We talk to an affiliate of international private equity group HarbourVest about its management of a London-listed trust that gives diversified exposure to private equity and about 1,000 portfolio companies. With so much talk about widening access to the asset class, the firm says the listed route deserves more love.

In recent years firms have explained why they’re making it easier for affluent/high net worth clients to get a piece of investment action. We’ve seen the rise of tech platforms such as Moonfare and iCapital, new channels, and the embrace of blockchain tech as part of the story.

But there’s a structure that goes back to mid-Victorian times that’s been a conduit into otherwise difficult-to-enter markets that are sometimes overlooked. It’s the investment trust. 

The HarbourVest Global Private Equity, or HVPE, is an example. (It is managed by HarbourVest Advisers, an affiliate of PE group HarbourVest Partners.) The FTSE 250 private equity investment trust, a fund of funds, was formed just prior to the global financial crash of 2007. It holds more than 1,000 portfolio companies. As with many closed-ended, listed trusts, it has taken steps to narrow the share price discount to its net asset value (NAV). 

Richard Hickman, who manages HVPE, said it currently has a NAV of $4 billion. The trust has chalked up an absolute NAV per share return of 244 per cent over 10 years vs FTSE AW TR Index of 137 per cent over the same period (as at 30 June 2024).

While private market investing has been on a roll over the past 10 or more years â€“ fuelled by ultra-low interest rates after 2008, and coupled with a declining desire for firms to be publicly listed – there’s still plenty of upside potential for growth, Hickman said. 

“If you look at total AuM, private equity today stands at about $4 trillion, while public markets are at about $100 trillion…so it is still relatively small,” he said. Firms are taking longer to list, if at all, and others are de-listing and going private, as part of a “de-equitisation” trend, he said. 

Closing the gap
A concern today is that after the rise in rates post-Covid, the PE sector has faced headwinds with listed private equity funds trading at a discount.

Hickman accepted that there are challenges for the PE sector, but matters are improving, he said.

At the moment, the fund trades at around a 35 per cent discount to NAV, having fallen from 45 per cent earlier in the summer.

HVPE is “very proactive” in talking to wealth managers, such as via its corporate brokers, about the merits of the fund, Hickman said. There have been wealth managers making the first move in approaching HVPE about its fund.

One issue is that the world of investment trusts is not always widely understood. In recent years, there has been more noise and interest centred on â€śevergreen funds” and the UK’s Long Term Asset Fund model. Investment trusts, which have been around since the mid-19th century, can be sidelined precisely because they aren’t new.

Hickman is able to also draw on the insights of HarbourVest, a business that in total manages more than $125 billion in AuM and has more than 1,200 staff around the world. The firm – founded 42 years ago â€“ operates in areas such as private equity, credit and real assets. 

Small-cap
There are now funds for small-cap companies. With AI, and other technologies that make it easier for general partners to find opportunities, it is also easier for smaller and medium-sized private equity funds to operate, Hickman said. 

“Sometimes it [the investment trust model] is viewed as an old and clunky structure. People tend to focus on shiny new objects,” he said. 

One benefit of a closed-end structure, Hickman said, is that a manager is “not required to respond immediately to the ebbs and flows of investor demand, and is therefore able to hold illiquid assets.”

HVPE wants to boost shareholder returns, and encourage more participation. For example, to allow for regular distribution of capital, 15 per cent of cash from maturing investments is allocated to a distribution pool, which in turn is controlled by the board for the best interests of shareholders. At the moment, HVPE is undertaking share buybacks; depending on what the board decides, it could also pay a dividend, Hickman said. “I think it [approach to distributions] has been very well received.”

The fund typically makes investment commitments for 10 years.

Hickman added that a large part of the value proposition from HVPE is doing the due diligence work in monitoring a range of funds on the client’s behalf. It operates a “buy and hold” approach which is “low maintenance" for the client. “We don’t make major changes from year to year.”