CD PRIVATE EQUITY FUND II — Interim / Quarterly Report 2013

Oct 31, 2013

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US SELECT PRIVATE OPPORTUNITIES FUND II QUARTERLY UPDATE FOR PERIOD ENDING 30 SEPTEMBER 2013 ASX: USG

Private Equity Market Commentary

It seems that private equity investment may have finally turned the corner in 3Q 2013, with investors completing 489 transactions (a 16% increase from the previous quarter). While deal flow was still below average quarterly totals recorded over the past three years, the fact that an uptick in activity came in 3Q – a typically slow quarter for private equity – is a decidedly positive sign. While investors are generally optimistic about the prospects for the fourth quarter and 2014 overall, the recent government shutdown and a looming fight over the debt ceiling certainly pose some additional risks to the system.

Despite the positive momentum and outlook, the current investing environment in the US has resulted in demand significantly out-weighing supply for quality deals. The average purchase price multiple has risen to a decade high of 10.7x trailing earnings before interest, taxes, depreciation and amortisation (EBITDA). While the average multiple for smaller deals is significantly below this mark, valuation expectations continue to present challenges for the Fund’s managers and investment activity is slightly below plan for some of the managers. Through the end of the quarter, the average US Select II managers’ purchase price multiple was 5.2x.

The US economy continued to grow slowly over the quarter even with higher mortgage rates and contracting financial market conditions. Despite market concern regarding the US government’s debt ceiling and the Federal Reserve’s decision not to taper its US$85 billion monthly bond-buying program, Q3 2013 saw a further improvement in US company earnings and employment growth. Along with the nation’s housing recovery, this signalled an ongoing uptrend through September. Although higher mortgage rates dampened demand for new homes and curbed rising house prices, residential construction and existing home sales grew during the quarter. US manufacturing activity also expanded, with September growing at its fastest rate since April 2011, while the services sector experienced its fastest growth in August since 2005.

About the Fund

US Select Private Opportunities Fund II (Fund) was formed in February 2013 to invest in US Select Private Opportunities Fund II, L.P. (LP). The Fund invests in the LP in partnership with Cordish Private Ventures, LLC, the private investment arm of the Cordish family of Baltimore, Maryland, USA.

The Fund pursues a fund-of-funds strategy, investing as a limited partner in small-to-medium sized private investment funds in the United States, using the experience and relationships of the Cordish family in that market. The Fund represents a unique vehicle for Australian retail investors to access attractive smaller, nimble US private investment funds that have historically outperformed their larger counterparts.

The underlying funds are focused on proven investment strategies in specialised areas. They pursue investments in operating businesses with proven revenues and operating profits, take a hands-on approach to their investments in these businesses and employ moderate and judicious amounts of leverage.

US SELECT PRIVATE OPPORTUNITIES FUND II | QUARTERLY INVESTMENT UPDATE | SEPTEMBER 2013

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Fund Activity and Portfolio

The Investment Manager did not make any additional commitments in the third quarter of 2013. The LP has committed a total US$40 million (or 59% of total capital) in four underlying investments. The Fund has a very active investment pipeline and is currently undertaking due diligence with a number of additional managers. The Investment Manager anticipates that most of the remaining commitments will be made by the first half of 2014.

The Fund received three drawdowns and one capital return during the quarter, for a total net consideration of US$339,826. Inclusive of this, total drawdown at 30 September 2013 was US$5.7 million, or 8.4% of total commitments.

The NTA for the Fund at 30 September 2013 was $1.69[1] per Unit.

SUMMARY OF THE UNDERLYING FUNDS AT 30 SEPTEMBER 2013:

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UNDERLYING FUND INDUSTRY FOCUS LP COMMITMENT NET LP CAPITAL
(US$ MILLION) DRAWDOWN
(US$ MILLION)
Niche manufacturing,
RFE Investment Partners VIII specialised business services $8.0 $2.1
and healthcare services
Tengram Capital Partners Manufacturing, distribution,
$10.0 $2.6
Gen2 Fund business services, consumer
Apparel & branded consumer
Trive Capital Partners $10.0 $0.5
products, retail, restaurants
Invests in a direct portfolio
U.S. Select Direct Private Equity, of select private companies
$12.0 $0.5
(US) L.P. alongside leading, specialist
private investment funds
Total $40.0 $5.7
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Note: the Fund has an 85.2% interest in the LP. Cordish Private Ventures, and US Select Private Opportunities Fund II GP, LLC, contributed the remaining amount based on their proportional shares. Numbers may not add up due to rounding.

Additional Information on Underlying Investments

RFE INVESTMENT PARTNERS VIII, L.P.

RFE Investment Partners VIII, L.P. ( RFE ) has been a leading small market buyout firm throughout its history and the RFE VIII team of eleven professionals has more than 160 years of combined private equity and related experience in this market. The team is led by five managing directors who have worked together at RFE for an average of 20 years. The Fund will target buyouts of small market companies with enterprise values of between US$20 million and US$100 million that possess leading market share positions in their core markets and exhibit strong growth prospects that will enable them to become middle market size companies within five years. The Fund has already made four attractive investments (see the website for information on portfolio companies).

Website: www.rfeip.com

TENGRAM CAPITAL PARTNERS GEN2 FUND, L.P.

Tengram Capital Partners Gen2 Fund, L.P. ( Tengram ) makes investments in the branded consumer product and retail sectors, focusing on segments including apparel, home goods, sporting goods, consumer electronics, health and beauty, spirits, food and beverage, packaged goods and branded retail. The firm is led by three senior partners William (Bill) Sweedler, Matthew Eby and Richard Gersten, who are proven operators and investors with over three decades of combined experience investing in branded consumer product companies. The Fund has already made four attractive investments (see the website for information on portfolio companies).

Website: www.tengramcapital.com

1 Source: Walsh & Company Investments Limited. Historical performance is not a guarantee of the future performance of the Fund.

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TRIVE CAPITAL PARTNERS, L.P.

Trive Capital is a Dallas, Texas-based private equity fund focused on acquiring strategically viable, but under-resourced, middle-market companies with the potential for transformational upside through operational improvement. The firm’s vision is to use proven operational best practices and identify actionable opportunities that allow businesses, shareholders and employees to realise their full long-term potential. The Fund has made an investment in one portfolio company to date.

Website: www.trivecapital.com

U.S. SELECT DIRECT PRIVATE EQUITY, L.P.

U.S. Select Direct Private Equity (US), L.P. ( US Direct ) was established with the sole purpose of investing in a direct portfolio of select private companies alongside leading, specialist private investment funds, a strategy commonly referred to as co-investing.

US Direct provides a platform through which the investors can access attractive co-investment opportunities within the LP’s target market of small and mid-market private investments. Co-investing enables the LP to accelerate its deployment of capital, thereby enhancing returns and cash flows, better tailor its investment exposures and reduce investment management fees. The LP’s investment in US Direct is consistent with its investment mandate.

Co-investing is an increasingly competitive and sought-after segment of the private investment market. By building a specialist co-investment platform and leveraging existing relationships with leading private investment managers, US Direct will be well placed to access highly coveted co-investment opportunities.

US SELECT PRIVATE OPPORTUNITIES FUND II | QUARTERLY INVESTMENT UPDATE | SEPTEMBER 2013

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