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MAYORS WATER SUMMIT Pension Funds as a Possible Source of Capital for Public Infrastructure December 8, 2010 Title Slide Guest Speakers: Craig Beevers.

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Presentation on theme: "MAYORS WATER SUMMIT Pension Funds as a Possible Source of Capital for Public Infrastructure December 8, 2010 Title Slide Guest Speakers: Craig Beevers."— Presentation transcript:

1 MAYORS WATER SUMMIT Pension Funds as a Possible Source of Capital for Public Infrastructure December 8, 2010 Title Slide Guest Speakers: Craig Beevers & Thad Wilson

2 1 23097-g-112910 DISCLAIMER The services outlined in this presentation are provided by M3 Capital Partners LLC in the United States, M3 Capital Partners Limited in the United Kingdom and M3 Capital Partners (HK) Limited in Hong Kong. This presentation is made on a confidential basis to selected sophisticated institutional investors. It must not be copied or disclosed to anyone except to personnel and professional advisers of the recipient on a confidential need to know basis. It is for information purposes only and is not an offer or invitation to subscribe for or purchase securities or to enter into any agreement for investment services nor a solicitation of an offer to subscribe for or purchase securities or enter into any such agreement. No advice or recommendation is contained in it and it does not take into account the investment objectives, financial situation and particular needs of any potential investor or issuer. All investments are subject to significant risks of loss of income and capital. Past performance of particular investments should not be seen as an indication of future performance, and there is no certainty or guarantee that results comparable to those achieved in the past can be achieved in the future. In the United Kingdom this presentation is intended only for investment professionals and high net worth companies, partnerships, associations or trusts falling within Articles 19 and 49 of the FSMA (Financial Promotion) Order 2005. Firms authorised under the Financial Services and Markets Act (“FSMA”) may also provide this presentation to persons they have classified as Professional Clients under the Financial Services Authority rules. Transmission to any person in the UK other than the categories stated above is unauthorised and may contravene FSMA. No person falling outside those categories should treat this presentation as constituting a promotion to him or rely or act on it for any purposes whatever. This presentation is in Hong Kong only intended for professional investors. The term "professional investor" is as defined in the Securities and Futures Ordinance and its subsidiary legislation. M3 Capital Partners LLC is a member of FINRA and SIPC. M3 Capital Partners Limited is authorized and regulated by the Financial Services Authority. M3 Capital Partners (HK) Limited is licensed with the Securities and Futures Commission.

3 2 23097-g-112910 M3 CAPITAL PARTNERS An Integrated, Global Real Asset Private Equity Investment and Advisory Firm 1 Services provided in the United States by M3 Capital Partners LLC, in the United Kingdom by M3 Capital Partners Limited, and in Hong Kong by M3 Capital Partners (HK) Limited. Focus on Real Asset Private Equity Global Presence and Expertise Management-Owned with Long-Term Stability Global platform with regional offices in Chicago, New York, London and Hong Kong 1 The majority of M3 transactions involve cross-border flows of capital M3 Principals have average real asset experience of 23 years and average M3 tenure of 15 years Stability of senior management and a focus on long-term strategic relationships Since inception in 1991, M3 has focused on real asset private equity investment and financial advisory services, executing 200+ transactions with a total capitalization over $80 billion M3 currently manages two private equity funds aggregating $2.9 billion of equity through Evergreen Investment Advisors, a wholly owned subsidiary

4 3 23097-g-112910 INFRASTRUCTURE OVERVIEW Why is Private Capital Attracted to Infrastructure Assets? Due to recent market turmoil and the perceived threat of inflation, private capital is attracted to tangible infrastructure assets offering: Low volatility Predictable cash-flow Attractive real returns Low correlation with other asset classes Attractive features of drinking water and wastewater infrastructure investments: Capital intensive Varied sizes ($10  $100+ million) Very long investment horizon Stable, secure cash-flows Monopolistic characteristics Massive need for investment Bulleted List with Headings

5 4 23097-g-112910 PRIVATE CAPITAL’S APPEAL Why Should Municipalities be Attracted to Private Capital? Table of Terms Ownership / Control If correctly structured, public entity retains control over pricing and regulation Municipalities can continue to oversee operating and safety standards Failure to comply to standards results in termination of agreement Payment Municipalities can receive direct upfront payment or avoid capital drain Potential to reinvest proceeds in infrastructure or other public works Risk Transfer Construction, operation and maintenance, financial and regulatory risks transferred to private sector Social Benefits Limits need for public entity leverage Allows for redeployment of stretched municipal human resources Brings forward time at which projects can be undertaken Large driver of employment locally and nationally 1 Additional Benefits Private expertise and operational efficiencies may result in long-term user savings Allows for potential transfers of new technologies and global best practices Diversifies funding sources 1 Studies cited by Jack Wells, US DOT Chief Economist, have found that each $1 billion in infrastructure investment could generate 34,800 jobs.

6 5 23097-g-112910 PRIVATE INVESTMENT VEHICLES Variety of Direct & Indirect Sources of Private Capital Bulleted List with Headings Infrastructure Assets Public Pension Funds Corporate Pension Funds Sovereign Wealth Funds Insurance Companies Private Equity Funds Unlisted Funds Listed Funds Fund of Funds Listed Corporates Direct Investment Secondary Investment

7 6 23097-g-112910 THE DIRECT APPROACH Direct Investment by Public Pension Funds Table of Terms Capital Characteristics Pension plans are characterized by very long-term liabilities (i.e. retiree benefits) and thus are natural owners of long life-cycle assets Pension funds desire better alignment of interests among stakeholders Capital Availability Pension plans have increasing in-flows resulting in more flexibility to reinvest capital and fund future capital expenditures Investment Horizon Very long-term investor – strong alignment of interests with focus on whole-life project costs Motivated to achieve more cost-effective design and construction Allows for setting clear performance standards aligned with financial incentives Permits long-term budgeting Use of Leverage Not motivated to leverage asset to meet promote hurdles or “alpha” targets Return Expectations Typically more focused on current yield rather than capital appreciation Lower total fees

8 7 23097-g-112910 SPECTRUM OF POTENTIAL STRUCTURES Not a “One Size Fits All” Approach Private Ownership DBOF / Concession Joint VentureDBO Public Ownership Process Potential Pension Fund Investment Structures Strengths Control over design, build and operations process Very long-term cash- flow stream Challenges Structuring of financial and operational risks Political acceptance Rate setting mechanism Example Publicly traded utilities Strengths Coordination of design, build and operations process Long-term, stable cash-flow stream Challenges Structuring of financial and operational risks Getting the contract terms “right” up front Example PERC Water’s Santa Paula, CA Water Recycling Facility Strengths Long-term ownership Alignment of interest Ability to optimize leverage Challenges Minority ownership for investor Untested structure Rate setting mechanism Example Potentially structure similar to Indianapolis transfer agreement Investor Perspectives:

9 8 23097-g-112910 CONTACT INFORMATION Table of Terms M3 Capital 150 S. Wacker Drive, 31 st Floor Chicago, IL 60606 Craig BeeversDirect: 312.499.8500 E-mail: Thad WilsonDirect: 312.499.8530 E-mail:

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