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19 th October 2010 No. 7 Kildare Centre Wheelan Road Newlands, 7700 Cape Town South Africa Tel: +27 21 671 8024 Fax: +27 21 671 3322 Building an Optimal Private Equity Program

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Page 1: 19 th October 2010 No. 7 Kildare Centre Wheelan Road Newlands, 7700 Cape Town South Africa Tel: +27 21 671 8024 Fax: +27 21 671 3322 Building an Optimal

19th October 2010

No. 7 Kildare Centre Wheelan RoadNewlands, 7700Cape TownSouth Africa Tel: +27 21 671 8024Fax: +27 21 671 3322

Building an Optimal Private Equity Program

Page 2: 19 th October 2010 No. 7 Kildare Centre Wheelan Road Newlands, 7700 Cape Town South Africa Tel: +27 21 671 8024 Fax: +27 21 671 3322 Building an Optimal

Private Equity Workshop Agenda

≈ Principles of Private Equity - Summary

≈ Building an Institutional Private Equity Program

Ways to access Private Equity investment.

– A single strategy fund.

– A portfolio of funds.

The due diligence process.

Requirements of institutional investors.

Private Equity Workshop AgendaPrivate Equity Workshop Agenda

Page 3: 19 th October 2010 No. 7 Kildare Centre Wheelan Road Newlands, 7700 Cape Town South Africa Tel: +27 21 671 8024 Fax: +27 21 671 3322 Building an Optimal

• Outperforms listed Equities & Bonds

• Better risk adjusted return

• Entry Return

• Leverage Return

• Operational Return

• Exit Return

α

• Long Term Capital

• Alignment of Interests

ACTIVE VALUE MANAGEMENT

PRIVATE EQUITY INDUSTRY DIFFERENTIATORS

OUTPERFORMANCE

What is Private Equity?Principles of Private Equity - What is Private Equity?

Page 4: 19 th October 2010 No. 7 Kildare Centre Wheelan Road Newlands, 7700 Cape Town South Africa Tel: +27 21 671 8024 Fax: +27 21 671 3322 Building an Optimal

Principles of Private Equity – How a Fund Works

A Single Private Equity Fund

COMMITMENTS

YEAR 1 2 3 4 5 6 7 8 9 10

Distributions

• A stream of cashflows• Performance fees only charged on realisations

Drawdowns

Page 5: 19 th October 2010 No. 7 Kildare Centre Wheelan Road Newlands, 7700 Cape Town South Africa Tel: +27 21 671 8024 Fax: +27 21 671 3322 Building an Optimal

Principles of Private Equity – The J Curve

Standard J Curve

Page 6: 19 th October 2010 No. 7 Kildare Centre Wheelan Road Newlands, 7700 Cape Town South Africa Tel: +27 21 671 8024 Fax: +27 21 671 3322 Building an Optimal

Principles of Private Equity - Drawdowns & Realisations

Drawdown and Realisation Profile

Page 7: 19 th October 2010 No. 7 Kildare Centre Wheelan Road Newlands, 7700 Cape Town South Africa Tel: +27 21 671 8024 Fax: +27 21 671 3322 Building an Optimal

Private Equity Workshop Agenda

≈ Principles of Private Equity - Summary

≈ Building an Institutional Private Equity Program

Ways to access Private Equity investment.

– A single strategy fund.

– A portfolio of funds.

The due diligence process.

Requirements of institutional investors.

Private Equity Workshop AgendaPrivate Equity Workshop Agenda

Page 8: 19 th October 2010 No. 7 Kildare Centre Wheelan Road Newlands, 7700 Cape Town South Africa Tel: +27 21 671 8024 Fax: +27 21 671 3322 Building an Optimal

What is Private Equity?Ways to Access Private Equity Investment

1 COMPANY

INSTITUTIONAL INVESTOR

Page 9: 19 th October 2010 No. 7 Kildare Centre Wheelan Road Newlands, 7700 Cape Town South Africa Tel: +27 21 671 8024 Fax: +27 21 671 3322 Building an Optimal

What is Private Equity?Ways to Access Private Equity Investment

1 COMPANY

INSTITUTIONAL INVESTOR

PRIVATE EQUITY INVESTMENTS

8 TO 10 COMPANIES

PRIVATE EQUITY FUND

Page 10: 19 th October 2010 No. 7 Kildare Centre Wheelan Road Newlands, 7700 Cape Town South Africa Tel: +27 21 671 8024 Fax: +27 21 671 3322 Building an Optimal

Drawdown and Realisation Profile

A Single Private Equity Fund

Page 11: 19 th October 2010 No. 7 Kildare Centre Wheelan Road Newlands, 7700 Cape Town South Africa Tel: +27 21 671 8024 Fax: +27 21 671 3322 Building an Optimal

Drawdown and Realisation Profile

A Single Private Equity Fund

Page 12: 19 th October 2010 No. 7 Kildare Centre Wheelan Road Newlands, 7700 Cape Town South Africa Tel: +27 21 671 8024 Fax: +27 21 671 3322 Building an Optimal

What is Private Equity?Ways to Access Private Equity Investment

1 COMPANY

INSTITUTIONAL INVESTOR

PRIVATE EQUITY INVESTMENTS

8 TO 10 COMPANIES

PRIVATE EQUITY FUND

PRIVATE EQUITY INVESTMENTS

PRIVATE EQUITY FUND

PRIVATE EQUITY INVESTMENTS

TO 10 COMPANIES

PRIVATE EQUITY FUND

PRIVATE EQUITY INVESTMENTS

8 TO 10 COMPANIES

PRIVATE EQUITY FUND

PRIVATE EQUITY INVESTMENTS

8 TO 10 COMPANIES

PRIVATE EQUITY FUND

PRIVATE EQUITY INVESTMENTS

ANIES

PRIVATE EQUITY FUND

PRIVATE EQUITY INVESTMENTS80 TO 120

COMPANIES

PRIVATE EQUITY FUND

Page 13: 19 th October 2010 No. 7 Kildare Centre Wheelan Road Newlands, 7700 Cape Town South Africa Tel: +27 21 671 8024 Fax: +27 21 671 3322 Building an Optimal

What is Private Equity?A Portfolio of Funds

Page 14: 19 th October 2010 No. 7 Kildare Centre Wheelan Road Newlands, 7700 Cape Town South Africa Tel: +27 21 671 8024 Fax: +27 21 671 3322 Building an Optimal

Drawdown and Realisation Profile

A Single Private Equity Fund

Page 15: 19 th October 2010 No. 7 Kildare Centre Wheelan Road Newlands, 7700 Cape Town South Africa Tel: +27 21 671 8024 Fax: +27 21 671 3322 Building an Optimal

Drawdown and Realisation Profile

A Portfolio of Funds

Stays consistently invested across the business cycles

Page 16: 19 th October 2010 No. 7 Kildare Centre Wheelan Road Newlands, 7700 Cape Town South Africa Tel: +27 21 671 8024 Fax: +27 21 671 3322 Building an Optimal

Portfolio of funds (fund-of-funds)

A Portfolio of Funds

Page 17: 19 th October 2010 No. 7 Kildare Centre Wheelan Road Newlands, 7700 Cape Town South Africa Tel: +27 21 671 8024 Fax: +27 21 671 3322 Building an Optimal

Improvement in Blended Return

Comparing the Two...

BLENDED RETURN = 18%

BLENDED RETURN = 25%

Page 18: 19 th October 2010 No. 7 Kildare Centre Wheelan Road Newlands, 7700 Cape Town South Africa Tel: +27 21 671 8024 Fax: +27 21 671 3322 Building an Optimal

What is Private Equity?Further Considerations - Diversification

Page 19: 19 th October 2010 No. 7 Kildare Centre Wheelan Road Newlands, 7700 Cape Town South Africa Tel: +27 21 671 8024 Fax: +27 21 671 3322 Building an Optimal

Further Considerations - Liquidity

Portfolio of funds Cumulative Cashflows

Portfolio of Funds mean realisations spread across different years

Page 20: 19 th October 2010 No. 7 Kildare Centre Wheelan Road Newlands, 7700 Cape Town South Africa Tel: +27 21 671 8024 Fax: +27 21 671 3322 Building an Optimal

Advantages of Private Equity as a Form of Shareholder Ownership Further Considerations – Top Quartile

Returns (%) – Total Gross IRR Since Fund Inception Realised and Unrealised

The 2009 results in THIS figure include the IRR levels for 45 respondents managing R71.98 billion at 31 December 2009

Page 21: 19 th October 2010 No. 7 Kildare Centre Wheelan Road Newlands, 7700 Cape Town South Africa Tel: +27 21 671 8024 Fax: +27 21 671 3322 Building an Optimal

Private Equity Workshop Agenda

≈ Principles of Private Equity - Summary

≈ Building an Institutional Private Equity Program

Ways to access Private Equity investment.

– A single strategy fund.

– A portfolio of funds.

The due diligence process.

Requirements of institutional investors.

Private Equity Workshop AgendaPrivate Equity Workshop Agenda

Page 22: 19 th October 2010 No. 7 Kildare Centre Wheelan Road Newlands, 7700 Cape Town South Africa Tel: +27 21 671 8024 Fax: +27 21 671 3322 Building an Optimal

Advantages of Private Equity as a Form of Shareholder Ownership Advantages of Private Equity as a Form of Shareholder Ownership What is Private Equity?Evaluation Criteria

NETWORKING STRATEGIC VISION BALANCE SHEET

FINANCIAL SKILLS

OPERATIONAL SKILLS

SECTOR AND INDUSTRY

Sourcing

Components of the investment process:

Screening

Due Diligence

Structuring

Exit

Execution

Management

Page 23: 19 th October 2010 No. 7 Kildare Centre Wheelan Road Newlands, 7700 Cape Town South Africa Tel: +27 21 671 8024 Fax: +27 21 671 3322 Building an Optimal

Advantages of Private Equity as a Form of Shareholder Ownership Who Are We Looking For?

Page 24: 19 th October 2010 No. 7 Kildare Centre Wheelan Road Newlands, 7700 Cape Town South Africa Tel: +27 21 671 8024 Fax: +27 21 671 3322 Building an Optimal

Advantages of Private Equity as a Form of Shareholder Ownership Due Diligence

FUND SCREENING DUE-DILIGENCE ON-GOING MONITORING

Evaluation Criteria:• Team cohesion & dynamic• Proof of Concept•Track record• Fund thesis • Investment Strategy • Proprietary dealflow• Terms

Information:• Info Memo/Offering Memo• VPEF Questionnaire• Quantitative Analysis

Team Meeting:• One-on-one and together• Individual capabilities• Share of carry• Succession• Key-Man risk

Reference Calls:• Other LPs • CEOs – site visits• Co-Investors• Departed team members• Personal checks

Fund monitoring:• Advisory Board for conflicts• Valuations Committee• Deal flow monitoring• Deal workout updates• Independent risk evaluation

Investor report-back:• Monthly NAVs & Factsheet• Bi-annual updates• Comprehensive reporting• Underlying company accounts

ProceedReject ProceedRejectPro-active process

Page 25: 19 th October 2010 No. 7 Kildare Centre Wheelan Road Newlands, 7700 Cape Town South Africa Tel: +27 21 671 8024 Fax: +27 21 671 3322 Building an Optimal

Private Equity Workshop Agenda

≈ Principles of Private Equity - Summary

≈ Building an Institutional Private Equity Program

Ways to access Private Equity investment.

– A single strategy fund.

– A portfolio of funds.

The due diligence process.

Requirements of institutional investors.

Private Equity Workshop AgendaPrivate Equity Workshop Agenda

Page 26: 19 th October 2010 No. 7 Kildare Centre Wheelan Road Newlands, 7700 Cape Town South Africa Tel: +27 21 671 8024 Fax: +27 21 671 3322 Building an Optimal

Advantages of Private Equity as a Form of Shareholder Ownership Requirements of Institutional Investors

ALIGNMENT

WELL -DEVELOPE

D EVALUATI

ON CRITERIA

TRANSPARENCY

ESG

INDEPENDENT RISK OVERSIGH

T

Page 27: 19 th October 2010 No. 7 Kildare Centre Wheelan Road Newlands, 7700 Cape Town South Africa Tel: +27 21 671 8024 Fax: +27 21 671 3322 Building an Optimal

Advantages of Private Equity as a Form of Shareholder Ownership Socially Responsible Investing

SRI = long term sustainable investing = economic prosperity.

Adoption of ESG standards is essential in creating a sustainable world-class company.

ESG is an integral part of the Africa “value-add” process (sustainable, efficient & productive).

ESG policy must be fully transparent.

Page 28: 19 th October 2010 No. 7 Kildare Centre Wheelan Road Newlands, 7700 Cape Town South Africa Tel: +27 21 671 8024 Fax: +27 21 671 3322 Building an Optimal

Advantages of Private Equity as a Form of Shareholder Ownership In Summary...

Single Private Equity Fund: Focussed exposure

Limited diversification

Risk of exposure to one team

Need for liquidity management

A Portfolio of Funds: J Curve effect minimised

Manager strategy diversification

Vintage diversification

Industry & company diversification

Requirements of Institutional Investors: Transparency, alignment, independent risk oversight, comprehensive DD


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