HarbourVest Global Private Equity 09 October 2024

HVPE offers a unique exposure to a diverse range of private companies. Investments are made on a global basis, and across the maturity profile of businesses, with underlying exposure to more than 1,000 businesses. Within this portfolio there are relatively early-stage businesses which may be in their hyper-growth phase, more stable growth opportunities, and those which are highly predictable and generating significant cash. Importantly, private companies offer exposure to very different markets and niches than publicly listed companies. HVPE offers a simple one-stop-shop for private markets exposure, but one that manages risk by not exposing investors to a narrow group of investments, themes or areas of the market.

HVPE’s portfolio is designed to capture the strong returns potential of private equity, but minimise risks. Historically, it has been a strong performer, with the annualised NAV per share total return of 10% outperforming the FTSE All World Total Return Index by c. 3% per year since HVPE’s IPO in 2007 (to 31/08/2024). Company-specific risks are minimised by diversification. Currently Shein, the Singaporean-based fast-fashion on-line retailer reportedly aiming to list on public markets soon, is the largest position at 2.2% of NAV, and the top ten holdings only make up 7.3% of NAV (as at 31/08/2024). In other ways too, the portfolio is designed to potentially ensure a smoother trajectory over shorter timeframes than one focused on only one segment of the private market such as venture or buyouts.

The managers seek to ensure that HVPE remains as fully invested as possible, avoiding ‘cash-drag’, through an over-commitment strategy. Whilst underlying managers are continuing to find opportunities to invest capital, proceeds from exits do not always match these cash outflows and so HVPE draws on its credit facility as a working capital buffer. As we illustrate in the Gearing section, during the last financial year, HVPE became net geared. Incorporating fund-level borrowing, on a look-through basis we might consider HVPE to currently be 20 % geared on a net basis (as at 31/08/2024). Returning capital via buy-backs (see Discount) increases gearing, but during 2023, total commitments were reduced considerably from the original plan as a mark of caution. We understand new commitments will continue to be sized to preserve balance sheet strength and liquidity.

HVPE offers a differentiated and highly diverse exposure to private market investments. In our view, the portfolio has been put together in an intelligent way, which minimises risks for investors but offers the potential to capture high returns. The performance trajectory over the long term has been impressive, with NAV and share price significantly outperforming world equities (see Performance section). Over the last five years, the experience has been more mixed, with record levels of activity in the period post Covid leading to very strong NAV growth. Latterly, performance has been more muted, reflecting a slowdown in deal activity in private market transactions.

HVPE’s manager notes that there are currently early signs that activity may be beginning to step up once again, which would be positive for NAV growth and the discount to NAV, which as we discuss in the Discount section, is at historically wide levels . HVPE has a mature portfolio, which means it should be well positioned to benefit if realisations start to ramp up. One of the catalysts for this to happen may be further interest rate declines following the US Fed’s first cut of 50bps. This could be the blue touch paper which re-ignites animal spirits in the private equity world, which is otherwise sitting on record amounts of dry powder.

For investors looking to broaden their investment exposure, private companies may make a lot of sense, and HVPE has proved that it offers an attractive way for investors to access them. With 15% of realisation proceeds now earmarked for potential distribution to shareholders since the introduction of the distribution pool in February 2024, buy-backs may provide something of a backstop for the current wide discount to NAV. In our view the prospect of realisation activity improving in the near term is an attractive backdrop for investors to consider an investment in HVPE.