Chief Investment Office WM July 2015

CIO Alternative Investments

Private Markets Update

This report has been prepared by UBS AG.

Please see important disclaimers and disclosures at the end of the document.
Past performance is no indication of future performance.
The market prices provided are closing prices on the respective principal stock
exchange. This applies to all performance charts and tables in this publication.
 US PE demonstrates substantial outperformance over the long term
US performances are attractive (mid to long term), but benchmarking remains difficult
(lack of index and representativeness)

Private Equity 5-Year 10-Year 15-Year Data Real Assets 5-Year 10-Year 15-Year Data
Venture capital* 16.07 10.28 4.84 1569 funds (1981-2014) Energy*** 8.88 12.76 14.35 234 funds (1986-2014)
VC mPME 15.53 8.52 6.64 Russell 3000 Index Wilshire 5000 Energy
E mPME 9.22 7.49 7.99 Index
Value add (bps) 54 175 (180)
Value add (bps) (34) 527 636
Growth equity 16.63 13.02 10.89 174 funds (1986-2014)
Timber 6.55 5.73 5.78 33 funds (1986-2014)
GE mPME 15.66 9.01 7.50 Russell 3000 Index
T mPME 5.52 7.53 7.16 NCREIF Timberland Index
Value add (bps) 97 402 339
Value add (bps) 103 (180) (138)
LBO** 16.87 12.99 10.76 746 funds (1986-2014)
Real Estate**** 13.64 5.62 6.62 514 funds (1986-2014)
LBO mPME 15.58 8.58 6.56 Russell 3000 Index
RE mPME 12.15 8.01 8.43 NCREIF Property Index
Value add (bps) 129 441 421
Value add (bps) (149) (239) (181)

Private Debt 5-Year 10-Year 15-Year Data

Other 5-Year 10-Year 15-Year Data
Mezzanine debt 12.44 10.56 7.83 117 funds (1986-2014)
Funds of funds 13.34 9.91 7.38 390 funds (1987-2014)
MD mPME 16.21 9.48 6.00 Russell 3000 Index
Secondary funds 13.57 11.50 11.45 135 funds (1991-2014)
Value add (bps) (377) 109 183
Distressed debt 13.65 10.58 11.07 171 funds (1987-2014)
DD mPME 15.40 8.98 7.77 Russell 3000 Index
Value add (bps) (176) 160 330

Note: CA Modified Public Market Equivalent (mPME) replicates private investments cash flow s with public market indexes (shares are purchased and sold according to the
private fund flows). Distributions are calculated in the same proportion as the private fund. The mPME NAV is a function of mPME cash flows and public index returns.
* includes early stage, late and expansion stage, multi-stage and venture debt funds (including fully liquidated).
** includes small cap, mid cap, large cap and mega cap funds (including fully liquidated).
*** includes "energy PE" and "upstream energy and royalties"
2
**** includes opportunistic and value-added funds.

Source: Cambridge Associates (as of 31/12/2014), UBS CIO, June 2015.

 European PE demonstrates substantial outperformance over the long
term
European performances are more differentiated depending on strategies;
benchmarking difficulties are compounded by a lack of data (growth, mezz., DD)

Private Equity 5-Year 10-Year 15-Year Data Real Assets 5-Year 10-Year 15-Year Data
Venture capital* 11.53 6.54 5.51 118 funds (1986-2014) Energy*** -1.1 5.9 29.95 6 funds (1996-2014)
VC mPME 5.55 4.69 5.05 MSCI Europe Index E mPME -1.45 1.63 N/A MSCI Europe Energy Index
Value add (bps) 597 205 46 Value add (bps) 35 453 N/A
Growth equity 11.30 10.06 9.45 30 funds (1994-2014) Timber N/A N/A N/A
GE mPME 6.88 7.04 6.55 MSCI Europe Index T mPME N/A N/A N/A
Value add (bps) 442 303 290 Value add (bps) N/A N/A N/A
LBO** 10.38 12.68 14.23 364 funds (1986-2014) Real Estate**** 3.47 0.77 1.18 102 funds (1999-2014)
LBO mPME 5.59 4.34 4.57 MSCI Europe Index FTSE EPRA/NAREIT Dev Eur
RE mPME 11.14 7.68 8.79 RE Index
Value add (bps) 479 833 966
Value add (bps) (767) (691) (761)

Private Debt 5-Year 10-Year 15-Year Data

Other 5-Year 10-Year 15-Year Data
Mezzanine debt 4.23 10.53 8.35 11 funds (1990-2014)
Funds of funds 8.59 8.92 8.55 82 funds (1998-2014)
MD mPME 0.91 4.41 6.38 MSCI Europe Index
Secondary funds 13.49 11.70 13.72 36 funds (1992-2014)
Value add (bps) 332 612 196
Distressed debt 6.77 7.92 8.28 13 funds (1987-2014)
DD mPME 6.63 6.05 6.04 MSCI Europe Index
Value add (bps) 13 187 224

Note: CA Modified Public Market Equivalent (mPME) replicates private investments cash flow s with public market indexes (shares are purchased and sold according to the
private fund flows). Distributions are calculated in the same proportion as the private fund. The mPME NAV is a function of mPME cash flows and public index returns.
* includes early stage, late and expansion stage, multi-stage and venture debt funds (including fully liquidated).
** includes small cap, mid cap, large cap and mega cap funds (including fully liquidated).
*** includes "energy PE" and "upstream energy and royalties"
3
**** includes opportunistic and value-added funds.

Source: Cambridge Associates (as of 31/12/2014), UBS CIO, June 2015.

 PE demonstrates substantial outperformance over the long term
Rest of the World performances are attractive, but the investment universe is more
difficult to address

Private Equity 5-Year 10-Year 15-Year Data Real Assets 5-Year 10-Year 15-Year Data
Venture capital* 24.15 15.17 11.26 179 funds (1986-2014) Energy*** 9.10 16.96 14.11 4 funds (1996-2014)
VC mPME 10.48 6.97 5.73 MSCI World Index E mPME 1.27 6.69 6.93 MSWI World Energy I.
Value add (bps) 1'367 820 553 Value add (bps) 782 1'027 718
Growth equity 11.22 12.32 9.55 219 funds (1989-2014) Timber N/A N/A N/A
GE mPME 10.89 7.42 5.57 MSCI World Index T mPME N/A N/A N/A
Value add (bps) 33 490 398 Value add (bps) N/A N/A N/A
LBO** 11.51 12.06 9.99 164 funds (1992-2014) Real Estate**** 7.49 3.13 N/A 100 funds (2003-2014)
LBO mPME 10.46 6.38 5.24 MSCI World Index RE mPME 12.85 8.62 N/A DJ Global Select RE Ind.
Value add (bps) 104 568 476 Value add (bps) (536) (549) N/A

Private Debt 5-Year 10-Year 15-Year Data Other 5-Year 10-Year 15-Year Data
Mezzanine debt 5.54 N/A N/A 7 funds (1998-2014) Funds of funds 10.85 8.01 8.18 50 funds (1998-2014)
MD mPME N/A N/A N/A MSCI World Index Secondary funds N/A N/A N/A
Value add (bps) N/A N/A N/A
Distressed debt 7.82 6.55 N/A 19 funds (1999-2014)
DD mPME 10.28 5.93 N/A MSCI World Index
Value add (bps) (246) 63 N/A

Note: CA Modified Public Market Equivalent (mPME) replicates private investments cash flow s with public market indexes (shares are purchased and sold according to the
private fund flows). Distributions are calculated in the same proportion as the private fund. The mPME NAV is a function of mPME cash flows and public index returns.
* includes early stage, late and expansion stage, multi-stage and venture debt funds (including fully liquidated).
** includes small cap, mid cap, large cap and mega cap funds (including fully liquidated).
*** includes "energy PE" and "upstream energy and royalties"
4
**** includes opportunistic and value-added funds.

Source: Cambridge Associates (as of 31/12/2014), UBS CIO, June 2015.

Section 1

Private equity
Summary
Fund raising
• Back at 2006 levels: record distributions have not so far fuelled excessive fund raising
• Uninvested capital: all time high, but seems at reasonable levels per strategy
• Larger established brands raise fast (matter of few months); smaller, specialized or more
recent teams face an average of 15 months

Investments
• LBO investments increased worldwide and are close to their long term average
• Late stage venture capital investments show signs of overheating
• LBOs valuations: high in the US; historical highs in Europe (mid-market higher than large cap)

Exits
• Low interest rates support buyers in M&A (driving valuations up)
• Strong equity markets propel M&A (Q1 2015 is a record high)
• IPOs may have peaked: post IPO performance disappointing and shelving of offerings
• Portfolio build-up has stabilized, due to moderate investment activity and high level of
divestments

Prospects
• Overleveraged acquirers and targets could fuel a wave of carve-outs (LBOs) and distressed
opportunities
6
 Fund near pre-bubble levels, with on average 10% fewer funds
800 1600
1495 1477

700 1400
1320
1274
1213
1211
600 1200
1124
1094
1000
500 1000

Number of funds
962

864 854
USD Bn

400 800
708 688
668
634
300 600
555 543 537 540

200 397 388 400

363 348
319 297
238 219 221
100 200
173
136
105

0 0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
May
YTD
To reach average post crisis Aggregate Capital Raised (lhs) Average 15 years Average 5 years No. of Funds (rhs)

7
Source: Preqin, UBS CIO, as of June 2015.
 Dry powder: continued progression, potential inflation of valuations
1'400
CAGR
03-14

1'200 223 65%

185 94 24%
1'000 149 140 185
140 148 4%
48 49 128 143
149 73
39 76
800 119 120 112 54 72
123 121
88 71 113 50%
46 103 113 245
In USD bn

27
108 171 180 109
102 167 185
600 148 167 186
41 41 47 15%
140 51 133 33 157 35
18 54 54 35 41 73 24%
61 64
44 67
33 93 32 70 37 74
400 50 28 35 36 64
10 11 98
100 91
21
20 15%
39 55 481 481 469
200 18 17 438 422 399 431
366 21 18 379 388 353
258
185 176
0
Average 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*
03-14
Buyout Distressed PE Mezannine Real Estate Venture Growth Others
*Others include real assets, co-investments and secondaries

Dry powder has risen by 57% for real estate funds and 33% for LBO funds
since the end of 2012; suggesting ammunition for future deals 8
Source: Preqin, UBS CIO, as of June 2015.
LBO: global investment volumes are close to the long term average
Q1 would be substantially lower excluding Heinz/Kraft deal (58 vs 99)

2015Q1 LTM volumes have risen YoY by 22.3% (USD 344bn), above average since 2010
(USD 285n) but about half of the amount during the peak years of 2006 and 2007
9
Source: Preqin, UBS CIO, as of June 2015.
 2015 Valuations at or above 2007 levels, at all-time high
11x

10.0 9.9
10x 9.7 9.7 9.7 9.8 9.7
9.3
9.1 9.2
8.9
9x 8.8 8.8 8.8 8.7 8.8 8.7
8.4 8.4 8.5
8.3

8x 7.7 7.7
7.6
7.3 7.3
7.1 7.1 7.1
7.0
7x 6.8
Enterprise value to EBITDA

6.7
6.6

6.0
6x

5x

4x

3x

2x

1x

0x
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015Q1
US Europe Av. US 99-14 Av. Eur. 99-14 Av. US 10-14 Av. Eur. 10-14
10
Source: S&P LCD, UBS CIO, as of Apr. 2015.
Venture capital: less deals consummated in the developed world
US: -30%, Europe: -24%, Greater China: stable, India: +43%, Israel: stable, RoW: +6%

11
Source: Preqin, UBS CIO, as of June 2015.
Venture capital: opportunistic VC fund managers shift towards later-stage
rounds

Larger deals have been

consummated on average

Later stage large deals

have captured the
headlines and the bulk
of financings

12
Source: Preqin, UBS CIO, as of June 2015.
Global realizations: the end of a long term boom?
2011-2014 were particularly favourable, 2015 starts on a reduced number of deals

2014 was a record year at 32% higher than 2013.

13
Source: Preqin, UBS CIO, as of June 2015.
Secondary BO have emerged as the second most common exit route
M&A still the preferred exit path, IPOs remain very active since 2010
2,000 500

1,800 450

1,600 400

1,400 350
810
771
1,200 300
712 767
By deal count

In USD bn
1,000 250
609 540 33
47
800 472 200
38 39
32 501
600 32 456 404 150
32 304 388 403 312
294
400 388 57 48 100
291 27 26 10
108 61 56 69 60
60 89 52 190
12 13 231 57
200 40 26 117 50
15 301 305 11
25
166 185 59 227 213 208
14 122 133
0 57 0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015YTD
IPO Recapitalisation
Restructuring Sale to GP
Sale to Management Trade Sale
Aggregate exit value (bn USD, RHS)

Aggregate exit activity has progressed regularly since 2011

14
Source: Preqin, UBS CIO, as of June 10 2015.
Section 2

Private debt
Summary
Fund raising
• Uninvested capital: progression in 2015 across the board
• Uptick visible in the US and Europe

Investments
• Low interest rates support the equity side of leveraged transactions and dividend recaps
• Capital structures tilted toward senior rather than subordinated debt
• Second lien register low levels of activity in the US and in Europe
• Mezzanine debt market virtually shut down in Europe

Maturity, covenants and defaults

• The "maturity wall" of LBO debt receded to 2020
• Default rates remain below the long term average

Prospects
• NPL investment opportunities are increasingly materializing in portfolios:
• Major transactions announced in Europe
• Still significant opportunities in peripheral Europe (CEE, Greece, Southern)
• Direct lending remains a long term opportunity as banks retreat from SMB financing

16
Dry powder: Uptick of dry powder
Dry powder has increased into 2015 but is down from end of 2013
200

180
21
160 23

140
49
21 47
18
120 14
In USD bn

14 13
100 14 40
13 48
46 41
80 36 44 47
36
7 44
60 35
28
44 37
40 5 41 35
6 5 41 68.8
14 33 56.2
14 13
20 32 42.7
18 17 21 20.8 22.2 24.4 27.9
11.5 15.1
0 1 2.8 3 6
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Jun
Direct Lending Mezzanine Distressed debt Others

Note: Others include venture debt and special situations

17
Source: Preqin, UBS CIO, as of June 2015.
Dry powder: US still accounts for bulk of dry powder
US and Europe dry powder edges up
140

120

100

80
In USD bn

60

40

20

0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
June
North America Europe Asia Rest of World

Note: based on target company location.

18
Source: Preqin, UBS CIO, as of June 2015.
European mezzanine market virtually shut down
€14B 160

140
€12B

120
€10B

100
€8B

80

€6B
60

€4B
40

€2B
20

€0B 0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
1Q 2Q 3Q 4Q Deal Count (RHS)

Mezzaners are reinventing themselves as "unitranche" providers

19
Source: S&P LCD, UBS CIO, as of Feb. 2015.
Leveraged loan default rates by count continue to be low
US and European default rates are reaching all time lows
18%

16%

14%

12%

10%

8%

6%

4%

2%

0%
Jun- Oct- Jan- Apr- Jul- Oct- Jan- Apr- Jul- Oct- Jan- Apr- Jul- Oct- Jan- Apr- Jul- Oct- Jan- Apr- Jul- Oct- Jan- Apr- Jul- Oct- Jan-
07 08 09 09 09 09 10 10 10 10 11 11 11 11 12 12 12 12 13 13 13 13 14 14 14 14 15
US Europe US Average Europe Average

Source: S&P LCD, UBS CIO, data as of March 2015, June 2015.
20
Private debt: opportunities in European NPLs acquisitions
16

14

Non-performing loans to total gross loans (%)

12

NPL remain an opportunity, 10

notably from CEE banks 8

0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Years
United States World EU 28 Nordics CEE
35

30
Non-performing loans to total gross loans (%)

Greece, Romania, Bulgaria,

25

Italy, Portugal and Spain 20

offer higher levels of NPLs 15

10

0
2008 2009 2010 2011 2012 2013 2014
Years 21
Source: World Bank, UBS CIO, Greece Italy Spain Romania Portugal Bulgaria EU 28 Western Europe
Dec. 2014.
Private debt: opportunities in direct lending as European banks pullback
European banks' share of leverage loan markets

80%

70%

60%

50%

40%

30%

20%

10%

0%
1999 2001 2003 2005 2007 2009 2011 2013 2015Mar
US deals Europe deals
*insufficient data for Europe deals in 2009

Source: S&P LCD, UBS CIO, May. 2015.

22
Section 3

Real assets
Summary
Fund raising
• 2014 amounts stable compared to 2013, slightly above 2006 levels
• Real estate: smaller funds raised in the US, raising concern on cost efficiency and future
returns
• Real estate: North America and Europe lead the way, at par on aggregate amounts sought
• Infrastructure dry powder has reached a new high in North America

Investments
• Infrastructure: competition is high for core projects, triggering a more reserved stance in the
asset class
• Real estate: transaction volumes have risen YoY but declined QoQ after a strong Q4 in 2014
• Real estate: spreads have slightly widened and continue to be attractive in low yield
environment

Prospects
• Sustained opportunities in the North American energy value chain including energy servicing
companies and midstream assets.
• Recent decline in energy prices provides opportunity for long term investors presents
opportunity for long-term oriented stressed/distressed energy specialists.

24
Real assets fund raising dominated by private real estate
Infrastructure comes next, amounts collected for natural resources remain limited
Amounts raised for real assets investments (in US bn)
200
3
2 13
9
180
2
2
160 41 30 19
45
1
140 24
1
44
120 45
23 25
In USD bn

2
100 8
1 2 1
5 1 9 31
10 26 22
80
24
142 33
135 13
60 10
106 100 105
40 78 76
72
55 52 58
20

0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Jun
YTD
Real estate Infrastructure Natural resources Timberland

Note: no data for farmland

25
Source: Preqin, UBS CIO, as of June 2015.
Infrastructure: dry powder in North America has reached a new high
Core infrastructure continues to be competitive
120

11
100
13
9 7
9
80 9 10
8 8
33
In USD bn

8
5 5 5 27
60 4 8 34
5 4 32
5 24
20 18
23
40 20

54
50
20 40 39 43
37 38
33 31

0
2007 2008 2009 2010 2011 2012 2013 2014 Jun-15
North America Europe Asia Rest of World
26
Source: Preqin UBS CIO, as of June 2015.
 Our most and least preferred strategies

Themes Region Strategy Sub-strategy Drivers Our

view

Deleveraging of Distr. debt Non perf. loans Trend: Structural reduction of bank lending

banks Europe Catalyst: Regulations of banks (bal. Sheet)
Private debt Direct lending  Shift from banks to alternative lending

O&G/P. Infra. Midstream assets Trend: Increase of production of shale O&G

Evolutions of the
N. America Catalyst: Volatility of oil prices 
energy value chain
Distr. debt Consolidation  Solve bottlenecks; opportunistic financing

Trend: Stable growth sectors enter new

Growth macro cycle
Differentiated EM Contrarian play 
capital Catalyst: FDI shift from EM to US
attractiveness of  Best assets need capital (growth or M&A)
specialized inv.
Strategies Trend: Corporate balance sheet work out
Litigation
DM Private debt Catalyst: Reduction of bank lending 
financing
 Uncorrelated niche activities financing

Large LBO Trend: Cheap debt inflates prices of large

Leverage-
Cheap debt inflates and cash generative assets 
DM & EM dependent
asset prices Catalyst: Significant dry powder to deploy
P. RE & Infra strategies
 High prices lead to mediocre performance

Premium paid for DM Pre-IPO/LS VC Trend: Thirst for liquidity and opportunism
Shorter time-to-
liquidity exceeds Catalyst: Cycle peak encourages herding 
liquidity strategies
benefits Global Secondaries  High visibility assets are overpriced

LS refers to late stage. VC refers to venture capital. RE refers to real estate. O&G refers to oil & gas. FDI refers to foreign 27

direct investments. EM refer to emerging markets. DM refers to developed markets. IPO refers to initial public offering.
Source: UBS CIO, June 2015.
Contacts:
Private Markets

Cyril Demaria
Cyril.demaria@ubs.com

Tel. extern: +41-44-234 70 59

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