The Future Shape of Private Equity Do we have to reassess? · 2017. 3. 2. · Dr. Katharina Lichtner, Managing Director Capital Dynamics AG Bahnhofstrasse 22 6301 Zug Switzerland

«Your bridge to the world of private assets.»

Confidential

The Future Shape of Private Equity –

Do we have to reassess?

Dr. Katharina Lichtner, Co-Head Investment Management and Head Research

10th Private Equity & Corporate Finance Conference

Zurich, July 7, 2011

Confidential 2

Capital Dynamics at a glance

(1) Acquisition and integration of Westport Private Equity Ltd.‟s entire investment team and products in 2005.

(2) Voted by Private Equity News as European Fund of Funds Firm of the Year in 2009 and 2008.

Long term incentive structure

Majority-owned and controlled by its

management and employees

Focused on private assets, including

private equity, clean energy and

infrastructure, and real estate

Independent Focused

Strong expertise in research, risk

management and in-house

structuring

Ten offices worldwide

Over 160 professionals, 30

nationalities and 35 languages

Track record since 19911

Over 20 years average experience

for senior investment professionals

Experienced

Research-led and innovative2 Global

Integrated approach with primary,

secondary and direct investment

capabilities

Integrated expertise

Birmingham

London MunichZurich & Zug

Hong Kong

Silicon

Valley

New York

Rio de Janeiro

Tokyo

Capital Dynamics I The Future Shape of Private Equity – Introduction

Does the financial crisis require a rethinking of private equity?

Confidential 3

1. The private equity industry is still settling in after the crisis

2. Some observations about the impact

3. What has changed for the Fund of Funds industry?

Capital Dynamics I The Future Shape of Private Equity – Introduction

194

108

54 5393

176

238

329

276

94 9459

57

44

19 27

20

77

97

88

117

24 17

18

18

9

7 7

16

29

43

57

50

22 34

16

0

50

100

150

200

250

300

350

400

450

500

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 H111

The PE industry saw strong growth during the boom

Confidential 4

USA Europe APAC

Source: Thomson One, AVCJ, July 6, 2011.

Co

mm

itm

en

tvo

lum

ein

US

D b

n

Capital Dynamics I The Future Shape of Private Equity – The private euqity industy is still settling in after the crisis

Confidential 5

Investments stalled in 2009 but start to pick up slowly

in USD bn

7

351

509

169

63

104

236

275

124

44

9166

95

59 48 52

2006 2007 2008 2009 2010 Q111 2006 2007 2008 2009 2010 Q111 2006 2007 2008 2009 2010 Q111

Source: Buyouts Magazine for US Buyouts, Private Equity Insight for European Buyouts, Dow Jones Venture Source for US and European VC investments, AVCJ for Asia.


0

20

40

60

80

100

120

140

160

180

200

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

in b

nU

SD

Vintage year

The capital overhang is still substantial

Confidential 6

Buyout Venture Capital

US and EU Buyout

Funds still have to

invest close to 240 bn

USD1 prior to the

expiration fo the

investment periods in

2011-2013

1) Private Equity hold 40% of capital as reserves for follow-on investments

Source: Thomson One, AVCJ, as of May 18, 2011.


Availability of leverage is improving with spreadsbeing rich

Confidential 7

0

100

200

300

400

500

600

0

200

400

600

800

1000

1200

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 YTD11

Inte

res

t ra

te in

bp

s

in U

SD

bn

Source: Credit Suisse Leveraged Market Update, as of May 12, 2011; YTD11 includes data as of April 30, 2011.

Volume of new leveraged loans in the US Volume of new leveraged loans in Europe

Credit spread of US Bonds with „B“ Rating Credit spread of European Bonds with „B“ Rating

Volume of new Leveraged Loans (in bn USD)

Credit spreads

increased, but

Libor/Euribor

rates still low


Average 3 month US LIBOR Average 3 month EUBOR

Confidential 8

8.3

5.5

8.5

8.0

9.9

8.4

5

6

7

8

9

10

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

<USD 250m USD 250-499m >USD 500m

8.4

7.0

7.7

10.0

8.7

10.1

8.0

5

6

7

8

9

10

11

99 00 01 02 03 04 05 06 07 08 09 10 11

<EUR 250m EUR 250-499m EUR 500-999m EUR +1000m

Average Price/EBITDA-Multiples of US

leveraged Buyouts

Average Price/EBITDA-Multiples of European

leveraged Buyouts

Source: Standard & Poor„s, as of March 31, 2011.

In contrast to the last crisis prices remain high


Due to the crisis many funds will come to market in 2011 and 2012

Fund launches by core private equity fund managers monitored by Capital Dynamics,

indicative

Confidential 9

2334

39

20

3940

4

125

0

10

20

30

40

50

60

70

80

90

2010 2011 2012 and beyond

Nu

mb

er

of

Fu

nd

la

un

ch

es

USA Europe APAC

Source: Illustrative, Capital Dynamics data

Not enough money

available for all to

reach targets

Fund raising

concentration will

accelerate the

separation of the

wheat from the

chaff



Confidential 10Capital Dynamics I Value creation, team stability, investment period – Are the old approaches still adequate or do we have to reassess?


2. Some observations about the impact


Confidential 11

Investment scope should widen geographically….

7

Capital Dynamics I The Future Shape of Private Equity – Some observations about the impact

Expansion is

not without

risk

…and become integrated to maintain returns

Confidential 12

Focus on solid balance between core and additional strategies and on high

professionalism in constructing, managing and monitoring the portfolio

Global core

private equity

exposure

Clean Energy

&

Infrastructure

Secondaries

Private

equity Real

Estate

US Venture

Capital

Co-

investments

…and it is happening:

Carlyle‟s acquisition of

Alpinvest

Partners Group adding

direct strategies

Harbourvest adding debt

strategies

CD expansion into Clean

Energy and infrastructure

……


40 44 40

202

400 440

200

150

0

100

200

300

400

500

600

Entry Exit Entry Exit

2003 deal

Value will have to be generated through operational improvements

Confidential 13

In USD/EUR million

Sales 400 440 400 500

EBITDA Multiple 6.0 8.0 6.5 8.0

EBITDA Margin 10.0% 10.0% 10.0% 13.0%

EBITDA 40 44 40 65

Debt Multiple 5.0 3.4 4.5 1.7

Exit 2007 2016

Gross Multiple 5.1 5.1

Gross IRR 50% 39%

40 65 80

410400

500

180

110

0

100

200

300

400

500

600

Entry Exit Entry Exit

2011 deal

Operational Balance sheet

Equity Debt EBITDA Sales

240

520

Source: Capital Dynamics model calculations in the context of study completed together with Prof. Ann-Kristin Achleitner et. al. from the CEFS, Munich


352

240

Operational Balance sheet

ExitEntry ExitEntry

How do the developments of the last years influence team evaluation approach

Confidential 14

-30

-20

-10

0

10

20

30

40

50

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Research project together with London Business School

operational financial

Netto operational: 170

Netto financial: 293

Delta: 120 more

professionals with

financial background

Source: Ongoing Capital Dynamics Study with Prof. Francesca Cornelli and Eleni Simintzi from London Business School

Over the last two cycles

more professionals with

a finance background

have been hired.


Further diversification of portfolio should be targeted

Expansion into geographic areas and less familiar strategies

How to navigate the changing fund environment, more complex Due Diligence

Danger to embark on investing in strategies and geographies without sufficient knowledge and

team

Confidential 15

What does this mean for private equity investors



Confidential 16


2. Some observation about the impact


Capital Dynamics I The Future Shape of Private Equity – What does it mean for the Fund of funds industry

Ability to offer integrated approach including primary, co-investments and secondaries

Support clients in asset allocation questions

Support geographic expansion of clients portfolio

Fof have to take decision on business model: either small niche provider or global integrated firm

Confidential 17

What does this mean for FoF


Confidential 18

Private equity

Public Equity

MSCI World TR

Despite the changes private equity is a strong performing asset class

Source: Capital Dynamics analysis based on Thomson One data up to June 30, 2010 including European and US funds as well as VC and buyout funds with vintage years 1983 to 2005 (2,576 funds);

PME+ methodology used to benchmark private equity returns

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

IRR


Summary

After the financial crisis the private equity industry is still settling in

In the long run the crisis will separate the wheat from the chaff across the industry

Investors will have to think carefully how to best navigate the increase complexity

Fund of Fund provider will have to diversify offering and increase ability to support

clients in asset allocation and portfolio questions to maintain attractiveness

Private equity continues to be a well performing asset class that is set to outperform

public markets by 400- 600bp.

Confidential 19Capital Dynamics I The Future Shape of Private Equity – What does it mean for the Fund of funds industry

Confidential 20

www.capdyn.com

Dr. Katharina Lichtner, Managing

Director

Capital Dynamics AG

Bahnhofstrasse 22

6301 Zug

Switzerland

Phone: +41 41 748 8402

Mobile: +41 76 314 8402

Email: [email protected]

For further information please contact

London

New York

Zurich

Tokyo

Hong Kong

Silicon Valley

Rio de Janeiro

Munich

Birmingham

Zug

The European Family Office Conference I Private Equity – a Tailor-Made Approach for Family Offices | October 2010

Confidential 21

Capital Dynamics worldwide

London

Capital Dynamics, Ltd.

21 Sackville Street

London W1S 3DN

United Kingdom

Phone: +44 207 297 0200

Fax: +44 207 297 0299

Birmingham

Capital Dynamics, Ltd.

(Main UK office)

9 Colmore Row

Birmingham B3 2BJ

United Kingdom

Phone: +44 121 200 8800

Fax: +44 121 200 8899

New York

Capital Dynamics, Inc. /

Capital Dynamics Broker

Dealer (Main US office)

645 Madison Avenue

19th Floor,

New York, NY 10022 – USA

Phone: +1 212 798 3400

Fax: +1 212 798 3499

Zug

Capital Dynamics AG

Bahnhofstrasse 22

6301 Zug

Switzerland

Phone: +41 41 748 8444

Fax: +41 41 748 8440

Hong Kong

Capital Dynamics, HK Ltd.

16/F Nexxus Building

41 Connaught Road

Central Hong Kong

Phone: +852 3757 9818

Fax: +852 3757 9401

Munich

Capital Dynamics, GmbH

Possartstrasse 13

81679 Munich

Germany

Phone: +49 89 2000 418-0

Fax: +49 89 2000 418-99

Silicon Valley

Capital Dynamics, Inc./

Capital Dynamics Broker Dealer

2440 Sand Hill Road

Suite 150

Menlo Park, CA 94025

USA

Phone: +1 650 388 7000

Fax: +1 650 388 7099

Rio de Janeiro

Capital Dynamics

Investimentos, Ltda

Av. Niemeyer 2, Sala 102

Leblon

Rio de Janeiro 22450-220

Brazil

Phone: +55 21 352 15 010

Zurich

Capital Dynamics AG

Selnaustrasse 32

8001 Zurich

Switzerland

Phone: +41 41 748 8444

Fax: +41 41 748 8440

Tokyo

Capital Dynamics Co., Ltd.

East Tower 4F

Otemachi First Square

1-5-1 Otemachi

Chiyoda-ku

Tokyo, Japan 100-0004

Phone: +81 3 5219 1357

Fax: +81 3 5219 1358

Capital Dynamics I Value creation, team stability, investment period – Are the old approaches still adequate or do we have to reassess?

Confidential 22

Disclaimer (1/3)

This presentation contains information that has been provided by a number of sources not affiliated with Capital Dynamics. “Capital Dynamics” comprises Capital

Dynamics Holding AG and its affiliates. Capital Dynamics has not verified the information provided. Nothing contained herein shall constitute any representation or

warranty and no responsibility or liability is accepted by Capital Dynamics as to the accuracy or completeness of any information supplied herein.

This presentation does not constitute an offer to sell or a solicitation of an offer to purchase any securities of any kind in Capital Dynamics, including any of its funds

of funds. Any such offer or solicitation shall be made pursuant to a private placement memorandum furnished by Capital Dynamics. Before relying on this

information in any way, Capital Dynamics advises the recipient of this information (the “Recipient”) to perform independent verification of the data and conduct his

or her own analysis hereto with appropriate advisors. Statements contained in this presentation may include statements of future expectations and other forward-

looking statements. Any projections or other estimates in these materials are based upon certain assumptions. Actual events may differ materially from those

assumed, which may have a material impact on any projections or estimates provided herein. In addition, certain assumptions may have been made to simplify the

presentation and/ or calculation of projections or estimates. Capital Dynamics does not purport that any such assumptions will reflect actual future events, and

reserves the right to change its assumptions without notice to the Recipient.

The information contained herein may contain general, summary discussions of certain tax, regulatory, accounting and/ or legal issues. Any such discussions and

issues may be generic and may not be applicable to or complete for the Recipient. Capital Dynamics does not offer tax, regulatory, accounting or legal advice and

this presentation should not and cannot be relied upon as such. Prior to entering into any proposed transaction or agreeing to proposals made herein, the Recipient

should determine, in consultation with the Recipient‟s own legal, tax, regulatory and accounting advisors, the economic risks and merits of any action, as well as the

legal, tax, regulatory and accounting consequences of such action. When considering alternative investments, such as private equity funds, the Recipient should

consider various risks including the fact that some funds may use leverage and engage in a substantial degree of speculation that may increase the risk of

investment loss, can be illiquid, are not required by law to provide periodic pricing or valuation information to investors, may involve complex tax structures and

delays in distributing important tax information, are not subject to the same regulatory requirements as mutual funds, often charge high fees, and in many cases the

underlying investments are not transparent and are known only to the investment manager.

With respect to alternative investments, such as private equity funds, in general, the Recipient should be aware that:

(1) Returns can be volatile

(2) The Recipient may lose all or portion of your investment

(3) The manager has total portfolio authority, and the use of a single manager could mean a lack of diversification and higher risk

(4) Many funds are subject to substantial expenses that must be offset by portfolio profits. A portion of the profit is paid to the investment manager in the forms of

carried interest and management fees

(5) There is often a lack of transparency as to the fund's underlying investments


Disclaimer (2/3)

Confidential 23

(6) With respect to funds of funds, the fund of fund's manager has complete discretion to invest in various sub-funds without prior disclosure. There is no way to

ascertain with certainty the specific investments made by the sub-fund or to know whether the sub-fund investments are consistent with the fund of fund‟s

historic investment philosophy or risk levels

(7) A fund of fund invests in other funds and fees are charged at both the fund of fund and sub-fund level. Thus the overall fees paid by an investor will be higher

than such investor would pay by investing directly in the sub-fund. In addition, each sub-fund charges or may charge an incentive fee, or carry, on new profits

regardless of whether the overall operations of the sub-fund are profitable

(8) There may be no secondary market for fund interests. Transfers of interests are subject to limitations. The fund's manager may deny a request to transfer if it

determines that the transfer may result in adverse legal or tax consequences for the fund

(9) The fund's offering memorandum and the investment manager‟s disclosure document describes the various risks and conflicts of interest relating to an

investment and to its operations. The Recipient should read those documents carefully to determine whether an investment is suitable in light of, among other

things, the Recipients financial situation, need for liquidity, tax situation, and other investments

(10) The Recipient should only commit risk capital to any investment product. Alternative investment products, including private equity funds, are not for everyone

and entail risks that are different from more traditional investments.

Should this presentation contain performance information, then please note: Except where otherwise specified,

(i) all gross and net IRRs are “pooled IRRs”, i.e. calculated on the basis of aggregated cash flows of all products of each generation of products, and

(ii) all cashflows since inception (July 1991) have been taken into account up to, unless otherwise stated, the track record date. Cashflows between Capital

Dynamics‟ funds of funds are excluded. The latest value that an underlying manager reports for its fund is counted as a positive cash flow. The calculations depend

on valuations, therefore, in particular in respect of unrealized value, that have often been determined by third parties, which third parties are typically the underlying

funds‟ general partners. Actual realized returns on any unrealized investments will depend on the value of investments at the time of disposition, any related

transaction costs and the manner of sale.

“Gross” means gross of Capital Dynamics fees but net of underlying funds‟ fees.

“Net” means net of Capital Dynamics fees and of underlying funds‟ fees. “Multiple” stands for the TVPI (Total Value to Paid-In) multiple (i.e. the ratio of the sum of

distributions plus current NAV to the sum of draw downs).

Where investments have been made in a currency other than the reference currency of the track record:

(i) actual cash flows have been converted into the reference currency at the exchange rate for the relevant payment or receipt; and

(ii) unrealized investments have been converted into the reference currency at the prevailing exchange rate as at the track record date.

Past performance is not an indication of future results. The information compiled by Capital Dynamics has not been audited.


Confidential 24

Disclaimer (3/3)

Material notes to investors:

Based in United States of America: Capital Dynamics, Inc. is registered as an Investment Adviser with the Securities and Exchange Commission (SEC).

Securities are offered through Capital Dynamics Broker Dealer LLC, a registered broker-dealer with the SEC, and a member of the Financial Industry Regulatory

Authority (FINRA) and Securities Investor Protection Corporation (SIPC). Any Recipient not interested in the analysis described herein should return this

presentation to Capital Dynamics, Inc. or Capital Dynamics Broker Dealer LLC, 645 Madison Avenue 19th floor, New York, NY 10022 USA and contact Capital

Dynamics as soon as possible (t. +1 212 798 3400).

Based in Switzerland: Material is presented to investors by Capital Dynamics AG. It does not constitute a public offering or marketing within the meaning of the

Swiss Act on Collective Investment Schemes. It is addressed to a limited group of qualified investors. Any Recipient not interested in the analysis described herein

should return this presentation to Capital Dynamics AG, Bahnhofstrasse 22, 6301 Zug, Switzerland and contact Capital Dynamics AG as soon as possible (t. +41

41 748 84 44).

Based in Germany: This presentation is issued and distributed by Capital Dynamics GmbH. This presentation has not been filed with or approved by the Federal

Financial Supervisory Authority (BaFin). It does not constitute a public offer of sales prospectus within the meaning of article 8f Law on the Prospectus for Securities

offered for Sale (VerkProspG). It is addressed to a limited group of professional investors. Any recipient not addressed by Capital Dynamics GmbH should return

this presentation to Capital Dynamics GmbH, Possartstrasse 13, 81679 Munich, and contact Capital Dynamics GmbH as soon as possible (t. +49 89 2000 4180)

Based in the United Kingdom and select countries in the European Union: Material is presented to investors by Capital Dynamics Ltd. Capital Dynamics Ltd

is authorized and regulated by the Financial Services Authority (FSA). Any Recipient not interested in the analysis described herein should return this presentation

to Capital Dynamics Ltd, 9 Colmore Row, Birmingham, B3 2BJ, United Kingdom and contact Capital Dynamics as soon as possible (t. +44 121 200 8800).

Based in Japan: Material is presented to investors by the issuer.

Based in Australia: This offer is only open to wholesale clients (as that term is defined in the Corporations Act 2001 (Cth)). Prospective investors should not treat

the contents of this document as investment advice or advice relating to legal, taxation or any other matters. The offer is issued by Capital Dynamics Investments

(Australia) Limited ARBN# 145 827 738, a foreign company registered in its original jurisdiction of the United Kingdom as Capital Dynamics Limited. The Issuer is

operating in Australia under relief issued by the Australian Securities and Investments Commission from the requirement to hold an Australian financial services

(AFS) license and therefore the Issuer does not hold an AFS license.

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This presentation is for informational purposes only, is confidential and may not be reproduced in whole or in part (whether in electronic or hard-copy form).


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The Future Shape of Private Equity Do we have to reassess? · 2017. 3. 2. · Dr. Katharina Lichtner, Managing Director Capital Dynamics AG Bahnhofstrasse 22 6301 Zug Switzerland