The secondary private equity market provides liquidity to investors in private equity. Pension plans, endowments, insurance companies and other large investors in private equity regularly require liquidity to rebalance allocations and fund additional private equity commitments. From 2009 through 2022, the private equity market has grown 4x to US $1.2 trillion in new commitments. The secondary private equity market has grown 10x over that same period to US $103 billion in new commitments.

The small size of the secondary private equity market compared to the private equity market creates opportunities for secondary private equity strategies to acquire attractive assets and funds at discounts to their Net Asset Value. Historically, secondary private equity strategies have generated similar returns to private equity strategies with greater transparency, shorter durations, lower management and performance fees, greater diversification, less volatility and higher yields.

The Starlight Global Private Equity Pool (“Poolˮ) has generated a 4.8% total return year to date.

Through the end of July, the listed securities portfolio delivered a 5.4% total return while generating 12 dividend and distribution increases with an average increase of 8.3%. Declining interest rates in both Canada and the United States have pushed market multiples up, positively impacting the valuation of the private assets.

Blackstone Strategic Partners Fund IX

Blackstone Strategic Partners (“BSP”) is the largest global secondaries platform with $68 billion of assets under management (“AUM”) across Private Equity (80% of AUM), Infrastructure, Real Estate and GP Solutions. BSP’s strategy is to acquire large pools of older vintage (6 – 8 years old), primary private equity strategies that generate higher yields with lower leverage and experience lower loss rates. BSP has historically acquired these positions at an average 20% discount to Net Asset Value, which historically accounts for 25% of BSP’s total returns. The additional returns are generated via appreciation of the underlying businesses and the premium achieved upon exit. Over 20+ years the BSP platform has generated an aggregate 18.0% Net IRR and an aggregate 1.7x Net MOIC with a loss ratio of less than 1.0%.

The Private Equity Pool has allocated US $25 million to BSP Fund IX and as of July 31, 2024, 36.0% of this capital has been invested. We expect another 5.0% of our total commitment to be called by year end. Through July 31, 2024, BSP Fund IX has completed 210 transactions (average deal size $100 million) covering 809 underlying funds that have been acquired at an average 21.0% discount to net asset value. The entire portfolio is carried at a discount to recent LBO multiples and market exits are consistently above carrying values. BSP Fund IX has now generated a net MOIC of 1.2x and the Private Equity Pool has experienced a 14.7% Annualized Net IRR on this holding.

Morgan Stanley Ashbridge Transformational Strategies II

Ashbridge Transformational Strategies (“ATS”) is Morgan Stanley’s secondary private equity platform and it has invested over $3.5 billion of capital. The ATS strategy is focused on GP-led, continuation strategies and offers a nice complement to the BSP Fund IX strategy. ATS teams up with the General Partner (“GP”) of a private equity strategy and purchases controlling positions in individual businesses managed by that GP. ATS builds a concentrated portfolio of individual businesses out of existing private equity funds where they see the opportunity to drive continued value creation through additional investment. These businesses are acquired at small discounts to Net Asset Value and generally have lower EV/EBITDA and Net Debt/EBITDA multiples compared to the market. Over 18+ years the Ashbridge platform has made over 35 investments and generated a Net IRR of 40.0% and a Net MOIC of 2.0x.

Exhibit 7 - Ashbridge II Portfolio Valuation by Quarter and Diversification

The Private Equity Pool has allocated US $20 million to Ashbridge Transformational Strategies Fund II (“ATS Fund II”) and as of July 31, 2024, 59.0% of this commitment has been called. ATS management advises that another 10.0% of our total commitment will be called this year. ATS Fund II has deployed $2.1 billion to acquire 18 businesses (average deal size $358 million) currently valued at $3.0 billion. ATS Fund II has now generated a net MOIC of 1.3x and our Annualized Net IRR is now 15.7% in the Private Equity Pool.

Dawson Portfolio Finance 5

Dawson Partners (“Dawson”) is a unique secondary private equity firm that has deployed over $24.7 billion since 2016. The strategy is focused on providing liquidity to both LP and GP investors in private equity through a preferred equity structure. Dawson Portfolio Finance 5 (“DPF 5”) aims to provide investors with resilient returns, muted volatility and consistent cash flows. This is accomplished by purchasing private equity investments with an initial outlay (approx. 65% of NAV) that attracts a minimum IRR and MOIC over time. After these return hurdles are met, Dawson is still entitled to a portion of the residual return on the investment. This structure has allowed Dawson to generate a 11.7% Net IRR and 1.2x Net MOIC since inception.

The Private Equity Pool has allocated US $10 million to DPF 5 and as of December 31, 2023, 48.9% of this capital has been invested. We anticipate that another 20% of our total commitment to be called by year end. Through July 31, 2024, DPF 5 has invested in 18 structures including 95 transactions. Approx. 70% of the investments are LP solutions while the remaining 30% are GP solutions.

Dawson has contracted to advance 65.0% of the purchase price of these structures up front. Afterwards, DPF 5 is entitled to a priority on distributions until receiving the greater of an average 1.32x multiple and an 8.4% IRR, with 15.8% of any residual profits thereafter. The structures within DPF 5 are skewed towards fund positions that are four to six years in age, and since 2010, these private equity exits have generated uplifts of approx. 25.0%. DPF 5 has now generated a net MOIC of 1.1x and our Annualized Net IRR is now 10.8% in the Private Equity Pool.

Globally, institutions have taken their allocation to private assets to 27.0% in 2023, including 10.1% in private equity. Retail investors are lagging this allocation move as globally their allocation sits at 3.5%. The drivers for this allocation shift for institutions includes:

• The outperformance of private equity compared to listed equities
  • Private equity 14.5% annualized 10-year CAGR (listed equities 8.5%)
• The continued concentration of global equity market indices driving volatility higher
  • “Magnificent 7” stocks are 32.7% of the S&P 500
• The lack of representation of the global economy in the listed equity markets
  • 87% of US companies with > US $100 million of annual revenue are private

The number of public companies has declined in the US from over 7,000 in 2000 to under 4,000 in 2020. In Europe, the number of public companies has fallen by 30% from 2007 through 2018. In contrast, the number of US companies owned by private equity has risen from less than 2,000 in 2000 to over 7,500 in 2018.

From December 31, 2022 through June 30, 2024, the Russell 3000 rose 40.0%, compared to only 14.0% for private equity (Burgiss). However, all of this outperformance was due to the multiple expansion of the public markets (16.6x EV/LTM EBITDA from 14.4x) compared to more conservative marks for private equity (14.2x from 13.5x). In fact, private equity earnings growth was superior to public market earnings growth over that time period (9.0% EBITDA growth compared to 5.0% for public companies). Confirmation of the valuation gap between private and public companies is found in the increase in “valuation pop” these private companies earned on exit. In Q1/24 valuation pops averaged 24%, rising to 25% in Q2/24 and 31% in Q3/24 so far.

The rate hiking cycle has not significantly impacted private equity earnings however, private equity trading multiples did decline. Many investors remain underweight private equity but as market volatility rises, we expect more investors to allocate capital to private equity secondary strategies.

The Starlight Global Private Equity Pool was designed to generate 12.0%-14.0% annual total returns to investors. Since inception (September 2022), the Pool Series F has generated an annualized total return of 12.3%. We anticipate that the Pool will continue to generate strong total returns in 2024 based on the continued deployment of capital and the continued appreciation of the existing underlying positions.


Sincerely,

The Starlight Capital Team

Innovative Fund Structure

Access to a diversified portfolio of best-in-class private investment partners managing institutional-quality, private equity.

Inception-2022

Investment Objective:
To achieve long-term capital appreciation by investing in a diversified global portfolio of private equity investments and publicly traded global equity securities.

Fund Codes
Series A (SLC1104)
Series F (SLC1204)
Series I (SLC1904)

Distribution Frequency
N/A

Important disclaimer.

The views in this update are subject to change at any time based upon market or other conditions and are current as of September 13, 2024. While all material is deemed to be reliable, accuracy and completeness cannot be guaranteed.

Certain statements in this document are forward-looking. Forward-looking statements (“FLS”) are statements that are predictive in nature, depend upon or refer to future events or conditions, or that include words such as “may,” “will,” “should,” “could,” “expect,” “anticipate,” “intend,” “plan,” “believe,” or “estimate,” or other similar expressions. Statements that look forward in time or include anything other than historical information are subject to risks and uncertainties, and actual results, actions
or events could differ materially from those set forth in the FLS. FLS are not guarantees of future performance and are by their nature based on numerous assumptions. Although the FLS contained herein are based upon what Starlight Capital and the portfolio manager believe to be reasonable assumptions, neither Starlight Capital nor the portfolio manager can assure that actual results will be consistent with these FLS. The reader is cautioned to consider the FLS carefully and not to place undue reliance on FLS. Unless required by applicable law, it is not undertaken, and specifically disclaimed that there is any intention or obligation to update or revise FLS, whether as a result of new information, future events or otherwise.

Commissions, trailing commissions, management fees and expenses all may be associated with investment funds. Please read the prospectus before investing. Investment funds are not guaranteed, their values change frequently, and past performance may not be repeated. The content of this document (including facts, views, opinions, recommendations, descriptions of or references to, products or securities) is not to be used or construed as investment advice, as an offer to sell or the solicitation of an offer to buy, or an endorsement, recommendation or sponsorship of any entity or security cited. Although we endeavour to ensure its accuracy and completeness, we assume no responsibility for any reliance upon it. Please read the offering documents before investing. Investors should consult with their advisors prior to investing. Starlight Investments, Starlight Capital and all other related Starlight logos are trademarks of Starlight Group Property Holdings Inc.

Starlight Investments Capital LP (“Starlight Capital”) is the manager of the Starlight Private Global Real Estate Pool, the Starlight Private Global Infrastructure Pool, and the Starlight Global Private Equity Pool (“Starlight Private Pools”). Starlight Private Pools are offered only to “accredited investors” or in reliance on another exemption from the prospectus requirement.