2018 ANNUAL INDUSTRY SURVEY

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1 2018 ANNUAL INDUSTRY SURVEY USA CAYMAN BVI UK GUERNSEY JERSEY LUXEMBOURG THE NETHERLANDS CYPRUS HONG KONG SINGAPORE MAURITIUS

2 WHILE 2017 PROVED YET ANOTHER TUMULTUOUS YEAR IN THE POLITICAL SPHERE, AND CYBERCRIME SPIKED TO UNPRECEDENTED LEVELS, THE GLOBAL ECONOMY HAS PROVEN MARKEDLY RESILIENT, PRIVATE EQUITY AND REAL ESTATE EVEN MORE SO. AS IS NOW AN ANNUAL TRADITION, AUGENTIUS HAS SURVEYED ITS CLIENTS FROM ACROSS THE GLOBE, MANAGERS AND INVESTORS ALIKE, TO TAKE THE TEMPERATURE OF THE INDUSTRY, PROVIDING INSIGHT INTO FIRMS PERSPECTIVES ON THE PAST YEAR, AND A SENSE OF THE CHALLENGES AND TRENDS TO EXPECT IN MARKET CLIMATE Despite all the political dislocations and volatility of the past two years, Augentius annual surveys have in general recorded a steady improvement in sentiment regarding market conditions over the period, in line with global economic growth. This year s findings broadly continue the trend. Two-thirds of American managers saw 2017 as an improvement on the 2017 AGAINST 2016 previous year, with only a small minority seeing conditions deteriorate. GPs in Asia were even more positive about 2017, a remarkable turnaround given that in our last annual survey nearly half of this group expected a fall in fortunes. The picture among UK & European managers is slightly more mixed, but still a substantial improvement on expectations in last year s survey. Looking ahead to 2018, the sentiment gap between Asia/ America and Europe becomes slightly more pronounced. Two-thirds of UK & European managers predict conditions will remain the same in 2018 a finding which may reflect the uncertainty over the future shape of the UK & European market in the midst of Brexit. By contrast, American and Asian GPs are more bullish. Although the industry overall is feeling positive, on the investor side, sentiment is a little more conservative but nevertheless, they reported no change to their appetite for investing in UKbased funds AGAINST 2017

3 CHALLENGES The difference in focus between UK & European and American/Asian managers can be seen in their answers to what has proven the most challenging for their firm in While American and Asian managers have been free to concern themselves with the core job, i.e. fundraising and finding investment opportunities, their UK & European counterparts have by contrast been far more occupied with market and tax regulation reflecting the ongoing regulatory churn within the EU. The increased focus on cybersecurity from American and UK & European GPs is heartening, although it may need to become even more of a focus given the ever-rising threat level and the relative unpreparedness of many firms. Among Asian managers the issue is given a relatively low priority level, something which will need to change soon. Global GPs challenges 17% LP communications 18% 27% 64% Cybersecurity 9% 4 19% Exit opportunities 45% 28% Fundraising 44% Investment opportunities 45% 57% 81% Market regulation 73% 4 47% Tax regulation 37% European GPs Asian GPs American GPs Global GPs challenges Global LPs vs challenges When asked about their biggest challenges in 2017 (and those anticipated for 2018), investors also put a high priority on regulatory issues (though this was largely from the UK & European LPs surveyed). However, investors are also concerned with valuation issues and, crucially, investor communications the latter of which, while showing up on the radar of American GPs, remains a very low priority for UK & European and Asian managers, suggesting a nagging disconnect. Cybersecurity Valuation issues GP/LP communications Liquidity issues Investment opportunities Tax regulation 38% 38% 13% 75% 75% POLITICS & POLICY BREXIT For all the sound and fury Brexit continues to cause in the news, very little is yet known about how it will affect the landscape of the UK & European market, and the extent to which (if any) the UK market will shift in its relationship to the continent. Unsurprisingly, American managers seem the least affected, with seven in 10 having seen no real impact on fundraising or investment (although a small minority has found fundraising impaired). Curiously Asian managers report more of an impact while around half have seen no effect, a significant minority have found investment harder as a result. As might be expected the biggest impact is seen with UK & European managers, with over half having found fundraising or investment trickier amid the negotiations. However, even among UK & European managers over four in 10 have seen no real effect, suggesting that the general uncertainty is allowing for a wait and see attitude before any big decisions are made. Market regulation No real effect Made investment harder Made fundraising easier Made fundraising harder 75% 63% Global GPs - the Brexit effect 42% 7 17% 36% 3% 9% 3% 39% 23% European GPs Asian GPs American GPs

4 Similarly, Brexit is yet to have a huge effect on investor sentiment and behaviour in particular, the UK seems little affected as a destination for investment. However, a minority of investors do report being more conscious of their managers strategies in light of possible Brexit outcomes. FINANCIAL POLICY SHIFTS Away from Europe s political woes, 2018 is also expected to see change on the financial policy front worldwide interest rates are expected to continue their steady climb back to normality in the Western world, and China s new capital control regime will continue to influence global allocations. When asked whether they expected policy changes to have a net positive or negative effect in general, around half of American and UK & European GPs expected no real effect, although in both cases a significant minority felt fundraising and investment could take a negative hit. Concern is higher in Asia, where over half feel changes will make investment harder. EU GPs TECHNOLOGY & CYBERSECURITY 2017 saw a notable spike in cybercrime, both in terms of the volume and scale of attacks. The private equity and real estate industry is increasingly realising that is it a prime target for attacks, and that outdated approaches to infrastructure and security are leaving it uniquely vulnerable. A large majority of UK & European and American managers upped their cybersecurity spending during the last year, and intend to do the same over However, the trend is worryingly reversed among managers in Asia. A slight majority of Asian GPs invested less in 2017 than the previous year, and an even larger majority intend to spend less in the year to come. Cybercrime, unfortunately, is a very global phenomenon. On the connected issue of technology spend in general, the pattern is similar, with the industry s recent technological renaissance continuing to be reflected in spend across American and UK & European managers and investors alike. Asian managers again, however, lag slightly behind on this front. European GPs Asian GPs American GPs Investment in cybersecurity in 2017* MORE 64% 36% 45% 73% 27% Investment in cybersecurity in % 36% 36% 64% 7 3 European GPs Asian GPs American GPs Technology spend in 2017* 58% 39% 3% 45% 6 33% 7% Technology spend in 2018 LESS MORE LESS MORE SAME LESS MORE SAME LESS 58% 39% 3% 36% 9% 63% 33% 3% Global LPs 62% 13% *compared to 2016

5 FUND ADMINISTRATION The survey shows that investors remain very keen on the aspects that third party administrators can add to the process. Fund administrators are seen to ensure value for money, and an overwhelming majority of investors value the independent oversight a third-party provides. Looking at what managers themselves value in a fund administrator, the picture varies across the regions, but strength of people remains a high priority for all, stressing the importance of the specialist, people-led approach. Technology also scores relatively highly, and in Asia the importance of local presence and services emerges as an important factor. LPs THINK THIRD PARTY ADMINISTRATORS... GPs VALUE THE FOLLOWING FUND ADMINISTRATION ASPECTS MOST... 73% 69% 7...are better at handling ad-hoc queries 61% 53% 47% 47%...provide better independent oversight...offer good value for money 37% 27% 27% 27% 36% 33% 31% 37% 27% 23% 19% 14% 7% Specialisation Global reach Local service Wide range of services Technology platform Strength of people AIFMD depositary services Compliance services European GPs Asian GPs American GPs LOOKING AHEAD On a global level the findings paint an upbeat picture of an industry coming off the back of a better-than-expected 2017, and looking forward to another year of opportunity. However it also highlights a number of potential headwinds and challenges, both immediate and on the horizon, that firms could do well to be wary of. In Europe especially, firms need to ensure they are effectively navigating regulation so they can get back to their core job, and those affected will need to keep a keen eye on Brexit negotiations as details of the future UK-EU relationship begin to crystallise. A disconnect between managers and their investors regarding predictions and outlook for the sector should also provoke some cautiousness ultimately, investor opinion matters. In 2018 more than ever it is crucially important that private equity and real estate funds communicate information with LPs regarding their investments in a regular, clear, detailed and timely manner. WE ARE ONE OF THE LARGEST INDEPENDENT PRIVATE EQUITY AND REAL ESTATE ADMINISTRATORS IN THE WORLD, WITH INTERNATIONAL OFFICES ACROSS FOUR CONTINENTS. AUGENTIUS IS THE ONLY TRULY GLOBAL PLAYER IN THE SECTOR. WE PRIDE OURSELVES ON OUR HERITAGE, THE KNOWLEDGE OF OUR PEOPLE AND THE OUTSTANDING SERVICE WE DELIVER TO OUR CLIENTS.

6 OUR AWARDS USA EMEA SINGAPORE HONG KONG Hugh Stacey 601 Lexington Avenue 26th Floor Suite B New York, NY J.P. Harrop 2 London Bridge London SE1 9RA Jimmy Leong 112 Robinson Road #03-03 Singapore Gary Chiu 6/F, Continental Place, 238 Des Voeux Road Central, Hong Kong T: T: T: T: