HarbourVest Global - Annual Financial Report
30/05/2024 07:00
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RNS Number : 3605Q HarbourVest Global Priv. Equity Ltd 30 May 2024
30 May 2024
RESULTS FOR THE 12 MONTHS ENDED 31 JANUARY 2024
Long-term outperformance continues
Private equity market conditions forecast to improve
HarbourVest Global Private Equity Limited ("HVPE" or the "Company"), a FTSE
250 investment company with global exposure to private companies, managed by
HarbourVest Partners, today announces its audited results for the 12 months
ended 31 January 2024.
Highlights
Resilient net asset value ("NAV") performance
· NAV per share growth of 4.0% over the period to $50.47 (31
January 2023: $48.52).
· Exits continued at a 24% premium to carrying value,(1) as M&A
activity increased during the year.
· Over the financial year, HVPE was a net investor by $283 million
cash invested.
Consistent long-term outperformance of public market benchmarks
· Over the 10 years to 31 January 2024, HVPE delivered growth in
NAV per share of 251%, while the FTSE All-World Total Return (FTSE AW TR)
Index returned 138% (USD).
· NAV per share has doubled over the five years to 31 January 2024
and is more than five times its level at the IPO in December 2007.
Private equity markets forecast to improve
· Positive shift in the macroeconomic environment as public markets
began to recover with an expectation that private markets will follow.
· Improvements in investment environment seen in Q4 2023 have
continued into 2024.
· M&A activity recovering, with exits post period end ahead of
the last 12-month average.
Distribution Pool allocation expected to be $150 - $250 million
· Distribution Pool initiated 1 February 2024, ring fencing capital
to be deployed for share buybacks or special dividends.
· The Board expects that the total amount of cash allocated to the
Distribution Pool across the two calendar years 2024 and 2025 will be between
$150 million and $250 million, inclusive of a seed amount during 2024 of $75
million.
· The current balance in the Distribution Pool is $52 million,
which will be used for further share buybacks.
· 1.4 million shares repurchased in 12 months to 31 January 2024.
Share buybacks began in September 2022 with 2.9 million shares having been
repurchased for a total consideration of £64.7 million adding $0.86 to NAV
per share over the period.
Ed Warner, Chair of HVPE, said:
"The investment case for HVPE remains compelling. The Company has outperformed
public equity markets over the past ten years, and we are optimistic that this
will continue in the long term.
HVPE's track record attests to the resilience of its investment strategy
during challenging periods, and its diversified portfolio is well-positioned
to continue to deliver strong returns and outperformance in the years ahead.
HVPE's near term prospects also appear favourable. IPOs and M&A
transactions are both rising. Concerns about valuations in the sector are also
alleviating, which should help to drive both exit volumes and premiums.
The progress we have made over the year, including actions we have taken to
drive share price returns, positions us well for the future. With private
market recovery gathering momentum the Board is confident HVPE is well set
for future growth."
Annual Report and Accounts
To view the Company's Annual Report and Accounts please visit HVPE's results
centre: https://www.hvpe.com/shareholders/results-centre/
(https://www.hvpe.com/shareholders/results-centre/) . Page number references
in this announcement refer to pages in this report. The Annual Report and
Accounts will also shortly be available on the National Storage Mechanism,
which is situated at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism)
Investor Meet Company Webinar
There will be a presentation for shareholders on Tuesday, 4 June 2024 at
11:00AM GMT.
Investors can sign up to Investor Meet Company for free and register via:
https://www.investormeetcompany.com/harbourvest-global-private-equity-limited/register-investor
Annual Results Presentation
HVPE will publish a new presentation on its website to supplement the
publication of the Annual Results for the 12 months ended 31 January 2024. The
presentation will be available to view and download from www.hvpe.com
(http://www.hvpe.com) today.
1 These figures represent the weighted average
percentage uplift to carrying value of 79 individual company M&A and IPO
transactions during the year ended 31 January 2024. This analysis takes each
company's value (whether realised or unrealised) at 31 January 2024 and
compares it to the carrying value prior to announcement of the transaction.
This analysis represents 83% of the total value of transactions in the year
ended 31 January 2024 and does not represent the portfolio as a whole.
Additionally, it does not reflect management fees, carried interest, and other
expenses of the HarbourVest funds or the underlying managers, which will
reduce returns. Past performance is not necessarily indicative of future
returns.
- ENDS -
LEI: 213800NBWV6WWV8TOL46
Enquiries:
Shareholders
Richard Hickman Tel: +44 (0)20 7399 9847 rhickman@harbourvest.com (mailto:rhickman@harbourvest.com)
Stephanie Hocking shocking@harbourvest.com (mailto:shocking@harbourvest.com)
Media
MHP
Tim Rowntree / Tel: +44 (0)7736 464 749 HVPE@mhpgroup.com (mailto:HVPE@mhpgroup.com)
Robert Collett-Creedy
HarbourVest Partners media@harbourvest.com (mailto:media@harbourvest.com)
Notes to Editors:
About HarbourVest Global Private Equity Limited:
HarbourVest Global Private Equity Limited ("HVPE" or the "Company") is a
Guernsey-incorporated, closed-end investment company which is listed on the
Main Market of the London Stock Exchange and is a constituent of the FTSE 250
index. HVPE is designed to offer shareholders long-term capital appreciation
by investing in a private equity portfolio diversified by geography, stage of
investment, vintage year, and industry. The Company invests in and alongside
HarbourVest-managed funds which focus on primary fund commitments, secondary
investments and direct co-investments in operating companies. HVPE's
investment manager is HarbourVest Advisers L.P., an affiliate of HarbourVest
Partners, LLC, an independent, global private markets asset manager with over
40 years of experience.
About HarbourVest Partners, LLC:
HarbourVest is an independent, global private markets firm with 40 years of
experience and more than $125 billion of assets under management as of
December 31, 2023. Our interwoven platform provides clients access to global
primary funds, secondary transactions, direct co-investments, real assets and
infrastructure, and private credit. Our strengths extend across strategies,
enabled by our team of more than 1,000 employees, including more than 230
investment professionals across Asia, Europe, and the Americas. Across our
private markets platform, our team has committed more than $58 billion to
newly-formed funds, completed over $50 billion in secondary purchases, and
invested over $37 billion in directly operating companies. We partner
strategically and plan our offerings innovatively to provide our clients with
access, insight, and global opportunities.
This announcement is for information purposes only and does not constitute or
form part of any offer to issue or sell, or the solicitation of an offer to
acquire, purchase or subscribe for, any securities in any jurisdiction and
should not be relied upon in connection with any decision to subscribe for or
acquire any Shares. In particular, this announcement does not constitute or
form part of any offer to issue or sell, or the solicitation of an offer to
acquire, purchase or subscribe for, any securities in the United States or to
US Persons (as defined in Regulation S under the US Securities Act of 1933, as
amended ("US Persons")). Neither this announcement nor any copy of it may be
taken, released, published or distributed, directly or indirectly to US
Persons or in or into the United States (including its territories and
possessions), Canada, Australia or Japan, or any jurisdiction where such
action would be unlawful. Accordingly, recipients represent that they are able
to receive this announcement without contravention of any applicable legal or
regulatory restrictions in the jurisdiction in which they reside or conduct
business. No recipient may distribute, or make available, this announcement
(directly or indirectly) to any other person. Recipients of this announcement
should inform themselves about and observe any applicable legal requirements
in their jurisdictions.
The Shares have not been and will not be registered under the US Securities
Act of 1933, as amended (the "Securities Act") or with any securities
regulatory authority of any state or other jurisdiction of the United States
and, accordingly, may not be offered, sold, resold, transferred, delivered or
distributed, directly or indirectly, within the United States or to US
Persons. In addition, the Company is not registered under the US Investment
Company Act of 1940, as amended (the "Investment Company Act") and
shareholders of the Company will not have the protections of that act. There
will be no public offer of the Shares in the United States or to US Persons.
This announcement has been prepared by the Company and its investment manager,
HarbourVest Advisers L.P. (the "Investment Manager"). No liability whatsoever
(whether in negligence or otherwise) arising directly or indirectly from the
use of this announcement is accepted and no representation, warranty or
undertaking, express or implied, is or will be made by the Company, the
Investment Manager or any of their respective directors, officers, employees,
advisers, representatives or other agents ("Agents") for any information or
any of the opinions contained herein or for any errors, omissions or
misstatements. None of the Investment Manager nor any of their respective
Agents makes or has been authorised to make any representation or warranties
(express or implied) in relation to the Company or as to the truth, accuracy
or completeness of this announcement, or any other written or oral statement
provided. In particular, no representation or warranty is given as to the
achievement or reasonableness of, and no reliance should be placed on any
projections, targets, estimates or forecasts contained in this announcement
and nothing in this announcement is or should be relied on as a promise or
representation as to the future.
Other than as required by applicable laws, the Company gives no undertaking to
update this announcement or any additional information, or to correct any
inaccuracies in it which may become apparent and the distribution of this
announcement. The information contained in this announcement is given at the
date of its publication and is subject to updating, revision and amendment.
The contents of this announcement have not been approved by any competent
regulatory or supervisory authority.
This announcement includes statements that are, or may be deemed to be,
"forward looking statements". These forward looking statements can be
identified by the use of forward looking terminology, including the terms
"believes", "projects", "estimates", "anticipates", "expects", "intends",
"plans", "goal", "target", "aim", "may", "will", "would", "could", "should" or
"continue" or, in each case, their negative or other variations or comparable
terminology. These forward looking statements include all matters that are not
historical facts and include statements regarding the intentions, beliefs or
current expectations of the Company. By their nature, forward looking
statements involve risks and uncertainties because they relate to events and
depend on circumstances that may or may not occur in the future and may be
beyond the Company's ability to control or predict. Forward looking statements
are not guarantees of future performance. More detailed information on the
potential factors which could affect the financial results of the Company is
contained in the Company's public filings and reports.
All investments are subject to risk. Past performance is no guarantee of
future returns. Prospective investors are advised to seek expert legal,
financial, tax and other professional advice before making any investment
decision. The value of investments may fluctuate. Results achieved in the past
are no guarantee of future results.
This announcement is issued by the Company, whose registered address is BNP
Paribas House, St Julian's Avenue, St Peter Port, Guernsey, GY1 1WA
© 2024 HarbourVest Global Private Equity Limited. All rights reserved.
Chair's statement
Dear Shareholder,
There was little respite for investors during much of 2023, as central banks
continued to raise interest rates through the first half of the year to quash
inflationary pressures. This aggressive monetary tightening made market
participants fearful of a global recession and cautious about committing to
new investments, including in private markets. Despite these challenges, our
diversified portfolio showed resilience and delivered growth. By early 2024,
the mood had started to brighten as inflation slowed and investors began to
anticipate rate cuts. In both private and public markets, there were early
signs of increased M&A and IPO activity and some optimism about a better
year ahead.
Resilient financial performance
Against this backdrop, HVPE's net asset value (NAV) per share rose 4.0% to
$50.47 over the year to 31 January 2024. This compares with a 15.3% rise in
the FTSE All-World Total Return Index, led by a surge in US share prices as
market sentiment improved in late 2023. HVPE's relative underperformance is
not surprising, and is consistent with private equity investments being
inherently less volatile than listed markets, tending to outperform during
public market downturns and lagging as markets start to recover.
Importantly, the Company's long-term performance remains strong and is the
basis of the Board's belief in our strategy. HVPE has realised its investment
objective to deliver material outperformance of the public markets throughout
the cycle. In the ten years to 31 January 2024, HVPE delivered growth in NAV
per share of 251%, while the FTSE All-World Total Return Index returned 138%
(all USD).
However, the full benefit of this outperformance is not reflected in the
Company's share price, which has traded at a significant discount to NAV for
an extended period. HVPE's share price rose 4.8% in the year to 31 January
2024, and was trading at a discount of 42% (slightly below the 44% discount at
the end of the previous year).
I appreciate it is cold comfort to HVPE shareholders that most investment
companies, regardless of their asset class or investment strategy, have seen
very wide discounts over the past year. High interest rates have increased the
appeal of lower-risk cash and bond investments, and global investors seeking
capital growth have tended to look to the US in preference to UK-listed
equities. Additional unfavourable influences have ensured that listed private
equity companies have seen discounts wider than most. Technical factors such
as persistent selling by UK-focused index tracker funds, affect HVPE and some
of its immediate peers, due to their inclusion in the FTSE 250 and FTSE
All-Share indices. There has also been a degree of scepticism over reported
NAVs for alternative asset classes such as private equity in this higher
interest rate environment.
As a Board, we remain resolute in our conviction that HVPE's published NAV
figure is robust, being the result of rigorous valuation processes at each
level in its structure, and reflects the economic value of the Company's
underlying investments. Further reassurance regarding HVPE's NAV is provided
by the fact that, on average, our investments have continued to be exited at a
premium to carrying value.
My fellow Directors and I share investors' frustration with HVPE's discount.
We are all shareholders ourselves in HVPE and believe the discount is
unjustified given HVPE's meticulous valuation process and the quality of the
funds and companies in which it is invested.
New distribution policy
In response to this situation, over the past year we have engaged with a large
number of investors and other stakeholders, to explore how shareholders can
participate more directly in HVPE's NAV growth through the cycle, while also
supporting the share price and potentially reducing the discount.
As a result of these discussions, the Board recently announced a new policy,
effective from 1 February 2024, which saw the establishment of a
Distribution Pool. This Pool is being funded by a proportion of the cash
realisations from the Company's portfolio going forward, with this proportion
set initially at 15%. This effectively ring-fences capital to be deployed for
share buybacks or special dividends, while taking into consideration the
importance of maintaining balance sheet strength and liquidity. Several
factors are weighed when determining shareholder distributions, including the
macroeconomic environment, the discount, market sentiment, and any alternative
opportunities. At the current wide discount, the policy favours share buybacks
and we have been active in this regard in the new financial year.
Full details of this policy are outlined on page 71.
Buybacks
In the current unusual market conditions, repurchasing shares represents an
attractive and prudent investment, and makes sense from a capital allocation
perspective. In accordance with our established framework for assessing
buybacks, in May 2023, the Board announced our intention to buy back $25
million of shares, with a further allocation to share repurchases being
announced in the Semi-Annual Report. In total, during the 12 months ended 31
January 2024, our brokers bought back 1,421,114 shares for cancellation at an
average price of £21.70 per share for a total value of £30.8 million ($38.5
million). This added $0.42 to NAV per share over the year.
Since the year-end, HVPE has continued buying back shares with a further
714,154 shares repurchased for cancellation at an average price of £23.67 per
share for a total consideration of £16.9 million ($21.5 million).
Since first buying back shares in September 2022, the Company has therefore
repurchased a total of 2,893,132 shares for consideration of £64.7 million
($78.7 million). This is the equivalent of 3.6% of HVPE's market
capitalisation as at 30 April 2024.
As mentioned above, in February HVPE announced the introduction of a
Distribution Pool, to be funded by 15% of cash realisations from the
portfolio. This is an evergreen capital allocation policy, designed to be
sustainable through the cycle, and is not impacted by deductions such as
capital calls, debt repayments or fund expenses. Investors are able to track
the growth of the Distribution Pool on a monthly basis, while the Investment
Manager determines forward commitments based on the remaining 85% of cash
distributions.
During this first year of its operation, the Distribution Pool is being
additionally funded by a seed amount, currently expected to total $75 million.
This was reallocated from a postponed commitment to a HarbourVest fund and is
being contributed in three equal tranches through the year. As of the date of
this report, the balance in the Distribution Pool is $52 million, which the
Board is pleased to confirm will be used for further share buybacks.
Looking ahead, based on the detailed modelling carried out by the Investment
Manager, we expect that the total amount of cash allocated to the Distribution
Pool across the two calendar years 2024 and 2025 will be between $150 million
and $250 million, inclusive of the existing balance. We believe that this will
make a material difference to shareholders' returns, helping to ensure that
they benefit more directly from the strong value growth delivered by HVPE's
high quality portfolio.
The potential impact of the Distribution Pool on the share price discount is
difficult to gauge, but the Board expects that its ongoing operation will have
a supportive effect on total shareholder returns over the long term.
Balance sheet, portfolio cash flows and commitments
Over the financial year, HVPE was a net investor by $283 million. The
portfolio reflected the trends seen across the industry of resilient
dealmaking combined with slower exit activity. While these investments lay the
groundwork for continued strong portfolio performance over the long-term, they
do place a demand on HVPE's cash reserves in the short-term. As at 31 January
2024, HVPE had net debt of $135 million. This was a change from the prior year
position when HVPE had net cash of $198 million. The facility is currently
drawn $365 million and HVPE has a cash balance of $84 million giving a net
debt position of $281 million. The Board is conscious of the need to ensure
that the credit facility is always of a size and duration appropriate to
HVPE's needs. The Board intends to refresh the credit facility and is
currently well advanced in this process.
Over the course of 2023, total commitments were reduced considerably from the
original plan, ending the year at $295 million, in response to the low level
of portfolio exit activity during the year. In November 2023, the Investment
Manager presented a plan for 2024 which was subsequently approved by the
Board. This plan was informed by the Investment Manager's extensive scenario
planning, resulting in the recommendation of a prudent level of new
commitments with a view to enhancing near-term cash flow. New commitments will
continue to be sized to preserve balance sheet strength and liquidity which
remains an important focus for the Board.
Focus on Environment, Social and Governance (ESG)
The Board is committed to the highest standards of corporate governance and to
improving the social and environmental impact of HVPE's activities, in
collaboration with HarbourVest Partners. The Manager presents frequent updates
to the Board on how ESG factors are considered in its investment process, its
screening methods, and its reporting. This includes a steady increase in the
scope and nature of the information that it can provide on HVPE's own
portfolio. In addition, ESG risk has been integrated into the Board's
assessment of all the material risks faced by the Company to ensure that it is
embedded as a part of HVPE's overall strategy. The Board initiated a project
to calculate its own carbon footprint in 2021 and since that time, has
continued to offset its operational carbon emissions, the majority of which
result from travel. Full details of the Investment Manager's approach to ESG
matters can be found on pages 68 to 69.
Board and Investment Management Committee
In response to shareholder feedback, on 1 February 2024, HVPE announced two
refinements to its corporate governance and investment decision-making
structures. With effect from the July 2024 Annual General Meeting (AGM),
HVPE's Board will become fully independent of the Investment Manager when
HarbourVest Managing Director Carolina Espinal steps down as a Director. On
behalf of the Board, I would like to thank Carolina for her valuable
contribution to the work of the Board over the past five years.
Carolina will remain involved with the investment decisions made on behalf of
the Company as both she and Richard Hickman joined HVPE's Investment Committee
with effect from 1 February 2024. In the Board's view, Carolina's and
Richard's close knowledge of the Company and their private market expertise
will strengthen HVPE's investment process, enhancing its ability to deliver
the best possible outcome for shareholders over the long term.
Given the persistence of a wide discount, and conscious of the impact this has
on shareholders' returns, the Board has decided that there should be no
increase in the fees paid to Directors for the year ending 31 January
2025.
Marketing and shareholder engagement
The Board is committed to regular and effective engagement with its
stakeholders, to improve understanding of the Company's strategy and provide
updates on investment activity. As one key element of this process, as in
previous years, HVPE will hold a Capital Markets session for shareholders on 6
June 2024, at Peel Hunt's offices in London. This event will be a well-timed
opportunity for shareholders to receive an update on HVPE's results for the
year to 31 January 2024, ask any questions they may have and hear views on
global markets and industry trends from both HarbourVest Partners and external
speakers. My fellow Directors and I look forward to welcoming as many
shareholders as possible in person to this event and we encourage you to
register. Shareholders who are interested in attending should contact the team
at hvpe_events@harbourvest.com (mailto:hvpe_events@harbourvest.com) .
The Company's AGM with be held in Guernsey at 1.00PM BST on 17 July 2024.
Formal notice will be sent to registered shareholders shortly and we encourage
all registered shareholders to exercise their votes by proxy.
The Board also undertakes a series of other activities and events which are
outlined on pages 36 to 38. In addition, my fellow Directors and I always
welcome the opportunity to engage with shareholders and answer any questions.
We can be reached via hvpecosec@bnpparibas.com
(mailto:hvpecosec@bnpparibas.com) .
Company prospects and outlook
In our view, the investment case for HVPE remains compelling. The Company has
outperformed public equity markets over the past ten years, and we are
optimistic that this will continue in the long term. HarbourVest is a high
quality manager investing with leading private equity managers, giving it
access to a wealth of talent and high quality opportunities from around the
world. HVPE's track record attests to the resilience of its investment
strategy during challenging periods and, in our view, its diversified
portfolio is well-positioned to continue to deliver strong returns and
outperformance in the years ahead.
HVPE's near term prospects also appear favourable, as we share the Manager's
view that private equity markets will improve this year. IPOs and M&A
transactions are both rising, as demonstrated in our recent NAV updates, and
there are widespread expectations that activity will gain further momentum as
the year progresses. The recovery in public markets is alleviating concerns
about valuations, which should help drive exit volumes. Modest declines in
interest rates should provide a further boost to the sector, as will any
improvement in exit premiums.
This may take time to play out, but we are confident HVPE is heading in the
right direction. The progress we have made over the year, including actions we
have taken to optimise shareholder returns, will position us well for the
future. We are grateful to those patient shareholders who have remained
invested for the long-term, and to those who have joined the share register
more recently. We thank you for your support and look forward to reporting
back to you on HVPE's further progress.
Ed Warner
Chair
29 May 2024
Investment Manager's report
Introduction
The past year was another challenging one for investors. Rising interest rates
fuelled fears of a global recession, which sapped investors' confidence.
Geopolitical uncertainties escalated as the war in Ukraine reached a
stalemate, tensions ignited in the Middle East and relations between the US
and China remained fraught. For most of the year, global equity markets
struggled under the weight of these adverse influences, with the exception of
a few US tech stocks perceived to be the main beneficiaries of the artificial
intelligence ("AI") revolution. However, market sentiment began to improve
considerably in the last quarter of 2023. Tight monetary policy began to take
effect, driving down inflationary pressures, without triggering recession in
most major economies, and equity indices were buoyed by the prospect of
interest rate cuts during 2024.
Private Markets Industry
In private markets, 2023 saw few IPOs, while mergers and acquisition (M&A)
activity was also limited. This constrained private equity exit activity,
which declined by 24% through to September 2023,(1) to its lowest level in a
decade, which in turn limited investors' ability and appetite to commit to new
funds.
On the sell side, many private equity managers held on to high-quality assets
while they waited for greater clarity on asset valuations. They also delayed
fundraisings and final closes in the face of investor reticence. Global
private markets fundraising declined 36% through to September 2023,(1) with
capital more concentrated in the hands of the larger scale, strongly
performing managers. Among developed markets, the US and Canada held up best,
thanks to the depth of their capital markets, while European markets saw deals
decline in value and size. In the Asia-Pacific region, China's disappointingly
insipid post-pandemic rebound and ongoing property market problems saw focus
shift to other regional markets. Although India was the only market to see an
increase in exits, Australia and New Zealand saw some sizeable transactions in
Q3 of 2023.(1)
Valuations
These generally subdued market conditions had an inevitable impact on
valuations. The valuations of venture and growth assets remained under
pressure during the first nine months of the calendar year, although
tech-related asset values began to improve in late 2023 in response to the
strong gains in some listed tech stocks. Overall, NAV held steady over the
year, although premiums to NAV on exit will have been compressed, as managers
felt some urgency to realise investments, even at slightly lower than desired
premiums. Regardless, exits are still being realised at a healthy premium to
carrying value of 24%,(2) which should provide confidence in the validity of
our NAV.
However, despite this lacklustre backdrop, private equity managers still found
attractive new investments and managers with strong track records succeeded in
raising large funds. The sector's top managers continued to perform well -
some of the largest, most successful managers reported double-digit
returns.(3) Conditions across the industry improved in Q4 of 2023 as
macroeconomic uncertainties began to abate and public markets recovered
accordingly. There were signs that IPOs and M&A activity were beginning to
recover and bid-ask spreads, which are the differences between the highest
price a buyer will pay and the lowest price a seller will accept for an asset,
have narrowed.
Strategic Asset Allocation review
Following the 2023 annual review of HVPE's strategic asset allocation targets,
the Board approved the following changes recommended by the HVPE Investment
Committee:
· At the Stage level, an increase in the target allocation to
Mezzanine and Infrastructure and Real Assets ("InfRA") from 10% to 15%,
reducing the target Buyout allocation from 60% to 55%. At the end of January
2024, the actual allocation to Mezzanine and InfRA stood at 8%, while the
actual allocation to Buyout stood at 61%. Reaching these new targets will
therefore involve a seven percentage point increase in allocations to
Mezzanine and InfRA and a six percentage point decline in exposure to Buyouts.
· At the geographical level, an increase in the target allocation
to Europe from 20% to 24%, reducing the target Asia allocation from 20% to
16%. The actual allocation to Europe already stood at 21% by end January 2024,
while the actual allocation to Asia was 14%.
The increase to Mezzanine and InfRA is intended to ensure that HVPE benefits
from increased exposure to the attractive risk/reward profile on offer in real
assets and yield-oriented investments. HVPE's infrastructure investments have
performed well through the rising rate environment of the last two years,
while the yields on offer in private credit now range from 10-12% at the
senior level to 14-18% for junior credit.(4)
The increased target weighting to Europe reflects the fact that, in our
assessment, the private markets ecosystem in Europe has developed markedly in
recent years. The opportunity set has grown, particularly in the venture and
growth equity market, while returns have been resilient across our European
buyout exposure. Meanwhile in Asia, the investing environment has seen a
marked change due to the scarcity of new investment opportunities in China.
While the country has historically been a single source of strength for the
region based on the exponential growth of the consumer internet segment during
the prior hype cycle, recent changes have largely closed that market to North
American and European investors, with a 77% decline in fundraising
year-over-year through Q3 of 2023.(5) The region is undergoing dramatic
shifts that are creating near-term growth opportunities in other markets like
Japan, Korea, and India.
These new target allocation weightings are medium to long-term goals, and we
will endeavour to move the portfolio towards these weightings over the next
five years. The next review is scheduled to take place in November 2024.
1 PitchBook, data is for global private equity and venture capital as
of September 30, 2023.
2 These figures represent the weighted average percentage uplift to
carrying value of 79 individual company M&A and IPO transactions during
the year ended 31 January 2024. This analysis takes each company's value
(whether realised or unrealised) at 31 January 2024 and compares it to the
carrying value prior to announcement of the transaction. This analysis
represents 83% of the total value of transactions in the year ended 31 January
2024 and does not represent the portfolio as a whole. Additionally, it does
not reflect management fees, carried interest, and other expenses of the
HarbourVest funds or the underlying managers, which will reduce returns. Past
performance is not necessarily indicative of future returns.
3 Bain, data as of January 2024.
4 Refinitiv, data as of September 30, 2023.
5 HarbourVest, AVCJ, and APER, data as of September 30, 2023.
New commitments
HVPE made total commitments of $295 million across five HarbourVest funds over
the financial year to 31 January 2024 (12 months to 31 January 2023: $940
million). Total unfunded commitments were $2.5 billion as at 31 January 2024,
representing a net decrease of approximately $300 million from 31 January 2023
($2.8 billion).
During the period, total commitments were reduced considerably from the
original plan in response to the low level of portfolio exit activity. Post
period-end, no new commitments have been made to HarbourVest funds. We would
expect new commitments to return to more normal levels once positive cash flow
has been sustained for a reasonable period of time.
This remains in line with the Company's strategic asset allocation targets
described above, and reflects the Investment Manager's and Board's current
perspective on the most appropriate portfolio composition required to optimise
long-term NAV growth for shareholders.
Outlook
We expect 2024 to be a better year for private markets than last year. The
improvements in the investment environment seen during Q4 of 2023 have
continued in the early months of this year. Equity indices, including the
Nasdaq, have reached new highs, and confidence in the AI revolution is
growing. Crucially for private markets, IPOs are re-starting. The expected
listing of Klarna, one of Europe's largest fintech companies, could provide a
significant boost to both sentiment and activity. Shein, an online fashion
retailer, has filed for IPO this year, with management evaluating a number of
potential listing venues. M&A activity is also picking up, as a
stabilising macro environment facilitates agreement on pricing, and scepticism
over NAVs appears to be abating. This paves the way for a pick-up in exits in
H2, which, if realised, will provide further, much-needed validation of NAVs.
Venture and growth could also generate some real surprises in AI-related areas
such as machine learning and synthetic biology.
Listed private equity investment companies are still under pressure from
several quarters: outflows from open-ended UK equity funds and ETFs continue,
asset managers are striving to reduce reported look-through costs; while
discount volatility and a reduced appetite for risk are still limiting demand
for investment companies more broadly. However, any discount narrowing in the
listed private equity sector would provide further reassurance that the
industry is on the road to recovery, and this would have a favourable knock-on
effect for HVPE.
While performance can fluctuate from year to year, whatever the immediate
future holds, private equity investment requires a long-term perspective. On
this basis, HVPE's strategy has a track record of outperforming listed global
equities. Over the 10 years ended 31 January 2024, HVPE's NAV per share
returns exceeded those of the FTSE All-World Total Return Index by an
annualised 4.3 percentage points.
We believe our strategy of operating a well diversified, quality portfolio is
working well and we are confident it will continue to do so in the future,
especially if the investment environment continues to improve as we
anticipate. Yet even capital-constrained circumstances such as those we
currently face, create opportunities for those who have the ability to deploy
selectively, as there are high-quality, attractively priced deals with strong
growth tailwinds available. As always, we continue to strive to create value
for shareholders over the long term.
Richard Hickman
Managing Director
NAV per share - 12 Months to 31 January 2024
HVPE's NAV per share increased by 4.0% in the 12 months to 31 January 2024,
ending the financial year at $50.47.The FTSE AW TR Index (in US dollars),
increased by 15.3% in the same period.
Over the long term, HVPE's NAV per share return has been strong. The 31
January 2024 figure of $50.47 is more than double the NAV per share figure
reported five years earlier (31 January 2019: $24.09) and more than 3.5x the
respective figure ten years earlier (31 January 2014: $14.38). As a reminder,
these figures are net of all fees and costs.
HVPE remains well diversified by sector, which we believe is key to achieving
consistently strong returns from a private markets portfolio. As at 31 January
2024, no single company represented more than 2.1% of the Investment Portfolio
value (31 January 2023: 2.4%), helping to mitigate company-specific risk. The
top 100 companies in the portfolio represented 28% of total value (31 January
2023: 29%), while the top 1,000 companies represented 81% (31 January 2023:
81%).
The Secondary portfolio was the best performing strategy in percentage terms,
delivering value growth of 8.2% over the 12 months. Geographically, Europe,
North America and Rest of World categories all saw growth at 9.5%, 6.6% and
6.2%, respectively, while Asia saw a modest decline (-0.5%). Looking at
stages, the Buyout portfolio was the strongest performer, growing 8.6% in the
12 months ended 31 January 2024. Mezzanine and InfRA also grew, recording a
7.1% gain, along with a modest increase of the Venture and Growth Equity stage
assets (+1.3%).
As at 31 January 2024, HVPE held investments in 63 HarbourVest funds and 16
secondary co-investments(1) (compared with 61 and 16 respectively at 31
January 2023). Of these, the largest fund contributors to NAV per share
movement in absolute terms during the 12 months to 31 January 2024 are
described below:
· Fund XII Buyout, a US-focused buyout fund of funds, was the
largest contributor to NAV per share, adding $0.34 over the reporting period.
With a vintage year of 2021, this fund is in its investment phase. The
increase came predominately from unrealised gains.
· Fund XI Buyout, a US-focused buyout fund of funds, was the
second-largest contributor over the reporting period, adding $0.27 to NAV per
share. With a vintage year of 2018, this fund is in its growth phase. The
increase came predominately from unrealised gains.
· Fund X Buyout, a US-focused buyout fund of funds, was the
third-largest contributor, adding $0.23 to NAV per share. With a vintage year
of 2015, this fund is in its growth phase. The increase was evenly split
between realised and unrealised gains.
· Fund X Venture, a US-focused venture fund of funds, was the
largest negative contributor over the reporting period, reducing NAV per share
by $0.16. With a vintage year of 2015, this fund is in its growth phase. This
decrease came predominantly from unrealised losses.
· Dover Street XI, a global-focused secondary fund, was the next
largest contributor over the reporting period, adding to NAV per share by
$0.14. With a vintage year of 2022, this fund is in its investment phase. The
increase came predominately from unrealised gains.
All of the remaining HarbourVest funds in the portfolio together contributed
to an aggregate $1.40 increase to HVPE's NAV per share over the period.
1 These include four Secondary Overflow III
investments, 11 Secondary Overflow IV investments, and Conversus, referred to
as "HVPE Charlotte Co-Investment L.P." in the Audited Consolidated Schedule of
Investments.
Portfolio Cash Flows and Balance Sheet
In the 12 months to 31 January 2024, HVPE received cash distributions of $310
million (12 months to 31 January 2023: $532 million) while funding capital
calls of $593 million for new investments (12 months to 31 January 2023: $588
million). The result was net negative cash flow of $283 million over the
reporting period.
Distributions were driven in large part by particularly strong months in June
and December 2023, during which combined cash proceeds of $138 million were
received, predominately from the primary funds. This contributed over 44% of
the total distributions over the period.
A meaningful portion of the distributions received in the 12 months to 31
January 2024 came from the ongoing redemption of the HarbourVest
Infrastructure Income Partnership ("HIIP"), the permanent capital vehicle
resulting from HVPE's commitment to Adelaide. During the period HVPE received
$38 million in total distributions from the HIIP fund. As mentioned in prior
reports, HVPE has now completed the 50% redemption of the original commitment
and will continue to receive a share of ongoing management fee revenue due to
its remaining holding in the fund.
The largest HarbourVest fund capital calls and distributions over the
reporting period are set out in the tables below. The top ten HarbourVest fund
calls in aggregate accounted for $436 million (74%) of the total calls and
came from a broad mix of funds. The majority of total calls by value (78%)
were into primary opportunities. The top ten HarbourVest fund distributions
totalled $155 million, or 50% of the total proceeds received in the period.
Distributions by value were split between primary investments (64%) and
secondary investments (25%), with the remainder coming from direct
co-investments.
The HarbourVest fund-level borrowing as at 31 January 2024 is reported in
Managing the Balance Sheet on page 28.
Top Five HarbourVest Fund Calls
HarbourVest Vintage Year Description Called
Fund Name
amount
Fund XII Buyout 2021 US-focused buyout fund of funds $101.5m
HIPEP IX 2020 International multi-strategy fund of funds $58.2m
Co-Investment VI 2021 Global direct co-investment fund $56.3m
Dover Street XI 2022 Global multi-stage secondary fund $42.5m
Fund XI Buyout 2018 US-focused buyout fund of funds $39.2m
Top Five HarbourVest Fund Distributions
HarbourVest Vintage Year Description Distributed amount
Fund Name
HIIP(2) 2018 Global core / core+ infrastructure assets $38.0m
HIPEP VII Partnership 2014 International multi-strategy fund of funds $21.9m
HIPEP VII Europe 2014 Europe-focused multi-strategy fund $16.4m
HIPEP VI Partnership 2008 International-focused fund of funds $14.8m
Fund VIII Buyout 2006 US-focused buyout fund of funds $12.9m
2 The distribution represents a partial redemption as
a result of its planned conversion from Adelaide into a permanent capital
vehicle in July 2022.
Portfolio Companies
During the period the ten largest individual company realisations generated
total distributions of $72 million, accounting for approximately 23% of all
proceeds received. Of these ten companies, four were disclosed in HVPE's top
100 portfolio companies as at the end of the prior financial year.
Further details are provided on these four below (ordered by size of
distribution). The top ten distributions by value are listed on page 23.
· CarepathRx is a firm that partners with health systems,
hospitals, physicians, and pharmacies to provide comprehensive pharmacy care
in the United States. CarepathRx was HVPE's 23rd largest company at 31 January
2023, and generated proceeds of $8.6 million following the sale of the
company's subsidiary BioPlus Specialty Pharmacy as announced in November 2022.
· Groundworks (formerly JES Construction) is a firm that provides
structural engineering and construction services. It was HVPE's 48th largest
company at 31 January 2023 and generated proceeds of $7.3 million following
the announcement of a strategic partnership with a global private equity firm.
· Dynatrace provides software solutions for diagnosing performance
problems in J2EE and .Net applications. The company was HVPE's 98th largest
company at 31 January 2023 and generated proceeds of $6.5 million.
· Virgin Pulse is a firm that provides employee wellness software
and was HVPE's 50th largest company at 31 January 2023. It generated proceeds
of $5.8 million following its merger with HealthComp, as announced in
September 2023.
M&A Transactions and IPOs
During the 12 months ended 31 January 2024, there were a total of 362 known
M&A transactions and IPOs, compared to 327 total transactions reported in
the 12 months to 31 January 2023. Within HVPE's portfolio, we are seeing some
green shoots in terms of IPO and M&A activity for the year ahead and are
hopeful we will see an improvement in exit activity.
Approximately 88% (318) of these transactions were M&A (trade sales or
sponsor-to-sponsor transactions), with the remaining 12% (44) being IPOs. IPOs
tend to represent a relatively small proportion of exits for HVPE even in
normal circumstances, consistent with wider industry trends.
There was an approximately even split across buyout and venture transactions
where, of HVPE's total 362 known M&A transactions and IPOs, 163, or 45%,
related to buyout-backed companies. A further 176 or 49% related to
venture-backed companies, and the remaining 23 (6%) related to Other
companies. Over the period, the weighted average uplift to pre-transaction
carrying value for a large sample of transactions was 24%.3
The top five M&A transactions during the period (by contribution to HVPE
NAV per share) are listed below.
Top Five M&A transactions
(by contribution to HVPE NAV per share(4))
Reward Gateway Other Information Technology +$0.04
GGW Holding Buyout Financials +$0.04
Groundworks (formerly JES Construction) Buyout Industrials +$0.03
Undisclosed Buyout Financials +$0.03
Tuskerdirect Limited Buyout Consumer Discretionary +$0.03
Top Five IPOs
(by contribution to HVPE NAV per share(4))
Tata Technologies Venture Industrials +$0.03
Mankind Pharma (Maize Investments) Venture Health Care +$0.01
Zhengzhou Guoquanshihui Network Technology Co., Ltd. Venture Consumer Staples +$0.01
Hitachi Kokusai Electric Inc. Buyout Information Technology +$0.01
Savers, Inc. Other Consumer Discretionary +$0.01
3 These figures represent the weighted average
percentage uplift to carrying value of 79 individual company M&A and IPO
transactions during the year ended 31 January 2024. This analysis takes each
company's value (whether realised or unrealised) at 31 January 2024 and
compares it to the carrying value prior to announcement of the transaction.
This analysis represents 83% of the total value of transactions in the year
ended 31 January 2024 and does not represent the portfolio as a whole.
Additionally, it does not reflect management fees, carried interest, and other
expenses of the HarbourVest funds or the underlying managers, which will
reduce returns. Past performance is not necessarily indicative of future
returns.
4 As measured since the announcement of the
transaction or IPO filing.
Recent events
HVPE Estimated NAV as at 30 April 2024
HVPE releases an estimated NAV on a monthly basis. These reports are available
on the Company's website, generally within 20 calendar days of the month-end.
On 20 May 2024, HVPE published an estimated NAV per share at 30 April 2024 of
$50.47 (£40.40), is unchanged since the final 31 January 2024 NAV (US
Generally Accepted Accounting Principles ("GAAP")) figure of $50.47. This
latest NAV per share is based on a valuation breakdown of: 6% as at 30 April
2024 (reflecting the public company in the portfolio), 3% actual 31 March 2024
and 91% actual 31 December 2023. Consistent with previous estimated NAV
reports, valuations are also adjusted for foreign exchange movements, cash
flows, and any known material events to 30 April 2024.
The Investment Pipeline of unfunded commitments decreased from $2.5 billion at
31 January 2024 to $2.3 billion at 30 April 2024, based on capital funded and
taking foreign exchange movements into account.
HVPE's cash and cash equivalents also decreased from $140 million at 31
January 2024 to $60 million at 30 April 2024.
HVPE's look-through exposure to borrowing at the HarbourVest fund level had
decreased by $19 million, from $508 million at 31 January 2024 to $489 million
at 30 April 2024. The latest balance sheet ratios can be found in the
factsheet on the HVPE website: www.hvpe.com (http://www.hvpe.com) .
Distribution Policy and Share Buybacks
In February 2024, the Board introduced a new distribution policy which
established a Distribution Pool to be used either to fund future share
buybacks or return capital to shareholders by means of special dividends. The
aim is to free up materially more cash for shareholders to bolster their
returns through the cycle. The Distribution Pool is being funded by a
proportion of the cash realisations from the Company's portfolio, with this
proportion set initially at 15%. For further information, see the Director's
Report on page 71.
Post period-end, HVPE has been in the market for 12 days buying back shares.
During this time, 714,154 ordinary shares have been repurchased for
cancellation at an average price of £23.67 per share for a total
consideration of £16.9 million ($21.5 million). The total number of shares in
issue is now 76,969,354.
Currently, the Distribution Pool balance is $52 million.
Credit Facility
Post period-end, HVPE has initiated draws on the Facility, which together have
totalled $90 million. As at 24 May 2024, a total of $365 million is currently
drawn on the $800 million Facility. More details regarding the Facility are
available on page 29.
Share Price since 31 January 2024
The closing price of £22.85 on 24 May 2024 represents a fall of 1.3% since
period-end. This compares to the FTSE AW TR index's increase of 9.1% in US
dollars over the same period. The market capitalisation of the Company as at
24 May 2024 was £1.8 billion and, as of the same date, HVPE was ranked 75th
in the FTSE 250 (19 May 2023: 77th).
KPIs and investment objective
The Company's investment objective is to generate superior shareholder returns
through long-term capital appreciation by investing primarily in a diversified
portfolio of private markets investments.
Key Performance Indicators ("KPIs")(1)
Total Shareholder Return (1 year and 10 years)
The key measure of HVPE's performance is the total return experienced by its
shareholders. While NAV per share is the major driver, the level of any
premium or discount to NAV at which HVPE's shares trade is also relevant.
A significant majority of HVPE's shareholders are UK based, and most of the
trading volume is in sterling.
1 Please note some of these KPIs are also
Alternative Performance Measures ("APMs"). Please see pages 126 to 127 for our
APMs.
NAV per Share Return (1 year and 10 years)
HVPE seeks to achieve growth in NAV per share materially ahead of public
markets over the long term, as defined by the FTSE All World Total Return
("FTSE AW TR") Index in US dollars. The FTSE AW TR is a global equity index
with geographical weightings comparable to HVPE's portfolio.
Please refer to the Alternative Performance Measures on pages 126 to 127 for
details of performance calculations
Balance Sheet Strength
The Board and the Investment Manager actively monitor HVPE's balance sheet by
means of a set of key ratios, with a view to maintaining a robust financial
position under all plausible forecast scenarios.
Please see Managing the Balance Sheet on page 28 for more details on the
ratios and page 31 of the Investment Manager's report for more detail on the
net portfolio cash flow.
Liquidity in the Shares (Daily Trading Volume)
Current and prospective shareholders place a high value on liquidity as it
provides reassurance that there is a ready market in the shares should they
wish to manage their position. The Board and the Investment Manager monitor
liquidity on a regular basis using the daily mean.
Daily liquidity, measured by mean daily trading volume, declined over the
period. This largely reflects the lower levels of trading activity from market
participants on the back of wider macro concerns.
Managing the balance sheet
Effective and prudent balance sheet management is critical when running a
closed-ended vehicle investing into a portfolio of private market funds with
varying cash flow profiles. This is particularly true for a company such as
HVPE which maintains a large pipeline of unfunded commitments (the "Investment
Pipeline"), which is the amount of capital committed to an underlying
HarbourVest fund, but not yet drawn down for investments.
This section aims to outline HVPE's approach to managing its balance sheet and
explain the steps it takes to ensure that the Company is sufficiently
resourced in preparation for periods of significant market stress.
The Importance of the Credit Facility
HVPE makes commitments to HarbourVest funds, which typically call capital over
a period of several years. This long- duration cash flow profile necessitates
a large pipeline of unfunded commitments in order to ensure that the Company
remains approximately fully invested over time - this is known as an
over-commitment strategy and is critical to optimising long-term NAV per share
growth. In most years, the capital called from HVPE by the HarbourVest funds
is taken from the cash distributions flowing from liquidity events within the
portfolio. At times, however, capital calls will exceed distributions,
potentially by a meaningful amount, and it may be necessary to draw on the
credit facility to fund the difference. A subsequent year may see the reverse
situation, with net positive cash flow used to repay the borrowing. In this
way, the credit facility acts as a working capital buffer and enables HVPE to
manage its commitments to the level required in order to optimise returns
through the cycle.
At 31 January 2024, HVPE had a $800 million multi-currency credit facility
(the "Facility"), with Credit Suisse AG London Branch ("Credit Suisse")
providing $400 million, Mitsubishi UFJ Trust Banking Corporation
("Mitsubishi") acting through its New York Branch providing $300 million, and
The Guardians of New Zealand Superannuation, a Crown entity established to
manage the New Zealand Superannuation Fund, providing $100 million.
From January 2019, the Facility featured an evergreen term, with lenders bound
by a rolling minimum notice period of five years. As announced on 20 January
2023, following the formal receipt of notices, the Facility reverted to a
conventional fixed-term arrangement. The $400 million commitment from main
lender Credit Suisse, and the $300 million commitment from Mitsubishi, acting
through its New York Branch, will both expire on 12 January 2028. The
remaining $100 million from The Guardians of New Zealand Superannuation will
expire on 15 August 2027.
During the course of 2023, HVPE drew a total of $275 million on the Facility
as a prudent measure to help manage portfolio cash flow and to fund share
buybacks. As at 31 January 2024, HVPE had $525 million available on the
Facility. Post period-end, as at 24 May 2024, the Company had $435 million
available.
The Board and Investment Manager are confident that this Facility provides
sufficient headroom for HVPE's existing and planned commitments over the
period. The Board is conscious of the need to ensure that the credit facility
is always of a size and duration appropriate to HVPE's needs. The Board
intends to refresh the facility and is currently well advanced in this
process.
Further detail on how we stress test the balance sheet can be found overleaf.
Understanding HVPE's Investment Pipeline (Unfunded Commitments)
At 31 January 2024, HVPE's total pipeline of unfunded commitments -
commitments to HarbourVest funds which have yet to be called - stood at $2.5
billion. This total pipeline comprised "allocated" investments of $1.9 billion
and "unallocated" investments of $0.6 billion. "Allocated" refers to the
portion of commitments which have been allocated by HarbourVest funds to
underlying partnerships. "Unallocated" commitments are those which have yet to
be allocated by HarbourVest funds to underlying partnerships, and therefore
cannot be drawn down in the short term. It is important to note that, of the
allocated pipeline, approximately 64% of commitments are to primary funds,
which have a longer drawdown profile, whilst secondary and direct
co-investment funds represent approximately 26% and 10%, respectively. Further
detail on this, including the age breakdown of the allocated pipeline, is
provided on page 20.
Since July 2022, HVPE's portfolio cash flow has been negative, as capital
calls have exceeded distributions. Initially, the shortfall was met from the
cash surplus accumulated through 2021 and early 2022. In the first half of
2023, the cash balance fell below our approved agreed minimum level and we
subsequently drew on our credit facility. Periods of negative cash flow do
occur from time to time and are factored into our cash flow projections. Prior
periods of negative cash flow have been relatively brief, but nevertheless we
do plan for extended periods of weak distributions combined with normal or
elevated capital calls.
We cannot be sure that this pattern will be repeated and must consider the
possibility that capital calls could remain elevated even during a period of
suppressed distribution activity. A large credit facility committed for an
extended period, as noted above, provides reassurance that the Company would
be able to remain operational under such conditions, with the additional
flexibility to continue to take advantage of attractive investment
opportunities as they arise. HVPE's large credit facility enabled it to be a
net investor through the period 2008 to 2011, which has helped the Company to
deliver very attractive long-term returns for shareholders. We continue to
assess the credit facility to ensure that its size and cost remain
proportionate to the benefits that it brings to HVPE.
Cash Flows, Modelling and Stress Testing the Balance Sheet
Cash flows from individual private equity investments can be irregular and
unpredictable, and as a result, monitoring these is a complex and
time-consuming task for investors in multiple funds such as HVPE. When
managing a closed-ended vehicle that makes significant, irrevocable
commitments to underlying funds, effective cash flow modelling is essential,
first to ensure that the Company has sufficient capital available to honour
its existing commitments, and second to inform the decisions it makes around
future commitment levels.
The Investment Manager builds a bottom-up forecast based on an aggregation of
individual HarbourVest fund models, and then applies a sensitised top-down
analysis informed by historic actual calls and distributions. Short-term
broader market trends and systemic factors are also considered.Finally, a
range of scenario tests are conducted. HVPE now has a 16-year track record in
monitoring and interpreting cash flows arising from activity in the underlying
portfolio. This detailed modelling is typically updated on an annual basis and
reviewed quarterly for any changes to key assumptions. The scenarios under
which Directors consider the Company to be a Going Concern can be found on
page 72.
HarbourVest Fund-level Borrowing
HarbourVest funds employ credit lines for two main purposes: bridging capital
calls and distributions and financing specific investment projects where the
use of debt may be advantageous. The majority of this fund-level borrowing
represents delayed capital calls, where a proportion of the unfunded
commitments has been invested through the use of subscription credit lines at
the HarbourVest fund level, but the capital has not yet been called from HVPE.
HVPE has indirect exposure, on a look-through basis, to a pro rata share of
borrowing carried on the balance sheets of some of the HarbourVest funds in
which HVPE is a Limited Partner ("LP") (referred to as HarbourVest Partners
("HVP") fund-level borrowing). This borrowing does not represent an additional
liability above and beyond the commitments that HVPE has made to the
HarbourVest funds.
The HVPE team monitors the HarbourVest fund-level borrowing in absolute terms,
and as a percentage of NAV. This borrowing is also considered when evaluating
balance sheet ratios: the Total Commitment Ratio within the Investment
Pipeline, and the Medium-Term Coverage Ratio within the three-year capital
call projections. HarbourVest fund-level borrowing is also included when
assessing the credit facility's loan-to-value ratios, as mentioned in Note 6,
"Debt Facility" on page 105 of the Financial Statements. Possible changes in
this borrowing (and hence the timing of capital calls payable by HVPE) are
also incorporated into the balance sheet scenario tests conducted as part of
the annual commitment planning exercise.
As at 31 January 2024, HVPE's share of HVP fund-level borrowing on a
look-through basis was $508 million, a net decrease of $9 million from the
$517 million reported at 31 January 2023. Expressed as a percentage of NAV,
this figure was unchanged over the period, remaining at 13%. This can be
attributed directly to fewer new commitments being made, and borrowings on
older funds being paid down during the period. Post period-end, as at 30 April
2024, the fund-level borrowing decreased by $19 million and stood at $489
million.
HVPE's year end total exposure of $508 million includes $466 million (92%) of
bridging finance (also known as subscription line finance) which is used to
delay and smooth the pacing
of capital calls to investors in the funds, including HVPE. Typically, these
bridging facilities are committed by the lenders for a minimum of 12 months.
The remaining $42 million
(8%) is project debt, held in the most part by the HarbourVest secondary funds
to finance specific projects. The bridging finance, should it be repaid in
full or in part, will result in capital calls to investors in the HarbourVest
funds, including HVPE, as this type of borrowing represents a portion of
HVPE's existing unfunded commitment (Investment Pipeline) figure. Furthermore,
during the period in which the debt is outstanding, there is a gearing effect
on HVPE's NAV, as the investments have already been made while HVPE's share of
the capital has not yet been called. Project finance has only a very limited
impact on prospective cash flow but does contribute to the gearing effect.
In order to estimate the total potential gearing effect on HVPE as at 31
January 2024, an investor should take the total fund-level borrowing figure of
$508 million and factor in HVPE's net cash/debt position at the Company level
(i.e. add the Company's net debt of $135 million). The resulting net total
borrowing figure of $643 million would translate to an approximate level of
look-through gearing of 16% at the financial year end. Further detail on the
credit facility and the criteria upon which it can be drawn can be found under
Note 6, "Debt Facility" on page 105 of the Audited Consolidated Financial
Statements.
Please refer to page 31 of the Annual Report and Accounts for further
information on Balance Sheet Ratios.
Managing costs
Total Expense Ratio ("TER")
HVPE's TER reflects the total cost incurred by the Company in assembling and
maintaining its portfolio of HarbourVest funds and co-investments. The figure
is broken down into four distinct categories of expense.
First, there is the direct cost of running the Company in its own right,
encompassing items such as the maintenance of the credit facility, Board fees
and expenses, professional fees, marketing, financial reporting, the services
of a dedicated team from the Investment Manager, and compliance costs. These
costs, totalling 0.72% of average NAV in the 12 months to 31 January 2024 (12
months to 31 January 2023: 0.36%), are categorised as recurring operating
expenses as shown in the first line of the table below. The increase in
operating expenses is due to the greater utilisation of the credit facility
during the year.
Second, operating costs borne by the HarbourVest funds amounted to a further
0.22% of average NAV in the 12-month period to 31 January 2024 (12 months to
31 January 2023: 0.25%).
Third, HVPE pays management fees to HarbourVest with respect to the funds in
which it invests, and also for the secondary co-investment in Conversus(1)
made alongside the HarbourVest funds. The total of all management fees in the
12 months to 31 January 2024 was equivalent to 0.60% of
average NAV (12 months to 31 January 2023: 0.59%).
Finally, performance fees are charged on secondary investments and direct
co-investments (not on primary investments which make up 50% of HVPE's
portfolio). In total, these accounted for 0.48% of average NAV in the 12
months to 31 January 2024 (12 months to 31 January 2023: 0.08%).
The performance fee figure varies from period to period and is driven by the
performance achieved by the relevant HarbourVest funds.
Together, these four cost components give a TER, net of interest income
(0.23%), of 1.79% for the 12 months to 31 January 2024. It is important to
note that, while the operating expenses and the management fees do not vary
greatly from one year to the next, the performance fee figure will vary
significantly depending on the returns delivered by the relevant underlying
HarbourVest funds. The TER for the 12 months to 31 January 2024 of 1.79% was
0.61 percentage points higher than the same period in the prior year,
predominantly owing to a significant increase in performance fees and the
credit facility costs.
The calculation above excludes the fees charged by the underlying partnerships
held by the HarbourVest funds. An estimate of HVPE's full look-through TER is
included in the Company's Key Information Document, available on the website.
It is important to note that all performance data we report to shareholders
is, and always has been, net of all fees and expenses.
1 "HVPE Charlotte Co-Investment L.P." in the Audited
Consolidated Schedule of Investments.
Total Net Expense Ratio Breakdown
12 Months 12 Months
to 31 January to 31 January
2024 2023
Operating expenses(2) 0.72% 0.36%
HarbourVest fund operating expenses(3) 0.22% 0.25%
Management fees(4) 0.60% 0.59%
Operating expense ratio 1.54% 1.20%
Interest income(5) (0.23)% (0.10)%
Net operating expense ratio 1.31% 1.10%
Performance fees(6) 0.48% 0.08%
Total net expense ratio(7) 1.79% 1.18%
2 Operating expenses includes total expenses shown
in the Audited Consolidated Statements of Operations, excluding management
fees from the secondary co-investments which are included in the management
fees in this table.
3 HVPE's share of fund-level operating expenses
(professional fees and organisational costs) which are included in realised
and unrealised gains (losses) on investments in the Audited Consolidated
Statements of Operations.
4 This includes fund-level management fees payable
to HarbourVest which are included in realised and unrealised gains (losses) on
investments in the Audited Consolidated Statements of Operations, together
with the management fees relating to secondary co-investments noted in 2
above.
5 This is shown as interest from cash and
equivalents on the face of the Audited Consolidated Statements of Operations.
6 This includes fund-level performance fees payable
to HarbourVest which are included in realised and unrealised gains (losses) on
investments in the Audited Consolidated Statements of Operations.
7 TERs are calculated using the average NAV over the
respective periods ($3.9 billion at 31 January 2024 and $3.8 billion at 31
January 2023).
Principle risks and uncertainties
Risk Factors and Internal Controls
The Board is responsible for the Company's risk management and internal
control systems and actively monitors the risks faced by the Company, taking
steps to mitigate and minimise these where possible. Further details on the
Board's governance and oversight can be found on pages 77 to 79.
Risk Appetite
The Board's investment risk appetite is to follow an over- commitment policy
that optimises investment returns and associated distributions, allows
balanced, regular investment through economic and investment cycles, and
ensures that it has access to sufficient funding for any potential negative
cash flow situations, including under an Extreme Downside scenario. At the
same time, the funding available to the Company by way of cash balances and
lending facilities is managed to ensure that its cost, by way of interest,
facility fees or cash drag, is reasonable. When considering other risks, the
Board's risk appetite is to balance the potential impact and likelihood of
each risk with its ability and desire to control and mitigate the risk to an
acceptable level. In doing so, as a baseline, the Board will seek to follow
best practice and remain compliant with all applicable laws, rules, and
regulations.
Risk Management
As recommended by the Audit and Risk Committee (see the report on the
activities of that Committee on pages 77 to 79), the Directors have adopted a
risk management framework which governs how the Board identifies and measures
risks, determines risk appetite, assesses mitigation and controls, and reports
on risks.
The Board reviews risks at least twice a year and receives in depth reports on
specific risks as recommended by the Audit and Risk Committee. The Board
divides identified risks into those which have a higher probability and a
significant potential impact and those which are less material and are
monitored on a watch list. The Board also conducts an annual exercise to
identify new or emerging risks.
In considering material risks, the Board identified those which should be
categorised as principal risks, which are those where the combination of
probability and impact is assessed as being most significant and which the
Board therefore considers could seriously affect the performance, future
prospects, or reputation of the Company.
During the year under review, the Board has adapted its approach to ESG risk
which it now considers as a distinct aspect of all the individual risks faced
by the Company. As a result, ESG risk has been integrated into the Board's
assessment of all the material risks faced by the Company, and while ESG
regulatory risk is still considered as a risk in its own right, broader ESG
risk is no longer separately identified as a principal risk.
Principal Description and Potential Impact Mitigation and Management Commentary
Risk
Performance of HarbourVest The Company is dependent on its Investment Manager and on the performance of HarbourVest has a strong long term track record of managing private equity Stable
HarbourVest's investment professionals. The vast majority of the Company's investments. It maintains good relationships with key managers and has a
The risk posed by the Company's dependence on its Investment Manager. assets are invested in HarbourVest funds and significant reliance is placed by consistent and repeatable investment process with low turnover of senior HVPE has maintained its record of long-term outperformance in NAV growth
the Company on HarbourVest's control environment. Any inability by investment professionals. There is a high level of diversification by despite challenging market conditions. It continues to enhance its investment
HarbourVest to maintain its investment performance, whether in absolute or geography, strategy and vintage which mitigates the risk. HVPE has a dedicated processes and the quantitative inputs to its investment decision making and
relative terms, could result in a significant deterioration in net asset value Investment Committee within HarbourVest. The Board monitors HarbourVest's maintains its access to new investment opportunities. No significant matters
for the Company and its shareholders. performance through the MESPC, and its controls environment is assessed by the of concern regarding the HarbourVest control environment arose during the
Audit and Risk Committee. year.
Public Market Risks Equity market volatility increases overall levels of uncertainty for HVPE and The Company's exposure to individual public markets is partially mitigated by Stable
its investments. Increasing geopolitical risks influence how markets trade, the geographical and sectoral diversification within the portfolio. In
The risk of a decline in global public markets or a deterioration in the reversing the potential positive effects of developing improvements in previous downturns private market valuations have not been impacted as much as The portfolio has proved itself to be resilient despite challenging market
economic environment. economic indicators. Overall declines in public markets impact HVPE's NAV public markets. The Board regularly reviews scenario analyses prepared by the conditions over the past year and the increased political risk that has
per share by directly reducing the value of public securities in HVPE's Investment Manager which incorporate the effects of significant public market affected markets. The level of this risk was increased in the previous
portfolio and indirectly influencing private market valuations. They are downturns. financial year and has been maintained at this heightened level.
also likely to have a direct impact on HVPE's share price.
Valuation Risk Uncertainty and distrust in relation to the valuation of private equity Both the Investment Manager and the GPs of underlying funds value investments Stable
investments may lead investors to make their own judgements based on in accordance with industry standards and accounting regulations. All the
The risk that market instability leads to continuing uncertainty about private incomplete information which could result in a lack of confidence in the valuations are audited annually. When the Company reports its monthly NAV, it This risk was identified as a Principal Risk during the
asset valuations based on comparisons with listed companies, together with reliability of HVPE's published NAV. The low level of exits and liquidity discloses the date of the underlying valuations to provide transparency to
general market scepticism about the likely movement in valuations. events that has been seen recently reduces the ability to present public shareholders. The Audit and Risk Committee receives reports on the Investment financial year under review and was disclosed as such in
substantiation of valuation levels. Manager's control environment, including the processes relating to valuations.
the 2023 Annual Report and Accounts. Given that the risk
level was elevated at that stage, it has not been further
increased since then. The Board believes that this risk will
remain a focus until there is an increase in the level of exit
activity and therefore of external validation of valuation
levels.
Balance Sheet Risks The Company's balance sheet strategy and its policy for the use of leverage The size and term of the Company's credit facility mitigates this risk. The Increased risk
are described on page 29. The Company continues to maintain an overcommitment Board has put a monitoring programme in place, supported by sophisticated and
Risks to the Company's balance sheet resulting from its overcommitment strategy and may draw on its credit facility to bridge periods of negative comprehensive cash flow modelling, which underpins the commitment strategy and The Distribution Pool is being funded by a proportion of the cash realisations
strategy, borrowing arrangements and policy for the use of leverage. cash flow when capital calls on investments are greater than distributions limits the likelihood of unexpected shocks. This programme mitigates the from the Company's portfolio. This has resulted in adjustments being made to
received. The level of potential borrowing available under the credit facility requirement to sell assets at a discount during any but the most extreme the financial models relating to the Company's future commitments. In previous
could be negatively affected by declining NAV. In a stressed environment periods of negative cash flow. The monitoring programme also considers the years, strong NAV gains and distributions strengthened the balance sheet. The
characterised by declining NAVs, reduced realisations, and rapid substantial level of borrowing at HarbourVest fund level. Both the Board and the levels of distributions received during the year under review fell
capital calls, the Company's net leverage ratio could increase beyond an Investment Manager will continue to monitor these metrics actively and will significantly in comparison with previous years and with the modelled
appropriate level, resulting in a need to sell assets. A reduction in the take appropriate action as required, such as pausing further commitments, to scenarios. As a result, cash flow was negatively affected and there was
availability or use of borrowing at the HarbourVest fund level, or accelerated attempt to mitigate these risks. Please also see the Going Concern and increased use of the credit facility. The Board intends to renew the credit
repayment thereof, could result in an increase in capital calls to a level in Viability Statement on page 72 for information on the scenarios that are facility well ahead of the earliest expiry date. Since the year end, there
excess of the modelled scenarios. considered by the Board. have been signs that the rate of distributions may return to more usual levels
but until this has been established as an ongoing trend, the Board continues
to consider this as a heightened risk for the Company.
Popularity of the Listed Private Equity Sector Investor sentiment towards the Listed Private Equity sector may deteriorate, Private equity has performed strongly as an asset class over the years and the Stable
resulting in a widening of the Company's share price discount relative to its Company has demonstrated the value of investing through the investment cycle
The risk that investor sentiment towards the listed private equity sector as a NAV per share. This may be because of perceptions of the position of the and gaining exposure to a diverse range of markets. HVPE, together with its While discounts within the sector remain wide, they have stabilised during the
whole may deteriorate significantly. market in the private equity cycle, perceptions about the cost of private peers, continues to advocate for the sector, to increase investors' year and the market commentary on the sector has become more balanced. The
equity investing, or due to investors making their own judgements regarding familiarity with private equity and to describe the advantages of the Board believes that market sentiment towards the sector should turn more
current valuations. HVPE's discount is currently wider than its historical investment trust structure to provide access to illiquid assets through a positive once there is an increase in realisation events which validate
average and has remained so for a sustained period. liquid share. valuations and support cash flow.
Trading Liquidity and Price HVPE's relatively wide discount risks undermining investor confidence and The Board has made robust efforts to enhance its communications, to describe Increased risk
could erode levels of shareholder satisfaction. Despite the substantive its strategy, to engage with its shareholders, and to listen and respond to
The risk that the number of shares traded in the Company is insufficient to efforts made by the Board to address this issue through its establishment of the views expressed. The Distribution Pool has been established to address Despite the substantive efforts made to communicate the Board's strategy and
maintain interest in the stock, or that the discount of the share price to the the Distribution Pool and active engagement with shareholders, some investors certain issues raised and there is regular and extensive consideration of the NAV performance that has been achieved, HVPE's discount remains at the
NAV per share fails to narrow. may remain unconvinced by its proposals. potential options to close the discount, including enhanced disclosure and more extreme end of the discount range. A long-term improvement has not yet
transparency for shareholders. The Board continues to stress the long-term been seen and any positive response to the Board's efforts has not yet been
nature of HVPE, the consistent performance and the benefits of its convincingly reflected in the share price performance despite the continued
diversification strategy as it remains determined to satisfy its investment positive investment performance and increase in NAV per share.
objective and purpose.
Financial Statements
Independent Auditor's Report
to the Members of HarbourVest Global Private Equity Limited
Opinion
We have audited the Consolidated Financial Statements of HVPE (the "Company")
and its subsidiaries (the "Group") for the year ended 31 January 2024 which
comprise the Consolidated Statements of Assets and Liabilities, the
Consolidated Statements of Operations, the Consolidated Statements of Changes
in Net Assets, the Consolidated Statements of Cash Flows, the Consolidated
Schedule of Investments, and the related notes 1 to 12, including a summary of
significant accounting policies. The financial reporting framework that has
been applied in their preparation is applicable law and United States
Generally Accepted Accounting Principles ("US GAAP").
In our opinion, the Financial Statements:
> give a true and fair view of the state of the Group's affairs as at 31
January 2024 and of its profit for the year then ended;
> have been properly prepared in accordance with US GAAP; and
> have been properly prepared in accordance with the requirements of the
(Guernsey) Law, 2008.
Basis for Opinion
We conducted our audit in accordance with International Standards on Auditing
(UK) (ISAs (UK)) and applicable law. Our responsibilities under those
standards are further described in the Auditor's responsibilities for the
audit of the financial statements section of our report. We believe that the
audit evidence we have obtained is sufficient and appropriate to provide a
basis for our opinion.
Independence
We are independent of the Group and Company in accordance with the ethical
requirements that are relevant to our audit of the financial statements,
including the FRC's Ethical Standard as applied to listed public interest
entities, and we have fulfilled our other ethical responsibilities in
accordance with these requirements.
The non-audit services prohibited by the FRC's Ethical Standard were not
provided to the Group or the Company and we remain independent of the Group
and the Company in conducting the audit.
Conclusions Relating to Going Concern
In auditing the Consolidated financial statements, we have concluded that the
Directors' use of the going concern basis of accounting in the preparation of
the Consolidated Financial Statements is appropriate. Our evaluation of the
Directors' assessment of the Group's and Company's ability to continue to
adopt the going concern basis of accounting included:
> We discussed with the Directors their assessment of going concern, which
included four scenario analysis models - 'Base Case', 'Low Case', 'Optimistic
Case' and 'Extreme downside Case' scenarios - the 'Low Case' being considered
by the Directors to be the most likely scenario;
> We ascertained that the going concern assessment covered a period up
until 30 June 2025 from the date of approval of the Financial Statements;
> We reviewed the arithmetical accuracy of the 'Low Case' and 'Extreme
downside Case' scenario models;
> For the 'Low Case' scenario we reviewed the working capital documentation
which supports the Directors' assessment of going concern;
> We considered the estimation uncertainty of the prior year's most likely
scenario by comparing it to the Group's actual performance to date, discussed
the material movements with the Board and the Investment Manager, and obtained
the required supporting documentation;
> For the 'Extreme downside Case' scenario, we challenged the sensitivities
and assumptions used in the forecast through reverse stress testing to
understand how severe the downside scenario would have to be to result in the
elimination of liquidity headroom or a covenant breach;
> We held discussions with the Audit Committee and Investment Manager to
determine whether, in their opinion, there is any material uncertainty
regarding the Group's ability to pay liabilities and commitments as they fall
due. Through these discussions we considered and challenged the options
available to the Group if it were in a stressed scenario. These options
included but were not limited to the use of credit facilities and sales in the
secondary market;
> We assessed whether the commitments made to underlying investments cast
significant doubt over the going concern status of the Group and compared the
historical calls made by underlying investments as a % of the total
commitments made, including a discussion with the Investment Manager regarding
the possibility for uncalled commitments to be called;
> We confirmed available credit facility balances to understand the
potential impact of the leverage in the underlying funds;
> We recalculated the forecast debt covenants on external loans to validate
compliance within the going concern period;
> We considered whether the Directors' assessment of going concern as
included in the Annual Report is appropriate and consistent with the
disclosure in the viability statement; and
> We evaluated the disclosures made in the Annual Report and Consolidated
Financial Statements regarding going concern to ascertain that they are in
accordance with US GAAP and have complied with, or explained reasons for
non-compliance, with all the AIC Code of Corporate Governance provisions.
Based on the work we have performed, we have not identified any material
uncertainties relating to events or conditions that, individually or
collectively, may cast significant doubt on the Group and Company's ability to
continue as a going concern over a period from the date of approval of the
Financial Statements to 30 June 2025.
In relation to the Group's reporting on how they have applied the UK Corporate
Governance Code, we have nothing material to add or draw attention to in
relation to the Directors' statement in the financial statements about whether
the Directors considered it appropriate to adopt the going concern basis of
accounting.
Our responsibilities and the responsibilities of the Directors with respect to
going concern are described in the relevant sections of this report. However,
because not all future events or conditions can be predicted, this statement
is not a guarantee as to the Group and Company's ability to continue as a
going concern.
Overview of Our Audit Approach
Key audit matters Risk of misstatement or manipulation of the valuation of the Group's
investments in the underlying Primary or Secondary HarbourVest funds, together
the "HarbourVest investment funds".
Materiality Overall Group materiality of £78.4m which represents 2% of Net Assets.
An Overview of the Scope of Our Audit
Tailoring the Scope
Our assessment of audit risk, our evaluation of materiality and our allocation
of performance materiality determine our audit scope for each company within
the Group. Taken together, this enables us to form an opinion on the
Consolidated Financial Statements. We take into account size, risk profile,
the organisation of the group and effectiveness of group-wide controls,
changes in the business environment and other factors such as the potential
impact of climate change when assessing the level of work to be performed.
The audit was led from Guernsey and utilised audit team members from the
Boston office of Ernst & Young LLP in the US. We operated as an integrated
audit team across the two jurisdictions, and we performed audit procedures and
responded to the risk identified as described below.
The Group comprises the Company and its five wholly owned subsidiaries as
explained in Note 2 to the Group Financial Statements. The Company, each
subsidiary and the consolidation are subject to full scope audit procedures.
Other than the investments which the Company holds directly, the subsidiaries
own the investments, which are set out in the Consolidated Schedule of
Investments, and on which we performed our work on valuation.
Climate Change
Stakeholders are increasingly interested in how climate change will impact
HVPE. The Group has determined that the most significant future impacts from
climate change on their operations will be from the investments made by the
underlying partnerships in which they are invested. These are explained on
pages 44 to 49 in the Purposeful Growth (Environmental, Social and
Governance). All of these disclosures form part of the "Other information,"
rather than the audited Consolidated Financial Statements. Our procedures on
these unaudited disclosures therefore consisted solely of considering whether
they are materially inconsistent with the Consolidated Financial Statements or
our knowledge obtained in the course of the audit or otherwise appear to be
materially misstated, in line with our responsibilities on "Other
information".
In planning and performing our audit we assessed the potential impacts of
climate change on the Company's business and any consequential material impact
on its financial statements.
The Group has explained in Note 2 its articulation of the impact of climate
change in the financial statements. There are no significant judgements or
estimates relating to climate change in the notes to the financial statements
as the Board has concluded specifically that climate change including physical
and transition risks, does not have a material impact on the Group's financial
statements in Note 2.
Our audit effort in considering the impact of climate change on the financial
statements was focused on the adequacy of the Group's disclosures in the
financial statements as set out in note 2 and the conclusions that there was
no material impact on the recognition and separate measurement considerations
of the assets and liabilities of the Group as at 31 January 2024. As part of
this evaluation, we performed our own risk assessment to determine the risks
of material misstatement in the financial statements from climate change which
needed to be considered in our audit.
Based on our work we have not identified the impact of climate change on the
financial statements to be a key audit matter or to impact a key audit matter.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were
of most significance in our audit of the Consolidated Financial Statements of
the current period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) that we identified. These matters
included those which had the greatest effect on: the overall audit strategy,
the allocation of resources in the audit; and directing the efforts of the
engagement team. These matters were addressed in the context of our audit of
the financial statements as a whole, and in our opinion thereon, and we do not
provide a separate opinion on these matters.
Risk Our Response to the Risk Key Observations Communicated to the Audit and Risk Committee
Misstatement or manipulation of the valuation of the Group's investments in Our response comprised the performance of the following procedures: We reported to the Audit and Risk Committee that we did not identify any
the underlying Primary or Secondary HarbourVest funds, together the
instances of the use of inappropriate methodologies and that the valuation of
"HarbourVest investment funds" ($4,058 million; 2023 $3,616 million). · Confirmed and documented our understanding of the Group's the Group's investments in the HarbourVest investment funds were not
processes, controls and methodologies for valuing investments held by the materially misstated.
Group in the HarbourVest investment funds, including the use of the practical
expedient as set out in Accounting Standard Codification (ASC) Topic 820 Fair
Refer to the Accounting policies and Note 4 of the Financial Statements. Value Measurement ("ASC 820") by performing our walkthrough processes and
evaluating the implementation and design effectiveness of controls;
· We also utilised the System and Organisation Controls 1 Report
There is a risk that the valuation of the Group's investments at 31 January for Private Equity Fund Administration Report on Controls Placed in Operation
2024, which comprise 103.5% (2023: 94.3%) of net assets is materially and Tests of Operating Effectiveness ("SOC 1 report") of HarbourVest Partner
misstated. LLC to confirm our understanding of the production on the NAVs of the
HarbourVest investment funds;
· Agreed 100% by value of the individual net asset values of each
The valuation of the investments is the principal driver of the Group's net HarbourVest investment fund to its underlying audited Net Asset Value (NAV) in
asset value and hence incorrect valuations would have a significant impact on the corresponding financial statements as at 31 December 2023 which, prior to
the net asset value and performance of the Group. adjustments, formed the basis for the Group's carrying amount as at 31 January
2024;
· We obtained a schedule of all adjustments made to those audited
and unaudited NAVs between 1 January 2024 and 31 January 2024, and:
· On a sample basis verified contributions and distributions made
to/from the HarbourVest investment funds to supporting bank statements;
· Recalculated a sample of accrued management fees in the
HarbourVest investment funds based on the terms of the signed management
agreements and agreed terms to relevant supporting documents;
· Verified foreign exchange rate changes to independent third-party
sources, and their application to any HarbourVest investment funds denominated
in foreign currencies;
· Considered whether there were changes in market conditions during
the period from 1 January 2024 to 31 January 2024 that could have had a
material impact when applied to the key sensitive inputs to the valuations of
the direct investments of the HarbourVest investment funds;
· Considered whether there were changes in market conditions during
the period from 1 January 2024 to 31 January 2024 that could have had a
material impact when applied to the marketable securities held by the
HarbourVest investment funds;
· Independently sourced third-party prices and verified fair value
changes on publicly traded securities held in the HarbourVest investment
funds; and
· Through enquiry determined that there were no post-closing
adjustments since 31 December 2023 or other material changes to the NAV
subsequent to the HarbourVest investment funds' finalized financial reporting
process.
· We assessed the fairness, accuracy and completeness of the
disclosures in the Consolidated Financial Statements.
Our Application of Materiality
We apply the concept of materiality in planning and performing the audit, in
evaluating the effect of identified misstatements on the audit and in forming
our audit opinion.
Materiality
The magnitude of an omission or misstatement that, individually or in the
aggregate, could reasonably be expected to influence the economic decisions of
the users of the financial statements. Materiality provides a basis for
determining the nature and extent of our audit procedures.
We determined materiality for the Group to be $78.4 million (2023:
$76.8million), which is 2% (2023: 2%) of net assets. We believe that net
assets provides us with a basis for determining the nature, timing and extent
of risk assessment procedures, identifying and assessing the risk of material
misstatement and determining the nature, timing and extent of further audit
procedures. We used the net assets as a basis for determining planning
materiality because the Group's primary performance measures for internal and
external reporting are based on net assets as we consider it is the measure
most relevant to the stakeholders of the Group.
During the course of our audit, we reassessed initial materiality from the
planning stage based on 31 January 2024 net assets.
Performance Materiality
The application of materiality at the individual account or balance level. It
is set at an amount to reduce to an appropriately low level the probability
that the aggregate of uncorrected and undetected misstatements exceeds
materiality.
On the basis of our risk assessments, together with our assessment of the
Group's overall control environment, our judgement was that performance
materiality was 75% (2023: 75%) of our planning materiality, namely $58.8m
(2023: $57.6m). We have set performance materiality at this percentage given
that there is no history of material misstatements, the likelihood of
misstatement in the future is deemed low, we have a strong understanding of
the control environment, there were no changes in circumstances (such as a
change in accounting personnel or events out of the normal course of business)
and it is not a close monitored audit, and hence we consider 75% to be
reasonable.
Reporting Threshold
An amount below which identified misstatements are considered as being clearly
trivial.
We agreed with the Audit Committee that we would report to them all
uncorrected audit differences in excess of $3.9m (2023: $3.8m), which is set
at 5% of planning materiality, as well as differences below that threshold
that, in our view, warranted reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the quantitative
measures of materiality discussed above and in light of other relevant
qualitative considerations in forming our opinion.
Other Information
The other information comprises the information included in the annual report
other than the Consolidated Financial Statements and our auditor's report
thereon. The directors are responsible for the other information contained
within the annual report.
Our opinion on the Consolidated Financial Statements does not cover the other
information and, except to the extent otherwise explicitly stated in this
report, we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the Consolidated
Financial Statements or our knowledge obtained in the course of the audit or
otherwise appears to be materially misstated. If we identify such material
inconsistencies or apparent material misstatements, we are required to
determine whether this gives rise to a material misstatement in the
Consolidated Financial Statements themselves. If, based on the work we have
performed, we conclude that there is a material misstatement of the other
information, we are required to report that fact.
We have nothing to report in this regard.
Matters on Which We Are Required To Report by Exception
We have nothing to report in respect of the following matters in relation to
which The Companies (Guernsey) Law, 2008 requires us to report to you if, in
our opinion:
> proper accounting records have not been kept by the Company; or
> the Financial Statements are not in agreement with the Company's
accounting records and returns; or
> we have not received all the information and explanations we require for
our audit.
Corporate Governance Statement
We have reviewed the directors' statement in relation to going concern,
longer-term viability and that part of the Corporate Governance Statement
relating to the group and company's compliance with the provisions of the UK
Corporate Governance Code specified for our review by the Listing Rules.
Based on the work undertaken as part of our audit, we have concluded that each
of the following elements of the Corporate Governance Statement is materially
consistent with the financial statements or our knowledge obtained during the
audit:
> Directors' statement with regards to the appropriateness of adopting the
going concern basis of accounting and any material uncertainties identified
set out on pages 71 to 73;
> Directors' explanation as to its assessment of the company's prospects,
the period this assessment covers and why the period is appropriate set out on
pages 71 to 73;
> Director's statement on whether it has a reasonable expectation that the
group will be able to continue in operation and meets its liabilities set out
on pages 71 to 73;
> Directors' statement on fair, balanced and understandable set out on page
73;
> Board's confirmation that it has carried out a robust assessment of the
emerging and principal risks set out on pages 40 to 43;
> The section of the annual report that describes the review of
effectiveness of risk management and internal control systems set out on page
78; and;
> The section describing the work of the audit committee set out on pages
77 to 79.
Responsibilities of Directors
As explained more fully in the directors' responsibilities statement set out
on page 73, the Directors are responsible for the preparation of the
Consolidated Financial Statements and for being satisfied that they give a
true and fair view, and for such internal control as the Directors determine
is necessary to enable the preparation of financial statements that are free
from material misstatement, whether due to fraud or error.
In preparing the Consolidated Financial Statements, the Directors are
responsible for assessing the Group and Company's ability to continue as a
going concern, disclosing, as applicable, matters related to going concern and
using the going concern basis of accounting unless the Directors either intend
to liquidate the Group or the Company or to cease operations, or have no
realistic alternative but to do so.
Auditor's Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the
Consolidated financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor's report
that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs (UK)
will always detect a material misstatement when it exists. Misstatements can
arise from fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial statements.
Explanation as to what extent the audit was considered capable of detecting
irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and
regulations. We design procedures in line with our responsibilities, outlined
above, to detect irregularities, including fraud. The risk of not detecting a
material misstatement due to fraud is higher than the risk of not detecting
one resulting from error, as fraud may involve deliberate concealment by, for
example, forgery or intentional misrepresentations, or through collusion. The
extent to which our procedures are capable of detecting irregularities,
including fraud is detailed below.
However, the primary responsibility for the prevention and detection of fraud
rests with both those charged with governance of the company and management.
> We obtained an understanding of the legal and regulatory frameworks that
are applicable to the Group and determined that the most significant are:
- Financial Conduct Authority ("FCA") Listing Rules;
- Disclosure Guidance and Transparency Rules ("DTR") of the FCA;
- The 2018 UK Corporate Governance Code;
- The 2019 AIC Code of Corporate Governance;
- The Companies (Guernsey) Law, 2008, as amended.
> We understood how Group is complying with those frameworks by:
- Discussing the processes and procedures used by the Directors, the
Investment Manager, the Company Secretary and Administrator to ensure
compliance with the relevant frameworks;
- Inspecting the Group's relevant documented policies, processes and
procedures; and
- Reviewing internal reports that evidence compliance testing.
> We assessed the susceptibility of the Group's Consolidated Financial
Statements to material misstatement, including how fraud might occur by:
- Identifying misstatement or manipulation of the valuation of the Group's
investments in the HarbourVest funds and undertaking the audit procedures set
out in the Key Audit Matters section above;
- Obtaining an understanding of entity-level controls and considering the
influence of the control environment;
- Obtaining management's assessment of fraud risks including an understanding
of the nature, extent and frequency of such assessment documented in the HVPE
Risk Review;
- Making inquiries with those charged with governance as to how they exercise
oversight of management's processes for identifying and responding to fraud
risks and the controls established by management to mitigate specifically
those risks the entity has identified, or that otherwise help to prevent,
deter and detect fraud;
- Making inquiries with management and those charged with governance regarding
how they identify related parties including circumstances related to the
existence of a related party with dominant influence; and
- Making inquiries with management and those charged with governance regarding
their knowledge of any actual or suspected fraud or allegations of fraudulent
financial reporting affecting the Group.
> Based on this understanding we designed our audit procedures to identify
non-compliance with such laws and regulations. Our procedures involved:
- Having discussions with those charged with governance, the Investment
Manager, the Company Secretary and Administrator to obtain an understanding of
how instances of non-compliance with relevant laws and regulations are
identified;
- Reviewing Board minutes and internal compliance reporting;
- Inspecting correspondence with regulators;
- Reviewing the Consolidated Financial Statements to check that they comply
with the reporting requirements of the Group;
- Obtaining relevant written representations from the Board of Directors; and
- Performing journal entry testing.
A further description of our responsibilities for the audit of the financial
statements is located on the Financial Reporting Council's website at
https://www.frc.org.uk/auditorsresponsibilities. This description forms part
of our auditor's report.
Other Matters We are Required to Address
> Following the recommendation from the audit committee we were appointed
by the Company on 2 November 2007 to audit the financial statements for the
year ending 31 January 2008 and subsequent financial periods. The period of
total uninterrupted engagement including previous renewals and reappointments
is 17 years, covering the years ending 31 January 2008 to 31 January 2024.
> The audit opinion is consistent with the additional report to the Audit
and Risk Committee.
Use of Our Report
This report is made solely to the company's members, as a body, in accordance
with Section 262 of The Companies (Guernsey) law 2008. Our audit work has been
undertaken so that we might state to the Company's members those matters we
are required to state to them in an auditor's report and for no other purpose.
To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company and the company's members as a
body, for our audit work, for this report, or for the opinions we have formed.
Richard Geoffrey Le Tissier
For and on behalf of Ernst & Young LLP
Guernsey
29 May 2024
Notes:
1. The maintenance and integrity of the Company's website is the sole
responsibility of the Directors; the work carried out by the auditors does not
involve consideration of these matters and, accordingly, the auditor accepts
no responsibility for any changes that may have occurred to the Financial
Statements since they were initially presented on the website.
2. Legislation in Guernsey governing the preparation and dissemination of
Financial Statements may differ from legislation in other jurisdictions.
Report of Independent Auditors
To the Directors of HarbourVest Global Private Equity Limited
Opinion
We have audited the consolidated financial statements of HarbourVest Global
Private Equity Limited (the "Company") and its subsidiaries (together the
"Group"), which comprise the consolidated statements of assets and
liabilities, including the consolidated schedules of investments, as of 31
January 2024 and 2023, and the related consolidated statements of operations,
changes in net assets, and cash flows for the years then ended, and the
related notes 1 to 12 (collectively referred to as the "financial
statements").
In our opinion, the accompanying financial statements present fairly, in all
material respects, the financial position of the Group at 31 January 2024 and
2023, and the results of its operations, changes in its net assets and its
cash flows for the year then ended in accordance with accounting principles
generally accepted in the United States of America.
Basis for Opinion
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America (GAAS). Our responsibilities under
those standards are further described in the Auditor's Responsibilities for
the Audit of the Financial Statements section of our report. We are required
to be independent of the Group and to meet our other ethical responsibilities
in accordance with the relevant ethical requirements relating to our audit. We
believe that the audit evidence we have obtained is sufficient and appropriate
to provide a basis for our audit opinion.
Responsibilities of Management for the Financial Statements
Management is responsible for the preparation and fair presentation of the
financial statements in accordance with accounting principles generally
accepted in the United States of America, and for the design, implementation,
and maintenance of internal control relevant to the preparation and fair
presentation of financial statements that are free of material misstatement,
whether due to fraud or error.
In preparing the financial statements, management is required to evaluate
whether there are conditions or events, considered in the aggregate, that
raise substantial doubt about the Group's ability to continue as a going
concern for one year after the date that the financial statements are
available to be issued.
Auditor's Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free of material misstatement, whether due to fraud
or error, and to issue an auditor's report that includes our opinion.
Reasonable assurance is a high level of assurance but is not absolute
assurance and therefore is not a guarantee that an audit conducted in
accordance with GAAS will always detect a material misstatement when it
exists. The risk of not detecting a material misstatement resulting from fraud
is higher than for one resulting from error, as fraud may involve collusion,
forgery, intentional omissions, misrepresentations, or the override of
internal control. Misstatements are considered material if there is a
substantial likelihood that, individually or in the aggregate, they would
influence the judgment made by a reasonable user based on the financial
statements.
In performing an audit in accordance with GAAS, we:
> Exercise professional judgment and maintain professional skepticism
throughout the audit.
> Identify and assess the risks of material misstatement of the financial
statements, whether due to fraud or error, and design and perform audit
procedures responsive to those risks. Such procedures include examining, on a
test basis, evidence regarding the amounts and disclosures in the financial
statements.
> Obtain an understanding of internal control relevant to the audit in
order to design audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the
Group's internal control. Accordingly, no such opinion is expressed.
> Evaluate the appropriateness of accounting policies used and the
reasonableness of significant accounting estimates made by management, as well
as evaluate the overall presentation of the financial statements.
> Conclude whether, in our judgment, there are conditions or events,
considered in the aggregate, that raise substantial doubt about the Group's
ability to continue as a going concern for a reasonable period of time.
We are required to communicate with those charged with governance regarding,
among other matters, the planned scope and timing of the audit, significant
audit findings, and certain internal control-related matters that we
identified during the audit.
Other Information
Management is responsible for the other information. The other information
comprises the Strategic Report, Governance, and Other Information but does not
include the financial statements and our auditor's report thereon. Our opinion
on the financial statements does not cover the other information, and we do
not express an opinion or any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility
is to read the other information and consider whether a material inconsistency
exists between the other information and the financial statements, or the
other information otherwise appears to be materially misstated. If, based on
the work performed, we conclude that an uncorrected material misstatement of
the other information exists, we are required to describe it in our report.
Guernsey, Channel Islands
29 May 2024
Consolidated Statements of Assets and Liabilities
At 31 January 2024 and 2023
In US Dollars 2024 2023
(in thousands*) (in thousands*)
Assets
Investments (Note 4) 4,057,606 3,616,330
Cash and equivalents 140,156 197,523
Other assets 5,329 25,652
Total assets 4,203,091 3,839,505
Liabilities
Amounts due under the credit facility (Note 6) 275,000 -
Accounts payable and accrued expenses 7,479 1,441
Accounts payable to HarbourVest Advisers L.P. (Note 9) 40 138
Total liabilities 282,519 1,579
Commitments (Note 5)
Net assets $3,920,572 $3,837,926
Net assets consist of
Shares, unlimited shares authorised, 77,683,508 and 79,104,622 shares issued 3,920,572 3,837,926
and outstanding at 31 January 2024 and 31 January 2023 respectively, no par
value
Net assets $3,920,572 $3,837,926
Net asset value per share $50.47 $48.52
* Except net asset value per share
The accompanying notes are an integral part of the Financial Statements.
The Financial Statements on pages 93 to 100 were approved by the Board on 29
May 2024 and were signed on its behalf by:
Ed Warner Steven Wilderspin
Chair Chair of the Audit and Risk Committee
Consolidated Statements of Operations
For the Years Ended 31 January 2024 and 2023
In US Dollars 2024 2023
(in thousands) (in thousands)
Realised and unrealised gains (losses) on investments
Net realised gain on investments 90,514 236,752
Net change in unrealised appreciation and depreciation on investments 49,893 (291,301)
Net gain (loss) on investments 140,407 (54,549)
Investment income
Interest and dividends from cash and equivalents 8,621 3,622
Other income 186 71
Expenses
Interest expense (Note 6) 14,465 -
Non-utilisation fees (Note 6) 6,127 7,078
Investment services (Note 3) 2,475 2,021
Financing expenses 2,374 2,455
Professional fees 1,118 975
Directors' fees and expenses (Note 9) 474 526
Marketing expenses 356 288
Management fees (Note 3) 117 384
Tax expenses 47 7
Other expenses 513 633
Total expenses 28,066 14,367
Net investment loss (19,259) (10,674)
Net increase (decrease) in net assets resulting from operations $121,148 $(65,223)
The accompanying notes are an integral part of the Financial Statements.
Consolidated Statements of Changes in Net Assets
For the Years Ended 31 January 2024 and 2023
In US Dollars 2024 2023
(in thousands) (in thousands)
Increase (decrease) in net assets from operations
Net realised gain on investments 90,514 236,752
Net change in unrealised appreciation and depreciation on investments 49,893 (291,301)
Net investment loss (19,259) (10,674)
Net increase (decrease) in net assets resulting from operations 121,148 (65,223)
Capital Share Transactions
Share Repurchase (38,502) (18,784)
Net decrease in net assets from capital share transactions (38,502) (18,784)
Total increase (decrease) in net assets 82,646 (84,007)
Net assets at beginning of year 3,837,926 3,921,933
Net assets at end of year $3,920,572 $3,837,926
The accompanying notes are an integral part of the Financial Statements.
Consolidated Statements of Cash Flows
For the Years Ended 31 January 2024 and 2023
In US Dollars 2024 2023
(in thousands) (in thousands)
Cash flows from operating activities
Net increase (decrease) in net assets resulting from operations 121,148 (65,223)
Adjustments to reconcile net increase (decrease) in net assets resulting from
operations
to net cash used in operating activities:
Net realised gain on investments (90,514) (236,752)
Net change in unrealised appreciation and depreciation on investments (49,893) 291,301
Contributions to private equity investments (592,792) (704,903)
Distributions from private equity investments 310,296 667,385
Other 7,890 (19,524)
Net cash used in operating activities (293,865) (67,716)
Cash flows from financing activities
Proceeds from borrowing on the credit facility 275,000 -
Share Repurchase (38,502) (18,784)
Net cash provided by (used in) financing activities 236,498 (18,784)
Net decrease in cash and equivalents (57,367) (86,500)
Cash and equivalents at beginning of year 197,523 284,023
Cash and equivalents at end of year $140,156 $197,523
Supplemental disclosure of non- cash activities
Distribution-in-kind from HarbourVest Adelaide Feeder L.P. (Note 10) $117,233
Contribution-in-kind to HarbourVest Infrastructure Income Delaware Parallel $(117,233)
Partnership L.P. (Note 10)
The accompanying notes are an integral part of the Financial Statements.
Consolidated Schedule of Investments
At 31 January 2024
In US Dollars
US Funds Unfunded Commitment Amount Distributions Received Fair Value Fair Value as a % of Net Assets
(in thousands) Invested* (in thousands) (in thousands)
(in thousands)
HarbourVest Partners V-Partnership Fund L.P. 2,220 46,709 45,924 802 0.0
HarbourVest Partners VI-Direct Fund L.P. 1,313 46,722 41,081 1,796 0.0
HarbourVest Partners VI-Partnership Fund L.P. 5,175 204,623 237,227 464 0.0
HarbourVest Partners VII-Venture Partnership Fund L.P.(†) 2,319 135,290 204,327 2,127 0.1
HarbourVest Partners VIII-Cayman Mezzanine and Distressed Debt Fund L.P. 2,000 48,202 62,811 699 0.0
HarbourVest Partners VIII-Cayman Buyout Fund L.P. 7,500 245,259 417,067 4,931 0.1
HarbourVest Partners VIII-Cayman Venture Fund L.P. 1,000 49,192 91,307 13,875 0.4
HarbourVest Partners 2007 Cayman Direct Fund L.P. 2,250 97,877 165,442 288 0.0
HarbourVest Partners IX-Cayman Buyout Fund L.P. 8,520 62,761 92,387 43,194 1.1
HarbourVest Partners IX-Cayman Credit Opportunities Fund L.P. 1,438 11,111 12,034 6,029 0.2
HarbourVest Partners IX-Cayman Venture Fund L.P. 3,500 66,826 132,015 84,464 2.2
HarbourVest Partners 2013 Cayman Direct Fund L.P. 3,229 97,131 159,293 36,077 0.9
HarbourVest Partners Cayman Cleantech Fund II L.P. 900 19,156 18,730 17,466 0.4
HarbourVest Partners X Buyout Feeder Fund L.P. 34,650 217,378 165,062 233,547 6.0
HarbourVest Partners X Venture Feeder Fund L.P. 6,290 141,764 99,019 258,319 6.6
HarbourVest Partners Mezzanine Income Fund L.P. 8,155 42,067 63,788 20,675 0.5
HarbourVest Partners XI Buyout Feeder Fund L.P. 90,300 259,700 82,013 324,967 8.3
HarbourVest Partners XI Micro Buyout Feeder Fund L.P. 5,655 59,345 19,811 73,692 1.9
HarbourVest Partners XI Venture Feeder Fund L.P. 13,300 176,736 42,421 236,782 6.0
HarbourVest Adelaide Feeder L.P. 6,000 144,000 176,644 1,455 0.0
HarbourVest Partners XII Buyout Feeder Fund L.P. 356,400 138,600 3,268 164,565 4.2
HarbourVest Partners XII Micro Buyout Feeder Fund L.P. 58,000 22,000 - 24,486 0.6
HarbourVest Partners XII Venture Feeder Fund L.P. 100,238 34,763 240 39,087 1.0
HarbourVest Partners XII Venture AIF SCSp 95,450 19,625 - 23,431 0.6
Harbourvest Infrastructure Income Delaware Parallel Partnership - 117,233 37,964 104,241 2.7
Total US Funds 815,802 2,504,070 2,369,876 1,717,458 43.8
Consolidated Schedule of Investments continued
International/Global Funds Unfunded Commitment Amount Distributions Received Fair Value Fair Value as a % of Net Assets
(in thousands) Invested* (in thousands) (in thousands)
(in thousands)
HarbourVest International Private Equity Partners III-Partnership Fund L.P. 3,450 147,729 148,440 402 0.0
Dover Street VII Cayman L.P. 4,250 83,504 118,312 122 0.0
HIPEP VI-Cayman Partnership Fund L.P.(**) 5,409 117,845 177,872 56,878 1.5
HIPEP VI-Cayman Asia Pacific Fund L.P. 2,500 47,687 59,275 19,589 0.5
HIPEP VI-Cayman Emerging Markets Fund L.P. - 30,059 15,319 22,461 0.6
Dover Street VIII Cayman L.P. 14,400 165,724 262,515 13,083 0.3
HVPE Charlotte Co-Investment L.P. - 93,894 162,267 831 0.0
HarbourVest Global Annual Private Equity Fund L.P. 9,000 91,001 137,497 74,761 1.9
HIPEP VII Partnership Feeder Fund L.P. 10,625 114,375 116,405 127,623 3.3
HIPEP VII Asia Pacific Feeder Fund L.P. 1,500 28,500 21,232 29,525 0.8
HIPEP VII Emerging Markets Feeder Fund L.P. 2,600 17,400 8,267 22,389 0.6
HIPEP VII Europe Feeder Fund 6,815 64,329 79,077 68,485 1.7
L.P. (††)
HarbourVest Canada Parallel Growth Fund L.P.(‡‡) 4,369 19,872 13,707 26,735 0.7
HarbourVest 2015 Global Fund L.P. 7,000 93,017 114,791 74,638 1.9
HarbourVest 2016 Global AIF L.P. 16,000 84,026 85,450 77,026 2.0
HarbourVest Partners Co-Investment IV AIF L.P. 7,000 93,000 92,953 84,382 2.2
Dover Street IX Cayman L.P. 12,000 88,000 91,612 60,234 1.5
HarbourVest Real Assets III Feeder L.P. 3,750 46,250 13,607 47,312 1.2
HarbourVest 2017 Global AIF L.P. 19,500 80,521 62,587 87,239 2.2
HIPEP VIII Partnership AIF L.P. 28,475 141,525 36,116 175,297 4.5
Secondary Overflow Fund III L.P. 22,841 62,316 59,234 62,341 1.6
HarbourVest Asia Pacific VIII AIF Fund L.P. 3,375 46,631 11,092 50,461 1.3
HarbourVest 2018 Global Feeder Fund L.P. 13,300 56,700 21,628 75,861 1.9
HarbourVest Partners Co-Investment V Feeder Fund L.P. 22,500 77,548 19,777 124,512 3.2
HarbourVest Real Assets IV Feeder L.P. 13,500 36,500 11,664 39,390 1.0
HarbourVest 2019 Global Feeder Fund L.P. 26,000 74,007 15,885 99,459 2.5
HarbourVest Credit Opportunities Fund II L.P. 1,500 48,500 8,939 49,891 1.3
Dover Street X Feeder Fund L.P. 44,250 105,768 37,683 125,128 3.2
Secondary Overflow Fund IV L.P. 49,931 79,475 26,807 87,813 2.2
HIPEP IX Feeder Fund L.P. 329,800 155,208 11,752 177,838 4.5
HarbourVest 2020 Global Feeder Fund L.P. 10,750 39,251 4,147 43,755 1.1
HarbourVest Partners Co-Investment VI Feeder Fund L.P. 37,500 87,506 378 95,003 2.4
HarbourVest Asia Pacific 5 Feeder Fund L.P. 255,000 45,000 - 37,406 1.0
HarbourVest 2021 Global Feeder Fund L.P. 76,822 93,230 2,790 103,962 2.7
HarbourVest 2022 Global Feeder Fund L.P. 71,000 29,000 1,185 36,161 0.9
Dover Street XI Feeder Fund L.P. 207,500 42,500 - 57,126 1.5
HarbourVest Credit Opportunities III Feeder Fund L.P. 75,000 - - (63) 0.0
HIPEP X Feeder Fund L.P. 125,000 - - 964 0.0
HarbourVest Infrastructure Opportunities III Feeder Fund L.P. 75,000 - - 268 0.0
Secondary Overflow Fund V L.P. - - - (75) 0.0
HarbourVest Partners Stewardship Feeder Fund L.P. 30,888 4,166 - 3,938 0.1
HarbourVest Private Equity Continuation Solutions Feeder Fund L.P 35,000 - - - 0.0
Total International/Global Funds 1,685,100 2,731,565 2,050,263 2,340,149 59.8
Total Investments 2,500,899 5,235,635 4,420,139 4,057,606 103.5
* Includes purchase of limited partner interests for
shares and cash at the time of HVPE's IPO.
† Includes ownership interests in HarbourVest
Partners VII-Cayman Partnership entities.
§ Fund denominated in euros. Commitment amount is
€47,450,000.
** Fund denominated in euros. Commitment amount is
€100,000,000.
†† Fund denominated in euros. Commitment amount is
€63,000,000.
‡‡ Fund denominated in Canadian dollars. Commitment
amount is C$32,000,000.
As of 31 January 2024, the cost basis of partnership investments is
$2,696,155,000.
Totals and subtotals may not recalculate due to rounding.
The accompanying notes are an integral part of the Financial Statements.
Consolidated Schedule of Investments
At 31 January 2023
In US Dollars
US Funds Unfunded Commitment Amount Distributions Received Fair Value Fair Value as a % of Net Assets
(in thousands) Invested* (in thousands) (in thousands)
(in thousands)
HarbourVest Partners V-Partnership Fund L.P. 2,220 46,709 45,924 816 0.0
HarbourVest Partners VI-Direct Fund L.P. 1,313 46,722 40,882 260 0.0
HarbourVest Partners VI-Partnership Fund L.P. 5,175 204,623 237,227 503 0.0
HarbourVest Partners VII-Venture Partnership Fund 2,319 135,290 204,163 2,132 0.1
L.P. (†)
HarbourVest Partners VII-Buyout Partnership Fund L.P. (†) 3,850 74,417 103,486 187 0.0
HarbourVest Partners VIII-Cayman Mezzanine and Distressed Debt Fund L.P. 2,000 48,202 61,472 2,466 0.1
HarbourVest Partners VIII-Cayman Buyout Fund L.P. 7,500 245,259 404,137 21,860 0.6
HarbourVest Partners VIII-Cayman Venture Fund L.P. 1,000 49,192 88,651 15,883 0.4
HarbourVest Partners 2007 Cayman Direct Fund L.P. 2,250 97,877 160,808 4,946 0.1
HarbourVest Partners IX-Cayman Buyout Fund L.P. 10,473 60,808 84,303 49,417 1.3
HarbourVest Partners IX-Cayman Credit Opportunities Fund L.P. 1,875 10,674 11,337 6,807 0.2
HarbourVest Partners IX-Cayman Venture Fund L.P. 3,500 66,826 124,117 94,932 2.5
HarbourVest Partners 2013 Cayman Direct Fund L.P. 3,229 97,131 148,459 51,604 1.3
HarbourVest Partners Cayman Cleantech Fund II L.P. 900 19,156 16,143 18,984 0.5
HarbourVest Partners X Buyout Feeder Fund L.P. 42,840 209,188 154,487 219,696 5.7
HarbourVest Partners X Venture Feeder Fund L.P. 6,290 141,764 91,859 278,980 7.3
HarbourVest Partners Mezzanine Income Fund L.P. 8,155 42,067 62,671 18,132 0.5
HarbourVest Partners XI Buyout Feeder Fund L.P. 129,500 220,500 70,642 277,494 7.2
HarbourVest Partners XI Micro Buyout Feeder Fund L.P. 19,955 45,045 18,490 55,692 1.5
HarbourVest Partners XI Venture Feeder Fund L.P. 33,250 156,786 38,522 221,358 5.8
HarbourVest Adelaide Feeder L.P. 6,000 144,000 176,644 1,320 0.0
HarbourVest Partners XII Buyout Feeder Fund L.P. 457,875 37,125 - 42,754 1.1
HarbourVest Partners XII Micro Buyout Feeder Fund L.P. 78,400 1,600 - 1,102 0.0
HarbourVest Partners XII Venture Feeder Fund L.P. 122,175 12,825 - 13,122 0.3
HarbourVest Partners XII Venture AIF SCSp 102,350 12,725 - 13,463 0.4
Harbourvest Infrastructure Income Delaware Parallel Partnership - 117,233 18,373 119,638 3.1
Total US Funds 1,054,393 2,343,743 2,362,798 1,533,549 40.0
Consolidated Schedule of Investments continued
International/Global Funds Unfunded Commitment Amount Distributions Received Fair Value Fair Value as a % of Net Assets
(in thousands) Invested* (in thousands) (in thousands)
(in thousands)
HarbourVest International Private Equity Partners III-Partnership Fund L.P. 3,450 147,729 148,440 395 0.0
HIPEP V-2007 Cayman European Buyout Companion Fund L.P.(§) 1,546 63,880 84,434 665 0.0
Dover Street VII Cayman L.P. 4,250 83,504 117,756 775 0.0
HIPEP VI-Cayman Partnership Fund L.P.(**) 5,432 117,845 163,073 73,196 1.9
HIPEP VI-Cayman Asia Pacific Fund L.P. 2,500 47,687 55,840 26,154 0.7
HIPEP VI-Cayman Emerging Markets Fund L.P. - 30,059 12,151 24,542 0.6
Dover Street VIII Cayman L.P. 14,400 165,724 255,442 21,677 0.6
HVPE Charlotte Co-Investment L.P. - 93,894 161,228 1,979 0.1
HarbourVest Global Annual Private Equity Fund L.P. 11,300 88,701 128,959 79,433 2.1
HIPEP VII Partnership Feeder Fund L.P. 14,688 110,313 94,516 137,579 3.6
HIPEP VII Asia Pacific Feeder Fund L.P. 1,950 28,050 18,269 34,051 0.9
HIPEP VII Emerging Markets Feeder Fund L.P. 2,600 17,400 7,385 21,462 0.6
HIPEP VII Europe Feeder Fund 9,411 61,749 62,637 75,215 2.0
L.P. (††)
HarbourVest Canada Parallel Growth Fund L.P.(‡‡) 5,056 19,224 12,427 30,321 0.8
HarbourVest 2015 Global Fund L.P. 8,500 91,517 106,979 81,507 2.1
HarbourVest 2016 Global AIF L.P. 23,000 77,026 76,508 77,869 2.0
HarbourVest Partners Co-Investment IV AIF L.P. 7,000 93,000 85,330 86,145 2.2
Dover Street IX Cayman L.P. 13,000 87,000 88,613 63,361 1.7
HarbourVest Real Assets III Feeder L.P. 3,750 46,250 9,121 52,457 1.4
HarbourVest 2017 Global AIF L.P. 27,500 72,521 53,510 81,961 2.1
HIPEP VIII Partnership AIF L.P. 49,725 120,275 28,926 154,277 4.0
Secondary Overflow Fund III L.P. 24,214 68,876 66,304 68,707 1.8
HarbourVest Asia Pacific VIII AIF Fund L.P. 8,250 41,756 8,000 50,108 1.3
HarbourVest 2018 Global Feeder Fund L.P. 15,400 54,600 18,850 75,203 2.0
HarbourVest Partners Co-Investment V Feeder Fund L.P. 22,500 77,548 15,940 123,382 3.2
HarbourVest Real Assets IV Feeder L.P. 22,000 28,000 4,167 35,278 0.9
HarbourVest 2019 Global Feeder Fund L.P. 36,000 64,007 13,621 87,489 2.3
HarbourVest Credit Opportunities Fund II L.P. 2,500 47,500 2,710 50,745 1.3
Dover Street X Feeder Fund L.P. 55,125 94,893 32,646 115,696 3.0
Secondary Overflow Fund IV L.P. 57,573 71,833 24,776 78,578 2.1
HIPEP IX Feeder Fund L.P. 388,000 97,008 7,095 120,489 3.1
HarbourVest 2020 Global Feeder Fund L.P. 16,000 34,001 3,513 39,054 1.0
HarbourVest Partners Co-Investment VI Feeder Fund L.P. 93,750 31,256 - 31,562 0.8
HarbourVest Asia Pacific 5 Feeder Fund L.P. 291,000 9,000 - 7,756 0.2
HarbourVest 2021 Global Feeder Fund L.P. 111,350 58,701 987 63,411 1.7
HarbourVest 2022 Global Feeder Fund L.P. 97,000 3,000 - 4,323 0.1
Dover Street XI Feeder Fund L.P. 225,000 - - 5,979 0.2
HarbourVest Credit Opportunities III Feeder Fund L.P. 75,000 - - - -
Total International/Global Funds 1,749,720 2,445,329 1,970,152 2,082,782 54.3
Total Investments 2,804,113 4,789,072 4,332,950 3,616,330 94.3
* Includes purchase of limited partner interests for
shares and cash at the time of HVPE's IPO.
† Includes ownership interests in HarbourVest
Partners VII-Cayman Partnership entities.
§ Fund denominated in euros. Commitment amount is
€47,450,000.
** Fund denominated in euros. Commitment amount is
€100,000,000.
†† Fund denominated in euros. Commitment amount is
€63,000,000.
‡‡ Fund denominated in Canadian dollars. Commitment
amount is C$32,000,000.
As of 31 January 2023, the cost basis of partnership investments is
$2,304,772,000.
Totals and subtotals may not recalculate due to rounding.
The accompanying notes are an integral part of the Financial Statements.
Notes to Consolidated Financial Statements
Note 1 Company Organisation and Investment Objective
HarbourVest Global Private Equity Limited (the "Company" or "HVPE") is a
closed-ended investment company registered with the Registrar of Companies in
Guernsey under the Companies (Guernsey) Law, 2008. The Company's registered
office is BNP Paribas House, St Julian's Avenue, St Peter Port, Guernsey GY1
1WA.
The Company was incorporated and registered in Guernsey on 18 October 2007.
HVPE is designed to offer shareholders long-term capital appreciation by
investing in a diversified portfolio of private equity investments. The
Company invests in private equity through private equity funds and may make
co-investments or other opportunistic investments. The Company is managed by
HarbourVest Advisers L.P. (the "Investment Manager"), an affiliate of
HarbourVest Partners, LLC ("HarbourVest"), a private equity fund-of-funds
manager. The Company intends to invest in and alongside existing and
newly-formed HarbourVest funds. HarbourVest is a global private equity fund of
funds manager and typically invests capital in primary partnerships, secondary
investments, and direct investments across vintage years, geographies,
industries, and strategies.
Operations of the Company commenced on 6 December 2007, following the initial
global offering of the Class A Ordinary Shares.
Share Capital
At 31 January 2024, the Company's 77,683,508 shares continued to be listed on
the London Stock Exchange under the symbol "HVPE". The shares are entitled to
the income and increases and decreases in the net asset value ("NAV") of the
Company, and to any dividends declared and paid, and have full voting rights.
Dividends may be declared by the Board of Directors and paid from available
assets subject to the Directors being satisfied that the Company will,
immediately after payment of the dividend, satisfy the statutory solvency test
prescribed by the Companies (Guernsey) Law, 2008. The Company repurchased
1,421,114 and 757,864 shares during the years ended 31 January 2024 and 31
January 2023, respectively.
Dividends would be paid to shareholders pro rata to their shareholdings.
The shareholders must approve any amendment to the Memorandum and Articles of
Incorporation. The approval of 75% of the shares is required in respect of any
changes that are administrative in nature, any material change from the
investment strategy and/or investment objective of the Company, or any
material change to the terms of the Investment Management Agreement.
There is no minimum statutory capital requirement under Guernsey law.
Investment Manager, Company Secretary, and Administrator
The Directors have delegated certain day-to-day operations of the Company to
the Investment Manager and the Company Secretary and Administrator, under
advice of the Directors, pursuant to service agreements with those parties,
within the context of the strategy set by the Board. The Investment Manager is
responsible for, among other things, selecting, acquiring, and disposing of
the Company's investments, carrying out financing, cash management, and risk
management activities, providing investment advisory services, including with
respect to HVPE's investment policies and procedures, and arranging for
personnel and support staff of the Investment Manager to assist in the
administrative and executive functions of the Company.
Directors
The Directors are responsible for the determination of the investment policy
of the Company on the advice of the Investment Manager, balance sheet
management, and have overall responsibility for the Company's activities. This
includes the periodic review of the Investment Manager's compliance with the
Company's investment policies and procedures, and the approval of certain
investments. A majority of Directors must be independent Directors and not
affiliated with HarbourVest or any affiliate of HarbourVest.
Note 2 Summary of Significant Accounting Policies
The following accounting policies have been applied consistently in dealing
with items which are considered material in relation to the Company's
consolidated financial statements ("Financial Statements").
Basis of Preparation
The Company maintains an overcommitment strategy in an attempt to remain fully
invested over time (refer to Note 5 on page 105 for further details on
unfunded commitments). HarbourVest prepares forecasts and predictions to
provide assurance that the Company has sufficient resources to meet its
ongoing requirements.
As part of this process, the Investment Manager has created four revised model
scenarios with varying degrees of decline in investment value and investment
distributions, with the worst being an Extreme Downside scenario representing
an impact to the portfolio that is worse than that expected during the Global
Financial Crisis ("GFC"). All four models verified that the Company has enough
resources to meet the Company's upcoming financial obligations. However, in
all circumstances HVPE can take steps to limit or mitigate the impact on the
Consolidated Statements of Assets and Liabilities, namely drawing on the
credit facility, pausing new commitments, raising additional credit or
capital, and selling assets to increase liquidity and reduce outstanding
commitments. As a result, the Company's Financial Statements have been
prepared on a going concern basis.
Basis of Presentation
The Financial Statements include the accounts of HarbourVest Global Private
Equity Limited and its five wholly owned subsidiaries: HVGPE - Domestic A
L.P., HVGPE - Domestic B L.P., HVGPE - Domestic C L.P., HVGPE - International
A L.P. and HVGPE - International B L.P. (together "the undertakings"). Each of
the subsidiaries is a Cayman Islands limited partnership formed to facilitate
the purchase of certain investments. All intercompany accounts and
transactions have been eliminated in consolidation.
Method of Accounting
The Financial Statements are prepared in conformity with US generally accepted
accounting principles ("US GAAP"), The Companies (Guernsey) Law, 2008, and the
Principal Documents. Under applicable rules of Guernsey law implementing the
EU Transparency Directive, the Company is allowed to prepare its financial
statements in accordance with US GAAP instead of International Financial
Reporting Standards ("IFRS").
The Company is an investment company following the accounting and reporting
guidance of the Financial Accounting Standards Boards ("FASB") Accounting
Standards Codification ("ASC") Topic 946 - Financial Services - Investment
Companies.
Estimates
The preparation of the Financial Statements in conformity with US GAAP
requires management to make estimates and assumptions that affect the amounts
reported in the Financial Statements and accompanying notes. Actual results
could differ from those estimates.
Investments
Investments are stated at fair value in accordance with the Company's
investment valuation policy. The Board has concluded specifically that climate
change, including physical and transition risks, does not have a material
impact on the recognition and separate measurement considerations of the
assets and liabilities of the Group in the financial statements as of 31
January 2024, but recognises that climate change may have an effect on the
investments held in the underlying partnerships. The inputs used to determine
fair value include financial statements provided by the investment
partnerships which typically include fair market value capital account
balances. In reviewing the underlying financial statements and capital account
balances, the Company considers compliance with ASC Topic 820 - Fair Value
Measurement, the currency in which the investment is denominated, and other
information deemed appropriate.
The fair value of the Company's investments is primarily based on the most
recently reported NAV provided by the underlying Investment Manager as a
practical expedient under ASC Topic 820. This fair value is then adjusted for
known investment operating expenses and subsequent transactions, including
investments, realisations, changes in foreign currency exchange rates, and
changes in value of private and public securities. This valuation does not
necessarily reflect amounts that might ultimately be realised from the
investment and the difference can be material.
Securities for which a public market does exist are valued by the Company at
quoted market prices at the year-end date. Generally, the partnership
investments have a defined term and cannot be transferred without the consent
of the GP of the limited partnership in which the investment has been made.
Foreign Currency Transactions
The currency in which the Company operates is US dollars, which is also the
presentation currency. Transactions denominated in foreign currencies are
recorded in the local currency at the exchange rate in effect at the
transaction dates. Foreign currency investments, investment commitments, cash
and equivalents, and other assets and liabilities are translated at the rates
in effect at the year-end date. Foreign currency translation gains and losses
are included in realised and unrealised gains (losses) on investments as
incurred. The Company does not segregate that portion of realised or
unrealised gains and losses attributable to foreign currency translation on
investments.
Cash and Equivalents
The Company considers all highly liquid investments with an original maturity
of three months or less to be cash equivalents. The carrying amount included
in the Consolidated Statements of Assets and Liabilities for cash and
equivalents approximates their fair value. The Company maintains bank accounts
denominated in US dollars, in euros, and in pounds sterling. The Company may
invest excess cash balances in highly liquid instruments such as certificates
of deposit, sovereign debt obligations of certain countries, and money market
funds that are highly rated by the credit rating agencies.
The associated credit risk of the cash and equivalents is monitored by the
Board and the Investment Manager on a regular basis. The Board has authorised
the Investment Manager to manage the cash balances on a daily basis according
to the terms set out in the treasury policies created by the Board.
Investment Income
Investment income includes interest from cash and equivalents, dividends, and
interest received from certain investments due to subsequent fund closings.
Dividends are recorded when they are declared and interest is recorded when
earned.
Operating Expenses
Operating expenses include amounts directly incurred by the Company as part of
its operations, and do not include amounts incurred from the operations of the
investment entities.
Net Realised Gains and Losses on Investments
For investments in private equity funds, the Company records its share of
realised gains and losses as reported by the Investment Manager, including
fund-level related expenses and management fees, and is net of any carry
allocation. Realised gains and losses are calculated as the difference between
proceeds received and the related cost of the investment.
Net Change in Unrealised Appreciation and Depreciation on Investments
For investments in private equity funds, the Company records its share of
change in unrealised gains and losses as reported by the Investment Manager as
an increase or decrease in unrealised appreciation or depreciation of
investments and is net of any carry allocation. When an investment is
realised, the related unrealised appreciation or depreciation is recognised as
realised.
Income Taxes
The Company is registered in Guernsey as a tax exempt company. The States of
Guernsey Income Tax Authority has granted the Company exemption from Guernsey
income tax under the provision of the Income Tax (Exempt Bodies) (Guernsey)
Ordinance 1989 and the Company will be charged an annual exemption fee of
£1,200 included as other expenses in the Consolidated Statements of
Operations. Income may be subject to withholding taxes imposed by the US or
other countries, which will impact the Company's effective tax rate.
Investments made in entities that generate US source income may subject the
Company to certain US federal and state income tax consequences. A US
withholding tax at the rate of 30% may be applied on the distributive share of
any US source dividends and interest (subject to certain exemptions) and
certain other income that is received directly or through one or more entities
treated as either partnerships or disregarded entities for US federal income
tax purposes. Furthermore, investments made in entities that generate income
that is effectively connected with a US trade or business may also subject the
Company to certain US federal and state income tax consequences. The US
requires withholding on effectively connected income for corporate partners at
the rate of 21%. In addition, the Company may also be subject to a branch
profits tax which can be imposed at a rate of up to 30% of any after-tax,
effectively connected income associated with a US trade or business. However,
no amounts have been accrued.
The Company accounts for income taxes under the provisions of ASC Topic 740 -
Income Taxes. This standard establishes consistent thresholds as it relates to
accounting for income taxes. It defines the threshold for recognising the
benefits of tax-return positions in the financial statements as
"more-likely-than-not" to be sustained by the taxing authority and requires
measurement of a tax position meeting the more-likely-than-not criterion,
based on the largest benefit that is more than 50% likely to be realised. For
the year ended 31 January 2024, the Investment Manager has analysed the
Company's inventory of tax positions taken with respect to all applicable
income tax issues for all open tax years (in each respective jurisdiction),
and has concluded that no provision for income tax is required in the
Company's Financial Statements.
Shareholders in certain jurisdictions may have individual tax consequences
from ownership of the Company's shares. The Company has not included the
impact of these tax consequences on the shareholders in these Financial
Statements.
Market and Other Risk Factors
The Company's investments are subject to various risk factors including market
price, credit, interest rate, liquidity, and currency risk. Investments are
based primarily in the US, Europe, and Asia Pacific, and thus have
concentrations in such regions. The Company's investments are also subject to
the risks associated with investing in leveraged buyout and venture capital
transactions that are illiquid and non-publicly traded. Such investments are
inherently more sensitive to declines in revenues and to increases in expenses
that may occur due to general downward swings in the world economy or other
risk factors including increasingly intense competition, rapid changes in
technology, changes in federal, state and foreign regulations, and limited
capital investments.
The Company is subject to credit and liquidity risk to the extent any
financial institution with which it conducts business is unable to fulfil
contracted obligations on its behalf. Management monitors the financial
condition of those financial institutions and does not anticipate any losses
from these counterparties.
Note 3 Material Agreements and Related Fees
Administrative Agreement
The Company has retained BNP Paribas S.A., Guernsey Branch ("BNP") as Company
Secretary and Administrator. Fees for these services are paid as invoiced by
BNP and include an administration fee of £50,000 per annum, a secretarial fee
of £60,000 per annum, a compliance services fee of £15,000 per annum, ad-hoc
service fees, and reimbursable expenses. During the years ended 31 January
2024 and 2023, fees of $158,000 and $157,000, respectively, were incurred to
BNP and are included as other expenses in the Consolidated Statements of
Operations.
Registrar
The Company has retained Link Asset Services (formerly 'Capita') as share
registrar. Fees for this service include a base fee of £15,500, plus other
miscellaneous expenses. During the years ended 31 January 2024 and 2023,
registrar fees of $19,000 and $19,000, respectively, were incurred and are
included as other expenses in the Consolidated Statements of Operations.
Independent Auditor's Fees
For the years ended 31 January 2024 and 2023, auditor fees of $453,000 and
$363,000 were accrued, respectively, and are included in professional fees in
the Consolidated Statements of Operations. The 31 January 2024 figure includes
$326,000 relating to the 31 January 2024 annual audit fee and $6,000 relating
to the prior financial year's audit fee. The 31 January 2023 figure includes
$269,000 relating to the 31 January 2023 annual audit fee and a credit of
$17,000 relating to the prior financial year's audit fee. In addition, the 31
January 2024 and 2023 figures include fees of $121,000 and $111,000,
respectively, for audit-related services due to the Auditor, Ernst & Young
LLP, conducting a review of the Interim Financial Statements for each period
end.
Investment Management Agreement
The Company has retained HarbourVest Advisers L.P. as the Investment Manager.
The Investment Manager is reimbursed for costs and expenses incurred on behalf
of the Company in connection with the management and operation of the Company.
During the years ended 31 January 2024 and 2023, reimbursements for services
provided by the Investment Manager were $2,475,000 and $2,021,000,
respectively. As of 1 February 2022, the Investment Manager is reimbursed on a
fixed fee basis rather than an hourly basis. The Investment Manager does not
directly charge HVPE management fees or performance fees other than with
respect to parallel investments. However, as an investor in the HarbourVest
funds, HVPE is charged the same management fees and is subject to the same
performance allocations as other investors in such HarbourVest funds.
During the years ended 31 January 2024 and 2023, HVPE had one parallel
investment: HarbourVest Structured Solutions II, L.P. (via HVPE Charlotte
Co-Investment L.P.). Management fees paid for the parallel investment made by
the Company were consistent with the fees charged by the funds alongside which
the parallel investment was made during the years ended 31 January 2024 and
2023. Management fees included in the Consolidated Statements of Operations
are shown in the table below:
2024 2023
(in thousands) (in thousands)
HVPE Charlotte $117 $384
Co-Investment L.P.
For the years ended 31 January 2024 and 2023, management fees on the HVPE
Charlotte Co-Investment L.P. investment were calculated based on a weighted
average effective annual rate of 0.13% and 0.44% respectively, on capital
originally committed (0.13% and 0.44% respectively, on committed capital net
of management fee offsets) to the parallel investment.
Note 4 Investments
In accordance with the authoritative guidance on fair value measurements and
disclosures under generally accepted accounting principles in the US, the
Company discloses the fair value of its investments in a hierarchy that
prioritises the inputs to valuation techniques used to measure the fair value.
The hierarchy gives the highest priority to unadjusted quoted prices in active
markets for identical assets or liabilities (Level 1 measurements) and the
lowest priority to unobservable inputs (Level 3 measurements). The guidance
establishes three levels of the fair value hierarchy as follows:
Level 1 - Inputs that reflect unadjusted quoted prices in active markets for
identical assets or liabilities that the Company has the ability to access at
the measurement date;
Level 2 - Inputs other than quoted prices that are observable for the asset or
liability either directly or indirectly, including inputs in markets that are
not considered to be active; and
Level 3 - Inputs that are unobservable.
Level 3 investments include limited partnership interests in HarbourVest funds
which report under US generally accepted accounting principles. Inputs used to
determine fair value are primarily based on the most recently reported NAV
provided by the underlying investment manager as a practical expedient under
ASC Topic 820. The fair value is then adjusted for known investment operating
expenses and subsequent transactions, including investments, realisations,
changes in foreign currency exchange rates, and changes in value of private
and public securities.
Income derived from investments in HarbourVest funds is recorded using the
equity pick-up method. Under the equity pick-up-method of accounting, the
Company's proportionate share of the net income (loss) and net realised gains
(losses), as reported by the HarbourVest funds, is reflected in the
Consolidated Statements of Operations as net realised gain (loss) on
investments. The Company's proportionate share of the aggregate increase or
decrease in unrealised appreciation or depreciation, as reported by the
HarbourVest funds, is reflected in the Consolidated Statements of Operations
as net change in unrealised appreciation and depreciation on investments.
Because of the inherent uncertainty of these valuations, the estimated fair
value may differ significantly from the value that would have been used had a
ready market for this security existed, and the difference could be material.
During the years ended 31 January 2024 and 2023, the Company made
contributions of $592,792,000 and $704,903,000, respectively, to Level 3
investments and received distributions of $310,296,000 and $649,012,000,
respectively, from Level 3 investments. Please refer to Note 10 for further
detail on the non-cash activity during the prior year. As of 31 January 2024,
$4,057,606,000 of the Company's investments are classified as Level 3. As of
31 January 2023, $3,616,330,000 of the Company's investments were classified
as Level 3.
Note 5 Commitments
As of 31 January 2024, the Company had unfunded investment commitments to
other limited partnerships of $2,500,899,000 which are payable upon notice by
the partnerships to which the commitments have been made. As of 31 January
2023, the Company had unfunded investment commitments to other limited
partnerships of $2,804,113,000.
The Investment Manager is not entitled to any direct remuneration (save
expenses incurred in the performance of its duties) from the Company, instead
deriving its fees from the management fees and carried interest payable by the
Company on its investments in underlying HarbourVest Funds. The Investment
Management Agreement (the "IMA"), which was amended and restated on 30 July
2019 and again on 31 January 2023, may be terminated by either party by giving
12 months' notice. In the event of termination within ten years and three
months of the date of the listing on the Main Market on 9 September 2015, the
Company would be required to pay a contribution, which would have been $1.5
million at 31 January 2024 and $2.3 million at 31 January 2023, as
reimbursement of the Investment Manager's remaining unamortised IPO costs. In
addition, the Company would be required to pay a fee equal to the aggregate of
the management fees for the underlying investments payable over the course of
the 12-month period preceding the effective date of such termination to the
Investment Manager.
Note 6 Debt Facility
As of 31 January 2024, the Company had an agreement with Mitsubishi UFJ Trust
and Banking Corporation, New York Branch ("MUFG"), Credit Suisse AG, London
Branch ("Credit Suisse") and The Guardians of New Zealand Superannuation as
manager and administrator of the New Zealand Superannuation Fund ("New Zealand
Super") for the provision of a multi-currency revolving credit facility (the
"Facility") with a termination date no earlier than August 2027, subject to
usual covenants. The MUFG commitment was $300 million. On 20 December 2021,
the Credit Suisse commitment was increased from $300 million to $400 million.
On 15 August 2022, the commitment was further increased by $100 million
through New Zealand Super as the lender.
Amounts borrowed against the Facility accrue interest at an aggregate rate of
Term SOFR/SONIA/EURIBOR, a margin, and, under certain circumstances, a
mandatory minimum cost. The Facility is secured by the private equity
investments and cash and equivalents of the Company, as defined in the
agreement and is subject to certain loan-to-value ratios (which factor in
borrowing on the Facility and fund-level borrowing) and portfolio diversity
tests applied to the Investment Portfolio of the Company. At 31 January 2024
and 31 January 2023, there was $275,000,000 and no debt outstanding against
the Facility, respectively. For the years ended 31 January 2024 and 2023,
interest of $14,465,000 and $0, respectively, was incurred. Included in other
assets at 31 January 2024 and 31 January 2023 are deferred financing costs of
$5,066,000 and $6,950,000, respectively, related to refinancing the Facility.
The deferred financing costs are amortised on the terms of the Facility. The
Company is required to pay a non-utilisation fee of 100 basis points per annum
for the Credit Suisse commitment and 90 basis points per annum for the MUFG
commitment. For the years ended 31 January 2024 and 2023, $6,127,000 and
$7,078,000, respectively, in non-utilisation fees have been incurred.
Note 7 Financial Highlights
For the Years Ended 31 January 2024 and 2023
In US Dollars 2024 2023
Shares
Per share operating performance:
Net asset value, beginning of period $48.52 $49.11
Net realised and unrealised gains (losses) 1.79 (0.70)
Net investment loss (0.26) (0.13)
Total from investment operations 1.53 (0.83)
Net increase from repurchase of Class A shares 0.42 0.24
Net asset value, end of period $50.47 $48.52
Market value, end of period $29.15* $27.10*
Total return at net asset value 4.0% (1.2)%
Total return at market value 7.6% (27.3)%
Ratios to average net assets
Expenses(†) 0.72% 0.37%
Net investment loss (0.50)% (0.28)%
* Represents the US dollar-denominated share price.
† Does not include operating expenses of underlying
investments.
Note 8 Publication and Calculation of Net Asset Value
The NAV of the Company is equal to the value of its total assets less its
total liabilities. The NAV per share is calculated by dividing the net asset
value by the number of shares in issue on that day. The Company publishes the
NAV per share of the shares as calculated, monthly in arrears, at each month
end, generally within 20 days.
Note 9 Related Party Transactions
Other amounts payable to HarbourVest Advisers L.P. of $40,000 and $138,000
represent expenses of the Company incurred in the ordinary course of business,
which have been paid by and are reimbursable to HarbourVest Advisers L.P. at
31 January 2024 and 2023, respectively.
Other income relates to income received from a revenue sharing agreement
entered into with the HarbourVest Infrastructure Income Delaware Parallel
Partnership ("HIIP") investment. Through such agreement, the Company is
entitled to 10% of the management fee revenue received by HarbourVest from
HIIP, provided that HarbourVest remains as HIIP's exclusive investment
manager.
Directors' fees and expenses, primarily compensation, of $474,000 and $526,000
were incurred during the years ended 31 January 2024 and 2023, respectively.
Note 10 Investment Transaction
On 1 July 2022, HarbourVest Infrastructure Income Delaware Parallel
Partnership L.P. and its related entities ("HIIP") exercised their contractual
right to purchase the portfolio assets of HarbourVest Adelaide L.P.
("Adelaide") in accordance with the Adelaide limited partnership agreement. As
consideration for the portfolio assets, partners of Adelaide and its feeder
funds could elect between the continuation option (which would result in them
receiving ordinary HIIP units) and the liquidity option (which would result in
them receiving partial cash consideration with the remainder of the
consideration in the form of HIIP liquidity units).
The Company elected to participate 50% in the continuation option and 50% in
the liquidity option. As such, as of 1 July 2022 the Company received a cash
distribution of $52,903,685, a distribution in kind of $32,164,540 worth of
HIIP liquidity units, and a distribution in kind of $85,068,225 worth of
ordinary HIIP units.
Note 11 Indemnifications
General Indemnifications
In the normal course of business, the Company may enter into contracts that
contain a variety of representations and warranties and which provide for
general indemnifications. The Company's maximum exposure under these
arrangements is unknown, as this would involve future claims that may be made
against the Company that have not yet occurred. Based on the prior experience
of the Investment Manager, the Company expects the risk of loss under these
indemnifications to be remote.
Investment Manager Indemnifications
Consistent with standard business practices in the normal course of business,
the Company has provided general indemnifications to the Investment Manager,
any affiliate of the Investment Manager and any person acting on behalf of the
Investment Manager or such affiliate when they act in good faith, in the best
interest of the Company. The Company is unable to develop an estimate of the
maximum potential amount of future payments that could potentially result from
any hypothetical future claim but expects the risk of having to make any
payments under these general business indemnifications to be remote.
Directors' and Officers' Indemnifications
The Company's Articles of Incorporation provide that the Directors, managers
or other officers of the Company shall be fully indemnified by the Company
from and against all actions, expenses, and liabilities which they may incur
by reason of any contract entered into or any act in or about the execution of
their offices, except such (if any) as they shall incur by or through their
own negligence, default, breach of duty, or breach of trust, respectively.
Note 12 Subsequent Events
In the preparation of the Financial Statements, the Company has evaluated the
effects, if any, of events occurring after 31 January 2024 to 30 May 2024, the
date that the Financial Statements were signed.
The Company made the following purchases of its ordinary shares for
cancellation:
Date Number of Shares Amount Purchased (£)
1 February 2024 79,979 1,856,262
2 February 2024 114,912 2,704,877
5 February 2024 100,000 2,398,300
6 February 2024 30,533 734,063
7 February 2024 58,000 1,408,958
7 March 2024 34,730 821,237
8 March 2024 50,000 1,185,000
11 March 2024 50,000 1,182,500
12 March 2024 50,000 1,182,500
13 March 2024 50,000 1,182,500
18 March 2024 50,000 1,175,000
20 March 2024 46,000 1,071,175
Total 714,154 16,902,372
On March 13, 2024, the Company initiated a draw of $50 million on the credit
facility. On May 17, 2024, the Company drew an additional $40 million on the
facility.
There were no other events or material transactions subsequent to 31 January
2024 that required recognition or disclosure in the Consolidated Financial
Statements.
Alternative Performance Measures
Reconciliation of Share Price Discount to Net Asset Value per Share
The share price discount to NAV per share will vary depending on which NAV per
share figure is used. The discount referred to elsewhere in this report is
calculated using the live NAVs per share available in the market as at 31
January 2023 and 31 January 2024, those being the 31 December 2022 and 31
December 2023 estimates of $48.04 (sterling equivalent £39.76) and $50.04
(sterling equivalent £39.31), respectively, adjusted for GBP/USD foreign
exchange movement, against share prices of £22.10 at 31 January 2023 and
£23.15 at 31 January 2024.
The table below outlines the notional discounts to the share price at 31
January 2024, based on the NAVs per share published after this date (31
January 2024 estimate and final). Movements between the published NAVs per
share for the same calendar date largely arise as further underlying fund
valuations are received, and as adjustments are made for public markets,
foreign exchange and operating expenses.
Date of NAV (estimate and final) NAV per Share NAV Converted at 31 January 2024 GBP/USD Exchange Rate (1.2673) Share Price Discount
at 31 January to NAV
2024 at 31 January
2024
Estimated NAV at 31 December 2023 $50.04 £39.49 £23.15 41%
(published 23 January 2024)
Estimated NAV at 31 January 2024 $49.67 £39.19 £23.15 41%
(published 22 February 2024)
Final NAV (US GAAP) at 31 January 2024 $50.47 £39.82 £23.15 42%
(published 30 May 2024)
Annualised Outperformance of FTSE AW TR Index Over the Last 10 Years
NAV (US dollar) Compound Annual Growth Rate ("CAGR")
31 January 2014 $14.38
31 January 2024 $50.47
Elapsed time (years) 10
US dollar CAGR 13.4%
FTSE AW TR Index (US dollar) CAGR
31 January 2014 305.00
31 January 2024 725.17
Elapsed time (years) 10
FTSE AW TR CAGR 9.0%
Annualised outperformance of FTSE AW TR Index Over the Last 10 Years
calculation
13.4% minus 9.0% 4.33 percentage points ("pp")(1)
1 Due to rounding, please note this figure does not
cast correctly on the page from the respective figures above it (4.3pp
displayed vs. 4.4pp if subtracting the numbers on this page). No number has
been re-rounded up nor down to ensure it casts correctly on the page, thus
preserving each component's true accuracy given its impact on various other
parts of the report
KPIs (pages 26 to 27)
The KPI metrics show the movement between the NAV per share (in US dollars)
and the share price in sterling and translated into US dollars. Relative to
the FTSE AW TR Index, this is the difference in movement between the
year-on-year change of this index vs the particular HVPE KPI.
NAV Per Share ($) & Relative Performance
Date NAV per Share Absolute Performance FTSE AW TR Index Movement Relative Performance vs FTSE AW TR
31 January 2018 $21.46 16.2% 28.2% -12.0pp
31 January 2019 $24.09 12.3% -7.1% +19.3pp
31 January 2020 $27.58 14.5% 16.7% -2.2pp
31 January 2021 $35.97 30.4% 17.4% +13.0pp
31 January 2022 $49.11 36.5% 13.8% +22.8pp
31 January 2023 $48.52 -1.2% -7.3% +6.1pp
31 January 2024 $50.47 4.0% 15.3% -11.3pp
10-year Outperformance of FTSE AW TR
NAV (US dollar)
31 January 2014 $14.38
31 January 2024 $50.47
US dollar total return 251%
FTSE AW TR (US dollar)
31 January 2014 305.02
31 January 2024 725.17
FTSE AW TR total return 138%
10-year outperformance of FTSE AW TR calculation 113%
251% minus 138% 113 percentage points ("pp")
Total Shareholder Return (£)
Date Share Price (£) Period-on-period Change
31 January 2018 £12.52 +4.8%
31 January 2019 £14.26 +13.9%
31 January 2020 £18.36 +28.8%
31 January 2021 £18.70 +1.9%
31 January 2022 £27.75 +48.4%
31 January 2023 £22.10 -20.4%
31 January 2024 £23.15 4.8%
Total Commitment Ratio
(Total exposure to private markets investments as a percentage of NAV) 31 January 31 January
2024 ($m) 2023 ($m)
Investment Portfolio $4,058 $3,616
Investment Pipeline $2,501 $2,804
Total $6,559 $6,420
NAV $3,921 $3,838
Total Commitment Ratio 167% 167%
Net Portfolio Cash Flow
(The difference between calls and distributions over the reporting period) 31 January 31 January
2024 ($m) 2023
Calls $(593) $(588)
Distributions $310 $532
Net Portfolio Cash Flow $(283) $(56)
Both "Total Commitment Ratio" and "Net Portfolio Cash Flow" also form part of
"Managing the Balance Sheet".
Managing the Balance Sheet
Medium-term Coverage Ratio
(A measure of medium-term commitment coverage) 31 January 2024 ($m) 31 January 2023 ($m)
Cash $140 $198
Available credit facility $525 $800
Estimated distributions during the next 12 months $627 $633
Total sources $1,292 $1,631
Estimated investments over the next 36 months $1,467 $1,579
Medium-term Coverage Ratio 88% 104%
Commitment Coverage Ratio
(Short-term liquidity as a percentage of Total Investment Pipeline) 31 January 2024 ($m) 31 January 2023 ($m)
Cash $140 $198
Available credit facility $525 $800
Total sources $665 $998
Investment Pipeline $2,501 $2,804
Commitment Coverage Ratio 27% 36%
Disclosures
Investments
The companies represented within this report are provided for illustrative
purposes only, as example portfolio holdings. There are over 14,000 individual
companies in the HVPE portfolio, with no one company comprising more than 2.1%
of the entire portfolio.
The deal summaries, General Partners (managers), and/or companies shown within
the report are intended for illustrative purposes only. While they may
represent an actual investment or relationship in the HVPE portfolio, there is
no guarantee they will remain in the portfolio in the future.
Past performance is no guarantee of future returns.
Forward-looking Statements
This report contains certain forward-looking statements. Forward-looking
statements relate to expectations, beliefs, projections, future plans and
strategies, anticipated events or trends, and similar expressions concerning
matters that are not historical facts. In some cases, forward-looking
statements can be identified by terms such as "anticipate", "believe",
"could", "estimate", "expect", "intend", "may", "plan", "potential", "should",
"will", and "would", or the negative of those terms, or other comparable
terminology. The forward-looking statements are based on the Investment
Manager's and/or the Directors' beliefs, assumptions, and expectations of
future performance and market developments, taking into account all
information currently available. These beliefs, assumptions, and expectations
can change as a result of many possible events or factors, not all of which
are known or are within the Investment Manager's and/or the Directors'
control. If a change occurs, the Company's business, financial condition,
liquidity, and results of operations may vary materially from those expressed
in forward-looking statements.
By their nature, forward-looking statements involve known and unknown risks
and uncertainties because they relate to events, and depend on circumstances,
that may or may not occur in the future. Forward-looking statements are not
guarantees of future performance. Any forward-looking statements are only made
as at the date of this document, and the Investment Manager and/or the
Directors neither intends nor assumes any obligation to update forward-looking
statements set forth in this document whether as a result of new information,
future events, or otherwise, except as required by law or other applicable
regulation.
In light of these risks, uncertainties, and assumptions, the events described
by any such forward-looking statements might not occur. The Investment Manager
and/or the Directors qualifies any and all of its forward-looking statements
by these cautionary factors.
Please keep this cautionary note in mind while reading this report.
Some of the factors that could cause actual results to vary from those
expressed in forward-looking statements include, but are not limited to:
> the factors described in this report;
> the rate at which HVPE deploys its capital in investments and achieves
expected rates of return;
> HarbourVest's ability to execute its investment strategy, including
through the identification of a sufficient number of appropriate investments;
> the ability of third-party managers of funds in which the HarbourVest
funds are invested and of funds in which the Company may invest through
parallel investments to execute their own strategies and achieve intended
returns;
> the continuation of the Investment Manager as manager of the Company's
investments, the continued affiliation with HarbourVest of its key investment
professionals, and the continued willingness of HarbourVest to sponsor the
formation of and capital raising by, and to manage, new private equity funds;
> HVPE's financial condition and liquidity, including its ability to access
or obtain new sources of financing at attractive rates in order to fund
short-term liquidity needs in accordance with the investment strategy and
commitment policy;
> changes in the values of, or returns on, investments that the Company
makes;
> changes in financial markets, interest rates, or industry, general
economic, or political conditions; and
> the general volatility of the capital markets and the market price of
HVPE's shares.
Publication and Calculation of Net Asset Value
The NAV of the Company is equal to the value of its total assets less its
total liabilities. The NAV per share is calculated by dividing the NAV of the
Company by the number of shares in issue. The Company intends to publish the
estimated NAV per share as calculated, monthly in arrears, as at each
month-end, generally within 20 days.
Regulatory Information
HVPE is required to comply with the Listing Rules, Disclosure Guidance and
Transparency Rules of the Financial Conduct Authority in the United Kingdom
(the "LDGT Rules"). It is also authorised by the Guernsey Financial Services
Commission as an authorised closed-end investment scheme under the Protection
of Investors (Bailiwick of Guernsey) Law, 2020, as amended (the "POI Law").
HVPE is subject to certain ongoing requirements under the LDGT Rules and the
POI Law and certain rules promulgated thereunder relating to the disclosure of
certain information to investors, including the publication of annual and
half-yearly financial reports.
Valuation Policy
Valuations Represent Fair Value Under US GAAP
HVPE's 31 January 2024 NAV is based on the 31 December 2023 NAV of each
HarbourVest fund and Conversus, adjusted for changes in the value of public
securities, foreign currency, known material events, cash flows, and operating
expenses during January 2024. The valuation of each HarbourVest fund is
presented on a fair value basis in accordance with US generally accepted
accounting principles ("US GAAP"). See Note 4 in the Notes to the Financial
Statements on page 104.
The Investment Manager typically obtains financial information from 90% or
more of the underlying investments for each of HVPE's HarbourVest funds to
calculate the NAV. For each fund, the accounting team reconciles investments,
distributions, and unrealised/realised gains and losses to the Financial
Statements. The team also reviews underlying partnership valuation policies.
Management of Foreign Currency Exposure
The Investment Portfolio includes three euro-denominated HarbourVest funds and
a Canadian dollar-denominated fund.
> 14% of underlying partnership holdings are denominated in euros. The
euro-denominated Investment Pipeline is €11.3 million.
> 2% of underlying partnership holdings are denominated in sterling. There
is no sterling-denominated Investment Pipeline.
> 1% of underlying partnership holdings are denominated in Australian
dollars. There is no Australian dollar-denominated Investment Pipeline.
> 0.3% of underlying partnership holdings are denominated in Canadian
dollars. The Canadian dollar-denominated Investment Pipeline is C$5.9 million.
> 0.3% of underlying partnership holdings are denominated in Swiss francs.
There is no Swiss franc-denominated Investment Pipeline.
HVPE has exposure to foreign currency movement through foreign
currency-denominated assets within the Investment Portfolio and through its
Investment Pipeline of unfunded commitments, which are long term in nature.
The Company's most significant currency exposure is to euros. The Company does
not actively use derivatives or other products to hedge the currency exposure.
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