SUBSCRIPTION FINANCING OVERVIEW
I. SUBSCRIPTION FINANCING - GENERAL OVERVIEW Structured to address interim financing needs of PE Funds Secured by unfunded Capital Commitments of Investors in a Fund Credit Availability generally based on borrowing base of up to 90% against the unfunded Capital Commitments of Included Investors Included Investors are generally investment-grade institutional investors; and credit is viewed as investment grade corporate loan Generally structured as Senior Secured Revolving Facilities Market Grown in response to growth of Private Equity Real Estate 2
II. SUBSCRIPTION FINANCING - ADVANTAGES Quick Access to Capital for Acquisitions and Other Liquidity Needs Bridge to other sources of Capital Smooth Out Capital Calls and Pay Fund Expenses Facilitates True Up of Capital Enhances Fund Yields High Level of Financial Flexibility (i.e., revolver, LC, alternative currencies, bridge finance) Minimum Additional Reporting 3
III. KEY FACILITY STRUCTURAL COMPONENTS - CONSERVATIVE STRUCTURE 1. Advances a. Availability based on a set percentage of unfunded commitments (depending on financial strength of Investors) b. Typically 90% advance rate is only provided with respect to certain investment grade Included Investors such as: Public Pension Plans Corporate Pension Plans Sovereign Wealth Funds University Endowments Foundations Insurance Companies 4
III. KEY FACILITY STRUCTURAL COMPONENTS - CONSERVATIVE STRUCTURE (continued) c. Typical weighted-average rating of AA-. If the Investor does not have a rating then are typically institutional investors with significant financial strength. d. Some facilities include Designated Investors at a lower percentages and subject to concentration limits. e. Non-Included Investors and Non-Designated Investors' Unfunded Capital Commitment - Collateral Cushion 5
III. KEY FACILITY STRUCTURAL COMPONENTS - CONSERVATIVE STRUCTURE (continued) 2. Diversification of Investors a. Provides a more diverse base supporting repayment of the credit facility than many corporate credits and is diversified by: The numbers of commitments of Investors Size of commitments of Investors Industry sector of Investors included in the borrowing base 6
III. KEY FACILITY STRUCTURAL COMPONENTS - CONSERVATIVE STRUCTURE (continued) b. In facilities where borrowing base credit is provided to Designated Investors such investors are generally subject to concentration requirements as to size and type of investor (rated/unrated/sovereign wealth/high net worth, etc.) c. More facilities are made available to Single Investor Deals, particularly for the strongest pension funds and sovereign wealth funds 7
III. KEY FACILITY STRUCTURAL COMPONENTS - CONSERVATIVE STRUCTURE (continued) 3. Term a. Typically 2-3 year facility. However, longer terms (i.e. 60 months) and shorter terms (i.e. 12 months with extension options) are also available and not uncommon. Terms of Facilities are generally structured in alignment with the terms of the Borrowers' investment periods as well as consideration on the tenure of the Borrowers b. More limited After Care facilities may be provided for purposes under the LPA as well 8
III. KEY FACILITY STRUCTURAL COMPONENTS - CONSERVATIVE STRUCTURE (continued) 4. Fund and Investor Documentation Limited Partnership Agreement Provisions (and Investor Letters, as necessary) typically provide, among other things: a. Fund s authority to incur debt and make capital calls to repay such debt b. Investors funding obligation to repay debt is absolute and unconditional, without defense, counterclaim and offsets of any kind or nature c. Lenders can enforce capital commitment collateral rights against the Investors 9
III. KEY FACILITY STRUCTURAL COMPONENTS - CONSERVATIVE STRUCTURE (continued) 5. Control Over and Direct Access to the Collateral a. Simultaneous Capital Call Notices given to Administrative Agent. b. Administrative Agent directs issuance of Capital Call Notices upon facility default. c. Administrative Agent controls Collateral Account 10
III. KEY FACILITY STRUCTURAL COMPONENTS - CONSERVATIVE STRUCTURE (continued) 6. Credit Facility Obligation and Collateral Full Recourse Obligation of Borrower/Fund Collateral Unfunded Capital Commitments, right to make and enforce Capital Calls and to receive Capital Contributions, and offset against Collateral Account 7. Source of Repayment Principal Source Unfunded Capital Commitments of Included Investors Secondary Source Unfunded Capital Commitments of non-included Investors, Permanent Financing, Asset Cash Flows and Asset Dispositions 11
SIMPLIFIED FACILITY DIAGRAM General Partner Limited Partners Partnership Agreement Subscription Agreements Capital Call Notice from GP on behalf of Borrower Security Interest Borrower / Fund (Buy and Sell Investments) Credit Agreement Security Agreements Administrative Agent & Lenders Security Interest Security Interest Capital Contributions Capital Contributions Collateral Account Investor Letters or Partnership Agreement includes Investor Letter provisions 12
IV. TYPICAL CREDIT FACILITY DOCUMENTATION Credit Agreement Exhibits to the Credit Agreement Promissory Notes, if any Borrower and General Partner Security Agreement Borrower Collateral Account Assignment Borrower Authority Documents Borrower Legal Opinions Investor Letters, if necessary Credit Support Document, if necessary Investor Evidence of Authority, if necessary 13
V. SUBSCRIPTION FINANCING - CURRENT MARKET STATUS No known Institutional Investor Defaults Strong Fund Demand on a Global Basis More Complex Fund Structures Active Arrangers and Lenders in Market Buy-Out, Real Estate, Infrastructure, Energy, Shipping, Mezzanine, Healthcare and other Forms of Private Equity Funds Competitive But Disciplined Pricing 15767778_2.pptx 14
SUBSCRIPTION FINANCING ROUNDTABLE July 7, 2016 Hong Kong
AGENDA 4:30 p.m. 4:35 p.m. Opening Address: Keith Connolly Managing Director - Group Manager Real Estate Finance Sumitomo Mitsui Banking Corporation 4:35 p.m. 5:30 p.m. Subscription Financing Roundtable Advantages for funds Financing features Bankable provisions for fund documents Asia and global market trends 5:30 p.m. 6:30 p.m. Cocktail Reception 2
SUBSCRIPTION FINANCING ROUNDTABLE Moderator: Panelists: Albert Tan Partner; Co-Head of Global Subscription Financing Group Haynes and Boone, LLP Eugene Min Chief Financial Officer CLSA Capital Partners Kenneth Chiu Chief Financial Officer, Asia Gaw Capital Advisors Limited John Cahill Partner; Head of Real Estate Finance Paul Hastings Dave Wasserman Managing Director Head of Global Private Equity Fund Finance Sumitomo Mitsui Banking Corporation 3
Types of PE Fund for Each Asset Class Closed-End Private Capital Private Equity Private Debt Real Estate Infrastructure Natural Resources Buyout Venture Capital Growth Direct Lending Distressed Debt Private Equity Real Estate Infrastructure Energy Agriculture/Farmland Turnaround Mezzanine Private Equity Real Infrastructure Fund of Other Private Equity Special Situations Timberland Estate Fund of Funds Funds Private Equity Secondaries Private Equity Fund of Funds Venture Debt Private Debt Fund of Funds Private Equity Real Estate Secondaries Infrastructure Secondaries Metals & Mining Water Natural Resources Fund of Funds Source: Preqin - 2016 Global PE & VC Report 4
Global Private Equity Fundraising in 2015 by Primary Geographic Focus North America $329bn 549 Funds Avg Fund Size $651mm Europe $141bn 239 Funds Avg Fund Size $652mm Asia $57bn 167 Funds Avg Fund Size $412mm Rest of World $24bn 107 Funds Avg Fund Size $257mm Preqin 5
Buyout Real Estate Venture Capital Infrastructure Natural Resources Direct Lending Distressed Private Equity Growth Mezzanine Private Equity Secondaries Private Equity Fund of Funds Other Sumitomo Mitsui Banking Corporation Global PE Fundraising in 2015 (by Fund Type) 350 300 312 250 200 150 100 50 0 167 152 177 107 47 46 83 36 43 33 36 33 36 31 27 33 63 59 19 10 19 15 29 No. of Funds Closed Aggregate Capital Raised ($bn) Source: Preqin - 2016 Global PE & VC Report 6
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Sumitomo Mitsui Banking Corporation Global PE Fundraising: 1995-2015 1,600 1,527 1,510 1,400 1,200 1,000 800 600 400 200 0 1,331 1,109 867 862 713 622 634 558 516 547 440 366 285 246 238 220 138 160 173 134 95 105 38 51 1,3951,394 1,297 1,187 1,050 1062 982 682 706 569 589 551 415 356 322 306 No. of Funds Closed Aggregate Capital Raised ($bn) Source: Preqin - 2016 Global PE & VC Report 7
Global PE Fundraising (by Fund Type): 2003-2015 $800B 682 706 CAGR (10-15) 600 547 569 589 551 Total value 12% Other 18% Mezzanine 21% 400 366 322 306 356 415 Fund of Funds 2% Nat. resources 26% Distressed PE 5% Secondaries 11% 200 220 Growth -2% Infrastructure 1% 105 Venture 13% 0 2003 04 05 06 07 08 09 10 11 12 13 14 15 Real estate 17% Buyout 16% Notes: Includes funds with final close and represents year funds held their final close; distressed PE includes distressed debt, special situation and turnaround funds; other includes PIPE and hybrid funds Source: Preqin - 2016 Global PE & VC Report; and Bain Company Global PE Report 2016 8
2008 2009 2010 2011 2012 2013 2014 2015 Sumitomo Mitsui Banking Corporation North America PE Fundraising: 2008-2015 800 700 695 734 757 600 603 549 500 400 411 422 453 501 350 333 329 No. of Funds Closed 300 200 180 163 184 216 Aggregate Capital Raised ($bn) 100 0 Source: Preqin - 2016 Global PE & VC Report 9
2008 2009 2010 2011 2012 2013 2014 2015 Proportion of Total Capital Raised Sumitomo Mitsui Banking Corporation North America PE Fundraising (by Fund Type): 2008 2015 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 20% 19% 7% 8% 15% 18% 4% 13% 6% 1% 1% 3% 12% 5% 1% 4% 36% 28% 12% 9% 17% 6% 10% 2% 14% 28% 18% 13% 18% 11% 10% 6% 21% 20% 24% 8% 10% 4% 5% 1% 7% 8% 1% 8% 5% 10% 4% 10% 1% 3% 30% 21% 23% 11% 9% 16% 6% 7% 4% 7% 6% 34% 17% 10% 22% 9% 4% 3% 6% 4% 25% Other Venture Capital Real Estate Natural Resources Infrastructure Growth Distressed Private Equity Direct Lending Buyout 0% Year of Final Close Source: Preqin - 2016 Global PE & VC Report 10
Europe PE Fundraising: 2008-2015 450 400 416 350 300 250 200 270 248 252 272 295 318 239 No. of Funds Closed 150 100 50 114 66 49 56 82 104 118 128 Aggregate Capital Raised ( bn) 0 2008 2009 2010 2011 2012 2013 2014 2015 Year of Final Close Source: Preqin Funds in Market 11
2008 2009 2010 2011 2012 2013 2014 2015 Aggregate Capital Raised ( bn) Sumitomo Mitsui Banking Corporation Europe PE Fundraising (by Geographic Focus): 2008 2015 140 120 100 80 60 40 20 Multi-Regional Western Europe Southern Europe Nordic Central & Eastern Europe 0 Year of Final Close Source: Preqin Funds in Market 12
Aggregate Capital Raised ($bn) Sumitomo Mitsui Banking Corporation Asia PE Fundraising (by Geographic Focus): 2008 2015 90 350 80 70 60 50 40 30 20 10 0 298 286 252 51 225 225 21 37 207 183 29 23 31 31167 22 39 23 31 26 30 22 22 13 7 4 4 6 4 7 2 4 2008 2009 2010 2011 2012 2013 2014 2015 300 250 200 150 100 50 0 No. of Funds Closed Year of Final Close India-Focused Funds Other Asia-Focused Funds China-Focused Funds Total No. of Funds Closed Source: Preqin - 2016 Global PE & VC Report 13
2008 2009 2010 2011 2012 2013 2014 2015 Proportion of Aggregate Capital Raised Sumitomo Mitsui Banking Corporation Asia PE Fundraising (by Fund Type): 2008 2015* No. of Funds Closed 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 6 10 31 2 13 6 1 17 2 6 12 1 5 3 6 3 20 7 4 2 3 4 7 2 4 17 11 2 4 8 9 12 3 3 6 21 18 10 1 1 4 7 13 7 4 2 16 4 12 11 3 19 1 2 23 1 7 11 5 12 2 3 16 Other Venture Capital Real Estate Infrastructure Growth Private Equity Fund of Funds Distressed Private Equity Buyout Year of Final Close Source: Preqin - 2016 Global PE & VC Report 14
2008 2009 2010 2011 2012 2013 2014 2015 Aggregate Capital Raised ($bn) Sumitomo Mitsui Banking Corporation Rest of World PE Fundraising: 2008 2015 45 40 35 Diversified Multi-Regional 30 25 20 15 10 5 0 16.5 8.3 2.5 6.8 5.3 1.6 10.9 6.3 8.5 6.3 5.1 17.7 9.8 5.9 10.1 7.8 10.8 2.7 2.0 1.8 2.0 4.6 2.7 4.5 1.9 6.6 3.8 3.9 3.8 4.0 2.6 3.4 5.7 1.4 2.4 2.7 3.1 2.2 3.2 2.0 Latin America Middle East & Israel Australasia Africa Source: Preqin - 2016 Global PE & VC Report Year of Final Close 15
Public Pension Fund Sovereign Wealth Fund Private Sector Pension Fund Insurance Company Endowment Plan Foundation Family Office Bank/Investment Bank Government Agency Investment Company Superannuation Scheme Corporate Investor Proportion of Capital Invested in Private Equity Sumitomo Mitsui Banking Corporation Capital Currently Invested in PE by Investor Type: 2011 vs. 2016 35% 30% 30% 29% 25% 20% 15% 10% 5% 0% 6% 17% 15% 13% 10% 9% 9% 7% 12% 5% 5% 3% 9% 4% 4% 3% 3% 3% 2% 1% 1% 1% Jan-11 Jan-16 Source: Preqin - 2016 Global PE & VC Report 15762570_5.pptx 16 Investor Type