The views, opinions, statements, analysis and information contained in these materials are those of the individual presenters and do not necessarily reflect

The views, opinions, statements, analysis and information contained in these materials are those of the individual presenters and do not necessarily reflect the views of Kirkland & Ellis LLP, or any of its past, present and future clients. These materials (1) do not constitute legal advice; (2) do not form the basis for the creation of the attorney/client relationship; and (3) should not be relied upon without seeking specific legal advice with respect to the particular facts and current state of the law applicable to any situation requiring legal advice. These materials may only be reproduced with the prior written consent of Kirkland & Ellis LLP. These materials are provided with the understanding that the individual presenters and Kirkland & Ellis LLP are not rendering legal, accounting or other professional advice or opinions on specific facts or matters, and accordingly, such entities assume no liability whatsoever in connection with their use. Pursuant to applicable rules of professional conduct, this material may constitute Attorney Advertising. Prior results do not guarantee a similar outcome. © 2011 Kirkland & Ellis LLP. All rights reserved.

A L A W F I R M S E R V I N G G L O B A L C L I E N T S

KIRKLAND & ELLIS LLP

Private Equity U.S. Market Trends and Outlook

Frederick Tanne, P.C.Kirkland & Ellis LLP601 Lexington AvenueNew York, New York 10022(212) 446-4831

Karyn KoiffmanKirkland & Ellis LLP601 Lexington AvenueNew York, New York 10022(212) 446-4769



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Kirkland & Ellis LLP

• Founded over 100 years ago

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• Over 275 private equity firms as clients

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State of Private Equity Industry – Fundraising The fundraising environment remained strained at the end of 2011

• Fundraising declined throughout the second half of 2011, despite an encouraging Q2; liquidity issues remain a concern going into 2012

• Q4 2011 saw the lowest overall private equity fundraising quarter since Q3 2009 and the second lowest quarter since Q4 2004

Sources: Preqin fundraising data as of 01/03/2012 (includes all funds with final closings); “Private Equity Fundraising Plummets to Lowest Levels Since 2003,” Preqin Press Release, 10/01/2009.

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2010 Period

Number of Funds

Final Size ($B)

2011Period

Number of Funds

Final Size ($B)

%Change

Q1 2010 161 78.43 Q1 2011 168 67.548 -13.87%

Q2 2010 195 61.289 Q2 2011 188 88.302 44.07%

Q3 2010 157 79.425 Q3 2011 137 54.223 -31.73%

Q4 2010 207 55.108 Q4 2011 106 52.359 -4.99%

LTM Total 720 274.252 LTM Total 599 262.432 -4.31%

Global Fundraising Activity

© 2012 Kirkland & Ellis LLP. All rights reserved.



State of Private Equity Industry – Fundraising

Source: Preqin fundraising data as of 01/03/2012 (includes all funds with final closings).Venture Capital = Balanced, Venture Debt, Early Stage, Early Stage: Seed, Early Stage: Start-up, Expansion, Late Stage, Venture (General), GrowthOther = Co-investment, Co-Investment Multi-Manager, Distressed Debt, Hybrid, Infrastructure, Natural Resources, PIPE, Special Situation, Timber, Turnaround

After falling sharply in 2009, fundraising activity remained challenging in 2011, despite hopes in Q2 for a rebound

• Secondary funds brought in the fewest funds by type, raising just less than $11B in 2011. This was even with or down slightly from the amount raised in 2010, but still far from the 2009 high of $23.7B

• Buyout funds raised the biggest portion of overall capital in 2009 and 2010, however venture capital has continued to gain ground in 2011

• Real estate PE fundraising extended declines throughout the year, with 2011 ending as the lowest fundraising year since 2004

North American fund activity continues to dominate the global PE industry among funds in market (i.e., funds currently on the road)




State of Private Equity Industry – Fundraising A majority of PE fundraising sectors are still exhibiting declines

Source: Preqin fundraising data as of 01/03/2012 (includes all funds with closings).

Fund Type

2009 20102009 – 2010

% Change in Final Size

20112010 – 2011

% Change in Final Size

No. of Funds

Final Size ($B)

No. of Funds

Final Size ($B)

No. of Funds

Final Size ($B)

Buyout 116 $108.77 97 $75.75 -30.4% 92 $69.21 -8.6%

Venture Capital 262 $36.36 246 $46.27 27.2% 202 $55.36 19.7%

Mezzanine 24 $7.56 24 $7.65 1.3% 20 $13.68 78.7%

Secondaries 25 $23.69 19 $10.39 -56.1% 22 $10.81 4.0%

Fund of Funds 118 $28.61 74 $16.18 -43.4% 68 $14.33 -11.5%

Real Estate 182 $54.16 151 $47.96 -11.5% 116 $44.82 -6.5%

Other 55 $37.03 109 $70.05 89.2% 79 $54.22 -22.6%

Grand Total 782 $296.16 720 $274.25 -7.4% 599 $262.43 -4.3%




Market Trends – Private Equity Fund Terms Anchor Investors

• Rise of “anchor” or “strategic” LPs, demanding preferential terms (e.g., lower management fees, unpromoted priority co-investment rights, etc.)

• Use of separate vehicles/account structures SWFs and industry partners are among leaders in this trend

Distribution Waterfall • Increased pressure for full payout model (or close thereto)• Increased pressure for interim GP clawbacks• Increased pressure for minimum valuation tests

Changes to preferred return hurdle• Fewer buyout and growth equity funds without a preferred return hurdle• Some less than 8%

Carried Interest• General trend away from greater than 20% carried interest• Few exceptions, sometimes with tiering

Source: Preqin, data as of 05/05/11.




Market Trends – Private Equity Fund Terms Management Fees

• General downward pressure on management fees, especially for large funds with scale Reductions in management fees for early commitments gained traction, moving down from 2% to 1.5% (or

lower) in select cases Some funds offer an option of lower management fees for higher carried interest

• Some investors requesting budgets from management companies to justify fee levels

Management Fee Offsets• Increased pressure on anything other than 80% or 100% offset for all fee income• Scrutiny of any exceptions to definition of fee income• Certain sponsors offering choice of higher management fee for 100% offset

Sweeteners• Several fund sponsors offering discounts to large LPs• First closing LPs also receiving fee and/or carried interest breaks from some sponsors

Size and Composition of GP’s Capital Commitment• Increasing to at least 2% and up to 5% preferred (as opposed to 1%)• More focus on cash vs. fee waiver




Market Trends – Private Equity Fund Terms Termination Triggers to Address “Doomsday” Scenarios that Remain Fresh in Mind

• Increased pressure for no fault termination of the investment period and scrutiny of voting thresholds

• Increased pressure for no fault termination of the fund

• Increased pressure for GP removal provisions

• Focus on payments to GP following GP removal or early termination of investment period or fund term – specifically management fees and carried interest

Ownership of the GP• Limitations with respect to selling stakes to third parties

• Focus on potential impact on and/or conflicts with interests of LPs

• Registration with SEC as investment adviser adds COC restrictions

Partnership Expenses• Scrutiny of what expenses are borne by the fund, rather than by the management company (e.g., outside reporting services, operational

experts, consultants, conferences, compliance costs, etc)

• LPs seek to clarify that manager SEC registration expenses are not charged to fund

Expansion of Baskets for Emerging Markets and Other Non-Core Regions• More room for Asia/MENA investments

• Way to gain sector exposure without raising and investing in a specialist fund

Other funds• Allocation of investment opportunities and resources among:

Successor funds Multiple products, including RMB and other geographically-focused products

• GP time and attention standards




Market Trends – Private Equity Fund Terms In 2011, the Institutional Limited Partners Association (the “ILPA”) released Version 2.0 of

its Private Equity Principles• More balanced

• More flexibility

• Certain LPs are requiring an endorsement of ILPA as a condition to their investment

Three Overarching Principles: Alignment of Interests, Governance and Transparency

Renewed Focus on GP’s Fiduciary Duties and Quality of Service Providers• Transparency, accountability and reputation concerns post-Madoff

Role of LPAC• Enhanced role and rights for LPAC (e.g., minimum size, advance notice of materials, quorum

requirements, reimbursement of legal expenses, in camera sessions, etc.)

• At the same time, LPAC members also focused on indemnity, exculpation and disclaimer of duties




Market Trends – Global Market Conditions Purchase Multiples Collapse From 2010 Levels

• The average EBITDA multiple across global M&A for 2011 was 12.6x, down from 14.9x in 2010 and the lowest since 2003, which saw 10.6x

• Cross-border deals were up at highest levels since 2008, accounting for 41.5% of global M&A activity

Exit Market Ends 2011 Up – and Down• Private equity exists through secondary buyouts or trade sales in 2011 were up

almost 14% over the prior year, making it the strongest year-end performance since 2007

• But Q4 2011 continued the tumble that began after Q2, falling 54% from Q3 to $30.4B. This was the second lowest Q4 in the last seven years

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Sources: The Wall Street Journal, 09/18/2009; “Prices Soar In Cash Rich Deal Market,” Buyouts, 07/21/2010; “Global M&A Overview: Premia and Multiples Analysis,” Mergermarket, 04/07/2011; “M&A Round-up for Q1-Q3 2011, ” Mergermarket, 10/01/2011; “Some Funds Take Longer to Close Than Nostradamus Partners,” The Wall Street Journal, 07/07/2010; “The 2011 Global Private Equity Report,” Preqin, January 2011; “The Preqin Quarterly,” Preqin, 10/15/2011; “League Tables of Legal Advisers to Global M&A in H1 2011, ” Mergermarket, 07/07/2011; “M&A Roundup for Year End 2011,” Mergermarket, January 3, 2012.

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Market Trends – Global Market Conditions Greater Transparency/Restrictions Regarding the Use of Placement Agents

• Response to public pension scandals involving finders’ fees• Raising money from state plans is now more complicated (e.g. new CA lobbying law)• Limitations on placement agents soliciting government plans

Focusing on Alternative Strategies (Senior Debt, Distressed Debt, Energy, Clean-Tech, Turnaround) Focusing on Emerging Markets

• Brazil, China and nascent Asian PE markets ranked most attractive markets by institutional investors in a recent survey Brazil has leapfrogged China as the most attractive market for GP dealmaking in the next 12 months – and the rest of Latin America is also

viewed as significantly more attractive than it was a year ago

• Bigger baskets for Asia/MENA deals in global LBO funds• Deal-watchers speculate that investments in China may be riskier than previously thought, though the government will try to avoid a

“hard landing” at all costs Deflated default rates due to unreported deals and secretive investors Problems predicted for Chinese real-estate business as it is cut off from government bank lending

• High entry valuations are the biggest hurdle for new investors in India, China and Brazil Renewed Focus from LPs on “Middle of the Road” Strategy

• In a recent survey, 33% of LPs chose small leveraged buyouts as the strategy that interests them the most, followed by distressed debt (26%) and secondaries (22%)

Increased LP Negotiating Leverage• Small LPs and gatekeepers are emboldened by market dynamics to attempt to impact fund terms • Reports of requests for term changes even in closed funds, particularly when amendments or extensions are proposed

Sources: New York Times, 10/30/2009, 11/19/2009 and 12/21/2009; Dow Jones Private Equity Analyst, 01/01/2010; Thomson Reuters, 7/1/2010; “Emerging Markets Private Equity Survey 2011,” Coller Capital. www.kirkland.com | 11© 2012 Kirkland & Ellis LLP. All rights reserved.



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The views, opinions, statements, analysis and information contained in these materials are those of the individual presenters and do not necessarily reflect