Investment trust awards 2017: Best private equity trust

Winner: HarbourVest Global Private Equity Trust

It took two years for the net asset value (NAV) of HarbourVest Global Private Equity Trust (HVPE) to recover from its 2008 collapse, but since then it has made impressively steady progress. In dollar terms its NAV per share rose nearly 43 per cent in the three years to end January, but in sterling terms the gain was 69.3 per cent, thereby helping it to secure this award.

The steadiness of HVPE’s progress derives partly from its very diversified portfolio. It invests in funds managed by HarbourVest Advisers LP, a leading US private equity specialist, which in turn invest in funds managed by other top private equity specialists. This results in minimal exposure to any particular company, as demonstrated when the successful flotation of Snap, its 20th largest investment, added only $0.05 to NAV.

Continuing the diversity theme, at end January 63 per cent of HVPE’s portfolio was in the US, 19 per cent in Europe and 12 per cent in the Asia Pacific region. Around 63 per cent was in buyouts, 32 per cent in venture and growth and 5 per cent in mezzanine and real assets. By industry sector 32 per cent was in consumer/financials, 31 per cent technology/telecoms, 19 per cent industrials and 18 per cent medical/biotechnology. And by currency exposure it was 79 per cent US dollar, with most of the rest in euro.

The manager’s commitment to maintain a steady pipeline of new investments, regardless of market conditions, is the other significant contributor to its steady progress. At end January 38 per cent of the portfolio was in the early investment phase, 28 per cent was in growth (where the majority of NAV accretion takes place), and 34 per cent was mature and therefore approaching realisation.

To ensure it keeps investing, the trust had forward commitments to HarbourVest funds of $1.2 billion (£960 million), compared with total shareholders’ funds of $1.44 billion. Cash and available credit facilities were $675 million, but the managers expect to meet the rest of their commitments from realisations.

Highly commended: NB Private Equity

NB Private Equity (NBPE) achieved higher three-year NAV total returns than the category winner over the past three years. However, it failed to beat the sector average in the year to 31 January 2016, so is accorded highly commended status. It did, however, make the cut in all three years in the Best Large Trust category, which it duly won.

To add to the coverage for that award, it is encouraging to note that although NBPE’s direct private investments are largely limited to North America, with only 13 per cent in Europe, Asia and the rest of the world. They are well diversified by industry, with 19 per cent in technology, 15 per cent in consumer discretionary and 13 per cent each in industrials, healthcare and financial services.

Accounting for 62 per cent of the portfolio, these sectors have been the chief motor of growth in the past three years, having achieved a gross annual internal rate of return in dollar terms of 23 per cent, compared to 10.4 per cent from the income investments and 5.5 per cent from the funds portfolio (which is being scaled back).

NBPE’s improving returns have been recognised by a tightening discount. This should be reinforced by the recent decision to extend full voting rights to NBPE’s widely held A shares, moving them from the Specialist Funds segment to the Premium segment of the London Stock Exchange, and redenominating the London quote from dollars to sterling. All good news.

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