QUARTERLY REPORT. for the period from 1 July 2007 to 30 September 2007

Transcription

1 QUARTERLY REPORT for the period from 1 July 2007 to 30 September 2007

2 QUARTERLY STATEMENT REPORT OF THE INVESTMENT MANAGER INVESTMENT MANAGER S REPORT PEARL UNIMPRESSED BY FINANCIAL MARKET TURBULENCES The convertible bond issued by Pearl Holding Limited provides access to the private equity asset class. For the first time, investors have the opportunity to buy into the earnings potential of a broadly diversified private equity portfolio, while enjoying capital protection and a 2 % coupon. Its tailor-made structure makes the convertible bond suitable for German private and institutional investors (i.e. sicherungsver-mögensund spezialfondsfähig ). With a gain of 5.70%, the second quarter of the current year registered the best quarterly performance since inception of Pearl. Moreover, Pearl also managed to hold its ground during this year s turbulent third quarter by recording a 4.25% increase in net asset value (NAV) to %. As a result, Pearl s NAV stood above the 120% mark since the end of August, more than 15% higher than at the beginning of the year. If one also considers the 2% coupon paid to shareholders yearly at the end of September, this equates to what in effect is a theoretical NAV of %. Just how strongly Pearl has performed in the recent past gains even more expression, if one takes into consideration the increase in value since the NAV low at the end of May 2004, which with almost 50% is impressive. Pearl performed well in all three months of the latest quarter. This notable development was underpinned with significant revaluations reported by partnerships such as Doughty Hanson & Co. Fund IV, Global Private Equity Fund IV and Newbridge Asia III. 2 This document is not intended to be an investment advertisement or sales instrument; it constitutes neither an offer nor an attempt to solicit offers for the product described herein. This report was prepared using financial information contained in the company s books and records as of the reporting date. This information is believed to be accurate but has not been audited by any third party. This report describes past performance, which may not be indicative of future results. The company does not accept any liability for actions taken on the basis of the information provided. Triggered by an increase in interest rates, the price corrections in the international equity markets exerted a negative impact on the listed investment companies in the Pearl portfolio, which constitute approximately 7% of Pearl s NAV at the end of the third quarter. Nonetheless, those losses were more than outweighed by the solid performance of the partnerships and direct investments in the portfolio. The mid-market price of Pearl closed out the third quarter at %, which represents a remarkable increase of almost 5% for the past three months and a gain of roughly 7% since the beginning of the year.

3 With that, the mid-market price showed a larger gain than in the two previous quarters of Due to the significant increase in NAV, Pearl trades at a discount of 13.99% at the end of the third quarter. NEW COMMITMENTS During the course of the third quarter, Pearl made a commitment to Apollo Overseas Partners VII, a buyout fund that focuses on North America. Furthermore, Pearl also closed on two secondary transactions: Affinity Asia Pacific Fund II, a buyout fund centred on Asia and the rest of the world, and CapVis Equity II, another buyout fund focused on Europe. FAVORABLE MARKET ENVIRONMENT FOR INVESTMENT ACTIVITIES REMAINS INTACT Despite the current turbulences in the financial markets, the global economy is robust and the attractive environment for private equity investments persists. Yet again in the third quarter, the partnerships in the Pearl portfolio have identified promising investment opportunities and have drawn down approximately EUR 44m for those purposes. In total, the capital drawdowns for the current year amount to EUR 129m. One of the largest capital calls was issued by Avista Capital Partners to acquire a majority interest in IWCO Direct, the leading provider of comprehensive solutions in the area of direct-mail campaigns in the US; another was deployed for the takeover of Britain s music enterprise, EMI Group, from Terra Firma Capital Partners II. At the same time, cash distributions from initial public offerings or from sales to financial or strategic investors have already flowed back to the Pearl portfolio in the amount of EUR 170m for the current year, thereof EUR 51m in the third quarter alone. Large distributions came from Terra Firma Capital Partners II as a result of its partial sale of German motorway service area operator Tank & Rast, as well as from EQT IV, which, with its holding in Tognum AG, successfully introduced one of the world s leading suppliers of high-performance diesel engines to the Frankfurt Stock Exchange. Furthermore, Pearl received a full repayment of its direct mezzanine loan to CiCi Enterprises, Inc. MID-MARKET PRICE AND NAV DEVELOPMENT FULL INVESTMENT LEVEL REACHED 140% 130% 120% 110% 100% At the end of September, Pearl s investment level stood at 82.37%, slightly higher than at the end of June (81.11%). Thus taking into account the reserve for interest payments, Pearl is essentially fully invested. However, the investment advisor to Pearl is still striving to keep investment activities at a high level. 90% 80% 70% Dec. 00 March 01 June 01 Sept. 01 Dec. 01 March 02 June 02 Sept. 02 Dec. 02 March 03 June 03 Sept. 03 Dec. 03 March 04 June 04 Sept. 04 Dec. 04 March 05 June 05 Sept. 05 Dec. 05 March 06 June 06 Sept. 06 Dec. 06 March 07 June 07 Sept 07 NAV Mid-market price NAV incl. paid and accrued interest 3

4 QUARTERLY REPORT MARKET TRENDS CHANGED PARADIGM IN THE CREDIT MARKETS Hardly a day has passed in recent months without the words subprime crisis dominating the headlines. Investors appetite for risk has waned, yield spreads in the bond market have widened, and following an extended phase of mega-lbo deals private equity houses and their banks are now for the first time having difficulty syndicating the credits necessary to finance these major takeovers. Nevertheless, the environment for leveraged buyout investments remains favorable thanks to continuing positive economic data, especially in terms of small- to mediumsized transactions, as well as Asia. Once July s subprime crisis spilled over into the global credit markets, the underlying conditions for debt financing changed dramatically: investors risk aversion increased, interest rates rose as a result, and credit spreads widened. The days of fast and easy money were history. But what does this mean for the private equity industry, in which debt financing of leveraged buyouts (LBOs) plays a key role, and what impact will it have on the private equity industry as a whole? STABLE BUYOUT RETURNS DURING ALL MARKET CRISES Over the past twenty years, there have been monetary policy cycles, as well a number of financial crises, which has been the case of late. The returns on top-quartile buyout funds, however, have remained uncorrelated to the effects of these crises and demonstrate a historical average increase of 15 to 19% per annum. Even in years with increasing interest rates at levels significantly higher than those today, buyout returns of the top funds did not collapse. At present, internal rates of return (IRRs) for buyout investments clearly lie above the historical average. Thanks to buoyant economic trends, the favorable credit environment and healthy corporate balance sheets, many of the transactions concluded in 2005 and 2006 have already been recapitalized, and private equity investors have had their shareholders equity repaid quickly in these transactions. However, that trend may not be sustainable due to the changed circumstances in the credit markets and the ancillary effects. Thus, the returns are likely to ease back to their historical range. 4

5 HIGHER FINANCING COSTS PUT PRESSURE ON ENTRY PRICES Owing to the changed paradigm in the credit market, financings in connection with leveraged buyouts can be expected to have a more conservative structure and a new pricing level. High entry prices (measured by the EBITDA multiple) for large LBOs are only sustainable as long as cheap financing is available. The increased risk premiums of late, however, add to the financing costs, leading to a decline in entry prices. In addition, banks are currently holding a large amount of unsyndicated loans that they will have to focus on, placing them in the market first. According to estimates by Thomson Financial, bonds in the amount of USD 200bn remain to be syndicated in the US alone. For that reason, banks have only a limited capacity for new deals, affecting in turn the availability of debt financing at least in the coming months, or at higher prices. The situation is also likely to have a general impact on the number of new private equity transactions. At present, the assumption is that activity in the LBO market will settle down at a low level and not pick up again until early- to mid Private equity funds still hold a sizeable amount of cash that they raised in recent years for (large) buyout deals. In light of the current market environment, it is now a matter of general partners discipline in exercising patience and adjusting their offers for new buyouts to the latest market conditions. For investors, this should result in attractive entry opportunities. HOW IMPORTANT IS LEVERAGE WHEN IT COMES TO BUYOUT RETURNS? Debt financing above all for mega-deals in the multibillion range plays a key role in buyouts. However, debt financing alone is not the only success factor in a buyout investment. In the opinion of Partners Group, the investment advisor to Pearl, too much weight is being placed on that particular dimension in the current crisis atmosphere. The fact that less debt financing will be available, and hence lower the overall level of debt, by no means implies by definition that buyout returns must shrink. The past has shown relatively little correlation between trends in the level of debt and those of top-quartile buyout returns. THE IMPORTANT ROLE PLAYED BY A GENERAL PARTNER Whether or not an investment financed with private equity turns out to be successful is not exclusively dependent on the availability of cheap debt financing, but even more so on the macroeconomic environment and the ability of the general partner to achieve strategic and operational improvements in the companies in which it invests; whether it be by fostering growth, increasing profit margins or reducing debt. According to a McKinsey study, the value creation in a company is two-thirds attributable to so-called affirmative participation on the part of shareholders. Ernst & Young observe that successful investments had private equity investors actively involved in the business after acquisition, making rapid decisions alongside management, challenging progress and making specialist expertise available. INTACT MACROECONOMIC ENVIRONMENT AND HEALTHY CORPORATE BALANCE SHEETS Although risks to the real economy, especially in the US, have increased as a result of the recent financial market turbulence, the global economy is still in very robust shape, and experts are assuming that global growth will continue at above-average rates both for 2007 and Europe and the emerging markets (amongst them, India and China in particular) should be able to compensate for any soft patch in the US. Moreover, by and large corporate balance sheets are solid, with firms showing low debt levels and persistently strong earnings growth. LBO ENVIRONMENT REMAINS ATTRACTIVE In the wake of recent developments in the capital markets, the atmosphere for arranging debt financing and hence also for leveraged buyouts is no longer as euphoric as it has been in the past but it is still conducive with risk spreads still historically narrow despite some recent widening. Partners Group views this as a necessary and very healthy cool-down phase, with the global economy remaining healthy and corporate balance sheets solid. Despite the higher costs of debt financing, it should still be possible to achieve attractive returns, while private equity houses must once again become accustomed to longer holding periods. Given the current financial market environment, the investment advisor to Pearl will select those general partners and specific transaction types that have weathered a number of previous cycles and in the process proved their discipline as well as their potential. 5

6 QUARTERLY REPORT PORTFOLIO ALLOCATION INVESTMENTS AND DISTRIBUTIONS in EUR m Pearl has a balanced and by geographic regions, financing stages, industry sectors and vintage years broadly diversified portfolio. 82% of the portfolio is invested in the stable buyout and special situations segments Drawn Commitments Distributions YTD 2007 in EUR m INVESTMENTS BY VINTAGE YEARS* pre YTD 2007 * Allocation by unrealized value of private equity investments 6

7 INVESTMENTS BY TYPE OF INVESTMENTS* INVESTMENTS BY GEOGRAPHIC REGIONS* Direct Investments 9% Listed Private Equity 7% Asia & Rest of World 7% Secondary Partnerships 21% USA 36% Primary Partnerships 63% Europe 57% * Allocation by unrealized value of private equity investments * Allocation by unrealized value of private equity investments INVESTMENTS BY FINANCING STAGES* INVESTMENTS BY INDUSTRY SECTORS* Special Situations 8% Other 22% Communication & Media 13% Venture Capital 18% IT & High-Tech 13% Buyout 74% Retail 18% Industrial Production & Manufacturing 13% Life Sciences 11% Financial Services 10% * Allocation by unrealized value of private equity investments * Allocation by unrealized value of private equity investments 7

8 QUARTERLY STATEMENT REPORT OF THE INVESTMENT MANAGER PORTFOLIO NEW COMMITMENTS Apollo Overseas Partners VII In August, Pearl committed USD 20m to Apollo Overseas Partners VII. The fund will pursue the same investment strategy as its predecessor funds, focusing on large-cap buyout as well as complex distressed and corporate partner buyout transactions. The fund will pursue investments in the order of between USD 200m to USD 1.5bn, targeting companies with strong market positions, solid customer bases and relatively high EBITDA margins. During the third quarter of 2007, Pearl made one primary commitment and closed on two secondary transactions. Affinity Asia Pacific Fund II During the month of August, Pearl acquired a USD 5m stake in Affinity Asia Pacific Fund II through a secondary transaction. Affinity was established as an independent firm in 2002 after it had been spun off from UBS Capital Asia Pacific. The fund focuses on buyout investments alongside local management teams in market-leading mid-sized businesses located primarily in Hong Kong, Singapore, Korea, Japan, Australia and Taiwan. Affinity invests between USD 25m and USD 75m in companies with enterprise values of between USD 100m and USD 500m. The fund typically leads its investments, acquires controlling stakes and holds board representations. 8 CapVis Equity II In August, Pearl acquired a EUR 1.7m stake in CapVis Equity II via a secondary transaction. The fund, managed by the leading Swiss private equity house for direct private equity investments CapVis, focuses on mid-cap buyout and expansion capital transactions of companies with enterprise values of between EUR 50m and EUR 300m. The fund typically acquires controlling stakes in its portfolio companies. Approximately 60% of its investments are in Switzerland, 20% in Austria and 20% in Southern Germany.

9 NEW INVESTMENTS Avista Capital Partners (Offshore) In July, Pearl partnership Avista Capital Partners acquired a controlling interest in IWCO Direct, the leading provider of integrated direct mail production services and solutions in the US. The company s executive management team, which has consistently recorded double-digit growth over the past five years, will remain meaningful shareholders and continue to operate the company. Benefiting from Avista s deep experience in the business services sector, IWCO will enter its next growth phase, which is expected to include both strategic acquisitions and organic expansion. Carlyle Partners IV In August, Pearl partnership Carlyle Partners IV acquired the Engineered Products division from North American tyre manufacturer Goodyear Tire & Rubber Co. for USD 1.5bn. This is the fourth auto-industry-related portfolio company to be acquired by Carlyle Partners IV. The division, which has been renamed Veyance Technologies Inc., develops power transmission products and conveyor belts, among other industrial commodities, and has manufacturing facilities in twelve countries. Veyance s proven products, its excellent management team and the significant growth prospects domestically and abroad made this an attractive investment opportunity for Carlyle. Terra Firma Capital Partners II Also in August, Pearl partnership Terra Firma completed the acquisition of EMI Group for a total value of GBP 2.4bn. EMI is one of the world s largest music companies and the world s leading music publisher. Its recorded music catalog includes tracks from well-known artists, such as The Beatles, Robbie Williams and The Rolling Stones. Terra Firma intends to further develop the publishing catalog while streamlining the recorded music business and repositioning it for the digital market. NEW EXITS EQT IV At the beginning of July, Pearl partnership EQT IV successfully listed Tognum AG on the Frankfurt Stock Exchange, raising nearly USD 2.1bn. The IPO generates a multiple of 11x to EQT and its investors, only sixteen months after buying the company. Tognum s main business is high-speed diesel engines and propulsion systems for ships, trains, agriculture, industry and power generators. Since the acquisition by EQT in March 2006, Tognum AG has been able to improve operations, revenues and profits significantly. This is the largest initial public offering in Germany since Deutsche Post went public in PARIS RE Holdings Limited In July, Pearl s direct investment PARIS RE Holdings Limited was successfully listed on Euronext Paris. By placing 13.6% of its capital, the company raised a total of EUR 225m and reached a market capitalization of EUR 1.67bn, based on its first traded price. The issue consisted to 34% of new shares and to 66% of existing shares. The IPO of the French reinsurer made its stock market debut in one of France s biggest listings so far this year. PARIS RE was formed in March 2006 when it acquired all of AXA s active reinsurance operations backed by a consortium of international investors led by Stone Point Capital LLC. CiCi Enterprises, Inc. During the third quarter, Pearl received full repayment of its mezzanine loan to CiCi Enterprises, Inc., after lead investor Levine Leichtman Capital Partners successfully sold its stake in the pizza chain operator to Toronto-based private equity group OnCap in July Pearl had originally participated in CiCi s mezzanine financing in Since then, CiCi has opened roughly 150 new franchised and corporate-owned restaurants and now has over 600 locations throughout the Southwest, Midwest and Southeast United States. 9

10 ÜBERBLICK QUARTERLY STATEMENT REPORT OF THE INVESTMENT MANAGER PORTFOLIO OVERVIEW PRIMARY PARTNERSHIPS Europe Buyout 3i Europartners IVc, L.P. 3i Eurofund Vb Activa Capital Fund FCPR 1 Advent International GPE V, L.P. Advent International GPE V, L.P. 1 Apax Europe V, L.P. Apax Europe VI-A, L.P. Apax Europe VII B, L.P. AXA LBO Fund III-A 1 BC European Capital VII Top Up Fund BC European Capital VIII, L.P. Bridgepoint Europe II C L.P. 1 Bridgepoint Europe III, L.P. CapVis Equity II, L.P. 1 Cognetas European Fund II LP (Fka Electra II) 1 CVC European Equity Partners IV, L.P. Tandem Fund Doughty Hanson & Co Fund IV, L.P. Doughty Hanson & Co Fund V Duke Street Capital V, L.P. 1 ECI 8, L.P. 1 EQT IV, L.P. EQT V, L.P. Global Private Equity Fund IV-D, L.P. GMT Communications Partners III, L.P. Graphite Capital Partners VI, L.P. 1 Industri Kapital 2000, L.P. Investitori Associati IV, L.P. 1 Italian Private Equity Fund IV, L.P. 1 Mercapital Spanish Private Equity Fund II, L.P. Montagu III, L.P. 1 Nmás1 Private Equity Fund US No. 1, L.P. 1 Nordic Capital V, L.P. 1 Permira Europe III, L.P. Permira IV, L.P. Segulah III, L.P. 1 STAR II UK Limited Partnership No. 1 Terra Firma Capital Partners II, L.P. Third Cinven Fund (No. 4), L.P Europe Venture Capital Abingworth Bioventures III, L.P. Abingworth Bioventures V, L.P. ACT 2001 Venture Capital Fund, L.P. No. 2 Advent Private Equity Fund III D L.P. Amadeus II C, L.P. Amadeus III, L.P. BrainHeart Capital, L.P. BrainHeart Capital Annex Fund, L.P. European Equity Partners (IV), L.P. Global Life Science Ventures Fund II, L.P. GMT Communications Partners II, L.P. HealthCap 1999 GbR Index Ventures II (Jersey), L.P Index Venture Partners III, L.P. Index Ventures IV (Jersey), L.P. Sofinnova Capital IV, L.P. Sofinnova Capital Partners V, L.P. Zweite TechnoStart Ventures Fonds GmbH & Co. KG Europe - Special Situations Coller International Partners IV, L.P. ICG Mezzanine Fund 2003, L.P. No. 1 ICG Mezzanine Fund 2003, L.P. No. 1 1 Indigo Capital IV, L.P. 1 Special Situations Venture Partners, L.P. The Rutland Fund Asia & Rest of World Buyout Advent Latin American Private Equity Fund II, L.P. Affinity Asia Pacific Fund III, L.P. 3 AIF Capital Asia III, L.P. 3 AP Cayman Partners II Co-Invest, L.P. 3 AP Cayman Partners II, L.P. 3 Asia Opportunity Fund II, L.P. 3 Carlyle Japan International Partners II, L.P. 3 CJIP II Co-Invest, L.P. 3 CVC Capital Partners Asia Pacific II, L.P. 3 Hony Capital Fund III, L.P. 3 Ironbridge Capital 2003/4 Fund 3 Ironbridge Fund II, L.P. 3 IVF (Mauritius) PCC 3 IVF III (Mauritius) Holding Limited 3 Navis Asia Fund IV, L.P. 3 Navis Asia Fund V, L.P. 3 Newbridge Asia III, L.P. Pacific Equity Partners III, L.P. 3 Pacific Equity Partners Supplementary Fund III, L.P. 3 Polish Enterprise Fund VI, L.P. Polish Enterprise Fund IV, L.P. Polish Enterprise Fund V, L.P. 1 UC Stand-by Facility 3, L.P. 3 Unison Capital Partners II (F), L.P. 3 Asia & Rest of World Venture Capital Capital Today China Growth Fund I, L.P. 3 Carlyle Asia Growth Partners III, L.P. 3 Carmel Ventures II, L.P. CDH Venture Partners, L.P. 3 CDH Supplementary Fund III, L.P. 3 CDH China Fund III, L.P. 3 ChrysCapital IV, LLC 3 Crimson Velocity Fund, L.P. 10 2

11 ÜBERBLICK STATEMENT OF THE INVESTMENT MANAGER ÜBERSICHT 2004 Pitango Venture Capital Fund IV, L.P. SBCVC Fund II, L.P. 3 SVE Star Ventures Enterprises GmbH & Co. IX KG North America Buyout American Industrial Partners Capital Fund IV, L.P. Apax US VII, L.P. Apollo Investment Fund VI, L.P. Apollo Overseas Partners VII, L.P. Avista Capital Partners (Offshore), L.P. Bear Stearns Merchant Banking Partners III, L.P. Carlyle Partners IV, L.P. Carlyle Partners V, L.P. Clayton, Dubilier & Rice Fund VII, L.P. JP Morgan Partners Global Investors (Cayman), L.P. Kohlberg TE Investors V, L.P. Providence Equity Partners V-A, L.P. Providence Equity Partners VI-A, L.P. Ripplewood Partners II Parallel Fund, L.P. Silver Lake Partners II, L.P. Silver Lake Partners III, L.P. Thomas H. Lee Parallel Fund VI, L.P. TPG Partners IV, L.P. TPG Partners V, L.P. Warburg Pincus Private Equity VIII, L.P. Warburg Pincus Private Equity IX, L.P. William Blair Capital Partners VII QP, L.P. North America Venture Capital Advanced Technology Ventures VII, L.P. Battery Ventures VII, L.P. 2 Boulder Ventures IV, L.P. Boulder Ventures V, L.P. Canaan VII, L.P. 2 Draper Fisher Jurvetson Fund VIII, L.P. 2 International Life Sciences Fund III, L.P. Lightspeed Venture Partners Fund VII, L.P. 2 Mayfield XII, L.P. 2 Menlo Ventures X, L.P. Menlo Ventures X, L.P. 2 Morgenthaler Partners VII, L.P. Morgenthaler Partners VIII, L.P. 2 New Enterprise Associates X, L.P. New Enterprise Associates XI, L.P. 2 New Enterprise Associates 12, L.P. Oak Investment Partners XII, L.P. 2 Oxford Bioscience Partners IV, L.P. Prism Venture Partners IV, L.P. Prism Venture Partners V, L.P. 2 Prospect Venture Partners II, L.P. Prospect Venture Partners III, L.P. 2 Prospect Venture Partners III, L.P. Sevin Rosen IX, L.P. 2 Sierra Ventures IX, L.P. Spark Capital L.P. 2 Summit Ventures VI-B, L.P. Summit Partners Private Equity Fund VII-B, L.P. 2 Summit Partners Venture Capital Fund II-B, L.P. 2 SV Life Sciences Fund IV, L.P. SV Life Sciences Fund IV, L.P. 2 TA Atlantic and Pacific V, L.P. 2 TCV VI, L.P. 2 Vortex Corporate Development Fund, L.P. North America - Special Situations Ares Corporate Opportunities Fund, L.P. Ares Corporate Opportunities Fund II, L.P. Levine Leichtman Capital Partners III, L.P. Lexington Capital Partners V, L.P. MatlinPatterson Global Opportunities Partners III, L.P. OCM Principal Opportunities Fund IV, L.P. Paul Associates II International, L.P. Peninsula Fund III, L.P. SECONDARY INVESTMENTS Affinity Asia Pacific Fund II, L.P. American Industrial Partners Capital Fund III, L.P. Apollo Overseas Partners III, L.P. AXA Private Equity Fund II Feeder, L.P. 1 AXA Secondary Fund II, L.P. Blackstone Communications Partners I, L.P. Bridgepoint Europe II C L.P. CapVis Equity II, L.P. Carlyle Europe Venture Partners, L.P. Cognetas European Fund (fka Electra I) 1 Doughty Hanson & Co. Fund III, L.P. EQT Scandinavia II L.P. EQT III Limited, L.P. Genechem Therapeutics Venture Fund, L.P. ICG Mezzanine Fund 2000, L.P. No. 2 1 ICG Mezzanine Fund 2000, L.P. No. 2 Lexington Capital Partners V, L.P. Navis Asia Fund III, L.P. 3 Nova FCPR Partners Group Secondary 2004, L.P. 4 Partners Group SPP1 Limited PG Carlyle Opportunity Partnership Saskia II Limited Partnership Inc. (STAR I) Siparex SPF II, FCPR T2C2 / BIO 2000, Société en Commandite 211

12 QUARTERLY STATEMENT REPORT OF THE INVESTMENT MANAGER PORTFOLIO OVERVIEW DIRECT INVESTMENTS AHT Cooling Systems GmbH AWAS Aviation Holding Balta Group BSN medical GmbH & Co. CellZome AG Cengage Learning, Inc. Dinosol Supermercados S.L. (Fka: Ahold) esmertec AG Freescale Semiconductor, Inc. Gala Group Limited Lux CE S.à.r.l. (Himart) 3 Marquee Holdings, Inc. Micro-Poise Measurement Systems Inc. National Bedding Co. NXP (Philips Semiconductor) PARIS RE Holdings Limited Phoqus Group Limited Reader s Digest (RDA) Sanitec Oy SFO Technologies Private Limited 3 SunGard Data Systems, Inc. Super A-Mart Pty Ltd 3 TFCP II Co-Investment 2 L.P. (UCI/Odeon) The Automobile Association The Beauty Bell Chain, S.L. The Sports Authority Unity Media Univision Communications, Inc LISTED PRIVATE EQUITY 3i Group Plc Ackermans & Van Haaren AIG Private Equity Ltd Allied Capital Corp. AP Alternative Assets LP Apollo Investment Corporation Ares Capital Corporation Brait SA Candover Investments PLC Capman Oy Castle Private Equity Ltd Conversus Capital Deutsche Beteiligungs AG Dinamia Dunedin Enterprise Electra Investment Trust PLC Eurazeo Evolvence India Holdings Plc F&C Private Equity Trust-B GIMV N.V. Graphite Enterprise Trust PLC HgCapital Trust PLC Intermediate Capital Group Jafco Co Ltd Japan Asia Investment Co Ltd KKR Private Equity Investors Kohlberg Capital Corp Macquarie Capital Alliance Northern Investors Company Onex Corp. Pantheon International Participation PLC Partners Group Global Opportunities Limited Princess Private Equity Holding Limited Standard Life European Private Equity Trust PLC SVG Capital PLC Wendel Investissement 1 Participation through Partners Group Europe 2002, L.P. at no additional fees 2 Participation through Partners Group U.S. Venture 2004, L.P. at no additional fees 3 Participation through Partners Group Asia-Pacific 2005, L.P. at no additional fees 4 Participation at no additional fees 12

13 STATEMENT OF THE INVESTMENT MANAGER CONDENSED UNAUDITED FINANCIAL STATEMENTS for the period from 1 July 2007 to 30 Semptember

14 QUARTERLY STATEMENT REPORT OF THE INVESTMENT MANAGER UNAUDITED INCOME STATEMENT for the period from 1 July 2007 to 30 September Notes EUR EUR EUR EUR Net income from limited partnerships and directly held investments 46,448, ,669,839 25,757,593 64,937,732 - Dividend and interest income 2 2,515,365 5,859,087 1,459,633 3,788,545 - PIK Interest 2 14,158 14, Revaluation 2 48,879, ,328,346 25,437,965 66,733,667 - Foreign exchange gains and losses 2 (4,960,430) (7,531,752) (1,140,005) (5,584,480) Net income from associates 2,980,023 2,819,473 4,949,868 4,521,596 - Revaluation 3 3,375,118 3,375,118 5,703,215 5,703,215 - Foreign exchange gains and losses 3 (395,095) (555,645) (753,347) (1,181,619) Net income from listed private equity (3,386,549) 383,752 1,433,222 1,493,018 - Dividend and interest income 4 286, , , ,168 - Gains and losses 4 (2,882,481) 513, , ,551 - Foreign exchange gains and losses 4 (790,304) (897,170) 206,256 (397,701) Net income from short-term investments 1,118,878 3,018, ,459 2,430,159 - Gains and losses 5 1,118,878 3,018, ,459 2,430,159 Net income from cash and cash equivalents 166, ,614 59,405 (307,248) - Interest income 237, , , ,814 - Foreign exchange gains and losses (71,666) (260,994) (53,095) (560,062) Operating income 47,326, ,418,558 33,029,547 73,075,257 Operating expenses (11,363,692) (27,959,804) (6,860,177) (22,068,333) - Management fee (3,663,151) (10,671,355) (2,978,464) (9,086,096) - Insurance fee (4,397,756) (12,709,964) (3,689,576) (11,031,518) - Administration fee (244,320) (711,533) (198,564) (605,740) - Direct investment performance fee (2,934,860) (3,563,366) 97,915 (663,009) - Other foreign exchange gains and losses (101,422) (61,936) (1,519) 3,233 - Other operating expenses (22,183) (241,650) (89,969) (685,203) Financing cost (7,350,699) (21,978,566) (7,253,371) (21,688,402) - Finance cost on convertible bond 7 (3,929,906) (11,716,187) (3,832,578) (11,426,023) - Amortization of transaction costs 7 (120,793) (362,379) (120,793) (362,379) - Bond interest (3,300,000) (9,900,000) (3,300,000) (9,900,000) Surplus / (loss) for the financial period 28,612,225 95,480,188 18,915,999 29,318,522 14

15 UNAUDITED BALANCE SHEET as at 30 September Notes EUR EUR Assets Non-current assets Investments in limited partnerships and directly held investments 1&2 602,905, ,072,785 Investments in associates and joint ventures 1&3 22,695,065 33,814,155 Investments in listed private equity 4 34,937,231 28,451, ,537, ,338,812 Current assets Short-term investments 1&5 107,907,438 98,024,038 Other short-term receivables 3,772, ,578 Hedging assets 2&3 4,657,553 7,445,243 Cash and cash equivalents 29,887,883 30,242, ,225, ,985,919 Total assets 806,763, ,324,731 Equity Capital and reserves Issued capital 6 10,000 10,000 Reserves 175,502,906 80,022,718 Total equity 175,512,906 80,032,718 Liabilities Liabilities falling due after more than one year Convertible bond 7 626,382, ,304,417 Liabilities falling due within one year Other short-term payables 4,867,139 5,987,595 Rounding 1 4,867,139 5,987,596 Total liabilities and equity 806,763, ,324,731 The financial statements on pages 14 to 24 were approved by the board of directors on 11 November 2007 and are signed on its behalf by: U. Wietlisbach N. Carey Director Director 15

16 QUARTERLY STATEMENT REPORT OF THE INVESTMENT MANAGER UNAUDITED STATEMENT OF CHANGES IN EQUITY for the period from 1 January 2007 to 30 September 2007 (all amounts in EUR) Share Share Accumulated capital premium surplus/(loss) Total Equity at beginning of reporting period 10, ,719,948 (75,697,230) 80,032,718 Surplus / (loss) for the financial period 95,480,188 95,480,188 Equity at end of reporting period 10, ,719,948 19,782, ,512,906 16

17 UNAUDITED STATEMENT OF CHANGES IN EQUITY for the period from 1 January 2006 to 30 September 2006 (all amounts in EUR) Share Share Accumulated capital premium surplus/(loss) Total Equity at beginning of reporting period 10, ,719,948 (136,948,476) 18,781,472 Surplus / (loss) for the financial period 29,318,522 29,318,522 Equity at end of reporting period 10, ,719,948 (107,629,954) 48,099,994 17

18 QUARTERLY REPORT UNAUDITED CASH FLOW STATEMENT for the period from 1 January 2007 to 30 September Notes EUR EUR Cash flow from operating activities - Management fee (10,671,355) (9,086,096) - Administration fee (711,533) (605,740) - Insurance fee (12,709,964) (11,031,518) - Direct investment performance fee (3,563,366) (663,009) - Other operating expenses (241,650) (685,203) - Proceeds from hedging activities 2&3 14,032,353 1,474,176 - (Increase) / decrease in other short-term receivables (3,560,164) (2,374,559) - Increase / (decrease) in other short-term payables (11,020,456) (15,354,738) - Dividend income from limited partnerships and directly held investments 2 2,947,758 1,619,586 - Interest income from limited partnerships and directly held investments 2 2,911,329 2,168,959 - Purchase of limited partnerships and directly held investments 2 (129,875,028) (125,928,575) - Distributions by limited partnerships and directly held investments 2 152,031, ,904,099 - Distributions by investments in associates 3 12,515,590 10,077,844 - Purchase of listed private equity 4 (13,174,513) (6,950,572) - Sale of listed private equity 4 6,305,232 9,495,996 - Income from listed private equity 4 767, ,168 - Purchase of short-term investments 5 (106,864,519) (77,319,050) - Redemptions of short-term investments 5 100,000, ,970,200 - Interest from cash and cash equivalents 787, ,814 Net increase / (decrease) in cash and cash equivalents (93,183) 4,927,782 Cash and cash equivalents at beginning of reporting period 30,242,060 15,132,689 Effects on cash and cash equivalents - Movement in exchange rates (260,994) (560,062) - Rounding 1 Cash and cash equivalents at end of reporting period 29,887,883 19,500,410 18

19 NOTES TO THE CONDENSED UNAUDITED FINANCIAL STATEMENTS 1 BASIS OF PREPARATION The condensed financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting. The condensed financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Company's annual financial statements for the year ended 31 December The accounting policies adopted in the preparation of the condensed financial statements are consistent with those followed in the preparation of the Company's annual financial statements for the year ended 31 December 2006, except for the adoption of the following amendments mandatory for annual periods beginning on or after 01 January IFRS 7 Financial Instruments: Disclosures and the Amendment to IAS 1 Presentation of Financial Statements: Capital Disclosures Recognition which requires extensive disclosures about the significance of financial instruments for an entity s financial position and performance, and qualitative and quantitative disclosures on the nature and extent of risks. The Company will disclose the required information in its annual report IFRIC 8 Scope of IFRS 2 Share-based Payment which addresses the accounting for share-based payment transactions in which some or all of goods or services received cannot be specifically identified. IFRIC 9 Reassessment of Embedded Derivatives which requires that a reassessment of whether an embedded derivative should be separated from the underlying host contract should be made only when there are changes to the contract. IFRIC 10 Interim Financial Reporting and Impairment which prohibits the reversal of an impairment loss recognized in a previous interim period in respect of goodwill, an investment in an equity instrument or a financial asset carried at cost. The adoption of these standards and interpretations did not affect the Group s results of operations or financial position. 19

20 QUARTERLY REPORT NOTES TO THE CONDENSED UNAUDITED FINANCIAL STATEMENTS (continued) 2 LIMITED PARTNERSHIPS AND DIRECTLY HELD INVESTMENTS 2.1 INVESTMENTS Balance at beginning of reporting period 502,072, ,009,534 Capital activity recorded at the transaction rate 129,875, ,762,675 Distributions (152,031,821) (161,507,770) PIK Interest 14,158 Revaluation 140,328,346 99,096,365 Foreign exchange gains / (losses) (17,353,444) (19,288,020) Rounding FOREIGN EXCHANGE Foreign exchange revaluation (17,353,444) (11,671,026) Revaluation of foreign exchange hedges relating to investments in limited partnerships and directly held investments (1,916,650) 4,771,673 Realized gain / (loss) from foreign exchange hedges relating to investments in limited partnerships and directly held investments 11,738,342 1,314,873 (7,531,752) (5,584,480) Balance at end of reporting period 602,905, ,072, DISTRIBUTIONS At the balance sheet date, the Company had the following forward foreign exchange contracts in place. The contracts were entered into to hedge against changes in the foreign exchange value of the investments in limited partnerships and directly held investments. The unrealized surplus / (loss) at the end of the reporting period is detailed below: Dividends 2,947,758 1,619,586 Interest income 2,911,329 2,168,959 5,859,087 3,788,545 Return of investments 152,056, ,134,924 Gains / (losses) from sale of stock distributions (24,834) (230,825) Total distributions 157,890, ,692,644 Surplus / Surplus / Amount (loss) (loss) EUR Rate Value date Sell USD against EUR 156,593, ,193,661 Sell USD against EUR 129,988, ,110,311 4,193,661 6,110,311 20

21 3 INVESTMENTS IN ASSOCIATES 3.1 INVESTMENTS Balance at beginning of reporting period 33,814,155 45,652,219 Distributions (12,515,590) (12,060,429) Revaluation 3,375,118 4,652,857 Foreign exchange gains / (losses) (1,978,617) (4,430,493) Rounding (1) FOREIGN EXCHANGE Foreign exchange revaluation (1,978,617) (3,076,058) Revaluation of foreign exchange hedges relating to investments in associates (871,040) 1,735,136 Realized gain / (loss) from foreign exchange hedges relating to associates 2,294, ,303 Rounding 1 Balance at end of reporting period 22,695,065 33,814,155 (555,645) (1,181,619) The only associate which is unlisted, is: Country of incorporation Activity % interest held At the balance sheet date, the Company had the following forward foreign exchange contracts in place. The contracts were entered into to hedge against changes in the foreign exchange value of the investments in associates. The unrealized surplus / (loss) at the end of the reporting period is detailed below: Partners Group SPP1 Limited Guernsey, Holding of Channel Islands investments 49.64% 3.2 DISTRIBUTIONS Surplus / Surplus / Amount (loss) (loss) EUR Rate Value date Sell USD against EUR 19,252, ,892 Sell USD against EUR 28,398, ,334,932 Return of investments 12,515,590 10,077, ,892 1,334,932 Total distributions 12,515,590 10,077,844 21

22 QUARTERLY STATEMENT REPORT OF THE INVESTMENT MANAGER NOTES TO THE CONDENSED UNAUDITED FINANCIAL STATEMENTS (continued) 4 INVESTMENTS IN LISTED PRIVATE EQUITY 5 SHORT-TERM INVESTMENTS 4.1 INVESTMENTS 5.1 INVESTMENTS Balance at beginning of reporting period 28,451,872 28,759,595 Purchases recorded at the transaction rate 13,174,513 7,919,653 Disposals recorded at the transaction rate (6,305,232) (10,754,632) Gains / (losses) on listed private equity 513,248 3,120,233 Foreign exchange gains / (losses) (897,170) (592,977) Balance at beginning of reporting period 98,024, ,927,643 Additions 106,864,519 96,882,996 Redemptions (100,000,000) (139,970,200) Gains and losses on short-term investments 3,018,880 3,183,599 Rounding 1 Balance at end of reporting period 34,937,231 28,451,872 Balance at end of reporting period 107,907,438 98,024, INCOME INCOME Dividends 771, ,350 Unrealized gains / (losses) on listed private equity 513, ,551 Other income (3,816) 6,818 Gains and losses Realized gains / (losses) from short-term investments 1,790,040 1,547,575 Unrealized gains / (losses) from short-term investments 1,228, ,584 1,280,922 1,890,719 Net income from short-term investments 3,018,880 2,430,159 22

23 STATEMENT OF THE INVESTMENT MANAGER 6 SHARE CAPITAL Authorized 1,000,000 Class A shares of EUR 0.01 each 10,000 10,000 10,000,100 non classified shares of EUR 0.01 each ( Ordinary Shares ) 100, ,001 7 CONVERTIBLE BOND Balance at beginning of reporting period 614,304, ,538,541 Amortization of transaction costs 362, ,172 Finance cost on convertible bond 11,716,187 15,282, , ,001 Issued and fully paid 1,000,000 Class A shares of EUR 0.01 each 10,000 10,000 Balance at end of reporting period 626,382, ,304,417 As per amended terms and conditions of the bonds, bondholders have the right to convert bonds into shares on or after 1 October 2012 and up to the close of business on 31 August Bondholders have the right to convert bonds at their option into either fully paid, ordinary non-voting Class B shares or fully paid, ordinary voting Class C shares (collectively Ordinary Shares ). Ordinary shares will rank pari passu in all respects with all other Ordinary Shares of the issuer which are in issue on the relevant conversion date, save that Class B shares will not confer voting rights at all, and Class C shares will not confer voting rights until the earlier of the date upon which 95 per cent of the principal amount of the bonds have been converted or final maturity ( Specified Date ). From the Specified Date, but prior to the Class A shares being converted into Class C shares, the holders of Class C shares shall be entitled in aggregate to 4,000,000 votes, representing 80% of the votes available. Following the Specified Date, the Class A shares issued may, at the option of the holders, be converted into Class C shares. Upon conversion of all Class A shares into Class C shares, every shareholder of Class C shares shall have one vote for every share held. At an extraordinary meeting of the bondholders on 9 December 2005, a resolution was passed to amend the terms and conditions of the Pearl convertible bond. The resolution became effective on 30 March 2006 when the respective agreements were amended and the rating of the Pearl convertible bond has been confirmed by Standard & Poor s. The terms and conditions of the Pearl convertible bond have been amended as follows: Previous terms As amended at and conditions bondholders meeting Maturity of convertible bonds 30 September September 2014 Guaranteed redemption amount 100% of the initial 108% of the initial principial amount principial amount Coupon payments 2% p.a. on the initial 2% p.a. on the initial principial amount principial amount up to 30 September 2010 up to 30 September 2014 Conversion period 1 October 2008 to 1 October 2012 to 31 August August

24 QUARTERLY STATEMENT REPORT OF THE INVESTMENT MANAGER NOTES TO THE CONDENSED UNAUDITED FINANCIAL STATEMENTS (continued) The convertible bond is disclosed using the amended terms and conditions and the accounting of the convertible bond has been changed with effect from 30 March 2006 when the extraordinary resolution of the bondholders became effective. As at the balance sheet date the nominal value of the convertible bond outstanding was EUR 660,000,000. The bond is not convertible into shares until on or after 1 October 2012, at the option of the investor, using the relevant conversion price. The Company has entered into an insurance policy to ensure that it is provided with sufficient funds for the repayment of 108% of the principal upon redemption of the bond on 30 September COMMITMENTS Total commitments translated at the rate prevailing at the balance sheet date 1,151,447,034 1,106,123,665 Unutilized commitments translated at the rate prevailing at the balance sheet date 309,305, ,182,525 In accordance with IAS 32, Financial Instruments: Disclosure and Presentation, the net proceeds of the bond have been split between the liability and equity option components. The fair value of the equity component has been calculated as EUR 153,058,174 using cash flows discounted at market interest rates for an equivalent period. This amount is classified as share premium and will remain part of the permanent equity of the Company. The remaining net proceeds, after the allocation of the liability related transaction costs, of EUR 497,711,848 are allocated to the liability component. The liability, including transaction costs, is therefore stated at a discount of % per quarter from the first quarter 2006 ( % to 31 December 2005) to the maturity value. The result of this technical requirement in IAS 32 is that the discount is amortized through the income statement as a finance cost, on a yield to maturity basis, over the life of the bonds until the beginning of the conversion period. This accounting treatment has no effect on either the economic position or the net asset value of the Company. The cumulative finance cost in retained earnings is offset by an equivalent credit in share premium. However, the required treatment clearly does have a significant impact on the net surplus or loss reported in the income statement over the period to the conversion of the bond. 24

25 STATEMENT OF THE INVESTMENT MANAGER NOTES 225

26 QUARTERLY REPORT NOTES 26

27 NOTES 27

28 LIST OF ADDRESSES Registered Office Pearl Holding Limited Tudor House St. Peter Port, Guernsey Channel Islands Phone Facsimile Investment Manager Pearl Management Limited Guernsey, Channel Islands Trading Information Price information German Security Number Swiss Security Number ISIN XS Reuters DGZ07 Market Maker DekaBank Frankfurt a. M., Germany Phone Auditors PricewaterhouseCoopers Guernsey, Channel Islands Investors Relations