News Column

BLACKSTONE GROUP L.P. - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

August 8, 2014

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. We also provide a wide range of financial advisory services, including financial advisory, restructuring and reorganization advisory and fund placement services.



Our business is organized into five business segments:

Private Equity. We are a world leader in private equity investing, having

managed six general private equity funds, as well as two 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. We also manage the Blackstone Tactical

Opportunities Accounts ("Tactical Opportunities"), which are multi-asset

class investment accounts, and Strategic Partners Fund Solutions ("Strategic Partners"), a secondary private fund of funds business acquired on August 5, 2013. Through our private equity funds we pursue



transactions throughout the world, including leveraged buyout acquisitions

of seasoned companies, transactions involving growth equity or start-up

businesses in established industries, minority investments, corporate

partnerships, distressed debt, structured securities and industry consolidations, in all cases in strictly friendly transactions.



Real Estate. We are a world leader in real estate investing since

launching our first real estate fund in 1994. We have managed or continue

to manage a number of global, European and Asian focused opportunistic

real estate funds, several real estate debt investment funds, core plus

real estate investments and a publicly traded real estate investment trust

("REIT") ("BXMT"). Our real estate opportunity funds are diversified

geographically and have made significant investments in lodging, major

urban office buildings, shopping centers, residential and a variety of

real estate operating companies. Our debt investment funds target high

yield real estate debt related investment opportunities in the public and

private markets, primarily in the United States and Europe. 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. 64



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Hedge Fund Solutions. Blackstone's Hedge Fund Solutions segment is

comprised principally of Blackstone Alternative Asset Management ("BAAM").

BAAM was organized in 1990 and has developed into a leading institutional

solutions provider utilizing hedge funds across a wide variety of strategies. BAAM is the world's largest discretionary allocator to hedge funds.



Credit. Our Credit segment is comprised principally of GSO Capital

Partners LP ("GSO"), a global leader in managing credit-focused products

within private debt and public market strategies. GSO's products include

senior credit-focused funds, distressed debt funds, mezzanine funds,

general credit-focused funds, registered investment companies, separately

managed accounts and collateralized loan obligation ("CLO") vehicles.

Financial Advisory. Our Financial Advisory segment serves a diverse and

global group of clients with financial and strategic advisory services,

restructuring and reorganization advisory services, capital markets services and fund placement services for alternative investment funds. 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 financial and strategic advisory, restructuring and reorganization advisory, capital markets services and fund placement services for alternative investment funds. 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.

World equity and debt markets rose in the second quarter, fueled by sustained accommodative monetary policy as well as improving economic data, particularly in developed economies. Heightened levels of geopolitical uncertainty did not dissuade investors as sentiment improved and volatility declined. The MSCI All Country Index rose 4.2% in the quarter, with positive performance across both developed and developing market indices. In the U.S., the S&P 500 was up 4.7%, reaching record nominal levels, driven by the improving economic outlook, declining unemployment and rising housing prices. Market appreciation and investor risk appetite kept capital markets activity at sustained high levels, including both equity and debt issuance. M&A activity also significantly improved in the quarter. Credit indices also rose in the second quarter, with the high yield index up 2.4% and the leveraged loan index up 1.5%. Benchmark rates declined, with the U.S. 10-year Treasury down 20 basis points to 2.5%, and high yield spreads and yields tightened slightly. Issuance volumes climbed dramatically in the quarter. Real estate operating fundamentals continue to improve, driven by a lack of new supply and growth in demand. In the U.S., overall vacancy levels have declined 70 basis points to 14.5% and 20 basis points to 10.3% within the office and retail sectors, respectively compared to the second quarter of 2013. In the U.S. hospitality sector, new construction remains significantly below historical levels and supply/demand fundamentals continue to support RevPAR ("Revenue per Available Room") growth of 8.2% for the quarter. On a national level, home prices have increased 9.3% over the past twelve months through May 2014. 65



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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. [[Image Removed: LOGO]]



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" and "Part I. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies - Revenue Recognition" in our 2013 Annual Report on Form 10-K 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.

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. 66



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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 ("management fee reductions") by an amount equal to a portion of the transaction and other fees directly paid to the Partnership by the portfolio companies. 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 our limited partners, which are granted based on the amount they reimburse Blackstone for placement fees. Advisory fees consist of advisory retainer and transaction-based fee arrangements related to financial and strategic advisory services, restructuring and reorganization advisory services, capital markets services and fund placement services for alternative investment funds. 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. Fund placement fees are recognized as earned upon the acceptance by a fund of capital or capital commitments. 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 67



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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 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. Equity-based awards that do not require future service are expensed immediately. 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 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 68



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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 and certain other credit-focused funds are subject to annual, semi-annual or quarterly redemption by investors in these funds following the expiration of a specified period of time (typically between one and three years), or may be withdrawn subject to a redemption fee in the funds of hedge funds and certain credit-focused funds 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. 69



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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) 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. The most recent legislative proposals 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 proposed to Congress similar changes 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. In its published revenue proposals for 2015, as well as for prior years, the Obama administration proposed similar changes. Earlier this year, Representative Dave Camp, Chairman of the House Ways and Means Committee, released a discussion draft of proposed legislation that would introduce major changes to the U.S. federal income tax system (the "2014 Camp Proposal"). It would, among other things (a) generally treat publicly traded partnerships (other than those deriving 90 percent of their income from activities relating to mining and natural resources) as taxable corporations for tax years beginning after 2016 and (b) recharacterize a portion of capital gain from certain partnership interests held in connection with the performance of services as ordinary income for tax years beginning after 2014. States and other jurisdictions have also considered legislation to increase taxes with respect to Carried Interest. For example, in 2010, the New York State Assembly passed a bill, 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. This legislation would have been retroactive to January 1, 2010. It is unclear whether or when similar legislation will be enacted. Finally, several state and local jurisdictions are evaluating 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. 70



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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, many of 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. 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, 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 proposals for reform if enacted 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. The 2014 Camp Proposal, in addition to the proposed changes discussed above relating to publicly traded partnerships and carried interest, includes proposed provisions for 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%. The 2014 Camp Proposal includes numerous revenue raisers to offset the reduction in the tax rate and base which may or may not be detrimental to us, including changes to the rules for depreciating or amortizing assets, including goodwill, and changes to rules affecting real estate investment trusts, partnerships and tax-exempt entities. Senator Baucus recently proposed 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. The Baucus proposal would also eliminate the withholding tax exemption on portfolio interest debt obligations for investors residing in non-treaty jurisdictions. Whether these proposals will be enacted by the government and in what form is unknown, as are the ultimate consequences of the proposed legislation.



Economic Income

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 five segments. EI represents segment net income before taxes excluding transaction-related charges. Transaction-related charges 71



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arise from Blackstone's initial public offering ("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 we manage. Economic Net Income ("ENI") represents EI adjusted to include current period taxes. Taxes represent the current tax provision (benefit) calculated on Income (Loss) Before Provision for Taxes. EI, our principal segment measure, is derived from and reconciled to, but not equivalent to, its most directly comparable GAAP measure of Income (Loss) Before Provision for Taxes. (See Note 18. "Segment Reporting" in the "Notes to Condensed Consolidated Financial Statements" in Part I. Item 1. Financial Statements.)



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 performance fee compensation costs, (b) income earned from Blackstone's investments in the Blackstone Funds, and (c) realized and unrealized gains (losses) from other investments except for such gains (losses) from Blackstone's Treasury Cash Management Strategies. 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, investment income from Blackstone's Treasury Cash Management Strategies and interest income, 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) other operating expenses. See "- Liquidity and Capital Resources - Sources of Liquidity" below for our discussion of Fee Related Earnings.



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 accounting principles generally accepted in the United States of America (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 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. 72



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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." [[Image Removed: LOGO]] 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. 73



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Assets Under Management. 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 collateralized

debt obligations ("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), in most cases upon advance written notice, with the majority of our funds requiring from 60 days up to 95 days' notice, depending on the fund and the liquidity profile of the underlying assets. Investment advisory agreements related to separately managed accounts may generally be terminated by an investor on 30 to 90 days' notice. 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) 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 or fair value of assets 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 and CDOs, and (h) the gross amount of assets (including leverage) 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 74



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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. 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, 2014 and 2013. For a more detailed discussion of the factors that affected the results of our five business segments (which are presented on a basis that deconsolidates the investment funds we manage) in these periods, see "- Segment Analysis" below.

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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, 2014 and 2013: Three Months Ended Six Months Ended June 30, 2014 vs. 2013 June 30, 2014 vs. 2013 2014 2013 $ % 2014 2013 $ % (Dollars in Thousands)



Revenues

Management and Advisory Fees, Net $ 619,523$ 578,723$ 40,800 7 % $ 1,192,683$ 1,060,856$ 131,827 12 % Performance Fees Realized Carried Interest 641,659 183,288 458,371 250 % 975,282 477,458 497,824 104 % Incentive Fees 39,504 76,104 (36,600 ) -48 % 83,298 99,845 (16,547 ) -17 % Unrealized Carried Interest 660,682 456,706 203,976 45 % 991,076 634,053 357,023 56 % Incentive Fees 54,639 938 53,701 N/M 118,872 106,736 12,136 11 % Total Performance Fees 1,396,484 717,036 679,448 95 % 2,168,528 1,318,092 850,436 65 % Investment Income Realized 215,710 75,490 140,220 186 % 368,736 117,843 250,893 213 % Unrealized 10,809 56,570 (45,761 ) -81 % 24,309 162,800 (138,491 ) -85 % Total Investment Income 226,519 132,060 94,459 72 % 393,045 280,643 112,402 40 % Interest and Dividend Revenue 15,340 13,814 1,526 11 % 29,409 26,371 3,038 12 % Other (6 ) (1,163 ) 1,157 99 % 863 981 (118 ) -12 % Total Revenues 2,257,860 1,440,470 817,390 57 % 3,784,528 2,686,943 1,097,585 41 % Expenses



Compensation and Benefits Compensation 500,641 478,981

21,660 5 % 985,992 930,411 55,581 6 % Performance Fee Compensation Realized Carried Interest 260,301 75,910 184,391 243 % 409,699 165,347 244,352 148 % Incentive Fees 18,509 35,014 (16,505 ) -47 % 42,144 45,522 (3,378 ) -7 % Unrealized Carried Interest 114,296 172,824 (58,528 ) -34 % 155,026 268,296 (113,270 ) -42 % Incentive Fees 24,692 3,084 21,608 701 % 48,223 47,562 661 1 % Total Compensation and Benefits 918,439 765,813



152,626 20 % 1,641,084 1,457,138 183,946

13 % General, Administrative and Other 136,492 117,365 19,127 16 % 272,046 226,671 45,375 20 % Interest Expense 29,847 26,956 2,891 11 % 54,514 54,018 496 1 % Fund Expenses 5,003 4,628 375 8 % 9,988 12,036 (2,048 ) -17 % Total Expenses 1,089,781 914,762 175,019 19 % 1,977,632 1,749,863 227,769 13 % Other Income Net Gains from Fund Investment Activities 138,585 40,966



97,619 238 % 208,740 108,176 100,564

93 %

Income Before Provision for Taxes 1,306,664 566,674 739,990 131 % 2,015,636 1,045,256 970,380 93 % Provision for Taxes 83,282 56,082 27,200 49 % 137,379 107,075 30,304 28 % Net Income 1,223,382 510,592 712,790 140 % 1,878,257 938,181 940,076 100 % Net Income Attributable to Redeemable Non-Controlling Interests in Consolidated Entities 22,486 22,366 120 1 % 68,278 84,682 (16,404 ) -19 % Net Income Attributable to Non-Controlling Interests in Consolidated Entities 140,061 27,944



112,117 401 % 184,022 18,492 165,530

895 % Net Income Attributable to Non-Controlling Interests in Blackstone Holdings 543,819 249,134



294,685 118 % 843,324 456,224 387,100

85 %

Net Income Attributable to The Blackstone Group L.P. $ 517,016$ 211,148$ 305,868 145 % $ 782,633$ 378,783$ 403,850 107 % N/M Not meaningful. 76



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Revenues

Total Revenues were $2.3 billion for the three months ended June 30, 2014, an increase of $817.4 million compared to Total Revenues for the three months ended June 30, 2013 of $1.4 billion. The increase in revenues was primarily attributable to increases in Performance Fees, Investment Income and Management and Advisory Fees, Net of $679.4 million, $94.5 million and $40.8 million, respectively. The increase in Performance Fees was primarily attributable to increases in our Private Equity and Real Estate segments of $527.8 million and $137.6 million, respectively. The increase in our Private Equity segment was principally driven by BCP V, which generated a net return of 9% and crossed the preferred return threshold. The performance of the corporate private equity funds was mainly driven by our public holdings, led by the initial public offering of Michaels Stores and strong appreciation of our already public holdings of Pinnacle Foods, Hilton and Cheniere. Our private portfolio also demonstrated strong performance in the healthcare and energy sectors. The increase in our Real Estate segment was principally due to the increase in the net appreciation of investments from our BREP carry funds. For the three months ended June 30, 2014, the carrying value of assets for Blackstone's contributed Real Estate funds, including fee-paying co-investments, increased 6.0% driven by appreciation in the private portfolio of 6.7% or $1.9 billion from improving fundamentals and public portfolio appreciation of 4.8% or $1.0 billion. Our BREDS drawdown and real estate hedge funds appreciated 2.9% and 2.6%, respectively. The increase in Investment Income was primarily due to increases in our Private Equity and Real Estate segments of $49.8 million and $23.0 million, respectively. The increase in our Private Equity segment was principally driven by performance across all our funds, as a result of the strong returns in our public holdings described above as well as from our private investments in the healthcare and energy sectors. The increase in our Real Estate segment was principally due to the year over year net increase in the appreciation of investments across our global Real Estate funds. The increase in Management and Advisory Fees, Net was due to increases in our Hedge Fund Solutions and Real Estate segments of $22.1 million and $14.0 million, respectively. The increase in our Hedge Fund Solutions segment was principally due to a 22% increase in Fee-Earning Assets Under Management from the prior year. The increase in our Real Estate segment was principally due to fees generated from fundraising within BREP Europe IV and our first Asia fund, partially offset by a decrease due to the expiration of BREP V. Total Revenues were $3.8 billion for the six months ended June 30, 2014, an increase of $1.1 billion compared to Total Revenues for the six months ended June 30, 2013 of $2.7 billion. The increase in revenues was primarily attributable to increases of $850.4 million in Performance Fees, $131.8 million in Management and Advisory Fees, Net and $112.4 million in Investment Income. The increase in Performance Fees was primarily attributable to increases in our Private Equity and Real Estate segments of $758.7 million and $120.9 million, respectively. The increase in our Private Equity segment was principally driven by appreciation of all corporate private equity funds during the period, mainly BCP V and BCP VI, which generated respective net returns of 14% and 19% for the six months ended June 30, 2014. BCP V crossed its preferred return threshold and is now fully generating performance fees. The performance of the funds was a result of the strong performance of our private holdings in the healthcare, services and energy sectors as well as appreciation of our public portfolio, including the initial public offering of Michaels Stores. The increase in our Real Estate segment was principally due to an increase in the net appreciation of investments from our BREP carry funds. For the six months ended June 30, 2014, the carrying value of assets for Blackstone's contributed Real Estate funds, including fee-paying co-investments, increased 9.7% driven by appreciation in the private portfolio from improving fundamentals and public portfolio appreciation. Our BREDS drawdown and real estate hedge funds appreciated 5.4% and 6.1%, respectively. The increase in Management and Advisory Fees, Net was principally due to increases in our Hedge Fund Solutions, Real Estate and Private Equity segments of $41.7 million, $37.5 million and $33.1 million, respectively. The increase in our Hedge Fund Solutions segment was principally due to a 22% increase in Fee-Earning Assets Under Management from the prior year. The increase in our Real Estate segment was principally due to fees 77



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generated from fundraising within BREP Europe IV and our first Asia fund, partially offset by a decrease due to the expiration of BREP V. The increase in our Private Equity segment was principally due to the addition of the Strategic Partners secondary private fund of funds business that closed during 2013 as well as the increase in funds raised for our Tactical Opportunities investment vehicles. The increase in Investment Income was primarily attributable to increases in our Private Equity and Hedge Fund Solutions segments of $45.4 million and $18.3 million, respectively. The increase in our Private Equity segment was principally due to performance across all our funds, as a result of the strong returns in our public holdings as well as from our private investments in the healthcare, services and energy sectors. The increase in our Hedge Fund Solutions segment was principally due to the year over year increase in the net appreciation of investments of which Blackstone owns a share.



Expenses

Expenses were $1.1 billion for the three months ended June 30, 2014, an increase of $175.0 million compared to $914.8 million for the three months ended June 30, 2013. The increase was primarily attributable to an increase of $152.6 million in Total Compensation and Benefits, which was comprised of an increase in Performance Fee Compensation of $131.0 million due to the increase in Performance Fees Revenue and an increase of $21.7 million in Compensation due to an increase in headcount to support the growth of the business and overall increase in revenue, on which a portion of compensation is based. Expenses were $2.0 billion for the six months ended June 30, 2014, an increase of $227.8 million compared to $1.7 billion for the six months ended June 30, 2013. The increase was primarily attributable to increases in Total Compensation and Benefits of $183.9 million and General, Administrative and Other of $45.4 million. The increase in Total Compensation and Benefits was comprised of a $128.4 million increase in Performance Fee Compensation due to the increase in Performance Fees Revenue and a $55.6 million increase in Compensation due to an increase in headcount to support the growth of the business and overall increase in revenue, on which a portion of compensation is based. General, Administrative and Other expenses were $272.0 million for the six months ended June 30, 2014, an increase of $45.4 million, driven primarily by a non-recurring placement fee expense in our Credit segment and overall increases in business development and professional expenses. Other Income (Loss) Other Income (Loss) - Net Gains (Losses) from Fund Investment Activities is attributable to the consolidated Blackstone Funds which 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. Other Income - Net Gains from Fund Investment Activities was $138.6 million for the three months ended June 30, 2014, an increase of $97.6 million compared to $41.0 million for the three months ended June 30, 2013. The change was principally driven by an increase in the income related to investments in our consolidated CLO vehicles. Other Income - Net Gains from Fund Investment Activities was $208.7 million for the six months ended June 30, 2014, an increase of $100.6 million compared to $108.2 million for the six months ended June 30, 2013. The change was principally driven by an increase in the income related to investments in our consolidated CLO vehicles. Provision for Taxes Blackstone's Provision for Taxes for the three months ended June 30, 2014 and 2013 was $83.3 million and $56.1 million, respectively. This resulted in an effective tax rate of 6.4% and 9.9%, respectively, based on our Income Before Provision for Taxes of $1.3 billion and $566.7 million, respectively. The principal factor that contributed to the 3.5% decrease in the effective tax rate for the three months ended June 30, 2014 compared to the 78



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three months ended June 30, 2013 was pre-tax income of $1.1 billion and $429.7 million for three months ended June 30, 2014 and three months ended June 30, 2013, respectively, that was passed through to common unit holders and non-controlling interest holders and was not taxable to the Partnership and its subsidiaries. The change in these amounts resulted in a 2.9% decrease in the effective tax rate between the respective three month periods. Blackstone's Provision for Taxes for the six months ended June 30, 2014 and 2013 was $137.4 million and $107.1 million, respectively. This resulted in an effective tax rate of 6.8% and 10.2%, respectively, based on our Income Before Provision for Taxes of $2.0 billion and $1.0 billion, respectively. The principal factor that contributed to the 3.4% decrease in the effective tax rate for the six months ended June 30, 2014 compared to the six months ended June 30, 2013 was pre-tax income of $1.7 billion and $773.6 million for the six months ended June 30, 2014 and the six months ended June 30, 2013, respectively, that was passed through to common unit holders and non-controlling interest holders and was not taxable to the Partnership and its subsidiaries. The change in these amounts resulted in a 3.0% decrease in the effective tax rate between the respective six month periods.



Non-Controlling Interests in Consolidated Entities

The Net Income Attributable to Redeemable Non-Controlling Interests in Consolidated Entities and Net Income (Loss) Attributable to Non-Controlling Interests in Consolidated Entities are 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 (Loss) - Net Gains (Losses) 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 (Losses) from Fund Investment Activities, 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, 2014 and 2013, the net income before taxes allocated to Blackstone Holdings was 47.9% and 49.5%, respectively. For the six months ended June 30, 2014 and 2013, the net income before taxes allocated to Blackstone Holdings was 48.2% and 49.6%, respectively. The decreases of 1.6% and 1.4%, respectively, were primarily due to conversions of Blackstone Holdings Partnership Units to Blackstone common units and the vesting of common units. 79



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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, 2014 and 2013. 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": [[Image Removed: LOGO]] Note: Totals in graph may not add due to rounding. 80



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Table of Contents Three Months Ended June 30, 2014 June 30, 2013 Private Hedge Fund Private Hedge Fund Equity Real Estate Solutions Credit Total Equity Real Estate Solutions Credit Total (Dollars in Thousands) Fee-Earning Assets Under Management Balance, Beginning of Period $ 41,150,728 $



53,490,834 $ 55,571,357$ 53,386,685$ 203,599,604$ 36,785,770$ 42,140,507$ 45,585,454$ 46,437,616$ 170,949,347 Inflows, including Commitments (a)

3,459,413



2,386,903 3,441,992 5,308,628 14,596,936 805,104 2,814,991 2,712,762 4,635,166 10,968,023 Outflows, including Distributions (b)

(601,787 ) (67,501 ) (1,990,723 ) (831,330 ) (3,491,341 ) - (104,147 ) (1,106,213 ) (367,514 ) (1,577,874 ) Realizations (c) (1,383,552 )



(2,971,203 ) (8,704 ) (2,085,949 ) (6,449,408 ) (950,299 ) (1,255,384 ) (21,889 ) (2,550,021 ) (4,777,593 )

Net Inflows (Outflows) 1,474,074



(651,801 ) 1,442,565 2,391,349 4,656,187 (145,195 ) 1,455,460 1,584,660 1,717,631 4,612,556 Market Appreciation (Depreciation) (d)

263,954 (15,058 ) 1,070,098 338,975 1,657,969 (5,351 ) 39,526 402,351 340,518 777,044 Balance, End of Period (e) $ 42,888,756$ 52,823,975$ 58,084,020$ 56,117,009$ 209,913,760$ 36,635,224$ 43,635,493$ 47,572,465$ 48,495,765$ 176,338,947 Increase (Decrease) $ 1,738,028$ (666,859 )$ 2,512,663$ 2,730,324$ 6,314,156$ (150,546 )$ 1,494,986$ 1,987,011$ 2,058,149$ 5,389,600 Increase (Decrease) 4 % -1 % 5 % 5 % 3 % -0 % 4 % 4 % 4 % 3 % Six Months Ended June 30, 2014 June 30, 2013 Private Hedge Fund Private Hedge Fund Equity Real Estate Solutions Credit Total Equity Real Estate Solutions Credit Total (Dollars in Thousands) Fee-Earning Assets Under Management Balance, Beginning of Period $ 42,600,515 $



50,792,803 $ 52,865,837$ 51,722,584$ 197,981,739$ 37,050,167$ 41,931,339$ 43,478,791$ 45,420,143$ 167,880,440 Inflows, including Commitments (a)

3,842,118



5,693,677 5,809,622 9,138,826 24,484,243 1,275,239 3,567,325 3,921,677 8,537,997 17,302,238 Outflows, including Distributions (b)

(944,249 )



(158,841 ) (2,598,345 ) (1,702,132 ) (5,403,567 )

- (112,205 ) (1,382,621 ) (853,979 ) (2,348,805 ) Realizations (c) (2,962,624 ) (3,543,966 ) (196,268 ) (3,734,220 ) (10,437,078 ) (1,670,254 ) (1,663,616 ) (69,822 ) (5,065,477 ) (8,469,169 ) Net Inflows (Outflows) (64,755 )



1,990,870 3,015,009 3,702,474 8,643,598 (395,015 ) 1,791,504 2,469,234 2,618,541 6,484,264 Market Appreciation (Depreciation) (d)

352,996 40,302 2,203,174 691,951 3,288,423 (19,928 ) (87,350 ) 1,624,440 457,081 1,974,243 Balance, End of Period (e) $ 42,888,756$ 52,823,975$ 58,084,020$ 56,117,009$ 209,913,760$ 36,635,224$ 43,635,493$ 47,572,465$ 48,495,765$ 176,338,947 Increase (Decrease) $ 288,241$ 2,031,172$ 5,218,183$ 4,394,425$ 11,932,021$ (414,943 )$ 1,704,154$ 4,093,674$ 3,075,622$ 8,458,507 Increase (Decrease) 1 % 4 % 10 % 8 % 6 % -1 % 4 % 9 % 7 % 5 % 81



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Table of Contents Three Months Ended June 30, 2014 June 30, 2013 Private Hedge Fund Private Hedge Fund Equity Real Estate Solutions Credit Total Equity Real Estate Solutions Credit Total (Dollars in Thousands) Total Assets Under Management Balance, Beginning of Period $ 66,142,945 $



81,333,562 $ 58,262,659$ 66,006,417$ 271,745,583$ 52,491,811$ 59,475,215$ 48,187,865$ 58,055,781$ 218,210,672 Inflows, including Commitments (a)

2,736,511



2,477,644 3,307,591 6,015,825 14,537,571 525,205 4,505,181 2,643,905 6,487,480 14,161,771 Outflows, including Distributions (b)

(344,443 )



(97,213 ) (1,998,947 ) (886,908 ) (3,327,511 ) (24,073 ) (521,298 ) (1,123,255 ) (327,099 ) (1,995,725 ) Realizations (c)

(4,165,727 )



(6,926,958 ) (11,125 ) (2,277,052 ) (13,380,862 ) (1,648,070 ) (2,243,117 ) (28,551 ) (2,705,454 ) (6,625,192 )

Net Inflows (Outflows) (1,773,659 )



(4,546,527 ) 1,297,519 2,851,865 (2,170,802 ) (1,146,938 ) 1,740,766 1,492,099 3,454,927 5,540,854 Market Appreciation (d)

3,924,876 3,623,953 1,112,581 681,522 9,342,932 1,942,421 2,703,925 448,064 725,805



5,820,215

Balance, End of Period (e) $ 68,294,162$ 80,410,988$ 60,672,759$ 69,539,804$ 278,917,713$ 53,287,294$ 63,919,906$ 50,128,028$ 62,236,513$ 229,571,741 Increase (Decrease) $ 2,151,217$ (922,574 )$ 2,410,100$ 3,533,387$ 7,172,130$ 795,483$ 4,444,691$ 1,940,163$ 4,180,732$ 11,361,069 Increase (Decrease) 3 % -1 % 4 % 5 % 3 % 2 % 7 % 4 % 7 % 5 % Six Months Ended June 30, 2014 June 30, 2013 Private Hedge Fund Private Hedge Fund Equity Real Estate Solutions Credit Total Equity Real Estate Solutions Credit Total (Dollars in Thousands) Total Assets Under Management Balance, Beginning of Period $ 65,675,031 $



79,410,788 $ 55,657,463$ 65,014,348$ 265,757,630$ 51,002,973$ 56,695,645$ 46,092,505$ 56,428,837$ 210,219,960 Inflows, including Commitments (a)

4,842,175



4,884,446 5,594,601 9,411,726 24,732,948 1,507,839 6,022,407 3,859,236 11,244,524 22,634,006 Outflows, including Distributions (b)

(512,241 ) (677,113 ) (2,611,206 ) (1,788,580 ) (5,589,140 ) (409,411 ) (577,026 ) (1,482,325 ) (937,922 ) (3,406,684 ) Realizations (c) (8,847,962 ) (8,973,223 ) (287,013 ) (4,548,850 ) (22,657,048 ) (3,609,309 ) (3,265,222 ) (91,120 ) (5,754,514 ) (12,720,165 ) Net Inflows (Outflows) (4,518,028 )



(4,765,890 ) 2,696,382 3,074,296 (3,513,240 ) (2,510,881 ) 2,180,159 2,285,791 4,552,088 6,507,157 Market Appreciation (d)

7,137,159



5,766,090 2,318,914 1,451,160 16,673,323 4,795,202 5,044,102 1,749,732 1,255,588 12,844,624

Balance, End of Period (e) $ 68,294,162$ 80,410,988$ 60,672,759$ 69,539,804$ 278,917,713$ 53,287,294$ 63,919,906$ 50,128,028$ 62,236,513$ 229,571,741 Increase $ 2,619,131$ 1,000,200$ 5,015,296$ 4,525,456$ 13,160,083$ 2,284,321$ 7,224,261$ 4,035,523$ 5,807,676$ 19,351,781 Increase 4 % 1 % 9 % 7 % 5 % 4 % 13 % 9 % 10 % 9 %



(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). Also included is the

distribution of funds associated with the discontinuation of our proprietary

single manager hedge funds.

(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, 2014 included $295.1 million and $349.8 million, respectively, from

a joint venture in which we are the minority interest holder. 82



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Fee-Earning Assets Under Management

Fee-Earning Assets Under Management were $209.9 billion at June 30, 2014, an increase of $6.3 billion, or 3%, compared to $203.6 billion at March 31, 2014. The net increase was due to: Inflows of $14.6 billion related to: $5.3 billion in our Credit segment principally related to $1.9 billion raised due to three CLO launches, $1.4 billion of capital



raised for

our business development companies ("BDCs") and $786.5 million raised in our Hedge Fund Strategies funds, $3.5 billion in our Private Equity segment primarily due to the commencement of the investment period of Strategic Partners'



sixth

secondary fund of funds with $3.1 billion of third party



capital, and

to a lesser extent, the inclusion of additional fee generating assets for our Tactical Opportunities investment vehicles, $3.4 billion in our Hedge Fund Solutions segment related to $1.3 billion in specialized solutions, $1.1 billion in



customized

solutions, $561.0 million in commingled products and $463.7



million in

individual investor solutions, and $2.4 billion in our Real Estate segment primarily related to $1.0 billion raised for our Asia fund, $1.0 billion raised and/or invested across our BREDS funds and $226.3 million raised for our Core+ funds. Market appreciation of $1.7 billion primarily due to: $1.1 billion in our Hedge Fund Solutions segment due to BAAM's Principal Solutions Composite being up 1.8% net, and $339.0 million in our Credit segment due to $153.7 million of appreciation in the Hedge Fund Strategies funds and $180.9 million of appreciation in the long-only platform.



Offsetting these increases were:

Realizations of $6.4 billion primarily driven by: $3.0 billion in our Real Estate segment primarily from the partial sale of public market holdings (Hilton and Brixmor), $2.1 billion in our Credit segment primarily due to $1.7 billion of capital returned to CLO investors from CLOs that are post their re-investment periods and $337.6 million returned across our significant Mezzanine and Rescue Lending funds, and $1.4 billion in our Private Equity segment primarily from our BCP V fund, including two strategic sales and four partial public market dispositions (Hilton, PBF Energy, SeaWorld Parks &



Entertainment

("SeaWorld") and Nielsen). Outflows of $3.5 billion primarily attributable to:



$2.0 billion in our Hedge Fund Solutions segment reflecting seasonally

higher activity in the commingled funds, $831.3 million in our Credit segment primarily from our BDCs and commingled funds, $601.8 million in our Private Equity segment due to the end of Strategic Partners V's investment period.



BAAM had net inflows of $2.7 billion from July 1 through August 1, 2014.

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Fee-Earning Assets Under Management were $209.9 billion at June 30, 2014, an increase of $11.9 billion, or 6%, compared to $198.0 billion at December 31, 2013. The net increase was due to: Inflows of $24.5 billion related to: $9.1 billion in our Credit segment principally related to $2.7 billion raised due to four CLO launches, $2.2 billion of capital



raised for

our BDCs, $1.9 billion raised in our Hedge Fund Strategies



funds and

$906.2 million deployed in our carry funds, $5.8 billion in our Hedge Fund Solutions segment mainly related to

additional closings on the general partner interests vehicle, growth in its co-investment platform and customized products and the launch of BAAM's second alternative investment-focused mutual fund, $5.7 billion in our Real Estate segment primarily related to $1.3 billion raised for BREP Europe IV, $1.9 billion raised and/or invested across our BREDS funds and $1.2 billion raised for our first Asian fund, and $3.8 billion in our Private Equity segment primarily due to the commencement of the investment period of Strategic Partners' sixth secondary fund of funds with $3.1 billion of third party



capital and

the inclusion of additional fee generating assets for our Tactical Opportunities investment vehicles. Market appreciation of $3.3 billion primarily due to: $2.2 billion in our Hedge Fund Solutions segment due to BAAM's Principal Solutions Composite being up 3.6% net, and $692.0 million in our Credit segment due to appreciation in the Hedge Fund Strategies funds and BDCs.



Offsetting these increases were:

Realizations of $10.4 billion primarily driven by: $3.7 billion in our Credit segment primarily due to $2.8 billion of capital returned to CLO investors from CLOs that are post their re-investment periods and $764.8 million returned across our significant Mezzanine and Rescue Lending funds, $3.5 billion in our Real Estate segment primarily from sales of office assets in BREP and the partial sale of public market holdings (Hilton and Brixmor), and



$3.0 billion in our Private Equity segment that were primarily from

our BCP V fund, including several public market dispositions and strategic sales. Outflows of $5.4 billion primarily attributable to: $2.6 billion in our Hedge Fund Solutions segment as a result of, in general, the liquidity needs of limited partners, $1.7 billion in our Credit segment primarily from our BDCs and separately managed accounts, and $944.2 million in our Private Equity segment primarily from the end of Strategic Partners V's investment period. Weighted Average Fee-Earning Assets Under Management for our Real Estate segment was $53.2 billion for the three months ended June 30, 2014 and $53.8 billion for the six months ended June 30, 2014. Total Segments Weighted Average Fee-Earning Assets Under Management was $209.3 billion for the three months ended June 30, 2014 and $208.5 billion for the six months ended June 30, 2014. 84



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Total Assets Under Management

Total Assets Under Management were $278.9 billion at June 30, 2014, an increase of $7.2 billion, or 3%, compared to $271.7 billion at March 31, 2014. The net increase was due to: Inflows of $14.5 billion related to: $6.0 billion in our Credit segment primarily due to the same reasons in Fee-Earning Assets Under Management above, $3.3 billion in our Hedge Fund Solutions segment, which primarily related to growth in its customized products, an additional close of the general partner interests vehicle with $2.3 billion in total commitments and the launch of BAAM's second alternative investment-focused mutual fund, $2.7 billion in our Private Equity segment primarily related to $1.7 billion raised for Strategic Partners, and $2.5 billion in our Real Estate segment primarily due to the same reasons in Fee-Earning Assets Under Management above. Market appreciation of $9.3 billion due to: $3.9 billion in our Private Equity segment primarily due to strong fund performance, with an 8.4% overall increase in carrying value, driven by public portfolio appreciation of 7.5% and private portfolio appreciation of 10.4%,

$3.6 billion in our Real Estate segment due to a carrying value increase of 6.0% driven by appreciation in the private



portfolio by

6.7% or $1.9 billion from improving fundamentals, and public



portfolio

appreciation of 4.8% or $1.0 billion, $1.1 billion in our Hedge Fund Solutions segment due to BAAM's Principal Solutions Composite being up 1.8% net, and $681.5 million in our Credit segment due to $246.6 million of appreciation in BDCs, $206.0 million of appreciation in the



Hedge Fund

Strategies funds and $168.7 million of appreciation in the Rescue Lending funds.



Offsetting these increases were:

Realizations of $13.4 billion primarily driven by: $6.9 billion in our Real Estate segment primarily due to the same reasons in Fee-Earning Assets Under Management above, $4.2 billion in our Private Equity segment primarily due to continued disposition activity across the segment, mainly from our BCP V fund, and $2.3 billion in our Credit segment primarily due to the same reasons in Fee-Earning Assets Under Management above. Outflows of $3.3 billion primarily attributable to: $2.0 billion in our Hedge Fund Solutions segment primarily related to the liquidity needs of limited partners, and $886.9 million in our Credit segment primarily due to the same reasons

in Fee-Earning Assets Under Management above. 85



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Total Assets Under Management were $278.9 billion at June 30, 2014, an increase of $13.2 billion, or 5%, compared to $265.8 billion at December 31, 2013. The net increase was due to: Inflows of $24.7 billion related to: $9.4 billion in our Credit segment primarily due to the same reasons in Fee-Earning Assets Under Management above, $5.6 billion in our Hedge Fund Solutions segment primarily due to the same reasons in Fee-Earning Assets Under Management above, $4.9 billion in our Real Estate segment primarily due to $1.4 billion raised for BREP Europe IV, $1.2 billion for our first Asia fund and $1.4 billion raised and/or invested across our BREDS funds, and $4.8 billion in our Private Equity segment primarily related to $2.5 billion raised for Strategic Partners and $510.0 million for our Tactical Opportunities investment vehicles. Market appreciation of $16.7 billion due to: $7.1 billion in our Private Equity segment primarily due to strong fund performance, with a 15.0% overall increase in carrying value, including 15.3% in BCP V and 23.6% in BCP VI,



$5.8 billion in our Real Estate segment due to a carrying value

increase in our BREP funds of 9.7% driven by appreciation in



the

private portfolio (10.6%, $3.2 billion) from improving



fundamentals

and public portfolio appreciation (8.2%, $1.6 billion), $2.3 billion in our Hedge Fund Solutions segment due to BAAM's Principal Solutions Composite being up 3.6% net, and $1.5 billion in our Credit segment due to $900.8 million of appreciation in the Hedge Fund Strategies funds and BDCs and $618.6 million of appreciation in carry funds.



Offsetting these increases were:

Realizations of $22.7 billion primarily driven by: $9.0 billion in our Real Estate segment primarily due to the same reasons in Fee-Earning Assets Under Management above, $8.8 billion in our Private Equity segment primarily due to continued disposition activity across the segment, mainly from our BCP V fund, and $4.5 billion in our Credit segment primarily due to the same reasons in Fee-Earning Assets Under Management above. Outflows of $5.6 billion primarily attributable to: $2.6 billion in our Hedge Fund Solutions segment primarily related to the liquidity needs of limited partners, and $1.8 billion in our Credit segment primarily due to the same reasons in Fee-Earning Assets Under Management above. 86



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Limited Partner Capital Invested

The following presents the limited partner capital invested during the respective periods:

[[Image Removed: LOGO]]



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

Three Months Ended Six Months Ended June 30, 2014 vs. 2013 June 30, 2014 vs. 2013 2013 2014 $ % 2013 2014 $ % (Dollars in Thousands) Limited Partner Capital Invested Private Equity $ 749,290 1,857,330 1,108,040 148 % 1,026,277 3,886,349 2,860,072 279 % Real Estate 2,213,668 3,017,193 803,525 36 % 3,389,443 4,709,425 1,319,982 39 % Hedge Fund Solutions 118,323 188,236 69,913 59 % 174,172 355,406 181,234 104 % Credit 553,123 363,752 (189,371 ) -34 % 828,975 943,858 114,883 14 % Total $ 3,634,404$ 5,426,511$ 1,792,107 49 % $ 5,418,867$ 9,895,038$ 4,476,171 83 % Limited Partner Capital Invested was $5.4 billion for the three months ended June 30, 2014, an increase of $1.8 billion, or 49%, from $3.6 billion for the three months ended June 30, 2013. Limited Partner Capital Invested was $9.9 billion for the six months ended June 30, 2014, an increase of $4.5 billion, or 83%, compared to $5.4 billion for the six months ended June 30, 2013. 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. Our Private Equity segment deployed more capital during the six months ended June 30, 2014 than in the six months ended June 30, 2013 due to the timing of investment closings. Our Real Estate segment deployed capital at a faster rate during the six months ended June 30, 87



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2014 than during the six months ended June 30, 2013. Our Hedge Fund Solutions segment is investing capital based on the relative investment opportunities from the hedge fund manager seeding platform and general partner interests vehicle. In our Credit segment, capital deployed for the six months ended June 30, 2014 was higher compared to the six months ended June 30, 2013 due to greater opportunities to deploy capital.



The following presents the committed undrawn capital available for investment ("dry powder") as of June 30, 2013 and 2014:

[[Image Removed: LOGO]]



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.

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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, 2014 and 2013. 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. June 30, 2014 2013 (Dollars in Millions) Private Equity BCP IV Carried Interest $ 383$ 500 BCP V Carried Interest 558 - BCP VI Carried Interest 233 63 BEP Carried Interest 81 67 Tactical Opportunities Carried Interest 19 3 Strategic Partners V Carried Interest 1 - Total Private Equity (a) 1,275 633 Real Estate BREP IV Carried Interest 2 - BREP V Carried Interest 618 552 BREP VI Carried Interest 1,389 740 BREP VII Carried Interest 459 189 BREP International I Carried Interest 2 2 BREP Europe III Carried Interest 144 105 BREP Europe IV Carried Interest 10 - BREP Asia Carried Interest 9 - Core+ Carried Interest 1 - BREDS Carried Interest 18 22 BREDS Incentive Fees 3 7 Asia Platform Incentive Fees 9 18 Total Real Estate (a) 2,664 1,635 Hedge Fund Solutions Incentive Fees 57 67 Total Hedge Fund Solutions 57 67 Credit Carried Interest 176 129 Incentive Fees 69 65 Total Credit 245 194 Total Blackstone Carried Interest 4,103 2,372 Incentive Fees 138 157 Net Accrued Performance Fees $ 4,241$ 2,529



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

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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: [[Image Removed: LOGO]]



Note: Totals may not add due to rounding. Amounts are as of June 30, 2014.

(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. 90



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The following table presents the investment record of our significant drawdown funds from inception through June 30, 2014:

Unrealized Investments Realized Investments Total Investments Net IRR (c) Committed Available % Fund (Investment Period) Capital 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) 2,137,330 199,298 247,105 1.2x - 2,619,040 1.4x 2,866,145 1.3x 7 % 6 % BCP IV (Nov 2002 / Dec 2005) 6,773,138 228,665 3,876,222 2.0x 61 % 17,565,752 3.1x 21,441,974 2.8x 45 % 37 % BCP V (Dec 2005 / Jan 2011) 21,031,850 1,770,128 19,182,132 1.7x 49 % 13,722,497 1.6x 32,904,629 1.6x 8 % 8 % BCP VI (Jan 2011 / Jan 2017) 15,184,161 8,624,325 8,187,578 1.4x 19 % 1,462,362 1.6x 9,649,940 1.5x 44 % 19 % BEP (Aug 2011 / Aug 2017) 2,422,838 1,234,987 1,826,488 2.0x 37 % 631,832 1.5x 2,458,320 1.8x 45 %



52 %

Total Corporate Private Equity 53,736,920 12,057,403 33,319,525 1.6x 42 % 50,184,728 2.1x 83,504,253 1.9x



20 % 16 %

Tactical Opportunities 5,415,849 3,315,432 2,403,589 1.1x 5 % 171,049 1.1x 2,574,638 1.1x 12 % 16 % Strategic Partners 15,450,456 5,145,840 6,436,636 1.8x N/A 10,305,204 1.3x 16,741,840 1.5x N/A 14 % Other Funds and Co-Invest (d) 1,201,732 28,302 680,613 0.8x 56 % 20,890 1.0x 701,503 0.8x N/M N/M Total Private Equity $ 75,804,957$ 20,546,977$ 42,840,363 1.6x 34 % $ 60,681,871 1.9x $ 103,522,234 1.8x 20 % 16 % 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 - 2,161 0.1x - 3,325,133 2.4x 3,327,294 2.4x 22 % 21 % BREP IV (Apr 2003 / Dec 2005) 2,198,694 - 1,440,888 1.0x 22 % 3,092,653 2.4x 4,533,541 1.7x 66 % 14 % BREP V (Dec 2005 / Feb 2007) 5,539,418 - 7,033,344 1.9x 17 % 4,207,071 2.0x 11,240,415 1.9x 21 % 10 % BREP VI (Feb 2007 / Aug 2011) 11,058,605 614,439 16,870,917 2.1x 54 % 6,791,824 2.2x 23,662,741 2.2x 17 % 14 % BREP VII (Aug 2011 / Feb 2017) 13,440,836 4,817,292 13,274,189 1.5x 3 % 1,874,236 1.6x 15,148,425 1.5x 38



% 28 %

Total Global Real Estate Funds $ 35,480,022$ 5,431,731$ 38,621,499 1.8x 29 % $ 23,495,428 2.2x $ 62,116,927 1.9x 26 % 17 % Euro BREP Int'l (Jan 2001 / Sep 2005) 824,172 - 120,660 1.5x - 1,238,480 2.2x 1,359,140 2.1x 25 % 23 % BREP Int'l II (Sep 2005 / Jun 2008) 1,629,748 50,821 1,400,316 1.2x 37 % 392,885 1.6x 1,793,201 1.3x 10 % 3 % BREP Europe III (Jun 2008 / Dec 2013) 3,204,714 496,937 3,681,634 1.5x 9 % 905,868 2.5x 4,587,502 1.6x 32 % 18 % BREP Europe IV (Sep 2013 / Mar 2019) 5,142,757 3,683,469 1,634,057 1.1x - 115,159 1.2x 1,749,216 1.1x 104 % 15 % Total Euro Real Estate Funds 10,801,391 4,231,227 6,836,667 1.3x 12 % 2,652,392 2.1x 9,489,059 1.4x 24 % 11 % BREP Co-Investment (e) $ 5,160,385 $ - $ 8,049,438 1.9x 70 % $ 2,052,222 2.0x $ 10,101,660 2.0x 14 % 17 % BREP Asia (Jun 2013 / Dec 2017) 4,456,988 3,682,829 972,723 1.2x - 4,400 1.0x 977,123 1.2x N/A 20 % Total Real Estate$ 59,231,111$ 14,872,413$ 56,839,535 1.7x 31 % $ 29,057,652 2.2x $ 85,897,187 1.8x 25 % 17 % Core+ $ 1,407,622$ 233,500$ 1,207,991 1.0x - $ - N/A $ 1,207,991 1.0x N/A N/A BREDS (f) $ 6,760,361$ 2,492,341$ 3,148,411 1.2x - $ 2,828,717 1.3x $ 5,977,128 1.2x 15 % 12 % Credit (g) Mezzanine I (Jul 2007 / Jul 2012) $ 2,000,000$ 139,685$ 1,155,248 1.5x - $ 3,606,207 1.6x $ 4,761,455 1.6x N/A 18 % Mezzanine II (Nov 2011 / Nov 2016) 4,120,000 2,566,976 1,960,785 1.2x - 823,420 1.4x 2,784,205 1.3x N/A 23 % Rescue Lending I (Sep 2009 / May 2013) 3,253,143 492,815 3,527,372 1.5x - 2,417,157 1.4x 5,944,529 1.5x N/A 17 % Rescue Lending II (Jun 2013 / Jun 2018) 5,125,000 4,372,715 832,983 1.1x - 3,795 1.0x 836,778 1.1x N/A N/M Total Credit $ 14,498,143$ 7,572,191$ 7,476,388 1.4x - $ 6,850,579 1.5x $ 14,326,967 1.5x



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

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Table of Contents 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, 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, 2014 IRR on total invested capital based on realized proceeds and

unrealized value, as applicable, after management fees, expenses and Carried

Interest. Net IRRs for BREP Europe IV, BREP Asia and BREDS II are calculated

from commencement of their respective investment periods which, being less

than one year, are not annualized.

(d) Returns for Other Funds and Co-Invest are not meaningful as these funds have

no or little realizations.

(e) 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.

(f) Excludes Capital Trust drawdown funds.

(g) The Total Investments MOIC for Mezzanine I, Mezzanine II, Rescue Lending I

and Rescue Lending II Funds, excluding recycled capital during the investment

period, was 2.0x, 1.6x, 1.7x and 1.1x, respectively. Funds presented

represent the flagship credit drawdown funds only.

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. 92



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Private Equity

The following table presents the results of operations for our Private Equity segment: Three Months Ended Six Months Ended June 30, 2014 vs. 2013 June 30, 2014 vs. 2013 2014 2013 $ % 2014 2013 $ % (Dollars in Thousands) Segment Revenues Management Fees, Net Base Management Fees $ 103,204$ 86,621$ 16,583



19 % $ 201,788$ 172,867$ 28,921 17 % Transaction and Other Fees, Net 27,616 38,348 (10,732 ) -28 % 70,463 62,801 7,662 12 % Management Fee Offsets

(4,246 ) (1,950 ) (2,296



) -118 % (5,959 ) (2,430 ) (3,529 ) -145 %

Total Management Fees, Net 126,574 123,019 3,555 3 % 266,292 233,238 33,054 14 % Performance Fees Realized Carried Interest 212,394 3,899 208,495 N/M 332,199 143,791 188,408 131 % Unrealized Carried Interest 502,210 182,926 319,284 175 % 669,275 98,972 570,303 576 % Total Performance Fees 714,604 186,825 527,779



282 % 1,001,474 242,763 758,711 313 %

Investment Income Realized 74,812 21,586 53,226 247 % 135,347 45,748 89,599 196 % Unrealized 17,662 21,088 (3,426 ) -16 % 8,629 52,799 (44,170 ) -84 % Total Investment Income 92,474 42,674 49,800



117 % 143,976 98,547 45,429 46 % Interest and Dividend Revenue 4,666 3,251 1,415

44 % 9,894 6,235 3,659 59 % Other 564 366 198 54 % 1,428 790 638 81 % Total Revenues 938,882 356,135 582,747 164 % 1,423,064 581,573 841,491 145 % Expenses Compensation and Benefits Compensation 73,038 63,747 9,291 15 % 146,345 123,950 22,395 18 % Performance Fee Compensation Realized Carried Interest 112,720 877 111,843 N/M 198,491 17,123 181,368 N/M Unrealized Carried Interest 66,194 88,111 (21,917 ) -25 % 39,046 104,730 (65,684 ) -63 %



Total Compensation and Benefits 251,952 152,735 99,217

65 % 383,882 245,803 138,079 56 % Other Operating Expenses 39,193 32,178 7,015 22 % 72,199 61,346 10,853 18 % Total Expenses 291,145 184,913 106,232 57 % 456,081 307,149 148,932 48 % Economic Income $ 647,737$ 171,222$ 476,515 278 % $ 966,983$ 274,424$ 692,559 252 % N/M Not meaningful. Revenues Revenues were $938.9 million for the three months ended June 30, 2014, an increase of $582.7 million compared to $356.1 million for the three months ended June 30, 2013. The increase in revenues was primarily attributable to increases in Performance Fees and Investment Income of $527.8 million and $49.8 million, respectively. 93



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Performance Fees, which are determined on a fund by fund basis, were $714.6 million for the three months ended June 30, 2014, an increase of $527.8 million compared to $186.8 million for the three months ended June 30, 2013, driven by BCP V, which generated a net return of 9% and crossed the preferred return threshold. The performance of the corporate private equity funds was mainly driven by our public holdings, led by the initial public offering of Michaels Stores and strong appreciation of our already public holdings of Pinnacle Foods, Hilton and Cheniere. Our private portfolio also demonstrated strong performance from investments in the healthcare and energy sectors. Realized Performance Fees of $212.4 million during the quarter were driven by realizations in several investments including the secondary offerings of Merlin Entertainments, Hilton, PBF Energy, SeaWorld and Nielsen, in addition to the strategic sale of Mivisa. Investment Income was $92.5 million for the three months ended June 30, 2014, an increase of $49.8 million compared to $42.7 million for the three months ended June 30, 2013, driven by performance across all our funds, as a result of the strong returns in our public holdings described above as well as from our private investments in the healthcare and energy sectors. Revenues were $1.4 billion for the six months ended June 30, 2014, an increase of $841.5 million compared to $581.6 million for the six months ended June 30, 2013. The increase in revenues was attributable to increases in Performance Fees, Investment Income and Total Management Fees of $758.7 million, $45.4 million and $33.1 million, respectively. Performance Fees, which are determined on a fund by fund basis, were $1.0 billion for the six months ended June 30, 2014, an increase of $758.7 million, compared to $242.8 million for the six months ended June 30, 2013, as all corporate private equity funds appreciated during the period, mainly BCP V and BCP VI, which generated respective net returns of 14% and 19% for the six months ended June 30, 2014. BCP V crossed its preferred return threshold and is now fully generating performance fees. The performance of the funds was a result of the strong performance of our private holdings in the healthcare, services and energy sectors as well as appreciation of our public portfolio, including the initial public offering of Michaels Stores. Realized Performance Fees of $332.2 million during the six months ended June 30, 2014 were driven by realizations in several investments across our energy portfolio including GeoSouthern, Cheniere, PBF Energy and Royal Resources, alongside other strategic and public exits in the remaining private equity portfolio. Investment Income was $144.0 million for the six months ended June 30, 2014, an increase of $45.4 million, compared to $98.5 million for the six months ended June 30, 2013, driven by performance across all our funds, as a result of the strong returns in our public holdings as well as from our private investments in the healthcare, services and energy sectors. Total Management Fees were $266.3 million for the six months ended June 30, 2014, an increase of $33.1 million compared to $233.2 million for the six months ended June 30, 2013, primarily driven by an increase in Base Management Fees and Transaction and Other Fees. Base Management Fees were $201.8 million for the six months ended June 30, 2014, an increase of $28.9 million compared to $172.9 million for the six months ended June 30, 2013, primarily due to the addition of the Strategic Partners secondary private fund of funds business that closed during 2013 as well as the increase in funds raised for our Tactical Opportunities investment vehicles. Transaction and Other Fees were $70.5 million for the six months ended June 30, 2014, an increase of $7.7 million compared to $62.8 million for the six months ended June 30, 2013, principally as a result of several new portfolio investments that closed during the six months ended June 30, 2014.



Expenses

Expenses were $291.1 million for the three months ended June 30, 2014, an increase of $106.2 million, compared to $184.9 million for the three months ended June 30, 2013. The increase was attributable to increases of $89.9 million in Performance Fee Compensation, $9.3 million in Compensation and $7.0 million in Other Operating Expenses. Performance Fee Compensation increased as a result of the increase in Performance Fees Revenue. 94



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Compensation increased primarily due to the acquisition of Strategic Partners, which occurred in August 2013. Other Operating Expenses increased mainly due to the acquisition of Strategic Partners and interest expense allocated to the segment. Expenses were $456.1 million for the six months ended June 30, 2014, an increase of $148.9 million compared to $307.1 million for the six months ended June 30, 2013. The increase was attributable to increases of $115.7 million in Performance Fee Compensation, $22.4 million in Compensation and $10.9 million in Other Operating Expenses. Performance Fee Compensation increased as a result of the increase in Performance Fees Revenue. Compensation increased primarily due to the acquisition of Strategic Partners as well as an increase in headcount to support the growth of the business. Other Operating Expenses increased mainly due to the acquisition of Strategic Partners and interest expense allocated to the segment. Fund Returns 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 internal rates of return of our significant private equity funds: Three Months Ended Six Months Ended June 30, 2014 June 30, June 30, Inception to Date 2014 2013 (a) 2014 2013 (a) Realized Total Fund (b) Gross Net Gross Net Gross Net Gross Net Gross Net Gross Net BCP IV 1 % 1 % 9 % 8 % 4 % 4 % 6 % 5 % 60 % 45 % 50 % 37 % BCP V 11 % 9 % 5 % 5 % 17 % 14 % 17 % 16 % 11 % 8 % 9 % 8 % BCP VI 10 % 8 % 5 % 3 % 25 % 19 % 10 % 5 % 62 % 44 % 31 % 19 % BEP 16 % 14 % 11 % 10 % 23 % 20 % 40 % 29 % 54 % 45 % 61 % 52 % Tactical Opportunities 7 % 5 % 6 % 4 % 10 % 8 % 10 % 6 % 16 % 12 % 21 % 16 % Strategic Partners 6 % 6 % N/A N/A 10 % 10 % N/A N/A 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 are due to the repayment of fund level

financing with capital drawn down from the respective fund's general and

limited partners.

(b) Net returns are based on the change in carrying value (realized and

unrealized) after management fees, expenses and Carried Interest allocations.

The corporate private equity funds within the Private Equity segment have three contributed funds with closed investment periods: BCP IV, BCP V and BCOM. As of June 30, 2014, 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. 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. 95



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Real Estate

The following table presents the results of operations for our Real Estate segment: Three Months Ended Six Months Ended June 30, 2014 vs. 2013 June 30, 2014 vs. 2013 2014 2013 $ % 2014 2013 $ % (Dollars in Thousands) Segment Revenues Management Fees, Net Base Management Fees $ 157,869$ 137,000$ 20,869 15 % $ 317,205$ 275,346$ 41,859 15 % Transaction and Other Fees, Net 13,514 19,013 (5,499 ) -29 % 27,078 28,153 (1,075 ) -4 % Management Fee Offsets (7,702 ) (6,312 ) (1,390 ) -22 % (16,926 ) (13,598 ) (3,328 ) -24 % Total Management Fees, Net 163,681 149,701 13,980 9 % 327,357 289,901 37,456 13 % Performance Fees Realized Carried Interest 417,826 143,481 274,345 191 % 612,484 212,254 400,230 189 % Incentive Fees 6,070 31,102 (25,032 ) -80 % 6,044 34,194 (28,150 ) -82 % Unrealized Carried Interest 119,461 259,972 (140,511 ) -54 % 259,698 540,048 (280,350 ) -52 % Incentive Fees (3,483 ) (32,279 ) 28,796 89 % (746 ) (29,879 ) 29,133 98 % Total Performance Fees 539,874 402,276 137,598 34 % 877,480 756,617 120,863 16 % Investment Income (Loss) Realized 122,664 18,577 104,087 560 % 154,021 28,111 125,910 448 % Unrealized (50,437 ) 30,636 (81,073 ) N/M (45,058 ) 90,939 (135,997 ) N/M Total Investment Income 72,227 49,213



23,014 47 % 108,963 119,050 (10,087 ) -8 % Interest and Dividend Revenue

8,009 4,396 3,613 82 % 14,119 8,694 5,425 62 % Other (218 ) (274 ) 56 20 % 99 (407 ) 506 N/M Total Revenues 783,573 605,312 178,261 29 % 1,328,018 1,173,855 154,163 13 % Expenses Compensation and Benefits Compensation 85,582 73,792 11,790 16 % 165,815 143,251 22,564 16 % Performance Fee Compensation Realized Carried Interest 143,442 55,005 88,437 161 % 195,275 80,868 114,407 141 % Incentive Fees 3,081 15,733 (12,652 ) -80 % 3,065 17,457 (14,392 ) -82 % Unrealized Carried Interest 27,339 78,604 (51,265 ) -65 % 84,324 167,661 (83,337 ) -50 % Incentive Fees (1,783 ) (16,329 ) 14,546 89 % (401 ) (15,295 ) 14,894 97 % Total Compensation and Benefits 257,661 206,805 50,856 25 % 448,078 393,942 54,136 14 % Other Operating Expenses 36,542 27,617 8,925 32 % 69,649 56,079 13,570 24 % Total Expenses 294,203 234,422 59,781 26 % 517,727 450,021 67,706 15 % Economic Income $ 489,370$ 370,890$ 118,480 32 % $ 810,291$ 723,834$ 86,457 12 % N/M Not meaningful. 96



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Revenues

Revenues were $783.6 million for the three months ended June 30, 2014, an increase of $178.3 million compared to $605.3 million for the three months ended June 30, 2013. The increase in revenues was primarily attributable to increases of $137.6 million in Performance Fees, $23.0 million in Investment Income and $14.0 million in Total Management Fees. Performance Fees, which are determined on a fund by fund basis, were $539.9 million for the three months ended June 30, 2014, an increase of $137.6 million compared to $402.3 million for the three months ended June 30, 2013. Performance Fees increased due to the increase in the net appreciation of investments from our BREP carry funds. For the three months ended June 30, 2014, the carrying value of assets for Blackstone's contributed Real Estate funds, including fee-paying co-investments, increased 6.0% driven by appreciation in the private portfolio of 6.7% or $1.9 billion from improving fundamentals and public portfolio appreciation of 4.8% or $1.0 billion. Our BREDS drawdown and real estate hedge funds appreciated 2.9% and 2.6%, respectively. Investment Income was $72.2 million for the three months ended June 30, 2014, an increase of $23.0 million compared to $49.2 million for the three months ended June 30, 2013. The increase in Investment Income was primarily driven by the year over year net increase in the appreciation of investments across our global Real Estate funds. Total Management Fees were $163.7 million for the three months ended June 30, 2014, an increase of $14.0 million compared to $149.7 million for the three months ended June 30, 2013, primarily attributable to an increase in Base Management Fees and partially offset by a decrease in Transaction and Other Fees. Base Management Fees were $157.9 million for the three months ended June 30, 2014, an increase of $20.9 million compared to $137.0 million for the three months ended June 30, 2013. The increase was primarily due to fees generated from fundraising within BREP Europe IV and our first Asia fund, partially offset by a decrease due to the expiration of BREP V. Transaction and Other Fees were $13.5 million for the three months ended June 30, 2014, a decrease of $5.5 million compared to $19.0 million for the three months ended June 30, 2013. The decrease in Transaction and Other Fees was primarily related to a decrease in the acquisition fees charged on completed transactions. Revenues were $1.3 billion for the six months ended June 30, 2014, an increase of $154.2 million compared to $1.2 billion for the six months ended June 30, 2013. The increase in revenues was primarily attributable to increases of $120.9 million in Performance Fees and $37.5 million in Total Management Fees, partially offset by a decrease of $10.1 million in Investment Income. Performance Fees, which are determined on a fund by fund basis, were $877.5 million for the six months ended June 30, 2014, an increase of $120.9 million compared to $756.6 million for the six months ended June 30, 2013. Performance Fees increased due to the increase in the net appreciation of investments from our BREP carry funds. For the six months ended June 30, 2014, the carrying value of assets for Blackstone's contributed Real Estate funds, including fee-paying co-investments, increased 9.7% driven by improving fundamentals in the private portfolio (10.6%, $3.2 billion) and public portfolio appreciation (8.2%, $1.6 billion). Our BREDS drawdown and real estate hedge funds appreciated 5.4% and 6.1%, respectively. Total Management Fees were $327.4 million for the six months ended June 30, 2014, an increase of $37.5 million compared to $289.9 million for the six months ended June 30, 2013, primarily attributable to an increase in Base Management Fees. Base Management Fees were $317.2 million for the six months ended June 30, 2014, an increase of $41.9 million compared to $275.3 million for the six months ended June 30, 2013. The increase was primarily due to fees generated from fundraising within BREP Europe IV and our first Asia fund, partially offset by a decrease due to the expiration of BREP V. 97



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Investment Income was $109.0 million for the six months ended June 30, 2014, a decrease of $10.1 million compared to $119.1 million for the six months ended June 30, 2013. The decrease in Investment Income was primarily driven by the year over year net decrease in the appreciation of investments within the BREP VI fund. Expenses Expenses were $294.2 million for the three months ended June 30, 2014, an increase of $59.8 million, compared to $234.4 million for the three months ended June 30, 2013. The increase was attributable to increases of $39.1 million in Performance Fee Compensation, $11.8 million in Compensation and $8.9 million in Other Operating Expenses. The increase in Performance Fee Compensation was due to the increase in Performance Fees Revenue. The increase in Compensation was due to an increase in headcount to support the growth of the business as well as an increase in Total Management Fees, on which a portion of compensation is based. The increase in Other Operating Expenses was due to an increase in interest expense allocated to the segment as well as increases in business development and professional fees. Expenses were $517.7 million for the six months ended June 30, 2014, an increase of $67.7 million, compared to $450.0 million for the six months ended June 30, 2013. The increase was attributable to increases of $31.6 million in Performance Fee Compensation, $22.6 million in Compensation and $13.6 million in Other Operating Expenses. The increase in Performance Fee Compensation was due to the increase in Performance Fees Revenue. The increase in Compensation was due to an increase in headcount to support the growth of the business as well as an increase in Total Management Fees, on which a portion of compensation is based. The increase in Other Operating Expenses was primarily due to interest expense allocated to the segment as well as increases in business development and professional fees.



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 Six Months Ended June 30, 2014 June 30, June 30, Inception to Date 2014 2013 2014 2013 Realized Total Fund (a) Gross Net Gross Net Gross Net Gross Net Gross Net Gross Net BREP International (b) 0 % 0 % 0 % 0 % 46 % 37 % 0 % 0 % 35 % 25 % 33 % 23 % BREP IV -0 % -0 % 9 % 7 % 4 % 3 % 12 % 9 % 98 % 66 % 24 % 14 % BREP V 5 % 4 % 5 % 4 % 9 % 8 % 9 % 7 % 29 % 21 % 14 % 10 % BREP International II (b) 4 % 4 % -1 % -1 % 7 % 7 % 10 % 9 % 12 % 10 % 4 % 3 % BREP VI 6 % 5 % 6 % 5 % 7 % 6 % 12 % 10 % 21 % 17 % 18 % 14 % BREP Europe III (b) 7 % 5 % 5 % 4 % 12 % 9 % 11 % 8 % 44 % 32 % 30 % 18 % BREP VII 8 % 6 % 9 % 7 % 15 % 11 % 20 % 14 % 55 % 38 % 40 % 28 % BREP Asia 4 % 2 % N/A N/A 10 % 6 % N/A N/A N/A N/A 37 % 20 % BREP Europe IV (b) 7 % 4 % N/A N/A 15 % 8 % N/A N/A 155 % 104 % 33 % 15 % BREDS 4 % 3 % 5 % 4 % 7 % 5 % 8 % 6 % 19 % 15 % 17 % 12 % BSSF I 7 % 5 % -1 % -1 % 8 % 6 % 5 % 3 % N/A N/A 15 % 11 % CMBS 4 % 3 % -1 % -1 % 7 % 5 % 3 % 2 % N/A N/A 17 % 12 % BREP Co-Investment 7 % 7 % 5 % 5 % 12 % 11 % 13 % 12 % 16 % 14 % 19 % 17 % 98



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

N/A Not applicable. N/M Not meaningful.



(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.

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, 2014:

Gain to Cross Carried Interest Threshold (a) % Change in Total Enterprise % Change in Fully Invested Funds Amount Value (b) Equity Value (Amounts in Millions) BREP Int'l II (Sep 2005 / Jun 2008) 897 25 % 71 %



(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, 2014: BREP VII, BREP Asia, BREP Europe IV and three funds within BREDS II.

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Hedge Fund Solutions

The following table presents the results of operations for our Hedge Fund Solutions segment: Three Months Ended Six Months Ended June 30, 2014 vs. 2013 June 30, 2014 vs. 2013 2014 2013 $ % 2014 2013 $ % (Dollars in Thousands) Segment Revenues Management Fees, Net Base Management Fees $ 123,008$ 100,113$ 22,895



23 % $ 236,392$ 192,904$ 43,488 23 % Transaction and Other Fees, Net

126 61 65 107 % 219 65 154 237 % Management Fee Offsets (1,531 ) (714 ) (817 ) -114 % (2,986 ) (1,038 ) (1,948 ) -188 % Total Management Fees, Net 121,603 99,460 22,143 22 % 233,625 191,931 41,694 22 % Performance Fees Realized Incentive Fees 7,973 13,845 (5,872 ) -42 % 47,818 27,554 20,264 74 % Unrealized Incentive Fees 30,556 20,989 9,567 46 % 48,641 76,490 (27,849 ) -36 % Total Performance Fees 38,529 34,834 3,695 11 % 96,459 104,044 (7,585 ) -7 % Investment Income (Loss) Realized 2,394 13,668 (11,274 ) -82 % 19,214 14,520 4,694 32 % Unrealized 1,057 (12,054 ) 13,111 N/M 5,488 (8,141 ) 13,629 N/M Total Investment Income 3,451 1,614 1,837 114 % 24,702 6,379 18,323 287 % Interest and Dividend Revenue 2,340 1,878 462 25 % 5,001 3,094 1,907 62 % Other (203 ) (254 ) 51 20 % (81 ) (169 ) 88 52 % Total Revenues 165,720 137,532 28,188 20 % 359,706 305,279 54,427 18 % Expenses Compensation and Benefits Compensation 43,341 36,844 6,497 18 % 83,912 70,712 13,200 19 % Performance Fee Compensation Realized Incentive Fees 2,918 5,116 (2,198 ) -43 % 16,189 10,138 6,051 60 % Unrealized Incentive Fees 11,252 7,666 3,586 47 % 18,013 27,502 (9,489 ) -35 %



Total Compensation and Benefits 57,511 49,626 7,885

16 % 118,114 108,352 9,762 9 % Other Operating Expenses 25,101 16,535 8,566 52 % 44,581 31,694 12,887 41 % Total Expenses 82,612 66,161 16,451 25 % 162,695 140,046 22,649 16 % Economic Income $ 83,108$ 71,371$ 11,737 16 % $ 197,011$ 165,233$ 31,778 19 % N/M Not meaningful. Revenues



Revenues were $165.7 million for the three months ended June 30, 2014, an increase of $28.2 million compared to $137.5 million for the three months ended June 30, 2013. The increase in revenues was primarily attributable to an increase of $22.1 million in Total Management Fees.

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Total Management Fees were $121.6 million for the three months ended June 30, 2014, an increase of $22.1 million compared to $99.5 million for the three months ended June 30, 2013, primarily due to an increase in Base Management Fees. Base Management Fees were $123.0 million for the three months ended June 30, 2014, an increase of $22.9 million compared to $100.1 million for the three months ended June 30, 2013. This increase was driven by an increase in Fee-Earning Assets Under Management of 22% from the prior year period, which was from net inflows and market appreciation. Revenues were $359.7 million for the six months ended June 30, 2014, an increase of $54.4 million compared to $305.3 million for the six months ended June 30, 2013. The increase in revenues was primarily attributable to increases of $41.7 million in Total Management Fees and $18.3 million in Investment Income, partially offset by a decrease of $7.6 million in Performance Fees. Total Management Fees were $233.6 million for the six months ended June 30, 2014, an increase of $41.7 million compared to $191.9 million for the six months ended June 30, 2013, primarily due to an increase in Base Management Fees. Base Management Fees were $236.4 million for the six months ended June 30, 2014, an increase of $43.5 million compared to $192.9 million for the six months ended June 30, 2013. This was driven by an increase in Fee-Earning Assets Under Management of 22% from the prior year period, which was from net inflows and market appreciation. Investment Income was $24.7 million for the six months ended June 30, 2014, an increase of $18.3 million compared to $6.4 million for the six months ended June 30, 2013. The increase was primarily driven by the year over year increase in the net appreciation of investments of which Blackstone owns a share. Performance Fees were $96.5 million for the six months ended June 30, 2014, a decrease of $7.6 million compared to $104.0 million for the six months ended June 30, 2013. This was primarily due to lower returns. The net returns of the underlying assets within BAAM's Principal Solutions Composite funds were 3.6% during the six months ended June 30, 2014 compared to 6.0% during the six months ended June 30, 2013. Expenses Expenses were $82.6 million for the three months ended June 30, 2014, an increase of $16.5 million compared to the three months ended June 30, 2013. The increase in expenses was primarily attributable to increases of $8.6 million in Other Operating Expenses and $6.5 million in Compensation. The increase in Other Operating Expenses was due primarily to increases in interest expense allocated to the segment and business development costs. The increase in Compensation was primarily due to an increase in headcount to support the growth of the business and an increase in Total Management Fees, on which a portion of compensation is based. Expenses were $162.7 million for the six months ended June 30, 2014, an increase of $22.6 million compared to the six months ended June 30, 2013. The increase in expenses was primarily attributable to a $13.2 million increase in Compensation and a $12.9 million increase in Other Operating Expenses. The increase in Compensation was primarily due to an increase in headcount to support the growth of the business and an increase in Total Management Fees, on which a portion of compensation is based. The increase in Other Operating Expenses resulted primarily from increases in interest expense allocated to the segment and business development costs. 101



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Operating Metrics

The following table presents information regarding our Incentive Fee-Earning Assets Under Management: [[Image Removed: LOGO]] Fee-Earning Assets Under Estimated % Above Management Eligible for High Water Mark Incentive Fees and/or Hurdle (a) As of June 30, As of June 30, 2013 2014 2013 2014 (Dollars in Thousands) BAAM Managed Funds (b) $ 25,904,388$ 31,286,770 96 % 85 %



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

(a) Estimated % Above High Water Mark and/or Hurdle 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 hurdle, where

applicable). Incremental positive performance in the applicable Blackstone

Funds may cause additional assets to reach their respective High Water Mark

and/or Hurdle, thereby resulting in an increase in Estimated % Above High

Water Mark and/or Hurdle.

(b) For the BAAM managed funds, at June 30, 2014 the incremental appreciation

needed for the 15% of Fee-Earning Assets Under Management below their

respective High Water Marks and/or Hurdle to reach their respective High

Water Marks and/or Hurdle was $67.9 million, an increase of $19.2 million, or

40%, compared to $48.7 million at June 30, 2013. Of the Fee-Earning Assets

Under Management below their respective High Water Marks and/or Hurdle as of

June 30, 2014, 97% were within 5% of reaching their respective High Water

Mark and/or Hurdle. 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. 102



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

Three Six Average Annual Returns (a) Months Ended Months Ended Periods Ended June 30, June 30, June 30, 2014 One Three Five 2014 2013 2014 2013 Year Year Year Historical Composite Gross Net Gross Net Gross Net Gross Net Gross Net Gross Net Gross Net Gross Net BAAM Managed Funds, BAAM Principal Solutions Composite (b) 2 % 2 % 2 % 2 % 4 % 4 % 7 % 6 % 11 % 9 % 8 % 7 % 9 % 8 % 8 % 7 %



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

(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 Composite covers the period from January 2000 to

present, although BAAM's inception date is September 1990. BAAM's Principal

Solutions Composite does not include BAAM's long-only equity, long-biased

commodities, seed, strategic opportunities (external investments) and advisory platforms. 103



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Credit

The following table presents the results of operations for our Credit segment: Three Months Ended Six Months Ended June 30, 2014 vs. 2013 June 30, 2014 vs. 2013 2014 2013 $ % 2014 2013 $ % (Dollars in Thousands) Segment Revenues Management Fees, Net Base Management Fees $ 112,489$ 101,940$ 10,549 10 % $ 218,063$ 193,304$ 24,759 13 % Transaction and Other Fees, Net 7,064 9,002 (1,938 ) -22 % 10,408 13,376 (2,968 ) -22 % Management Fee Offsets (6,739 ) (1,559 ) (5,180 ) -332 % (10,991 ) (3,131 ) (7,860 ) -251 % Total Management Fees, Net 112,814 109,383 3,431 3 % 217,480 203,549 13,931 7 % Performance Fees Realized Carried Interest 11,439 35,908 (24,469 ) -68 % 30,599 121,413 (90,814 ) -75 % Incentive Fees 25,248 29,920 (4,672 ) -16 % 39,266 37,846 1,420 4 % Unrealized Carried Interest 39,041 13,808 25,233 183 % 62,027 (4,967 ) 66,994 N/M Incentive Fees 29,703 15,648 14,055 90 % 70,147 65,502 4,645 7 % Total Performance Fees 105,431 95,284 10,147 11 % 202,039 219,794 (17,755 ) -8 % Investment Income Realized 2,223 901 1,322 147 % 5,294 4,229 1,065 25 % Unrealized 4,521 4,381 140 3 % 7,600 5,474 2,126 39 % Total Investment Income 6,744 5,282 1,462 28 % 12,894 9,703 3,191 33 % Interest and Dividend Revenue 4,892 4,071 821 20 % 10,753 8,618 2,135 25 % Other 11 (1,063 ) 1,074 N/M (248 ) 765 (1,013 ) N/M Total Revenues 229,892 212,957 16,935 8 % 442,918 442,429 489 0 % Expenses Compensation and Benefits Compensation 51,310 55,941 (4,631 ) -8 % 102,062 101,462 600 1 % Performance Fee Compensation Realized Carried Interest 4,139 20,028 (15,889 ) -79 % 15,933 67,356 (51,423 ) -76 % Incentive Fees 12,510 14,165 (1,655 ) -12 % 22,890 17,927 4,963 28 % Unrealized Carried Interest 20,803 6,109 14,694 241 % 31,656 (4,095 ) 35,751 N/M Incentive Fees 15,223 11,747 3,476 30 % 30,611 35,355 (4,744 ) -13 % Total Compensation and Benefits 103,985 107,990 (4,005 ) -4 % 203,152 218,005 (14,853 ) -7 % Other Operating Expenses 22,159 22,961 (802 ) -3 % 54,998 43,923 11,075 25 % Total Expenses 126,144 130,951 (4,807 ) -4 % 258,150 261,928 (3,778 ) -1 % Economic Income $ 103,748$ 82,006$ 21,742 27 % $ 184,768$ 180,501$ 4,267 2 % N/M Not meaningful. 104



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Revenues

Revenues were $229.9 million for the three months ended June 30, 2014, an increase of $16.9 million compared to the three months ended June 30, 2013. This change was primarily attributable to a $10.1 million increase in Performance Fees. Performance Fees were $105.4 million for the three months ended June 30, 2014, an increase of $10.1 million compared to $95.3 million for the three months ended June 30, 2013. This change was primarily attributable to greater performance fees in our BDCs. The net returns of Blackstone's significant Credit segment funds were 1.4% for the hedge funds, 2.8% for the mezzanine funds and 4.7% for the rescue lending funds for the three months ended June 30, 2014. Revenues were $442.9 million for the six months ended June 30, 2014 compared to $442.4 million for the six months ended June 30, 2013. While the Total Revenues were nearly unchanged, Total Management Fees increased by $13.9 million and Investment Income increased by $3.2 million, mostly offset by a decrease of $17.8 million in Performance Fees. Total Management Fees were $217.5 million for the six months ended June 30, 2014, an increase of $13.9 million compared to $203.5 million for the six months ended June 30, 2013. This change was primarily attributable to an increase of $24.8 million in Base Management Fees resulting from the growth in our Fee-Earning Assets Under Management and partially offset by an increase of $7.9 million in Management Fee Offsets. Performance Fees were $202.0 million for the six months ended June 30, 2014, a decrease of $17.8 million compared to the six months ended June 30, 2013. This change was primarily attributable to a lower rate of appreciation in our funds. The net returns of Blackstone's significant Credit segment funds were 4.3% for the hedge funds, 6.1% for the mezzanine funds and 8.8% for the rescue lending funds for the six months ended June 30, 2014.



Expenses

Expenses were $126.1 million for the three months ended June 30, 2014, a decrease of $4.8 million compared to $131.0 million for the three months ended June 30, 2013. The decrease in expenses was primarily attributable to a decrease of $4.6 million in Compensation attributable to lower accrual levels. Expenses were $258.2 million for the six months ended June 30, 2014, a decrease of $3.8 million compared to $261.9 million for the six months ended June 30, 2013. The decrease in expenses was primarily attributable to a decrease of $15.5 million in Performance Fee Compensation, partially offset by an $11.1 million increase 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 driven by a non-recurring fundraising expense. 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. 105



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The following table presents the return information of the segment's Flagship Hedge Funds: Three Six Average Annual Returns (a) Months Ended Months Ended Periods Ended June 30, June 30, June 30, 2014 One Three Five 2014 2013 2014 2013 Year Year Year Historical Fund Gross Net Gross Net Gross Net Gross Net Gross Net Gross Net Gross Net Gross Net Flagship Hedge Funds (b) 2 % 1 % 7 % 5 % 6 % 4 % 13 % 10 % 17 % 12 % 15 % 11 % 20 % 15 % 13 % 9 %



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

(a) Average annual returns present a summarized asset-weighted return measure to

evaluate the overall performance of the applicable class of Blackstone Funds.

(b) The Flagship Hedge Funds' returns represent the weighted-average return for

U.S. domestic and offshore funds included in this return. The historical

return is from August 1, 2005, which is before Blackstone's acquisition of

GSO in March 2008.

The following table presents the internal rates of return of our significant Credit drawdown funds: Three Months Ended Six Months Ended June 30, June 30, June 30, 2014 2014 2013 2014 2013 Inception to Date Fund (a) Gross Net Gross Net Gross Net Gross Net Gross Net Mezzanine Funds (b) 4 % 3 % 6 % 4 % 8 % 6 % 16 % 12 % 26 % 19 % Rescue Lending Funds (c) 5 % 5 % 5 % 4 % 11 % 9 % 11 % 9 % 24 % 18 %



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) The Mezzanine Funds' returns represent the weighted-average return for the U.S. domestic and offshore funds, as applicable, for the significant



mezzanine funds. The inception to date return is from July 16, 2007, which

is before Blackstone's acquisition of GSO in March 2008.

(c) The Rescue Lending Funds' returns represent the weighted-average return for

the U.S. domestic and offshore funds included in this return. The inception

to date returns are from September 29, 2009, which is when the funds

commenced investing.

As of June 30, 2014, the significant Credit drawdown funds were above their respective Carried Interest thresholds.

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Financial Advisory

The following table presents the results of operations for our Financial Advisory segment: Three Months Ended Six Months Ended June 30, 2014 vs. 2013 June 30, 2014 vs. 2013 2014 2013 $ % 2014 2013 $ % (Dollars in Thousands) Segment Revenues Advisory Fees $ 114,914$ 120,734 $



(5,820 ) -5 % $ 184,877$ 187,754$ (2,877 ) -2 % Transaction and Other Fees, Net

876 40 836 N/M 938 43 895 N/M



Total Advisory and Transaction Fees 115,790 120,774 (4,984 ) -4 % 185,815 187,797 (1,982 ) -1 %

Investment Income (Loss) Realized 106 (146 ) 252 N/M 240 88 152 173 % Unrealized 969 (1,518 ) 2,487 N/M 1,663 (1,877 ) 3,540 N/M Total Investment Income (Loss) 1,075 (1,664 )



2,739 N/M 1,903 (1,789 ) 3,692 N/M Interest and Dividend Revenue

2,187 1,746 441 25 % 4,689 3,362 1,327 39 % Other (160 ) 61 (221 ) N/M (335 ) - (335 ) N/M Total Revenues 118,892 120,917 (2,025 ) -2 % 192,072 189,370 2,702 1 % Expenses Compensation and Benefits Compensation 69,744 76,153



(6,409 ) -8 % 131,426 134,079 (2,653 ) -2 % Other Operating Expenses

22,116 20,861



1,255 6 % 43,458 41,554 1,904 5 %

Total Expenses 91,860 97,014



(5,154 ) -5 % 174,884 175,633 (749 ) -0 %

Economic Income $ 27,032$ 23,903$ 3,129 13 % $ 17,188$ 13,737$ 3,451 25 % N/M Not meaningful. Revenues Revenues were $118.9 million for the three months ended June 30, 2014, a decrease of $2.0 million compared to $120.9 million for the three months ended June 30, 2013. The decrease in revenues was driven by a decrease in Restructuring and Reorganization and partially offset by increases in our fund placement business, Blackstone Advisory Partners ("BAP") and our capital markets business. The decrease in Restructuring and Reorganization was driven by a lower amount of transaction fees recorded relative to the prior year period; however the pipeline for Restructuring and Reorganization remains steady across a diverse group of industries. The increase in fees earned by Blackstone's fund placement business was due primarily to an increase in the volume and size of the secondary transactions that closed during the period. BAP's business increased modestly due to a higher number of transactions that closed compared to the prior year period. Our capital markets business increased due to a higher amount of transaction fees recorded relative to the prior year period as the capital markets business participated in a number of debt and equity transactions during the three months ended June 30, 2014. Revenues were $192.1 million for the six months ended June 30, 2014, an increase of $2.7 million compared to $189.4 million for the six months ended June 30, 2013. The increase in revenues was driven primarily by increases in our BAP, fund placement and capital markets businesses, partially offset by a decrease in Restructuring and Reorganization. During the six months ended June 30, 2014, the BAP business experienced an increase in revenues primarily driven by an increase in the number of transactions that closed compared to the prior year period. The increase in fees earned by Blackstone's fund placement business was due primarily to an increase in the volume and 107



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size of the secondary transactions that closed during the period and partially offset by a decrease in the number of private equity transactions that closed during the period. Blackstone's capital markets business participated in a number of debt and equity transactions compared to the prior year period. The decrease in Restructuring and Reorganization was primarily driven by a lower amount of transaction fees recorded relative to the prior year period.



Expenses

Expenses were $91.9 million for the three months ended June 30, 2014, a decrease of $5.2 million compared to $97.0 million for the three months ended June 30, 2013, primarily due to a decrease in Compensation. Compensation decreased $6.4 million compared to $76.2 million for the three months ended June 30, 2013, principally due to an overall decrease in total fee revenue across the segment.



Expenses were $174.9 million for the six months ended June 30, 2014, relatively flat compared to the six months ended June 30, 2013.

Liquidity and Capital Resources

General

Blackstone's business model derives revenue primarily from third party assets under management and from advisory businesses. 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 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, or 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, Non-Controlling Interests in Consolidated Entities and Appropriated Partners' Capital 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 $30.1 billion as of June 30, 2014, an increase of $380.7 million from December 31, 2013. The increase in total assets was primarily attributable to a $391.1 million increase in Cash and Cash Equivalents driven by the proceeds from the $500 million bond offering during the second quarter of 2014. The $215.0 million increase in Cash Held by Blackstone Funds and Other is due to the fluctuation of cash balances held by the consolidated Blackstone funds. These increases were partially offset by decreases of $142.8 million in Due from Affiliates and $118.3 million in Reverse Repurchase Agreements. The decrease in Due from Affiliates was primarily due to a decrease in redemptions receivable from investments redeemed in our non-consolidated BAAM funds. The decrease in Reverse Repurchase Agreements is driven by repositioning within the Treasury Management Strategies portfolio at June 30, 2014 compared to December 31, 2013. Total liabilities were $14.2 billion as of June 30, 2014, a decrease of $1.1 billion from December 31, 2013. The decrease in total liabilities was primarily due to a decrease in Loans Payable of $1.5 billion resulting from the deconsolidation of certain CLO vehicles and loan repayments and partially offset by an increase in Accounts Payable, Accrued Expenses and Other Liabilities of $518.5 million due to an increase in payables relating to unsettled purchases. 108



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For the three months ended June 30, 2014, we had Total Fee Related Revenues of $669.2 million and related expenses of $468.1 million, generating Fee Related Earnings of $201.1 million and Distributable Earnings of $770.8 million. For the six months ended June 30, 2014, we had Total Fee Related Revenues of $1.3 billion and related expenses of $914.4 million, generating Fee Related Earnings of $375.9 million and Distributable Earnings of $1.3 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. On May 29, 2014, Blackstone Holdings Finance Co. L.L.C., an indirect subsidiary of Blackstone, amended its revolving credit facility to, among other things, extend the maturity date of the credit facility from July 13, 2017 to May 29, 2019. As of June 30, 2014, we had $1.2 billion in cash and cash equivalents, $1.3 billion invested in Blackstone's Treasury Cash Management Strategies, $141.4 million invested in liquid Blackstone Funds, $2.7 billion invested in illiquid Blackstone Funds and $247.0 million invested in other investments, against $2.1 billion in borrowings from our bond issuances, and no borrowings outstanding under our revolving credit facility. In addition to the cash we received in connection with our IPO, debt offerings and our borrowing facilities, 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 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. 109



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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.

(c) Represents the current tax provision calculated on Income Before Provision

for Taxes and the Payable Under Tax Receivable Agreement.

(d) Represents equity-based award expense included in Economic Income.

(e) Represents tax-related payables including the Payable Under Tax Receivable

Agreement. 110



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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) This adjustment represents the realized and unrealized gain on Blackstone's

Treasury Cash Management Strategies which are a component of Investment

Income (Loss) but included in Fee Related Earnings.

(c) Represents the elimination of Realized Investment Income (Loss) attributable

to Blackstone's Treasury Cash Management Strategies, which is a component of

both Fee Related Earnings and Realized Investment Income (Loss). 111

-------------------------------------------------------------------------------- Table of Contents (d) Represents equity-based award expense included in Economic Income.



(e) Taxes and Related Payables Including Payable Under Tax Receivable Agreement

represent the current tax provision (benefit) calculated on Income (Loss)

Before Provision (Benefit) for Taxes and the Payable Under Tax Receivable

Agreement.

(f) Represents tax-related payables including the Payable Under Tax Receivable

Agreement.

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 Distributable Earnings and of Distributable Earnings to Adjusted Earnings Before Interest, Taxes and Depreciation and Amortization: 112



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(a) The adjustment adds back to Income Before Provision for Taxes amounts for

Transaction-Related Charges which include principally equity-based

compensation charges associated with Blackstone's initial public offering and

long-term retention programs outside of annual deferred compensation and

other corporate actions.

(b) This adjustment adds back to Income Before Provision for Taxes amounts for

the Amortization of Intangibles which are associated with Blackstone's

initial public offering and other corporate actions.

(c) This adjustment adds back to Income Before Provision for Taxes the amount of

(Income) Loss Associated with Non-Controlling Interests in (Income) Loss of

Consolidated Entities and includes the amount of Management Fee Revenues

associated with Consolidated CLO Entities.

(d) Taxes represent the current tax provision calculated on Income Before

Provision 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

(Loss).

(g) This adjustment represents the realized and unrealized gain on Blackstone's

Treasury Cash Management Strategies which are a component of Investment

Income (Loss) but included in Fee Related Earnings.

(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.

(j) Represents the adjustment for Blackstone's Investment Income - Realized.

(k) Represents the elimination of Realized Investment Income (Loss) attributable

to Blackstone's Treasury Cash Management Strategies which is a component of

both Fee Related Earnings and Realized Investment Income (Loss).

(l) Taxes and Related Payables Including Payable Under Tax Receivable Agreement

represent the current tax provision calculated on Income Before Provision for

Taxes and the Payable Under Tax Receivable Agreement.

(m) Represents equity-based award expense included in Economic Income.

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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, 2014 consisted of the following: Senior Managing Directors Blackstone and and Certain Other General Partner Professionals (a) Original Remaining Original Remaining Fund Commitment Commitment Commitment Commitment (Dollars in Thousands) Private Equity BCP VI $ 719,718$ 433,068$ 250,000$ 150,430 BCP V 629,356 70,745 - - BEP 50,000 26,299 - - Tactical Opportunities 106,931 62,031 23,628 8,741 Strategic Partners 122,809 115,661 18,000 16,854 Other (b) 204,575 9,554 - - Real Estate BREP VII 300,000 104,634 100,000 34,878 BREP VI 750,000 41,177 150,000 13,726 BREP Europe III 100,000 14,652 35,000 4,844 BREP Europe IV 100,000 55,863 33,333 18,621 BREP Asia 50,000 37,537 16,667 12,512 BREDS II 50,000 28,881 16,667 9,627 CT Opportunity Partners I 25,000 22,912 - - Other (b) 108,015 13,693 - - Hedge Fund Solutions Strategic Alliance II 50,000 12,796 - - Strategic Alliance 50,000 2,033 - - BAAM Strategic Holdings LP 50,000 44,659 - - Other (b) 300 200 - - Credit Capital Opportunities Fund II L.P. 120,000 87,751 110,011 80,447 GSO Capital Solutions II 125,000 122,353 94,555 92,553 Blackstone/GSO Capital Solutions 50,000 9,670 27,666 5,351 Blackstone Credit Liquidity Partners 32,244 1,612 - - BMezz II 17,692 3,085 - - Other (b) 60,039 42,319 2,909 2,064 Other Treasury 130,008 109,270 - - Total $ 4,001,687$ 1,472,455$ 878,436$ 450,648



(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. 115



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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 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. (These issuances of 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, 2014, no units were repurchased. As of June 30, 2014, the amount remaining under this program available for repurchases was $335.8 million.



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. 116



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Our current intention is to distribute to common unitholders each quarter substantially all of our Net Cash Available for Distribution to Common Unitholders, subject to a base quarterly distribution of $0.12 per unit. Net Cash Available for Distribution to Common Unitholders is The Blackstone Group L.P.'s share of Distributable Earnings, less realized investment gains and returns of capital from investments and acquisitions, in excess of 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, taking into account both the extent of realized investment gains and returns of capital from investments and acquisitions, and the amounts determined by Blackstone's general partner to be necessary or appropriate as described in the preceding sentence. In circumstances in which the Net Cash Available for Distribution to Common Unitholders for a quarter falls short of the amount necessary to support the base distribution of $0.12 per unit, Blackstone intends to correspondingly reduce subsequent quarterly distributions below the amounts supported by the Net Cash Available for Distribution to Common Unitholders by the amount of the shortfall, but not below $0.12 per unit. 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 to less than $0.12 per unit 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. 117



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The following chart shows fiscal quarterly and annual per common unitholder distributions for 2013 and 2014. Distributions are declared and paid in the quarter subsequent to the quarter in which they are earned.

[[Image Removed: LOGO]] With respect to fiscal year 2014, we have paid to common unitholders a distribution of $0.55 in respect of the second quarter, aggregating $0.90 per common unit in respect of the six months ended June 30, 2014. With respect to fiscal year 2013, we paid aggregate common unitholder distributions of $1.34 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 private equity funds, real estate funds, funds of hedge funds and 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 2% 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. 118



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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 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:


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