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Private Equity Secondaries Powerful Tools. Page 2 Primary Private Equity Funds LP Unfunded E1E2E3EnE4 GP FUND.

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Presentation on theme: "Private Equity Secondaries Powerful Tools. Page 2 Primary Private Equity Funds LP Unfunded E1E2E3EnE4 GP FUND."— Presentation transcript:

1 Private Equity Secondaries Powerful Tools

2 Page 2 Primary Private Equity Funds LP Unfunded E1E2E3EnE4 GP FUND

3 Page 3 Secondary Funds acquire interests in existing PE portfolios LP FUND E1E2E3EnE4 GP LP FUND GP Primary Fund Secondary Fund (Interests in other funds) An LP interest is equal to a slice of the portfolio

4 Page 4 “ J Curve” phenomenon $ time 10 years Accumulated cash flow of investor in Primary Fund Accumulated cash flow of secondary investor Investment Period 3-6 years

5 Page 5 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

6 Page 6 Motivations Strategic Financial Administrative/recycling Regulatory “Spin out” of Captive GPs

7 Page 7 Types of Private Equity Funds  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 Primary Fund Fund of Funds Secondary Fund  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  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 J- curve

8 Page 8 Tail End Fund Restructuring LP FUND E1E2E3EnE4 GP Fund cycle does not coincide with portfolio company cycle Options: Extention (LPs don’t like) Forced sale Secondary transaction Year 9+

9 Page 9 Tail End Fund Restructuring LP FUND E1E2E3EnE4 GP New Fund Paulcap $$ Advantages: Extended tenure New GP economics Fresh capital for portfolio New LP(s) $

10 Page 10 Example Holding /Family Office Hold Co FO Op Co Op Co Op Co Op Co $ 100M Exposure: $ 100M Diversification: 4 companies Cash: 0 Economics: Upside on $100M Current Status

11 Page 11 Migrate assets to fund format Exposure: $ 50M Diversification: 4 Companies Cash: $ 50M Economics: 100% Upside on $50M 20% Upside on $ 50M 2% Management fee + $ 50M Fund 1 Op Co Op Co Op Co Op Co LP FO $ 50M LP PC $ 50M FO GP Example Holding /Family Office

12 Page 12 Example Holding /Family Office Raises and invests “Fund 2” Fund 1 Op Co Op Co Op Co Op Co LP FO $ 50M LP PC $ 50M FO GP Fund 2 Op F1 Op F2 Op F3 Op F10 LP FO $ 50M LP PC $ 15M LP N LP 3 LP 4 $ 300-450M Op F10 Op F10 Op F10 Op F10 Exposure: $ 100M Diversification: 14 Companies Cash: $ 0M Economics: 100% Upside on $100M 20% Upside on $ 350-500M 2% Management fee on $350-500 $50M

13 Page 13 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

14 Page 14 Development Institutions Unfunded JV DFI Paul Capital DFI Holdings LLC (Existing Fund Portfolio at NAV, plus associated unfunded commitments) DFI Paul Capital Portfolio’s NAV = R$X X/(X+Y)% of all distributions Portfolio’s unfunded commitments = R$Y Y/(X+Y)% of all distributions

15 Page 15 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

16 Page 16 ‘91-’95 ’95 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ’06 ‘07 Pioneered the Secondary Market in 1991 PRF I $294M PRF I $294M Paul I-IV $142M Paul I-IV $142M Top Tier I $213M Top Tier I $213M Top Tier II $478M Top Tier II $478M PRF II $657M PRF II $657M Paul VII $808M Paul VII $808M Top Tier III $626M Paul IX $1.65B Paul IX $1.65B Capital raised (incl. Paul IX): US$4+ billion Making new investments in Paul IX Secondary Investment Professionals 20 Total Firm Employees 88 Secondary Program Facts Paul V $202M Paul V $202M Paul VI $273M Paul VI $273M Paul VIII $960M Paul VIII $960M Top Tier IV $650M Top Tier IV $650M PCH III $650M PCH III $650M General Partner Groups:300 Funds acquired: 500 Underlying portfolio companies:4,000

17 Page 17 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

18 Page 18 Senior Secondary Team Members Partners, Principals and Managing Directors Bryon T. Sheets – San Francisco Joined Paul Capital in 1994 Previously served as Finance Manager for Apple Computer and Claris Corporation 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 David H. de Weese – New York Joined Paul Capital in 1995 Former CEO of SigA Pharmaceuticals and Cygnus Therapeutics M.B.A. Harvard Business School, B.A. Stanford University Guy R. Rico - Paris Joined Paul Capital in 1996 Former Managing Partner of Financière Tuileries and co-managed private equity at UAP M.A. in Economics University of Economics in Lyon, Engineering Degree from Ecole Centrale Simon Guenzl – New York Joined Paul Capital in 2004 Prior experience: Sprout Group, Lehman Brothers and Donaldson, Lufkin & Jenrette M.B.A. The Wharton Business School and a Bachelor of Jurisprudence / Bachelor of Laws from University of Western Australia Daniel P. Mulderry – San Francisco 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 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 Duncan Littlejohn – Sao Paulo Joined Paul Capital in 2007 Previously a Partner with BPE Investimentos B.A. University of Pennsylvania

19 Page 19.. Paul Capital Partners – A Global Presence... San Francisco TorontoToronto New York LondonLondon ParisParis Hong Kong Paul Capital Partners has the resources, personnel and expertise to work with GPs and LPs to complete transactions quickly and confidentially.. Sao Paulo Japan and Korea NetherlandsNetherlands GermanyGermany CEECEE SpainSpain ItalyItaly Middle East SwitzerlandSwitzerland Office Locations Exclusive Representatives

20 Page 20 Select Investors  AMB Generali  Baltimore County Employee Retirement System  BP Investments Management  British Coal Board Pension  Brunei Investment Agency  Canada Pension Plan Investment Board  Danica Insurance  Danske Bank  DuPont Pension  Halifax Bank of Scotland  Industriens Pensionsforsikring  Kamehameha Schools  Kenyon College  Marquette University  Missouri Teachers  New York Presbyterian Hospital  NLI International, Inc.  Nomura Funds  Ontario Municipal Employee Retirement  OP Life Assurance  Pacific Life Insurance  Producer-Writers Guild  San Diego County  Schindler Pensionskasse  Sony Life  Taiyo Life  Virginia Tech Foundation  YMCA Retirement

21 Page 21 Paul Secondary Funds Acquiring Top GPs HICKS, MUSE, TATE & FURST SLP Silver Lake Partners SLP Silver Lake Partners C ENTRE P ARTNERS New York  Los Angeles Freeman Spogli & Co. V ESTAR C APITAL P ARTNERS B RADFORD E QUITIES M ANAGEMENT, LLC O DYSSEY INVESTMENT PARTNERS, LLC

22 Page 22 Muito Obrigado! Duncan Littlejohn Paul Capital (55 11) 5105 1515 (55 11) 9943 7255

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