1. The Impact of the Financial Services
Meltdown on The Global Economy And The
Private Equity Industry
David Rubenstein, Co-Founder
Super Return Dubai
October 15, 2008
1

2. The Meltdown
2

3. How Did This Happen?
3

4. Excesses in The US Housing And
Mortgage Markets Are A Root Cause
Subprime loans accounted for 15% of the US
mortgage market in 2006 vs. 3% in 2002
Subprime Share of Total Mortgage Market(1)
4
(1) Source: Danske Bank. March 30, 2008.

5. Excesses in The US Housing And
Mortgage Markets Are A Root Cause
The more than $600 billion of subprime
mortgages that were issued in the US proved
riskier than anticipated
Mortgage Arrears Rates: Prime vs. Subprime(1)
Subprime Arrears
rate: ~20%
Prime Arrears
rate: ~3.75%
5
(1) Source: Chicago Fed Letter, August 2007.

6. Excesses in The US Housing And
Mortgage Markets Are A Root Cause
To compete with private lenders, Fannie Mae
and Freddie Mac lowered lending standards and
provided mortgage loans to subprime borrowers
GSE Mortgage Lending: Total Value & % of Market
$3,000 bn 100%
Private mortgage
Percent Fannie & lending
Freddie
$1,500 bn 50%
Fannie & Freddie
$0 0%
6
(1) Source: A Primer on the Mortgage Market & Mortgage Finance, St. Louis Fed. Reserve Bank. February 2008.

7. Excesses in The US Housing And
Mortgage Markets Are A Root Cause
Easy credit and lax lending standards fueled
an unprecedented bubble in house prices
Median US Home Price Relative to Owner’s Rent
7

8. Mortgages Were Packaged Into
Structured Financial Products
Trillions of dollars of asset backed securities
and CDOs were distributed throughout the
financial system
Global Issuance of Structured Financial Products(1)
($ billions)
1,000
800
(in $B)
600
400
200
‐
1 1 1 1 1 1 1 1 1 1 1 1 1 1
9 5 Q 9 6Q 97Q 98Q 99Q 00Q 01 Q 0 2Q 0 3Q 04Q 05Q 06Q 07 Q 08 Q
19 19 19 19 1 9 2 0 20 20 20 20 2 0 2 0 20 20
Total CDO Total ABS
8
(1) Source: Lehman Brothers, April 2008.

9. Financial Institutions Dramatically
Increased Leverage Levels
Investment banks, hedge funds, and even
commercial banks used borrowed money to
invest in structured financial products
Bank & Broker Leverage Levels (Assets/Equity)
9
(1) Source: Citigroup. September, 17 2008.

10. Hedge Funds and Private Equity Firms
Increased Their Use of Leverage
Hedge funds and private equity firms control ~$2.5
trillion of equity but borrowed several times this
amount to fund their investments
Private Equity Leverage Multiples(1) Estimated Hedge Fund Leverage(2)
6.5x 6.2x
6.0x Leverage
5.5x 5.3x 5.4x
5.0x 4.8x
4.6x
4.5x
4.0x
4.0x
3.5x
3.0x
2002 2003 2004 2005 2006 2007
10 Sources: (1) Morgan Stanley. September 2008. (2) McKinsey, October 2007.

11. Sovereign Wealth Funds And Central
Banks Bolstered Global Liquidity
Petrodollar inflows and exchange rate management
policies resulted in massive capital accumulations
throughout the developing world
Top Five Sovereign Wealth Funds(1) Global Foreign Exchange Reserves(2)
($ billions) $ billions
$875 4,987
5,000
4,309
4,000 3,822
3,112
3,000
2,475
2,093
$330 2,000
$250
$200
$108 1,000
0
ADIA GIC KIA CIC Temasek 2001 2002 2003 2004 2005 2006
11 Sources: (1) Monitor. May 12, 2008. (2) McKinsey, October 2007.

12. Rating Agencies Propagated The Illusion
of A Low Risk Investment Environment
They assigned high, investment grade ratings to
opaque structured financial products and debt
issued by highly leveraged companies
Since the outbreak of the credit crisis, they have
downgraded over $1.9 trillion of mortgage backed
securities
Rating Agency Downgrades: Mortgage Backed Securities(1)
($ billions)
1,000
841
800 739
600
400
237
200 85
0
Q3 2007 Q4 2007 Q1 2008 Q2 2008
12
(1) Source: Citigroup. September, 17 2008.

13. The Bottom Line Is That Systemic
Leverage Rose To Unprecedented Heights
Total U.S. Credit Market Debt Has Risen to 350% of GDP
Total Credit Market Debt / U.S. GDP (1)
%
350 Today
330
310
290
270 Great Depression
250
230
210
190
170
150
130
1925 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
13 (1) Source: Ned Davis Research, 2008.

14. Warning Signs
14

15. Default Rates Started to Rise
Default rates on certain types of subprime
mortgages had risen to above 20% (vs. 6% at the
beginning of 2005)
Mortgage Default Rates(1)
15 (1) Source: Freddie Mac, March 27,2008.

16. The Market Prices of Mortgage Backed
Securities Fell Precipitously
Market prices of mortgage backed securities had
fallen dramatically by the end of last summer
Price Performance of Asset Backed Security Indexes(1)
16 (1) Source: BNP Paribas, September 15, 2008.

17. Investment Banks Couldn’t Syndicate
High Yield LBO Debt
Private equity deals started to fall apart as debt
markets re-priced risk and rejected complex
structures
Large LBO Failures
Sallie Mae ($25.5 billion)
Huntsman ($10.6 billion)
Affiliated Computer Services ($8.0 billion)
Harman International ($8.2 billion)
Alliance Data ($7.8 billion)
Penn National Gaming ($6.1 billion)
United Rentals ($4.0 billion)
Acxiom ($2.9 billion)
17

18. Investment Funds Lost Billions Betting
on Risky Credit Instruments
Two of Bear Stearns’ flagship hedge funds
collapsed in July 2007
The funds had invested $1.5 billion in subprime CDO’s
These failures were followed by the collapse of
Sowood Capital, a prominent $3 billion hedge fund
Structured Investment Vehicles (SIVs)
announced billions of dollars of losses and were
liquidated
They had borrowed heavily in the short-term debt
markets to fund purchases of CDOs and other long-
term, risky debt instruments
18

19. Systemic Risk
19

20. Financial Institutions Announced Massive
Losses On Mortgages and Credit Instruments
Financial institutions have sustained over $500
billion dollars of write-downs since the credit
crisis began
The IMF expects that total financial losses will exceed
those of any past crisis
IMF Comparison of Losses Across Financial Crises(1)
$ bil Minimum
1,000 Anticipated
800 Future
Losses
600
400
200
0
US Savings and Loan Japan Banking Crisis Asia Banking Crisis Credit Crisis
Crisis (1986-95) (1990-99) (1998-99) (2007- ??? )
20 (1)International Monetary Fund, “Global Financial Stability Report,” April 2008.

21. Several Systemically Important
Institutions Have Failed in the US
Victims of the credit crisis:
Bear Stearns (investment bank) ― Saved from
bankruptcy by government backed sale to JP Morgan
Lehman Brothers (investment bank) ― Bankrupt
AIG (world’s largest insurance co.) ― Bailed out
Washington Mutual (6th largest US bank*) ― Assets
seized by the government and sold to JP Morgan
Wachovia (3rd largest US bank*) ― Sold to Wells Fargo
after an aborted bid by Citigroup
21 * By deposits

22. A Radical Policy Response Seeks To
Prevent A Systemic Collapse
Under the Troubled Asset Relief Plan (TARP), the
Treasury Department is:
Purchasing up to $250 billion in equity stakes in US financial
institutions, including $20-25 billion stakes in Bank of America,
Citigroup, and Wells Fargo and $10 billion stakes in Goldman
Sachs and Morgan Stanley
Purchasing up to $700 billion of financial sector assets
The FDIC is guaranteeing certain types of bank debt
and has increased deposit insurance to $250,000
The Federal Reserve has taken extraordinary steps:
Allowed banks to post unconventional assets as collateral
Begun purchasing commercial paper from corporations
Extended a $50Bn credit line to money market funds
Begun paying interest on bank reserves
22

23. Europe
23

24. The Credit Crisis Has Struck Europe
With A Vengeance
Europe’s economies are in many ways as
vulnerable as America’s
Leverage levels are high, house prices are inflated,
and financial institutions have suffered deep losses
UK Household Debt/Income (%)(1) Bank Leverage: Europe vs. USA(1)
(Assets/Equity)
38x
21x
Europe USA
24 Source: (1) Citibank, “A Downward Spiral.” 17 September 2008.

25. Large European Financial Institutions
Have Experienced Extreme Distress
In the United Kingdom
RBS ― The British government is recapitalizing Europe’s largest
bank by assets
HBOS & Lloyds TSB ― The UK government is injecting capital
into both banks (Britain’s 4th & 5th largest), having already
engineered their merger
Northern Rock and Bradford & Bingley ― Two of the UK’s largest
mortgage lenders became insolvent and were nationalized
In Germany
Hypo Real Estate ― Bailed out by the German government
In France & Belgium
Fortis ― Europe’s 11th largest bank was sold off piecemeal and
partly nationalized
Dexia ― France and Belgium were forced to recapitalize
Europe’s 16th largest bank
25

26. Other Systemically Important European
Banks Are at Risk
Many of Europe’s largest banks operate at very
high leverage levels
One reason is that many of them have highly
leveraged investment banking operations
European Banks’ Leverage Ratio Compared With Citigroup(1)
Citigroup
26 Source: (1) Greed & Fear, 09 October 2008.

27. European Governments Have Been
Forced To Take Radical Action
European governments have pledged a total of
$2.5 trillion to guarantee bank debt and purchase
equity stakes in financial institutions
Eurozone governments have agreed to guarantee
all new bank debt issuance through 2009
Ireland, Germany, and Denmark have guaranteed
all consumer bank deposits
European central banks are offering unlimited
dollar funding to banks in order to unclog
interbank lending
27

28. European Governments Have Been
Forced To Take Radical Action
Specific national policies include:
The UK Government is guaranteeing bank debt and
injecting ₤50 billion into banks including RBS, HBOS, and
Lloyds TSB
Germany is guaranteeing up to $544 billion of bank debt
and plans to buy equity stakes worth up to $109 billion
France is creating a state fund to buy stakes in financial
institutions and has guaranteed $435 billion of bank debt
Spain is guaranteeing up to $136 billion of new bank debt,
has set up a facility to purchase equity stakes, and plans to
buy up to $68 billion of bank assets
Iceland has nationalized its entire banking system and may
borrow billions of dollars from Russia and the IMF
28 Source: Wall Street Journal, 14 October 2008.

29. Emerging Markets
29

30. Emerging Markets Have Posted Steep
Stock Market Losses
Heightened risk aversion, capital flight, and
deteriorating economic growth prospects have
produced dramatic equity price declines
YTD Performance of EM Equity Markets(1)
120
100
S&P 500:
(38.8%)
80 India:
(48.1%)
Asia:
60 (52.2%)
Lat. America:
(60.9%)
40 E. Europe:
May-08
May-08
Jan-08
Jan-08
Jan-08
Feb-08
Feb-08
Mar-08
Mar-08
Jun-08
Jun-08
Jul-08
Jul-08
Jul-08
Sep-08
Sep-08
Apr-08
Apr-08
Aug-08
Aug-08
(62.2%)
MSCI Latin America MSCI Eastern Europe MSCI Emerging Asia
India (SENSEX) US (S&P 500)
30 Source: (1) Bloomberg, 10 October 2008.

31. The Credit Crisis Has Disrupted Capital
Markets and Exposed Fiscal Weaknesses
Regions and countries with major fiscal
imbalances have been hit hard
Many emerging markets rely on foreign capital
inflows to finance large current account deficits
They have funded domestic credit growth with
foreign borrowing
Some developing economies are heavily
commodity dependant and will weaken as
commodity prices fall
Capital flight is a major risk for these
economies
31

32. Certain Emerging Markets Are Vulnerable
Emerging markets with high current account
deficits and tight banking sector liquidity could
experience full-blown financial crises
Regions/Countries at risk include:
Central & Eastern Europe ― The Baltic states, Bulgaria,
Romania, Ukraine, and Hungary have large current
account deficits and have experienced unrestrained
credit growth
Latin America ― Countries including Brazil, Peru,
Argentina, and Venezuela could see their fiscal positions
deteriorate if commodity prices fall further
Pakistan ― The country’s credit ratings have been cut
due to its deteriorating external liquidity situation and
dwindling foreign reserves
32

33. Certain Emerging Markets Are Vulnerable
Eastern European current account deficits and Latin
American commodity dependency are key
vulnerabilities
Certain CEE countries will experience credit contractions,
reduced investment, and slower growth
Latin American governments may have to raise taxes or cut
spending as commodity related revenues fall
CEE Current Account Deficits(1) Lat. Am. Fiscal Balances Pro-Forma
(2007) for Commodity Prices at 10 Yr Avg.(2)
0%
2007 Actual 8.7%
-5%
-4.9% -5.3% 2007 Pro-forma
-10% 1.1% 1.8% 1.7%
-15% -13.7%
-20% -18.2% -2.0% -2.6%
-25% -22.0% -5.0%
-8.1%
Bulgaria Baltic Romania Hungary United
States States Argentina Brazil Chile Peru
33 Sources: (1) Economist Intelligence Unit, 13 October 2008; (2) Morgan Stanley, 30 September 2008.

34. What About India?
India has benefited from rapidly increasing capital
inflows since 2000, but these are set to fall
Capital inflows funded investment and boosted GDP growth
above its long-term sustainable rate
Capital Inflows Received by India(1)
$ billions
98
100
50 39
21
10
0
2000-2 Avg. 2003-5 Avg. 2006 2007
But India should prove relatively resilient due to
growing domestic demand low reliance on exports
Growth is likely to moderate to a more sustainable rate of
~6-7% (from a 3-year average of 9.3% as of March 2008)
34 Sources: (1) Morgan Stanley, 30 September 2008; (2) Carlyle Analysis.

35. What About China?
Of the world’s major economies, China’s is best
positioned to weather the storm
Key reasons include:
1. China has amassed $1.8 trillion of foreign currency
reserves as a result of its persistently high current
account surpluses
2. The economy benefits from a very low level of leverage
and low external debt ― debt levels for households and
the government are only 13% and 33% of GDP,
respectively
3. Domestic banks remain awash with liquidity as a result
of deposit growth and reserve accumulation
4. The banking system in China operates on a conservative
basis with low leverage levels and without
securitization
35 Sources: (1) Morgan Stanley, 07 October 2008; (2) Carlyle Analysis.

36. Recession in The West Will Affect
Chinese Growth Prospects
Transmission mechanisms include:
Trade
Western economies are key consumers of Chinese
exports
Investment
Western investors have supplied much of the capital
that has been used to grow China’s companies
Opportunities for International Expansion
Many of China’s most successful companies – such as
Lenovo and Bank of China – are expanding abroad
36

37. But China Will Continue to Grow Rapidly
Domestic growth will offset weaker external demand
An increasing proportion of GDP derives from domestic demand
China’s growing middle class has rapidly increased its
consumption of items like cars and electronics
Abating inflationary pressures will allow China’s central bank
to further loosen monetary policy
Chinese Retail Sales (% Change YoY)(1)
24%
22%
20%
18%
16%
14%
Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- Jun- Jul- Aug-
07 07 07 07 07 07 07 08 08 08 08 08 08 08 08
37
(1) Source: China Statistics Bureau, August 2007.

38. The Middle East
38

39. The Middle East Is Likely To Prove
Resilient
The credit crisis is affecting the Middle East but not
as much as other regions
The IMF forecasts only a slight moderation of GDP growth to
6.0% in 2009 (vs. 6.5% in 2008)
Nevertheless, the credit crisis in the West has
precipitated a regional liquidity contraction
Foreign banks in the region have stopped lending money
Regional stock markets have posted dramatic declines
Local banks are generally healthy
This cloud has a silver lining
The credit down-cycle and falling food and energy prices
are moderating inflationary pressures
39 Sources: IMF World Economic Outlook, October 2008; Emerging Markets Monitor, 6 October 2008

40. Oil Price Declines Are Significant But Not
Disastrous
Economic growth is being sustained mainly by non-oil
sectors including construction, retail, transportation,
and financial services
Middle Eastern GDP Growth: Oil vs. Non-Oil Sectors (1)
%
40 Source: IMF World Economic Outlook, October 2008

41. Oil Price Declines Are Significant But Not
Disastrous
Most government budgets and investment programs
in the Middle East will remain intact unless oil falls
below $50/barrel
A prolonged drop below $50 is highly unlikely because
global demand for oil continues to rise while supply is
largely static
Middle Eastern governments have amassed huge
reserve funds which they could deploy to support
regional growth if the outlook darkens
Middle Eastern government saved 70% of their surplus oil
revenues over the past five years
Sovereign wealth funds in the MENA region have over $1.5
trillion at their disposal
41 Sources: Monitor Group, “Sovereign Wealth Funds and the MENA Region,” 12 May 2008; Carlyle research & analysis.

42. The Current Situation
42

43. Central Banks Have Responded With
Coordinated Global Rate Cuts
On October 8th, 21 countries around the world
simultaneously cut interest rates
The Federal Reserve cut the federal funds rate by 50
basis points to 1.50%
October 8th: Key Interest Rate Cuts(1)
43 Source: (1) Financial Times, 08 October 2008.

44. Credit Market Stress Remains At
Unprecedented Levels
But global interest rate cuts have done nothing
to encourage private sector lending
The spread between US Treasuries and the interbank
lending rate remains at all time highs
TED Spread: 3 month LIBOR – 3 month T-Bill(1)
44 Source: (1) BNP Paribas, 10 October 2008.

45. Global Equity Markets Have Crashed
Global stock markets are testing multi-year lows
The MSCI World index has fallen by over 40% since its
2007 high
MSCI AC World Index(1)
45 Source: (1) Greed & Fear, 09 October 2008.

46. Commodity Prices Have Retreated
The price of oil has fallen by 40% since its peak
in July 2008
Oil Price/Barrel Since January 1st (1)
150
140
130
120
110
100
90
80
8
8
8
8
8
8
8
8
8
8
8
8
8
8
8
8
8
8
8
8
8
b-0
b-0
b-0
r-0
r-0
y -0
y -0
l-0
l-0
n-0
n-0
n-0
n-0
t-0
p -0
p -0
r-0
r-0
g -0
g -0
g -0
Ju
Ju
Oc
Ma
Ma
Ja
Ja
Ju
Ju
Fe
Fe
Fe
Ap
Ap
Ma
Ma
Se
Se
Au
Au
Au
46 Source: (1) Bloomberg, 10 October 2008.

47. Consumer Access to Credit Is Dwindling
US Consumer credit fell by a record $7.9 billion
in August
This was the first drop since 1998 and the largest
monthly decline in history
Monthly Net Increase in Consumer Credit Outstanding(1)
47 Source: (1) Greed & Fear, 09 October 2008.

48. The United States Is Falling Into Recession
Unemployment rose to 6.1% in August from 5.7% in July
The 1.1% surge in the unemployment rate over the past 4
months is the fastest in 22 years
Retail sales fell by 0.3% in August and were down 0.7%
excluding automobile sales
The main index of US manufacturing activity fell 13% in
September
The current level has only been seen before during full-blown
recessions
US GDP growth is slowing significantly, and outright
contraction is likely
Goldman Sachs forecasts US GDP growth of 1.5% in 2008 and
-0.2% in 2009 (vs. 2.0% in 2007)
48

49. Much of the Rest of the World May
Follow in America’s Footsteps
Economists are ratcheting down global growth
estimates
Key factors likely to suppress growth:
Decreased global liquidity
Lower capital flows to emerging markets
Reduced G-7 demand for imports
Lower demand for commodities
Key 2009 GDP growth forecasts*
2009E 2008E 2007A
Euroland 0.5% 1.1% 2.6%
United Kingdom 0.4% 1.0% 3.0%
Japan 0.5% 0.7% 2.1%
China 8.7% 9.8% 11.9%
Brazil 3.3% 5.6% 5.4%
49 * Goldman Sachs, 10 October 2008.

50. What’s Next?
50

51. Markets Will Recover From Recent Lows
Investor panic had driven valuations to levels
which were not warranted by fundamentals
Monday’s rally may mark the beginning of a
medium term rally
It marked the largest ever one-day point gain for the
Dow Jones Industrial Average and the largest
percentage increase since 1933
But this does not mean that equity markets
won’t touch recent lows again in the future
Volatility may return as the deleveraging cycle
continues and as a consumer recession sinks in
51

52. A Broader Recession Will Ensue
Tighter credit and lower house prices will severely
depress consumption
Home Price % Change % of US Banks Tightening
85% vs. Previous Cycle (1) Consumer Credit (2)
70%
66%
65%
50%
45%
30%
25% 20%
10%
5%
-17% -10%
-15%
-12%
00
01
02
03
06
07
08
04
05
20
20
20
20
20
20
20
20
20
-35%
1983-89 1990-95 1996-06 2007- Credit cards Other consumer loans
Present
52
Sources: (1) Zellman and Associates. September 2007; (2) The Federal Reserve Bank Officer Lending Survey, July 2008

53. The Deleveraging Process Will Be
Unpleasant And Will Take Time
Debt levels need to become more sustainable before an
economic recovery can ensue
% Total Credit Market Debt / U.S. GDP (1)
350
330
310
290
270
250
230
210
190
170
150
130
1925 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
53 (1) Source: Ned Davis Research, 2008.

54. The Future Is Still Bright: Extraordinarily
Positive Long-Term Macro Trends Exist
Rapid growth of emerging markets
Billions of people will achieve relative prosperity
Opportunities for investment and development will abound
Technological innovation
Technology is evolving at a more rapid pace than at time in
human history
This will increase productivity and living standards globally
Improvements in science and medical technology will directly
benefit millions of people
Global peace and stability
The world is a more stable place than it has been for most of
the past thousand years
54

55. Impact on Private Equity
55

56. Existing Investments Will Be Affected
2000-2005
LBO activity boomed but leverage levels and acquisition
multiples remained reasonable
Most deals done during this period will prove resilient
Global LBO Activity 2000-2005(1) Leverage vs. Acquisition Multiples(1)
(of EBITDA)
$ Billions 9.0x
300 291 Leverage 8.1
8.0x
247 Acquisition
250 7.0
7.0x 6.7
200 6.4 6.4
6.0x 5.8
150 142 5.3
102 110 5.0x 4.8
100 4.6
65 4.2 4.1 4.0
50 4.0x
0 3.0x
2000 2001 2002 2003 2004 2005 2000 2001 2002 2003 2004 2005
56 Sources: (1) Dealogic. (2) Standard & Poor’s.

57. Existing Investments Will Be Affected
2006-1H 2007
A bubble developed in the private equity market
Debt and acquisition multiples rose above historical norms
Some companies bought during this period may experience
financial difficulties
Global LBO Activity(1) Leverage vs. Acquisition Multiples(1)
$ billions
693 EBITDA Multiple
700 8.7x 10.0x
600 6.0x
8.0x
500 6.7x
5.8x
400 4.0x 6.0x
4.5x
300 4.0x
200 160 2.0x
2.0x
100
0 0.0x 0.0x
2000-2005 Avg. 2006-2007 Avg. 2000-2005 2006-7 2000-2005 2006-7
Avg. Avg. Avg. Avg.
57 Sources: (1) Dealogic, Standard & Poor’s, Morgan Stanley Financial Sponsors Group, Carlyle Analysis.

58. Existing Investments Will Be Affected
2H 2007
After the credit crisis hit, many deals met with difficulty
Investment banks could not syndicate LBO debt and a
massive $389 billion debt backlog developed
Many deals were pulled; others were renegotiated on more
favorable terms
Busted Deals(1) Restructured Deals(1)
Company Value Company Value
Sallie Mae $25.5 billion ClearChannel $27.3 billion
Huntsman $10.6 billion First Data $26.3 billion
Harman Int. $8.2 billion Harrah's $26.2 billion
ACS $8.0 billion Biomet $11.4 billion
Alliance Data $7.8 billion HD Supply $8.5 billion
Penn National $6.1 billion Thomson $7.8 billion
58 Source: (1) Morgan Stanley Financial Sponsors Group.

59. New Private Equity Deals Look Different
Private equity deals are smaller
Average Deal Size (1)
$ Millions
600
519
500 Credit Crisis
422
400
300 294
251
200 171
143 155
134
97
100
0
2006 Q3 2006 Q4 2007 Q1 2007 Q2 2007 Q3 2007 Q4 2008 Q1 2008 Q2 2008 Q3
59 Source: (1) Dealogic.

60. New Private Equity Deals Look Different
Private equity deals involve more equity
Average Equity Contribution (% of Purchase Price) (1)
40%
38%
Credit Crisis
36%
34%
32%
30%
28%
26%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1H08 2Q08
60

61. New Private Equity Deals Look Different
Private equity deals involve less favorable debt terms
bps Average Spread of Leveraged Buyout Loans (1)
450 (vs. LIBOR)
400
Credit Crisis
350
300
250
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1H08 2Q08
61 Source: (1) Standard & Poor’s.

62. New Private Equity Deals Look Different
Private equity deals are fewer in number
Number of Private Equity Deals
700
666 655 Credit Crisis
650
615 613 620
600 582 585 582
550
550
500
448
450
410
400
350
300
Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08
62 Source: (1) Standard & Poor’s.

63. New Private Equity Deals Look Different
Private equity deals are less debt-dependant
Minority Investment by Financial Sponsors (1)
Minority Investments % of Total PE
($ billions) Deal Volume
25 24 35%
% of Total PE Deal Volume
Minority Investments 30%
20
16 25%
15
15
13 20%
10 10 10 10 10 15%
10
7 8
10%
5
5%
0 0%
Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08
63 Source: (1) Dealogic.

64. New Private Equity Deals Look Different
More private equity firms are investing alongside
corporate partners or sovereign wealth funds
Recent examples include Blackstone and NBC Universal’s
$3.5 billion joint acquisition of the Weather Channel
Holding periods will rise as private equity firms
spend more time improving portfolio companies’
operational performance
Many exits will be delayed until the financial crisis
subsides
64 Source: (1) Dealogic.

65. Private Equity Returns May Rise
Private equity deals done during periods of economic
difficulty tend to outperform
U.S. Buyout Funds - Vintage Year Returns
35 35
S&P 500 Annualized Return (%)
30 30
Vintage Year IRR (%)
25 25
20 20
15 15
10 10
5 5
0 0
-5 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000² 2001 2002 2003 2004 -5
Median Upper Quartile 5-Year Forward-Rolling S&P 500¹
65 Source: (1) Morgan Stanley Financial Sponsors Group.

66. Private Equity Trends
66

67. Several Key Trends Will Affect The
Private Equity Industry
Fewer lenders will provide debt to fund acquisitions
Private equity firms will face less competition from
investment & commercial banks
Distributions to limited partners will fall in the medium
term
Decreased global liquidity will result in reduced
commitments to new private equity funds
There will be more co-investment opportunities
There will be fewer PE commitments from high net worth
individuals
The terms of private equity partnerships may change
Public perceptions of the PE industry will improve
67

68. Four Big Questions Confront The Industry
1. Will governments intensify the regulation of
the private equity industry?
2. Will tax rates on private equity distributions
rise?
3. How will the industry’s public image evolve?
4. Can the basic private equity business model
still work?
68

69. Opportunity & Challenge
69

70. Private Equity Now Has Its Greatest
Opportunity And Its Greatest Challenge
Opportunity: To use its capital and expertise to
save companies and turn them around
An enormous number of companies will now need
fresh capital ― private equity has the necessary
capital
Low prices can yield attractive returns ― perhaps
the best ever
70

71. Private Equity Now Has Its Greatest
Opportunity And Its Greatest Challenge
Challenge: Overcoming the widespread
conception that private equity firms are short
term investors
The industry needs to recognize that turnarounds
will not be easy
Private equity firms will be operating under an even
greater level of public scrutiny
Maintaining investor confidence will be critical
71

72. The Opportunity And The Challenge Are
Particularly Great In Financial Services
Opportunity: To help strengthen financial
institutions around the world, often working
closely with governments in this endeavor
Challenge: To restore confidence in financial
institutions during times of unprecedented
market disruption
72

73. Private Equity Now Has Its Greatest
Opportunity And Its Greatest Challenge
Bottom Line: This could well turn out to be
private equity's finest hour ― if the industry
moves carefully and skillfully to help with the
global economic turnaround, partnering at
times with corporations, sovereign wealth
funds, and governments
73

74. Private Equity in the MENA Region
74

75. Key Predictions
Private equity activity may moderate but will remain
strong
Demand for investment capital from companies in the
region will rise
Local private equity firms will be the most active
investors
Some new global players will enter the market
Minority state transactions will predominate
Investment opportunities will be better than before
Sovereign wealth funds in the region will focus more of
their attention on the region
75

76. Lower Stock Market Valuations Could Be
A Boon For Private Equity Investors
Regional stock markets have fallen because they were
previously over-inflated
Investors had pushed up valuations to unsustainable levels
Many of them have withdrawn capital because the credit
crisis has increased risk aversion and demand for cash
GCC Stock Market Performance GCC P/E Ratios
76

77. Lower Stock Market Valuations Could Be
A Boon For Private Equity Investors
Private equity investors can now buy assets at
prices that are very attractive from a long-term
perspective
The MENA region’s robust growth prospects and
insulation from the credit crisis make it one of most
attractive areas in the world for private equity
investment
77

78. Conclusions
78

79. Key Conclusions
The world of private equity will change – for
many years – as a result of the credit crisis and
the unfolding economic slowdown
The MENA region will be affected by changes in
the United States and Europe
The appeal of the MENA region will increase ―
although investment activity may moderate, it
will be higher than in many other regions
79

80. The Impact of the Financial Services
Meltdown on The Global Economy And The
Private Equity Industry
David Rubenstein, Co-Founder
Super Return Dubai
October 15, 2008
80