Medley Management Inc. (NYSE: MDLY) Investor Presentation Quarter ended March 31, 2018
Important Notice to Investors This presentation contains “forward looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1 934, as amended, that are subject to risks and uncertainties. Actual outcomes and results could differ materially from those suggested by this presentation due to the impact of many factors beyond the control of Medley Management Inc., including those listed in the "Risk Factors" section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 and our other filings with the Securities and Exchange Commission (“SEC”). Any such forward -looking statements are made pursuant to the safe harbor provisions available under applicable securities laws and Medley Management Inc. assumes no obligation to update or revise any such forward-looking statements except as required by law. Certain information discussed in this presentation (including information relating to portfolio companies) was derived from third party sources and has not been independently verified and, accordingly, the Company makes no representation or warranty in respect of this information. The following slides contain summaries of certain financial and statistical information about Medley Management Inc. The information contained in this presentation is summary information that is intended to be considered in the context of our SEC filings and other public announcements that we may make, by press release or otherwise, from time to time. In addition, information related to past performance, while helpful as an evaluative tool, is not necessarily indicative of future results, the achievement of which cannot be assured. You should not view the past performance of Medley Management Inc., or information about the market, as indicative of Medley Management Inc.’s future results. This presentation does not constitute an offer to sell or the solicitation of an offer to b uy any securities of Medley Management Inc. This presentation includes certain non-GAAP financial measures, including Core Net Income, Core EBITDA, Core Net Income Per Share, Pre-Tax Core Net Income per Share, Pre-Tax Core Net Income Margin, Core Net Income Margin and Pro-Forma Weighted Average Shares Outstanding. These measures should be considered only as supplemental to, and not as superior to, financial measures prepared in accordance with U.S. GAAP. Please refer to the financial performance section of this presentation for a reconciliation of the non-GAAP financial measures included in this presentation to the most directly comparable financial measures prepared in accordance with U.S. GAAP. 2
Table of Contents 1. Overview 4 2. Market Opportunity 9 3. Investment Process 12 4. Overview of funds 14 5. Financial Performance 18 6. Appendix 24 3
OVERVIEW 4
Company Overview • Diversified credit manager offering yield solutions for institutional and retail investors • $5.1B of assets under management (“AUM”) and $ 3.0B of fee-earning assets under management (“FEAUM”) • Success in developing innovative new products and accessing multiple distribution channels Total AUM Fee Earning AUM (1) 1% $5.3 $5.1 $5.1 21% $4.8 Permanent $3.7 9+ Years 1% 6-9 Years $2.3 $1.8 65% 3-6 Years 12% $1.3 Less than 3 Years 2011 2012 2013 2014 2015 2016 2017 1Q18 Permanent Capital Institutional Capital Note: Metrics in billions of USD. Due to rounding figures may not sum. 1. As of March 31, 2018. 5
Investment Capabilities Structured Credit Investing in CLO equity issued by • top tier managers Direct Lending Secondary markets investing in • Flagship product delivering • CLO equity and related securities capital solutions to private, • Capability to sponsor and issue middle market companies Medley-branded CLOs National direct origination • franchise Medley leads origination, • underwriting and Liquid Income Securities credit management Public, yield-driven • investments including trust preferred, BDCs, residential Corporate Credit and commercial mortgage REITs and yield oriented equity Primarily focused on syndicated • and equity-linked products middle market corporate credit Typically larger borrowers than • direct lending Tactical Opportunities Focus on preferred and structured equity • Leverages direct lending and institutional deal • sourcing capabilities Private equity type risk-reward profile • 6
Diversified AUM Across Multiple Funds • Broad distribution through public and private channels • Permanent capital, long-dated funds and managed accounts not subject to traditional outflows MEDLEY (NYSE: MDLY) Public Vehicles Institutional Capital Medley Sierra Long-Dated Funds and Capital Income Separately Managed Accounts Corporation Sierra Corporation (NYSE: MCC) Total Return Medley Separately Medley Fund Senior Senior Credit Tactical Managed Opportunity Loan Fund Loan Fund Opportunity Opportunities Accounts Funds Fund 7
Portfolio Summary Investment Type Breakout Floating vs. Fixed Rate 8% 4% 14% First Lien 13% Second Lien Floating Unsecured Fixed Equity 75% 86% Industry Breakout Medley Investments by Geography Services: Business 11% Healthcare & Pharmaceuticals 14% Construction & Building 2% Banking, Finance, Insurance & Real Estate 2% High Tech Industries 2% Hotels, Gaming & Leisure 30% 3% 21% 10% 22% Wholesale 3% Automotive Aerospace & Defense 3% Energy: Oil & gas 3% Chemicals, Plastics & Rubber 10% Containers, Packaging and Glass 3% 15% Multi-Sector Holdings 23.8 4% 12% Services: Consumer Media: Advertising, Printing & Publishing 8% % 5% Beverage & Food 5% Capital Equipment 7% 5% Other Note: Portfolio summary represents total committed amounts as of 3/31/2018 and represents assets in all investment vehicles including TRS and SLS assets. In addition, non-U.S. investments comprise approximately 1% of Medley’s overall investment portfolio. 8
MARKET OPPORTUNITY 9
Increasing Demand for Alternatives AUM CAGR Since 2010 (1) • Market leading growth in AUM driven by: 40% - Increasing demand for yield in low rate 30% 26% environment 20% - Increasing demand by investors for senior 13% secured and floating rate exposure 7% 10% 0% Traditional Alternative MDLY Managers Managers Growth in Alternatives (2) • Growth in alternatives continues to outpace that $23T $25 of traditional asset managers $20 24% CAGR - Increased allocation from both retail and $15 institutional investors 8% CAGR $8T $10 - Retail investors significantly underweight $5T $5 exposure to alternatives $- 2008 2015 2020E Alternative Investments Note: Metrics in trillions of USD. 1. Traditional managers include: BEN, BLK, IVZ, JNS, OMAM, and TROW. Alternative managers include APO, BX, CG, KKR, OAK, and OZM. Medley selected the traditional and alternative manager groups based on subjective factors. There may be other managers not mentioned. 2. Based on BCG, Global Asset Management 2016. 10
Large and Growing Market in Private Credit Bank Consolidation (1)(2) • Traditional lenders to the middle market have 12,000 80% changed in recent years U.S. FDIC Insured Commercial Banks 11,000 70% Bank Participation in Levered Loan Market (%) - Consolidation of the banking system 10,000 60% 9,000 50% - Regulatory headwinds for banks and CLO 8,000 40% managers 7,000 30% 6,000 20% • The middle market remains a large opportunity 5,000 10% 4,000 0% - 20 years ago banks represented over 70% - Today banks represent 10% • US middle market would rank as the 3rd largest Top GDPs (3) global economy $16.8 • Private credit has emerged as an important asset class for all investors $9.2 $6.7 - Retail $4.9 $3.6 $2.7 $2.5 $2.2 - Insurance companies - Pension funds United China US Japan Germany France UK Brazil States Middle Market - Endowments 1. Federal Deposit Insurance Corporation, represents number of commercial banking institutions insured by the FDIC as of 12/31/2017. 2. S&P LCD’s Leveraged Lending Review – Q4’17. 3. International Monetary Fund, World Economic Outlook Database, June 2014. Metrics in trillions of USD. 11
INVESTMENT PROCESS 12
Integrated Investing Processes • Downside protection – focused on capital preservation 1 Origination • Three step underwriting process • Over 45 investment professionals • Nationwide platform • Multiple touch points and evaluations • Targeted middle market sectors • Disciplined Investment Committee process 1 2 Underwriting Origination • Multi-step approval process • Documentation process • 3 rd party resources • Approve 1-3% of opportunities • Medley has invested in over 400 borrowers (1) 3 Asset and Portfolio Management Asset and Portfolio 3 Management • Best-in-class technology and systems • Frequent interaction with 2 borrowers • Credit monitoring and reporting Underwriting 1. Since inception through 3/31/2018. 13
OVERVIEW OF FUNDS 14
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