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NEPC Fund Tear Sheet Aurora Capital Group MCA

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NEPC Fund Tear Sheet Aurora Capital Group MCA [Type text] NEPC Fund Tear Sheet Aurora Capital Group Written by NEPC Research as of October 10, 2014. General Fund Information Firm Name Aurora Capital Group (“Aurora”) Master Custody Account (“MCA”) Agreement with San Bernardino County Employees Fund Name Retirement Association (“SBCERA”) Firm Address 10877 Wilshire Blvd. / Suite 2100. Los Angeles, CA 90024 Target Fund The MCA will target approximately $10 million in commitments per year over a five year Size period AUM Aurora has invested $3.5 billion in funds and co-investments since inception. Inception Date 1991 Firm Inception Date Aurora Equity Partners IV (2011 vintage), Aurora Resurgence Fund II (2013) Fund(s) Closed or Open N/A Expected Close N/A Date THIS MEMO PROVIDES A SUMMARY OF INFORMATION AND DOCUMENTATION RECEIVED BY NEPC FROM THE MANAGER THROUGH PHONE CALLS AND MEETINGS. THE PRODUCT HAS NOT BEEN RATED BY NEPC’s ALTERNATIVE ASSETS COMMITTEE. 255 State Street | Boston, MA 02109 | TEL: 617.374.1300 | www.nepc.com BOSTON | ATLANTA | CHARLOTTE | CHICAGO | DETROIT | LAS VEGAS | SAN FRANCISCO Confidential Information – For NEPC Client Use Only © Copyright 2014 NEPC, LLC All Rights Reserved NEPC Fund Tear Sheet Aurora Capital Group MCA Firm & Strategy Evaluation Aurora Capital Group (the “Firm”) is a Los Angeles-based Firm that was founded in 1991 by Gerald Parsky to invest in and improve the quality of middle market businesses. Aurora pursues two different strategies through two complementary investment products: the Aurora Equity Partners (“AEP”) line of funds and the Aurora Resurgence (“ARF”) line of funds. As of 3/31/14, Aurora was investing the fifth AEP fund, AEP IV, and was also investing the second Resurgence fund, ARF II. There are 22 Firm History investment professionals currently with the Firm. Six of the Aurora partners have been with the Firm for at least 10 years, and collectively the partners have over 140 years of relevant private equity experience. Since its founding in 1991, Aurora has invested approximately $3.5 billion of equity capital from its funds and co-investors in 21 platform companies and has completed over 100 add-on acquisitions. The AEP line of funds is led by 13 investment professionals, including Chairman Gerald Parsky and General Counsel Tim Hart. Aurora Resurgence is guided by a group of 10 professionals that also includes Mssrs. Parsky and Hart. Aurora Private Equity and Aurora Resurgence share a common investment theme: the fundamental improvement of underlying portfolio companies. The AEP (buyout) funds strive for strategic and operational enhancements of growing, high-quality businesses in an attempt to help these businesses move from “good to great”. Target companies in the AEP funds are typically leaders of well-structured niches underpinned by stable demand drivers with low correlation to business cycles and conservative balance sheets. Companies that are targeted in the Resurgence (special situations) line of funds target complex situations in mature, durable industries with protection in price and structure. These investments are generally “distressed for control” investments that may involve turnaround situations. Aurora drives improvements in portfolio companies in part by bringing what the Firm considers world class governance and operational resources to middle market firms Investment Strategy which otherwise would not have access to such a caliber of resources. Aurora executes this strategy with a focus on downside protection in an effort to steadily improve companies and generate consistent returns in any economic environment. Prior to 2000, the Firm executed a roll-up strategy through which the AEP team would aim to generate value by consolidating a highly fragmented industry. From 2000 on, the Firm has followed a “platform” strategy whereby Aurora seeks to invest in companies that are leaders in a well-structured, niche within the US middle market. The Resurgence line of funds began in 2007 and follows a special situation, distressed for control strategy. In Resurgence, Aurora follows a strategy of investing in the equity and/or debt of middle market companies where it seeks to gain controlling positions in companies facing operational or financial challenges yet having strong underlying fundamentals in durable industries. Of high importance to the success of Aurora’s strategy is Aurora’s executive board and executive network. This formal network of former CEOs proactively sources deals, implements governance plans across the Aurora portfolio, and serves on boards of directors of portfolio companies. The Aurora executive board, executive advisors and executive network provide the Firm with a wide range of expertise to improve Investment Process governance structures and implement operational changes of portfolio companies. Part of the process of improving Aurora portfolio companies includes establishing the “Aurora ecosystem”. The Aurora ecosystem custom tailors boards to the work streams necessary to drive value within stable assets. This governance program includes 100- day plans, annual budget reviews, quarterly reviews, annual strategic plans, CEO/CFO roundtables, and personnel reviews. Confidential Information – For NEPC Client Use Only. © Copyright 2014 NEPC, LLC. All Rights Reserved. 2 NEPC Fund Tear Sheet Aurora Capital Group MCA Projected Number of 1-3 investments per year Investments The MCA mandate allows Aurora to invest in Aurora funds, co-investments alongside those funds, as well as direct Types of investment opportunities in mezzanine financing, senior Investments indebtedness, real estate transactions, venture capital transactions, and infrastructure projects. Portfolio Construction One investment may not exceed 20% of the aggregate Portfolio Constraints capital available to invest by SBCERA. Expected / Maximum Pursuant to the MCA, Aurora may not borrow on SBCERA’s Use of Leverage behalf against the security of the investments. Preliminary Observations • Track Record – Aurora Capital Group, since 2000 when a shift in strategy was implemented, has invested over $2.5 billion of capital. The Firm has realized over $3.8 billion with a total value of over $4.7 billion, resulting in a 19.0% net IRR to investors and a 1.88x multiple on invested capital. • Executive Board, Network, and Advisors – Aurora has a wide network of former high- level executives who perform a variety of roles for the various portfolio companies. The four Executive Board members add value through active oversight and direct involvement in portfolio companies, including: leading portfolio strategic reviews, serving on the boards of directors, sourcing deals, and executive mentoring. The broader network of Preliminary professionals allied with Aurora assist in sourcing, due diligence efforts, leading initiatives Positives in their respective areas of expertise, and recruiting for C-level positions in portfolio companies. • Focus on Downside Protection – Aurora’s focus on operations and governance has allowed the Firm to successfully invest through various types of markets. Importantly, the Firm’s affinity for companies with leading and defensible market positions, stable demand drivers, and strong underlying fundamentals (i.e. stable balance sheets) should bode well for future investors. • Fees – The MCA provides for an attractive fee arrangement for SBCERA. Management fees are 1.50% on drawn capital with carried interest calculated at the account level across all of the investments. Confidential Information – For NEPC Client Use Only. © Copyright 2014 NEPC, LLC. All Rights Reserved. 3 NEPC Fund Tear Sheet Aurora Capital Group MCA • Concentration - In building a portfolio for each fund, Aurora prefers to make fewer, larger investments to focus resources in an attempt to add maximum value to each portfolio company. Aurora generally builds a portfolio of 8-10 companies per fund in a control or shared-control structure. This concentration will carry over into the MCA, but should be mitigated in SBCERA’s total portfolio context. • Broad Mandate – Outside of the buyout and distressed for control investments, the MCA mandate allows Aurora to invest in real estate transactions, venture capital transactions, and infrastructure products, which are not a part of Aurora’s core competency. Preliminary • Bankrupcty Risk – Aurora’s distressed investments may be in companies that are Negatives financially stressed, in distress, or are facing bankruptcy. These investments may be negatively impacted should the economic environment erode or a company be unable to survive financial strains. • Liquidity – Due to the high concentration strategy Aurora employs, as well as the distressed nature of some of the investments, liquidity for the investments in the MCA may be limited. Previously, Aurora conducted a cross-fund transaction between ARF I and ARF II, where ARF II bought four existing portfolio companies from ARF I. Investors were offered cash or the option to roll over their interests to ARF II. This is a generally less attractive liquidity option than selling the portfolio companies to outside entities. Confidential Information – For NEPC Client Use Only. © Copyright 2014 NEPC, LLC. All Rights Reserved. 4 NEPC Fund Tear Sheet Aurora Capital Group MCA Key Biographies Yrs with Firm Name / Position Experience / Experience Gerald Parsky/ 21/32 Gerald L. Parsky is the Chairman of Aurora Capital Group. Previously, Mr. Chairman Parsky served as Assistant Secretary of the Treasury for International Affairs from 1974-1977. For the next 14 years, Mr.
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