LACERS Los Angeles City Employees’ Retirement System

Report to Board of Administration

Agenda of: AUGUST 3, 2009

From: Daniel P. Gallagher, Chief Investment Officer ITEM: V−A

SUBJECT: NOTIFICATION OF UP TO $20 MILLION INVESTMENT IN HELLMAN & FRIEDMAN CAPITAL PARTNERS VII, L.P.

Recommendation:

That the Board receive and file this notice.

Discussion:

Attached is an investment abstract for Hellman & Friedman Capital Partners VII, L.P. (H&F VII) prepared by Hamilton Lane, LACERS’ traditional alternative investments consultant.

Background H&F VII (Fund) is projected to be a $7 billion, hard cap $10 billion, middle-market to large cap buyout fund focusing on a variety of industries, including financial services, media, software/data services, business services, healthcare, internet/digital media, and energy/industrials. Investments will be pursued both in the U.S. and Western Europe with a small percentage that can be invested in Eastern Europe, Asia and Australia. LACERS has invested $31 million in H&F Funds with $11 million in H&F V (vintage 2004), and $20 million in H&F VI (vintage 2007).

The General Partner (GP), founded in 1987 by Warren Hellman and Tully Friedman, has an experienced team. The majority of team members have worked and invested successfully together over many years and through several economic and private equity market cycles. H&F VII will be managed by senior partners Warren Hellman, Brian Powers, Philip Hammarskjold, Patrick Healy, and Thomas Steyer. The principals average over twenty-three years private equity experience and seventeen years tenure with the GP. They will be supported by thirty-one additional investment professionals and forty-one support staff. H&F is headquartered in San Francisco with additional offices in New York and London.

As of March 31, 2009, H&F’s prior funds had invested $11.7 billion among sixty-nine portfolio companies, realized $15.2 billion among fifty-one of those companies, earning a gross realized Internal Rate of Return (IRR) of 31.4% and a 1.9X capital multiple. These prior funds have approximately $7.4 billion of unrealized value of which 58% is for H&F VI. Based on benchmarks from Venture Economics the H&F Funds I through V have generated top quartile net returns, with Fund VI performance still too early to be meaningful.

Board Report 1 August 3, 2009 Strategy The GP will pursue an opportunistic investment strategy, and seek both control and non-control positions in portfolio companies that have competitive market strength among several factors: strong brand names; a loyal customer base; regulatory, capital, or scale barriers to entry; superior distribution systems; and, other business operations that are able to generate predictable revenue and earnings growth, high levels of cash flow, and strong operating management teams in place. The GP will focus on making large-scale investments, which should result in a portfolio oftwelve to fifteen companies with equity investments ranging from $300 million to $1.5 billion. No more than 10% of the commitments will be made in anyone company, and no more than 33% of the commitments will be invested outside of North America. The exit strategy will include sales to strategic buyers or financial sponsors, and initial public offerings. The GP will align its interest with the limited partners by committing $400 million (or 5.71 %) of the committed capitaL The GP does not outsource its fundraising or use placement agents.

Organizationat Issue During 2009, H&F anticipates completing its third generational transition for the firm. Warren Hellman will step down as Chairman to be replaced by Brian Powers. Philip Hammeraskjold will become CEO, and Patrick Healy will become Deputy CFO. However, the GP has successfully completed several prior transitions as the firm has invested across multiple economic cycles. The team appears positive, intact and content with the leadership transition. The Investment Committee will remain the same'.

Commitment Size Hamilton Lane has recommended a commitment of $20 million to Hellman & Friedman Capital Partners VII, L.P. As staff concurs, no Board action is required.

DPG:SG:ja

Attachments: 1) Hamilton Lane Final Investment Report 2) Discretion in a Box 3) Workforce Composition Report

Board Report 2 August 3, 2009 Final Investment Report

Hellman and Friedman Fund VII, L.P.

June 2009

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CONFIDENTIAL 2 of 12 Final Report - V,2 - 7/20/2009 OVERVIEW

Fund Information: General Partner: Hellman & Friedman, LLC Fund: Hellman & Friedman Capital Partners VII, L.P. Firm Inception: 1987 Target Size: $10 billion Hard Cap: $10 billion Strategy: Large buyouts and growth equity Geography: U.S. (67%), Western Europe (28%), ROW (5%) opportunistically Team: 46 Investment Professionals, 41 Administrative, Legal and Support Staff Senior Partners: Warren Hellman, Brian Powers, Phillip Hammarskjold, Patrick Healy, Thomas Steyer Locations: San Francisco (headquarters), New York and London Equity Investments: $200 million to $600 million Industries: Financial Services, Media, Software/Data Services, Business Services, Healthcare, Internet/Digital Media and Energy/Industrials

Prior Funds: 1988 ­ Hellman & Friedman Capital Partners I, LP ("Fund I") ­ $327 million 1991 ­ Hellman & Friedman Capital Partners II, LP ("Fund II") ­ $877 million 1995 ­ Hellman & Friedman Capital Partners III, LP ("Fund III") ­ $1.5 billion 2000 ­ Hellman & Friedman Capital Partners IV, LP ("Fund IV") ­ $2.2 billion 2004 ­ Hellman & Friedman Capital Partners V, LP ("Fund V") ­ $3.5 billion 2006 ­ Hellman & Friedman Capital Partners VI, LP ("Fund VI") ­ $8.0 billion

Closing Schedule:

Closing Schedule Schedule Date Amount ($MMs) 1st Close 2/13/2009 $5,700 2nd Close 2/27/2009 360 3rd Close 4/20/2009 250 4th Close 4/30/2009 150 Final Close ­ TBD TBD TBD Total 6.460

• The General Partner anticipates raising up to $7 billion in commitments for the Fund.

Key Terms: Investment Term: 6 Years Fund Term: 10 years; subject to two one­year extensions at the approval of the Limited Partners Management Fee: Investment Period: 1.5% of committed capital Post­Investment Period: 0.75% of invested capital Fee Offset: 100% Carry / Hurdle: 20%/No Preferred GP Commitment: $400 million Key Man: If prior to the expiration of the Commitment Period, (i) if two of Brian M. Powers, Philip U. Hammarskjold and Patrick J. Healy or (ii) a number of the Designated Managing CONFIDENTIAL 3 of 12'1 Final Report ­ V.2 ­ 7/20/2009 Directors should die, withdraw, voluntarily declare bankruptcy, become permanently disabled or incompetent, or cease to devote substantially all of their business time to the affairs of the General Partner, the Partnership, its Portfolio Companies and their respective affiliates as set forth in "Time Commitment of the Managing Directors" such that the remaining Designated Managing Directors do not include a majority of the Designated Managing Directors, or [ii) the Managing Directors as of the commencement of the Partnership should cease to own or control 50% of the aggregate interests in the General Partner, then the General Partner will promptly notify the Limited Partners of such occurrence [a "Suspension Notice") and present a plan outlining its proposal for continuing the Partnership. For 90 days following the delivery of a Suspension Notice (the "Suspension Period").

Investment Highlights: • The General Partner has generated attractive returns • Disciplined investment approach • Cohesive and experienced team • Hellman & Friedman has fewer resources relative to its peers

Recommendation:

Based on the analysis in this report, Hamilton Lane recommends an investment of $20 million in the Fund.

CONFIDENTIAL 4 of 12 Final Report ­ V.2 ­ 7/20/2009 Section 1 - INVESTMENT STRATEGY

1.1 ApPROACH

• Equity investments in mid­ to large cap companies in the U.S. and Western Europe • Broad industry focus • Target fundamentally sound businesses • Rigorous investment and monitoring process • High­level strategic and financial value­add

• The General Partner will pursue control­oriented and strong minority investments in mid- to large cap companies.

Hellman & Friedman Capital Partners VII. lP Targeted Transaction Size

Enterprise Value . ­l l..--_._... _...-._---_._-----_.------_.

Projected Fund VII Stage by Amount Invested Fund VI Control Profile by Amount Invested 10%­30% Ownership Interest (2Inv.)

Control, 67%

>50% Ownership Interest (7Inv.)

CONFIDENTIAL 5 of 12 Final Report ­ V.2 - 7/20/2009 • As illustrated in the following charts, the Fund will primarily target investments in the U.S. and, to a lesser extent, Western Europe. The firm may also opportunistically pursue an investment outside of these regions (most likely in Eastern Europe, Asia or Australia).

Projected Fund VII GeographIc Allocation by Amount Fund VI Geographic Allocation by Amount Invested Invested Western Europe 20%

(1) Other includes Eastern Europe, Asia and Australia

• While the General Partner does not have a pre­set industry allocation for the Fund, it invests across a broad spectrum of industries. The following chart outlines Hellman & Friedman's historical investments by industry sector.

Prior Funds' Aggregate Industry Allocation by Amount Invested

Media & Marketing, 25.0%

2 Other , 2.5%

Bus. Services, 5.4%

Healthcare, 7.2%

Industrials, 9.5% Software & Info. Services, 21.2%

(1) Includes investments in Funds I & II where no attribution information was provided. (2) Other includes Energy/Infrastructure and Food & Beverage.

• The firm maintains a flexible approach and continually works to identify new industries and companies that meet its investment criteria. Before making an investment in a new industry, the Firm will generally study an industry for a significant period of time.

CONFIDENTIAL 6 of 12 Final Report ­ V.2 - 7/20/2009 H

Section 2 ­GENERAL PARTNER

2.1 ORGANIZATION

• The General Partner was founded by Warren Hellman and Tully Friedman in 1987. The General Partner has raised six private equity funds since inception and the firm is solely focused on private equity.

• Hellman & Friedman is anticipating completing a management transition in 2009. as outlined below.

•:. Warren Hellman will step down as Chairman and become Founder .:. Brian Powers will become Chairman .:. Philip Hammarskjold will become CEO .:. Patrick Healy will become Deputy CEO

• It should be noted that the General Partner completed a similar transition several years ago when Mr. Hellman became Chairman and Mr. Powers assumed the CEO position.

• The investment committee will remain unchanged from the prior fund and consists of Messrs. Hammarskjold. Hellman. Powers. Healy and steyer. Mr. Hammarskjold will chair the investment committee of the Fund.

• The organization includes 89 professionals as outlined in the chart below.

Hellman & Friedman Organization

San Francisco Team New York Team London Team Total Managing Directors 9 3 3 15 Directors 5 2 8 Principals 3 3 1 7 Associates 8 4 4 16 General Counsel 2 0 1 3 Administrative/Back Office 22 4 4 30 Accounting 10 0 0 10

Total 59 15 15 89

• Two of the 15 Managing Directors, Frank Zarb and Thomas steyer, have only a partial time commitment to the Fund. Mr. Zarb dedicates the majority of his business time serving on various boards of directors while Mr. steyer is a Senior Managing Director and Co­Founder of the hedge fund Farallon Capital Partners, LLC.

• The General Partner recently added Brad Henske, a Managing Director. to serve as the firm's Operating Partner. Mr. Henske allocates his time across the unrealized portfolio where he is needed. At any given time. he is able to work with two to four portfolio companies. He is currently spending the majority of his time working with the Goodman Global and Activant portfolio companies.

CONFIDENTIAL 7 of 12 Final Report ­ V.2 ­ 7/20/2009 2.2 EXPERIENCE OF INVESTMENT PROFESSIONALS

• Co~founded the,General Partner Harvard Business School ~ MBA • Lehman Brothers· Partner and Head of investment banking University of California. Berkeley ­ BA • Hellman. Ferri Investment Associates ­ General Partner • Matrix Partners ­ General Partner Brian Powers Chairman San Francisco 59 • John Fairfax Holdings, Ltd ­ Chairman Stanford University Law School­ Teaching • Consolidated Press Holdings ­ Managing Director and CEO Fellowship • Pubishing &. Broadcasting Ltd ­ Chairman &. CEO University of Virginia Low School­ JD • Valossis Communications ­ Chairman Yale University ­ BA • Jardine /IoAatheson Group· tv10naging Director and CEO • James Wolfensohn Inc. ­ Partner • The Ford Foundation ­ Director of Real Estate • Debevoise &. PUmpton ­Lawyer Philip CEO San Francisco 43 • Midland and WIontagu Austratia, ltd. ­ Associate Harvard Business School­ MBA Hammarskjold • Morgan Stanley ­ Financial Analyst Princeton University· BS in Engineering Patrick Healy Deputy CEO london, 41 • Consolidated Press Holdings· Assistant to CEO Harvard Business School ­ MBA England • James Wolfensohn Inc. ­ Financial Analyst Harvard University ­ BA Tom Steyer Managing San Francisco 51 • Faralion Capital Management· Currently serving as Senior Managing Director Stanford University ­ MBA Director • Goldman Sachs ­ Associate in risk arbitrage deportment Yale University ­ BA • Morgan Stanley ­ Employee in M&.A deportment

Andy Ballard Managing San francisco 36 • Scin Capital­ Principal Stanford University· MBA Director • Bain &. Company ­ Associate Consultant Harvard University ­ BA Stephen Duckett f\l\anoging london. 40 • Favonius Ventures ltd. ­ lVlanaging Director Harvard Business School­ MBA Director England • ICG Europe ltd. ­ Managing Director Oxford University· MA • Apax Partners &. Company ltd. ­ Assistant Director • The MAC Group ltd.· Senior Associate Stefan Goetz Managing London, 37 • Goldman Sachs ­ Executive Director Kellagg Grad. School af Mgmt. ­ MM Director England • McKinsey &. Co" Inc. ­ Junior Associate Aachen University of Technology ­ ME • MIT ­ Visiting Scholar in the Research Lab of Electronics Ecole Centrale Paris ­ Diploma in Science and Engineering Jeffrey Goldstein Managing New York, NY 52 • The World Bank ­ CFO &. Managing Director Yale University ­ PhD Director • BR Wolfensohn ­ Co­Chairman and member of Bankers Trust Vassar College ­ BA • Princeton University ­ Research Economist and Lecturer London School of Economics • Securities Group ­ Consultant, Financial Advisor • U.S. Department of the Treasury ­ International Economist • Brookings Institution ­ Research Assistant Brad Henske I\Aanaging San Francisco 47 • Intuit. Inc ­ Senior Vice President. CFO &. General Manager The Whorton School­ MBA Director • Synop.sys, Inc. ­ CFO Rice University ­ BS • Robert M. Bass Group ­ Partner • American Savings Bank ­ Executive Vice President • Bain &. Company ­ Vice President • First Manhattan Consulting Group ­ Vice President • Setpoint, Inc, ­ Systems Consultant Erik Ragatz Managing San Francisco 35 • Pacific Equity Partners ­ Vice President Stanford Business School­ MBA Director • Bain Capital Partners ­ Associate Stanford University ­ BA • Bain &. Company· Associate Consultant ","len Th",pe Managing Son Francisco 37 • Bain Capital Partners ­ Manager Harvard Business School­ MBA Director • Pacific Equity Partners ­ Vice President Stanford University ­ BA • Evelyn and Walter Haas, Jr. Fund ­ Assistant to the President David Tunnell Managing Son francisco 38 • Och­Ziff Capital f.Aonagement ­ Summer Associate Harvard Business School­ MBA Director • Lazard Freres &. Co. ­ Financial Analyst Harvard College ­ AB Frank Zarb "­Aanoging 73 • Frank Zarb Associates ­ Chairman Hofstra University ­ PhD Director • Promotcry Financial Group ­ Chairman Hofstra University ­ MBA • National Associate of Securities Dealers ­ CEO Hofstra University ­ BS • Alexander &. Alexander Services· Chairman. CEO, &. President • The Travelers, Inc.· Vice Chairman &. Group Chief Executive • Smith Barney ­ CEO &. Chairman • Lazard Freres &. Co. ­ Senior Portner • U.S. Cabinet­level Energy Resources Council­ Executive Director • Goodbody and Co. ­ Employee in Securities • Shearson Lehman Brothers ­ Executive Vice President, Chairman • Kraft Foods ­ Director • NY State Comptroller's t­Agmt. Review Commission ­ Co­Chairman • NYSE Nominating Committee ­ Chairman • Long Island Power Authority ­ Chairman

CONFIDENTIAL 8 of 12 Final Report ­ V.2 ­ 7/20/2009