excellere partners iii - booth school of...

Excellere Partners III by Steven N. Kaplan, Florian J. Amann and Josep Mas Pujol1 As the spring of 2015 began, David Kessenich and his partners at Excellere Partners were making the final decisions for the terms of the Excellere Capital Fund III. Excellere’s Fund I and Fund II had been successful, generating returns well above those of comparable middle market private equity funds. Fund I and Fund II had raised, respectively, committed capital of $265 million and $472 million. Because of the strong performance of those funds, Kessenich had little doubt that Excellere could increase the size of Fund III to $1 billion or even more. At the same time, however, he wondered whether his partners and he would be able to deploy the additional capital effectively. Kessenich was seriously considering a different option. Instead of substantially increasing the fund size, Excellere could increase its carried interest to 25% while only increasing the fund size modestly (to $550 million).2 In its previous funds, Excellere had charged a management fee of 2% and a carried interest (or profit share) of 20%. In Fund III, the carried interest would increase, but the management fee would remain at 2%. While this seemed to make sense to Kessenich and his team, a 25% carry was highly unusual. A recent paper on private equity fees (by Robinson and Sensoy (2013)) reported that only 1% of buyout funds charged a carry above 20%. The time had come to decide. Should Excellere raise its carry, but keep the fund size increase modest? Should Excellere take advantage of the demand and increase its fund size more markedly? Or, should Excellere just keep the fund size and the carry where they were in Fund II? 1. The Private Equity Market

In 2015, the private equity business faced both opportunities and challenges. On the opportunity side, private equity fundraising, i.e., commitments to private equity funds, was robust. After declining substantially in the financial crisis, commitments had increased to near record, pre-crisis levels. Exhibit 1 includes a time series of the size of commitments to private equity funds. On the negative side, however, rising stock prices and aggressive corporate debt markets made attractive buyout targets hard to identify. Accordingly, some private equity GPs struggled to put their funds to work.

1 Some information and facts have been disguised. Copyright ©2016 by Steven N. Kaplan. 2 This did not include $45 million from former executives of Excellere Partners portfolio companies and a commitment by the Excellere General Partners (the GP) of $30 million. Including those commitments, the fund would total $625 million.

2 © Steven N. Kaplan

A Brief History3 Private equity partnerships came into being and prominence in the early 1980s. At that

time, the industry focused on leveraged buyouts (LBOs). The industry referred to itself as the LBO market and funds were known as LBO funds. LBO investors discovered that a combination of management incentives (the carrot), debt (the stick), and board oversight led to improved operating performance. Those LBO strategies were initially applied following a period of poor stock market performance. Consequently, acquisition prices, as a multiple of cash flow, were historically low. A relative abundance of inefficient conglomerates provided ready-made targets for buyout firms able to secure the necessary financing. Buyout funds and deals in the early to mid-1980s performed very well.

This strong performance led to an influx of capital into funds in the second-half of the

1980s as well as an expansion of the junk bond market (which is known today as the high yield market). The increased capital in buyout funds and the expanded junk bond market lead to a large increase in LBO activity and higher deal prices. In 1989, the U.S. went into a recession and the junk bond market collapsed (when Michael Milken was indicted and Drexel Burnham failed). In the subsequent few years, roughly 40% of the LBOs done in the 1986 to 1988 period ended up defaulting and going bankrupt.

The large number of defaults and collapse of the junk bond market led to a reduction in

buyout fund commitments in the early 1990s. Those defaults and the junk bond market collapse also led the industry to rename itself as private equity rather than LBOs. Junk bonds became known as high yield bonds.

In the early 1990s, fundraising was relatively low and buyout capital relatively scarce. LBOs of public companies (public-to-private transactions) virtually disappeared by the early 1990s. This combination appears to have led to good returns for this period. Again, capital flowed into the industry; IRRs and investment multiples (MOICs) declined for funds raised in the late 1990s. And, again, in the early 2000s, capital commitments declined in the face of the dotcom bust recession and lower private equity returns.

In the mid-2000s, an improved economy and improved returns in the mid-2000s led to a

second LBO boom. Public-to-private transactions reappeared. In 2006 to 2008, record amounts of capital were committed to private equity, both in nominal terms and as a fraction of the overall stock market. Private equity commitments and transactions rivaled, if not overtook the activity of the first wave in the late 1980s (that reached its peak with the buyout of RJR Nabisco in 1988). And then the financial crisis struck, leading to lower returns and lower private equity activity.

Exhibit 2 reports IRRs and MOICs (multiples of invested capital) to private equity funds by vintage years since 1980. The vintage year is the year in which the fund made its first investment. The coverage in the early years of the sample is spotty – there are very few funds. 3 This section is based partially on Harris et al. (2014), Kaplan and Stein (1993) and Kaplan and Stromberg (2009).


Since 1986, the coverage is more robust. The returns in exhibit 2 are all net of fees paid to the general partner / PE fund. The performance of more recent funds includes both realized investments – investments the general partner has exited or distributed – and unrealized investments –investments the PE fund still holds, but has not exited. Unrealized investments, therefore, generally do not have a market price, but have a value estimated by the general partner. IRRs and MOICs are calculated including unrealized values adjusted for the carried interest that would be paid if they were realized.

Exhibit 2 also reports the public market equivalents (PMEs) for private equity funds by

vintage year. The PME measures how the investment in the PE fund performed compared to what an investor would have received if it had invested in the S&P 500 instead. A PME above 1.0 indicates that the PE fund investment outperformed the S&P 500. For example, a PME of 1.2 indicates that an investor is 20% better off over the life of the fund than the investor would have been if it had invested in the S&P 500. This particular variant of PME is known as the Kaplan and Schoar PME or KS PME.4 The Private Equity Market in 2015

Longer-term industry and economy-wide trends appeared to make it more difficult to achieve exceptional returns through traditional buyout strategies. Many of these trends can be summarized by the phrase “tougher targets.” It had become increasingly difficult to identify companies ripe for traditional buyout deals. For example, fewer U.S. companies maintained low-and, arguably, sub-optimal debt-equity ratios. Similarly, the use of incentive-based compensation had spread throughout the economy during the 1990s and was now prevalent. This reduced one of the primary advantages that buyout firms relied on in the 1980s. In fact, from to 1980-2000, equity compensation to public company CEO’s rose by a factor of ten.

PE fund managers generally believed that target companies were better managed than they had been earlier – although this was more true of larger companies than of small to mid-sized businesses. As a result, attractive buyout opportunities had become harder to come by. It also seemed likely that target companies of all sizes were better advised on acquisition pricing and that competition among financial buyers had substantially increased.

As a consequence of the various changes of the deal economics, the relative sources of buyout investment returns had changed as well. In a survey of leading PE investors, Gompers, Kaplan and Mukharlyamov (2016) found that private equity investors relied most heavily on growing the underlying business and implementing operational improvements as the drivers of value. Leverage and multiple-arbitrage had become less important as return drivers.

4 See Kaplan and Schoar (2005) for a description of the PME methodology.


2. Excellere Partners5 Excellere was a Denver, Colorado, based middle-market private equity partnership. It was founded in 2006 by David Kessenich, Robert Martin and Matt Hicks. Subsequently, Excellere added John Lanier as fourth partner. By early 2015, Excellere had raised two funds -- Excellere I with $265 million in committed capital in 2007 and Excellere II with $472 million in 2011. Both funds had performed well. As of March 31, 2015, Excellere Fund I and II had generated net IRRs of 33.0% and 45.9%, respectively, and net MOICs of 2.13x and 1.51x, respectively. Exhibits 3A, 3B and 3C list the investments in Excellere Fund I and II and their performance in more detail. A. Investment Strategy Excellere specialized in partnering with middle-market entrepreneurs and management teams through recapitalizations and management buyouts. The partnership focused on lower middle-market companies with primary operations in North America with EBITDA in the $4 million to $25 million range. It employed a research-driven, top-down investment strategy targeting industry niches that Excellere believed were positioned to benefit from favorable macro-economic and demographic trends and consolidation. By executing a customer-centric, buy-and-build strategy and pursuing operational excellence, Excellere Partners aspired to build best-in-class companies that would be highly attractive to both corporate and larger financial buyers at the time of exit. Post-investment, Excellere sought to consistently deploy a documented value creation process that included proprietary tools and processes designed to provide a framework for the execution of a successful buy-and-build strategy. As part of this process, Excellere, together with members of the Firm’s Project Expert Network (described below), worked closely with portfolio company management to drive value through operational improvement, targeted at enhancing the portfolio company’s infrastructure (people, processes and systems) and executing a customer-centric, buy-and-build strategy, which focused on both organic growth opportunities and strategic add-on acquisitions. Excellere Partners’ strategy was intended to result in value creation through strong organic revenue and EBITDA growth as well as the creation of a much larger, more institutionalized company with substantial, strategic value to both corporate and larger financial buyers at exit. Because Excellere’s strategy was based on growth and strategic and operational enhancements, Excellere believed it was less reliant on the use of leverage and conservatively capitalized its portfolio companies. Consistent with this, the weighted average net total leverage of Fund I and Fund II’s 16 platform investments at acquisition was only 2.5x EBITDA. 5 This section is based on the private placement memorandum, public information and information from Excellere’s web site.


Industry Knowledge Excellere Partners’ investment strategy was driven by a “top down” industry approach. To do this, Excellere Partners had developed significant knowledge in industries that the Firm believed were poised for growth, allowing the investment professionals to conduct due diligence as knowledgeable, value-added partners rather than just investors. The Firm’s disciplined industry selection process focused on identifying sectors that (i) exhibited long-term growth from favorable macro-economic and demographic trends and (ii) would benefit from implementing Excellere Partners’ customer-centric, buy-and-build investment strategy to build an industry-leading, best-in-class company. Excellere Partners’ investment professionals immersed themselves into industry segments through several methods: (i) systematic “top down” research; (ii) industry write-ups prepared by the Excellere Partners' investment professionals and presented during an annual review of targeted industry sectors; (iii) strategic alliances with industry experts; and (iv) participation in industry events and trade shows. Excellere believed that its industry-focused investment strategy provided three primary benefits: Origination. Excellere Partners’ immersion within a given industry provided a marketing advantage in competitive situations, particularly with entrepreneurs who desire an informed and value-added partner. Investment Decisions. Excellere Partners’ experience, network and knowledge of a sector was a significant advantage when conducting due diligence on potential opportunities and improved investment decision-making relating to pricing, growth expectations and tactical opportunities to create value. Value Creation Process. Excellere Partners’ industry knowledge allowed the investment team to serve as a knowledgeable, value-added partner and to provide valuable insights as the post-investment strategy developed and priorities were established. Excellere Partners focused on the following industries and sub sectors:


Disciplined Adherence to Investment Criteria Within its focus sectors, Excellere sought businesses meeting the following core

investment criteria: • Target EBITDA of typically $4 million to $25 million: • Differentiated Business Models: Once an industry or sub-sector is identified, Excellere

deployed its Origination Platform to identify companies that have differentiated business models that are poised to grow at a faster rate than the industry.

• Management with a vision for growth and desire for partnership: Excellere aimed to become a true partner with management over the course of the investment. During due diligence phase of investment, Excellere looked to partner with entrepreneurial owners of middle-market companies who sought a recapitalization and were interested in private equity partners who were not just capital providers but also served as strategic, value-added partners with industry domain expertise.

Origination Platform The Origination Platform was created to build Excellere’s brand, to identify attractive

industries for the execution of a customer-centric, buy-and-build strategy and to generate high quality deal flow in the Firm’s targeted industries by leveraging all professionals in the Firm. Excellere Partners believed that its Origination Platform provided a substantial competitive advantage. Each Vice President, Associate and Analyst was assigned to an industry vertical team led by a Partner or Principal, who provided guidance, training and oversight throughout the year. A key objective of the industry vertical teams was to develop sourcing relationships with industry-focused intermediaries and other professionals, as well as directly with entrepreneurs. In addition, each of the Partners, Principals and Vice Presidents had dedicated geographic territory coverage, which allowed each of the professionals to develop relationships with key sources of new opportunities.

Origination Platform Tools • Annual Marketing Plan. In conjunction with Origination leadership, each professional

was responsible for creating a personalized Annual Marketing Plan, which included that professional’s individual marketing goals as well as the strategy for penetrating their industry and marketing territory during that year.

• Deal Midas. Deal Midas, an origination-specific deal management and CRM system formed the technology backbone of the Firm’s Origination Platform.

• Regular Communication. Marketing and origination activity and issues were discussed at weekly Marketing meetings.

• Website. Excellere Partners invested in the creation of a website tailored to appeal to entrepreneurs who desired a partner to drive accelerated growth and operational excellence. The Firm believed that its content-rich (developed internally), interactive website differentiated Excellere as the “Partner of Choice” for those entrepreneurial management teams who desired a recapitalization transaction.

• Firm Marketing Materials. Excellere Partners developed a consistent, professional marketing “brand” across its collateral materials, which assisted the Firm’s professionals in delivering a cohesive message.


Customer-Centric, Buy-and-Build Strategy Excellere deployed a buy-and-build strategy focused on helping portfolio companies (i)

enhance their value proposition to customers, (ii) achieve operational excellence to prepare for scalable growth and (iii) become industry leaders that are highly regarded by competitors, customers and potential acquirers.

The four primary elements of Excellere’s Value Creation Process were: 1. Build a Foundation: Many lower middle-market companies do not have the

infrastructure necessary to support scalable growth. In order to ensure portfolio companies have a strong foundation for the execution of a multi-faceted buy-and-build strategy, Excellere, together with its Project Experts, spent significant time working with management to understand the needs of each unique organization and identify areas in need of investment. These initiatives included augmenting senior leadership, improving operating processes supported by more robust IT systems and often devising a new organizational design.

2. Enhance Customer Value Proposition: Excellere sought to improve its portfolio

companies’ value propositions to customers by expanding their product offerings, service capabilities and geographic reach. Strategic add-on acquisitions can be an important means of enhancing a portfolio company’s customer value proposition. As such, Excellere began preparing portfolio companies for integrating potential add-on acquisitions during due diligence. Excellere worked with management to develop a strike zone to identify criteria that an add-on acquisition candidate should exhibit. Using this strike zone, Excellere and management then begin building a pipeline of strategic add-on acquisition targets. 3. Achieve Operational Excellence: Excellere pursued operational excellence by providing its portfolio companies with resources and support throughout the holding period of the investment. These tools and processes were designed to assist management with executing post-investment initiatives, while helping to ensure that the Excellere implemented its process based investment strategy consistently across investments. Operational Assessment. During due diligence, Excellere Partners conducted an operational assessment to identify and prioritize areas for operational improvement post-investment. Value Creation Partnership. Prior to the closing of a platform investment, Excellere presented portfolio company management with a written document that set the framework for the post-investment relationship between Excellere and management. One of the greatest challenges for any new partnership is transitioning from a transaction environment, where the entrepreneur sellers and Excellere were on opposing sides of the negotiating table to a partnership where both sides worked together to execute upon a shared vision for the business. Excellere believed that the Value Creation Partnership expedited this transition. The Value Creation Partnership consisted of the following components: Governance and Communication, Value Creation Planning, HR Strategies and Integration of Add-on Acquisition. Value Creation Planning Sessions: Shortly after closing a new investment, Excellere engaged portfolio company leadership in a Value Creation Planning session, utilizing tools and best practices developed and improved over many years. For the majority of the


portfolio companies across Funds I and II, the Value Creation Planning session was their first encounter with a formalized process. The purpose of Value Creation Planning was to align Excellere’s investment thesis with the leadership team's operational discipline. The success criterion for the planning process was identifying the “vital few” initiatives that were most accretive to the investment. The “vital few” initiatives from the Value Creation Planning session were assigned to responsible leaders—with the support of Excellere—for developing and managing execution of the project plans. Value Creation Roadmap. The Value Creation Roadmap was a practical tracking tool for strategic and tactical items common to Excellere investments, but new to the portfolio company. The primary strategic elements originated from Value Creation Planning. Post-close, the tactical items were predominantly investment closure related, for example, the “100-day plan” checklist, but the Value Creation Roadmap was a living document with certain elements deleted as they are completed and new elements added as necessary. 4. Create Industry Leadership: By enhancing a portfolio company's foundation, accelerating internal growth and making selective strategic add-on acquisitions, Excellere historically had built significantly larger, more profitable companies with differentiated business models and strived to increase the barriers-to-entry, which ultimately should generate superior valuations. B. Partners and Team Values Excellere was led by Managing Partners / Co-founders David L. Kessenich and Robert A. Martin. The partnership further included co-founder Matthew C. Hicks and John Lanier, who had worked with Excellere since inception as a Project Expert and who joined the team as a Partner in February 2014. Collectively, the partners had more than 120 years of relevant experience and had spent most of their careers operating primarily in the lower middle-market. The partners were supported by 12 additional experienced investment professionals, all of whom shared in the carried interest. On average, the investment professionals had 16 years of relevant experience. Since its founding in 2006, Excellere had built a values-based organization that Kessenich believed stood for something greater than investing and managing capital. Excellere believed that if the firm cultivated a culture with the right values, success would inevitably follow. At the core of this philosophy was the recognition that Excellere was an entity created for the success of others. Excellere served its “customers” with the highest standard of quality – “Striving for Excellence”. Moreover, Excellere Partners believed that there was a “right way” to pursue excellence by utilizing a tested system grounded in integrity. To capture the essence of this philosophy, Excellere had developed a value statement to succinctly communicate the embodiment of its differentiated approach to private equity investing: “Do the right thing, the right way, with excellence.” Excellere believed it had built an organization around individuals with the backgrounds, skill sets and attitudes that enhance and perpetuate its unique culture and values. A description of the partners is provided below; a full list of the team is provided in Exhibit 4.


David L. Kessenich

Mr. Kessenich (47) is a Managing Partner and co-founder of Excellere Partners. He has more than 25 years of principal investing and investment banking experience, including originating investment opportunities, leading investment teams, providing strategic and operational oversight, and board governance. Mr. Kessenich has supported many entrepreneurs to successfully grow their companies into best-in-class, industry leading businesses. He has extensive experience in a number of industries, including healthcare services, medical technology, and life sciences; energy services spanning the upstream, midstream and downstream continuum; industrial technology and services, and transportation logistics industries.

Prior to forming Excellere Partners, Mr. Kessenich was a senior investment professional and served on the investment committee at KRG Capital Partners as well as two other middle-market private equity firms. Previously, Mr. Kessenich was an investment banker with Continental Bank / Bank of America, where he advised middle-market companies and entrepreneurs. Mr.Kessenich earned an MBA from the University of Chicago's Booth School of Business and a BSBA from Creighton University.

Mr. Kessenich currently serves on the board of directors of Integrated Petroleum Technologies, Medtech College/Institute and Systems Integrity Management Solutions. Mr. Kessenich previously served on the board of directors of Advanced Pain Management, AxelaCare Health Solutions, MedExpress Urgent Care, MTS Medication Technologies, Personable Insurance, PhyMed Anesthesia and U.S. Water Services prior to their sales.

Robert A. Martin Mr. Martin (66) is a Managing Partner and co-founder of Excellere Partners. He has spent

virtually his entire career as an entrepreneur (founded two companies) or working with entrepreneurs as a middle-market investment banker and a private equity investment professional. Mr. Martin has extensive experience in operations, sales and marketing, strategic planning and value-creation.

Prior to forming Excellere Partners, Mr. Martin was a senior investment professional at KRG Capital Partners, a middle-market private equity group. Previously, Mr. Martin was President of Geneva Corporate Finance (acquired by Citigroup in February 2001), a national investment banking firm specializing in advising privately held middle-market companies. Mr. Martin successfully completed or supervised approximately 200 entrepreneurial sell-side engagements of companies with market enterprise values up to $500 million. Mr. Martin earned a BS from Hofstra University.

Mr. Martin currently serves on the board of directors of Advanced Infusion Solutions, ASI Government, DentMall, Integrated Petroleum Technologies, Mentis and TrialCard. Mr. Martin previously served on the board of directors of Advanced Pain Management, AxelaCare Health Solutions, MedExpress Urgent Care, MTS Medication Technologies and PhyMed Anesthesia Group prior to their sales.

Matthew C. Hicks Mr. Hicks (46) is a Partner and co-founder of Excellere Partners. Throughout his 23-year

career in private equity investing and financing, Mr. Hicks has gained extensive experience in


originating investment opportunities, partnering with and supporting entrepreneurial businesses, and overseeing value creation and buy-and build growth strategies. He has experience in a number of industries, including healthcare services; healthcare products and technology; outsourced marketing services; consumer products; office furniture products; food and beverage; and industrial technology and services industries.

Prior to forming Excellere Partners, Mr. Hicks served as an investment professional at Stone Arch Capital, an Upper Midwest focused middle-market private equity firm, and at George K. Baum Merchant Banc, a private equity firm with a buy-and-build investment strategy focused primarily within the food and beverage, consumer products, industrial manufacturing, and business service industries. Mr. Hicks began his career with Continental Bank / Bank of America in the private equity and leveraged lending groups.

Mr. Hicks earned an MBA from the University of Chicago’s Booth School of Business and a BS from the University of Utah.

Mr. Hicks currently serves on the board of directors of Advanced Infusion Solutions and previously served on the board of directors of Advanced Pain Management, Flavours, MTS Medication Technologies and PhyMed Anesthesia prior to their sales.

John A. Lanier Mr. Lanier (55) is a Partner, Strategy and Operations, of Excellere Partners. He has over

30 years of experience advising middle-market entrepreneurial businesses. Throughout his career, he has worked extensively with private equity portfolio companies across numerous industries to drive growth, efficiency, and leadership development through the execution of hundreds of consulting assignments in areas such as strategic planning, process improvement, salesforce effectiveness, information technology, human resources, and project management. Mr. Lanier is certified in process reengineering, change management, and Six Sigma (Master Black Belt).

Prior to Excellere Partners, Mr. Lanier founded Middle Market Methods to offer value-creation strategies and operational consulting services to private equity portfolio companies. While at Middle Market Methods, Mr. Lanier served as a Project Expert to Excellere Partners. Previously, Mr. Lanier served as the Chief Quality Officer at KRG Capital Partners, where he developed the firm's first generation operational support toolbox. His early career with Bank of America involved working capital financing for lower middle-market businesses.

Mr. Lanier earned a Doctorate in Strategic Leadership from Regent University, an MBA from St. Leo University, and a BBA from the University of Georgia.

Project Expert Network Excellere worked closely with portfolio company management to achieve operational

excellence and strong growth. In order to provide management teams with the assistance and expertise necessary to complete these initiatives, Excellere created a Project Expert Network. The Project Expert Network was designed to be a virtual network of pre-qualified external consultants who could assist management teams with the execution of opportunities as well as the myriad of challenges in managing their businesses in a dynamic and demanding environment. The Project Expert Network was created as a reference tool to effectively identify potential resources that could assist the management team as they encountered challenges and opportunities inherent to a buy-and-build strategy. There were approximately 30 Project Experts


in Excellere’s network who were carefully chosen based upon their past experience and specific expertise in assisting lower middle-market companies in completing value creation projects. Each firm in the network completed a background form that provided a summary of its capabilities, industry experience, references and case studies of historical success. Project Experts had been selected to participate in the network based upon their ability to execute. The Project Expert Network was made available to all Excellere platform companies as a virtual extension of the management team’s staff. Project Experts were independent contractors, not employees of Excellere. C. Track Record / Performance As mentioned above, Excellere had enjoyed a superior track record both in Fund I and II. Excellere believed it had successfully differentiated itself in the market through the deployment of its Origination Platform as evidenced by its new investment activity and returns generated. Almost 60% of Fund I and Fund II’s platform and add-on acquisition investments were sourced either on a direct basis or through Excellere’s referral network. The chart below breaks down the sources for Excellere’s Fund I and II portfolio investments.

Excellere had cumulatively invested $447 million across 16 platform deals and 30 add-ons as of March 31, 2015. Nine of the platform deals had been fully realized, generating a total value of $703 million on $214 million of invested capital. Exhibits 3A, 3B and 3C list the investments in Excellere Fund I and II and their performance in more detail. Exhibits 5A and 5B provide summaries of two of Excellere’s investments – one success and one failure.


Excellere Capital Fund I (2007 vintage) was set up in 2007 with capital commitments of

$265 million. As of March 31, 2015, Fund I had invested $205 million across eight investments which were valued at $552 million. There was one unrealized investment that was written-off at this juncture.

Excellere Capital Fund II (2011 / 2012 vintage) was organized in 2011 with capital commitments of $472 million and made its first investment in 2012. As of March 31, 2015, Fund II had invested $242 million across eight investments that were valued at $450 million. Fund II had realized two investments while the remaining six investments were unrealized. With the exception of one unrealized investment, the remaining five had been held for under two years as of March 31, 2015. Kessenich expected Excellere would make one or two additional platform investments in Fund II. 3. The Structure of Private Equity Partnerships6 A. Compensation Private equity partnerships (PEPs) are compensated primarily through a management fee and through a carried interest or profit share. Management fees are used to pay for the ongoing operating expenses of the partnership. The fees are typically payable quarterly or semiannually in advance. The management fees are charged over the life of the fund, which is typically 10-years plus one or two years of automatic extensions. The “typical” arrangement for management fees is for a fund to charge an annual fee of 1.5% to 2.5% of total committed capital over the investment period of the fund. After the investment period, which is typically four to six years, the management fee is charged on invested capital or the capital of investments that have not yet been realized. The carried interest is the share of the fund’s profits received by the general partner / PEP. The most common carried interest split is 80 / 20, with 20% of profits going to the PEP. Robinson and Sensoy (2013) report that 97% of buyout funds charge a carry of 20% and only 1% charge a carry of over 20%. According to Mercer (1997), “the 80/20 split is attributable to the early years of the private equity industry where a 20% carried interest was considered to be a substantial incentive for the general partner’s performance.” The carried interest, in turn, is then divided among the individual members of the PEP. The division is generally not disclosed in a fund’s offering memorandum. There are two traditional methods for computing the carried interest: deal-by-deal, and aggregation. Under the deal-by-deal method, the PEP would have a carried interest in the profits of each individual deal. While more common in the 1980s, this method has been rarely used since the 1990s.

6 This section is based in part on and borrows from Gompers and Lerner (1999), Kaplan (1999), Kaplan and Terachi (2003), Metrick and Yasuda (2010), Lerner et al. (2011) and Robinson and Sensoy (2013).


Under the aggregation method, a fund’s entire portfolio is aggregated. The PEP receives a carried interest in the profits of the entire portfolio. This method generally relies on one of two different calculations to determine the timing of the PEP carry. In the first type of calculation, the PEP does not receive its carry until the PEP has returned the fund’s total committed capital to the fund’s investors or limited partners (LPs). In the second, the PEP receives its carry on any distribution as long as the value of the fund’s portfolio is sufficiently greater than the capital invested at the time by the fund. To see the differences, consider a $500 million fund that makes an initial $10 million investment in a company that is sold several months later and realizes $110 million on the $10 million investment for a $100 million profit. Under the first calculation – generally referred to as a European or return-of-capital waterfall – the entire $110 million goes to the LPs because the fund has not yet returned the full $500 million fund. Under the second calculation – generally referred to as an American or deal-by-deal waterfall – the fund would be performing sufficiently well so the PEP would be entitled to $20 million – its share of the $100 million profit with a 20% carried interest. The LPs would receive $90 million – the difference of $110 million and $20 million. In using the aggregation method, most private equity funds also require a hurdle rate. The hurdle rate method of computing the carried interest is identical to the aggregation method except that the carried interest is not paid unless the fund has achieved a minimum rate of return net of fees – referred to as the hurdle rate or preferred rate. As long as the fund delivers the hurdle rate net of fees, the PEP receives all of its carry (usually 20% of the profits). The hurdle rate is intended to align the interests of the general and limited partners by giving the general partner added incentive to outperform a traditional investment benchmark. Historically, hurdle rates have been 8%. They are much more common in private equity funds than in venture funds. PEP incentives also are affected by the amount of money the PEP invests in the fund. This is called the GP commitment or the GP coinvest. Historically, the PEP was expected to contribute 1% of the total capital in the fund. This percentage has increased over time. Robinson and Sensoy (2013) report that for 35% of buyout funds the PEP contributes between 0.99%-1.01%. While the median in their sample is 1%, the mean of 2.4% and standard deviation of 5.7% imply that in many cases the PEP contribution is significantly higher than 1%. This GP commitment percentage had increased since Robinson and Sensoy collected their data. A recent report from Preqin indicated that the median in 2014 had increased to 2.5%. It is also common for PEPs – particularly buyout funds – to earn transaction fees for providing investment banking services in putting together a transaction – an acquisition, IPO, etc. In the 1980s, the PEP typically retained all transaction fees. Some of these fees turned out to be quite large – notably in some of the transactions funded by Kohlberg Kravis Roberts (KKR). Starting in the 1990s, LPs have generally required that the PEPs share the transaction fees with the LPs. By 2015, 100-0 or 80-20 splits favoring the LPs were most common.


B. Covenants and other terms The typical agreement between fund investors and the PEP includes a number of covenants and other terms. Some of the more noteworthy are described in this section. See Lerner (2011) for additional covenants and terms. Direct co-investment occurs when the partners in a PEP or LPs invest directly in companies that have received money from the fund. Crossover co-investment occurs when a PEP subsequently invests in companies that have already received money from a previous fund. Both types of co-investment by the PEP are generally restricted by the LPs. The life of a partnership is typically ten years. If the PEP asks, there are typically one or two years of automatic extensions. After that, extensions may be granted upon approval of the advisory board or a majority of the limited partners. Limited partnership agreements usually provide that a general partner may be removed for “cause” if that is the preference of a majority or supermajority of the limited partners. The necessary vote for removal is typically in the 75% to 90% range. In extreme circumstances, the LPs might invoke a no-fault divorce clause. This is the right to call for a vote of confidence at any time during the life of the partnership. The no-fault divorce clause stipulates the conditions where limited partners may stop contributing capital to the partnership or even terminate the partnership. A no-fault divorce clause typically states that if a specified majority (typically a super majority of those providing 75% or more of the committed capital) of the limited partners decide that they do not want to stay invested in the partnership, they can withhold additional capital takedowns. In the 1980s, it was common for funds to take down capital under a fixed schedule. Today, this is uncommon. Instead, LPs provide capital on a just-in-time basis in which the PEP provides advanced notice of 5 to 60 days before the capital call. Exhibit 6 provides excerpts from Excellere III’s preliminary PPM. 4. Excellere Capital Fund III

As mentioned above, Excellere was considering raising a $550 million Excellere Capital Fund III. Former executives of Excellere Partners portfolio companies would invest an additional $45 million. The GP commitment would be $30 million, or roughly 5% of the fund. Including those commitments the target fund size was $625 million. At the same time, Kessenich was considering an increase in the carried interest to 25%. This would represent an increase relative to Funds I and II, where the partnership charged the “market rate” of 20% carried interest. The management fee would remain at 2%.

The time had come to make a decision. Was Excellere that much better than other middle market buyout funds to justify the increased carry?


Exhibit 1 Capital Commitments to Private Equity Funds Over Time

$0

$50

$100

$150

$200

$250

$300

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

$ B

illio

ns

Source: Private Equity Analyst, Steven N. Kaplan

Commitments to U.S. Private Equity Partnerships 1980 - 2014 (in $ billions)

0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

1.20%

1.40%

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Commitments to Private Equity Partnerships in U.S. as Fraction of Stock Market Capitalization 1980 - 2014

Source: Private Equity Analyst, Steven N. Kaplan


Exhibit 2A Historical IRR for U.S. buyout funds by vintage year through March 31, 2015.

Source: Burgiss


Exhibit 2B Historical MOIC for U.S. buyout funds by vintage year through March 31, 2015.

Source: Burgiss


Exhibit 2C Historical KS PME for U.S. buyout funds by vintage year through March 31, 2015.

Source: Burgiss


Exhibit 3A Summary Performance for Excellere

Realized Investments Revenue and EBITDA Growth


Exhibit 3B Investments and Performance for Excellere I

Exhibit 3C Investments and Performance for Excellere II

Exhibit3BFundIPerformance

Year.Quarter S&P500*MedExpressUrgentCare ASIGovernment

AdvancedPainManagement

MTSMedicationTechnologies

AxelaCareHealthSolutions

PersonableInsurance

USWaterServices

MedTechCollege

2007.1 2,2002007.2 2,3382007.3 2,386 -11,104,0872007.4 2,306 -10,361,8482008.1 2,088 -6,938,151 -20,250,0112008.2 2,031 0 0 -19,620,0002008.3 1,861 0 0 02008.4 1,453 -8,735,213 0 02009.1 1,293 0 0 0 -15,500,0042009.2 1,499 0 0 0 02009.3 1,733 0 0 0 02009.4 1,838 0 0 0 -21,015,049 -18,999,9842010.1 1,936 0 0 0 0 02010.2 1,715 0 0 0 0 02010.3 1,909 153,762,535 0 0 0 02010.4 2,114 11,796 11,241,027 63,432,403 0 -26,100,000 02011.1 2,239 0 0 512,055 0 0 -19,010,040 02011.2 2,242 4,262,317 0 3,944,757 21,022,863 0 -5,898,640 02011.3 1,931 0 0 0 0 0 -5,500,002 0 02011.4 2,159 0 -572,799 0 0 0 -8,999,992 0 02012.1 2,431 0 0 0 0 -4,950,003 0 02012.2 2,364 871,513 3,294,123 57,659,839 0 0 0 02012.3 2,514 1,198,703 0 0 0 02012.4 2,504 0 18,997,391 0 0 02013.1 2,770 0 0 0 0 02013.2 2,851 0 65,408,155 0 0 02013.3 3,000 0 0 7,698,939 0 02013.4 3,316 6,692,444 0 0 0 02014.1 3,376 0 0 5,762,962 0 02014.2 3,552 971,077 4,547,872 0 0 02014.3 3,592 38,937,535 0 02014.4 3,769 5,238,757 0 -1,222,2892015.1 3,805 76,436,307

*S&P500TotalReturnIndex

CASHFLOWSBYDEAL

Exhibit3CFundIIPerformance

Year.Quarter S&P500* PhyMed Flavours,Inc.

IntegratedPetroleum

TechnologiesHoldings,LLC

AdvancedInfusionSolutions

SystemsIntegrity

ManagementSolutions Dentmall Trialcard Mentis

2011.4 2,1592012.1 2,4312012.2 2,364 -22,708,8252012.3 2,514 -21,420,000 -11,815,013 02012.4 2,504 0 -2,699,999 13,379,4872013.1 2,770 0 -1,999,996 02013.2 2,851 0 -375,005 0 -22,386,0002013.3 3,000 -1,200,024 0 0 02013.4 3,316 11,803,924 0 4,952,695 02014.1 3,376 0 -4,700,000 21,084,259 0 -31,109,8402014.2 3,552 -798,336 0 0 02014.3 3,592 0 0 0 0 -36,249,9702014.4 3,769 137,858,030 0 0 0 0 -59,500,0002015.1 3,805 1,335,976 0 0 0 0 0 -25,200,003

Valueat3/31/15 21,200,768 64,045,681 53,455,048 36,249,970 59,500,000 25,200,003*S&P500TotalReturnIndex

CASHFLOWSBYDEAL


Exhibit 4 Excellere Team


Exhibit 5A


Exhibit 5B


Exhibit 6 Excerpts from Excellere III’s Preliminary Private Placement Memorandum

Capital Commitment: The Fund is seeking aggregate capital commitments from Limited Partners (with the General Partner commitment, the “Commitments”) and will not accept Commitments from Limited Partners in excess of $550 million (excluding the General Partner Commitment and commitments from former executives of Excellere portfolio companies and other close relationships of the Firm (which may not exceed $45 million)). Minimum Investment: The minimum Commitment for a limited partner (collectively, “Limited Partners” and, together with the General Partner, “Partners”) will be $10 million, although Commitments of lesser amounts may be accepted at the discretion of the General Partner. General Partner Commitment: The aggregate Commitments of the General Partner, the Principals and their respective affiliates will be $30 million (the “General Partner Commitment”). Commitment Period: Each Partner’s Commitment will commence on the date of the Initial Closing and will expire on the earlier of (i) the sixth anniversary of the Effective Date (defined below), (ii) the date after the first anniversary of the Effective Date on which Limited Partners holding limited partnership interests representing 75% of the aggregate Commitments of the Limited Partners to the Fund elect to terminate the Commitment Period, (iii) the date on which 90% of the aggregate Commitments of the Partners to the Fund have been funded (and are not subject to reinvestment, or needed for purposes described in clauses (a)-(c) below) and (iv) the date that the Commitment Period is terminated due to a Triggering Event (as described under “Key Man; Active Involvement of the Principals”) (the “Commitment Period”). After the end of the Commitment Period, all Limited Partners will be released from any further obligation with respect to their unfunded Commitments, except to the extent necessary to: (a) cover expenses, liabilities, indemnities and obligations of the Fund, including Management Fees; (b) complete investments by the Fund in transactions which were in process and subject to written understandings existing prior to or on the date of termination of the Commitment Period; and (c) effect follow-on investments in Portfolio Investments up to an aggregate maximum of 20% of the total Commitments (“Follow-on Investments”). Term: The term of the Fund will be ten years from the Effective Date, but may be extended by the General Partner in its sole discretion for one additional one-year period and may be extended at the discretion of the General Partner with the approval of the Board of Advisors for a second additional one-year period. Diversification: Not more than 17.5% of the aggregate Commitments will be invested, including by way of credit support, in any single Portfolio Company, exclusive of any Bridge Financing (as defined below under “Bridge Financings”); provided that the investment threshold may be increased to 20% for a Portfolio Company with the consent of the Board of Advisors. Foreign Investments: Not more than 15% of the aggregate Commitments will be invested in Portfolio Companies having their principal operations outside of the United States and Canada or with significant operating assets located outside of the United States or Canada. Furthermore, without the approval of the Board of Advisors, the Fund will not make any “platform” investments in a Portfolio Company outside of the United States or Canada. Investment Restrictions: The Fund will not incur Bridge Leveraging or provide credit support, which taken together in the aggregate, at any one time exceed the lesser of (i) 20% of the aggregate Commitments and (ii) the uncalled Commitments that have not been reserved for another purpose. The Fund will also not make investments (i) directly in real property or in entities engaged primarily in the acquisition, management, development and/or sale of real estate, (ii) in companies engaged principally in oil and gas exploration or oil and gas reserve properties, (iii) in derivative securities other than derivative securities acquired as a hedge against Portfolio Company securities or against currency risk, (iv) in any publicly traded securities, except (A) securities issued by Portfolio Companies, (B) securities acquired in connection with a “going private” transaction, (C) if approved by the Board of Advisors, in connection with the acquisition of Distressed Investments provided, however, that in the case of publicly traded


securities acquired by the Fund, the Fund’s aggregate investments in such publicly traded securities shall not exceed 15% of the aggregate Commitments. Limitation on Indebtedness: The General Partner may not borrow money on behalf of the Fund other than Bridge Leveraging incurred by the Fund to fund the acquisition of a Portfolio Investment pending receipt of capital contributions, which capital contributions will be applied upon receipt thereof to repay such indebtedness, or the issuance of credit support in respect of the obligations of Portfolio Companies or their subsidiaries, which may be in the form of guarantees, letters of credit or pledges of a portion of the Commitments. Co-investment Policy: The General Partner may, at its option, but will be under no obligation to, provide co-investment opportunities to one or more Limited Partner(s), as well as other investors. Failure to Make Capital Contributions: The Fund will be entitled to enforce the obligations of each Limited Partner to make Capital Contributions up to the amount of its specified Commitment. At the option of the General Partner, if a Limited Partner fails to make any required capital contribution and such default continues for five business days after written notice thereof, such Limited Partner may be subject to action by the Fund with respect to all or some of the Interest held by such Limited Partner in the Fund, up to and including forfeiture of a portion or all of such Interest, charging interest to or withholding distributions from a defaulting Limited Partner. Drawdowns: Commitments are expected to be drawn down as needed to make investments and to pay Fund liabilities and expenses during the Commitment Period, with not less than 10 business days’ prior written notice. Distributions: Net proceeds attributable to the disposition of Portfolio Investments, distributions of securities in kind and any dividends or interest income received with respect to Portfolio Investments will be allocated among the Partners (both the Limited Partners and the General Partner) in proportion to funded Commitments with respect to such Portfolio Investment (including deemed contributions by the General Partner) as described below. The amount allocated to each Limited Partner will be distributed to such Limited Partner and the General Partner in the following order of priority: (a) Return of Realized Capital and Costs: First, 100% to such Limited Partner until the cumulative distributions to such Limited Partner equal the aggregate of the following:

(i) The capital contributions to the Fund of such Limited Partner used to acquire the investment giving rise to the proceeds being distributed and all realized investments, plus such Limited Partner’s proportionate share of any write-downs or write-offs of unrealized investments, as of that time; and (ii) Such Limited Partner’s proportionate share of all capital contributions used to pay organizational expenses and other Fund expenses, including the Management Fee (net of any fees previously applied against such Management Fee), paid by such Limited Partner and allocated to the investments included in subparagraph (i) above;

(b) Preferred Return: Second, 100% to such Limited Partner until the cumulative distributions to such Limited Partner equal a preferred return on the amounts included in paragraph (a) above at the rate of 8% per annum, compounded annually; (c) Catch Up: Third, 25% to such Limited Partner and 75% to the General Partner until the General Partner has received 25% of the sum of the distributions made to such Limited Partner pursuant to paragraphs (b), (c) and (d) and to the General Partner pursuant to paragraphs (c) and (d); and (d) 75/25 Split: Thereafter 75% to such Limited Partner and 25% to the General Partner (the distributions to the General Partner described in paragraph (c) and in this paragraph (d) being referred to collectively as the General Partner’s “Carried Interest”). All distributions not directly attributable to a particular Portfolio Investment generally will be made to the Partners in proportion to their funded Commitments used to acquire the investment giving rise to the distribution. Clawback: Within 120 days after (x) the end of the Commitment Period, (y) the end of each successive two-year period after the end of the Commitment Period, and (z) the final distribution of the assets of the Partnership among the Partners, the General Partner will be required to restore funds to the Fund to the extent that (i) the Limited Partners have not received their return of realized capital and costs and preferred return described above under “Distributions”, or (ii) the General Partner has received cumulative distributions in respect of its Carried Interest in


excess of 25% of the amounts described in paragraphs (b), (c), (d) under “Distributions”, in each case applied on an aggregate basis covering all transactions of the Fund. In no event will the General Partner be required to restore more than the cumulative distributions in respect of its Carried Interest received by the General Partner, less income taxes thereon determined as described above under “General Partner Tax Distributions” and taxes attributable to property distributed in kind. In the event such obligation exceeds the Carried Interest Reserve Account (as defined below under “Carried Interest Reserve Account”), each member of the General Partner entitled to receive Carried Interest distributions will be severally, but not jointly, liable for such excess clawback obligation, based upon their relative participation in the Carried Interest pursuant to a Guaranty Agreement. Carried Interest Reserve Account: The General Partner will establish a reserve or escrow account (the “Carried Interest Reserve Account”) representing 20% of all Carried Interest distributions in order to provide support for its clawback obligation subject to a cap. Allocation of Expenses: Income, expenses, gains and losses of the Fund generally will be allocated among the Limited Partners in a manner consistent with the distribution of proceeds described in “Distributions” above. Bridge Financing: The Fund may guarantee loans or provide interim financing (“Bridge Financing”) to facilitate a Portfolio Investment. A Bridge Financing, when added to the amount of the permanent investment by the Fund in Portfolio Investments and the amount of any credit support, may not exceed 20% of the aggregate Commitments. Management Fee: From and after the Effective Date and during the Commitment Period, the Fund will pay the Manager an annual management fee (the “Management Fee”), funded by each Limited Partner semi-annually, equal to 2% of the aggregate Commitment of each Limited Partner. The Management Fee will accrue as of the Effective Date based on total Commitments of the Limited Partners, regardless of when Limited Partners are admitted to the Fund. Limited Partners participating in a subsequent closing will be charged interest on Management Fees attributable to their Commitments at the prime rate plus 2% from the Effective Date. Following the earlier of (i) the termination of the Commitment Period, and (ii) the date on which the Principals close and make and receive capital calls pursuant to capital commitments by investors in a Subsequent Fund (as defined below), in respect of management fees, the annual Management Fee will equal 2% of capital contributions relating to the retained portion of all Portfolio Investments with respect to which there has not been a complete disposition, and the non-cash proceeds of any Portfolio Investment if and to the extent the same do not constitute proceeds from a disposition, as reduced by any writedowns or writeoffs of Portfolio Investments that have not been disposed of on prior to such date. The Manager may, annually in advance, elect to waive all or any portion of the Management Fee payable to the Manager for a year and direct that such waived Management Fee be credited against the aggregate Commitment of the General Partner and its affiliates to the Fund. An amount equal to aggregate waived management fees that are not applied to capital contributions may be distributed to the General Partner or an affiliate. Transaction and Break-up Fees: The Fund's pro rata share of any (i) directors’ fees and any other fee that is not a transaction, break-up, or advisory received by the General Partner or the Principals will be credited one hundred percent (100%) against the Management Fee, and (ii) transaction, break-up, advisory or other fees received by the General Partner or the Principals, net of expenses will be credited eighty percent (80%) against the Management Fee; provided, that to the extent that aggregate advisory and transaction fees over the term of the Fund exceed $28 million, to the extent not already included in clause (i), one-hundred percent (100%) of the Fund’s pro rata share of such excess shall be credited against the Management Fee. Any excess of such fees over the Management Fee will be contributed to the Fund and distributed to Limited Partners who do not waive the right to receive such excess. Project Experts: The Manager has created a network of experts that can assist management teams of Portfolio Companies on a variety of matters, including supply chain, process improvement, sales and marketing, integration, information technology, strategy, operations and human resources (“Project Experts”). Project Experts are independent contractors, not employees of the Manager. If a Portfolio Company engages a Project Expert, such Portfolio Company will bear the fees, costs and expenses in connection with the services provided by the Project Expert, and therefore the Fund indirectly bears the expense of any such services provided by the Project Experts. Any amounts paid to a Project Expert by a Portfolio Company will not offset or reduce any amount of the Management Fee payable by the Fund to the Manager.


Exclusivity: Unless approved in writing by at least 75% in interest of the Limited Partners (not including the General Partner and its affiliates), neither the General Partner, the Manager nor any Principal will call capital from an investment fund (other than a Parallel Vehicle, Separate Investment Entity and the limited partnership created pursuant to the Fund) that is controlled or managed by the General Partner, the Manager or any of their respective affiliates and has primary investment objectives substantially similar to those of the Fund (the “Subsequent Fund”) until the earlier of: (i) the end of the Commitment Period; or (ii) such time as the Commitments are at least 75% invested or committed in a binding written agreement for investment in Portfolio Companies (including amounts reserved for Follow-On Investments or other Fund expenses). Subject to the foregoing, during the Commitment Period, the General Partner, the Manager, their respective Affiliates and the Principals will first present to the Fund each investment opportunity that is suitable for and fits the investment objectives of the Fund; provided, that the General Partner, the Manager, their respective Affiliates and the Principals will not be restricted from pursuing activities that do not meet the investment objectives of the Fund provided that any such activities are disclosed to and approved by the Board of Advisors, or pursuing other permitted investment activities including, but not limited to, their involvement in Excellere Capital Fund, L.P. (“Fund I”), Fund II and their respective portfolio companies. The Principals expect to continue personal investment activity as passive owners, stockholders, debtholders and investors in professionally managed hedge funds, mutual funds, fund of funds and other private investment vehicles. Key Man: If (1) either David L. Kessenich or Robert A. Martin shall (i) fail to devote substantially all of his business time and attention to the affairs of the Partnership and their respective Portfolio Company Investments and Fund I, any Subsequent Funds and their respective parallel vehicles, separate investment vehicles and portfolio company investments (collectively, the “Fund Group”) for a period of 30 consecutive days for any reason other than death or disability (ii) die, or (iii) for 120 days or more during any nine-month period, due to disability, fail to devote the amount of time and attention to the affairs of the Fund Group, (2) any Principal takes an action (or inaction) that constitutes Cause (defined below) and the General Partner has not (x) terminated such Principal as a member, partner, and employee of the General Partner and Manager within (60) days of the occurrence of such event or discovery of such event, and (y) paid to the Fund an amount equal to the actual financial harm to the Fund caused by such conduct, if any, or (3) more than fifty percent (50%) of the voting and economic interests of the General Partner cease to be owned by Principals serving in such capacity as of the date hereof (the circumstances specified in each of clauses (1), (2) and (3) above being referred to herein as a “Triggering Event”), then the Fund will automatically enter into a 120-day period (commencing on the date the Limited Partners are notified of such Triggering Event) in which the Commitment Period will be suspended (a “Continuity Period”). Board of Advisors: A Board of Advisors selected by the General Partner will meet at least semi-annually and as required with the General Partner and the Manager to review general economic and financial trends, existing portfolio investments and valuations. The Board of Advisors may be consulted on and resolve issues involving conflicts of interest. No Fault Divorce: The Commitment Period may be terminated at any time after the first anniversary of the Effective Date, upon the consent of seventy-five percent (75%) in interest of the Limited Partners. Cause Removal: The General Partner may be removed upon consent of Two-Thirds in Interest of the Limited Partners in the event of (i) the General Partner’s, the Manager’s, or any Principal’s conviction or admission by consent of guilt in respect of a criminal violation of a material U.S. federal or state securities law or in respect of a criminal statute, (ii) the General Partner filing of a voluntary petition in bankruptcy, (iii) the General Partner being involuntarily dissolved and commencing its winding up, (iv) the General Partner consenting to or acquiescing in the appointment of a trustee, receiver or liquidator of the General Partner … Transfers and Withdrawals: A Limited Partner may not sell, assign or transfer any interest in the Fund without the prior written consent of the General Partner. Further, a Limited Partner may not withdraw any amount from the Fund, except that a Limited Partner subject to ERISA will be permitted to withdraw from the Fund, and to receive a distribution in connection therewith, in order to avoid a violation of, or breach of a fiduciary duty under, ERISA.


References

Calpers, Private Equity Workshop Materials, November, 2015. Gompers, Paul and Josh Lerner, 1999, The Venture Capital Cycle. (Cambridge, MA: MIT Press). Gompers, Paul, Kaplan, Steven N. and Mukharlyamov, Vladimir, 2016, “What Do Private Equity Firms Say They Do?” Journal of Financial Economics. Harris, Robert, Tim Jenkinson and Steven N. Kaplan, 2014, “Private Equity Performance: What Do We Know?” Journal of Finance, 1851-1882. Kaplan, Steven N., 1999, Accel Partners VII, Chicago Booth. Kaplan, Steven N., and Antoinette Schoar, 2005, “Private Equity Performance: Returns, Persistence and Capital Flows,” Journal of Finance. Kaplan, Steven N., and Jeremy Stein, 1993 “The Evolution of Buyout Pricing and Financial Structure in the 1980s,” Quarterly Journal of Economics, 313-358. Kaplan, Steven N., and Per Stromberg, 2009, “Leveraged Buyouts and Private Equity,” Journal of Economic Perspectives, 121-146. Kaplan, Steven N., and T. Terachi, 2003, Platinum Capital Partners, Chicago Booth. Lerner, Josh, F. Hardymon and A. Leamon, 2011, A Note on Private Equity Partnership Agreements, Harvard Business School, Case 9-294-084. Metrick, Andrew, and Ayako Yasuda, 2010, The Economics of Private Equity Funds, Review of Financial Studies. Robinson, David T. and Sensoy, Berk A., 2013, “Do Private Equity Fund Managers Earn Their Fees? Compensation, Ownership, and Cash Flow Performance,” Review of Financial Studies.

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