0. Private Equity U.S. Market Trends and Outlook
Frederick Tanne, P.C. Kirkland & Ellis LLP 601 Lexington Avenue New York, New York (212)
Karyn Koiffman Kirkland & Ellis LLP 601 Lexington Avenue New York, New York (212)

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2. State of Private Equity Industry – Fundraising
The fundraising environment remained strained at the end of 2011
Fundraising declined throughout the second half of 2011, despite an encouraging Q2; liquidity issues remain a concern going into 2012
Q saw the lowest overall private equity fundraising quarter since Q and the second lowest quarter since Q4 2004
Global Fundraising Activity
2010 Period
Number of Funds
Final Size ($B)
2011 Period
%Change
Q1 2010
161
78.43
Q1 2011
168
67.548
-13.87%
Q2 2010
195
61.289
Q2 2011
188
88.302
44.07%
Q3 2010
157
79.425
Q3 2011
137
54.223
-31.73%
Q4 2010
207
55.108
Q4 2011
106
52.359
-4.99%
LTM Total
720
599
-4.31%
Sources: Preqin fundraising data as of 01/03/2012 (includes all funds with final closings); “Private Equity Fundraising Plummets to Lowest Levels Since 2003,” Preqin Press Release, 10/01/2009.
© 2012 Kirkland & Ellis LLP. All rights reserved.

3. State of Private Equity Industry – Fundraising
After falling sharply in 2009, fundraising activity remained challenging in 2011, despite hopes in Q2 for a rebound
Secondary funds brought in the fewest funds by type, raising just less than $11B in This was even with or down slightly from the amount raised in 2010, but still far from the 2009 high of $23.7B
Buyout funds raised the biggest portion of overall capital in 2009 and 2010, however venture capital has continued to gain ground in 2011
Real estate PE fundraising extended declines throughout the year, with 2011 ending as the lowest fundraising year since 2004
North American fund activity continues to dominate the global PE industry among funds in market (i.e., funds currently on the road)
Source: Preqin fundraising data as of 01/03/2012 (includes all funds with final closings).
Venture Capital = Balanced, Venture Debt, Early Stage, Early Stage: Seed, Early Stage: Start-up, Expansion, Late Stage, Venture (General), Growth
Other = Co-investment, Co-Investment Multi-Manager, Distressed Debt, Hybrid, Infrastructure, Natural Resources, PIPE, Special Situation, Timber, Turnaround
© 2012 Kirkland & Ellis LLP. All rights reserved.

4. State of Private Equity Industry – Fundraising
A majority of PE fundraising sectors are still exhibiting declines
Fund Type
2009
2010
2009 – 2010 % Change in Final Size
2011
2010 –
% Change in Final Size
No. of Funds
Final Size ($B)
Buyout
116
$108.77 97
$75.75
-30.4% 92
$69.21
-8.6%
Venture Capital
262
$36.36
246
$46.27
27.2%
202
$55.36
19.7%
Mezzanine 24
$7.56
$7.65
1.3% 20
$13.68
78.7%
Secondaries 25
$23.69 19
$10.39
-56.1% 22
$10.81
4.0%
Fund of Funds
118
$28.61 74
$16.18
-43.4% 68
$14.33
-11.5%
Real Estate
182
$54.16
151
$47.96
$44.82
-6.5%
Other 55
$37.03
109
$70.05
89.2% 79
$54.22
-22.6%
Grand Total
782
$296.16
720
$274.25
-7.4%
599
$262.43
-4.3%
Source: Preqin fundraising data as of 01/03/2012 (includes all funds with closings).
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5. Market Trends – Private Equity Fund Terms
Anchor Investors
Rise of “anchor” or “strategic” LPs, demanding preferential terms (e.g., lower management fees, unpromoted priority co-investment rights, etc.)
Use of separate vehicles/account structures
SWFs and industry partners are among leaders in this trend
Distribution Waterfall
Increased pressure for full payout model (or close thereto)
Increased pressure for interim GP clawbacks
Increased pressure for minimum valuation tests
Changes to preferred return hurdle
Fewer buyout and growth equity funds without a preferred return hurdle
Some less than 8%
Carried Interest
General trend away from greater than 20% carried interest
Few exceptions, sometimes with tiering
Source: Preqin, data as of 05/05/11.
© 2012 Kirkland & Ellis LLP. All rights reserved.

6. Market Trends – Private Equity Fund Terms
Management Fees
General downward pressure on management fees, especially for large funds with scale
Reductions in management fees for early commitments gained traction, moving down from 2% to 1.5% (or lower) in select cases
Some funds offer an option of lower management fees for higher carried interest
Some investors requesting budgets from management companies to justify fee levels
Management Fee Offsets
Increased pressure on anything other than 80% or 100% offset for all fee income
Scrutiny of any exceptions to definition of fee income
Certain sponsors offering choice of higher management fee for 100% offset
Sweeteners
Several fund sponsors offering discounts to large LPs
First closing LPs also receiving fee and/or carried interest breaks from some sponsors
Size and Composition of GP’s Capital Commitment
Increasing to at least 2% and up to 5% preferred (as opposed to 1%)
More focus on cash vs. fee waiver
© 2012 Kirkland & Ellis LLP. All rights reserved.

7. Market Trends – Private Equity Fund Terms
Termination Triggers to Address “Doomsday” Scenarios that Remain Fresh in Mind
Increased pressure for no fault termination of the investment period and scrutiny of voting thresholds
Increased pressure for no fault termination of the fund
Increased pressure for GP removal provisions
Focus on payments to GP following GP removal or early termination of investment period or fund term – specifically management fees and carried interest
Ownership of the GP
Limitations with respect to selling stakes to third parties
Focus on potential impact on and/or conflicts with interests of LPs
Registration with SEC as investment adviser adds COC restrictions
Partnership Expenses
Scrutiny of what expenses are borne by the fund, rather than by the management company (e.g., outside reporting services, operational experts, consultants, conferences, compliance costs, etc)
LPs seek to clarify that manager SEC registration expenses are not charged to fund
Expansion of Baskets for Emerging Markets and Other Non-Core Regions
More room for Asia/MENA investments
Way to gain sector exposure without raising and investing in a specialist fund
Other funds
Allocation of investment opportunities and resources among:
Successor funds
Multiple products, including RMB and other geographically-focused products
GP time and attention standards
© 2012 Kirkland & Ellis LLP. All rights reserved.

8. Market Trends – Private Equity Fund Terms
In 2011, the Institutional Limited Partners Association (the “ILPA”) released Version 2.0 of its Private Equity Principles
More balanced
More flexibility
Certain LPs are requiring an endorsement of ILPA as a condition to their investment
Three Overarching Principles: Alignment of Interests, Governance and Transparency
Renewed Focus on GP’s Fiduciary Duties and Quality of Service Providers
Transparency, accountability and reputation concerns post-Madoff
Role of LPAC
Enhanced role and rights for LPAC (e.g., minimum size, advance notice of materials, quorum requirements, reimbursement of legal expenses, in camera sessions, etc.)
At the same time, LPAC members also focused on indemnity, exculpation and disclaimer of duties
© 2012 Kirkland & Ellis LLP. All rights reserved.

9. Market Trends – Global Market Conditions
Purchase Multiples Collapse From 2010 Levels
The average EBITDA multiple across global M&A for 2011 was 12.6x, down from 14.9x in 2010 and the lowest since 2003, which saw 10.6x
Cross-border deals were up at highest levels since 2008, accounting for 41.5% of global M&A activity
Exit Market Ends 2011 Up – and Down
Private equity exists through secondary buyouts or trade sales in 2011 were up almost 14% over the prior year, making it the strongest year-end performance since 2007
But Q continued the tumble that began after Q2, falling 54% from Q3 to $30.4B. This was the second lowest Q4 in the last seven years
Sources: The Wall Street Journal, 09/18/2009; “Prices Soar In Cash Rich Deal Market,” Buyouts, 07/21/2010; “Global M&A Overview: Premia and Multiples Analysis,” Mergermarket, 04/07/2011; “M&A Round-up for Q1-Q3 2011, ” Mergermarket, 10/01/2011; “Some Funds Take Longer to Close Than Nostradamus Partners,” The Wall Street Journal, 07/07/2010; “The 2011 Global Private Equity Report,” Preqin, January 2011; “The Preqin Quarterly,” Preqin, 10/15/2011; “League Tables of Legal Advisers to Global M&A in H1 2011, ” Mergermarket, 07/07/2011; “M&A Roundup for Year End 2011,” Mergermarket, January 3, 2012.
© 2012 Kirkland & Ellis LLP. All rights reserved.

10. Market Trends – Global Market Conditions
Greater Transparency/Restrictions Regarding the Use of Placement Agents
Response to public pension scandals involving finders’ fees
Raising money from state plans is now more complicated (e.g. new CA lobbying law)
Limitations on placement agents soliciting government plans
Focusing on Alternative Strategies (Senior Debt, Distressed Debt, Energy, Clean-Tech, Turnaround)
Focusing on Emerging Markets
Brazil, China and nascent Asian PE markets ranked most attractive markets by institutional investors in a recent survey
Brazil has leapfrogged China as the most attractive market for GP dealmaking in the next 12 months – and the rest of Latin America is also viewed as significantly more attractive than it was a year ago
Bigger baskets for Asia/MENA deals in global LBO funds
Deal-watchers speculate that investments in China may be riskier than previously thought, though the government will try to avoid a “hard landing” at all costs
Deflated default rates due to unreported deals and secretive investors
Problems predicted for Chinese real-estate business as it is cut off from government bank lending
High entry valuations are the biggest hurdle for new investors in India, China and Brazil
Renewed Focus from LPs on “Middle of the Road” Strategy
In a recent survey, 33% of LPs chose small leveraged buyouts as the strategy that interests them the most, followed by distressed debt (26%) and secondaries (22%)
Increased LP Negotiating Leverage
Small LPs and gatekeepers are emboldened by market dynamics to attempt to impact fund terms
Reports of requests for term changes even in closed funds, particularly when amendments or extensions are proposed
Sources: New York Times, 10/30/2009, 11/19/2009 and 12/21/2009; Dow Jones Private Equity Analyst, 01/01/2010; Thomson Reuters, 7/1/2010; “Emerging Markets Private Equity Survey 2011,” Coller Capital.
© 2012 Kirkland & Ellis LLP. All rights reserved.

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