Private Equity and Emerging Domestic Private Equity and Emerging Domestic MarketsMarkets

Marcellus TaylorMarcellus TaylorAldus EquityAldus Equity

April 25, 2006April 25, 2006

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Aldus Equity is a private equity consulting and fund-of-fund firm with a specialty practice focused on Emerging Private Equity Funds

The firm has invested over $350 million into 14 different emerging private equity funds

Aldus manages a $375 million emerging manager program on behalf of New York Common Retirement

The firm has over $2 billion of total assets under management

Key clients include: CalPERS, New York City Retirement, New Mexico, Louisiana State Employees, San Antonio Fire & Police

Aldus EquityAldus Equity

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Emerging Private Equity Market Reaching a Emerging Private Equity Market Reaching a Critical MassCritical Mass

Critical Mass of Assets Large Sub-Sectors

Significant Players

Emerging Private Equity Sub-Sectors($ Billions)

$1.7

$4.5

$3.0

$0.0

$2.0

$4.0

$6.0

Hispanic AfricanAmerican

Fund-of-Funds

EDM Firm Assets Under Management ($ Billions)

$1.2

$8.0

$0.0$2.0$4.0$6.0$8.0

$10.0

1994 2006

Source: Council of Urban Investors Institute

EDM Firm Assets ($M)Palladium Equity $750

Aldus Equity $500Pharos Capital $500Parish Capital $425ICV Capital $410

Bastion Capital $400Nogales Investors $275

Syncom Communications $250

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Pension Funds Investing in Emerging Private Pension Funds Investing in Emerging Private

Equity FundsEquity Funds

CalPERSCalSTRS

New York CommonTexas Teachers

Illinois State RetirementChicago Police

New York City RetirementChicago Teachers

Illinois Municipal RetirementLos Angeles County Employees

Philadelphia RetirementMassachusettes Bay Transit

New Mexico State Investment CouncilLACERSLACERA

Teachers Retirement of LouisianaChicago Teachers

Shelby County of TennesseeChurch Pension Fund

Connecticut RetirementIllinois Teachers

New York PresbyterianRennesseleyer Polytechnic Institute

Prince Georges CountyWashington DC Retirement

Chicago TransitNew Jersey RetirementMassachusettes PRIM

Los Angeles Fire and Police

Wells FargoNokia

RaytheonVerizon

John DeereDisneyCitibankAXA

Deutsche BankMerrill LynchNew York Life

PrudentialGeneral ElectricGeneral MotorsLockheed Martin

SunAmericaArcher Daniels Midland

ExelonBoeing

Formal Emerging Programs Public Pensions Corporate Pensions

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Access to differentiated deal flow which enhances diversification and reduces total portfolio risk

Emerging funds have proven ability to generate proprietary deal flow

Emerging funds have a stronger sense of alignment with LP’s– Can’t generate wealth through excessive management fees– Typically more motivated and hungry than established firms

Provides opportunity to cultivate long-term relationships with tomorrow’s private equity stars– Ensures strong access to best performing future funds

Benefits of Investing In Emerging Private Benefits of Investing In Emerging Private

Equity FundsEquity Funds

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Historically, many of the most successful private equity firms achieved strongest performance investing first or second funds

A recent Kaufman Foundation study revealed that minority private equity firms generated an average IRR of 23.9%

Why Invest in Emerging Why Invest in Emerging Managers?Managers?

Sources: Kauffman Foundation: “Minorities and Venture Capital: A New Wave in American Business”. Kaufman survey of 24 minority-focused firms making investments during the 1989-1995 period. Private Equity Intelligence, Ltd., Fund private placement memos.

Firm Fund I Fund IIKKR 22.5% 39.7%Blackstone 41.7% 87.5%Thomas H Lee 55.1% 23.7%Welsh Carson 49.0% 24.0%Clayton Dubilier 116.8% 84.1%Carlyle Group N/ A 19.0%Hicks Muse N/ A 18.6%

Emerging Managers Have Demonstrated an Ability to Generate Strong Returns

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Individual Track Record Analysis– Investment performance at prior firms– Attribution Letters– Extensive reference checks

Team Cohesion and Team Stability– Previous working relationships and shared experiences – Broad ownership across the partnership

Access to Quality Deal Flow– Successful deal sourcing at prior firms– Preliminary deal pipeline report

Comprehensive Investment and Due Diligence Process– Systematic approach to evaluating deals– Sufficient documentation and analysis throughout the

process

How to Evaluate Emerging Private Equity How to Evaluate Emerging Private Equity

FundsFunds Critical Due Diligence Items

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Emphasis on generating strong returns should never be compromised

Thorough due diligence is critical

Requires a specialized advisor who has experience investing in a diversified pool of Emerging Funds

Investors should maintain a “portfolio” driven approach to investing in Emerging Funds– Diversified across key sub-strategies– Sufficient vintage year diversification

Keys to Investing in Emerging Private Keys to Investing in Emerging Private Equity Funds Equity Funds