Private Equity Fundraising Update

1
Private Equity Fundraising Update

• John Crocker
• Citi Alternatives Distribution
• john.crocker_at_citi.com

AMEXCAP / Paul Capital Conference September 30,
2008
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Citi Alternatives Distribution Group

• Advisor to Alternative Investment Sponsors
• One of the largest players with over 50
  professionals
• Global footprint offices in ten geographies
• Focus on the spectrum of alternative investments
  better positioned to understand investor
  sentiments
• Only group to have dedicated professionals to
  cover gatekeepers
• Only group with dedicated resources to respond to
  RFPs
• Only group to hold an invitation only Private
  Equity Conference its ninth consecutive year

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Citis Fundraising Global Coverage
As of September, 2008
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Unparalleled Commitment to Alternatives
General Partner Speakers from Past Conferences

• Thomas H. Lee
• T.H. Lee Co.

• Nigel DoughtyDoughty Hanson

• Robert AndreenNordic Capital

2009 Private Equity
Conference

• David BondermanTexas Pacific Group

• Chris OBrien
• Investcorp

• Wesley R. EdensFortress

• Gordon BonnymanCharterhouse

• Don Gogel
• Clayton, Dubilier Rice

• Daniel Och
• Och-Ziff

• John Canning
• Madison Dearborn

• Steve PagliucaBain Capital

• Guy Hands
• Terra Firma

March 30 April 1, 2008
The Ritz-Carlton, Key Biscayne

• Josh HarrisApollo

• Dick CashinOne Equity Partners

• Richard Perry
• Perry Capital

Key Biscayne, Florida

• Jon CosletTPG Capital

• David Roux
• Silver Lake Partners

• Henry KravisKKR

• J.Taylor CrandallOak Hill

• David Rubenstein The Carlyle Groupi

• Lyndon LeaLion Capital

Speakers at the 2008 Conference

• Michael Kim
• MBK

• Jonathan Russell3i

• Leon Black
• Apollo

Limited Partner / Advisor Speakers from Past
Conferences

• James KesterAllianz Private Equity

• Clint Harris
• Grove Street

• Michael ArpeyCredit Suisse

• Paul Crotty
• Portfolio Advisers

• Steve Schwarzman
• Blackstone

• Hugh Langmuir
• Cinven

• John Ehara
• Unison

• Jim Leech
• Ontario Teachers

• Tim Kelly
• Adams Street

• Andrea Auerbach
• Cambridge Associates

• Chuck Flynn
• Bregal

• Erik Hirsch
• Hamilton Lane

• Wray Thorn
• Marathon

• Marc Lasry
• Avenue Capital

• Thaddeus Gray
• Abbott Capital

• Adam Clemens New York Life

• Mark Wiseman
• CPP

• Carol Kennedy
• Pantheon Ventures

• John Morris
• HarbourVest

• Erol Uzumeri
• Ontario Teachers

• Glenn Hutchins
• Silver Lake Partners

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The Fundraising Market The Good
Private Equity Allocation Percentage
Source Private Equity Analyst, 2007 2008 and
individual investor websites. Note (1) AUM
stands for assets under management.
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The Fundraising Market The Bad
New Issue Volume Plummet in New Issues ( in
Billions)
Rate Environment Increasing Spreads2006 - 2007
574
543
399
293
331
302
250
251
173
71
Sources Citi YieldBook, SP/LSTA Leveraged Loan
Index, SP/LCD.
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The Fundraising Market And the Ugly
Bear Stearns / Lehman Brothers
Bulge Bracket Banks
(16.5)
(59.9)
Bear Stearns
Lehman Brothers
Indexed Price Performance Since IPO

Source Factset, July 2008.
Percentage of IPO
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Market Environment What are the Key Questions

• Has there been a fundamental shift in the
  fundraising market?
• Yes while commitments to the alternatives space
  remains, cautious review has overtaken blanket
  euphoria
• Is the fundraising market headed for a
  significant downturn?
• No but there will be a significant bifurcation
  between winners and losers and major allocation
  shifts within asset classes
• What is the likely complexion of the market
  players in the future?
• GPs global brand platforms and specialty players
  will dominate
• LPs the largest LPs will wield increasing power
  in the market

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Market Dynamics Reviewing Past Cycles
Global Fundraising1 from 1988 2008 YTD( in
Billions)
Source Venture Economics, September 2008 (as of
June 30, 2008). Note (1) Includes Asia, Europe
and the US
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LBO Fundraising (Excluding Venture Capital Funds)

Global Fundraising1 (Excluding VC Fundraising)
from 1988 2008 YTD ( in Billions)
Source Venture Economics, September 2008 (as of
June 30, 2008). Note (1) Includes Asia, Europe
and the US
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Whats Changed From Mid-market Buyouts to Mega
Funds
Global Buyout Fund Commitments Size Breakdown and
Dollars Raised
2000
2007
306 billion
467 billion
Source Venture Economics, September 2008 (as of
June 30, 2008). Note Represents net amount
raised for buyout funds globally.
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Increasing Size of All Funds For Now
Size Increases From Previous Fund to Current
Fund(1) (, in Billions)
This trend will slow markedly over the next few
years.
Source Private Equity Intelligence, August
2008. Notes (1) Indicates size increase from
penultimate fund raised to the last fund raised,
except for funds that are currently marketing or
pre-marketing where the target amount is used.
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Coming to Market Faster Until Now
Fundraising Time Gap(1) (, in Billions)
This trend will clearly slow as the pace of deals
has slowed.
Source Private Equity Intelligence, August
2008. Notes (1) Indicates time gap from vintage
year of penultimate fund raised to the vintage
year of last fund raised, except for funds that
are currently marketing or pre-marketing where
2008 is used.
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Alternative Allocations Will Increase Going
Forward
Alternative Allocation Among Select Leading
Investors
North America
23.2
21.7
21.4
20.7
10.0
Source 20072008 Russell Survey on Alternative
Investing. Note Respondents were selected from
a broad-based, global list of institutions that
manage tax-exempt assets, and those interviewed
were qualified to represent the investment
activities, decisions and views of their
organization.
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With Interest Rates Expected to Remain Low
Government Bond Yields
Source Bloomberg, July 2008.
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And Equity Market Returns Expected to be
Moderate and Volatile
2007 to Date Equity Market Trading and Outlook
Note Market data as of July 29, 2008.
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Private Equity Returns Have Been Consistently
Superior
Top Quartile U.S. Buyout Returns
Top Quartile European Buyout Returns
Source Venture Economics, Bloomberg. Data
annualized ending 12/31/07.
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But Much of the Leveraged Finance Market has
Shut Down
Leveraged Loan ( in Billions)
Source SP LCD, July 2008. Note Spreads over
LIBOR are discounted to include upfront fees to
market / OID amortized over a three year period.
Indicated spreads include loans rated in the B/B
area.
High Yield ( in Billions)
Source Citi Proprietary Database, July
2008.Note Average at-issue yield is the
weighted average of tranche sizes and the
corresponding coupons.
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So the Question Remains Will the PE Revolution
Continue?

• Middle Market Transactions
• Notwithstanding the current credit dislocation
  this trend will continue
• Asia and Emerging Economies
• Asia is attracting an enormous flow of capital
• Distressed Investing and Credit Opportunities
• Market disruption will cause shifts in allocation
  to distressed players and credit funds
• Growth Capital
• Favorable market conditions for growth capital
  investing exist due to lack of available
  financing
• Infrastructure
• An enormous volume of assets are now being
  targeted by private equity
• Public Market Stakes
• Increasing opportunities to take active minority
  stakes in public companies

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And Will There Be Capital to Fund Demand for
PE?

• Sovereign Wealth Funds Globally
• Middle East Investors
• Russian Oligarchs
• Increasing Allocations of Pension Funds
• Direct Investors
• Hedge Funds

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Sovereign Wealth Funds
The Largest Sovereign Wealth Funds ( in Millions)
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Continued Demand for Alternatives to Fund Pension
Gap
Aging populations across the world and pension
plan asset/liability mismatch are expected to
fuel demand for alternative assets. Pension
deficits in the US alone total almost 500
billion.
Pension Deficits( in Billions)
Private Defined Benefits, Contributions vs.
Distributions (1)( in Billions)
United States
United Kingdom
Source Department of LaborPrivate Pension
Plan. No.12, Federal Reserve, company reports,
Morgan Stanley Research. Note (1) 20002010
estimated by Morgan Stanley Research.
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Alternative Allocations Will Increase Going
Forward
Alternative Allocation Among Select Leading
Investors
North America
23.2
21.7
21.4
20.7
10.0
Source 20072008 Russell Survey on Alternative
Investing. Note Respondents were selected from
a broad-based, global list of institutions that
manage tax-exempt assets, and those interviewed
were qualified to represent the investment
activities, decisions and views of their
organization.
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Situation Analysis Private Equity Investor
Market
Commitments to Private Equity
Hi
Aus / N. Z.
Asia (ex. Japan)
Middle East
Canada
Future Growth
Europe
Japan
US
Low
Low
Hi
Current Share
Source Citi estimates 7/07. Note Bubbles
reflect estimate of total commitments to private
equity
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Evolving Global Sources of Capital

• Large share of private equity market but growing
  slowly
• Many well established programs reducing number of
  relationships
• Strategy become a core portfolio holding

• Large market with new entrants
• Expand relationship with larger players across
  countries

• Oil revenues drive increase in commitments for
  foreseeable future
• Number of new entrants by investor type and
  geography
• Important to establish proper base from which
  to expand relationships

Middle East

• Growth in defined benefit programs spur increase
  in commitments
• Large established programs with newer programs
  coming on line

Asia (ex. Japan)

• Growing interest in alternatives with wide
  spectrum of sophistication and appetite
• Need a targeted marketing strategy in general
  mostly too early for India and China
• Inroads today may prove beneficial in the long run

• Established players returning to market but focus
  on well known names
• Privatization of pension system could create
  significant potential
• Leverage marquee name to expand base

Japan

• Superannuation growth drive markets and will
  expand
• Investors transition from Fund-of-Funds to direct
  fund investing

Aus / N.Z.
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The Limited Partners Dilemma and Opportunities

• Managing a multi-alternative asset platform is
  critical for performance
• The PE, hedge funds, real estate and
  infrastructure sectors are increasingly
  inter-related
• Most sophisticated institutional investors are
  evaluating sectors concurrently
• Mega funds now dominate most investor private
  equity portfolios
• Risk to diversification requirement among many of
  the large investors
• However, investors cannot adequately review the
  over 500 funds in the market yearly
• Market will increasingly bifurcate as investors
  continue to target fewer relationships
• Fewer relationships relieves operational
  impediments to growth in asset allocation
• It will be increasingly difficult for funds to
  penetrate new institutional relationships
• Investors are increasingly targeting more
  strategic relationships
• GPs going public may impact historical
  relationships
• Direct investments in GPs and direct sponsorship
  of transactions are major focuses

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Appendix Funds in the Market / Coming to Market
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Select Global Funds
Notes Denotes fund currently in the market.
Source Private Equity Intelligence, Citi,
market publications.
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Select European Funds
Notes Denotes fund currently in the market.
Source Private Equity Intelligence, Citi,
market publications.