Quarterly Report Q2 2009

PEARL HOLDING LIMITED QUARTERLY REPORT Q2 2009 Quarterly report for the period from 1 April 2009 to 30 June 2009 2 PEARL HOLDING LIMITED QUARTERLY REPORT Q2 2009 PEARL HOLDING LIMITED The convertible bond issued by Pearl Holding Limited provides access to the private equity asset class. For the fi rst time, investors have the opportunity to buy into the earnings potential of a broadly diversifi ed private equity portfolio, while enjoying capital protection and a 2% coupon. Its tailor-made structure makes the convertible bond suitable for German private and institutional investors (i.e. “sicherungsvermögens- und spezialfondsfähig”). This document is not intended to be an investment ad- vertisement or sales instrument; it constitutes neither an offer nor an attempt to solicit offers for the product described herein. This report was prepared using fi nancial information contained in the company’s books and records as of the reporting date. This information is be- lieved to be accurate but has not been audited by any third party. This report describes past performance, which may not be indicative of future results. The company does not accept any liability for actions taken on the basis of the information provided. 3 TABLE OF CONTENTS 1 Investment manager´s report 4 2 Private equity market environment 8 3 Portfolio allocation 10 4 Portfolio 12 5 Portfolio overview 14 6 Financial figures 17 4 PEARL HOLDING LIMITED QUARTERLY REPORT Q2 2009 1 INVESTMENT MANAGER´S REPORT NAV in the context of the economic were offset to a certain extent by IFRS va- downturn luation methods used by the investment manager to refl ect the “fair value” of Pearl’s Against the backdrop of a persistently dif- portfolio. fi cult macroeconomic environment, the net asset value (NAV) of Pearl declined by During the second quarter, the greatest 6.99 % to 85.92 % in the second quarter of negative infl uence of – 2.6 % on Pearl’s NAV 2009, an amount that was within the range came from the depreciation of the US dollar of expectations. Among other things, this versus the Euro. On the other hand, price was due to value adjustments in the under- movements in listed private equity compa- lying portfolio, which in total exerted a neg- nies in the Pearl portfolio – the proportion of ative impact of 2.4 % on Pearl’s NAV. The which was reduced during the past quarter price developments of public comparables, and now accounts for less than 1.0 % of the as well as the operating results of a number total – had only an insignifi cant infl uence on of underlying portfolio companies, forced NAV. Financing and operating expenses, general partners to record similar valuation after deduction of various revenues, were adjustments in their year-end 2008 and responsible for the remaining variance in end-March 2009 fi nancial statements. How- NAV for the quarter. ever, in the case of Pearl, those writedowns MID-MARKET PRICE AND NAV DEVELOPMENT 150 140 130 NAV 120 Mid-market price 110 NAV incl. paid in % and accrued interest 100 90 80 70 06-02 06-03 06-04 06-05 06-06 06-07 06-08 06-09 Source: Partners Group 5 Mid-market price at 89.00 % tageous environment for exits: Pearl re- ceived distributions stemming from sales of The mid-market price of Pearl’s convertible roughly EUR 8.0 million in the months April bonds for the period ending 30 June 2009 through June 2009, an increase to the EUR was 89.00 %, clearly higher than in the pre- 4.7 million of the previous quarter. The most vious quarter. Therefore, since the begin- signifi cant distributions came from Warburg ning of the year, the price of the convertible Pincus Private Equity VIII, which divested a bonds has outperformed the overall listed portion of its holding in portfolio company private equity market. Bridgepoint Education, a provider of corre- spondence courses and classroom instruc- Investment activities continue at a tion, by means of an initial public offering. modest pace Also, Avista Capital Partners (Offshore) in conjunction with an investor group sold From April through June, conventional buy- portfolio company Medserve Inc. for USD out activities in the private equity industry 185 million after having paid USD 70 million as a whole remained tentative because of to acquire it in 2006. Medserve is a Hous- the ongoing diffi culty in obtaining the neces- ton-based services company specialized in sary fi nancing. Nonetheless, transactions the disposal of medical and toxic waste. fi nanced with private equity continue to be concluded, albeit mainly in the small- and Active portfolio management mid-cap areas as such transactions require less debt capital. Because on the whole more money was called for investment than the amount dis- Capital called during the second quarter for tributed from exits, the level of investment investment on the part of Pearl amounted to (the current value of the private equity EUR 13.0 million, which was noticeably less holdings expressed as a proportion of NAV) than in the comparable prior-year period, rose to 94.8 % during the course of the past but represents a slight increase over the to- quarter. Thus in view of outstanding coupon tal for the fi rst quarter. During the quarter payments, Pearl is fully invested at present. capital calls stemmed from, among others, Advent International GPE VI, which acquired In order to provide the Pearl portfolio with a 51 % interest in the payment transactions suffi cient liquidity and thereby be able to division of America’s Fifth Third Bancorp. meet capital calls of the underlying general Advent will afford the company access to partners in the coming quarters, Pearl ap- additional capital and in turn be in a position plied its active portfolio management ap- to support the further growth of Fifth Third proach to selectively sell certain partnership Bancorp. In addition, Carlyle Partners IV commitments during the second quarter. and Clayton, Dubilier & Rice Fund VII also Instead of using the secondary market to issued capital calls in order to bolster port- exit at exaggerated discounts those partner- folio company Hertz, the world’s largest car ships, that are already invested to the rental fi rm, by means of a follow-on invest- greatest extent and thereby are forced to ment: Hertz acquired insolvent Advantage accept a sharply negative infl uence on NAV, Rent A Car at an attractive price and will Pearl has sold partnerships that have called combine its top-notch business processes little capital to date and thus were able to and cost-consciousness with Advantage’s be divested in the current market environ- focus on the leisure market in order to gain ment at a price that only had a marginal im- market share among thrifty travelers. pact on NAV. Outstanding called payment commitments of EUR 42.7 million were re- Thanks to Pearl’s broad diversifi cation across duced by these active portfolio management various investment holding periods, it was measures and, as a result, Pearl had a rela- possible to sell select portfolio companies in tively moderate level of commitments at the spite of the otherwise persistently disadvan- end of June when compared to similar listed companies. 6 PEARL HOLDING LIMITED QUARTERLY REPORT Q2 2009 Apart from that, the further reduction of lis-ted private equity companies supplied Pearl with additional liquidity to meet future capital calls of general partners while simul- taneously enabling Pearl to benefi t from the higher share prices recorded in recent months. Outlook Due to the fact that the majority of general partners in the Pearl portfolio have already submitted their end-March 2009 fi nancial reports, in combination with the additional IFRS-based adjustments that were account- ed for as per end of June 2009, the investment manager is convinced that Pearl’s NAV refl ects the fair and current value of the portfolio. Taking into consideration the way markets have evolved during past economic crises, the investment advisor is going on the assumption that capital calls from general partners will outpace distributions from exits. In order to have suffi cient liquidity on hand to cope with that situation, the investment advisor is currently involved in the fi - nal negotiations for a credit line and expects that the signing of the related contracts can be announced within the next several weeks. 7 [THIS PAGE IS INTENTIONALLY LEFT BLANK] 8 PEARL HOLDING LIMITED QUARTERLY REPORT Q2 2009 2 PRIVATE EQUITY MARKET ENVIRONMENT Attractive conditions for private equity Similarly, ever more big conglomerates fac- value creation ing liquidity constraints are considering spinning off divisions in order to raise capi- The success of a private equity investment tal. Such assets are usually well developed is dependent on the general partner’s ability in terms of their operations and infrastruc- to drive operational improvements, to pro- ture and employ a highly trained workforce. vide guidance and fi nancial backing, as well The increase in this kind of deal fl ow is as to put in place a strong management providing private equity fi rms with a further team that is capable of implementing effec- stream of high quality opportunities that tive business strategies to develop the in- could be benefi cial to their underlying investment’s potential. Besides achieving or- vestments. ganic growth through ways such as driving sales initiatives and improving operational Private equity firms in strong position effi ciencies, a private equity owner can also to acquire bolt-ons turn to bolt-on acquisitions to merge exper- tise, to expand the scale of the company’s The buy-and-build strategy is one of the operations and to prepare it for a profi table value-adding approaches private equity exit.

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