PSG

The following risk disclosure is a summary of material risks that could adversely affect the value of an investment in our strategies. Any discussion of risks herein is superseded by and subject to any risk discussion in the offering documents of any strategy and PSG’s Form ADV Part 2A.

Risks Related to the Nature of a Strategy’s Investments

Many of a strategy’s investments will be highly illiquid, and there can be no assurance that a strategy will be able to realize a return on such investments in a timely manner. Consequently, dispositions of such investments may require a lengthy time period or may result in distributions of securities in kind to investors that may or may not be marketable. Certain securities in which a strategy will invest will be the most junior in what typically will be a complex capital structure, and thus subject to the greatest risk of loss. Certain of a strategy’s investments are in businesses with little or no operating history. Certain of a strategy’s investments may be in portfolio companies with high levels of debt or may be in leveraged buyouts. Leveraged buyouts by their nature require companies to undertake a high ratio of fixed charges to available income. Such investments are inherently more sensitive to declines in revenues and increases in expenses. To the extent a strategy makes debt investments, such strategy will be subject to additional risks, including those related to credit and market risks and special risks associated with investing in bank loans and participations, unsecured loans, second-lien loans, non-investment grade debt and other loans and debt instruments. Since certain strategies will only make a limited number of investments, and because a strategy’s investments generally will involve a high degree of risk, poor performance by a small number of investments could severely affect total returns to a strategy and its investors.

Highly Competitive Market for Investment Opportunities

The business of PSG is highly competitive, and the success of a strategy as a whole depends upon the identification and availability of suitable investment opportunities. The activity of identifying, completing and realizing attractive investment opportunities is highly competitive and involves a high degree of uncertainty, especially with respect to timing. The availability of investment opportunities will be subject to market conditions, the prevailing regulatory conditions and/or the political climate in industries and regions in which a strategy may invest and other factors outside the control of a strategy. Although PSG has been successful in identifying suitable investments in the past, PSG and the general partners will be competing for investments against other sources of capital, including other private investment firms, direct investment firms, special purpose acquisition companies, merchant banks and strategic investors, and PSG and the general partners may be unable to identify a sufficient number of attractive investment opportunities for a strategy to meet its investment objectives. Other investors may make competing offers for investment opportunities that PSG has identified, and even after an agreement in principle has been reached with the board of directors or owners of an acquisition target, consummating the transaction is subject to a myriad of uncertainties, only some of which are foreseeable or within the control of PSG or the general partners. As a result, although PSG believes that significant opportunities currently exist and that a strategy should have sufficient deal flow to access such opportunities, there can be no assurance that a strategy will be able to identify and complete investments that satisfy its investment objectives, or realize the value of such investments, or that it will be able to invest fully all of its capital commitments. To the extent that any portion of a strategy’s committed capital is not invested, a strategy’s potential returns may be diminished.

Lack of Diversification Risk

A strategy may not be highly diversified. Lack of diversification would expose a strategy to losses disproportionate to market declines in general if there were disproportionately greater adverse price movements in the particular investments held by a strategy. To the extent a strategy invests a relatively high percentage of its assets in a limited number of portfolio companies, countries, regions, markets, industries or sectors, a strategy will be more susceptible than a more widely diversified investment partnership to the negative consequences of a single corporate, economic, political or regulatory event.

Investing in Growth Businesses

The strategies expect to make investments in growth companies. These companies may be characterized by short operating histories, evolving markets, intense competition and management teams that have limited experience working together. A portfolio company may need to implement appropriate sales and marketing, inventory, finance, personnel and other operational strategies in order to become and remain successful. A strategy’s returns will depend upon PSG’s ability to find and invest in companies that can successfully combine these strategies where products and markets are constantly evolving. There can be no assurance that PSG will be able to find and invest in a sufficient number of these companies to meet investor return expectations.

Control Positions

A strategy may seek certain portfolio investment opportunities that allow the strategy to either acquire control or exercise significant influence over the management, operation and strategic direction of certain portfolio companies in which it invests. The exercise of control and/or significant influence over a company imposes additional risks of liability for regulatory non-compliance, environmental damage, product defects, failure to supervise management and other types of liability in which the limited liability of business operations may be ignored. The exercise of control and/or significant influence over a portfolio company could expose a strategy to claims by such portfolio company, its security holders, its creditors and its regulators. While PSG intends to manage the strategy in a way that it believes will minimize exposure to these risks, the possibility of successful claims cannot be precluded.

Risks Related to Reliance on Management of Portfolio Companies

While it is generally PSG’s intent to invest in companies with established operating management in place, there can be no assurance that such management will continue to operate the companies successfully, or that changes to portfolio company management teams will be successful. Although PSG will monitor the performance of each investment, PSG will rely upon management to operate the portfolio companies on a day-to-day basis.

Risks Arising from Market and General Economic Conditions

General and specific fluctuations in the market prices of securities and economic conditions generally may reduce the availability of attractive investment opportunities for the strategies and may affect a strategy’s ability to make investments and the value of the investments held by the strategies. Instability in the securities markets and economic conditions generally may also increase the risks inherent in a strategy’s investments. The ability to realize investments depends not only on portfolio companies and their historical results and prospects, but also on political, market and economic conditions at the time of such realizations. Volatility in the financial sector and global and regional political conditions may have an adverse material effect on the ability of the strategies to buy, manage, sell and partially dispose of their investments. Political instability resulting in war, or the construction of trade and economic barriers could increase transaction costs and/or impact the ongoing operations of existing investments, which would materially adversely impact the value of a strategy’s portfolio investments. The strategies may be adversely affected to the extent that they seek to dispose of any of their investments into an illiquid or volatile market, and a strategy may find itself unable to dispose of investments at prices that PSG believes reflect the fair value of such investments.

Changes in general economic conditions may affect a strategy’s activities. Interest rates, general levels of economic activity, the price of securities, the price of commodities, the rate of inflation and participation by other investors in the financial markets may affect the value and number of portfolio investments made by a strategy or considered for prospective investment. In addition, certain recent bank failures could be a sign of systemic economic weakness that could be revealed over time, and the effect on inflation of the related remedies by the U.S. federal government could cause further adverse economic implications. Such failures have also caused volatility in markets generally. A strategy’s investment strategy and the availability of opportunities satisfying a strategy’s risk-adjusted return parameters rely, in part, on the continuation of certain trends and conditions observed in the market for various financial instruments and the larger financial markets and in some cases the improvement of such conditions. Consequently, a strategy may not be capable of, or successful at, preserving the value of its assets, generating positive investment returns or effectively managing risks. No assurance can be given that such conditions, trends or opportunities will arise or continue as applicable.

War and International Conflicts in Ukraine and Israel

An ongoing military conflict exists between Russia and Ukraine, which, in a relatively short period of time, has caused disruption to global financial systems, trade and transport, among other things. In response, multiple other countries have put in place global sanctions and other severe restrictions or prohibitions on the activities of individuals and businesses connected to Russia. On October 7, 2023, Hamas, a Palestinian militant group who has controlled the Gaza Strip since 2007, conducted a coordinated surprise civilian attack on Israel. In response, Israel declared war on Hamas and began a ground combat mission in the Gaza Strip. Across the Middle East region, tensions have risen, and there is concern that the Hamas-Israel war could expand to involve other regional powers and global actors. The ultimate course of conflicts, such as the Russia-Ukraine conflict and the Israel-Hamas war, and their impact on global economic and commercial activities and conditions, and on the operations, financial condition and performance of a strategy or any particular industry, business or country, including portfolio companies in Israel, as well as the duration and severity of such effects, is impossible to predict. Such conflicts may have a significant adverse impact and result in significant losses to a strategy, in particular related to the portfolio companies that operate in Israel. This impact may include reductions in revenue and growth, cyber attacks, unexpected operational losses and liabilities, and reductions in the availability of capital. It may also limit the ability of a strategy to source, diligence and execute new investments, and to manage, finance and exit investments in the future. Developing and further governmental actions (military or otherwise) and international negotiations over such conflicts may cause additional disruption and constrain or alter existing financial, legal and regulatory frameworks and systems in ways that are adverse to the investment objectives which a strategy intends to pursue, all of which could adversely affect a strategy’s ability to fulfill its investment objectives.

Inflation Risk

Inflation is a sustained rise in overall price levels. Moderate inflation is associated with economic growth, while high inflation can signal an overheated economy. Inflation risk is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money (i.e., as inflation increases, the values of a strategy’s assets can decline). Inflation poses a “stealth” threat to investors because it reduces savings and investment returns. Central banks, such as the U.S. Federal Reserve, generally attempt to control inflation by regulating the pace of economic activity. They typically attempt to affect economic activity by raising and lowering short-term interest rates. At times, governments also may attempt to manage inflation through fiscal policy, such as by raising taxes or reducing spending, thereby reducing economic activity; conversely, governments can attempt to combat deflation with tax cuts and increased spending designed to stimulate economic activity. Inflation rates may change frequently and significantly as a result of various factors, including unexpected shifts in the domestic or global economy and changes in economic policies, and a strategy’s investments may not keep pace with inflation, which may result in losses to investors.

In addition, if a strategy’s investment is unable to increase its revenue in times of higher inflation, its profitability might be adversely affected. One or more portfolio companies could have long-term rights to income linked to some extent to inflation including, without limitation, by government regulations and contractual arrangements. As inflation rises, typically a business will earn more revenue but also will incur higher expenses; as inflation declines, a business might be unable to reduce expenses in line with any resulting reduction in revenue. A rise in real interest rates may also result in higher financing costs for a strategy or its investments and could therefore result in a reduction in the amount of cash available for distribution to a strategy’s investors.

Non-U.S. Investments Risks

In addition to the preceding discussion of risks in “Risks Arising from Market and General Economic Conditions,” certain of the strategies invest in businesses operating and/or organized outside of the U.S. There are additional risks associated with such non-U.S. investments, including the following: (i) the unpredictability of international trade patterns; (ii) the possibility of governmental actions adverse to business generally or to non-U.S. investors; (iii) changes in taxation, fiscal and monetary policies or imposition or modification of controls on non-U.S. currency exchange, repatriation of proceeds, or non-U.S. investment; (iv) the imposition or increase of withholding taxes on income and gains; (v) price volatility; (vi) absence of uniform accounting, auditing and financial reporting standards, practices and disclosure requirements and less government supervision and regulation which may result in lower quality information being available and less developed corporate laws regarding fiduciary duties and the protection of investors; (vii) governmental influence on the national and local economies; and (viii) fluctuations in currency exchange rates. In addition, collateral that is located outside of the U.S. may be subject to various creditor-protection laws, depending on the country and the obligor, which laws may differ substantially from those applicable in the U.S. Repatriation of investment income, capital and the proceeds from sales of investments may require governmental registration and approval in some countries. A strategy could be adversely affected by delays in or a refusal to grant required governmental registration or approval for any such proposed repatriation.

Certain non-U.S. countries have experienced substantial, and in some periods extremely high, rates of inflation for many years. Inflation and rapid fluctuations in inflation rates have had and may continue to have very negative effects on the economies and financing markets (both public and private) of certain countries in which a strategy may invest. There can be no assurance that high rates of inflation outside the United States will not have a material adverse effect on the investments of a strategy.

In addition, non-U.S. investments may be denominated in currencies other than the U.S. dollar, and hence the value of such investments will depend in part on the relative strength of such currency to the U.S. dollar. A strategy may be affected favorably or unfavorably by currency control regulations or changes in the exchange rate between non-U.S. currencies and the U.S. dollar. In addition, a strategy will incur costs in connection with conversions between various currencies. A strategy may, but is not obligated to, engage in currency hedging operations. There can be no assurance as to the success of any hedging operations that a strategy may implement.

Risks Related to Pandemics and Other Diseases

The international transmission of COVID-19 fundamentally changed the way humans experience life worldwide. From an economic perspective, efforts to contain the spread of COVID-19 resulted in border closings and travel restrictions, significant disruptions to business operations, supply chains and customer activity, lower consumer demand for certain goods and services, in person event cancellations and restrictions, school closures, service cancellations, reductions and other changes, significant challenges in healthcare service, preparation and delivery, as well as general concern and uncertainty. Additionally, COVID-19 weakened certain industries and specific businesses. New variants and low rates of vaccination in certain areas of the world could create further uncertainty. Health crises caused by the outbreak of COVID-19 and the disproportionate impact of the pandemic on certain communities, groups of individuals, such as school aged children, and industries has exacerbated pre-existing political, social, economic, market and financial risks. The long-term impact of the outbreak is difficult to predict and could negatively impact certain of a strategy’s portfolio companies or the broader economy.

All of the foregoing may have an adverse impact on the performance of certain of the strategies’ investments, and the strategies’ ability to raise capital, source and consummate new investments or to realize its investments. In addition, disruptions in the global supply chain continue, with dislocations occurring in shipping routes, ports, air cargo, trucking lines, railways, warehouses and other areas of the supply chain. This has led to shortages of manufacturing components, order backlogs, delivery delays and rising costs for transportation and consumer prices. 

The full long-term effects, duration and ultimate costs of the COVID-19 pandemic are impossible to predict, and the circumstances surrounding the COVID-19 pandemic will continue to evolve. All risks applicable to COVID-19 would also apply to any future pandemics or similar public health emergencies.

Risks of Artificial Intelligence (“AI”)

PSG’s ability to use, manage and aggregate data may be limited by the effectiveness of its policies, systems and practices that govern how data is acquired, validated, used, stored, protected, processed and shared. Failure to manage data effectively and to aggregate data in an accurate and timely manner may limit PSG’s ability to manage current and emerging risks, as well as to manage changing business needs and adapt to the use of new tools, including AI. While PSG may restrict certain uses of third-party and open source AI tools, such as ChatGPT, PSG’s employees and consultants and a strategy’s investments may use these tools, which poses additional risks relating to the protection of PSG’s and such investments’ proprietary data, including the potential exposure of PSG’s or such investments’ confidential information to unauthorized recipients and the misuse of PSG’s or third-party intellectual property, which could adversely affect PSG, a strategy or its investments. Use of AI tools may result in allegations or claims against PSG, a strategy or its investments related to violation of third-party intellectual property rights, unauthorized access to or use of proprietary information and failure to comply with open-source software requirements. Additionally, AI tools may produce inaccurate, misleading or incomplete responses that could lead to errors in PSG’s and its employees’ and consultants’ decision-making, portfolio management or other business activities, which could have a negative impact on PSG or on the performance of a strategy and its investments. Such AI tools could also be used against PSG, a strategy or its investments in criminal or negligent ways. As the use and availability of AI tools has grown, the U.S. Congress and a number of U.S. federal and state agencies have been examining AI tools and their use in a variety of industries, including financial services. These agencies have issued, proposed or adopted a variety of rules and other guidance regarding the use of AI. AI similarly faces an uncertain regulatory landscape in many foreign jurisdictions. Ongoing and future regulatory actions with respect to AI generally or AI’s use in any industry in particular may alter, perhaps to a materially adverse extent, the ability of PSG, a strategy or its portfolio companies to utilize AI in the manner it has to-date and may have an adverse impact on the ability of PSG, a strategy or its portfolio companies to continue to operate as intended.

Regulatory Proposals with Respect to Private Funds and Investment Advisers

PSG is subject to regulation by the U.S. Securities and Exchange Commission (the “SEC”). In recent years, the SEC has proposed and adopted several new rules and amendments to existing rules under the Advisers Act related to registered advisers and their activities with respect to private funds that fundamentally increase compliance costs and burdens on PSG and its strategies. In particular, the SEC has recently proposed new rules and amendments under the Advisers Act regarding ESG disclosures, safeguarding of client assets, additional Form PF reporting obligations (in addition to those recently adopted), cybersecurity risk governance, the outsourcing of certain functions to service providers, changes to Regulation S-P and the use of predictive data and associated conflicts of interest.

The proposed rules, to the extent adopted, are expected to significantly increase compliance burdens and associated costs (which, to the extent permitted under the organizational documents of a strategy, and consistent with the law, will be treated as partnership expenses borne by limited partners of a strategy) and complexity and possibly restrict the ability to receive certain expense reimbursements in certain circumstances. This, in turn, also would be expected to increase the need for broader insurance coverage by PSG and increase such costs and expenses charged to a strategy and its investors. In addition, these amendments could increase the risk of exposure of PSG to additional regulatory scrutiny, litigation, censure and penalties for noncompliance or perceived noncompliance, which, in turn, would be expected to adversely (potentially materially) affect PSG and a strategy’s reputation, and to negatively impact a strategy in conducting its business (thereby materially reducing returns to investors). There can be no assurance that any new SEC rules and amendments will not have a material adverse effect on PSG, the strategies, their investments and/or limited partners.