SEE WHAT’S NEW AND NOTEWORTHY IN PRIVATE EQUITY THIS WEEK /// ISSUE 89 - 5th April 2013: - Hot or Not: Direct Investments? - Deloitte Recalibrates the PE Business Model for 2013 - BMC Rumor: Another Mega Buyout in the IT Sector? - Mercer Reveals Fees Are Dropping - Best Performing Funds Less Likely to Adopt Industry Standards - Quote of the Week: PE Fund Manager on Dope

1. DIGEST 89
SEE WHAT’S NEW AND NOTEWORTHY IN PRIVATE EQUITY THIS WEEK /// ISSUE 89
1 Hot or Not: Direct Investments?
Deloitte Recalibrates the PE
Business Model for 2013
2 BMC Rumor: Another Mega Buyout
in the IT Sector?
Mercer Reveals Fees Are Dropping
Best Performing Funds Less Likely to
Adopt Industry Standards
3 Quote of the Week: PE Fund
Manager on Dope
April 05, 2013

2. PE DEAL VALUE SOARS BOOSTED BY
TWO BLOCKBUSTER TRANSACTIONS
Reuters says pension funds and other large investors are
looking for ways to invest directly in companies, as well as
continuing co-invest. The article suggests the main reason for
the trend is that large pension funds and insurers are seeking to
avoid the “large fees” associated investing through PE vehicles.
Limited partners (LP) who are taking this approach are still only
doing about 10% or less of their investments as direct deals or
club deals.
Some of the LPs mentioned in the report are Hermes GPE, an
investor with 20 percent its assets in co-investments, British
insurer Legal & General, the Canada Pension Plan Investment
Board (CPPIB), and the Ontario Teachers' Pension Plan Board.
Elsewhere, pensionpulse noted that CPPIB's newly appointed
Image source: Pension Pulse Blog and well-regarded CEO, Mark Wiseman, has said private equity
real estate and infrastructure are a better fit for the long view and relatively risk-averse tastes of CPPIB.
DELOITTE RECALIBRATES THE PE
BUSINESS MODELL FOR 2013
According to a new analysis from Deloitte, general partners in the PE world will have to rethink their
business and operating models in 2013 to manage regulatory, compliance, and tax uncertainties, as well
as combat cost pressures by identifying operational efficiency improvements, and they will have to aim
to pursue new growth opportunities amidst elusive exits.
Further details
• Deal making remains elusive as competition for quality investments is fierce, and those willing to sell
are demanding higher valuations.
• Continued economic weakness and market volatility is clouding the investment environment, slowing
the pace of initial public offerings, and making it more difficult for early investments to recover their
value.
• The good news is that the industry continues on its upward trek. Assets under management climbed
to a record USD 3 trillion in 2012, says Deloitte quoting statistics in an article from Dan Primack’s blog,
and LPs are still attracted to private equity given the industry’s historic ability to generate returns
across various economic environments.
• Adopting more technology and outsourcing will become more important to combat cost pressures.
Deloitte say that those who have to tap the full benefits of improved technology capabilities will likely
make up lost ground in 2013 as cost efficiencies emerge as a tangible lever to deliver alpha.
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3. BMC RUMOR: ANOTHER MEGA
BUYOUT IN THE IT SECTOR?
Houston, Texas-based BMC Software is currently the latest publicly traded software company to be the
target of buyout funds, according to Reuters which published a report late last month, citing unnamed
sources. The deal could be worth as much as USD 6 billion, which would make it our deal of the post
Easter-break week. BMC provides IT management solutions for large, mid-sized and small enterprises
and public sector organizations around the world.
MERCER REVEALS FEES ARE DROPPING
A new survey by Mercer finds that asset management fees in alternatives have fallen “due to supply and
demand dynamics”. In Mercer’s 2012 Global Asset Manager Fee Survey, data on more than 25,000 asset
management products from over 5,000 investment management firms were analyzed. The survey covers
a range of asset managers.
According to Mercer, the majority of managers left fees relatively unchanged. Yet asset managers are
under pressure to negotiate fees for hedge funds, direct private equity and infrastructure funds. The
areas where fee reductions are evident include equity mandates. Retail equity funds have tended to
lower their fees more than have their institutional and segregated counterparts, it said.
It also said that “2 and 20” industry standard continues to move toward “1.5 and 20”. Taking all asset
classes into consideration, Mercer found that Canada remains the most inexpensive country/region in
which to invest, with average median fees of around 0.3%. The UK and Europe are also relatively low
priced, with average median fees of around 0.4% and 0.5% respectively. Emerging markets remain the
most expensive country/region at 0.89% on average, with Asia averaging 0.75%, a fall of 0.08% since
2010.
BEST PERFORMING FUNDS LESS LIKELY
TO ADOPT INDUSTRY STANDARDS
In its March newsletter, Preqin noted that industry
guidelines from ILPA have had a “noticeable” impact,
according to a study it did along with Dechert.
However, it notes that in both the US and Europe,
the best performing private equity funds were the
least likely to adopt the more significant recom-
mendations in the ILPA Guidelines. Where the
guidelines are having an effect is in the area of fee
income offsets, making inroads on terms set by
private equity funds.
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4. On average, 86% of new funds in 2011 and 85% of new funds in 2012 in the buyout fund sector rebated
all transaction fees. In its 2012 Preqin Private Equity Fund Terms Advisor analysis, Preqin said that there
did “not seem to be a significant difference” on average in the treatment of fees regardless of whether
transaction, monitoring, directors, breakup or other. It does see more limited partners requesting
management company information, including management fee budgets, as well as management
professionals compensation criteria. Fees have generally declined since vintage 2010 funds in all size
categories. For instance in funds under USD 500mn, fees have declined from 2% to 1.99% in 2010 and
2012 respectively; in funds from USD 500mn to USD 999mn, fees have declined in 2011 and 2012 to
1.97% and 1.94% respectively; and in funds over USD 1bn, fees have declined from 1.81% in 2010 to
1.75% in 2011 and 1.72% in 2012 respectively.
QUOTE OF THE WEEK: NFL GOES PE
”Marijuana's legalization in Washington state and Colorado, entrepreneurs are lining
up to get into the marijuana business. They're increasingly seeing marijuana as a
legitimate business opportunity, rather than the illegal activity it has been for the
better part of a century.”
Who said it: Brendan Kennedy, general partner Privateer Holdings
In context: Kennedy was quoted in an article about his recently founded private equity firm that is
targeting investments in the legalized marijuana trade in the US market. He estimates the market for
cannabis to be USD 50 billion. There are huge hurdles to overcome with the legal of cannabis status in the
US, according to the article. Colorado and Washington have legalized possession. Eighteen states allow
medical marijuana even though the federal government still considers it illegal. (Image source: Privateer
Holdings). Kennedy sees lots of potential in the professionalization of the trade in the coming years.
Where we found it: Upstart Business Journal
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5. The Dealmarket Digest empowers members of Dealmarket by providing
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Editor: Valerie Thompson, Zurich
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