IC Top 100 Fund HarbourVest Global Private Equity (HVPE) has a strong long-term performance record, and beats broad global indices such as FTSE World over three and five years, both with its net asset value (NAV) and share price returns.
But over its last financial year to 31 January 2017 it did not achieve its aim of outperforming listed markets by five per cent a year – the first time in the trust's 10 year history. The trust's NAV, which is denominated in US dollars, grew 10 per cent over the year to 31 January 2017, below MSCI All Country World Index's return of 18.6 per cent and FTSE All World Index's return of 18.8 per cent. And over one year to the present its NAV return continues to lag FTSE World.
HarbourVest Global Private Equity's chairman, Michael Bunbury, says the trust's NAV underperformance in its last financial year was partly due to the rapid acceleration in listed markets during the latter half of 2016 and lags in private equity valuations. The trust's increase in commitments to new funds also exerted a drag.
"What matters is the long-term performance," he says. Since inception in 2007 HarbourVest Global Private Equity has delivered a NAV per share total return in US dollars of 84.7 per cent as against 38.6 per cent for FTSE All World ."
And, over its last financial year, its share price, which is quoted in sterling, rose 37 per cent, boosted by the decline in sterling against the dollar that followed the UK's vote to leave the European Union.
The trust now benchmarks its performance against the FTSE All World Index, arguing it is a better match as it is geographically more similar to the trust's portfolio. And FTSE All World Index provides a more detailed breakdown of each country's performance, making it easier for the trust to analyse its own holdings' performance against this benchmark.
HarbourVest Global Private Equity is a fund of private equity funds which gives exposure to unlisted companies, an area that is many times larger than the listed sector, but often difficult for individual investors to access directly. The trust is managed by HarbourVest Advisers, an affiliate of global private markets investment specialist HarbourVest Partners, which has a 35-year history, more than $40bn (£30bn) of assets under management and a team of more than 100 managing a range of private equity funds.
Most of the trust's investments are in HarbourVest managed funds which come in three categories. Primary funds are commitments to private equity funds during the initial fundraising stage. Secondary investments are purchases of private equity fund interests after the initial fund raising. And co-investments are purchases of interests directly in operating companies.
Through its funds HarbourVest Global Private Equity has exposure to more than 7,000 companies. Its managers aim to diversify holdings across stage, strategy, industry, year and geography. Its portfolio has included several high-profile technology companies such as Uber, Airbnb, Snapchat, Just Eat and further back, Facebook (US:FB) Skype, LinkedIn and Twitter (US:TWTR).
The trust has nearly two-thirds of its assets in buyout deals and over 60 per cent in the US. Nearly two-thirds are in consumer and technology companies.
SVG Capital Acquisition
Last autumn, the trust's management company HarbourVest bought the portfolio of another UK listed private equity trust, SVG Capital. Although HarbourVest Global Private Equity was not directly involved in the acquisition one of its underlying funds, HarbourVest managed Dover Street IX, was an acquirer of SVG Capital's portfolio.
"It had a limited effect on our portfolio," says Richard Hickman, director, investments and operations at HarbourVest Global Private Equity. "HarbourVest Global Private Equity invests in Dover Street IX so through that fund we have exposure to the SVG portfolio. But a greater impact was the fact that deal shone a light on the sector. Prior to the bid on SVG the shares were trading on a more than 20 per cent discount [to NAV] and the acquisition price was significantly above that, which really highlighted that listed private equity is trading at a wider discount than it deserves."
HarbourVest Global Private Equity's discount to NAV narrowed from 26 to 19 per cent over the year to 31 January and is now around 16 per cent. This is slightly wider than the average level for private equity funds of funds of about 15 per cent, according to Winterflood Securities.
But Mr Hickman says the underlying companies the trust has exposure to are typically realised on a premium of between 30 and 50 per cent, either through a public listing or sale to another private buyer.
"If you look at a company's valuation in March and then it's sold in April, typically the price achieved on sale is significantly higher than what it was valued at, and that indicates the NAVs tend to be a little conservative," he explains. "You are also getting a discount on the share price compared to the NAV, so there's quite a buffer between what you're paying for the shares and what the underlying assets [are worth]."
HarbourVest Global Private Equity (HVPE) |
PRICE: | 1,240p | GEARING: | 0% | |
AIC SECTOR: | Private Equity | NAV: | 1479.1p | |
FUND TYPE: | Guernsey domiciled investment company | DISCOUNT TO NAV: | 16.2% | |
MARKET CAP: | £990m | YIELD: | 0% | |
No OF HOLDINGS: | 7093* | ONGOING CHARGE: | 2.17%* | |
SET-UP DATE: |
| MORE DETAILS: | hvpe.com | |
MANAGER START DATE: | 7/12/2007 |
Source: Winterflood Securities, as at 06/09/17 & *HarbourVest Global Private Equity |
Performance
1-year total return (%) | 3-year cumulative total return (%) | 5-year cumulative total return (%) | 1-year total return (%) | 3-year cumulative total return (%) | 5-year cumulative total return (%) | |
NAV | Share price | |||||
HarbourVest Global Private Equity | 10 | 60 | 105 | 29 | 69 | 186 |
FTSE World Index | 17 | 48 | 103 | 17 | 48 | 103 |
Private equity fund of funds average | 12 | 51 | 77 | 31 | 64 | 144 |
Source: Winterflood as at 11 September 2017 |
Top 10 holdings as at 31/01/17 (%) |
Lightower Fiber Networks | 2.14 |
Press Ganey Associates | 1.34 |
Preston Hollow Capital | 1.33 |
Capsugel | 1.31 |
LeasePlan Corporation | 1.12 |
Acrisure | 1.05 |
Infinitas Learning | 0.97 |
H-Line Shipping | 0.93 |
Wayfair | 0.86 |
Ministry Brands | 0.77 |
Source: HarbourVest Global Private Equity |
Sector breakdown as at 31/07/17 (%) |
Consumer financial | 33 |
Technology telecom | 30 |
Industrial other | 20 |
Medical biotech | 17 |
Source: HarbourVest Global Private Equity |