torreycove’s 1 quarter 2019 market overview · flagship ventures opportunities fund ii $0.8...
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© 2011 TorreyCove Capital Partners LLC Exhibit I Confidential
© 2019 TorreyCove Capital Partners │ Confidential Information
www.torreycove.com
TorreyCove’s 1st Quarter 2019Market Overview
©2018 TorreyCove Capital Partners
Your Partner For Alternative Investment Solutions
© 2011 TorreyCove Capital Partners LLC Exhibit I Confidential
© 2019 TorreyCove Capital Partners │ Confidential Information
Special Situations Fundraising | $ Billion
Market Overview 1Q19
Fundraising ActivityNorth America
BUYOUTS
• 1Q commitments: $80.9 billion across
buyout and mezzanine firms, a 60.2%
increase from 1Q18 ($50.5 billion), and a
25.6% decrease from 4Q18 ($108.8 billion).
(Buyouts)
• As of April 2019, funds targeting $1.0 billion
to $5.0 billion had received 56.0% of
capital, followed by funds targeting $5.0
billion or more with 32.8%. (Buyouts)
• With the surge in 2018 fundraising, the
total funds raised LTM 1Q19 ($275.0 billion)
slightly outpaced LTM 1Q18 ($241.3 billion),
representing an increase of 14.0%.
(Buyouts)
• According to Buyouts, the largest fund
raised so far in 2019 is also the only fund
raised this year over $10.0 billion as Thoma
Bravo Fund XIII has raised $12.6 billion in
2019.
• Considering only industry focused-funds,
the high technology sector raised $18.9
billion through 1Q19, closely followed by
healthcare, with $17.5 billion raised. The
next three are energy and power, consumer
services, and industrials, respectively with
$4.2 billion, $3.5 billion, and $3.3 billion
raised.
Buyout and Mezzanine Fundraising | $ Billion
VENTURE CAPITAL
• 1Q commitments: $24.6 billion, a 36.4%
decrease from 4Q18 ($38.7 billion). Funds
raised from the year prior reached $22.8
billion, an increase of 7.9%. (PWC)
• The number of fund-closings totaled 1,279
during 1Q19, representing a 3.7% decrease
from 4Q18 when 1,328 funds closed
fundraisings. (PWC)
• First-time-funds have raised $0.1 billion
across two funds in the first quarter of 2019.
(Pitchbook)
• The 2019 median fund size increased by
29.8% year-over-year (from $79.6 million to
$103.3 million). This represents the highest
level in since 2008, when median fund size
was $86.3 billion. (Pitchbook)
Venture Capital Fundraising | $ Billion
Source: Pitchbook & National Venture Capital Association
SPECIAL SITUATIONS
• Distressed / Turnaround Debt: $1.7 billion, a
61.9% increase from 4Q18 ($1.0 billion) and
a 351.7% increase from 1Q18 ($0.4 billion).
(Thomson Reuters)
• Mezzanine: $1.4 billion, a 65.3% decrease
from 4Q18 ($4.0 billion) and an 86.8%
decrease from 1Q18 ($10.4 billion).
(Thomson Reuters)
• Fund of Funds / Secondary Funds: $2.9
billion, a 45.0% increase from 4Q18 ($2.0
billion). (Thomson Reuters)
Source: Thomson ReutersSource: Buyouts, as of May 3, 2019
Largest Active U.S. Fundraisers in 2019 Fund Size
BuyoutThoma Bravo Fund XII $12.6 billion
Genstar Capital Partners IX $5.5 billion
Venture CapitalTCV X $3.0 billion
Flagship Ventures Opportunities Fund II $0.8 billion
Mezzanine NB Private Debt Fund III $1.7 billion
Distressed/Turnaround Centerbridge Special Credit Fund III $5.0 billion
Fund of Funds Greenspring Global Partners IX $1.0 billion
2
Source: Thomson Reuters
$69.3
$98.7
$160.7
$190.8
$207.7
$228.1
$210.1
$241.6 $244.5
$80.9$19.9
$24.8
$24.4
$20.7
$33.8
$36.0
$40.0
$34.3
$53.9
$9.6
$0
$20
$40
$60
$80
$100
$120
$140
$160 Turnaround/Distressed Debt
Fund of Funds
Secondary Funds
Mezzanine Stage
Other PE/Special Sits
© 2011 TorreyCove Capital Partners LLC Exhibit I Confidential
© 2019 TorreyCove Capital Partners │ Confidential Information
VENTURE CAPITAL
• Venture capitalists invested $32.0 billion in
1,853 deals in 1Q19, down 27.6% in value
compared to 4Q18, when $44.2 billion went
into 2,425 deals. (Pitchbook)
• The software industry led all sectors during
the quarter, garnering $9.8 billion through
718 deals. Software deals were followed by
commercial services, and pharma and
biotech, with $6.8 billion and $3.9 billion of
capital invested through 115 and 151 deals,
respectively. (NVCA)
BUYOUTS
• According to Thomson Reuters, disclosed deal
value totaled roughly $102.4 billion in 1Q19,
down 34.1% compared to 4Q18, when
disclosed deal value totaled $155.5 billion.
• The largest U.S.-sponsored deal to close in
1Q19 was the $8.8 billion acquisition of
EnLink Midstream Partners, executed by
Global Infrastructure Partners LLC. (Buyouts)
• According to Buyouts, the most active LBO
dealmaker of Q1 2019 was Jefferies LLC, with
13 deals closed during the quarter. Closely
followed by both Citi and Barclays (10 deals
closed), and BofA Merrill Lynch and Houlihan
Lokey (9 deals closed).
• High technology led Q1 2019 with 103 deals
closed during the quarter. Industrials
followed with 85 deals, while consumer
products and services rounded out the top
three, with 67 deals closed in the industry.
(Buyouts)
• LBO purchase price multiples were 10.3x
EBITDA by the end of 1Q19, a 3.0% decrease
when compared to 10.6x EBITDA at the end of
2018. (S&P Global)
Market Overview 1Q19
Investment ActivityNorth America
Source: S&P M&A Stats – March 2019
U.S. LBO & VC Investment Activity | $ Billion
Source: Buyouts & National Venture Capital AssociationNote: 1Q LBO figures through January 15, 2019
Source: Thomson Reuters
LBO Purchase Price Multiples Special Situations Investment Activity | $ Billion
3
U.S. 1Q Venture Investment by Stage
SPECIAL SITUATIONS
• Distressed / Turnaround Debt: There were 31
distressed/turnaround investments during
1Q19 for a total value of $0.7 billion,
representing a decrease of 20.5% in deal count
and a decrease of 94.1% in value compared to
4Q18 (39 deals for $11.5 billion). (Thomson
Reuters)
• Mezzanine: There were 38 mezzanine
investments during 1Q19 for a total value of
$6.4 million, representing an increase of 15.2%
in deal count and a decrease of 93.7% in value
compared to 4Q18 (33 deals for $0.1 billion).
(Thomson Reuters)
• Fund of Funds / Secondary Funds: There were
32 fund-of-funds and secondary fund
investments during 1Q19 for a total value of
$0.4 billion, representing an increase of 39.1%
in deal count and a decrease off 94.6% in value
compared to 4Q18 (23 deals for $7.2 billion).
(Thomson Reuters)
37.3
87.7
121.3115.2
146.0
112.7117.5
170.1
184.2
54.3
27.231.3
44.9
41.547.8
71.0
83.0
77.0
82.9
132.1
32.6
LBO Deals
Venture
$0
$5
$10
$15
$20
$25
$30
0
100
200
300
400
500
600Sum of Deal ValueNo. of Deals
289.4
0x
2x
4x
6x
8x
10x
12xSenior Debt/ EBITDASub Debt/ EBITDAEquity/ EBITDAOthers
3.7%
15.0%
33.0%
40.8%
7.5%
Seed Early Expansion Late Other
142 deals
251 deals212 deals
303 deals
24.7 billion
298 deals
© 2011 TorreyCove Capital Partners LLC Exhibit I Confidential
© 2019 TorreyCove Capital Partners │ Confidential Information
Market Overview 1Q19
Investment Activity + ExitsNorth America
• According to Buyouts, there were four
buyout-backed IPOs in the U.S during
1Q19 totaling $0.6 billion in value.
• There were 144 buyout-backed M&A
exits in 1Q19 with a total valuation of
approximately $23.4 billion. Of the 41
deals with disclosed value, 8 crossed the
billion-dollar threshold. (Buyouts)
• Industrials accounted for 24 buyout-
backed M&A exits during 1Q19, which
represents 16.9% of the total exits. High
technology was the second largest by
deal count with 21 deals, while consumer
products and services and materials
industry closely followed with 19 and 12
exits each, respectively. (Buyouts)
Number of U.S.-based IPOs
Source: Thomson Reuters, Pitchbook & National Venture Capital Association
Number of U.S.-based M&A
• 1Q19 saw the slowest quarter in M&A exit
activity in over two years with a decrease
of 29.4% in deal count and 53.1% in deal
value since the fourth quarter of 2018.
(Buyouts)
• According to Pitchbook, U.S. venture-
backed M&A exits totaled 137 during 1Q19
with total disclosed value of $46.7 billion.
This represents an increase in value when
compared with 4Q18 ($40.2 billion),
despite a decrease in deal count (222).
• There were 12 venture-backed IPOs during
1Q19 valued at $25.0 billion, representing
a 33.3% decrease in count and 42.9%
increase in value from 4Q18 where 18 IPOs
were valued at $17.5 billion. (Pitchbook)
Source: Thomson Reuters, Pitchbook & National Venture Capital Association
DRY POWDER
• According to Preqin, SoftBank Investment Advisors
currently has the largest amount of dry powder at
$59.1 billion, followed by Blackstone Group with
$36.6 billion and Carlyle Group with $35.1 billion
as of 1Q19.
• 17 of the top 25 fund managers by dry powder are
based in the U.S. (Preqin)
Source: Thomson Reuters, Preqin
SECONDARY BUYOUTS• 75 secondary buyout transactions were
completed during 1Q19 for an aggregate dealvalue of $5.0 billion.
Largest U.S. Liquidity Events in 4Q 2018Sponsors Company Value
PE-backed IPO
ARCH Venture Partners, Omega
Funds, and Hillhouse Capital
Partners
Gossamer Bio
(NYSE:GOSS)$0.3 billion
VC-backed IPO (Multiple Sponsors)Lyft, Inc.
(NASDAQ: LYFT) $21.7 billion
PE-backed M&A NGP Energy Capital ManagementWildhorse Resource
Development Corp.$3.8 billion
VC-backed M&AAccel, Insight Venture Partners,
Sequoia CapitalQualtrics $8.0 billion
4
Global Dry Powder by Strategy | $ Billion
EXITS
918.7
1,164.41,167.9
1,297.6
1,437.8
1,692.1
1,888.82,203.9
2012 2013 2014 2015 2016 2017 2018 2019YTD
VentureReal EstateOtherMezzanineGrowthDistressed PEBuyout
$54.0$49.7
$40.7
$49.5
$43.7
$50.2
$39.1
$29.5
$5.0
304
331
288
386 384
305
330318
75
Sum of Deal Value ($B) No. of Deals
873 903
1,078 1,021
891 896 930
137
770
669
875
724661 646
638
144
Venture-backed Buyout-backed
44
61
87
126
78
43
58
87
12 24
40
49 50
31
8 18
42
4
Venture-backed Buyout-backed
© 2011 TorreyCove Capital Partners LLC Exhibit I Confidential
© 2019 TorreyCove Capital Partners │ Confidential Information
EXITS
• There were no PE-backed IPOs in 1Q19.
(Thomson Reuters)
• The slow-down in PE-backed IPO activity
across Europe can be attributed to
uncertainty around the ongoing Brexit
negotiations, however PwC notes that at the
start of the second quarter of 2019,
companies looking to IPO have received
positive feedback and good investor demand.
(PWC)
Market Overview 1Q19
Europe
FUNDRAISING
• 1Q19 commitments: $40.2 billion,
representing a 57.7% increase from 4Q18
($25.5 billion) and a 3.8% increase from
1Q18 ($38.7 billion). (Thomson Reuters)
• According to Thomson Reuters, France
accounted for 49.2% of funds raised in
Europe during 1Q19, followed by the
United Kingdom (42.1%), and Switzerland
(3.0%).
• The increase in funds raised during the
quarter stems from an increase in
fundraising in France, $19.8 billion
compared to $3.7 billion raised in 4Q18,
and the U.K., $16.9 billion compared to
$14.5 billion in 4Q18, offset by a
decrease in Germany, from $5.9 billion in
4Q18 to $0.3 billion this quarter.
Additionally, Austria, Czech Republic ,and
Estonia saw nil fundraising activity,
despite raising $0.3 billion, $0.2 billion,
and $24.0 million, respectively, from the
quarter before. (Thomson Reuters)
• The largest fund to achieve a final closing
was EQT Infrastructure IV ($10.2 billion),
a London based fund focused on the
infrastructure sector, followed by Ardian
Infrastructure Fund V ($6.9 billion) and
Astorg VII ($4.6 billion). (Preqin)
Europe Fundraising Activity | $ Billion
INVESTING
• Disclosed deal value totaled $21.3 billion
across 672 deals in 1Q19, down 9.6% in
deal value ($30.1) and down 29.1% in
deal count (743) from 4Q18. (Thomson
Reuters)
• Germany accounted for 40.0% of deal
value in Europe during 1Q19, followed by
the United Kingdom and France with
35.4% and 12.5%, respectively. (Thomson
Reuters)
• According to Thomson Reuters, the
largest PE deal disclosed in Europe was
Scout24 AG, a German-based digital
market place specializing in real estate
and automotive sectors, which was
acquired by Blackstone Group and
Hellman & Friedman for $5.6 billion.
• Another notable transaction includes
Inmarsat PLC, a U.K.-based satellite
telecommunications company, acquired
by Triton Bidco ($3.4 billion).
• The internet industry garnered $7.0
billion of new investment in 1Q19,
followed by industrials with $3.7 billion.
(Thomson Reuters)
Europe Investment Activity | $ Billion
Europe | PE Backed IPOs as % of Total IPOs
Europe IPO Exits| $ Billion
Source: Preqin
Source: PWC
Source: Thomson Reuters Source: Thomson Reuters
5
5.6
1.9
14.4
28.9
20.0
7.4
5.23.9
0.0
$0
$5
$10
$15
$20
$25
$30
$35
65.9
59.0
68.2 68.2
99.6
48.1
64.2
113.8
21.3
$0
$20
$40
$60
$80
$100
$120
82.7
103.4
139.6
157.6
143.5
176.2
214.3 207.4
69.4
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
$200
$220
$240
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
2014 2015 2016 2017 2018 2019
Volume % Value %
© 2011 TorreyCove Capital Partners LLC Exhibit I Confidential
© 2018 TorreyCove Capital Partners │ Confidential Information
Market Overview 1Q19
Asia
FUNDRAISING
• 1Q19 commitments: $17.6 billion,representing a 56.0% decrease from1Q18 ($40.0 billion) and a 59.7%decrease from 4Q18 ($43.6 billion).
• China accounted for 68.8% of funds
raised in Asia during 1Q19, followed by
India (16.3%) and Japan (6.5%).
• The decrease in funds raised this
quarter was largely due to China, which
decreased from $25.4 billion to $12.1
billion on a quarter-on-quarter basis.
• The largest PE fund to reach a final
closing was TPG Asia VII, L.P. ($4.6
billion in total), a Hong Kong based
buyout fund sponsored by TPG Capital,
followed by Boyu Capital Fund IV, L.P.
($3.6 billion) and EISAF II Onshore Fund,
L.P. ($1.3 billion).
• In 1Q19, Buyout/Growth was the most
popular strategy in Asia, accounting for
38.5% of the total, followed by Real
Estate (33.2%) and Venture Loan/Debt
Financing (19.2%).
Source: AVCJ
EXITS
• In Asia, there were 21 PE-backed IPOs in
1Q19 valued at $1.7 billion, down 59.6%
in value and down 50.0% in count from
4Q18, respectively. The largest IPO was
Maoyan Entertainment (listed in Hong
Kong Stock Exchange) sponsored by
Welight Capital (raised $0.3 billion).
• There were 40 disclosed Asian PE M&A
(ex-IPO) exits in 1Q19 valued at $12.9
billion, down 33.5% in value and down
36.5% in count from 4Q19. Japan was the
largest market in terms of deal value
(45.3% of the total).
Asian Fundraising Activity | $ Billion
INVESTING
• Disclosed deal value totaled $32.0
billion across 598 deals in 1Q19, down
26.4% in value and down 17.2% in
deal count compared to 4Q18,
respectively.
• China accounted for 35.2% of the total
investments in Asia during 1Q19,
followed by India and South Korea
with 28.8% and 10.2%, respectively.
• The largest disclosed PE deal in Asia
was the $1.5 billion of Chehaduo
Group, internet e-commerce provider
in China acquired by Soft Bank Vision
Fund. The other major deals were SBI
Life Insurance Company Ltd., a life
insurance company in India, acquired
by a Carlyle India Advisors Pvf. Ltd.
($0.6 billion).
• The information technology industry
garnered $11.0 billion in 1Q19,
followed by transportation and
distribution industry with $3.6 billion.
Asian Investment Activity | $ Billion
Asian IPO Exits | $ Billion
Asian M&A Exits | $ Billion
©2019 Alternative Investment Capital 6
76.5 81.9
117.6
134.0
176.5
256.2
167.1
17.6
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
$200
$220
$240
$260
$280
2012 2013 2014 2015 2016 2017 2018 2019YTD
71.9 73.5
103.8
150.2147.4
208.8
189.2
32.0
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
$200
$220
$240
$260
$280
2012 2013 2014 2015 2016 2017 2018 2019YTD
49.645.4
68.2
58.3
76.4
88.4
117.4
12.9
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
$110
$120
2012 2013 2014 2015 2016 2017 2018 2019YTD
35.1
18.3
70.6
45.5
31.5
40.9
47.4
1.7
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
2012 2013 2014 2015 2016 2017 2018 2019YTD
© 2011 TorreyCove Capital Partners LLC Exhibit I Confidential
© 2019 TorreyCove Capital Partners │ Confidential Information
Market Overview 1Q19
Emerging Markets: Brazil
FUNDRAISING
• Investor enthusiasm in Brazil remained
relatively constant in 2018, with the region
maintaining its position as the sixth most
attractive emerging market in EMPEA’s 2018 LP
Survey for the fourth consecutive year. The
survey reports 59.0% of LP’s cite currency risk as
the primary deterrent for investment in Brazil.
• According to Preqin, the largest Brazil-focused
fund closed in 2018 was Pátria Private Equity
Fund VI, a buyout fund with $2.7 billion in
commitments. In addition to being the largest
fund raised in Brazil in 2018, it represents the
largest fund ever raised in Latin America.
Together with Pátria Infrastructure Fund IV, the
firm closed approximately $3.9 billion in 2018.
• According to EMPEA, general partners raised a
record $2.1 billion in distressed debt, direct
lending, and special situations funds in 2018—
more than quadruple the amount raised over
the preceding 12 years combined.
EXITS
• As of 1Q19’s close, just two exits have
occurred in Brazil according to Preqin. Of
note, Groupe ORPEA exited Brazil Senior
Living, S.A via trade sale to Pátria for an
undisclosed amount.
• According to Preqin, there were 3 IPOs of
Brazilian companies throughout 2018: Notre
Dame Intermédica Saúde S.A., Arco Educaçaõ
S.A., and Stone Pagamentos S.A, totaling an
exit value of $2.2 billion.
• According to Preqin, the largest disclosed
exit in 2018 was Digital Realty Trust’s sale of
Ascenty Data Centers to Great Hill Partners
for $1.8 billion via trade sale, followed by
Bain Capital’s sale of public shares in
Brazilian preventative medicine provider,
Notre Dame Intermédica Saúde S.A., for $1.5
billion.
INVESTING
• Deal growth in Brazil experienced a 4.0%
increase through October 2018 over the
same period in 2017, ending with 538 total
transactions according to PwC Brazil.
• According to PwC Brazil, the IT industry
continued to be the most preferred sector
through October 2018, closing 113
transactions in total for a 21.0% share of
volume. In terms of geography, the state of
São Paolo accounted for 49.0% of Brazil’s
disclosed deal transactions through October
2018, totaling 264 transactions.
• According to Preqin, the largest disclosed PE
deal in 2018 was EIG Global Energy Partners’
$165.6 million acquisition of Prumo Logística
S.A, a Brazilian infrastructure and logistics
service company. Another notable deal was
Advent International’s PIPE acquisition of
Estácio Participações, an educational
services provider, for $107.9 million.
Brazilian Fundraising Activity | $ Billion Brazilian Deal Activity | # of companies Brazilian Exit Routes | % of exits
Source: Preqin Source: PwC Brazil Sources: Preqin
SPOTLIGHT: VentureThe political atmosphere and financial hardships in Brazil during the past decade have had little effect on its growing venture capital market, with thecountry becoming Latin America’s largest VC market according to PwC. On the back of Brazil’s recession in 2015, the country is currently riding the so-called “Bolsonaro Bump,” which has seen the Brazilian stock exchange (the Bovespa) reach all-time highs as of 1Q19. This macroeconomic optimism is instark contrast to before Jair Bolsonaro’s election, where only 42.0% of Brazilian executives said they would be pursuing M&A deals in the next 12months according to EY. M&A skepticism echoes the hesitancy of fund managers during the economic crisis of 2015, where capital invested in largebuyouts fell from $2.0 billion to just $0.4 billion in 2015. Despite large buyout’s regression in Brazil, fund managers invested $299.0 million in venturecapital in 2016, dwarfing the $5.0 million spent in 2010. Brazil’s venture capital ecosystem continued its maturity into 2018, with $374.0 million investedacross 60 deals through the first three quarters of the year according to EMPEA. Within the venture landscape, the financials sector is perhaps thelargest contributor to recent VC growth as a result of the influx of startups with the aim of causing unrest within the costly banking system in Brazil. Thistrend is exemplified by the $150.0 million round of financing for Nubank, representing the largest round ever for a Brazilian fintech startup.
7
$13.3
$8.3$7.5
$25.5
$5.0
$7.4
0
5
10
15
20
25
30
35
40
45
50
$0
$5
$10
$15
$20
$25
$30
2013 2014 2015 2016 2017 2018
Fundraising Number of Funds
664 717 618 490 517 538
812
879
742
597643
0
100
200
300
400
500
600
700
800
900
1000
2013 2014 2015 2016 2017 2018
First 10 Mos. YTD
53%
82% 78% 80%
52%
80%
27%
12%
6%7%
33%
7%7%6%
7%13%
6%11% 7%
10% 13%5%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2013 2014 2015 2016 2017 2018
Buyout Growth Capital Merger
PIPE Public to Private
© 2011 TorreyCove Capital Partners LLC Exhibit I Confidential
© 2019 TorreyCove Capital Partners │ Confidential Information
Market Overview 1Q19
Performance**Performance data may lag current quarter due to the complex process of data collection.
Source: Preqin, Cambridge Associates, Bloomberg; Russell Investment Group is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes.
MARKET RETURNS
Buyout Returns Venture Capital Returns
Source: Cambridge Associates Pooled IRR: All Private Equity Funds excluding Real Estate, Fund-of-Funds, Infrastructure, and Secondaries as of September 30, 2018
Source: Cambridge Associates as of September 30, 2018 Source: Cambridge Associates as of September 30, 2018 Source: Bloomberg
Private Equity Returns by Asset Class 5 Year 10 Year 15 Year 20 Year
Venture Capital 16.8% 11.8% 11.1% 19.1%
Growth Equity 14.4% 12.6% 13.5% 14.1%
Buyout 14.0% 11.4% 14.4% 12.5%
Subordinated Capital 10.3% 9.8% 9.7% 8.6%
Control-Oriented Distressed 9.3% 10.6% 11.0% 10.8%
Private Equity Energy 3.6% 5.7% 10.1% 10.1%
Total 12.7% 11.0% 12.9% 12.8%
8
Index
1Q 2018
2Q 2018
3Q 2018
4Q 2018
1Q 2019
S&P 500 -1.2% 2.9% 7.2% -14.0% 13.1%
Russell 3000 -1.1% 3.4% 6.6% -14.7% 13.5%
FTSE -8.2% 8.2% -1.7% -10.4% 8.2%
CAC -2.7% 3.0% 3.2% -13.9% 13.1%
DAX -6.4% 1.7% -0.5% -13.8% 9.2%
MSCI ACWI -1.4% -0.1% 3.8% -13.1% 11.6%
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Sep
-11
Dec
-11
Mar
-12
Jun
-12
Sep
-12
Dec
-12
Mar
-13
Jun
-13
Sep
-13
Dec
-13
Mar
-14
Jun
-14
Sep
-14
Dec
-14
Mar
-15
Jun
-15
Sep
-15
Dec
-15
Mar
-16
Jun
-16
Sep
-16
Dec
-16
Mar
-17
Jun
-17
Sep
-17
Dec
-17
Mar
-18
Jun
-18
Sep
-18
Preqin INDEX vs S&P 500 INDEXBuyout
All Private Equity
Venture
Real Estate
Fund of Funds
Distressed Private Equity
S&P 500 Index
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019
S&P 500 Index Russell 3000
FTSE CAC
DAX MSCI ACWI
4.2%
23.2%
18.3%
12.3%
11.0%
7.6%
23.7%
12.3%
11.9%
11.3%
5.2%
18.0%
15.5%
10.8%
11.3%
0.0% 5.0% 10.0% 15.0% 20.0% 25.0%
3 Months
1 Year
5 Years
10 Years
15 Years
Seed/Early Stage Late/Expansion Stage
Multi-Stage
2.0%
10.9%
11.0%
10.6%
19.1%
2.5%
14.6%
11.7%
9.7%
16.3%
3.0%
15.1%
14.0%
11.3%
15.3%
3.6%
17.2%
14.9%
12.0%
13.2%
0.0% 5.0% 10.0% 15.0% 20.0%
3 Months
1 Year
5 Years
10 Years
15 Years
Small Buyouts Medium Buyouts
Large Buyouts Mega Buyouts
© 2011 TorreyCove Capital Partners LLC Exhibit I Confidential
© 2019 TorreyCove Capital Partners │ Confidential Information
Market Overview 1Q19
Sector in Focus: Financials
SECTOR OUTLOOK
MARKET ANALYSIS
• FinTech
• Venture capital-backed fintech funding
dropped in 1Q19 by 13.0% but deals
remained strong with quarter-over-
quarter growth of 4.0%. Although
startup activity declined, investment
reached an all-time high of $60.2
billion in 2018, with VC funding
accounting for 67.0%. (CB Insights &
Deloitte)
• In 2018 China had larger fintech
investment than the United States for
the first time, reaching $23.0 billion. At
the end of 2018, M&A volume was
down 10.0% year-over-year and IPO
volume was also slightly down.
(Deloitte)
• FinTech has become part of the
mainstream banking system after the
OCC announced in July 2018 that it
would begin accepting fintech bank
charter applications. According to
KPMG, larger deal sizes and
consolidation is anticipated within the
fintech market. (KPMG and Deloitte)
• Insurance
▪ During 1Q19, 42 M&A deals within the
insurance market were completed,
down 2.3% from 1Q18. (Preqin)
▪ Premiums increased at a much
healthier rate of 6.1% in developing
markets due to China’s growth rate
being cut in half to 10.0%. (Deloitte)
SECTOR OVERVIEW
• The financials sector of the S&P 500
increased 7.9% during 1Q19, 520 bps lower
than the S&P 500 during the same period
(13.1%). The sector failed to outperform nine
of ten other sectors represented in the S&P
500, finishing ahead of only health care. The
below average performance was attributable
to the sector’s sensitivity to the Fed’s interest
rate changes. (NASDAQ)
• 1,212 global M&A deals were completed
during 1Q19, 105 (8.7%) of which were
companies within the financial sector, down
8.0% when compared to the prior-year
period. Additionally, the sector accounted for
9.8% of exits during the period, down 12.7%
when compared to the prior-year period.
(Preqin)
• Globally, IPO volumes were down 41.0%
year-over-year and IPO revenues were down
74.0% during the same period. The financials
sector accounted for 10 out of 199 IPOs
(5.0%) during 1Q19, which ranked seventh
across all sectors globally. However, the
sector finished third in proceeds. (Ernst &
Young)
• The financials sector finished third out of all
sectors in beating its estimated revenue
growth for 1Q19, posting 5.7% growth versus
5.1% estimate. Revenue exposure during the
period was 78.0% in the United States and
22% internationally. Additionally, year-over-
year earnings growth for the sector was 0.8%
versus an estimate of -3.4%, placing it sixth
among all sectors. (FactSet)
9
Source: S&P 500 Dow Jones
Source: PwC & CB Insights
• Tier 1 capital ratio as a proportion of assets
rose to 6.7% during 1Q19, indicating the global
banking system is not only larger and more
profitable but also more resilient than at any
point in the last ten years. (Deloitte)
• Only 22.0% of financial institutions have fully
deployed AI, bots, and machine learning into
their operations. The trailing 36.0% and
planning 26.0% indicate this number will grow
for the remainder of 2019 and into 2020.
(Deloitte)
• Under the current United States
administration, the pace of new regulations on
the financial sector has decreased. An example
of the role of the states growing in
prominence is California’s passage of the
Consumer Privacy Act of 2018, which
establishes new data protection rights for
consumers. (Deloitte)
• The financial sector has the lowest forward
twelve-month P/E ratio estimate of 12.0,
versus a full market estimate of 16.8. (FactSet)
1Q19 Global IPO Activity
Sector Performance| TTM Price Return
VC-Backed FinTech Funding
Source: Ernst and Young
0 10 20 30 40 50
Information Technology
Consumer Discretionary
Healthcare
Industrials
Materials
Real Estate
Consumer Staples
Financials
Energy
Communication Services
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18
S&P 500 Financials
5.84.6 4.6
6.2
20.8
6.1
7.36.3
405386 382
470 466 466
427445
2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19
De
al V
alu
e ($
in b
illio
ns)
Value ($B) Number of Deals
© 2011 TorreyCove Capital Partners LLC Exhibit I Confidential
© 2019 TorreyCove Capital Partners │ Confidential Information
Firm Update 1Q19
Industry Events & Media Coverage
CONFERENCES
Media Coverage
January
• 1/15 TorreyCove mentioned by PE Hub: Buyouts in “LACERS Moves Closer to Greenlighting Secondary Sales.”
• 1/21 David Fann quoted by P&I in “PE Gets Slogged by Shutdown.”
• 1/28 David Fann quoted by FundFire in “CalSTRsProposes Major Expansion of PE Co-Investments.”
• 1/30 David Fann quoted by PEI in “Texas Teachers: ‘Good Intention' of Credit Lines Being Lost.”
February
• 2/1 David Fann quoted by PEI in "ESG: What do LPs Want from their GPS?"
• 2/4 TorreyCove mentioned by P&I in “New York State Teachers Picks Global Equity Firm, Makes Follow-on Commitment.”
• 2/8 TorreyCove mentioned by Chief Investment Officer in “Global Equity Performance Disrupts New Jersey’s 29-Month Positive Return Streak.”
• 2/12 TorreyCove mentioned in PE Hub “Denominator effect could curtail NJ pension’s PE commitments this year.”
• 2/14 TorreyCove mentioned by P&I in “Philadelphia Board of Pensions selects Barings for co-investment strategy.”
• 2/25 David Fann quoted by Bloomberg in “Texas and California Pensions Team Up With Buyout Firms for More Deals.”
March
• 3/1 TorreyCove mentioned by PEI “LACERS opens doors to secondaries.”
• 3/19 David Fann quoted by P&I in “Brookfield-Oaktree tie-up creates alternatives giant.”
Speaking Engagements
January
• 1/17 KORIED Plan Sponsor Educational Institute Conference, David Fann, President + CEO, “Battle of the Asset Classes.”
February
• 2/11-2/13 SuperReturn US West, David Fann, President & CEO, “Consumer Activism and Private Equity.”
March
• 3/28 NASP-Southern California 2019 "Day of Education in Private Equity,” Tom Martin, Managing Director, Attendee.
TorreyCove is a specialist advisor focusing exclusively on private equity, private credit, and real assets, and offers a full suite of advisory services
including program design and policy creation, portfolio construction, investment selection, negotiation, and post-transaction risk management.
This TorreyCove Newsletter has been prepared by TorreyCove Capital Partners LLC for informational purposes only. It does not constitute legal, securities, tax or investment advice or an opinion
regarding whether investment is appropriate. Readers should not act upon this information without first seeking advice from professional advisers.
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