Private Equity Fundraising Update

John Crocker

Citi Alternatives Distribution

john.crocker@citi.com

PPEA / Paul Capital Conference

February, 2009

Table of Contents

1. State of the Market

2. Fundraising

Citi Alternatives Distribution Group

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� One of the largest players with over 50 professionals

� Global footprint – offices in ten geographies

� Focus on the spectrum of alternative investments – better positioned to understand investor sentiments

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Who we are…

� Only group with dedicated resources to respond to RFP’s

� Only group to hold an invitation only Private Equity Conference – its ninth consecutive year

1

Citi Alternatives Distribution Group – Fully Integrated ModelCiti Alternatives Distribution Group is the only fully integrated group in the industry, allowing us to deliver a full platform and range of services.

Institutional Clients Group

Citi Alternative Investments� US$45 billion of capital under management

� Leading investment centers in:– Private Equity, Hedge Funds, Global Fixed

Income, Infrastructure

Securities and Banking� Preeminent global investment banking

firm

� Foremost global underwriter in combined equity and debt issuance

Global Wealth Management� One of the world's top private banks

� Offices in 100 countries covering 9 million accounts with over $1 trillion in assets under managementIncome, Infrastructure

Citi Alternatives Distribution Group� One of the largest placement advisory teams

� Largest global footprint with offices in nine geographies

� Only team with dedicated Consultant Relations team

equity and debt issuance under management

Over the last four years, Citi Alternatives Distrib ution Group has been the most stable platform in the industry.

2

Distribution Capabilities – Global Coverage

Citi Alternatives Distribution Group Institutional Sales Professionals and Locations

As one of the largest placement teams with “on-the-ground presence” in nine geographies, the depth and breadth of our investor coverage is second to none.

Palo AltoBrian LeftwichAmy Richards

New YorkAri BarkanJohn CrockerMaureen CurranJames HaddonBrian HickeyMichael LashendockMerope Pentogenis

Tokyo Hiroko OgisoKazumoto Takeuchi

Consultants Relations TeamJonathan FreedmanElizabeth HammondKathryn HotzeAundreia ImAmy Lesch

Amy Richards

MinneapolisMark Marxer

LondonNermina HadziabdicJoseph NagaeLaurent de RosièreAndrew WilburDaniel Zinic

AmmanJamal Al-Naif

DubaiJames Eldridge

Singapore Serene Ang Rachel Farrell

Sydney Filo Sedillo

Note: Red denotes Citi Alternatives Distribution Group office.3

Citi Private Equity and Alternatives ConferenceCiti’s industry-leading, invitation-only private equity and alternatives conference brings together over 400 alternative investment professionals from around the globe.

Citi Private Equity and Alternatives Conference

The Ritz-Carlton, Key BiscayneKey Biscayne, Florida

General Partner Speakers from Past ConferencesRobert AndreenNordic Capital

David BondermanTPG Capital

Gordon BonnymanCharterhouse

John CanningMadison Dearborn

Dick CashinOne Equity Partners

J. Taylor CrandallOak Hill

Nigel DoughtyDoughty Hanson

Wesley R. EdensFortress

Don GogelClayton, Dubilier & Rice

Guy HandsTerra Firma

Henry KravisKKR

Lyndon LeaLion Capital

Thomas H. LeeT.H. Lee Co.

Chris O’BrienInvestcorp

Daniel OchOch-Ziff

Richard PerryPerry Capital

David RouxSilver Lake Partners

David RubensteinThe Carlyle Group

Selected Speakers at the 2008 One Equity Partners

Jon CosletTPG Capital

Terra Firma

Josh HarrisApollo

Och-Ziff

Steve PagliucaBain Capital

Limited Partner/Advisor Speakers from Past ConferencesMichael ArpeyCredit Suisse

Andrea AuerbachCambridge Associates

Adam ClemensNew York Life

Paul CrottyPortfolio Advisors

Chuck FlynnBregal

Thaddeus GrayAbbott Capital

Clint HarrisGrove Street

Tim KellyAdams Street

Carol KennedyPantheon Ventures

James KesterAllianz Private Equity

Jim LeechOntario Teachers

Mark WisemanCPP

Selected Speakers at the 2008 ConferenceLeon BlackApollo

John EharaUnison

Erik HirschHamilton Lane

Glenn HutchinsSilver Lake Partners

Michael KimMBK

Hugh LangmuirCinven

Marc Lasry Avenue Capital

John MorrisHarbour Vest

Jonathan Russell3i

Steve SchwarzmanBlackstone

Wray ThornMarathon

Erol UzumeriOntario Teachers

Citi Private Equity and Alternatives Conference rep resents the Firm’s commitment to alternative investors and the industry.

4

1. State of the Market

Global Equity Markets Have Declined PrecipitouslyMarkets in large and small economies have been declining as a result of the credit crisis, economic concerns and panicked sellers.

MSCI World Index (2006-2009YTD)

1,200

1,400

Source: Factset, 2/3/2009.

400

600

800

1,000

Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Feb-09

5

Matched by Credit Markets Being ImpactedFollowing a five year period of unprecedented strength in the leveraged finance markets, the entire market entered a period of dislocation in the Summer of 2007.

Rate Environment – Rising Ted Spread

$91$153 $183

$321$387

$40

$143

$158 $112

$181

$171

$57$89

$125$183$29

$32

$71

New Issue Volume and Refinancing Overhang ($ in billions)

1

2

3

4

5

$91$40

$89

2003 2004 2005 2006 2007 2008 2009 2010 2011

High Y ield Leveraged Loan Upcoming HY Maturities Upcoming Loan Maturities

Annual Default Rates

Source: Altman High Yield Report, S&P LCD.Note: Defaults calculated based on par value and principal amounts defaulted divided by all par and principal amounts outstanding. 2008 High Yield default rate represents projection.

6.6%

9.5%

4.6%

0.5%

5.1%

9.8%

1.6%0.8%

3.4%

12.8%

1.3%

4.7%4.2%

8.0%

3.8%

0.2%0.5%

3.0%

1.0%

2.3%

6.0%6.3%

4.2%

1.5%

98 99 00 01 02 03 04 05 06 07 08 09E

High Yield Leveraged Loans

Source: Citi Syndicate, Citi Yield Book. Note: Does not reflect 2009 YTD high yield new issuance of $4.3B.

2009 Estimates:High Yield = 9.0-10.0%Lev. Loans = 7.0-9.0%

Source: Factset as of 2/3/2009.

0

1

Jan-08 Feb-08 Mar-08 May-08 Jun-08 Aug-08 Sep-08 Nov-08 Dec-08 Feb-09

6

582 585

666

615 613

655620

550582

448

410

400

500

600

700

Number of Private Equity Deals

422

294

519

300

400

500

600

Average Deal Size($ in Millions)

Impacting Private Equity Transactions…

Private equity deals are now much smaller in size and significantly fewer in number.

0

100

200

300

Q106 Q206 Q306 Q406 Q107 Q207 Q307 Q407 Q108 Q208 Q308

Source: Dealogic, November 2008

251

171143

97

155134

0

100

200

300

Q306 Q406 Q107 Q207 Q307 Q407 Q108 Q208 Q308

Source: Standard & Poor’s, November 2008

7

… and the Availability of Leverage

350

370

390

410

430

Average Spread of Leveraged Buyout Loans(vs. LIBOR)

Average Equity Contribution(% of Purchase Price)

Private equity deals involve far less favorable debt terms and require significantly more equity.

34

36

38

40

bps %

250

270

290

310

330

350

2004 2005 2006 2007 1H08 2H08

Source: Standard & Poor’s, November 2008 Source: Standard & Poor’s, November 2008

26

28

30

32

2004 2005 2006 2007 1H08 2H08

8

Market Environment – What are the Key Questions

� Will the credit crisis lead to a fundamental shift in the alternatives fundraising market?

– Yes – while commitments to alternatives will continue, the market will slow and become highly selective

� Is the fundraising market headed for a significant downturn?

– Yes – but probably nowhere near the downturn seen earlier in the decade as smart investors and new entrants continue their long term investment allocation to the asset classclass

� What is the likely complexion of the market players in the future?

– GPs: global brand platforms and specialty leaders will dominate

– LPs: the largest LPs will wield increasing power in the market

9

2. Fundraising

$385

$468$444

$350

$400

$450

$500

1,500

1,750

2,000

Market Dynamics – Reviewing Past Cycles …

The fundraising market has experienced periods of volatility over the past 20 years, but a look at historical trends indicates some differences in the current environment.

Global Fundraising1 from 1988 – 2008 ($ in Billions)

CAGRs

1988–2007 17.4%

2003–2007 48.7%

$22 $21 $19 $20 $20 $26$43

$52$65

$100

$151

$182

$299

$182

$91 $96

$139

$283

$0

$50

$100

$150

$200

$250

$300

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

0

250

500

750

1,000

1,250 S&

P 500 Index

U.S. LBO U.S. VC Other U.S. PE EU LBO EU VC Asian LBO Asian VC S&P500

Source: Venture Economics, January 2009 (as of December 31, 2008).Note: (1) Includes Asia, Europe and the US10

$328

$300

$350

$400

$450

$500

$407 $385

LBO Fundraising (Excluding Venture Capital Funds) …The LBO fundraising market, while impacted by the stock market downturn in 2000, was much less volatile excluding venture capital funds.

Global Fundraising1 — (Excluding VC Fundraising) from 1988 – 2008 ($ in Billions)

CAGRs

1988–2007 18.5%

2003–2007 51.0%

$16 $15 $14 $16 $21$31

$238

$111

$78$80

$124$144

$106$110

$74

$48$38

$15

$0

$50

$100

$150

$200

$250

$300

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

U.S. LBO Other U.S. PE EU LBO Asian LBO

Source: Venture Economics, January 2009 (as of December 31, 2008).Note: (1) Includes Asia, Europe and the US

11

Market Situation – Today

� Many investors, frozen during the last quarter of 2008, may continue that way into early 2009

� The “denominator effect” has left many investors with significant over-allocation to alternative asset classes (over 50%, as surveyed by Preqin)

� FASB 157 has created uncertainty regarding the “true” value of private investments and raised the potential for increased volatility in the value of that portfolio going forward

� Rising default rates cause concern as many of the mega buyout firms are expected have significant wipeouts – potentially resulting in negative returns for many 2005/2006 fund vintages

� Despite the negative news, some investors and gatekeepers view the dislocation as an opportunity. They continue to make commitments, albeit, much more selectively and more deliberatelycontinue to make commitments, albeit, much more selectively and more deliberately

� Some investors have decided to take a focused approach – investing in strategies that can take advantage of the dislocation now and in the foreseeable future

� Investors committing capital are overwhelmed by the hundreds of sponsors in the market

12

Investor Status – By Geographic Region

� In the U.S.:

– CalPERS has gone from $260 billion to $193 billion in plan assets

– State of Oregon – “We are out of capital – will only look at re-ups”

– Ohio Teachers – “We are markedly over-allocated”

� In Europe:

– Currency volatility has become a major issue for Euro-denominated investors

– Welcome Trust has increased their cash allocation

The Denominator Effect

CalPERS example:

Total Assets

�October 2007: $260 billion

�October 2008: $193 billion

– Decrease from peak: ($67) billion

Private Equity Allocation– Welcome Trust has increased their cash allocation

from 1% to 20%

� In the Middle East:

– SWFs are still cash rich but extremely cautious

– Precipitous drop in price of oil will require them to focus on domestic investment, in the short term

� In Asia/Australia:

– Korean investors have largely suspended their overseas investments

– Others are frozen due to over allocation and/or caution

�Year End 2007: 9.2%

�October 2008: 12.4%

To maintain year end allocation CalPERS would need to shed $6 billion of private equity interests.

13

$446 $413

$100

$200

$300

$400

$500

$600

$700

Market Conditions – Looking Forward to 20102008 appears to have marked the beginning of a slowdown in capital raising. Most industry experts anticipate 2009 to be one of the most challenging fundraising years in some time.

What is the outlook for 2009?

• “Established players will have the best chance of raising funds.”

• “The ability to raise capital will also depend on the composition and diversity of a GP’s investor

Global Private Equity Capital Raised(US$ billions)

(7.4%)*

2007FY

$615

$0

$100

Q1-3 07 Q1-3 08

the composition and diversity of a GP’s investor base.”

• “There will be a higher percentage of new non-US investors committing to funds compared to US investors that are in difficult positions.”

• “Outlook for 2009 looks grim… Most predict a decline of 50% from 2008 (fundraising) figures.”

*Source: Private Equity Analyst, January 2009

Source: Private Equity Intelligence Q3 2008 Private Equity Fundraising Update, October 2008

*Decline from Q1-3 07 to Q1-3 08

14

$164

$98

$119$131 $136 $137

$150$155

$161$168

$176$185

$147

$84$95$92$89$87

$109

$141 $145

$100

$120

$140

$160

$180

$200

($155)

($300)

($200)

($100)

$0

US UK

Continued Demand for Alternatives to Fund Pension GapAging populations across the world and pension plan asset/liability mismatch are expected to fuel demand for alternative assets. Pension deficits in the US alone total almost $500 billion.

Pension Deficits($ in Billions)

Private Defined Benefits, Contributions vs. Distributions (1)

($ in Billions)

United States United Kingdom

$30$40 $37

$84 $89$87

$0

$20

$40

$60

$80

$100

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

E

2009

E

2010

E

Contributions Distributions

($489)

($600)

($500)

($400)

($300)

Source: Department of Labor—Private Pension Plan. No.12, Federal Reserve, company reports, Morgan Stanley Research.Note: (1) 2000–2010 estimated by Morgan Stanley Research.

15

Private Equity Returns Have Been Consistently Superior …

Top Quartile U.S. Buyout Returns

Top Quartile private equity returns have shown consistent excess returns versus other indices.

Top Quartile European Buyout Returns

12.8%

30.3%

1.2%

22.1%

Top Quartile U.S.Buyout

0.9%

31.9%

-0.4%

31.2%

Top QuartileEuropean Buyout

Note: Returns are calculated from 06/30 to 06/30 of each considered period. The last period considered ends at 06/30/2008.Source: Venturexpert as of January 2009.

-15.4%

-14.9%

4.8%

5.6%

0.3%

1.2%

-20% -10% 0% 10% 20% 30% 40%

DJIA

S&P 500

1- year 5- year 10- year

-26.8%

-14.9%

7.5%

6.9%

0.5%

-0.4%

-30% -20% -10% 0% 10% 20% 30% 40%

CAC - 40

FTSE

1- year 5- year 10- year

16

7.17.7

7.5

8.9

15.0%

20.0%

25.0%

Alternative Allocations Will Increase Going ForwardAllocations to alternatives in North America and Europe amongst top institutional investors are expected to reach 23.2% and 23.6%, respectively.

Alternative Allocation Among Select Leading Investors

North America

21.7% 21.4%20.7%

23.2%

Europe

15.9%

19.6%20.9%

23.6%

5.3 7.4

8.4

15.0%

20.0%

25.0%

7.1 6.7 6.7 7.37.5

7.57.0 6.5

7.0

2.5

0.0%

5.0%

10.0%

2001 2003 2005 2007 2009E

Real Estate Private Equity Hedge Funds

Source: 2007–2008 Russell Survey on Alternative Investing.Note: Respondents were selected from a broad-based, global list of institutions that manage tax-exempt assets, and those interviewed were qualified to represent the investmentactivities, decisions and views of their organization.

10.0%

5.3%

8.39.8 8.9 9.7

3.6

4.0

4.54.6

5.5

1.7

3.6

0.0%

5.0%

10.0%

15.0%

2001 2003 2005 2007 2009E

Real Estate Private Equity Hedge Funds

17

Situation Analysis: Private Equity Investor Market

The global private equity investor market continues to evolve.

Hi

Future Growth

Aus / N. Z.

Asia (ex. Japan)Middle East Canada

Commitments to Private Equity

Low

Low Hi

Future Growth

Current Share

Source: Citi estimates 7/07.Note: Bubbles reflect estimate of total commitments to private equity.

Japan

Europe

US

18

Evolving Global Sources of Capital

U.S.

Europe

Middle East

� Large share of private equity market but growing slowly� Many well established programs reducing number of relationships� Strategy – become a “core” portfolio holding

� Large market with new entrants� Expand relationship with larger players across countries

� Oil revenues drive increase in commitments for foreseeable future� Number of new entrants by investor type and geography� Important to establish “proper” base from which to expand relationships

� Growth in defined benefit programs spur increase in commitmentsCanada

Asia (ex. Japan)

Japan

Aus / N.Z.

� Growth in defined benefit programs spur increase in commitments� Large established programs with newer programs coming on line

� Growing interest in alternatives with wide spectrum of sophistication and appetite� Need a targeted marketing strategy in general; mostly too early for India and China� Inroads today may prove beneficial in the long run

� Superannuation growth drive markets and will expand� Investors transition from Fund-of-Funds to direct fund investing

� Established players returning to market but focus on well known names� Privatization of pension system could create significant potential� Leverage marquee name to expand base

19

Market Outlook – 2008/2009 and beyond

� The next few years will be challenging for all… but there is light at the end of the tunnel

– 2008 capital raising totals are likely to be 15-20% below 2007 totals

– Capital raising is expected to fall even further in 2009, as much as 50% below depressed 2008 levels

– Depending on the pace of economic recovery, 2010 capital raising could show an upswing

� Limited Partners will have the upper hand

– Investors will be more focused on negotiating on economics and terms

– They may be more reluctant to add new fund manager relationships

– A subset will “cull” their portfolios to better focus on their core manager relationships

� Smart investors will continue to commit capital� Smart investors will continue to commit capital

– Recession vintage years tend to perform best as proven time and time again

– Drive to find alpha continues due to massive amount of pension liabilities around the globe

– Limited alternatives for “value added” capital deployment

� Emerging sources of capital will fuel growth in the asset class

– Sovereign wealth funds will continue to grow and deploy capital in alternatives

– Pension fund growth will continue as many countries focus on their future liabilities

– New entrants to the asset class will be found globally

20

Fundraising Strategies – 2009/2010

� General Partners need to reach out to their LPs and potential investors stressing the importance of long term partnership

� Investors need to be informed of fundraising plans well in advance to allocate appropriately

� Existings must, now more than ever, be the base off of which to build fundraising momentum with a “quiet” first close prior to hitting the broader market

� Marketing cycles are likely to take far longer. Investors will require a significant amount of capital returned prior to considering the next fund

� General Partners may need to strategically cover a far broader base of investors by both geography and type in order to reach their desired goalstype in order to reach their desired goals

21

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