Richard Hickman
Listed investment trust Harbourvest Global Private Equity Limited (ticker HVPE) has been one of the stand out performers in the sector, returning around 600 percent in share price terms in a decade. Why then does the trust, with a parent company of around 40 years standing and having been involved in some of the biggest IPOs to date, trade on a discount that hovers over 20 percent?
Richard Hickman (pictured), director of investments and operations at Harbourvest Partners says it’s frustrating for the whole sector, with only one or two trading at a premium. Apart from those, he adds, the rest trade on discounts some “much wider than ours”.
This disconnect seems odd for a well-diversified product that has access to some of the best private equity funds in the market. Mr Hickman has a theory as to why this is the case.
“A lot of wealth managers now operate using top-down portfolio models that they receive from the center of a large firm. Many of these models don't include private equity, so there's no kind of imperative for wealth managers to hold listed private equity investment trusts.”
If this wasn’t enough, the markets tend to have long memories harking back to the global financial crisis of 2008-9. Mr Hickman says that during this time, a couple of peers had problems with over commitments going into that crisis and subsequent balance sheet weakness. The result being, in Mr Hickman’s view, that there’s “a kind of lingering perception of risk perhaps”.
While some listed private equity trusts did struggle during the financial crisis, HVPE was not among them. Sure, it took a hit to its share price with the rest of the market but in balance sheet terms, remained solid.
Those who came through that crisis, including newer funds, are better managed from a balance sheet perspective. However, Mr Hickman says, “that probably hasn't filtered through yet to enough of the market”.
It’s not all doom and gloom, HVPE has seen a big uptick in liquidity, with an average 50 percent rise in the daily volume of shares traded last year.
Competing with the big boys
Many large investment trusts, including retail favourites, now have an ever-growing proportion of their portfolios in private markets. Should this worry a pure play private equity player like HVPE?
“I think it's a double-edged sword because it's quite beneficial to our cause in getting the story out because more and more investors now have exposure through those kind of mainstream vehicles. And it kind of entices them into this world a little bit more and they might look at a specialist fund as well if they if they had a good experience with the mainstream,” muses an optimistic Mr Hickman.
When it comes to the choices for investors in the sector, there are many but along with the aforementioned quality of the parent GP, there are other benefits to HVPE as well.
Mr Hickman says ‘we're the most diversified listed private equity fund in the market in the UK”, adding that it has exposure to ‘almost the whole range of available funds in the market’. This includes buy-out funds, growth capital funds and venture capital funds.
Last year was a blockbuster for private equity, with the pent-up demand during Covid being unleashed once conditions allowed securing a record year for deal activity in the sector. HVPE itself saw record cash receipts from exits within the portfolio last year as it backs managers on the sell side as well.
“The breadth and the reach and the relationships that Harbourvest has across the industry is absolutely one of the key advantages to investing through those (Harbourvest) funds,” says Mr Hickman.
While there are listed funds that have relationships with numerous private equity houses such as ICG Enterprise Trust, it may be that sticking to one large dominant player is the best way to play this sector. But given the private equity deal activity easily exceeded $1 trillion last year, marking a tripling of the market in a decade, it seems that some exposure is a good idea.
