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Private Equity Performance Update

Private Equity Performance Update. Returns as reported through December 2010. Summary of Findings (Annualized Return as reported for September 30, 2010). 1 Lagged one quarter.

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Private Equity Performance Update

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  1. Private Equity Performance Update Returns as reported through December 2010

  2. Summary of Findings (Annualized Return as reported for September 30, 2010) 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. Return to Contents 2 Private Equity Performance Update 2010 Q4

  3. 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. Return to Contents 3 Private Equity Performance Update 2010 Q4

  4. Skandia Large Cap Buyout Report (February 2011) Source: Skandia Life 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. Return to Contents 4 Private Equity Performance Update 2010 Q4

  5. Skandia Large Cap Buyout Report (February 2011) Source: Skandia Life Return to Contents 5 Private Equity Performance Update 2010 Q4

  6. Retirement Systems and Pension Funds Return to Contents 6 Private Equity Performance Update 2010 Q4

  7. California Public Employees’ Retirement System (CalPERS) 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 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%. Return to Contents 7 Private Equity Performance Update 2010 Q4

  8. CalPERS’ Alternative Investments Portfolio Versus S&P 500 Source: California Public Employees’ Retirement System 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%. Return to Contents 8 Private Equity Performance Update 2010 Q4

  9. CalPERS’ Alternative Investments Portfolio Versus S&P 500 Source: California Public Employees’ Retirement System Return to Contents 9 Private Equity Performance Update 2010 Q4

  10. California State Teachers’ Retirement System (CalSTRS) 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 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%. Return to Contents 10 Private Equity Performance Update 2010 Q4

  11. Florida Retirement System (FRS) Pension Plan 1 Includes investments in corporate finance partnerships, venture capital partnerships and special situation investments. Source: Florida Retirement System – 2010 Annual Report 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%. Return to Contents 11 Private Equity Performance Update 2010 Q4

  12. Teacher Retirement System of Texas (TRS) 1 Includes venture capital, mezzanine , buyouts and special situation. 2 Lagged one quarter. Source: Teacher Retirement System of Texas – 2010 Annual Report 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%. Return to Contents 12 Private Equity Performance Update 2010 Q4

  13. New York State Teachers’ Retirement System (NYSTRS) 1 Includes investments in buyout, venture capital, international and special situation funds. Source: New York State Teachers’ Retirement System – 2010 Annual Report 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%. Return to Contents 13 Private Equity Performance Update 2010 Q4

  14. Washington State Investment Board: Commingled Trust Fund (CTF) 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 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 Return to Contents 14 Private Equity Performance Update 2010 Q4

  15. Oregon Public Employees Retirement Fund (OPERF) 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 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%. Return to Contents 15 Private Equity Performance Update 2010 Q4

  16. Private Equity Indexes Return to Contents 16 Private Equity Performance Update 2010 Q4

  17. Preqin’s Performance Analyst (as of June 30 2010) 1 Includes investments in buyouts, venture capital, fund of funds and mezzanine Source: Preqin 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. Return to Contents 17 Private Equity Performance Update 2010 Q4

  18. Cambridge Associates U.S. Private Equity Index (as of September 30, 2010) Source: Cambridge Associates 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. Return to Contents 18 Private Equity Performance Update 2010 Q4

  19. Cambridge Associates U.S. Private Equity Index Versus S&P 500 Source: Cambridge Associates Return to Contents 19 Private Equity Performance Update 2010 Q4

  20. Thomson Reuters’ Private Equity Performance Index (as of September 30, 2010) Source: Thomson Reuters 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. Return to Contents 20 Private Equity Performance Update 2010 Q4

  21. State Street Private Equity Index (as of September 30, 2010) 1 Includes investments in buyouts, venture capita, mezzanine debt and distressed debt. Source: State Street 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%. Return to Contents 21 Private Equity Performance Update 2010 Q4

  22. State Street Private Equity Index Versus S&P 500 (as of September 30, 2010) Source: State Street Return to Contents 22 Private Equity Performance Update 2010 Q4

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