Private Equity Fund Administration – Not a “Conveyor Belt” Process David Bailey MSI Augentius Fund Administration 1st November 2006 1. Introduction 2. Revision (and test!!) from previous session 3. Private Equity vs. The Rest 4. Private Equity Fund Processes 5. Questions Why me?  Settlement and Global Custody  5 years in Luxembourg as a fund administrator – Long Only Funds/Hedge Funds/Funds of Funds/Emerging Market Funds etc.  Funds Product Manager with Management Group – Hedge Funds  Ansbacher Fund Services in 2002 – closed down existing Administration business and created specialist Private Equity Fund Admin Business  Completed MBO of Ansbacher Fund Services in August 2006 and re-named business Augentius Fund Administration Augentius Fund Administration LLP  Specialist Private Equity Administrator – its all we do  1st Jan 2003- no clients, no name, no reputation  1st Nov 2006 - 20+ clients - 75+ funds - 120+ entities - €15bn committed under administration  Offices in London and Guernsey; 40 staff increasing to 50. PE Fund Structure German adviser French adviser Italian adviser Advisers German Executives Manager Guernsey Co UK Co General Partner UK Executives KG French Executives Italian Executives General Partner (Scottish Limited Partnership) Investors Investors General Partner General Partner LP I - ERISA (English LP) LP 2 - Non ERISA (English LP) PE Fund Structure - Simple Manager Management Agreement General Partner Carried Interest Partnership Limited Partnership IHC IHC Portfolio Companies Investors PE vs The Rest Private Equity Funds Other Funds  Closed Ended  Open-ended  Partnership  Corporate Structure  Multiple closings within first 12 months requiring “Rebalances” (equalisations)  Ongoing subs and reds  Quarterly Financial Reporting  Daily/Weekly/Monthly valuations  Individual Limited Partner Reporting - with special arrangements for some LPs  Fund NAV  Assets Valued by Managers – but no trading  Assets valued by Administrator – independent  Highly complex structures including co-investment opportunities  Generally straightforward structures  Minimal cash balances and no stock to lend  Substantial cash balances with large portfolios to lend  Just docs to hold in safe-keeping  Custody/Prime brokerage relationships/reconcilliations  Complex accounting issues requiring considerable expertise  Complex valuation issues Private Equity Fund Processes  Initial Closings  Rebalances  Drawdowns/Investments  Quarterly/Annual Accounts  Distributions The Closing Process • AML/KYC on LPs – either the administrator or the GP • Side Letters/Special Arrangements Negotiations Revised LPA – most favoured nations • GP to consider/approve LPs and scale back? • Board Meeting to approve LPs • Initial Drawdown for Management Fees and Expenses and “Welcome” letter The Rebalance (Equalisation) Process Carried out on subsequent fund closings to “true up” all investors as if they joined the fund on Day 1 • New Investors Pay interest for “late arrival” Contribute share to investments made Pay arrears of Management Fees To equalise to Day 1 of the Fund Pay arrears of Expenses • Existing Investors – receive distribution of funds received from new investors to equalise Drawdowns/Investment Private Equity 1. Instructs Administrator to generate drawn down for £x m 4. Instructs administrator to pay away £xm to cover cost of investment Read only access to bank account 6. Funds remitted to settle transaction Fund Bank Account 5. Banking instruction to remit funds to settle transaction Augentius Fund Administration 2. AFA issues drawdown notices to a total of £x m across LP’s, Calculated on a commitment basis LPs/ Investors 3. LP’s remit a total of £xm to fund bank account to cover drawdown Quarterly/Annual Accounts There are no industry standards – everything thing is personalised to each client – their own look and feel • Full Fund accounts issued every three months - Balance Sheet - Profit and Loss - Cash Flow Statement • In addition, individual Partner Statements - Capital Account - Income Account - Loan Account to reflect each LPs individual share of partnership assets/liabilities/ income/expenses • Other issues – Consolidation with Co-Invest schemes Distributions 7. Carry paid to vehicle Private Equity Read only access to bank account 1. Advice of pending sale generating distribution to LP’s to AFA 3. Advice of amount due to each LP plus amount of carry 4. Proceeds received from sale of portfolio investment Fund Bank Account 5. Automated banking instructed issued re payments to be made to LP’s and carry payment Augentius Fund Administration 2. Calculations of proceeds due to each LP and carry & advice of pending distribution LPs/ Investors 6. Funds remitted to individual LP bank accounts David Bailey Managing Partner t +44 20 7089 4733 f +44 20 7089 4744 e [email protected] Augentius Fund Administration LLP Two London Bridge London SE1 9RA United Kingdom www.augentius.com