HgCapital (HGT), the £1.8bn private equity investment trust hit by an “indiscriminate” sell-off in software stocks last month, has reasserted the quality of its business technology companies and its confidence in their ability to adapt to artificial intelligence.
Announcing annual results for 2025, chair Jim Strang said shares in HGT, which invests in the private equity funds of Hg, had fallen 21% this year on fears that AI chatbot operators such as Anthropic would threaten the profits of the 61 “mission-critical” accounting and enterprise software providers which it holds.
However, Strang said the sell-off had made little distinction between the many different players and their strengths and weaknesses. “While conditions remain challenging, recent transaction activity at HGT validates the quality of the assets HGT owns and the manner in which they are valued, both by HGT and the buyer universe and should be of considerable comfort.”
His comments came as HGT reported a modest 4% total underlying return for 2025, down from 10.4% in 2024, with falls in comparable listed companies weighing on the portfolio and offsetting the double-digit growth in the portfolio. Shareholders saw their stakes fall 4.9% last year.
HGT said its companies increased sales by 17% on average and earnings, or profits, by 19%, both moderating slightly from 19% and 23% respectively from the previous year. Margins remained strong at 33% compared to 34% in 2024.
Last month Investec analyst Alan Brierley quickly downgraded HGT back to “hold”, having previously upgraded it to “buy” when the shares plunged in response to an extension in the legal administrative capabilities of Anthropic’s Claude tool. He cited nervousness about the impact on net asset value from falls in listed European software companies as a factor in his decision.
The investment trust said “elevated market volatility” saw a contraction in the multiples used to value HGT’s portfolio companies, reducing valuations by 8%. In addition, increases in borrowing used to support future growth had cut valuations by 6%. However, it said the falls in valuations made funding bolt-on acquisitions by its companies more attractive to bolster their market positions and product offerings.
Last year HGT invested £357m and sold £215m of investments with an average 25% uplift on realisations. This included a 97% gain on GTreasury, the Chicago-based software-as-a-service treasury management system provider sold to Ripple for $1bn. This was Hg’s “first AI-driven exit” with the valuation boosted by the success of its Catalyst team in helping the business launch its own agentic software product, GSmart AI, that had proved popular with customers.
This year Hg completed the sale of Intelerad, a US medical imaging software provider, to GE Healthcare at an uplift of 62% in a transaction that returned £52m to HGT. It said this further demonstrated the attractiveness of its assets to strategic buyers.
Strang said AI was “an area of absolute focus” and that Hg had made impressive efforts to support its companies while securing multiple partnerships for them with AI providers including Anthropic, Replit, Cognition Labs, Forethought and Intercom.
David Toms, Hg head of research, said the stock market’s “aggressively negative stance” on listed software companies was at odds with the evidence it saw in its private companies which showed “significant” earnings increases from selling AI applications to their customers. This echoed comments last month by Matthew Brockman, chair of Hg’s investment committee.
A final dividend of 3p per share has been declared, holding the total for the year at 5p. While the recent derating of the shares to a 29% discount to net asset value had depressed shareholder returns to 15% over three years, over 10 years to 31 December it had delivered an annualised return of 18.9%, beating the 10.5% of the FTSE All-Share index. Some investors have taken advantage of the recent decline. Valhalla, the holding company of Preqin data provider founder Mark O’Hare, has bought an 8% stake.
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