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Solvency II (SII) investors have, historically, shied away from investing in private equity or special situations due to the high SII capital requirements. We believe that SII is more accommodating to private equity or special situations than many investors may think. SII investors may want to consider moving some of their equity allocation to special situations.


According to EIOPA, only 0.7% of insurers assets were invested in private equity (PE) funds in 2020 versus 10.2% in common equity2. This may be due to the higher SII risk capital requirement for private versus common equity3. As a comparison, European pension funds commit almost 3 times as much to PE funds4 even though their assets are less than half of the European insurance asset base5. We believe that SII insurers that follow the standard model could increase their PE exposure to 20% of their overall equity allocation without increasing their SII equity capital requirement.

Determination of the SII capital requirement for a portfolio of common (type 1) and private (type 2) equity

SII capital requirements are covered under Article 169 of the EU Delegated Regulation. Article 169 describes two types of equity. Type 1 equity is described as publicly listed equity that has been listed on an OECD exchange. Type 1 equity has, under the standard model, a capital requirement of 39%. Private equity is part of the category of Type 2 equity and is assigned a capital requirement of 49%.

The equity capital requirement for a portfolio that contains both Type 1 and Type 2 equity is defined as:

Exhibit 1 SII Capital Requirement for Equity Exposures6

SCRequity = sqrt(SCR2Type1_equity + 2*0.75*SCRType1_equity*SCRType2_equity + SCR2Type2_equity)

The potential diversification benefit described by Exhibit 1 for combining Type 1 and Type 2 equity enables an SII investor to invest 20% of their equity allocation into private equity without any material increase in their equity risk capital requirement.

Exhibit 2 Impact of Increasing Private Equity as a Proportion of Overall Equity7

36%39%42%45%48%0%10%20%30%40%50%60%70%80%90%100%PE Allocation (%) SII Capital Consumption Combined SCRequity80% Type 120% Type 2= 39.1% SCRequitySCR Type 1 Equity

If we consider the historical returns of a low volatility PE-like strategy, such as Bain Capital’s Global Special Situations strategy (GSS), increasing the allocation to private equity could be attractive to SII insurers for following reasons.

  • higher historical returns relative to public market equivalents (PME)
  • lower volatility
  • significantly better (less negative) “worst quarter returns”
  • and increased diversification

Comparison of returns and price volatility of Bain Capital GSS, PE funds and PME

Exhibit 3 Returns during recent, significant public market price declines Q4 2015 – Q2 20228

-22%-20%-18%-16%-14%-12%-10%-8%-6%-4%-2%0%2%Q2 2022Q4 2018Q1 2020GSSPE NA PE EUR MSCI WorldPE Asia Quarterly Change in MV (%)

Exhibit 4 Sharpe Ratio of Annualized Returns Q4 2015 to Q2 20229
Larger circle indicates higher Sharpe Ratio

0%2%4%6%8%10%12%14%16%18%8%9%10%11%12%13%14%15%16%17%GSSAnnualized Return – Risk Free RateStandard Deviation of Annualized ReturnsPE North AmericaPE EuropePE AsiaMSCI WorldSharpe Ratio = 0.5 =

Bain Capital’s GSS strategy, and private equity funds in general, have exhibited better performance during periods of market distress than the MSCI World. They have also exhibited lower volatility and better Sharpe ratios than public market equivalents (PME). To some extent, the lower volatility reflects a difference in how private markets value their investments relative to public markets. Conservative private asset managers, typically, take market valuations onto account but they focus on the underlying fundamentals in their holdings. For example, changes in earnings or financial leverage. This is in contrast to public markets which generally change valuations based on changes in market demand. This includes, for example, inflating PE multiples or valuing callable leveraged loans above par. The differences in the approaches to pricing are, in our opinion, a reflection of the different characteristics of the underlying securities. Most of the securities held in Bain Capital’s GSS strategies, for example, are bought with the intention of holding an asset until it can be restructured and/or value-enhanced. This is a process that can take several years to execute. PMEs are made up of trading assets where supply and demand fluctates by the minute. In our opinion, the alignment between PE-style offerings and the long-term investment intentions of insurance clients is reflected in the lower volatility of returns.

Please consider the following:

In this material Bain Capital Credit, LP, Bain Capital Credit (Australia), Pty. Ltd., Bain Capital Credit, Ltd., Bain Capital Investments (Europe) Limited, Bain Capital Investments (Ireland) Limited, Bain Capital Credit CLO Advisors, LP, Bain Capital Credit U.S. CLO Manager, LLC, Bain Capital Credit (Asia) Limited, and BCSF Advisors, LP are collectively referred to as “Bain Capital Credit”, which are credit affiliates of Bain Capital, LP. Bain Capital Credit, LP, Bain Capital Credit CLO Advisors, LP, Bain Capital Credit U.S. CLO Manager, LLC, Bain Capital Credit U.S. CLO Manager II, LP, and BCSF Advisors, LP are investment advisers registered with the U.S. Securities and Exchange Commission (the “Commission”). Registration with the Commission does not constitute an endorsement by the Commission nor does it imply a certain level of skill or training. Bain Capital Credit (Australia), Pty. Ltd. is regulated by the Australian Securities and Investments Commission (“ASIC”). Bain Capital Credit, Ltd. and Bain Capital Investments (Europe) Limited are authorized and regulated by the Financial Conduct Authority (“FCA”) in the United Kingdom. Bain Capital Investments (Ireland) Limited is authorized by the Central Bank of Ireland. Bain Capital Credit (Asia) Limited and Bain Capital Private Equity (Asia) Limited are regulated by the Securities and Futures Commission in Hong Kong and are licensed to carry on Type 1 regulated activities under the Securities and Futures Ordinance. No securities commission or regulatory authority in the United States or in any other country has in any way passed upon the merits of an investment in a Bain Capital Credit investment vehicle or the accuracy or adequacy of the information or material contained herein or otherwise.

This written material provides a general introduction to Bain Capital Credit and its business and is intended for your sole use. It should not be relied upon as the basis for making any investment decision, entering into any transaction or for any other purpose.

Bain Capital Credit, its subsidiaries and affiliates and its and their respective employees, officers and agents make no representations as to the completeness and accuracy of any information contained within this written material. Information contained in this material is for informational purposes only and should not be construed as an offer or solicitation of any security or investment product, nor should it be interpreted to contain a recommendation for the sale or purchase of any security or investment product and is considered incomplete without the accompanying oral presentation and commentary.

Bain Capital Credit and its affiliates act for the funds and investment vehicles which they manage or advise (the “Vehicles”) and will not be acting for anyone else. In particular, Bain Capital Credit will not advise potential investors on subscriptions in any Vehicle or co-investments and will not arrange transactions on behalf of anyone other than the Vehicles or provide advice on the merits of such transactions. No representative of Bain Capital Credit has the authority to represent otherwise. Bain Capital Credit is not responsible for providing you with the protections afforded to its clients and you are strongly advised to take your own legal, investment and tax advice from suitably qualified advisers.

An investment in the Vehicles is speculative and involves a high degree of risk, which may not be suitable for all investors. The Vehicles may often engage in leveraging and other speculative investment practices that may increase the risk of investment loss and the investments may be highly illiquid. The Vehicles are not required to provide periodic pricing or valuation information to investors. Investing in the Vehicles may involve complex tax structures, and there may be delays in distributing important tax information. Private funds are not subject to the same regulatory requirements as mutual funds, and private fund advisers and sponsors often charge high fees. An investment in the Vehicles involves a number of significant risks and other important factors relating to investments in limited partnerships generally, and relating to the structure and investment objectives of a given Vehicle in particular. Investors should consider risks associated with the following: illiquidity and restrictions on transfer; tax considerations; valuation risks, and impact of fees on returns. The foregoing list of risk factors does not purport to be a complete enumeration of the risks involved in an investment in the Vehicles. Prospective investors should reference the offering documents and consult with their own legal, tax and financial advisors before deciding to invest in the Vehicles. Refer to a particular Vehicle’s offering documents for additional details, risk factors and other important considerations, including registration requirements for certain jurisdictions.

This material contains proprietary and confidential information and analysis and may not be distributed or duplicated without the express written consent of Bain Capital Credit or its affiliates. Distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation, or which would subject Bain Capital Credit or its affiliates to any registration requirement within such jurisdiction or country, is prohibited. By accepting this presentation, the recipient agrees to keep it confidential and return it promptly upon request.

The opinions and information contained in this material are provided for informational purposes only and represent the current good-faith views of the contributor at the time of preparation. These views are subject to change without notice of any kind. Contact your Bain Capital Credit representative for further information.

Certain information contained herein are not purely historical in nature, but are “forward-looking statements,” which can be identified by the use of terms such as “may,” “will,” “should,” “expect,“ “anticipate,” “project,” “estimate,” “intend,” “continue,” or “believe” (or negatives thereof) or other variations thereof. These statements are based on certain assumptions and are intended to illustrate hypothetical results under those assumptions (not all of which are specified herein). Due to various risks and uncertainties, actual events or results may differ materially from those reflected or contemplated in such forward-looking statements. As a result, investors should not rely on such forward-looking statements.

Certain information contained in this presentation has been obtained from published and non-published sources and/or prepared by third-parties and in certain cases has not been updated through the date hereof. Such information has not been independently verified by Bain Capital Credit, and Bain Capital Credit does not assume responsibility for the accuracy of such information (or updating the presentation based on facts learned following its issuance). All information contained herein is subject to revision and the information set forth herein does not purport to be complete.

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Performance Disclosures

  1. The performance information contained in this presentation is intended solely to provide investors with information about funds and accounts advised by Bain Capital Credit. There can be no assurance that the results achieved by Bain Capital Credit will be achieved by other investments, including other investments made by Bain Capital Credit. Past performance should not be relied upon as an indication of future results. Actual results may vary.
  2. The information in this presentation has been prepared solely to assist interested parties in making their own evaluation of the strategy and does not purport to be complete or to contain all of the information that a prospective client or investor may consider material, or desirable, in making a decision to invest. The information contained herein is not a substitute for the recipient’s independent evaluation and analysis.
  3. Investors should not assume that the performance of any specific investment or investment strategy will be profitable or similar to past performance levels. An investment or investment strategy is impacted by numerous factors, including market and economic conditions, which are out of the control of Bain Capital Credit, which may result in loss to investors. Investment in a fund may fluctuate and the value may decline as well as appreciate and an investment should only be made by those persons who could sustain a total loss on their investment.
  4. Investments shown are not a complete list of Bain Capital Credit fund investments. A full list of Bain Capital Credit fund investments and performance is available upon request.
  5. Significant assumptions have been made in calculating all of the forward-looking information, including target IRRs and target MoMs, contained in this presentation. Target IRRs and target MoMs are presented for informational purposes only and are neither a guarantee nor a prediction of future performance. The targeted returns are based on (a) anticipated underlying asset performance, (b) the use of moderate leverage, (c) operational strategies of Bain Capital, and (d) the sector and geographic focus of acquisition activity. These assumptions are subject to numerous uncertainties, not only with respect to Bain Capital, but also uncertainties and changes (including changes in economic, operational, political or other circumstance) and other risks, including, but not limited to, broad trends in business and finance, legislation and regulation, commodity prices, and market conditions, all of which are beyond the portfolio company’s control and any of which may cause the relevant actual results to differ materially from such assumptions. While Bain Capital believes that the assumptions are reasonable, due to various risks and uncertainties, actual events or results or the actual performance may differ materially from those reflected or contemplated.
  6. The valuations and projections included herein do not currently include all estimated negative impact of the novel coronavirus outbreak in Asia, Europe, North America and/or other parts of the world, or the related economic ramifications. Given the significant level of uncertainty with this dynamic and evolving situation, we expect that valuations may be materially adversely impacted, at least in the short term.
  7. The investor’s commitments in certain DSS 19, SSE I and SSA I vehicles may be funded initially through the Partnership’s credit line. The use of the Partnership’s credit line may impact the timing of cash flows reflected in IRR calculations and thereby impact the IRRs presented herein. Differences in IRRs will depend on a number of factors including the amount borrowed under the Partnership credit line, the timing of repayments of the credit line as well as the applicable interest amounts under the credit line.

Discussion of Returns

  1. Gross returns shown do not reflect origination fees, advisory fees, performance allocations, taxes, transaction costs incurred in connection with the disposition of investments and other expenses to be borne by investors, which will have the effect of reducing returns and in the aggregate, are expected to be substantial. The compounding effect of fees on a portfolio reduce performance returns of an account. For example, an account paying no fees that begins with $1,000,000 and experiencing a consistent 8% return for 10 years would grow to approximately $2,169,000.  An account charged a 1% fee and experiencing the same rate of return would grow to $1,998,000. Investment advisory fees including management fee, carried interest and other expenses are described in Part 2 of Bain Capital Credit’s Form ADV, available upon request. Net returns may not be provided because the fees and expenses associated with individual investments are applied in aggregate at the vehicle level of the various Bain Capital Credit funds, which made these investments.
  2. Net returns represent the returns to non-affiliated investors after deduction of management fees, performance reallocation and partnership expenses. These performance results may not have been compiled, reviewed, or audited by an independent party.
  3. Returns shown may include returns generated by reinvested proceeds. If such returns were not included, the returns shown herein may have been lower.
  4. Performance Calculations Methodologies
  5. Internal Rate of Return (IRR) is a measure of the discounted cash flows (inflows and outflows) related to an investment. Specifically, IRR is the discount rate at which the net present value of all cash flows and any remaining investment value is equal to zero. In other words, IRR is the discount rate at which the (i) present value of all capital invested in an investment (including expenses specifically allocable to the investment) is equal to (ii) the present value of all returns from the investment (whether or not realized).
  6. All IRR calculations are unaudited.
  7. Net IRR reflects the impact of management fees, fund expenses and carried interest or incentive fee allocations.
  8. IRRs shown include all returns generated by reinvested capital and profit.
  9. Multiple of Money (MoM) is equal to the total value for each investment divided by the investment amount for such investment.
  10. Annualized returns are computed based on the change in value during the period of a theoretical investment made at the beginning of the period. The change in value of a theoretical investment is measured by comparing the aggregate ending value of Limited Partners with the aggregate beginning value adjusted for cash flows related to capital contributions or withdrawals during the period. Returns are geometrically linked on a monthly basis.

Notes Regarding Pro Forma Investment Returns

  1. Some of the performance information presented in this presentation is pro forma and includes assets held in various Bain Capital Credit funds and separately managed accounts. Those funds and accounts also held other investments and no fund or account investor actually achieved the returns shown in this presentation. In addition, the pro forma information does not take into consideration any leverage that may have been used. These pro forma performance results may have inherent limitations, including that they are prepared with the benefit of hindsight. These are provided for illustrative purposes only, and no representation is made that any investor will or is likely to achieve returns similar to those shown. The information contained herein is unaudited, subject to change, and is provided for informational purposes only. Other performance calculations may produce different results.
  2. Certain information herein reflect estimates, opinions, or predictions based on Bain Capital Credit’s models or the judgment of Bain Capital Credit investment professionals, which may change in the future. There is no guarantee that such estimates, opinions or predictions will be realized. Returns are calculated in local currencies and then rebased into a single currency as though perfectly hedged.

Notes Regarding Pro Forma Bain Capital Special Situations Investment Returns

  1. The Bain Capital Special Situations Track Record is designed to represent the experience in a global special commingled fund and does not represent all investments made by the Bain Capital Credit distressed and special situations team.
  2. Bain Capital Special Situations track record inception is August 16, 2002.
  3. The Bain Capital Special Situations investment record consists of:
    1. all investments from COPs I, COPs II, COPs III and COPs IV investment programs (the “Multi-Strategy Funds”) other than (i) middle market investments, which are investments originated or covered by Bain Capital’s Private Credit Group and consistent with the strategy of the Middle Market Credit Funds, (ii) equity and debt investments in collateralized loan obligations (“CLOs”), which are consistent with the strategy of Bain Capital Structured Credit Fund and (iii) discontinued operations, which are investments purchased using general purpose leverage, primarily CLO warehouses, index trades, tranche CDS trades, single name CDS trades, equities purchased using prime brokerage leverage facilities and total return swaps (collectively, the “Excluded Investments”); and
    2. all investments from Bain Capital Distressed & Special Situations 2013, Bain Capital Distressed & Special Situations 2016, Bain Capital Distressed & Special Situations 2019, Bain Capital Special Situations Asia, Bain Capital Special Situations Asia II, Bain Capital Special Situations Europe, and special situations separately managed account investment vehicles.
  4. The Bain Capital Special Situations investment track record excludes investments from other Bain Capital Credit funds and separately managed accounts which invest alongside the Multi-Strategy Funds, and investments made by any other funds or accounts, including those which may be in special situations assets.
  5. Net returns were calculated using the following assumptions:
    1. Management fees are based on the weighted average life of the investments multiplied by the total invested capital multiplied by 1.50%.
    2. Carried interest percentage is 20%
    3. Operating expenses are based on the weighted average life of the investments multiplied by the total invested capital multiplied by 0.25%

Index Information

  1. MSCI World Index (Net): The MSCI World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets.
  2. Cambridge Associates Asia, North America, and Europe performance represents the quarterly median IRR of the Buyout benchmarks in the respective regions.
  3. These indices may not necessarily be indicative of the investment strategies for the investment vehicles advised by Bain Capital Credit. Assets and securities contained within indices are different than the assets and securities contained in Bain Capital Credit’s investment vehicles and will therefore have different risk and reward profiles. Prospective investors should note that there are significant differences between the investment vehicles advised by Bain Capital Credit and the investments included in the various indices described herein. The investment vehicles advised by Bain Capital Credit will not necessarily invest in any of the investments that are included in an index, and may invest in types of investments not included in any index. The investment vehicles advised by Bain Capital Credit may have higher levels of risk, including through the limited use of leverage and concentrated positions, and volatility.
  4. The returns of the indices are provided solely as an illustration of the market and economic conditions generally prevailing during the periods shown. Indices are not investments, are not professionally managed and do not reflect deductions for fees or expenses. It is not possible to invest directly in an index. Investors pursuing a strategy similar to an index may experience higher or lower returns and will bear the cost of fees and expenses that will reduce returns.

Investments described in these pro forma returns were held in various Bain Capital investment vehicles which may have applied different economic terms.

1 Represents Bain Capital’s view as of the date of this presentation and is subject to change

2 EIOPA 2020 European Insurance Overview, Feb. 28, 2022

3 Delegated Regulation (EU) 2015/35, Article 169. Type 1 (common equity) has a risk charge of 39% vs 49% for Type 2 (private equity)

4 “Investing in Europe: Private Equity Activity 2020”, Invest Europe, Jul. 7th, 2021. In 2020, Insurance companies made up 10% of new PE commitments vs 29% for Pension funds

5 European insurance AuM was estimated to be € 10,627 Bn as of Dec. 2020 Source: “European Insurance in Figures 2020” Insurance Europe. European pension assets are estimated to be € 4,604 Bn Source: “Pension Fund Statistics and Trends”, Pensions Europe as of March 2020

6 Delegated Regulation (EU) 2015/35, Article 168 (4)

7 Calculated as PE Allocation = [ Capital invested in Type 2 funds/ ( Capital invested in Type 2 funds + capital invested into public Type 1 equity)] Type 2 equity is defined as all other types of equity or commodities including private equity, EU Delegated Regulation (EU) 2015/35, Article 168 ¶3

8 Based on quarterly returns from Q1 2015 to Q2 2022. Sources: Bain Capital Credit Global Special Situations Track record (Net), Cambridge Associates Preliminary Net Returns for North American, European and Asian Buy-Out funds and MSCI World for global equities.. Past performance is not indicative of future results. Actual results may vary. Please see Endnotes for information on performance calculation methodologies and other important additional information.

9 Calculated as Sharpe Ratio = [ Mean LTM Return – (1+3M US Libor Rate)^.25-1)]/[ STD (Mean LTM Return – (1+3M US Libor Rate)^.25-1)]. Based on quarterly returns from Q1 2015 to Q2 2022. So Sources: Bain Capital Credit Global Special Situations Track record (Net), Cambridge Associates Preliminary Net Returns for North American, European and Asian Buy-Out funds and MSCI World for global equities.. Past performance is not indicative of future results. Actual results may vary. Please see Endnotes for information on performance calculation methodologies and other important additional information.