HarbourVest is a fund-of-funds providing cheap access to fast-growing unlisted companies
Max King Investment columnist
The popularity of any investment trust, and hence the discount or premium to net asset value (NAV) at which its shares trade, ought in theory to reflect its historic performance and its prospects for the future. Investors, however, are far from rational. A trust that has grown its NAV by 251% in ten years, doubling it in five, compared with the FTSE All-World index’s total return of 138%, ought to be a market darling. But the shares of HarbourVest Global Private Equity (LSE: HVPE) trade at a discount of over 40%.
Doesn’t that suggest that its portfolio is massively overvalued? That argument might be plausible if stockmarkets had crashed, the world was facing recession, valuations were defying gravity and disposals had ground to a halt. But markets have been rising steadily against a benign economic backdrop. The average valuation multiple for a representative sample of the portfolio at year end was a reasonable 14 times cash flow, average cash flow having increased 15% in the year.
A conservative valuation
In the year to 31 January 2024, around 10% of the portfolio was sold at an average premium to carrying value of 24%, which suggests that the portfolio valuation is conservative. A conservative valuation makes it easy to continue generating uplifts in the future. One of HVPE’s largest investments, accounting for 2.1% of the portfolio, is Chinese fast-fashion group Shein, expected to list in London soon.
Why, then, doesn’t HVPE buy back shares at such a discount? Actually, it has been doing so since September 2022, having bought back 2.9 million shares, nearly 4% of those in issue, and contributing 86 cents to a NAV of $50.47. The board has allocated $150m-$250m to a buyback pool, which JPMorgan estimates would add 2.9% to 5.2% to NAV at current prices. Are the shares illiquid? No, the market value of HVPE is £1,840m. Are costs high? Total expenses in the year were 1.8% of average NAV, of which one third was incurred in the underlying funds. Managing private equity is expensive, with costs more comparable to a listed company than to a fund investing in listed shares, but the returns are significantly higher.
HVPE invests via 63 funds manage
