Old Mutual. private equity. QUARTERLY REPORT September Old Mutual Multi-Manager Private Equity Fund 3. Old Mutual Private Equity Secondary Fund

Alternative Investments Old Mutual private equity QUARTERLY REPORT | September 2014 Old Mutual Multi-Manager Private Equity Fund 1 Old Mutual Multi...
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Alternative Investments

Old Mutual

private equity QUARTERLY REPORT | September 2014

Old Mutual Multi-Manager Private Equity Fund 1 Old Mutual Multi-Manager Private Equity Fund 2 Old Mutual Private Equity Secondary Fund Old Mutual Multi-Manager Private Equity Fund 3

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contents INTRODUCTION

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3

MARKET OVERVIEW

page

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OLD MUTUAL MULTI-MANAGER PRIVATE EQUITY FUND 1 (OMMMPEF1)

page

6-7

page

8-10

page

11-12

page

13-15

VALUATION PRINCIPLES

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Old Mutual Alternative Investments Private Equity Team

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17-18

FUND Description Investments Per Fund Manager Performance Commentary Overall Portfolio Analysis

OLD MUTUAL MULTI-MANAGER PRIVATE EQUITY FUND 2 (OMMMPEF2) FUND Description Investments Per Fund Manager Performance Commentary Overall Portfolio Analysis

OLD MUTUAL PRIVATE EQUITY SECONDARY FUND (OMPESF) FUND Description Investments Per Fund Manager Performance Commentary Overall Portfolio Analysis

OLD MUTUAL MULTI-MANAGER PRIVATE EQUITY FUND (OMMMPEF3) FUND Description Investments Per Fund Manager Performance Commentary Overall Portfolio Analysis



OMMMPEF3 is a private equity multi-manager fund of funds aimed at institutional and retail investors and managed by Old Mutual Private Equity. This fund was launched in July 2013 and is open to investments.



OMMMPEF1 and OMMMPEF2 are private equity multi-manager funds of funds aimed at institutional and retail investors and managed by Old Mutual Private Equity. These funds are now closed to investors.



OMPESF is a private equity fund consisting of a fully invested portfolio of assets aimed at institutional and retail investors and managed by Old Mutual Private Equity. This fund closed to investors in 2012.

For more information, or to gain exposure to our funds, please contact: Kevin French Business Development [email protected] +27 21 509 4326

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LANCE GRAYSON Investment Principal [email protected] +27 21 509 4660

JACCI MYBURGH Head: Old Mutual Private Equity [email protected] +27 21 504 6699

INTRODUCTION Dear Investor The market pullback during the third quarter of 2014 resulted in mixed valuation outcomes across the four Old Mutual Private Equity funds of funds. The weaker comparable multiples fed through to valuations across all the funds. However, through their offshore private equity exposure, OMMMPEF2 and OMMMPEF3 benefitted from US dollar strength during the quarter. The FTSE/JSE All Share Index was down -2.1% for the quarter.

Fund Returns as at 30 September 2014 Q3 2014

1 Year

3 Years*

Annualised Return since inception*

Old Mutual MultiManager Private Equity Fund 1 (OMMMPEF1)

-5.1%

8.2%

6.0%

21.5%

Old Mutual MultiManager Private Equity Fund 2 (OMMMPEF2)

0.3%

17.6%

17.8%

6.2%

Old Mutual Private Equity Secondary Fund (OMPESF)

-5.8%

3.4%

12.2%

10.5%

Old Mutual MultiManager Private Equity Fund 3 (OMMMPEF3)**

0.8%

6.5%

N/A

7.4%

Fund

While weaker comparable multiples negatively affected valuations and performance, good returns were achieved on two assets within the underlying portfolios that were exited during the quarter, namely Libstar and Rhodes Foods. This re-emphasises our expectation for good performance in future when the underlying portfolio companies reach maturity and are realised.

Longer-term Performance vs. FTSE/JSE All Share Index (ALSI) Fund

Inception Date

Annualised Return since inception*

OMMMPEF1

1 May 2006

21.5%

13.8%

7.7%

OMMMPEF2

1 Oct 2007

6.2%

10.6%

-4.3%

OMPESF

1 Oct 2009

10.5%

18.0%

-7.5%

ALSI

Performance vs. ALSI

inception returns for OMMMPEF1 on an internal rate of return (IRR) or money-weighted basis (all other performance calculations in this report are on a time-weighted basis). For those who invested in OMMMPEF1 at its inception, their IRR has been an impressive 27.2% per annum to 30 September 2014. There are 15 companies still to be realised before this Fund matures, which will result in further cash distributions to investors. OMMMPEF2 increased by 0.3% during the quarter and 17.6% over the past year. The largest positive contributors were Lereko Metier and Actis. Although this Fund was challenged by the global crisis at its outset, it has delivered pleasing annualised returns of 17.8% over three years and 15.5% over five years. OMPESF returned -5.8% for the quarter and 3.4% over the past year. This was mainly due to lower comparable multiples across the remaining six underlying portfolio holdings, including weaker earnings from Consol. We expect the future volatility of returns from quarter to quarter to remain high given the concentrated number of holdings in this Fund. The sale of these remaining holdings over the next two to three years is expected to enable the Fund to achieve its CPI + 10% benchmark and will result in cash distributions to investors. OMMMPEF3: delivered 0.8% during the quarter and 6.5% (after tax and fees) over the past 12 months. One of the unique features of our multi-manager funds is the degree of immediate private equity exposure at inception (in other words, there are underlying funds that are already invested in companies). This has resulted in an annualised after-tax return of 7.4% since inception 15 months ago. This Fund is currently open to new investors. Should you require more information, please contact your financial advisor or our business development executive, Kevin French on +27 21 509 4326 or [email protected]. Best regards Jacci Myburgh Head: OLD MUTUAL Private Equity

OMMMPEF1 returned -5.1% in the third quarter and was up 8.2% over the past 12 months. The returns over three years have been relatively muted. However, more assets are reaching maturity, which should result in performance-unlock as they are sold. OMMMPEF1 has made two cash distributions to investors since 2010. Given that investors have had the benefit of being able to reinvest these proceeds elsewhere, we calculated the since-

* UPF (untaxed) basis, annualised, net of fees ** IPF (Individual taxed) basis, net of fees

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MARKET OVERVIEW – QUARTER 3, 2014 GLOBAL ECONOMIC overview and outlook

With the purchasing of assets by the US Fed now almost at an

US recovery firm, while rest of the world largely struggling

commodity prices sharply lower. While lower commodity prices

end and the focus shifting to the timing, speed and extent of rate hikes next year, the US dollar has firmed sharply. This has driven

Rian le Roux | Chief Economist at Old Mutual Investment Group After reaching a new all-time high around the middle of September, the US S&P 500 Index promptly changed course and ended the month almost 2% below the mid-month high. The key driving force

are a growth boon for consuming nations, it causes considerable problems for commodity exporters, like South Africa.

Outside US, major central banks favour more stimulus In contrast to solid data and a leaning towards policy tightening

behind the sudden reversal in the equity market was the outcome of

in the US, incoming data around the rest of the world remains

the September 17 US Federal Reserve (Fed) policy-making meeting.

soggy and growth forecasts are generally being revised lower. As

While the Fed’s post-meeting statement was largely unchanged

a result, the central banks of China, the Eurozone and Japan are

and, in itself, was actually a little more dovish than market

leaning towards further policy easing and some have already put

participants had expected, it was the forecasts by individual Fed

in place additional stimulus measures.

members of the profile of the Fed Funds rate through the end of 2015 that strengthened the perception that the Fed was actually turning more hawkish. The median of the 12 members’ forecasts for the Fed Funds rate rose to 1.375% by the end of December 2015, up from 1.125% predicted at the June Fed Open Market Committee (FOMC) meeting. The rate currently stands at 0.125%. The key reason for the Fed’s gradually more hawkish underlying

A key characteristic of the world economy remains the absence of inflation, despite the sharp increase in the balance sheets of key central banks. With commodity prices under downward pressure, weak growth outside the US and generally depressed wage growth, we continue to see little risk of a major rebound in world inflation. In the US, the firming dollar is an additional disinflationary force.

leaning is the strength of the incoming data on the US real

US face muted inflation pressures

economy and tightening labour market. After an unexpected

10.0

contraction of 2% at an annualised rate in the first quarter of the year, US real gross domestic product (GDP) bounced back

10.0

USA core inflation USA Fed policy rate

7.5

7.5

sharply in the second quarter, expanding by an annualised 4.6%. Incoming high-frequency data point to a further 3% or so annualised

5.0

5.0

2.5

2.5

0.0

0.0

expansion in the third quarter. In addition, employment continues to expand at a solid pace and the unemployment rate has fallen to below 6%, the lowest since the start of the global financial crisis in 2008. Commodities & US unemployment fall 150

-2.0 15

Oil price

95

98

01

04

07

10

13

-2.0

Sources: Bloomberg, Old Mutual Investment Group

95 10

60

5 25

the Eurozone in particular, still struggling. With US interest rate increases looming ever larger, the long-awaited firming of the dollar is underway. This is putting considerable downward

USA unemployment rate 00

02

04

06

08

10

12

14

0

Sources: Bloomberg, Old Mutual Investment Group

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Global economic conditions are increasingly diverging, with the US economy accelerating, but other parts of the world,

40

15

ECONOMIC Outlook

pressure on commodity prices and emerging market currencies.

MARKET OVERVIEW CONTINUED

LOCAL ECONOMIC overview and outlook Gloomy outlook for SA as growth forecasts remain skewed to the downside

to the rescue in some form or the other. The financial problems experienced by parastatals are not limited to Eskom, as SAA and the SABC, among others, might also need further assistance from the state. Incoming macro-economic data also remains pretty weak, although early data does point to a moderate acceleration in activity in the third quarter from the slow 0.6% GDP growth recorded in the second quarter of the year. Still, growth forecasts continue to be revised lower for this year and next, and consensus growth forecasts for 2014 are now little over 1%, with a moderate rebound to little more than 2% seen in 2015. Risks to these forecasts remain skewed to the downside.

Rian le Roux | Chief Economist at Old Mutual Investment Group After trading sideways around R10.70 to the US dollar for the previous three months, the rand slumped in September, ending the month at R11.28/US$. While the stronger dollar was mostly responsible for the slide, the rand also ended the month weaker, although to a lesser extent, against most of the other major currencies.

Inflation stuck at top end of target range

Bleak outlook for already large trade deficit South Africa’s twin deficits remain uncomfortably large. August saw the release of yet another large trade deficit and, with the monthly average deficit for the first two months of the third quarter running at -R11.6 billion versus -R6.7 billion a month during the second quarter, early evidence points to an even further widening in the overall current account deficit in the third quarter from the already large 6.2% of GDP recorded in the second quarter. Moreover, with commodity prices, especially precious metal and iron ore prices, plummeting over the past few months, it is hard to see the deficit narrowing anytime soon in the absence of a sharp reduction in import demand. Fiscal data for the first five months of the fiscal year is equally concerning as the weak economy has finally started to negatively affect tax revenue growth. The latter was running at only 6.9% growth, compared to a budget target of 8.8%. If these trends continue, the deficit for the full 2014/15 fiscal year will exceed the 4% of GDP budget target by a half percentage point or more. In addition to the growing squeeze on the fiscus, Eskom’s financial problems continue to mount and Government will have to come

In addition to weak real economy numbers, inflation remains outside the Reserve Bank’s 3% to 6% target range, with the August number coming in at 6.4%. While we think inflation will gradually drift lower over the next year or so, barring a full-blown slump in the rand, it is still set to remain sticky around the top end of the target range. Overall, the South African macro-economic landscape remains highly problematic, characterised by very weak growth, little employment creation, sticky inflation, troublesome deficits, an increasingly more difficult external environment and a lack of decisive policy action on the part of government to propel the economy onto a higher growth path. Unless urgent action is taken soon to raise the economy’s growth potential, South Africa sovereign credit ratings will remain under downward pressure. ECONOMIC Outlook Concerns are still mounting over SA’s deteriorating medium-term growth prospects and the negative impact this could have on both job creation prospects and the already pressured fiscal situation. The need for urgent growth-enhancing economic reforms is becoming ever more imperative.

consumers under pressure, foreign trade deficit still wide 20

20

Trade balance, Rand billion, 3-month moving average

Wage bill growth Inflation

15

15

10 5

10

0 5

-5 -10

0

-15 -5

00

03

06

09

12

15

00

03

06

09

12

15

-20

Sources: Bloomberg, Old Mutual Investment Group

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Old Mutual Multi-Manager Private Equity Fund 1 Report for the quarter ENDED 30 September 2014

FUND DESCRIPTION

Ethos Fund V

Inception date:

May 2006

Alexander Forbes

Fund term:

10 years

Transaction Capital

Performance objective:

CPI + 10%

Fund objective:

The fund is designed to deliver returns in excess of inflation over the long term through diversified exposure to experienced private equity managers. These underlying funds invest in a range of companies across different sectors, and have the added benefit of being diversified across vintages.

Plumblink

Ecobank Transnational Tiger Automotive Brandcorp House of Busby Idwala Universal Group Waco

Fund Composition OMMMPEF1 is a private equity fund of funds invested primarily in two underlying private equity funds: nn Old Mutual Private Equity (OMPE) Fund I (largely realised) nn Brait Fund IV nn Ethos Fund V

Underlying Fund Split (by value) as at 30 September 2014 OMPE Fund I (0%)

Brait Fund IV (32%)

Ethos Fund V (68%)

INVESTMENTS PER FUND MANAGER

OMMMPEF1 Top 10 Holdings As at 30 September 2014, the top 10 holdings in OMMMPEF1 were as follows:

Investment 1.

Idwala

16%

2.

Consol

14%

3.

Brandcorp

13%

4.

Tiger Automotive

10%

5.

Universal Group

8%

6.

Waco

7%

7.

Primedia

6%

8.

Alexander Forbes

4%

9.

Transaction Capital

4%

10.

Medu Capital

4%

PERFORMANCE COMMENTARY

OMPE Fund I

As at 30 September 2014, the unit prices for the three different tax classes were as follows:

Savcio warranty provision*

nn UPF (Untaxed)

R5.14

Brait Fund IV

nn IPF (Individual)

R4.91

nn CPF (Corporate)

R4.43

Consol Capital Africa Steel Medu Capital

Based on the 30 September 2014 untaxed unit price of R5.14, OMMMPEF1 has delivered a net return of -5.1% for the quarter, 8.2% for the 12-month period ended 30 September 2014 and a compound annual

Nature’s Choice

return of 21.5% since inception (101 months). The return for the quarter

Buildmax

was driven by weaker comparable multiples of the underlying companies,

Primedia

while some value unlock was achieved on the listing of Alexander Forbes within the Ethos portfolio.

* OMPE Fund I has disposed of its investment in Savcio. Given that warranties have been provided to the buyer, OMPE Fund I will retain a warranty provision for the period of the warranty.

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% of Fund

Old Mutual Multi-Manager Private Equity Fund 1 Returns by Tax Class

OVERALL PORTFOLIO ANALYSIS As at 30 September 2014, OMMMPEF1 had fully paid down the

TO 30 September 2014 25%

internal gearing facility. The Fund has a 6.60% cash holding. Any cash proceeds from sales are expected to result in future cash distributions to investors.

CPF

20.8%

IPF

20%

21.5%

19.3%

UPF

16.7%

17.6% 17.5%

15% 10%

Sectoral Spread The sectoral spread analysis depicted below reflects a large weighting to industrials (represented by Consol and Waco), consumer goods (represented by assets such as Tiger Automotive and Busby), and financials (represented by Alexander Forbes and Medu).

5.8% 5.7% 6.0%

5% 0% -5% -10%

Exposure by Sector

7.8% 7.7% 8.2%

-4.0%

-4.7%

-5.1%

3 months

12 months

36 months

as at 30 September 2014

60 months Since inception (101 months annualised)

Source: Old Mutual Alternative Investments

Consumer Services (8%)

Return performance is after all costs including performance and management fee accruals in the unit price.

Basic Materials (17%) Industrials (46%)

Comparative Returns TO 30 September 2014

Consumer Goods (17%)

25% 22.2%

21.5%

20%

Financials (12%)

OMMMPEF1 Performance The following two graphs illustrate OMMMPEF1’s annualised net returns across the three tax classes over various measurement periods, as well as

15%

but also other proxies like the FTSE/JSE All Share Index (ALSI). OMMMPEF1 has made two cash distributions to investors since 2010. Given that investors have had the benefit of being able to reinvest these proceeds elsewhere, we calculated the returns for the Fund on an internal rate of return (IRR) − or money weighted basis − since inception. Those who

16.3%

15.9%

17.5%

16.5%

15.3% 13.8%

10%

8.2% 6.0%

5%

3.9%

0%

against its benchmark and various proxies. It is apparent that over the long term this Fund has quite comfortably outperformed not only its benchmark,

18.0% 15.4%

FTSE/JSE All Share Index

-2.1%

-5% -10%

CPI + 10%

-5.1%

3 months

UPF 12 months

36 months

60 months

Since inception (101 months annualised)

Source: Old Mutual Alternative Investments Return performance is based on the untaxed unit price after performance and management fee accruals, reflecting a pre-tax investment position, whereas the proxy returns are before potential investment costs and fees.

invested at OMMMPEF1’s inception have been rewarded with an IRR of 27.2% a year to 30 September 2014. Note: All other performance calculations in this report are on a time weighted basis.

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Old Mutual Multi-Manager Private Equity Fund 2 Report for the quarter ENDED 30 September 2014

Brait Fund IV

FUND DESCRIPTION

Consol Capital Africa Steel

Inception date:

October 2007

Fund term:

10 years

Performance objective:

CPI + 10%

Buildmax

Fund objective:

The fund is designed to deliver returns in excess

Primedia

Medu Capital Nature’s Choice

of inflation over the long term, through

Ethos Fund V

diversified exposure to a number of

Plumblink

experienced private equity managers. These

Alexander Forbes

underlying funds invest in a range of companies

Transaction Capital

across different sectors, and have the added

Ecobank Transnational

benefit of being diversified across vintages.

Brandcorp Tiger Automotive

Fund Composition

House of Busby

OMMMPEF2 is a private equity fund of funds currently invested in six remaining

Idwala

underlying private equity funds (following the realisation of OMPE Fund I):

Universal Group

nn Old Mutual Private Equity (OMPE) Fund I (largely realised)

Waco

nn Old Mutual Private Equity (OMPE) Fund II

Lereko Metier Capital Growth Fund I

nn Brait Fund IV

Libstar

nn Ethos Fund V

Elementum

nn Lereko Metier Capital Growth Fund I

Vox Telecom

nn Actis Fund III

South Point

nn Capitalworks Fund I

York Timber

Underlying Fund Split (by value) as at 30 September 2014 OMPE Fund II (23%)

OMPE Fund I (0%)

Capitalworks Fund I (15%)

Astrapak Actis Fund III

Actis Fund III (24%)

Brait Fund IV (4%) Ethos Fund V (8%)

Lereko Metier Capital Growth Fund I (26%)

INVESTMENTS PER FUND MANAGER OMPE Fund I Savcio warranty provision* OMPE Fund II Consol Actom Idwala Reclamation Tourvest Ecobank Transnational * OMPE Fund I has disposed of its investment in Savcio. Given that warranties have been provided to the buyer, OMPE Fund I will retain a warranty provision for the period of the warranty.

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Surgical Innovations

Actom

South Africa

7 Days

China

Integreon

India

Vlisco BV

West Africa

Emerging Markets Payments Holdings (EMPH)

Africa

KS Distribution

Singapore

Evora (CSD)

Brazil

IDFC

India

Project Education

China

Anthelio Healthcare

India

XP Investimentos

Brazil

Sterling Add Life

India

Gtex

Brazil

Supermax

India

Tracker

South Africa

Endurance Technologies

India

DEOCSA

Guatemala

Grupo Cruzeiro

Brazil

Bellagio

China

AGS Transact Technologies

Sri Lanka

Old Mutual Multi-Manager Private Equity Fund 2 Asiri Hospitals

Sri Lanka

Project Rose

China

OVERALL PORTFOLIO ANALYSIS

C.N.A.

Brazil

As at 30 September 2014, 8.4% of the Fund was funded via an internal

Edita

Africa

gearing facility. Given that some of the managers are close to realising a

Paycorp

Africa

number of their investee companies, we expect to see the gearing paid

Symbiotec Pharmalab

India

down within the short term.

Capitalworks Fund I Pronto

Sectoral Spread

Reclamation

The sectoral spread analysis depicted below reflects a large weighting to

The Scientific Group

industrials (represented by Consol and Actom), consumer services, mainly

Rosond

retail (represented by assets such as Libstar, Rhodes Food and Tourvest),

Rhodes Food

and consumer goods (represented by Tiger Automotive, Brandcorp and

Much Asphalt

Busby).

OMMMPEF2 Top 10 Holdings

Exposure by Sector as at 30 September 2014

As at 30 September 2014, the top 10 holdings in OMMMPEF2 were as follows:

Investment

% of Fund

1.

Libstar

16%

2.

Actom

12%

3.

Rhodes Food

9%

4.

Idwala

6%

5.

Consol

6%

6.

Tourvest

4%

7.

South Point

3%

8.

Rosond

3%

9.

Vox

3%

10.

Vlisco BV

3%

Financials (3%)

Healthcare (2%)

Consumer Services (17%)

Infrastructure (1%)

Consumer Goods (36%)

Industrials (32%)

Basic Materials (8%)

PERFORMANCE COMMENTARY As at 30 September 2014, the unit prices for the three different tax classes were as follows: nn UPF (Untaxed)

R1.53

nn IPF (Individual)

R1.39

nn CPF (Corporate)

R1.32

Based on the 30 September 2014 untaxed unit price of R1.53, OMMMPEF2 has delivered a net return of 0.3% for the quarter, 17.6% for the 12-month period ended 30 September 2014 and a compound annual return of 6.2% since inception (84 months). The largest positive contributors to performance for the quarter were Lereko Metier and Actis. Despite generally weaker comparable multiples, the maturing assets within the portfolio resulted in value unlock in the portfolio. Alexander Forbes (Ethos) was listed during the third quarter, while Rhodes Food (Capitalworks) and Libstar (Lereko Metier) were listed and sold, respectively, shortly after quarter-end.

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Old Mutual Multi-Manager Private Equity Fund 2 OMMMPEF2 Performance The graphs that follow illustrate OMMMPEF2’s annualised net return across the three tax classes over various measurement periods, as well as against its benchmark and various proxies. While OMMMPEF2’s net return since inception lags its benchmark, it is pleasing to note that over the past five years the Fund has shown strong growth of more than 15% a year. Given the age of the underlying companies, we expect an increase in the realisation of assets over the coming years. These sales are expected to unlock additional value for investors. We remain confident of the abilities of the underlying managers and expect the Fund’s returns to continue to improve over time.

Returns by Tax Class

Comparative Returns

TO 30 September 2014

TO 30 September 2014

20%

25%

CPF 15%

CPI + 10% (Benchmark)

15.5%

UPF

14.2%

FTSE/JSE All Share Index

17.8%

17.6%

IPF

15.5%

15.5%

13.9%

20%

UPF 17.6%

13.6% 12.0%

15.4%

16.3%

22.2%

17.8% 18.0% 15.9%

16.4%

15.3% 15.5%

15%

10%

10.6%

6.2%

5%

4.0%

10%

4.8%

6.2%

5%

0%

3.9%

0.3%

0.3%

0%

-0.5% -0.1%

-2.1%

-5%

-5%

3 months

12 months

36 months

60 months

Since inception (84 months annualised)

3 months

12 months

36 months

60 months

Since inception (84 months annualised)

Source: Old Mutual Alternative Investments

Source: Old Mutual Alternative Investments

Return performance is after all costs including performance and management fee accrual in the unit price.

Return performance is based on the untaxed unit price after performance and management fee accruals, reflecting a pre-tax investment position, whereas the proxy returns are before potential investment costs and fees.

hildebrand restaurant owned by tourvest

10

Old Mutual Private Equity secondary Fund Report for the quarter ENDED 30 September 2014 FUND DESCRIPTION

PERFORMANCE COMMENTARY

Inception date:

October 2009

Fund term:

8 years

As at 30 September 2014, the unit prices for the three different tax classes were as follows:

Performance objective:

CPI + 10%

Fund objective:

The fund is designed to deliver returns in excess of inflation over the long term, through diversified exposure to a fully invested portfolio of high-quality private equity assets with the added benefit of diversification across vintages.

Fund Composition OMPESF is a private equity fund of funds and, following the realisation of OMPE Fund I, is currently invested in only one fully-invested underlying private equity fund: nn Old Mutual Private Equity (OMPE) Fund I (largely realised) nn Old Mutual Private Equity (OMPE) Fund II

Underlying Fund Split (by value) as at 30 September 2014

nn UPF (Untaxed)

R1.65

nn IPF (Individual)

R1.51

nn CPF (Corporate)

R1.46

Based on the 30 September 2014 untaxed unit price of R1.65, OMPESF has delivered a net return of -5.8% for the quarter, 3.4% for the 12-month period ended 30 September 2014 and a compound annual return of 10.5% since inception (60 months). The negative return for the quarter was due mainly to lower comparable multiples across the remaining six underlying portfolio holdings, including weaker earnings from Consol. Given the concentrated number of holdings in this Fund, we expect the future volatility of returns from quarter to quarter to remain high. However, we remain confident of the quality of and prospects for this portfolio. The sale of the remaining holdings over the next two to three years is expected to enable the Fund to achieve its CPI + 10% benchmark and will result in cash distributions to investors.

OMPE Fund I (0%)

OVERALL PORTFOLIO ANALYSIS As at 30 September 2014, 2.46% of the Fund was funded via an internal gearing facility. We will monitor the cash position and consider a distribution to investors should the cash balance increase substantially. This could occur if, for example, an additional asset in OMPE Fund II is sold.

OMPE Fund II (100%)

Sectoral Spread The sectoral spread analysis depicted below reflects a large weighting to industrials (represented by Consol and Actom), consumer services (represented by Tourvest) and basic materials (represented by Idwala and Reclamation).

INVESTMENTS PER FUND MANAGER OMPE Fund I Savcio warranty provision* OMPE Fund II Consol Actom

Exposure by Sector

Idwala

as at 30 September 2014

Reclamation Holdings Tourvest Ecobank Transnational

Industrials (60%)

* OMPE Fund I has disposed of its investment in Savcio. Given that warranties have been provided to the buyer, OMPE Fund I will retain a warranty provision for the period of the warranty.

Consumer Services (19%)

OMPESF Top Holdings As at 30 September 2014, the top holdings in OMPESF were as follows:

Investment

% of Fund

1.

Actom

43%

2.

Tourvest

19%

3.

Idwala

19%

4.

Consol

17%

5.

Reclamation

1%

6.

Ecobank Transnational

1%

Basic Materials (20%) Financials (1%)

11

Old Mutual Private Equity secondary Fund OMPESF Performance The two graphs below illustrate OMPESF’s return against its benchmark and various proxies.

Returns by Tax Class TO 30 September 2014 15%

CPF 12.2%

IPF UPF

10%

10.5%

9.3% 9.7%

5% 2.8% 2.5%

3.4%

0%

-5%

-4.4%

-5.3%

-5.8%

-10% 3 months

12 months

36 months

Since inception (60 months annualised)

Source: Old Mutual Alternative Investments Return performance is after all costs including a performance and management fee accrual in the unit price.

Comparative Returns TO 30 September 2014 25% FTSE/JSE All Share Index

22.2%

CPI + 10% (Benchmark)

20%

18.0%

UPF 15.4%

15%

16.3%

15.9%

15.3% 12.2% 10.5%

10% 5%

3.9%

3.4%

0% -2.1%

-5% -5.8%

-10% 3 months

12 months

36 months

Since inception (60 months annualised)

Source: Old Mutual Alternative Investments Return performance is based on the untaxed unit price after performance and management fee accruals, reflecting a pre-tax investment position, whereas the proxy returns are before potential investment costs and fees.

BOILER PRODUCTION AT ACTOM

12

OPEN TO INVESTMENTS

Old Mutual Multi-Manager Private Equity Fund 3 Report for the quarter ENDED 30 September 2014 Ethos Fund VI

FUND DESCRIPTION

Kevro

Inception date:

01 July 2013

RTT

Fund term:

10.5 years

Waco

Performance objective:

CPI + 10%

Capitalworks Fund II

Fund objective:

The fund is designed to deliver returns in excess

Much Asphalt

of inflation over the long term, through diversified

Infrastructure Specialist Group

exposure to a fully invested portfolio of

Carlyle Sub-Saharan Africa Fund I

high-quality private equity assets with the added

ETG (Export Trading Group)

benefit of diversification across vintages.

J & J Transport Project A

Fund Composition

Traxys Group

OMMMPEF3 is a private equity fund of funds which invests in six underlying private equity funds:

Actis Fund III Actom

South Africa

7 Days

China

nn Actis Fund III

CIB

Egypt

nn Ethos Fund VI

Integreon

India

nn Capitalworks Fund II

Vlisco BV

West Africa

nn Carlyle Sub-Saharan Africa Fund I

Emerging Markets Payments Holdings (EMPH)

Africa

KS Distribution

Singapore

Evora (CSD)

Brazil

IDFC

India

Project Education

China

Anthelio Healthcare

India

XP Investimentos

Brazil

Sterling Add Life

India

Gtex

Brazil

Supermax

India

Tracker

South Africa

Endurance Technologies

India

DEOCSA

Guatemala

Grupo Cruzeiro

Brazil

nn Old Mutual Private Equity (OMPE) Fund II nn Old Mutual Private Equity (OMPE) Fund IV

Underlying Fund Split (by value) as at 30 September 2014 Capitalworks Fund II (3%) OMPE Fund IV (13%) Actis Fund III (26%)

Ethos Fund VI (11%) OMPE Fund II (36%) Carlyle Africa Fund (11%)

INVESTMENTS PER FUND MANAGER

Bellagio

China

AGS Transact Technologies

Sri Lanka

Asiri Hospitals

Sri Lanka

Project Rose

China

Reclamation Holdings

C.N.A.

Brazil

Tourvest

Edita

Africa

Ecobank Transnational

Paycorp

Africa

OMPE Fund IV

Symbiotec Pharmalab

India

OMPE Fund II Consol Actom Idwala

Primedia 10X Investments Tiswala

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Old Mutual Multi-Manager Private Equity Fund 3 Exposure by Sector

OMMMPEF3 Top Holdings

as at 30 September 2014

As at 30 September 2014, the top holdings in OMMMPEF3 were as follows:

Investment

% of Fund

1.

Actom

2.

Tourvest

7%

3.

Idwala

7%

4.

Primedia

6%

5.

Tiswala

6%

6.

Consol

6%

7.

Project A

5%

8.

RTT

5%

9.

Waco

4%

10.

Kevro

3%

Basic Materials (15%)

17%

Consumer Goods (12%) Infrastructure (3%)

Industrials (36%) Consumer Services (26%)

Healthcare (1%)

Financials (7%)

PERFORMANCE COMMENTARY As at 30 September 2014, the unit prices for the different tax classes were as follows: nn UPF (Untaxed)

R1.05

nn IPF (Individual)

R1.09

nn CPF (Corporate)

R1.08

Based on the 30 September 2014 untaxed unit price of R1.05, OMMMPEF3 has delivered a net return of 1.8% for the quarter. The IPF unit price has delivered a total return after tax and fees of 9.5% since inception 15 months ago.

OVERALL PORTFOLIO ANALYSIS As at 30 September 2014, clients are almost fully invested, with cash comprising only 8.75% of the Fund. The product has the ability to increase the gearing facility to 50% of the value of the assets of OMMMPEF3. As the managers complete their investment programmes, any cash residing within the Fund, as well as the undrawn gearing facility, will be used (at a prime interest rate cost) to finance additional investments.

Sectoral Spread The sectoral spread analysis depicted below reflects a large weighting to industrials (represented by Actom, Consol and Waco), consumer services (represented by Tourvest and Primedia) and basic materials (represented by Idwala and Tiswala).

TRANSFORMER WINDING AT ACTOM

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Old Mutual Multi-Manager Private Equity Fund 3 OMMMPEF3 Performance The graph below illustrate OMMMPEF3’s return against its benchmark and various proxies.

Returns by Tax Class TO 30 September 2014 8%

7.4%

CPF IPF

6.5%

UPF

6.5%

5.8%

6%

4%

1.8%

2% 0.8%

0%

0.2%

3 months

12 months

Since inception (15 months annualised)

Source: Old Mutual Alternative Investments Return performance is after all costs including a performance and management fee accrual in the unit price.

Idwala Lime OPERATIONS

15

VALUATION PRINCIPLES Valuation Principles Ensuring prudent, realistic valuations Although the underlying assets in Private Equity portfolios are not traded daily, their value is measured on a prudent, consistent yet rigorous basis in accordance with strict international guidelines. What follows are some of the key principles that are applied to ensure that the investments are prudently valued when the funds are priced. Regular and reasonable — The investments held in the Old Mutual retail funds are valued methodically every quarter using the International Private Equity and Venture Capital Association’s valuation guidelines as endorsed

Valuation methodologies — In determining the fair value of an investment, the valuer should use judgement. This includes a detailed consideration of the specific terms of the investment which may impact its fair value. In this regard, the valuer has to consider the substance of the investment, which takes preference over the strict legal form. The valuer exercises judgement to select the valuation methodology that is the most appropriate for a particular investment. Methodologies are applied consistently from period to period, except where a change would result in better estimates of fair value. These methodologies will include earnings multiples, discounted cash flows and discounted earnings, price of recent investments and net asset values.

by the South African Venture Capital Association (SAVCA). The assets

Liquidity discounts — Liquidity will vary from situation to situation and is a

in the underlying portfolios are valued by the Old Mutual Private Equity

question of judgement. The liquidity discount will usually vary between 10%

team. Where third-party managers manage some of the underlying funds

and 20%, depending on the contractual or other realisation options per

(Brait or Ethos, for example), the Old Mutual Private Equity team reviews

investment.

the reasonableness of valuations provided by these underlying managers. Where it is deemed prudent and appropriate, it may amend these values.

Fund level pricing and reporting — In order to derive a unit price of

The Old Mutual Alternative Investments valuation policy has been approved

retail private equity funds, adjustments are made to cater for interest on

by Old Mutual’s audit committee and is subject to an annual KPMG audit, as

net portfolio cash, management fees, provision for taxes and performance

well as a separate PWC annual review.

fees. However, during the first three years of each of OMMMPEF3’s underlying funds’ existence, the pricing will work differently. The value will

Strict international standards — The methodology applied by our team,

be a combination of the value of the underlying investments and the amount

as well as by the third-party private equity managers in the fund, is in strict

invested grown at the prime rate of interest. Over this three-year period, the

accordance with International Private Equity and Venture Capital Valuation

portion allocated to the capital grown with interest will become smaller as

guidelines which have been adopted by SAVCA. The aggregated fund

the portion allocated to the underlying asset value becomes bigger. The Old

valuations may be subject to some adjustments to ensure agreed pricing

Mutual Multi-Manager Private Equity Fund 3 will be priced by combining the

during buy-in periods. The entire Old Mutual Private Equity valuation activity is subject to a full audit on an annual basis. Valuations and carried interest — It is essential to note that no carried interest (performance fee) is generated by virtue of any of the valuations. Carried interest is based solely on cash realised fund performance at the sub-

values of the underlying funds and charging the appropriate fees and taxes. Given the sensitivity around certain information Old Mutual Alternative Investments provides material, high-level fund performance information as a supplement to the quarterly valuations.

manager level. In other words, performance fees will only be paid when the

While private equity by nature is less transparent than listed equity, the

underlying companies are realised (sold) and the contractual performance

valuations are prudent, consistent and rigorous, thereby ensuring that our

hurdles are exceeded.

investors’ period-to-period returns are realistic, although the distributions will

Fair value — The valuation policy for investment assets is to value investments at fair value. The fair value is the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm’s length transaction. Where possible, fair value is arrived at by using quoted prices and less frequently by using market-related rates of return to discount future cash flows. Where fair value cannot suitably be determined in this manner, the most appropriate alternative basis is sought to represent the value that would arise from selling an asset in an orderly transaction between market participants at the measurement date. Where appropriate, consultation takes place with external sources such as stockbrokers, banks and property brokers.

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be based on actual cash realised from investments.

THE OLD MUTUAL Private Equity TEAM EXECUTIVES:

Our boutique executives determine and execute the

overall strategic direction of our investments based on their extensive industry experience, while also driving partnerships with other key private equity players. They are also responsible for the management of the boutique as an independent business within Old Mutual Investment Group, and sit on the boards of several investee companies.

“We own and manage businesses in partnership with their management teams, on behalf of our clients.”

PAUL BOYNTON HEAD: ALTERNATIVE INVESTMENTS Qualifications: BSc (Hons), CA(SA), FCMA, MBA Years’ related experience: 24 Boards: Tourvest, Pembani, 10X Investments

JACCI MYBURGH HEAD: OLD MUTUAL PRIVATE EQUITY Qualifications: BCom (Hons), CA(SA) Years’ related experience: 15 Board memberships: Actom, Idwala, Actis Advisory, Brait Fund IV Advisory, Ethos Advisory

QUINTON DICKS PARTNER Qualifications: BA, LLB, Dip Tax, LLM (Corp Law), MBA Years’ related experience: 14 Board memberships: Consol, RTT, Reclamation Holdings, Libstar, Primedia, Capitalworks Advisory, Lereko Metier Advisory

Investment PrincipalS:

The responsibilities of the investment principals span the entire breadth of the private equity investment process. Initially,

they source, process and negotiate deals from inception to final investment by our funds. After investing in the underlying company, the investment principal (IP) becomes involved in the management and oversight of the investment through active representation on the investee companies’ boards of directors. Such close involvement requires a deep understanding of the companies’ operations and the broader industries in which they operate. The investment is typically held for between three and eight years, after which the IP will become actively involved in driving an investment realisation (sale) strategy. The IP must ensure they achieve an optimum exit price that provides the funds with the maximum return for their stakeholders.

LANCE GRAYSON

CHUMANI KULA

Investment PRINCIPAL

Investment PRINCIPAL

Qualifications: BEcon (Hons), CFA charterholder Years’ related experience: 13

Qualifications: BBusSc (Hons), BCom (Hons), CA(SA), CFA charterholder

Board memberships: Kensani Consortium, 10X (Alt), Lereko Metier Advisory (Alt), Carlye Advisory

Board memberships: Idwala (Alt), Pembani, Actom (Alt), Ethos Advisory (Alt)

FARHAD KHAN Investment PRINCIPAL Qualifications: BCom (Hons) Years’ related experience: 10 Board memberships: Tourvest, Consol, Actis Advisory (Alt)

Years’ related experience: 8

MOHSIN CAJEE Investment PRINCIPAL Qualifications: BCompt, BCom (Hons), CTA Years’ related experience: 7 Board memberships: Primedia, Libstar, Capitalworks Advisory (Alt), Brait Fund IV Advisory (Alt)

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THE OLD MUTUAL Private Equity TEAM CONTINUED Investment ANALYSTS:

Our investment associates research and analyse investment opportunities, including the structuring of investments, from the

conception of an investment idea to the final investment, while providing comprehensive support to the investment principal responsible for the investment. The analysts further assist and provide support to the investment principal throughout the life of the specific investment.

BURCHERT JOHANNES

PYI MAUNG

Investment ANALYST

Investment ANALYST

Qualifications: BAcc, PGDA, CA(SA)

Qualifications: BBusSci (Hons), MBA

Years’ related experience: 1

Years’ related experience: 1

Chief Operating Officer:

Our COO is responsible for maintaining and improving Old Mutual Alternative Investments’ operating capabilities,

ensuring that an adequate control and risk function is in place and project-managing major business initiatives, as well as product development and business planning, among other key responsibilities.

KARIN DU TOIT Alternative Investments COO Qualifications: BAcc, CA(SA), CFA charterholder Years’ related experience: 15

CAPITAL RAISING:

Kevin French BUSINESS DEVELOPMENT Qualifications: BCom, CFA charterholder Years’ related experience: 18 Email: [email protected]

18

Alternative Investments

Contact details www.oldmutualalternatives.com | Tel: +27 21 509 5022

Statutory Information These funds are available through an investment policy underwritten by Old Mutual Life Assurance Company (South Africa) Limited, a long-term life assurance company. The investments are managed by Old Mutual Alternative Investments (Pty) Ltd (Reg No 2013/113833/07) (FSP 45255), a licensed financial services provider approved by the Registrar of Financial Services Providers (www.fsb.co.za) to provide advisory and/ or intermediary services in terms of the Financial Advisory and Intermediary Services Act 37, 2002. Old Mutual Alternative Investments (Pty) Ltd is a wholly owned subsidiary of Old Mutual Investment Group Holdings (Pty) Limited and is a member of the Old Mutual Investment Group. Investors’ rights and obligations are set out in the relevant contracts. Market fluctuations and changes in rates of exchange or taxation may have an effect on the value, price or income of investments. Since the performance of financial markets fluctuates, an investor may not get back the full amount invested. Contractual rights and obligations of investors in these funds are subject to contract. Private Equity investments have short-term to long-term liquidity risks and there are no guarantees on the investment capital nor performance. The value of the investment may fluctuate as the values of the underlying investments change. Past performance is not necessarily a guide to future investment performance. Old Mutual Investment Group is a member of the Old Mutual group. Accordingly, Old Mutual and Nedbank are related entities. We outsource investment administration of our local funds to Curo Fund Services, 50% of which is owned by the Old Mutual Investment Group. All inter-group transactions are done on an arms lengths basis. Personal trading by staff is restricted to ensure that there is no conflict of interest. All directors and those staff who are likely to have access to price sensitive and unpublished information in relation to the Old Mutual group are further restricted in their dealings in Old Mutual shares. All employees of the Old Mutual Investment Group are remunerated with salaries and standard incentives. Unless disclosed to the client, no commission or incentives are paid by the Old Mutual Investment Group to any persons other than its representatives. While all reasonable steps have been taken to ensure that the information in this document is accurate, the information is provided without any express or implied warranty. This document is for information purposes only and does not constitute or form part of any offer to issue or sell, or any solicitation of any offer to subscribe for or purchase any particular investment. Old Mutual Investment Group has comprehensive crime and professional indemnity insurance which is part of the Old Mutual group cover. For more detail and information on how to contact us as well as on how to access information please visit www.oldmutualalternatives.com or call us on 021 509 5022.