1
Annual Review 2015 202 AlpInvest Annual Review 2015
Throughout this document, ‘AlpInvest’ or ‘AlpInvest Partners’ refers to AlpInvest Partners B.V. and its affiliates.
In considering the past, targeted, or projected performance and other financial information contained herein, readers should bear in mind that past, targeted, or projected performance is not necessarily indicative of future results and there can be no assurance that targeted or projected returns will be achieved, that any AlpInvest fund or other investment will achieve comparable results, or that the returns generated by an AlpInvest fund or other investment will equal or exceed those of other investment activities of AlpInvest. 033
04 Our business 07 Strategic review AlpInvest is a leading private equity investor 10 Market and investment review 14 Fund Investments with a track record of over 16 years of 16 Secondary Investments attractive returns1. 18 Co-Investments 23 Governance 24 Managing Directors 27 Responsible investing We invest in primary funds, secondaries, 28 Human resources 29 Remuneration policy and co-investments with specialized global 30 Risk management 32 Investment performance teams that share information across the 34 Fund Investments overview platform providing unique insights. 36 Secondary Investments overview 37 Equity Co-Investments overview 39 Mezzanine Co-Investments overview 41 Private equity We believe that our size and experience has 42 Important information enabled us to build an unparalleled network of relationships that spans the world and gain a deep understanding of the market.
We offer clients a broad range of solutions to their private equity needs, underpinned by a disciplined, discerning, and consistent investment strategy.
Our 72 investment professionals are dedicated to applying their collective skills, insights, experience, and knowledge to maximize value for our investors.
1 Past performance is not indicative of future results or a guarantee of future returns. Return metrics are subject to change as a fund or investment portfolio matures. 4 AlpInvest Annual Review 2015
AlpInvest is a leading private equity Customized solutions OUR BUSINESS investor with €39bn of assets under Since inception, our primary purpose has management and a track record that been to provide customized private equity TRUSTED, spans more than 16 years. We invest investment solutions for institutional across three main strategies – Fund investors. We have a strong heritage of DISCIPLINED Investments, Secondary Investments, working closely with our clients to help and Co-Investments (including them fulfill their objectives, whether INVESTORS Mezzanine) – to provide strong returns through comprehensive global programs to our clients through customized or through specialized strategies such as private equity programs and secondary investments. Over recent years, commingled funds 1. we have complemented our customized solutions business with commingled funds We offer access to high-quality, multi- that offer a broader set of investors access manager, and direct programs to our to our strategies. investors across the globe. Our scale and on-the-ground presence across From offering our services to a handful of three continents give us a distinct and clients a few years ago, we have grown our comprehensive perspective on the private business in more recent times to 33 active equity market. investors as of the end of 2015, and we are confident that we will further expand our AlpInvest has 155 employees, including 17 client base materially in the years to come. Managing Directors, many of whom have In 2011, we became part of one of the worked together for over a decade. Our largest and most respected alternative stable, dedicated, and experienced teams asset managers, The Carlyle Group have deep knowledge of their respective (‘Carlyle’), becoming fully owned in 2013. markets. This, combined with our well- thought-out approach to the portfolio Our investment decisions continue to construction process and rigorous be reached entirely independently of investment selection, offers our investors our parent. However, our relationship the opportunity to generate attractive with Carlyle gives us access to its global returns across economic cycles. distribution platform, supports us in our aim of developing exciting and innovative Proactive sourcing products and services for our investor AlpInvest’s investment strategy is defined base, and has enabled us to invest in by a strong belief that the best private high-quality systems that can provide equity opportunities are found in areas our investors with exceptional levels that are less subject to competitive of transparency. pressures. As a result, our teams actively seek out investments that are off the Since our foundation more than 16 years beaten path and that would otherwise be ago, we have built a solid reputation as difficult for our investors to access. Our trusted private equity investors. We remain extensive network of over 295 general committed to using our strong network partner relationships across the globe and deep knowledge of the private equity often enables us to identify investment industry to build robust private equity opportunities ahead of other investors. portfolios that are expected to generate attractive returns across economic cycles Well informed, disciplined investors for our investors. We only invest in what we truly understand, and what we believe adds value to the 1 Past performance is not indicative of future results or a guarantee of future returns. Return metrics are subject to portfolio of our clients. This is combined change as a fund or investment portfolio matures. with our disciplined, highly selective investment process and our guiding principle of achieving diversification by deploying capital across economic cycles, private equity segments, and investment styles. We believe that our approach allows us to generate attractive returns for our clients in both good and more challenging economic environments.
Our integrated and collaborative culture across our three main strategies, reinforced by significant investment in IT solutions, provides deep insight into fund manager portfolios and modus operandi to support our rigorous selection capabilities. 5
2015 COMMITMENTS RECEIVED OVERVIEW FROM INVESTORS1 Since firm’s inception 33 BY INVESTMENT TYPE Number of investors
155 €40.5bn Fund Investments Number of employees, of €10.7bn Secondary Investments whom 72 are investment €8.9bn Equity Co-Investments professionals €1.9bn Mezzanine Co-Investments €1.1bn Other
BY INVESTOR TYPE >295 Number of general partner relationships 98.5% Pension funds2
4 1.5 % Number of offices, across Insurance companies three continents and other
1 Total capital committed to AlpInvest includes €7.0bn of investor mandates that are managed on behalf of investors by AlpInvest Partners B.V. (or its controlled affiliates), but for which the investment decisions were made by parties other than AlpInvest or its affiliates (€6.7bn before the end of 2002 and €0.2bn was committed before AlpInvest began managing such investments in 2013).
2 Including Private Sector Asset Managers servicing public pension funds. 66 AlpInvest Annual Review 2015 7
STRATEGIC In 2015, our investments performed REVIEW strongly1 across all our business lines STRONG and we continued to build on our RETURNS AND robust platform to provide high-quality SOLID BUSINESS services to our clients. DEVELOPMENT
Following a good year in 2014, last This strong performance was reflected year was another strong period for across all our business segments, with AlpInvest as we delivered solid returns Fund Investments, Secondary Investments, to investors, continued to attract and Co-Investments (including Mezzanine) new investors, and completed a all reporting record levels of distributions. significant IT project that both enhances our decision-making The performance was set against a processes and improves transparency backdrop of good exit conditions and to our investors. underscores the importance of our strategy of investing across economic Exceptional performance cycles and careful approach to The highlight of the year was our portfolio construction. exceptionally strong investment performance. We distributed over €9bn Our guiding principles of consistent, highly to investors, a record for our firm and selective investing based on an in-depth a significant uplift from the €6.8bn we knowledge of the private equity market, returned in 2014. This represents a return rigorous due diligence, and relationships of over 2x capital invested in multiple spanning over 295 global GPs meant Paul de Klerk, Chairman, CFO/COO terms. The year 2015 ended with a 22% we were able to deploy a total of €4.3bn year-to-date net return including during 2015, while maintaining a cautious currency impact on the assets under stance in the light of elevated pricing at a management (15% excluding exchange time of increasing economic uncertainty in rate adjustments). many markets.
Growing investor base One of our ongoing strategic objectives is to continue diversifying our investor base. I am pleased to report that we made good progress in this effort in 2015. In addition to signing additional mandates from existing clients, we attracted two new separately 1 Past performance is not indicative of future results or a guarantee of future returns. Return metrics are subject managed account mandates across our to change as a fund or investment portfolio matures. three business lines, all of them of a material nature. 8 AlpInvest Annual Review 2015
We have therefore grown our investor base Our upgraded systems are also highly Remuneration from six just five years ago to last year’s beneficial for our investment teams across A key focus for AlpInvest has always total of 33 investors. We also prepared the three business lines as a tool in the been to build a platform and organization the ground to attract a significant number investment decision-making process. Our that fosters a stable and committed of new clients over the coming year to 18 teams can now view performance data team whose incentives are well aligned months. In 2015, we further strengthened from multiple angles, with access – on a with our investors’ objectives. As a our investment solutions and sales teams. look-through basis – to the progress of result, we conducted a review of our We continue working on the alignment with both our direct and indirect investments. carried interest structures during 2015. our parent, The Carlyle Group (‘Carlyle’), This enables them to come to a more Historically, AlpInvest has operated a and are grateful for their material support precise view on exposure levels and on firm-wide performance payment scheme. in the development of our business. how individual companies are performing Under the new arrangements, we will over time as well as offering them detailed retain performance payments across We seek to realize a sizeable increase insights during the due diligence process. the teams to reflect the collaborative in our overall client numbers in the nature of our culture and the way we coming year and we believe we are well Regulatory developments do business. However, we now also placed to take advantage of the growing One of the key risks in the alternative have in place a scheme that rewards appetite for private equity exposure investment space, including private equity, investment professionals according to among investors globally, especially since is an ever-changing regulatory landscape. the performance of the portfolios they generating income in the current low-yield At AlpInvest, we invest significant manage. We believe that this new structure environment remains a challenge for resources to manage risks proactively enhances our teams’ alignment of interest many investors. and embed the correct processes into with investors and is a natural step in our our organization. As part of our effort to evolution as the firm continues to develop. Investing in transparency and decision- manage regulatory risk responsibly, we making tools obtained an Alternative Investment Fund Last year saw the completion of a major Managers Directive (‘AIFMD’) license from IT investment program that we initiated the Netherlands Authority for the Financial in 2013. This significant development Markets for our activities in 2015. offers our clients a new portal through which they can access and analyze data While it confers certain responsibilities on their investment portfolios, both at the on our organization, this license also underlying fund and portfolio company provides the benefit of a single marketing levels. This provides investors with passport in Europe for our fundraising enhanced transparency and is designed efforts, offering our firm a more efficient to meet their needs for increasingly and streamlined way of raising capital timely and granular information on the from investors. In addition, we continued to performance and exposure of build on our strengths in Asia by obtaining investment portfolios. a necessary license from the relevant authorities in South Korea during 2015 in order to offer our advisory services to large Korean institutional investors. 9
Looking ahead During 2016, we will continue to work YEAR IN on building out our client base together with Carlyle. We are delighted to be REVIEW working with Lauren Dillard, the new Head of Carlyle’s Investment Solutions platform (‘Investment Solutions’), who is supporting us in our aim of further diversifying our investor base.
Our long track record of successful Fund Investments investing, our ability to provide highly Secondary Investments bespoke investment programs, and Equity Co-Investments our recent investments in state-of-the- Mezzanine Co-Investments art technology solutions all put us in a Other solid position to benefit from the trend of increasing private equity allocations among the world’s institutional investors.
Overall, we are confident that our firm is well placed to take advantage of the opportunities 2016 will offer. Over the ASSETS UNDER past few years, we have succeeded in MANAGEMENT managing a well-planned transition that As at December 31, 2015 €39bn positions us for the long term. We believe €25.9bn that our stable and experienced teams, €7.1bn Assets under Management backed up by a highly institutionalized €5.4bn as at December 31, 2015 organization, will continue to build robust €0.4bn – up from >€38bn as at and carefully considered portfolios for €0.1bn December 31, 2014 our clients.
2015 TOTAL INVESTMENTS Across key segments €4.3bn €2,586m €1,201m Total investments in 2015 €441m – up from €3.6bn in 2014 €98m €0.2m
2015 TOTAL REALIZATIONS Across key segments €9.1bn €5,106m €1,668m Total realizations in 2015 €2,107m – up from €6.8bn in 2014 €247m €4m 10 AlpInvest Annual Review 2015
MARKET AND AlpInvest continued to provide investors with strong INVESTMENT returns1 in 2015, making record distributions from REVIEW our carefully selected and rigorously constructed portfolios of private equity investments. As the environment changes over the coming year, we will continue to watch market developments closely while remaining true to our philosophy of investing consistently across cycles.
Our strong results partly reflect the These conditions led to strong liquidity as active M&A markets and high valuations private equity funds took the opportunity that characterized the first three quarters to exit investments via sales to strategic of 2015. The year closed with nearly $5tn buyers, particularly as IPOs became of global M&A deals announced, according harder to price in the second half of the to Thomson Reuters data, higher even year following commodity price declines in than the peak pre-crisis years. the summer.
At the same time, deal volumes were We believe that the strength of our results broadly flat compared with 2014. Overall is a validation of AlpInvest’s overarching values were skewed to some degree philosophy of investing consistently by mega-deals, but they were also the through economic cycles in a disciplined result of high valuations being paid in a manner to create robust portfolios on competitive market as corporates sought behalf of our clients. Our rigorous and to invest in growth through acquisitions institutionalized processes are designed to at a time of moderating global economic ensure we partner with best-in-class fund growth and increasing uncertainty toward managers that can not only take advantage the end of the year. of strong exit markets to crystalize returns Wouter Moerel, Managing Director for our clients, but that focus on long-term value creation in the companies they invest in. By building value, these fund managers create businesses that are attractive to potential new owners, regardless of economic and market conditions.
The trend for high M&A valuations that continued through much of 2015 has been evident for the past few years. This is why we have maintained our cautious stance toward new investments and have worked proactively to source opportunities that are harder to identify, sometimes more difficult to execute, and that are therefore less subject to competitive pressures. Our investment focus over the past few years has therefore shifted more toward mid- 1 Past performance is not indicative of future results or a guarantee of future returns. Return metrics are subject market investments, where we see high to change as a fund or investment portfolio matures. value-creation potential. 11
Outlook for 2016 As uncertainty prevails, so M&A activity We are therefore cautiously optimistic Over the coming year and beyond, we will has started to decline. IPOs have also about the environment for new investments continue to watch closely how market and become harder to price and therefore across all three of our business lines over macroeconomic factors affect the private execute as public market volatility the next year and beyond. We will continue equity landscape, while remaining true has increased. We are also starting to to seek out opportunities on behalf of to our core belief that the interests of our see prices in private markets adjust our client base that have the potential to investors are best served by careful and downward to reflect a lowering of generate strong returns whether or not consistent investing across cycles. valuations on the public markets and we face a more challenging economic some shifts in the debt markets in climate. We believe Europe will continue to As 2016 progresses, we are continuing pricing, terms, and available quantum. offer scope for promising investments, in to see signs of the increased economic particular where industries or segments uncertainty around the world that emerged With a softening in valuations and a decline are fragmented. Japan, too, may be set toward the end of 2015. Global GDP in M&A activity, we expect exits to enter a for moderate growth, and in other regions growth figures have already been revised less buoyant period, although our portfolio of Asia we expect to see some attractive downward as the impact of a softening has seen some good realizations so far opportunities emerge from the increased Chinese economy is being felt and the U.S. this year. We expect 2016 to be a healthy volatility we are witnessing. growth cycle starts to turn. At the same year for distributions, although we are not time, looser monetary policies in Europe anticipating liquidity to be as strong as We will be watching developments as and Japan may provide some stimulus for in 2015. they unfold in the United States, given the growth although the divergent stance on potential for an economic slowdown in quantitative easing and interest rate setting The flip-side to this, of course, is that, the country. between these economies and that seen should these conditions prevail, we expect in the United States is contributing to poor there to be more attractive investment visibility on future developments globally. opportunities over the coming period. Last year, global buyout deal activity numbers were flat relative to 2014 as many funds were priced out of the M&A market by strategic buyers. By contrast, periods of volatility often produce good buying opportunities for private equity funds, given their long-term investment horizons and ability to create value and improve performance in companies. 12 AlpInvest Annual Review 2015 13 14 AlpInvest Annual Review 2015
FUND Strong, balanced portfolios INVESTMENTS produced record distributions and realized gains in 2015, and AlpInvest’s Fund Investments performed well across all aspects of liquidity, returns, fresh commitment levels, and new client mandates1.
Distributions increased While market factors clearly provided We distributed €5.1bn to our investors, a tailwind in 2015, our continued a figure that builds on our success robust performance is the result of our in previous years and is the largest measured and consistent approach to distribution in our more than 16-year portfolio construction over the years. history. Of this, €2.9bn were realized Since our inception, our focus has been gains, substantially higher than the on generating strong returns for our €2.3bn of realized gains in 2014, itself a clients by building high-quality portfolios record year. In IRR terms, we continued of private equity fund investments that to provide the solid returns our investors are tailored to the needs of individual expect from us. investors and diversified across geography, company stage, investment The year was characterized by slow but strategy, and vintage year. continued economic recovery in many of the developed markets, with Europe These portfolios offer our clients exposure showing increased signs of stability to the return-generating opportunities and moderate growth. The U.S. market that arise across the economic cycle also performed moderately well during and from different market dynamics. 2015, while non-traditional markets We demonstrated the consistency of our such as Asia experienced measured approach by committing capital during growth rates in a more volatile economic the uncertainty that prevailed immediately environment. This economic backdrop was following the financial crisis; the 2008 and accompanied by continued low interest 2009 vintage year funds in our portfolio are rates, which together produced a buoyant now validating this approach by generating market for exits as confidence among high distributions and strong returns. corporate buyers increased and the cost In addition, we continue to see good of acquisition capital remained low. There performance from our funds with exposure were reduced IPO opportunities in 2015 to the pre-2008 peak years. compared with 2014, but the funds in our portfolio were able to tap the strong New commitments remained steady global M&A market to realize investments, In 2015, our Fund Investments team return healthy levels of distributions to our made €1.5bn of new commitments across investors, and generate strong rates 38 partnerships with a 2015 vintage (or of return. earlier). Consistent with our diversified approach, this was spread across strategies, investment styles, and geographies.
In traditional markets, the United States continued to provide good investment 1 Past performance is not indicative of future results or a guarantee of future returns. Return metrics are subject opportunities, while Europe moved toward to change as a fund or investment portfolio matures. recovery, as we highlighted in our 2014 15
review. Indeed, last year Europe offered to LPs increased globally, leading to many Outlook an attractive investment environment with investors becoming underweight in their As we move into 2016, we are entering a lower valuations than many pockets of the private equity commitment levels versus more uncertain period, with prospects U.S. and Asian markets, and with some their target allocations. of an economic slowdown in the United countries in southern Europe showing States and further signs of moderation in particular promise while benefiting from This increased liquidity among investors Chinese economic growth, suggesting that low levels of private equity penetration meant that, during 2015, it was occasionally exit markets may slacken over the year. relative to other parts of Europe. challenging to achieve our desired At the same time, recent moves by the allocation to some funds in the market. European Central Bank to lower interest Non-traditional markets, meanwhile, In this environment, however, AlpInvest rates may bolster asset prices in the region had a more volatile year, with signs of a remains an attractive limited partner and create favorable conditions for private slowdown taking hold in China and growth for historically strong-performing equity realizations. Our view is that, on moderating in other emerging markets. private equity fund managers. Our team balance, 2016 is unlikely to see a repeat of However, our consistent and long-term of Managing Directors, most of whom the record-breaking liquidity witnessed by approach to investments, combined have been with AlpInvest for at least a private equity over the past two years and with our presence on the ground, deep decade, have established and built strong we are therefore expecting lower – yet still knowledge, and networks, enabled us to relationships with general partners ('GPs'), healthy – levels of distributions across identify and gain access to highly skilled who value the stability and predictability we our portfolio. fund managers in these markets. can offer as a limited partner. The recent volatility in commodity prices We understand that, by committing to As a result of our deep understanding of has shown that public markets are likely funds managed by high-quality teams, the market and our systematic approach to react strongly in both positive and uncertainty in these particular markets to fund identification and selection, we negative directions to news and economic can bring with it attractive opportunities complete a large proportion of our due data. However, we will remain focused on there. We also understand that exchange diligence work even before funds reach the pursuing a cautious and disciplined yet rate movements can play a particularly market, enabling us to move quickly and consistent strategy of investing across important role in return generation across assuredly when fundraising commences. cycles, geographies, and strategies, and non-traditional markets: our strategy of We believe that our robust organization, identifying high-quality fund managers maintaining a steady investment pace senior level input, and longstanding with genuine value-creation capability across cycles helps to dampen the effect of reputation give us a good competitive edge and robust institutional organizations currency volatility. when making new commitments. and processes.
If the low interest rate environment has Building out our business Following a strong 2015, we continue to led to a strong exit market and excellent In addition to providing excellent service seek to construct portfolios carefully for opportunities for returns, it has also and consistently good returns to existing our existing clients to generate attractive created a challenge: as global investors clients, one of our priorities is to grow our returns, and we will also seek to grow have sought yield and become accepting business. In 2015, we attracted two major our business by expanding our client of lower returns across their portfolio, so new clients for whom we are designing base. We remain confident that we are asset prices have increased. As this trend bespoke private equity investment well positioned to take advantage of the played out over 2015, we maintained our programs through managed accounts. opportunities 2016 has to offer for the cautious stance to investment. While this We believe that our achievement in winning benefit of our investors. has always been a key element of our fund these significant mandates is a validation selection process, we have sharpened our of the systems, processes, and information focus even more over the year on securing flows we have in place. commitments with fund managers with clear value-creation credentials and Over the years, we have established and capability and with strong, institutional built out a highly institutional organization processes in place across the organization. with streamlined processes. This is overlaid with information flows between This ensures that our own disciplined our Fund Investment, Secondaries, and Co- approach to private equity investment is Investment arms: the data captured from reflected in the behavior and decisions of each of the three investment activities is the fund managers with whom we invest. integrated to allow us to view opportunities The buoyant exit market has also increased from multiple angles and to provide competition among limited partners insight into individual fund managers’ ('LPs') for access to the best-performing performance, team skills, strategies, and managers. Throughout 2015, distributions modus operandi. This level of detail helps our teams make compelling investment opportunities on behalf of our clients. 16 AlpInvest Annual Review 2015
SECONDARY During 2015, AlpInvest continued to INVESTMENTS deploy capital in the secondaries market according to our highly disciplined and differentiated strategy of buying high- quality assets away from competitive situations that we believe can create value and liquidity for our investors.
Consistent with our stated strategy of This allows us to move between (i) a delivering cash-on-cash returns quickly to focus on acquiring portfolio positions investors and managing the risk profile of when economies are generally more our investments effectively, we kept clear challenged and motivated sellers offer the of employing leverage in the secondaries opportunity to acquire secondary portfolios market in 2015. We selectively invested in at attractive prices (as seen in the 2002– the portfolio market and focused on the 2005 and 2009–2013 periods) and (ii) a sponsor-centered market. focus on sponsor-centric deals, including stapled transactions, spin-outs, and fund The year saw a continuation of the trends restructurings, in more positive economic that played out during 2014: high levels environments. Thanks to our experience of competition for many limited partner and deep knowledge of the private positions in funds of primarily older equity market and our direct investment vintages. These types of transactions, often expertise, we can often identify GP-centric completed with the use of leverage to allow situations and complete them away from for full pricing, accounted for approximately competitive pressures. 60% of the global $40bn secondaries deal market in 2015. The conditions of 2015 clearly called for a greater focus on GP-centric deals and, Focus on GP-centric deals over the year, we completed seven such Despite the competitive environment in transactions, accounting for 94% of the the secondaries market, we were able to capital we committed during the year, and maintain our annual investment pace of four portfolio deals, which accounted for between $1bn and $1.5bn while remaining the remaining 6%. disciplined and selective. Our approach Since inception, we have pursued a strategy All of our secondary investments are that gives us the flexibility to acquire selected based on four key criteria: funds positions in high-quality funds at attractive managed by top-performing general prices throughout economic cycles with partners with track records that have less emphasis on discounts that may or been solid over the long term; underlying may not be available in the market. portfolio companies with the potential for significant future value creation; funds that are early in their lives so that many of the best portfolio companies have not yet been exited; and situations that offer strong cash-on-cash returns for investors. Our recent investment in Lee Equity 17
Partners, a U.S.-based mid-market fund Record distributions1 Last year we also took the decision to fold founded by private equity veteran Thomas During 2015, we returned €1.7bn to our secondary energy investment team and H. Lee and run by a team of operationally investors, the largest amount we have ever efforts into our core secondaries group. focused private equity professionals, distributed from our secondaries program. We continue to believe there are strong exemplifies this strategy well. Its 2007 Of this, €0.9bn was realized gains, a solid opportunities for investment in this industry, fund straddled the financial crisis; result for our clients. which is undergoing a period of high however its investments, the majority of volatility as oil and gas prices have fallen, which were completed in the 2010–2013 We believe that the high level of resulting in a large number of motivated period, had performed well and were distributions seen last year was the sellers seeking liquidity solutions. With poised for value creation. result of our highly selective and flexible the benefit of expertise among our team investment strategy and the strong exit members in this sector, we believe that Our comprehensive solution was to create market that prevailed for much of 2015 as we are well positioned to take advantage a realization fund with sufficient time and global M&A values and volumes increased of these promising conditions. We capital to maximize value from the existing markedly in the face of renewed appetite recently closed our first energy portfolio as well as a bridge fund that would from strategic buyers. secondaries investment. allow the team to continue to execute on its growth-oriented investment strategy. As Our team 2016 and beyond part of the transaction, we provided liquidity Our ability to execute sponsor-centered Over the coming year, we anticipate a period to the existing limited partners of the fund transactions is one of the Secondary of transition as the global economic cycle that wanted an exit solution, and as a Investments team’s differentiators. We appears to be close to a turning point. Signs result the firm now has a new stable and have focused on building an experienced of a slowdown in the world’s two largest committed investor base. The results are global team, the majority of whom have economies, the United States and China, already starting to show, with two portfolio direct investing experience and who suggest that conditions for investment are companies successfully realized at the end therefore have the capacity to understand set to change over the coming one to two of 2015. the motivations and modus operandi of years. Against this backdrop, we expect to GPs and can fully appreciate the drivers continue to make healthy distributions in Secondary investments completed in of performance in underlying portfolio 2016, although we do not anticipate that 2015 included the spin-out of One Equity companies. This allows us to offer creative these will reach the levels seen in 2015. Partners from JPMorgan Chase to create solutions to GPs in our secondaries OEP Capital Advisors, a stapled transaction investments and makes us an attractive On the investment side, we will continue in support of the spin-out of Sumeru Equity partner in sponsor-centric deals where the to maintain a cautious stance, focusing Partners out of Silver Lake, and structured GP chooses which investor to work with. in the short term on sponsor-centered fund transactions with stapled components investments while maintaining strong with Eurazeo PME in France and PM & During 2015, we continued to invest in pricing discipline in the portfolio market. Partners in Italy. In the first quarter of our team, hiring Noah Keys as a Principal In line with our flexible investment strategy 2016, we closed the investment in focused on investing in the increasingly that enables us to deploy capital in a Lee Equity Partners. compelling energy space, and welcoming highly disciplined manner across cycles, back Neal Costello as a Managing Director our expectation is that we will start to see Leveraging expertise and knowledge and member of the Investment Committee. more portfolio position opportunities at We work collaboratively with our colleagues Neal was an instrumental part of the attractive valuations over the coming period in the Fund Investments and Co- development of our secondaries program, than has been the case over the past two Investments teams so that we can leverage having started out in our New York office years. Indeed, there are already signs that our relationships with over 295 sponsors and opening our Hong Kong operation in relatively unfunded positions are becoming globally to source attractive opportunities 2011. In early 2016, we recruited Aquila Chu available and we will be observing this part and conduct in-depth due diligence. Our as Vice President from Bain Capital Private of the market closely and with interest. investment in VSS Structured Capital Equity Asia to join our team in Hong Kong. demonstrates this clearly: our knowledge of the situation and our understanding of the credit team’s excellent track record allowed us to offer a solution to some of the fund’s existing limited partners and a stapled commitment to the firm’s new fund, and create a realization fund at a point where some investors felt the market was looking uncertain. However, we believe the fund’s combination of junior debt and equity positions offered our investors downside protection in the event that economic conditions deteriorate, while also offering 1 Past performance is not indicative of future results or a guarantee of future returns. Return metrics are subject to them the benefit of upside from value change as a fund or investment portfolio matures. creation in the portfolio. 18 AlpInvest Annual Review 2015
CO-INVESTMENTS We have an active and robust investment approach driving record distributions and strong returns1 while maintaining a consistent investment pace.
The year 2015 was a record year for Our disciplined and consistent approach to AlpInvest in realizing distributions for building up our co-investment portfolio put our investors while generating us in a strong position to take advantage of significant deal flow to maintain a solid the supportive conditions for private equity investment pace. exits that prevailed for most of 2015. Even in the less buoyant second half of the year, Record distributions and strong returns we continued to see strong exits as our Last year we distributed over €2.3bn to portfolio companies generally performed our investors from our co-investment well irrespective of economic conditions. program, the highest yearly amount since inception. Of this, €1.3bn was realized We believe this is a direct result of our gains, a solid result for our clients. portfolio construction approach of investing selectively across a diversified These realizations were set against a set of opportunities and analyzing backdrop of a dynamic exit environment the specific position of the company in the first half of the year, followed by a in detail while taking a view on the deterioration in market conditions due to macroeconomic environment in which the uncertainty about the macroeconomic it operates. Our rigorous, independent developments and the closing IPO window. assessment of individual investments is designed to enable us to uncover European and U.S. economies grew at genuine value creation opportunities, moderate rates over the year, while Asia, which can perform solidly throughout led by a slowdown in China, experienced economic cycles. a more volatile year. Despite these challenges, M&A valuations were high Deal flow increased relative to historical levels as especially During 2015, we invested in 23 new equity corporate appetite for high-quality transactions and six new mezzanine assets continued to drive the market and deals, and contributed to six follow-on the availability of debt for acquisitions financings. Asset values were high in 2015 remained strong through most of 2015. relative to historical levels. However, by generating significant deal flow during the year, we were able to maintain a consistent investment pace while being highly selective in our investment approach.
1 Past performance is not indicative of future results or a guarantee of future returns. Return metrics are subject to change as a fund or investment portfolio matures. 19
In 2015, we reviewed a record number In mezzanine, we pursue an active Looking ahead of co-investment opportunities driven by investment strategy that allows us to In first months of 2016, we have our proactive sourcing approach. Over continuously monitor the market and take continued to see good exits and our the years, our team has worked to further advantage of windows of opportunity. portfolios remain on track to generate broaden the pipeline of co-investment While most of 2015 was characterized by strong returns. The new year started opportunities with a particular emphasis a liquid debt market, the first quarter of on an uncertain note with, among on securing more deal flow in the mid- the year saw volatility in high-yield bond others, further signs of a weakening market, where transactions are less markets as China’s economy showed Chinese economy, increased volatility in visible than in the more competitive large signs of slowing and commodity prices commodity pricing, and a divergence in buyout space. declined. As a result, especially the monetary policy globally. first quarter presented an opportunity In addition, we continued to see many good for us to make a number of mezzanine However, based on our longstanding opportunities as a result of our ability investments, with the rest of the year experience of investing in the private to act as a true deal partner in live deal seeing a slower investment pace in this equity markets, we believe that volatility situations where we support the lead GP part of our business. will actually bring attractive opportunities as an equity co-underwriter. This strategy for new investments. We continued to has helped us to build a reputation among Business development be highly selective in the companies we general partners for being a professional As part of our plans to grow AlpInvest invested in, building on our strong and and reliable counterparty in transactions, and our co-investment business, we diversified deal flow from which to choose which gives us the opportunity to are continuing our strategy to broaden opportunities in sectors and segments of participate in deals that are not widely our client base. Building on our DNA the markets that can perform well through available to most limited partners. As a of providing highly tailored investment economic cycles, while also keeping a result of this strategy, invitations for these programs to our clients, we have secured close eye on valuations. ‘active’ co-investment opportunities have mandates from a number of highly increased over the years and represented reputable investors during 2015. In 80% of our total deal flow in 2015. addition, we were able to attract additional capital from our existing investors.
Importantly, we also continued to invest in our team over the year as we remain committed to the career development of our people and stability of our employee base. As of January 1, 2016, Roberto Torrini was promoted to Managing Director and we also promoted two of our Co- Investment team members to Principal. Over the years, we have built a strong, highly experienced Co-Investments and Mezzanine team that now numbers 24 across the globe. 2020 AlpInvestAlpInvest AnnualAnnual ReviewReview 20152015 2121 22 AlpInvest Annual Review 2015 23
GOVERNANCE At AlpInvest, robust governance is a RIGOROUS AND fundamental part of who we are and ROBUST how we operate. It determines the way we act within the firm, with investors, and with shareholders.
We pride ourselves on being trusted and already a member of the Board, took partners to our stakeholders, and strong over as Chairman from Jacques Chappuis, governance breeds this trust. Throughout who stepped down from the Board on the firm, we maintain a disciplined December 31, 2015. approach to operational and investment decision-making, and this shapes our Other members of the Board are Glenn culture, our processes, and our returns. Youngkin, Co-President and Co-Chief Operating Officer of The Carlyle Group, The underlying philosophy behind Lauren Dillard, a Carlyle Managing AlpInvest’s systems and strategy is a Director and Head of Carlyle Investment belief in the need for firm, effective Solutions, who joined the Board on management and internal discipline January 1, 2016, and Erik Thyssen, to boost performance and enhance Managing Director of AlpInvest. investment returns. AlpInvest also has two committees that are Since August 1, 2013, AlpInvest has been involved in the day-to-day operations of the wholly owned by The Carlyle Group firm: the Investment Committee and the (‘Carlyle’) and forms part of Carlyle’s Operating Committee. Investment Solutions business segment (‘Investment Solutions’). Investment The Investment Committee Solutions helps clients meet their The Investment Committee, which meets objectives through tailored portfolio on a nearly weekly basis, is responsible construction and implementation. The for making the final investment decisions Investment Solutions platform seeks to for our business. It is chaired by Chris give investors access to large and complex Perriello. Other members of the alternative investment strategies – private Investment Committee are Wim Borgdorff, equity and real estate – on a global basis. Volkert Doeksen, Richard Dunne, Marek Herchel, and Erik Thyssen. AlpInvest carries out its investment operations independently of Carlyle and The Operating Committee its affiliated entities. Carlyle maintains The Operating Committee focuses on a one-way information barrier between the day-to-day management, strategy Investment Solutions (which includes and policies concerning client-related AlpInvest), on the one hand, and the other activities, including providing advice business segments of Carlyle on the on investment objectives and terms other. This information barrier restricts and conditions, investment-strategy the flow of non-public, commercially monitoring, and related regulatory and sensitive Investment Solutions information compliance matters. Paul de Klerk chairs from Investment Solutions to the other the Operating Committee. Other members Carlyle business segments, other than for are Lauren Dillard, George Westerkamp, certain regulatory, reporting, and similar and our three Business Line Coordinators: purposes. This is a crucial component Wouter Moerel, Rob de Jong, and of our agreement with Carlyle, and both Maarten Vervoort. parties recognize its vital importance. We are committed to strong, effective The Board governance and we are confident that we The Board is responsible for determining have in place the necessary structures to the AlpInvest strategy and developing the maintain a rigorous and robust approach. business. It comprises four Directors. On January 1, 2016, Paul de Klerk, AlpInvest’s Chief Financial and Chief Operating Officer 24 AlpInvest Annual Review 2015
MANAGING 01 04 07 DIRECTORS
02 05 08
03 06 09
01 Paul de Klerk 04 Neal Costello CFO/COO, Chairman of the Board Neal is a Managing Director in the Paul is the Chief Financial Officer and Secondary Investments team and Chief Operating Officer of AlpInvest focuses on transactions in Europe. He Partners and the Chairman of the is also a member of the Investment Board. He co-founded AlpInvest, Committee. Neal rejoined AlpInvest chairs the Operating Committee, and is Partners in 2015 from Canada Pension responsible for the investment portfolio Plan Investment Board. He originally valuation and review process. Before joined AlpInvest in 2003 in the New joining AlpInvest, Paul was responsible York office and ultimately led the firm’s for one of the largest corporate banking secondary efforts in Asia through units at ABN AMRO in the Netherlands. 2013. Previously, Neal was with CIBC World Markets’ Mergers & Acquisitions 02 Tatiana Chopova Investment Banking division. Tatiana is a Managing Director in AlpInvest’s Fund Investments team and 05 Rob de Jong focuses on the European market. She Rob is a Managing Director and leads joined AlpInvest in 2003 from McKinsey AlpInvest’s Co-Investments team. & Co., where she was a Consultant He focuses on equity transactions based in Moscow and Brussels advising in Europe and is also a member multinational companies on strategic of the Operating Committee. He and financial issues. Tatiana represents joined AlpInvest in 2001 from AlpInvest on various advisory boards. PricewaterhouseCoopers, where he was a Senior Consultant for Corporate 03 Peter Cornelius & Operations Strategy, responsible for Peter is a Managing Director advising and assisting multinationals responsible for analyzing the economic and governmental organizations and financial environment for private on developing corporate and equity markets and examining the business strategies. implications for AlpInvest’s strategic asset allocation. Peter joined the firm 06 Richard Dunne in 2005 from Royal Dutch Shell, where Rich is a Managing Director in AlpInvest he was Group Chief Economist. He is Partners’ Co-Investments team and the author of International Investments is responsible for sourcing, executing, in Private Equity (Elsevier, 2011) and and monitoring transactions in North co-author of Mastering Illiquidity America. He is also a member of the (Wiley, 2013). Investment Committee. Rich joined AlpInvest in 2004 and has 15 years of related investment experience. Prior to joining AlpInvest, he worked in the Investment Banking division of Citigroup Global Markets. 25
10 13 16
11 14 17
12 15
07 Michael Hacker 11 Chris Perriello 15 Maarten Vervoort Michael is a Managing Director in the Chris is a Managing Director in Maarten leads AlpInvest’s Fund Secondary Investments team, where he AlpInvest’s Secondary Investments Investments team and is a member is responsible for sourcing, evaluating, team and focuses on transactions in the of the Operating Committee. Maarten and executing transactions in the North Americas. He is also the Chairman of has been with AlpInvest Partners American market. He joined AlpInvest the Investment Committee. He joined from the outset. He joined from Partners in 2007 from UBS Investment AlpInvest in 2007 from Paul Capital, PricewaterhouseCoopers, where he Bank, where he was an Associate where he was a Principal focused was a Senior Management Consultant Director in the Private Funds Group on fund investing. Chris represents in the corporate strategy area. He responsible for providing secondary AlpInvest on multiple advisory boards. represents AlpInvest on many markets advisory services. advisory boards. 12 Erik Thyssen 08 Marek Herchel Erik is a Managing Director in 16 George Westerkamp Marek is a Managing Director in AlpInvest’s Co-Investments team, George is a Managing Director in the AlpInvest Partners’ Fund Investments focusing on equity transactions in Investment Solutions team at AlpInvest team. He focuses on U.S. and emerging Europe. He is also a member of the and is a member of the Operating markets, specifically the Latin Board and a member of our Investment Committee. From 2000 to 2010, he American markets. Marek is also a Committee. Erik co-founded AlpInvest was a Partner in the Co-Investments member of the Investment Committee. and has more than 25 years’ experience team, where he focused on buyout He joined AlpInvest Partners in 2004 in financial services. He joined the firm transactions in Europe. From 2000 from Fleet Fund Investors, where he from Fortis Bank Nederland, where to 2012, he was a member of the was an Investment Officer responsible he was an Executive Board member Investment Committee. George joined for managing a diversified private equity responsible for commercial banking. AlpInvest from its predecessor, Parnib, portfolio. He represents AlpInvest on where he was executing middle-market several advisory boards. 13 Roberto Torrini buyout transactions in the Netherlands. Roberto is a Managing Director in 09 Wouter Moerel AlpInvest Partners’ Co-Investment team 17 Wendy Zhu Wouter is a Managing Director, leads and focuses on equity transactions in Wendy is a Managing Director in AlpInvest’s Secondary Investments Europe. He joined AlpInvest Partners in AlpInvest’s Fund Investments team team, and is a member of the Operating 2013 from Advent International, where and focuses on the Asian markets. Committee. Wouter joined AlpInvest in he was a Director responsible She joined AlpInvest Partners in 2007 2005 from The Carlyle Group, where for executing and managing private from Macquarie Funds Management, he was a Principal responsible for equity deals on the Italian and where she was Senior Vice President investments in the telecoms and media European market. of Asia-Pacific regional private equity sectors. He represents AlpInvest on fund investments and co-investments. multiple advisory boards. 14 Sander van Maanen Wendy represents AlpInvest on various Sander heads the Hong Kong office and advisory boards. 10 Christophe Nicolas is a Managing Director in AlpInvest’s Christophe is a Managing Director Co-Investments team, where he in the Secondary Investments team and focuses on equity transactions in focuses on transactions in Europe and Asia and Australia. He joined the the Middle East. He joined AlpInvest in firm in 2001 from Boston Consulting 2012 from Morgan Stanley, where he Group, where he was a Project Leader co-headed Morgan Stanley’s on assignments for the boards of secondaries team out of London. multinational firms. 26 AlpInvest Annual Review 2015 27
Promoting good practice We believe this is an important step in RESPONSIBLE We also believe we have a role to play improving information flows on ESG and in helping to develop good responsible enabling us to verify that policies are being INVESTING investment practice in what is still a applied through the life of the funds we relatively new area for many private equity are committed to. The template will also SUPPORTING fund managers and limited partners. assist us in reporting to our client base, with many of them increasingly focused PROGRESS During the year, we contributed to on responsible investment issues. We will discussions on responsible investment roll out the template over the coming years by participating in a number of industry as part of our efforts to help develop best events and conferences. In addition, we practice among the GPs we are invested in. taught at training programs on responsible investment developed by Invest Europe We believe these initiatives will support the (formerly known as the European Private ongoing development of ESG practice by Equity and Venture Capital Association) and private equity. This is particularly valid for worked closely with other organizations mid-market and smaller funds, where fund representing both general partners and sizes often mean firms lack dedicated ESG limited partners, including the PRI and the resources to understand and implement Institutional Limited Partners Association. the appropriate processes. And, while European funds were among the earliest Developing standards to develop their ESG practice, we are Responsible investment has long been Development of practical tools and now seeing more funds in other regions, a key tenet of AlpInvest’s approach standards are a key part of advancing including the United States, starting to to private equity. We have been a ESG practice industry-wide, which should implement ESG policies. As experienced signatory to the United Nations-backed make it easier for fund managers and their and longstanding investors in a diversified Principles for Responsible Investment portfolio companies to identify, adopt, and pool of funds, we believe we are well (‘PRI’) since 2009, and we participate embed the right processes. placed to understand what constitutes in a variety of initiatives to promote best practice and to provide support and responsible investment and encourage We therefore welcome and actively engage assistance to those in the early stages of the development of good practice across in initiatives that support the creation their ESG policy development. the industry. of more standardized approaches to managing and reporting on ESG issues. Overall, the industry has made positive Our starting point is our belief that In 2015, we contributed to an industry- inroads over the past few years, in responsible investment, with careful wide project to develop the Limited particular as the ESG Disclosure consideration of environmental, Partners’ Responsible Investment Due Framework, which we developed social, and governance (‘ESG’) factors, Diligence Questionnaire that was launched together with other LPs and industry can be an important contributor by the PRI initiative as a member of the associations, continues to bed down and to improved risk/return profiles in working group. adoption increases. GPs have largely private equity. Measures such as been supportive of the framework, which reductions in the impact of companies This questionnaire aims to provide a was launched in 2013, and this is now on the environment, improvements in standardized set of questions around ESG increasingly an important reference for governance, and employee development issues to be used by LPs during their due many firms’ approach to ESG. and retention are important aspects diligence processes, thereby streamlining of risk management and can create information requests from LPs and making Looking ahead attractive business opportunities, it easier for potential investors to assess Over the coming year, we will continue to leading to improved return prospects and compare a fund manager’s progress in work industry-wide – with LPs, GPs, and for investors. A proactive approach to these areas. industry associations – to support the ESG can help to mitigate risk as well as development of ESG practice in private unlock value in portfolio companies. The questionnaire was launched in equity. We will contribute to existing and December 2015, so one of our priorities for new initiatives to increase standardization. This is why, seven years ago, we responsible investment in 2016 will be to Achieving a standardized approach takes introduced a structured approach to ESG update our own documentation to ensure time to develop, yet there are encouraging by integrating these factors into our own it is consistent with the new standard. signs that the next few years will see investment processes. Since 2009, we have We will also undertake a review of our greater harmonization as the industry screened every new investment across all due diligence processes in line with the reaches a certain level of consensus. our fund investments, co-investments, and questionnaire’s recommendations. secondaries transactions through our ESG In addition, we will invest further in training due-diligence process. In 2015, we embarked on an additional our team as we develop our own processes standardization initiative by developing an and policies in line with initiatives such ESG reporting template to support GPs as the PRI due diligence questionnaire to that wish to report on these areas. We ensure we continue to work within best worked closely with our anchor investors, ESG practice. who are highly experienced in, and committed to, matters relating to ESG, to put together the template. 28 AlpInvest Annual Review 2015
Our people are integral to our firm’s We also engage in appraisal processes HUMAN success, generating returns for our at least once a year on a formal investors and their beneficiaries. So we basis. Informally, we encourage RESOURCES endeavor to inspire, support, and motivate continuous feedback. our employees through our development INTEGRAL TO programs and reward systems. As an equal opportunities employer, we are committed to promoting diversity, in all SUCCESS We believe that our values of mutual respects, throughout the firm. We respect, professionalism, and integrity work to preserve and improve on the encourage long-term commitment to our gender balance and diverse range of firm. Most of our senior staff have been nationalities and cultures represented with us for more than a decade. across our workforce.
This stability contributes to a consistent We strive to build a supportive and approach to investment execution, to respectful environment where people feel the benefit of our investors and general motivated and fulfilled in their work. We partners. Experience is also an essential are committed to achieving this objective. component of successful investment management: there is no substitute for having lived through and invested across an entire market cycle, as most of our senior team members have done.
We invest substantial time and attention in the professional development of our staff, including both formal and on-the-job training, at all levels of the organization.
2015 OVERVIEW
GENDER 155 7.7 Total number Average years of employees at AlpInvest1
AMSTERDAM 63% Male 37% Female
Investment Total 26 professionals 85 employees NATIONALITY
HONG KONG NEW YORK/INDIANAPOLIS
Investment Investment 12 professionals 34 professionals
Total Total 16 employees 54 employees 64 Dutch 49 U.S./Canadian 23 Other Europeans 19 Rest of World
1 Managing Directors and Principals. 29
AlpInvest’s remuneration policy is The decision to grant a discretionary bonus REMUNERATION designed to align the interests of staff and the size of that bonus is based on each and investors. employee’s annual appraisal, which takes POLICY into account financial and non-financial We seek to incentivize our employees to criteria. We use independent, external ALIGNING STAFF deliver to the best of their abilities and guidance to help structure bonuses for foster a culture in which they feel a genuine employees and provide specific targets for AND INVESTOR commitment to the firm. Most of our senior employees at the beginning of each year. managers have been with AlpInvest for INTERESTS many years, enhancing continuity and Variable components of staff remuneration promoting a collegial environment. This is are only paid out if AlpInvest itself meets important, given the long-term nature of specific financial milestones. private equity investments. In 2013, AlpInvest’s management sold We aim to remunerate our professional its stake in the firm to our majority and support staff fairly, appropriately, shareholder, Carlyle. In return, those and objectively. Remuneration of managers became Carlyle unit holders. Managing Directors, Principals, and Additionally, a number of managers Vice Presidents consists of a fixed are also awarded restricted Carlyle and a variable component, which can units, typically annually. Both schemes comprise a discretionary bonus and/or have a vesting period as an additional carried interest. Equity or equity-linked retention incentive. instruments typically make up at least 50% of the variable tranches, encouraging Our remuneration policy has been honed a long-term commitment to the firm. over more than a decade. We believe that Since 2011, we have expected all senior it encourages and rewards genuine effort investment professionals to invest a in a way that delivers sustained, long- percentage of their variable compensation term performance for the benefit of all in our private equity program, alongside our investors. our investors. Our carried-interest program Carried-interest programs are designed to promote long-term alignment between staff and investors, as eligible DISTRIBUTION employees receive a share of the returns OF PROCEEDS that investors themselves have received. However, employees are only rewarded if investors have received all of their capital back plus a pre-agreed upon return, known as the hurdle rate. All Carried interest costs and management fees have to be repaid as well. Return above hurdle rate When all invested capital has been repaid, all expenses have been covered, and investment returns have exceeded Preferred return the hurdle rate, additional returns are shared between AlpInvest and our investors. The way in which this capital is distributed is predefined with our Cost and fees investors in each mandate.
The distribution of proceeds between investors and AlpInvest is illustrated by the bar chart on the left. The first Investments bar represents the total amount of investments, costs, and management fees. The second bar shows the total proceeds generated by these investments (including the sale of investments). The third and fourth bars illustrate how these proceeds Total Total proceeds Distributed Distributed are proportionally distributed between investments, after sale to investors to AlpInvest investors and AlpInvest. costs, and of all Partners management investments fees 30 AlpInvest Annual Review 2015
Risk management is fundamental to Strategic risks RISK our business. We insist on the highest The Board is responsible for setting the standards of integrity and employ a firm’s strategy. Our strategy takes into MANAGEMENT rigorous control framework across account market and sector developments, all business lines, geographies, and as well as internal and external risk A HANDS-ON professional functions. factors. Our initial assumptions, however, may be impacted by new events, which APPROACH AlpInvest is committed to the delivery of could affect the firm’s performance or attractive returns. We believe that these financial position. To help address this are best achieved by applying the highest risk, we monitor external trends and standards of risk management throughout forecasts while consistently reviewing our the firm in our values, code of conduct, assumptions and tracking the performance and personnel management. All of our of our investments. Managing Directors adopt a hands-on approach to operational control and Reputational risks discipline, monitoring performance, risk, Our firm and funds may be negatively quality, and operations as part of their daily affected or disrupted by several factors, responsibilities. Management reports and such as unenforceable contracts, lawsuits, review procedures bring all aspects of the adverse judgments, fraud, and negative business under management supervision, publicity. To help reduce this likelihood, while detailed policies and procedures are we rigorously assess the companies in place to help manage risks, encourage in which we invest. Any indication of consistency, and enable standardization unethical practices is identified during across the firm. the due diligence process or later through interaction with portfolio companies. Risk assessment and mitigation strategies Investing guidelines are stipulated in all of are discussed with our Board. Our external our mandates, while our legal department and internal auditors provide further manages all contracts. assurance by performing regular and ad hoc audits. Business continuity risk AlpInvest’s funding comes from over 40 Some of the key risks we face and how investors. These investors can change we strive to manage them are described their strategies regarding their allocations below. Such risks are not intended to to the private equity asset class, or decide describe all the risks that AlpInvest faces to use other firms to manage their assets. or the risks applicable to our investors, To help mitigate this, contracts with our such as the risk of loss of an investor’s investors are structured so that they can entire investment. These investment risks offer continuity to AlpInvest for a prolonged are separately disclosed to investors at period. We update our investors on a the time they commit to an investment regular basis with detailed information mandate with the firm. about their portfolios and strive to ensure that our strategies remain aligned. In External risks addition, we continue to make efforts to As an investor in developed and emerging diversify and expand our investor base. markets, our investments are affected There is also the risk that senior by macroeconomic and geopolitical management expertise may be lost. In developments, as well as changes in order to create a long-term alignment with government policy and regulations. To help AlpInvest, remuneration is based on long- mitigate such circumstances, we aim to term incentive arrangements. diversify our investment portfolio across geographies, industries, and investment Investment risks stages1. We also conduct extensive Investment decisions research before entering new markets, and Our ability to source and execute regularly monitor our portfolio. quality investments depends on several factors. We need to attract, develop, and retain professionals with the requisite investment experience and optimize the sharing of information and benefits from synergies across our investment teams. In addition, we need to undertake thorough assessments of each investment opportunity, using our collective knowledge 1 Diversification does not eliminate the risk of loss. and experience. 31
For that reason, AlpInvest carefully Operational risks assesses each fund manager’s skills AlpInvest is exposed to a range of Our in-house team of senior legal and tax and track record before making an operational risks that can arise professionals provides advice, reviews investment commitment. From the initial from inadequate or failed systems, and negotiates documentation, and helps investment assessment to the finalization processes and people, as well as us to meet our regulatory obligations. of the transaction, AlpInvest employs a external factors that may affect them. An external law firm monitors and methodical process involving the Managing These include risks around human updates AlpInvest on relevant legal and Directors and investment teams. resources, legal and regulatory issues, regulatory developments. tax, information technology system Investment performance failures, business disruption, and Policies The performance of our portfolios depends internal control weaknesses. Conflicts of interest on a range of factors, including the quality Conflicts of interest can sometimes arise. of the initial investment decision and the Operational risk management is Internal conflict-management policies ability of the fund manager or portfolio underpinned by clearly defined roles, and guidelines are in place to help reduce company to drive performance and segregation of duties, delegated the number of occurrences and address achieve its business objectives. As part authorities, and monitoring at all levels. them as they occur in a way that can of our portfolio management program, AlpInvest relies on a number of third protect and deal fairly with the interests of we review our investments regularly and party service providers to support our all parties involved. employ a rigorous process to manage our operations, including IT, insurance, payroll, relationships with fund managers and broker services, custodian services, Valuation standards portfolio companies. fund administration, depositary services, In 2015, we determined the fair value regulatory reporting services, and of our direct and co-investments Investment concentration pensions. We work with reputable firms (equity and mezzanine) based on the AlpInvest invests across a range of and have service-level contracts with a International Private Equity and Venture economic sectors and jurisdictions. Our number of these parties. Capital Guidelines (Edition December investment policy is designed to create 2012, endorsed by the European Venture a diversified portfolio across market Our investment management process Capital Association), or where required segments, geographies, industries, is subject to an annual ISAE 3402 Type II in accordance with Accounting Standards deal sizes, and vintage years. We have audit to attest to the design and operating Codification Topic 820 as prescribed by U.S. investment guidelines in place to help effectiveness of our internal controls. Generally Accepted Accounting Principles. address concentration risk, including limits This involves management’s judgment on the interest percentage held in any one Legal, tax, and regulatory risks and takes into consideration the specific fund or portfolio company. Asset allocation AlpInvest seeks to comply with all nature, facts, and circumstances of each is discussed regularly and compliance applicable legal, regulatory, and other investment, including but not limited to reports are reviewed quarterly to ensure external requirements, as well as the price at which the investment was that allocations fall within these guidelines. contractual agreements. acquired, current and projected operating performance, trading values on public Treasury and funding risks As a wholly-owned subsidiary of Carlyle, exchanges for comparable securities, and Market risk which is listed on the NASDAQ, AlpInvest financing terms currently available. As an advisory firm, AlpInvest has limited is fully compliant with the Public Company exposure to financial assets. Cash is Accounting Reform and Investor Protection To determine the fair value of our typically held in short-term deposits with Act (Sarbanes-Oxley Act 2002). investments in private equity funds in 2015, reputable banks, while our management the valuations provided by the general company has limited exposure to adverse AlpInvest was granted a license as an partners (‘GPs’) were used in combination movements in interest rates and foreign Alternative Investment Fund Manager with our own initial due diligence and exchange rates. We typically hedge foreign (‘AIFM’) under the Alternative Investment ongoing portfolio management. Due to the currency exposure when providing funds to Fund Managers Directive (‘AIFMD’) on May time lag between receiving the reporting our main operating subsidiaries. 11, 2015. Accordingly, AlpInvest is subject of the GPs’ information and AlpInvest’s to all requirements of the AIFMD as a reporting date, adjustments to valuations Credit risk European Economic Area (‘EEA’) AIFM. may be made, if necessary. For example, AlpInvest is dependent on funding from its Specific AIFMD policies and procedures the value of an investment may be adjusted investors. Mandates are in place between are in place to ensure compliance with for actual cash flows that occurred from the parties that define the minimum AIFMD regulation. the date of the reported valuations to the amounts our investors commit to AlpInvest financial statement date. for investment purposes. These are subject On December 14, 2015, AlpInvest to certain limitations and are monitored obtained a Cross Border Discretionary The AlpInvest commitment through compliance procedures. Investment Management license (‘CB AlpInvest endeavors to uphold the highest DIM License’) from the South Korean standards and mitigate risk in a timely and Liquidity Financial Services Commission (‘FSC’) consistent fashion. We are committed to AlpInvest informs investors of forthcoming to allow AlpInvest to market managed strong and robust governance across the liquidity requirements on a timely basis. account products and provide investor firm and our experience and expertise help Our mandate terms are designed to help support services in relation thereto to us to deliver on this goal. ensure that we have access at all times Korean professional investors. to sufficient liquidity to fund our investments. Cash management procedures include cash-flow forecasting and liquidity monitoring. 32 AlpInvest Annual Review 2015
AlpInvest achieved strong investment from our Main Fund IV improved to over INVESTMENT performance again in 2015, continuing 14% on a net basis versus approximately 1 a history of consistently delivering 12% in 2014, and our Secondary PERFORMANCE robust returns to our investors since Investments Main Fund IV showed a net IRR our firm’s inception. of almost 19%, which is at the same level compared with 2014. The Co-Investment AlpInvest was pleased with the Main Fund V ended the year 2015 with a net performance of its funds in 2015. Through IRR of almost 35%, a decrease of some 2% the end of 2015, we received €63bn over the year. of commitments from our investors. Our assets under management as per We believe the performance of our funds December 31, 2015 were €39.0bn in underlines the rewarding, long-term total, of which €25.9bn was for Fund nature of private equity investing. Investments, €7.1bn for Secondary Investments and €5.8bn for Equity and Looking to the future, the capital that Mezzanine Co-Investments. has already been committed to us by our investors allows us to seek new, attractive Gross and net returns for the total of our investment opportunities and we believe fully committed funds remained in line with we are well positioned to continue to deliver the 2014 levels and our net IRR (internal strong returns over the coming years. rate of return) since our inception 16 years ago has been approximately 12% (see page We have maintained a disciplined approach 42 for more detailed information on IRR to investing, taking advantage of prospects methodology). In Fund Investments, IRRs presented within our chosen markets while being mindful of the challenges arising from the macroeconomic environment.
1 Past performance is not indicative of future results or a guarantee of future returns. Return metrics are subject to J-curve SMOOTH ACTUAL change as a fund or investment portfolio matures.
The J-curve in private equity is used to return, or IRR. This calculates the illustrate the historical tendency of underlying returns, taking into account private equity funds to deliver negative money invested, money returned and returns in early years and investment unrealized investments. After three to gains in later years. Initially, investment five years, the interim IRR should returns are negative because provide a meaningful guide to the management fees are drawn from ultimate returns to be expected from a committed capital and underperforming specific fund, although the period is investments are identified and written generally longer for early-stage funds. down at an early stage. In later years, as For the AlpInvest mandates, the IRR companies are sold, ideally for more generally becomes meaningful than the purchase price, cash starts to approximately five years after the start flow to the limited partners. Private of the mandate. equity measures returns using a mechanism called the internal rate of 33
Life-to-date IRRs1
1 As of December 31, 2015. Past performance is Fully committed funds2 Vintage Fund size Gross Net not indicative of future results or a guarantee of future returns. Return metrics are subject year €m IRR IRR to change as a fund or investment portfolio matures. Please see the additional disclosures Main Fund I - Fund Investments 2000 5,175 12% 11% on page 42 for further important information Main Fund II - Fund Investments 2003 4,545 10% 10% regarding AlpInvest’s track record. Main Fund III - Fund Investments 2005 11,500 10% 10% 2 ‘Fully committed funds’ are past the expiration date of the commitment period as defined in Main Fund IV - Fund Investments 2009 4,877 15% 14% the respective limited partnership agreement. Main Fund I - Secondary Investments 2002 519 58% 54% 3 Returns are not considered meaningful for Main Fund II - Secondary Investments 2003 998 27% 26% Main Fund V - Fund Investments, Main Fund VI - Co-Investments, and Main Fund VI - Fund Main Fund III - Secondary Investments 2006 2,250 10% 10% Investments, as the commitment period for these funds commenced in 2012, 2014, and Main Fund IV - Secondary Investments 2010 1,859 20% 19% 2015, respectively. Main Fund II - Co-Investments 2003 1,090 44% 41% Main Fund III - Co-Investments 2006 2,760 5% 5% Main Fund IV - Co-Investments 2010 1,475 24% 22% Main Fund V - Co-Investments 2012 1,122 38% 35% Main Fund II - Mezzanine Investments 2004 700 8% 7% Main Fund III - Mezzanine Investments 2006 2,000 10% 9% All other funds Various 15% 12% Total fully committed funds 13% 12%
Funds in the commitment period Vintage Fund size Gross Net year €m IRR3 IRR3 Main Fund V - Fund Investments 2012 5,080 NM NM Main Fund VI - Fund Investments 2015 1,106 NM NM Main Fund V - Secondary Investments 2011 4,271 26% 23% Main Fund VI - Co-Investments 2014 1,115 NM NM All other funds Various 14% 8% Total funds in the commitment period 18% 15% Total AlpInvest 13% 12%
Total capital commitments received by Alpinvest4 €bn 4 Total capital committed to AlpInvest includes €7.0bn of investor mandates that are managed on behalf of investors by AlpInvest Partners B.V. (or its controlled affiliates), but for which 63 the investment decisions were made by parties 60 other than AlpInvest or its affiliates (€6.7bn 57 before the end of 2002, and €0.2bn was committed before AlpInvest began managing 52 such investments in 2013). 48 49 44 39
32 26
Up to 2007 2008 2009 2010 2011 2012 2013 2014 2015 2006 34 AlpInvest Annual Review 2015
2015 fund portfolio activity In 2015, a total of €2.6bn of capital was FUND The Fund Investments team made new called to fund investments in private commitments to 38 funds with a 2015 equity and mezzanine funds. INVESTMENTS vintage year (or earlier) for AlpInvest. Of 1 these, 16 were to funds where a prior During the year, AlpInvest received €5.1bn OVERVIEW primary fund commitment had been made of proceeds from investments. Within 1 Including mezzanine and clean tech with the GP. The other 22 represent a new this figure, 6% came from the 2000–2002 fund investments. relationship. mandate, 13% came from the 2003–2005 mandate, 57% came from the 2006–2008 In 2015, 17 commitments were made to mandate, 18% from the 2009–2011 funds that are expected to have a 2016 mandate, 2% from the 2012–2014 mandate (or later) vintage. Those 17 funds are and 5% from other mandates. therefore not included in this year’s annual review overview.
2015 new fund commitments2,3
2 Commitments to funds with a 2015 vintage year (or earlier) for AlpInvest. Name Segment Relationship5 3 For illustrative purposes only. References to a Advent Latin American Private Equity Fund VI NTM4 Existing particular investment should not be 4 considered a recommendation of any security Ascendent Capital Partners II NTM New or investment. There can be no assurance that Aspect Ventures Venture New AlpInvest will be able to invest in similar opportunities in the future. Additionally, Auctus Fund IV E.U. Mid-Market New AlpInvest committed to one other fund with a 2015 (or earlier) vintage that is not listed by Banyan Partners Fund II Venture New name for confidentiality reasons. Capiton V E.U. Mid-Market New
4 Non-traditional markets, which include Centerbridge Capital Partners III U.S. Mid-Market Existing commitments to mid-market funds outside of CenterOak Equity Fund I U.S. Mid-Market New Western Europe and the United States. Charlesbank Equity Fund VIII U.S. Mid-Market Existing 5 Existing includes funds where a prior primary fund commitment has been made with the GP Comvest Investment Partners V U.S. Mid-Market New by AlpInvest. Endless IV E.U. Mid-Market New Equistone Partners Europe Fund V E.U. Mid-Market Existing Forebright New Opportunities Fund NTM4 New Fortissimo Capital IV NTM4 New Friedman Fleischer & Lowe Capital Partners IV U.S. Mid-Market Existing Fulcrum Capital Partners Fund V U.S. Mid-Market New Genstar Capital Partners VII U.S. Mid-Market Existing Gilde Equity Management (GEM) Benelux III-Main Fund E.U. Mid-Market Existing Gilde Equity Management (GEM) Benelux III-Top Up Fund E.U. Mid-Market Existing Index Ventures Growth III Venture Existing India Value Fund V NTM4 Existing Inflexion Buyout Fund IV E.U. Mid-Market New Inflexion Partnership Capital Fund I E.U. Mid-Market New JMI Equity Fund VIII-B U.S. Mid-Market New Kinderhook Capital Fund IV U.S. Mid-Market New Livingbridge Enterprise 2 E.U. Mid-Market New OrbiMed Private Investments VI Venture Existing Pacific Equity Partners Fund V NTM4 Existing PAI Europe VI E.U. Mid-Market New Private Equity New Markets IV NTM4 New Ridgemont Equity Partners II U.S. Mid-Market Existing Shamrock Capital Growth Fund IV U.S. Mid-Market Existing The Fourth Alcuin Fund E.U. Mid-Market New TPG Partners VII Global LBO Existing Webster Capital III U.S. Mid-Market New Wynnchurch Capital Partners IV U.S. Mid-Market New Yukon No. I Investment LPS NTM4 New 35
Fund investments portfolio overview As per December 31, 2015
1 The Fund Investment Mandate 2000–2002 Vintage years Investment focus Mandate Capital Capital Invested includes pre-vintage year 2000 commitments 2 2 made by our investors and AlpInvest amount (€m) committed invested as % of 3 predecessors. (€m) (€m) committed 2 At historical foreign exchange rates. 3 Based on foreign exchange rate as per 2000–20021 Buyout and venture 10,853 9,998 9,403 100% December 31, 2015. capital 4 Based on all other investors not investing in parallel with APG and PGGM. 2003–2005 Buyout and venture 4,545 4,508 4,504 104% capital 2006–2008 Buyout and venture 11,500 11,323 11,256 100% capital 2009–2011 Buyout and venture 4,877 4,766 3,915 80% capital 2012–2014 Buyout and venture 5,080 4,908 1,917 38% capital 2015 Buyout and venture 1,106 746 17 2% capital 2007–2012 Clean technology 658 613 548 84% 2000–2014 Mezzanine funds 1,268 1,202 1,290 106% 2003–2015 Buyout and venture 402 194 102 54% capital - other mandates4 Total 40,289 38,260 33,006 87%
Fund commitments overview5 As per December 31, 2015 5 Underlying fund vintage years 2000–2015. 6 As a GP can have funds in more than one 6 category, the total is larger than mentioned in Segment % of capital committed GPs Funds the text right. 7 Non-traditional markets, which include Global large buyout 33% 23 68 commitments to mid-market funds outside of Western Europe and the United States. European mid-market 15% 54 91 8 This segment comprises non-control distressed debt and (primary and secondary) U.S. mid-market 20% 73 120 funds-of-funds. Non-traditional markets7 12% 70 123 Venture capital 10% 64 132 Clean technology 2% 14 16 Mezzanine 4% 16 25 Other8 5% 12 14 Total 100% 326 589 36 AlpInvest Annual Review 2015
2015 portfolio activity SECONDARY AlpInvest Secondary Investments For the 12 months ending December 31, committed €1,195m across 11 transactions 2015, AlpInvest Secondary Investments INVESTMENTS in 2015, compared with €343m across nine received proceeds from 103 transactions 1 transactions in 2014. out of 111, totaling €1,668m compared OVERVIEW with €1,302m received in 2014.
Secondary Investments portfolio overview As per December 31, 2015 1 Includes mezzanine secondary investments. 2 At historical foreign exchange rates. 3 Based on foreign exchange rate as per Vintage years Investment focus Mandate Capital Capital Invested 2 2 December 31, 2015. amount committed invested as % of 4 Based on all other investors who are not (€m) (€m) (€m) committed3 investing in parallel with APG and PGGM. 2000–2002 Buyout 519 519 512 100% 2003–2005 Buyout 998 994 949 96% 2006–2008 Buyout 2,250 2,147 2,049 95% 2009–2011 Buyout 1,859 1,806 1,742 95% 2012–2015 Buyout 4,271 2,991 2,492 83% 2002–2015 Mezzanine funds 429 417 398 93% 2003–2015 Other - buyout4 308 154 133 86% Total 10,635 9,029 8,275 91% 37
2015 portfolio activity EQUITY In 2015, AlpInvest invested €441m in equity co-investments. This included CO-INVESTMENTS nearly €400m in 23 new investments 1 and approximately €42m in follow-on OVERVIEW investments for existing portfolio 1 Including clean tech co-investments. companies. Total realizations in 2015 for our equity co-investment portfolio were €2,107m.
2015 new equity co-investments2,3
Name Sector Geography Date of completion Description
Access Information Technology U.K. Apr-15 Provider of ERP software for small and medium-sized enterprises
Backcountry Consumer Discretionary U.S. Jul-15 Online retailer of outdoor gear and clothing solutions for men and women
Boyd Corporation Industrials U.S. Apr-15 Designer and manufacturer of sealing and energy management solutions for original equipment manufacturers Cardiac Science Healthcare U.S. Sep-15 Developer and manufacturer of automated external defibrillators
Community Medical Group Healthcare U.S. Jul-15 Provider of primary care healthcare services in Miami-Dade County
Consilio Industrials U.S. Jul-15 Provider of eDiscovery software and services to assist law firms and corporations involved in internal and external investigations, litigation, and arbitration Corilus Information Technology Belgium Mar-15 Provider of integrated ICT services and solutions to first-line healthcare professionals Diners' Club Consumer Discretionary U.K. Jul-15 Owner and operator of two leading U.K. restaurant discount card schemes
Douglas Consumer Staples Germany Aug-15 Retailer of selective beauty and personal care products
Eaton Towers Information Technology U.K. Jun-15 Africa-based telecommunications tower operator
Eyemart Consumer Discretionary U.S. May-15 U.S. optical retail chain
Goldcar Consumer Discretionary Spain Mar-15 Provider of low-cost leisure rental cars
Greatearth Industrials Southeast Asia Jun-15 Provider of integrated engineering and construction services in Singapore
Informatica Information Technology U.S. Jun-15 Provider of enterprise data integration and data quality software and services
IPS Corporation Industrials U.S. Feb-15 Provider of solvent cements, specialty adhesives and niche plumbing products
MedMark Services Healthcare U.S. Oct-15 Operator and provider of methadone clinics in nine U.S. states
Paradigm Outcomes Healthcare U.S. Jun-15 Market leader for catastrophic and complex medical case management for the workers’ compensation industry Recorded Books Consumer Discretionary U.S. Jul-15 Largest independent publisher of audiobooks in the U.S.
Seagull Consumer Discretionary Norway Jun-15 Provider of e-learning content libraries for the maritime sector
SGG Financials Luxembourg Oct-15 Provider of trust, corporate, and fund administration services
Solina Consumer Staples France Dec-15 Provider of food ingredients, blends, and aromatic solutions
Veritas Information Technology U.S. Dec-15 Global provider of information management software, including Backup & Recovery, Archiving, and eDiscovery solutions
2 For illustrative purposes only. References to a particular investment should not be considered a recommendation of any security or investment. There can be no assurance that AlpInvest will be able to invest in similar opportunities in the future. 3 Additionally, AlpInvest made one other equity co-investment in 2015 that is not listed by name for confidentiality reasons. 38 AlpInvest Annual Review 2015
Equity Co-Investments portfolio overview EQUITY As per December 31, 2015
CO-INVESTMENTS Vintage years Investment focus Mandate amount Capital invested3 1 (€m) (€m) OVERVIEW 2000–20022 Buyout & venture capital co-investments 800 759 (CONT’D) 2003–2005 Buyout co-investments 1,090 925 1 Including clean tech co-investments. 2006–2008 Buyout co-investments 2,760 2,443 2009–2010 Buyout co-investments 1,475 1,245 2011–2013 Buyout co-investments 1,122 950 2014–2015 Buyout co-investments 1,115 404 2010–2012 Clean technology 23 21
4 2 The Co-Investment Mandate 2000–2002 2002–2015 Buyout co-investments - other mandates 438 184 includes the investments made by the former Alpinvest N.V. (mainly pre-vintage year 2000). Total 8,822 6,930 The Co-Investment Mandate 2000–2002 includes buyout, life sciences and technology investments. Life sciences and technology investments were discontinued late 2003. 3 At historical foreign exchange rates. 4 Based on all other investors not investing in parallel with APG and PGGM.
5 Diversification does not eliminate Portfolio diversification5 the risk of loss. AlpInvest seeks to invest in a broad range of sectors and geographies, creating significant diversification in our portfolio. From a geographical perspective6, 43% of our investments are in Europe, 49% in North America and 8% in the rest of the world. The sector breakdown of our equity co-investments since 2000 can be found below.
Sectors6
6 Includes all equity co-investments made by AlpInvest since 2000 (except for life science and technology investments made as part of Mandate 2000–2002). 21% Consumer discretionary 11% Consumer staple 5% Energy 9% Financials 13% Healthcare 18% Industrials 14% Information technology 4% Materials 3% Telecommunication services 2% Utilities 39
Mezzanine Co-Investments overview MEZZANINE In 2015, AlpInvest invested €98m in mezzanine co-investments. This included C0-INVESTMENTS €84m in six new investments and €14m in follow-on investments for existing OVERVIEW portfolio companies. 1 Including clean tech co-investments. AlpInvest had €247m of cash inflows in 2015 from the outstanding mezzanine portfolio, of which €23m was due to interest income and €223m from realizations.
2015 new mezzanine co-investments1,2
Name Sector Geography Date of completion Description
Access Information Technology U.K. Apr-15 Provider of ERP software for small and medium-sized enterprises
Curo Health Services Healthcare U.S. Feb-15 Pure-play provider of hospice services across 19 states mainly in Southeast and Midwest U.S. Exact Information Technology The Jun-15 Provider of ERP software for small and medium-sized enterprises Netherlands Paradigm Outcomes Healthcare U.S. Jun-15 Provider of catastrophic and complex medical case management for the workers’ compensation industry Sunrise Medical Healthcare Germany Aug-15 Developer, designer, and manufacturer of powered wheelchairs
1 For illustrative purposes only. References to a particular investment should not be considered a recommendation of any security or investment. There can be no assurance that AlpInvest will be able to invest in similar opportunities in the future. 2 Additionally, AlpInvest made one other mezzanine co-investment in 2015 that is not listed by name for confidentiality reasons. Mezzanine Co-Investments portfolio overview As per December 31, 2015
3 Mandate 2000–2002 is a legacy portfolio managed for our investors. Vintage years Investment focus Mandate amount Capital invested4 4 At historical foreign exchange rates. (€m) (€m)
2000–20023 Mezzanine co-investments 33 33
2002–2004 Mezzanine co-investments 148 81
2005–2006 Mezzanine co-investments 297 287
2007–2011 Mezzanine co-investments 1,200 850
2012–2014 Mezzanine co-investments 158 145
2014–2015 Mezzanine co-investments 125 74 Total 1,977 1,486 40 AlpInvest Annual Review 2015
Portfolio diversification1 MEZZANINE AlpInvest seeks to invest in a broad range of sectors and geographies, creating CO-INVESTMENTS significant diversification in our portfolio. From a geographical perspective2, 35% OVERVIEW of our investments are in Europe, 58% in North America, and 7% in the rest of (CONT’D) the world. The sector breakdown of our 1 Diversification does not eliminate mezzanine co-investments can be the risk of loss. found below.
Sectors2
2 Reflects mezzanine co-investment mandate years 2000–2015. 29% Consumer Discretionary 4% Consumer Staple 1% Energy 7% Financials 11% Healthcare 28% Industrials 14% Information Technology 6% Materials 41
We believe that private equity is a unique We believe that one of private equity’s PRIVATE EQUITY asset class, with a governance model distinguishing characteristics is the specifically designed to align the interests alignment of interest that flows through ABILITY TO of owners, managers, and investors. For the entire value chain, from LP to GP to over 50 years, this approach has attracted portfolio company management. GPs are DELIVER GROWTH, the interest of discerning financial remunerated via a periodic management institutions and sophisticated investors fee and a share in the profits earned by the FOCUS, AND around the world. And today, private equity fund. This share in profits is called 'carried is a global asset class managing billions interest' and typically involves up to 20% BUSINESS of dollars. of the profits of the fund. In most cases, carried interest becomes payable only after Private equity takes a long-term approach the LPs have achieved repayment of their EXCELLENCE to investment, typically owning a company original investment plus a defined return. for three to seven years before selling it – This is typically known as the hurdle rate, often at a premium on the initial purchase and it is normally set at a relatively high price. Investments are made in many level (e.g., 7-8%) so that remuneration is different businesses; these are called linked to exceeding performance targets. portfolio or investee companies. With their experience, focus, and capital, private Company management teams invariably equity managers seek to work with invest in the company, too, and have clear portfolio company management teams performance-linked incentives. This, along to create an environment that can generate with the support of GPs, encourages above-average growth. management to focus on delivering above-average growth, which also rewards Money for investments comes from funds LPs for providing the necessary capital. that are typically structured as limited partnerships. The capital for these funds is The three most common types of private raised primarily from institutional investors equity investment are buyouts, growth such as pension funds and insurance capital, and venture capital. In buyouts, companies, which are known as limited private equity investors acquire a partners, or LPs. They are not actively controlling stake in an existing company involved in managing the funds, but they from its incumbent owners. In growth regularly assess the quality of investments capital investments, funding is provided and can have an important consultative to help a business expand or restructure. or supervisory role. A group company In venture capital investments, within the private equity firm, known as the new capital flows into start-up or general partner, or GP, typically manages early-stage businesses. each fund. The GP monitors the overall performance of the fund and is closely The three most common types of exit from involved with its portfolio companies. a private equity investment are an initial public offering (‘IPO’), a trade sale, or a secondary buyout. In the first, a company is listed on a stock exchange; in the second, a company is sold to a private or public corporation; and in the third, a company is sold to another private equity investor. 42 AlpInvest Annual Review 2015
This document has been prepared by and is being issued statements. AlpInvest expressly disclaims any obligation or and distributed in the Netherlands by AlpInvest Partners undertaking to update or revise any such forward-looking IMPORTANT B.V. (together with its controlled affiliates, ‘AlpInvest’). This statements. The views and opinions are those of AlpInvest is AlpInvest’s eighth Annual Review and its purpose is to as of the date hereof and are subject to change based on increase the understanding of AlpInvest and to improve prevailing market and economic conditions and will not be INFORMATION communication with our stakeholders. THIS DOCUMENT updated or supplemented. IS NOT INTENDED FOR AND MAY NOT BE PROVIDED TO “U.S. PERSONS” (AS DEFINED UNDER REGULATION S OF Certain information contained herein has been obtained THE U.S. SECURITIES ACT OF 1933, AS AMENDED), WHICH from third-party sources. Although AlpInvest believes such INCLUDES U.S. RESIDENTS AND ENTITIES ORGANIZED sources to be reliable, AlpInvest makes no representation as UNDER THE LAWS OF THE UNITED STATES. to its accuracy or completeness.
The Walker Guidelines, as published by the British Private AlpInvest is part of The Carlyle Group (“Carlyle”). An Equity and Venture Capital Association (‘BVCA’), are one information barrier has been erected between AlpInvest and of the prominent initiatives on increased disclosure and the rest of Carlyle that restricts certain information from it is our intention to follow these guidelines as a basis for being shared, including information regarding AlpInvest our report. We are advocates of transparency and believe portfolio investment decisions. All investment programs that the private equity industry will benefit from more open managed by AlpInvest are intended to operate in accordance communication with all stakeholders. We have tried to be with the information barrier protocols and supplemental as open as possible in this Annual Review. However, some compliance procedures specific to Carlyle’s Investment areas remain subject to legal confidentiality clauses between Solutions business segment of which AlpInvest is a part. AlpInvest, our investors, or the parties we invest in and invest with. Some types of information could also be commercially AlpInvest Partners B.V. is included in the public register kept sensitive. As a result, we are not able to disclose publicly all by the Dutch Authority for the Financial Markets (Autoriteit of the information we provide to our investors. financiële markten), in accordance with section 1:107 of the Dutch Act on Financial Supervision (Wet op het financieel This document is not intended to be (and may not be relied toezicht), as holder of a license to manage alternative on in any manner as) legal, tax, investment, accounting investment funds under license number 15001833. or other advice or as an offer to sell or a solicitation of an offer to buy any securities of any investment product The amount of AlpInvest’s assets under management or any investment advisory service, including any (‘AUM’) is calculated on the basis of the latest available limited partnership or comparable limited liability equity valuations of all portfolio investments for which interests in any fund, managed account or other similar AlpInvest provides continuous and regular supervisory investment vehicle or product sponsored by AlpInvest or management services adjusted for interim cash flows (each, a “Fund”). Any such offer or solicitation may only up to the relevant reporting date, plus unfunded capital be made pursuant to such Fund’s final confidential private subscriptions to underlying portfolio investments, plus the placement memorandum and/or the related subscription amount of uncommitted capital available for investment documents, which will be furnished to qualified investors on under the existing mandates of AlpInvest’s investors that a confidential basis at their request for their consideration in are in their investment period. connection with such offering. This document may contain proprietary, trade-secret, confidential and commercially As used in this document, a ‘Main Fund’ consists of sensitive information. private equity investments within AlpInvest’s principal investment strategies (i.e. Primary Funds, Secondaries References to any portfolio investment are intended to and Co-Investments) that were originated by AlpInvest illustrate the application of AlpInvest’s investment process and made on behalf of its two anchor clients, APG and only and should not be used as the basis for making any PGGM, on a pooled basis that are tied to the investment decision about purchasing, holding or selling any securities. mandates with these clients, except that any ‘Main Fund Nothing herein should be interpreted or used in any manner V’ or ‘Main Fund VI’ also includes other clients that are as investment advice or a recommendation of any security participating in the relevant investment strategy during the or investment strategy. The information provided about any related mandate period. Mezzanine Main Funds include portfolio investments is intended to be illustrative, and is not mezzanine investments across all strategies (i.e. Primary intended to be used as an indication of the current or future Funds, Secondaries and Co-Investments). The performance performance of AlpInvest’s portfolio investments. information of all ‘Other Funds’ includes Main Fund I – Co-Investments, Main Fund I – Mezzanine Investments, There is no assurance that a Fund’s investment objective Main Fund IV – Mezzanine Investments, Main Fund V – will be achieved or that investors will receive a return on Mezzanine Investments, all ‘clean technology’ private equity their capital. The recipient must consult its own legal, investments and all other investors whose investments are accounting and tax advisors as to the legal, business, tax and not reflected in a Main Fund. related matters concerning the information contained in this document in order to make an independent determination The gross annualized internal rates of return (‘IRR’) and consequences of a potential investment in a Fund, provided herein are calculated based on actual investment including federal, state, local and foreign tax consequences. cash flows up to and including December 31, 2015 and the December 31, 2015 fair market value (‘FMV’) of the The performance of any portfolio investments discussed relevant Main Fund. Gross IRRs and multiples of capital in this document is not necessarily indicative of the invested do not reflect management fees or performance performance of any other of AlpInvest’s portfolio fees (carried interest) charged by AlpInvest or any other investments, and you should not assume that investments Main Fund-level expenses that are borne by investors in the future will be profitable or will equal the performance in the Main Fund, which will reduce returns and in the of past portfolio investments. In addition, while AlpInvest’s aggregate are expected to be substantial. The FMVs of Main valuations of unrealized investments and projected Funds that make Primary Fund Investments or Secondary performance are based on assumptions that AlpInvest Investments are based on the latest available valuations of believes are reasonable under the circumstances, the the underlying limited partnership interests (in most cases actual realized returns on AlpInvest’s investments will as of September 30, 2015), as provided by their general depend on, among other factors, future operating results, partners. The FMVs for Main Funds that make Equity the value of the assets and market conditions at the time and Mezzanine Co-Investments are based on AlpInvest’s of disposition, any related transaction costs and the timing internal valuations. and manner of sale, all of which may differ from the assumptions on which the valuations and projections used Net IRR provided herein is based on the gross calculation herein are based. Accordingly, the actual realized return and is net of management fees and performance fees on any such investments may differ materially from the charged by AlpInvest as well as Main Fund-level expenses. results indicated herein. Furthermore, investors may contact To eliminate the effect of currency rate changes, all non- AlpInvest representatives to discuss the procedures and EUR cash flows and fair market values have been converted methodologies used to calculate the investment returns and to EUR using the foreign exchange rate as of December 31, other information provided herein. Investors should consider 2015. No cash-flow projections have been used to calculate the content of this document in conjunction with investment any of the performance numbers provided herein. To fund quarterly reports, financial statements and other AlpInvest’s knowledge, there are no established standards disclosures regarding the valuations and performance of the for the calculation of IRRs for private equity portfolios. The specific investments discussed herein. use of another methodology would be expected to result in a different, and possibly lower, IRR. Investors should be aware Certain the information contained in this presentation of the significant differences between private equity and constitutes “forward-looking statements” that are inherently public markets regarding their portfolio/index constituents unreliable and actual events or results may differ materially and specific risk/return characteristics. from those reflected or contemplated herein. None of AlpInvest or any of its representatives makes any assurance as to the accuracy of those predictions or forward looking 43 Amsterdam AlpInvest Partners B.V. Jachthavenweg 118 1081 KJ Amsterdam The Netherlands Phone: +31 20 540 7575 Fax: +31 20 540 7500
New York AlpInvest U.S. Holdings, LLC 299 Park Avenue, 35th Floor New York, NY 10171 United States of America Phone: +1 212 332 6240 Fax: +1 212 332 6241
Hong Kong AlpInvest Partners Ltd 701 Champion Tower 3 Garden Road Hong Kong Phone: +852 2878 7099 Fax: +852 2878 7009
Indianapolis AlpInvest U.S. Holdings, LLC 201 North Illinois Street Suite 1530 Indianapolis, IN 46204 United States of America Phone: +1 317 361 4436