The Blackstone Group L.P. [email protected]

The Blackstone Group L.P. Anicholas@Williamblair.Com

Equity Research Financial Services and Technology | Asset Management

January 15, 2016 Christopher Shutler, CFA +1 312 364 8197 [email protected]

Andrew Nicholas, CPA +1 312 364 8689 The Blackstone Group L.P. [email protected]

Near-Term Market-Related Headwinds, but Significant Long-Term Opportunities; Reiterate Outperform Stock Rating: Outperform Company Profile: Core Growth

Since launching coverage on December 14, several of Blackstone’s key public holdings have struggled, with high-profile positions such as Hilton (HLT $18.40), NXP Semiconductors Symbol: BX (NYSE) (NXPI $74.51), and Michaels (MIK $21.12) down considerably. Consequently, we expect the Price: $25.64 (52-Wk.: $23-$44) company to face ENI headwinds in the near term (particularly in the first quarter), and Market Value (mil.): $30,534 weaker secondary activity could also depress distributable earnings. Still, the beauty of the Long-Term EPS Growth Rate: 13% Blackstone model lies in its diversification and ability to be patient when others are not; Dividend/Yield: $2.90/11.3% volatility can often present compelling investment opportunities, and we expect the credit Fiscal Year End: December segment in particular to be a beneficiary.

Our Blackstone thesis is a long-term call. We expect the stock to remain a high-beta name 2014A 2015E 2016E (as evidenced by the chart on page 13 of our initiation report) that trades on near-term Estimates EPS FY $3.76 $2.16 $2.53 equity market sentiment, despite Blackstone’s track record as a premiere value-creator in CY $2.16 $2.53 a variety of market environments. We believe near-term dips offer a good entry point for patient investors willing to live with mark-to-market accounting-driven volatility. We see Valuation significant upside based on our sum-of-the-parts analysis, which includes a product-by- FY P/E 6.8x 11.9x 10.1x product DCF model for future performance fees, and we maintain our Outperform rating. CY P/E 11.9x 10.1x

For a copy of our initiation report or working copy of our detailed SOTP framework, please Trading Data (FactSet) Shares Outstanding (mil.) 618 contact your William Blair representative. Float (mil.) 237 Average Daily Volume 5,151,591 Estimate Changes Financial Data (FactSet) • Fourth quarter Book Value Per Share (MRQ) 10.5 Return on Equity (TTM) 23.7 - We are reducing our fourth-quarter ENI per unit estimate by $0.08, to $0.70, but are still above the current consensus of $0.57. Two-Year Price Performance Chart

$45 We are increasing our estimate for fourth-quarter distributable earnings per unit - $40 by $0.02, to $0.77; this implies a cash distribution of $0.66 per unit. Current

consensus calls for a cash distribution of $0.61. $35

$30 • 2016 and 2017

$25

Flow-through impact from fourth-quarter adjustments and, more importantly, Jan-15 Jan-16 - downward revisions to our first-quarter market estimates lead us to reduce our Sources: FactSet, William Blair & Company estimates 2016 ENI per unit estimate to $2.53 from $3.32 previously. We are well below consensus of $3.21 but note that ENI per unit is a volatile metric and is even more volatile right now since BCP V is in catch-up. For 2017, we slightly raised our ENI per unit estimate to $3.34, from $3.27.

- We expect heightened market volatility to damper distributable earnings in the first half of 2016. We are lowering our 2016 cash DE per unit estimate to $2.37, from $2.66 previously; consensus is $2.41. We are maintaining our 2017 cash DE per unit estimate at $2.60.

The Blackstone Group L.P. is the largest alternative asset manager in the world, with four industry-leading businesses: private equity, real estate, credit, and hedge fund solutions.

Please refer to important disclosures on pages 7-8. Analyst certification is on page 7. William Blair or an affiliate does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as a single factor in making an investment decision. William Blair

Market Performance

• By our calculations, the weighted average performance of publicly traded private equity and real estate investments in fourth quarter 2015 was -0.8% and -2.3%, respectively. Since publicly traded investments represented only 27% of unrealized investment value in private equity drawdown funds at the end of the third quarter and 23% in real estate, we prefer to look at public company returns relative to prior quarters to inform our estimates. For reference, our calculated fourth-quarter return on public company investments in the private equity portfolio of -0.8% compares to a calculated return of -2.4% in second quarter 2015, and in the latter case the segment actually experienced 2.3% of investment appreciation. In real estate, our calculated fourth-quarter return on public company investments of -2.3% compares to a calculated return of -7.3% in second quarter 2015, and in the latter case the segment actually experienced 1.6% of investment appreciation.

- Key private equity performance contributors were Kosmos Energy (KOS $4.24; -8.3%), Hilton Worldwide (-8.9%), Seaworld (SEAS $17.70; +10.0%), Zimmer Biomet Holdings (ZBH $102.70; Outperform; +9.2%), Vivint Solar (VSLR $9.47; -9.9%), and Intertrust (INTER €18.20; +31.1%).

- Key real estate performance contributors were La Quinta (LQ $11.27; -14.1%), Hilton Worldwide (-8.9%), Extended Stay (STAY $13.41; -5.9%), and Brixmor Property Group (BRX $25.08; +11.1%).

• By our calculations, the weighted average performance of publicly traded private equity and real estate investments in first quarter 2016 (through January 14) was -8.7% and -10.3%, respectively. Given the brutal start to the new year, we have lowered are market assumptions materially. We model blended market performance of -2.0% and +1.0% for private equity and real estate AUM, respectively.

- Key private equity performance contributors were Kosmos Energy (-15.8%), Hilton Worldwide (-10.5%), and Michaels (-5.5%).

- Key real estate performance contributors were La Quinta (-13.2%), Hilton Worldwide (-10.5%), Extended Stay (-8.8%), and Hudson Pacific Properties (HPP $24.68; -8.6%).

• The HFRI Fund Weighted Composite Index appreciated 0.9% in the fourth quarter, relatively in line with our +1.4% estimate. Given the S&P 500’s year-to-date 2016 decline, we lowered our first-quarter estimate to -2.5% for the BAAM segment.

Fundraising

• Despite being in between fundraises for its flagship private equity (BCP) and real estate (BREP) funds, we expect other strategies to continue to generate solid inflows over the next several years. We model gross inflows of $12.8 billion during fourth quarter 2015, which would bring the full year 2015 total to $90.6 billion.

• Current fundraising areas include BREDS III, Strategic Partners (secondaries), Tactical Opportunities III, BREP Europe IV, and core-plus real estate. We expect these products to remain the focus through 2016 and beyond. Other longer-term focuses include a third mezzanine fund and a third rescue lending fund in the firm’s credit segment and a newly designed core-plus private equity platform, which we expect to hear more about in the near future.

• In the hedge fund segment, direct investing (Senfina and Special Situations) and hedge fund ownership (Strategic Alliance and Strategic Capital) should drive growth outside of the fund-of-funds business. After generating returns of 23% in 2015 (through the end of November), Blackstone is looking to expand its Senfina platform to the United Kingdom, per a recent Reuters article.

Capital Deployment

• Blackstone’s real estate group was very active in the fourth quarter, closing five deals with total transaction values of at least $1.9 billion: a portion of GE’s (GE $29.06; Outperform) U.K. home lending portfolio ($5.8 billion), Strategic Hotels & Resorts ($5.7 billion), Manhattan’s largest apartment complex—Stuveysant Town ($5.3 billion), over 10,000 apartment units from Greystar ($2.0 billion), and U.S. shopping centers from RioCan ($1.9 billion). The business also agreed to

2 | Christopher Shutler, CFA +1 312 364 8197 William Blair

acquire BioMed Realty Trust for $4.8 billion, although the deal is not expected to close until first quarter 2016. In the final days of the quarter it appears Blackstone also completed the purchase of a portfolio of 4,500 rental homes from a Spanish bank for close to $600 million.

• On the private equity side, momentum in the secondaries business continued, highlighted by Strategic Partners’ acquisition of approximately $3.0 billion of global real estate fund interests from The California Public Employees’ Retirement System (“CalPERS”) on November 12. Other noteworthy investments included the closing of an investment in First Eagle Investment Management ($2 billion-plus deal value shared with Corsair Capital), a water infrastructure project with Pemex ($800 million, in a joint partnership with Pemex), an $820 million equity investment in NCR Corporation (NCR $20.43), and the acquisitions of both MB Aerospace and Diamonds Direct (details not disclosed).

• While we expect a near-term slowdown in the private equity space, real estate deployment should continue to hum along. One of the benefits to Blackstone’s diversification is that when market uncertainty pressures certain segments, it can create opportunity in others. In this particularly instance, we believe the credit business is poised to capitalize on a low liquidity environment and the uncertainty surrounding interest rate policy. We also expect energy investments to pick up, but likely not until later in the year or 2017.

Realizations

• Key private equity realizations:

- The sale of Avintiv to Berry Plastics group reportedly marked a 200% gain for Blackstone on its $286 million investment; because Avintiv was held in BCP V, it should drive a catch-up distribution.

- Blackstone, along with three other private equity owners, completed the sale of Freescale to NXP Semiconductors for $11.8 billion in December. We do not anticipate significant gains from this transaction; the original investment was made in 2006.

- FIS’s (FIS $60.30) $9.1 billion acquisition of SunGard was a headline deal, but much of the deal value was debt. Per the most recent S-4 filing, Blackstone owned approximately 13% of SunGard. The deal was 45% cash and 55% stock, so Blackstone now owns over $200 million of FIS shares.

- Blackstone recently had to restructure its deal to sell Vivint to SunEdison (SUNE $2.82), and we expect the deal to close in the first half of 2016. Based on our calculations, the cash distribution tied to the sale should be roughly $0.8 billion.

- Blackstone sold portions of its equity in several publicly traded companies during the fourth quarter; sales of shares in Travelport (TVPT $11.65; Outperform), Extended Stay, and Performance Foods (PFGC $21.23) totaled over $500 million in proceeds, based on our calculations.

• Key real estate realizations:

- According to The Wall Street Journal, Blackstone sold two office centers in Boston in early November for roughly $1.3 billion.

- The firm is also “in talks” to sell four Los Angeles office towers for “significantly more than $1 billion;” we expect this deal to close in the next quarter or two.

- Blackstone sold nearly 70 million shares of Brixmor Property Group (BRX $25.08) in the fourth quarter, resulting in proceeds of approximately $1.8 billion.

• In all, recent market volatility has depressed our near-term realization outlook. While we are making only minor adjustments to our December realization estimates, we now expect first-quarter activity to be considerably more muted, particularly in the private equity segment.

3 | Christopher Shutler, CFA +1 312 364 8197 William Blair

Annual Annual Annual Annual Annual Mar-15 Jun-15 Sep-15 Dec-15 Annual Mar-16 Jun-16 Sep-16 Dec-16 Annual Annual 2010 2011 2012 2013 2014 1Q15 2Q15 3Q15 4Q15E 2015E 1Q16E 2Q16E 3Q16E 4Q16E 2016E 2017E Quarterly Earnings Model ($M)

Management Fees $ 1,631.0 $ 1,877.5 $ 2,135.0 $ 2,286.1 $ 2,568.0 $ 619.8 $ 586.8 $ 708.7 $ 601.8 $ 2,517.0 $ 576.8 $ 597.9 $ 665.6 $ 675.4 $ 2,515.7 $ 2,808.0 Performance Fees 926.3 1,174.5 1,593.8 3,556.4 4,391.9 1,673.7 569.7 (639.3) 681.2 2,285.3 (319.8) 859.5 1,126.7 1,044.4 2,710.8 4,300.5 Investment Income 548.5 185.3 286.2 687.8 471.6 189.6 10.8 (136.1) 153.0 217.3 68.0 118.0 118.0 118.0 422.0 492.0 Interest Income and Dividend Revenue 36.1 38.8 46.6 70.9 96.3 30.5 31.0 35.5 30.5 127.5 31.7 33.0 34.3 35.7 134.8 157.8 Other (0.6) 7.4 5.1 10.3 9.4 (4.9) 4.0 (0.8) 1.3 (0.4) 2.0 2.0 2.0 2.0 7.9 7.9 Total Revenue $ 3,141.4 $ 3,283.6 $ 4,066.8 $ 6,611.5 $ 7,537.3 $ 2,508.7 $ 1,202.2 $ (32.2) $ 1,467.9 $ 5,146.7 $ 358.7 $ 1,610.4 $ 1,946.6 $ 1,875.4 $ 5,791.1 $ 7,766.1 Compensation 859.1 960.6 1,030.8 1,115.6 1,153.5 329.8 289.4 329.6 246.2 1,194.9 288.2 292.4 335.1 278.2 1,193.8 1,369.3 Performance Fee Compensation 357.0 316.7 513.5 1,413.2 1,285.5 403.8 215.4 (130.5) 149.9 638.6 (119.9) 249.3 340.0 327.5 796.9 1,506.0 Other Operating Expenses 357.9 421.3 481.4 486.6 553.8 143.3 168.4 157.6 130.8 600.1 139.4 145.2 150.2 144.6 579.4 639.8 Total Expenses 1,574.0 1,698.6 2,025.8 3,015.5 2,992.8 876.9 673.2 356.7 526.9 2,433.7 307.7 686.8 825.3 750.3 2,570.1 3,515.2 Economic Income (EI) 1,567.4 1,585.0 2,041.0 3,596.0 4,544.5 1,631.8 529.0 (388.9) 941.1 2,713.0 51.0 923.6 1,121.3 1,125.1 3,221.0 4,250.9 Taxes 45.8 45.7 82.2 199.5 9.7 20.6 27.1 46.8 104.2 29.8 31.5 34.4 48.2 144.0 172.8 Economic Net Income (ENI) $ 1,567.4 $ 1,539.2 $ 1,995.3 $ 3,513.9 $ 4,345.0 $ 1,622.1 $ 508.4 $ (415.9) $ 894.3 $ 2,608.9 $ 21.2 $ 892.1 $ 1,086.8 $ 1,076.9 $ 3,077.0 $ 4,078.1 ENI per Unit $ 1.28 $ 1.38 $ 1.77 $ 3.07 $ 3.76 $ 1.37 $ 0.43 $ (0.35) $ 0.70 $ 2.16 $ 0.03 $ 0.75 $ 0.91 $ 0.85 $ 2.53 $ 3.34 ENI Margin 50% 47% 49% 53% 58% 65% 42% NA 61% 51% 6% 55% 56% 57% 53% 53%

Fee-Related Revenue 2,062.8 2,421.2 2,973.9 3,039.7 809.4 597.6 572.5 754.8 2,734.3 644.8 715.9 783.6 793.4 2,937.7 3,300.0 Fee-Related Earnings (FRE) 546.5 700.3 798.0 1,003.0 180.6 178.4 265.7 271.1 895.9 196.6 208.3 228.6 301.4 934.8 998.6 FRE per Unit $ 0.50 $ 0.62 $ 0.71 $ 0.88 $ 0.15 $ 0.15 $ 0.22 $ 0.23 $ 0.76 $ 0.16 $ 0.17 $ 0.19 $ 0.25 $ 0.78 $ 0.82 FRE Margin 26% 29% 27% 33% 22% 30% 46% 36% 33% 30% 29% 29% 38% 32% 30%

Distributable Earnings (DE) 696.7 1,124.0 1,869.1 3,064.0 1,240.2 1,033.9 691.5 979.4 3,945.1 670.9 915.4 1,035.9 998.6 3,620.7 4,024.8 DE per Unit $ 0.62 $ 0.57 $ 0.93 $ 1.56 $ 2.51 $ 1.05 $ 0.88 $ 0.58 $ 0.77 $ 3.28 $ 0.51 $ 0.71 $ 0.80 $ 0.77 $ 2.79 $ 3.05 Actual Distribution per Common Unit $ 0.62 $ 0.52 $ 0.72 $ 1.34 $ 2.12 $ 0.89 $ 0.74 $ 0.49 $ 0.66 $ 2.78 $ 0.43 $ 0.60 $ 0.68 $ 0.66 $ 2.37 $ 2.60

Adjusted EBITDA 857.4 1,367.7 2,165.2 3,509.9 1,303.0 1,106.7 770.3 Adjusted EBITDA Margin 26% 34% 33% 47% 52% 92% NM

Company Metrics ($B)

Fee-Earning AUM (EOP) Private Equity 24.2 37.2 37.1 42.6 43.9 49.3 49.5 50.6 50.8 50.8 72.3 74.0 76.2 77.3 77.3 84.7 Real Estate 26.8 31.2 41.9 50.8 52.6 50.8 62.7 64.9 66.4 66.4 67.9 68.7 69.5 70.2 70.2 75.4 Hedge Fund Solutions (BAAM) 33.2 37.8 43.5 52.9 61.4 64.1 65.5 65.2 64.8 64.8 64.0 65.7 67.4 68.1 68.1 74.3 Credit 25.3 30.5 45.4 51.7 58.8 59.3 61.6 60.3 62.0 62.0 63.7 65.5 66.9 68.4 68.4 74.8 Total Fee-Earning AUM 109.5 136.8 167.9 198.0 216.7 223.5 239.3 240.9 243.9 243.9 268.0 273.9 279.9 284.0 284.0 309.1 Weighted Average Fee-Earning AUM 104.5 129.5 160.1 186.1 212.3 218.2 237.6 239.9 242.9 234.6 260.6 272.5 278.8 283.2 273.8 298.4

Total AUM (EOP) Private Equity 29.3 45.9 51.0 65.7 73.1 76.3 92.0 91.5 93.3 93.3 91.1 93.7 96.8 98.9 98.9 116.5 Real Estate 33.2 42.9 56.7 79.4 80.9 92.8 91.6 93.2 93.9 93.9 94.2 94.2 94.2 94.2 94.2 96.8 Hedge Fund Solutions (BAAM) 34.6 40.5 46.1 55.7 63.6 66.4 67.8 68.4 68.0 68.0 67.2 68.9 70.6 71.4 71.4 77.7 Credit 31.1 37.0 56.4 65.0 72.9 75.0 81.3 80.8 81.5 81.5 81.8 83.4 85.1 86.8 86.8 93.9 Total AUM 128.1 166.2 210.2 265.8 290.4 310.5 332.7 333.9 336.7 336.7 334.3 340.2 346.8 351.3 351.3 385.0

Dry Powder 30.0 32.9 35.0 46.8 46.1 64.5 82.1 84.9 Fundraising 20.9 49.5 46.6 60.3 56.9 30.4 31.2 16.1 12.8 90.6 12.1 14.7 15.9 15.0 57.7 73.8 Outflows 10.0 5.6 5.9 8.4 12.2 3.7 4.2 2.2 4.4 14.6 3.0 3.1 3.2 4.3 13.5 14.7 Deployment 7.4 13.5 13.9 14.2 24.4 4.8 4.8 6.1 Harvesting NA 10.9 12.6 29.5 44.6 13.5 10.3 9.0 9.9 42.7 7.7 10.7 12.3 12.6 43.3 51.9

Investment Performance 19.0 5.1 15.9 33.2 24.5 6.9 5.5 (3.7) 4.2 13.0 (3.9) 5.0 6.2 6.3 13.6 26.5 As % of Beginning AUM 19% 4% 10% 16% 9% 2% 2% -1% 1% 4% -1% 1% 2% 2% 4% 8%

Total AUM Split by Segment Private Equity 23% 28% 24% 25% 25% 25% 28% 27% 28% 28% 27% 28% 28% 28% 28% 30% Real Estate 26% 26% 27% 30% 28% 30% 28% 28% 28% 28% 28% 28% 27% 27% 27% 25% BAAM 27% 24% 22% 21% 22% 21% 20% 20% 20% 20% 20% 20% 20% 20% 20% 20% Credit 24% 22% 27% 24% 25% 24% 24% 24% 24% 24% 24% 25% 25% 25% 25% 24%

Revenue Split by Segment Private Equity 26% 18% 20% 22% 36% 46% 32% NM 46% 33% -46% 39% 47% 45% 39% 45% Real Estate 33% 48% 40% 48% 40% 36% 27% NM 36% 38% 119% 41% 34% 35% 42% 35% BAAM 12% 10% 11% 10% 9% 7% 15% NM 12% 12% 15% 11% 9% 10% 10% 10% Credit 15% 12% 19% 13% 10% 7% 20% NM 5% 10% 11% 9% 9% 10% 9% 10% Financial Advisory 14% 12% 9% 6% 6% 3% 7% NM 0% 6% 0% 0% 0% 0% 0% 0%

Sources: Company data; William Blair & Company, L.L.C. estimates 4 | Christopher Shutler, CFA +1 312 364 8197 William Blair

Revenue $ 828.4 $ 578.8 $ 828.1 $ 1,457.3 $ 2,715.9 $ 1,155.7 $ 379.9 $ (524.5) $ 681.6 $ 1,692.8 $ (166.0) $ 633.7 $ 924.4 $ 844.1 $ 2,236.2 $ 3,525.7 Expenses 342.9 337.7 415.8 741.9 896.2 326.4 210.5 (11.9) 238.5 763.5 48.2 248.0 356.0 332.1 984.2 1,522.0 Economic Income (EI) 485.5 241.1 412.3 715.4 1,819.7 829.2 169.4 (512.5) 443.2 929.3 (214.2) 385.7 568.4 512.0 1,251.9 2,003.7 Pre-Tax Margin 59% 42% 50% 49% 67% 72% 45% 98% 65% 55% 129% 61% 61% 61% 56% 57%

Fee-Related Revenue 351.4 453.5 458.7 479.3 559.9 129.6 110.9 134.1 145.2 519.9 122.4 136.4 194.5 198.3 651.6 833.0 Fee-Related Earnings (FRE) 62.5 115.0 105.2 119.1 140.5 20.7 (18.6) 20.9 24.6 47.7 (3.4) 6.5 26.1 36.1 65.3 115.4 FRE Margin 18% 25% 23% 25% 25% 16% -17% 16% 17% 9% -3% 5% 13% 18% 10% 14%

Fee-Earning AUM (EOP) 24.2 37.2 37.1 42.6 43.9 49.3 49.5 50.6 50.8 50.8 72.3 74.0 76.2 77.3 77.3 84.7 Weighted Average Fee-Earning AUM 24.4 36.1 38.1 44.0 44.2 45.1 49.9 50.3 51.5 49.2 65.4 74.0 76.3 77.7 73.4 81.9

Beginning AUM 24.8 29.3 45.9 51.0 65.7 73.1 76.3 92.0 91.5 73.1 93.3 91.1 93.7 96.8 93.3 98.9 Inflows 0.8 18.6 4.2 14.4 13.7 2.9 18.1 3.9 3.0 27.9 1.5 4.0 5.0 4.0 14.5 26.0 Outflows (2.1) (0.1) (0.1) (0.7) (1.6) (0.0) (0.1) (0.1) (0.3) (0.5) (0.3) (0.4) (0.4) (0.4) (1.4) (1.6) Realizations 0.0 (4.2) (3.5) (9.6) (15.4) (3.3) (4.0) (2.7) (3.2) (13.3) (1.5) (2.9) (4.1) (4.2) (12.7) (18.4) Net Inflows (Outflows) (1.4) 14.3 0.7 4.2 (3.3) (0.5) 14.0 1.1 (0.5) 14.1 (0.3) 0.7 0.6 (0.6) 0.5 6.0 Market Activity 5.9 2.2 4.4 10.5 10.7 3.7 1.7 (1.6) 2.2 6.1 (1.9) 1.8 2.6 2.7 5.2 11.6 Total AUM 29.3 45.9 51.0 65.7 73.1 76.3 92.0 91.5 93.3 93.3 91.1 93.7 96.8 98.9 98.9 116.5

Investment Performance 24% 7% 10% 21% 16% 5% 2% -2% 2% 8% -2% 2% 3% 3% 6% 12%

Dry Powder 16.5 16.3 15.7 17.7 19.6 20.6 36.8 37.3 NA NA NA NA NA NA NA NA Deployment 1.7 3.8 3.2 2.6 9.6 2.4 1.8 1.5 NA NA NA NA NA NA NA NA

Real Estate

Revenue $ 1,035.6 $ 1,581.3 $ 1,634.3 $ 3,205.1 $ 2,986.7 $ 914.6 $ 326.4 $ 188.4 $ 532.6 $ 1,962.0 $ 428.3 $ 658.2 $ 659.6 $ 662.1 $ 2,408.1 $ 2,687.9 Expenses 396.1 579.5 635.2 1,135.2 1,105.8 276.3 189.3 177.9 194.2 837.7 181.9 271.6 274.9 270.2 998.6 1,217.9 Economic Income (EI) 639.5 1,001.8 999.1 2,070.0 1,880.9 638.3 137.1 10.5 338.4 1,124.3 246.3 386.7 384.6 391.8 1,409.5 1,469.9 Pre-Tax Margin 62% 63% 61% 65% 63% 70% 42% 6% 64% 57% 58% 59% 58% 59% 59% 55%

Fee-Related Revenue 408.1 511.2 623.7 647.0 718.7 168.7 168.2 197.1 222.3 756.3 220.9 224.5 225.5 227.9 898.7 932.9 Fee-Related Earnings (FRE) 150.7 170.5 228.9 236.4 246.3 43.7 45.3 55.8 82.2 227.1 72.9 71.2 72.2 84.5 300.8 285.9 FRE Margin 37% 33% 37% 37% 34% 26% 27% 28% 37% 30% 33% 32% 32% 37% 33% 31%

Fee-Earning AUM (EOP) 26.8 31.2 41.9 50.8 52.6 50.8 62.7 64.9 66.4 66.4 67.9 68.7 69.5 70.2 70.2 75.4 Weighted Average Fee-Earning AUM 24.2 28.4 37.7 45.3 53.6 51.7 60.9 63.5 65.6 60.4 67.2 68.3 69.1 69.8 68.6 72.8 Beginning AUM 20.4 33.2 42.9 56.7 79.4 80.9 92.8 91.6 93.2 80.9 93.9 94.2 94.2 94.2 93.9 94.2 Inflows 4.8 8.3 12.6 17.7 11.1 18.4 2.2 4.3 4.0 28.9 3.5 3.5 3.5 3.5 14.0 16.0 Outflows (0.9) (0.4) (0.3) (1.0) (0.9) (0.2) (0.1) (0.0) (0.2) (0.4) (0.2) (0.2) (0.2) (0.2) (0.7) (0.7) Realizations 0.0 (2.5) (3.9) (8.3) (20.4) (9.2) (4.8) (3.1) (5.0) (22.0) (4.0) (5.6) (5.7) (5.7) (21.0) (22.2) Net Inflows (Outflows) 3.9 5.3 8.4 8.3 (10.2) 9.0 (2.7) 1.2 (1.2) 6.4 (0.7) (2.3) (2.3) (2.4) (7.7) (7.0) Market Activity 8.9 4.4 5.5 14.4 11.7 2.9 1.5 0.4 1.9 6.6 0.9 2.4 2.4 2.4 8.0 9.5 Total AUM 33.2 42.9 56.7 79.4 80.9 92.8 91.6 93.2 93.9 93.9 94.2 94.2 94.2 94.2 94.2 96.8

Investment Performance 44% 13% 13% 25% 15% 4% 2% 0% 2% 8% 1% 3% 3% 3% 9% 10%

Dry Powder 9.1 10.0 11.0 17.1 14.1 29.0 27.2 27.0 NA NA NA NA NA NA NA NA Deployment 4.1 6.1 8.2 9.7 11.2 1.4 3.0 4.1 NA NA NA NA NA NA NA NA Sources: Company data; William Blair & Company, L.L.C. estimates

5 | Christopher Shutler, CFA +1 312 364 8197 William Blair

Revenue $ 366.8 $ 338.5 $ 459.2 $ 648.6 $ 657.8 $ 184.8 $ 175.1 $ 98.2 $ 182.4 $ 640.4 $ 55.6 $ 176.0 $ 181.9 $ 184.4 $ 597.9 $ 770.7 Expenses 48.5 59.9 54.4 62.7 23.8 260.0 96.4 82.9 58.1 60.8 298.2 48.6 83.8 89.9 65.2 69.0 Economic Income (EI) 198.3 140.8 257.3 376.5 397.9 88.3 92.2 40.1 121.5 342.2 7.0 92.2 92.0 119.2 310.3 419.4 Pre-Tax Margin 54% 42% 56% 58% 60% 48% 53% 41% 67% 53% 13% 52% 51% 65% 52% 54%

Fee-Related Revenue 278.0 327.6 350.9 414.9 491.5 132.7 134.0 137.4 134.2 538.3 132.5 133.6 138.5 140.0 544.6 584.8 Fee-Related Earnings (FRE) 131.2 133.6 173.4 211.4 273.7 55.4 67.7 68.8 84.6 276.5 58.1 62.2 61.2 87.1 268.7 286.5 FRE Margin 47% 41% 49% 51% 56% 42% 51% 50% 63% 51% 44% 47% 44% 62% 49% 49%

Fee-Earning AUM (EOP) 33.2 37.8 43.5 52.9 61.4 64.1 65.5 65.2 64.8 64.8 64.0 65.7 67.4 68.1 68.1 74.3 Weighted Average Fee-Earning AUM 32.8 37.4 41.7 48.4 58.5 62.9 65.5 65.8 64.3 64.6 64.8 65.3 67.0 67.7 66.2 71.9 Beginning AUM 28.8 34.6 40.5 46.1 55.7 63.6 66.4 67.8 68.4 63.6 68.0 67.2 68.9 70.6 68.0 71.4 Inflows 6.1 11.3 5.3 9.3 11.4 3.1 2.5 3.1 1.3 10.0 2.4 2.4 2.5 2.5 9.8 10.6 Outflows (3.3) (3.6) (3.2) (3.9) (5.4) (1.3) (1.8) (1.0) (2.6) (6.6) (1.5) (1.4) (1.5) (2.5) (6.9) (7.5) Realizations 0.0 0.0 0.0 (0.4) (0.4) (0.0) (0.1) (0.3) 0.0 (0.4) (0.1) (0.1) (0.1) (0.1) (0.3) (0.4) Net Inflows (Outflows) 2.8 7.7 2.2 5.0 5.6 1.8 0.6 1.9 (1.3) 3.0 0.9 0.9 0.9 (0.1) 2.6 2.8 Market Activity 3.0 (1.7) 3.4 4.5 2.3 1.0 0.9 (1.3) 0.9 1.5 (1.7) 0.8 0.8 0.8 0.8 3.6 Total AUM 34.6 40.5 46.1 55.7 63.6 66.4 67.8 68.4 68.0 68.0 67.2 68.9 70.6 71.4 71.4 77.7

Investment Performance 10% -5% 8% 10% 4% 2% 1% -2% 1% 2% -3% 1% 1% 1% 1% 5%

Dry Powder NA NA 1.3 2.0 2.4 3.2 3.0 4.1 NA NA NA NA NA NA NA NA Deployment 0.2 0.9 0.2 0.4 0.9 0.1 0.0 0.1 NA NA NA NA NA NA NA NA

Credit (GSO)

Revenue $ 478.7 $ 395.0 $ 778.4 $ 880.3 $ 742.5 $ 165.9 $ 241.1 $ 55.0 $ 71.3 $ 533.3 $ 40.9 $ 142.5 $ 180.8 $ 184.8 $ 549.0 $ 781.9 Expenses 305.0 253.4 453.1 521.8 411.8 87.5 122.1 44.8 33.4 287.7 28.9 83.5 104.5 82.8 299.7 424.0 Economic Income (EI) 173.7 141.6 325.3 358.5 330.7 78.4 119.0 10.2 37.9 245.6 11.9 59.0 76.3 102.1 249.3 357.9 Pre-Tax Margin 36% 36% 42% 41% 45% 47% 49% 19% 53% 46% 29% 41% 42% 55% 45% 46%

Fee-Related Revenue 198.4 242.6 389.3 405.1 470.9 127.8 128.3 122.5 132.0 510.6 134.7 138.5 143.4 146.8 563.5 622.8 Fee-Related Earnings (FRE) 36.1 64.0 122.7 121.6 192.2 56.1 57.6 46.3 65.3 225.3 55.2 55.6 57.0 82.5 250.3 276.6 FRE Margin 18% 26% 32% 30% 41% 44% 45% 38% 49% 44% 41% 40% 40% 56% 44% 44%

Fee-Earning AUM (EOP) 25.3 30.5 45.4 51.7 58.8 59.3 61.6 60.3 62.0 62.0 63.7 65.5 66.9 68.4 68.4 74.8 Weighted Average Fee-Earning AUM 23.1 27.6 42.6 48.4 56.0 58.6 61.3 60.3 61.4 60.4 63.1 64.9 66.4 67.9 65.6 71.8 Beginning AUM 24.2 31.1 37.0 56.4 65.0 72.9 75.0 81.3 80.8 72.9 81.5 81.8 83.4 85.1 81.5 86.8 Inflows 9.3 11.3 24.5 18.8 20.8 6.1 8.4 4.8 4.5 23.9 4.6 4.8 4.9 5.0 19.4 21.2 Outflows (3.7) (1.5) (2.4) (2.8) (4.2) (2.3) (2.2) (1.2) (1.4) (7.0) (1.1) (1.1) (1.1) (1.2) (4.5) (5.0) Realizations 0.0 (4.2) (5.2) (11.2) (8.4) (1.0) (1.3) (3.0) (1.7) (7.0) (2.0) (2.1) (2.5) (2.6) (9.2) (10.9) Net Inflows (Outflows) 5.6 5.6 16.9 4.8 8.1 2.8 4.9 0.7 1.5 9.9 1.5 1.6 1.2 1.3 5.6 5.4 Market Activity 1.2 0.3 2.6 3.8 (0.3) (0.7) 1.5 (1.1) (0.8) (1.2) (1.2) 0.0 0.4 0.4 (0.4) 1.8 Total AUM 31.1 37.0 56.4 65.0 72.9 75.0 81.3 80.8 81.5 81.5 81.8 83.4 85.1 86.8 86.8 93.9

Investment Performance 5% 1% 7% 7% 0% -1% 2% -1% -1% -2% -2% 0% 1% 1% 0% 2%

Dry Powder 4.5 5.1 7.2 9.9 10.0 11.6 15.1 16.6 NA NA NA NA NA NA NA NA Deployment 1.4 2.7 2.3 1.4 2.7 0.8 0.0 0.4 NA NA NA NA NA NA NA NA Sources: Company data; William Blair & Company, L.L.C. estimates

6 | Christopher Shutler, CFA +1 312 364 8197 William Blair

IMPORTANT DISCLOSURES William Blair or an affiliate is a market maker in the security of The Blackstone Group L.P.

William Blair or an affiliate expects to receive or intends to seek compensation for investment banking services from The Blackstone Group L.P. within the next three months.

Additional information is available upon request.

This report is available in electronic form to registered users via R*Docs™ at www.rdocs.com or www.williamblair.com.

Please contact us at +1 800 621 0687 or consult williamblair.com/Research-and-Insights/Equity-Research/Coverage.aspx for all disclosures.

Christopher Shutler attests that 1) all of the views expressed in this research report accurately reflect his/her personal views about any and all of the securities and companies covered by this report, and 2) no part of his/her compensation was, is, or will be related, directly or indirectly, to the specific recommendations or views expressed by him/her in this report. We seek to update our research as appropriate, but various regulations may prohibit us from doing so. Other than certain periodical industry reports, the majority of reports are published at irregular intervals as deemed appropriate by the analyst. In addition, the analyst has not received compensation from any subject company in the past 12 months.

DOW JONES: 16,379.05 S&P 500: 1,921.84 NASDAQ: 4,615.00

Blackstone Group L.P. (BX) Jan 11,2013 - Jan 13,2016 Previous Close: $25.50 $45

$40 Date: 12/14/2015 rec_name: I-O tg_price: @NA $35

$30

$25

$20

$15 Jan-14 Jan-15 Jan-16 Source: FactSet and William BlairLegend: I = Initiation, @ = Analyst Change, @NA = No Recommendation Change, tg_price = Price Target

Current Rating Distribution (as of 12/31/15) Coverage Universe Percent Inv. Banking Relationships* Percent

Outperform (Buy) 66 Outperform (Buy) 15 Market Perform (Hold) 32 Market Perform (Hold) 3 Underperform (Sell) 1 Underperform (Sell) 0

*Percentage of companies in each rating category that are investment banking clients, defined as companies for which William Blair has received compensation for investment banking services within the past 12 months.

The compensation of the research analyst is based on a variety of factors, including performance of his or her stock recommendations; contributions to all of the firm’s departments, including asset management, corporate finance, institutional sales, and retail brokerage; firm profitability; and competitive factors.

OTHER IMPORTANT DISCLOSURES Stock ratings, price targets, and valuation methodologies: William Blair & Company, L.L.C. uses a three-point system to rate stocks. Individual ratings and price targets (where used) reflect the expected performance of the stock relative to the broader market (generally the S&P 500, unless otherwise indicated) over the next 12 months. The assessment of expected performance is a function of near-, intermediate-, and long-term company fundamentals, industry outlook, confidence in earnings estimates, valuation (and our valuation methodology), and other factors. Outperform (O) – stock expected to outperform the broader market over the next 12 months; Market Perform (M) – stock expected to perform

7 | Christopher Shutler, CFA +1 312 364 8197 William Blair approximately in line with the broader market over the next 12 months; Underperform (U) – stock expected to underperform the broader market over the next 12 months; not rated (NR) – the stock is not currently rated. The valuation methodologies used to determine price targets (where used) include (but are not limited to) price-to-earnings multiple (P/E), relative P/E (compared with the relevant market), P/E-to-growth-rate (PEG) ratio, market capitalization/revenue multiple, enterprise value/EBITDA ratio, discounted cash flow, and others.

Company Profile: The William Blair research philosophy is focused on quality growth companies. Growth companies by their nature tend to be more volatile than the overall stock market. Company profile is a fundamental assessment, over a longer-term horizon, of the business risk of the company relative to the broader William Blair universe. Factors assessed include: 1) durability and strength of franchise (management strength and track record, market leadership, distinctive capabilities); 2) financial profile (earnings growth rate/consistency, cash flow generation, return on investment, balance sheet, accounting); 3) other factors such as sector or industry conditions, economic environment, confidence in long-term growth prospects, etc. Established Growth (E) – Fundamental risk is lower relative to the broader William Blair universe; Core Growth (C) – Fundamental risk is approximately in line with the broader William Blair universe; Aggressive Growth (A) – Fundamental risk is higher relative to the broader William Blair universe.

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8 | Christopher Shutler, CFA +1 312 364 8197