Panel Discussion

Is Permanent Capital Structure Right for Your Fund?

July 21, 2015

Is Permanent Capital Structure Right for Your Fund?

July 21, 2015

Introduction

• Historically, permanent capital vehicles were niche• Very distinct strategies and requirements with attractive alternatives

• Capital formation activities are evolving quickly• Diversified investment strategies

• Asset managers seeking opportunities in non-core areas

• Frustration over serial fund-raising process• Fee pressure and the need to effectively start over every five years

• Recognition of limitations of traditional models• Hold periods and the need to harvest the portfolio based on timing rather than economic factors

• Need for differentiation among peers

• Gap between public and private regulation has narrowed

• Desire to have an established portfolio foundation

• Goal perspective rather than structure perspective• Focusing on goals and objectives and working back to structure is preferable

• Structure focus is limited:• Advisors typically deeply channeled in particular structure

• The inertia of precedent impedes the progress of evolution

• Being structure-agnostic allows for broadest consideration of best alternatives for a particular investment strategy or focus

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• Yield vehicles, specifically BDCs, MLPs, and REITs, have seen substantial growth over the last decade

• The BDC market has grown from an aggregate of $8.7 billion in market cap in 2004 to $33.0 billion in 2014

• The REIT market has grown from an aggregate of $307.9 billion in market cap in 2004 to $907.4 billion in 2014

• The MLP market has grown from an aggregate of $36.9 billion in market cap in 2004 to $528.0 billion in 2015

• Alternative asset managers and SPACs have also seen significant growth over the last decade

REIT Industry Growth ($MM) (1) MLP Industry Growth ($MM) (3)

BDC Industry Growth ($MM) (1)

1) Source: SNL Financial 2) Source: NAREIT 3) Source: NAPTP

Industry Growth: BDCs, REITs, & MLPs

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Alt. Asset Manager/PTP Industry Growth ($MM) (1) Closed End Fund Growth ($MM) (2)

SPAC Growth & Capital Raised ($MM) (3)SPAC Summary ($MM) (3)

1) Source: FactSet. Alternative Asset Managers & PTPs Include: APO, ARES, BX, CG, CODI, FIG, KKR, MIC, OAK, & OZM2) Source: Investment Company Institute3) Source: SPAC Analytics; SPAC summary includes all 222 SPACs raised since 2003

Industry Growth: Alt. Asset Managers, CEFs & SPACs

Why Permanent Capital?

• Longer Hold Period / Investment Horizon

• Access to Growing Capital Pools

• Lower Cost of Capital

• Ability to Avoid Serial Fund Formation / Raising

• Gap Between Public / Private has Shrunk

• Diversified Institutional and New Retail Investor Base

• Exit Platform for Existing Portfolio

• Liquidity without Redemption for Investors

• No Financing Contingencies for Transactions

• Recognized Public Buyer with Audited Financials

• Regulated SARBOX Compliance

• Management Compensation Options

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Overview of Structures

• ’40 Act Structures• Closed-End Fund• Interval Fund• Business Development Company

• Non-’40 Act Structures• Real Estate Investment Trust• Master Limited Partnership• Permanent Capital Acquisition Partnership• Special Purpose Acquisition Company• YieldCo

• Compare Other Structures • Hybrid Structures• Public Asset Manager• Offshore Vehicles

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Marketing Issues

• Asset / Portfolio Composition

• Portfolio Size for IPO

• Management Team / Track Record

• Board Composition

• Distribution Requirements

• Investor Base

• Use of Proceeds

• Line of Credit Terms at IPO

• Leverage Pre-Post-IPO

• Management and Incentive Fee

• Diversification of Investment Strategy

• Differentiation Among Permanent Capital Vehicles and Other Alternatives

• Manager Skin in the Game

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Stand-AloneReturn

CumulativeExpected Return (1)

10-Year Treasury (Risk-Free Rate) (2) 2.22% 2.22%

Bond Premiums(B to CCC) 2.5% -5.0% 5.0%-7.5%

Equity Premium 3.0% -4.0% 8.0% -11.5%

Illiquidity Premium (Private Equity) 5.0% -6.0% 20.0% -30.0%

BDC Industry Yield / Total Returns 10.5% (3) 10.0% –15.0%

CODI Yield / Total Returns 8.7% (4) 20.0%-30.0%

Alternative Asset Manager Yield / Total Returns 6.4% (5) 15.0% -20.0%

MLP Industry Yield / Total Returns 6.3% (6) 10.0% -15.0%

REIT Industry Yield / Total Returns 3.8% (7) 10.0% –15.0%

1) Includes yield plus expected capital appreciation2) Source: U.S. Department of the Treasury 3) Represents average yield of the BDC index4) Source: FactSet5) Source: SNL Financial6) AlerianMLP Index7) SNL US REIT Index

Note: Total return values over one year

BDC Index includes ABDC, ACSF, AINV, ARCC, BKCC, CMFN, CPTA, FDUS, FSC, FSIC, FSFR, FULL, GAIN, GARS, GBDC, GLAD, GSBD, HCAP, HRZN, HTGC, KCAP, MAIN, MCC, MCGC, MRCC, NMFC, OFS, OHAI, PFLT, PNNT, PSEC, SAR, SCM, SLRC, SUNS, TCAP, TCPC, TCRD, TICC, TPVG, TSLX, and WHF

Alternative Asset Managers Include: APO, ARES, BX, CG, FIG, KKR, OAK, and OZM

Investor Return Expectations, Industry Yields, and Cumulative Expected Returns

Investor Expectations

Legal Issues

• Corporate form will be driven by:• Investment strategy and structure chosen• Public / private nature of structure• Certain structures and structural elements can be highly flexible

• ’40 Act Requirements Generally• Investment securities• Joint transaction / co-investment restrictions• Compensation requirements• Mark to market

• Management and Compensation Structure• Internal versus external• Performance fee• Management fee• Equity participation

• SEC Process• Tax Requirements

• 1099 versus K-1• 7704 qualifications• Distribution requirements for BDCs and REITs

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Tax and Accounting Issues

• Tax Issues• K-1 versus 1099• Corporation versus Partnership

• Accounting Issues• Treatment of Contingent Obligations / Performance Fee

• Financial Statements• Jobs Act Considerations• Acquisitions

• AICPA / PCAOB Audits• Time Periods• Pro Forma Presentations• Pushdown Accounting• Non-Controlling Interests

• Predecessor / Successor Auditor• Principal Auditor• PCAOB Registered• Consents• Independence

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Valuation Issues

• Valuation Needs:• Provide Investor / Shareholder Confidence

• Support Fiduciary Obligations of Board

• ’40 Act Structures• Quarterly Mark-to-Market Valuation

• Other Situations• Related Party Transactions

• M&A Valuation Services

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Take-Away Considerations

• Investment Strategy• Debt or Equity

• Domestic or International

• Diversified or Industry Vertical

• Minority or Control Positions

• Management Structure• Internal or External

• Management Fee Expectations

• Incentive Compensation• Equity or Performance Fee and Aligning Interests

• Investor Objectives• Distributions or Growth-Oriented

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Biographies

Bob Bartell is a Managing Director and Global Head of the D&P Corporate Finance unit and CEO of the Duff & Phelps Securities, LLC FINRA registered broker/dealer entity. Prior to becoming head of corporate finance, Bob managed the firm’s Fairness & Solvency Opinions practice and founded the firm’s first PE Financial Sponsor Coverage (FSG) team. Bob joined Duff & Phelps in 1997.

Bob Bartell, CFA Global Head of Corporate Finance Duff & Phelps Securities, LLC +1 (312) 697-4654 Bob.Bartell@duffandphelps.com

Mr. Booth oversees all industry groups in Investment Banking and plays an active role in managing the Financial Institutions and Real Estate Groups. Prior to being Co-Head of Investment Banking, Mr. Booth was Head of the Financial Institutions Group and Real Estate Group at Janney Montgomery Scott. Prior to joining Janney in 2008, Mr. Booth was Head of the Financial Institutions Investment Banking Group at Ferris, Baker Watts, Inc., where he built a specialty finance practice and managed over $11 billion of capital transactions for his clients. Prior to Ferris, Baker Watts, Inc., Mr. Booth worked in the Real Estate Investment Banking Group of First Union Securities (now Wells Fargo Securities). Mr. Booth has executed over 100 capital markets and mergers and acquisition transactions in the Financial Institutions area over his career. Mr. Booth received a B.S. in finance from Syracuse University and an M.S. in finance from The George Washington University.

Cliff Booth Co-Head of Investment Banking Janney Montgomery Scott LLC +1 (410) 583-5992 cbooth@janney.com

Jay Gould is a corporate partner in the firm’s San Francisco and New York offices and serves as co-chair of the firm's financial services corporate practice group. Jay concentrates his practice on investment funds and investment management. He counsels clients involved in all aspects of the financial services industry. Jay represents U.S. registered investment companies, hedge funds, offshore investment companies, investment advisers, retail and institutional broker-dealers, and municipal bond underwriters. Jay has extensive experience in drafting private placement memoranda, partnership and limited liability company agreements, subscription agreements, registration statements, proxy statements, periodic reports, no-action letters, applications for exemptive relief, and other documents for filing with the SEC, FINRA, and other regulatory agencies. Jay advises investment companies, investment advisers, and broker-dealers on mergers and acquisitions. He also provides counsel on matters involving corporate governance and Sarbanes-Oxley compliance, mortgage securitizations and sales, collateralized debt offers, joint ventures and strategic relations, and retail, institutional, and offshore securities distribution strategies and regulatory considerations. Prior to joining the firm, Jay served as Chief Counsel for E*TRADE Global Asset Management, Inc., Vice President with TransAmerica Life Companies, Senior Counsel to Bank of America NT&SA, and as an attorney with the Securities and Exchange Commission and four other major international law firms. Jay received his B.A. from the University of Washington in 1978 and his J.D. from The Catholic University of America, Columbus School of Law in 1983.

Jay Gould Co-Chair, Financial Services Corporate Practice Winston & Strawn LLP +1 (212) 294-9575 (New York) +1 (415) 591-1575 (San Francisco) jgould@winston.com

Mary is the National Professional Practice Director for the Northeast Region of Grant Thornton. In this role, Mary deals with all professional standards, auditing and risk management issues pertaining to clients in the Northeast Region. She also consults with businesses throughout the country on complex accounting and auditing matters including business combinations, IPO’s, revenue recognition, equity instruments and long-lived assets. Prior to taking on the NPPD role, she was a lead engagement partner servicing commercial clients. She worked with both private and public companies, many with a significant presence outside the US. She has also worked with numerous clients to raise capital through IPO and debt offerings; in addition, she has assisted clients with significant acquisitions and divestitures throughout her entire career. Mary has served some of the firm’s largest and most strategic clients. Mary has held numerous leadership positions within the New York office and the firm including: NYO Assistant Managing Partner responsible for Quality, People and Client service, CIP Industry Leader, member of the National Audit Leadership Team, and member of various firm task forces, including the partner compensation task force and the first audit improvement task force.

Mary Ropes Partner, National Professional Practice Director Grant Thornton LLP +1 (212) 542-9630 mary.ropes@us.gt.com

Mr. Swanson joined The Compass Group in 2001. Prior to that, Mr. Swanson was with Goldman Sachs. Mr. Swanson is a graduate of the University of Chicago and the Harvard Business School. Mr. Swanson is currently a director and the Chairman of Arnold Magnetic Technologies Corporation. Mr. Swanson also currently serves as a director for of a number of other companies, including American Furniture Manufacturing, Inc., CamelBak Products, LLC and Liberty Safe and Security Products, Inc.

Dave Swanson Partner The Compass Group +1 (203) 221-1703 DSwanson@compassequity.com

Chris Zochowski is a general corporate practitioner that works extensively with both domestic and international clients with respect to:

• Mergers and acquisitions, including asset transactions, segment dispositions, reincorporation mergers, proxy solicitations and issuer self-tender offers.

• Public and private securities transactions, including initial, follow-on and secondary public offerings, shelf registrations, transactions for business development companies, special purpose acquisition companies and permanent capital structures, 144A and Reg S transactions, public debt offerings and offerings under medium-term note programs.

• Specialty finance transactions, including permanent capital transactions involving Business Development Companies, Permanent Capital Acquisition Partnerships, Master Limited Partnerships, REITs, Special Purpose Acquisition Companies, and a variety of both public and private hybrid structures involving long-term or other permanent capital.

• Cross-border and domestic project and structured finance transactions involving a wide range of energy technologies.

• Debt restructurings, including consent solicitations and exchange offerings.

Chris has worked across a wide range of practice areas and industries. He also has extensive experience in structuring and negotiating transactions on behalf of private equity and asset management clients, as well as in structuring and negotiating specialty finance transactions for sponsors in the public markets. In addition, Chris has advised clients on matters relating to periodic reporting and disclosure requirements under the Securities Exchange Act of 1934, compliance with the rules and regulations of the New York Stock Exchange, Nasdaq, the American Stock Exchange and the NASD, compliance with the Public Company Accounting Reform and Investor Protection Act (i.e. the Sarbanes-Oxley Act), Delaware corporate law matters and other general corporate matters.

Chris received his B.A. from Georgetown University in 1993 and his J.D., with highest honors, from The George Washington University Law School in 1997 where he was a member of the Order of the Coif. While in law school, Chris was the Notes Editor of the George Washington Law Review.

Honors & Awards

• Chambers USA, Corporate/M&A & Private Equity - District of Columbia (2015) • M&A Advisor 2013 Corporate/Strategic Acquisition of the Year ($100M - $1B) • M&A Advisor 2012 Corporate/Strategic Acquisition of the Year ($100M - $200M)

Chris Zochowski Chair, Permanent Capital Solutions Practice Co-Chair, Mergers & Acquisitions/Securities/Corporate Governance Practice Winston & Strawn LLP +1 (202) 282-5780 czochowski@winston.com