FIVE QUESTIONS WITH… Adam Sokoloff managing director and co-head of the financial sponsors group, Jefferies & co. –

1. Given that debt is still relatively inexpensive and widely available, do you think we’ll see the same amount of dividend recapitalization-related activity this year that we saw in 2005?

Debt recaps tend to flourish when debt markets are robust.These days, the leverage markets are in good shape, although I don’t see them being as hot as six months ago, so I don’t know that we’ll see as many dividend recaps in 2006.Traditionally, recaps happen when sponsors either want to take some money off the table without relinquishing control or they can’t get a full realization at the level they want. In today’s market people are getting the prices they want, multiples are high, so instead of recaps, they’re selling.

2. Jefferies’ recent acquisition of placement agent Helix Associates gives you a bird’s-eye view of the fundraising market. Are you expecting 2006 to be as big a fundraising year as 2005?

There’s a lot of money on the sidelines right now, but there have been a lot of realizations that have sent money back to LPs and they need to redeploy it.Another aspect of the fundraising environment is the sheer size of funds.My partners at Helix and Ioften remark on theimpact of large funds.A couple of years ago a large fund was $3 billion and up.Now you’re talking about $6 billion.There was a sense a year ago that 2005 would be busy and we might see a tapering off at the outset of 2006.Instead, the momentum from last year is carrying straight over into 2006.

3. Given that debt multiples are still relatively high, are you noticing any change in the return expectations from general partners?

By historic standards, the prices we see private equity funds paying are high. The increase in leverage multiples has allowed private equity groups to pay more for properties.In terms of expectationsfor returns, IRRs over the last several years have been coming down. The economics of deals-and this is especially the case with fund sizes increasing-are such that GPs don’t need high multiples, since a two and 20 fee structure can bring very attractive returns in absolute dollars. Given where we are on interest rates, a 20% IRR in private equity remains very attractive compared with returns on the public markets and other asset classes.

4. From what you see, how are hedge funds measuring up in the private equity world, and do you think they will even be an important factor in the PE market beyond 2006?

Over the last couple of years, our team has increasingly been calling on hedge funds as well as private equity funds when we are looking for capital.Hedge funds have built up significant infrastructure and have become very knowledgeable about companies and industries. At the same time, they’re attracting very experienced private equity professionals out of traditional firms and operating talent from the private equity industry. They’re now applying that knowledge and those skill sets to private equity-type instruments. Will all of them stick around? No, but several will become long-term players.

5. Jefferies just announced its sixth consecutive year of record financial results. What’s driving this activity?

Coming off a legacy in institutional sales and trading, over the past 10 years Jefferies has become a full-service investment bank with a strong base in high yield and restructuring.We can now deliver diversified solutions for growth and middle market companies and their investors.We’ve acquired three M&A firms since 2002 that are well-branded in their given sectors-Randall & Dewey in energy/oil & gas, Broadview in technology, and Quarterdeck in aerospace & defense. Our CEO, Rich Handler, wants to remain opportunistic and nimble, so we’ve kept a flat organizational structure. All of which helps my co-head Andrew Booth and me provide whatever tools our clients need to grow and succeed.