Siguler Guff's approach to private equity investing is guided by a short list of fundamental principles:

Invest With Superior Managers.
We invest only with proven, high quality management teams. In contrast to public market investment managers, top quartile private equity managers do not tend to revert to the mean over time; instead, the "best get better." Indeed, because entrepreneurs and managers know that an investment in their company from a top-tier firm greatly increases their chance of success, the best-regarded private equity groups often can secure competitive deals without paying the highest price.

This phenomenon holds true across virtually all private equity market sectors, but is most apparent among venture capital firms. There are approximately forty venture firms today that have the pedigrees and track records to enjoy the "top-tier advantage" and, absent special considerations, we would not consider investing with a venture firm outside this group. Siguler Guff will use its contacts and leverage, including its ten-year tenure as the co-manager of the largest venture leasing operation in the United States, to secure positions in these funds.

Throughout our history, we have demonstrated a willingness to be patient and have invested only when we could identify and invest with great management groups and when we have a clear and reasonable understanding of why high absolute rates of return were available to a specific strategy, and when we were assured that we had adequate downside protection to secure our clients' capital. Furthermore, we have avoided, in most instances, deploying our clients assets in areas defined by momentum or unreasonable investment assumptions.

Price and Manage Risk.
By nature, private equity carries inherent risk associated with a lack of liquidity, uncertain cash flows, imperfect information and inefficient pricing; however, investors can select within private equity from a range of risk-return possibilities. Astute investors are able to understand, price and manage risk to produce optimum risk-return outcomes. Siguler Guff has developed a keen sense for evaluating and mitigating risk at the asset, fund and portfolio levels. Whether through intensive due diligence, highly negotiated and structured agreements or prudent portfolio management, we always work toward producing the best risk-adjusted outcomes for our investors and clients.

Actively Allocate Capital.
Our investment process is driven by a strong conviction that the level of market inefficiency (and hence the attractiveness of opportunities) for each private equity market sector varies over time. In any given market environment, there will be investment opportunities we find attractive and others we look to avoid. For this reason, our tactical investment recommendations at times may run contrary to prevailing conventional thinking.

Relative abundance or scarcity of capital obviously is a major factor driving a sector's investment returns - for example, the staggering amounts of venture capital raised during 1999 and 2000 virtually assured weak venture returns for most funds in those vintage years. Top-down macro trends also are an important component of sector allocation. For example, buyout investments deployed at the trough of an economic recession have historically been the best performers. Siguler Guff continually assesses these and other factors to develop a thoughtfully formulated point of view of the market, which in turn drives portfolio weighting.

Exploit Inefficiencies.
The high absolute returns expected from private equity investing more often than not come from the exploitation of major market inefficiencies. In many instances, we have identified "moment in time" opportunities that offered truly compelling risk-adjusted returns. Recognizing and acting on these insights in a timely fashion can significantly improve portfolio returns. For example, beginning in 2000 we believed that the weak economy, rising default rates and other macro factors pointed to the strongest environment for distressed security investing since the early 1990's, and we therefore created the Distressed Opportunities Fund to exploit the opportunity. An integral part of our business model is to create effective and cost-efficient solutions to capture market inefficiencies when they arise.

Bring Direct Investment Experience to Bear.
We have produced impressive results from our direct investment activities. We believe this experience enhances our ability to identify, evaluate and manage our relationships with other Fund management groups. It also differentiates Siguler Guff as a potential "value added" limited partner while serving our advisory clients' interests.