AlpInvest Annual Review 2012 04 Our business 30 Human resources 07 Year in review 31 Remuneration policy 08 Chairman’s statement 32 Risk management 10 Strategic review 34 Financial performance and investment overview 14 Fund Investments 36 Fund Investments overview 16 Secondary Investments 39 Secondary Investments overview 18 Co-Investments 40 Equity Investments overview 23 Governance 43 Mezzanine Co-Investments overview 24 Managing Partners 45 Private equity 26 Partners 46 IRR calculations 29 Responsible investment
AlpInvest is one of the largest private equity
AlpInvest investors in the world. Annual Review 2012
Throughout this document, “AlpInvest” or “AlpInvest Partners” refers to AlpInvest Partners B.V. and its subsidiaries.
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. 03
We aim to offer investors We have built a deep across the globe a understanding of the deep understanding of market and developed private equity and a an extensive network customized approach to of relationships that their investment needs. spans the globe.
We have a successful We are dedicated to longstanding track applying our skills, record across primary insights and knowledge funds, secondaries and to maximize value co-investments. to our investors.
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Our business AlpInvest is a leading private equity Our size, extensive network of relationships investor with more than €33bn of assets and proactive approach to investment under management and a longstanding give us access to opportunities globally, track record of successful investment. often before other managers in our We believe that our large and integrated peer group, as well as provide us with global platform provides us with a unique information advantages that enhance our perspective on the private equity market. selection capabilities.
Globally networked, we have managed Thanks to our diligence, dedication and customized portfolios across the private understanding, we believe that AlpInvest equity spectrum for more than 13 years, has attained a solid status within the private investing in primary funds, secondaries and equity industry. Known for our rigorous co-investment opportunities. We closely approach, with strong senior involvement, coordinate with our investors to ensure this has remained unchanged and that the portfolios we build are tailored to undimmed since we were founded at the their needs. turn of the century.
One of the most experienced firms in the Initially set up to manage private equity market, we number 147 employees, investments for APG and PGGM, the including 19 Managing Partners and asset managers for substantial Dutch Partners, many of whom have worked pension funds, we spent more than ten AlpInvest together for more than a decade. We years working closely with both investors Annual Review work together as a close-knit, stable and and tailoring our expertise to their 2012 highly focused partnership, within which requirements. large, dedicated global teams operate in each of our core competencies. This Since 2011, our firm has been majority ensures a strong focus on sourcing and owned by The Carlyle Group, one of the selection of the most attractive investment largest and most highly respected opportunities. alternative asset managers in the world. Our investment decisions are made entirely independently from The Carlyle Group but ...... their backing provides support, encouragement and guidance as we grow our platform.
Reaping tangible benefits from The Carlyle Group’s global distribution reach and experience, we have further expanded our investor base since the new ownership structure was cemented.
We now serve investors across the globe, and aim to offer them a deep understanding of private equity and a customized approach to their investment needs.
...... We believe that
Amsterdam Scale AlpInvest’s large 84 We are one of the largest private equity investors in the world with some 220 GP relationships and a and integrated New York global presence with offices in Amsterdam, Hong 49 Kong, Indianapolis and New York. global platform
Hong Kong Size provides a unique 13 AlpInvest has 147 employees of whom 68 are investment professionals in Funds, Secondaries perspective on Indianapolis and Co-Investments as per December 31, 2012. 1 the private equity An integrated investment approach We seek to leverage in-house knowledge to market. make better investment decisions. 05
commitments received from investors Since inception by investor type 99.5% Pension funds
0.5% Insurance companies and other
by GEOGRAPHY 98.3% Europe, Middle East and Africa
1.6% North and South America
by investment type
€35.2bn Fund Investments €7.4bn Secondary Investments €6.9bn Equity Co-Investments €1.8bn Mezzanine Co-Investments €1.1bn Other 06
AlpInvest Annual Review 2012 07
Year in review
AlpInvest built on its strengths during the year, 2012 TOTAL INVESTMENTS focusing, developing and positioning the business Across key investment areas for a robust future.
Investing for our clients We secured attractive investments worldwide, committing €3.8bn to new opportunities in a wide range of sectors and geographies.
Reaping rewards We delivered strong returns in 2012, overcoming the uncertain economic climate and distributing €4.9bn to investors.
Extending our reach €2,204m Fund Investments We reached out to new investors and attracted €924m Secondary Investments fresh capital from investors in Africa, Europe, €600m Equity Co-Investments Latin America and the U.S.. €48m Mezzanine Co-Investments
Expanding the team We made several strategic hires to support our growth, adding new Partners, building out our Investment Solutions and Investor Services teams and strengthening our operations. 2012 TOTAL REALIZATIONS Across key investment areas Looking ahead We ended 2012 on a strong footing, with the resources, energy and determination to serve our clients and deliver according to their needs.
€2,961m Fund Investments €1,123m Secondary Investments €535m Equity Co-Investments €275m Mezzanine Co-Investments €20m Other
...... We aim to offer investors across the globe a deep understanding of private equity and a customized approach to their investment needs. 08 ...... Chairman’s Our firm was built around insight, statement discipline and integrity and these continue to be the principles that drive us. Our goals are quite simply to perform at the best level we can for our investors and be creative in the opportunities that we offer them.
AlpInvest Annual Review 2012
For AlpInvest, 2012 was a year of affirmation. We transitioned to a new structure and added a number of high- quality institutional investors to our roster of existing clients. We delivered a strong investment performance and we sourced many attractive opportunities around the world. The macroeconomic environment remains uncertain but AlpInvest is well positioned in its chosen markets and we approach 2013 with confidence.
The past five years have been the most challenging in a generation and the private equity industry has experienced considerable turmoil. During 2012, however, there were signs that the investment environment was improving. Activity picked Volkert Doeksen, Chairman up, deals were executed across the globe and volumes reached around $150bn.
There is no doubt, however, that times have changed and significant lessons have been learned. In the past year, several notable features stand out.
Although the U.S. banking market staged a strong recovery and debt was far more available than in previous years, GPs were disciplined in their approach to investment opportunities, which meant valuation multiples increased moderately. 09
Valuations were also influenced by Selecting the appropriate private equity Two years ago, AlpInvest acquired a new the challenging fundraising climate. funds or strategies requires expertise, ownership structure, under which the firm Equity remained in short supply as some experience and global reach. Above all, it is majority owned by The Carlyle Group, limited partners are capital-constrained, requires understanding. one of the world’s largest private equity some are cautious about long-term firms. Over the past year, the benefits of investing and virtually every financial Over the past 13 years, AlpInvest has this strategic relationship have become institution is concerned about continued developed an in-depth knowledge of increasingly apparent. The Carlyle Group regulatory uncertainty. the private equity universe and the GPs provides a real contribution at the Board that operate within it. We meet and have level and has helped us win mandates Nonetheless, we believe the fundraising developed relationships with hundreds from investors from Africa, Europe, Latin environment will improve over the next two of GPs around the world, be they large, America and the U.S.. Clearly, this has not to three years. Pension funds, insurance well-known players or up-and-coming impacted the investment independence groups and other investment institutions firms about to launch their first fund. of AlpInvest. are all seeking consistent and robust This network has given us access to an long-term performance and this is what extraordinary range of opportunities and Our firm was built around insight, discipline private equity delivers. It has consistently makes us aware of new fund launches, and integrity and these continue to be the outperformed other asset classes and often before our peers. principles that drive us. At AlpInvest, we it can contribute alpha to institutional are clear about our goals, which are quite investment portfolios. Our relationships provide us with simply to perform at the best level we can information advantages too, so we are for our investors and be creative in the At AlpInvest, we see opportunities in better able to decide which opportunities to opportunities that we offer them. virtually all our chosen markets, from pursue and which to avoid. Such decisions large buyouts to mezzanine, and in many lie at the heart of a successful fund In 2012, we have had an active and geographies, including parts of Europe as management business and so our approach successful year and we look forward to the well as fast-growing emerging economies. to investment, honed over many years, is coming year with confidence. both deeply serious and highly professional. As the private equity universe is extremely diverse, investment choices are many and We are known throughout the market for varied. Making the right choices can seem our detailed analysis of each investment challenging even when conditions are opportunity that comes our way. And, as our benign. In today’s environment, choosing senior management have worked together well is paramount. Economic uncertainty for more than a decade, we have developed prevails worldwide, and although the a deep fund of knowledge about our environment is brighter than it was, we are industry. We are a close-knit partnership; not yet out of the woods. we work together in a collegial style and we benefit from a culture of debate and discussion that ensures that our decisions are supported throughout the entire firm. 10
Strategic review AlpInvest had an active and eventful means that we are ideally placed to year in 2012. We built on our strengths, provide these custom services. Our firm expanded our investment capabilities and has spent the past decade and more focused on delivering a customized service delivering timely information on fund to our investors. performance, responding to investors’ needs and ensuring that we offer solutions AlpInvest is an innovative, disciplined and insights that are not readily available and dynamic firm. Over the past 13 elsewhere. years, we have developed a robust and stable business, known for its breadth of Our investor base is growing, but we have experience and depth of understanding. also received significant incremental commitments from existing investors. Over the past two years, we have begun These commitments were made entirely gradually to expand our investor base, at their discretion, providing a tangible helping institutions around the world to endorsement of our approach to both manage their private equity interests. investment and investor service.
Many such institutions are seeking tailor- Our performance over the past year made solutions, which complement underlines the benefits of our investment their existing portfolios and match their approach. We saw robust investment and liabilities, but also meet their specific divestment activity and the performance AlpInvest fiduciary requirements. AlpInvest’s of funds in our portfolio was also strong. Annual Review experience with APG and PGGM, both Importantly too, our divestments allowed 2012 large, sophisticated asset managers, us to return cash to our investors and materialize profits for them.
Last year was the first full year of our partnership with The Carlyle Group and we are extremely pleased with progress to date. Our two firms enjoy a natural cultural fit and The Carlyle Group’s entrepreneurial spirit has been a source of inspiration. It has provided genuine support as we have enhanced our service to investors; it has introduced us to potential investors and worked with us on strategic developments for our firm. We look forward to further expanding our cooperation and relationship.
AlpInvest is built on solid foundations of stability, reliability and rigor. Our investors trust us to deliver and we are focused on serving their needs. But we are not complacent. The marketplace is evolving and we are evolving too.
Paul de Klerk, CFO/COO To that end, we are, together with The Carlyle Group, exploring ways of broadening our product base by expanding into sectors that complement our existing areas of expertise. Our business is committed to a methodical approach to expansion, with in-depth analysis of potential opportunities, but we are confident that we will ultimately deliver a broader portfolio of opportunities to the benefit of existing and future investors.
The Operating Committee manages AlpInvest on a day-to-day basis and explores strategic initiatives for the firm. These responsibilities allow us to respond rapidly to the needs of our business, our investors and the wider market.
We have expanded our Investment Solutions team to better service our investors and we now have 12 professionals dedicated to investors across the globe. 11
This dedication to investors is a central plank of the AlpInvest culture. As part of our service, we ensure that our investment process is not only rigorous but also rooted in integrity. We are committed to fair and transparent investment allocation principles and this approach has always been a core element of our offering.
Successful investment is unsustainable without effective risk management. The Operating Committee oversees this function within AlpInvest and our aim is to inculcate the highest standards of integrity across the firm. The Operating Committee also ensures that AlpInvest conforms with and keeps abreast of regulation. As part of our commitment to regulatory rigor, our investment management process is subject to an annual ISAE 3402 audit, which attests ...... to the design and operating effectiveness of our internal controls. Looking ahead, we are confident that we can comply with Dedication to investors is a increased regulation as it arises. central plank of the AlpInvest Responsible investment forms an integral part of our commitment to enhanced culture. As part of our service, investor service. Widely recognized as contributing to better business practice we ensure that our investment and improved investor returns, due regard to ESG issues is at the forefront of our investment agenda. service is not only rigorous but
We are also determined to be an effective also rooted in integrity. and well-regarded employer, particularly as our employees are crucial to our success. We have a loyal and committed team and we strive to motivate and support them at every level.
AlpInvest has made significant progress in recent years and our way of working has evolved to ensure we offer optimal service to investors. Our culture, however, remains fundamentally unchanged. We are strong, stable, experienced and dedicated to maintaining an in-depth understanding of our market. There are many opportunities ahead and we are excited about the growth of our firm and the expansion of our service to investors.
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AlpInvest Annual Review 2012 13 14
Fund Investments AlpInvest’s Fund Investments business is so access was limited and due diligence a leading operator in its field. Our size, had to be undertaken at speed. Since we scale and stability give us access to a wide have tracked most of these GPs for universe of opportunities. We believe that years, we were able to choose the our experience and expertise enable us to most attractive to us and leverage our construct portfolios capable of delivering relationships with GPs to access even the strong, consistent returns. most constrained opportunities.
Who we are We continued, however, to make The senior professionals in AlpInvest’s commitments to a core group of large Fund Investments team have more than buyout GPs with differentiated strategies 110 years of combined fund investing and track records, as we expect this experience. The team has developed segment to benefit disproportionately from relationships with the leading private equity economic recovery in the years to come. firms around the world and established what we believe to be an unrivaled Asia was also popular in 2012. As an active reputation for consistency, rigor and insight. investor in Asia for many years, we have a strong network of relationships so we Since inception, we have managed almost were able to gain access to funds, despite €33bn in commitments to 220 GPs across the competitive environment. However, we more than 450 funds in Europe, the U.S., maintained a highly disciplined approach AlpInvest Latin America and Asia. Our strategy to investment. We backed well-established Annual Review centers on making a broad range of GPs, whom we know and trust and pursued 2012 commitments in every vintage year from only investments that we believe will deliver both a geographical and sector perspective. superior long-term value. This provides a diverse portfolio, capable of delivering to investors over the long term. We reaped tangible benefits from the AlpInvest integrated investment model in As a team of 22 dedicated investment 2012. Our Secondary Investments team professionals, we benefit from financial provided us with access to some highly scale, in-depth industry understanding attractive spin-out investment opportunities and broad sector expertise. The AlpInvest and added real pricing and benchmarking integrated global platform is the bedrock expertise to our evaluation process. Our for the dedicated Fund Investments Co-Investment colleagues added further team and provides us with further depth to our analysis. These insights were information advantages. particularly valuable, given that markets were highly volatile in 2012. Investments in 2012 Using our broad knowledge of the Highlights of 2012 ...... industry and our experience of trends During 2012, AlpInvest’s Fund Investments and cycles over the past 13 years, we team made commitments worth €2.0bn to invested across geographies, fund sizes 32 funds across the globe. Our evidence- and investment stages in 2012. But we also chose to invest in specific areas that we The economic environment was tough, based fund believe have real potential for growth. And but this did not prevent us from selecting a we are not afraid to be contrarian or early diverse range of attractive investments. selection movers where we judge the risk/reward Past experience has shown that some of equation to be attractive. the best opportunities can be seized in process across vintage years when the macro-environment Despite the prevailing gloom about is harsh. Using our understanding of the eurozone prospects, we continued to market, our insights across the firm and the investment make commitments to high-quality GPs our broad network of contacts, we sought and were particularly attracted to certain out funds that we believe are capable cycle was funds in Southern Europe with a heavy of delivering strong returns over the focus on export-driven companies. We coming years. underpinned by also committed to high-potential funds in non-traditional markets such as Colombia, This network of contacts, supplemented the performance Russia and Turkey and we are closely by AlpInvest’s integrated investment monitoring developments in Africa and approach, provided us with access to of our funds. other frontier markets. hundreds of funds, many of which are inaccessible to others. We were then able to In venture capital, where many investors select the most attractive, even in situations have thrown in the towel, we are seeing where competition among limited partners the results become highly tangible as the was intense. pace of innovation and liquidity increase. We saw similar innovation and liquidity in Our evidence-based fund selection our cleantech program, which is one of the approach across the investment cycle was largest cleantech fund-of-fund programs in underpinned by the performance of our the world. funds. All our fund-of-funds programs made good progress year on year and we In both the U.S. and Europe, small-cap were particularly pleased with Main Fund funds were particularly in demand last year III, our 2005–2008 vintage fund-of-funds 15 ...... program. A meaningful number of the investments in the underlying portfolio 2012 AlpInvest FUND companies of Main Fund III were made Overview Investments team at the peak of the market. However, our robust investment strategy, predicated on disciplined portfolio construction and intense evidence-based selection, has enabled us to deliver solid returns even Large from those difficult years. We are a leading fund €35.2BN investor with more than Outlook €23bn under management. We believe that 2013 could be a particularly Total commitments received Our size and scale allow strong investment year. from investors since inception us to combine global reach with deep local knowledge. While the macroeconomic environment is We are able to source likely to remain challenging, we believe the opportunities in every region investment environment is promising. of the world and minimize Looking across the world, conditions are the risks of adverse most difficult in Europe as the continent €32.7BN selection. goes through a period of deleveraging. Total committed to private The U.S. took action earlier on so it should equity funds since inception Stable recover more swiftly. Shale oil and gas Our senior people have discoveries are also a real game-changer worked closely together for in the U.S. and should create significant more than a decade. We are economic benefits over the next few years. a long-term investor with a That said, investing is about value, not proven commitment to the economic growth. 450+ industry. Against this backdrop, the supply/demand dynamic is improving in both regions and Total number of fund Insightful should continue to do so. We have started investments since inception We have operated in the to see a marked decline in the number of private equity industry for active GPs in the private equity industry. many years and have gained This has several beneficial consequences. an in-depth understanding First, those GPs that remain are typically of the market. We have a well-established, top-tier players in their robust investment strategy field. Second, as the number of GPs that predicated on disciplined no longer have capital to invest increases, €2.0BN portfolio construction and an competition for assets will decrease and New commitments to funds the pricing environment will likely improve intense evidence-based fund as a result. with a 2012 vintage* selection process.
Vendors’ expectations have also become Connected more realistic and we believe this should We have established a wide present some excellent opportunities network of relationships in 2013. Furthermore, companies that with some 220 GPs, which have survived the downturn have become 24 gives us information stronger and fitter so the underlying quality advantages and deep of their business has improved. New commitments made access. We have advisory to relationship GPs Asia is likely to remain a popular place board positions on more for investment and Latin America has than 80% of our fund moderated what we saw as an excessive investments. influx of money to private equity. We believe there will be attractive investment opportunities in these economies for fund investors with the discernment 8 and discipline to seek out genuinely robust opportunities. New commitments made to new GPs We look forward to the coming year with confidence.
*Or commitments made in 2012 to funds with an earlier vintage. 16
Secondary AlpInvest’s Secondary Investments team During 2012, we established a dedicated is well positioned to delivering strong Secondaries team in Hong Kong, so we now Investments returns across the economic cycle. have a truly global footprint, with on-the- Thanks to our investment approach, ground representation in Europe, the U.S. depth of experience and broad network and Asia. of contacts, we delivered a strong performance in 2012. The combination of a difficult economic environment and a competitive market Who we are meant that prices were often unrealistically AlpInvest’s Secondary Investments team is high, at least in our view. As a result, one of the largest and most experienced in we needed to work harder than ever the industry. With 22 investment to source and complete attractive professionals and a truly global reach, investment opportunities. Fortunately, we have committed €6.7bn to secondary this is emblematic of our approach to investments over the past 11 years and secondary investing. We have established achieved consistently strong returns. relationships with some 220 GPs worldwide and we maintain a dialogue with more Established in 2001, our team is strong, than 150 potential vendors at any one time. stable and focused on effective execution. We are also in discussion with at least 30 We are dedicated to active sourcing and intermediaries in the market, while our rigorous selection, seeking out attractive Primary and Co-Investment colleagues AlpInvest investments capable of generating provide further access to investment Annual Review value even in challenging economic opportunities. 2012 circumstances. We are strong believers in proactive Our status within the industry and our sourcing and were able to pursue this ability to leverage knowledge internally and strategy to good effect during 2012, seeking externally provide us with extensive access out possibilities before they came to market to secondary investments. Our experience and securing attractive prices for them. gives us the expertise to select those with genuine, long-term potential. Investments Our investment strategy is simple. We Highlights of 2012 focus on buying the best-quality assets Our Secondary Investments team had a we can find: those with real value creation strong and active year in 2012. We committed capacity and strong liquidity. The discount €905m and committed to 13 investments, applied to those assets is less important to chosen after in-depth bottom-up analysis us than their fundamental cash generation and due diligence. Focusing on genuine potential. Over the years, we have found value creation allowed us to return more that this approach has delivered consistently than €1.1bn to investors while our Funds I, II, strong returns to investors. III and IV realized a combined net IRR of 19%. The secondary market was extremely We also increased our net distributed to active in 2012 and volumes grew to paid-in (DPI) capital to 0.9x across our approximately $25bn. Competition Funds I-IV and Fund I, our most mature increased, particularly for larger fund, achieved a net DPI of 1.7x with transactions with a value of over $300m. residual value to deliver. Even Fund III, Against this backdrop, we were extremely our 2006 to 2009 fund, generated a net disciplined in our selection process. We IRR of 9% and returned 80 cents for every sourced 191 possible investments, our euro paid in to investors, highlighting our Investment Committee reviewed 18 of them ability to deliver returns whatever the and we committed to just 13. macro-environment (see page 46 for more detailed information on IRR As ever, we focused on buying the right calculation methodology). assets at the right price, assessing each opportunity for its long-term value generation potential and refusing to be ...... drawn into competitive bidding wars for larger transactions. In 2011, for example, We focus on buying the best- we sourced 186 deals and committed to 15, but in 2012 we felt it was right to be even more selective. The portfolios we bought quality assets we can find: were valued at between €12m and €185m and they were well diversified from a those with real value creation geographic and industrial perspective. capacity and strong liquidity. We made nine straight purchases of limited partners’ interests in funds, we closed This approach has delivered one secondary direct investment and we sponsored one spin-out from a financial strong returns to investors. institution. We also completed one stapled secondary/primary investment, purchasing an existing pool of private equity assets and 17 ...... committing primary capital to the general partner’s next fund. This kind of transaction 2012 AlpInvest SECONDARY highlights the benefits of AlpInvest’s Overview Investments team integrated investment platform.
Among our investments, 45% came from public sector pension funds, 9% from corporate pension funds and 5% from Robust endowments and foundations. These We have a dedicated institutions were largely restructuring their €7.4BN team of 22 professionals portfolios, rebalancing their commitments operating out of Europe, to private equity or to particular GPs. Just Total commitments received the U.S. and Asia. over 40% of our investments came from from investors since inception the banking sector, in response to financial Networked stress and shifts in regulation. There was a We have broad and deep marked increase in spin-out activity, where relationships with GPs, captive GPs create new private equity firms. LPs and intermediaries From a geographic perspective, we adopted worldwide. a cautious approach to Europe throughout €6.7BN the year and invested less than in previous Total committed to secondary Proactive years. We were more optimistic about investments since inception We do not wait for North America and Asia and one of our opportunities to come to commitments was made by our newly us but actively source established Hong Kong team. We were investments, often before particularly pleased with this investment as they come to market. it was proactively sourced and completed without coming officially to market. Rigorous 85 We avoid financial We believe our breadth, scale and disciplined execution have gained us the Total number of secondary engineering and focus respect of GPs and LPs around the world investments since inception only on investments that and given us access to an extremely diverse are capable of delivering range of deals. We were pleased with both genuine cash-on-cash our active investment pace and strong returns across the cash-on-cash returns in 2012. economic cycle. Outlook We are confident about the outlook for 2013. €905M We are already seeing a robust pipeline, New commitments to so we believe there will be significant investment opportunities in the secondary secondary investments in 2012 market this year.
A number of limited partners are still rebalancing their portfolios so we expect this to be a very large market in 2013. We believe that sales from financial 13 institutions will also continue at a steady pace, particularly this year and next. Spin- Number of new outs have been a feature of the secondary investments in 2012 market for some time and we expect this trend to intensify over the coming years. Larger deals are also likely to be a feature of the market but we will maintain rigorous price discipline in this area, as in every other. We anticipate more investment 34 opportunities in North America and Asia, unless there is a significant upturn in the Number of new fund European economic environment. interests purchased in 2012
We will continue to focus on deals that we believe are capable of delivering long-term value for investors and we will leverage our global footprint and broad network of contacts to seek robust transactions at competitive prices. 18
Co-Investments AlpInvest’s Co-Investments business is Highlights of 2012 one of the largest and most experienced For AlpInvest’s Co-Investments business, in the sector. Leveraging our expertise, 2012 was an extremely active year. We scale and global reach, we delivered a made 18 new investments in a wide range compelling performance in 2012. of industries. Overall, we committed €568m of equity financing to 16 transactions and a Who we are further €43m in mezzanine finance to two AlpInvest’s Co-Investments team has transactions. We also made five follow-on been active in the market since inception, equity transactions and three follow-on providing both equity and mezzanine mezzanine investments, committing a finance for private equity transactions. further €37m. During that time, we have committed €5.5bn in equity financing and £1.2bn in Our investments spanned the globe, mezzanine financing to over 185 deals thanks to our wide geographic footprint across the globe. and extensive network. We continued our proactive approach to the market, Our team of 23 investment professionals, leveraging our relationships with leading based in Europe, the U.S. and Asia, has GPs to source transactions in Europe, the developed a reputation for deep market Americas, Asia and Australia. This proactive knowledge, strong investment acumen and sourcing and our ability to act as a co- reliable execution across the deal process. underwriter in transactions provide us with AlpInvest distinct advantages. As a result, we received Annual Review Our status within the industry, the a significant number of invitations for equity 2012 experience of our team and our ability to investments in 2012. This allowed us to be leverage knowledge within the broader selective and construct a well-diversified AlpInvest organization have enabled us to portfolio. deliver strong returns over the years and across economic cycles. On the mezzanine side, we completed fewer transactions than in past years. The strong high-yield and credit markets, especially in the U.S., led to little demand for mezzanine finance and, as deals were in short supply, mezzanine terms were relatively weak. We are determined not to compromise on deal attractiveness, so we participated only in a ...... limited number of transactions. Our status within the Next to a strong flow of new investments, we also achieved a good performance in industry, the experience of our portfolio of existing investments. The combination of a mature portfolio of well- performing companies and the positively our team and our ability to oriented capital markets resulted in strong liquidity in 2012. We generated €535m of leverage knowledge have proceeds in our equity co-investment portfolio and €275m in our mezzanine enabled us to deliver strong co-investment portfolio. returns over the years and In addition, our portfolio of companies generated a strong step-up in value during across economic cycles. the year, reflecting good operational results despite signs of weakness in certain sectors, such as discretionary retail in Europe and government-funded healthcare in both Europe and the U.S. The valuation of the portfolio also benefited from improving equity capital markets. 19 ...... Outlook for 2013 We expect economic conditions in 2013 2012 AlpInvest to improve slowly and believe that volatility Overview CO-Investments team will decrease. Greater predictability should encourage deal activity and allow us to gauge more confidently the achievability of business plans. We see good prospects for the U.S. industrial Active and information technology sectors and We gain access to a broad expect growth to accelerate in a number €5.5BN set of deals across the of emerging markets, offering interesting globe. We proactively investment opportunities. Total invested in equity source investment co-investments since inception opportunities and we act The relatively healthy supply/demand as co-underwriter in balance in the market is also encouraging. many of our transactions. Many pre-2008 investments are likely to come to the market and, due to the continuing sluggish economy, vendors are Selective expected to adjust their price expectations. We undertake rigorous The difficult fundraising cycle, especially €1.2BN due diligence and in the large buyout market, should have a Total invested in mezzanine extensive analysis before moderating impact on the demand side. co-investments since inception committing to co- investment transactions. Last but not least, we expect the debt capital markets to stay benign, facilitating Robust buyout transactions. This suggests the Our team is large, stable mezzanine market will remain under and experienced. We have pressure in 2013, particularly with regard to large transactions. However, in the worked together for more €568M than a decade and mid-market, we believe that more market participants will look for custom solutions, Amount committed to new gained the trust of leading which cannot be offered by the high-yield equity co-investments in 2012 players in the private market. As an experienced participant in equity industry. this market, we are well placed to take advantage of this development. Well capitalized We have substantial We approach 2013 with a reasonable amounts of capital at our degree of confidence. Our strong market disposal and can make positioning should enable us to gain access 16 meaningful contributions to a broad set of attractive opportunities Number of new equity while our selection skills and expertise to the equity and mezzanine should ensure that we continue to deliver co-investments in 2012 financing of general strong returns to our investors. partners’ transactions. €43M Amount committed to new mezzanine co-investments in 2012
2 Number of new mezzanine co-investments in 2012
20
AlpInvest Annual Review 2012 21 22
AlpInvest Annual Review 2012 23
Governance Robust governance is central to the The Board AlpInvest culture. It determines the way The Board is responsible for determining we act within the firm, the way we act the AlpInvest strategy and developing with investors and the way we act with the business. It comprises four Directors – shareholders. Strong governance breeds two from AlpInvest and two from The trust. It is a fundamental part of who we Carlyle Group. We also have three are and how we operate. Observers, two from The Carlyle Group and one from AlpInvest. At AlpInvest, governance is an integral part of our strategy. Throughout the firm, The Board is chaired by Volkert Doeksen, we maintain a disciplined approach to a founder of the AlpInvest business. Paul operational and investment decision- de Klerk, the AlpInvest CFO and COO making and this shapes our culture, our and also a founder of the firm, is a fellow processes and our returns. member of the Board. The Carlyle Group members are Daniel D’Aniello, Managing Over the past two years, our governance Director and Founding Partner of The processes have been reshaped, following Carlyle Group, and Glenn Youngkin, a the sale of our business to AlpInvest Managing Director of The Carlyle Group, management and The Carlyle Group. But who chairs its Operating Committee and the underlying philosophy behind our serves on its Executive Committee. systems and strategy remains unchanged – a belief in the need for firm, effective The Board Observers are Tjarko Hektor, management and internal discipline in a Managing Partner at AlpInvest, Michael order to boost performance and enhance Arpey, a Managing Director at The Carlyle investment returns. Group, and Cedric Bobo, a Principal at The Carlyle Group. To that end, our partnership with Carlyle is based on a clear understanding that As a matter of principle, the Board AlpInvest carries out its investment members representing The Carlyle Group operations independently of the are not involved in any of AlpInvest’s Group. There is a strict information investment processes, nor do they have firewall between AlpInvest and Carlyle, access to any information regarding safeguarding general partner, individual portfolio investments. fund and/or deal-specific information. This is a crucial component of our AlpInvest also has two committees that agreement with Carlyle and both parties manage the day-to-day operations of the recognize its vital importance. firm, the Investment Committee and the Operating Committee. These committees consist solely of AlpInvest Managing Partners.
The Investment Committee The Investment Committee is responsible ...... for making the final investment decisions for our business. It is chaired by Wim Borgdorff. Other members are Nadim Throughout the firm, we Barakat, Volkert Doeksen, Sander van Maanen, Wouter Moerel and Erik Thyssen. maintain a disciplined approach The committee takes into account the opinions of every Partner and decisions are to operational and investment made on a collegial basis. decision-making and this The Operating Committee The Operating Committee is responsible for every element of the AlpInvest business shapes our culture, our that is not directly related to investment decisions, including areas such as business processes and our returns. planning, CSR, IT, human resources, management development, remuneration and reporting. The committee is chaired by Paul de Klerk. Other members are Tjarko Hektor, Elliot Royce, Maarten Vervoort and George Westerkamp.
AlpInvest is committed to strong, effective governance and we are confident that we have in place the necessary structures to maintain a rigorous and robust approach. 24
Managing Partners 01 Volkert Doeksen Chairman Volkert is Chairman of the Board and Managing Partner of AlpInvest. As well as overseeing the firm, he is a member of the Investment Solutions team and the Investment Committee.
He co-founded AlpInvest and has more than 20 years of investment experience. Before joining AlpInvest, Volkert was a Partner at Dresdner Kleinwort Benson in New York and a Director at Kleinwort Benson Ltd. Previously, he worked at Dillon Read and Morgan Stanley in London. Volkert received a Law degree from Leyden Law School.
01 02 Paul de Klerk CFO/COO Paul is the Chief Financial Officer and AlpInvest Chief Operating Officer of AlpInvest and Annual Review a member of the Board. 2012 He co-founded AlpInvest, chairs the Operating Committee and is responsible for the investment portfolio valuation 02 03 and review process. Before joining AlpInvest, Paul was responsible for one of the largest corporate banking units at ABN AMRO in the Netherlands. Paul received a Tax Law degree from the University of Amsterdam, a Civil Law degree from the University of Utrecht and an MBA from Columbia University.
03 Nadim Barakat 04 05 Nadim is a Managing Partner in the Investment Solutions team at AlpInvest and is a member of the Investment Committee.
He joined AlpInvest in 2012 from Credit Suisse Customized Fund Investment Group, where he was a Managing Director and Chief Investment Officer. 06 07 He managed the group’s investment process and separate accounts that made fund, seasoned primary and co-investments across private equity, real estate and infrastructure for a number of large institutional investors. Nadim joined Credit Suisse through the merger with Donaldson, Lufkin & Jenrette. Before that, Nadim was a 08 09 founding member of the NBK Capital private equity effort and in the mergers and acquisitions department at JP Morgan Chase. Nadim received a BS in Systems Engineering from the University of Virginia.
10 11 25
04 Wim Borgdorff 07 Elliot Royce 10 Maarten Vervoort Wim is a Managing Partner in the Elliot co-leads AlpInvest’s Fund Maarten co-leads AlpInvest’s Fund Investment Solutions team at AlpInvest Investments team and focuses on the U.S. Investments team and focuses on the and chairs the Investment Committee. and Latin American markets. He is also Asian and European markets. He also is a member of the Operating Committee. a member of the Operating Committee. Wim co-founded AlpInvest and from 2000 to 2012, he was a Managing Elliot joined the firm in 2007 from Allianz Maarten has been with AlpInvest from Partner in the AlpInvest Fund Private Equity Partners, where he led U.S. the outset, joining the firm from Investments team. Wim has more investment activities and was a member PricewaterhouseCoopers Management than 20 years of alternative investment of the global investment and management Consultants (PwC), where he was a experience and joined AlpInvest from committees. Previously, he worked at GE Senior Management Consultant in the ABP Investments, where he set up the Equity, McKinsey, Dillon Read, CSFB and corporate strategy area. He received an alternative investments unit. Previously, Aberdeen, Inc. Elliot received an AB in MSc in Business Economics from Erasmus he was at ING Asset Management. Wim Government, magna cum laude, from University Rotterdam. Maarten sits on the received an MSc cum laude from Delft Harvard College and an MBA, with Advisory Board of many organizations, University of Technology and an MBA distinction, from INSEAD. He represents including Accel, Alpha, Bain Capital, CVC, from Erasmus University Rotterdam. AlpInvest on various Advisory Boards. Index, Nazca Terra Firma and Waterland.
05 Tjarko Hektor 08 Erik Thyssen 11 George Westerkamp Tjarko co-leads AlpInvest’s Secondary Erik co-leads AlpInvest’s Co- George is a Managing Partner in the Investment team and focuses on Investments team and focuses on equity Investment Solutions team at AlpInvest transactions in North America and Asia. transactions in Europe. He also is a and a member of the Operating He is an Observer on the Board and member of the Investment Committee. Committee. a member of AlpInvest’s Operating Committee. Erik co-founded AlpInvest and has more From 2000 to 2010 he was a Partner than 25 years’ experience in financial in the AlpInvest Co-Investments team, Tjarko joined AlpInvest Partners in 2000 services. He joined AlpInvest from Fortis where he focused on transactions in from the firm’s predecessor Parnib, Bank Nederland, where he was an Europe. He was also a member of the where he was responsible for buyout Executive Board member responsible Investment Committee from 2000 to transactions. He started his career with for commercial banking. Previously, he 2012. George joined AlpInvest from its NIB Capital as an associate responsible was at Generale Bank Nederland. Erik predecessor, Parnib, where he was for executing corporate acquisition and received a Law degree from Antwerp responsible for buyout transactions. structured finance transactions. Tjarko University and has completed the Previously, George was based in received an MA in Business Economics CEDEP-INSEAD General Management Singapore, where he was responsible and a Law degree from Erasmus Program. He represents AlpInvest on for the asset finance activities of NIB University Rotterdam. the Board of Maxeda. Capital in Asia. George received an MSc in Business Economics from Erasmus 06 Wouter Moerel 09 Sander van Maanen University Rotterdam. Wouter co-leads AlpInvest’s Secondary Sander heads the Hong Kong office and Investments team and focuses on co-leads AlpInvest’s Co-Investments transactions in Europe. He is also a team, where he focuses on equity member of the Investment Committee. transactions in Asia and Australia. He also sits on the Investment Committee. Wouter joined AlpInvest in 2005 from The Carlyle Group, where he was a He joined the firm in 2001 from the Principal responsible for investments Boston Consulting Group, where he was in the telecom and media sector. a Project Leader on assignments for the Previously, Wouter was a Vice President boards of multinational firms. of corporate finance with JP Morgan Previously, he worked at Procter & and a Director of corporate finance for Gamble, where he was responsible for Lehman Brothers. Wouter received an new product development and the MSc in Business Administration from introduction of new consumer products the University of Groningen. He holds in Europe. Sander received an MSc in multiple Advisory Board seats, including Chemical Engineering from Delft Nazca Capital, AAC Capital, Lyceum University of Technology and an MBA Capital and Paragon Partners. from INSEAD. 26
Partners 01 Tatiana Chopova 03 Scott Hamner Tatiana is a Partner in AlpInvest’s Fund Scott is a Partner in the Investment Investments team and focuses on the Solutions team, where he is responsible European market. for developing new clients and investor relations in North and South America. She joined AlpInvest in 2003 from McKinsey & Co., where she was a He joined AlpInvest in 2012 from Credit Consultant, based in Moscow and Suisse Customized Fund Investment Brussels, advising multinational Group, where he was a Partner and companies on strategic and financial member of the Investment Committee, issues. Previously, she worked at Credit responsible for private equity fund Suisse First Boston. Tatiana received a investments, managing existing client BS, with first-class honors, from the relationships and the acquisition of new University of Bristol and an MBA from investment mandates. Prior to Credit INSEAD. She represents AlpInvest on Suisse, Scott was an Attorney in the various Advisory Boards. private funds group of Akin Gump Strauss Hauer & Feld in New York. Scott 02 Rob de Jong received a Law degree from the Boston Rob is a Partner in AlpInvest’s Co- University School of Law and a BA in Investments team and focuses on equity Political Science from Southwestern transactions in Europe. University, Georgetown, Texas. AlpInvest Annual Review He joined AlpInvest in 2001 from 04 Marek Herchel 2012 PricewaterhouseCoopers, where Marek is a Partner in AlpInvest’s Fund he was a Senior Consultant for Investments team and focuses on the Corporate & Operations Strategy, U.S. and Latin American markets. responsible for advising and assisting multinationals and governmental He joined AlpInvest in 2004 from Fleet organizations on developing corporate Fund Investors, where he was an and business strategies. Prior to Investment Officer responsible for PricewaterhouseCoopers, he worked managing a diversified private equity for Ernst & Young Management portfolio. Previously, he was a Senior Consultants. Rob received an MSc in Analyst with State Street, monitoring Business Economics from Erasmus private equity commitments to 40 University Rotterdam. buyout and venture capital firms. Marek received a BS in Business Administration and an MS in Finance, summa cum laude, from Suffolk University in Boston. He represents AlpInvest Partners on several Advisory Boards.
05 Christophe Nicolas ...... Christophe Nicolas is a Partner in AlpInvest’s Secondary Investments team and focuses on transactions in Europe Our team has amassed decades and Asia. of experience in private He joined AlpInvest Partners in 2012 from Morgan Stanley, where equity and a global network he co-headed the firm’s secondary investments team out of London. Christophe was previously at Greenpark of contacts. Capital and Permira, where he worked on secondary and direct investment respectively. Christophe started his career in investment banking at Broadview (now Jefferies) and Goldman Sachs. He received an MBA from École Supérieure de Commerce de Paris (ESCP). 27
06 Chris Perriello 01 02 Chris is a Partner in AlpInvest’s Secondary Investments team and focuses on transactions in the U.S. market.
He joined AlpInvest in 2007 from Paul Capital, where he was a Principal focused on fund investing. Previously, he was a Principal at Invesco Private 03 04 Capital responsible for evaluating venture and LBO fund investments as well as direct investments. Chris received a BA in Economics, cum laude, from the University of Pittsburgh and an MBA from the Georgia Institute of Technology. Chris represents AlpInvest on the Advisory Board of Oak Hill Capital Partners. 05 06 07 Thomas Spoto Thomas is a Partner in AlpInvest’s Co-Investments team and focuses on transactions in North America.
He joined AlpInvest in 2005 and has 18 years of related investment experience. Previously, he worked at Goldman Sachs, where he was a Vice 07 08 President responsible for financing leveraged buyouts. Before he was with Salomon Brothers. Thomas received a BS in Economics and Finance, magna cum laude, from the University of Scranton and was awarded a Fulbright Scholarship to the National University of Singapore. He sits on the Executive Committee of the President’s Business Council for the University of Scranton.
08 Wendy Zhu Wendy is a Partner in AlpInvest’s Fund Investments team and focuses on the Asian markets.
She joined AlpInvest in 2007 from Macquarie Funds Management, where she was Senior Vice President of Asia-Pacific regional private equity fund investments and co-investments. Previously, Wendy was a Director with Deutsche Bank Asset Management and an Associate Director at MetLife. Wendy received a BS in Business Administration and an MS in Accounting from the University of Southern California and is a CFA charterholder. She represents AlpInvest on various Advisory Boards. 28
AlpInvest Annual Review 2012 29
Responsible Responsible investment matters. It can ESG engagement reduce risks and enhance value creation We have worked with a large group of investment and makes sound commercial sense. GPs, LPs and PE associations on the ESG AlpInvest has been a pioneer in the Disclosure Framework. This framework is field, contributing to its development designed to facilitate informed discussions and implementation across the private between GPs and LPs on ESG disclosure equity industry. and is intended to offer practical guidance, rather than a prescriptive set of rules. Responsible investment is an integral part of the AlpInvest culture. We believe it has AlpInvest is involved in a wide range of a fundamental role to play in the private additional PE initiatives that focus on ESG equity industry for general partners, limited issues. These include the Institutional partners and portfolio companies. Limited Partners Association (ILPA); the UN-backed Principles for Responsible First, and foremost, responsible investment Investment (PRI) Private Equity Steering is good for business. Taking a proactive Committee; the European Venture Capital approach on environmental, social and Association (EVCA) Responsible Investment governance (ESG) issues can help to deliver Roundtable and the Dutch private equity value and ultimately contribute to strong association (NVP) ESG working group. investment returns. Apart from these strategic initiatives, That is why we implemented a formal AlpInvest also interacts directly with GPs process in 2009 to integrate ESG into our on ESG issues, engaging with them on investment processes and to promote various levels across the world. In some increased disclosure around corporate cases, we undertake one-to-one meetings social responsibility (CSR) and ESG both but we also speak at related events and within our portfolios and more broadly provide responsible investment training. among GPs. During 2012, for example, a number of GPs were developing their own ESG policies and Given the attention that PE continues to turned to AlpInvest for guidance and input. receive as an asset class, we believe our endeavors are as important and as relevant We play an active role too in the monitoring today as they ever were. of ESG incidents. We investigate those we become aware of and thereby further our Our initiatives understanding about how GPs and portfolio Over the past three years, we have companies are managing such issues. constructed a formal mechanism to assess GPs’ commitment to responsible Across the sector, we work together with investment and the way they integrate ESG other LPs and GPs to promote responsible issues into their investment criteria. investment in PE and we provide hands-on guidance to help industry players integrate As a result, every new investment made ESG issues into their investment processes. since 2009 has been subject to CSR due diligence, including more than 100 fund Looking to the future commitments, 60 secondary transactions We believe that most GPs are moving in the and 50 co-investment opportunities. right direction on responsible investment, This work has given us an in-depth developing strategies and becoming more understanding of the progress made on aware of the value that it can deliver. responsible investing across the Looking ahead, we hope to see more PE industry. GPs integrating responsible investment formally into their investment criteria. The results are encouraging but there is We would like to see them move from more work to do. A growing number of GPs planning to implementation and we will be are starting to take a proactive approach, encouraging them over the coming year to developing comprehensive policies around provide written evidence to this effect. We ESG issues and ensuring they have the further believe it would be helpful if more correct frameworks in place. However, asset owners, which focus on responsible many firms are still at an early stage. investing in other asset classes, begin to integrate ESG into their private equity ...... programs as well. We are proud to have played a leading role on ESG within the private equity industry First and foremost, and we are committed to remaining in the responsible investment is vanguard of this movement. good for business. 30
Human Our people are integral to our strategy, We realize that ultimately our people contributing not just to our firm’s success have a choice of employer, so we focus resources and returns for our investors, but also on creating and sustaining development affecting the lives of millions of workers opportunities for all of our staff. AlpInvest across the globe whose retirement plans is an equal opportunities employer and we depend on our actions. We therefore are committed to promoting diversity, in all endeavor to inspire, support and motivate respects, throughout the firm. We invest them through our values, development substantial amounts of time and attention programs and reward systems. in the professional development of our staff, including both formal and on-the-job The AlpInvest culture is based on mutual training at all levels of the organization. respect, professionalism and integrity. We also engage in appraisal and review Trust, diligence and rigor lie at the heart processes at least once a year and our of our business. We believe our values culture is based on continuous, constructive encourage long-term commitment to our feedback. firm. We have a dedicated and committed team and most of our senior staff have been We are determined to create a supportive with us for more than a decade. and respectful environment where people feel motivated and fulfilled in their work. This stability contributes to a consistent approach to investment execution, to the AlpInvest benefit of our investors and our general Annual Review partners. Experience is also an essential 2012 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 have done.
......
2012 GENDER OVERVIEW 147 8 Total number of Average years employees at AlpInvest1
AMSTERDAM NEW YORK 58% Male 42% Female Investment Investment 28 professionals 30 professionals Nationality Total Total 84 employees 49 employees
HONG KONG indianapolis
Investment Investment 9 professionals 1 professional
Total Total employees employees 66 Dutch 13 1 46 American/Canadian 19 other Europeans 16 Asian/Australian/New Zealander
1 Senior investment professionals (Managing Partners, Partners and Principals) 31 ...... Remuneration DISTRIBUTION OF policy RETURNS
Carried interest
Return above hurdle rate
Preferred return
Cost and fees
AlpInvest’s remuneration policy is Initial investment designed to align the interests of staff and investors. We incentivize our employees to deliver to the best of their ability and foster a culture in which they feel a genuine commitment to the firm. This is important, given the long-term nature of private Total Total returns Distributed Distributed equity investment. investments, after sale to investors to AlpInvest costs and of all Partners At AlpInvest, we are keen to remunerate management investments professional and support staff fairly, fees appropriately and objectively.
Our strategy is based on sustained, long- term performance and our remuneration structure is designed to encourage senior members of staff to remain with the firm. Indeed, most of our senior managers Alignment of interests have been with AlpInvest for many years, In 2011, we amended our remuneration enhancing continuity and promoting a policy, requiring all senior staff to invest a collegial culture. percentage of their variable compensation in our private equity program, which invests Remuneration of Managing Partners, alongside our investors. Partners, Principals and Investment Managers consists of a fixed component Carried interest programs promote long- plus two variable components: a term alignment between staff and investors, discretionary bonus and carried interest. as eligible employees receive a share of Equity or equity-linked instruments typically the returns that investors themselves have make up at least 50% of the variable received. However, employees are only tranches, thereby encouraging a long-term rewarded if investors have received all commitment to AlpInvest. their capital back plus a pre-agreed return, known as the hurdle rate. All costs and The decision to grant a discretionary bonus management fees, including salaries and and the quantum of that bonus are based bonuses, have to be repaid as well. on each employee’s annual appraisal, which takes into account financial and When all expenses have been covered non-financial criteria. We use independent, and investment returns have exceeded external guidance to help structure bonuses the hurdle rate, additional returns are for employees and set them specific targets shared between AlpInvest and our at the beginning of each year. investors. The way in which this capital is distributed is predefined with our investors In addition, variable components of staff on each mandate. remuneration are only paid out if AlpInvest itself has met specific financial milestones. Our remuneration policy has been honed over more than a decade. We believe it both encourages and rewards genuine effort in such a way as to deliver sustained, long-term performance for the benefit of all our investors. 32
Risk management Risk management is fundamental to External risks our business. We insist on the highest AlpInvest invests in both developed standards of integrity and employ a and emerging markets; therefore our rigorous control framework across investments are affected by macroeconomic all business lines, geographies and and geopolitical developments, as well professional functions. as changes in government policies and regulations. To mitigate such AlpInvest is committed to the delivery of circumstances, we aim to diversify our superior returns. We believe these are best investment portfolio across geographies, achieved by applying the highest standards industries and investment stages. We also of risk management throughout the firm in conduct extensive research before entering our values, code of conduct and personnel new markets and continuously monitor management. All our Partners adopt a our portfolio. hands-on approach to operational control and discipline, monitoring performance, Strategic risks risk, quality and operations as part of The Board is responsible for setting the their daily responsibilities. Management firm’s strategy in close consultation with reports and review procedures bring all the Operating Committee and the broader aspects of the business under management group of Partners. Our strategy takes into supervision, while detailed policies and account market and sector developments, procedures are in place to manage as well as internal and external risk factors. AlpInvest risks, encourage consistency and enable Our initial assumptions may, however, be Annual Review standardization across the firm. impacted by new events, which could affect 2012 the firm’s performance or financial position. Risk assessment and mitigation strategies To address this risk, we monitor external are discussed with our Board, and trends and forecasts, while consistently our external auditor provides further reviewing our assumptions and tracking the reassurance by performing audits on an performance of our investments. ad hoc basis. Reputational risks Our firm and funds may be negatively affected or disrupted by several factors, such as unenforceable contracts, lawsuits, adverse judgments, fraud or negative publicity. To reduce the likelihood, we rigorously assess the companies in which we invest. Any indication of unethical practices is identified during the due diligence process or later through interaction with portfolio companies...... Investing guidelines are stipulated in all our mandates, while our legal department We believe superior returns manages all contracts. Business continuity risk are best achieved by applying AlpInvest’s funding comes largely from our two anchor investors, APG and PGGM. the highest standards of These investors can change their strategies regarding allocation to the private equity risk management throughout asset class or decide to use other firms to manage their assets. To mitigate the firm in our values, code this, contracts with our investors are structured so that they offer continuity to the management company for a prolonged of conduct and personnel period. We update our investors on a regular basis with detailed information on management. their portfolios and strive to ensure our strategies remain aligned. There is also the risk that senior management expertise may be lost. Remuneration is, however, based on long-term incentive arrangements, designed to create a long-term alignment with AlpInvest. In addition, the Partners are shareholders of the management company. 33
Investment risks Treasury and funding risks Policies Investment decisions Market risk Conflicts of interest Our ability to source and execute quality As an advisory firm, AlpInvest has limited Conflicts of interest can arise; however, investments depends on several factors. exposure to financial assets. Cash is internal conflict management policies and We need to attract, develop and retain typically held in short-term deposits with guidelines are in place to reduce these professionals with the requisite investment reputable banks, while our management instances and address such conflicts as experience and optimize information- company has limited exposure to adverse they arise in a way that protects and deals sharing and synergy benefits across our movements in interest rates and foreign fairly with the interests of all those involved. investment teams. In addition, we need to exchange rates. We typically hedge foreign undertake thorough assessments of each currency exposure when providing funds to Valuation standards investment opportunity, using collective our main operating subsidiaries. In 2012, we determined fair value for our knowledge and experience. direct and co-investments (equity and Credit risk mezzanine) based on the International For that reason, AlpInvest carefully AlpInvest is dependent on funding from Private Equity and Venture Capital assesses each investment before making its investors. Mandates are in place Guidelines (August 2010, endorsed by the an investment commitment. From the initial between the parties that define the European Venture Capital Association). This investment assessment to the finalization minimum amounts our investors commit to involves management judgment and takes of the transaction, AlpInvest employs a AlpInvest for investment purposes. These into consideration the specific nature, facts methodical process, involving the Partners are subject to certain limitations, monitored and circumstances of each investment, and investment teams. through compliance procedures. including, but not limited to, the price at which the investment was acquired, current Investment performance Liquidity and projected operating performance, The performance of our portfolio depends AlpInvest informs investors on a timely trading values on public exchanges for on a range of factors, including the basis of forthcoming liquidity requirements. comparable securities, and financing terms quality of the initial investment decision Under our mandate terms, we have access currently available. and the ability of the fund manager or at all times to sufficient liquidity to fund portfolio company to drive performance our investments. Cash management For determining the fair value for our and achieve its business strategy. As part procedures include cash-flow forecasting investments in private equity funds in 2012, of our portfolio management program, and liquidity monitoring. the valuations provided by the general we review our investments regularly and partners were used in combination with employ a rigorous process to manage our Operational risks our own mechanisms, including initial relationships with fund managers and AlpInvest is exposed to a range of due diligence and ongoing portfolio portfolio companies. operational risks that can arise from management. Due to the time lag between inadequate or failed systems, processes receiving reporting of the general partners Investment concentration and people, or from external factors and AlpInvest’s reporting date, adjustments AlpInvest invests across a range of affecting these. These include risks around to valuations may be applied if necessary. economic sectors and jurisdictions. Our human resources, legal and regulatory For example, the value of an investment investment policy is designed to create issues, tax, information technology system may be adjusted for actual cash flows that a diversified portfolio across market failures, business disruption and internal occurred from the date of the reported segments, geographies, industries, control weaknesses. valuations to the financial statement date. deal sizes and vintage years. We have investment guidelines in place to address Operational risk management is As valuations depend to some extent concentration risk, including limits on the underpinned by clearly defined roles, on stock market conditions, AlpInvest percentage interest held in any one fund segregation of duties, delegated authorities closely monitors public equity market or portfolio company. Asset allocation is and monitoring at all levels. AlpInvest relies developments during the last quarter of discussed regularly and compliance reports on a number of third-party service providers the year and assesses whether, in the are reviewed quarterly to ensure allocations to support our operations, including IT, event of tangible movements, any valuation fall within these guidelines. insurance and pensions. We work with adjustment is required. reputable firms and have relevant service level contracts with a number of these The AlpInvest commitment parties. AlpInvest endeavors to uphold the highest standards and mitigate risk in a timely and Our investment management process consistent fashion. We are committed to is subject to an annual ISAE 3402 audit strong and robust governance across the to attest to the design and operating firm and our experience and expertise help effectiveness of our internal controls. us to deliver on this goal.
Legal, tax and regulatory risks AlpInvest seeks to comply with all applicable legal, regulatory and other external requirements, as well as contractual agreements. Our in-house team of senior legal and tax professionals provides advice, reviews and negotiates documentation and helps us meet our regulatory obligations. An external law firm monitors and updates AlpInvest on relevant legal and regulatory developments. 34
Financial AlpInvest achieved strong financial In 2012, most of our more recently performance in 2012, despite continued committed funds had an improved year- performance challenges in the macroeconomic on-year performance. In Fund Investments, environment. Since inception, we have IRRs from our Main Fund III improved to and consistently delivered robust returns to 5% on a gross and net basis, a 3% increase our investors. compared with 2011, and our Secondary investment Investment Main Fund III showed a net IRR overview AlpInvest was pleased with the performance of 9%, a 1% uplift versus 2011. Secondary of its funds in 2012. Investments Main Fund IV showed a net IRR of 20% in 2012, a 6% decrease versus 2011. Through the end of 2012, we received €52bn of commitments from our investors The net IRR of our equity Co-Investments and they committed almost a further Main Fund III was 2% in 2012, showing an €7bn that we can invest between 2013 increase of 10% versus 2011, while the 2012 and 2015. Our assets under management net IRR of our Mezzanine Main Fund III rose as per December 31, 2012 were €33.4bn to 9%, a 2% improvement versus last year. in total, of which over €23bn was for Fund Investments, €5bn for Secondary We believe the performance of our funds Investments and €5bn for equity and underlines the rewarding, long-term nature mezzanine Co-Investments. of private equity investing. Looking to the future, the capital that has already been AlpInvest Gross and net returns from our fully committed to us by our investors allows Annual Review committed funds improved compared to the us to seek new, attractive investment 2012 2011 levels and our net IRR (internal rate opportunities and we believe we are well of return) since our inception 13 years ago positioned to continue to deliver strong has been 10% (see page 46 for more returns over the coming years. We have detailed information on IRR methodology). maintained a disciplined approach to investing, taking advantage of prospects presented within our chosen markets while being mindful of the challenges arising from the macroeconomic environment.
......
Investing over the long term SMOOTH ACTUAL SMOOTH ACTUAL RETURNS %
0
1 YEARS 10
The J-curve in private equity is used to Private equity measures returns using illustrate the historical tendency of a mechanism called the internal rate of private equity funds to deliver negative return, or IRR. This calculates returns in early years and investment underlying returns, taking into account gains in later years. Initially, investment money invested, money returned and returns are negative because unrealised investments. After three to management fees are drawn from five years, the interim IRR should committed capital and underperforming provide a meaningful guide to the investments are identified and written ultimate returns to be expected from down at an early stage. In later years, a specific fund, although the period is as companies are sold, ideally for more generally longer for early-stage funds. than the purchase price, cash starts to For the AlpInvest mandates, the IRR flow to the limited partners. becomes meaningful approximately five years after the start of the mandate. 35
LIFE TO DATE IRRS1
FUND VINTAGE SIZE GROSS NET ...... FULLY COMMITTED FUNDS2 YEAR (€bn) IRR IRR 1 Includes private equity and Main Fund I – Fund Investments 2000 5,175 12% 12% mezzanine primary fund investments, secondary fund Main Fund II – Fund Investments 2003 4,545 9% 9% investments and co-investments originated by the AlpInvest team. Main Fund III – Fund Investments 2005 11,500 5% 5% More detailed information on the calculation methodology can be Main Fund I – Secondary Investments 2002 519 55% 51% found on page 46. Main Fund II – Secondary Investments 2003 998 28% 26%
2 Fully Committed funds are past Main Fund III – Secondary Investments 2006 2,250 9% 9% the expiration date of the commitment period as defined in Main Fund IV – Secondary Investments 2010 1,856 21% 20% the respective limited partnership agreement. In instances where a Main Fund II – Co-Investments 2003 1,090 45% 43% successor fund has had its first capital call, the predecessor fund Main Fund III – Co-Investments 2006 2,760 3% 2% is categorized as fully invested. Main Fund II – Mezzanine Investments 2004 700 8% 7% 3 All Other Funds include Main Fund I – Co-Investments, Main Main Fund III – Mezzanine Investments 2006 2,000 11% 9%
Fund I – Mezzanine Investments, 3 AlpInvest Cleantech Funds and All Other Funds Various 18% 15% funds which are not included as ...... part of a Main Fund. TOTAL FULLY COMMITTED FUNDS 11% 10% 4 Gross IRR and Net IRR are not meaningful as commitment periods commenced in Q3 2012.
FUND VINTAGE SIZE GROSS NET ...... Funds in the commitment period YEAR (€bn) IRR.... IRR Main Fund IV – Fund Investments 2009 4,880 2% 0% Main Fund V – Fund Investments4 2012 4,151 n/m n/m Main Fund V – Secondary Investments 2011 2,377 46% 41% Main Fund IV – Co-Investments4 2010 1,475 n/m n/m Main Fund V – Co-Investments 2012 1,227 0% -6%
3 ...... All Other Funds Various 18% 13% ...... TOTAL funds in the commitment period 8% 6% total alpinvest 11% 10%
...... TOTAL CAPITAL 52 COMMITMENTS 48 49 RECEiVED BY ALPINVEST 44 €bn 40
32
26
21 18 16 13
Up to 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2002 36
Fund 2012 Fund portfolio activity The Fund Investments team made new commitments to 32 funds with Investments a 2012 vintage year (or earlier) for AlpInvest. Of these, 24 were to funds where a prior commitment had been made with the GP. The remaining overview eight represent a new relationship.
During or before 2012, 14 commitments were made to funds that are expected to have a 2013 vintage. Those 14 funds are therefore not included in this year’s Annual Review overview.
In 2012, a total of €2.2bn of capital was called to fund investments in private equity funds.
During the year, AlpInvest received €3.0bn of proceeds from investments. Within this figure, 19% came from the 2000–2002 mandate, 26% came from the 2003–2005 mandate and 48% came from the 2006–2008 mandate.
AlpInvest 2012 New Fund Commitments1 Annual Review 2012
...... Fund name Segment Relationship Description 1 Additionally, AlpInvest committed Abingworth Bioventures VI Venture existing Life sciences and healthcare venture to five other funds with a 2012 investments in Western Europe and vintage that are not listed by name the U.S. for confidentiality reasons.
2 Global large buyout. Accent Equity 2012 Europe mid-market new Buyout investments in the Nordic lower mid-market 3 Non-traditional markets, which include markets outside of Advent Global Private Global LBO2 existing Upper mid-market buyouts, Western Europe and the U.S. to Equity VII predominantly in Western Europe the extent not covered by global large buyout. and North America
Apax VIII Global LBO2 existing Large buy-out investments with a focus on Europe and North America
Archer Capital Fund 5 NTM3 existing Leveraged buy-outs in Australian mid-market companies
Ares Corporate Opportunities U.S. mid-market new Control buyout, distressed for Fund IV control, growth equity and rescue lending investments in the U.S.
Avalon Ventures Fund X Venture existing Early stage US venture capital fund focused on information technology and life sciences
Bain Capital Asia Fund II Global LBO2 existing Target control investments in Asia and the Pacific Rim with focus on Greater China, Japan and India
Baring Vostok Private Equity NTM3 existing Expansion and replacement capital Fund V and mid market buyout investments in Russia and the C.I.S.
Baring Vostok Fund V NTM3 existing Expansion and replacement capital Supplemental Fund and mid market buyout investments in Russia and the C.I.S.
Centerfield Capital Mezzanine new Subordinated debt (2/3) and equity Partners III (1/3) investments in lower middle market companies with a focus on the U.S. Midwest region
Cinven V Global LBO2 existing Large buyout investments in Europe
Court Square Capital U.S. mid-market existing Upper mid-market buyouts, primarily Partners III in the U.S.
Crescent Mezzanine Mezzanine existing Mezzanine financing for upper Partners VI mid-market companies in the U.S., Western Europe and Asia-Pacific 37
2012 New Fund Commitments1 cont’d
...... Fund name Segment Relationship Description Element Partners II-A Cleantech existing Growth equity and buyout cleantech investments in the U.S.
Genstar Capital Partners VI U.S. mid-market existing Control investments in North American mid-market companies
ICG Europe Fund V Mezzanine existing Mezzanine financing across various industries and geographies within Europe
Index Ventures VI Venture existing VC investments across stages (seed to late) in Europe, Israel and the U.S.
Insight Venture Partners U.S. mid-market existing Growth-stage technology companies Coinvestment Fund II in the U.S. and international markets
Investindustrial V Europe mid-market existing Leveraged build-ups, management buyouts and corporate restructurings in Italy and Spain
Mediterra Capital Partners I NTM3 new Growth capital and buyout investments in the lower mid-market in Turkey
Norvestor VI Europe mid-market new Lower middle-market buyouts in Norway and Sweden
Ridgemont Equity Partners I U.S. mid-market existing US middle market and growth equity investments
Symphony Technology Group U.S. mid-market new Mid-market enterprise software and Fund IV IT-enabled services companies in the U.S. and Europe
TPG Biotechnology Venture existing Early-, mid- and late-stage Partners IV investments in biotechnology and life sciences, primarily in the U.S.
Turkish Private NTM3 new Control buyout and expansion capital Equity Fund III investments in high-growth markets in Turkey
Victoria South American NTM3 new Investments in middle-market Partners II companies in Brazil, Argentina, ...... Colombia, Chile and Peru 38
Fund Investments overview cont’d
AlpInvest FUND INVESTMENTS PORTFOLIO OVERVIEW Annual Review AS PER DECEMBER 31, 2012 2012
MANDATE capital capital invested AMOUNT committed2 invested2 AS % of ...... VINTAGE YEARS Investment focus (€m) (€m) (€m) committed3 1 The Fund Investment Mandate 2000 – 20021 Buyout and venture capital 10,853 9,998 9,376 100% 2000 – 2002 includes pre-vintage year 2000 commitments made by 2003 – 2005 Buyout and venture capital 4,545 4,524 4,381 101% our investors and AlpInvest predecessors. 2006 – 2008 Buyout and venture capital 11,500 11,307 9,528 85%
2 At historical foreign exchange 2009 – 2011 Buyout and venture capital 4,877 4,572 1,357 29% rates. 2012 – 2014 Buyout and venture capital 4,151 406 12 3%
3 Based on foreign exchange rate 2007 – 2012 Clean technology 658 604 378 60% as per December 31, 2012. 2000 – 2014 Mezzanine funds 1,287 1,177 949 81% 2000 – 2014 Buyout and venture capital – 176 110 74 69% ...... other mandates
TOTAL 38,047 32,698 26,055 81%
FUND commitments OVERVIEW1 AS PER DECEMBER 31, 2012
% of captal ...... segment COMMITTED GPs2 FUNDS 1 Vintage years 2000–2012. Global large buyout 38% 22 62
2 As a GP can have funds in more European mid-market 13% 36 59 than one category, the total is larger than mentioned in the U.S. mid-market 18% 54 87 text above. Non-traditional markets3 9% 46 89 3 Non-traditional markets include Venture capital 10% 57 112 markets outside of Western Europe and the U.S. to the extent Cleantech 2% 11 13 not covered by global large buyout. Mezzanine 4% 15 24
4 These comprise largely secondary Fund-of-funds4 4% 6 7 fund-of-funds...... TOTAL 100% 247 453 39
Secondary 2012 portfolio activity AlpInvest Secondary Investments committed €905m across 13 Investments transactions in 2012, compared to €1,255m across 15 transactions overview in 2011. For the 12 months ending December 31, 2012, AlpInvest Secondary Investments received proceeds from 73 transactions out of 85, totaling €1.124m compared to €857m received in 2011.
secondary INVESTMENTS PORTFOLIO OVERVIEW AS PER DECEMBER 31, 2012
MANDATE capital capital invested AMOUNT committed1 invested1 AS % of ...... VINTAGE YEARS Investment focus (€m) (€m) (€m) committed2 1 At historical foreign exchange 2000 – 20021 Buyout and venture capital 519 519 511 100% rates. 2003 – 2005 Buyout and venture capital 998 994 944 95% 2 Based on foreign exchange rate as per December 31, 2012. 2006 – 2008 Buyout and venture capital 2,250 2,147 1,973 92% 2009 – 2011 Buyout and venture capital 1,859 1,805 1,540 85% 2012 – 2014 Buyout and venture capital 2,377 811 578 71% 2002 – 2011 Mezzanine funds 337 320 258 79% Buyout and venture capital – 272 115 97 84% ...... other mandates
TOTAL 8,614 6,712 5,901 88% 40
Equity 2012 portfolio activity In 2012, AlpInvest invested €600m in Equity Co-Investments. This Co-Investments included €568m in 16 new investments and €32m in follow-on investments for existing portfolio companies. Total realizations in 2012 overview for our Co-Investment Equity portfolio were €535m and included five full and eight partial realizations.
AlpInvest 2012 Equity co-investment Annual Review realizations 2012
...... COMPANY TYPE of realization Alliance Boots Partial exit AMC Entertainment Full exit Avago Investment Partners Full exit Callcredit Information Group Dividend payment / repayment shareholder loan Dollar General Partial sale of our position in a listed company IASIS Healthcare Dividend payment / repayment shareholder loan IMS Health Dividend payment / repayment shareholder loan Liberty Dialysis Full exit Nielsen Company Partial sale of our position in a listed company Nycomed Full exit OneLink Communications Full exit Roundy’s Partial sale of our position in a listed company SunGard Data Systems Dividend payment / repayment shareholder loan Taminco (2007) Full exit Taminco (2012) Dividend payment / repayment shareholder loan ...... TDC Group Partial sale of our position in a listed company 41
2012 New equity co-investments
Date of ...... Company Sector Geography completion Description Ahlsell Industrials Sweden May-12 Ahlsell is Nordic's leading wholesale company in building products, tools and machinery. www.ahlsell.com
Akindo Sushiro Co. Consumer Japan Sep-12 Sushiro is the largest “value format” discretionary revolving sushi bar operator in Japan with over 300 outlets. www.akindo-sushiro.co.jp
Ancestry.com Information U.S. Dec-12 Ancestry.com is the world’s largest online technology resource for family history. www.ancestry.com
ComRent Industrials U.S. Dec-12 ComRent rents load bank equipment and conducts testing services for industrial customers. www.comrent.com
DCLI Industrials U.S. Mar-12 DCLI provides chassis rental and leasing (Direct ChassisLink) activities to steamship lines and trucking companies. www.chassislink.com
eResearch Technology Healthcare U.S. Aug-12 eResearch Technology is a provider of technology-enabled central lab services to the biopharmaceutical industry. www.ert.com
Genesys Information U.S. Jan-12 Genesys is a leading global provider of technology customer service software solutions. www.genesyslab.com
GSEI Cleantech China Jun-12 GSEI is an operator of waste-to-energy and water/wastewater treatment plants. Investment alongside Hudson Clean Energy Partners. www.gsenvironment.com
Hong Kong Broadband Telecommunications China Aug-12 HKBN is a provider of broadband internet, Network (HKBN) pay TV and voice services to residential and commercial customers. www.hkbn.net
Par Pharmaceutical Healthcare U.S. Sep-12 Par Pharmaceutical develops, manufactures and distributes U.S. generic and branded drugs. www.parpharm.com
Planet Fitness Consumer U.S. Dec-12 Planet Fitness is an operator and franchisor discretionary of U.S. fitness clubs in the low-cost segment. www.planetfitness.com
Soleras Advanced Cleantech U.S. / Belgium Mar-12 Soleras Advanced Coatings provides Coatings sputtering targets and hardware to various industries, such as glass and solar. www.soleras.com
Spotless Group Business services Australia Dec-12 Spotless Group is the largest provider of outsourced facility management services in Australia and New Zealand. www.spotless.com
Suddenlink Telecommunications U.S. Nov-12 Suddenlink Communications is the seventh- Communications largest cable system operator in the U.S. with operations in 10 states. www.suddenlink.com
Taminco Materials Belgium Mar-12 Taminco is a manufacturer of alkylamines and derivatives with a broad range of applications. www.taminco.com
Zayo Group Telecommunications U.S. Jul-12 Zayo Group is a global provider of bandwidth infrastructure services...... www.zayo.com 42
Equity Co-Investments overview cont’d
AlpInvest Equity Co-Investments PORTFOLIO OVERVIEW Annual Review AS PER DECEMBER 31, 2012 2012
MANDATE CAPITAL AMOUNT invested2 ...... VINTAGE YEARS Investment focus (€m) (€m) 1 The Co-Investment Mandate 2000 2000 – 20021 Buyout and venture capital co-investments 800 759 – 2002 includes the investments made by the former Alpinvest N.V. 2003 – 2005 Buyout and co-investments 1,090 925 (mainly pre-vintage year 2000). The Co-Investment Mandate 2006 – 2008 Buyout and co-investments 2,760 2,373 2000 – 2002 includes Buyout, Life Sciences and Technology 2009 – 2010 Buyout and co-investments 1,475 1,196 Investments. Life Sciences and Technology were discontinued 2011 – 2014 Buyout and co-investments 1,227 119 late 2003. 2010 – 2012 Clean technology 23 21 2 At historical foreign exchange Buyout and venture capital – other mandates 221 132 rates...... TOTAL 7,596 5,524
Portfolio diversification AlpInvest invests in a broad range of sectors and geographies, creating significant diversification in our portfolio. From a geographical perspective, 47% of our investments are in Europe, 47% in North America and 6% in the rest of the world. The sector breakdown of our co-investments since 2000 can be found below...... Sectors1 1 Includes the 2000 – 2002 23% Consumer discretionary (excluding Life Sciences and 11% Consumer staple Technology Investments), 2003 – 2005, 2006 – 2008 5% Energy and 2009 – 2011 buyout 8% Financials co-investment mandates. 12% Healthcare 17% Industrials 12% Information technology 4% Materials 5% Telecommunication services 3% Utilities 43
Mezzanine 2012 investments and realizations In 2012, AlpInvest invested €48m in mezzanine co-investments. This Co-Investments included €42.6m in two new investments and €5.8m in follow-on overview investments for existing portfolio companies. AlpInvest had €275m of cash inflows in 2012 from the outstanding mezzanine portfolio, of which €35m was due to interest income and €240m from realizations.
2012 New mezzanine co-investments
Date of ...... Company Sector Geography completion Description Douglas Consumer Germany Dec-12 Douglas is a specialty retail conglomerate discretionary with some 2,000 stores in 17 countries in Europe. www.douglas-holding.de
Genesys Information U.S. Jan-12 Genesys is a leading global provider of technology customer service software solutions...... www.genesyslab.com
2012 Mezzanine co-investment realizations
...... COMPANY TYPE of realization American Beacon Partial realization AmSafe Partners Full exit CompuCom Systems Partial realization David’s Bridal Full exit Faith Media Holdings Full exit Goodman Global Full exit Pets at Home Full exit Protection One Partial realization SkyLink Aviation Full exit Taminco Full exit ...... WL Plastics Partial realization 44
Mezzanine Co-Investments overview cont’d
AlpInvest MEZZANINE Co-Investments PORTFOLIO OVERVIEW Annual Review AS PER DECEMBER 31, 2012 2012
MANDATE CAPITAL AMOUNT invested1 ...... VINTAGE YEARS Investment focus (€m) (€m) 1 At historical foreign exchange 2000 – 2002 Mezzanine co-investments 33 33 rates. 2002 – 2004 Mezzanine co-investments 148 81 2005 – 2006 Mezzanine co-investments 297 287 2007 – 2011 Mezzanine co-investments 1,200 818 ...... 2012 – 2014 Mezzanine co-investments 185 24 TOTAL 1,863 1,244
Portfolio diversification AlpInvest invests in a broad range of sectors and geographies, creating significant diversification in our portfolio. The sector breakdown of our mezzanine investments since 2002 can be found below. From a geographical perspective, 34% of our investments are in Europe, 57% in North America and 9% in the rest of the world...... Sectors1 1 Includes the 2002 – 2004, 35% Consumer discretionary 2005 – 2006, and 2007 – 2011 5% Consumer staple mezzanine mandates. 2% Energy 7% Financials 5% Healthcare 21% Industrials 11% Information technology 11% Materials 3% Services 45
Private equity Private equity is a unique asset class with The three most common types of private a governance model specifically designed equity investment are buyouts, growth to align the interests of owners, managers capital and venture capital. In buyouts, and investors. Over more than five private equity investors acquire a controlling decades, this approach has attracted the stake in an existing company from its interest of discerning financial institutions incumbent owners. In growth capital and companies around the world. investments, funding is provided to help a business expand or restructure. In venture Private equity takes a long-term approach capital investments, new capital flows into to investment, typically owning a company start-up or early-stage businesses. for three to seven years before selling it, usually at a premium to the initial The three most common types of exit from purchase price. Investments are made in a private equity investment are an IPO many different businesses and these are (initial public offering), trade or secondary called portfolio or investee companies. buyout. In the first, a company is listed on a With their experience, focus and capital, stock exchange; in the second, a company private equity managers work with portfolio is sold to a private or public corporation; company management teams to create in the third, a company is sold to another an environment that can generate above- private equity investor. average growth...... Over the past five decades, private equity 1 Globalization of Alternative Money for investments comes from funds, has become a global asset class, managing Investments, Working Papers Volume 1: The Global Economic typically structured as limited partnerships. billions of dollars. Before and during the Impact of Private Equity Report The capital for these funds is raised financial crisis, the industry was criticised 2008 and Volume 2: The Global primarily from institutional investors, on a number of levels, ranging from lack Economic Impact of Private Equity Report 2009. such as pension funds and insurance of disclosure to overly aggressive use of companies, which are known as limited leverage. However, private equity firms partners, or LPs. They are not actively fared better than expected and, in many involved in managing the funds, but they cases, default rates were lower than in the regularly assess the quality of investments public markets. and can have an important consultative or supervisory role. Each fund is typically A global survey published by the World managed by a group company within the Economic Forum concluded that private private equity firm, known as the general equity tends to have a positive impact on partner, or GP. The GP monitors the overall employment, management and productivity performance of the fund and is closely compared with other ownership structures1. involved with its portfolio companies. In essence, private equity works, delivering growth, encouraging focus and fostering One of private equity’s distinguishing business excellence on a worldwide basis. characteristics is the alignment of interest that flows through the entire value chain, from LP to GP to portfolio company management. GPs are remunerated via a periodic management fee and a share in the profits earned by the fund. This is called carried interest and typically involves up to 20% of the profits of the fund. In most cases, carried interest becomes payable only after the limited partners have achieved repayment of their original investment plus a defined return. This is known as the hurdle rate and it is normally set at a high level so remuneration is linked to exceeding performance targets. Company management teams invariably invest in the company, too, and have clear performance-linked incentives. So management is encouraged to deliver above-average growth, GPs are focused on making that happen and LPs are rewarded for providing the necessary capital. 46
IRR calculations The AlpInvest gross annualized internal With respect to the performance rate of return (IRR) provided herein is information shown herein, the investment calculated based on actual investment performance data relates solely to cash flows up to and including December investments originated by the AlpInvest 31, 2012 and the December 31, 2012 team. No individual or entity other than fair market value (FMV) of the relevant the AlpInvest team was responsible for AlpInvest fund. Gross IRRs and multiples the investment performance data included of capital invested do not reflect for the performance information shown. management fees or performance fees Investments that were not originated by (carried interest) charged by AlpInvest AlpInvest have been excluded from the or any other fund-level expenses that performance information shown. Similarly, are borne by investors in an AlpInvest performance information for Direct fund, which will reduce returns and in the Investments, which was spun off from aggregate are expected to be substantial. AlpInvest in 2005, is not included herein. AlpInvest believes that inclusion of The FMVs of AlpInvest funds that make such information in the performance Primary Fund Investments or Secondary information provided herein would result Investments are based on the latest in a presentation of performance that available valuations of the underlying may be misleading because it would limited partnership interests (in most cases include performance data for investments as of September 30, 2012), as provided not currently associated with the AlpInvest by their general partners. The FMVs for AlpInvest team. Annual Review AlpInvest funds that make equity and 2012 Mezzanine Co-Investments are based on To AlpInvest’s knowledge, there are no AlpInvest’s internal valuations. established standards for the calculation of IRRs for private equity portfolios. The use of Net IRR provided herein is based on another methodology would be expected to the gross calculation and is net of result in a different, and possibly lower, IRR. management fees and performance fees Readers should be aware of the significant charged by AlpInvest as well as AlpInvest differences between private equity and fund-level expenses. public markets regarding their portfolio/ index constituents and specific risk/return To eliminate the effect of currency rate characteristics. Readers should also be changes, all non-euro cash flows and fair aware of the prevailing market conditions market values have been converted to euros in public and private markets, including using the FX rate as of December 31, 2012. volatility, during the periods shown. No cash flow projections have been used to calculate any of the performance numbers The performance information shown herein provided herein. is provided solely to illustrate AlpInvest’s performance in managing prior AlpInvest funds, is not the performance of any fund that may be offered, and is not indicative of future performance. The actual realized Statement of Disclosure returns on unrealized investments held by This is AlpInvest’s fourth Annual Review and its purpose is to increase the understanding of AlpInvest any AlpInvest fund will depend on, among Partners B.V. and to improve communication with our stakeholders. The Walker Guidelines, as other factors, future operating results of published by the British Private Equity and Venture Capital Association (BVCA), are one of the the underlying investments, the value of the prominent initiatives on increased disclosure and it is our intention to follow these guidelines as a basis for our report. We are advocates of transparency and believe the private equity industry will underlying assets and market conditions at benefit from more open communication with all stakeholders. We have tried to be as open as possible the time of disposition and/or distribution, in this Annual Review. However, some areas remain subject to legal confidentiality clauses between any related transaction costs and the AlpInvest Partners, our investors, or the parties we invest in and invest with. Some types of information timing and manner of sale, all of which may could also be commercially sensitive. As a result, we are not able to disclose publicly all of the differ from the assumptions on which the information we provide to our client investors. valuations used in the prior performance Disclaimer data contained herein are based. AlpInvest Partners B.V. is a member of the EVCA and the NVP. This document is issued and distributed in The Netherlands by AlpInvest Partners B.V. While this information has been prepared in good faith, In considering the past, targeted or AlpInvest Partners B.V. makes no representation or warranty as to its accuracy, truth or completeness. projected performance and other financial Certain information contained in this document has been obtained from third-party sources. Although information contained herein, readers AlpInvest Partners B.V. believes that such third-party sources are reliable and is not aware of any should bear in mind that past, targeted or misstatement as of the date of this document, it has not independently verified such information. The information contained herein is for information purposes only and does not constitute an offer to sell, projected performance is not necessarily or a solicitation of an offer to purchase, an interest in any private equity or technology ventures fund or indicative of future results and there can any other investment advisory service. This document contains information concerning the past be no assurance that targeted or projected performance of various investments, but this should not be taken as an indication of the likely future returns will be achieved, that any AlpInvest performance of any investments. fund or other investment will achieve This 2012 Annual Review is not intended to be (and may not be relied on in any manner as) legal, tax, comparable results or that the returns investment, accounting or other advice or as an offer to sell or a solicitation of an offer to buy any generated by an AlpInvest fund or other securities of any investment product or any investment advisory service, including any limited investment will equal or exceed those of partnership or comparable limited liability equity interests in any fund, managed account or other other investment activities of AlpInvest. similar investment vehicle or product sponsored by AlpInvest. References to particular investments should not be considered a recommendation of any particular security or investment. Certain information contained herein constitutes “forward-looking statements”, which can be identified by the use of terms such as “may”, “will”, “should”, “expect”, “anticipate”, “project”, “estimate”, “intend”, “continue”, “target” or “believe” (or the negatives thereof) or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events or results may differ materially from those reflected or contemplated in such forward-looking statements. As a result, no person should rely on such forward-looking statements. No representation or warranty is made as to future performance or such forward-looking statements.
Amsterdam New York Hong Kong Indianapolis AlpInvest Partners B.V. AlpInvest Partners Inc. AlpInvest Partners Ltd. Alpinvest Partners Inc. Jachthavenweg 118 630 Fifth Avenue, 28th Floor 701 Citibank Tower 201 North Illinois Street 1081 KJ Amsterdam New York, NY 10111 3 Garden Road Suite 1530 The Netherlands U.S.A. Hong Kong Indianapolis, IN 46204 China U.S.A
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