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Private Equity Investment Report

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Private Equity Investment Report Santa Barbara County Employees’ Retirement System Fourth Quarter 2019 PE Performance Update Agenda • Private Markets Update 3 • Q4 Private Equity Performance 10 • Deal Review 17 • Appendix 20 Private Markets Update Key Private Markets Observations • Hamilton Lane has conducted a comprehensive outreach to hundreds of GPs in order to assess investments and Portfolio reviews outlook • LP portfolios are, generally, well-diversified with varying degrees of exposure to some of the industries most ongoing severely impacted by COVID-19 • The ultimate impact will depend on the speed with which for global economies are able to re-open • Q1 valuations will be available early-mid June Q1 valuations likely to • Given the volatility in the public markets and the impacts across business activity in Q1, we expect softness in be down but muted performance across our portfolios • Hamilton Lane estimates Q1 2020 marks will be down in the high negative single digits1 • Slight uptick in capital calls in March and April 2020, though we have not observed the surge of capital calls Limited near-term discussed in the news or feared by LPs cash flow concerns • Credit managers are driving recent capital calls as they look to “play offense” • Exits will likely remain limited for some time – distribution activity in April the lowest since January 2012 • There is a very high bar for approving new investments Investment • Portfolios with remaining capital to invest will lean into areas with attractive opportunities, such as distressed opportunity set credit, rescue finance, secondary investments, and turnaround deals evolving • Private markets, with plenty of dry powder, are well positioned to take advantage of new investment opportunities 1 Actual results may differ from Hamilton Lane estimates. Hamilton Lane analysis and estimates are based on the evaluation of information available to Hamilton Lane at the time of the estimate. Estimates are subject to change as new information becomes available and are not a guarantee of future performance The information contained herein is based on the latest available information and Hamilton Lane's opinions as of the date of this presentation and subject to change at the Firm's discretion. Hamilton Lane | Global Leader in the Private Markets Proprietary and Confidential | 4 Portfolio Reviews Ongoing HL continues extensive COVID-19 specific GP outreach to understand early guidance on funds/deals What GPs are doing? Considering Working with Evaluating availability of Scenario planning and opportunities for banks/lenders to government aid for implementation improved competitive manage cash needs portfolio companies positioning or M&A GP’s Contacted1 Update Calls/Meetings1 220+ 400+ HL internal efforts supported by extensive investment database and active monitoring program 1As of May 5, 2020 Hamilton Lane | Global Leader in the Private Markets Proprietary and Confidential | 5 Q1 Valuation Softness Expected Understanding the relationship between public and private markets is one piece of the larger valuation puzzle Buyout vs MSCI World Regression Results Buyout Quarterly Returns 2008 - Q3 2019 Actual vs Alpha Beta Model Projections 15% 10% 8% 10% 6% 5% TWR 4% 0% 2% -5% 0% World Quarterly Quarterly World -2% -10% MSCI -4% -15% Alpha: 1.4% -6% Beta: 0.43 -20% -8% -25% -20% -15% -10% -5% 0% 5% 10% 15% 20% 25% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Buyout Quarterly TWR Actual Projected Source: Hamilton Lane; Bloomberg (April 2020) Source: Hamilton Lane (April 2020) • Private market valuations lag 60 to 90 days after quarter end • Historically buyout beta has been 0.43 with respect to public equity markets, with a quarterly alpha of about 1.4% • Assuming that beta and alpha, we estimate Q1 2020 valuations will be down in the high single digits, though individual funds will vary widely by region and sector 1 For illustrative purposes only. Actual results may differ from Hamilton Lane estimates. Hamilton Lane analysis and estimates are based on the evaluation of information available to Hamilton Lane at the time of the estimate. Estimates are subject to change as new information becomes available and are not a guarantee of future performance. Hamilton Lane | Global Leader in the Private Markets Proprietary and Confidential | 6 Cash Flows – Limited Cause For Alarm To date, we have not seen the surge of capital calls discussed in the news or feared by LPs Rate of Contributions by Month for All PM 8% 7% 6% 5% 4% 3% 2% 1% 0% 2008 2010 2012 2014 2016 2018 2020 RC by Month for All PM Average Source: Hamilton Lane; Bloomberg (April 2020) • Total capital calls for Q4 2019 and Q1 2020 were down approximately 2% and 25%, respectively, from historical quarterly averages • However, on a monthly basis, March and April were about 15 to 20% higher than historical averages • Total contributions not expected to increase significantly quarter over quarter as new deal activity has slowed HL has surveyed managers to understand their expectations for near-term capital calls 461 39% 5% Fund survey responses Funds expect capital Projected average % of received (April 2020) calls in Q2 2020 commitments to be called The information contained herein is based on the latest available information and Hamilton Lane's opinions as of the date of this presentation and subject to change at the Firm's discretion. Hamilton Lane | Global Leader in the Private Markets Proprietary and Confidential | 7 Challenging Market, But Opportunities Exist The new investment opportunity set will shift over time, requiring flexibility, expertise, capital and speed of execution Direct Investment Landscape Real Assets Direct Investment Landscape Investment Prospects Investment Prospects Investment Prospects Investment Prospects Investment Area Current Deal Flow Investment Area Current Deal Flow (Today) (1 year) (Today) (1 year) Liquid/Traded Credit Energy Preferred/Structured - Liquidity Infrastructure Based Financings Rescue Financing Agriculture Distressed Real Estate Secondary-LP Market Secondary-GP led Buyout Growth Equity Follow-On Equity PIPES (Private Investment in Public Equity) Venture n Favorable n Slightly Favorable n Neutral n Slightly Unfavorable. n Unfavorable 0 to 3 months 3 to 6 months 6 to 12+ months Credit and Credit-Like Credit; Credit-Like; Distressed Equity Opportunities Opportunities Emerge Become More Robust The information contained herein is based on the latest available information and Hamilton Lane's opinions as of the date of this presentation and subject to change at the Firm's discretion. Hamilton Lane | Global Leader in the Private Markets Proprietary and Confidential | 8 Dry Powder Remains Robust Private markets well positioned to take advantage of dry powder All Private Markets: Total Dry Powder All Private Markets: Unfunded % by Vintage Year Billions (USD) Unfunded/Commitments 90% $2,500 80% $2,000 70% 60% $1,500 50% 40% $1,000 30% 20% $500 10% $0 0% 2005 2007 2009 2011 2013 2015 2017 2019 2015 2016 2017 2018 2019 Source: Hamilton Lane via Cobalt (May 2020) Source: Hamilton Lane via Cobalt (May 2020) • 2018 and 2019 vintage year funds on average have over 60% of dry powder at their disposal • Older vintages are not as well positioned to take advantage of upcoming opportunities The information contained herein is based on the latest available information and Hamilton Lane's opinions as of the date of this presentation and subject to change at the Firm's discretion. Hamilton Lane | Global Leader in the Private Markets Proprietary and Confidential | 9 Q4 Private Equity Performance PE Portfolio Highlights - December 31, 2019 Performance and Value Creation • Strong since inception performance • Since inception IRR increased 6 bps YoY • Generated double-digit IRR of 12.94% for one-year period with $37.2M of gains PE Portfolio Returns PE Portfolio Value Created 15% $20 12.57% 12.58% 12.45% 12.45% $14.9 $15 10% $12.8 $10.8 $9.5 $10 $9.4 $8.8 4.50% $7.2 5% 3.14% 2.99% ($ in Millions) $5.5 1.77% $5 0% $0 3/31/2019 6/30/2019 9/30/2019 12/31/2019 3/31/2019 6/30/2019 9/30/2019 12/31/2019 Point-to-Point IRR Since Inception IRR Net Value Gain Market Value Growth Hamilton Lane | Global Leader in the Private Markets Proprietary and Confidential | 11 Portfolio Summary Portfolio Snapshot 2019: continued value creation and $ millions 12/31/2018 12/31/2019 Change meaningful liquidity Active Partnerships 70 76 6 • Portfolio generating significant cash return Active GP Relationships 30 33 3 Capital Committed ¹ $598.9 $677.8 $78.9 • Distribution to paid-in ratio increased Unfunded Commitment $228.2 $250.8 $22.6 to 0.81x Capital Contributed $445.8 $519.5 $73.7 • Generated net value gains of $37.2M Capital Distributed $360.2 $419.4 $59.2 during the year D/PI 0.8x 0.8x - Market Value $283.9 $325.6 $41.7 Total Value Multiple 1.4x 1.4x - Since Inception IRR 12.39% 12.45% 6 bps Active Avg Age of Commitments 5.7 years 5.9 years 0.2 years ¹The change in the capital committed from 12/31/18 to 12/31/19 is due to eight new commitments made during the year and currency movements of non-USD Portfolio investments • Strong LTM value creation across the Portfolio Summary Portfolio Quarter Ending Year Ended • All four quarters generated in $ millions 3/31/2019 6/30/2019 9/30/2019 12/31/2019 12/31/2019 positive performance, leading to Beginning Market Value $283.9 $298.8 $309.6 $316.8 $283.9 a one-year IRR of 12.94% Paid-in Capital 15.9 14.9 15.5 17.4 63.7 Distributions (13.8) (13.6) (13.7) (18.1) (59.2) Net Value Change 12.8 9.5 5.4 9.5 37.2 Ending Market Value $298.8
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