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PRIVATE CAPITAL OVERVIEW
2012 was a remarkable year for the capital markets, especially in light of the
major headwinds faced worldwide. While the euro, the value of gold, and the
fiscal cliff kept the news media busy, public and private companies charged
ahead with strong earnings and returns.
Through September 30, 2012, the most recently available data, private equity
funds reported a 9.3% average internal rate of return (IRR). 1 Given the strong
fourth quarter in public markets, full year returns in the low double-digits are
a reasonable expectation for private equity funds.
Venture capital returns continued to lag buyout returns in the third quarter.
Late-stage venture funds, down 0.4% year-to-date, were a significant drag on
the sector due to the fall-off in valuations for a number of earlier-in-the-year
IPOs (e.g, Facebook). Seed/early stage venture, however, was the best
performing sector within private equity year-to-date, recording a 15.5% net
IRR versus 9.6% for all buyouts. 2
The following chart offers a helpful perspective on historical returns. While
rolling three-year periods are too short for evaluating ten-year duration funds,
investors often consider new funds within a three-year period of a prior one;
this timeframe thus fuels cycles. In this case, the chart suggests there is room
to run in the current cycle. The following 2013 Outlook highlights where we
see opportunities in private capital in the coming year.
Private Capital Rolling Three-Year Performance
Private Capital Rolling 3-Year Performance
As of June 30, 2012
as of June 30, 2012
IRR
100%
80%
60%
40%
20%
0%
-20%
-40%
3 years
to Dec
2000
3 years
to Dec
2001
3 years
to Dec
2002
3 years
to Dec
2003
3 years
to Dec
2004
3 years
to Dec
2005
3 years
to Dec
2006
3 years
to Dec
2007
3 years
to Dec
2008
3 years
to Dec
2009
1-2 Thomson Reuters, All Regions Pooled Average Net IRR as of September 30, 2012,
www.thomsonone.com
3 years
to Dec
2010
Page 1
3 years
to Dec
2011
Buyout 11.7% 4.0% -4.9% 6.0% 15.8% 27.8% 30.4% 34.4% 14.1% 0.2% 0.9% 15.7% 18.4%
Venture 62.4% 87.3% -17.6% -19.0% -8.5% 3.0% 8.6% 14.3% 5.4% 0.3% -0.7% 7.0% 11.1%
Mezzanine 16.8% 12.2% 1.2% 5.4% 7.2% 12.6% 19.0% 21.1% 26.5% 6.5% 3.4% 9.3% 12.8%
Real Estate 3.2% 7.3% 7.4% 8.6% 12.5% 23.4% 38.0% 36.9% 0.0% -18.3% -12.2% -2.6% 0.0%
Source:
Source: Preqin
Preqin
Buyout Venture Mezzanine Real Estate
3 years
to Jun
2012
FOURTH QUARTER 2012
Susan Mahan Fasig, CFA
Managing Principal /
Director of Private Capital
INSIDE THIS ISSUE
Private Capital Overview 1
2013 Outlook
Global Private Equity
Private Debt Outlook
Real Assets Outlook
Private Equity
Venture
Buyouts
Secondary Markets
Private Debt
Special Situations - Credit
2
2
3
4
6
6
8
10
12
12
Private Real Estate 14
Natural Resources 17
Disclosures 19
Research Team 20
© 2013 Fund Evaluation Group, LLC

2013 OUTLOOK
In 2012 private funds continued a moderate pace of fundraising and investing
that began with the financial crisis. Over $310 billion was raised globally by
687 private funds. 1 In private equity sectors, the amount invested exceeded
the amount of new capital raised, bringing the markets into better balance.
As of January 31, over 1,800 private funds across all sectors were seeking an
aggregate $780 billion in new investment capital. 2 Not all of this capital will
be raised in 2013, but the total likely will increase year-over-year.
Slow global GDP growth and cheap credit are likely to serve as a backdrop to
investment activity in 2013. An increase in the use of debt is expected to fuel
merger & acquisition activity in 2013. In addition, the revolution in natural
gas development in North America and the cyclical recovery in non-core real
estate are expected to continue as drivers of investment opportunities. Global
currencies and geopolitical events however, are hot-button issues that could
derail the pace of activity in the coming year.
Global Private Equity Outlook
Trends in private equity include ongoing contraction in the ranks of fund
managers. In venture capital, those remaining see significant opportunities in
mobile communications, cloud computing, and big data. These trends
increasingly impact all aspects of our personal and professional lives. Venture
funds seem to have evolved in a bifurcated manner, with very small funds
addressing early-stage opportunities, or very large funds playing the full
spectrum, from early to late stage. Both strategies have seen success. In the
middle of 2012, we commented on the well-publicized Kauffman Foundation
report on venture capital that described venture investing as a broken model
for investors. 3 FEG determined our best approach to this area remained with
early-stage-focused fund managers. The past year rewarded early stage
investors with a 16% return versus 3% for later-stage funds. 4 We continue to
believe industry consolidation and innovation can provide attractive returns
for experienced early-stage venture investors with a defined niche.
In recent periods, many buyout funds in the U.S. have struggled to raise
capital as investors consolidated relationships, limited new allocations, and
sought portfolio diversification by investing in non-U.S.-focused funds,
particularly emerging markets. The case for emerging markets private equity is
strong, as these countries are already contributing half of global GDP
growth. 5 This growth is driven by a rapidly emerging middle class of prime
working age, with its growing consumer spending budget. This strategy is not
without risk. China, for example, needs to evolve from government-led
growth to consumer-driven growth, and the ride may be bumpy. In addition,
most emerging markets are small and the depth of management talent is
limited. In recent years, India was awash in new capital, which drove
valuations to unattractive levels. Much of this overhang has shaken out in the
past two years, but this risk remains in any emerging market. We continue to
Page 2
FOURTH QUARTER 2012
Susan Mahan Fasig, CFA
Managing Principal /
Director of Private Capital
“Slow global GDP
growth and cheap
credit are likely to
serve as a backdrop to
investment activity in
2013.”
© 2013 Fund Evaluation Group, LLC

focus on experienced and stable fund management teams, with some
form of a pan-emerging-markets focus, to ensure a healthy perspective
on valuations.
Within the U.S., interesting trends are emerging. Credit markets are
sifting from conservative to aggressive, which is likely to increase
merger & acquisition activity and benefit buyout funds, provided they
avoid “too much of a good thing.” Fundamentally, manufacturing in
the U.S. is increasingly competitive with overseas markets. Several
factors are driving this trend: cheap and abundant energy as compared
to other developed markets, rising labor and land costs in Asia, and
innovation in advanced technologies. These factors are highlighted in
the sidebar on this page.
Secondary markets continued to enjoy a robust pipeline of
opportunity. The double-strength volume is attributable to heavy
selling by financial institutions, primarily for regulatory reasons,
alongside the maturity of peak fundraising vintage year funds (those
formed between 2005 and 2007). Pricing remains moderate, which
positions recent vintage year secondary funds in line for robust returns.
Private Debt Outlook
Credit markets rallied significantly in 2012 and rewarded investors
across strategies and geographies. Securitized assets, including
residential mortgage-backed securities (RMBS) and commercial
mortgage-backed securities (CMBS), posted double-digit returns. Some
RMBS recorded price movements of 50% or better for the year. 11 At
this point in the cycle, the major move is behind us, but the assets
continue to offer attractive returns when compared with other credit
opportunities.
Relative to expectations for 2012, European debt provided healthy
opportunities, but not the flood of activity expected. Increased capital
requirements for European banks, defined in the Basel III regulations,
were postponed. At present, most banks have the capacity to sell and
many have active selling programs. Globally, PwC estimates $80 billion
of illiquid asset sales will occur in 2013, up from $58 billion in 2012. 12
Distressed credits trading in the current environment are more
idiosyncratic than earlier in the cycle. Value is likely to be realized over
time, not from a quick trade.
Issuance of new debt in conjunction with buyout deals and
recapitalizations ramped up late in the year. Recapitalizations alone
generated over $64 billion in dividends to investors. 13 Activity may
have been influenced by a desire to move ahead of tax law changes in
the U.S. Many new deals featured “covenant lite” and PIK (pay in
kind) options, reminiscent of the credit bubble days. Conditions today
have been described as “short of frothy” but they are trending that
Page 3
FOURTH QUARTER 2012
ADVANTAGE U.S.?
THREE REASONS TO FAVOR
MANUFACTURING AT HOME:
Cheap Energy:
and
Labor and Land:
Technology and Speed:
© 2013 Fund Evaluation Group, LLC

Page 4
FOURTH QUARTER 2012
way. Private debt in the form of mezzanine lending to middle market credits remains reasonably attractive, although total
return expectations may trend lower.
Real Assets Outlook
Real assets strategies performed well in 2012 and appear poised to continue this trend. Investors added inflation
protection strategies in many forms to their portfolios. Looking forward, inflation hedging strategies remain attractive in
the face of loose monetary policy around the globe.
Real estate continued to rebound in 2012, posting returns in public and private markets. Stabilized properties in core
markets are now priced near prior peaks. Opportunities remain in stressed, messy, small- to medium-sized properties,
those generally located in less-than-glamorous locations, and in some niche markets.
Within the energy sector, oil prices reacted to
economic and political activity during the
year. Crude oil prices ranged from over $100
per barrel early in the year, into the $80s midyear,
to ending the year at $92. 14 Natural gas
prices were driven by domestic production
and demand. Prices appear to have bottomed
mid-year before trending up to a five-year
high of $3.35/mmbtu at year-end. 15 Ongoing
development of the North American energy
industry offers a range of investment
opportunities in public and private strategies.
We continue to purse investments in direct
ownership of producing assets, energy
buyouts, and publicly traded master limited
partnerships (MLPs).
In other real assets strategies, timber
produced a 7.8% return in 2012, trending up
from five years of lackluster returns and
activity. 16 We remain unenthusiastic about
timber, choosing higher-returning strategies
for locked-up capital, but expect timber to
continue to benefit from the rebound in housing. Similar to timber, agriculture and other commodities can also provide
diversification and modest returns to a globally diversified portfolio.
In Summary
Performance Summary
Through 9/30/2012 Quarter 1 Year 3 Year* 5 Year* 10 Year* 20 Year*
Global Private Equity 3.8% 7.2% 4.2% 0.8% 3.7% 15.8%
U.S. Venture Capital 0.6% 7.2% 6.1% 1.8% 4.6% 19.6%
U.S. Buyouts 4.5% 15.1% 12.4% 4.7% 10.0% 9.9%
Distressed Bonds/Loans -1.1% 4.1% 10.5% -1.0% 8.1% n/a
Private Core Real Estate 5.1% 11.0% 10.9% 2.3% 8.3% 8.6%
Timber 1.4% 2.2% -0.5% 3.3% 7.6% 9.7%
S&P 500 Index 3.4% 30.2% 13.2% 1.1% 8.0% 8.5%
NASDAQ Composite 0.8% 29.0% 13.7% 2.9% 10.3% 8.7%
MSCI World Index 1.6% 22.3% 8.1% -1.6% 8.6% 7.2%
Inflation (CPI) + 5% 5.9% 6.9% 7.3% 7.1% 7.5% 7.5%
Through 12/31/2012 Quarter 1 Year 3 Year* 5 Year* 10 Year* 20 Year*
Distressed Bonds/Loans 2.7% 6.4% 7.2% 0.2% 7.8% n.a.
Private Core Real Estate 2.5% 10.5% 12.6% 2.1% 8.4% 8.8%
Timber 5.9% 7.8% 3.0% 2.7% 8.2% 8.9%
S&P 500 Index -0.4% 16.0% 10.9% 1.7% 7.1% 8.2%
NASDAQ Composite -3.1% 15.9% 10.0% 2.6% 8.5% 7.8%
MSCI World Index 2.6% 16.5% 7.5% -0.6% 8.1% 7.4%
Inflation (CPI) + 5% -0.2% 1.6% 2.0% 1.8% 2.4% 2.4%
Sources: Thomson Reuters, NCREIF (w w w .ncreif.org), Fund Evaluation Group, LLC * Annualized
We see select investments across private equity, private debt, and real assets strategies continuing to provide interesting
opportunities for generating returns in 2013. These ideas have not changed materially with the turn to a new year. We
expect the credit cycle to wane while equity (primary and secondary) and energy strategies dominate. A healthy pipeline
of U.S. private equity funds are expected to benefit from improvements in the relative cost position and innovation in
North America. These trends also will continue to pull real estate out of cyclical lows.
© 2013 Fund Evaluation Group, LLC

We Appreciate Your Feedback
Page 5
FOURTH QUARTER 2012
You will soon receive a survey from us on the topic of our regular communications to you, including the quarterly
commentaries and Research Reviews. We’ve been publishing our commentary for more than five years, and our Research
Review for more than ten years, and we would like to solicit feedback from our readers about these publications. As we
celebrate our twenty-fifth anniversary this year, we are reminded that our clients and readers are our most important
asset. We would sincerely appreciate your participation in this survey, so that we may continue to serve your best
interests.
1 Preqin, Private Equity Fundraising 4Q12
2 Preqin, www.preqin.com; Comparable fundraising was $330 million in 2011 and $310 million in 2012
3 We Have Met the Enemy…and He Is Us, Ewing Marion Kauffman Foundation, May 2012
4 Thomson Reuters Private Equity Performance Index (PEPI) as of September 30, 2012
5 International Monetary Fund, World Economic Outlook Database
6-7 Tan, Kopin, Made in America The Next Boom, Barron’s, January 28, 2013. In 2012, U.S. energy production was over 20million BOE/day versus imports
of less than 8million BOE/day; Natural gas cost $3.55/mmbtu in the U.S. versus approximately $12 in Europe and $16 in Japan.
8 Capital International Private Equity, View From the Field, presentation to investors, Beijing, October 2012
9 Tan, Kopin, Made in America The Next Boom, Barron’s, January 28, 2013
10 Robots versus Job Growth, CBS News60 Minutes, January 14, 2013
11 Markit ABX.HE 2007-1 AAA, Markit ABX.HE 2006-2 AAA, and Markit ABX.HE 2006-1 AA
12 Global Credit & Distressed Markets: Current State and Outlook, Quarterly Market Call, SVP Global, January 31, 2013
13 Dai, Shasha, Risky Business? PE’s Div Recap Gold Rush, Dow Jones Private Equity Analyst, January 2013
14-15 Energy Information Agency, www.eia.gov
16 NCREIF Timberland Index, www.ncreif.com
© 2013 Fund Evaluation Group, LLC

PRIVATE EQUITY: VENTURE
2012 could be characterized as a repeat of recent years for venture capital,
with one notable exception: the Facebook IPO. The venture capital industry
continued to contract in 2012, with fewer firms raising less capital. Exit
activity moderated throughout the year and industry performance held steady.
While the Facebook IPO was covered extensively in FEG’s Research Reviews
and in the popular press, we believe this deal was likely a once-in-a-generation
return for venture investors. As such, the venture funds that invested early in
Facebook (and even some of the later investors) made extraordinary returns
despite the volatile path the company took in the public markets. Even some
purchases of Facebook on the secondary market turned out quite well,
provided they were not made in the two years leading up to Facebook’s IPO.
Anecdotally, the message we have been hearing from venture fund managers
is that it is time to return to basics. Visions of quick returns from social
gaming, social networking, and other consumer ventures are being replaced
with a focus on building long-term value. Popular investment themes for
venture funds include the migration to cloud computing, harnessing the
amount of data flowing through the network (big data), and the continued
development of the SaaS (software as a service) business model.
Fundraising and Investing Environment
Last year was the third consecutive year to see an increase in venture capital
raised. Despite this increase, the estimated number of active venture funds
continued to drop. Even among those active funds, a meaningful percentage
might not be considered to be “institutional”. For example, approximately
one-third of all U.S. venture capital funds formed in 2012 were capitalized
with $50 million or less. 1 Additionally, a relatively small number of funds
accounted for an increasing share of the aggregate capital. Similar to the third
quarter, the five largest funds in the fourth quarter accounted for 55% of the
total capital raised. 2 Investment in companies fell 10% in 2012, reversing the
rising trend in 2010 and 2011. 3 The most active sectors continued to be
software, biotechnology, clean technology, and Internet-related companies.
The software sector was the only sector to experience an increase in
investment during 2012.
(Billion)
U.S. Venture Capital Investment
Through December 31, 2012
$35
$30
$25
$20
$15
$10
$5
$0
Venture Fundraising
Venture Investment
Estimated Active Funds
2007 2008 2009 2010 2011 2012
Page 6
1,000
Source: National Venture Capital Association, Press Release dated January 7, 2013, and MoneyTree Report by PricewaterhouseCoopers and the
National Venture Capital Association based on data from Thomson Reuters; Estimated Active Funds from NVCA reports and reflects the number of
funds raising capital in a given year plus the prior three years.
900
800
700
600
500
400
300
200
100
-
Estimated Active Funds
FOURTH QUARTER 2012
Nathan C. Werner, CFA
Senior Vice President
“Visions of quick returns
from social gaming,
social networking, and
other consumer
ventures are being
replaced with a focus on
building long-term
value.”
© 2013 Fund Evaluation Group, LLC

Exit Environment
Page 7
FOURTH QUARTER 2012
Venture-backed exits slowed in 2012, as IPO activity dropped following Facebook’s messy IPO in May. 4 The number of
acquisitions of venture-backed companies fell for the third straight year, but the aggregate dollars spent remained in line
with longer-term averages thanks to several transactions in excess of $1 billion. Large corporations looked to venturebacked
companies to provide innovative technology, products, and services. In the second half of 2012, VMWare purchased
Nicira Networks for $1.25 billion, Microsoft bought Yammer for $1.2 billion, Facebook bought Instagram for $1.0
billion, and Cisco purchased Meraki, Inc. for $1.25 billion.
Performance
Venture Capital Exit Activity
Through December 31, 2012 31, 2012
Number of Venture-Backed Companies
600
500
400
300
200
100
Median performance was again in the single-digits for venture investors. More recent vintage years are seeing performance
creep higher, as funds benefit from the exit environment.
Global Venture Capital Quartile Performance
As As of September of September 30, 2012 30, 2012
20%
15%
10%
5%
0%
Vintage Year IRR Global Venture Capital Quartile Performance
-5%
-10%
-15%
0
Source: Source: Preqin
Preqin
467
416
Acquisitions IPO
87 7 13 68 51 49
Source: NVCA Press Release Release "Venture-Backed Exits Exits Enjoyed Enjoyed HIgher Average Values on on Lower Total Total Volumes in 2012"; in 2012"; 1/2/2013
Top Quartile Median Bottom Quartile
2000 2001 2002 2003 2004 2005 2006 2007 2008
1 Preqin, www.preqin.com, accessed February 1, 2013
2 NVCA Press Release “Venture Capital Funds Raised $20.6 billion during 2012”; January 7, 2013
3 The MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association, based on data from Thomson Reuters
4 NVCA Press Release “Venture-Backed Exits Enjoyed Higher Average Values on Lower Total Volumes in 2012”; January 2, 2013
351
521
488
435
© 2013 Fund Evaluation Group, LLC

PRIVATE EQUITY: BUYOUTS
Another year of modest fundraising allowed global buyout funds to work off
another $150 billion of the global capital overhang over the past year.
Fundraising for global buyouts increased year-over-year, while the pace of
investing was relatively flat. Global exit activity also was essentially unchanged
as measured by number of transactions, but modestly higher in terms of
value. Dividend recaps picked up in the fourth quarter and set a new record
for the year. 1 Robust credit markets facilitated these partial liquidity events
and the attractive credit terms are likely to continue into 2013.
Buyout Fundraising and Investing
Buyout funds raised $88.4 billion in new capital commitments in 2012, a 12%
increase over the prior year. 2 The number of funds raising capital declined by
6% in 2012 despite the increase in fundraising. Commitments to U.S. and
European funds both increased in 2012, while less capital was raised for
funds based in Asia and other global markets. Just over half of all funds
raised were in the U.S.
Globally, buyout funds invested significantly more capital than was raised
during the year. In 2012, $256.7 billion was invested in 2,904 deals. Over the
past three years, a similar pace of activity has reduced the overhang of capital
by over $500 billion. 3
Global Buyout - Fundraising
$300
$250
$200
$150
$100
$50
Commitments ( billions) Global Buyout - Fundraising
$0
Source: Preqin
U.S. Europe
Rest of World Number of Funds
2007 2008 2009 2010 2011 2012
Page 8
300
250
200
150
100
50
0
Number of Funds
FOURTH QUARTER 2012
James W. Angelica
Senior Research Analyst
“Over the past three
years, a similar pace of
activity has reduced the
overhang of capital by
over $500 billion.”
© 2013 Fund Evaluation Group, LLC

Buyout Exit Activity
Exits increased for the third straight year as managers continued
to focus on realizations and returning capital to their investors.
Total exits of buyout-backed companies increased
14% year-over-year, driven by increases in trade sales as well
as secondary buyouts (the sale of a company from one private
equity manager to another). 4
Buyout Performance
Page 9
FOURTH QUARTER 2012
Median buyout performance for vintage years 2007 to 2009, was in the range of 9.0% to 9.3%. 5 In the same time frame,
top-quartile funds produced results in the mid- to high teens, 500 to 600 basis points above median.
1 Risky Business? PE’s Div Recap Gold Rush, Dow Jones Private Equity Analyst, January 2013
2 Preqin, www.preqin.com, “Global Buyout Fundraising”, January 2013
3 Preqin, www.preqin.com, “Buyout Deal Analysis”, January 2013
4 Preqin, www.preqin.com, “PE Buyout-backed Exits”, January 2013
5 Preqin, www.preqin.com, “Performance Analyst”, January 2013
Global Buyout - Exits
- Exits
Number of Exits
1,400
1,200
1,000
800
600
400
200
0
Source: Source: Preqin Preqin
Global Buyout - Vintage Year Performance
30%
25%
20%
15%
IRR Global Buyout - Vintage Year Performance
10%
5%
0%
Source: Preqin
Upper Quartile Median Lower Quartile
2004 2005 2006 2007 2008 2009
IPO Restructuring
Recapitalisation Sale to GP
Trade Sale Sale to Management
2007 2008 2009 2010 2011 2012
© 2013 Fund Evaluation Group, LLC

PRIVATE EQUITY: SECONDARY MARKETS
Private equity secondary pricing was little changed in the second half of 2012,
with average high bids at approximately 80% of net asset value (NAV), which
represented a 20% discount to reported values. 1 Last year’s volume matched
the record set in 2011, with $25 billion of transactions closed.
Private Equity Secondary Bid Prices
Average High Bid
120%
100%
80%
60%
40%
% of NAV Private Equity Secondary Bid Prices
20%
0%
Source: Cogent Partners Secondary Pricing Trends and Analysis, January 2013
Source: Cogent Partners Secondary Pricing Trends and Analysis, January
Several trends emerged with respect to the types of assets sold in the
secondary market. In the buyout sector, funds raised during peak years (2005,
2006, and 2007) represented an estimated 60% of transaction volume over
the past three years. These funds are five years old on average. Conversely,
trading in venture capital funds has been concentrated in funds at or near the
end of their terms. Fundraising volume in venture peaked in 1999 and 2000,
and over the last three years, more than 40% of the venture funds marketed
by Cogent, a leading investment bank for secondary markets, were more than
ten years old at the time of sale.
Financial institutions and pensions remained the largest sellers of secondaries.
These investors drove most of the commitments during the peak fundraising
years of 2005 to 2007. Selling from banks slowed in the second half of 2012,
partly due to the rally in the public equity markets and delayed regulatory
action. Cogent estimates that banks are holding $70 billion of illiquid private
equity assets on a global basis, which serve as a potential pipeline for future
transactions.
Completed Completed Transactions in 2012
By Sellers (Transaction Value)
2%
2%
12%
21%
10%
24%
29%
Financial Institution
Public Pension
Corporate Pension
Fund of Funds
Family Office
Source: Cogent Partners Secondary Pricing Trends and Analysis,
Source: Cogent Partners Secondary Pricing Trends and
January 2013
Analysis January 2013
Page 10
FOURTH QUARTER 2012
Nathan C. Werner, CFA
Senior Vice President
“Last year’s volume
matched the record set
in 2011, with $25 billion
of transactions closed.”
© 2013 Fund Evaluation Group, LLC

Page 11
FOURTH QUARTER 2012
Secondary fund managers indicated that deal flow is slowing. The level of stress witnessed several years ago continued
to dissipate and pricing has stabilized. Overall volume is likely to remain robust but trend down in 2013, in line with the
historic pace of primary market fundraising.
1 Cogent Partners Secondary Pricing Trends & Analysis, January 2013
© 2013 Fund Evaluation Group, LLC

PRIVATE DEBT: SPECIAL SITUATIONS – CREDIT
Securitized Assets
2012 could be categorized as the year of securitized assets. 1 Pick your acronym,
whether it’s ABS, RMBS, CMBS, CLO, or CDO—they all went up in
2012, and went up with authority. During the credit crisis of 2007 and 2008,
these bonds became unwelcome guests on investors’ balance sheets due to
their complexity, questionable credit quality, and opaque nature. Many were
subsequently sold into a soft secondary market. As such, the prices for these
securities languished for several years. Many reached dollar prices in the $30s
and $40s (on par value of $100) before the recent resurgence amid improved
market conditions and investors’ quest for yield. Even with the strong gains
in 2012, most investors continue to expect attractive results in 2013—albeit
with lower return expectations following the rally. In most cases, high singledigit
net returns are being targeted on an un-levered basis depending on the
quality of the security, with some managers incorporating modest leverage to
push return expectations to the low- to mid-teens.
Private Credit
While public credit markets traded at levels that are priced for perfection, the
private credit markets appeared more reasonable, particularly for middle market
companies. According to S&P Capital IQ LCD Quarterly, 2 purchase price
multiples for middle market companies were 7.9x for 2012, well below the
9.3x level seen at the height of the market in 2007. Additionally, transaction
volume in the middle market was lower in 2012 than in 2011, as only 72 new
transactions came to market in 2012 versus 133 in 2011. 3 Capital structures
for middle market transactions remained well balanced. The equity allocation
for middle market transactions was above the historical average at 41% of the
capital structure, versus a historical average of 37%, a 1997 market low of
29%, and a more recent 2007 “bubble” Leveraged Buyout (LBO) equity low
of 32%. A senior debt multiple (senior debt/EBITDA) of 3.7x at the end of
the year was just above the historical average of 3.5x. 4 Additionally, total leverage
measured by debt/EBITDA was slightly above the historical average of
4.1x. Both metrics indicate an active, but not frothy, market in recent middle
market transactions.
The much ballyhooed private equity “overhang” from peak year capital raises
remains at approximately $355 billion. 5 Approximately one-third of this capital
needs to be put to work in the near future, due to the “use it or lose it”
structure of long-term lock-up funds (although many have extension features).
As such, the markets have been anticipating an increase in buyout activity
(there were only 18 middle market LBO transactions in 2012, down
from 33 in 2011, and well off the 1999 peak high of 140 transactions). 6 Strong
Page 12
FOURTH QUARTER 2012
Keith M. Berlin
Senior Vice President / Director of
Global Fixed Income and Credit
“Most investors continue
to expect attractive
results in the securitized
markets in 2013.”
© 2013 Fund Evaluation Group, LLC

Page 13
FOURTH QUARTER 2012
demand for newly issued bank debt stemming from the resurgence of collateralized loan obligations and other yieldseeking
investors could support an uptick in private transactions. Dell’s recent decision to go private is likely to be financed
in part by a supportive bank loan market, with investors expecting Dell’s issuance to be well received. While we
are uncertain whether 2013 will be the year of resurgence for LBOs and merger and acquisition activity, we continue to
watch the underlying credit market fundamentals, aware that markets can move quickly from conducive to aggressive.
1 Securitized assets are large pools of securities collateralized by assets such as bank loans, residential or commercial mortgages, or other receivables (vehicles,
credit cards, etc.). These pools are divvied up into similar risk categories and sold off in tranches to investors with varying risk tolerances. Acronyms for
collateralized loan obligations (CLOs), non-agency residential mortgages (RMBS), commercial mortgage-backed securities (CMBS), are typical nomenclature
for investors in these assets.
2 S&P Capital IQ LCD Quarterly, Fourth Quarter 2012
3 S&P Capital IQ Q4 2012 High-End Middle Market Lending Review
4 S&P Capital IQ LCD Quarterly, Fourth Quarter 2012
5 Shopping List for Private Equity, http://online.barrons.com/article/SB50001424053111903463204578044641750722634.html
6 S&P Capital IQ Q4 2012 High-End Middle Market Lending Review
© 2013 Fund Evaluation Group, LLC

PRIVATE REAL ESTATE
Real estate values, as measured by the NCREIF Property Index (NPI),
increased 2.5% in the fourth quarter of 2012 and 10.5% for the full year.
Retail was the top performing sector for both the quarter and the year,
returning 3.0% in the fourth quarter and 11.6% in 2012. The apartment
sector also outperformed, with a return of 2.8% for the fourth quarter and an
11.2% return for the year. 1
Real estate transaction volume in the in the U.S. totaled $64 billion in the
fourth quarter, up from $57 billion in the third quarter; for the full year 2012,
transaction volume increased 11% to $190 billion. 2 A key factor driving
increased transaction volume was sellers’ motivation to close transactions
prior to year-end due to concerns about increases in capital gains taxes.
Additionally, continued liquidity improvements in U.S. lending markets
contributed to higher transaction activity. 3
Property values in major metropolitan markets (New York, San Francisco,
Washington D.C., Boston, and Chicago) have, in many cases, rebounded to
their pre-recession levels and continued to command premium pricing, driven
by low interest rates in fixed-income assets. Cap rates for top-tier properties
in these areas have fallen to 5%, and in some cases, trophy assets have traded
below 5% cap rates. 4
NCREIF National Property Index Sector Returns
Fourth Quarter 2012
Apartment
Industrial
Office
Retail
Hotel
Source: NCREIF
Source: NCREIF
2.4%
2.2%
2.2%
2.8%
3.0%
Real Estate Capital Markets
YTD 2012 Q4-2012
New CMBS issuance topped $48 billion for 2012, up from approximately $30
billion in 2011, 5 but remained at a fraction of peak issuance. The CMBS
market strengthened in part due to investors’ appetite for yield in light of
record-low interest rates. New CMBS offerings have sold at their tightest
yield spreads since 2007.
8.2%
9.5%
Page 14
10.7%
11.2%
11.6%
0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13%
FOURTH QUARTER 2012
Christian S. Busken
Senior Vice President /
Director of Real Assets
“CMBS loan maturities
are expected to peak in
2014, which could add
to distress in the
market.”
© 2013 Fund Evaluation Group, LLC

Page 15
FOURTH QUARTER 2012
The CMBS delinquency rate stabilized in December 2012 at 9.7%; however, there is still a large volume of unresolved
CMBS loans in special servicing from borrowers who took out five-year loans at the top of the market, when
underwriting standards were less stringent. 6 Those borrowers now face maturities on properties that have seen
significant declines in value. CMBS loan maturities are expected to peak in 2014, which could add to distress in the
market. 7
Apart from the CMBS market, commercial banks, private real estate funds, insurance companies, and government
sponsored enterprises (GSEs) represent sources of capital for commercial real estate acquisitions, although core,
stabilized properties maintain easier access to financing.
Property Sectors
(billions)
U.S. U.S. CMBS CMBS Issuance
$250
$200
$150
$100
$50
$0
$168.7
$202.7
$230.2
$12.1
Apartment
As measured by rents and occupancies, fundamentals in the apartment sector remain the strongest among the major real
estate property types. Apartment vacancy rates fell to 4.5% at year-end, down from 4.6% at the end of the third quarter,
the lowest level in over a decade. 8 Average rents for apartments rose by 0.6% in the fourth quarter and 3.8% for the full
year, with the largest increases in San Francisco and Seattle, where rents increased by nearly 6%. 9 As apartment rents
have continued to rise, home buying has become more economical than renting in some areas, as measured by the rentto-mortgage
ratio.
Office
As of year-end 2012, the office vacancy rate stood at 17.1%, compared to 17.3% at year-end 2011. 10 Asking rents in the
office sector rose 0.8% during the fourth quarter and 1.8% for the year to an average of approximately $28.46/square
foot. 11 Demand for office space is closely tied to employment, and continued uncertainty about a sustained economic
recovery continued to weigh on the sector. Nevertheless, technology centers such as San Francisco saw rent growth of
6.6% in 2012. 12 The office absorption rate for the year was positive, at 17.2 million square feet, but well below the 2005
high of 66.7 million square feet. 13
$2.7
$12.0
$30.0
$48.2
2005 2006 2007 2008 2009 2010 2011 2012
Source: Fidelity Investments
© 2013 Fund Evaluation Group, LLC

Page 16
FOURTH QUARTER 2012
Retail
Retail properties experienced modestly improving fundamentals during the fourth quarter. The vacancy rate for malls
declined slightly to 8.6% compared to 8.7% at the end of the third quarter. 14 Mall rents rose 0.2% in the quarter to an
average of $39.31 per square foot. 15 Vacancy rates at retail strip centers declined to 10.7%, down from 10.8% at the end of
the third quarter; average rents rose by 0.2% to $19.08 per square foot. 16 Competition from Internet retailers remains an
ongoing concern in the retail sector, and retailers have been slow to lease new space because of concerns about the
sustainability of the economic recovery.
1 www.ncreif.com January 25, 2013
2-3 Jones Lang LaSalle Global Markets Perspective, First Quarter 2013
4 UBS 2013 Real Estate Market Outlook
5 Bloomberg
6-7 Heschmeyer, Mark CMBS Outlook Brightens Some, but Not Much, Costar, January 23, 2013
8-9 Wotapka, Dawn, “Apartment Rents Continue to Rise as Vacancies Fall,” The Wall Street Journal, January 7, 2013
10-13 Brown, Eliot, “Demand for Office Space Still Sluggish,” The Wall Street Journal, January 7, 2013
© 2013 Fund Evaluation Group, LLC

NATURAL RESOURCES
Oil and natural gas prices remained stable through year-end, despite concerns
about the fiscal cliff. The fundamental supply/demand outlook for oil remained
strong, contributing to demand for assets held by private energy
funds.
Crude oil prices declined slightly during the fourth quarter to close at $91.82,
down from $92.20 at the end of the third quarter. 1 Following a 17% increase
during the third quarter, natural gas prices experienced a marginal increase in
the fourth quarter, closing at $3.35/mmbtu, compared to $3.32/mmbtu at the
end of the third quarter. 2 Evidence of slowing production was the key factor
contributing to stable natural gas prices after they reached a multi-year low
earlier in the year. Additionally, the percentage of electricity generated from
natural gas continues to grow, as power generation plants switch from coal to
natural gas.
Crude Oil and Natural Gas Prices
$160
$140
$120
$100
$80
$60
Crude Oil Crude Oil and Natural Gas Prices
$40
$20
$0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: Source: Energy Energy Information Information Agency Agency
Private Energy Funds
Crude Oil Natural Gas
Private energy funds saw record inflows of new capital in 2012, driven by
strong returns on recent funds and increased demand from institutional investors
for real assets strategies with inflation protection characteristics. Through
the third quarter, U.S. private equity firms raised approximately $11.5 billion
for energy-focused funds; additional funds raised significant capital late in the
year. During 2012, Blackstone Group announced that it had closed its first
dedicated energy fund, with $2.5 billion in commitments. Funds offered by
larger, established energy groups have been oversubscribed, including EnCap
Page 17
$91.82
$15
$3.35
$20
$10
$5
$0
Natural Gas
FOURTH QUARTER 2012
Christian S. Busken
Senior Vice President /
Director of Real Assets
“Private energy funds
saw record inflows of
new capital in 2012,
driven by strong returns
on recent funds and
increased demand from
institutional investors for
real assets strategies
with inflation protection
characteristics.”
© 2013 Fund Evaluation Group, LLC

Page 18
FOURTH QUARTER 2012
IX (oversubscribed on $5 billion), Riverstone Global Energy and Power Fund V (oversubscribed on $6 billion), and
Kayne Anderson Energy Fund VI (oversubscribed on $1.6 billion).
Most private energy funds continued to achieve strong performance, driven by successful execution by their portfolio
companies, and an active transaction market for oil and natural gas assets.
Transaction activity in the energy sector was robust during 2012, and many private equity energy funds experienced realizations
through sales of portfolio companies and initial public offerings. A key factor contributing to deal flow in the
energy sector has been a move by larger, publicly traded oil and gas companies into unconventional resource plays.
Timber
U.S. timberland values increased 5.9% during the fourth quarter and 7.8% for the full-year, as measured by the NCREIF
Timberland Index. This increase represented the strongest gain in the timberland index in five years. The gain was attributable
to higher appraisal values for timber properties, driven in part by stabilization in the forest products market.
The improving housing market was a key factor contributing strength to the timberland index.
Domestic timberland transaction volume for 2012 totaled nearly $4 billion, the highest level since 2008. 3 The increase
was attributable mainly to a large sale by Forest Capital Partners earlier in the year. Discount rates decreased, as buyers
sought to invest capital and sellers capitalized on opportunities to realize value. 4
1-2 Energy Information Agency www.eia.gov
3-4 Forest Investment Associates Quarterly Update – Fourth Quarter 2012
© 2013 Fund Evaluation Group, LLC

Page 19
FOURTH QUARTER 2012
Disclosures:
This report was prepared by Fund Evaluation Group, LLC (FEG), a federally registered investment adviser under the Investment Advisers Act of
1940, as amended, providing non-discretionary and discretionary investment advice to its clients on an individual basis. Registration as an investment
adviser does not imply a certain level of skill or training. The oral and written communications of an adviser provide you with information about
which you determine to hire or retain an adviser. Fund Evaluation Group, LLC, Form ADV Part 2A & 2B can be obtained by written request
directed to: Fund Evaluation Group, LLC, 201 East Fifth Street, Suite 1600, Cincinnati, OH 45202, Attention: Compliance Department.
The information herein was obtained from various sources. FEG does not guarantee the accuracy or completeness of such information provided by
third parties. The information in this report is given as of the date indicated and believed to be reliable. FEG assumes no obligation to update this
information, or to advise on further developments relating to it.
FEG, its affiliates, directors, officers, employees, employee benefit programs and client accounts may have a long position in any securities of issuers
discussed in this report.
Investments in private funds are speculative, involve a high degree of risk and are designed for sophisticated investors.
Index performance results do not represent any managed portfolio returns. An investor cannot invest directly in a presented index, as an investment
vehicle replicating an index would be required. An index does not charge management fees or brokerage expenses, and no such fees or expenses
were deducted from the performance shown.
Neither the information nor any opinion expressed in this report constitutes an offer, or an invitation to make an offer, to buy or sell any securities.
Any return expectations provided are not intended as, and must not be regarded as, a representation, warranty or predication that the investment
will achieve any particular rate of return over any particular time period or that investors will not incur losses.
Past performance is not indicative of future results.
This report is prepared for informational purposes only. It does not address specific investment objectives, or the financial situation and the
particular needs of any person who may receive this report.
Information on any indices mentioned can be obtained either through your consultant or by written request to information@feg.com.
Indices:
The Consumer Price Index is a gauge of inflation that measures the prices of a basket of goods purchased by the “typical” consumer.
Morgan Stanley Capital International – MSCI - A series of indices constructed by Morgan Stanley to help institutional investors benchmark their
returns. There are a wide range of indices created by Morgan Stanley covering a multitude of developed and emerging economies and economic
sectors. See www.morganstanley.com for more information.
The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market
and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.
The NCREIF Property Index is a quarterly time series composite total rate of return measure of investment performance of a very large pool of
individual commercial real estate properties acquired in the private market for investment purposes only. The NCREIF Timberland Index is a
quarterly time series composite return measure of investment performance of a large pool of individual timber properties acquired in the private
market for investment purposes only. See www.ncreif.org for more information.
The NCREIF Timberland Index is a quarterly time series composite return measure of investment performance of a large pool of individual timber
properties acquired in the private market for investment purposes only. All properties in the Timberland Index have been acquired, at least in part,
on behalf of tax-exempt institutional investors - the great majority being pension funds. As such, all properties are held in a fiduciary environment.
The S&P 500 Index is capitalization-weighted index of 500 stocks. The S&P 500 Index is designed to measure performance of the broad domestic
economy through changes in the aggregate market value of 500 stocks representing all major industries.
© 2013 Fund Evaluation Group, LLC

RESEARCH TEAM
Name Title Focus
James W. Angelica Senior Research Analyst Private Capital - Buyouts
Page 20
FOURTH QUARTER 2012
Nolan M. Bean, CFA, CAIA Managing Principal Investment Philosophy and Portfolio
Construction
Keith M. Berlin Senior Vice President / Director of
Global Fixed Income and Credit
Global Fixed Income and Credit
Mark G. Brinker, CFP ®, CAIA Research Analyst Portfolio Analytics and Liquid Alternatives
Christian S. Busken Senior Vice President /
Director of Real Assets
Real Assets
Kevin J. Conroy, CFA, CAIA Senior Research Analyst Hedged Strategies
Gregory M. Dowling, CFA, CAIA Managing Principal /
Director of Hedged Strategies
Susan Mahan Fasig, CFA Managing Principal /
Director of Private Capital
Hedged Strategies
Private Capital
Jeffrey D. Furst, CFA, CAIA Senior Research Analyst Hedged Strategies
Brian A. Hooper
Gregory D. Houser, CFA
Jay R. Johnston
Senior Research Analyst Global Equities
Senior Vice President Capital Markets
Research Analyst Real Assets
J. Alan Lenahan, CFA, CAIA Managing Principal /
Director of Hedged Strategies
Hedged Strategies
David L. Mason, CAIA Senior Research Analyst Hedged Strategies
Christopher M. Meyer, CFA Managing Principal /
Chief Investment Officer
Investment Philosophy and
Portfolio Construction
Michael J. O’Connor Senior Research Analyst Global Fixed Income and Credit
Michael J. Oyster, CFA
William B. Phelps
Managing Principal / Portfolio Strategist Portfolio Management
Senior Operations Analyst Managed Solutions
Cheryl A. Ramsey Senior Research Analyst Global Equities
Christina M. Sunderman
Senior Research Analyst Global Equities
G. Scott Tabor Senior Research Analyst Private Capital
Nathan C. Werner, CFA Senior Vice President Private Capital – Venture Capital
Ryan S. Wheeler, CAIA
Director of Fund Operations Managed Solutions
© 2013 Fund Evaluation Group, LLC