Exhibit 12- SURS 10252012_Final

Exhibit 12
Prepared for
State Universities Retirement System of Illinois
October 25, 2012
Agenda
Exhibit 12
> Introduction to Pantheon and Presenters
> What is Private Equity? Why Include it in a Portfolio?
> ESG Issues and Pantheon‟s Approach
> Pantheon Offerings
>
Pantheon USA Fund IX
>
Pantheon Europe Fund VII
> Conclusion and Q&A
> Appendices
>
Europe Scenario Planning
>
SURS Portfolio Update
2
Exhibit 12
Introduction to Pantheon
and Presenters
3
Presenting to you today
Exhibit 12
Susan Long McAndrews, Partner (joined 2002, 17 years of private equity experience)
Susan is a member of Pantheon‟s Executive Committee and also leads Pantheon‟s North American primary fund investment
activity. Susan is a member of the International Investment Committee, the US Regional Investment Committee and the Global
Infrastructure Committee. Prior to joining Pantheon, she was a principal at Capital Z Partners in Asia, where she was
responsible for executing investments in private equity funds and in fund management companies. In addition, Susan was a
director at Russell Investments from 1995 to 1998 in their private equity group. Susan received a BA from the University of
North Carolina at Chapel Hill in International Studies and Economics and an MA from Stanford University in International Policy
Studies. Susan is based in San Francisco.
[email protected]
Yokasta Segura-Baez, Vice President (joined in 2011, 7 years of private equity experience)
Yokasta focuses on client services and business development activities in North America. In addition, Yokasta is the US
representative on Pantheon‟s Responsible Investing steering committee which, among other things, establishes standards used
by the firm in screening GP‟s and portfolio companies for environmental and sustainability practices. Previously, Yokasta was
an Investor Relations Manager with AXA Private Equity, responsible for marketing all of AXA‟s private equity strategies in North
America and for providing investor relations support for existing clients in the region. Prior to AXA, she practiced real estate law
in the Dominican Republic. Yokasta has an undergraduate degree in Diplomacy from the University Catolica de Santo Domingo
and an International Law degree with honors from the University of Santo Domingo. She received a Finance Certification from
New York University and is fluent in Spanish and French. Yokasta is based in New York.
[email protected]
4
Exhibit 12
Investing in private equity assets for 30 years
Signatory of PRI
Endorser of ILPA Private
Equity Principles
European Secondaries
House of the Year
Winner of Asia
Asset
Management
'Best of the
Best
Performance
award’ 2011
1
Pantheon International Participations PLC
As at 1st September 2012
3 As at 31st March 2012
2
5
Exhibit 12
Global representation and regional expertise
US
Europe
Asia
>
US$12.8 billion in assets under management1
>
US$8.4 billion in assets under management1
>
US$2.7 billion in assets under management1
>
San Francisco office opened in 1987
>
London office opened in 1982
>
Hong Kong office opened in 1992
>
New York office opened in 2007
>
117 staff, 32 investment professionals
>
15 staff, 8 investment professionals
>
54 staff, 29 investment professionals
EUROPE (1172)
>
London
US (542)
>
San Francisco
>
New York
ASIA (152)
>
at 31st March 2012
at 1st September 2012, number of team members located in each region.
Note: Bogota office expected to open within the next 12 months
Hong Kong
1 As
2 As
Office
Local presence
6
Exhibit 12
Experienced investment team with local presence
U.S. Primaries
European Primaries
Asian Primaries
Emerging Markets
>
>
>
>
>
>
>
US$8.9 billion in assets under
management1
Investing in U.S for nearly 30
years
7 investment professionals
- Supported by 9 junior
investment professionals
136 years‟ combined PE
experience
>
>
>
US$6.7 billion in assets under
management1
Investing in Europe for nearly
30 years
7 investment professionals
- Supported by 12 junior
investment professionals
Over 140 years‟ combined PE
experience
>
>
>
US$1.8 billion in assets under
management1
Investing in Asia for nearly 20
years
8 investment professionals
Over 60 years‟ combined PE
experience
>
>
US$1.1 billion in total
commitments2
11 investment professionals
- Supported by 21 junior
investment professionals
Over 150 years‟ combined PE
experience
International Investment Committee
Private equity years
Chris Meads
Head of Investment & Asian Primaries
16
Susan Long McAndrews
Head of U.S.
Primaries
17
10
Global Co-investment
>
>
>
>
completed3
31 co-investments ($729m)
Formal co-investment team since 2007
8 investment professionals
- Supported by 21 junior investment
professionals
Over 180 years‟ combined PE experience
11
Elly Livingstone
Head of Global
Secondaries
15
Pantheon years
11
Dennis McCrary
Head of
Co-Investment
18
5
Helen Steers
Head of European
Primaries
23
8
Global Infrastructure
Global Secondaries
> US$434 million in assets under
management1
> One of the first infrastructure fund of funds
raised in 2010
> 6 investment professionals
- Supported by 21 junior investment
professionals
> Over 160
years‟ combined PE
experience
> US$6.1 billion in assets under
management, over 290 transactions
completed1
> Investing in secondaries for over 20 years
> 18 investment professionals
- Supported by 21 junior investment
professionals
> Over 250 years‟ combined PE experience
As at 1st August 2012
at 31st March 2012
2 As at 30th June 2011
3 2005 – Q1 2012
1 As
7
Exhibit 12
SURS & Pantheon: a decade of working together
$25 million PGSF II
2002
2003
$600 million –
Separate Account
€68 million PEURO III
2004
Illinois enacts
Sudan
investment law;
Pantheon signs
affirmation
each year going
forward
2005
2006
Dec. 31st:
PUSA IX &
PEURO VII
Final Close
Pantheon
becomes a PRI
signatory
2007
€31 million PEURO VI
$103 million PUSA VIII
2008
2009
2010
2011
2012
Pantheon
endorses ILPA
PE principles
8
Exhibit 12
What is Private Equity?
Why Include it in a Portfolio?
9
Exhibit 12
What is private equity?
Private equity
Venture capital
> Pre-revenue
> Early-stage (startup) and growth
equity (profitable/
expansion)
> Information
technology and
healthcare emphasis
> “Venture” profile of
portfolio returns
> Winners mitigate
many losers
Growth equity
Buyouts
> Revenue generating;
cash flow breakeven
> Well-established
revenue and
earnings
> Expansion capital to
successfully scale a
business
> Mature firms in
need of capital or
ownership
transition
> After end of
technology risk phase
> Returns depend on
cash-flow growth
> Returns depend
on cash flow
growth and
leverage
> Lower volatility of
returns
10
Exhibit 12
Private equity: SURS investment example
Institutional
Investor
SURS makes private equity fund of
funds commitment to Pantheon
Private Equity Fund
of Funds Manager
Pantheon commits to Weston
Presidio V
Private Equity
Manager
Portfolio Company
Weston Presidio V invests in Jimmy
John’s sandwich restaurant.
Jimmy John’s stores grow from
~500 to ~1,500; earnings quadruple
as they expand to 40 states.
Current multiple of money invested
= 7.0x
11
Exhibit 12
How does private equity create value?
Strong corporate governance model
Typical applications
> Yields information advantage over public
equities
> Providing seed and growth capital to
developing businesses
> Provides ability to influence and change
company management
> Addressing succession issues and growth
capital needs in family-owned firms
> Creates alignment of interests
> Unlocking value in under-funded subsidiaries
of large corporations
> Operates over long-term investment horizon
> Restarting growth via take-privates of
undervalued and undercapitalised publiclylisted companies
Private equity drives value creation
> Operational improvements
> Entry / exit timing – multiple exit routes
> Organic and external growth
> Use of leverage
12
Primaries and secondaries are complementary
strategies
Exhibit 12
Primaries
Secondaries
Performance
(NAV +
distribution)
Time
Primaries
Secondaries
“Blind pool” commitment to a General Partner
Portfolio is partly known and can be valued
+
Provide access to elite group of top quartile managers
+
Facilitate consistent exposure across vintage years
+
Permit thoughtful diversification by investment stage,
sector, and geography
-
Initial management fees negatively impact NAV
-
Longer time horizon to distributions
=
Generally produce a higher multiple on invested
capital than secondaries
+
Permit greater insight into portfolio composition at time
of commitment
+
Absorb fund fees and expenses
+
Shorten time horizon to distributions
-
Opportunistic deal flow; unlikely to achieve target
allocation to tier one managers
-
Market activity dictates degree of exposure to specific
vintages, strategies, geographies, and managers;
potential concentration risk
= Generally produce a higher internal rate of return
(IRR) than primaries
13
Exhibit 12
ESG Issues and Pantheon‟s
Approach
14
What is ESG and why is it important?
Exhibit 12
> ESG incorporates active consideration of environmental, social,
and corporate governance (ESG) factors within investment
decision-making and ownership practices
> To fulfil their fiduciary duty, investors need to give appropriate
consideration to ESG issues, and the Principles for Responsible
Investment (PRI) provide a framework for this
> The PRI were developed by the United Nations Secretary-General
and Pantheon has signed up to adhere to these principles
Our clients are increasingly focusing on ESG issues and are asking
us to prove that we take ESG considerations into account when
making investments
15
Why is Responsible Investment important to
Pantheon ?
Exhibit 12
1. Our clients demand outstanding financial returns and excellent risk management
> RI provides an avenue for additional value creation in portfolio companies
> Identification of ESG risks forms an integral part of general risk management
 Engagement on RI enables better risk management and aims for enhanced
returns over the long term
2. Our business is long term orientated and relies on our reputation and brand
> Pantheon has been serving clients for 30 years and has $23.9 billion in AUM1
> We are considered a “reference investor” and leader in the industry
 Focus on RI protects our brand and reputation with both investors and GPs
3. Our company philosophy and culture
> Pantheon has always upheld the highest ethical standards
> “Doing the right thing” is embedded in our culture and business practices
 RI is central to Pantheon‟s philosophy
1
As at 31st March 2012
16
What is Pantheon doing to promote Responsible Exhibit 12
Investing ? Six main principles
Integrating ESG in:
> Due diligence
> Reporting/monitoring
> Risk matrix
1. Investment
analysis/
processes
4. Promoting
acceptance
> Tabling ESG issues at
advisory boards
> Committed to following policy
of active ownership
2. Active
ownership
5. Working
together
> Importance of sound ESG
practices highlighted during
negotiations of Pantheon
side-letters with GPs
> Work with trade bodies on
disclosure issues
3. Disclosure
6. Reporting
> Educating clients through
conferences, seminars and
briefing notes
> Working with GPs and LPs
> Collaboration with clients,
GPs and trade bodies
> Encouraging GPs to report on
ESG issues and their value
add in reports to investors
17
Exhibit 12
Responsible Investing: Enhanced Returns
Risk management
Value
creation
initiatives
Restructuring
&
repositioning
Cost savings
& efficiencies
New products
& services
Exit premium
Improved risk-adjusted returns
18
Exhibit 12
Pantheon USA Fund IX
19
Exhibit 12
Pantheon U.S. investment team
U.S. Investment Committee
17
28
15
18
12
10
25
8
5
7
Brian Buenneke
Partner
MBA, Northwestern University
AB, Dartmouth College
Dennis McCrary
Partner
MBA, University of Michigan
BA, Michigan State University
Susan Long McAndrews
Partner
MA, Stanford University
BA, UNC Chapel Hill
David Braman
Senior Partner
MBA, University of Denver
BA, Grinnell College
13
8
8
10
6
4
4
8
4
1
Kathryn Leaf Wilmes1
Partner
MA, Oxford University
BA, Oxford University
Alexander Morgan
Senior Associate
BS, Boston University
Brett Johnson
Partner
MBA, University of Chicago
BA, Northwestern University
Jeff Miller
Principal
MBA, Northwestern University
BA, Gustavus Adolphus
Evan Corley
Vice President
BS, Boston University
Greg Little
Vice President
MBA, UCLA BS,
University of California, San Diego
Sara Lonergan
Senior Associate
MBA, Northwestern
BA, Williams College
7
4
2
5
<1
7
4
2
5
<1
Jessica Hazlett
Associate
AB, Harvard University
6
1
Jeremy Weisberg
Associate
BSBA, University of
Richmond
Samir Mainthia
Associate
BSC, University of Michigan
Jennifer Scott
Associate
AB, Princeton University
1
2
1
2
Daniele Pitsch
Analyst
BS, University of California,
Berkeley
Brandon Vu
Associate
B.S. University of California,
Berkeley
Curtis Suda
Analyst
BS, California Polytechnic
Private equity years
State University
As at 1st October 2012
1 Kathryn‟s primary responsibility is to Pantheon‟s global infrastructure team and product area; she additionally provides coverage of the energy sector within the primary team
Senior Associates, Associates and Analysts are a resource shared with other investment teams
Pantheon years
20
Exhibit 12
Tepid sources of domestic (U.S.) growth likely over
the medium term
Public sector deleveraging
Financial sector deleveraging
U.S. Public debt as a percentage of GDP
Leveraged loan & high yield maturity schedule
120%
$450bn
110%
$375bn
90%
100%
$275bn $275bn
$300bn
$248bn
80%
$150bn
$106bn
$84bn
30%
2008
2005
2002
1999
1996
1993
1990
1987
1984
1981
1978
1975
1972
1969
1966
2018
2017
2016
2015
2014
2013
Commercial real estate refinancing schedule
U.S. surplus / deficit (in $bn)
Case-Shiller Home price index
$236
$128
$400bn
$0
220.0
$350bn
200.0
$300bn
-$161
-$248
-$380
-$459
-$322
-$402
$200bn
-$623
160.0
$150bn
-$973
$0bn
Feb-11
Sep-11
Jul-10
Dec-09
May-09
Oct-08
Mar-08
Aug-07
Jan-07
Jun-06
Nov-05
Apr-05
2015
Sep-04
2013
2014
CRE Maturities
Feb-04
100.0
2012
Jul-03
2016E
2014E
2012E
2010
2008
2006
2004
2002
2000
120.0
$50bn
-$1,284
-$1,294
-$1,413
-$1,600
140.0
$100bn
-$1,200
Dec-02
-$800
180.0
$250bn
May-02
-$318
Oct-01
-$378 -$413
Mar-01
-$400
Jan-00
-$158
Aug-00
$400
50%
$0bn
2012
2016E
2008
2012E
2004
2000
1996
1992
1988
1984
1980
1976
1972
1968
1964
1960
1956
1952
1948
1944
1940
0%
70%
60%
$38bn
1963
$75bn
90%
$195bn $184bn
$225bn
2019
60%
U.S. household debt as a
percentage of personal income
1960
120%
Constrained consumer
Thematic investment strategy tailored to the macroeconomic climate
Sources: White House Office of Management and Budget, U.S. Congressional Budget Office, Credit Suisse, BNY Mellon, U.S. Bureau of Economic Analysis, and Standard & Poor‟s.
21
Exhibit 12
Thematic investment approach to manager selection
Seek out sectors with unique
growth characteristics
> GDP-correlated industries will
be challenged by current
environment
Capitalize on lack of leverage
and weak business environment
> Growth tied to population,
infrastructure, or innovation
> Pay low valuations for
pressured businesses
> Healthcare, energy, certain
technology sub-sectors
> Invest opportunistically in debtoriented securities
> Primarily accessed via
sector-focused managers
> Managers must demonstrate
specialized skill-sets
Emphasize value creation
managers
> Operationally intensive
strategies outperform during
low-growth periods
> Favor managers investing in
growing businesses, corporate
partnerships, or buy-and-builds
> Prefer managers with dedicated
operating teams, sector
expertise, or proprietary
management teams
22
Outperformance versus public equities
Exhibit 12
All U.S. funds, as at 31st March 2012
The following chart shows the investment performance of Pantheon‟s underlying funds investing in the U.S. by vintage year, measured against the S&P 500 Index. The data does not represent
the actual performance of any particular fund managed by Pantheon, nor does it represent actual historical returns achieved by any client.
US investments performance by vintage year1
Average of 831 bps
outperformance per
annum since 20002
80.0%
70.0%
50.0%
30.0%
Gross IRR (%)
S&P 500 Index IRR (%)1
Past performance is not necessarily indicative of future results. Please note this data contains secondaries and co-investments made within PUSA I-VIII. Secondaries are included in the year of purchase. Performance
calculated net of fees of underlying managers but before deduction of all Pantheon fees expense. 1The notional IRRs for the S&P 500 Index were calculated using the PME methodology, whereby the cashflows for the
respective vintage year investments are hypothetically invested in the index. . This has been calculated on a money-weighted basis to provide a comparison against Pantheon‟s investments. All data is as at 31st March 2012
and in US$ terms. Source: Pantheon / Bloomberg. 2 The performance of underlying funds in the Pantheon USA Fund of Funds, have outperformed the S&P 500 Index by 831 basis points per annum on average for
each of the vintage years 2000 – 2009.
23
Exhibit 12
PUSA IX commitment strategy
PUSA IX target primary investment stage by commitment to funds
Small / Mid Buyout
20% - 30%
Special Situations
20% - 30%
Large Buyout
10% - 20%
Growth Equity
10% - 20%
Venture Capital
5% - 15%
Mega Buyout
5% - 15%
0%
5%
10%
15%
20%
Primaries
25%
Primary strategies
> Emphasis on mid-market buyouts and special situations
> Targeted commitments to a small number of top tier
venture capital and mega buyout managers
30%
Secondaries and Co-investments
35%
Secondary and co-investment strategies
> Up to 20% of PUSA IX will be allocated to
co-investments and secondaries to enhance
returns and mitigate “j-curve”
> 22-year secondaries track record resulting in a
composite gross IRR of 17.2% and net IRR of
13.1%1
> Proprietary co-investment deal flow
1 The
composite IRRs aggregate all secondary investments (single and portfolios) made by Pantheon on behalf of its clients and funds between 1988 and 30th September 2011
Different valuation assumptions or methodologies may produce materially different results
24
Exhibit 12
PUSA IX indicative roadmap
US funds by stage
Buyout
Small/Medium
20-30%
Large
10-20%
Mega
5-15%
ABRY VII
ARES COF IV
Fund 1: $8.0b
Buyouts &
Distressed
Arbor III
Fund 2: $3.0b
Industrial
Fund 2: $8.0b
Diversified Buyouts
Venture Capital
5-15%
Growth Equity
10-20%
Special Situations
20-30%
Accel XI
Accel Growth II
Riverstone V
Andreessen
Horowitz III
Insight Venture
Partners VII
ABRY Senior
Equity IV 2
Canaan IX
Redpoint Omega
II
Wayzata III
Opportunistic
strategies
PUSA IX will commit up to
20% to secondaries and
co-investments1
8 Secondaries
IOP II
Fund 3: $4.0b
Diversified Buyouts
GGV Capital IV
Shamrock III
Fund 4: $1.4b
Energy
Fund 4: $4.0b
Diversified Buyouts
Khosla IV
Fund 5: $2.0b
IT, Consumer,
Healthcare
Fund 5: $2.5b
Energy
Parthenon IV
Fund 5: $3.0b
Financial Services
Khosla Seed B
Fund 6: $3.0b
IT
Fund 6: $520m
IT, Consumer,
Healthcare
Water Street III
Fund 6: $2.2b
IT
NEA 14
ONCAP III
Fund 7: $1.0b
Diversified Buyouts
Fund 9: $440m
IT
Fund 8: $1.8b
Diversified Buyouts
Fund 10: $750m
IT
Fund 9: $535m
Industrial
Fund 8: $500m
Healthcare
Fund 10: $750m
Diversified Buyouts
Fund 7: $3.0b
Distressed
16 Coinvestments
Key
Existing Pantheon
Commitment
Fund expected to
be in the market in
2H 2012
44.2% Committed to funds
18.0% Drawn from Investors3
Both leveraged
buyout and special
situations
investment
strategies
Number of funds is for illustrative purposes only and is indicative only; fund sizes based upon Pantheon estimates
1 PUSA IX reserves the right to invest up to 20% of its committed capital in funds and through secondary and co-investment strategies
2 The investment in ABRY Sr. Equity IV has been approved by IIC and is awaiting formal closing
3 As at September 25th, 2012
Reflects Pantheon opinion and forecasts as at 1st October 2012
25
Exhibit 12
Pantheon Europe Fund VII
26
Exhibit 12
Pantheon European investment team
European Investment Committee
23
15
19
8
4
19
Francesco di Valmarana
Partner
> Italian/American national; speaks Italian & French
Helen Steers
Partner, Head of Europe
> British/Canadian nationality; speaks French
13
14
10
12
7
7
Dushy Sivanithy
Principal
> UK national
Alex Scott
Principal
> UK national
Leon Hadass
Principal
> German national; speaks, French, Russian and Hebrew
13
6
9
2
1
5
5
1
5
2
<1
2
Erik Wong
Principal
> Chinese national; speaks
Mandarin & Cantonese
Raj Chall
Associate
> UK national;
speaks Hindi
Rob Wright
Partner
> UK national
Eric Cheung
Senior Associate
> French national; speaks
Mandarin & Cantonese
Jérôme Duthu-Bengtzon
Senior Associate
> French national
Jan Pribyl
Senior Associate
> Czech national;
speaks Slovak
Andres Reibel
Senior Associate
> German national
Toni Vainio
Senior Associate
> Finnish national;
speaks Spanish
4
3
1
1
<1
2
2
4
2
1
1
<1
<1
1
Louis Choy
Associate
> UK national;
speaks Cantonese
Pierre Garnier
Analyst
> French national
Nadine Hellebrandt
Analyst
> German national
Jonas Meister
Analyst
> German national
Nick Kavanagh
Analyst
> UK national
Jin Yan
Analyst
> Chinese national;
speaks Mandarin
Private equity years
As at 1st September 2012
Senior Associates, Associates and Analysts are a resource shared with other investment teams
Pantheon years
27
Exhibit 12
Change drives the European PE opportunity
Globalisation
Regulatory changes
Austerity measures
Deleveraging
Cross-border M&A
Buy-and-builds
Privatisations
Outsourcing
Corporate spin-outs
Family/private sales
Ownership transition
Demographic change
28
Exhibit 12
Thematic investment approach
Emphasise geographies that are
better positioned to perform
> Modest debt levels support
consumer demand
> High ratio of exports to GDP
provide growth opportunities
> Relatively flexible labour markets
provide for more rapid recovery
Capitalise on social and
economic change
> Target managers who can take
advantage of secular trends
> Such themes include international
M&A, globalisation, industrial
restructuring, outsourcing and an
ageing population
Emphasise operational
value-add strategies
> Operationally-intensive strategies
outperform during low-growth
periods
> Prefer managers with dedicated
operating teams, sector expertise
or proprietary management teams
29
Exhibit 12
Excellent long-term track record
European investment performance as at 31st March 2012
> Consistent top-quartile
performance in mature
funds
European investment performance by vintage year as at 31st March 2012
> Significant long-term
outperformance versus
public markets –
1,004bps premium
achieved5
3
4
Outperformance of investments in PEURO funds against MSCI Europe is 10.0% as at 31st March 2012; the aggregated IRR is 12.0% for investments in PEURO I-VII and the Public Market Equivalent (PME) for the
MSCI Europe index is -1.2%. For full details, please refer to „”Notes on presentation” (slide 59)
30
Exhibit 12
PEURO VII strategy tailored for the opportunity
> Strategically diversified and risk managed portfolio
Indicative stage allocations of PEURO VII primaries
Indicative geographic allocations of PEURO VII primaries
60%-70%
Targeted core
Mid-market focus
15%-25%
5%-15%
0%-10%
> Alpha-driven, mid-market focus
> 75% in four core Northern European geographies
> Carve-out option available
> Selective exposure to other countries
> Up to 20% allocation to secondaries and co-investments1
1 Subject
to availability
31
Exhibit 12
PEURO VII indicative roadmap
Multi-country funds
Growth and
Venture
Mega buyout
Large buyout
Mid-market buyout
€10.0bn
Pan-European
buyout fund
€2.5bn
Montagu IV
€1.75bn
IK VII
£400m
HgCapital Mercury
€500m
Index Growth II
€4.25bn
EQT VI
€1.5bn
Equistone IV
£2.5bn
Northern European
buyout fund
€400m
Index Ventures VI
€7.0bn
Pan-European
buyout fund
$400m
Venture fund
€3.0bn
Pan-European buyout
fund
$400m
Venture fund
Opportunistic
strategies
PEURO VII will
commit up to 20%
to Secondaries
and
Co-investments1
6 Secondaries
Country-specific buyout funds
15 Co-investments
UK
France
Germany
Nordic
Other
Europe
CEE
£275m
Mid buyout fund
€850m
Chequers XVI
€700m
DBAG VI
SEK3.8bn
Accent 2012
€400m
Bencis IV
€400m
Abris II
£300m
Small buyout fund
€800m
Mid buyout fund
€500m
Mid buyout fund
NOK6.0bn
Mid buyout fund
€1.2bn
Mid buyout fund
$1.0bn
Baring Vostok V
€400m
Small buyout fund
€2.0bn
Mid buyout fund
52.4% Committed to funds
18.5% Drawn from Investors3
€1.5bn
Mid buyout fund
Key
Funds currently in
due diligence
Existing Pantheon
commitment
SEK5.5bn
Mid buyout fund
As at 1st September 2012
Number of funds is indicative and for illustrative purposes only; fund sizes based upon Pantheon estimates
1 PEURO VII reserves the right to invest up to 20% of its committed capital in funds and through secondary and co-investment strategies
2 As at September 25th, 2012
32
Exhibit 12
Conclusion and Q&A
33
Exhibit 12
Pantheon: global leaders in private equity
Outstanding
track record
Thematic
strategy
Deeply
experienced
team
Client focus
> Consistent first and second quartile performance1
> Significant public market outperformance
> Strong realized returns across investment cycles
> Investment strategy governed by macroeconomic viewpoint
> Thematic approach complemented by rigorous selection process
> Established FoF manager with 69 investment professionals2
> International Investment Committee members average 18 years of private equity
experience2
> US$23.9 billion in assets under management globally3
> Interests aligned through Pantheon commitment, management ownership and
global carry pool
> Flexible offerings, tailored to meet individual client needs
> Long-standing client partnerships; clear communication and open dialogue
1 Quartile
data source: VentureXpert; data captured 15th November 2010
As at 1st September 2012
3 As at 31st March 2012
2
34
Exhibit 12
Appendices
- Europe Scenario Planning
- SURS Portfolio Update
35
Exhibit 12
Europe Scenario Planning
36
Exhibit 12
Summary
>
Pantheon’s base-case scenario There will be a small-scale break-up of the
Eurozone, limited to exits by Greece and/or possibly Portugal
>
Pantheon preparation Pantheon is prepared for all possible scenarios from an
operational and legal perspective, and has adjusted the strategy for PEURO VII to
take into account the current uncertainty in Europe
>
Current Euro exposure As of Dec 2011, SURS‟ exposure to companies
headquartered in countries using the Euro is limited to 38% in PEURO III, and
25% in PEURO VI
>
PIIGS exposure As at Dec 2011, SURS‟ exposure to PIIGS countries (Portugal,
Italy, Ireland, Greece, and Spain) is limited, with only 5.8% of NAV in PEURO III,
and 6.5% of NAV in PEURO VI
>
Euro-denominated funds Though 70-82% of funds in PEURO III and VI are Euro
denominated, their underlying exposures have significant non-Euro underlying
exposures
>
PEURO VII strategy The PEURO VII strategy is addressing the complexities of
the European investment climate, with a heavy emphasis on “healthier” Northern
European economies, with limited exposure to peripheral European economies
37
Exhibit 12
Historic context
Timeline of key events:
>
Dec 2009 - Greece admits that its debts have reached €300bn. Greece is burdened with debt amounting to 113% of GDP
- nearly double the Eurozone limit of 60%. Ratings agencies start to downgrade Greek bank and government debt
>
May 2010 – The Eurozone members and the IMF agree a €110bn bailout package to rescue Greece
>
Nov 2010 - The EU and IMF agree to a bailout package to the Irish Republic totalling €85bn
>
>
Feb 2011 - Eurozone finance ministers set up a permanent bailout fund, called the European Stability Mechanism, worth
about €500bn
May 2011 – The Eurozone and IMF approve a €78bn bailout of Portugal
>
Feb 2012 The Eurozone backs a second Greek bailout of €130bn euros.
>
Jun 2012 - The Spanish government requests €100 billion in financial assistance from the EU to recapitalize its banks.
>
Sep 2012 – The President of European Central Bank, Mario Draghi, announces a program allowing for unlimited
purchases of sovereign bonds from struggling euro-zone member states
Source: Britannica, BBC
38
Exhibit 12
Map of Europe – Euro area membership
USA
Euro zone
GDP ($bn)
15,094
13,076
GDP per capita ($)
48,442
39,268
76%
74%*
ISK
Central gov. debt (% of GDP)
NOK
SEK
DKK
£
€
CHF
*118%
*142%
39
Exhibit 12
Eurozone scenarios
More Likely,
More Orderly
Small-scale Eurozone
break-up
No Eurozone break-up
>
>
>
Continued
austerity
measures
Increased
involvement of
ECB
Euro-bloc stays
intact
Less Likely,
More Disorderly
>
>
>
>
One or more
countries leave(s)
Eurozone
Limited to Greece
and possibly
Portugal
Possibility that
some smaller
“stronger” countries
such as Finland
may also leave
Exit can be
temporary or
permanent
Large-scale Eurozone
break-up
>
>
>
>
Eurozone breaks
up into core and
periphery
Multiple countries
in the periphery
Break-up is
permanent
Euro currency
survives amongst
the core as a
successor to the
D-Mark
Euro disappears
>
>
>
Euro-bloc splinters
as various
countries elect to
leave
Euro retention
amongst core
group no longer
viewed as viable
National
currencies return
40
Exhibit 12
Possible consequences
No Eurozone break-up
>
Uncertainty until fiscal integration plan is implemented
>
Once implemented, “South” will continue to suffer through austerity and
restructuring; “North” will suffer through joint guarantees
>
Banks will eventually recapitalise and bloc as a whole will stabilise
>
Inflation may rise due to ECB involvement, but not necessarily whilst banks
retrench and fix balance sheets
>
Interest rates would rise for Northern core given joint guarantees
>
Impact on Euro fx unknowable but may appreciate in short term as
confidence returns, with long term fx impacted by inflation
>
Cost of finance in South would fall significantly from today‟s levels; fiscal
outlook would remain very poor
41
Exhibit 12
Possible consequences
Small-scale Eurozone
break-up
>
Currency of leavers would collapse (estimates range between 30-50%); risk of
high inflation and trade barriers
>
Banking and economic crises in short term, within both Eurozone and leavers
>
In medium term, leavers may reap some rewards from cheaper currency
>
Corporate cost of financing for leavers will remain high, with or without default on
Euro debt
>
Capital controls would be introduced; significantly reduced availability of debt
>
Euro (rump) may appreciate in medium term, but prior to break-up could
depreciate significantly
>
Decline in long term export competitiveness of Euro core
42
Exhibit 12
Possible consequences
Large-scale Eurozone
break-up
>
Similar to small-scale break-up
>
Less likely that trade barriers are applied to leavers, the larger their number
>
Uncertainty would be worse and last longer; disorderly scenario is far more
likely if contagion spreads beyond one or two leavers
>
Fx changes magnified compared to small-scale break-up
>
Major political consequences – the remaining core would accelerate fiscal
and political integration
>
Significant impact on ROW and global trade flows
43
Exhibit 12
Possible consequences
Eurozone disappears
Short-Term
Local
Impact
>
>
>
>
Return of national currencies
Capital controls imposed
Political, social and economic upheaval
Euro debt re-denominated into local
currencies
Medium-Term
>
>
>
>
Global
Impact
>
>
>
>
Contagion beyond Europe
Spike in gold price, rush for soft
commodities
Short term food and gas stock-piling
Banking crisis
>
>
“Strong” ex-Euro countries see currency
rise with negative effects on exports
“Weak” ex-Euro countries see currencies
fall with significant inflationary pressures
Non-Euro, European countries affected by
intra-Europe trade dislocations
Fundamental European problems remain:
sovereign and private indebtedness, and
inflexible labour markets.
Risk of lengthy period of stagnation
Trade flows see significant disruption, with
a significant impact on GDP growth globally
44
Exhibit 12
Potential strategy response arising from different scenarios
Small-scale Eurozone
break-up
No Eurozone break-up





Buy assets with inflation
protection
Continue to favor strong
intra-Eurozone
exporters
Avoid “South” due to
austerity and no fix to
lack of competitiveness
Maintain caution on
extra-Eurozone
exporters given
potential for Euro
appreciation as
confidence returns
Avoid assets heavily
exposed to tax and
regulatory reform risk






Buy exporting assets in
new currency areas
(assuming no tariffs)
favor domestic
consumption within Euro
core
Continue to avoid
investing within entire
Eurozone prior to breakup
Avoid Euro “out”
companies left with €
denominated debt
Avoid labour-intensive,
low value exporters
within core which would
suffer most from unit
cost depr. amongst Euro
“outs”
Continue to avoid high
leverage, near term
refinancings
Large-scale Eurozone
break-up




Buy exporting assets in
“weakest” new currency
areas
Avoid price-regulated
assets in new currency
areas which may not keep
up with increased inflation
rates
De-emphasise large /
highly levered assets in
“South” – increased cost
of domestic financing
Avoid Asian companies
largely / solely reliant on
European bank funding
Euro disappears





favor low leverage,
domestic consumption
businesses until fx rates
clarified
favor extra-Eurozone
exporters within
depreciating “South”
favor soft commodities /
key consumables
De-emphasise intraEuropean exporters –
short term currency
volatility between the ex€ currencies will be very
high
De-emphasise large /
highly levered assets in
“South” – increased cost
of domestic financing
45
Euro disappears – “Armageddon” scenario planning
Exhibit 12
>
Key considerations
>
CLIENTS: Communication with Pantheon‟s clients would be a key area of focus. In particular Pantheon should be
well placed to provide supporting facts, status of the programmes and of the GPs in clients‟ portfolios.
>
LEGAL: The possibility of contracts confusion and disputes could create many problems for the commercial world
as a whole. The direct impact on Pantheon should be manageable but the impact on trading could create
headaches for GPs and indirectly for us.
>
OPERATIONS: Our systems are designed to run multi-currency programmes. It would be fairly easy for Pantheon
to switch to whatever new currency arrangements were put into place.
46
Euro exposure – by location of headquarters of underlyingExhibit 12
portfolio companies
PEURO III
PEURO VI
3%
4%
3%
Europe - Euro
Europe - Euro
12%
Europe - Non-Euro
6%
38%
25%
22%
CEE - Non-Euro
North America
41%
SURS Commitment weighted
Europe - Euro
15%
Europe - Non-Euro
CEE - Non-Euro
34%
6%
Europe - Non-Euro
CEE - Non-Euro
5%
Other Non-Europe,
Non-Euro
North America
44%
Other Non-Europe,
Non-Euro
North America
42%
Other Non-Europe,
Non-Euro
Note: Percentage allocations represent NAV exposure as at 31/12/2011
>
The pie-charts represent the location of the headquarters of underlying portfolio
companies within PEURO III and PEURO VII
>
On a commitment weighted basis, only 34% of exposure is to portfolio companies
which are located in countries which use the Euro as their currency
>
PIIGS countries (Portugal, Italy, Ireland, Greece, and Spain) represent 5.8% and
6.5% of NAV exposure within PEURO III and PEURO VI, respectively
47
Exhibit 12
Euro exposure – by underlying fund currencies
PEURO III
PEURO VI
0.0% 4.3%
SURS Commitment weighted
1.0%
0.3%
13.0%
7.3%
14.9%
14.2%
USD
EUR
GBP
NOK
82.8%
69.9%
13.6%
USD
USD
EUR
EUR
GBP
GBP
NOK
NOK
78.8%
Note: Percentage allocations represent commitment exposures as at 31/3/2012
>
The charts represent the underlying fund currencies of funds, secondary deals and
co-investments in which PEURO III and PEURO VI have invested
>
On a commitment weighted basis 79% of funds are Euro denominated, with GBP and
USD denominated funds accounting for 14% and 7%, respectively
48
PEURO VII – Conservative portfolio construction
PEURO VII
Expected underlying fund
currencies1
PEURO VII
Exposure by location of headquarters
of underlying portfolio companies2
3%
5%
7%
EUR
7%
9%
Europe - Euro
GBP
13%
41%
SKR
70%
NOK
Europe - Non-Euro
CEE - Non-Euro
USD
1.
2.
Exhibit 12
45%
North America
Percentage allocations based on PEURO VII roadmap as at 25 September 2012
Based on 22 portfolio company investments by underlying PEURO VII funds, excluding co-investments and secondaries as at 25 September 2012
> The geographic allocation of PEURO VII is selective and includes mainly
countries that are better positioned economically for the future
> The portfolio will be invested predominantly in Northern Europe; exposure
to PIIGS countries will be limited
> The first 22 Investments made by underlying PEURO VII funds have an
exposure of 30% to the UK, 30% to Germany and 15% to Sweden.
Please note, that geographic allocations are indicative only and the final outcome will depend on regular review of the market opportunity, manager selection decisions and, in turn, the investment decisions of the
underlying managers. “Other” includes non-European exposure. The horizontal line denotes a nominal industry benchmark. This is calculated by reference to the total value of deals completed by geography as a % of total
49
Exhibit 12
SURS Portfolio Update
50
SURS portfolio update
Exhibit 12
As at 30th June 2012
State Universities Retirement System
Fund size
US$852.9m
Relationship start date
First commitment
Percentage committed
Fund NAV
2002
Jan 02
100.0%
US$577.7m
30 Jun 2012
Drawn
86.2%
Distributions / Paid-in
0.66 x
Residual value / Paid-in
0.79 x
Total value / Paid-in
1.44 x
Fund IRR (Gross)
10.9%
Performance against benchmarks
70%
60%
50%
40%
30%
20%
10%
0%
-10%
-20%
10.9%
7.2%
2.2%
Q403 Q204 Q404 Q205 Q405 Q206 Q406 Q207 Q407 Q208 Q408 Q209 Q409 Q210 Q410 Q211 Q411 Q212
Pantheon
SURS IRRIRR
Wilshire 5000 Total Return Index
Wilshire 5000 Total Return Index +5%
51
SURS fund development (gross to SURS)
Exhibit 12
As at 30th June 2012
1,200
1,000
$m
800
600
400
200
0
Q102
Q103
Q104
Q105
Cumulative distributions
Q106
Q107
Q108
Net Asset Value
Q109
Q110
Q111
Q112
Cumulative calls
52
Investment summary
Exhibit 12
As at 30th June 2012
Portfolio Breakdown
Portfolio Breakdown
(by Commitment)
(by Total Value)
3%
3%
2%
12%
Separate Account
4%
10%
71%
6%
Separate Account
13%
PEURO III LP
PEURO III LP
PEURO VI LP
PEURO VI LP
PUSA VIII LP
PUSA VIII LP
PGSF II LP
PGSF II LP
77%
$ millions
Funded/Unfunded Commitments
by Fund
900
800
700
600
500
400
300
200
100
0
Unfunded
Series2
Funded
Series1
Separate
Account
PEURO III LP PEURO VI LP PUSA VIII LP
PGSF II LP
Total Portfolio
53
Investment summary
Exhibit 12
As at 30th June 2012
No.
Commitment
Paid-in
Paid-in/
committed
Distributions
NAV
Total value
$m
%
$m
%
$m
$m
$m
Multiple
Gross
IRR
Separate Account
Buyout
30
386
45
352
91
246
290
535
1.52 x
11.4%
Venture
19
118
14
110
94
43
92
135
1.23 x
5.3%
Special situations
8
67
8
62
93
53
45
97
1.57 x
12.1%
Direct Secondaries
11
31
4
28
92
39
7
46
1.62 x
16.1%
Total Separate Account
68
601
71
553
92
380
434
814
1.47 x
10.6%
PEURO III LP
1
87
10
82
94
82
51
133
1.63 x
15.3%
PEURO VI LP
1
36
4
21
58
1
22
23
1.08 x
3.2%
PUSA VIII LP
1
103
12
58
56
3
61
64
1.11 x
6.2%
PGSF II LP
1
25
3
22
90
18
10
28
1.23 x
6.2%
Total Funds of Funds
4
251
29
183
73
103
144
247
1.35 x
11.8%
72
853
100
736
86
483
578
1061
1.44 x
10.9%
Funds of Funds
Total investments
54
Exhibit 12
SURS vintage year analysis
As at 30th June 2012
No.
Vintage year analysis
Commitment
Paid-in
Paid-in/
committed
Distributions
NAV
Total value
$m
%
$m
%
$m
$m
$m
Multiple
Gross
IRR
2001
1
87
10
82
94
82
51
133
1.63 x
15.4%
2002
8
39
5
36
92
46
16
62
1.72 x
13.3%
2003
6
60
7
54
91
61
43
104
1.90 x
16.5%
2004
20
165
19
156
95
143
91
234
1.50 x
11.5%
2005
20
188
22
173
92
91
149
241
1.39 x
8.5%
2006
11
119
14
109
92
44
98
142
1.30 x
7.1%
2007
6
195
23
125
64
16
129
145
1.16 x
6.7%
72
853
100
736
86
483
578
1061
1.44 x
10.9%
Total investments
Note: Secondaries are included in the year the deal took place (i.e. not the original year of the fund).
55
Exhibit 12
SURS portfolio diversification at underlying fund level
As at 30th June 2012
Stage diversification
Geographic diversification
(by commitment)
(by commitment)
1%
Buyout
Generalist
0%
8%
16%
10%
Asia
Venture
Europe
Directs
18%
USA
62%
Special
situations
Global
Secondary
83%
1%
Vintage year diversification
(commitments)
250
$m
200
150
100
50
0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Note: Secondary fund acquisitions are shown by reference to their original vintage.
56
SURS quarterly calls and distributions
Exhibit 12
$m
As at 30th June 2012
45
40
35
30
25
20
15
10
5
0
Q309
Q409
Q110
Q210
Q310
Q410
Paid-in during quarter
Q111
Q211
Q311
Q411
Q112
Q212
Distributed during quarter
2011
$57.6m
$123.2m
Contributions
Distributions
Net Cash Flow to
SURS
+$65.6m
1H 2012
$26.2m
$48.2m
+$22.2m
57
SURS portfolio summary
Exhibit 12
>
Portfolio continues to show strong absolute performance as well as relative
performance vs. the public benchmark
>
Buyouts, Special Situations, and Secondaries have driven positive performance;
Venture Capital performance has improved but continues to lag
>
2007 fund-of-funds commitments have begun to mature and demonstrate value
creation
>
Distributions have been robust totaling $95 million in 2010, $123 million in 2011, and
$48 million in 1H 2012.
>
Portfolio has been cash flow positive with distributions exceeding capital calls in each
quarter since the beginning of 2010
58
Exhibit 12
Notes on presentation
Performance data (slide 30)
1
The VentureXpert median and quartile figures represent the net IRRs of all private equity in Europe, with the same investment years as the
respective Pantheon fund-of-funds. Source: VentureXpert; data captured 10th August 2012.
2
These are pro-forma funds that represent the investments selected and made by Pantheon on behalf of its discretionary clients. These are not
actual structured fund-of-funds, but investments aggregated into three-year periods to provide a basis of meaningful comparison to Pantheon‟s
European funds-of-funds that commenced in 1997.
This data includes secondaries and co-investments made in PEUROs I – VI. Secondaries are included in the year of purchase. Performance
calculated net of underlying managers fees, but before all Pantheon fees. Source: Pantheon
3
4 The
IRRs shown for the MSCI Europe index were calculated using the PME methodology, whereby the cashflows for the respective vintage year
investments are hypothetically invested in the index. Source: MSCI/ Pantheon
5
The performance of investments in PEURO I-VI includes secondaries and co-investments. The index used for performance comparisons is the
MSCI Europe index. This has been calculated on a money-weighted basis to be on a comparable basis as the Private Equity funds. The
benchmarking methodology used is the Public Market Equivalent (PME), which assumes that the private equity cashflows are notionally invested in
the stated index. All data is as at 31st March 2012 and in € terms. Source: Pantheon/ MSCI/ Bloomberg.
Past performance is not necessarily indicative of future results.
59
Disclosure
Exhibit 12
This document and the information contained herein is the confidential and proprietary information of Pantheon; it may not be reproduced, provided or disclosed to
others, or used for any other purpose, without the prior written permission of Pantheon; and must be returned promptly upon request. This document is distributed
by Pantheon which is comprised of operating entities principally based in San Francisco, London and Hong Kong. Pantheon Ventures Inc. and Pantheon Ventures
(US) LP are registered as investment advisors with the U.S. Securities and Exchange Commission. Pantheon Ventures (UK) LLP is authorised and regulated by
the Financial Services Authority in the United Kingdom. Pantheon Ventures (HK) LLP is regulated by the Securities and Futures Commission in Hong Kong.
In Australia, this document and the information contained herein is intended only for wholesale investors under section 761G of the Corporations Act 2001 (Cth)
("Wholesale Investor"). By receiving this document you represent and warrant that you are a Wholesale Investor. Pantheon Ventures (UK) LLP is exempt from the
requirement to hold an Australian financial services licence under the Corporations Act 2001 (Cth) in relation to the provision of any financial product advice
regarding the financial products which are referred to in this document and is regulated by the FSA under UK laws, which differ from Australian laws.
In Europe and the United Kingdom, this document and the information contained herein is provided by Pantheon Ventures (UK) LLP solely to professional clients
or eligible counterparties for the purposes of the rules of the Financial Services Authority. In all other jurisdictions, this document is intended for institutional clients
and investors to whom this document can be lawfully distributed without any prior regulatory approval or action.
Nothing in this document constitutes an offer or solicitation to invest in a fund managed or advised by Pantheon or recommendation to purchase any security or
service. Nothing contained in this document is intended to constitute legal, tax, securities or investment advice. The general opinions and information contained in
this publication should not be acted or relied upon by any person without obtaining specific and relevant legal, tax, securities or investment advice. In general,
alternative investments such as private equity or infrastructure involve a high degree of risk, including potential loss of principal invested. These investments can
be highly illiquid, charge higher fees than other investments, and typically do not grow at an even rate of return and may decline in value. These investments are
not subject to the same regulatory requirements as registered investment products. In addition, past performance is not necessarily indicative of future
results. This presentation may include “forward-looking statements”. All projections, forecasts or related statements or expressions of opinion are forward-looking
statements. Although Pantheon believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to be correct, and such forward-looking statements should not be regarded as a guarantee, prediction or definitive statement of fact or
probability. All information or discussion in these materials regarding funds managed/advised by Pantheon or its affiliates is qualified entirely by the terms and
provisions of the relevant private placement memorandum(s) and limited partnership agreement(s) for such fund(s).
Any reference to the title of “Partner” in these materials refers to such person‟s capacity as a partner of Pantheon Ventures (UK) LLP. In addition, any reference to
the title of “Partner” for persons located in the United States refers to such person‟s capacity as a limited partner of Pantheon Ventures (US) LP.
Copyright © Pantheon 2012.
All rights reserved.
60