QUARTERLY REPORT. for the period from 1 April 2005 to 30 June 2005

Transcription

1 QUARTERLY REPORT for the period from 1 April 2005 to 30 June 2005

2 QUARTERLY STATEMENT REPORT OF THE INVESTMENT MANAGER INVESTMENT MANAGER S REPORT OUTSTANDING QUARTER FOR PEARL 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. deckungsstock- und spezialfondsfähig ). In the second quarter, the Pearl convertible bond saw a continuation of the positive trend from the previous quarter. Thus, the net asset value (NAV) of the Pearl portfolio rose during the three months of April, May and June by 5.55% to 88.23% primarily on the back of valuation adjustments by numerous partnerships in the portfolio. This is the largest quarterly NAV increase Pearl has ever seen. Thus, the NAV now lies over 8% above its low of May 2004 and is on a par with the level of end The mid-market price of the Pearl convertible bond closed the quarter at 95.25%, i.e. 2.97% higher than at the end of March. Pearl made four new commitments during the second quarter of 2005, namely to Bridgepoint Europe III, L.P., Carmel Ventures II, L.P., Menlo Ventures X, L.P. and Warburg Pincus Private Equity IX, L.P. In addition, Pearl invested directly into SunGard Data Systems, a US-based supplier of integrated IT solutions, and Sanitec, a Finnish bathroom ceramics manufacturer. Pearl s commitment to Morgenthaler Partners VII, L.P was increased through the acquisition of a secondary tranche. In total, Pearl made capital commitments of almost EUR 55 m in the second quarter. The partnerships in the Pearl portfolio made capitals calls amounting to around EUR 34 m for fund investments, including e.g. Newbridge Asia III, L.P., for its investment in the Lenovo Group Limited. The investment level increased further to 70.54% compared to the 50.15% a year ago. This is a direct result of the previous quarters brisk commitment activity. This document is neither a sales prospectus nor a direct or indirect sales promotion instrument. 2

3 Further, Pearl received EUR 22 m in distributions from successful exits in the second quarter. Major contributions stemmed from the sale of Dometic, a Swedish manufacturer of innovative equipment for motorhomes, caravans and boots, and the sale of US refinery operator Premcor Inc. as well as from the Partners Group SPP1 Limited secondary portfolio. The number of listed private equity companies in the Pearl portfolio was increased from 15 to 22 during the second quarter and now constitute roughly 6% of the portfolio. Thus, this part of the Pearl portfolio has been diversified still further. At +1.32%, the listed private equity companies also made a positive contribution to the NAV development in the second quarter. BUYOUT FUNDS IN FUNDRAISING BOOM Private Equity Intelligence s 2005 Global Fundraising Review reports that over 800 private equity funds around the world will attempt to raise USD 250bn this year. The last time the industry saw that much money flooding into the asset class was in MID-MARKET PRICE AND NAV DEVELOPMENT Recent fundraising activity has been frantic, with most of the new money being spoken to buyout funds, which are becoming larger in size. In Europe, BC Partners, Bridgepoint, CVC Capital Partners and Apax Partners all recently launched multi-billion euro funds. There is a similar picture across the Atlantic, with Goldman Sachs Capital Partners closing the largest buyout fund ever at USD 8.5bn this spring, while Blackstone Group might breach the USD 10bn mark when its latest offering closes, which will be in the near future. 110% 100% Due to strong demand from limited partners, many of the popular funds that closed recently were oversubscribed and could have easily raised more capital. This also applies to groups that are currently fundraising in the market. 90% 80% 70% The enormous pools of capital being raised by the new funds, together with the trend among the major buyout players to form a consortium for specific transactions, give these buyout firms the purchasing power to pursue mega deals. A good example of this is Silver Lake s USD 11.3bn buyout the second-largest ever of SunGard, where it led a seven-party-strong consortium of financial buyers. Egon Durban from Silver Lake Partners addressed the topic of mega deals in a recent interview that is published on the next pages. NAV Mid-market price NAV incl. paid and accrued interest 3

4 QUARTERLY REPORT MARKET TRENDS Mr Durban, Silver Lake Partners recently put together a consortium of seven private equity firms for the second-largest buyout deal ever, the USD 11.3bn acquisition of SunGard. How do you select your consortium partners for an acquisition of this nature and magnitude and how do you agree on a common strategy? Silver Lake Partners is a leading private equity firm that focuses exclusively on making large-scale investments in leading technology companies. Silver Lake seeks to achieve superior returns by investing with the insight of an experienced industry participant, the operating skills of a world-class management team and the discipline of a leading private equity firm. Egon Durban joined Silver Lake in January 1999 as a founding principal. He played a key leadership role in negotiating and executing Silver Lake s USD 11.3bn acquisition of SunGard Data Systems, along with a consortium of six other leading private equity The consortium is comprised of several of the world s leading private equity firms. Each partner in the consortium brings considerable and complementary expertise to the investment. It is a group joined together in a shared commitment to invest in SunGard as equal partners and work closely with the company s management and employees to maximize SunGard s potential. We at Silver Lake Partners are privileged to be joined by Bain Capital, Blackstone, Goldman Sachs PIA, Kohlberg Kravis, Providence Equity, and Texas Pacific Group in this unprecedented transaction. In making this investment, we looked for partners who share our commitment to backing SunGard CEO Cris Conde and the world-class management team he has assembled, who have the sophistication needed to understand the attractive opportunity for value creation represented by SunGard s unique business model, and who have the resources and outlook required to support the investment over the longer term. firms. 4

5 What are the specific roles of each partner within the consortium? There is no formalized differentiation in roles, and the partnership is an equal one with each firm focused on creating long-term value for its limited partners. What is the reason for the private equity industry s increased appetite for large buyout deals? I can t speak for the industry as a whole, but as far as Silver Lake is concerned we always have an appetite for great investment opportunities in industries that we understand well. The reason we decided to acquire SunGard was not because we were out to make a large investment. We decided to acquire SunGard because we saw an opportunity to invest in a great company with a highly successful management team, a superior business model, a predictably growing revenue stream, and all the other assets required to create value over the long term. What distinguishes a company in which private equity firms are willing to invest (almost) doubledigit billion USD amounts? Again, I can t speak for everyone in the business. The companies that are attractive to Silver Lake are those that are fundamentally sound, with terrific management teams and great potential for growth, and where we think we can realize a great return on investment. We like to partner with management to unlock that value, or accelerate the investments that will realize that value potential in a way that public investors who tend to be focused on shorter term profitability generally don t support. When we find opportunities that meet those criteria, we work relentlessly to craft the optimal transaction, execute it effectively and continue to add value going forward regardless of the size or complexity of the investment. We are proud of our track record in that regard, starting with our acquisition of Seagate Technology in 1999, which was the largest technology buyout to date at that time, through to our investment in NASDAQ and pending acquisition of Instinet in a complicated, three-way transaction. And while we like to make sizeable investments in companies that are operating at scale, that doesn t limit us to buyouts alone. We ve used convertible bonds to make significant minority investments in great companies like Thomson, the French company that is now the global leader in the technologies that are driving the media and entertainment businesses, Flextronics and others. What factors encourage public companies to go private? There are a number of factors. The extraordinary and increasing demands placed on public companies with regard to reporting and governance are certainly a factor in many cases. The nature of public markets is also such that sometimes they simply don t value certain companies accurately, as was the case with SunGard, where the analysts and investors valuing the data recovery part of the business didn t understand the service processing part of the business, and vice versa. Are mega deals riskier than small or mid-market buyout deals? Only in the sense that the stakes are potentially higher. But there is nothing inherently riskier about investing on a large scale. To the contrary, smaller scale deals can often be completed by a single buyout firm operating independently. But larger deals by their very nature have to be approached by several partners working together. I would argue that the strength of those teams, and the processes that you go through to put them together, actually mitigate risk. Looking ahead, how big are the mega deals of the near future going to be? Will the trend towards ever larger deals continue? As many private equity funds themselves have raised more capital, it is only natural that they are in a position to evaluate and pursue larger target opportunities. And the capital markets go through cycles, of course. In recent years, there has been less competition among strategic buyers for bigger assets at the same time that the debt financing market has been robust, creating openings for private equity firms that might not have existed in the past. In addition the private equity firms are learning to work together in partnership to analyze and execute investments. That said, I think the real trend to watch in private equity isn t scale, but rather specialization. Success in the private equity arena will increasingly come from bringing deep, industry-specific expertise and value add to the table. Capital alone will not deliver superior returns. This is a good thing. The 35-year history of growth in private equity has been very healthy for companies and for shareholders. Now that private equity is established as a viable alternative to even very large corporations, it is another tool that managements can use to create longer-term shareholder value. Private equity is also a market force that can be used to keep managements focused on shareholder value. Mr Durban, thank you for this interview. 5

6 QUARTERLY REPORT PORTFOLIO ALLOCATION INVESTMENTS AND DISTRIBUTIONS in EUR m Pearl has a balanced and by geographic regions, financing stages, 20 industry sectors and vintage years broadly diversified portfolio. 83% of the portfolio is invested in the stable buyout and special YTD 2005 situations segments. Drawndown Commitments Distributions INVESTMENTS BY VINTAGE YEARS* in EUR m pre YTD 2005 * based on unrealized value of private equity investments 6

7 INVESTMENTS BY TYPE OF INVESTMENTS* INVESTMENTS BY GEOGRAPHIC REGIONS* Direct Investments 9% Listed Private Equity 6% Rest of World 9% Secondary Partnerships 24% Primary Partnerships 61% North America 36% Europe 55% * 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 9% Other 16% Communication & Media 18% Venture Capital 17% Retail 22% IT & High-Tech 7% Buyout 74% Life Sciences 12% Industrial Production & Manufacturing 19% Financial Services 6% * 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 Bridgepoint Europe III, L.P. In April, Pearl committed EUR 5m to Bridgepoint Europe III, L.P. The fund will focus on mid-market buyout and growth capital transactions across Europe. Bridgepoint is one of the few truly pan-european players with over 40 investment professionals operating out of offices in Birmingham, London, Frankfurt, Milan, Madrid, Paris and Stockholm. During the second quarter of 2005, Pearl made four new commitments, one secondary transaction and invested directly in two companies, namely Sanitec and SunGard. Menlo Ventures X, L.P. Pearl made a USD 5m commitment to Menlo Ventures X, L.P. in April. The new fund will continue the successful investment strategy of its nine preceding funds and will provide seed, start-up, early-stage, expansion and laterstage financing for companies in the communications, software, internet infrastructure, semiconductor, storage, computer hardware and financial services sectors. Carmel Ventures II, L.P. In April, Pearl committed USD 6.5m to Carmel Ventures II, L.P., which held its final closing in May of this year at USD 200m. Carmel Ventures II focuses on Israeli seed and early-stage IT and telecommunication companies, leveraging the fund manager s considerable software expertise. Morgenthaler Partners VII, L.P. Also in April, Pearl acquired an additional stake in Morgenthaler Partners VII, L.P. through a secondary transaction. The fund primarily focuses on early-stage venture investments but may allocate up to 30% to buyout deals. Morgenthaler concentrates on the communications, software infrastructure and healthcare industry segments. 8

9 Warburg Pincus Private Equity IX, L.P. In May, Pearl made a USD 12.5m commitment to Warburg Pincus Private Equity IX, L.P. The fund will invest across all stages of business development, including venture capital, buyout and special situations transactions. The fund aims to invest 70% of its assets in North America, 15% in Europe and the balance in Asia. Warburg Pincus is one of the oldest and most renowned private equity firms worldwide. For over three decades now, the firm has been investing across all stages and has experienced various economic cycles. NEW DIRECT INVESTMENTS SunGard Data Systems Inc. This spring, Pearl, together with a seven-party-strong private equity consortium led by Silver Lake Partners, agreed to acquire SunGard Data Systems Inc. for USD 11.3bn. SunGard is a global leader in integrated software and processing solutions primarily for the financial services industry, as well as the pioneer and leading provider of information availability services. SunGard serves more than 20,000 customers in more than 50 countries. The transaction will be financed through a combination of debt financing and equity contributed by each of the consortium partners. The transaction is expected to be completed in the third quarter of 2005 and will be the largest leveraged buyout since KKR acquired RJR Nabisco in 1989 for USD 31.3bn. Sanitec Oy In spring, Pearl made a direct investment in Finnish bathroom ceramics company Sanitec Group alongside private equity house EQT, which bought Sanitec in a secondary buyout from BC Partners. Sanitec is a European multi-brand group that designs, manufactures and markets bathroom ceramics as well as bath and shower products. The group comprises, amongst others, Italian Pozzi Ginori and German Keramag (whose portfolio of brands includes the JOOP! bathroom line). EQT intends to continue with Sanitec s existing strategy and aims to grow organically by developing new products and by profiting from rising demand for such products in Eastern Europe. SELECTED INVESTMENTS TPG Partners IV, L.P. In May, Texas Pacific Group and Warburg Pincus agreed to acquire all the outstanding class A and class B shares in luxury retailer The Neiman Marcus Group for USD 100 per share in cash in a transaction valued at approximately USD 5.1bn. The Neiman Marcus Group comprises luxury department stores as well as a direct marketing division with both print catalogue and online operations under the Neiman Marcus, Horchow and Bergdorf Goodman brand names. These renowned retailers offer upmarket apparel, accessories, jewellery, beauty and decorative home products to the affluent consumer. The deal is the latest in a string of major retail acquisitions by private equity firms in Europe and in the US. SELECTED EXITS EQT III, L.P. In April, Pearl partnership EQT III successfully exited Dometic Group by selling it to another Pearl partnership, namely BC European Capital VII, for roughly USD 1.4bn. The selling price is more than twice the amount EQT invested back in 2001, when it bought the company from Electrolux. Today, Dometic is a world-leading supplier to the growing mobile leisure markets. Since being hived out from Electrolux, Dometic s operations have been assembled in an independent corporate group that has two business areas and targets customers in the recreation, hotel and medical industries. Dometic and BC Partners aim to capitalize on the many attractive growth opportunities in future. The sale, however, is conditional upon receiving approval by the relevant competition authorities. Blackstone Capital Partners III, L.P. Blackstone Capital Partners III, in which Pearl is invested through Partners Group SPP1, agreed in April to sell fellow oil refiner Premcor Inc. to Valero Energy Corp. for USD 8.7bn. Blackstone s USD 275m equity investment in Premcor (formerly Clark USA Inc.) in 1997 has grown sixfold. It will sell its 21.4% stake in Premcor for USD 1.39bn in cash and Valero stock, making its total take from the deal USD 1.75bn. Once the deal is completed, Valero-Premcor combined will be the largest US oil refiner. 9

10 ÜBERBLICK QUARTERLY STATEMENT REPORT OF THE INVESTMENT MANAGER PORTFOLIO OVERVIEW 10 2 Summary of the partnerships, companies and investment companies in which Pearl was invested at the end of the second quarter of PRIMARY PARTNERSHIPS Europe Buyout 3i Europartners IV, L.P. Activa Capital Fund FCPR* Advent International GPE V, L.P. Advent International GPE V, L.P.* Apax Europe V, L.P. Apax Europe VI, L.P. AXA LBO Fund III-A* BC European Capital VII Top Up Fund BC European Capital VIII, L.P. Bridgepoint Europe II C, L.P.* Bridgepoint Europe III, L.P. CapVis Equity II, L.P.* Doughty Hanson & Co. Fund IV, L.P. Duke Street Capital V, L.P.* EQT IV, L.P. Global Private Equity Fund IV-D, L.P. Graphite Capital Partners VI, L.P.* Industri Kapital 2000, L.P. Investitori Associati IV, L.P. * Italian Private Equity Fund IV, L.P.* Mercapital Spanish Private Equity Fund II, L.P. Nmás1 Private Equity Fund US No. 1, L.P.* Nordic Capital V, L.P.* Permira Europe III, L.P. Segulah III, L.P.* Terra Firma Capital Partners II, L.P. Third Cinven Fund (No. 4), L.P. Europe Venture Capital Abingworth Bioventures III, L.P. ACT 2001 Venture Capital Fund, L.P. No. 2 Advent Private Equity Fund III D, L.P. Amadeus II C, 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. 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* Indigo Capital IV, L.P.* Special Situations Venture Partners, L.P. The Rutland Fund Rest of World Buyout Advent Latin American Private Equity Fund II, L.P. Ironbridge Capital 2003/4 Fund*** IVF (Mauritius) PCC*** Newbridge Asia III, L.P. Polish Enterprise Fund IV, L.P. Polish Enterprise Fund V, L.P.* Unison Capital Partners II (F), L.P.*** Rest of World Venture Capital Carmel Ventures II, L.P. Crimson Velocity Fund, L.P. Pitango Venture Capital Fund IV, L.P. SVE Star Ventures Enterprises GmbH & Co. IX KG

11 ÜBERBLICK STATEMENT OF THE INVESTMENT MANAGER ÜBERSICHT 2004 North America Buyout Carlyle Partners IV, L.P. JP Morgan Partners Global Investors (Cayman), L.P. Kohlberg TE Investors V, L.P. Providence Equity Partners V-A, L.P. Ripplewood Partners II Parallel Fund, L.P. Silver Lake Partners II, L.P. TPG Partners IV, 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.** Boulder Ventures IV, L.P. Draper Fisher Jurvetson Fund VIII, L.P.** International Life Sciences Fund III, L.P. Menlo Ventures X, L.P. Morgenthaler Partners VII, L.P. New Enterprise Associates X, L.P. New Enterprise Associates XI, L.P.** Oxford Bioscience Partners IV, L.P. Prism Venture Partners IV, L.P. Prism Venture Partners V, L.P.** Prospect Venture Partners II, L.P. Prospect Venture Partners III, L.P. Prospect Venture Partners III, L.P.** Sevin Rosen IX, L.P.** Summit Ventures VI-B, L.P. TA Atlantic and Pacific V, L.P. Vortex Corporate Development Fund, L.P. North America Special Situations Ares Corporate Opportunities Fund, L.P. Levine Leichtman Capital Partners III, L.P. Lexington Capital Partners V, L.P. Paul Associates II International, L.P. Peninsula Fund III, L.P. SECONDARY INVESTMENTS American Industrial Partners Capital Fund III, L.P. Apollo Overseas Partners III, L.P. AXA Private Equity Fund II Feeder, L.P.* Blackstone Communications Partners I, L.P. Doughty Hanson & Co. Fund III, L.P. Electra European Fund L.P.* EQT III Limited (formerly Northern Europe) EQT Scandinavia II, L.P. ICG Mezzanine Fund 2000, L.P. No. 2* ICG Mezzanine Fund 2000, L.P. No. 2 Morgenthaler Partners VII, L.P. Partners Group Secondary, L.P. Partners Group SPP1 Limited PG Carlyle Opportunity Partnership DIRECT INVESTMENTS Ahold Supermercados S.L. AMC Entertainment Inc. Bodybell The Automobile Association Balta Group Brand Services, Inc. CellZome AG CESA Corporacion Eolica S.A. CiCi Enterprises, Inc. esmertec AG Findexa Co-Invest LLC Gala Group Limited GMT Casema Holding Limited Phoqus Pharmaceutical Technologies Refco Group Ltd. Sanitec Oy SunGard Data Systems, Inc. TFCP II Co-Investment L.P. (UCI/Odeon) LISTED PRIVATE EQUITY 3i Group Plc AIG Private Equity Ltd American Capital Strategies Corp. Allied Capital Corp. Candover Investments PLC Capman Oy Castle Private Equity Ltd Deutsche Beteiligungs AG Dinamia Dunedin Enterprise Electra Investment Trust PLC GIMV N.V. Graphite Enterprise Trust PLC HgCapital Trust PLC Intermediate Capital Group Martin Currie Capital Return Trust PLC Northern Investors Company Onex Corp. Pantheon International Participation PLC Private Equity Investor PLC Standard Life European Private Equity Trust PLC SVG Capital PLC * Participation through Partners Group Europe, L.P. at no additional fees ** Participation through Partners Group U.S. Venture 2004, L.P. at no additional fees *** Participation through Partners Group Asia-Pacific 2005, L.P. at no additional fees Commitments added this quarter are stated in italics. 211

12 QUARTERLY STATEMENT REPORT OF THE INVESTMENT MANAGER UNAUDITED INCOME STATEMENT for the period from 1 January 2005 to 30 June Net income from limited partnerships Notes EUR EUR EUR EUR and directly held investments 28,307,398 37,369,705 3,789,831 9,237,583 - Dividend and interest income 5&14 734,966 3,206, , ,177 - Revaluation 5&16 23,791,531 28,585,556 3,140,105 7,739,416 - Foreign exchange gains and losses 5&15 3,780,901 5,577,291 14, ,990 Net income from associates 8,018,817 10,805,650 11,276,803 11,461,656 - Dividend and interest income 6& Revaluation 6&16 7,007,381 8,892,346 11,137,102 11,060,213 - Foreign exchange gains and losses 6&15 1,011,436 1,913, , ,443 Net income from listed private equity 2,267,888 4,133,016 (220,466) 1,222,935 - Dividend and interest income 7&14 110, , , ,666 - Gains and losses 7 1,684,588 2,803,345 (516,355) 60,971 - Foreign exchange gains and losses 7&15 472,604 1,079,754 (54,907) 698,298 Net income from short-term investments 965,784 2,064,302 1,294,406 2,761,805 - Gains and losses 8 965,784 2,064,302 1,294,406 2,761,805 Net income from cash and cash equivalents 161, ,181 40, ,372 - Interest income 10&14 77, ,128 40, ,372 - Foreign exchange gains and losses 15 83, , Operating income 39,721,045 54,788,854 16,180,782 24,790,351 Operating expenses (5,819,446) (11,307,306) (5,156,818) (10,379,577) - Management fee 2 (2,538,111) (4,835,824) (2,026,131) (4,052,149) - Insurance fee 2 (3,045,733) (6,015,733) (2,970,000) (5,940,000) - Administration fee 2 (169,207) (322,388) (135,075) (270,143) - Direct investment performance fee Tax exemption fee 3 (905) (905) (921) (921) - Other foreign exchange gains and losses 15 7,347 3,434 (828) 1,311 - Other operating expenses (72,837) (135,890) (23,863) (117,675) Financing cost (8,542,090) (17,042,850) (8,378,827) (16,717,687) - Finance cost on convertible bond 12&14 (4,945,612) (9,849,894) (4,782,349) (9,524,731) - Amortization of transaction costs 12 (296,478) (592,956) (296,478) (592,956) - Bond interest 14 (3,300,000) (6,600,000) (3,300,000) (6,600,000) Surplus / (loss) for the financial period 25,359,509 26,438,698 2,645,137 (2,306,913) 12

13 UNAUDITED BALANCE SHEET as at 30 June Notes EUR EUR Assets Non-current assets Investments in limited partnerships and directly held investments 1&5 330,441, ,863,468 Investments in associates and joint ventures 6 56,692,176 49,367,973 Investments in listed private equity 7 23,610,419 23,560, ,743, ,791,901 Current assets Short-term investments 1&8 144,160, ,106,992 Other short-term receivables 9 1,177,887 51,178 Cash and cash equivalents 10 47,379,054 32,899, ,717, ,642,002 Total assets 603,461, ,433,903 Equity Capital and reserves Issued capital 11 10,000 10,000 Reserves (5,627,862) (32,066,560) Total equity (5,617,862) (32,056,560) Liabilities Liabilities falling due after more than one year Convertible bond ,928, ,486,120 Liabilities falling due within one year Hedging liabilities 5&6 11,129,699 - Other short-term payables 13 10,020,695 4,004,343 Rounding ,150,394 4,004,343 Total liabilities and equity 603,461, ,433,903 The financial statements on pages 12 to 26 were approved by the board of directors on 28 July 2005 and are signed on its behalf by: U. Wietlisbach N. Carey Director Director 13

14 QUARTERLY STATEMENT REPORT OF THE INVESTMENT MANAGER UNAUDITED STATEMENT OF CHANGES IN EQUITY for the period from 1 January 2005 to 30 June 2005 (all amounts in EUR) Share Share Accumulated capital premium surplus/(loss) Total Equity at beginning of reporting period 10, ,719,948 (187,786,508) (32,056,560) Surplus / (loss) for the financial period ,438,698 26,438,698 Rounding Equity at end of reporting period 10, ,719,948 (161,347,810) (5,617,862) 14

15 UNAUDITED STATEMENT OF CHANGES IN EQUITY for the period from 1 January 2004 to 30 June 2004 (all amounts in EUR) Share Share Accumulated capital premium surplus/(loss) Total Equity at beginning of reporting period 10, ,719,948 (172,605,105) (16,875,157) Surplus / (loss) for the financial period - - (2,306,913) (2,306,913) Rounding Equity at end of reporting period 10, ,719,948 (174,912,018) (19,182,070) 15

16 QUARTERLY REPORT UNAUDITED CASH FLOW STATEMENT for the period from 1 January 2005 to 30 June Notes EUR EUR Cash flow from operating activities - Management fee 2 (4,835,824) (4,052,149) - Administration fee 2 (322,388) (270,143) - Insurance fee 2 (6,015,733) (5,940,000) - Direct investment performance fee Tax exemption fee 3 (905) (921) - Other operating expenses (135,890) (117,676) - Proceeds from hedging activities 5&6-5,537,472 - (Increase) / decrease in other short-term receivables (1,123,275) 99,563 - Increase / (decrease) in other short-term payables (583,648) (57,031) - Interest and dividend income from limited partnerships and directly held investments 5 3,206, ,177 - Purchase of limited partnerships and directly held investments 5 (82,938,215) (27,294,908) - Distributions by limited partnerships and directly held investments 5 29,006,460 16,974,882 - Purchase of investments in associates 6 (520,967) (968,891) - Distributions by investments in associates 6 8,233,546 5,223,396 - Purchase of listed private equity 7 (8,835,962) (8,318,695) - Sale of listed private equity 7 12,669,103 6,082,540 - Income from listed private equity 7 249, ,666 - Purchase of short-term investments 8 (83,989,637) (177,050,161) - Repayment of short-term investments 8 150,000, ,000,000 - Interest income received from cash and cash equivalents , ,372 - Interest paid on convertible bond - - Net increase / (decrease) in cash and cash equivalents (14,258,568) (23,623,507) Cash and cash equivalents at beginning of reporting period 10 32,899,434 37,990,049 Effects on cash and cash equivalents - movement in exchange rates 221, rounding (1) - Cash and cash equivalents at end of reporting period 10 47,379,054 14,366,542 16

17 NOTES TO THE UNAUDITED FINANCIAL STATEMENTS 1 PRINCIPAL ACCOUNTING POLICIES The following accounting policies have been applied consistently in dealing with items which are considered material in relation to the Company's financial statements: The financial statements have been prepared in accordance with International Accounting Standard 34 (Interim Reporting), except for the following: For the valuation of investments in limited partnerships, the directors refer to the most recent available information of the General Partner of the underlying investment. Owing to the diversified nature of the limited partnership investments and the variety of valuation bases adopted and quality of management information provided by the General Partners the values included in these financial statements do not necessarily comply with fair values as defined in IAS 39. The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) (with the exception indicated above) and under the historical cost convention as modified by the revaluation of financial assets and financial liabilities at fair value through profit and loss and all derivative contracts. Recognized assets and liabilities that are hedged are stated at fair value in respect of the risk that is hedged. The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management's best knowledge of current events and actions, actual results ultimately may differ from those estimates. Net income from short-term investments and cash and cash equivalents Income from bank deposits is included on an accruals basis. Gains and losses from short-term investments and gains and losses from cash and cash equivalents also include the increase in value of bonds purchased at a discount. All realized and unrealized surpluses and losses are recognized in the income statement. Expenditure Basis of preparation The expenditure is included in the financial statements on an accruals basis. Functional and presentation currency Items included in the Company's financial statements are measured using the currency of the primary economic environment in which it operates ('The Functional Currency'). This is the Euro, which reflects the Company's primary activity of investing in European limited partnerships and private equity. The Company has also adopted Euro as its presentation currency. Transactions in foreign currencies are translated into Euro at the exchange rate prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated into Euro at the exchange rate prevailing at the balance sheet date. Exchange gains and losses are included in the income statement. Investments in limited partnerships and directly held investments Investments in limited partnerships are valued initially at cost and thereafter at the most recent net asset value as reported by the underlying partnership and adjusted for subsequent net capital activity. In selecting investments the Directors have taken into consideration the accounting and valuation basis of the underlying partnerships and select only those investments, which adopt an internationally recognized standard. The Directors also review management information provided by underlying partnerships on a regular basis. In those cases where the management information is limited, the Directors work with the underlying partnership in an attempt to obtain more meaningful information. 17

18 QUARTERLY REPORT NOTES TO THE UNAUDITED FINANCIAL STATEMENTS (continued) Notwithstanding the above, the variety of valuation bases adopted and quality of management information provided by the underlying partnerships and the lack of liquid markets for the investments held mean that there are inherent difficulties in determining the fair values of these investments that cannot be eliminated. Amounts realized on the sale of investments will differ from the fair values reflected in these financial statements and the differences may be significant. The directly held investments are being treated as financial assets at fair value through profit or loss and are therefore disclosed at fair value. For determining the fair value, the Directors refer to the most recent available information provided by the lead investor of the investment with any changes resulting from additional financing rounds or a diminution in value. Any changes in the fair value of the investments are shown within Net income from limited partnerships and directly held investments Revaluation. Any distributions, including return of principal of investment, received from the underlying limited partnerships and directly held investments are recognized on the distribution date. The short-term investments purchased at par are included in the balance sheet at market values ruling at the balance sheet date. The changes in the fair value are included within Net income from short-term investments Gains and losses. The short-term investments purchased at a discount are included in the balance sheet at market values ruling at the balance sheet date. The changes in the fair value and the interest received at maturity are included within Net income from short-term investments Gains and losses. Upon maturity of the short-term investments purchased at a discount the difference between the last reported fair value and the maturity amount are included within Realized gains and losses. All transactions relating to short-term investments are recognized on the settlement date. Cash and cash equivalents Cash and cash equivalents consist of cash at bank and cash invested in money market instruments with a maturity of up to three months from the date of purchase. The cash equivalent investments purchased at a discount are included in the balance sheet at market values ruling at the balance sheet date. The changes in the fair value and the interest received at maturity are included within Net income from cash and cash equivalents. Investments in associates Accounting for derivative financial instruments and hedging activities Investments in associates are valued initially at cost and thereafter at the most recent net asset value as reported by the underlying investment and adjusted for subsequent net capital activity. Associates are entities over which the Company generally has between 20% and 50% of the voting rights, or over which the Company has significant influence, but which it does not control. Short-term investments The Company's policy of hedging the value of non-euro investments against the Euro does not qualify as hedge accounting as defined in IAS 39 (revised 2004). Derivative financial instruments are initially recognized in the balance sheet at cost and subsequently are remeasured at their fair value. As a result the unrealized changes in the fair value of these derivatives and the realized net gains / losses on the derivatives that matured during the period are recognized in the income statement under the heading of Net income from limited partnerships and directly held investments foreign exchange gains and losses. Short-term investments are defined as investments with maturity between three and twelve months from the date of purchase and are being treated as financial assets at fair value through profit or loss. The fair values of various derivative instruments used for hedging purposes are disclosed in notes 5 and 6. 18

19 2 EXPENSES 4 FINANCIAL RISK MANAGEMENT Management fee Financial risk factors The management fee is paid quarterly in advance pursuant to the Investment Management Agreement between Pearl Holding Limited and Pearl Management Limited. The quarterly management fee is calculated as 0.375% of the higher of the sum of Private Equity Net Assets and the undrawn commitments or the Net Assets of the Company. Administration fee The administration fee is paid quarterly in advance pursuant to the Administration Agreement between Pearl Holding Limited and Partners Group (Guernsey) Limited. The quarterly administration fee is calculated as 0.025% of the higher of the sum of Private Equity Net Assets and the undrawn commitments or the Net Assets of the Company. The Company's activities expose it to a variety of financial risks, including the effects of changes in debt and equity market prices, foreign currency exchange rates and interest rates. The Company's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the financial performance of the Company. The Company may use derivative financial instruments such as foreign exchange contracts to hedge certain exposures. (a) Foreign exchange risk The Company operates and invests internationally and is exposed to foreign exchange risk arising from various currency exposures. The Company may use forward contracts to hedge its exposure to foreign currency risk in connection with the functional currency. Insurance fee (b) Interest rate risk The insurance fee is paid quarterly in advance pursuant to the Insurance Trust Agreement between the Company, Pearl Management Limited and European International Reinsurance Company Limited. The quarterly insurance fee is calculated as 0.45% of the higher of the sum of Private Equity Net Assets and the undrawn commitments or the Net Assets of the Company or the Principal Amount of the Bond. 3 TAXATION STATUS The Company is exempt from Guernsey income tax under the Income Tax (Exempt Bodies) (Guernsey) Ordinances 1989 and 1992 and is charged an annual exemption fee of GBP 600. The Company's income and operating cash flows are substantially independent of changes in market interest rates. The Company has no significant interest-bearing assets. (c) Credit risk The Company has no significant concentration of credit risk. Derivative counterparties and cash transactions are limited to high credit quality financial institutions. (d) Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlying businesses, the Company aims at maintaining flexibility in funding by keeping sufficient liquidity in readily realizable short-term investments. 19

20 QUARTERLY STATEMENT REPORT OF THE INVESTMENT MANAGER NOTES TO THE UNAUDITED FINANCIAL STATEMENTS (continued) Fair value estimation The fair value of publicly traded derivatives and financial assets at fair value through profit or loss securities is based on quoted market prices at the balance sheet date. The fair value of forward foreign exchange contracts is determined using forward exchange market rates at the balance sheet date. In assessing the fair value of non-traded derivatives and other financial instruments, the Company uses a variety of methods and makes assumptions that are based on market conditions existing at each balance sheet date. Quoted market prices or dealer quotes for the specific or similar instruments are used for long-term debt. Other techniques, such as option pricing models and estimated discounted value of future cash flows, are used to determine fair value for the remaining financial instruments. 5.2 DISTRIBUTIONS Dividends 2,481, ,780 Interest income 725, ,397 Rounding 1-3,206, ,177 Return of investments 28,990,321 16,979,118 Gains / (losses) from sale of stock distributions 16,139 (4,236) Total distributions 32,197,179 17,934,059 5 LIMITED PARTNERSHIPS AND DIRECTLY HELD INVESTMENTS 5.1 INVESTMENTS Balance at beginning of reporting period 234,863, ,100,235 Capital activity recorded at the transaction rate 82,938, ,760,092 Distributions (29,006,460) (45,391,930) Revaluation 28,585,556 20,384,268 Foreign exchange gains / (losses) 13,060,257 (6,989,197) Rounding (1) - Balance at end of reporting period 330,441, ,863, FOREIGN EXCHANGE Foreign exchange revaluation 13,060,257 1,954,163 Revaluation of foreign exchange hedges relating to investments in limited partnerships and directly held investments (7,482,965) (3,663,782) Realized gain / (loss) from foreign exchange hedges relating to investments in limited partnerships and directly held investments - 2,248,609 Rounding (1) - 5,577, ,990 At the balance sheet date, Pearl Holding Ltd. 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: 20

21 Surplus / Surplus / Amount (loss) (loss) EUR Rate Value date Sell USD against EUR 54,417, (6,235,141) 373,314 Sell USD against EUR 12,310, (874,511) - (7,109,652) 373, DISTRIBUTIONS Dividends - - Interest income - - Return of investments 8,233,546 5,223,396 Total distributions 8,233,546 5,223,396 6 INVESTMENTS IN ASSOCIATES 6.3 FOREIGN EXCHANGE INVESTMENTS Balance at beginning of reporting period 49,367,973 59,105,714 Capital activity recorded at the transaction rate 520,967 2,904,797 Distributions (8,233,546) (20,441,286) Revaluation 8,892,346 11,610,911 Foreign exchange gains / (losses) 6,144,436 (3,812,162) Rounding - (1) Balance at end of reporting period 56,692,176 49,367,973 The only associate, unlisted, is: Foreign exchange revaluation 6,144,436 1,981,110 Revaluation of foreign exchange hedges relating to investments in associates (4,231,132) (4,868,529) Realized gain / (loss) from foreign exchange hedges relating to associates - 3,288,863 Rounding - (1) 1,913, ,443 At the balance sheet date, Pearl Holding Ltd. 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: Country of incorporation Activity % interest held Partners Group SPP1 Limited Guernsey, Holding of Channel Islands investments 49.64% 21

22 QUARTERLY REPORT NOTES TO THE UNAUDITED FINANCIAL STATEMENTS (continued) Surplus / Surplus/ Amount (loss) (loss) EUR Rate Value date Sell USD against EUR 30,769, (3,525,568) 211,085 Sell USD against EUR 6,960, (494,479) (4,020,047) 211,085 8 SHORT-TERM INVESTMENTS 8.1 INVESTMENTS At beginning of reporting period 208,106, ,823,843 Additions 83,989, ,782,948 Redemptions (150,000,000) (325,000,000) Gains and losses on short-term investments 2,064,302 5,500,201 Rounding INVESTMENTS IN LISTED PRIVATE EQUITY At end of reporting period 144,160, ,106, INVESTMENTS Balance at beginning of reporting period 23,560,460 17,812,172 Purchases recorded at the transaction rate 8,835,962 11,361,077 Disposals recorded at the transaction rate (12,669,103) (7,922,267) Gains / (losses) on listed private equity 2,803,345 2,576,607 Foreign exchange gains / (losses) 1,079,754 (267,129) Rounding INCOME Gains and losses Realized gains / (losses) from short-term investments (15,480) 734,234 Unrealized gains / (losses) from short-term investments 2,079,782 2,027,571 Total gains / (losses) from short-term investments 2,064,302 2,761,805 Balance at end of reporting period 23,610,419 23,560, INCOME OTHER SHORT-TERM RECEIVABLES Dividends 227, ,666 Realized gains / (losses) on listed private equity 1,183, ,384 Unrealized gains / (losses) on listed private equity 1,620,345 (74,413) Other income 22,899 - Distributions receivable 1,176,887 51,178 Sundry prepayments 1,000-1,177,887 51,178 3,053, ,637 22

23 10 CASH AND CASH EQUIVALENTS 10.1 BALANCE Cash at banks 47,379,054 32,899,434 Rounding - - Total cash and cash equivalents 47,379,054 32,899, INTEREST INCOME Interest received from cash at banks 195, ,372 Rounding - - Total interest income from cash and cash equivalents 195, ,372 Bondholders have the right to convert bonds into shares on or after 1 October 2008 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 by him. 12 CONVERTIBLE BOND 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 Issued and fully paid 1'000'000 Class A shares of EUR 0.01 each 10,000 10,000 Balance at beginning of reporting period 577,486, ,089,830 Amortization of transaction costs 592,956 1,185,611 Finance cost on convertible bond 9,849,894 19,210,679 Rounding - - Balance at end of reporting period 587,928, ,486,120 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 2008, at the option of the investor, using the relevant conversion price. Pearl Holding Limited has entered into an insurance policy to ensure that it is provided with sufficient funds for the repayment of the principal upon redemption of the bond on 30 September

24 QUARTERLY REPORT NOTES TO THE UNAUDITED FINANCIAL STATEMENTS (continued) 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 to the maturity value. 14 DIVIDEND AND INTEREST INCOME AND EXPENSE Interest income: - Dividend and interest income from limited partnerships and directly held investments 3,206, ,177 - Dividend and interest income from listed private equity 249, ,666 - Interest income from cash and cash equivalents 195, ,372 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. Total dividend and interest income 3,651,903 1,529,215 Interest expense: - Finance cost on convertible bond (9,849,894) (9,524,731) - Bond interest (6,600,000) (6,600,000) Total interest expense (16,449,894) (16,124,731) 13 OTHER SHORT-TERM PAYABLES Accrual of interest on convertible bond 9,900,000 3,300,000 Sundry accruals 120, ,343 10,020,695 4,004, FOREIGN EXCHANGE GAINS AND LOSSES Foreign exchange gains and losses on: - limited partnerships and directly held investments 5,577, ,990 - investments in associates 1,913, ,443 - investments in listed private equity 1,079, ,298 - cash and cash equivalents 221, other foreign exchange gains and losses 3,434 1,311 8,794,836 1,640,042 24

25 16 REVALUATION 19 INSURANCE POLICY Revaluation of: - limited partnerships and directly held investments 28,585,556 7,739,416 - investments in associates 8,892,346 11,060,213 37,477,902 18,799, COMMITMENTS Total commitments translated at the rate prevailing at the balance sheet date 886,025, ,679,953 Unutilized commitments translated at the rate prevailing at the balance sheet date 378,689, ,761,132 On 29 June 1999, Pearl Holding Limited and Pearl Management Limited entered into an Insurance Agreement with European Reinsurance International Company Limited, to ensure that the Company will be provided with sufficient funds to be able to pay the principal amount of the Bond at maturity on 30 September NUMBER OF EMPLOYEES At the balance sheet date no persons were employed by the Company. 21 RELATED PARTY TRANSACTIONS GE & W AG, a majority of whose shares are held by the founding partners of Partners Group Holding, and Partners Group Holding hold 100% of the Class A shares. Partners Group Holding owns 19.9% of the share capital of GE & W AG. 18 DILUTED NET ASSETS PER ORDINARY SHARE The net assets are calculated by deducting the Liabilities falling due within one year from the Total Assets. The 660,000 convertible bonds at a par value of EUR 1,000 each, if converted at EUR 100 per share would result in 6,600,000 shares. Once 95% of the convertible bonds are converted, the existing 1,000,000 Class A shares will be converted at 10,000 : 1, resulting in 100 Class C shares after conversion. Mr. Wietlisbach, a Director of Pearl Holding Limited and a partner of Partners Group, controls 26.7% of the issued share capital of GE & W AG. Partners Group and all its subsidiaries and affiliates are considered to be related parties to the Company. The directors as disclosed in the Directors' Report are also considered to be related parties to the Company Net assets of the company 582,311, ,429,560 Outstanding shares at the balance sheet date Additional shares due to conversion 6,600,000 6,600,000 Net assets per share after conversion

26 QUARTERLY STATEMENT REPORT OF THE INVESTMENT MANAGER NOTES TO THE UNAUDITED FINANCIAL STATEMENTS (continued) Transactions with related parties 23 RISKS The following transactions were carried out with related parties: i) Services Management fee: - Pearl Management Limited (4,835,824) (4,052,149) Administration fee: - Partners Group (Guernsey) Ltd (322,388) (270,143) Insurance fee: - Pearl Management Limited (6,015,733) (5,940,000) Direct investment performance fee: - Pearl Management Limited - - Directors' fees paid (15,006) (7,719) Reimbursement of fees paid by related limited partnerships: - Partners Group (Guernsey) Ltd 715, ,108 It is expected, that a large proportion of the Company's investments will be made by investing in private equity funds (including affiliated funds). Many of the private equity funds may be wholly unregulated investment vehicles. In addition, certain of the private equity funds may have limited or no operational history and have no proven track record in achieving their stated investment objective. The value of the investments in the private equity funds and the income from them may fluctuate significantly. The Company's over-commitment strategy could result in periods in which the Company has inadequate liquidity to fund its investments or to pay other amounts payable by the Company. The Company expects that a portion of the private equity investments to be made by the Company will be in a number of different countries and denominated in a number of different currencies. Any returns on and value of, such portion of the private equity investments made by the Company may, therefore, be materially affected by exchange rate fluctuations, local exchange control and other restrictions, including restrictions on the convertibility of the currencies in question and also by political and economic developments in the relevant countries. 22 PARENT COMPANY AND ULTIMATE CONTROLLING PARTY GE & W AG, a company organized under Swiss law holds the majority of the Class A shares. Partners Group Holding holds 19.9% of the share capital of GE & W AG. 26

27 NOTES 27

28 LIST OF ADRESSES Registered office Pearl Holding Limited Elizabeth House Les Ruettes Braye St Peter Port, Guernsey Channel Islands Phone Facsimile Info: Trading information Price information Reuters DGZ07 German Security Number Swiss Security Number Market Maker DekaBank Frankfurt a. M., Germany Phone Investment manager Pearl Management Limited Guernsey, Channel Islands Investors relations Isabelle Hess Auditors PricewaterhouseCoopers Guernsey, Channel Islands