ANNUAL REPORT 2001 AIG Private Equity Ltd. Phone +41 (41) 710 70 60 Baarerstrasse 8 Fax +41 (41) 710 70 64 CH-6300 Zug Email [email protected] Switzerland www.aigprivateequity.com FACTS AND FIGURES ADDRESSES AND CONTACTS Company profile Registered Office AIG Private Equity Ltd. is a Swiss investment com- AIG Private Equity Ltd. pany domiciled in Zug. The company’s objective Baarerstrasse 8 is to achieve long-term capital growth for share- CH-6300 Zug holders by actively managing a well balanced port- Phone +41 (41) 710 70 60 folio of private equity funds and direct investments Fax +41 (41) 710 70 64 in privately held operating companies. This com- E-mail [email protected] bination of fund-of-funds and direct investments Subsidiary provides broad diversification and predictable cash AIG Private Equity (Bermuda) Ltd. flows – key elements in a comprehensive risk 29, Richmond Road management program. While the company is re- Pembroke, HM 08 latively young, having been established in Septem- Bermuda ber 1999, many of its investments are mature, and all of them are co-investments with AIG, an estab- Investor Relations lished and successful global private equity investor. Conradin Schneider AIG Private Equity Ltd. is listed on the SWX Swiss AIG Private Equity Ltd. Exchange under the ticker symbol “APEN” and is Baarerstrasse 8 traded daily. CH-6300 Zug Phone +41 (41) 710 70 60 Valuation as of December 31, 2001 Fax +41 (41) 710 70 64 Closing price per share CHF 135.00 E-mail [email protected] Net asset value per share CHF 108.01 (applying fair values) If you would like to submit an investment Exchange rate CHF/USD 1.6825 proposal please contact: Exchange rate CHF/EUR 1.4825 For US direct investments: Number of shares outstanding 3175000 E-mail [email protected]; Swiss Security Number Phone +212 458 2164 915.331 For US based private equity funds: ISIN: CH0009153310 E-mail [email protected] Ticker: APEN Phone +212 458 2941 Trading Information For European direct investments: Reuters: APEZn.S E-mail [email protected] Bloomberg: APEN Phone +44 207 335 8121 Telekurs: APEN E-mail [email protected] Phone +41 1 227 57 29 www.aigprivateequity.com For European private equity funds: E-mail [email protected] Phone +44 207 335 8121 www.aigprivateequity.com CONTENTS Chairman’s Statement 2 Well Positioned in Challenging Environment Management Report 4 Review 2001 and Outlook Strategy 6 Broad Experience in Difficult Market Environment Fund Investment Profile 8 Broad Variation of Fund Performance Direct Investment Profile 10 Promising Life Science Investments Direct Investments 12 Overview of Direct Investments Financial Report 17 – AIG Private Equity Group 18 Consolidated Financial Statements 2001 – AIG Private Equity Ltd. 37 Financial Statements 2001 Additional Information 41 –The Organizational Structure 42 – Glossary 44 CHAIRMAN’S STATEMENT CHAIRMAN’S STATEMENT DR. ERNST MÄDER, Member ERICH HORT, Vice Chairman EDWARD E. MATTHEWS, Member DR. ROGER SCHMID, Member EDUARDO LEEMANN, Chairman of the Board price surpassed the performance of most of the important January 1, 2001. Since then, all of a corporation’s financial expanded their holdings, and we have intensively examined AIG Private Equity – indices, such as the NASDAQ or Morgan Stanley, and also out- instruments must be recorded in the balance sheet at fair mar- new investment opportunities during the second half of Well Positioned in performed the competitors. The quality of our well-developed ket value. Previously, investments were held at book value the year. and broadly diversified portfolio was one of the prime factors with the exception of those investments, which had been per- This past year has shown us that our internal procedures Challenging Environment contributing to this, as were the 15 years of experience and the manently impaired. Under IAS 39, unrealized gains and losses are reliable and that the control mechanisms are operating disciplined execution of the investment strategy by the invest- are included in “Revaluation Surplus/Deficit” under Share- well. An important link in this chain is our investment com- The year 2001 was eventful not only for AIG Private Equity. The ment advisor of AIG Private Equity, AIG Global Investment holders’ Equity; the fair or market value of the investments is mittee, which goes over every investment decision with a fine- realms of politics and business experienced an unusually Corp. Our direct investments also performed well. The focus on re-measured quarterly. toothed comb. Larry K. Mellinger has now joined this highly turbulent period. It should therefore come as no surprise that buyouts proved to be advantageous; these are established Other decisions taken during the reporting year by the specialized body as the successor to William Dooley. Larry K. widespread uncertainty and the economic downturn have also companies, which demonstrate the ability to generate stable Board of Directors concerned the management of foreign cur- Mellinger is the senior managing director at AIG and heads the effected the private equity sector and have led to a cooling-off cash flows. Certain holdings have been in the portfolio for over rency exposure and ensuring liquidity. The portfolio weighting private equity division. period. Nevertheless, we are of the opinion that this is just a 2 years and have developed according to budget projections. of the US dollar was reduced to about 50% through forward We are completely convinced that AIG Private Equity is passing phase and that the correction in the marketplace will After we decided not to participate in a follow-on round of rate agreements, which corresponds to the investment guideli- optimally positioned to take advantage of the opportunities in have a positive long-term impact on the growth dynamics of financing, we wrote off our remaining holding in Personic nes for the geographic allocation of assets. In order to better the marketplace through the decisions taken by the Board of the private equity business. A recovery of sorts was already Software. assure our liquidity, we entered into credit agreements with Directors. We draw this confidence from the trust placed in us seen in the fourth quarter. Private equity has established itself The year 2001 was also marked by occurrences, which two financial institutions. These provide AIG Private Equity by our shareholders and for this we would like to express our as an alternate source of financing so that the present weak- lowered the public trust in accounting and accounting prac- with a second source of financing besides cash distributions heartfelt thanks. ness also presents an attractive entry opportunity for long-term tices. Even before these events, it was our expressed policy at from funds and direct investments. oriented investors. AIG Private Equity to account for our activities in the most Finally, the Board of Directors’ decision of the second quar- AIG Private Equity looks to the future with confidence for informative and transparent manner possible. For this reason, ter of 2001 not to make further direct investments or commit- the simple reason that it performed better than the rest of the we implemented changes to our practices to comply with ments in new funds is worth mentioning. This decision was market during the reporting year. The AIG Private Equity share accounting regulations quickly and consistently. It should be necessary since AIG Private Equity is fully invested and avail- Eduardo Leemann noted in this conjunction that standard IAS 39 (Financial In- able cash is used to service the capital calls of the existing Chairman of the Board struments: Recognition & Measurement), issued by the Inter- portfolio funds. Nevertheless, AIG is able to profit from an 2 national Accounting Standard Committee, went into effect on improving market environment. Our portfolio funds have 3 MANAGEMENT REPORT MANAGEMENT REPORT “Our team is as diversified as our investments.” ROCCO SGOBBO, Managing Director ROCCO SGOBBO ANDREW FLETCHER Review 2001 and Outlook CONRADIN SCHNEIDER In 2001, the private equity sector experienced its most companies over the course of the year. AIG Private Equity’s CHF 8.7 million (2000 CHF 25.8 million). Nearly all of the year, whereas new funds added to the portfolio in 2000 and challenging year in recent memory. The economies in two largest funds were particularly affected with fair market capital gains stem from 10 funds that were established in 1996 2001 are still in the investment phase and are expected to be the US and Europe entered a recession in the second values 25% and 33% below their cost basis. The direct invest- or earlier. Two of those funds are based in Europe, the others net consumers of cash. Since it is fully invested, AIG Private semester of 2001, the world equity markets were down ment portfolio, in contrast, held up very well in 2001. With in the US. The European funds portfolio contains fewer funds Equity continues to be cautious about making new fund com- for a second year in a row, investors and banks con- the exception of a small direct investment that was written off with a larger weight per fund. Overall, the European part of the mitments. tinued to exhibit extreme caution, and the terrorist completely, the companies are performing according to plan. portfolio is not as mature as the US part and experienced an Although there are not yet clear signs of an imminent attacks of September 11 shook whatever confidence In the year under review AIG Private Equity adopted environment in 2001 that made it more difficult to realize exits. turnaround in the private equity market, we are beginning to investors had remaining. Within this framework AIG IAS 39. With the introduction of IAS 39 investments in private Additionally, the extremely successful exits (“homeruns”) that see indications that the number of exit opportunities for com- Private Equity performed satisfactorily.