HarbourVest Global Private Equity (LON:HVPEa) (HVPE) has recorded an uplift in NAV since end-July 2018 of 4.9% and 5.6% in US dollar and sterling terms respectively, with limited impact from increased public market volatility of Q418. Following successful realizations, HVPE aims to rebuild its exposure to the primary strategy (44% vs target 55%), and to the US market (55% vs 65%). Moreover, HVPE looks at further diversification through investments in real assets which are characterized by low correlation with equity markets and provide stable cash flows. Following the transaction in February 2019, HVPE’s exposure to real asset and mezzanine investments now stands at 14% (at end-April 2019).
Diversification translating into greater stability
In the current late-cycle environment, HVPE’s key advantages include the manager’s extensive experience (>35 years) in private equity (PE) coupled with a portfolio that is actively managed and strongly diversified by vintage, region, strategy, sector, stage and private equity manager. We believe these aspects are behind historical long-term risk-adjusted returns ahead of the peer average. HVPE’s increasing allocation to real assets (with a focus on infrastructure) may provide diversification while delivering a combination of stable income, capital gains and capital preservation. Moreover, in the context of the current Brexit turmoil, it is important to highlight that HVPE’s reported UK exposure stands at just 3%.
Recent developments: Resisting market correction
HVPE posted a 4.9% increase in NAV per share from US$22.93 to US$24.05 between July 2018 and April 2019 (based on the estimate for April), ahead of FTSE All-World index (+2.6%) and LPX 50 (-1.1%) in US dollar terms. HVPE’s new commitments since July 2018 totalled c US$390m, including US$260m in December alone. Major cash investments include the acquisition of a global portfolio of infrastructure assets where HVPE invested US$101.3m in February.
Valuation: Discount above long-term average
HVPE’s share price discount to NAV widened temporarily to 28% in December as its shares followed the broader market sell-off, but subsequently narrowed to c 15% as the share price rebounded while NAV remained broadly stable. This suggests that HVPE’s shares tend to overreact in response to general market developments, which may temporarily result in a wider discount to NAV.
