LBPE Investor Presentation 23 January Lehman Brothers Private Equity Partners

Transcription

1 LBPE Investor Presentation 23 January 2009 Lehman Brothers Private Equity Partners

2 Table of Contents I. Investment Manager Update II. III. IV. Q Preliminary Performance Update Market Performance LBPE Action Plan & Value Proposition A. Appendices

3 Investment Manager Update

4 LBPE Investment Manager Update On 3 December 2008, a group consisting of portfolio managers, the management team and senior professionals ( Management ) agreed to a management buyout of Neuberger Berman and the fixed income and alternative asset management businesses of Lehman Brothers Investment Management Division A new, independent investment management company to be called Neuberger Berman will be created comprising businesses that managed approximately $160 billion of assets as of 30 November 2008 LBPE s Investment Manager, NB Alternatives (formerly called the Private Fund Investments Group), is a part of this transaction, and the investment team is completely intact The Board of Directors expects this transaction to significantly benefit LBPE by providing the Investment Manager with a strong platform from which to continue managing the Company s high quality private equity portfolio LBPE will continue to be managed by the same experienced management team LBPE s Investment Manager remains committed to the goal of creating long term value for our shareholders Management will control Neuberger Berman with a 51% interest while Lehman Brothers Holdings Inc. will retain a 49% stake Final Bankruptcy Court approval occurred on 22 December 2008 and closing is expected in Q The Management bid was selected as the winner in a Bankruptcy Court auction held on 3 December 2008, topping a previous bid from the private equity firms of Bain Capital and Hellman & Friedman that was announced in September and was used to start the auction process 1

5 LBPE Name Change In conjunction with the Management acquisition, LBPE intends to change its name and ticker symbol to reflect the new name of the Investment Manager The name change and re-branding of LBPE is expected to occur during Q We believe that the name Lehman Brothers has caused some of the selling pressure on LBPE shares due to name recognition in connection with the Lehman Brothers bankruptcy filings We believe the name change will help symbolize a transition away from the Lehman Brothers affiliation, and we hope it will serve to alleviate any ongoing confusion regarding any connection to Lehman Brothers 2

6 Overview of Neuberger Berman Premier global investment management firm dedicated to providing investment products, advice and research $160 billion in total assets under management Over 2,000 employees globally (U.S., Europe and Asia) Research-driven and quantitative approach to portfolio management and alpha generation Industry leading, sophisticated risk management Neuberger Berman Overview * Traditional Non-Traditional Equity Fixed Income NB Alternatives Hedge Funds U.S. Equity Cash & Short Duration Private Equity Fund of Funds Equity International/Global Equity Tax-exempt Co-Investments Fixed Income Quantitative Investment Grade Secondaries Quantitative Non-Investment Grade Hedge Fund of Funds Commodities Specialty Alternative Investment Solutions Capital Analytics * As of December 15, Information shown reflects the individuals, account, assets and/or product lines of select registered investment advisers, including Neuberger Berman, LLC, Neuberger Berman Management LLC, Lehman Brothers Asset Management LLC, Lehman Brothers Asset Management Inc., Lehman Brothers Alternative Investment Management Inc., Lehman Brothers Alternative Investment Management LLC, Lehman Brothers Private Equity Advisers L.L.C., Lehman Brothers Private Fund Advisers, LP and select other affiliated investment advisers, that will be part of the pending management acquisition of a majority interest in Neuberger Berman and select fixed income and alternative asset management businesses of Lehman Brothers Inc. s Investment Management Division. Please see the disclosures at the end of the material for important information regarding the pending acquisition transaction and associated marketing names. 3

7 Overview of NB Alternatives Private Equity Fully integrated approach to private equity fund of funds investing NB Alternatives Private Equity Primary Investments Secondary Investments Co-Investments Over $11 billion of commitments managed Over 200 professionals Over 20 years as a private equity investor Global presence with offices in U.S., Europe and Asia Serving over 150 institutional investors Our Competitive Advantages Strong Track Record Experienced Team Proven Access and Sourcing Tactical Portfolio Construction Client Customized Portfolios Secondaries and Co-investments Industry Leading Reporting Integrated Alternative Strategies 4

8 Overview of NB Alternatives Private Equity NB Alternatives investment team Investment Team 53 Professionals Led by 10 member Fund of Funds Investment Committee, with over 190 years of collective private equity experience Experienced team of senior professionals with diverse backgrounds Investment management Direct private equity investing Corporate finance Venture-backed companies Legal, tax and structuring Investor Services 148 Professionals CPAs, accountants, analysts, computer programmers and other professionals Extensive proprietary private equity systems and database Sophisticated investor servicing capabilities Fund accounting and reporting Consolidated performance analysis Risk management services Transaction management Focused on three disciplines Fund of Funds Secondary Investments Co-Investments 5

9 Overview of NB Alternatives Private Equity NB Alternatives commitments under management grew to $11 billion by the end of 2008 ($ in billions) $12.0 Five-Year Growth in Commitments $0.5 $10.0 $1.6 $8.0 $6.0 $0.5 $1.6 $0.8 $2.6 $4.0 $1.6 $2.0 $0.8 $0.8 $5.1 $6.2 $2.0 $2.6 $2.6 $ Fund of Funds Secondaries Co-investments LBPE 6

10 Q Preliminary Performance Update

11 LBPE Financial Performance Update On a preliminary basis, LBPE s NAV per share was $9.41 at 31 December 2008 ($ in millions, except per share values) 31 December 2008 (Unaudited Monthly) 30 November 2008 (Unaudited Monthly) 31 October 2008 (Unaudited Monthly) Fund Investments $409.1 $402.8 $409.2 Direct Co-investments $100.7 $100.1 $109.5 Total Private Equity Investments $509.9 $502.8 $518.7 Private Equity Investment Level 103% 102% 100% Cash and Cash Equivalents $139.2 $147.4 $155.5 Net Other Assets (Liabilities) ($155.1) ($155.4) ($155.5) Net Asset Value $493.9 $494.9 $518.7 Net Asset Value per Share $9.41 $9.27 $ Portfolio Highlights Private equity investment level increased to 103% Funded capital calls and co-investments of approximately $187 million Received distributions of approximately $46 million $151 million drawn down under the 7-year $250 million credit facility 40% over-commitment level Over 100% of our unfunded commitments are backstopped by cash and the available credit facility Note: As of 31 December

12 LBPE 2008 Performance NAV per share development based on preliminary estimates as reported in the December 2008 monthly report: $12.00 $11.50 $11.00 $10.50 $10.37 $0.15 $10.00 $9.50 ($0.23) $0.09 $0.01 $0.19 $9.41 $9.00 ($0.92) ($0.25) $8.50 $8.00 $7.50 $7.00 Net Asset Value Per Share 31 December 2007 Private Equity Net Realized Gains (Losses) Net Unrealized Change in Privately Held PE Investments Net Unrealized Change in Credit Related & Public PE Investments Interest and Dividends, including Mezzanine Foreign Exchange Adjustments Operating Expenses & Other Accretive Share Repurchases Net Asset Value Per Share 31 December 2008 Note: As of 31 December

13 Investment Activity Since IPO Approximately 69% of LBPE s private equity NAV can be attributed to capital contributions made since our IPO in July 2007 ($ in millions) $600 $500 $353 million deployed since IPO in July 2007 $186.9 $509.9 $400 $166.1 $300 $257.1 $200 ($69.4) ($30.8) $100 $0 Initial Portfolio Private Equity NAV Less: Distributions Since IPO (Primarily from Initial Portfolio) Less: Valuation Adjustments July to December 2007 Contributions 2008 Contributions 31 December 2008 Private Equity NAV 9

14 Capital Deployment Since 30 June 2008 Over half of the capital invested in the second half of 2008 was directed to special situations / distressed funds ($ in millions) Capital Deployment Since 30 June 2008 $30 $25 $20 $0.3 $18.8 $1.5 Total Drawdowns Buyout Funds $37.4 Special Situations Funds 51.6 Growth / Venture 4.9 Total $94.0 $15 $0.9 $14.8 $2.7 $10 $1.3 $5 $10.4 $5.1 $10.2 $8.3 $0.2 $0.7 $5.9 $4.3 $0 $4.1 $2.7 $1.7 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Buyout Special Situations Growth / Venture 10

15 LBPE Portfolio Diversification Diversification based on the fair value of private equity investments at 31 Dec. 2008: 1 Private Equity Asset Class Vintage Year Buyout Coinvest 19% % % Buyout Funds 52% Secondary Purchases 2% Special Sit Funds 21% Special Sit Coinvest 2% Growth / Venture 4% % 2000 & Earlier 1% % % % % % Geography Industry North America 75% Europe 20% Asia / Rest of World 5% Diversified / Undisclosed / Other 19% Energy / Utilities 24% Transport. 2% Business Services 5% Industrials 10% Financial Services 10% Technology / IT 9% Consumer / Retail 8% Comm. / Media Healthcare 6% 7% 11

16 LBPE Vintage Year Diversification 31% of LBPE s vintage year 2007 portfolio, and over 90% of the 2008 portfolio, is dedicated to special situations / distressed investments ($ in millions) Vintage Year <= Buyout Funds $59.0 $48.8 $116.8 $41.9 $0.1 Buyout Co-investments Special Situations Funds Special Situations Co-investments Growth / Venture Secondary Purchases Total $64.4 $63.3 $168.8 $166.9 $46.4 Vintage Year <= Buyout Funds 92% 77% 69% 25% 0% Buyout Co-investments 0% 1% 17% 39% 7% Special Situations Funds 0% 4% 10% 31% 73% Special Situations Co-investments 0% 0% 0% 0% 18% Growth / Venture 5% 7% 3% 5% 3% Secondary Purchases 3% 11% 0% 0% 0% Total 100% 100% 100% 100% 100% Note: As of 31 December Certain figures may not total due to rounding. 12

17 Active Special Situations Portfolio Our special situations / distressed portfolio is comprised of funds with a variety of investment strategies Strategy Description Est. 31-Dec NAV 31-Dec Unfunded Fund Managers Undervalued Securities Trading stressed and distressed securities $59 mm $9 mm Financial Restructurings Restructuring bad balance sheets of good companies or assets $28 mm $5 mm Operational Turnarounds Turning around underperforming businesses $8 mm $21 mm Diversified / Other Special Situations Diversified distressed investments and mezzanine investments $17 mm $3 mm Lehman Crossroads Fund XVII & XVIII Total $113 mm $38 mm Note: As of 31 December Certain figures may not total due to rounding. 13

18 Distressed Debt Transaction: Illustrative Case Study The following provides an example of investment opportunities that are currently being pursued by distressed debt firms Scenario: Company X is a company that has exhibited steady growth through all economic cycles In early 2007, Company X was acquired for over $1 billion by Acquisition Sponsor A The buyout financing included $450 million of senior debt and $300 million of mezzanine debt However, due to the current credit crisis, Company X s senior debt now trades at less than 60 cents on the dollar The current market value of the debt implies senior leverage of less than 2.2x LTM EBITDA Company X continues to have a strong liquidity position with steady growth and over 75% market share in its industry Investment Opportunity: Distressed Debt Sponsor Z has an opportunity to purchase Company X s senior debt from a distressed financial seller at an attractive valuation (57% of face value) Risk levels are much lower than traditional LBO equity because the debt is senior to equity and provides a strong current yield Potential unlevered returns of 20%+ IRR and 2.2x multiple of invested capital at five years to par 40%+ IRR and 1.9x multiple of invested capital at two years to par In addition, Distressed Debt Sponsor Z has opportunities for additional returns by trading the debt for equity or by gaining control of Company X 14

19 Market Performance

20 LBPE Share Price and NAV per Share On a preliminary basis, LBPE s NAV per share was $9.41 at 31 December 2008 Price $12.00 $11.00 $10.00 $9.00 $8.00 $7.00 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 Volume (000's) Source: NYSE Euronext. Past performance is not indicative of future results. LTM Share Price Performance and Net Asset Value Per Share 31-Dec March June Sept Jan-09 Daily Trading Volume Net Asset Value per Share Price per Share $9.41 $2.55 (72.9% Discount) 15

21 Private Equity Discount to NAV per Share We believe that LBPE shares are significantly undervalued. After subtracting the balance of our net cash, public equity securities and credit related fund investments at fair value, our shares are currently trading at an implied discount of 88% to the fair value of our other privately-held investments Summary of Net Asset Value Per Share 31 December 2008 Net Asset Value per Share $9.41 Minus: Net Cash, Public Equity Securities and Credit Related Fund Investments Per Share ($1.62) Private Investments per Share $7.79 Closing Share Price (23-January-09) $2.55 Minus: Net Cash, Public Equity Securities and Credit Related Fund Investments Per Share ($1.62) Market Value of Private Investments per Share $0.93 Private Investments Premium (Discount) to Private Equity NAV (88.1%) Investors have the opportunity to benefit from both NAV appreciation and reduction / elimination of the NAV discount Note: Net cash balance = cash and cash equivalents minus total liabilities. 16

22 LBPE Action Plan & Value Proposition

23 LBPE s Solid Financial Position LBPE has a healthy balance sheet and a conservative capital structure with over 100% of unfunded commitments backstopped by cash and the undrawn credit facility As of 31 December 2008, our private equity exposure and capital position consisted of the following: Total private equity exposure of $691.5 million, including unfunded private equity commitments of $181.7 million Total capital resources of $237.8 million, including cash and cash equivalents plus the undrawn credit facility Over-commitment level of 40% Excess capital resources over unfunded commitments of $56.1 million ($ in millions) 31 December 2008 Net Asset Value $493.9 Total Private Equity Investments $509.9 Private Equity Investment Level 103% Unfunded Private Equity Commitments $181.7 Total Private Equity Exposure $691.5 Over-commitment Level 40% Cash and Cash Equivalents $139.2 Undrawn Credit Facility $98.6 Total Capital Resources $237.8 Excess Capital Resources Over Unfunded Commitments $56.1 Note: As of 31 December

24 LBPE s Solid Financial Position LBPE continues to have access to its favorable credit facility LBPE has a revolving credit facility with The Bank of Scotland for up to $250 million with a term expiring in August 2014 Borrowings under the credit facility bear interest at LIBOR plus 1.35% per annum The key financial covenant is a maximum debt to value ratio of 50% As of 31 December 2008, LBPE has drawn down $151 million under the credit facility, with the proceeds held at JPMorgan or in U.S. Treasury bills In October 2008, LBPE and The Bank of Scotland agreed to amend certain terms of the credit facility The amendment removed a covenant stating that the Investment Manager be majority owned by Lehman Brothers and replaced it with a covenant that provides for a key man provision on certain investment professionals Note: As of 31 December

25 LBPE s Actions Taken to Date We have taken steps to enhance and strengthen the liquidity of LBPE shares We continued to deliver on our market leading and timely investor reporting We continued to pursue a positive outreach program with investors and research analysts We initiated a liquidity enhancement program in July 2008 Since the inception of the program, LBPE has repurchased over 1.7 million shares, or 3.2% of the total issued Class A ordinary shares During the month of December, LBPE repurchased 881,264 shares, or 1.6% of the total Class A ordinary shares in issue, at a weighted average repurchase price of $1.51 per share Share repurchases through 31 December 2008 have been accretive to NAV per share by $0.19 In January 2009, we announced an amendment to the liquidity enhancement agreement that increased the maximum number of shares which may be repurchased to 7.5% of the total Class A ordinary shares in issue The amended agreement will be in force until 15 April 2009 subject to extension at the election of LBPE Liquidity Enhancement Program Activity Month # of Shares Repurchased Weighted Average Repurchase Price per Share July ,349 $7.93 August ,617 $7.82 September ,458 $6.74 October ,493 $4.72 November ,956 $2.41 December ,264 $1.51 Total 1,712,137 $3.38 Note: As of 31 December

26 LBPE s Action Plan We are considering options to address current market events and stand ready to take appropriate actions As long as current market conditions prevail, we intend to maintain a conservative capital structure with a combination of cash and the undrawn credit facility exceeding the amount of unfunded private equity commitments While a number of attractive private equity investments exist in the market, few are more compelling in our view than purchasing LBPE shares at current price levels LBPE does not presently intend to make new private equity commitments while these market circumstances persist We plan on changing the name and ticker symbol of LBPE during Q to reflect the new name of the Investment Manager and the fact that we will no longer be affiliated with Lehman Brothers In addition, we continue to evaluate other courses of action to counteract what we believe is an unwarranted discount to NAV per share 20

27 LBPE s Timely Valuation Process LBPE s reported valuations account for all available information, providing a timely view of the private equity portfolio LBPE s Investment Manager proactively evaluates the investment portfolio to re-value the Company s investments using all available information In the December 2008 monthly report, LBPE s private equity investments were re-valued as of 31 December 2008 or 30 September % of net asset value was held in credit related fund investments and publicly traded securities that were re-valued as of 31 December % of net asset value was held in private equity funds valued using information through 31 December % of net asset value was held in private equity funds valued using information through 30 September % of net asset value was held in private co-investments that are evaluated on a rolling monthly basis or as necessary NAV by Date of Most Recent Available Information Private Fund Investments (30-Sep-08) 55% Note: As of 31 December Private Fund Investments (31-Dec-08) 3% Public Investments (31-Dec-08) 6% Private Coinvestments (Rolling Basis) 21% Credit Related (31-Dec-08) 15% Private - Held Above Cost 38% NAV by Valuation Type Public Valuation 6% Mark-to- Market Credit 15% Private - Held At Cost 17% Private - Held Below Cost 24% 21

28 LBPE s Timely Valuation Process LBPE s Investment Manager is re-doubling its efforts to provide a fair value of the private equity investment portfolio for the 2008 annual report LBPE s Investment Manager is currently employing its high quality valuation procedures to account for year end 2008 valuation adjustments We believe the Investment Manager s proactive approach to valuations is particularly appropriate given the recent market volatility and sharp decline in public asset valuations in the latter half of 2008 LBPE s Investment Manager is reaching out to fund sponsors and collecting all available information to re-value the Company s private equity investments at year end While this valuation process will extend LBPE s reporting timeline into late February, LBPE will continue to be one of the first listed private equity companies to issue its 2008 annual report We believe this approach is the prudent course of action in order to maintain our industry leading valuation processes 22

29 LBPE Value Proposition We continue to believe that LBPE offers a compelling investment opportunity Experienced Investment Manager with a strong long-term track record High quality private equity portfolio Top-tier managers with proven success Robust allocation to special situations / distressed High quality co-investment program with proprietary access Timely and transparent valuations and reporting Conservative capital structure Over 100% of our unfunded private equity commitments are backstopped by cash and cash equivalents and the undrawn credit facility Over-commitment level of 40% $139 million of cash and cash equivalents and $99 million undrawn on our credit facility Note: As of 31 December

30 Appendices

31 Who We Are Our investment objective is to produce attractive returns on our capital from private equity investments while managing investment risk through portfolio diversification across asset class, vintage year, geography, industry and sponsor LBPE is a closed-end investment company which invests in an actively managed portfolio of private equity fund investments managed by leading sponsors and direct co-investments alongside leading sponsors LBPE is managed by NB Alternatives (formerly the Private Fund Investments Group) Broad scale, experience and access Strong long-term track record Deep team of experienced professionals dedicated to fund of funds, secondary investments, coinvestments and investor services Global presence with offices in New York, Dallas, London and Hong Kong Investor friendly terms 24

32 High Quality Private Equity Portfolio The private equity funds in our portfolio are managed by leading private equity firms Quartile Analysis of Prior Funds Managed 2 We believe that the private equity sponsors who have been successful investors in the past frequently continue to outperform their peers The chart on the right includes the performance of all prior funds managed by managers currently in the LBPE portfolio Of the prior funds managed by these sponsors, 88% were above median, including 64% that were 1st quartile 1st Quartile 64% 2nd Quartile 24% 3rd Quartile 11% 4th Quartile 1% Note: As of 31 December

33 LBPE Portfolio Diversification Diversification based on total private equity exposure at 31 December 2008: 1 Private Equity Asset Class Vintage Year Buyout Funds 54% Buyout Coinvest 15% Special Sit Funds 21% % % % Secondary Purchases 1% Growth / Venture 8% Special Sit Coinvest 1% 2000 & Earlier 1% % % % % % Geography Industry North America 71% Europe 24% Asia / Rest of World 5% Energy / Utilities 21% Diversified / Undisclosed / Other 14% Transport. 3% Business Services 6% Industrials 12% Healthcare 7% Financial Services 11% Technology / IT 9% Consumer / Retail 9% Comm. / Media 8% 26

34 Private Equity Investment Portfolio The following is a list of our private equity investments as of 31 December 2008 Fund Investments Asset Class Fund Investments Asset Class AIG Highstar Capital II Buyout Sankaty Credit Opportunities III Special Situations American Capital Equity II Buyout Summit Partners Europe Private Equity Fund Growth Equity Apollo Investment Fund V Buyout Sun Capital Partners V Special Situations Aquiline Financial Services Fund Buyout Terra Firma Capital Partners III Buyout ArcLight Energy Partners Fund IV Buyout Thomas H. Lee Equity Fund VI Buyout Avista Capital Partners Buyout Trident IV Buyout Bertram Growth Capital I Growth Equity Warburg Pincus Private Equity VIII Buyout Carlyle Europe Partners II Buyout Wayzata Opportunities Fund II Special Situations Centerbridge Credit Partners Special Situations Welsh, Carson, Anderson & Stowe X Buyout Clayton, Dubilier & Rice Fund VII Buyout Clessidra Capital Partners Buyout Corsair III Financial Services Capital Partners Buyout Direct Co-investments Asset Class CVI Global Value Fund Special Situations Avaya, Inc. Buyout Doughty Hanson & Co IV Buyout Dresser Holdings, Inc. Buyout First Reserve Fund XI Buyout Edgen Murray Corporation Buyout Investitori Associati III Buyout Energy Future Holdings Corp. (f/k/a TXU Corp.) Buyout J.C. Flowers II Buyout First Data Corporation Buyout KKR 2006 Fund Buyout Firth Rixson, plc (Equity) Buyout KKR Millennium Fund Buyout Firth Rixson, plc (Mezzanine) Special Situations Lehman Crossroads Fund XVII Diversified Freescale Semiconductor, Inc. Buyout Lehman Crossroads Fund XVIII Large-cap Buyout Buyout GazTransport & Technigaz S.A.S. Buyout Lehman Crossroads Fund XVIII Mid-cap Buyout Buyout Group Ark Insurance Holdings Limited Buyout Lehman Crossroads Fund XVIII Special Situations Special Situations Kyobo Life Insurance Co., Ltd. Buyout Lehman Crossroads Fund XVIII Venture Capital Venture / Growth Linn Energy, LLC Buyout Lightyear Fund II Buyout MaRI Holdings Limited Buyout Madison Dearborn Capital Partners V Buyout Press Ganey Associates, Inc. Buyout OCM Opportunities Fund VIIb Special Situations Sabre Holdings Corporation Buyout OCM Principal Opportunities Fund IV Buyout Seventh Generation, Inc. Growth Equity Platinum Equity Capital Partners II Special Situations TPF Genco Holdings, LLC Buyout Prospect Harbor Credit Partners Special Situations Unión Radio Buyout 27

35 Largest Underlying Investments At 31 December 2008, the estimated fair value of our twenty largest portfolio company investments was approximately $155 million, representing 31% of total net asset value. No single company accounted for more than 5% of total net asset value. Listed below are the twenty largest portfolio company investments in alphabetical order Company Name Company Status Company Name Company Status Affinion Group Holdings Inc Privately-Held HD Supply Privately-Held Avaya, Inc. Privately-Held Linn Energy, LLC Publicly-Traded Dresser Holdings, Inc. Privately-Held Nielson Company Privately-Held Edgen Murray Corporation Privately-Held Nycomed Holdings Privately-Held EMI Privately-Held Power Holdings Privately-Held Energy Future Holdings (f/k/a TXU Corp.) Privately-Held Sabre Holdings Corporation Privately-Held First Data Corporation Privately-Held ServiceMaster Company Privately-Held Firth Rixson, plc Privately-Held TPF Genco Holdings, LLC Privately-Held Freescale Semiconductor, Inc. Privately-Held U.S. Foodservice Inc Privately-Held Group Ark Insurance Holdings Limited Privately-Held Unity Media Privately-Held Approximately $32 million of our private equity portfolio was comprised of companies with publiclytraded securities as of 31 December 2008, representing 6% of total net asset value Note: As of 31 December 2008, our ten largest portfolio company investments totaled approximately $112 million in fair value, representing 23% of total net asset value. 28

36 Endnotes 1. The diversification analysis by asset class and investment type is based on the net asset value of underlying fund investments and co-investments (including unfunded commitments on a total private equity exposure basis). The diversification analysis by vintage year, geography and industry is based on the diversification of underlying portfolio company investments at fair value as estimated by the Investment Manager. The vintage year diversification also includes an allocation of net cash flows and valuation adjustments made since financial statements were last received from the investment sponsor. Determinations regarding asset class, geography and industry, as well as the allocation of unfunded commitments on a total private equity exposure basis, also represent the Investment Manager s estimates. Accordingly, the actual diversification of our investment portfolio and the diversification of our investment portfolio on an ongoing basis may vary from the foregoing information. 2. Past performance is not indicative of future results. The performance quartile information was prepared by the Investment Manager based on publicly available information and on information received from the general partners of the underlying private equity funds, which the Investment Manager has compared to information compiled by Thomson Venture Economics. The percentages are based on the net internal rate of return of the prior private equity funds with investment strategies similar to those of the sponsors of the direct fund investments in the investment portfolio. The prior funds of one sponsor were not included in the information presented because prior fund performance information was not available. In addition, two prior private equity funds managed by two sponsors were not included in the information presented because sufficient benchmark data was unavailable. Thomson Venture Economics reports on a sample of private equity funds investing in various asset classes (such as buyouts and mezzanine debt, special situations and others) that commenced operations in a given year to serve as the investment benchmark sample for that vintage year. Thomson Venture Economics ranks vintage year funds by four quartiles or tiers. The Investment Manager derived the percentages shown in the chart by comparing the most recent available net realized and unrealized internal rates of return of the prior private equity funds managed by the sponsors of the direct fund investments contained in the investment portfolio against what the Investment Manager believed were the most applicable cumulative vintage year performance benchmarks provided by Thomson Venture Economics. In the Investment Manager s analysis, special situation funds were compared against all private equity funds. The Investment Manager invested in some, but not all, of such prior funds. The performance of such prior funds has not been independently verified. 29

37 Forward-Looking Statements This report contains certain forward-looking statements. Forward-looking statements speak only as of the date of the document in which they are made and relate to expectations, beliefs, projections (including anticipated economic performance and financial condition), future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts and are subject to risks and uncertainties including, but not limited to, statements as to: our future operating results; our business prospects and the prospects of our investments; the impact of investments that we expect to make; the dependence of our future success on the general economy and its impact on the industries in which we invest; the ability of our investments to achieve their objectives; differences between our investment objective and the investment objectives of the private equity funds in which we invest; the rate at which we deploy our capital in private equity investments, co-investments and opportunistic investments; our expected financings and investments; the continuation of the Investment Manager as our service provider and the continued affiliation with the Investment Manager of its key investment professionals; the adequacy of our cash resources and working capital; and the timing of cash flows, if any, from the operations of our underlying private equity funds and our underlying portfolio companies. In some cases, you can identify forward-looking statements by terms such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "potential," "should," "will," and "would," or the negative of those terms or other comparable terminology. The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. These beliefs, assumptions and expectations are subject to risks and uncertainties and can change as a result of many possible events or factors, not all of which are known to us or are within our control. If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements. Factors and events that could cause our business, financial condition, liquidity and results of operations to vary materially include, among other things, general economic conditions, securities market conditions, private equity market conditions, the level and volatility of interest rates and equity prices, competitive conditions, liquidity of global markets, international and regional political conditions, regulatory and legislative developments, monetary and fiscal policy, investor sentiment, availability and cost of capital, technological changes and events, outcome of legal proceedings, changes in currency values, inflation, credit ratings and the size, volume and timing of transactions, as well as other risks described elsewhere in this report. The foregoing is not a comprehensive list of the risks and uncertainties to which we are subject. Except as required by applicable law, we undertake no obligation to update or revise any forward-looking statements to reflect any change in our expectations, or any changes in events, conditions or circumstances on which the forward-looking statement is based. In light of these risks, uncertainties and assumptions, the events described by our forwardlooking statements might not occur. We qualify any and all of our forward-looking statements by these cautionary factors. 30

38 Legal Disclaimer This material is for informational purposes only and should not be regarded as an offer to sell or as a solicitation of an offer to buy any security or other financial product or service mentioned in it. Lehman Brothers Private Fund Advisers, LP and its affiliated companies (collectively, LBPFA") is not soliciting any action based upon this material. This material is based upon information or sources that we believe to be reliable, but we do not represent or guarantee that it is accurate or complete, and it should not be relied upon as such. Opinions expressed herein are made as of the date of this material and are subject to change without notice. Past performance is not indicative of future results, and no representation or warranty, express or implied is made regarding future performance. The products mentioned in this document may not be eligible for sale in some states or countries. LBPFA is not providing investment advice through this material. Securities, financial instruments, products or strategies mentioned in this material may not be suitable for all investors. Their value and the income they produce may fluctuate and/or be adversely affected by exchange rates, interest rates or other factors. This material does not take into account individual client circumstances, objectives, or needs and are not intended as recommendations to particular clients. In reaching a determination as to the appropriateness of any proposed transaction or strategy, clients should undertake a thorough independent review of the legal, regulatory, credit, tax, accounting and economic consequences of such transaction in relation to their particular circumstances and make their own independent decisions. Debt securities may be subject to call features or other redemption features, such as sinking funds, and may be redeemed in whole or in part before maturity. These occurrences may affect yield. Investing in foreign securities and foreign currency denominated securities presents certain risks, such as currency fluctuations and political and economic change, that could have an adverse effect on the value or price of or income derived from, the investment. LBPFA and/or its affiliated companies may make a market or deal as principal in the securities mentioned in this document or in options or other derivatives based thereon. LBPFA and/or its affiliated companies may from time to time provide investment banking, credit, and other financial services to any company or issuer mentioned in this material or solicit such business from such company or issuer. In addition, LBPFA, its affiliated companies, shareholders, directors, officers and/or employees (including persons involved in the preparation or issuance of this material), may from time to time have long or short positions in such securities or in options, futures, or other derivative instruments based thereon. One or more directors, officers, and/or employees of LBPFA or its affiliated companies may be a director of the issuer of the securities mentioned in this document. LBPFA or its affiliated companies may have managed or comanaged a public offering of securities for any issuer mentioned in this document within the last three years Lehman Brothers Private Fund Advisers L.L.C. All rights reserved. LBPE is registered with the Dutch Authority for the Financial Markets as a collective investment scheme which may offer participations in The Netherlands pursuant to article 2:66 of the Financial Markets Supervision Act (Wet op het financieel toezicht). All investments are subject to risk. Past performance is no guarantee of future returns. Prospective investors are advised to seek expert legal, financial, tax and other professional advice before making any investment decision. The value of investments may fluctuate. Results achieved in the past are no guarantee of future results. 31