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KKR Overview and Organizational

Summary
Todd A. Fisher
July 16, 2012

Important Information
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market trends, is based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons.
This presentation is distributed by KKR Capital Markets LLC (KCM), a broker-dealer registered with the U.S. Securities and Exchange Commission and a
member of FINRA and SIPC.
In this presentation, references to assets under management or AUM represent the assets as to which KKR is entitled to receive a fee or carried
interest and general partner capital. KKRs calculation of AUM may differ from the calculations of other asset managers and, as a result, KKRs
measurements of its AUM may not be comparable to similar measures presented by other asset managers. KKRs definition of AUM is not based on any
definition of AUM that is set forth in the agreements governing the Funds or any KKR products or calculated pursuant to any regulatory requirements.

Important Information (contd)


References to KKR Capstone or Capstone are to all or any of Capstone Consulting LLC, Capstone Europe Limited, and KKR Capstone Asia Limited, each
of which is owned and controlled by their senior management and not by KKR. KKR Capstone uses the KKR name under license from KKR. KKR
Capstone is not a subsidiary or other affiliate of KKR.
General discussions contained within this presentation regarding the market or market conditions represent the view of either the source cited or KKR.
Nothing contained herein is intended to predict the performance of any investment. There can be no assurance that actual outcomes will match the
assumptions or that actual returns will match any expected returns. The information contained herein is as of March 31, 2011, unless otherwise
indicated, is subject to change, and KKR assumes no obligation to update the information herein.
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(the Financial Promotions Order), (ii) high net worth companies and other persons falling within both Article 22 of the CIS Promotion Order and Article
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In Australia, this presentation is being distributed by KKR Australia Pty Limited (A.C.N 126 516 336 A.F.S.L 336127) and is directed to wholesale clients
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products managed by KKR.

Program Overview
Program Participants
38 new Associates/Analysts in the full training program
15 Private Equity (4 NYO, 3 MPO, 1 Houston, 3 Europe/MENA, 4 Asia-Pacific)
5 Asset Management (3 NYO, 1 SFO, 1 Europe/MENA)
3 Capital Markets (2 NYO, 1 Asia-Pacific)
6 CPG (4 NYO, 1 SFO, 1 Europe/MENA)
7 Capstone (1 NYO, 2 MPO, 2 Europe/MENA, 2 Asia-Pacific)
2 TRS (Teacher Retirement System of Texas)

Presenters / Session Leaders / Social Event Hosts


~85 executives across KKRs businesses, functions and offices

Who Are We?


Established in 1976, Kohlberg Kravis Roberts & Co. L.P. (KKR) is a leading global
investment firm with industry-leading investment experience, in-depth industry
knowledge, sophisticated processes for growing and improving businesses, and a strong
culture committed to teamwork

Leading investment firm


Private Equity, Infrastructure & Natural Resources,
Credit Strategies, Alternative Credit, Equity Strategies

Assets Under Management


As of March 31, 2012
($ in billions)

Global presence
Offices in 14 major cities in 9 countries across 4 continents

One-firm culture that evolves, learns, and innovates


Adaptive to change

$16.3

Relationship-driven approach
Sourcing investment opportunities
Partnering with clients

$46.0

Aligned with our partners


Eat our own cooking
Economic incentives driven by results
Focused on managing stakeholder interests

Note:

Please see Important Information for a description of Assets Under Management calculation.

Private Markets

Public Markets

KKR Timeline
2000 - 2004

10.01.09

KKR Capstone

1976

Industry group focus

Business combination
with KPE

European private
equity business

Publicly-traded on
Euronext Amsterdam
2004 - 2009

Natural Resources

KKR Asset Management


(KAM)

1980

1982

KKR Equity Strategies


Real Estate

Publicly-traded
on NYSE

2012
Pending
acquisition of
Prisma Capital
Partners

KKR Capital Markets (KCM)


Client & Partner Group

North American
private equity firm

1978

07.15.10

KKR Private Equity Investors


(KPE)

1980s - 1990s

Mezzanine / Special
Situations
Infrastructure

KKR Founded

1976

2010 - 2011

Global expansion into Asia,


Australia and Middle East

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

Today

KKR Today

Private Markets

Public Markets

$46 bn AUM

$24 bn AUM

Capital Markets &


Principal Activities

$5.2 bn of
Segment NAV

Private Equity

Leveraged Credit

Capital Markets

Natural Resources

Mezzanine/Direct
Lending

Balance Sheet

Infrastructure
Real Estate

Special Situations

Equity Strategies

Total Book Value of


$8.67 per Adjusted
Unit

Hedge Fund of Funds

Note:

Market capitalization as of July 6, 2012. Segment figures and unitholder information as of March 31, 2012 (pro forma for pending Prisma acquisition).

KKR: A Global Investment Firm

Over 600 Executives and Professionals around the globe*


~150 in private equity, infrastructure and real estate
~60 in credit, mezzanine and equity strategies
~80 in capital markets and client service
~60 operations executives in KKR Capstone
~80 executives in Business Operations
~200 professionals
New York
San Francisco
KAM
CPG

London

PE
KCM
KAM
KES
CPG
KKR Capstone
GMAA

PE
KCM
KAM
CPG
KKR Capstone

Seoul
Beijing

PE

PE
CPG
KKR Capstone

Tokyo
PE
CPG
KKR Capstone

Menlo Park
Paris

PE
KKR Capstone

Houston
PE
KKR Capstone

Global Presence of:


KKR Private Equity (PE)
KKR Capital Markets (KCM)
KKR Asset Management (KAM)
KKR Equity Strategies (KES)
Client & Partner Group (CPG)
KKR Capstone
Public Affairs
Global Macro & Asset Allocation (GMAA)
Note:
*

Washington DC
Public Affairs

Hong Kong

PE

Dubai

Mumbai

CPG

PE
KCM
KKR Capstone

PE
KCM
CPG
KKR Capstone

Sydney
PE
KKR Capstone

PE designation includes private equity, infrastructure, and natural resources executives.


Includes certain other KKR executives working in legal, compliance, IT, IR, and financial, tax and accounting functions, who are not represented on the
above map.

KKR as a Public Company


Market capitalization: $8.9 bn

Public unitholders: 33.9%

Book value per unit: $8.67

Credit ratings: A- by S&P, A by Fitch

KKR Capitalization

Ownership Today

($ in millions except stock price)


Stock Price (6-20-2012)
Fully Diluted Shares
Market Cap
Plus: Debt
Less: Cash
Less: Investments
Less: Net Carried Interest
Enterprise Value
2012E ENI per Share
2013E ENI per Share
2012E P/E
2013E P/E

$2.25
$2.20
5.7x
5.8x

2012E Distribution
2013E Distribution

$0.71
$1.01

2012E Dividend Yield


2013E Dividend Yield

5.6%
7.9%

Note:

$12.74
701.0
$8,931.3
500.0
(855.5)
(5,023.0)
(599.6)
$2,953.1

Unitholder
Lexington
Waddell & Reed
Fidelity
Ariel
Credit Suisse
Omega
Wellington
Swiss Re
MSSB
Serengeti
Top 10 Unitholders
Other Unitholders
Public Unitholders
KKR Executives
Total KKR

Units
(MM)
19.5
15.1
10.0
6.5
6.3
5.4
0.7
4.4
3.7
4.0
75.5
156.2
231.7
451.7
683.4

% of
Total
2.9%
2.2%
1.5%
0.9%
0.9%
0.8%
0.1%
0.6%
0.5%
0.6%
11.0%
22.9%
33.9%
66.1%
100.0%

Market data and estimates as of June 20, 2012. Estimates reflect full analyst coverage universe for KKR. Ownership data based on Ipreo surveillance
as of June 20, 2012. Todays unit counts reflect basic units outstanding.

% of
Public
8.4%
6.5%
4.3%
2.8%
2.7%
2.3%
0.3%
1.9%
1.6%
1.7%
32.6%
67.4%
100.0%

Culture

TEAMWORK
INTEGRITY
RELATIONSHIP-DRIVEN
ACCOUNTABILITY
INNOVATION
EXCELLENCE
10

Culture

TEAMWORK

We pride ourselves on our one-firm approach;


Every person at KKR owns equity and shares in
our success

INTEGRITY

Our reputations as individuals and as a firm


are paramount; Our word is our bond

RELATIONSHIPDRIVEN

People do business with people they like and


trust; Arrogance kills

ACCOUNTABILITY

We embrace the obligation to speak up and


say what we think; We also have the fortitude
to say no, even at the eleventh hour

INNOVATION

We work passionately to retain the


entrepreneurial spirit that created our firm and
to fight against politics and bureaucracy

EXCELLENCE

We aspire to be the best at what we do and


lead by example; Our focus on impact and
results creates a vibrant and meritocratic
environment

11

Why We Are Different


Industry Expertise/Sourcing

Investment Experience

Comprehensive industry coverage


across global markets in both private
equity and credit

36-year history of quality investing(1)

Deep relationships supporting a


multi-sector investment approach
Holistic discussions across the capital
structure

Stakeholder Management
Integrated into investment
decision and transaction
processes
Focus on alignment of interests
and sustainability
Share best practices across
KKRs portfolios

Client & Partner Group


Team of ~45 professionals
focused on building,
maintaining, and expanding
client relationships
(1)

12

As of May 1, 2012.

Delivers solutions to investors


across the KKR platform

35 senior-most private equity


investment professionals have been
with KKR for an average of over 13
years
26 senior-most asset management
investment professionals have an
average of nearly 17 years
experience

People
and
Culture

KKR Capstone
Captive team of ~60 senior
operations professionals
Work side-by-side with portfolio
company senior managers to
help identify and implement
operational improvements

KKR Capital Markets


Dedicated resource
Manages all capital markets
activities for the firm
Assists with capital structures,
refinancings, IPOs

Our
Businesses

KKR Global Business Model

Our
Our
Differentiators
Identity

Private
Equity

13

Industry
Expertise

People &
Values

Infrastructure,
Natural
Resources

Value
Creation
Capabilities
Global OneFirm
Platform

Real
Estate

Credit
Strategies

Capital
Markets

Stakeholder
Management

Access to
Capital

Innovation
& Flexibility

Mezzanine &
Special
Situations

Client & LP
Partnerships

Network /
Relationships

Hedge Funds

Best In Class
Processes

Experience

KKR Organizational Chart


Management Committee (MC)

Kravis/Roberts

Investment Committees (ICs)


Other Governance Committees
(e.g. Conflicts, Risk, Balance Sheet)

Global Capital
& Asset
Management
(Nuttall)

Global
Infrastructure/
Natural
Resources

Global
Private Equity

Global Portfolio
Management

(Lipschultz)

Global Chief
Administrative
Officer

(Bae, Huth,
Michelson,
Navab)

(Raether)

(Fisher)

KKR Capstone

Asset
Management
(Sonneborn)

Client and
Partner Group
(Donohoe)

Capital
Markets
(Farr)

KKR Credit Strategies


(Goltz)
Leveraged
Credit
(Falk/
Sheldon)

Mezzanine
(Goltz)

Special
Situations

Note:

14

Other:
Corporate
Development,
New Products)

North
America
(Nelson)

Europe/
MENA
(Cornog)

Asia/
Pacific
(Bookmyer)

North
America
(Michelson/
Navab)

Europe/
MENA
(Huth)

Asia/
Pacific
(Bae)

Real Estate
(Rosenberg)

Public
Equities
(Howard)
Industry/Functional/
Regional Teams

Industry/Regional Teams

(Weinstein/
Zilkha)

Industry/Functional Teams
Note:

Macro Asset
Allocation
(McVey)

Public Affairs
(Mehlman)

Legal and
Compliance
(Sorkin)

Finance
(Janetschek)

Information
Technology
(Brandman)

Participation of KKR Private Equity, KKR Capital Markets, and KKR Capstone personnel in the public markets investment process is subject to
applicable law and inside information barrier policies and procedures, which may limit the involvement of KKR Private Equity, KKR Capital Markets, and
KKR Capstone personnel in certain circumstances. Discussions with Senior Advisors and employees of KKRs managed portfolio companies are also
subject to the inside information barrier policies and procedures, which may restrict or limit discussions and/or collaborations with KAM.
KKR Capstone is owned and controlled by its senior management and not KKR.

Human
Resources
(Gottlieb)

The last 3 years by the numbers


We have grown
materially over time

Revenues
Expenses
Fee Related Earnings
margin
ENI
Cash Carry, gross
Headcount
Distribution per share
Book Value per share

2010
$46

CAGR
2011 '09-'11
$46 4.14%

$618 $735 $912


($371) ($416) ($495)
$247
40%

$318
43%

$417
46%

$1,954 $2,139

$751

$0

$388

$520

640

757

879

$6.08

$0.60
$8.38

$0.74
$8.29

21%
15%
30%

31%
29%

y/y change

Fee Paying AUM ($B)

2009
$43

and have done so in a


measured manner

18%
16%

17%
17%

09-10
Headcount

15

10-11
Fee Related Earnings

New and expanding businesses have helped fuel this growth


CAGR
(09-11)

Revenues by Business Unit


($M)
$912

Capital Markets

124%

Public Markets

51%

$735
$618

Private Markets

2009
16

2010

2011

8%

Weve innovated and diversified our service offering

2009
Private
Markets

Public
Markets

Capital
Markets

17

2011

North America PE
Asia PE
Europe PE

North America PE
Asia PE
Europe PE
China Growth
Infrastructure
KNR
Royalties
Real Estate

Bank Loans & High Yield

Bank Loans & High Yield


Direct Lending
Mezzanine
Special Situations
KES

Portfolio Refinancing
Syndication

Portfolio Refinancing
Syndication
Equity Underwriting
3rd Party Business
NBFC

Our business portfolio in 2012 weve cultivated a pipeline of businesses


R&D
e.g. Latin America,
Credit Hedge
Fund

Private
Markets

2012: Maturity of existing businesses


Nascent
Real Estate
Drilling
Royalties

Mature

Growth

NA PE
Europe PE

Infrastructure
Natural Resources
China Growth
Asia PE

Public
Markets

Capital
Markets

Public Equities
Direct Lending

Mezzanine
Special Situations

Liquid Credit

3rd Party business Portfolio Underwriting


NBFC
Portfolio Refinancing
Equity Syndication

18

Strategic Goals
1.

Maximize Performance Across Our Businesses through Intense Focus and


an Active Ownership Approach

2.

Continue to Evolve Private Equity Business Model and Effectively Deploy


Meaningful Capital

3.

Aggressively Build our non PE Businesses (Fixed Income, Mezzanine,


Infrastructure, Special Situations, Natural Resources, Real Estate, Hedge
Funds) into Industry Leaders

4.

Increase Our Effectiveness at Capital Raising and Expand Our Investor


Base to Drive Meaningful New Capital

5.

Leverage KCM to Create Differentiated Access to Capital and Enhance


Firm Profitability

6.

Build Liquidity and Diversity on Our Balance Sheet and Employ it to


Maximum Strategic Effect

7.

Retain Strong Emphasis on People, Culture and Values and Operate


Effectively and Efficiently as one Integrated Team

19

Strategic Goals
1.

Maximize Performance Across Our Businesses through Intense Focus and


an Active Ownership Approach

2.

Continue to Evolve Private Equity Business Model and Effectively Deploy


Meaningful Capital

3.

Aggressively Build our non PE Businesses (Fixed Income, Mezzanine,


Infrastructure, Special Situations, Natural Resources, Real Estate, Hedge
Funds) into Industry Leaders

4.

Increase Our Effectiveness at Capital Raising and Expand Our Investor


Base to Drive Meaningful New Capital

5.

Leverage KCM to Create Differentiated Access to Capital and Enhance


Firm Profitability

6.

Build Liquidity and Diversity on Our Balance Sheet and Employ it to


Maximum Strategic Effect

7.

Retain Strong Emphasis on People, Culture and Values and Operate


Effectively and Efficiently as one Integrated Team

20

Its All About Performance


KKR PE Portfolio Performance
vs Benchmarks (09-11)

KAM Strategy Performance vs


Benchmark (3 yr returns)
36.0%

76.0%

32.5%

23.7%

48.6%
39.6%

KKR PE
Portfolio

S&P 500

MSCI
World
Index

23.7%

20.6% 19.5%

Secured
High Yield Opportunistic
Credit (1) Carveout (2) Credit (3)
(unlevered)
KAM (Gross Return)

Note: 3 year performance is as of end of 2011 (12/31/2011); PE performance analysis conducted on same
stores basis for investments made prior to January 1, 2009 to ensure comparability of analysis
(1) Benchmark: S&P/LSTA Loan Index.
(2) Benchmark: Merrill Lynch High Yield Master II Index.
(3) Benchmark: Merrill Lynch High Yield Master II Index.

21

Benchmark

Global Macro and Asset Allocation


KKRs Global Macro and Asset Allocation team (GMAA) provides the Firm with market
commentary and outlooks on the changing dynamics in the global economy
The Team
The team is led by Henry McVey, who has 24
years of experience evaluating macroeconomic
trends and asset allocation topics
Henry McVey, David McNellis and Frances Lim
work in partnership with various investment teams
Firm-wide to assist in better decision-making and
enhanced performance regarding current and
potential investments
Primary Activities
Help KKR and its clients assess global macro
issues and trends across all of its investment
disciplines, including private equity, hedge funds
and public investing
Provide thought leadership through periodic
written content that engages employees and
clients as it relates to macro trends and asset
allocation decisions
Analyze insight into the business environment
from data and trends gleaned from KKRs diverse
portfolio
Over time, help the Firm build out its global macro
and tactical asset allocation capabilities

Recent Macroeconomic Insights Pieces


April 8, 2012

March 5, 2012

An archive of GMAAs macroeconomic insights pieces is


available at http://www.kkrinsights.com
22

Strategic Goals
1.

Maximize Performance Across Our Businesses through Intense Focus and


an Active Ownership Approach

2.

Continue to Evolve Private Equity Business Model and Effectively Deploy


Meaningful Capital

3.

Aggressively Build our non PE Businesses (Fixed Income, Mezzanine,


Infrastructure, Special Situations, Natural Resources, Real Estate, Hedge
Funds) into Industry Leaders

4.

Increase Our Effectiveness at Capital Raising and Expand Our Investor


Base to Drive Meaningful New Capital

5.

Leverage KCM to Create Differentiated Access to Capital and Enhance


Firm Profitability

6.

Build Liquidity and Diversity on Our Balance Sheet and Employ it to


Maximum Strategic Effect

7.

Retain Strong Emphasis on People, Culture and Values and Operate


Effectively and Efficiently as one Integrated Team

23

Private Equity Overview


Leading
Global
Franchise

36 years, 200+ investments, $53+ bn of equity deployed

Highly experienced investment team

Strong
Historical
Returns
Distinctive
Strategy and
Resources

Aligned with
Investors
Note:
(1)
(2)

24

3.1x gross MOIC, 26% gross IRR, and 20% net IRR on
our eight realized private equity funds(1)

S&P 500 outperformance of 7.4% on a net basis across


our first 14 private equity funds raised since firms
inception

Vast global sourcing network

Substantial resources in operations, capital markets,


stakeholder management, global macro and asset
allocation, plus senior advisors

Use of firm-wide brain to find and act on ideas

Biggest investor in our own funds and deals with ~


$5.5 bn invested or committed(2)

Data as of 3/31/2012. Past performance is no guarantee of future results. See Important Information for details regarding returns and indices.
Includes all investments of KKRs eight realized private equity funds from inception to March 31, 2012. The 1996 Fund has two remaining investments with a cost basis of
$46mm which are valued at $0. It is anticipated that these investments will be written off in 2012. For purposes of this analysis the 1996 Fund is considered fully realized.
Includes ~$4.4 bn of balance sheet capital invested in or committed to our funds and transactions and ~$1.2 bn of personal investments by KKR principals.

Sourcing Capabilities Across the Platform


Extensive
Global Network

Extensive network developed from the significant experience of


our over 400 executives
~30 Senior Advisors(1) evaluating investment opportunities,
serving on the boards of portfolio companies, and providing
guidance based on industry and management expertise

Deep
Industry Knowledge

In-depth understanding of industries and a corporations capital


structure
Strong network of industry experts, cultivating government,
company, and management relationships
Broadly diversified portfolios across industries and geographies
serve as eyes and ears on emerging industry trends

Leading
Reputation & Brand

36 years of investment experience having completed over 200


private equity investments with over $465 billion of total
enterprise value, and managing a portfolio of approximately 550(2)
credits and approximately 700 actively tracked credits
Reputation of integrity and excellence creates differentiated
transaction opportunities

KKRs Sourcing Capabilities Lead to Differentiated, Proprietary Opportunities


(1)
(2)

25

Represents a network of senior executives that work with KKR and KKR portfolio companies.
As of May 2012.

Value Creation in Private Equity


KKR implements a highly structured approach to driving operational improvements
Portfolio Management
Committee

100-Day Plan

Disciplined and structured


approach to value creation
Delineates operational
issues to be addressed
immediately after
acquisition

Allows KKR portfolio


companies to benefit from
accumulated experience of
committee members

KKR Capstone

Exclusive relationship
Experienced team of senior
operators
Focused on results-oriented
execution

High Quality Resources and Processes Focused on Value Creation


Strategy Development

Product/market strategies
Regional strategies
Partnership strategies
Acquisition strategies
Positioning for exit

Operational Excellence

Top-line improvement
(e.g., sales force, pricing)
Cost reduction
Working/operational capital
reduction
IT master plan
R&D master plan

Optimize Organization

Secure, retain, and


incentivize top and middle
management
Optimize organizational
structure
Train and motivate broad
employee base

Sustainable Operational Improvement and Added Value

26

Regulatory and Stakeholder Engagement


Businesses face increased attention, regulation and scrutiny from governments and
stakeholders around the world. KKR has a dedicated team to navigate these increasingly
complex issues
Sharing Best Practices Environmental Impact*
Incorporate relevant stakeholder and
regulatory considerations into our business
processes
Pre-investment asset selection
Determine how to improve relevant
environmental, social and governance
issues as part of due diligence
Evaluate changing regulatory trends likely
to affect industry
Portfolio Management
Share best practices across our portfolio
to seek to improve performance on
environmental, labor and sustainability
issues
Help companies understand changing
regulatory environment
Engage with key stakeholders
Focus on alignment of interests and real
sustainability
Our efforts must simultaneously make financial
sense and benefit stakeholders
Note:
*

27

$155 mm in avoided energy and fuel costs


386,000 metric tons of GHG emissions avoided
80% recycling efficiency improvement
19 mm cubic yards of waste avoided
345,000 tons of cardboard recycled
80% waste efficiency improvement

$30.6 mm in avoided energy and fuel costs


142,000 metric tons of GHG emissions avoided
Improved fleet efficiency by 7%
Increased distribution centers energy efficiency by 13%

$22.7 mm in avoided energy costs


6% GHG efficiency improvement
107,000 metric tons of GHG emissions avoided

$17.5 mm in waste costs avoided


35,000 metric tons of GHG emissions avoided
10% energy efficiency improvement
6.3 mm pounds of waste avoided
More information on KKRs Green Portfolio Program is
available at http://green.kkr.com

The portfolio companies represented are shown as examples of KKRs regulatory and stakeholder engagement and include North American portfolio companies with
over $15 million of environmental cost savings. The specific portfolio companies identified are not representative of all of the portfolio companies purchased, sold
or recommended for KKR Funds, and it should not be assumed that the investment in the portfolio companies identified was or will be profitable.
Results based on data reported from 2008 2010.

Strategic Goals
1.

Maximize Performance Across Our Businesses through Intense Focus and


an Active Ownership Approach

2.

Continue to Evolve Private Equity Business Model and Effectively Deploy


Meaningful Capital

3.

Aggressively Build our non PE Businesses (Fixed Income, Mezzanine,


Infrastructure, Special Situations, Natural Resources, Real Estate, Hedge
Funds) into Industry Leaders

4.

Increase Our Effectiveness at Capital Raising and Expand Our Investor


Base to Drive Meaningful New Capital

5.

Leverage KCM to Create Differentiated Access to Capital and Enhance


Firm Profitability

6.

Build Liquidity and Diversity on Our Balance Sheet and Employ it to


Maximum Strategic Effect

7.

Retain Strong Emphasis on People, Culture and Values and Operate


Effectively and Efficiently as one Integrated Team

28

KKR Asset Management (KAM) Overview


KKR launched KAM as its credit investing business in 2004
KAM manages approximately $16.3 billion in assets
KAM has over 100 dedicated employees, including over 60 investment professionals
KAMs business model focuses on leveraging the complete intellectual capital of
KKRs more than 800 people, advisors, and 77 PE portfolio companies
KAM Strategies

Marketable Securities
Division

Private Markets
$919
Equities
Strategies
$371

Alternative Investments
Division

Bank Loans

Mezzanine

High Yield

Special Situations (Focus


on Distressed and Rescue
Finance)

Bank Loans Plus High Yield


Opportunistic Credit

KAM AUM by Strategy(1)


($ in millions)

Special
Situations
$1,366

Long / Short Equity


Direct Lending

Leveraged
Credit
$12,239

Mezzanine
$1,412

Funds

Separately Managed Accounts

Capital Solutions
(multi asset-class products spanning all KKR strategies)
1) Data as of March 31, 2012. Please see Endnotes for important information regarding the calculation of AUM.
Note: Please refer to Important Information on page 1 for further information on KKRs inside information barrier policies and procedures, which may limit the involvement of personnel in certain investment processes and discussions.

29

Expansion of the KAM Business


Successful record of developing and growing new businesses
~48% of our management fees for 2011 and 2012 to date are from
businesses started since 2010
04-08: Established
Presence, Primarily Liquid
Credit

08-10: Built Out


Diversified Credit Platform

Bank loans & high yield; first


mezzanine investments

KFN launch

2004
San Francisco
team established

30

2007

11 & Beyond: New Asset


Classes and Geographies

Mezzanine
launch

Special
situations
launch

Long/
short
Direct
equity lending
launch launch

2008

2009

2011

New York team London team


established
established

New
strategies

Beyond
New
geographies

KKR Energy and Infrastructure Platform


KKRs Energy & Infrastructure platform manages ~$4 billion in non-private equity
related assets
KKR Energy Platform
Energy Opportunity
Proved, Developed
Producing
Properties

Asset Allocation
Criterion

Asset-level investments,
with predominance of value
from proved developed
producing (PDP) assets
Seek to Generate return via
current income

Infrastructure

Private Equity

All Other
Opportunities
Asset-level and/or
structured investments

Investments in going
concern businesses

Investments in going
concern businesses

Seek to Generate return


via current income and
capital appreciation

Seek to Generate return


via growth and capital
appreciation

Seek to Generate return


via growth and capital
appreciation

Infrastructure assets and


businesses with limited
economic sensitivity

Oil and gas assets of lesser


risk than with development
opportunities

Historical KKR
Transactions

Colonial
Pipeline

Minerals JV

EBR

East TX, LA and MS


Assets

Equity Put to Work


31Note:

$550 million

Eagle Ford
ORRI
TX Crude
Farm-In

Saba
Infraestructuras

Midstream JV

$585 million

$1.3 billion

The specific portfolio companies identified are not representative of all of the portfolio companies purchased, sold or recommended for KKR
Funds, and it should not be assumed that the investment in the portfolio companies identified were or will be profitable.

KKR Real Estate


KKRs Real Estate group has 10 investment professionals located in the US and Europe
Since launching the business in 2011, KKR has committed ~$155 million of equity to transactions
Investing on behalf of both the KKR balance sheet and KFN, the group implements a thematic, bottoms
up and catalyst driven approach
Our recently closed and pipeline of exclusively controlled deals illustrate the power of the KKR platform:
Sourcing

KKR
Edge

Differentiated
Sourcing

Senior Advisor /
Platform Capabilities

Execution
Brand

Culture

Recently
Closed
Deals
Exclusive
Pipeline

Industry
Verticals

Financial
Structuring

Operating
Capabilities

European Corporate Credit:


Confidential

NNN Pittsburgh
Office Building

Resort Hotel
Mezzanine Loan

Build-to-Suit
Development
Platform

Shale OilRelated Housing


Development

In three years, our target is to have a global investment platform with a fully integrated
capital markets capability to effectuate equity and debt raises. Moreover, we intend to
acquire or partner with a network of managers to build our independent operating capability
32

Prisma Overview
Prisma is a leading customized hedge fund solutions platform with ~$8 billion in AUM
that KKR has agreed to acquire. The transaction is expected to close in Q4 2012.
Prisma AUM by Investor Type
Financial
Institution/
Insurance
29%

US
Corporate
Pension
11%

Public
Pension &
SWF
43%

Family
Office/HNW
8%
Other
3%
Endowment/
Foundation
6%

Prisma AUM by Account Type

Commingle
d Fund
37%

Separate
Account
63%

33

Strategic Goals
1.

Maximize Performance Across Our Businesses through Intense Focus and


an Active Ownership Approach

2.

Continue to Evolve Private Equity Business Model and Effectively Deploy


Meaningful Capital

3.

Aggressively Build our non PE Businesses (Fixed Income, Mezzanine,


Infrastructure, Special Situations, Natural Resources, Real Estate, Hedge
Funds) into Industry Leaders

4.

Increase Our Effectiveness at Capital Raising and Expand Our Investor


Base to Drive Meaningful New Capital

5.

Leverage KCM to Create Differentiated Access to Capital and Enhance


Firm Profitability

6.

Build Liquidity and Diversity on Our Balance Sheet and Employ it to


Maximum Strategic Effect

7.

Retain Strong Emphasis on People, Culture and Values and Operate


Effectively and Efficiently as one Integrated Team

34

Client & Partner Group

Primary Activities
Facilitate client access to products and services
across KKRs platform
Apply integrated approach by leveraging all KKR
executives and capabilities globally including:
Industry investment teams expertise
KKR Capstones operational best practices
KCM market perspectives
Work in partnership with KCM in the
syndication/distribution of product including:
Participation in debt or equity distributions
Placement of mezzanine tranches
Co-investment opportunities
35

CPG connects
clients to
KKRs
platform

KKR

The Team
Global team of ~45 executives located in 7 offices
across 4 continents and in 7 countries
Relationship managers in direct outreach to
clients
Product specialists providing specific support
and expertise
Junior resources serving in a generalist
capacity
Relationship-focused, solutions-oriented approach
Able to deliver customized products

Client

KKRs Client & Partner Group (CPG) consists of experienced professionals with diverse
backgrounds dedicated to developing and servicing KKRs global network of investors and
clients

We are building a world-class fundraising engine


Total Capital Raised ($B)

$9.3B

$5.4B
$3.7B

# Investors:

Key Products
marketed:

2009

2010

275

345

Europe III
Infrastructure
Mezzanine
PE SMA
Credit SMA

Note: includes external capital raised only

36

Infrastructure
Mezzanine
China Growth
Oil & Gas
KCCP
Capital Solutions SMA
Energy SMA
Credit SMA

2011
390

Infrastructure
Mezzanine
Oil & Gas
KCCP
NAXI
KES
PE SMA
Energy SMA
Credit SMA

Strategic Goals
1.

Maximize Performance Across Our Businesses through Intense Focus and


an Active Ownership Approach

2.

Continue to Evolve Private Equity Business Model and Effectively Deploy


Meaningful Capital

3.

Aggressively Build our non PE Businesses (Fixed Income, Mezzanine,


Infrastructure, Special Situations, Natural Resources, Real Estate, Hedge
Funds) into Industry Leaders

4.

Increase Our Effectiveness at Capital Raising and Expand Our Investor


Base to Drive Meaningful New Capital

5.

Leverage KCM to Create Differentiated Access to Capital and Enhance


Firm Profitability

6.

Build Liquidity and Diversity on Our Balance Sheet and Employ it to


Maximum Strategic Effect

7.

Retain Strong Emphasis on People, Culture and Values and Operate


Effectively and Efficiently as one Integrated Team

37

KKR Capital Markets


KKR Capital Markets (KCM) was launched in 2006 to facilitate and add expertise around
investment structuring, financing and all capital markets-related issues
The Team
Team of ~30 capital markets executives
Expertise in debt, equity, and structured
products
Ability to leverage direct relationships with
institutional investors around the world
Highly integrated approach generates
differentiated solutions across KKRs
portfolios
Primary Activities
Providing tailored capital markets advice
to portfolio companies, KKR investment
professionals and third party
Developing and implementing traditional
and non-traditional capital solutions for
investments and companies seeking
financing
Assisting KKR LPs in growing their direct
investing businesses
Structuring and underwriting equity and
debt financing (both public and private)
Note:

38

Selected Recent Transaction Experience


Public Equity
Senior Bookrunner on $1.6 billion Follow-on
Offering
Public Debt
Joint-Lead Arranger on $3.2 billion Amendment &
Extension of Senior Secured Credit Facility
Private Equity
Placement Agent on $1.05 billion Private Equity
Syndication
Private Debt
Sole Placement & Syndication Agent on $125
million Private High Yield Notes
Third Party Equity
Sole Placement & Syndication Agent on $85 million
of Equity via Private Placement
Third Party Debt
Sole Lead Arranger, Bookrunner and Syndication
Agent on $147 million of Senior Secured Credit
Facilities

KKR Capital Markets LLC is a broker-dealer registered with the U.S. Securities and Exchange Commission and is a member of FINRA and SIPC. The
companies identified above are shown as examples of KCMs transaction experience and represent KCMs largest transactions for KKRs portfolio
companies (based on transaction size by issuer for each of the categories above) in 2011/2012 and third party

How KCM Adds Value


KCM should be viewed and positioned as our internal experts on all capital structure, financing, hedging and markets
related topics
Call KCM early and often for any of these issues and across all businesses before any external advisor is called
KCM continues to build direct relationships with key investors and proactively manages relationships with financing
groups at major banks
Utilizing KCM has strengthened the Firms relationships with providers of capital, adding value to our portfolio and
improving KKRs productivity and profitability

Value Add

Illustrative
Transaction

Likely Outcome
Without KCM
More expensive
financing and lower
returns

KCM Led Outcome

1) Better Access to
Capital: More
capital at a lower
cost and with more
certainty

Capsugel

KCM arranged and negotiated the $1.5 bn capital


commitment on highly attractive terms despite
volatile markets due to the Fukushima
earthquake/tsunami

2) Creative and
aligned refinancing
activities

EFH and
First Data

Less coordinated
communication with
key accounts

Extensive communication with key debt holders


ensuring successful execution of key amend &
extend transactions

3) Best execution

Dollar
General

No in-house
advisory to
strategically
execute on
monetization plans
over the long-term

KCM worked directly with Dollar General


management and sponsors since the IPO on the
refinancing and monetization strategy, having
executed 6 follow-on and 2 debt offerings

Attractive execution and pricing relative to other


sponsor transactions including covenant-lite and
euro debt commitments

From 2009 to 2012 YTD, KCM has earned more than $322 million in fees associated with KKR portfolio
company deals fees that would have otherwise been paid to investment banks
39

Strategic Goals
1.

Maximize Performance Across Our Businesses through Intense Focus and


an Active Ownership Approach

2.

Continue to Evolve Private Equity Business Model and Effectively Deploy


Meaningful Capital

3.

Aggressively Build our non PE Businesses (Fixed Income, Mezzanine,


Infrastructure, Special Situations, Natural Resources, Real Estate, Hedge
Funds) into Industry Leaders

4.

Increase Our Effectiveness at Capital Raising and Expand Our Investor


Base to Drive Meaningful New Capital

5.

Leverage KCM to Create Differentiated Access to Capital and Enhance


Firm Profitability

6.

Build Liquidity and Diversity on Our Balance Sheet and Employ it to


Maximum Strategic Effect

7.

Retain Strong Emphasis on People, Culture and Values and Operate


Effectively and Efficiently as one Integrated Team

40

Eating Our Own Cooking


KKRs public listing strengthened alignment of interest with our LPs

In our combination with KKR Private Equity Investors, KKR Principals did not
sell any equity but rather we acquired LP interests in our funds held by KPE
resulting in KKR and its executives having over $6 billion invested in or
committed to our own investment funds and portfolio companies
Result = We are now our own largest investor
KKR Principals(2)
KKR Balance Sheet(1)

$1.3

$6.1

$0.6
$4.2

Balance Sheet
Investments
Note:
(1)
(2)

41

Unfunded Commitments
To Investment Funds

KKR Principals
Personal Investments

Dollars in billions. Values shown at cost as of March 31, 2012. Numbers may differ due to rounding.
KKR executives own approximately 67% of KKR.
Investment and commitments made by individual employees and retained by those individuals personally.

KKR Total
Exposure

Permanent Balance Sheet Capital to Facilitate Growth


Through our combination with KPE and related public listing,
we acquired a significant balance sheet providing us with
permanent capital for our business
Permanent Capital to
Accelerate Our Growth
General partner
commitments
Seed capital
Capital markets funding

Other organic/inorganic
growth opportunities

42

Alignment of Interests with


Our Limited Partners
Approximately $5 bn of
balance sheet capital
invested in or committed
to our funds and
transactions

Balance Sheet Highlights


Sizable balance sheet

Balance Sheet as of 3/31/2012(1)

$6.1 bn of book equity value


($8.67/adjusted

unit(2))

$5.0 bn of investments (~50%


public securities)

Ample liquidity
$850 mm of cash

$750 mm of available revolver


capacity(3)

Well capitalized and minimal


leverage
A- and A ratings from S&P and
Fitch, both with a stable outlook
$500 mm of senior notes is only

(in mm, except per unit)


Private Equity Funds
Co-Investments
Other Investments
Total Investments
Cash and Cash Equivalents
Unrealized Carry
Other Assets
Total Assets
6.375% Notes due 2020
Other Liabilties/Noncontrolling Interests
Partners' Capital
Adjusted Units Outstanding
Book Value/Adjusted Unit(2)

debt outstanding

(1)
(2)
(3)

43

Represents KKRs total reportable segment balance sheet.


Adjusted units represent the fully diluted unit count using the if-converted method.
Excludes $500 mm of undrawn revolver capacity for use in capital markets business.

$1,547
2,656
820
$5,023
856
600
297
$6,775
$500
198
$6,077
701.0
$8.67

Strategic Goals
1.

Maximize Performance Across Our Businesses through Intense Focus and


an Active Ownership Approach

2.

Continue to Evolve Private Equity Business Model and Effectively Deploy


Meaningful Capital

3.

Aggressively Build our non PE Businesses (Fixed Income, Mezzanine,


Infrastructure, Special Situations, Natural Resources, Real Estate, Hedge
Funds) into Industry Leaders

4.

Increase Our Effectiveness at Capital Raising and Expand Our Investor


Base to Drive Meaningful New Capital

5.

Leverage KCM to Create Differentiated Access to Capital and Enhance


Firm Profitability

6.

Build Liquidity and Diversity on Our Balance Sheet and Employ it to


Maximum Strategic Effect

7.

Retain Strong Emphasis on People, Culture and Values and Operate


Effectively and Efficiently as one Integrated Team

44

Significant Investment in Human Capital


Headcount increasing most rapidly in new businesses and firm
infrastructure to enable profitable and efficient growth

757

595

872

912

Private Markets
Public Markets
KKR Capstone
Client & Partner Group
Capital Markets
Business Operations
Staff

644

447
317

2006

Note:

45

2007

2008

2009

2010

2011

June 2012

Reflects number of people as of 6/30/2012. KKR Capstone is owned and controlled by its senior management and not KKR.

Business Operations
Finance
Public company and
limited partner reporting
Budgeting, planning,
expense management

Public Affairs
Stakeholder management
across firm and portfolio
Public communications
Regulatory expertise

Legal & Compliance


Transaction support
Regulatory/compliance
conflict management
Risk mitigation

46

Information Technology
Enables better decisions
through better information
Infrastructure and IT
controls

Human Resources
Professional development/
training and mobility
Performance/meritocracy
Recruit, hire, integrate

Office Operations
Office Operations
standards
Efficiency and scalability,
G&A reduction
Office build-outs

Other Notable (but less visible) Achievements


Internal

External

SOX Compliance/Internal Audit

Investor Relations

Global Risk Management

Green Portfolio Program

SAP/Investran Implementation

KKR Website/Rebranding

Public/Private Wall Management

Procurement/Risk Subject Matter Experts

KKR, CPG, Portfolio, KCM Central

New SMAs

KAM Trading & Risk System

New offices: Beijing, Mumbai, Houston, etc

Training Programs & Career Framework


360 and Interview-Based Review Process

47

Global Governance Structure

Transaction Oversight

Formalized processes and functions in place to manage firm


Investment Committees
Global decision-making process
Separate committees by strategy

Balance Sheet Committee


Reviews balance sheet investment
decisions
Oversees firm capital structure and
liquidity

Management Committee
Monitoring Oversight

Other firm-level matters

48

Portfolio Management Function


Monitor
investment
portfolios across
the firms
businesses

Risk Committee
Identifies and
monitors key
risks to firm

Conflicts
Committee

Valuation
Committees

Analyzes and
addresses new/
potential conflicts
of interest across
businesses

Coordinate
quarterly
valuations
Ensure consistent
global process

Implications of 3 year plan for all of us


Tremendous progress over the last 3 years
Our strategy is working
Weve reached the top of the first mountain

2012 is about executing whats on our plate


Execution, execution, execution is key
Budget/plan provides roadmap and accountability
Need to constantly look for incremental commercial opportunities (e.g. Samson II)

With just what is on our plate, there is a path to meaningful value creation
Requires consistent execution and intense focus on commercial results
Investment performance is key
$75B of fee-paying AUM and doubling of our stock price is attainable

And there are multiple breakout opportunities not in the plan that could propel us further
Continue to invest in our business
Remain innovative, entrepreneurial, and nimble

As we drive forward, we must maintain our core culture and values and continuously
evolve our organization

49

Our Individual Role

Live the Values of KKR

Speak Up! Dont Be Afraid to Offer Your Views and Ideas


Be Mindful of How Your Words and Actions are Perceived All of Us Are
Ambassadors for KKR

Understand and Take Ownership for the Strategy and Your Specific
Contribution

Embrace and Drive Change Recognize There is No Business as


Usual

Build Bridges Across the Firm We are One Integrated Team

50

Reach Out and Create Internal Relationships Across the Firm


Constantly Ask Yourself, What Can I Do To Leverage the Firms Multiple
Capabilities?

Be Creative and Entrepreneurial New Ideas, New Products, New


Relationships Proactively Identify Where You Can Contribute

Q&A

51

Appendix

52

Culture
TEAMWORK: We pride ourselves on our one-firm approach, working proactively and collaboratively
across businesses and geographies to achieve the best possible results. In keeping with this approach,
every person at KKR is an owner of our firm and shares in our success.
INTEGRITY: Our word is our bond we say what we mean and we do what we say we will do. As a
learning organization, we are self-critical- acknowledging our mistakes and trying always to learn from
them.
RELATIONSHIP- DRIVEN: KKR is deeply committed to building and sustaining long-term partnerships
internally and externally- grounded in trust and transparency. We work hard to understand and align
the interests of all stakeholders, we treat others as we would like to be treated- with fairness,
compassion and respect.
ACCOUNTABILITY: We accept accountability for our actions, inactions and decision, both individually
and as a firm. KKR embraces the implied responsibilities of our one-firm approach: the obligation to
speak up and say what we think and to respect and listen to those who do the same. We deliver on our
commitments- to our stakeholders, our partners and to one another.
INNOVATIVE: We question accepted wisdom, creating new ideas and new approaches, and never
resting on our laurels. We are self-starters with a can-do approach and a willingness to take prudent
risks.
EXCELLENCE: We set high standards- each of us as individuals and the firm as whole- and consistently
try to exceed them. We attract self-motivated, highly capable, results-oriented people and invest heavily
in their development. KKR strives for diversity, recognizing that people with different backgrounds,
experiences and perspectives make us a stronger and more effective organization.

53

Values

BEING HONEST: Always be honest with one another, and honest with anyone we work with outside the
firm. Our integrity is in the end all we really have. We can make all of the money possible, but if we don't
have integrity, we don't have anything.

TREATING EVERYONE HOW YOU WOULD LIKE TO BE TREATED: Be fair and consistent. Be polite
and courteous. Show no arrogance towards others.

SHARING OPENLY: Share the results with as broad a group of KKR people as possible.

HIRING SELF-STARTERS who are results oriented, analytical, and who have high intensity, integrity, and
believe in teamwork.

BEING INNOVATIVE and not afraid to take prudent risks.

RELATIONSHIP BUILDING: It takes many years to build a solid reputation, but only a few minutes to
destroy it. Be compassionate and thoughtful toward other people.

OUR WORD IS OUR BOND. OUR REPUTATION AS INDIVIDUALS AND AS KKR IS PARAMOUNT.

54

INSTILL TEAMWORK, AND CHOOSE THE RIGHT PEOPLE to join the team at KKR who are bright,
thoughtful, honest, not arrogant, and who believe in the teamwork, not self-promotion.

INVESTING IN PEOPLE AND IN COMPANIES where we would be proud to have this association.
HAVE THE FORTITUDE TO SAY NO. Even at 11:59 say no if we are uncomfortable about the integrity
of our outside partner investing with us, or the management of a target company, or any other conditions
that could emerge.

Credit
KKR Asset Management (KAM) is a global investment platform, delivering products to
satisfy a broad range of investment mandates
Credit Strategy
Seek to provide quality investment solutions and
generate attractive risk-adjusted returns across a
number of active investment strategies, representing
a range of risk/return and liquidity profiles
Bank Loans plus High Yield secured term loans
and bonds and high yield based on fundamental
credit analysis, with a significant focus on
principal protection
Direct Lending originated senior secured debt,
including first and second lien loans and bonds
Opportunistic Credit secured term loans and
bonds, high yield, mezzanine, and distressed debt
Mezzanine directly originated mezzanine
financings
Special Situations strategic investments in
distressed credits
The Team
Global team of ~60 dedicated investment
professionals across 9 industries
Access to global network of over 200 investment
professionals, KKR Capstone, and Senior Advisors
Industry verticals aligned with private equity
teams
Integrated one firm origination capabilities
Leverage KKRs scale advantage with Wall Street
Note:

(1)

55

Global Portfolio Overview


Credit portfolio of approximately 550 names and
approximately 700 actively tracked credits
Approximately $16.3 billion in assets under management(1)
Senior secured loans
Second-lien/high yield bonds
Direct Lending
Mezzanine debt
Special situations (DIPs, exits, rescue, distressed)
Performance History for Marketable Securities
Strategies(1)
Inception-to-date annualized gross and net performance
vs. benchmark by strategy, as of March 31, 2012:
18%
16%

KAM Gross

KAM Net

16.7%

Benchmark

15.0%

14%
12%
10%
8%

10.9%

11.4%
10.2%
8.1%

10.7%

10.0%
8.1%

6%
4%
2%
0%

Bank Loans Plus High Yield


(65% LSTA / 35% BoA ML HY)
Inception July 2008

High Yield Carve Out


(100% BoA ML HY)
Inception September 2004
Supplemental Information

Opportunistic Credit
(100% BoA ML HY)
Inception May 2008

Participation of KKR Private Equity, KKR Capital Markets, and KKR Capstone personnel in the public markets investment process is subject to applicable law and inside information barrier policies and procedures,
which may limit the involvement of KKR Private Equity, KKR Capital Markets, and KKR Capstone personnel in certain circumstances and KAMs ability to leverage such integration with KKR. Discussions with
Senior Advisors and employees of the Firms managed portfolio companies are also subject to the inside information barrier policies and procedures, which may restrict or limit discussions and/or collaborations
with Public Markets/KAM.
As of March 31, 2012. Please see Endnotes for important information relating to the information presented herein. The Secured Credit Unlevered and High Yield Carve Outs are supplemental to the Secured Credit
Levered composite shown in the Endnotes. Past performance is not indicative of future results and there can be no assurance that comparable results will be achieved in respect of such strategies going forward or
that investors in any KAM fund, vehicle or account will receive a return of capital.

Direct Lending
KAMs direct lending business leverages the extensive firm-wide sourcing network and
allows KAM to partner more broadly with middle market companies and sponsors
Direct Lending Strategy

Provide financing solutions to middle market companies and


sponsors that currently have limited alternatives
-

Middle market PE activity is picking up substantially while


financing options remain constrained, thereby offering
lenders the opportunity to earn attractive risk-adjusted
returns

Focus on mid-market companies; EBITDA in the $25-100


million range typically

Target a wide global opportunity set including new


sponsor deals, direct company financings, and
refinancings of existing sponsor companies

KKR approach meets investor need for high current income


while appropriately matching structure of strategy with loan
liquidity and maturity
-

Targeting double-digit levels of current income

The Team

Managed by the Global Co-heads of Leveraged Credit


platform, Chris Sheldon and Erik Falk

Supported by global team of ~60 credit investment


professionals

Integrated network of resources, including Private Equity,


KCM, KKR Capstone and approximately 30 Senior Advisors

KKR Value Proposition


Global sourcing
Global network and integrated one firm sourcing
capabilities
Complementary to mezzanine sourcing efforts as KAM can
now provide financing across the capital structure
Diligence
Private equity-like diligence supported by credit analysts in
industry verticals aligned with private equity teams
Portfolio construction and management
- Intensive regular review of companies/instruments with high
attention to governance issues and ability to be an active
investor
KKR Capital Markets participation
Dedicated group of capital markets professionals who can
source deals, provide insight and help to syndicate larger
transactions
Direct Lending Experience
KAM has committed / invested in 43 deals representing ~$1.8
billion in direct lending transactions since 2005
Recent KKR secured deals include(1):
Eddie Bauer
Telx
KeyPoint
MSX
OnCore
Education Management Corp.
Airvana
Aercap
Aspect
American Home Mortgage
Asset Acceptance
Aspen Dental
California Pizza Kitchen
BNY ConvergEx

Note: Participation of KKR Private Equity, KKR Capital Markets, and KKR Capstone personnel in the public markets investment process is subject to applicable law and inside information
barrier policies and procedures, which may limit the involvement of KKR Private Equity, KKR Capital Markets, and KKR Capstone personnel in certain circumstances and KAMs ability to
leverage such integration with KKR. Discussions with Senior Advisors and employees of the Firms managed portfolio companies are also subject to the inside information barrier
policies and procedures, which may restrict or limit discussions and/or collaborations with Public Markets/KAM.
(1)
Portfolio companies presented illustrate KAMs experience in sourcing proprietary senior investments from the period January 1, 2010 March 31, 2012. The specific companies
identified are not representative of all the companies purchased, sold or recommended for clients, and it should not be assumed that an investment in the companies identified was or
will be profitable. Actual holdings will vary for each KAM client and there is no guarantee that a particular KAM clients account will hold any or all of the companies listed. The portfolio
companies presented are not prospective investments KAM contemplated for any KAM fund, vehicle or account. Note: All data as of March 31, 2012.

56

Mezzanine
KAMs dedicated mezzanine business is a natural extension of KAMs leading subinvestment grade platform
Mezzanine Strategy

Seek opportunities to take advantage of attractive


fundamentals identified in the market for mezzanine
securities

Focus on mid- to large end of the market ($50-150


million typical fund commitments)

Target a wide global opportunity set including new


sponsor deals, direct company financings, and
refinancings of existing sponsor companies

Aim to capitalize upon significant supply/demand


imbalance in mezzanine debt

The Team

Led by three senior mezzanine professionals with extensive


principal investing experience and supported by a global
team of ~60 credit investment professionals

Integrated network of resources, including KKR Capstone


and approximately 30 Senior Advisors

Note:

Note:

57

KKR Value Proposition


Global sourcing
Global network and integrated one firm sourcing
capabilities
Diligence
Private equity-like diligence supported by credit analysts
in industry verticals aligned with private equity teams
Portfolio construction and management
Intensive regular review of companies/instruments with
high attention to governance issues and ability to be an
active investor
Mezzanine Experience
KAM has committed / invested over $1 billion in mezzanine
transactions since 2005
KAMs most recent mezzanine investments include:

Altegrity/Kroll
Ambea
Capital Safety
IMCD
J.Jill
Genesys
Mast Industries

Maxeda
Norcell
OpenLink Financial
Pets at Home
RBS WorldPay
Telx Group, Inc

Participation of KKR Private Equity, KKR Capital Markets, and KKR Capstone personnel in the public markets investment process is subject to applicable law and inside information
barrier policies and procedures, which may limit the involvement of KKR Private Equity, KKR Capital Markets, and KKR Capstone personnel in certain circumstances and KAMs ability
to leverage such integration with KKR. Discussions with Senior Advisors and employees of the Firms managed portfolio companies are also subject to the inside information barrier
policies and procedures, which may restrict or limit discussions and/or collaborations with Public Markets/KAM.
The above mezzanine investments represent all KAMs mezzanine investments from 2010 through March 31, 2012. The specific securities identified are not representative of all of
the securities purchased, sold or recommended for clients, and it should not be assumed that the investment in the securities identified was or will be profitable. Actual holdings
will vary for each client, and there is no guarantee that a particular clients account will hold any or all of the securities listed.

Special Situations
KAMs special situations team pursues investment opportunities primarily in distressed
credit where KKR believes it has a definable edge
Special Situations Strategy

Our approach to special situations is designed to be flexible in


order to allow us to be nimble in capturing dislocations across the
globe

We are focused on directly originated / distressed for control


situations, where we can create value through insolvency and
restructuring expertise and operational improvements

We seek to identify distressed and dislocated investments which


produce what we consider to be attractive risk-adjusted returns
across special situations investments

We focus on capital preservation and downside protection while


seeking to create upside optionality

We look to invest when there is a catalyst in the following ways


where KKR believes it has a definable edge:

25%

Secondary Distressed

20%

Portfolio Purchases

15%

Integrated network of firm-wide resources, including PE, KCM,


KKR Capstone and Senior Advisors

Global footprint and local expertise

Integrated one firm sourcing capabilities

Differentiated approach to diligence, supported by private equity


team and credit industry analysts

Strong value creation capabilities through KKR Capstone

Inception-to-date performance vs. benchmark by strategy, as of March


31, 2012:

Control-Oriented Opportunities

Supported by global team of ~60 credit industry investment


professionals

(From 3/1/2010 to 3/31/2012)

Managed by the Global Co-heads of Special Situations platform,


Jamie Weinstein and Nat Zilkha

"One-Firm" approach which integrates the private equity, public


investing and operating teams of the firm where it believes it will
create a tangible "edge" across sourcing, due diligence and value
creation

KKR Special Situations Performance vs. Comparables

Rescue Financing / Recapitalization

(1)

The Team

KKR Value Proposition, KKR Edge

21.9%
15.3%
11.3%

10.3%

10%

7.0%

5%

1.0%

0%
-5%
KKR Special
KKR Special
BofA Merrill
Situations Gross Situations Net
Lynch Global
(2)
(1)
Hedged IRR
Hedged IRR
High Yield CCC
and Lower
Rated

MSCI WORLD

Hennessee
Distressed
Index

Gross Hedged IRR for these purposes means the aggregate, annual, compound, gross internal rate of return on investments. The aggregate Gross IRR for the Investment Experience is a hypothetical Gross IRR given that the investments included
therein were not made as part of a single portfolio, but rather by separate funds, vehicles and accounts managed by KAM. Gross IRRs do not reflect management fees, carried interest, taxes, transaction costs in connection with the disposition of
unrealized investments, organizational expenses and other expenses to be borne by investors in the applicable fund, vehicle or account, which will reduce returns and in the aggregate are expected to be substantial. A general summary of such fees
and carried interest is included in Part 2A of Form ADV maintained by KAM, a copy of which will be furnished upon request. Past performance does not guarantee future results. The Composite may invest in below investment grade or unrated debt
instruments, which are generally subject to more credit risk and a greater risk of loss of principal and interest than higher rated debt instruments.
(2) Net Hedged IRR" is consistent with the definition of Gross Hedged IRR, but is also inclusive of management fees, the effect of foreign exchange derivative contracts, carried interest, organizational costs and other fund expenses.
Note: Market indices for BofA Merrill Lynch Global High Yield CCC and Lower Rated, MSCI World, Hennessee Distressed Index, and HFRX ED: Special Situations Index (collectively, the Indices) included dividends reinvested. The market index returns
assume that on the day a portfolio investment is made, a hypothetical investment in a matching amount is made in the given index. For each date on which either a portion or all of the portfolio investment is sold, a hypothetical index multiple
(factor) is calculated by comparing the change in index value between the two dates. The cost of the investment sold (or portion of cost sold) is multiplied by this factor, resulting in a hypothetical index value. The return is calculated using these
dates of investment and hypothetical value(s) generated. Broad based securities indices are unmanaged and are not subject to fees and expenses typically associated with managed accounts or investment funds. Investments cannot be made
directly in an index. The Indices are shown for informational purposes only. The performance of the Indices represent unmanaged, passive buy-and-hold strategies, and investment characteristics that differ materially from any KKR funds or other
client accounts, and an investment in a fund is not comparable to an investment in any of the Indices or in the securities that comprise the Indices. The risk/return profile of each of the Indices is also materially different from that of any KKR fund.
Further, the Indices are not used or selected by KKR as an appropriate benchmark to compare relative to the performance of any KKR fund, but rather they are included herein solely because they are well-known and widely recognized indices.
Participation of KKR Private Equity, KKR Capital Markets, and KKR Capstone personnel in the public markets investment process is subject to applicable law and inside information barrier policies and procedures, which may limit the involvement of
such personnel in certain circumstances and KAMs ability to leverage such integration with KKR. Discussions with Senior Advisors and employees of the Firms managed portfolio companies are also subject to the inside information barrier policies
and procedures, which may restrict or limit discussions and/or collaborations with Public Markets/KAM.

58

HFRX ED:
Special
Situations Index

KKR Equity Strategies


A highly experienced and cohesive team situated within KAMs platform that employs a
distinctive position-level hedging philosophy and collaborative investment process while
seeking additional alpha through leveraging KKRs proprietary intellectual capital
Long / Short Equity Strategy

Investment Approach

Predominant focus on long/short equity strategy

Investment process driven by fundamental research and a


one-team collaboration honed over 15 years as part of
Goldman Sachs Principal Strategies (GSPS)

Top-down, research-driven industry overlay supplements a


bottom-up, in-depth fundamental analysis performed on
individual companies

Flexible geographic approach with a primary focus on the


U.S. and an ability to make opportunistic allocations to
Canada and Latin America (targeted Latin America
exposure: 025%)(1)

Disciplined investment process includes structured weekly


and monthly team meetings, timely and thorough
documentation of each material investment decision as
well as active informal intra-team communication

Position-level hedging approach may enable expanded


sources of investment opportunities and additional alpha in
hedging

Generally 15 to 30 core positions that typically represent


75% of the portfolio

Integration with KKR, including access to KKRs global


sourcing and knowledge network(2)

Emphasis on relatively liquid large- and mid-cap stocks; no


private side-pockets

Investment approach consistent with former experience

The Team

Led by Robert Howard, former Head of GSPS Americas

16 years of financial markets experience, including


11 years of portfolio management expertise

Disciplined Risk Management

Disciplined portfolio hedging and rigorous risk


management on both the individual position level and
aggregate portfolio level

Continuity and integration of previous risk management


approach from GSPS into KKRs existing risk organization

Continuity of 11-person core investment team that worked


together in GSPS Americas

(1) The estimates provided herein, including target allocations, caps, and exposures, are subject to change. There is no assurance that these estimates will be achieved, and actual
allocations, caps, exposures, and other estimates may be significantly different than that shown here.
(2) Participation of KKR Private Equity, KKR Capital Markets, and KKR Capstone personnel in the public markets investment process is subject to applicable law and inside information barrier
policies and procedures, which may limit the involvement of KKR Private Equity, KKR Capital Markets, and KKR Capstone personnel in certain circumstances and KES ability to leverage such
integration with KKR. Discussions with Senior Advisors and employees of KKRs managed portfolio companies are also subject to the inside information barrier policies and procedures,
which may restrict or limit discussions and/or collaborations with KAM.

59

Customized Portfolio Solutions CPS


CPS is designed to offer a full suite of products / services for private equity programs
CPS Strategy
Offer investors an attractive way to build diversified private equity
exposure in a cost-effective manner
With a relationship-driven approach, we work closely with CPS
investors to tailor their participation in a manner that meets their
investment objectives
Illustrative CPS Portfolio:
KKRs Flagship Funds

Co-Investments
Note: Allocations are customizable

The

Diversified, Global
Portfolio of External
(Non-KKR) Managers

Key Benefits of CPS Program


Broad Private Equity exposure
Offers a full PE program diversified across non-KKR managers,
co-investments, and KKR funds
Economics at less than an in-house strategy and materially less than
traditional FOFs
As designed, the CPS program results in fully-loaded fees
(including those of underlying managers) without incurring an
extra layer of fees on a blended basis
Ability to co-invest alongside KKR funds
- Co-investments can drive many benefits to PE programs
Control and customization
If desired, the CPS structure allows LPs to maintain certain
program control through customization, opt-outs, etc.
Knowledge transfer, training, and broad institutional resources
Offers best-practice sharing of manager due diligence and KKRs
full firms resources are made available

We believe CPS offers a differentiated approach to the PE market, as


compared to traditional advisors and fund-of-funds as well in-house
strategies
Given partly to the lack of incremental fees, on a blended basis, we
believe a CPS solution should track close to upper quartile PE fund
Select Relationships with Top-Tier Managers
performance
KKR has deep market knowledge and relationships throughout the PE
CPS offers services across private equity program implementation
spectrum
including portfolio construction, manager selection, legal negotiations,
monitoring, and portfolio management
We believe we have integrated insights that lead to information
advantages and advanced analyses for better manager selections
Team
Select relationships with top-tier managers include CPS team and
KKR transaction experience
Co-led by Scott C. Nuttall who has over 15 years with KKR and is a
member of KKRs Management Committee; provides strategic
oversight to CPS
Co-led by Saleena R. Goel, formerly senior member of AlpInvest
Partners ($60 billion PE platform); responsible for day-to-day
management of CPS
Over 15 years of private equity experience
Led over $4 billion of fund commitments and served on 20
Advisory Boards
Leverages robust firm resources globally*

Note: The above is not intended to be indicative of investments that have been or will ultimately be made by CPS. There can be no assurance that CPS will be able to make an investment in any fund listed above. The
specific investments identified are not representative of all of the investments purchased, sold or recommended for CPS clients, and it should not be assumed that the investments identified was or will be profitable.

60

Private Equity
KKR has a 36-year track record of quality private equity investing having completed over
200 transactions with over $465 billion of total enterprise value in 25 industries
The Strategy
Global Portfolio Overview
Seek out companies with strong business franchises,
77 currently held portfolio companies with more than $210
attractive growth prospects, defensible market positions,
billion of annual revenues and over 900,000 employees
and the ability to generate attractive risk-adjusted
Select examples across global portfolio include:
returns
Focus on where we believe the value of the business can
be enhanced through our active involvement
The Team
Global team of ~150 investment professionals
Regionally focused and aligned by industry sector

Private Equity Composite Track Record


As of March 31, 2012, $ in billions

KKR Overall Private Equity Composite Returns(1)


From inception to March 31, 2012

$120.0
$100.0

30.0%

~2.0x
$34.3

$80.0
$60.0
$40.0
$20.0
$0.0

Note:

(1)

61

$106.3

20.0%
$72.0

$53.4

Amount
Invested

KKR PE Composite
Net IRR
19.0%

KKR PE Composite
Outperformance
on Net Returns
S&P 500
11.6%

10.0%

Total Value

KKR PE Composite
Gross IRR
25.7%

Russell 3000
11.2%

S&P 500
7.4%

Unrealized Value
Realized Value

0.0%

The specific portfolio companies identified are not representative of all of the portfolio companies purchased, sold or recommended for KKR Funds, and it should not be assumed that the investment in the portfolio
companies identified were or will be profitable. The companies identified above are shown as examples of KKRs investments in its private equity portfolio and represent KKRs largest active investments (based on
KKRs commitment size) in North America, Europe, and Asia. These examples would not necessarily correlate with the performance of any KKR fund or strategy. Past performance is no guarantee of future results.
See Important Information for how our performance is calculated, details regarding indices presented as benchmarks and the calculation of Assets under Management. Date of inception is April 7, 1977.
The KKR gross IRR, net IRR, and market indices are calculated based on our first 14 private equity funds which represent all of our private equity funds that have invested for at least 36 months prior to March 31,
2012. Neither the E2 Investors or China Growth Fund had been investing for at least 36 months as of March 31, 2012. We have therefore not calculated gross IRRs and net IRRs with respect to those funds.

Russell 3000
7.8%

Infrastructure
KKRs differentiated investment strategy, high quality team, and infrastructure
experience together with the KKR institutional platform creates a specialized
infrastructure product offering
The Investment Opportunity
Massive and growing global demand for infrastructure
capital vastly exceeds governmental and other
traditional sources of supply of capital
Infrastructure assets can bring crucial benefits to an
investment portfolio such as inflation protection, yield,
long duration, and insulation from economic and market
volatility

The KKR Team


Global team combining skills across private equity,
operations, and the consulting/advisory sectors
Six senior investment professionals with significant
experience in investing and operating infrastructure
assets
Supported by a platform of:
Ten junior investment professionals
Four Senior Advisors with deep relationship
networks, operating/management knowledge,
and experience across multiple infrastructure
sectors
Full complement of KKR resources

Infrastructure Strategy
Value-added investment strategy consisting of three
critical components:
Disciplined investment selection
Deep operational engagement
Infrastructure Experience
Active stakeholder management
KKR has a decade of experience investing inand exiting
Target infrastructure assets with limited commercial,
infrastructure related assets
financial, and operating risk
Focus on utilities, midstream and contracted energy, Strong investment record in North America and Europe
and investment experience in North America, Europe, and
and select transportation sub-sectors
Asia through a total of fifteen infrastructure and
Target leading companies, high quality assets, and
infrastructure-related investments over the last decade
strong management teams
History of value creation through active management
Seek majority ownership/control positions, focused
12% average annual EBITDA growth for realized
on brownfield with opportunity for value-add
infrastructure investments since inception(1)

(1)

62

Average annual EBITDA growth calculation represents the arithmetic average across realized investments for EBITDA growth between the time of investment entry and exit.

Natural Resources
KKRs partnership with Premier Natural Resources (PNR) marries KKRs investment
expertise, industry knowledge and sourcing advantages with PNRs operating experience
and execution skills to acquire conventional oil- and gas-producing assets in North
America
The Investment Opportunity

The Market Opportunity

Aim to acquire non-core producing oil and gas properties


with significant proved component
Attempt to improve production and operational
performance in order to develop low-risk proved reserves
in a cost-effective manner
Employ modest leverage/hedging
Seek to realize value through production and distribute
excess cash flow to investors through periodic
distributions

KKR expects there to be a number of compelling


opportunities to acquire conventional oil and gas assets
Producers shifting focus to unconventional development
activities, which require tremendous amounts of capital
investment
At the same time, the oil and gas industry is facing
balance sheet and funding challenges driven by the
commodity price environment
Producers are seeking to sell conventional assets to meet
their funding needs

The KKR Investment Team

The PNR Operating Team

Deal team comprised of 22 investment professionals with


significant energy and oil and gas investing experience
Very strong relationships with both Majors and
Independents
Executive suite-level relationships
Two Senior Advisors with CEO experience at leading
energy firms
KKR plans to focus on investment sourcing, acquisition
execution, capital allocation decisions, and financing

Comprised of a subset of the former employees of Vintage


Petroleum
Operations and technical expertise with core competencies
in:
Identifying/diligencing acquisitions
Optimizing operations/properties
PNR will drive technical due diligence and be responsible
for operations and incremental value creation through the
exploitation of assets post-acquisition

Note:

63

As of March 31, 2012 unless otherwise noted.

Management Committee
Current members of the Management Committee:

64

Henry Kravis Member, KKR

Joe Bae Member, KKR

George Roberts Member, KKR

David Sorkin Member, KKR

Paul Raether Member, KKR

Scott Nuttall Member, KKR

Mike Michelson Member, KKR

Marc Lipschultz Member, KKR

Todd Fisher Member, KKR*

Bill Janetschek Member, KKR

Alex Navab Member, KKR

Craig Farr Member, KKR

Johannes Huth Member, KKR

Bill Sonneborn Member, KKR

* Denotes Committee Chairman.

Regional Private Equity Investment Committees


The Private Equity Investment Committee (IC) is the main decision making forum for all new
private equity investments
The Portfolio Management Committee (PMC) instills discipline in the process of building value in
our private equity portfolio companies and acts as an early warning system to identify problems
and then address them

Current Members of the


North American IC:

Current Members of the


European IC:

Current Members of the


Asian IC:

Henry Kravis Member, KKR

Henry Kravis Member, KKR

Henry Kravis Member, KKR

George Roberts Member, KKR

George Roberts Member, KKR

George Roberts Member, KKR

Paul Raether Member, KKR

Mike Michelson Member, KKR

Mike Michelson Member, KKR

Mike Michelson Member, KKR

Johannes Huth Member & CoChairman of IC, KKR

Johannes Huth Member & CoChairman of IC, KKR

Alex Navab Member & CoChairman of IC, KKR

Alex Navab Member & CoChairman of IC, KKR

Mike Calbert Member, KKR

Mike Calbert Member, KKR

Brian Carroll - Member, KKR

Joe Bae Member, KKR

Dominic Murphy Member, KKR

David Liu Member, KKR

Johannes Huth Member & CoChairman of IC, KKR


Todd Fisher Member, KKR
Alex Navab Member & CoChairman of IC, KKR
Mike Calbert Member, KKR

Ming Lu Member, KKR

There remains strong consistency in membership across each of the


regional committees as shown by the shaded names above
65

Note: As of March 2012. China Growth Fund IC Members include Henry Kravis - Member, George Roberts - Member, Joe Bae Member, David Liu Member, and Ming Lu Member

Regional Private Equity Portfolio Management Committees


Current Members of the
North American PMC:

Current Members of the


European PMC:

Henry Kravis Member, KKR

Henry Kravis Member, KKR

George Roberts Member, KKR

George Roberts Member, KKR

Current Members of the


Asian PMC:

Paul E. Raether Member &


Chairman of PMC, KKR

Paul Raether Member & Chairman of


PMC, KKR

Paul Raether Member & Chairman of

PMC, KKR

Joseph Y. Bae Member, KKR

Mike Michelson Member, KKR

Johannes Huth Member, KKR

Sanjay Nayar Member, KKR

Alex Navab Member, KKR

Reinhard Gorenflos Member, KKR

Ming Lu Member, KKR

Dean Nelson Founder, KKR Capstone

Dominic Murphy, Member, KKR

Justin C. Reizes Member, KKR

Clint Johnstone Senior Advisor,


Former Director and CFO of Bechtel
Group

John Empson, Member, KKR Capital


Markets

Shusaku Minoda Managing


Director, KKR

Bill Cornog Head of KKR Capstone


George Fisher Senior Advisor, Former
Europe
Chairman and CEO of Eastman Kodak
George Fisher Senior Advisor,
Company and Motorola Corporation
Former Chairman and CEO of
Joe Forehand Senior Advisor, Former
Eastman Kodak Company and
Chairman and CEO of Accenture
Motorola Corporation

Scott Bookmyer Head of KKR


Capstone Asia

D.S. Brar Senior Advisor,


Chairman of GVK Biosciences and
Former CEO of Ranbaxy

Leigh Clifford Senior Advisor,


Chairman of Qantas Airways
Limited and Former CEO of Rio
Tinto

George Fisher Senior Advisor,


Former Chairman and CEO of
Eastman Kodak Company and
Motorola Corporation

Masakatsu Mori Industry Advisor,


Former President of Accenture
Japan

Dave Cote Senior Advisor, Chairman


and CEO of Honeywell

Roger Carr Senior Advisor,


Chairman of Centrica plc

Ken Freeman Senior Advisor, Former


Member of KKR, Dean of School of
Management at Boston University

Ken Freeman Senior Advisor,


Former Member of KKR, Dean of
School of Management at Boston
University

Jim Owens Senior Advisor, Former


Chairman and CEO of Caterpillar

66

Tony DeNunzio Senior Advisor,


Former President of Asda / Walmart
and Executive Chairman of Maxeda

David H. Liu Member, KKR

Note: As of March 2012. Shaded names indicate overlap across regional committees. China Growth Fund PMC Members include Paul Raether Member; Chairman of PMC, Joe Bae Member,
Scott Bookmyer Head of KKR Capstone Asia, David Liu Member, Ming Lu Member, Xiaoyu Xia Director, KKR Capstone Asia.

KAM Investment and Portfolio Management Committee


KAMs Investment Committee (IC) is responsible for making all credit approval decisions. The
Investment Committee also reviews and approves all model portfolios and changes thereto; while
individual investment decisions are made by the portfolio managers
KAMs Portfolio Management Committee (PMC) instills discipline in the process of monitoring KAMs
credit investments, leading daily discussions of portfolio company news and reviewing third party
marks. The Portfolio Management Committee is also responsible for weekly portfolio allocation
reviews

Current members of the IC are Bill Sonneborn and Fred Goltz:

William C. Sonneborn, Platform Leadership


Member, KKR
20 years of industry experience and relationships
9 years on mezzanine Investment Committee and
President of The TCW Group, Inc. and CEO of The TCW
Funds, Inc.
Proven record overseeing and developing traditional
and alternative asset management businesses

Frederick M. Goltz, Head of Credit


Member, KKR
15 years at KKR
Helped build dedicated origination team and raise
KKRs first mezzanine fund

Current members of the PMC are:


Fred Goltz, Member, Head of Credit
Erik Falk, Member, Co-Head of Leveraged Credit
Chris Sheldon, Member, Co-Head of Leveraged Credit
Jamie Weinstein, Director, Co-Head of Special Situations
Nat Zilkha, Member, Co-Head of Special Situations
67

Endnotes

68

Endnotes
These endnotes are an integral part of this presentation. The data and information presented are for informational purposes only. By accepting this material, you agree that you will not distribute or provide this
information to any other person
KKR Asset Management LLC ("KAM") is a Delaware limited liability company founded in August 2004. KAM, an SEC-registered investment adviser, consists of two divisions: the Marketable Securities Division and
the Alternative Investments Division. The Marketable Securities Division provides investment management and administrative services that follow a fixed-income and/or equity strategy generally investing in
instruments with a readily determinable market value. The Marketable Securities Division holds itself out to the public as a separate division that claims compliance with the CFA Institutes Global Investment
Performance Standards (GIPS). The Alternative Investments Division provides investment vehicles that generally invest in instruments with a not readily determinable market value. The Alternative Securities
Division holds itself out to the public as a separate division that does not claim compliance with GIPS.
KAM believes the projected returns set forth herein are reasonable based on a combination of factors, including the investment teams general experience and assessment of prevailing market conditions and
investment opportunities. There are, however, numerous assumptions that factor into the projected returns that may not be consistent with future market conditions and that may significantly affect actual
investment results. Such assumptions include, but are not limited to, economic forecasts, cash flow assumptions, credit quality, and general investment environment. KAM does not make any representation as
to the reasonableness of the assumptions or that all the assumptions used in calculating the projected returns have been stated or fully considered. KAMs ability to achieve investment results consistently, in the
aggregate or with regard to any particular asset class or sector, with the projected returns set forth above depends significantly on a number of factors in addition to the accuracy of its assumptions. These
include KAMs ability to identify a sufficient number and mix of suitable investments. Changes in the assumptions may have a material impact on the projected returns presented. Actual results experienced by
clients may vary significantly from the illustrations shown.
Unless otherwise noted, the term assets under management (or AUM) represent the assets under management as to which KAM is entitled to receive a fee or carried interest as well as assets to which it is
not entitled to receive a fee or carried interest. KAM's calculation of AUM may differ from the calculations of other asset managers and, as a result, KAM's measurements of its AUM may not be comparable to
similar measures presented by other asset managers.
Calculation of Gross and Net Returns. The performance shown is for the stated time period only; due to market volatility, each accounts performance may be different.
Returns are time-weighted and
geometrically linked and unless otherwise stated, gross performance results are net of commissions and other direct expenses, but before management fees, custody charges, withholding taxes, and other
indirect expenses. Net performance results are net of management fees, commissions, and other direct expenses, but before custody charges, withholding taxes, and other indirect expenses. All returns include
the reinvestment of dividends. Differences in account size, timing of transactions and market conditions prevailing at the time of investment may lead to different results. Differences in the methodology used to
calculate performance may also lead to different performance results than those shown. Broad-based securities indices are unmanaged and are not subject to fees and expenses typically associated with
managed accounts or investment funds. Investments cannot be made directly in a broad-based securities index. Past performance is no guarantee of future results.
Limitations of Model Performance. Secured Credit Unlevered model performance presented is supplemental to the GIPS-compliant presentation for the Secured Credit Levered Composite included as part of this
presentation. The Secured Credit Unlevered performance presented reflects model performance an investor may have obtained had it invested in the manner shown and does not represent performance that any
investor actually attained. The model performance presented is based upon the following assumptions: the returns of the Secured Credit Levered Composite calculated on an unlevered basis. Certain of the
assumptions have been made for modeling purposes and are unlikely to be realized. No representation or warranty is made as to the reasonableness of the assumptions made or that all assumptions used in
achieving the returns have been stated or fully considered. Model returns have many inherent limitations and may not reflect the impact that material economic and market factors may have had on the
decision-making process if client funds were actually managed in the manner shown. Actual performance may differ substantially from the model performance presented. Changes in the assumptions may have
a material impact on the model returns presented. Other periods selected may have different results, including losses. There can be no assurance that KAM will achieve profits or avoid incurring substantial
losses. The model performance is adjusted to reflect the reinvestment of dividends and other income and, except where indicated, the anticipated fees and expenses of the portfolio, including brokerage,
custody, advisory and other fees. Actual fees may vary depending on, among other things, the applicable fee schedule and portfolio size. KAMs fees are available upon request and also may be found in Part 2
of its Form ADV. Past performance is no guarantee of future results.
Standard deviation of return measures the average deviations of a return series from its mean, and is often used as a measure of risk. Alpha is a measure of a portfolio's return in excess
of the market return, after both have been adjusted for risk. Beta is a measure of the systematic, non-diversifiable risk of an investment. The beta coefficient represents market
sensitivity, relative to a given market index and time period. R-squared is used as a measure of how reliable, predictable, and valid the alpha and beta are. Tracking Error is the standard
deviation of the excess return over the benchmark. Information Ratio is the quotient of the annualized excess return of the strategy and the annualized standard deviation of excess
return. Sharpe Ratio quotient of the annualized excess return of the strategy over the cash equivalent and the annualized standard deviation of the strategy return
No assumption should be made that any investor will have an investment experience similar to that of any previous or existing investor or that any investor will achieve returns comparable to those shown.
Further, individual investments presented herein may not be included in any future fund sponsored by KAM. High short-term returns for any period may be and likely were attributable to favorable market
conditions during that period, which may not be repeated. Differences in fund size, timing of transactions and market conditions prevailing at the time of investment may lead to different results. Differences in
the methodology used to calculate performance might also lead to different performance results than those shown. KAM believes, however, that the performance shown is reasonably representative of its
management style and is sufficiently relevant for consideration.

69

Composite Detail and Performance Footnotes


Secured Credit Levered Composite
Composite

Benchmark

Assets at End of Period


Number of
Portfolios

Total Composite
Assets at Period End
(USD millions)
$517.9
$3,098.6
$4,560.7
$11,646.3
$7,285.5

Time
Period

Gross-of-fees
Return

Net-of-fees
Return

S&P / LSTA
Loan Index

9/1/04 - 12/31/04
2005
2006
2007
2008

2.1%
15.5%
25.8%
-17.4%
-149.6%

1.4%
13.4%
23.2%
-20.7%
-153.7%

1.8%
5.1%
6.8%
2.0%
-29.1%

Fewer
Fewer
Fewer
Fewer
Fewer

2009

186.6%

181.7%

51.6%

Fewer than 5

$7,997.1

51.9%

2010
2011

58.7%
-2.9%

50.2%
-8.0%

10.2%
1.5%

Fewer than 5
Fewer than 5

$8,612.3
$8,320.5

65.9%
66.5%

than
than
than
than
than

5
5
5
5
5

Composite as a
% of Firm Assets
22.1%
20.3%
24.8%
56.5%
55.6%

1.

KKR Asset Management LLC (KAM) is an SEC-registered investment adviser and subsidiary of Kohlberg Kravis Roberts & Co. L.P. (KKR). KAM provides investment management and advisory services to separate
accounts and unregistered investment vehicles (KAM Services). KAM is divided into two divisions: the Marketable Securities Division and the Alternative Investments Division. The Marketable Securities Division provides
KAM Services that follow a fixed-income and/or equity strategy generally investing in instruments with a readily determinable market value. The Alternative Investments Division provides investment management services
to unregistered investment vehicles that generally invest in instruments with a not readily determinable market value. For compliance with the Global Investment Performance Standards (GIPS) the Firm is defined and
held out to the public as the Marketable Securities Division of KAM. The Alternative Investments Division does not claim GIPS compliance.

2.

The Marketable Securities Division (the Firm) claims compliance with GIPS and has prepared and presented this report in compliance with the GIPS standards. The Firm has been independently verified for the periods
beginning August 2004 through December 2010 by Deloitte LLP. The verification reports are available upon request. Verification assesses whether (1) the Firm has complied with all the composite construction
requirements of the GIPS standards on a firm-wide basis and (2) the Firms policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. Verification does not ensure
the accuracy of any specific composite presentation.

3.

Results were calculated using accounts present for an entire month. The Composite includes all accounts, except for accounts subject to material client restrictions, which are therefore deemed non-discretionary. A full
composite definition is available upon request.

4.

Investments are valued at market value and results are based on trade-date evaluation.

5.

A complete list and description of firm composites is available upon request.

6.

The dispersion of annual returns is measured by the standard deviation across asset weighted portfolio returns represented within the Composite for the full year.

7.

Asset-weighted results use beginning of period market values.


accounts present for the entire period.

8.

All returns are expressed in U.S. dollars.

9.

Gross performance results are net of trading expenses, but before management fees, custody charges, and withholding taxes. Net performance results are net of model management fees and are net of performance fees,
if any but before custody charges and withholding taxes. All returns include the reinvestment of income and dividends. Returns for periods less than one year are not annualized. Net returns reflect the deduction of the
highest applicable management fee based on the fee schedule appropriate to you for this mandate, without the benefit of breakpoints (Model Net Fee). The Composite may include other investment products subject to
management fees that are inapplicable to you but are in excess of the Model Net Fee. Therefore, the actual net of fees performance of all the portfolios in the Composite will be different, and may be lower, than
performance deducting only the Model Net Fee. However, such Model Net Fee performance is intended to provide the most appropriate example of the impact management fees would have by applying management fees
relevant to you to the gross performance of the Composite. Past performance is no guarantee of future results. High short-term returns for any period may be and likely were attributable to favorable market conditions
during that period, which may not be repeated.

Unless stated otherwise, asset-weighted results are shown for the entire period. Equal-weighted results represent the simple average of all composite

10. There are not any known inconsistencies between the local laws that this Composite adheres to and GIPS.
11. There are not any known material differences between the valuation source of exchange rates and those of the benchmark. There are differences, some significant, between the Composite and the benchmark. For instance,
securities included in the Composite may have a greater degree of risk and volatility than those securities contained in the benchmark.
12. Additional information regarding policies for valuing portfolios, calculating performance and preparing compliant presentations are available upon request.
13. The minimum asset level for accounts in the Composite is $0 million.
14. The Composite was created in August 2004 and incepted on September 1, 2004.
15. The amount of non-fee paying accounts in the Composite is 0.0%.
16. The Firm receives an annual management fee equal to 1.75% of equity. The fee is accrued and paid monthly at a rate of 1/12th the annual fee per month. The Firm may also receive incentive compensation equal to
25.0% of the return on equity in excess of a hurdle rate. A complete fee schedule is available upon request.
17. The Secured Credit Levered Composite (the "Composite") principally invests in senior bank loans and high yield securities. The Composite uses leverage with the goal of enhancing investment returns, including the
formation of collateral loan obligation vehicles ("CLOs") and repurchase agreements. Derivative investments are used as a financing strategy, including total rate of return swaps; for speculative investment, including credit
default swaps; or for indirect hedging purposes, including foreign exchange forward contracts. Effective January 1, 2010, this Composite strategy was expanded to include a residual real estate investment portfolio that was
formerly presented as a carve-out portfolio for the period from September 2004 through December 31, 2009. As of August 1, 2009, the KFN Corporate Assets Levered Composite was renamed to the Secured Debt Levered
Composite and subsequently the Secured Credit Levered Composite.

70

Composite Detail and Performance Footnotes


Secured Credit Levered Composite (Continued)
18.

Leverage and/or derivative are used in the management of this Composite.


exchange forward contracts.

19.

The benchmark is the S&P/LSTA Leveraged Loan Index. The S&P/LSTA Leveraged Loan Index that comprises all loans that meet the inclusion criteria and that have marks from the LSTA/LPC mark-to-market service. The
inclusion criteria consist of the following: i) syndicated term loan instruments consisting of term loans (both amortizing and institutional), acquisition loans (after they are drawn down) and bridge loans; ii) secured; iii) U.S.
dollar denominated; iv) minimum term of one year at inception; and v) minimum initial spread of LIBOR plus 1.25%.

20.

The three-year (or since inception if three years are not available) standard deviation of monthly Composite performance is not a meaningful representation of the risk. Due to non recourse nature of the leverage in the
strategy and the extreme volatility experienced during 2008/2009, the standard deviation of monthly returns over the past 36 months produces unintuitive numbers. We believe standard deviation of the unlevered return
multiplied by a leverage factor of 5.5 is more representative of the risk. The leverage factor is the average of ending leverage in the strategy for the past 24 months. The three year number of this measure is 53% and
the three year standard deviation of the benchmark is 9%.

21.

The Composite may invest in below investment grade or unrated debt instruments, which are generally subject to more credit risk and a greater risk of loss of principal and interest than higher rated debt instruments.

22.

Secured Credit Unlevered and High Yield carve-out performance track records presented are supplemental to this GIPS-compliant presentation. The results presented reflect performance an investor may have obtained
had it invested in the manner shown and do not represent specific and complete performance that any investor actually attained. The carve-outs are not managed separately with their own cash balance.
The
performance presented is based upon the following assumptions: The Secured Credit Unlevered carve-out represents performance of KAMs Secured Credit Levered Composite calculated on an unlevered basis. The High
Yield carve-out is comprised of all investments included in KAMsponsored portfolios that have been identified as below investment grade or were rated BB or lower at time of issuance by Standard & Poors. The
collection of investments included in the High Yield carve-out come from various investment funds, vehicles and accounts sponsored by KAM. No representation or warranty is made as to the reasonableness of the
assumptions made or that all assumptions used in achieving the returns have been stated or fully considered. Carve-out returns have many inherent limitations and may not reflect the impact that material economic and
market factors may have had on the decision-making process if client funds were actually managed in the manner shown. Actual performance may differ substantially from the performance presented. Changes in the
assumptions may have a material impact on the returns presented. Other periods selected may have different results, including losses. There can be no assurance that KAM will achieve profits or avoid incurring
substantial losses.

71

The types of derivatives in the Composite may include: credit default swaps, interest rate swaps, total rate of return swaps, and foreign

Composite Detail and Performance Footnotes


Bank Loans Plus High Yield Composite
Composite

1.

2.

3.
4.
5.
6.
7.
8.
9.

10.
11.
12.
13.
14.
15.
16.
17.
18.
19.

20.
21.

Benchmark

Assets at End of Period

Time
Period

Gross-of-fees
Return

Net-of-fees
Return

7/1/08 - 12/31/08

-19.2%

-19.5%

65% S&P/LSTA Loan Index,


35% BoAML US High Yield
Master II Index
-27.2%

Fewer than 5

Total Composite
Assets at Period End
(USD millions)
$1,950.1

2009

44.9%

43.9%

53.7%

Fewer than 5

$2,968.6

19%

2010

13.9%

13.0%

11.9%

Fewer than 5

$2,733.7

21%

2011

4.9%

4.3%

2.6%

Fewer than 5

$2,260.4

18%

Number of
Portfolios

Composite as a
% of Firm Assets
15%

KKR Asset Management LLC (KAM) is an SEC-registered investment adviser and subsidiary of Kohlberg Kravis Roberts & Co. L.P. (KKR). KAM provides investment management and advisory services to separate
accounts and unregistered investment vehicles (KAM Services). KAM is divided into two divisions: the Marketable Securities Division and the Alternative Investments Division. The Marketable Securities Division provides
KAM Services that follow a fixed-income and/or equity strategy generally investing in instruments with a readily determinable market value. The Alternative Investments Division provides investment management services
to unregistered investment vehicles that generally invest in instruments with a not readily determinable market value. For compliance with the Global Investment Performance Standards (GIPS) the Firm is defined and
held out to the public as the Marketable Securities Division of KAM. The Alternative Investments Division does not claim GIPS compliance.
The Marketable Securities Division (the Firm) claims compliance with GIPS and has prepared and presented this report in compliance with the GIPS standards. The Firm has been independently verified for the periods
beginning August 2004 through December 2010 by Deloitte LLP. The verification reports are available upon request. Verification assesses whether (1) the Firm has complied with all the composite construction
requirements of the GIPS standards on a firm-wide basis and (2) the Firms policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. Verification does not ensure
the accuracy of any specific composite presentation.
Results were calculated using accounts present for an entire month. The Composite includes all accounts, except for accounts subject to material client restrictions, which are therefore deemed non-discretionary. A full
composite definition is available upon request.
Investments are valued at market value and results are based on trade-date evaluation.
A complete list and description of firm composites is available upon request.
The dispersion of annual returns is measured by the standard deviation across asset weighted portfolio returns represented within the Composite for the full year.
Asset-weighted results use beginning of period market values. Unless stated otherwise, asset-weighted results are shown for the entire period. Equal-weighted results represent the simple average of all composite
accounts present for the entire period.
All returns are expressed in U.S. dollars.
Gross performance results are net of trading expenses, but before management fees, custody charges, and withholding taxes. Net performance results are net of model management fees and are net of performance fees,
if any but before custody charges, and withholding taxes. All returns include the reinvestment of income and dividends. Returns for periods less than one year are not annualized. Net returns reflect the deduction of the
highest applicable management fee based on the fee schedule appropriate to you for this mandate, without the benefit of breakpoints (Model Net Fee). The Composite may include other investment products subject to
management fees that are inapplicable to you but are in excess of the Model Net Fee. Therefore, the actual net of fees performance of all the portfolios in the Composite will be different, and may be lower, than
performance deducting only the Model Net Fee. However, such Model Net Fee performance is intended to provide the most appropriate example of the impact management fees would have by applying management fees
relevant to you to the gross performance of the Composite. Past performance is no guarantee of future results. High short-term returns for any period may be and likely were attributable to favorable market conditions
during that period, which may not be repeated.
There are not any known inconsistencies between the local laws that this Composite adheres to and GIPS.
There are not any known material differences between the valuation source of exchange rates and those of the benchmark. There are differences, some significant, between the Composite and the benchmark. For
instance, securities included in the Composite may that have a greater degree of risk and volatility than those securities contained in the benchmark.
Additional information regarding policies for valuing portfolios, calculating performance and preparing compliant presentations are available upon request.
The minimum asset level for accounts in the Composite is $0 million.
The Composite was created and incepted in July 2008.
The amount of non-fee paying accounts in the Composite is 0.0%.
The U.S. institutional fee schedule is: 0.55% on first $75 million, 0.50% on remaining assets. Prior to 2011 the U.S. institutional fee was 0.75%
The Bank Loans Plus High Yield Composite (the "Composite") principally invests in bank loans and high yield securities, investing across the credit spectrum, and may include modest exposure to stressed and distressed
credits as well as mezzanine and middle market loans. As of August 1, 2009, the KFI SMA #1 Composite was renamed the Bank Loans Plus High Yield Composite.
Derivatives are used in the management of this Composite. Derivative investments may be used for, but not limited to, indirect hedging purposes, including foreign exchange forward contracts.
The benchmark is 65% S&P/LSTA Leveraged Loan Index and 35% Bank of America/Merrill Lynch U.S. High Yield Master II Index (BoAML HY Master II Index). The S&P/LSTA Leveraged Loan Index comprises all loans
that meet the inclusion criteria and that have marks from the LSTA/LPC mark-to-market service. The inclusion criteria consist of the following: i) syndicated term loan instruments consisting of term loans (both amortizing
and institutional), acquisition loans (after they are drawn down) and bridge loans; ii) secured; iii) U.S. dollar denominated; iv) minimum term of one year at inception; and v) minimum initial spread of LIBOR plus 1.25%.
The BofAML HY Master II Index is a market-value weighted index of below investment grade U.S. dollar-denominated corporate bonds publicly issued in the U.S. domestic market. Yankee bonds (debt of foreign issuers
issued in the U.S. domestic market) are included in the BoAML HY Master II Index provided that the issuer is domiciled in a country having investment grade foreign currency long-term debt rating. Qualifying bonds must
have maturities of one year or more, a fixed coupon schedule and minimum outstanding of US$100 million. In addition, issues having a credit rating lower than BBB3, but not in default are also included. Both of these
indexes were used as individual benchmarks until the composite benchmark was adopted in 4Q2010.
The three-year (or since inception if three years are not available) annualized standard deviation of monthly Composite performance was 8% and 9% for the benchmark as of 12/31/11.
The Composite may invest in below investment grade or unrated debt instruments, which are generally subject to more credit risk and a greater risk of loss of principal and interest than higher rated debt instruments.

72

Composite Detail and Performance Footnotes


Opportunistic Credit Composite
Composite

1.

2.

3.
4.
5.
6.
7.
8.
9.

10.
11.
12.
13.
14.
15.
16.
17.
18.
19.

20.
21.

Benchmark

Assets at End of Period

Time
Period

Gross-of-fees
Return

Net-of-fees
Return

Merrill Lynch U.S. High Yield


Master II Index

Number of
Portfolios

5/1/08 - 12/31/08

-26.7%

-27.4%

-27.1%

Fewer than 5

Total Composite
Assets at Period End
(USD millions)
$399.3

2009

80.5%

77.9%

57.5%

Fewer than 5

$686.3

4.5%

2010

22.7%

20.9%

15.2%

Fewer than 5

$824.3

6.3%

2011

5.1%

3.5%

4.4%

Fewer than 5

$866.4

6.9%

Composite as a
% of Firm Assets
3.0%

KKR Asset Management LLC (KAM) is an SEC-registered investment adviser and subsidiary of Kohlberg Kravis Roberts & Co. L.P. (KKR). KAM provides investment management and advisory services to separate
accounts and unregistered investment vehicles (KAM Services). KAM is divided into two divisions: the Marketable Securities Division and the Alternative Investments Division. The Marketable Securities Division provides
KAM Services that follow a fixed-income and/or equity strategy generally investing in instruments with a readily determinable market value. The Alternative Investments Division provides investment management services
to unregistered investment vehicles that generally invest in instruments with a not readily determinable market value. For compliance with the Global Investment Performance Standards (GIPS) the Firm is defined and
held out to the public as the Marketable Securities Division of KAM. The Alternative Investments Division does not claim GIPS compliance.
The Marketable Securities Division (the Firm) claims compliance with GIPS and has prepared and presented this report in compliance with the GIPS standards. The Firm has been independently verified for the periods
beginning August 2004 through December 2010 by Deloitte LLP. The verification reports are available upon request. Verification assesses whether (1) the Firm has complied with all the composite construction
requirements of the GIPS standards on a firm-wide basis and (2) the Firms policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. Verification does not ensure
the accuracy of any specific composite presentation.
Results were calculated using accounts present for an entire month. The Composite includes all accounts, except for accounts subject to material client restrictions, which are therefore deemed non-discretionary. A full
composite definition is available upon request.
Investments are valued at market value and results are based on trade-date evaluation.
A complete list and description of firm composites is available upon request.
The dispersion of annual returns is measured by the standard deviation across asset weighted portfolio returns represented within the Composite for the full year.
Asset-weighted results use beginning of period market values. Unless stated otherwise, asset-weighted results are shown for the entire period. Equal-weighted results represent the simple average of all composite
accounts present for the entire period.
All returns are expressed in U.S. dollars.
Gross performance results are net of trading expenses, but before management fees, custody charges, and withholding taxes. Net performance results are net of model management fees and are net of performance fees,
if any but before custody charges, and withholding taxes. All returns include the reinvestment of income and dividends. Returns for periods less than one year are not annualized. Net returns reflect the deduction of the
highest applicable management fee based on the fee schedule appropriate to you for this mandate, without the benefit of breakpoints (Model Net Fee). The Composite may include other investment products subject to
management fees that are inapplicable to you but are in excess of the Model Net Fee. Therefore, the actual net of fees performance of all the portfolios in the Composite will be different, and may be lower, than
performance deducting only the Model Net Fee. However, such Model Net Fee performance is intended to provide the most appropriate example of the impact management fees would have by applying management fees
relevant to you to the gross performance of the Composite. Past performance is no guarantee of future results. High short-term returns for any period may be and likely were attributable to favorable market conditions
during that period, which may not be repeated.
There are not any known inconsistencies between the local laws that this Composite adheres to and GIPS.
There are not any known material differences between the valuation source of exchange rates and those of the benchmark. There are differences, some significant, between the Composite and the benchmark. For
instance, securities included in the Composite may that have a greater degree of risk and volatility than those securities contained in the benchmark.
Additional information regarding policies for valuing portfolios, calculating performance and preparing compliant presentations are available upon request.
The minimum asset level for accounts in the Composite is $0 million.
The Composite was created and incepted in May 2008.
The amount of non-fee paying accounts in the Composite is 100.0%.
The U.S. institutional fee schedule is 1.50%.
The Opportunistic Credit Securities Composite invests in high yield securities and corporate loans with no preset allocation, and has the flexibility to use leverage to enhance investment returns. This Composite was
formerly named the Flexible Credit Composite for the period from August 2009 through July 2010, and formerly named the KFI SMA #2 Composite for the period from May 2008 through July 2009.
Leverage and/or derivatives are used in the management of this Composite. Derivative investments may be used for, but not limited to, indirect hedging purposes, including foreign exchange forward contracts.
The benchmark is the Bank of America/Merrill Lynch U.S. High Yield Master II Index. The BofAML HY Master II Index is a market-value weighted index of below investment grade U.S. dollar-denominated corporate bonds
publicly issued in the U.S. domestic market. Yankee bonds (debt of foreign issuers issued in the U.S. domestic market) are included in the ML HY Master II Index provided that the issuer is domiciled in a country having
investment grade foreign currency long-term debt rating. Qualifying bonds must have maturities of one year or more, a fixed coupon schedule and minimum outstanding of US$100 million. In addition, issues having a
credit rating lower than BBB3, but not in default are also included.
The three-year (or since inception if three years are not available) annualized standard deviation of monthly Composite performance was 13% and the benchmark was 11% as of 12/31/11.
The Composite may invest in below investment grade or unrated debt instruments, which are generally subject to more credit risk and a greater risk of loss of principal and interest than higher rated debt instruments.

73