HarbourVest Global Private Equity (HVPE) has released the annual results for its financial year ending 31 January 2023.
- HVPE reported a 12 month NAV total return of -1.2%, compared to the -7.3% return of the FTSE All-World Index.
- HVPE’s positive returns from infrastructure and real assets, credit, and small to mid-cap buyouts were more than offset by declines in venture and growth equity, and large buyouts. The largest negative contributor was its US-focused venture fund of funds, whose losses were largely unrealised, and cost $0.62 per share. Conversely the largest contributor was a US-focused buyout fund of funds, which contributed $0.31 per share, and whose gains were largely realised.
- Both the board and manager highlight that HVPE’s outperformance is due in part to its diversified portfolio, but also because HVPE did not fully participate in the 2021 upside, and thus should not be expected to suffer to the same degree in the subsequent downturn.
- HVPE’s weighted average uplift to pre-transaction carrying value for a large sample of transactions over the period was 31% (i.e. the premium when gains are realised), in line with its peers.
- HVPE was a net investor over the period, paying $588m into capital calls, while receiving $532m in cash. This has reduced the cash on HVPE’s balance sheet to $198m.
- In September 2022 the board saw fit to buy back shares to help control HVPE’s widening discount, currently 44%. Over the 12 month period 757,864 shares were bought back (0.9% of circulation), for a total value of £17m. The board has announced a second round of buybacks, and intends to spend $25m on new share repurchases.
Richard Hickman, HVPE’s manager, commented:
“HVPE remains focused on optimising its portfolio in accordance with the Strategic Asset Allocation targets. The Board and Investment Manager made no changes to the targets in the year under review, consistent with its view that in times of volatility it is important to maintain a consistent long-term outlook. On a geographical basis, we continue to believe that private markets in the US are well-positioned to provide strong returns in the years ahead, and that the potential for further penetration of private capital in Europe continues to grow. Meanwhile, concerns over China should not dampen optimism around wider growth opportunities in Asia overall, and HVPE remains committed to allocating 20% of its capital to the region on a rolling five-year basis.
“From an investment stage perspective, Buyouts remain our largest allocation as we believe that high-quality managers in this space will continue to innovate and adapt in the years ahead, maintaining the potential for premium returns. The Venture and Growth Equity segment, while less fashionable than it was 12 months ago, nevertheless continues to nurture high-quality, profitable businesses, some of which could become the S&P 500 titans of tomorrow. Mezzanine, Infrastructure and Real Assets – a segment providing a yield while benefiting from floating rates and other inflation-hedging properties – remains a key component of our portfolio, comprising 9% currently against a target of 10%. As well as its relative stability and low correlation to other parts of the portfolio, the segment is supported by long-term, secular tailwinds such as the energy transition and digitisation.”
While HVPE’s chairman, Ed Warner, commented:
“The Board is conscious of the challenges that lie ahead, yet remains optimistic that HVPE’s diversified portfolio is well positioned. While today’s macroeconomic backdrop may feel uncharted, much of this has been seen before, and experienced by HarbourVest and by private markets professionals. Sceptics may predict a reckoning for the industry – essentially calling time on thousands of businesses – but we believe, as demonstrated by recent history, that private markets will again demonstrate they are capable of adapting and thriving in these times.
“The asset class is not immune to the difficulties posed by an adverse macroeconomic environment, and we are mindful that operating performance could start to come under pressure in some businesses. The key for HVPE is to continue to back those managers who can use their expertise to drive and support their portfolio companies through more challenging times, whilst capitalising on attractive investment opportunities as they arise.”
[QD comment]: “HVPE is, next to Pantheon, one of the elder statesmen of the private equity world, making its results a good litmus test for the wider industry. In an almost perplexing way, we think that some comfort could be drawn from HVPE posting a marginal NAV loss, as it shows that valuations are not unidirectional, and there is discipline in their construction. While we are still some way from seeing the impact of rising rates and market uncertainty being workout out of the private equity investor behaviour, at least the management teams are not taking too many liberties in the current environment. This may support the notion that a rebound in the share prices may be on the cards once the smoke clears, as investors may be overly cautious in the face of uncertainty. HVPE’s results also raise the idea that investors are perhaps making too close an association with private and public markets. Private assets didn’t see the same euphoric growth in 2020 and 2021, so it seems reasonable that they shouldn’t be as heavily discounted in today’s environment.”
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