Absolute Return Strategies Presentation

Alternative Investment Research and Education Research Papers CLIFFWATER Webinars CLIFFWATERIC CLIFFWATER.IC Summary Regulatory Attention Fees and Expenses in Private Equity has a Increased regulation within the private equity industry has r private with the Securities and Exchange Commission (SEC) as Registered Investment Adveers. In late 2012, the SEC hanan a two vaar Peasance Exam initiative in order to cain an understanding of the private equity industry and its o management, conficts of interest, ed towards newly-registered advisers. ce Inspections and Examinations has SAVE THE DATE Cliffwater's Asset Allocation Outlook Q2 2017 WebEx Presentation Thursday April 20th 2017 11:00 AM PST/ 2:00 PM EST A Comparison of Long Dated Funds to Traditional Fund Structures CliffwaterDirectLendingindex.com SPONSORED BY CLIFFWATER U.S. Mezzanine Debt And Its Relationship to Other Credit Driven Asset Classes February 23, 2017 Mezzanine debt encompasses a set of junior securities that sit in priority just above equity and below senior and other secured debt. These securities are generally non-traded and can be attractive to investors that seek both current yield and potential capital gains through equity warrants, conversion features, and corporate control in distressed situations. It is not uncommon for mezzanine debt to be underwritten to offer a 15-20% gross return. On the other hand, mezzanine debt can present greater risks compared to more senior securities, Including weaker covenants and higher losses (lower recovenes) given default. This report looks at past performance to gauge the attractiveness of mezzanine debt, both absolute and relative to other corporate securities. We find that investment funds focused on mezzanine debt produced realized retums and rick levels consistent with their capital structure ranking and absolute returns averaging 10% over the 20 year history examined. More generaly, we also find significant return premiums for private debt compared equivalent public debt during the study period. Research Results Exhibit 1 reports mezzanine debt fund "Vintage year returns from 1995 through 2014. Performance is measured through June 30, 2016. More recent 2015 and 2016 vintage funds are omitted, following industry convention, because they are too early in development to have returns representative of longer term performance. For example, mezzanine funds started in 1995 earned a 10.20% return, while mezzanine funds started in 2005 earned a 4.54% return. 30% Exhibit 1: U.S. Mezzanine Fund Return (IRR) by Vintage Year Performance through June 30, 2016 have created of investors ctures seek to compared to rships have a 5 years. Tho 'um spectrum d funds 7-dated fi ding period of th the current ad resources, roposition. y structures. companies with lower volatility s are gonorally characterizod orago. Long dated funde wil her not multiples on invested times net return traditionally re based on a percentage of rally be lower (10% to 15%) the terms to be generally longer period of time that potential to accrue more in nts within a traditional private oarnings through growth and Long-dated fund strategies nd will primarily target control to compete with their flagship nd lower retum expectation of rovided by General Partners and are o how private equity firms collect lees nsulting, transaction, and monitoring from limited partners to the General ollected from porfolio companies, or our investment, operations, and legal understand a manager's practice and ed in the industry regarding such fees i manager activity. The managers of firms that have vidated the law or ees and expenses should heb in the ach manager works with its portfolio ir consulting, transaction, monitoring. o disclose the various fees that they of foos during due diligence and in fwater will eto systematically crutiny continue progress of in-house teams of operations-focused rforming portfolio company work that for private equity firms to charge its done by third parties but now carried ment is often that its foo is compettiva ed towards the needs of the portiolio Partner's work in detall with portfolio and intermediaries who observe the vestment team works in tandem with ments, the General Partner's reporting mants Since audited fund financial ses paid by portfolio companies to the er, portfolio company executives, and fund's govering documents allow as manager review process begins with hered and are subject to change without nation san Ceata hasnot minded an inamlant iven as to the accuracy or complains of the read for debuton mmmarchiusa or the that condestnent adds, and should not be gs do nd crate an investmont adversant reuthg from the use of to normelon Past Mark Johnson Pate Kaliuotis Sanior Managing Director Senior Managing Director Pete Keliuotis and Mark Johnson will lead a review of Cliffwater's asset allocation outlook for the second quarter of 2017. WebEx To join the program on Thursday, April 20th REMINDER Teleconference To join the teleconference, please: Cliffwater's Private Assets Activity for Q2 2017 WebEx Presentation Wednesday April 19th 2017 11:00 AM PST/ 2:00 PM EST Gabrielle Zadra Eric Abelson Senior Managing Director Managing Director Bernard Gehlmann Managing Director Chris Rice-Shopard Managing Director Mark Wiliams Managing Director 25% 20% 15% 10.30 Average Mezzanine Fund IBR-10.03% 016 loge دوها 2001 1999 2007 2008 2003 2005 Vintage Year Returns through June 30, 2016 Source: Phich Book US Mezzanine Funds ©2017 Clifwater LLC. All rights reserved. 2011 2013 are large private equity firms d party ownership, and invost 1-datod investment strategy is anagore havo bithor utilizod a fund to one or two conior. nel firms have raised smaller Cliffwater's senior private market specialists, will host a review of Q2 2017 private assets research activity. They will discuss the current investment environment, market opportunities, and the most compelling strategies in private equity, real assets, and real estate sectors. WebEx To join the program on Wednesday, April 19th click on the link below: (No pre-registration required) Teleconference To join the teleconference, please: Dial: 1-800-431-2204 (in the U.S.) Cliffwater's Private Assets Activity for 02 2017 Password: cliff If link above does not work, please copy and paste the address below into your web browser: https://cliffwater.webex.com Help (or 1-847-619-6151 if outside the U.S.) Passcode: 9610081 If you require assistance during the presentation, please call: 1-310-448-5000. CLIFFWATERLC | 31

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