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 dlittlejohn@paulcap.com (55 11) 5105 1515 (55 11) 9943 7255 Page 22