Private Equity Secondaries
Powerful Tools
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Primary Private Equity Funds
LP LP LP LPLP
Unfunded
E1 E2 E3 EnE4
GPFUND
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Secondary Funds acquire interests in existing PE portfolios
LP LP LP LPLP
FUND
E1 E2 E3 EnE4
GP
LP LP LP LPLP
FUND GP
Primary Fund
Secondary Fund
(Interests in other funds)
An LP interest is equal to a slice of the portfolio
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“ J Curve” phenomenon
$
time 10 years
Accumulated cash flow of investor in Primary Fund
Accumulated cash flow of secondary investor
Investment Period
3-6 years
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Who can use the Secondary Market in Emerging Markets?
Financial Institutions– Captive GP groups investing in direct PE investments– Portfolios of funds to support Leveraged Finance business– Asset management
Corporations– Corporate VC programs and strategic PE investments
Family Offices and High Net Worth Individuals– Funds and portfolios of direct PE investments, including co-investments
Developmental Financial Institutions – Reallocation of assets to different regions or asset types– Liquidity for new investments when facing capital constraints– Promote development of regional PE market
Pension Plans– Many international pension plans are mature and reducing GP exposure
Hedge Funds– Increasingly invested in illiquid assets
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Motivations
Strategic
Financial
Administrative/recycling
Regulatory
“Spin out” of Captive GPs
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Types of Private Equity Funds
Makes direct investments in single companies
Generally purchases stakes in each company one at a time
More concentrated Examples include
buyout funds, venture funds or mezzanine funds
Primary Fund Fund of Funds Secondary Fund
Makes investments in primary private equity funds on a blind pool basis
Builds portfolio of primary fund interests to provide its investors with exposure to a broad range of funds
More diversity
Provides liquidity to private equity investors
Buys private equity partnership interests several years after the underlying fund was formed and portfolios of direct investments
Provides good visibility into assets and mitigation of J-curve
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Tail End Fund Restructuring
LP LP LP LPLP
FUND
E1 E2 E3 EnE4
GP
Fund cycle does not coincide with portfolio company cycleOptions:
•Extention (LPs don’t like)•Forced sale•Secondary transaction
Year 9+
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Tail End Fund Restructuring
LP LP LP LPLP
FUND
E1 E2 E3 EnE4
GPNew Fund
Paulcap
$$
Advantages:•Extended tenure•New GP economics•Fresh capital for portfolio•New LP(s)
$
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Example Holding /Family Office
Hold CoFO
OpCo
OpCo
OpCo
OpCo
$ 100M
Exposure: $ 100MDiversification: 4 companiesCash: 0Economics: Upside on $100M
Current Status
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Migrate assets to fund format
Exposure: $ 50MDiversification: 4 CompaniesCash: $ 50MEconomics: 100% Upside on $50M
20% Upside on $ 50M 2% Management fee
+ $ 50M
Fund 1
OpCo
OpCo
OpCo
OpCo
LPFO
$ 50M
LPPC
$ 50M
FO GP
Example Holding /Family Office
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Example Holding /Family Office Raises and invests “Fund 2”
Fund 1
OpCo
OpCo
OpCo
OpCo
LPFO
$ 50M
LPPC
$ 50M
FO GP Fund 2
OpF1
OpF2
OpF3
OpF10
LPFO
$ 50M
LPPC
$ 15M
LPN
LP3
LP4
$ 300-450M
OpF10Op
F10OpF10Op
F10Exposure: $ 100MDiversification: 14 CompaniesCash: $ 0MEconomics: 100% Upside on $100M
20% Upside on $ 350-500M 2% Management fee on $350-500
$50M
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Exemplo Family Office
Advantages– Formal structure increases flexibility– Risk (to own capital) reduced through diversification– Returns on Invested capital leveraged through fees and
carried interest– Increased fire power leveraging third party capital– Builds relationships with institutional investors – Good positioning for Fund 3
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Development Institutions Unfunded JV
DFI Paul Capital
DFI Holdings LLC(Existing Fund Portfolio at NAV, plus associated
unfunded commitments)
DFI Paul Capital
Portfolio’s NAV = R$X
X/(X+Y)% of all
distributions
Portfolio’s unfunded
commitments = R$Y
Y/(X+Y)% of all
distributions
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Development institutions
Advantages:Balance Sheet relief
Frees up resources for the “mission”
Exits for mature positions
Attracts institutional capital through a structure perceived to be of less risk
Greater visibility to local GPs
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‘91-’95 ’95 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ’06 ‘07
Pioneered the Secondary Market in 1991
PRF I$294MPRF I$294M
Paul I-IV$142M
Paul I-IV$142M
Top Tier I$213M
Top Tier I$213M
Top Tier II$478M
Top Tier II$478M
PRF II$657MPRF II$657M
Paul VII$808M
Paul VII$808M
Top Tier III$626M
Top Tier III$626M
Paul IX$1.65B
Paul IX$1.65B
Capital raised (incl. Paul IX): US$4+ billion
Making new investments in Paul IX
Secondary Investment Professionals 20
Total Firm Employees 88
Secondary Program Facts
Paul V$202MPaul V$202M
Paul VI$273MPaul VI$273M
Paul VIII$960M
Paul VIII$960M
Top Tier IV$650M
Top Tier IV$650M
PCH III$650M
PCH III$650M
General Partner Groups: 300
Funds acquired: 500
Underlying portfoliocompanies: 4,000
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Paul Capital Partners Platforms - $6.6 billion
Dedicated Secondary Private Equity Fund
– Provides liquidity to private equity investors (LP positions and direct portfolios)
– Global leader in the secondary market since 1991, having completed more than 150 secondary transactions
– Oldest and largest of Paul’s investment programs
– Currently investing from Paul IX, a US$1.65 billion dedicated fund with a significant emerging markets allocation
Private Equity Fund of Funds
– Currently US$1.5 billion of assets under management in top-quartile U.S. venture capital funds
Top Tier III - US$626 million
Top Tier IV - US$550 million
– Small-cap buyout fund with US$350 target
Healthcare Royalty Acquisition Fund
– Acquires revenue and royalty interests from pharmaceutical companies, universities, research institutions
– Currently US$1.8 billion of assets under management
– Completed several securitizations of assets
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Senior Secondary Team Members
Partners, Principals and Managing Directors
Bryon T. Sheets – San Francisco• Joined Paul Capital in 1994
• Previously served as Finance Manager for Apple Computer and Claris Corporation
• M.B.A. University of California, Berkeley, B.S. University of California, Davis
Brian W. Sullivan – New York• Joined Paul Capital in 1998• Former Consultant with The Boston Consulting
Group and Officer in the U.S. Navy• M.B.A. The Wharton Business School and B.S.
U.S. Naval Academy
David H. de Weese – New York• Joined Paul Capital in 1995
• Former CEO of SigA Pharmaceuticals and Cygnus Therapeutics
• M.B.A. Harvard Business School, B.A. Stanford University
Guy R. Rico - Paris• Joined Paul Capital in 1996
• Former Managing Partner of Financière Tuileries and co-managed private equity at UAP
• M.A. in Economics University of Economics in Lyon, Engineering Degree from Ecole Centrale
Simon Guenzl – New York• Joined Paul Capital in 2004
• Prior experience: Sprout Group, Lehman Brothers and Donaldson, Lufkin & Jenrette
• M.B.A. The Wharton Business School and a Bachelor of Jurisprudence / Bachelor of Laws from University of Western Australia
Daniel P. Mulderry – San Francisco• Joined Paul Capital in 2000• Prior experience: SG Cowen and Tosco Corp.• M.B.A. University of Virginia, B.S. Manhattan
College
Elaine L. Small - London• Joined Paul Capital in 2004• Prior experience: Spencer Stuart, First Boston, JP
Morgan and Bankers Trust • B.A. Princeton University
Jason Sambanju - Hong Kong• Joined Paul Capital in 2007• Prior experience: Symphony Capital Partners and
Deutsche Bank Securities• B.S./B.A. University of Pennsylvania
Duncan Littlejohn – Sao Paulo• Joined Paul Capital in 2007• Previously a Partner with BPE Investimentos• B.A. University of Pennsylvania
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. .
Paul Capital Partners – A Global Presence
..
.San FranciscoSan FranciscoSan FranciscoSan Francisco
TorontoTorontoTorontoToronto
New YorkNew YorkNew YorkNew York
LondonLondonLondonLondon
ParisParisParisParis
Hong Kong Hong Kong Hong Kong Hong Kong
•
• • • •
• •
•
Paul Capital Partners has the resources, personnel and expertise to work with GPs and LPs to complete transactions quickly and confidentially.
.
Sao PauloSao PauloSao PauloSao Paulo
Japan and KoreaJapan and KoreaJapan and KoreaJapan and Korea
NetherlandsNetherlandsNetherlandsNetherlands
GermanyGermanyGermanyGermany
CEECEECEECEE
SpainSpainSpainSpain
ItalyItalyItalyItaly
Middle EastMiddle EastMiddle EastMiddle East
SwitzerlandSwitzerlandSwitzerlandSwitzerland
• • Office Locations
Exclusive Representatives
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Select Investors
AMB Generali Baltimore County Employee Retirement System BP Investments Management British Coal Board Pension Brunei Investment Agency Canada Pension Plan Investment Board Danica Insurance Danske Bank DuPont Pension Halifax Bank of Scotland Industriens Pensionsforsikring Kamehameha Schools Kenyon College Marquette University
Missouri Teachers New York Presbyterian Hospital NLI International, Inc. Nomura Funds Ontario Municipal Employee Retirement OP Life Assurance Pacific Life Insurance Producer-Writers Guild San Diego County Schindler Pensionskasse Sony Life Taiyo Life Virginia Tech Foundation YMCA Retirement
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Paul Secondary Funds Acquiring Top GPs
HICKS, MUSE, HICKS, MUSE, TATE & FURSTTATE & FURST
SLP
SilverLake
Partners
SLP
SilverLake
Partners
CENTRE PARTNERSNew York Los Angeles
Freeman Spogli & Co.
Freeman Spogli & Co.
VESTAR CAPITAL PARTNERSVESTAR CAPITAL PARTNERS
BRADFORD EQUITIES MANAGEMENT, LLC
ODYSSEY INVESTMENT PARTNERS, LLC
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Muito Obrigado!
Duncan LittlejohnPaul Capital
[email protected](55 11) 5105 1515(55 11) 9943 7255
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