HarbourVest Global Private Equity Ltd must make structural changes to address the fund’s wide trading discount, an institutional shareholder argued on Friday.
HarbourVest Global Private Equity Ltd is a London-based investment fund with interest in various sectors including technology, infrastructure and energy. It is advised by private equity firm HarbourVest Partners LLC.
The FTSE 250 constituent saw the discount between its net asset value per share and share price widen to 42% at July 31, compared to 34% six months prior.
Metage Capital Ltd, a London-based subsidiary of hedge fund manager Metage Funds Ltd, holds a 0.9% stake in HVPE and called its performance ‘a dim reflection’ in what should be HarbourVest’s ‘shop window’.
In a letter to fellow shareholders, Metage Chief Investment Officer Tom Sharp said a new capital allocation policy introduced in February had failed to boost share prices.
‘Every dollar invested into the HVP funds is valued by the professional secondary market at less than the cash committed,’ Sharp argued. ‘HVP private funds are seen as less attractive than direct investments into underlying high quality private equity funds.’
Metage said HVPE should focus on generating returns through share buybacks, rather than leveraging capital to fulfil new commitments.
‘In the six months to July 2024, HVPE bought back $45 million of shares which resulted in an increase of over $30 million of value for shareholders,’ Metage said. ‘Despite this, HVP and the board are choosing to invest at least 85% of cash flow into new investments, compared to just 15% into buybacks.’
Sharp continued: ‘Buying back shares increases the exposure of long-term shareholders to the growth of the existing portfolio at a discount, the benefit of which continues indefinitely. Further, the repurchase of shares has zero risk, as opposed to the considerable investment risk in a new private investment.’
The letter said it was doubtful that marketing would improve share value, calling instead for HVPE to prioritise secondary over primary investments, following the example of HarbourVest’s open-ended fund, HarbourVest Global Private Solution SICAV SA.
’HGPS investors know that they can fully exit their investments, at NAV, within five years. To support this liquidity profile, HGPS has a higher exposure to secondary and co-investments and invests directly into these transactions, as opposed to via an HVP fund,‘ Metage said.
‘As the primary investments, which are a higher proportion of HVPE’s portfolio, have a much longer investment and divestment period. This means that there is expected to be a greater proportion of HGPS’s assets being crystallised in any year’.
Metage also said quarterly tenders for 5% of outstanding shares should be instituted by HVPE and that the fund should sell stakes to repay debt. It concluded by suggesting liquidation, should the proposed solutions fail.
On the share price discount, HVPE said in October: ‘We believe this share price discount does not reflect the high quality of HVPE’s portfolio and a brightening macro backdrop. We have seen recent liquidity events that demonstrate the desirability of the assets in HVPE’s portfolio and which suggest that the current discount level is unjustified.’
HPVE has carried out a series of buybacks since publishing its half-year report in October.
HPVE did not immediately respond to a request by Alliance News for comment on the Metage letter.
HVPE shares were up 1.4% at 2,499.90p each on Friday morning in London.
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