QUARTERLY REPORT for the period from 1 January 2007 to 31 March 2007 QUARTERLYSTATEMENT REPORT OF THE INVESTMENT MANAGER INVESTMENT MANAGER’S REPORT PEARL STARTS THE YEAR WELL The net asset value (NAV) of Pearl increased by as much as 4.82% to 110.27% in the first quarter of 2007, which com- pares very well indeed with the first quarter of 2006 and of 2005 when the Pearl convertible bond gained 2.65% and 1.15% respectively. Since October 2006, the NAV of Pearl has constantly been above the original issuance price of 100% and for the first time it has now exceeded 110%. At the end of March, Pearl recorded its tenth consecutive monthly NAV gain and its ninth consecutive quarterly NAV gain. In terms of performance, March 2007 was one of the best months ever for Pearl, with the NAV rising by 2.96%. The convertible bond issued by Pearl Holding Limited provides access to the private Since the bondholders’ meeting on the amendment of the terms and conditions of the Pearl convertible bonds in equity asset class. For the first time, investors have the opportunity to buy into the December 2005, the NAV has increased by almost 18%. Extending the maturity of the Pearl convertible bond and earnings potential of a broadly diversified private equity portfolio, while enjoying cap- thus its investment activity is therefore already paying off. ital protection and a 2% coupon. Its tailor-made structure makes the convertible In March, many of the underlying partnerships in the Pearl portfolio submitted their annual reports – containing revalu- bond suitable for German private and institutional investors (i.e. “sicherungsvermö- ations of their portfolio companies – as per 31 December 2006. The correction in the international financial markets gens- und spezialfondsfähig”). at the beginning of March, which was triggered by slower economic growth in the US, inevitably had an adverse effect on the listed companies in the Pearl portfolio, but did not affect the overall performance of the portfolio. On the one hand, the listed private equity companies in the portfolio recovered quickly and, on the other, the investments in companies that are not publicly listed performed very well and more than offset the share price corrections. This document is not intended to be an investment advertisement or sales instrument; it constitutes neither an offer nor an attempt As previously announced in the annual report for 2006, to solicit offers for the product described herein. This report was prepared using financial information contained in the company’s from 1 January 2007 all month-end and quarter-end figures books and records as of the reporting date. This information is believed to be accurate but has not been audited by any third party. will be calculated according to IFRS on the basis of the fair This report describes past performance, which may not be indicative of future results. The company does not accept any liability for market value (IAS 39). This is the same basis as is used for actions taken on the basis of the information provided. 2 the audited year-end figures. Only the year-end financial funds, namely American Industrial Partners Capital Fund IV, portfolio drew down a further EUR 39m to finance invest- figures will be audited by the auditors however. Avista Capital Partners (Offshore) and Apax Europe VII, as ments. Overall, this amounts to around EUR 12m more than well as to one special situations fund, namely OCM Principal in the corresponding period of last year. Pearl partnership MID-MARKET PRICE Opportunities Fund IV. Pearl also made direct investments, Doughty Hanson V, for example, made a larger capital call The mid-market price of the Pearl convertible bond closed at namely in AHT Cooling Systems, which is active in the for the acquisition of Madrid-based Avanza, the largest bus 99.00% at the end of March, 1.02% higher than at the end branches of industrial refrigeration and deep freezing, operator in Spain. Pearl also received a larger capital call of 2006. Investor demand had driven the mid-market price Micro-Poise Measurement Systems, a provider of precision from Ares Corporate Opportunities Fund II for the USD to 100% by 31 January 2007, for it to only ease again in measurement equipment and aftermarket support to the 1.65bn acquisition of GNC Corporation, the largest special- February and March. The Pearl convertible bond was trading automotive industry, Reader’s Digest, a publishing and ty retailer of nutritional supplements in the world. at a discount of 10.22% at quarter’s end. direct marketing company, and Univision Communications, an American media company. DISTRIBUTION PROCEEDS FROM REALIZATIONS NEW COMMITMENTS Exit conditions remain good, with the result that Pearl Pearl made four new commitments and four new direct INVESTMENT ACTIVITY received EUR 54m in distribution proceeds from successful investments totaling approximately EUR 24m in the first Around EUR 10m was used for the financing of the men- realizations in the first quarter. Again, this is significantly quarter of 2007. Pearl made commitments to three buyout tioned direct investments and the partnerships in the Pearl more than in the corresponding period of the previous year: by the end of the first quarter of 2006, EUR 43m had been distributed to the Pearl portfolio. Large distributions came from, among others, 3i Europartners IV from the sale of MID-MARKET PRICE AND NAV DEVELOPMENT National Car Park (NCP) to Australian-based Macquarie 130% Bank for EUR 1.15bn and Global Private Equity Fund IV from the sale of Sportfive, a leading European sports rights mar- 120% keting company, to French media group Lagardère for EUR 865m. The largest distribution, however, stemmed from the 110% sale of direct investment Brand Services, the largest sup- plier of industrial and commercial scaffolding in North 100% America, to First Reserve Fund in February of this year. 90% INVESTMENT LEVEL 80% Thanks to brisk investment activity and a large number of revaluations, the investment level of the Pearl portfolio 70% increased to 82.83% as per 31 March 2007, i.e. 1.91% higher than at the end of 2006 and 7.03% higher than at Dec. 06 Dec. 05 Dec. 04 Dec. 03 Dec. 02 Dec. 01 Dec. 00 June 06 June 05 June 04 June 03 June 02 June 01 the end of the first quarter of 2006. In consideration with Sept. 06 Sept. 05 Sept. 04 Sept. 03 Sept. 02 Sept. 01 March 07 March 06 March 05 March 04 March 03 March 02 March 01 the interest rate reserve, Pearl is now almost fully invested. NAV Mid-market price NAV incl. paid and accrued interest 3 QUARTERLY REPORT MARKET TRENDS THE PUBLIC PERCEPTION OF PRIVATE EQUITY That the discussion about the private equity industry is being taken seriously is reflected by the fact that politicians have even entered the debate and are voicing their opinions about the advantages and disadvantages of this economic sector. In the UK in particular, top politicians, like the Prime The private equity industry has recently had to face criticism from the media and trade Minister Tony Blair, have rallied to the defense of the private equity industry. Tony Blair has stated that private equity unions, especially in Continental Europe and the UK. In the latter case, trade unions firms have an “important function” in the economy, adding that “Britain is one of the number one places in the world carried out a review of the private equity industry and came to the conclusion that the for private equity and the private equity market brings a lot of benefits to the British economy”. Further, according to the industry destroys jobs and overloads companies with debt, and that by restructuring a European Union’s internal markets commissioner, Charlie McCreevy, the private equity industry provides greater liq- company private equity is not really increasing the value of it. The criticism levied over uidity, adds shareholder value and helps the rationalization and innovation of companies. the past few months has prompted the industry to discuss the value-add to the econ- PRIVATE EQUITY CREATES ONE MILLION NEW JOBS omy created by private equity, including at leading economic events as the World Analyzing the impact of private equity, there appear to be Economic Forum in Davos and the SuperReturn conference in Frankfurt. many aspects where private equity groups add value to companies and to the global economy as a whole. The pri- vate equity industry is at the heart of the European econ- omy, actively investing in and supporting high potential companies in existing industry sectors as well as creating new innovative enterprises. This investment helps to enhance and sustain economic growth, support innovation and crucially contributes to job creation across Europe. According to the European Private Equity & Venture Capital Association, European private equity-financed companies created one million new jobs between 2000 and 2004. Over the same period, employment in private equity-financed companies grew by an average rate of 5.4% annually. This is eight times the annual growth rate of total employment in the European Union. 4 According to a study conducted by Nottingham University’s and thus can manage them more efficiently, creating long- recent criticism, industry representatives are now trying to Centre for Management Buy-Out Research (CMBOR), pri- term value. improve the public’s understanding of what private equity vate equity is beneficial for employment and staff empower- can achieve. The US recently set a good example by ment. The study, based on 400 management buyouts in the In the light of recent criticism, an increasing number of rep- launching the Private Equity Council (PEC).