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Fund Profile

HarbourVest Global Private Equity 10 October 2022

Disclaimer

Disclosure – Independent Investment Research

This is independent research issued by Kepler Partners LLP. The analyst who has prepared this research is not aware of Kepler Partners LLP having a relationship with the company covered in this research report and/or a conflict of interest which is likely to impair the objectivity of the research and this report should accordingly be viewed as independent.

Overview
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Overview

HarbourVest Global Private Equity (LON:HVPE) has net assets of $3.8bn, and invests in private companies and portfolios of private companies through funds managed by HarbourVest Partners. It is one of the larger constituents of the listed private equity peer group, and has exposure to several thousand underlying companies. This diversification is a key part of the investment thesis.

HarbourVest’s HVPE investment committee (see Management section) periodically reviews and proposes on an annual basis a medium-term (five years) strategic asset allocation framework, which represents a target against which the portfolio is gradually guided towards. Currently, the venture and growth equity allocation is significantly higher than target, a result of the very strong performance from this part of the portfolio over 2021. Otherwise, as we discuss in the Portfolio section, HVPE has very broad diversification.

Since inception to 31 August 2022, HVPE quotes a total NAV return of 378% in USD, which compares the FTSE All-World total return of 119% (also in USD). This represents an impressive degree of outperformance, and illustrates the attractions of private equity as an asset class, as well as HarbourVest’s investment proposition, to long-term investors.

HVPE is effectively 7.5% geared on a net basis. As with any investment, gearing enhances the upside, but exaggerates the downside. Compared to peers, HVPE has amongst the higher commitments relative to NAV or cash, but we would observe that historically the managers have managed cashflows well. During the financial year ending 31/01/2021, with the uncertainty provided by COVID, the board made relatively few commitments, and so the last financial year saw a significant step-up in commitments made and reflects something of a catch-up. As such, we would expect to see coverage ratios modestly increase over time.

Analyst's View

Over the long term, HVPE has delivered impressive NAV returns. As we discuss in Portfolio, the outperformance of comparators in more recent years has largely been the result of exposure to venture funds, which contributed to considerable NAV growth during 2021. Whilst realisations contributed to a lot of these gains from venture, at the same time some caution must be applied in the context of current market volatility. Valuation moves downwards – particularly within the venture portfolio - may potentially be on the cards in the near future.

As we discuss in the Discount section, HVPE’s £-based returns have been a beneficiary of dollar strength against Sterling, but as a result the discount is at a historically wide level providing something of a potential cushion to any NAV weakness. HVPE’s board recently made their first ever buyback of shares, at a discount to NAV around 50%. At this level, buybacks are clearly highly accretive, but historically the board has been reticent. Having a geared investment position, as well as significant commitments (see Gearing section), buybacks clearly need to be managed with caution.

We believe that the buybacks clearly represent a recognition from the board that the current discount is highly attractive. HVPE’s diversified exposure to an extremely wide range of private companies should mean it is exposed to few stock-specific risks. On the other hand, HVPE’s venture holdings may provide a short-term headwind.

Bull

  • Long experience and expertise of manager in private markets is a clear differentiator

  • Low stock specific risk and broad exposure should smooth returns over time

  • Wide discount to NAV should provide reassurance to long-term investors

Bear

  • Relatively opaque underlying holdings

  • Geared exposure can exacerbate downside

  • High OCF is likely to limit appeal for some investors

Continue to Portfolio

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