private equity secondaries

Private Equity Secondaries

Powerful Tools

Primary Private Equity Funds

LP LP LP LPLP

Unfunded

E1 E2 E3 EnE4

GPFUND

Secondary Funds acquire interests in existing PE portfolios

LP LP LP LPLP

FUND

E1 E2 E3 EnE4

GP

LP LP LP LPLP

FUND GP

Primary Fund

Secondary Fund

(Interests in other funds)

An LP interest is equal to a slice of the portfolio

“ 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

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

Motivations

Strategic

Financial

Administrative/recycling

Regulatory

“Spin out” of Captive GPs

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

Tail End Fund Restructuring

LP LP LP LPLP

FUND

E1 E2 E3 EnE4

GP

Fund cycle does not coincide with portfolio company cycleOptions:

•Extention (LPs don’t like)•Forced sale•Secondary transaction

Year 9+

Tail End Fund Restructuring

LP LP LP LPLP

FUND

E1 E2 E3 EnE4

GPNew Fund

Paulcap

$$

Advantages:•Extended tenure•New GP economics•Fresh capital for portfolio•New LP(s)

$

Example Holding /Family Office

Hold CoFO

OpCo

OpCo

OpCo

OpCo

$ 100M

Exposure: $ 100MDiversification: 4 companiesCash: 0Economics: Upside on $100M

Current Status

Migrate assets to fund format

Exposure: $ 50MDiversification: 4 CompaniesCash: $ 50MEconomics: 100% Upside on $50M

20% Upside on $ 50M 2% Management fee

+ $ 50M

Fund 1

OpCo

OpCo

OpCo

OpCo

LPFO

$ 50M

LPPC

$ 50M

FO GP

Example Holding /Family Office

Example Holding /Family Office Raises and invests “Fund 2”

Fund 1

OpCo

OpCo

OpCo

OpCo

LPFO

$ 50M

LPPC

$ 50M

FO GP Fund 2

OpF1

OpF2

OpF3

OpF10

LPFO

$ 50M

LPPC

$ 15M

LPN

LP3

LP4

$ 300-450M

OpF10Op

F10OpF10Op

F10Exposure: $ 100MDiversification: 14 CompaniesCash: $ 0MEconomics: 100% Upside on $100M

20% Upside on $ 350-500M 2% Management fee on $350-500

$50M

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

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

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

‘91-’95 ’95 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ’06 ‘07

Pioneered the Secondary Market in 1991

PRF I$294MPRF 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$657MPRF II$657M

Paul VII$808M

Paul VII$808M

Top Tier III$626M

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$202MPaul V$202M

Paul VI$273MPaul 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 portfoliocompanies: 4,000

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

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

. .

Paul Capital Partners – A Global Presence

..

.San FranciscoSan FranciscoSan FranciscoSan Francisco

TorontoTorontoTorontoToronto

New YorkNew YorkNew YorkNew York

LondonLondonLondonLondon

ParisParisParisParis

Hong Kong Hong Kong Hong Kong Hong Kong

•

• • • •

• •

•

Paul Capital Partners has the resources, personnel and expertise to work with GPs and LPs to complete transactions quickly and confidentially.

.

Sao PauloSao PauloSao PauloSao Paulo

Japan and KoreaJapan and KoreaJapan and KoreaJapan and Korea

NetherlandsNetherlandsNetherlandsNetherlands

GermanyGermanyGermanyGermany

CEECEECEECEE

SpainSpainSpainSpain

ItalyItalyItalyItaly

Middle EastMiddle EastMiddle EastMiddle East

SwitzerlandSwitzerlandSwitzerlandSwitzerland

• • Office Locations

Exclusive Representatives

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

Paul Secondary Funds Acquiring Top GPs

HICKS, MUSE, HICKS, MUSE, TATE & FURSTTATE & FURST

SLP

SilverLake

Partners

SLP

SilverLake

Partners

CENTRE PARTNERSNew York Los Angeles

Freeman Spogli & Co.

Freeman Spogli & Co.

VESTAR CAPITAL PARTNERSVESTAR CAPITAL PARTNERS

BRADFORD EQUITIES MANAGEMENT, LLC

ODYSSEY INVESTMENT PARTNERS, LLC

Muito Obrigado!

Duncan LittlejohnPaul Capital

[email protected](55 11) 5105 1515(55 11) 9943 7255

private equity secondaries

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