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Wednesday February 05 2025, 10.30pm, The Times
Is it time to sell shares in HarbourVest Global Private Equity?Activist investors are shaking up the £2bn investment trust. A 38 per cent discount to NAV and proposed reforms raise questions about its future
The sleepy world of investment trusts has been shaken up by activist investors this year. It appears that the £2 billion HarbourVest Global Private Equity trust is no exception. The FTSE 250 fundis one of the biggest in the sector, though the seemingly perennial discount on the shares and a mistrust of private assets means that it has often gone unnoticed by most DIY investors. But a radical overhaul at the trust could change all this.
A combination of complaints from Metage Capital, an activist investor based in London, its stubborn double-digit discount and trailing share price, has prompted the fund to introduce reforms to serve its shareholders better.
The first initiative is to double the proportion of available cash in its distribution pool for share buybacks from 15 per cent to 30 per cent. It has also agreed in principle a new simplified investment structure with its manager, HarbourVest Partners, which will put the trust’s funds into a separate vehicle to create a more direct relationship between HVPE investors and its private holdings, as previously they were “co-mingled” with other funds. Finally, the board has also proposed the introduction of a continuation vote at its annual meeting next year.
Even with these changes, the fund is not particularly easy to understand at first glance. HVPE is an investment company that has invested in other funds, which in turn invest their assets into a diverse range of private companies. That includes the likes of Shein, the Chinese fashion retailer, Revolut, the digital bank and DP World Australia, the cargo handling operator.
The fund has invested alongside other HarbourVest managed funds that focus on primary fund commitments, secondary investments and direct co-investments in operating companies. About half of the fund was in primary assets, 30 per cent in secondary and 21 per cent as a direct co-investment as of the end of December. After a few years of growth, the fund then exits the investment. The money raised from these exits then provides the fuel for new commitments, and it continues in a cycle.
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Its portfolio also includes investments in private credit. This means that it has underlying exposure to more than 1,000 different businesses.
Within its portfolio, about 62 per cent of companies were at the buyout stage as of the end of December. Just under 33 per cent were still in the venture and growth equity stage, with the remainder in infrastructure and real assets or mezzanine financing. By sector, about 33 per cent of the portfolio was invested in private technology and software assets, such as Databricks, the data intelligence platform. The remainder was relatively evenly spread among consumer, medical and biotech, financial, industrial and transport, all ranging from 9 per cent to 14 per cent. A modest 5 per cent was in media and telecom businesses, and 4 per cent in energy and clean tech.
The fund is well diversified, and its proponents argue that it acts as a one-stop-shop for a basket of privately owned assets. Historically it has been a decent performer, with the annualised net asset value per share return of 13 per cent, compared with 10 per cent from the FTSE All World from 2014 to 2024.
Shares in the trust rallied by as much as 5 per cent last week when it announced its efforts to reduce its 38 per cent discount to NAV. Much of this was enthusiasm about the trust potentially setting aside more cash to return to shareholders, which analysts at the broker Deutsche Numis reckon could lead to $235 million being available for buybacks this year, equivalent to 5.6 per cent of NAV and roughly 10 per cent of its market value. It can only be a good thing that HVPE has been consulting with its shareholders and analysts seem to expect that the reforms reflect HVPE’s expectations of better valuations and more realisations in the portfolio this year.
Advice Hold
Why Encouraging initiatives by board to simplify a complex investment