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Blackstone -The Global Economy Needs...

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Blackstone, a prominent private equity firm talks about what the economy needs to recover.

Blackstone, a prominent private equity firm talks about what the economy needs to recover.

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  • 1. The globaleconomyneeds...Annual Review 2011
  • 2. Solutions.In the current economy, challenges abound.It is our job to provide capital and advice thatdeliver solutions.Fuel the growth of businesses and communities.Renew aging industries and properties.Preserve retirees’ assets.Stabilize struggling companies.Invest in emerging markets.Nurture entrepreneurs.We believe that challenges can be opportunities.1
  • 3. launch new business initiatives, makegame-changing acquisitions and upgradeoperationstosupporttheirlong-termplans.When we help our portfolio companiesgrow, the momentum carries through tojob opportunities and community develop-ment.In2011,portfoliocompaniesinwhichBlackstone holds majority ownership had4.6% job growth in the U.S. compared withoverall U.S. job growth of only 1.1%.INVESTING IN COMMUNITY CAREVanguard Health Systems, in whichBlackstone holds a major stake, purchasedthe Detroit Medical Center (DMC), mark-ing the largest investment in Detroithistory and a major commitment to localhealthcare. DMC, with eight hospitals,needed new resources to ensure best-in-class care in a struggling community.Vanguard’s purchase included some vitalcommitments: to invest $850  millionin new and upgraded facilities, maintainDMC’s policies of caring for economicallydisadvantaged patients, and preserveretiree benefit plans. Construction hasbegun on the state-of-the-art Children’sHospital of Michigan Specialty Center andthe partnership will support additionalcare initiatives in the future.GROWING THE LEADINGHOTEL CHAINSince acquiring Hilton Hotels in 2007,we have invested in the growth of theleading global hospitality chain. Hilton’sworldwide system has grown by nearly30% since the acquisition, and now totals633,000 rooms. The system added 20,000rooms in 2011 alone, with non-U.S. roomsTHE GLOBAL ECONOMY NEEDSGrowth CapitalAt Blackstone, we play a vital role inproviding businesses with the capitalto realize their growth potential. Thiscapital helped our portfolio companies12,000JOBSPROVIDING GROWTH ANDMAINTENANCE CAPITAL TO ACRITICAL HOSPITAL SYSTEMEMPLOYING 12,000 PEOPLE ANDSERVING 1.4 MILLIONPATIENT VISITS ANNUALLYLeft to Right:Greg BlankPrincipal, Private EquityDaphne TongAssociate, Private EquityDoug LogigianManaging Director,GSO Capital PartnersAnnual Review 20112 Blackstone
  • 4. YEAR-OVER-YEARORGANIC JOBGROWTH OF U.S.PORTFOLIOWITH MAJORITYOWNERSHIP4.6%INVESTED ORCOMMITTED INSTART-UPSIN THELAST 5 YEARSOVER$3BILLIONBUILDING A VACATION VILLAGE ANDJOB OPPORTUNITYIn the U.K., we are financing a vacationresort in Woburn, Bedfordshire, beingdeveloped by Center Parcs, a Blackstoneportfolio company. Center Parcs WoburnForest,whichwillinclude625forestlodges,a hotel/spa, and sports and leisure facili-ties, is expected to create 2,700 construc-tion and permanent jobs and inject over£250 million into the British economy.accounting for over half that total. Thecompany should continue to exhibit stronggrowth, with its pipeline at 149,000 rooms,an all time high.FINANCING OFFSHOREWIND POWERIn Germany, we are providing the financ-ing to WindMW in its development ofMeerwind, one of the country’s largestoffshore wind farm projects. Equity capitalprovided by Blackstone funds was a keyelement of the €1.2 billion project.WindMW can now move ahead with theinstallation of 80 wind turbines to belocated off the German coast in the NorthSea, producing enough clean, renewablepower to serve some 400,000 homes andeliminating approximately 1 million tonsof carbon emissions per year.Project FinanceInternational namedBlackstone FinancialSponsor of the Yearfor 2011 forWindMW/Meerwind$16.5BILLIONCAPITAL DEPLOYED ORCOMMITTED IN 20113
  • 5. DELAWARE CITY REFINERYBlackstone’s PBF management team was formed in2008 with a visionary strategy to build and growa strong, independent U.S. refining enterprise bybuying and improving underutilized refinery assets.PBF bought the Delaware City refinery as its firstacquisition in early 2010.When the Delaware City refinery closed inDecember 2009, hundreds of workers lost theirjobs and surrounding businesses suffered. PBF andBlackstone were able to bring a fresh perspectiveto the refinery — and fresh capital to realize itsfull potential. The result was a unique partnershipamong private equity, organized labor and govern-ment agencies, all of which worked hand-in-hand tocreate a framework for refurbishing and restartingthe facility.Blackstoneanditspartnersinvested$670 million,providingtheresourcesforPBFtopurchase,upgradeandrestarttherefineryinasafeandenvironmentallyresponsible manner. The result was the creationof 500 full-time jobs, up to 400 contract jobs, theopportunity for 2,000 more, and the revitalizationof a community that depended on the refinery for itseconomic well-being. In full production, the refinerywill add 190,000 barrels of oil per day to the region’sproduction of refined petroleum products, reducingthe need for expensive imported gasoline while alsoproducingincrementaltaxrevenuesforthestate.BRINGING A SHUTTEREDREFINERY BACK TO LIFE4 Annual Review 2011
  • 6. The reopened Delaware City refinery employs500 full-time workers and up to 400 contractors.5
  • 7. teams, is reviving aging real estate acrossthe globe, repurposing and reenergizingmanufacturing plants, and looking at otherolder assets in new ways. With $33 bil-lion in dry powder across our real estate,private equity, hedge fund solutions andcredit businesses, we are well positionedto make good investments on behalf ofour investors, while renewing assets thatcreate jobs and restore economic life tocommunities.SEEING OPPORTUNITY INOFFICE DEMANDCapital provided by Blackstone is reju-venating the former New York TimesBuilding, an iconic property anchoring theTimes Square district. Prior plans for retail,condominium and hotel development ofthe property had been abandoned. WithAround the world, underperforming assetsare waiting to be transformed into moreproductive uses. In many cases, Blackstoneis providing the financing, operating exper-tise and vision to revitalize these assets.Ourcapital,alongwiththeideasandenergyof our people and proven managementTHE GLOBAL ECONOMY NEEDSRenewalvery few office buildings in development,we reimagined the potential of the buildingforofficeuse.Wepurchasedthetop11 floorsof the building in 2011, and will be investingin improvements that will allow the for-merly vacant space to attract commercialtenants. Once renovated, the building willadd 480,000 square feet of office space to adynamic urban neighborhood.9%11%private equityportfolio companyrevenue & ebitdagrowth in 2011$33BILLIONDRY POWDER AVAILABLETO INVEST$2.6BILLIONINVESTED IN U.S. INDUSTRYIN 2011EBITDAGrowthRevenueGrowthAnnual Review 20116 Blackstone
  • 8. Australia and Europe. Our capital andexpertise have helped Valad stabilize a bal-ance sheet that had become over-weightedwith debt prior to the economic downturn.With its financial future stabilized, thecompany has increased occupancy rates inmany markets.EXPANDING ENGINEERED PRODUCTSPolymer Group, Inc. (PGI) is a leader inengineered, nonwoven fabrics for hygiene,medical, wipes and industrial applica-tions. In 2010, PGI’s Board of Directorsdetermined that realization of the com-pany’s long-term strategic plan requiredan investor willing to inject substantialgrowth capital. Blackstone, on behalfof our investors, acquired PGI in late2010 and has supported the company’sexpansion since that time. In 2011, PGIcommercialized new state-of-the-art linesin Waynesboro, Virginia, and Suzhou,China, and announced broader plans toinvest in growth in emerging markets suchas Brazil and southern China. Also in 2011,PGI launched an innovative submicrontechnology for nonwovens called Arium™.Under Blackstone’s ownership, PGIincreased its research and development by15% over the prior year.STABILIZING GLOBALREAL ESTATEOur acquisition of Valad Property Group,a leading Australia-based real estate com-pany, reflects Blackstone’s investmentin a growing range of global markets.Valad owns office and industrial buildingsin seven regions, with concentrations inLeft to Right:Jacob WernerPrincipal, Real EstateBoris MichevAssociate, Real EstateAlicia CorbinPrincipal, Park Hill Group$7.6BILLIONDEPLOYED OR COMMITTEDGLOBALLY, MOSTLY TO DISTRESSEDREAL ESTATE ASSETS IN 2011Renewing these assetscreates jobs, restoreseconomic life tocommunities, and drivesvalue for investors7
  • 9. BRIXMORWith 585 retail properties in 39 states, BrixmorProperty Group Inc. is the second-largest ownerof neighborhood shopping centers in the U.S.Blackstone real estate funds purchased the com-pany, then known as Centro Properties Group US,in 2011. We are now providing capital to Brixmorto redevelop many properties and to lease vacantspace—thus improving Brixmor’s property portfo-lio and reenergizing surrounding communities.An aggressive acquisition strategy had left theshopping center company with a heavy debt bur-den just as the national and global economiesturned downward. Vacancies rose as Centro lackedcapital to fund maintenance expenditures and ten-ant improvements.Our investment gave the company a newstart — and a new name: Brixmor. Managementcan now refocus on what matters: refreshing itsproperties and reinvesting in growth. In the nextseveral years, with funding provided by Blackstone,Brixmor is committed to invest some $300 mil-lion in redeveloping its shopping centers. That’sgood news for local communities that rely on thesupermarkets, drugstore chains, discount retailersand thousands of small stores and businesses thatpopulate the Brixmor centers.REINVIGORATINGCOMMUNITYSHOPPING CENTERSAnnual Review 20118
  • 10. One of Brixmor’s 585 U.S. retail properties,which serves as an anchor for the community.9
  • 11. THE GLOBAL ECONOMY NEEDSRetirement SecurityAt Blackstone, we never forget that thefinancial security of people aroundthe world depends on the decisions wemake. We manage investments for halfthe retirees in the U.S., on behalf of majorpublic and private pension funds. Ourinvestors also include academic, charitableand cultural institutions, central banks,sovereign wealth funds, insurance compa-nies and others.Across all of our investing businesses,private equity, real estate, hedge fundsolutions and credit, we have rigorousprocesses in place to anticipate andmanage risk. We rely on the intellect,experience and judgment of exceptionalteams to steer a steady course.STRONG, CONSISTENTPERFORMANCEOver the years, our funds have helped topreserve our investors’ principal whilegenerating returns that have virtuallyalways been in the top quartile versusour peers. For example, our BCP fundshave outperformed the S&P 500 by 1,100basis points annually since inception. Ourreal estate funds have produced net IRR of16%sinceinception,outperformingthe3%returned by the real estate index over thesame period. We also have a track record ofno material losses in our real estate funds,$9BILLIONRETURNED TOINVESTORS IN 201188%OF INVESTORS REINVESTIN SUCCESSIVEBLACKSTONE FUNDS AS OFJANUARY 31, 2012Left to Right:Rashmi MadanManaging Director,GSO Capital PartnersIan MorrisManaging Director, BlackstoneAlternative Asset ManagementDavid AndrewsSenior Vice President, FinanceBlackstone Annual Review 201110
  • 12. 37MILLION$11BILLIONPROTECTINGTHE INVESTMENTSINSTITUTIONSDEPEND ONBLACKSTONE ALTERNATIVEASSET MANAGEMENT (BAAM)Institutional investors turn to our BAAM hedgefund solutions business for the potential to achieveattractive risk-adjusted returns, while preserv-ing capital and providing liquidity. Increasingly,clients are also asking us to help them transition outof underperforming hedge fund investments intoportfolios better suited to their objectives.Following the financial crisis of 2008, manyinstitutions began to rethink their choice of invest-ment managers. They expressed concerns aboutunderperforming investments, a lack of liquidity,and potential exposure to fraud by some advisors.As such, they faced daunting complexities of docu-menting and analyzing a wide range of positions,managing the orderly exit from multiple vehicles,and reallocating portfolios to new investments.This led BAAM to launch Hedge Fund TransitionManagement Services. BAAM assumes responsibil-ity for obtaining transaction histories and legaldocumentation on portfolios, assesses existingmanager positions, and seeks to maximize liquidityfrom the underlying investments. The cash gener-ated is then returned to the client or reinvested innew positions that we have custom-tailored to theclient’s needs. Often, we will assist an institution inmaking direct investments in hedge funds, helpingthe client establish the necessary internal controls,processes and reporting systems.Transition Management is helping clientsmeet their investment objectives, mitigate programrisks, and build a more robust hedge fund invest-ment program.despite operating in a marketplace thathas seen extreme volatility in recent years.The net historical composite return forour BAAM funds as of December 31, 2011,was 6% compared to 1% for the S&P TotalReturn Index. Its volatility was 5%, in con-trast to the S&P Total Return Index volatil-ity of 16%. Our flagship GSO mezzaninefunds have never experienced a down year,and have produced a net IRR of 17% sinceinception in 2007.*Our approach has enabled Blackstoneto preserve assets for investors during aperiod of significant discontinuity in theglobal markets. We are proud of our trackrecord of exceeding clients’ expectationsfor more than 25 years.*Please see page 27 for important disclosureregarding performance information.GLOBAL PENSIONERSHAVE PENSIONBENEFITS INVESTED INBLACKSTONE FUNDSINFLOWS TO OUR HEDGE FUNDSOLUTIONS BUSINESS IN 201111
  • 13. attractively valued suburban office assetsto our portfolio, while enabling Duke to paydown corporate debt and reinvest in indus-trialandmedicalofficeacquisitions.Wealsoparticipated in a restructuring of HighlandHospitality Corp., which owns hotels suchas the Crowne Plaza in Atlanta, in a movethat kept Highland out of bankruptcy,reduced its debt and stabilized ownership.RESTRUCTURING AND RENEWALBlackstone provides a source of advicethat has enabled companies to reorganizeand adopt more stable capital structures.For example, we are representing the L.A.Dodgers as the legendary baseball teamseeks to emerge from bankruptcy courtwith new owners. In the case of StationCasinos, which owns and operates 17 casi-nos primarily serving the Las Vegas localAcrossourbusinesses,Blackstonecommitscapital and expertise to help companiesthrough a tough stage of the economiccycle. Even good companies can find them-selves in difficulty due to high debt levels,business reversals, recessionary pressures,or a tightening of credit. Our efforts haveallowed many companies to regain theirfinancial health, become more competitive,preserve and create jobs, and contribute tothe economy.STRATEGIC REAL ESTATEINVESTMENTSInvestments by Blackstone funds havehelped companies strengthen their capi-tal structures and pursue strategic goals.Our real estate funds purchased a portfo-lio of 80 suburban office properties fromDuke Realty Corp. This transaction addedTHE GLOBAL ECONOMY NEEDSStronger Companies48%out-of-courtdeals52%in-courtdeals52% OF RESTRUCTURINGREVENUES FROM IN-COURTDEALS AND 48% FROMOUT-OF-COURT DEALS IN 2011ADVISED ONRESTRUCTURINGSINVOLVING OVER$1 TRILLIONOF LIABILITIES$1.1TRILLIONADVISED ONDEALS WITHAGGREGATE VALUEOF OVER$495 BILLION$495BILLIONAnnual Review 201112 Blackstone
  • 14. Chapter 11 filing that allowed Lee to stabi-lize its capital structure, gaining financialand operating flexibility with no impacton vendors or customers and minimalequity dilution.STRENGTHENING BUSINESSESTo unlock the power of the Martha Stewartbrand, Blackstone worked with MarthaStewart Living Omnimedia (MSLO) on atransaction that resulted in J.C. Penneybuying a stake in MSLO and entering intoa significant new commercial agreementwith the company.Our credit business, GSO, helped struc-ture the financing for the acquisition ofa major oilfield service business by NANADevelopment Corporation, an AlaskaNative Corporation. This $435  millionfinancing enabled NANA to diversify itsasset base away from finite-lived naturalresources and to maintain financial distri-butions to 12,500 members of the Inupiatcommunity.market, our advice helped the company’slenders and the founding family reach aconsensual restructuring and emerge frombankruptcy—continuing a 35-year legacyand helping to preserve 13,000 jobs. Wealsoservedasanadvisortoaworkinggroupof creditors in the Lehman Brothers bank-ruptcy, representing a group of creditors atone of its largest operating subsidiaries. Inthis case, our efforts to analyze the poten-tial for claims recovery, assess complexlegal issues, and negotiate with multipleparties contributed to Lehman’s reor-ganization plan that was confirmedin December  2011. Additionally, LeeEnterprises, a newspaper publisher,retained us to address issues caused by ahigh level of debt as well as by the over-all challenges of the newspaper industry.Our plan of action included a prepackaged$4BILLIONRAISED FOR SECONDMEZZANINE FUNDLeft to Right:Zoé FabianAnalyst, BlackstoneAdvisory Partners LPJohn SinghAssociate, Restructuring& Reorganization13
  • 15. CHESAPEAKE UTICA, L.L.C.Chesapeake Energy Corp. is the second-largestproducer of natural gas, a top producer of oil, andthe most active driller of new wells in the U.S. Thecompany is a pioneer in developing natural gas pro-duction from shale, which provides the potential tosupply the U.S. with abundant, cost-effective fossilfuel. When Chesapeake needed financing to moreaggressively develop the Utica Shale play in east-ern Ohio, GSO and other investors helped providea solution.GSO and other investors purchased perpetualpreferred shares in a Chesapeake subsidiary, whichdirectly owns the majority of the company’s inter-ests in the Utica Shale play. The total raised in twoshare offerings was $1.25 billion. GSO’s relationshipwith Chesapeake, experience in the shale plays andunderstanding of the energy industry allowed it toquickly meet Chesapeake’s needs in terms of thestructure, size and timing of the financing. In addi-tion to owning preferred shares in the newly formedentity, GSO and the other investors also benefitfrom a royalty interest in the first 1,500 wells drilledby Chesapeake in this promising new play.As the Utica Shale is developed over the nextseveral years, it will provide a significant revenueopportunity for Chesapeake and its public share-holders. More importantly, the “shale revolution”led by companies such as Chesapeake is helping toreduce America’s dependence on imported oil andloweringthecostofnaturalgas.Theprojectwillalsohave broad economic benefits in this region, includ-ing the creation of jobs and an increase in economicactivity in local communities due to an influx of newworkers and investment.FUNDINGDEVELOPMENT OF NEWENERGY SOURCESAnnual Review 201114
  • 16. The Utica Shale is helping to reduce U.S. dependenceon imported oil and lower the cost of natural gas.15
  • 17. BANK OF AMERICAIn August 2011, Bank of America Corporation’sChief Executive Officer, Brian Moynihan, receivedan unexpected call from investor Warren Buffett,Chairman and Chief Executive Officer of BerkshireHathaway, Inc. In a strong expression of confi-dence, Mr. Buffett said he wanted to invest in Bankof America.While Bank of America had made substantialstrides in moving beyond the financial crisis, andhad the capital and liquidity needed to run itsbusiness, the offer from one of the world’s mostrespected investors merited serious consideration.Because of the significance of the transaction andthe high profile of those involved, it was essentialthat the right deal happen quickly.Bank of America engaged Blackstone to analyzethe transaction, assess the likely market reactionand provide views on the proposed terms—in lessthan 24 hours. Given Blackstone’s role as one of thelargest global investment firms, we also provided aunique investor viewpoint. Our Chairman and ChiefExecutive Officer, Stephen Schwarzman, was per-sonallyinvolvedintheteam’sdiscussionsduringtheall-night session.After a thorough analysis of the transaction, theBoard voted unanimously in favor of the deal.The result was a $5 billion investment by BerkshireHathaway in Bank of America cumulative perpetualpreferred stock and warrants.SHORING UP AFINANCIAL SERVICESLEADERAnnual Review 201116
  • 18. Blackstone Advisory Partners helped Bank of America’sboard analyze a high-profile investment offer.17
  • 19. purchased a substantial stake in ManyataBusiness Park in Bangalore, which isIndia’s second-largest office park andthe largest operational special economiczone with marquee multinational ten-ants. Once fully operational at 12.9 millionBlackstone has made significant invest-ments in emerging countries, helping tofund essential infrastructure and productioncapacity needed to serve their population,maintain their growth and compete ininternational markets.INVESTING IN INDIAWe have invested or committed $2 billionin India, with a focus on supporting thedevelopment of real estate, energy andfinancial systems to extend the country’seconomic progress. Our investmentsinclude a minority stake in FINO Limited,which brings savings accounts, loans,insurance and other financial services toIndia’s lower-income households thatare not served by conventional bank-ing channels. The company now servesover 40  million customers. BlackstoneTHE GLOBAL ECONOMY NEEDSEmerging Economy Growthsquare feet, Manyata will house close to150,000 professionals.PARTNERING IN BRAZILIn Brazil, we have formed a partnershipwith Pátria Investimentos, the leadingalternative asset manager. Our purchasein 2010 of a 40% stake in Pátria cementedan already close relationship between ourfirms. Brazil’s dynamic growth is creatingdemand for investment in infrastructure,as well as corporate expansion and assetmanagement. Blackstone and Pátria havethe opportunity to serve these needsthrough financial advisory services andprivate equity funds, real estate, creditand hedge funds. Benefitting from ourpartnership, as of December 31, 2011,Pátria’s assets under management were$5.8 billion, a 36% increase over last year.Left to Right:Sean KlimczakManaging Director,Private EquityMichael BiehlAssociate,Private EquityRobin WynnManaging Director,Human Resources$2BILLIONINVESTED OR COMMITTEDCAPITAL IN INDIAAnnual Review 201118 Blackstone
  • 20. POWERING GROWINGECONOMIESPrivate equity provides risk capitaland operational skills to build green-field energy assets vital to high-growtheconomies. Our investment approach isdifferentiated by deep industry exper-tise, local teams with experience in keyregions, and access to Blackstone’s globalresources. We are helping Moser Baer,one of India’s largest power generationcompanies, to develop thermal, solarand hydroelectric plants that will powerapproximately 15  million householdsby 2016. Capital provided by Blackstoneand other partners is helping KosmosEnergy, an international oil and gasexploration and production company,to develop the Jubilee Field, a major oildiscovery off the coast of the Republic ofGhana. In Uganda, a Blackstone portfoliocompany is developing, designing andsupervising construction of the BujagaliProject, a public-private partnership tobuild a hydroelectric power station onthe Nile River that is expected to increaseUganda’s installed generation capacity byapproximately 50%. We also are investingin the development and construction ofan efficient, low-cost power generationproject in the Philippines to replace highercost power generation sources.Bringing financialservices to 40 millionIndian customersunderserved byconventional bankingPartnering with PátriaInvestimentos, theleading alternativeasset manager in Brazil$7BILLIONTOTAL ENTERPRISE VALUEAT THE TIME OFKOSMOS ENERGY’S IPOInvesting to power15 million householdsin IndiaIncreasing Uganda’sinstalled generationcapacity byapproximately 50%Discovering anddeveloping multi-billion-barrel oilprovinces in areas suchas the Republic ofGhana, Morocco andCameroonIn April, held a firstclose for the BlackstoneChina-based RMB fundHelping expand India’ssolar generationcapacity through oneof the largest solarpower developers inthe country19
  • 21. SUPPORTINGAGRICULTURALPRODUCTION IN INDIANUZIVEEDU SEEDSAs the largest hybrid seed company in India,NuziveeduSeedsplaysamajorroleinimprovingthelives of millions of cotton farmers, feeding the coun-try’s growing population and supporting innovationin the agricultural economy. The company is themarket leader in hybrid cotton seeds and also pro-duces seed for corn, rice, sunflower, sorghum andother crops. Its integrated operations include R&D,production, marketing and distribution of seeds.To realize its goals of furthering India’s agri-cultural advances and creating a world-classbio-agri franchise, Nuziveedu Seeds partnered withBlackstone in late 2008. Along with its investmentof capital, Blackstone is providing advice on orga-nizational structure, industry partnerships andcorporate strategies. Working together, Nuziveeduand Blackstone will help India’s agricultural sec-tor—and farmers across the nation—to support thedemands of growth.For the last decade, Nuziveedu has been at theforefront of cutting-edge research in hybrid seeds.By utilizing Monsanto’s Bt-technology with its ownproprietary germplasm, Nuziveedu has producedhybrid cotton seeds with insect-resistant proper-ties suitable for local conditions. These seeds notonly increase crop yields, but also lower pesticideuse, which benefits the environment and reducescosts for farmers. Nuziveedu sources seeds from anetwork of small family farms. By participating inthe network, farmers receive training in improvedgrowing practices — which not only helps meetdemand for the seeds, but can also significantlyimprove the farmers’ incomes.20 Annual Review 2011
  • 22. Nuziveedu Seeds is sustaining millions of small farmersand feeding India’s growing population.21
  • 23. firm built upon a platform of entrepre-neurship, Blackstone believes stronglyin investing in new enterprises that havethe potential to become tomorrow’s greatbusinesses, to stimulate economic oppor-tunity and to deliver enduring value.In the last five years, we have investedor committed over $3  billion in start-ups—an amount that would make us oneof the largest venture capital firms in theworld. We also foster entrepreneurshipthrough The Blackstone Charitable Foun-dation, established in 2007 at the time ofthe firm’s IPO. In 2010, The FoundationannounceditsEntrepreneurshipInitiative,a $50  million commitment to develop-ing and supporting innovative projectswith meaningful potential to create high-growth businesses and industries that arethe engines of economic growth. Of theTHE GLOBAL ECONOMY NEEDSEntrepreneurshipYoung companies create nearly two-thirdsof the new jobs in America, and launchinnovations that keep our country com-petitive in the global marketplace. As aprograms that we have committed to thusfar under this initiative, we expect to startor support 450 businesses and impact thecreation of over 30,000 new American jobsover the next five years.Among its recent activities, ourFoundation committed $3.2 million, inpartnership with The Burton D. MorganFoundation, to extend the BlackstoneLaunchPad program to the campuses ofBaldwin-Wallace College, Case WesternReserve University, Kent State University,and Lorain County Community College inNortheast Ohio. Blackstone LaunchPad,based on an initiative pioneered at theUniversity of Miami, provides training inbusiness practices, mentoring and net-working to help aspiring entrepreneurstransform their ideas into thrivingenterprises.$50MILLIONDEDICATED TO FOSTERINGENTREPRENEURSHIP THROUGHCHARITABLE CONTRIBUTIONSLeft to Right:Josh SchertzerVice President,Information Technology GroupHana AyoubCoordinator, BlackstoneAlternative Asset Management22 Blackstone Annual Review 2011
  • 24. We also committed $3 million to createBlackstone Accelerates Growth, an initia-tiveinMainedesignedtofosterinnovation,spur economic growth and help the statetransition from a resource based economyto an innovation economy. The initiativewill create regional hubs of innovationand entrepreneurship that target training,coaching and mentoring services to thestate’s most promising businesses.MassChallenge, the world’s largestglobal start-up competition, is anotherinitiative that has our solid support. Thecompetition received submissions frommore than 700 entries in 24 countries and34  states. Judges selected from amongthese entries and awarded the winningentrepreneurs prizes totaling $1 million tolaunch innovative start-up concepts.THE BLACKSTONE ENTREPRENEURSNETWORK, NORTH CAROLINAThe Blackstone Entrepreneurs Network, launchedin 2011, focuses on accelerating the growthtrajectory of promising start-ups in the ResearchTriangle Park area of North Carolina. We fundedthe Network, as part of our entrepreneurship initia-tive, with a $3.63 million grant from The BlackstoneCharitable Foundation, and are working in closecollaboration with the region’s major universi-ties — Duke University, North Carolina CentralUniversity, North Carolina State University andthe University of North Carolina at ChapelHill — as well as the Durham-based Council forEntrepreneurial Development.TheNetworkissimilartoprogramsthathavebeensuccessful in Silicon Valley and the Boston Corridor.It draws upon veteran “master entrepreneurs” toidentify marketable innovations emanating fromarea universities and regional start-ups, lookingfor those with the greatest potential to becomehigh-growth companies. The master entrepreneursthen mentor these local entrepreneurs in com-pany-building. Aspiring entrepreneurs also haveaccess to the broader Blackstone EntrepreneursNetwork, which includes sector experts, venturecoaches, angel investors, and administrative andmarketing support.The Blackstone Entrepreneurs Network pro-gram aims to identify and mentor 30 start-up teamseach year, for a total of 150 over its five-year span, tounleash the region’s innovation potential throughgrowth entrepreneurship.BUILDINGAN ECOSYSTEMTO NURTUREHIGH-POTENTIALCOMPANIES450BUSINESSES PLANNEDTO BE STARTED ORSUPPORTED23
  • 25. I believe the true test of any firm is how well it performs in periodsof uncertainty and market dislocation. While 2011 globally wascharacterized by these challenges, our performance was defined byindustry leadership, unusual growth, and institutional stability. Inshort, we had a very good year, and I believe we are one of the fewfinancial firms able to say that.SOLVING PROBLEMS,SUPPORTING PROGRESSIn this economic cycle, challenges oftenseem to outnumber solutions: Businessesrequire capital and strategic partnership.Workers and retirees want and deservesecure financial futures. Emergingand established markets need sustain-able growth.Faced with significant unmet needs inthe global economy, we’ve drawn upon ourdeep and diverse set of core competenciesto deliver solutions:Providing growth capital to supportbusinesses and communities.Working to revitalize Americanindustry.Supporting, rejuvenating and strength-ening global real estate assets.Preserving savings to help pensionfunds provide millions of people with asecure retirement.Offering capital solutions and advice tohelp companies through challengingtimes.Investing in emerging markets that arehelping to drive the global economy.And, enabling entrepreneurs to realizetheir vision and create jobs.By taking this solution-orientedapproach, we delivered solid returns forour investors, providing the financialsecurity that pension funds, academicinstitutions, non-profit organizations andothers depend on to fulfill their missions.Our investors reaffirmed their confidencein us with net inflows across all of ourinvestment businesses. Total assets undermanagement reached a record $166 billion.Our performance at the corporate levelwas also favorable: record total revenuesof $3.3 billion; economic net income of$1.6  billion; and distributable earningsof nearly $700 million.INVESTING IN GROWTH,JOBS AND COMMUNITIESIn 2011 we invested or committed to invest$16.5 billion—a near record level. Puttingthis capital to work is helping to grow greatbusinesses, create jobs and support com-munities, while sowing the seeds of strongfuture returns for our investors.Because of our focus on partnering withourportfoliocompaniestodrivegrowthandoperational improvements, their aggregaterevenues increased 11% and their EBITDArose 9% from the prior year. Collectively,they increased employment by 4.6% in theU.S. last year. That’s an admirable record,considering that job growth for the U.S.economyoverallwasonly1.1%.AN UNPARALLELED PLATFORMWe are able to continually produce strongresults for the firm because of our uniqueplatform: diverse, complementary busi-nesses that perform well across economicand market cycles. Our breadth andscale are unmatched by any of our peers,and each of our businesses continues tooutperform and build on its leadershipposition.Today, our real estate business isconsidered the preeminent real estateopportunistic investor. Our private equitybusiness is one of the largest in the world,and has historically substantially out-performed the S&P 500. Our hedge fundMESSAGE FROM THE CHAIRMANAnnual Review 201124 Blackstone
  • 26. and capital to help strengthen companies,create jobs, secure retirees’ pensions, andsupport economic progress.Each of the businesses that make upBlackstone is thriving. Together they makea great firm — giving us access to a widerange of largely proprietary investmentopportunities.We benefit from a strong financial foun-dation, with significant capital strength atthe corporate level.Across all of our businesses, we have$33  billion in dry powder available forfuture investments, along with the abilityto deploy that capital on a global scale.Finally, we enjoy excellent relation-ships with our investors and clients andhave earned their confidence throughour strength, integrity and unwaveringcommitment to serving their needs.I am proud of our industry leader-ship, our track record, and our trustedrole among investors and clients. We willcontinue to use our strengths to serveour investors, grow businesses and jobs,provide strategic advice, and deliverfavorable performance. I look forward tosharing our future success with you.Sincerely,Stephen A. SchwarzmanChairman, Chief Executive Officerand Co-Foundersolutions business is the largest allocatorof discretionary assets to hedge fundsglobally. GSO, our credit platform, is theleading manager of below-investmentgrade debt and has become the world’slargest leveraged loan investor. Ourrestructuring advisory, M&A advisory andfund placement businesses are recognizedleaders in their respective industries andare repeatedly called on to navigate themost challenging situations.Our investment and advisory platformgives us access to a wide range of assetclasses, revenue streams and geographies,while balancing our exposure to marketvolatility. By sharing insights among ourvarious teams, we also develop a viewpointon the opportunities and risks of the globalmarketplace. This ability to “see aroundcorners” informs our decisions and makesus better investors, advisors and managers.ENTREPRENEURSHIP ANDEXCELLENCEWe have always believed that intellectualcapital is as important as financial capital,and we insist on having the best peoplein place to lead each business. A deeplyrooted entrepreneurial culture givesour teams the freedom to pursue innova-tive ideas.We see ourselves as partners with ourinvestors, advisory clients, portfolio com-panies and communities. In particular,investors know that our interests areclosely aligned with theirs. We’re often thelargest investors in our own funds, and weprotect our investors’ capital as we wouldour own — with a rigorous approach toidentifying and managing risk.STRENGTH AND SOLUTIONSLooking ahead, we are in an exceptionalposition to continue our growth and per-formance—and to apply our talent, energyBOARD OFDIRECTORSStephen A. SchwarzmanChairman, CEO and Co-Founder,The Blackstone GroupHamilton E. JamesPresident andChief Operating Officer,The Blackstone GroupJ. Tomilson HillVice Chairman andHead of BlackstoneAlternative Asset Management,The Blackstone GroupJonathan D. GrayGlobal Head of Real Estate,The Blackstone GroupRichard JenretteRetired Chairman and CEO,The EquitableLife Assurance SocietyJay O. LightDean Emeritus,Harvard Business SchoolThe Right HonorableBrian MulroneyFormer Prime Minister of CanadaWilliam G. ParrettRetired CEO and Senior Partner,Deloitte Touche Tohmatsu25
  • 27. FINANCIAL HIGHLIGHTS$166$3.3billionTOTAL 2011 REVENUESbillionIN TOTAL AUM AS OF DECEMBER 31, 201126 Blackstone Annual Review 2011
  • 28. 28%net realized/partiallyrealized16%net total funds3%22%net realized/partiallyrealized4%15%net total funds6%net composite7%High Yield Index17%net IRRflagshipmezzaninefunds1%REAL ESTATEncreifs&p 500PRIVATE EQUITY HEDGE FUND SOLUTIONSBAAMCREDITGSOs&pTotal ReturnBLACKSTONE PERFORMANCECOMPOUND ANNUAL GROWTH RATE28%Past performance is not indicative of future results and there is no assurance that any Blackstone fund will achieve its objectives or avoid significant losses. Real Estate net returnsshown for global funds, from inception of the business in January 1992 through present. NCREIF refers to the National Council of Real Estate Investment Fiduciaries Fund Index—Open End Diversified Core Equity. Private Equity net returns shown for all funds, from inception of the business in October 1987 through present. The BAAM net composite covers theperiod from January 2000 to present, although BAAM’s inception date is September 1990. The BAAM net composite is the asset-weighted performance of BAAM’s investments net ofall fees and does not include BAAM’s commodities platform, long-only platform, strategic opportunities funds, seed funds, and advisory relationships. Credit mezzanine funds’ netreturn reflects combined net IRRs of the GSO Capital Opportunities Fund and GSO Capital Opportunities Fund II, from inception of the first fund in July 2007 through present.The performance of each index presented is disclosed to provide a comparison to a well-known and widely recognized index, and is not necessarily the index that would be presented ifthe sole purpose were to select a benchmark against which to compare the performance of the respective funds.27
  • 29. 09 10 11$7.9$3.8$643M$1.5B$4.8B$481M$264M$7.6B$973M$1.7B $1.9B$3.2B$4.2B$943Mbillionbillion$16.5*billionCAPITAL DEPLOYED*Includes aggregate outstanding amounts committed but not deployed as of 12/31/2011**Includes drawdown funds onlyCredit Businesses**Hedge Fund Solutions**Real EstatePrivate Equity34%10%5%6%12%14%16%Public PensionCorporate PensionFinancial InstitutionSovereignWealthHigh NetWorthFund of FundsFoundation/EndowmentsOther3%LIMITED PARTNERS BY TYPE$1,581M$579M$395M$390M$339MReal EstateHedge Fund SolutionsPrivate EquityCreditBusinessesFinancial Advisory2011 REVENUESFINANCIAL HIGHLIGHTS28 Blackstone Annual Review 201128
  • 30. 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10Credit BusinessesHedge Fund SolutionsReal EstatePrivate Equity$3 $4$8 $8$12 $13 $14$22$27$32$51$70$102$95$98$12811$166BLACKSTONE AUM GROWTH, DOLLARS IN BILLIONS29
  • 31. MANAGEMENT COMMITTEELeft to Right:J. Tomilson Hill, Hamilton E. James, Joan Solotar, Stephen A. Schwarzman,Laurence A. Tosi, Jonathan D. Gray, Bennett GoodmanAnnual Review 201130 Blackstone
  • 32. OUR GUIDINGPRINCIPLESTHE PETER G.PETERSON AWARDACCOUNTABILITYOur capital and reputation arealways on the lineEXCELLENCENothing less is ever acceptableINTEGRITYLeadership demands responsibilityTEAMWORKAlways makes us betterENTREPRENEURSHIPUsing creativity to find opportunitiesothers overlookCHRISTINE VESCHIPRINCIPALINVESTOR RELATIONS ANDBUSINESS DEVELOPMENTThe 2011 recipient of the Peter G. PetersonAward for Excellence in Business andCommunity Service was Christine Veschi,a Principal in our Investor Relations andBusiness Development Group. Christineis a pillar of her group, selflessly sharingher knowledge and energy, and always hasthe firm’s and our clients’ best interests inmind. Her work with worthy organizationshas been a life-long passion, from servingwith the Peace Corps in Slovakia and teach-ing in West Africa to helping run a soupkitchen and distributing food, clothing andhope to homeless people and seniors inNew York City. Christine has also men-tored adults and struggling youth.The Peterson Award honors the manycontributions of our co-founder, Peter G.Peterson, who retired in 2008, and is givenannually to an employee who has shown adeep commitment to excellence inside andoutside the firm. Recipients are nominatedby their peers and chosen by our ExecutiveCommittee.Neither this annual review nor any of the information con-tained herein constitutes an offer of any Blackstone fund.For information about Blackstone’s business, including risksand financial information, please refer to our Annual Reporton Form 10-K for the year ended December 31, 2011 filed withthe Securities and Exchange Commission.12345DesignbyAddisonwww.addison.com
  • 33. Blackstone345 Park AvenueNew York,New York 10154blackstone.comAtlanta4401 Northside Parkway3rd Floor, Suite 375Atlanta, GA 30327BeijingWinland InternationalFinance CenterUnit F817-18No. 7, Finance StreetXicheng District, BeijingChina 100140BostonExchange Place53 State Street29th FloorBoston, MA 02109Chicago200WestMadisonStreetSuite 3800Chicago, IL 60606Dallas3949 Maple AvenueSuite 400Dallas, TX 75219DubaiLevels 5 & 6Gate Village 06PO Box 506741Dubai Financial CenterSheikh Zayed RoadDubai, UAEDublinO’Connell Bridge HouseD’Olier Street9th and 10th FloorsDublin 2IrelandDüsseldorfBenrather Strasse 12D-40213 DüsseldorfGermanyHong KongTwo InternationalFinance CentreSuite 901, 9th Floor8 Finance StreetCentral, Hong KongChinaHouston11 Greenway PlazaSuite 3050Houston, TX 77046IstanbulSair Nedim CaddesiE 2 ResidenceDaire 1, Akaretler, 34357Besiktas, IstanbulTurkeyLondon40 Berkeley SquareLondon, W1J 5ALUnited KingdomLos Angeles1299 Ocean AvenueSuite 320Santa Monica, CA 90401Menlo Park2494 Sand Hill RoadSuite 200Menlo Park, CA 94025MumbaiExpress Towers5th FloorNariman PointMumbai, 400 021IndiaParis3 rue Paul Cézanne75008 ParisFranceSan Francisco101 California StreetSuite 2880San Francisco, CA 94111SeoulJongno Tower17th Floor6, Jongno 2-GaJongno-Gu, SeoulKoreaShanghaiUnit 1101DBS Bank TowerNo. 1318 Lujiazui RingRoad, PudongShanghai 200120, PRCSingapore10 Marina BoulevardMarina Bay FinancialCentre Tower 2Suite 13-01/02Singapore 018983SydneySuite 3901, Gateway1 Maquarie PlaceSydney NSW 2000AustraliaTokyoMidtown Tower22nd Floor9-7-1 Akasaka Minato-KuTokyo, 107-6222JapanStrategic PartnerPátria InvestimentosAv. BrigadeiroFaria Lima, 20557° andarSão Paulo, BrazilCEP 01452 001The globaleconomyneeds...Annual Review 2011TheBlackstoneGroupAnnualReview2011