Company profile - Aberdeen Asian income fund feature image - 28062019- JPGmoney & pens

Rebounding NAV, liquidity remains secured

HarbourVest Global Private Equity 29 September 2020 Update
Download PDF

HarbourVest Global Private Equity

Rebounding NAV, liquidity remains sufficient

Investment companies
private equity

29 September 2020

Price

£15.90/

US$19.91

Market cap

£1,270m/

US$1,590m

NAV*

£1,699m/

US$2,272m

NAV per share*

£21.28/US$28.45

Discount to NAV

25.3%

*Estimated by HVPE at 31 August 2020

Yield

0.0%

Ordinary shares in issue

79.9m

Code

HVPE/HVPD

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

1,868p

921p

2,174p

2,004p

**Including income.

Gearing

Gross*

5.3%

Net*

0.7%

*At 31 August 2020.

Analysts

Milosz Papst

+44 (0) 20 3077 5700

Michal Mordel

+44 (0) 20 3077 5700

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

Following HVPE’s August update, its last-reported NAV is now largely based on end-June valuations and captures the rebound in equity markets following the March downturn. In recent months, capital calls from underlying general partners (GPs) moderated compared to March/April while distributions to HVPE resumed (although are still below historical average). Consequently, HVPE was able to partially repay its credit facility and maintained a stable coverage ratio versus April. While the ratio remains relatively low compared to prior years, we still consider it a safe level.

Ytd FY20 NAV total return back in positive territory

At end-August 2020, HVPE’s NAV per share was at US$28.45, which implies a solid 8.3% increase since end-July 2020 (Exhibit 1) and 3.2% since end-January 2020 (HVPE’s fiscal year end). Importantly, this reflects updated underlying company valuations HVPE received from GPs, with 84% of the portfolio now based on end-June 2020 valuations. Moreover, exposure to listed companies (valued at end-August) represented 11% of the portfolio and only 5% of NAV is still based on end-March values. These valuations are adjusted for cashflows, FX movements and any subsequent material events post the valuation date.

Reduced capital calls coupled with realisations

It is important to note that since our last note (which was based on end-May 2020 figures), distributions from underlying funds to HVPE have resumed and in aggregate reached US$31.2m over the last three months (Exhibit 2). While this is still below historical levels (the average monthly distribution in 2018 and 2019 was US$28m), it suggests activity in the M&A market has started to pick up after the muted April and May. In July 2020, the largest IPOs by HVPE-apportioned value were nCino, Relay Therapeutics, and Jamf Holding. We note that underlying realisations never fully stopped, with 19 liquidity events per month on average in 2020 (including both IPOs and M&As), compared to 29 on average during 2019.

The lower distributions are coupled with a reduction in capital calls after the spike during the initial downturn (US$124m was called in March and April, compared to US$306m in the whole of 2019). We believed HarbourVest funds were prepared for more intensive capital calls from underlying GPs and reduction in capital calls suggests liquidity needs of GPs have been fulfilled.

Narrowing discount to NAV

HVPE’s share price followed the equity market recovery and the current price implies discount to last reported NAV at 25%, narrowed from a multi-year low of 60% on 19 March 2020. The discount is still significantly larger than the five-year average discount of 21%. We understand the wider discount may at least partially reflect the macro uncertainty and is a common feature among private equity investment companies. Nevertheless, we note the valuations of most of the underlying companies HVPE has exposure to have already been updated since March 2020.

Liquidity remains sufficient to cover near-term commitments

HVPE’s total investment pipeline at end-August 2020 was US$1.7bn (down from US$1.8bn at end-FY20). This compares to US$103m of liquid resources held at the HVPE level, which is further supported by the US$480m remaining undrawn credit line. As concerns around companies’ liquidity gradually eased, HVPE reduced its leverage post April and May, with its gross leverage down to 5.3% at end-August from 9.8% in May. At the same time, leverage at the level of underlying HarbourVest funds attributable to HVPE was at 17% of HVPE’s NAV – flat versus end-FY19, according to our calculations. As a reminder, HVPE commits capital to HarbourVest funds (unallocated commitments), which are then committed to underlying funds (allocated commitments). HarbourVest funds do not lever their portfolio but use bridge financing to accrue capital needs and in turn lower the frequency of capital calls from investors (including HVPE). We believe that lower capital calls recently (as described above) resulted from the fact that HarbourVest funds and underlying GPs used excess liquidity drawn during the downturn.

That said, HVPE’s coverage ratios have remained stable following the initial decrease in March, putting them below long-term averages. The total coverage ratio stands at 35% (vs 40% at end-FY19 and 43% on average since July 2019). The rolling coverage, which compares available resources and estimated one-year distributions to estimated calls over the three-year period, decreased to 64% (from 79% at end-FY19 and 74% respective average). Nevertheless, as discussed in detail in our previous note, we still consider it a relatively safe level. It is also worth noting that as at end-January 2020 70% of commitments were to primary funds, which have a longer drawdown profile.

Exhibit 1: Movement in NAV per share (US$) in the seven months to 31 August 2020

Exhibit 2: Capital calls and distributions from HarbourVest funds to HVPE (US$m)

Source: HVPE, Edison Investment Research. Note: *Revision from monthly estimate to final reported value.

Source: HVPE, Edison Investment Research

Exhibit 1: Movement in NAV per share (US$) in the seven months to 31 August 2020

Source: HVPE, Edison Investment Research. Note: *Revision from monthly estimate to final reported value.

Exhibit 2: Capital calls and distributions from HarbourVest funds to HVPE (US$m)

Source: HVPE, Edison Investment Research

General disclaimer and copyright

This report has been commissioned by HarbourVest Global Private Equity and prepared and issued by Edison, in consideration of a fee payable by HarbourVest Global Private Equity. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

United Kingdom

This document is prepared and provided by Edison 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.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, 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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by HarbourVest Global Private Equity and prepared and issued by Edison, in consideration of a fee payable by HarbourVest Global Private Equity. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

United Kingdom

This document is prepared and provided by Edison 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.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, 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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Share this with friends and colleagues