v2.4.1.9
DERIVATIVE FINANCIAL INSTRUMENTS
 3 Months Ended
Mar. 31, 2015
DERIVATIVE FINANCIAL INSTRUMENTS
6. DERIVATIVE FINANCIAL INSTRUMENTS

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

Net Investment Hedges

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

Blackstone uses foreign currency forward contracts to hedge portions of Blackstone’s net investments in foreign operations. The gains and losses due to change in fair value attributable to changes in spot exchange rates on foreign currency derivatives designated as net investment hedges were recognized in Other Comprehensive Income (Loss), Net of Tax — Currency Translation Adjustment. For the three months ended March 31, 2015 the resulting gain was $7.3 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.

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

 

    March 31, 2015     December 31, 2014  
    Assets     Liabilities     Assets     Liabilities  
    Notional     Fair
Value		     Notional     Fair
Value		     Notional     Fair
Value		     Notional     Fair
Value		  

Net Investment Hedges

                

Foreign Currency Contracts

   $ —        $ —        $ 53,280      $ 408      $ 62,078      $ 523      $ —        $ —     
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Freestanding Derivatives

                

Blackstone — Other

Interest Rate Contracts

   $ 109,405      $ 451      $ 780,146      $ 7,458      $ 223,886      $ 407      $ 879,412      $ 4,590   

Foreign Currency Contracts

     158,470        1,647        224,625        2,593        192,163        2,798        148,873        681   

Credit Default Swaps

     19,500        308        56,000        1,464        19,500        85        56,000        868   

Investments of Consolidated Blackstone Funds

                

Foreign Currency Contracts

     135,520        5,118        302,609        36,138        199,364        8,915        250,244        21,875   

Interest Rate Contracts

     20,193        2,033        —          —          22,659        2,281        —          —     

Credit Default Swaps

     —          —          83,060        543        —          —          91,372        2,514   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
    443,088        9,557        1,446,440        48,196        657,572        14,486        1,425,901        30,528   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

   $ 443,088      $ 9,557      $ 1,499,720      $ 48,604      $ 719,650      $ 15,009      $ 1,425,901      $ 30,528   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

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

 

     Three Months Ended March 31,  
             2015                      2014          

Net Investment Hedges — Foreign Currency Contracts

      

Hedge Ineffectiveness

    $ 240       $ —     
  

 

 

     

 

 

  

Freestanding Derivatives

      

Realized Gains (Losses)

      

Interest Rate Contracts

    $ (3,514 )     $ (833 ) 

Foreign Currency Contracts

      14,073         1,439   

Credit Default Swaps

      1,826         286   
  

 

 

     

 

 

  

Total

    $ 12,385       $ 892   
  

 

 

     

 

 

  

Freestanding Derivatives

      

Net Change in Unrealized Gains (Losses)

      

Interest Rate Contracts

    $ (995 )     $ (2,542 ) 

Foreign Currency Contracts

      (23,025 )       (8,117 ) 

Credit Default Swaps

      (2,922 )       1,813   
  

 

 

     

 

 

  

Total

    $ (26,942 )     $ (8,846 ) 
  

 

 

     

 

 

  

As of March 31, 2015 and December 31, 2014, the Partnership had not designated any derivatives as cash flow hedges.