private equity opportunities in distressed...

Private Equity Opportunities In Distressed Assets Jay Koh

October 2013 Confidential

Private Equity Opportunities In Distressed Assets October 2013 02

What’s Next?

“If the incoming data are broadly consistent with this forecast, the Committee currently anticipates that it would be appropriate to moderate the monthly pace

of purchases later this year”

FOMC Meeting, June 19, 2013

“Conditions in the job market today are still far from what all of us would like to see. The committee has concern that rapid tightening of financial conditions in

recent months would have the effect of slowing growth.”

FOMC Meeting, September 18, 2013


What’s Next?

Source: Capital IQ.

Source: JP Morgan: Key Emerging Markets and Developed Asia Fund Flow Weekly, September 2013. *Source: Bernanke, FOMC Meeting. June 19, 2013

(8,000) (6,000) (4,000) (2,000)

-‐ 2,000 4,000 6,000 8,000

10,000 12,000

Total Emerging Markets G lobal EmergingMarkets

Asia (Ex. J apan) Latin America EMEA

Emerging Markets Fund F lows ($ Millions)

2013 YTD August 2013

5.09%

10.64%

-‐2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00% Developed Market Public Equity Performance (J une -‐ YTD)

S &P 500 EURO S TOXX

Macro Overview


Market Environment: Understanding the Yield Chase

+  Investors have moved to higher risk credit

Index Yield

A2/P2 Non-financial (30-day) 0.34%

3-Month LIBOR 0.24%

CPI-U (August) 1.80%

Barclays US Aggregate Index 2.38%

Money Market Returns (as of October 10, 2013)

Source: Bloomberg, JP Morgan, Barclays, Board of Governors of the Federal Reserve System, Bureau of Labor Statistics. CPI-U represents the CPI for all urban consumers (for all items) in August and 12-month trailing. 1. Index price levels as of 11 October 2013. 2. Yield as of 15 October 2013

0

10

20

30

40

50

0

500

1000

1500

2000

2007 2008 2009 2010 2011 2012 2013 YTD (10/10)

%

spre

ad

, b

p

High Yield Leveraged Loans VIX - RHS Axis

Cash returns are negligible and below inflation Tradition Fixed Income Benchmarks Harbor

Significant “Risk-Free” Exposure

+  Minimal increase in rates could wipe out index returns

+  Current income strategies are expensive

+  High yield market trading above par1

+  U.S: 103.6 percent of par +  Euro: 105.2 percent of par +  Sterling: 106.1 percent of par

+  Leveraged loan market trading near par +  U.S: 98.4 percent of par1

+  The Republic of Rwanda priced a $400 million senior unsecured bond at 6.625% coupon

+  Currently trades at ~8.1% yield2


Market Environment: A New Interest Rate Environment

Source: Bloomberg.

+  Significant steepening since the beginning of 2013

Date 12/31/2012 06/19/2013 09/18/2013

2/5s 0.48% 0.94% 1.11%

2/10s 1.51% 2.05% 2.37%

2/30s 2.70% 3.10% 3.43%

U.S. Treasury Rate Curve

-

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

1M 3M 6M 1Y 2Y 3Y 5Y 7Y 10Y 30Y

Inte

rest

Rate

, %

12/31/2012 6/19/2013 (Taper) 9/18/2013 (Taper Delay)

Distressed Market


Characteristics of Distressed Investing

Cyclical / Episodic

Process Oriented Event Driven

Deep Value

+  Capital market events +  Refinancing risk +  Supply / demand dynamics

+  Internal and external drivers +  Cash flow coverage of fixed costs +  Leveraged balance sheets

+  Strategic defaults +  Protection from “run” on company by suppliers +  Pension management issues +  Legal liabilities

+  Broad market distress correlates with +  Business cycles +  GDP expansion / recession cycles +  Global trade and capital flows

+  Idiosyncratic episodes create momentary increases in systemic risk

+  Fraud: 2000 – 2002 +  Tort actions: 2002 – 2003 +  Labor: 2005 – 2008 +  GFC: 2008 – 2009

+  Rising uncertainty contributes to rising required rates of return and lower entry prices

+  Yields and prices inversely related

+  Contractual or structural limits cap universe of buyers +  Selling pressure exceeds buying power

+  Prices fall below intrinsic or liquidation values +  Capital appreciation and time dominate return

scenarios

+  Bankruptcy +  Legislative rules +  Court dynamics +  Corporate and capital structure +  Investor groups

+  Reorganization and restructuring +  Negotiation

+  M&A transactions +  Regulatory constraints


Risks of Distressed Investing

Execution Risk

Process Risk Default Risk

Valuation Risk

+  The question of solvency +  Near-term driven by current assets and current

liabilities +  Long-term cash flow is insufficient to service

fixed costs including financing costs

+  Looming maturities can provide an impediment to solvency and trigger default

+  Access to capital markets mitigates this risk

+  Strategic financial restructurings are often interpreted as defaults despite being executed outside the purview of the courts

+  Sourcing +  Idea generation +  Price discovery

+  Counterparty

+  Long dated settlement processes +  Concentrated portfolio construction

+  Liquidity +  Deal size +  Exit strategy

+  Valuation is highly subjective +  Assumption based modeling methodologies

+  Market or enterprise value +  The value of the firm through the instrument that

bears the majority of the equity risk

+  Intrinsic value +  The value of the firm as a whole +  May be different from market value

+  Liquidation value +  Selling value of assets or businesses

+  Bankruptcy / reorganization process +  Complicated corporate and capital structures +  Diverse holders with divergent interests +  Court process contains significant level of

interpretation +  Heavily reliant on negotiation

+  M&A process

+  Access to capital to help fund purchase price +  363 sale process in court

+  Regulatory process +  Regulatory oversight to mature industries


Broad-Based Approach

Siguler Guff’s Distressed Opportunities Funds Evaluate Many Asset Classes

CORPORATE Senior Secured

Bank Loans Bonds

Trade Claims Preferred / Common Equity

STRUCTURED PRODUCTS Residential MBS

Asset-backed Securities Commercial MBS

Collateralized Loan Obligations Collateralized Debt Obligations

REAL ESTATE Core vs. Non-core

Debt vs. Equity Office

Warehouse Retail

Hospitality

SPECIAL SITUATIONS Financials / Banks

Non-performing Loans Secondaries

Pharmaceutical Royalties Ships / Shipping

Aircraft

Opportunistic Investment Spectrum

U.S Corporate Debt & Equity


The Quest for Yield has Contributed to a Significant Tightening of Spreads

Sources: JP Morgan Chase Research, S&P/LCD

589

1731

657

577

754

561 561

377

1415

608

499

611

534 482

250

450

650

850

1050

1250

1450

1650

1850

2007

2008

2009

2010

2011

2012

2013 Y

TD

High Yield Leveraged Loans

Corporate Debt and Equity Y

ield

Sp

read

(b

asi

s p

oin

ts)


As Issuance Increases…

154 208

160 91

129 126

242 312 290

474 536

125

219

435 475

670 619

0

200

400

600

800

19

97

19

98

19

99

20

00

20

01

20

02

2003

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

2013 Y

TD


Sources: JP Morgan Chase Research, S&P/LCD

Corporate Debt and Equity N

ew

Issu

ance ($ b

illio

ns)

…and Leverage Rises...

5.2x 4.5x

4.0x 3.7x 3.8x 3.9x

4.2x 4.3x 4.4x 4.9x

3.8x 4.0x 4.2x 4.2x 4.9x

0.0x

1.0x

2.0x

3.0x

4.0x

5.0x

6.0x

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Leve

rage M

ulti

ple

of N

ew

Is

suance

Source: S&P/LCD


…A Default Cycle Builds

Sources: JP Morgan Chase Research, S&P/LCD; default rate calculated as a percentage of outstanding high yield and/or leveraged loan issuance in dollars

1.1% 1.3%

0%

2%

4%

6%

8%

10%

12%

14%

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012


Corporate Debt and Equity

Defa

ult

Rate


Distressed Debt in the News

Distressed Debt Opportunities in 2013 / 2014

TXU Energy American Airlines Cengage Learning Others

+  TXU Energy (“TXU”), (Energy Future Holdings), wholly owns Texas Competitive Electric Holdings (“TCEH”) and an 80% stake in Oncor

+  Oncor, a regulated utility, has the largest transmission and distribution system in Texas

+  TCEH owns Luminant, the largest generation company in Texas, and TXU Energy, the largest unregulated retail business in Texas

+  TXU’s $49 billion buyout in 2007 was the largest ever

+  2Q13 LTM Total Revenue: $5.7B +  2Q13 LTM EBITDA: $1.4B +  2Q13 LTM Net Income: -$3.0B +  2Q13 Total Debt: $42.0B

+  Natural gas was $7.50/MMBTU when the LBO was completed, now hovers around $4.00/MMBTU, due to recent innovations, weather and economic activity

+  Natural gas forward curve only shows modest appreciation for several years

+  TXU bank debt currently trades in the high 60s

+  Major U.S. airline owned by AMR Corp., headquartered in Fort Worth, Texas

+  AMR Corp. filed for Chapter 11 bankruptcy protection in November 2011

+  Bankruptcy was driven by an increase of fuel prices, the loss of business customers to competitors and union contracts

+  2Q13 LTM Total Revenue: $24.9B +  2Q13 LTM EBITDA: $1.9B +  2Q13 LTM Net Income: -$11.0MM +  2Q13 Total Debt: $12.8B

+  American Airlines and US Airways announced plans to merge in February 2013

+  Merger was challenged in August 2013 over antitrust concerns by the U.S. Department of Justice, along with attorney general’s of several states

+  American Airlines and US Airways have both said that they will fight against the lawsuit and defend their merger

+  Cengage Learning (“Cengage”) is a publisher of print and digital information services for the academic, professional and library markets; sells textbooks, educational software and training programs

+  Cengage was formerly Thomson Learning, part of the Thomson media conglomerate of Canada, which sold for approximately $7.8B in 2007 when the company was preparing to merge with Reuters

+  Cengage filed for Chapter 11 bankruptcy protection in July 2013 due to an overwhelming debt load

+  2012 Total Revenue: $406.9MM

+  2012 EBIDTA: $102.5MM

+  2012 Total Debt: $5.3B

+  Cengage bank debt currently trades in the low 70s

Examples of recent distress / defaults in the market include:

+  Aurora Diagnostics

+  Dex One

+  Eagle Bulk

+  Excel Maritime

+  Exide Technologies

+  Furniture Brands

+  Gatehouse Media

+  Genco

+  Global Container

+  Longview Power

+  MSD Performance

+  Oncure

+  Orchard Supply Hardware

+  Powerwave

+  Revel Entertainment

+  Rural Metro

+  School Specialty

+  SuperMedia

+  Syncora

+  Yellow Book USA

Sources: Bloomberg, Capital IQ, Markit, J.P.Morgan Markets Research, SEC.gov

European Corporate Debt & Equity


1Source: U.S. GDP from Bureau of Economic Analysis. Units in percent, quarter over quarter, in constant prices. Eurozone GDP from Eurostat. Analysis in percent, quarter over quarter, in chained 2009 dollars SAAR. 2Source: Eurozone Manufacturing PMI from Markit Index data. 50 denotes growth. Eurozone Consumer Confidence from European Comission. 3Bloomberg, Eurostat, Bureau of Labor Statistics. 4Bloomberg, European Central Bank, Bank of Japan, FDIC.

European Corporate Debt and Equity

(2.0)

(1.0)

-

1.0

2.0

3.0

4.0

5.0

Eurozone US

-30

-25

-20

-15

-10

-5

0

40

45

50

55

60

Manufacturing PMI Consumer Confidence (RHS)

GDP Growth Rates1 are Improving Eurozone PMI and Consumer Confidence2

% G

DP

Gro

wth

Ind

ex

Valu

e Ind

ex V

alu

e

Eurozone Unemployment Remains High3 European Bank Deleveraging Just Beginning4

6.0

7.0

8.0

9.0

10.0

11.0

12.0

13.0

14.0

Eurozone U.S.

% U

nem

plo

yment

70%

90%

110%

130%

150%

0 24 48 72 96 120 144 168 192 216 240

Loans

to D

ep

osi

ts

Months After Peak

US (Peak 3Q'07)

UK (Peak 2H'08)

Japan (Peak 1993)

Italy (Peak 4Q'08)

Spain (Peak 4Q'08)


Tactical Investing: European Non Performing Loans

Deal Description

NPL Sales by European Banks Current Market Perspective

Investment Rationale / Market Opportunity

+  European distressed debt will be one of the largest global investment opportunities in absolute dollar size

+  The EU banking system has €24 trillion of loans, compared to $7.3 trillion in the U.S.(1)

+  Regulatory changes (Basel III) adds deleveraging pressure

+  Europe is experiencing substantial economic challenges +  Pressures pricing on existing NPL stock +  Contributes to NPL inflows

+  Separate Account with Cerberus Capital Management

+  Dedicated European non-performing loan mandate

+  Strong local management team

+  Multi-pronged servicing approach +  Cerberus has both an internal servicing team and

relationships with leading servicers in the U.K., Germany, Spain, and Italy.

+  Proprietary pricing model

+  Breadth of the market opportunity +  KPMG estimates over €1.5 trillion of NPLs sitting

on European banks’ balance sheets(2)

+  Low entry prices from distressed sellers +  Compliance with the new regulatory capital

requirements will lead to motivated sellers of NPLs

+  The ECB’s stimulus programs have helped banks return to moderate earnings levels, allowing loss absorption to begin

(1) Source: Thomson Reuters; McKinsey Global Banking Pools . (2) KPMG, Global Debt Sales Survey 2012, June 2012

Structured Products


Structured Products

Sources: Bloomberg, SIFMA; data as of December 31, 2012; Treasury Debt includes interest bearing marketable public debt; Structured Products includes mortgage related debt and asset backed debt; Market for S&P 500 and Dow Jones Industrial Average measured by total market capitalization of companies whose securities are included in each equity index.

Size and Breadth of Market Lends Itself to a Multi-Strategy Approach

GNMA, FNMA, FHLMC MBS/CMOs and private label MBS/CMOs, auto, credit card, home equity, manufacturing,

student loans and other; CDOs of ABS are also included

Est

imate

d M

ark

et

Siz

e ($ b

illio

ns)

13,534

10,921

9,857 9,088

3,912 3,715

2,461 2,084

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

S&P 500 Treasury Debt

Structured Products

Corporate Debt

Dow Jones Industrial Average

Municipal Debt

Money Markets

Federal Agency

Securities


Structured Products

RMBS: A Housing Recovery Story

100

125

150

175

200

225

Jan-0

0

Jan-0

1

Jan-0

2

Jan-0

3

Jan-0

4

Jan-0

5

Jan-0

6

Jan-0

7

Jan-0

8

Jan-0

9

Jan-1

0

Jan-1

1

Jan-1

2

Jan-1

3

S&P/Case-Shiller Composite-20 Home Price Index

Source: Bloomberg. Seriously delinquent loans refers to loans that are 90 days or more delinquent or in the process of foreclosure. REOs not included.

Ind

ex

Valu

e

Jul-1

3

0

5

10

15

20

25

30

35

Mar-0

2

Jul-0

2

Nov-0

2

Mar-0

3

Jul-0

3

Nov-0

3

Mar-0

4

Jul-0

4

Nov-0

4

Mar-0

5

Jul-0

5

Nov-0

5

Mar-0

6

Jul-0

6

Nov-0

6

Mar-0

7

Jul-0

7

Nov-0

7

Mar-0

8

Jul-0

8

Nov-0

8

Mar-0

9

Jul-0

9

Nov-0

9

Mar-1

0

Jul-1

0

Nov-1

0

Mar-1

1

Jul-1

1

Nov-1

1

Mar-1

2

Jul-1

2

Nov-1

2

Mar-1

3

Prime Subprime

Serio

usl

y D

elin

quent

Loans,

% o

f T

ota

l Loans


Tactical Use of Managers: Angelo Gordon November 2011

Deal Description

Current Market Perspective Due Diligence Process


+  Deep market diligence +  Severity of housing downturn +  Consumer credit quality across asset exposure

+  Highly negotiated structure

+  Lower fees on invested capital +  Ability to grow or curtail the mandate

+  Asymmetric risk profile +  High upside potential +  High current yield +  Liquidity through deleveraging

+  Separate Account with Angelo Gordon & Company

+  Opportunistic investment in structured products +  Assets include non-residential ABS and residential

MBS +  Alt-A +  Subprime +  Consumer receivables +  Non-performing loans

+  Acquire structured credit bonds at significant discount

+  Moderate use of leverage

+  Structured products market re-priced lower following heightened volatility in mid-2011

+  Price discount drivers: +  European sovereign debt crisis +  U.S. fiscal policy uncertainty & rating downgrade +  Maiden Lane unwind +  European sovereign debt crisis +  Continued mark-to-market home price losses +  Forced sellers due to:

+  Liquidating hedge funds +  Institutional de-risking +  Regulatory pressure

+  Asset class benefited from quantitative easing +  Direct purchases of RMBS +  Low interest rates +  Significant floating-rate exposure

+  Lower risk profile today than at purchase +  De-levered capital structure +  Fundamental improvement in housing due to:

+  Lower inventory stock +  Improved modification programs +  Improved consumer balance sheet health

Real Estate


Commercial Real Estate

Severe Valuation Declines

25

50

75

100

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Moody's/RCA CPPI S&P 500

24% below peak value

1 year lag

Source: Moody’s/RCA Commercial Property Price Index (CPPI) – Core Commercial Composite Index, Bloomberg

Oct 2007 Index Value = 100

8% below peak value

Ind

ex

Valu

e



Distressed vs. Stabilized Pricing

Sources: RCA, Moody’s – Commercial Property Price Index (Moody’s CPPI), Green Street Advisors – Commercial Property Price Index (Green St CPPI) Note: For this chart, both indices were indexed to 100 at their respective peaks: Green St CPPI (August 2007) and Moody’s CPPI (October 2007). The release of Moody’s data tends to lag Green Street by approximately two months (hence the shorter tail length of the red line).

75.8

100.4

50

60

70

80

90

100

2006

2007

2008

2009

2010

2011

2012

Moody's/RCA CPPI (All) Green Street CPPI (Core)

Ind

ex

Valu

e



Significant Debt Maturities

320 326

346 362

371

345 340

308 293

171

122

94

0

75

150

225

300

375

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Bank Loans CMBS Life Company Loans Other

Source: Trepp, estimated as of December 2012

Face V

alu

e o

f D

eb

t In

stru

ments

($ b

illio

ns)


Opportunistic Investing: Rialto November 2010

Deal Description



+  After 8 in-person meetings (extensive diligence, deal-level loan tape reviews, etc.) Siguler Guff led the first closing with a $100 million commitment, alongside the manager’s $90 million

+  After observing the manager over the first year of the investment period, Siguler Guff committed an additional $75 million to the fund given combination of market

opportunity, manager’s process, current performance, and clarity towards the fund’s final portfolio construction

+  Siguler Guff’s first-look co-investment right led to additional commitments of $65 million to four direct transactions

+  Fund level investment (initial commitment Nov 2010) and 4 supplemental co-investments with Rialto

+  Siguler Guff is the largest investor and secured advantageous economic/governance terms

+  Manager buys distressed or advantageously priced real estate debt (typically large portfolios of loans collateralized by real estate), often from troubled financial institutions

+  Acquire loan pools at significant discounts to par +  Approximate purchase price: 30-50¢

+  High CRE leverage (partly due to rampant securitization) precipitated higher prices, and ultimately more distress

+  Numerous banks, financial institutions, and real estate

operating companies have trillions of dollars of underperforming and illiquid assets on their balance sheets

+  In Sept. 2010, 860 banks were listed by the FDIC as “in danger of failure,” the most since 19931

+  Highly experienced fund management team with specialists in loan workouts, asset repositioning, capital markets and commercial properties

+  Average resolution to date: approx. 80% of UPB2 (only on resolved assets where average acquisition price was approx. 46% of UPB)

+  Non-Performing Loans (approx. 2,400 loans acquired):

+  Average asset balance: < $1 million +  Top geographies: 19% GA, 18% FL, 14% SC +  Top property type concentration: 25% retail

+  CMBS Transactions (approx. 1,200 loans acquired):

+  Top geographies: 13% NY, 12% CA, 10% TX +  Top property type concentration: 39% retail

(1) Source: FDIC. (2) Please note this is not an indication of future or anticipated performance for the investment, but rather a sample of recent resolutions by the Manager. Note: Past performance does not guarantee future results. There can be no assurance that this investment or specific transaction will ultimately be profitable. All figures herein are based on data and assumptions provided by the underlying manager, but this presentation has not been verified by the manager.

Opportunistic / Niche Investments

Investment case studies discussed in the following pages area a sample of investments held in Siguler Guff and Russia Partners funds. They are not reflective of the entire portfolio. There can be no assurance that these investments will ultimately be profitable.


Experienced Analysis of Secondaries: Project Pilgrim July 2012

Deal Description



+  Multi staged diligence process / failed auction

+  Analyzed underlying assets +  Comparable companies and transactions

+  Clear visibility on asset liquidations +  Low downside due to near term liquidity

+  Asymmetric risk profile +  High expected returns

+  A combination of self-liquidating assets and liquidity through public markets

+  Tender offer to a European hedge fund-of-funds that managed 10 side pocketed vehicles since 2008

+  One of the 10 side pockets contained LP investments in four distressed funds already in the DOF book

+  Several large investors in this side pocket had expressed strong interest in early liquidity

+  Siguler Guff tendered for total NAV of $202 million +  $54 million tendered to Siguler Guff

+  Siguler Guff transferred its holdings out of the hedge

fund-of-funds to avoid fees and maintain control

+  We believe underlying assets are trading cheap to intrinsic value

+  Market heavily discounted assets due to the lack of control through a fund-of-funds structure

+  Hairy assets, significant discount +  Large exposure to Japanese real estate +  Lack of transparency for non-existing investors

+  Lower downside risk at our purchase price +  Highly diversified portfolio +  Buying cash at a discount +  Strong visibility into underlying assets through

Siguler Guff’s relationship with GP

+  Improved exit environment for underlying assets +  Largest holding liquidated in early 2013 at a

premium to Siguler Guff’s purchase price +  Significant cash distributions expected as the

global equity markets continue to appreciate

+  Lower risk profile today than at purchase +  Siguler Guff has received 50%+ of its cost basis

back in seven months since the transaction closed

+  Underlying asset appreciation in all four funds


Efficient Deployment into a Thesis: FrontMarine August 2013

Deal Description

Dry Bulk Utilization Forecasts1 Current Market Perspective


+  Dry bulk market has stagnated with majority of the world fleet operating around breakeven

+  Severe downturn in the market has significantly affected pricing of both existing vessels and newbuilds as shipyards have come under increased pricing pressure

+  Industry experts forecast a recovery in the dry bulk sector beginning in 2013/2014

+  Recovery is directly tied to fleet utilization rates +  Fleet supply continues to decline, while demand

has held at a steady rate

+  Direct equity investment with a ship owner and operator

+  Shipping management company that will own and operate vessels in the dry bulk shipping sector

+  Fleet of four newbuild eco-design vessels to be delivered in the second half of 2015 from a Tier 1 Chinese shipyard

+  Eco-design vessels will provide significant fuel savings compared to the existing dry bulk fleet

+  Severe market dislocation in 2009-2012 caused by excessive shipbuilding and orderbook into the global financial crisis

+  Acquiring portfolio of vessels at a cheap point in cycle at below intrinsic value

+  Low downside risk +  Vessel order prices near historic lows +  Fleet will operate above breakeven, even in

today’s historical market lows, including cash outflows for servicing of debt

(1) Source: DNB Markets, Shipping – Q2 Previews, Dry bulk is the next product. July 3, 2013.


Niche Strategies: Royalty Pharma November 2011

Deal Description



+  Identified parameters of market and participants +  Handful of potential experienced partners

+  Existing familiarity with safety and efficacy data of several assets in the portfolio through historical investments and due diligence

+  Analyzed sales history and analyst projections for existing products in portfolio

+  Evaluated deal pipeline

+  Evergreen royalty fund

+  Raised $345 million of new capital in November 2011 ($40 million allocation to DOF III and IV)

+  Portfolio includes 30+ royalty interests on approved pharma and biotech products

+  Primarily “blockbuster” products with >$1 billion sales and high quality marketer counterparties

+  Attractive historical cash yield and capital appreciation

+  Virtually no J-curve due to investing in existing portfolio of assets

+  Highly diversified portfolio (by product, indication, duration, and marketer)

+  Vast majority of investments (# and $) in approved and established products, mitigating development and commercialization risks

+  Extremely high barriers to entry, especially for larger transactions with large corporates who prioritize credible bidders

+  Anticipate continued strong deal flow, and need to raise more capital

+  Siguler Guff positioned to obtain additional exposure

+  Range of transaction sizes available as small-, mid- and large-cap biopharma companies seek cash to fund R&D activities

+  Continued scarcity of competition for larger transactions; few credible bidders

+  Ability to obtain fund-level debt at attractive rates (~L

+350bps)

Appendix: Firm Overview and Investment Philosophy

Private Equity Opportunities In Distressed Assets October 2013

+  A multi-strategy private equity investment firm which, together with its affiliates, has over $10.0 billion of assets under management*

+  Firm includes an independent registered investment advisor founded in 1995 as the successor to the Private Equity Group of PaineWebber

+  Dedicated exclusively to private equity investing

+  Value-oriented opportunistic focus

+  Extensive expertise across a range of private equity and illiquid investing strategies +  Direct private equity investment funds +  Specialized multi-manager private equity funds with substantial direct investments/co-investments +  Customized separate accounts

+  Serving over 450 institutional clients including corporate and public employee benefit plans, endowments, foundations, government agencies, sovereign wealth funds and financial institutions +  Global footprint with offices in New York (headquarters), Boston, Chicago, Shanghai, Mumbai,

São Paulo and Moscow +  140 employees worldwide, including in-house operations, legal and compliance, accounting, and tax professionals +  Active, best practice investment policies, including environmental, social and corporate governance

+  Strategic, passive investment by The Bank of New York Mellon Corporation

033

Siguler Guff Overview

*Estimated as of June 30, 2013. Siguler Guff’s assets under management are calculated based on commitments for those funds in the investment period and on net asset value (NAV) thereafter.


+  Thirty years of experience creating innovative solutions to capture market inefficiencies

+  Value-oriented opportunistic strategy +  Capital starvation +  Competitive advantage +  Government policy inefficiencies +  Downside protection (risk controls)

+  Opportunities present themselves at discrete moments in time +  Russian investing Russia Partners

+  Opened Moscow office in 1994 +  First private equity fund in Russia, done with government guarantee +  Multi-lateral institutional support

+  Resolution Trust Corporation (early 1990s) Business Mortgage Investors fund +  Technology boom and the Internet (mid 1990s) Venture Lending and Leasing funds +  Distressed debt (2002-2003) Distressed Opportunities Fund +  The “BRIC” economies (Brazil, Russia, India and China) BRIC Opportunities Funds +  Small buyouts Small Buyout Opportunities Fund +  Distressed real estate Distressed Real Estate Opportunities Fund

034

Siguler Guff’s Investment Philosophy


Siguler Guff’s Investing Activities

All fund sizes represent aggregate committed capital.

Siguler Guff & Company Representative Funds

Siguler Guff Capital Partners (High Net Worth Individual

investors)

WMAM Funds (appointed 2009)

Separate Accounts

Advisory

Activities

Multi-Manager Funds

Distressed Opportunities Fund $595 million; 2002

Distressed Opportunities Fund II $988 million; 2005

Distressed

Opportunities Fund III $2.4 billion; 2007

Distressed

Opportunities Fund IV $1.3 billion; 2010

BRIC Opportunities Fund $610 million; 2005

BRIC Opportunities Fund II $893 million; 2008

Small Buyout Opportunities Fund $505 million; 2006

Small Buyout

Opportunities Fund II $940 million; 2011

Direct Investment Funds

Distressed Real Estate Opportunities Fund $630 million; 2010

Other Russian & CIS Funds

$150 million; 1999

Russia Partners $155 million; 1995

Russia Partners II $335 million; 2006

Russia Partners III $626 million; 2009

Russia Partners Technology Fund

$93 million; 2011

Business Mortgage investors $54 million; 1993

Venture Lending & Leasing

$47 million; 1994

Venture Lending & Leasing II

$110 million; 1997

Venture Lending & Leasing III

$217 million; 2000


Firm Performance – Inception through June 30, 2013 (estimated)

Past performance does not guarantee future results. See Disclosures for information on estimated performance. 1 IRR shown includes performance of direct and multi-manager funds and funds co-managed by the Firm since inception, excluding the Siguler Guff BRIC Opportunities Funds and Russia Partners funds. Funds included have an emphasis on various investment sectors including distressed, buyouts, energy, venture lending & leasing and mortgage-related securities. Excludes funds that are less than one year from their final closing or are fundraising, as performance of private equity funds in their early years is not meaningful. Excludes a group of funds that were fully invested when Siguler Guff assumed investment management responsibilities in 2009.

2 IRR shown includes performance of the Siguler Guff BRIC Opportunities Funds and Russia Partners funds managed since the Firm’s inception. Excludes funds that are less than one year from their final closing or are fundraising, as performance of private equity funds in their early years is not meaningful.

3 The performance of the individual funds included in this IRR varies; information on individual fund performance is available upon request. The historical performance of the funds is not indicative of their future performance, which can vary considerably.

4 Inception date January 1993; index performance is calculated based on the actual monthly cash flows of the Siguler Guff managed and co-managed funds.

5 Inception date February 1995; index performance is calculated based on the actual monthly cash flows of the Siguler Guff managed funds.

+  The Firm has exhibited strong performance across historical fund offerings

Inception Date Siguler Guff

Net IRR3

Benchmark: MSCI World Index4

Siguler Guff Outperformance

(bps)

Jan-93 15.3% 4.8% 1050

Inception Date Siguler Guff

Net IRR3

Benchmark: MSCI BRIC Index5

Siguler Guff Outperformance

(bps)

Feb-95 7.7% -3.0% 1070

Siguler Guff Managed and Co-Managed ex-Emerging Markets Funds1

Siguler Guff Managed and Co-Managed Emerging Markets Funds²

Biography


Jay Koh: Biography Jay L. Koh is a Managing Director and Partner of Siguler Guff. He serves as a member of the Firm's senior management team and sits on the Investment Committees for all of Siguler Guff's multi-manager funds. With over 19 years of experience at top-tier institutions in the public and private sectors, Mr. Koh brings a broad range of industry expertise and deep knowledge of various investment products and strategies to Siguler Guff.

Prior to joining Siguler Guff in 2012, Mr. Koh was the Head of Investment Funds and Chief Investment Strategist at the Overseas Private Investment Corporation (OPIC), the development finance institution of the United States government. In this role, Mr. Koh led the agency's $2.6 billion active emerging markets private equity program, oversaw 33 funds and was involved in managing a $15 billion portfolio of political risk insurance, direct finance and private equity investments. He also guided the development of OPIC's strategic relationships and new products, including OPIC's first fund-of-funds and first agriculture fund. Mr. Koh was OPIC's Chief Financial Officer from 2010 to 2011.

From 2007 to 2009, Mr. Koh led private equity and illiquid investing for Europe, the Middle East and Africa (EMEA) at R3 Capital, formerly the Global Principal Strategies Division of Lehman Brothers. He served as the Head of EMEA Private Equity at both institutions, and was a Partner at R3 Capital and a Managing Director at Lehman Brothers. Previously, Mr. Koh focused on direct growth equity investing, with an emphasis on telecommunications and security, as a Principal at The Carlyle Group, where he worked from 2000 to 2007 and also from 1993 to 1995. From 1998 to 2000, he served as a law clerk to Justice David H. Souter, United States Supreme Court, and to Judge Michael Boudin, United States Court of Appeals for the First Circuit.

Mr. Koh holds an A.B. in Economics magna cum laude from Harvard College, a master's degree in Management with a focus on international management from Oxford University and a J.D. from Yale Law School. He is a member of the Council on Foreign Relations and The State Bar of California.


Broker Disclaimer Securities offered in the United States through MBSC Securities Corporation, a registered broker dealer and FINRA member. MBSC serves as a placement agent for certain Siguler Guff investment funds. MBSC Securities Corporation is a wholly-owned subsidiary of BNY Mellon. BNY Mellon owns a 20% interest in Siguler Guff & Company, LP and certain related entities (including Siguler Guff Advisers LLC). BNY Mellon is the corporate brand for The Bank of New York Mellon Corporation.

Third Party Disclaimer Some information contained herein has been obtained from third party sources and has not been independently verified by Siguler Guff. Siguler Guff makes no representations as to the accuracy or the completeness of any of the information herein.

Benchmark Disclaimer The following benchmark indices are used:

S&P 500, Russell 3000, Russell 2000, Cambridge Associates, HFRX Restructuring Index These benchmarks are broad-based indices which are used for comparative purposes only and have been selected as they are well known and are easily recognizable by investors. Comparisons to benchmarks have limitations because benchmarks have volatility and other material characteristics that may differ from the fund. For example, investments made for the fund may differ significantly in terms of security holdings, industry weightings and asset allocation from those of the benchmark. Accordingly, investment results and volatility of the fund may differ from those of the benchmark. Also, the indices noted in this presentation are unmanaged, are not available for direct investment, and are not subject to management fees, transaction costs or other types of expenses that the fund may incur. Therefore, investors should carefully consider these limitations and differences when evaluating the comparative benchmark data performance.

The information regarding the benchmarks is included merely to show the general trends in the periods indicated and is not intended to imply that the fund was similar to the benchmarks in composition or risk.

The S&P 500 is a broadly used index which is used as a general indication of U.S. equity market returns as the S&P 500 index is an index comprised of 500 U.S. public companies representative across all industries/sectors. The Russell 3000 is an index calculated by ranking all US common stocks companies in order of highest market capitalization and picking the top 3000. The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. The Russell 2000 Index is a subset of the Russell 3000 Index representing approximately 8% of the total market capitalization of that index. It includes approximately 2,000 of the smallest securities based on a combination of their market cap and current index membership. Cambridge Associates LLC (CA) has established a database to monitor investments made by venture capital and other alternative asset partnerships. Cambridge Associates LLC (CA) has established a database to monitor investments made by venture capital and other alternative asset partnerships. On June 30, 2012, CA compiled a benchmark return, Cambridge Associates LLC Fund of Funds Only Index, based on data compiled from 505 fund of funds formed between 1986 and 2010. On September 30, 2012, CA compiled a benchmark return, Cambridge Associates LLC U.S. Buyout Funds Index, based on data compiled from 629funds between 1986 and 2010. The median is used as the benchmark, which is the middle fund return of the group of funds included in a vintage year.

Private Fund Disclaimer Investments in private investment funds (and fund of funds) are speculative and involve special risks, and there can be no assurance that a fund’s investment objectives will be realized or that suitable investments may be identified. An investor could lose all or a substantial portion of his or her investment. Private funds are generally not subject to the same regulatory oversight and/or regulatory requirements as a mutual fund. Investments may involve complex tax structures resulting in delays in distributing important tax information. Managers or their administrators may fair value securities and other instruments for which there is no readily available market or third party pricing, or for which the manager believes the third party pricing does not accurately reflect the value of those securities, and such value may be based on proprietary or other models. Private funds may not be required to provide periodic pricing or valuation information to investors. Performance may be volatile as underlying managers may employ leverage and other speculative investment practices that may increase the risk of investment loss, and adherence to risk control mechanisms does not guarantee investment returns. Additionally, high fees and expenses at both levels in a fund of hedge funds may offset an investor’s profits. The investment adviser may have total discretion over underlying manager and strategy selection and allocation decisions. A lack of manager and/or strategy diversification may result in higher risk. A fund may reserve the right to limit transparency and other notification to investors, there may be restrictions on transferring interests in the fund vehicle, and there is generally no secondary market for an investor’s interest in a privately-offered fund. In addition, as the investment markets and the fund develops and changes over time, an investment may be subject to additional and different risk factors.

Certain Disclosures

039


This Presentation is for informational purposes only and is not an offer, solicitation or recommendation to purchase or sell any securities or partnership interests of any investment fund managed by or affiliated with Siguler Guff Advisers, LLC (“Siguler Guff”) (each, a “Fund” and, collectively, the “Funds”). Each Fund is offered or sold pursuant to a Fund’s Private Placement Memorandum and related documents (such as an Agreement of Limited Partnership) that set forth detailed information regarding such Fund, including investment program and restrictions, management fees and expenses, investment risks and conflicts of interest. This Presentation does not present a full or balanced description of any Fund, and should not be used as the exclusive basis for an investment decision.

Potential investors are urged to consult a professional adviser regarding any economic, tax, legal or other consequences of entering into any transactions or investments described herein Alternative investment strategies such as private equity inherently herein. strategies, equity, involve risk and may not be suitable for all investors.

Any reproduction or distribution of this Presentation, or any information contained herein, is prohibited. The Funds are private investment vehicles, and this Presentation contains highly confidential, proprietary information that is of independent economic value to the Funds and, with respect to information concerning portfolio funds and companies, such portfolio fund and companies. By accepting this Presentation, the recipient acknowledges that disclosure of any information contained herein could cause substantial, irreparable harm to the Funds, Siguler Guff, and the funds and portfolio companies, and agrees not to disclose such contents to any person or entity (except as required by law), and not to use such contents in any way detrimental to the Funds, Siguler Guff, or the portfolio funds or companies.

This Presentation may contain Fund performance information. Past performance does not guarantee future results, and no representation or warranty, express or implied, is made regarding future performance. The General Partners of the underlying funds have not reviewed or approved of this Presentation. This Presentation contains certain statements, estimates and projections that are “forward-looking statements.” All statements other than statements of historical fact in this Presentation are forward-looking statements and include statements and assumptions relating to the following: plans and objectives of management for future operations or economic performance; conclusions and projections about current and future economic and political trends and conditions; and projected financial results and results of operations. These statements can generally be identified by the use of forward-looking terminology, including “may,” “believe,” “will,” “expect,” “anticipate,” “estimate,” “continue”, “rankings” or other similar words. Siguler Guff does not make any representations or warranties (express or implied) about the accuracy of such forward-looking statements. Readers are cautioned that actual results of an investment in a Fund could differ materially from forward-looking statements or the prior or projected results of the Funds. Readers of this Presentation are cautioned not to place undue reliance on forward-looking statements.

Estimated performance information is based in part on Siguler Guff-prepared estimates of the change in that fund’s net asset value since the most recent quarter for which fund financial statements were made available (the “Last Financial Statement Date”). The estimated changes in the values of the relevant fund’s portfolio holdings from the Last Financial Statement Date are based primarily on estimates provided to Siguler Guff by the general partners or managers of the underlying portfolio funds. The general partners or managers generally provide these estimates to Siguler Guff solely as a convenience, and the estimates typically are calculated in a less rigorous fashion than is the case for quarter-end financial statements. Furthermore, the reliability of these estimates varies among the general partners or managers of the underlying funds, primarily because of differences in their internal policies and procedures, most notably the timing of valuations. The general partners or managers of the underlying funds have not reviewed or approved of this Presentation.

Accordingly, performance information based on estimated valuations, including changes in net asset values, IRRs and multiples, is less reliable than comparable information derived from quarter- or year-end financial statements, and the actual performance information for the same period (calculated after the financial statements are made available) might differ significantly. Estimated performance information for the fourth quarter is particularly likely to differ from the performance information ultimately derived from year-end financial statements, because the year-end financial statements typically are audited by independent accountants, which increases the likelihood that some of the valuations ultimately included in the financial statements will differ from the valuations in the general partner’s or manager’s preliminary estimates.

This Presentation may include footnotes or endnotes which, if included, are an integral part of this Presentation and should be read in their entirety. Any sale of securities in Canada will be effected through an affiliated broker dealer.

Certain Disclosures

040


Broker Disclaimer Interests in any investment vehicles may be offered and sold in Canada through BNY Mellon Asset Management Canada, Ltd., a Canadian registered Portfolio Manager and Exempt Market Dealer. BNY Mellon owns a 20% interest in Siguler Guff & Company, LP and certain related entities (including Siguler Guff Advisers LLC). BNY Mellon is the corporate brand for The Bank of New York Mellon Corporation.

Third Party Disclaimer Some information contained herein has been obtained from third party sources and has not been independently verified by Siguler Guff. Siguler Guff makes no representations as to the accuracy or the completeness of any of the information herein.

Benchmark Disclaimer The following benchmark indices are used:

S&P 500, Cambridge Associates These benchmarks are broad-based indices which are used for comparative purposes only and have been selected as they are well known and are easily recognizable by investors. Comparisons to benchmarks have limitations because benchmarks have volatility and other material characteristics that may differ from the fund. For example, investments made for the fund may differ significantly in terms of security holdings, industry weightings and asset allocation from those of the benchmark. Accordingly, investment results and volatility of the fund may differ from those of the benchmark. Also, the indices noted in this presentation are unmanaged, are not available for direct investment, and are not subject to management fees, transaction costs or other types of expenses that the fund may incur. Therefore, investors should carefully consider these limitations and differences when evaluating the comparative benchmark data performance.

The information regarding the benchmarks is included merely to show the general trends in the periods indicated and is not intended to imply that the fund was similar to the benchmarks in composition or risk.

Private Fund Disclaimer Investments in private investment funds (and fund of funds) are speculative and involve special risks, and there can be no assurance that a fund’s investment objectives will be realized or that suitable investments may be identified. An investor could lose all or a substantial portion of his or her investment. Private funds are generally not subject to the same regulatory oversight and/or regulatory requirements as a mutual fund. Investments may involve complex tax structures resulting in delays in distributing important tax information. Managers or their administrators may fair value securities and other instruments for which there is no readily available market or third party pricing, or for which the manager believes the third party pricing does not accurately reflect the value of those securities, and such value may be based on proprietary or other models. Private funds may not be required to provide periodic pricing or valuation information to investors. Performance may be volatile as underlying managers may employ leverage and other speculative investment practices that may increase the risk of investment loss, and adherence to risk control mechanisms does not guarantee investment returns. Additionally, high fees and expenses at both levels in a fund of hedge funds may offset an investor’s profits. The investment adviser may have total discretion over underlying manager and strategy selection and allocation decisions. A lack of manager and/or strategy diversification may result in higher risk. A fund may reserve the right to limit transparency and other notification to investors, there may be restrictions on transferring interests in the fund vehicle, and there is generally no secondary market for an investor’s interest in a privately-offered fund. In addition, as the investment markets and the fund develops and changes over time, an investment may be subject to additional and different risk factors.

Certain Disclosures

041


Strategy and Risk Disclaimer No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. A more comprehensive list of potential risk factors is in the applicable confidential offering memorandum.

Protective Disclaimer Due to, among other things, the volatile nature of the markets and the investment strategies discussed herein, they may only be suitable for certain investors. Parties should independently investigate any investment strategy or manager, and should consult with qualified investment, legal, and tax professionals before making any investment.

Performance Disclaimer

Many factors affect fund performance including changes in market conditions and interest rates and in response to other economic, political, or financial developments. Investment return and principal value of your investment will fluctuate, so that when your investment is sold, the amount you receive could be less than what you originally invested. Past performance is not a guide to or indicative of future results. Future returns are not guaranteed and a loss of principal may occur. Investments are not insured by the FDIC (or any other state or federal agency), are not guaranteed by any bank, and may lose value.

Distribution Disclaimer This material is for use with pre-approved investors only, and not for use with the general public. Accordingly, this document must not be acted on or relied on by persons who are not qualified persons. Any investment or investment activity to which this communication related is available only to qualified persons and will be engaged in only with qualified persons.

The interests are offered only to qualified investors who do not require immediate liquidity of the investment. An investment in the fund does not constitute a complete investment program. Investors must fully understand and be willing to assume the risks involved in the fund’s investment program. Subscribers for interests will represent that they are acquiring their interests solely for investment. The Investment Manager, in its sole and absolute discretion, may decline to accept the subscription of any prospective investor for any reason or for no reason.

Illiquidity of Investment Limited Partnership interests (“Interests”) issued by the Fund are generally illiquid, as there is no public market for the Interests and no public market is anticipated to develop. Interests may not be redeemed, assigned, transferred or encumbered without the Investment Manager’s prior written approval, and the Investment Manager does not intend generally to grant such approval. It is unlikely that the Fund will make any significant distributions until later in the Fund’s term. This investment is suitable only for Investors that can bear the risk of holding their Interests for an indefinite period and can risk a loss of their investment.

Private Equity Investing

The Fund’s success is subject to many factors including the Investment Manager’s ability to successfully select the Investment Funds in which it invests, the quality of those Investment Funds and their managers, general market conditions and the Investment Funds’ ability to liquidate their investments on a profitable basis. Many of the companies in which these Investment Funds invest have limited history, will not be operating profitably, will have limited or no revenue and will be thinly capitalized. These investments carry a high degree of business and financial risk and may result in substantial losses. Moreover, the Fund may invest in Investment Funds that have yet to be identified. Accordingly, Investors will be relying on the judgment of the Investment Manager in making investment decisions.

Certain Disclosures

042

private equity opportunities in distressed...

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