Presentation Global private equity trends Alex Scott Partner Pantheon Ventures
Global Private Equity Trends Alex Scott July 2018
Hitting the headlines IPOS ARE DWINDLING, SO IS THE NUMBER OF PUBLIC COMPANIES FLOOD OF CASH TRIGGERS BUYOUT BUBBLE FEARS 25
Private markets AUM is in excess of $5 trillion $ billion 6,000 5,000 4,000 3,791 3,917 4,228 4,553 5,106 2,133 3,000 2,000 1,000 0 3,279 1,985 3,035 1,857 2,758 1,611 1,688 2,234 2,256 2,454 1,341 1,241 1,036 1,671 766 835 880 1,214 517 2,973 2,180 2,229 2,370 2,568 333 701 737 751 852 943 1,468 1,421 1,574 1,722 1,794 1,938 124 147 158 195 236 1,154 577 590 593 657 708 881 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Private Equity AUM Other Private Assets AUM Source: Preqin May 2018, other private assets include private debt, real estate, natural resources and infrastructure. There is no guarantee that these market conditions will continue. 26
PE remains relatively small versus other asset classes globally Debt Markets 43.1% Developed Markets Public Equity 38.2% Emerging Markets Public Equity 7.1% Real Estate 7.0% Private Equity 3.4% Commodities & Real Goods 0.4% Source: Strategic Asset Allocation Over The Long Term, Calculating the Global Market Portfolio, October 1, 2016. 27
PE remains relatively small as a % of GDP Private equity as % of GDP 1.7% 1.3% 0.8% 0.8% 0.6% 0.4% 0.4% 0.3% 0.2% 0.2% 0.1% United States Canada Israel UK France Germany Korea India Italy Japan Brazil Public market cap as % of GDP 127% 92% 71% 63% 36% 30% 24% S&P 500 (US) FTSE 100 (UK) Nikkei 225 (Japan) CAC 40 (France) Shanghai Comp. (China) DAX 30 (Germany) Nifty 50 (India) Source: Invest Europe 2017 European Private Equity Activity; EMPEA Industry Statistics Year-end 2017, CVCA VC & PE Canadian Market Overview, Bloomberg; market caps based on latest available on 25 May 2018. GDP based on World Bank, Bloomberg or central bank/government data. There is no guarantee that these market conditions will continue. 28
Global fundraising back to record levels, driven by large buyouts $ billion 450 400 350 300 250 200 150 100 50 0 20 33 10 45 54 45 28 12 28 18 35 15 140 155 157 74 69 83 92 74 10 5 27 19 32 33 74 34 21 28 59 21 81 57 27 61 31 64 65 33 81 15 17 31 60 197 48 46 142 125 111 45 33 96 37 47 41 46 52 53 60 77 73 81 87 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 < $2 billion buyout > $2 billion buyout Growth Venture Other Source: Preqin, as of May 2018. Labels for Other includes balanced, special situations and turnaround funds. There is no guarantee that these market conditions will continue. 29
Dry powder continues to grow, dominated by large/mega funds $ billion 450 Mega & large Mid & small 2012 2017 5-year growth 5-year CAGR 400 350 Venture Distressed PE & mezzanine Mega & large buyout 220 408 86% 13% 300 250 Growth Mid & small buyout 138 221 60% 10% 200 Venture 101 178 76% 12% 150 100 Distressed PE & Mezz 106 156 46% 8% 50 Growth 71 125 77% 12% 0 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Total 635 1,087 71% 11% Source: Preqin, as of May 2018. There is no guarantee that these market conditions will continue. 30
Investment activity is robust $ billion 800 700 600 500 400 300 200 100 0 740 45 588 542 149 488 462 184 369 101 146 341 337 696 285 58 262 62 58 46 50 438 153 361 212 239 279 279 311 341 358 37 116 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Buyout Venture Source: Preqin Private Equity online, downloaded March 15, 2018, Buyout includes growth capital. There is no guarantee that these market conditions will continue. 31
Exits have come off the peak of 2015 U.S. buyout Europe buyout # of exits 1,600 1,400 # of exits 1,600 1,400 1,200 1,000 800 600 400 200 237 18 382 143 27 255 360 324 42 47 455 502 487 445 47 66 590 533 568 624 74 44 664 692 588 34 616 548 44 505 1,200 1,000 800 600 400 200 292 22 375 192 11 298 283 45 388 469 406 349 48 33 20 488 94 501 476 533 564 558 77 734 544 60 625 549 63 482 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Corporate Acquisition IPO Secondary Buyout Corporate Acquisition IPO Secondary Buyout Source: Pitchbook, U.S. PE Breakdown Q4 2017, European PE Breakdown 2017 4Q. There is no guarantee that these market conditions will continue. 32
PE industry has been net cash flow positive for seven years $ billion 600 500 400 300 200 100 0-100 -200 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Q3 2017 Called ($bn) Distributed ($bn) Net cashflows ($bn) Source: Preqin, as of May 2018. 2017 data includes only to September 2017. Past performance is not indicative of future results. Future returns are not guaranteed and a loss of principal may occur. 33
Valuations are being pushed up U.S. purchase price multiples European purchase price multiples 9.1x 4.2x 7.7x 3.9x 8.5x 8.8x 8.7x 8.8x 3.9x 3.9x 3.6x 3.5x 9.7x 3.9x 10.3x 4.7x 10.0x 4.6x 10.7x 4.9x 10.1x 5.6x 8.4x 8.5x 8.8x 8.8x 3.9x 4.2x 4.7x 4.2x 8.3x 4.8x 10.1x 10.0x 5.7x 5.7x 10.9x 11.1x 5.5x 6.2x 5.0x 3.8x 4.6x 4.9x 5.1x 5.3x 5.7x 5.6x 5.4x 5.8x 4.5x 4.5x 4.3x 4.2x 4.5x 3.5x 4.3x 4.2x 5.4x 4.8x 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Debt/EBITDA Equity/EBITDA Valuation/EBITDA Debt / EBITDA Equity / EBITDA Valuation / EBITDA Source: S&P Capital IQ, M&A Stats, December 2017. Past performance is not indicative of future results. Future returns are not guaranteed and a loss of principal may occur. 34
How are Managers mitigating the current market environment? Expanding the opportunity set Creating more value through operational improvement Greater focus on industry sectors and strategy Pantheon opinion 35
Growing operating teams U.K. mid-market manager U.S. growth manager 2009 Execution = 14 Origination = 2 Operating = 0 2007 Execution = 23 Operating = 10 2018 Execution = 16 Origination = 3 Operating = 5 2017 Execution = 44 Operating = 25 Source: Manager materials. Examples for illustrative purposes. Execution Origination Operating 36
Greater manager specialization Shift from generalist to sector-focused teams Sector-focused funds Operating specialists Pantheon opinion. Please refer to slide 17 for case study disclosure on regarding deals completed by Pantheon. 37
Managers have a number of levers to pull Operational Value add Tech enablement Management Enabling growth Sales optimization Digitalization Increasing team bandwidth Investing in R&D for new product innovation Supply chain and procurement Use of AI and big data Strengthening finance and operational functions Expanding outside core markets Working capital improvement E-commerce penetration Talent management Strategic M&A to add new products or geographies Pantheon opinion 38
Private versus public performance by quartile & vintage year By IRR 30% 25% 20% 15% 10% 5% 0% -5% -10% 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Lower Quartile Median Upper Quartile MSCI World PME i) large dispersion of returns; ii) median performance outperforms PME in most years; iii) top quartile funds significantly outperform median fund performance Past performance is not indicative of future results. Future returns are not guaranteed and a loss of principal may occur. Source: Thomson One and Bloomberg. All data to March, 2017. Thomson Quartile data relates to all Private Equity across all regions from the Thomson One database. 39
Conclusion 1 2 3 4 Investors are allocating more capital to private equity in search of growth, diversification and higher returns Private equity continues to grow, evolve and seek out new investment opportunities Managers are increasingly sophisticated, using a range of tools and resources to boost growth and value in companies Remaining highly selective and accessing high quality managers is key Pantheon opinion 40
Disclosure 1 case studies These case studies are examples of specific private transactions made by Pantheon funds / clients and are designed to assist prospective investors / clients to understand Pantheon s investment management style / strategy. It should NOT be regarded as a recommendation. Pantheon makes no representation or forecast about the performance, profitability or success of such transaction. Information concerning the performance of portfolio investments is available upon request, subject to confidentiality requirements. You should not assume that future recommendations will be profitable or will equal the performance of past recommendations. The statements above reflect the views and opinions of Pantheon as of the date of the investment analysis. Please also note that all performance numbers quoted in these case studies are net of underlying fund fees, carry and expenses and gross of Pantheon fund fees, carry and expenses. Pantheon does not calculate performance net of Pantheon fund fees, carry and expenses at the underlying fund investment level. Past Performance is not indicative of future results. Future results are not guaranteed, and a loss of principal may occur. A list of all investments are available upon request. 41
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Presentation Global private equity trends Alex Scott Partner Pantheon Ventures