Wealth Management Research

15 July 2011

Private equity
Education Series: Introduction to Private Equity
This is the first part of an education series on private equity to foster understanding of the asset class. The three-parts series will cover the different aspects of private equity and its role in a diversified portfolio.
Stefan Brgger, strategist, UBS AG stefan.braegger@ubs.com

What is private equity and how does it differ from other asset
classes? Why does private equity matter?

Outperformance versus public equities?! What drives this? How do

we correct for leverage, illiquidity and the non-quoted nature of private equity?

How do private equity firms create value? Operational value

creation or financial arbitrage? This first part will provide a first insight into the global private equity industry, its role in the economy and its different players. It will also cover the various investment strategies and the differences to other asset classes. A recent phenomena? Almost as old as commerce itself! The provision of capital to finance different merchant activities can be traced back to the early beginning of modern mankind and the emergence of commerce around the 2nd century BC. Since the appearance of private limited liability companies in the 15th century, investors have made ever since equity investments for profit considerations in private companies to help them grow and succeed. However, private equity, i.e., the medium- to long-term finance provided in return for an equity stake in an unquoted company, as an asset class for a broad range of investors, is relatively new and has only started in the 1970s. While in the beginning private equity money was mainly raised in the US and eventually in Europe, recent years have seen a globalization of private equity with significant capital raised around the globe. Today, private equity is a globally recognized industry, and assets under management amounted to USD 2.5 trillion in 2010. However, despite the remarkable growth in recent years, private equity only represented a small fraction of the total global stock market capitalization of USD 57 trillion.
Source: www.fotolia.de

Previous publications on private equity: - Private Equity: effective way to access emerging markets growth - Benefiting from improved M&A environment.

Upcoming parts of Private Equity Education Series: - Part II: Risk & return analysis - Part III: How private equity creates value (or not)

Subscribe to future private equity reports: http://bw.sbms.ubs.com/sbms/logon? sid=3127&lang=e

This report has been prepared by UBS AG. Please see important disclaimers and disclosures that begin on page 8. Past performance is no indication of future performance. The market prices provided are closing prices on the respective principal stock exchange. This applies to all performance charts and tables in this publication.

Private equity

Private equity industry has become global

600

500

Capital raised (USDbn)

400

300

200

100

0 1970-1979 1982 1985 1988 1991 US 1994 Europe RoW 1997 2000 2003 2006 2009

Source: Thomson Reuters, total capital raised by private equity funds worldwide

Private Equity is a global industry with many different players Today's private equity industry is global. However, most people are not aware of how private equity firms shape everyone's daily life through products and services offered. How we experience private equity every day
Alliance Boots Nycomed Hirslanden Healthcare Business Services GNC AA Linkedin ISS Nielsen Jimmy Choo Pandora Wagamama Dunkin' Brands Starbucks Burger King Galbani Food Private Equity in a day Consumer Dufry Claire's Formula1 Hugo Boss Tommy Hilfiger Univision Google Skype Industrials AVG Kinder Morgan Freescale Semiconductor NXP Brenntag Financials Warner Music Booz Allen Hamilton

Why private equity matters Private equity is an important source of risk capital for companies, ranging from newly created startup firms, private middle-market companies with succession issues to firms in financial distress or public companies seeking to dispose of non-core divisions. Fund investors commit the capital for several years, in contrast to public markets, which are often driven by shorttermism. The core role of private equity is to organize and channel capital and operational skills to private companies. Ultimately, a private equity investor will only generate a return by investing and building sound businesses, as companies will have to be sold at the end of the investment period. Private equity has an influence on the economy. A recent study done by the World Economic Forum looked at the impact of private equity on companies: Industries with private equity activity experience more rapid growth (total production, value add, employment) and have less volatile business cycles than other industries. Firms that undergo a buyout pursue more economically important innovations (patent citations) and research. Private equity owned firms have a more flexible governance structure.
Source: UBS WMR, World Economic Forum

TMT

BankUnited Travelex Sungard

Source: UBS WMR, for illustration purposes only

Besides these visible players in private equity, the fund managers behind these well known companies are much less familiar to the public. However, there is a wide variety of fund managers operating regionally or globally, several of which have been around since the early days of private equity and have built significant expertise in their respective markets and industries. Hence, private equity capital is managed by some of the most sophisticated investment professionals in the world. Today, there are over 3,500 fund managers active in the market.

Wealth Management Research 15 July 2011

Private equity

Exhibit: The (rough) rise of Blackstone Private equity is normally a sober, discrete affair. Not for Stephen Schwarzman, the co-founder of the Blackstone Group, a worldwide leading alternative investment manager listed on the NY Stock Exchange. His 60th birthday party in 2007 reportedly cost USD 3m, including a live performance of singer Rod Stewart. However, the beginning was rough and the ascent not always smooth. Blackstone was founded in 1985 with just USD 400,000 by Mr Schwarzman and Mr Peterson who derived the firm's name from their names ("Schwarz" in German for "black"; "Petra" in Greek for "stone"). The first private equity fund was closed in October 1987, just a few days before the Black Monday stock market crash. In 1994, Blackstone sold BlackRock, its investment-management business, way too early for USD 240m (today BlackRock has a market cap of over USD 35bn). In 2007, Blackstone went public shortly before the financial crisis, and its stock lost over 80% during the crisis. However, Blackstone has always recovered from these setbacks and today manages over USD 35bn in private equity. Blackstone has invested in wellknown companies such as SeaWorld, The Weather Channel, Hilton Hotels, Sungard or SixFlags. Besides, Blackstone has diversified its business over the years and also manages real estate, credit, hedge funds and mutual funds and offers corporate advisory services. Its shares have also recovered strongly from the low and have almost tripled (but still trading below the IPO price). Expect Blackstone to continue shaping and influencing the alternative assets industry also in the future.
Source: King of Capital: The remarkable Rise, Fall, and Rise Again of Steve Schwarzman and Blackstone. David Carey and John Morris. 2010

An example of a private equity transaction Advent International, a Boston based global private equity firm, invested in 2005 in lululemon athletica, a women's yoga-apparel retailer founded in 1998 in Canada, privately owned by its founders. Advent initially targeted the performance-apparel sector in the early 2000s based on research of increasing healthy living trends. Advent learned about lululemon at a convention in 2004 and began to track its progress. In 2005, Advent provided growth capital to support the further expansion of the company, the founder stepped into the role of chairman and Advent was able to attract senior managers from well-known companies such as Abercrombie & Fitch, J. Crew, Nike and Reebok to bring the company to the next level. At the time of the investment, the company was mainly selling in Canada through 36 stores. During Advent's ownership, the private equity fund manager converted lululemon into a worldwide athletic- and yoga-apparel retailer with 112 stores across Canada, the US, Australia and Japan with above average industry sales per store. Combined with geographic growth, lululemon also extended and diversified its clothing line into general fitness apparel. Advent successfully IPOed the company on Nasday in 2007 at USD 18, and the shares traded at close to USD 100 in June 2011.
Source: UBS WMR, Advent International

The invisible players of private equity

EQT Oaktree Blackstone Apollo Advent International TPG Carlyle Warburg Pincus CVC Cinven

Baring Vostok Unison Navis AIF Capital ChrysCapital Hony Capital Stic

BC Partners Abris Apax Turkven Brait Helios

India Value Fund Ironbridge Archer Capital PEP

DLJ South American Partners Southern Cross Patria

Ethos

Source: UBS WMR, for illustration purposes only, a selection of private equity fund managers

Wealth Management Research 15 July 2011

Private equity

Investors in private equity The private equity industry is characterized by a broad range of different stakeholders who offer different services across the value chain. Besides the firms (called portfolio companies), the private equity fund managers (also known as General Partners), there is a wide range of investors providing the capital (known as Limited Partners) to finance the transactions. In addition, there is a broad range of participants who provide their services to the investors, fund managers and portfolio companies. While originally mainly corporate investors and wealthy private individuals participated in private equity, the industry is nowadays characterized by a broad range of different investors who represent a variety of capital pools. The wide investor base includes public/corporate pension schemes, banks, endowments, private individuals, family offices, asset managers and insurance companies. In 2010, the largest group of investors was represented by pension funds and endowments representing around 50% of the total investor universe. But asset managers, corporate investors, family offices and individuals also invest in the asset class. Private equity funds attract capital from investors around the world. However, investors are still mainly based in North America and Europe. Stakeholders of private equity

Investors in Private Equity

Family offices/HNWI 4% Corporate investors 5% Insurance 6% Others 8%

Pension funds 26%

Banks 8%

Asset Managers 21%

Endowments/ foundations 22%

Source: Preqin

originate deal flow for fund managers, provide acquisition financing or accounting services Financial intermediaries provide legal services to different actors (private firms, fund managers, regulators, investors, etc) Investors (Limited Partners)

provide capital to fund managers to build a portfolio of private firms

Private equity fund managers Lawyers Consultants

provide services to portfolio firms (strategy, market analysis, etc) and investors (fund selection)

Private firms
Regulators Placement agents Management teams help private equity fund managers raise money from investors

Set the rules of the game

Run the private firms and co-invest into the company alongside the fund managers
Source: UBS WMR

Wealth Management Research 15 July 2011

Private equity

How private equity differs from other asset classes Investors can build a portfolio by choosing between different asset classes, whereby one can distinguish between traditional "primary" asset classes (cash, bonds, stocks) and non-traditional "alternative" asset classes (private equity, real estate, infrastructure, commodities, hedge funds, art). Traditional vs. non-traditional asset classes
Fiction: Private Equity and Hedge Funds are the same. Fact: Private Equity is sometimes confused with hedge funds. But the two have different aspects. Private equity typically invests in private companies with a long-term focus, owning and influencing the strategy for several years through a majority equity ownership. Management and owners have most often aligned interest and work closely together. Private equity investors will benefit when a company can eventually be sold at a higher price.

Commodities

Private Equity 33%

Shares
Traditional asset classes

Cash

Commodities

Private Equity

Hedge Funds

Art, antiques

Non-traditional asset classes

Hedge Funds

Bonds Real estate/ infrastructure

Real estate/ infrastructure

Source: UBS WMR

In contrast, hedge funds include a wide range of investment strategies, which typically invest in publicly traded securities, currencies, derivatives or commodities. A hedge fund owns "long" positions, but can also take short positions and benefit from a falling price of a security. In recent years, some hedge funds have also got involved with "activist" strategies, whereby they buy a significant minority in a publicly traded company, in order to get a board seat and try to take an influence on management and the company's strategy. This is the closest hedge fund strategy comparable with private equity. However, the management-owner relationship is often different to a typical private equity situation, the operational influence is limited, and the holding period is often shorter than in a traditional private equity transaction.
Source: UBS WMR

Compared to the traditional asset classes, private equity has the following distinctive features.

Private Equity
Availability of information

Traditional asset classes

Information is thoroughly regulated, readily available to Information is less transparent, not required and more available many (potential) investors and public has access to (almost) to those with specific knowledge and resources the same level of information Shares can typically only be bought and sold in large, complex transactions between private parties; prices are agreed between buyer and seller Assets can be generally bought and sold every day in (almost) any quantity on centralized, public exchanges with readily available prices

Market place

Access

Significant capital requirement to invest in a private company / Assets can be bought in any quantity with no minimum private equity fund; only accessible to investors who know capital requirements about the transaction Active - investors work with existing management and develop Passive - investors have (usually) limited control or influence corporate strategy over management or company's strategy Gradual investment rate (typically over 5 years) and money is invested when investment opportunities are identified Investments in private equity companies are usually held between 4 to 7 years; interests in a private equity fund are generally held for the life of the fund (10 years) and transferability is limited Private assets are sold through an exit event, typically in the form of a corporate merger, M&A or an IPO.

Investment approach

Capital deployment rate

Typically fully invested at all times

Investment horizon

Investments in public assets can theoretically be sold instantly after a purchase

Exit

Investors traditionally sell their shares on a public stock market

Source: UBS WMR

Given these feature of private equity, private companies represent an investment opportunity which is generally not accessible through traditional stock or bond investments.

Wealth Management Research 15 July 2011

Private equity

Private Equity investment strategies Private equity investments are done with the goal of increasing the value of a company by taking control and influencing its strategic decisions and financial structure, and ultimately realizing the value created through exiting the investment. Different private equity investment strategies are normally characterized by the stage of development ("age") of a company at the time of investment or by the size of a firm. It is however important to remember that all these different strategies involve the investment of capital to acquire an equity stake in a private company. Traditionally, private equity investment strategies pursued by fund managers are divided into four broad categories: Venture Capital, Growth Capital, Buyouts and Special Situations. Venture Capital: Venture Capital (often just called "VC") focuses on building new businesses ("start-ups"). Venture capital managers invest equity in companies which are in the conceptual stage, whose products are not yet fully developed or where revenues and/or profits may still be several years away. These firms usually have too short an operating history to get money from traditional sources such as banks or public equity markets. Investors tend to own significant minority stakes (15-35%) alongside the founders who remain crucial in the further development of the company. Venture transactions rarely use leverage given the company's early stage in the life cycle and hence its high volatility. Venture Capital funds tend to have large portfolios (can comprise up to 50 companies), whereby the overall return tends to be driven by a small selection of highly successful deals (so called "home-runs" of companies like Google or Skype). These deals are usually offset by the remainder of the portfolio which produces moderate to negative returns. Growth Capital: Growth Capital investors provide equity to companies which are already generating revenues, but are still at an early stage of development, generally have not reached profitability yet and are in need of more capital to finance further growth (new products, new markets, acquisition-driven growth, etc). As with growth capital, investors tend to take minority stakes and normally don't use debt to finance their transactions. Buyout: In contrast to venture and growth capital, buyouts focus on investing in mature businesses with solid earnings and stable cash flow streams. Normally, the previous owners of a company are bought out by the new private equity owner in a buyout. Investors typically acquire a majority position in a company's equity in order to influence the corporate strategy, strengthen/appoint management teams and make operational improvements, with the remainder being held by the management team. Often, buyout transactions involve the use of external debt to acquire a company, a so called leveraged buyout (LBO). This amount of leverage varies according to the financial condition of the company, the market environment and the company's ability to service the debt service. While in the early days of buyout transactions in the 1980s leverage was the main driver of return generation and debt often amounted to >90% of the total transaction value, this has changed significantly in recent years with increasing equity contributions by private equity firms, and the 5-year average equity contribution between 2005 and 2010 in a leveraged buyout amounted to 37.6%. Buyout portfolios are more concentrated than venture portfolios, and returns are more evenly distributed, given the higher stability of the company's operations.

Illustration of investment strategies

Value of company

Special Situations

Buyout

Growth Capital

Venture Capital

Company development stage ("age")

Source: UBS WMR

Exhibit: Private Equity Fund Managers Today's private equity industry is highly diversified and specialized. Below is a selection of fund managers across the globe who apply one (or several) private equity investment strategies:

Venture Capital: Accel Partners, Andreessen Horowitz, Balderton, Draper Fisher, Index Ventures, Kleiner Perkins, Khosla Ventures, Menlo Ventures, New Enterprise Associates, Sequoia, Sofinnova Ventures Growth Capital: 3i, Actis, Advent International, Helios, Navis, NewMargin Growth, SBCVC, Summit Partners, TA Associates, Ventizz, Warburg Pincus Buyout: Abraaj Capital, Apax, BC Partners, Blackstone, BTP Pactual, Carlyle, Clayton, Dubilier & Rice, CVC, EQT, GP Investimentos, Ironbridge, KKR, Silver Lake, Turkven, TPG, Vinci Capital Special situations: Angelo Gordon, Apollo, Ares, Avenue, Butler Capital, H2, Kelso Place, Littlejohn, Lone Star, Oaktree, Perusa, Strategic Value Partners, WL Ross

Source: UBS WMR

Private Equity with more skin in the game

50% 45%

Equity (as percentage of total transaction value)

40% 35% 30% 25% 20% 15% 10% 5% 0% 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Source: S&P

Wealth Management Research 15 July 2011

Private equity

Special Situations: Private equity investors focusing on special situations invest in underperforming companies in operational / financial distress, but with a healthy core, which are in need of capital and knowledge to undergo a restructuring. Companies in need of restructuring can be at an early stage of development or already well established, mature businesses. Special situation investors either invest directly into the equity of a company, or acquire debt instruments which are then converted into equity during a restructuring. Overall, buyouts are the largest investment strategy in relation to overall capital raised. In 2010, 55% of all global private equity funds were raised for buyouts, followed by special situations (20%), venture (16%) and growth (9%). Conclusion The provision of private capital to finance economic activity is as old as commerce itself.

Most capital raised for buyouts

Private equity fundraising by strategy
Special situations 20% Venture 16%

Growth 9%

Buyout 55%

Private equity is an important source of risk capital for a wide range

of companies.

Source: Preqin

Main differences of private equity to other asset classes are access, the
length of investment horizon, limited liquidity, a different investment approach and the use of private information.
Further reading: Public Value: A Primer on Private Equity. Private Equity Council (2007). (www.pegcc.org) Introduction to Private Equity. Cyril Demaria. Wiley (2010) A Practical Guide to Private Equity Transactions. Geoff Yates and Mike Hinchliffe. Cambridge University Press (2007) A Guide to Private Equity. British Venture Capital Association (2010). (www.admin.bvca.co.uk)

A significant variety of investors are invested in private equity. Investment strategies range from venture capital, growth, buyout and
special situations, focusing on different companies in their development stage. Outlook The next paper in this education series will look at the performance of private equity. Can private equity outperform versus public equities? What is driving this? But how do we correct for leverage and the non-quoted nature of private equity?

Wealth Management Research 15 July 2011

Private equity

Appendix
Global Disclaimer
Wealth Management Research is published by Wealth Management & Swiss Bank and Wealth Management Americas, Business Divisions of UBS AG (UBS) or an affiliate thereof. In certain countries UBS AG is referred to as UBS SA. This publication is for your information only and is not intended as an offer, or a solicitation of an offer, to buy or sell any investment or other specific product. The analysis contained herein is based on numerous assumptions. Different assumptions could result in materially different results. Certain services and products are subject to legal restrictions and cannot be offered worldwide on an unrestricted basis and/or may not be eligible for sale to all investors. All information and opinions expressed in this document were obtained from sources believed to be reliable and in good faith, but no representation or warranty, express or implied, is made as to its accuracy or completeness (other than disclosures relating to UBS and its affiliates). All information and opinions as well as any prices indicated are current as of the date of this report, and are subject to change without notice. Opinions expressed herein may differ or be contrary to those expressed by other business areas or divisions of UBS as a result of using different assumptions and/or criteria. At any time UBS AG and other companies in the UBS group (or employees thereof) may have a long or short position, or deal as principal or agent, in relevant securities or provide advisory or other services to the issuer of relevant securities or to a company connected with an issuer. Some investments may not be readily realizable since the market in the securities is illiquid and therefore valuing the investment and identifying the risk to which you are exposed may be difficult to quantify. UBS relies on information barriers to control the flow of information contained in one or more areas within UBS, into other areas, units, divisions or affiliates of UBS. Futures and options trading is considered risky. Past performance of an investment is no guarantee for its future performance. Some investments may be subject to sudden and large falls in value and on realization you may receive back less than you invested or may be required to pay more. Changes in FX rates may have an adverse effect on the price, value or income of an investment. We are of necessity unable to take into account the particular investment objectives, financial situation and needs of our individual clients and we would recommend that you take financial and/or tax advice as to the implications (including tax) of investing in any of the products mentioned herein. This document may not be reproduced or copies circulated without prior authority of UBS or a subsidiary of UBS. UBS expressly prohibits the distribution and transfer of this document to third parties for any reason. UBS will not be liable for any claims or lawsuits from any third parties arising from the use or distribution of this document. This report is for distribution only under such circumstances as may be permitted by applicable law. Australia: 1) Clients of UBS Wealth Management Australia Ltd: This notice is distributed to clients of UBS Wealth Management Australia Ltd ABN 50 005 311 937 (Holder of Australian Financial Services Licence No. 231127), Chifley Tower, 2 Chifley Square, Sydney, New South Wales, NSW 2000, by UBS Wealth Management Australia Ltd.: This Document contains general information and/or general advice only and does not constitute personal financial product advice. As such the content of the Document was prepared without taking into account the objectives, financial situation or needs of any specific recipient. Prior to making any investment decision, a recipient should obtain personal financial product advice from an independent adviser and consider any relevant offer documents (including any product disclosure statement) where the acquisition of financial products is being considered. 2) Clients of UBS AG: This notice is issued by UBS AG ABN 47 088 129 613 (Holder of Australian Financial Services Licence No 231087): This Document is issued and distributed by UBS AG. This is the case despite anything to the contrary in the Document. The Document is intended for use only by Wholesale Clients as defined in section 761G (Wholesale Clients) of the Corporations Act 2001 (Cth) (Corporations Act). In no circumstances may the Document be made available by UBS AG to a Retail Client as defined in section 761G of the Corporations Act. UBS AGs research services are only available to Wholesale Clients. The Document is general information only and does not take into account any persons investment objectives, financial and taxation situation or particular needs. Austria: This publication is not intended to constitute a public offer or a comparable solicitation under Austrian law and will only be used under circumstances which will not be equivalent to a public offering of securities in Austria. The document may only be used by the direct recipient of this information and may under no circumstances be passed on to any other investor. Bahamas: This publication is distributed to private clients of UBS (Bahamas) Ltd and is not intended for distribution to persons designated as a Bahamian citizen or resident under the Bahamas Exchange Control Regulations. Bahrain: UBS AG is a Swiss bank not licensed, supervised or regulated in Bahrain by the Central Bank of Bahrain and does not undertake banking or investment business activities in Bahrain. Therefore, Clients have no protection under local banking and investment services laws and regulations. Belgium: This publication is not intended to constitute a public offering or a comparable solicitation under Belgian law, but might be made available for information purposes to clients of UBS Belgium NV/SA, a regulated bank under the "Commission Bancaire, Financire et des Assurances", to which this publication has not been submitted for approval. Canada: In Canada, this publication is distributed to clients of UBS Wealth Management Canada by UBS Investment Management Canada Inc.. Dubai: Research is issued by UBS AG Dubai Branch within the DIFC, is intended for professional clients only and is not for onward distribution within the United Arab Emirates. France: This publication is distributed by UBS (France) S.A., French "socit anonyme" with share capital of 125.726.944, 69, boulevard Haussmann F-75008 Paris, R.C.S. Paris B 421 255 670, to its clients and prospects. UBS (France) S.A. is a provider of investment services duly authorized according to the terms of the "Code Montaire et Financier", regulated by French banking and financial authorities as the "Banque de France" and the "Autorit des Marchs Financiers". Germany: The issuer under German Law is UBS Deutschland AG, Bockenheimer Landstrasse 2-4, 60306 Frankfurt am Main. UBS Deutschland AG is authorized and regulated by the "Bundesanstalt fr Finanzdienstleistungsaufsicht". Hong Kong: This publication is distributed to clients of UBS AG Hong Kong Branch by UBS AG Hong Kong Branch, a licensed bank under the Hong Kong Banking Ordinance and a registered institution under the Securities and Futures Ordinance. Indonesia: This research or publication is not intended and not prepared for purposes of public offering of securities under the Indonesian Capital Market Law and its implementing regulations. Securities mentioned in this material have not been, and will not be, registered under the Indonesian Capital Market Law and Regulations. Italy: This publication is distributed to the clients of UBS (Italia) S.p.A., via del vecchio politecnico 3, Milano, an Italian bank duly authorized by Bank of Italy to the provision of financial services and supervised by "Consob" and Bank of Italy. Jersey: UBS AG, Jersey Branch, is regulated and authorized by the Jersey Financial Services Commission for the conduct of banking, funds and investment business. Luxembourg: This publication is not intended to constitute a public offer under Luxembourg law, but might be made available for information purposes to clients of UBS (Luxembourg) S.A., a regulated bank under the supervision of the "Commission de Surveillance du Secteur Financier" (CSSF), to which this publication has not been submitted for approval. Mexico: This document has been distributed by UBS Asesores Mxico, S.A. de C.V., a company which is not subject to supervision by the National Banking and Securities Commission of Mexico and is not part of UBS Grupo Financiero, S.A. de C.V. or of any other Mexican financial group and whose obligations are not guaranteed by any third party. UBS Asesores Mxico, S.A. de C.V. does not guarantee any yield whatsoever. Singapore: Please contact UBS AG Singapore branch, an exempt financial adviser under the Singapore Financial Advisers Act (Cap. 110) and a wholesale bank licensed under the Singapore Banking Act (Cap. 19) regulated by the Monetary Authority of Singapore, in respect of any matters arising from, or in connection with, the analysis or report. Spain: This publication is distributed to clients of UBS Bank, S.A. by UBS Bank, S.A., a bank registered with the Bank of Spain. UAE: This research report is not intended to constitute an offer, sale or delivery of shares or other securities under the laws of the United Arab Emirates (UAE). The contents of this report have not been and will not be approved by any authority in the United Arab Emirates including the UAE Central Bank or Dubai Financial Authorities, the Emirates Securities and Commodities Authority, the Dubai Financial Market, the Abu Dhabi Securities market or any other UAE exchange. UK: Approved by UBS AG, authorized and regulated in the UK by the Financial Services Authority. A member of the London Stock Exchange. This publication is distributed to private clients of UBS London in the UK. Where products or services are provided from outside the UK, they will not be covered by the UK regulatory regime or the Financial Services Compensation Scheme. USA: This document is not intended for distribution into the US and / or to US persons. UBS Securities LLC is a subsidiary of UBS AG and an affiliate of UBS Financial Services Inc., UBS Financial Services Inc. is a subsidiary of UBS AG. Version as per January 2011. UBS 2011.The key symbol and UBS are among the registered and unregistered trademarks of UBS. All rights reserved.

Wealth Management Research 15 July 2011