Royal Borough of Kensington and Chelsea Pension Fund September 30, 2019 Quarterly Report Confidential Quarterly Report-Q3'19 Table of Contents Market Update 2 Summary 6 Diversification 7 Partnership Fund Program Executive Summary 10 Performance and Portfolio Highlights 11 Detailed Schedule of Investments 19 Notes and Footnotes 33 Adams Street Partners has provided this report (the “Report”) to the recipient on a confidential basis for purposes of monitoring the recipient’s Adams Street Partners investments. This Report contains highly confidential information, including trade secret information, that is proprietary to Adams Street Partners and/or underlying funds and/or portfolio investments. In accepting the Report, the recipient agrees that it will (i) not copy, reproduce or distribute the Report, in whole or in part, to any person or party (including any employee of the recipient other than an employee or other representative directly involved in evaluating the recipient’s investments with, or monitored by, Adams Street Partners) without the prior written consent of Adams Street Partners, (ii) keep permanently confidential all information not already public contained herein, and (iii) use the Report solely for the purpose set forth above. Numbers in this report are based on Adams Street Partners’ calculations and have not been reviewed or approved by the relevant general partners. Royal Borough of Kensington and Chelsea Pension Fund 1 Confidential Quarterly Report-Q3'19 Market Update During the three months ending September 30, public equity markets were relatively Record fundraising has manifested itself in record amounts of “dry powder”, the flat compared to the more volatile quarters of the prior 12 months. Developed term given to capital which has been committed to private equity investments but is markets globally (US and non-US) posted modestly positive returns in local currency not yet deployed. The total amount of dry powder recently surpassed $1 trillion, and terms, while emerging market equities generated negative returns. Trade and tariff receives much attention as an indicator of how the PE market may be overheated. disputes, combined with flat or weakening earnings outside the US, weighed on This is a fair observation in that fund structures typically put pressure on managers to investors. That said, all regional public equity markets were up for the first nine invest this capital in a limited time period. months of 2019, largely if not entirely erasing the meaningfully negative returns of the fourth quarter 2018. Investment Strategy Private Markets Themes Our investment strategy reflects the late-cycle, full valuation environment that we believe defines today’s market. We maintain a disciplined approach when buying and When we look at the private markets from a high level we notice three main themes: selling, making use of the secondary PE market in addition to the healthy exit strong trailing performance, record fundraising and capital inflows, and high environment for selling privately held companies to non-PE buyers. The investments valuations. Indeed, private markets are prone to living in the virtuous cycle where that we make are defensive and thematic in nature, looking for companies that can strong performance attracts fresh capital, which then forces valuations higher by create value fundamentally. Most of these companies can be described as small and competing for the same deals. The higher valuations for a time deliver strong returns mid-sized companies that are growing. Our focus on fundamental value creation is to prior investors, which feeds the cycle. A common concern among market intentionally very distinct from strategies that simply add leverage to market returns. participants is that when the cycle breaks, returns could be modest, and risk could be Although such strategies have performed well recently, we know from experience significant. We share the view that we are late in the market cycle, however, we that they are wrought with risks that are difficult to identify until it is too late. believe many great investment opportunities are available. Within the buyout market, we favor small and mid-market buyout funds (which Historical investment performance shows very healthy returns for private equity (PE), Adams Street defines as being less than $1.5 billion in total fund size). We believe both on an absolute basis and relative to public equity markets. Specific performance smaller fund structures allow managers more opportunity to outperform and create will vary based on the time horizon and comparative indices selected, but faced with value. In addition, we see much of the dry powder overhang as being attributable to the choice of allocating capital to public or private markets it is not surprising that the prevalence of larger buyout funds. investors have chosen to put more capital to work in the asset class that has delivered better performance. Global PE fundraising data supports this notion. Somewhat counterintuitively, the dry powder overhang benefits investors on the smaller end by catalyzing transactions up market . When smaller funds sell to larger We believe the record fundraising is attributable to two sources. One is the tendency funds at high valuations, the benefits go to investors in the smaller funds. for good investment performance to attract new capital. The other is the fact that private markets still represent a small fraction of total investable assets globally. Within Venture Capital (VC) and Growth Equity strategies we observe similar high- Recent data shows private markets compriseing $5.8 trillion in total in a world with level trends: returns are strong, and fundraising is healthy. Our focus remains on roughly $15 trillion in negative yielding fixed income assets. Although record allocating capital to companies and managers who will create value through fundraising levels may be a reason for caution with regards to expected future innovation, regardless of how popular or unpopular the subclass may be. We see returns, we believe the market may be overlooking the ability of private markets to many of these opportunities today, but remain highly selective in a market with more accommodate more of this capital as they become a more prominent part of global and more managers knocking on our door looking to raise capital. We are particularly asset classes. excited about two trends in the growth and technology space. One is that the Royal Borough of Kensington and Chelsea Pension Fund 2 Confidential Quarterly Report-Q3'19 Market Update innovation cycle continues to become shorter and shorter. Within technology, new ideas are coming about faster than ever and are moving from raw ideas to profitable enterprises in shorter periods of time. The second favorable trend is that companies are staying private longer. Since the 1990’s the amount of time for VC-backed companies to go from founding to exit has consistently increased. So, while VC-backed companies are creating value more quickly and more efficiently, a greater proportion of the value being created is going to investors in the private markets. At Adams Street we believe that investors who can identify these opportunities and capture them in a disciplined manner will continue to benefit from these favorable market trends. Regardless of where we are investing, or if we are investing in funds or companies, we look to allocate capital to managers and companies who can create value through growth and margin expansion rather than the use of leverage or market returns. In today’s market we see many of these opportunities presented across four broad themes: technology, healthcare, consumer, and what we call the industrial re- revolution. Introducing Our New Investor Portal and Website As part of our brand evolution, Adams Street Partners will introduce a new investor portal with the release of our refreshed website this quarter. The portal is a dashboard-based platform which will give clients the ability to configure customized views through widgets, providing detailed information on investment portfolios and performance attribution. Additionally, clients will have the ability to download data and perform scenario analyses with just a couple of clicks. Once the new portal is released, an Adams Street investor relations professional will reach out to establish your account and provide training. You can expect to see refreshed client statements later this spring. Thanks as always for the trust you place in Adams Street Partners. Royal Borough of Kensington and Chelsea Pension Fund 3 Confidential Quarterly Report-Q3'19 Market Update (Continued) Summary of New Investments (Q4'19) Primary Investments Green Equity Investors VIII — Green Equity Investors VIII is an opportunity to invest with a top large U.S. buyout firm with a leading consumer franchise and established Accel India VI — Accel India VI is an opportunity to back a leading early stage venture adjacencies in healthcare and business services. Leonard Green & Partners (“LGP”) investor in India that leverages a premier global franchise. Accel India will pursue will continue to invest in companies with market-leading franchises with defensible opportunities primarily at the early stages of a company’s life cycle (majority Seed competitive positions, best-in-class management teams, and attractive growth and Series A with occasional Series B rounds). profiles. Investments are expected to be made across a broad range of industries with a preference for companies providing