InvestmentsSep 14 2015

Fund Review: HarbourVest Global Private Equity

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Managed by HarbourVest Partners, the Guernsey-based trust has a net asset value of $1.3bn (£851m) and adopts a fund-of-funds approach providing access to multiple HarbourVest funds. Richard Hickman, associate director, portfolio development at HVPE, notes the portfolio provides investors with access to more than 6,700 company investments, making it a highly diversified private equity vehicle.

Process:

Investing solely in HarbourVest funds means macroeconomic factors have an indirect role in asset allocation. Mr Hickman explains: “For HarbourVest Global Private Equity (HVPE), it is really the opportunities presented by HarbourVest [that determine the allocation]. That’s driven to some extent by macro factors, because if there is no demand in the market as a whole for a given fund type, it is unlikely HarbourVest would be in a position to offer that to HVPE.”

The investment process is multi-stage and involves a large number of employees in the decision-making process. Mr Hickman notes there are two decision-making levels. The independent board of the trust makes the decisions on the overall level of investment commitments to HarbourVest funds, then within HarbourVest a committee of five senior managing directors allocate to those funds. “The ultimate decisions are made by the investment committee,” he says.

The process has evolved over time, but the manager notes HVPE has “remained consistent, [and we] have stuck to the strategy of investing in HarbourVest funds, diversification and steady investments. So we’re really benefiting now from the dollar-cost-averaging effect because we invested throughout the cycle, whereas some of our peers pared back investment.”

A key focus of the trust in recent years has been its prospective listing on the main market, which occurred on September 9 2015. This listing means the trust could eventually enter the FTSE All-Share and perhaps the FTSE 350, giving it the ability to widen its appeal.

Performance:

The trust was launched in December 2007 on the Euronext exchange and listed on the London Stock Exchange in May 2010. For the five years to September 2 2015 it has delivered a total return of 152 per cent, compared with the AIC Private Equity sector average of 64.5 per cent, data from FE Analytics shows.

Recent changes to the portfolio include increased commitments to HarbourVest’s international programme HIPEP VII, which effectively constitutes non-US programmes, including Europe, Asia and emerging markets. Mr Hickman notes: “We’ve also committed this year to HarbourVest’s core US programme, HarbourVest X. Combined those commitments are more than $400m, so they’ll have a significant effect on the portfolio as they’re drawn down. But the $400m will be drawn down [gradually] across several years, and will maintain our exposure to the US and hopefully build additional exposure to Europe.”

He says contributions to performance have been spread fairly evenly across the portfolio. However, some strong realisations from the venture and growth portfolio – including stakes in seven of the 10 largest venture-backed exits in 2014 such as GoPro and Oculus – helped boost performance.

A key detractor has been the European portfolio, which declined during the past 12-18 months as result of the impact of the depreciation of the euro.

“The impact of that currency shift last year was quite significant, so we did suffer on that in dollar terms,” Mr Hickman says. “We are unhedged really in terms of currency – it is not something we have ever actively hedged. The only possible offsetting factor we highlight is that we do have outstanding commitments in euros.

“Those investments are yet to be made, so we’ll benefit on the way in from the weaker euro. That should help us even out these currency fluctuations in the long run,” he adds.

EXPERT VIEW

Martin Bamford, chartered financial planner and managing director, Informed Choice

Private equity is a riskier area, but HarbourVest uses different strategies to manage the risks. Around half of the portfolio invests in primary partnerships during the initial fundraising stage of private equity funds. The other half is allocated to secondary and direct investments. There is good diversification across different sectors, with the largest exposure to consumer and financial stocks reaching just over a third of the portfolio. As a naturally cautious adviser, the low gearing level of 103 per cent looks good, but I would have concerns around the complexity of the charging structure.