Regulation of Investment Advisers and Private Equity Funds

1. Investment Adviser/ Fund Regulation Update December 2009 C. Craig Lilly

2. Fund Structure General Partner, LLC (Delaware LLC ) Limited Partners Fund Limited Partnership (Delaware) Portfolio Investment #2 Portfolio Investment #1 99% Capital 80% of Profits 1% Capital 20% Carried Interest Management Advisor (Delaware LLC) ~2% Management Fee (Management Services Agreement )

17. Yes, but indicates that the records (and side letters) required to be maintained may be used for assessment of systemic risk by the Agency of Financial Stability. Yes, and also specifies that the reports apply to private funds advised by the registered adviser. Bill allows the SEC to require additional information reporting from private fund advisers. Yes, and specifies that the reports apply to private funds advised by the registered adviser. Yes, but does not specify the types of reporting information. Recordkeeping and Reporting by Private Funds (authorizes the SEC to require registered advisers to maintain records and file reports which may be made available to systemic risk regulators) Yes Yes Yes No Intrastate Exemption (generally exempts from registration advisers with clients resident in the same state, unless such adviser advises a “private fund” as defined above) Yes Yes Yes No definition Private Fund Definition (a 3(c)(1) or 3(c)(7) excepted fund which is (i) organized under U.S. law or (ii) has 10% or more of its securities owned by U.S. persons) Same, plus an exemption for advisers to private funds with less than $100M in AUM Same, plus an exemption for advisers to private funds with less than $150M in AUM Same Bill would substitute the foreign adviser exemption for this exemption (see below for foreign advisor exemption) Amendment to Private Adviser Exemption (provision that generally exempts from registration advisers with fewer than 15 clients and managing less than $25 million over the preceding 12 month period) Dodd Proposal (November 10, 2009) Kanjorski Bill (October 27, 2009) Obama Administration (July 15, 2009) Reed Bill (July 15, 2009) Proposed Provisions COMPARISON OF PROPOSED LEGISLATION

18. Yes Yes Yes Yes Foreign Adviser Exemption (generally exempts from registration advisers: (i) without a U.S. place of business, (ii) that, during the preceding 12 months, advised fewer than 15 U.S. clients and managed less than $25 million attributable to U.S. clients, and (iii) that do not hold themselves out to the public in the U.S. as investment advisers and do not advise funds registered under the Investment Company Act) No Yes No No Small Private Fund Exemption (exempting from registration an investment adviser to a private fund based on AUM of less than $150 million) Yes No No No Private Equity Fund Exemption (generally exempts from registration advisers to “private equity funds” as may be defined by the SEC, who shall remain subject to annual or other SEC reporting requirements) Yes Yes No No Venture Capital Fund Exemption (generally exempts from registration advisers to “venture capital funds” as may be defined by the SEC) Dodd Proposal (November 10, 2009) Kanjorski Bill (October 27, 2009) Obama Administration (July 15, 2009) Reed Bill (July 15, 2009) Proposed Provisions COMPARISON OF PROPOSED LEGISLATION

19. Yes No No No Independent Custodian (registered investment advisers would be required to use independent custodians to hold client assets) Yes Yes Yes No Examination of Records (records of private funds advised by a registered adviser are subject to periodic, special, and other examination by the SEC) Yes Yes. Persons classified as subject to SEC jurisdiction may be differentiated based on size, scope, business model, compensation, etc. Yes Yes SEC Rulemaking Authority (clarifies that the SEC has authority to classify persons and matters within its jurisdiction (and to prescribe different requirements and to define the term “client”) Yes No No No Family Office Exemption (excludes from the definition of “investment adviser” an adviser to a “family office” as may be defined by the SEC) Dodd Proposal (November 10, 2009) Kanjorski Bill (October 27, 2009) Obama Administration (July 15, 2009) Reed Bill (July 15, 2009) Proposed Provisions COMPARISON OF PROPOSED LEGISLATION

21. Will Fundraising Hit $100B In ’ 09? Funds Raised ( $B) Source: Dow Jones Private Equity Analyst $33.3 $38.7 $59.5 $101.2 $111.0 $177.9 $110.1 $68.3 $92.0 $151.8 $255.9 $325.7 $265.6 $79.9 $49.4

22. U.S. Buyouts Fundraising Down…. Commitments to Buyout & Corporate Finance Funds ($B) Funds Raised ($B) Source: Dow Jones Private Equity Analyst

23. VC Industry Struggling To Raise New Capital Commitments to U.S. Venture Capital Funds ($B) Funds Raised ($B) Source: Dow Jones Private Equity Analyst

25. C. Craig Lilly 650.843.3232 [email_address]