EFTA01187601.pdf

From: Tazia Smith •t: > To: jeevacation@gmail.com Cc: Paul Morrie a Vahe Stepanian Subject: Alternative Asset Manager Autocallable Snowball Coupon/Barrier [C] Date: Thu, 20 Feb 2014 15:01:25 +0000 Attachments: Alternative_Asset_Managers_1.28.14.pdf Inline-Images: unnamed; unnamed(1); unnamed(2); unnamed(3) Classification: Confidential * * DB Key Client Partners: Email prepared exclusively for Jeffrey Epstein • * Good Morning Jeffrey - Consider the below as part of the Financials segment within your allocation. Like your Apollo shares, the broader Alternative Asset Manager group has benefitted from a gearing to rising asset prices; strong performance on underlying funds are translating to performance return participation and greater the earnings at the company level, not to mention that meaningful inflows to alternative investments are leading to increased AUM fee collection. I like this structure below. The underlying companies (Blackstone and Carlyle) may have run, but earnings outlook appears solid and this structure is a way to monetize vol with an attractive risk/return profile. Base case of getting called in year-one with a 25% coupon and having that 35% downside protection. Downside participation if the worst- of breaches the 65% barrier; max loss 100%. Issuer: DB Structure: Knock In - Knock Out Barrier Note with Snowball Coupon Underlyings: Worst of BX US and CG US Tenor: 3 Yrs DIP Barrier: 65% (European) KO Barrier: 112% (if worst-of is above KO Barrier on any day then DIP knocks out and note becomes principal protected) Redemption Barrier: 100% (autocalled if both underliers are above initial level upon annual observation) Snowball Coupon: 25% p.a. (snowballing, client can receive up to 75% coupon over 3yrs...50% y2 if not called, 75% if matures) Autocall: Annual observation, if both underliers are > initial level at annual observation Max Gain: 75% over 3yrs (25% p.a.) Max Loss: 100% Indicative levels only, subject to market movement. Source: DB GM Structuring, as of 2/12/14. BX 1yr Price History EFTA01187601  I BX US I Market Low.•—•••••-r". P31..40 /31..63K S x2 ..i. Prev 31.37 Vol 6,445 Malli ltia Save As 90 Actions - 91) Ech Lase once PI car cn ve err.. nms mmm 1D 3D 1/1 641 YTD rt 5Y Max Daily • • a" Security/Study II Event 0 I + Track Annotate News Zoom 35-13 • Last Price 31.37 T High on 01/22/14 33.19 AIM 1 -9- Average 24.4492 1 Low on 02/26/B 18.43 Mar Jun 2013 2014 CG tyr Price History eSi Save As AO Actions IEEE=" in Pi 17) 3C LM 6M YTD .1Y SY Max Daily • E• Last Price 35.90 T High on 01/14/14 37.91 -9- Average 30.3176 1. Low on O6/24/13 24.19 V Used with permission of Bloomberg Finance LP -.2 al the Alternative Asset Managers; BX is top pick We initiate coverage of 5 alternative asset managers (the "Alit) with Buys on Blackstone (BX). Carlyle Group (CG), & Oaknee Capital (OAK) & Hold ratings on Apollo Global Mgmt (APO) & KKR & Co (KKR). Overall, these Alts are welipositioned amid favorable cyclical tailwinds & strong secular dynamics, while valuations remain attractive. We favor the more-diversified Alts possessing less earnings variability & good distributable earnings (DE) growth profiles for 2014- 2015; this dynamic favors BX & CG over APO & KKR for now, in ow view. & we see 4Q earnings as a positive catalyst upon a better DE outlook for next 1-2 years. We also like OAK's more-traditional asset manager business profile. Valuations still alliaclise as debate on s alLan5 the Alts ownUwe, With volatile and less predictable earnings, the market has been reluctant to EFTA01187602 assign a comparable traditional asset manager PPE on the Alts' carried interest income stream, which accounted for over half of Alt's pretax income over the past 2 years. However, we see limitations in this legacy sum-of-parts valuation approach (valuing fee-earnings at much higher multiples than carried interest) primarily because of the longer-term reliability of carried interest convening into cash distributions for public unit holders. Thus. we prefer to value the Alts on longer-tear 'distributable earnings' (DE). which is a proxy for cash flow and the basis for cash distributions to unit holders. On this approach, we think these 5 Alt managers can trade at a median 12-13x P/E on our 2015 DE forecasts, a year from now, which implies about 2 points of multiple expansion and over 15% price appreciation, and about 22% total return inclusive of median 6-7% distribution yields at current price levels. Roth cyclical and SO:Illar themes are eery In the currant economic/capital markets cycle, the Alts are likely to increasingly benefit from realizing the value of their long-term investments (from sales via M&A, IPOs, etc.) and distributing more cash to unit holders over 2014-15. Thus, we sec a greater convergence of DE and the more volatile mark-tomarket- driven economic net income (EN1), as the realization cycle gains momentum in 2014. Asset organic growth rates should remain healthy as strong investment performance track records enable fundraising to outpace outflows from realized distribution to LPs. Key secular trends favoring Alts are I) rising allocations globally to alternative assets by institutions, and increasingly, individuals. 2) a major competitive advantage in ability to generate patient capital and invest long-term and influence investment outcomes. 3) a greater role for Alts in financing. creating more capital deployment opportunities globally, & 4) increasing concentration of asset flows to the largest Alts, which favors these 5 stocks. Tazia Smith Director I Key Client Partners - US Deutsche Bank Securities Inc Deutsche Asset 71 Wealth Management 345 Park Avenue. 26th Floor New York, NY 10154 Pan-io-4..fr Peiferein This communication may contain confidential and/or privileged information. If you are not the intended recipient (or have received this communication in error) please notify the sender immediately and destroy this communication. Any unauthorized copying, disclosure or distribution of the material in this communication is strictly forbidden. Deutsche Bank does not render legal or tax advice, and the information contained in this communication should not be regarded as such. This communication may contain confidential and/or privileged information. If you are not the intended recipient (or have received this communication in error) please notify the sender immediately and destroy this communication. Any unauthorized copying, disclosure or distribution of the material in this communication is strictly forbidden. Deutsche Bank does not render legal or tax advice, and the information contained in this communication should not be regarded as such. EFTA01187603