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2012

Private Equity Deskbook

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Private Equity Deskbook © 2012 Probitas Partners

Probitas Partners is a leading independent knowledge, innovation, and solutions provider to private markets clients. We serve both institutional investors who seek to place capital and select leading fund sponsors who seek to raise capital for private equity, real estate, infrastructure, and hedge funds. These services are offered by a team of employee owners dedicated to leveraging the firm’s vast knowledge and technical resources to provide the best results for all its clients.

On an ongoing basis, Probitas Partners offers research and investment tools for the alternative investment market as aids to its institutional investor and general partner clients. Probitas Partners compiles data from various trade and other sources and then vets and enhances that data via its team’s broad knowledge of the market.

n. [from Latin probitas: good, proper, honest.] adherence to the highest principles, ideals and character.

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© 2012 Probitas Partners Private Equity Deskbook

C o n t e n t s

Forecasts for 2012 �� 3

Fundraising Trends �� 5

The Buyout Market: Investor Focus and Concerns �� 8

Distressed Debt and Turnarounds �� 13

Asia: Searching for Growth �� 15

Europe and Distress �� 17

Emerging Markets �� 19

The Secondary Market: New Transaction Heights �� 20

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Forecasts for 2012

The biggest potential risk to private equity in 2012 is a European economic collapse large enough to generate global implications.

• ThoughcertaineconomiesinEuropeareinrecession,amajorEurozonecollapseisnotimminent.

• The sovereign debt crises in Europe may generate sovereign defaultsamong a few of the smaller economies, but the risk of the collapse oftheeuroisminimal.

The situation in Europe will present opportunities in both distressed debt and buyouts.

• Ongoing economic weakness in Europe and stresses on European banks willlikelyresultinincreaseddistresseddebtopportunities.

• Pressure on European banks to boost capital adequacy under Basel III willincrease their reluctance to hold high-risk assets that require the backing oflargeamountsofcapital.

• ForsolidEuropeancompaniesseekingtosell, theEuropeansituationwillputdownwardpressureonpurchaseprices,enhancingbuyoutreturnsinthefutureastheireconomiesrecover.

In the absence of a major economic crisis, private equity fundraising will accelerate during the year.

• Globally,weexpectcommitmentstoincrease20%ormoreover2011.

• The market will remain extremely crowded; over 1,000 private equity fundsseekingnearly$600billionincapitalarecurrentlyontheroad.

Interest in distressed debt will rebound after disappointments in the last economic cycle.

• ManyfundmanagerswillfocusonopportunitiesintheEuropeanmarket,andchanges inbanking regulations (Dodd-Frank,Basel III)will begin topressurebankstodealwithproblemloansbothinEuropeandtheUnitedStates.

• Weexpectthedistressedopportunitytoevolveintoasteadyflowofopportunityoveralongerperiodoftime,notafloodin2012.

China, though it is rapidly becoming a developed private equity market, will continue to lead investor interest in emerging market economies.

• China will set the pace for the entire Asian market, with RMB-denominatedfundsincreasinglyimportant,thoughitsGDPgrowthwillmoderate.

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• InterestinBrazil,Indonesia,andTurkeywillcontinuetobestrong,despitetherebeingrelativelyfewexperiencedprivateequityfundmanagersandthefactthatmanyfrontierinvestorshavealreadymadetheirbetsinthesemarkets.

• EnduringinterestinIndiawillcontinue,aswillskepticism;manyearlyinvestorswillwaitforsignificantexitsbeforerecommitting.

• Difficultiesinlocalpublicstockmarketsindicesandslowingeconomicgrowthalongside the slowdown in developed economies will reinforce the point thattheseemergingmarketsarenotrisklessanddelinkedfromtheglobaleconomy.

Middle-market buyout interest will continue, but investors will grow increasingly concerned about rapidly rising purchase price multiples.

• IncreasedcompetitionintheUnitedStatesfordealswillincreasetheriskthatpurchasepricemultiplesmayreturntopeaklevelsmuchmorequicklythaninpasteconomiccyclesandthreatenfuturereturns.

• Wedoseecontinuedweaknessinthedebtmarketsinsupportofnewtransactionsin theUnitedStatesandEurope,and fundmanagerswill be forced to investmoreequityintodeals.

Social media will continue to be the primary focus in the venture capital market.

• TheFacebookIPOwillcontinuetoconcentrateinvestorinterestinthesector.

• Wedoseetheventureindustrybeingtransformedbythisphenomenon;returnsfortheseinvestmentshavebeenconcentratedinonlyafewfunds.

Several mega buyout funds are returning to market to test investor appetite.

• We expect that these funds will establish smaller fundraising targets, andseveral will propose modified investment strategies with increasing focus onsmallerbuyoutandgrowthcapitaldeals.Global fundswill likelyexpandtheiractivitiesinemergingmarkets.

• Platform enterprises will pursue a broadening “family of funds” strategy (asCarlylefirstbeganinthe1990s),pursuinganexpandingarrayofspecificsectororgeographicstrategies.

• Thesemegabuyoutplatformswillincreasinglyseekseparateaccountsfromthelargestinstitutionalinvestorscoveringtheirfullarrayofproducts.

Secondary market fundraising will increase in 2012.

• Increased interest in secondary fundswillbedrivenby increased transactionvolumesfromthecontinuedroll-outofbankingregulationspressuringbankstoshedon-balancesheetprivateequityinvestments.

5


Fundraising Trends

Fundraisingforprivateequityincreasedinallthreemajorgeographiesduring2011as investors’ portfolio allocations freed up and newer investors without legacyportfolio problems, especially those from Asia, continued to enter the market.

United States

• Private equity fundraising rebounded 40% over 2010’s post-Global FinancialCrisis low, driven by interest in buyouts, but was still 60% off 2007’sfundraisingpeak.

• Total fundraising in2011wasmore in linewith long-termfundraisingtrends;thelevelsreachedin2006through2008wereashort-termaberrationunlikelytobematchedsoon.

Europe

• Fundraisingdoubled in2011fromits2010 low,butwasstillover50%underits 2008 peak. The totals were driven by large closes for two Pan-Europeanbuyout funds — BC Partners and EQT — which raised nearly one third ofallcommitments.

Asia

• Asian economies were not as badly impacted by the Global Financial Crisis;consequently, fundraising rebounded more quickly than in the United StatesandEurope,with2011Asianfundraisingonly10%belowits2008highpoint.This performance was driven by interest in China, whose strong, continuingeconomicgrowthmitigatedconcernoveritslagginglocalstockmarkets.

• ForthelasttwoyearsmoremoneywasraisedforAsianfocusedvehiclesthanforEuropeanfocusedfunds.

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Chart III Commitments to Asian Private Equity Partnerships

USD

in b

illio

ns

60

50

40

30

20

10

0

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Source: Asian Venture Capital JournalNote: 2011 total is a preliminary figure

2.35.3 6.7 5.6 5.9 7.4

16.2 17.913.2

6.5 7.3

13.4

26.6

41.2

50.9 50.2

14.9

29.0

46.1

Chart II Commitments to European Private Equity Partnerships by Sector

EUR

in b

illio

ns

75

60

45

30

15

0

2003 2004 2005 2006 2007 2008 2009 2010 2011

Source: Probitas PartnersNote: “Corporate Finance” includes buyout, growth capital, mezzanine, secondaries, distressed debt, and turnaround funds

Chart I Commitments to U.S. Private Equity Partnerships by Sector

USD

in b

illio

ns

350

300

250

200

150

100

50

0

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Source: Private Equity AnalystNote: Does not include funds-of-funds

Buyouts/Corporate Finance MezzanineSecondaries/Other Venture Capital

13.3 19.5 29.8 31.550.1

90.7 100.0

160.5

107.0

58.8 48.0

91.4

152.2

236.4

297.0

236.5

87.5 80.0113.4

Corporate Finance Venture Capital

24.419.0

55.860.2 61.9

70.5

16.1 15.9

32.5

7


Latin America

• Thoughnotdocumentedinachart,fundraisinghitanewrecordof$8.4billionlastyear,drivenbylargeclosesforestablishedBrazilianmanagers.

Global Deal Market

• Unsurprisingly, trends in fundraising follow trends in overall private equityinvestment,thoughthemarketturmoilcausedbytheEuropeansovereigndebtcrisisinthesecondhalfof2011slowedtheyear’sannualinvestmentamounttobelowthe2010total.

Global Forecast

• We forecast fundraising will increase by 20% or more over 2011, with acommensurateincreaseindealvolume,andwithAsianfundraisinglikelytosetanewhigh.ThegreatestthreattothisforecastisamajorEuropeansovereigndebtcollapse,thoughwejudgethatrisktobemodest.

Chart IV Private Equity Deal Volume

USD

in b

illio

ns

900

800

700

600

500

400

300

200

100

02001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Source: Thomson Venture Economics

54.4 46.2 66.0141.2

185.6

434.6

773.7

344.9

101.3

261.6 241.7

8


The Buyout Market: Investor Focus and Concerns

Buyouts are the largest segment of the United States and European privateequitymarkets (growthcapitaldominates inAsia).Consequently, thekey factorsimpacting buyouts have a significant effect on many institutional private equityportfolios.Thosefactorsincludethefollowing:

Purchase Price Multiples

• TheincreasesinmultiplesinboththeUnitedStatesandEuropein2010and2011were stronger than anticipated and deviated from the normal post-recessionpattern where multiples remain low for a longer period as fund managersremainconservativeandsellers’priceexpectationsaremoderated.

• InEurope,therewasdownwardpressureonmultiplesduringthesecondhalfof2011,atrendthatcontinuesinto2012;thisoffersinvestorsabetteropportunitytogeneratestrongerfuturereturns.

• The multiple differentials between large and middle-market buyouts haveincreasedduringthiscycleandinvestorsincreasinglyseekexposuretomiddle-marketbuyoutstocapitalizeonthemoreattractivelowermultiples.

Chart V Average U.S. LBO Purchase Price/Adjusted EBITDA Multiples

Mul

tiple

of E

BITD

A

12x

10x

8x

6x

4x

2x

0

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Source: Standard & Poor’s LCDNote: For middle-market LBOs, data from 2009 not statistically significant

Chart VI Average European LBO Purchase Price/Adjusted EBITDA Multiples

Mul

tiple

of E

BITD

A

12x

10x

8x

6x

4x

2x

0

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Source: Standard & Poor’s LCDNote: For middle-market LBOs, data from 2009 not statistically significant

Middle-Market LBOs (<€250 MM) Large LBOs (>€500 MM)

Large LBOs (>$500 MM)Middle-Market LBOs (<$250 MM)

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Buyout Loan Volumes

• UnitedStates loan volumes rebounded strongly in2010and2011—but themajorityofthatvolumewenttowardsrefinancingloansoriginallyusedtobuycompaniesatthemarketpeakandnottowardsmakingnewinvestments.

• LoanoriginationsintheUnitedStatesslowedduringthesecondhalfof2011withthemarketturmoil,andthe2011surgeinvolumeisunlikelytoberepeatedin2012.

• LoanactivityinEuropewasnowherenearasstrongasintheUnitedStatesasthesovereigndebtcrisiscontinuedtostressEuropeanbanks—atrendthatwillcontinuethrough2012andbeyond.

• Especially inSouthernEurope, fundmanagerswhofindattractive investmentopportunitieswillhavedifficultyaccessingdebttoexecutetransactions.

• The high-yield bond markets (not detailed in a chart below) havefollowed a pattern similar to United States sponsored loans, includingthe continued focus on refinancing old debt rather than supportingnewinvestments.

Chart VIII European Buyout Loan Volume

USD

in b

illio

ns

200

175

150

125

100

75

50

25

0

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Source: Standard & Poor’s LCDNote: Reflects total sources of funding of initial and secondary buyouts by a private equity firm — excludes recaps, refinancing, etc.

Funded Senior and Second Lien Bank Debt Other Sources

13 20 25

110

165152

6947 54

393932

9

44

Chart VII U.S. Leveraged Sponsored Loan Volume

USD

in b

illio

ns

350

300

250

200

150

100

50

0

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Source: Standard & Poor’s LCD

Large Middle-Market

6784 85

61 62115

58

145

234

293

120

2433

180

33

10


Debt Multiples

• Debtmultipleshave rebounded since themarket low in2009,butbanksarestillmuchmoreconservativeinloanunderwritingthantheywereatthemarketpeak.Thesecontinuingtrendsmeanbankunderwritingwillremainconservativein2012anddebtmultipleswillnotincreasedramatically.

• The CDO markets that allowed banks to shrink balance sheet exposure bysecuritizingloanscollapsedin2008;theyareonlyslowlyrecoveringandremainsmallandfragmented.

• Bank loan portfolios are still stressed and continue to get weaker in Europe;banks continue to be more focused on managing current loan quality ratherthanaddingnewassets.

• BaselIIIbankcapitalguidelinesthatarebeingphasedingloballyaremakingriskier assets, such as sponsored loans, more expensive and less attractivetohold.

Chart IX Average Debt Multiples of U.S. Corporate LBO Loans

Deb

t/EB

ITD

A

7x

6x

5x

4x

3x

2x

1x

0

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011


Large LBOs (Issuers with EBITDA >$50 MM)

Middle-Market LBOs(Issuers with EBITDA <$50 MM)

Chart X Average Debt Multiples of European Corporate LBO Loans

Deb

t/EB

ITD

A

7x

6x

5x

4x

3x

2x

1x

0

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011


6.12

4.814.39

4.17 4.16 4.254.61

5.23 5.505.17

3.954.36 4.50

11


U.S. Venture Capital: Social Media as “The Next New Thing”?

TheU.S.venturecapitalmarketisthelargest,deepest,longest-livedventuremarketandsetsthepatternsformuchofthemarketglobally.

• Fundraisingincreasedbyathirdin2011,withlargeclosesbyBessemer,Sequoia,and Khosla; it is still significantly below the unsustainable peaks reached in1999through2001attheheightoftheInternetBubble.

• U.S.venturereturnsona10-yearhorizonarestillnegatively impactedbythebursting of the Internet Bubble; although by June 2011, returns had finallyreboundedtopositiveterritoryafterbeingnegativefornearlytwoyears.

• More notably, 1-year returns as of June 2011 had surged to 26%, driven bysocial media investments. Three of the four largest technology IPOs of 2011were Groupon, Zynga, and LinkedIn, a trend that continues into 2012 withFacebook’s IPO filing. However, the strong returns from these social mediainvestmentsareconcentratedinrelativelyfewfunds,andmanyventuregroupsstillfacelong-termproblemsthatwillmakefuturefundraisingdifficult.

• Since theburstingof the InternetBubble, fundmanagersand investorshavebeen looking for “The Next New Thing” — an investment thesis that wouldtransformopportunitiesintheindustryinthewaypersonalcomputersandtheInternethaddone in thepast. Though specific socialmedia companieshavegenerated strong returns, it is too early to call it a transformative event fortheindustry.

12


Table I U.S. Venture Capital Index Returns

For the Period Ending 1-Year 3-Year 5-Year 10-Year 15-Year 20-Year

June 2011 26.3 4.3 7.4 1.3 30.9 27.4

June 30, 2010 6.4 -2.7 4.4 -4.2 38.1 24.3

June 20, 2009 -17.1 1.3 5.7 14.3 36.3 22.7

Source: NVCA, Cambridge Associates

Chart XI Commitments to U.S. Venture Capital

USD

in b

illio

ns

80

70

60

50

40

30

20

10

0

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Source: Private Equity Analyst

3.2 4.0 5.4 6.712.8

20.7

48.0

73.7

40.2

11.44.6

17.626.7

30.6 33.124.7

13.0 11.616.2

13


Distressed Debt and Turnarounds

Theeconomicdownturn in2008wasanticipatedbymany investorswhobeganto heavily commit to distressed debt and turnaround funds in 2006. But themagnitudeofwhatbecametheGlobalFinancialCrisiswasunanticipated.Manyinvestorsfoundthatthefundmanagerstheyhadbackedinvestedtooquicklytooearly,beforethemarkethitbottom,andhadbecomeboggeddowndealingwithportfoliocompanies incrisis. Inaddition, though thedefault cyclewassharp, itwasalsoveryshort.Consequently,theanticipated“100-yearflood”ofdistressedopportunitiesnevermaterialized.

Butanotherdistresseddebtinvestmentopportunitymaybelooming:

• Distresseddebtfundraisingwasflatin2011,butbeneaththatheadlinenumbertherewasamarkedshiftinfocustofundvehiclesfocusingonEurope,atrendthatwillcontinuein2012.

• DefaultratesbothintheUnitedStatesandEuropebottomedin2011.Theyarenowontherise,especiallyinEuropewheretheyreached4.1%inDecember.

• The refinancingboomof2010andearly2011haspushedback the “WallofDebt Maturities” slightly, but it remains a looming problem in Europe from2014through2016.

• TheimplementationofBaselIIIbankcapitalguidelinesisbeginningtoputmorepressureonbankstodealwithproblemassetsinsteadof“amending,extendingandpretending.”

• Thoughthedistresseddebtopportunityappearstobeforming,investorsshouldnot anticipate a “100-year flood” but rather a steady flow as the pressuregraduallyincreasesonbankstodealwithissues.

Andwhatriskswouldcontributetotheopportunityevaporatingagain?

• Anotherwaveofgovernmentliquidityprogramsmighthelpbankscontinuetodelayfinalreckonings.

• Successful distressed investing relies heavily on well-defined, established,restructuring-friendly legal insolvency regimes. These regimes are difficult tofindinemergingmarketsandinanumberofEuropeancountries.

14


Chart XII Global Distressed Debt and Turnaround Fundraising

USD

in b

illio

ns

60

50

40

30

20

10

02003 2004 2005 2006 2007 2008 2009 2010 2011

Source: Probitas Partners

Distressed Turnaround

5.6

5.2 6.9 8.7

29.4

5.8

18.5

45.8

0.1 1.01.6 2.1

4.6

15.3

4.0

9.6

17.4

6.9

Chart XIII Annual U.S. Corporate Bond Default Rates

Def

ault

Rate

(%)

16

14

12

10

8

6

4

2

0

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Source: Altman, NYU Stern; Moody’s

Chart XIV Scheduled European Debt Maturities by Year Sub-Investment Grade Issuers

EUR

in b

illio

ns

90

80

70

60

50

40

30

20

10

02012 2013 2014 2015 2016 2017 2018 2019

Source: Credit Suisse

As of December 2008 As of August 2011

15


Asia: Searching for Growth

Asia is distinctively split between the developed economies of Australia, Japan,andSouthKoreaandtheemergingmarketsofChina,India,andSoutheastAsia.Intheemergingmarkets,growthcapital,notcontrolorientedbuyouts,dominatestheinvestmentapproach.China,astheprimarytargetofAsian-targetedprivateequityfunds,colorsinvestorperspectivesontheentireregion.

• 58% of the capital raised for Asia in both 2010 and 2011 targeted China’sinvestments, driven in part by Chinese institutional investors new to privateequity investing in local RMB-denominated funds. Though investors areconcerned that China’s economy is slowing in reaction to the government’sstepstofightinflation,ChinaisnowthedeepestprivateequitymarketinAsiaandwillcontinuetobeamagnetforcapitalin2012.

• There was a surge of interest in Southeast Asia in 2011 driven by a banneryearfor Indonesia,ayoungmarketasfarasprivateequity isconcerned,butone with a strongly growing economy and a booming stock market. In 2012investors will continue to look for opportunities in the growth economies ofSoutheastAsiatodiversifyawayfromChina(althoughtheytendtobehighlycorrelated).

• India, the other major growth market of Asia, has stalled in fundraising asforeigninvestorswhomadelargebetsthereinthelastdecadewaitforliquidityfromthoseinvestmentsbeforere-committing—ascenariowearenotlikelytoseein2012.

• Interest in the more developed economies of Asia (especially in Japan andSouthKorea)haslaggedduetochallengeswithspecificfundsaswellaslocaleconomicdifficulties.

• The local RMB market began modestly in China in 2006. Since then, RMB-denominated funds have expanded rapidly as more Chinese institutionalinvestors have entered the market, with 65% of all money raised for China-focusedvehiclescomingfromRMB-denominatedfunds in2011.However, theRMB-investor market slowed dramatically at the end of 2011 and this willcontinueinto2012.

• Anascenttrendnotreflectedinthecharts—afewChinese-basedfundshavebeen formeddenominated indollars looking to invest incompaniesoverseaswithtradinglinkstoChina.

Chart XV Fund Strategies for Asia-Focused Funds — 2011

Source: Asia Private Equity Research

66%

6%

1%

13%

14%

Buyouts

Seed/Early State

Mezzanine

Infrastructure

Growth

16


Chart XVIII Commitments to China-Focused Funds by Fund Denomination

USD

in b

illio

ns

30

25

20

15

10

5

0

2006 2007 2008 2009 2010 2011

Source: Asian Private Equity Research

RMB Foreign Currency

6.58.5

19.2

11.1

20.4

24.6

Chart XVII Asian Fund Commitments by Geography -- 2011


58%

5%13%3%

18%

3%

Chart XVI Asian Fund Commitments by Geography -- 2010


58%

6%

10%

13%

5%

China

Greater China

Pan-Asia

Japan & South Korea

South & South East Asia

Australasia

8%

China

Greater China

Pan-Asia

Japan & South Korea

South & South East Asia

Australasia

17


Europe and Distress

Europe,amarketdominatedbybuyoutfunds,isthemostdevelopedprivateequitymarketwiththelongesthistoryaftertheUnitedStates.ItisalsoamarketunderstresswithanumberofcountriesintheEurozonehavingeconomicdifficulties.

• 2011 saw a surge in buyout fundraising, but this was heavily driven by twolargePan-Europeanfunds,BCPartnersandEQT.ThereareanumberoflargePan-European funds in or coming to market in 2012, making that sectorextremelycompetitive.

• Pan-European funds dominate overall fundraising totals as they tend to belargervehicles—thereareactuallymanymorecountry-focusedfundsinmarket.There isstronginterest inmiddlemarketcountry-focusedfundstargetingthestronger economies of Northern Europe. Country-focused funds in SouthernandCentralEuropeareofmuchlessinteresttoinvestorsbecauseofthemacro-economicissuesaffectingthoseregions.

• Specialsituationsfundraising(dominantlydistresseddebtfunds)surgedin2011andwillcontinuetobeastrongsectorin2012;29%ofallcommitmentsraisedfordistresseddebtfundsin2011wereforfundsspecificallytargetingEurope,while many of the global funds that dominate the market have significantallocationstoEurope.

• Many of the countries under the most stress in Europe — Greece, Spain,Portugal,andItaly—aredifficultmarketsfordistresseddebtorrestructuringinvestments, as their insolvency regimes are unfriendly. Consequently, weexpecttoseelimiteddistressedinvestingthere.

• FundraisinginEuroperemainsunderstress,withweakfundsfallingsignificantlybelowtargetor failing to raisecapitalatall,whilea fewhighlysoughtafterfundshaveraisedcapitalquickly.Aswith2011,totalsraisedfor2012willbehighlydependentonthesuccessofthemegaPan-Europeanfunds.

18


Chart XIX Commitments to European Corporate Finance Partnerships by Sector

EUR

in b

illio

ns

70

60

50

40

30

20

10

02003 2004 2005 2006 2007 2008 2009 2010 2011

Source: Probitas Partners, PREQIN

Buyout/Growth Special Situation Mezzanine

22.817.7

52.1 53.357.4

63.5

12.9 15.3

31.0

Chart XX Commitments to European Private Equity Partnerships by Geography

EUR

in b

illio

ns

70

60

50

40

30

20

10

02003 2004 2005 2006 2007 2008 2009 2010 2011

Source: Probitas PartnersNote: “Other” includes commitments to funds with a geographical focus on Russia, Cyprus, Greece, and Turkey

Pan-European Country-FocusedRegionally-Focused Other

22.918.0

53.056.6 57.4

63.9

15.2 14.9

31.0

Chart XXI Capital Raised for Distressed Debt Funds in 2011 by Geography (In terms of USD raised)

Source: Probitas Partners, PREQIN, Private Equity Analyst

Global

North America

Europe

Asia29%

16%

45%

10%

19


Chart XXII BRIC Stock Indices vs. S&P 500, January 2011 – January 2012

25

0

-25

-50

Jan’

11

Feb’

11

Mar

’11

Apr

’11

May

’11

Jun’

11

Jul’1

1

Aug

’11

Sep’

11

Oct

’11

Nov

’11

Dec

’11

Jan’

12

Source: Yahoo! Finance

Chart XXIII MIST Stock Indices vs. S&P 500, January 2011 – January 2012

25

0

-25

-50

Jan’

11

Feb’

11

Mar

’11

Apr

’11

May

’11

Jun’

11

Jul’1

1

Aug

’11

Sep’

11

Oct

’11

Nov

’11

Dec

’11

Jan’

12

Source: Yahoo! Finance

Emerging Markets

Overthepastfiveyears,thestrongestinterestinemergingmarketprivateequityhasbeeninthethreeleadingBRICs—China,India,andBrazil.WesawtheirstockmarketsandtheireconomiesoutperformthedevelopedmarketsduringtheearlyphaseoftheGlobalFinancialCrisis.

• Publicstockoutperformance,however,didnotcontinuein2011,astheS&P500significantly outperformed the major BRIC stock indices in the 13 monthsthroughJanuary2012.

• Early in 2011, Goldman Sachs identified the “MIST” economies of Mexico,Indonesia,SouthKorea,andTurkeyasthenextblockofemergingeconomieslikely to generate superior long-term economic performance. Public stockindicesforthatgroupperformedmorestronglyin2011,withIndonesiaastheclearleaderduringtheyear.

• Despite public market performance, funds focused on China, Brazil, andIndonesiaallestablishedprivateequityfundraisinghighsin2011,withTurkeyalsoperformingstrongly.However, investorsarebeginningtosee increasedrisks in these markets with moderating growth rates and more volatility inpublicmarketperformance.

S&P 500 (United States)BSE SENSEX (Mumbai) RTSI (Moscow)

BOVESPA (Sao Paulo) SSE Composite (Shanghai)

ISE National 100 (Turkey) KOSPI Composite (South Korea)

JKSE (Indonesia) BMV IPC (Mexico)S&P 500 (United States)

20


The Secondary Market: New Transaction Heights

Secondary fundraisinghitanall timehigh in2009as investorsanticipated thatthe market dislocations of the Global Financial Crisis would create tremendousopportunities.However,secondarymarketpricesdroppedsoprecipitouslyin2009thatpotentialsellerspulledbackfromthemarket,unwillingtotake large losses.Thatresultedinasteepfallintransactionvolume.

• Since2010,secondarypriceshavefirmedsignificantly,withmorepositionsnowbeingsoldatparorbetter.Combinedwithnewregulationsthatarepressuringbankstosellon-balancesheetportfolios,theresulthasbeenadramaticincreaseintransactionvolume,atrendcontinuinginto2012.

• Onthebackofthisincreasingtransactionvolume,weexpectfundraisingtoincreasein2012,especiallysincethereareanumberofwell-establishedfundssuchasColler,AXA,andDoverStreetinthemarketseekinglargeamountsofcapital.

• Thesecondarymarketisbecomingincreasinglyactive;manyinvestorsarebuyingpositionsdirectlyinsteadofinvestingthroughspecializedsecondaryfunds.

Chart XXIV Secondary Market Transaction Volume and Capital Raised by Secondary Fund Specialists

USD

in b

illio

ns

25

20

15

10

5

0

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Source: Probitas Partners

Capital Raised Transaction Volume

5.6 6.1

15.1

7.4

22.3

6.9

0.8 0.42.6 2.2

4.5 3.54.16.4

2.1

11.3

Chart XXV Secondary Market Investments“In the secondary market, my firm: (choose all that apply)”

Actively purchases direct positions in funds in the secondary market

Provides advice to clients on secondaries

Actively invests in secondary funds

Has sold or is considering selling funds in our portfolio for portfolio management purposes

Actively purchases direct positions in companies in the secondary market

Other (please specify)

Is not active in secondaries in any manner

Percentage of Respondents (%)

Source: Probitas Partners’ Private Equity Institutional Investor Trends Survey for 2012

0 10 20 30 40 50

41

33

11

6

4

22

21

21


N o t e s :

Probitas Funds Group, LLC Probitas Funds Group, LLC PFG-UK Ltd. Probitas Hong Kong Limited

425 California Street 1120 Ave. of the Americas 1st Floor Dudley House Nexxus BuildingSuite 2300 Suite 1802 36-38 Southampton Street Level 15San Francisco, CA 94104 New York, NY 10036 Covent Garden 41 Connaught RoadUSA USA London WC2E 7HF, UK Central, Hong Kong

Tel: +1 415 402 0700 Tel: +1 212 403 3662 Tel: +44 (0) 20 7845 5400 Tel: +852 2533 3678

2012

Private Equity Deskbook

private equity deskbook - probitas...

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