What You Need to Know About Capital Formation Wednesday, May 23 9:45 a.m. 10:45 a.m.

What You Need to Know About Capital Formation Wednesday, May 23 9:45 a.m. 10:45 a.m. During this session, panelists discuss the outlook for the capital markets and the securities industry. Moderator: Paul Mathews Vice President and Director FINRA Corporate Financing Panelists: Steven Brown Managing Director and Global Head, Investment Banking and Capital Markets Legal Coverage Morgan Stanley Kevin Gannon Managing Director and President Robert A Stanger & Co. Gary Goldsholle Deputy Director, Trading and Markets U.S. Securities and Exchange Commission (SEC) 2018 Financial Industry Regulatory Authority, Inc. All rights reserved. 1

What You Need to Know About Capital Formation Panelist Bios: Moderator: Paul Mathews is Vice President and Director of FINRA s Corporate Financing Department. The Department administers FINRA rules that regulate public and private securities offerings. The Department s regulatory functions include reviewing offerings for compliance with FINRA and SEC rules, conducting investigations, and providing interpretive assistance and policy support. Mr. Mathews has been active in numerous FINRA regulatory initiatives addressing broker-dealer obligations in public and private offerings, including the development of new rules, modernization of existing requirements and the publication of guidance on various issues. Mr. Mathews is a staff liaison to FINRA s Corporate Financing Committee and serves on various FINRA task forces and internal committees. He was previously Associate Director and Enforcement Liaison for the Department, in which capacity he managed investigations staff and targeted a variety of problems through sweeps and examinations. During his career with FINRA he has worked on international regulatory initiatives, examination procedures and systems, new product regulation, arbitrations, statutory disqualifications and licensing/registration. He holds a BA in Economics from the University of Virginia, an MBA from Virginia Tech, and a regulatory professional designation from Wharton. Panelists: Steven L. Brown is Managing Director & Global Head of Investment Banking and Capital Markets Legal Coverage at Morgan Stanley, where he has been a member of the law division since 1994. Prior to his current role, Mr. Brown was the global research general counsel and an investment banking coverage lawyer advising on equity and debt capital markets, mergers and acquisitions, leveraged finance and private equity in Morgan Stanley's New York and London offices. Prior to joining Morgan Stanley, he was an associate at the law firm Sullivan & Cromwell. Mr. Brown also clerked for Honorable Andrew A. Caffrey, U.S. District Court, District of Massachusetts (1990-1991). Mr. Brown received his Juris Doctorate in 1990 from Boston College Law School, magna cum laude, where he was executive editor of the Boston College Law Review. Kevin T. Gannon serves as Managing Partner of Robert A. Stanger & Co., directing the firm's activities, including mergers and acquisitions, valuation, litigation support and advisory services. Mr. Gannon has been the lead or co-lead banker on real estate consolidation and mergers and acquisition transactions involving over $45 billion of real estate and management-company assets. Mr. Gannon has also been active in the analysis, evaluation and sale of corporate, trust and partnership investments in real estate, oil and gas, equipment leasing, agriculture, and bio-technology. Before joining Robert A. Stanger & Co., Inc. in 1983, Mr. Gannon was a Manager with Deloitte Haskins & Sells, an international accounting firm. Mr. Gannon is a 1978 graduate of Rutgers University, with a bachelor's degree in Accounting and Economics and is a member of Phi Beta Kappa. He is also a Certified Public Accountant and member of the American Institute of Certified Public Accountants. Mr. Gannon is a General Securities Principal (Series 24). He is registered with FINRA as a General Securities Representative (Series 7 and 63) and an Investment Banking Representative (Series 79). Gary Goldsholle is Senior Advisor to the Director of the Division of Trading and Markets at the Securities and Exchange Commission (SEC), where he helps lead the Division s FinTech and RegTech efforts, in areas such as cryptocurrencies, distributed ledger technologies and cybersecurity. From January 2015 until recently, Mr. Goldsholle served as Deputy Director of the Division, with responsibility for the offices of Chief Counsel, Market Supervision, and Clearance and Settlement. These offices play a critical role in the capital markets and cover a diverse range of topics, including market oversight, equity and fixed income market structure, regulation of exchanges, broker-dealers and clearing agencies, as well as legal and policy matters pertaining to broker-dealers and the operation of the securities markets. Prior to joining the SEC, Mr. Goldsholle served as General Counsel of the Municipal Securities Rulemaking Board (MSRB), where he oversaw all of its legal activities, including market regulation, professional qualifications, enforcement support and corporate governance. During his tenure as general counsel, Mr. Goldsholle was involved many high profile matters including the first-ever municipal advisor regulations, best execution and mark-up disclosure requirements, and streamlining and codifying regulations. Previously, Gary worked for over 15 years in FINRA s Office of General Counsel, most recently as Vice President and Associate General Counsel, with a broad portfolio of regulatory and policy matters including 2018 Financial Industry Regulatory Authority, Inc. All rights reserved. 2

corporate financing, derivatives and sales practice rules. He also worked in the Office of the Chief Counsel, Division of Trading and Markets at the Commodity Futures Trading Commission (CFTC). Mr. Goldsholle began his legal career as an associate at Steptoe & Johnson LLP. Mr. Goldsholle holds a Bachelor of Science degree, cum laude, from Duke University, with majors in computer science and economics, a general course certificate from the London School of Economics and Political Science, and a law degree from the University of Chicago Law School. 2018 Financial Industry Regulatory Authority, Inc. All rights reserved. 3

2018 FINRA Annual Conference May 21 23, 2018 Washington, DC What You Need to Know About Capital Formation

Panelists Moderator Paul Mathews, Vice President and Director, FINRA Corporate Financing Panelists Steven Brown, Managing Director and Global Head, Investment Banking and Capital Markets Legal Coverage, Morgan Stanley Kevin Gannon, Managing Director and President, Robert A Stanger & Co. Gary Goldsholle, Deputy Director, Trading and Markets, U.S. Securities and Exchange Commission (SEC) 1

I. Update on Capital Formation a) FINRA Notices 17-14 (Capital Formation) and 17-15 (Corporate Financing) b) Pending rule changes and initiatives c) What should you expect going forward? 2

II. IPOs and Registered Offerings a) Market Update and Outlook current trends in IPOs and corporate public offerings b) Direct Listings and Spotify is this the future? c) Other Legal Trends and Developments 3

IPO Filing Volume FINRA IPO Filings (includes Best Efforts) 50 45 40 35 30 25 20 15 10 5 0 Jan Feb March April May June July Aug Sep Oct Nov Dec 2016 7 32 28 19 26 16 16 25 18 20 29 31 2017 19 25 24 35 38 35 25 47 26 34 28 50 Total 267 386 4

FINRA IPO Filing Volume 1st Quarter Volume (includes Best Efforts) 45 40 35 30 25 20 15 10 5 0 Jan Feb March 2018 20 41 37 2017 19 25 24 5

Direct Listings and Spotify Is this the future? A direct listing of shares for public trading on a major exchange, without an underwritten initial public offering (IPO) The SEC approved amendments to NYSE Listed Company Manual, Section 102.01B, facilitating direct listings on the NYSE No capital raised for the issuer, and no issuer-coordinated secondary offering by existing shareholders No shares are underwritten / there are no underwriters The Designated Market Maker (DMM), acting pursuant to NYSE rules, is responsible for facilitating an orderly market for the shares, including the opening of the stock Shareholders may sell shares on a registered basis or pursuant to Rule 144 Similar disclosure requirements and SEC timeline compared to going public through an IPO Form S-1 for a domestic issuer or F-1 for an international issuer is filed and is reviewed by SEC Trading via direct listing commences after effectiveness of the registration statement Why direct list Broad shareholder base Primary capital is not required Provides public liquidity for existing shareholders 6

Other Legal Trends and Developments in the Capital Markets Confidential submission of SEC registration statements Confidential submission for IPO s (following applicability of JOBS Act to EGC s in 2012 and SEC policy update to non-egc s in mid-2017) Public filing required 15 days prior to IPO roadshow Confidential submission for follow-on/secondary offerings within one year of IPO (following applicability of SEC policy update to all registrants in mid-2017) May be used for initial submission only Public filing required 48 hours prior to requested time/date of effectiveness Dual class voting stock Historically adopted by founder-led or other similar issuers going public in the U.S. First IPO issuer in U.S. with no-vote class of stock in 2017 Index eligibility rules for issuers with dual class voting stock subsequently restricted (by S&P Dow Jones, FTSE Russell) in mid-2017 Hong Kong Stock Exchange listing rules permitting dual class shares ( weighted voting rights ) for HK listings became effective in April 2018 7

Legal Trends and Developments in the Equity Capital Markets (continued) Topical Due Diligence Themes for Market Participants Cybersecurity risk Issuer cybersecurity program, including breach notification/disclosure/remediation protocols Third party vendor (eg, law firm) cybersecurity Conduct risk Research MiFID II: Unbundling of execution and research payments Potential Forthcoming Regulatory Developments William Hinman Testimony (April 2018) on Oversight of the SEC s Division of Corporation Finance before Committee on Financial Services Subcommittee on Capital Markets, Securities and Investment Extension of testing-the-waters benefits to non-egc s Updates to disclosure requirements in Regulations S-K and S-X 8

III. Registered Alternatives a) State of the Market and Outlook b) Successful Programs and Distribution Strategies what is working and what is not? c) Emergence of Private Placements and Other trends 9

Public Market Lifecycle & NAV REITs, BDCs, & DPPs ROBERT A. STANGER & CO., INC. 10

$30,000 Public Market (1) Fundraising 2010 2017 ($ Millions) $25,000 $20,000 $24,597 $21,307 $15,000 $13,359 $14,179 $10,000 $5,000 $8,670 $10,136 $6,381 $5,289 $0 2010 2011 2012 2013 2014 2015 2016 2017 (1) Lifecycle & NAV REITs, BDCs and DPPs Source: The Stanger Market Pulse ROBERT A. STANGER & CO., INC. 11

Composition of Fundraising ($ Millions) 2016 2017 NAV REITs $1,423 BDCs $1,428 21% NAV REITs $2,148 BDCs $796 15% Lifecycle REITs $3,601 Other DPPs Lifecycle REITs Other DPPs ROBERT A. STANGER & CO., INC. 12

Composition of Fundraising ($ Millions) Q1 2017 Q1 2018 NAV REITs $710 BDCs $254 13% NAV REITs $712 Lifecycle REITs Other DPPs Lifecycle REITs Other DPPs BDCs $95 9% ROBERT A. STANGER & CO., INC. 13

Public Lifecycle & NAV REIT Industry Overview ROBERT A. STANGER & CO., INC. 14

State of the Industry 1. Continued Fundraising Slowdown 3. Fundraising Slowdown Continues Wirehouses Surpassing Contracting IBD Activity IBD Sales at 10-Year Low 2013 $19.6B 2016 $4.5B 2014 $15.6B 2017 $4.2B 2015 $10.0B 2. Factors Impacting Fundraising Adapting to 15-02 (Net Pricing) DOL Fiduciary Rule Uncertainty Weak Performance of Legacy Funds Bull Stock Market Full Year of 2017 4. Blackstone Dominating Market with NAV REIT 2017 Market Share 45% 2017 Wirehouse Sales 95% YTD Mar 2018 2018 Market Share 67% $1.873 Billion $632.8 Million ROBERT A. STANGER & CO., INC. 15

State of the Industry 5. Wirehouse Entry Prompts Growth of Daily NAV Deals Black Creek Blackstone Cole Griffin EA II Hines Jones Lang Nuveen Oak Tree Rodin RREEF Resource Starwood Pending Conversations: KBS Op REIT Others Evaluating 6. Showdown in Liquidity Events (AUM Preservation) 2013 $16.3B 2016 $1.5B 2014 $16.0B 2017 $3.3B 2015 $14.6B 2018 YTD $1.7B 8. Continued Emergence of Interval Funds Effective Funds 39 In Registration 27 Cumulative Gross Funds Raised YTD Mar 2018 (All) $2.3B $32.0B Net Funds Raised YTD Mar 2018 (All) $1.8B $21.3B NTR Sponsors with Funds 11 Gross Funds Raised YTD Mar 2018 (DPP) $500.5M $4.4B Net Funds Raised YTD Mar 2018 (DPP) $362.0M $3.7B Top NTR Sponsor (YTD) of Interval Funds Blackstone Griffin 7. Special Distributions/Tenders Carter Steadfast ARC Healthcare III ROBERT A. STANGER & CO., INC. 16

IV. Private Placements a) Private Capital Market Update and Outlook b) Regulatory Issues and Developments c) ICOs and Cryptocurrency Offerings 17

Private Capital Formation Total Capital Formation: 2010 2016 (registered and unregistered offerings) Source: SEC DERA Access to Capital and Market Liquidity (August 2017) Registered Unregistered Total $8.8 trillion $11.38 trillion $20.20 trillion Private Market Issuance of Debt and Equity Source: SEC DERA Access to Capital and Market Liquidity (August 2017) 1.16 1.87 1.68 2009 2015 2016 Total Issuance ($ trillion) 18

Regulation D Volume Regulation D and Regulation D/A (amended offerings) Source: SEC DERA Access to Capital and Market Liquidity (August 2017) Regulation D Rule 506 Capital Raise (September 23, 2013 December 31, 2016) Source: SEC DERA Access to Capital and Market Liquidity (August 2017) * Total amount sold includes incremental amounts reported to be raised in amended filings. Mean and median amounts sold calculated based on new Form D filings only. Median offer size calculated on offerings that report their amount of offering. **Regulation D category includes SEC Rules 504, 505, 506(b) and 506(c) Rule Form D Filings Amended Form Filings Total amount sold ($ billions) Mean amount sold ($ millions) Median amount sold ($ millions) 506(c) 5,474 874 $108 $13 $0.7 $2.4 506(b) 65,772 33,430 $4,122 $26 $1.6 $2.2 All 506 71,146 34,304 $4,230 $25 $1.5 $2.3 Regulation D** 73,556 50,491 $4,232 $24 $1.4 $2.0 Median offer size ($ millions) 19

Intermediary Participation in Reg D Offerings Brokers and finders in Rule 506 Offerings: September 23, 2013 - December 31, 2015 30% 25% 20% 15% 10% 5% 0% 28% 20% 18% 16% 17% All 506 506(b) Funds 506(b) Non-Funds 506(c) Funds 506 (c) Non Funds Percentage of Offerings That Used an Intermediary Source: SEC DERA Private Securities Offerings post-jobs Act (2016) Issuers from the real estate industry used a compensated intermediary the most (37%). Venture capital funds used a compensated intermediary the least (13%). Source: SEC DERA Capital Raising in the U.S.: An Analysis of the market for Unregistered Securities Offerings, 2009-2014 (October 2015) * Intermediary includes finders and broker-dealers. 20

FINRA s Private Placement Rules Rule 5122 applies to private placements issued and sold by a member firm or control entity ( Member Private Offerings or MPO ). Notice Filing Requirement Disclosure Requirement Use of Offering Proceeds Rule 5123 applies to retail private offerings sold by member firms. Notice Filing Requirement Most Common Problem Areas Filing Type Breakdown: 2012 - Present Program Statistics to date 845 5122 Total number of unique filings: 11,999 FINRA Rule 5122 offerings: 845 FINRA Rule 5123 offerings: 11,154 11,154 21

V. Wrap Up and Q & A 22

What You Need to Know About Capital Formation Wednesday, May 23 9:45 a.m. 10:45 a.m. Resources FINRA Resources FINRA Regulatory Notice 17-15, Corporate Financing, FINRA Requests Comment on Proposed Amendments to the FINRA Corporate Financing Rule (April 2017) www.finra.org/sites/default/files/notice_doc_file_ref/regulatory-notice-17-15.pdf FINRA Regulatory Notice 17-14, Capital Formation, FINRA Requests Comment on FINRA Rules Impacting Capital Formation (April 2017) www.finra.org/sites/default/files/notice_doc_file_ref/regulatory-notice-17-14.pdf FINRA Investor Alert Initial Coin Offerings: Know Before You Invest (August 2017) www.finra.org/investors/alerts/initial-coin-offerings-know-before-you-invest Securities and Exchange Commission Resources SEC Statement on Potentially Unlawful Online Platforms for Trading Digital Assets www.sec.gov/news/public-statement/enforcement-tm-statement-potentially-unlawful-onlineplatforms-trading SEC Chairman Clayton s Statement on Cryptocurrencies and Initial Coin Offerings www.sec.gov/news/public-statement/statement-clayton-2017-12-11 2018 Financial Industry Regulatory Authority, Inc. All rights reserved. 1