Harbourvest Global Priva... Share Discussion Threads

[flyer61] 27/5/2022 18:58

You have the knack SKYSHIP!

[skyship] 27/5/2022 13:07

Well, fortunately went overweight HVPE last week - share price was a total anomaly.

Couldn't resist the 8% turn on some of them, even though still on an almost 38% discount.

[kenmitch] 27/5/2022 11:35

Tania.

Discounts are wide across the Private Equity sector:-

L

Read again that paragraph I posted earlier from HVPE about buybacks to see why they are far from convinced about them. I agree with their reasoning. They will surely have looked at Trusts buying back and the subsequent effect on the discount when coming to their conclusion.

It’s not their fault if investors are giving HVPE and other successful Private Equity Trusts (e.g NBPE) a wide berth! HVPE have just announced their highest ever NAV increase. Successful investments they make can be realised for perhaps double or more the money they originally invested. That can’t happen with money spent instead on buybacks.

Yes. As you say the NAV increase from buybacks is permanent. But there’s a maximum benefit from them that can’t be more than the money invested, whereas an investment they make can multi bag.

That’s another reason why I much prefer to see Trusts and Companies invest successfully rather than spend £millions ( £billions sometimes) on buybacks.

Also when successful Trusts are trading on very wide discounts I see that as an excellent buy opportunity. An example was when Commercial Property Trusts were on discounts sometimes as high as those on Private Equity Trusts now, a couple of years ago. I bought several then and with dividends added, AEWU has more than doubled (and yield is 13% at my buy price) and the others have all gone up a lot even before adding dividends of 8% or more.

Private Equity Sector will likely be more in favour with investors in time, and at current prices while on huge discounts, some (with HVPE a good example) look a steal.

[tania67] 27/5/2022 10:59

Donald – thank you for your offer (your 290) to pass on comments. Here’s one more that I hope will convince… (and then I am done, honest!)

HVPE clearly expects to continue outperforming the market and they still pay no dividend. These factors will further increase HVPE’s NAV as a proportion of total market capitalisation. Thus they are asking the average investor to hold an ever-increasing proportion of his/her portfolio in HVPE. But the current discount shows that average investor does not want to hold even the current proportion, and HVPE are intent on increasing it! This seems likely to increase the discount.

Their only response is to blame the customer, complaining that investors clearly don’t understand how great HVPE is (“we will continue to look for ways to ensure that our long-term track record is understood and recognised by the market.”). Naturally, I hope this policy works, but it is really complacent: they think their product is great and they will continue to produce it in ever-larger amounts regardless of whether customers are willing to buy it. Would HVPE be willing to invest in a company that showed such contempt for consumers and ignored what the market was saying loud and clear?

[donald pond] 27/5/2022 10:38

Liberum viewHVPE has now outperformed the FTSE All World TR Index by 4.4% on an annualised basis over the last ten years. The fund remains attractive on a long-term view, but lacks a near-term catalyst. The headline 40% discount appears wide, but reflects concerns over NAV weakness in the short term from the exposure to venture and growth equity investments (90% of the April 2022 NAV still reflects December 2021 valuations). The board has indicated a preference for reinvesting capital into new private market opportunities instead of conducting share buybacks, citing the view that buybacks don't address the discount. We don't disagree on the discount point, but it is difficult to argue against an immediate c.50% return on capital from share buybacks after adjusting for a c.10% NAV haircut in Q1 2022.

[tania67] 27/5/2022 10:34

Ken/Donald – I think it’s important to distinguish the two effects of buybacks. Any reduction in discount might be small and might be temporary. But the boost to NAV/shr is a mathematical certainty and will be as permanent as any NAV increase brought about by a successful investment.

[donald pond] 27/5/2022 10:16

I think that's right. I prefer dividends as they are a permanent distribution of cash to continuing shareholders, allowing you to increase your position by reinvesting or diversify into something else. Buybacks are in the end a way of transferring money to exiting shareholders and as you say the benefits can be temporary unless the buyback is very ambitious

[kenmitch] 27/5/2022 10:13

donald pond

I agree that put like that the argument IS compelling. But that’s a key thing with buybacks; the case for them seems SO compelling and that’s why so many are convinced that buybacks work. Unfortunately though despite the compelling case for them time and again shares buying back don’t “reward their shareholders” (e,g when the share price never again reaches the buyback prices). And Investment Trust buybacks don’t work as it appears they must because any reduction in the discount to NAV temporarily while that Trust is buying back, so often widens again when the buybacks stop.

And Tania ...by artificial means I simply meant by not using that money to invest instead, or pay out in dividends where I much prefer the money to be used.

[tania67] 27/5/2022 09:46

@KenMitch: thank you. As Donald notes, buybacks boost NAV/shr just like successful investments do (butinstantly and with zero risk). Can you please explain what you mean by buybacks boosting NAV "by artificial means"?

[donald pond] 27/5/2022 09:41

Thanks Ken. My basic view is that if the company has excess cash dividends are a better use of it than buybacks. But when the discount is 40%, if you believe the valuations are accurate (and the last time I looked exits had been at a 100% uplift to carry value) in theory every pound spent on buybacks should be adding £1.65-£4 (if for 60p you are getting assets worth £2.50) to NAV. That is pretty compelling.

[flyer61] 27/5/2022 09:39

What sort of coin amount do the Directors have invested here?

[kenmitch] 27/5/2022 09:27

Donald pond

I voted up your post but unfortunately it didn’t record. That often happens when I’m using the iPad.

I agree strongly with HVPE’s comment on buybacks in their results comment today. It’s far better to invest wisely and get the NAV up that way than by artificial means imo. So I hope HVPE Managers will continue to resist pressure to go for buybacks.

So often when Investment Trusts waste money on buybacks the discount does narrow for a while, but often only to widen again when the buybacks stop. Give me the 13% dividend I get from AEWU (not buying back) rather than the lower dividend and inferior share price performance I get from SREI (buying back and both Commercial Property Trusts) for example. HVPE are brave in continuing to resist them and are one of the few Trusts who seem to have cottoned on that buybacks are not an effective way to reduce NAV discounts. Good for them!

AND note that they’ve just announced their biggest ever NAV increase!

On a discount well over 40% HVPE look a stunning bargain.

Here’s the relevant section from HarbourVest on buying back:-

“Share Price and Discount to NAV

The sterling share price increased by 48% over the year to 31 January 2022. Despite this very strong performance, the shares continue to trade at a discount to the value of the Company's net assets. We remain frustrated that discounts in the listed private equity sector as a whole remain stubbornly wide, and note that the recent widening trend has also been reflected in the share prices of some newer entrants in the market which were previously trading at premiums.

In addressing HVPE's discount, we are resolved to take the action that we believe is in the best long-term interest of shareholders. One option that we evaluate on a regular basis is buying back shares. At our most recent review, having consulted with our advisers, we concluded that reinvesting capital into new private markets opportunities, rather than buying back shares, should provide a better outcome for our shareholders over the long term. We have not seen evidence that buybacks are an effective discount control mechanism in our sub-sector. Instead, we will continue to look for ways to ensure that our long-term track record is understood and recognised by the market. With Directors personally invested in the Company, we are aligned with our investors and right now we believe this is the best course of action on behalf of all the Company's owners. The Board will, however, re-evaluate this position on a regular basis, and to this end has developed a framework to ensure that discussions on the topic of share buybacks are well-structured, and focused on optimising long-term shareholder returns. More detail can be found on page 24, under our Section 172 disclosures.“

[riverman77] 27/5/2022 09:26

I think the better and more effective option would be to start paying a dividend - perhaps 3% of NAV could be returned each year, which at current discount would equate to a 5% yield.
Obviously their assets are not naturally income producing, so would be a case of using some of their realisation proceeds to fund the dividend and some to fund new commitments.

[tania67] 27/5/2022 09:11

Today’s release includes this:
“At its meeting in November 2021 and having consulted with the Company's advisors, taking into account shareholder sentiment, the Board adopted a policy that sets out the criteria that need to be met in order for the Board to consider implementing a buyback programme. These criteria include the extent and duration of any discount of the Company's share price to NAV per share, as well as requiring that the Investment Manager should have good reason to believe that a share buyback at the prevailing discount to NAV would generate superior risk-adjusted returns to an incremental new commitment to a HarbourVest fund or co-investment. These criteria have not been met.”

Key points this statement raises:
(1) Have these criteria been released to shareholders? Astonishing that they think shareholders should have to suffer current discount because it is still not of adequate “extent and duration”.
(2) The “as well as…” above also shows very fuzzy thinking. EITHER shrinking the discount OR the automatic boost in NAV/shr should be entirely adequate reasons for buybacks, as HVPE’s competitors already do successfully.
(3) The key question: just what level of (slow and risky) returns do they anticipate on their PE commitments that makes them superior to the 33% instant and risk-free NAV/shr boost from buybacks (using 25% discount as an example, as per my #287 above)?

[donald pond] 27/5/2022 08:38

I know one of the directors, Steven Wilderspin, personally, and have previously hosted a webinar with Charlotte and Richard. Happy to collate comments and pass on. There was commentary On this in the AR put today. I know it's in a different sector but PSH are doing a sizeable buyback atm and it doesn't seem to be having much effect on the share price I think a more important call is to dial back leverage when markets are expensive and increase it when they are cheap. Discount here is huge atm though

[makinbuks] 26/5/2022 09:35

Yes I think there's a lot in that and to Tania's post, you answered the conumdrum with your comment "or else......" That is precisely what is happening and they are not alone by any means. The Trust is simply a vehicle for the Asset Manager to tap a section of the market, the goal is always to increase AUM and NAV

Even investments I own which trade at a premium are motivated the same way. They tap the market, which mathematically benefits existing shareholders but the real goal is to increase AUM and fees. They have no care for the (possibly) temporary dilution while funds are invested

[strathroyal] 25/5/2022 22:56

Whilst HVPE's discount is the highest of the PE trusts, most of them suffer from large discounts including PIN whose share split doesn't seem to have helped the share price and it also carries out buybacks. Even those paying dividends don't fare much better. For me, it's simply the lack of interest in these shares that cause periodic excessive discounts. This board/blog has been set up 11 years and yet less than 300 posts.

Share register doesn't show any predators, all resolutions passed at AGMs without any dissent, it really is a cosy existence for the directors. Why would they change anything?

[tania67] 25/5/2022 19:44

Makinbucks: a fair point, but they had a choice. Their lack of cash is because they keep committing cash returned by existing funds into new funds (a high-risk way of eventually generating a return) rather than buybacks (which generate immediate and risk free boost in NAV/shr, even if they don’t actually narrow the discount).
The discount quite frequently exceeded 25% during the past two years, offering an instant 33%+ Nav/shr boost (buying back 4 shares for the NAV of three). Management would have to be pretty bullish to think the risky bet is consistently the better one…
...or else they are trying to boost NAV (which is in their interests) rather than NAV/shr (in shareholders’ interests).

[makinbuks] 24/5/2022 11:52

I don't see share buybacks as an effective business model for this kind of trust. I do think they could look to enhance returns in the short term with buybacks if they have confidence in the NAV, but not on a regular basis. They have already over committed the cash reserves available to them and they are unlikely ever to be able to tap the market to replace the lost funds

[tania67] 24/5/2022 09:47

It would be nice to think that the current massive discount might finally shame the management into share buybacks, a dividend, or at least a stock split (like PIN last year). They have been consistently dismissive of buybacks in particular (e.g. the 2021 Half-year report, extract below). I wonder if “For the time being…” below is a sign that the facts are finally eroding their complacency, but I’m not holding my breath!

“While HVPE has delivered consistently strong NAV per share growth in recent quarters, building further on an impressive long-term track record, the market has yet to award the Company's shares any meaningful re-rating and they continue to trade at a wide discount to net assets. This remains a source of frustration for the Board, and we note that some shareholders and analysts have suggested share buybacks as a potential solution. We believe that our share price over the period has been held back to some extent by the presence of two notable large sellers in the market. Natural demand has, nonetheless, been very strong, and there are encouraging signs that the recent selling pressure is beginning to subside. For the time being the Board remains convinced that continuing to focus on HVPE's established investment strategy, while also taking further steps to promote the HVPE proposition, will help to ensure a narrower discount over the longer term.”

[melloteam] 22/5/2022 12:32

Mello2022, the popular three-day Investor event takes place on 24TH-26TH MAY at the Clayton Hotel & Conference Centre, Chiswick, W4. The breakdown of the three days is as follows:

Tuesday 24th May, 9am - 6pm - Mello Investment Trusts and Funds (WE ARE GIVING AWAY 20 FREE TICKETS TO THE TRUST AND FUNDS EVENT - THE FREE CODE IS FIRST20TF)

Wednesday 25th & Thursday 26th May, 9am - 6pm - Smaller Growth and Mid-Cap Companies (Tickets for 1 day are £115 and tickets for 2 days are £189. To get 50% off, use code MMTADVFN50).

Just to let shareholders and prospective investors know that HARBOURVEST will be among the Trusts and Funds attending. There will also be keynote speakers such as Lord John Lee, Andy Brough, Rosemary Banyard, Clarke Carlisle and Gervais Williams.

For more information, please visit the event webpage:

[riverman77] 20/5/2022 14:07

Just had a look and according to factsheet HVPE has 40% in the growth/venture bucket - this differs from its peers which tend to be purely focused on buyouts. On balance, decided to stick to NBPE (rather than switch to HVPE) - NBPE is on a 35% discount versus 43% for HVPE, so not big enough difference at this stage to tempt me to switch, and HVPE is probably slightly riskier than the others (although still a very good trust).

[smidge21] 20/5/2022 07:31

Rambutan2,

"with the bulk in more classic infrastructure style, inflation linked stuff. Hardly racy"

a look at the industry split in the end April update would suggest otherwise.

[skyship] 20/5/2022 07:16

RAM - thanks as ever for your professional comments. Does make the current share price look increasingly bizarre.

[rambutan2] 19/5/2022 21:18

The mkt wrongly thinks HVPE is filled with highly valued VC/growth stuff ala Baillie Gifford. That is just not the case, as I have stated previously.

It's worth noting that as at 31/03 nav, listed stuff represented 11% of the nav. In today's 31/04 nav, the listed stuff had dropped to 10%. So not a big hit.

And of the 10% of the nav in Real Assets, only approx 1.5% is mezzanine, with the bulk in more classic infrastructure style, inflation linked stuff. Hardly racy.