NOVEMBER 2014 - RED ROCKS CAPITAL PRIVATE EQUITY PERSPECTIVES

NOVEMBER 2014 - RED ROCKS CAPITAL PRIVATE EQUITY PERSPECTIVES
Global Buyout & Growth Equity Fund Index Performance – Public Market Equivalent Comparisons
Private Equity performance measurements typically use internal rate of return (IRR), so comparing private equity to traditional asset
classes that use time-weighted returns may not be an “apples to apples” comparison, as the timing of cash flows in an IRR
calculation can alter performance. Public Market Equivalent (PME) is a method to provide a more comparable measure for timeweighted asset classes and private equity. PME simulates cash flows and investment timing similar to a private equity fund,
enabling a more comparable analysis.
Below is a comparison of how Global Private Equity has performed versus S&P 500 and MSCI EAFE Public Market Equivalent (PME)
calculations. Although equities have outperformed during the bull market of the past 5+ years, private equity has outperformed
over the longer term of 10-, 15-, 20- and 25-year periods.
As of June 30, 2014
Sources: Cambridge Associates LLC, Frank Russell Company, MSCI Inc., Standard & Poor's and Thomson Reuters Datastream
*The index is an end-to-end calculation based on data compiled from 1,728 global (U.S. & ex U.S.) buyout and growth equity funds including fully liquidated
partnerships, formed between 1986 and 2014.
*Pooled end-to-end return, net of fees, expenses, and carried interest.
**Cambridge Associates Modified Public Market Equivalent (mPME) replicates private investment performance under public market conditions. The public index’s
shares are purchased and sold according to the private fund cash flow schedule, with distributions calculated in the same proportion as the private fund, and mPME
NAV is a function of mPME cash flows and public index returns.
MSCI EAFE Index is a stock market index that is designed to measure the equity market performance of developed markets outside of the U.S. & Canada.
Red Rocks Capital
Private Equity Perspectives – November 2014
www.redrockscapital.com
Page 1 of 7
PRIVATE EQUITY MANAGER PROFILE
Name: Intermediate Capital Group
CEO:
Christophe Evain
Ticker: ICP LN
Market Cap: £1.59 billion
http://www.icgplc.com/
Overview and Strategy: Founded in 1989, ICG manages €13.3 billion deployed through private debt, mezzanine, credit, and
minority equity funds specializing in mid-market transactions. The company plays an active role in supporting a company’s
development through board representation and participation in key decisions. The management considers flexibility a key to their
approach, investing across capital structures from equity to senior debt, and accessing deals in multiple continents.
Recent Developments: In September, ICG exercised an option to purchase the remaining 49% of Longbow Real Estate Capital for
approximately £13 million and will take its holding to a 100% position. ICG-Longbow is an investment manager focused on the UK
commercial property debt markets, providing loans to finance some of the UK’s leading property companies. The acquisition will
enhance this successful partnership that was first established in March 2011. In that time, ICG-Longbow has raised in excess of £1.3
billion of discretionary capital across four funds.
Stock Price (GBp)
600
Intermediate Capital Group - 5 Year Daily Stock Price*
500
400
300
200
100
0
Oct-09
Oct-10
*Past performance does not guarantee future results
Red Rocks Capital
Private Equity Perspectives – November 2014
www.redrockscapital.com
Oct-11
Oct-12
Oct-13
*Bloomberg 10/28/2014
Page 2 of 7
CHART OF THE MONTH
Private Equity Represents Almost 10% of U.S. Pension Funds
Composition of U.S. Pension Funds
Pensions Fund Investment Return by Asset Class
As of 6/30/2014
Source: PEGCC
Red Rocks Capital
Private Equity Perspectives – November 2014
www.redrockscapital.com
Page 3 of 7
NOTABLE
Advisors Turn to Private Equity as Hedge Funds Lag
According to the Wall Street Journal, as hedge funds lose some of their cachet amid poor performance and an overabundance of
offerings, some financial advisers are increasingly turning to private equity as a way to diversify clients’ portfolios. “The rationale for
investing in private equity is more intuitive and more tangible to a lot of people than hedge funds,” says David Donabedian, chief
investment officer at Atlantic Trust Private Wealth Management, which manages $25.4 billion. Hedge funds “often have very
opaque, complex strategies that aren’t necessarily easy to grasp,” he notes.
http://online.wsj.com/articles/advisers-turn-to-private-equity-as-hedge-funds-lag-1412602190
Private Equity Backs Largest Private Sector Investment in North Dakota State History
In early October, North Dakota Governor Jack Dalrymple and Badlands NGL CEO Bill Gilliam announced a new polyethylene
manufacturing facility to be built in North Dakota. At around $4 billion, this is the largest private sector investment in state history.
The new Badlands facility with use North Dakota's abundant supply of natural ethane gas, a byproduct of oil production, and will
convert the ethane to polyethylene, which can then be used to make a wide variety of end use consumer and industrial products.
http://www.reuters.com/article/2014/10/13/idUSnMKW6jWwsa+1c8+MKW20141013
As IPOs Stumble, Private Equity Prepares to Pounce
Across Europe, companies hoping to list are having their plans dashed by plunging equity prices. But what's bad for public stock
markets may be good for private equity firms. Having started the year with a record $1 trillion cash pile, private equity funds have
found few chances to spend it, despite pressure from investors wanting them to put the money to work. But that may be starting to
change, as a slide in equity markets has put off IPO investors, and slowing global growth has injected a new caution into corporates.
http://www.cnbc.com/id/102100275
Partners Group Seeks to Bring Private Equity to 401(k) Market
Swiss-based Partners Group is launching a private equity investment product next year that targets the multitrillion dollar 401(k)
market in the U.S. Casey Quirk & Company forecasts that the defined contribution market, including 401(k) plans, will climb to $7.7
trillion by 2020. The product will provide access to mix of private equity investments, such as partnerships, fund-of-funds and listed
private equity, while providing daily liquidity for redemptions and rebalancing.
http://blogs.wsj.com/privateequity/2014/10/24/partners-group-aims-to-bring-private-equity-to-401ks/
KKR Provides Growth Capital for Cafeteria-Style Chain Lemonade Restaurant Group
KKR has acquired a minority stake in Lemonade Restaurant Group LLC, a cafeteria-style restaurant chain that describes itself as a
“Southern Californian smorgasbord.” Founder/chef Alan Jackson said KKR’s investment will allow Lemonade, which currently
operates 14 locations on the West Coast, to embark on a expansion plans to 40 locations by 2016, focusing on adding stores in
California, Texas and Hawaii. The investment was made from KKR’s balance sheet, rather than from one of its buyout funds. The
firm made a similar investment in September in identity-theft prevention company Ping Identity Corp., using its balance sheet to
participate in a $35 million funding round for the identity-theft-prevention company.
http://online.wsj.com/articles/kkr-buys-stake-in-cafeteria-style-chain-lemonade-restaurant-group-1412738293
Private Equity Titans Open Cloistered World to Smaller Investors
Carlyle Group is working to provide access to the cloistered world of private equity to doctors, lawyers, and well-heeled
entrepreneurs, by providing individual investors direct access to a selection of Carlyle’s private equity funds. Investors, who must be
accredited, will be required to commit a minimum of $250,000, which would be divided evenly across four of Carlyle’s current funds.
http://dealbook.nytimes.com/2014/10/20/private-equity-titans-open-cloistered-world-to-smaller-investors/
Blackstone Backs 'Utility Scale' Wind, Solar Power
Investment firm Blackstone Group announced a partnership recently to develop large North American wind and solar projects.
Blackstone will team with renewable power developer Solops to create Onyx Renewable Partners. Onyx will be a new affiliate of
Blackstone portfolio company Fisterra Energy and will be owned by funds managed by Blackstone on behalf of its private equity
investors. Blackstone, which manages nearly $300 billion overall, has invested approximately $7 billion of equity in energy projects,
according to the firm.
http://www.cnbc.com/id/102107006
Red Rocks Capital
Private Equity Perspectives – November 2014
www.redrockscapital.com
Page 4 of 7
Global PE Firms’ Investments in Africa More Than Doubled in First Half
KKR & Co, which earlier this year invested in Ethiopian flower company Afriflora, is one of a number of global investment managers
capitalizing on growth prospects in Africa. Investment by international shops more than doubled in the first half of the year to $1.5
billion compared with $621 million during the same period a year earlier. Furthermore, interest is expanding beyond South Africa,
which has historically received the majority of foreign investment. According to data compiled by law firm Freshfields Bruckhaus
Deringer, between 2004 and 2009, 75% of capital invested by global firms was in South Africa. Between 2009 and 1H 2013, that
figure was 10%.
http://blogs.wsj.com/privateequity/2014/10/21/global-pe-firms-investments-in-africa-more-than-doubled-in-first-half/
Old Mutual to Acquire Private Equity Backed British Wealth Manager for $936.6 Million
The insurer Old Mutual said recently that it had agreed to acquire Quilter Cheviot, the private equity-backed British wealth manager,
in a deal worth up to 585 million pounds, or about $936.6 million. Quilter & Company was acquired by the private equity firm
Bridgepoint Capital in 2011 from Morgan Stanley and later combined with Cheviot. Founded in South Africa in 1845, Old Mutual
offers insurance, asset management and banking services to about 16 million customers worldwide. It had £300.5 billion in funds
under management as of June 30 and employs about 56,000 people worldwide.
http://dealbook.nytimes.com/2014/10/17/old-mutual-acquires-british-wealth-manager-for-936-million/
Private Equity in Hollywood
Private equity firm TPG Capital has increased its investment in talent agency Creative Artists Agency, making it the majority owner of
the firm that represents such movie stars as Julia Roberts, Brad Pitt and Jennifer Lawrence. TPG, based in Fort Worth, acquired a
35% stake in CAA in October 2010. The new investment gives TPG approximately a 53% stake in CAA. For years the dominant talent
agency, CAA is now the second-biggest, trailing rival William Morris Endeavor in size. In December, WME struck a deal to acquire
sports and media company IMG Worldwide for $2.3 billion.
http://www.latimes.com/entertainment/envelope/cotown/la-et-ct-tpg-caa-20141020-story.html
Platform Specialty to Buy Arysta to Boost Agrichem Business
Platform Specialty Products Corp said it would buy Arysta LifeScience Ltd for about $3.51 billion, Platform's third acquisition this year
as the company looks to strengthen its agrichemicals business. Platform is buying Arysta from funds backed by London-based private
equity firm Permira. Arysta is a global provider of insecticides, fungicides, herbicides, biostimulants and value-added nutrients and
reported net sales of $1.5 billion in 2013.
http://www.reuters.com/article/2014/10/20/us-platformspeciality-m-a-arysta-idUSKCN0I915220141020
Oak Hill Poised for Nearly 3x Return on Dave & Buster’s
Four years after buying Dave & Buster’s Entertainment, Oak Hill Capital Partners is poised to see a return of nearly 3x on its
investment in the restaurant/arcade chain as the company files for IPO. Oak Hill owns about 95 percent of Dave & Buster’s,
according to the SEC filing. It bought the company in June 2010 in a deal valued at $570 million. As part of the deal, Oak Hill invested
$240 million equity. Dave & Buster’s reported total revenue of $635.6 million in fiscal 2014, up 4.5 percent from $608 million for the
year before.
https://www.pehub.com/2014/10/oak-hill-poised-to-see-nearly-3x-return-on-dave-busters/
Blockchain Raises $30 Million in Biggest-Ever Funding Round for a Bitcoin Company
Blockchain just went from bootstrapped to big-time. The popular Britain-based global Bitcoin wallet and block explorer service
announced recently that it has locked in $30.5 million in Series A funding. The record round, which marks the company’s first-ever
outside investment, was led by heavy-hitter Silicon Valley venture capital vehicles Wicklow Capital and Lightspeed Venture Partners.
Other participants in the round include Mosaic Ventures, Prudence Holdings, Amit Jhawar of Braintree and billionaire Richard
Branson. Launched in 2011, Blockchain - now 2.3 million consumer wallets and $26 billion in transaction volume strong - said it plans
to use the massive growth capital infusion to beef up its product and engineering teams, to add “innovative new features” to its
products and to expand to new international markets.
http://finance.yahoo.com/news/blockchain-raises-30-million-biggest-161500809.html
“Measure Twice, Cut Once”
One for the “whoops” category – Tibco Software and Goldman Sachs have learned that a spreadsheet error has reduced the $4
billion+ sale to Vista Equity Partners by about $100 million. According to regulatory filing, “a share count was used that overstated
Tibco’s fully diluted common stock by the number of shares of restricted stock,” which reduced the implied equity value of the
transaction from around $4.3 billion to $4.2 billion, saving Vista Equity Partners around $100 million in their acquisition of Tibco.
http://www.cnbc.com/id/102098463
Red Rocks Capital
Private Equity Perspectives – November 2014
www.redrockscapital.com
Page 5 of 7
Apax Partners to Acquire Exact Holding for $930 Million
Apax Partners LLP agreed to buy Exact Holding NV (EXACT) for 730 million euros ($930 million) to back the Dutch business-software
provider’s push into cloud computing. Interest in Dutch software providers is increasing as the companies lead a shift to serving
clients primarily over the Internet rather than on-site. “In Apax, we’ve found a good partner to accelerate our strategy” of adapting
to industry moves in social media, mobile technology and data management, CEO Van der Meijden said recently in a conference call.
“We have a growing chance to conquer a top-three position in business software from the cloud for small and medium-size
businesses.”
http://www.bloomberg.com/news/2014-10-09/apax-partners-to-acquire-exact-holding-for-930-million.html
Apollo, Riverstone plan IPO for Talos Energy
Apollo Global Management and Riverstone Holdings are preparing Talos Energy for an initial public offering that could value the oil
and gas company at over $2 billion, including debt. Apollo and Riverstone formed Houston, Texas-based Talos in 2012, committing
up to $600 million in capital for the company so it can acquire and develop oil and gas assets in the Gulf Coast of the United States
and the Gulf of Mexico. Using seismic data to identify promising properties, Talos plans to have drilled 15 prospects in 2014 and 15
to 18 additional prospects in 2015, both in shallow water and on its developed deep-water acreage.
http://www.reuters.com/article/2014/10/06/us-talosenergy-ipo-idUSKCN0HV1I520141006
BVK, Germany’s Largest Pension Fund, Likes Private Equity
BVK, which have 4 percent of assets in private equity, first started committing to private equity funds in 2007. With low interest rate
environment persisting, they envision a potential doubling of the share of private equity investments. BVK had around $76.5 billion
in assets at the end of August, manages 12 pension plans for doctors, architects, lawyers, Bavarian lawmakers, and chimney sweeps.
http://www.bloomberg.com/news/2014-10-15/biggest-german-public-pension-likes-buyout-hedge-funds.html
Milestone Year for KKR’s Green Portfolio Program
KKR, a leading global investment firm, recently announced the sixth year of results from its Green Portfolio Program (GPP): nearly
$1.2 billion in avoided costs and added revenue, as well as more than 2.3 million metric tons of GHGs avoided between 2008 and
2013. The GPP is an operational improvement program that assesses critical business activities of KKR's participating private equity
portfolio companies through an environmental lens. To date, 25 portfolio companies have reported into the program’s aggregate
numbers.
http://finance.yahoo.com/news/milestone-kkrs-green-portfolio-program-124500681.html
Brookfield Said to Target $3 Billion for Private Equity
Brookfield Asset Management Inc. (BAM), Canada’s biggest manager of alternatives to stocks and bonds, is seeking a global privateequity fund three times the size of its last pool. The firm is targeting $3 billion for Brookfield Capital Partners Fund IV LP, after its $1
billion predecessor, raised in 2011, beat peers. Fund IV will make medium to large investments across the globe, a broader mandate
than the prior pool that focused on underperforming or distressed mid-size North American companies. Brookfield, which manages
about $200 billion and is based in Toronto, is moving away from using its balance sheet to invest in private equity in favor of pooled
funds.
http://www.bloomberg.com/news/2014-10-08/brookfield-said-to-target-3-billion-for-private-equity.html/
About Red Rocks Capital
Founded in 2003, Red Rocks Capital is the largest U.S.-based asset management firm focusing exclusively on liquid private equity,
with approximately $1.4 billion in assets for advisor-sold mutual funds and variable annuities for institutions and investors. The Red
Rocks Capital liquid private equity portfolio gives investors access to an asset class that has historically had high barriers to entry due
to investor qualification, long lock-up periods, and high initial investment minimums. Based in Golden, CO, Red Rocks Capital was
one of the first U.S. asset managers to offer access to private equity in a ’40 act structure.
Red Rocks Capital
Private Equity Perspectives – November 2014
www.redrockscapital.com
Page 6 of 7
IMPORTANT DISCLOSURES
While every effort has been taken in the preparation of this document, Red Rocks Capital makes no representation to the accuracy
or completeness of this research nor any statements or forecasts within this document.
Listed Private Equity Companies are subject to various risks depending on their underlying investments, which could include, but are
not limited to, additional liquidity risk, industry risk, non-U.S. security risk, currency risk, credit risk, managed portfolio risk and
derivatives risk (derivatives risk is the risk that the value of the Listed Private Equity Companies derivative investments will fall
because of pricing difficulties or lack of correlation with the underlying investment.
There are inherent risks in investing in private equity companies, which encompass financial institutions or vehicles whose principal
business is to invest in and lend capital to privately held companies. Generally, little public information exists for private and thinly
traded companies and there is a risk that investors may not be able to make a fully informed investment decision.
Listed Private Equity Companies may have relatively concentrated investment portfolios, consisting of a relatively small number of
holdings. A consequence of this limited number of investments is that the aggregate returns realized may be adversely impacted by
the poor performance of a small number of investments, or even a single investment, particularly if a company experiences the need
to write down the value of an investment.
The information presented is for illustrative and educational purposes only. You should not assume that an investment in the
securities mentioned was or would be profitable in the future.
This information is not a recommendation to buy or sell.
Past performance does not guarantee future results.
For private equity companies mentioned in this document, as of September 30, 2014:
Red Rocks Capital holds positions with the following firms:
 Apax through Altimer Amboise (LTA FP)
 Apollo Global Management (APO)
 The Blackstone Group (BX)
 Brookfield Asset Management (BAM)
 Carlyle Group (CG)
 Intermediate Capital Group (ICP LN)
 KKR & Co. (KKR)
 Permira through SVG Capital (SVI LN)
 Riverstone Holdings (RSI LN)
Through Pantheon International Participations, PLC (PINR LN)
 Bridgepoint Capital
 TPG Capital
Red Rocks Capital has no positions or affiliations with the following firms:
 Braintree
 Goldman Sachs
 Lightspeed Venture Partners
 Oak Hill Capital Partners
 Partners Group
 Prudence Holdings
 Mosaic Ventures
 Vista Equity Partners
 Wicklow Capital
Red Rocks Capital
Private Equity Perspectives – November 2014
www.redrockscapital.com
Page 7 of 7