HarbourVest hopes to hand back $150m to $250m to investors

HarbourVest Global Private Equity has published results for the 12 months ended 31 January 2024. The NAV ended the year 4% higher at $50.47 per share, lagging the return on global listed equity indices (the All World Index returned 15.3%). Ed Warner (the chairman) states that the trust’s relative underperformance is not surprising, and is consistent with private equity investments being inherently less volatile than listed markets, tending to outperform during public market downturns and lagging as markets start to recover.

The share price rose by 4.8% in the year to 31 January 2024, and the trust was trading at a discount of 42% at the year end. On this, the chairman said “My fellow directors and I share investors’ frustration with HVPE’s discount. We are all shareholders ourselves in HVPE and believe the discount is unjustified given HVPE’s meticulous valuation process and the quality of the funds and companies in which it is invested.” During the period, the trust bought back 1,421,114 shares for cancellation at an average price of £21.70 per share for a total value of £30.8m. This added $0.42 to the NAV.

[We have to agree with Ed, there is no good reason why a large, liquid trust with such a good long-term track record should be one of the cheapest private equity trusts listed in London. Only five of these have discounts wider than 40% and the other four are all either tiny (three have a market cap of £15m or less) or troubled (Symphony)]

As one way of tackling the discount, on 1 February 2024, it announced a new distribution policy – as we reported here. Currently, the balance in the distribution pool is $52m, which will be used for further share buybacks. Looking ahead, based on the detailed modelling carried out by the manager, the board expects that the total amount of cash allocated to the pool across the two calendar years 2024 and 2025 will be between $150m and $250m, inclusive of the existing balance.

Over the year to the end of January 2024, HarbourVest invested $283m more than it received in distributions from the portfolio – as the manager notes, there were few IPOs and M&A activity was also limited. As at 31 January 2024, HVPE had net debt of $135m, down from net cash of $198m. The debt facility is currently drawn $365m and HVPE has a cash balance of $84m giving a net debt position of $281m. Total outstanding commitments to private equity funds were $295m at the period end.

Extracts from the manager’s report

Generally subdued market conditions had an inevitable impact on valuations. The valuations of venture and growth assets remained under pressure during the first nine months of the calendar year, although tech-related asset values began to improve in late 2023 in response to the strong gains in some listed tech stocks. Overall, NAV held steady over the year, although premiums to NAV on exit will have been compressed, as managers felt some urgency to realise investments, even at slightly lower than desired premiums. Regardless, exits are still being realised at a healthy premium to carrying value of 24% which should provide confidence in the validity of our NAV.

The secondary portfolio was the best performing strategy in percentage terms, delivering value growth of 8.2% over the 12 months. Geographically, Europe, North America and Rest of World categories all saw growth at 9.5%, 6.6% and 6.2%, respectively, while Asia saw a modest decline (-0.5%). Looking at stages, the Buyout portfolio was the strongest performer, growing 8.6% in the 12 months ended 31 January 2024. Mezzanine and InfRA also grew, recording a 7.1% gain, along with a modest increase of the Venture and Growth Equity stage assets (+1.3%).

As at 31 January 2024, HVPE held investments in 63 HarbourVest funds and 16 secondary co-investments1 (compared with 61 and 16 respectively at 31 January 2023). Of these, the largest fund contributors to NAV per share movement in absolute terms during the 12 months to 31 January 2024 are described below:

• Fund XII Buyout, a US-focused buyout fund of funds, was the largest contributor to NAV per share, adding $0.34 over the reporting period. With a vintage year of 2021, this fund is in its investment phase. The increase came predominately from unrealised gains.
• Fund XI Buyout, a US-focused buyout fund of funds, was the second-largest contributor over the reporting period, adding $0.27 to NAV per share. With a vintage year of 2018, this fund is in its growth phase. The increase came predominately from unrealised gains.
• Fund X Buyout, a US-focused buyout fund of funds, was the third-largest contributor, adding $0.23 to NAV per share. With a vintage year of 2015, this fund is in its growth phase. The increase was evenly split between realised and unrealised gains.
• Fund X Venture, a US-focused venture fund of funds, was the largest negative contributor over the reporting period, reducing NAV per share by $0.16. With a vintage year of 2015, this fund is in its growth phase. This decrease came predominantly from unrealised losses.
• Dover Street XI, a global-focused secondary fund, was the next largest contributor over the reporting period, adding to NAV per share by $0.14. With a vintage year of 2022, this fund is in its investment phase. The increase came predominately from unrealised gains.

HVPE : HarbourVest hopes to hand back $150m to $250m to investors