Private Equity Performance Update Returns as reported through December 2010.

Private Equity Performance Update

Returns as reported through December 2010

Summary of Findings (Annualized Return as reported for September 30, 2010)

Index 1 Year 3 Year 5 Year 10 YearCambridge Associates U.S. Private Equity Index (excludes venture capital) 17.7% 1.3% 9.1% 8.1%

Thomson Reuters’ Private Equity Performance Index (all private equity) 15.3% 0.1% 4.8% 2.5%

Thomson Reuters’ Private Equity Performance Index (only buyouts) 17.9% -0.5% 4.4% 4.1%

State Street Private Equity Index (all private equity) 19.5% 1.6% 9.8% 8.1%

Benchmarks 1 Year 3 Year 5 Year 10 Year

S&P 500 (excluding dividends) 8.2% -9.3% -1.5% -2.3%

S&P 500 (including dividends) 10.3% -7.3% 0.6% -0.6%

Russell 3000 (excluding dividends) 11.9% -9.0% -1.1% -1.6%

Russell 3000 (including dividends) 14.0% -7.0% 0.9% 0.1%

1 Year 3 Year 5 Year 10 Year

Average Private Equity Index Performance (buyouts only)2 17.8% 0.4% 6.7% 6.1%

Average Private Equity Index Outperformance (buyouts only) 6.7% 8.6% 7.0% 7.2%

1 Lagged one quarter.2 Performance of Cambridge Associates U.S. Private Equity Index, which covers growth capital, energy and mezzanine partnerships in addition to leveraged buyouts, is included in calculations.

2 Private Equity Performance Update 2010 Q4 Return to Contents

Background

• There is a “lag” in performance reporting, as general partners (GPs) generally have 120 days to estimate the fair value of remaining portfolios. As a result, December-reported data measures private equity performance through June 30, 2010.

• Upon receipt of fair values (and subsequent confirmation of their validity), limited partners (LPs) report alternative portfolio returns (net of fees) to stakeholders and data aggregators like Cambridge Associates and Thomson Reuters that use these data to construct benchmark indexes.

• Certain LPs, like the California Public Employees’ Retirement System (CalPERS) provide fund-level details and a weighted-average age of the invested portfolio to the public every quarter. Several others provide allocations and pooled end-to-end returns on a quarterly basis.

• All stated returns are net of all expenses and fees, unless otherwise stated.


Skandia Large Cap Buyout Report (February 2011)

• In February, Skandia, the Swedish Life Insurance Company, issued a report chronicling the performance of 111 separate buyouts with enterprise value of above $2 billion that closed during 2005-2007. In aggregate, these deals represent more than $700 billion of transaction value.

• Assuming uniform investment amounts, investing in this sample would have produced a gross multiple of 1.5x and an IRR of 11.5% as of September 30, 2010. This compares to an IRR of -2.9% from matching investments and exits in the relevant public stock index implying an annual average outperformance of more than 14%. (On an equity-weighted basis the outperformance falls to 6% per year).

• Of the 111 deals, only 4% have defaulted, which translates to an annualized default rate of 1%. An additional 14 have been fully exited with 17 more partially exited through public offerings.

• Basic linear regression analysis suggests that there is no discernable relationship between leverage or price paid and subsequent performance. 4 Private Equity Performance Update 2010 Q4 Return to Conten

ts

Source: Skandia Life

Skandia Large Cap Buyout Report (February 2011)


All deals Pre-Lehman Excluded

-6.00%

-4.00%

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

11.5%

8.3%

-2.9% -3.3%

Private Equity MSCI Equivalent

Source: Skandia Life

Retirement Systems and Pension Funds


California Public Employees’ Retirement System (CalPERS)

• As of June 30, 2010, CalPERS’ alternative investments1 had a market value of $28.7 billion, accounting for 14.1% of assets under management. This was above the target allocation of 13.0%.

• Specifically, investments in buyouts were valued at $15.3 billion, accounting for 7.5% of assets under management.

• As of June 30, 2010, CalPERS’ active partnerships2 in buyouts have generated a gain3 of $6.3 billion and a 1.32x multiple on contributed capital.

• For the year ended June 30, 2010, the alternative investments portfolio generated a return of 23.9%, outperforming its benchmark by 4.8%.

1 Investments related to corporate restructuring, distressed securities, expansion capital, mezzanine debt, secondary interests and special situations. Excludes venture capital.2 Investment that has not reached the end of its legal term. Excludes liquidated funds, direct and co-investments.3 (Distributions + fair value of remaining investments) – contributed capital.4 Lagged one quarter.

Source: California Public Employees’ Retirement System – 2010 Annual Report

Annualized (as of June 30 2010) 1 Year 3 Year 5 Year 10 Year

CalPERS’ Alternative Investments Portfolio 23.9% -1.0% 8.1% 3.8%

Wilshire 25004 +300 bps and Custom Young Fund Policy Index 19.1% 2.5% 8.7% 1.7%


CalPERS’ Alternative Investments Portfolio Versus S&P 500

• According to CalPERS, the weighted-average age of the alternative investments portfolio is 4.6 years. This translates to an effective investment date of November 23, 2005, implying a weighted-average internal rate of return of 4.79%.

IRR ~ [(fair value + distributions)/invested capital]1/4.6 – 1

• Over the equivalent investment horizon of the CalPERS alternative investments portfolio (November 23, 2005 to June 30, 2010), the S&P500 generated a return (net of dividends) of -18.56% or an annualized return of -4.37%.

• Given that dividends per share worth $117.0 were paid out over the same investment period, the S&P500 produced a total return of -9.31% or an annualized total return of -2.10%.

Source: California Public Employees’ Retirement System


CalPERS’ Alternative Investments Portfolio Versus S&P 500

CalPERS Private Equity S&P 500 (excluding dividends)

S&P 500 (including dividends)

$0

$20

$40

$60

$80

$100

$120

$100 $100 $100$105

$81

$91

November 23 2005 June 30 2010

Source: California Public Employees’ Retirement System


California State Teachers’ Retirement System (CalSTRS)

• As of June 30, 2010, CalSTRS’ private equity investments1 had a market value of $18.8 billion, accounting for 14.5% of assets under management. This was above the target allocation of 12.0%. Specifically, investments in buyouts had a market value of $13.1 billion, accounting for 10.1% of assets under management.

• Since inception, the private equity portfolio has generated a gain2 of $9.1 billion and a 1.31x multiple on contributed capital. Specifically, buyout investments have experienced a gain of $5.9 billion and a 1.28x multiple on contributed capital.

• This represents a net IRR of 12.85% for all private equity investments and a net IRR of 10.68% for buyout investments only.

• For the year ended June 30, 2010, CalSTRS’ private equity investments experienced a return of 21.7%, underperforming its benchmark by 35.0%.Annualized (as of June 30 2010) 1 Year 3 Year 5 Year 10 Year

CalSTRS’S Private Equity Portfolio 21.69% -0.58% 10.61% 7.34%

Custom Benchmark3 56.68% 1.96% 4.21% 5.21%

1 Includes investments in venture capital, leverage buyouts, expansion capital, mezzanine debt and distressed debt. Includes limited partnership interests, co-investments and secondary partnership interests.2 (Distributions + fair value of remaining investments) – contributed capital.3 Blend of the Russell 3000 + 300 basis points and State Street Private Equity Index cumulative pooled internal rate of return data weighted by sub-asset type. Lagged one quarter.

Source: California State Teachers’ Retirement System – 2010 Q3 Quarterly Report & 2010 Annual Report


Florida Retirement System (FRS) Pension Plan

• As of June 30, 2010, private equity investments1 were valued at $4.5 billion, accounting for 4.1% of FRS Pension Plan’s assets under management. This was below the target allocation of 5%.

• For the year ended June 30, 2010, the private equity portfolio generated a return of 21.44%, outperforming its benchmark by 1.24%.As of June 30 2010 1 Year 3 Year 5 Year 10

Year15

Year

FRS Private Equity Portfolio 21.44% -1.34% 4.23% 2.26% 6.29%

Russell 3000 Index + 450 bps 20.20% -3.74% 4.56% 3.77% 8.24%

1 Includes investments in corporate finance partnerships, venture capital partnerships and special situation investments.

Source: Florida Retirement System – 2010 Annual Report


Teacher Retirement System of Texas (TRS)

• As of June 30, 2010, TRS’ private equity investments1 were valued at $7.9 billion, accounting for 8.6% of assets under management. This was above the target allocation of 8.0%.

Annualized (as of June 30 2010)

Quarter

1 Year 3 Year 5 Year10

Year

TRS Private Equity Portfolio 2.7% 24.6% 0.6% 14.4% 9.2%

State Street Private Equity Index2 N/A 34.9% -3.0% 6.1% 5.4%

1 Includes venture capital, mezzanine , buyouts and special situation.2 Lagged one quarter.

Source: Teacher Retirement System of Texas – 2010 Annual Report


New York State Teachers’ Retirement System (NYSTRS)

• As of June 30, 2010, private equity investments1 were valued at $6.0 billion, accounting for 7.9% of assets under management. This was above the target allocation of 7.0%.

• NYSTRS’ private equity portfolio includes $12.4 billion in commitments to 132 partnerships.

• Since inception, NYSTRS’ private equity investments have achieved an IRR of 10.1%.

• For the year ended June 30, 2010, the private equity portfolio generated a return of 14.3%, underperforming its benchmark by 5.1%.Annualized (net) 1 Year 3 Year 5 Year 10 Year

NYSTRS Private Equity 14.3% -2.9% 11.1% 6.9%

S&P 500 + 500 bps 19.4% -4.8% 4.2% 3.4%

1 Includes investments in buyout, venture capital, international and special situation funds.

Source: New York State Teachers’ Retirement System – 2010 Annual Report


Washington State Investment Board: Commingled Trust Fund (CTF)

• As of September 30, 2010, CTF’s existing private equity investments1 had a market value of $13.4 billion, accounting for 23.6% of CTF’s assets under management.

• Since inception, the private equity portfolio has generated a gain2 of $10.4 billion and a 1.41x multiple on contributed capital of $25.5 billion. This represents a net IRR of 13.3%3.

• As of September 30, 2010, CTF’s alternative investments portfolio experienced a quarter return of 5.11%, outperforming its benchmark by 15.69%.4

Quarter 1 Year 3 Year 5 Year 10 Year

CTF’S Private Equity Portfolio4 5.11% 20.91% -5.21% 8.73% 7.22%

Russell 3000 Index5 + 300 bps -10.58% 18.72% -6.47% 2.52% 2.08%

1 Includes investments in buyouts, distressed debt, growth equity, mezzanine debt, real estate and special situation funds.2 (Distributions + fair value of remaining investments) – contributed capital.3 Net IRR calculation assumes a weighted-average investment age of 2.7 years. IRR is approximated using the formula: ((fair value + distributions)/invested capital)1/2.7 – 1.4 Performance figures include venture capital fund performance.5 Lagged one quarter.

Source: Washington State Investment Board – 2010 Q3 Quarterly Report


Oregon Public Employees Retirement Fund (OPERF)

• As of September 30, 2010, OPERF’s alternative equity investments1 were valued at $11.3 billion, accounting for 21.2% of assets under management. This was above the target allocation of 16.0%.

• Since inception, the alternative equity portfolio has generated a gain2 of $9.7 billion and a 1.42x multiple on contributed capital of $23.0 billion.

• Through three quarters, OPERF’s alternative equity portfolio produced a return of 10.57%, outperforming its benchmark by 8.84%.

Through 9/30/2010 1 Year 3 Year 5 Year

OPERF’S Alternative Equity Portfolio3 10.57% 21.28% -0.50% 9.07%

Russell 3000 Index3 + 300 bps 1.73% 18.91% -5.47% 3.22%

1 Includes investments in venture capital, leverage buyouts, mezzanine debt, distressed debt, sector funds and fund-of-funds. Includes co-investments.2 (Distributions + fair value of remaining investments) – contributed capital.3 Lagged one quarter.4 Lagged one quarter.

Source: Oregon Public Employees Retirement Fund – September 2010 Monehtly report


Private Equity Indexes


Preqin’s Performance Analyst (as of June 30 2010)

• Compiled using data from Preqin’s Performance Analyst, which covers the performance of over 5,300 private equity funds1, representing approximately 70.0% of all global capital raised by the industry.

• Specifically, returns are estimated using cash flow data from over 1,700 of these private equity funds. Returns are calculated on a net-to-LP basis.Fund Type 1 Year 3 Year 5 Year

Buyouts 20.7% -2.2% 19.3%

Venture 8.4% -0.9% 5.8%

Fund of Funds 11.6% 1.1% 6.9%

Mezzanine 6.0% 7.8% 15.3%

All Private Equity 17.6% -1.9% 15.7%

1 Includes investments in buyouts, venture capital, fund of funds and mezzanine

Source: Preqin


Cambridge Associates U.S. Private Equity Index (as of September 30, 2010)

• Compiled using data from 861 U.S. private equity funds, including fully liquidated partnerships, formed between 1986 and 2010.

• Includes data from leveraged buyouts, growth capital, energy and mezzanine partnerships. Venture capital funds are excluded.

• Returns are calculated on a pooled (aggregated and averaged) basis, net of fees, expenses and carried interest.

Period Pooled End-to-End Net Return

One Quarter 5.11%

One Year 17.74%

Three Year 1.34%

Five Year 9.11%

Ten Year 8.08%

Fifteen Year 12.11%

Twenty Year 12.64%

Source: Cambridge Associates


Cambridge Associates U.S. Private Equity Index Versus S&P 500

1988

3250

8

3278

1

3305

419

91

3360

3

3387

7

3415

019

94

3469

9

3497

2

3524

619

97

3579

5

3606

8

3634

120

00

3689

1

3716

4

3743

720

03

3798

6

3826

0

3853

320

06

3908

2

3935

5

3962

920

09

4017

8

4045

1

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

$2,000

$829

$1,879 $1,850

$787

$909

$727

$579$590

$441

Cambridge Associates LLC U.S. Private Equity Index


S&P 500 (excluding dividends)

Valu

e o

f In

vestm

ent,

1988 Q

1 =

$100

Source: Cambridge Associates


Thomson Reuters’ Private Equity Performance Index (as of September 30, 2010)• Compiled using quarterly statistics from 2,039 U.S. buyout, venture

capital and generalist funds with a total capitalization of $990.4 billion.

• Returns are calculated on a pooled (aggregated) basis, net of fees, expenses and carried interest.Fund Stage 3 Months 6 Months 9 Months 1 Year 3 Year 5 Year 10 Year 20 Year

Small Buyouts 0.65% -0.50% 2.40% 0.50% -1.25% 1.58% 2.70% 12.14%

Medium Buyouts 5.39 10.07 14.11 20.03 3.10 7.09 3.31 11.25

Large Buyouts 4.87 10.14 14.69 23.16 3.35 6.37 3.27 11.83

Mega Buyouts 5.16 7.64 12.91 17.41 -1.34 3.91 4.45 7.20

Generalist 4.98 4.82 12.81 21.24 6.36 13.34 9.16 9.31

All Buyouts 5.12 7.86 13.04 17.86 -0.52 4.37 4.05 8.82

Seed/Early Stage 3.07 0.13 0.67 2.28 -2.96 0.52 -5.66 24.78

Later Stage 6.71 10.73 14.38 21.38 4.08 8.97 0.66 18.05

Balanced Stage 6.11 4.44 10.26 10.07 -0.88 5.10 -0.20 15.41

All Venture Capital 5.14 4.22 7.49 9.56 -0.89 3.83 -2.42 19.15

All Private Equity 5.13 5.78 10.63 15.33 0.14 4.80 2.54 11.43

Source: Thomson Reuters


State Street Private Equity Index (as of September 30, 2010)

• Compiled using quarterly statistics from State Street Investment Analytics’ Private Edge Group that covers 1,893 global private equity partnerships1 with a total fund size of $1.7 trillion.

• Since inception, the Index has achieved an IRR of 11.77%. Specifically, buyout funds recorded an IRR of 12.35%.

9/3

12/

3/3

6/3

9/3

12/

3/3

6/3

9/3

12/

3/3

6/3

9/3

12/

3/3

6/3

9/3

-20%

-15%

-10%

-5%

0%

5%

10%

15%

4.17%

10.89%

5.76%

8.55%

2.26%

3.18%

-0.87%-1.51%

-8.35%

-16.32%

-6.46%

5.48% 5.83% 5.94%

2.22%

0.65%

6.57%

State Street Private Equity Index: All Private Equity

1 Includes investments in buyouts, venture capita, mezzanine debt and distressed debt.

Source: State Street


State Street Private Equity Index Versus S&P 500 (as of September 30, 2010)

6/3

9/3

12/3

... 3/3

6/3

9/3

12/3

... 3/3

6/3

9/3

12/3

... 3/3

6/3

9/3

12/3

... 3/3

6/3

9/3

$40

$60

$80

$100

$120

$140

$160

$140

$98

$127

$119

$67

$98

$116

$63

$90

State Street Private Equity Index


S&P 500 (excluding dividends)

Valu

e o

f In

vestm

ent,

2006 Q

2 =

$100

Source: State Street


Private Equity Performance Update Returns as reported through December 2010.

Documents

Transcript of Private Equity Performance Update Returns as reported through December 2010.