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Fair Value Measurements of Financial Instruments

6 Months Ended

Jun. 30, 2019

Fair Value Measurements of Financial Instruments

8. Fair Value Measurements of Financial Instruments

The following tables summarize the valuation of Blackstone’s financial assets and liabilities by the fair value hierarchy:

		June 30, 2019
		Level I				Level II				Level III				NAV				Total
Assets
Cash and Cash Equivalents - Money Market Funds and Short-Term Investments		$	199,590			$	—			$	—			$	—			$	199,590
Investments
Investments of Consolidated Blackstone Funds (a)
Investment Funds			—				—				—				61,345				61,345
Equity Securities			36,056				40,670				196,319				—				273,045
Partnership and LLC Interests			—				21,371				345,479				—				366,850
Debt Instruments			—				819,352				141,086				—				960,438
Freestanding Derivatives
Foreign Currency Contracts			—				863				—				—				863
Credit Default Swaps			—				535				—				—				535
Total Return Swaps			—				15				—				—				15
Equity Options			—				173				—				—				173
Assets of Consolidated CLO Vehicles
Corporate Loans			—				6,513,318				456,224				—				6,969,542
Other			—				—				988				—				988
Total Investments of Consolidated Blackstone Funds			36,056				7,396,297				1,140,096				61,345				8,633,794
Corporate Treasury Investments
Equity Securities			454,441				—				—				—				454,441
Debt Instruments			503,285				1,544,063				24,307				—				2,071,655
Other			—				—				195				271,617				271,812
Total Corporate Treasury Investments			957,726				1,544,063				24,502				271,617				2,797,908
Other Investments			183,436				—				24,550				7,322				215,308
Total Investments			1,177,218				8,940,360				1,189,148				340,284				11,647,010
Accounts Receivable - Loans and Receivables			—				—				187,831				—				187,831
Other Assets
Freestanding Derivatives
Interest Rate Contracts			548				37,751				—				—				38,299
Foreign Currency Contracts			—				615				—				—				615
Credit Default Swaps			—				81				—				—				81
Total Other Assets			548				38,447				—				—				38,995
		$	1,377,356			$	8,978,807			$	1,376,979			$	340,284			$	12,073,426

		June 30, 2019
		Level I				Level II				Level III				Total
Liabilities
Loans Payable - Liabilities of Consolidated CLO Vehicles (a)
Senior Secured Notes (b)		$	—			$	6,474,210			$	—			$	6,474,210
Subordinated Notes (b)			—				61,695				—				61,695
Total Loans Payable			—				6,535,905				—				6,535,905
Due to Affiliates - Liabilities of Consolidated CLO Vehicles (a)
Senior Secured Notes (b)			—				45,243				—				45,243
Subordinated Notes (b)			—				49,575				—				49,575
Total Due to Affiliates			—				94,818				—				94,818
Securities Sold, Not Yet Purchased			33,870				94,642				—				128,512
Accounts Payable, Accrued Expenses and Other Liabilities
Liabilities of Consolidated Blackstone Funds - Freestanding Derivatives (a)
Foreign Currency Contracts			—				814				—				814
Credit Default Swaps			—				2,435				—				2,435
Total Return Swaps			—				382				—				382
Interest Rate Swaps			—				1,382				—				1,382
Equity Options			—				19				—				19
Total Liabilities of Consolidated Blackstone Funds			—				5,032				—				5,032
Freestanding Derivatives
Interest Rate Contracts			833				47,012				—				47,845
Foreign Currency Contracts			—				444				—				444
Credit Default Swaps			—				1,200				—				1,200
Total Freestanding Derivatives			833				48,656				—				49,489
Total Accounts Payable, Accrued Expenses and Other Liabilities			833				53,688				—				54,521
		$	34,703			$	6,779,053			$	—			$	6,813,756

		December 31, 2018
		Level I				Level II				Level III				NAV				Total
Assets
Cash and Cash Equivalents - Money Market Funds and Short-Term Investments		$	623,526			$	—			$	—			$	—			$	623,526
Investments
Investments of Consolidated Blackstone Funds (a)
Investment Funds			—				—				—				80,726				80,726
Equity Securities			42,937				34,946				201,566				—				279,449
Partnership and LLC Interests			—				7,170				355,273				—				362,443
Debt Instruments			—				752,622				133,819				—				886,441
Freestanding Derivatives
Foreign Currency Contracts			—				524				—				—				524
Credit Default Swaps			—				55				—				—				55
Assets of Consolidated CLO Vehicles
Corporate Loans			—				6,093,342				673,358				—				6,766,700
Total Investments of Consolidated Blackstone Funds			42,937				6,888,659				1,364,016				80,726				8,376,338
Corporate Treasury Investments
Equity Securities			233,834				—				—				—				233,834
Debt Instruments			243,297				1,444,968				24,568				—				1,712,833
Other			—				—				—				259,826				259,826
Total Corporate Treasury Investments			477,131				1,444,968				24,568				259,826				2,206,493
Other Investments			176,432				—				31,617				7,581				215,630
Total Investments			696,500				8,333,627				1,420,201				348,133				10,798,461
Accounts Receivable - Loans and Receivables			—				—				304,173				—				304,173
Other Assets
Freestanding Derivatives
Interest Rate Contracts			1,274				42,358				—				—				43,632
Foreign Currency Contracts			—				1,286				—				—				1,286
Total Other Assets			1,274				43,644				—				—				44,918
		$	1,321,300			$	8,377,271			$	1,724,374			$	348,133			$	11,771,078

		December 31, 2018
		Level I				Level II				Level III				Total
Liabilities
Loans Payable - Liabilities of Consolidated CLO Vehicles (a)
Senior Secured Notes (b)		$	—			$	6,473,233			$	—			$	6,473,233
Subordinated Notes (b)			—				7,478				—				7,478
Total Loans Payable			—				6,480,711				—				6,480,711
Due to Affiliates - Liabilities of Consolidated CLO Vehicles (a)
Senior Secured Notes (b)			—				3,201				—				3,201
Subordinated Notes (b)			—				52,811				—				52,811
Total Due to Affiliates			—				56,012				—				56,012
Securities Sold, Not Yet Purchased			35,959				106,658				—				142,617
Accounts Payable, Accrued Expenses and Other Liabilities
Liabilities of Consolidated Blackstone Funds - Freestanding Derivatives (a)
Foreign Currency Contracts			—				164				—				164
Credit Default Swaps			—				5,710				—				5,710
Total Return Swaps			—				1,855				—				1,855
Interest Rate Swaps			—				311				—				311
Total Liabilities of Consolidated Blackstone Funds			—				8,040				—				8,040
Freestanding Derivatives
Interest Rate Contracts			3,080				36,084				—				39,164
Foreign Currency Contracts			—				1,636				—				1,636
Credit Default Swaps			—				4,004				—				4,004
Total Freestanding Derivatives			3,080				41,724				—				44,804
Total Accounts Payable, Accrued Expenses and Other Liabilities			3,080				49,764				—				52,844
		$	39,039			$	6,693,145			$	—			$	6,732,184

(a) Pursuant to GAAP consolidation guidance, Blackstone 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 Blackstone, such as the general partner of the fund, has a controlling financial interest. While Blackstone is required to consolidate certain funds, including CLO vehicles, for GAAP purposes, Blackstone has no ability to utilize the assets of these funds and there is no recourse to Blackstone for their liabilities since these are client assets and liabilities.

(b) Senior and subordinated notes issued by CLO vehicles are classified based on the more observable fair value of CLO assets less (1) the fair value of any beneficial interests held by Blackstone, and (2) the carrying value of any beneficial interests that represent compensation for services.

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, 2019:

Valuation

Unobservable

Weighted-

Fair Value

Techniques

Inputs

Ranges

Average (a)

Financial Assets

Investments of Consolidated Blackstone Funds

Equity Securities

$

175,622

Discounted Cash Flows

Discount Rate

4.9% - 32.1%

12.6%

Revenue CAGR

-4.9% - 28.6%

6.7%

Book Value Multiple

0.9x - 9.5x

8.9x

Exit Capitalization Rate

3.8% - 11.4%

7.7%

Exit Multiple - EBITDA

0.1x - 16.5x

10.1x

Exit Multiple - NOI

12.8x

N/A

Exit Multiple - P/E

17.0x

N/A

7,364

Market Comparable Companies

Book Value Multiple

1.1x

N/A

Dollar/Acre Multiple

$7.0 - $18.0

$16.4

EBITDA Multiple

8.0x - 13.0x

10.0x

8,344

Other

N/A

N/A

N/A

4,523

Transaction Price

N/A

N/A

N/A

466

Third Party Pricing

N/A

N/A

N/A

Partnership and LLC Interests

304,234

Discounted Cash Flows

Discount Rate

3.8% - 26.5%

9.5%

Revenue CAGR

-4.9% - 27.5%

17.6%

Exit Capitalization Rate

2.7% - 15.5%

5.7%

Exit Multiple - EBITDA

3.5x - 15.7x

9.9x

Exit Multiple - NOI

13.3x

N/A

8,332

Market Comparable Companies

Book Value Multiple

1.2x

N/A

Dollar/Acre Multiple

$6.5 - $12.0

$8.1

3,087

Other

N/A

N/A

N/A

763

Third Party Pricing

N/A

N/A

N/A

29,063

Transaction Price

N/A

N/A

N/A

Debt Instruments

12,664

Discounted Cash Flows

Discount Rate

7.0% - 28.5%

9.9%

Exit Capitalization Rate

4.2% - 8.0%

5.8%

Exit Multiple - EBITDA

6.5x - 10.5x

9.3x

92,068

Third Party Pricing

N/A

N/A

N/A

13

Other

N/A

N/A

N/A

36,341

Transaction Price

N/A

N/A

N/A

Assets of Consolidated CLO Vehicles

37

Discounted Cash Flows

Discount Rate

1.7%

N/A

457,175

Third Party Pricing

N/A

N/A

N/A

Total Investments of Consolidated Blackstone Funds

1,140,096

Valuation

Unobservable

Fair Value

Techniques

Inputs

Ranges

Weighted- Average (a)

Corporate Treasury Investments

$

10,395

Discounted Cash Flows

Discount Rate

3.2% - 9.0%

7.1%

Default Rate

2.0%

N/A

Pre-payment Rate

20.0%

N/A

Recovery Lag

12 Months

N/A

Recovery Rate

15.6% - 70.0%

67.4%

Reinvestment Rate

LIBOR + 400 bps

N/A

195

Market Comparable Companies

EBITDA Multiple

14.6x

N/A

13,912

Third Party Pricing

N/A

N/A

N/A

Loans and Receivables

168,611

Discounted Cash Flows

Discount Rate

7.1% - 9.5%

8.3%

19,220

Third Party Pricing

N/A

N/A

N/A

Other Investments

24,550

Discounted Cash Flows

Discount Rate

0.5% - 10.3%

2.0%

Default Rate

2.0%

N/A

Pre-payment Rate

20.0%

N/A

Recovery Lag

12 Months

N/A

Recovery Rate

70.0%

N/A

Reinvestment Rate

LIBOR + 400 bps

N/A

$

1,376,979

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, 2018:

Valuation

Unobservable

Weighted-

Fair Value

Techniques

Inputs

Ranges

Average (a)

Financial Assets

Investments of Consolidated Blackstone Funds

Equity Securities

$

138,725

Discounted Cash Flows

Discount Rate

7.1% - 26.1%

12.6%

Revenue CAGR

-0.8% - 32.4%

6.6%

Book Value Multiple

0.9x - 9.5x

8.3x

Exit Capitalization Rate

5.0% - 11.4%

8.0%

Exit Multiple - EBITDA

0.1x - 17.5x

10.3x

Exit Multiple - NOI

12.8x

N/A

Exit Multiple - P/E

17.0x

N/A

21,050

Market Comparable Companies

Book Value Multiple

0.8x - 8.0x

1.3x

Dollar/Acre Multiple

$7.0 - $44.1

$32.9

21,492

Other

N/A

N/A

N/A

20,250

Transaction Price

N/A

N/A

N/A

49

Third Party Pricing

N/A

N/A

N/A

Partnership and LLC Interests

295,251

Discounted Cash Flows

Discount Rate

4.1% - 26.5%

9.7%

Revenue CAGR

-1.1% - 48.4%

26.9%

Book Value Multiple

8.5x - 9.3x

9.2x

Exit Capitalization Rate

2.9% - 15.0%

6.3%

Exit Multiple - EBITDA

0.1x - 15.3x

10.0x

Exit Multiple - NOI

13.3x

N/A

9,444

Market Comparable Companies

Book Value Multiple

1.1x

N/A

Dollar/Acre Multiple

$5.3 - $12.0

$7.5

9,390

Other

N/A

N/A

N/A

41,188

Transaction Price

N/A

N/A

N/A

Debt Instruments

8,342

Discounted Cash Flows

Discount Rate

7.0% - 19.3%

9.8%

Revenue CAGR

0.7%

N/A

Exit Multiple - EBITDA

6.5x

N/A

120,843

Third Party Pricing

N/A

N/A

N/A

4,634

Transaction Price

N/A

N/A

N/A

Assets of Consolidated CLO Vehicles

41

Discounted Cash Flows

Discount Rate

5.0%

N/A

673,317

Third Party Pricing

N/A

N/A

N/A

Total Investments of Consolidated Blackstone Funds

1,364,016

Valuation

Unobservable

Fair Value

Techniques

Inputs

Ranges

Weighted- Average (a)

Corporate Treasury Investments

$

7,947

Discounted Cash Flows

Discount Rate

4.4% - 7.5%

6.6%

Default Rate

2.0%

N/A

Pre-payment Rate

20.0%

N/A

Recovery Lag

12 Months - 21 Months

13 Months

Recovery Rate

17.5% - 70.0%

67.7%

Reinvestment Rate

LIBOR + 400 bps

N/A

16,621

Third Party Pricing

N/A

N/A

N/A

Loans and Receivables

304,173

Discounted Cash Flows

Discount Rate

6.1% - 12.8%

8.7%

Other Investments

26,631

Discounted Cash Flows

Discount Rate

1.0% - 15.0%

2.8%

Default Rate

2.0%

N/A

Pre-payment Rate

20.0%

N/A

Recovery Lag

12 Months

N/A

Recovery Rate

70.0%

N/A

Reinvestment Rate

LIBOR + 400 bps

N/A

4,986

Transaction Price

N/A

N/A

N/A

$

1,724,374

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.
NOI		Net operating income.
P/E		Price-earnings ratio.
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 corporate treasury investments, debt instruments and other investments as of the reporting date 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 have resulted in a lower (higher) fair value measurement. Increases (decreases) in any of the recovery rates and reinvestment rates in isolation would have resulted in a higher (lower) fair value measurement. Generally, a change in the assumption used for default rates may be accompanied by a directionally similar change in the assumption used for recovery lag and a directionally opposite change in the assumption used for recovery rates and pre-payment rates.

The significant unobservable inputs used in the fair value measurement of equity securities, partnership and limited liability company (“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 could have resulted in a lower (higher) fair value measurement. Increases (decreases) in any of exit multiples and revenue compound annual growth rates in isolation could have resulted in a higher (lower) fair value measurement.

Since December 31, 2018, 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 Blackstone 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 either Investment Income (Loss) or Net Gains from Fund Investment Activities in the Condensed Consolidated Statements of Operations.

		Level III Financial Assets at Fair Value
		Three Months Ended June 30,
		2019																2018
		Investments																Investments
		of				Loans				Other								of				Loans				Other
		Consolidated				and				Investments								Consolidated				and				Investments
		Funds				Receivables				(a)				Total				Funds				Receivables				(a)				Total
Balance, Beginning of Period		$	1,243,800			$	208,226			$	59,133			$	1,511,159			$	963,151			$	163,135			$	117,349			$	1,243,635
Transfer In to Level III (b)			149,275				—				3,986				153,261				152,666				—				—				152,666
Transfer Out of Level III (b)			(294,612	)			—				(14,557	)			(309,169	)			(117,217	)			—				(7,649	)			(124,866	)
Purchases			112,757				198,482				5,251				316,490				203,223				294,258				15,327				512,808
Sales			(84,525	)			(218,148	)			(5,270	)			(307,943	)			(127,718	)			(110,508	)			(23,304	)			(261,530	)
Settlements			—				(3,038	)			—				(3,038	)			—				(5,634	)			(1	)			(5,635	)
Changes in Gains Included in Earnings			13,401				2,309				509				16,219				12,619				5,352				13,001				30,972
Balance, End of Period		$	1,140,096			$	187,831			$	49,052			$	1,376,979			$	1,086,724			$	346,603			$	114,723			$	1,548,050
Changes in Unrealized Gains (Losses) Included in Earnings Related to Financial Assets Still Held at the Reporting Date		$	(2,162	)		$	(1,898	)		$	135			$	(3,925	)		$	146			$	5,353			$	(49	)		$	5,450

		Level III Financial Assets at Fair Value
		Six Months Ended June 30,
		2019																2018
		Investments																Investments
		of				Loans				Other								of				Loans				Other
		Consolidated				and				Investments								Consolidated				and				Investments
		Funds				Receivables				(a)				Total				Funds				Receivables				(a)				Total
Balance, Beginning of Period		$	1,364,016			$	304,173			$	56,185			$	1,724,374			$	1,029,371			$	239,659			$	119,642			$	1,388,672
Transfer In Due to Consolidation and Acquisition			—				—				—				—				50,043				—								50,043
Transfer Out Due to Deconsolidation			—				—				—				—				(217,182	)			—				—				(217,182	)
Transfer In to Level III (b)			106,644				—				12,935				119,579				180,401				—				—				180,401
Transfer Out of Level III (b)			(400,402	)			—				(27,170	)			(427,572	)			(141,104	)			—				(15,717	)			(156,821	)
Purchases			179,305				270,772				12,820				462,897				408,823				370,921				19,812				799,556
Sales			(145,097	)			(383,816	)			(6,141	)			(535,054	)			(260,865	)			(263,703	)			(23,479	)			(548,047	)
Settlements			—				(10,189	)			—				(10,189	)			—				(9,317	)			(4	)			(9,321	)
Changes in Gains Included in Earnings			35,630				6,891				423				42,944				37,237				9,043				14,469				60,749
Balance, End of Period		$	1,140,096			$	187,831			$	49,052			$	1,376,979			$	1,086,724			$	346,603			$	114,723			$	1,548,050
Changes in Unrealized Gains (Losses) Included in Earnings Related to Financial Assets Still Held at the Reporting Date		$	25,821			$	(2,657	)		$	315			$	23,479			$	19,265			$	9,044			$	(289	)		$	28,020

(a) Represents corporate treasury investments 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.

There were no Level III financial liabilities as of and for the three and six months ended June 30, 2019 and 2018.

X

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References

Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 820
-URI http://asc.fasb.org/topic&trid=2155941

+ Details

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