Private Equity Secondaries
Powerful Tools
Primary Private Equity Funds
LP
LP
LP
LP
LP
Unfunded
FUND
E1
E2
E3
E4
GP
En
Page 2
Secondary Funds acquire interests in
existing PE portfolios
LP LP LP LP LP
FUND
LP LP LP LP LP
FUND
E1 E2 E3 E4 En
Secondary Fund
GP
(Interests in other funds)
GP
Primary Fund
An LP interest is equal to a slice of
the portfolio
Page 3
“ J Curve” phenomenon
Accumulated cash flow
of secondary investor
$
3-6 years
Investment Period
time
10 years
Accumulated cash flow of investor in Primary Fund
Page 4
Who can use the Secondary Market in Emerging
Markets?
Financial Institutions
– Captive GP groups investing in direct PE investments
Portfolios of funds to support Leveraged Finance business
– Asset management
Corporations
– Corporate VC programs and strategic PE investments
Family Offices and High Net Worth Individuals
– Funds and portfolios of direct PE investments, including co-investments
Developmental Financial Institutions
– Reallocation of assets to different regions or asset types
– Liquidity for new investments when facing capital constraints
– Promote development of regional PE market
Pension Plans
– Many international pension plans are mature and reducing GP exposure
Hedge Funds
– Increasingly invested in illiquid assets
–
Page 5
Motivations
Strategic
Financial
Administrative/recycling
Regulatory
“Spin out” of Captive GPs
Page 6
Types of Private Equity Funds
Fund of Funds
Primary Fund
 Makes direct



investments in
single companies
Generally
purchases stakes
in each company
one at a time
More
concentrated
Examples include
buyout funds,
venture funds or
mezzanine funds
 Makes


investments in
primary private
equity funds on a
blind pool basis
Builds portfolio of
primary fund
interests to provide
its investors with
exposure to a
broad range of
funds
More diversity
Secondary Fund
 Provides liquidity to


private equity
investors
Buys private equity
partnership interests
several years after
the underlying fund
was formed and
portfolios of direct
investments
Provides good
visibility into assets
and mitigation of Jcurve
Page 7
Tail End Fund Restructuring
LP LP LP LP LP
FUND
Year 9+
GP
E1 E2 E3 E4 En
Fund cycle does not coincide with portfolio company cycle
Options:
•Extention (LPs don’t like)
•Forced sale
•Secondary transaction
Page 8
Tail End Fund Restructuring
Paulcap
LP LP LP LP LP
$
FUND
E1 E2
GP
$$
New Fund
E3 E4 En
Advantages:
•Extended tenure
•New GP economics
•Fresh capital for portfolio
•New LP(s)
Page 9
Example Holding /Family Office
Current Status
Hold Co
FO
Op
Co
Op
Co
Op
Co
$ 100M
Op
Co
Exposure: $ 100M
Diversification: 4 companies
Cash: 0
Economics: Upside on $100M
Page 10
Example Holding /Family Office
+ $ 50M
LP
FO
$ 50M
Migrate assets to fund
format
LP
PC
$ 50M
Fund 1
Exposure: $ 50M
Diversification: 4 Companies
Cash: $ 50M
Economics: 100% Upside on $50M
20% Upside on $ 50M
2% Management fee
Op
Co
Op
Co
Op
Co
FO
GP
Op
Co
Page 11
Example Holding /Family Office
Raises and invests “Fund 2”
$50M
LP
FO
$ 50M
Fund 1
Op
Co
Op
Co
LP
FO
$ 50M
LP
PC
$ 50M
Op
Co
LP
3
LP
4
LP
N
$ 300-450M
FO
GP
Op
Co
LP
PC
$ 15M
Fund 2
Op
F1
Op
F2
Op
F3
Op
Op
F10
Op
F10
Op
F10
Op
F10
F10
Exposure: $ 100M
Diversification: 14 Companies
Cash: $ 0M
Economics: 100% Upside on $100M
20% Upside on $ 350-500M
2% Management fee on $350-500
Page 12
Exemplo Family Office
Advantages
– Formal structure increases flexibility
– Risk (to own capital) reduced through diversification
– Returns on Invested capital leveraged through fees and
carried interest
– Increased fire power leveraging third party capital
– Builds relationships with institutional investors
– Good positioning for Fund 3
Page 13
Development Institutions Unfunded JV
Paul Capital
DFI
Portfolio’s NAV
= R$X
Portfolio’s unfunded
commitments = R$Y
DFI Holdings LLC
(Existing Fund Portfolio at NAV, plus associated
unfunded commitments)
X/(X+Y)% of all
distributions
DFI
Y/(X+Y)% of all
distributions
Paul Capital
Page 14
Development institutions
Advantages:
Balance Sheet relief
Frees up resources for the “mission”
Exits for mature positions
Attracts institutional capital through a
structure perceived to be of less risk
Greater visibility to local GPs
Page 15
Pioneered the Secondary Market in 1991
Paul I-IV
$142M
Paul V
$202M
Paul VII
$808M
Paul VI
$273M
Paul VIII
$960M
PRF I
$294M
PRF II
$657M
Top Tier II
$478M
Top Tier I
$213M
‘91-’95
’95
‘98
‘99
‘00
Paul IX
$1.65B
‘01
‘02
PCH III
$650M
Top Tier III
$626M
‘03 ‘04
‘05
’06
Top Tier IV
$650M
‘07
Secondary Program Facts
Capital raised (incl. Paul IX):
US$4+ billion
Making new investments in Paul IX
Secondary Investment Professionals
20
Total Firm Employees
88
General Partner Groups:
300
Funds acquired:
500
Underlying portfolio
companies:
4,000
Page 16
Paul Capital Partners Platforms - $6.6 billion
Dedicated Secondary Private Equity Fund
–
Provides liquidity to private equity investors (LP positions and direct portfolios)
–
Global leader in the secondary market since 1991, having completed more than 150 secondary
transactions
–
Oldest and largest of Paul’s investment programs
–
Currently investing from Paul IX, a US$1.65 billion dedicated fund with a significant emerging
markets allocation
Private Equity Fund of Funds
–
Currently US$1.5 billion of assets under management in top-quartile U.S. venture capital funds
Top Tier III - US$626 million
Top Tier IV - US$550 million
–
Small-cap buyout fund with US$350 target
Healthcare Royalty Acquisition Fund
–
Acquires revenue and royalty interests from pharmaceutical companies, universities, research
institutions
–
Currently US$1.8 billion of assets under management
–
Completed several securitizations of assets
Page 17
Senior Secondary Team Members
Partners, Principals and Managing Directors
David H. de Weese – New York
Simon Guenzl – New York
•
Joined Paul Capital in 1995
•
Joined Paul Capital in 2004
•
Former CEO of SigA Pharmaceuticals and
Cygnus Therapeutics
•
Prior experience: Sprout Group, Lehman Brothers and
Donaldson, Lufkin & Jenrette
•
M.B.A. Harvard Business School, B.A.
Stanford University
•
M.B.A. The Wharton Business School and a Bachelor of
Jurisprudence / Bachelor of Laws from University of
Western Australia
Guy R. Rico - Paris
Bryon T. Sheets – San Francisco
•
Joined Paul Capital in 1996
•
•
Joined Paul Capital in 1994
Former Managing Partner of Financière Tuileries
and co-managed private equity at UAP
•
•
Previously served as Finance Manager for Apple Computer
and Claris Corporation
M.A. in Economics University of Economics in
Lyon, Engineering Degree from Ecole Centrale
•
M.B.A. University of California, Berkeley, B.S. University
of California, Davis
Brian W. Sullivan – New York
•
•
•
Joined Paul Capital in 1998
Former Consultant with The Boston Consulting
Group and Officer in the U.S. Navy
M.B.A. The Wharton Business School and B.S.
U.S. Naval Academy
Duncan Littlejohn – Sao Paulo
• Joined Paul Capital in 2007
• Previously a Partner with BPE Investimentos
• B.A. University of Pennsylvania
Daniel P. Mulderry – San Francisco
Jason Sambanju - Hong Kong
•
•
•
• Joined Paul Capital in 2007
• Prior experience: Symphony Capital Partners and
Deutsche Bank Securities
• B.S./B.A. University of Pennsylvania
Joined Paul Capital in 2000
Prior experience: SG Cowen and Tosco Corp.
M.B.A. University of Virginia, B.S. Manhattan
College
Elaine L. Small - London
• Joined Paul Capital in 2004
• Prior experience: Spencer Stuart, First Boston, JP
Morgan and Bankers Trust
• B.A. Princeton University
Page 18
Paul Capital Partners – A Global Presence
Netherlands
Toronto
Germany
Switzerland
London
CEE
.
San Francisco
..
Paris
..•
•
•
Spain
•
•
•
.
•
Japan and Korea
Middle East
New York
Hong Kong
•
Italy
Sao Paulo
• Office Locations
• Exclusive Representatives
Paul Capital Partners has the resources, personnel and expertise to work with
GPs and LPs to complete transactions quickly and confidentially.
Page 19
Select Investors

AMB Generali

Missouri Teachers

Baltimore County Employee Retirement
System

New York Presbyterian Hospital

NLI International, Inc.

BP Investments Management

Nomura Funds

British Coal Board Pension

Ontario Municipal Employee Retirement

Brunei Investment Agency

OP Life Assurance

Canada Pension Plan Investment Board

Pacific Life Insurance

Danica Insurance

Producer-Writers Guild

Danske Bank

San Diego County

DuPont Pension

Schindler Pensionskasse

Halifax Bank of Scotland

Sony Life

Industriens Pensionsforsikring

Taiyo Life

Kamehameha Schools

Virginia Tech Foundation

Kenyon College

YMCA Retirement

Marquette University
Page 20
Paul Secondary Funds Acquiring Top GPs
VESTAR CAPITAL PARTNERS
SLP
Freeman Spogli & Co.
Silver
Lake
Partners
HICKS, MUSE,
TATE & FURST
OINVESTMENT
DYSSEY
PARTNERS, LLC
BRADFORD EQUITIES MANAGEMENT, LLC
CENTRE PARTNERS
New York

Los Angeles
Page 21
Muito Obrigado!
Duncan Littlejohn
Paul Capital
[email protected]
(55 11) 5105 1515
(55 11) 9943 7255
Page 22
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Primary Private Equity Funds