PEARL HOLDING LIMITED
Quarterly report Q3 2016 For the period from 1 January 2016 to 30 September 2016
Dr. Cyrill Wipfli Chief Financial Officer | Alexander Ott Private Debt Europe
PEARL HOLDING LIMITED
Pearl Holding Limited Pearl Holding Limited is a Guernsey-registered private equity investment company, which was set up in 2000 when convertible bonds amounting to EUR 660 million were issued. The convertible bond which was eligible for the investment of prime stock reserves in Germany, had been given an AArating by Standard & Poor's and was listed on the Luxembourg Stock Exchange. Pearl's convertible bond enabled institutional and private investors to participate in a professionnally managed, broadly diversified portfolio of investments in private equity partnerships and direct investments.
had the option to convert their holdings and, thereby, become shareholders of Pearl Holding Limited. Investors holding 34.6% of the nominal value of outstanding bonds decided to convert, while the remaining investors received 108.00% of the nominal value per convertible bond at the final maturity on 30 September 2014. Conversion took place at 108% in accordance with the terms of issue of the convertible bonds although the net asset value was 123.18% per bond at the date of final conversion with the benefit of this difference accruing to the former bondholders who opted to convert, across all share classes.
Between 1 October 2012 and 31 August 2014 bondholders
This document is not intended to be an investment advertisement or sales instrument; it constitutes neither an offer nor an attempt to solicit offers for the product described herein. This report was prepared using financial information contained in the Company's books and records as of the reporting date. This information is believed to be accurate but has not been audited, reviewed or approved by any third party. This report describes past performance, which may not be indicative of future results. The Company does not accept any liability for actions taken on the basis of the information provided. Please consult the constituent documents for a more complete description of the terms. Cover image is for illustrative purposes only.
Page 2 | Quarterly report Q3 2016
PEARL HOLDING LIMITED
Key figures In EUR NAV per share Net current assets Value of investments Unfunded commitments Gross investment level
30 June 2016
30 September 2016
195.23
201.77
32'130'742
57'442'408
376'119'787
364'492'413
69'090'810
66'203'033
92.1%
86.4%
Quarterly report Q3 2016 | Page 3
PEARL HOLDING LIMITED
Table of contents 1
Market overview
5
2
Investment Manager's report
8
3
Portfolio composition
10
4
Largest portfolio holdings
13
5
Structural overview
16
6
Facts and figures
17
7
Unaudited financial statements
18
Page 4 | Quarterly report Q3 2016
PEARL HOLDING LIMITED
1. Market overview Macroeconomic activity While the global economy continued to expand at a modest pace during the third quarter of 2016, political events dominated the news flow in recent months. The initial adverse economic repercussions from the UK's vote to leave the European Union (Brexit) were short-lived and largely contained. After the Brexit vote, the Bank of England provided liquidity to its banking sector, reintroduced quantitative easing and cut its target rate to 0.25%. Thus, by and large, the quarter saw continued stable, yet modest global growth. The International Monetary Fund (IMF) confirmed its latest global growth forecast for 2016 and 2017 at 3.1% and 3.4%, respectively. The US rebounded from a sluggish second quarter by recording moderate growth in the third quarter, while the unemployment rate fell to 5.0%, shrugging off concerns about the US presidential elections. Donald Trump was elected as the 45th US president, to the surprise of many politicians, strategists and the broader public. Despite the positive economic momentum, the Fed left its target rate unchanged throughout the third quarter, with the prospect of higher rates at the December meeting. In the Eurozone, growth continued to improve at a modest pace, supported by the European Central Bank, which left its monetary policy stance unchanged with deposit rates of -0.4% and monthly asset purchases at EUR 80 billion. Meanwhile, concerns about the banking sector spread from Italy to Germany's Deutsche Bank, which was penalized by the US Department of Justice with a USD 14 billion fine. The unexpectedly large fine elicited concerns about bank capitalization and banks' abilities to raise fresh capital in times of low profitability. In Japan, where growth and inflation have been persistently subdued, the central bank revamped its monetary policy by introducing a target for 10-year government bond yields. The Japanese government also postponed its planned valueadded tax hike to 2019. Meanwhile, in the emerging markets, China kept economic growth stable with the support of investment-led fiscal stimulus, while Brazil's senate approved the impeachment of former president Dilma Rousseff, paving the way for proreform Michel Temer to lead the government until elections in 2018. Brazil's economy remains in recession; however, the contraction is easing.
Private equity buyout activity During the third quarter of 2016, there were 919 private equity-backed buyout deals with an aggregate value of USD 90.2 billion, a 4.2% increase from the prior year, according to Preqin. In terms of deal size, transactions valued over USD 1 billion accounted for 65.0% of the global total. North America maintained its global lead in terms of deal value, having hosted USD 60.2 billion of transactions. Buyout activity in North America climbed 35.9% to USD 60.2 billion in the third quarter of 2016, representing 66.7% of the global total. The largest deal announced in the region was the USD 4.3 billion take-private of Rackspace, a managed cloud computing company, by private equity firms Apollo Global Management and Searchlight Capital Partners. North America hosted nine of the ten largest private equity-backed buyouts in the third quarter. In Europe, aggregate deal value decreased 12.6% year on year to USD 15.3 billion across 303 buyout deals. Despite the lower deal value, Europe recorded 981 deals during the first three quarters of 2016, the highest number for the same period since 2007. The Asia-Pacific region saw an 80.3% year-on-year decrease in buyout activity, with USD 4.1 billion of deals announced. The steep decline in activity was in part due to the exceptional performance of the Asia-Pacific region in the prior year. None of the top ten deals of the third quarter of 2016 were from this region.
Private equity exit activity Global private equity exit activity in the third quarter of 2016 declined 34.0% year on year in terms of aggregate value to USD 80.8 billion across the 408 transactions recorded, according to Preqin. Of the four common exit routes (trade sale, secondary buyout, IPO and restructuring), trade sale remained the most prevalent route, representing 55.8% of global exit value during the quarter. The largest private equity exit during the period was the EUR 5.8 billion trade sale of CVC Capital Partner's portfolio company Quirónsalud, a Spanish healthcare group, to Fresenius Medical Care.
Quarterly report Q3 2016 | Page 5
PEARL HOLDING LIMITED
IPO activity Global IPO activity in the third quarter saw an improvement compared to the same period in 2015, with a total of 252 IPOs raising USD 35.4 billion (+84%), according to Ernst & Young. Despite the volatile markets, the third quarter saw just 23 withdrawn or postponed IPOs, a significant decrease from the same period in the previous year. US exchanges saw 35 listings during the quarter, which raised USD 6.4 billion, representing a year-on-year increase of 12.3% in terms of capital raised. The US hosted three of the quarter's ten largest IPOs globally, including Valvoline, an oil and gas company, as well as cross-border listings by Japanese technology firm LINE and Dutch healthcare firm Patheon, reflecting the relative attractiveness of US' mature exchanges. The UK's decision to leave the European Union weighed on IPO activity in the EMEIA region (Europe, Middle East, India and Africa), as companies shelved listing plans amid economic and political uncertainties. Nonetheless, capital raised during the third quarter increased by 15.8% to USD 4.4 billion from the 40 listings that took place. India was a bright spot, however, as it posted strong IPO activity supported by the improvement in economic fundamentals and share price performance in the secondary markets. The largest IPO that took place in the region during the quarter was the USD 2.0 billion Copenhagen listing of Nets, a provider of digital payments services in the Nordics, according to Dealogic. The Asia-Pacific region remained the main driver for global IPO activity, with 177 IPOs, which raised USD 24.2 billion. The largest IPO in the region during the third quarter was the USD 7.8 billion listing of Postal Savings Bank of China on the Hong Kong Stock Exchange, which makes this transaction the world's largest IPO since the listing of Chinese ecommerce company Alibaba Group in September 2014.
end secondaries which can be more volatile. Nevertheless, there was a slight pickup in deal flow in the third quarter of 2016, which Partners Group expects to sustain until yearend, as sellers intend to make final portfolio adjustments before 2016 comes to a close.
Fundraising activity Global private equity fundraising saw lackluster performance during the third quarter of 2016, according to preliminary data by Preqin. Aggregate private equity capital raised recorded a 15.5% year-on-year decrease to USD 62.0 billion across 170 funds that held their final closing during the quarter. North America was the most active fundraising region, which saw investors commit USD 35.7 billion across 104 funds. Of the ten largest private equity funds that held their closing during the period, three were North America-focused. Thoma Bravo Fund XII was the largest fund to close in North America and globally, with a fund size of USD 7.6 billion. In Europe, 30 funds raised an aggregate of USD 15.1 billion. Three of the ten largest private equity funds that closed during the quarter were Europe-focused, with the largest being Ardian LBO Fund VI, which raised EUR 4.5 billion (including co-investments). Fundraising activity in Asia remained subdued, with investors committing USD 8.5 billion across 22 Asia-focused funds. China-focused funds made up three of the ten largest private equity funds that closed during the quarter. IDG Everbright Industry Buyout Fund, the largest Asia-focused private equity fund that held its final closing in the third quarter, saw investor commitment of CNY 20 billion (approximately USD 3 billion).
Outlook Secondary market activity Private equity secondary activity in the first nine months of 2016 was overall softer compared to a hectic 2015, which witnessed sell side participants approaching the secondary market mostly for a mix of opportunistic and portfolio management reasons. Given the large volume of deals completed over the past few years, many potential sellers moved into 2016 with less pressure and urgency to bring assets to market. On the other side of the fence, buyers had fewer attractive opportunities given the muted secondary market and remained very cautious and careful to effectively price and update valuations when evaluating a potential acquisition. Hence, pricing bifurcation continues to be amplified in today's mature secondary market as managers either focus on higherquality funds to capture longer term gains or look for tail-
Page 6 | Quarterly report Q3 2016
The outlook for the US economy appears modestly encouraging, given the prospect of increased infrastructure spending, corporate and personal income tax cuts. However, it is still too early to assess the actual impact of the economic, budgetary, trade and immigration policies proposed by president-elect Donald Trump. While there is uncertainty surrounding the eventual outcome of Brexit negotiations between the European Union and the UK - which is likely to impact corporate hiring and investment decisions in the near term - the growth outlook for the UK remains upbeat. PostBrexit, the IMF marginally lowered its growth outlook for the UK by 0.2 ppt to 1.9%. Meanwhile, with economic contrac-
PEARL HOLDING LIMITED
tion easing in recession-hit Brazil, the IMF forecast the economy to return to positive growth in 2017. In Russia, where negative repercussions from the collapse in global oil prices and international sanctions have gradually abated, the economy is now back on track for economic growth.
In this environment of heightened market uncertainty and lukewarm economic growth, Partners Group sees an even greater need to focus on its key investment strategies: acquiring and subsequently growing platform companies with strong management teams; actively screening
Looking ahead, political events will continue to play a significant role in the global financial markets, among them the US presidential elections, a constitutional reform referendum in Italy, a potential increase in the US target rate, general elections across Europe and the beginning of official Brexit negotiations in 2017.
Sources: Preqin "Q3 2016 Private Equity-Backed Buyout Deals and Exits" (October 2016); Preqin "Q3 2016 Private Capital Fundraising Update" (October 2016); Ernst & Young "EY Global IPO Trends 2016 Q3" (September 2016); Dealogic "Innogy completes Europe's largest IPO in 5 years, using Dealogic (October 2016); Partners Group Research
Quarterly report Q3 2016 | Page 7
PEARL HOLDING LIMITED
2. Investment Manager's report Positive NAV development in the third quarter of 2016 During the third quarter the NAV of Pearl Holding Limited increased by 3.3% to EUR 201.77 per share, resulting in a year-to-date performance of 0.2%. Pearl's portfolio benefited from the positive development of its underlying portfolio investments. Main value drivers were Polish Enterprise Fund VI, L.P. and OCM Principal Opportunities Fund IV, L.P. Both profited from their mature portfolio mainly consisting of listed companies. Another value driver was American Industrial Partners Capital Fund IV, L.P. The uptick in valuation is based on the strong operational performance of the funds underlying portfolio companies. Unfavorable currency movements during the reporting period had a slightly negative impact on Pearl's NAV development.
Distribution activity in the third quarter remains strong Pearl's portfolio continued to experience a high level of distributions from its underlying investments. During the reporting period the portfolio received proceeds of roughly EUR 30.5 million. As by quarter end available cash amounted to EUR 57.5 million of which EUR 45.0 million were paid back to investors after the reporting period on 25 October.
Amongst the largest distributions were proceeds from the sale of Freescale Semiconductor, Inc. to its Dutch competitor NXP Semiconductors in a cash-and-stock transaction in December 2015, which valued the combined enterprise at just over USD 40 billion. Under the terms of the agreement, Freescale shareholders received USD 6.25 in cash and 0.3521 of an NXP ordinary share for each Freescale common share held at the close of the transaction. Pearl received the cash proceeds from the transaction in April this year and sold the stock components in July as well. Partners Group first invested in Freescale as part of a consortium in 2006, but the company experienced a significant decline in orders during the financial crisis which required it to reduce its cost base. Freescale subsequently held its IPO in 2011, raising the necessary capital to restructure its debt and held a secondary offering in 2014. In addition, Pearl received proceeds from Doughty Hanson & Co IV following the sale of the remaining shares in Tumi, a leading global premium lifestyle brand offering a broad range of business bags, travel luggage and accessories. Since the Fund's initial investment in 2004, Tumi has significantly grown its presence in the Asia-Pacific region and more than doubled the number of stores globally. In April 2012, Tumi was listed on the New York Stock Exchange (symbol "TUMI")
Price and NAV development (the last four years) 210 200 190 180
in %
170 160 150 140 130 120 110 100 09-11
03-12
09-12
03-13
09-13
03-14
09-14
03-15
Pearl NAV incl. paid and accrued interest (from 31.10.2014 onwards NAV per share)
Page 8 | Quarterly report Q3 2016
09-15
03-16
09-16
PEARL HOLDING LIMITED
at USD 18.00 per share. Samsonite and Tumi announced on 3 March 2016 that they have entered into a definitive agreement whereby Samsonite acquired Tumi for USD 26.75 per share in an all cash transaction, valuing Tumi at an equity value of USD 1.8 billion. Furthermore, Pearl received distributions from Ares Corporate Opportunities Fund II following the realization of its investment in Nasdaq-listed Nortek, triggered by UK-based investment company Melrose Industries' acquisition of the company through a tender offer. Nortek is a US based diversified Industrial company that provides air management products and lifestyle improvement solutions to homes and offices. The company was founded in 1967 and its product offering includes ventilation appliances such as bathroom fans, security and audio/video solutions, as well as heating and cooling products. The transaction was valued at approximately USD 2.8 billion.
In the third quarter, capital calls totaled EUR 2.6 million and were mostly used to serve legacy commitments. Silver Lake Partners III, L.P., Providence Equity Partners VI-A, L.P. and Ares Corporate Opportunities Fund III, L.P. where among the funds that called most of the EUR 2.6 million.
Outlook For the coming months the Investment Manager plans to continue taking advantage of the current exit environment. Further realizations from Pearl's mature portfolio are expected to materialize in the coming months. As decided by the Board, it is intended that excess liquidity of over EUR 10 million will be regularly paid back to investors. After quarter end already EUR 45.0 million of excess liquidity were paid back to investors.
Quarterly report Q3 2016 | Page 9
PEARL HOLDING LIMITED
3. Portfolio composition
C
C
B
D
B A
A
Investments by financing stage A Buyout
61%
B Venture capital
27%
B
C Special situations
Investments by regional focus 12%
A North America
58%
C Rest of World
7%
B Europe
33%
D Asia-Pacific
2%
J
C I
A
H B G
C
F A
E D
Investments by transaction type A Primary B Direct
90%
C Secondary
6%
Portfolio assets by industry sector 4%
A Consumer discr. B Utilities C IT D Materials E
Page 10 | Quarterly report Q3 2016
Industrial
26% 1% 19%
F
Consumer staples
G Financial H Energy
3%
I
Healthcare
11%
J
Telecom
6% 11% 3% 18% 2%
PEARL HOLDING LIMITED
N
O P A B C
D E
M L
F
G
K
J I
H
Portfolio assets by investment year A 2001
1%
I
2009
5%
B 2002
1%
J
2010
14%
C 2003
1%
K 2011
15%
D 2004
3%
L
2012
9%
E
2005
4%
M 2013
5%
F
2006
9%
N 2014
3%
G 2007
14%
O 2015
1%
H 2008
14%
P Other
1%
+ EUR 0.0m Net income from cash and cash
+ EUR 16.2m GP revaluations
- EUR 1.5m IFRS revaluations
Net Asset Value EUR 421.1m
December 2015
- EUR 0.6m Interest payments
- EUR 7.5m Foreign exchange
- EUR 5.8m Fees & other expenses
Net Asset Value EUR 421.9m
September 2016
NAV PERFORMANCE ATTRIBUTION IN 2016
Quarterly report Q3 2016 | Page 11
PEARL HOLDING LIMITED
250 215
in EUR million
200
187
192
179 175 167
167
144
150 132
100
127
Capital calls 87
81 69 56
36
33
25
0
Capital distributions
68 55
16 0
136
98
83
50
164
118
105
101
165
40 30
15
8
5
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
INVESTMENTS AND DISTRIBUTIONS Asset allocation as per reporting date; the portfolio composition may change over time. "Investments" refers to the value of the commitments made by the Program, while "Portfolio assets" refers to the value of the underlying holdings. The above allocations are provided for additional investor information only and do not necessarily constitute nor are necessarily managed as separate reportable segments by the Investment Manager and Company.
Page 12 | Quarterly report Q3 2016
PEARL HOLDING LIMITED
4. Largest portfolio holdings for the period ended 30 September 2016 (in EUR) Since inception Investment
Type of Stage investment
Regional focus
Vintage year
Committed
Invested
AOT Bedding Super Holdings LLC Direct
Special situations
North America 2005
2'044'750
2'044'750
AWAS Aviation Holding
Direct
Buyout
Europe
2006
3'000'000
3'000'000
Direct marketing and sales company Direct
Buyout
Rest of World 2007
1'514'470
1'359'082
Information service company
Direct
Buyout
North America 2007
2'107'482
2'108'429
Media and communications company
Direct
Buyout
North America 2008
1'068'368
1'068'368
Medical diagnostic company
Direct
Buyout
North America 2008
1'683'615
1'695'792
SunGard Data Systems, Inc.
Direct
Buyout
North America 2005
2'834'020
2'834'020
Super A-Mart
Direct
Buyout
Asia-Pacific
2006
280'188
284'864
TFCP II Co-Investment 2 L.P.
Direct
Buyout
Europe
2004
2'750'000
2'750'000
The Sports Authority, Inc.
Direct
Special situations
North America 2006
2'868'773
2'835'860
Univision Communications, Inc.
Direct
Buyout
North America 2007
1'706'368
1'784'405
US entertainment company
Direct
Buyout
North America 2008
2'347'809
2'378'706
3i Eurofund Vb
Primary
Buyout
Europe
2006
10'000'000
10'468'029
Abingworth Bioventures V, L.P.
Primary
Venture capital Europe
2007
7'284'822
7'529'978
ACT 2001 Venture Capital Fund L.P. Primary No. 2
Venture capital Europe
2001
6'000'120
6'019'249
American Industrial Partners Capital Primary Fund IV, L.P.
Buyout
North America 2007
4'350'672
8'793'153
Anonymized Emerging Markets Venture Fund 1
Venture capital Rest of World 2004
3'669'947
3'669'947
Primary
Anonymized European Buyout Fund Primary 3
Buyout
Europe
2008
15'000'000
15'678'873
Anonymized European Buyout Fund Primary 7
Buyout
Europe
2007
13'000'000
11'576'927
Anonymized US Buyout Fund 16
Primary
Buyout
North America 2007
11'026'406
11'184'265
Anonymized US Buyout Fund 2
Primary
Buyout
North America 2007
17'520'075
17'102'148
Anonymized US Venture Fund 4
Primary
Venture capital North America 2006
4'349'724
4'606'500
Apax Europe VI-A, L.P.
Primary
Buyout
Europe
2004
15'000'000
15'572'965
Apollo Overseas Partners VI, L.P.
Primary
Buyout
North America 2005
10'192'196
13'964'333
Apollo Overseas Partners VII, L.P. Primary
Buyout
North America 2008
14'077'616
17'421'327
Ares Corporate Opportunities Fund Primary III, L.P.
Special situations
North America 2008
13'993'537
17'517'012
Avista Capital Partners (Offshore) Primary II, L.P.
Buyout
North America 2008
7'096'308
9'450'779
Avista Capital Partners (Offshore), Primary L.P.
Buyout
North America 2005
10'845'382
13'743'366
Boulder Ventures V, L.P.
Primary
Venture capital North America 2007
3'642'775
4'020'971
Bridgepoint Europe III, L.P.
Primary
Buyout
5'000'000
4'546'838
Europe
2005
Quarterly report Q3 2016 | Page 13
PEARL HOLDING LIMITED
Since inception Investment
Type of Stage investment
Carmel Ventures II, L.P.
Primary
Clayton, Dubilier & Rice Fund VII L.P.
Regional focus
Vintage year
Committed
Invested
Venture capital Rest of World 2005
4'706'032
5'025'354
Primary
Buyout
North America 2005
7'317'137
7'959'146
Clayton, Dubilier & Rice Fund VIII, Primary L.P.
Buyout
North America 2009
3'886'571
5'087'214
Doughty Hanson & Co V
Primary
Buyout
Europe
2006
10'000'000
9'668'820
Doughty Hanson & Co. Fund IV, L.P. Primary
Buyout
Europe
2003
25'000'000
27'101'843
EQT V, L.P.
Primary
Buyout
Europe
2006
10'000'000
11'831'040
Index Venture Partners III, L.P.
Primary
Venture capital Europe
2005
6'500'000
6'962'566
Index Ventures IV (Jersey) , L.P.
Primary
Venture capital Europe
2007
6'000'000
6'487'612
Kohlberg TE Investors V, L.P.
Primary
Buyout
North America 2004
7'313'046
6'924'567
Levine Leichtman Capital Partners Primary III, L.P.
Special situations
North America 2003
5'299'443
6'108'261
Lightspeed Venture Partners Fund Primary VII, L.P.
Venture capital North America 2005
1'252'752
1'230'536
MatlinPatterson Global Opportunities Partners III
Primary
Special situations
North America 2007
7'244'451
8'756'568
Menlo Ventures X, L.P.
Primary
Venture capital North America 2005
7'645'251
7'645'251
New Enterprise Associates 12, L.P. Primary
Venture capital North America 2006
7'351'731
7'436'261
New Enterprise Associates X, L.P. Primary
Venture capital North America 2000
7'352'472
7'358'335
OCM Principal Opportunities Fund Primary IV, L.P.
Special situations
North America 2006
7'304'074
7'453'922
Partners Group SPP1 Limited
Secondary
Special situations
North America 1996
Polish Enterprise Fund VI, L.P.
Primary
Buyout
Rest of World 2006
10'000'000
9'843'392
Project Market
Secondary Venture capital North America 1998
5'348'994
5'241'030
165'017'726 156'350'730
Providence Equity Partners VI -A, Primary L.P.
Buyout
North America 2007
14'167'063
16'969'858
Silver Lake Partners III, L.P.
Buyout
North America 2007
14'552'127
15'337'868
Primary
Sofinnova Capital Partners V, FCPR Primary
Venture capital Europe
2004
8'775'000
10'065'998
Sofinnova Capital VI FCPR
Primary
Venture capital Europe
2008
5'000'000
4'750'000
Summit Partners Private Equity Fund VII-B, L.P.
Primary
Growth
North America 2005
3'118'335
3'133'416
SV Life Sciences Fund IV, L.P.
Primary
Venture capital North America 2006
5'147'950
5'719'105
TA Atlantic & Pacific VI, L.P.
Primary
Growth
14'568'077
14'390'046
Page 14 | Quarterly report Q3 2016
North America 2007
PEARL HOLDING LIMITED
Since inception Investment
Type of Stage investment
Regional focus
Vintage year
Committed
Invested
Terra Firma Capital Partners II, L.P. Primary
Buyout
Europe
2002
13'500'000
19'186'868
Thomas H. Lee Parallel Fund VI, L.P. Primary
Buyout
North America 2006
14'824'377
15'652'174
TPG Partners V, L.P.
Primary
Buyout
North America 2006
5'737'219
6'006'569
Value Enhancement Partners Special Sit. Fund I
Primary
Special situations
Europe
2008
10'000'000
7'885'217
Warburg Pincus Private Equity VIII, Primary L.P.
Buyout
North America 2001
9'495'296
9'670'982
Warburg Pincus Private Equity X, L.P.
Buyout
North America 2007
14'499'081
14'643'280
Primary
Some names and figures (marked "n.a.") may not be disclosed for confidentiality reasons. Furthermore, some investments have been made through Partners Group pooling vehicles at no additional fees. Please note that contributions may exceed total commitments due to foreign currency movements. The overview shows all direct investments and the 50 largest partnerships based on NAV.
Quarterly report Q3 2016 | Page 15
PEARL HOLDING LIMITED
5. Structural overview The residual amount of the original capital that Pearl raised through the issuance of its convertible bond is invested in private equity. Pearl uses two different types of investment forms, namely direct investments and private equity partnerships. Pearl Management Limited, a company also registered in Guernsey and a wholly-owned subsidiary of Partners Group Holding AG, is responsible for the management of the portfolio during the realization phase. Pearl convertible bonds reached their maturity on 30 September 2014, when 34.6% of the nominal value of outstanding bonds were converted into shares. While shareholders participate in the full realization of the private equity portfolio, redeeming bondholders received a cash payment amounting to 108.00% of the nominal value of their holdings. The difference between the redemption amount and the NAV per bond has been given up by bondholders that chose to redeem to the benefit of all classes of shares proportionally.
On 22 January 2014, Pearl Subholding Limited, a wholly owned subsidiary of the Company, was incorporated. The Company transferred a total of 85 investments to this subsidiary on various dates between 1 March 2014 and 1 July 2014, to act as collateral in the event that sufficient bonds were not converted prior to 31 August 2014. In the financial period 2014 bondholders converted EUR 228 million of bonds into 2'091'020 shares, prior to 31 August 2014. As a result, upon maturity of the remaining EUR 432 million of bonds on 30 September 2014, the Company paid EUR 466 million in accordance with the Terms and Conditions of the Bonds.
STRUCTURE CHART 1
Investors (Shareholders)
Pearl Management Limited Guernsey (“Investment Manager”)
Pearl Holding Limited Guernsey
100%
Partners Group AG Switzerland (“Investment Adviser”)
Direct Investments
Pearl Subholding Limited Guernsey
Private Equity Funds
Direct Investments
Private Equity Funds
Access Vehicles
Private Equity Funds / Direct Investments
Partners Group Vehicles
PEARL HOLDING LIMITED
6. Facts and figures This glossary explains certain terms used in this report for the convenience of the reader. For information relating to share capital please refer to note 6 of the unaudited financial statements Conversion period
1 October 2012 until 31 August 2014
Fees
Management fee: 1.5% p.a.
Final conversion ratio
34.6%
Issue size
EUR 660 million
Issuer
Pearl Holding Limited, Guernsey
Launch date
29 September 2000
Maturity
30 September 2014
Redemption
108%
Reporting
Monthly report, Quarterly report, Annual report
Security numbers
ISIN (Class B Shares): GG00B9HMC492 ISIN (Class C Shares): GG00B83WTQ75 ISIN (Class D Shares): GG00BH2RFW47 ISIN (Class E Shares): GG00BH2RFX53
Quarterly report Q3 2016 | Page 17
PEARL HOLDING LIMITED
7. Unaudited financial statements Unaudited consolidated statement of comprehensive income for the period from 1 January 2016 to 30 September 2016 01.07.2016 30.09.2016
01.01.2016 30.09.2016
01.07.2015 30.09.2015
01.01.2015 30.09.2015
Net income from financial assets at fair value through profit or loss
14'289
5'041
(6'020)
54'047
Private equity
13'990
4'333
(6'334)
51'435
9
121
2'559
2'741
In thousands of EUR
Notes
Interest & dividend income Revaluation
4
16'738
13'784
(7'647)
21'186
Withholding tax on direct private equity investments
4
(3)
(8)
-
-
Net foreign exchange gains / (losses)
4
(2'754)
(9'564)
(1'246)
27'508
235
289
(420)
787
-
(159)
91
246
(495)
52
Private debt Interest income (including PIK) Revaluation
4
265
555
Net foreign exchange gains / (losses)
4
(30)
(107)
(16)
489
64
419
734
1'825
64
419
734
1'825
29
(82)
(144)
118
-
(5)
-
-
29
(77)
(144)
118
Total net income
14'318
4'959
(6'164)
54'165
Operating expenses
(1'843)
(5'859)
(2'337)
(7'428)
Management fees
(1'649)
(5'281)
(2'183)
(6'830)
-
(1)
(28)
(196)
Private infrastructure Revaluation
4
Net income from cash & cash equivalents and other income Interest income Net foreign exchange gains / (losses)
Incentive fees
8
Administration fees
(110)
(352)
(146)
(455)
Other operating expenses
(46)
(191)
(50)
(213)
Other net foreign exchange gains / (losses)
(38)
(34)
70
266
1'207
1'749
(1'862)
(16'129)
-
(506)
(944)
(3'491)
(34)
(65)
(1)
(3)
1'241
2'320
(917)
(12'635)
13'682
849
(10'363)
30'608
Other financial activities Interest expense - credit facilities Other finance cost Net gains / (losses) from hedging activities Surplus / (loss) for period Other comprehensive income for period; net of tax Total comprehensive income for period
Page 18 | Quarterly report Q3 2016
7
-
-
-
-
13'682
849
(10'363)
30'608
PEARL HOLDING LIMITED
Unaudited consolidated statement of financial position As at 30 September 2016 Notes
30.09.2016
31.12.2015
Private equity
4,10
361'879
435'997
Private debt
4,10
2'560
3'863
Private infrastructure
4,10
In thousands of EUR ASSETS Financial assets at fair value through profit or loss
Non-current assets Other short-term receivables
53
123
364'492
439'983
1'457
1'106
58'698
47'117
Current assets
60'155
48'223
TOTAL ASSETS
424'647
488'206
172'217
172'217
Share premium
79'600
79'600
Retained earnings
19'826
18'977
Cash and cash equivalents
5
EQUITY AND LIABILITIES Share capital
6
Reserves
150'291
150'291
Total equity
421'934
421'085
-
59'300
-
59'300
315
5'140
Accruals and other short-term payables
2'398
2'681
Liabilities falling due within one year
2'713
7'821
424'647
488'206
Long-term credit facilities
7
Liabilities falling due after one year Hedging liabilities
TOTAL EQUITY AND LIABILITIES
10
Quarterly report Q3 2016 | Page 19
PEARL HOLDING LIMITED
Unaudited consolidated statement of changes in equity for the period from 1 January 2016 to 30 September 2016 Share capital
Share premium
Reserves
Retained earnings
Total
172'217
79'600
150'291
18'977
421'085
Other comprehensive income for period; net of tax
-
-
-
-
-
Surplus / (loss) for period
-
-
-
849
849
172'217
79'600
150'291
19'826
421'934
Share capital
Share premium
Reserves
Retained earnings
Total
172'217
79'600
150'291
(24'561)
377'547
Other comprehensive income for period; net of tax
-
-
-
-
-
Surplus / (loss) for period
-
-
-
30'608
30'608
172'217
79'600
150'291
6'047
408'155
In thousands of EUR Balance at the beginning of period
Equity at end of period
for the period from 1 January 2015 to 30 September 2015
In thousands of EUR Balance at the beginning of period
Equity at end of period
Page 20 | Quarterly report Q3 2016
PEARL HOLDING LIMITED
Unaudited consolidated statement of cash flows for the period from 1 January 2016 to 30 September 2016
In thousands of EUR
Notes
01.01.2016 30.09.2016
01.01.2015 30.09.2015
1'355
34'099
9'782
(28'381)
(14'758)
(23'063)
8
-
Operating activities Surplus / (loss) for the financial period before interest expense for credit facilities Adjustments: Net foreign exchange (gains) / losses Investment revaluation Withholding tax on direct investments Net (gain) / loss on interest Net (gain) / loss on dividends Revaluation on forward hedges Revaluation on option hedges (Increase) / decrease in receivables Increase / (decrease) in payables Realized gains / (losses) from forward hedges Option premiums paid
71
(2'805)
(28)
(182)
(2'238)
11'856
(82)
779
(409)
3'533
(50)
1'386
(2'619)
(23'417)
113
(2'418)
(4'798)
(5'956)
Purchase of private equity investments
4
Purchase of private infrastructure investments
4
-
(47)
Distributions from and proceeds from sales of private equity investments
4
83'128
115'710
Distributions from and proceeds from sales of private debt investments
4
1'592
1'564
Distributions from and proceeds from sales of private infrastructure investments
4
489
2'568
115
3'031
71'671
88'257
Interest & dividends received Net cash from / (used in) operating activities Financing activities Net increase / (decrease) in credit facilities
7
(59'300)
(61'500)
Interest paid - credit facilities
7
(713)
(3'273)
(60'013)
(64'773)
11'658
23'484
47'117
16'842
(77)
118
58'698
40'444
Net cash from / (used in) financing activities Net increase / (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period
5
Effects of foreign currency exchange rate changes on cash and cash equivalents Cash and cash equivalents at end of period
5
Quarterly report Q3 2016 | Page 21
PEARL HOLDING LIMITED
Notes to the unaudited financial statements for the period from 1 January 2016 to 30 September 2016
1 Organization and business activity Pearl Holding Limited (the "Company") is a limited liability company, incorporated and domiciled in Guernsey, Channel Islands, where it is registered since 22 August 2000. The Company invests in a professionally managed, broadly diversified portfolio of investments in private equity partnerships, listed private equity vehicles and direct investments. The Company has its principal place of business in Guernsey. The convertible bonds of the Company were listed on the Luxembourg Stock Exchange. Between 1 October 2012 and 31 August 2014 bondholders had the chance to convert their holdings and, thereby, become shareholders of the Company. Investors holding 34.6% of the nominal value of outstanding bonds decided to convert, while the remaining investors received 108.00% of the nominal value per convertible bond at the final maturity on 30 September 2014. On 22 January 2014, Pearl Subholding Limited (the "Subsidiary") was incorporated and the Company transferred a total of 85 investments to its Subsidiary on various dates between 1 March 2014 and 1 July 2014, to act as collateral in the event that sufficient bonds were not converted prior to 31 August 2014. The Company holds 100% interest in its Subsidiary, through which the Company holds certain investments. The Subsidiary and the Company form a group (the “Group”).
2 Basis of preparation The condensed interim consolidated financial information has been prepared on a going concern basis in accordance with IAS 34 - Interim Financial Reporting. The condensed interim consolidated financial information does not include all the information and disclosures required in the annual consolidated financial statements and should be read in conjunction with the Group's annual consolidated financial statements for the period ended 31 December 2015, which have been prepared in accordance with International Financial Reporting Standards. The accounting policies adopted in the preparation of the condensed interim financial statements are consistent with those followed in the preparation of the Group's annual consolidated financial statements for the period ended 31 December 2015. The following standards which are mandatory for future accounting periods, but where early adoption is permitted now, have not been duly adopted. IFRS 9 (effective 1 January 2018) - Financial instruments IFRS 15 (effective 1 January 2018) - Revenue from Contracts with Customers IAS 7 (Amendment effective 1 January 2017) - Statement of Cash Flows The Directors of the Company are in the process of assessing the impact of these standards and believe that these new accounting standards will not significantly affect the Group's results of operations or financial position.
Page 22 | Quarterly report Q3 2016
PEARL HOLDING LIMITED
3 Segment calculation
01.01.2016 30.09.2016
01.01.2015 30.09.2015
121
2'741
13'784
21'186
(8)
-
(9'564)
27'508
Total net income private equity
4'333
51'435
Segment result private equity
4'333
51'435
(159)
246
555
52
(107)
489
Total net income private debt
289
787
Segment result private debt
289
787
Revaluation
419
1'825
Total net income private infrastructure
419
1'825
Segment result private infrastructure
419
1'825
(5)
-
Net foreign exchange gains / (losses)
(77)
118
Total net income non attributable
(82)
118
(5'941)
(7'310)
1'749
(16'129)
849
30'608
In thousands of EUR Private equity Interest & dividend income Revaluation Withholding tax on direct private equity investments Net foreign exchange gains / (losses)
Private debt Interest income (including PIK) Revaluation Net foreign exchange gains / (losses)
Private infrastructure
Non attributable Interest & dividend income
Segment result non attributable Other financial activities not allocated Surplus / (loss) for the financial period
Quarterly report Q3 2016 | Page 23
PEARL HOLDING LIMITED
4 Financial assets at fair value through profit or loss 4.1 PRIVATE EQUITY
30.09.2016
31.12.2015
435'997
514'371
4'798
8'141
(83'128)
(156'747)
13'784
34'716
(8)
-
(9'564)
35'516
361'879
435'997
30.09.2016
31.12.2015
3'863
6'859
(1'592)
(1'619)
(159)
46
555
(2'038)
Foreign exchange gains / (losses)
(107)
615
Balance at end of period
2'560
3'863
30.09.2016
31.12.2015
123
4'081
-
100
(489)
(5'735)
419
1'677
53
123
In thousands of EUR Balance at beginning of period Purchase of Direct and Indirect Investments Distributions from and proceeds from sales of Direct and Indirect Investments Revaluation Withholding tax on direct private equity investments Foreign exchange gains / (losses) Balance at end of period
4.2 PRIVATE DEBT
In thousands of EUR Balance at beginning of period Distributions from and proceeds from sales of Direct and Indirect Investments Accrued cash and PIK interest Revaluation
4.3 PRIVATE INFRASTRUCTURE
In thousands of EUR Balance at beginning of period Purchase of Direct and Indirect Investments Distributions from and proceeds from sales of Direct and Indirect Investments Revaluation Balance at end of period
Page 24 | Quarterly report Q3 2016
PEARL HOLDING LIMITED
5 Cash and cash equivalents
30.09.2016
31.12.2015
Cash at banks
58'698
47'117
Total cash and cash equivalents
58'698
47'117
30.09.2016
31.12.2015
In thousands of EUR
6 Share capital 6.1 CAPITAL
In thousands of EUR Authorized and Issued 302 Class B Shares of EUR 0.01 each
-
-
368'680 Class C Shares of EUR 0.01 each
4
4
2'740
2'740
169'473
169'473
27'403 Class D Shares of EUR 100 each 1'694'734 Class E Shares of EUR 100 each
As per amended terms and conditions of the bonds, bondholders had the right to convert bonds into shares on or after 1 October 2012 and up to the close of business on 31 August 2014. Bondholders had the right to convert bonds at their option into either fully paid, ordinary non-voting Class B shares, fully paid, ordinary voting Class C shares, fully paid, ordinary non-voting Class D shares or fully paid, ordinary voting Class E shares (collectively "Ordinary Shares"). Ordinary shares rank pari passu in all respects with all other Ordinary Shares of the issuer which are in issue on the relevant conversion date.The Class B and Class D shares do not confer voting rights at all, and Class C and Class E shares only conferred voting rights after 30 September 2014 and with effect from that date all outstanding Class A shares were converted to into 99 Class E shares. The table below provides an overview of the conversions of bonds as at the end of the reporting period: Share class
Number of shares issued
Nominal bond value converted
B
302
33'000
C
368'680
40'258'000
D
27'403
2'995'000
E
1'694'635
184'842'000
Total
2'091'020
228'128'000
Quarterly report Q3 2016 | Page 25
PEARL HOLDING LIMITED
7 Credit facilities The Company entered into a multicurrency term facilities agreement (the “Agreement”) with international financial institutions (the “Lenders”) on 21 August 2014 (the “Signing Date”) for a maximum of EUR 250'000'000. Under the first facility commitment (“Facility A”), the amount available to be drawn down by the Company is EUR 170’000’000. Facility A has a term of four years from the Signing Date. Under the second facility commitment (“Facility B”) the amount available to be drawn down by the Company was EUR 80’000’000. Facility B had a termination date of one year from the first utilization date. At the end of the reporting period and under the Agreement, Facility A is available to the Company. The main purpose of the facilities was to finance repayment of non-converted convertible bonds to bondholders subsequent to the maturity date of the convertible bond. Furthermore, the facilities may be used by the Group to refinance existing indebtedness and fund ongoing investment activities including payment of fees, costs and expenses incurred by the Group in relation to its investing activities. The facilities are secured against existing investments. Interest is calculated using a EURIBOR rate on the day of the advance plus a margin of 3.50% per annum for drawn amounts denominated in EUR or, in relation to any advance denominated in any other currency, LIBOR plus a margin of 3.50% per annum for Facility A. For facility B, Interest was calculated using a EURIBOR rate on the day of the advance plus a margin of 2.50% per annum for drawn amounts denominated in EUR or, in relation to any advance denominated in any other currency, LIBOR plus margin of 2.50% per annum. Furthermore, the Company paid an arrangement fee of EUR 2’550’000, representing 1.50% of the total Facility A amount and EUR 600’000, representing 0.75% of the total Facility B amount. In addition, the Company pays an annual agency fee of EUR 25'000, which is payable in advance. Agency fee is recognized in the consolidated statement of comprehensive income during the reporting period.
30.09.2016
31.12.2015
Balance at beginning of period
-
51'000
(Decrease) during period
-
(51'000)
Balance at end of period
-
-
59'300
108'000
(Decrease) during period
(59'300)
(48'700)
Balance at end of period
-
59'300
In thousands of EUR Short term credit facility
Long term credit facility Balance at beginning of period
Page 26 | Quarterly report Q3 2016
PEARL HOLDING LIMITED
8 Incentive fee
30.09.2016
31.12.2015
2'427
2'997
1
(159)
Incentive fees paid/payable
(121)
(411)
Balance at end of period
2'307
2'427
30.09.2016
31.12.2015
66'203
73'936
In thousands of EUR Balance at beginning of period Change in incentive fees attributable to General Partner
9 Commitments to Direct and Indirect Investments
In thousands of EUR Unfunded commitments translated at the rate prevailing at end of period
10 Fair value measurement 10.1 FAIR VALUE ESTIMATION REPORTING PERIOD
Level 1
Level 2
Level 3
Total balance
1'705
-
360'227
361'932
-
-
2'560
2'560
1'705
-
362'787
364'492
Derivatives used for hedging
-
(315)
-
(315)
Total liabilities
-
(315)
-
(315)
In thousands of EUR Assets Financial assets at fair value through profit or loss - equity securities Financial assets at fair value through profit or loss - debt investments Total assets Liabilities
Quarterly report Q3 2016 | Page 27
PEARL HOLDING LIMITED
10.2 FAIR VALUE ESTIMATION PREVIOUS REPORTING PERIOD
Level 1
Level 2
Level 3
Total balance
987
-
435'133
436'120
-
-
3'863
3'863
987
-
438'996
439'983
Derivatives used for hedging
-
(5'140)
-
(5'140)
Total liabilities
-
(5'140)
-
(5'140)
In thousands of EUR Assets Financial assets at fair value through profit or loss - equity securities Financial assets at fair value through profit or loss - debt investments Total assets Liabilities
11 Significant unobservable valuation inputs Level 3 investments may consist of direct and indirect equity and debt investments. Level 3 indirect investments are generally valued at the indirect investments' net asset values last reported by the indirect investments' governing bodies. When the reporting date of such net asset values does not coincide with the Group's reporting date, the net asset values are adjusted as a result of cash flows to/from an indirect investment between the most recently available net asset value reported, and the end of the reporting period of the Group. The valuation may also be adjusted for further information gathered by the Investment Advisor during its ongoing investment monitoring process. This monitoring process includes, but is not limited to, binding bid offers, non-public information on developments of portfolio companies held by indirect investments, syndicated transactions which involve such companies and the application of reporting standards by indirect investments which do not apply the principle of fair valuation. The main inputs into the Group's valuation models for direct equity and debt investments include: EBITDA multiples (based on budgeted/forward looking EBITDA or historical EBITDA of the issuer and EBITDA multiples of comparable listed companies for the equivalent period), discount rates, capitalization rates, price to book as well as price to earnings ratios and enterprise value to sales multiples. The Group also considers the original transaction prices, recent transactions in the same or similar instruments and completed third-party transactions in comparable instruments and adjusts the model as deemed necessary. Further inputs consist of external valuation appraisals and broker quotes. In order to assess level 3 valuations in accordance with the investment management agreement, the Investment Advisor reviews the performance of the direct and indirect investments held on a regular basis. The valuations are reviewed on an ongoing basis by the Investment Advisor's investment committee who report to the Investment Manager. The investment committee considers the appropriateness of the valuation model inputs as well as the valuation result using various valuation methods and techniques generally recognized within the industry. From time to time the Group may consider it appropriate to change the valuation model or technique used in the fair valuation depending on the individual investment circumstances, such as its maturity, stage of operations or recent transaction. The Group utilizes comparable trading multiples in arriving at the valuation for the direct investments. Comparable companies multiple techniques assume that the valuation of unquoted direct investments can be assessed by comparing performance measure multiples of similar quoted assets for which observable market prices are readily available. The Investment Advisor determines comparable public companies based on industry, size, development stage, strategy, etc. Subsequently the most appropriate performance measure for determining the valuation of the relevant direct investment is selected (these include but are not limited to EBITDA, price/earnings ratio for earnings or price/book ratio for book values). Trading multiples for each
Page 28 | Quarterly report Q3 2016
PEARL HOLDING LIMITED
comparable company identified are calculated by dividing the market capitalization of the comparable company by the defined performance measure. The relevant trading multiples might be subject to adjustment for general qualitative differences such as liquidity, growth rate or quality of customer base between the valued direct investment and the comparable company set. The indicated fair value of the direct investment is determined by applying the relevant adjusted trading multiple to the identified performance measure of the valued company. When applying the discounted cash flow method, the Investment Advisor discounts the expected cash flow amounts to a present value at a rate of expected return that represents the time value of money and reflects the relative risks of the direct investment. Direct investments can be valued by using the 'cash flow to investor' method (a debt instrument valuation), or indirectly, by deriving the enterprise value using the 'free cash flow to company' method and subsequently subtracting the direct investment's net debt in order to determine the equity value of the relevant direct investment. The Investment Advisor determines the expected future cash flows based on agreed investment terms or expected growth rates. In addition and based on the current market environment an expected return of the respective direct investment is projected. The future cash flows are discounted to the present date in order to determine the current fair value. If broker quotes are available, direct debt investments are valued by the Investment Advisor utilizing such quotes, which are provided by an independent third party broker. Broker quotes are applied to the nominal value of such direct debt investments. Broker quotes utilized for valuing direct debt investments represent indicative quotes for investments traded in an inactive market. The Group utilizes the sales comparison method in arriving at the valuation for direct real estate investments. The sales comparison method compares a direct real estate investment's characteristics with those of comparable properties which have recently been traded in the market. The Investment Advisor determines comparable assets based on, but not limited to, size, location, development stage and property type. Furthermore the most appropriate measure for determining the valuation of the relevant direct real estate investment is selected (amongst others price per room, price per square foot, price per square meter). The comparable price per unit might be subject to adjustment for general qualitative differences which include, but are not limited to, quality of property and access to public transportation. The indicated fair value of the direct real estate investment is determined by applying the relevant price per unit to the respective direct real estate investment. The sales comparison method is most appropriate for direct real estate investments where the investment's size (e.g. number of rooms, square feet, square meters or other square measures) is known and similar properties have recently traded in the market. When applying the income method the Investment Advisor compares a direct real estate investment's net operating income to capitalization rates recently observed in the market to determine the present value. The Investment Advisor determines comparable assets based on, but not limited to, size, development stage and property type. The capitalization rates from recent sales of comparable properties might be subject to adjustment for general qualitative differences which include, but are not limited to, quality of property, tenant mix and access to public transportation. The indicated fair value of the direct real estate investment is determined by applying the relevant capitalization rate to the direct real estate investment's net operating income. The income method is most appropriate for income generating direct real estate investments where the net operating income is known and similar properties have recently traded in the market. The values of level 3 direct equity investments valued by using an unobservable input factor are directly affected by a change in that factor. The change in valuation of level 3 direct equity investments may vary between different direct investments of the same category as a result of individual levels of debt financing within such an investment. Level 3 direct debt investments are generally valued using a waterfall approach including different seniority levels of debt. Thus the effect of a change in the unobservable input factor on the valuation of such investments is limited to the debt portion not covered by the enterprise value resulting from the valuation. No interrelationship between unobservable inputs used in the Group's valuation of its level 3 investments has been identified. The tables below present the investments whose fair values are recognized in whole or in part using valuation techniques based on assumptions that are not supported by prices or other inputs from observable current market transactions in the same instrument and the effect of changing one or more of those assumptions behind the valuation techniques adopted based on reasonable possible alternative assumptions.
Quarterly report Q3 2016 | Page 29
PEARL HOLDING LIMITED
If presented, the category "Direct Investments" in the tables below may include certain indirect investments where the Investment Advisor has full visibility of the underlying portfolio and hence performs a full valuation on such investments as if they were direct investments. If presented, the category "Direct Investments" in the tables below may include certain investments using the valuation technique "Reported fair value". Such direct investments invest solely into underlying indirect investments, hence their fair value is based on reported fair value rather than a direct investment valuation. The sensitivity analysis below represents the potential change in fair value for each category of investments presented in absolute values. Should the significant unobservable input for each category of investments increase or decrease by 5%, the value of each category of investments would follow by the absolute positive or negative amount respectively. With regards to direct debt investments, the Investment Advisor is of the opinion that a sensitivity analysis as performed below for direct equity investments would not result in a meaningful disclosure with added value for the reader of these consolidated financial statements. The reasons for this include, but are not limited to, the fact that the income generated from direct debt investments is linked to a reference rate such as LIBOR or EURIBOR (hence eliminating potential valuation changes resulting from fluctuation in interest rates) and the fact that direct debt investments are valued using a waterfall approach as described above. The credit risk resulting from investing into a direct debt investment is assessed by performing an enterprise valuation of the issuer's company. Provided that the results of such a valuation provides sufficient evidence that the equity of such a company still has a positive value, there is no indication that the Group as a lender would not be able to recover the full amount initially invested, plus any accrued cash and/or PIK interest, hence carrying such direct debt investment at this value. Should a significant unobservable valuation input into such an enterprise valuation be changed in either direction, the value of a respective direct debt investment would not fluctuate proportionately. Any fluctuation in the enterprise value of a lender's company would only have an impact on the value of a direct debt investment if the results of such a valuation would provide sufficient evidence that the enterprise value of the company is not sufficient to fully cover the outstanding debt instrument, which the Group is invested in. With regards to direct real estate debt investments, the Investment Advisor is of the opinion that a sensitivity analysis as performed below for direct equity investments would not result in a meaningful disclosure with added value for the reader of these consolidated financial statements. The reasons for this conclusion include, but are not limited to the fact that the income generated from direct real estate investments is linked to a reference rate such as LIBOR or EURIBOR (hence eliminating potential valuation changes resulting from fluctuation in interest rates) and the fact that direct real estate investments are valued using a waterfall approach as described above. The risk resulting from investing into a direct real estate debt investment is assessed by evaluating the gross asset value of the property. Provided that the results of such valuation provide sufficient evidence that the gross asset value exceeds the debt balance (i.e. the equity has a positive value), there is no indication that the Group as a lender would not be able to recover the full amount initially invested, plus any accrued cash and/or PIK interest, hence carrying such direct real estate debt investments at this value. Should a significant unobservable valuation input into the determination of gross asset value be changed in either direction, the value of a respective direct real estate debt investment would not fluctuate proportionately. Any fluctuation in gross asset value of the property would only have an impact on the value of a direct real estate debt investment in if the results of such a valuation would provide sufficient evidence that the gross asset value of the property is not sufficient to fully cover the outstanding debt instrument, which the Group is invested in. With regards to direct real estate equity investments, the Investment Advisor is of the opinion that a sensitivity analysis as performed below for direct equity investments would not result in a meaningful disclosure with added value for the reader of these consolidated financial statements. The reasons for this conclusion include, but are not limited to, the fact that variations in property location, quality and business plan result in comparisons across properties that are not meaningful. Unobservable inputs for a specific region will vary greatly based on the property's micro location, building finishes and amenities and leasing strategy. One-to-one comparisons are not possible even for buildings that are physically close to each other due to the differences in property features and occupancy. A sensitivity analysis has not been presented for direct investments that have been acquired within the last three months of the financial period and where the acquisition cost was deemed to be fair value in accordance with IFRS 13 as it is the view of the Investment Advisor that insufficient time has passed to determine a reliable sensitivity range based on valuation inputs that would be considered appropriate by market participants.
Page 30 | Quarterly report Q3 2016
PEARL HOLDING LIMITED
12 Significant unobservable valuation input table current period Type of security
Fair value at 30.09.2016
Valuation technique
Unobservable input
Range (weighted average)
Sensitivity
Market comparable companies
Enterprise value to EBITDA multiple
4.15x - 15.00x (9.09x)
1'488
(1'488)
Exit price Recent transaction price
n/a
n/a
n/a
Reported net asset value
n/a
16'709
(16'709)
11'065 Adjusted reported net Fair value adjustments asset value
n/a
553
(553)
Fair value in thousands of EUR Direct Investments Direct equity Investments
11'503 6'043
Indirect Investments 334'176 Adjusted reported net asset value
13 Significant unobservable valuation input table previous period
ype of security
Fair value at 31.12.2015
Valuation technique
Unobservable input Range (weighted average)
Sensitivity
Fair value in thousands of EUR Direct Investments Direct equity Investments
17'253 7'368
Market comparable companies
Enterprise value to EBITDA multiple
8.00x - 13.50x (10.35x)
2'179
(2'179)
Exit price Recent transaction price
n/a
n/a
n/a
Reported net asset value
n/a
20'100
(20'100)
Adjusted reported net Fair value adjustments asset value
n/a
617
(617)
Indirect Investments 401'992 12'342
Adjusted reported net asset value
Quarterly report Q3 2016 | Page 31
PEARL HOLDING LIMITED
Registered Office
Investment Manager
Pearl Holding Limited Tudor House St. Peter Port Guernsey, GY1 1BT Channel Islands Phone +44 1481 711 690 Facsimile +44 1481 730 947 www.pearl-privateequity.net
Pearl Management Limited Tudor House St. Peter Port Guernsey, GY1 1BT Channel Islands
Administrator
Investment Advisor
Partners Group (Guernsey) Limited Tudor House St. Peter Port Guernsey, GY1 1BT Channel Islands
Partners Group AG Zugerstrasse 57 6341 Baar-Zug Switzerland
Independent Auditors
Investor Relations
PricewaterhouseCoopers CI LLP First Floor Royal Bank Place 1 Glategny Esplanade St Peter Port Guernsey, GY1 4ND Channel Islands
E-mail:
[email protected]
www.partnersgroup.com
20160930 1414 E Q Cv 2016-11-21 10:41
Registered number: 37232