Ten Key Questions Facing the Private Equity World

1. Ten Key Questions Facing the Private Equity World David Rubenstein Co-founder & Managing Director February 27, 2008

2. 1. Will Leverage for Buyouts Return in Time for PE Investors and Professionals to Stay with the Industry?

3. Leveraged Loan Volumes Will Recover • US Leveraged Loan Volumes Bounced Back after the Downturn of 2000-2001 US Buyout Leveraged Loan Volume ($Bn) + 1,929% 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Source: S&P Leveraged Buyout Review

4. Leveraged Loan Volumes Will Recover • While European Issuance has Grown Every Year Since 1999 European Buyout Leveraged Loan Volume (€Bn) 1999 2000 2001 2002 2003 2004 2005 2006 2007 Source: S&P LCD

5. But This Will Not Happen Overnight • In the US, it took roughly three years for leveraged loan volumes to match their previous highs after 2000 • And those three years were challenging for private equity investors • In 2001 and 2002, US leveraged loan issuance fell to approximately 1/3 of its 1998 total • But when the recovery came, it exceeded all expectations • Leveraged loan issuance more than doubled between 2002 and 2004 and again between 2004 and 2006 • Issuance jumped 20x between 2001 and 2007 Source: S&P Leveraged Buyout Review

6. 2. Are There Going to be Major Defaults from Buyouts Completed within the "Golden Age"?

7. x Leverage Levels Are at Historical Highs Average Large LBO Leverage Multiples (Debt/EBITDA) 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Source: S&P Leveraged Buyout Review Note: Includes issuers with EBITDA of $50MM or more

8. x And Credit Ratios Are Depressed (EBITDA – Capex) / Cash Interest 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Source: S&P Leveraged Buyout Review

9. % Default Rates Have Remained Low Over the Past Three Years Percentage of Outstanding Leveraged Loans in Default or Bankruptcy Avg. 3.80% Source: S&P LCD

10. And Remain Below Levels Seen During Past Market Downturns • Leveraged Loan Default Rates During Recent Market Downturns: Source: Morgan Stanley

11. But the Trading Levels of Many LBO Debt Deals Suggest Defaults are Likely • A Spread vs. Treasuries of Above 1,000 Indicates Significant Distress Source: Merrill Lynch High Yield Master II Index

12. 3. What is Going to Happen to All of the Buyout Debt Still Held by the Major Syndicating Banks?

13. A Massive Backlog Remains • Approximately $200 billion of leveraged loans are still sitting on banks’ balance sheets • This represents a decrease of only $75 billion from last year’s peak • Every bank is affected Sources: The Wall Street Journal, Morgan Stanley

14. 4. What Areas Will PE Firms Pursue to Achieve the Types of Returns Sought by Their Investors?

15. 11.4 PE Firms Will Invest More in Emerging Markets • Emerging Market Fundraising Has Grown Exponentially Emerging Asia ($Bn) CEE/Russia ($Bn) 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 Latin America ($Bn) Middle East & Africa ($Bn) 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 Source: EMPEA

16. 24.9 PE Firms Will Invest More in Emerging Markets • As Has Deal Volume Emerging Asia ($Bn) CEE/Russia ($Bn) 10.5 54.5 2003 2004 2005 2006 1H 2007 2003 2004 2005 2006 1H 2007 Latin America ($Bn) Middle East & Africa ($Bn) 5.9 32.2 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 Source: Morgan Stanley, Thomson

17. PE Firms Will Invest More in Emerging Markets • A growing percentage of global private equity activity is dedicated to Emerging Markets • In 2001, they accounted for 4.5% of private equity fundraising and 3.3% of deal volume • In 2007, they accounted for 15.9% of fundraising • In the first half of 2007, they accounted for 7.0% of global LBO deal volume Source: Morgan Stanley, Thomson

18. Private Equity Firms Will Make More Minority Investments • Private equity firms have increased their commitments to non-control investments: • In the past six months, private equity firms have made large minority investments in companies including • Sprint Nextel, NC Numericable, MBIA, Global Hyatt, Antero Resources, Galaxy Entertainments, MoneyGram International, Legacy Hospital Partners, and Bharti Infratel Source: Dealogic

19. And They Will Commit More Capital to Distressed Investments • Distressed Debt Fundraising Anticipating Debt Maturity Schedule: Source: Private Equity Analyst, data as of 6/30/07; Fitch Ratings, data as of July 2007

20. 5. Should Investors in PE Expect Higher or Lower Rates of Return?

21. Top Quartile PE Returns Are Unrivalled Top Quartile US Buyout Returns IRR % Top Quartile U.S. 32.1% 20.4% Buyout 21.8% 28.5% Top Quartile >$2Bn 22.1% 18.2% 18.4% S&P 500 8.7% 5.4% 20.3% DJIA 7.7% 5.7% 19.9% NASDAQ 12.2% 6.1% 0% 10% 20% 30% 40% 10-year 5-year 1-year Source: Thomson Venture Economics Note: PE data as of 30 June 2007; Bloomberg, market data as of 30 June 2007

22. 7.6% 1-year 5-year 10-year Top Quartile PE Returns Are Unrivalled Top Quartile European Buyout Returns Top Quartile Eu. Buyout FTSE 100 CAC-40 Source: Thomson Venture Economics Note: PE data as of 30 June 2007; Bloomberg, market data as of 30 June 2007

23. 6. Is Now the Right Time for Investors to Pursue Private Equity Investments?

24. PE Funds Raised During Times of Market Distress Generally Perform Well • Private equity investments have produced healthy returns during each of the three most recent global economic slowdowns Top Quartile Private Equity IRRs by Vintage Source: Thomson Venture Expert Note: IRRs are cumulative and are calculated from inception to 9/30/07

25. 7. Will Regulators and Legislators Continue to Seek Changes in PE Regulation, Oversight and Taxation?

26. The PE Industry Faces Various Legislative and Regulatory Proposals • Several countries are considering or have introduced changes to the way that private equity returns are taxed • The industry is under pressure to increase disclosure and transparency • In some markets, foreign private equity firms are subject to limitations on their investment activity

27. 8. Will Sovereign Wealth Funds Replace PE Firms as Principal Sources of Capital for Corporations/Sellers Seeking New Capital?

28. PE Firms Pale in Comparison to the Largest Sovereign Wealth Funds Top Sovereign Wealth Funds Source: Citigroup

29. Sovereign Wealth Fund Investment Activity Has Increased Dramatically Sovereign Wealth Fund Deal Volume Deal Volume ($Bn) # of Deals + 1,151% 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Number of Deals Value of Deals Sources: World Economic Forum, Thomson Financial

30. Sovereign Wealth Funds Strategic Private Equity But These Investments Still Represent A Tiny Proportion of Total M&A Activity Breakdown of Global M&A Activity ($Bn) 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Sources: World Economic Forum, Thomson Financial

31. Sovereign Wealth Funds and PE Firms Are Forming a Productive Partnership • Sovereign wealth funds have purchased substantial equity stakes in several alternative asset managers • China Investment Corp. invested $3 billion in Blackstone • Abu Dhabi’s Mubadala invested $1.4 billion in Carlyle • Dubai International Capital invested 1.3 billion in Och-Ziff • They are among the private equity industry’s largest individual investors • In the future, sovereign wealth funds and private equity firms are likely to pursue large investment opportunities through joint ventures • Sovereign wealth funds will benefit from PE firms’ deep pools of investment talent and deal expertise

32. 9. Can the PE Industry Improve its Image with the Public, Media, Governments, Unions, Environmental and Consumer Groups?

33. Private Equity’s Image Could be Better A Backlash Against Private Equity Grumbling by unions over post-deal job cuts has escalated into a public outcry –Business Week Gluttons at the Gate Private equity are using slick new tricks to gorge on corporate assets. A story of excess –Business Week

34. 10. Is PE's Future Going to Be Better, Bigger, and Stronger than Before, Or Have We Already Seen the High-water Mark?

35. It’s Always Darkest Just Before Dawn • As before, deal volume will rebound and yesterday’s records will be left far behind Global LBO Activity Deal Volume ($Bn) # of Deals CAGR: 31% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 # of Deals Deal Volume Source: Dealogic

36. What I Was Supposed to Talk About: “Giving Private Equity a Positive Image: Why is there such Disparity Between the Public’s Perception of the Industry and the Industry’s Perception of Itself, and What can be done to bring these Views into Alignment”

37. The Current Situation Perception of the Industry within the Industry Improved operation of companies Prevented job losses; created jobs Improved Economies Created High Returns for Investors/Pension Funds Paid Large Amount of Taxes Created an Industry Perception of the Industry outside the Industry Destroyed Jobs Relocated Facilities Overseas Focused Only on Short-Term Profits Left Companies in Worse Shape Made Too Much Money for PE Professionals Insufficient Level of Taxes Paid

38. Why the Disparity in Perceptions? • Industry Focused for Long Time Principally on Returns • Industry Spent Little Time Explaining its Actions to those Outside of Investor Base • Industry Lacked Data to Support its Views • No Industry Vehicle for Long Time • Other Problems of Industry Critics/Convenient and Attractive Target

39. What Can the Industry Do to Improve Its Image? • Continue to Produce Hard Data • Engage Industry Critics in Debate/Discussion • Consider Factors Other than Just Returns When Assessing/Overseeing Investments • Involve Portfolio Companies Directly in the Effort • Enhance Transparency/Public Focus • Recognize that Some Changes Can and Should Occur

40. Ten Leading Questions Facing the Private Equity World David Rubenstein Co-founder & Managing Director February 27, 2008