Blackstone Holdings		3,240,356			3,368,509

Total Partners’ Capital		11,941,415			12,046,998

Total Liabilities and Partners’ Capital	$	23,041,658		$	22,526,080

continued…

See notes to condensed consolidated financial statements.

THE BLACKSTONE GROUP L.P.

Condensed Consolidated Statements of Financial Condition (Unaudited)

(Dollars in Thousands)

The following presents the portion of the consolidated balances presented above attributable to consolidated Blackstone Funds which are variable interest entities. The following assets may only be used to settle obligations of these consolidated Blackstone Funds and these liabilities are only the obligations of these consolidated Blackstone Funds and they do not have recourse to the general credit of Blackstone.


	June 30, 2016		December 31, 2015
Assets
Cash Held by Blackstone Funds and Other	$	568,854	$	435,775
Investments		4,950,870		4,558,216
Accounts Receivable		245,459		122,077
Due from Affiliates		29,371		25,561
Other Assets		2,693		12,693

Total Assets	$	5,797,247	$	5,154,322

Liabilities
Loans Payable	$	3,941,751	$	3,319,656
Due to Affiliates		88,576		39,532
Securities Sold, Not Yet Purchased		49,237		58,878
Repurchase Agreements		49,387		31,417
Accounts Payable, Accrued Expenses and Other Liabilities		239,725		226,203

Total Liabilities	$	4,368,676	$	3,675,686

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,
	2016			2015			2016			2015
Revenues
Management and Advisory Fees, Net	$	607,823		$	574,132		$	1,216,729		$	1,190,900

Performance Fees
Realized
Carried Interest		323,734			937,483			554,643			2,145,077
Incentive Fees		29,441			47,682			57,860			77,320
Unrealized
Carried Interest		88,292			(441,930	)		135,878			(68,090	)
Incentive Fees		7,776			25,070			15,355			87,106

Total Performance Fees		449,243			568,305			763,736			2,241,413

Investment Income
Realized		65,037			157,823			53,036			345,753
Unrealized		40,102			(100,999	)		43,595			(82,726	)

Total Investment Income		105,139			56,824			96,631			263,027

Interest and Dividend Revenue		22,286			21,965			45,361			43,885
Other		7,935			3,976			2,323			(1,665	)

Total Revenues		1,192,426			1,225,202			2,124,780			3,737,560

Expenses
Compensation and Benefits
Compensation		355,424			473,019			701,427			1,032,578
Performance Fee Compensation
Realized
Carried Interest		87,580			238,033			146,084			530,281
Incentive Fees		15,250			21,837			29,374			34,064
Unrealized
Carried Interest		75,202			(50,559	)		105,203			23,821
Incentive Fees		2,689			6,130			6,137			31,091

Total Compensation and Benefits		536,145			688,460			988,225			1,651,835
General, Administrative and Other		130,988			146,859			254,033			277,832
Interest Expense		36,878			37,414			74,234			68,784
Fund Expenses		8,592			41,699			13,821			58,549

Total Expenses		712,603			914,432			1,330,313			2,057,000

Other Income
Net Gains from Fund Investment Activities		30,703			82,015			49,845			175,570

Income Before Provision for Taxes		510,526			392,785			844,312			1,856,130
Provision for Taxes		47,415			43,251			56,561			142,595

Net Income		463,111			349,534			787,751			1,713,535
Net Income (Loss) Attributable to Redeemable Non-Controlling Interests in Consolidated Entities		(2,049	)		13,780			(8,450	)		21,307
Net Income Attributable to Non-Controlling Interests in Consolidated Entities		64,729			66,716			104,815			148,512
Net Income Attributable to Non-Controlling Interests in Blackstone Holdings		201,805			134,870			333,007			780,100

Net Income Attributable to The Blackstone Group L.P.	$	198,626		$	134,168		$	358,379		$	763,616

Distributions Declared Per Common Unit	$	0.28		$	0.89		$	0.89		$	1.67

Net Income Per Common Unit
Common Units, Basic	$	0.31		$	0.21		$	0.55		$	1.21

Common Units, Diluted	$	0.30		$	0.21		$	0.54		$	1.21

Weighted-Average Common Units Outstanding
Common Units, Basic		646,933,698			631,881,205			645,915,774			628,597,331

Common Units, Diluted		1,194,478,212			634,192,649			1,194,375,807			632,730,589

Revenues Earned from Affiliates
Management and Advisory Fees, Net	$	44,148		$	28,831		$	100,823		$	76,943

See notes to condensed consolidated financial statements.

THE BLACKSTONE GROUP L.P.

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

(Dollars in Thousands)


	Three Months Ended June 30,					Six Months Ended June 30,
	2016			2015		2016			2015
Net Income	$	463,111		$	349,534	$	787,751		$	1,713,535
Other Comprehensive Income (Loss), Net of Tax — Currency Translation Adjustment		(5,768	)		14,876		11,844			(32,912	)

Comprehensive Income		457,343			364,410		799,595			1,680,623
Less:
Comprehensive Income (Loss) Attributable to Redeemable Non-Controlling Interests in Consolidated Entities		(2,049	)		13,780		(8,450	)		21,307
Comprehensive Income Attributable to Non-Controlling Interests in Consolidated Entities		58,783			75,700		110,026			130,858
Comprehensive Income Attributable to Non-Controlling Interests in Blackstone Holdings		201,805			134,870		333,007			780,100

Comprehensive Income Attributable to The Blackstone Group L.P.	$	198,804		$	140,060	$	365,012		$	748,358

See notes to condensed consolidated financial statements.

THE BLACKSTONE GROUP L.P.

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

(Dollars in Thousands, Except Unit Data)


			The Blackstone Group L.P.
	Common Units		Partners’ Capital			Accumulated Other Compre- hensive Income (Loss)			Total			Non- Controlling Interests in Consolidated Entities			Non- Controlling Interests in Blackstone Holdings			Total Partners’ Capital			Redeemable Non- Controlling Interests in Consolidated Entities
Balance at December 31, 2015		624,450,162	$	6,322,307		$	(52,519	)	$	6,269,788		$	2,408,701		$	3,368,509		$	12,046,998		$	183,459
Net Income (Loss)		—		358,379			—			358,379			104,815			333,007			796,201			(8,450	)
Currency Translation Adjustment		—		—			6,632			6,632			5,211			—			11,843			—
Capital Contributions		—		—			—			—			185,952			—			185,952			—
Capital Distributions		—		(569,794	)		—			(569,794	)		(160,529	)		(505,969	)		(1,236,292	)		(1,004	)
Transfer of Non-Controlling Interests in Consolidated Entities		—		—			—			—			(5,591	)		—			(5,591	)		—
Deferred Tax Effects Resulting from Acquisition of Ownership Interests from Non-Controlling Interest Holders		—		208			—			208			—			—			208			—
Equity-Based Compensation		—		78,052			—			78,052			—			78,458			156,510			—
Net Delivery of Vested Blackstone Holdings Partnership Units and Blackstone Common Units		4,139,648		(14,414	)		—			(14,414	)		—			—			(14,414	)		—
Change in The Blackstone Group L.P.’s Ownership Interest		—		3,836			—			3,836			—			(3,836	)		—			—
Conversion of Blackstone Holdings Partnership Units to Blackstone Common Units		4,944,571		29,813			—			29,813			—			(29,813	)		—			—

Balance at June 30, 2016		633,534,381	$	6,208,387		$	(45,887	)	$	6,162,500		$	2,538,559		$	3,240,356		$	11,941,415		$	174,005

continued…

See notes to condensed consolidated financial statements.

THE BLACKSTONE GROUP L.P.

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

(Dollars in Thousands, Except Unit Data)


	Common Units		The Blackstone Group L.P.												Non- Controlling Interests in Consolidated Entities			Non- Controlling Interests in Blackstone Holdings			Total Partners’ Capital			Redeemable Non- Controlling Interests in Consolidated Entities
	Common Units		Partners’ Capital			Appro- priated Partners’ Capital			Accumulated Other Compre- hensive (Loss)			Total			Non- Controlling Interests in Consolidated Entities			Non- Controlling Interests in Blackstone Holdings			Total Partners’ Capital
Balance at December 31, 2014		595,624,855	$	6,999,830		$	81,301		$	(20,864	)	$	7,060,267		$	3,415,356		$	4,416,070		$	14,891,693		$	2,441,854
Deconsolidation of CLOs and Funds on Adoption of ASU 2015-02		—		—			(90,928	)		—			(90,928	)		(1,002,728	)		—			(1,093,656	)		(2,258,289	)
Adjustment to Appropriated Partners’ Capital on Adoption of ASU 2014-13		—		—			9,627			—			9,627			—			—			9,627			—
Net Income		—		763,616			—			—			763,616			148,512			780,100			1,692,228			21,307
Currency Translation Adjustment		—		—			—			(15,258	)		(15,258	)		(39,546	)		—			(54,804	)		—
Capital Contributions		—		—			—			—			—			221,797			—			221,797			2,241
Capital Distributions		—		(1,040,920	)		—			—			(1,040,920	)		(410,702	)		(1,005,848	)		(2,457,470	)		(10,513	)
Transfer of Non-Controlling Interests in Consolidated Entities		—		—			—			—			—			(18,299	)		—			(18,299	)		—
Deferred Tax Effects Resulting from Acquisition of Ownership Interests from Non-Controlling Interest Holders		—		17,714			—			—			17,714			—			—			17,714			—
Equity-Based Compensation		—		255,179			—			—			255,179			—			226,774			481,953			—
Net Delivery of Vested Blackstone Holdings Partnership Units and Blackstone Common Units		10,593,940		(33,757	)		—			—			(33,757	)		—			(1,903	)		(35,660	)		—
Excess Tax Benefits Related to Equity-Based Compensation, Net		—		60,045			—			—			60,045			—			—			60,045			—
Change in The Blackstone Group L.P.’s Ownership Interest		—		67,809			—			—			67,809			—			(67,809	)		—			—
Conversion of Blackstone Holdings Partnership Units to Blackstone Common Units		10,511,507		86,935			—			—			86,935			—			(86,935	)		—			—

Balance at June 30, 2015		616,730,302	$	7,176,451		$	—		$	(36,122	)	$	7,140,329		$	2,314,390		$	4,260,449		$	13,715,168		$	196,600

See notes to condensed consolidated financial statements.

THE BLACKSTONE GROUP L.P.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(Dollars in Thousands)


	Six Months Ended June 30,
	2016			2015
Operating Activities
Net Income	$	787,751		$	1,713,535
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities
Blackstone Funds Related
Unrealized Appreciation on Investments Allocable to Non-Controlling Interests in Consolidated Entities		(124,985	)		(28,903	)
Net Realized Gains on Investments		(670,157	)		(2,689,849	)
Changes in Unrealized Losses on Investments Allocable to The Blackstone Group L.P.		12,310			53,219
Non-Cash Performance Fees		(73,806	)		37,652
Non-Cash Performance Fee Compensation		286,797			619,256
Equity-Based Compensation Expense		164,124			482,683
Excess Tax Benefits Related to Equity-Based Compensation		—			(60,045	)
Amortization of Intangibles		45,655			48,422
Other Non-Cash Amounts Included in Net Income		33,514			167,112
Cash Flows Due to Changes in Operating Assets and Liabilities
Cash Held by Blackstone Funds and Other		(140,795	)		1,033,351
Cash Relinquished in Deconsolidation and Liquidation of Partnership		—			(442,370	)
Accounts Receivable		73,459			28,916
Reverse Repurchase Agreements		161,008			(61,376	)
Due from Affiliates		14,424			(85,616	)
Other Assets		18,883			(87,332	)
Accrued Compensation and Benefits		(234,646	)		(577,607	)
Securities Sold, Not Yet Purchased		(68,611	)		56,906
Accounts Payable, Accrued Expenses and Other Liabilities		(247,201	)		(444,242	)
Repurchase Agreements		15,414			11,743
Due to Affiliates		13,682			(109,090	)
Treasury Cash Management Strategies
Investments Purchased		(1,294,654	)		(2,013,059	)
Cash Proceeds from Sale of Investments		1,158,672			2,035,454
Blackstone Funds Related
Investments Purchased		(1,627,123	)		(1,716,764	)
Cash Proceeds from Sale or Pay Down of Investments		1,943,228			3,628,386

Net Cash Provided by Operating Activities		246,943			1,600,382

Investing Activities
Purchase of Furniture, Equipment and Leasehold Improvements		(16,165	)		(16,539	)
Changes in Restricted Cash		5,843			5,843

Net Cash Used in Investing Activities		(10,322	)		(10,696	)

continued…

See notes to condensed consolidated financial statements.

THE BLACKSTONE GROUP L.P.

Condensed Consolidated Statements of Cash Flows (Unaudited)—Continued

(Dollars in Thousands)


	Six Months Ended June 30,
	2016			2015
Financing Activities
Distributions to Non-Controlling Interest Holders in Consolidated Entities	$	(161,533	)	$	(421,088	)
Contributions from Non-Controlling Interest Holders in Consolidated Entities		179,657			220,243
Payments Under Tax Receivable Agreement		(78,985	)		(82,830	)
Net Settlement of Vested Common Units and Repurchase of Common and Blackstone Holdings Partnership Units		(14,414	)		(35,660	)
Excess Tax Benefits Related to Equity-Based Compensation		—			60,045
Proceeds from Loans Payable		—			675,831
Repayment and Repurchase of Loans Payable		—			(2,652	)
Distributions to Unitholders		(1,075,763	)		(2,046,768	)
Blackstone Funds Related
Proceeds from Loans Payable		717,545			888,535
Repayment of Loans Payable		(145,149	)		(93,358	)

Net Cash Used in Financing Activities		(578,642	)		(837,702	)

Effect of Exchange Rate Changes on Cash and Cash Equivalents		163			184

Net Increase (Decrease) in Cash and Cash Equivalents		(341,858	)		752,168
Cash and Cash Equivalents, Beginning of Period		1,837,324			1,412,472

Cash and Cash Equivalents, End of Period	$	1,495,466		$	2,164,640

Supplemental Disclosure of Cash Flows Information
Payments for Interest	$	80,979		$	62,691

Payments for Income Taxes	$	33,454		$	91,513

Supplemental Disclosure of Non-Cash Investing and Financing Activities
Non-Cash Contributions from Non-Controlling Interest Holders	$	740		$	1,022

Non-Cash Distributions to Non-Controlling Interest Holders	$	—		$	(127	)

Net Activities Related to Capital Transactions of Consolidated Blackstone Funds	$	—		$	(277	)

Notes Issuance Costs	$	—		$	5,269

Transfer of Interests to Non-Controlling Interest Holders	$	(5,591	)	$	(18,299	)

Change in The Blackstone Group L.P.’s Ownership Interest	$	3,836		$	67,809

Net Settlement of Vested Common Units	$	64,309		$	108,664

Conversion of Blackstone Holdings Partnership Units to Common Units	$	29,813		$	86,935

Acquisition of Ownership Interests from Non-Controlling Interest Holders
Deferred Tax Asset	$	(25,553	)	$	(108,594	)

Due to Affiliates	$	25,345		$	90,880

Partners’ Capital	$	208		$	17,714

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. The alternative asset management business includes the management of private equity funds, real estate funds, real estate investment trusts (“REITs”), funds of hedge funds, hedge funds, credit-focused funds, collateralized loan obligation (“CLO”) vehicles, collateralized debt obligation (“CDO”) vehicles, separately managed accounts and registered investment companies (collectively referred to as the “Blackstone Funds”). Blackstone’s business is organized into four segments: private equity, real estate, hedge fund solutions and credit.

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 AI 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”). The Partnership, through its wholly owned subsidiaries, is the sole general partner in each of these Holding Partnerships.

Generally, holders of the limited partner interests in the Holding Partnerships may, 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 from each of the 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 audited 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 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 for the year ended December 31, 2015 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 general partner has a controlling financial 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)

All intercompany balances and transactions have been eliminated in consolidation.

Restructurings within consolidated CLOs are treated as investment purchases or sales, as applicable, in the Condensed Consolidated Statements of Cash Flows.

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 has a controlling financial interest. The Partnership has a controlling interest in Blackstone Holdings because 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 VIE that most significantly impact the entity’s economic performance 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 VIE. The consolidation guidance requires an analysis to determine (a) whether an entity in which the Partnership holds a variable interest is a VIE and (b) whether the Partnership’s involvement, through holding interests directly or indirectly in the entity or contractually through other variable interests (for example, management and performance related fees), would give it a controlling financial interest. Performance of that analysis requires the exercise of judgment.

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 continually. In evaluating whether the Partnership is the primary beneficiary, Blackstone evaluates its economic interests in the entity held either directly or indirectly by the Partnership. 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.

Assets of consolidated VIEs that can only be used to settle obligations of the consolidated VIE and liabilities of a consolidated VIE for which creditors (or beneficial interest holders) do not have recourse to the general credit of Blackstone are presented in a separate section in the Condensed Consolidated Statements of Financial Condition.

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

Fair Value of Financial Instruments

GAAP establishes a hierarchical 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.

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)

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 types of financial instruments in Level I include listed equities, listed derivatives and mutual funds with quoted prices. 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, including corporate bonds and loans held within CLO vehicles, government and agency securities, less liquid and restricted equity securities, and certain over-the-counter derivatives where the fair value is based on observable inputs. Senior and subordinated notes issued by CLO vehicles are classified within Level II of the fair value hierarchy.

•

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-focused funds, distressed debt and non-investment grade residual interests in securitizations, certain corporate bonds and loans held within CLO vehicles, and certain over-the-counter derivatives where the fair value is based on unobservable inputs.

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.

Transfers between levels of the fair value hierarchy are recognized at the beginning of the reporting period.

Level II Valuation Techniques

Financial instruments classified within Level II of the fair value hierarchy comprise debt instruments, including certain corporate loans and bonds held by Blackstone’s consolidated CLO vehicles, those held within Blackstone’s Treasury Cash Management Strategies and debt securities sold, not yet purchased and interests in investment funds. Certain equity securities and derivative instruments valued using observable inputs are also classified as Level II.

The valuation techniques used to value financial instruments classified within Level II of the fair value hierarchy are as follows:

•

Debt Instruments and Equity Securities are valued on the basis of prices from an orderly transaction between market participants provided by reputable dealers or pricing services. In determining the value of a particular investment, pricing services may use certain information with respect to transactions in such investments, quotations from dealers, pricing matrices and market transactions in comparable investments and various relationships between investments. The valuation of certain equity securities is based on an observable price for an identical security adjusted for the effect of a restriction.

•

Freestanding Derivatives are valued using contractual cash flows and observable inputs comprising yield curves, foreign currency rates and credit spreads.

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)

•

Senior and subordinate notes issued by CLO vehicles are classified based on the more observable fair value of CLO assets less (a) the fair value of any beneficial interests held by Blackstone, and (b) the carrying value of any beneficial interests that represent compensation for services.

Level III Valuation Techniques

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, certain funds of hedge funds and credit-focused investments.

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 based on unaudited information at the time received. Valuations may be derived by reference to observable valuation measures for comparable companies or transactions (for example, 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. Where a discounted cash flow method is used, a terminal value is derived by reference to EBITDA or price/earnings exit multiples.

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 (for example, 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. Where a discounted cash flow method is used, a terminal value is derived by reference to an exit EBITDA multiple or capitalization rate. Additionally, where applicable, projected distributable cash flow through debt maturity will be considered in support of the investment’s fair value.

Credit-Focused Investments — The fair values of credit-focused 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 or a market approach.

Level III Valuation Process

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)

an independent valuation party, at least annually for all investments, and quarterly for certain investments, to corroborate the values determined by management. The valuations of Blackstone’s investments are reviewed quarterly by a valuation committee chaired by Blackstone’s Vice Chairman and includes senior heads of each of Blackstone’s businesses, as well as representatives of legal and finance. Each quarter, the valuations of Blackstone’s investments are also reviewed by the Audit Committee in a meeting attended by the chairman of the valuation committee. The valuations are further tested by comparison to actual sales prices obtained on disposition of the investments.

Investments, at Fair Value

The Blackstone Funds are accounted for as investment companies under the American Institute of Certified Public Accountants Accounting and Auditing Guide, Investment Companies , and reflect their investments, including majority-owned and controlled investments (the “Portfolio Companies”), at fair value. 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, at current market conditions (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 securities that otherwise would not have been carried at fair value with gains and losses recorded in net income. Accounting for these financial instruments at fair value is consistent with how the Partnership accounts for its other principal investments. Loans extended to third parties are recorded within Accounts Receivable within the Condensed Consolidated Statements of Financial Condition. Debt 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-focused 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 CLO vehicles that are consolidated as of January 1, 2010, as a result of the initial adoption of variable interest entity consolidation guidance. The Partnership has also elected the fair value option for CLO vehicles consolidated as a result of the acquisitions of CLO management contracts or the acquisition of the share capital of CLO managers. Historically, the adjustment resulting from the difference between the fair value of assets and liabilities for each of these events was presented as a transition and acquisition adjustment to 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 and acquisition are presented within Net Gains

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)

(Losses) from Fund Investment Activities. Expenses of consolidated CLO vehicles are presented in Fund Expenses. Historically, amounts attributable to Non-Controlling Interests in Consolidated Entities had a corresponding adjustment to Appropriated Partners’ Capital. On the adoption of the new CLO measurement guidance, there is no attribution of amounts to Non-Controlling Interests and no corresponding adjustments to Appropriated Partners’ Capital.

The Partnership has elected the fair value option for certain proprietary investments that would otherwise have been accounted for using the equity method of accounting. The fair value of such investments is based on quoted prices in an active market or using the discounted cash flow method. Changes in fair value are recognized in Investment Income (Loss) 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” to the Condensed Consolidated Financial Statements.

The investments of consolidated Blackstone Funds in funds of hedge funds (“Investee Funds”) are valued at net asset value (“NAV”) per share of the Investee Fund. In limited circumstances, the Partnership may determine, based on its own due diligence and investment procedures, that NAV per share does not represent fair value. In such circumstances, the Partnership will estimate the fair value in good faith and in a manner that it reasonably chooses, in accordance with the requirements of GAAP.

Certain investments of Blackstone and of the consolidated Blackstone funds of hedge funds and credit-focused 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. Further disclosure on instruments for which fair value is measured using NAV per share is presented in Note 5. “Net Asset Value as Fair Value”.

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

Equity Method Investments

Investments in which 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 in Blackstone Funds are reported at fair value, the carrying value of the Partnership’s equity method investments approximates fair value.

Repurchase and Reverse Repurchase Agreements

Securities purchased under agreements to resell (“reverse repurchase agreements”) and securities sold under agreements to repurchase (“repurchase agreements”), comprised primarily of U.S. and non-U.S. government and

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)

agency securities, asset-backed securities and corporate debt, represent collateralized financing transactions. Such transactions are recorded in the Condensed Consolidated Statements of Financial Condition at their contractual amounts and include accrued interest. The carrying value of repurchase and reverse repurchase agreements approximates fair value.

The Partnership manages credit exposure arising from reverse repurchase agreements and repurchase agreements by, in appropriate circumstances, entering into master netting agreements and collateral arrangements with counterparties that provide the Partnership, in the event of a counterparty default, the right to liquidate collateral and the right to offset a counterparty’s rights and obligations.

The Partnership takes possession of securities purchased under reverse repurchase agreements and is permitted to repledge, deliver or otherwise use such securities. The Partnership also pledges its financial instruments to counterparties to collateralize repurchase agreements. Financial instruments pledged that can be repledged, delivered or otherwise used by the counterparty are recorded in Investments in the Condensed Consolidated Statements of Financial Condition. Additional disclosures relating to reverse repurchase and repurchase agreements are discussed in Note 10. “Reverse Repurchase and Repurchase Agreements”.

Blackstone does not offset assets and liabilities relating to reverse repurchase agreements and repurchase agreements in its Condensed Consolidated Statements of Financial Condition. Additional disclosures relating to offsetting are discussed in Note 11. “Offsetting of Assets and Liabilities”.

Securities Sold, Not Yet Purchased

Securities Sold, Not Yet Purchased consist of equity and debt securities that the Partnership has borrowed and sold. The Partnership is required to “cover” its short sale in the future by purchasing the security at prevailing market prices and delivering it to the counterparty from which it borrowed the security. The Partnership is exposed to loss in the event that the price at which a security may have to be purchased to cover a short sale exceeds the price at which the borrowed security was sold short.

Securities Sold, Not Yet Purchased are recorded at fair value in the Condensed Consolidated Statements of Financial Condition.

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 (“freestanding 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 General, Administrative and Other in the Condensed Consolidated Statements of Operations. 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. Gains or losses on a derivative instrument that is designated as, and is effective as, an economic hedge of a net investment in a foreign operation are reported in the cumulative translation adjustment section of other comprehensive income to the extent it is effective as a hedge. The ineffective portion of a net investment hedge is recognized in current period earnings.

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 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. At least monthly, 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. For net investment hedges, the Partnership uses a method based on changes in spot rates to measure effectiveness. If it is determined that a derivative is not highly effective at hedging the designated exposure, hedge accounting is discontinued. The Partnership may also at any time remove a designation of a fair value hedge. The fair values of hedging derivative instruments are reflected within Other Assets in the Condensed Consolidated Statements of Financial Condition.

For freestanding derivative contracts, the Partnership presents changes in fair value in current period earnings. Changes in the fair value of derivative instruments held by consolidated Blackstone Funds are reflected in Net Gains (Losses) from Fund 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 freestanding derivative assets are recorded within Investments and freestanding derivative liabilities are recorded within Accounts Payable, Accrued Expenses and Other Liabilities in the Condensed Consolidated Statements of Financial Condition.

The Partnership has elected to not offset derivative assets and liabilities or financial assets in its Condensed Consolidated Statements of Financial Condition, including cash, that may be received or paid as part of collateral arrangements, even when an enforceable master netting agreement is in place that provides the Partnership, in the event of counterparty default, the right to liquidate collateral and the right to offset a counterparty’s rights and obligations.

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

Blackstone’s disclosures regarding offsetting are discussed in Note 11. “Offsetting of Assets and Liabilities”.

Affiliates

Blackstone considers its Founder, senior managing directors, employees, the Blackstone Funds and the Portfolio Companies to be affiliates.

Distributions

Distributions are reflected in the condensed consolidated financial statements when declared.

Recent Accounting Developments

In May 2014, the Financial Accounting Standards Board (“FASB”) issued amended guidance on revenue from contracts with customers. The guidance requires that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity is required to (a) identify the contract(s) with a customer, (b) identify the performance obligations in the contract, (c) determine the transaction price, (d) allocate the transaction price to the performance obligations in the contract, and (e) recognize revenue when (or as) the entity

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)

satisfies a performance obligation. In determining the transaction price, an entity may include variable consideration only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized would not occur when the uncertainty associated with the variable consideration is resolved.

The guidance introduces new qualitative and quantitative disclosure requirements about contracts with customers including revenue and impairments recognized, disaggregation of revenue and information about contract balances and performance obligations. Information is required about significant judgments and changes in judgments in determining the timing of satisfaction of performance obligations and determining the transaction price and amounts allocated to performance obligations. Additional disclosures are required about assets recognized from the costs to obtain or fulfill a contract.

In August 2015, the FASB issued new guidance deferring the effective date of the new revenue recognition standard by one year. The new guidance should be applied for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period.

The new revenue guidance may have a material impact on Blackstone’s consolidated financial statements if it is determined that both performance fees and carried interest are forms of variable consideration that may not be included in the transaction price. This may significantly delay the recognition of carried interest income and performance fees.

In February 2016, the FASB issued amended guidance on the accounting for leases. The guidance requires the recognition of lease assets and lease liabilities for those leases classified as operating leases under previous GAAP. The guidance retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases under previous GAAP. The recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee have not changed significantly from previous GAAP.

For operating leases, a lessee is required to do the following: (a) recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in the Statement of Financial Condition, (b) recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a generally straight-line basis, and (c) classify all cash payments within operating activities in the statement of cash flows.

The guidance is effective for fiscal periods beginning after December 15, 2018. Early application is permitted. Blackstone is evaluating the impact of the amended guidance on the Consolidated Statement of Financial Condition. It is not expected to have a material impact on the Consolidated Statements of Operations or the Consolidated Statements of Cash Flows.

In March 2016, the FASB issued amended guidance on stock compensation. The amendments simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and accounting for forfeitures (the amended guidance permits an entity to make an accounting policy election either to estimate the number of forfeitures expected to occur or to account for forfeitures when they occur). The amendments require all excess tax benefits and deficiencies related to share-based payment transactions to be recognized through the Provision for Taxes in the Condensed Consolidated Statement of Operations. The amendments also require excess tax benefits related to share-based payment transactions to be presented as operating activities in the Condensed Consolidated Statement of Cash Flows with

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)

employee taxes paid presented as a financing activity. The guidance is effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods. Blackstone has elected to early adopt the guidance for the quarter ended June 30, 2016 and any adjustments have been reflected prospectively as of January 1, 2016.

Blackstone has made an accounting policy election to continue estimating forfeitures in determining the number of equity-based awards that are expected to vest. Amendments relating to the recognition of excess tax benefits and deficiencies in the Condensed Consolidated Statement of Operations and Condensed Consolidated Statement of Cash Flows have been applied prospectively. As a result, prior period amounts have not been restated. Application of the guidance did not have a material impact on Blackstone’s Condensed Consolidated Statement of Operations or Condensed Consolidated Statement of Cash Flows.

3.	INTANGIBLE ASSETS

Intangible Assets, Net consists of the following:


	June 30, 2016			December 31, 2015
Finite-Lived Intangible Assets/Contractual Rights	$	1,424,226		$	1,424,226
Accumulated Amortization		(1,124,334	)		(1,078,679	)

Intangible Assets, Net	$	299,892		$	345,547

Amortization expense associated with Blackstone’s intangible assets was $22.8 million and $45.7 million for the three and six month periods ended June 30, 2016, respectively, and $23.6 million and $48.4 million for the three and six month periods ended June 30, 2015, respectively.

Amortization of Intangible Assets held at June 30, 2016 is expected to be $82.9 million, $43.9 million, $43.8 million, $43.8 million, and $43.8 million for each of the years ending December 31, 2016, 2017, 2018, 2019 and 2020, respectively. Blackstone’s intangible assets as of June 30, 2016 are expected to amortize over a weighted-average period of 6.3 years.

4.	INVESTMENTS

Investments consist of the following:


	June 30, 2016		December 31, 2015
Investments of Consolidated Blackstone Funds	$	4,980,964	$	4,613,944
Equity Method Investments		3,170,071		3,110,810
Blackstone’s Treasury Cash Management Strategies		1,739,252		1,682,259
Performance Fees		4,990,614		4,757,932
Other Investments		255,599		159,152

	$	15,136,500	$	14,324,097

Blackstone’s share of Investments of Consolidated Blackstone Funds totaled $449.1 million and $451.9 million at June 30, 2016 and December 31, 2015, 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)

Investments of Consolidated Blackstone Funds

The following table presents the Realized and Net Change in Unrealized Gains (Losses) on investments held by the consolidated Blackstone Funds and a reconciliation to Other Income — Net Gains from Fund Investment Activities in the Condensed Consolidated Statements of Operations:


	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
Realized Gains (Losses)	$	(2,435	)	$	60,473		$	10,947		$	127,512
Net Change in Unrealized Gains (Losses)		16,893			(2,190	)		(8,348	)		1,743

Realized and Net Change in Unrealized Gains from Consolidated Blackstone Funds		14,458			58,283			2,599			129,255
Interest and Dividend Revenue Attributable to Consolidated Blackstone Funds		16,245			23,732			47,246			46,315

Other Income — Net Gains from Fund Investment Activities	$	30,703		$	82,015		$	49,845		$	175,570

Equity Method Investments

Blackstone’s equity method investments include its investments in private equity funds, real estate funds, funds of hedge funds and credit-focused funds and other proprietary investments, which are not consolidated but in which the Partnership exerts significant influence.

Blackstone evaluates each of its equity method investments to determine if any were significant as defined by guidance from the United States Securities and Exchange Commission. As of and for the six months ended June 30, 2016 and 2015, no individual equity method investment held by Blackstone met the significance criteria. As such, Blackstone is not required to present separate financial statements for any of its equity method investments.

The Partnership recognized net gains related to its equity method investments of $52.0 million and $19.5 million for the three months ended June 30, 2016 and 2015, respectively. The Partnership recognized net gains related to its equity method investments of $69.7 million and $181.6 million for the six months ended June 30, 2016 and 2015, respectively.

Blackstone’s Treasury Cash Management Strategies

The portion of Blackstone’s Treasury Cash Management Strategies included in Investments represents the Partnership’s liquid investments into primarily fixed income securities, mutual fund interests, and other fund interests. These strategies are managed by a combination of Blackstone personnel and third party advisors. The following table presents the Realized and Net Change in Unrealized Gains (Losses) on investments held by Blackstone’s Treasury Cash Management Strategies:


	Three Months Ended June 30,					Six Months Ended June 30,
	2016		2015			2016			2015
Realized Gains (Losses)	$	9,364	$	(3,442	)	$	(9,245	)	$	(3,603	)
Net Change in Unrealized Gains (Losses)		12,913		(15,049	)		14,695			(3,938	)

	$	22,277	$	(18,491	)	$	5,450		$	(7,541	)

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)

Performance Fees

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


	Private Equity			Real Estate			Hedge Fund Solutions			Credit			Total
Performance Fees, December 31, 2015	$	1,479,443		$	3,101,688		$	9,747		$	167,054		$	4,757,932
Performance Fees Allocated as a Result of Changes in Fund Fair Values		246,287			378,422			385			75,876			700,970
Foreign Exchange Gain		—			7,579			—			—			7,579
Fund Distributions		(83,399	)		(365,282	)		(6,383	)		(20,803	)		(475,867	)

Performance Fees, June 30, 2016	$	1,642,331		$	3,122,407		$	3,749		$	222,127		$	4,990,614

Other Investments

Other Investments consist primarily of proprietary investment securities held by Blackstone. 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,
	2016			2015			2016			2015
Realized Gains (Losses)	$	(256	)	$	(30	)	$	4,477		$	(8	)
Net Change in Unrealized Gains (Losses)		3,283			(825	)		(2,952	)		(454	)

	$	3,027		$	(855	)	$	1,525		$	(462	)

5.	NET ASSET VALUE AS FAIR VALUE

A summary of fair value by strategy type alongside the remaining unfunded commitments and ability to redeem such investments as of June 30, 2016 is presented below:


Strategy	Fair Value		Unfunded Commitments		Redemption Frequency (if currently eligible)	Redemption Notice Period
Diversified Instruments	$	158,088	$	132	(a)	(a)
Credit Driven		196,030		268	(b)	(b)
Equity		60,253		—	(c)	(c)
Commodities		1,745		—	(d)	(d)

	$	416,116	$	400

(a)

Diversified Instruments include investments in funds that invest across multiple strategies. Investments representing 4% of the fair value of the investments in this category may not be redeemed at, or within three months of, the reporting date. The remaining 96% of investments in this category are redeemable as of the reporting date.

(b)

The Credit Driven category includes investments in hedge funds that invest primarily in domestic and international bonds. Investments representing 44% of the fair value of the investments in this category may not be redeemed at, or within three months of, the reporting date. Investments representing 56% of the fair value of the investments in this category are redeemable as of the reporting date.

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)

(c)	The Equity category includes investments in hedge funds that invest primarily in domestic and international equity securities. Withdrawals are generally not permitted for the investments in this category. Distributions will be received as the underlying investments are liquidated.

(d)

The Commodities category includes investments in commodities-focused funds that primarily invest in futures and physical-based commodity driven strategies. Withdrawals are generally not permitted for the investments in this category. Distributions will be received as the underlying investments are liquidated.

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 June 30, 2016 the resulting gain was $1.3 million. For the six months ended June 30, 2016 the resulting loss was $0.8 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 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 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.


	June 30, 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	$	51,174	$	804	$	—	$	—	$	53,627	$	319	$	138	$	1

Freestanding Derivatives
Blackstone
Interest Rate Contracts		1,280,262		2,846		955,648		11,978		1,681,533		2,212		1,054,465		4,288
Foreign Currency Contracts		155,950		4,428		157,515		3,669		158,684		2,088		271,891		2,042
Credit Default Swaps		—		—		7,274		602		—		—		19,250		2,411
Investments of Consolidated Blackstone Funds
Foreign Currency Contracts		218,715		19,544		41,652		972		124,595		1,400		92,094		6,490
Credit Default Swaps		—		—		96,797		6,560		—		—		108,786		6,275

		1,654,927		26,818		1,258,886		23,781		1,964,812		5,700		1,546,486		21,506

Total	$	1,706,101	$	27,622	$	1,258,886	$	23,781	$	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 June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
Net Investment Hedges — Foreign Currency Contracts
Hedge Ineffectiveness	$	(257	)	$	(11	)	$	(128	)	$	229

Freestanding Derivatives
Realized Gains (Losses)
Interest Rate Contracts	$	546		$	(1,358	)	$	(6,812	)	$	(5,093	)
Foreign Currency Contracts		(410	)		(3,160	)		(4,720	)		8,903
Credit Default Swaps		(738	)		1,955			(4,549	)		3,781

Total	$	(602	)	$	(2,563	)	$	(16,081	)	$	7,591

Freestanding Derivatives
Net Change in Unrealized Gains (Losses)
Interest Rate Contracts	$	(4,576	)	$	4,707		$	(7,242	)	$	3,961
Foreign Currency Contracts		8,869			2,779			24,191			(8,245	)
Credit Default Swaps		794			(2,469	)		(3,482	)		(5,391	)

Total	$	5,087		$	5,017		$	13,467		$	(9,675	)

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 June 30, 2016 and December 31, 2015, the Partnership had not designated any derivatives as cash flow hedges.

7.	FAIR VALUE OPTION

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


	June 30, 2016		December 31, 2015
Assets
Loans and Receivables	$	207,519	$	261,994
Equity and Preferred Securities		284,879		280,879
Debt Securities		14,122		15,176
Assets of Consolidated CLO Vehicles
Corporate Loans		3,479,615		3,087,563
Corporate Bonds		405,912		379,000
Other		1,669		—

	$	4,393,716	$	4,024,612

Liabilities
Liabilities of Consolidated CLO Vehicles
Senior Secured Notes	$	3,854,183	$	3,225,064
Subordinated Notes		91,667		98,371

	$	3,945,850	$	3,323,435

The following table presents the Realized and Net Change in Unrealized Gains (Losses) on financial instruments on which the fair value option was elected:


	Three Months Ended June 30,
	2016						2015
	Realized Gains (Losses)			Net Change in Unrealized Gains (Losses)			Realized Gains (Losses)			Net Change in Unrealized Gains (Losses)
Assets
Loans and Receivables	$	—		$	1,085		$	—		$	1,278
Equity and Preferred Securities		(296	)		5,256			(52	)		(4,663	)
Debt Securities		—			(365	)		—			—
Assets of Consolidated CLO Vehicles
Corporate Loans		(15,253	)		36,564			(9,657	)		21,295
Corporate Bonds		247			(1,214	)		91			3,380
Other		88			—			1,318			(840	)

	$	(15,214	)	$	41,326		$	(8,300	)	$	20,450

Liabilities
Liabilities of Consolidated CLO Vehicles —
Subordinated Notes	$	—		$	(14,281	)	$	—		$	(7,199	)

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,
	2016						2015
	Realized Gains (Losses)			Net Change in Unrealized Gains (Losses)			Realized Gains (Losses)			Net Change in Unrealized Gains (Losses)
Assets
Loans and Receivables	$	—		$	(2,693	)	$	—		$	(597	)
Equity and Preferred Securities		(293	)		1,424			(237	)		(7,491	)
Debt Securities		—			(1,054	)		—			—
Assets of Consolidated CLO Vehicles
Corporate Loans		(28,960	)		37,521			(4,847	)		40,881
Corporate Bonds		437			(943	)		121			4,516
Other		266			—			3,273			(3,331	)

	$	(28,550	)	$	34,255		$	(1,690	)	$	33,978

Liabilities
Liabilities of Consolidated CLO Vehicles —
Subordinated Notes	$	—		$	(1,868	)	$	—		$	(10,238	)

The following table presents information for those financial instruments for which the fair value option was elected:


	June 30, 2016							December 31, 2015
				For Financial Assets Past Due (a)							For Financial Assets Past Due (a)
	(Deficiency) of Fair Value Over Principal			Fair Value		Excess of Fair Value Over Principal		(Deficiency) of Fair Value Over Principal			Fair Value		(Deficiency) of Fair Value Over Principal
Loans and Receivables	$	(10,895	)	$	—	$	—	$	(8,845	)	$	—	$	—
Debt Securities		(1,480	)		—		—		(426	)		—		—
Assets of Consolidated CLO Vehicles
Corporate Loans		(43,840	)		—		—		(77,900	)		1,088		(5,620	)
Corporate Bonds		(16,500	)		—		—		(6,046	)		—		—

	$	(72,715	)	$	—	$	—	$	(93,217	)	$	1,088	$	(5,620	)

(a)	Corporate Loans and Corporate Bonds within CLO assets are classified as past due if contractual payments are more than one day past due.

As of December 31, 2015, no Loans and Receivables for which the fair value option was elected were past due or in non-accrual status. As of June 30, 2016 and December 31, 2015, no Corporate Bonds included within the Assets of Consolidated CLO Vehicles for which the fair value option was elected were past due or in non-accrual status.

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)

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:


	June 30, 2016
	Level I		Level II		Level III		NAV		Total
Assets
Investments of Consolidated Blackstone Funds (a)
Investment Funds	$	—	$	—	$	—	$	146,544	$	146,544
Equity Securities		55,745		51,619		85,664		—		193,028
Partnership and LLC Interests		26,987		73,497		439,859		—		540,343
Debt Instruments		—		179,244		15,065		—		194,309
Assets of Consolidated CLO Vehicles
Corporate Loans		—		3,315,440		164,175		—		3,479,615
Corporate Bonds		—		405,912		—		—		405,912
Freestanding Derivatives — Foreign Currency Contracts		—		19,544		—		—		19,544
Other		—		—		1,669		—		1,669

Total Investments of Consolidated Blackstone Funds		82,732		4,045,256		706,432		146,544		4,980,964

Blackstone’s Treasury Cash Management Strategies
Equity Securities		146,239		—		—		—		146,239
Debt Instruments		—		1,313,940		27,419		52,114		1,393,473
Other		—		—		—		199,540		199,540

Total Blackstone’s Treasury Cash Management Strategies		146,239		1,313,940		27,419		251,654		1,739,252
Money Market Funds		282,655		—		—		—		282,655
Net Investment Hedges — Foreign Currency Contracts		—		804		—		—		804
Freestanding Derivatives
Interest Rate Contracts		2,243		603		—		—		2,846
Foreign Currency Contracts		—		4,428		—		—		4,428
Loans and Receivables		—		—		207,519		—		207,519
Other Investments		137,046		—		100,635		17,918		255,599

	$	650,915	$	5,365,031	$	1,042,005	$	416,116	$	7,474,067


	June 30, 2016
	Level I		Level II		Level III		Total
Liabilities
Liabilities of Consolidated CLO Vehicles (a)
Senior Secured Notes (b)	$	—	$	3,854,183	$	—	$	3,854,183
Subordinated Notes (b)		—		91,667		—		91,667
Freestanding Derivatives — Foreign Currency Contracts		—		972		—		972
Freestanding Derivatives — Credit Default Swaps		—		6,560		—		6,560
Freestanding Derivatives
Interest Rate Contracts		6,899		5,079		—		11,978
Foreign Currency Contracts		—		3,669		—		3,669
Credit Default Swaps		—		602		—		602
Securities Sold, Not Yet Purchased		—		115,796		—		115,796

	$	6,899	$	4,078,528	$	—	$	4,085,427

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)


	December 31, 2015
	Level I		Level II		Level III		NAV		Total
Assets
Investments of Consolidated Blackstone Funds (a)
Investment Funds	$	—	$	—	$	—	$	155,512	$	155,512
Equity Securities		82,734		53,250		80,849		—		216,833
Partnership and LLC Interests		—		101,399		472,391		—		573,790
Debt Instruments		—		179,465		20,381		—		199,846
Assets of Consolidated CLO Vehicles
Corporate Loans		—		2,886,792		200,771		—		3,087,563
Corporate Bonds		—		379,000		—		—		379,000
Freestanding Derivatives — Foreign Currency Contracts		—		1,400		—		—		1,400

Total Investments of Consolidated Blackstone Funds		82,734		3,601,306		774,392		155,512		4,613,944

Blackstone’s Treasury Cash Management Strategies
Equity Securities		240,464		—		—		—		240,464
Debt Instruments		—		1,069,915		54,657		115,657		1,240,229
Other		—		—		—		201,566		201,566

Total Blackstone’s Treasury Cash Management Strategies		240,464		1,069,915		54,657		317,223		1,682,259
Money Market Funds		460,233		—		—		—		460,233
Net Investment Hedges — Foreign Currency Contracts		—		319		—		—		319
Freestanding Derivatives
Interest Rate Contracts		1,806		406		—		—		2,212
Foreign Currency Contracts		—		2,088		—		—		2,088
Loans and Receivables		—		—		261,994		—		261,994
Other Investments		40,261		—		101,184		17,707		159,152

	$	825,498	$	4,674,034	$	1,192,227	$	490,442	$	7,182,201


	December 31, 2015
	Level I		Level II		Level III		Total
Liabilities
Liabilities of Consolidated CLO Vehicles (a)
Senior Secured Notes (b)	$	—	$	3,225,064	$	—	$	3,225,064
Subordinated Notes (b)		—		98,371		—		98,371
Freestanding Derivatives — Foreign Currency Contracts		—		6,490		—		6,490
Freestanding Derivatives — Credit Default Swaps		—		6,275		—		6,275
Net Investment Hedges — Foreign Currency Contracts		—		1		—		1
Freestanding Derivatives
Interest Rate Contracts		835		3,453		—		4,288
Foreign Currency Contracts		—		2,042		—		2,042
Credit Default Swaps		—		2,411		—		2,411
Securities Sold, Not Yet Purchased		—		176,667		—		176,667

	$	835	$	3,520,774	$	—	$	3,521,609

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)

(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, has a controlling financial interest. 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.

(b)	Senior and subordinate notes issued by CLO vehicles are classified based on the more observable fair value of CLO assets less (a) the fair value of any beneficial interests held by Blackstone, and (b) the carrying value of any beneficial interests that represent compensation for services.

The following table summarizes the fair value transfers between Level I and Level II for positions that existed as of June 30, 2016 and 2015, respectively:


	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
Transfers from Level I into Level II (a)	$	—	$	—	$	2,114	$	—
Transfers from Level II into Level I (b)	$	—	$	89	$	28,346	$	5,777

(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 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 summarizes the quantitative inputs and assumptions used for items categorized in Level III of the fair value hierarchy as of June 30, 2016:

Fair
Value

Valuation
Techniques

Unobservable
Inputs

Ranges

Weighted-
Average (a)

Financial Assets

Investments of Consolidated Blackstone Funds

Equity Securities

67,493

Discounted Cash Flows

Discount Rate

7.4% - 29.3%

13.2%

Revenue CAGR

-1.5% - 24.4%

7.2%

Exit Multiple - EBITDA

0.1x - 19.0x

9.5x

Exit Multiple - P/E

10.5x - 17.0x

11.3x

Exit Capitalization Rate

5.3% - 11.4%

8.7%

5,715

Other

N/A

10,525

Transaction Price

N/A

1,916

Market Comparable Companies

EBITDA Multiple

6.1x

N/A

Book Value Multiple

0.8x

N/A

Third Party Pricing

N/A

Partnership and LLC Interests

404,995

Discounted Cash Flows

Discount Rate

2.0% - 29.4%

9.9%

Revenue CAGR

-26.1% - 42.2%

6.6%

Exit Multiple - EBITDA

0.1x - 23.5x

10.3x

Exit Multiple - P/E

9.3x

N/A

Exit Capitalization Rate

3.0% - 12.1%

6.2%

15,547

Third Party Pricing

N/A

11,292

Transaction Price

N/A

8,025

Other

N/A

Debt Instruments

10,782

Third Party Pricing

N/A

3,897

Discounted Cash Flows

Discount Rate

8.3% - 56.7%

15.1%

Revenue CAGR

6.7%

N/A

Exit Multiple - EBITDA

12.0x

N/A

Exit Capitalization Rate

1.0% - 8.3%

5.2%

386

Transaction Price

N/A

Assets of Consolidated CLO Vehicles

158,461

Third Party Pricing

N/A

5,714

Market Comparable Companies

EBITDA Multiple

7.0x

N/A

1,669

Transaction Price

N/A

Total Investments of Consolidated Blackstone Funds

706,432

continued ...

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

Valuation
Techniques

Unobservable
Inputs

Ranges

Weighted-
Average (a)

Blackstone’s Treasury Cash Management Strategies

8,700

Discounted Cash Flows

Default Rate

1.0% - 2.0%

1.8%

Recovery Rate

18.0% - 79.3%

65.8%

Recovery Lag

12 months

N/A

Pre-payment Rate

20.0%

N/A

Reinvestment Rate

LIBOR + 350 bps -

LIBOR

LIBOR + 400 bps

+ 388 bps

Discount Rate

9.1% - 12.8%

10.3%

18,719

Third Party Pricing

N/A

Loans and Receivables

189,879

Discounted Cash Flows

Discount Rate

12.2% - 22.1%

15.8%

17,640

Third Party Pricing

N/A

Other Investments

81,580

Discounted Cash Flows

Discount Rate

1.6% - 15.4%

3.7%

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

19,055

Transaction Price

N/A

Total

1,042,005

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, 2015:

Fair Value

Valuation
Techniques

Unobservable
Inputs

Ranges

Weighted-
Average (a)

Financial Assets

Investments of Consolidated Blackstone Funds

Equity Securities

66,962

Discounted Cash Flows

Discount Rate

7.8% - 25.0%

13.6%

Revenue CAGR

-5.0% - 61.5%

10.2%

Exit Multiple - EBITDA

5.0x - 18.2x

9.6x

Exit Multiple - P/E

10.5x - 17.0x

11.2x

Exit Capitalization Rate

5.5% - 11.4%

5,426

Other

N/A

6,722

Transaction Price

N/A

1,710

Market Comparable

EBITDA Multiple

6.5x - 8.0x

6.6x

Companies

Book Value Multiple

0.9x

N/A

Third Party Pricing

N/A

Partnership and LLC Interests

423,588

Discounted Cash Flows

Discount Rate

2.1% - 25.8%

9.3%

Revenue CAGR

-24.1% - 31.8%

8.6%

Exit Multiple - EBITDA

0.1x - 23.8x

9.8x

Exit Multiple - P/E

9.3x

N/A

Exit Capitalization Rate

2.7% - 12.1%

6.3%

30,437

Transaction Price

N/A

16,963

Third Party Pricing

N/A

1,403

Other

N/A

continued ...

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

Valuation
Techniques

Unobservable
Inputs

Ranges

Weighted-
Average (a)

Debt Instruments

16,217

Third Party Pricing

N/A

4,086

Discounted Cash Flows

Discount Rate

6.5% - 52.7%

14.1%

Revenue CAGR

16.8%

N/A

Exit Multiple - EBITDA

12.0x

N/A

Exit Capitalization Rate

1.0% - 8.3%

5.8%

Transaction Price

N/A

Assets of Consolidated CLO Vehicles

180,988

Third Party Pricing

N/A

19,783

Market Comparable
Companies

EBITDA Multiple

4.5x - 7.0x

6.5x

Total Investments of Consolidated Blackstone Funds

774,392

Blackstone’s Treasury Cash Management Strategies

32,004

Discounted Cash Flows

Default Rate

1.0% - 2.0%

1.9%

Recovery Rate

30.0% - 70.0%

67.0%

Recovery Lag

12 months

N/A

Pre-payment Rate

20.0%

N/A

Reinvestment Rate

LIBOR + 400 bps

N/A

Discount Rate

5.8% - 14.0%

8.6%

22,653

Third Party Pricing

N/A

Loans and Receivables

241,897

Discounted Cash Flows

Discount Rate

6.7% - 20.6%

11.0%

20,097

Third Party Pricing

N/A

Other Investments

81,984

Discounted Cash Flows

Discount Rate

1.4% - 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

19,200

Transaction Price

N/A

Total

1,192,227

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.

Third Party Pricing

Third Party Pricing is generally determined on the basis of unadjusted prices between market participants provided by reputable dealers or pricing services.

Transaction Price

Includes recent acquisitions or transactions.

(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 Blackstone’s Treasury Cash Management Strategies, debt instruments and other investments 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)

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 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, EBITDA multiples 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 and revenue compound annual growth rates in isolation can result in a higher (lower) fair value measurement.

Since December 31, 2015, 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 (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,
	2016												2015
	Investments of Consolidated Funds			Loans and Receivables			Other Investments (a)			Total			Investments of Consolidated Funds			Loans and Receivables			Other Investments (a)			Total
Balance, Beginning of Period	$	736,698		$	287,858		$	130,264		$	1,154,820		$	920,448		$	40,691		$	163,798		$	1,124,937
Transfer In to Level III (b)		18,177			—			9,037			27,214			59,939			—			2,772			62,711
Transfer Out of Level III (b)		(38,865	)		—			(6,199	)		(45,064	)		(156,054	)		—			(24,480	)		(180,534	)
Purchases		33,883			5,278			6,973			46,134			154,173			—			8,407			162,580
Sales		(52,776	)		(87,696	)		(10,683	)		(151,155	)		(98,872	)		(5,464	)		(1,819	)		(106,155	)
Settlements		—			(2,431	)		(114	)		(2,545	)		—			(1,041	)		(115	)		(1,156	)
Changes in Gains (Losses) Included in Earnings and Other Comprehensive Income (Loss)		9,315			4,510			(1,224	)		12,601			57,515			2,254			3,171			62,940

Balance, End of Period	$	706,432		$	207,519		$	128,054		$	1,042,005		$	937,149		$	36,440		$	151,734		$	1,125,323

Changes in Unrealized Gains Included in Earnings Related to Investments Still Held at the Reporting Date	$	2,845		$	4,552		$	1,255		$	8,652		$	17,044		$	2,255		$	471		$	19,770

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,
	2016												2015
	Investments of Consolidated Funds			Loans and Receivables			Other Investments (a)			Total			Investments of Consolidated Funds			Loans and Receivables			Other Investments (a)			Total
Balance, Beginning of Period	$	774,392		$	261,994		$	155,841		$	1,192,227		$	2,394,823		$	40,397		$	189,385		$	2,624,605
Transfer Out Due to Deconsolidation		—			—			—			—			(1,460,538	)		—			—			(1,460,538	)
Transfer In to Level III (b)		52,332			—			9,327			61,659			58,184			—			19,897			78,081
Transfer Out of Level III (b)		(81,837	)		—			(10,204	)		(92,041	)		(149,636	)		—			(47,164	)		(196,800	)
Purchases		96,206			303,657			6,973			406,836			227,260			6,186			33,339			266,785
Sales		(142,180	)		(355,251	)		(30,690	)		(528,121	)		(178,391	)		(9,535	)		(36,973	)		(224,899	)
Settlements		—			(5,922	)		(254	)		(6,176	)		—			(2,079	)		(218	)		(2,297	)
Changes in Gains (Losses) Included in Earnings and Other Comprehensive Income (Loss)		7,519			3,041			(2,939	)		7,621			45,447			1,471			(6,532	)		40,386

Balance, End of Period	$	706,432		$	207,519		$	128,054		$	1,042,005		$	937,149		$	36,440		$	151,734		$	1,125,323

Changes in Unrealized Gains (Losses) Included in Earnings Related to Investments Still Held at the Reporting Date	$	(16,793	)	$	3,083		$	(46	)	$	(13,756	)	$	13,511		$	1,343		$	1,879		$	16,733


	Level III Financial Liabilities at Fair Value
	Three Months Ended June 30, 2015 (c)						Six Months Ended June 30, 2015 (c)
	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	$	—	$	—	$	—	$	6,448,352		$	348,752		$	6,797,104
Transfer Out Due to Deconsolidation		—		—		—		(4,168,405	)		(261,934	)		(4,430,339	)
Transfer Out Due to Amended CLO Guidance (d)		—		—		—		(2,279,947	)		(86,818	)		(2,366,765	)

Balance, End of Period	$	—	$	—	$	—	$	—		$	—		$	—

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

(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)	There were no Level III financial liabilities as of and for the three and six months ended June 30, 2016. There were no changes in unrealized (gains) losses included in earnings related to liabilities still held at either June 30, 2016 or June 30, 2015.

(d)	Transfers out due to amended CLO measurement guidance represents the transfer out of Level III for liabilities of consolidated CLO vehicles for which fair value is based on the more observable fair value of CLO assets. Such liabilities are classified as Level II within the fair value hierarchy.

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

Pursuant to GAAP consolidation guidance, 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-focused 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, collateral manager or investment adviser, 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 assets of consolidated variable interest entities may only be used to settle obligations of these consolidated Blackstone Funds. In addition, there is no recourse to the Partnership for the consolidated VIEs’ liabilities including the liabilities of the consolidated CLO vehicles.

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 Partnership’s involvement with such entities is in the form of direct equity interests and fee arrangements. The maximum exposure to loss represents the loss of assets recognized by Blackstone relating to non-consolidated entities, any amounts due to non-consolidated entities and any clawback obligation relating to previously distributed Carried Interest. The assets and liabilities recognized in the Partnership’s Condensed Consolidated Statements of Financial Condition related to the Partnership’s interest in these non-consolidated VIEs and the Partnership’s maximum exposure to loss relating to non-consolidated VIEs were as follows:


	June 30, 2016		December 31, 2015
Investments	$	555,238	$	466,651
Accounts Receivable		16,076		11,726
Due from Affiliates		43,962		51,029

Total VIE Assets		615,276		529,406
Due to Affiliates		104		586
Accounts Payable, Accrued Expenses and Other Liabilities		151		88
Potential Clawback Obligation		81,142		73,450

Maximum Exposure to Loss	$	696,673	$	603,530

10.

REVERSE REPURCHASE AND REPURCHASE AGREEMENTS

At June 30, 2016, the Partnership received securities, primarily U.S. and non-U.S. government and agency securities, asset-backed securities and corporate debt, with a fair value of $43.6 million as collateral for reverse repurchase agreements that could be repledged, delivered or otherwise used. Securities with a fair value of $33.6 million and cash were used to cover Securities Sold, Not Yet Purchased. The Partnership also pledged securities with a carrying value of $86.5 million and cash to collateralize its repurchase agreements. Such securities can be repledged, delivered or otherwise used by the counterparty.

At December 31, 2015, the Partnership pledged securities with a carrying value of $64.5 million and cash to collateralize its repurchase agreements. Such securities can be repledged, delivered or otherwise used by the counterparty.

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 provides information regarding the Partnership’s Repurchase Agreements obligation by type of collateral pledged as of June 30, 2016:


	June 30, 2016
	Remaining Contractual Maturity of the Agreements
	Overnight and Continuous		Up to 30 Days		30 - 90 Days		Greater than 90 days		Total
Repurchase Agreements
U.S. Treasury and Agency Securities	$	4,500	$	—	$	—	$	—	$	4,500
Asset-Backed Securities		—		12,318		30,222		9,313		51,853

Total	$	4,500	$	12,318	$	30,222	$	9,313	$	56,353

Gross Amount of Recognized Liabilities for Repurchase Agreements in Note 11. “Offsetting of Assets and Liabilities”									$	56,353

Amounts Related to Agreements Not Included in Offsetting Disclosure in Note 11. “Offsetting of Assets and Liabilities”									$	—

11.

OFFSETTING OF ASSETS AND LIABILITIES

The following tables present the offsetting of assets and liabilities as of June 30, 2016:


	Gross and Net Amounts of Assets Presented in the Statement of Financial Condition		Gross Amounts Not Offset in the Statement of Financial Condition
			Financial Instruments		Cash Collateral Received		Net Amount
Assets
Net Investment Hedges	$	804	$	—	$	—	$	804
Freestanding Derivatives		7,274		3,504		3,420		350
Reverse Repurchase Agreements		43,885		43,649		—		236

Total	$	51,963	$	47,153	$	3,420	$	1,390


	Gross and Net Amounts of Liabilities Presented in the Statement of Financial Condition		Gross Amounts Not Offset in the Statement of Financial Condition
			Financial Instruments		Cash Collateral Pledged		Net Amount
Liabilities
Freestanding Derivatives	$	22,809	$	3,504	$	14,331	$	4,974
Repurchase Agreements		56,353		53,206		3,147		—

Total	$	79,162	$	56,710	$	17,478	$	4,974

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 tables present the offsetting of assets and liabilities as of December 31, 2015:


	Gross and Net Amounts of Assets Presented in the Statement of Financial Condition		Gross Amounts Not Offset in the Statement of Financial Condition
			Financial Instruments		Cash Collateral Received		Net Amount
Assets
Net Investment Hedges	$	319	$	1	$	—	$	318
Freestanding Derivatives		4,300		2,149		1,310		841
Reverse Repurchase Agreements		204,893		203,938		—		955

Total	$	209,512	$	206,088	$	1,310	$	2,114


	Gross and Net Amounts of Liabilities Presented in the Statement of Financial Condition		Gross Amounts Not Offset in the Statement of Financial Condition
			Financial Instruments		Cash Collateral Pledged		Net Amount
Liabilities
Net Investment Hedges	$	1	$	1	$	—	$	—
Freestanding Derivatives		15,016		2,149		12,076		791
Repurchase Agreements		40,929		40,259		670		—

Total	$	55,946	$	42,409	$	12,746	$	791

Reverse Repurchase Agreements and Repurchase Agreements are presented separately on the Condensed Consolidated Statements of Financial Condition. Freestanding Derivative assets are included in Other Assets in the Condensed Consolidated Statements of Financial Condition. The following table presents the components of Other Assets:


	June 30, 2016		December 31, 2015
Furniture, Equipment and Leasehold Improvements, Net	$	139,350	$	135,543
Prepaid Expenses		144,867		190,241
Other Assets		51,267		46,786
Freestanding Derivatives		7,274		4,300
Net Investment Hedges		803		319

	$	343,561	$	377,189

Freestanding Derivative liabilities are included in Accounts Payable, Accrued Expenses and Other Liabilities in the Condensed Consolidated Statements of Financial Condition and are not a significant component thereof.

Notional Pooling Arrangement

Blackstone has a notional cash pooling arrangement with a financial institution for cash management purposes. This arrangement allows for cash withdrawals based upon aggregate cash balances on deposit at the same financial institution. Cash withdrawals cannot exceed aggregate cash balances on deposit. The net balance of cash on deposit and overdrafts is used as a basis for calculating net interest expense or income. As of June 30, 2016, the aggregate cash balance on deposit relating to the cash pooling arrangement was $938.3 million, which was fully offset with an accompanying overdraft.

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.

BORROWINGS

The following table presents the general characteristics of each of our Notes, as well as their carrying value and fair value. The Notes are included in Loans Payable within the Condensed Consolidated Statements of Financial Condition. All of the Notes were issued at a discount. All of the Notes accrue interest from the Issue Date and all pay interest in arrears on a semi-annual basis or annual basis.


	June 30, 2016				December 31, 2015
Senior Notes	Carrying Value		Fair Value (a)		Carrying Value		Fair Value (a)
6.625%, Due 8/15/2019 (b)	$	611,103	$	670,352	$	614,996	$	665,438
5.875%, Due 3/15/2021		397,910		467,000		397,720		458,680
4.750%, Due 2/15/2023		392,684		444,440		392,224		430,560
6.250%, Due 8/15/2042		237,735		312,075		237,648		297,575
5.000%, Due 6/15/2044		488,251		543,300		488,119		515,050
4.450%, Due 7/15/2045		343,763		354,305		343,689		332,640
2.000%, Due 5/19/2025		328,531		351,239		322,664		327,465

Total	$	2,799,977	$	3,142,711	$	2,797,060	$	3,027,408

(a)	Fair value is determined by broker quote and these notes would be classified as Level II within the fair value hierarchy.

(b)	The carrying and fair values are determined using the original $600 million par amount less $15 million attributable to these notes which were acquired but not retired by Blackstone during 2012.

Included within Loans Payable and Due to Affiliates within the Condensed Consolidated Statements of Financial Condition are amounts due to holders of debt securities issued by Blackstone’s consolidated CLO vehicles. Borrowings through the consolidated CLO vehicles consisted of the following:


	June 30, 2016							December 31, 2015
	Borrowing Outstanding		Weighted- Average Interest Rate			Weighted- Average Remaining Maturity in Years		Borrowing Outstanding		Weighted- Average Interest Rate			Weighted- Average Remaining Maturity in Years
Senior Secured Notes	$	4,166,718		1.95	%		5.7	$	3,687,976		1.93	%		5.4
Subordinated Notes		198,582		(a	)		N/A		226,350		(a	)		N/A

	$	4,365,300						$	3,914,326

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

Senior Secured Notes and Subordinated Notes comprise the following amounts:


	June 30, 2016						December 31, 2015
			Amounts Due to Non- Consolidated Affiliates						Amounts Due to Non- Consolidated Affiliates
	Fair Value		Borrowing Outstanding		Fair Value		Fair Value		Borrowing Outstanding		Fair Value
Senior Secured Notes	$	3,854,183	$	—	$	—	$	3,225,064	$	—	$	—
Subordinated Notes	$	91,667	$	10,000	$	8,332	$	98,371	$	10,000	$	8,231

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 Loans Payable of the consolidated CLO vehicles are collateralized by assets held by each respective CLO vehicle and assets of one vehicle may not be used to satisfy the liabilities of another. As of June 30, 2016 and December 31, 2015, the fair value of the consolidated CLO assets was $4.6 billion and $3.9 billion, respectively. This collateral consisted of Cash, Corporate Loans, Corporate Bonds, other securities and receivables.

Scheduled principal payments for borrowings as of June 30, 2016 were as follows:


	Operating Borrowings		Blackstone Fund Facilities/CLO Vehicles		Total Borrowings
2016	$	—	$	4,233	$	4,233
2017		—		528,438		528,438
2018		—		—		—
2019		585,000		—		585,000
2020		—		—		—
Thereafter		2,250,000		3,836,862		6,086,862

Total	$	2,835,000	$	4,369,533	$	7,204,533

13.

INCOME TAXES

Blackstone’s effective tax rate was 9.3% and 11.0% for the three months ended June 30, 2016 and 2015, respectively, and 6.7% and 7.7% for the six months ended June 30, 2016 and 2015, respectively. Blackstone’s income tax provision was $47.4 million and $43.3 million for the three months ended June 30, 2016 and 2015, respectively, and $56.6 million and $142.6 million for the six months ended June 30, 2016 and 2015, respectively.

The Blackstone Group L.P. and certain of its 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. Blackstone’s effective tax rate for the three and six months ended June 30, 2016 and 2015 was substantially due to the fact that 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.

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.

NET INCOME PER COMMON UNIT

Basic and diluted net income per common unit for the three and six months ended June 30, 2016 and June 30, 2015 was calculated as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
Net Income for Per Common Unit Calculation
Net Income Attributable to The Blackstone Group L.P., Basic	$	198,626	$	134,168	$	358,379	$	763,616
Incremental Net Income from Assumed Exchange of Blackstone Holdings Partnership Units		158,960		—		286,563		—

Net Income Attributable to The Blackstone Group L.P., Diluted	$	357,586	$	134,168	$	644,942	$	763,616

Units Outstanding
Weighted-Average Common Units Outstanding, Basic		646,933,698		631,881,205		645,915,774		628,597,331
Weighted-Average Unvested Deferred Restricted Common Units		1,309,402		2,311,444		1,321,087		4,133,258
Weighted-Average Blackstone Holdings Partnership Units		546,235,112		—		547,138,946		—

Weighted-Average Common Units Outstanding, Diluted		1,194,478,212		634,192,649		1,194,375,807		632,730,589

Net Income Per Common Unit, Basic	$	0.31	$	0.21	$	0.55	$	1.21

Net Income Per Common Unit, Diluted	$	0.30	$	0.21	$	0.54	$	1.21

Distributions Declared Per Common Unit (a)	$	0.28	$	0.89	$	0.89	$	1.67

(a)	Distributions declared reflects the calendar date of the declaration for each distribution.

The following table summarizes the anti-dilutive securities for the three and six months ended June 30, 2016 and 2015:

Three Months Ended
June 30,

Six Months Ended
June 30,

2016

2015

2016

2015

Weighted-Average Blackstone Holdings Partnership Units

—

555,641,388

—

552,260,871

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

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)

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, 2016 and 2015, no units were repurchased. As of June 30, 2016, the amount remaining available for repurchases under this program was $335.8 million.

15.

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 advisers under the Partnership’s 2007 Equity Incentive Plan (the “Equity Plan”), the majority of which to date were granted in connection with Blackstone’s initial public offering (“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, 2016, the Partnership had the ability to grant 168,600,140 units under the Equity Plan.

For the three and six months ended June 30, 2016, the Partnership recorded compensation expense of $84.3 million and $164.1 million, respectively, in relation to its equity-based awards with corresponding tax benefits of $8.4 million and $16.6 million, respectively. For the three and six months ended June 30, 2015, the Partnership recorded compensation expense of $210.3 million and $482.7 million, respectively, in relation to its equity-based awards with corresponding tax benefits of $3.4 million and $27.0 million, respectively. As of June 30, 2016, there was $942.7 million of estimated unrecognized compensation expense related to unvested awards. This cost is expected to be recognized over a weighted-average period of 4.8 years.

Total vested and unvested outstanding units, including Blackstone common units, Blackstone Holdings Partnership Units and deferred restricted common units, were 1,192,631,550 as of June 30, 2016. Total outstanding unvested phantom units were 34,934 as of June 30, 2016.

A summary of the status of the Partnership’s unvested equity-based awards as of June 30, 2016 and of changes during the period January 1, 2016 through June 30, 2016 is presented below:


	Blackstone Holdings					The Blackstone Group L.P.
						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, 2015		40,901,755		$	32.98		14,342,129		$	22.38		27,942		$	28.79
Granted		491,667			28.26		2,042,077			28.68		2,465			29.24
Vested		(5,023,685	)		24.55		(2,813,164	)		22.86		(968	)		30.09
Forfeited		(214,896	)		35.22		(327,353	)		16.63		(482	)		28.62

Balance, June 30, 2016		36,154,841		$	34.07		13,243,689		$	23.29		28,957		$	28.79

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)

Units Expected to Vest

The following unvested units, after expected forfeitures, as of June 30, 2016, are expected to vest:


	Units		Weighted-Average Service Period in Years
Blackstone Holdings Partnership Units		28,862,065		4.2
Deferred Restricted Blackstone Common Units		11,694,668		1.8

Total Equity-Based Awards		40,556,733		3.5

Phantom Units		22,030		3.3

16.

RELATED PARTY TRANSACTIONS

Affiliate Receivables and Payables

Due from Affiliates and Due to Affiliates consisted of the following:


	June 30, 2016		December 31, 2015
Due from Affiliates
Accrual for Potential Clawback of Previously Distributed Carried Interest	$	2,437	$	1,686
Advances Made on Behalf of Certain Non-Controlling Interest Holders and Blackstone Employees Principally for Investments in Blackstone Funds		365,905		331,558
Amounts Due from Portfolio Companies and Funds		293,887		319,758
Investments Redeemed in Non-Consolidated Funds of Hedge Funds		15,849		5,931
Management and Performance Fees Due from Non-Consolidated Funds		415,178		403,538
Payments Made on Behalf of Non-Consolidated Entities		199,050		178,326

	$	1,292,306	$	1,240,797


	June 30, 2016		December 31, 2015
Due to Affiliates
Due to Certain Non-Controlling Interest Holders in Connection with the Tax Receivable Agreements	$	1,155,838	$	1,201,543
Accrual for Potential Repayment of Previously Received Performance Fees		5,092		3,356
Due to Note Holders of Consolidated CLO Vehicles		8,332		8,231
Distributions Received on Behalf of Certain Non-Controlling Interest Holders and Blackstone Employees		15,263		26,593
Distributions Received on Behalf of Blackstone Entities		76,248		33,160
Payments Made by Non-Consolidated Entities		5,090		9,817

	$	1,265,863	$	1,282,700

Interests of the Founder, Senior Managing Directors, Employees and Other Related Parties

The Founder, senior managing directors, employees and certain other related parties invest on a discretionary basis in the consolidated Blackstone Funds both directly and through consolidated entities. These 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)

generally are subject to preferential management fee and performance fee arrangements. As of June 30, 2016 and December 31, 2015, such investments aggregated $760.4 million and $746.3 million, respectively. Their share of the Net Income (Loss) Attributable to Redeemable Non-Controlling and Non-Controlling Interests in Consolidated Entities aggregated $25.5 million and $31.6 million for the three months ended June 30, 2016 and 2015, respectively, and $28.6 million and $81.1 million for the six months ended June 30, 2016 and 2015, respectively.

Revenues Earned from Affiliates

Management and Advisory Fees, Net earned from affiliates totaled $44.1 million and $28.8 million for the three months ended June 30, 2016 and 2015, respectively. Management and Advisory Fees, Net earned from affiliates totaled $100.8 million and $76.9 million for the six months ended June 30, 2016 and 2015, respectively. Fees relate primarily to transaction and monitoring fees which are negotiated in the ordinary course of fundraising and investment activities.

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 $0.1 million and $1.2 million for the three months ended June 30, 2016 and 2015, respectively, and $0.2 million and $3.3 million for the six months ended June 30, 2016 and 2015, respectively.

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 Potential Repayment of Previously Received Performance Fees 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, 2016. See Note 17. “Commitments and Contingencies — Contingencies — Contingent Obligations (Clawback)”.

Aircraft and Other Services

In the normal course of business, Blackstone personnel make use of aircraft owned as personal assets by Stephen A. Schwarzman; an aircraft owned jointly as a personal asset by Hamilton E. James, Blackstone’s President and, Chief Operating Officer, and a Director of Blackstone, and Jonathan D. Gray, Blackstone’s Global Head of Real Estate and a Director of Blackstone; and an aircraft owned jointly as a personal asset by Bennett J. Goodman, Co-Founder of GSO Capital and a Director of Blackstone, and another senior managing director (each such aircraft, “Personal Aircraft”). Mr. Schwarzman paid for his purchases of his Personal Aircraft himself. Each of Mr. James and Mr. Gray paid for his respective interest in their jointly owned Personal Aircraft. Mr. Goodman paid for his interest in his jointly owned Personal Aircraft. Mr. Schwarzman, Mr. James, Mr. Gray and Mr. Goodman respectively bear operating, personnel and maintenance costs associated with the operation of such Personal Aircraft. Payment by Blackstone for the use of the Personal Aircraft by Blackstone employees is made based on market rates.

In addition, on occasion, certain of Blackstone’s executive officers and employee directors and their families may make use of aircraft owned by Blackstone or in which Blackstone owns a fractional interest, as well as other

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)

assets of Blackstone. Any such personal use of Blackstone assets is charged to the executive officer or employee director based on market rates and usage. Personal use of Blackstone resources is also reimbursed to Blackstone based on market rates.

The transactions described herein are not material to the Condensed Consolidated Financial Statements.

Tax Receivable Agreements

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.

One of the subsidiaries of the Partnership which is a corporate taxpayer has 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 taxpayer 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 future material changes in the relevant tax law and that the corporate taxpayers earn sufficient taxable income to realize the full tax benefit of the increased amortization of the assets, the expected future payments under the tax receivable agreements (which are taxable to the recipients) will aggregate $1.2 billion over the next 15 years. The after-tax net present value of these estimated payments totals $374.7 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 agreements are not conditioned upon continued ownership of Blackstone equity interests by the pre-IPO owners and the others mentioned above.

Amounts related to the deferred tax asset resulting from the increase in tax basis from the exchange of Blackstone Holdings Partnership Units to Blackstone common units, the resulting remeasurement of net deferred tax assets at the Blackstone ownership percentage at the balance sheet date, the due to affiliates for the future payments resulting from the tax receivable agreements and resulting adjustment to partners’ capital are included as Acquisition of Ownership Interests from Non-Controlling Interest Holders in the Supplemental Disclosure of Non-Cash Investing and Financing Activities in the Condensed Consolidated Statements of Cash Flows.

Other

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

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)

Additionally, please see Note 17. “Commitments and Contingencies — Contingencies — Guarantees” for information regarding guarantees provided to a lending institution for certain loans held by employees.

17.

COMMITMENTS AND CONTINGENCIES

Commitments

Investment Commitments

Blackstone had $2.3 billion of investment commitments as of June 30, 2016 representing general partner capital funding commitments to the Blackstone Funds, limited partner capital funding to other funds and Blackstone principal investment commitments. The consolidated Blackstone Funds had signed investment commitments of $55.5 million as of June 30, 2016 which includes $37.5 million of signed investment commitments for portfolio company acquisitions in the process of closing.

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 consolidated real estate funds was $6.7 million as of June 30, 2016.

The Blackstone Holdings Partnerships provided guarantees to a lending institution for certain loans held by employees either for investment in Blackstone Funds or for members’ capital contributions to Blackstone Group International Partners LLP. The amount guaranteed as of June 30, 2016 was $144.5 million.

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 affect its results of operations, financial position or cash flows.

Contingent Obligations (Clawback)

Carried Interest is subject to clawback to the extent that the Carried Interest received to date with respect to a fund exceeds the amount due to Blackstone based on cumulative results of that fund. The actual clawback liability, however, generally does not become realized until the end of a fund’s life except for certain Blackstone real estate funds, multi-asset class investment funds and credit-focused funds, which may have an interim clawback liability. The lives of the carry funds, including available contemplated extensions, for which a liability for potential clawback obligations has been recorded for financial reporting purposes, are currently anticipated to expire at various points through 2028. 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.

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, 2016						December 31, 2015
Segment	Blackstone Holdings		Current and Former Personnel		Total		Blackstone Holdings		Current and Former Personnel		Total
Credit	$	2,655	$	2,437	$	5,092	$	1,670	$	1,686	$	3,356

For Private Equity, Real Estate, and certain Credit Funds, 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, 2016, $586.2 million was held in segregated accounts for the purpose of meeting any clawback obligations of current and former personnel if such payments are required.

In the Credit segment, payment of Carried Interest to the Partnership by the majority of the rescue lending, mezzanine and hedge fund strategies funds is substantially deferred. This deferral mitigates the need to hold funds in segregated accounts in the event of a cash clawback obligation.

If, at June 30, 2016, all of the investments held by the carry funds were deemed worthless, a possibility that management views as remote, the amount of Carried Interest subject to potential clawback would be $4.8 billion, on an after tax basis where applicable, of which $4.4 billion related to Blackstone Holdings and $406.0 million related to current and former Blackstone personnel.

18.

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 businesses through four segments:

•

Private Equity — Blackstone’s Private Equity segment comprises its management of private equity funds, certain opportunistic investment funds, a core private equity fund and secondary private funds of funds.

•

Real Estate — Blackstone’s Real Estate segment primarily comprises its management of global, European focused and Asian focused opportunistic real estate funds as well as core+ real estate funds. In addition, the segment has debt investment funds and a publicly traded REIT targeting non-controlling real estate debt-related investment opportunities in the public and private markets, primarily in the United States and Europe.

•

Hedge Fund Solutions — Blackstone’s Hedge Fund Solutions segment is comprised principally of Blackstone Alternative Asset Management (“BAAM”), which manages a broad range of commingled and customized hedge fund of fund solutions. The Hedge Fund Solutions business also includes investment platforms that seed new hedge fund talent, purchase ownership interests in more established hedge funds, invest in special situation opportunities, create alternative solutions in regulated structures and trade long and short public equities.

•

Credit — Blackstone’s Credit segment, which consists principally of GSO Capital Partners LP (“GSO”), manages credit-focused products within private and public debt market strategies. GSO’s products include senior credit-focused funds, mezzanine funds, distressed debt funds, general credit-focused funds, registered investment companies, separately managed accounts and CLO vehicles.

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)

These business segments are differentiated by their various sources of income. The Private Equity, Real Estate, Hedge Fund Solutions and Credit segments primarily earn their income from management fees and investment returns on assets under management.

Blackstone uses Economic Income (“EI”) as a key measure of value creation, a benchmark of its performance and in making resource deployment and compensation decisions across its four segments. EI represents segment net income before taxes excluding transaction-related charges. Transaction-related charges arise from Blackstone’s IPO and long-term retention programs outside of annual deferred compensation and other corporate actions, including acquisitions. Transaction-related charges include equity-based compensation charges, the amortization of intangible assets and contingent consideration associated with acquisitions. EI presents revenues and expenses on a basis that deconsolidates the investment funds Blackstone manages. Economic Net Income (“ENI”) represents EI adjusted to include current period taxes. Taxes represent the total GAAP tax provision adjusted to include only the current tax provision (benefit) calculated on Income (Loss) Before Provision for Taxes.

Senior 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.

On October 1, 2015, Blackstone completed the spin-off of the operations that historically constituted Blackstone’s Financial Advisory segment, other than Blackstone’s capital markets services business. Blackstone’s capital markets services business was retained and was not part of the spin-off. These historical operations included various financial advisory services, including financial and strategic advisory, restructuring and reorganization advisory and fund placement services. As of October 1, 2015, Blackstone no longer reported a Financial Advisory segment. Results of the historical Financial Advisory segment are included herein for comparative purposes only. The results of Blackstone’s capital markets services business were reclassified from the Financial Advisory segment to the Private Equity segment. All prior periods have been recast to reflect this reclassification.

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, 2016 and 2015:


	Three Months Ended June 30, 2016
	Private Equity			Real Estate			Hedge Fund Solutions			Credit			Total Segments
Segment Revenues
Management and Advisory Fees, Net
Base Management Fees	$	131,477		$	201,004		$	130,123		$	131,392		$	593,996
Advisory Fees		1,277			—			—			—			1,277
Transaction and Other Fees, Net		9,812			21,112			(5	)		1,424			32,343
Management Fee Offsets		(4,195	)		(1,219	)		—			(9,982	)		(15,396	)

Total Management and Advisory Fees, Net		138,371			220,897			130,118			122,834			612,220

Performance Fees
Realized
Carried Interest		57,056			266,382			—			296			323,734
Incentive Fees		—			6,099			(251	)		23,515			29,363
Unrealized
Carried Interest		85,047			(84,875	)		801			87,295			88,268
Incentive Fees		—			5,942			1,036			1,029			8,007

Total Performance Fees		142,103			193,548			1,586			112,135			449,372

Investment Income (Loss)
Realized		22,926			19,929			(515	)		11,330			53,670
Unrealized		(2,766	)		(8,902	)		9,357			8,412			6,101

Total Investment Income		20,160			11,027			8,842			19,742			59,771
Interest and Dividend Revenue		9,516			13,084			5,205			7,428			35,233
Other		3,395			2,231			1,125			1,795			8,546

Total Revenues		313,545			440,787			146,876			263,934			1,165,142

Expenses
Compensation and Benefits Compensation		83,140			102,888			44,436			55,691			286,155
Performance Fee Compensation
Realized
Carried Interest		30,946			56,441			—			194			87,581
Incentive Fees		—			3,300			1,325			10,626			15,251
Unrealized
Carried Interest		19,450			14,257			238			41,257			75,202
Incentive Fees		—			2,542			480			(333	)		2,689

Total Compensation and Benefits		133,536			179,428			46,479			107,435			466,878
Other Operating Expenses		48,371			52,201			27,218			29,464			157,254

Total Expenses		181,907			231,629			73,697			136,899			624,132

Economic Income	$	131,638		$	209,158		$	73,179		$	127,035		$	541,010

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, 2015
	Private Equity			Real Estate			Hedge Fund Solutions			Credit			Financial Advisory			Total Segments
Segment Revenues
Management and Advisory Fees, Net
Base Management Fees	$	121,918		$	140,743		$	130,216		$	123,615		$	—		$	516,492
Advisory Fees		4,843			—			—			—			72,155			76,998
Transaction and Other Fees, Net		(11,842	)		21,510			—			2,060			—			11,728
Management Fee Offsets		(9,028	)		(5,428	)		(608	)		(3,370	)		—			(18,434	)

Total Management and Advisory Fees, Net		105,891			156,825			129,608			122,305			72,155			586,784

Performance Fees
Realized
Carried Interest		546,575			363,983			—			26,925			—			937,483
Incentive Fees		—			1,220			16,915			29,684			—			47,819
Unrealized
Carried Interest		(305,573	)		(188,608	)		8,014			44,218			—			(441,949	)
Incentive Fees		—			3,935			15,855			6,521			—			26,311

Total Performance Fees		241,002			180,530			40,784			107,348			—			569,664

Investment Income (Loss)
Realized		50,258			85,432			(1,757	)		2,723			(159	)		136,497
Unrealized		(22,301	)		(107,691	)		2,032			2,760			(523	)		(125,723	)

Total Investment Income (Loss)		27,957			(22,259	)		275			5,483			(682	)		10,774
Interest and Dividend Revenue		7,669			10,259			3,970			5,938			3,190			31,026
Other		2,515			1,077			459			34			(112	)		3,973

Total Revenues		385,034			326,432			175,096			241,108			74,551			1,202,221

Expenses
Compensation and Benefits Compensation		68,106			79,484			45,841			47,124			48,797			289,352
Performance Fee Compensation Realized
Carried Interest		106,502			116,168			—			15,362			—			238,032
Incentive Fees		—			671			8,711			12,455			—			21,837
Unrealized
Carried Interest		(25,574	)		(50,559	)		4,077			21,497			—			(50,559	)
Incentive Fees		—			230			3,764			2,137			—			6,131

Total Compensation and Benefits		149,034			145,994			62,393			98,575			48,797			504,793
Other Operating Expenses		62,571			43,346			20,499			23,539			18,446			168,401

Total Expenses		211,605			189,340			82,892			122,114			67,243			673,194

Economic Income	$	173,429		$	137,092		$	92,204		$	118,994		$	7,308		$	529,027

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 for the three months ended June 30, 2016 and 2015:


	Three Months Ended June 30, 2016							Three Months Ended June 30, 2015
	Total Segments		Consolidation Adjustments and Reconciling Items			Blackstone Consolidated		Total Segments		Consolidation Adjustments and Reconciling Items			Blackstone Consolidated
Revenues	$	1,165,142	$	27,284	(a)	$	1,192,426	$	1,202,221	$	22,981	(a)	$	1,225,202
Expenses	$	624,132	$	88,471	(b)	$	712,603	$	673,194	$	241,238	(b)	$	914,432
Other Income	$	—	$	30,703	(c)	$	30,703	$	—	$	82,015	(c)	$	82,015
Economic Income	$	541,010	$	(30,484)	(d)	$	510,526	$	529,027	$	(136,242)	(d)	$	392,785

(a)

The Revenues adjustment represents management and performance fees earned from Blackstone Funds which were eliminated in consolidation to arrive at Blackstone consolidated revenues, non-segment related Investment Income (Loss), which is included in Blackstone consolidated revenues and the elimination of inter-segment interest income.

(b)

The Expenses adjustment represents the addition of expenses of the consolidated Blackstone Funds to the Blackstone unconsolidated expenses, amortization of intangibles, expenses related to transaction-related equity-based compensation and the elimination of inter-segment interest expense to arrive at Blackstone consolidated expenses.

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


	Three Months Ended June 30,
	2016			2015
Fund Management Fees and Performance Fees Eliminated in Consolidation and Transactional Investment Loss	$	(27,716	)	$	(31,781	)
Fund Expenses Added in Consolidation		(3,310	)		33,677
Income Associated with Non-Controlling Interests of Consolidated Entities		62,680			80,496
Transaction-Related Other Loss		(951	)		(377	)

Total Consolidation Adjustments and Reconciling Items	$	30,703		$	82,015

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


	Three Months Ended June 30,
	2016			2015
Economic Income	$	541,010		$	529,027

Adjustments
Amortization of Intangibles		(23,208	)		(24,720	)
Transaction-Related Charges		(69,956	)		(192,018	)
Income Associated with Non-Controlling Interests of Consolidated Entities		62,680			80,496

Total Consolidation Adjustments and Reconciling Items		(30,484	)		(136,242	)

Income Before Provision for Taxes	$	510,526		$	392,785

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 as of and for the six months ended June 30, 2016 and 2015:


	June 30, 2016 and the Six Months Then Ended
	Private Equity			Real Estate			Hedge Fund Solutions			Credit			Total Segments
Segment Revenues
Management and Advisory Fees, Net
Base Management Fees	$	262,125		$	400,911		$	260,281		$	257,382		$	1,180,699
Advisory Fees		1,758			—			—			—			1,758
Transaction and Other Fees, Net		18,251			56,906			538			2,766			78,461
Management Fee Offsets		(11,043	)		(4,814	)		—			(19,640	)		(35,497	)

Total Management and Advisory Fees, Net		271,091			453,003			260,819			240,508			1,225,421

Performance Fees
Realized
Carried Interest		87,338			467,009			—			296			554,643
Incentive Fees		—			10,168			2,433			45,212			57,813
Unrealized
Carried Interest		158,922			(96,397	)		833			72,516			135,874
Incentive Fees		—			15,707			(1,899	)		1,299			15,107

Total Performance Fees		246,260			396,487			1,367			119,323			763,437

Investment Income (Loss)
Realized		7,569			32,904			(5,260	)		8,356			43,569
Unrealized		12,674			(11,039	)		(2,934	)		(9,149	)		(10,448	)

Total Investment Income (Loss)		20,243			21,865			(8,194	)		(793	)		33,121
Interest and Dividend Revenue		19,365			26,272			10,501			14,176			70,314
Other		1,808			322			(263	)		431			2,298

Total Revenues		558,767			897,949			264,230			373,645			2,094,591

Expenses
Compensation and Benefits Compensation		163,414			203,466			98,605			108,073			573,558
Performance Fee Compensation
Realized
Carried Interest		46,373			99,517			—			194			146,084
Incentive Fees		—			5,433			3,188			20,753			29,374
Unrealized
Carried Interest		28,746			41,960			238			34,259			105,203
Incentive Fees		—			6,700			(715	)		152			6,137

Total Compensation and Benefits		238,533			357,076			101,316			163,431			860,356
Other Operating Expenses		96,434			100,298			53,364			55,684			305,780

Total Expenses		334,967			457,374			154,680			219,115			1,166,136

Economic Income	$	223,800		$	440,575		$	109,550		$	154,530		$	928,455

Segment Assets as of June 30, 2016	$	5,800,049		$	7,279,766		$	1,668,153		$	2,907,645		$	17,655,613

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, 2015
	Private Equity			Real Estate			Hedge Fund Solutions			Credit			Financial Advisory			Total Segments
Segment Revenues
Management and Advisory Fees, Net
Base Management Fees	$	230,301		$	293,091		$	260,853		$	248,644		$	—		$	1,032,889
Advisory Fees		7,272			—			—			—			153,964			161,236
Transaction and Other Fees, Net		8,517			36,726			25			3,517			16			48,801
Management Fee Offsets		(13,977	)		(10,294	)		(888	)		(11,220	)		—			(36,379	)

Total Management and Advisory Fees, Net		232,113			319,523			259,990			240,941			153,980			1,206,547

Performance Fees
Realized
Carried Interest		929,553			1,175,232			—			40,292			—			2,145,077
Incentive Fees		—			1,943			27,431			48,115			—			77,489
Unrealized
Carried Interest		261,249			(369,627	)		8,014			32,267			—			(68,097	)
Incentive Fees		—			10,004			63,282			15,645			—			88,931

Total Performance Fees		1,190,802			817,552			98,727			136,319			—			2,243,400

Investment Income (Loss)
Realized		95,074			156,776			(12,132	)		4,960			(389	)		244,289
Unrealized		9,186			(70,181	)		6,515			9,647			959			(43,874	)

Total Investment Income (Loss)		104,260			86,595			(5,617	)		14,607			570			200,415
Interest and Dividend Revenue		15,287			20,256			7,919			11,589			6,426			61,477
Other		690			(2,900	)		(1,148	)		3,527			(1,068	)		(899	)

Total Revenues		1,543,152			1,241,026			359,871			406,983			159,908			3,710,940

Expenses
Compensation and Benefits Compensation		139,178			164,318			101,945			97,001			116,748			619,190
Performance Fee Compensation Realized
Carried Interest		145,984			362,664			—			21,632			—			530,280
Incentive Fees		—			1,027			12,181			20,856			—			34,064
Unrealized
Carried Interest		152,546			(148,643	)		4,077			15,841			—			23,821
Incentive Fees		—			2,805			19,415			8,872			—			31,092

Total Compensation and Benefits		437,708			382,171			137,618			164,202			116,748			1,238,447
Other Operating Expenses		101,446			83,489			41,705			45,375			39,668			311,683

Total Expenses		539,154			465,660			179,323			209,577			156,416			1,550,130

Economic Income	$	1,003,998		$	775,366		$	180,548		$	197,406		$	3,492		$	2,160,810

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 of and for the six months ended June 30, 2016 and 2015:


	June 30, 2016 and the Six Months Then Ended							Six Months Ended June 30, 2015
	Total Segments		Consolidation Adjustments and Reconciling Items			Blackstone Consolidated		Total Segments		Consolidation Adjustments and Reconciling Items			Blackstone Consolidated
Revenues	$	2,094,591	$	30,189	(a)	$	2,124,780	$	3,710,940	$	26,620	(a)	$	3,737,560
Expenses	$	1,166,136	$	164,177	(b)	$	1,330,313	$	1,550,130	$	506,870	(b)	$	2,057,000
Other Income	$	—	$	49,845	(c)	$	49,845	$	—	$	175,570	(c)	$	175,570
Economic Income (Loss)	$	928,455	$	(84,143)	(d)	$	844,312	$	2,160,810	$	(304,680)	(d)	$	1,856,130
Total Assets	$	17,655,613	$	5,386,045	(e)	$	23,041,658

(a)

The Revenues adjustment represents management and performance fees earned from Blackstone Funds that were eliminated in consolidation to arrive at Blackstone consolidated revenues, non-segment related Investment Income (Loss), which is included in Blackstone consolidated revenues and the elimination of inter-segment interest income.

(b)

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


	Six Months Ended June 30,
	2016			2015
Fund Management Fees and Performance Fees Eliminated in Consolidation and Transactional Investment Loss	$	(30,473	)	$	(35,492	)
Fund Expenses Added in Consolidation		(9,157	)		43,044
Income Associated with Non-Controlling Interests of Consolidated Entities		96,365			169,819
Transaction-Related Other Loss		(6,890	)		(1,801	)

Total Consolidation Adjustments and Reconciling Items	$	49,845		$	175,570

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


	Six Months Ended June 30,
	2016			2015
Economic Income	$	928,455		$	2,160,810

Adjustments
Amortization of Intangibles		(46,416	)		(50,619	)
Transaction-Related Charges		(134,092	)		(423,880	)
Income Associated with Non-Controlling Interests of Consolidated Entities		96,365			169,819

Total Consolidation Adjustments and Reconciling Items		(84,143	)		(304,680	)

Income Before Provision for Taxes	$	844,312		$	1,856,130

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)

(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.

19.

SUBSEQUENT EVENTS

There have been no events since June 30, 2016 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, 2016
	Consolidated Operating Partnerships			Consolidated Blackstone Funds (a)		Reclasses and Eliminations			Consolidated
Assets
Cash and Cash Equivalents	$	1,495,466		$	—	$	—		$	1,495,466
Cash Held by Blackstone Funds and Other		167,073			569,188		—			736,261
Investments		10,591,408			4,968,911		(423,819	)		15,136,500
Accounts Receivable		435,704			254,302		—			690,006
Reverse Repurchase Agreements		43,885			—		—			43,885
Due from Affiliates		1,278,051			33,691		(19,436	)		1,292,306
Intangible Assets, Net		299,892			—		—			299,892
Goodwill		1,718,519			—		—			1,718,519
Other Assets		340,353			3,208		—			343,561
Deferred Tax Assets		1,285,262			—		—			1,285,262

Total Assets	$	17,655,613		$	5,829,300	$	(443,255	)	$	23,041,658

Liabilities and Partners’ Capital
Loans Payable	$	2,799,977		$	3,941,751	$	—		$	6,741,728
Due to Affiliates		1,185,579			101,562		(21,278	)		1,265,863
Accrued Compensation and Benefits		2,091,699			—		—			2,091,699
Securities Sold, Not Yet Purchased		61,831			53,965		—			115,796
Repurchase Agreements		4,500			51,853		—			56,353
Accounts Payable, Accrued Expenses and Other Liabilities		413,100			241,699		—			654,799

Total Liabilities		6,556,686			4,390,830		(21,278	)		10,926,238

Redeemable Non-Controlling Interests in Consolidated Entities		—			174,005		—			174,005

Partners’ Capital
Partners’ Capital		6,209,081			422,110		(422,804	)		6,208,387
Accumulated Other Comprehensive Income (Loss)		(46,714	)		—		827			(45,887	)
Non-Controlling Interests in Consolidated Entities		1,696,204			842,355		—			2,538,559
Non-Controlling Interests in Blackstone Holdings		3,240,356			—		—			3,240,356

Total Partners’ Capital		11,098,927			1,264,465		(421,977	)		11,941,415

Total Liabilities and Partners’ Capital	$	17,655,613		$	5,829,300	$	(443,255	)	$	23,041,658

THE BLACKSTONE GROUP L.P.

Unaudited Consolidating Statements of Financial Condition

(Dollars in Thousands)


	December 31, 2015
	Consolidated Operating Partnerships			Consolidated Blackstone Funds (a)		Reclasses and Eliminations			Consolidated
Assets
Cash and Cash Equivalents	$	1,837,324		$	—	$	—		$	1,837,324
Cash Held by Blackstone Funds and Other		148,660			438,472		—			587,132
Investments		10,186,419			4,591,465		(453,787	)		14,324,097
Accounts Receivable		461,610			151,543		—			613,153
Reverse Repurchase Agreements		204,893			—		—			204,893
Due from Affiliates		1,224,692			25,722		(9,617	)		1,240,797
Intangible Assets, Net		345,547			—		—			345,547
Goodwill		1,718,519			—		—			1,718,519
Other Assets		374,270			2,919		—			377,189
Deferred Tax Assets		1,277,429			—		—			1,277,429

Total Assets	$	17,779,363		$	5,210,121	$	(463,404	)	$	22,526,080

Liabilities and Partners’ Capital
Loans Payable	$	2,797,060		$	3,319,687	$	—		$	6,116,747
Due to Affiliates		1,244,748			50,892		(12,940	)		1,282,700
Accrued Compensation and Benefits		2,029,900			18		—			2,029,918
Securities Sold, Not Yet Purchased		99,392			77,275		—			176,667
Repurchase Agreements		970			39,959		—			40,929
Accounts Payable, Accrued Expenses and Other Liabilities		422,905			225,757		—			648,662

Total Liabilities		6,594,975			3,713,588		(12,940	)		10,295,623

Redeemable Non-Controlling Interests in Consolidated Entities		—			183,459		—			183,459

Partners’ Capital
Partners’ Capital		6,323,025			450,417		(451,135	)		6,322,307
Accumulated Other Comprehensive Income (Loss)		(53,190	)		—		671			(52,519	)
Non-Controlling Interests in Consolidated Entities		1,546,044			862,657		—			2,408,701
Non-Controlling Interests in Blackstone Holdings		3,368,509			—		—			3,368,509

Total Partners’ Capital		11,184,388			1,313,074		(450,464	)		12,046,998

Total Liabilities and Partners’ Capital	$	17,779,363		$	5,210,121	$	(463,404	)	$	22,526,080

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

Blackstone Real Estate Partners VI.C – ESH L.P.

Blackstone Real Estate Special Situations Fund L.P.

Blackstone Real Estate Special Situations Offshore Fund Ltd.

Blackstone Strategic Alliance Fund L.P.

Blackstone/GSO Loan Financing Limited

BSSF I AIV L.P.

BTD CP Holdings, LP

GSO Legacy Associates II LLC

GSO Legacy Associates LLC

Private equity side-by-side investment vehicles

Real estate side-by-side investment vehicles

Mezzanine side-by-side investment vehicles

Collateralized loan obligation vehicles

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 in this Quarterly Report on Form 10-Q.

Our Business

Blackstone is one of the largest independent managers of private capital in the world. Our business is organized into four segments:

•

Private Equity. We are a world leader in private equity investing, having managed seven general private equity funds, as well as three sector focused funds, since we established this business in 1987. We refer to these managed corporate private equity funds collectively as our Blackstone Capital Partners (“BCP”) funds. Our Private Equity segment also includes Blackstone Tactical Opportunities (“Tactical Opportunities”), our opportunistic investment platform that invests globally across asset classes, industries and geographies, Strategic Partners Fund Solutions (“Strategic Partners”), a secondary private fund of funds business, Blackstone Total Alternatives Solution (“BTAS”), a multi-asset investment program for eligible high net worth investors offering exposure to certain of Blackstone’s key illiquid investment strategies through a single commitment, and our capital markets services business (“BXCM”). We have also raised capital commitments for Blackstone Core Equity Partners (“BCEP”), which targets control-oriented investments in high-quality companies with durable businesses and seeks to offer a lower level of risk and a longer hold period than traditional private equity.

Our corporate private equity business pursues transactions throughout the world across a variety of transaction types, including large buyouts, mid-cap buyouts, buy and build platforms (which involve multiple acquisitions behind a single management team and platform) and growth equity/development projects (which involve significant minority investments in mature companies and greenfield development projects in energy and power). Tactical Opportunities seeks to capitalize on complex and dislocated market situations across asset classes, industries and geographies in a broad range of investments, including private and public securities, and instruments, where the underlying exposure may be to equity, debt, and/or real assets. Strategic Partners focuses on delivering access to a range of opportunities, leveraging its proprietary database to acquire single fund interests or complex portfolios in an efficient and timely manner.

•

Real Estate. Since our start in 1991, we have become a world leader in real estate investing. We have managed or continue to manage a number of global, European and Asian focused opportunistic real estate funds, several real estate debt investment vehicles, a NYSE publicly traded real estate investment trust (“BXMT”) and several core+ real estate funds. We refer to our opportunistic real estate funds as our Blackstone Real Estate Partners (“BREP”) funds, our real estate debt investment vehicles as our Blackstone Real Estate Debt Strategies (“BREDS”) funds and our core+ real estate funds as our Blackstone Property Partners (“BPP”) funds.

Our BREP funds are geographically diversified and target a broad range of “opportunistic” real estate and real estate related investments that are generally undermanaged assets with higher potential for equity appreciation. BREP has made significant investments in lodging, office buildings, shopping centers, residential, industrial and a variety of real estate operating companies.

Our BREDS vehicles target real estate debt-related investment opportunities in the public and private markets, primarily in the United States and Europe.

Our BPP funds are geographically diversified and target substantially stabilized assets generating relatively stable cash flow with a focus on office, multifamily, industrial and retail assets in gateway markets.

•

Hedge Fund Solutions. Blackstone’s Hedge Fund Solutions segment is comprised principally of Blackstone Alternative Asset Management (“BAAM”). BAAM is the world’s largest discretionary

allocator to hedge funds, managing a broad range of commingled and customized hedge fund of fund solutions since its inception in 1990. The Hedge Fund Solutions segment also includes investment platforms that seed new hedge fund talent, purchase ownership interests in more established hedge funds, invest in special situation opportunities, create alternative solutions in regulated structures and trade long and short public equities.

•

Credit. Our Credit segment consists principally of GSO Capital Partners LP (“GSO”), a global leader in managing credit-focused products within private and public debt market strategies. GSO’s products include senior credit-focused funds, mezzanine funds, distressed debt funds, general credit-focused funds, registered investment companies, separately managed accounts and collateralized loan obligation (“CLO”) vehicles.

We generate revenue from fees earned pursuant to contractual arrangements with funds, fund investors and fund portfolio companies (including management, transaction and monitoring fees), and from capital markets services. We 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 (generally collectively referred to as “Performance Fees”). The composition of our revenues will vary based on market conditions and the cyclicality of the different businesses in which we operate. Net investment gains and investment income generated by the Blackstone Funds, principally private equity and real estate funds, are driven by value created by our operating and strategic initiatives as well as overall market conditions. Fair values are affected by changes in the fundamentals of the portfolio company, the portfolio company’s industry, the overall economy and other market conditions.

Business Environment

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

Despite some signs of steadying during much of the second quarter of 2016, volatility across global equity and debt markets persisted, particularly in the last days of June as the U.K. voted to leave the European Union (“Brexit”). Upon the news of Brexit, most major equity indices declined sharply, although there was some recovery into quarter close. The S&P 500 ended the quarter up 2%, the FTSE 100 up 5%, the Euro Stoxx down 5%, the Nikkei 225 down 7% and both the MSCI World and Hang Seng indices flat at 0%.

Following Brexit, the CBOE volatility index surged 49% to 25.76, only to end the quarter at 15.63, down 14% year-to-date. Currency markets also experienced significant volatility. In the days preceding the referendum, the pound rallied, only to end the quarter down 8% versus the U.S. dollar. The euro declined less dramatically, down 2% for the quarter, and the U.S. dollar and Japanese yen strengthened as investors sought safe havens.

Bond markets rebounded during the second quarter. Investment grade corporate debt rose 4%, U.S. sovereign debt gained 2% and high yield debt rose 5%. Central banks have remained accommodative, holding interest rates at or near record lows. The 10 year U.S. Treasury, for example, ended the quarter at 1.49%, its lowest point since July 2012, and subsequent to the end of the quarter dropped to an all-time low of 1.37%. Globally, two-thirds of developed nation government debt pays less than 1% and one-third now trades at negative yields.

While concerns over the pace of economic growth and the impact of central bank monetary policy persist, U.S. equity markets have performed well into the third quarter, with the S&P 500 and Dow reaching all-time highs in July. The overall economic outlook for the second half of 2016 remains moderate, with current forecasts calling for global economic growth of 3.1% and U.S. economic growth of 2.2% year over year. In line with the first quarter, GDP in China expanded by 6.7% year over year, further supporting the idea of stabilization.

The price of oil has continued to rally, with West Texas Intermediate Crude ending the second quarter at $48.33 after reaching a 13-year low of $26.21 a barrel in February. Despite significant gains in the first and second

quarters of 2016, oil prices remain well below the $80 to $100 a barrel range that characterized the past decade. Natural gas prices increased sharply during the quarter, gaining 49%, while gasoline prices across the U.S. continued to stay low, averaging $2.25 a gallon during the quarter.

While corporate credit defaults moderated in the second quarter, 2016 already ranks as the sixth highest annual total on record. Overall capital markets volumes improved, though growth in debt issuance vastly outpaced equity. Global debt volume reached $3.5 trillion during the first half of 2016, up 3% year over year, while global equity volume was $332 billion during the first half of the year, down 40% year over year. Despite three prior quarters with more than $1 trillion in volume, global mergers and acquisitions fell during the second quarter to $952 billion. In the U.S., private equity firms made investments worth $30 billion, down from $33 billion during the second quarter of 2015. Despite the year over year decline, volumes were up $17 billion as compared to the first quarter of 2016, suggesting some recovery since the beginning of the year.

Prior to Brexit, economic data and financial market developments suggested that the global economy was advancing as expected, with low growth among developed economies and some improvement in a few large emerging markets, such as Brazil and Russia. Although the final weeks of the second quarter of 2016 were marked by volatility and economic concerns surrounding Brexit, most markets have since recovered significantly. Economists and investors are now grappling with uncertainty in Europe, expecting a slowdown and the potential for a U.K. recession. Despite this negative outlook, expected impact to other economies, such as the U.S. and China, is muted. Long-term global economic stabilization appears to be predicated on eventual agreements between the European Union and the U.K., limited economic barriers and political fallout and minimal financial market disruption.

Organizational Structure

The simplified diagram below depicts our current organizational structure. The diagram does not depict all of our subsidiaries, including intermediate holding companies through which certain of the subsidiaries depicted are held.

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Key Financial Measures and Indicators

We manage our business using traditional financial measures and key operating metrics since we believe these metrics measure the productivity of our investment activities. Our key financial measures and indicators are discussed below.

Revenues

Revenues primarily consist of management and advisory fees, performance fees, investment income, interest and dividend revenue and other. Please refer to “Part I. Item 1. Business — Incentive Arrangements / Fee Structure” in our Annual Report on Form 10-K for the year ended December 31, 2015 and “Critical Accounting Policies — Revenue Recognition” for additional information regarding the manner in which Base Management Fees and Performance Fees are generated.

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

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, or in some cases, a fixed fee. Base management fees are recognized based on contractual terms specified in the underlying investment advisory agreements.

Transaction and other fees (including monitoring fees) are fees charged directly to managed funds and portfolio companies. The investment advisory agreements generally require that the investment adviser reduce the amount of management fees payable by the limited partners to the Partnership by an amount equal to a portion of the transaction and other fees directly paid to the Partnership by the portfolio companies. We refer to these amounts as management fee reductions. 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 the limited partners of the Blackstone Funds, which are granted based on the amount such limited partners reimburse the Blackstone Funds for placement fees.

Advisory fees consist of advisory retainer and transaction-based fee arrangements related to capital markets services. 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.

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. Management fees paid by limited partners to the Blackstone Funds and passed on to Blackstone are not considered affiliate revenues.

Performance Fees — Performance Fees earned on the performance of Blackstone’s hedge fund structures (“Incentive Fees”) 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 Incentive 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. Accrued but unpaid Incentive Fees on onshore funds as of the reporting date are reflected in Investments in the Condensed Consolidated Statements of Financial Condition. Incentive Fees are realized at the end of a measurement period, typically annually. Once realized, such fees are not subject to clawback or reversal.

In certain fund structures, specifically in private equity, real estate and certain hedge fund solutions and credit-focused 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 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 realized when an underlying investment is profitably disposed of and the fund’s cumulative returns are in excess of the preferred return or, in limited instances, after certain thresholds for return of capital are met. 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. As such, the accrual for potential repayment of previously received Carried Interest, 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. The actual clawback liability, however, generally does not become realized until the end of a fund’s life except for certain funds, including certain Blackstone real estate funds, multi-asset class investment funds and credit-focused funds, which may have an interim clawback liability.

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. 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 consists of miscellaneous income and foreign exchange gains and losses arising on transactions denominated in currencies other than U.S. dollars.

Expenses

Compensation and Benefits — Compensation — Compensation and Benefits consists of (a) employee compensation, comprising salary and bonus, and benefits paid and payable to employees and senior managing directors and (b) equity-based compensation associated with the grants of equity-based awards to employees and senior managing directors. Compensation cost relating to the issuance of equity-based awards to senior managing directors 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, except in the case of (a) equity-based awards that do not require future service, which are expensed immediately and (b) certain awards to recipients that meet specified criteria making them eligible for retirement treatment (allowing such recipient to keep a percentage of those awards upon departure from Blackstone after becoming eligible for retirement), for which the expense for the portion of the

award that would be retained in the event of retirement is either expensed immediately or amortized to the retirement date. Cash settled equity-based awards are classified as liabilities and are remeasured at the end of each reporting period.

Compensation and Benefits — Performance Fee — Performance Fee Compensation consists of Carried Interest (which may be distributed in cash or in-kind) and Incentive Fee allocations, and may in future periods also include allocations of investment income from Blackstone’s firm investments, to employees and senior managing directors participating in certain profit sharing initiatives. Such compensation expense is subject to both positive and negative adjustments. Unlike Carried Interest and Incentive Fees, compensation expense is based on the performance of individual investments held by a fund rather than on a fund by fund basis. Compensation received from advisory clients in the form of securities of such clients may also be allocated to employees and senior managing directors.

Other Operating Expenses — Other Operating Expenses represents 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 Blackstone Funds held by third party investors and employees. The percentage interests held by third parties and employees is adjusted for general partner allocations and by subscriptions and redemptions in funds of hedge funds and certain credit-focused funds which occur during the reporting period. In addition, all non-controlling interests in consolidated Blackstone Funds are attributed a share of income (loss) arising from the respective funds and a share of other comprehensive income, if applicable. Income (Loss) is allocated to non-controlling interests in consolidated entities based on the relative ownership interests of third party investors and employees after considering any contractual arrangements that govern the allocation of income (loss) such as fees allocable to The Blackstone Group L.P.

Redeemable Non-Controlling Interests in Consolidated Entities

Non-controlling interests related to funds of hedge funds are subject to annual, semi-annual or quarterly redemption by investors in these funds following the expiration of a specified period of time, or may be withdrawn subject to a redemption fee 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 and included in Accounts Payable, Accrued Expenses and Other Liabilities in the Condensed Consolidated Statements of Financial Condition. 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.

Non-Controlling Interests in Blackstone Holdings

Non-Controlling Interests in Blackstone Holdings represent the component of Partners’ Capital in the consolidated Blackstone Holdings Partnerships held by Blackstone personnel and others who are limited partners of the Blackstone Holdings Partnerships.

Certain costs and expenses are borne directly by the Holdings Partnerships. Income (Loss), excluding those costs directly borne by and attributable to the Holdings Partnerships, is attributable to Non-Controlling Interests in

Blackstone Holdings. This residual attribution is based on the year to date average percentage of Blackstone Holdings Partnership Units held by Blackstone personnel and others who are limited partners of the Blackstone Holdings Partnerships.

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 tax is reflected in the Condensed Consolidated Financial Statements.

Income taxes are accounted for using the asset and 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 tax rates in effect for the year in which the differences are expected to reverse. 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. Current and deferred tax liabilities are recorded within Accounts Payable, Accrued Expenses and Other Liabilities in the Condensed Consolidated Statements of Financial Condition.

Blackstone uses the flow-through method to account for investment tax credits. Under this method, the investment tax credits are recognized as a reduction to income tax expense.

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. Blackstone records uncertain tax positions on the basis of a two-step process: (a) a determination is made whether it is more likely than not that the tax positions will be sustained based on the technical merits of the position and (b) those tax positions that meet the more-likely-than-not threshold are recognized as the largest amount of tax benefit that is greater than 50 percent likely to be realized upon ultimate settlement with the related tax authority. 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. Over the past several years, a number of legislative and administrative proposals to change the taxation of Carried Interest have been introduced and, in certain cases, have been passed by the U.S. House of Representatives that would have, in general, treated income and gains, including gain on sale, attributable to 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 would have been considered under the legislation to be a qualified capital interest. Our common units and the interests that we hold in entities that are entitled to receive Carried Interest would likely have been classified as ISPIs for purposes of this legislation. It is unclear whether or when the U.S. Congress will pass such legislation or what provisions will be included in any final legislation if enacted.

Some legislative proposals have provided 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 subject to the foregoing rules would not meet the qualifying income requirements under the publicly traded partnership rules. Therefore, if similar legislation were to be 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.

The Obama administration has made similar proposals that would tax income and gain, including gain on sale, attributable to an ISPI at ordinary rates, with an exception for certain qualified capital interests. The proposals would also characterize certain income and gain in respect of ISPIs as non-qualifying income under the tax rules applicable to publicly traded partnerships after a ten year transition period from the effective date, with an exception for certain qualified capital interests. The Obama administration proposed similar changes in its published revenue proposals for 2015 and prior years.

States and other jurisdictions have also considered legislation to increase taxes with respect to Carried Interest. For example, New York has considered legislation, which could have caused 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. It is unclear whether or when similar legislation will be enacted. Finally, several state and local jurisdictions have evaluated ways to subject partnerships to entity level taxation through the imposition of state or local income, franchise or other forms of taxation or to increase the amount of such taxation.

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 5%. 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. In addition, we, and our common unitholders, could be taxed on any such restructuring. 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 at the time any such legislation were to take effect, making the task of predicting the amount of additional tax highly speculative.

Congress, the Organization for Economic Co-operation and Development (“OECD”) and other government agencies in jurisdictions in which we and our affiliates invest or do business have maintained a focus on issues related to the taxation of multinational companies. The OECD, which represents a coalition of member countries, is contemplating changes to numerous long-standing tax principles through its base erosion and profit shifting project, which is focused on a number of issues, including the shifting of profits between affiliated entities in different tax jurisdictions. Additionally, the Obama administration has announced other proposals for potential reform to the U.S. federal income tax rules for businesses, including reducing the deductibility of interest for corporations, anti-inversion rules, reducing the top marginal rate on corporations and subjecting entities currently treated as partnerships for tax purposes to an entity-level income tax similar to the corporate income tax. Several of these proposals for reform, if enacted by the United States or by other countries in which we or our affiliates invest or do business, could adversely affect us. It is unclear what any actual legislation would provide, when it would be proposed or what its prospects for enactment would be. In addition, the Treasury and the Internal Revenue Service

recently proposed regulations to restrict interest deductions for certain related-party debt that could, if finalized, adversely affect us or our investments. It is unclear whether or in what form such regulations would be finalized.

Other proposals by members of Congress have contemplated the migration of the United States from a “worldwide” system of taxation, pursuant to which U.S. corporations are taxed on their worldwide income, to a territorial system where U.S. corporations are taxed only on their U.S. source income (subject to certain exceptions for income derived in low-tax jurisdictions from the exploitation of tangible assets) at a top corporate tax rate that would be 25%. Such proposals include revenue raisers to offset the reduction in the tax rate and base which may or may not be detrimental to us. A variation of this proposal completes a similar territorial U.S. tax system, but with more expansive U.S. taxation of the foreign profits of non-U.S. subsidiaries of U.S. corporations. Such proposal would also eliminate the withholding tax exemption on portfolio interest debt obligations for investors residing in non-treaty jurisdictions. Speaker of the House Paul Ryan has also identified comprehensive tax reform as a priority for the next Congress. Furthermore, recent legislation has proposed audit procedure adjustments that could affect large partnerships like us. Whether these proposals will be enacted by the government and in what form is unknown, as are the ultimate consequences of the proposed legislation.

In addition, legislation was recently enacted that significantly changes the rules for U.S. federal income tax audits of partnerships. Such audits will continue to be conducted at the partnership level, but with respect to tax returns for taxable years beginning after December 31, 2017, and unless a partnership qualifies for and affirmatively elects an alternative procedure, any adjustments to the amount of tax due (including interest and penalties) will be payable by the partnership. Under the elective alternative procedure, a partnership would issue information returns to persons who were partners in the audited year, who would then be required to take the adjustments into account in calculating their own tax liability, and the partnership would not be liable for the adjustments. If a partnership elects the alternative procedure for a given adjustment, the amount of taxes for which its partners would be liable would be increased by any applicable penalties and a special interest charge. There can be no assurance that we will be eligible to make such an election or that we will, in fact, make such an election for any given adjustment. If we do not or are not able to make such an election, then (a) our then-current common unitholders, in the aggregate, could indirectly bear income tax liabilities in excess of the aggregate amount of taxes that would have been due had we elected the alternative procedure, and (b) a given common unitholder may indirectly bear taxes attributable to income allocable to other common unitholders or former common unitholders, including taxes (as well as interest and penalties) with respect to periods prior to such holder’s ownership of common units. Amounts available for distribution to our common unitholders may be reduced as a result of our obligation to pay any taxes associated with an adjustment. Many issues with respect to, and the overall effect of, this new legislation on us are uncertain, and common unitholders should consult their own tax advisors regarding all aspects of this legislation as it affects their particular circumstances.

Economic Income

Fee Related Earnings

Blackstone uses Fee Related Earnings (“FRE”), which is derived from EI, as a measure to highlight earnings from operations excluding: (a) the income related to performance fees and related carry plan costs and (b) income earned from Blackstone’s investments in the Blackstone Funds. Management uses FRE as a measure to assess whether recurring revenue from our businesses is sufficient to adequately cover all of our operating expenses and generate profits. FRE equals contractual fee revenues, 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) and (b) non-interest operating expenses. See “— Liquidity and Capital Resources — Sources of Liquidity” below for our discussion of FRE.

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 measure not prepared under GAAP (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 and reconciled to, but not equivalent to, its most directly comparable GAAP measure of Income (Loss) Before Provision for Taxes. See “— Liquidity and Capital Resources — Sources of Liquidity” below for our discussion of Distributable Earnings.

Distributable Earnings, which is a component of Economic Net Income, is the sum across all segments of: (a) Total Management and Advisory Fees, (b) Interest and Dividend Revenue, (c) Other Revenue, (d) Realized Performance Fees, and (e) Realized Investment Income (Loss); less (a) Compensation, excluding the expense of equity-based awards, (b) Realized Performance Fee Compensation, (c) Other Operating Expenses, and (d) Taxes and Related Payables Under the Tax Receivable Agreement.

Adjusted Earnings Before Interest, Taxes and Depreciation and Amortization

Adjusted Earnings Before Interest, Taxes and Depreciation and Amortization (“Adjusted EBITDA”), is a supplemental non-GAAP measure derived from our segment reported results and may be used to assess our ability to service our borrowings. Adjusted EBITDA represents Distributable Earnings plus the addition of (a) Interest Expense, (b) Taxes and Related Payables Including Payable Under Tax Receivable Agreement, and (c) Depreciation and Amortization. See “— Liquidity and Capital Resources — Sources of Liquidity” below for our calculation of Adjusted EBITDA.

Summary Walkdown of GAAP to Non-GAAP Financial Metrics

The relationship of our GAAP to non-GAAP financial measures is presented in the summary walkdown below. The summary walkdown shows how each non-GAAP financial measure is related to the other non-GAAP financial measures. This presentation is not meant to be a detailed calculation of each measure, but to show the relationship between the measures. For the calculation of each of these non-GAAP financial measures and a full reconciliation of Income Before Provision for Taxes to Distributable Earnings, please see “— Liquidity and Capital Resources — Sources of Liquidity.”

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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 equals the sum of:

(a)

(b)

the net asset value of our funds of hedge funds, hedge funds and certain registered investment companies,

(c)

the invested capital or fair value of assets we manage pursuant to separately managed accounts,

(d)

the amount of debt and equity outstanding for our CLOs and CDOs during the reinvestment period,

(e)

the aggregate par amount of collateral assets, including principal cash, for our CLOs and CDOs after the reinvestment period,

(f)

the gross amount of assets (including leverage) for certain of our credit-focused registered investment companies, and

(g)

the fair value of common stock, preferred stock, convertible debt, or similar instruments issued by our public REIT.

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

(a)

(b)

for our credit-focused carry funds, the amount of remaining invested capital (which may include leverage) or net asset value, depending on the fee terms of the fund,

(c)

the remaining invested capital of co-investments managed by us on which we receive fees,

(d)

the net asset value of our funds of hedge funds, hedge funds and certain registered investment companies,

(e)

the invested capital, fair value of assets or the net asset value we manage pursuant to separately managed accounts,

(f)

the net proceeds received from equity offerings and accumulated core earnings of our REITs, subject to certain adjustments,

(g)

the aggregate par amount of collateral assets, including principal cash, of our CLOs, CDOs and certain credit-focused separately managed accounts, and

(h)

the gross amount of assets (including leverage) or the net assets (plus leverage where applicable) for certain of our credit-focused registered investment companies.

presented by other asset managers. In addition, our calculation of assets under management includes commitments to, and the fair value of, invested capital in our funds from Blackstone and our personnel, regardless of whether such commitments or invested capital are subject to fees. Our definitions of assets under management and fee-earning assets under management are not based on any definition of assets under management or fee-earning assets under management that is set forth in the agreements governing the investment funds that we manage.

Limited Partner Capital Invested. Limited Partner Capital Invested represents the amount of Limited Partner capital commitments which were invested by our carry and drawdown 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 or Incentive Fee.

The amount of committed undrawn capital available for investment, including general partner and employee commitments, is known as dry powder and is an indicator of the capital we have available for future investments.

Consolidated Results of Operations

Following is a discussion of our consolidated results of operations for the three and six months ended June 30, 2016 and 2015. 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 tables set forth information regarding our consolidated results of operations and certain key operating metrics for the three and six months ended June 30, 2016 and 2015:


	Three Months Ended June 30,						2016 vs. 2015						Six Months Ended June 30,						2016 vs. 2015
	2016			2015			$			%			2016			2015			$			%
	(Dollars in Thousands)
Revenues
Management and Advisory Fees, Net	$	607,823		$	574,132		$	33,691			6	%	$	1,216,729		$	1,190,900		$	25,829			2	%

Performance Fees
Realized
Carried Interest		323,734			937,483			(613,749	)		-65	%		554,643			2,145,077			(1,590,434	)		-74	%
Incentive Fees		29,441			47,682			(18,241	)		-38	%		57,860			77,320			(19,460	)		-25	%
Unrealized
Carried Interest		88,292			(441,930	)		530,222			N/M			135,878			(68,090	)		203,968			N/M
Incentive Fees		7,776			25,070			(17,294	)		-69	%		15,355			87,106			(71,751	)		-82	%

Total Performance Fees		449,243			568,305			(119,062	)		-21	%		763,736			2,241,413			(1,477,677	)		-66	%

Investment Income (Loss)
Realized		65,037			157,823			(92,786	)		-59	%		53,036			345,753			(292,717	)		-85	%
Unrealized		40,102			(100,999	)		141,101			N/M			43,595			(82,726	)		126,321			N/M

Total Investment Income		105,139			56,824			48,315			85	%		96,631			263,027			(166,396	)		-63	%

Interest and Dividend Revenue		22,286			21,965			321			1	%		45,361			43,885			1,476			3	%
Other		7,935			3,976			3,959			100	%		2,323			(1,665	)		3,988			N/M

Total Revenues		1,192,426			1,225,202			(32,776	)		-3	%		2,124,780			3,737,560			(1,612,780	)		-43	%

Expenses
Compensation and Benefits
Compensation		355,424			473,019			(117,595	)		-25	%		701,427			1,032,578			(331,151	)		-32	%
Performance Fee Compensation
Realized
Carried Interest		87,580			238,033			(150,453	)		-63	%		146,084			530,281			(384,197	)		-72	%
Incentive Fees		15,250			21,837			(6,587	)		-30	%		29,374			34,064			(4,690	)		-14	%
Unrealized
Carried Interest		75,202			(50,559	)		125,761			N/M			105,203			23,821			81,382			342	%
Incentive Fees		2,689			6,130			(3,441	)		-56	%		6,137			31,091			(24,954	)		-80	%

Total Compensation and Benefits		536,145			688,460			(152,315	)		-22	%		988,225			1,651,835			(663,610	)		-40	%
General, Administrative and Other		130,988			146,859			(15,871	)		-11	%		254,033			277,832			(23,799	)		-9	%
Interest Expense		36,878			37,414			(536	)		-1	%		74,234			68,784			5,450			8	%
Fund Expenses		8,592			41,699			(33,107	)		-79	%		13,821			58,549			(44,728	)		-76	%

Total Expenses		712,603			914,432			(201,829	)		-22	%		1,330,313			2,057,000			(726,687	)		-35	%

Other Income
Net Gains from Fund Investment Activities		30,703			82,015			(51,312	)		-63	%		49,845			175,570			(125,725	)		-72	%

Income Before Provision for Taxes		510,526			392,785			117,741			30	%		844,312			1,856,130			(1,011,818	)		-55	%
Provision for Taxes		47,415			43,251			4,164			10	%		56,561			142,595			(86,034	)		-60	%

Net Income		463,111			349,534			113,577			32	%		787,751			1,713,535			(925,784	)		-54	%
Net Income (Loss) Attributable to Redeemable Non-Controlling Interests in Consolidated Entities		(2,049	)		13,780			(15,829	)		N/M			(8,450	)		21,307			(29,757	)		N/M
Net Income Attributable to Non-Controlling Interests in Consolidated Entities		64,729			66,716			(1,987	)		-3	%		104,815			148,512			(43,697	)		-29	%
Net Income Attributable to Non-Controlling Interests in Blackstone Holdings		201,805			134,870			66,935			50	%		333,007			780,100			(447,093	)		-57	%

Net Income Attributable to The Blackstone Group L.P.	$	198,626		$	134,168		$	64,458			48	%	$	358,379		$	763,616		$	(405,237	)		-53	%

N/M Not

meaningful.

Three Months Ended June 30, 2016 Compared to Three Months Ended June 30, 2015

Revenues

Total Revenues were $1.2 billion for the three months ended June 30, 2016, a decrease of $32.8 million compared to Total Revenues for the three months ended June 30, 2015. The decrease in revenues was primarily attributable to a decrease of $119.1 million in Performance Fees, partially offset by increases of $48.3 million and $33.7 million in Investment Income and Management and Advisory Fees, Net.

The decrease in Performance Fees was primarily attributable to decreases in our Private Equity and Hedge Fund Solutions segments. The decrease in our Private Equity segment was a result of slightly lower appreciation compared to the second quarter of 2015 despite positive net appreciation in the segment. The decrease in Performance Fees in our Hedge Fund Solutions segment was primarily due to lower appreciation than in the comparable 2015 quarter.

The increase in Investment Income was primarily due to increases in our Real Estate and Credit segments. The increase in our Real Estate segment was primarily due to the net increase in appreciation from our opportunistic funds. The increase in our Credit segment was due to greater returns on Blackstone’s investments in the GSO funds.

The increase in Management and Advisory Fees, Net was primarily due to increases in our Real Estate and Private Equity segments, partially offset by a decrease as a result of the spin-off of the operations of our historical Financial Advisory segment. The increase in our Real Estate segment was primarily due to the launch of BREP VIII which began earning management fees in the third quarter of 2015. The increase in our Private Equity segment was due to one-time items related to fundraising fees and legal reserves that were incurred or accrued in the second quarter of 2015 and a higher level of fee earning assets from funds across the segment.

Expenses

Expenses were $712.6 million for the three months ended June 30, 2016, a decrease of $201.8 million compared to $914.4 million for the three months ended June 30, 2015. The decrease was primarily attributable to a decrease of $152.3 million in Total Compensation and Benefits. This decrease was largely due to a decrease in Compensation of $117.6 million due to lower equity-based compensation expense related to awards granted in connection with Blackstone’s IPO, which were fully vested and expensed as of June 30, 2015. In addition, Total Compensation decreased as a result of a decrease in Performance Fee Compensation of $34.7 million due to the decrease in Performance Fee Revenue.

Six Months Ended June 30, 2016 Compared to Six Months Ended June 30, 2015

Revenues

Total Revenues were $2.1 billion for the six months ended June 30, 2016, a decrease of $1.6 billion compared to Total Revenues for the six months ended June 30, 2015 of $3.7 billion. The decrease in Total Revenues was primarily attributable to decreases of $1.5 billion in Performance Fees and $166.4 million in Investment Income.

The decrease in Performance Fees was principally due to decreases in our Private Equity and Real Estate segments. The decrease in our Private Equity segment was driven by slightly lower appreciation than the comparable 2015 period. The decrease in our Real Estate segment was primarily attributable to the net decrease in the appreciation from our opportunistic funds. For the six months ended June 30, 2016, the carrying value of investments for our opportunistic and core+ funds increased 3.8% and 6.5%, respectively. Our real estate debt drawdown and hedge funds appreciated 5.3% and depreciated 3.6%, respectively.

The decrease in Investment Income was primarily attributable to decreases in our Private Equity and Real Estate segments. The decrease in our Private Equity segment was principally driven by strong performance of our portfolio in the 2015 period, which outpaced the performance in the comparable 2016 period. The decrease in our Real Estate segment was primarily attributable to the net decrease in the appreciation from our opportunistic funds.

Expenses

Expenses were $1.3 billion for the six months ended June 30, 2016, a decrease of $726.7 million compared to $2.1 billion for the six months ended June 30, 2015. The decrease was primarily attributable to a decrease in Total Compensation and Benefits of $663.6 million. This decrease was primarily due to a decrease in Compensation of $331.1 million due to lower equity-based compensation expense related to awards granted in connection with Blackstone’s IPO, which were fully vested and expensed as of June 30, 2015 as well as a decrease in Performance Fee Compensation of $332.5 million due to the decrease in Performance Fee Revenue.

Other Income (Loss)

Other Income (Loss) — Net Gains (Losses) from Fund Investment Activities is attributable to the consolidated Blackstone Funds that are largely held by third party investors. As such, most of this Other Income (Loss) is eliminated from the results attributable to The Blackstone Group L.P. through the redeemable non-controlling interests and non-controlling interests items in the Condensed Consolidated Statements of Operations.

Three Months Ended June 30, 2016 Compared to Three Months Ended June 30, 2015

Other Income — Net Gains from Fund Investment Activities was $30.7 million for the three months ended June 30, 2016, a decrease of $51.3 million compared to $82.0 million for the three months ended June 30, 2015. The decrease was principally driven by decreases in our Hedge Fund Solutions, Real Estate, and Credit segments of $19.9 million, $16.8 million, and $8.9 million, respectively. The decrease in our Hedge Fund Solutions segment was primarily the result of a decrease in investment performance. The decrease in our Real Estate segment was primarily the result of a year over year net decrease in the appreciation of investments in our opportunistic funds. The decrease in our Credit segment was primarily the result of a year over year decrease in the appreciation of investments held across CLOs.

Six Months Ended June 30, 2016 Compared to Six Months Ended June 30, 2015

Other Income — Net Gains from Fund Investment Activities was $49.8 million for the six months ended June 30, 2016, a decrease of $125.7 million compared to $175.6 million for the six months ended June 30, 2015. The decrease was principally driven by decreases in our Real Estate, Hedge Fund Solutions, Private Equity, and Credit segments of $68.9 million, $32.8 million, $15.9 million, and $8.1 million, respectively. The decrease in our Real Estate segment was primarily the result of a year over year net decrease in the appreciation of investments across our opportunistic funds and real estate debt hedge funds. The decrease in our Hedge Fund Solutions segment was primarily the result of a decrease in investment performance. The decrease in our Private Equity segment was primarily due to the lower unrealized gains compared to the same period in 2015. The decrease in our Credit segment was primarily the result of a year over year decrease in the appreciation of investments held across CLOs.

Provision for Taxes

Blackstone’s Provision for Taxes for the three months ended June 30, 2016 and 2015 was $47.4 million and $43.3 million, respectively. This resulted in an effective tax rate of 9.3% and 11.0%, respectively, based on our Income (Loss) Before Provision for Taxes of $510.5 million and $392.8 million, respectively. The 1.7% decrease in the effective tax rate for the three months ended June 30, 2016 compared to the three months ended June 30, 2015 resulted primarily from pre-tax income of $345.8 million and $247.6 million for three months ended June 30, 2016 and three months ended June 30, 2015, respectively, that was passed through to common unitholders and non-controlling interest holders and was not taxable to the Partnership and its subsidiaries. The change in these amounts resulted in a 1.6% decrease in the effective tax rate between the respective three month periods.

Blackstone’s Provision for Taxes for the six months ended June 30, 2016 and 2015 was $56.6 million and $142.6 million, respectively. This resulted in an effective tax rate of 6.7% and 7.7%, respectively, based on our Income Before Provision for Taxes of $844.3 million and $1.9 billion, respectively. The 1.0% decrease in the

effective tax rate for the six months ended June 30, 2016 compared to the six months ended June 30, 2015 resulted primarily from the tax deductible equity-based compensation expense exceeding the book equity-based compensation expense in the six months ended June 30, 2016, while in the six months ended June 30, 2015, the book equity-based compensation expense exceeded the tax deductible equity-based compensation expense. Due to the change in the difference between the book equity-based compensation expense and the tax deductible equity-based compensation expense between the six months ended June 30, 2016 and 2015, the effective tax rates decreased by 0.4% and increased by 0.1%, respectively. The change in these amounts resulted in a 0.5% decrease in the effective tax rates between the respective six month periods.

Non-Controlling Interests in Consolidated Entities

The Net Income (Loss) Attributable to Redeemable Non-Controlling Interests in Consolidated Entities and Net Income Attributable to Non-Controlling Interests in Consolidated Entities is attributable to the consolidated Blackstone Funds. The amounts of these items vary directly with the performance of the consolidated Blackstone Funds and largely eliminate the amount of Other Income — Net Gains from Fund Investment Activities from the Net Income Attributable to The Blackstone Group L.P.

Net Income Attributable to Non-Controlling Interests in Blackstone Holdings is derived from the Income Before Provision for Taxes, excluding the Net Gains from Fund Investment Activities and the Reversal of Tax Receivable Agreement Liability, and the percentage allocation of the income between Blackstone Holdings and The Blackstone Group L.P. after considering any contractual arrangements that govern the allocation of income (loss) such as fees allocable to The Blackstone Group L.P.

For the three months ended June 30, 2016 and 2015, the net income before taxes allocated to Blackstone Holdings was 46.2% and 47.2%, respectively. For the six months ended June 30, 2016 and 2015, the net income before taxes allocated to Blackstone Holdings was 46.3% and 47.1%, respectively. The decreases of 1.0% and 0.8%, respectively, were primarily due to conversions of Blackstone Holdings Partnership Units to Blackstone common units and the vesting of common units.

Operating Metrics

The following graph summarizes the Fee-Earning Assets Under Management by Segment and Total Assets Under Management by Segment, followed by a rollforward of activity for the three and six months ended June 30, 2016 and 2015. 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”:

LOGO

Note: Totals in graph may not add due to rounding.


	Three Months Ended
	June 30, 2016															June 30, 2015
	Private Equity			Real Estate			Hedge Fund Solutions			Credit			Total			Private Equity			Real Estate			Hedge Fund Solutions			Credit			Total
	(Dollars in Thousands)
Fee-Earning Assets Under Management
Balance, Beginning of Period	$	50,228,312		$	67,298,439		$	64,831,253		$	62,094,760		$	244,452,764		$	49,342,211		$	50,783,247		$	64,114,498		$	59,271,744		$	223,511,700
Inflows, including Commitments (a)		23,687,084			884,437			2,030,339			3,992,515			30,594,375			1,664,454			17,965,450			2,401,010			4,643,292			26,674,206
Outflows, including Distributions (b)		(2,297,473	)		(106,615	)		(2,972,209	)		(1,055,773	)		(6,432,070	)		(105,798	)		(4,095,483	)		(1,740,930	)		(1,814,978	)		(7,757,189	)
Realizations (c)		(2,120,014	)		(1,385,873	)		(31,042	)		(1,582,475	)		(5,119,404	)		(1,516,664	)		(2,359,597	)		(91,871	)		(1,214,190	)		(5,182,322	)

Net Inflows (Outflows)		19,269,597			(608,051	)		(972,912	)		1,354,267			19,042,901			41,992			11,510,370			568,209			1,614,124			13,734,695
Market Appreciation (Depreciation) (d)(f)		(30,735	)		54,162			1,115,658			1,371,963			2,511,048			152,986			390,240			829,463			723,130			2,095,819

Balance, End of Period (e)	$	69,467,174		$	66,744,550		$	64,973,999		$	64,820,990		$	266,006,713		$	49,537,189		$	62,683,857		$	65,512,170		$	61,608,998		$	239,342,214

Increase (Decrease)	$	19,238,862		$	(553,889	)	$	142,746		$	2,726,230		$	21,553,949		$	194,978		$	11,900,610		$	1,397,672		$	2,337,254		$	15,830,514
Increase (Decrease)		38	%		-1	%		0	%		4	%		9	%		0	%		23	%		2	%		4	%		7	%


	Six Months Ended
	June 30, 2016															June 30, 2015
	Private Equity			Real Estate			Hedge Fund Solutions			Credit			Total			Private Equity			Real Estate			Hedge Fund Solutions			Credit			Total
	(Dollars in Thousands)
Fee-Earning Assets Under Management
Balance, Beginning of Period	$	51,451,196		$	67,345,357		$	65,665,439		$	61,684,380		$	246,146,372		$	43,890,167		$	52,563,068		$	61,417,558		$	58,821,006		$	216,691,799
Inflows, including Commitments (a)		24,245,427			2,476,337			4,881,848			6,323,830			37,927,442			9,311,196			19,409,865			5,471,659			8,617,375			42,810,095
Outflows, including Distributions (b)		(2,667,983	)		(143,515	)		(4,575,005	)		(2,162,818	)		(9,549,321	)		(1,091,177	)		(4,128,141	)		(3,007,425	)		(3,598,169	)		(11,824,912	)
Realizations (c)		(3,407,874	)		(3,505,581	)		(176,954	)		(2,305,924	)		(9,396,333	)		(2,763,382	)		(4,853,901	)		(113,213	)		(2,228,641	)		(9,959,137	)

Net Inflows (Outflows)		18,169,570			(1,172,759	)		129,889			1,855,088			18,981,788			5,456,637			10,427,823			2,351,021			2,790,565			21,026,046
Market Appreciation (Depreciation) (d)(g)		(153,592	)		571,952			(821,329	)		1,281,522			878,553			190,385			(307,034	)		1,743,591			(2,573	)		1,624,369

Balance, End of Period (e)	$	69,467,174		$	66,744,550		$	64,973,999		$	64,820,990		$	266,006,713		$	49,537,189		$	62,683,857		$	65,512,170		$	61,608,998		$	239,342,214

Increase (Decrease)	$	18,015,978		$	(600,807	)	$	(691,440	)	$	3,136,610		$	19,860,341		$	5,647,022		$	10,120,789		$	4,094,612		$	2,787,992		$	22,650,415
Increase (Decrease)		35	%		-1	%		-1	%		5	%		8	%		13	%		19	%		7	%		5	%		10	%


	Three Months Ended
	June 30, 2016															June 30, 2015
	Private Equity			Real Estate			Hedge Fund Solutions			Credit			Total			Private Equity			Real Estate			Hedge Fund Solutions			Credit			Total
	(Dollars in Thousands)
Total Assets Under Management
Balance, Beginning of Period	$	95,466,227		$	101,107,528		$	68,475,416		$	78,656,291		$	343,705,462		$	76,327,189		$	92,785,658		$	66,378,908		$	74,959,534		$	310,451,289
Inflows, including Commitments (a)		7,358,301			4,442,603			2,025,453			7,334,364			21,160,721			18,131,316			2,226,631			2,479,463			8,499,108			31,336,518
Outflows, including Distributions (b)		(587,162	)		(146,518	)		(2,996,736	)		(1,502,658	)		(5,233,074	)		(117,622	)		(94,248	)		(1,790,668	)		(2,044,754	)		(4,047,292	)
Realizations (c)		(3,813,986	)		(3,485,523	)		(32,330	)		(1,765,559	)		(9,097,398	)		(4,035,864	)		(4,817,131	)		(100,458	)		(1,587,579	)		(10,541,032	)

Net Inflows (Outflows)		2,957,153			810,562			(1,003,613	)		4,066,147			6,830,249			13,977,830			(2,684,748	)		588,337			4,866,775			16,748,194
Market Appreciation (d)(h)		1,262,275			1,278,970			1,178,075			2,026,638			5,745,958			1,721,318			1,477,724			862,621			1,462,400			5,524,063

Balance, End of Period (e)	$	99,685,655		$	103,197,060		$	68,649,878		$	84,749,076		$	356,281,669		$	92,026,337		$	91,578,634		$	67,829,866		$	81,288,709		$	332,723,546

Increase (Decrease)	$	4,219,428		$	2,089,532		$	174,462		$	6,092,785		$	12,576,207		$	15,699,148		$	(1,207,024	)	$	1,450,958		$	6,329,175		$	22,272,257
Increase (Decrease)		4	%		2	%		0	%		8	%		4	%		21	%		-1	%		2	%		8	%		7	%


	Six Months Ended
	June 30, 2016															June 30, 2015
	Private Equity			Real Estate			Hedge Fund Solutions			Credit			Total			Private Equity			Real Estate			Hedge Fund Solutions			Credit			Total
	(Dollars in Thousands)
Total Assets Under Management
Balance, Beginning of Period	$	94,280,074		$	93,917,824		$	69,105,425		$	79,081,252		$	336,384,575		$	73,073,252		$	80,863,187		$	63,585,671		$	72,858,960		$	290,381,070
Inflows, including Commitments (a)		10,346,951			13,499,823			5,206,071			9,197,967			38,250,812			21,001,810			20,587,763			5,562,699			14,673,718			61,825,990
Outflows, including Distributions (b)		(848,003	)		(414,197	)		(4,628,255	)		(2,887,797	)		(8,778,252	)		(142,979	)		(262,551	)		(3,065,415	)		(4,129,705	)		(7,600,650	)
Realizations (c)		(5,933,358	)		(6,936,229	)		(183,098	)		(2,650,455	)		(15,703,140	)		(7,349,682	)		(13,972,030	)		(126,266	)		(2,832,412	)		(24,280,390	)

Net Inflows		3,565,590			6,149,397			394,718			3,659,715			13,769,420			13,509,149			6,353,182			2,371,018			7,711,601			29,944,950
Market Appreciation (Depreciation) (d)(i)		1,839,991			3,129,839			(850,265	)		2,008,109			6,127,674			5,443,936			4,362,265			1,873,177			718,148			12,397,526

Balance, End of Period (e)	$	99,685,655		$	103,197,060		$	68,649,878		$	84,749,076		$	356,281,669		$	92,026,337		$	91,578,634		$	67,829,866		$	81,288,709		$	332,723,546

Increase (Decrease)	$	5,405,581		$	9,279,236		$	(455,547	)	$	5,667,824		$	19,897,094		$	18,953,085		$	10,715,447		$	4,244,195		$	8,429,749		$	42,342,476
Increase (Decrease)		6	%		10	%		-1	%		7	%		6	%		26	%		13	%		7	%		12	%		15	%

(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 and decreases in available capital for our carry funds (expired capital, expense drawdowns and decreased side-by-side commitments).

(c)	Realizations represent realizations from the disposition of assets, capital returned to investors from CLOs and the effect of changes in the definition of Total Assets Under Management.

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

(e)	Fee-Earning Assets Under Management and Total Assets Under Management as of June 30, 2016 included $95.7 million and $134.0 million, respectively, from a joint venture in which we are the minority interest holder.

(f)

For the three months ended June 30, 2016, the impact to Fee-Earning Assets Under Management due to foreign exchange rate fluctuations was $(0.7) million, $(188.3) million, $(171.7) million and $(360.7) million for the Private Equity, Real Estate, Credit and Total segments, respectively. For the three months ended June 30, 2015, such impact was $(3.5) million, $396.1 million, $333.8 million and $726.4 million for the Private Equity, Real Estate, Credit and Total segments, respectively.

(g)

For the six months ended June 30, 2016, the impact to Fee-Earning Assets Under Management due to foreign exchange rate fluctuations was $1.0 million, $20.4 million, $203.3 million and $224.7 million for the Private Equity, Real Estate, Credit and Total segments, respectively. For the six months ended June 30, 2015, such impact was $(6.4) million, $(376.7) million, $(797.2) million and $(1.2) billion for the Private Equity, Real Estate, Credit and Total segments, respectively.

(h)

For the three months ended June 30, 2016, the impact to Total Assets Under Management due to foreign exchange rate fluctuations was $(144.7) million, $(571.7) million, $(305.5) million and $(1.0) billion for the Private Equity, Real Estate, Credit and Total segments, respectively. For the three months ended June 30, 2015, such impact was $160.0 million, $926.1 million, $429.3 million and $1.5 billion for the Private Equity, Real Estate, Credit and Total segments, respectively.

(i)

For the six months ended June 30, 2016, the impact to Total Assets Under Management due to foreign exchange rate fluctuations was $10.9 million, $(42.2) million, $252.7 million and $221.4 million for the Private Equity, Real Estate, Credit and Total segments, respectively. For the six months ended June 30, 2015, such impact was $(108.5) million, $(835.2) million, $(827.3) million and $(1.8) billion for the Private Equity, Real Estate, Credit and Total segments, respectively.

Fee-Earning Assets Under Management

Fee-Earning Assets Under Management were $266.0 billion at June 30, 2016, an increase of $21.6 billion, or 9%, compared to $244.5 billion at March 31, 2016. The net increase was due to:

•

Inflows of $30.6 billion related to:

•

$23.7 billion in our Private Equity segment primarily related to the commencement of investment periods of BCP VII and SP VII, which generated inflows of $17.5 billion and $5.3 billion, (Total Assets Under Management amounts for these funds was added at each closing of each fund), respectively,

•

$4.0 billion in our Credit segment principally related to $1.3 billion raised due to two CLO products, $817.0 million of fee-earning inflows across our hedge fund strategies funds, $728.5 million raised in our business development companies (“BDCs”) and $571.5 million of inflows across or Long Only platform,

•

$2.0 billion in our Hedge Fund Solutions segment primarily related to $1.1 billion raised for individual investor solutions, $663.9 million raised for commingled products and $266.4 million raised for customized solutions, and

•

$884.4 million in our Real Estate segment primarily related to $614.3 million invested across BREDS and $168.1 million invested in BPP.

•

Net market appreciation of $2.5 billion due to:

•

$1.4 billion appreciation in our Credit segment due to $918.9 million in our BDCs and $376.3 million in our hedge fund strategies, and

•

$1.1 billion appreciation in our Hedge Fund Solutions segment due to solid returns from BAAM’s Principal Solutions Composite of 1.4% gross (1.2% net).

Offsetting these increases were:

•

Outflows of $6.4 billion primarily attributable to:

•

$3.0 billion in our Hedge Fund Solutions segment, reflecting investors’ liquidity needs and certain strategic shifts in their programs, with outflows of $1.5 billion from individual investor and specialized solutions, $993.6 million from commingled products and $508.1 million from customized solutions,

•

$2.3 billion in our Private Equity segment due to the end of the investment periods of BCP VI and SP VI, resulting in outflows of $1.8 billion and $453.1 million, respectively, and

•

$1.1 billion in our Credit segment primarily related to $444.3 million in BDCs, $395.1 million in hedge fund strategies and $216.4 million from our Long Only platform.

•

Realizations of $5.1 billion primarily driven by:

•

$2.1 billion in our Private Equity segment primarily from $1.6 billion of realizations from BCP V public dispositions, including Freescale, Performance Foods Group and Catalent, and $289.9 million of realizations in Strategic Partners,

•

$1.6 billion in our Credit segment primarily due to $680.7 million capital returned to investors in CLO products, $332.0 million in mezzanine strategies, $232.2 million in dividends from BDCs and $209.4 million in rescue lending funds, and

•

$1.4 billion in our Real Estate segment primarily from the realizations of $658.9 million in BREP global funds, $480.0 million in BREDS and $210.6 million in BREP co-investment.

BAAM had net inflows of $846.9 million from July 1 through August 1, 2016.

Fee-Earning Assets Under Management were $266.0 billion at June 30, 2016, an increase of $19.9 billion, or 8%, compared to $246.1 billion at December 31, 2015. The net increase was due to:

•

Inflows of $37.9 billion related to:

•

$24.2 billion in our Private Equity segment primarily related to the commencement of investment periods of BCP VII and SP VII, which generated inflows of $17.5 billion and $5.3 billion, respectively, (Total Assets Under Management amounts for these funds was added at each closing of each fund),

•

$6.3 billion in our Credit segment principally related to $1.8 billion raised due to new CLO launches, $1.2 billion of capital raised for our BDCs, $1.1 billion raised in our hedge fund strategies funds and $1.1 billion raised from our Long Only platform,

•

$4.9 billion in our Hedge Fund Solutions segment mainly related to growth in individual investor and specialized solutions of $2.6 billion, customized products of $1.2 billion and commingled products of $1.0 billion, and

•

$2.5 billion in our Real Estate segment primarily related to $1.2 billion invested across BREDS, $741.9 million raised for BREP co-investment and $169.6 million invested in BPP.

Offsetting these increases were:

•

Outflows of $9.5 billion primarily attributable to:

•

$4.6 billion in our Hedge Fund Solutions segment, reflecting investors’ liquidity needs and certain strategic shifts in their programs, with outflows of $2.8 billion from individual investor and specialized solutions, $1.0 billion from commingled products and $1.0 billion from customized solutions,

•

$2.7 billion in our Private Equity segment due to the end of the investment periods of BCP VI and SP VI, resulting in outflows of $1.8 billion and $453.1 million, respectively, and

•

$2.2 billion in our Credit segment primarily attributable to $708.7 million from our Long Only platform, $921.6 million from BDCs and $532.6 million from hedge fund strategies.

•

Realizations of $9.4 billion primarily driven by:

•

$3.5 billion in our Real Estate segment primarily attributable to $1.5 billion of realizations across BREP global and European funds, $1.0 billion of realizations from BREDS and $879.7 million of realizations from BREP co-investment,

•

$3.4 billion in our Private Equity segment primarily due to $2.5 billion of realizations from BCP V and $504.1 million from Strategic Partners, and

•

$2.3 billion in our Credit segment primarily due to $966.0 million of capital returned to CLO investors from CLOs that are post their re-investment periods, $672.8 million to investors in drawdown funds and $457.9 million in dividends from BDCs.

Total Assets Under Management

Total Assets Under Management were $356.3 billion at June 30, 2016, an increase of $12.6 billion, or 4%, compared to $343.7 billion at March 31, 2016. The net increase was due to:

•

Inflows of $21.2 billion related to:

•

$7.4 billion in our Private Equity segment primarily due to $4.3 billion from Strategic Partners, $2.5 billion from core private equity and $452.1 million from our Tactical Opportunities platform,

•

$7.3 billion in our Credit segment primarily due to $3.5 billion raised for our mezzanine strategies, $1.3 billion for our hedge fund strategies, $1.2 billion related to two CLO Launches, $728.5 million raised for our BDCs and $559.5 million related to our Long Only platform,

•

$4.4 billion in our Real Estate segment primarily related to $1.4 billion raised for our fifth European opportunistic fund, $1.2 billion raised for the third mezzanine debt fund and $1.0 billion raised for U.S. core+ funds, and

•

$2.0 billion in our Hedge Fund Solutions segment, primarily related to the reasons noted above in Fee-Earning Assets Under Management.

•

Net market appreciation of $5.7 billion due to:

•

$2.0 billion appreciation in our Credit segment due to $918.9 million from BDCs, $621.1 million in drawdown funds and $430.3 million from hedge fund strategies,

•

$1.3 billion appreciation in our Real Estate segment due to carrying value increases in our opportunistic and core+ funds of 2.2% and 2.1%, respectively,

•

$1.3 billion appreciation in our Private Equity segment primarily due to $427.6 million across the corporate private equity funds and co-investment, and

•

$1.2 billion appreciation in our Hedge Fund Solutions segment due to solid returns from BAAM’s Principal Solutions Composite of 1.4% gross (1.2% net).

Offsetting these increases were:

•

Realizations of $9.1 billion primarily driven by:

•

$3.8 billion in our Private Equity segment primarily due to $1.5 billion of realizations in BCP V and $428.1 million of realizations in Strategic Partners,

•

$3.5 billion in our Real Estate segment primarily due to $2.3 billion of realizations across BREP global and European funds, $434.4 million in BREDS and $363.7 million in BREP co-investment, and

•

$1.8 billion in our Credit segment primarily due to the same reasons in Fee-Earning Assets Under Management above.

•

Outflows of $5.2 billion primarily attributable to:

•

$3.0 billion in our Hedge Fund Solutions segment primarily due to reasons noted above in Fee-Earning Assets Under Management, and

•

$1.5 billion in our Credit segment primarily due to outflows of $676.4 million from our BDCs, $440.0 million from hedge fund strategies and $423.3 million from our Long Only separately managed accounts.

Total Assets Under Management were $356.3 billion at June 30, 2016, an increase of $19.9 billion, or 6%, compared to $336.4 billion at December 31, 2015. The net increase was due to:

•

Inflows of $38.3 billion related to:

•

$13.5 billion in our Real Estate segment related to $6.6 billion raised for our fifth European opportunistic fund, $2.9 billion raised in our third mezzanine debt fund, $1.6 billion raised in U.S. core+ funds and $739.8 million in BREP co-investment; note that Fee-Earning Assets Under Management does not include amounts raised for our fifth European opportunistic fund, since its investment period has not yet commenced or amounts in our debt fund and core+ funds since this capital has not yet been invested,

•

$10.3 billion in our Private Equity segment primarily related to $5.9 billion raised for Strategic Partners, $3.2 billion raised for core private equity and $898.6 million raised for BCP VII,

•

$9.2 billion in our Credit segment primarily due to $3.6 billion raised from mezzanine strategies, $1.8 billion raised from CLO launches, $1.5 billion raised in our hedge fund strategies, $1.2 billion raised for BDCs and $1.0 billion raised in our Long Only business, and

•

$5.2 billion in our Hedge Fund Solutions segment primarily due to the reasons described under Fee-Earning Assets Under Management above.

•

Market appreciation of $6.1 billion due to:

•

$3.1 billion appreciation in our Real Estate segment due to a carrying value increase in our opportunistic and core+ funds of 3.8% and 6.5%, respectively,

•

$2.0 billion appreciation in our Credit segment, due to $1.1 billion in BDCs, $468.0 million in drawdown funds and $297.8 million from our Long Only platform, and

•

$1.8 billion appreciation in our Private Equity segment primarily due to strong fund performance, with a 3.4% overall increase in carrying value, including 7.0% in BCP V, and

•

Slightly offset by $850.3 million depreciation in our Hedge Fund Solutions segment due to BAAM’s Principal Solutions Composite down 1.6% gross (down 2.0% net).

Offsetting these increases were:

•

Realizations of $15.7 billion primarily driven by:

•

$6.9 billion in our Real Estate segment primarily due to realizations of $4.6 billion across BREP global and European funds, $1.4 billion within BREP co-investment and $762.4 million within BREDS,

•

$5.9 billion in our Private Equity segment primarily due to continued disposition activity across the segment, mainly $2.9 billion from BCP V fund, $1.4 billion from co-investment and $780.4 million from Strategic Partners funds, and

•

$2.7 billion in our Credit segment primarily due primarily to $1.0 billion of realizations from our drawdown funds, $989.4 million of realizations from returns to CLO investors and $457.9 million from our BDCs.

•

Outflows of $8.8 billion primarily attributable to:

•

$4.6 billion in our Hedge Fund Solutions segment primarily due to the reasons described under Fee-Earning Assets Under Management above, and

•

$2.9 billion in our Credit segment primarily due to the same reasons in Fee-Earning Assets Under Management above.

Limited Partner Capital Invested

The following presents the limited partner capital invested during the respective periods. The amount of Limited Partner Capital Invested is a function of finding opportunistic investments that fit our investment philosophy and strategy in each of our segments as well as the relative timing of investment closings within those segments.

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Note: Totals in graph may not add due to rounding.


	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2016		2015		2016
	(Dollars in Thousands)
Limited Partner Capital Invested
Private Equity	$	1,800,854	$	1,538,436	$	4,175,453	$	3,404,134
Real Estate		2,963,609		1,524,415		4,406,772		5,271,596
Hedge Fund Solutions		2,131		32,804		135,482		348,561
Credit		47,768		699,516		862,191		1,286,451

Total	$	4,814,362	$	3,795,171	$	9,579,898	$	10,310,742

The following presents the committed undrawn capital available for investment (“dry powder”) for the respective periods:

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Note: Totals may not add due to rounding. Amounts are as of June 30, for each of the periods indicated.

(a)	Represents illiquid drawdown funds only; excludes marketable vehicles; includes both Fee-Earning (third party) capital and general partner and employee commitments that do not earn fees. Amounts are reduced by outstanding commitments to invest, but for which capital has not been called.


	June 30,
	2015		2016
	(Dollars in Thousands)
Dry Powder Available for Investment
Private Equity	$	36,827,036	$	43,446,423
Real Estate		27,172,674		33,664,263
Hedge Fund Solutions		2,984,649		4,104,363
Credit		15,115,526		17,266,904

Total	$	82,099,885	$	98,481,953

Net Accrued Performance Fees

The following table presents the accrued performance fees, net of Performance Fee Compensation, of the Blackstone Funds as of June 30, 2016 and 2015. Net accrued performance fees presented do not include clawback amounts, if any, which are disclosed in Note 17. “Commitments and Contingencies — Contingencies — Contingent Obligations (Clawback)” in the “Notes to Condensed Consolidated Financial Statements” in “Part I. Item 1. Financial Statements” of this filing. The net accrued performance fees as of each reporting date are principally Unrealized Carried Interest and Incentive Fees which, if realized, can be a significant component of Distributable Earnings.


	June 30,
	2016		2015
	(Dollars in Millions)
Private Equity
BCP IV Carried Interest	$	143	$	186
BCP V Carried Interest		373		1,119
BCP VI Carried Interest		385		320
BEP Carried Interest		61		82
Tactical Opportunities Carried Interest		59		36
BTAS Carried Interest		7		2
Strategic Partners Carried Interest		35		18
Other Carried Interest		1		1

Total Private Equity (a)		1,064		1,764

Real Estate
BREP IV Carried Interest		9		36
BREP V Carried Interest		390		583
BREP VI Carried Interest		612		868
BREP VII Carried Interest		584		565
BREP VIII Carried Interest		84		—
BREP Europe III Carried Interest		156		200
BREP Europe IV Carried Interest		124		86
BREP Asia Carried Interest		82		43
BPP Carried Interest		44		18
BPP Incentive Fees		21		4
BREDS Carried Interest		14		11
BREDS Incentive Fees		3		3
Asia Platform Incentive Fees		7		7

Total Real Estate (a)		2,130		2,424

Hedge Fund Solutions
Incentive Fees		6		60

Total Hedge Fund Solutions		6		60

Credit
Carried Interest		102		183
Incentive Fees		19		41

Total Credit		121		224

Total Blackstone
Carried Interest		3,265		4,357
Incentive Fees		56		115

Net Accrued Performance Fees	$	3,321	$	4,472

(a)	Private Equity and Real Estate include Co-Investments, as applicable.

Performance Fee Eligible Assets Under Management

The following represents invested and to be invested capital, including closed commitments for funds whose investment period has not yet commenced, on which performance fees could be earned if certain hurdles are met:

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Note: Totals may not add due to rounding. Amounts are as of June 30, 2016.

(a)	Represents invested and to be invested capital at fair value, including closed commitments for funds whose investment period has not yet commenced, on which performance fees could be earned if certain hurdles are met.

(b)	Represents dry powder exclusive of non-fee earning general partner and employee commitments.

Investment Record

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 investment record of our significant drawdown funds from inception through June 30, 2016:


					Unrealized Investments							Realized Investments				Total Investments				Net IRR (c)
Fund (Investment Period)	Committed Capital		Available Capital (a)		Value		MOIC (b)		% Public			Value		MOIC (b)		Value		MOIC (b)		Realized			Total
	(Dollars in Thousands, Except Where Noted)
Private Equity
BCP I (Oct 1987 / Oct 1993)	$	859,081	$	—	$	—		N/A		—		$	1,741,738		2.6x	$	1,741,738		2.6x		19	%		19	%
BCP II (Oct 1993 / Aug 1997)		1,361,100		—		—		N/A		—			3,256,819		2.5x		3,256,819		2.5x		32	%		32	%
BCP III (Aug 1997 / Nov 2002)		3,967,422		—		—		N/A		—			9,184,688		2.3x		9,184,688		2.3x		14	%		14	%
BCOM (Jun 2000 / Jun 2006)		2,137,330		24,575		29,441		2.3x		—			2,949,591		1.4x		2,979,032		1.4x		6	%		7	%
BCP IV (Nov 2002 / Dec 2005)		6,773,182		219,136		2,037,337		1.3x		26	%		19,083,221		3.2x		21,120,558		2.8x		43	%		36	%
BCP V (Dec 2005 / Jan 2011)		21,022,207		1,258,436		8,364,663		1.7x		79	%		29,442,294		1.9x		37,806,957		1.9x		9	%		8	%
BCP VI (Jan 2011 / Jan 2017)		15,182,644		2,428,440		15,511,224		1.3x		24	%		2,130,587		1.9x		17,641,811		1.4x		51	%		10	%
BEP I (Aug 2011 / Feb 2015)		2,439,157		141,245		2,839,768		1.3x		27	%		539,585		2.0x		3,379,353		1.4x		57	%		14	%
BEP II (Feb 2015 / Feb 2021)		4,951,351		4,724,507		149,061		1.0x		—			—		N/A		149,061		1.0x		N/A			N/M
BCP VII (May 2016 / May 2022)		18,898,630		18,898,630		—		N/A		—			—		N/A		—		N/A		N/A			N/A

Total Corporate Private Equity	$	77,592,104	$	27,694,969	$	28,931,494		1.4x		40	%	$	68,328,523		2.2x	$	97,260,017		1.9x		18	%		15	%

Tactical Opportunities	$	12,657,994	$	6,175,613	$	7,227,525		1.1x		6	%	$	1,517,170		1.5x	$	8,744,695		1.2x		32	%		10	%
Tactical Opportunities Co-Invest and Other		1,993,004		653,673		1,421,235		1.1x		—			160,812		1.5x		1,582,047		1.1x		N/A			13	%
Strategic Partners I-V and Co-Investment (d)		12,143,266		2,185,576		3,762,419		N/M		—			13,357,859		N/M		17,120,278		1.5x		N/A			14	%
Strategic Partners VI LBO, RE and SMA (d)		7,053,071		2,058,306		3,832,118		N/M		—			601,171		N/M		4,433,289		1.4x		N/A			38	%
Strategic Partners VII (d)		5,399,381		5,285,561		107,988		N/M		—			—		N/A		107,988		N/M		N/A			N/A
BCEP (e)		3,167,500		3,167,500		—		N/A		—			—		N/A		—		N/A		N/A			N/A
Other Funds and Co-Investment (f)		1,509,893		480,230		196,297		0.8x		89	%		426,683		1.0x		622,980		0.9x		N/A			N/M
Real Estate
Dollar
Pre-BREP	$	140,714	$	—	$	—		N/A		—		$	345,190		2.5x	$	345,190		2.5x		33	%		33	%
BREP I (Sep 1994 / Oct 1996)		380,708		—		—		N/A		—			1,327,708		2.8x		1,327,708		2.8x		40	%		40	%
BREP II (Oct 1996 / Mar 1999)		1,198,339		—		—		N/A		—			2,531,613		2.1x		2,531,613		2.1x		19	%		19	%
BREP III (Apr 1999 / Apr 2003)		1,522,708		—		—		N/A		—			3,330,406		2.4x		3,330,406		2.4x		21	%		21	%
BREP IV (Apr 2003 / Dec 2005)		2,198,694		—		519,626		0.6x		16	%		4,030,933		2.2x		4,550,559		1.7x		36	%		13	%
BREP V (Dec 2005 / Feb 2007)		5,539,418		—		3,263,836		2.2x		32	%		9,608,522		2.3x		12,872,358		2.2x		12	%		11	%
BREP VI (Feb 2007 / Aug 2011)		11,060,444		554,490		6,973,627		2.1x		69	%		18,657,251		2.4x		25,630,878		2.3x		15	%		13	%
BREP VII (Aug 2011 / Apr 2015)		13,492,593		2,419,900		15,764,383		1.6x		1	%		8,919,047		1.9x		24,683,430		1.7x		31	%		20	%
BREP VIII (Apr 2015 / Oct 2020)		16,147,977		10,037,533		7,100,494		1.2x		—			16,270		1.1x		7,116,764		1.2x		12	%		19	%

Total Global BREP		51,681,595		13,011,923		33,621,966		1.5x		18	%		48,766,940		2.2x		82,388,906		1.9x		21	%		16	%

Euro
BREP Int’l (Jan 2001 / Sep 2005)	€	824,172	€	—	€	—		N/A		—		€	1,367,146		2.1x	€	1,367,146		2.1x		23	%		23	%
BREP Int’l II (Sep 2005 / Jun 2008)		1,629,748		—		532,403		1.2x		65	%		1,716,134		1.8x		2,248,537		1.6x		8	%		5	%
BREP Europe III (Jun 2008 / Sep 2013)		3,205,140		469,301		2,999,189		1.8x		—			2,715,178		2.1x		5,714,367		1.9x		23	%		17	%
BREP Europe IV (Sep 2013 / Mar 2019)		6,699,620		2,115,651		6,411,668		1.3x		—			641,477		1.4x		7,053,145		1.3x		26	%		13	%
BREP Europe V (TBD)		5,878,298		5,939,667		—		N/A		—			—		N/A		—		N/A		N/A			N/A

Total Euro BREP	€	18,236,978	€	8,524,619	€	9,943,260		1.4x		4	%	€	6,439,935		1.9x	€	16,383,195		1.6x		16	%		12	%

BREP Co-Investment (g)	$	6,819,065	$	146,573	$	4,950,386		1.6x		42	%	$	7,770,729		2.1x	$	12,721,115		1.9x		18	%		15	%
BREP Asia (Jun 2013 / Dec 2017)		5,079,554		2,717,330		3,229,118		1.4x		—			420,637		1.7x		3,649,755		1.4x		25	%		15	%

Total BREP	$	86,132,424	$	25,308,317	$	54,283,736		1.5x		16	%	$	65,516,128		2.2x	$	119,799,864		1.8x		20	%		16	%

BPP (h)	$	11,946,027	$	3,584,314	$	9,938,325		1.2x		—		$	—		N/A	$	9,938,325		1.2x		N/A			15	%
BREDS (i)		11,003,179		6,512,182		2,466,397		1.2x		—			5,966,987		1.3x		8,433,384		1.3x		13	%		11	%
Hedge Fund Solutions
BSCH (Dec 2013 / Jun 2020) (j)	$	3,300,600	$	2,755,702	$	549,925		1.0x		—		$	75,529		N/A	$	625,454		1.2x		N/A			4	%
BSCH Co-Investment		75,500		31,237		44,495		1.0x		—			1,427		N/A		45,922		1.0x		N/A			2	%

Total Hedge Fund Solutions	$	3,376,100	$	2,786,939	$	594,420		1.0x		—		$	76,956		N/A	$	671,376		1.2x		N/A			4	%

continued...


					Unrealized Investments						Realized Investments				Total Investments				Net IRR (c)
Fund (Investment Period)	Committed Capital		Available Capital (a)		Value		MOIC (b)		% Public		Value		MOIC (b)		Value		MOIC (b)		Realized		Total
	(Dollars in Thousands, Except Where Noted)
Credit (k) Dollar
Mezzanine I (Jul 2007 / Oct 2011)	$	2,000,000	$	99,280	$	454,287		1.7x		—	$	4,407,209		1.6x	$	4,861,496		1.6x		N/A		17	%
Mezzanine II (Nov 2011 / Nov 2016)		4,120,000		1,631,725		3,007,903		1.1x		—		2,150,794		1.5x		5,158,697		1.2x		N/A		13	%
Rescue Lending I (Sep 2009 / May 2013)		3,253,143		474,202		1,269,119		1.1x		—		4,470,939		1.5x		5,740,058		1.4x		N/A		11	%
Rescue Lending II (Jun 2013 / Jun 2018)		5,125,000		2,490,529		2,989,347		1.1x		—		120,256		1.1x		3,109,603		1.1x		N/A		11	%
Energy Select Opportunities (Nov 2015 / Nov 2018)		2,856,866		2,542,430		380,132		1.2x		—		98,205		1.4x		478,337		1.2x		N/A		N/M

Total Dollar Credit		17,355,009		7,238,166		8,100,788		1.1x		—		11,247,403		1.5x		19,348,191		1.3x		N/A		14	%

Euro
European Senior Debt (Feb 2015 / Feb 2018)	€	1,964,689	€	3,401,176	€	523,751		1.0x		—	€	142,288		1.2x	€	666,039		1.0x		N/A		N/M

Total Credit	$	19,621,419	$	11,016,873	$	8,682,663		1.1x		—	$	11,404,871		1.5x	$	20,087,534		1.3x		N/A		14	%

N/M	Not meaningful.

N/A	Not applicable.

(a)	Available Capital represents total investable capital commitments, including side-by-side, adjusted for certain expenses and expired or recallable capital and may include leverage, less invested capital. This amount is not reduced by outstanding commitments to investments.

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

(c)	Net Internal Rate of Return (“IRR”) represents the annualized inception to June 30, 2016 IRR on total invested capital based on realized proceeds and unrealized value, as applicable, after management fees, expenses and Carried Interest.

(d)	Realizations are treated as return of capital until fully recovered and therefore unrealized and realized MOICs are not meaningful.

(e)	BCEP, or Blackstone Core Equity Partners, is a core private equity fund which invests with a more modest risk profile and longer hold period.

(f)	Returns for Other Funds and Co-Investment are not meaningful as these funds have limited transaction activity.

(g)	BREP Co-Investment represents co-investment capital raised for various BREP investments. The Net IRR reflected is calculated by aggregating each co-investment’s realized proceeds and unrealized value, as applicable, after management fees, expenses and Carried Interest.

(h)	BPP represents the core+ real estate funds which invest with a more modest risk profile and lower leverage.

(i)	Excludes Capital Trust drawdown funds.

(j)	BSCH, or Blackstone Strategic Capital Holdings, is a permanent capital vehicle focused on acquiring strategic minority positions in alternative asset managers.

(k)	Funds presented represent the flagship credit drawdown funds only. The Total Credit Net IRR is the combined IRR of the six credit drawdown funds presented.

Segment Analysis

Discussed below is our EI 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.

As a result of the spin-off on October 1, 2015 of Blackstone’s Financial Advisory business, a segment analysis is no longer reported.

Private Equity

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


	Three Months Ended June 30,						2016 vs. 2015						Six Months Ended June 30,						2016 vs. 2015
	2016			2015			$			%			2016			2015			$			%
	(Dollars in Thousands)
Segment Revenues
Management Fees, Net
Base Management Fees	$	131,477		$	121,918		$	9,559			8	%	$	262,125		$	230,301		$	31,824			14	%
Advisory Fees		1,277			4,843			(3,566	)		-74	%		1,758			7,272			(5,514	)		-76	%
Transaction and Other Fees, Net		9,812			(11,842	)		21,654			N/M			18,251			8,517			9,734			114	%
Management Fee Offsets		(4,195	)		(9,028	)		4,833			-54	%		(11,043	)		(13,977	)		2,934			-21	%

Total Management Fees, Net		138,371			105,891			32,480			31	%		271,091			232,113			38,978			17	%

Performance Fees
Realized
Carried Interest		57,056			546,575			(489,519	)		-90	%		87,338			929,553			(842,215	)		-91	%
Unrealized
Carried Interest		85,047			(305,573	)		390,620			N/M			158,922			261,249			(102,327	)		-39	%

Total Performance Fees		142,103			241,002			(98,899	)		-41	%		246,260			1,190,802			(944,542	)		-79	%

Investment Income (Loss)
Realized		22,926			50,258			(27,332	)		-54	%		7,569			95,074			(87,505	)		-92	%
Unrealized		(2,766	)		(22,301	)		19,535			-88	%		12,674			9,186			3,488			38	%

Total Investment Income		20,160			27,957			(7,797	)		-28	%		20,243			104,260			(84,017	)		-81	%
Interest and Dividend Revenue		9,516			7,669			1,847			24	%		19,365			15,287			4,078			27	%
Other		3,395			2,515			880			35	%		1,808			690			1,118			162	%

Total Revenues		313,545			385,034			(71,489	)		-19	%		558,767			1,543,152			(984,385	)		-64	%

Expenses
Compensation and Benefits
Compensation		83,140			68,106			15,034			22	%		163,414			139,178			24,236			17	%
Performance Fee Compensation
Realized
Carried Interest		30,946			106,502			(75,556	)		-71	%		46,373			145,984			(99,611	)		-68	%
Unrealized
Carried Interest		19,450			(25,574	)		45,024			N/M			28,746			152,546			(123,800	)		-81	%

Total Compensation and Benefits		133,536			149,034			(15,498	)		-10	%		238,533			437,708			(199,175	)		-46	%
Other Operating Expenses		48,371			62,571			(14,200	)		-23	%		96,434			101,446			(5,012	)		-5	%

Total Expenses		181,907			211,605			(29,698	)		-14	%		334,967			539,154			(204,187	)		-38	%

Economic Income	$	131,638		$	173,429		$	(41,791	)		-24	%	$	223,800		$	1,003,998		$	(780,198	)		-78	%

N/M	Not meaningful.

Three Months Ended June 30, 2016 Compared to Three Months Ended June 30, 2015

Revenues

Revenues were $313.5 million for the three months ended June 30, 2016, a decrease of $71.5 million compared to $385.0 million for the three months ended June 30, 2015. The decrease in revenues was primarily attributable to decreases of $98.9 million in Performance Fees and $7.8 million in Investment Income, partially offset by an increase of $32.5 million in Total Management Fees, Net.

Although our corporate private equity portfolio was not significantly impacted by Brexit, Private Equity segment revenues in the second quarter of 2016 were moderately lower compared to the second quarter of 2015. This was primarily due to the sale of some large investments at lower multiples of invested capital that, given the long hold periods, did not exceed the accumulated preferred return. The need to make up such shortfall with additional realized gains from subsequent transactions is a timing issue that could persist over the next couple of quarters. To a lesser extent, our Private Equity segment revenues in the second quarter of 2016 were also lower due to foreign currency translation effects and, as a result of Brexit, a negative impact on the marks of certain affected investments in our Tactical Opportunities business in the quarter. Despite continued market volatility, our Private Equity segment appreciated in the second quarter of 2016, driven by strong performance in BCP VI private investments, albeit at a more moderate rate compared to the second quarter of 2015. Operating fundamentals at our Private Equity portfolio companies remain solid, although the rate of growth continues to moderate. If market and/or macroeconomic conditions were to deteriorate in the future and adversely affect the investment performance of our Private Equity segment, revenues in the segment would likely be negatively impacted. Although the market for new investments remains challenged in the current high-priced environment, our Private Equity funds committed to several new investments, including in energy, and remained well positioned to take advantage of market dislocation. Our Private Equity funds also remained active on realizations in the second quarter.

Performance Fees, which are determined on a fund by fund basis, were $142.1 million for the three months ended June 30, 2016, a decrease of $98.9 million compared to $241.0 million for the three months ended June 30, 2015. The decrease was a result of slightly lower returns compared to the second quarter of 2015 despite positive net returns across the segment.

Investment Income was $20.2 million for the three months ended June 30, 2016, a decrease of $7.8 million compared to $28.0 million for the three months ended June 30, 2015 due to the factors noted above.

Total Management Fees, Net were $138.4 million for the three months ended June 30, 2016, an increase of $32.5 million compared to $105.9 million for the three months ended June 30, 2015, primarily driven by increases in Transaction and Other Fees, Net and Base Management Fees. Transaction and Other Fees, Net were $9.8 million for the three months ended June 30, 2016, an increase of $21.7 million compared to $(11.8) million for the three months ended June 30, 2015, due to one-time items related to fundraising fees and legal reserves that were incurred or accrued in the second quarter of 2015. The remainder of the increase in Transaction and Other Fees, Net resulted from the timing of investment closings. Base Management Fees were $131.5 million for the three months ended June 30, 2016, an increase of $9.6 million compared to the $121.9 million for the three months ended June 30, 2015, principally due to a higher level of Fee-Earning Assets Under Management from funds across the segment.

Expenses

Expenses were $181.9 million for the three months ended June 30, 2016, a decrease of $29.7 million compared to $211.6 million for the three months ended June 30, 2015. The decrease was primarily attributable to decreases of $15.5 million in Total Compensation and Benefits and $14.2 million in Other Operating Expenses. The decrease in Total Compensation and Benefits was due to a decrease in Performance Fee Compensation of $30.5 million, partially offset by an increase in Compensation of $15.0 million. Performance Fee Compensation decreased as a result of the decrease in Performance Fees Revenue. Compensation increased primarily due to the increase in Management Fees Revenue, on which a portion of compensation is based and an increase in headcount to support the growth of the business. Other Operating Expenses decreased principally as a result of one-time fundraising and legal reserves in 2015, partially offset by increases in interest and other expenses allocated to the segment.

Six Months Ended June 30, 2016 Compared to Six Months Ended June 30, 2015

Revenues

Revenues were $558.8 million for the six months ended June 30, 2016, a decrease of $984.4 million compared to $1.5 billion for the six months ended June 30, 2015. The decrease in revenues was primarily attributable to decreases of $944.5 million in Performance Fees and $84.0 million in Investment Income, partially offset by an increase of $39.0 million in Total Management Fees, Net.

Performance Fees, which are determined on a fund by fund basis, were $246.3 million for the six months ended June 30, 2016, a decrease of $944.5 million, compared to $1.2 billion for the six months ended June 30, 2015, as total private equity funds appreciated 3.4% during the quarter versus 9.7% appreciation in the comparable 2015 quarter, driven mainly by public holdings in BCP V.

Investment Income was $20.2 million for the six months ended June 30, 2016, a decrease of $84.0 million, compared to $104.3 million for the six months ended June 30, 2015, driven primarily by the factors noted above.

Total Management Fees, Net were $271.1 million for the six months ended June 30, 2016, an increase of $39.0 million compared to $232.1 million for the six months ended June 30, 2015, primarily driven by increases in Base Management Fees and Transaction and Other Fees, Net. Base Management Fees were $262.1 million for the six months ended June 30, 2016, an increase of $31.8 million compared to $230.3 million for the six months ended June 30, 2015, principally due to the addition of management fee earning assets across the segment. Transaction and Other Fees, Net were $18.3 million for the six months ended June 30, 2016, an increase of $9.7 million compared to $8.5 million for the six months ended June 30, 2015, principally due to timing of investment closings, as well as one-time items related to fundraising fees and legal reserves that were incurred or accrued in the second quarter of 2015.

Expenses

Expenses were $335.0 million for the six months ended June 30, 2016, a decrease of $204.2 million compared to $539.2 million for the six months ended June 30, 2015. The decrease was primarily attributable to a decrease in Performance Fee Compensation of $223.4 million, partially offset by an increase in Compensation of $24.2 million. Performance Fee Compensation decreased as a result of the decrease in Performance Fees Revenue. Compensation increased primarily due to the increase in Management Fees Revenue, on which a portion of compensation is based, and an increase in headcount to support the growth of the business.

Fund Returns

The following table presents the internal rates of return of our significant private equity funds:


	Three Months Ended June 30,												Six Months Ended June 30,												June 30, 2016 Inception to Date
	2016						2015 (a)						2016						2015 (a)						Realized						Total
Fund (b)	Gross			Net			Gross			Net			Gross			Net			Gross			Net			Gross			Net			Gross			Net
BCP IV		—			—			2	%		1	%		4	%		4	%		1	%		—			56	%		43	%		50	%		36	%
BCP V		2	%		2	%		2	%		2	%		8	%		6	%		16	%		10	%		12	%		9	%		10	%		8	%
BCOM		17	%		13	%		—			—			16	%		14	%		-1	%		-1	%		13	%		6	%		13	%		7	%
BCP VI		3	%		2	%		4	%		3	%		2	%		1	%		7	%		6	%		64	%		51	%		16	%		10	%
BEP I		4	%		4	%		7	%		6	%		5	%		4	%		8	%		7	%		61	%		57	%		19	%		14	%
BEP II (c)		N/M			N/M			N/A			N/A			N/M			N/M			N/A			N/A			N/A			N/A			N/M			N/M
Tactical Opportunities		2	%		1	%		4	%		4	%		3	%		2	%		7	%		6	%		40	%		32	%		13	%		10	%
Strategic Partners		2	%		2	%		5	%		4	%		2	%		—			8	%		7	%		N/A			N/A			17	%		14	%

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

N/A	Not applicable.

(a)	Changes in previous period returns may be due to adjustments to previous period(s) transaction amounts.

(b)	Net returns are based on the change in carrying value (realized and unrealized) after management fees, expenses and Carried Interest allocations.

(c)	BEP II’s investment returns are presented as N/M due to the early stage nature and limited operations of the fund’s investments which are held at cost. Accordingly the return would only be reflective of the impact of fees and expenses incurred to date.

The corporate private equity funds within the Private Equity segment have five contributed funds with closed investment periods: BCP IV, BCP V, BCP VI, BCOM and BEP I. As of June 30, 2016, BCP IV was above its Carried Interest threshold (i.e., the preferred return payable to its limited partners before the general partner is eligible to receive Carried Interest) and would still be above its Carried Interest threshold even if all remaining investments were valued at zero. BCP V is comprised of two fund classes based on the timings of fund closings, the BCP V “main fund” and BCP V-AC fund. Within these fund classes, the general partner (“GP”) is subject to equalization such that (a) the GP accrues Carried Interest when the total Carried Interest for the combined fund classes is positive and (b) the GP realizes Carried Interest so long as clawback obligations, if any, for the combined fund classes are fully satisfied. During the quarter, both fund classes were above their respective Carried Interest thresholds. BCP VI is currently above its Carried Interest threshold. BCOM is currently above its Carried Interest threshold and has generated inception to date positive returns. We are entitled to retain previously realized Carried Interest up to 20% of BCOM’s net gains. As a result, Performance Fees are recognized from BCOM on current period gains and losses. BEP I is currently above its Carried Interest threshold.

Real Estate

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


	Three Months Ended June 30,						2016 vs. 2015						Six Months Ended June 30,						2016 vs. 2015
	2016			2015			$			%			2016			2015			$			%
	(Dollars in Thousands)
Segment Revenues
Management Fees, Net
Base Management Fees	$	201,004		$	140,743		$	60,261			43	%	$	400,911		$	293,091		$	107,820			37	%
Transaction and Other Fees, Net		21,112			21,510			(398	)		-2	%		56,906			36,726			20,180			55	%
Management Fee Offsets		(1,219	)		(5,428	)		4,209			-78	%		(4,814	)		(10,294	)		5,480			-53	%

Total Management Fees, Net		220,897			156,825			64,072			41	%		453,003			319,523			133,480			42	%

Performance Fees
Realized
Carried Interest		266,382			363,983			(97,601	)		-27	%		467,009			1,175,232			(708,223	)		-60	%
Incentive Fees		6,099			1,220			4,879			400	%		10,168			1,943			8,225			423	%
Unrealized
Carried Interest		(84,875	)		(188,608	)		103,733			-55	%		(96,397	)		(369,627	)		273,230			-74	%
Incentive Fees		5,942			3,935			2,007			51	%		15,707			10,004			5,703			57	%

Total Performance Fees		193,548			180,530			13,018			7	%		396,487			817,552			(421,065	)		-52	%

Investment Income (Loss)
Realized		19,929			85,432			(65,503	)		-77	%		32,904			156,776			(123,872	)		-79	%
Unrealized		(8,902	)		(107,691	)		98,789			-92	%		(11,039	)		(70,181	)		59,142			-84	%

Total Investment Income (Loss)		11,027			(22,259	)		33,286			N/M			21,865			86,595			(64,730	)		-75	%
Interest and Dividend Revenue		13,084			10,259			2,825			28	%		26,272			20,256			6,016			30	%
Other		2,231			1,077			1,154			107	%		322			(2,900	)		3,222			N/M

Total Revenues		440,787			326,432			114,355			35	%		897,949			1,241,026			(343,077	)		-28	%

Expenses
Compensation and Benefits
Compensation		102,888			79,484			23,404			29	%		203,466			164,318			39,148			24	%
Performance Fee Compensation
Realized
Carried Interest		56,441			116,168			(59,727	)		-51	%		99,517			362,664			(263,147	)		-73	%
Incentive Fees		3,300			671			2,629			392	%		5,433			1,027			4,406			429	%
Unrealized
Carried Interest		14,257			(50,559	)		64,816			N/M			41,960			(148,643	)		190,603			N/M
Incentive Fees		2,542			230			2,312			N/M			6,700			2,805			3,895			139	%

Total Compensation and Benefits		179,428			145,994			33,434			23	%		357,076			382,171			(25,095	)		-7	%
Other Operating Expenses		52,201			43,346			8,855			20	%		100,298			83,489			16,809			20	%

Total Expenses		231,629			189,340			42,289			22	%		457,374			465,660			(8,286	)		-2	%

Economic Income	$	209,158		$	137,092		$	72,066			53	%	$	440,575		$	775,366		$	(334,791	)		-43	%

N/M	Not meaningful.

Three Months Ended June 30, 2016 Compared to Three Months Ended June 30, 2015

Revenues

Revenues were $440.8 million for the three months ended June 30, 2016, an increase of $114.4 million compared to $326.4 million for the three months ended June 30, 2015. The increase in revenues was primarily attributable to increases of $64.1 million in Total Management Fees, Net, $33.3 million in Investment Income and $13.0 million in Performance Fees.

Despite public market volatility in the second quarter of 2016, as well as foreign currency translation effects and certain private investment markdowns primarily as a direct result of Brexit, revenues in our Real Estate segment increased in the second quarter of 2016, primarily driven by appreciation in private holdings and the launch of BREP VIII. Overall, operating trends in our Real Estate portfolio remain positive although, as has been the case recently, we see decelerating growth in certain areas, most notably lodging. Market volatility has created significant investment opportunities for our Real Estate segment, which has remained active in realizations as the global hunt for yield has sustained demand for high quality, stable real estate assets. If market and/or macroeconomic conditions were to deteriorate in the future causing a decline in our Real Estate fund investment performance, revenues in our Real Estate segment would likely be negatively impacted.

Total Management Fees, Net were $220.9 million for the three months ended June 30, 2016, an increase of $64.1 million compared to $156.8 million for the three months ended June 30, 2015, driven primarily by an increase in Base Management Fees. Base Management Fees were $201.0 million for the three months ended June 30, 2016, an increase of $60.3 million compared to $140.7 million for the three months ended June 30, 2015, primarily due to the launch of BREP VIII which began earning management fees in the third quarter of 2015.

Investment Income (Loss) was $11.0 million for the three months ended June 30, 2016, an increase of $33.3 million compared to $(22.3) million for the three months ended June 30, 2015, primarily due to the net appreciation of investments in our BREP VI fund. Blackstone has a larger investment in BREP VI than in other funds.

Performance Fees, which are determined on a fund by fund basis, were $193.5 million for the three months ended June 30, 2016, an increase of $13.0 million compared to $180.5 million for the three months ended June 30, 2015. The increase in Performance Fees was primarily due to an increase in the net appreciation of investment holdings within our opportunistic funds, which appreciated 2.2% versus 1.2% in the comparable 2015 quarter. Our core+ funds appreciated 2.1% in the quarter. Our real estate debt drawdown and hedge funds appreciated 2.4% and 0.5%, respectively.

Expenses

Expenses were $231.6 million for the three months ended June 30, 2016, an increase of $42.3 million compared to $189.3 million for the three months ended June 30, 2015. The increase was primarily attributable to increases in Total Compensation and Benefits and Other Operating Expenses of $33.4 million and $8.9 million, respectively. The increase in Total Compensation and Benefits was due to an increase in Compensation of $23.4 million and an increase in Performance Fee Compensation of $10.0 million. Compensation increased primarily due to the increase in Management Fees Revenue, on which a portion of compensation is based, and an increase in headcount to support the growth of the business. Performance Fee Compensation increased as a result of the increase in Performance Fees Revenue. The increase in Other Operating Expenses was due to interest and other operating expenses allocated to the segment.

Six Months Ended June 30, 2016 Compared to Six Months Ended June 30, 2015

Revenues

Revenues were $898.0 million for the six months ended June 30, 2016, a decrease of $343.1 million compared to $1.2 billion for the six months ended June 30, 2015. The decrease in revenues was primarily attributable to

decreases of $421.1 million in Performance Fees and $64.7 million in Investment Income, partially offset by an increase of $133.5 million in Total Management Fees, Net.

Performance Fees, which are determined on a fund by fund basis, were $396.5 million for the six months ended June 30, 2016, a decrease of $421.1 million compared to $817.6 million for the six months ended June 30, 2015. Performance Fees decreased due to the net decrease in the appreciation of investment holdings within our opportunistic funds. For the six months ended June 30, 2016, the carrying value of investments for our opportunistic and core+ funds increased 3.8% and 6.5%, respectively. Our real estate debt drawdown and hedge funds appreciated 5.3% and depreciated 3.6%, respectively.

Investment Income was $21.9 million for the six months ended June 30, 2016, a decrease of $64.7 million compared to $86.6 million for the six months ended June 30, 2015, primarily attributable to the same reason noted above.

Total Management Fees, Net were $453.0 million for the six months ended June 30, 2016, an increase of $133.5 million compared to $319.5 million for the six months ended June 30, 2015, driven primarily by increases in Base Management Fees and Transaction and Other Fees, Net. Base Management Fees were $400.9 million for the six months ended June 30, 2016, an increase of $107.8 million compared to $293.1 million for the six months ended June 30, 2015, primarily due to the launch of BREP VIII. Transaction and Other Fees, Net were $56.9 million for the six months ended June 30, 2016, an increase of $20.2 million compared to $36.7 million for the six months ended June 30, 2015, primarily due to the timing of investment closings in our BREP global funds.

Expenses

Expenses were $457.4 million for the six months ended June 30, 2016, a decrease of $8.3 million compared to $465.7 million for the six months ended June 30, 2015. The decrease was attributable to a decrease of $25.1 million in Total Compensation and Benefits, partially offset by an increase in Other Operating Expenses of $16.8 million. The decrease in Total Compensation and Benefits was due to a decrease in Performance Fee Compensation of $64.2 million, partially offset by an increase in Compensation of $39.1 million. Performance Fee Compensation decreased as a result of the decrease in Performance Fees Revenue. Compensation increased primarily due to the increase in Management Fees Revenue, on which a portion of compensation is based and an increase in headcount to support the growth of the business. The increase in Other Operating Expenses was primarily due to interest and other expenses allocated to the segment.

Fund Returns

Fund return information for our significant funds is included throughout this discussion and analysis to facilitate an understanding of our results of operations for the periods presented. The fund returns information reflected in this discussion and analysis is not indicative of the financial performance of 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 internal rates of return of our significant real estate funds:


	Three Months Ended June 30,												Six Months Ended June 30,												June 30, 2016 Inception to Date
	2016						2015						2016						2015						Realized						Total
Fund (a)	Gross			Net			Gross			Net			Gross			Net			Gross			Net			Gross			Net			Gross			Net
BREP IV		-1	%		—			5	%		4	%		-9	%		-7	%		8	%		6	%		60	%		36	%		22	%		13	%
BREP V		1	%		1	%		3	%		3	%		1	%		1	%		15	%		13	%		16	%		12	%		14	%		11	%
BREP VI		1	%		—			-5	%		-4	%		5	%		4	%		8	%		6	%		19	%		15	%		17	%		13	%
BREP VII		2	%		2	%		6	%		5	%		3	%		2	%		10	%		8	%		44	%		31	%		29	%		20	%
BREP VIII		8	%		5	%		N/A			N/A			14	%		9	%		N/A			N/A			23	%		12	%		34	%		19	%
BREP International II (b)		1	%		1	%		2	%		2	%		3	%		3	%		19	%		18	%		10	%		8	%		7	%		5	%
BREP Europe III (b)		-4	%		-4	%		4	%		3	%		-5	%		-5	%		12	%		10	%		34	%		23	%		26	%		17	%
BREP Europe IV (b)		1	%		1	%		8	%		6	%		3	%		2	%		16	%		11	%		42	%		26	%		21	%		13	%
BREP Co-Investment (c)		4	%		3	%		-9	%		-8	%		5	%		5	%		5	%		5	%		19	%		18	%		17	%		15	%
BREP Asia		7	%		5	%		6	%		5	%		13	%		10	%		14	%		9	%		33	%		25	%		24	%		15	%
BPP		2	%		2	%		N/A			N/A			6	%		6	%		N/A			N/A			N/A			N/A			17	%		15	%
BREDS Drawdown		5	%		2	%		5	%		2	%		8	%		4	%		5	%		2	%		17	%		13	%		16	%		11	%
BREDS Liquid		1	%		1	%		1	%		1	%		-3	%		-4	%		6	%		4	%		N/A			N/A			12	%		8	%

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

N/M	Not meaningful.

N/A	Not applicable.

(a)	Net returns are based on the change in carrying value (realized and unrealized) after management fees, expenses and performance fee allocations.

(b)	Euro-based internal rates of return.

(c)	Excludes fully realized co-investments prior to Blackstone’s IPO.

The following table presents the Carried Interest status of our real estate carry funds with expired investment periods which are currently not generating performance fees as of June 30, 2016:


	Gain to Cross Carried Interest Threshold (a)
Fully Invested Funds	Amount		% Change in Total Enterprise Value (b)			% Change in Equity Value
	(Amounts in Millions)
BREP Int’l II (Sep 2005 / Jun 2008)	€	828		42	%		169	%

(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)	Total Enterprise Value is the respective fund’s pro rata ownership of the privately held portfolio companies’ Enterprise Value.

The Real Estate segment has six funds in their investment period, which were above their respective Carried Interest thresholds as of June 30, 2016: BREP VIII, BREP Asia, BREP Europe IV and three funds within BREDS.

Hedge Fund Solutions

The following table presents the results of operations for our Hedge Fund Solutions segment:


	Three Months Ended June 30,						2016 vs. 2015						Six Months Ended June 30,						2016 vs. 2015
	2016			2015			$			%			2016			2015			$			%
	(Dollars in Thousands)
Segment Revenues
Management Fees, Net
Base Management Fees	$	130,123		$	130,216		$	(93	)		-0	%	$	260,281		$	260,853		$	(572	)		-0	%
Transaction and Other Fees, Net		(5	)		—			(5	)		N/M			538			25			513			N/M
Management Fee Offsets		—			(608	)		608			-100	%		—			(888	)		888			-100	%

Total Management Fees, Net		130,118			129,608			510			0	%		260,819			259,990			829			0	%

Performance Fees
Realized
Incentive Fees		(251	)		16,915			(17,166	)		N/M			2,433			27,431			(24,998	)		-91	%
Unrealized
Carried Interest		801			8,014			(7,213	)		-90	%		833			8,014			(7,181	)		-90	%
Incentive Fees		1,036			15,855			(14,819	)		-93	%		(1,899	)		63,282			(65,181	)		N/M

Total Performance Fees		1,586			40,784			(39,198	)		-96	%		1,367			98,727			(97,360	)		-99	%

Investment Income (Loss)
Realized		(515	)		(1,757	)		1,242			-71	%		(5,260	)		(12,132	)		6,872			-57	%
Unrealized		9,357			2,032			7,325			360	%		(2,934	)		6,515			(9,449	)		N/M

Total Investment Income (Loss)		8,842			275			8,567			N/M			(8,194	)		(5,617	)		(2,577	)		46	%
Interest and Dividend Revenue		5,205			3,970			1,235			31	%		10,501			7,919			2,582			33	%
Other		1,125			459			666			145	%		(263	)		(1,148	)		885			-77	%

Total Revenues		146,876			175,096			(28,220	)		-16	%		264,230			359,871			(95,641	)		-27	%

Expenses
Compensation and Benefits
Compensation		44,436			45,841			(1,405	)		-3	%		98,605			101,945			(3,340	)		-3	%
Performance Fee Compensation
Realized
Incentive Fees		1,325			8,711			(7,386	)		-85	%		3,188			12,181			(8,993	)		-74	%
Unrealized
Carried Interest		238			4,077			(3,839	)		-94	%		238			4,077			(3,839	)		-94	%
Incentive Fees		480			3,764			(3,284	)		-87	%		(715	)		19,415			(20,130	)		N/M

Total Compensation and Benefits		46,479			62,393			(15,914	)		-26	%		101,316			137,618			(36,302	)		-26	%
Other Operating Expenses		27,218			20,499			6,719			33	%		53,364			41,705			11,659			28	%

Total Expenses		73,697			82,892			(9,195	)		-11	%		154,680			179,323			(24,643	)		-14	%

Economic Income	$	73,179		$	92,204		$	(19,025	)		-21	%	$	109,550		$	180,548		$	(70,998	)		-39	%

N/M	Not meaningful.

Three Months Ended June 30, 2016 Compared to Three Months Ended June 30, 2015

Revenues

Revenues were $146.9 million for the three months ended June 30, 2016, a decrease of $28.2 million compared to $175.1 million for the three months ended June 30, 2015. The decrease in revenues was primarily attributable to a decrease of $39.2 million in Performance Fees, partially offset by an increase of $8.6 million in Investment Income.

The modest decline in revenues for the second quarter of 2016 compared to the second quarter of 2015 in our Hedge Fund Solutions segment was primarily driven by a decline in Performance Fees. Although Performance Fees declined primarily as a result of continued equity market volatility, Hedge Fund Solutions segment returns generally recovered in the second quarter of 2016 after a challenging first quarter of the year, with the BPS Composite gross return up 1.4% in the second quarter. Although given market conditions, much of Hedge Fund Solutions’ Fee-Earning Assets Under Management eligible for Incentive Fees were below the high water mark in the first quarter of 2016, the positive progress in the second quarter leaves a significant portion of such capital closer to its high water mark. If global asset prices experience a period of continued extreme volatility or declines, or liquidity needs cause investors to withdraw assets, Hedge Fund Solutions revenues would likely be negatively impacted. Nonetheless, demand for products in our Hedge Fund Solutions segment remained strong in the quarter, and the segment operates multiple business lines, manages strategies that are both long and short asset classes and generates a majority of its revenue through management fees, all of which provide a level of downside protection to Hedge Fund Solutions revenues.

Performance Fees, which are determined on a fund by fund basis, were $1.6 million for the three months ended June 30, 2016, a decrease of $39.2 million compared to $40.8 million for the three months ended June 30, 2015. The decrease in Performance Fees was primarily due to lower returns.

Investment Income was $8.8 million for the three months ended June 30, 2016, an increase of $8.6 million compared to the three months ended June 30, 2015, primarily driven by an increase in the amount and the year over year net appreciation of investments of which Blackstone owns a share.

Expenses

Expenses were $73.7 million for the three months ended June 30, 2016, a decrease of $9.2 million compared to $82.9 million for the three months ended June 30, 2015. The decrease in expenses was primarily attributable to a decrease of $14.5 million in Performance Fee Compensation, partially offset by an increase of $6.7 million in Other Operating Expenses. The decrease in Performance Fee Compensation was due to the decrease in Performance Fees Revenue. The increase in Other Operating Expenses was primarily due to an increase in interest and other expenses allocated to the segment.

Six Months Ended June 30, 2016 Compared to Six Months Ended June 30, 2015

Revenues

Revenues were $264.2 million for the six months ended June 30, 2016, a decrease of $95.7 million compared to $359.9 million for the six months ended June 30, 2015. The decrease in revenue was primarily attributable to decreases of $97.4 million and $2.6 million in Performance Fees and Investment Income (Loss) respectively, partially offset by an increase of $2.6 million in Interest and Dividend Revenue.

Performance Fees, which are determined on a fund by fund basis, were $1.4 million for the six months ended June 30, 2016, a decrease of $97.4 million compared to $98.7 million for the six months ended June 30, 2015. The decrease in Performance Fees was primarily due to lower returns.

Investment Income (Loss) was $(8.2) million for the six months ended June 30, 2016, a decrease of $2.6 million compared to $(5.6) million for the six months ended June 30, 2015. The decrease in Investment Income (Loss) was primarily driven by the year over year net depreciation of investments of which Blackstone owns a share.

Expenses

Expenses were $154.7 million for the six months ended June 30, 2016, a decrease of $24.6 million compared to $179.3 million for the six months ended June 30, 2015. The decrease in expenses was primarily due to a decrease in Performance Fee Compensation of $33.0 million, partially offset by an increase in Other Operating Expenses of $11.7 million. The decrease in Performance Fee Compensation was due to the decrease in Performance Fees Revenue. The increase in Other Operating Expenses was primarily resulting from an increase in interest and other expense allocations to the segment.

Operating Metrics

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


	Fee-Earning Assets Under Management Eligible for Incentive Fees				Estimated % Above High Water Mark / Benchmark (a)
	As of June 30,				As of June 30,
	2015		2016		2015			2016
	(Dollars in Thousands)
BAAM Managed Funds (b)	$	36,653,020	$	35,562,130		93	%		10	%

(a)

Estimated % Above High Water Mark/Benchmark 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 BAAM managed fund has positive investment performance relative to a benchmark, where applicable. Incremental positive performance in the applicable Blackstone Funds may cause additional assets to reach their respective High Water Mark or clear a benchmark, thereby resulting in an increase in Estimated % Above High Water Mark/Benchmark.

(b)

For the BAAM managed funds, at June 30, 2016 the incremental appreciation needed for the 90% of Fee-Earning Assets Under Management below their respective High Water Marks/Benchmarks to reach their respective High Water Marks/Benchmarks was $1.2 billion, an increase of $1.2 billion, compared to $19.7 million at June 30, 2015. Of the Fee-Earning Assets Under Management below their respective High Water Marks/Benchmarks as of June 30, 2016, 83% were within 5% of reaching their respective High Water Mark.

Composite Returns

Composite returns information is included throughout this discussion and analysis to facilitate an understanding of our results of operations for the periods presented. The composite returns information reflected in this discussion and analysis is not indicative of the financial performance of 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.

The following table presents the return information of the BAAM Principal Solutions Composite:


	Three Months Ended June 30,												Six Months Ended June 30,												Average Annual Returns (a)
	Three Months Ended June 30,												Six Months Ended June 30,												Periods Ended June 30, 2016
	2016						2015						2016						2015						One Year						Three Year						Five Year						Historical
Composite	Gross			Net			Gross			Net			Gross			Net			Gross			Net			Gross			Net			Gross			Net			Gross			Net			Gross			Net
BAAM Principal Solutions Composite (b)		1	%		1	%		1	%		1	%		-2	%		-2	%		4	%		4	%		-2	%		-3	%		5	%		4	%		5	%		5	%		7	%		6	%

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

100

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

(b)

BAAM’s Principal Solutions (“BPS”) Composite covers the period from January 2000 to present, although BAAM’s inception date is September 1990. BPS Composite does not include BAAM’s individual investor solutions (i.e., liquid alternatives), long-biased commodities, ventures (i.e., seeding and minority interests), strategic opportunities (i.e., co-investments), Senfina (i.e., direct trading) and advisory (non-discretionary) platforms, except for investments by BPS funds directly into those platforms. BAAM-managed funds in liquidation are also excluded. The historical return is from January 1, 2000.

101

Credit

The following table presents the results of operations for our Credit segment:


	Three Months Ended June 30,						2016 vs. 2015						Six Months Ended June 30,						2016 vs. 2015
	2016			2015			$			%			2016			2015			$			%
	(Dollars in Thousands)
Segment Revenues
Management Fees, Net
Base Management Fees	$	131,392		$	123,615		$	7,777			6	%	$	257,382		$	248,644		$	8,738			4	%
Transaction and Other Fees, Net		1,424			2,060			(636	)		-31	%		2,766			3,517			(751	)		-21	%
Management Fee Offsets		(9,982	)		(3,370	)		(6,612	)		196	%		(19,640	)		(11,220	)		(8,420	)		75	%

Total Management Fees, Net		122,834			122,305			529			0	%		240,508			240,941			(433	)		-0	%

Performance Fees
Realized
Carried Interest		296			26,925			(26,629	)		-99	%		296			40,292			(39,996	)		-99	%
Incentive Fees		23,515			29,684			(6,169	)		-21	%		45,212			48,115			(2,903	)		-6	%
Unrealized
Carried Interest		87,295			44,218			43,077			97	%		72,516			32,267			40,249			125	%
Incentive Fees		1,029			6,521			(5,492	)		-84	%		1,299			15,645			(14,346	)		-92	%

Total Performance Fees		112,135			107,348			4,787			4	%		119,323			136,319			(16,996	)		-12	%

Investment Income (Loss)
Realized		11,330			2,723			8,607			316	%		8,356			4,960			3,396			68	%
Unrealized		8,412			2,760			5,652			205	%		(9,149	)		9,647			(18,796	)		N/M

Total Investment Income (Loss)		19,742			5,483			14,259			260	%		(793	)		14,607			(15,400	)		N/M
Interest and Dividend Revenue		7,428			5,938			1,490			25	%		14,176			11,589			2,587			22	%
Other		1,795			34			1,761			N/M			431			3,527			(3,096	)		-88	%

Total Revenues		263,934			241,108			22,826			9	%		373,645			406,983			(33,338	)		-8	%

Expenses
Compensation and Benefits
Compensation		55,691			47,124			8,567			18	%		108,073			97,001			11,072			11	%
Performance Fee Compensation
Realized
Carried Interest		194			15,362			(15,168	)		-99	%		194			21,632			(21,438	)		-99	%
Incentive Fees		10,626			12,455			(1,829	)		-15	%		20,753			20,856			(103	)		-0	%
Unrealized
Carried Interest		41,257			21,497			19,760			92	%		34,259			15,841			18,418			116	%
Incentive Fees		(333	)		2,137			(2,470	)		N/M			152			8,872			(8,720	)		-98	%

Total Compensation and Benefits		107,435			98,575			8,860			9	%		163,431			164,202			(771	)		-0	%
Other Operating Expenses		29,464			23,539			5,925			25	%		55,684			45,375			10,309			23	%

Total Expenses		136,899			122,114			14,785			12	%		219,115			209,577			9,538			5	%

Economic Income	$	127,035		$	118,994		$	8,041			7	%	$	154,530		$	197,406		$	(42,876	)		-22	%

N/M	Not meaningful.

102

Three Months Ended June 30, 2016 Compared to Three Months Ended June 30, 2015

Revenues

Revenues were $263.9 million for the three months ended June 30, 2016, an increase of $22.8 million compared to $241.1 million for the three months ended June 30, 2015. This change was primarily attributable to increases of $14.3 million in Investment Income (Loss) and $4.8 million in Performance Fees.

Following a challenging period for global credit markets in early 2016, revenues in our Credit segment increased in the second quarter of 2016 compared to the second quarter of 2015, driven in significant part by liquid portfolio gains and a significant rebound in energy investments in distressed credit strategies resulting from a rally in energy and commodity prices in the second quarter of 2016. Market dislocation allowed our Credit segment to build on its deal pipeline strategies and create investment opportunities in the second quarter of 2016, as $1.7 billion of capital was deployed or committed in the quarter, primarily in European and energy investments. However, prolonged periods of market pressure and volatility and depressed energy prices may negatively impacts marks and revenues in our Credit segments.

Investment Income was $19.7 million for the three months ended June 30, 2016, an increase of $14.3 million compared to $5.5 million for the three months ended June 30, 2015. The increase in Investment Income was primarily driven by greater returns on Blackstone’s investments in the GSO funds.

Performance Fees were $112.1 million for the three months ended June 30, 2016, an increase of $4.8 million compared to $107.3 million for the three months ended June 30, 2015. This change was primarily attributable to a significant rebound in energy investments as well as broad based appreciation of funds. The composite net returns of Blackstone’s Credit segment funds for the three months ended June 30, 2016 were 8.3% for Performing Credit Strategies and 6.2% for Distressed Strategies.

Expenses

Expenses were $136.9 million for the three months ended June 30, 2016, an increase of $14.8 million compared to $122.1 million for the three months ended June 30, 2015. The increase in expenses was primarily attributable to increases of $8.6 million and $5.9 million in Compensation and Other Operating Expenses, respectively. The increase in Compensation was primarily due to an increase in headcount to support the growth of the business. The increase in Other Operating Expenses was due to higher occupancy and professional fee expenses and interest expense allocated to the segment.

Six Months Ended June 30, 2016 Compared to Six Months Ended June 30, 2015

Revenues

Revenues were $373.6 million for the six months ended June 30, 2016, a decrease of $33.3 million compared to $407.0 million for the six months ended June 30, 2015. This change was primarily attributable to decreases of $17.0 million and $15.4 million in Performance Fees and Investment Income (Loss).

Performance Fees were $119.3 million for the six months ended June 30, 2016, a decrease of $17.0 million compared to $136.3 million for the six months ended June 30, 2015. This change was primarily attributable to lower returns in certain alternative strategies funds. The composite net returns of Blackstone’s significant Credit segment funds were 2.6% for Distressed Strategies and 7.8% for Performing Credit Strategies for the six months ended June 30, 2016.

Investment Income (Loss) was $(0.8) million for the six months ended June 30, 2016, a decrease of $15.4 million compared to $14.6 million for the six months ended June 30, 2015. The decrease in Investment Income (Loss) was primarily driven by losses in the three months ended March 31, 2016 in European CLOs, Hedge Fund Strategies and Long Only funds.

103

Expenses

Expenses were $219.1 million for the six months ended June 30, 2016, an increase of $9.5 million compared to $209.6 million for the six months ended June 30, 2015. The increase in expenses was primarily attributable to increases of $11.1 million in Compensation and $10.3 million in Other Operating Expenses, partially offset by a decrease of $11.8 million in Performance Fee Compensation. The increase in Compensation was primarily due to an increase in headcount to support the growth of the business. The increase in Other Operating Expenses was driven by higher occupancy and professional fee expense, as well as interest expense allocated to the segment. The decrease in Performance Fee Compensation was due to the decrease in Performance Fees Revenue.

Fund Returns

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 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 results 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 combined internal rates of return of the segment’s Performing Credit and Distressed Strategies funds:


	Three Months Ended June 30,												Six Months Ended June 30,												June 30, 2016 Inception to Date
	2016						2015						2016						2015						June 30, 2016 Inception to Date
Composite (a)	Gross			Net			Gross			Net			Gross			Net			Gross			Net			Gross			Net
Performing Credit Strategies (b)		10	%		8	%		4	%		3	%		10	%		8	%		8	%		5	%		15	%		8	%
Distressed Strategies (c)		7	%		6	%		3	%		2	%		4	%		3	%		4	%		3	%		10	%		6	%

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

(a)	Net returns are based on the change in carrying value (realized and unrealized) after management fees, expenses and performance fee allocations, net of tax advances.

(b)

Performing Credit Strategies include mezzanine lending funds, BDCs and other performing credit strategy funds. Performing Credit Strategies’ returns represent the IRR of the combined cash flows of the fee-earning funds exceeding $100 million of fair value at each respective quarter end excluding the Blackstone Funds that were contributed to GSO as part of Blackstone’s acquisition of GSO in March 2008. The inception to date returns are from July 16, 2007.

(c)

Distressed Strategies include rescue lending funds, distressed hedge funds and energy strategies. Distressed Strategies’ returns represent the IRR of the combined cash flows of the fee-earning funds exceeding $100 million of fair value at each respective quarter end. The inception to date returns are from August 1, 2005.

As of June 30, 2016, there was $25.4 billion of Performance Fee eligible assets under management invested in Credit strategies that were above the hurdle necessary to generate Incentive Fees or Carried Interest. This represented 74% of the total Performance Fee eligible assets at fair value across all Credit strategies.

Liquidity and Capital Resources

General

Blackstone’s business model derives revenue primarily from third party assets under management. Blackstone is not a capital or balance sheet intensive business and targets operating expense levels such that total management and advisory fees exceed total operating expenses each period. As a result, we require limited capital resources to

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support the working capital or operating needs of our businesses. We draw primarily on the long-term committed capital of our limited partner investors to fund the investment requirements of the Blackstone Funds and use our own realizations and cash flows to invest in growth initiatives, make commitments to our own funds, where our minimum general partner commitments are generally less than 5% of the limited partner commitments of a fund, and pay distributions to unitholders.

Fluctuations in our statement of financial condition 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 Redeemable Non-Controlling Interests in Consolidated Entities and Non-Controlling Interests in Consolidated Entities in the Condensed Consolidated Financial Statements. The consolidation of these Blackstone Funds has no net effect on the Partnership’s Net Income or Partners’ Capital. Additionally, fluctuations in our statement of financial condition also include appreciation or depreciation in Blackstone investments in the Blackstone Funds, additional investments and redemptions of such interests in the Blackstone Funds and the collection of receivables related to management and advisory fees.

Total assets were $23.0 billion as of June 30, 2016, an increase of $515.6 million from December 31, 2015. The increase in total assets was a result of normal business activities.

Total liabilities were $10.9 billion as of June 30, 2016, an increase of $630.6 million from December 31, 2015. The increase in total liabilities was primarily due to an increase in Loans Payable of $625.0 million, which was attributable to normal operating activities of our Consolidated Blackstone Funds.

For the three months ended June 30, 2016, we had Total Fee Related Revenues of $620.8 million and related expenses of $394.6 million, generating Fee Related Earnings of $226.1 million and Distributable Earnings of $503.5 million. For the six months ended June 30, 2016, we had Total Fee Related Revenues of $1.2 billion and related expenses of $782.1 million, generating Fee Related Earnings of $445.6 million and Distributable Earnings of $891.4 billion.

Sources of Liquidity

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 $1.1 billion committed revolving credit facility and the proceeds from our issuances of senior notes. As of June 30, 2016, Blackstone had $1.5 billion in cash and cash equivalents, $2.0 billion invested in Blackstone’s Treasury Cash Management Strategies, $2.2 billion in investments invested in Blackstone Funds and other investments, against $2.8 billion in borrowings from our bond issuances, and no borrowings outstanding under our revolving credit facility.

In addition to the cash we received from our debt offerings and availability under our committed revolving credit facility, 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.

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 and others who are limited partners of the Blackstone Holdings Partnerships. Distributable Earnings 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 and reconciled to, but not equivalent to, its most directly comparable GAAP measure of Income (Loss) Before Provision for Taxes. Distributable Earnings, which is a

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component of Economic Net Income, is the sum across all segments of: (a) Total Management and Advisory Fees, (b) Interest and Dividend Revenue, (c) Other Revenue, (d) Realized Performance Fees, and (e) Realized Investment Income (Loss); less (a) Compensation, excluding the expense of equity-based awards, (b) Realized Performance Fee Compensation, (c) Other Operating Expenses, and (d) Taxes and Related Payables including the Payable Under Tax Receivable Agreement.

The following table calculates Blackstone’s Fee Related Earnings, Distributable Earnings and Economic Net Income:

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(a)	Represents the total segment amounts of the respective captions. See Note 18. “Segment Reporting” in the “Notes to Condensed Consolidated Financial Statements” in “Part I. Item 1. Financial Statements” of this filing.

(b)	Detail on this amount is included in the table below.

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(c)	Taxes and Related Payables Including Payable Under Tax Receivable Agreement represents the total GAAP tax provision adjusted to include only the current tax provision (benefit) calculated on Income (Loss) Before Provision for Taxes and the Payable Under Tax Receivable Agreement.

(d)	Represents equity-based award expense included in Economic Income, which excludes all transaction-related equity-based charges.

(e)	Represents tax-related payables including the Payable Under Tax Receivable Agreement, which is a component of Taxes and Related Payables.

The following calculates the components of Fee Related Earnings, Distributable Earnings and Economic Net Income in the above table identified by note (b):

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(a)	Represents the total segment amounts of the respective captions. See Note 18. “Segment Reporting” in the “Notes to Condensed Consolidated Financial Statements” in “Part I. Item 1. Financial Statements” of this filing.

(b)	Represents equity-based award expense included in Economic Income, which excludes all transaction-related equity-based charges.

(c)	Taxes and Related Payables Including Payable Under Tax Receivable Agreement represents the total GAAP tax provision adjusted to include only the current tax provision (benefit) calculated on Income (Loss) Before Provision for Taxes and the Payable Under Tax Receivable Agreement.

(d)	Represents tax-related payables including the Payable Under Tax Receivable Agreement, which is a component of Taxes and Related Payables.

The following table is a reconciliation of Net Income Attributable to The Blackstone Group L.P. to Economic Income, of Economic Income to Economic Net Income, of Economic Net Income to Fee Related Earnings, of Fee Related Earnings to

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Distributable Earnings and of Distributable Earnings to Adjusted Earnings Before Interest, Taxes and Depreciation and Amortization:

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(a)

This adjustment adds back to Income (Loss) Before Provision (Benefit) for Taxes amounts for Transaction-Related Charges which include principally equity-based compensation charges associated with Blackstone’s IPO and long-term retention programs outside of annual deferred compensation and other corporate actions.

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

(c)	This adjustment adds back to Income (Loss) Before Provision (Benefit) for Taxes the amount of (Income) Loss Associated with Non-Controlling Interests of Consolidated Entities and includes the amount of Management Fee Revenues associated with consolidated CLO entities.

(d)	Taxes represent the total GAAP tax provision adjusted to include only the current tax provision (benefit) calculated on Income (Loss) Before Provision (Benefit) for Taxes.

(e)	This adjustment removes from EI the total segment amount of Performance Fees.

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

(g)	This adjustment represents Interest Income and Dividend Revenue less Interest Expense.

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

(i)	Represents the adjustment for realized Performance Fees net of corresponding actual amounts due under Blackstone’s profit sharing plans related thereto. Equals the sum of Net Realized Incentive Fees and Net Realized Carried Interest.

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

(k)	Taxes and Related Payables Including Payable Under Tax Receivable Agreement represent the total GAAP tax provision adjusted to include only the current tax provision (benefit) calculated on Income (Loss) Before Provision (Benefit) for Taxes and the Payable Under Tax Receivable Agreement.

(l)	Represents equity-based award expense included in EI, which excludes all transaction-related equity-based charges.

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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, the funds we invest in and our investment strategies as of June 30, 2016 consisted of the following:


	Blackstone and General Partner				Senior Managing Directors and Certain Other Professionals (a)
Fund	Original Commitment		Remaining Commitment		Original Commitment		Remaining Commitment
	(Dollars in Thousands)
Private Equity
BCP VII	$	500,000	$	500,000	$	225,000	$	225,000
BCP VI		719,718		147,045		250,000		51,077
BCP V		629,356		40,519		—		—
BEP I		50,000		5,098		—		—
BEP II		80,000		78,036		26,667		26,012
BCEP		92,500		92,500		—		—
Tactical Opportunities		236,245		109,221		61,015		36,407
Strategic Partners		310,856		236,175		55,851		45,727
Other (c)		211,129		11,533		—		—
Real Estate
BREP VIII		300,000		188,058		100,000		62,686
BREP VII		300,000		52,874		100,000		17,625
BREP VI		750,000		36,809		150,000		7,362
BREP Europe III		100,000		13,231		35,000		4,631
BREP Europe IV		130,000		37,046		43,333		12,349
BREP Europe V		130,000		130,000		43,333		43,333
BREP Asia		50,392		23,103		16,797		7,701
BREDS II		50,000		26,372		16,667		8,791
BREDS III		50,000		50,000		16,667		16,667
CT Opportunity Partners I (b)		25,000		24,497		—		—
Other (c)		128,674		35,609		—		—
Hedge Fund Solutions
Strategic Alliance		50,000		2,033		—		—
Strategic Alliance II		50,000		1,482		—		—
Strategic Alliance III		2,000		2,000		—		—
Strategic Holdings LP		50,000		41,902		—		—
Other (c)		800		280		—		—
Credit
Capital Opportunities Fund II LP		120,000		47,673		109,960		43,685
GSO Capital Solutions II		125,000		84,559		119,655		80,943
Blackstone/GSO Capital Solutions		50,000		7,941		27,666		4,394
BMezz II		17,692		3,085		—		—
GSO Credit Alpha Fund LP		52,102		23,352		50,580		22,670
GSO Euro Senior Debt Fund LP		63,000		59,922		56,811		54,035
GSO Energy Select Opportunities Fund		80,000		73,750		74,682		68,847
Capital Opportunities Fund III LP		66,488		66,488		6,097		6,097
Other (c)		97,328		43,519		15,201		3,664
Other
Treasury		187,464		11,550		—		—

Total	$	5,855,744	$	2,307,262	$	1,600,982	$	849,703

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(a)

For some of the general partner commitments shown in the table above, we require our senior managing directors and certain other professionals to fund a portion of the commitment even though the ultimate obligation to fund the aggregate commitment is ours pursuant to the governing agreements of the respective funds. The amounts of the aggregate applicable general partner original and remaining commitment are shown in the table above. In addition, certain senior managing directors and other professionals are required to fund a de minimis amount of the commitment in the other private equity, real estate and credit-focused carry funds. We expect our commitments to be drawn down over time and to be funded by available cash and cash generated from operations and realizations. Taking into account prevailing market conditions and both the liquidity and cash or liquid investment balances, we believe that the sources of liquidity described above will be more than sufficient to fund our working capital requirements.

(b)	Represents a legacy fund managed by us as a result of the 2012 acquisition of the investment advisory business of BXMT.

(c)	Represents capital commitments to a number of other funds in each respective segment.

Blackstone, through indirect subsidiaries, has a $1.1 billion unsecured revolving credit facility (the “Credit Facility”) with Citibank, N.A., as Administrative Agent with a maturity date of May 29, 2019. Borrowings may also be made in U.K. sterling, euros, Swiss francs or Japanese yen, in each case subject to certain sub-limits. The Credit Facility contains customary representations, covenants and events of default. Financial covenants consist of a maximum net leverage ratio and a requirement to keep a minimum amount of fee-earning assets under management, each tested quarterly.

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. In September 2010, Blackstone Holdings Finance Co. L.L.C. issued $400 million in aggregate principal amount of 5.875% Senior Notes which will mature on March 15, 2021, unless earlier redeemed or repurchased. In August 2012, Blackstone Holdings Finance Co. L.L.C. issued $400 million in aggregate principal amount of 4.75% Senior Notes which will mature on February 15, 2023 and $250 million in aggregate principal amount of 6.25% Senior Notes which will mature on August 15, 2042. In April 2014, Blackstone Holdings Finance Co. L.L.C. issued $500 million in aggregate principal amount of 5.000% Senior Notes which will mature on June 15, 2044, unless earlier redeemed or repurchased. In April 2015, Blackstone Holdings Finance Co. L.L.C. issued $350 million in aggregate principal amount of 4.450% Senior Notes which will mature on July 15, 2045, unless earlier redeemed or repurchased. In May 2015, Blackstone Holdings Finance Co. L.L.C. issued €300 million in aggregate principal amount of 2.000% Senior Notes which will mature on May 19, 2025, unless earlier redeemed or repurchased. (These Senior Notes are collectively referred to as the “Notes”.) 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 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 three months ended June 30, 2016, no units were repurchased. As of June 30, 2016, the amount remaining under this program available for repurchases was $335.8 million.

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Distributions

Distributable Earnings, which is derived from Blackstone’s 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 is intended to show the amount of net realized earnings without the effects of the consolidation of the Blackstone Funds. Distributable Earnings, which is a component of Economic Net Income, is the sum across all segments of: (a) Total Management and Advisory Fees, (b) Interest and Dividend Revenue, (c) Other Revenue, (d) Realized Performance Fees, and (e) Realized Investment Income (Loss); less (a) Compensation, excluding the expense of equity-based awards, (b) Realized Performance Fee Compensation, (c) Other Operating Expenses, and (d) Taxes and Related Payables Including the Payable Under Tax Receivable Agreement.

Our intention is to distribute quarterly to common unitholders approximately 85% of The Blackstone Group L.P.’s share of Distributable Earnings, subject to adjustment by amounts determined by Blackstone’s 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 cash requirements such as tax-related payments, clawback obligations and distributions to unitholders for any ensuing quarter. The amount to be distributed could also be adjusted upward in any one 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, including, without limitation, to reduce the quarterly distribution payable to our common unitholders or even to eliminate such distributions entirely.

Because the subsidiaries of The Blackstone Group L.P. must pay taxes and make payments under the tax receivable agreements, the amounts ultimately distributed by The Blackstone Group L.P. to its common unitholders in respect of each fiscal year are expected to be 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.

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The following chart shows fiscal quarterly and annual per common unitholder distributions for 2015 and 2016. Distributions are declared and paid in the quarter subsequent to the quarter in which they are earned.

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With respect to the second quarter of fiscal year 2016, we have paid to common unitholders a distribution of $0.36 per common unit, aggregating $0.64 per common unit in respect of the six months ended June 30, 2016. With respect to fiscal year 2015, we paid common unitholders aggregate distributions of $2.73 per common unit.

Leverage

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. In addition to the borrowings from our bond issuances and our revolving credit facility, our Treasury Cash Management Strategies may use reverse repurchase agreements, repurchase agreements and securities sold, not yet purchased. All of these positions are held in a separately managed portfolio. Reverse repurchase agreements are entered into primarily to take advantage of opportunistic yields otherwise absent in the overnight markets and also to use the collateral received to cover securities sold, not yet purchased. Repurchase agreements are entered into primarily to opportunistically yield higher spreads on purchased securities. The balances held in these financial instruments fluctuate based on Blackstone’s liquidity needs, market conditions and investment risk profiles.

Generally our funds in our private equity segment, our opportunistic real estate funds, funds of hedge funds and certain credit-focused funds have not utilized substantial leverage at the fund level other than for (a) short-term borrowings between the date of an investment and the receipt of capital from the investing fund’s investors, and (b) long-term borrowings for certain investments in aggregate amounts which are generally 1% to 20% of the capital commitments of the respective fund. 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 Real Estate debt hedge funds, Hedge Fund Solutions and Credit funds use leverage in order to obtain additional market exposure, enhance returns on invested capital and/or to bridge short-term cash needs. The

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forms of leverage primarily employed by these funds include purchasing securities on margin, utilizing collateralized financing and using derivative instruments.

The following table presents information regarding these financial instruments in our Condensed Consolidated Statements of Financial Condition:


	Reverse Repurchase Agreements		Repurchase Agreements		Securities Sold, Not Yet Purchased
	(Dollars in Millions)
Balance, June 30, 2016	$	43.9	$	56.4	$	115.8
Balance, December 31, 2015	$	204.9	$	40.9	$	176.7
Six Months Ended June 30, 2016
Average Daily Balance	$	51.5	$	59.2	$	117.9
Maximum Daily Balance	$	230.9	$	95.0	$	189.5

Contractual Obligations, Commitments and Contingencies

The following table sets forth information relating to our contractual obligations as of June 30, 2016 on a consolidated basis and on a basis deconsolidating the Blackstone Funds:


Contractual Obligations	July 1, 2016 to December 31, 2016			2017-2018			2019-2020			Thereafter			Total
	(Dollars in Thousands)
Operating Lease Obligations (a)	$	38,197		$	147,764		$	131,653		$	488,547		$	806,161
Purchase Obligations		14,985			24,678			6,154			—			45,817
Blackstone Issued Notes and Revolving Credit Facility (b)		—			—			585,000			2,250,000			2,835,000
Interest on Blackstone Issued Notes and Revolving Credit Facility (c)		72,080			288,262			249,506			1,413,250			2,023,098
Blackstone Funds and CLO Vehicles Debt Obligations Payable (d)		4,233			528,438			—			3,836,862			4,369,533
Interest on Blackstone Funds and CLO Vehicles Debt Obligations Payable (e)		40,573			155,906			153,198			568,967			918,644
Blackstone Funds Capital Commitments to Investee Funds (f)		55,522			—			—			—			55,522
Due to Certain Non-Controlling Interest Holders in Connection with Tax Receivable Agreements (g)		—			147,829			178,531			854,158			1,180,518
Unrecognized Tax Benefits, Including Interest and Penalties (h)		5,875			—			—			—			5,875
Blackstone Operating Entities Capital Commitments to Blackstone Funds and Other (i)		2,307,262			—			—			—			2,307,262

Consolidated Contractual Obligations		2,538,727			1,292,877			1,304,042			9,411,784			14,547,430
Blackstone Funds and CLO Vehicles Debt Obligations Payable (d)		(4,233	)		(528,438	)		—			(3,836,862	)		(4,369,533	)
Interest on Blackstone Funds and CLO Vehicles Debt Obligations Payable (e)		(40,573	)		(155,906	)		(153,198	)		(568,967	)		(918,644	)
Blackstone Funds Capital Commitments to Investee Funds (f)		(55,522	)		—			—			—			(55,522	)

Blackstone Operating Entities Contractual Obligations	$	2,438,399		$	608,533		$	1,150,844		$	5,005,955		$	9,203,731

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(a)

We lease our primary office space and certain office equipment under agreements that expire through 2032. In connection with certain office space 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 senior notes we issued. As of June 30, 2016, we had no outstanding borrowings under our revolver.

(c)

Represents interest to be paid over the maturity of our senior notes and borrowings under our revolving credit facility which has been calculated assuming no pre-payments are made and debt is held until its final maturity date. These amounts exclude commitment fees for unutilized borrowings under our revolver.

(d)	These obligations are those of the Blackstone Funds including the consolidated CLO vehicles.

(e)

Represents interest to be paid over the maturity of the related consolidated Blackstone Funds’ and CLO vehicles’ debt obligations which has been calculated assuming no pre-payments 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, 2016, at spreads to market rates pursuant to the financing agreements, and range from 0.5% to 8.7%. 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.

(f)	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.

(g)

Represents obligations by the Partnership’s corporate subsidiary to make payments under the Tax Receivable Agreements to certain non-controlling interest holders for the tax savings realized from the taxable purchases of their interests in connection with the reorganization at the time of Blackstone’s IPO in 2007 and subsequent purchases. The obligation represents the amount of the payments currently expected to be made, which are dependent on the tax savings actually realized as determined annually without discounting for the timing of the payments. As required by GAAP, the amount of the obligation included in the Condensed Consolidated Financial Statements and shown in Note 16. “Related Party Transactions” (see “Part I. Item 1. Financial Statements”) differs to reflect the net present value of the payments due to certain non-controlling interest holders.

(h)

The total represents gross unrecognized tax benefits of $3.3 million and interest and penalties of $2.6 million. In addition, Blackstone is not able to make a reasonably reliable estimate of the timing of payments in individual years in connection with gross unrecognized benefits of $13.0 million and interest of $5.7 million; therefore, such amounts are not included in the above contractual obligations table.

(i)

These obligations represent commitments by us to provide general partner capital funding to the Blackstone Funds, limited partner capital funding to other funds and Blackstone principal investment commitments. These amounts are generally due on demand and are therefore presented in the less than one year category; however, a substantial amount of the capital commitments are expected to be called over the next three years. We expect to continue to make these general partner capital commitments as we raise additional amounts for our investment funds over time.

Guarantees

Blackstone and certain of its consolidated funds provide financial guarantees. The amounts and nature of these guarantees are described in Note 17. “Commitments and Contingencies — Contingencies — Guarantees” in the “Notes to Condensed Consolidated Financial Statements” in “Part I. Item 1. Financial Statements” of this filing.

Indemnifications

In many of its service contracts, Blackstone agrees to indemnify the third party service provider under certain circumstances. The terms of the indemnities vary from contract to contract and the amount of indemnification liability, if any, cannot be determined and has not been included in the table above or recorded in our Condensed Consolidated Financial Statements as of June 30, 2016.

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Clawback Obligations

Carried Interest is subject to clawback to the extent that the Carried Interest received to date with respect to a fund exceeds the amount due to Blackstone based on cumulative results of that fund. The actual clawback liability, however, generally does not become realized until the end of a fund’s life except for certain Blackstone real estate funds, multi-asset class investment funds and credit-focused funds, which may have an interim clawback liability. The lives of the carry funds, including available contemplated extensions, for which a liability for potential clawback obligations has been recorded for financial reporting purposes are currently anticipated to expire at various points through 2028. Further extensions of such terms may be implemented under given circumstances.

As of June 30, 2016, the total clawback obligations were $5.1 million, of which $2.7 million related to Blackstone Holdings and $2.4 million related to current and former Blackstone personnel. If, at June 30, 2016, all of the investments held by our carry funds were deemed worthless, a possibility that management views as remote, the amount of Carried Interest subject to potential clawback would be $4.8 billion, on an after tax basis where applicable, of which $4.4 billion related to Blackstone Holdings and $406.0 million related to current and former Blackstone personnel. (See Note 16. “Related Party Transactions” and Note 17. “Commitments and Contingencies” in the “Notes to Condensed Consolidated Financial Statements” in “Part I. Item 1. Financial Statements” of this filing.)

Critical Accounting Policies

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

Principles of Consolidation

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analysis to determine (a) whether an entity in which the Partnership holds a variable interest is a VIE and (b) whether the Partnership’s involvement, through holding interests directly or indirectly in the entity or contractually through other variable interests (for example, management and performance related fees), would give it a controlling financial interest. Performance of that analysis requires the exercise of judgment.

Revenue Recognition

Revenues primarily consist of management and advisory fees, performance fees, investment income, interest and dividend revenue and other. Please refer to “Part I. Item 1. Business — Incentive Arrangements / Fee Structure” in our Annual Report on Form 10-K for the year ended December 31, 2015 for additional information regarding the manner in which Base Management Fees and Performance Fees are generated.

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

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

•

0.25% to 2.00% of committed capital or invested capital during the investment period,

•

0.50% to 1.75% of invested capital or investment fair value subsequent to the investment period for private equity and real estate funds, and

•

1.00% to 1.50% of invested capital or net asset value subsequent to the investment period for certain credit-focused funds.

On real estate and credit-focused funds structured like hedge funds:

•

0.50% to 1.50% of net asset value.

On credit-focused separately managed accounts:

•

0.35% to 1.35% of net asset value.

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On real estate separately managed accounts:

•

0.50% to 2.00% of invested capital, net operating income or net asset value.

On funds of hedge funds and separately managed accounts invested in hedge funds:

•

0.50% to 1.25% of net asset value.

On CLO vehicles:

•

0.40% to 0.65% of total assets.

On credit-focused registered and non-registered investment companies:

•

0.35% to 1.50% of fund assets or net asset value.

The investment adviser of BXMT receives annual management fees based upon 1.50% of BXMT’s net proceeds received from equity offerings and accumulated “core earnings” (which is generally equal to its GAAP net income excluding certain non-cash and other items), subject to certain adjustments.

In certain fund structures, specifically in private equity, real estate and certain Hedge Fund Solutions and credit-focused funds (“Carry Funds”), performance fees (“Carried Interest”) are allocated to the general partner

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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 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.

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. 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 consists of miscellaneous income and 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:

119

upon departure from Blackstone after becoming eligible for retirement), for which the expense for the portion of the award that would be retained in the event of retirement is either expensed immediately or amortized to the retirement date. Cash settled equity-based awards are classified as liabilities and are remeasured at the end of each reporting period.

Compensation and Benefits — Performance Fee — Performance Fee Compensation consists of Carried Interest (which may be distributed in cash or in kind) and Incentive Fee allocations, and may in future periods also include allocations of investment income from Blackstone’s firm investments, to employees and senior managing directors participating in certain profit sharing initiatives. Such compensation expense is subject to both positive and negative adjustments. Unlike Carried Interest and Incentive Fees, compensation expense is based on the performance of individual investments held by a fund rather than on a fund by fund basis. Compensation received from advisory clients in the form of securities of such clients may also be allocated to employees and senior managing directors.

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:

•

Transfers between levels of the fair value hierarchy are recognized at the beginning of the reporting period.

120

Level II Valuation Techniques

The valuation techniques used to value financial instruments classified within Level II of the fair value hierarchy are as follows:

•

Freestanding Derivatives are valued using contractual cash flows and observable inputs comprising yield curves, foreign currency rates and credit spreads.

•

Level III Valuation Techniques

121

Level III Valuation Process

Investments classified within Level III of the fair value hierarchy are valued on a quarterly basis, taking into consideration factors including any changes in Blackstone’s weighted-average cost of capital assumptions, discounted cash flow projections and exit multiple assumptions, as well as any changes in economic and other relevant conditions, and valuation models are updated accordingly. The valuation process also includes a review by an independent valuation party, at least annually for all investments, and quarterly for certain investments, to corroborate the values determined by management. The valuations of Blackstone’s investments are reviewed quarterly by a valuation committee chaired by Blackstone’s Vice Chairman and includes senior heads of each of Blackstone’s businesses, as well as representatives of legal and finance. Each quarter, the valuations of Blackstone’s investments are also reviewed by the Audit Committee in a meeting attended by the chairman of the valuation committee. The valuations are further tested by comparison to actual sales prices obtained on disposition of the investments.

Investments, at Fair Value

122

presented as a transition and acquisition adjustment to 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 and acquisition are presented within Net Gains (Losses) from Fund Investment Activities. Expenses of consolidated CLO vehicles are presented in Fund Expenses. Historically, amounts attributable to Non-Controlling Interests in Consolidated Entities had a corresponding adjustment to Appropriated Partners’ Capital. On the adoption of the new CLO measurement guidance, there is no attribution of amounts to Non-Controlling Interests and no corresponding adjustments to Appropriated Partners’ Capital.

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 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, Incentive Fees and Carried Interest. Identifiable finite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives, ranging from 3 to 20 years, reflecting the contractual lives of such assets. Amortization expense is included within General, Administrative and Other in the Condensed Consolidated Statements of Operations. The Partnership does not hold any indefinite-lived intangible assets. Intangible assets are reviewed for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable.

Goodwill comprises goodwill arising from the contribution and reorganization of the Partnership’s predecessor entities in 2007 immediately prior to its IPO, the acquisition of GSO in 2008 and the acquisition of Strategic

123

Partners in 2013. Goodwill is reviewed for impairment at least annually utilizing a qualitative or quantitative approach, and more frequently if circumstances indicate impairment may have occurred. The impairment testing for goodwill under the qualitative approach is based first on a qualitative assessment to determine if it is more likely than not that the fair value of Blackstone’s operating segments is less than their respective carrying values. The operating segment is the reporting level for testing the impairment of goodwill. If it is determined that it is more likely than not that an operating segment’s fair value is less than its carrying value or when the quantitative approach is used, a two-step quantitative assessment is performed to (a) calculate the fair value of the operating segment and compare it to its carrying value, and (b) if the carrying value exceeds its fair value, to measure an impairment loss.

Senior management has organized the firm into four operating segments. All of the components in each segment have similar economic characteristics and senior 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.

The carrying value of goodwill was $1.7 billion as of June 30, 2016 and December 31, 2015, respectively. At June 30, 2016 and December 31, 2015, we determined that there was no evidence of Goodwill impairment.

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 Condensed Consolidated Financial Statements” in “Part I. Item 1. Financial Statements” of this filing as follows:

•

Note 6. “Derivative Financial Instruments”,

•

Note 9. “Variable Interest Entities”, and

•

Note 17. “Commitments and Contingencies — Commitments — Investment Commitments” and “— Contingencies — Guarantees”.

Recent Accounting Developments

Information regarding recent accounting developments and their impact on Blackstone can be found in Note 2. “Summary of Significant Accounting Policies” in the “Notes to Condensed Consolidated Financial Statements” in “Part I. Item 1. Financial Statements” of this filing.

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 adviser 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 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:

•

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

124

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 adviser to certain funds in our Hedge Fund Solutions and Credit segments, 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 fair value of our investments in the related funds. The proportion of our management fees that are based on NAV is dependent on the number and types of Blackstone Funds in existence and the current stage of each fund’s life cycle. For the six months ended June 30, 2016 and June 30, 2015, the percentages of our fund management fees based on the NAV of the applicable funds or separately managed accounts, were as follows:


	Six Months Ended June 30,
	2016			2015
Fund Management Fees Based on the NAV of the Applicable Funds or Separately Managed Accounts		34	%		36	%

Market Risk

The Blackstone Funds hold investments which are reported at fair value. Based on the fair value as of June 30, 2016 and June 30, 2015, we estimate that a 10% decline in fair value of the investments would result in the following declines in Management Fees, Performance Fees, Net of Related Compensation Expense and Investment Income:


	June 30,
	2016						2015
	Management Fees (a)		Performance Fees, Net of Related Compensation Expense (b)		Investment Income (b)		Management Fees (a)		Performance Fees, Net of Related Compensation Expense (b)		Investment Income (b)
	(Dollars in Thousands)
10% Decline in Fair Value of the Investments	$	88,173	$	1,298,199	$	254,838	$	86,220	$	1,485,164	$	248,615

(a)	Represents the annualized effect of the 10% decline.

(b)	Represents the reporting date effect of the 10% decline.

125

Total Assets Under Management, excluding undrawn capital commitments and the amount of capital raised for our CLOs, by segment, and the percentage amount classified as Level III investments as defined within the fair value standards of GAAP, are as follows:


	June 30, 2016
	Total Assets Under Management, Excluding Undrawn Capital Commitments and the Amount of Capital Raised for CLOs		Percentage Amount Classified as Level III Investments
	(Dollars in Thousands)
Private Equity	$	41,113,434		69	%
Real Estate	$	68,903,038		82	%
Credit	$	46,702,567		45	%

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 Annual Report on Form 10-K for the year ended December 31, 2015. 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 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-focused funds and funds of hedge funds) make capital commitments to those funds that we are entitled to call from those investors at any time during prescribed periods. We depend on investors fulfilling their commitments when we call capital from them in order for those funds to consummate investments and otherwise pay their related obligations when due, including management fees. We have not had investors fail to honor capital calls to any meaningful extent and any investor that did not fund a capital call would be subject to having a significant amount of its existing investment forfeited in that fund; however, if investors were to fail to satisfy a significant amount of capital calls for any particular fund or funds, those funds could be materially and adversely affected.

Exchange Rate Risk

The Blackstone Funds hold investments that are denominated in non-U.S. dollar currencies that may be affected by movements in the rate of exchange between the U.S. dollar and non-U.S. dollar currencies. Additionally, a portion of our management fees are denominated in non-U.S. dollar currencies. We estimate that as of June 30, 2016 and June 30, 2015, a 10% decline in the rate of exchange of all foreign currencies against the U.S. dollar would result in the following declines in Management Fees, Performance Fees, Net of Related Compensation Expense and Investment Income:


	June 30,
	2016						2015
	Management Fees (a)		Performance Fees, Net of Related Compensation Expense (b)		Investment Income (b)		Management Fees (a)		Performance Fees, Net of Related Compensation Expense (b)		Investment Income (b)
	(Dollars in Thousands)
10% Decline in the Rate of Exchange of All Foreign Currencies Against the U.S. Dollar	$	13,559	$	269,818	$	33,740	$	14,078	$	289,460	$	42,725

(a)	Represents the annualized effect of the 10% decline.

(b)	Represents the reporting date effect of the 10% decline.

126

Interest Rate Risk

Blackstone has debt obligations payable that accrue interest at variable rates. Interest rate changes may therefore affect the amount of our interest payments, future earnings and cash flows. Based on our debt obligations payable as of June 30, 2016 and June 30, 2015, we estimate that interest expense relating to variable rates would increase on an annual basis, in the event interest rates were to increase by one percentage point, as follows:


	June 30,
	2016		2015
	(Dollars in Thousands)
Annualized Increase in Interest Expense Due to a One Percentage Point Increase in Interest Rates	$	42	$	42

Blackstone’s Treasury Cash Management Strategies consists of a diversified portfolio of 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, freestanding derivative contracts, repurchase and reverse repurchase agreements and other investments. If interest rates were to increase by one percentage point, we estimate that our annualized investment income would decrease, offset by an estimated increase in interest income on an annual basis from interest on floating rate assets, as follows:


	June 30,
	2016					2015
	Annualized Decrease in Investment Income			Annualized Increase in Interest Income from Floating Rate Assets		Annualized Decrease in Investment Income			Annualized Increase in Interest Income from Floating Rate Assets
	(Dollars in Thousands)
One Percentage Point Increase in Interest Rates	$	13,722	(a)	$	16,498	$	21,432	(a)	$	17,162

(a)	As of June 30, 2016 and 2015, this represents 0.4% and 0.5% of the Treasury Liquidity Portfolio, respectively.

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 annualized investment income would decrease, if credit spreads were to increase by one percentage point, as follows:


	June 30,
	2016		2015
	(Dollars in Thousands)
Decrease in Annualized Investment Income Due to a One Percentage Point Increase in Credit Spreads (a)	$	24,320	$	50,308

(a)	As of June 30, 2016 and 2015, this represents 0.7% and 1.2% of the Treasury Liquidity Portfolio, respectively.

Certain of our entities hold derivative instruments that contain an element of risk in the event that the counterparties may be unable to meet the terms of such agreements. We minimize our risk exposure by limiting the counterparties with which we enter into contracts to banks and investment banks who meet established credit and

127

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. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired objectives.

Our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) are effective at the reasonable assurance level to accomplish their objectives of ensuring that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

No 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.

128

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 “Part I. Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2015. 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. However, given the inherent unpredictability of these types of proceedings and the potentially large and/or indeterminate amounts that could be sought, it is possible that an adverse outcome in certain matters could have a material effect on Blackstone’s financial results in any particular period.

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, 2015 and in our subsequently filed Quarterly Reports on Form 10-Q, all of which are 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 and reducing the ability of our investment funds to raise or deploy capital, each of which could materially reduce our revenue, earnings and cash flow and adversely affect our financial prospects and condition.” in our Annual Report on Form 10-K for the year ended December 31, 2015.

The risks described in our Annual Report on Form 10-K and in our subsequently filed Quarterly Reports on Form 10-Q 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.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

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 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. The unit repurchase program may be suspended or discontinued at any time and does not have a specified expiration date. During the three months ended June 30, 2016, no units were repurchased. As of June 30, 2016, the amount remaining available for repurchases was $335.8 million under this program. See “Part I. Item 1. Financial Statements — Notes to Condensed Consolidated Financial Statements — Note 14. Net Income Per Common Unit” and “Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — 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 Blackstone Holdings Partnership Units.

129

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4.

MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.

OTHER INFORMATION

Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 (“ITRA”), which added Section 13(r) of the Exchange Act, Blackstone hereby incorporates by reference herein Exhibit 99.1 of this report, which includes disclosures publicly filed and/or provided to us by NCR Corporation, which may be considered our affiliate.

ITEM 6.

EXHIBITS


Exhibit Number		Exhibit Description

10.1+		BTOA II L.L.C. Amended and Restated Limited Liability Company Agreement, dated as of December 19, 2014.

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).

99.1		Section 13(r) Disclosure.

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.

+	Management contract or compensatory plan or arrangement in which directors or executive officers are eligible to participate.

The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.

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SIGNATURES

Pursuant to the requirements 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 4, 2016


The Blackstone Group L.P.

By:		Blackstone Group Management L.L.C.,
		its General Partner

		/s/ Michael S. Chae
Name:		Michael S. Chae
Title:		Chief Financial Officer
		(Principal Financial Officer and Authorized Signatory)

131

Exhibit 10.1

EXECUTION COPY

HIGHLY CONFIDENTIAL & TRADE SECRET

BTOA II L.L.C.

AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT

DATED AS OF DECEMBER 19, 2014

THE LIMITED LIABILITY COMPANY INTERESTS (THE “INTERESTS”) OF BTOA II L.L.C. (THE “COMPANY”) HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), THE SECURITIES LAWS OF ANY STATE IN THE UNITED STATES OR ANY OTHER APPLICABLE SECURITIES LAWS IN RELIANCE UPON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. SUCH INTERESTS MUST BE ACQUIRED FOR INVESTMENT ONLY AND MAY NOT BE OFFERED FOR SALE, PLEDGED, HYPOTHECATED, SOLD, ASSIGNED OR TRANSFERRED AT ANY TIME EXCEPT IN COMPLIANCE WITH (I) THE SECURITIES ACT, ANY APPLICABLE STATE SECURITIES LAWS, AND ANY OTHER APPLICABLE SECURITIES LAWS; AND (II) THE TERMS AND CONDITIONS OF THIS AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT. THE INTERESTS MAY NOT BE TRANSFERRED OF RECORD EXCEPT IN COMPLIANCE WITH SUCH LAWS AND THIS AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT. THEREFORE, PURCHASERS OF SUCH INTERESTS WILL BE REQUIRED TO BEAR THE RISK OF THEIR INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.

TABLE OF CONTENTS


		Page

ARTICLE I DEFINITIONS			1
Section 1.1.	Definitions		1
Section 1.2.	Terms Generally		21

ARTICLE II GENERAL PROVISIONS			21
Section 2.1.	Managing, Regular and Special Members		21
Section 2.2.	Formation; Name; Foreign Jurisdictions		22
Section 2.3.	Term		22
Section 2.4.	Purposes; Powers		22
Section 2.5.	Place of Business		25

ARTICLE III MANAGEMENT			25
Section 3.1.	Managing Member		25
Section 3.2.	Member Voting, etc		25
Section 3.3.	Management		25
Section 3.4.	Responsibilities of Members		28
Section 3.5.	Exculpation and Indemnification		28
Section 3.6.	Representations of Members		30
Section 3.7.	Tax Information		31

ARTICLE IV CAPITAL OF THE COMPANY			32
Section 4.1.	Capital Contributions by Members		32
Section 4.2.	Interest		39
Section 4.3.	Withdrawals of Capital		39

ARTICLE V PARTICIPATION IN PROFITS AND LOSSES			40
Section 5.1.	General Accounting Matters		40
Section 5.2.	GP-Related Capital Accounts		41
Section 5.3.	GP-Related Profit Sharing Percentages		42
Section 5.4.	Allocations of GP-Related Net Income (Loss)		43
Section 5.5.	Liability of Members		44
Section 5.6.	[Intentionally omitted.]		44
Section 5.7.	Repurchase Rights, etc		44
Section 5.8.	Distributions		44
Section 5.9.	Business Expenses		51
Section 5.10.	Tax Capital Accounts; Tax Allocations		51

ARTICLE VI ADDITIONAL MEMBERS; WITHDRAWAL OF MEMBERS; SATISFACTION AND DISCHARGE OF COMPANY INTERESTS; TERMINATION			52
Section 6.1.	Additional Members		52
Section 6.2.	Withdrawal of Members		53
Section 6.3.	GP-Related Member Interests Not Transferable		54

-i-

TABLE OF CONTENTS

(continued)


		Page

Section 6.4.	Consequences upon Withdrawal of a Member		55
Section 6.5.	Satisfaction and Discharge of a Withdrawn Member’s GP-Related Member Interests		56
Section 6.6.	Dissolution of the Company		61
Section 6.7.	Certain Tax Matters		61
Section 6.8.	Special Basis Adjustments		63

ARTICLE VII CAPITAL COMMITMENT INTERESTS; CAPITAL CONTRIBUTIONS; ALLOCATIONS; DISTRIBUTIONS			63
Section 7.1.	Capital Commitment Interests, etc		63
Section 7.2.	Capital Commitment Capital Accounts		64
Section 7.3.	Allocations		65
Section 7.4.	Distributions		65
Section 7.5.	Valuations		70
Section 7.6.	Disposition Election		70
Section 7.7.	Capital Commitment Special Distribution Election		71

ARTICLE VIII WITHDRAWAL, ADMISSION OF NEW MEMBERS			71
Section 8.1.	Member Withdrawal; Repurchase of Capital Commitment Interests		71
Section 8.2.	Transfer of Member’s Capital Commitment Interest		76
Section 8.3.	Compliance with Law		76

ARTICLE IX DISSOLUTION			77
Section 9.1.	Dissolution		77
Section 9.2.	Final Distribution		77
Section 9.3.	Amounts Reserved Related to Capital Commitment Member Interests		77

ARTICLE X MISCELLANEOUS			78
Section 10.1.	Submission to Jurisdiction; Waiver of Jury Trial		78
Section 10.2.	Ownership and Use of the Blackstone Name		79
Section 10.3.	Written Consent		80
Section 10.4.	Letter Agreements; Schedules		80
Section 10.5.	Governing Law; Separability of Provisions		80
Section 10.6.	Successors and Assigns; Third Party Beneficiaries		80
Section 10.7.	Confidentiality		81
Section 10.8.	Notices		81
Section 10.9.	Counterparts		81
Section 10.10.	Power of Attorney		81
Section 10.11.	Member’s Will		82
Section 10.12.	Cumulative Remedies		82
Section 10.13.	Legal Fees		82
Section 10.14.	Entire Agreement		82

-ii-

BTOA II L.L.C.

AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT of BTOA II L.L.C., a Delaware limited liability company (the “ Company ”), dated as of December 19, 2014, by and among Blackstone Holdings III L.P., a Québec société en commandite (the “ Managing Member ” or “ Holdings ”), as managing member, and the other members of the Company as set forth in the books and records of the Company, and such other persons that are admitted to the Company as members after the date hereof in accordance herewith.

W I T N E S S E T H

WHEREAS, the Company was formed as a Delaware limited liability company under the LLC Act (defined below) pursuant to a certificate of formation filed in the office of the Secretary of State of the State of Delaware on August 20, 2014;

WHEREAS, the Managing Member entered into a Limited Liability Company Agreement dated as of August 20, 2014 (the “ Original Agreement ”); and

WHEREAS, the parties hereto now wish to amend and restate the Original Agreement in its entirety as hereinafter set forth.

NOW, THEREFORE, in consideration of the mutual covenants and agreements herein made and intending to be legally bound, the parties hereto hereby agree that the Original Agreement shall be amended and restated in its entirety as follows:

ARTICLE I

DEFINITIONS

Section 1.1. Definitions . Unless the context otherwise requires, the following terms shall have the following meanings for purposes of this Agreement:

“ Adjustment Amount ” has the meaning set forth in Section 8.1(b).

“ Advancing Party ” has the meaning set forth in Section 7.1(b).

“ Affiliate ” when used with reference to another person means any person (other than the Company), directly or indirectly, through one or more intermediaries, controlling, controlled by, or under common control with, such other person, which may include, for greater certainty, endowment funds, charitable programs and other similar and/or related vehicles or accounts associated with or established by Blackstone and/or its affiliates, partners and current and/or former employees.

“ Agreement ” means this Amended and Restated Limited Liability Company Agreement, as it may be further amended, supplemented, restated or otherwise modified from time to time.

“ Alternative Vehicle ” means any investment vehicle or structure formed pursuant to Section 2.9 of the BTO II Partnership Agreement or any other “Alternative Vehicle” (as defined in any other BTO II Agreements).

“ Applicable Collateral Percentage ,” with respect to any Firm Collateral or Special Firm Collateral, has the meaning set forth in the books and records of the Company with respect thereto.

“ Associates II ” means Blackstone Tactical Opportunities Associates II L.L.C., a Delaware limited liability company and the general partner of BTO II.

“ Associates II LLC Agreement ” means the Limited Liability Company Agreement, dated as of the date set forth therein, of Associates II, as it may be amended, supplemented, restated or otherwise modified from time to time.

“ Bankruptcy ” means, with respect to any person, the occurrence of any of the following events: (i) the filing of an application by such person for, or a consent to, the appointment of a trustee or custodian of his or her assets; (ii) the filing by such person of a voluntary petition in Bankruptcy or the seeking of relief under Title 11 of the United States Code, as now constituted or hereafter amended, or the filing of a pleading in any court of record admitting in writing his or her inability to pay his or her debts as they become due; (iii) the failure of such person to pay his or her debts as such debts become due; (iv) the making by such person of a general assignment for the benefit of creditors; (v) the filing by such person of an answer admitting the material allegations of, or his or her consenting to, or defaulting in answering, a Bankruptcy petition filed against him or her in any Bankruptcy proceeding or petition seeking relief under Title 11 of the United States Code, as now constituted or as hereafter amended; or (vi) the entry of an order, judgment or decree by any court of competent jurisdiction adjudicating such person a bankrupt or insolvent or for relief in respect of such person or appointing a trustee or custodian of his or her assets and the continuance of such order, judgment or decree unstayed and in effect for a period of 60 consecutive days.

“ BCE Agreement ” means the limited partnership agreement, limited liability company agreement or other governing document of any limited partnership, limited liability company or other entity named or referred to in the definition of any of “BFREP,” “BFIP,” “BFGSO,” “BFCOMP” or “Other Blackstone Collateral Entity,” as such limited partnership agreement, limited liability company agreement or other governing document may be amended, supplemented, restated or otherwise modified to date, and as such limited partnership agreement, limited liability company agreement or other governing document may be further amended, supplemented, restated or otherwise modified from time to time, and any Other Blackstone Collateral Entity limited partnership agreement, limited liability company agreement or other governing document.

“ BCE Investment ” means any direct or indirect investment by any Blackstone Collateral Entity.

“ BCOM ” is the collective reference to (i) Blackstone Communications Partners I L.P., a Delaware limited partnership, and (ii) any other investment vehicle established pursuant to Article 2 of the partnership agreement for the partnership referred to in clause (i) above.

“ BCP VI ” is the collective reference to (i) Blackstone Capital Partners VI L.P., a Delaware limited partnership and (ii) any Alternative Investment Vehicles or Parallel Funds (each as defined in the partnership agreement for the partnership referred to in clause (i) above).

“ BCP VII ” is the collective reference to (i) Blackstone Capital Partners VII L.P. and Blackstone Capital Partners VII.2 L.P., each a Delaware limited partnership and (ii) any other Alternative Investment Vehicles or Parallel Funds (each as defined in the partnership agreements for the partnerships referred to in clause (i) above).

“ BCTP ” means (i) Blackstone Clean Technology Partners L.P., a Delaware limited partnership and (ii) any other Alternative Investment Vehicles or Parallel Funds (each as defined in the partnership agreement for the partnership referred to in clause (i) above).

“ BEP ” means (i) Blackstone Energy Partners L.P. and Blackstone Energy Partners Q L.P., each a Delaware limited partnership, and (ii) any other Alternative Investment Vehicles or Parallel Funds (each as defined in the partnership agreement for the partnership referred to in clause (i) above).

“ BEP II ” means (i) Blackstone Energy Partners II L.P. and Blackstone Energy Partners II.F L.P., each a Delaware limited partnership and (ii) any other Alternative Investment Vehicles or Parallel Funds (each as defined in the partnership agreement for the partnership referred to in clause (i) above).

“ BFCOMP ” means Blackstone Family Communications Partnership I L.P., Blackstone Family Communications Partnership I-SMD L.P. and any other entity that is an Affiliate thereof and has terms substantially similar to those of the foregoing partnerships and is formed in connection with the participation by one or more partners thereof directly or indirectly in investments in securities also purchased by BCOM or any other funds with substantially similar investment objectives to BCOM and that are sponsored or managed by an Affiliate of the Managing Member (which includes serving as general partner of such funds).

“ BFGSO ” means any entity formed to invest side-by-side with any GSO Fund and any other entity that is an Affiliate thereof and that has terms substantially similar to those of the foregoing partnerships or other entities and is formed in connection with the participation by one or more partners or other equity owners thereof directly or indirectly in investments in securities also purchased by any GSO Fund or any other funds with substantially similar investment objectives to any GSO Fund and that are sponsored or managed by an Affiliate of the Managing Member (which includes serving as general partner of such funds).

“ BFIP ” means Blackstone Capital Associates II L.P., Blackstone Capital Associates III L.P., Blackstone Family Investment Partnership II L.P., Blackstone Family Investment Partnership III L.P., Blackstone Family Investment Partnership IV-A L.P., Blackstone Family Investment Partnership IV-A – SMD L.P., Blackstone Family Investment Partnership V L.P., Blackstone Family Investment Partnership V- SMD L.P., Blackstone Family Investment Partnership VI L.P., Blackstone Family Investment Partnership VI-SMD L.P., Blackstone Family Investment Partnership VII – ESC L.P., Blackstone Family Cleantech Investment Partnership L.P., Blackstone Family Cleantech Investment Partnership – SMD L.P., Blackstone Energy Family Investment Partnership L.P., Blackstone Energy Family Investment Partnership – SMD L.P., Blackstone Family Tactical Opportunities Investment Partnership L.P., Blackstone Family Tactical Opportunities Investment Partnership – SMD L.P., Blackstone Family Tactical Opportunities Investment Partnership (Cayman) L.P., Blackstone Family Tactical Opportunities Investment Partnership (Cayman) – SMD L.P., Blackstone Energy Family Investment Partnership II L.P., and any other entity that is an Affiliate thereof and has terms similar to those of the foregoing partnerships and is formed in connection with the participation by one or more of the partners thereof in investments in securities also purchased by BCP VI, BCP VII, BCTP, BEP, BEP II, BTO, BTO II or any other fund with substantially similar investment objectives to BCP VI, BCP VII, BCTP, BEP, BEP II, BTO or BTO II and that are sponsored or managed by an Affiliate of the Managing Member (which includes serving as general partner of such funds).

“ BFREP ” means Blackstone Real Estate Capital Associates L.P., Blackstone Real Estate Capital Associates II L.P., Blackstone Real Estate Capital Associates III L.P., Blackstone Family Real Estate Partnership L.P., Blackstone Family Real Estate Partnership II L.P., Blackstone Family Real Estate Partnership III L.P., Blackstone Family Real Estate Partnership International-A-SMD L.P., Blackstone Family Real Estate Partnership IV-SMD L.P., Blackstone Family Real Estate Partnership International II-SMD L.P., Blackstone Family Real Estate Partnership V-SMD L.P., Blackstone Family Real Estate Partnership VI-SMD L.P., Blackstone Family Real Estate Partnership VII-SMD L.P., Blackstone Family Real Estate Partnership VIII-SMD L.P., Blackstone Family Real Estate Partnership Europe III-SMD L.P., Blackstone Family Real Estate Special Situations Partnership – SMD L.P., Blackstone Family Real Estate Special Situations Partnership Europe – SMD L.P., Blackstone Real Estate Holdings L.P., Blackstone Real Estate Holdings II L.P., Blackstone Real Estate Holdings III L.P., Blackstone Real Estate Holdings International – A L.P., Blackstone Real Estate Holdings IV L.P., Blackstone Real Estate Holdings International II L.P., Blackstone Real Estate Holdings V L.P., Blackstone Real Estate Holdings VI L.P., Blackstone Real Estate Holdings VII L.P., Blackstone Real Estate Holdings Europe III L.P., Blackstone Real Estate Holdings Europe IV L.P., Blackstone Real Estate Special Situations Holdings II L.P., Blackstone Real Estate Special Situations Holdings Europe L.P., Blackstone Family Real Estate Partnership Europe IV SMD L.P., Blackstone Real Estate Holdings Europe IV ESC L.P., Blackstone Family Real Estate Partnership Asia – SMD L.P., Blackstone Real Estate Holdings Asia – ESC L.P., Blackstone Real Estate Holdings VII-ESC L.P., Blackstone Real Estate Holdings VIII-ESC L.P., and any other entity that is an Affiliate thereof and that has terms substantially similar to those of the foregoing partnerships and is formed in connection with the participation by one or more partners thereof in real

estate and real estate-related investments also purchased by BREP VII, BREP VIII, the BREDS Funds, BREP Europe IV or BREP Asia and any other funds with substantially similar investment objectives to BREP VII, BREP VIII, the BREDS Funds, BREP Europe IV, BREP Asia or BPP and that are sponsored or managed by an Affiliate of the Managing Member (which includes serving as general partner of such funds).

“ Blackstone ” means collectively, The Blackstone Group L.P., a Delaware limited partnership, and any Affiliate thereof (excluding any natural persons and any portfolio companies of any Blackstone-sponsored fund).

“ Blackstone Commitment ” has the meaning set forth in the BTO II Partnership Agreement.

“ Blackstone Collateral Entity ” means any limited partnership, limited liability company or other entity named or referred to in the definition of any of “BFREP,” “BFIP,” “BFGSO,” “BFCOMP” or “Other Blackstone Collateral Entity.”

“ Blackstone Entity ” means any partnership, limited liability company or other entity (excluding any natural persons and any portfolio companies of any Blackstone-sponsored fund) that is an Affiliate of The Blackstone Group L.P.

“ BPP ” is the collective reference to (i) Blackstone Property Partners L.P., a Delaware limited partnership, (ii) any other Alternative Vehicles or Parallel Funds (each as defined in the partnership agreement for the partnership referred to in clause (i) above), or (iii) any other investment vehicle established pursuant to Article 2 of the partnership agreement for the partnership referred to in clause (i) above.

“ BREDS Funds ” shall mean the investment funds, vehicles and/or managed accounts managed on a day-to-day basis primarily by personnel in the Blackstone Real Estate Debt Strategies Group (including, without limitation, Blackstone Real Estate Special Situations Fund II L.P., Blackstone Real Estate Special Situations Fund II.1 L.P., Blackstone Real Estate Special Situations Fund II.2 L.P., Blackstone Real Estate Debt Strategies II L.P., Blackstone Real Estate Debt Strategies II – AC L.P., Blackstone Real Estate Debt Strategies II – Gaussian L.P., Blackstone Real Estate Debt Strategies III L.P., Blackstone Real Estate Debt Strategies II – A L.P., Blackstone Real Estate CMBS Fund L.P., Blackstone Real Estate Special Situations Europe L.P., Blackstone Real Estate Special Situations Europe 1 L.P., Blackstone Real Estate Special Situations Europe 2 L.P., Blackstone Commercial Real Estate Debt Fund L.P., Blackstone Real Estate Special Situations Fund L.P. and, in each case, any alternative vehicles, feeder vehicles or subsidiaries formed in connection therewith, any successor funds, any supplemental capital vehicles or other vehicles formed in connection therewith (or are otherwise related thereto) or in connection with any investments made thereby, and, in each case, any vehicles formed in connection with Blackstone’s side-by-side or additional general partner investments relating thereto).

“ BREP VII ” means (i) Blackstone Real Estate Partners VII L.P., Blackstone Real Estate Partners VII.TE.1 L.P., Blackstone Real Estate Partners VII.TE.2 L.P., Blackstone

Real Estate Partners VII.TE.3 L.P., Blackstone Real Estate Partners VII.TE.4 L.P., Blackstone Real Estate Partners VII.TE.5 L.P., Blackstone Real Estate Partners VII.TE.6 L.P., Blackstone Real Estate Partners VII.TE.7 L.P., Blackstone Real Estate Partners VII.TE.8 L.P. and Blackstone Real Estate Partners VII.F L.P., each a Delaware limited partnership, (ii) any other Alternative Vehicles, Parallel Funds or other Supplemental Capital Vehicles (each as defined in the respective partnership agreements for the partnerships referred to in clause (i) above), or (iii) any other investment vehicle established pursuant to Article 2 of the respective partnership agreements for any of the partnerships referred to in clause (i) above.

“ BREP VIII ” means (i) Blackstone Real Estate Partners VIII L.P., Blackstone Real Estate Partners VIII.TE.1 L.P., Blackstone Real Estate Partners VIII.TE.2 L.P. and Blackstone Real Estate Partners VIII.F L.P., each a Delaware limited partnership, (ii) any other Alternative Vehicles, Parallel Funds or other Supplemental Capital Vehicles (each as defined in the respective partnership agreements for the partnerships referred to in clause (i) above), or (iii) any other investment vehicle established pursuant to Article 2 of the respective partnership agreements for any of the partnerships referred to in clause (i) above.

“ BREP Asia ” is the collective reference to (i) Blackstone Real Estate Partners Asia L.P., a Cayman Islands exempted limited partnership, and Blackstone Real Estate Partners Asia.F L.P., a Delaware limited partnership, (ii) any other Alternative Vehicles, Parallel Funds or other Supplemental Capital Vehicles (each as defined in the partnership agreement for the partnership referred to in clause (i) above) or (iii) any other investment vehicle established pursuant to Article 2 of the partnership agreement for the partnership referred to in clause (i) above.

“ BREP Europe IV ” is the collective reference to (i) Blackstone Real Estate Partners Europe IV L.P. and Blackstone Real Estate Partners Europe IV.2 L.P., each a Cayman Islands exempted limited partnership, (ii) any other Alternative Investment Vehicles, Parallel Funds or other Supplemental Capital Vehicles (each as defined in the partnership agreements for the partnerships referred to in clause (i) above), or (iii) any other investment vehicle established pursuant to Article 2 of the partnership agreements for the partnerships referred to in clause (a) above.

“ BTO ” shall mean (i) the investment funds, vehicles and/or managed accounts managed on a day-to-day basis primarily by personnel in the Blackstone Tactical Opportunities Program (including, without limitation, Blackstone Tactical Opportunities Fund L.P., a Delaware limited partnership), (ii) any alternative investment vehicles relating to, or formed in connection with, any of the partnerships referred to in clause (i) of this definition, (iii) any parallel fund, managed account or other capital vehicle relating to, or formed in connection with, any of the partnerships referred to in clause (i) of this definition, and (iv) any other limited partnership, limited liability company or other entity (in each case, whether now or hereafter established) of which Blackstone Tactical Opportunities Associates L.L.C. or BTOA L.L.C. serves, directly or indirectly, as the manager or managing member or in a similar capacity.

“ BTO II ” means (i) Blackstone Tactical Opportunities Fund II L.P., a Delaware limited partnership, and Blackstone Tactical Opportunities Fund II.F L.P., a Cayman Islands exempted limited partnership, (ii) any Alternative Vehicle relating thereto and any other Parallel Fund relating thereto, (iii) any managed account or other capital vehicle relating to, or formed in connection with, any of the partnerships referred to in clause (i) of this definition and (iv) any other limited partnership, limited liability company or other entity (in each case, whether now or hereafter established) of which Associates II or the Company serves, directly or indirectly, as the general partner or managing member or in a similar capacity.

“ BTO II Agreements ” means the collective reference to (i) the BTO II Partnership Agreement and (ii) any other BTO II partnership, limited liability company or other governing agreements, as each may be amended, supplemented, restated or otherwise modified from time to time.

“ BTO II Partnership Agreement ” means the collective reference to the Amended and Restated Agreement of Limited Partnership of each limited partnership named in clause (i) of the definition of “BTO II,” as each may be amended, supplemented, restated or otherwise modified from time to time.

“ Business Day ” shall mean any day other than a Saturday, Sunday or other day on which banks are authorized or required by law to be closed in New York, New York.

“ Capital Commitment Associates II Member Interest ” means the interest of the Company, if any, as the sole member of Associates II with respect to any Capital Commitment BTO II Interest that may be held by Associates II.

“ Capital Commitment BTO II Commitment ” means the Capital Commitment (as defined in the BTO II Partnership Agreement), if any, of the Company or Associates II to BTO II that relates solely to the Capital Commitment BTO II Interest, if any.

“ Capital Commitment BTO II Interest” means the Interest (as defined in the BTO II Partnership Agreement), if any, of the Company or Associates II as a capital partner in BTO II.

“ Capital Commitment BTO II Investment ” means the Company’s interest in a specific investment of BTO II, which interest may be held by the Company (i) through the Company’s direct interest in BTO II through the Company’s Capital Commitment BTO II Interest, if the Company holds the Capital Commitment BTO II Interest, or (ii) through the Company’s interest in Associates II and Associates II’s interest in BTO II through Associates II’s Capital Commitment BTO II Interest, if Associates II holds the Capital Commitment BTO II Interest.

“ Capital Commitment Capital Account ” means, with respect to each Capital Commitment Investment for each Member, the account maintained for such Member to which are credited such Member’s contributions to the Company with respect to such Capital Commitment Investment and any net income allocated to such Member pursuant to Section 7.3 with respect to such Capital Commitment Investment and from which are

debited any distributions with respect to such Capital Commitment Investment to such Member and any net losses allocated to such Member with respect to such Capital Commitment Investment pursuant to Section 7.3. In the case of any such distribution in kind, the Capital Commitment Capital Accounts for the related Capital Commitment Investment shall be adjusted as if the asset distributed had been sold in a taxable transaction and the proceeds distributed in cash, and any resulting gain or loss on such sale shall be allocated to the Members participating in such Capital Commitment Investment pursuant to Section 7.3.

“ Capital Commitment Class A Interest ” has the meaning set forth in Section 7.4(f).

“ Capital Commitment Class B Interest ” has the meaning set forth in Section 7.4(f).

“ Capital Commitment Defaulting Party ” has the meaning specified in Section 7.4(g)(ii)(A).

“ Capital Commitment Deficiency Contribution ” has the meaning specified in Section 7.4(g)(ii)(A).

“ Capital Commitment Disposable Investment ” has the meaning set forth in Section 7.4(f).

“ Capital Commitment Distributions ” means, with respect to each Capital Commitment Investment, all amounts of distributions received by the Company with respect to such Capital Commitment Investment solely in respect of the Capital Commitment BTO II Interest, if any, less any costs, fees and expenses of the Company with respect thereto and less reasonable reserves for payment of costs, fees and expenses of the Company that are anticipated with respect thereto, in each case which the Managing Member may allocate to all or any portion of such Capital Commitment Investment as it may determine in good faith is appropriate.

“ Capital Commitment Giveback Amount ” has the meaning set forth in Section 7.4(g)(i).

“ Capital Commitment Interest ” means the interest of a Member in a specific Capital Commitment Investment as provided herein.

“ Capital Commitment Investment ” means any Capital Commitment BTO II Investment, but shall exclude any GP-Related Investment.

“ Capital Commitment Liquidating Share ” with respect to each Capital Commitment Investment means, in the case of dissolution of the Company, the related Capital Commitment Capital Account of a Member (less amounts reserved in accordance with Section 9.3) immediately prior to dissolution.

“ Capital Commitment Member Carried Interest ” means, with respect to any Member, the aggregate amount of distributions or payments received by such Member (in any capacity) from Affiliates of the Company in respect of or relating to “carried interest.” “ Capital Commitment Member Carried Interest ” includes any amount initially received by an Affiliate of the Company from any fund (including BTO II, any similar funds formed after the date hereof, and any other private equity merchant banking, real estate or mezzanine funds, whether or not in existence as of the date hereof) to which such Affiliate serves as general partner (or in another similar capacity) that exceeds such Affiliate’s pro rata share of distributions from such fund based upon capital contributions thereto (or the capital contributions to make the investment of such fund giving rise to such “carried interest”).

“ Capital Commitment Member Interest ” means a Member’s interest in the Company which relates (i) to any Capital Commitment BTO II Interest held by the Company or (ii) through the Company and Associates II, to any Capital Commitment BTO II Interest that may be held by Associates II.

“ Capital Commitment Net Income (Loss) ” with respect to each Capital Commitment Investment means all amounts of income received by the Company with respect to such Capital Commitment Investment, including without limitation gain or loss in respect of the disposition, in whole or in part, of such Capital Commitment Investment, less any costs, fees and expenses of the Company allocated thereto and less reasonable reserves for payment of costs, fees and expenses of the Company anticipated to be allocated thereto.

“ Capital Commitment Profit Sharing Percentage ” with respect to each Capital Commitment Investment means the percentage interest of a Member in Capital Commitment Net Income (Loss) from such Capital Commitment Investment set forth in the books and records of the Company.

“ Capital Commitment Recontribution Amount ” has the meaning set forth in Section 7.4(g)(i).

“ Capital Commitment-Related Capital Contributions ” has the meaning set forth in Section 7.1(b).

“ Capital Commitment-Related Commitment, ” with respect to any Member, means such Member’s commitment to the Company relating to such Member’s Capital Commitment Member Interest, as set forth in the books and records of the Company, including, without limitation, any such commitment that may be set forth in such Member’s Commitment Agreement or SMD Agreement, if any.

“ Capital Commitment Special Distribution ” has the meaning set forth in Section 7.7(a).

“ Capital Commitment Value ” has the meaning set forth in Section 7.5.

“ Carried Interest ” means (i) “Carried Interest” as defined in the BTO II Partnership Agreement, and (ii) any other carried interest distribution to a Fund GP pursuant to any BTO II Agreement. In the case of each of (i) and (ii) above, except as determined by the Managing Member, the amount shall not be less any costs, fees and expenses of the Company with respect thereto and less reasonable reserves for payment of costs, fees and expenses of the Company that are anticipated with respect thereto (in each case which the Managing Member may allocate among all or any portion of the GP-Related Investments as it determines in good faith is appropriate).

“ Carried Interest Give Back Percentage ” means, for any Member or Withdrawn Member, subject to Section 5.8(e), the percentage determined by dividing (A) the aggregate amount of distributions received by such Member or Withdrawn Member from the Company or any Other Fund GPs or their Affiliates in respect of Carried Interest by (B) the aggregate amount of distributions made to all Members, Withdrawn Members or any other person by the Company or any Other Fund GP or any of their Affiliates (in any capacity) in respect of Carried Interest. For purposes of determining any “Carried Interest Give Back Percentage” hereunder, all Trust Amounts contributed to the Trust by the Company or any Other Fund GPs on behalf of a Member or Withdrawn Member (but not the Trust Income thereon) shall be deemed to have been initially distributed or paid to the Members and Withdrawn Members as members, partners or other equity owners of the Company or any of the Other Fund GPs or their Affiliates.

“ Carried Interest Sharing Percentage ” means, with respect to each GP-Related Investment, the percentage interest of a Member in Carried Interest from such GP-Related Investment set forth in the books and records of the Company.

“ Cause ” means the occurrence or existence of any of the following with respect to any Member, as determined fairly, reasonably, on an informed basis and in good faith by the Managing Member: (i) (w) any breach by any Member of any provision of any non-competition agreement, (x) any material breach of this Agreement or any rules or regulations applicable to such Member that are established by the Managing Member, (y) such Member’s deliberate failure to perform his or her duties to the Company or any of its Affiliates, or (z) such Member’s committing to or engaging in any conduct or behavior that is or may be harmful to the Company or any of its Affiliates in a material way as determined by the Managing Member; provided , that in the case of any of the foregoing clauses (w), (x), (y) and (z), the Managing Member has given such Member written notice (a “ Notice of Breach ”) within fifteen days after the Managing Member becomes aware of such action and such Member fails to cure such breach, failure to perform or conduct or behavior within fifteen days after receipt of such Notice of Breach from the Managing Member (or such longer period, not to exceed an additional fifteen days, as shall be reasonably required for such cure, provided that such Member is diligently pursuing such cure); (ii) any act of fraud, misappropriation, dishonesty, embezzlement or similar conduct against the Company or any of its Affiliates; (iii) conviction (on the basis of a trial or by an accepted plea of guilty or nolo contendere ) of a felony or crime (including any misdemeanor charge involving moral turpitude, false statements or misleading omissions, forgery, wrongful taking, embezzlement, extortion or bribery), or a determination by a court of competent jurisdiction, by a regulatory body or by a self-

regulatory body having authority with respect to securities laws, rules or regulations of the applicable securities industry, that such Member individually has violated any applicable securities laws or any rules or regulations thereunder, or any rules of any such self-regulatory body (including, without limitation, any licensing requirement), if such conviction or determination has a material adverse effect on (A) such Member’s ability to function as a Member of the Company, taking into account the services required of such Member and the nature of the business of the Company and its Affiliates or (B) the business of the Company and its Affiliates or (iv) becoming subject to an event described in Rule 506(d)(1)(i)-(viii) of Regulation D under the Securities Act.

“ Clawback Adjustment Amount ” has the meaning set forth in Section 5.8(e)(ii)(C).

“ Clawback Amount ” means the “Clawback Amount” and (to the extent applicable to any limited partnership, limited liability company or other entity named or referred to in the definition of “BTO II”) the “Interim Clawback Amount,” each as defined in the BTO II Partnership Agreement, and any other clawback amount payable to the limited partners of BTO II or to BTO II pursuant to any BTO II Agreement, as applicable.

“ Clawback Provisions ” means Sections 3.5 and 9.4 of the BTO II Partnership Agreement and any other similar provisions in any other BTO II Agreement existing heretofore or hereafter entered into.

“ Code ” means the Internal Revenue Code of 1986, as amended from time to time, or any successor statute. Any reference herein to a particular provision of the Code means, where appropriate, the corresponding provision in any successor statute.

“ Commitment Agreements ” means the agreements between the Company or an Affiliate thereof and Members, pursuant to which each Member undertakes certain obligations, including the obligation to make capital contributions pursuant to Section 4.1 and/or Section 7.1. Each Commitment Agreement is hereby incorporated by reference as between the Company and the relevant Member.

“ Company ” has the meaning set forth in the preamble hereto.

“ Company Affiliate ” has the meaning set forth in Section 3.3(b).

“ Company Affiliate Governing Agreement ” has the meaning set forth in Section 3.3(b).

“ Covered Person ” has the meaning set forth in Section 3.5(a).

“ Contingent ” means subject to repurchase rights and/or other requirements.

The term “ control ” when used with reference to any person means the power to direct the management and policies of such person, directly or indirectly, by or through stock or other equity ownership, agency or otherwise, or pursuant to or in connection with an agreement, arrangement or understanding (written or oral) with one or more other

persons by or through stock or other equity ownership, agency or otherwise; and the terms “ controlling ” and “ controlled ” shall have meanings correlative to the foregoing.

“ Controlled Entity ” when used with reference to another person means any person controlled by such other person.

“ Deceased Member ” means any Member or Withdrawn Member who has died or who suffers from Incompetence. For purposes hereof, references to a Deceased Member shall refer collectively to the Deceased Member and the estate and heirs or legal representative of such Deceased Member, as the case may be, that have received such Deceased Member’s interest in the Company.

“ Default Interest Rate ” means the lower of (i) the sum of (a) the Prime Rate and (b) 5%, or (ii) the highest rate of interest permitted under applicable law.

“ Estate Planning Vehicle ” has the meaning set forth in Section 6.3(a).

“ Excess Holdback ” has the meaning set forth in Section 4.1(d)(v)(A).

“ Excess Holdback Percentage ” has the meaning set forth in Section 4.1(d)(v)(A).

“ Excess Tax-Related Amount ” has the meaning set forth in Section 5.8(e).

“ Existing Member ” means any Member who is neither a Retaining Withdrawn Member nor a Deceased Member.

“ Final Event ” means the death, Total Disability, Incompetence, Bankruptcy, liquidation, dissolution or Withdrawal from the Company of any person who is a Member.

“ Firm Advances ” has the meaning set forth in Section 7.1(c).

“ Firm Collateral ” means a Member’s or Withdrawn Member’s interest in one or more partnerships or limited liability companies, in either case affiliated with the Company, and certain other assets of such Member or Withdrawn Member, in each case that has been pledged or made available to the Trustee(s) to satisfy all or any portion of the Excess Holdback of such Member or Withdrawn Member as more fully described in the Company’s books and records; provided , that for all purposes hereof (and any other agreement ( e.g. , the Trust Agreement) that incorporates the meaning of the term “Firm Collateral” by reference), references to “Firm Collateral” shall include “Special Firm Collateral”, excluding references to “Firm Collateral” in Section 4.1(d)(v) and Section 4.1(d)(viii).

“ Firm Collateral Realization ” has the meaning set forth in Section 4.1(d)(v)(B).

“ Fiscal Year ” means a calendar year, or any other period chosen by the Managing Member.

“ Fund GP ” means the Company (only with respect to the GP-Related BTO II Interest) and the Other Fund GPs.

“ GAAP ” means U.S. generally accepted accounting principles.

“ Giveback Amount(s) ” means the amount(s) payable by partners of BTO II pursuant to the Giveback Provisions.

“ Giveback Provisions ” means Section 5.2 of the BTO II Partnership Agreement and any other similar provisions in any other BTO II Agreement existing heretofore or hereafter entered into.

“ GP-Related Associates II Interest ” means the interest of the Company as the sole member of Associates II with respect to the GP-Related BTO II Interest, but does not include any interest of the Company in Associates II with respect to any Capital Commitment BTO II Interest that may be held by Associates II.

“ GP-Related BTO II Interest ” means the interest of Associates II in BTO II as general partner of BTO II, excluding any Capital Commitment BTO II Interest that may be held by Associates II.

“ GP-Related BTO II Investment ” means the Company’s indirect interest in Associates II’s indirect interest in an Investment (for purposes of this definition, as defined in the BTO II Partnership Agreement) in Associates II’s capacity as the general partner of BTO II, but does not include any Capital Commitment Investment.

“ GP-Related Capital Account ” has the meaning set forth in Section 5.2(a).

“ GP-Related Capital Contributions ” has the meaning set forth in Section 4.1(a).

“ GP-Related Class A Interest ” has the meaning set forth in Section 5.8(a)(ii).

“ GP-Related Class B Interest ” has the meaning set forth in Section 5.8(a)(ii).

“ GP-Related Commitment ”, with respect to any Member, means such Member’s commitment to the Company relating to such Member’s GP-Related Member Interest, as set forth in the books and records of the Company, including, without limitation, any such commitment that may be set forth in such Member’s Commitment Agreement or SMD Agreement, if any.

“ GP-Related Defaulting Party ” has the meaning set forth in Section 5.8(d)(ii)(A).

“ GP-Related Deficiency Contribution ” has the meaning set forth in Section 5.8(d)(ii)(A).

“ GP-Related Disposable Investment ” has the meaning set forth in Section 5.8(a)(ii).

“ GP-Related Giveback Amount ” has the meaning set forth in Section 5.8(d)(i)(A).

“ GP-Related Investment ” means any investment (direct or indirect) of the Company in respect of the GP-Related BTO II Interest (including, without limitation, any GP-Related BTO II Investment, but excluding any Capital Commitment Investment).

“ GP-Related Member Interest ” of a Member means all interests of such Member in the Company (other than such Member’s Capital Commitment Member Interest), including, without limitation, such Member’s interest in the Company with respect to the GP-Related BTO II Interest and with respect to all GP-Related Investments.

“ GP-Related Net Income (Loss) ” has the meaning set forth in Section 5.1(b).

“ GP-Related Profit Sharing Percentage ” means the “Carried Interest Sharing Percentage” and “Non-Carried Interest Sharing Percentage” of each Member; provided , that any references in this Agreement to GP-Related Profit Sharing Percentages made (i) in connection with voting or voting rights or (ii) GP-Related Capital Contributions with respect to GP-Related Investments (including Section 5.3(b)) means the “Non-Carried Interest Sharing Percentage” of each Member; provided further , that the term “GP-Related Profit Sharing Percentage” shall not include any Capital Commitment Profit Sharing Percentage.

“ GP-Related Recontribution Amount ” has the meaning set forth in Section 5.8(d)(i)(A).

“ GP-Related Required Amounts ” has the meaning set forth in Section 4.1(a).

“ GP-Related Unallocated Percentage ” has the meaning set forth in Section 5.3(b).

“ GP-Related Unrealized Net Income (Loss) ” attributable to any GP-Related BTO II Investment as of any date means the GP-Related Net Income (Loss) that would be realized by the Company with respect to such GP-Related BTO II Investment if BTO II’s entire portfolio of investments were sold on such date for cash in an amount equal to their aggregate value on such date (determined in accordance with Section 5.1(e)) and all distributions payable by BTO II to the Company (indirectly through the general partner of BTO II) pursuant to any BTO II Partnership Agreement with respect to such GP-Related BTO II Investment were made on such date. “GP-Related Unrealized Net Income (Loss)” attributable to any other GP-Related Investment (other than any Capital Commitment Investment) as of any date means the GP-Related Net Income (Loss) that would be realized by the Company with respect to such GP-Related Investment if such GP-Related Investment were sold on such date for cash in an amount equal to its value on such date (determined in accordance with Section 5.1(e)).

“ GSO Fund ” means (i) any of GSO Capital Opportunities Fund LP, GSO Capital Opportunities Overseas Fund L.P., GSO Capital Opportunities Overseas Master Fund L.P., GSO Liquidity Partners LP, GSO Liquidity Overseas Partners LP, Blackstone / GSO Capital Solutions Fund LP, Blackstone / GSO Capital Solutions Overseas Fund

L.P., Blackstone / GSO Capital Solutions Overseas Master Fund L.P., GSO Capital Solutions Fund II LP, GSO Capital Solutions Overseas Feeder Fund II LP, GSO European Senior Debt Fund LP, GSO European Senior Debt Feeder Fund LP, GSO Targeted Opportunity Partners LP, GSO Targeted Opportunity Overseas Partners L.P., GSO Targeted Opportunity Overseas Intermediate Partners L.P., GSO Targeted Opportunity Master Partners L.P., GSO SJ Partners LP, GSO Capital Opportunities Fund II LP, GSO Capital Opportunities Cayman Overseas Fund II LP, GSO NMERB LP, GSO Energy Partners-A LP, GSO Palmetto Opportunistic Investment Partners LP, GSO Foreland Co-Invest Holdings LP, GSO Bakken Holdings I LP or GSO Churchill Partners LP, or (ii) any alternative vehicle or parallel fund relating to any of the partnerships referred to in clause (i) above.

“ Holdback ” has the meaning set forth in Section 4.1(d)(i).

“ Holdback Percentage ” has the meaning set forth in Section 4.1(d)(i).

“ Holdback Vote ” has the meaning set forth in Section 4.1(d)(iv)(A).

“ Holdings ” has the meaning set forth in the preamble hereto.

“ Incompetence ” means, with respect to any Member, the determination by the Managing Member in its sole discretion, after consultation with a qualified medical doctor, that such Member is incompetent to manage his or her person or his or her property.

“ Initial Holdback Percentages ” has the meaning set forth in Section 4.1(d)(i).

“ Interest ” means a limited liability company interest (as defined in §18-101(8) of the LLC Act) in the Company, including any interest that is held by a Retaining Withdrawn Member and including any Member’s GP-Related Member Interest and Capital Commitment Member Interest.

“ Investment ” means any investment (direct or indirect) of the Company designated by the Managing Member from time to time as an investment in which the Members’ respective interests shall be established and accounted for on a basis separate from the Company’s other businesses, activities and investments, including (a) GP-Related Investments, and (b) Capital Commitment Investments.

“ Investor Note ” means a promissory note of a Member evidencing indebtedness incurred by such Member to purchase a Capital Commitment Interest, the terms of which were or are approved by the Managing Member and which is secured by such Capital Commitment Interest, all other Capital Commitment Interests of such Member and all other interests of such Member in Blackstone Collateral Entities; provided , that such promissory note may also evidence indebtedness relating to other interests of such Member in Blackstone Collateral Entities, and such indebtedness shall be prepayable with Capital Commitment Net Income (whether or not such indebtedness relates to Capital Commitment Investments) as set forth in this Agreement, the Investor Note, the other BCE Agreements and any documentation relating to Other Sources; provided

further , that references to “Investor Notes” herein refer to multiple loans made pursuant to such note, whether made with respect to Capital Commitment Investments or other BCE Investments, and references to an “Investor Note” refer to one such loan as the context requires. In no way shall any indebtedness incurred to acquire Capital Commitment Interests or other interests in Blackstone Collateral Entities be considered part of the Investor Notes for purposes hereof if the Lender or Guarantor is not the lender or guarantor with respect thereto.

“ Investor Special Member ” means any Special Member so designated at the time of its admission by the Managing Member as a Member of the Company.

“ Issuer ” means the issuer of any Security comprising part of an Investment.

“ L/C ” has the meaning set forth in Section 4.1(d)(vi).

“ L/C Member ” has the meaning set forth in Section 4.1(d)(vi).

“ Lender or Guarantor ” means Blackstone Holdings I L.P., in its capacity as lender or guarantor under the Investor Notes, or any other Affiliate of the Company that makes or guarantees loans to enable a Member to acquire Capital Commitment Interests or other interests in Blackstone Collateral Entities.

“ LLC Act ” means the Delaware Limited Liability Company Act, 6 Del.C. § 18-101, et seq. , as it may be amended from time to time, and any successor to such Act.

“ Loss Amount ” has the meaning set forth in Section 5.8(e)(i)(A).

“ Loss Investment ” has the meaning set forth in Section 5.8(e).

“ Majority in Interest of the Members ” on any date (a “ vote date ”) means one or more persons who are Members (including the Managing Member but excluding Nonvoting Special Members) on the vote date and who, as of the last day of the most recent accounting period ending on or prior to the vote date (or as of such later date on or prior to the vote date selected by the Managing Member as of which the Members’ capital account balances can be determined), have aggregate capital account balances representing at least a majority in amount of the total capital account balances of all the persons who are Members (including the Managing Member but excluding Nonvoting Special Members) on the vote date.

“ Managing Member ” means Blackstone Holdings III L.P. and any person admitted to the Company as an additional or substitute managing member of the Company in accordance with the provisions of this Agreement (until such time as such person ceases to be a managing member of the Company as provided herein or in the LLC Act).

“ Member ” means any person who is a member of the Company, including the Regular Members, the Managing Member and the Special Members. Except as otherwise specifically provided herein, no group of Members, including the Special Members and

any group of Members in the same Member Category, shall have any right to vote as a class on any matter relating to the Company, including, but not limited to, any merger, reorganization, dissolution or liquidation.

“ Member Category ” means the Managing Member, Existing Members, Retaining Withdrawn Members or Deceased Members, each referred to as a group for purposes hereof.

“ Moody’s ” means Moody’s Investors Service, Inc., or any successor thereto.

“ Net Carried Interest Distribution ” has the meaning set forth in Section 5.8(e)(i)(C).

“ Net Carried Interest Distribution Recontribution Amount ” has the meaning set forth in Section 5.8(e).

“ Net GP-Related Recontribution Amount ” has the meaning set forth in Section 5.8(d)(i)(A).

“ Non-Carried Interest ” means, with respect to each GP-Related Investment, all amounts of distributions, other than Carried Interest and other than Capital Commitment Distributions, received by the Company with respect to such GP-Related Investment, less any costs, fees and expenses of the Company with respect thereto and less reasonable reserves for payment of costs, fees and expenses of the Company that are anticipated with respect thereto, in each case which the Managing Member may allocate to all or any portion of the GP-Related Investments as it may determine in good faith is appropriate.

“ Non-Carried Interest Sharing Percentage ” means, with respect to each GP-Related Investment, the percentage interest of a Member in Non-Carried Interest from such GP-Related Investment set forth in the books and records of the Company.

“ Non-Contingent ” means generally not subject to repurchase rights or other requirements.

“ Nonvoting Special Member ” has the meaning set forth in Section 6.1(a).

“ Original Agreement ” has the meaning set forth in the recitals.

“ Other Blackstone Collateral Entity ” means any Blackstone Entity (other than any limited partnership, limited liability company or other entity named or referred to in the definition of any of “BFREP,” “BFIP,” “BFGSO” or “BFCOMP”) in which any limited partner interest, limited liability company interest, unit or other interest is pledged to secure any Investor Note.

“ Other Fund GPs ” means Associates II and any other entity (other than the Company) through which any Member, Withdrawn Member or any other person directly receives any amounts of Carried Interest and any successor thereto; provided , that this includes any other entity which has in its organizational documents a provision which

indicates that it is a “Fund GP” or an “Other Fund GP”; provided further , that notwithstanding any of the foregoing, neither Holdings nor any Estate Planning Vehicle established for the benefit of family members of any Member or of any member or partner of any Other Fund GP shall be considered an “Other Fund GP” for purposes hereof.

“ Other Sources ” means (i) distributions or payments of Capital Commitment Member Carried Interest (which shall include amounts of Capital Commitment Member Carried Interest which are not distributed or paid to a Member but are instead contributed to a trust (or similar arrangement) to satisfy any “holdback” obligation with respect thereto), and (ii) distributions from Blackstone Collateral Entities (other than the Company) to such Member.

“ Parallel Fund ” means any additional collective investment vehicle (or other similar arrangement) formed pursuant to Section 2.10 of the BTO II Partnership Agreement.

“ Pledgable Blackstone Interests ” has the meaning set forth in Section 4.1(d)(v)(A).

“ Prime Rate ” means the rate of interest per annum publicly announced from time to time by JPMorgan Chase Bank, N.A. as its prime rate.

“ Qualifying Fund ” means any fund designated by the Managing Member as a “Qualifying Fund”.

“ Regular Member ” means any Member, excluding the Managing Member and any Special Members.

“ Repurchase Period ” has the meaning set forth in Section 5.8(c).

“ Required Rating ” has the meaning set forth in Section 4.1(d)(vi).

“ Retained Portion ” has the meaning set forth in Section 7.6.

“ Retaining Withdrawn Member ” means a Withdrawn Member who has retained a GP-Related Member Interest, pursuant to Section 6.5(f) or otherwise. A Retaining Withdrawn Member shall be considered a Nonvoting Special Member for all purposes hereof.

“ Securities ” means any debt or equity securities of an Issuer and its subsidiaries and other Controlled Entities constituting part of an Investment, including without limitation common and preferred stock, interests in limited partnerships and interests in limited liability companies (including warrants, rights, put and call options and other options relating thereto or any combination thereof), notes, bonds, debentures, trust receipts and other obligations, instruments or evidences of indebtedness, choses in action, other property or interests commonly regarded as securities, interests in real property, whether improved or unimproved, interests in oil and gas properties and mineral

properties, short-term investments commonly regarded as money-market investments, bank deposits and interests in personal property of all kinds, whether tangible or intangible.

“ Securities Act ” means the U.S. Securities Act of 1933, as amended from time to time, or any successor statute.

“ Settlement Date ” has the meaning set forth in Section 6.5(a).

“ SMD Agreements ” means the agreements between the Company and/or one or more of its Affiliates and certain of the Members, pursuant to which each such Member undertakes certain obligations with respect to the Company and/or its Affiliates. The SMD Agreements are hereby incorporated by reference as between the Company and the relevant Member.

“ Special Firm Collateral ” means interests in a Qualifying Fund or other assets that have been pledged to the Trustee(s) to satisfy all or any portion of a Member’s or Withdrawn Member’s Holdback obligation (excluding any Excess Holdback) as more fully described in the Company’s books and records.

“ Special Firm Collateral Realization ” has the meaning set forth in Section 4.1(d)(viii)(B).

“ Special Member ” means any person shown on the books and records of the Company as a Special Member of the Company, including any Nonvoting Special Member and any Investor Special Member.

“ S&P ” means Standard & Poor’s Ratings Group, and any successor thereto.

“ Subject Investment ” has the meaning set forth in Section 5.8(e)(i).

“ Subject Member ” has the meaning set forth in Section 4.1(d)(iv)(A).

“ Successor in Interest ” means any (i) shareholder of; (ii) trustee, custodian, receiver or other person acting in any Bankruptcy or reorganization proceeding with respect to; (iii) assignee for the benefit of the creditors of; (iv) officer, director or partner of; (v) trustee or receiver, or former officer, director or partner, or other fiduciary acting for or with respect to the dissolution, liquidation or termination of; or (vi) other executor, administrator, committee, legal representative or other successor or assign of, any Member, whether by operation of law or otherwise.

“ Tac Opps Program ” is the collective reference to (i) BTO and BTO II, (ii) any Alternative Vehicles, Parallel Funds or Comparable Funds (each as defined in the partnership agreements for the partnerships referred to in clause (i) above) or (iii) any other investment vehicle established pursuant to Article II of the partnership agreements for the partnerships referred to in clause (i) above.

“ Tax Matters Member ” has the meaning in Section 6.7(b).

“ TM ” has the meaning in Section 10.2.

“ Total Disability ” means the inability of a Regular Member substantially to perform the services required of such Regular Member (in its capacity as such or in any other capacity with respect to any Affiliate of the Company) for a period of six consecutive months by reason of physical or mental illness or incapacity and whether arising out of sickness, accident or otherwise.

“ Transfer ” has the meaning set forth in Section 8.2.

“ Trust Account ” has the meaning set forth in the Trust Agreement.

“ Trust Agreement ” means the Trust Agreement, dated as of the date set forth therein, as amended, supplemented, restated or otherwise modified from time to time, among the Members, the Trustee(s) and certain other persons that may receive distributions in respect of or relating to Carried Interest from time to time.

“ Trust Amount ” has the meaning set forth in the Trust Agreement.

“ Trust Income ” has the meaning set forth in the Trust Agreement.

“ Trustee(s) ” has the meaning set forth in the Trust Agreement.

“ Unadjusted Carried Interest Distribution ” has the meaning set forth in Section 5.8(e)(i)(B).

“ Unallocated Capital Commitment Interests ” has the meaning set forth in Section 8.1(f).

“ U.S .” means the United States of America.

“ Withdraw ” or “ Withdrawal ” with respect to a Member means a Member ceasing to be a member of the Company (except as a Retaining Withdrawn Member) for any reason (including death, disability, removal, resignation or retirement, whether such is voluntary or involuntary), unless the context shall limit the type of withdrawal to a specific reason, and “Withdrawn” with respect to a Member means, as aforesaid, a Member who has ceased to be a member of the Company.

“ Withdrawal Date ” means the date of the Withdrawal from the Company of a Withdrawn Member.

“ Withdrawn Member ” means a Regular Member whose GP-Related Member Interest or Capital Commitment Member Interest in the Company has been terminated for any reason, including the occurrence of an event specified in Section 6.2, and shall include, unless the context requires otherwise, the estate or legal representatives of any such Member.

“ W-8BEN ” has the meaning set forth in Section 3.7.

“ W-8BEN-E ” has the meaning set forth in Section 3.7.

“ W-8IMY ” has the meaning set forth in Section 3.7.

“ W-9 ” has the meaning set forth in Section 3.7.

Section 1.2. Terms Generally . The definitions in Section 1.1 shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The term “ person ” includes individuals, partnerships (including limited liability partnerships), companies (including limited liability companies), joint ventures, corporations, trusts, governments (or agencies or political subdivisions thereof) and other associations and entities. The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”.

ARTICLE II

GENERAL PROVISIONS

Section 2.1. Managing, Regular and Special Members . The Members may be Managing Members, Regular Members or Special Members (including Investor Special Members). The Managing Member as of the date hereof is Holdings, the Regular Members as of the date hereof are those persons shown as Regular Members in the books and records of the Company, and the Special Members as of the date hereof are persons shown as Special Members in the books and records of the Company. The books and records of the Company contain the GP-Related Profit Sharing Percentage and GP-Related Commitment of each Member (including, without limitation, the Managing Member) with respect to the GP-Related Investments of the Company as of the date hereof. The books and records of the Company contain the Capital Commitment Profit Sharing Percentage and Capital Commitment-Related Commitment of each Member (including, without limitation, the Managing Member) with respect to the Capital Commitment Investments of the Company as of the date hereof. The books and records of the Company shall be amended by the Managing Member from time to time to reflect additional GP-Related Investments, additional Capital Commitment Investments, dispositions by the Company of GP-Related Investments, dispositions by the Company of Capital Commitment Investments, the GP-Related Profit Sharing Percentages of the Members (including, without limitation, the Managing Member), as modified from time to time, the Capital Commitment Profit Sharing Percentages of the Members (including, without limitation, the Managing Member), as modified from time to time, the admission of additional Members, the Withdrawal of Members and the transfer or assignment of interests in the Company pursuant to the terms of this Agreement. At the time of admission of each additional Member, the Managing Member shall determine in its sole discretion the GP-Related Investments and Capital Commitment Investments in which such Member shall participate and such Member’s GP-Related Commitment, Capital Commitment-Related Commitment, GP-Related Profit Sharing Percentage with respect to each such GP-Related Investment and Capital Commitment Profit Sharing Percentage with respect to each such Capital Commitment Investment. Each Member may have a GP-Related Member Interest and/or a Capital Commitment Member Interest.

Section 2.2. Formation; Name; Foreign Jurisdictions . The Company is hereby continued as a limited liability company pursuant to the LLC Act and shall conduct its activities on and after the date hereof under the name of BTOA II L.L.C. The certificate of formation of the Company may be amended and/or restated from time to time by the Managing Member, as an “authorized person” (within the meaning of the LLC Act). The Managing Member is further authorized to execute and deliver and file any other certificates (and any amendments and/or restatements thereof) necessary for the Company to qualify to do business in a jurisdiction in which the Company may wish to conduct business.

Section 2.3. Term . The term of the Company shall continue until December 31, 2065, unless earlier dissolved and its affairs wound up in accordance with this Agreement and the LLC Act.

Section 2.4. Purposes; Powers . (a) The purposes of the Company shall be, directly or indirectly through subsidiaries or Affiliates:

(i) to serve as a member, the sole member and the managing member of Associates II and perform the functions of a member, the sole member and the managing member of Associates II specified in the Associates II LLC Agreement and, if applicable, the BTO II Agreements;

(ii) if applicable, to serve as, and hold the Capital Commitment BTO II Interest as, a capital partner (and, if applicable, a limited partner and/or a general partner) of BTO II (including any Alternative Vehicle or Parallel Fund) and perform the functions of a capital partner (and, if applicable, a limited partner and/or a general partner) of BTO II (including any Alternative Vehicle or Parallel Fund) specified in the BTO II Agreements;

(iii) to invest in Capital Commitment Investments and/or GP-Related Investments and acquire and invest in Securities or other property directly or indirectly through Associates II and/or BTO II (including any Alternative Vehicle or Parallel Fund);

(iv) to make the Blackstone Commitment or a portion thereof, either directly or indirectly through Associates II or another entity;

(v) to serve as a general partner or limited partner of BTO II, certain other funds or vehicles that are part of the Tac Opps Program and other partnerships and perform the functions of a general partner or limited partner specified in the respective partnership agreements, as amended, supplemented, restated or otherwise modified from time to time, of any such partnership;

(vi) to serve as a member, shareholder or other equity interest owner of limited liability companies, other companies, corporations or other entities and perform the functions of a member, shareholder or other equity interest owner specified in the respective limited liability company agreement, charter or other governing documents, as amended, supplemented, restated or otherwise modified from time to time, of any such limited liability company, company, corporation or other entity;

(vii) to carry on such other businesses, perform such other services and make such other investments as are deemed desirable by the Managing Member and as are permitted under the LLC Act, the Associates II LLC Agreement, the BTO II Agreements, and any applicable partnership agreement, limited liability company agreement, charter or other governing document referred to in clause (v) or (vi) above, in each case as the same may be amended, supplemented, restated or otherwise modified from time to time;

(viii) any other lawful purpose; and

(ix) to do all things necessary, desirable, convenient or incidental thereto.

(b) In furtherance of its purposes, the Company shall have all powers necessary, suitable or convenient for the accomplishment of its purposes, alone or with others, as principal or agent, including the following:

(i) to be and become a general partner or limited partner of partnerships, a member of limited liability companies, a holder of common and preferred stock of corporations and/or an investor in the foregoing entities or other entities, in connection with the making of Investments or the acquisition, holding or disposition of Securities or other property or as otherwise deemed appropriate by the Managing Member in the conduct of the Company’s business, and to take any action in connection therewith;

(ii) to acquire and invest in general partner or limited partner interests, in limited liability company interests, in common and preferred stock of corporations and/or in other interests in or obligations of the foregoing entities or other entities and in Investments and Securities or other property or direct or indirect interests therein, whether such Investments and Securities or other property are readily marketable or not, and to receive, hold, sell, dispose of or otherwise transfer any such partner interests, limited liability company interests, stock, interests, obligations, Investments or Securities or other property and any dividends and distributions thereon and to purchase and sell, on margin, and be long or short, futures contracts and to purchase and sell, and be long or short, options on futures contracts;

(iii) to buy, sell and otherwise acquire investments, whether such investments are readily marketable or not;

(iv) to invest and reinvest the cash assets of the Company in money-market or other short-term investments;

(v) to hold, receive, mortgage, pledge, lease, transfer, exchange or otherwise dispose of, grant options with respect to, and otherwise deal in and exercise all rights, powers, privileges and other incidents of ownership or possession with respect to, all property held or owned by the Company;

(vi) to borrow or raise money from time to time and to issue promissory notes, drafts, bills of exchange, warrants, bonds, debentures and other negotiable and non-negotiable instruments and evidences of indebtedness, to secure payment of the principal of any such indebtedness and the interest thereon by mortgage, pledge, conveyance or assignment in trust of, or the granting of a security interest in, the whole or any part of the property of the Company, whether at the time owned or thereafter acquired, to guarantee the obligations of others and to buy, sell, pledge or otherwise dispose of any such instrument or evidence of indebtedness;

(vii) to lend any of its property or funds, either with or without security, at any legal rate of interest or without interest;

(viii) to have and maintain one or more offices within or without the State of Delaware, and in connection therewith, to rent or acquire office space, engage personnel and compensate them and do such other acts and things as may be advisable or necessary in connection with the maintenance of such office or offices;

(ix) to open, maintain and close accounts, including margin accounts, with brokers;

(x) to open, maintain and close bank accounts and draw checks and other orders for the payment of moneys;

(xi) to engage accountants, auditors, custodians, investment advisers, attorneys and any and all other agents and assistants, both professional and nonprofessional, and to compensate any of them as may be necessary or advisable;

(xii) to form or cause to be formed and to own the stock of one or more corporations, whether foreign or domestic, to form or cause to be formed and to participate in partnerships and joint ventures, whether foreign or domestic and to form or cause to be formed and be a member or manager or both of one or more limited liability companies;

(xiii) to enter into, make and perform all contracts, agreements and other undertakings as may be necessary, convenient, advisable or incident to carrying out its purposes;

(xiv) to sue and be sued, to prosecute, settle or compromise all claims against third parties, to compromise, settle or accept judgment to claims against the Company, and to execute all documents and make all representations, admissions and waivers in connection therewith;

(xv) to distribute, subject to the terms of this Agreement, at any time and from time to time to the Members cash or investments or other property of the Company, or any combination thereof; and

(xvi) to take such other actions necessary, desirable, convenient or incidental thereto and to engage in such other businesses as may be permitted under Delaware and other applicable law.

Section 2.5. Place of Business . The Company shall maintain a registered office at c/o Intertrust Corporate Services Delaware Ltd., 200 Bellevue Parkway, Suite 210, Bellevue Park Corporate Center, Wilmington, Delaware 19809. The Company shall maintain an office and principal place of business at such place or places as the Managing Member specifies from time to time and as set forth in the books and records of the Company. The name and address of the Company’s registered agent is Intertrust Corporate Services Delaware Ltd., 200 Bellevue Parkway, Suite 210, Bellevue Park Corporate Center, Wilmington, Delaware 19809. The Managing Member may from time to time change the registered agent or office by an amendment to the certificate of formation of the Company.

ARTICLE III

MANAGEMENT

Section 3.1. Managing Member . (a) Holdings shall be an original managing member (the “ Managing Member ”). The Managing Member shall cease to be the Managing Member only if (i) it Withdraws from the Company for any reason, (ii) it consents in its sole discretion to resign as the Managing Member, or (iii) a Final Event with respect to it occurs. The Managing Member may not be removed without its consent. There may be one or more Managing Members. In the event that one or more other Managing Members is admitted to the Company as such, all references herein to the “Managing Member” in the singular form shall be deemed to also refer to such other Managing Members as may be appropriate. The relative rights and responsibilities of such Managing Members will be as agreed upon from time to time between them.

(b) Upon the Withdrawal from the Company or voluntary resignation of the last remaining Managing Member, all of the powers formerly vested therein pursuant to this Agreement and the LLC Act shall be exercised by a Majority in Interest of the Members.

Section 3.2. Member Voting, etc . (a) Except as otherwise expressly provided herein and except as may be expressly required by the LLC Act, Members (including Special Members), other than Managing Members, as such shall have no right to, and shall not, take part in the management or control of the Company’s business or act for or bind the Company, and shall have only the rights and powers granted to Members of the applicable class herein.

(b) To the extent a Member is entitled to vote with respect to any matter relating to the Company, such Member shall not be obligated to abstain from voting on any matter (or vote in any particular manner) because of any interest (or conflict of interest) of such Member (or any Affiliate thereof) in such matter.

Section 3.3. Management .

(a) The management, control and operation of the Company and the formulation and execution of business and investment policy shall be vested in the Managing Member. The Managing Member shall, in its discretion, exercise all powers necessary and convenient for the purposes of the Company, including those enumerated in Section 2.4, on behalf and in the name of the Company. All decisions and determinations (howsoever described herein) to be made by the Managing Member pursuant to this Agreement shall be made in its sole discretion, subject only to the express terms and conditions of this Agreement.

(b) Notwithstanding any provision in this Agreement to the contrary, the Company is hereby authorized, without the need for any further act, vote or consent of any person (directly or indirectly through one or more other entities, in the name and on behalf of the Company, on its own behalf or in its capacity as sole member and/or managing member of Associates II on Associates II’s own behalf or in Associates II’s capacity as general partner, capital partner and/or limited partner of BTO II or as general partner or limited partner, member or other equity owner of any Company Affiliate (as hereinafter defined) or, if applicable, in the Company’s capacity as a capital partner of BTO II or as general or limited partner, member or other equity owner of any Company Affiliate): (i) to execute and deliver, and to perform the Company’s obligations under the Associates II LLC Agreement, including, without limitation, serving as a member, the sole member and the managing member of Associates II, (ii) to execute and deliver, and to cause Associates II to perform Associates II’s obligations under, the BTO II Agreements, including, without limitation, serving as a general partner of BTO II and, if applicable, a capital partner of BTO II, (iii) if applicable, to execute and deliver, and to perform the Company’s obligations under, the BTO II Agreements, including, without limitation, serving as a capital partner of BTO II, (iv) to execute and deliver, and to perform, or, if applicable, to cause Associates II to perform, the Company’s or Associates II’s obligations under, the governing agreement, as amended, supplemented, restated or otherwise modified (each a “ Company Affiliate Governing Agreement ”), of any other partnership, limited liability company, other company, corporation or other entity (each a “ Company Affiliate ”) of which the Company or Associates II is, or is to become, a general partner or limited partner, member, shareholder or other equity interest owner, including, without limitation, serving as a general partner or limited partner, member, shareholder or other equity interest owner of each Company Affiliate, and (v) to take any action, in the applicable capacity, contemplated by or arising out of this Agreement, the Associates II LLC Agreement, the BTO II Agreements or each Company Affiliate Governing Agreement (and any amendment, supplement, restatement and/or other modification of any of the foregoing).

(c) The Managing Member and any other person designated by the Managing Member, each acting individually, is hereby authorized and empowered, as an authorized person of the Company within the meaning of the LLC Act, or otherwise, or as an authorized representative of the Managing Member (the Managing Member hereby authorizing and ratifying any of the following actions):

(i) to execute and deliver and/or file (including any such action, directly or indirectly through one or more other entities, in the name and on behalf of the Company, on its own behalf, or in its capacity as sole member and/or managing member of Associates II on Associates II’s own behalf, or in Associates II’s capacity as general partner, capital partner and/or limited partner of BTO II or as general partner or limited

partner, member, shareholder or other equity owner of any Company Affiliate (as hereinafter defined) or, if applicable, in the Company’s capacity as a capital partner of BTO II or as general or limited partner, member or other equity owner of any Company Affiliate), any of the following:

(A) any agreement, certificate, instrument or other document of the Company, Associates II, BTO II or any Company Affiliate (and any amendments, supplements, restatements and/or other modifications thereof), including, without limitation, the following: (I) the Associates II LLC Agreement, the BTO II Agreements and each Company Affiliate Governing Agreement, (II) subscription agreements and documents on behalf of BTO II or Associates II, (III) side letters issued in connection with investments in BTO II, and (IV) such other agreements, certificates, instruments and other documents as may be necessary or desirable in furtherance of the purposes of Company, Associates II, BTO II or any Company Affiliate (and any amendments, supplements, restatements and/or other modifications of any of the foregoing referred to in (I) through (IV) above) and for the avoidance of doubt, this Agreement may be amended by the Managing Member in its sole discretion;

(B) the certificates of formation, certificates of limited partnership and/or other organizational documents of the Company, Associates II, BTO II and any Company Affiliate (and any amendments, supplements, restatements and/or other modifications of any of the foregoing); and

(C) any other certificates, notices, applications and other documents (and any amendments, supplements, restatements and/or other modifications thereof) to be filed with any government or governmental or regulatory body, including, without limitation, any such document that may be necessary for the Company, Associates II, BTO II or any Company Affiliate to qualify to do business in a jurisdiction in which the Company, Associates II, BTO II or such Company Affiliate desires to do business;

(ii) to prepare or cause to be prepared, and to sign, execute and deliver and/or file (including any such action, directly or indirectly through one or more other entities, in the name and on behalf of the Company, on its own behalf or in its capacity as sole member and/or managing member of Associates II on Associates II’s own behalf or in Associates II’s capacity as general partner, capital partner and/or limited partner of BTO II or as general or limited partner, member or other equity owner of any Company Affiliate (as hereinafter defined) or, if applicable, in the Company’s capacity as a capital partner of BTO II or as general partner or limited partner, member, shareholder or other equity owner of any Company Affiliate): (A) any certificates, forms, notices, applications and other documents to be filed with any government or governmental or regulatory body on behalf of the Company, Associates II, BTO II and/or any Company Affiliate, (B) any certificates, forms, notices, applications and other documents that may be necessary or advisable in connection with any bank account of the Company, Associates II, BTO II or any Company Affiliate or any banking facilities or services that may be utilized by the Company, Associates II, BTO II or any Company Affiliate, and all checks, notes, drafts

and other documents of the Company, Associates II, BTO II or any Company Affiliate that may be required in connection with any such bank account or banking facilities or services and (C) resolutions with respect to any of the foregoing matters (which resolutions, when executed by any person authorized as provided in this Section 3.3(c), each acting individually, shall be deemed to have been duly adopted by the Managing Member, the Company, Associates II, BTO II or any Company Affiliate, as applicable, for all purposes).

(d) The authority granted to any person (other than the Managing Member) in this Section 3.3(c) may be revoked at any time by the Managing Member by an instrument in writing signed by the Managing Member.

Section 3.4. Responsibilities of Members .

(a) Unless otherwise determined by the Managing Member in a particular case, each Regular Member (other than a Special Member) shall devote substantially all his or her time and attention to the businesses of the Company and its Affiliates, and each Special Member shall not be required to devote any time or attention to the businesses of the Company or its Affiliates.

(b) All outside business or investment activities of the Members (including outside directorships or trusteeships) shall be subject to such rules and regulations as are established by the Managing Member from time to time.

(c) The Managing Member may from time to time establish such other rules and regulations applicable to Members or other employees as the Managing Member deems appropriate, including rules governing the authority of Members or other employees to bind the Company to financial commitments or other obligations.

Section 3.5. Exculpation and Indemnification .

(a) Liability to Members . Notwithstanding any other provision of this Agreement, whether express or implied, to the fullest extent permitted by law, no Member nor any of such Member’s representatives, agents or advisors nor any partner, member, officer, employee, representative, agent or advisor of the Company or any of its Affiliates (individually, a “ Covered Person ” and collectively, the “ Covered Persons ”) shall be liable to the Company or any other Member for any act or omission (in relation to the Company, this Agreement, any related document or any transaction or investment contemplated hereby or thereby) taken or omitted by a Covered Person (other than any act or omission constituting Cause), unless there is a final and non-appealable judicial determination and/or determination of an arbitrator that such Covered Person did not act in good faith and in what such Covered Person reasonably believed to be in, or not opposed to, the best interests of the Company and within the authority granted to such Covered Person by this Agreement, and, with respect to any criminal act or proceeding, had reasonable cause to believe that such Covered Person’s conduct was unlawful. Each Covered Person shall be entitled to rely in good faith on the advice of legal counsel to the Company, accountants and other experts or professional advisors, and no action taken by any Covered Person in reliance on such advice shall in any event subject such person to any liability to any

Member or the Company. To the extent that, at law or in equity, a Member has duties (including fiduciary duties) and liabilities relating thereto to the Company or to another Member, to the fullest extent permitted by law, such Member acting under this Agreement shall not be liable to the Company or to any such other Member for its good faith reliance on the provisions of this Agreement. The provisions of this Agreement, to the extent that they expand or restrict the duties and liabilities of a Member otherwise existing at law or in equity, are agreed by the Members, to the fullest extent permitted by law, to modify to that extent such other duties and liabilities of such Member.

(b) Indemnification . (i) To the fullest extent permitted by law, the Company shall indemnify and hold harmless (but only to the extent of the Company’s assets (including, without limitation, the remaining capital commitments of the Members) each Covered Person from and against any and all claims, damages, losses, costs, expenses and liabilities (including, without limitation, amounts paid in satisfaction of judgments, in compromises and settlements, as fines and penalties and legal or other costs and reasonable expenses of investigating or defending against any claim or alleged claim), joint and several, of any nature whatsoever, known or unknown, liquidated or unliquidated (collectively, for purposes of this Section 3.5, “ Losses ”), arising from any and all claims, demands, actions, suits or proceedings, civil, criminal, administrative or investigative, in which the Covered Person may be involved, or threatened to be involved, as a party or otherwise, by reason of such Covered Person’s management of the affairs of the Company or which relate to or arise out of or in connection with the Company, its property, its business or affairs (other than claims, demands, actions, suits or proceedings, civil, criminal, administrative or investigative, arising out of any act or omission of such Covered Person constituting Cause); provided , that a Covered Person shall not be entitled to indemnification under this Section 3.5(b) with respect to any claim, issue or matter if there is a final and non-appealable judicial determination and/or determination of an arbitrator that such Covered Person did not act in good faith and in what such Covered Person reasonably believed to be in, or not opposed to, the best interest of the Company and within the authority granted to such Covered Person by this Agreement, and, with respect to any criminal act or proceeding, had reasonable cause to believe that such Covered Person’s conduct was unlawful; provided further , that if such Covered Person is a Member or a Withdrawn Member, such Covered Person shall bear its share of such Losses in accordance with such Covered Person’s GP-Related Profit Sharing Percentage in the Company as of the time of the actions or omissions that gave rise to such Losses. To the fullest extent permitted by law, expenses (including legal fees) incurred by a Covered Person (including, without limitation, the Managing Member) in defending any claim, demand, action, suit or proceeding may, with the approval of the Managing Member, from time to time, be advanced by the Company prior to the final disposition of such claim, demand, action, suit or proceeding upon receipt by the Company of a written undertaking by or on behalf of the Covered Person to repay such amount to the extent that it shall be subsequently determined that the Covered Person is not entitled to be indemnified as authorized in this Section 3.5(b), and the Company and its Affiliates shall have a continuing right of offset against such Covered Person’s interests/investments in the Company and such Affiliates and shall have the right to withhold amounts otherwise distributable to such Covered Person to satisfy such repayment obligation. If a Member institutes litigation against a Covered Person which gives rise to an indemnity obligation hereunder, such Member shall be responsible, up to the amount of such Member’s Interests and remaining capital commitment, for such Member’s pro rata share of the Company’s expenses related to such indemnity obligation, as determined by

the Managing Member. The Company may purchase insurance, to the extent available at reasonable cost, to cover losses, claims, damages or liabilities covered by the foregoing indemnification provisions. Members will not be personally obligated with respect to indemnification pursuant to this Section 3.5(b). The Managing Member shall have the authority to enter into separate agreements with any Covered Person in order to give effect to the obligations to indemnify pursuant to this Section 3.5(b).

(ii) (A) Notwithstanding anything to the contrary herein, for greater certainty, it is understood and/or agreed that the Company’s obligations hereunder are not intended to render the Company as a primary indemnitor for purposes of the indemnification, advancement of expenses and related provisions under applicable law governing BTO II and/or a particular portfolio entity through which an Investment is indirectly held. It is further understood and/or agreed that a Covered Person shall first seek to be so indemnified and have such expenses advanced in the following order of priority: first , out of proceeds available in respect of applicable insurance policies maintained by the applicable portfolio entity and/or BTO II; second , by the applicable portfolio entity through which such investment is indirectly held; third , by BTO II and fourth by Associates II (only to the extent the foregoing sources are exhausted).

(B) The Company’s obligation, if any, to indemnify or advance expenses to any Covered Person shall be reduced by any amount that such Covered Person may collect as indemnification or advancement from BTO II and/or the applicable portfolio entity (including by virtue of any applicable insurance policies maintained thereby), and to the extent the Company (or any Affiliate thereof) pays or causes to be paid any amounts that should have been paid by Associates II, BTO II and/or the applicable portfolio entity (including by virtue of any applicable insurance policies maintained thereby), it is agreed among the Partners that the Company shall have a subrogation claim against Associates II and/or BTO II and/or such portfolio entity in respect of such advancement or payments. The Managing Member and the Company shall be specifically empowered to structure any such advancement or payment as a loan or other arrangement (except for a loan to an executive officer of The Blackstone Group L.P. or any of its Affiliates, which shall not be permitted) as the Managing Member may determine necessary or advisable to give effect to or otherwise implement the foregoing.

Section 3.6. Representations of Members .

(a) Each Regular or Special Member by execution of this Agreement (or by otherwise becoming bound by the terms and conditions hereof as provided herein or in the LLC Act) represents and warrants to every other Member and to the Company, except as may be waived by the Managing Member, that such Member is acquiring each of such Member’s Interests for such Member’s own account for investment and not with a view to resell or distribute the same or any part hereof, and that no other person has any interest in any such Interest or in the rights of such Member hereunder; provided , that a Member may choose to make transfers for estate and charitable planning purposes (in accordance with the terms hereof). Each Regular or Special Member represents and warrants that such Member understands that the Interests have not been registered under the Securities Act and therefore such Interests may not be resold without registration under such Act or exemption from such registration, and that accordingly such Member must bear the economic risk of an investment in the Company for an indefinite period of time. Each Regular or Special Member represents that such Member has

such knowledge and experience in financial and business matters, that such Member is capable of evaluating the merits and risks of an investment in the Company, and that such Member is able to bear the economic risk of such investment. Each Regular or Special Member represents that such Member’s overall commitment to the Company and other investments which are not readily marketable is not disproportionate to the Member’s net worth and the Member has no need for liquidity in the Member’s investment in Interests. Each Regular or Special Member represents that to the full satisfaction of the Member, the Member has been furnished any materials that such Member has requested relating to the Company, any Investment and the offering of Interests and has been afforded the opportunity to ask questions of representatives of the Company concerning the terms and conditions of the offering of Interests and any matters pertaining to each Investment and to obtain any other additional information relating thereto. Each Regular or Special Member represents that the Member has consulted to the extent deemed appropriate by the Member with the Member’s own advisers as to the financial, tax, legal and related matters concerning an investment in Interests and on that basis believes that an investment in the Interests is suitable and appropriate for the Member.

(b) Each Regular or Special Member agrees that the representations and warranties contained in paragraph (a) above shall be true and correct as of any date that such Member (1) makes a capital contribution to the Company (whether as a result of Firm Advances made to such Member or otherwise) with respect to any Investment, and such Member hereby agrees that such capital contribution shall serve as confirmation thereof and/or (2) repays any portion of the principal amount of a Firm Advance, and such Member hereby agrees that such repayment shall serve as confirmation thereof.

Section 3.7. Tax Information . Each Regular or Special Member certifies that (A) if the Member is a United States person (as defined in the Code) (x) (i) the Member’s name, social security number (or, if applicable, employer identification number) and address provided to the Company and its Affiliates pursuant to an IRS Form W-9, Request for Taxpayer Identification Number Certification (“ W -9 ”) or otherwise are correct and (ii) the Member will complete and return a W-9, and (y) (i) the Member is a United States person (as defined in the Code) and (ii) the Member will notify the Company within 60 days of a change to foreign (non-United States) status or (B) if the Member is not a United States person (as defined in the Code) (x) (i) the information on the completed IRS Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals) (“ W-8BEN ”), IRS Form W-8BEN-E, Certificate of Status of Beneficial Owner for United States Tax Withholding and Reporting (Entities) (“ W-8BEN-E ”) or other applicable form, including but not limited to IRS Form W-8IMY, Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U.S. Branches for United States Tax Withholding and Reporting (“ W-8IMY ”), or otherwise is correct and (ii) the Member will complete and return the applicable IRS form, including but not limited to a W-8BEN, W-8BEN-E or W-8IMY, and (y) (i) the Member is not a United States person (as defined in the Code) and (ii) the Member will notify the Company within 60 days of any change of such status. The Member agrees to properly execute and provide to the Company in a timely manner any tax documentation that may be reasonably required by the Company or the Managing Member.

ARTICLE IV

CAPITAL OF THE COMPANY

Section 4.1. Capital Contributions by Members . (a) Each Regular Member shall be required to make capital contributions to the Company (“ GP-Related Capital Contributions ”) at such times and in such amounts (the “ GP-Related Required Amounts ”) as are required to satisfy the Company’s obligation to make capital contributions to Associates II in respect of the GP-Related Associates II Interest to fund Associates II’s capital contributions with respect to any GP-Related BTO II Investment and as are otherwise determined by the Managing Member from time to time or as may be set forth in such Regular Member’s Commitment Agreement or SMD Agreement, if any, or otherwise; provided , that additional GP-Related Capital Contributions in excess of the GP-Related Required Amounts may be made pro rata among the Regular Members based upon each Regular Member’s Carried Interest Sharing Percentage. GP-Related Capital Contributions in excess of the GP-Related Required Amounts which are to be used for ongoing business operations (as distinct from financing, legal or other specific liabilities of the Company (including those specifically set forth in Sections 4.1(d) and 5.8(d)) shall be determined by the Managing Member. Special Members shall not be required to make additional GP-Related Capital Contributions to the Company in excess of the GP-Related Required Amounts, except (i) as a condition of an increase in such Special Member’s GP-Related Profit Sharing Percentage or (ii) as specifically set forth in this Agreement; provided , that the Managing Member and any Special Member may agree from time to time that such Special Member shall make an additional GP-Related Capital Contribution to the Company; provided further , that each Investor Special Member shall maintain its GP-Related Capital Accounts at an aggregate level equal to the product of (i) its GP-Related Profit Sharing Percentage from time to time and (ii) the total capital of the Company related to the GP-Related BTO II Interest.

(b) Each GP-Related Capital Contribution by a Member shall be credited to the appropriate GP-Related Capital Account of such Member in accordance with Section 5.2, subject to Section 5.10.

(c) The Managing Member may elect on a case by case basis to (i) cause the Company to loan any Member (including any additional Member admitted to the Company pursuant to Section 6.1 but excluding any Members who are also executive officers of The Blackstone Group L.P. or any Affiliate thereof) the amount of any GP-Related Capital Contribution required to be made by such Member or (ii) permit any Member (including any additional Member admitted to the Company pursuant to Section 6.1 but excluding any Members who are also executive officers of The Blackstone Group L.P. or any Affiliate thereof) to make a required GP-Related Capital Contribution to the Company in installments, in each case on terms determined by the Managing Member.

(d) (i) The Members and the Withdrawn Members have entered into the Trust Agreement, pursuant to which certain amounts of Carried Interest will be paid to the Trustee(s) for deposit in the Trust Account (such amounts to be paid to the Trustee(s) for deposit in the Trust Account constituting a “ Holdback ”). The Managing Member shall determine, as set forth below, the percentage of each distribution of Carried Interest that shall be withheld for any

Managing Member (including, without limitation, Holdings) and each Member Category (such withheld percentage constituting the Managing Member’s and such Member Category’s “ Holdback Percentage ”). The applicable Holdback Percentages initially shall be 0% for any Managing Member, 15% for Existing Members (other than the Managing Member), 21% for Retaining Withdrawn Members (other than the Managing Member) and 24% for Deceased Members (the “ Initial Holdback Percentages ”). Any provision of this Agreement to the contrary notwithstanding, the Holdback Percentage for the Managing Member (including, without limitation, Holdings) shall not be subject to change pursuant to clause (ii), (iii) or (iv) of this Section 4.1(d).

(ii) The Holdback Percentage may not be reduced for any individual Member as compared to the other Members in his or her Member Category (except as provided in clause (iv) below). The Managing Member may only reduce the Holdback Percentages among the Member Categories on a proportionate basis. For example, if the Holdback Percentage for Existing Members is decreased to 12.5%, the Holdback Percentage for Retaining Withdrawn Members and Deceased Members shall be reduced to 17.5% and 20%, respectively. Any reduction in the Holdback Percentage for any Member shall apply only to distributions relating to Carried Interest made after the date of such reduction.

(iii) The Holdback Percentage may not be increased for any individual Member as compared to the other Members in his or her Member Category (except as provided in clause (iv) below). The Managing Member may not increase the Retaining Withdrawn Members’ Holdback Percentage beyond 21% unless the Managing Member concurrently increases the Existing Members’ Holdback Percentage to 21%. The Managing Member may not increase the Deceased Members’ Holdback Percentage beyond 24% unless the Managing Member increases the Holdback Percentage for both Existing Members and Retaining Withdrawn Members to 24%. The Managing Member may not increase the Holdback Percentage of any Member Category beyond 24% unless such increase applies equally to all Member Categories. Any increase in the Holdback Percentage for any Member shall apply only to distributions relating to Carried Interest made after the date of such increase. The foregoing shall in no way prevent the Managing Member from proportionately increasing the Holdback Percentage of any Member Category (following a reduction of the Holdback Percentages below the Initial Holdback Percentages), if the resulting Holdback Percentages are consistent with the above. For example, if the Managing Member reduces the Holdback Percentages for Existing Members, Retaining Withdrawn Members and Deceased Members to 12.5%, 17.5% and 20%, respectively, the Managing Member shall have the right to subsequently increase the Holdback Percentages to the Initial Holdback Percentages.

(iv) (A) Notwithstanding anything contained herein to the contrary, the Managing Member may increase or decrease the Holdback Percentage for any Member in any Member Category (in such capacity, the “ Subject Member ”) pursuant to a majority vote of the Regular Members (a “ Holdback Vote ”); provided , that, notwithstanding anything to the contrary contained herein, the Holdback Percentage applicable to any Managing Member shall not be increased or decreased without its prior written consent; provided further , that a Subject Member’s Holdback Percentage shall not be (I) increased

prior to such time as such Subject Member (x) is notified by the Company of the decision to increase such Subject Member’s Holdback Percentage and (y) has, if requested by such Subject Member, been given 30 days to gather and provide information to the Company for consideration before a second Holdback Vote (requested by the Subject Member) or (II) decreased unless such decrease occurs subsequent to an increase in a Subject Member’s Holdback Percentage pursuant to a Holdback Vote under this clause (iv); provided further , that such decrease shall not exceed an amount such that such Subject Member’s Holdback Percentage is less than the prevailing Holdback Percentage for the Member Category of such Subject Member; provided further , that a Member shall not vote to increase a Subject Member’s Holdback Percentage unless such voting Member determines, in such Member’s good faith judgment, that the facts and circumstances indicate that it is reasonably likely that such Subject Member, or any of such Subject Member’s successors or assigns (including such Subject Member’s estate or heirs) who at the time of such vote holds the GP-Related Member Interest or otherwise has the right to receive distributions relating thereto, will not be capable of satisfying any GP-Related Recontribution Amounts that may become due.

(B) A Holdback Vote shall take place at a Company meeting. Each Regular Member shall be entitled to cast one vote with respect to the Holdback Vote regardless of such Regular Member’s interest in the Company. Such vote may be cast by any Regular Member in person or by proxy.

(C) If the result of the second Holdback Vote is an increase in a Subject Member’s Holdback Percentage, such Subject Member may submit the decision to an arbitrator, the identity of which is mutually agreed upon by both the Subject Member and the Company; provided , that if the Company and the Subject Member cannot agree upon a mutually satisfactory arbitrator within 10 days of the second Holdback Vote, each of the Company and the Subject Member shall request their candidate for arbitrator to select a third arbitrator satisfactory to such candidates; provided further , that if such candidates fail to agree upon a mutually satisfactory arbitrator within 30 days of such request, the then sitting President of the American Arbitration Association shall unilaterally select the arbitrator. Each Subject Member that submits the decision of the Company pursuant to the second Holdback Vote to arbitration and the Company shall estimate their reasonably projected out-of-pocket expenses relating thereto, and each such party shall, to the satisfaction of the arbitrator and prior to any determination being made by the arbitrator, pay the total of such estimated expenses (i.e., both the Subject Member’s and the Company’s expenses) into an escrow account to be controlled by Simpson Thacher & Bartlett LLP, as escrow agent (or such other comparable law firm as the Company and the Subject Member shall agree). The arbitrator shall direct the escrow agent to pay out of such escrow account all expenses associated with such arbitration (including costs leading thereto) and to return to the “victorious” party the entire amount of funds such party paid into such escrow account. If the amount contributed to the escrow account by the losing party is insufficient to cover the expenses of such arbitration, such “losing” party shall then provide any additional funds necessary to cover such costs to such “victorious” party. For purposes hereof, the “victorious” party shall be the

Company if the Holdback Percentage ultimately determined by the arbitrator is closer to the percentage determined in the second Holdback Vote than it is to the prevailing Holdback Percentage for the Subject Member’s Member Category; otherwise, the Subject Member shall be the “victorious” party. The party that is not the “victorious” party shall be the “losing” party.

(D) In the event of a decrease in a Subject Member’s Holdback Percentage (1) pursuant to a Holdback Vote under this clause (iv) or (2) pursuant to a decision of an arbitrator under paragraph (C) of this clause (iv), the Company shall release and distribute to such Subject Member any Trust Amounts (and the Trust Income thereon (except as expressly provided herein with respect to using Trust Income as Firm Collateral)) which exceed the required Holdback of such Subject Member (in accordance with such Subject Member’s reduced Holdback Percentage) as though such reduced Holdback Percentage had applied since the increase of the Subject Member’s Holdback Percentage pursuant to a previous Holdback Vote under this clause (iv).

(v) (A) If a Member’s Holdback Percentage exceeds 15% (such percentage in excess of 15% constituting the “ Excess Holdback Percentage ”), such Member may satisfy the portion of his or her Holdback obligation in respect of his or her Excess Holdback Percentage (such portion constituting such Member’s “ Excess Holdback ”), and such Member (or a Withdrawn Member with respect to amounts contributed to the Trust Account while he or she was a Member), to the extent his or her Excess Holdback obligation has previously been satisfied in cash, may obtain the release of the Trust Amounts (but not the Trust Income thereon which shall remain in the Trust Account and allocated to such Member or Withdrawn Member) satisfying such Member’s or Withdrawn Member’s Excess Holdback obligation, by pledging or otherwise making available to the Managing Member, on a first priority basis (except as provided below), all or any portion of his or her Firm Collateral in satisfaction of his or her Excess Holdback obligation. Any Member seeking to satisfy all or any portion of the Excess Holdback utilizing Firm Collateral shall sign such documents and otherwise take such other action as is necessary or appropriate (in the good faith judgment of the Managing Member) to perfect a first priority security interest in, and otherwise assure the ability of the Company to realize on (if required), such Firm Collateral; provided , that, in the case of entities listed in the Company’s books and records in which Members are permitted to pledge their interests therein to finance all or a portion of their capital contributions thereto (“ Pledgable Blackstone Interests ”), to the extent a first priority security interest is unavailable because of an existing lien on such Firm Collateral, the Member or Withdrawn Member seeking to utilize such Firm Collateral shall grant the Managing Member a second priority security interest therein in the manner provided above; provided further , that (x) in the case of Pledgable Blackstone Interests, to the extent that neither a first priority nor a second priority security interest is available, or (y) if the Managing Member otherwise determines in its good faith judgment that a security interest in Firm Collateral (and the corresponding documents and actions) are not necessary or appropriate, the Member or Withdrawn Member shall (in the case of either clause (x) or (y) above) irrevocably instruct in writing the relevant partnership, limited liability company or other entity listed in the Company’s books and records to remit any

and all net proceeds resulting from a Firm Collateral Realization on such Firm Collateral to the Trustee(s) as more fully provided in clause (B) below. The Company shall, at the request of any Member or Withdrawn Member, assist such Member or Withdrawn Member in taking such action as is necessary to enable such Member or Withdrawn Member to use Firm Collateral as provided hereunder.

(B) If upon a sale or other realization of all or any portion of any Firm Collateral (a “ Firm Collateral Realization ”), the remaining Firm Collateral is insufficient to cover any Member’s or Withdrawn Member’s Excess Holdback requirement, then up to 100% of the net proceeds otherwise distributable to such Member or Withdrawn Member from such Firm Collateral Realization (including distributions subject to the repayment of financing sources as in the case of Pledgable Blackstone Interests) shall be paid into the Trust Account to fully satisfy such Excess Holdback requirement (allocated to such Member or Withdrawn Member) and shall be deemed to be Trust Amounts for purposes hereunder. Any net proceeds from such Firm Collateral Realization in excess of the amount necessary to satisfy such Excess Holdback requirement shall be distributed to such Member or Withdrawn Member.

(C) Upon any valuation or revaluation of Firm Collateral that results in a decreased valuation of such Firm Collateral so that such Firm Collateral is insufficient to cover any Member’s or Withdrawn Member’s Excess Holdback requirement (including upon a Firm Collateral Realization, if net proceeds therefrom and the remaining Firm Collateral are insufficient to cover any Member’s or Withdrawn Member’s Excess Holdback requirement), the Company shall provide notice of the foregoing to such Member or Withdrawn Member and such Member or Withdrawn Member shall, within 30 days of receiving such notice, contribute cash (or additional Firm Collateral) to the Trust Account in an amount necessary to satisfy his or her Excess Holdback requirement. If any such Member or Withdrawn Member defaults upon his or her obligations under this clause (C), then Section 5.8(d)(ii) shall apply thereto; provided , that clause (A) of Section 5.8(d)(ii) shall be deemed inapplicable to a default under this clause (C); provided further , that for purposes of applying Section 5.8(d)(ii) to a default under this clause (C): (I) the term “GP-Related Defaulting Party” where such term appears in such Section 5.8(d)(ii) shall be construed as “defaulting party” for purposes hereof and (II) the terms “Net GP-Related Recontribution Amount” and “GP-Related Recontribution Amount” where such terms appear in such Section 5.8(d)(ii) shall be construed as the amount due pursuant to this clause (C).

(vi) Any Member or Withdrawn Member may (A) obtain the release of any Trust Amounts (but not the Trust Income thereon which shall remain in the Trust Account and allocated to such Member or Withdrawn Member) or Firm Collateral, in each case, held in the Trust Account for the benefit of such Member or Withdrawn Member or (B) require the Company to distribute all or any portion of amounts otherwise required to be placed in the Trust Account (whether cash or Firm Collateral), by obtaining a letter of credit (an “ L/C ”) for the benefit of the Trustee(s) in such amounts.

Any Member or Withdrawn Member choosing to furnish an L/C to the Trustee(s) (in such capacity, an “ L/C Member ”) shall deliver to the Trustee(s) an unconditional and irrevocable L/C from a commercial bank whose (x) short-term deposits are rated at least A-1 by S&P and P-1 by Moody’s (if the L/C is for a term of 1 year or less), or (y) long-term deposits are rated at least A+ by S&P or A1 by Moody’s (if the L/C is for a term of 1 year or more) (each a “ Required Rating ”). If the relevant rating of the commercial bank issuing such L/C drops below the relevant Required Rating, the L/C Member shall supply to the Trustee(s), within 30 days of such occurrence, a new L/C from a commercial bank whose relevant rating is at least equal to the relevant Required Rating, in lieu of the insufficient L/C. In addition, if the L/C has a term expiring on a date earlier than the latest possible termination date of BTO II, the Trustee(s) shall be permitted to drawdown on such L/C if the L/C Member fails to provide a new L/C from a commercial bank whose relevant rating is at least equal to the relevant Required Rating, at least 30 days prior to the stated expiration date of such existing L/C. The Trustee(s) shall notify an L/C Member 10 days prior to drawing on any L/C. The Trustee(s) may (as directed by the Company in the case of clause (I) below) draw down on an L/C only if (I) such a drawdown is necessary to satisfy an L/C Member’s obligation relating to the Company’s obligations under the Clawback Provisions or (II) an L/C Member has not provided a new L/C from a commercial bank whose relevant rating is at least equal to the relevant Required Rating (or the requisite amount of cash and/or Firm Collateral (to the extent permitted hereunder)), at least 30 days prior to the stated expiration of an existing L/C in accordance with this clause (vi). The Trustee(s), as directed by the Company, shall return to any L/C Member his or her L/C upon (1) the termination of the Trust Account and satisfaction of the Company’s obligations, if any, in respect of the Clawback Provisions, (2) an L/C Member satisfying his or her entire Holdback obligation in cash and Firm Collateral (to the extent permitted hereunder) or (3) the release, by the Trustee(s), as directed by the Company, of all amounts in the Trust Account to the Members or Withdrawn Members. If an L/C Member satisfies a portion of his or her Holdback obligation in cash and/or Firm Collateral (to the extent permitted hereunder) or if the Trustee(s), as directed by the Company, release a portion of the amounts in the Trust Account to the Members or Withdrawn Members in the Member Category of such L/C Member, the L/C of an L/C Member may be reduced by an amount corresponding to such portion satisfied in cash and/or Firm Collateral (to the extent permitted hereunder) or such portion released by the Trustee(s), as directed by the Company; provided , that in no way shall the general release of any Trust Income cause an L/C Member to be permitted to reduce the amount of an L/C by any amount.

(vii) (A) Any in-kind distributions by the Company relating to Carried Interest shall be made in accordance herewith as though such distributions consisted of cash. The Company may direct the Trustee(s) to dispose of any in-kind distributions held in the Trust Account at any time. The net proceeds therefrom shall be treated as though initially contributed to the Trust Account.

(B) In lieu of the foregoing, any Existing Member may pledge with respect to any in-kind distribution the Special Firm Collateral referred to in the applicable category in the Company’s books and records; provided , that the initial contribution of such Special Firm Collateral shall initially equal 130% of

the required Holdback Amount for a period of 90 days, and thereafter shall equal at least 115% of the required Holdback Amount. Paragraphs 4.1(d)(viii)(C) and (D) shall apply to such Special Firm Collateral. To the extent such Special Firm Collateral exceeds the applicable minimum percentage of the required Holdback Amount specified in the first sentence of this clause (vii)(B), the related Member may obtain a release of such excess amount from the Trust Account.

(viii) (A) Any Regular Member or Withdrawn Member may satisfy all or any portion of his or her Holdback (excluding any Excess Holdback), and such Member or a Withdrawn Member may, to the extent his or her Holdback (excluding any Excess Holdback) has been previously satisfied in cash or by the use of an L/C as provided herein, obtain a release of Trust Amounts (but not the Trust Income thereon which shall remain in the Trust Account and allocated to such Member or Withdrawn Member) that satisfy such Member’s or Withdrawn Member’s Holdback (excluding any Excess Holdback) by pledging to the Trustee(s) on a first priority basis all of his or her Special Firm Collateral in a particular Qualifying Fund, which at all times must equal or exceed the amount of the Holdback distributed to the Member or Withdrawn Member (as more fully set forth below). Any Member seeking to satisfy such Member’s Holdback utilizing Special Firm Collateral shall sign such documents and otherwise take such other action as is necessary or appropriate (in the good faith judgment of the Managing Member) to perfect a first priority security interest in, and otherwise assure the ability of the Trustee(s) to realize on (if required), such Special Firm Collateral.

(B) If upon a distribution, withdrawal, sale, liquidation or other realization of all or any portion of any Special Firm Collateral (a “ Special Firm Collateral Realization ”), the remaining Special Firm Collateral (which shall not include the amount of Firm Collateral that consists of a Qualifying Fund and is being used in connection with an Excess Holdback) is insufficient to cover any Member’s or Withdrawn Member’s Holdback (when taken together with other means of satisfying the Holdback as provided herein ( i.e ., cash contributed to the Trust Account or an L/C in the Trust Account)), then up to 100% of the net proceeds otherwise distributable to such Member or Withdrawn Member from such Special Firm Collateral Realization (which shall not include the amount of Firm Collateral that consists of a Qualifying Fund or other asset and is being used in connection with an Excess Holdback) shall be paid into the Trust (and allocated to such Member or Withdrawn Member) to fully satisfy such Holdback and shall be deemed thereafter to be Trust Amounts for purposes hereunder. Any net proceeds from such Special Firm Collateral Realization in excess of the amount necessary to satisfy such Holdback (excluding any Excess Holdback) shall be distributed to such Member or Withdrawn Member. To the extent a Qualifying Fund distributes Securities to a Member or Withdrawn Member in connection with a Special Firm Collateral Realization, such Member or Withdrawn Member shall be required to promptly fund such Member’s or Withdrawn Member’s deficiency with respect to his or her Holdback in cash or an L/C.

(C) Upon any valuation or revaluation of the Special Firm Collateral and/or any adjustment in the Applicable Collateral Percentage

applicable to a Qualifying Fund (as provided in the Company’s books and records), if such Member’s or Withdrawn Member’s Special Firm Collateral is valued at less than such Member’s Holdback (excluding any Excess Holdback) as provided in the Company’s books and records, taking into account other permitted means of satisfying the Holdback hereunder, the Company shall provide notice of the foregoing to such Member or Withdrawn Member and, within 10 business days of receiving such notice, such Member or Withdrawn Member shall contribute cash or additional Special Firm Collateral to the Trust Account in an amount necessary to make up such deficiency. If any such Member or Withdrawn Member defaults upon his or her obligations under this clause (C), then Section 5.8(d)(ii) shall apply thereto; provided , that the first sentence of Section 5.8(d)(ii)(A) shall be deemed inapplicable to such default; provided further , that for purposes of applying Section 5.8(d)(ii) to a default under this clause (C): (I) the term “GP-Related Defaulting Party” where such term appears in such Section 5.8(d)(ii) shall be construed as “defaulting party” for purposes hereof and (II) the terms “Net GP-Related Recontribution Amount” and “GP-Related Recontribution Amount” where such terms appear in such Section 5.8(d)(ii) shall be construed as the amount due pursuant to this clause (C).

(D) Upon a Member becoming a Withdrawn Member, at any time thereafter the Managing Member may revoke the ability of such Withdrawn Member to use Special Firm Collateral as set forth in this Section 4.1(d)(viii), notwithstanding anything else in this Section 4.1(d)(viii). In that case the provisions of clause (C) above shall apply to the Withdrawn Member’s obligation to satisfy the Holdback (except that 30 days’ notice of such revocation shall be given), given that the Special Firm Collateral is no longer available to satisfy any portion of the Holdback (excluding any Excess Holdback).

(E) Nothing in this Section 4.1(d)(viii) shall prevent any Member or Withdrawn Member from using any amount of such Member’s interest in a Qualifying Fund as Firm Collateral; provided , that at all times Section 4.1(d)(v) and this Section 4.1(d)(viii) are each satisfied.

Section 4.2. Interest . Interest on the balances of the Members’ capital related to the Members’ GP-Related Member Interests (excluding capital invested in GP-Related Investments and, if deemed appropriate by the Managing Member, capital invested in any other investment of the Company) shall be credited to the Members’ GP-Related Capital Accounts at the end of each accounting period pursuant to Section 5.2, or at any other time as determined by the Managing Member, at rates determined by the Managing Member from time to time, and shall be charged as an expense of the Company.

Section 4.3. Withdrawals of Capital . No Member may withdraw capital related to such Member’s GP-Related Member Interests from the Company except (i) for distributions of cash or other property pursuant to Section 5.8, (ii) as otherwise expressly provided in this Agreement or (iii) as determined by the Managing Member.

ARTICLE V

PARTICIPATION IN PROFITS AND LOSSES

Section 5.1. General Accounting Matters .

(a) GP-Related Net Income (Loss) shall be determined by the Managing Member at the end of each accounting period and shall be allocated as described in Section 5.4.

(b) “ GP-Related Net Income (Loss) ” from any activity of the Company related to the GP-Related BTO II Interest for any accounting period means (i) the gross income realized by the Company from such activity during such accounting period less (ii) all expenses of the Company, and all other items that are deductible from gross income, for such accounting period that are allocable to such activity (determined as provided below).

(c) “ GP-Related Net Income (Loss)” from any GP-Related Investment for any accounting period in which such GP-Related Investment has not been sold or otherwise disposed of means (i) the gross amount of dividends, interest or other income received by the Company from such GP-Related Investment during such accounting period less (ii) all expenses of the Company for such accounting period that are allocable to such GP-Related Investment (determined as provided below).

(d) “ GP-Related Net Income (Loss) ” from any GP-Related Investment for the accounting period in which such GP-Related Investment is sold or otherwise disposed of means (i) the sum of the gross proceeds from the sale or other disposition of such GP-Related Investment and the gross amount of dividends, interest or other income received by the Company from such GP-Related Investment during such accounting period less (ii) the sum of the cost or other basis to the Company of such GP-Related Investment and all expenses of the Company for such accounting period that are allocable to such GP-Related Investment.

(e) GP-Related Net Income (Loss) shall be determined in accordance with the accounting method used by the Company for U.S. federal income tax purposes with the following adjustments: (i) any income of the Company that is exempt from U.S. federal income taxation and not otherwise taken into account in computing GP-Related Net Income (Loss) shall be added to such taxable income or loss; (ii) if any asset has a value on the books of the Company that differs from its adjusted tax basis for U.S. federal income tax purposes, any depreciation, amortization or gain resulting from a disposition of such asset shall be calculated with reference to such value; (iii) upon an adjustment to the value of any asset on the books of the Company pursuant to Treasury Regulations Section 1.704-1(b)(2), the amount of the adjustment shall be included as gain or loss in computing such taxable income or loss; (iv) any expenditures of the Company not deductible in computing taxable income or loss, not properly capitalizable and not otherwise taken into account in computing GP-Related Net Income (Loss) pursuant to this definition shall be treated as deductible items; (v) any income from a GP-Related Investment that is payable to Company employees in respect of “phantom interests” in such GP-Related Investment awarded by the Managing Member to employees shall be included as an expense in the calculation of GP-Related Net Income (Loss) from such GP-Related Investment, and (vi) items of income and expense (including interest income and overhead and other indirect

expenses) of the Company, Holdings and other Affiliates of the Company shall be allocated among the Company, Holdings and such Affiliates, among various Company activities and GP-Related Investments and between accounting periods, in each case as determined by the Managing Member. Any adjustments to GP-Related Net Income (Loss) by the Managing Member, including adjustments for items of income accrued but not yet received, unrealized gains, items of expense accrued but not yet paid, unrealized losses, reserves (including reserves for taxes, bad debts, actual or threatened litigation, or any other expenses, contingencies or obligations) and other appropriate items shall be made in accordance with GAAP; provided , that the Managing Member shall not be required to make any such adjustment.

(f) An accounting period shall be a Fiscal Year, except that, at the option of the Managing Member, an accounting period will terminate and a new accounting period will begin on the admission date of an additional Member or the Settlement Date of a Withdrawn Member, if any such date is not the first day of a Fiscal Year. If any event referred to in the preceding sentence occurs and the Managing Member does not elect to terminate an accounting period and begin a new accounting period, then the Managing Member may make such adjustments as it deems appropriate to the Members’ GP-Related Profit Sharing Percentages for the accounting period in which such event occurs (prior to any allocations of GP-Related Unallocated Percentages or adjustments to GP-Related Profit Sharing Percentages pursuant to Section 5.3) to reflect the Members’ average GP-Related Profit Sharing Percentages during such accounting period; provided , that the GP-Related Profit Sharing Percentages of Members in GP-Related Net Income (Loss) from GP-Related Investments acquired during such accounting period will be based on GP-Related Profit Sharing Percentages in effect when each such GP-Related Investment was acquired.

(g) In establishing GP-Related Profit Sharing Percentages and allocating GP-Related Unallocated Percentages pursuant to Section 5.3, the Managing Member may consider such factors as it deems appropriate.

(h) All determinations, valuations and other matters of judgment required to be made for accounting purposes under this Agreement shall be made by the Managing Member and approved by the Company’s independent accountants. Such approved determinations, valuations and other accounting matters shall be conclusive and binding on all Members, all Withdrawn Members, their successors, heirs, estates or legal representatives and any other person, and to the fullest extent permitted by law no such person shall have the right to an accounting or an appraisal of the assets of the Company or any successor thereto.

Section 5.2. GP-Related Capital Accounts .

(a) There shall be established for each Member on the books of the Company, to the extent and at such times as may be appropriate, one or more capital accounts as the Managing Member may deem to be appropriate for purposes of accounting for such Member’s interests in the capital of the Company related to the GP-Related BTO II Interest and the GP-Related Net Income (Loss) of the Company (each a “ GP-Related Capital Account ”).

(b) As of the end of each accounting period or, in the case of a contribution to the Company by one or more of the Members with respect to such Member or Members’ GP-

Related Member Interests or a distribution by the Company to one or more of the Members with respect to such Member or Members’ GP-Related Member Interests, at the time of such contribution or distribution, (i) the appropriate GP-Related Capital Accounts of each Member shall be credited with the following amounts: (A) the amount of cash and the value of any property contributed by such Member to the capital of the Company related to such Member’s GP-Related Member Interest during such accounting period, (B) the GP-Related Net Income allocated to such Member for such accounting period and (C) the interest credited on the balance of such Member’s capital related to such Member’s GP-Related Member Interest for such accounting period pursuant to Section 4.2; and (ii) the appropriate GP-Related Capital Accounts of each Member shall be debited with the following amounts: (x) the amount of cash, the principal amount of any subordinated promissory note of the Company referred to in Section 6.5 (as such amount is paid) and the value of any property distributed to such Member during such accounting period with respect to such Member’s GP-Related Member Interest and (y) the GP-Related Net Loss allocated to such Member for such accounting period.

Section 5.3. GP-Related Profit Sharing Percentages .

(a) Prior to the beginning of each annual accounting period, the Managing Member shall establish the profit sharing percentage (the “ GP-Related Profit Sharing Percentage ”) of each Member in each category of GP-Related Net Income (Loss) for such annual accounting period pursuant to Section 5.1(a) taking into account such factors as the Managing Member deems appropriate; provided , that (i) the Managing Member may elect to establish GP-Related Profit Sharing Percentages in GP-Related Net Income (Loss) from any GP-Related Investment acquired by the Company during such accounting period at the time such GP-Related Investment is acquired in accordance with paragraph (d) below and (ii) GP-Related Net Income (Loss) for such accounting period from any GP-Related Investment shall be allocated in accordance with the GP-Related Profit Sharing Percentages in such GP-Related Investment established in accordance with paragraph (d) below. The Managing Member may establish different GP-Related Profit Sharing Percentages for any Member in different categories of GP-Related Net Income (Loss). In the case of the Withdrawal of a Member, such former Member’s GP-Related Profit Sharing Percentages shall be allocated by the Managing Member to one or more of the remaining Members as the Managing Member shall determine. In the case of the admission of any Member to the Company as an additional Member, the GP-Related Profit Sharing Percentages of the other Members shall be reduced by an amount equal to the GP-Related Profit Sharing Percentage allocated to such new Member pursuant to Section 6.1(b); such reduction of each other Member’s GP-Related Profit Sharing Percentage shall be pro rata based upon such Member’s GP-Related Profit Sharing Percentage as in effect immediately prior to the admission of the new Member. Notwithstanding the foregoing, the Managing Member may also adjust the GP-Related Profit Sharing Percentage of any Member for any annual accounting period at the end of such annual accounting period in its sole discretion.

(b) The Managing Member may elect to allocate to the Members less than 100% of the GP-Related Profit Sharing Percentages of any category for any annual accounting period at the time specified in Section 5.3(a) for the annual fixing of GP-Related Profit Sharing Percentages (any remainder of such GP-Related Profit Sharing Percentages being called a “ GP-Related Unallocated Percentage ”); provided , that any GP-Related Unallocated Percentage in any category of GP-Related Net Income (Loss) for any annual accounting period that is not allocated

by the Managing Member within 90 days after the end of such accounting period shall be deemed to be allocated among all the Members (including the Managing Member) in the manner determined by the Managing Member in its sole discretion.

(c) Unless otherwise determined by the Managing Member in a particular case, (i) GP-Related Profit Sharing Percentages in GP-Related Net Income (Loss) from any GP-Related Investment shall be allocated in proportion to the Members’ respective GP-Related Capital Contributions in respect of such GP-Related Investment and (ii) GP-Related Profit Sharing Percentages in GP-Related Net Income (Loss) from each GP-Related Investment shall be fixed at the time such GP-Related Investment is acquired and shall not thereafter change, subject to any repurchase rights established by the Managing Member pursuant to Section 5.7.

Section 5.4. Allocations of GP-Related Net Income (Loss) .

(a) Except as provided in Section 5.4(d), GP-Related Net Income of the Company for each GP-Related Investment shall be allocated to the GP-Related Capital Accounts related to such GP-Related Investment of all the Members participating in such GP-Related Investment (including the Managing Member): first, in proportion to and to the extent of the amount of Non-Carried Interest (other than amounts representing a return of GP-Related Capital Contributions) or Carried Interest distributed to the Members; second, to Members that received Non-Carried Interest (other than amounts representing a return of GP-Related Capital Contributions) or Carried Interest in years prior to the years such GP-Related Net Income is being allocated to the extent such Non-Carried Interest (other than amounts representing a return of GP-Related Capital Contributions) or Carried Interest exceeded GP-Related Net Income allocated to such Members in such earlier years; and third, to the Members in the same manner that such Non-Carried Interest (other than amounts representing a return of GP-Related Capital Contributions) or Carried Interest would have been distributed if cash were available to distribute with respect thereto.

(b) GP-Related Net Loss of the Company shall be allocated as follows: (i) GP-Related Net Loss relating to realized losses suffered by BTO II and allocated to the Company with respect to its pro rata share thereof (based on capital contributions made by the Company to BTO II with respect to the GP-Related BTO II Interest) shall be allocated to the Members in accordance with each Member’s Non-Carried Interest Sharing Percentage with respect to the GP-Related Investment giving rise to such loss suffered by BTO II and (ii) GP-Related Net Loss relating to realized losses suffered by BTO II and allocated to the Company with respect to the Carried Interest shall be allocated in accordance with a Member’s (including a Withdrawn Member’s) Carried Interest Give Back Percentage (as of the date of such loss) (subject to adjustment pursuant to Section 5.8(e)).

(c) Notwithstanding Section 5.4(a) above, GP-Related Net Income relating to Carried Interest allocated after the allocation of a GP-Related Net Loss pursuant to clause (ii) of Section 5.4(b) shall be allocated in accordance with such Carried Interest Give Back Percentages until such time as the Members have been allocated GP-Related Net Income relating to Carried Interest equal to the aggregate amount of GP-Related Net Loss previously allocated in accordance with clause (ii) of Section 5.4(b). Withdrawn Members shall remain Members for purposes of allocating such GP-Related Net Loss with respect to Carried Interest.

(d) To the extent the Company has any GP-Related Net Income (Loss) for any accounting period unrelated to BTO II, such GP-Related Net Income (Loss) will be allocated in accordance with GP-Related Profit Sharing Percentages prevailing at the beginning of such accounting period.

(e) The Managing Member may authorize from time to time advances to Members (including any additional Member admitted to the Company pursuant to Section 6.1 but excluding any Members who are also executive officers of The Blackstone Group L.P. or any Affiliate thereof) against their allocable shares of GP-Related Net Income (Loss).

(f) Notwithstanding the foregoing, the Managing Member may make such allocations as it deems reasonably necessary to give economic effect to the provisions of this Agreement, taking into account facts and circumstances as the Managing Member deems reasonably necessary for this purpose.

Section 5.5. Liability of Members . Except as otherwise provided in the LLC Act or as expressly provided in this Agreement, no Member shall be personally obligated for any debt, obligation or liability of the Company or of any other Member solely by reason of being a Member. In no event shall any Member or Withdrawn Member (i) be obligated to make any capital contribution or payment to or on behalf of the Company or (ii) have any liability to return distributions received by such Member from the Company, in each case except as specifically provided in Section 4.1(d) or Section 5.8 or otherwise in this Agreement, as such Member shall otherwise expressly agree in writing or as may be required by applicable law.

Section 5.6. [Intentionally omitted.]

Section 5.7. Repurchase Rights, etc . The Managing Member may from time to time establish such repurchase rights and/or other requirements with respect to the Members’ GP-Related Member Interests relating to GP-Related BTO II Investments as the Managing Member may determine. The Managing Member shall have authority to (a) withhold any distribution otherwise payable to any Member until any such repurchase rights have lapsed or any such requirements have been satisfied, (b) pay any distribution to any Member that is Contingent as of the distribution date and require the refund of any portion of such distribution that is Contingent as of the Withdrawal Date of such Member, (c) amend any previously established repurchase rights or other requirements from time to time and (d) make such exceptions thereto as it may determine on a case by case basis.

Section 5.8. Distributions .

(a) (i) The Company shall make distributions of available cash (subject to reserves and other adjustments as provided herein) or other property to Members with respect to such Members’ GP-Related Member Interests at such times and in such amounts as are determined by the Managing Member. The Managing Member shall, if it deems it appropriate, determine the availability for distribution of, and distribute, cash or other property separately for each category of GP-Related Net Income (Loss) established pursuant to Section 5.1(a). Distributions of cash or other property with respect to Non-Carried Interest shall be made among the Members in accordance with their respective Non-Carried Interest Sharing Percentages, and, subject to Section 4.1(d) and Section 5.8(e), distributions of cash or other

property with respect to Carried Interest shall be made among Members in accordance with their respective Carried Interest Sharing Percentages.

(ii) At any time that a sale, exchange, transfer or other disposition by BTO II of a portion of a GP-Related Investment is being considered by the Company (a “ GP-Related Disposable Investment ”), at the election of the Managing Member each Member’s GP-Related Member Interest with respect to such GP-Related Investment shall be vertically divided into two separate GP-Related Member Interests, a GP-Related Member Interest attributable to the GP-Related Disposable Investment (a Member’s “ GP-Related Class B Interest ”), and a GP-Related Member Interest attributable to such GP-Related Investment excluding the GP-Related Disposable Investment (a Member’s “ GP-Related Class A Interest ”). Distributions (including those resulting from a sale, transfer, exchange or other disposition by BTO II) relating to a GP-Related Disposable Investment (with respect to both Carried Interest and Non-Carried Interest) shall be made only to holders of GP-Related Class B Interests with respect to such GP-Related Investment in accordance with their GP-Related Profit Sharing Percentages relating to such GP-Related Class B Interests, and distributions (including those resulting from the sale, transfer, exchange or other disposition by BTO II) relating to a GP-Related Investment excluding such GP-Related Disposable Investment (with respect to both Carried Interest and Non-Carried Interest) shall be made only to holders of GP-Related Class A Interests with respect to such GP-Related Investment in accordance with their respective GP-Related Profit Sharing Percentages relating to such GP-Related Class A Interests. Except as provided above, distributions of cash or other property with respect to each category of GP-Related Net Income (Loss) shall be allocated among the Members in the same proportions as the allocations of GP-Related Net Income (Loss) of each such category.

(b) Subject to the Company’s having sufficient available cash in the reasonable judgment of the Managing Member, the Company shall make cash distributions to each Member with respect to each Fiscal Year of the Company in an aggregate amount at least equal to the total federal, New York State and New York City income and other taxes that would be payable by such Member with respect to all categories of GP-Related Net Income (Loss) allocated to such Member for such Fiscal Year, the amount of which shall be calculated (i) on the assumption that each Member is an individual subject to the then prevailing maximum rate of federal, New York State and New York City and other income taxes (including, without limitation, taxes under Section 1411 of the Code), (ii) taking into account the deductibility of state and local income and other taxes for federal income tax purposes and (iii) taking into account any differential in applicable rates due to the character of GP-Related Net Income (Loss) allocated to such Member. Notwithstanding the provisions of the foregoing sentence, the Managing Member may refrain from making any distribution if, in the reasonable judgment of the Managing Member, such distribution is prohibited by § 18-607 of the LLC Act.

(c) The Managing Member may provide that the GP-Related Member Interest of any Member or employee (including such Member’s or employee’s right to distributions and investments of the Company related thereto) may be subject to repurchase by the Company during such period as the Managing Member shall determine (a “ Repurchase Period ”). Any Contingent distributions from GP-Related Investments subject to repurchase rights will be withheld by the Company and will be distributed to the recipient thereof (together with interest thereon at rates determined by the Managing Member from time to time) as the recipient’s rights

to such distributions become Non-Contingent (by virtue of the expiration of the applicable Repurchase Period or otherwise). The Managing Member may elect in an individual case to have the Company distribute any Contingent distribution to the applicable recipient thereof irrespective of whether the applicable Repurchase Period has lapsed. If a Member Withdraws from the Company for any reason other than his or her death, Total Disability or Incompetence, the undistributed share of any GP-Related Investment that remains Contingent as of the applicable Withdrawal Date shall be repurchased by the Company at a purchase price determined at such time by the Managing Member. Unless determined otherwise by the Managing Member, the repurchased portion thereof will be allocated among the remaining Members with interests in such GP-Related Investment in proportion to their respective percentage interests in such GP-Related Investment, or if no other Member has a percentage interest in such specific GP-Related Investment, to the Managing Member; provided , that the Managing Member may allocate the Withdrawn Member’s share of unrealized investment income from a repurchased GP-Related Investment attributable to the period after the Withdrawn Member’s Withdrawal Date on any basis it may determine, including to existing or new Members who did not previously have interests in such GP-Related Investment, except that, in any event, each Investor Special Member shall be allocated a share of such unrealized investment income equal to its respective GP-Related Profit Sharing Percentage of such unrealized investment income.

(d) (i) (A) If Associates II is obligated under the Clawback Provisions or Giveback Provisions to contribute to BTO II a Clawback Amount or a Giveback Amount (other than a Capital Commitment Giveback Amount) and the Company is obligated to contribute any such amount to Associates II in respect of the Company’s GP-Related Associates II Interest (the amount of any such obligation of the Company with respect to such a Giveback Amount being herein called a “ GP-Related Giveback Amount ”), the Managing Member shall call for such amounts as are necessary to satisfy such obligations of the Company as determined by the Managing Member, in which case each Member and Withdrawn Member shall contribute to the Company, in cash, when and as called by the Managing Member, such an amount of prior distributions by the Company (and the Other Fund GPs) with respect to Carried Interest (and/or Non-Carried Interest in the case of a GP-Related Giveback Amount) (the “ GP-Related Recontribution Amount ”) which equals (I) the product of (a) a Member’s or Withdrawn Member’s Carried Interest Give Back Percentage and (b) the aggregate Clawback Amount payable by the Company in the case of Clawback Amounts and (II) with respect to a GP-Related Giveback Amount, such Member’s pro rata share of prior distributions of Carried Interest and/or Non-Carried Interest in connection with (a) the GP-Related BTO II Investment giving rise to the GP-Related Giveback Amount, (b) if the amounts contributed pursuant to clause (II)(a) above are insufficient to satisfy such GP-Related Giveback Amount, GP-Related BTO II Investments other than the one giving rise to such obligation, but only those amounts received by the Members with an interest in the GP-Related BTO II Investment referred to in clause (II)(a) above, and (c) if the GP-Related Giveback Amount pursuant to an applicable BTO II Agreement is unrelated to a specific GP-Related BTO II Investment, all GP-Related BTO II Investments. Each Member and Withdrawn Member shall promptly contribute to the Company, along with satisfying his or her comparable obligations to the Other Fund GPs, if any, upon such call such Member’s or Withdrawn Member’s GP-Related Recontribution Amount, less the amount paid out of the Trust Account on behalf of such Member or Withdrawn Member by the Trustee(s) pursuant to written instructions from the Company, or if applicable, any of the Other Fund GPs with respect to Carried Interest (and/or Non-Carried Interest in the case of GP-Related Giveback Amounts) (the

“ Net GP-Related Recontribution Amount ”), irrespective of the fact that the amounts in the Trust Account may be sufficient on an aggregate basis to satisfy the Company’s and the Other Fund GPs’ obligation under the Clawback Provisions and/or Giveback Provisions; provided , that to the extent a Member’s or Withdrawn Member’s share of the amount paid with respect to the Clawback Amount or the GP-Related Giveback Amount exceeds his or her GP-Related Recontribution Amount, such excess shall be repaid to such Member or Withdrawn Member as promptly as reasonably practicable, subject to clause (ii) below; provided further , that such written instructions from the Managing Member shall specify each Member’s and Withdrawn Member’s GP-Related Recontribution Amount. Prior to such time, the Managing Member may, in its discretion (but shall be under no obligation to), provide notice that in the Managing Member’s judgment, the potential obligations in respect of the Clawback Provisions or the Giveback Provisions will probably materialize (and an estimate of the aggregate amount of such obligations); provided further , that any amount from a Member’s Trust Account used to pay any GP-Related Giveback Amount (or such lesser amount as may be required by the Managing Member) shall be contributed by such Member to such Member’s Trust Account no later than 30 days after the Net GP-Related Recontribution Amount is paid with respect to such GP-Related Giveback Amount.

(B) To the extent any Member or Withdrawn Member has satisfied any Holdback obligation with Firm Collateral, such Member or Withdrawn Member shall, within 10 days of the Managing Member’s call for GP-Related Recontribution Amounts, make a cash payment into the Trust Account in an amount equal to the amount of the Holdback obligation satisfied with such Firm Collateral, or such lesser amount such that the amount in the Trust Account allocable to such Member or Withdrawn Member equals the sum of (I) such Member’s or Withdrawn Member’s GP-Related Recontribution Amount and (II) any similar amounts payable to any of the Other Fund GPs. Immediately upon receipt of such cash, the Trustee(s) shall take such steps as are necessary to release such Firm Collateral of such Member or Withdrawn Member equal to the amount of such cash payment. If the amount of such cash payment is less than the amount of Firm Collateral of such Member or Withdrawn Member, the balance of such Firm Collateral if any, shall be retained to secure the payment of GP-Related Deficiency Contributions, if any, and shall be fully released upon the satisfaction of the Company’s and the Other Fund GPs’ obligation to pay the Clawback Amount. The failure of any Member or Withdrawn Member to make a cash payment in accordance with this clause (B) (to the extent applicable) shall constitute a default under Section 5.8(d)(ii) as if such cash payment hereunder constitutes a Net GP-Related Recontribution Amount under Section 5.8(d)(ii).

(ii) (A) In the event any Member or Withdrawn Member (a “ GP-Related Defaulting Party ”) fails to recontribute all or any portion of such GP-Related Defaulting Party’s Net GP-Related Recontribution Amount for any reason, the Managing Member shall require all other Members and Withdrawn Members to contribute, on a pro rata basis (based on each of their respective Carried Interest Give Back Percentages in the case of Clawback Amounts, and GP-Related Profit Sharing Percentages in the case of GP-Related Giveback Amounts (as more fully described in clause (II) of Section 5.8(d)(i)(A) above)), such amounts as are necessary to fulfill the GP-Related Defaulting Party’s obligation to pay such GP-Related Defaulting Party’s Net GP-Related Recontribution Amount (a “ GP-Related Deficiency Contribution ”) if the Managing Member determines in its good faith judgment that the Company

(or an Other Fund GP) will be unable to collect such amount in cash from such GP-Related Defaulting Party for payment of the Clawback Amount or GP-Related Giveback Amount, as the case may be, at least 20 Business Days prior to the latest date that the Company, and the Other Fund GPs, if applicable, are permitted to pay the Clawback Amount or GP-Related Giveback Amount, as the case may be; provided , that, subject to Section 5.8(e), no Member or Withdrawn Member shall as a result of such GP-Related Deficiency Contribution be required to contribute an amount in excess of 150% of the amount of the Net GP-Related Recontribution Amount initially requested from such Member or Withdrawn Member in respect of such default. Thereafter, the Managing Member shall determine in its good faith judgment that the Company should either (1) not attempt to collect such amount in light of the costs associated therewith, the likelihood of recovery and any other factors considered relevant in the good faith judgment of the Managing Member or (2) pursue any and all remedies (at law or equity) available to the Company against the GP-Related Defaulting Party, the cost of which shall be a Company expense to the extent not ultimately reimbursed by the GP-Related Defaulting Party. It is agreed that the Company shall have the right (effective upon such GP-Related Defaulting Party becoming a GP-Related Defaulting Party) to set-off as appropriate and apply against such GP-Related Defaulting Party’s Net GP-Related Recontribution Amount any amounts otherwise payable to the GP-Related Defaulting Party by the Company or any Affiliate thereof (including amounts unrelated to Carried Interest, such as returns of capital and profit thereon). Each Member and Withdrawn Member hereby grants to the Managing Member a security interest, effective upon such Member or Withdrawn Member becoming a GP-Related Defaulting Party, in all accounts receivable and other rights to receive payment from any Affiliate of the Company and agrees that, upon the effectiveness of such security interest, the Managing Member may sell, collect or otherwise realize upon such collateral. In furtherance of the foregoing, each Member and Withdrawn Member hereby appoints the Managing Member as its true and lawful attorney-in-fact with full irrevocable power and authority, in the name of such Member or Withdrawn Member or in the name of the Managing Member, to take any actions which may be necessary to accomplish the intent of the immediately preceding sentence. The Managing Member shall be entitled to collect interest on the Net GP-Related Recontribution Amount of a GP-Related Defaulting Party from the date such Net GP-Related Recontribution Amount was required to be contributed to the Company at a rate equal to the Default Interest Rate.

(B) Any Member’s or Withdrawn Member’s failure to make a GP-Related Deficiency Contribution shall cause such Member or Withdrawn Member to be a GP-Related Defaulting Party with respect to such amount. The Company shall first seek any remaining Trust Amounts (and Trust Income thereon) allocated to such Member or Withdrawn Member to satisfy such Member’s or Withdrawn Member’s obligation to make a GP-Related Deficiency Contribution before seeking cash contributions from such Member or Withdrawn Member in satisfaction of such Member’s or Withdrawn Member’s obligation to make a GP-Related Deficiency Contribution.

(iii) In the event any Member or Withdrawn Member initially fails to recontribute all or any portion of such Member or Withdrawn Member’s pro rata share of any Clawback Amount pursuant to Section 5.8(d)(i)(A), the Company shall use its reasonable efforts to collect the amount which such Member or Withdrawn Member so fails to recontribute.

(iv) A Member’s or Withdrawn Member’s obligation to make contributions to the Company under this Section 5.8(d) shall survive the termination of the Company.

(e) The Members acknowledge that the Managing Member will (and is hereby authorized to) take such steps as it deems appropriate, in its good faith judgment, to further the objective of providing for the fair and equitable treatment of all Members, including by allocating Aggregate Net Losses from Writedowns (as defined in the BTO II Agreements) and Losses (as defined in the BTO II Agreements) on GP-Related BTO II Investments that have been the subject of a writedown and/or Net Realized Loss (each, a “ Loss Investment ”) to those Members who participated in such Loss Investments based on their Carried Interest Sharing Percentage therein to the extent that such Members receive or have received Carried Interest distributions from other GP-Related BTO II Investments. Consequently and notwithstanding anything herein to the contrary, adjustments to Carried Interest distributions shall be made as set forth in this Section 5.8(e).

(i) At the time the Company is making Carried Interest distributions in connection with a GP-Related BTO II Investment (the “ Subject Investment ”) that have been reduced under any BTO II Agreement as a result of one or more Loss Investments, the Managing Member shall calculate amounts distributable to or due from each such Member as follows:

(A) determine each Member’s share of each such Loss Investment based on his or her Carried Interest Sharing Percentage in each such Loss Investment (which may be zero) to the extent such Loss Investment has reduced the Carried Interest distributions otherwise available for distribution to all Members (indirectly through the Company from BTO II) from the Subject Investment (such reduction, the “ Loss Amount ”);

(B) determine the amount of Carried Interest distributions otherwise distributable to such Member with respect to the Subject Investment (indirectly through the Company from BTO II) before any reduction in respect of the amount determined in clause (A) above (the “ Unadjusted Carried Interest Distributions ”); and

(C) subtract (I) the Loss Amounts relating to all Loss Investments from (II) the Unadjusted Carried Interest Distributions for such Member, to determine the amount of Carried Interest distributions to actually be paid to such Member (“ Net Carried Interest Distribution ”).

To the extent that the Net Carried Interest Distribution for a Member as calculated in this clause (i) is a negative number, the Managing Member shall (I) notify such Member, at or prior to the time such Carried Interest distributions are actually made to the Members, of his or her obligation to recontribute to the Company prior Carried Interest distributions (a “ Net Carried Interest Distribution Recontribution Amount ”), up to the amount of such negative Net Carried Interest Distribution, and (II) to the extent amounts recontributed pursuant to clause (I) are insufficient to satisfy such negative Net Carried Interest Distribution amount, reduce future

Carried Interest distributions otherwise due such Member, up to the amount of such remaining negative Net Carried Interest Distribution. If a Member’s (x) Net Carried Interest Distribution Recontribution Amount exceeds (y) the aggregate amount of prior Carried Interest distributions less the amount of tax thereon, calculated based on the Assumed Income Tax Rate (as defined in the BTO II Agreements) in effect in the Fiscal Years of such distributions (the “ Excess Tax-Related Amount ”), then such Member may, in lieu of paying such Member’s Excess Tax-Related Amount, defer such amounts as set forth below. Such deferred amount shall accrue interest at the Prime Rate. Such deferred amounts shall be reduced and repaid by the amount of Carried Interest otherwise distributable to such Member in connection with future Carried Interest distributions until such balance is reduced to zero. Any deferred amounts shall be payable in full upon the earlier of (i) such time as the Clawback Amount is determined (as provided herein) and (ii) such time as the Member becomes a Withdrawn Member.

To the extent there is an amount of negative Net Carried Interest Distribution with respect to a Member remaining after the application of this clause (i), notwithstanding clause (II) of the preceding paragraph, such remaining amount of negative Net Carried Interest Distribution shall be allocated to the other Members pro rata based on each of their Carried Interest Sharing Percentages in the Subject Investment.

A Member who fails to pay a Net Carried Interest Distribution Recontribution Amount promptly upon notice from the Managing Member (as provided above) shall be deemed a GP-Related Defaulting Party for all purposes hereof.

A Member may satisfy in part any Net Carried Interest Distribution Recontribution Amount from cash that is then subject to a Holdback, to the extent that the amounts that remain subject to a Holdback satisfy the Holdback requirements hereof as they relate to the reduced amount of aggregate Carried Interest distributions received by such Member (taking into account any Net Carried Interest Distribution Recontribution Amount contributed to the Company by such Member).

Any Net Carried Interest Distribution Recontribution Amount contributed by a Member, including amounts of cash subject to a Holdback as provided above, shall increase the amount available for distribution to the other Members as Carried Interest distributions with respect to the Subject Investment; provided , that any such amounts then subject to a Holdback may be so distributed to the other Members to the extent a Member receiving such distribution has satisfied the Holdback requirements with respect to such distribution (taken together with the other Carried Interest distributions received by such Member to date).

(ii) In the case of Clawback Amounts which are required to be contributed to the Company as otherwise provided herein, the obligation of the Members with respect to any Clawback Amount shall be adjusted by the Managing Member as follows:

(A) determine each Member’s share of any Net Realized Losses in any GP-Related BTO II Investments which gave rise to the Clawback Amount ( i.e. , the Losses that followed the last GP-Related BTO II Investment with respect

to which Carried Interest distributions were made), based on such Member’s Carried Interest Sharing Percentage in such GP-Related BTO II Investments;

(B) determine each Member’s obligation with respect to the Clawback Amount based on such Member’s Carried Interest Give Back Percentage as otherwise provided herein; and

(C) subtract the amount determined in clause (B) above from the amount determined in clause (A) above with respect to each Member to determine the amount of adjustment to each Member’s share of the Clawback Amount (a Member’s “ Clawback Adjustment Amount ”).

A Member’s share of the Clawback Amount shall for all purposes hereof be decreased by such Member’s Clawback Adjustment Amount, to the extent it is a negative number (except to the extent expressly provided below). A Member’s share of the Clawback Amount shall for all purposes hereof be increased by such Member’s Clawback Adjustment Amount (to the extent it is a positive number); provided , that in no way shall a Member’s aggregate obligation to satisfy a Clawback Amount as a result of this clause (ii) exceed the aggregate Carried Interest distributions received by such Member. To the extent a positive Clawback Adjustment Amount remains after the application of this clause (ii) with respect to a Member, such remaining Clawback Adjustment Amount shall be allocated to the Members (including any Member whose Clawback Amount was increased pursuant to this clause (ii)) pro rata based on their Carried Interest Give Back Percentages (determined without regard to this clause (ii)).

Any distribution or contribution adjustments pursuant to this Section 5.8(e) by the Managing Member shall be based on its good faith judgment, and no Member shall have any claim against the Company, the Managing Member or any other Members as a result of any adjustment made as set forth above. This Section 5.8(e) applies to all Members, including Withdrawn Members.

It is agreed and acknowledged that this Section 5.8(e) is an agreement among the Members and in no way modifies the obligations of each Member regarding the Clawback Amount as provided in the BTO II Agreements.

Section 5.9. Business Expenses . The Company shall reimburse the Members for reasonable travel, entertainment and miscellaneous expenses incurred by them in the conduct of the Company’s business in accordance with rules and regulations established by the Managing Member from time to time.

Section 5.10. Tax Capital Accounts; Tax Allocations .

(a) For federal income tax purposes, there shall be established for each Member a single capital account combining such Member’s Capital Commitment Capital Account and GP-Related Capital Account, with such adjustments as the Managing Member determines are appropriate so that such single capital account is maintained in compliance with the principles and requirements of Section 704(b) of the Code and the Treasury Regulations thereunder.

(b) All items of income, gain, loss, deduction and credit of the Company shall be allocated among the Members for federal, state and local income tax purposes in the same manner as such items of income, gain, loss, deduction and credit shall be allocated among the Members pursuant to this Agreement, except as may otherwise be provided herein or by the Code or other applicable law. In the event there is a net decrease in partnership minimum gain or partner nonrecourse debt minimum gain (determined in accordance with the principles of Treasury Regulations Sections 1.704-2(d) and 1.704-2(i)) during any taxable year of the Company, each Member shall be specially allocated items of Company income and gain for such year (and, if necessary, subsequent years) in an amount equal to its respective share of such net decrease during such year, determined pursuant to Treasury Regulations Sections 1.704-2(g) and 1.704-2(i)(5). The items to be so allocated shall be determined in accordance with Treasury Regulations Section 1.704-2(f). In addition, this Agreement shall be considered to contain a “qualified income offset” as provided in Treasury Regulations Section 1.704-1(b)(2)(ii)(d). Notwithstanding the foregoing, the Managing Member in its sole discretion shall make allocations for tax purposes as may be needed to ensure that allocations are in accordance with the interests of the Members within the meaning of the Code and the Treasury Regulations.

(c) For federal, state and local income tax purposes only, Company income, gain, loss, deduction or expense (or any item thereof) for each Fiscal Year shall be allocated to and among the Members in a manner corresponding to the manner in which corresponding items are allocated among the Members pursuant to the other provisions of this Section 5.10; provided , that the Managing Member may in its sole discretion make such allocations for tax purposes as it determines are appropriate so that allocations have substantial economic effect or are in accordance with the interests of the Members, within the meaning of the Code and the Treasury Regulations thereunder.

ARTICLE VI

ADDITIONAL MEMBERS; WITHDRAWAL OF MEMBERS;

SATISFACTION AND DISCHARGE OF

COMPANY INTERESTS; TERMINATION

Section 6.1. Additional Members .

(a) Effective on the first day of any month (or on such other date as shall be determined by the Managing Member in its sole discretion), the Managing Member shall have the right to admit one or more additional or substitute persons into the Company as Regular Members or Special Members. Each such person shall make the representations and certifications with respect to itself set forth in Section 3.6 and Section 3.7. The Managing Member shall determine and negotiate with the additional Member (which term shall include, without limitation, any substitute Member) all terms of such additional Member’s participation in the Company, including the additional Member’s initial GP-Related Capital Contribution, Capital Commitment-Related Capital Contribution, GP-Related Profit Sharing Percentage and Capital Commitment Profit Sharing Percentage. Each additional Member shall have such voting rights as may be determined by the Managing Member from time to time unless, upon the admission to the Company of any Special Member, the Managing Member shall designate that such Special Member shall not have such voting rights (any such Special Member being called a

“ Nonvoting Special Member ”). Any additional Member shall, as a condition to becoming a Member, agree to become a party to, and be bound by the terms and conditions of, the Trust Agreement. If Blackstone or another or subsequent holder of an Investor Note approved by the Managing Member for purposes of this Section 6.1(a) shall foreclose upon a Regular Member’s Investor Note issued to finance such Regular Member’s purchase of his or her Capital Commitment Interests, Blackstone or such other or subsequent holder shall succeed to such Regular Member’s Capital Commitment Interests and shall be deemed to have become a Regular Member to such extent. Any Additional Member may have a GP-Related Member Interest or a Capital Commitment Member Interest, without having the other such interest.

(b) The GP-Related Profit Sharing Percentages, if any, to be allocated to an additional Member as of the date such Member is admitted to the Company, together with the pro rata reduction in all other Members’ GP-Related Profit Sharing Percentages as of such date, shall be established by the Managing Member pursuant to Section 5.3. The Capital Commitment Profit Sharing Percentages, if any, to be allocated to an additional Member as of the date such Member is admitted to the Company, together with the pro rata reduction in all other Members’ Capital Commitment Profit Sharing Percentages as of such date, shall be established by the Managing Member. Notwithstanding any provision in this Agreement to the contrary, the Managing Member is authorized, without the need for any further act, vote or consent of any person, to make adjustments to the GP-Related Profit Sharing Percentages as it determines necessary in its sole discretion in connection with any additional Members admitted to the Company, adjustments with respect to other Members of the Company and to give effect to other matters set forth herein, as applicable.

(c) An additional Member shall be required to contribute to the Company his or her pro rata share of the Company’s total capital, excluding capital in respect of GP-Related Investments and Capital Commitment Investments in which such Member does not acquire any interests, at such times and in such amounts as shall be determined by the Managing Member in accordance with Section 4.1 and Section 7.1.

(d) The admission of an additional Member will be evidenced by (i) the execution of a counterpart copy of this Agreement by such additional Member, or (ii) the execution of an amendment to this Agreement by the Managing Member and the additional Member, as determined by the Managing Member, or (iii) the execution by such additional Member of any other writing evidencing the intent of such person to become an additional Member and to be bound by the terms of this Agreement and such writing being acceptable to the Managing Member on behalf of the Company. In addition, each additional Member shall sign a counterpart copy of the Trust Agreement or any other writing evidencing the intent of such person to become a party to the Trust Agreement that is acceptable to the Managing Member on behalf of the Company.

Section 6.2. Withdrawal of Members .

(a) Any Member may Withdraw voluntarily from the Company subject to the prior written consent of the Managing Member. The Managing Member generally intends to permit voluntary Withdrawals on the last day of any calendar month (or on such other date as shall be determined by the Managing Member in its sole discretion), on not less than 15 days’

prior written notice by such Member to the Managing Member (or on such shorter notice period as may be mutually agreed upon between such Member and the Managing Member); provided , that a Member may not voluntarily Withdraw without the consent of the Managing Member if such Withdrawal would (i) cause the Company to be in default under any of its contractual obligations or (ii) in the reasonable judgment of the Managing Member, have a material adverse effect on the Company or its business; provided further , that a Member may Withdraw from the Company with respect to such Member’s GP-Related Member Interest without Withdrawing from the Company with respect to such Member’s Capital Commitment Member Interest, and a Member may Withdraw from the Company with respect to such Member’s Capital Commitment Member Interest without Withdrawing from the Company with respect to such Member’s GP-Related Member Interest.

(b) Upon the Withdrawal of any Member, including by the occurrence of any withdrawal event under the LLC Act with respect to any Member, such Member shall thereupon cease to be a Member, except as expressly provided herein.

(c) Upon the Total Disability of a Regular Member, such Member shall thereupon cease to be a Regular Member with respect to such person’s GP-Related Member Interest; provided , that the Managing Member may elect to admit such Withdrawn Member to the Company as a Nonvoting Special Member with respect to such person’s GP-Related Member Interest, with such GP-Related Member Interest as the Managing Member may determine. The determination of whether any Member has suffered a Total Disability shall be made by the Managing Member in its sole discretion after consultation with a qualified medical doctor. In the absence of agreement between the Managing Member and such Member, each party shall nominate a qualified medical doctor and the two doctors shall select a third doctor, who shall make the determination as to Total Disability.

(d) If the Managing Member determines that it shall be in the best interests of the Company for any Member (including any Member who has given notice of voluntary Withdrawal pursuant to paragraph (a) above) to Withdraw from the Company (whether or not Cause exists) with respect to such person’s GP-Related Member Interest and/or with respect to such person’s Capital Commitment Member Interest, such Member, upon written notice by the Managing Member to such Member, shall be required to Withdraw with respect to such person’s GP-Related Member Interest and/or with respect to such person’s Capital Commitment Member Interest, as of a date specified in such notice, which date shall be on or after the date of such notice. If the Managing Member requires any Member to Withdraw for Cause with respect to such person’s GP-Related Member Interest and/or with respect to such person’s Capital Commitment Member Interest, such notice shall state that it has been given for Cause and shall describe the particulars thereof in reasonable detail.

(e) The Withdrawal from the Company of any Member shall not, in and of itself, affect the obligations of the other Members to continue the Company during the remainder of its term.

Section 6.3. GP-Related Member Interests Not Transferable . (a) No Member may sell, assign, pledge or otherwise transfer or encumber all or any portion of such Member’s GP-Related Member Interest other than as permitted by written agreement between such

Member and the Company; provided , that this Section 6.3 shall not impair transfers by operation of law, transfers by will or by other testamentary instrument occurring by virtue of the death or dissolution of a Member, or transfers required by trust agreements; provided further , that, subject to the prior written consent of the Managing Member, which shall not be unreasonably withheld, a Regular Member may transfer, for estate planning purposes, up to 25% of his or her GP-Related Profit Sharing Percentage to any estate planning trust, limited partnership, or limited liability company with respect to which a Regular Member controls investments related to any interest in the Company held therein (an “ Estate Planning Vehicle ”). Each Estate Planning Vehicle will be a Nonvoting Special Member. Such Regular Member and the Nonvoting Special Member shall be jointly and severally liable for all obligations of both such Regular Member and such Nonvoting Special Member with respect to the Company (including the obligation to make additional GP-Related Capital Contributions), as the case may be. The Managing Member may at its sole option exercisable at any time require any Estate Planning Vehicle to Withdraw from the Company on the terms of this Article VI. Except as provided in the second proviso to the first sentence of this Section 6.3, no assignee, legatee, distributee, heir or transferee (by conveyance, operation of law or otherwise) of the whole or any portion of any Member’s GP-Related Member Interest shall have any right to be a Member without the prior written consent of the Managing Member (which consent may be given or withheld in its sole discretion without giving any reason therefor). Notwithstanding the granting of a security interest in the entire Interest of any Member, such Member shall continue to be a Member of the Company.

(b) Notwithstanding any provision hereof to the contrary, no sale or transfer of any GP-Related Member Interest in the Company may be made except in compliance with all federal, state and other applicable laws, including federal and state securities laws.

Section 6.4. Consequences upon Withdrawal of a Member .

(a) Subject to the LLC Act, the Managing Member may not transfer or assign its interest as a Managing Member in the Company or its right to manage the affairs of the Company, except that the Managing Member may, subject to the LLC Act, with the prior written approval of a majority in Interest of the Members, admit another person as an additional or substitute Managing Member who makes such representations with respect to itself as the Managing Member deems necessary or appropriate (with regard to compliance with applicable law or otherwise); provided however , that the Managing Member may, in its sole discretion, transfer all or part of its interest in the Company to a person who makes such representations with respect to itself as the Managing Member deems necessary or appropriate (with regard to compliance with applicable law or otherwise) and who owns, directly or indirectly, the principal part of the business then conducted by the Managing Member in connection with any liquidation, dissolution or reorganization of the Managing Member, and, upon the assumption by such person of liability for all the obligations of the Managing Member under this Agreement, such person shall be admitted as the Managing Member. A person who is so admitted as an additional or substitute Managing Member shall thereby become a Managing Member and shall have the right to manage the affairs of the Company and to vote as a Member to the extent of the interest in the Company so acquired. The Managing Member shall not cease to be the managing member of the Company upon the collateral assignment of or the pledging or granting of a security interest in its entire Interest in the Company.

(b) Except as contemplated by Section 6.4(a) above, Withdrawal by a Managing Member is not permitted. The Withdrawal of a Member shall not dissolve the Company if at the time of such Withdrawal there are one or more remaining Members and any one or more of such remaining Members continue the business of the Company (any and all such remaining Members being hereby authorized to continue the business of the Company without dissolution and hereby agreeing to do so). Notwithstanding Section 6.4(c), if upon the Withdrawal of a Member there shall be no remaining Regular Members, the Company shall be dissolved and shall be wound up unless, within 90 days after the occurrence of such Withdrawal, all remaining Special Members agree in writing to continue the business of the Company and to the appointment, effective as of the date of such Withdrawal, of one or more Regular Members.

(c) The Company shall not be dissolved, in and of itself, by the Withdrawal of any Member, but shall continue with the surviving or remaining Members as members thereof in accordance with and subject to the terms and provisions of this Agreement.

Section 6.5. Satisfaction and Discharge of a Withdrawn Member’s GP-Related Member Interests .

(a) The terms of this Section 6.5 shall apply to the GP-Related Member Interest of a Withdrawn Member, but, except as otherwise expressly provided in this Section 6.5, shall not apply to the Capital Commitment Member Interest of a Withdrawn Member. For purposes of this Section 6.5, the term “ Settlement Date ” means the date as of which a Withdrawn Member’s GP-Related Member Interest in the Company is settled as determined under paragraph (b) below. Notwithstanding the foregoing, any Regular Member who Withdraws from the Company, and all or any portion of whose GP-Related Member Interest is retained as a Special Member, shall be considered a Withdrawn Member for all purposes hereof.

(b) Except where a later date for the settlement of a Withdrawn Member’s GP-Related Member Interest in the Company may be agreed to by the Managing Member and a Withdrawn Member, a Withdrawn Member’s Settlement Date shall be his or her Withdrawal Date; provided , that if a Withdrawn Member’s Withdrawal Date is not the last day of a month, then the Managing Member may elect for such Withdrawn Member’s Settlement Date to be the last day of the month in which his or her Withdrawal Date occurs. During the interval, if any, between a Withdrawn Member’s Withdrawal Date and Settlement Date, such Withdrawn Member shall have the same rights and obligations with respect to GP-Related Capital Contributions, interest on capital, allocations of GP-Related Net Income (Loss) and distributions as would have applied had such Withdrawn Member remained a Member of the Company during such period.

(c) In the event of the Withdrawal of a Member, with respect to such Withdrawn Member’s GP-Related Member Interest, the Managing Member shall promptly after such Withdrawn Member’s Settlement Date (i) determine and allocate to the Withdrawn Member’s GP-Related Capital Accounts such Withdrawn Member’s allocable share of the GP-Related Net Income (Loss) of the Company for the period ending on such Settlement Date in accordance with Article V and (ii) credit the Withdrawn Member’s GP-Related Capital Accounts with interest in accordance with Section 5.2. In making the foregoing calculations, the Managing Member shall be entitled to establish such reserves (including reserves for taxes, bad

debts, unrealized losses, actual or threatened litigation or any other expenses, contingencies or obligations) as it deems appropriate. Unless otherwise determined by the Managing Member in a particular case, a Withdrawn Member shall not be entitled to receive any GP-Related Unallocated Percentage in respect of the accounting period during which such Member Withdraws from the Company (whether or not previously awarded or allocated) or any GP-Related Unallocated Percentage in respect of prior accounting periods that have not been paid or allocated (whether or not previously awarded) as of such Withdrawn Member’s Withdrawal Date.

(d) From and after the Settlement Date of the Withdrawn Member, the Withdrawn Member’s GP-Related Profit Sharing Percentages shall, unless otherwise allocated by the Managing Member pursuant to Section 5.3(a), be deemed to be GP-Related Unallocated Percentages (except for GP-Related Profit Sharing Percentages with respect to GP-Related Investments as provided in paragraph (f) below).

(e) (i) Upon the Withdrawal from the Company of a Member with respect to such Member’s GP-Related Member Interest, such Withdrawn Member thereafter shall not, except as expressly provided in this Section 6.5, have any rights of a Member (including voting rights) with respect to such Member’s GP-Related Member Interest, and, except as expressly provided in this Section 6.5, such Withdrawn Member shall not have any interest in the Company’s GP-Related Net Income (Loss), or in distributions related to such Member’s GP-Related Member Interest, GP-Related Investments or other assets related to such Member’s GP-Related Member Interest. If a Member Withdraws from the Company with respect to such Member’s GP-Related Member Interest for any reason other than for Cause pursuant to Section 6.2, then the Withdrawn Member shall be entitled to receive, at the time or times specified in Section 6.5(i) below, in satisfaction and discharge in full of the Withdrawn Member’s GP-Related Member Interest in the Company, (x) payment equal to the aggregate credit balance, if any, as of the Settlement Date of the Withdrawn Member’s GP-Related Capital Accounts, (excluding any GP-Related Capital Account or portion thereof attributable to any GP-Related Investment) and (y) the Withdrawn Member’s percentage interest attributable to each GP-Related Investment in which the Withdrawn Member has an interest as of the Settlement Date as provided in paragraph (f) below (which shall be settled in accordance with paragraph (f) below), subject to all the terms and conditions of paragraphs (a)-(r) of this Section 6.5. If the amount determined pursuant to clause (x) above is an aggregate negative balance, the Withdrawn Member shall pay the amount thereof to the Company upon demand by the Managing Member on or after the date of the statement referred to in Section 6.5(i) below; provided , that if the Withdrawn Member was solely a Special Member on his or her Withdrawal Date, such payment shall be required only to the extent of any amounts payable to such Withdrawn Member pursuant to this Section 6.5. Any aggregate negative balance in the GP-Related Capital Accounts of a Withdrawn Member who was solely a Special Member, upon the settlement of such Withdrawn Member’s GP-Related Member Interest in the Company pursuant to this Section 6.5, shall be allocated among the other Members’ GP-Related Capital Accounts in accordance with their respective GP-Related Profit Sharing Percentages in the categories of GP-Related Net Income (Loss) giving rise to such negative balance as determined by the Managing Member as of such Withdrawn Member’s Settlement Date. In the settlement of any Withdrawn Member’s GP-Related Member Interest in the Company, no value shall be ascribed to goodwill, the Company

name or the anticipation of any value the Company or any successor thereto might have in the event the Company or any interest therein were to be sold in whole or in part.

(ii) Notwithstanding clause (i) of this Section 6.5(e), in the case of a Member whose Withdrawal with respect to such Member’s GP-Related Member Interest resulted from such Member’s death or Incompetence, such Member’s estate or legal representative, as the case may be, may elect, at the time described below, to receive a Nonvoting Special Member GP-Related Member Interest and retain such Member’s GP-Related Profit Sharing Percentage in all (but not less than all) illiquid investments of the Company in lieu of a cash payment (or Note) in settlement of that portion the Withdrawn Member’s GP-Related Member Interest. The election referred to above shall be made within 60 days after the Withdrawn Member’s Settlement Date, based on a statement of the settlement of such Withdrawn Member’s GP-Related Member Interest in the Company pursuant to this Section 6.5.

(f) For purposes of clause (y) of paragraph (e)(i) above, a Withdrawn Member’s “percentage interest” means his or her GP-Related Profit Sharing Percentage as of the Settlement Date in the relevant GP-Related Investment. The Withdrawn Member shall retain his or her percentage interest in such GP-Related Investment and shall retain his or her GP-Related Capital Account or portion thereof attributable to such GP-Related Investment, in which case such Withdrawn Member (a “ Retaining Withdrawn Member ”) shall become and remain a Special Member for such purpose (and, if the Managing Member so designates, such Special Member shall be a Nonvoting Special Member). The GP-Related Member Interest of a Retaining Withdrawn Member pursuant to this paragraph (f) shall be subject to the terms and conditions applicable to GP-Related Member Interests of any kind hereunder and such other terms and conditions as are established by the Managing Member. At the option of the Managing Member in its sole discretion, the Managing Member and the Retaining Withdrawn Member may agree to have the Company acquire such GP-Related Member Interest without the approval of the other Members; provided , that the Managing Member shall reflect in the books and records of the Company the terms of any acquisition pursuant to this sentence.

(g) The Managing Member may elect, in lieu of payment in cash of any amount payable to a Withdrawn Member pursuant to paragraph (e) above, to (i) have the Company issue to the Withdrawn Member a subordinated promissory note and/or to (ii) distribute in kind to the Withdrawn Member such Withdrawn Member’s pro rata share (as determined by the Managing Member) of any securities or other investments of the Company in relation to such Member’s GP-Related Member Interest. If any securities or other investments are distributed in kind to a Withdrawn Member under this paragraph (g), the amount described in clause (x) of paragraph (e)(i) shall be reduced by the value of such distribution as valued on the latest balance sheet of the Company in accordance with generally accepted accounting principles or, if not appearing on such balance sheet, as reasonably determined by the Managing Member.

(h) [Intentionally omitted.]

(i) Within 120 days after each Settlement Date, the Managing Member shall submit to the Withdrawn Member a statement of the settlement of such Withdrawn Member’s GP-Related Member Interest in the Company pursuant to this Section 6.5 together with any cash payment, subordinated promissory note and in kind distributions to be made to such Member as

shall be determined by the Managing Member. The Managing Member shall submit to the Withdrawn Member supplemental statements with respect to additional amounts payable to or by the Withdrawn Member in respect of the settlement of his or her GP-Related Member Interest in the Company ( e.g. , payments in respect of GP-Related Investments pursuant to paragraph (f) above or adjustments to reserves pursuant to paragraph (j) below) promptly after such amounts are determined by the Managing Member. To the fullest extent permitted by law, such statements and the valuations on which they are based shall be accepted by the Withdrawn Member without examination of the accounting books and records of the Company or other inquiry. Any amounts payable by the Company to a Withdrawn Member pursuant to this Section 6.5 shall be subordinate in right of payment and subject to the prior payment or provision for payment in full of claims of all present or future creditors of the Company or any successor thereto arising out of matters occurring prior to the applicable date of payment or distribution; provided , that such Withdrawn Member shall otherwise rank pari passu in right of payment (x) with all persons who become Withdrawn Members and whose Withdrawal Date is within one year before the Withdrawal Date of the Withdrawn Member in question and (y) with all persons who become Withdrawn Members and whose Withdrawal Date is within one year after the Withdrawal Date of the Withdrawn Member in question.

(j) If the aggregate reserves established by the Managing Member as of the Settlement Date in making the foregoing calculations should prove, in the determination of the Managing Member, to be excessive or inadequate, the Managing Member may elect, but shall not be obligated, to pay the Withdrawn Member or his or her estate such excess, or to charge the Withdrawn Member or his or her estate such deficiency, as the case may be.

(k) Any amounts owed by the Withdrawn Member to the Company at any time on or after the Settlement Date ( e.g. , outstanding Company loans or advances to such Withdrawn Member) shall be offset against any amounts payable or distributable by the Company to the Withdrawn Member at any time on or after the Settlement Date or shall be paid by the Withdrawn Member to the Company, in each case as determined by the Managing Member. All cash amounts payable by a Withdrawn Member to the Company under this Section 6.5 shall bear interest from the due date to the date of payment at a floating rate equal to the lesser of (x) the Prime Rate or (y) the maximum rate of interest permitted by applicable law. The “due date” of amounts payable by a Withdrawn Member pursuant to Section 6.5(i) above shall be 120 days after a Withdrawn Member’s Settlement Date. The “due date” of amounts payable to or by a Withdrawn Member in respect of GP-Related Investments for which the Withdrawn Member has retained a percentage interest in accordance with paragraph (f) above shall be 120 days after realization with respect to such GP-Related Investment. The “due date” of any other amounts payable by a Withdrawn Member shall be 60 days after the date such amounts are determined to be payable.

(l) At the time of the settlement of any Withdrawn Member’s GP-Related Member Interest in the Company pursuant to this Section 6.5, the Managing Member may, to the fullest extent permitted by applicable law, impose any restrictions it deems appropriate on the assignment, pledge, encumbrance or other transfer by such Withdrawn Member of any interest in any GP-Related Investment retained by such Withdrawn Member, any securities or other investments distributed in kind to such Withdrawn Member or such Withdrawn Member’s right to any payment from the Company.

(m) If a Member is required to Withdraw from the Company with respect to such Member’s GP-Related Member Interest for Cause pursuant to Section 6.2(d), then his or her GP-Related Member Interest shall be settled in accordance with paragraphs (a)-(r) of this Section 6.5; provided , that the Managing Member may elect (but shall not be required) to apply any or all the following terms and conditions to such settlement:

(i) In settling the Withdrawn Member’s interest in any GP-Related Investment in which he or she has an interest as of his or her Settlement Date, the Managing Member may elect to (A) determine the GP-Related Unrealized Net Income (Loss) attributable to each such GP-Related Investment as of the Settlement Date and allocate to the appropriate GP-Related Capital Account of the Withdrawn Member his or her allocable share of such GP-Related Unrealized Net Income (Loss) for purposes of calculating the aggregate balance of such Withdrawn Member’s GP-Related Capital Account pursuant to clause (x) of paragraph (e)(i) above, (B) credit or debit, as applicable, the Withdrawn Member with the balance of his or her GP-Related Capital Account or portion thereof attributable to each such GP-Related Investment as of his or her Settlement Date without giving effect to the GP-Related Unrealized Net Income (Loss) from such GP-Related Investment as of his or her Settlement Date, which shall be forfeited by the Withdrawn Member or (C) apply the provisions of paragraph (f) above; provided , that the maximum amount of GP-Related Net Income (Loss) allocable to such Withdrawn Member with respect to any GP-Related Investment shall equal such Member’s percentage interest of the GP-Related Unrealized Net Income, if any, attributable to such GP-Related Investment as of the Settlement Date (the balance of such GP-Related Net Income (Loss), if any, shall be allocated as determined by the Managing Member). The Withdrawn Member shall not have any continuing interest in any GP-Related Investment to the extent an election is made pursuant to (A) or (B) above.

(ii) Any amounts payable by the Company to the Withdrawn Member pursuant to this Section 6.5 shall be subordinate in right of payment and subject to the prior payment in full of claims of all present or future creditors of the Company or any successor thereto arising out of matters occurring prior to or on or after the applicable date of payment or distribution.

(n) The payments to a Withdrawn Member pursuant to this Section 6.5 may be conditioned on the compliance by such Withdrawn Member with any lawful and reasonable (under the circumstances) restrictions against engaging or investing in a business competitive with that of the Company or any of its subsidiaries and Affiliates for a period not exceeding two years determined by the Managing Member. Upon written notice to the Managing Member, any Withdrawn Member who is subject to noncompetition restrictions established by the Managing Member pursuant to this paragraph (n) may elect to forfeit the principal amount payable in the final installment of his or her subordinated promissory note, together with interest to be accrued on such installment after the date of forfeiture, in lieu of being bound by such restrictions.

(o) In addition to the foregoing, the Managing Member shall have the right to pay a Withdrawn Member (other than the Managing Member) a discretionary additional payment in an amount and based upon such circumstances and conditions as it determines to be relevant.

(p) The provisions of this Section 6.5 shall apply to any Investor Special Member relating to a Regular Member or Special Member and to any transferee of any GP-Related Member Interest of such Member pursuant to Section 6.3 if such Member Withdraws from the Company.

(q) (i) The Company will assist a Withdrawn Member or his or her estate or guardian, as the case may be, in the settlement of the Withdrawn Member’s GP-Related Member Interest in the Company. Third party costs incurred by the Company in providing this assistance will be borne by the Withdrawn Member or his or her estate.

(ii) The Managing Member may reasonably determine in good faith to retain outside professionals to provide the assistance to Withdrawn Members or their estates or guardians, as referred to above. In such instances, the Managing Member will obtain the prior approval of a Withdrawn Member or his or her estate or guardian, as the case may be, prior to engaging such professionals. If the Withdrawn Member (or his or her estate or guardian) declines to incur such costs, the Managing Member will provide such reasonable assistance as and when it can so as not to interfere with the Company’s day-to-day operating, financial, tax and other related responsibilities to the Company and the Members.

(r) Each Member (other than the Managing Member) hereby irrevocably appoints the Managing Member as such Member’s true and lawful agent, representative and attorney-in-fact, each acting alone, in such Member’s name, place and stead, to make, execute, sign and file, on behalf of such Member, any and all agreements, instruments, consents, ratifications, documents and certificates which the Managing Member deems necessary or advisable in connection with any transaction or matter contemplated by or provided for in this Section 6.5, including, without limitation, the performance of any obligation of such Member or the Company or the exercise of any right of such Member or the Company. Such power of attorney is coupled with an interest and shall survive and continue in full force and effect notwithstanding the Withdrawal from the Company of any Member for any reason and shall not be affected by the death, disability or incapacity of such Member.

Section 6.6. Dissolution of the Company . The Managing Member may dissolve the Company prior to the expiration of its term at any time on not less than 60 days’ notice of the dissolution date given to the other Members. Upon the dissolution of the Company, the Members’ respective interests in the Company shall be valued and settled in accordance with the procedures set forth in Section 6.5, which provides for allocations to the GP-Related Capital Accounts of the Members and distributions in accordance with the capital account balances of the Members.

Section 6.7. Certain Tax Matters . (a) The Managing Member shall determine all matters concerning allocations for tax purposes not expressly provided for herein in its sole discretion.

(b) The Managing Member shall cause to be prepared all federal, state and local tax returns of the Company for each year for which such returns are required to be filed and, after approval of such returns by the Managing Member, shall cause such returns to be timely filed. The Managing Member shall determine the appropriate treatment of each item of

income, gain, loss, deduction and credit of the Company and the accounting methods and conventions under the tax laws of the United States, the several States and other relevant jurisdictions as to the treatment of any such item or any other method or procedure related to the preparation of such tax returns. The Managing Member may cause the Company to make or refrain from making any and all elections permitted by such tax laws. Each Member agrees that he or she shall not, unless he or she provides prior notice of such action to the Company, (i) treat, on his or her individual income tax returns, any item of income, gain, loss, deduction or credit relating to his or her interest in the Company in a manner inconsistent with the treatment of such item by the Company as reflected on the Form K-1 or other information statement furnished by the Company to such Member for use in preparing his or her income tax returns or (ii) file any claim for refund relating to any such item based on, or which would result in, such inconsistent treatment. In respect of an income tax audit of any tax return of the Company, the filing of any amended return or claim for refund in connection with any item of income, gain, loss, deduction or credit reflected on any tax return of the Company, or any administrative or judicial proceedings arising out of or in connection with any such audit, amended return, claim for refund or denial of such claim, (A) the Tax Matters Member (as defined below) shall be authorized to act for, and his or her decision shall be final and binding upon, the Company and all Members except to the extent a Member shall properly elect to be excluded from such proceeding pursuant to the Code, (B) all expenses incurred by the Tax Matters Member in connection therewith (including, without limitation, attorneys’, accountants’ and other experts’ fees and disbursements) shall be expenses of the Company and (C) no Member shall have the right to (1) participate in the audit of any Company tax return, (2) file any amended return or claim for refund in connection with any item of income, gain, loss, deduction or credit reflected on any tax return of the Company (unless he or she provides prior notice of such action to the Company as provided above), (3) participate in any administrative or judicial proceedings conducted by the Company or the Tax Matters Member arising out of or in connection with any such audit, amended return, claim for refund or denial of such claim, or (4) appeal, challenge or otherwise protest any adverse findings in any such audit conducted by the Company or the Tax Matters Member or with respect to any such amended return or claim for refund filed by the Company or the Tax Matters Member or in any such administrative or judicial proceedings conducted by the Company or the Tax Matters Member. The Company and each Member hereby designate any Member selected by the Managing Member as the “tax matters partner” or “partnership representative” (each as defined under the Code), as applicable (the “ Tax Matters Member ”). To the fullest extent permitted by applicable law, each Member agrees to indemnify and hold harmless the Company and all other Members from and against any and all liabilities, obligations, damages, deficiencies and expenses resulting from any breach or violation by such Member of the provisions of this Section 6.7 and from all actions, suits, proceedings, demands, assessments, judgments, costs and expenses, including reasonable attorneys’ fees and disbursements, incident to any such breach or violation.

(c) Each individual Member shall provide to the Company copies of each federal, state and local income tax return of such Member (including any amendment thereof) within 30 days after filing such return.

(d) To the extent the Managing Member reasonably determines that the Company (or any entity in which the Company holds an interest) is or may be required by law to withhold or to make tax payments on behalf of or with respect to any Member (“ Tax

Advances ”), the Managing Member may withhold or escrow such amounts or make such tax payments as so required. All Tax Advances made on behalf of a Member shall, at the option of the Managing Member, (i) be promptly paid to the Company by the Member on whose behalf such Tax Advances were made or (ii) be repaid by reducing the amount of the current or next succeeding distribution or distributions which would otherwise have been made to such Member or, if such distributions are not sufficient for that purpose, by so reducing the proceeds upon dissolution of the Company otherwise payable to such Member. Whenever the Managing Member selects option (ii) pursuant to the preceding sentence for repayment of a Tax Advance by a Member, for all other purposes of this Agreement such Member shall be treated as having received all distributions (whether before or upon dissolution of the Partnership) unreduced by the amount of such Tax Advance. To the fullest extent permitted by law, each Member hereby agrees to indemnify and hold harmless the Company and the other Members from and against any liability (including, without limitation, any liability for taxes, penalties, additions to tax or interest) with respect to income attributable to or distributions or other payments to such Member. The obligations of a Member set forth in this Section 6.7(d) shall survive the withdrawal of any Member from the Company or any Transfer of a Member’s interest.

Section 6.8. Special Basis Adjustments . In connection with any assignment or transfer of a Company interest permitted by the terms of this Agreement, the Managing Member may cause the Company, on behalf of the Members and at the time and in the manner provided in Treasury Regulations Section 1.754-1(b), to make an election to adjust the basis of the Company’s property in the manner provided in Sections 734(b) and 743(b) of the Code.

ARTICLE VII

CAPITAL COMMITMENT INTERESTS; CAPITAL CONTRIBUTIONS;

ALLOCATIONS; DISTRIBUTIONS

Section 7.1. Capital Commitment Interests, etc .

(a) This Article VII and Article VIII hereof set forth certain terms and conditions with respect to the Capital Commitment Member Interests and the Capital Commitment BTO II Interest and matters related to the Capital Commitment Member Interests and the Capital Commitment BTO II Interest. Except as otherwise expressly provided in this Article VII or in Article VIII, the terms and provisions of this Article VII and Article VIII shall not apply to the GP-Related Member Interests or the GP-Related BTO II Interest.

(b) Each Member, severally, agrees to make contributions of capital to the Company (“ Capital Commitment-Related Capital Contributions ”) as required to fund the Company’s capital contributions to BTO II or Associates II in respect of the Capital Commitment BTO II Interest, if any, and the related Capital Commitment BTO II Commitment, if any (including, without limitation, funding all or a portion of the Blackstone Commitment). No Member shall be obligated to make Capital Commitment-Related Capital Contributions to the Company in an amount in excess of such Member’s Capital Commitment-Related Commitment. The Commitment Agreements and SMD Agreements, if any, of the Members may include provisions with respect to the foregoing matters. It is understood that a Member will not necessarily participate in each Capital Commitment Investment (which may include additional

amounts invested in an existing Capital Commitment Investment) nor will a Member necessarily have the same Capital Commitment Profit Sharing Percentage with respect to (i) the Company’s portion of the Blackstone Commitment or (ii) the making of each Capital Commitment Investment in which such Member participates; provided , that this in no way limits the terms of any Commitment Agreement or SMD Agreement. In addition, nothing contained herein shall be construed to give any Member the right to obtain financing with respect to the purchase of any Capital Commitment Interest, and nothing contained herein shall limit or dictate the terms upon which the Company and its Affiliates may provide such financing. The acquisition of a Capital Commitment Interest by a Member shall be evidenced by receipt by the Company of funds equal to such Member’s Capital Commitment-Related Commitment then due with respect to such Capital Commitment Interest and such appropriate documentation as the Managing Member may submit to the Members from time to time.

(c) The Company or one of its Affiliates (in such capacity, the “ Advancing Party ”) may in its sole discretion advance to any Member (including any additional Member admitted to the Company pursuant to Section 6.1 but excluding any Members that are also executive officers of Blackstone) all or any portion of the Capital Commitment-Related Capital Contributions due to the Company from such Member with respect to any Capital Commitment Investment (“ Firm Advances ”). Each such Member shall pay interest to the Advancing Party on each Firm Advance from the date of such Firm Advance until the repayment thereof by such Member. Each Firm Advance shall be repayable in full, including accrued interest to the date of such repayment, upon prior written notice by the Advancing Party. The making and repayment of each Firm Advance shall be recorded in the books and records of the Company, and such recording shall be conclusive evidence of each such Firm Advance, binding on the Member and the Advancing Party absent manifest error. Except as provided below, the interest rate applicable to a Firm Advance shall equal the cost of funds of the Advancing Party at the time of the making of such Firm Advance. The Advancing Party shall inform any Member of such rate upon such Member’s request; provided , that such interest rate shall not exceed the maximum interest rate allowable by applicable law; provided further , that amounts that are otherwise payable to such Member pursuant to Section 7.4(a) shall be used to repay such Firm Advance (including interest thereon). The Advancing Party may, in its sole discretion, change the terms of Firm Advances (including the terms contained herein) and/or discontinue the making of Firm Advances; provided , that (i) the Advancing Party shall notify the relevant Members of any material changes to such terms and (ii) the interest rate applicable to such Firm Advances and overdue amounts thereon shall not exceed the maximum interest rate allowable by applicable law.

Section 7.2. Capital Commitment Capital Accounts .

(a) There shall be established for each Member on the books of the Company as of the date of formation of the Company, or such later date on which such Member is admitted to the Company, and on each such other date as such Member first acquires a Capital Commitment Interest in a particular Capital Commitment Investment, a Capital Commitment Capital Account for each Capital Commitment Investment in which such Member acquires a Capital Commitment Interest on such date. Each Capital Commitment-Related Capital Contribution of a Member shall be credited to the appropriate Capital Commitment Capital Account of such Member on the date such Capital Commitment-Related Capital Contribution is

paid to the Company. Capital Commitment Capital Accounts shall be adjusted to reflect any transfer of a Member’s interest in the Company related to his or her Capital Commitment Member Interest as provided in this Agreement.

(b) A Member shall not have any obligation to the Company or to any other Member to restore any negative balance in the Capital Commitment Capital Account of such Member. Until distribution of any such Member’s interest in the Company with respect to a Capital Commitment Interest as a result of the disposition by the Company of the related Capital Commitment Investment and in whole upon the dissolution of the Company, neither such Member’s Capital Commitment Capital Accounts nor any part thereof shall be subject to withdrawal or redemption except with the consent of the Managing Member.

Section 7.3. Allocations .

(a) Capital Commitment Net Income (Loss) of the Company for each Capital Commitment Investment shall be allocated to the related Capital Commitment Capital Accounts of all the Members (including the Managing Member) participating in such Capital Commitment Investment in proportion to their respective Capital Commitment Profit Sharing Percentages for such Capital Commitment Investment. Capital Commitment Net Income (Loss) on any Unallocated Capital Commitment Interest shall be allocated to each Member in the proportion which such Member’s aggregate Capital Commitment Capital Accounts bear to the aggregate Capital Commitment Capital Accounts of all Members; provided , that if any Member makes the election provided for in Section 7.6, Capital Commitment Net Income (Loss) of the Company for each Capital Commitment Investment shall be allocated to the related Capital Commitment Capital Accounts of all the Members participating in such Capital Commitment Investment who do not make such election in proportion to their respective Capital Commitment Profit Sharing Percentages for such Capital Commitment Investment.

(b) Any special costs relating to distributions pursuant to Section 7.6 or Section 7.7 shall be specially allocated to the electing Member.

(c) Notwithstanding the foregoing, the Managing Member may make such allocations as it deems reasonably necessary to give economic effect to the provisions of this Agreement, taking into account facts and circumstances as the Managing Member deems reasonably necessary for this purpose.

Section 7.4. Distributions .

(a) Each Member’s allocable portion of Capital Commitment Net Income received from his or her Capital Commitment Investments, distributions to such Member that constitute returns of capital, and other Capital Commitment Net Income of the Company (including, without limitation, Capital Commitment Net Income attributable to Unallocated Capital Commitment Interests) during a Fiscal Year of the Company will be credited to payment of the Investor Notes to the extent required below as of the last day of such Fiscal Year (or on such earlier date as related distributions are made in the sole discretion of the Managing Member) with any cash amount distributable to such Member pursuant to clauses (ii) and (vii) below to be distributed within 45 days after the end of each Fiscal Year of the Company (or in

each case on such earlier date as selected by the Managing Member in its sole discretion) as follows (subject to Section 7.4(c) below):

(i) First, to the payment of interest then due on all Investor Notes (relating to Capital Commitment Investments or otherwise) of such Member (to the extent Capital Commitment Net Income and distributions or payments from Other Sources do not equal or exceed all interest payments due, the selection of those of such Member’s Investor Notes upon which interest is to be paid and the division of payments among such Investor Notes to be determined by the Lender or Guarantor);

(ii) Second, to distribution to the Member of an amount equal to the federal, state and local income taxes on income of the Company allocated to such Member for such year in respect of such Member’s Capital Commitment Member Interest (the aggregate amount of any such distribution shall be determined by the Managing Member, subject to the limitation that the minimum aggregate amount of such distribution be the tax that would be payable if the taxable income of the Company related to all Members’ Capital Commitment Member Interests were all allocated to an individual subject to the then-prevailing maximum rate of federal, New York State and New York City taxes (including, without limitation, taxes imposed under Section 1411 of the Code), taking into account the character of such taxable income allocated by the Company and the deductibility of state and local income taxes for federal income tax purposes); provided, that additional amounts shall be paid to the Member pursuant to this clause (ii) to the extent that such amount reduces the amount otherwise distributable to the Member pursuant to a comparable provision in any other BCE Agreement and there are not sufficient amounts to fully satisfy such provision from the relevant partnership or other entity; provided further, that amounts paid pursuant to the provisions in such other BCE Agreements comparable to the immediately preceding proviso shall reduce those amounts otherwise distributable to the Member pursuant to provisions in such other BCE Agreements that are comparable to this clause (ii);

(iii) Third, to the payment in full of the principal amount of the Investor Note financing (A) any Capital Commitment Investment disposed of during or prior to such Fiscal Year or (B) any BCE Investments (other than Capital Commitment Investments) disposed of during or prior to such Fiscal Year, to the extent not repaid from Other Sources;

(iv) Fourth, to the return to such Member of (A) all Capital Commitment-Related Capital Contributions made in respect of the Capital Commitment Interest to which any Capital Commitment Investment disposed of during or prior to such Fiscal Year relates or (B) all capital contributions made to any Blackstone Collateral Entity (other than the Company) in respect of interests therein relating to BCE Investments (other than Capital Commitment Investments) disposed of during or prior to such Fiscal Year (including all principal paid on the related Investor Notes), to the extent not repaid from amounts of Other Sources (other than amounts of Capital Commitment Member Carried Interest);

(v) Fifth, to the payment of principal (including any previously deferred amounts) then owing under all other Investor Notes of such Member (including those unrelated to the Company), the selection of those of such Member’s Investor Notes to be repaid and the division of payments among such Investor Notes to be determined by the Lender or Guarantor;

(vi) Sixth, up to 50% of any Capital Commitment Net Income remaining after application pursuant to clauses (i) through (v) above shall be applied pro rata to prepayment of principal of all remaining Investor Notes of such Member (including those unrelated to the Company), the selection of those of such Member’s Investor Notes to be repaid, the division of payments among such Investor Notes and the percentage of remaining Capital Commitment Net Income to be applied thereto to be determined by the Lender or Guarantor; and

(vii) Seventh, to such Member to the extent of any amount of Capital Commitment Net Income remaining after making the distributions in clauses (i) through (vi) above, and such amount is not otherwise required to be applied to Investor Notes pursuant to the terms thereof.

To the extent there is a partial disposition of a Capital Commitment Investment or any other BCE Investment, as applicable, the payments in clauses (iii) and (iv) above shall be based on that portion of the Capital Commitment Investment or other BCE Investment, as applicable, disposed of, and the principal amount and related interest payments of such Investor Note shall be adjusted to reflect such partial payment so that there are equal payments over the remaining term of the related Investor Note. For a Member who is no longer an employee or officer of Holdings or its Affiliates, distributions shall be made pursuant to clauses (i) through (iii) above, and then, unless the Company or its Affiliate has exercised its rights pursuant to Section 8.1 hereof, any remaining income or other distribution in respect of such Member’s Capital Commitment Member Interest shall be applied to the prepayment of the outstanding Investor Notes of such Member, until all such Member’s Investor Notes have been repaid in full, with any such income or other distribution remaining thereafter distributed to such Member.

Distributions of Capital Commitment Net Income may be made at any other time at the discretion of the Managing Member. At the Managing Member’s discretion, any amounts distributed to a Member in respect of such Member’s Capital Commitment Member Interest will be net of any interest and principal payable on his or her Investor Notes for the full period in respect of which the distribution is made.

(b) [Intentionally omitted.]

(c) To the extent that the foregoing Company distributions and distributions and payments from Other Sources are insufficient to satisfy any principal and/or interest due on Investor Notes, and to the extent that the Managing Member in its sole discretion elects to apply this paragraph (c) to any individual payments due, such unpaid interest will be added to the remaining principal amount of such Investor Notes and shall be payable on the next scheduled principal payment date (along with any deferred principal and any principal and interest due on such date); provided , that such deferral shall not apply to a Member that is no longer an

employee or officer of Holdings or an Affiliate thereof. All unpaid interest on such Investor Notes shall accrue interest at the interest rate then in effect for such Investor Notes.

(d) [Intentionally omitted.]

(e) The Capital Commitment Capital Account of each Member shall be reduced by the amount of any distribution to such Member pursuant to Section 7.4(a).

(f) At any time that a sale, exchange, transfer or other disposition of a portion of a Capital Commitment Investment is being considered by the Company or BTO II (a “ Capital Commitment Disposable Investment ”), at the election of the Managing Member each Member’s Capital Commitment Interest with respect to such Capital Commitment Investment shall be vertically divided into two separate Capital Commitment Interests, a Capital Commitment Interest attributable to the Capital Commitment Disposable Investment (a Member’s “ Capital Commitment Class B Interest ”), and a Capital Commitment Interest attributable to such Capital Commitment Investment excluding the Capital Commitment Disposable Investment (a Member’s “ Capital Commitment Class A Interest ”). Distributions (including those resulting from a direct or indirect sale, transfer, exchange or other disposition by the Company) relating to a Capital Commitment Disposable Investment shall be made only to holders of Capital Commitment Class B Interests with respect to such Capital Commitment Investment in accordance with their respective Capital Commitment Profit Sharing Percentages relating to such Capital Commitment Class B Interests, and distributions (including those resulting from the direct or indirect sale, transfer, exchange or other disposition by the Company) relating to a Capital Commitment Investment excluding such Capital Commitment Disposable Investment shall be made only to holders of Capital Commitment Class A Interests with respect to such Capital Commitment Investment in accordance with their respective Capital Commitment Profit Sharing Percentages relating to such Capital Commitment Class A Interests.

(g) (i) If (x) the Company is obligated under the Giveback Provisions to contribute a Giveback Amount to BTO II in respect of any Capital Commitment BTO II Interest that may be held by the Company or (y) Associates II is obligated under the Giveback Provisions to contribute to BTO II a Giveback Amount with respect to any Capital Commitment BTO II Interest that may be held by Associates II and the Company is obligated to contribute any such amount to Associates II in respect of the Company’s Capital Commitment Associates II Member Interest (the amount of any such obligation of the Company with respect to such a Giveback Amount in the case of either (x) or (y) being herein called a “ Capital Commitment Giveback Amount ”), the Managing Member shall call for such amounts as are necessary to satisfy such obligation of the Company as determined by the Managing Member, in which case, each Member and Withdrawn Member shall contribute to the Company, in cash, when and as called by the Managing Member, such an amount of prior distributions by the Company with respect to the Capital Commitment BTO II Interest (the “ Capital Commitment Recontribution Amount ”) which equals such Member’s pro rata share of prior distributions in connection with (a) the Capital Commitment BTO II Investment giving rise to the Capital Commitment Giveback Amount, (b) if the amounts contributed pursuant to clause (a) above are insufficient to satisfy such Capital Commitment Giveback Amount, Capital Commitment BTO II Investments other than the one giving rise to such obligation, and (c) if the Capital Commitment Giveback Amount pursuant to an applicable BTO II Agreement is unrelated to a specific Capital Commitment BTO

II Investment, all Capital Commitment BTO II Investments. Each Member shall promptly contribute to the Company upon notice thereof such Member’s Capital Commitment Recontribution Amount. Prior to such time, the Managing Member may, at the Managing Member’s discretion (but shall be under no obligation to), provide notice that in the Managing Member’s judgment, the potential obligations in respect of the Capital Commitment Giveback Amount will probably materialize (and an estimate of the aggregate amount of such obligations).

(ii) (A) In the event any Member (a “ Capital Commitment Defaulting Party ”) fails to recontribute all or any portion of such Capital Commitment Defaulting Party’s Capital Commitment Recontribution Amount for any reason, the Managing Member shall require all other Members and Withdrawn Members to contribute, on a pro rata basis (based on each of their respective Capital Commitment Profit Sharing Percentages), such amounts as are necessary to fulfill the Capital Commitment Defaulting Party’s obligation to pay such Capital Commitment Defaulting Party’s Capital Commitment Recontribution Amount (a “ Capital Commitment Deficiency Contribution ”) if the Managing Member determines in its good faith judgment that the Company will be unable to collect such amount in cash from such Capital Commitment Defaulting Party for payment of the Capital Commitment Giveback Amount at least 20 Business Days prior to the latest date that the Company is permitted to pay the Capital Commitment Giveback Amount; provided , that no Member shall as a result of such Capital Commitment Deficiency Contribution be required to contribute an amount in excess of 150% of the amount of the Capital Commitment Recontribution Amount initially requested from such Member in respect of such default. Thereafter, the Managing Member shall determine in its good faith judgment that the Company should either (1) not attempt to collect such amount in light of the costs associated therewith, the likelihood of recovery and any other factors considered relevant in the good faith judgment of the Managing Member or (2) pursue any and all remedies (at law or equity) available to the Company against the Capital Commitment Defaulting Party, the cost of which shall be a Company expense to the extent not ultimately reimbursed by the Capital Commitment Defaulting Party. It is agreed that the Company shall have the right (effective upon such Capital Commitment Defaulting Party becoming a Capital Commitment Defaulting Party) to set-off as appropriate and apply against such Capital Commitment Defaulting Party’s Capital Commitment Recontribution Amount any amounts otherwise payable to the Capital Commitment Defaulting Party by the Company or any Affiliate thereof. Each Member hereby grants to the Managing Member a security interest, effective upon such Member becoming a Capital Commitment Defaulting Party, in all accounts receivable and other rights to receive payment from the Company or any Affiliate of the Company and agrees that, upon the effectiveness of such security interest, the Managing Member may sell, collect or otherwise realize upon such collateral. In furtherance of the foregoing, each Member hereby appoints the Managing Member as its true and lawful attorney-in-fact with full irrevocable power and authority, in the name of such Member or in the name of the Company, to take any actions which may be necessary to accomplish the intent of the immediately preceding sentence. The Managing Member shall be entitled to collect interest on the Capital Commitment Recontribution Amount of a Capital Commitment Defaulting Party from the date such Capital Commitment Recontribution Amount was required to be contributed to the Company at a rate equal to the Default Interest Rate.

(B) Any Member’s failure to make a Capital Commitment Deficiency Contribution shall cause such Member to be a Capital Commitment Defaulting Party with respect to such amount.

(iii) A Member’s obligation to make contributions to the Company under this Section 7.4(g) shall survive the termination of the Company.

Section 7.5. Valuations . Capital Commitment Investments shall be valued annually as of the end of each year (and at such other times as deemed appropriate by the Managing Member) in accordance with the principles utilized by Associates II (or any other Affiliate of the Company that is a general partner of BTO II) in valuing investments of BTO II or, in the case of investments not held by BTO II, in the good faith judgment of the Managing Member, subject in each case to the second proviso of the immediately succeeding sentence. The value of any Capital Commitment Interest as of any date (the “ Capital Commitment Value ”) shall be based on the value of the underlying Capital Commitment Investment as set forth above; provided , that the Capital Commitment Value may be determined as of an earlier date if determined appropriate by the Managing Member in good faith; provided further , that such value may be adjusted by the Managing Member to take into account factors relating solely to the value of a Capital Commitment Interest (as compared to the value of the underlying Capital Commitment Investment), such as restrictions on transferability, the lack of a market for such Capital Commitment Interest and lack of control of the underlying Capital Commitment Investment. To the full extent permitted by applicable law such valuations shall be final and binding on all Members; provided further , that the immediately preceding proviso shall not apply to any Capital Commitment Interests held by a person who is or was at any time a direct partner of a Managing Member of the Company.

Section 7.6. Disposition Election .

(a) At any time prior to the date of the Company’s execution of a definitive agreement to dispose of a Capital Commitment Investment, the Managing Member may in its sole discretion permit a Member to retain all or any portion of its pro rata share of such Capital Commitment Investment (as measured by such Member’s Capital Commitment Profit Sharing Percentage in such Capital Commitment Investment). If the Managing Member so permits, such Member shall instruct the Managing Member in writing prior to such date (i) not to dispose of all or any portion of such Member’s pro rata share of such Capital Commitment Investment (the “ Retained Portion ”) and (ii) either to (A) distribute such Retained Portion to such Member on the closing date of such disposition or (B) retain such Retained Portion in the Company on behalf of such Member until such time as such Member shall instruct the Managing Member upon 5 days notice to distribute such Retained Portion to such Member. Such Member’s Capital Commitment Capital Account shall not be adjusted in any way to reflect the retention in the Company of such Retained Portion or the Company’s disposition of other Members’ pro rata shares of such Capital Commitment Investment; provided, that such Member’s Capital Commitment Capital Account shall be adjusted upon distribution of such Retained Portion to such Member or upon distribution of proceeds with respect to a subsequent disposition thereof by the Company.

(b) No distribution of such Retained Portion shall occur unless any Investor Notes relating thereto shall have been paid in full prior to or simultaneously with such distribution.

Section 7.7. Capital Commitment Special Distribution Election .

(a) From time to time during the term of this Agreement, the Managing Member may in its sole discretion, upon receipt of a written request from a Member, distribute to such Member any portion of its pro rata share of a Capital Commitment Investment (as measured by such Member’s Capital Commitment Profit Sharing Percentage in such Capital Commitment Investment) (a “ Capital Commitment Special Distribution ”). Such Member’s Capital Commitment Capital Account shall be adjusted upon distribution of such Capital Commitment Special Distribution.

(b) No Capital Commitment Special Distributions shall occur unless any Investor Notes relating thereto shall have been paid in full prior to or simultaneously with such Capital Commitment Special Distribution.

ARTICLE VIII

WITHDRAWAL, ADMISSION OF NEW MEMBERS

Section 8.1. Member Withdrawal; Repurchase of Capital Commitment Interests .

(a) Capital Commitment Interests (or a portion thereof) that were financed by Investor Notes will be treated as Non-Contingent for purposes hereof based upon the proportion of (a) the sum of Capital Commitment-Related Capital Contributions not financed by an Investor Note with respect to each Capital Commitment Interest and principal payments on the related Investor Note to (b) the sum of the Capital Commitment-Related Capital Contributions not financed by an Investor Note with respect to such Capital Commitment Interest, the original principal amount of such Investor Note and all deferred amounts of interest which from time to time comprise part of the principal amount of the Investor Note. A Member may prepay a portion of any outstanding principal on the Investor Notes; provided , that in the event that a Member prepays all or any portion of the principal amount of the Investor Notes within nine months prior to the date on which such Member is no longer an employee or officer of Holdings or an Affiliate thereof, the Company (or its designee) shall have the right, in its sole discretion, to purchase the Capital Commitment Interest that became Non-Contingent as a result of such prepayment; provided further , that the purchase price for such Capital Commitment Interest shall be determined in accordance with the determination of the purchase price of a Member’s Contingent Capital Commitment Interests as set forth in paragraph (b) below. Prepayments made by a Member shall apply pro rata against all of such Member’s Investor Notes; provided , that such Member may request that such prepayments be applied only to Investor Notes related to BCE Investments that are related to one or more Blackstone Collateral Entities specified by such Member. Except as expressly provided herein, Capital Commitment Interests that were not financed in any respect with Investor Notes shall be treated as Non-Contingent Capital Commitment Interests.

(b) Upon a Member ceasing to be an officer or employee of the Company or any of its Affiliates, other than as a result of such Member dying or suffering a Total Disability, such Member (the “ Withdrawn Member ”) and the Company or any other person designated by the Managing Member shall each have the right (exercisable by the Withdrawn Member within 30 days and by the Company or its designee(s) within 45 days of such Member’s ceasing to be such an officer or employee) or any time thereafter, upon 30 days notice, but not the obligation, to require the Company, subject to the LLC Act, to buy (in the case of exercise of such right by such Withdrawn Member) or the Withdrawn Member to sell (in the case of exercise of such right by the Company or its designee(s)) all (but not less than all) such Withdrawn Member’s Contingent Capital Commitment Interests. The purchase price for each such Contingent Capital Commitment Interest shall be an amount equal to (i) the outstanding principal amount of the related Investor Note plus accrued interest thereon to the date of purchase (such portion of the purchase price to be paid in cash) and (ii) an additional amount (the “ Adjustment Amount ”) equal to (x) all interest paid by the Member on the portion of the principal amount of the Investor Note relating to the portion of the related Capital Commitment Interest remaining Contingent plus (y) all Capital Commitment Net Losses allocated to the Withdrawn Member on the Contingent portion of such Capital Commitment Interest, minus (z) all Capital Commitment Net Income allocated to the Withdrawn Member on the Contingent portion of such Capital Commitment Interest; provided , that, if the Withdrawn Member was terminated from employment or his or her position as an officer for Cause, the amounts referred to in clause (x) or (y) of the Adjustment Amount, in the Managing Member’s sole discretion, may be deemed to equal zero. The Adjustment Amount shall, if positive, be payable by the holders of the purchased Capital Commitment Interests to the Withdrawn Member from the next Capital Commitment Net Income received by such holders on the Contingent portion of such Withdrawn Member’s Capital Commitment Interests at the time such Capital Commitment Net Income is received. If the Adjustment Amount resulting from an exchange is negative, it shall be payable to the holders of the purchased Capital Commitment Interest by the Withdrawn Member at the time such Capital Commitment Net Income is received by the Withdrawn Member from the next Capital Commitment Net Income on the Non-Contingent portion of the Withdrawn Member’s Capital Commitment Interests or, if the Company or its designee(s) elect to purchase such Withdrawn Member’s Non-Contingent Capital Commitment Interests, in cash by the Withdrawn Member at the time of such purchase; provided , that the Company and its Affiliates may offset any amounts otherwise owing to a Withdrawn Member against any Adjustment Amount owed by such Withdrawn Member. Until so paid, such remaining Adjustment Amount will not itself bear interest. At the time of such purchase of the Withdrawn Member’s Contingent Capital Commitment Interests, his or her related Investor Note shall be payable in full. If neither the Withdrawn Member nor the Company nor its designee(s) exercises the right to require repurchase of such Contingent Capital Commitment Interests, then the Withdrawn Member shall retain the Contingent portion of his or her Capital Commitment Interests and the Investor Notes shall remain outstanding, shall become fully recourse to the Withdrawn Member in his or her individual capacity, shall be payable in accordance with their remaining original maturity schedules and shall be prepayable at any time by the Withdrawn Member at his or her option, and the Company shall apply such prepayments against outstanding Investor Notes on a pro rata basis. To the extent that another Member purchases a portion of a Capital Commitment Interest of a Withdrawn Member, the purchasing Member’s Capital Commitment Capital Account and

Capital Commitment Profit Sharing Percentage for such Capital Commitment Investment shall be correspondingly increased.

(c) Upon the occurrence of a Final Event with respect to any Member, such Member shall thereupon cease to be a Member with respect to such Member’s Capital Commitment Member Interest. If such a Final Event shall occur, no Successor in Interest to any such Member shall for any purpose hereof become or be deemed to become a Member. The sole right, as against the Company and the remaining Members, acquired hereunder by, or resulting hereunder to, a Successor in Interest to any Member shall be to receive any distributions and allocations with respect to such Member’s Capital Commitment Member Interest pursuant to Article VII and this Article VIII (subject to the right of the Company to purchase the Capital Commitment Interests of such former Member pursuant to Section 8.1(b) or Section 8.1(d)), to the extent, at the time, in the manner and in the amount otherwise payable to such Member had such a Final Event not occurred, and no other right shall be acquired hereunder by, or shall result hereunder to, a Successor in Interest to such Member, whether by operation of law or otherwise. Until distribution of any such Member’s interest in the Company upon the dissolution of the Company as provided in Section 9.2, neither his or her Capital Commitment Capital Accounts nor any part thereof shall be subject to withdrawal or redemption without the consent of the Managing Member. The Managing Member shall be entitled to treat any Successor in Interest to such Member as the only person entitled to receive distributions and allocations hereunder with respect to such Member’s Capital Commitment Member Interest.

(d) If a Member dies or suffers a Total Disability, all Contingent Capital Commitment Interests of such Member shall be purchased by the Company or its designee (within 30 days of the first date on which the Company knows or has reason to know of such Member’s death or Total Disability) as provided in Section 8.1(b) (except that any Adjustment Amount shall be payable by or to the estate, personal representative or other Successor in Interest, in cash) and any Investor Notes financing such Contingent Capital Commitment Interests shall thereupon be prepaid as provided in Section 8.1(b). In addition, in the case of the death or Total Disability of a Member, if the estate, personal representative or other Successor in Interest of such Member so requests in writing within 180 days of the Member’s death or ceasing to be an employee or member (directly or indirectly) of the Company or any of its Affiliates by reason of Total Disability (such requests shall not exceed one per calendar year), the Company or its designee may but is not obligated to purchase for cash all (but not less than all) Non-Contingent Capital Commitment Interests of such Member as of the last day of the Company’s then current Fiscal Year at a price equal to the Capital Commitment Value thereof. Each Member shall be required to include appropriate provisions in his or her will to reflect such provisions of this Agreement. In addition, the Company may, in the sole discretion of the Managing Member, upon notice to the estate, personal representative or other Successor in Interest of such Member, within 30 days of the first date on which the Managing Member knows or has reason to know of such Member’s death or Total Disability, determine either (i) to distribute Securities or other property to the estate, personal representative or other Successor in Interest in exchange for such Non-Contingent Capital Commitment Interests as provided in Section 8.1(e) or (ii) to require sale of such Non-Contingent Capital Commitment Interests to the Company or its designee as of the last day of any Fiscal Year of the Company (or earlier period, as determined by the Managing Member in its sole discretion) for an amount in cash equal to the Capital Commitment Value thereof.

(e) In lieu of retaining a Withdrawn Member as a Member with respect to any Non-Contingent Capital Commitment Interests, the Managing Member may, in its sole discretion, by notice to such Withdrawn Member within 45 days of his or her ceasing to be an employee or officer of the Company or any of its Affiliates, or at any time thereafter, upon 30 days written notice, determine (1) to distribute to such Withdrawn Member the pro rata portion of the Securities or other property underlying such Withdrawn Member’s Non-Contingent Capital Commitment Interests, subject to any restrictions on distributions associated with the Securities or other property, in satisfaction of his or her Non-Contingent Capital Commitment Interests in the Company or (2) to cause, as of the last day of any Fiscal Year of the Company (or earlier period, as determined by the Managing Member in its sole discretion), the Company or another person designated by the Managing Member (who may be itself another Member or another Affiliate of the Company) to purchase all (but not less than all) of such Withdrawn Member’s Non-Contingent Capital Commitment Interests for a price equal to the Capital Commitment Value thereof. The Managing Member shall condition any distribution or purchase of voting Securities pursuant to paragraph (d) above or this paragraph (e) upon the Withdrawn Member’s execution and delivery to the Company of an appropriate irrevocable proxy, in favor of the Managing Member or its nominee, relating to such Securities.

(f) The Company may subsequently transfer any Unallocated Capital Commitment Interest or portion thereof which is purchased by it as described above to any other person approved by the Managing Member. In connection with such purchase or transfer or the purchase of a Capital Commitment Interest or portion thereof by the Managing Member’s designee(s), Holdings may loan all or a portion of the purchase price of the transferred or purchased Capital Commitment Interest to the Company, the transferee or the designee-purchaser(s), as applicable (excluding any of the foregoing who is an executive officer of The Blackstone Group L.P. or any Affiliate thereof). To the extent that a Withdrawn Member’s Capital Commitment Interests (or portions thereof) are repurchased by the Company and not transferred to or purchased by another person, all or any portion of such repurchased Capital Commitment Interests may, in the sole discretion of the Managing Member, (i) be allocated to each Member already participating in the Capital Commitment Investment to which the repurchased Capital Commitment Interest relates, (ii) be allocated to each Member in the Company, whether or not already participating in such Capital Commitment Investment, and/or (iii) continue to be held by the Company itself as an unallocated Capital Commitment Investment (such Capital Commitment Interests being herein called “ Unallocated Capital Commitment Interests ”). To the extent that a Capital Commitment Interest is allocated to Members as provided in clause (i) and/or (ii) above, any indebtedness incurred by the Company to finance such repurchase shall also be allocated to such Members. All such Capital Commitment Interests allocated to Members shall be deemed to be Contingent and shall become Non-Contingent as and to the extent that the principal amount of such related indebtedness is repaid. The Members receiving such allocations shall be responsible for such related indebtedness only on a nonrecourse basis to the extent appropriate as provided in this Agreement, except as such Members and the Managing Member shall otherwise agree. If the indebtedness financing such repurchased interests is not so limited, the Company may require an assumption by the Members of such indebtedness on the terms thereof as a precondition to allocation of the related Capital Commitment Interests to such Members; provided , that a Member shall not, except as set forth in his or her Investor Note, be obligated to accept any personally recourse obligation unless his or her prior consent is obtained. So long as the Company itself retains the Unallocated Capital Commitment Interests pursuant to clause (iii) above, such Unallocated Capital Commitment Interests shall belong to the Company and any indebtedness financing the Unallocated Capital

Commitment Interests shall be an obligation of the Company to which all income of the Company is subject except as otherwise agreed by the lender of such indebtedness. Any Capital Commitment Net Income (Loss) on an Unallocated Capital Commitment Interest shall be allocated to each Member in the proportion his or her aggregate Capital Commitment Capital Accounts bear to the aggregate Capital Commitment Capital Accounts of all Members; debt service on such related financing will be an expense of the Company allocable to all Members in such proportions.

(g) If a Member is required to Withdraw from the Company with respect to such Member’s Capital Commitment Member Interest for Cause, then his or her Capital Commitment Interest shall be settled in accordance with paragraphs (a)-(f) and (j) of this Section 8.1; provided , that if such Member was not at any time a direct partner of a Managing Member of the Company, the Managing Member may elect (but shall not be required) to apply any or all the following terms and conditions to such settlement:

(i) purchase for cash all of such Withdrawn Member’s Non-Contingent Capital Commitment Interests. The purchase price for each such Non-Contingent Capital Commitment Interest shall be the lower of (A) the original cost of such Non-Contingent Capital Commitment Interest or (B) an amount equal to the Capital Commitment Value thereof;

(ii) allow the Withdrawn Member to retain such Non-Contingent Capital Commitment Interests; provided , that the maximum amount of Capital Commitment Net Income allocable to such Withdrawn Member with respect to any Capital Commitment Investment shall equal the amount of Capital Commitment Net Income that would have been allocated to such Withdrawn Member if such Capital Commitment Investment had been sold as of the Settlement Date at the then prevailing Capital Commitment Value thereof; or

(iii) in lieu of cash, purchase such Non-Contingent Capital Commitment Interests by providing the Withdrawn Member with a promissory note in the amount determined in (i) above. Such promissory note shall have a maximum term of ten (10) years with interest at the Federal Funds Rate.

(h) The Company will assist a Withdrawn Member or his or her estate or guardian, as the case may be, in the settlement of the Withdrawn Member’s Capital Commitment Member Interest in the Company. Third party costs incurred by the Company in providing this assistance will be borne by the Withdrawn Member or his or her estate.

(i) The Managing Member may reasonably determine in good faith to retain outside professionals to provide the assistance to Withdrawn Members or their estates or guardians, as referred to above. In such instances, the Managing Member will obtain the prior approval of a Withdrawn Member or his or her estate or guardian, as the case may be, prior to engaging such professionals. If the Withdrawn Member (or his or her estate or guardian) declines to incur such costs, the Managing Member will provide such reasonable assistance as

and when it can so as not to interfere with the Company’s day-to-day operating, financial, tax and other related responsibilities to the Company and the Members.

(j) Each Member hereby irrevocably appoints the Managing Member as such Member’s true and lawful agent, representative and attorney-in-fact, each acting alone, in such Member’s name, place and stead, to make, execute, sign and file, on behalf of such Member, any and all agreements, instruments, consents, ratifications, documents and certificates which such Managing Member deems necessary or advisable in connection with any transaction or matter contemplated by or provided for in this Section 8.1, including, without limitation, the performance of any obligation of such Member or the Company or the exercise of any right of such Member or the Company. Such power of attorney is coupled with an interest and shall survive and continue in full force and effect notwithstanding the Withdrawal from the Company of any Member for any reason and shall not be affected by the death, disability or incapacity of such Member.

Section 8.2. Transfer of Member’s Capital Commitment Interest . Except as otherwise agreed by the Managing Member, no Member or former Member shall have the right to sell, assign, mortgage, pledge or otherwise dispose of or transfer (“ Transfer ”) all or part of any such Member’s Capital Commitment Member Interest in the Company; provided , that this Section 8.2 shall in no way impair (i) Transfers as permitted in Section 8.1 above, in the case of the purchase of a Withdrawn Member’s or deceased or Totally Disabled Member’s Capital Commitment Interests, (ii) with the prior written consent of the Managing Member, which shall not be unreasonably withheld, Transfers by a Member to another Member of Non-Contingent Capital Commitment Interests, (iii) with the prior written consent of the Managing Member, which shall not be unreasonably withheld, Transfers of up to 25% of a Regular Member’s Capital Commitment Member Interest to an Estate Planning Vehicle (it being understood that it shall not be unreasonable for the Managing Member to condition any Transfer of an Interest pursuant to this clause (iii) on the satisfaction of certain conditions and/or requirements imposed by the Managing Member in connection with any such Transfer, including, for example, a requirement that any transferee of an Interest hold such Interest as a passive, non-voting interest in the Company) and (iv) with the prior written consent of the Managing Member (which consent may be withheld without giving any reason therefor). No person acquiring an interest in the Company pursuant to this Section 8.2 shall become a Member of the Company, or acquire such Member’s right to participate in the affairs of the Company, unless such person shall be admitted as a Member pursuant to Section 6.1. A Member shall not cease to be a Member of the Company upon the collateral assignment of, or the pledging or granting of a security interest in, its entire Interest in the Company in accordance with the provisions of this Agreement.

Section 8.3. Compliance with Law . Notwithstanding any provision hereof to the contrary, no sale or Transfer of a Capital Commitment Interest in the Company may be made except in compliance with all Federal, State and other applicable laws, including federal and state securities laws.

ARTICLE IX

DISSOLUTION

Section 9.1. Dissolution . The Company shall be dissolved and subsequently terminated:

(a) pursuant to Section 6.6; or

(b) upon the expiration of the term of the Company.

Section 9.2. Final Distribution . Upon the dissolution of the Company, and following the payment of creditors of the Company and the making of provisions for the payment of any contingent, conditional or unmatured claims known to the Company as required under the LLC Act:

(a) The Members’ respective interests in the Company shall be valued and settled in accordance with the procedures set forth in Section 6.5 which provide for allocations to the GP-Related Capital Accounts of the Members and distributions in accordance with the GP-Related Capital Account balances of the Members; and

(b) With respect to each Member’s Capital Commitment Member Interest, an amount shall be paid to such Member in cash or Securities in an amount equal to such Member’s respective Capital Commitment Liquidating Share for each Capital Commitment Investment; provided , that if the remaining assets relating to any Capital Commitment Investment shall not be equal to or exceed the aggregate Capital Commitment Liquidating Shares for such Capital Commitment Investment, to each Member in proportion to its Capital Commitment Liquidating Share for such Capital Commitment Investment; and the remaining assets of the Company related to the Members’ Capital Commitment Member Interests shall be paid to the Members in cash or Securities in proportion to their respective Capital Commitment Profit Sharing Percentages for each Capital Commitment Investment from which such cash or Securities are derived.

The Managing Member shall be the liquidator. In the event that the Managing Member is unable to serve as liquidator, a liquidating trustee shall be chosen by the affirmative vote of a Majority in Interest of the Members voting at a meeting of Members (excluding Nonvoting Special Members).

Section 9.3. Amounts Reserved Related to Capital Commitment Member Interests .

(a) If there are any Securities or other property or other investments or securities related to the Members’ Capital Commitment Member Interests which, in the judgment of the liquidator, cannot be sold, or properly distributed in kind in the case of dissolution, without sacrificing a significant portion of the value thereof, the value of a Member’s interest in each such Security or other investment or security may be excluded from the amount distributed to the Members participating in the related Capital Commitment Investment pursuant to Section 9.2(b). Any interest of a Member, including his or her pro rata

interest in any gains, losses or distributions, in Securities or other property or other investments or securities so excluded shall not be paid or distributed until such time as the liquidator shall determine.

(b) If there is any pending transaction, contingent liability or claim by or against the Company related to the Members’ Capital Commitment Member Interests as to which the interest or obligation of any Member therein cannot, in the judgment of the liquidator, be then ascertained, the value thereof or probable loss therefrom may be deducted from the amount distributable to such Member pursuant to Section 9.2(b). No amount shall be paid or charged to any such Member on account of any such transaction or claim until its final settlement or such earlier time as the liquidator shall determine. The Company may meanwhile retain from other sums due such Member in respect of such Member’s Capital Commitment Member Interest an amount which the liquidator estimates to be sufficient to cover the share of such Member in any probable loss or liability on account of such transaction or claim.

(c) Upon determination by the liquidator that circumstances no longer require the exclusion of any Securities or other property or retention of sums as provided in paragraphs (a) and (b) of this Section 9.3, the liquidator shall, at the earliest practicable time, distribute as provided in Section 9.2(b) such sums or such Securities or other property or the proceeds realized from the sale of such Securities or other property to each Member from whom such sums or Securities or other property were withheld.

ARTICLE X

MISCELLANEOUS

Section 10.1. Submission to Jurisdiction; Waiver of Jury Trial .

(a) Any and all disputes which cannot be settled amicably, including any ancillary claims of any party, arising out of, relating to or in connection with the validity, negotiation, execution, interpretation, performance or non-performance of this Agreement (including the validity, scope and enforceability of this arbitration provision) shall be finally settled by arbitration conducted by a single arbitrator in New York, NY, in accordance with the then-existing Rules of Arbitration of the International Chamber of Commerce. If the parties to the dispute fail to agree on the selection of an arbitrator within thirty (30) days of the receipt of the request for arbitration, the International Chamber of Commerce shall make the appointment. The arbitrator shall be a lawyer and shall conduct the proceedings in the English language. Performance under this Agreement shall continue if reasonably possible during any arbitration proceedings.

(b) Notwithstanding the provisions of paragraph (a), the Managing Member may bring, or may cause the Company to bring, on behalf of the Managing Member or the Company or on behalf of one or more Members, an action or special proceeding in any court of competent jurisdiction for the purpose of compelling a party to arbitrate, seeking temporary or preliminary relief in aid of an arbitration hereunder, and/or enforcing an arbitration award and, for the purposes of this paragraph (b), each Member (i) expressly consents to the application of paragraph (c) of this Section 10.1 to any such action or proceeding, (ii) agrees that proof shall

not be required that monetary damages for breach of the provisions of this Agreement would be difficult to calculate and that remedies at law would be inadequate, and (iii) irrevocably appoints the Managing Member as such Member’s agent for service of process in connection with any such action or proceeding and agrees that service of process upon any such agent, who shall promptly advise such Member of any such service of process, shall be deemed in every respect effective service of process upon the Member in any such action or proceeding.

(c) (i) EACH MEMBER HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF COURTS LOCATED IN NEW YORK, NEW YORK FOR THE PURPOSE OF ANY JUDICIAL PROCEEDING BROUGHT IN ACCORDANCE WITH THE PROVISIONS OF PARAGRAPH (B) OF THIS SECTION 10.1, OR ANY JUDICIAL PROCEEDING ANCILLARY TO AN ARBITRATION OR CONTEMPLATED ARBITRATION ARISING OUT OF OR RELATING TO OR CONCERNING THIS AGREEMENT. Such ancillary judicial proceedings include any suit, action or proceeding to compel arbitration, to obtain temporary or preliminary judicial relief in aid of arbitration, or to confirm an arbitration award. The parties acknowledge that the forum(s) designated by this paragraph (c) have a reasonable relation to this Agreement, and to the parties’ relationship with one another.

(ii) The parties hereby waive, to the fullest extent permitted by applicable law, any objection which they now or hereafter may have to personal jurisdiction or to the laying of venue of any such ancillary suit, action or proceeding brought in any court referred to in paragraph (c)(i) of this Section 10.1 and such parties agree not to plead or claim the same.

(d) Notwithstanding any provision of this Agreement to the contrary, this Section 10.1 shall be construed to the maximum extent possible to comply with the laws of the State of Delaware, including the Delaware Uniform Arbitration Act (10 Del. C. § 5701 et seq .) (the “ Delaware Arbitration Act ”). If, nevertheless, it shall be determined by a court of competent jurisdiction that any provision or wording of this Section 10.1, including any rules of the International Chamber of Commerce, shall be invalid or unenforceable under the Delaware Arbitration Act, or other applicable law, such invalidity shall not invalidate all of this Section 10.1. In that case, this Section 10.1 shall be construed so as to limit any term or provision so as to make it valid or enforceable within the requirements of the Delaware Arbitration Act or other applicable law, and, in the event such term or provision cannot be so limited, this Section 10.1 shall be construed to omit such invalid or unenforceable provision.

Section 10.2. Ownership and Use of the Blackstone Name . The Company acknowledges that Blackstone TM L.L.C. (“ TM ”), a Delaware limited liability company with a principal place of business at 345 Park Avenue, New York, New York 10154 U.S.A., (or its successors or assigns) is the sole and exclusive owner of the mark and name BLACKSTONE and that the ownership of, and the right to use, sell or otherwise dispose of, the firm name or any abbreviation or modification thereof which consists of or includes BLACKSTONE, shall belong exclusively to TM, which company (or its predecessors, successors or assigns) has licensed the Company to use BLACKSTONE in its name. The Company acknowledges that TM owns the service mark BLACKSTONE for various services and that the Company is using the BLACKSTONE mark and name on a non-exclusive, non-sublicensable and non-assignable basis

in connection with its business and authorized activities with the permission of TM. All services rendered by the Company under the BLACKSTONE mark and name will be rendered in a manner and with quality levels that are consistent with the high reputation heretofore developed for the BLACKSTONE mark by TM and its Affiliates and licensees. The Company understands that TM may terminate its right to use BLACKSTONE at any time in TM’s sole discretion by giving the Company written notice of termination. Promptly following any such termination, the Company will take all steps necessary to change its company name to one which does not include BLACKSTONE or any confusingly similar term and cease all use of BLACKSTONE or any term confusingly similar thereto as a service mark or otherwise.

Section 10.3. Written Consent . Any action required or permitted to be taken by a vote of Members at a meeting may be taken without a meeting if a Majority in Interest of the Members consent thereto in writing.

Section 10.4. Letter Agreements; Schedules . The Managing Member may, or may cause the Company to, enter or has previously entered into separate letter agreements with individual Members, officers or employees with respect to GP-Related Profit Sharing Percentages, Capital Commitment Profit Sharing Percentages, benefits or any other matter. The Managing Member may from time to time execute and deliver to the Members schedules which set forth the then current capital balances, GP-Related Profit Sharing Percentages and Capital Commitment Profit Sharing Percentages of the Members and any other matters deemed appropriate by the Managing Member. Such schedules shall be for information purposes only and shall not be deemed to be part of this Agreement for any purpose whatsoever; provided , that this in no way limits the effectiveness of any Commitment Agreement.

Section 10.5. Governing Law; Separability of Provisions . This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to principles of conflicts of law. In particular, the Company has been formed pursuant to the LLC Act, and the rights and liabilities of the Members shall be as provided therein, except as herein otherwise expressly provided. If any provision of this Agreement shall be held to be invalid, such provision shall be given its meaning to the maximum extent permitted by law and the remainder of this Agreement shall not be affected thereby.

Section 10.6. Successors and Assigns; Third Party Beneficiaries . This Agreement shall be binding upon and shall, subject to the penultimate sentence of Section 6.3(a), inure to the benefit of the parties hereto, their respective heirs and personal representatives, and any successor to a trustee of a trust which is or becomes a party hereto; provided , that no person claiming by, through or under a Member (whether such Member’s heir, personal representative or otherwise), as distinct from such Member itself, shall have any rights as, or in respect to, a Member (including the right to approve or vote on any matter or to notice thereof) except the right to receive only those distributions expressly payable to such person pursuant to Article VI and Article VIII. Any Member or Withdrawn Member shall remain liable for the obligations under this Agreement (including any Net GP-Related Recontribution Amounts and any Capital Commitment Recontribution Amounts) of any transferee of all or any portion of such Member’s or Withdrawn Member’s interest in the Company, unless waived by the Managing Member. The Company shall, if the Managing Member determines in its good faith judgment, based on the standards set forth in Section 5.8(d)(ii)(A) and Section 7.4(g)(ii)(A), to pursue such transferee,

pursue payment (including any Net GP-Related Recontribution Amounts and/or Capital Commitment Recontribution Amounts) from the transferee with respect to any such obligations. Nothing in this Agreement is intended, nor shall anything herein be construed, to confer any rights, legal or equitable, on any person other than the Members and their respective legal representatives, heirs, successors and permitted assigns.

Section 10.7. Confidentiality . By executing this Agreement, each Member expressly agrees, at all times during the term of the Company and thereafter and whether or not at the time a Member of the Company, to maintain the confidentiality of, and not to disclose to any person other than the Company, another Member or a person designated by the Company, any information relating to the business, financial structure, financial position or financial results, clients or affairs of the Company that shall not be generally known to the public or the securities industry, except as otherwise required by law or by any regulatory or self-regulatory organization having jurisdiction; provided , that any corporate Member may disclose any such information it is required by law, rule, regulation or custom to disclose. Notwithstanding anything in this Agreement to the contrary, to comply with Treasury Regulations Section 1.6011-4(b)(3)(i), each Member (and any employee, representative or other agent of such Member) may disclose to any and all persons, without limitation of any kind, the U.S. federal income tax treatment and tax structure of the Company, it being understood and agreed, for this purpose, (1) the name of, or any other identifying information regarding (a) the Members or any existing or future investor (or any Affiliate thereof) in any of the Members, or (b) any investment or transaction entered into by the Members; (2) any performance information relating to any of the Members or their investments; and (3) any performance or other information relating to previous funds or investments sponsored by any of the Members, does not constitute such tax treatment or tax structure information.

Section 10.8. Notices . Whenever notice is required or permitted by this Agreement to be given, such notice shall be in writing (including telecopy or similar writing) and shall be given by hand delivery (including any courier service) or telecopy to any Member at its address or telecopy number shown in the Company’s books and records or, if given to the Managing Member, at the address or telecopy number of the Company in New York City. Each such notice shall be effective (i) if given by telecopy, upon dispatch, and (ii) if given by hand delivery, when delivered to the address of such Member, the Managing Member or the Company specified as aforesaid.

Section 10.9. Counterparts . This Agreement may be executed in any number of counterparts, each of which shall be an original and all of which together shall constitute a single instrument.

Section 10.10. Power of Attorney . Each Member hereby irrevocably appoints the Managing Member as such Member’s true and lawful representative and attorney-in-fact, each acting alone, in such Member’s name, place and stead, to make, execute, sign and file all instruments, documents and certificates which, from time to time, may be required to set forth any amendment to this Agreement or may be required by this Agreement or by the laws of the United States of America, the State of Delaware or any other state in which the Company shall determine to do business, or any political subdivision or agency thereof, to execute, implement and continue the valid and subsisting existence of the Company. Such power of attorney is

coupled with an interest and shall survive and continue in full force and effect notwithstanding the subsequent Withdrawal from the Company of any Member for any reason and shall not be affected by the subsequent disability or incapacity of such Member.

Section 10.11. Member’s Will . Each Member and Withdrawn Member shall include in his or her will a provision that addresses certain matters in respect of his or her obligations relating to the Company that is satisfactory to the Managing Member and each such Member and Withdrawn Member shall confirm annually to the Company, in writing, that such provision remains in his current will. Where applicable, any estate planning trust of such Member or Withdrawn Member to which a portion of such Member’s or Withdrawn Member’s Interest is transferred shall include a provision substantially similar to such provision and the trustee of such trust shall confirm annually to the Company, in writing, that such provision or its substantial equivalent remains in such trust. In the event any Member or Withdrawn Member fails to comply with the provisions of this Section 10.11 after the Company has notified such Member or Withdrawn Member of his failure to so comply and such failure to so comply is not cured within 30 days of such notice, the Company may withhold any and all distributions to such Member until the time at which such party complies with the requirements of this Section 10.11.

Section 10.12. Cumulative Remedies . Rights and remedies under this Agreement are cumulative and do not preclude use of other rights and remedies available under applicable law.

Section 10.13. Legal Fees . Except as more specifically provided herein, in the event of a legal dispute (including litigation, arbitration or mediation) between any Member or Withdrawn Member and the Company, arising in connection with any party seeking to enforce Section 4.1(d) or any other provision of this Agreement relating to the Holdback, the Clawback Amount, the GP-Related Giveback Amount, the Capital Commitment Giveback Amount, the Net GP-Related Recontribution Amount or the Capital Commitment Recontribution Amount, the “losing” party to such dispute shall promptly reimburse the “victorious party” for all reasonable legal fees and expenses incurred in connection with such dispute (such determination to be made by the relevant adjudicator). Any amounts due under this Section 10.13 shall be paid within 30 days of the date upon which such amounts are due to be paid and such amounts remaining unpaid after such date shall accrue interest at the Default Interest Rate.

Section 10.14. Entire Agreement . This Agreement embodies the entire agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, representations, warranties, covenants or undertakings, other than those expressly set forth or referred to herein. Subject to Section 10.4, this Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter.

IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the day and year first above written. In the event that it is impracticable to obtain the signature of any one or more of the Members to this Agreement, this Agreement shall be binding among the other Members executing the same.


MANAGING MEMBER:

BLACKSTONE HOLDINGS III L.P.

By:	Blackstone Holdings III GP L.P., its
	General Partner

By:	Blackstone Holdings III GP
	Management L.L.C., its General Partner

	By:	/s/ John G. Finley
	Name:	John G. Finley
	Title:	Chief Legal Officer

[BTOA II L.L.C. – Amended and Restated LLC Agreement]

Exhibit 31.1

CHIEF EXECUTIVE OFFICER CERTIFICATION

I, Stephen A. Schwarzman, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q for the quarter ended June 30, 2016 of The Blackstone Group L.P.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5.	The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date: August 4, 2016

/s/ Stephen A. Schwarzman

Stephen A. Schwarzman

Chief Executive Officer

of Blackstone Group Management L.L.C.

Exhibit 31.2

CHIEF FINANCIAL OFFICER CERTIFICATION

I, Michael S. Chae, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q for the quarter ended June 30, 2016 of The Blackstone Group L.P.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

5.	The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date: August 4, 2016

/s/ Michael S. Chae

Michael S. Chae

Chief Financial Officer

of Blackstone Group Management L.L.C.

Exhibit 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

In connection with the Quarterly Report of The Blackstone Group L.P. (the “Partnership”) on Form 10-Q for the quarter ended June 30, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Stephen A. Schwarzman, Chief Executive Officer of Blackstone Group Management L.L.C., the general partner of the Partnership, certify, pursuant to 18 U.S.C. Section § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership.

Date: August 4, 2016

/s/ Stephen A. Schwarzman

Stephen A. Schwarzman

Chief Executive Officer

of Blackstone Group Management L.L.C.

*	The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document.

Exhibit 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

In connection with the Quarterly Report of The Blackstone Group L.P. (the “Partnership”) on Form 10-Q for the quarter ended June 30, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael S. Chae, Chief Financial Officer of Blackstone Group Management L.L.C., the general partner of the Partnership, certify, pursuant to 18 U.S.C. Section § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership.

Date: August 4, 2016

/s/ Michael S. Chae

Michael S. Chae

Chief Financial Officer

of Blackstone Group Management L.L.C.

*	The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document.

Exhibit 99.1

SECTION 13(r) DISCLOSURE

NCR Corporation, which may be considered our affiliate, provided the disclosure reproduced below in connection with activities during the quarter ended June 30, 2016. We have not independently verified or participated in the preparation of this disclosure.

“Pursuant to Section 13(r)(1)(D)(iii) of the Securities Exchange Act of 1934, as amended, we note that, during the period from April 1, 2016 through April 30, 2016, we continued to maintain a bank account and guarantees at the Commercial Bank of Syria (“CBS”), which was designated as a Specially Designated National pursuant to Executive Order 13382 (“EO 13382”) on August 10, 2011. This bank account and the guarantees at CBS were maintained in the normal course of business prior to the listing of CBS pursuant to EO 13382. We note that the last known account balance as of April 30, 2016 was approximately $3,468. The bank account did not generate interest from April 1, 2016 through April 30, 2016, and the guarantees did not generate any revenue or profits for the Company. Pursuant to a license granted to the Company by OFAC on January 3, 2013, and subsequent licenses granted on April 29, 2013, July 12, 2013, February 28, 2014, November 12, 2014, and October 24, 2015, the Company had been engaged in winding down its past operations in Syria. The Company’s last such license expired on April 30, 2016. In addition, the Company’s application to renew its license to transact business with CBS, which was submitted to OFAC on May 18, 2015, was not acted upon prior to the expiration of the Company’s last such license. As a result, and in connection with the license expiration, the Company abandoned its remaining property in Syria, which, including the CBS account, was commercially insignificant, and ended the employment of its final two employees in Syria, who had remained employed by the Company to assist with the execution of the Company’s wind-down activities pursuant to authority granted by the OFAC licenses. The Company does not intend to engage in any further business activities with CBS.”