28 January 2014 Brokers. Asset Managers & Exchanges Alternative Assot Manager Initiation We do not see this on the horizon for at least the next 12-18 months, given our expectation that realizations will continue to improve sequentially on a quarterly basis well into 2015, albeit lumpy from quarter-to-quarter. The situation with APO will be a good test for this, as we expect their largest funds to exhaust most of their embedded realized gains over the next several quarters, and the next fund (Fund VIII) is unlikely to reach realization mode until sometime well after 2016, in our view. It will also be interesting to gauge the pace of realizations vs. fundraising across the Alts space over the next several years, as it is quite possible that funds raised over the past 2-3 years could begin realizing gains by 2016, helping to bridge the valley in around 2017-18 we expect to see for the PE industry broadly. CG looks to be in the best position in this regard right now among its Alt peers. Higher interest andior a credit cycle With the view that higher interest rates hurts the financing capabilities of private equity portfolio companies, investors sometimes look at the Alts as having considerable downside risks in a rising rate backdrop. However the Alt mgmt teams have increasingly stated they are not concerned given their portfolio companies' cash flows would improve nominally in a rising rate backdrop, as well as benefit from economic expansion. This has helped eased concerns and the stocks have traded better against spikes in yields recently, nevertheless the risk remains that these stocks could underperform other financials in a rising rate backdrop. Separately, should credit begin to deteriorate, certain asset classes can depreciate significantly as investors in those assets become concerned about defaults, even well before the economy shows signs of weakening. This could negatively impact asset values and fund flows for the credit-oriente