private equity: how to access wim borgdorff – alpinvest partners

Private Equity: How to accessWim Borgdorff – AlpInvest Partners

February 16, 2004

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Agenda

• Introduction to AlpInvest Partners

• Co-investments

• Fund Investments

• Secondaries

• Contact details and disclaimer

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Profile AlpInvest Partners

A global private equity firm fully dedicated to private equity withapproximately EUR 20 billion under management

• Independent firm with discretionary strategy and investment decision making

• Global investment strategy with main offices in Amsterdam and New York

• Full spectrum investor comprising primary and secondary fund investments, co-investments, lead investments and mezzanine

• Broad resources comprising over 100 staff members including 60 dedicated private equity investment professionals

• Institutionalized firm with long term commitment by key sponsors ABP and PGGM who recognize private equity as an asset class to which they should have a long term commitment

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Integrated approach

KNOWLEDGE ANDRESOURCE SHARING

SYNERGIES BETWEENSPECIALIZED TEAMS

INTEGRATED INVESTMENTDECISION MAKING

Expandingnetwork

Marketknowledge

Assessmentunderlying portfolio

Assessmentgeneral partner

Deal flow

Secondaryco-investment

portfolios

Fundinvestments

Secondaries

Co-investments

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Three prerequisites to be a successful private equity fund of funds manager

• Private equity universe comprises over 3500 GPs and is expanding both in terms of number as well as shape and form

• Wide dispersion in performance between GPs

• Vast information asymmetry between GP and LP

Broad market reach and access

• Partnership agreements not ‘standardized’

• Expensive asset class

Superior Selection skills

Ability toImprove termsAnd conditions

Ability toImprove termsAnd conditions

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Difference in performance is material

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• Co-investments


• Secondaries


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Investment approach

Investment strategy for later stage co-investments

• Geographic focus: exclusive focus on expansion and buyout transactions both in

Europe and North America

• Investment size: up to EUR 100 million with an average between EUR 20-60 million

• Sweet spot: investments will typically be made to the extent that they fall within the

sweetspot of the general partner

• Board representation: For substantial co-investments, AlpInvest Partners will seek

board representation

• Diversification: expected to close on average 10 investments per annum

9This is further explained on the next slide

The added value of co-investments

CO-INVESTMENTS ENHANCE THE RETURN PROFILE OF A FUND INVESTMENTPROGRAM

• Improve terms and conditions

– No transaction fee

– No management fee

– No carry

• Improve the selection capability for primary and secondary fund investments

– ... BY HAVING A VALUABLE LOOK ‘IN THE KITCHEN’

– Operating style

– Breadth and depth of organization including key decision makers

– Value creation skills

• Reduce J-curve

Bridge information asymmetry between GP and LP

10Source: AlpInvest Partners team analysis (The J-curve would further improve by adding a secondary allocation to the investment focus)

-100%

-50%

0%

50%

100%

150%

200%

250%

Time in quarters

% o

f co

mm

itte

d c

apit

al

J-curve FOF including 12.5% co-investments

J-curve FOF excluding co-investments

The added value of co-investments

CO-INVESTMENTS REDUCE THE J-CURVE OF A FUND OF FUNDS PRODUCT

0 30 40 5010 20

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Key success factors

AN INTEGRATED INVESTMENT APPROACH IS A KEY REQUIREMENT FORSUCCESSFUL IMPLEMENTATION OF A CO-INVESTMENT PROGRAM

• Origination

– A (significant) primary fund commitment is a prerequisite to attract co-investment deal flow

Continuous marketing of co-investment appetite

• Execution

A professional operating style including an efficient, transparent and reliable decisionmaking process

A two tier investment approach by making an in-depth assessment of both the:

• GP and • The transaction

A transaction should fit the GP’s ‘sweet spot’

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• Co-investments


• Secondaries


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Investment approach fund investments

AlpInvest Partners adheres to a disciplined approach of investing

with the aim to annually select the best in breed managers:

• annual investment program approximately EUR 1.2 - 1.5 billion

• annually 20 - 30 commitments to primary funds

• geographically diversified (US, EU, Rest of the World)

ALLOCATION OF PRIMARY FUNDS

VENTURE CAPITAL

GROWTH & MID-MARKET

BUYOUTS

LARGE BUYOUTS

TOTAL

NORTHAMERICA

EUROPE EMERGINGMARKETS

TOTAL

10-25%

10-30%

10-20%

30-60%

0-10%

10-30%

10-20%

30-60%

0-10%

0-10%

0-10%

5-25%

20-35%

40-60%

25-45%

100%

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Disciplined top-down allocation and bottom-up selection

Top Down Allocation Targets

Top DownAllocation

Bottom Up Selection

• Mandate; i.e. capital to be deployed, target segments, # slots and ticket sizes, time-frame

• Balanced Private Equity Portfolio

Short term Portfolio Adjustments

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Deriving top down allocation targets within the private equity asset class is a difficult and

painstaking process, due to imperfect and inconsistent data. However, opportunistic

allocation-approaches based on untidy research leads to herd behavior

...if you don’t know where you are heading, any road will get

you there...

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Selection makes the difference

D

Source: AlpInvest Partners team analysis of Venture Economics data

Graphical representation of estimated fund performance distribution for European 1995 funds

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• Co-investments


• Secondaries


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Focus

• To provide liquidity or portfolio solutions for investors in private equity. The

spectrum of solutions ranges from

– single limited partnership interest or entire portfolios of limited partnership

interests in primary funds

– interests directly in portfolio companies underlying such primary funds

– joint ventures

• All investment stages and geographies may be included

• Investment range between EUR 5 - 500+ million

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Secondary investments are part of integrated approach to private equity markets

• Similarities with primary fund investments and co-investments

– All transactions involve contacts with and co-operation of General Partners (i.e. transfer consent and reference checks)

– Access to proprietary information on General Partners and portfolio companies is crucial for the assessment of transactions

• Distinguishing features from primary fund investments

– Underlying assets are (largely) known vs. a blind pool – Secondary investments have earlier positive cash flows

• Distinguishing features from co-investments

– Portfolio of assets vs. one single asset– Secondary investments have earlier positive cash flows

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• Co-investments


• Secondaries


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Contact detailsFor further information please contactWim Borgdorff - Jan Moulijn – Head MarketingManaging Partner, HeadFund Investments

Office address Postal addressJachthavenweg 118 P.O. Box 753041081 KJ Amsterdam 1070 AH AmsterdamThe Netherlands The Netherlands

Telephone+ 31 20 540 76 10 Wim Borgdorff+ 31 20 540 75 22 Jan Moulijn+ 31 20 540 76 33 Secretary Kristine van PeteghemFax +31 20 540 75 03E-mail [email protected]

[email protected]@alpinvest.com

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Disclaimer

This confidential presentation (the “Presentation”) is being furnished to the recipient on a confidential basis. By its acceptance hereof, each recipient agrees that the Presentation may not be reproduced or distributed to others, at any time, without the prior written consent of AlpInvest Partners and that the recipient will keep permanently confidential all information contained herein not already in the public domains. The recipient should only rely on its own examination of the information contained or incorporated by reference in the Presentation. The distribution of the Presentation shall not under any circumstances imply that the information contained in the Presentation is correct as of a date subsequent to the date of the Presentation or create any implication or constitute a representation that there has been no change in the business or affairs of AlpInvest Partners or any other information contained in the Presentation since the date hereof. The recipient should not construe the contents of the Presentation as investment, legal, business, accounting, tax or other advice. Certain information contained in this Presentation has been obtained from third-party sources. Although AlpInvest Partners believes that such third-party sources are reliable and is not aware of any misstatement as of the date of this Presentation, it has not independently verified such information.

private equity: how to access wim borgdorff – alpinvest partners

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