Private equity assets under management have increased fivefold over the last 12 years, reaching nearly $4.2 trillion in 2015. Private equity has demonstrated resilience during economic downturns, with lower default rates for PE-backed companies compared to speculative grade companies during the 2008 recession. Major university endowments, such as Harvard and Yale, have significant target allocations to private equity, between 18-31%, and have achieved strong long-term returns from their PE investments, averaging between 14-24% annually over 10-20 year periods. While private equity has seen tremendous growth, it also faces challenges from increasing regulatory scrutiny and constructing optimal asset allocations.

1. 1
Private Equity:
A frontier or nearing
center stage?
Professor Eli Talmor
November 2016

2. Private equity: 5X increase in AuM over 12 years
Source: 2016 Preqin Global Private
Equity Report.
861 952
1224
1691
2258 2277
2480
2791
3084
3327
3823
3972
4165
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
2003 2005 2007 2009 2011 2013 2015
NAV
Dry Powder
All private equity AuM
US$ Billions
2

3. Record distributions and positive net cash flows to LPs
3
2015 distributions (35% more than in 2007)443
US$ bn
5th
year
0
1
2
3
2008 2009 2010 2011 2012 2013 2014
US Europe Asia-Pacific
Net cash flows to LPs in 2015
217
US$ bn

4. 4
Pension fund investment return by asset class
Median 10 year annualized return as of June 2015
Source: Bison, October 2016

5. Private equity: Resilience and alpha in downturns
2.8
6.2
PE-backed companies Speculative grade
companies
Annualized rate of default
in the 2008–09 recession:
Consistent with long-term
annualized default rate (1970-2002):
1.2 1.6
4.7
PE-backed companies All corporate bond
issuers
Speculative grade
companies
5

6. Sources: Endowment filings as of June-2014, and the 2014 NACUBO-Commonfund Study of Endowments
Largest US Endowment Funds SIZE
US$ bn
10-year
Return
PE Target
Allocation *
PE Long-Term
Annualized Return
Harvard $36.4 8.9% 18% (+7%) 20-yr @ ~ 24%
Yale $23.9 11.0% 31% (+10%) 20-yr @ ~ 36%
Stanford $21.4 9.9% 23% (+9%) 10-yr @ ~ 17%
Princeton $21.0 10.5% 25% ( - )
[actual @ 32%]
10-yr @ ~ 14.3%
University Endowments – Leaders in PE Investing
* 2015 Target allocation (relative to 2008 allocation)
Average allocation
to PE among US
Endowments
11%
£1.7bn Oxford Endowment Fund:
• 18% in private equity in 2014
• Up from 8% in 2012, and just 2% in 2008
• Returning 13.6% net annualised since
2009

7. 7
Private equity expansion around the world (in ‘000)

8. 2016
2015
33 - 40%
25 - 30%
Shadow
Capital
 Co-investment
 Separate managed accounts
 Direct investments
8
2014 10 - 20%

9. Private equity secondaries
9
 10 funds raised $19bn in 2015
 8% average discount to NAV of funds sold in 2015 (18% for VC)
Secondaries transactions 1998 – 2015F (in $bn)
Source: Coller Capital, Dow Jones
0
5
10
15
20
25
30
35
40
45
1998 2000 2002 2004 2006 2008 2010 2012 2014

10. 968
541 361 201 195 193 83 57 223
Private Capital: Types, sub-asset classes etc.
10
 Natural Resources
 Energy / Power
 Oil & Gas (upstream, midstream &
downstream)
 Agriculture / Farmland
 Timberland
 Metals & Mining
 Other / Diversified
 Private Debt
 Direct lending
 Senior debt (acquisition)
 Senior debt (origination)
 Distressed debt
 Unitranche
 Subordinated / Mezz (acquisition
vs. origination)
 CLO
 Royalty financing
 Asset-backed financing
 Venture debt
 Funds-of-funds
 Real Estate
 Core
 Core-plus
 Value added
 Opportunistic
 Distressed
 Debt
 Mezz
 FoF’s / Secondaries
$ 2.8 trillion NAV ($ bn, Jun-2015)

11. PE debt assets under management
11Source: Preqin Private Debt Online, 2015

12. 12
Challenges ahead
 Positive net distributions
 Shift in long-term retirement pools
 Increasing regulatory initiatives
 Asset allocation and portfolio construction

13. Thank You