Darby Financial Services Strictly Private & Confidential 1 The Future of Domestic Capital Markets in Developing Countries Conference Panel: The Role of Private Equity in the Development of Domestic Capital Markets Alejandro Schwedhelm

Darby Financial Services Strictly Private & Confidential 2 Darby Overseas Investments, Ltd A l eading investment advisor in emerging markets A leading investment firm that invests its own and client capital in emerging markets. Currently, the firm provides investment management/advisory services with respect to funds amounting to over $1 billion across five investment fields. Darby was established in 1994 by The Honorable Nicholas F. Brady, former U.S. Treasury Secretary and Chairman of Dillon, Read & Co. Inc. Mr. Brady serves as Darby’s Chairman. The firm’s CEO is Richard H. Frank, former World Bank Managing Director and CFO of the International Finance Corporation. FIXED INCOME Darby Emerging High Yield Fund $12 million Darby Emerging Markets Income Fund $10 million Sub-Advisory Relationships $500 million CBO with Mass Mutual Moneda Asset Management (Chile) Etra Emerging Markets Income Fund (Italy) PRIVATE EQUITY Darby Emerging Markets Fund, L.P. $150 million invested in 11 companies in Mexico, Brazil, Peru, Chile and Colombia Darby-BBVA Latin American Private Equity Fund, L.P. $250 million target $100 million raised Investment and further fund raising under way Sectors: Consumer Industries, Retailing & Distribution, Financial Services, Oil and Gas, Telecommunications TECHNOLOGY VENTURES Darby Technology Ventures Group, LLC Early stage technology investments in Latin America 2 portfolio companies in Brazil and Argentina Transfer and adapt advisory services Technology Centers Sectors: Infrastructure Services; Enterprise Software and Networks Communications MEZZANINE FINANCE Darby Latin American Mezzanine Fund, L.P. First dedicated Mezzanine Finance fund for Latin America - $195 million 8 investments - $114 million (telecom, port, toll roads, gas pipeline, water treatment, waste management) in Mexico, Brazil, Colombia, Bolivia, Argentina Asian Infrastructure Mezzanine Capital Fund First dedicated Mezzanine Fund for Asia - $246 million 9 investments - $187 million (telecom, transportation, power) in China, Korea, India, Philippines, Indonesia Hong Kong-based team FINANCIAL SERVICES Darby Financial Services Targeting bank and non-bank opportunities in Latin America, US Hispanic, and the US - Mexico border economy Darby Regional Banking Fund, a specialized financial sector fund for Central America Portfolio oversight and exit strategy for Darby’s financial sector investments Mandate to create new funds for broader emerging market financial services investment

Darby Financial Services Strictly Private & Confidential 3 From the Panel’s premises Equity markets can create virtuous cycles Private Equity can fill the need for equity finance Private equity can help stimulate and professionalize domestic investment Expectations have not been met Critical success factors Development of Private Equity Industry

Darby Financial Services Strictly Private & Confidential 4 Equity markets can create virtuous cycles No question. Fundamental Obstacle: Entrepreneurs see firms as their “baby”, not as the product of their work. Two responses: –Owners seek long term success –Transparency transforms “control” into “leadership”

Darby Financial Services Strictly Private & Confidential 5 Private Equity can fill the need for equity finance Not under today’s international and local market conditions. –Insuficient volume –High earnings expectations

Darby Financial Services Strictly Private & Confidential 6 Private equity can help stimulate and professionalize domestic investment Definitely Some characteristics of Private Equity: –High perceived risk –High expected return –High administrative cost –High concentration –High participation –Professional oversight –“Own” regulator –Cross-pollinization

Darby Financial Services Strictly Private & Confidential 7 Expectations have not been met Volume? Results? Re-visit the nature of Private Equity: Public Markets Venture Capital / Friends & Family Private Equity

Darby Financial Services Strictly Private & Confidential 8 Critical success factors Character & Ethics Rate of return –Entry valuation –Sources of value Organic growth Strategic growth Strategic acquisition / sale –Risk – reward equilibrium Management Exit strategy Formula based put Market sale (IPO or gradual) Trade sale

Darby Financial Services Strictly Private & Confidential 9 Development of Private Equity Industry Avoiding over-regulation –SINCAs in Mexico The market dilemma –Optimized for quality or volume / liquidity –Private equity prefers the latter Implication: Grown-up investor does homework Success stories –For Private Equity investors –For investee companies’ shareholders

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