Cordish Dixon Private Equity Fund IV

Transcription

1 Cordish Dixon Private Equity Fund IV April 2018

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3 Contents 1. Offer Overview Investment View Recommendation SWOT Structure Management & Corporate Governance Investment Process Portfolio Performance Analytics... 8 Appendix A Ratings Process...11 Appendix B Managed Investments Coverage... 12

4 Note: This report is based on information provided by Walsh & Company Investments Limited Rating Not Recommended Investment Grade Recommended Key Investment Information Recommended+ Highly Recommended Issue Price ($) 1.60 Capital Raised ($m) First Instalment per unit ($) 0.32 NAV per unit ($) 0.27 Fees: Management Fee (p.a)* 1.0% Administration & RE fee (p.a), incl. GST** 0.34% Performance Fee*** 10.0% *Does not include the fees paid to underlying investment managers. **To be paid on the gross asset value of the Trust. ***Payable on the pre-tax outperformance of the 8%p.a hurdle rate. Fee Commentary There are two layers of fees associated with the Trust - the annual management, administration and performance fees paid to the GP and the management and performance fees associated with the underlying funds. The performance fee to the GP will be paid after all capital has been realised from the underlying investments. The performance fee will be based on the realised capital generating a cumulative return in excess of 8% p.a. Key Exposure Underlying Exposure FX Exposure Portfolio of boutique US private equity funds. The portfolio will have exposure to foreign currency, primarily USD. The currency exposure is not expected to be hedged but may be at the discretion of the RE. The investment opinion in this report is current as at the date of publication. Investors and advisers should be aware that over time the circumstances of the issuer and/or product may change which may affect our investment opinion. 1. OFFER OVERVIEW Product Summary The Cordish Dixon Private Equity Fund IV (the Trust) is a newly established unlisted investment trust. The Trust will invest in the US Select Private Opportunities Fund IV, LP (the LP), a Cayman Islands based entity that will invest in a portfolio of boutique private equity funds in the US. The Trust is the fourth trust in the series, the other three being CD1, CD2 and CD3. The Trust was oversubscribed, raising $188m through the issue of units at $1.60 per unit. Unlike the other three trusts in the series, the Trust will be unlisted and will have a partly paid unit structure whereby the application price of $1.60 is paid in instalments. The first instalment to be paid upon application was $0.32 per unit (20% of the application price). The remaining amount is expected to be called over a three to five year period in approximate instalment amounts of $0.32 per unit. Once the units are fully paid, the Responsible Entity (RE) may seek to list the trust to provide liquidity. The RE is not expected to provide a redemption facility prior to the Trust being listed and there is no guarantee that the Trust will be listed. The general partner of the LP, US Select Private Opportunities Fund IV, GP, LLC (the GP), will be responsible for selecting and managing the investments of the LP. The GP has engaged Dixon Asset Management USA, Inc (Investment Manager) to provide investment management services. The Investment Manager will be responsible for all investment decisions of the LP consistent with the investment strategy of the LP. The Investment Manager has appointed an Advisory Board to assist with the evaluation of investment opportunities. The Responsible Entity of the Trust will be Walsh & Company Investments Limited, a wholly owned subsidiary of the Evans Dixon Group. Given the underlying funds are based in the US, investors will be subject to foreign exchange movements. The Trust does not intend to hedge the currency exposure, however has the right to if they so decide. 2. INVESTMENT VIEW Investor Suitability The Trust provides investors with the opportunity to gain access to a portfolio of US boutique private equity funds. The Trust is unlisted and there is no right to redeem units in the Trust unless the RE chooses to offer a redemption facility. Once units are fully paid, the Trust is expected to be listed, however, there is no guarantee that this will occur. The Trust is not expected to hedge the currency exposure and will therefore be exposed to foreign currency movements, which is expected to primarily be USD exposure. As such, investors should be comfortable with currency exposure. Given the nature of the underlying investments, returns are expected to be capital in nature. The Trust will make distributions upon the realisation of investments by the underlying funds. Therefore, distributions will be irregular and lumpy in nature. The LP that the Trust will be investing in is domiciled in the Cayman Islands and therefore is governed by different regulations. Investors should understand and be comfortable with the structure of the Trust and its investments. 3. RECOMMENDATION (IIR) has assigned the Cordish Dixon Private Equity Fund IV a Recommended rating. The Trust is the fourth trust issued in the series. Unlike the other three trusts in the series, the Trust is unlisted and has a partly paid unit structure, providing a different risk/return profile than the other trusts in the series. It is difficult to determine the fund selection abilities of the Investment Manager given none of the three trusts in the series have recouped the initial offer price to date and there is no transparency to the details of the underlying investments of the respective LP s. We will not know the success of investments until the underlying investments have been fully realised. Based on the portfolio return (NAV plus distributions) for the three listed trusts to 31 January 2018, CD1 and CD2 have generated capital growth, however, CD3 has generated a negative return, primarily due to currency movements. The capital committed in CD1 is almost fully drawn, CD2 is largely drawn and CD3 is partially drawn as at 28 February We note that all three trusts have underperformed the S&P 500 Index to date. 1

5 4. SWOT Strengths The Trust provides investors access to a professionally managed portfolio of US private investment funds, which are not readily accessible to domestic retail investors. The investment team and Advisory Board have highly experienced personnel in analysing and selecting private equity investments. The LP has committed US$20m to two funds. The Investment Manager has previously invested in the two firms issuing the funds via CD1 and CD3. Performance fees will not be paid to the GP until the return from the underlying funds has been fully realised, therefore performance fees will not be paid out of capital. Weaknesses The LP predominantly employs a fund-of-fund style of investment. As with all fund-offund portfolios there are additional layers of fees, with the investor incurring Investment Manager fees as well as fees charged by the underlying investment managers. There is very limited transparency regarding the investments of the underlying funds and the investment terms of the investments by the underlying funds. The costs associated with the offer of the Trust mean the NAV of the Trust upon completion of the offer was $0.27 per unit, 15.6% below the first instalment amount of $0.32. We note that no further upfront costs will be required to be paid from the remaining instalments. The Trust is unlisted and there is no right to redeem units in the Trust unless the RE chooses to provide a redemption facility. Once the units are fully paid up the RE is expected to list the Trust, which may provide liquidity for unitholders, however, there is no guarantee the Trust will be listed. Opportunities The Trust provides the opportunity to invest along side the Cordish family through their Cordish Private Ventures division of The Cordish Companies conglomerate. Cordish Private Ventures has been investing in private equity since Threats The RE does not intend to hedge the currency exposure and therefore the value of the portfolio will be influenced by movements in the AUD/USD. A strengthening of the AUD will have a negative impact on the value of the portfolio On the other hand, a weakening of the AUD will have a positive impact on the portfolio value. Success of the Trust is wholly dependent on the ability of the Investment Manager to select fund managers that have the ability to make good investment decisions. In the event the Investment Manager does not select good investments, the returns upon exit may be less than desired. The LP will remain open until 30 June 2019, post the completion of the offer with the LPs capital commitment capped at US$250m. In the event the maximum US$250m is raised, the Trust s interest may be diluted. 2

6 5. STRUCTURE Product Overview The Cordish Dixon Private Equity Fund IV (the Trust) is a newly established investment trust, which seeks to invest in the US Select Private Opportunities Fund IV, LP (the LP), a Cayman Islands based entity that invests in a portfolio of US private investment funds. The Trust is the fourth trust in the series, the other three being the listed trusts CD1, CD2 and CD3. The Trust was oversubscribed, raising $188m through the issue of units at $1.60 per unit. The RE of the Trust will be Walsh & Company Investments Limited, a wholly owned subsidiary of the Evans Dixon Group. Cordish Private Ventures has invested US$15m in the LP. This coupled with the US$115m committed from the RE takes the size of the LP to US$130m upon completion of the offer, in which the Trust has an 88% interest. The LP has a maximum commitment of US$250m and will remain open for additional investors until 30 June 2019, with the ability to extend the date for a further 90 days. Dixon Asset Management USA, Inc has been appointed as the Investment Manager by US Select Private Opportunities Fund IV, GP (the GP). The Investment Manager is responsible for the management of all the trust portfolios in the series. The GP is responsible for making the investments for the LP. The Investment Manager has appointed an Advisory Board to assist with the evaluation of investment opportunities. Cordish Services (an affiliate of Cordish Private Ventures, LLC) has been appointed by the GP to provide administrative services. The LP will be dissolved upon the occurrence of certain termination events, which includes (among others), the GP s determination to wind up the LP following the disposal of all assets and the distribution of proceeds. The LP has committed to invest US$20m in two funds. We expect the LP to invest a portion of the portfolio to a version of the US Select Direct Private Equity Fund (US), LP. A fund is expected to be established by the related parties to enable the LP to co-invest in private investments with other investors. All three trusts have investments in a version of US Select Direct Private Equity Fund (US), LP. The currency exposure is not expected to be hedged, however the RE has the right to hedge the currency exposure if it so chooses. As a result, the portfolio value will be impacted by currency movements, primarily movements in the AUD/USD. The AUD/USD is currently around its long-term average. The GP will be paid an annual management fee of 1% of the capital called by the LP for the first 12-months. After the first 12-months the management fee will revert to 1% of the committed capital. The GP will also be eligible for a performance fee of 10% of the return in excess of 8% p.a. Any eligible performance fees will not be paid until the capital from the underlying funds has been realised. In addition to the fees paid to the GP, the underlying funds will charge management and performance fees. These fees are expected be in the vicinity of a 2% annual management fee and a 20% performance fee. Partly Paid Unit Structure The Trust is structured as partly paid units, whereby the units will have an initial value of $1.60 per unit, however the value will be paid in instalments when called by the RE. The first instalment that was due with the application was $0.32 per unit (20% of the unit price). Instalments are expected to be made in a further four instalments of $0.32 over a three to five year period, however the RE has the right to call for any amount. Unitholders will be given 10 business days to pay after the receipt of a call notice. In the event the unitholder fails to pay the called amount, the RE may provide a further five business days to pay. If the unitholder has not paid after five business days, the units may be forfeited. The RE may retain or sell the forfeited units. In the event the units are forfeited, unitholders may not receive their piad-up capital back and may be liable for any called and unpaid amounts and associated costs. The Trust will be unlisted with no redemption facility expected to be provided, however the RE may provide a facility. Once the units are fully paid, the Trust is expected to be listed, which may provide liquidity for unitholders. While it is expected the Trust will be listed, the RE may determine not to list the Trust. 3

7 Investment Structure Unitholders Walsh & Company Investments Limited (RE) Cordish Dixon Private Equity Fund IV US Select Private Opportunites Fund IV, GP 42.5% interest 46% interest if Fund reaches capacity US Select Private Opportunities Fund IV, LP Cordish Private Ventures, LLC Advisory Board Investment Manager Cordish Services Portfolio of Investments Other Parties Product Leverage Used: Cost (incl. Fees): Recourse: Capital Protection Tax Disclaimer: Capital gains: Distributions: Legal Structure Wrapper: Responsible Entity: Investment Manager: Capital vs. Income: Investor Leverage Available: Risks Partly Paid Unit Risk: Liquidity Risk of Underlying Investments: Liquidity Risk of the Trust: Currency Risk: Dilution Risk: Concentration Risk: The LP does not intend to directly undertake borrowings, however, the GP may borrow up to 15% of the LP s aggregate capital commitments. We note, the underlying investments may utilise leverage. The cost of borrowing will depend on the market conditions at the time and the origin of the loan. na na Tax consequences depend on individual circumstances. Investors must seek their own taxation advice. The following comments show s expectation of tax for ordinary Australian taxpayers, but cannot be considered tax advice. A capital gains tax (CGT) event will likely occur in the event the investor sells the trust on market for a higher price than it was purchased for. Investors will likely be eligible for the CGT discount if the shares are held for more than 12 months. Distributions will likely be on income account in the year earned. Unlisted Investment Trust Walsh & Company Investments Limited Dixon Asset Management USA, Inc Returns will likely primarily be capital with capital returned to unitholders as investments are exited via distributions. No The below is not a full list of all risks associated with the trust but highlights what IIR considers to be the larger risks associated with the trust. A detailed risk assessment can be obtained from the PDS. In the event unitholders fail to meet their obligations with respect to payment of capital calls when they fall due, the units may be forfeited. Unitholders may not receive all of their capital back and may be liable for any called and unpaid amounts and associated costs. If the RE is unable to sell the forfeited units there is a risk that the Trust will have insufficient funds available to meet its obligations to the LP. The LP will be investing in private equity funds, which may not offer the same level of liquidity as a listed investment. As such, the LP may not be able to exit an investment in a timely manner. Further to this, the ability of the Trust to exit the investment in the LP is very limited. The Trust will be unlisted and there is expected to be no ability to sell units in the Trust until the units are fully paid up and listed. The RE may provide the opportunity for redemptions at its discretion. When units are fully paid the Trust is expected to be listed, however, there is no guarantee that the Trust will be listed. The Trust will invest primarily in US private equity funds and as such will have direct currency exposure to the USD. The Trust does not intend to hedge the currency exposure, therefore the Trust will be exposed to currency movements between the USD and AUD. The Trust s investment in the LP may be diluted by additional investors. The LP has a maximum capital commitment size of US$250m, with additional parties able to invest in the LP until 30 June This date may be extended a further 90 days. The LP may invest up to 25% of the committed capital of the portfolio in an individual fund or up to 33% of the committed capital in a direct investment. An investment of such size would expose the LP to significant risks regarding the single investment. 4

8 6. MANAGEMENT & CORPORATE GOVERNANCE Responsible Entity & Investment Manager The Responsible Entity (RE) for the Trust is Walsh & Company Investments Limited. The RE is a wholly-owned subsidiary of the Evans Dixon Group, an Australian investment and wealth management business. The RE has funds under advice, execution and administration in excess of $5 billion. Dixon Asset Management USA, Inc has been appointed as the Investment Manager for the LP. The Investment Manager has been engaged by the GP to make the investment decisions for the LP. The Trust has an 88% interest in the LP. In the event the maximum commitments of the LP are raised (US$250m), the Trust will have a 46% interest in the LP. The Investment Manager has appointed an Advisory Board to assist the Investment Manager with the evaluation of investment opportunities. Responsible Entity Board The Board of the Responsible Entity comprises three members, detailed in the below table. The Board has significant amounts of experience in financial markets. Responsible Entity Board Name Role Experience Alex MacLachlan Warwick Keneally Tristan O Connell CEO Walsh & Company Asset Management Pty Limited/Executive Chairman Head of Finance Walsh & Company Asset Management Pty Ltd/ Executive Director Advisory Board CFO & Company Secretary Walsh & Company Asset Management Pty Ltd/ Executive Director Mr. MacLachlan joined the Dixon Advisory Group in 2008 to lead the Funds Management division of Walsh & Company Group. Since joining the Group, Mr. MacLachlan has grown the funds management division from $100m to in excess of $5b funds under management, with investments spanning across property, fixed income, private equity, listed equities and sustainable and social investments. Prior to joining Dixon Advisory Group, Mr. MacLachlan worked as an investment banker at UBS. Mr. MacLachlan worked on more than $100b in mergers and acquisitions and capital market transactions. Mr. Keneally previously worked in accounting firms specialising in turnaround and restructuring. Mr. Keneally has worked with numerous companies to develop and implement strategic business options, provide advice in relation to continuous disclosure requirements, develop cash forecasting training. Mr. O Connell joined Dixon Advisory Group in Mr. O Connell has 20+ years experience in corporate finance and financial markets. Prior to joining Dixon, Mr. O Connell held the position of Financial Controller at Tullett Prebon in Australia. The Advisory Board comprises four members. The role of the Advisory Board is to provide advice and recommendations with respect to the portfolio. The Advisory Board reviews all investments in the portfolio. Advisory Board Name Jonathan Cordish David Cordish Alan Dixon John Martin Experience Mr. Cordish has managed the finances and investments of the Cordish family (the Cordish Companies) since Mr. Cordish is the President of Cordish Private Ventures, LLC, which has seen Mr. Cordish invest in a variety of private equity and venture capital funds, as well as direct investments in high growth companies. Prior to his tenure with the family business, Mr. Cordish served as a Vice President and Partner at Riggs Capital Partners from 1999 to Riggs Capital Partners is a private equity firm based in Washington D.C, that invested over US$130m in more than 30 companies. Mr. Cordish has also served in the Advisory Board of Spring Capital Partners, LP, a mezzanine capital fund based in Baltimore, Maryland. Mr. Cordish is Chairman of the Cordish Companies, which was established by his grandfather in the early 1900 s. Mr. Cordish has worked in law, government and commercial business throughout his career. The Cordish Companies has four ares of expertise: (1) Real estate development; (2) Gaming & lodging; (3) Entertainment & sports anchored project; and (4) Private equity. The Cordish Companies are significant contributors to the field of entertainment development, operating entertainment venues, restaurants and gaming venues. The company owns and manages over 60 million square feet of commercial, hotel and residential development. Mr. Cordish has served on a number of boards, including professional, civic and charitable. Mr. Dixon is the Managing Director and CEO of Evans Dixon. Mr. Dixon oversees the group s senior leaders and influences the strategic initiatives of more than 600 professionals. Mr. Dixon is also the Management Director and CEO of Dixon Advisory, USA. Mr. Dixon has significant experience in providing financial advisory services to corporations and individuals. Mr. Martin has over 25 years experience in corporate advisory, bank management, financial structuring and risk management. Mr. Martin was previously a senior partner with Aquasia, a corporate advisory firm. Mr. Martin s previous roles also include an economist with the RBA, partner at PWC, Head of NAB Advisory and joint Head of Credit Markets and Structured Finance at RBS and ABN Amro. 5

9 Investment Team The investment team is made up of members of Cordish Dixon Private Equity Partners and Alex MacLachlan. Mr. MacLachlan is the Chairman of the RE and acts in an advisory role to the investment team. The investment team undertakes the due diligence and analysis of funds and private equity co-investments. Mr. Sinex (Managing Director) sits on the board of all investments. The investment process is consultative with the Advisory Board. The investment team does not undertake the administrative tasks associated with the LP. Administrative tasks are completed by Cordish Services. Investment Team Name Role Experience Jonathan Sinex Alex MacLachlan Whitney Voute Lachlan Travers Managing Director, Cordish Dixon Private Equity CEO Walsh & Company Asset Management Pty Limited/ Executive Chairman Principal, Cordish Dixon Private Equity Analyst Mr. Sinex joined Cordish Private Ventures, LLC, the private equity investment arm of the Cordish Family of Baltimore, Maryland, in 2012 as a Principal, responsible for sourcing and evaluating private investment fund opportunities as well as direct investment opportunities. Mr. Sinex has over thirteen years of experience working in and investing in the private equity space. Prior to joining Cordish Private Ventures, Mr. Sinex served as the interim CFO for Enviroscent Inc, a private equity-backed firm. Prior to Enviroscent, Mr. Sinex was a Vice President at Devonwood Investors, a New York based private investment fund. Mr. Sinex has also worked as a Financial Analyst at Goldman Sachs in the Real Estate Principal Investment area, which involved him evaluating potential acquisitions for the Whitehall funds. Mr. Sinex currently serves on the Advisory Boards of numerous private equity funds, including Encore Consumer Capital II, KarpReilly Capital Partners II, DFW Capital Partners IV, High Road Capital II, RFE Investment Partners VIII, Tengram Gen2 Fund and is also a Board observer of Incline Equity Partners II and Trive Capital Fund I. See above. Ms. Voute is a Principal at Cordish Dixon Private Equity Partners where she manages the investor relations for the Funds. Prior to joining Cordish Dixon, Ms. Voute was the Director of Investor Relations for White Deer Energy, a US-based private equity firm with $2.2 billion under management, where she was responsible for managing the firm s relationships with pension funds, endowments, foundations, family offices and high net worth individuals. Prior to White Deer, Whitney was a Vice President at MVision Private Equity Advisors, based out of New York and London. In this role, she developed marketing strategies, provided strategic advice and raised capital for leading private equity funds including first time funds, spinout funds and large global funds in the US, Europe, and Latin America. Mr. Travers joined the investment team in Prior to joining the team, Mr. Travers worked as a Funds Management Analyst for Walsh & Company Asset Management and as an Investment Analyst for Dixon Advisory. 7. INVESTMENT PROCESS Investment Objective The Trust seeks to provide Australian investors access to a portfolio of boutique US private equity investments, offering a family office style of investing, a style of investment typically not available to retail investors. The Trust has developed a relationship with the principals of Cordish Private Ventures, LLC, to provide them with advice and access to global private equity funds. The Trust seeks to generate capital growth over a five to ten year period. Investment Process The investment process was developed by Jonathan Cordish for Cordish Private Ventures, LLC. The Investment Manager focuses on those funds that have an established history of successful private equity investments. We note that the Investment Manager may look at newly established managers that have a proven track record at other firms. The Investment Manager will focus on funds that exhibit the following characteristics: A focus on niche investment opportunities; The fund invests in businesses with existing cashflows avoiding the higher risk startup businesses; Are of appropriate size; 6

10 Employ limited use of leverage to generate returns; and Are actively involved in the businesses they invest in. The Investment Manager uses its industry contacts and experience in the industry to identify investment opportunities. Due diligence on potential investments focuses on: Deal sourcing and acquisition discipline; Track record in management of investments; Track record in executing acquisitions to grow investments; and Exit execution. Once the due diligence has been completed, the investment team takes the investments deemed to be attractive to the Advisory Board for consideration for the portfolio. The allocation to investments is determined by a number of factors including: The availability of units; The size of the fund; Sector allocation of the fund s investments; and Geographic diversification. To monitor the investments, the Investment Manager seeks to gain a position on the Board of the underlying investments as an equity partner. In addition to this, the Investment Manager is in regular contact and receives regular updates regarding the investments. In the event the Investment Manager would like to terminate the investment, the Investment Manager would be required to get a majority of the investment partners to agree to dissolve the underlying fund, which is a time consuming and difficult task. As such, investments are intended to be long-term. Risk Management The LP has the below investment limitations to manage portfolio risk. In addition to the investment limitations, the Investment Manager seeks to diversify the portfolio by sector and location throughout the US. Investment Limitations 1) The LP can only invest in private investment funds and interests in private companies. 2) No more than 25% of the committed capital of the LP can be invested in an individual fund. The exception to this limitation is if an investment in the underlying fund or company is made either directly by the LP or via a fund established by the GP or a related entity for the purpose of direct investment. In this circumstance the maximum investment including the direct investment is 33% of committed capital. 3) No more than 15% of the committed capital of the portfolio can be invested in funds whose primary objective is to invest outside the US. 4) The LP cannot invest in funds that primarily focus on emerging market investments. 8. PORTFOLIO The Trust is newly established and has not committed all the capital as yet. The LP has committed US$20m to invest in two funds. We note that the LP has a maximum commitment value of US$250m. The Trust s interest in the LP may be diluted in the event further capital is raised by the LP. 1) Trivest Fund VI, LP The LP has committed US$10m to the Trivest Fund VI, LP, a newly established fund by Trivest Partners. The fund currently has ~US$600m of commitments. Trivest Partners is a private investment firm that was founded in The firm focuses on partnering with will run family or founder-owned scalable businesses in the US and Canada with a focus on the manufacturing, value-added distribution, business services and consumer sectors. The Investment Manager has invested with funds issued by Trivest Partners before, with CD1 committing $10m in Trivest Fund V. 7

11 2) Elephant Partners Fund II, LP The LP has committed US$10m to invest in Elephant Partners Fund II, LP. Elephant Partners is focused on investment in technology focused, growth businesses. The Investment Manager has invested with funds issued by Elephant Partners before, with CD3 committing $5m in Elephant Partners Fund I, LP. 9. PERFORMANCE ANALYTICS The Trust is newly established and therefore has no performance history. We have analysed the performance of the three trusts issued in the series to date (CD1, CD2 and CD3) to provide an indication of the manner in which the portfolio of the Trust is expected to be managed. We note that the Trust is structured vastly different to the existing trusts in the series, with the Trust being unlisted and having a partly paid unit structure. The structural differences result in a different risk/return profile for the Trust compared to the other trusts. The key findings are: To date, CD1 and CD2 have achieved their primary objective of delivering capital growth with the NAV plus distributions returning 8.0%p.a and 8.7%p.a, respectively, since their inception to 31 January The portfolio value (NAV plus distributions) for CD3 has declined 4.4% since inception to 31 January We note that performance of CD3 is not meaningful as yet given there have been no realisations from the underlying funds to date and less than half of the committed capital has been drawn meaning the majority of capital is sitting in cash. As such we will focus on the performance of the portfolios of CD1 and CD2. Since the inception of CD1 to 31 January 2018, the AUD/USD has declined 23%. The weakening of the AUD has significantly contributed to the portfolio value for CD1 and CD2. To 28 February 2018, the underlying investments of CD1 have distributed US$22.78m to the respective LP, $19.47m of which is allocated to CD1. This equates to 35.2% of the capital drawn. The underlying investments of CD2 have distributed US$31.08m to the respective LP. CD2 has an 87.3% interest in the LP which means the value of distributions to CD2 is US$27.13m. We do not have visibility to the amounts invested in the realised investments by the underlying funds and as such do not know whether the investments realised a capital gain or the extent of the capital gain in the event a gain was achieved. Compared to the S&P 500 Index (AUD$), the portfolio of all three trusts (CD1, CD2 and CD3) have all had a positive correlation with the market, however have not offered a differing levels of risk with the volatility largely in line with the market. Performance History (CD1, CD2 and CD3) CD1 was the first trust issued in the series and has been running for over five years. Since listing in August 2012, CD1 has generated a portfolio return (NAV plus distributions) of 8.0% p.a. The large majority of the committed capital has been drawn from the LP by the underlying funds. As such, the LP and the Trust will receive distributions from the realisation of the investments in the underlying funds, expected over the next five years. CD2 was listed in April 2013 and therefore is coming up to five years of operation in the coming months. 67.5% of the committed capital had been drawn at 28 February 2018 and the portfolio has returned 8.7% p.a to 31 January We note that for both CD1 and CD2, the significant decline in AUD/USD since the establishment of the trusts has contributed to the portfolio performance. CD3 is the most recently established trust and only 30.3% of the committed capital has been drawn. CD3 has the largest amount of capital commitments of the three trusts at $115.0m. The portfolio has returned -4.4% p.a, since listing in July 2016 to 31 January We note that with the small amount drawn, a large portion of the portfolio is sitting in a cash account in the US. The AUD has strengthened against the USD since listing which has contributed to the negative performance to date. No realisations have occurred in the CD3 portfolio as yet. 8

12 Capital Commitments at 28 February 2018 CD1 CD2 CD3 Number of Underlying Funds Committed Capital (US$m) Capital Drawdown (US$m) % of Committed Capital Drawn 92.6% 67.5% 30.3% We have provided the historical portfolio performance (NAV plus distributions) for CD1, CD2 and CD3 in the below table. We have incorporated the performance of the S&P 500 Index to show the returns of the private equity trusts compared to the US equity market. We note that the performance history for CD3 to date is not meaningful given the low level of committed capital that has been drawn to date. The negative return can largely be attributed to the movements in currency. The weakening of AUD against the USD has contributed significantly to the portfolio value of CD1 and CD2, with the AUD/USD falling 23% since the inception of CD1 and 22% since the inception of CD2 to 31 January The objective of the private equity exposure is to provide an alternative risk/return profile to listed equities. Compared to the S&P 500 Index (AUD$), all three trusts have significantly underperformed over all periods. We have not included a since inception figure below given the trusts all have different inception dates. We note that the underperformance can be somewhat attributed to the fact that until the committed capital is drawn it sits in a cash account and is not exposed to the market. However over the last 12 months, the vast majority of the committed capital for CD1 was drawn and the trust significantly underperformed the market. Further to this, the risk profile of the portfolios versus the market has been the same with volatility largely in line with the market. Portfolio Performance of CD1, CD2 and CD3 (since inception to 31 January 2018) Capital Commitments at 31 January 2018 Portfolio Returns (NAV plus distributions): CD1 CD2 CD3 S&P 500 Index (AUD$) 1 year 2.5% 1.2% -4.7% 16.1% 3 year (p.a) 6.6% 4.0% na 10.9% Since Inception (p.a) 8.0% 8.7% -4.4% na Risk: Volatility 10.9% 11.5% 8.3% 11.2% Maximum Monthly Drawdown -5.1% -7.5% -5.1% -4.4% Correlation to S&P na Distributions As will be the case with the Trust, CD1, CD2 and CD3 seek to distribute 100% of the distributable income in any given year. The payment of distributions will likely be upon the realisation of investments and as such will likely be irregular and lumpy. The below table, details the distributions made to date for CD1 and CD2. These distributions highlight the distributions that unitholders can expect once underlying investments have been realised. There is a small income component, however, the distributions are largely comprised of the realisation of investments by the underlying funds. CD3 has not made any distributions to date. Unfortunately we do not have visibility as to how much capital drawn by the funds remains invested. However, based on publicly available information the underlying investments of CD1 have distributed a total of US$22.78m to the respective LP. CD1 has an 85.5% interest in the LP which means the value of distributions to CD1 is US$19.47m, equating to the underlying funds returning 35.2% of the capital drawn to 28 February The underlying investments of CD2 have distributed US$31.08m to the respective LP. CD2 has an 87.3% interest in the LP which means the value of distributions to CD2 is US$27.13m. The underlying funds have returned 47.0% of the capital drawn to 28 February

13 If you were to look at the distributions for CD1 and CD2 compared to the issue price of $1.60 for both trusts, distributions paid equate to 43.1% and 30.0% of the issue price, respectively. Whether a capital gain will be realised from the trusts will not be known until more investments are realised and distributed. Distributions CD1 CD2 21 November 2017 $ November 2017 $ June 2017 $ June 2017 $ August 2016 $ August 2016 $ March 2016 $ March 2016 $

14 APPENDIX A RATINGS PROCESS Pty Ltd IIR rating system. IIR has developed a framework for rating investment product offerings in Australia. Our review process gives consideration to a broad number of qualitative and quantitative factors. Essentially, the evaluation process includes the following key factors: product management and underlying portfolio construction; investment management, product structure, risk management, experience and performance; fees, risks and likely outcomes. LMI Ratings Highly Recommended SCORE 83 and above Not Recommended Investment Grade Recommended Recommended+ Highly Recommended This is the highest rating provided by IIR, indicating this is a best of breed product that has exceeded the requirements of our review process across a number of key evaluation parameters and achieved exceptionally high scores in a number of categories. The product provides a highly attractive risk/return trade-off. The Fund is likely effectively to apply industry best practice to manage endogenous risk factors, and, to the extent that it can, exogenous risk factors. Recommended Not Recommended Investment Grade Recommended Recommended+ Highly Recommended This rating indicates that IIR believes this is a superior grade product that has exceeded the requirements of our review process across a number of key evaluation parameters and achieved high scores in a number of categories. In addition, the product rates highly on one or two attributes in our key criteria. It has an above-average risk/return trade-off and should be able consistently to generate above average risk-adjusted returns in line with stated investment objectives. The Fund should be in a position effectively to manage endogenous risk factors, and, to the extent that it can, exogenous risk factors. This should result in returns that reflect the expected level of risk. Recommended Not Recommended Investment Grade Recommended Recommended+ Highly Recommended This rating indicates that IIR believes this is an above-average grade product that has exceeded the minimum requirements of our review process across a number of key evaluation parameters. It has an above-average risk/return trade-off and should be able to consistently generate above-average risk adjusted returns in line with stated investment objectives. Investment Grade Not Recommended Investment Grade Recommended Recommended+ Highly Recommended This rating indicates that IIR believes this is an average grade product that has exceeded the minimum requirements of our review process across a number of key evaluation parameters. It has an average risk/ return trade-off and should be able to consistently generate average risk adjusted returns in line with stated investment objectives. Not Recommended <60 Not Recommended Investment Grade Recommended Recommended+ Highly Recommended This rating indicates that IIR believes that despite the product s merits and attributes, it has failed to meet the minimum aggregate requirements of our review process across a number of key evaluation parameters. While this is a product below the minimum rating to be considered Investment Grade, this does not mean the product is without merit. Funds in this category are considered to be susceptible to high risks that are not reflected by the projected return. Performance volatility, particularly on the down-side, is likely. 11