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Private Equity Secondaries

Private Equity Secondaries. Powerful Tools. Primary Private Equity Funds. LP. LP. LP. LP. LP. Unfunded. GP. FUND. E1. E2. E3. E4. En. LP. LP. LP. LP. LP. FUND. GP. E1. E2. E3. E4. En. Secondary Funds acquire interests in existing PE portfolios. Secondary Fund. LP.

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Private Equity Secondaries

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  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. LP LP LP LP LP FUND GP E1 E2 E3 E4 En Secondary Funds acquire interests in existing PE portfolios Secondary Fund LP LP LP LP LP FUND 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 Fund of Funds Primary Fund Secondary Fund • 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 • 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

  8. LP LP LP LP LP FUND GP E1 E2 E3 E4 En Tail End Fund Restructuring Year 9+ • 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. Hold Co FO Op Co Op Co Op Co Op Co Example Holding /Family Office Current Status $ 100M Exposure: $ 100M Diversification: 4 companies Cash: 0 Economics: Upside on $100M

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

  12. LP FO $ 50M LP PC $ 50M Fund 1 FO GP Op Co Op Co Op Co Op Co Example Holding /Family OfficeRaises and invests “Fund 2” $50M LP FO $ 50M LP PC $ 15M LP 3 LP 4 LP N $ 300-450M Fund 2 Op F1 Op F2 Op F3 Op F10 Op F10 Op F10 Op F10 Op F10 Exposure: $ 100M Diversification: 14 Companies Cash: $ 0M Economics: 100% Upside on $100M 20% Upside on $ 350-500M 2% Management fee on $350-500

  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 Paul Capital DFI 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 Paul Capital DFI

  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. Paul IX $1.65B PRF II $657M Top Tier III$626M Pioneered the Secondary Market in 1991 Paul VII $808M Paul I-IV $142M Paul V $202M Paul VI $273M Paul VIII $960M PRF I $294M PCH III $650M Top Tier IV $650M Top Tier II $478M Top Tier I $213M ‘91-’95 ’95 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ’06 ‘07 Secondary Program Facts Capital raised (incl. Paul IX): US$4+ billion Making new investments in Paul IX Secondary Investment Professionals 20 Total Firm Employees 88 General Partner Groups: 300 Funds acquired: 500 Underlying portfoliocompanies: 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

  18. 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 • 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 • 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 • 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 Senior Secondary Team Members Partners, Principals and Managing Directors • Duncan Littlejohn – Sao Paulo • Joined Paul Capital in 2007 • Previously a Partner with BPE Investimentos • B.A. University of Pennsylvania • 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 . Japan and Korea Spain Middle East New York 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 • 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. SLP Silver Lake Partners Paul Secondary Funds Acquiring Top GPs VESTARCAPITALPARTNERS Freeman Spogli & Co. HICKS, MUSE, TATE & FURST ODYSSEY INVESTMENT PARTNERS, LLC CENTRE PARTNERS New York Los Angeles BRADFORD EQUITIES MANAGEMENT, LLC

  22. Muito Obrigado! Duncan Littlejohn Paul Capital dlittlejohn@paulcap.com (55 11) 5105 1515 (55 11) 9943 7255

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