Welcome to our 1st joint event on Private Equity

Luxembourg, 5th July 2016

1

“PE Investing: The Long Term Investor Journey”

❖ Agenda: WELCOME !

❖ Rajaa Mekouar: PE Back to Basics!

❖ Ian Prideaux: The Role of Private Equity Within a Long Term Portfolio !

❖ Surprise guest: The 7 deadly sins!

❖ Panel: Different ways to PE exposure: First hand feedback from experts!

❖ Jerome Wittamer: Conclusion !

❖ Cocktail: All invited to join to continue the debate around a drink/canape

2

This is NOT today’s topic

Brexit and PE

But you can ask the panelists later…!!

Two of whom are actually mentioned in the recent media stories quoted here.. !

!!!

3

Nota Bene…

Back to Basics…

Private Equity 101 (from my 15 years of first hand exposure to PE)

This presentation is for the wealth manager, private investor, asset manager who is intrigued but not too familiar with PE (Apologies to the more experienced ones…)

4

Setting the mood… Food for inspiration

With the current market context of excessive liquidity and central bank intervention, private strategies make sense as an “optionality”

5

23 July 2015

PE Today’s Big statsGlobal Private Capital*AuM exceeds over $4 trillion

Source: Preqin - Figures at June 2015 unless otherwise specified - * Includes Private Capital ie Private debt, Real Estate, Infra and Natural Resources!

Total capital raised by 1,062 funds reached

$551bn (full 2015)

Total unrealised

value stands at $2.8trillion

$2.4 trillion AuM!

$288bn raised (689 funds)!

$189bn distribution!

$755bn dry powder (+9%)

$411bn deal value!

$416bn exit value!

(for the year 2015)

$136bn deal value!

$73bn exit value!

(for the year 2015)

6

PE is cyclical too…

PE’s journey through timesPE reached its peak in terms of amounts raised pre 2008 crisis and has sustained high activity levels since - Funds are getting fewer but raising more!

Source: ThomsonOne, 31.12.2015*!*Includes other private capital strategies

7

PE has a wide base of investors

Who invests in PE?Large institutions especially Pension Funds and Sovereign Wealth Funds are the dominant force (close to 60% of total investments)

8

Source: Preqin, 2014

$bn invested!in PE by investor type and as a % of

total AuM

Family Offices are relatively over allocated in PE v institutions

How much do they invest in PE?

Family Offices are a growing source of funding for PE in general, with an increasing proportion entering the asset class across the world (US bias)

9

Source: iCapital, 2015

% allocation to PE

Time for Action…

Untangling the maze Is PE an investment class for you to consider? If so, why and how?

10

❖ PE outperforms public markets (Illiquidity premium + Alpha generation)!

❖ PE provides effective risk/return diversification for a typical portfolio !

❖ PE is a great way of accessing differentiated investment opportunities!

!❖ Does PE require to stay “stuck” for 10 years?!

!❖ PE seems for the high risk takers only!

!❖ It seems PE is for the “very rich” investors with

large tickets to invest

PE: Perception v Reality

11

Understanding PE… (video) How the “GP” does it by the European Association of PE/VC (Invest Europe)

12

PE encompasses different investment stages with different risk/return profiles

PE stagesLBOs remain the largest segment in PE, but VC has recently developed substantially, in Europe and elsewhere

13

€1-1m

€1m-100m

€20m-1b

€5m-1b+

€5m-1b+

Source: Goldman Sachs

10-year manager performance dispersion

PE performance driven by quality of manager

PE outperforms all other asset classes but only if the right managers are selected

14

Source: Hewitt EnnisKnupp’ eVestment Alliance, Thomson Reuters, NCREIF, The Townsend Group, Hedge Fund Research Inc (2013) - US

Dispersion of returns

Annualised compound returns on Calpers’ 20 years returns

PE EconomicsManagement fees: 2% typically, for a PE/VC fund, on committed capital (but varies)!Carried interest: 20% on profits generated, 80% to investors (also varies)!Other considerations: !

Alignment of interests: Co investments, Hurdle rate (most cases)!Fund of Funds!

15

Source: State Street via Calpers

It is about long term investing….

PE “J curve”effect Chart shows evolution of cash in/out and cashflows in a typical PE cycle

Commitments

Capital calls

DistributionsNet cumulative

cash flows

(US$m)

Source: Pictet

16

Commenting the “J Curve” effect❖ Commitment drawdown and allocation: over time unlike with hedge funds!

❖ Net contributions (of distributions) rarely exceed 2/3 of committed capital !

❖ Key performance measures: !

❖ IRR* (Internal rate of return)!

❖ Multiples (without time factor) / TVPI** (Total value to paid-in capital)!

❖ DVPI (Distibuted to paid in capital)!

❖ Pre distribution, negative IRR* due to:!

❖ Impact of management fees!

❖ Conservative valuations (eg illiquidity discount / upside via realisation)!

❖ Ways to smooth the J Curve effect:!

❖ Fee reduction !

❖ Secondary investments (Trade off)

17

*The IRR is the discount rate that makes the net present value of all cash flows equal to zero!

**Total value to paid-in (TVPI) ratio represents the fund’s total value as a multiple of its cost basis. TVPI is calculated by dividing the realised amount added to the net asset value of unrealised investments by the investment cost

The Investor Journey

Getting over the hurdles

Addressing questions and concerns…

18

19

Hurdle 1: Process

Sourcing Due diligence Timing

Different routes to investment in PE

Hurdle 2: Structuring

Consider carefully the pros and cons of each vehicle and evaluate feasibility

20

Increasing risk and complexity

Hurdle 3: Decision making

21

Go-no Go: Evaluate your short and mid term liquidity needs

Decide the % allocation that brings you closest to “efficient frontier”!Together with the investment stages that fit your risk/return profile!

Opt out of strategies that don't fit your risk/return profile

Add liquidity spin where/when possible

Maximise bargaining power !Negotiate fees

Choose the optimal investment vehicle also based on your ticket size

!!!!

TRUSTED!!!!

PartnersOngoing!

monitoring

Have we helped clarify the PE picture?

Please reach out for questions!!!!

Now more enlightening facts and stories from our guest speaker…

22

Keynote Presentation

The Role of Private Equity Within a Long Term Portfolio

Grosvenor Estate!

23

Ian Prideaux

Our Guest Speaker

CIO

24

❖ Ian is deploying money in assets other than real estate, with a view to diversification over a long term time horizon. He puts forward an asset allocation plan and select the appropriate managers for the different parts of that plan.!

❖ The investment portfolio includes public equities and fixed income, private equity, hedge funds, absolute return instruments, cash and has in the past included commodities. !

❖ All assets are run by third party managers, with assistance of Cambridge Associates as investment consultants who also carry out monitoring and performance reporting.

Who is it…

Grosvenor Estate

❖ International property business Grosvenor Group Ltd!

❖ Direct investment business of the Wheatsheaf Group !

❖ Family Investment Office which supports the private interests of the family of The Duke of Westminster and associated family trusts.

25

Key advantages of private equity as an asset class in portfolios…

Well-selected private equity is a proven driver of portfolio growth Private equity and venture capital has demonstrated long-term

outperformance of public equity markets as underlying investments are fully realised Cambridge Associates (CA) research shows that clients with high allocations

have outperformed those with smaller allocations over the longer term Grosvenor’s private equity portfolio has already generated a premium of 3.6%

p.a. above public markets since inception (2006) !

Improves diversification and ability to access strategies that are under-represented by public markets

Access to developing and disruptive technologies, which are not available through the public markets Exposure to sectors, geographies and parts of the capital structure that are

not available through traditional markets Low correlation with traditional asset classes and other alternative asset classes 26

…Key advantages of private equity as an asset class in portfolios

The outlook for private equity is challenging today but there are more options for generating strong returns than ‘plain-vanilla’ buyouts.

Ability to generate outsized absolute returns due to inherent inefficiency in how investments are sourced, capital is deployed, management is reorganised and companies are operated Capacity for skilled managers to make mid-long term decisions away

from the glare of the public markets and short term benchmarks CA still expect premium returns (3-5% above public equity over the

long-term) for a diversified programme and net IRRs of 10-15%+ today !

Excellent investment opportunities for long-term investors with limited liquidity needs

A 15% allocation to PE & VC is average for large sophisticated, internationally focused families, colleges and endowments Grosvenor’s current allocation stands at around 11.2% on a ‘fully drawn’

basis27

Private equity can help diversified portfolios earn better risk-adjusted returns

A private equity programme containing exposure to all sub-classes adds considerable efficiency through greater risk-adjusted returns

!Improved efficiency results

in a tighter range of returns over time (important in managing annual payouts and budgets)

!The probability of

experiencing a return shortfall is lower with the diversified portfolio

Past performance is not indicative of future performance. Returns are nominal and assume 3% inflation. Source: Cambridge Associates

CLIENT XYZEFFICIENT REGION ANALYSIS

ASSET CLASSES ALLOCATIONS

Simple

Diversified Portfolio

Without PI

Diversified Portfolio With

PI

U.S. Equity 50.0% 30.0% 15.0%Global ex U.S. Equity 20.0 20.0 15.0Emerging Markets Equity - - - 6.0 6.0Absolute Return - - - 6.0 8.0Equity Hedge Funds - - - 10.0 12.0Venture Capital - - - - - - 5.0Private Equity - - - - - - 8.0Commodities - - - 4.0 1.0Natural Resource Equity - - - 3.0 - - -REITs - - - 3.0 2.0Real Estate - - - - - - 8.0Oil & Gas - - - - - - 4.0Timber - - - - - - 3.0U.S. Fixed Income 30.0 12.0 8.0U.S. TIPS - - - 3.0 2.0Global Fixed Income - - - 3.0 2.0High Yield Bonds - - - - - - 1.0

Nominal Arithmetic Return 8.8% 9.1% 9.6%Standard Deviation 12.2% 11.5% 11.0%Nominal Compound Return 8.1% 8.5% 9.1%Sharpe Ratio 0.39 0.44 0.51

8.0%

8.5%

9.0%

9.5%

10.0%

9% 10% 11% 12% 13%

Arith

met

ic A

vera

ge R

etur

n (%

)

Standard Deviation (%)

Diversified Portfolio With PE

Diversified Portfolio Without PE

Simple

28

Top performing institutions had the highest average allocation to private equity

Institutions with the lowest average allocations to alternative investments were in the bottom quartile

29

Ten-Year Asset Allocation of Top and Bottom Performers As of March 31, 2016

The importance of adopting a clear and consistent strategy

Consistent pacing Need to maintain an ongoing search and investment discipline to maintain exposure, due to the

pattern of capital calls and distributions rather than a single, up-front, lump sum allocation !

Portfolio positioning Given it functions as a series of cash-flows over time, there is an ability to over-commit to the

asset class, particularly considering many commitments do not get drawn-down in full and that early distributions can be used to fund later calls !

Diversification to manage return dispersion A rolling programme, taking in an appropriate number and mix of funds by vintage, strategy,

geography and manager should be maintained at all times !

The importance of manager selection In this asset class, more than any other, track record in relation to the best performing managers

and one’s ability to select them is strongly indicative of likely future returns

30

Long-term private equity returns are compelling and the top 2 quartiles even more so

CA US Private Equity: Periodic Rates of ReturnAs of December 31, 2015

Sources: Data is calculated in US dollars and sourced from Cambridge Associates LLC, Frank Russell Company, Standard & Poor's, and Thomson Reuters Datastream. Notes: Pooled private investment periodic returns are net of fees, expenses, and carried interest. Multi-year annualized returns are generated for time periods ending December 31, 2015.

Per

iodi

c R

ates

of R

etur

n %

0

9

18

26

35

15-Year 10-Year 5-Year 3-Year

11.65

9.19

6.807.28

15.13

12.57

7.31

5.00

13.2613.0311.1710.89

20.3018.73

17.0417.17

CA US Private Equity (Top Two Quartiles) CA US Private Equity Index S&P 500 Russell 2000®

31

Here we observe returns within the US market, which depicts the additive impact of high quality manager selection

Longer-term, good manager selection has added a further 500-700bps of annual performance

Here we observe returns within Europe, which shows that good manager selection remains key across every region

Sources: Data is as at December 31, 2015, calculated in Euro. Sourced from Cambridge Associates LLC, Frank Russell Company, MSCI and Thomson Reuters Datastream. Notes: Pooled private investment periodic returns are net of fees, expenses and carried interest. Multi-Year Annualised Returns are generated for time periods ending December 31, 2015.

Per

iodi

c R

ates

of R

etur

n %

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

15-Year 10-Year 5-Year 3-Year

11.48

8.36

4.222.47

15.3313.15

12.1212.88

19.99

17.4716.7018.14

CA Europe Private Equity (Top Two Quartiles)CA Europe Private Equity IndexMSCI Europe Index

CA European Private Equity: Periodic Rates of ReturnAs of December 31, 2015

32

Diversification across strategy is important. US VC returns are making a come-back

As of December 31, 2015CA US Venture Capital Periodic Rates of Return

Per

iodi

c R

ates

of R

etur

n %

0

9

18

26

35

15-Year 10-Year 5-Year 3-Year

11.65

9.19

6.807.28

15.13

12.57

7.31

5.00

21.18

16.23

10.90

4.21

30.00

24.04

17.01

8.35

CA US Venture Capital (Top Two Quartiles) CA US Venture Capital Index S&P 500 Russell 2000®

Sources: Data is calculated in US dollars and sourced from Cambridge Associates LLC, Frank Russell Company, Standard & Poor's, and Thomson Reuters Datastream. Notes: Pooled private investment periodic returns are net of fees, expenses, and carried interest. Multi-year annualized returns are generated for time periods ending December 31, 2015.

33

US PE valuations and fundraising: maintain a rolling spread of vintages

USPE Commitments, EBITDA Purchase Price and Leverage Multiples2000 – 2015. As of December 31, 2015.

Sources: Cambridge Associates LLC, Dow Jones & Company, Inc. and Standard & Poor’s LCD. Notes: Purchase price multiple is defined as enterprise value over EBITDA and leverage multiple is defined as net debt over EBITDA. 2015 Capital Commitments data as of June 30th, 2015. Average PPM and leverage data as of December 31st, 2015. !Copyright © 2016 by Cambridge Associates LLC. All rights reserved. Confidential.

Mul

tiple

of E

BIT

DA

0.0x

2.8x

5.5x

8.3x

11.0x

Cap

ital C

omm

itmen

ts (U

S$ b

illio

ns)

0

75

150

225

300

Calendar Year2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Capital Commitments (LHS)Average Purchase Price Multiple (RHS)Average Leverage (RHS)

104.6

197.4180.2

138.8

91.462.664.4

210.1

280.5

208

124.2

72.132.5

58.653.287.3

34

Thank you Questions welcome

!!!

Ian Prideaux, Chief Investment Officer Grosvenor Estate

35

Surprise Talk

The Seven Deadly Sins… …

By Yaron Valler

36

…Of family office venture investing

Pride

Weknowwhatwearedoing

37

GreedWedon’twanttopayfees

38

Lust Runningaftershiny,trendy,expensivedeals

39

Envy Investingbecauseothersdo(AKAFOMO)

40

GluttonyOverallocation,underestimatingcapitalreserves

41

Wrath

Changingstrategy,gettingridofmanagementandoveractivitywhenthingsdon’tworkout

42

Sloth notdoingthehomework

43

Thefourcardinalvirtues:

• Prudence:Workwithprofessionalmanagers,buildabalancedportfolio,havealongtermstrategy

• Justice:Supportyourmanagersandentrepreneurs(iftheydotheirjob)

• Temperance:Don’tgoaftertrendyinvestmentsandDON’Toverextend,don’tbuylogos

• Courage:Staythecourse,investindownturns,cometoyourownconclusions

44

Let’s engage in a group discussion to reflect the diversity of PE as an investment class

The PanelStephanie Delperdange!Ian Prideaux!Jerome Wittamer!Matthias Ummenhofer!

45

Funds, Directs, Co Invests - !GLOBAL

Stephanie Delperdange

Director, !SOFINA

CIO, !Grosvenor Estate

Founding Partner, !Expon Capital

Founding Partner, Mojo.Capital

Funds, Co Invests - GLOBAL

Venture Fund, early stage - EUROPE

Fund of VC Funds and Co Invests - EUROPE

Ian Prideaux

Matthias Ummenhofer

Jerome Wittamer

Our panelists

46

Rajaa Mekouar

Funds of Funds!GLOBAL

Head of PE & Advisory, !

Fuchs Group

❖ What is your own definition of Private Equity?!

❖ Describe your current approach/allocation to PE and achieved performance to date? !

❖ How should Risk be attributed to the different asset classes in today’s environment?!

❖ Alternative strategies: How should an investor decide:!❖ Funds or Directs or Fund of Funds?!

❖ Developed markets v emerging markets?!

❖ Listed PE?

❖ Biggest “lesson” learned from “mistake” made in PE investing?!

❖ Illiquidity premium: Is it justified on a risk adjusted basis? Is listed PE viable?!

❖ Advice for the entry level PE investor? !

❖ BREXIT (For Ian only): Will there be an impact on PE as an industry?

Panel Questions

47

Jerome Wittamer, Chairman of the LPEA

Conclusion Where are we going from here…

48

PrivateEquityTheNext10Years5 July, 2016

2

LPEAToday

132members

from25foundersin2010

LPEArepresents,promotesandprotectstheinterestsofthe

Luxembourgprivateequityandventurecapitalindustry

200activememberson5technicalcommittees

61PEHouses

71ServiceProviders

AFFILIATIONTOInvestEurope*Rep.Group *Tax,LegalandReg.Com.HCPFCSSFGFIACom.PROFILLFF!&closecontactswithALFI,LIMSA,LAFO...

FullMembers

AssociateMembersABN AMRO BANK (Luxembourg) S.A.AIGAllen & Overy LuxembourgAlter Domus!Arendt & Medernach!Astris S.àr.l.AtoZ S.A.AVEGA S.àr.l.Aztec Financial Services (Luxembourg) S.A.Baker & McKenzie LuxembourgBanque de LuxembourgBanque Privée Edmond de RothschildBDO Tax and Accounting BIL LuxembourgBonn & SchmittBonn Steichen & PartnersBrown Brothers Harriman (Luxembourg) S.C.A.Caceis Bank LuxembourgCapita Fiduciary SA Carey SACBP Quilvest S.A.Centralis SACitco LuxembourgCitibank International PLC.

Clément & Avocats!Clifford ChanceCrestbridge S.A. Deloitte S.A.DLA Piper Luxembourg S.àr.l.DLP Law Firm S.àr.l.Elian Fiduciary Services S.àr.l.Elvinger, Hoss & Prussen!Ernst & YoungEtude LoeschExperta Corporate & Trust Services S.A.Gentoo Financial Services (Luxembourg) SAGrant Thornton PKF Weber & BontempsHalsey Group S.àr.l.Hogan Lovells (Luxembourg) LLPING Luxembourg S.A.Intertrust (Luxembourg) S.àr.l.Intesa Sanpaolo Bank Luxembourg S.A.Ipes (Luxembourg) S.à r.l.JTC (Luxembourg) S.A.KBL European Private Bankers S.A.King & Wood Mallesons (SJ Berwin Luxembourg)KPMGLinklaters LLP

Loyens & Loeff!LRI Invest S.A.Luther Law FirmLuxembourg Investment Solutions S.A.MaplesFS Luxembourg S.A.Mazars Luxembourg SAMNKSOgier!OPF Partners LuxembourgOppenheim Asset Management ServicesPandomus!PricewaterhouseCoopersRBS Global Banking (Luxembourg) S.A.Roemers Trapp Pautot!Sanne Group (Luxembourg) S.A. Sedlo Jimenez Lunz SGG S.A.Société Générale Bank & Trust State Street (Alternative Investment Solutions)Stibbe Avocats!TMF Luxembourg S.A.United International Management S.A.Vandenbulke!Vistra Luxembourg S.àr.l!Wildgen, Partners in Law

5

PEinLuxembourg

2000FTP

9outof10ofEurope’slargestPEfirmsoperatefrom

Luxembourg

800+AIFMs

€300BAUM

Centreofexcellenceforinternational

investissements

Optimallegalandtaxenvironment

MultilingualJuridiction

LimitedPartnership1000+SCSp

TheBiggerPicture

The growing challenge : Too much capital!!”The relationship between the financial economy ↑ and the underlying real

economy ↓ has reached a decisive turning point.”!

!

Global capital has swollen to $700+ trillion in 2015 tripling since 1995 and equating

10x the value of global output of all goods and services ($73T).

TheBiggerPicture

The growing challenge : Too much capital

TheBiggerPicture

The growing challenge : Too much capital

TheBiggerPicture

Power will shift from owners of capital to owners of good ideas

TheBiggerPicture

VCs have sharp skills for spotting promising investments

TheBiggerPicture

• Decreasingroleofnationstates

• Useofmoney[tofundprogress]:technology,philantropy,health,education

• Bain’s5platformtechnologies

TheBiggerPicture

PrivateEquity:Probablyworthtakingacloserlookat

Conclusion

JeromeWittamerjerome.wittamer@lpea.lu

jwittamer@exponcapital.com +352661353319

Feelfreetocontactus:

rajaa.mekouar@fuchsgroup.com+352691201550

63