AVCJ Malaysia

Data Presentation: The Truth Behind the Numbers

Bowen White Associate Director Global Private Equity Initiative

The Global Private Equity Initiative (GPEI)

INSEAD’s Private Equity “Think-tank”

Leverage school’s global presence and 1,800+ alumni

in Private Equity

Global and Asia-focused research & content

Created a suite of bespoke publications over its 8-year

history

Agenda

1. Performance, Growth & Diversification through 2016

2. Macro, Valuations & PE Activity

3. LP Allocation Trends

Annualized

Return

Private

Equity

Public

Equity

10-year 8.8% 5.2%

5-year 11.8% 11.0%

-5%

0%

5%

10%

15%

20%

2001 2003 2005 2007 2009 2011 2013 2015

Private Equity Public Equity

Out-performance through the Cycle

Private Equity vs Public Equity, through Q4 2016

1. Performance, Growth & Diversification through 2016 Source: INSEAD-Pevara, Bloomberg

5-year

Return

10-year

Return

Behind the Numbers

The Global Financial Crisis did not sink the ship

Pre-Crisis vintages produced ~1.4x MoM (median funds)

Top Quartile Managers

Best of the best (top 5%) consistently add ~1.0x to median

money multiples

Private Equity is not an Index

Time, resources, commitment is a prerequisite

1. Performance, Growth & Diversification through 2016 Source: INSEAD-Pevara

706 741 757 863 956

1227

1687

2251 2254 2446

2758

3043 3277

3741 3882

4169

4457

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Secondaries Co-investment Mezzanine Natural Resources

Infrastructure Real Estate Distressed PE Private Equity

Private Equity Private Capital

1. Performance, Growth & Diversification through 2016

6.3x

Strong Performance drives Growth & Diversification of Assets Under Management ($billions)

Source: Preqin

Behind the Numbers

Convergence between PE and VC

Large VC funds & PE’s increased focus on technology,

mega-rounds

Large Hybrid PE Managers

Driving growth in Private Equity Alternatives

Defining a Competitive Edge

With growth comes commoditization

1. Performance, Growth & Diversification through 2016

The Macro Picture

2. Macro, Valuations & PE Activity

Behind the Numbers

Which Wonderland?

Benign – A well-distributed Global GDP forecast @ 2.7%,

benign inflation, de-levaraged developed markets

Headwinds – Geopolitical & Policy (US) Uncertainty, Chinese

Debt

Liquidity – records reached in 2017

$1.5 trillion on S&P 500 balance sheets

$541 billion in Private Equity dry powder (April)

U.S. Leveraged loan issuance hit a record $202 billion (Q1)

Source: World Bank, Preqin, PNC 2. Macro, Valuations & PE Activity

Impact on PE Valuations

4.8 5.9

4.5

3.3 4.3 4.5 4.6 4.7

5.3 5.4 5.2

8.1

9.3

8.3

6.6

8.4 8.2

7.9

8.8

9.6

10.7 10.2

0

2

4

6

8

10

12

2006 2008 2010 2012 2014 2016

Equity Debt*

15.5

12.8

9.8

13.1 13.8

13.4

12.2 12.6

14.0

16.6 17.0

0

2

4

6

8

10

12

14

16

18

2006 2008 2010 2012 2014 2016

Purchase Price

US Mid-market LBOs APAC PE-Backed M&A

Purchase Price Multiples (EV/EBITDA) – Liquidity-fueled Inflation

* Debt and other capital; Source: PNC, Bain 2. Macro, Valuations & PE Activity

Impact on VC Valuations

VC Mega-Rounds – A Sign of the Times

13% 21% 24%

18% 11%

63% 61% 51%

37%

28%

15% 10% 11%

14%

12%

7% 4% 7%

14%

15%

2% 2% 4% 12%

16%

2% 3% 5%

18%

1996-2000

2001-2005

2006-2010

2011-2015

2016-2017

$1000+ $250-1000 $100-250 $50-100 $10-50 $0-10

Source: Preqin 2. Macro, Valuations & PE Activity

0

50

100

150

200

250

300

350

2002 2004 2006 2008 2010 2012 2014 2016

Capital Calls Distributions

Record Divestment, Anaemic Investment

Capital Calls – Distributions (US$ billions)

Investment

Supercycle

Exit

Supercycle

Q3’16 Q2’11 Q3’12

Source: INSEAD-Pevara 2. Macro, Valuations & PE Activity

LP Allocation Trends

3. LP Allocation Trends

0

500

1000

1500

2000

2500

2000 2002 2004 2006 2008 2010 2012 2014 2016

> 10 $bn 5-10 $bn 2.5-5 $bn 1-2.5 $bn <1 $bn

LP Allocation Trends

Private Equity AUM – by Fund Size

3. LP Allocation Trends Source: Preqin

Behind the Numbers

Calpers Reduces LP Relationships

Targets a cut in PE relationships from 100 (2015) to 30 (2020)

Power shift to LPs (GP-LP Model)

Lower fees & expenses, moved aggressively into co-

investments

Hybrid Manager Model

Opportunity to deepen/consolidate relationships with LPs

3. LP Allocation Trends

0.5

1.0

1.5

2.0

2.5

Mega Funds All Other Funds

Top Quartile 3rd Quartile 2nd Quartile Bottom Quartile .

Fund Size, Risk-Return

Mega Funds protect on the downside, All Other Funds produce outperformers TVPI quartiles, global funds, vintage years 2001-2015

3. LP Allocation Trends Mega funds: fund size greater than $2.5 billion; Source: INSEAD-Pevara

Behind the Numbers

Average Returns are the Same

Mega Funds: 1.49x TVPI… All Other Funds: 1.47x

Allocating to All Other Funds

Requires resources and expertise for LPs to identify

outperformers (it is expensive).

Mega Funds Indicative of PE Industry Institutionalization

Compliance and risk management baked into large PE firms,

policies and guidelines on how to conduct business.

3. LP Allocation Trends

-5%

0%

5%

10%

15%

20%

2001 2003 2005 2007 2009 2011 2013 2015

Global Asia China

Geographic Comparison

Global versus Asia, China through Q4 2016

Annualized

Return Global Asia

10-year 8.8% 7.8%

5-year 11.8% 10.7%

5-year

Return

10-year

Return

3. LP Allocation Trends Source: INSEAD-Pevara, Bloomberg

Q&A

Food for thought:

Does cyclicality matter? Should you try to time the market?

If so, how should your strategy adjust?

Q&A

THANK YOU