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Regulatory Story
Company HarbourVest Global Priv. Equity Ltd
TIDM HVPE
Headline Half-year Report
Released 07:00 23-Oct-2019
Number 7698Q07

RNS Number : 7698Q
HarbourVest Global Priv. Equity Ltd
23 October 2019
 

23 October 2019

RESULTS FOR THE SIX MONTHS ENDED 31 JULY 2019

Another period of strong performance

HarbourVest Global Private Equity Limited ("HVPE" or the "Company"), today announces its unaudited results for the six-months ended 31 July 2019. All figures relate to the half-year ended 31 July 2019 and are presented in US dollars unless otherwise stated.

Continued NAV per share and share price growth

·      Growth in net asset value ("NAV") per share of 7.1% over six-month period to $25.80 from $24.09 at 31 January 2019

15.5% in sterling terms

·      NAV per share return of 12.5% against FTSE All World total return of 3.3% over 12 months to 31 July 2019

·      Share price up 20.6% to £17.20 at half-year end

 

Net investor during period, with focus on real assets

·      $202.4m invested, $138.9m in distributions received

$101.3m drawn down by the HVPE-seeded real assets vehicle as it completed its first deal

Distributions dominated by venture-backed liquidity events, in line with wider market trends

 

Active portfolio and balance sheet management

·      $315.0m committed across six HarbourVest funds (six months to 31 July 2018: $355.0m)

·      Strong balance sheet, with net cash of $87.2m and undrawn $600.0m credit facility, with initial term to 2026

 

Board strengthened with two new appointments

·      HarbourVest Partners, LLC Managing Director Carolina Espinal appointed as a Non-Executive Director

·      Edmond Warner appointed as Independent Non-Executive Director

Following a period of handover, it is anticipated that Mr Warner will be appointed by the Board as Chairman in July 2020.

Sir Michael Bunbury, Chairman of HVPE, said: "We have continued to make excellent progress over the last six months, with this being reflected in both the growth of NAV per share, and the share price.

"The Company continues to commit considerable resource and effort to further the market's knowledge of HVPE and its performance, in order to stabilise the discount at a level significantly lower than it has been in the past.

 "In the face of global political uncertainty, the Company's Investment Manager, HarbourVest Partners, with over 36 years of experience of investing in private markets behind them, and the Board will strive to continue to drive forward the long-term growth of the Company for the benefit of all shareholders."

To view the Company's Semi-Annual Report and Accounts please follow this link: Semi-Annual Report - Six Months to 31 July 2019. Page number references in this announcement refer to pages in this report.

The Semi-Annual Report and Accounts will also shortly be available on the National Storage Mechanism, which is situated at www.morningstar.co.uk/uk/nsm.

 

 

Enquiries:

HVPE



 

Richard Hickman

Tel: +44 (0)20 7399 9847 

rhickman@harbourvest.com

Charlotte Edgar

Tel: +44 (0)20 7399 9826

cedgar@harbourvest.com

 

HarbourVest Partners



Alicia Sweeney

Tel: +1 (617) 807 2945

acurransweeney@harbourvest.com

 

MHP Communications

 

 

Charlie Barker / Tim Rowntree / Pete Lambie 

Tel: +44(0)20 3128 8570

hvpe@mhpc.com

 

Notes to Editors:

 

About HarbourVest Global Private Equity Limited:

HarbourVest Global Private Equity Limited ("HVPE" or the "Company") is a Guernsey-incorporated, closed-end investment company which is listed on the Main Market of the London Stock Exchange and is a constituent of the FTSE 250 index. HVPE is designed to offer shareholders long-term capital appreciation by investing in a private equity portfolio diversified by geography, stage of investment, vintage year, and industry. The Company invests in and alongside HarbourVest-managed funds which focus on primary fund commitments, secondary investments and direct co-investments in operating companies. HVPE's investment manager is HarbourVest Advisers L.P., an affiliate of HarbourVest Partners, LLC, an independent, global private markets asset manager with more than 35 years of experience.

 

About HarbourVest Partners, LLC:

HarbourVest is an independent, global private markets asset manager with 36 years of experience and more than $64 billion in assets under management. The Firm's powerful global platform offers clients investment opportunities through primary fund investments, secondary investments, and direct co-investments in commingled funds or separately managed accounts. HarbourVest has more than 500 employees, including more than 125 investment professionals across Asia, Europe, and the Americas. This global team has committed more than $37 billion to newly-formed funds, completed over $21 billion in secondary purchases, and invested over $11 billion directly in operating companies. Partnering with HarbourVest, clients have access to customised solutions, longstanding relationships, actionable insights, and proven results.

 

This announcement is for information purposes only and does not constitute or form part of any offer to issue or sell, or the solicitation of an offer to acquire, purchase or subscribe for, any securities in any jurisdiction and should not be relied upon in connection with any decision to subscribe for or acquire any Shares.  In particular, this announcement does not constitute or form part of any offer to issue or sell, or the solicitation of an offer to acquire, purchase or subscribe for, any securities in the United States or to US Persons (as defined in Regulation S under the US Securities Act of 1933, as amended ("US Persons")).  Neither this announcement nor any copy of it may be taken, released, published or distributed, directly or indirectly to US Persons or in or into the United States (including its territories and possessions), Canada, Australia or Japan, or any jurisdiction where such action would be unlawful. Accordingly, recipients represent that they are able to receive this announcement without contravention of any applicable legal or regulatory restrictions in the jurisdiction in which they reside or conduct business. No recipient may distribute, or make available, this announcement (directly or indirectly) to any other person. Recipients of this announcement should inform themselves about and observe any applicable legal requirements in their jurisdictions.

 

The Shares have not been and will not be registered under the US Securities Act of 1933, as amended (the "Securities Act") or with any securities regulatory authority of any state or other jurisdiction of the United States and, accordingly, may not be offered, sold, resold, transferred, delivered or distributed, directly or indirectly, within the United States or to US Persons.  In addition, the Company is not registered under the US Investment Company Act of 1940, as amended (the "Investment Company Act") and shareholders of the Company will not have the protections of that act.  There will be no public offer of the Shares in the United States or to US Persons.

 

This announcement has been prepared by the Company and its investment manager, HarbourVest Advisers L.P. (the "Investment Manager"). No liability whatsoever (whether in negligence or otherwise) arising directly or indirectly from the use of this announcement is accepted and no representation, warranty or undertaking, express or implied, is or will be made by the Company, the Investment Manager or any of their respective directors, officers, employees, advisers, representatives or other agents ("Agents") for any information or any of the opinions contained herein or for any errors, omissions or misstatements. None of the Investment Manager nor any of their respective Agents makes or has been authorised to make any representation or warranties (express or implied) in relation to the Company or as to the truth, accuracy or completeness of this announcement, or any other written or oral statement provided. In particular, no representation or warranty is given as to the achievement or reasonableness of, and no reliance should be placed on any projections, targets, estimates or forecasts contained in this announcement and nothing in this announcement is or should be relied on as a promise or representation as to the future.

 

Other than as required by applicable laws, the Company gives no undertaking to update this announcement or any additional information, or to correct any inaccuracies in it which may become apparent and the distribution of this announcement. The information contained in this announcement is given at the date of its publication and is subject to updating, revision and amendment. The contents of this announcement have not been approved by any competent regulatory or supervisory authority.

 

This announcement includes statements that are, or may be deemed to be, "forward looking statements".  These forward looking statements can be identified by the use of forward looking terminology, including the terms "believes", "projects", "estimates", "anticipates", "expects", "intends", "plans", "goal", "target", "aim", "may", "will", "would", "could", "should" or "continue" or, in each case, their negative or other variations or comparable terminology. These forward looking statements include all matters that are not historical facts and include statements regarding the intentions, beliefs or current expectations of the Company.  By their nature, forward looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future and may be beyond the Company's ability to control or predict. Forward looking statements are not guarantees of future performance.   More detailed information on the potential factors which could affect the financial results of the Company is contained in the Company's public filings and reports.

 

All investments are subject to risk. Past performance is no guarantee of future returns. Prospective investors are advised to seek expert legal, financial, tax and other professional advice before making any investment decision. The value of investments may fluctuate. Results achieved in the past are no guarantee of future results.

 

This announcement is issued by the Company, whose registered address is BNP Paribas House, St Julian's Avenue, St Peter Port, Guernsey, GY1 1WA

 

© 2019 HarbourVest Global Private Equity Limited. All rights reserved.

 

Chairman's Statement

Dear Shareholder,

Your Company made excellent progress over the six months to 31 July 2019. Considerable detail is set out in the Investment Manager's Report which follows this statement and I will concentrate on highlighting some of the points in that report as well as reporting on corporate matters and commenting on the political and business environment in which the Company operates.

Performance and NAV per Share

The Company's functional currency is the US dollar. At 31 July 2019, 79% of the underlying funds in which the Company is invested are denominated in US dollars and the majority of underlying assets are located in the US. Thus, it is the US dollar NAV per share that the Board and Investment Manager focus on in relation to performance. During the six months to 31 July, the NAV per share increased by 7.1% to $25.80. Having outperformed the Company's benchmark, the FTSE AW TR Index by 19.4% in the year to 31 January 2019, the substantial rise in many world stock markets over the six months to 31 July meant that the Company underperformed over that short period by 1.2%. Nevertheless, for the period since the original listing of the Company in December 2007 to 31 July 2019, NAV per share has outperformed the benchmark by 3.6% on an annualised basis.

Share Price and Discount

HVPE's shares have been listed on the London Stock Exchange in UK pounds sterling since 2015, with a US dollar quote introduced at the end of 2018. The majority of shareholders are resident in the UK and it is the sterling share price which is of importance to them. The USD/GBP exchange rate has significant influence over the sterling share price. During the six months to 31 July, sterling depreciated against the US dollar with the rate moving from $1.31 to $1.22. In addition, the discount to NAV at which shares were traded narrowed significantly with the consequence that the share price was very strong during the six months, ending at £17.20, an increase of £2.94, or 20.6% over the price at the Company's year end of 31 January. The US dollar price appreciated by 14.7%.

I have referred in earlier statements to the fact that the market can only price HVPE's shares in relation to known information. Thus, at 31 July, the market would have been working from the estimated NAV per share for 30 June which was released in mid-July as $24.98. In relation to the share price at 31 July, the shares traded at a discount of 16.3% to the "live" NAV per share known to the market, that being the 30 June estimate. Details of the reconciliation of discounts with subsequent updates of NAV per share are given on page 55 of this Report.

It is very much to be hoped that the considerable resource and effort that the Company undertakes to further the market's knowledge of HVPE, together with respect for its performance, will result in the discount stabilising at a level significantly lower than it has been for long periods in the past. Indeed, since the middle of May 2019, HVPE's discount has significantly narrowed relative to its peers. However, the discount is a matter for the market to determine and some volatility in the level of discount must always be expected as the perceived attraction of private equity as a class, and HVPE in particular, ebbs and flows.

Investors in HVPE's shares should always look beyond short-term movements in NAV per share and discounts. Private equity is an asset class for long-term investors who must be able to tolerate short-term changes in fashion and look towards long-term material outperformance over listed equity markets such as HVPE's NAV per share has demonstrated since inception of the Company.

Assets and Diversification

In recent months a number of commentators have pointed out that well-meaning investor protection regulation has reduced the ability of the smaller investor to access the historically higher returns that have been delivered by a well-managed private equity portfolio. HVPE, as a listed closed-end company, is designed for such investors. It is a substantial and well-diversified company with net assets in excess of $2 billion and a market capitalisation of approximately £1.4 billion. HVPE holds material indirect interests in over 1,000 companies. The majority by value of those underlying investments is in substantial companies with well-understood valuation characteristics and consequently the well-publicised difficulties in relation to liquidity and valuation that over-reliance on a concentrated portfolio of small venture companies has caused some other investment vehicles recently are significantly reduced in respect of HVPE.

Balance Sheet

In earlier statements I have drawn attention to the difficult balance as the Board and Investment Manager strive to ensure that the balance sheet contains sufficient long-term assets and commitments to deliver satisfactory NAV growth, whilst at the same time not putting at risk the ability of the Company to sustain a significant deterioration in the world economy and in stock markets. The illiquid nature of the Company's assets is such that management of the balance sheet is not an exact science and it would be very difficult, and potentially seriously detrimental to shareholders' interests, to reverse policy in the event of a downturn. The Board and Investment Manager focus on the level of commitments and the ability of the Company to fund as-yet unfunded commitments. Annual and half-year reports carry the relevant ratios and these are updated in the Company's monthly updates.

The modelling that the Investment Manager undertakes is constantly being refined and discussed with the Board according to four different scenarios, including one which models a downturn more serious and longer lasting than the Company endured, without having to change its strategy, in the Global Financial Crisis in 2008/09. Global stock markets will not always be as benign as they have been for over ten years now and it is imperative that HVPE, as a closed-end company with a finite balance sheet, is able to weather storms as well as prosper in the present sunshine. Part of the Company's armoury is the $600 million bank facility which is undrawn at present and committed, subject to customary covenants, by Credit Suisse and Mitsubishi UFG through to January 2026.

Board Changes

The Company has already announced that two of the original directors of the Company, Brooks Zug and Keith Corbin, retired from the Board at the Annual General Meeting ("AGM") in July. In my statement in the Annual Report I paid tribute to them both and thanked them for the very substantial part they both played in the success of the Company since inception.

I am very pleased to report that, at the AGM, shareholders supported the election of Carolina Espinal, a Managing Director of the Investment Manager, HarbourVest Partners, as a director to step into Brooks Zug's shoes. The Board is very grateful to shareholders for their support for Carolina and indeed their overwhelming support for all of the resolutions put forward at the AGM. The Company is the property of the shareholders and the Board draws much encouragement from the strong endorsement demonstrated through the votes cast for the resolutions in front of the AGM.

In my statement in the Annual Report I advised that I intend to stand down from the Board no later than July 2020 and that the Board was seeking a prospective successor to me as Chairman. As already announced, following a search led by the Nomination Committee, chaired by Keith Corbin and undertaken by Trust Associates, I am very pleased that Edmond Warner was appointed as a director on 1 August. Ed is a highly experienced director of investment companies generally and in particular is a former Chairman of London listed Standard Life Private Equity Trust plc. Over the months ahead I hope that shareholders will have the opportunity to meet Ed. He will be present at HVPE's Capital Markets Day in London in June 2020 and he and I would be very pleased to meet with interested shareholders.

Outlook

Although listed in London and with the majority of shares owned by UK residents and institutions, only approximately 4% of HVPE's underlying assets are represented by UK companies. The present political uncertainty in the UK is acute and significant volatility in the USD/GBP exchange rate must be a material risk. Any strengthening of sterling would be headwind for the Company's sterling-based share price.

In the US, where the majority of the Company's assets are based, we are witnessing continuing political stress and some concern for the economy as evidenced by reversal of the tightening trend in short-term interest rates. Elsewhere we are seeing the extraordinary phenomenon of negative interest rates and many asset prices being pushed higher as investors seek returns. On the international scene there are potential flash points in the Middle East and elsewhere. In the face of all this uncertainty, the Company's Investment Manager, HarbourVest Partners, with more than 36 years of experience of investing in private markets behind them, and your Board will strive to continue to drive forward the long-term growth of the Company for the benefit of all shareholders.

Michael Bunbury

Chairman

22 October 2019

Investment Manager's Report

Portfolio Performance

NAV per Share

HVPE's NAV per share continued to grow over the six months to 31 July 2019. Against a mixed macroeconomic backdrop, and despite periodic bouts of equity market volatility due to international trade disputes and ongoing political uncertainty, HVPE's NAV per share increased by 7.1% from $24.09 at 31 January 2019 to $25.80 at 31 July 2019. Translated into sterling, NAV per share growth was 15.5% due to sterling weakening against the US dollar.

The performance of most major equity market indices was broadly positive during the first half of the year, recovering from the sharp declines seen at the end of 2018, and continuing what is now the longest bull market in history. In line with this, HVPE's public benchmark, the FTSE AW TR Index (US dollars), increased by 8.3% in the six months to 31 July 2019. Although HVPE's NAV per share growth of 7.1% lagged this by 1.2 percentage points over the period, public markets tend to be more volatile, rendering short-term comparisons less meaningful. Over the year to 31 July 2019, HVPE's NAV per share returned 12.5% against the FTSE AW TR Index's 3.3% - outperformance of 9.2%. However, longer-term comparisons through the cycle are more indicative of HVPE's performance; measured over the period since inception in December 2007, HVPE's NAV per share has outperformed the FTSE AW TR Index by 3.6% on an annualised basis in US dollar terms.

During the six months ended 31 July 2019 there was a $141.7 million net gain on investments, contributing to an overall increase in net assets of $136.3 million. This compares with a $121.5 million net gain on investments and overall increase in net assets of $117.1 million for the six months to 31 July 2018. The $141.7 million net gain in this financial period was driven by a broadly equal mix of realised and unrealised gains on the portfolio.

In percentage terms, the Secondary portfolio was the best-performing strategy, delivering value growth of 8.8%. Geographically, the strongest gains came from the Asia Pacific portfolio, which generated a value increase of 11.6%; this was followed by the Rest of World assets, which returned 8.8%. In terms of stage, Venture and Growth Equity was the strongest performer, growing 13.2% over the six months ended 31 July 2019. This was followed by Real Assets, which returned 9.5%. More information on the growth drivers can be found on page 27.

As at 31 July 2019, HVPE held investments in 50 HarbourVest funds and seven secondary co‑investments1 (compared with 46 and seven at 31 January 2019). Of these, the largest drivers of NAV per share growth are described below and shown on the corresponding chart overleaf.

· An HVPE-seeded real assets vehicle was the largest contributor, adding $0.29 per share over the six-month period.

· Fund X Venture was the second largest contributor, adding $0.22 to HVPE's NAV per share. This fund is a 2015 vintage currently in the investment phase. As might be expected at this stage in the fund's life, the majority of this gain came from unrealised growth.

· Following behind this was another, more mature fund of the same strategy, Fund IX Venture. With a vintage year of 2011, this fund is in the growth phase of its life-cycle. As such, growth derived from an almost equal mix of realised and unrealised gains.

· Co-Investment IV, a 2016 vintage direct co-investment fund, added $0.12 to NAV per share largely from unrealised gains.

· Fund X Buyout, a 2015 vintage US-focused buyout fund, was the fifth largest contributor adding $0.11 to NAV per share over the period.

1    These include five Secondary Overflow III investments and Absolute, referred to as "HVPE Avalon Co-Investment L.P.", and Conversus, referred to as "HVPE Charlotte Co-Investment L.P.", in the Unaudited Condensed Interim Consolidated Schedule of Investments. Absolute has been fully realised; however, $505,610 remains in escrow.

Portfolio Cash Flows

HVPE was a net investor in the six months to 31 July 2019, investing cash of $202.4 million into HarbourVest funds (six months to 31 July 2018: $202.6 million) and receiving $138.9 million in distributions (six months to 31 July 2018: $142.1 million). Of the $202.4 million calls, $101.3 million was drawn down by the HVPE-seeded real assets vehicle as it completed its first deal - further details follow below.

The balance of capital calls, excluding the HVPE-seeded real assets vehicle, is lower than the same period in the prior year, in part because of the use of leverage at the HarbourVest fund level (termed "embedded leverage"), and the rate at which this is utilised and repaid. Most of this embedded leverage is used to aggregate and delay capital calls on the HarbourVest fund limited partnerships, including HVPE, and hence will impact cash flows in any given period. In the six months to 31 July 2019, repayments of existing embedded leverage were offset by new borrowings on recent commitments used to smooth the frequency of capital calls. The net result has been an increase in embedded leverage of $50.5 million to $323.1 million as at 31 July 2019 from $272.6 million at 31 January 2019. Expressed as a percentage of NAV, the figure increased from 14.2% to 15.7% over the six-month period. The increase was driven by the changing mix of current fund exposures in the portfolio, and in particular the most recent US fund-of-funds programme, HarbourVest Partners XI.

As previously referenced, the largest HarbourVest fund capital call in the reporting period ($101.3 million) came from the real assets vehicle which HVPE seeded in June 2018. This significant call in February 2019 was used to fund an investment into a global portfolio of high-quality core infrastructure assets. In contrast to this unusually large single cash flow, more typical "business-as-usual" capital calls originated from Mezzanine Income Fund ($11.8 million) and Fund X Venture ($11.1 million). Closely following these in US dollar terms were calls of approximately $10.0 million each to fund investment activity for Co-Investment V (HarbourVest's most recent co-investment fund), Dover IX (a global secondary fund), and HIPEP VII (an international fund-of-funds programme). These are all funds currently in the investment phase and building out their portfolios.

Distributions of $138.9 million were driven by a mix of HarbourVest funds across all strategies, with the largest total amount in the period ($25.9 million) coming from HarbourVest 2013 Direct Fund, a global direct co‑investment fund in its growth phase. A large portion of these proceeds came from the sale of Toronto-based environmental, safety, and quality management software provider Intelex Technologies. Strong distributions also came from Mezzanine Income Fund (a US-focused credit fund), driven in part by the sale of Five Star Foods, and the Global Annual Fund (a global multi-strategy fund-of-funds) with proceeds of $10.8 million and $10.2 million received, respectively.

Overall, the net negative cash flow in the period resulted in HVPE's cash balance declining from $156.6 million to $87.2 million.

Portfolio Companies

During the period, the ten largest individual company realisations by HVPE's share of proceeds, generated total distributions of $79.0 million. Of these ten companies, eight were in HVPE's top 50 portfolio companies at 31 January 2019. Further details are provided on these eight below (ordered by size of distribution). The top ten distributions by value are listed on page 26:

· HVPE's share of proceeds was $16.1m from the sale of Australian medical equipment distributor Device Technologies to Navis Investment Partners. HVPE had exposure to this company through a secondary purchase completed in 2016. Device Technologies was HVPE's 6th largest company at 31 January 2019.

· HVPE's share of proceeds was $12.9m from the sale of Intelex to Industrial Scientific (a subsidiary of Fortive Corporation). This was a 2015 co-investment alongside JMI Equity. Intelex was HVPE's 25th largest company at 31 January 2019.

· HVPE's share of proceeds was $12.5m from the sale of vending food and beverage provider Five Star Food Service to Freeman Spogli & Company. This was a 2016 co-investment into the subordinated debt and equity of the company. Five Star was HVPE's 8th largest company at 31 January 2019.

· HVPE's share of proceeds was $10.5m from the recapitalisation of data and analytics solutions provider Appriss. This was a 2014 co-investment alongside Insight Venture Partners. This company was HVPE's fifth largest company at 31 January 2019.

· Following the continued sell down of shares in publicly traded company Avalara ("AVLR"), HVPE's 32nd largest company at 31 January 2019, the Company's share of the proceeds was $6.8m.

· HVPE's share of the proceeds was $4.6m from the sale of German hearing aid manufacturer Sivantos to Widex. This was a 2015 co-investment alongside EQT Partners. Sivantos was HVPE's 35th largest company at 31 January 2019.

· HVPE's share of the proceeds was $3.7m from the recapitalisation of office supply retailer Staples. This was a 2017 co-investment alongside Sycamore Partners. Staples was HVPE's 10th largest position at 31 January 2019.

· HVPE's share of the proceeds was $3.1m from the recapitalisation of South Korean cement manufacturer Ssangyong Cement Industrial Co. This was a 2016 co-investment alongside Hahn & Co. Ssangyong was HVPE's 11th largest company at 31 January 2019.

During the six months ended 31 July 2019, there were 178 liquidity events, down from 215 for the six months to 31 July 2018. The lower volume of activity for the first half of 2019 can broadly be explained by wider trends across the private equity and venture industry, which has seen a reduction in the volume of deals compared with historic levels. Approximately 73% (130) of these liquidity events were trade sales or sponsor-to-sponsor transactions, with the remaining 27% (48) being Initial Public Offerings ("IPOs").

Of HVPE's 178 total liquidity events, 107, or 60%, related to venture-backed companies. This figure is representative of wider market trends, as the first half of 2019 was an exceptional period for venture exits with total venture-backed exit value eclipsing every full-year total on record. The value was largely driven by IPOs, and in particular by 37 venture-backed IPOs which took place in the second quarter including many well-known and high-profile 'unicorns' - private companies with individual valuations greater than US$1 billion - finally transitioning to the public markets. Of the 48 IPOs, 77% were venture-backed companies and included names such as Uber, Lyft, Pinterest, Beyond Meat, CrowdStrike and Slack Technologies.

Company Activity

New Fund Commitments

In the six months ended 31 July 2019, HVPE made total commitments of $315.0 million across six HarbourVest funds (six months to 31 July 2018: $355.0 million). These cover all the strategies offered by HarbourVest in the period, as detailed on page 26; however, by value, the majority of commitments were weighted towards US primary funds (i.e. fund-of funds) as HVPE looks to rebalance its exposure here, in line with its Strategic Asset Allocation ("SAA") targets.

Of the total capital committed, the largest commitment ($120.0 million) was made to HarbourVest Partners XI Buyout, a US-focused buyout fund-of-funds. This brings the total amount committed by HVPE to this fund to $350.0 million. The capital drawdown profile of such a programme typically extends over a period of several years, which helps to drive an even allocation across vintages, thereby reducing the risk of exposure to a single poor-performing vintage year. Other large commitments during the period included $50.0 million each to a global secondary fund (Dover Street X), a real assets fund (Real Assets IV), and HarbourVest's latest global co-investment fund (Co-Investment V).

These commitments are all in line with the Company's SAA targets (see page 16 for more details) and reflect the Investment Manager's and Board's current perspective on the most appropriate portfolio composition required to optimise long-term NAV growth for shareholders.

Market Environment

Supported by a strong fundraising environment, record dry powder, and buoyant debt markets continuing to underpin asset valuations, the global private equity market maintained its momentum during the first half of the year. Signals indicating moderation in Europe and Asia were offset by strong year-on-year metrics in the US, providing an overall generally positive outlook across private markets.

Despite high purchase price multiples, investment activity remained stable in the US and Europe, respectively. Valuations in these regions are now above their pre-crisis levels ten years ago, requiring managers to be disciplined in selection. Many have favoured participation in follow-on rounds or bolt-on acquisitions, which continued to represent a substantial portion of first half deal count. Take-privates, or public-to-privates ("P2P"s), continued to increase deal flow; with the recent P2P announcements in Q2, this is expected to be a record year. Investment volumes in Asia Pacific were significantly lower year-on-year, largely due to a sharp decline in China resulting from a slowdown in large late‑stage technology financing rounds.

Strong exit activity in the US was countered by weaker levels in other regions. In Europe, despite a good second quarter, the first half of the year had a 7% decline in exit value and 30% less exit activity compared with the same period last year. The difference between these figures was a result of larger average transaction sizes, primarily attributable to several closed mega deals worth a total of €26 billion over the first half of the year. Exit levels in Asia were moderate following a very strong 2018. The US was more consistent and remained robust, particularly across venture and growth equity, given the notable IPO registrations during the period.

Principal Risks and Uncertainties

Risk Factors and Internal Controls

The Board is responsible for the Company's risk management and internal control systems, and actively monitors the risks faced by the Company, taking steps to mitigate and minimise these where possible.

In January 2019 the Board conducted a fresh exercise to identify risks for HVPE. It determined 12 main risks which have a higher probability and a significant potential impact on performance, strategy, reputation, or operations. These are evaluated on a semi-annual basis. Following this, six have been identified as the principal risks faced by the Company, where the combination of probability and impact is assessed as making these the most significant current risks. A description of each is outlined below. The first five remain unchanged, and as disclosed in the 31 January 2019 Annual Report; however, "Political Risk" has now been added.

Risk

Description

Mitigating Factor

Balance Sheet Risks

The Company's balance sheet strategy and its policy for the utilisation of leverage are described on page 48 of the Company's 2019 Annual Report. The Company continues to maintain an over-commitment strategy and may draw on its $600 million credit facility to bridge periods of negative cash flow when capital calls on investments are greater than distributions. The level of potential borrowing available under the credit facility could be negatively affected by declining NAVs. In a period of declining NAVs, reduced realisations, and rapid substantial cash calls, the Company's net leverage ratio could increase beyond an appropriate level, resulting in a need to sell assets. In addition, a reduction in the availability or utilisation of bridging debt at the HarbourVest fund level could result in an increase in capital calls to a level in excess of the base case forecast.

The Board has put in place a monitoring programme, determined with reference to portfolio models, in order to mitigate against the requirement to sell assets at a discount during periods of NAV decline. Further, the monitoring programme also considers the level of debt at the HarbourVest fund level. Both the Board and the Investment Manager actively monitor these metrics and will take appropriate action as required to attempt to mitigate these risks. The Company's $600 million credit facility is now available on a rolling five-year evergreen basis.

Popularity
of Listed Private
Equity Sector

Investor sentiment may change towards the Listed Private Equity sector, resulting in a widening of the Company's share price discount to NAV.

The Board has set the Investment Manager the objective of ensuring that the widest possible variety of investors are informed about the Company's performance and proposition in order to mitigate against this. In addition, the Investment Manager actively participates in the marketing of the sector. The size of the Company means that its own success will contribute to the popularity of the sector as a whole.

Public Market Risks

Public markets in many developed countries are trading close to all-time highs. While economic fundamentals have improved, structural imbalances remain. The Company makes venture capital and buyout investments in companies where operating performance is affected by the broader economic environment within the countries in which those companies operate. While these companies are generally privately owned, their valuations are, in most cases, influenced by public market comparables. In addition, approximately 10% of the Company's portfolio is made up of publicly-traded securities whose values increase or decrease alongside public markets. Should global public markets decline, or the economic situation deteriorate, it is likely that the Company's NAV could be negatively affected.

Both the Board and the Investment Manager actively monitor the Company's NAV, and exposure to individual public markets is partially mitigated by the geographical diversification of the portfolio. The Board notes that it has limited ability to mitigate public market risk.

Stress testing takes place as part of the portfolio composition process to model the effect of different macroeconomic scenarios in order to provide comfort to the Board that the balance of risk and reward is appropriate in the event of a downturn in public markets.

Performance of HarbourVest Partners

The Company is dependent on its Investment Manager and HarbourVest's investment professionals. With the exception of the 2011 Absolute investment and 2012 Conversus investment, nearly all of the Company's assets, save for cash balances and short-term liquid investments, are invested in HarbourVest funds.

Additionally, HarbourVest employees play key roles in the operation and control of the Company. The departure or reassignment of some or all of HarbourVest's professionals could prevent the Company from achieving its investment objectives.

This risk is mitigated by the Board monitoring the performance of the Investment Manager on an ongoing basis, including through regular reports and due diligence visits to the Investment Manager's offices.

The establishment of a specific HVPE Investment Committee within HVP has enhanced accountability and governance of the relationship.

Trading Liquidity and Price

Any ongoing or substantial discount to NAV has the potential to damage the Company's reputation and to cause shareholder dissatisfaction.

The five largest shareholders represent approximately 47% of the Company's shares in issue. This may contribute to a lack of liquidity and widening discount. Also, in the event that a substantial shareholder chooses to exit the share register, this may have an effect on the Company's share price and consequently the discount to NAV.

Since September 2015, the Company's shares have traded on the Main Market of the London Stock Exchange, which has increased the liquidity of the shares and broadened the appeal to a wide variety of shareholders. In addition, the Board continues to monitor the discount to NAV and will consider appropriate solutions to address any ongoing or substantial discount to NAV.

Political Risk

There are heightened global political risks facing the world economy at the moment with Brexit, trade wars, US protectionism, and a UK government without a working majority.

The Company's exposure to Brexit is modest with underlying investment exposure to the UK relatively low. The Board is also monitoring HarbourVest's approach to any Brexit effect on its operations.

The Board has also considered UK political scenarios and continues to closely monitor developments.

Directors' Report

Semi-Annual Report and Unaudited Condensed Interim Consolidated Financial Statements

A description of the important events that have occurred during the six months ended 31 July 2019 and their impact on the performance of the Company are given in the Semi-Annual Report and Unaudited Condensed Interim Consolidated Financial Statements (the "Interim Financial Statements") - together the "Semi-Annual Report and Accounts"; specifically the Chairman's Statement and the Investment Manager's Report, alongside the Interim Financial Statements, and are incorporated here by reference.

The principal risks and uncertainties facing the Company and how the Company seeks to mitigate them can be found on pages 20 and 21. Political Risk has been added to the risks disclosed in the Company's 2019 Annual Report and Accounts.

There were no material related party transactions which took place in the first six months of the financial year, other than those disclosed in Note 9 to the Interim Financial Statements. There have been no changes to the related party transactions described in the 2019 Annual Report and Accounts that could have a material effect on the financial position or performance of the Company in the first six months of the current financial year.

This Semi-Annual Report and Accounts has been reviewed by the Company's Auditor in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board ("ISRE 2410").

Going Concern

The performance of the investments held by the Company over the reporting period are described in Note 4 to the Interim Financial Statements and the outlook for the future is described in the Chairman's Statement. The Company's financial position, its cash flows, and liquidity position are set out in the Semi-Annual Report and Accounts, and the Company's financial risk management objectives and policies, details of its financial instruments, and its exposures to market risk, liquidity risk, and cash flow risk, are set out in the Governance Report on pages 55 and 56 in the Company's 2019 Annual Report and Accounts, and are unchanged. After making due enquiries, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for at least 12 months from the date of this report. Accordingly, they continue to adopt the going concern basis in the preparation of this Semi-Annual Report and Accounts.

Statement of Directors' Responsibilities in Respect of the Semi-Annual Report and Accounts

The Directors are responsible for preparing the Semi‑Annual Report and Accounts in accordance with applicable law and regulations.

The Directors confirm that to the best of their knowledge:

· the Semi-Annual Report and Accounts have been prepared in accordance with US GAAP and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

· the Chairman's Statement and Investment Manager's Report include a fair review of the information required by:

(i)  DTR 4.2.7R of the Disclosure Guidance and Transparency Rules ("DTR"), being an indication of important events that have occurred during the first six months of the financial year and their impact on the Interim Financial Statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

(ii) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the financial year and that have materially affected the financial position or the performance of the entity during that period; and any changes in the related party transactions described in the 2019 Annual Report that could do so.

By order of the Board

22 October 2019

 

Unaudited Condensed Interim Consolidated Statements of Assets and Liabilities

At 31 July 2019 and 31 January 2019

 

In US dollars

31 July
2019 (Unaudited)

31 January
2019

 (Audited)

ASSETS



Investments (Note 4)

1,965,407,733

1,760,181,991

Cash and equivalents

87,246,079

156,570,557

Other assets

9,152,090

9,745,502

Total assets

2,061,805,902

1,926,498,050




LIABILITIES



Accounts payable and accrued expenses

1,501,231

2,403,836

Accounts payable to HarbourVest Advisers L.P. (Note 9)

92,427

138,563

Total liabilities

1,593,658

2,542,399




Commitments (Note 5)






NET ASSETS

$2,060,212,244

$1,923,955,651




NET ASSETS CONSIST OF



Shares, unlimited shares authorised, 79,862,486 shares issued and outstanding at
31 July 2019 and 31 January 2019, no par value

2,060,212,244

1,923,955,651




NET ASSETS

$2,060,212,244

$1,923,955,651




Net asset value per share

$25.80

$24.09

 

The accompanying notes are an integral part of the Unaudited Condensed Interim Consolidated Financial Statements.

The Unaudited Condensed Interim Consolidated Financial Statements on pages 38 to 51 were authorised and approved for issue by the Directors on 22 October 2019 and were signed on its behalf by:

 

 

 

Michael Bunbury                  Steven Wilderspin

Chairman                                 Chairman of the Audit and Risk Committee

 

Unaudited Condensed Interim Consolidated Statements of Operations

For the Six-month Periods Ended 31 July 2019 and 2018

 

In US dollars

31 July 2019

31 July 2018

REALISED AND UNREALISED GAINS (LOSSES) ON INVESTMENTS



Net realised gain on investments

68,272,120

33,228,561

Net change in unrealised appreciation on investments

73,453,115

88,234,256




NET GAIN ON INVESTMENTS

141,725,235

121,462,817




INVESTMENT INCOME



Interest from cash and equivalents

 986,969

1,842,239




EXPENSES



Non-utilisation fees (Note 6)

2,935,360

2,890,972

Investment services (Note 3)

 956,184

837,315

Financing expenses

 769,866

693,651

Professional fees

504,443

491,311

Management fees (Note 3)

378,164

395,813

Directors' fees and expenses (Note 9)

278,582

308,997

Marketing expenses

155,370

176,846

Other expenses

477,642

363,560

Total expenses

6,455,611

6,158,465




NET INVESTMENT LOSS

(5,468,642)

(4,316,226)




NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

$136,256,593

$117,146,591

 

The accompanying notes are an integral part of the Unaudited Condensed Interim Consolidated Financial Statements.

 

Unaudited Condensed Interim Consolidated Statements of Changes in Net Assets

For the Six-month Periods Ended 31 July 2019 and 2018

 

In US dollars

31 July 2019

31 July 2018

INCREASE IN NET ASSETS FROM OPERATIONS



Net realised gain on investments

68,272,120

33,228,561

Net increase in unrealised appreciation

73,453,115

88,234,256

Net investment loss

(5,468,642)

(4,316,226)




Net increase in net assets resulting from operations

136,256,593

117,146,591




NET ASSETS AT BEGINNING OF PERIOD

1,923,955,651

1,713,866,836




NET ASSETS AT END OF PERIOD

$2,060,212,244

$1,831,013,427

 

The accompanying notes are an integral part of the Unaudited Condensed Interim Consolidated Financial Statements.

 

Unaudited Condensed Interim Consolidated Statements of Cash Flows

For the Six-month Periods Ended 31 July 2019 and 2018

 

In US dollars

31 July 2019

31 July 2018

CASH FLOWS FROM OPERATING ACTIVITIES



Net increase in net assets resulting from operations

136,256,593

117,146,591




Adjustments to reconcile net increase in net assets resulting from operations to net cash used in operating activities:






Net realised gain on investments

(68,272,120)

(33,228,561)

Net increase in unrealised appreciation

(73,453,115)

(88,234,256)

Contributions to private equity investments

(202,413,602)

(202,633,073)

Distributions from private equity investments

138,913,095

142,111,175

Other

(355,329)

357,380

Net cash used in operating activities

(69,324,478)

(64,480,744)




CASH FLOWS FROM FINANCING ACTIVITIES



Proceeds from borrowing on the credit facility

30,000,000

-

Repayments in respect of the credit facility

 (30,000,000)

-

Net change in financing activities

-

-




NET DECREASE IN CASH AND EQUIVALENTS

(69,324,478)

(64,480,744)

CASH AND EQUIVALENTS AT BEGINNING OF PERIOD

156,570,557

256,961,145




CASH AND EQUIVALENTS AT END OF PERIOD

 $87,246,079

$192,480,401

 

The accompanying notes are an integral part of the Unaudited Condensed Interim Consolidated Financial Statements.

 

Unaudited Condensed Interim Consolidated Schedule of Investments

At 31 July 2019

 

In US dollars






US Funds

Unfunded Commitment

Amount

Invested*

Distributions Received

Fair Value

Fair Value
 as a % of
Net Assets

HarbourVest Partners V-Partnership Fund L.P.

2,220,000

46,709,079

45,924,243

1,143,071

0.1

HarbourVest Partners VI-Direct Fund L.P.

1,312,500

46,722,408

38,404,878

6,668,449

0.3

HarbourVest Partners VI-Partnership Fund L.P.

5,175,000

204,623,049

236,539,438

2,185,888

0.1

HarbourVest Partners VI-Buyout Partnership Fund L.P.

450,000

8,633,048

9,413,708

13,935

0.0

HarbourVest Partners VII-Venture Partnership Fund L.P.

2,318,750

135,290,448

182,667,476

25,651,921

1.2

HarbourVest Partners VII-Buyout Partnership Fund L.P.

3,850,000

74,417,291

100,416,568

3,388,021

0.2

HarbourVest Partners VIII-Cayman Mezzanine and Distressed Debt Fund L.P.

2,000,000

48,201,553

57,900,596

7,773,257

0.4

HarbourVest Partners VIII-Cayman Buyout
Fund L.P.

11,250,000

241,508,801

333,348,159

73,765,016

3.6

HarbourVest Partners VIII-Cayman Venture Fund L.P.

1,000,000

49,191,736

64,847,138

28,528,922

1.4

HarbourVest Partners 2007 Cayman Direct Fund L.P.

2,250,000

97,876,849

159,156,127

8,646,480

0.4

HarbourVest Partners IX-Cayman Buyout
Fund L.P.

12,247,500

59,033,226

40,680,447

55,927,366

2.7

HarbourVest Partners IX-Cayman Credit Opportunities Fund L.P.

3,125,000

9,423,693

5,457,000

8,375,313

0.4

HarbourVest Partners IX-Cayman Venture
Fund L.P.

3,500,000

66,825,714

40,312,271

87,629,790

4.3

HarbourVest Partners 2013 Cayman Direct Fund L.P.

3,228,996

97,131,486

88,766,709

90,559,921

4.4

HarbourVest Partners Cayman Cleantech
Fund II L.P.

5,200,000

14,855,952

3,167,605

14,270,115

0.7

HarbourVest Partners X Buyout Feeder
Fund L.P.

166,320,000

85,707,552

22,544,063

98,682,364

4.8

HarbourVest Partners X Venture Feeder
Fund L.P.

61,050,000

87,003,838

9,735,453

122,144,341

5.9

HarbourVest Partners Cayman Mezzanine Income Fund L.P.

8,155,000

42,066,579

17,452,938

39,950,180

1.9

HarbourVest Partners XI Buyout Feeder
Fund L.P.

350,000,000

-

-

1,982,917

0.1

HarbourVest Partners XI Micro Buyout Feeder Fund L.P.

40,000,000

-

-

90,776

0.0

HarbourVest Partners XI Venture Feeder
Fund L.P.

109,250,000

5,750,000

-

6,087,210

0.3

HarbourVest Adelaide Feeder L.P.

34,125,000

115,875,000

-

134,034,055

6.5

Total US Funds

828,027,746

1,536,847,302

1,456,734,817

817,499,308

39.7

 



 

International/Global Funds

Unfunded Commitment

Amount

Invested*

Distributions Received

Fair Value

Fair Value
as a % of
 Net Assets

HarbourVest International Private Equity Partners III-Partnership Fund L.P.

3,450,000

147,728,557

148,439,622

465,725

0.0

HarbourVest International Private Equity Partners IV-Direct Fund L.P.

-

61,452,400

53,436,349

2,110,357

0.1

HIPEP V-2007 Cayman European Buyout Companion Fund L.P.§

1,576,667

63,880,350

77,915,070

7,558,600

0.4

Dover Street VII Cayman L.P.

4,413,862

95,586,138

126,435,813

9,749,211

0.5

HIPEP VI-Cayman Partnership
Fund L.P.**

6,645,600

116,723,625

77,378,638

111,845,761

5.4

HIPEP VI-Cayman Asia Pacific Fund L.P.

3,000,000

47,187,431

29,830,214

44,751,726

2.2

HIPEP VI-Cayman Emerging Markets Fund L.P.

-

30,059,489

7,122,156

28,823,465

1.4

HVPE Avalon Co-Investment L.P.

1,643,962

85,135,136

124,138,700

505,610

0.0

Dover Street VIII Cayman L.P.

18,000,000

162,124,389

182,087,541

72,497,334

3.5

HVPE Charlotte Co-Investment L.P.

-

93,894,011

137,763,857

21,682,709

1.1

HarbourVest Global Annual Private Equity Fund L.P.

17,800,000

82,201,202

39,424,670

89,352,334

4.3

HIPEP VII Partnership Feeder Fund L.P.

37,187,500

87,812,500

14,305,547

103,677,225

5.0

HIPEP VII Asia Pacific Feeder Fund L.P.

7,125,000

22,875,000

2,889,847

28,372,111

1.4

HIPEP VII Emerging Markets Feeder
Fund L.P.

6,600,000

13,400,000

2,041,541

14,634,007

0.7

HIPEP VII Europe Feeder Fund L.P.††

24,422,580

46,842,243

10,549,774

51,360,225

2.5

HarbourVest Canada Parallel Growth Fund L.P.‡‡

11,960,785

12,453,815

580,890

17,435,105

0.8

HarbourVest 2015 Global Fund L.P.

30,000,000

70,017,309

14,733,000

87,737,975

4.3

HarbourVest 2016 Global AIF L.P.

43,000,000

57,026,107

18,265,587

61,284,760

3.0

HarbourVest Partners Co-Investment
IV AIF L.P.

7,000,006

92,999,994

7,685,830

110,918,303

5.4

Dover Street IX Cayman L.P.

37,000,000

63,000,000

19,979,746

66,225,565

3.2

HarbourVest Real Assets III Feeder L.P.

21,000,000

29,000,000

5,917,231

29,589,767

1.4

HarbourVest 2017 Global AIF L.P.

58,000,000

42,020,959

5,933,218

45,310,924

2.2

HIPEP VIII Partnership AIF L.P.

144,500,000

25,500,000

3,051,563

28,451,171

1.4

Secondary Overflow III Tranche B

489,717

9,668,120

1,563,155

19,785,829

1.0

HarbourVest Asia Pacific VIII AIF
Fund L.P.

37,500,000

12,505,566

609,439

12,894,548

0.6

Secondary Overflow III Tranche C

1,335,088

8,267,887

6,016,969

5,294,524

0.3

Secondary Overflow III Tranche F

13,213,541

16,786,459

1,958,419

21,331,112

1.0

Secondary Overflow III Tranche G

2,443,597

12,556,403

1,241,842

13,652,535

0.7

Secondary Overflow III Tranche H

10,200,000

19,800,000

-

22,276,139

1.1

HarbourVest 2018 Global Feeder
Fund L.P.

61,600,000

8,400,000

-

9,135,227

0.4

HarbourVest Partners Co-Investment V Feeder Fund L.P.

90,000,000

10,048,219

-

9,044,022

0.4

HarbourVest 2019 Global Feeder
Fund L.P.

25,000,000

-

-

(64,101)

(0.0)

HarbourVest Real Assets IV Feeder
Fund L.P.

50,000,000

-

-

-

-

HarbourVest Credit Opportunities
Fund II L.P.

20,000,000

-

-

(51,431)

(0.0)

Dover Street X Feeder Fund L.P.

50,000,000

-

-

270,051

0.0

Total International/Global Funds

846,107,905

1,646,953,309

1,121,296,228

1,147,908,425

55.7

TOTAL INVESTMENTS

$1,674,135,651

$3,183,800,611

$2,578,031,045

$1,965,407,733

95.4

 

*    Includes purchase of limited partner interests for shares and cash at the time of HVPE's IPO.

†    Includes ownership interests in HarbourVest Partners VII-Cayman Partnership entities.

‡    Includes ownership interest in Dover Street VII (AIV 1) Cayman L.P.

**  Fund denominated in euros. Commitment amount is €100,000,000.

§    Fund denominated in euros. Commitment amount is €47,450,000.

††  Fund denominated in euros. Commitment amount is €63,000,000.

‡‡  Fund denominated in Canadian dollars. Commitment amount is C$32,000,000.

As of 31 July 2019, the cost basis of partnership investments is $1,621,007,910.

The accompanying notes are an integral part of the Unaudited Condensed Interim Consolidated Financial Statements.

 

Notes to the Unaudited Condensed Interim Consolidated Financial Statements

Note 1 Company Organisation and Investment Objective

HarbourVest Global Private Equity Limited (the "Company" or "HVPE") is a closed-end investment company registered with the Registrar of Companies in Guernsey under The Companies (Guernsey) Law, 2008 (as amended). The Company's registered office is BNP Paribas House, St Julian's Avenue, St Peter Port, Guernsey GY1 1WA.

The Company was incorporated and registered in Guernsey on 18 October 2007. HVPE is designed to offer shareholders long-term capital appreciation by investing
in a diversified portfolio of private equity investments.

The Company invests in private equity through private equity funds and may make co-investments or other opportunistic investments. The Company is managed by HarbourVest Advisers L.P. (the "Investment Manager"), an affiliate of HarbourVest Partners, LLC ("HarbourVest"), a private equity fund-of-funds manager. The Company is intended to invest in and alongside existing and newly-formed HarbourVest funds. HarbourVest is a global private equity fund-of-funds manager and typically invests capital in primary partnerships, secondary investments, and direct co-investments across vintage years, geographies, industries, and strategies.

Operations of the Company commenced on 6 December 2007, following the initial global offering of the Class A ordinary shares.

Share Capital

At 31 July 2019, the Company's shares were listed on the London Stock Exchange under the ticker "HVPE". At 31 July 2019 and 31 January 2019, there were 79,862,486 shares issued and outstanding. The shares are entitled to the income and increases and decreases in the net asset value ("NAV") of the Company, and to any dividends declared and paid, and have full voting rights. Dividends may be declared by the Board of Directors and paid from available assets subject to the Directors being satisfied that the Company will, immediately after payment of the dividend, satisfy the statutory solvency test prescribed by The Companies (Guernsey) Law, 2008 (as amended).

Any dividends will be paid to shareholders pro rata to their shareholdings.

The shareholders must approve any amendment to the Memorandum and Articles of Incorporation. The approval of 75% of the shares is required in respect of any changes that are administrative in nature, any material change from the investment strategy and/or investment objective of the Company, or any change to the terms of the investment management agreement.

There is no minimum statutory capital requirement under Guernsey law.

Investment Manager, Company Secretary, and Administrator

The Board has delegated certain day-to-day operations of the Company to the Investment Manager and the Company Secretary and Administrator, under advice to the Directors, pursuant to service agreements with those parties, within the context of the strategy set by the Board. The Investment Manager is responsible for, among other things, selecting, acquiring, and disposing of the Company's investments, carrying out financing, cash management, and risk management activities, providing investment advisory services, including with respect to HVPE's investment policies and procedures, and arranging for personnel and support staff of the Investment Manager to assist in the administrative and executive functions of the Company.

Directors

The Directors are responsible for the determination of the investment policy of the Company on the advice of the Investment Manager and have overall responsibility for the Company's activities. This includes the periodic review of the Investment Manager's compliance with the Company's investment policies and procedures and the approval of certain investments. A majority of directors must be independent directors and not affiliated with HarbourVest or any affiliate of HarbourVest. On 25 July 2019, Keith Corbin and Brooks Zug resigned from the Board of Directors, and Carolina Espinal was appointed as Brooks Zug's successor.

Note 2 Summary of Significant Accounting Policies

Accounting policies have been applied consistently as presented in the latest audited accounts.

Note 3 Material Agreements and Related Fees

Administrative Agreement

The Company retained BNP Paribas ("BNP") as Company Secretary and Administrator for the period from 11 May 2018 to 31 July 2019. Fees for these services are paid as invoiced by BNP and include an administration fee of £50,000 per annum, a secretarial fee of £50,000 per annum, compliance services fee of £15,000 per annum, ad-hoc service fees, and reimbursable expenses. The Company had previously retained JTC Group as Company Secretary and Administrator for the period
from 2 February 2017 to 10 May 2018.

During the period ended 31 July 2019, fees of $73,266 were incurred from BNP and are included as other expenses in the Unaudited Condensed Interim Consolidated Statements of Operations. During the period ended 31 July 2018, fees of $43,726 were incurred from BNP and fees of $56,655 were incurred from JTC Group and are included as other expenses in the Unaudited Condensed Interim Consolidated Statements of Operations.

Registrar

The Company has retained Link Asset Services (formerly "Capita") as share registrar. Fees for this service include a base fee of £22,593, plus other miscellaneous expenses. During the periods ended 31 July 2019 and 2018, registrar fees of $21,427 and $26,877, respectively, were incurred and are included as other expenses in the Unaudited Condensed Interim Consolidated Statements of Operations.

Independent Auditor's Fees

For the six-month periods ended 31 July 2019 and 2018, fees of $142,983 and $141,300 were accrued, respectively, and are included within the professional fees in the Unaudited Condensed Interim Consolidated Statements of Operations. The 31 July 2019 figure includes $64,443, which represents approximately half of the 31 January 2020 annual audit fee, and $6,802 relating to the prior financial year's audit fee. In addition, the 31 July 2019 figure includes fees of $71,738 (2018: $73,600) for audit-related services due to the Auditor to conduct a review of the Interim Financial Statements for each period end, commencing with the 31 July 2018 report. Other non-audit fees due to the Auditor, Ernst & Young LLP, by the Company were nil for the six-month periods ended 31 July 2019 and 2018.

Investment Management Agreement

The Company has retained HarbourVest Advisers L.P. as the Investment Manager. The Investment Manager is reimbursed for costs and expenses incurred on behalf of the Company in connection with the management and operation of the Company. The Investment Manager does not directly charge HVPE management fees or performance fees other than with respect to parallel investments. However, as an investor in the HarbourVest funds, HVPE is charged the same management fees and is subject to the same performance allocations as other investors in such HarbourVest funds. During the periods ended 31 July 2019 and 2018, reimbursements paid by the Company for services provided by the Investment Manager were $956,184 and $837,315, respectively.

On 30 July 2019, HVPE approved a revised Investment Management Agreement, which has been updated for legal and regulatory changes, and other minor amendments.

During the period ended 31 July 2019, HVPE had two parallel investments: HarbourVest Acquisition S.à.r.l. (via HVPE Avalon Co-Investment L.P.) and HarbourVest Structured Solutions II, L.P. (via HVPE Charlotte Co- Investment L.P.). Management fees paid for the parallel investments made by the Company were consistent with the fees charged by the funds alongside which the parallel investments were made during the periods ended 31 July 2019 and 2018. The HVPE Avalon Co-Investment L.P. management fee was terminated on 30 September 2017. Management fees included in the Unaudited Condensed Interim Consolidated Statements of Operations are shown in the table below:

For the Six-month Periods Ended 31 July 2019 and 2018


2019

2018

HVPE Charlotte Co‑Investment L.P.

378,164

395,813

Total Management Fees

$378,164

$395,813

 

For the periods ended 31 July 2019 and 2018, management fees on the HVPE Charlotte Co-Investment L.P. investment were calculated based on a weighted average effective annual rate of 0.89% and 0.95%, respectively, on capital originally committed (0.87% and 0.91%, respectively, on committed capital net of management fee offsets) to the parallel investment.

Note 4 Investments

In accordance with the authoritative guidance on fair value measurements and disclosures under US generally accepted accounting principles ("US GAAP"), the Company discloses the fair value of its investments in a hierarchy that prioritises the inputs to valuation techniques used to measure the fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The guidance establishes three levels of the fair value hierarchy as follows:

Level 1 - Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2 - Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly, including inputs in markets that are not considered to be active.

Level 3 - Inputs that are unobservable. Generally, the majority of the Company's investments are valued utilising unobservable inputs, and are therefore classified within Level 3.

Level 3 investments include limited partnership interests in HarbourVest funds which report under US GAAP. Inputs used to determine fair value are primarily based on the most recently reported NAV provided by the underlying investment manager as a practical expedient under Accounting Standards Codification ("ASC") 820. The fair value is then adjusted for known investment operating expenses and subsequent transactions, including investments, realisations, changes in foreign currency exchange rates, and changes in value of private and public securities.

Income derived from investments in HarbourVest funds is recorded using the equity pick-up method. Under the equity pick-up-method of accounting, the Company's proportionate share of the net income (loss) and net realised gains (losses), as reported by the HarbourVest funds, is reflected in the Unaudited Condensed Interim Consolidated Statements of Operations as net realised gain (loss) on investments. The Company's proportionate share of the aggregate increase or (decrease) in unrealised appreciation, as reported by the HarbourVest funds, is reflected in the Unaudited Condensed Interim Consolidated Statements of Operations.

Because of the inherent uncertainty of these valuations, the estimated fair value may differ significantly from the value that would have been used had a ready market for this security existed, and the difference could be material.

During the periods ended 31 July 2019 and 2018, the Company made contributions of $202,413,602 and $202,633,073, respectively, to Level 3 investments and received distributions of $138,913,095 and $142,111,175, respectively, from Level 3 investments. As of 31 July 2019, $1,965,407,733 of the Company's investments are classified as Level 3. As of 31 January 2019, $1,760,181,991 of the Company's investments were classified as Level 3.

The Company recognises transfers at the current value at the transfer date. There were no transfers during the periods ended 31 July 2019 and 2018. Investments include limited partnership interests in private equity partnerships, all of which carry restrictions on redemption. The investments are non-redeemable and the Investment Manager estimates an average remaining life of 11 years with a range of 1 to 34 years remaining.

As of 31 July 2019, the Company had invested $3,367,172,716, or 66.8% of the Company's committed capital in investments, and had received $2,781,174,707 in cumulative distributions (including dividends from the formerly held investment HarbourVest Senior Loans Europe).

There were no investment transactions during the periods ended 31 July 2019 and 2018 in which an investment was both acquired and disposed of during the period.

Note 5 Commitments

As of 31 July 2019, the Company has unfunded investment commitments to other limited partnerships of $1,674,135,651 which are payable upon notice by the partnerships to which the commitments have been made. Unfunded investment commitments of $1,629,530,019 are denominated in US dollars, $32,644,847 are denominated in euros, and $11,960,785 are denominated in Canadian dollars. As of 31 January 2019, the Company had unfunded investment commitments to other limited partnerships of $1,562,731,444. Unfunded investment commitments of $1,513,163,568 were denominated in US dollars, $36,265,545 were denominated in euros, and $13,302,331 were denominated in Canadian dollars.

Note 6 Debt Facility

As of 31 July 2019 and 31 January 2019, the Company had an agreement with Mitsubishi UFJ Trust and Banking Corporation (MUFG) and Credit Suisse for the provision of a multi-currency revolving credit facility (the "Facility") for an aggregate amount up to $600 million with a termination date of no earlier than January 2026, subject to usual covenants. The MUFG commitment was $300 million and the Credit Suisse commitment was $300 million.

Amounts borrowed against the Facility accrue interest at an aggregate rate of the LIBOR/EURIBOR, a margin, and, under certain circumstances, a mandatory minimum cost. The Facility is secured by the private equity investments and cash and equivalents of the Company, as defined in the agreement. Availability of funds under the Facility and interim repayments of amounts borrowed are subject to certain loan-to-value ratios and portfolio diversity tests applied to the Investment Portfolio of the Company. At 31 July 2019 and 31 January 2019, there was no debt outstanding against the Facility. In the period ended 31 July 2019, the Facility had a drawdown of $30 million for a brief period for cash management purposes. For the period ended 31 July 2019, interest of $16,973 was incurred in relation to this borrowing and is included as other expenses in the Unaudited Condensed Interim Consolidated Statements of Operations. There was no interest incurred during the period ended 31 July 2018. Included in other assets at 31 July 2019 and 31 January 2019 are deferred financing costs of $8,649,699 and $9,264,606, respectively, related to refinancing the Facility. The deferred financing costs are amortised on the terms of the Facility. The Company is required to pay a non-utilisation fee calculated as 115 basis points per annum from 23 December 2016 to 2 January 2019. Beginning 3 January 2019, the non-utilisation fee for the Credit Suisse commitment is 100 basis points per annum, and the non-utilisation fee for the MUFG commitment is 90 basis points per annum. For the periods ended 31 July 2019 and 2018, $2,935,360 and $2,890,972, respectively, in non-utilisation fees have been incurred.

Note 7 Financial Highlights

For the Six-month Periods Ended 31 July 2019 and 2018


2019

2018

Shares



PER SHARE OPERATING PERFORMANCE:



Net asset value, beginning of period

24.09

21.46




Net realised and unrealised gains

1.78

1.52

Net operating expenses

(0.07)

(0.05)

Total from investment operations

1.71

1.47




Net asset value, end of period

$25.80

$22.93

Market value, end of period

$21.501

$17.062

Total return at net asset value

7.1%

6.8%

Total return at market value

14.7%

(4.0%)




RATIOS TO AVERAGE NET ASSETS



Expenses3

0.32%

0.35%

Net operating expenses

(0.27%)

(0.24%)

PORTFOLIO TURNOVER4

0.0%

0.0%

1    A US dollar share price quote ("HVPD") was introduced in December 2018. The $21.50 represents the US dollar closing share price at 31 July 2019. If the sterling share price equivalent of £17.20 is converted at the prevailing exchange rate, similar to the comparison period, the converted share price is $20.91 and the return at market value on the converted share price is 11.9%.

2    Represents converted share price of £13.00 at 31 July 2018.

3    Does not include operating expenses of underlying investments.

4    The turnover ratio has been calculated as the number of transactions divided by the average net assets.

Note 8 Publication and Calculation of Net Asset Value

The NAV of the Company is equal to the value of its total assets less its total liabilities. The NAV per share is calculated by dividing the NAV by the number of shares in issue on that day. The Company publishes the NAV per share of the shares as calculated, monthly in arrears, at each month end, generally within 20 days.

Note 9 Related Party Transactions

Other amounts payable to HarbourVest Advisers L.P. of $92,427 and $138,563 represent expenses of the Company incurred in the ordinary course of business, which have been paid by and are reimbursable to HarbourVest Advisers L.P. at 31 July 2019 and 31 January 2019, respectively.

Board-related expenses, primarily compensation, of $278,582 and $308,997 were incurred during the periods ended 31 July 2019 and 2018, respectively.

Note 10 Indemnifications

General Indemnifications

In the normal course of business, the Company may enter into contracts that contain a variety of representations and warranties and which provide for general indemnifications. The Company's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Company that have not yet occurred. Based on the prior experience of the Investment Manager, the Company expects the risk of loss under these indemnifications to be remote.

Investment Manager Indemnifications

Consistent with standard business practices in the normal course of business, the Company has provided general indemnifications to the Investment Manager, any affiliate of the Investment Manager, and any person acting on behalf of the Investment Manager or such affiliate when they act in good faith, in the best interest of the Company. The Company is unable to develop an estimate of the maximum potential amount of future payments that could potentially result from any hypothetical future claim, but expects the risk of having to make any payments under these general business indemnifications to be remote.

Directors and Officers Indemnifications

The Company's Articles of Incorporation provide that the Directors, managers, or other officers of the Company shall be fully indemnified by the Company from and against all actions, expenses, and liabilities which they may incur by reason of any contract entered into or any act in or about the execution of their offices, except such (if any) as they shall incur by or through their own negligence, default, breach of duty, or breach of trust, respectively.

Note 11 Subsequent Events

In the preparation of the financial statements, the Company has evaluated the effects, if any, of events occurring between 31 July 2019 and 22 October 2019, the date that the financial statements were issued.

On 1 August 2019, Edmond Warner joined the Board of Directors as an Independent Non-executive Director.

On 27 September 2019, the Company committed $25 million to HarbourVest Partners XI Micro Buyout Fund L.P. and $75 million to HarbourVest Partners XI Venture Fund L.P.

There were no other events or material transactions subsequent to 31 July 2019 that required recognition or disclosure in the financial statements.

 

Disclosures

Investments

The companies represented within this report are provided for illustrative purposes only, as example portfolio holdings. There are over 9,000 individual companies in the HVPE portfolio, with no one company comprising more than 3.4% of the entire portfolio.

The deal summaries, General Partners (managers), and/or companies shown within the report are intended for illustrative purposes only. While they may represent an actual investment or relationship in the HVPE portfolio, there is no guarantee they will remain in the portfolio in the future.

Past performance is no guarantee of future returns.

Forward-looking Statements

This report contains certain forward-looking statements. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts. In some cases, forward-looking statements can be identified by terms such as "anticipate", "believe", "could", "estimate", "expect", "intend", "may", "plan", "potential", "should", "will", and "would", or the negative of those terms, or other comparable terminology. The forward-looking statements are based on the Investment Manager's beliefs, assumptions, and expectations of future performance and market developments, taking into account all information currently available. These beliefs, assumptions, and expectations can change as a result of many possible events or factors, not all of which are known or are within the Investment Manager's control. If a change occurs, the Company's business, financial condition, liquidity, and results of operations may vary materially from those expressed in forward-looking statements.

By their nature, forward-looking statements involve known and unknown risks and uncertainties because they relate to events, and depend on circumstances, that may or may not occur in the future. Forward-looking statements are not guarantees of future performance. Any forward-looking statements are only made as at the date of this document, and the Investment Manager neither intends nor assumes any obligation to update forward-looking statements set forth in this document whether as a result of new information, future events, or otherwise, except as required by law or other applicable regulation.

In light of these risks, uncertainties, and assumptions, the events described by any such forward-looking statements might not occur. The Investment Manager qualifies any and all of its forward-looking statements by these cautionary factors.

Please keep this cautionary note in mind while reading this report.

Some of the factors that could cause actual results to vary from those expressed in forward-looking statements include, but are not limited to:

· the factors described in this report;

· the rate at which HVPE deploys its capital in investments and achieves expected rates of return;

· HarbourVest's ability to execute its investment strategy, including through the identification of a sufficient number of appropriate investments;

· the ability of third-party managers of funds in which the HarbourVest funds are invested and of funds in which the Company may invest through parallel investments to execute their own strategies and achieve intended returns;

· the continuation of the Investment Manager as manager of the Company's investments, the continued affiliation with HarbourVest of its key investment professionals, and the continued willingness of HarbourVest to sponsor the formation of and capital raising by, and to manage, new private equity funds;

· HVPE's financial condition and liquidity, including its ability to access or obtain new sources of financing at attractive rates in order to fund short-term liquidity needs in accordance with the investment strategy and commitment policy;

· changes in the values of, or returns on, investments that the Company makes;

· changes in financial markets, interest rates or industry, general economic or political conditions; and

· the general volatility of the capital markets and the market price of HVPE's shares.

Publication and Calculation of Net Asset Value

The NAV of the Company is equal to the value of its total assets less its total liabilities. The NAV per share is calculated by dividing the NAV of the Company by the number of shares in issue. The Company intends to publish the estimated NAV per share as calculated, monthly in arrears, as at each month end, generally within 20 days.

Regulatory Information

HVPE is required to comply with the Listing, Disclosure Guidance and Transparency Rules of the Financial Conduct Authority in the United Kingdom (the "LDGT Rules"). It is also authorised by the Guernsey Financial Services Commission as an authorised closed-end investment scheme under the Protection of Investors (Bailiwick of Guernsey) Law, 1987, as amended (the "POI Law"). HVPE is subject to certain ongoing requirements under the LDGT Rules and the POI Law and certain rules promulgated thereunder relating to the disclosure of certain information to investors, including the publication of annual and half-yearly financial reports.

Valuation Policy

Valuations Represent Fair Value Under US GAAP

HVPE's 31 July 2019 NAV is based on the 30 June 2019 NAV of each HarbourVest fund, Absolute,1 and Conversus, adjusted for changes in the value of public securities, foreign currency, known material events, cash flows, and operating expenses during July 2019. The valuation of each HarbourVest fund is presented on a fair value basis in accordance with US generally accepted accounting principles ("US GAAP"). See Note 4 in the Notes to the Unaudited Condensed Interim Consolidated Financial Statements on page 49.

The Investment Manager typically obtains financial information from 90% or more of the underlying investments for each of HVPE's HarbourVest funds to calculate the NAV. For each fund, the accounting team reconciles investments, distributions, and unrealised/realised gains and losses to the financial statements. The team also reviews underlying partnership valuation policies.

Management of Foreign Currency Exposure

The Investment Portfolio includes three euro-denominated HarbourVest funds and a Canadian dollar-denominated fund.

· 16.1% of underlying portfolio holdings are denominated in euros. The euro-denominated Investment Pipeline is €29 million.

· 1.8% of underlying portfolio holdings are denominated in sterling. There is no sterling-denominated Investment Pipeline.

· 1.5% of underlying portfolio holdings are denominated in Australian dollars. There is no Australian dollar-denominated Investment Pipeline.

· 0.6% of underlying portfolio holdings are denominated in Swiss Francs. There is no Swiss Franc-denominated Investment Pipeline.

· 0.4% of underlying portfolio holdings are denominated in Canadian dollars. The Canadian dollar-denominated Investment Pipeline is C$16 million.

HVPE has exposure to foreign currency movement through foreign currency-denominated assets within the Investment Portfolio and through its Investment Pipeline of unfunded commitments, which are long term in nature. The Company's most significant currency exposure is to euros. The Company does not actively use derivatives
or other products to hedge the currency exposure.

1    Absolute, referred to as "HVPE Avalon Co-Investment L.P." in the Unaudited Condensed Interim Consolidated Schedule of Investments, has been fully realised. However, $505,610 remains in escrow.

 

 


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