‘It’s a long-term story’: HVPE to play up imminent 10-year track record

Investment trust HarbourVest Private Equity has seen an uptick in retail interest since it moved from the Specialist Fund Segment of the London Stock Exchange to the premium market and is hoping that will continue as it reaches its 10-year track record this December.

The £990.3m investment trust has underperformed in the last six months, returning 1 per cent compared to 7.7 per cent in the AIC Private Equity sector, FE data shows. However, over one, three and five-years it has outperformed.

“We would always suggest a five-year holding period; it’s a long-term story,” says HVPE director Richard Hickman, who says they will be upping marketing efforts towards retail and wealth management markets as their decennial anniversary nears.

Total return since inception – just before the global financial crisis – is 174 per cent, a spokesperson says.

HVPE performance vs Private Equity sector

6m 1yr 3yr 5yr
HarbourVest Global Private Equity 1.0 32.3 67.5 172.6
AIC Private Equity sector 7.7 25.9 42.2 94.0
Source: FE

“What will become very clear is our performance over the full 10 years compared to our peer group,” says Hickman. “Despite being the most diversified we’ve delivered probably the second-highest return.”

The investment trust has a global team – from Boston to Bogota to Hong Kong – picking private equity funds, including parent company HarbourVest’s offerings. “Rather than having one star manager like Neil Woodford we have 30-plus experts with sector, stage or deal-type expertise investing portions of the fund,” says Hickman.

HVPE is one of the few private equity investment trusts on the FTSE 250, which it joined in December 2015 from the Specialist Fund Segment. 3i is the largest listed private equity investment trust, featuring on the FTSE 100 with a market cap of £9.3bn, while smaller rival Electra Private Equity, with a market cap of £624m, is also on the FTSE 250.

“Since then our liquidity has improved fairly dramatically because we now have 5 per cent of shares held by index tracker funds,” Hickman says. “The day we joined the index we had a trade of around 3.6m shares, so at the time, around £35m.”

Since joining the main market, retail investors represent around 2.5 per cent of the share register from “essentially zero” two years ago, Hickman notes, while approximately 60 per cent is held by institutional investors and the remainder is with a mixture of wealth managers, family offices and hedge funds.

The investment is also engaged with national wealth managers. “We are on the lists for several of the wealth managers. We see steady buying now as more and more portfolio managers look at it,” Hickman says. “It isn’t an avalanche of buying as soon as you join the list, but it’s steady and it builds over time.”

Discount control

The investment trust only introduced a share buyback policy at its latest AGM in July despite discounts averaging 20 per cent in the sector.

“The best use of buybacks is if you have a known seller and natural demand is not deemed to be sufficient then potentially a buyback would make sense,” says Hickman. “Having the tool there is helpful, but the difficulty is when to deploy it and not to create adverse incentives in the market where it might construed there’s always a buyer there.”

Because underlying assets are in US dollars, sterling depreciation following Brexit saw the discount to NAV increase from around 20 per cent to 30 per cent despite little movement in the share price, Hickman says.

“It actually took a while for the market to cotton on to that and reprice the shares. In the days and weeks that followed Brexit any stock that had foreign currency exposure did pretty well. We didn’t; I think because we were less well known for that. People wouldn’t necessarily look for us when they were thinking of that type of investment.”

However, HarbourVest’s acquisition of a rival private equity investment trust, SVG Capital, narrowed the discount, Hickman says.

“The fact that that transaction went through at a considerable premium to the share price prior to the transaction encouraged investors to look at the sector and consider that HarbourVest and other bidders see value in this and that focussed a spotlight on us. The discount did narrow in HVPE and others, it’s benefited the whole sector.”