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Celebrating its 10th anniversary

HarbourVest Global Private Equity 29 November 2017 Update
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HarbourVest Global Private Equity

Celebrating its 10th anniversary

Investment companies

29 November 2017

Price

1,255p

Market cap

£1,002m

NAV*

£1,203m

NAV per share*

1,506p

Discount to NAV

16.7%

*Estimated by HVPE as at 31 October 2017.

Yield

0.0%

Ordinary shares in issue

79.9m

Code

HVPE

Primary exchange

LSE

AIC sector

Private Equity

Benchmark

FTSE All-World index

Share price/discount performance

Three-year performance vs index

52-week high/low

1,306p

1,090p

1,552p

1,426p

*Including income.

Gearing

Gross*

0.0%

Net cash*

11.0%

*As at 31 October 2017.

Analysts

Gavin Wood

+44 (0)20 3681 2503

Rob Murphy

+44 (0)20 3077 5733

HarbourVest Global Private Equity is a research client of Edison Investment Research Limited

HarbourVest Global Private Equity (HVPE) is celebrating 10 years since its launch in December 2007. Over the period since its inception to end-October 2017, HVPE has outperformed global equity markets and its listed private equity peer group, represented by the LPX 50 index, in both NAV and share price terms. In this note, we analyse a series of alternative performance measures which show that, on a risk-adjusted basis, HVPE’s share price performance has tended to compare favourably to global equity markets, while its risk-adjusted NAV returns have also compared positively to its listed private equity peer group over most time periods.

12 months ending

Share price (GBP %)

NAV
(GBP %)

Blended benchmark* (GBP %)

FTSE All-World
(GBP %)

LPX 50
(GBP %)

LPX 50 NAV
(GBP %)

31/10/13

39.7

14.1

24.3

24.3

41.4

17.0

31/10/14

22.7

17.1

8.8

8.8

1.5

5.5

31/10/15

10.5

13.0

4.1

4.2

9.8

4.6

31/10/16

26.9

32.7

29.8

30.0

27.5

32.0

31/10/17

20.5

5.3

13.9

13.9

19.1

6.6

Source: Thomson Datastream, Bloomberg. Note: *Blended benchmark is MSCI AC World up to 30 November 2016 and FTSE All-World thereafter. Total returns in pounds sterling.

Outperforming global stock markets over 10 years

Over the period since its inception to end-October 2017, HVPE has achieved NAV and share price total returns of 7.0% pa and 5.7% pa respectively in US dollar terms. This compares to the 4.7% pa returns of both the MSCI AC World and FTSE All-World indices, against which HVPE has benchmarked its performance over the 10-year period. In sterling terms, HVPE’s NAV and share price total returns over this period were 11.6% pa and 10.3% pa respectively, while the returns of the MSCI AC World and FTSE All-World indices were 9.2% pa and 9.3% pa respectively.

Risk-adjusted price and NAV return metrics analysed

We consider HVPE’s risk-adjusted performance as a listed private equity investment company over the 10-year period since its inception to end-October 2017. We calculate three alternative performance metrics: Sharpe ratio, Sortino ratio and information ratio, over one, three, five and 10 years, and compare HVPE’s share price and NAV returns to its listed benchmark indices and a listed private equity index. The Sharpe ratio represents the added value over the risk-free rate per unit of volatility risk; the Sortino ratio is a variation of the Sharpe ratio that uses downside deviation as its measure of risk; and the information ratio is a benchmark-relative return measure which incorporates the consistency of relative returns.

Valuation: Narrowing share price discount to NAV

Having previously traded at a premium to NAV, HVPE’s share price moved to a 60% discount to NAV in 2009 during the global financial crisis. Subsequently, the discount has followed a narrowing trend, reaching a low of 9.6% in May 2017. This means that, while HVPE’s share price return is lower than its NAV return over the 10 years since its launch, its share price returns have outperformed its NAV returns over one, three and five years, as the discount has narrowed.

Risk-adjusted performance metrics over 10 years

Private equity as an asset class is typically viewed as a higher risk investment than listed equities due to a number of factors, including less transparency over underlying investments, and infrequent valuation reporting. We review HVPE’s performance over the 10 years from its launch in December 2007 to end-October 2017 across three risk-adjusted performance metrics: Sharpe ratio, Sortino ratio and information ratio, and compare these with the metrics for HVPE’s listed benchmark indices and a listed private equity index. The ratios shown in Exhibits 1, 2 and 3 below have been calculated using monthly returns in US dollar terms, taking the US three-month treasury yield as the risk-free rate in the Sharpe and Sortino ratio calculations.

Our analysis shows that HVPE’s risk-adjusted share price returns are broadly similar to those of the MSCI AC World and FTSE All-World indices, although the comparison is less favourable over 10 years than over three and five years. In our view, this reflects the low liquidity of the shares and consequent sharp price moves prior to HVPE listing on the LSE in 2010, together with the shares moving to a very wide discount to NAV during the global financial crisis. While HVPE’s risk-adjusted returns are strong over one year, they do not match the exceptionally strong returns of the MSCI AC World and FTSE All-World indices over this relatively short period.

Sharpe ratio

The Sharpe ratio represents the added value over the risk-free rate per unit of volatility risk. The Sharpe ratio is calculated as the annualised excess return over the risk-free rate divided by the annualised standard deviation of the returns.

Exhibit 1 shows the Sharpe ratios for HVPE price and NAV returns, as well as the returns of its blended benchmark, the two indices that constitute the blended benchmark, and the respective price and NAV returns of the LPX 50 listed private equity index. All the Sharpe ratios shown are positive, which indicates outperformance of the risk-free rate. The exceptionally high values for the blended benchmark indices over one year reflect the particularly low volatility of returns over this period, combined with the above-average strength of the underlying performance.

Exhibit 1: Sharpe ratio analysis as at 31 October 2017

HVPE
price

HVPE
NAV

Blended benchmark*

FTSE All-World

MSCI AC World

LPX 50
price

LPX 50
NAV

1-year

2.66

2.80

7.89

7.90

7.93

4.38

2.89

3-year

0.78

2.03

0.78

0.79

0.78

0.88

1.21

5-year

1.45

2.20

1.13

1.14

1.13

1.14

1.54

10-year

0.18

0.88

0.27

0.28

0.27

0.10

0.12

Source: Edison Investment Research, Bloomberg, Morningstar, Thomson Datastream. Note: *Blended benchmark is MSCI AC World up to 30 November 2016 and FTSE All-World thereafter.

HVPE’s share price Sharpe ratios vary considerably over one, three, five and 10 years but follow a similar pattern to the Sharpe ratios of its benchmark listed equity indices. Relative to the Sharpe ratios for the benchmark indices, HVPE’s share price Sharpe ratio varies between being higher and lower over the periods shown, with no clear trend evident in terms of relative performance from a risk-adjusted perspective taking into account the volatility of returns. HVPE’s NAV Sharpe ratios are much more consistent over the periods shown and are above the NAV Sharpe ratios for the LPX 50 index over three, five and 10 years, although marginally lower over one year. This suggests that HVPE has achieved superior risk-adjusted NAV returns compared with its listed private equity peers over the majority of the 10 years since its launch.

Sortino ratio

The Sortino ratio is a variation of the Sharpe ratio that uses downside deviation as its measure of risk. The Sortino ratio is calculated as the annualised excess return over the risk-free rate divided by the annualised downside deviation (standard deviation only considering negative deviations from the mean) of the returns. If the downside deviation is the same as the standard deviation over a particular time period then the Sortino and Sharpe ratios will also be the same for that period.

Exhibit 2 shows the Sortino ratios for HVPE price and NAV returns, as well as the returns of its blended benchmark, the two indices that constitute the blended benchmark, and the respective price and NAV returns of the LPX 50 listed private equity index. Similar to the Sharpe ratio analysis above, all the Sortino ratios shown are positive, which reflects outperformance of the risk-free rate.

Exhibit 2: Sortino ratio analysis as at 31 October 2017

HVPE
price

HVPE
NAV

Blended benchmark*

FTSE All-World

MSCI AC World

LPX 50
price

LPX 50
NAV

1-year

2.19

2.50

6.69

6.69

6.76

4.39

2.96

3-year

0.67

1.95

0.78

0.79

0.78

0.85

1.26

5-year

1.31

2.29

1.08

1.10

1.08

1.12

1.56

10-year

0.15

0.79

0.24

0.25

0.24

0.09

0.10

Source: Edison Investment Research, Bloomberg, Morningstar, Thomson Datastream. Note: *Blended benchmark is MSCI AC World up to 30 November 2016 and FTSE All-World thereafter.

The Sortino ratio analysis shows similar results to the Sharpe ratio analysis above, which indicates that average downside deviations of monthly returns relative to the mean return over each of the time periods are broadly similar to the upside deviations. HVPE’s share price Sortino ratios vary appreciably over one, three, five and 10 years but follow a similar pattern to the Sortino ratios of its benchmark listed equity indices. Relative to the Sortino ratios for the benchmark indices, HVPE’s share price Sortino ratio fluctuates between being higher and lower over the periods shown, with no clear trend evident in terms of relative performance from a risk-adjusted perspective when differentiating between positive and negative volatility. HVPE’s NAV Sortino ratios show much greater consistency over the periods shown and are above the NAV Sortino ratios for the LPX 50 index over three, five and 10 years, while modestly lower over one year. This analysis also suggests that HVPE has achieved superior risk-adjusted NAV returns compared with its listed private equity peers over the majority of the 10 years since its launch.

Information ratio

The information ratio is a benchmark-relative return measure which incorporates the consistency of relative returns. The information ratio is calculated as the annualised excess return over the benchmark return divided by the tracking error, which is a measure of consistency or volatility, calculated as the annualised standard deviation of the excess returns over the benchmark return.

Exhibit 3 shows information ratios for HVPE price and NAV returns against its blended benchmark, the two indices that constitute the blended benchmark, and the respective price and NAV returns of the LPX 50 listed private equity index. To give some context to the figures shown, we note that it is typically observed that the median manager or fund in a peer group has an information ratio near or below zero, while it is generally considered quite rare to see managers or funds with information ratios in excess of 1.00 over long time periods. Positive information ratios reflect outperformance of the comparative index, while negative ratios reflect underperformance.

Exhibit 3: Information ratio analysis as at 31 October 2017

HVPE price

HVPE price

HVPE price

HVPE price

HVPE NAV

HVPE NAV

HVPE NAV

HVPE NAV

vs Blended benchmark*

vs FTSE All-World

vs MSCI AC World

vs LPX 50 price

vs Blended benchmark*

vs FTSE All-World

vs MSCI AC World

vs LPX 50 NAV

1-year

0.71

0.71

0.71

0.19

-1.53

-1.53

-1.54

-0.23

3-year

0.25

0.25

0.25

0.04

0.10

0.09

0.10

0.47

5-year

0.58

0.58

0.58

0.35

0.03

0.03

0.03

0.51

10-year

0.02

0.02

0.02

0.07

0.14

0.13

0.14

0.58

Source: Edison Investment Research, Bloomberg, Morningstar, Thomson Datastream. Note: *Blended benchmark is MSCI AC World up to 30 November 2016 and FTSE All-World thereafter.

HVPE’s share price information ratios versus its benchmark listed equity indices vary over one, three, five and 10 years but indicate relatively consistent outperformance, particularly over one and five years. The lower information ratios versus the LPX 50 index largely reflect smaller performance differentials over each of the periods. HVPE’s NAV information ratios are negative over one year, reflecting the exceptionally strong performance of the listed equity indices; in absolute terms HVPE achieved a 14.5% NAV return and the LPX 50 index a 15.7% NAV return, both in US dollars over one year. HVPE’s NAV information ratios over three, five and 10 years indicate relatively consistent outperformance of the LPX 50 NAV return, with less pronounced outperformance of the listed equity indices. Overall, this analysis suggests that HVPE has achieved relatively consistent share price and NAV outperformance of its benchmark listed equity indices and its listed private equity peers.

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority (Financial Conduct Authority). Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by HarbourVest Global Private Equity and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable; however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investments Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority (Financial Conduct Authority). Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by HarbourVest Global Private Equity and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable; however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investments Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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