madison street capital portfolio valuation

CONFIDENTIAL

Overview of

Portfolio Valuation Services

2 Private and Confidential

Madison Street Capital – Portfolio Valuation Services

Table of Contents

SECTION 1 Introduction 3

SECTION 2 Portfolio Valuation Services 6

SECTION 3 MSC Valuation Approach & Methodologies 10

SECTION 4 Asset Class Expertise 15

SECTION 5 3rd Party Resources 20

SECTION 6 MSC Contact Information 22

Private and Confidential

SECTION 1

Introduction


Madison Street Capital Valuation Practice

Madison Street Capital specializes in the independent valuation of complex and hard-to-value investments. Our team of experts provide Portfolio Valuation Services across a wide array of asset classes spanning multiple structures, geographic locations and liquidity levels (primarily considered Level III). Our clients are generally focused in the financial services sector, including the following industry sub-groups:

– Asset Management

• Hedge Funds

• Private Equity

• Venture Capital

• Registered Investment Companies

• Pensions

• Foundations and Endowments

– Banking

– Insurance

– Specialty Finance

– Real Estate


Asset Management Industry Focus

Madison Street Capital is a specialist firm when it comes to investment banking and

valuation services for Asset Managers. The firm has a specialized Asset Management

Industry Focus group that provides financial advisory services in the following 4

categories:

M&A ADVISORY

VALUATION

RESTRUCTURING

FINANCIAL SPONSOR

COVERAGE

• Sell-side and Buy-side

Advisory

• Divestitures and Strategic

Alliances

• Capital Introductions

• Due Diligence and

Transactional Support

• Seeding Transactions

•Portfolio Valuations

(complex, hard -to-value

securities)

•Monthly, Quarterly, and

Annual Pricing Reports

•Valuation of

Advisor/Management

Company

•Financial Opinions (Fairness,

Solvency, and Other

Transaction-based)

• Restructuring (Wind

Downs; Side Pockets; Fund

Transfers)

• Recapitalization (Loan

Workouts; Refinancing)

• Asset Disposal and

Liquidations

• Distressed Debt

• Management Company

Reorganizations

•Deal-flow generation

through:

-Private Placements

-Debt Financings

-Structured Debt/Equity

•Secondary Market

Transactions

• Access to Private/Public

Company Portfolios and

Transactions


SECTION 2




Transparent Valuation in a Complex World

The last few years have demonstrated the severe risks caused by inadequate disclosure regarding complex and hard-to-value investments. In a world that favors liquidity and transparency, the need for independent and supportable portfolio valuations has never been greater. Given the material impact that the measurement of certain riskier or private investments can have on the Net Asset Value, it is instrumental to have a professional firm like Madison Street Capital that has the technical and practical experience to assist in providing correct and accurate fair values.

With the convergence and adoption of tighter global financial accounting standards, firms that hold Level II and III assets are increasingly being demanded by auditors (and investors) to support the validity and integrity of their methodologies and marks. That support often is best provided by an outside firm that has deep expertise with the types of investments and the unique risks that each structure presents.


Portfolio Valuation Services (Cont’d)

Madison Street Capital provides a full range of valuation advisory services to asset

management firms around the world by combining technical expertise with best practice modeling techniques. The following factors differentiate us from our competitors:

Independence and Objectivity

Madison is an independent boutique firm that specializes in the asset management industry and does not encounter the

conflicts of interest that other multi-disciplinary investment banks and valuation firms face. Further, our process is predicated on objectivity and transparency – we work in a professional, unbiased manner with our clients to achieve accurate and supportable results.

Technical Knowledge Our depth of knowledge in valuing the universe of hard-to-value and complex investments is unparalleled. Our teams

keep current with industry best standards, whether it be regulatory or accounting driven. Further, we utilize the most cutting-edge technology in terms of valuation models and draw-up on the most relevant 3rd party data resources.

Industry Experience

We are known for our asset management industry experience and have worked with all varieties of asset managers on

many different types of projects. There are not many scenarios where we do not have the experience or know-how to

resolve an issue, in the rare instance that we don’t, we have access to the right resources to find the answer.

Seasoned Professionals

Madison’s team are comprised of valuation experts who not only have the necessary accreditations and deep product

knowledge, but also are very experienced working with clients and their auditors (and other external parties) to go

through the valuation process in a seamless and highly efficient manner.


Portfolio Valuation Services (Cont’d)

Madison Street Capital’s reputation as a premier service provider to Asset Managers is

built upon years of extensive industry knowledge combined with highest levels quality and service. Our professionals consistently exceed the expectations of our clients. Our delivery starts with identifying our client’s needs, creating a customized work plan and then executing in a highly sophisticated and responsive manner.

MSC combines technical expertise with best practice modeling techniques to perform complex Portfolio Valuation Services. The MSC team:

• Understands the need for independence in these times of heightened scrutiny. Our practice is built on a commitment to eliminating conflicts of interest and ensuring our analyses are objective and unbiased;

• Provides clear, concise, and transparent analyses and reports which are ASC 820/IAS 39 compliant and have been reviewed and accepted by the “Big 4” audit firms;

• Employs sophisticated methodology when it comes to pricing and uses the most current mark-to-market pricing technology available.


SECTION 3

MSC Valuation Approach & Methodologies


Complex Valuation Methodology

MSC employs fundamental valuation approaches based upon the structure and risks associated with a particular security. Methodologies used in the past have included:

• Monte Carlo Simulation

• Binomial trees

• Trinomial trees

• Scenario analysis

• Credit derivative models

• Standard mortgage models assuming prepayment and cumulative losses

• Decision tree analysis

• Exotic derivative cash-flow models

• Comparable security analysis

• Precedent transaction models


Portfolio Valuation Report Formats

MSC provides fair values of complex and hard-to-value investments for clients

consistently and reliably. Marks and reports may be provided daily, monthly,

quarterly, semi-annually, annually, or on an as needed basis.

The following are types of deliverables that MSC can provide:

• Full Report

– Robust report detailing current market environment for the Investments; Market and

company specific factors affecting the Investments; Detailed analyses of assumptions

and calculations used to arrive at the valuation opinion.

• Summary Report

– High-level summarization of the Full Report deliverable that is more compact but covers

the main Quantitative points at a lower cost.

• Marks Only

– Direct pricing of securities with no accompanying valuation schedules or verbiage.


On-Going Experience/Client Communication

Madison Street Capital provides on-going valuation services to several of its clients,

especially as it pertains to the periodic updating of fair value estimates.

MSC is proactive with its clients to keep abreast of current developments. Although our

approach takes into consideration changes to internal and external factors, we understand

the need for consistency and our senior reviewers ensure that there are no significant

fluctuations in the value (unless there are extraordinary causes that would warrant it).

Upon completion of initial due diligence and conducting its independent valuation analyses, a

draft summary of the valuation is provided to the client. This allows the client to provide initial

feedback on the assumptions and preliminary conclusions, prior to sending the final report.

The nature of feedback is typically potential factual inconsistencies versus subjective

differences of opinion, which is in adherence with our independence policy.

Our findings and analyses are well-documented in a written report with our assumptions and

valuation methodologies clearly explained and supported. Additionally, our detailed reports

and documentation increase management efficiencies throughout the audit and financial

reporting processes.


On-Going Experience/Client Communication (cont’d)

As a firm policy, the team assigned on the engagement from Madison Street Capital is

always made available to the client, regardless of level of seniority. We believe that this is an

important component of the on-going communication process and helps identify potential

issues well in advance.

Another important component to our service offering is that we try to take full advantage of all

the resources that are made available. For example, as an investment bank, we are able to

draw upon certain capital market data that can be useful in supporting our valuations of hard-

to-value and complex securities where there is limited public data.

Finally, our methodology is predicated on transparency and the ability to re-perform it. We

believe that this an important attribute to the audit process and enables our clients’ auditors

to test our work product in the most efficient manner. Our senior professionals have dealt

with Big 4 auditors (and other firms) in the past on numerous occasions and are familiar with

the different review processes that each firm has. Given the transparent nature of our work,

this process usually goes smoothly without any significant issues.


SECTION 4

Asset Class Expertise


MSC Valuation Expertise

MSC has extensive experience performing valuations of the following

Private/Direct Equity and Debt Investments:

• Common and Preferred Equity investments in Private Companies

• Thinly Traded Public Equity or Debt

• Equity Investments across a wide array of industries

• Emerging market private equity and debt

• PIPE’s

• Defaulted and Distressed private debt

• Limited Partnership Units


MSC Valuation Expertise (Cont’d)

MSC has extensive experience performing valuations of the following Fixed Income Instruments and Loan Portfolios:

• Auction Rate Securities - Student Loan, Municipal, Closed-end, Insurance trust, contingent capital, CDO, CLN, CDPC, etc.

• Cash and Synthetic CDO & CDO2’s

• Credit Default Swaps - Single-Name, Standard Index, Bespoke

• Trust Preferred Securities

• Credit Linked Notes

• Agency Notes & Preferred

• RMBS – Agency, Alt-a, Subprime, CES, HELOC, etc.

• CMBS

• Insurance-linked Securities



MSC has extensive experience performing valuations of the following Derivative Securities:

• Life Settlements and Premium Finance

• Real estate loans (and REO)

• 2nd lien /Junior /unsecured/subordinated loans

• Prime and sub-prime consumer debt such as auto receivables

• Legal lines/Law Firm loans

• Film Financing Loans

• Royalty Streams

• Trade Finance



MSC has extensive experience performing valuations of the following Derivative Securities:

• Credit default swaps

• Certain convertible securities

• Energy derivatives (exotic swap/forward/option structures)

• Interest rate derivatives

• Currency derivatives

• Exotic OTC options


SECTION 5

3rd Party Resources


3rd Party Resources


SECTION 6

MSC Contact Information


About Madison Street Capital

MADISON STREET CAPITAL is an independent investment

banking and valuation firm committed to the highest standards of

integrity and service in providing financial advisory, financing

services, valuation services, and restructuring services to public

and private firms. Madison Street Capital has focused expertise

in partnering with middle-market firms to successfully navigate

complex transactions and successfully assist clients in optimizing

their company's potential. Madison Street Capital's experienced

professionals serve clients across the globe from offices in North

America, Asia, and Africa. Securities offered through MSC-BD,

LLC, member of FINRA/ SIPC.

We combine analytical precision with in-depth industry knowledge

to address even the most sophisticated valuation challenges Our

approach exceeds regulatory compliance requirements

concerning corporate valuation, financial reporting, tax, and

litigation support. Madison’s valuations are objective,

independent, defensible, and thoroughly documented in order to

meet the heightened requirements of regulatory agencies,

auditors, and legal bodies.

For more information please contact :

Karl D’Cunha, CA

Senior Managing Director

105 W. Madison Street, Suite 1200

Chicago, IL, 60602

(312) 529-7000

[email protected]

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