3i Group plc · LSE:III

3i — Investor Day (March 2013)

54 slides from 3i's investor day presentation, Mar 13, 2013

  1. Slide 1: 3i Debt Management Investor Meeting

    3i Debt Management INVESTOR MEETING 13 March 2013

  2. Slide 2: Agenda

    Agenda 9.00 – 9.10 Simon Borrows  Introduction  3i Group’s key strategic objectives 9.10 – 9.20 Jeremy Ghose  Overview of 3i Debt Management (“3iDM”)  3iDM’s contribution to 3i Group 9.20 – 9.45 Andrew Bellis  Why CLOs work for 3iDM 9.45 – 10.30 Andrew Bellis  Overview of the European business

  3. Slide 3: Introduction – Simon Borrows

    Simon Borrows Group Chief Executive Introduction 3

  4. Slide 4: A clear vision and strategy

    A clear vision and strategy A leading international manager of third-party and proprietary capital with three strong investment platforms delivering top quartile cash investment returns:  focused mid-market Private Equity business  class-leading Infrastructure investor  growing Debt Management bu

  5. Slide 5: Shape of 3i today

    Shape of 3i today 3i Group Private Equity Infrastructure Debt Management Investing and managing Investing primarily in Management of funds in mid-market companies utilities, transportation which invest in senior across the UK, Europe, and social infrastructure and mezzanine corporate Brazil, North A

  6. Slide 6: 3iDM is capital light and contributes significantly to annual fee income

    3iDM is “capital light” and contributes significantly to annual fee income 3i Group annual fee income 3i Group balance sheet (September 2012) 28% 29% 37% 1% 25% 36% 33% 2% 12% 60% 60% 36% 38% 3% Mar 11 Mar 12 12 months to 30 Debt Management Private Equity Sep 2012 Infrastructure Non-core portfolio D

  7. Slide 7: 3i Group's strategic goal

    3i Group’s strategic goal A leading international manager of third-party and proprietary capital Private Equity Infrastructure Debt Management Illustrative capital allocation Third-party Third-party Third-party Proprietary capital Proprietary capital Proprietary capital 1. Portfolio returns 1. Portf

  8. Slide 8: The 3i Value Build

    The 3i Value Build An attractive, multi-year value proposition:  Improve Private Equity investment portfolio earnings through the six asset management initiatives, and in turn, increase the value of our portfolio  Realise investments at good uplifts to book value and healthy cash profits, thereby

  9. Slide 9: Overview of 3iDM – Jeremy Ghose

    Jeremy Ghose Managing Partner and CEO, 3iDM Overview of 3iDM 9

  10. Slide 10: 3iDM's strategic goals

    3iDM’s strategic goals  Already a major force in Europe and established in the US, we now aim to become a substantial player globally  3-5 year plan to transition from a senior loan manager to a leading non investment grade credit manager Goal to increase AUM, fee revenue and profits to make a mea

  11. Slide 11: Significant momentum since 2011

    Significant momentum since 2011 3i acquires Mizuho Investment Management debt platform (£3.7bn AUM) Team led by Jeremy Ghose, with 24 years of global debt experience Feb 2011 Feb 2011 3iDM establishes European Credit Opportunities Fund, seeding it with €50m of its own capital Appointment of Rob

  12. Slide 12: A global loan manager of scale

    A global loan manager of scale 3i Debt Management AUM £5.1bn ($8.1bn)(1) 3i Debt Management US 3i Debt Management Europe P/E Fund of Credit Credit CLO Senior Loan CLO Funds and Opportunities Opportunities Mezzanine Vintage I & II 1 Senior Loan and Friday 2 CLOs COA 11 CLOs Palace Street I Fund Stree

  13. Slide 13: An attractive market opportunity

    An attractive market opportunity  Macro trends – Deleveraging, especially European bank balance sheets – Volatile equity markets – Attractive relative value versus traditional fixed income asset classes – Consolidation of debt asset fund managers  Corporate credit as an asset class – Attractive pr

  14. Slide 14: Why CLOs work for 3iDM – Andrew Bellis

    Andrew Bellis Managing Director, 3iDM Why CLOs work for 3iDM 14

  15. Slide 15: Why does 3i manage CLOs?

    Why does 3i manage CLOs?  Collateralised Loan Obligations (“CLOs”) are a powerful tool to raise long-term AUM in the loan area  They provide a stable, predictable fee revenue stream  The structure has worked and has proved to be an efficient tool for investors to take enhanced exposure to the loa

  16. Slide 16: The basics of CLOs

    The basics of CLOs  A CLO is a financing tool that allows an investor to take a leveraged exposure to an actively managed loan portfolio  CLO equity benefits from the leverage provided by large institutional fixed income investors in the form of term, non- recourse, rated debt  For an investor wi

  17. Slide 17: CLOs are not CDOs

    CLOs are not CDOs CLO’s and CDO’s (collateralised debt obligations) – same financing technology, different underlying asset CLO CDO US Residential Underlying asset Corporate Loans Mortgages Asset performance Good Poor Levered performance Good Very poor CLOs performed well due to the stability of the

  18. Slide 18: Some common misconceptions

    Some common misconceptions CLOs:  Do not use Repo or Prime Brokerage based leverage like a hedge fund, which is subject to on-going mark to market calls and can be “pulled”  Are not financing long-term assets with short-term liabilities and so do not rely upon a functioning commercial paper market

  19. Slide 19: A CLO is a financing structure

    A CLO is a financing structure Assets financed with long term liabilities and “equity” Assets Liabilities Priority of (3-5 year average life) (10-12 year maturity) payments waterfall The Issuer, Senior and Bankruptcy remote mezzanine term non- Jamestown CLO X Portfolio cash flow recourse rated debt

  20. Slide 20: How have CLOs performed?

    How have CLOs performed? Market average US CLO equity distributions  CLO structures have proven resilient through the cycle  Average CLO equity distributions between 2006-2011 of 17.8% 30% 25% 20% 15% 10% 5% 0% 2006 2007 2008 2009 2010 2011 Source: Citibank. 20

  21. Slide 21: What do CLOs do for 3i?

    What do CLOs do for 3i? Ability to generate significant, stable fee revenue to underpin 3iDM’s growth strategy  Fee stream is long term and fairly stable  In current market conditions, on a $500m CLO, 3iDM would expect to receive 50bps per annum, or $2.5m of fee revenue – Senior management fee of

  22. Slide 22: Overview of the European business

    Andrew Bellis Managing Director, 3iDM Overview of the European business 22

  23. Slide 23: 3iDM Europe – a market leading presence

    3iDM Europe – a market leading presence  A market leading presence as an asset manager of European loans  Scalable platform with significant revenue generation  A changing market environment should provide opportunities 23

  24. Slide 24: Our European team

    Our European team A scalable structure Jeremy Ghose – Managing Partner & CEO Peter Goody Andrew Bellis COO Managing Director Business Development and Investment Support Product Management Loan portfolio managers Operations & Legal 5 professionals 3 professionals 2 professionals Credit research Fund

  25. Slide 25: Products and AUM

    Products and AUM A strong platform to broaden our product offering 3i Debt Management Europe AUM €5.3bn (£4.2bn) Mezzanine / Private CLO Credit Opportunities Equity FoF Friday Street Mezzanine I LP 11 CLOs Palace Street I Vintage I & II AUM €4.5bn (£3.6bn) AUM €50m (£40m) AUM €731m (£583m) 3i Group

  26. Slide 26: A strong track record – levered funds

    A strong track record Levered funds Current 3iDM European CLOs Average Range Realised equity money multiple (1),(2) 0.6x 0.2x – 1.0x Annualised equity cash yield (1),(3) 8.7% 4.0% – 16.2% Source: 3iDM. Data as of 1 March 2013. (1) Unaudited. (2) Multiple of total equity distributions over par value

  27. Slide 27: A strong track record – Credit Opportunities Fund

    A strong track record Credit Opportunities Fund Net returns Palace Street CS index  Palace Street targets net Jan-12 2.73% 2.45% unlevered returns of 8-12% Feb-12 1.62% 1.04% Mar-12 -0.10% 1.14%  3i committed €50m in August Apr-12 0.58% 0.59% 2011 May-12 3.63% -0.33%  Performance significantly Ju

  28. Slide 28: A strong track record – Vintage fund-of-funds

    A strong track record Vintage private equity fund-of-funds  Vintage I (€500m) – closed in March 2007 – Fully invested in 33 buyout funds – primarily European – 1.8x invested capital already returned to investors – Fund multiple: 4.7x  Vintage II ($400m) closed in March 2012 – Currently invested in

  29. Slide 29: The market environment in Europe

    The market environment in Europe Issuance expected to pick up: growth opportunities for 3iDM Institutional leveraged loan issuance in Europe (€bn) 130 120 111 27 22 23 22 16 13 9 11 11 6 3 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: Credit Suisse 2013 Leveraged Fina

  30. Slide 30: Bank influence will diminish

    The market environment in Europe Bank influence will diminish, providing opportunities for 3iDM  Banks hold c. 65% of the leveraged loan market (approx. €430bn) and c. 40% of the total non-investment grade credit market (approx. €700bn)  In the US, banks hold less than 10% of the equivalent market

  31. Slide 31: Supply/demand imbalance provides opportunities for Palace Street

    The market environment in Europe Supply/demand imbalance provides opportunities for Palace Street European leveraged loan maturity and CLO reinvestment expiry (US$bn) 45 Dec-08 40 Nov-11 35 $30.6bn Dec-12 30 $23bn Amount by CLO 25 $22.2bn reinvestment expiry 20 15 10 5 0 2012 2013 2014 2015 2016 201

  32. Slide 32: Good growth opportunities for 3iDM Europe

    Good growth opportunities for 3iDM Europe Our areas of focus Core business  Raise funds for European Credit Opportunities Fund  CLO issuance when market reopens  Compete for separate account loan mandates Medium term strategic  Middle market lending  High yield  Other fund types Opportunistic

  33. Slide 33: Overview of the US business – John Fraser

    John Fraser Managing Partner, 3iDM US Overview of the US business 33

  34. Slide 34: 3iDM US – a premier investment management firm

    3iDM US – a premier investment management firm  Combining the experience, expertise and track record of Fraser Sullivan IM and 3iDM – Fraser Sullivan founded in July 2005 by John Fraser and Tighe Sullivan – $1.2bn AUM (£0.9bn), as at 28 February 2013(1) – Core objective of delivering consistent out

  35. Slide 35: Our US team

    Our US team A scalable structure Jeremy Ghose – Managing Partner & CEO John Fraser Andrew Bellis Managing Partner / CIO Managing Director Investment Business Development Support Portfolio & Credit Management Investor Relations Operations, Finance and Legal 6 professionals 1 professional (to be recru

  36. Slide 36: Products and AUM

    Products and AUM A strong platform to broaden our product offering 3i Debt Management US AUM $1.2bn (£0.9bn)(1) CLO Unlevered Fund Credit Opportunities 2 CLO funds(1) 3i SLF COA AUM $0.9bn(1) AUM $51m AUM $309m 3i Group $20m $10m – Investment Investing in more than 220 companies (1) As at 28 Februar

  37. Slide 37: A strong track record – levered funds

    A strong track record Levered funds  Diverse portfolios of senior loans levered with long-term liabilities via CLOs  Current CLOs have an average annualised cash yield on the equity tranche since inception of 19.8%(1)  Equity distributions made throughout the 2008-2010 market downturn Realised eq

  38. Slide 38: A strong track record – US Senior Loan Fund

    A strong track record 3i US Senior Loan Fund (unlevered)  Established in July 2009, running an unlevered, long only, senior loan strategy  Three year annualised returns of 8.3%. Credit Suisse Leveraged Loan Index (“Index”) returns of 7.0% over the same period (as of 31 December 2012)  Low volatil

  39. Slide 39: Default and Loss Rates

    A strong track record 3iDM US default and loss rates  3iDM US 12 month trailing loan default rates have historically been below the default rate of the Credit Suisse Leveraged Loan Index  3iDM US’s high recoveries on defaulted assets have resulted in a low overall historic loss rate 12% 10% 9.6% C

  40. Slide 40: Successful capital raising across the cycles

    A strong track record Successful capital raising across the cycles Fraser Sullivan/3iDM US fundraising (calendar year, US$m) 1,000 900 800 513 500 299 240 250 2006 2007 2008 2009 2010 2011 2012 2013 YTD (3 months) 40

  41. Slide 41: US loans still represent good absolute value

    The market environment in the US US loans still represent good absolute value Institutional leveraged loan market Libor spread(1) (bps) 1,600 ($bn) 31 Dec 08 1441bps 1,400 $426 Loan Discount Margin (4-year life) 1,200 $366 Average 1,000 $264 31 Dec 12 $241 800 $220 536 bps 600 28 Apr 06 $154 235 bps

  42. Slide 42: US loans still represent good relative value

    The market environment in the US US loans still represent good relative value  Spreads on high yield bonds have historically been higher than loans, yet the difference has narrowed  High yield bond yields do not currently compensate the investor for higher loss expectation in the event of default

  43. Slide 43: Good growth opportunities for 3iDM US

    Good growth opportunities for 3iDM US Our areas of focus Core business  Issue new CLOs  Grow Senior Loan Fund  Establish managed accounts Strategic options  Middle market loan capability  High yield debt platform  Structured credit/CLO investing  Special situations/event driven expertise Oppo

  44. Slide 44: Summary

    Summary  Leading US credit investment management platform  Currently manages $1.2bn across four funds(1)  Core team together since 2005, averages over 15 years experience  Leading track record managing both levered and unlevered funds  Successful raising capital throughout history of firm, incl

  45. Slide 45: Conclusion – Jeremy Ghose

    Jeremy Ghose Managing Partner and CEO, 3iDM Conclusion 45

  46. Slide 46: A clear focus on growth

    A clear focus on growth  3iDM today is an integral, relevant and growing part of 3i’s business  3iDM brings stability and visibility to 3i’s earnings  3iDM’s focus is on growth: scalable platform  3iDM has a clear strategy and vision: organic growth and acquisitions  3iDM has the track record a

  47. Slide 47: Team biographies

    Team biographies

  48. Slide 48: Jeremy Ghose

    Jeremy Ghose Managing Partner and CEO, 3iDM Jeremy is CEO & Managing Partner of 3iDM. Jeremy joined 3iDM in 2011 following the acquisition of Mizuho Investment Management from Mizuho Corporate Bank. Prior to joining 3iDM, Jeremy was with Mizuho Corporate Bank (formerly The Fuji Bank) since 1988. Jer

  49. Slide 49: John Fraser

    John Fraser Managing Partner, 3iDM US John joined 3iDM US as a result of the strategic transaction between 3iDM US and WCAS Fraser Sullivan, a SEC registered investment adviser he founded with Tighe Sullivan in 2005. Prior to founding WCAS Fraser Sullivan, John was a Managing Director and Partner wi

  50. Slide 50: Andrew Bellis

    Andrew Bellis Managing Director, 3iDM Andrew is a Managing Director and Partner of 3iDM, responsible for the strategic growth of the business. Before joining 3iDM in July 2012, he ran the global CLO new issue business at Credit Suisse. Prior to that, Andrew held a number of roles at Bank of America

  51. Slide 51: Appendix

    Appendix

  52. Slide 52: A CLO is a financing structure

    A CLO is a financing structure Assets financed with long term liabilities and “equity” Assets Liabilities Priority of (3-5 year average life) (10-12 year maturity) payments waterfall The Issuer, Senior and Bankruptcy remote mezzanine term non- Jamestown CLO X Portfolio cash flow recourse rated debt

  53. Slide 53: How do CLOs work?

    How do CLOs work? 1. A bankruptcy remote issuer is established and holds the portfolio of senior secured corporate loans (the “Portfolio”) 2. The Issuer enters into a portfolio management agreement with 3iDM. 3iDM will: a. Direct the purchase of the initial portfolio subject to certain criteria b. D

  54. Slide 54: A short note on coverage tests

    A short note on coverage tests Coverage tests drive CLO performance  The par value or over-collateralisation (“OC”) coverage tests are key to the performance of CLOs  An OC ratio measures the par value of assets divided by the par value of liabilities at a particular level of the capital structure

3i Group — Investor Day (March 2013) on 6ix