HarbourVest Global Private Equity Limited (HVPE) has launched a distribution pool to finance future share buybacks or return capital to shareholders by means of special dividends:
- The shareholder distribution policy will provide cash for shareholders to bolster their returns through the cycle
- The distribution pool will be funded from cash realisations, with 15% of the total to be allocated going forward
- New commitments will be sized to preserve balance sheet strength and liquidity
- The distribution pool will not take the form of a segregated cash account. Rather, in the interests of balance sheet efficiency, the distribution pool will be held as part of HVPE’s total liquid resources and tracked from month to month.
HVPE’s investment objective is to generate superior shareholder returns through long-term capital appreciation by investing primarily in a diversified portfolio of private markets investments. In the ten years to 31 December 2023, HVPE delivered growth in NAV of 261%, while the All World Total Return Index returned 127% (all USD). Despite this, HVPE’s share price has traded at a significant discount to NAV for an extended period.
In response to difficult conditions, the company will be launching a new distribution policy to help bolster returns for shareholders. Its first buyback programme was initiated in September 2022 and since then HVPE has repurchased approximately $57m worth of shares, with a further $12m of cash allocated for repurchases under the current programme. In total, these buybacks resulted in NAV per share accretion of 1.3%.
Further to the announcement of 26 October 2023, the board has engaged with a large number of shareholders and other stakeholders to explore ways to allow shareholders to participate more directly in NAV growth, including the possibility of distributing on a regular basis some of the proceeds generated by natural cash realisations in HVPE’s portfolio. During these discussions, the board noted a range of views, with some support for the introduction of a dividend. On balance, shareholders have expressed a preference for share buybacks over dividends at the current level of discount, in view of the potential benefit arising from the resulting NAV per share accretion for continuing shareholders.
In establishing this new distribution policy, HVPE aims to optimise the long-term total return for shareholders through the cycle while preserving the strength of the balance sheet.
In 2023, total commitments were reduced considerably from the original plan, ending the year at $295 million, in response to the low level of portfolio exit activity during the year. The investment manager has presented a plan for 2024, approved by the board, based on a prudent level of new commitments with a view to enhancing near-term cash flow. Furthermore, a specific proposed commitment by HVPE has been placed on hold, thereby releasing a material cash sum as an additional, near-term allocation to the distribution pool. The fund expects that the total amount of cash allocated to the distribution pool in 2024 will be materially greater than the amount distributed via buybacks since September 2022. For reference, total proceeds received from cash realisations in the portfolio averaged $568m per annum over the last three calendar years.
Board changes
HVPE also announced today that from July 2024, all directors will be fully independent of their investment manager. This comes following the decision of HVPE’s managing director, Carolina Espinal, also a non-executive director on the board since July 2019, to not to stand for re-election in July 2024.
Although Carolina’s role as a non-executive director will come to an end, she will act a non-voting participant at relevant board meetings alongside managing director Richard Hickman. Furthermore, both Carolina and Richard, with effect from 1 February 2024, will join the HVPE investment committee as full members alongside the two existing members: HarbourVest managing director and executive management committee member John Toomey, and HarbourVest managing director and chief investment officer Greg Stento.
The HVPE board and investment manager say that these measures will represent improvements to the corporate governance and investment decision-making structures at HVPE.
[QD comment: The introduction of a fully independent board is welcome news and well overdue, we’d say, it’s relatively unusual now for manager representatives to be on the board and it’s definitely not best practice. HarbourVest is joining the ranks of private equity funds promising to hand bank money via buybacks. As this becomes more prevalent it may actually have an effect on the discounts across the sector.]