Overview of the Firm The Adviser, directly or indirectly through its subsidiaries, provides investment advisory services
to its Clients, and Affiliates of the Adviser generally serve as General Partner of each Client. The
Adviser’s Clients primarily make control-oriented “opportunistic” Investments in real estate and
real estate related assets and companies. The Adviser also serves as an investment sub-advisor to
certain Investment Vehicles, pursuant to sub-advisory agreements with the applicable Investment
Vehicle’s investment adviser.
The ultimate parent of the Adviser is The Blackstone Group Inc., a publicly held corporation
listed on the New York Stock Exchange that trades under the ticker symbol “BX”. Please see the
structure chart below. Blackstone is a leading global alternative investment manager with
Investment Vehicles focused on real estate, private equity, hedge fund solutions, credit,
infrastructure, secondary funds of funds and multi-asset class strategies. Effective as of July 1,
2019, The Blackstone Group Inc. converted from a Delaware limited partnership named The
Blackstone Group L.P. to a Delaware corporation. Please see Item 10 – Other Financial
Industry Activities and Affiliations for more information.
As of December 31, 2018, the Adviser had regulatory assets under management of approximately
$8.6 billion on a discretionary basis. Please note that this figure is an unaudited estimate.
Description of Advisory Services The Adviser serves as investment adviser to its Clients pursuant to the Advisory Agreements. The
Adviser performs the following services, among others, for its Clients:
1. Identifies and analyzes investment opportunities;
2. Makes investment recommendations to the General Partner of each Client, as applicable;
3. Participates in the monitoring and evaluation of investments; and
4. Provides other related services in connection with the implementation of the investment
program of each Client.
The Adviser tailors its advisory services to the particular needs of each Client. However, the
specific needs of the individual Investors in a Client (i.e., limited partner investors) are not the
basis for recommendations by the Adviser. Investment advice is provided directly to the Client,
not individually to the respective Investors in the Client.
Management Fees and Performance Fees The Adviser charges each Client a Management Fee quarterly that is payable in arrears at a rate of
up to 1.50% per annum (which varies by Client) pursuant to the terms of the applicable Advisory
Agreement. During a Client’s investment period, Management Fees are charged based on capital
commitments, and thereafter based on invested capital.
The Management Fee is prorated for any partial periods. In certain cases, the portion of the
Management Fee allocable to an Investor in a Client is offset by specified additional fees received
by the Adviser (as more fully described below) or will be waived or reduced for a certain period
for certain Investors (including but not limited to Investors participating in early closings or
Blackstone Employee Investors).
As set forth in Item 6 below, each of the General Partners receives performance-based
compensation in respect of realized appreciation, subject to certain conditions, and, in addition,
certain Clients distribute current income from Investments.
Management Fees and performance-based compensation are either called from Investors or
withheld from distributions to Investors, as applicable.
Management Fees and/or performance-based compensation will not be paid by Blackstone
Employee Investors in connection with their investments. Notwithstanding the foregoing, such
Investors will either directly pay for their pro rata share of the other expenses incurred by the
applicable Client (as described below), or the pro rata share of such expenses will be allocated to
the General Partner or its Affiliates. For more information on the allocation of Client expenses,
please see “Expenses” in Item 5 below.
Other Fees Payable to the Adviser and its Affiliates The Adviser and its Affiliates also will from time to time receive (i) Acquisition Fees; (ii) fees
relating to Investments for any management, construction, leasing, development and other
property management services, as well as services related to mortgage servicing, group purchasing,
healthcare, consulting/brokerage, capital markets (including with respect to syndications or
placements of debt and/or equity securities or instruments issued by Portfolio Entities formed to
invest therein), credit origination, loan servicing, property, title and/or other types of insurance,
management consulting and other similar operational matters performed by the Adviser or its
Affiliates on arm’s-length terms and at competitive market rates; (iii) fees for advisory services
(including investment banking services) provided to entities (or with respect to assets) in which
the Clients, directly or indirectly, have an interest, on arm’s length terms and at competitive market
rates; and (iv) fees associated with capital invested by co-investors relating to Investments in which
the Clients participate or otherwise, in connection with a JV Arrangements in which the Clients
participate or otherwise with respect to assets or other interests retained by a seller or other
commercial counterparty with respect to which the Adviser or its Affiliates performs services.
Such fees will not result in an offset to the Management Fee, except as set forth in the
Organizational Documents of the Clients. Furthermore, the Adviser and its Affiliates will, in
certain circumstances, receive Additional Fees, which do offset the Management Fee.
In addition, Portfolio Entities and Blackstone-affiliated service providers will receive fees in
respect of services provided to Clients, Other Blackstone Vehicles and Portfolio Entities of the
foregoing. As a result, while Blackstone believes that any such Portfolio Entities or Blackstone-
affiliated service providers, when engaged, provide (or Blackstone believes they will provide)
services on a cost reimbursement basis at or below market rates or otherwise at rates that
Blackstone believes are reasonable, there is an inherent conflict of interest that incentivizes
Blackstone to engage its Portfolio Entities and Blackstone-affiliated service providers over third
parties. Please see Item 10 – Other Financial Industry Activities and Affiliations below and, in
particular, “
Portfolio Entity Service Providers and Vendors”, “Third Party Service Providers,
Vendors and Other Counterparties Generally” and “
Blackstone Affiliate Service Providers”
therein respectively for further information about such Portfolio Entities and Blackstone-affiliated
service providers.
The Management Fee paid to the Adviser, pursuant to the Organizational Documents of Clients,
with respect to Investors in the Clients is generally offset by some or all of such Investor’s share
of the placement fees paid by such Investor, Additional Fees and Acquisition Fees that varies
among the Clients. Such fees will be allocated between the relevant Client and any other
Investment Vehicles sponsored by the Adviser and its Affiliates having an interest in such fees on
a pro rata basis.
The amount of such fees which are allocable to Other Blackstone Vehicles or accounts and co-
investment vehicles generally do not offset the Management Fee allocable to Investors in the
Clients, even if such Other Blackstone Vehicles or accounts and co-investment vehicles provide
for lower or no management fees for the Investors or participants therein (such as the vehicles
established in connection with Blackstone’s side-by-side co-investment rights, which generally do
not provide for a management fee or performance-based compensation payable by participants
therein), subject to certain limitations.
The Adviser or its Affiliates, from time to time, will also receive topping, break-up or other similar
fees in connection with any unconsummated or terminated transaction as noted above. To the
extent the Adviser or its Affiliates receive such fees, they are treated like Additional Fees. In the
event break-up or topping fees are paid to the Adviser and its Affiliates in connection with a
transaction that is not ultimately consummated, co-investment vehicles that invest alongside the
Clients will generally not be allocated any share of such break-up or topping fees; similarly, such
co-investment vehicles generally do not bear their share of broken deal expenses for
unconsummated transactions and such costs and expenses will generally be borne by the Clients.
In the event break-up fees, topping fees, or similar expenses are payable by a co-investment
vehicle, the Clients will, in certain circumstances, advance such fees and expenses on behalf of the
co-investment vehicle without charging interest until paid by the co-investment vehicle and the
General Partners may, in their discretion, request contribution from such co-investment vehicle in
an amount equal to the advance. Such other fees may give rise to conflicts of interest in connection
with a Client’s Investment activities.
In addition, the Adviser and its Affiliates will, in certain circumstances, receive a fee from the
Clients in respect of the provision of Administrative Services as well as the payment or
reimbursement of any expenses, charges or related costs incurred by such Clients, the Adviser or
its Affiliates in connection with such provision of Administrative Services to such Clients (or
specifically allocated thereto);
provided,
however, that any such expenses, fees, charges or related
costs in connection with such provision of Administrative Services will not be greater than what
would be paid to an unaffiliated third party for substantially similar services. Such allocations
require judgments as to methodology that Blackstone will make in good faith. Such methodologies
can include (i) requiring personnel to periodically record or allocate their historical time spent with
respect to the Clients or Blackstone approximating the proportion of certain personnel’s time spent
with respect to the Clients, and in each case allocating their compensation and allocable overhead
based on time spent, or charging their time spent at market rates, (ii) the assessment of an overall
dollar amount (based on a fixed fee or percentage of assets under management) that Blackstone
believes represents a fair recoupment of expenses and a market rate for such services or (iii) any
other similar methodology determined by Blackstone to be appropriate under the circumstances.
Any methodology (including the choice thereof) involves inherent conflicts and may result in
incurrence of greater expenses by the Clients and their Portfolio Entities than would be the case if
such services were provided by third parties. These expenses will be borne by the Clients and will
not result in any offset to the Management Fee.
The Adviser and its personnel and related parties will receive intangible and other benefits,
discounts and perquisites arising or resulting from their activities on behalf of the Clients, which
will not offset or reduce Management Fees or otherwise be shared with the Clients or their
Investors or Portfolio Entities. For example, airline travel or hotel stays will result in “miles” or
“points” or credit in loyalty or status programs, and such benefits will, whether or not de minimis
or difficult to value, inure exclusively to the benefit of the Adviser, its Affiliates or their personnel
or related parties receiving it, even though the cost of the underlying service is borne by the Client
or by its Portfolio Entities. Similarly, the Adviser, its Affiliates and their personnel and related
parties, and third parties designated by the foregoing, also receive discounts on products and
services provided by Portfolio Entities or customers or suppliers of such Portfolio Entities.
CoreTrust is an independent group purchasing organization used by large corporations and private
equity firms to obtain volume discounts on products and services. In consideration of Blackstone’s
work in facilitating Portfolio Entities’ participation in CoreTrust and in enhancing CoreTrust’s
program, Blackstone receives a portion of the administrative fee CoreTrust collects from vendors
as well as an annual consulting fee from CoreTrust. These fees do not offset Management Fees
payable by investors.
In addition, the Adviser engages and retains on behalf of the Clients or their Portfolio Entities,
Consultants who will, from time to time, receive payments from, or performance-based
compensation, retainers and expense reimbursements with respect to, Portfolio Entities (as well as
from Blackstone or the Clients), and such amounts will not offset the Management Fees payable
by the Investors. Such payments, performance-based compensation, retainers and expense
reimbursements, as applicable, will be paid at rates determined by Blackstone, the Adviser or the
General Partner, in its sole discretion.
The Clients will generally bear the costs and expenses related to the organization or maintenance
of any entity used to directly or indirectly acquire, hold or dispose of any Investment or otherwise
facilitate such Clients’ Investment activities (including, without limitation, travel, accommodation
and related expenses related to such entity, and the salary and benefits of any personnel (including
of the Adviser or its Affiliates) reasonably necessary or advisable for the maintenance and
operation of such entity), expenses of liquidating Clients, capital raising and Investor related
services and other similar costs and expenses of administering side letters entered into with
Investors (including the process of distributing and implementing applicable elections pursuant to
any “most-favored nation” clauses in side letters) and to the extent not reimbursed by a third-party,
all third-party expenses incurred in connection with a proposed Investment that is not ultimately
made or a proposed disposition that is not actually consummated (including legal, tax, accounting,
travel and other expenses related to underwriting and pursuing an Investment, advisory and
consulting fees and expenses, travel, accommodation and related expenses and printing expenses,
and any liquidated damages, reverse termination fees or similar payments). Service providers
(including Affiliates of the Adviser) will be retained for such purposes in accordance with the
terms described in Item 10 – “
Portfolio Entity Service Providers and Vendors” and “Third Party
Service Providers, Vendors and Other Counterparties Generally.”
The Clients will, in certain circumstances, be required to make contingent funding commitments
or guarantees to their Portfolio Entities or other vehicles or entities in or alongside which the
Clients invest and to provide other credit support arrangements in connection therewith. Such
credit support may take the form of a guarantee, a letter of credit or other forms of promise to
provide funding. Such credit support will, in certain circumstances, result in fees, expenses and
interest costs to the Clients, subject to certain limitations set forth in the organizational documents
of the applicable Clients.
The precise amount of, and the manner and calculation of, the fees and compensation described
above, including the Management Fee and performance-based compensation, are established by
the Adviser through negotiations with Investors in each Client, and the Offering Materials, the
Organizational Documents and the Advisory Agreement of each Client include further details on
such fees, compensation and related matters.
Expenses The following is a list of expenses that are typically borne by the Clients (and indirectly by the
Investors in the Clients). This list is not intended to be exhaustive; prospective and existing
Investors in the Clients are advised to review the applicable Client’s Offering Materials and
Organizational Documents for a more extensive description of the expenses associated with an
investment in such Client.
Legal fees (including costs for in-house legal advice and/or services charged or attributed
or allocated by the Adviser and its Affiliates to the Clients or their Portfolio Entities on
matters related to potential or actual Investments or transactions of the Clients and their
Portfolio Entities, as applicable;
provided, that any such expenses, fees, charges or related
costs shall not be greater than what would be paid to an unaffiliated third party for
substantially similar services)
Placement fees and due diligence of placement agents (See Item 14 below)
Regulatory filing fees of the Clients, including but not limited to compliance with AIFMD
(including any costs associated with the AIFMD marketing passport), U.S. federal and state
securities laws and other international laws
Expenses related to the Adviser’s compliance matters and reporting obligations to the
extent they relate to the Clients’ activities (
e.g., Form PF, CFTC filings, AIFMD)
Risk management
Data aggregation
Administrative fees (including in-house administration/accounting costs), expenses and
charges, including overhead related thereto
Administrator fees and due diligence of such administrator or other service provider
Organizational expenses
Operating expenses
Consultant, operating partner and senior advisor expenses (See “
Advisors, Consultants
and Partners” in Item 10 below) and the expenses of investment bankers (See “
Other
Blackstone Business Activities” and “
Multiple Blackstone Business Lines” in Item 10
below)
Technology expenses (including third-party as well as internally allocated charges)
Certain hardware expenses and software fees
Property, loan administration and servicing and other asset management fees
Audit and accounting fees
Fees and expenses associated with brokerage services (including prime broker account
charge, brokerage commissions and distribution fees)
Fees and expenses associated with borrowing, guarantees and other financing, including
interest charges
Fee and other expenses incurred in connection with derivative transactions
Expenses associated with the development, negotiation, acquisition, settling, holding,
monitoring and disposition of Investments and transaction fees
Costs and expenses associated with vehicles through which the Clients or their Investors
directly or indirectly participate in Investments
Fees, costs and expenses related to the organization or maintenance of any intermediate
entity
Taxes, fees or governmental charges imposed on the Investment Vehicles and expenses
related to the preparation and delivery of any entity-level taxes
Custodial, depositary, representative and paying agent and other third-party professional
fees
Bank and bank wire fees
Fees and expenses related to hedging and currency conversion
Travel and other expenses in connection with the Clients’ organization, fundraising and
Investment activities (including first class and/or business class airfare (and/or private
charter, where appropriate), first class lodging, ground transportation, travel and premium
meals (including, as applicable, closing dinners and mementos, cars and meals (outside
normal business hours) and social and entertainment events with Portfolio Entity
employees, customers, clients, investors, borrowers, brokers and service providers) and
related costs and expenses incidental thereto)). Most staff out-of-pocket travel expenses in
connection with the Clients’ transactions are treated as expenses of the Clients, subject to
the terms of the Offering Materials, Organizational Documents and the Advisory
Agreements.
Fees, costs and expenses related to the organization or maintenance of any intermediate
entity used to acquire, hold or dispose of any one or more Investment(s) or otherwise
facilitating a Client’s Investment activities, including without limitation any travel and
accommodation expenses related to such entity and the salary and benefits of any personnel
(including personnel of the Adviser or its Affiliates and Luxembourg entities formed in
connection with the Clients’ activities)) reasonably necessary and/or advisable for the
maintenance and operation of such entity, costs associated with the leasing of office space
(including in Luxembourg), or other overhead expenses in connection therewith.
Fees, costs and expenses of feeder vehicles to the extent not paid by such vehicle or its
partners, as applicable
Expenses related to the preparation and delivery of internal control reports
Marketing, advertising, printing, wholesaling and other capital raising expenses associated
with Investor admission/subscription and Investor-related services and other similar costs
Research-related expenses, including news and quotation equipment and services
Expenses associated with market data and research (including fees for internal and/or third-
party research-related services)
Expenses of Blackstone-internal and third-party printing and publishing (including time
spent performing such printing and publishing services)
Preparing, printing and delivering all reports, documents and filings related to the Clients
and their Investments
Expenses associated with the preparation of the Clients’ periodic reports (and related
financial and other statements) and Investor notices and communications
Expenses of Investor meetings
Broken-deal expenses
Insurance expenses
Extraordinary expenses, including expenses of litigation or settlement involving the Clients
or Portfolio Entities in which the Clients have Investments and the amount of any
judgments or settlements paid in connection therewith
Expenses incurred in connection with complying with provisions in Investor side letter
agreements related to the Clients, including “Most-Favored Nations” provisions
Valuation costs (including costs related to a third-party valuation advisor and/or third-party
appraiser)
Expenses of the L.P. Advisory Committee or board of directors, including director fees, as
applicable
Expenses of third-party advisory committees of the Clients as well as of other goods and
services provided by third parties
Expenses incurred in connection with organizing and/or attending Investment-related
conferences
Dissolution and liquidation expenses
Arbitration expenses
Expenses of loan servicers and other service providers
Expenses associated with redemptions and admissions/subscriptions
Investors in a Client are typically allocated (or otherwise bear) their pro rata share of such fees and
expenses, which will, in certain circumstances, be calculated based on capital commitments,
invested capital, available capital, or other metrics as determined by the General Partner in its sole
discretion. From time to time, the General Partner will be required to decide whether costs and
expenses are to be borne by a Client, on the one hand, or the General Partner and the Adviser, on
the other, and/or whether certain costs and expenses should be allocated between or among the
Clients, on the one hand, and the Other Blackstone Vehicles on the other. Certain expenses may
be suitable for only a particular Client, its parallel fund or participating Other Blackstone Vehicles
and borne only by such Client, or, as is more often the case, expenses may be allocated pro rata
among the Client, all of its parallel funds and participating Other Blackstone Vehicles, even if the
expenses relate only to particular vehicle(s) and/or Investor(s) therein, and such allocation can be
expected to be calculated based on capital commitments, invested capital, available capital, or
other metrics as determined by the General Partner in its sole discretion. The General Partner will
make such judgments on a fair and reasonable basis, and in its sole discretion, notwithstanding its
interest in the outcome, and may make corrective allocations should it determine that such
corrections are necessary or advisable. There can be no assurance that a different manner of
allocation would not result in a Client bearing less (or more) expenses.
Certain personnel of Blackstone and its Affiliates, including Consultants (as defined herein), will,
in certain circumstances, be seconded to one or more Portfolio Entities, vendors, service providers
and vendors or Investors of the Clients and Other Blackstone Vehicles to provide services,
including the sourcing of Investments for the Clients or other parties. The salaries, benefits,
overhead and other similar expenses for such personnel during the secondment could be borne by
Blackstone and its Affiliates or the organization for which the personnel are working or both. In
addition, personnel of Portfolio Entities, vendors, service providers (including law firms and
accounting firms) and Investors of the Clients and Other Blackstone Vehicles will, in certain
circumstances, be seconded, or serve internships at, Blackstone and Portfolio Entities of the
Clients. (See “
Secondment and Internships” in Item 10 below) While often the Clients, Other
Blackstone Vehicles and their Portfolio Entities are the beneficiaries of these types of
arrangements, Blackstone is from time to time a beneficiary of these arrangements as well,
including in circumstances where the vendor or service provider also provides services to the
Clients in the ordinary course. From time to time, the Portfolio Entity and/or the Client may bear
the entire cost of such secondments or internships although Blackstone can be expected to in part
benefit from them. Blackstone or the Portfolio Entity may or may not pay salary or cover expenses
associated with such secondees and interns, and if a Portfolio Entity pays the cost it will be borne
directly or indirectly by the Client. The Management Fee will not be offset or reduced as a result
of these secondments or internships or any fees, expense reimbursements or other costs related
thereto. The personnel described above can be expected to provide services in respect of multiple
matters, including in respect of matters related to Blackstone, its Affiliates and related parties, and
any costs of such personnel may be allocated accordingly.
please register to get more info
In addition to the Management Fees and other fees described in Item 5 that are received by the
Adviser, General Partners or their respective Affiliates (as applicable), the General Partners of
each Client receive a portion of the profits of current disposition proceeds from each Client with
respect to each Investor (other than Blackstone Employee Investors), which is equal to, in the case
of the BREP Funds, 20% of the amounts otherwise distributable to such Investor, and in the case
of the Other Real Estate Vehicles, a percentage of the amounts otherwise distributable to such
Investor that varies depending on the particular Other Real Estate Vehicle. Such allocation of
profits is only allocated to the General Partners when specific conditions are met, including the
return to each of the Investors of an aggregate amount equal to all capital contributed by such
Investors for realized Investments, writedowns (or net writedowns in certain cases) on unrealized
Investments, fees and expenses allocable to such Investments and the receipt of a preferred return
on such amounts.
The Investment Vehicles distribute current income from an Investment generally in the manner
described above relating to the distribution of disposition proceeds, except that distributions of
current income are made on an Investment by Investment basis and do not take account of a return
of capital and any writedowns, but will take into account actual unrecouped losses from prior
dispositions.
As described in Item 10 – “
Performance-Based Compensation”, the fact that the Adviser’s
Affiliates are in part compensated based on the performance of the Clients creates a greater
incentive for the Adviser to make more speculative Investments on behalf of the Clients or time
the purchase or sale of Investments in a manner motivated by the personal interest of Blackstone
personnel than if such performance-based compensation did not exist. However, the significant
commitment by Blackstone to invest in the Clients, the General Partner clawback provisions,
where applicable, should reduce the incentives to make more speculative Investments or otherwise
time the sale of Investments based on considerations related to performance-based compensation.
The General Partner clawback, where applicable, potentially creates other misalignments of
interests between the General Partner and Investors, such as an incentive for the General Partner
to defer disposition of an Investment that would result in a realized loss and trigger the clawback,
or delay the dissolution and liquidation of the Clients if doing so would trigger a clawback
obligation.
As described in Item 5, Blackstone Employee Investors are not subject to Management Fees or
performance-based compensation allocations with respect to the Clients.
Finally, as described in Item 10 – “
Joint Venture Partners”, the Clients will from time to time
enter into one or more JV Arrangements with Joint Venture Partners, which will involve
performance-based compensation and/or other fees payable to such Joint Venture Partners directly
or indirectly by such Clients. Any such compensation and/or fees will reduce the actual returns
realized by Investors on their Investments in the Clients and will not result in an offset of the
Management Fee.
The precise amount of, and the manner and calculation of, the compensation described above are
established by the Adviser and General Partners, as applicable, through negotiations with Investors
in each Client, and the actual amount of compensation could differ from the described above. The
Offering Materials, the Organizational Documents and the Advisory Agreement of each Client
include further details on such compensation and related matters.
please register to get more info
The Adviser provides investment advice to its Clients. A Client’s Investors can be expected to
consist of some or all of the following:
Sovereign wealth funds;
Public and private retirement and pension plans;
State and municipal government agencies;
Insurance companies;
Public and private profit sharing plans;
Charitable organizations and foundations, including endowment funds thereof;
Banks and other financial institutions;
Private investment funds;
Investment companies;
Trusts and estates;
Corporations;
Family Offices;
Certain high net worth individuals; and
Business entities other than those listed above.
All Investors in the Clients are subject to applicable suitability requirements. The Adviser and the
General Partner of each Client require that each Investor in the Clients be an “accredited investor”
as defined in Regulation D under the Securities Act, and a “qualified purchaser” as defined in
Section 2(a)(51) of the U.S. Investment Company Act of 1940, as amended, and meet other
suitability requirements (including, in some circumstances, a person that is not a U.S. Person as
defined in Regulation S under the Securities Act). Generally, Investors must invest a minimum
dollar amount as determined in the applicable General Partner’s sole discretion. The General
Partner reserves the right, in its sole discretion, to waive the minimum dollar amount.
Analysis The Adviser identifies and evaluates the Investments in which the Clients invest. The Adviser’s
analysis is based on certain criteria, which include, but are not limited to, risk/return profile, capital
structure, liquidity and investment performance. See Item 10 – “
Advisors, Consultants and
Partners” for additional information on sourcing Investments.
Investment Strategies The Adviser generally advises the Clients to invest in equity, equity-related real estate securities
(including (i) preferred stock, debt and other securities relating to common equity Investments and
(ii) preferred stock, debt and other securities that are expected to produce equity-like returns),
single real estate assets, portfolios of real estate assets, real estate operating companies, and other
real estate and real estate-related assets.
The Adviser’s investment analysis methods include fundamental, technical and cyclical research.
The Adviser’s investment team is responsible for evaluating real estate, securities and other
products for Investment for the Clients. The Adviser’s investment professionals, with the advice
and assistance of legal counsel when deemed appropriate, also review portfolios for adherence to
the applicable investment guidelines of each applicable Client.
Before making Investments, the Adviser will conduct due diligence that it deems reasonable and
appropriate based on the facts and circumstances applicable to each Investment. Due diligence
will, in certain circumstances, entail evaluation of important and complex business, financial, tax,
accounting, environmental, social, governance and legal issues. When conducting due diligence
and analyzing an Investment, the Adviser will rely on the resources available to it, including
information provided by the seller of the Investment and, in some circumstances, third-party
investigations.
In particular, the Adviser typically conducts four types of due diligence on prospective
Investments:
A preliminary review of each opportunity is conducted to screen the attractiveness of each
Investment followed by an initial projection based on macro- and micro-economic analyses.
Projection assumptions are generally developed from analysis of historical operating
performance, discussions with local real estate contacts, and review of published sources.
The Adviser reviews relevant books and records (such as comparing rent roll to leases for
office buildings), confirms cash flow information provided by the seller, and conducts similar
types of analysis, in most instances using outside consultants.
Physical due diligence primarily involves an analysis of environmental and engineering
matters through third-party consultants. Conclusions from environmental/engineering
reports are incorporated into the financial projection analysis. Additionally, each potential
Investment and comparable assets are investigated to assess relative market position,
functionality and obsolescence.
The Adviser works closely with legal counsel to review, diligence and negotiate all
applicable legal and property-specific documents pertaining to an Investment (
e.g., loan
documents, leases, management agreements, purchase contracts, etc.).
The Blackstone Real Estate Group Investment Committee meets weekly to carefully review and
challenge investments and dispositions around the world. Discussions are led by the Global Co-
Heads of Real Estate. In addition to its Chairman, who is also the President and Chief Operating
Officer of Blackstone, the Blackstone Real Estate Group Investment Committee also includes the
Chairman and CEO of Blackstone, the Executive Vice Chairman of Blackstone, and all Senior
Managing Directors in the Blackstone Real Estate Group. Blackstone manages its Investments
through proactive day-to-day asset management, as well as regular global asset reviews and
quarterly valuation meetings. Certain significant Investments of the Clients are reviewed and
approved by the Blackstone Real Estate Group Investment Committee. Smaller Investments are
reviewed by a prescribed subset of the Blackstone Real Estate Group Investment Committee. The
Blackstone Real Estate Group Investment Committee utilizes a consensus-based approach to
decision making among the members.
The above is only a summary of the principal investment strategies employed by the Adviser. The
material risks associated with these strategies is set forth below.
Risk of Loss An investment in the Clients entails a significant degree of risk and therefore should be undertaken
only by investors capable of evaluating the risks of an investment therein and bearing the risks
such investments represent. Set forth below is a non-exhaustive list of such risks (some of which
may not apply to a particular Client):
1. No established market for potential Investments exists
2. Illiquidity of Investments by the Clients
3. Restrictions on transfers of investor interests under the Organizational Documents or the
Securities Act and lack of a public market
4. Financial market fluctuations and the availability of financing
5. Economic, political and social uncertainty in the markets where Clients invest and globally
6. Regional risk; interdependence of markets
7. Changes in legal, fiscal and regulatory regimes
8. Nature of equity or equity-related Investments
9. For non-U.S. Investments, currency fluctuation, exchange controls and political factors
10. Portfolio concentration
11. Investment environment and market risk
12. Market volatility risks, including interest rate fluctuations and inflation
13. Environmental risks and potential liabilities
14. Risk of loss of entire Investment
15. Deterioration of property values
16. Policy risks in emerging markets
17. Highly competitive nature of real estate investment business
18. Inability to deploy capital in conjunction with finding suitable Investments
19. Lender liability risks, including equitable subordination
20. Leverage risk (including with respect to subscription credit facilities)
21. Hedging risk
22. Inability to implement a Client’s investment strategy
23. Service provider process / control
24. Increase in supply / decrease in demand
25. Dependence on the Adviser, the Adviser’s key personnel, and Portfolio Entity management
26. Real estate’s susceptibility to adverse changes in economic and employment conditions
27. Valuation matters, including deficiencies in appraisal quality in the investment process (see
Item 10 – “
Valuation Matters” for more information)
28. Accounting, disclosure and regulatory standards
29. Risks of acquiring real estate property, including fluctuations in occupancy, rental rates,
operating income and expenses
30. Contingent liabilities incurred on dispositions or financings of Investments
31. Limited ability to protect the Client’s interest when making non-controlling Investments
or Investments with third parties (including joint ventures)
32. Lack of diversification in Investments
33. Limited availability of investment opportunities
34. Operating and financial risks of Portfolio Entities
35. Reliance on Portfolio Entity management and third parties
36. Cyber security breaches and identity theft
37. Risks arising from ERISA including potential control group liability
38. Litigation risk (including at the property level)
39. Cross incurrence of indebtedness or guarantees on a several, joint and several or cross-
collateralized basis among the Clients and with Other Blackstone Vehicles (please see Item
10 – “
Cross-Guarantees and Cross-Collateralization” for more information)
40. CFTC registration requirements or maintenance of exemptions therefrom
41. Enhanced scrutiny and potential regulation of the private investment fund industry and the
financial services industry (including Dodd-Frank)
42. Compliance with pay-to-play laws, regulations and policies
43. Compliance with U.S. economic and trade sanctions
44. Compliance with anti-corruption laws and regulations
45. Compliance with international law
46. Compliance with tax law (including FATCA and partnership audit rules)
47. Counterparty risks due to derivative contracts
48. Risks of fraud
49. Delayed construction arising in Investments in new development
50. Acquisition of sub-performing real estate loans and participations
51. Risks of distressed securities being subject to workouts, restructurings or bankruptcy
52. Risks of investing in publicly-traded securities
53. Risks associated with real estate investment activities generally
54. Deficiencies in appraisal quality in the investment process
55. Interest rate, credit, reinvestment and general market risks related to Investments in
securities
56. Risks associated with distributions in-kind
57. Due diligence may not reveal all factors affecting an Investment
58. Risks related to bridge financings
59. Sharing and use of “big data” and other information
60. Future investment techniques and instruments
61. Terrorist activities
62. Natural disasters
63. Availability of insurance against certain catastrophic losses
64. Risks relating to due diligence of Investments
Prospective Investors are advised to review the applicable Client’s Offering Materials for a more extensive description of the applicable investment strategies and the risks of its investment program. Stock markets, bond markets and real estate markets fluctuate substantially over time. Performance
of any Investment is not guaranteed. As a result, there is a risk of loss of the Investments managed
by the Adviser that are out of its control. The Adviser cannot guarantee any level of performance
or that the Clients will not experience a substantial or complete loss of their Investment. There is
no assurance that the Clients will be able to generate returns or that the returns will be
commensurate with the risks inherent in their investment strategy. The marketability and value of
any Investment will depend upon many factors beyond the control of the Adviser. The expenses
of the Clients may exceed their income, and an Investor in a Client could lose the entire amount
of its contributed capital. Therefore, an investor should only invest in a Client if the investor can
withstand a total loss of its investment. The past investment performance of the Clients cannot be
taken to guarantee future results of the Clients or any of their Investments.
please register to get more info
The Adviser does not have any legal, financial or other “disciplinary” events to report. As a
registered investment adviser, the Adviser is obligated to disclose any legal disciplinary event that
would be material to a Client when evaluating the Adviser’s advisory business or integrity of its
management.
On occasion, in the ordinary course of its business, Blackstone is named as a defendant in a legal
action. Although there can be no assurance of the outcome of such legal actions, the Adviser does
not believe that any current legal proceeding or claim to which Blackstone is a party would
individually or in the aggregate materially affect the Adviser or the Clients’ results of operations,
financial position or cash flows.
Certain regulatory, litigation and other similar matters are from time to time disclosed in (i)
Blackstone’s public filings (including, without limitation, its current, periodic and annual reports
on Forms 8-K, 10-Q and 10-K), which may be accessed through the web site of the SEC
(www.sec.gov) or Blackstone (http://ir.blackstone.com/investors/annual-reports-and-sec-
filings/default.aspx), and (ii) materials made available through Blackstone’s online portal related
to Investors.
Other Financial Industry Activities Blackstone has conflicts of interest, or conflicting loyalties, as a result of the numerous activities
and relationships of Blackstone, the Adviser, its Clients, the Other Blackstone Vehicles, the
Portfolio Entities of Clients and Other Blackstone Vehicles and Affiliates, partners, members,
shareholders, officers, directors and employees of the foregoing, some of which are described
herein. Not all potential, apparent and actual conflicts of interest are included herein and additional
conflicts of interest could arise as a result of new activities, transactions or relationships
commenced in the future.
The Adviser will take such actions as may be required by the Organizational Documents of the
applicable Clients to handle conflicts.
Performance-Based Compensation. The Adviser’s performance-based compensation creates a
greater incentive for the Adviser to make more speculative Investments on behalf of a Client or
time the purchase or sale of Investments in a manner motivated by the personal interest of
Blackstone personnel than if such performance-based compensation did not exist, as the Adviser
receives a disproportionate share of profits above the preferred return hurdle. In addition, recently
enacted tax reform legislation provides for a lower capital gains tax rate on performance-based
compensation from Investments held for at least three years, which can be expected to incentivize
the Adviser to hold Investments longer to ensure long-term capital gains treatment or dispose of
Investments prior to any change in law that would result in a higher effective income tax rate on
performance-based compensation. The amount of the performance-based compensation will be
dependent on valuations conducted by the Adviser in the case of certain Clients, which could
incentivize the Adviser to value the securities higher than if there were no performance-based
compensation. The Adviser can engage third parties to determine the value of securities distributed
in-kind or non-marketable securities and rely upon the third-party opinion of value, but there can
be no assurance such an opinion will reflect value accurately.
Allocation of Personnel. The Adviser will devote such time to a Client as it determines to be
necessary to conduct its business affairs in an appropriate manner. However, Blackstone personnel,
including members of the Blackstone Real Estate Group, will work on other projects, serve on
other committees and source potential Investments for and otherwise assist the investment
programs of Other Blackstone Vehicles and their Portfolio Entities, including other investment
programs to be developed in the future. Time spent on these other initiatives diverts attention from
the activities of Clients, which could negatively impact the Clients and their Investors.
Furthermore, Blackstone and Blackstone personnel derive financial benefit from these other
activities, including fees and performance-based compensation. Blackstone personnel outside the
Blackstone Real Estate group share in the fees and performance-based compensation from Clients;
similarly, the Blackstone Real Estate group personnel share in the fees and performance-based
compensation generated by Other Blackstone Vehicles. These and other factors create conflicts of
interest in the allocation of time by Blackstone personnel. The Adviser’s determination of the
amount of time necessary to conduct a Client’s activities will be conclusive, and Investors rely on
the Adviser’s judgment in this regard.
Outside Activities of Principals and Other Personnel and their Related Parties. Certain personnel
of Blackstone will, in certain circumstances, be subject to a variety of conflicts of interest relating
to their responsibilities to Clients, Other Blackstone Vehicles and their respective Portfolio
Entities, and their outside business activities as members of investment or advisory committees or
boards of directors of or advisors to investment funds, corporations, foundations or other
organizations. Such positions create a conflict if such other entities have interests that are adverse
to those of Clients, including if such other entities compete with Clients for investment
opportunities or other resources. The Blackstone personnel in question may have a greater
financial interest in the performance of the other entities than the performance of a Client. This
involvement may create conflicts of interest in making Investments on behalf of a Client and such
other funds, accounts and other entities. Although the Adviser will generally seek to minimize the
impact of any such conflicts, there can be no assurance they will be resolved favorably for a Client.
Also, Blackstone personnel are generally permitted to invest in alternative investment funds, real
estate funds, hedge funds and other Clients, as well as securities of other companies, some of which
will be competitors of Clients. Investors will not receive any benefit from any such Investments,
and the financial incentives of Blackstone personnel in such other Investments could be greater
than their financial incentives in relation to a Client.
Additionally, certain personnel and other professionals of Blackstone have family members or
relatives that are actively involved in industries and sectors in which Clients invest or have
business, personal, financial or other relationships with companies in such industries and sectors
(including the advisors and service providers described above) or other industries, which gives rise
to potential or actual conflicts of interest. For example, such family members or relatives might be
officers, directors, personnel or owners of companies or assets which are actual or potential
Investments of Clients or other counterparties of Clients and their Portfolio Entities or assets.
Moreover, in certain instances, a Client or their Portfolio Entities can be expected to purchase or
sell companies or assets from or to, or otherwise transact with, companies that are owned by such
family members or relatives or in respect of which such family members or relatives have other
involvement. In most such circumstances, the Organizational Documents will not preclude a Client
from undertaking any of these investment activities or transactions. To the extent Blackstone
determines appropriate, conflict mitigation strategies can be expected to be put in place with
respect to a particular circumstance, such as internal information barriers or recusal, disclosure or
other steps determined appropriate by the Adviser.
Secondments and Internships. Certain personnel of Blackstone, including Consultants, will, in
certain circumstances, be seconded to one or more Portfolio Entities, vendors, service providers
and vendors or Investors of Clients and Other Blackstone Vehicles to provide services, including
the sourcing of Investments for Clients or other parties. The salaries, benefits, overhead and other
similar expenses for such personnel during the secondment could be borne by Blackstone or the
organization for which the personnel are working or both. In addition, personnel of Portfolio
Entities, vendors, service providers (including law firms and accounting firms) and Investors of
Clients and Other Blackstone Vehicles will, in certain circumstances, be seconded, or serve
internships at, Blackstone and Portfolio Entities of Clients.
Other Benefits. The Adviser, its Affiliates and their personnel and related parties will receive
intangible and other benefits, discounts and perquisites arising or resulting from their activities on
behalf of a Client, which will not offset or reduce Management Fees or otherwise be shared with
a Client, its Portfolio Entities or the Investors. For example, airline travel or hotel stays will result
in “miles” or “points” or credit in loyalty or status programs, and such benefits will, whether or
not
de minimis or difficult to value, inure exclusively to the benefit of the Adviser, its Affiliates or
their personnel or related parties receiving it, even though the cost of the underlying service is
borne by a Client as partnership expenses or by its Portfolio Entities. (See also “—Third Party
Service Providers, Vendors and Other Counterparties Generally” herein.) Similarly, the Adviser,
its Affiliates and their personnel and related parties, and third parties designated by the foregoing,
also receive discounts on products and services provided by Portfolio Entities and customers or
suppliers of such Portfolio Entities.
Advisors, Consultants and Partners. The Adviser, its Affiliates and their personnel and related
parties engage and retain Consultants to provide a variety of services. Similarly, Clients, Other
Blackstone Vehicles and their Portfolio Entities retain and pay compensation to Consultants to
provide services, or to undertake a build-up strategy in a particular sector or involving a particular
strategy. Any amounts paid by a Client or a Portfolio Entity to Consultants in connection with the
above, including performance-based compensation (
e.g., promote), retainers and expense
reimbursements, will be treated as partnership expenses or expenses of the Portfolio Entity, as the
case may be, and will not, even if they have the effect of reducing any retainers or minimum
amounts otherwise payable by the Adviser, be chargeable to the Adviser or deemed paid to or
received by the Adviser, or offset or reduce any Management Fees to the Adviser or be
subordinated to return of capital. Amounts charged by Consultants will not necessarily be
confirmed as being comparable to market rates for such services. Also, Consultants often co-invest
alongside a Client in Portfolio Entities and Investments, participate in long-term incentive plans
of a Portfolio Entity, and invest directly in a Client or in vehicles controlled by a Client, with
reduced or waived Management Fees and performance-based compensation and such co-
investment or participation (which generally will result in the Client being allocated a smaller share
of an Investment and less co-investment being available to Investors) may or may not be
considered part of Blackstone’s side-by-side co-investment rights, as determined by the Adviser
in its sole discretion. Consultants’ benefits described in this paragraph will, in certain
circumstances, continue after termination of status as a Consultant.
The time dedication and scope of work of a Consultant varies considerably. In some cases, a
Consultant provides the Adviser with industry-specific insights and feedback on investment
themes, assists in transaction due diligence, and makes introductions to, and provides reference
checks on, management teams. In other cases, Consultants take on more extensive roles, including
serving as executives or directors on the boards of Portfolio Entities and contributing to the
identification and origination of new investment opportunities. A Client may rely on these
Consultants to recommend the Adviser and Client as a preferred investment partner and carry out
its investment program, but there is no assurance that any Consultant will continue to be involved
with a Client for any length of time. The Adviser and Client can be expected to have formal or
informal arrangements with Consultants that may or may not have termination options and may
include compensation, no compensation, or deferred compensation until occurrence of a future
event, such as commencement of a formal engagement. In certain cases, Consultants have
attributes of Blackstone “employees” (
e.g., they can be expected to have dedicated offices at
Blackstone, receive administrative support from Blackstone personnel, participate in general
meetings and events for Blackstone personnel or on Blackstone matters as their primary or sole
business activity, have Blackstone-related e-mail addresses or business cards and participate in
certain benefit arrangements typically reserved for Blackstone employees), even though they are
not Blackstone employees, Affiliates or personnel for purposes of the Organizational Documents
and the Advisory Agreement, and their salary and related expenses are paid by a Client as
partnership expenses or by Portfolio Entities without any reduction or offset to Management Fees.
Some Consultants work only for a Client and its Portfolio Entities, while other Consultants may
have other clients. Consultants could have conflicts of interest between their work for a Client and
its Portfolio Entities, on the one hand, and themselves or other clients, on the other hand, and the
Adviser is limited in its ability to monitor and mitigate these conflicts.
In addition, a Client will, in certain circumstances, enter into an arrangement from time to time
with one or more individuals to undertake a build-up strategy to acquire and develop assets and
businesses in a particular sector or involving a particular strategy. The services provided by such
individuals or relevant Portfolio Entity, as the case may be, could include origination or sourcing,
due diligence, evaluation, negotiation, servicing, development, management and disposition. The
individuals or relevant Portfolio Entity could be compensated with a salary and equity incentive
plan, including a portion of profits derived from the Client or a Portfolio Entity or asset of the
Client, or other long term incentive plans. Compensation could also be based on assets under
management or other similar metric. The Client could initially bear the cost of overhead (including
rent, utilities, benefits, salary or retainers for the individuals or their affiliated entities) and the
sourcing, diligence and analysis of Investments, as well as the compensation for the individuals
and entity undertaking the build-up strategy. Such expenses could be borne directly by a Client as
partnership expenses (or broken deal expenses, if applicable) or indirectly through expenditures
by a Portfolio Entity. None of such Portfolio Entities or Consultants will be treated as Affiliates of
the Adviser for purposes of the Organizational Documents and none of the fees, costs or expenses
described above will reduce or offset the Management Fee.
Multiple Blackstone Business Lines. Blackstone has multiple business lines, including the
Blackstone Capital Markets Group, which Blackstone, Clients, Other Blackstone Vehicles,
Portfolio Entities of Clients and Other Blackstone Vehicles and third parties will, in certain
circumstances, engage for debt and equity financings and to provide other investment banking,
brokerage, investment advisory or other services. As a result of these activities, Blackstone is
subject to a number of actual and potential conflicts of interest, greater regulatory oversight and
more legal and contractual restrictions than if it had one line of business. The Investors will not
receive a benefit from any fees earned by Blackstone or its personnel from these other businesses.
Blackstone is under no obligation to decline any engagements or Investments in order to make an
investment opportunity available to a Client. Blackstone has long-term relationships with a
significant number of corporations and their senior management. The Adviser will consider those
relationships when evaluating an investment opportunity, which may result in the Adviser
choosing not to make such an Investment due to such relationships (
e.g., Investments in a
competitor of a client or other person with whom Blackstone has a relationship). A Client will, in
certain circumstances, be forced to sell or hold existing Investments as a result of investment
banking relationships or other relationships that Blackstone may have or transactions or
Investments Blackstone and its Affiliates may make or have made. Therefore, there can be no
assurance that all potentially suitable investment opportunities that come to the attention of
Blackstone will be made available to a Client. (See “—Other Blackstone Vehicles; Allocation of
Investment Opportunities” and “Portfolio Entity Relationships Generally” herein.)
Also, Blackstone will represent creditors or debtors in proceedings under Chapter 11 of the U.S.
Bankruptcy Code or prior to such filings and will serve as advisor to creditor and equity
committees. This involvement, for which Blackstone will from time to time be compensated, could
limit or preclude the flexibility that a Client would otherwise have to buy or sell certain real estate
related assets, and will, in certain circumstances, require that a Client dispose of an Investment at
an inopportune time.
Finally, Blackstone and Other Blackstone Vehicles could acquire investor interests in a Client in
the secondary market. Blackstone and Other Blackstone Vehicles would generally have greater
information than counterparties in such transactions, and the existence of such business could
produce conflicts, including in the valuation of a Client’s Investments.
Minority Investments in Asset Management Firms. Blackstone and Other Blackstone Vehicles,
including Blackstone Strategic Capital Holdings and its related parties, make minority Investments
in alternative asset management firms. A Client and its Portfolio Entities may from time to time
engage in transactions, including with respect to purchase and sale of Investments, with these asset
management firms and their sponsored funds and Portfolio Entities. There can be no assurance
that the terms of these transactions between parties related to Blackstone, on the one hand, and a
Client and its Portfolio Entities, on the other hand, will be at arm’s length or that Blackstone will
not receive a benefit from such transactions, which can be expected to incentivize Blackstone to
cause these transactions to occur.
Blackstone Policies and Procedures; Information Walls. Blackstone has implemented policies
and procedures to address conflicts that arise as a result of its various activities, as well as
regulatory and other legal considerations. Some of these policies and procedures, such as
Blackstone’s information wall policy, also have the effect of reducing firm-wide synergies and
collaboration that a Client could otherwise expect to utilize for purposes of identifying and
managing attractive Investments. Personnel of Blackstone may be unable, for example, to assist
with the activities of a Client as a result of these walls. There can be no assurance that additional
restrictions won’t be imposed that would further limit the ability of Blackstone to share
information internally.
Data. Blackstone receives or obtains various kinds of data and information from Clients, Other
Blackstone Vehicles and their Portfolio Entities, including data and information relating to
business operations, trends, budgets, customers and other metrics, some of which is sometimes
referred to as “big data”. Blackstone can be expected to be better able to anticipate macroeconomic
and other trends, and otherwise develop investment themes, as a result of its access to this data and
information from Clients, Other Blackstone Vehicles and their Portfolio Entities. In furtherance of
the foregoing, Blackstone has entered and will continue to enter into information sharing and use
arrangements, or otherwise engage in information sharing, with Clients and Other Blackstone
Vehicles and their Portfolio Entities and related parties, such as service providers. Although
Blackstone believes that these activities improve Blackstone’s investment management activities
on behalf of Clients and Other Blackstone Vehicles, information obtained from a Client and its
Portfolio Entities also provides material benefits to Blackstone, other Clients and Other Blackstone
Vehicles without compensation or other benefit accruing to the Client or its Investors. For
example, information from a Portfolio Entity owned by a Client can be expected to enable
Blackstone to better understand a particular industry and execute trading and investment strategies
in reliance on that understanding for Blackstone and Other Blackstone Vehicles that do not own
an interest in the Portfolio Entity, without compensation or benefit to the Client or its Portfolio
Entities.
Furthermore, except for contractual obligations to third parties to maintain confidentiality of
certain information, and regulatory limitations on the use of material nonpublic information,
Blackstone is generally free to use data and information from a Client’s activities to assist in the
pursuit of Blackstone’s various other activities, including to trade for the benefit of Blackstone or
another Client or Other Blackstone Vehicle. Any confidentiality obligations in the Organizational
Documents of a Client do not limit Blackstone’s ability to do so. For example, Blackstone’s ability
to trade in securities of an issuer relating to a specific industry may, subject to applicable law, be
enhanced by information of a Portfolio Entity in the same or related industry. Such trading can be
expected to provide a material benefit to Blackstone without compensation or other benefit to the
Client or its Investors.
The sharing and use of “big data” and other information presents potential conflicts of interest and
the Investors acknowledge and agree that any benefits received by Blackstone will not be subject
to the Management Fee offset provisions or otherwise shared with a Client or Investors. As a result,
the Adviser has an incentive to pursue Investments that have data and information that can be
utilized in a manner that benefits Blackstone or Other Blackstone Vehicles.
Blackstone Strategic Relationships. Blackstone has entered, and it can be expected that
Blackstone in the future will enter, into strategic relationships with Investors (and/or one or more
of their Affiliates) that involve an overall relationship with Blackstone that could incorporate one
or more strategies in addition to a Client’s strategy (“Strategic Relationships”). A Strategic
Relationship often involves an investor agreeing to make a capital commitment to multiple
Blackstone funds, one of which may be a Client. Investors will not receive a copy of any agreement
memorializing a Strategic Relationship program (even if in the form of a side letter) and will be
unable to elect in the “most-favored nations” election process any such rights or benefits afforded
through a Strategic Relationship. Strategic Relationships will, in certain circumstances, result in
fewer co-investment opportunities (or reduced allocations) being made available to Investors. (See
also “—Additional Potential Conflicts of Interest with respect to Co-Investment; Strategic
Relationships Involving Co-Investment” herein).
Buying and Selling Assets from Certain Related Parties. A Client and its Portfolio Entities will,
in certain circumstances, purchase assets from or sell assets to Investors, Portfolio Entities of Other
Blackstone Vehicles or their respective related parties. These transactions involve conflicts of
interest, as Blackstone can be expected to receive fees and other benefits, directly or indirectly,
from or otherwise have interests in both parties to the transaction.
Selling Assets to Other Blackstone Vehicles. Blackstone will have conflicting duties to a Client
and Other Blackstone Vehicles when a Client sells assets to Other Blackstone Vehicles, including
as a result of different financial incentives Blackstone may have with respect to a Client and such
Other Blackstone Vehicles. There can be no assurance that any assets sold by a Client to an Other
Blackstone Vehicle will not be valued or allocated a sale price that is lower than might otherwise
have been the case if such asset were sold to a third party rather than to an Other Blackstone
Vehicle.
Blackstone’s Relationship with Pátria. Blackstone owns 40% of the equity interests in Pátria
Investimentos Ltd. (“Pátria”), a leading Brazilian alternative asset manager and advisory firm.
Pátria’s alternative asset management businesses include the management of private equity funds,
real estate funds, infrastructure funds and hedge funds (
e.g., a multi-strategy fund and a long/short
equity fund). Each of Blackstone’s and Pátria’s respective investment funds continues to pursue
investment opportunities in accordance with their existing mandates. While it is not expected that
there will be material overlap between a Client’s investment program and Pátria’s investment
activities, there may be instances in which investment opportunities otherwise appropriate for a
Client will be shared with (or allocated to) Pátria. A Client and Pátria sponsored investment funds
(and therefore Blackstone through its indirect minority interest in Pátria) will, in certain
circumstances, have conflicting interests (e.g., over the terms of their respective Investments).
Pátria is not considered an “Affiliate” of Blackstone under the Organizational Documents of
Clients.
Other Blackstone Vehicles; Allocation of Investment Opportunities. Blackstone invests its own
capital and third-party capital on behalf of Other Blackstone Vehicles and Clients in a wide variety
of investment opportunities throughout the world. Not every opportunity suitable for a Client will
be allocated to it in whole or in part. Certain exceptions exist that allow specified types of
investment opportunities that fall within a Client’s investment objectives or strategy to be allocated
in whole or in part to Blackstone itself or Other Blackstone Vehicles, such as strategic Investments
made by Blackstone itself (whether in financial institutions or otherwise) and the exception for
other Clients and Other Blackstone Vehicles that have investment objectives or guidelines similar
to or overlapping with those of a Client. It is expected that some activities of Blackstone, other
Clients, the Other Blackstone Vehicles and their Portfolio Entities will compete with a Client and
its Portfolio Entities for one or more investment opportunities that are consistent with a Client’s
investment objectives, and as a result such investment opportunities may only be available on a
limited basis, or not at all, to a Client. The Adviser has conflicting loyalties in determining whether
an investment opportunity should be allocated to one or more Clients, Blackstone or an Other
Blackstone Vehicle. Blackstone has adopted guidelines and policies, which it can be expected to
update from time to time, regarding allocation of investment opportunities.
● Overlapping Objectives and Strategies: In circumstances in which any Other Blackstone
Vehicles have investment objectives or guidelines that overlap with those of a Client, in
whole or in part, Blackstone generally determines the relative allocation of investment
opportunities among such vehicles on a fair and reasonable basis in good faith according
to guidelines and factors determined by it. However, the application of those guidelines
and factors will, in certain circumstances, result in a Client not participating, or not
participating to the same extent, in investment opportunities in which it would have
otherwise participated had the related allocations been determined without regard to such
guidelines. The Adviser could also determine not to pursue opportunities as discussed
below in “Certain Investments inside a Client’s Mandate that are not Pursued by a Client”.
Among the factors that the Adviser considers in making investment allocations among
Clients and Other Blackstone Vehicles are the following: (i) any applicable investment
objectives, parameters, limitations and other contractual provisions relating to a Client and
such Other Blackstone Vehicles, (ii) available capital of a Client and such Other Blackstone
Vehicles, (iii) legal, tax, accounting, regulatory and other considerations, (iv) primary and
permitted investment strategies, and objectives of a Client and the Other Blackstone
Vehicles, including, without limitation, with respect to Other Blackstone Vehicles that
expect to invest in or alongside other funds or across asset classes based on expected return,
(v) sourcing of the Investment, (vi) the sector and geography/location of the Investment,
(vii) the specific nature (including size, type, amount, liquidity, holding period, anticipated
maturity and minimum investment criteria) of the Investment, (viii) expected investment
return, (ix) risk profile of the Investment, (x) expected leverage on the Investment, (xi)
expected cash characteristics (such as cash-on-cash yield, distribution rates or volatility of
cash flows), (xii) capital expenditure required as part of the Investment, (xiii) portfolio
diversification concerns (including, but not limited to, whether a particular fund already
has its desired exposure to the Investment, sector, industry, geographic region or markets
in question), (xiv) relation to existing Investments in a fund, if applicable (e.g., “follow on”
to existing Investment, joint venture or other partner to existing Investment, or same
security as existing Investment), (xv) avoiding allocation that could result in de minimis or
odd lot Investments, and (xvi) other considerations deemed relevant by the Adviser in good
faith.
● Investments Outside of a Client’s Mandate: Investment opportunities that the Adviser
makes a good faith determination are not expected to yield a Client’s targeted return profile
or are otherwise inappropriate for a Client given considerations described in Organizational
Documents or as otherwise determined by the Adviser, will generally not be allocated to a
Client.
● Certain Investments Inside a Client’s Mandate that are not Pursued by a Client: Under
certain circumstances, Blackstone can be expected to determine not to pursue some or all
of an investment opportunity within a Client’s mandate, including without limitation, as a
result of business, reputational or other reasons applicable to Clients, Other Blackstone
Vehicles, their respective Portfolio Entities or Blackstone. In addition, the Adviser will, in
certain circumstances, determine that a Client should not pursue some or all of an
investment opportunity, including, by way of example and without limitation, because a
Client has already invested sufficient capital in the Investment, sector, industry, geographic
region or markets in question, as determined by the Adviser in its good faith discretion, or
the Investment is not appropriate for a Client for other reasons as determined by the Adviser
in its good faith reasonable sole discretion. There can be no assurance that the Adviser’s
assessment will prove correct or that the performance of any Investments actually pursued
by a Client will be comparable to any Investment opportunities that are not pursued by a
Client. Blackstone, including its personnel, will, in certain circumstances, receive
compensation from any such party that makes the Investment, including an allocation of
performance-based compensation or referral fees, and any such compensation could be
greater than amounts paid by a Client to the Adviser. In some cases, Blackstone earns
greater fees when Clients or Other Blackstone Vehicles participate alongside or instead of
a particular Client in an Investment.
● Financial Compensation to Allocate Investment Opportunities to Other Blackstone
Vehicles: When the Adviser determines not to pursue some or all of an investment
opportunity for a Client that would otherwise be within the Client’s objectives and
strategies, and Blackstone provides the opportunity or offers the opportunity to other
Clients or Other Blackstone Vehicles, Blackstone, including its personnel (including real
estate personnel), can be expected to receive compensation from the other Clients or Other
Blackstone Vehicles, whether or not in respect of a particular Investment, including in
some cases an allocation of performance-based compensation or referral fees, and any such
compensation could be greater than amounts paid by a Client to the Adviser. As a result,
the Adviser (including real estate personnel who receive such compensation) could be
incentivized to allocate investment opportunities away from a Client to or source
investment opportunities for other Clients and Other Blackstone Vehicles. In addition, in
some cases Blackstone can be expected to earn greater fees when Clients and Other
Blackstone Vehicles participate alongside or instead of a particular Client in an Investment.
● Basis for Investment Allocation Determinations: The Adviser makes good faith
determinations for allocation decisions based on expectations that will, in certain
circumstances, prove inaccurate. Information unavailable to the Adviser, or circumstances
not foreseen by the Adviser at the time of allocation, may cause an investment opportunity
to yield a different return than expected. For example, an investment opportunity that the
Adviser determines to be consistent with the return objectives of an opportunistic “control-
oriented” fund rather than a particular Client may not match the Adviser’s expectations and
underwriting and generate an actual return that would have been appropriate for the Client.
Conversely, an Investment that the Adviser expects to be consistent with a Client’s return
objectives will, in certain circumstances, fail to achieve them.
● Investment alongside other Clients and Other Blackstone Vehicles: A Client will also
invest alongside other Clients and Other Blackstone Vehicles (including other vehicles in
which Blackstone or its personnel invest) in Investments that are suitable for one or more
Clients and such Other Blackstone Vehicles. To the extent a Client jointly holds securities
with any other Client or Other Blackstone Vehicle that has a different expected duration or
liquidity terms, conflicts of interest will arise between the Client and such Other Blackstone
Vehicle with respect to the timing and manner of disposition of opportunities. In order to
mitigate any such conflicts of interest, Blackstone will, in certain circumstances, recuse
itself from participating in any decisions relating or with respect to the Investment by a
Client or Other Blackstone Vehicle. If the Other Blackstone Vehicle maintains voting
rights with respect to the securities it holds, or if a Client does not recuse itself, Blackstone
will, in certain circumstances, be required to take action where it will have conflicting
loyalties between its duties to Clients and Other Blackstone Vehicles, which may adversely
impact a Client. (See also “—Other Blackstone Vehicles; Allocation of Investment
Opportunities” herein).
From time to time, investment opportunities that are appropriate for a Client may not be
allocated to the Client in whole or in part, and Other Blackstone Vehicles, will from time
to time make or receive priority allocations of certain Investments that are appropriate for
a Client and will from time to time participate in Investments alongside a Client.
PJT. On October 1, 2015, Blackstone spun off its financial and strategic advisory services,
restructuring and reorganization advisory services, and its Park Hill fund placement businesses
and combined these businesses with PJT, an independent financial advisory firm founded by Paul
J. Taubman. While the combined business operates independently from Blackstone and is not an
affiliate thereof, it is expected that there will be substantial overlapping ownership between
Blackstone and PJT for a considerable period of time going forward. Therefore, conflicts of
interest will arise in connection with transactions between or involving the Partnership and its
Portfolio Entities, on the one hand, and PJT, on the other. The pre-existing relationship between
Blackstone and its former personnel involved in financial and strategic advisory services at PJT,
the overlapping ownership and co-investment and other continuing arrangements between PJT and
Blackstone can be expected to influence the Sponsor to select or recommend PJT to perform
services for the Partnership or its Portfolio Entities, the cost of which will generally be borne
directly or indirectly by the Partnership and Limited Partners. Given that PJT is no longer an
affiliate of Blackstone, the Sponsor and its affiliates will be free to cause the Partnership and
Portfolio Entities to transact with PJT generally without restriction under the Partnership
Agreement, notwithstanding the relationship between Blackstone and PJT. (See also “—Third
Party Service Providers, Vendors and Other Counterparties Generally” herein.)
Allocation of Portfolios. Blackstone will, in certain circumstances, have an opportunity to acquire
a portfolio or pool of assets, securities and instruments that it determines should be divided and
allocated among Clients and Other Blackstone Vehicles. Such allocations generally would be
based on Blackstone’s assessment of the expected returns and risk profile of each of the assets.
The combined purchase price paid to a seller would be allocated among the multiple assets,
securities and instruments in the pool and therefore among the Clients and Other Blackstone
Vehicles acquiring any of the assets, securities and instruments. Similarly, there will likely be
circumstances in which the Clients and Other Blackstone Vehicles will sell assets in a single or
related transactions to a buyer. Blackstone will generally rely upon internal analysis to determine
the ultimate allocation of value, though it could also obtain third party valuation reports.
Regardless of the methodology for allocating value, Blackstone will have conflicting duties to
Clients and Other Blackstone Vehicles when they buy or sell assets together in a portfolio. There
can be no assurance that an Investment of a Client will not be valued or allocated a purchase price
that is higher or lower than it might otherwise have been allocated if such Investment were acquired
or sold independently rather than as a component of a portfolio shared with other Clients and Other
Blackstone Vehicles.
Investments in Which Other Blackstone Vehicles Have a Different Principal Investment
Generally. A Client will, in certain circumstances, hold an interest in a Portfolio Entity that is
different (including with respect to relative seniority) than the interests held by other Clients or
Other Blackstone Vehicles. In these situations, conflicts of interest will arise. In order to mitigate
any such conflicts of interest, a Client may recuse itself from participating in any decisions relating
or with respect to such Investment by a Client or the applicable Investments by other Clients or
Other Blackstone Vehicles, or by establishing groups separated by information barriers (which can
be expected to be temporary and limited purpose in nature) within Blackstone to act on behalf of
each of the clients. Despite these, and any of the other actions described below that Blackstone can
be expected to take to mitigate the conflict, Blackstone will, in certain circumstances, be required
to take action when it will have conflicting loyalties between its duties to a Client and such other
Clients and Other Blackstone Vehicles, which will, in certain circumstances, adversely impact the
Client. If a Client recuses itself from decision-making, it will generally rely upon a third party to
make the decisions, and the third party could have conflicts or otherwise make decisions that
Blackstone would not have made.
Related Financing Counterparties. Clients can be expected to invest in companies or other
entities in which Other Blackstone Vehicles make an investment in a different part of the capital
structure (and
vice versa). The Adviser requests in the ordinary course proposals from lenders and
other sources to provide financing to Clients and their Portfolio Entities. The Adviser takes into
account various facts and circumstances it deems relevant in selecting financing sources, including
whether a potential lender has expressed an interest in evaluating debt financing opportunities,
whether a potential lender has a history of participating in debt financing opportunities generally
and with Blackstone in particular, the size of the potential lender’s loan amount, the timing of the
relevant cash requirement, the availability of other sources of financing, the creditworthiness of
the lender, whether the potential lender has demonstrated a long-term or continuing commitment
to the success of Blackstone and its funds, and such other factors that Blackstone deems relevant
under the circumstances. The cost of debt alone is not determinative.
Debt financing to the Clients and their Portfolio Entities is expected to be provided, from time to
time, by Investors, Other Blackstone Vehicles, their Portfolio Entities and other parties with
material relationships with Blackstone, such as shareholders of and lenders to Blackstone and
lenders to Other Blackstone Vehicles and their Portfolio Entities. Blackstone could have incentives
to cause a Client and its Portfolio Entities to accept less favorable financing terms from an Investor,
Other Blackstone Vehicles, their Portfolio Entities and other parties with material relationships
with Blackstone than it would from a third party. The same concerns apply when any of these other
parties invest in a more senior position in the capital structure of a Portfolio Entity than such Client,
even if the form of the transaction is not a financing. Although less common, a Client or a Portfolio
Entity could also occupy a more senior position in the capital structure than an Investor, Other
Blackstone Vehicle, their Portfolio Entities and other parties with material relationships with
Blackstone, in which case Blackstone could have an incentive to cause such Client or Portfolio
Entity to offer more favorable financing terms to such parties.
Blackstone could cause actions adverse to a Client to be taken for the benefit of Other Blackstone
Vehicles that have made an Investment more senior in the capital structure of a Portfolio Entity
than such Client and, vice versa, actions will, in certain circumstances, be taken for the benefit of
such Client and its Portfolio Entities that are adverse to Other Blackstone Vehicles. Blackstone
could seek to implement procedures to mitigate conflicts of interest in these situations such as (i)
a forbearance of rights, including some or all non-economic rights, by a Client or relevant Other
Blackstone Vehicle (or their respective Portfolio Entities, as the case may be) by, for example,
agreeing to follow the vote of a third party in the same tranche of the capital structure, or otherwise
deciding to recuse itself with respect to decisions on defaults, foreclosures, workouts,
restructurings and other similar matters, (ii) causing a Client or relevant Other Blackstone Vehicle
(or their respective Portfolio Entities, as the case may be) to hold only a non-controlling interest
in any such Portfolio Entity, (iii) retaining a third-party loan servicer, administrative agent or other
agent to make decisions on behalf of a Client or relevant Other Blackstone Vehicle (or their
respective Portfolio Entities, as the case may be), or (iv) create groups of personnel within
Blackstone separated by information barriers (which can be expected to be temporary and limited
purpose in nature), each of which would advise one of the clients that has a conflicting position
with other clients. In these cases, Blackstone would generally act on behalf of one of its clients,
though the other client would generally retain certain control rights, such as the right to consent to
certain actions taken by the trustee or administrative or other agent of the Investment, including a
release, waiver, forgiveness or reduction of any claim for principal or interest; extension of
maturity date or due date of any payment of any principal or interest; release or substitution of any
material collateral; release, waiver, termination or modification of any material provision of any
guaranty or indemnity; subordination of any lien; and release, waiver or permission with respect
to any covenants.
In connection with negotiating loans and bank financings in respect of Blackstone-sponsored
transactions, Blackstone will generally obtain the right to participate (for its own account or an
Other Blackstone Vehicle) in a portion of the financings with respect to such Blackstone-sponsored
transactions on the same terms negotiated by third parties with Blackstone or other terms the
Adviser determines to be consistent with the market. In addition, it is anticipated that in a
bankruptcy proceeding a Client’s interests will likely be subordinated or otherwise adverse to the
interests of Other Blackstone Vehicles with ownership positions that are more senior to those of
such Client.
Any financing provided by an Investor or an Affiliate to a Client or a Portfolio Entity is not a
capital contribution to such Client. To the extent any Investor in a Client (or Investor in any Other
Blackstone Vehicle) or any of its Affiliates provides debt financing to such Client or its Portfolio
Entities, it will not be considered “co-investment”.
Conflicting Fiduciary Duties to Debt Funds. Clients and Other Blackstone Vehicles include funds
and accounts that make investments in Debt Funds. It is expected that Clients and Other Blackstone
Vehicles will be offered the opportunity to provide financing with respect to Investments made by
a Client and its Portfolio Entities. Blackstone owes a fiduciary duty to all Clients and Other
Blackstone Vehicles and will encounter conflicts in the exercise of these duties. For example, if a
Client or Other Blackstone Vehicle purchases high-yield securities or other debt instruments of a
Portfolio Entity of a particular Client, or otherwise occupies a senior (or other different) position
in the capital structure of an Investment relative to a particular Client, Blackstone will encounter
conflicts in providing advice to this Client and to the other Clients and Other Blackstone Vehicles
with regard to appropriate terms of such high-yield securities or other instruments, the enforcement
of covenants, the terms of recapitalizations and the resolution of workouts or bankruptcies, among
other matters. Less commonly, a Client could hold an Investment that is senior in the capital
structure, such as a debt instrument, to another Client or Other Blackstone Vehicle.
Similarly, certain Other Blackstone Vehicles can be expected to invest in securities of publicly
traded companies that are actual or potential Investments of a Client or its Portfolio Entities. The
trading activities of Other Blackstone Vehicles may differ from or be inconsistent with activities
that are undertaken for the account of a Client or its Portfolio Entities in any such securities. In
addition, a Client may not pursue an Investment in a Portfolio Entity otherwise within the
investment mandate of such Client as a result of such trading activities by Other Blackstone
Vehicles.
Possible Exclusion. The General Partner of a Client will, in certain circumstances, determine that
it is appropriate to initially exclude (in whole or in part) one or more Investors (or categories of
Investors) of the Client from a particular Investment (or category of Investments) due to particular
tax concerns related thereto or for other regulatory, accounting or legal reasons, in which case non-
excluded Investors of the Client will be allocated a greater proportionate interest in such
Investment (which can be expected to increase the percentage interest of other Investors in, and
contribution obligations of other Investors with respect to, such Investment or category of
Investments). Subject to the goal of maximizing overall returns for the Investors, the General
Partners will generally seek to mitigate the circumstances giving rise to such exclusion. In that
regard, if a General Partner later determines that it is no longer necessary for such Investors to be
excluded from such Investment (including, because the tax, regulatory or legal situation has
changed or is no longer in effect), the General Partner may require or permit the previously
excluded Investors to participate in the Investment, including through the participation thereby in
an alternative investment structure or the acquisition of a portion of the Investment from
Blackstone. However, Blackstone would have no right and would be under no obligation to sell a
portion of the Investment to the Client, and the Client would have no right and would be under no
obligation to acquire a portion of the Investment. Any later purchase of an Investment from
Blackstone would be at the fair market value of the Investment at the time of the later purchase.
Therefore Investors who were initially excluded from the Investment can be expected to participate
in the Investment on different terms (and may not get the benefit of any income from the
Investment prior to their participation).
Related Financing of Counterparties to Acquire Assets from a Client and its Portfolio Entities.
In certain transactions, Clients and Other Blackstone Vehicles will commit to or provide financing
to third parties that bid for or purchase assets of a particular Client or its Portfolio Entities.
Although Blackstone believes that the participation by other Clients and Other Blackstone
Vehicles in such debt financings could be beneficial to the Client by supporting third parties in
their efforts to bid on the sale of assets by the Client, Blackstone will have an incentive to cause a
Client or relevant Portfolio Entity to select to sell an asset to a third party that obtains debt
financing from another Client or Other Blackstone Vehicle to the potential detriment of a Client.
Often price is the deciding factor in selecting a winning bid, but other factors at times cause a seller
to select another bid. The Adviser could thereafter cause a Client or a Portfolio Entity to sell an
asset to a bidder that has received financing from another Client or Other Blackstone Vehicle, even
when the bidder has not offered the most consideration for the asset. Investors rely on the Adviser
to select in its sole discretion the best overall bidder in sales of Client assets, despite any conflict
related to the parties financing the bidder.
Co-Investment. A Client will co-invest with Blackstone, Investors, other Clients, Other
Blackstone Vehicles and their Investors, and other parties with whom Blackstone has a material
relationship. The allocation of co-investment opportunities is entirely and solely in the discretion
of Blackstone, and it is expected that many Investors who may have expressed an interest in co-
investment opportunities will not be allocated any co-investment opportunities or will, in certain
circumstances, receive a smaller amount of co-investment opportunities than the amount
requested. Furthermore, co-investment offered by Blackstone will be on such terms and conditions
(including with respect to Management Fees, performance-based compensation and related
arrangements and/or other fees applicable to co-investors) as Blackstone determines to be
appropriate in its sole discretion on a case-by-case basis, which can be expected to differ amongst
co-investors with respect to the same co-investment. A Client and co-investors will often have
different investment objectives and limitations, such as return objectives and maximum hold
period. Blackstone, as a result of the foregoing, will have conflicting incentives in making
decisions with respect to such opportunities. Even if a Client and any such parties invest in the
same securities on similar terms, conflicts of interest will still arise as a result of differing
investment profiles of the Investors, among other items.
General Co-Investment Considerations: There are expected to be circumstances where an
amount that would have otherwise been invested by a Client is instead allocated to co-
investors (who may or may not be Investors of Clients or Other Blackstone Vehicles) or
supplemental capital vehicles, and there is no guarantee that any Investor will be offered
any particular co-investment opportunity. The Adviser will take into account various facts
and circumstances deemed relevant by the Adviser in allocating co-investment
opportunities, including, among others, whether a potential co-investor has expressed an
interest in evaluating co-investment opportunities, the Adviser’s assessment of a potential
co-investor’s ability to invest an amount of capital that fits the needs of the Investment
(taking into account the amount of capital needed as well as the maximum number of
Investors that can realistically participate in the transaction) and the Adviser’s assessment
of a potential co-investor’s ability to commit to a co-investment opportunity within the
required timeframe of the particular transaction. Additional considerations can be expected
to also include, among others and without limitation, the size of a potential co-investor’s
commitments to Clients and Other Blackstone Vehicles; whether a potential co-investor
has a history of participating in co-investment opportunities with Blackstone; whether a
potential co-investor has committed to a Client or Other Blackstone Vehicle; the size of
the potential co-investor’s interest to be held in the underlying Portfolio Entity as a result
of a Client’s Investment (which is likely to be based on the size of the potential co-
investor’s capital commitment or investment in a Client); whether the potential co-investor
has demonstrated a long-term or continuing commitment to the potential success of
Blackstone, the Clients or Other Blackstone Vehicles (including whether a potential co-
investor will help establish, recognize, strengthen or cultivate relationships that may
provide indirectly longer-term benefits to Clients or Other Blackstone Vehicles and their
Portfolio Entities, or whether the co-investor has significant capital under management by
Blackstone or intends to increase such amount); whether the potential co-investor has an
overall strategic relationship with Blackstone that provides it with more favorable rights
with respect to co-investment opportunities; whether the co-investor is considered
“strategic” to the Investment because it is able to offer certain benefits, including, but not
limited to, the ability to help consummate the Investment, the ability to aid in operating or
monitoring the Portfolio Entity or the possession of certain expertise; the transparency and
predictability of the potential co-investor’s investment process; whether Blackstone has
previously expressed a general intention to seek to offer co-investment opportunities to
such potential co-investor; the familiarity Blackstone has with the personnel and
professionals of the Investor in working together in investment contexts; the extent to
which a potential co-investor has been provided a greater amount of co-investment
opportunities relative to others; the ability of a potential co-investor to invest in potential
follow-on acquisitions for the Portfolio Entity or participate in defensive Investments; the
likelihood that the potential co-investor would require governance rights that would
complicate or jeopardize the transaction (or, alternatively, whether the Investor would be
willing to defer to Blackstone and assume a more passive role in governing the Portfolio
Entity); any interests a potential co-investor may have in any competitors of the underlying
Portfolio Entity; the tax profile of the potential co-investor and the tax characteristics of
the Investment (including whether or not the potential co-investor would require particular
structuring implementation or covenants that would not otherwise be required but for its
participation or whether such co-investor’s participation is beneficial to the overall
structuring of the Investment); whether a potential co-investor’s participation in the
transaction would subject a Client or any of its Portfolio Entities to additional regulatory
requirements, review or scrutiny, including any necessary governmental approvals
required to consummate the Investment; the potential co-investor’s relationship with the
potential management team of the Portfolio Entity; whether the potential co-investor has
any existing positions in the Portfolio Entity (whether in the same security in which a Client
is investing or otherwise); whether there is any evidence to suggest that there is a
heightened risk with respect to the potential co-investor maintaining confidentiality;
whether the potential co-investor has any known investment policies and restrictions,
guideline limitations or investment objectives that are relevant to the transaction, including
the need for distributions; whether the expected holding period and risk-return profile of
the Investment is consistent with the stated goals of the Investor; and such other factors
that Blackstone may in good faith deem relevant and appropriate to consider in the
circumstances. Blackstone can be expected to establish vehicles for one or more Investors
(including third party Investors and Investors in a Client) in order to co-invest alongside a
Client in one or more future Investments. The existence of these vehicles could reduce the
opportunity for other Investors to receive allocations of co-investment. Also, Blackstone
will, in certain circumstances, agree with Investors (including Investors, Strategic
Relationships and third party Investors) to more favorable rights or pre-negotiated terms
with respect to co-investment opportunities, including with respect to discounts or rebates
of performance-based compensation or Management Fees. To the extent any such
arrangements are entered into, they can be expected to result in fewer co-investment
opportunities being made available to the Investors. In addition, the allocation of
Investments to Other Blackstone Vehicles, including as described under “—Other
Blackstone Vehicles; Allocation of Investment Opportunities” herein, can be expected to
result in fewer co-investment opportunities (or reduced allocations) being made available
to Investors.
Additional Potential Conflicts of Interest with respect to Co-Investment; Strategic
Relationships Involving Co-Investment: The Adviser and its Affiliates will in certain
circumstances be incentivized to offer certain potential co-investors (including, by way of
example, as a part of an overall strategic relationship with Blackstone) opportunities to co-
invest in priority or on more favorable terms than other potential co-investors due to the
amount of performance-based compensation or Management Fees paid by the co-investor
receiving the priority allocation or better terms (as well as any additional discounts or
rebates avoided by allocating co-investments to such co-investor) or other aspects of such
co-investor’s relationship with Blackstone. The Management Fees, performance-based
compensation and other fees received by Blackstone from and the amount of expenses
charged to a Client can be expected to be less or more than such amounts paid by or charged
to co-investors pursuant to the terms of such vehicles’ partnership agreements and other
agreements with co-investors, and such variation in the amount of fees and expenses can
be expected to create an economic incentive for Blackstone to allocate a greater or lesser
percentage of an investment opportunity to a particular person. In addition, other terms of
existing and future co-investors may differ materially, and in some instances will, in certain
circumstances, be more favorable to Blackstone, than the terms of a Client, and such
different terms can be expected to create an incentive for Blackstone to allocate a greater
or lesser percentage of an investment opportunity to a Client or such co-investor, as the
case may be. Such incentives will from time to time give rise to conflicts of interest, and
there can be no assurance that any investment opportunities that would have otherwise been
offered to a Client or Investors through co-investment will be made available. Additionally,
it ca
please register to get more info
Trading and Personal Trading The Adviser is governed by the Code of Ethics. The Code of Ethics governs a number of potential
conflicts of interest which exist when providing advisory services to the Investors in the Clients it
manages. The Code of Ethics is reasonably designed to ensure that the Adviser meets its fiduciary
obligation to the Adviser’s clients (or prospective clients) and to instill a culture of compliance
within the Adviser. An additional benefit of the Code of Ethics is to detect and prevent violations
of securities laws.
The Code of Ethics is distributed to each employee at the time of hire and annually thereafter, and
it is available on Blackstone’s intranet website. The Adviser also supplements the Code of Ethics
with ongoing monitoring of employee activity.
The Code of Ethics includes, among other items, the following:
Requirements related to confidentiality;
Limitations on, and reporting of, gifts and entertainment;
Pre-clearance of political contributions;
Pre-clearance and reporting of employee personal securities transactions;
Pre-clearance of outside business activities; and
Protection of persons who engage in “whistle blowing” activities from retaliation.
On an annual basis, Blackstone requires all employees to certify that they are in compliance with
the Code of Ethics.
Blackstone offers many different products and services across its many businesses and there are
several potential conflicts of interest which will from time to time arise. Please see Item 10 –
Other Financial Industry Activities and Affiliations for a list of investment related potential
conflicts, including, in particular, “
Other Blackstone Vehicles; Allocation of Investment
Opportunities” describing conflicts related to allocation of investment opportunities among
Clients sponsored by Blackstone and co-investors. The Adviser has adopted policies and
procedures reasonably designed to address such potential conflicts of interest.
Trading The Adviser’s related persons will from time to time have bought or sold, or will subsequently buy
or sell, for their personal accounts, securities which are also purchased or sold for the account of
the Adviser’s clients. The Adviser and its related personnel are subject to guidelines governing the
ability to trade in personal accounts. The guidelines generally require that such personal securities
transactions receive pre-clearance from the Blackstone Legal and Compliance Department. These
guidelines are reasonably designed to comply with SEC requirements that registered investment
advisers have a Code of Ethics. In addition, Blackstone has implemented certain policies and
procedures (
e.g., information walls) to restrict access to material non-public information.
Blackstone’s Code of Ethics is available for review upon request.
You may request a copy of Blackstone’s Code of Ethics by contacting the Adviser’s Chief
Compliance Officer, Patrick Kassen; (212) 583-5000.
The Adviser does not participate in principal trading generally; however, the Adviser would be
permitted to if the Adviser obtained appropriate Investor (or Investor Representative, if applicable)
approvals.
please register to get more info
In the event the Adviser executes a brokerage transaction for the Clients (e.g., trades in public
securities as part of or following an initial public offering of a Portfolio Entity), the Adviser will
generally consider qualitative factors including, but not limited to, the broker’s reliability and
execution capabilities for the transaction, the commissions charged by the broker, and the broker’s
reputation and responsiveness to requests for trade data and other financial information.
please register to get more info
Review of Accounts
Currently, the only accounts under the supervision of the Adviser are the accounts of the Clients.
The Clients’ accounts and Investment positions are monitored by the Adviser’s personnel on a
regular and current basis. The Adviser might periodically review on an expedited basis the assets
of a Client following a unique occurrence in the financial industry or market generally.
The Blackstone Real Estate Group Investment Committee meets weekly to carefully review and
challenge Investments and dispositions around the world. Discussions are led by the Global Co-
Heads of Real Estate. In addition to its Chairman, the Blackstone Real Estate Group Investment
Committee also includes the Chairman and CEO of Blackstone, the Executive Vice Chairman of
Blackstone, and all Senior Managing Directors in the Blackstone Real Estate Group. Blackstone
manages its Investments through proactive day-to-day asset management, as well as regular global
asset reviews and quarterly valuation meetings. Certain significant Investments of the Clients are
reviewed and approved by the Blackstone Real Estate Group Investment Committee. Smaller
Investments are reviewed by a prescribed subset of the Blackstone Real Estate Group Investment
Committee. The Blackstone Real Estate Group Investment Committee utilizes a consensus-based
approach to decision making among the members.
Reports to Clients
Investors in the Clients generally will receive written periodic reports which will include capital
balance and Client performance statistics. Investors in the Clients will also receive written annual
audited financial statements for the Client in which they are invested. The Adviser makes use of a
website, BXAccess, available at www.bxaccess.com, for the distribution of reports and other
information to Investors in the Clients.
The Adviser generally will provide information that certain Investors in the Clients may request,
including additional information relating to the Clients, to the extent such information is readily
available or may be obtained without unreasonable effort or expense. Investors that request and
receive such information will consequently possess information regarding the business and affairs
of the Clients that may not be known to other Investors. As a result, certain Investors can be
expected to be able to take actions on the basis of such information which, in the absence of such
information, other Investors do not take.
please register to get more info
The Adviser has distribution and placement agent arrangements with a number of unaffiliated third
parties. Such unaffiliated third parties can be expected to form Investment Vehicles for the purpose
of investing in any Client and the capital commitments of such third party Investment Vehicles
will, in certain circumstances, account for a substantial portion of the overall capital commitments
to such Client. In a typical distribution or placement agent arrangement, the Adviser agrees to pay
a third-party solicitor for referring Investors into a Client. Typically, third-party solicitors will
receive compensation based on the commitment amounts of the Investors they solicited (although
other payment arrangements could exist).
A prospective Investor solicited by a third-party solicitor engaged by the Adviser will be informed
of (and may be asked to acknowledge in writing its understanding of) any such arrangement. All
fees for such solicitation services will be ultimately borne by the Adviser (through a corresponding
reduction in the Management Fee or otherwise), and none of the Investors in the Clients will be
subject to any increased or additional fees or charges. With respect to expenses relating to the
diligence and negotiation of placement agent arrangements, please see Item 5 – Fees and
Compensation. Third-party solicitors in the U.S. will be registered as broker-dealers with the SEC. Third-party
solicitors outside the U.S. will be registered with a non-U.S. regulatory body to the extent such
registration is required in the applicable non-U.S. jurisdiction.
BAP, an Affiliate of the Adviser, serves as a placement agent to the Clients in the U.S. but is not
compensated for such services. Please see Item 10 – Other Financial Industry Activities and
Affiliations for more information.
please register to get more info
The Custody Rule defines custody as holding client securities or funds or having any authority to
obtain possession of them. The Clients generally have an Affiliate of the Adviser acting as General
Partner and, as such, the Adviser is deemed to have custody of the Clients’ funds. The Adviser
generally complies with the Custody Rule by, among other things, providing all Investors in a
Client with audited financial statements.
please register to get more info
The Adviser maintains the authority to manage or advise the Clients on a discretionary basis,
subject to the overall supervision of the applicable General Partner (or board of directors (as
applicable)), in accordance with the investment guidelines, objectives, limitations and other
provisions and terms set forth in the Organizational Documents and the Advisory Agreements, as
applicable.
please register to get more info
Proxy Policy The Proxy Rule requires registered investment advisers that exercise voting authority over client
securities to implement proxy voting policies. Because the Adviser will generally be deemed to
have authority to vote Proxies relating to the companies in which its clients invest, the Adviser has
adopted the Proxy Voting Policy in compliance with the Proxy Rule. To the extent that the Adviser
exercises or is deemed to be exercising voting authority over its clients’ securities, the Proxy
Voting Policy is reasonably designed and implemented in a manner reasonably expected to ensure
that voting with respect to Proxies is exercised in a manner that serves the best interest of its clients,
as determined by the Adviser in its sole discretion. Notwithstanding the foregoing, because proxy
proposals and individual company facts and circumstances may vary, the Adviser may not always
vote Proxies in accordance with the Proxy Voting Policy. In addition, many possible proxy matters
are not covered in the Proxy Voting Policy. Generally, the Adviser will vote Proxies (i) in favor
of management’s recommendation for the election of the board of directors and (ii) to approve the
financial statements as presented by management.
From time to time, conflicts can be expected to arise between the interests of the Investor, on the
one hand, and the interests of the Adviser or its Affiliates, on the other hand. If a material conflict
is identified by the Chief Compliance Officer, Head of Asset Management and/or one or both of
the Global Co-Heads, the Blackstone Real Estate Group will determine whether voting in
accordance with the Adviser’s proxy voting guidelines is in the best interests of its clients. The
Adviser, in its sole discretion, may elect not to vote a proxy if unduly burdensome.
Investors may request a copy of the Proxy Voting Policy and the voting records relating to Proxies
as provided by the Proxy Rule by contacting the Adviser’s Chief Compliance Officer, Patrick
Kassen; (212) 583-5000.
please register to get more info
The Adviser has not been the subject of a bankruptcy petition at any time during the past ten years
and is not aware of any financial condition reasonably likely to impair its ability to meet contractual
commitments to its Investors.
Item 19 – Requirements for State Registered Advisers Item 19 – Requirements for State Registered Advisers This item is not applicable as the Adviser is not registered in any state.
please register to get more info
Open Brochure from SEC website