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QUARTERLY REPORT for the period from 1 January 2005 to 31 March 2005 QUARTERLYSTATEMENT REPORT OF THE INVESTMENT MANAGER INVESTMENT MANAGER’S REPORT POSITIVE START TO THE YEAR FOR PEARL In the first quarter of 2005, the net asset value (NAV) of the Pearl portfolio increased by 1.15% to 83.59%. A large num- ber of partnerships recorded valuation adjustments to their portfolio companies in their annual financial statements as per the end of December 2004. This had a positive effect on the NAV of the Pearl portfolio. The mid-market price of the Pearl convertible bond remained unchanged on the previous quarter at 92.50%, having peaked in between time, how- ever, in February at 94.00%. The convertible bond issued by Pearl Holding Limited provides access to the private The first three months of the year were characterized by a equity asset class. For the first time, investors have the opportunity to buy into the very high level of investment activity, which pushed the investment level – the ratio of the total value of private earnings potential of a broadly diversified private equity portfolio, while enjoying equity investments to the NAV of the Pearl portfolio - up by 14% to 64.28%. During this period, over EUR 49m were capital protection and a 2% coupon. Its tailor-made structure makes the convertible drawn down by the partnerships, as well as for direct invest- ments. This is significantly higher than in the past and bond suitable for German private and institutional investors (i.e. “deckungsstock- und reflects the active commitment activity of the Pearl portfolio since the middle of last year. In the first three months of spezialfondsfähig”). this year, Pearl made new commitments to two partner- ships, namely BC European Capital VIII, L.P., and Levine Leichtmann Capital Partners III, L.P., and acquired three new secondary portfolios, namely Blackstone Communi- cation Partners I, L.P., Bridgepoint Europe II ‘C’, L.P. and Doughty Hanson & Co. Fund III, L.P. The allocations to Doughty Hanson & Co. Fund IV, L.P. and Partners Group U.S. Venture, L.P. were raised. The latter will allow Pearl access to top US venture funds that are other- wise generally closed and therefore not accessible. Pearl also made direct investments in two companies, namely Ahold, a Spanish supermarket chain, and in Bodybell, a Spanish perfume and household goods retailer. This document is neither a sales prospectus nor a direct or indirect sales promotion instrument. 2 2004 was a record year for distributions for Pearl. Given the The allocation of the Pearl portfolio by financing stage, ge- INVESTMENT ADVISOR TO PEARL WINS friendly exit environment, 2005 is also likely to see sub- ographical region and industry is virtually unchanged quar- PRIVATE EQUITY AWARD stantial proceeds flowing back into the portfolio. During the ter on quarter. Pearl remains a well-diversified portfolio. first three months of this year, over EUR 20m has been The results of the Global Private Equity Awards organized by returned from realised investments, with significant dis- Investors had an opportunity to gain an insight into the the highly renowned publication Private Equity International tributions stemming from the sale of Saft, a French-based Pearl portfolio on 23 March 2005 at the Pearl telephone and its sister website PrivateEquityOnline.com were re- battery systems manufacturer, the refinancing of Gala, a conference. Investors were given a general overview of the leased in March. Partners Group, the Swiss-based alternative British bingo club and casino operator, and the Partners private equity industry and a run-down on the latest devel- asset management group and investment advisor to Pearl Group SPP1 Limited secondary portfolio. opments in the Pearl portfolio. The telephone conference Management and Insurance Limited, was awarded “Best was well received. Pearl intends to continue staging this European Fund-of-Funds of the Year” and ranked second in platform for investors twice a year. the category “European Secondaries Firm of the Year” for 2004. According to Private Equity International, these results are based on thousands of votes cast in the largest ever online reader poll. The awards are unique in that they are totally independent MID-MARKET PRICE AN NAV DEVELOPMENT and there are no shortlists, no panel of judges, or sponsors: every investor who reads the magazine or website can par- ticipate. 110% Partners Group has been acting as investment advisor to Pearl since the product’s launch in 2000. Today, Partners 100% Group has over USD 7bn of assets under management in hedge funds and private equity programmes and offices in 90% Zug, New York, London, Singapore and Guernsey. Urs Wietlisbach, Co-Chairman of Partners Group, said: “We 80% are honored by this recognition from the market. We believe the award validates our integrated private equity invest- 70% ment approach. For us and our clients, it has certainly made a difference.” 31.12.00 31.03.01 30.06.01 30.09.01 31.12.01 31.03.02 30.06.02 30.09.02 31.12.02 31.03.03 30.06.03 30.09.03 31.12.03 31.03.04 30.06.04 30.09.04 31.12.04 31.03.05 NAV Mid-market price NAV incl. paid and accrued interest 3 QUARTERLY REPORT MARKET TRENDS RECORD FUNDRAISING AND INVESTMENT ACTIVITY BY EUROPEAN BUYOUT GROUPS A large number of well-known private equity players are expected to return to the market to raise new funds in 2005 for investments in European buyout transactions. The total amount raised by these players, many of them established brand names with a long track record, is expected to easily exceed the sums raised in 2003 and 2004. Though on the up, the capital available for deployment in All the private equity segments – i.e. buyout, venture capital and special situations – the European buyout market is looking at good investment opportunities, which will have an impact on investment are likely to face very definite trends in 2005. Gaining access to the top European buy- activity. Preliminary figures from Initiative Europe, a leading provider of information on European private equity and ven- out houses and oversubscribed US venture capital funds, the beginning of a new ven- ture capital markets, show that the total value of all buyout transactions closed in 2004 was EUR 72.2bn, or 15% higher ture investment cycle, together with record levels of activity in European mezzanine than in 2003, and that 2004 was in all likelihood a record year for buyout investing in Europe. The European buyout markets, will create a highly competitive environment for investors and private equity segment is likely to remain attractive this year, with firms profiting from continuing economic growth and low interest firms alike. rates. Low rates mean relatively cheap leverage, which is beneficial to completing buyout investments. Thus, buyout investing in 2005 is expected to be on a par with that in 2004. However, cheap financing packages, better revenue prospects and fiercer competition for deals are likely to result in generally higher entry valuations. For this reason, it will be important to invest with partnerships that exhibit very strong pricing discipline. Notwithstanding the raft of buyout groups raising new funds, many are likely to be oversubscribed and access to the top, best-performing partnerships will therefore become increasingly important in 2005. 4 ANOTHER RECORD YEAR FOR THE US VENTURE CAPITAL INDUSTRY AT backer. According to the US National Venture Capital EUROPEAN MEZZANINE MARKET THE BEGINNING OF A NEW CYCLE Association (NVCA), venture capitalists will be searching for true breakthrough innovations and avoiding “me-too” The demand for mezzanine capital for use in leveraged buy- Though still remaining cautious, investors and venture capi- deals. Value creation will be of paramount importance in out transactions is running at unprecedented levels. Figures tal firms alike seem to have regained confidence in the ven- company formation. With competition for funding remaining recently published by Fitch Ratings confirm that, at EUR ture capital asset class and, consequently, are now facing a fierce, good ideas will simply not be good enough. Gone are 5.8bn, 2004 had seen a record level of new mezzanine strong competitive environment in this sector. the days when just any kind of idea was backed by seed issuance in the European market. The fact that a large money. In 2005, even start-up companies will be required number of “jumbo” leveraged buyouts opted to issue Google’s successful initial public offering (IPO) last summer to have some meat on their bones if they are to attract ven- mezzanine in preference to high-yield bonds is evidence of helped spark interest in venture capital investing. ture capital. the maturity of the mezzanine asset class as well as its Investors’ demand for the venture capital asset class is now growing popularity among investors. back to a high level again. Given that the funds being raised The NVCA expects technology to remain the cornerstone of are smaller in size, investors will have to compete strongly venture capital investing in 2005, with a focus on the soft- Mezzanine issuance is likely to remain high again this year. for an allocation in the best performing funds that are due ware and life sciences sectors. Emerging areas such as The mezzanine market will benefit from increased global to be raised over the coming months. Many of these funds stem cell research and nanotechnology will be watched leveraged buyout activity and growth capital opportunities, will face the prospect of being oversubscribed; venture closely by the venture capital industry, though investment including mergers and acquisitions, corporate restructurings capitalists’ discipline in limiting fund sizes so that they are in such companies will remain limited until more basic re- and recapitalizations.

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