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DERIVATIVE FINANCIAL INSTRUMENTS
6 Months Ended
Jun. 30, 2014
DERIVATIVE FINANCIAL INSTRUMENTS
6. DERIVATIVE FINANCIAL INSTRUMENTS

Blackstone and the Blackstone Funds enter into derivative contracts in the normal course of business to achieve certain risk management objectives and for general investment purposes. Additionally, Blackstone may enter into derivative contracts in order to hedge its interest rate risk exposure against the effects of interest rate changes. As a result of the use of derivative contracts, Blackstone and the consolidated Blackstone Funds are exposed to the risk that counterparties will fail to fulfill their contractual obligations. To mitigate such counterparty risk, Blackstone and the consolidated Blackstone Funds enter into contracts with certain major financial institutions, all of which have investment grade ratings. Counterparty credit risk is evaluated in determining the fair value of derivative instruments.

Freestanding Derivatives

Freestanding derivatives are instruments that Blackstone and certain of the consolidated Blackstone Funds have entered into as part of their overall risk management and investment strategies. These derivative contracts are not designated as hedging instruments for accounting purposes. Such contracts may include interest rate swaps, foreign exchange contracts, equity swaps, options, futures and other derivative contracts.

 

The table below summarizes the aggregate notional amount and fair value of the derivative financial instruments. The notional amount represents the absolute value amount of all outstanding derivative contracts.

 

    June 30, 2014     December 31, 2013  
    Assets     Liabilities     Assets     Liabilities  
    Notional     Fair
Value
    Notional     Fair
Value
    Notional     Fair
Value
    Notional     Fair
Value
 

Freestanding Derivatives

               

Blackstone — Other
Interest Rate Contracts

  $ 398,243      $ 1,980      $ 1,006,429      $ 2,694      $ 1,994,276      $ 8,521      $ 1,083,140      $ 2,676   

Foreign Currency Contracts

    71,686        518        265,771        1,173        166,066        1,480        163,787        1,015   

Total Return Swaps

    —          —          —          —          326,929        342        —          —     

Credit Default Swaps

    10,000        218        9,000        1,583        —          —          10,000        591   

Investments of Consolidated
Blackstone Funds
    Foreign Currency
        Contracts

    283,843        18,189        262,295        18,753        396,569        30,830        239,037        10,018   

Interest Rate Contracts

    25,442        2,983        —          —          62,193        3,726        —          —     

Credit Default Swaps

    —          —          95,560        6,101        —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 789,214      $ 23,888      $ 1,639,055      $ 30,304      $ 2,946,033      $ 44,899      $ 1,495,964      $ 14,300   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The table below summarizes the impact to the Condensed Consolidated Statements of Operations from derivative financial instruments:

 

     Three Months Ended June 30,     Six Months Ended June 30,  
           2014                 2013                 2014                 2013        

Freestanding Derivatives

        

Realized Gains (Losses)

        

Interest Rate Contracts

   $ (570   $ (429   $ (1,403   $ (955

Foreign Currency Contracts

     (4,420     (2,527     (2,981     (3,763

Credit Default Swaps

     996        (181     1,282        (173
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ (3,994   $ (3,137   $ (3,102   $ (4,891
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Change in Unrealized Gains (Losses)

        

Interest Rate Contracts

   $ (1,731   $ (2,807   $ (4,273   $ (9,493

Foreign Currency Contracts

     (13,827     5,257        (21,944     12,636   

Credit Default Swaps

     2,985        (277     4,798        (300
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ (12,573   $ 2,173      $ (21,419   $ 2,843   
  

 

 

   

 

 

   

 

 

   

 

 

 

As of June 30, 2014 and December 31, 2013, the Partnership had not designated any derivatives as cash flow hedges or hedges of net investments in foreign operations.