HgCapital Trust (HGT)

HgCapital Trust (HGT) focuses on software and tech-enabled services companies, and is managed by Hg, one of the leading private equity firms to specialise in this area. HGT has net assets of c. £2.5bn, making it one of the largest in the LPE sector, and as we discuss in the Performance section, it has been a very strong performer over the long-term, achieving share price total returns of 19.2% per annum over the last ten years.

Key to understanding HGT’s portfolio is Hg’s unique approach and strategy. The team have significant experience of building businesses that provide critical services for many thousands of businesses globally. By focusing on tightly defined ‘clusters’ (see Portfolio section) where the team have experience and expertise, the team can concentrate on supporting investee businesses to rapidly achieve scale. Hg’s approach is to grow businesses of different sizes, end-market focus and maturity profiles within these clusters, and remains focused on software and tech-enabled services. Hg generally looks to buy the third or fourth largest company in a local market, and then use its expertise and finances to grow them into the number-one player.

With AuM of over $100bn, Hg have a lot of experienced resource to help grow portfolio companies. Key to their strategy is to harness the expertise of both the management team and the senior executives of underlying companies for all of the businesses within the Hg portfolio, through the value creation team. Hg enthusiastically embraces collaboration across these individuals, seeking to harness the ‘power of the portfolio’. The team often refer to this network effect, which helps drive best practices and value creation initiatives.

HGT has consistently traded at a premium to peers and, at times, a premium in absolute terms. This contrasts with the wider LPE sector, which trades at significantly wider discounts. The current discount to NAV of 8.6% is broadly in line with the average over the past five years.