private markets overview -10.12.2015

Private Markets OverviewOctober 2015

Proprietary and Confi dential

• What Are Private Market Investments 1• Why Consider Private Market Investing 13• Challenges 20• What Do We See in “Real” Portfolios 26• How Much to Allocate 29• Building a Portfolio to Outperform 33• Appendix 42

Agenda

What Are Private Market Investments

Proprietary and Confi dentialPage 2

The History of Private Market Investments

1980s• RJR Nabisco• Drexel Burnham Lambert/High Yield• Highly leveraged buyouts• Severe market correction• ERISA rules change• Pensions enter landscape

Early 90s• Traditional LBOs• Proliferation of buyout funds• European LBOs

Late 2000s/Today• Lehman collapse• Credit crunch• Bank lending stopped• Rise in credit related funds• Focus on distressed companies• Emerging markets

Early 2000s• "Mega" funds • Financial engineering • Rise in European activity• VC flattens• Outstanding returns

1970s• VC Focus (early stage)• KKR, Forstmann Little, TH Lee• Leveraged buyouts (”LBOs”) begin

Mid 2000s• "Mega Mega" funds• Globalization• Public-to-Private• VC growing slowly• Rise in Asian activity

Mid 90s• Israel VC industry begins

Late 90s• Tech Boom• VC craze• Massive Fundraising• Tech bubble burst

1970s 1980s 1990s 2000s Present

An industry in existence for 40+ years, where strategies and geographies evolve with changing macro-economic conditions

Proprietary and Confi dential Page 3

What is Private Equity?

Private Equity Fund III, LP

Portfolio Company A

Portfolio Company B

Portfolio Company C

Portfolio Company D

Portfolio Company E

A professionally managed pool of capital that invests primarily in private companies or securities

How it Works

1. C

apita

l Com

mittment 2. Investm

ent Period

3. Harvesting Period

• Capital Committed: An investor’s fi nancial obligation to provide a set amount of capital to the fund

• Capital Contributions: Capital contributed from an investor’s capital commitment to fund partnership investments, organizational expenses and management fees

• Distributions: Cash or stock disbursed to the investors from a fully or partially realized investment

1. Capital CommitmentInvestor makes a capital commitment to a fund manager in year 1

2. Investment PeriodOver the next 4-5 years the fund manager calls capital for investments in portfolio companies

3. Harvesting PeriodTypically, in years 6-10, fund manager begins to exit portfolio company investments, sending capital back to investors in the form of distributions. Partial realizations can occur as early as year 2-3.

The Process The Terms


Private Markets Investment Strategies

Credit/Distressed

Emerging Markets

Secondaries

Investments in securities of companies that are either already in default, under bankruptcy protection, or in distress and heading toward such a condition. The most common distressed securities are bonds and bank debt.

Predominantly growth capital and buyout investment opportunities due to the nature of these economies. Encompasses Latin America, Asia-Pacifi c, Emerging Europe, Sub-Saharan Africa, Middle East and North Africa.

Investments in existing portfolios or direct investments at a discount based on remaining life and funded capital percentage. These opportunities are generally already delivering positive returns and therefore valuable to include in the early years of a fund-of-funds.

Venture/Growth Equity

Investments in startup and early stage, high risk/high potential companies; investments in relatively mature companies looking for growth over the long term.

Examples of portfolio companies in prior HL Funds-of-Funds

U.S. Buyout and Europe Buyout

Equity investments where a company, business unit or assets are acquired from the current shareholders, typically with the use of fi nancial leverage. These companies are generally mature and generating operating cash fl ows.

Co-InvestmentsDirect investments in a portfolio company alongside the lead general partner. Most co-investments are on the same terms as the general partner, minority positions, and/or passive investments.


Company Lifecycle & Applicable Private Equity Strategies

Private equity managers invest in companies of critical stage to create value

• Create/develop new companies or new technologies

• Restructure, refocus or revitalize ineffi cient operating companies

• Acquire growth companies in fragmented industries

• Lend to companies enable to borrow from banks

CompanyFormation

Venture/Growth Capital

RegularBuyouts

Distressed/Turnaround/

Value-Oriented Buyout

RegularBuyouts

RapidGrowth

Maturity

Decline

Restructuring/Revival


Private vs. Public Universe

Over 11,000 private U.S. companies with annual revenues over $100 million vs. approximately 2,700 public U.S. companies with the same annual revenues

• Private equity represents a target-rich environment, the market potential of which is dramatically larger compared to publicly-traded companies

8,184 companies74%

1,285 companies12%

1,567 companies14%

Number of Private US Companies By LTM Revenue ($M)*

$100-$499 $500-$1,000 $1,001+* Source: Capital IQ (Jan. 2014)

$100-$499 $500-$1,000 $1,001+

* Source: Capital IQ (Jan. 2014)

Number of Public US Companies By LTM Revenue ($M)*

974 companies36%

1,289 companies47%

454 companies17%


Private vs. Public Universe

22,402 companies78%

3,039 companies11%

3,217 companies11%

Number of Private European Companies By LTM Revenue (€M)*

€100-$500 €500-$1,000 €1,001+* Source: CaplQ (January 2014)

€100-$500 €500-$1,000 €1,001+

* Source: CaplQ (January 2014)

Number of Public European Companies By LTM Revenue (€M)*

1,284 companies48%

982 companies37%

406 companies15%

Over 28,000 private European companies with annual revenues over €100 million vs. approximately 2,700 public European companies with the same annual revenues

• Private equity represents a target-rich environment, the market potential of which is dramatically larger compared to publicly-traded companies


How to Access the Private Equity Market?

Invest Directly in a Fund

Invest in a Fund-of-Fundsfor One (Separate Account)

Invest in a Commingled Fund-of-Funds

Investor

Other Investors Other Investors

Private Equity FundGeneral Partner

PortfolioCompany

PortfolioCompany


PortfolioCompany

PortfolioCompany


PortfolioCompany

PortfolioCompany

Fund-of-Funds

Investor


PortfolioCompany

PortfolioCompany


PortfolioCompany

PortfolioCompany


PortfolioCompany

PortfolioCompany

General Partner/Manager (1%)Investor (99%)

Private Equity Fund

PortfolioCompany

PortfolioCompany

Private Equity Fund

Limited Partnership

PortfolioCompany

PortfolioCompany

Private Equity Fund

PortfolioCompany

PortfolioCompany


Lifecycle of a Private Equity Partnership

*This graph is for illustrative purposes only. The actual profi le of any given investment in a fund may vary substantially.

Year 3

J-Curve effect

0

Ret

urn

Year 6 Year 9

Investment Phase Value Creation Harvest

PrimarySecondary

The J-curve:

• During the fi rst few years of a fund’s life, when capital is initially drawn, valuations appear to decline relative to the paid-in capital

• This is the result of management fees and other organizational expenses, which are paid based on total committed capital

• In the early stages of a fund’s life, these costs represent a large portion of total contributed capital, resulting in negative valuations

• Secondary investments and other strategies that are able to distribute capital early in a fund’s life help mitigate the J-curve


Understanding Private Equity Exposure and Cash Flows

Commitment ≠ Exposure commitment pacing requires careful planning• $10M commitment never fully exposed

As cash goes out, cash also comes back in while PE is illiquid, cash returns can be generated as early as 2-3 years and the entire commitment is not fully exposed all at once

Example:• Maximum cash out-of-pocket is roughly half of commitment• Cash fl ow positive for the year in years 5-6• Full commitment returned in form of distributions in years 7-8

Annual Capital Calls Annual Distributions Cumulative Net Cash Flow

Investment Life Cycle: $10M Commitment to a Fund-of-Funds

Cas

h Fl

ow (m

illion

s)

Annual net cash flowbecomes positive

-2.3

-1.4 -1.5

-0.6-1.2 -1.1

-0.7-0.2 -0.1 0.0 0.0 0.0

0.0 0.1 0.30.5

1.5

2.52.2 2.4

0.70.1

0.7 1.0

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

Maximum cash out-of-pocket

-$4.9MMaximum exposure to PE

Cumulative cash flowbreak even point

Year 1 2 3 4 5 6 7 8 9 10 11 12

Market Value 2.3 3.2 4.3 5.0 6.0 6.0 5.6 3.8 2.6 2.9 2.6 1.7

Please refer to endnotes in Appendix


Horizon Model – Investment Pacing

Portfolio NAV vs. Target Allocation

0

100

200

300

400

500

600

$ in

mill

ions

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

NAV - Existing NAV - New Commitments PE and RA Allocation (10.0%)

• Model takes into account client’s current Private Market Asset exposure and expected commitment amounts

• Forecasts cash infl ows / outfl ows and portfolio valuations, based on proprietary database of historical data

• Used to align client’s Private Market allocation to its target % and help determine new investment pacing

• Projects potential performance of funds over life of each fund commitment


Horizon Model – Investment Pacing

-150

-100

-50

0

50

100

150

200

250

300



Distributions Contributions Net Cash Flow Cumulative Net Cash Flow

NAV:Target Allocation

0

50

100

150

200

250

300

350

400

450

Year 1 AllocationYear 2 AllocationYear 3 AllocationYear 4 AllocationYear 5 AllocationYear 6 AllocationYear 7 AllocationYear 8 AllocationYear 9 Allocation

Current Allocation

Current Portfolio NAV and Cash Flows Over Time

U.S

.D. i

n M

illio

nsU

.S.D

. in

Mill

ions

Why Consider Private Market Investments


Fixed income yields remain stubbornly low

Searching for Yield

4.9%1.8%

3.4%

1.5%

4.1%

8.0%

2.8%3.9%

2.0%

6.0%

21.8%

8.5% 8.5%6.9%

16.7%

0%

5%

10%

15%

20%

25%

Yield Ranges - Past 20 YearsMin, Current, and Max Yield

Minimum Yield Current Yield Maximum Yield

High Yield US Corporate Mortgage (30-Yr) US Treasury (10-Yr) Emerging Maket

Source: Barclays, Bloomberg. Indices: Barclays U.S. High Yield Index, Barclays U.S. AAA Corporate Index, Federal Reserve 30Y Mortgage rate, US 10Y Treasury, Barclays Emerging Market Agg. Bond Index. Current as of 9/30/2015 (October 2015)


Public equities have been strong recently, but markets have seen two major corrections in the past 15 years

Public Equity Returns

MS

CI W

orld

Public Equity Market Performance MSCI World Index

0

200

400

600

800

1000

1200

1400

1600

1800

2000

1995 1998 2001 2004 2007 2010 2013 2014Source: MSCI World Price Index. As of 4/30/2015 (May 2015)


Private Equity IRR vs. PME IRR• Average spread of 693 bps• Top quartile spread of 1,143 bps

IRR: Private Equity OutperformsN

et IR

R

Vintage Year

All Private Equity Performance vs. Public Markets All Private Equity Funds vs. MSCI World TR Index

Public Market Equivalent* All Private Equity Pooled IRR All Private Equity Top Quartile Source: Hamilton Lane Fund Investment Database, MSCI. As of September 30, 2014 (January 2015)

All PE Average: 12.5%

Top Quartile Average: 16.5%

0%

5%

10%

15%

20%

25%

30%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013


10-Year Performance

10-Year Asset Class Performance - As of 03/31/2015

Asset Class Annualized Total Return Annualized Volatility Sharpe Ratio

Private Equity 13.4% 16.6% 0.61

Domestic Equities 8.4% 17.0% 0.30

International Equities 6.5% 20.3% 0.16

Emerging Market Equities 10.7% 24.9% 0.29

High Grade Bonds 6.3% 6.5% 0.45

High Yield Bonds 8.0% 12.4% 0.38

Hedge Funds 5.7% 7.8% 0.30

REITs 8.5% 26.1% 0.20

Commodities -1.0% 20.4% N/MSource: Hamilton Lane Fund Investment Database (March 2015)

Indices used: Hamilton Lane All Private Equity with volatility de-smoothed; Russell 3000 Index; MSCI World ex US Index; MSCI Emerging Markets Index; Barcalys Aggregate Bond Index; Credit Suisse High Yield Index, HFRI Composite Index; FTSE/NAREIT Equity REIT Index; Dow Jones-UBS Commodities Index. Geometric mean returns in USD.

• Private equity outperforms on an absolute and risk-adjusted basis

• It remains an attractive asset class

Please refer to endnotes in Appendix


Risk of Loss Less than Publics

Investors are more likely to lose principal in equity mutual funds than in Private Equity funds

% of Mutual Funds Returning Less Than 1.0x1

% of Buyout Funds Returning Less Than 1.0x

Inception Year

Vintage Year

Source: Bloomberg. As of 9/30/2014 (April 2015)

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Source: Hamilton Lane Fund Investment Database. Data as of 9/30/14 (April 2015)

Average 2000 - 2010: 22.9%

0%

5%

10%

15%

20%

25%

30%

Average 2000 - 2010: 12.6%

0%

5%

10%

15%

20%

25%

30%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

1 The mutual fund sample encompasses 19,000 funds raised between 2000-2010. A mutual fund is deemed to have returned less than 1.0x if it has a negative ten year return as of September 30, 2014. In the absence of a ten year return, the same criteria is applied to the fi ve year return as of September 30, 2014.


0

100

200

300

400

500

600

Robinson & Sensoy(2011)

Higson & Stucke(2012)

Harris, Jenkinson, and Kaplan (2013)

Jason Malinowski; Blackrock Research (2010)

Ann

ual O

utpe

rform

ance

(bps

)

Private Equity Annual Outperformance vs. S&P 500 By Academic Study Author(s)

Source: Cyclicality, Performance Measurement, and Cash Flow Liquidity in Private Equity (proprietary LP investment database); Performance of Private Equity (Cambridge Associates); Private Equity Performance, What Do We Know? (Burgiss); Do Buyouts Outperform? (Thomson, S&P, Blackrock)

Upper Bound Stated Outperformance Lower Bound

• Studies support a range of 300-500 bps of outperformance of public equities

Academic Studies

Challenges:Illiquidity

Blind Pool

Transparency / Valuation

Regulations


Sample Fund Structures and Terms*

• Term: Ten-year limited partnership

• Typically two, one-year extension options, voted on by Advisory Committee

• Annual Management Fee: Based on committed capital

• Venture Funds: 2-2.5%

• Buyout Funds: 1.5-2%

• Carried Interest: GP profi t participation

• Most often set at 20% of gains

• Premier funds charge a higher carry

• Usually above a Preferred Return/Hurdle Date of 5-10% for buyout funds

• i.e. GP receives $.20 on every dollar of profi t after set hurdle

• Commitment/Investment Period: Capital called over four to fi ve years for investments

*The actual fund structure and terms of any given fund investment may vary substantially


• Limited coverage

• Reach across industry

• Time frame

• Inconsistent data

• Uneven reporting

• Uncertain values

• Currency issues

Historically, PE Databases Unreliable


Private Equity Data Collection

Private Equity Benchmark Provider Data SourcesLP Back Offi ce GP Contributed LP Contributed FOIA Data1

Hamilton LaneCambridge AssociatesBurgissState StreetPreqinThomson ReutersPevara/EfrontPitchbookDow JonesBloomberg

Data Source Considerations

• Sample restricted to institutional portfolios

• Few can do this

• Contribution bias• Unaudited• Labor intensive

• Time lag• Labor intensive• Contribution bias

• Easy to aggregate

• Time lag• Limited metrics• Uncertain

currency conversion

1 U.S. Freedom of Information Act covers investments made by state and municipal pensions


Fund X: 7.54% IRR

Fund X Quartile Classification Across Data Providers Vintage Year 2003

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

Hamilton Lane Preqin Cambridge Associates

IRR

(%)

Source: Hamilton Lane Fund Investment Database, Preqin, Thomson One/Cambridge Associates. For vintage 2003 Venture Capital. As of 6/30/2014 (December 2014)

Fund X is a real vintage year 2001 buyout fund – it can be classifi ed in three different quartiles depending on the data provider that is used

Inconsistent Benchmarks

• Differences up to 2x comparing the same returns

• A lack of consistently reliable data sources continues to plague the industry


Mitigating Private Equity Risks and Concerns

Illiquidity Blind Pool Investment Transparency/Valuations

Entire commitment is never fully exposed all at once and cash distributions may occur as early as within 2-3 years (see page 12)

Invest with GPs who have a proven ability to exit over multiple cycles

Active portfolio management and dialogue with GPs/management teams on exit plans

Interim distributions/partial realizations from recaps, restructurings, and partial sales

Thoughtful portfolio construction through strategic allocations to J-curve mitigating strategies

Continuity in GPs strategy over multiple funds is important

Invest with GPs with strong and proprietary pipelines of opportunity

GP and LP communication is critical

Investing in largely funded secondaries provides transparency to underlying company holdings

ASC 820 (formerly FAS 157) - Financial Accounting Standards Board guides the alternative investment industry on how they measure and disclose fair value in fi nancial statements

SEC registration

• Annual audits required by GPs

Quarterly advisory board calls

Annual meetings, update meetings and continuous dialogue with GPs

Selecting top-tier managers with premier access, strong and tenured relationships and a superior understanding of PE asset allocations

helps mitigate PE risks and concerns

What Do We See in “Real” Portfolios


Private Equity vs. Public Equity Performance

Public Equity +300 bps

Public Equity +500 bps

6%

8%

10%

12%

14%

16%

18%

20%

6% 8% 10% 12% 14% 16% 18% 20%

Priv

ate

Equi

ty R

etur

n

Public Equity Return

10-Year Public Pension Plan Returns Private Equity Returns vs. Public Equity Returns

Source: Annual reports of 10 of the 50 largest U.S. public DB plans that provided a 10-year private equity return in their filing.Most recent year-end as of September 30, 2014

Private equity outperforms public equities in all but one public pension plan in our sample• Much greater dispersion of returns in private equity – selection matters


The Allocation Effect

Plans with larger allocations to private equity have had better performance in private equity• It takes scale and resources to effectively invest in private equity

Priv

ate

Equ

ity R

etur

n

Current PE Allocation ($B)

10-Year PE Return vs. PE AllocationBy $ Allocated to Private Equity

Source: Annual reports of 10 of the 50 largest U.S. public DB plans that provided a 10-year private equity return in their filing.Most recent year-end as of March 31, 2014.

0% 5% 10% 15% 20% 25%

Priv

ate

Equ

ity R

etur

n

Current PE Allocation (% of Plan Assets)

10-Year PE Return vs. PE Allocation By % Allocated to Private Equity

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

2 4 6 8 10 12 14 16 18 20

How Much to Allocate


Traditional Risk Framework

0%

2%

4%

6%

8%

10%

12%

14%

16%

5% 7% 9% 11% 13% 15% 17% 19%

Ret

urn

Volatility

Efficient Frontiers With and Without Private Equity

26% Allocation to PE




Efficient Frontier without PE Efficient Frontier with PE

Left unconstrained, effi cient frontier models call for large allocations to private equity1

Source: Hamilton Lane Fund Investment Database (March 2015) Indices used: Hamilton Lane All Private Equity with volatility de-smoothed; Russell 3000 Index; MSCI Emerging Markets Index; Barcalys Aggregate Bond Index; Credit Suisse High Yield Index, HFRI Composite Index; FTSE/NAREIT Equity REIT Index; Dow Jones-UBS Commodities Index. Geometric mean returns in USD. Please refer to endnotes in Appendix.


Who Invests in Private Equity?

Public pension funds make up approximately 29% of all private equity commitments• A longer-term asset class, private equity may be suitable for investors who are able to make capital

commitments over a multi-year period

Private SectorPension Funds

14%Banks & Investments5%

Insurance Companies10%

Endowment Plans7%

Sovereign WealthFunds14%

Investment Companies2%

Government Agencies5%

Public Pension Funds29%

Percentage of Private Equity Capital by Limited Partner Type

Foundations6%

Family Offices6%

Source: Preqin Investor Intelligence (January 2015)

SuperannuationSchemes

1%Corporate Investors

1%


What is the Appropriate PE Allocation?

The largest pension funds allocate approximately 9.0% of their assets to private equity*

Asset Class Public Corporate Union

Domestic Stock 29.2% 23.7% 30.6%

International Stock 19.7% 15.3% 7.3%

Global Equity 2.4% 3.5% 8.8%

Domestic Fixed Income 20.8% 33.2% 28.3%

Globa/International Fixed Income 2.1% 2.2% 0.7%

Cash 1.8% 2.1% 0.6%

Private Equity 9.3% 6.5% 3.7%

Real Estate Equity 7.8% 4.9% 11.1%

Alternatvies 5.0% 7.5% 8.2%

Other 1.9% 1.1% 0.7%Source: Pensions & Investments: Average Asset Mixes - Top 200 Defi ned Benefi t Pension FundsAs of 9/30/2014 (Feb 2015)

Building a Portfolio to Outperform


Building Portfolios Designed to Outperform

Top-Down +Bottom-Up Approach =

Performance

Manager Selection Access

M

arke

t Ove

rlay

Portfolio Construction

• High-quality GPs that allocate through market cycles

• Flexible commitment pacing to prevailing market opportunities

• Build customized portfolios from complementary top-tier fund managers

• In-depth quantitative and qualitative analysis

• Access through leading market position, global network

• Size and scale leads to differentiated deal fl ow and access

• Investment philosophy allows for diversifi cation without indexing returns

• Selectively allocate to strategies in order to mitigate the J-curve


Tactical Allocation is Crucial

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011EU Buyout

24.9%EU Buyout

36.3%EU Buyout

32.8%Secondary FoF 21.6%

US Large/Mega 15.9%

Growth Equity 21.8%

Multi-Stage VC 9.3%

Seed/Early VC 18.2%

Seed/Early VC 25.3%

US SMID23.5%

Real Estate25.1%

Multi-Stage VC 33.1%

US Large/Mega 19.9%

Distressed Debt 26.6%


EU Buyout20.4%

US SMID11.5%

Seed/Early VC 17.4%



Growth Equity 21.3%

US Large/Mega 22.0%


Seed/Early VC 30.6%

Real Estate19.4%

US SMID21.6%

US SMID19.7%

US SMID18.2%

ROW11.0%

ROW13.1%

US SMID8.2%

Growth Equity 15.4%

US SMID16.6%


Secondary FoF 22.7%

Infrastructure20.8%

ROW13.6%

ROW21.3%

Multi-Stage VC 3.3%

Mezzanine12.6%

Seed/Early VC 10.7%

US Large/Mega 9.4%

Secondary FoF 7.5%

US SMID12.9%

US Large/Mega 15.2%

Infrastructure15.4%

Late Stage VC 20.9%

Real Estate20.3%

Growth Equity 13.4%

Real Estate20.8%

Real Estate0.9%

Real Estate11.0%



US Large/Mega 7.4%

Natural Resources

12.3%


Seed/Early VC 14.5%

Seed/Early VC 19.3%

Natural Resources

17.0%

US SMID11.3%

US Large/Mega 19.3%

Seed/Early VC -2.8%

Seed/Early VC 3.9%

Secondary FoF 8.9%

EU Buyout8.1%

Growth Equity 6.7%

Secondary FoF 11.7%

Late Stage VC 12.5%

ROW13.5%

Growth Equity 14.1%

US SMID16.3%

Secondary FoF 10.3%

Mezzanine9.0%

Multi-Stage VC 7.3%

US SMID7.7%

Seed/Early VC 4.2%




US SMID13.1%

Mezzanine15.5%

Mezzanine9.7%

Multi-Stage VC 4.9%

Real Estate1.0%

Mezzanine6.7%

EU Buyout3.9%

Mezzanine10.2%

Secondary FoF 11.7%

Real Estate12.2%

Natural Resources

12.8%

Growth Equity 13.1%

Multi-Stage VC 2.5%

Seed/Early VC -0.8%

Secondary FoF 6.7%

ROW3.2%

US Large/Mega 9.6%

Natural Resources

10.5%

EU Buyout8.0%

EU Buyout12.3%

US Large/Mega 12.3%

Late Stage VC 1.0%

Multi-Stage VC 3.7%

Mezzanine3.0%

Late Stage VC 7.5%

EU Buyout10.4%

Natural Resources

-7.5%



Seed/Early VC -2.4%

Real Estate-2.6%

Natural Resources

1.9%

ROW6.5%

Mezzanine10.2%

Mezzanine10.5%

ROW8.4%

Real Estate0.3%

EU Buyout4.2%

ROW10.1%

ROW4.4%

EU Buyout4.4%

Real Estate4.1%

Real Estate 5.8%

Infrastructure2.6%Source: Hamilton Lane Fund Investment Database. Pooled Net IRRs as of 9/30/2014 (February 2015)

Strategies as designated by Hamilton Lane. Fund size classifi cations (SMID, Large/Mega) may vary by vintage yearStrategies with less than three funds in a Vintage Year are not included for the year on the chart

Periodic Table of Returns by Vintage Year


1985

North America - BuyoutWestern Europe - BuyoutNorth America - Distressed DebtNorth America - Real EstateNorth America - Venture CapitalNorth America - Growth EquityNorth America - InfrastructureNorth America - MezzanineNorth America - Special SituationsROW - BuyoutROW - Growth EquityROW - Real EstateROW - Venture CapitalWestern Europe - Distressed DebtWestern Europe - InfrastructureWestern Europe - Real EstateFoFMulti-Manager CISecondary FoF

KKR

WCAS

TCW

Forstmann Little

OakSummit

Butler Capital

Source: Hamilton Lane Fund Investment Database (August 2014)


2014

North America - BuyoutWestern Europe - BuyoutNorth America - Distressed DebtNorth America - Real EstateNorth America - Venture CapitalNorth America - Growth EquityNorth America - InfrastructureNorth America - MezzanineNorth America - Special SituationsROW - BuyoutROW - Growth EquityROW - Real EstateROW - Venture CapitalWestern Europe - Distressed DebtWestern Europe - InfrastructureWestern Europe - Real EstateFoFMulti-Manager CISecondary FoF

TPG

Oaktree

ApaxTA

Advent

KKR Bain

NEA

Carlyle

BlackstoneWarburgPincus

Apollo

BC

SilverLake

GoldmanSachs

BlackstoneRE

PermiraTCV

Coller

NordicCVC

JPMorgan

Cinven

Hellman

Global Infrastructure PartnersLexington

Cerberus

Insight

GeneralAtlantic

Source: Hamilton Lane Fund Investment Database (August 2014)


Wide disparity of returns makes manager selection critical

Manager Selection

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

IRR

(%)

Private Equity IRR Quartiles As of September 30, 2014

Upper Quartile IRR Median IRR Bottom Quartile IRR MSCI World

Source: Hamilton Lane Fund Investment Database (April 2015) MSCI World, net reinvested dividends.Benchmark calculated as PME (Public Market Equivalent) using All Private Equity pooled cashflows.

Vintage Year


PE Manager Access and Selection are KeyIn

tern

al R

ate

of R

etur

n (IR

R)

Top Quartile Median Bottom Quartile

SPTR vs. Top Quartile U.S. BuyoutRolling One Year TWR - As of September 30, 2014

U.S. Buyout Top Quartile S&P 500 Total Return Index

U.S. Buyout

EuropeanBuyout

U.S.Stock Funds

EuropeanStock Funds

Ten

Year

Ret

urn

Dispersion of Returns Private Equity vs Mutual Funds: 10 Year Time-Weighted Returns

Upper Middle Bottom

-60%

-40%

-20%

0%

20%

40%

60%

80%

Source: Hamilton Lane Fund Investment Database, Bloomberg. As of 9/30/2014 (March 2015)

Vintage Year Since-Inception ReturnsAll PE - As of September 30, 2014

Source: Hamilton Lane Fund Investment Database. As of 9/30/2014 (March 2015)

0%

5%

10%

15%

20%

25%

30%

Source: Hamilton Lane Fund Investment Database, Bloomberg. (September 2014)

Trai

ling

1Y T

ime-

Wei

ghte

d R

etur

n (T

WR

)

-10% -5% 0% 5%

10% 15% 20% 25% 30%

1995 1997 1999 2001 2003 2005 2007 2009 2011

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

• Fund access and selection are crucial to performance in this asset class

• The performance gap between top and bottom quartile returns is wider in private equity than any other asset class

• Most managers do not beat the public markets


Keys to Private Equity Manager Success

• Low Purchase Price/Higher Sale Price• Structure/Financing• Earnings Improvement• Strategic Reorientation

• IPO• Strategic/Financial Sale• Merger• Refi nancing

How Does a GP Add Value? How Do GPs Exit Investments?

A successful manager increases the value of its portfolio companies and is able to exit these companies at prices well above cost

It is critical to understand how GPs generate value and distinguish between the realized/unrealized performance in a fund

60% 55% 76%

64%

22% 35% 12%

23%

18% 10% 12% 13%

-20%

0%

20%

40%

60%

80%

100%

Fund I Fund II Fund III Total

Value Creation

Debt Paydown Multiple Expansion EBITDA Growth

Example: Private Equity Fund VI - Prior Investment Performance 1

($mm) Fund Total Portfolio Gross IRR Realized Portfolio Gross IRR Unrealized Portfolio Gross IRR

Fund I 31.4% 31.4%Fund II 34.5% 38.9% 8.9%Fund III 27.4% 31.0% 12.4%Fund IV 14.8% 20.3% 13.6%Fund V 15.0% 40.7% 13.9%Total 24.4% 34.1% 13.3%

1 For illustrative purposes only. Actual performance results may vary.


Contact Information

Philadelphia One Presidential Blvd., 4th Floor Bala Cynwyd, PA 19004 USA +1 610 934 2222

Rio de Janeiro Av. Niemeyer 2, Sala 102 Leblon Rio de Janeiro Brasil 22450-220 +55 21 3520 8903

New York 610 Fifth Avenue, Suite 401 New York, NY 10020 USA +1 212 752 7667

Tokyo 17F, Imperial Hotel Tower 1-1-1, Uchisaiwai-cho, Chiyoda-ku Tokyo 100-0011 Japan +81 (0) 3 3580 4000

London 8-10 Great George Street London SW1P 3AE United Kingdom +44 (0) 207 340 0100

San Francisco 200 California Street, Suite 400 San Francisco, CA 94111 USA +1 415 365 1056

Fort Lauderdale 200 SW 1st Avenue, Suite 880 Ft. Lauderdale, FL 33301 USA +1 954 745 2780

Las Vegas 3753 Howard Hughes Parkway Suite 200 Las Vegas, NV 89169 USA +1 702 784 7690

Hong Kong Room 1001-3, 10th Floor St. George’s Building 2 Ice House Street Central Hong Kong, China +852 3987 7191

San Diego 7777 Fay Avenue, Suite 201 La Jolla, CA 92037 USA +1 858 410 9967

Tel Aviv 14 Shenkar Street Nolton House Herzliya Pituach, 46733 P.O. Box 12279 Israel +00 972 9 958 6670

Appendix


Endnotes

Page 10

Please note that the data shown herein represents actual performance data for an investor who committed $10M to the Hamilton Lane Carpenters Partnership Fund L.P. in 2000. The return fi gures shown

may differ for investors who committed to the partnership at a different time or with different terms. The data shown is intended to provide information about the potential cash fl ows that a private equity fund

can provide, and should not be considered a proxy for the performance of all private equity funds. Actual performance will vary depending on, amongst other factors, market and credit conditions and may

vary signifi cantly from the data shown herein. Past performance is not a guarantee of future results.

Pages 17, 30

The Hamilton Lane All Private Equity Index tracks the performance of private equity strategies including buyout, venture capital, credit, and other special situation strategies. The index excludes real

estate, fund-of-funds, and secondary fund-of-funds. The Russell 3000 Index tracks the equity performance of the 3,000 largest U.S. companies. The MSCI World Ex U.S. Index tracks large and midcap

equity performance in developed market countries, excluding the U.S.. The MSCI Emerging Markets Index tracks large and mid-cap equity performance in emerging market countries. The Barclays

Aggregate Bond Index tracks the performance of U.S. investment grade bonds. The Credit Suisse High Yield Index tracks the performance of U.S. sub-investment-grade bonds. The FTSE/ NAREIT

All Equity REIT Index tracks the performance of U.S. equity REITs. The Dow Jones-UBS Commodities Index tracks the performance of a broad basket of commodity futures contracts.


As of

Disclosures

As of October 1, 2015

This presentation has been prepared solely for informational purposes and contains confi dential and proprietary information, the disclosure of which could be harmful to Hamilton Lane. Accordingly, the recipients of this presentation are requested to maintain the confi dentiality of the information contained herein. This presentation may not be copied or distributed, in whole or in part, without the prior written consent of Hamilton Lane.

The information contained in this presentation may include forward-looking statements regarding returns, performance, opinions, the fund presented or its portfolio companies, or other events contained herein. Forward-looking statements include a number of risks, uncertainties and other factors beyond our control, or the control of the fund or the portfolio companies, which may result in material differences in actual results, performance or other expectations. The opinions, estimates and analyses refl ect our current judgment, which may change in the future.

All opinions, estimates and forecasts of future performance or other events contained herein are based on information available to Hamilton Lane as of the date of this presentation and are subject to change. Past performance of the investments described herein is not indicative of future results. In addition, nothing contained herein shall be deemed to be a prediction of future performance. The information included in this presentation has not been reviewed or audited by independent public accountants. Certain information included herein has been obtained from sources that Hamilton Lane believes to be reliable but the accuracy of such information cannot be guaranteed.

This presentation is not an offer to sell, or a solicitation of any offer to buy, any security or to enter into any agreement with Hamilton Lane or any of its affi liates. Any such offering will be made only at your request. We do not intend that any public offering will be made by us at any time with respect to any potential transaction discussed in this presentation. Any offering or potential transaction will be made pursuant to separate documentation negotiated between us, which will supersede entirely the information contained herein.

The MSCI World Index is a free fl oat-adjusted market capitalization weighted index that is designed to measure the equity performance of developed markets.

Certain of the performance results included herein do not refl ect the deduction of any applicable advisory or management fees, since it is not possible to allocate such fees accurately in a vintage year presentation or in a composite measured at different points in time. A client’s rate of return will be reduced by any applicable advisory or management fees, carried interest and any expenses incurred. Hamilton Lane’s fees are described in Part 2 of our Form ADV, a copy of which is available upon request.

The following hypothetical example illustrates the effect of fees on earned returns for both separate accounts and fund of funds investment vehicles. The example is solely for illustration purposes and is not intended as a guarantee or prediction of the actual returns that would be earned by similar investment vehicles having comparable features. The example is as follows: The hypothetical separate account or fund of funds consisted of $100 million in commitments with a fee structure of 1.0% on committed capital during the fi rst four years of the term of the investment and then declining by 10% per year thereafter for the 12-year life of the account. The commitments were made during the fi rst three years in relatively equal increments and the assumption of returns was based on cash fl ow assumptions derived from a historical database of actual private equity cash fl ows. Hamilton Lane modeled the impact of fees on four different return streams over a 12-year time period. In these examples, the effect of the fees reduced returns by approximately 2%. This does not include performance fees, since the performance of the account would determine the effect such fees would have on returns. Expenses also vary based on the particular investment vehicle and, therefore, were not included in this hypothetical example. Both performance fees and expenses would further decrease the return.

Hamilton Lane (UK) Limited is a wholly-owned subsidiary of Hamilton Lane Advisors, L.L.C. Hamilton Lane (UK) Limited is authorized and regulated by the Financial Conducts Authority. In the UK this communication is directed solely at persons who would be classifi ed as a professional client or eligible counterparty under the FCA Handbook of Rules and Guidance. Its contents are not directed at, may not be suitable for and should not be relied upon by retail clients.

Any tables, graphs or charts relating to past performance included in this presentation are intended only to illustrate the performance of the indices, composites, specifi c accounts or funds referred to for the historical periods shown. Such tables, graphs and charts are not intended to predict future performance and should not be used as the basis for an investment decision.

The information herein is not intended to provide, and should not be relied upon for, accounting, legal or tax advice, or investment recommendations. You should consult your accounting, legal, tax or other advisors about the matters discussed herein.

private markets overview -10.12.2015

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