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SOUTHERN AFRICA PRIVATE EQUITY ROUNDTABLE
The Case for Private Equity As Part of a Diversified Portfolio
OCTOBER 2010
Presented by
Ofer Nemirovsky, Managing Director
CONFIDENTIAL 3
Table of Contents
I. Why Invest in Private Equity?
II. Private Equity in Africa and Other Emerging Markets
III. HarbourVest’s Role in Private Equity
9/28/2010
These materials do not constitute an offer to sell or the solicitation of an offer to buy interests in HarbourVest International Private Equity Partners VI Program or HarbourVest Partners IX Program (each, the “Fund”) or any other investment sponsored by HarbourVest Partners L.P. or its affiliates. Any offering of interests in any Fund will be made solely pursuant to the Private Placement Memorandum of the Fund and subscriptions will be accepted solely pursuant to definitive documentation. Offers and sales of interests in the Fund will not be registered under the laws of any jurisdiction and will be made solely to “qualified purchasers” as defined in the U.S. Investment Company Act of 1940, as amended. These materials are highly confidential and must be read in conjunction with the Private Placement Memorandum of the Fund. These materials do not purport to contain all the information relevant to evaluating an investment in the Fund. This communication has been approved for issue in the U.K. by HarbourVest Partners (U.K.) Limited, which is regulated by the FSA. See final pages for additional notes.
CONFIDENTIAL 4
HarbourVest Overview
One of the first fund-of-funds, formed in 1982 Global focus on primary, secondary, and direct investments in all stages of
private equity – venture, buyout, and mezzanine 28 year history with over $30 billion committed to private equity globally Local teams – Boston, London, Hong Kong, and Tokyo Deep experienced team: more than 70 investment professionals; 230
employees 21 managing directors whose average tenure with the firm is 17 years Distinguished investor base – 300 active, global institutional clients Registered investment adviser with the U.S. Securities and Exchange
Commission
Why Invest in Private Equity?
CONFIDENTIAL 6
Types of Alternative Investments
ALTERNATIVE INVESTMENTS
PRIVATE EQUITY HEDGE FUNDS REAL ESTATE PHYSICAL COMMODITIES
Venture Capital Buyout Mezzanine Capital Distressed Debt
Long/Short Global Macro Event Driven Market Neutral Arbitrage Emerging
Markets
Office Retail Residential REITs
CURRENCIES
INTEREST RATES
NATURAL RESOURCES
CONFIDENTIAL 7
Public Equity
Venture
Company Life Cycle
REV
EN
UE
Seed Early Expansion/Later Buyout (Public or Private Companies)
STAGE OF DEVELOPMENT
Private Equity
Buyout/Mezzanine
IPO
CONFIDENTIAL 8
Why Invest in Private Equity?
Advantages Long-term historical out-performance Diversification resulting in improved risk and volatility characteristics Complement to public equity portfolio Active company ownership
– More active approach to company management than a public equity manager
– Carefully selected investments
– Assessment of value and growth potential
– Capital structure management
– Long-term focus
– Owners’ interest aligned with management
CONFIDENTIAL 9
Why Invest in Private Equity?Long Term Historical Performance Exceeds Public Markets
1 yr 5 yr 10 yr 15 yr 20 yr
European Public Markets
MSCI / AC Europe € 29.4% 1.0%
-3.9% 4.8% 4.4%
FTSE 100 £ 22.1
2.4 -2.4 3.9 4.1
European Private Equity
€7.7
6.5 5.2 9.4 8.9
Upper Quartile € 15.9
25.8 18.7 29.1 23.3
U.S. Public Markets
Russell 2000$ 25.2
-0.8 2.2 6.3 6.8
Dow Jones$ 18.8
-0.7 -1.0 6.9 6.9
S&P 500$ 23.5
-1.7 -2.7 6.1 5.9
U.S. Private Equity
$12.2
5.4 3.9 10.6 11.2
Upper Quartile$ 20.7
16.8 17.6 47.5 32.2
As of December 31, 2009Source: Venture Economics (pooled IRR) and Bloomberg (total returns). Total returns. Dividends are not reinvested. MSCI All European Countries index, in euros. Public market returns do not reflect the cash flows used to calculate the private equity returns and accordingly a direct comparison may not be meaningful.
CONFIDENTIAL 10
Bars represent difference between private equity net returns versus S&P 500 total returns
-3.2%
18.5% 20.3%
41.4%
26.3%
6.6% 4.5% 5.3%
-11.3%
7.1%
-20%
0%
20%
40%
60%
1 Year 5 Year 10 Year 15 Year 20 Year
Compared to All US PE Compared to U.S. PE Upper Quartile
Why Invest in Private Equity?Long Term Historical Performance Exceeds Public Markets
All U.S. Private Equity
12.2% 5.4% 3.9% 10.6% 11.2%
U.S. Private Equity Upper Quartile
20.7% 16.8% 17.6% 47.5% 32.2%
S&P 500 23.5% -1.7% -2.7% 6.1% 5.9%
See final pages for additional notes
As of December 31, 2009Source: Venture Economics (pooled IRR) and Bloomberg (total returns). Total returns. Dividends are not reinvested. MSCI All European Countries index, in euros. Public market returns do not reflect the cash flows used to calculate the private equity returns and accordingly a direct comparison may not be meaningful.
CONFIDENTIAL 11
Why Invest in Private Equity?
Diversification provided by private equity may push out the efficiency frontier and offer superior risk/reward profile to investors
12
13
14
15
16
17
18
5 10 15 20Risk (Standard Deviation)
Ret
urn
(%)
* Source: Why and How to Invest in Private Equity, An EVCA Investor Relations Committee Paper, Written by Alex Bance, Data prepared by Michael Henningsen, published by the European Private Equity & Venture Capital Association (EVCA), March 2004** Source: Gompers & Lerner, Private Equity and Asset Allocation: Clues to a Puzzle, Harvard Business School / Salomon Smith Barney, 2001
Portfolio Allocation A B C DLarge Stocks % 40 40 35 40Small Stocks % 10 10 10 10Govt Bonds % 20 15 15 10Corp Bonds % 20 15 15 10Cash % 10 10 10 10Private Equity % 0 10 15 20
A
B
C
D
Efficient Frontier with Private Equity *
Risk / Return of Various Portfolio Allocations **
CONFIDENTIAL 12
Why Invest in Private Equity?
Venture, buyout, and credit cycles are not aligned Each segment can outperform Suggested allocation:
– Venture 25-35%
– Buyout 55-65%
– Credit 5-15%
-10
0
10
20
30
40
50
’80 ’81 ’82 ’83 ’84 ’85 ’86 ’87 ’88 ’89 ’90 ’91 ’92 ’93 ’94 ’95 ’96 ’97 ’98 ’99 ’00 ’01 ’02 ’03 ’04 ’05 ’06 ’07 ’08 ’09
Venture
Buyout
Credit
Source: Thomson Reuters. Data represents a 5-year IRR for venture, buyout, or mezzanine calculated as of each year-end.
FIVE-YEAR ROLLING AVERAGE RETURNS
IRR
%
THE VALUE OF DIVERSIFICATION
CONFIDENTIAL 13
Global Investors in Private Equity
PERCENTAGE OF PRIVATE EQUTY CAPITAL BY LIMITED PARTNER TYPE
Source: Dow Jones Private Equity Analyst
CONFIDENTIAL 14
7.57.1 7.17.0
7.7
6.76.5
7.5
6.77.0
8.9
7.9
0
2
4
6
8
10
Private Equity Hedge Funds Real Estate
2003 2005 2007 2009
Strategic Allocations to Alternative Assets
Note: All data based on survey respondents in North America n=167
Source: “The 2007-2008 Russell Survey on Alternative Investing” Copyright © Frank Russell Company 2008. All rights reserved.
NORTH AMERICA BASED INVESTORS* EUROPE BASED INVESTORS*
4.03.6
8.3
4.5
9.8
8.98.4
5.34.6
7.4
9.7
5.5
0
2
4
6
8
10
Private Equity Hedge Funds Real Estate
2003 2005 2007 2009
Note: All data based on survey responses, for Europe n=69
% o
f Tota
l Fu
nd
Ass
ets
CONFIDENTIAL 15
Why Invest in Private Equity?
Concerns Illiquidity Blind pool investment Transparency Valuations somewhat judgmental
CONFIDENTIAL 16
Challenges Can Create Opportunities
Source: Venture Economics buyout returns at June 30, 2009. Investments made after 2004 are not included because they are still actively investing and performance is generally not meaningful during a partnership’s early development.
Downturn Downturn
IRR
EUROPEAN BUYOUT
49%
U.S. BUYOUT
Downturn Downturn
IRR
Downturn
Downturn
0%
10%
20%
30%
’86 ’87 ’88 ’89 ’90 ’91 ’92 ’93 ’94 ’95 ’96 ’97 ’98 ’99 ’00 ’01 ’02 ’03 ’04 ’05 ’06 ’07 ’08 ’09 ’10
Vintage Year
Upper Quartile
Median
0%
10%
20%
30%
’86 ’87 ’88 ’89 ’90 ’91 ’92 ’93 ’94 ’95 ’96 ’97 ’98 ’99 ’00 ’01 ’02 ’03 ’04 ’05 ’06 ’07 ’08 ’09 ’10Vintage Year
Upper Quartile
Median
Private Equity in Africa and other Emerging Markets
CONFIDENTIAL 18
African Private Equity – Steady Growth Until the Financial Crisis
$0
$2
$4
$6
$8
’03 ’04 ’05 ’06 ’07 ’08 ’09
North Africa
Sub-Sahran Africa
$ B
illio
ns
PRIVATE EQUITY FUNDRAISING
CONFIDENTIAL 19
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
’03 ’04 ’05 ’06 ’07 ’08 ’09
North Africa
Sub-Saharan Africa
Asia Pacific
Europe
US
Global Private Equity Fundraising$
Bill
ions
PRIVATE EQUITY FUNDRAISING
North AfricaSub-Saharan Africa
CONFIDENTIAL 20
African Private Equity – Steady Growth Until the Financial Crisis
$0
$2
$4
$6
$8
$10
’03 ’04 ’05 ’06 ’07 ’08 ’09
North Africa
Sub-Sahran Africa
$ B
illio
ns
PRIVATE EQUITY INVESTING
CONFIDENTIAL 21
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
’03 ’04 ’05 ’06 ’07 ’08 ’09
North Africa
Sub-Saharan Africa
Asia Pacific
Europe
US
Global Private Equity Investing$
Bill
ions
PRIVATE EQUITY INVESTING
North AfricaSub-Saharan Africa
CONFIDENTIAL 22
Private Equity Investments as % of Overall GDP
Room to grow!
Source: EMPEA, EVCA, Venture Economics, AVCJ, APER, HarbourVest Analysis
$926$919
$788$707
$625
$0
$300
$600
$900
$1,200
2005 2006 2007 2008 20090.0%
0.1%
0.2% GDP PE as % of GDP
$
Bill
ions
SUB-SAHARAN AFRICA
$
Tri
llion
s
$14.3$14.4$14.1$13.2$12.6
$0.0
$5.0
$10.0
$15.0
$20.0
2005 2006 2007 2008 20090.0%
0.5%
1.0%
1.5%
2.0%U.S. GDP
U.S. PE as % of GDP
U.S.
$16.4$16.7$15.8
$14.5$13.7
$0.0
$5.0
$10.0
$15.0
$20.0
2005 2006 2007 2008 20090.0%
0.5%
1.0%
1.5%Europe GDP
Europe PE as % of GDP
EUROPE
$
Tri
llion
s
HarbourVest’s Role in Private Equity
CONFIDENTIAL 24
HarbourVest Overview
Established Firm Team formed in 1982 More than $30 billion committed to investments over three decades Industry pioneer Independent, employee owned
Experienced &Stable Team
Deep team of more than 230 employees 21 managing directors with an average firm tenure of 17 years More than 70 investment professionals in Boston, Hong Kong, London,
and Tokyo
Focus on Private Equity
Global expertise across all three investment areas: primary partnerships, secondary investments, direct investments
Comprehensive and specialized programs
Proven Track Record
One of the longest track records in the industry Demonstrated performance across all strategies Consistent approach to portfolio construction
Superior Client Service
Distinguished global investor base – 300 active, institutional clients Responsive to client needs Broad infrastructure – accounting, treasury, tax, trading, investor
relations
Strong Risk Controls
Registered investment adviser with the U.S. Securities andExchange Commission
Type I and Type II SAS 70 reports available to clients and their auditorsSee final pages for additional notes
CONFIDENTIAL 25
Strong Long-Term Partnership Investment Performance
HarbourVest investments have produced strong private equity returns
– Disciplined approach, experience across many economic cycles, and access to leading sponsors
-0.2%
16.3%
4.4%
10.4%
-5%
0%
5%
10%
15%
20%
MSCI Median UpperQuartile
HarbourVestPortfolio
4.4%
15.5%
7.4%
15.9%
0%
5%
10%
15%
20%
Russell2000
Median UpperQuartile
HarbourVestPortfolio ***
Public Equity
Benchmarks *
Total Return
Private Equity Benchmarks **
Private Equity Benchmarks ††
Public Equity
Benchmarks *
Total Return
†††
IRR
IRR
See final pages for additional notes.
HarbourVest performance does not represent the performance of any specific fund or the return to limited partners*Source: Bloomberg – Total returns. Dividends are not reinvested. MSCI All European Countries index, in euros. These returns do not reflect thecash flows used to calculate the HarbourVest Portfolio gross IRR and accordingly a direct comparison may not be meaningful. **Source: Venture Economics VentureXpert Database. Benchmark Summary Report. All Private Equity – U.S., vintage years 1989-2005. See Note 5. ***Performance of U.S. partnership investments (primary and secondary) made by the HarbourVest team in vintage years 1989-2005. See Notes 2 and 4.††Source: Venture Economics VentureXpert Database, Benchmark Summary Report. All Private Equity – Europe, vintage years 1990-2005; in euros. See Note 6. †††Performance of European partnership investments (primary and secondary) made by the HarbourVest team in vintage years 1990-2005. See Note 2 and 4.
U.S. PARTNERSHIP INVESTMENT PERFORMANCE (VINTAGE YEARS 1989-2005) AS OF MARCH 31, 2010
EUROPEAN PARTNERSHIP INVESTMENT PERFORMANCE (VINTAGE YEARS 1990-2005) AS OF DECEMBER 31, 2009
CONFIDENTIAL 26
U.S. Partnership Investment PerformanceBy Vintage Year
IRR AS OF MARCH 31, 2010 – COMPARED TO PRIVATE EQUITY BENCHMARKS (VENTURE ECONOMICS QUARTILES)*
Vintages 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
HarbourVest Gross IRR** 19.7% 20.1% 21.9% 28.0% 49.3% 45.2% 53.4% 90.5% 66.8% 16.7% 0.3% 6.0% 7.5% 9.8% 32.4% 13.9% 7.0%
-0.3% 0.9% 2.3% 12.7%
Industry Upper 21.7 19.3 25.5 37.0 28.9 28.5 32.2 41.8 24.7 10.8 5.3 7.0 11.0 11.8 11.6 11.5 8.1 1.7 6.1 2.7 -1.1Industry Median
11.1 10.3 13.9 14.6 12.6 14.3 9.7 7.8 7.7 3.4 -2.3 -0.8 1.2 1.4 4.1 2.0 1.5 -3.3 -2.1 -9.8 -23.1
Industry Lower 4.3 -0.1 3.9 9.0 3.6 1.1 2.1 0.5 -1.0 -3.1 -9.4 -4.5 -3.1 -2.1 1.1 -3.4 -4.8 -10.2 -7.8 -21.7 -42.0
* Source: Venture Economics VentureXpert Database. Cumulative vintage year performance, All Private Equity – U.S.** Represents performance of U.S. partnership investments after the fees, expenses, and carried interest of the underlying partnerships, but before the HarbourVest
fund's expenses, including fees and carried interest. HarbourVest vintage classification for primary investments is based on year in which capital was first funded to each underlying partnership and for secondary investments is based on year of purchase. These returns do not represent the performance of any specific HarbourVest fund or the return to limited partners.
See Notes 2 for calculation methodology.
80th
90th
Med
ian
Low
er
Qu
art
ileU
pp
er
Qu
art
ile
DevelopingMaturingLiquidating Investing
CONFIDENTIAL 27
Contact Information
HONG KONG HarbourVest Partners (Asia) LimitedCitibank Tower Suite 12073 Garden RoadCentralHong KongTel +852 2525 2214Fax +852 2525 2241
TOKYO HarbourVest Partners (Japan) LimitedMarunouchi Trust Tower 20F 1-8-3 Marunouchi Chiyoda-ku Tokyo 100-0005 Tel +81 3 6269 3072 Fax +81 3 6269 3073
BOSTONHarbourVest Partners, LLCOne Financial Center44th FloorBoston MA 02111Tel +1 617 348 3707Fax +1 617 350 0305
LONDON HarbourVest Partners (U.K.) LimitedBerkeley Square House8th FloorBerkeley SquareLondon WIJ 6DBTel +44 (0)20 7399 9820Fax +44 (0)20 7399 9840
www.harbourvest.com
CONFIDENTIAL 28
Additional Information
On January 29, 1997, the management team of Hancock Venture Partners, Inc. (HVPinc) formed a new management company known as HarbourVest Partners, LLC (HarbourVest). Concurrently with the formation of HarbourVest, all of the employees of HVPinc became owners and/or employees of HarbourVest. In addition, concurrently with the formation of HarbourVest, HVPinc engaged HarbourVest as sub-manager to carry out the terms of its management agreements with the partnerships formed when the management team was employed by HVPinc. Other than the sub-management agreement, no relationship exists between HarbourVest and HVPinc. For purposes of this presentation, historical data includes both partnerships managed directly by HarbourVest and its affiliates and partnerships currently managed by HarbourVest as sub-manager to HVPinc. In addition, historical data includes periods when the partnerships were managed by the management team of HarbourVest when they were employees of HVPinc.In considering the prior performance information contained herein, prospective investors should bear in mind that past performance is not necessarily indicative of future results, and there can be no assurance that the Fund will achieve comparable results or be able to implement its investment strategy. In particular, the foregoing prior performance record reflects the very favorable market conditions of the late 1990s, which are unlikely to be repeated. The foregoing performance information includes realized and unrealized investments. Unrealized investments are valued by the applicable general partner in accordance with the valuation guidelines contained in the applicable partnership agreement. Actual realized returns on unrealized investments will depend on, among other factors, future operating results, the value of the assets and market conditions at the time of disposition, any related transaction costs and the timing and manner of sale, all of which may differ from the assumptions on which the valuations used in prior performance data contained herein are based. Accordingly, the actual realized returns on these unrealized investments may differ materially from returns indicated herein.The information contained herein is highly confidential and is being provided to you at your request for informational purposes only and is not, and may not be relied on in any manner as, legal, tax or investment advice or as an offer to sell or a solicitation of an offer to buy an interest in any investment sponsored by HarbourVest Partners L.P. or it’s affiliates (the “Fund”). A private offering of interests in the Fund will only be made pursuant to a confidential private placement memorandum (the “Memorandum”) and the Fund’s partnership agreement and subscription documents, which will be furnished to qualified investors on a confidential basis at their request for their consideration in connection with such offering. The information contained herein will be superseded by, and is qualified in its entirety by reference to, the Memorandum, which will contain information about the investment objective, terms and conditions of an investment in the Fund and will also contain tax information and risk disclosures that are important to any investment decision regarding the Fund. No person has been authorized to make any statement concerning the Fund other than as will be set forth in the Memorandum and any such statements, if made, may not be relied upon. The information contained herein must be kept strictly confidential and may not be reproduced or redistributed in any format without the express written approval of HarbourVest Partners L.P. (together with its affiliates, “HarbourVest”). Investment in the Fund will involve significant risks, including loss of the entire investment. Before deciding to invest in the Fund, prospective investors should pay particular attention to the risk factors contained in the Memorandum. Prospective investors should make their own investigations and evaluations of the information contained herein. Prior to the closing of a private offering of interests in the Fund, HarbourVest will give investors the opportunity to ask questions and receive additional information concerning the terms and conditions of such offering and other relevant matters. Each prospective investor should consult its own attorney, business advisor and tax advisor as to legal, business, tax and related matters concerning the information contained herein and such offering. Certain information contained herein (including financial information and information relating to investments) has been obtained from published and non-published sources. Such information has not been independently verified by HarbourVest. Except where otherwise indicated herein, the information provided herein is based on matters as they exist as of the date of preparation and not as of any future date, and will not be updated or otherwise revised to reflect information that subsequently becomes available, or circumstances existing or changes occurring after the date hereof.In considering any performance data contained herein, you should bear in mind that past performance is not indicative of future results. Certain information contained herein constitutes forward-looking statements, which can be identified by the use of terms such as “may”, “will”, “should”, “expect”, “anticipate”, “project”, “estimate”, “intend”, “continue” or “believe” (or the negatives thereof) or other variations thereof. Due to various risks and uncertainties, including those discussed above, actual events or results or actual performance of the Fund may differ materially from those reflected or contemplated in such forward-looking statements. As a result, investors should not rely on such forward-looking statements in making their investment decisions. None of the information contained herein has been filed with the Securities and Exchange Commission, any securities administrator under any state securities laws or any other governmental or self-regulatory authority. No governmental authority has passed on the merits of the offering of interests in the Fund or the adequacy of the information contained herein. Any representation to the contrary is unlawful.
SOUTHERN AFRICA PRIVATE EQUITY ROUNDTABLE
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