A Presentation to Thinking Outside the Stocks: The Private Equity Ecosystem Thunderbird School of...

A Presentation to

Thinking Outside the Stocks:The Private Equity Ecosystem

Thunderbird School of Global Management

April 2008

Presented byJORDAN ROBINSONVice President, Global Private EquityAIG Investments

This material must be read in conjunction with the Disclosure Statement.

2

Agenda

I. Where Are We Today? - Current Market Conditions

II. Portfolio Building Blocks

III. Where Are We Going Tomorrow? - Looming Questions

IV. Where We You Going Tomorrow? - Job Search Thoughts

I. Where Are We Today? - Current Market Conditions

4

The Ecosystem

Private equity has developed a true ecosystem

ec·o·sys·tem [ek-oh-sis-tuh m] –noun:the complex of a community of organisms and its environment functioning as an ecological unit

5

$16.4 $26.3 $40.2 $50.9 $53.1$72.5

$99.5

$204.6

$275.9 $296.7

$33.2

$25.8

$59.2

$6.5

$3.5

0

125

250

375

500

2003 2004 2005 2006 2007

US $billion

Developed Markets Venture Developed Markets Buyout Emerging Markets

Record Global Fundraising

Source: Venture Economics, EMPEA

3.8%

78.4%

17.8%

4.9%

75.3%

19.8%

9.5%

75.6%

14.9%

9.3%

76.6%

14.1%

14.5%

72.5%

13.0%

6

Emerging Markets Fundraising

Source: Emerging Markets Private Equity Association. Data as of March 2008.

2.20.4 0.4 0.4 0.1

2.81.8

0.7 0.5 0.6

2.71.3

2.73.6

19.4

3.3 2.7

5.3

2.6

28.7

14.6

4.4

7.4

4.1

15.4

0

5

10

15

20

25

30

35

Asia (Ex-Japan) CEE/ Russia LatinAmerica/ Caribbean

Africa / MidEast Pan EM

US $billion

2003 2004 2005 2006 2007

7

Allocations: expected to increase

Source: Coller Capital Global Private Equity Barometer Winter 2007-08, Citigroup Global Markets CIO Survey September 2007.

44%47%

49%47%

45%

0%

10%

20%

30%

40%

50%

60%

Winter2005-2006

Summer2006

Winter2006-2007

Summer2007

Winter2007-2008

Res

pon

den

ts (%

)

LPs planning to increase their private equity allocations over

the next 12 months(Winter 2005-2006 to Winter 2007-2008)

4.0%

6.3%

0%

1%

2%

3%

4%

5%

6%

7%

Current Allocation 3-Yr Target Allocation

Alloca

tion to P

riva

te E

quity

Current and Expected Allocation to Private Equity

Despite the recent slowdown in private equity deal-making, strong fundraising is expected to continue, driven by increasing allocations to private equity by institutional investors

8

Purchase prices pre-2008: have increased

4.15 3.80 4.02 4.18 4.885.72 5.62

6.62

3.252.842.702.642.732.682.53 2.60

0

1

2

3

4

5

6

7

8

9

10

2000 (21) 2001 (12) 2002 (14) 2003 (26) 2004 (50) 2005 (63) 2006 (87) 2007 (121)

Period (Observations)

Multiple of EBITDA

Equity Debt

6.68 6.406.70 6.91

7.52

8.42 8.46

9.87

37.8% 40.6% 40.0% 39.5% 35.1% 32.1% 33.6% 32.9%

6.28x for$250-499 MM

8.51x for$250-499 MM

Source: Standard & Poor’s. As of December 31, 2007.

Average LBO Purchase Price as a Multiple of Non-adjusted Pro Forma Trailing EBITDA for Total Sources of $500 million or More

9

0

2

4

6

8

10

12

14

16

2Q 2007 2Q 2008 (e)

Multip

le o

f LT

M E

BIT

DA (Pos

t Syn

ergi

es)

Purchase prices in 2008: have declined

Industry #2 in Mkt. Share(Revenues $10-20 Bil)

Sources: AIG Internal Data

What a difference a year makes!!!

Industry #3 in Mkt. Share(Revenues $5-10 Bil)

14.5x

9.6x

31.4% 48.4%Equity

Sub Debt22.5%

SeniorDebt

46.1%

6.7 EBITDAL + 170

3.4x EBITDAL + 200

3.2x EBITDARate: 9% 1.6x EBITDA

Rate: 12.5%

35.5%

16.1%

(And all asset backed)

x

Comparable Deal Analysis

10

Convergence: has slowed

Private equity & hedge fund convergence has slowed Concerns about liquidity (hedge funds)

Uncertain inflows (hedge funds)

Concerns about portfolios (private equity)

11

Global Summary

Lots of committed capital

Access to credit acute for large transactions

Convergence has slowed down

Emerging markets are hot

Returns holding up (so far)

II. Portfolio Building Blocks

13

Ecosystem

Private equity has matured into a true ecosystem

ec·o·sys·tem [ek-oh-sis-tuh m] –noun:the complex of a community of organisms and its environment functioning as an ecological unit

14

Funds Flows

Convergence

Activist Investor

s

Distressed Debt

Succession

LBO Purchas

ePrices

China

India

KKR IPO

Club Deals

BDCs

BrazilOverhan

g

“Fire inthe

Belly”

Greed

Redemptions

Leverage Beta

Short Duration

s

Credit Statisti

cs

Alpha

15

Portfolio Company Lifecycle

Venture Capital

•Seed Stage

•Early Stage

•Late Stage •Pre-IPO •Growth •Leveraged Buyouts

Buyouts

•Distressed/“Turn-Around”

Private equity investments address opportunities across company lifecycles

16

A Broad Menu of Private Equity Strategies

DirectIndirect

Fund of Funds

Secondaries

Co-Investments

Buyouts

Venture Capital:Early Stage

Venture Capital:Late Stage

Growth Equity

Co-Investments(Direct)

Natural Resources

Infrastructure

Turnaround

Mezzanine

Indirect Other

Real Estate

Bridge Funds

Distressed Debt

17

The Direct Investment Process is Relevant to Every PE Segment

ResearchInsight-Driven Deals

Access/Origination

Due Diligence

Structuring/Negotiations

Portfolio Management

/Value

Creation

Exit

Research/Insight-Driven Deals – Top-to-Bottom; Opportunistic

Access/Origination – Information Arbitrage

Due Diligence – Intense Scrutiny

Structuring/Negotiations – Governance; Shareholder Rights

Portfolio Management/Value Creation – Management Oversight, Investor Add-Value

Exit – Timing; Multiple Options (IPO, Strategic Sale, Structured Arrangement)

18

Secondary Investment Process – Key Beneficiary of the Ecosystem Development

Global Secondary

Investments

Knowledge - Primary fund commitments, Co-investments, direct equity investments and mezzanine debt, Emerging markets direct investments

Insight – Industry Performance, Sectors, Regions, Facilitators, Blockers

Relationships - General Partners (quality of portfolio, transfer process efficiency), Limited Partners (Awareness of deals, Ability to negotiate)

Relationships Information Expertise

19

Analyze available manager

opportunity set

Develop a macro “point

of view”

Portfolio Construction – Creating an Investment Framework

Analysis Framework Macroeconomic and capital

market conditions Private equity capital flows

– segment, sector, country Manager quality and

availability Fundraising cycles Regulatory environment Performance cycle analysis

Investment Framework

Rigorous analysis with flexibility to capture attractive investment opportunities as they present

themselves

20

Building a Private Equity Portfolio

Strategies

Primary Fund of Funds

Diversified Portfolio of interests in top performing funds allows access and administrative + due diligence efficiency

Indirect Direct

Key Trends Portfolio Guidelines Access to closed managers

Rigorous due diligence

Market/sector specific funds

Emerging Managers

GP/LP Dynamics

Operational expertise

U.S. (all segments); Europe (country and “pan”), Emerging

21


Strategies


Secondaries


A tool to fill holes in a private equity program that minimizes “j-curve” effects with valuation arbitrage

Indirect Direct

Key Trends Portfolio Guidelines Portfolio rebalancing

Hedge fund liquidations

Manager concentration, Mega--deal fundraising

Coming Attraction: Emerging Markets

GP knowledge and relationships

Industry database

Global awareness

Accurate portfolio pricing

22


Strategies


Secondaries Co-Investments



Flexibility to opportunistically participate in attractive private equity transactions

Indirect Direct

Key Trends Portfolio Guidelines Relationships matter; Art of saying “no” (quickly)

Active co-investments

Emergence of sovereign wealth funds, Permanent Capital

GP knowledge

Sector expertise

Diversified portfolio

23


Strategies


Secondaries Co-Investments Direct Investments

(Local Market)




LP interests in funds with direct control over portfolio companies in regions familiar to investor

Indirect Direct

Key Trends Portfolio Guidelines Middle-market deals have continued, Large will

re-start

Buy and Hold makes a comeback

Banking relationships matter

Buy vs. build

Sustainable strategy

Operational and sector expertise

24


Strategies



(Local Market)

Direct Investments

(Offshore Mkts)





Ability to focus on high-growth markets or regions, or areas with a sustainable and proven private equity culture

Indirect Direct

Key Trends Portfolio Guidelines No longer simply a macro bet

Local presence, Use of trust

Coming Attractions: Real Buyouts

Buy vs. build

Manager selection is key

Look at opportunity, not macro statistics

25

Emerging Markets

Hot Macro Environment

Compelling GDP growth Stability of Political, Legal and Accounting Characteristics Trade Interdependence and Surpluses Lower/Stable Inflation and Interest Rates Improved Credit Ratings

Emerging Markets: Attractive PE Opportunity

Emerging markets companies competing and winning globally Capital markets growing quickly Strong IPO receptivity; Strategic Acquisitions Market correlations are lower Less competition (despite recent fundraisings) Large opportunity set

26

PE in Asia: Asset Class Penetration Potential

3.2%

1.8%

0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

U.S. Europe Asia- Pacific

Perc

ent

PE Deal Value as a % of GDP

Source: Bain study. Data as of end 2006.

6.9x

3.9x

27

Brazil – How to access these growing markets?

Consumer Non-

Cyclical

Source: Bovespa.

Ibovespa Index

Energy

Telecom

Financial

Basic Materials

Basic Materials & Energy account for 57% share of the Ibovespa index

Capital Goods & Services

Basic Materials

Construction &

TransportationConsumer

Cyclical

Sugar Industry Market Share in 2005

Others

49%

Top Five19%

Top Five

51%

Others81%

0%

20%

40%

60%

80%

100%

Brazil EU-25

35.3

41.5

47.552.5

68.0

26.7 24.627.0

37.1

53.0

0

15

30

45

60

75

2001 2002 2003 2004 2005

# o

f C

red

it C

ard

s (M

illi

on

s)

0

15

30

45

60

75

Tra

nsa

ctio

ns

(US

$ B

illi

on

s)

# of Credit Cards Transactions

Brazil Credit Card Market

Source: Bank of Brazil and Brazilian Association of Credit Card Companies and Services.

Source: F.O. Licht and LMC International.

28


Strategies



(Local Market)

Direct Investments

(Offshore Mkts)

Direct Investments

(Sector, Style)





Ability to focus on high-growth markets or regions, or areas with a sustainable and proven private equity culture

Ability to focus on high-growth sectors, market segments, or industries/

segments fertile for private equity investments

Indirect Direct

Key Trends Portfolio Guidelines Regulatory environment (infrastructure, financial

services)

Sectors are no longer concentrated on one-theme

Relevant industry skill set

Using private equity-like skill sets (Operations, exit-strategies)

III. Where Are We Going Tomorrow - Looming Questions

30

Is Now a Good Time To Invest In Private Equity?

Source: Cambridge Associates, pooled mean and median net IRR to limited partners by vintage year as of 9/30/07.

-5%

0%

5%

10%

15%

20%

25%

30%

35%

1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

IRR %

-5%

0%

5%

10%

15%

20%

25%

30%

35%

IRR %

Mean IRRs Median IRRs

Market dislocations create opportunity for private market investors

Private equity should generate a significant premium over public market equities

31

How will $500 Billion in Dry Powder Be Spent?

New

Old

Old New

Markets

Products

PIPES

?Emerging Markets

Base

32

Competition: Are Sovereign Wealth Funds Changing the Game?

Sources: World Economic Forum, Thomson Financial

0

10

20

30

40

50

60

70

80

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

De

al V

olu

me

($ b

n)

0

50

100

150

200

250

300

# o

f D

ea

ls

Deal Volume ($bn) Number of Deals

33

Where are You Going Tomorrow? Job Search Thoughts

Focus on satisfaction, right motives

Private Equity is endgame; Doesn’t need to be first career

move

Experience not brand

Industry or regional expertise helpful to eventually develop

The Ecosystem has much to offer

34

Private Equity Endnotes

AIG Investments Web Address: www. aiginvestments.com

Interests in open funds (“the Funds”) are offered only pursuant to the terms of a Confidential Private Placement Memorandum (the “Memorandum”), which is furnished to qualified investors on a confidential basis for their consideration in connection with the private offering of limited partnership interests (the “interests”) in the Fund. The Information contained in this presentation may not be reproduced or redistributed without the written approval of AIG Investments.

No person has been authorized to make any statement concerning the Funds other than as set forth in the Memoranda, and such statements, if made, may not be relied upon. The information contained herein is qualified in its entirety by the more complete information contained in the Memoranda. This presentation is not an offer to sell or a solicitation of interests in the Funds. The Manager, its affiliates and AIG Equity Sales Corp. make no representation as to the accuracy or completeness of the information contained herein.

Additionally, investors should note the following regarding private equity investments:

They are not subject to the same regulatory requirements as mutual funds, including mutual fund requirements to provide certain periodic and standardized pricing and valuation information to investors;

They are speculative and involve a high degree of risk;

Investors could lose all or a substantial amount of their investment;

Interests may be illiquid and there may be significant restrictions in transfer. There is no secondary market for interests, and none is expected to develop;

They may be leveraged, and their performance may be volatile;

They have high fees and expenses that will reduce returns;

They may involve complex tax structures;

They may involve structures or strategies that may cause delays in important tax information being sent to investors;

They and their managers/advisers may be subject to various conflicts of interest;

They may hold concentrated positions with a limited number of investments;

They, or their underlying fund investments, may invest a substantial portion of their assets in non-U.S. securities, which could mean higher risk;

The list set forth here is not a complete list of the risks and other important disclosures associated with such investments and is subject to the more complete risk and disclosures contained in the applicable confidential offering documents;

The investment manager has total trading authority over fund investments. The use of a single adviser applying generally similar trading programs could mean lack of diversification and, consequently, higher risk.

Certain materials contained herein constitute “projections,” “forecasts” and other “forward-looking statements” relating to certain investments and do not reflect actual results. These projections, forecasts and other forward-looking statements are based primarily upon applying assumptions retroactively to certain historical financial information relating to the investments. The projections, forecasts and other forward-looking statements presented herein are, therefore, valid only as of the date shown on the front page of this presentation.

AIG Equity Sales Corp., member FINRA, is acting as a placement agent for the Funds in the United States only.

Rev. 11/05/07

35

Disclosure Statement

AIG Investments Web Address: www. aiginvestments.com

Rev. 7/13/07

AIG Investments is a group of international companies that provide investment advice and market asset management products and services to clients around the world.

AIG Investments is a service mark of American International Group, Inc. (AIG). Services and products are provided by one or more affiliates of AIG.

Readership: This document is intended solely for the addressee(s). Its content may be legally privileged and/or confidential.

Opinions: Any opinions expressed in this document may be subject to change without notice. We are not soliciting or recommending any action based on this material.

Risk Warning: Past performance is not indicative of future results. Our investment management services relate to a variety of investments, each of which can fluctuate in value. The value of portfolios we manage may fall as well as rise, and the investor may not get back the full amount originally invested. The investment risks vary between different types of instruments. For example, for investments involving exposure to a currency other than that in which the portfolio is denominated, changes in the rate of exchange may cause the value of investments, and consequently the value of the portfolio, to go up or down. In the case of a higher volatility portfolio the loss on realization or cancellation may be very high (including total loss of investment), as the value of such an investment may fall suddenly and substantially.

In making an investment decision, prospective investors must rely on their own examination of the merits and risks involved.

Unless otherwise noted, all information contained herein is sourced with AIG and/or AIG Investments internal data.

The content included herein has been shared with various in-house departments within the member companies of AIG Investments and/or AIG Private Bank Ltd., in the ordinary course of completion. All AIG Investments member companies comply with the confidentiality requirements of their respective jurisdictions.

Parts of this presentation may be based on information received from sources we consider reliable. We do not represent that all of this information is accurate or complete, however, and it may not be relied upon as such.

AIG Global Investment Corp. (Switzerland) Ltd. is a wholly owned subsidiary of AIG Private Bank Ltd.

AIG Investments Europe Limited is authorised and regulated by the Financial Services Authority ("FSA"). In the UK this communication is a financial promotion solely intended for professional clients as defined in the FSA Handbook and has been approved by AIG Investments Europe Limited.

AIG Global Real Estate Investment (Europe) Ltd. is an Appointed Representative of AIG Investments Europe Limited.

Approved by AIG Investments Ireland Limited and AIG Investments Fund Management Limited, both regulated by the Financial Regulator in Ireland.

In Australia, this document is intended for a limited number of wholesale clients as such term is defined in chapter 7 of the Corporations Act 2001 (CTH). The entity receiving this document represents that if it is in Australia, it is a wholesale client and it will not distribute this document to any other person whether in or outside of Australia.

AIG Global Investment Corp. (Middle East) Limited is regulated by the Dubai Financial Services Authority. In Dubai this document is intended for wholesale customers only and not Retail Customers and the financial products and services to which this material relates will only be made available to wholesale customers who meet the regulatory criteria to be treated as a client of AIG Global Investment Corp. (Middle East) Limited.

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