Private Equity – Semi-Annual Performance Report, Period Ending March 31, 2015

Home , Bridgepoint Advisers, Fidelity Ventures, PAI Partners

TEACHERS’ RETIREMENT BOARD

INVESTMENT COMMITTEE Item Number: 13

SUBJECT: Private Equity – Semi-annual Performance Report, Period Ending March 31, 2015

CONSENT: ATTACHMENT(S): 1

ACTION: DATE OF MEETING: September 2, 2015 / 30 mins.

INFORMATION: X PRESENTER(S): Mike Moy, Pension Consulting Alliance

POLICY This item is governed by the CalSTRS Private Equity Investment Policy, (Teachers’ Retirement Board Policy Manual, Section 1000, Pg. I-1). Due to the delay in receiving partnership data, the Private Equity report is lagged by one quarter.

HISTORY OF THE ITEM On a semi-annual basis, in September and April, the Private Equity consultant reviews the performance report of the Private Equity portfolio. This report is critical to the monitoring and oversight responsibility of the Investment Committee.

PURPOSE Due to the specialized nature of the private equity asset class, the Investment Committee has retained a specialty consultant and receives a specialized performance report on the asset class. While the report includes one-year returns, as a long-term investor coupled with the long-term nature of the asset class, the Investment Committee is encouraged to focus on the three-, five- and ten-year results because they are less volatile and more indicative of the long-term performance trend of the underlying portfolio. One-year results are less meaningful in an asset class where the typical holding period for a portfolio company is four to five years.

 Mike Moy of Pension Consulting Alliance, the Investment Committee’s private equity consultant, will present an oral report highlighting key issues across the CalSTRS Private Equity Portfolio.  The portfolio data in the report is prepared by State Street Bank’s Private Edge Group with input from Pension Consulting Alliance; it is fully customizable to meet Investment Committee needs.  Mr. Moy will use this opportunity to alert the Committee of any areas of concern, needed policy revisions, or issues that warrant further review.

RECOMMENDATION Staff recommends that, upon the oral report from Mr. Mike Moy, the Investment Committee receive the report for the record. INV268 INV269 Attachment 1 Investment Committee - Item 13 September 2, 2015

CALIFORNIA STATE TEACHERS RETIREMENT SYSTEM (CalSTRS) 1Q 2015 SEMIANNUAL PRIVATE EQUITY PROGRAM REPORT: Open Session INV270

CalSTRS Semiannual Private Equity Program Report –1Q 2015 page 2

INTRODUCTION Private equity is a long-term asset class with performance results influenced by various factors. This report concentrates on several key exposures that contribute to performance results, including sector, geography, structure and vintage year. In addition, the broad industry trends highlighted herein may affect future performance results.

-- EXECUTIVE SUMMARY -- PORTFOLIO HIGHLIGHTS

. The PEP portfolio has outperformed CalSTRS’ customized benchmark and the Private Equity Industry Benchmark by 20 and 60 basis points, respectively, since inception, but has underperformed each of the other reporting periods.

. Effective July 1, 2014, CalSTRS replaced the Russell 3000 index plus 300 basis points with the State Street Private Equity Industry Benchmark for time periods less than ten years.

. Buyouts represent 65% of the PEP’s total exposure as of March 31, 2015, down from 66% six months prior. o Sub-asset class exposures are in line with targets.

. The PEP has been cash flow positive since 2011, providing $11.1 billion of net cash flows ($20.7 billion of distributions offset by $9.6 billion of contributions).

. The PEP has outperformed the industry median vintage year returnsin20of25calendar years analyzed and has placed in the top quartile in five vintage years.

o PEP performance placed in the third quartile for the four year span from 2006 through 2009, a period of significant commitment activity.

. Sub-asset classes provided mixed performance results versus their respective private market industry benchmarks as of March 31, 2015. o U.S. Buyout has underperformed its respective benchmark over all periods evaluated.

. Approximately 52% of the PEP’s active commitments occurred during the 2005-to-2008 time period.

. Fund investments, at 93% (co-investments comprise the other 7%) make up the bulk of the PEP’s market value and have largely driven its returns.

. In the first half of 2015, CalSTRS’ private equity staff made 20 new commitments aggregating $2.4 billion. INV271

CalSTRS Semiannual Private Equity Program Report –1Q 2015 page 3

INDUSTRY TRENDS

. U.S. private equity fundraising in 2014exceededthatof2013byroughly20%;a strong fundraising environment has continued through the first half of 2015. Fundraising is on pace to roughly equal 2014 levels, which were approximately $265 billion.

. Commitments to buyout funds totaled approximately $70 billion, which accounted for 72% of total U.S. fundraising activity during the first half of the year.

. Risk metrics in the U.S. leveraged buyout market were mixed during the first half, with an uptick in purchase price multiples (from 9.7x to 10.1x) and a slight decline in average debt multiples (from 5.8x to 5.5x).

. U.S. purchase price multiples continue to exceed those in 2007 while debt multiples remain slightly below 2007 levels.

. Venture capital deal volume was robust in the first half of 2015 relative to the same period in recent years, and venture capital IPO volume remained high.

. The outlook for distressed debt investment strategies continues to be mixed, as default rates remain very low but a turn in the cycle could materially increase the opportunity set.

. The S.E.C. has increased its scrutiny on private equity, particularly with respect to general partners’ fee and expense allocation practices. This issue has garnered significant media attention though it is unclear yet whether it will result in greater transparency. INV272

CalSTRS Semiannual Private Equity Program Report –1Q 2015 page 4

Private Equity Program Performance Against Benchmarks As of March 31, 2015 Since 1-year 3-year 5-year 10-Year Inception

CalSTRS PEP 7.3% 12.4% 12.8% 10.6% 13.5%

Private Equity Industry Benchmark* 9.8% 13.4% 14.3% 12.7% 12.9% (for periods less than 10 years) Custom Benchmark** 15.7% 19.8% 17.9% 12.5% 13.3% (for periods 10 years and longer)

Excess Returns v. Private Equity Industry Benchmark (2.5%) (1.0%) (1.5%) (2.1%) 0.6% v. Custom Benchmark (8.4%) (7.4%) (5.1%) (1.9%) 0.2%

*Utilizing State Street Private Equity Industry Index (Total) ** CalSTRS custom benchmark, maintained by PrivateEdge, is the return of the Russell 3000 Index + 300 basis points (from and since July 1, 2008); previous periods for the PEP index consists of the 90-day Treasury Bill rate for contributions less than three years old and the Russell 3000 Index + 500 basis points.

Source: Priv ateEdge, PCA analysis

Summary of Changes in Investments As of March 31, 2015 $ Millions Number of Capital Capital Capital Market Total 1 2 3 Investments Committed Contributed Distributed Value Value4

Mar. 31, 2015 342 $50,258.4 $40,551.3 $43,008.5 $20,248.6 $63,257.2 Sep. 30, 2014 347 $48,676.4 $39,608.7 $40,044.5 $21,612.2 $61,656.7 Six-Month Change -5 $1,582.0 $942.6 $2,964.0 ($1,363.6) $1,600.5 1. Number of Inv estments represents only active investments (both partnerships and co-investments). 2. Includes the impact of exchange rates for international partnerships. 3. Includes capital contributed for management fees called outside of CalS TRS ' capital commitment. 4. Includes capital distributed plus market v alue.

Source: Priv ateEdge, PCA analysis

. The PEP returned $1.9 billion of distributions over the last 6-month period, a primary driver in the decline in market value INV273

CalSTRS Semiannual Private Equity Program Report –1Q 2015 page 5

Actual vs. Target Allocation by Investment Category As of March 31, 2015 $ Millions Percent of Percent Long-Term Market PEP Market Unfunded Total of PEP CalSTRS Target Investment Category Value* Value Commitments** Exposure Exposure Target Range

Buyout 13,580 67.1% 5,207 18,787 64.5% 70% 50-85%

Venture Capital 1,393 6.9% 653 2,046 7.0% 5% 5-15%

Expansion Capital 2,646 13.1% 1,672 4,318 14.8% 10% 5-15%

Distressed Debt 2,414 11.9% 1,173 3,587 12.3% 15% 5-20% Mezzanine 214 1.1% 192 406 1.4%

* Market v alue is actual as of March 31, 2015 and is based upon the actual strategy of the partnership; secondaries and international are included in buyouts; co-inv estments are based on company inv estment strategy. * * The table includes all commitments made through the end of the reporting month.

Source: PrivateEdge, PCA

. As of March 31, 2015, CalSTRS’ actual investments were in line with the current ranges set by the Investment Committee. . Buyouts continue to represent the greatest total exposure at 64.5% of the PEP, down slightly from 66.5% as of September 30, 2014. . Given the material exposure to buyouts, future performance improvements may be dependent upon relatively robust merger and acquisition activity and potential exits via the public markets. . Allocation to venture capital increased to 7.0%, up from 5.9% six months prior, as additional commitments to venture capital were completed. INV274

CalSTRS Semiannual Private Equity Program Report –1Q 2015 page 6

PEP Annual Commitment Activity and Market Value 8.000 As of Marc h 31, 2015 1.8% $ Billions 7.000 6.9 1.6% 1.5% 6.5 Vintage Year Commitment

Vintage Year Market Value1.4% 6.000 1.3% 5.4 1.2% Percent of Industry Commitments 1.2% 1.2% 5.000 4.6

414.1 10%1.0% 10%1.0% 4.000 0.9% 0.8% 0.8% 3.2 0.7% 3.000 2.8 0.6% 2.9 0.6% 0.6% 2.6 0.6% 0.6% 2.4 2.3

2.000 1.8 1.9 1.4 0.4% 1.3 1.2 1.2 1.1 1.000 0.7 0.9 0.8 060.6 02%0.2% 0.5 0.0 0.000 0.0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Q1 15

Source: PrivateEdge, Thomson Reuters, PCA Analysis . The vintage year concentration involving 2007/2008 is being mitigated by the recent contribution and distribution activity.

PEP Annual Cash Flows As of March 31, 2015 $ Billions 5.6 5.7

4.7

3.9 3.7 3.4 3.6 2.9 2.8 2.3 2.5 202.0

1.0 1.0 0.8 0.9 0.5 0.2 0.4

(0.3) (0.4) (0.5) (1.2) (1.5) (1.9) (2.1) (2.1) (2.1) (2.2) (2.2)

(3.2) (3.2) (3.1)

(4.4)

(5.4) (5.7) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Q1 15

Contributions Distributions Net Cash Flow Source: PrivateEdge, PCA Analysis INV275

CalSTRS Semiannual Private Equity Program Report –1Q 2015 page 7

Vintage Year Net Returns* As of March 31, 2015 1st Quartile Net IRR from Inception, by Vintage Year; % 2nd Quartile 3rd Quartile 100 4th Quartile CalSTRS 80

40 . InvestmentsmadebythePEPsince1990have

20 outperformed the industry median vintage year returns in 20 of 25 calendar years analyzed. 0

-20 o PEP performance placed in the third quartile for the four year span from 2006 through 2009, a period of -40 significant commitment activity. -60

-80 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Q1 15

* Benchmark quartile rankings provided by State Street PrivateEdge. Vintage year funds are defined as the return of all funds with the same year of inception. Source: PrivateEdge

Sub-Asset Class Performance As of March 31, 2015 Net IRR; % Since . U.S. buyout (the largest sub-asset class in the program) Sub-Asset Class 1-year 3-year 5-year 10-Year Inception underperformed its sub-asset benchmark over all periods U.S Buyout CalSTRS 9.1% 13.8% 13.0% 10.0% 11.3% examined, while international buyout led its sub-asset SSPEI: U.S . Buyout 10.8% 14. 4% 15. 6% 13. 8% 13.1% class bhkbenchmark over the one-year, three-year, five- International Buyout CalSTRS 2.3% 10.0% 13.5% 12.3% 14.5% year, and since inception time periods. SSPEI: Europe Buyout 0.9% 9.5% 11.8% 13.1% 13.1% Venture Capital CalSTRS 10.1% 11.6% 11.9% 7.9% 16.7% . Expansion capital outperformed relative to its sub-asset SSPEI: Venture Capital 20.2% 17.1% 17.0% 11.6% 14.3% class benchmark over all periods except the latest one- Expansion Capital CalSTRS 9.7% 12.6% 15.4% 13.6% 21.4% year and three-year periods, while venture capital only SSPEI: Domestic Private Equity 11.4% 14.5% 12.3% 13.1% 13.3% outperformed its respective sub-asset class benchmarks Mezzanine CalSTRS 10.2% 13.2% 10.5% 10.3% 13.2% in the since inception time period. SSPEI: Mezzanine -2.2% 6.8% 8.6% 9.2% 10.1%

Distressed Debt CalSTRS 5.5% 12.5% 10.5% 9.2% 10.0% . Distressed debt underperformed its sub-asset class SSPEI: Distressed 6.4% 13.1% 12.9% 12.2% 13.4% benchmark over all periods evaluated while mezzanine

Source: Private Edge outperformed. INV276

CalSTRS Semiannual Private Equity Program Report –1Q 2015 page 8

Performance by Investment Vehicle Geoggpraphic Performance As of March 31, 2015 As of March 31, 2015 Net IRR; % Net IRR; % Since Since Investment Vehicle 1-year 3-year 5-year 10-Year Inception* Investment Vehicle 1-year 3-year 5-year 10-Year Inception

LP/Fund Investments 7.2% 12.6% 13.0% 10.7% 13.7% United States CalSTRS 9.0% 13.4% 12.9% 10.1% 13.2% SSPEI: Domestic 11.4% 14.5% 15.3% 13.1% 13.3% Co-Investments 11.2% 12.1% 11.7% 8.1% 8.1% International CalSTRS 2.9% 10.2% 12.9% 11.9% 14.0% * LP/Fund Inv estment Program year of inception is 1988; Co-Inv estment Program year of inception is 1996. SSPEI: International 1.2% 9.7% 11.4% 12.2% 12.2% (Europe) Source: PrivateEdge Source: PrivateEdge

. Fund investments, at 93%, make up the bulk of the PEP’s . CalSTRS’ private equity investments are predominantly in U.S.- market value. At 7%, the proportion of the portfolio in based funds, with 22% of the portfolio (down form 24% six months co-ittinvestments is thesameassixmonthsago. pri)ior) in itinternati ona l,mailinly European, fdfunds. INV277

CalSTRS Semiannual Private Equity Program Report –1Q 2015 page 9

Portfolio Investments by Industry As of March 31, 2015 Market Value; %

100% = $19.83 Billion*

Information Technology, 18%

Consumer Discretionary, 19% Health Care, 16%

Utilities, 1% Telecommunication Services, 2%

Consumer Staples, 4% Financials, 15%

Materials, 4%

Energy, 9% Industrials, 12%

*Includes only market value of portfolio holdings, and does not include cash, other assets, expense or liability; includes co-investments.

Source: PrivateEdge, PCA Analysis

Largest Buyout Relationships Largest Venture Capital Relationships As of March 31, 2015 As of March 31, 2015 $ Millions $ Millions Number of Number of General Partner Investments Market Value Unfunded Total Exposure General Partner Investments Market Value Unfunded Total Exposure Blackstone Group* 9 $1,805 $790 $2,595 New Enterprise Associates 10 $449 $241 $690 TPG Capital** 11 1,715 687 2,402 Technology Crossover Venture 3 251 7 258 Centerbridge Capital 5 610 417 1,027 GGV Capital 3 121 86 207 First Reserve 4 723 215 938 JMI Equity 4 70 108 179 Permira 4 701 170 872 Strategic Investors 4 58 107 165

* Includes inv estments in four GSO partnerships Source: PrivateEdge, PCA analysis ** Includes investment in NewBridge Asia IV, TPG Asia V, TPG Growth II/III(A) and TPG Opportunities II/III (A). Source: PrivateEdge, PCA analysis INV278

CalSTRS Semiannual Private Equity Program Report –1Q 2015 page 10

The Proactive Portfolio is a framework for selecting private equity investments in an opportunistic and disciplined manner. The program includes: the Urban and Rural Program, the New and Next Generation Manager Program, other innovative strategies, emerging spaces, underserved markets, and California investments.

Proactive Portfolio As of March 31, 2015 $ Millions

Vintage Year Commitment Unfunded Market Value Total Value IRR 2003 250.0 13.8 91.0 176.4 (2.7) 2005 105.6 32.0 98.7 131.5 10.2 2006 415.0 50.6 264.3 517.2 10.2 2007 20.0 0.4 7.0 7.1 (19.1) 2008 216.9 90.9 154.2 173.0 919.1 2009 50.0 1.5 25.8 38.7 (4.4) 2010 200.0 97.6 114.3 118.9 9.2 2011 70.0 22.8 49.6 52.7 8.1 2012 374.8 276.2 96.2 97.8 (0.7) 2013 40.0 17.2 21.2 21.4 (8.0) 2014 200.0 175.5 21.8 22.3 (20.0)

CalSTRS Practive Total 1,942.4 778.6 944.0 1,357.2 4.4

. The program’s investment policy has laid a framework for direct, side-by-side investments with funds that have already been approved through the funds of funds managed by Bank of America Merrill Lynch (CalSTRS/BAML Funds), INVESCO (the New and Next Generation Manager Funds), and Muller &Monroe(M2 Private Eqqyuity Funds).

. The net since-inception IRR for the Proactive Portfolio is 4.4% as of March 31, 2015, up from 3.9% at September 30, 2014.

. Almost two thirds of the Proactive Portfolio is committed to funds of funds whose structural J-curve is more elongated than a direct fund. This, combined with market volatility, a lack of investment exits and manager specific issues, contributes to the Proactive Portfolio’s underperformance.

. Staff has advised PCA that they are working closely with all of the general partners in the Proactive Portfolio. INV279

CalSTRS Semiannual Private Equity Program Report –1Q 2015 page 11

The PEP has evolved into one of the largest actively managed U.S. private equity programs, with thirteen (one current vacancy) private equity professionals. CalSTRS is further supported by investment advisors and independent fiduciaries for selected areas of the portfolio. This section examines current advisors, policy changes and recent portfolio activity.

Role of Advisors New Commitments Year To Date as of June 30, 2015 Role / Advisor Partnership Commitment (millions) Investment Category Closing Date TPG Growth III(A) $200 Equity Expansion 2/12/2015 Advisor to the Board Equistone Partners Europe Fund V "D $124 Buyout 3/9/2015 PCA New Enterprise Associates 15 $195 Venture Capital 3/13/2015 Advisor to staff on U.S., Canada, Asia and Latin America GGV Capital Select $50 Venture Capital 3/16/2015 Cambridge Associates FCO MA IV $200 Distressed Debt 3/17/2015 Advisor to staff on European, Middle East and Africa Vivo Cap ita l Fun d VIII $40 VtVenture Cap itlital 3/17/2015 Vivo Capital Surplus Fund VIII $6 Venture Capital 3/17/2015 Altius Associates Welsh, Carson, Anderson & Stowe XI $150 Buyout 3/27/2015 Investment and Performance reporting/Book of Record EnCap Energy Capital Fund X $200 Equity Expansion 3/27/2015 PrivateEdge Group NEA 15 Opportunity Fund $35 Venture Capital 4/7/2015 Independent fiduciaries for co-investment and secondary partnerships Thoma Bravo Special Opps Fund II $35 Buyout 4/10/2015 Valuation Research Corporation Blackstone Captal Partners VII $488 Buyout 5/1/2015 LP CCilapital Addivisors Cortec Group Fund VI $100 Buyout 5/13/2015 Carlyle Europe Partners VII $167 Buyout 6/10/2015 Meketa Investment Group Ulysses Holdings I $69 Co-Investments 6/16/2015 Independent fiduciaries for Proactive Portfolio investments Ithaca, L.P. £45 Co-Investments 6/18/2015 Bank of America Merrill Lynch CVI Credit Value Fund A III $100 Distressed Debt 6/19/2015 Invesco HR Investment Holdings $35 Co-Investments 6/24/2015 Muller & Monroe BRV Opportunities Fund $2 Venture Capital 6/26/2015 Legal advisors TA XII $180 Equity Expansion 6/24/2015 Total $2,421 ------Proskauer Rose LLP Source: Priv ateEdge Hanson Bridgett LLP Sheppard, Mullin, Richter & Hampton LLP Morgan, Lewis & Bockius LLP

Source: CalSTRS INV280

CalSTRS Semiannual Private Equity Program Report –1Q 2015 page 12

USU.S. Buyou t Fun dra is ing Largest U.S . Buyout Funds Raising Capital YTD in 2015 $ Billions $ Millions Raised YTD Fund Firm Target Raised* 2015 245 Blackstone Capital Partners VII Blackstone Group $ 16,000 $ 17,000 $ 17,000

EnCap Energy Capital Fund X EnCap Investments 5,000 6,500 6,500 195 197 TPG Partners VII TPG Capital 8,000 6,500 6,500 177 162 NGP Natural Resources XI NGP Energy Capital Management 4,500 5,325 319 139 American Securities Partners VII American Securities 4,000 5,000 5,000 113 105 Lindsay Goldberg IV Lindsay Goldberg 4,000 3,304 3,274 91 80 Crestview Partners III Crestview Partners 3,000 3,049 649 58 61 58 61 43 Quantum Energy Partners VI Quantum Energy Partners 2,500 3,000 1,830 30 TPG Growth III TPG Growth 2,750 3,000 3,000

Francisco Partners IV Francisco Partners Management 2,000 2,875 2,875 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 1H 2015 * Represents aggregate commitments raised, which may include prior calendar year Source: Private Equity Analyst, grey highlight represents CalSTRS commitment Source: Private Equity Analyst

Announced U.S. Quarterly Leveraged Buyout Deal Value* Top 10 U.S. Sponsored Buyout Deals* YTD in 2015 $ Billions Deal Size Company Name Industry Sponsor Deal Type $ Millions 108 Safeway Retail AB Acquisition Take Private 9,199 PetSmart Inc Retail PetSmart Inc SPV Take Private 8,788 NewPage Holdings Materials Apollo Global Management LLC Standalone Buyout 4,333 TPG Capital, Leonard Green, and Life Time Fitness Inc Consumer Take Private 4,062 LNK Partners 65 Thoma Bravo and Teachers' 58 Riverbed Technology Inc High Technology Take Private 3,419 Private Capital 49 49 46 47 Blue Coat System Inc High Technology Bain Capital Standalone Buyout 2,400 41 41 37 34 33 Armored AutoGroup Inc Industrials Harbinger Capital Partners Standalone Buyout 1,400 34 30 32 28 27 29 28 Angus Chemical Co Materials Golden Gate Capital Carve‐out 1,215 Home Loan Servicing Solutions Financials Fortess Investment Group Take Private 1,213 15 13 15 IPC Systems Inc Telecommunications Centerbridge Partners Standalone Buyout 1,200

* Cl os ed deals; deal size includes equity and debt. Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Source: Thompson Reuters Buyouts 10 10 10 10 11 11 11 11 12 12 12 12 13 13 13 13 14 14 14 14 15 15

* Total deal size (both equity and debt) Source: Thomson Reuters Buyouts INV281

CalSTRS Semiannual Private Equity Program Report –1Q 2015 page 13

Average USU.S. PhPurchase PiPrice MltilMultiples Average U.S. De bt Mu liltip les Total Enterprise Value/EBITDA Debt/EBITDA 10.1x 6.0x 9.7x 9.7x 5.8x 5.5x 9.1x 8.8x 8.8x 5.3x 8.4x 8.4x 8.5x 8.7x 5.0x 5.1x 5.1x 4.8x 4.9x 7.7x 4.6x

37x3.7x

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 1H 15 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 1H 15

Source: S&P Capital IQ Source: S&P Capital IQ

Average U.S. Purchase Price Multippgles: Large vs. Middle Market Average Debt Multiples: Large vs Middle Market* Total Enterprise Value/EBITDA Total Enterprise Value/EBITDA

10.1x 6.2x 9.8x 9.8x 9.5x 9.6x 9.8x 5.9x 9.3x 9.1x 5.6x 5.7x 8.9x 5.4x 5.4x 8.5x 8.6x 8.4x 8.8x8.8x 5.3x 5.2x 5.3x 5.3x 8.2x 8.3x 7.9x 8.5x 4.9x 5.1x 8.1x 8.2x 4.7x 4.7x 4.8x 7.9x 4.7x 4.5x 4.5x 4.3x 4.3x 6.6x 4.0x 33x3.3x

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 1H 15 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 1H 15

Large LBOs Middle Market LBOs Large LBO Loans Middle Market LBO Loans *"Large" defined as issuers with EBITDA >$50M, "Middle Market" as issuers with EBITDA <$50M. Source: S&P Capital IQ *Large defined as issues with EBITDA >$50M, Middle Market issuers with EBITDA <$50M Source: S&P Capital IQ INV282

CalSTRS Semiannual Private Equity Program Report –1Q 2015 page 14

Dividend/Stock Repurchase Loan Volume 100 90 80 70

)

$$ 60 (

Billions 40 30 20 10 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 1H 15

Source: S&P LCD, Bank of Americal Merrill Llynch

Leveraged Loan Index U.S. High-Yield and Leveraged Loan Market Size IdIndex Leve l $Billions

110 $1,800

100 $1,600 $1,400

90 $1,200

$1,000 80 $800

70 $600

$400 60 $200

50 $0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Year High Yield Leveraged Loan Source: Loan Syndications and Trading Association (LSTA) Source: Thomson Reuters, Credit Suisse Leveraged Finance Market Update INV283

CalSTRS Semiannual Private Equity Program Report –1Q 2015 page 15

U.S. Venture Capital Fundraising $ Billions

40 33 33 29 27 27

20 22 20 22 18 14 15 11 10

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 1H 2015

Source: Private Equity Analyst

Largest Venture Capital Funds Raising Capital YTD in 2015 $ Millions Raised YTD Fund Firm Target Raised* in 2015 New Enterprise Associates 15 New Enterprise Associates $2,500 $3,150 $3,150 Insight Venture Partners IX Insight Venture Partners 2,750 2,900 2,900

Bessemer Venture Partners IX Bessemer Partners IX NA 1,600 16001,600 Institutional Venture Partners XV Institutional Venture Partners 1,200 1,400 1,400

JP Morgan Digitial Growth Fund II JP Morgan Chase & Co NA 1,347 297 Viv o Capital Fund VIII Viv o Capital 600 750 322 Social Captial Partnership III Social+Capital Partnership 450 600 600

Benchmark Capital Partners VIII Benchmark Capital NA 550 91 Flagship Ventures Fund V Flagship Ventures 350 537 537

GGV Capital Select GGV Capital 450 457 457

* Represents aggregate commitments raised, which may include prior calendar year. Source: Private Equity Analyst INV284

CalSTRS Semiannual Private Equity Program Report –1Q 2015 page 16

Top 10 U.S. Venture Capital Deals YTD in 2015 Quarterly U.S. Venture Capital Deal Volume* EtiEstimat ed Round $ Billions Company Name Industry Firm Name(s) Total $ Millions AirBnB Inc Consumer Services CBC Capital, Fidelity Investment Funds, General Atlantic, 1,500 GGV Capital, Horizon Ventures, Kleiner Perkins Caufield & 17.5 Byers, T. Rowe Price, Temasek Holdings, Hillhouse Capital 15.6 Management, undisclosed firms Space Exploration Technoliges Corp Aerospace Draper Fisher Jurvetson, Fidelity, Founders Fund, undisclosed 1,000 13.7 13.5 firm Uber Technologies Transportation Software Foundation Capital, undisclosed firm 1,000 10.6 10.4 Marketo Inc Software Sunbridge Partners 840 8.7 8.3 8.1 Snapchat Inc Social Media Benchmark Capital Management, Mail.Ru Group, Fidelity 538 7.2 7.6 7.5 7.5 7.3 Ventures, General Catalyst Partners, Kleiner Perkins Caufield 6.7 7.0 6.5 6.3 6.1 & Byers, Lightspeed Management Company, SV Angel, 5.5 5.7 5.1 Coatue Management, undisclosed firms

LYFT Inc Transportation Software Andreessen Horowitz, Rakuten Ventures, undisclosed firm 530

Spotify Software D E Shaw & Co, Golman Sachs, Northzone Ventures, 526 Technology Crossover Ventures, P Schoenfeld Asset Management, GSV Capital Corp, undisclosed firms Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Zenefits Insurance Serv ices Financial Services Andreessen Horwitz, Fidelity Ventures, Founders Fund, 442 10 10 10 10 11 11 11 11 12 12 12 12 13 13 13 13 14 14 14 14 15 15 Institutional Venture Partners, Khosla Ventures, TPG Growth, Insight Venture Partners, undisclosed firms * Only includes equity portion of deal value. Wework Companies Inc Other Services Undisclosed firms 400 Source: Thomson Reuters Pinterest Inc Internet Publishing Andreessen Horowitz, Bessemer Venture Partners, 367 undisclosed firms

Source: Thomson Reuters

USU.S. Ven ture Cap ita l-BkdBacked MAM&A AtiitActivity U.S. Venture Capital-Backed IPO Activity $ Billions $ Billions 17.3

11.3 11.0 9.5 9.9 9.0 9.2 8.9 7.8 7.9 8.2

5.7 5.8 5.6 4.4 4.5 5.1 5.1 3.7 4.0 4.4 4.4 4.1 3.0 2.8 2.8 2.7 2.7 2.7 1.9 2.1 1.4 1.7 1.3 1.5 1.3 1.7 1.0 0.9 0.9 0.7 0.7 0.0

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 10 10 10 10 11 11 11 11 12 12 12 12 13 13 13 13 14 14 14 14 15 15 10 10 10 10 11 11 11 11 12 12 12 12 13 13 13 13 14 14 14 14 15 15

Source: Thomson Reuters Source: Thomson Reuters INV285

CalSTRS Semiannual Private Equity Program Report –1Q 2015 page 17

European Private Equity Fundraising $ Billions

129

113

95 91 94 79 70 62 50

36 38 35 30 26 28

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 1H 15

Source: Thomson Reuters

Largest European Funds Raising Capital YTD in 2015 $ Millions Raised YTD Fund Firm Target Raised * 2015 X2 Resources Mining Fund X2 Resources Partners NA $ 5,600 $ 800

Bridgepoint Europe V Bridgepoint Advisers Group 4,854 4,900 2,375

PAI Europe VI PAI Partners SAS 4,166 4,173 2,272

KKR European Fund IV Kohlberg Kravis Roberts & Co. 4,828 2,998 2,998 Rhone Partners V Rhone Capital NA 2,884 2,884 Carlyle Europe Partners IV Carlyle Group 3,962 2,844 946 Park Square Capital Credit Opportunities II Park Square Capital NA 2,400 2,168

Equistone Partners Europe Fund V Equistone Partners Europe 2,367 2,195 2,195

Waterland Private Equity Fund VI Waterland Private Equity Investments 1,515 1,668 1,668

Charterhouse Capital Partners X Charterhouse Capital Partners 3,630 1,120 1,120

* Represents aggregate commitments raised, which may include prior calendar year Source: Private Equity Analyst, grey highlight represnts CalSTRS commitment INV286

CalSTRS Semiannual Private Equity Program Report –1Q 2015 page 18

European LBO Transaction Volume

164 € Billions 152

110

69 64 49 39 44 29 22 9

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 1H 15

Source: S&P Capital IQ

Average European Debt Multiples European Purchase Price Multiples* Debt/EBITDA Total Enterprise Value/EBITDA 6.1x 10.4x 10.3x 5.5x 10.2x 5.2x 5.2x 5.1x 4.9x 10.0x 4.7x 4.5x 4.6x 4.4x 9.7x 404.0x 959.5x 9.3x 9.2x 8.9x 8.8x 8.7x

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 1H 15 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 LTM 6/15 Source: S&P Capital IQ * Transaction size of €500M or more Source: S&P Capital IQ INV287

CalSTRS Semiannual Private Equity Program Report –1Q 2015 page 19

Asian Private Equity Fundraising $ Billions

60 54

46 44 42

32 26 26 22 20

10 6 7 3 4

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 1H 15

Source: Thomson Reuters