Slides 13th Private Equity Forum Luxembourg 5 June 2014

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Slides PwC's 13th Private Equity Forum Luxembourg 5 June 2014

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<ul><li>1.Private Equity Forum www.pwc.lu 5 June 2014 </li></ul><p>2. PwC Welcome Vincent Lebrun, PwC Luxembourg 2 5 June 2014Private Equity Forum 3. PwC Agenda 9:10 9:50 Market Update 9:50 10:30 BEPS 2014 update for the Private Equity industry 10:30 11:00 Coffee break 11:00 12:00 Impacts of AIFMD on the Private Equity industry Experiences and trends as from 12:00 Walking lunch 3 5 June 2014Private Equity Forum 4. PwC Market Update Johan Blaise, PwC Luxembourg David Garcelan, PwC Luxembourg 4 5 June 2014Private Equity Forum 5. PwC Agenda 1. Market trends - Global trends - Luxembourg trends 2. Fundraising - Global fundraising - Fundraising in Luxembourg 3. Investments &amp; Exits 4. SICAR vehicle Strategy &amp; Operating costs 5. Looking forward 5 5 June 2014Private Equity Forum 6. PwC Market trends 6 5 June 2014Private Equity Forum 7. PwC Global trends 7 5 June 2014Private Equity Forum 8. PwC Global trends at a glance Section 1.1 Global trends 1. Better macro conditions (but abnormal conditions in financial markets) 3. Investor confidence. In 2013, global fund raising up by 21% 2. Asset class keeps on performing. 14.4% average IRR by Jun13 4. Bigger funds but less amount of funds 6. Strong M&amp;A activity. $599.1bn global deals value in Q1 2014 7. High prices. Average EBITDA multiple in 2013 for global M&amp;A deals: 12.6x 8. Exit mood.$111.9bn PE exits value on Q1 2014. This is the highest value in the historic series since Q1 2001 9. Regulatory landslide &amp; shifting tax landscape 5. Management fees &amp; carry under increasing pressure from LPs Source: Mergermarket M&amp;A trend report Q1 2014 Source: Mergermarket M&amp;A trend report 2013 Source: Bain &amp; Company Global PE report 2014 Source: Bain &amp; Company Global PE report 2014 Source: Mergermarket M&amp;A trend report Q1 2014 8 5 June 2014Private Equity Forum 9. PwC Inflationary forces Section 1.1 Global trends Economic stability Cheap credit Dry powder &amp; liquidity in corporates Strong public markets High prices 9 5 June 2014Private Equity Forum 10. PwC Luxembourg trends 10 5 June 2014Private Equity Forum 11. PwC SIF and Part II funds Section 1.2 Luxembourg trends 2013 vs 2012 Assets : + 35% # sub-funds: + 39 % As at end 2013, 91% of PE/VC sub- funds are structured via a SIF, owing 96% of assets 2 1 1 0.7 0.5 0.8 1.1 2 3 8 10 12 17.6 23.8 27 24 18 18 13 16 31 20 57 104 136 166 237 321 0 50 100 150 200 250 300 350 0 5 10 15 20 25 30 2007 2008 2009 2010 2011 2012 2013 NumberofPEsubfunds EURbillion Assets SIF Assets Part II # Part II # SIF 11 5 June 2014Private Equity Forum 12. PwC The SICAR A successful vehicle for private equity structuring Section 1.2 Luxembourg trends 2013 vs 2012 Assets : - 4% # SICAR: + 5.5 % 12 17 20 16 21 30 26.6 25.4 91 151 182 200 235 267 273 288 0 50 100 150 200 250 300 350 0 5 10 15 20 25 30 35 2006 2007 2008 2009 2010 2011 2012 2013 NumberofSICARs EURbillion Total NAV EUR # SICAR 2013 vs 2012 # subfund 2012 : 337 # subfund 2013 : 363 +8% 12 5 June 2014Private Equity Forum 13. PwC Private Equity Funds: Luxembourg market overview Section 1.2 Luxembourg trends 2 1 1 0.7 0.5 0.8 1.1 2 3 8 10 12 17.6 23.817 20 16 21 30 26.6 25.4 0 10 20 30 40 50 60 2007 2008 2009 2010 2011 2012 2013 EURbillion AuM PE funds/SICAR SICAR SIF Part II 27 24 18 18 13 16 31 20 57 104 136 166 237 321 182 221 240 266 301 337 363 0 100 200 300 400 500 600 700 800 2007 2008 2009 2010 2011 2012 2013 NumberofPEsubfunds # PE subfunds SICAR SIF Part II 13 5 June 2014Private Equity Forum 14. PwC Geographic origin of sponsors is dominated by 4 jurisdictions Section 1.2 Luxembourg trends 0 10 20 30 40 50 60 70 # PE funds Origin of promotors And... Other EU countries Egypt Russia Source: CSSF and PwC analysis 14 5 June 2014Private Equity Forum 15. PwC Largest Luxembourg Private equity funds Promoters Section 1.2 Luxembourg trends With more than 200 promoters of Luxembourg domiciled private equity funds, the market is very diversified. Promoter SIF/Part II # SICAR # AUM (EUR mio) Partners Group 2 25 5,3 Universal Investment 8 4,3 Carlyle Group 7 3,5 ARDIAN (prev AXA PE) 4 5 2,8 Oranje-Nassau Energie 1 1,8 LGT Capital Management 10 1,6 Natixis 2 1 1,6 Pictet Funds 18 1,5 Nordic Capital 1 1,4 Oppenheim 10 1,2 At least 22 promotors in scope of AIFMD 158 AIF at least in scope 15 5 June 2014Private Equity Forum 16. PwC The Luxembourg Limited Partnership vehicles Section 1.2 Luxembourg trends End of May 2014: # SCSp : 176 # SCS (created over the same period): 100 1 1 16 17 21 69 88 105 123 148 176 3 11 13 21 28 46 53 64 75 91 100 0 20 40 60 80 100 120 140 160 180 200 #companiescreated SCPp SCS 16 5 June 2014Private Equity Forum 17. PwC Fundraising 17 5 June 2014Private Equity Forum 18. PwC Global fundraising 18 5 June 2014Private Equity Forum 19. PwC 2013: the best year since 2009 Section 2.1 Global fundraising 902 PE funds raised $ 461bn worldwide, 21% increase by contrast to 2012 Less funds, but bigger funds 104 217 361 547 668 688 320 296 330 382 461 0 200 400 600 800 Global fund raising ($bn) Source: Bain &amp; Company Global PE Report 2014 19 5 June 2014Private Equity Forum 20. PwC The trend continues in Q1 2014 Section 2.1 Global fundraising 13.95% capital raised 18.50% No. funds closed compared to Q1 2013 20 5 June 2014Private Equity Forum 21. PwC Assets under management Section 2.1 Global fundraising AuM have increased in 2013 to a staggering $3,466 bn The dry powder has increased to $ 1,046bn in 2013 (11.16% up from 2012) However, the ageing of capital has improved in 2013: capital deployed &amp; extension of investment periods 21 5 June 2014Private Equity Forum 22. PwC The asset class keeps on outperforming: 14.4% IRR as at June 2013 for long-term buyout fund returns Section 2.1 Global fundraising Source: Bain &amp; Company Global PE Report 2014 (data provided by Cambridge Associates) 22 5 June 2014Private Equity Forum 23. PwC Fundraising in Luxembourg 23 5 June 2014Private Equity Forum 24. PwC Top 10 Worlwilde Private Equity house (fundraising) Presence of the major players in Luxembourg Section 2.2 Fundraising in Luxembourg Largest Private Equity Fund managers worldwide ranking by level of past 5 years fundraising # Company Headquarter location PE structure domiciled in Luxembourg? 1 TPG Capital USA YES 2 The Carlyle Group USA YES 3 Blackstone Capital Partners USA YES 4 KKR USA YES 5 Warburg Pincus USA YES 6 Goldman Sachs &amp; Co USA YES 7 Advent International USA YES 8 Apollo Global Management USA YES 9 Bain Capital USA YES 10 CVC Capital Partners UK YES Top 10 Private Equity fund raiser worldwide have structures domiciled in Luxembourg Source : PEI 300 and Pwc Analysis 24 5 June 2014Private Equity Forum 25. PwC Top 5 European Private Equity firms (fundraising) Presence of the major players in Luxembourg Section 2.2 Fundraising in Luxembourg Largest Private Equity Fund managers european ranking by level of past 5 years fundraising # Company Headquarter location PE structure domiciled in Luxembourg? 1 CVC Capital Partners UK YES 2 BC Partners UK YES 3 Bridgepoint UK YES 4 PAI Partners FR YES 5 Ardian (prev. Axa Private Equity) FR YES All major European player have a presence in Luxembourg Source : PEI 300 and Pwc Analysis 25 5 June 2014Private Equity Forum 26. PwC Top 15 Fund of Private Equity funds firms Section 2.2 Fundraising in Luxembourg Largest Fund of Private Equity Fund managers worldwide # Company Headquarter location PE funds domiciled in Luxembourg? 1 Alpinvest Partners Netherlands No 2 Goldman Sachs Asset Management US No 3 Harbourvest Partners US No 4 Credit Suisse AM US Yes 5 Partners Group Switzerland Yes 6 Hamilton Lane Advisors US Yes 7 JP Morgan PE Group US Yes 8 Pantheon UK Yes 9 Ardian (prev.AXA Private Equity) France Yes 10 LGT Capital Partners Switzerland Yes 11 Adam Street Partners US Yes 12 Capital Dynamics Switzerland Yes 13 Blackrock US Yes 14 Neuberger Berman US No 15 Lexington Partners US No 10 of the top 15 Fund of Private Equity fund managers worldwide have funds domiciled in Luxembourg 26 5 June 2014Private Equity Forum 27. PwC Luxembourg private equity funds size (commitment) Section 2.2 Fundraising in Luxembourg 0 5 10 15 20 25 30 35 NumberofSICARs Size above EUR 250 mios Size below EUR 100 mios #SICAR Total SIZE (EUR) bn Above EUR 250 mios 40 25 Between EUR 100 mios &amp; EUR 250 mios 45 7 Below EUR 100 mios 188 6 Total 273 38 Total unfunded EUR 9.6 bios 27 5 June 2014Private Equity Forum 28. PwC Investments &amp; Exits 28 5 June 2014Private Equity Forum 29. PwC Investments Section 3 Investments &amp; Exits According to Preqin, 688 private equity- backed buyout deals with an aggregate value of $80bn announced in Q1 2014 29 5 June 2014Private Equity Forum 30. PwC Exits Section 3 Investments &amp; Exits Exits for $87bn in Q1 2014 30 5 June 2014Private Equity Forum 31. PwC SICAR vehicle Strategy &amp; Operating costs 31 5 June 2014Private Equity Forum 32. PwC SICAR investment strategies Section 4 SICAR vehicle Strategy &amp; Operating costs Buy Out 50.8% RE 20.4% VC 16.9% Mezzanine 4.6% Sustainable 4.6% Microfinance 1.5% Not specified 1.2% Recent asset class Debt funds /Distressed debt Agriculture/farming Art Source: PwC analysis 32 5 June 2014Private Equity Forum 33. PwC SICAR investment structure Section 4 SICAR vehicle Strategy &amp; Operating costs Source: PwC analysis Investment Structure AUM Unfunded Avg # invest. Direct investments EUR 18 bios EUR 3.5 bios 9 FoF EUR 9 bios EUR 5.6 bios 11 64% 36% Direct investments FoF 33 5 June 2014Private Equity Forum 34. PwC SICARs legal forms Section 4 SICAR vehicle Strategy &amp; Operating costs SA 21% Sarl 11% SCA 63% SCS 5% SA Sarl SCA SCS Large majority of SICARs adopted the SCA form. SCSp ? 34 5 June 2014Private Equity Forum 35. PwC Management fees and operating charges Section 4 SICAR vehicle Strategy &amp; Operating costs Low High Average 0.5% 3.5% 1.70% Low High Average 0.10% 5.5% 1.13% Management fee rate (on commitments) Total operating expenses on total assets (Administration, Custodian, Legal, Professional fees) 35 5 June 2014Private Equity Forum 36. PwC The custody market is fragmented with more than 40 banks providing services Section 4 SICAR vehicle Strategy &amp; Operating costs A large number of players provide custody services to SICARs and PE Funds (SIF or Part II Funds) but however not all are actively marketing such services. Some banks have invested in dedicated IT system as well as dedicated teams (separate PE/RE department) Impact of new PSF status to act as depositary for PE assets? Fees (based on total assets) Low High Average 0.01% 0.96% 0.14% 36 5 June 2014Private Equity Forum 37. PwC Central administration services Section 4 SICAR vehicle Strategy &amp; Operating costs Functions done by local office usually include supervision of service providers, reporting to investors, Fees (based on total assets) Low High Average 0.03% 1.40% 0.34% 37 5 June 2014Private Equity Forum 38. PwC Looking forward 38 5 June 2014Private Equity Forum 39. PwC What are the forces that will shape PE over the next few months? Section 5 Looking forward Liquidity in market (incl. an historic level of dry powder) will likely keep driving prices up Fierce competition for deals Less conventional deals (e.g. minority stakes, partnerships, investments in small companies, amalgamations, etc.) Exit mood FED tapering program Increase in interest rates? Possibility of debt crisis? Bubble in public markets? AIFMD, FATCA, BEPS, proposal to amend the parent/subsidiary directive, etc. 1. High prices 2. Macro trends ! 3.Regulation &amp; tax Source: PwC Germany PE trend report 2014 39 5 June 2014Private Equity Forum 40. Thank you 41. PwC BEPS 2014 update for the Private Equity industry Caroline Goemaere, PwC Luxembourg Vincent Lebrun, PwC Luxembourg David Roach, PwC Luxembourg 41 5 June 2014Private Equity Forum 42. PwC BEPS for Private Equity BEPS in the public eye Continuing media focus on tax planning by major corporates (Apple, Google, etc.), plus lots of political momentum, means BEPS must be seen as climate change, rather than a short-term phenomenon The BEPS initiative is increasingly causing some countries to take assertive unilateral action, introducing new laws to deal with issues (e.g. to deny deductions if the income is not taxed elsewhere) Many tax authorities, now emboldened by BEPS, are looking to increase challenges of taxpayers strategies Shareholders, group management and boards will increasingly ask those who manage a groups tax about its current position and the potential impact of BEPS 42 5 June 2014Private Equity Forum 43. PwC BEPS for Private Equity Which bits might bite (worst)? Funds Fund managers 4 Limit base erosion via interest deductions Leverage of deal structures 5 Counter harmful tax practices Rulings Rulings? 6 Prevent treaty abuses WHT mitigation WHT mitigation 7 Prevent artificial avoidance of PEs Mobile senior employees 8-10 Transfer pricing to be in line with value creation Brand value, sub- advisory fees 13 TP documentation country by country reporting (CbCR) Visibility of structures, much more documentation Disclosure of global value chain 43 5 June 2014Private Equity Forum 44. PwC EU Commission the early adopter Proposal for an EU Parent/Subsidiary Directive general anti- avoidance rule - GAAR EU Commission put out proposals on 25 November 2013 to amend the P/S Directive, by adding a GAAR that would withdraw Directive benefits if there are artificial arrangements do not reflect economic reality Aims to overwrite the CJEUs Cadbury Schweppes doctrine. Any EU intermediate holding structure would be at risk, unless it could be asserted with confidence that structure was not in place for the essential purpose of obtaining an improper tax advantage?? The GAAR would have a blunderbuss effect, until new CJEU cases clarified This all might mean that only Luxembourg regional HQ structures, with high-level management from Luxembourg of the businesses of companies owned by a Lux Holdco, would be GAAR-safe? The GAAR requires unanimity of EU MSs before it can be adopted into the Directive while this is very unlikely in the short term (6 May decision to defer until Italy EU Presidency), the EU Commission is unlikely to give up, notably given similarity of March 2014 OECD BEPS treaty abuse proposals 44 5 June 2014Private Equity Forum 45. PwC BEPS where are we now? OECD 2014 publication of Discussion Draft reports 30 January Action 13 Transfer Pricing Documentation and Country-by-Country Reporting (CbCR) (20 pages) 14 March Action 6 Preventing the Granting of Treaty Benefits in Inappropriate Circumstances (Treaty Abuse) (31 pages) 19 March Action 2 Neutralise the Effects of Hybrid Mismatch Arrangements (Treaty issues 14 pages; Domestic law issues - 79 pages) 24 March Action 1 Address the Tax Challenges of the Digital Economy (81 pages) 45 5 June 2014Private Equity Forum 46. PwC BEPS where are we now? The Action Plan due by 30 September 2014 The Action Plan due by 30 September 2015 A...</p>

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