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Private Equity Secondaries

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Presentation on theme: "Private Equity Secondaries"— Presentation transcript:

1 Private Equity Secondaries
Powerful Tools

2 Primary Private Equity Funds
LP LP LP LP LP Unfunded GP FUND E1 E2 E3 E4 En

3 Secondary Funds acquire interests in existing PE portfolios
LP LP LP LP LP FUND GP LP FUND E1 E2 E3 En E4 GP (Interests in other funds) Primary Fund An LP interest is equal to a slice of the portfolio

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

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

7 Types of Private Equity 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 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

8 Tail End Fund Restructuring
Year 9+ LP FUND E1 E2 E3 En E4 GP Fund cycle does not coincide with portfolio company cycle Options: Extention (LPs don’t like) Forced sale Secondary transaction

9 Tail End Fund Restructuring
Paulcap LP LP LP LP LP $ FUND GP New Fund $$ E1 E2 E3 E4 En Advantages: Extended tenure New GP economics Fresh capital for portfolio New LP(s)

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

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

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

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 Development Institutions Unfunded JV
DFI Paul Capital 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 Y/(X+Y)% of all distributions DFI Paul Capital

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

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 Use time references

18 Partners, Principals and Managing Directors
Senior Secondary Team Members Partners, Principals and Managing Directors 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 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 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 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 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 Joined Paul Capital in 2000 Prior experience: SG Cowen and Tosco Corp. M.B.A. University of Virginia, B.S. Manhattan College 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 Elaine L. Small - London Joined Paul Capital in 2004 Prior experience: Spencer Stuart, First Boston, JP Morgan and Bankers Trust B.A. Princeton University

19 Paul Capital Partners – A Global Presence
Netherlands Toronto Germany Switzerland London CEE . . . Paris . . San Francisco . Spain Japan and Korea PJJ/DEP Slide New York Middle East Hong Kong Italy Sao Paulo Paul Capital Partners has the resources, personnel and expertise to work with GPs and LPs to complete transactions quickly and confidentially. Office Locations Exclusive Representatives

20 Select Investors AMB Generali Missouri Teachers
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 Paul Secondary Funds Acquiring Top GPs
VESTAR CAPITAL PARTNERS SLP Silver Lake Partners Freeman Spogli & Co. HICKS, MUSE, TATE & FURST DEP Slide ODYSSEY INVESTMENT PARTNERS, LLC CENTRE PARTNERS New York  Los Angeles BRADFORD EQUITIES MANAGEMENT, LLC

22 Muito Obrigado! Duncan Littlejohn Paul Capital dlittlejohn@paulcap.com
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