Tom Danis, Managing Principal and Co-Tom Danis, Managing Principal and Co-

founderfounder

RCP Advisors: Private Equity Fund-of-RCP Advisors: Private Equity Fund-of-

Funds ManagerFunds Manager

RCP Advisors, LLC

December 9, 2008

Focused Private Equity Investments 2

Introduction – Discussion on Current PE Introduction – Discussion on Current PE Market ConditionsMarket Conditions

● “The Denominator Effect”

o Public Markets Down

o Private Equity Flat?

● Sovereign Wealth Funds

o Large Pools of Capital

o Smart Pools of Capital?

● Private Equity Fundraising Landscape

o Global PE Investing – Less Attractive

o Niche PE Strategies – More Attractive

o Extended Fundraising Periods Expected

● Recession = Opportunity for Attractive PE Vintage Year Returns

Focused Private Equity Investments 3

““The Denominator Effect”The Denominator Effect”

● PE allocations increased in 2008

- 57% of LPs plan to increase PE allocations while only

2% plan to decrease PE allocations

● However, LPs have now reached / exceeded PE

targets due to significant declines in non-PE

portfolios

● LPs above desired allocation must decide to:

o Increase target PE allocation

o Reduce new PE investments, including both the

number of new relationships and re-up investments

o Actively manage existing portfolio through

secondary sales

Source – Private Equity Spotlight, October 2008; Private Equity Analyst, October 2008; Buyouts Magazine, October 2008

LPs Increasing PE Allocations

Investor Old Target New Target

American Beacon Advisors 10% 15%

British Broadcasting Corp. 6% 10%

Los Angeles City Employees’ Retirement System 7% 8%

New York State Teachers’ Retirement System 5% 7%

Ohio Police & Fire Pension Fund 3% 7%

San Francisco Employees’ Retirement System 12% 14%

LPs Currently Exceeding PE Allocations

Investor Target Actual

Alaska Retirement Management Board 7.0% 8.5%

California Public Employees’ Retirement System 10.0% 10.9%

California State Teachers’ Retirement System 9.0% 10.4%

Colorado Public Employees’ Retirement System 7.0% 7.7%

Los Angeles County Employees’ Retirement System 7.0% 8.4%

Pennsylvania State Employees’ Retirement System 14.0% 17.1%

State of Michigan Retirement Systems 16% 16.8%

Focused Private Equity Investments 4

Cash Flows Back to Investors Have Cash Flows Back to Investors Have SlowedSlowed

● Record fundraising and investment levels in 2005 – 2007 generated rising capital call volume until the recent

slowdown in 2008

● The current difficult exit environment has led to many LPs facing negative cash flows

● The lack of distributions further limits LPs’ ability to make new commitments

● Certain LPs have sought liquidity by selling existing fund interests in the secondary market- Secondary volume increased from $11.2 billion in 2006 and $12.2 billion in 2007 to $20.7 billion estimated for 2008

Source – VentureXpert 2008; Credit Suisse Strategic Partners

$42.5

$49.0$52.9

$59.6

$14.1$10.6

$58.0$63.5

$53.8

$59.9

$7.7 $5.9

$15.5 $14.5

$0.8 $0.3

-$6.4 -$4.7-$10B

$0B

$10B

$20B

$30B

$40B

$50B

$60B

$70B

2004 2005 2006 2007 Q1 2008 Q2 2008

Drawdowns Distributions Cash Flow to LPs

Focused Private Equity Investments 5

Sovereign Wealth Funds – A Growing Sovereign Wealth Funds – A Growing Source of CapitalSource of Capital

● Sovereign Wealth Funds (“SWFs”) have

continued to expand in size and importance

o ~30 SWFs globally that manage $3.2 trillion, and

expected to grow 15-20% per year for the

next 5 years

o Merrill Lynch estimates SWFs will invest

$3.1 - $6 trillion into world stock markets in the

next 5 years

● SWFs have invested ~7% of AUM in PE

o SWFs have been more active in direct investments

than in partnerships, especially in distressed

financial services

o Many SWF investments in private equity have

included a GP-ownership stake

Source – Grant Thornton – Top Trends in Middle Market Private Equity; International Financial Services London

“Super Seven” Sovereign Wealth Funds

SWF Estimated Size

The Abu Dhabi Investment Authority $500-$900 Billion

The Government Pension Fund of Norway $350 Billion

Government of Singapore Investment Corp. $330 Billion

Kuwait Investment Authority $250 Billion

China Investment Corp. $200 Billion

Temasek Holdings $159 Billion

Stabilization Fund of the Russian Federation $158 Billion

Recent Activity of Sovereign Wealth Funds in the US

Investor Amount Firm

Mubadala Development Corp. $1.4B / 7.5% Carlyle

Beijing’s State Foreign Exchange Investment Co. $3B Blackstone

Abu Dhabi Investment Authority $7.5B Citigroup

Temasek Holdings $9.7B UBS

Abu Dhabi Investment Authority 10% Apollo

Temasek Holdings $4.4B Merrill Lynch

China Investment Corp. $5B / 10% Morgan Stanley

China’s State Administration of Foreign Exchange $2.5B TPG

Focused Private Equity Investments 6

Private Equity Fundraising – LP AnalysisPrivate Equity Fundraising – LP Analysis

● Global fundraising remains strong through Q3 ’08

o However, 2nd and 3rd quarters have slowed down

o In addition, LPs have put decisions on hold suggesting a

further slowdown in the 4th quarter

o Historically, recession years have provided the

attractive vintage year performance

(see slide #8)

● Overall fundraising is expected to fall less markedly

o Demand for mega buyout / generalist funds is expected

to slow down

o Infrastructure, Distressed and Secondaries are

experiencing strong LP demand

Source – VentureXpert 2008

Global PE Fundraising by Year

$100.9B

$146.3B

$290.7B

$389.4B

$475.1B

$388.0B

$0B

$100B

$200B

$300B

$400B

$500B

2003 2004 2005 2006 2007 Q3 2008

Global PE Fundraising by Quarter

$151.0B$163.2B

$134.3B

$90.7B

$0B

$50B

$100B

$150B

$200B

4Q 2007 1Q 2008 2Q 2008 3Q 2008

Focused Private Equity Investments 7

Private Equity Fundraising – GP AnalysisPrivate Equity Fundraising – GP Analysis

● A record number of funds are seeking capital

o >1,600 funds in the market seeking to raise $942 billion

o $865 billion raised in 2006 & 2007 combined

o Average number of months fundraising has increased:

• 9.5 months in 2004

• 14.2 months in 2008

● In response to difficult marketing conditions, many

GPs have lowered fund size targets or suspended

fundraising efforts

● Certain “First Time” funds are seeking alternative

methods of raising capital

Firms are “showing greater patience than they originally

anticipated, settling for smaller fund sizes, finding a white

knight to make early acquisitions possible and fundraising in

intervals between dealmaking.” (1)

Source – Private Equity Intelligence; S&P European PE Quarterly, October 2008; (1) Buyouts Magazine “Debut Fundraisers Try Range of Strategies.” September 8, 2008

Average Number of Months Fundraising for PE Funds

9.5

10.611.1

12.0

14.2

5

7

9

11

13

15

2004 2005 2006 2007 2008 YTD

Funds in the Market# of Funds US Europe RoW Total

Buyouts 161 69 55 285

Venture 229 98 132 459

Mezzanine 24 12 2 38

Fund-of Funds 107 81 16 204

Real Estate 243 123 65 431

Other 85 53 51 189

Total Number 849 436 321 1,606

Average Size ($million) 655 576 421 586

Total Value ($ billion) 556 251 135 942

Focused Private Equity Investments 8

Private Equity Strategies and Private Equity Strategies and Investment MomentumInvestment Momentum

Source – Private Equity Intelligence; (1) Private Equity Insider “New Landscape Creates Secondary Field Day” September 24, 2008

Strategy LP Demand Comment

Distressed Debt /

Turnaround

■With defaults expected to rise significantly, LPs are actively searching for GPs to address this attractive

investment opportunity

■$45.2 billion raised in 2007 – a 161% increase over 2006, $47 billion expected to be raised in 2008

Infrastructure

■Currently 70 firms seeking to raise $88 billion - $91 billion raised in aggregate between 2003 -2008

■Attracted to long-lived assets with recurring cash flows and current income; a recent survey revealed that 47% of

investors in unlisted infrastructure funds now have a completely separate allocation to the asset class

Mezzanine

■Volatile financing markets and less competition from CDOs / CLOs and hedge funds have resulted in abundant

deal flow at more favorable terms

■$23 billion raised so far in 2008 - $16 billion raised in 2007

Secondaries

■Institutions needing liquidity are expected to provide ample investment opportunities for secondary buyers,

particularly at year-end; “Actual audited December statements…will trigger a lot of sales.” (1)

■$30 billion of aggregate target fund sizes currently in the market - $14 billion raised in 2207

Emerging

Markets

■Asia and Rest-of-World-focused funds raised more money in the 3rd quarter than Europe-focused funds for the

first time in history

■Yet, significant recent declines in public markets of developing countries may cause risk aversion among LPs

Generalist

Buyouts

■While fundraising for buyouts remains robust, “Mega” buyouts have commanded the majority of capital,

creating greater competition for less established managers

■Successful GPs generally achieve outsized returns from operational improvements and proprietary deal flow

Venture

■Fundraising has not recovered from historic highs in 1999 / 2000 (both in absolute dollars and as a percentage of

total capital raised

■While brand name firms continue to raise oversubscribed funds, lesser known VC firms have struggled

Focused Private Equity Investments 9

Buyout Fund Returns Across Economic Buyout Fund Returns Across Economic CyclesCycles

18% 18%

15%

30%

19%

42%

28%

34%

22%

30%

13%12%

15%

20%

23%

41%

33%32%

22%

18%

12%

0%

10%

20%

30%

40%

50%

Top Quartile Buyout Funds by Vintage Year

Recession Recession

Source – Cambridge Associates US PE Benchmarks, upper quartile net IRR calculated by vintage year as of June 30, 2008

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