Lower-Middle- Market a Shifting Landscape Tim Grein October 26, - - PowerPoint PPT Presentation

Confidential

Investing in Aerospace Companies in the Lower-Middle-Market … a Shifting Landscape

Tim Grein October 26, 2018

2 Confidential

Agenda

▪ Background & Experience ▪ What are an Investor’s Objectives? ▪ Aerospace OEM Landscape ▪ Defense Industry Highlights ▪ Commercial Aerospace Highlights ▪ Major Transformational Moves Amongst the Strategic Players ▪ Shifting Landscape in the Industry … ▪ The Environment is Challenging for Tier 1/2/3 Companies ▪ PE Buyers and their Declining Returns ▪ An Alternative Strategy to Achieve Attractive Returns ▪ Intro to Walbar Engine Components ▪ Observations on doing business in Mexico ▪ Conclusion

Disclaimers: 1. These are purely my views, based on my experience and interpretation of the data 2. I will focus on the areas I know best – commercial aerospace & private equity 3. I don’t have a staff to prepare this for me, so my apologies for the basic presentation 4. References: Virtually everything in here came from somewhere else… my apologies from not having everything perfectly referenced to the original author

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Background & Experience

Company Role Length of Time Reason for Departure US Army

• Platoon Leader
• Company Commander

5 Years Career change GE Power Systems

• Operations – “Six Sigma Black Belt”
• Strategic M&A experience
• Focus on gas turbines and power

generation equipment/technology 4 Years Desire to shift to PE role; went to business school Avery Weigh- Tronix

• Finance / Strategy / Transactional
• Helped facilitate sale of company to

new PE owner 1 Year Successful sale of the company; moved to new PE firm Platte River Equity

• Identify and complete investments
• Focus on aerospace, specialty metals

and industrial service investments

• ~50% of time spent within portfolio

companies developing and executing strategy and operational improvements 10 Years Response to shifting industry & investing landscape Walbar Engine Components

• President & CEO, part-owner

2 Years + No plans to leave…

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What are an Investor’s Objectives?

Strategic Buyer …. 1 + 1 = 3+ The Private Equity (PE) Buyer … Buyer Low, Sell High

▪ Strategic Buyers seek acquisitions for many reasons: ▪ Exit / Sale of the company is not typically in their analysis

The focus of my remarks will be from the perspective of the PE Buyer / Investor

▪ Every PE Investment is made with an Exit in mind ▪ PE Fund structure is typically 10 years ▪ Most PE buyers claim to have a system to find the “proprietary” deal, but few exist ▪ There are multiple strategies to attempt to achieve desired returns ▪ Employ their Industry knowledge to “time” the market, or invest through cycles ▪ Buy-and-build – “pay-up” for a platform company and buy/integrate smaller companies at lower multiples ▪ Focus on “Value Creation” by implementing a firm’s “playbook,” or by employing Operating Partners to drive change ▪ Financial engineering through use of maximum leverage

Reason for Acquisition Growth Objectives Cost Synergies Acquire Technologies

• r Products

Response to Competition Access New Markets Economies of Scale

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Aerospace OEM Landscape

Airframe OEMs Engines / Propulsion Military Aircraft Missiles Space Large Commercial Regional Jets General Aviation

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Defense Spending is Strong and Projected to Continue

Positive Outlook for Defense Spending Global Defense Spending Projected to Remain Strong US DoD Funding is Strong & Steady

▪ International demand for defense and military products is increasing in the Middle East, Eastern Europe, North Korea and the East and South China Seas ▪ In the US, the largest budget increases went to areas

• utlined in the National Defense Strategy (NDS)

▪ Notably, increases from FY17 to FY19: ▪ Ground Forces (+59%) ▪ Space Systems (+48% in unclassified accounts) ▪ Missiles & Munitions (+32%), including missile defense and strategic nuclear deterrence ▪ RDT&E overall (+24%) ▪ The key for growth is being tied to the right programs that already have long-term funding ▪ F-35 ▪ UAVs ▪ Various missile programs ▪ Ground force modernization initiatives ▪ B-21 LRS bomber ($2.3bn) ▪ Columbia-class submarine ($3.7bn)

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Commercial Aerospace has Attractive Characteristics

▪ Unprecedented historical backlog extending for 7+ years, ▪ Continued strength driven by new, energy efficient aircraft and emerging market demand ▪ Industry is dominated by large, well-capitalized aircraft manufacturers (Boeing & Airbus) and a small group of engine OEMs ▪ If you focus on specific aircraft platforms, you can see a clear path to growth ▪ End Markets have balanced global exposure (significant sales to ME & Asia) ▪ Historically, the industry was very fragmented and there were many attractive target companies where predictable margins could be achieved

• 500

1,000 1,500 2,000 2,500 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Boeing & Airbus Build Rate Forecast

A380 A350 A340 A330 A320 B787 B777 B767 B747 B737

Huge Industry Backlog Narrowbody Aircraft Drive the Market Aerospace Valuations have Outperformed

Today’s commercial air transport fleet of ~28,000 aircraft are dispersed throughout the world and the backlog is equally as distributed Questions:

• 1. Will trade tensions

compromise the backlog?

• 2. What about oil prices?

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Major Transformational Moves Are Occurring in the Industry

▪ The airframe duopoly (Boeing & Airbus) is extending their reach: ▪ Airbus agreed to buy a 50.0% stake in the Bombardier CSeries program ▪ Boeing formalizing ties with Embraer ▪ Boeing and Airbus both continue to seek to vertically integrate (after years of pushing outsourcing) ▪ Boeing pursuing the airframe services market, building on their 2006 acquisition of Aviall ▪ A fragmented supply base responding with rapid consolidation to counter the strength of the OEMs ▪ UTC’s (owner of Pratt & Whitney) $30.0 billion acquisition of avionics leader Rockwell Collins ▪ Safran’s acquisition of interior business Zodiac ▪ Precision Castparts long-running acquisition history prior to its acquisition by Berkshire Hathaway ▪ ARCONIC’s multi-year acquisition spree (and rumors of a PE buyout) ▪ Private equity firms have aggressively tried to consolidate the supply base with multiple buy-and-build strategies, particularly in component manufacturing and support services ▪ This has led to a healthy M&A environment within the A&D sector for both Strategic and PE Buyers

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The Environment is Challenging for Tier 1/2/3 Companies

Five Forces 2000 - 2012 Emerging Threats: 2012 - Present Threat of New Entrants

• Capital intensity deters new entrants
• Long-term agreements provide strong visibility
• Scale creates significant fixed cost leverage
• Customer Approvals and industry certifications

are expensive and difficult to maintain

• Emerging technologies disrupting incumbents

(composites, AM, electric motors, etc.)

• Older machinery is becoming obsolete
• Automation is drastically reducing the value of

skilled labor

• OEMs vertically integrating

Buyer Power

• Large OEMs and Tier 1 customers
• If Quality and Delivery performance are

maintained, there is no strong motivation to move the work

• Significant consolidation of OEMs (Boeing

Embraer, Airbus and Bombardier) and Tier 1s

• Boeing and Airbus implementing painful cost

reduction targets throughout supply base Supplier Power

• RM is often largest component of COGS, but large

OEM customers provide protection for suppliers

• RM supply was a very fragmented industry with

few large players

• Dramatic consolidation throughout Tier 1s and

raw material suppliers (PCC, Arconic, CPP)

• Manufacturers are forced to purchase material

from OEM suppliers. There is no flexibility

• Customers increasingly asking smaller Tier

1/2s to take over full inventory control Treat of Substitution

• Qualification Process for new parts is expensive

and time consuming

• FAA approval process is long and cumbersome
• Advancements forcing FAA to respond to

accelerated approval processes (AM parts flying

• n engines years ahead of expectations)

Competitive Rivalry

• Somewhat stable; LTA’s generally are extended in

perpetuity if quality and delivery performance are maintained

• Partner-type relationships are common
• Sole-source situations are not uncommon
• Customers want shorter LTAs
• Nearly every product is dual or triple sourced
• OEM’s have improved their understanding of

“should costs” and drive their suppliers to very thin margins

Takeaway: With the changing landscape, many aerospace companies have become less attractive at the same time that PE interest continues to increase

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Current State of Private Equity – An Increasingly Competitive World

Declining Returns to LPs Driven by Competition for Deals PE Fundraising Near All-Time Highs Competition for Deals has Driven Increase in PP Since 2006, Majority of Funds have Underperformed ▪ As of January, 2018, a record 2,296 PE funds were active in the market ▪ “Dry powder” at record levels - $628 billion (2017) ▪ “Firms are having a tougher time finding deals that meet their performance criteria.” (BCG) ▪ EBITDA Multiples and leverage continues to increase ▪ PE Firms rationalize their behavior by suggesting investors are indifferent:

▪ “Investors are willing to accept slightly lower returns.” ▪ “In private equity, you’re trying to get 20 or 30 percent annualized rates

• f return. Now they’ve come down in recent years, but today probably it’s

not unusual to think that people in my business can yield annualized net returns after fees of 15 percent or so per annum. ” David Rubenstein, Carlyle Group Co-Founder

• Fewer funds are outperforming their

equivalents in the public markets

• Distributions to LPs from prior funds

are slowing

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Is the PE Market reaching its Peak?

US Deal Flow on Track for a Record Year PE Fund Sizes Continue to Grow Increasingly, PE Funds Buy and Sell to Each Other Is PE Exit Activity Slowing?

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PE Funds Able to Insulate Themselves from Lower Investor Returns

PE Needs to Invest Capital to Stay in Business The reaction is Not Ideal for Investors

▪ Typical Fund structure provides fixed time constraints (usually with 1-2 year extensions) ▪ 10-year Fund commitments ▪ 5-year “Investment Period” ▪ 5-year “Harvest Period” ▪ Management Fee declines after Investment Period ▪ During Investment Period, the 2% Management Fee is calculated on committed capital ▪ During Harvest Period, the Management Fee is calculated only on invested capital ▪ 20% “Carried Interest” only has value if the PE Firm can generate returns above 1.6x ▪ Carried Interest is only earned after all capital, including a preferred return (typically 8%/yr) is returned to investors ▪ Lower returns can diminish or eliminate the value of the Carried Interest ▪ Capital needs to be deployed, but the market for attractive deals is tough: ▪ Too much capital chasing too few deals drives increasing purchase prices ▪ Fund structures may force companies to sell at times that may not be optimal ▪ A larger fund generates higher fees ▪ Despite the increased competition for deals, 69% of US PE funds are raising larger funds ▪ Institutional Investors appear to support this: ▪ They prefer to make larger allocations to fewer funds ▪ They focus their commitments to “top quartile” funds, without regard for overall investment performance ▪ PE Firms jump at the chance to increase fund size because it means their “take home” pay is preserved without risk of lower performance

Representative PE Fund ($ in MMs) Cash-on-Cash Return of: 1.5x 2.0x 2.05x 2.25x 2.50x $200MM Fund Carried Interest Value

• $16.3

$18.0 $24.7 $33.1 Management Fee $36.0 $36.0 $36.0 $36.0 $36.0 Total PE Fund Proceeds $36.0 $52.3 $54.0 $60.7 $69.1 LP IRR% 5.7% 14.2% 14.9% 17.8% 21.1% $300MM Fund (50% Increase) Carried Interest Value

• $24.5

$37.0 $49.6 Management Fee $54.0 $54.0 $54.0 $54.0 Total PE Fund Proceeds $54.0 $78.5 $91.0 $103.6 LP IRR% 5.7% 14.2% 17.8% 21.1%

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The Opportunity – WALBAR, LLC ▪ A corporate divestiture from United Technologies Aerospace Systems (UTAS) The Issues and Uncertainty ▪ A U.S. Company with no manufacturing presence in the US (all manufacturing performed through a Maquiladora in Mexico) ▪ Nearly all Customer LTAs expiring within one year

• f closing; Quality and Delivery performance was

unacceptable with all customers ▪ UTAS would not allow Buyer to speak with customers, nor any employees, prior to closing ▪ Revenue and earnings were on a steady decline for prior 4 years (and financial information provided was not perfect) ▪ Carve-out was not clean; WALBAR existed with UTAS as part of a business unit with other plants that were not included in the deal

Is There a Better Way to Generate Attractive Returns?

▪ Get back to basics ▪ “Buy Low, Sell High” remains a timeless strategy to achieve attractive returns ▪ Move away from conventional Private Equity fund structures that put time-pressure on a deal where it is often not helpful ▪ Seek deals that are less competitive because of known and unknown risks ▪ Customer concentration ▪ Smaller deal size ▪ Loss-making companies / turnaround ▪ Motivated sellers (including corporate divestitures) ▪ Be willing to accept imperfect information and uncertainty ▪ Be open to transaction structures that benefit the Seller (asset sale versus stock deal) ▪ Set the deal up for success – capitalize the transaction to allow for mistakes or surprises within the first 2 years of the investment Generate Attractive Returns in a Tough Market The Opportunity and the Issues/Uncertainty

LTM 2013 2014 2015 Aug-16 Sales $69,829 $70,940 $65,063 $56,434 EBITDA, adjusted ($2,450) ($6,237) ($7,479) ($3,128) % Margin

• 3.5%
• 8.8%
• 11.5%
• 5.5%

Scrap Expense $3,750 $3,609 $4,125 $3,572

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Investment Thesis: Walbar Engine Components

Characteristics The Market

• The market for engine components is huge and growing rapidly with the introduction of

numerous new engine models (LEAP, PW1100NEO, Genx, etc.)

• “Hot section” engine components have limited useful life and strong spares demand

The Asset

• WALBAR holds numerous customer and industry qualifications and certifications, including

NADCAP for special processes

• Significant PP&E invested (120+ machine centers)
• Capable workforce of 290+ employees

The Customers

• Rolls Royce, P&W and MTU Aero – we assumed that if we improved quality and delivery

performance, these customers would work with us (cost of switching is high) The Plan

• Collaborative customer engagement
• Reduce spending (we observed consumables were much higher than would be expected)
• Reduce scrap – recent performance was wildly out of industry norms
• Improve Productivity and efficiency – clarify and simplify the KPIs
• Refine part-level costing and variance analysis; guide efforts toward largest opportunities
• Develop company-wide engagement and accountability

The Downside Protection

• We capitalized the business to withstand a potentially long turn-around period
• Cash balances are in the US and we have tight control over all cash disbursements
• We own all PP&E, free-and-clear

The Upside

• Huge unaddressed part of the market – GE and SAFRAN combined make up 65% of the market

for large commercial turbine engines and WALBAR has zero revenue today

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WALBAR Engine Components – A Transformation in Progress

Sept 2016 2017 2018 … … 2022 (OBJECTIVE) The Turnaround

• Customer-first mindset resulted in nearly all

LTA’s being extended to 2022 or beyond

• Established company key principles
• 100% People First
• 100% Quality
• 100% Delivery
• Company-wide alignment
• Strict expense control (manufacturing

expenses reduced by 60% within 6 months)

• Operational excellence through simplified KPIs
• Productivity – achieving 80%+ plant-wide
• Efficiency – achieving of 99% in most FLs
• Right first time – working to 99.9%
• Scrap reduction – reduced by >60%
• Results:
• Returned to profitability in 2017
• Growing steadily and profitably in

2018/2019 Our Growth Plan

• Capitalized for dramatic growth
• No debt, and strong WC position
• Lending relationships recently established
• Facility expansion completed
• Increased from 70K ft2 to 105K ft2
• Initiated plant modernization strategy
• Reengaging with new customers
• Q1 2019 – opening a manufacturing facility in

Arizona to address customer needs Our Future

• Increasingly recognized as a global leader in

turbine component manufacturing

• On our way to becoming one of the largest

INDEPENDENT manufacturers in the world

• Vision: A WALBAR component on every engine

in the world

Dec 2016 Dec 2017 Dec 2018P 2019 FORECAST 2022 Projection Rev: $52MM $56MM ~$70MM ~$90MM $150MM

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▪ Manufactured by Walbar since 2015 using modern Blohm technology platforms ▪ Volume of 25,000 blades in 2016 increased to ~50,000 blades for 2018 due to performance ▪ Sustained OTD at 100% for the last two years ▪ Since Dec 2017, 100% of the product has been coated at our local partner, Ellison Surface Technologies ▪ Expected to be first ever 100% Mexico-sourced turbine airfoil (casting vendor – CPP) ▪ Recently awarded NEO Stage 3 Blade, which will be in full production in 2019 ▪ Trent XWB - Entrusted with significant market share on numerous engine components throughout the turbine ▪ NGVs (HP, IP & LP) – We currently outsource cooling holes, but we are developing the case to bring this technology in-house) ▪ Seal Segments (HP, IP, LP) – We perform 100% of the EDM operations and we partner with a local supplier for Electrode support ▪ Walbar is working alongside our customer on a design for manufacturing (“DFM”) exercise for next generation engines

Rolls Royce – Trent XWB MTU – PW1100 NEO LP Turbine Blades

WALBAR Case Studies – Focused on Leading Engine Programs

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Observations on Doing Business in Mexico

▪ Many companies operate within Mexico through a shelter company, or Maquiladora (similar to a PEO in the US) ▪ Structure provides an efficient path to set up and operate; no requirement to establishing a legal presence ▪ Maquiladora-partner will often incur much of the initial start-up costs (building, land, infrastructure) ▪ Employees work for Maquiladora and are subcontracted to the client ▪ All payroll and benefits administered by Maquila for a fee ($/hour/employee) ▪ Unfortunately, client has limited impact on negotiating wage increases and changes to benefits ▪ Hidden costs (payroll and benefits, Christmas bonus, profit sharing) decrease the actual labor benefit ▪ Employees are entitled to severance pay if/when terminated (based on years of employment) ▪ In 2014, the tax code was changed to impose a tax obligation on all Maquiladora clients, even if no legal presence is established ▪ 2018 is the first year that taxes are due; likely fully creditable in the US ▪ Employee demographics are very different from most similar plants in the US ▪ Average age of Walbar employees is 35 years old ▪ The work environment and culture is completely driven by the culture you impose (within reason) ▪ Employees have embraced our open communication and collaborative management style ▪ We pay variable incentive compensation ▪ Company-wide discretionary bonuses paid monthly if performance exceeds certain metrics ▪ Individual bonuses paid monthly based on quantitative individual performance (productivity, efficiency, scrap, etc.) ▪ To be successful in Mexico, do not lower your expectations ▪ The workforce can achieve anything you ask of them, with the right training and support

THESE COMMENTS ARE BASED SOLELY ON THE WALBAR EXPERIENCE OVER THE LAST 2 YEARS

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Conclusion

▪ The Aerospace Industry is still an attractive area for investment, but the landscape is changing and I believe the pace of change will continue to accelerate ▪ Private Equity money will continue to have an aggressive appetite for investing ▪ This is a good time for Sellers (but be cautious with co- investing) ▪ There will be many bad investments made (good companies at the wrong price, with too much debt) ▪ Real value can be found in non-core assets within both Private Equity portfolio companies and Strategic Buyers… but it can be difficult to find them ▪ “Patient money” is the key to finding real value ▪ Do not be deterred from Mexico – it can be a very effective complement to your US operation

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Appendix

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Leading Commercial & Defense OEMs

Company Annual Revenue Description The Boeing Company $93.39bn

• Manufactures commercial jet and

military aircraft, defense products, and space and security systems.

• Some of the company’s defense

products:

• EA-18G Growler
• P-8 Poseidon
• F/A-18 Hornet
• CH-47 Chinook
• F-15 Strike Eagle
• KC-46A Tanker
• Delivered 170 military aircraft and four

satellites in 2017 Airbus SE $75.27bn

• Europe’s leading aerospace and defense

company Airbus SE (formerly Airbus Group SE)

• The business segments of Airbus include

Airbus Commercial Aircraft, Airbus Defense and Space, and Airbus Helicopters.

• The company agreed to acquire a

majority stake in Bombardier’s C Series aircraft program in October 2017. UTC $59.83bn

• United Technologies develops and

manufactures propulsion systems, components and engines for commercial and military aircraft.

• The company also provides building

automation and security systems.

• The company signed an agreement to

acquire US-based company Rockwell Collins in September 2017. Company Annual Revenue Description Lockheed Martin $49.97bn

• Lockheed Martin provides products and

services for defense, aerospace and security applications.

• Its product base includes advanced

military aircraft, unmanned air vehicles, land vehicles, weapon systems, air and missile defense systems, naval systems, military and commercial helicopters, and security systems

• Approximately 69% of the company’s

2017 revenue came from the US Government and the Department of Defense contracts, with the F-35 program alone accounting for 25% General Dynamics $30.97bn

• General Dynamics offers products and

services for various aerospace and defense applications, including combat vehicles, munitions, weapons systems, shipbuilding, business aircraft, C4ISR, and information technology (IT) GE Aviation $27.37bn

• Manufactures jet and turboprop engines,

avionics and digital systems for commercial, military and general aviation aircraft, as well as marine applications

• Operates two joint ventures (JVs) with

Safran Aircraft Engines, namely CFM International and CFM Materials.

• Some of the leading product offerings

from GE Aviation include F110, F404, F414, T700, LEAP, GE90, GEnx, CFM56, and CF6.

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Leading Commercial & Defense OEMs

Company Annual Revenue Description Northrop Grumman $25.8bn

• Northrop Grumman provides aerospace

and mission systems, airborne C4ISR, cyber security solutions, and logistics services for civil and military platforms.

• The company’s operating segments are

Aerospace Systems, Mission Systems and Technology Services.

• Product portfolio includes
• E-2D Advanced Hawkeye early

warning aircraft

• Global Hawk unmanned air vehicle
• B-2 Spirit bomber
• B-21 Raider bomber
• X-47B unmanned combat air vehicle
• Northrop Grumman signed a definitive

agreement to acquire Orbital ATK for $9.2bn in September 2017 Raytheon Company $25.34bn

• Provides defense systems, missiles,

electronic warfare, and cybersecurity solutions to government and commercial customers.

• Operates through five business

segments, including Integrated Defense Systems, Missile Systems, Space and Airborne Systems, Intelligence, Information and Services, and Forcepoint. Company Annual Revenue Description BAE Systems $23.59bn

• Focuses on electronic warfare contracts

from F-35 Lightning II and DEWS programmes, APKWS laser-guided rockets, and increasing classified activity.

• Involved in developing products and

services for various applications such as military and civil aircraft, naval ships, submarines, combat vehicles, weapon systems, cyber and intelligence, and security systems.

• Some of its defence products include:
• Astute class submarine
• Queen Elizabeth class aircraft

carrier

• Type 45 air defense destroyer
• Type 26 frigates
• CV90 combat vehicle
• Hawk jet trainer

Rolls Royce $22.0bn

• A major supplier of aero engines and

propulsion systems for military and commercial aircraft and marine platforms

• The company operates through five

business segments:

• Civil Aerospace
• Defence Aerospace
• Marine
• Power Systems
• Nuclear
• Civil Aerospace is the company’s

biggest segment, accounting for 53% of the total revenues in 2017

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Aero Engine Market Overview

IAE specializes in the V2500 engine and has 3 airframe applications

• Airbus A320 Family
• Boeing MD-90
• Embraer KC390

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Single Aisle / Narrow-body – In-service A320 Engine - Orders Wide Body Aircraft Engines – In Service Widebody Engines – New Orders

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Deal Size Impacts Valuation

A&D Enterprise Values Component Manufacturers

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Selected Aerospace Comparable Transactions

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Is declining fund performance a sign that PE's good times are over?

Private equity's calling card, from its early days in the 1980s through the mid-2000s, has been its ability to beat the market, with the asset class pretty handily outperforming stocks in bull and bear markets alike. Until 2006, LPs in PE funds had at least a 50-50 shot at beating the market—in 2001, outperformance was practically a layup, with almost 88% of global PE funds in that vintage beating their public market equivalents (PMEs), per our recent Global PE & VC Fund Performance Report. But fortunes have turned over the last decade. Since around the time of the financial crisis, only one vintage—2013—has seen at least half its global funds beat the market, and just barely. Post-2007, LPs have faced worse odds—34% of global PE funds in 2008 beat the market, which is understandable, but only 36% of 2010 vintages had PMEs

• ver 1x while 37% of 2015 vintages were ahead. That's like having John Stockton shoot

your free throws for more than a decade, only to have him be replaced by Shaquille O'Neal for the next decade. And to be fair to Shaq, his career 52.7% FT percentage is actually better by comparison! Sliced another way, PitchBook data shows that each vintage from 2006 and 2015 has seen global median fund returns at or below 1x against their PMEs, underperforming the S&P 500 every year. Top-performing funds in the same timeframe all beat their PMEs, but even then, the level of top-decile outperformance is also in decline. Just 15 years ago, top-decile PE funds—on a median basis—beat their PMEs by at least 2x, a common sight between the late 1990s and mid-2000s. That across-the-board

• utperformance has whittled down to a 1.19x median for 2015 vintages of top-decile

funds. In other words, even the astute and/or lucky LPs that pick the big winners aren't being rewarded as they once were, either. If you've noticed an uptick in white papers, articles

• r interviews around the importance of manager selection, the message may be less

about marketing hyperbole and more about reality. Picking outperformers really is getting harder, just as the industry is setting new dry powder records. So, are the good times over? Not necessarily, and yes, we're hedging the answer to our

• wn question. But if the question is even worth asking—and it seems to be,

unfortunately—the really good times might be finished.

By Alex Lykken, September 21, 2018