TIDMHVPE
RNS Number : 8577Q
HarbourVest Global Priv. Equity Ltd
24 June 2020
24 June 2020
RESULTS FOR THE YEARED 31 JANUARY 2020
Another year of strong performance
HarbourVest Global Private Equity Limited ("HVPE" or the
"Company"), today announces its audited results for the year ended
31 January 2020.
Annual results - Eleventh consecutive year of net asset value
("NAV") per share growth
-- NAV per share increase of 14.5% to $27.58 over the 12 months
o Seventh consecutive year of double-digit growth
o Outperformance of FTSE All-World Total Return Index by 2.5%
annually over ten years
o $289.3m net gain on investments (2018: $218.4m)
-- Net investor during the year
o $324.2m cash invested (2019: $396.2m), including $59.3m into
HarbourVest real assets vehicle
o $308.2m distributions received (2019: $306.6m),
o A large portion of proceeds generated from sales of Intelex
Technologies and Press Ganey, and IPO of TeamViewer on Frankfurt
Stock Exchange
-- $570m committed to new HarbourVest funds (2018: $730m)
o Majority weighted towards primary funds (fund-of-funds)
-- Strong cash position at year-end with net cash of $130.6m
Events post year-end - Resilient position in current
environment
-- The impact of COVID-19 has had, and may continue to have, a
material impact on the value and performance of the portfolio
o Estimated NAV per share of $25.62 (GBP20.79) at 31 May 2020
(based predominantly on 31 March 2020 valuations)
o A decline of 6.0% in US dollars from 30 April 2020
-- Commitment plan placed temporarily on hold
o Allowing the Investment Manager to review the Company's
portfolio construction priorities
-- Proactive steps taken by Investment Manager to assess impact on portfolio
o Assessment covers 80% of HVPE's portfolio value
o At this point in time, the great majority of HVPE's portfolio
by value deemed likely to experience a low or moderate impact
o HarbourVest focused on managing the portfolio to weather the
near- and longer-term effects of COVID-19
-- HVPE maintains a well-diversified portfolio, with no single
company exposure representing more than 1.9% of NAV
-- Strong balance sheet
o $200m drawn down from the $600m credit facility in May
2020
-- Deposited in J.P. Morgan AAA-rated US Treasury money market
fund and fully available as at 31 May 2020
o Access to the remaining $400m provides flexibility to react as
required to the evolving situation driven by COVID-19
Sir Michael Bunbury, Chairman of HVPE, said: "I am pleased to
report, in my final year as Chairman of HVPE, that the Company once
again had a very satisfactory twelve months to 31 January,
delivering its eleventh consecutive year of positive NAV
growth.
"Since the end of our financial year, the outbreak of the
COVID-19 pandemic has sent shockwaves through the economy. The
Board and Investment Manager, HarbourVest, acted quickly to assess
the potential impact on HVPE and its portfolio. Several years of
strong growth and careful management have endowed HVPE with a
strong balance sheet, ensuring it is well-placed to capitalise on
the opportunities that may lie ahead.
"The private equity industry is structured with a view to
long-term value creation, and this allows for considerable
flexibility in times like these. Furthermore, HarbourVest has
almost four decades of experience managing through previous global
events and economic crises. The Company's recent commitments have
been weighted towards HarbourVest's primary fund-of-funds vehicles
which seek to deploy capital over a period of several years.
"Before I sign out as Chairman, I would like to thank all
shareholders for their support. I would also like to thank all
those at HarbourVest and our other service providers who have
contributed to the success of HarbourVest Global Private Equity
thus far."
Investor Event
There will be a presentation for institutional and retail
investors on 3 July 2020 at 10am BST. To register for the event,
please contact Liah Zusman: hvpeevents@harbourvest.com .
Annual Report and Accounts
To view the Company's Annual Financial Report and Accounts
please follow this link: Annual Report - Year Ending 31 January
2020 . Page number references in this announcement refer to pages
in this report.
The Annual Financial Report and Accounts will also shortly be
available on the National Storage Mechanism, which is situated
https://data.fca.org.uk/#/nsm/nationalstoragemechanism .
Annual Results Presentation
The Company will publish a new presentation on its website to
supplement the publication of the Annual Results for the twelve
months ended 31 January 2020. The presentation will be publicly
disclosed at 11am today. All stakeholders will be able to view and
download the presentation from HVPE's website www.hvpe.com .
Enquiries:
Shareholders
Richard Hickman Tel: +44 (0)20 7399 9847 rhickman@harbourvest.com
Charlotte Edgar Tel: +44 (0)20 7399 9826 cedgar@harbourvest.com
Media
HarbourVest Partners
Alicia Sweeney Tel: +1 (617) 807 2945
acurransweeney@harbourvest.com
MHP Communications
Charlie Barker / Tim Rowntree / Tel: +44(0)20 3128 8100 hvpe@mhpc.com
Pete Lambie
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 over 35 years of experience and more than $71 billion
in assets under management, as of March 31, 2020. 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 600 employees, including more than 145
investment professionals across Asia, Europe, and the Americas.
This global team has committed more than $39 billion to
newly-formed funds, completed over $22 billion in secondary
purchases, and invested over $16 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.
Epidemics, Pandemics and Other Health Risks - Many countries
have experienced infectious illnesses in recent decades, including
swine flu, avian influenza, SARS and 2019-nCoV (the "Coronavirus").
In December 2019, an initial outbreak of the Coronavirus was
reported in Hubei, China. Since then, a large and growing number of
cases have been confirmed around the world. The Coronavirus
outbreak has resulted in numerous deaths and the imposition of both
local and more widespread "work from home" and other quarantine
measures, border closures and other travel restrictions causing
social unrest and commercial disruption on a global scale. The
World Health Organization has declared the Coronavirus outbreak a
pandemic. The ongoing spread of the Coronavirus has had and will
continue to have a material adverse impact on local economies in
the affected jurisdictions and also on the global economy as
cross-border commercial activity and market sentiment are
increasingly impacted by the outbreak and government and other
measures seeking to contain its spread. In addition to these
developments having potentially adverse consequences for underlying
portfolio investments of the HarbourVest funds and the value of the
investments therein, the operations of HVPE, the Investment
Manager, and HVPE's portfolio of HarbourVest funds have been, and
could continue to be, adversely impacted, including through
quarantine measures and travel restrictions imposed on personnel or
service providers based around the world, and any related health
issues of such personnel or service providers. Any of the foregoing
events could materially and adversely affect the Investment
Manager's ability to source, manage and divest its investments and
its ability to fulfil its investment objectives. Similar
consequences could arise with respect to other comparable
infectious diseases.
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
(c) 2020 HarbourVest Global Private Equity Limited. All rights
reserved.
Chairman's Statement
Dear Shareholder,
This Statement is the thirteenth and last Annual Chairman's
Statement that I shall write as Chairman of HarbourVest Global
Private Equity ("HVPE" or the "Company") and the circumstances
under which I write it vie with the Global Financial Crisis of
2008/09 as the most challenging that your Company has faced since
its creation in 2007.
This Statement is divided into three sections. First, routine
reporting on the affairs of the Company for the year to 31 January
2020. Second, considering the profound changes for HVPE, for all
companies, individuals, and societies brought about by the shock of
COVID-19 which hit the world in the Spring of 2020, the
consequences of which have a long way to go before they are fully
apparent. Third, a look back at the development of HVPE over the
twelve and a half years since the inception of the Company, the
Board of which I have had the privilege to Chair.
The Year to 31 January 2020
Performance and Asset Values
Once again, HVPE had a very satisfactory year. The Company's
functional currency is the US dollar and the year to 31 January
2020 saw the seventh consecutive year of double-digit growth in Net
Asset Value per share and eleventh consecutive year of positive NAV
per share returns. Over the twelve months the NAV per share
increased by 14.5% to $27.58. At the year end, the Company had net
assets of $2.20 billion based on the 31 January 2020 valuations of
its assets which consist almost entirely of investments in funds
managed by the Company's Investment Manager, HarbourVest Partners
("HarbourVest"). The Investment Manager's Report, which follows
this Statement, sets out in detail the performance of the Company's
assets during the year.
I have written on previous occasions of the lag that occurs
between the movements of listed markets and the valuation of
private assets. Unlike the previous financial year, on this
occasion the Company's public market benchmark, the FTSE All World
Total Return Index, outpaced HVPE's NAV growth, rising in US dollar
terms by 16.7%. Nevertheless, the NAV per share of HVPE continued
to meet its goal of materially outperforming public markets over
the long term by increasing by 2.5% per annum in excess of the FTSE
AW TR Index over the ten years to 31 January 2020.
Share Price Performance and Discount
The sterling class is the most actively traded class of shares
and the majority of the Company's shareholders are based in the
United Kingdom. At 31 January 2020 the share price was GBP18.36, up
from GBP14.26 a year earlier, an increase of 28.8%. This very
satisfactory result was a product of the NAV per share growth and a
significant narrowing of the notional discount at which the
Company's shares were trading in the stock market. Over the 12
months to 31 January 2020 the discount narrowed from 22.4% a year
earlier to end the year at 12.1%. At the year end HVPE's market
capitalisation was GBP1.47 billion and was ranked at number 110 in
the FTSE 250 index. There was active trading and regular liquidity
in the Company's shares with 22% of the Company's issued share
capital traded during the year to 31 January 2020.
Assets and Balance Sheet
At 31 January 2020 HVPE had net assets of $2.2 billion, an
increase of $278.7 million over the year. Included in the net
assets were the Company's cash balances which declined over the
year by $26.0 million to $130.6 million as HarbourVest funds called
cash to fund investments at a faster rate than distributions were
received. This was wholly expected and indeed for some years I have
been flagging that the cash balance would be drawn down over time.
The Company's aim is to be fully invested over the private equity
cycle and not to hold substantial cash balances. Indeed the
drawdown would have been more rapid but for the fact that, on a
look-through basis, HVPE's share of borrowing within the
HarbourVest funds in which the Company is invested increased over
the year by $94.2 million to $366.8 million. HVPE has no direct
liability for this fund-level borrowing other than through the
Company's uncalled commitment to the particular HarbourVest fund.
Further details on this can be found in Managing the Balance Sheet
starting on page 26. The effect on the Company of this fund-level
borrowing is carefully monitored and factored into our balance
sheet modelling.
At the financial year end the Company's borrowing facility of
$600.0 million, arranged in 2019 and committed to at least January
2026, and to be provided equally by Credit Suisse and Mitsubishi
UFJ, was undrawn.
As has been the case since the Company's inception in 2007, the
uncalled commitments shown on the Balance Sheet exceeded cash and
available borrowing. This has always been as planned given the
nature of most of the HarbourVest funds in which HVPE is invested.
Those funds take time to commit to underlying managers and it is
even longer before cash is drawn to invest in underlying companies.
Thus the Board is satisfied that, given the particular nature of
the Company's business, the Balance Sheet is strong, and that is
confirmed at the date of signing of this Statement by the Going
Concern and Viability Statements contained within the Annual Report
and Accounts.
Operating Expenses
Over the year management fees to the HarbourVest funds remained
effectively plateaued at 0.86% of NAV whilst net operating expenses
rose slightly from 1.50% to 1.63% driven by a reduction in interest
income on the Company's cash balance. Within the net operating
expenses are commitment fees and other costs relating to the credit
facility shown net of interest earnings. Those expenses are very
different in nature to the normal fees and expenses of running the
Company and are essentially dictated by cash flow requirements and
the terms of the facility agreement in the short term. Both classes
of expenses, be they running costs or finance costs, are keen areas
of focus for the Board and have been the subject of a specific
review during the year.
The Board and Environmental, Social and Governance ("ESG")
The Board recognises the importance of planning the phased
succession of Directors and for ensuring that the Board contains
the necessary skills to direct the affairs of the Company. During
the year both Brooks Zug and Keith Corbin retired from the Board in
July 2019. Carolina Espinal, a Managing Director of HarbourVest,
was elected by shareholders at the AGM in July as Brooks' successor
and, following a search by Trust Associates, Ed Warner was
appointed on 1 August. Ed will succeed me as Chairman at the AGM
due to be held on 22 July 2020.
The heightened importance of ESG matters has been welcomed by
the Board. The Company subscribes to the highest aspirations for
all three, both for itself and for the companies in which it is
indirectly invested. With investments in over 9,500 underlying
companies, we rely on HarbourVest and the underlying managers to
have appropriate protocols to encourage high ESG standards amongst
our investee companies and we have appointed Carolina Espinal as
the Director responsible for ESG at the HVPE Board level
Statement of Purpose
The AIC Code of Corporate Governance requires companies to
carefully consider the company's purpose, values and strategy and,
once documented, to be satisfied that these are aligned with its
culture. HVPE's "Statement of Purpose", detailed on the inside
front cover, was discussed extensively between the Board and the
Investment Manager and the Board endorsed the statement. In
developing this statement, the Board sought to define why this
Company exists for shareholders and all of its stakeholders.
Shareholders and prospective investors are today's and tomorrow's
owners of the Company and therefore at the core of every decision
made by the Board.
The Board has agreed that the Company's Purpose is that "HVPE
exists to provide easy access to a diversified global portfolio of
high-quality private companies by investing in HarbourVest-managed
funds, through which we help support innovation and growth in a
responsible manner, creating value for all our stakeholders."
Events Since 31 January 2020
Despite governments having been warned of the very serious risks
of pandemics, the world, and the Western world particularly, was
woefully unprepared for the onslaught caused by COVID-19. The loss
of life has been tragic. The ongoing effects on individuals,
society, the economy, and way of life are profound and are unlikely
to be fully reversed. Shareholders will be well aware of the
actions taken by governments and central banks to support their
societies and their economies. The shock to all economies is
massive and those of some countries are still in the contraction
phase. Some have begun modest recovery, although that recovery will
be uncertain as to its strength and timescale. Many businesses will
not return to their previous state and some will fail
completely.
Of course, market economies have always had to evolve through
"creative destruction" as described by Joseph Schumpeter, although
the destruction caused by COVID-19 will have been more rapid and
vicious than normal. But the inventiveness of entrepreneurs around
the world will unleash a programme of creative construction and
that has already been seen in the growth of businesses,
particularly in the technology space, addressing a number of trends
accelerated by the pandemic. It has always been a significant core
element of HarbourVest's business, and hence HVPE's underlying
portfolio, to seek out and support managers who are backing those
creative industries and companies.
In terms of the macro overview I will leave shareholders to form
their own views as to the magnitude of the downturn and the speed
of recovery. I do observe that, unlike in 2008/09, the Western
world is facing this maelstrom with the banking sector in much
better shape, thanks to the insistence of central banks and
regulators that balance sheets had to be strengthened after the
Global Financial Crisis. In addition, actions by governments have
generally been aggressively defensive to try and protect jobs. But
there is a long way to go before the success or otherwise of such
measures becomes clear.
The Board and Investment Manager's Response to Events
The Investment Manager's Report carries details of HarbourVest's
response to the crisis and that of the managers with which they are
invested as well as comment on sectors and companies. In this
Statement I will focus on the Board's response. Immediately that
the crisis hit in March the Board requested that HarbourVest update
two pieces of analysis which have been prepared regularly for many
years past. The first was the Investment Manager's best forecast of
the likely progression for the Company for the balance of calendar
2020 and the following four years out to 31 December 2024. The
second was the model, the existence of which I have reported in
earlier Statements, for a downturn more serious than that of
2008/09. As I wrote in my Statement in October 2019, it is
imperative that HVPE is able to weather storms as well as prosper
in a benign environment for equity markets and valuations. I had no
idea of the nature of the next downturn other than to know it would
occur at some point in the future and that HVPE needed to be
prepared.
The Board has now considered the outturn of the very detailed
and thorough work that the Investment Manager has undertaken. In
addition, HVPE has twelve years of detailed historical data and is
managed by an organisation with nearly forty years of experience
and a very settled team of senior private equity professionals. The
Company's first priority must be to ensure that it can meet its
obligations in respect of existing commitments to HarbourVest
funds. On 21 May 2020, the Company announced that the Investment
Manager and Board had agreed that new commitments would be paused
until the outlook was clearer. That continues to be the case in
respect of commitments to new HarbourVest funds. However, volatile
markets throw up opportunities and shareholders will recall that
HVPE took advantage of two such opportunities during and after the
Global Financial Crisis and, as a co-investor, joined HarbourVest
funds in the deals to purchase Absolute Private Equity and the
assets of Conversus. Both of these deals delivered significant
profits for HVPE.
Very recently a new investment opportunity has arisen. HVPE was
invited to join as a co-investor with the HarbourVest funds on a
possible secondary deal and the Board, after carefully considering
the investment case put forward by HarbourVest, decided to take
advantage of that invitation and approve a commitment of $18.9m.
Notwithstanding that commitment I can confirm that the Company is
well positioned to meet all its current obligations and such new
ones as may be entered into in due course. However, as reported in
HVPE's releases accompanying the monthly factsheets for March,
April and May, unless world economies bounce back quickly from the
COVID-19 shock and public markets are strong, shareholders should
expect some reduction in NAV per share to be reported as the year
progresses and as quarterly private equity valuations at 31 March
and 30 June become available. The Company will provide further
guidance in monthly releases as appropriate.
Turning to the model in the event of an extreme downside
scenario - and I emphasise this is not a scenario that either the
Board or Investment Manager expects to unfold - once again the
Company is forecast to be able to live within its present financial
facilities without having to change its strategy of investing for
the long term in private market assets so as to deliver performance
of NAV per share materially in excess of that of listed
markets.
Share Price and Discount
After reaching an all-time high of GBP18.68 in February 2020,
the share price has fallen back. Once the extremes of mid-March had
passed, it recovered sharply from a low of GBP9.21 and today's
price on 23 June 2020 is GBP15.60. Such volatility was seen widely
elsewhere in the market and could return at any time. In past
Statements I have consistently reminded shareholders that
investment in HVPE should be a long-term enterprise and it is worth
remembering that even at the mid-March low point, the sterling
share price was approximately three times the 31 January 2010 US
dollar share price when converted into sterling.
In part, on account of the lag in reporting private equity
valuations, the share price stands at a notional discount of 34% to
the last reported Net Asset Value at 31 May 2020. As I have already
written, it is probable that there will be a reduction in the
reported NAV per share over the months to come and, until those
adjustments have been worked through, the reported discount needs
to be treated with caution.
Annual General Meeting and Informal Webcast for Shareholders
The Company's AGM will be held in Guernsey on 22 July 2020 and
formal notice will be despatched to registered shareholders in the
week commencing 22 June. Owing to the travel restrictions imposed
on account of COVID-19, the meeting will be legally effective, but
no Director, other than Guernsey resident Andrew Moore, will be
present in person. The Company hopes that all registered
shareholders will exercise their votes by proxy. Save for myself,
all Directors will submit themselves for re-election including my
successor as Chairman, Ed Warner.
In recent years, in advance of the formal AGM, HVPE has held an
informal meeting for shareholders in London. That will obviously
not be possible in 2020, so in its place we will be holding a
webcast on 3 July 2020 at 10.00am British Summer Time. Shareholders
should contact Liah Zusman: lzusman@harbourvest.com should they
wish to attend.
The Last 12 Years and the Future
This is my final Chairman's Statement before I leave the Board.
I have been Chairman since the creation of the Company in 2007 and
have been part of the team that has steered it from a rarely traded
company, with a parentage then almost unknown outside of
professional investors, through to the largest private equity
fund-of-funds company listed in London, with significant liquidity
in the shares and a wide following. The journey has had a number of
interesting milestones along the road; the effects of the Global
Financial Crisis for HVPE; the introduction to the Specialist Funds
Market and the innovative secondary placing, with put options
attached, in London in May 2010; the far-sighted decision of
HarbourVest to give up control of HVPE and allow enfranchisement of
all of the investors' shares; the listing on the Main Market in
London in September 2015 followed by joining the FTSE 250 Index
that December.
I had hoped to leave on a high, having reported on the year to
31 January 2020 at which point the NAV per share had grown from
$10.00 at inception to $27.58 and the sterling share price, or
equivalent in 2007, when the only quote was in US dollars, had
increased from GBP4.93 to GBP18.36. But COVID-19 had different
ideas. Nevertheless, I know I am handing over to Ed Warner with the
Company in good shape under the circumstances and fit to prosper
further once the present crisis has passed.
I end by saying thank you to shareholders for your support, to
my Board colleagues, past and present, to all at HarbourVest and to
all those who have contributed to the success of HarbourVest Global
Private Equity thus far. May it flourish for years to come.
Michael Bunbury
Chairman
23 June 2020
Ten-Year Financial Track Record
------------------------------------------------------------------------------------------------------
At 31 January 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
---------------- ----- ----- ------- ------- ------- ------- ------- ------- ------- -------
NAV ($ million) 849.7 944.0 1,030.2 1,167.0 1,266.3 1,337.3 1,474.9 1,713.9 1,924.0 2,202.7
---------------- ----- ----- ------- ------- ------- ------- ------- ------- ------- -------
NAV per Share
($) 10.24 11.42 12.46 14.38 15.86 16.75 18.47 21.46 24.09 27.58
---------------- ----- ----- ------- ------- ------- ------- ------- ------- ------- -------
Share Price
($) 6.18 6.37 8.66 10.75 12.73 12.41 15.03 17.77 18.75 24.15
---------------- ----- ----- ------- ------- ------- ------- ------- ------- ------- -------
Share Price
(GBP) 3.86 4.04 5.46 6.54 8.45 8.71 11.95 12.52 14.26 18.36
---------------- ----- ----- ------- ------- ------- ------- ------- ------- ------- -------
Discount to
NAV -40% -44% -30% -25% -20% -26% -19% -17% -22% -12%
---------------- ----- ----- ------- ------- ------- ------- ------- ------- ------- -------
Gearing (%) 9% 16% 15% 8% 0% 0% 0% 0% 0% 0%
---------------- ----- ----- ------- ------- ------- ------- ------- ------- ------- -------
Investment Manager's Report
Introductory Note in Light of Covid-19
This report presents a summary of the Company's performance in
the year to 31 January 2020. However, since the Company's year end,
and at the time of writing, the global outbreak of coronavirus
("COVID-19"), continues to weigh on economies around the world.
While the portfolio remained largely unaffected by COVID-19 during
the financial year, the pandemic has had, and may continue to have,
a material impact on the value and performance of the portfolio
since the reporting date, as described in Note 11 of the Financial
Statements on page 91.
In this report, disclosure is provided regarding the steps taken
by the Board and the Investment Manager to meet the ongoing
challenges arising from these adverse events. More
specifically:
-- In this section, on page 10, we present a summary of the
impact of COVID-19 with a short- to medium-term outlook.
-- Under Recent Events on page 12, the latest developments since
the financial year end, and position of the NAV per share,
following publication of the latest estimate, 31 May 2020, on 19
June 2020 are detailed.
-- Within the Period Since 31 January 2020 section on page 13
the impact on HVPE's share price is considered.
-- The actions taken around balance sheet modelling and stress
testing in response to COVID-19 are covered in Managing the Balance
Sheet on pages 28 to 29.
-- Due to the material impact that the pandemic will have on
society and the economy, and in turn, the Company, the Principal
Risks and Uncertainties section on pages 34 to 35 outline the
additional risks the Board has identified as a result of
COVID-19.
-- The Going Concern and the Viability Statement have both been
updated in light of COVID-19 and can be read in full on pages 65
and 66.
Portfolio Performance
NAV per Share - Year to 31 January 2020
HVPE's portfolio continued to perform well in the year to 31
January 2020, resulting in double-digit NAV per share growth for
the seventh consecutive year. The Company's NAV per share increased
by 14.5% from $24.09 at 31 January 2019 to $27.58 at the financial
year end. Translated into sterling(1) , NAV per share growth was
13.6% as sterling marginally appreciated against the US dollar over
the year. Recent COVID-19-related events, however, have had a
material impact on the NAV per share since 31 January 2020.
Developments following the year end and details of the latest NAV
per share can be found under Recent Events on page 12.
Most major equity market indices performed strongly in 2019 and
the early part of 2020, with some reaching record levels. HVPE's
public market benchmark, the FTSE AW TR Index (in US dollars), rose
by 16.7% in the year to 31 January 2020. Although HVPE's NAV per
share growth of 14.5% lagged this by 2.2 percentage points over the
reporting period, it is important to note that the starting point
captures an interim low for public market indices following a weak
Q4 2018, whilst HVPE's NAV had remained stable through that period.
Longer-term comparisons through the cycle are more indicative of
HVPE's relative performance: measured over the ten years to 31
January 2020, HVPE's NAV per share outperformed the FTSE AW TR
Index by 2.5% on an annualised basis in US dollar terms.
During the 12 months ended 31 January 2020 there was a $289.3
million net gain on investments, contributing to an overall
increase in net assets of $278.7 million. This compares with a
$218.4 million net gain on investments and overall increase in net
assets of $210.1 million for the year to 31 January 2019. The
$289.3 million net gain in this financial period was driven by an
almost equal mix of realised and unrealised gains at 49% and 51%,
respectively.
In percentage terms, the Primary portfolio was the
best-performing strategy, delivering value growth of 16.0%.
Geographically, the strongest gains came from the European
portfolio, which generated a value increase of 15.8%; this was
followed closely by the US assets, which returned 15.0%. In terms
of stage, Venture and Growth Equity was the strongest performer,
growing 17.8% over the 12 months ended 31 January 2020. This was
followed by Buyouts, which returned 14.7%. More information on the
growth drivers can be found on page 41.
As at 31 January 2020, HVPE held investments in 49 HarbourVest
funds and seven secondary co--investments(2) (compared with 46 and
seven, respectively, at 31 January 2019). Of these, the largest
drivers of NAV per share growth during the 12 months to 31 January
2020 are described below:
Fund X Venture was the largest contributor, adding $0.40 to
HVPE's NAV per share. This fund is a 2015 vintage US-focused
vehicle now entering the growth phase. As might be expected at this
stage in the fund's life, most of this gain came from unrealised
value growth.
Fund X Buyout, a 2015 vintage US-focused buyout fund, was the
second largest contributor, adding $0.29 per share. As with Fund X
Venture, most of this growth was derived from unrealised gains.
Following closely behind this was Global Annual Fund, a 2014
vintage multi-strategy fund-of-funds, which added $0.28 per share.
This came from an almost equal mix of realised and unrealised
gains.
Fund IX Venture, a 2011 vintage US-focused venture fund, added
$0.25 to NAV per share.
Dover IX, a 2016 vintage global secondary fund, was the fifth
largest contributor, adding $0.24 to NAV per share over the
period.
Portfolio Cash Flows
HVPE was a net investor in the 12 months to 31 January 2020,
with a net $16.0 million invested following capital calls of $324.2
million into HarbourVest funds (year to 31 January 2019: $396.2
million) and cash distributions of $308.2 million (year to 31
January 2019: $306.6 million). Overall, net negative cash flow
including operating expenses in the period resulted in HVPE's cash
balance declining from $156.6 million to $130.6 million.
HVPE has indirect exposure, on a look-through basis, to a pro
rata share of borrowing carried on the balance sheets of some of
the HarbourVest funds in which HVPE is a Limited Partner (referred
to as HarbourVest Partners ("HVP") fund-level borrowing; described
in previous reports as "embedded leverage"). It is important to
note that HVPE has no additional liability for these borrowings
beyond its uncalled commitments to each fund. The majority of this
fund-level borrowing represents delayed capital calls, as a portion
of the unfunded commitments has been invested through the use of
subscription credit lines at the fund level, but the capital has
not yet been called from HVPE.
At 31 January 2020, HVPE's share of HVP fund-level borrowing on
a look-through basis was $366.8 million, a net increase of $94.2
million from $272.6 million at 31 January 2019. Expressed as a
percentage of NAV, the figure increased from 14.2% to 16.7% over
the 12-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, which
has used a credit line to smooth early capital calls from its
investors. More detail on the HVP fund-level borrowing, and how we
factor this into our balance sheet management, can be found under
Managing the Balance Sheet on pages 26 to 29.
In the reporting period, the largest HarbourVest fund capital
call ($59.3 million) came from the real assets vehicle which HVPE
seeded in June 2018. This was used to fund an investment into a
global portfolio of high-quality infrastructure assets, which
includes an Australian shipping ports business, a Spanish toll road
operator and a US airport manager and developer. This "net" amount
funded is less than the $101.3 million reported in the interim
results to 31 July 2019 as it reflects the returned capital
contribution of $42.0 million received by HVPE in November 2019,
following additional subscriptions to the vehicle from other
investors. Other large capital calls originated from Fund X Buyout
($35.3 million) and Fund XI Buyout ($31.5 million), 2015 and 2018
vintage funds, respectively. Following these were calls from Fund X
Venture ($19.2 million), Fund XI Venture ($19.0 million), and Dover
IX ($19.0 million). These are all funds currently in the investment
phase and building out their portfolios.
Distributions in the HVPE portfolio were driven by a mix of
HarbourVest funds across all strategies, with the largest total
amount in the period ($49.1 million) received from HarbourVest 2013
Direct Fund, a global direct co-investment fund in its growth
phase. A large portion of these proceeds came from the sales of two
portfolio companies: Toronto-based environmental, safety, and
quality management software provider Intelex Technologies; and
patient satisfaction survey provider Press Ganey, HVPE's largest
underlying portfolio company at 31 January 2019. Strong
distributions also came from Fund X Buyout (a US-focused buyout
fund-of-funds) and 2016 Global Fund (a multi-strategy
fund-of-funds) with proceeds of $20.7 million and $18.7 million,
respectively. The 2014 vintage Global Annual Fund (a global
multi-strategy fund-of-funds) followed closely with distributions
totalling $18.0 million, which included proceeds received from the
sale of TeamViewer shares following the software solutions
provider's September IPO on the Frankfurt Stock Exchange.
Details of other notable company exits and performance drivers
within the portfolio during the reporting period are provided in
this year's Deep Dive section on pages 18 to 21.
Focus on ESG
HVPE
In November 2019, the HVPE Board named Carolina Espinal as
HVPE's Director responsible for ESG, with the remit to help
coordinate activity between the Investment Manager and the Board on
ESG matters, to promote closer monitoring and further development
in this area for HVPE. Further ESG-related information can be found
in the Directors' Report on page 53.
HarbourVest Partners
Strengthening its ESG programme is an ongoing strategic priority
for HarbourVest Partners (referred to hereafter as "HarbourVest" or
the "firm"). On 4 March 2020, HarbourVest released its first ever
digital-only ESG Report, detailing the initiatives and activities
it undertook in 2019 to support its longstanding commitment to
responsible investing and engaged corporate citizenship. Among
other highlights, the report details how the firm integrates ESG
into its investment processes, the proactive work the firm does to
drive increased awareness and adoption externally, HarbourVest's
commitment to backing managers led by diverse teams, itself being a
diverse and inclusive organisation, and how HarbourVest plans to
address the issue of climate change. It also features the community
and charitable activities that the firm undertakes, including its
two annual Global Volunteer Weeks. In 2019 these supported 28
organisations globally, tackling worthy causes such as youth
mentoring, child and adult special education, gender diversity,
poverty and homelessness, women's leadership, the arts, and various
health causes. The full list of charities supported can be found in
the 2019 report (link on page 9).
HarbourVest reported material progress on ESG integration
practices over 2019. On the investment side, it provided deeper
training and strengthened its post-investment monitoring protocols.
It also used its proprietary "scorecard", which assesses managers'
ESG programmes on more than 20 metrics, to proactively rank the
programmes of 178 General Partners ("GPs") over the year. In
addition, as a signatory of the United Nations-supported Principles
for Responsible Investment ("PRI"), HarbourVest is graded in three
core areas and this year it achieved strong results, with one A+,
and two As, placing the firm above the industry 2019 median.
On the subject of diversity and inclusion, HarbourVest continued
to be a leading industry voice in 2019, participating in several
forums and, where appropriate, leveraging its advisory board
presence to deepen awareness and share insights and best practices
at a portfolio company level. During the year the firm formed a
Diversity & Inclusion Council to accelerate progress and
results. Due to the energy of the Council in its first year, the
firm introduced a new Flexible Work Program, expanded its global
parental leave policy, and established a new global
anti-discrimination and anti-harassment policy. The firm also
worked with Korn Ferry to provide conscious inclusion and anti-bias
training to all employees. This commitment to diversity and
inclusion extends to how HarbourVest invests. HarbourVest has
historically provided capital support to diverse and emerging funds
and managers (diversity defined as 25% or greater of a senior-level
team identifying as female, belonging to an under-represented
minority, or both) and sources more than 150 opportunities each
year focused within this market. Since 2009, HarbourVest's US
buyout and venture data shows that diverse GPs have generally
outperformed non-diverse GPs during this time, and that the
outperformance delta has grown over time.
The firm has historically embraced diversity and inclusion
across the organisation - one-third of HarbourVest's senior-level
professionals are female, more than triple the industry average(3)
and 27% of its workforce are ethnic minorities (as at 31 March
2020). As an initial further step HarbourVest has signed the
Diverse Alternative Investment Industry Statement, put forward by
the National Association of Investment Companies ("NAIC") to
promote America's largest investment managers of colour call for
action. HarbourVest also closed on Friday 19 June, in recognition
of "Juneteenth". In the US, Juneteenth is the oldest nationally
celebrated commemoration of the ending of slavery. The firm will
observe this holiday annually as a reminder of its diversity and
inclusion goals.
HarbourVest launched a major, cross-company transformation
initiative in 2019 that will allow it to examine all aspects of its
programme and make enhancements. The firm also hired its first
full-time, ESG-focused staff member with the addition of Natasha
Buckley, who joined HarbourVest from the PRI. Natasha sits on
HarbourVest's Global ESG Committee, which is responsible for
overseeing the firm's ESG Policy, recommending modifications, and
ensuring overall implementation across the organisation. The
Committee meets monthly to discuss the ongoing integration of ESG
principles into all aspects of business, including investments,
operations, and community engagement. One of the top areas of focus
for Natasha is the climate crisis, which the firm knows is foremost
among investors' top ESG concerns. The goal is to develop a
meaningful understanding of how the effects of climate change may
impact the firm's investments, and what it can do to build
portfolio resiliency on behalf of clients. As such, and in
adherence to the principle of industry collaboration, HarbourVest
plans to organise its strategy in line with the recommendations of
the Task Force on Climate-related Financial Disclosures ("TCFD"),
and will engage with GPs on the adoption of the TCFD framework to
assess and manage climate-related risks. As of March 2020,
HarbourVest became an official supporter of the TCFD and will
report on its progress in the 2020 ESG Report and through the PRI
Reporting Framework.
The full report can be found under Viewpoints in the Insights
section of the HarbourVest website:
www.harbourvest.com/insights/viewpoints.
Company Activity
New Fund Commitments
In the 12 months ended 31 January 2020, HVPE made total
commitments of $570.0 million across eight HarbourVest funds (12
months to 31 January 2019: $730.0 million). These cover all the
main strategies offered by HarbourVest in the period, as detailed
on page 40; however, by value, the majority of commitments were
weighted towards primary funds (i.e. fund-of-funds).
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 vintage
years, thereby reducing the risk of exposure to a single
poor-performing year. Other large commitments during the period
included $100.0 million each to a global secondary fund (Dover
Street X), and the latest annual global multi-strategy
fund-of-funds (HarbourVest's 2019 Global Fund).
These commitments are all in line with the Company's Strategic
Asset Allocation ("SAA") targets 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.
Strategic Asset Allocation
The Company's SAA targets (see pages 32 and 33 for more details)
are reviewed annually and were revised in November 2019, as
communicated in the Company's December 2019 Regulatory Newswire
Service ("RNS") announcement for the estimated November NAV update.
The adjustments by strategy were an increase in allocation to
Secondary investments from 25% to 30%, with a decrease in Primary
investments from 55% to 50%. The changes by geography were an
increase in Asia Pacific from 12% to 17%, with a decrease in US
from 65% to 60%. All other targets remain unchanged. The increase
in targeted Secondary exposure was driven by a desire to balance
cash flows more evenly over the medium term, and to enable the
Company to take advantage of the attractive opportunities that
HarbourVest anticipates will arise in the secondary market in the
months and years ahead. The heightened focus on Asia reflects the
Board's and Investment Manager's belief in the increasing
importance of the region for private markets investors, and will
help to ensure that HVPE's portfolio keeps pace with what is
expected to be a continuing shift in the centre of economic gravity
from
West to East.
Market Environment in 2019 (4)
Private equity fundraising hit record highs in the US and Europe
in 2019, totalling $301.3 billion (2018: $197.8 billion) and
EUR86.4 billion (2018: EUR69.7 billion), respectively, across a
total of 291 funds (2018: 294). This reflected strong demand from
investors and increased recognition of private markets as an
attractive means by which to access diversified global growth and
outperform public markets.
These record totals were achieved despite a slightly lower fund
count than in the previous year, indicating that investor capital
has been chasing fewer but larger funds. Fundraising in Asia
Pacific fell 48% year-on-year to $53.0 billion, led by declines in
China-focused and pan-regional funds. It is important to note,
however, that 2018 was a record year for fundraising in this
region, and 2019 was still the second strongest year
historically.
US and European private equity investment activity remained
robust in 2019, totalling $627.3 billion (2018: $730.3 billion) and
EUR453.5 billion (2018: EUR464.5 billion), respectively, across
8,329 deals (2018: 9,340). This fell short of 2018's record-setting
pace as deal-makers focused on limiting risk as rhetoric escalated
around a possible cyclical peak and imminent downturn, fuelled by
ongoing trade disputes and geopolitical ambiguity creating an
uncertain market backdrop. However, average deal sizes remained
high across these regions as the dynamics around a favourable
financing environment and heightened competition for deals
continued, as well as the growth in demand for well-established,
recession-resilient companies. Company valuations in these regions
ended the year above their pre-Global Financial Crisis ("GFC")
levels, requiring managers to be disciplined in selection. Software
deals, which typically attract higher valuations, grew as a
proportion of total transacted deal value in both the US and Europe
at 17% (2018: 13%) and 24% (2018: 17%), respectively. Investment
volumes in Asia Pacific were 21% lower year-on-year, largely due to
a slowdown in large late--stage technology financing rounds in
China.
Exit value and volume were materially lower across all regions
in 2019. Estimated exits in the US totalled $318.2 billion in value
and 1,035 in count representing declines of 28% and 17%,
respectively, compared to 2018. The Europe and Asia Pacific regions
were also subdued; European exits declined 22% in value and 24% in
count whilst Asia Pacific exit value fell 29% year-on-year. Market
anxiety due to recession risk, geopolitical issues, and a desire by
GPs to hold assets for longer as well as participate in add-on
deals all contributed to the slowdown.
Following the onset of the COVID-19 pandemic in the early part
of 2020, we have begun to see the impact, with lower deal volumes
across all regions. The pandemic has highlighted how the health of
the global economy is deeply reliant on the continued day-to-day
functioning of society at the micro level. The profound effects of
social distancing measures have delivered an exogenous shock to the
global economy and financial markets. Companies operating within
certain sectors, particularly those considered "non-essential",
have been adversely affected by restrictions enforced by
governments around the world as they attempt to limit the spread of
the virus. As a consequence, it is likely that new investment
activity and exits will be markedly down on 2019 levels in the
months ahead as the industry adjusts to a heightened level of
uncertainty over the economic outlook and its potential impact
across a broad range of businesses, both private and public.
Update in light of COVID-19
The World Health Organization classified COVID-19 as a pandemic
on 11 March 2020 - approximately six weeks after HVPE's financial
year end. The full impact of this on HVPE's portfolio is difficult
to forecast, given the complex interplay between unprecedented
top-down actions from governments and central banks on the one
hand, and myriad specific responses from businesses and consumers
on the other. However, the Investment Manager and Board have sought
to provide guidance and updates to stakeholders in recent months,
the latest of which can be found under Recent Events on page 12.
Indeed, our Estimated NAV Update at 31 May 2020, published on 19
June 2020 and based predominantly on Q1 2020 valuations, reported a
NAV decline of 6.0% in US dollars from the previous month end. In
this section we aim to collate and summarise all the developments
since the year end, to date.
Share Price and Portfolio Valuations
As the pandemic triggered an indiscriminate sell-off across
financial markets in early March, the immediate impact was a sharp
decline in HVPE's share price, as reviewed in the Share Price
Trading and Liquidity section on page 13. Consequently, the
discount to NAV at which the shares currently trade has increased
materially from the levels at the start of this calendar year.
Although the share price has made a partial recovery from the
trough on 19 March, the consequences of the declines in public
markets and the broader impact of COVID-19 on the real economy are
expected to weigh materially on HVPE's NAV in the months ahead. A
portion of the NAV decline has come through in the underlying Q1
2020 valuations, driven by public market declines and a decrease in
mark-to-market earnings multiples. The latest estimated NAV, which
includes 91% of 31 March valuations, can be found in the Recent
Events section on page 12.
Investment Manager Actions
HarbourVest's investment team has been focused on managing the
portfolio to weather the near- and longer-term effects of COVID-19.
For existing investments, the primary, secondary, and direct
co-investment strategy teams are in continuous dialogue with
General Partners ("GPs") to maintain a portfolio risk analysis heat
map, which gauges the level of exposure to distressed or high-risk
companies. Where appropriate, this then includes identification of
strategies and mechanisms to soften the revenue impact.
There are many potential areas where higher-risk companies can
be supported and guided by their investors, helping to protect all
stakeholders and limit the extent of any permanent value
destruction. Meanwhile, new investment opportunities are being
evaluated carefully and selectively, considering current and
prospective market conditions.
The private equity industry is structured with a view to
long-term value creation, and this allows for considerable
flexibility in times like these. Furthermore, the Investment
Manager has almost four decades of experience managing through
previous global events and economic crises. With the benefit of
hindsight, previous crisis-era vintages such as 2008 and 2009 were
among the best performing in HarbourVest's history. However, past
performance cannot be relied on as an indicator of future
performance.
Portfolio Assessment
As reported on 20 April 2020, the Investment Manager had
embarked on an ongoing bottom-up assessment of the likely impact of
COVID-19 on HVPE's portfolio. As at 31 May 2020, approximately 80%
of the portfolio by value had been reviewed as part of this
exercise. Companies were assessed directly or with the help of the
applicable GP, taking into consideration HQ location, employee
dislocation risk, end user/consumer sentiment sensitivity,
person-to-person exposure, business model travel requirements,
potential for supply side disruption, and liquidity and leverage
profile, among other factors.
The great majority of HVPE's portfolio by value has been deemed
likely to experience a low or moderate impact across these areas of
assessment, with only a relatively small proportion expected to be
materially impacted, as shown in the chart on the left. The
Investment Manager is continuously refining the risk profiles based
on regular communication with GPs and company management. Should
there be any substantive change in the output of this ongoing
impact assessment, a further update will be provided in due
course.
Cash Flows, Credit Facility, and Balance Sheet
There is some evidence that GPs have been issuing capital calls
to pay down their subscription lines, with pre-emptive calls
providing liquidity to take advantage of specific short-term market
opportunities and in certain instances to support impacted
companies. Importantly, HVPE benefits from a strong balance sheet
supported by a $600.0 million credit facility committed until at
least January 2026. As a prudent measure, in April 2020, HVPE
provided notice to its lenders to draw down $200.0 million from the
credit facility. Details of this transaction and cash flows in the
months subsequent to the financial year end are outlined in the
Recent Events section on page 12.
HVPE's cash flows are closely monitored for reasons which are
outlined in more detail later in this report. As discussed in the
Chairman's Statement, HVPE has revised its cash flow projections to
reflect recent developments together with insights from the
portfolio risk analysis exercise mentioned above. Current forecasts
indicate that the Company is able to accommodate a considerable
period of cash outflows even while distributions remain low. For
further information on this and the Company's approach to cash flow
management and balance sheet stress testing, see the Managing the
Balance Sheet section on pages 26 to 29.
Market Perspectives and Outlook
Challenging times like these are another reminder of the virtues
of a well-diversified, global private markets investment programme
in helping to mitigate downside risk. No single investment is
sufficiently material on its own to cause serious concern; at 31
January 2020, the largest single exposure represents 1.9% of NAV.
Furthermore, HVPE's diversification by sector as well as by
strategy, stage, geography, and vintage year should help to ensure
that any potential negative developments in one part of the
portfolio are offset, at least partially, by favourable outcomes
elsewhere. See pages 32 to 33 for detail on portfolio
diversification.
Continued, steady pacing of investment through the cycle is
critical to achieve superior long-term risk-adjusted returns.
HarbourVest funds are managed by experienced teams, and the
Investment Manager will continue to seek opportunities for HVPE
provided that forecast returns are suitably attractive on a
risk-adjusted basis. HVPE's ability to maintain a steady pace of
investment allows it to participate in such opportunities as they
arise, so that it not only navigates the current turbulence
successfully but emerges even more strongly positioned in the long
term.
1 USD/GBP exchange rate: 0.7572.
2 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 Audited Consolidated Schedule of Investments. Absolute has been fully realised; however, $480,180 remains in escrow.
3 Preqin, "Women in Private Equity", 2019
4 Source: Pitchbook data
Recent Events
Credit Facility
On 9 April 2020, HVPE provided notice to its lenders Credit
Suisse and Mitsubishi UFJ to draw down $200.0 million of the $600.0
million credit facility. This decision was based on a revised
outlook for cash requirements informed by updated forecasts
presented by the Investment Manager. The cash amount, deposited in
May, is being held in a AAA-rated US Treasury money market fund
managed by J.P. Morgan.
Following the initiation of this draw on the facility, HVPE has
access to the remaining $400.0 million available and therefore
retains the flexibility to react as required to the evolving
situation driven by COVID-19. In utilising HVPE's credit facility,
the Board is confident that HVPE will be well-placed to continue
investing as planned through the difficult times ahead, supporting
its underlying managers and portfolio companies, and to capitalise
on new opportunities during the recovery phase.
New Commitments
On 21 May 2020, it was announced that the Board and the
Investment Manager had placed HVPE's commitment plan temporarily on
hold, in order to allow for the Investment Manager to review the
Company's portfolio construction priorities during these uncertain
times. A further assessment will be made in due course, with the
potential to re-start new commitments in Q4 2020. In the meantime,
the HarbourVest funds to which HVPE has already made commitments
will continue to call capital for new investments, so enabling the
Company to take advantage of the attractive opportunities that the
Investment Manager anticipates will arise during this period.
Subsequently, on 17 June 2020, the HVPE Board approved a
commitment of $18.9 million to a potential transaction made
available to HVPE as a result of the Company's existing commitments
to HarbourVest funds.
HVPE Committed Capital to Newly-Formed HarbourVest Funds
Between 1 February 2020 and 23 June 2020, HVPE committed $50
million to the HarbourVest funds outlined below.
HarbourVest Date Commitment
Fund Committed ($m)
------------ ------------- ----------
Dover X 9 March 2020 $50.0
------------ ------------- ----------
Total $50.0
--------------------------- ----------
HVPE PUBLISHED ESTIMATED NAV AT 31 MAY 2020
HVPE publishes its estimated NAV on a monthly basis. These
reports are available on the Company's website, generally within 20
calendar days of the month end.
On 19 June, HVPE published an estimated NAV per share at 31 May
2020 of $25.62 (GBP20.79), a decrease of $1.96 from the final NAV
(US GAAP) figure of $27.58. This latest NAV per share is based
predominantly on 31 March 2020 valuations, and therefore reflects
the majority of the decline expected from Q1 2020 marks.
The Investment Pipeline of unfunded commitments decreased from
$1,807.0 million at 31 January 2020 to $1,693.7 million at 31 May
2020, based on capital funded and foreign exchange movements.
At the end of May HVPE's borrowing was $200.0 million. Due to
the draw down, the Company's cash balance had increased by $84.1
million to $214.7 million. HVPE's look-through exposure to
borrowing at the HarbourVest fund level had decreased by $12.2
million to $354.6 million.
Key Ratios at 31 May 2020
Total Commitment Ratio
(Total exposure to private markets investments as a percentage
of NAV)
Investment Portfolio
+ Investment Pipeline $3,720.0m
----------------------- ---------
Divided by the NAV $2,046.3m
----------------------- ---------
182%
----------------------- ---------
Commitment Coverage Ratio
(Short-term liquidity as a percentage of total Investment
Pipeline)
Cash + available credit
facility $614.7m
-------------------------- ---------
Divided by the Investment
Pipeline $1,693.7m
-------------------------- ---------
36%
-------------------------- ---------
Rolling Coverage Ratio
(A measure of medium-term commitment coverage)
Cash + available credit
facility (total $614.7m)
+ current year estimated
distributions ($180.9m) $795.6m
-------------------------- ---------
Divided by the next
three years' estimated
investments $1,264.8m
-------------------------- ---------
63%
-------------------------- ---------
Managing the Balance Sheet
Effective and prudent balance sheet management is critical when
running a closed-ended vehicle investing into a portfolio of
private market funds with varying cash flow profiles. This is
particularly true for a company such as HVPE which maintains a
large pipeline of unfunded commitments (the "Investment Pipeline"),
i.e. the portion of capital pledged to an underlying fund, but not
yet drawn down for investments. This section aims to outline HVPE's
approach to managing its balance sheet and explain the steps it
takes to ensure that the Company is sufficiently resourced in
preparation for periods of significant market stress.
The Importance of the Credit Facility
HVPE makes commitments to HarbourVest funds, which typically
call capital over a period of several years. This long-duration
cash flow profile necessitates a large pipeline of unfunded
commitments in order to ensure that the Company remains
approximately fully invested over time - this is known as an
over-commitment strategy and is critical to optimising long-term
NAV per share growth. In most years, the capital called from HVPE
by the HarbourVest funds is taken from the cash distributions
flowing from liquidity events within the portfolio. Occasionally,
however, capital calls will exceed distributions, potentially by a
meaningful amount, and it may be necessary to draw on the credit
facility to fund the difference. A subsequent year may see the
reverse situation, with net positive cash flow used to repay the
borrowing. In this way, the credit facility acts as a working
capital buffer and enables HVPE to manage its commitments to the
level required in order to optimise returns through the cycle.
At 31 January 2020, HVPE had a $600.0 million multi-currency
credit facility (the "Facility"), with Mitsubishi UFJ Trust Banking
Corporation ("Mitsubishi") acting through its New York Branch, and
Credit Suisse AG London Branch ("Credit Suisse"). The Facility,
details of which were announced on 4 January 2019, is a five-year
evergreen structure, with an initial two-year no-notice provision,
giving it an initial term of seven years to January 2026. From
January 2021, the lenders have the option to serve notice, but the
notice given must be a minimum of five years. HVPE believes this is
one of the leading finance packages within its peer group and that
it appropriately underpins the activities of the Company,
supporting its unfunded commitments and future investment plans. As
a pre-emptive measure, in April 2020, HVPE initiated a draw of
$200.0 million on the Facility to ensure that it had sufficient
liquid resources to meet its near-term obligations; for more
details on this, please visit Recent Events on page 12.
Understanding HVPE's Investment Pipeline (Unfunded
Commitments)
At 31 January 2020, HVPE's total pipeline of unfunded
commitments stood at $1.81 billion. This total pipeline comprised
"allocated" investments of $1.29 billion and "unallocated"
investments of $521.7 million. It is important to note that, of the
allocated pipeline, approximately 70% of commitments are to primary
funds, which have a longer drawdown profile, whilst secondary and
direct co-investment funds represent approximately 20% and 10%,
respectively. Further detail on the age breakdown of the allocated
pipeline is provided on page 40.
Since 2010, annual capital calls have been in the range 18% to
32% of the total pipeline, while distributions have been 16% to 32%
of NAV. However, in an adverse macroeconomic environment comparable
to the GFC of 2008/09, it is conceivable that HVPE could suffer
prolonged negative cash flow as these figures move to the more
extreme levels seen in that period. In 2009, for example,
distributions fell to only 6% of NAV while capital calls that year
also fell to a low level (11% of the total pipeline).
We cannot be sure that this pattern will be repeated and must
consider the possibility that capital calls could remain elevated
even during a period of suppressed distribution activity. A large
credit facility committed for an extended period (currently five
and a half years) provides reassurance that the Company would be
able to remain operational under such conditions, with the
additional flexibility to continue to take advantage of attractive
investment opportunities as they arise. This is a model that has
worked well in the past, as shown in the chart on page 26. HVPE's
large credit facility meant that it was able to be a net investor
through the period 2008 to 2011, which has helped the Company to
deliver very attractive long-term returns for shareholders. For
some time, extensive modelling has been conducted to ensure that
the Company's balance sheet can withstand a crisis more prolonged
than the GFC. This modelling has also been updated in light of
COVID-19. Please see "REVISIONS TO THE MODELLING IN LIGHT OF
COVID-19" overleaf for more on this.
HarbourVest Fund Level Borrowing
HarbourVest funds employ credit lines for two main purposes:
bridging capital calls and distributions; and financing specific
investment projects where the use of debt may be advantageous. HVPE
is exposed to this fund-level borrowing on a look-through basis as
a result of its investments in the HarbourVest funds. This
borrowing does not represent an additional liability above and
beyond the commitments that HVPE has made to the HarbourVest funds.
The debt is provided to the HarbourVest funds on attractive terms
by multiple institutions and carries a relatively low rate of
interest as it is secured on the commitments made by investors
(including HVPE) to those funds.
The HVPE team monitors the HarbourVest fund-level borrowing in
absolute terms, and as a percentage of NAV. This borrowing is also
considered when evaluating the key balance sheet ratios: The Total
Commitment Ratio within the Investment Pipeline (unfunded
commitments), and the Rolling Coverage Ratio within the three-year
capital call projections. HarbourVest fund-level borrowing is also
included when assessing the credit facility's loan-to-value ratios,
as mentioned in Note 6 of the Financial Statements on page 89.
Possible changes in this borrowing (and hence the timing of capital
calls payable by HVPE) are also incorporated into the balance sheet
scenario tests conducted as part of the annual commitment planning
exercise. As at 31 January 2020, HVPE's total look-through exposure
was $366.8 million, a net increase of $94.2 million from the 31
January 2019 level of $272.6 million. In order to estimate the
total potential impact on NAV, an investor should take the total
fund-level borrowing figure of $366.8 million and offset this
against HVPE's cash balance of $130.6 million. As at 31 January
2020, this resulting net figure of $236.2 million would translate
to an approximate level of look-through gearing of 10.7%. The most
recent fund-level borrowing is detailed on page 12.
HVPE's total exposure of $366.8 million includes $277.7 million
(76%) of bridging finance (also known as subscription line finance)
which is used to delay and smooth the pacing of capital calls to
investors in the funds, including HVPE. The remaining $89.1 million
(24%) is project debt, held in the most part by the HarbourVest
secondary funds to finance specific projects. The bridging finance,
should it be repaid in full or in part, will result in capital
calls to investors in the HarbourVest funds, including HVPE, as
this type of borrowing represents a portion of HVPE's existing
unfunded commitment (Investment Pipeline) figure. Furthermore,
during the period in which the debt is outstanding, there is a mild
gearing effect on HVPE's NAV, as the investments have already been
made while HVPE's share of the capital has not yet been called.
Project finance has only a very limited impact on prospective cash
flow but does contribute to the gearing effect.
Further detail on the Facility, and criteria upon which it can
be drawn, can be found under Note 6 Debt Facility on page 89 of the
Financial Statements.
Cash Flows, Modelling, and Stress Testing the Balance Sheet
Cash flows from individual private equity investments can be
irregular and unpredictable, and so for investors in multiple funds
(such as HVPE), monitoring these is a complex and time-consuming
task. When managing a closed-ended vehicle that makes significant,
irrevocable commitments to underlying funds, effective cash flow
modelling is essential, first to ensure that the Company has
sufficient capital available to honour its existing commitments,
and second to inform the decisions it makes around future
commitment levels.
The Investment Manager builds a bottom-up forecast based on an
aggregation of individual HarbourVest fund models, and then applies
a sensitised top-down analysis informed by historic actual calls
and distributions. Short-term broader market trends and systemic
factors are also considered. Finally, a range of scenario tests are
conducted. In recent years, HVPE has actively sought to plan for a
realistic worst-case case macroeconomic environment: internal
balance sheet and cash flow modelling scenarios include an extreme
downside stress-test against an event worse than the GFC, with a
deeper valuation trough and a longer period of negative cash flow.
Under this scenario, the Company remains comfortably within its
covenants on the credit facility and the balance sheet is
sufficiently robust to withstand such an extreme downturn. HVPE now
has a 12-year track record in monitoring and interpreting cash
flows arising from activity in the underlying portfolio.
This detailed modelling is typically updated on an annual basis
and reviewed quarterly for any changes to key assumptions. However,
as referenced earlier in this report, the modelling has been
revisited in light of COVID-19, details of which can be found
below.
Revisions to the Modelling in Light of COVID-19
HVPE continuously refines the portfolio modelling and base case
projections to reflect macro developments and other relevant
factors. As highlighted in the Chairman's Statement, the advent of
COVID-19 called for updates to the scenario models. The Investment
Manager's thorough risk analysis of the underlying investment
portfolio and likely impact related to COVID-19 fed into the
assumptions and in May, the Investment Manager presented four
revised five-year model scenarios to the Board: Optimistic, High
Base, Low Base and Extreme Downside case. For the purpose of
planning, the Board and Investment Manager referred to the Low Base
case; however, the situation continues to evolve given the current
uncertainty in markets and the global economy. At the date of
signing of these financial statements the cash flows for the year
to date have been slightly better than the Low Base case and the
underlying fund NAVs have been tracking better than that scenario,
as disclosed in the 31 May 2020 estimated NAV described on page 12,
which showed an NAV per share decline of 6.0% based on 91% of 31
March 2020 valuations received.
Please note that the table below does not represent a set of
forecasts, but a range of potential scenarios.
The Optimistic and High Base scenarios both assume that the
impact of COVID-19 is largely confined to 2020 with a return to
growing NAV and more normal distribution levels in early 2021. Both
of these scenarios result in HVPE borrowing on the credit facility
but result in only minimal impact on the Balance Sheet Ratios used
by the Directors to manage the balance sheet risk and on future
commitments to new HarbourVest funds.
The Low Base is a severe yet plausible downside scenario in
which the impact of COVID-19 is felt through Q2 2021 and projects
declines in both the NAV and distribution levels, resulting in an
impact on the Balance Sheet Ratios used by the Directors to manage
balance sheet risk, and leading HVPE to borrow on the credit
facility as a prudent measure in anticipation of continued negative
cash flow dynamics in the portfolio.
The Extreme Downside scenario represents a severe test of the
balance sheet, with NAV declines and reductions in distributions
that are worse than those experienced during the GFC, and
accelerated repayment of underlying HarbourVest fund-level
borrowings. While the Directors do not view this as a likely
scenario it is prudent to consider and plan for this potential
situation. Under the Extreme Downside scenario the Balance Sheet
Ratios are impacted very significantly, and the credit facility is
nearly fully drawn in late 2021/early 2022.
One straightforward measure that can be taken to reduce future
pressure on the balance sheet is to pause new commitments. Having
reviewed the scenarios outlined above, the Board has resolved to
take this step as explained in the Chairman's Statement, and in
Recent Events, on pages 2 and 12 respectively. The Board and
Investment Manager will keep this under review, but if the evidence
is that the Company faces the Extreme Downside scenario, new
commitments would likely be reduced materially over the next
five-year period. Having taken this immediate action, both the Low
Base and Extreme Downside scenarios indicate that the balance sheet
is able to withstand the impact of these situations over all time
periods up to and including the next five year period. The Company
would continue to operate within the capacity of its credit
facility and without the need for reactionary measures such as
selling assets or raising additional capital. However, it is likely
that these measures would at least be considered by Directors if
the Extreme Downside scenario were to transpire.
To conclude, the Investment Manager has stress tested the
balance sheet comprehensively against each of the scenarios
outlined above. Current forecasts suggest that the Company is able
to accommodate a period of considerable negative cash flow and that
the balance sheet is sufficiently robust to withstand a severe
economic downturn.
Balance Sheet Ratios
Commitment Ratios
The Board and the Investment Manager refer to three key ratios
when assessing the Company's commitment levels:
1. Total Commitment Ratio ("TCR")
The TCR provides a view of total exposure to private markets
investments as a percentage of NAV. As such, this takes the sum of
the current Investment Portfolio and the Investment Pipeline as the
numerator. The level of the TCR is a key determinant of the
Company's total commitment capacity for new HarbourVest funds and
co--investments within a given time period. This ratio has
increased from 173% at 31 January 2019 to 176% at 31 January 2020,
following an increase in the Investment Pipeline.
2. Commitment Coverage Ratio
HVPE and many other listed private equity firms on the London
Stock Exchange (the "peer group") use this metric as a measure of
balance sheet risk. This ratio is calculated by taking the sum of
cash and available credit, and dividing it by the total Investment
Pipeline.
The nature of HVPE's structure, whereby it commits to
HarbourVest funds, which in turn invest in private equity managers,
means that it typically takes longer for commitments to be drawn
down compared with other listed private equity funds. As a result,
to remain fully invested, it has to maintain a larger pipeline of
unfunded commitments. This means that HVPE's Commitment Coverage
Ratio may appear relatively low in comparison with other similar
firms. It has declined from 48% at 31 January 2019 to 40% at 31
January 2020, following an increase in the Investment Pipeline and
reduction (as anticipated) in the Company's cash balance.
3. Rolling Coverage Ratio
HVPE's Investment Manager uses this third specific metric to
provide greater insight into the Company's balance sheet position
and a more relevant comparison with the Company's peer group. This
final measure reflects the sum of cash, the available credit
facility, and the distributions expected during the current year,
taken as a percentage of the forecast cash investment in
HarbourVest funds over the current year plus the next two years.
The latter is based on actual commitments made, plus those
currently foreseen for the next three years. In considering
forecast investments over a three-year period rather than the total
Investment Pipeline, this calculation enables a more useful
comparison of HVPE's coverage ratio relative to its peers. This
ratio has increased from 72% at 31 January 2019 to 75% at 31
January 2020. This is due to a downward adjustment to the next
three years' estimated investments.
Total Commitment Ratio
(Total exposure to private markets investments as a percentage
of NAV)
Investment Portfolio
+ Investment Pipeline $3,872.5m
------------------------- ---------
Divided by the NAV $2,202.7m
------------------------- ---------
176% (173% at 31 January
2019)
------------------------- ---------
Commitment Coverage Ratio
(Short-term liquidity as a percentage of total Investment
Pipeline)
Cash + available credit
facility $730.6m
-------------------------- ---------
Divided by the Investment
Pipeline $1,807.0m
-------------------------- ---------
40% (48% at 31 January
2019)
-------------------------- ---------
Rolling Coverage Ratio
(A measure of medium-term commitment coverage)
Cash + available credit
facility (total $730.6m)
+ current year estimated
distributions ($403.7m) $1,134.3m
-------------------------- ---------
Divided by the next
three years' estimated
investments $1,512.9m
-------------------------- ---------
75% (72% at 31 January
2019)
-------------------------- ---------
In the short to medium term, in light of COVID-19 developments,
these ratios are likely to deviate from recent ranges. For example,
revised model forecasts now indicate a significant reduction in
distributions for the year to 31 January 2021 as compared to
earlier forecasts and to prior year actuals. This has had an
immediate impact on the Rolling Coverage Ratio, and in the medium
term is also likely to reduce the Commitment Coverage Ratio due to
the resulting negative cash flow. The current ratios can be found
under Recent Events on page 12.
Revised 5-year model Extreme
scenarios Optimistic High Base Low Base Downside
-------------------- ---------- ---------- ---------- ----------
Recovery begins Q2/Q3 2020 Q3/Q4 2020 Q1/Q2 2021 Q1/Q2 2021
-------------------- ---------- ---------- ---------- ----------
Abnormal cash flow
duration 1.5 years 2 years 2 years 3 years
-------------------- ---------- ---------- ---------- ----------
Capital calls during
this time Normal Normal Normal Very high
-------------------- ---------- ---------- ---------- ----------
Distributions during
this time Low Very low Below GFC Below GFC
-------------------- ---------- ---------- ---------- ----------
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.
Risk Appetite
The Board's investment risk appetite is consistent with an
over-commitment policy (as explained in the Directors' Report on
page 50) that allows balanced, regular investment through economic
and investment cycles whilst ensuring that it has access to
sufficient funding for any potential negative cash flow situations,
including under an extreme downside scenario. At the same time, the
funding available to the Company by way of cash balances and
lending facilities is managed to ensure that its cost, by way of
interest, and facility fees or cash drag, is reasonable. When
considering other risks, the Board's risk appetite is effectively
governed by a cost benefit analysis when assessing mitigation
measures.
Principal Risks
As recommended by the Audit and Risk Committee, the Directors
have adopted a risk management framework to govern how the Board
identifies existing and emerging risks, determines risk appetite,
identifies mitigation and controls, assesses, monitors and measures
risk, and reports on risks.
The Board reviews risks at least twice a year and receives
deep-dive reports on specific risks as recommended by the Audit and
Risk Committee (see the report of the activities of that committee
on page 59). Throughout the year under review the Board considered
12 main risks which have a higher probability and a significant
potential impact on performance, strategy, reputation, or
operations (Category A risks). Of these, the five risks identified
below were considered the principal risks faced by the Company
where the combination of probability and impact was assessed as
being most significant. The Board also considered another 19
existing or emerging risks (Category B risks), which are monitored
on a watch list, and added a twentieth, relating to ESG risk,
during the year.
After the year end, as the COVID-19 pandemic progressed, the
Board and the Audit and Risk Committee considered the impact that
the situation would have on the Company's business and its service
providers, as explained in more detail on page 61. As a result, the
Board has elevated risks relating to the Company's loan facility,
Key Persons and Valuation from Category B to Category A, and
downgraded risks relating to Fund Expenses and MIFID II from
Category A to Category B. Due to the material impact that the
pandemic will have on society and the economy, and in turn, the
Company, the principal risks below are considered through the lens
of COVID-19.
Risk Description Mitigating with Current COVID-19
Comment
----------------- -------------------------------------- ----------------------------------
Balance Sheet The Company's balance sheet The extension of the Company's
Risks strategy and its policy for credit facility by size and
the utilisation of leverage tenure last year has helped
are described on page 27. mitigate this risk. The Board
The Company continues to has put a monitoring programme
maintain an overcommitment in place, determined with
strategy and may draw on reference to portfolio models,
its credit facility to bridge in order to mitigate against
periods of negative cash the requirement to sell assets
flow when capital calls on at a discount
investments are greater than during periods of NAV decline.
distributions. The level The monitoring programme
of potential borrowing available also considers the level
under the credit facility of debt at the HarbourVest
could be negatively affected fund level which is factored
by declining NAVs. In a period into the credit facility
of declining NAVs, reduced loan-to-value ratios mentioned
realisations, and rapid substantial on page 89. Both the Board
cash calls, the Company's and the Investment Manager
net leverage ratio could will continue to monitor
increase beyond an appropriate these metrics actively as
level, resulting in a need the COVID-19 pandemic progresses
to sell assets. A reduction and will take appropriate
in the availability or utilisation action as required, such
of bridging debt at the HarbourVest as pausing further commitments,
fund-level could result in to attempt to mitigate these
an increase in capital calls risks. Please also see the
to a level in excess of the Going Concern and Viability
modelling scenarios outlined Statement on page 65 for
on page 28. information on scenarios
that have been considered
by the Board.
----------------- -------------------------------------- ----------------------------------
Popularity Investor sentiment may change Following the onset of the
of Listed towards COVID-19 pandemic, there
Private Equity the Listed Private Equity have been significant falls
Sector sector, resulting in in public markets since the
a widening of the Company's year end. As a consequence,
share price discount relative and in common with the majority
to NAV per share. of its peers, HVPE's discount
to NAV has widened. This
is partly due to negative
sentiment regarding equities
in general but also because
the exact level and timing
of the impact that COVID-19
will have on either the global
economy as a whole or private
companies in particular is
not yet known.
----------------- -------------------------------------- ----------------------------------
Public Market The Company makes venture Normally the Company's exposure
Risks capital and buyout investments to individual public markets
in companies where operating is partially mitigated by
performance is affected by the geographical diversification
the broader economic environment of the portfolio.
within the countries in which While COVID-19 is having
those companies carry out an impact on the global economy,
business. While these companies the severity appears to vary
are generally privately owned, by geography and industry
their valuations are, in sector. HVPE's diversified
most cases, influenced by portfolio may help to mitigate
public market comparables. the
In addition, approximately effect on the Company's
10% of the Company's portfolio NAV per share.
is made up of publicly traded In previous downturns private
securities whose values increase market valuations have not
or decrease in response to been impacted as much as
market movements. When global public markets and there
public markets decline or has been a dampened effect
the economic situation deteriorates, on volatility.
the Company's NAV is usually It will take time for confidence
negatively affected. to return to public markets
as the battle against COVID-19
continues.
----------------- -------------------------------------- ----------------------------------
Performance The Company is dependent As at the date of this report,
of HarbourVest on its Investment Manager the major HarbourVest offices
and HarbourVest's investment are closed and staff are
professionals. With the exception working from home. HarbourVest
of seven co-investments, is confident that its business
all of the Company's assets, continuity processes are
save for cash balances and robust and that they can
short-term liquid investments, continue to provide services
are invested in HarbourVest to the Company to the usual
funds. high standard.
Additionally, HarbourVest The Board is satisfied that
employees play key roles contingency arrangements
in the operation and control regarding the key team at
of the Company. The incapacity, HarbourVest responsible for
departure, or reassignment HVPE are sufficient.
of some or all of HarbourVest's
professionals could prevent
the Company
from achieving its investment
objectives.
----------------- -------------------------------------- ----------------------------------
Trading Liquidity Recent public market movements Since the Company's shares
and Price have increased volatility trade on the Main Market
in HVPE's share price, and of the London Stock Exchange,
it is currently trading at this provides increased liquidity
a price which represents and accessibility to
a significant discount to a wider variety range of
its NAV. Any ongoing substantial potential shareholders.
discount to NAV, in isolation In addition, the Board continues
from the peer group, has to monitor the discount to
the potential to damage the NAV and will consider appropriate
Company's reputation and solutions to address any
to cause shareholder dissatisfaction. ongoing or substantial discount
During such periods of short-term to NAV. The Board has overseen
market stress, supply and the allocation of additional
demand can be impacted. If investor relations resource
demand decreases or supply in recent years and the Company
increases disproportionately, has attracted new shareholders.
the bid/offer spread could The HVPE Board through the
widen, resulting in less activities of the Investment
attractive pricing for investors Manager, HarbourVest Partners,
seeking to buy or sell shares seeks to drive improved liquidity
in the short term. over the medium to long term
The five largest shareholders by promoting the Company's
represent approximately 46% shares to a broad range of
of the Company's shares in prospective investors.
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.
----------------- -------------------------------------- ----------------------------------
Board of Directors
Sir Michael Bunbury
Chairman, Independent Non-Executive Director, appointed October
2007
Key relevant skills:
-- 25 years' experience of chairing various listed and unlisted
companies
-- Extensive governance experience on public and private company
boards
-- Worked in financial services since 1968
Sir Michael Bunbury is an experienced director of listed and
private investment, property, and financial services companies. He
is currently the Chairman of BH Global Limited, a former Director
of F&C Investment Trust plc (which has been an investor in
numerous HarbourVest funds, including funds in which the Company is
invested), and of other investment trusts. Sir Michael began his
career in 1968 at Buckmaster & Moore, a member of The London
Stock Exchange, before joining Smith & Williamson, Investment
Managers and Chartered Accountants, in 1974 as a Partner. He later
served as Director and Chairman and retired as a consultant to the
firm in May 2017.
Committees: Chairman of the Nomination Committee and member of
the Inside Information and Management Engagement and Service
Provider Committees.
Sir Michael Bunbury plans to step down as Chairman and retire
from the Board at the 2020 AGM, with Ed Warner his intended
successor.
Francesca Barnes
Independent
Non-Executive Director, appointed April 2017
Key relevant skills:
-- Extensive private equity investment experience
-- Eight years' governance experience on public and private
company boards
-- Risk management experience
Francesca Barnes is a Non-Executive Director of NatWest Holdings
Limited, Coutts & Company and a number of NatWest Group's other
ring-fenced bank boards, as well as Capvis private equity. She is a
member of the University of Southampton council and recently stood
down as Chair of Trustees for Penny Brohn UK. Previously, Francesca
spent 16 years at UBS AG. For the latter seven of these she served
as Global Head of Private Equity, following on from senior
positions in restructuring and loan portfolio management. Prior to
this, she spent 11 years with Chase Manhattan UK and US, in roles
spanning commodity finance, financial institutions, and private
equity.
Committees: Member of the Audit and Risk, Nomination, and
Management Engagement and Service Provider Committees.
Carolina Espinal
Non-Executive Director, appointed 25 July 2019
Key relevant skills:
-- 16 years' private equity investment experience
-- Responsibility for strategy and business development of
European and global primary businesses
-- Lead Director for ESG factors
Carolina Espinal joined HarbourVest in 2004 to focus on
partnership investments in Europe and other emerging markets and
became a Managing Director in 2015. Carolina focuses on managing
European venture capital and buyout partnership investments and has
collaborated with the secondary and co-investment groups on several
investment opportunities. She currently serves on the advisory
boards of funds managed by Abénex Capital, ECI, Inflexion, and
Advent International.
Her previous experience includes two years as a financial
analyst with the Merrill Lynch Energy and Power mergers and
acquisitions team in Houston.
Carolina graduated from Rice University with a BA in Managerial
Studies, Policy Studies, and Economics in 2000. She received an MSc
in Finance from the London Business School in 2003.
Alan Hodson
Senior Independent
Non-Executive Director, appointed April 2013
Key relevant skills:
-- Knowledge of listed equity markets
-- Experience on several investment company boards
-- Strong background in governance and risk management
Alan Hodson is Chairman of J.P. Morgan Elect and Charity Bank.
Alan joined Rowe and Pitman (subsequently SG Warburg, SBC, and UBS)
in 1984 and worked in a range of roles, all related to listed
equity markets. He became Global Head of Equities in April 2001 and
was a member of the Executive Committee of UBS Investment Bank and
of the UBS AG Group Managing Board. He retired from UBS in June
2005 and has since held positions on a variety of commercial and
charity boards.
Committees: Member of the Audit and Risk, Nomination, and
Management Engagement and Service Provider Committees.
Andrew Moore
Independent
Non-Executive Director, appointed October 2007
Key relevant skills:
-- Extensive experience as an (executive and non-executive
director) of regulated entities
-- Risk management experience
-- Former head of a fund administration business
Andrew Moore is Group Chairman of Cherry Godfrey Holdings
Limited, Group Chairman of Sumo Limited and a Director of Sumo
Acquisitions Limited and Sumo Holdings Limited. Andrew joined
Williams & Glyns Bank, which subsequently became The Royal Bank
of Scotland, after obtaining a diploma in business studies. He
moved to Guernsey to establish and act as Managing Director of a
trust company for The Royal Bank of Scotland in 1985. During his
career, Andrew held a range of senior management positions,
including acting as head of corporate trust and fund administration
businesses for The Royal Bank of Scotland in Guernsey, Jersey, and
the Isle of Man, which provided services to many offshore
investment structures holding a wide variety of asset classes.
Andrew has over 30 years of experience as both an Executive and
Non-Executive Director of companies including investment funds and
banks.
Committees: Member of the Audit and Risk, Nomination, and
Management Engagement and Service Provider Committees.
Edmond ("Ed") Warner
Independent Non-Executive Director and Chairman-designate,
appointed 1 August 2019
Key relevant skills:
-- Leadership skills
-- Investment strategist
-- Extensive financial services experience
Ed Warner has extensive financial services experience from years
spent in senior positions at several investment banks and financial
institutions, including IFX Group, Old Mutual plc, NatWest Markets
and Dresdner Kleinwort Benson.
He also has considerable PLC experience and has chaired the
boards at a range of prominent organisations. Ed joined the board
of Grant Thornton UK LLP as an independent non-executive in 2010
and became Chairman in 2016. He was appointed chairman of Air
Partner PLC in April 2019. Prior chairman roles include Standard
Life Private Equity Trust from 2013 to 2018, and Panmure Gordon
& Co from 2010 to 2016.
Outside of the financial sector, Ed has led a number of sporting
organisations and is currently chair of the Palace for Life
Foundation and chair-designate of GB Wheelchair Rugby.
Committees: Member of the Nomination Committee and Chair of the
Management Engagement and Service Provider Committee.
Ed Warner was appointed to the HVPE Board with a view to him
becoming Chairman when Sir Michael Bunbury steps down at the 2020
AGM.
Steven Wilderspin
Independent Non-Executive Director, appointed May 2018
Key relevant skills:
-- Chartered accountant, qualified in audit
-- Extensive governance experience on public and private company
boards
Steven Wilderspin has more than ten years' experience as a
Non-Executive Director on the boards of private equity partnerships
and listed investment companies. Steven, a qualified Chartered
Accountant, has been the principal of Wilderspin Independent
Governance, which provides independent directorship services, since
April 2007. He has served on a number of private equity, property
and hedge fund boards as well as commercial companies. Steven
currently serves as the Chairman of the risk committee of
LSE-listed Blackstone/GSO Loan Financing Limited. In December 2017
Steven stepped down from the Board of 3i Infrastructure plc, where
he was Chairman of the audit and risk committee, after ten years'
service. From 2001 until 2007, Steven was a Director of fund
administrator Maples Finance Jersey Limited, where he was
responsible for fund and securitisation structures. Before that,
from 1997, he was Head of Accounting at Perpetual Fund Management
(Jersey) Limited. Steven has recent and relevant financial and
sector experience.
Committees: Chairman of the Audit and Risk Committee, member of
the Inside Information, Nomination and Management Engagement and
Service Provider Committees.
Peter Wilson
Non-Executive Director, appointed May 2013
Key relevant skills:
-- Member of HarbourVest's two-person Executive Management
Committee ("EMC"), including responsibility for HarbourVest's
corporate strategy
-- 23 years' private equity industry knowledge and
experience
Peter Wilson joined HarbourVest's London team in 1996 and is one
of two members of the firm's EMC. He co-leads secondary investment
activity in Europe and is a member of the HarbourVest Europe
Investment Committee. He serves on the advisory committees for
partnerships managed by Baring Vostok Capital Partners, CVC Capital
Partners, Holtzbrinck Ventures and Index Venture Management. He
also served as founding Chair of the Board of Trustees of City Year
UK Limited.
Prior to joining the firm, he spent three years working for the
European Bank for Reconstruction and Development, where he
originated and managed two regional venture capital funds in
Russia. Peter also spent two years at the Monitor Company, a
strategy consulting firm based in Cambridge, Massachusetts.
He received a BA (with honours) from McGill University in 1985
and an MBA from Harvard Business School in 1990.
Directors' Report
Annual Report and Audited Consolidated Financial Statements
The Directors present their report and the Audited Consolidated
Financial Statements ("Financial Statements" or "Accounts") for the
year ended 31 January 2020.
A description of important events and principal activities which
have occurred during the financial year and their impact on the
performance of the Company, as shown in the Financial Statements,
is provided in the Strategic Report, beginning with the Chairman's
Statement on page 2. A description of the emerging and principal
risks and uncertainties facing the Company, together with an
indication of important events that have occurred since the end of
the financial year and the Company's likely future development is
also provided in the Strategic Report and the notes to the
Financial Statements, and are incorporated here by reference.
Combined, all sections in this document constitute the "Annual
Report".
Corporate Summary
The Company is a closed-ended investment company incorporated in
Guernsey on 18 October 2007 with an unlimited life. The Company
currently has one class of shares (the "Ordinary Shares") and these
shares are admitted to trading on the Main Market of the London
Stock Exchange.
With effect from 10 December 2018, the Company introduced an
additional US dollar market quote which operates alongside the
Company's existing sterling quotation, allowing shares to be traded
in either currency.
Investment Objective and Investment Policy
The Company's investment objective is to generate superior
shareholder returns through long-term capital appreciation by
investing primarily in a diversified portfolio of private equity
investments. The Company may also make investments in private
market assets other than private equity where it identifies
attractive opportunities.
The Company seeks to achieve its investment objective primarily
by investing in investment funds managed by HarbourVest, which
invests in or alongside third-party managed investment funds
("HarbourVest Funds"). HarbourVest Funds are broadly of three
types: (i) "Primary HarbourVest Funds", which make limited partner
commitments to underlying private market funds prior to final
closing; (ii) "Secondary HarbourVest Funds", which make purchases
of private market assets by acquiring positions in existing private
market funds or by acquiring portfolios of investments made by such
private market funds; and (iii) "Direct HarbourVest Funds", which
invest into operating companies, projects, or assets alongside
other investors.
In addition, the Company may, on an opportunistic basis, make
investments (generally at the same time and on substantially the
same terms) alongside HarbourVest Funds ("Co-investments") and in
closed-ended listed private equity funds not managed by HarbourVest
("Third-party Funds"). Co-investments made by the Company may,
inter alia, include investments in transactions structured by other
HarbourVest vehicles including, but not limited to, commitments to
private market funds or operating companies in which other
HarbourVest funds have invested.
Capital resources not held in longer-term investments are held
in cash, cash equivalents, and money market instruments pending
investment.
The Company uses an over-commitment strategy in order to remain
as fully invested as possible. To achieve this objective, the
Company has undrawn capital commitments to HarbourVest Funds and
Co-investments which exceed its liquid funding resources, but uses
its best endeavours to maintain capital resources which, together
with anticipated cash flows, will be sufficient to enable the
Company to satisfy such commitments as they are called.
Diversification and Investment Guidelines
The Company will, by investing in a range of HarbourVest Funds,
Co-investments, and Third-party Funds, seek to achieve portfolio
diversification in terms of:
-- geography: providing exposure to assets in the United States,
Europe, Asia, and other markets;
-- stage of investment: providing exposure to investments at
different stages of development such as early stage, balanced ,and
late stage venture capital, small and middle-market businesses or
projects, large capitalisation investments, mezzanine investments,
and special situations such as restructuring of funds or distressed
debt;
-- strategy: providing exposure to primary, secondary, and
direct investment strategies;
-- vintage year: providing exposure to investments made across
many years; and
-- industry: with investments exposed, directly or indirectly,
to a large number of different companies across a broad array of
industries.
In addition, the Company will observe the following investment
restrictions:
-- with the exception, at any time, of not more than one
HarbourVest Fund or Co-investment to which up to 40%of the
Company's Gross Assets may be committed or in which up to 40% of
the Company's Gross Assets may be invested, no more than 20% of the
Company's Gross Assets will be invested in or committed at any time
to a single HarbourVest Fund or Co-investment;
-- no more than 10% of the Company's Gross Assets will be
invested (in aggregate) in Third-party Funds;
-- the Investment Manager will use its reasonable endeavours to
ensure that no more than 20% of the Company's Gross Assets, at the
time of making the commitment, will be committed to or invested in,
directly or indirectly, whether by way of a Co-investment or
through a HarbourVest Fund, to (a) any single ultimate underlying
investment, or (b) one or more collective investment undertakings
which may each invest more than 20% of the Company's Gross Assets
in other collective investment undertakings (ignoring, for these
purposes, appreciations and depreciations in the value of assets,
fluctuations in exchange rates, and other circumstances affecting
every holder of the relevant asset);
-- any commitment to a single Co-investment which exceeds 5% of
the Company's NAV (calculated at the time of making such
commitment) shall require prior Board approval, provided however
that no commitment shall be made to any single Co-investment which,
at the time of making such commitment, represents more than 10%
(or, in the case of a Co-investment that is an investment into an
entity which is not itself a collective investment undertaking (a
"Direct Investment"), 5%) of the aggregate of: (a) the Company's
NAV at the time of the commitment; and (b) undrawn amounts
available to the Company under any credit facilities; and
-- the Company will not, without the prior approval of the
Board, acquire any interest in any HarbourVest
Fund from a third party in a secondary transaction for a
purchase price that:
(i) exceeds 5% of the Company's NAV; or
(ii) is greater than 105% of the most recently reported
net asset value of such interest (adjusted for contributions
made to and distributions made by such HarbourVest Fund since such
date).
Save for cash awaiting investment which may be invested in
temporary investments, the Company will invest only in HarbourVest
Funds (either by subscribing for an interest during the initial
offering period of the relevant fund or by acquiring such an
interest in a secondary transaction), in Co-investments or in
Third-party Funds.
Company's Right to Invest in HarbourVest Funds
Pursuant to contractual arrangements with HarbourVest, the
Company has the right to invest in each new HarbourVest Fund,
subject to the following conditions:
-- unless the Board agrees otherwise, no capital commitment to
any HarbourVest Fund may, at the time of making the commitment,
represent more than 35% or less than 5% of the aggregate total
capital commitments to such HarbourVest Fund from all its
investors; and
-- unless HarbourVest agrees otherwise, the Company shall not
have a right to make an investment in, or a commitment to, any
HarbourVest Fund to which ten or fewer investors (investors who are
associates being treated as one investor for these purposes) make
commitments.
Leverage
The Company does not intend to have on its balance sheet
aggregate leverage outstanding at Company level for investment
purposes at any time in excess of 20% of the Company's NAV. As
described in Recent Events on page 12 HVPE drew down $200.0 million
from its Facility with the proceeds received in May. The Company
may, however, use additional borrowings for cash management
purposes, or in the event of a material downturn. These borrowings
could be for extended periods of time depending on market
conditions.
Principal Risks and Uncertainties
The principal risks the Board has reviewed are disclosed on
pages 34 to 35 of the Strategic Report.
Results and Dividend
The results for the financial year ended 31 January 2020 are set
out in the Consolidated Statements of Operations within the
Financial Statements that begin on page 75. In accordance with the
investment objective of the Company to generate superior
shareholder returns through long-term capital appreciation, the
Directors did not declare any dividends during the year under
review and the Directors do not recommend the payment of dividends
as at the date of this report.
Directors
The Directors as shown on pages 48 to 49 all held office
throughout the entire reporting period, except for Ms Espinal who
was appointed in July 2019, and Mr Warner who was appointed in
August 2019. All Directors listed were in place at the date of
signature of this Annual Report. Mr Corbin and Mr Zug retired in
July 2019. Ms Espinal and Mr Wilson are Managing Directors of
HarbourVest Partners (UK) Limited, a subsidiary of HarbourVest
Partners, LLC. All Directors, other than Ms Espinal and Mr Wilson,
are considered to be independent. Mr Hodson is the Senior
Independent Director. Further details of the Board composition and
rationale for the independence of those having served for more than
nine years (Sir Michael Bunbury and Mr Moore) can be found on page
58.
Save as disclosed in this Annual Report, the Company is not
aware of any other potential conflicts of interest between any duty
of any of the Directors owed to it and their respective private
interests.
Directors' Interests in Shares
31 January 31 January
2020 2020
-------------------- ---------- ----------
Sir Michael Bunbury 25,000 25,000
--------------------- ---------- ----------
Francesca Barnes 2,000 2,000
--------------------- ---------- ----------
Carolina Espinal 696(1) -
--------------------- ---------- ----------
Alan Hodson 30,000 30,000
--------------------- ---------- ----------
Andrew Moore 14,400 14,400
--------------------- ---------- ----------
Ed Warner 3,000 -
--------------------- ---------- ----------
Steven Wilderspin 1,300 1,300
--------------------- ---------- ----------
Peter Wilson 25,000 25,000
--------------------- ---------- ----------
1 Shares are split equally between Carolina's three children.
There have been the following changes in Directors' interests
between 31 January 2020 and the date of signing of this report.
Changes to Directors' Interests in Shares
23 June 31 January
2020 2020
----------------- ------- ----------
Francesca Barnes 4,200 2,000
------------------ ------- ----------
Carolina Espinal 1,696 696
------------------ ------- ----------
Ed Warner 8,000 3,000
------------------ ------- ----------
Shareholder Information
The Company announces an estimated NAV per Ordinary Share on a
monthly basis together with commentary on the investment
performance provided by the Investment Manager. These monthly
statements are available on the Company's website.
The last traded price of Ordinary Shares is available on
Reuters, Bloomberg, and the London Stock Exchange.
A copy of the original prospectus of the Company is available on
the Company's website.
All Ordinary Shares may be dealt directly through a stockbroker
or professional adviser acting on an investor's behalf. The buying
and selling of Ordinary Shares may be settled through CREST.
Substantial Shareholders
The table that follows shows the interests of major shareholders
based on the best available information provided by the Company's
share register analysis provider, incorporating any disclosures
provided to the Company in accordance with DTR 5 in the period
under review and to 29 May 2020.
% of Voting % of Voting
Rights Rights
31 January
2020 29 May 2020
------------------ ----------- -----------
State Teachers
Retirement
System of Ohio 13.06 12.88
------------------- ----------- -----------
Quilter PLC 12.94 12.69
------------------- ----------- -----------
M&G (Prudential) 9.86 10.11
------------------- ----------- -----------
City of Edinburgh
Council 5.72 5.55
------------------- ----------- -----------
Total 41.58 41.23
------------------- ----------- -----------
Corporate Governance
The Board recognises the importance of sound corporate
governance and follows best practice requirements as closely as
possible. The Company complies with the Association of Investment
Companies' Code of Corporate Governance ("AIC Code") published in
February 2019, which is endorsed by the Financial Reporting Council
("FRC"). A Statement of Compliance with the updated code is
provided on page 64.
Engagement with Employees
As a closed-ended investment company, HVPE does not have any
direct employees.
Corporate Responsibility
The Board considers the ongoing interests of stakeholders and
investors through open and regular dialogue with the Investment
Manager. The Board receives regular updates outlining regulatory
and statutory developments and responds as appropriate.
Responsible Investment Policy
While the Company delegates responsibility to its Investment
Manager for taking environmental, social and governance ("ESG")
issues into account when considering investments, the Board is
committed to responsible and sustainable investing and closely
monitors the Manager's commitment to ESG factors. In the year under
review, Ms Espinal was designated HVPE's Director responsible for
ESG, with the remit to act as the conduit between the Investment
Manager and the Board on ESG matters. The Board expects the
Investment Manager to be actively engaged with investee funds and
companies on ESG issues and to promote best practice.
The Investment Manager's integrated ESG strategy is highlighted
in the Strategic Report, together with some examples of the
ESG-related activity it undertakes (please refer to pages 8 and
9).
ESG-related risks are identified and taken into consideration as
an integral part of the Investment Manager's due diligence process,
across each of the investment strategies as highlighted on page 37,
so that company-specific, broader manager level, sector-level, and
regional risks can be considered when reviewing investments. The
Investment Manager actively undertakes efforts to engage GPs to
further adopt ESG policies by requesting the inclusion of ESG
issues on advisory board agendas, through ongoing dialogue, and by
leveraging its proprietary scorecard to highlight potential areas
for improvement. Alongside its proprietary manager scorecard
system, the Investment Manager has also invested in a due diligence
database that helps the Firm actively monitor ESG and business
conduct risks across the portfolio, as described on pages 37 and
42.
HarbourVest continues to be a leading voice around diversity and
inclusion as detailed on page 8. As a firm with a strong ethical
and compliance-oriented culture, the Investment Manager also
strives to be transparent to all stakeholders, including its
clients, around its decision-making process.
The Investment Manager has been a signatory to the United
Nations-supported Principles of Responsible Investment since 2013.
Additionally, HarbourVest is signed up as an official supporter of
the Task Force on Climate-related Financial Disclosures. Further
information about this is provided on page 8.
The Investment Manager is a firm believer in giving back to the
communities in which it operates and has introduced several
initiatives aimed at encouraging employees to participate and
contribute to a range of charitable organisations as detailed on
page 8. Furthermore, the Investment Manager has enhanced efforts to
become more ecologically friendly at an operational level.
The Board actively encourages and supports the continuous
efforts made by the Investment Manager in relation to ESG and
related matters and seeks regular updates on the matter to inform
Board discussions.
Environmental Information
The Board believes that best-in-class operating standards are
crucial to effectively running businesses and HVPE has a strong
focus on health, safety, and the environment. Due to the fact that
we have no employees or premises, we do not need to report on
emissions.
Modern Slavery Act 2015
The Company would not fall within the scope of the UK Modern
Slavery Act 2015 (as the Company does not have any turnover derived
from goods and services) if it was incorporated in the UK.
Therefore, the Board has considered that it is not necessary for
the Company to make a slavery and human trafficking statement.
Significant Votes Against Policy
The Directors have adopted a policy whereby if 20% or more of
votes are cast against a recommendation made by the Board for a
resolution, the Company shall:
-- explain, when announcing voting results, what actions it
intends to take to consult shareholders in order to understand the
reasons behind the result;
-- no later than six months after the shareholder meeting
publish an update on the views received from shareholders and
actions taken; and
-- provide a final summary in the Annual Report and, if
applicable, in the explanatory notes to resolutions at the next
shareholder meeting, state what impact the feedback has had on the
decisions the Board has taken and any actions or resolutions
proposed.
No significant votes were received against any Board recommended
resolution during the year ended 31 January 2020.
Anti-Bribery Policy
The Directors have undertaken to operate the business in an
honest and ethical manner, and accordingly take a zero-tolerance
approach to bribery and corruption. The key components of this
approach are implemented as follows:
-- the Board is committed to acting professionally, fairly and
with integrity in all its business dealings and relationships;
-- the Company implements and enforces effective procedures to
counter bribery; and
-- the Company requires all its service providers and advisers
to adopt equivalent or similar principles.
Zero Tolerance Policy towards the Facilitation of Tax
Evasion
In accordance with the UK Criminal Finance Act 2017, the Board
has reaffirmed its zero tolerance policy towards the facilitation
of corporate tax evasion.
Disclosures Required Under LR 9.8.4R
The Financial Conduct Authority's Listing Rule 9.8.4R requires
that the Company includes certain information relating to
arrangements made between a controlling shareholder and the
Company, waivers of Directors' fees, and long-term incentive
schemes in force. The Directors confirm that there are no
disclosures to be made in this regard.
Investment Manager
A description of how the Company has invested its assets,
including a quantitative analysis may be found on pages 1 to 47,
with further information disclosed in the Notes to the Financial
Statements on pages 83 to 91. The Board has considered the
appointment of the Investment Manager and, in the opinion of the
Directors, the continuing appointment of the Investment Manager on
the terms agreed is in the interests of its shareholders as a
whole.
In considering this appointment, the Board has reviewed the past
performance of the Investment Manager, the engagement of the
Investment Manager with shareholders and the Board, and the
strategic plan presented to the Board by the Investment
Manager.
The Investment Manager is HarbourVest Advisers L.P. and the
principal contents of the Investment Management Agreement are as
follows:
-- to manage the assets of the Company (subject always to
control and supervision by the Board and subject both to the
investment policy of the Company and any restrictions contained in
any prospectuses published by the Company);
-- to assist the Company with shareholder liaison;
-- to monitor compliance with the Investment Policy on a regular
basis; and
-- to nominate up to two Board representatives for election by
shareholders at the Company's Annual General Meeting.
The Investment Manager is not entitled to any direct
remuneration (save expenses incurred in the performance of its
duties) from the Company, instead deriving its fees from the
management fees and carried interest payable by the Company on its
investments in underlying HarbourVest Funds. The Investment
Management Agreement (the "IMA"), which was amended and restated on
30 July 2019, may be terminated by either party by giving 12
months' notice. In the event of termination within ten years and
three months of the date of the listing on the Main Market, the
Company would be required to pay a contribution, which would have
been $4.7 million at 31 January 2020 and $4.5 million as at 31 May
2020, as reimbursement of the Investment Manager's remaining
unamortised IPO costs. In addition, the Company would be required
to pay a fee equal to the aggregate of the management fees for the
underlying investments payable over the course of the 12-month
period preceding the effective date of such termination to the
Investment Manager.
Delegation of Responsibilities
Under the IMA, the Board has delegated to the Investment Manager
substantial authority for carrying out the day-to-day management
and operations of the Company, including making specific investment
decisions, subject at all times to the control of, and review by,
the Board. In particular, the IMA provides that the Board and the
Investment Manager shall agree a strategy mandate which sets out a
rolling five-year plan for the Company. The Board is responsible
for the overall leadership of the Company and the setting of its
values and standards. This includes setting the investment and
business strategy and ongoing review of the Company's investment
objective and investment policy, along with recommending to
shareholders the approval of alterations thereto. Matters reserved
for the Board include areas such as the Board and Committee
membership, including the review and authorisation of any conflicts
of interest arising. Areas such as approval of the raising of new
capital, major financing facilities and approval of contracts that
are not in the ordinary course of business are also reserved for
the Board, together with any governance and regulatory
requirements. Any changes in relation to the capital structure of
the Company, including the allotment and issuance of shares, are
the responsibility of the Board.
Directors' Indemnity
Under the Company's Articles, the Directors, Company Secretary
and officers are indemnified out of the Company's assets and
profits 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 respective offices or
trusts, except as incurred by their own negligence, breach of duty,
or breach of trust. The Company also maintains Directors' and
Officers' insurance cover on the Directors' behalf.
International Tax Reporting
The Company is subject to Guernsey regulations and guidance
based on reciprocal information sharing intergovernmental
agreements which Guernsey has entered into with a number of
jurisdictions. The Board has taken the necessary actions to ensure
that the Company is compliant with Guernsey regulations and
guidance in this regard.
Political donations
The Company did not make any political donations or incur any
political expenditures to candidates or political campaigns during
the period.
share repurchase programme
At the 2019 AGM, held on 25 July 2019, the Directors were
granted authority to repurchase 11,971,387 Ordinary Shares (being
equal to 14.99% of the aggregate number of Ordinary Shares in issue
at the date of the AGM) for cancellation, or to be held as treasury
shares. This authority, which has not been used, will expire at the
upcoming AGM. The Directors intend to seek annual renewal of this
authority from Shareholders.
By order of the Board
Michael Bunbury
Chairman
23 June 2020
Board Structure and Committees
The activities of the Company are overseen by the Board, which
comprises a majority of independent Directors. The Board meets at
least five times a year, and between these scheduled meetings there
is regular contact between Directors, the Investment Manager, the
Administrator and the Company Secretary, including a formal
strategy meeting and Board update calls.
The Board aims to run the Company in a manner which is
consistent with its belief in honesty, transparency and
accountability. This is reflected in the way in which Board
meetings are conducted, during which the Chairman promotes and
facilitates a culture of open and constructive debate on each
topic, encouraging input from all Directors to ensure a wide
exchange of views. The Directors believe that good governance means
managing the affairs of the Company well and engaging effectively
with investors. The Board is committed to maintaining high
standards of financial reporting, transparency and business
integrity.
The Board of Directors
Audit and Risk Committee Inside Information Nomination Management
Committee Committee Engagement and
Service Provider
Committee
------------------------ ------------------------- ----------------------- ------------------------
Role Role Role Role
To ensure that the To consider any To oversee succession To review the Company's
Company maintains developments which planning and new Investment Manager
high standards of may require an immediate Director appointment. and service providers
risk management, announcement by to ensure that a
integrity, financial virtue of being good value service
reporting, and internal price sensitive of satisfactory
controls. information. quality is delivered,
and to manage the
appointment process
of new or replacement
service providers.
------------------------ ------------------------- ----------------------- ------------------------
Members Members Members Members
Chaired by Steven Chaired by Sir Michael Chaired by Sir Michael Chaired by Ed Warner
Wilderspin Bunbury Bunbury (from 19 November
Francesca Barnes Steven Wilderspin Francesca Barnes 2019)
Alan Hodson Alan Hodson Francesca Barnes
Andrew Moore Andrew Moore Sir Michael Bunbury
Ed Warner Alan Hodson
Steven Wilderspin Andrew Moore
Steven Wilderspin
------------------------ ------------------------- ----------------------- ------------------------
The Directors are kept fully informed of investment and
financial controls and other matters that are relevant to the
business of the Company. Such information is brought to the
attention of the Board by the Investment Manager, the Administrator
and the Company Secretary in their regular reports to the Board.
The Directors also have access where necessary, in the furtherance
of their duties, to professional advice at the expense of the
Company. All committee terms of reference, the schedule of matters
reserved for the Board, the roles and responsibilities of the
Chairman, and the roles and responsibilities of the Senior
Independent Director are available on the Company's website:
https://www.hvpe.com/shareholder-information/corporate-governance
Board and Committee Meetings with Director Attendance
In the financial year ended 31 January 2020, the Board held the
following meetings. Below is a summary of the Director attendance
at the meetings held in the financial year:
Management
Scheduled Engagement
Board and Audit and Inside and service
Board Risk Information Provider Nomination
Strategy Committee Committee Committee Committee
Director Meetings Meetings Meeting Meetings Meeting
----------------------- --------- --------- ----------- ----------- ----------
Ms Francesca Barnes 6/6 4/6* - 2/2 1/1
------------------------ --------- --------- ----------- ----------- ----------
Sir Michael Bunbury 6/6 - 1/1 2/2 1/1
------------------------ --------- --------- ----------- ----------- ----------
Mr Keith Corbin(1) 2/2 1/1 - - -
------------------------ --------- --------- ----------- ----------- ----------
Ms Carolina Espinal(2) 3/3 - - - -
------------------------ --------- --------- ----------- ----------- ----------
Mr Alan Hodson 6/6 6/6 - 2/2 1/1
------------------------ --------- --------- ----------- ----------- ----------
Mr Andrew Moore 6/6 6/6 - 2/2 1/1
------------------------ --------- --------- ----------- ----------- ----------
Mr Ed Warner(3) 3/3 - - 1/1 1/1
------------------------ --------- --------- ----------- ----------- ----------
Mr Steven Wilderspin 6/6 6/6 1/1 2/2 1/1
------------------------ --------- --------- ----------- ----------- ----------
Mr Peter Wilson 6/6 - - - -
------------------------ --------- --------- ----------- ----------- ----------
Mr Brooks Zug(1) 2/2 - - - -
------------------------ --------- --------- ----------- ----------- ----------
1 Mr Keith Corbin and Mr Brooks Zug retired in July 2019.
2 Ms Carolina Espinal was appointed in July 2019.
3 Mr Ed Warner was appointed in August 2019.
* Non-attendance due to illness and an unavoidable scheduling
conflict when the meeting was changed.
All Directors received notice of the meetings, the agenda, and
when the meeting was changed supporting documents and were able to
comment on the matters to be raised at the proposed meeting. During
each meeting, the Chairman promoted and facilitated open
constructive debate on each topic, encouraging input from all
Directors. As well as the formal scheduled strategy and ad-hoc
meetings, the Board also receives detailed updates from the
Investment Manager via update calls. In addition to the above
meetings, ad-hoc Board and Committee meetings are often convened at
short notice and, as they only require a minimum quorum of two
Directors, there is a lower attendance than with the scheduled
meetings. During the financial year there were four ad-hoc Board
meetings with a quorum at each. The Inside Information Committee
meeting met once during the period.
At each scheduled Board meeting, amongst other items, the
Directors always review and discuss the Investment Manager's
Report, drivers of performance, how HVPE has performed, the
commitment plan, and the corporate broking report (which includes
an update on the Company's peer group). Marketing and investor
relations are covered in detail at two Board meetings, and at a
higher level at the remaining meetings.
Responsibilities
The Board has adopted formal responsibilities for the Chairman
and the Senior Independent Director as well as a schedule of
matters reserved for the Board (further information can be found on
page 54. All of these documents are available on the Company's
website.
Board Composition
The Board has a balance of skills, experience, and length of
service relevant to the Company, and the Directors believe that any
changes to the Board's composition can be managed without undue
disruption. With any new Director appointment to the Board, the new
Director will participate in an appropriate, structured induction
process.
The Board's careful considerations of its composition and the
refreshment process led to the addition of Ms Espinal and Mr Warner
in the summer of 2019. With specific reference to the fact that, as
at October 2019, Sir Michael Bunbury and Mr Moore had served on the
Board for 12 years, the Board is of the view that Directors can
continue beyond a tenure of nine years, noting that they will be
subject to continuing scrutiny as to their effectiveness and
independence, and, as for all Directors, subject to annual
re-election. The Board also believes there is strong value gained
by there being a Director on the Board who has served since
inception and has a complete historical working knowledge of
Company. The Board confirms that Mr Moore remains independent of
the Investment Manager with no other interests or conflicts with
HarbourVest Partners, notwithstanding his years of service. This is
evidenced by his continued constructive challenge of the Investment
Manager. Mr Moore remains independent in character and judgement
and challenges items tabled to and discussed by the Board as
appropriate. As previously discussed, Sir Michael will step down
from the Board at the upcoming AGM.
If a Director wishes to undertake additional external
appointments, approval is sought from the Board.
Audit and Risk Committee
About the Committee
The Audit and Risk Committee members are outlined on page 56. Ms
Barnes, Mr Hodson and Mr Moore have each held senior banking roles
for a number of years as described in their biographies; Mr
Wilderspin is a qualified Chartered Accountant and has over ten
years' experience as an Executive and Non-Executive Director on a
number of private and listed fund boards as well as commercial
companies and is deemed by the Board to have recent and relevant
financial and sector experience.
The Audit and Risk Committee is responsible for the review of
the Company's accounting policies, periodic Financial Statements,
auditor engagement and certain regulatory compliance matters. The
Committee is also responsible for making appropriate
recommendations to the Board and ensuring that the Company complies
to the best of its ability with applicable laws and regulations and
adheres to the tenet of generally accepted codes of conduct. The
Committee's terms of reference were extended in 2018 to incorporate
responsibility for overseeing the Company's risk management
framework and regulatory compliance.
All of the Company's management and administration functions are
delegated to independent third parties or the Investment Manager
and it is therefore felt that it would not be practical or cost
effective for the Company to have its own internal audit facility.
This matter is reviewed annually.
Activities of the Committee
Audit and Risk Committee Meetings
In the financial year ended 31 January 2020, the Audit and Risk
Committee met six times, three on a scheduled basis and three on an
ad hoc basis. The entire Audit and Risk Committee was not required
to attend the ad-hoc meetings, which were convened to provide final
sign-off on the financial reports. A summary of Director attendance
is included in the "Board and Committee Meetings with Director
Attendance" section on page 57. In these meetings, the Committee
considered the following matters:
Auditors
The Audit and Risk Committee reviewed the effectiveness of the
external audit process during the year, considering performance,
objectivity, independence, and relevant experience. This included
post-audit discussions with the Company's auditor, Investment
Manager and Company Secretary to review how well the previous
year's audit had gone. The main conclusion from this review was
that the audit process had improved from the prior year due to the
timetable changes made after the last review.
The Committee also considered the annual Audit Quality
Inspection Report for Ernst & Young LLP issued by the UK
Financial Reporting Council ("FRC"). The most relevant finding in
the report relating to HVPE's circumstances was that Ernst &
Young should ensure consistency of the group audit team's oversight
of component audit teams. This was discussed with the audit partner
who leads the Ernst & Young LLP audit team in Guernsey and
oversees the activities of the integrated Ernst & Young Boston
audit team. The Committee was satisfied with the arrangements in
place. Consequently, the Committee concluded that Ernst & Young
LLP's appointment as the Company's auditor should be continued. The
Company's auditor has been appointed to the Company since 2007 and
was reappointed following a competitive tender process in May 2017.
The Company's auditor performed an audit of the Company's Financial
Statements, prepared in accordance with applicable law, US
Generally Accepted Accounting Principles ("US GAAP"), and audited
under both relevant US Generally Accepted Auditing Standards ("US
GAAS") and International Standards on Auditing (UK). The audit
approach remained unchanged relative to the prior year.
Auditor Independence
The Audit and Risk Committee understands the importance of
auditor independence and, during the year, the Audit and Risk
Committee reviewed the independence and objectivity of the
Company's auditor. The Audit and Risk Committee received a report
from the external auditor describing its independence, controls,
and current practices to safeguard and maintain auditor
independence. Other than fees paid for conducting a review of the
Interim Financial Statements, there were no other non-audit fees
paid to the auditor by the Company. The Committee has adopted a
non-audit services policy that complies with the revised Ethical
Standard 2016 issued by the UK FRC which determines those services
that the auditor is prohibited from providing to the Company and
those services that the auditor may conduct in most circumstances.
In all other cases the Chairman of the Committee will review the
potential engagement of the auditor in advance to ensure that the
auditor is the most appropriate party to deliver the proposed
services and to put in place safeguards, where appropriate, to
manage any threats to auditor independence.
Terms of Engagement
The Audit and Risk Committee reviewed the audit scope and fee
proposal set out by the auditor in its audit planning report and
discussed the same with the auditor at an Audit and Risk Committee
meeting. The Audit and Risk Committee considered the proposed
aggregate fee increase for Ernst & Young's audit and
audit-related services of 8.6% for the financial year. The auditor
made the case that this increase was justified because of
compliance cost pressures in the current audit market and because
of the increasing amount of work involved in the audit given the
Company's growth. Having been satisfied by the scope of the
engagement letter and fee proposal, the Committee recommended to
the Board to approve the fee proposal and letter of engagement.
Internal Controls
The internal control systems are designed to meet the Company's
particular needs and the risks to which it is exposed. Accordingly,
the internal control systems are designed to manage rather than
eliminate the risk of failure to achieve business objectives and by
their nature can only provide reasonable and not absolute assurance
against misstatement and loss. The Company places reliance on the
control environment of its service providers, including its
independent Administrator and the Investment Manager. In order to
satisfy itself that the controls in place at the Investment Manager
are adequate, the Audit and Risk Committee has reviewed a Type II
SOC I Report - Private Equity Fund Administration Report on
Controls Placed in Operation and Tests of Operating Effectiveness
for the period from 1 October 2018 to 30 September 2019 (a bridging
letter covers the period 1 October 2019 to 31 January 2020),
detailing the controls environment in place at the Investment
Manager, as well as ISAE 3402 Reports on Fund Administration,
Global and Local Custody Services, Securities Lending Services and
Listed Derivatives Clearing Services for the period 1 October 2018
to 30 September 2019 detailing the controls environment in place at
the Administrator and Company Secretary. In both of these reports
there were minor findings, but the Committee is satisfied that the
identified weaknesses were not material to the affairs of the
Company, and that the respective service providers had taken action
to improve controls in the identified areas. In addition, the
Management Engagement and Service Provider Committee conducted a
detailed review of the performance of the Company's service
providers, including the Company's Administrator, and the Audit and
Risk Committee reviewed their findings to ensure that the Company's
control environment was operating satisfactorily.
The Investment Manager's Type II SOC I Report describes the
internal controls in the HarbourVest Accounting group, which is
responsible for maintaining the Company's accounting records and
the production of the accounts contained in the Company's Financial
Statements. The main features of the controls are: clearly
documented valuation policies; detailed review of financial
reporting from underlying limited partnerships and investee
companies; detailed reconciliation of capital accounts in
underlying limited partnerships; monthly reconciliation of bank
accounts; and a multi-layered review of financial reporting to
ensure compliance with accounting standards and other reporting
obligations.
Risk Management
The Audit and Risk Committee reviewed the Company's risk
management framework during the year and confirmed it was satisfied
that it was appropriate for the Company's requirements. Since the
year end, the Audit and Risk Committee has considered the impact of
COVID-19 on the Company. Further details of the principal risks and
uncertainties facing the Company are given on pages 34 to 35. This
is in accordance with relevant best practice as detailed in the
FRC's guidance on Risk Management, Internal Control and Related
Financial and Business Reporting. During the year, the Committee
also considered emerging and topical risks and consequently
instigated "deep dive" reviews of cyber risk, political risk, and
balance sheet risk that were presented to the Board. There were
some cyber risk matters to be followed up with service providers
and ongoing scrutiny of fund-level borrowing by the Board. In
addition, the Audit and Risk Committee members participated in the
consideration by the Board of the viability of the Company until 31
January 2025, details of which are shown on pages 65 to 66.
Financial Risks
The Company is funded from equity balances, comprising issued
Ordinary Share capital, as detailed in Note 1 to the Financial
Statements, and retained earnings. The Company has access to
borrowings pursuant to the credit facility of up to $600.0 million.
In April 2020, HVPE provided notice to its lenders to draw down
$200.0 million, which in May 2020 was deposited in two J.P.
Morgan-managed money market funds, as detailed earlier in the
report. Although the Company's currency exposure is currently not
hedged, the Company's policy on hedging is kept under review by the
Audit and Risk Committee.
The Investment Manager and the Directors ensure that all
investment activity is performed in accordance with the investment
guidelines. The Company's investment activities expose it to
various types of risks that are associated with the financial
instruments and markets in which it invests. Risk is inherent in
the Company's activities and it is managed through a process of
ongoing identification, measurement, and monitoring. The financial
risks to which the Company is exposed include market risk,
liquidity risk, and cash flow risk.
Regulatory Compliance
Subsequent to the engagement of the new Company Secretary in the
prior year, the Audit and Risk Committee has engaged with the
Compliance team to ensure that the Company fulfils its regulatory
obligations. A Compliance Monitoring Plan is in place and is
regularly reviewed by the Committee. The Company is compliant with
the provisions of the September 2014 Competition and Markets
Authority Order. Policies and procedures regarding compliance,
anti-money laundering, share dealing, and inside information have
been revised and updated during the year, and a policy regarding
Directors' training has been introduced.
Audited Financial Statements and Significant Reporting
Matters
As part of the 31 January 2020 year-end audit, the Audit and
Risk Committee reviewed and discussed the most relevant issues for
the Company, most notably the risk of misstatement or manipulation
of the valuation of its investments in underlying HarbourVest
funds.
In the year under review, the Audit and Risk Committee
considered some specific aspects of valuation relating to assets
where there is a secondary market and where the Company invests in
partnerships and there is a subsequent close resulting in a return
of capital. The Audit and Risk Committee remains satisfied that the
valuation techniques used are accurate and appropriate for the
Company's investments and consistent with the requirements of US
GAAP.
The Committee also reviewed the following matters:
-- post balance sheet events;
-- the impact of upcoming accounting standards; and
-- other changes in presentation within the report to improve
clarity for users.
The Committee concluded that the Financial Statements were fair,
balanced, and understandable.
COVID-19
After the year end, the Audit and Risk Committee met to consider
the risks associated with the COVID-19 pandemic and the measures
adopted by HarbourVest Partners and other service providers to
ensure continuity of service to the Company. The Committee was
generally satisfied that its key service providers had taken
appropriate measures to ensure continuity of service but more
detail was requested, and was subsequently received, from the
Company's Registrar. The Committee also reviewed the Company's
risks through the lens of COVID-19 and recommended changes to the
Company's risk matrix that are reflected in the Principal Risks and
Uncertainties section on pages 34 and 35.
Corporate Governance
The Audit and Risk Committee continues to monitor the review by
the Board of the Company's compliance with the AIC Code of
Corporate Governance for Investment Companies (the 2019
edition).
Governance and Effectiveness
On 14 January 2020 the Committee conducted a review of its
activities against its constitution and terms of reference in
respect of the year under review and concluded that all requisite
activities had been undertaken and no changes to its constitution
or terms of reference were required.
Other Matters
In presenting this report, I have set out for the Company's
shareholders the key areas that the Audit and Risk Committee
focuses on. If any shareholders would like any further information
about how the Audit and Risk Committee operates and its review
process, I, or any of the other members of the Audit and Risk
Committee would be pleased to meet with them to discuss this.
Steven Wilderspin
Chairman of the Audit and Risk Committee
23 June 2020
Nomination Committee
About the Committee
The Nomination Committee was established on 24 November 2015 and
is chaired by the Chairman of the Company. Its members are outlined
on page 56.
There was one scheduled meeting held during the year. All
members attended the meeting held. The mandate of the Nomination
Committee is to consider issues related to Board composition and
the appointment of Directors.
Activities of the Committee
Changes to Board Composition
As a result of the approach to succession planning outlined
below, Ms Carolina Espinal was appointed as a Director effective 25
July 2019 and Mr Ed Warner was appointed as a Director effective 1
August 2019. Mr Zug and Mr Corbin retired in July 2019. The
Committee also actively engaged with the Investment Manager and
Company Secretary to ensure that Ms Espinal and Mr Warner were
given a suitable induction process.
Approach to Succession Planning
To help facilitate an orderly succession process, a
sub-committee of the Nomination Committee, led by Keith Corbin, was
formed to identify a suitable candidate to succeed Sir Michael
Bunbury as Chairman in 2020. Over the course of six months the
sub-committee worked with Trust Associates to produce a job
specification, review a long list of candidates, select suitable
candidates for first round interviews and propose successful
candidates for interview by the entire Board. The sub-committee
updated the Board on a regular basis as to its progress and in July
2019 made a formal recommendation to the Board that Ed Warner be
appointed as a Director, with a view to him being appointed as
Chairman of the Board at the 2020 AGM when Sir Michael Bunbury
plans to step down as Chairman. The Board agreed with this
recommendation and Ed was appointed with effect from 1 August
2019.
The Nomination Committee was not chaired by Sir Michael when
discussions were held about his succession. Trust Associates has no
connections to the Company or its Directors.
Terms of Reference
During the course of the year the Nomination Committee reviewed
its terms of reference and agreed that these should be amended to
focus purely on the identification and nomination for approval of
Board candidates to fill Independent Director Board vacancies as
and when they arise. All other matters that were previously the
responsibility of the Nomination Committee are now captured within
the matters reserved for the Board and include:
-- reviewing the structure, size and composition of the
Board;
-- formulating plans in respect of tenure and succession for
Independent Directors; and
-- ensuring adequate induction, training, and development.
Board and Committees Evaluation
The Board undertakes a formal annual evaluation of its
performance which includes the Chairman reviewing with each
Director his or her individual performance and contribution, and
the Senior Independent Director leading an annual evaluation of the
Chairman. The performance of the Investment Manager and the Company
Secretary are also reviewed annually.
An externally facilitated Board evaluation occurs every three
years. During the year the Board commissioned an external appraisal
by Board Alpha Limited to review its operation and effectiveness.
Board Alpha has no connections to the Company or its Directors. The
evaluation was conducted via one to one interviews with each
Director and with key advisers.
The evaluation concluded that the Board was effective, made up
of strong, experienced, and committed Directors with a good spread
of skills and no major gaps. A number of recommendations were
proposed, mainly focusing on the transition of the Chairman, Board,
and Committee administration and the format of internal Board
assessments.
The Board held a meeting to discuss the report prepared by Board
Alpha. It considered each recommendation in detail and agreed with
them. Since that time each of the recommendations has either been
progressed or fully implemented.
Policy on Diversity and Inclusion
The Board and Nomination Committee actively review the diversity
of the Board when considering future appointments. The Board is
pleased that during the course of the year, with the appointment of
Ms Espinal as a Director, it enhanced both its gender and ethnic
diversity, achieving the targeted ethnic diversity t by the Parker
Review five years ahead of the 2024 recommendation.
The Board understands the Hampton-Alexander Review target for
33% female representation on FTSE 350 company boards and intends to
strive to reach this level. Board representation will at all times
seek to optimise the necessary balance of skills, experience, and
sector knowledge appropriate for the Company.
Governance and Effectiveness
During the year, the Nomination Committee conducted a review of
its activities against its constitution and terms of reference in
respect of the year under review and concluded that it had
satisfactorily complied with all of its terms of reference.
Management, Engagement, and Service Provider Committee and
Inside Information Committee
About the Committee
The Management Engagement and Service Provider Committee
("MESPC") was established on 24 November 2015 and is chaired by Mr
Warner. Its members are outlined on page 56. The other Directors of
the Company may attend by invitation of the Committee.
The MESPC held two meetings in the year under review and all
members of the Committee attended the meetings.
Activities of the Committee
In the course of the year under review, the MESPC conducted a
review of the Company's service providers to ensure the safe and
accurate management and administration of the Company's affairs and
business under terms which were competitive and reasonable for the
shareholders.
Investment Manager Review
The Board as a whole undertakes annual visits to the Investment
Manager's offices, usually alternating between Boston and London.
In November 2019, the Board visited the Investment Manager's Dublin
offices. As part of this visit, the Board received presentations
from various operational teams and the senior management of the
Investment Manager regarding investment strategy and other matters
relating to the Company's affairs, and discussed the conclusions of
this review with the Investment Manager. The Board and Management
Engagement and Service Provider Committee are satisfied with the
performance of the Investment Manager with respect to investment
returns and the overall level of service provided to the
Company.
B roker
Pursuant to good practice, the Board undertook a broker tender
process during the year. Seven firms were approached to participate
in the tender process and four met with a sub-committee of the
Board. Following this process, the continued appointments of
Jefferies Hoare Govett and J.P. Morgan Cazenove were confirmed.
MESPC Review
The MESPC met in November 2019 and conducted a detailed review
of the performance of all key service providers to the Company
against the following criteria for the year under review:
-- scope of service;
-- key personnel;
-- key results achieved for the Company;
-- fees charged to the Company;
-- breaches and errors in the year under review;
-- cyber security and IT controls environment; and
-- GDPR compliance.
Governance and Effectiveness
In November 2019, the MESPC conducted a review of its activities
against its constitution and terms of reference in respect of the
year under review and concluded that it had satisfactorily complied
with all of its terms of reference.
Inside Information Committee
About the Committee
The Committee was formed on 12 July 2016 to consider information
which may need to be made public in order for the Company to comply
with its obligations under the EU Market Abuse Regulation ("EU
MAR"). It met once during the year.
Statement of Compliance with the AIC Code of Corporate
Governance
The Directors place a large degree of importance on ensuring
that high standards of corporate governance are maintained and have
therefore chosen to comply with the provisions of the AIC Code of
Corporate Governance published in February 2019 (the "AIC
Code").
The Board has considered the principles and provisions of the
AIC Code. The AIC Code addresses all the principles and provisions
set out in the 2018 UK Corporate Governance Code (the "UK Code"),
as well as setting out additional provisions on issues that are of
specific relevance to the Company. The Board considers that
reporting against the principles and provisions of the AIC Code
provides more relevant information to stakeholders. The AIC Code is
available on the AIC website www.theaic.co.uk.
The Company has complied with all the principles and provisions
of the AIC Code during the year ended 31 January 2020 except as set
out in the column to the right:
Policy on the Tenure of the Chair
The Board has not formalised a policy on the tenure of the Chair
or Directors, which is not in accordance with the AIC Code. This is
because the Board would like to retain the flexibility to consider
the balance of skills and experience of the Board as a whole in
order to manage changes to the Board's composition.
The board has not established a separate remuneration
committee
The Board has decided that the entire Board should fulfil the
role of the Remuneration Committee. The Board considers that given
the Company's structure and the fact it has no Executive Directors,
it is appropriate for remuneration issues to be considered by the
full Board.
Set out below is where stakeholders can find further information
within the Annual Report about how the Company has complied with
the various Principles and Provisions of the AIC Code.
1. BOARD LEADERSHIP AND PURPOSE
-------------------------------- ---------------------------------
Purpose On the inside cover
-------------------------------- ---------------------------------
On pages 50 to 51 and 24 to
Strategy 25
-------------------------------- ---------------------------------
Values and culture On page 56
-------------------------------- ---------------------------------
Relations with Shareholders
Shareholder engagement on page 22
-------------------------------- ---------------------------------
On pages 22 to 23, and Section
172 Statement and sample key
Stakeholder engagement decisions on page 24
-------------------------------- ---------------------------------
2. Division of responsibilities
-------------------------------- ---------------------------------
Director independence Directors on pages 48 and 49
-------------------------------- ---------------------------------
Board and Committee Meetings
with Director Attendance on
Board meetings page 57
-------------------------------- ---------------------------------
Investment Manager on page 23
Relationship with Investment and Investment Manager's Report
Manager on page 6 to 11
-------------------------------- ---------------------------------
Management Engagement and Service
Management Engagement Committee Provider Committee on page 63
-------------------------------- ---------------------------------
3. Composition, Succession,
and Evaluation
-------------------------------- ---------------------------------
Nomination Committee on page
Nomination Committee 62
-------------------------------- ---------------------------------
Director re-election Board Composition on page 58
-------------------------------- ---------------------------------
Approach to Succession Planning
Use of an external search agency on page 62
-------------------------------- ---------------------------------
Board and Committees Evaluation
Board evaluation on page 62
-------------------------------- ---------------------------------
4. Audit, Risk, and Internal
Control
-------------------------------- ---------------------------------
Audit and Risk Committee on
Audit Committee pages 59 to 61
-------------------------------- ---------------------------------
Principal Risks and Uncertainties
Emerging and principal risks on pages 34 to 35
-------------------------------- ---------------------------------
Risk management and internal Risk Management and Internal
control systems Controls on page 60
-------------------------------- ---------------------------------
Going concern statement Going Concern on page 65
-------------------------------- ---------------------------------
Viability Statement on page
Viability statement 65 to 66
-------------------------------- ---------------------------------
5. Remuneration
-------------------------------- ---------------------------------
Directors' Remuneration Report on page 67
-------------------------------- ---------------------------------
Introduction to the Going Concern and Viability Statement
Since the inception of HVPE, the Directors have relied upon
model scenarios to manage the Company's liquidity requirements and
balance sheet risk more generally. This modelling, outlined on
pages 27 and 28, also allows the Directors to evaluate whether the
Company is a Going Concern, as well as assess its Viability. While
the modelling process has been refined over the years, it has
provided a consistent approach through which the Directors have
been able to provide a firm assessment, as demonstrated through the
GFC. As highlighted throughout this report, the onset of COVID-19
and the subsequent portfolio assessment undertaken by the
Investment Manager, has led the Company to update its models as
described on page 28. For the purpose of assessing the Going
Concern and the Viability Statement over one year and five years
respectively, the Directors primarily focused on two scenarios: the
Low Base and the Extreme Downside.
Going Concern
After considering the results of the model scenarios as
explained on page 28 compared to actual cash flows to date, making
due enquiries of the Investment Manager, and being mindful of the
closed-ended nature of the Company with no fixed life and the
nature of its investments, the Directors are satisfied that it is
appropriate to continue to adopt the going concern basis in
preparing the Financial Statements. Additionally, after due
consideration, the Directors consider that the Company is able to
continue for a period of at least the next 12 months from the
approval date of the Financial Statements. The Board monitors and
manages its ongoing commitments via the criteria set out on pages
50 to 51 and reviews reports from the Investment Manager detailing
ongoing commitments and the Investment Pipeline. Furthermore, the
Board, as part of its regular review of the Consolidated Statement
of Assets and Liabilities and debt position, regularly considers
the model scenario outputs that are based on a look-through to the
anticipated underlying fund and portfolio cash flows.
Viability Statement
Pursuant to provision 36 of the AIC Code, the Board has assessed
the viability of the Company over a five-year period from 31
January 2020. Whilst the Board has no reason to believe that the
Company will not be viable over a longer period, it has chosen this
period as it aligns with the Board's strategic horizon and is
within the term of the Company's credit facility.
The Company's investment objective is to generate superior
shareholder returns through long-term capital appreciation by
investing primarily in a diversified portfolio of private markets
investments. The majority of the Company's investments are in
HarbourVest managed private equity fund-of-funds, which have fund
lives of 10 to 14 years.
While the Company's investment lifecycle spans a time period of
ten years or more, the Board focuses on a five-year time horizon
when considering the strategic planning of the Company, as
discussed on pages 32 to 33 of the Company's Annual Report. The
strategic planning centres on building a portfolio of long-term
assets through capital allocation into a set of rolling five-year
portfolio construction targets defined by investment stage,
geography, and strategy. While reviewed and updated annually, this
rolling five-year process allows the Board a medium-term view of
potential growth, projected cash flow and potential future
commitments under various economic scenarios.
As part of its strategic planning, the Board considered model
scenarios as explained above assuming varying degrees of impact on
the portfolio related to COVID-19. The Board primarily focused on
two scenarios, the Low Base and Extreme Downside, which assumed
large NAV declines and a material reduction in realisations from
underlying company investments. The Board concluded that new
commitments would need to be materially reduced under these
scenarios, but that the Company's cash balance and available credit
facility would be sufficient to cover any capital requirements (as
it was during the GFC). The results of these model scenarios showed
that the Company would be able to withstand the impact of these
scenarios occurring over the five-year period.
The Board considers that a five-year period to 31 January 2025
is an appropriate period of time to assess the Company's viability,
as the term of the credit facility gives the Board confidence to
look ahead and align the viability assessment with the strategic
planning horizon of the Company. The credit facility is a five-year
evergreen structure with an initial two-year no-notice provision,
giving it an initial term of seven years to January 2026. From
January 2021, the lenders have the option to serve notice, but the
notice given must be a minimum of five years. The credit facility
is a significant component in supporting the Company's over
commitment strategy and the facility covers the Board's five-year
strategic planning horizon.
The Board, in assessing the viability of the Company, has also
paid particular attention to the principal risks faced by the
Company as disclosed on pages 34 and 35 of the Company's Annual
Report. In addition, the Board has established a risk management
framework, which is intended to identify, measure, monitor, report
and, where appropriate, mitigate the risks to the Company's
investment objective, including any liquidity or solvency issues.
The Board does not consider any other risks to be principal risks
as defined in the UK Code. Based on its review, the Board has a
reasonable expectation that the Company will be able to continue in
operation and meet its liabilities as they fall due over a
five-year period to 31 January 2025.
Statement of Directors' Responsibilities in Respect of the
Financial Statements
The Directors are required to prepare Financial Statements for
each financial year which give a true and fair view of the assets,
liabilities, financial position, and profit or loss of the Company
in accordance with US GAAP at the end of the financial year and of
the gain or loss for that period. In preparing those Financial
Statements, the Directors are required to:
-- select suitable accounting policies and apply them
consistently;
-- make judgements and estimates that are reasonable and
prudent;
-- state whether applicable accounting standards have been
followed subject to any material departures disclosed and explained
in the Financial Statements; and
-- prepare the Financial Statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping proper accounting
records which disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the Financial Statements have been properly prepared in accordance
with The Companies (Guernsey) Law, 2008 (as amended). They are also
responsible for safeguarding the assets of the Company and hence
for taking reasonable steps for the prevention and detection of
fraud and other irregularities.
The Directors are responsible for ensuring that the Annual
Report and Financial Statements include the information required by
the Listing Rules and the Disclosure Guidance and Transparency
Rules of the Financial Conduct Authority (together "the Rules").
They are also responsible for ensuring that the Company complies
with the provisions of the Rules which, with regard to corporate
governance, require the Company to disclose how it has applied the
principles, and complied with the provisions, of the corporate
governance code applicable to the Company.
Disclosure of Information to the Auditor
So far as each of the Directors is aware, there is no relevant
audit information of which the Company's auditor is unaware, and
each has taken all the steps they ought to have taken as a Director
to make themselves aware of any relevant audit information and to
establish that the Company's auditor is aware of that
information.
Responsibility Statement
The Board of Directors, as identified on pages 48 and 49,
jointly and severally confirm that, to the best of their
knowledge:
-- the Financial Statements, prepared in accordance with US
GAAP, give a true and fair view of the assets, liabilities,
financial position and profits of the Company and its
undertakings;
-- this report includes a fair review of the development and
performance of the business and the position of the Company and the
undertakings included in the consolidation taken as a whole,
together with a description of the principal risks and
uncertainties that they face; and
-- the Annual Report and Financial Statements taken as a whole
are fair, balanced, and understandable and provide the information
necessary for shareholders to assess the Company and its
undertakings' position, performance, business model, and
strategy.
Signed on behalf of the Board by:
Michael Bunbury Steven Wilderspin
Chairman Chairman of the Audit
and Risk Committee
23 June 2020
Directors' Remuneration Report
An ordinary resolution for the approval of this Directors'
Remuneration Report will be put to shareholders at the forthcoming
Annual General Meeting to be held in 2020.
There are no long-term incentive schemes provided by the Company
and no performance fees are paid to Directors.
No Director has a service contract with the Company; however,
each Director is appointed by a letter of appointment which sets
out the terms of the appointment.
Directors are remunerated in the form of fees, payable quarterly
in arrears to the Director personally. The table below details the
fees paid to each Director of the Company for the years ended 31
January 2019 and 31 January 2020. The Company's Articles limit the
aggregate fees payable to Directors to a maximum of GBP550,000 per
annum. The Board reviewed remuneration in the year, and where
necessary this was revised in 2019.
Under the Company's Articles, Directors are entitled to
additional ad-hoc remuneration for project work outside of the
scope of their ordinary duties. No such payments were made in the
year ending 31 January 2020.
Fees Paid Fees Paid
for the for the
12 12
Months Months
Ended Ended
31 January 31 January
Director Role 2020 2019
-------------------- ------------------------------ ---------- ----------
Sir Michael Bunbury Chairman, Independent Director GBP140,000 GBP140,000
-------------------- ------------------------------ ---------- ----------
Francesca Barnes Independent Director GBP51,000 GBP50,000
-------------------- ------------------------------ ---------- ----------
Keith Corbin(1) Independent Director GBP22,921 GBP52,504
-------------------- ------------------------------ ---------- ----------
Carolina Espinal Director Nil Nil
-------------------- ------------------------------ ---------- ----------
Alan Hodson Independent Director GBP51,000 GBP50,000
-------------------- ------------------------------ ---------- ----------
Andrew Moore Independent Director GBP51,000 GBP50,000
-------------------- ------------------------------ ---------- ----------
Jean-Bernard Schmidt Independent Director Nil GBP23,436
-------------------- ------------------------------ ---------- ----------
Ed Warner Independent Director GBP21,856 Nil
-------------------- ------------------------------ ---------- ----------
Audit and Risk Committee
Steven Wilderspin Chairman GBP59,750 GBP38,237
-------------------- ------------------------------ ---------- ----------
Peter Wilson Director Nil Nil
-------------------- ------------------------------ ---------- ----------
D. Brooks Zug Director Nil Nil
-------------------- ------------------------------ ---------- ----------
Total GBP397,527 GBP404,177
-------------------- ------------------------------ ---------- ----------
Director Director
fees payable fees payable
with effect with effect
from from
1 October 1 January
2019 2019
Role (annualised) (annualised)
--------------------------------- ------------- ------------
Chairman, Independent Director GBP140,000(2) GBP140,000
--------------------------------- ------------- ------------
Audit and Risk Committee Chairman GBP64,000(4) GBP55,000(3)
--------------------------------- ------------- ------------
Senior Independent Director GBP54,000(5) GBP50,000
--------------------------------- ------------- ------------
Independent Director GBP54,000(5) GBP50,000
--------------------------------- ------------- ------------
1 Mr Keith Corbin was Audit and Risk Committee Chairman until 31
July 2018 when Mr Steven Wilderspin was appointed to this role.
2 Will be reduced to GBP100,000 with effect from 22 July 2020.
3 Increased to GBP60,000 with effect from 1 April 2019.
4 Increased to GBP64,000 with effect from 1 October 2019.
5 Increased to GBP54,000 with effect from 1 October 2019.
Signed on behalf of the Board by:
Michael Bunbury Steven Wilderspin
Chairman Chairman of the Audit and Risk Committee
23 June 2020
Independent Auditor's Report
to the Members of HarbourVest Global Private Equity Limited
Opinion
We have audited the Consolidated Financial Statements
("Financial Statements") of HarbourVest Global Private Equity
Limited (the "Company") and its subsidiaries (together the "Group")
for the year ended 31 January 2020, which comprise the Consolidated
Statements of Assets and Liabilities, the Consolidated Statements
of Operations, Consolidated Statements of Changes in Net Assets,
the Consolidated Statements of Cash Flows, the Consolidated
Schedule of Investments, and the related notes 1 to 11, including a
summary of significant accounting policies. The financial reporting
framework that has been applied in their preparation is applicable
law and United States Generally Accepted Accounting Principles ("US
GAAP").
In our opinion, the Financial Statements:
-- give a true and fair view of the state of the Group's affairs
as at 31 January 2020 and of its profit for the year then
ended;
-- have been properly prepared in accordance with US GAAP;
and
-- have been properly prepared in accordance with the
requirements of the Companies (Guernsey) Law, 2008.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) ("ISAs (UK)") and applicable law. Our
responsibilities under those standards are further described in the
"Auditor's responsibilities for the audit of the Financial
Statements" section of our report below. We are independent of the
Group in accordance with the ethical requirements that are relevant
to our audit of the Financial Statements in the UK, including the
FRC's Ethical Standard as applied to listed entities, and we have
fulfilled our other ethical responsibilities in accordance with
these requirements.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to principal risks, going concern and
viability statement
We have nothing to report in respect of the following
information in the Annual Report, in relation to which the ISAs
(UK) require us to report to you whether we have anything material
to add or draw attention to:
-- the disclosures in the Annual Report set out on pages 28 to
29 that describe the principal risks and explain how they are being
managed or mitigated;
-- the Directors' confirmation set out on pages 34 to 35 in the
Annual Report that they have carried out a robust assessment of the
principal risks facing the entity, including those that would
threaten its business model, future performance, solvency or
liquidity;
-- the Directors' statement set out on page 65 in the Financial
Statements about whether they considered it appropriate to adopt
the going concern basis of accounting in preparing them, and their
identification of any material uncertainties to the entity's
ability to continue to do so over a period of at least twelve
months from the date of approval of the Financial Statements;
-- whether the Directors' statement in relation to going concern
required under the Listing Rules is materially inconsistent with
our knowledge obtained in the audit; or
-- the Directors' explanation set out on pages 65 to 66 in the
Annual Report as to how they have assessed the prospects of the
entity, over what period they have done so and why they consider
that period to be appropriate, and their statement as to whether
they have a reasonable expectation that the entity will be able to
continue in operation and meet its liabilities as they fall due
over the period of their assessment, including any related
disclosures drawing attention to any necessary qualifications or
assumptions.
Key audit matters
-- Risk of misstatement or manipulation of the valuation of the
Group's investments in the underlying Primary or Secondary
HarbourVest funds/ Direct HarbourVest Co-Investment funds, together
the "HarbourVest investment funds".
-- Risk of improper use of going concern basis of accounting,
insufficient going concern disclosures or failure to account for
material subsequent events
Materiality
-- Overall materiality of $44.0 million (2019: $38.5 million),
which is 2 per cent (2019: 2 per cent) of net assets.
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the Financial
Statements of the current year and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had
the greatest effect on the overall audit strategy, the allocation
of resources in the audit and directing the efforts of the
engagement team. These matters were addressed in the context of our
audit of the Financial Statements as a whole, and in our opinion
thereon, and we do not provide a separate opinion on these
matters.
Risk Misstatement or manipulation of the valuation of
the Group's investments ($2,066 million; 2019 $1,760
million).
Refer to the Accounting Policies and Note 2 of the
Financial Statements.
Risk that the valuation of the Group's investments
at 31 January 2020, which comprise 93.8% (2019:
91.5%) of net assets, is materially misstated.
The valuation of the investments is the principal
driver of the Group's net asset value and hence
incorrect valuations would have a significant impact
on the net asset value and performance of the Group.
---------------- ----------------------------------------------------------------
Our response Our response comprised the performance of the following
to risk procedures:
* Confirmed and documented our understanding of the
Group's processes and methodologies for valuing
investments held by the Group in the HarbourVest
investment funds, including the use of the practical
expedient as set out in Accounting Standard
Codification (ASC) Topic 820 Fair Value Measurement;
* Agreed the individual fair values of each HarbourVest
investment fund the Group has invested into to its
underlying audited Net Asset Value in the
corresponding financial statements as at 31 December
2019 which, prior to adjustments, formed the basis
for the Group's carrying amount as at 31 January
2020;
* Obtained a schedule of all adjustments made to those
audited Net Asset Values between 1 January 2020 and
31 January 2020, and:
* Verified foreign exchange rate changes to independent
third-party sources, and their application to any
HarbourVest investment funds denominated in foreign
currencies;
* Recalculated a sample of accrued management fees in
the HarbourVest investment funds based on the terms
of the signed management agreements and agreed terms
to relevant supporting documents;
* Where applicable, recalculated the impact of any
carried interest taken by the GP of the underlying
HarbourVest investment funds on the gains and losses
allocated to the Group for the period from 1 January
2020 to 31 January 2020;
* Independently sourced third-party prices and verified
fair value changes on publicly traded securities held
in the HarbourVest investment funds; and
* Verified contributions and withdrawals made to/from
the HarbourVest investment funds to supporting bank
statements.
* We judgementally selected a sample of direct
investments held by the HarbourVest investment funds
based on materiality, complexity in valuation
methodology, and sensitivity of inputs, and:
* Engaged EY internal valuation specialists to
independently re-value and conclude on their values
as at 31 December 2019, and roll forward to 31
January 2020;
* Identified key inputs to the valuations and performed
sensitivity analysis around them; and
* Considered whether there were changes in market
conditions during the period 1 January 2020 to 31
January 2020 that could have had a material impact
when applied to the key sensitive inputs to the
valuations of the direct investments of the
HarbourVest investment funds selected in our sample.
* Obtained and examined direct investment transaction
reports post 31 December 2019 for material changes in
the direct portfolio investments held in the
HarbourVest investment funds; and
* Obtained any post-closing adjustments from the
Investment Manager and validated that there were no
material changes to the Net Asset Values subsequent
to the HarbourVest investment funds' finalized
financial reporting process.
---------------- ----------------------------------------------------------------
Key observations We reported to the Audit Committee that we did not
communicated identify any instances of the use of inappropriate
to the Audit methodologies and that the valuation of the Group's
Committee investments in the HarbourVest investment funds
were not materially misstated.
---------------- ----------------------------------------------------------------
Risk Risk of improper use of going concern basis of accounting,
insufficient going concern disclosures or failure
to account for material subsequent events
Refer to the Directors' statement on going concern
(page 65) and Note 2 of the Financial Statements.
The Directors are required to determine the appropriateness
of preparing the financial statements on a going
concern basis. In doing so, they are obliged to
consider the ability of the Company to meet its
financial obligations as they fall due for a period
of at least twelve months from the date of approval
of the financial statements. The outbreak of the
Coronavirus ('COVID-19') and the resulting financial
and economic market uncertainty, could have a significant
adverse impact on the performance of the Company,
which potentially could lead to the improper application
of the directors' going concern assumption.
They are also required to assess the adequacy of
the going concern disclosures in the annual report
and financial statements.
The Company has a bank facility in place ($600 million),
of which it has drawn upon post year end ($200 million).
The bank facility has three covenants associated,
being two Total Asset Ratios (including and excluding
underlying fund level borrowing) and a Total Commitment
Ratio.
As at 31 January 2020, the Company has unrecognised
future capital commitments of $1.8bn.
The Directors are required to make the relevant
disclosures around material subsequent events.
---------------- ----------------------------------------------------------------
Our response We performed the following procedures:
to risk * We discussed with the Directors their assessment of
going concern, which included four scenario analysis
models, including the 'Low Base Case' and 'Extreme
Downside' scenarios.
* We ascertained that the going concern assessment
covers a period of at least twelve months from the
date of approval of the financial statements.
* For the 'Low Base Case' scenario we reviewed the
working capital documentation which supports the
Directors' assessment of going concern. We challenged
the sensitivities and assumptions used in the
forecast and reviewed the 'Extreme Downside' scenario
to ascertain its impact on the available financial
resources of the Group.
* We selected judgementally a sample of underlying
transactions and discussed the associated Cashflow
Curve assumptions with the Investment Manager,
including relevant supporting evidence.
* We held discussions with the Audit Committee and
Investment Manager to determine whether, in their
opinion, there is any material uncertainty regarding
the Company's ability to pay liabilities and
commitments as they fall due. Through these
discussions we considered and challenged the options
available to the Company if it were in a stressed
scenario. These options included but were not limited
to the use of credit facilities and sales in the
secondary market.
* We considered whether the Directors' assessment of
going concern as included in the Annual Report is
appropriate and consistent with the disclosure in the
viability statement.
* We confirmed COVID-19 was a non-adjusting post
balance sheet event and ensured that the requisite
disclosures were included in the annual report,
including the subsequent events note on page 91.
---------------- ----------------------------------------------------------------
Key observations The results of our procedures are:
communicated We concluded that the impact of COVID-19 on the
to the Audit Company's investment performance was a non-adjusting
Committee post balance sheet event and has been adequately
disclosed in the Financial Statements.
---------------- ----------------------------------------------------------------
Revision of Auditor Assessment
We re-assessed the risk from the planning stage of the audit
and, due to the uncertainty in global markets caused by the
Coronavirus pandemic ('COVID-19'), we revised our risk assessment
to include the Key Audit Matter 'Risk of improper use of going
concern basis of accounting, insufficient going concern disclosures
or failure to account for material subsequent events'. Our other
Key Audit Matter is unchanged from our assessment for the year
ended 31 January 2019.
An overview of the scope of our audit
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and
our allocation of performance materiality determine our audit scope
for the Group. This enables us to form an opinion on the Financial
Statements. We take into account size, risk profile, the
organisation of the Group and effectiveness of controls, including
controls and changes in the business environment when assessing the
level of work to be performed. All audit work was performed
directly by the audit engagement team.
The audit was led from Guernsey and utilised audit team members
from the Boston office of Ernst & Young LLP in the US. We
operated as an integrated audit team across the two jurisdictions
and we performed audit procedures and responded to the risk
identified as described above.
The Group comprises the Company and its five wholly owned
subsidiaries as explained in note 2 to the Financial Statements.
The Company, each subsidiary and the consolidation are subject to
full scope audit procedures. Other than the investments which the
Company holds directly, the subsidiaries own the investments, which
are set out in the consolidated schedule of investments, and on
which we performed our work on valuation.
Our application of materiality
We apply the concept of materiality in planning and performing
the audit, in evaluating the effect of identified misstatements on
the audit and in forming our audit opinion.
Materiality
"Materiality" is the magnitude of omissions or misstatements
that, individually or in aggregate, could reasonably be expected to
influence the economic decisions of the users of the Financial
Statements. Materiality provides a basis for determining the nature
and extent of our audit procedures.
We determined planning materiality for the Group to be $44.0
million (2019: $38.5 million), which is 2 per cent (2019: 2 per
cent) of net assets. This provided a basis for determining the
nature, timing and extent of risk assessment procedures,
identifying and assessing the risk of material misstatement and
determining the nature, timing and extent of further audit
procedures. We used net assets as a basis for determining planning
materiality because the Group's primary performance measures for
internal and external reporting are based on net assets as we
consider it is the measure most relevant to the stakeholders of the
Group.
We calculated materiality during the planning stage of the audit
and during the course of our audit we reassessed initial
materiality based on 31 January 2020 net assets.
Performance materiality
"Performance materiality" is the application of materiality at
the individual account or balance level. It is set at an amount to
reduce to an appropriately low level the probability that the
aggregate of uncorrected and undetected misstatements exceeds
materiality.
On the basis of our risk assessments, together with our
assessment of the Group's overall control environment, our
judgement was that overall performance materiality (i.e. our
tolerance for misstatement in an individual account or balance) for
the Group should be 75 per cent of materiality, namely $33.0
million (2019: 75 per cent. of materiality, namely $28.9 million).
Our objective in adopting this approach was to ensure that total
uncorrected and undetected audit differences in the Financial
Statements did not exceed our materiality level.
Reporting threshold
"Reporting threshold" is an amount below which identified
misstatements are considered as being clearly trivial.
We agreed with the Audit Committee that we would report to them
all audit differences in excess of $2.2 million (2019: $1.9
million) which is set at 5 per cent of planning materiality, as
well as differences below that threshold that, in our view,
warranted reporting on qualitative grounds.
We evaluated any uncorrected misstatements against both the
quantitative measures of materiality discussed above and in light
of other relevant qualitative considerations in forming our
opinion.
Other information
The other information comprises the information included in the
Annual Report, other than the Financial Statements and our
auditor's report thereon. The Directors are responsible for the
other information.
In connection with our audit of the Financial Statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the Financial Statements or our knowledge obtained in the
audit or otherwise appears to be materially misstated. If we
identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a
material misstatement in the Financial Statements or a material
misstatement of the other information. If, based on the work we
have performed, we conclude that there is a material misstatement
of the other information, we are required to report that fact.
We have nothing to report in this regard.
In this context, we also have nothing to report in regard to our
responsibility to specifically address the following items in the
other information and to report as uncorrected material
misstatements of the other information where we conclude that those
items meet the following conditions:
Fair, balanced and understandable set out on page 64 - the
statement given by the Directors that they consider the Annual
Report and Financial Statements taken as a whole is fair, balanced
and understandable and provides the information necessary for
Shareholders to assess the Group's performance, business model and
strategy, is materially inconsistent
with our knowledge obtained in the audit; or
Audit committee reporting set out on pages 59 to 61 - the
section describing the work of the audit committee does not
appropriately address matters communicated by us to the audit
committee; or
Directors' statement of compliance with the UK Corporate
Governance Code set out on pages 64 to 66 - the parts of the
Directors' statement required under the Listing Rules relating to
the Group's compliance with the UK Corporate Governance Code
containing provisions specified for review by the auditor in
accordance with Listing Rule 9.8.10R(2) do not properly disclose a
departure from a relevant provision of the UK Corporate Governance
Code.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in
relation to which the Companies (Guernsey) Law, 2008 requires us to
report to you if, in our opinion:
-- proper accounting records have not been kept by the Company;
or
-- the Financial Statements are not in agreement with the
Company's accounting records and returns; or
-- we have not received all the information and explanations we
require for our audit.
Responsibilities of directors
As explained more fully in the Directors' Responsibilities
Statement set out on page 66, the Directors are responsible for the
preparation of the Financial Statements and for being satisfied
that they give a true and fair view, and for such internal control
as the Directors determine is necessary to enable the preparation
of Financial Statements that are free from material misstatement,
whether due to fraud or error.
In preparing the Financial Statements, the Directors are
responsible for assessing the Group's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
Directors either intend to liquidate the Group to cease operations,
or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the Financial Statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these Financial
Statements.
A further description of our responsibilities for the audit of
the Financial Statements is located on the Financial Reporting
Council's website at
https://www.frc.org.uk/auditorsresponsibilities. This description
forms part of our auditor's report.
Use of our report
This report is made solely to the Company's members, as a body,
in accordance with Section 262 of the Companies (Guernsey) Law,
2008. Our audit work has been undertaken so that we might state to
the Company's members those matters we are required to state to
them in an auditor's report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company's
members as a body, for our audit work, for this report, or for the
opinions we have formed.
David Robert John Moore, ACA
For and on behalf of Ernst & Young LLP
Guernsey, Channel Islands
23 June 2020
Notes:
1. The maintenance and integrity of the Company's website is the
sole responsibility of the Directors; the work carried out by the
auditors does not involve consideration of these matters and,
accordingly, the auditor accepts no responsibility for any changes
that may have occurred to the Financial Statements since they were
initially presented on the website.
2. Legislation in Guernsey governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
Independent Auditors Report
to the Directors of HarbourVest Global Private Equity
Limited
We have audited the accompanying Consolidated Financial
Statements ("financial statements") of HarbourVest Global Private
Equity Limited (the "Company") and its subsidiaries (together the
"Group"), which comprise the Consolidated Statement of Assets and
Liabilities as at 31 January 2020, and the related Consolidated
Statement of Operations, the Consolidated Statement of Changes in
Net Assets, the Consolidated Statement of Cash Flows, the
Consolidated Schedule of Investments, and the related notes 1 to 11
to the financial statements.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair
presentation of these financial statements in conformity with
United States Generally Accepted Accounting Principles ('U.S.
GAAP'). This includes the design, implementation, and maintenance
of internal control relevant to the preparation and fair
presentation of financial statements that are free of material
misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit in accordance
with auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial
statements are free of material misstatement.
An audit involves performing procedures to obtain audit evidence
about the amounts and disclosures in the financial statements. The
procedures selected depend on the auditor's judgment, including the
assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the
Company's preparation and fair presentation of the financial
statements in order to design audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control.
Accordingly, we express no such opinion. An audit also includes
evaluating the appropriateness of accounting policies used and the
reasonableness of significant accounting estimates made by
management, as well as evaluating the overall presentation of the
financial statements.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our audit
opinion.
Opinion
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of
HarbourVest Global Private Equity Limited at 31 January 2020, and
the results of its operations, changes in net assets, and its cash
flows for the year then ended, in conformity with US GAAP.
Ernst & Young LLP
Guernsey, Channel Islands
23 June 2020
Consolidated Statements of Assets and Liabilities
At 31 January 2020 and 2019
In US Dollars 2020 2019
---------------------------------------------------- -------------- --------------
ASSETS
---------------------------------------------------- -------------- --------------
Investments (Note 4) 2,065,519,797 1,760,181,991
----------------------------------------------------- -------------- --------------
Cash and equivalents 130,616,160 156,570,557
----------------------------------------------------- -------------- --------------
Other assets 8,445,852 9,745,502
----------------------------------------------------- -------------- --------------
Total assets 2,204,581,809 1,926,498,050
----------------------------------------------------- -------------- --------------
LIABILITIES
---------------------------------------------------- -------------- --------------
Accounts payable and accrued expenses 1,802,505 2,403,836
----------------------------------------------------- -------------- --------------
Accounts payable to HarbourVest Advisers L.P. (Note
9) 92,281 138,563
----------------------------------------------------- -------------- --------------
Total liabilities 1,894,786 2,542,399
----------------------------------------------------- -------------- --------------
Commitments (Note 5)
---------------------------------------------------- -------------- --------------
NET ASSETS $2,202,687,023 $1,923,955,651
----------------------------------------------------- -------------- --------------
NET ASSETS CONSIST OF
---------------------------------------------------- -------------- --------------
Shares, unlimited shares authorised, 79,862,486
shares issued and
outstanding at 31 January 2020 and 2019, no par
value 2,202,687,023 1,923,955,651
----------------------------------------------------- -------------- --------------
NET ASSETS $2,202,687,023 $1,923,955,651
----------------------------------------------------- -------------- --------------
Net asset value per share $27.58 $24.09
----------------------------------------------------- -------------- --------------
The accompanying notes are an integral part of the Financial
Statements.
The Financial Statements on pages 75 to 82 were approved by the
Board on 23 June 2020 and were signed on its behalf by:
Michael Bunbury Steven Wilderspin
Chairman Chairman of the
Audit and Risk Committee
Consolidated Statements of Operations
For the Years Ended 31 January 2020 and 2019
In US Dollars 2020 2019
------------------------------------------------------ ------------ ------------
REALISED AND UNREALISED GAINS (LOSSES) ON INVESTMENTS
------------------------------------------------------ ------------ ------------
Net realised gain on investments 136,310,816 108,314,099
------------------------------------------------------- ------------ ------------
Net change in unrealised appreciation on investments 153,005,496 110,073,273
------------------------------------------------------- ------------ ------------
NET GAIN ON INVESTMENTS 289,316,312 218,387,372
------------------------------------------------------- ------------ ------------
INVESTMENT INCOME
------------------------------------------------------ ------------ ------------
Interest and dividends from cash and equivalents 2,063,458 3,810,530
------------------------------------------------------- ------------ ------------
EXPENSES
------------------------------------------------------ ------------ ------------
Non-utilisation fees (Note 6) 5,916,192 5,836,972
------------------------------------------------------- ------------ ------------
Investment services (Note 3) 1,969,642 1,675,514
------------------------------------------------------- ------------ ------------
Financing expenses 1,488,019 1,356,199
------------------------------------------------------- ------------ ------------
Professional fees 844,538 932,601
------------------------------------------------------- ------------ ------------
Management fees (Note 3) 758,820 790,612
------------------------------------------------------- ------------ ------------
Directors' fees and expenses (Note 9) 604,289 600,347
------------------------------------------------------- ------------ ------------
Tax expenses 77,641 (56,126)
------------------------------------------------------- ------------ ------------
Other expenses 989,257 972,968
------------------------------------------------------- ------------ ------------
Total expenses 12,648,398 12,109,087
------------------------------------------------------- ------------ ------------
NET INVESTMENT LOSS (10,584,940) (8,298,557)
------------------------------------------------------- ------------ ------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $278,731,372 $210,088,815
------------------------------------------------------- ------------ ------------
The accompanying notes are an integral part of the Financial
Statements.
Consolidated Statements of Changes in Net Assets
For the Years Ended 31 January 2020 and 2019
In US Dollars 2020 2019
----------------------------------------------------- -------------- --------------
INCREASE IN NET ASSETS FROM OPERATIONS
----------------------------------------------------- -------------- --------------
Net realised gain on investments 136,310,816 108,314,099
------------------------------------------------------ -------------- --------------
Net change in unrealised appreciation 153,005,496 110,073,273
------------------------------------------------------ -------------- --------------
Net investment loss (10,584,940) (8,298,557)
------------------------------------------------------ -------------- --------------
Net increase in net assets resulting from operations 278,731,372 210,088,815
------------------------------------------------------ -------------- --------------
NET ASSETS AT BEGINNING OF YEAR 1,923,955,651 1,713,866,836
------------------------------------------------------ -------------- --------------
NET ASSETS AT OF YEAR $2,202,687,023 $1,923,955,651
------------------------------------------------------ -------------- --------------
The accompanying notes are an integral part of the Financial
Statements.
Consolidated Statements of Cash Flows
For the Years Ended 31 January 2020 and 2019
In US Dollars 2020 2019
----------------------------------------------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
----------------------------------------------------- ------------- -------------
Net increase in net assets resulting from operations 278,731,372 210,088,815
------------------------------------------------------ ------------- -------------
Adjustments to reconcile net increase in net assets
resulting from operations
to net cash used in operating activities:
----------------------------------------------------- ------------- -------------
Net realised gain on investments (136,310,816) (108,314,099)
------------------------------------------------------ ------------- -------------
Net change in unrealised depreciation (153,005,496) (110,073,273)
------------------------------------------------------ ------------- -------------
Contributions to private equity investments (324,197,851) (396,172,267)
------------------------------------------------------ ------------- -------------
Distributions from private equity investments 308,176,357 306,592,993
------------------------------------------------------ ------------- -------------
Other 652,037 (2,512,757)
------------------------------------------------------ ------------- -------------
Net cash used in operating activities (25,954,397) (100,390,588)
------------------------------------------------------ ------------- -------------
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 (25,954,397) (100,390,588)
------------------------------------------------------ ------------- -------------
CASH AND EQUIVALENTS AT BEGINNING OF YEAR 156,570,557 256,961,145
------------------------------------------------------ ------------- -------------
CASH AND EQUIVALENTS AT OF YEAR $130,616,160 $156,570,557
------------------------------------------------------ ------------- -------------
The accompanying notes are an integral part of the Financial
Statements.
Consolidated Schedule of Investments
At 31 January 2020
In US Dollars
Fair
Value
as a
%
of
Unfunded Amount Distributions Fair Net
US Funds Commitment Invested* Received Value Assets
------------------------------------ ----------- ------------- ------------- ----------- ------
HarbourVest Partners V-Partnership
Fund L.P. 2,220,000 46,709,079 45,924,243 1,115,289 0.0
------------------------------------ ----------- ------------- ------------- ----------- ------
HarbourVest Partners VI-Direct
Fund L.P. 1,312,500 46,722,408 38,404,878 3,611,410 0.2
------------------------------------ ----------- ------------- ------------- ----------- ------
HarbourVest Partners VI-Partnership
Fund L.P. 5,175,000 204,623,049 237,137,870 1,430,428 0.1
------------------------------------ ----------- ------------- ------------- ----------- ------
HarbourVest Partners VII-Venture
Partnership Fund L.P. 2,318,750 135,290,448 185,923,470 23,788,214 1.1
------------------------------------ ----------- ------------- ------------- ----------- ------
HarbourVest Partners VII-Buyout
Partnership Fund L.P. 3,850,000 74,417,291 101,688,184 2,221,758 0.1
------------------------------------ ----------- ------------- ------------- ----------- ------
HarbourVest Partners VIII-Cayman
Mezzanine and Distressed
Debt Fund L.P. 2,000,000 48,201,553 59,331,422 5,634,823 0.2
------------------------------------ ----------- ------------- ------------- ----------- ------
HarbourVest Partners VIII-Cayman
Buyout Fund L.P. 11,250,000 241,508,801 343,051,209 61,525,909 2.8
------------------------------------ ----------- ------------- ------------- ----------- ------
HarbourVest Partners VIII-Cayman
Venture Fund L.P. 1,000,000 49,191,736 68,026,931 25,647,479 1.2
------------------------------------ ----------- ------------- ------------- ----------- ------
HarbourVest Partners 2007
Cayman Direct Fund L.P. 2,250,000 97,876,849 160,808,238 4,423,302 0.2
------------------------------------ ----------- ------------- ------------- ----------- ------
HarbourVest Partners IX-Cayman
Buyout Fund L.P. 12,247,500 59,033,226 45,422,100 57,619,201 2.6
------------------------------------ ----------- ------------- ------------- ----------- ------
HarbourVest Partners IX-Cayman
Credit Opportunities Fund
L.P. 3,125,000 9,423,693 6,135,379 8,218,265 0.4
------------------------------------ ----------- ------------- ------------- ----------- ------
HarbourVest Partners IX-Cayman
Venture Fund L.P. 3,500,000 66,825,714 48,003,773 86,896,032 3.9
------------------------------------ ----------- ------------- ------------- ----------- ------
HarbourVest Partners 2013
Cayman Direct Fund L.P. 3,228,996 97,131,486 111,969,614 76,990,456 3.5
------------------------------------ ----------- ------------- ------------- ----------- ------
HarbourVest Partners Cayman
Cleantech Fund II L.P. 4,300,000 15,755,952 3,545,869 15,844,249 0.7
------------------------------------ ----------- ------------- ------------- ----------- ------
HarbourVest Partners X
Buyout Feeder
Fund L.P. 138,600,000 113,427,552 36,413,397 125,158,592 5.7
------------------------------------ ----------- ------------- ------------- ----------- ------
HarbourVest Partners X
Venture Feeder
Fund L.P. 52,910,000 95,143,838 11,816,651 141,682,599 6.4
------------------------------------ ----------- ------------- ------------- ----------- ------
HarbourVest Partners Mezzanine
Income Fund L.P. 8,155,000 42,066,579 19,963,861 39,670,509 1.8
------------------------------------ ----------- ------------- ------------- ----------- ------
HarbourVest Partners XI
Buyout Feeder
Fund L.P. 318,500,000 31,500,000 - 36,490,456 1.7
------------------------------------ ----------- ------------- ------------- ----------- ------
HarbourVest Partners XI
Micro Buyout Feeder Fund
L.P. 63,050,000 1,950,274 - 2,332,052 0.1
------------------------------------ ----------- ------------- ------------- ----------- ------
HarbourVest Partners XI
Venture Feeder
Fund L.P. 171,000,000 19,036,139 - 21,829,412 1.0
------------------------------------ ----------- ------------- ------------- ----------- ------
HarbourVest Adelaide Feeder
L.P. 76,125,000 73,875,000 - 88,168,052 4.0
------------------------------------ ----------- ------------- ------------- ----------- ------
Total US Funds 886,117,746 1,569,710,667 1,523,567,089 830,298,487 37.7
------------------------------------ ----------- ------------- ------------- ----------- ------
Fair
Value
as a
%
of
Unfunded Amount Distributions Net
International/Global Funds Commitment Invested Received Fair Value Assets
--------------------------------- -------------- -------------- -------------- -------------- ------
HarbourVest International
Private Equity Partners
III-Partnership Fund L.P. 3,450,000 147,728,557 148,439,622 459,648 0.0
--------------------------------- -------------- -------------- -------------- -------------- ------
HarbourVest International
Private Equity Partners
IV-Direct Fund L.P. - 61,452,400 53,436,349 1,889,946 0.1
--------------------------------- -------------- -------------- -------------- -------------- ------
HIPEP V-2007 Cayman European
Buyout Companion Fund
L.P.(--) 1,579,087 63,880,350 81,216,511 4,205,570 0.2
--------------------------------- -------------- -------------- -------------- -------------- ------
Dover Street VII Cayman
L.P.(++) 4,413,862 95,586,138 127,101,279 8,718,149 0.4
--------------------------------- -------------- -------------- -------------- -------------- ------
HIPEP VI-Cayman Partnership
Fund L.P.** 5,546,500 117,844,925 86,215,226 114,737,162 5.2
--------------------------------- -------------- -------------- -------------- -------------- ------
HIPEP VI-Cayman Asia Pacific
Fund L.P. 3,000,000 47,187,431 34,360,314 41,735,529 1.9
--------------------------------- -------------- -------------- -------------- -------------- ------
HIPEP VI-Cayman Emerging
Markets
Fund L.P. - 30,059,489 7,122,156 30,298,326 1.4
--------------------------------- -------------- -------------- -------------- -------------- ------
HVPE Avalon Co-Investment
L.P. 1,643,962 85,135,136 124,138,700 480,180 0.0
--------------------------------- -------------- -------------- -------------- -------------- ------
Dover Street VIII Cayman
L.P. 16,200,000 163,924,389 190,959,375 69,693,642 3.2
--------------------------------- -------------- -------------- -------------- -------------- ------
HVPE Charlotte Co-Investment
L.P. - 93,894,011 140,207,934 19,779,480 0.9
--------------------------------- -------------- -------------- -------------- -------------- ------
HarbourVest Global Annual
Private Equity Fund L.P. 16,800,000 83,201,202 47,245,006 97,606,581 4.4
--------------------------------- -------------- -------------- -------------- -------------- ------
HIPEP VII Partnership
Feeder Fund L.P. 35,312,500 89,687,500 17,955,847 112,520,808 5.1
--------------------------------- -------------- -------------- -------------- -------------- ------
HIPEP VII Asia Pacific
Feeder Fund L.P. 5,625,000 24,375,000 4,389,847 30,417,420 1.4
--------------------------------- -------------- -------------- -------------- -------------- ------
HIPEP VII Emerging Markets
Feeder
Fund L.P. 6,600,000 13,400,000 2,308,611 15,641,946 0.7
--------------------------------- -------------- -------------- -------------- -------------- ------
HIPEP VII Europe Feeder
Fund L.P. 20,266,911 51,024,594 14,359,231 58,519,964 2.6
--------------------------------- -------------- -------------- -------------- -------------- ------
HarbourVest Canada Parallel
Growth Fund L.P.(++++) 11,919,759 12,453,815 3,168,802 15,992,657 0.7
--------------------------------- -------------- -------------- -------------- -------------- ------
HarbourVest 2015 Global
Fund L.P. 26,500,000 73,517,309 26,468,961 87,191,775 4.0
--------------------------------- -------------- -------------- -------------- -------------- ------
HarbourVest 2016 Global
AIF L.P. 37,000,000 63,026,107 28,338,280 63,808,770 2.9
--------------------------------- -------------- -------------- -------------- -------------- ------
HarbourVest Partners
Co-Investment IV AIF
L.P. 7,000,006 92,999,994 14,371,425 110,299,577 5.0
--------------------------------- -------------- -------------- -------------- -------------- ------
Dover Street IX Cayman
L.P. 28,000,000 72,000,000 26,024,411 77,528,510 3.5
--------------------------------- -------------- -------------- -------------- -------------- ------
HarbourVest Real Assets
III Feeder L.P. 13,000,000 37,000,000 5,917,231 37,630,862 1.7
--------------------------------- -------------- -------------- -------------- -------------- ------
HarbourVest 2017 Global
AIF L.P. 51,500,000 48,520,959 9,704,384 51,943,094 2.3
--------------------------------- -------------- -------------- -------------- -------------- ------
HIPEP VIII Partnership
AIF L.P. 136,000,000 34,000,000 3,704,597 38,227,782 1.7
--------------------------------- -------------- -------------- -------------- -------------- ------
Secondary Overflow III
Tranche B 489,717 9,668,120 1,935,926 19,121,362 0.9
--------------------------------- -------------- -------------- -------------- -------------- ------
HarbourVest Asia Pacific
VIII AIF Fund L.P. 34,750,000 15,255,566 609,439 15,839,846 0.7
--------------------------------- -------------- -------------- -------------- -------------- ------
Secondary Overflow III
Tranche C 1,335,088 8,267,887 6,016,969 5,791,878 0.3
--------------------------------- -------------- -------------- -------------- -------------- ------
Secondary Overflow III
Tranche F 13,213,541 16,786,459 3,385,267 19,792,090 0.9
--------------------------------- -------------- -------------- -------------- -------------- ------
Secondary Overflow III
Tranche G 2,368,597 12,631,403 3,242,588 12,731,479 0.6
--------------------------------- -------------- -------------- -------------- -------------- ------
Secondary Overflow III
Tranche H 11,572,647 18,427,353 1,956,022 22,215,879 1.0
--------------------------------- -------------- -------------- -------------- -------------- ------
HarbourVest 2018 Global
Feeder Fund L.P. 50,750,000 19,250,000 - 21,834,119 1.0
--------------------------------- -------------- -------------- -------------- -------------- ------
HarbourVest Partners
Co-Investment V Feeder
Fund L.P. 85,000,000 15,048,219 - 15,012,230 0.7
--------------------------------- -------------- -------------- -------------- -------------- ------
HarbourVest Real Assets
IV Feeder L.P. 50,000,000 - - 1,556,224 0.1
--------------------------------- -------------- -------------- -------------- -------------- ------
HarbourVest 2019 Global
Feeder Fund L.P. 95,000,000 5,006,832 - 5,691,795 0.3
--------------------------------- -------------- -------------- -------------- -------------- ------
HarbourVest Credit Opportunities
Fund II L.P. 50,000,000 - - (49,383) (0.0)
--------------------------------- -------------- -------------- -------------- -------------- ------
Dover Street X Feeder
Fund L.P. 95,000,000 5,000,000 - 6,356,413 0.3
--------------------------------- -------------- -------------- -------------- -------------- ------
Total International /Global
Funds 920,837,177 1,727,241,145 1,214,300,310 1,235,221,310 56.1
--------------------------------- -------------- -------------- -------------- -------------- ------
TOTAL INVESTMENTS $1,806,954,923 $3,296,951,812 $2,737,867,399 $2,065,519,797 93.8
--------------------------------- -------------- -------------- -------------- -------------- ------
* 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 EUR47,450,000.
** Fund denominated in euros. Commitment amount is
EUR100,000,000.
Fund denominated in euros. Commitment amount is
EUR63,000,000.
++++ Fund denominated in Canadian dollars. Commitment amount is
C$32,000,000.
As of 31 January 2020, the cost basis of partnership investments
is $1,641,567,593.
The accompanying notes are an integral part of the Financial
Statements.
Consolidated Schedule of Investments
At 31 January 2019
In US Dollars
Fair
Value
as a %
of
Unfunded Amount Distributions Net
US Funds Commitment Invested* Received Fair Value Assets
------------------------------------ ----------- ------------- ------------- ----------- ------
HarbourVest Partners V-Partnership
Fund L.P. 2,220,000 46,709,079 45,924,243 1,167,969 0.1
------------------------------------ ----------- ------------- ------------- ----------- ------
HarbourVest Partners VI-Direct
Fund L.P. 1,312,500 46,722,408 38,404,878 5,906,149 0.3
------------------------------------ ----------- ------------- ------------- ----------- ------
HarbourVest Partners VI-Partnership
Fund L.P. 5,175,000 204,623,049 236,003,146 2,555,875 0.1
------------------------------------ ----------- ------------- ------------- ----------- ------
HarbourVest Partners VI-Buyout
Partnership Fund L.P. 450,000 8,633,048 9,413,708 13,891 0.0
------------------------------------ ----------- ------------- ------------- ----------- ------
HarbourVest Partners VII-Venture
Partnership Fund L.P. 2,318,750 135,290,448 181,888,562 25,365,895 1.3
------------------------------------ ----------- ------------- ------------- ----------- ------
HarbourVest Partners VII-Buyout
Partnership Fund L.P. 3,850,000 74,417,291 100,176,090 3,480,117 0.2
------------------------------------ ----------- ------------- ------------- ----------- ------
HarbourVest Partners VIII-Cayman
Mezzanine and Distressed
Debt Fund L.P. 2,000,000 48,201,553 57,549,040 8,203,416 0.4
------------------------------------ ----------- ------------- ------------- ----------- ------
HarbourVest Partners VIII-Cayman
Buyout Fund L.P. 11,250,000 241,508,801 325,180,921 78,021,586 4.1
------------------------------------ ----------- ------------- ------------- ----------- ------
HarbourVest Partners VIII-Cayman
Venture Fund L.P. 1,000,000 49,191,736 61,985,738 28,682,559 1.5
------------------------------------ ----------- ------------- ------------- ----------- ------
HarbourVest Partners 2007
Cayman Direct Fund L.P. 2,250,000 97,876,849 159,156,127 8,616,248 0.5
------------------------------------ ----------- ------------- ------------- ----------- ------
HarbourVest Partners IX-Cayman
Buyout Fund L.P. 17,572,500 53,708,226 39,540,071 47,198,434 2.5
------------------------------------ ----------- ------------- ------------- ----------- ------
HarbourVest Partners IX-Cayman
Credit Opportunities Fund
L.P. 4,062,500 8,486,193 5,214,064 7,335,303 0.4
------------------------------------ ----------- ------------- ------------- ----------- ------
HarbourVest Partners IX-Cayman
Venture Fund L.P. 3,500,000 66,825,714 31,601,329 84,121,980 4.4
------------------------------------ ----------- ------------- ------------- ----------- ------
HarbourVest Partners 2013
Cayman Direct Fund L.P. 3,228,996 97,131,486 62,859,121 112,064,870 5.8
------------------------------------ ----------- ------------- ------------- ----------- ------
HarbourVest Partners Cayman
Cleantech Fund II L.P. 6,950,000 13,105,952 2,864,503 12,431,236 0.6
------------------------------------ ----------- ------------- ------------- ----------- ------
HarbourVest Partners X
Buyout Feeder
Fund L.P. 173,880,000 78,147,552 15,666,222 90,030,862 4.7
------------------------------------ ----------- ------------- ------------- ----------- ------
HarbourVest Partners X
Venture Feeder
Fund L.P. 72,150,000 75,903,838 5,557,829 98,102,469 5.1
------------------------------------ ----------- ------------- ------------- ----------- ------
HarbourVest Partners Mezzanine
Income Fund L.P. 19,905,000 30,316,579 6,626,953 37,278,024 1.9
------------------------------------ ----------- ------------- ------------- ----------- ------
HarbourVest Partners XI
Buyout Feeder
Fund L.P. 230,000,000 - - 423,547 0.0
------------------------------------ ----------- ------------- ------------- ----------- ------
HarbourVest Partners XI
Micro Buyout Feeder Fund
L.P. 40,000,000 - - (159,969) (0.0)
------------------------------------ ----------- ------------- ------------- ----------- ------
HarbourVest Partners XI
Venture Feeder
Fund L.P. 115,000,000 - - 140,479 0.0
------------------------------------ ----------- ------------- ------------- ----------- ------
HarbourVest Adelaide Feeder
L.P. 135,375,000 14,625,000 - 13,943,060 0.7
------------------------------------ ----------- ------------- ------------- ----------- ------
Total US Funds 853,450,246 1,391,424,802 1,385,612,545 664,924,000 34.6
------------------------------------ ----------- ------------- ------------- ----------- ------
Fair
Value
as a
%
of
Unfunded Amount Distributions Net
International/Global Funds Commitment Invested* Received Fair Value Assets
----------------------------------- -------------- -------------- -------------- -------------- ------
HarbourVest International
Private Equity Partners
III-Partnership Fund L.P. 3,450,000 147,728,557 148,439,622 475,230 0.0
----------------------------------- -------------- -------------- -------------- -------------- ------
HarbourVest International
Private Equity Partners
IV-Direct Fund L.P. - 61,452,400 53,436,349 2,598,729 0.1
----------------------------------- -------------- -------------- -------------- -------------- ------
HIPEP V-2007 Cayman European
Buyout Companion Fund
L.P.(--) 1,629,621 63,880,350 73,759,592 12,102,112 0.6
----------------------------------- -------------- -------------- -------------- -------------- ------
Dover Street VII Cayman
L.P.(++) 4,413,862 95,586,138 123,800,354 13,088,465 0.7
----------------------------------- -------------- -------------- -------------- -------------- ------
HIPEP VI-Cayman Partnership
Fund L.P.** 6,868,800 116,723,625 70,989,053 114,542,616 6.0
----------------------------------- -------------- -------------- -------------- -------------- ------
HIPEP VI-Cayman Asia Pacific
Fund L.P. 3,000,000 47,187,431 28,848,665 44,409,179 2.3
----------------------------------- -------------- -------------- -------------- -------------- ------
HIPEP VI-Cayman Emerging
Markets
Fund L.P. 750,000 29,309,489 7,122,156 28,276,679 1.5
----------------------------------- -------------- -------------- -------------- -------------- ------
HVPE Avalon Co-Investment
L.P. 1,643,962 85,135,136 124,138,700 520,072 0.0
----------------------------------- -------------- -------------- -------------- -------------- ------
Dover Street VIII Cayman
L.P. 18,000,000 162,124,389 175,339,119 75,650,353 3.9
----------------------------------- -------------- -------------- -------------- -------------- ------
HVPE Charlotte Co-Investment
L.P. - 93,894,011 134,142,948 25,965,986 1.4
----------------------------------- -------------- -------------- -------------- -------------- ------
HarbourVest Global Annual
Private Equity Fund L.P. 22,300,000 77,701,202 29,221,482 89,132,359 4.6
----------------------------------- -------------- -------------- -------------- -------------- ------
HIPEP VII Partnership
Feeder Fund L.P. 47,187,500 77,812,500 11,632,994 93,009,726 4.8
----------------------------------- -------------- -------------- -------------- -------------- ------
HIPEP VII Asia Pacific
Feeder Fund L.P. 7,125,000 22,875,000 2,889,847 27,359,288 1.4
----------------------------------- -------------- -------------- -------------- -------------- ------
HIPEP VII Emerging Markets
Feeder
Fund L.P. 8,100,000 11,900,000 1,651,661 12,755,447 0.7
----------------------------------- -------------- -------------- -------------- -------------- ------
HIPEP VII Europe Feeder
Fund L.P. 27,767,124 44,366,028 9,285,388 48,613,004 2.5
----------------------------------- -------------- -------------- -------------- -------------- ------
HarbourVest Canada Parallel
Growth Fund L.P.(++++) 13,302,331 11,198,196 580,890 13,356,748 0.7
----------------------------------- -------------- -------------- -------------- -------------- ------
HarbourVest 2015 Global
Fund L.P. 30,000,000 70,017,309 11,805,200 84,079,828 4.4
----------------------------------- -------------- -------------- -------------- -------------- ------
HarbourVest 2016 Global
AIF L.P. 44,500,000 55,526,107 9,624,689 61,771,257 3.2
----------------------------------- -------------- -------------- -------------- -------------- ------
HarbourVest Partners
Co-Investment IV AIF
L.P. 10,500,006 89,499,994 7,685,830 100,189,382 5.2
----------------------------------- -------------- -------------- -------------- -------------- ------
Dover Street IX Cayman
L.P. 47,000,000 53,000,000 12,131,419 57,186,130 3.0
----------------------------------- -------------- -------------- -------------- -------------- ------
HarbourVest Real Assets
III Feeder L.P. 25,000,000 25,000,000 4,721,849 28,457,740 1.5
----------------------------------- -------------- -------------- -------------- -------------- ------
HarbourVest 2017 Global
AIF L.P. 58,000,000 42,020,959 5,933,218 42,010,519 2.2
----------------------------------- -------------- -------------- -------------- -------------- ------
HIPEP VIII Partnership
AIF L.P. 144,500,000 25,500,000 952,087 28,309,478 1.5
----------------------------------- -------------- -------------- -------------- -------------- ------
Secondary Overflow III
Tranche B 1,200,766 8,957,071 - 15,793,269 0.8
----------------------------------- -------------- -------------- -------------- -------------- ------
HarbourVest Asia Pacific
VIII AIF Fund L.P. 40,750,000 9,255,566 - 9,695,230 0.5
----------------------------------- -------------- -------------- -------------- -------------- ------
Secondary Overflow III
Tranche C 1,335,088 8,267,887 5,372,293 6,111,251 0.3
----------------------------------- -------------- -------------- -------------- -------------- ------
Secondary Overflow III
Tranche F 13,213,541 16,786,459 - 22,573,152 1.2
----------------------------------- -------------- -------------- -------------- -------------- ------
Secondary Overflow III
Tranche G 2,443,597 12,556,403 - 14,103,476 0.7
----------------------------------- -------------- -------------- -------------- -------------- ------
Secondary Overflow III
Tranche H 10,200,000 19,800,000 - 19,583,211 1.0
----------------------------------- -------------- -------------- -------------- -------------- ------
HarbourVest 2018 Global
Feeder Fund L.P. 65,100,000 4,900,000 - 4,700,840 0.3
----------------------------------- -------------- -------------- -------------- -------------- ------
HarbourVest Partners Co-Investment
V Feeder Fund L.P. 50,000,000 - - (1,162,765) (0.1)
----------------------------------- -------------- -------------- -------------- -------------- ------
Total International /Global
Funds 709,281,198 1,589,962,207 1,053,505,405 1,095,257,991 56.9
----------------------------------- -------------- -------------- -------------- -------------- ------
TOTAL INVESTMENTS $1,562,731,444 $2,981,387,009 $2,439,117,950 $1,760,181,991 91.5
----------------------------------- -------------- -------------- -------------- -------------- ------
* 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 EUR47,450,000.
** Fund denominated in euros. Commitment amount is
EUR100,000,000.
Fund denominated in euros. Commitment amount is
EUR63,000,000.
++++ Fund denominated in Canadian dollars. Commitment amount is
C$32,000,000.
As of 31 January 2019, the cost basis of partnership investments
is $1,489,235,283.
The accompanying notes are an integral part of the Financial
Statements.
Notes to Consolidated Financial Statements
Note 1 Company Organisation and Investment Objective
HarbourVest Global Private Equity Limited (the "Company" or
"HVPE") is a closed-ended 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 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 January 2020, the Company's shares were listed on the
London Stock Exchange under the symbol "HVPE". At 31 January 2020,
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).
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 Directors have 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.
Note 2 summary of significant accounting policies
The following accounting policies have been applied consistently
in dealing with items which are considered material in relation to
the Company's consolidated financial statements.
Basis of Preparation
The Company maintains an overcommitment strategy in an attempt
to remain fully invested over time (refer to Note 5 on page 89 for
further details on unfunded commitments). HarbourVest prepares
forecasts and predictions to provide assurance that the Company has
sufficient resources to meet its ongoing requirements. The
unprecedented nature of the COVID-19 outbreak has resulted in
uncertain financial markets and disruption of global commerce. In
response, HarbourVest conducted a rigorous bottom-up risk
assessment of the Company's underlying portfolio in an attempt to
quantify the impact of COVID-19. The majority of HVPE's portfolio
by value was deemed likely to experience a low or moderate impact,
while only a small proportion was expected to be materially
impacted. This portfolio risk assessment was used as the basis for
the creation of four revised model scenarios with varying degrees
of decline in investment value and investment distributions, with
the worst being an extreme downside scenario representing an impact
to the portfolio that is worse than that experienced during the
global financial crisis. All four models verified that the Company
has enough resources to meet the Company's upcoming financial
obligations. However, in all circumstances HVPE can take steps to
limit or mitigate the impact on the balance sheet, namely drawing
on the credit facility, pausing new commitments, raising additional
credit or capital, and selling assets to increase liquidity and
reduce outstanding commitments. As a result, the Company's
consolidated financial statements have been prepared on a going
concern basis.
Basis of Presentation
The consolidated financial statements ("Financial Statements")
include the accounts of HarbourVest Global Private Equity Limited
and its five wholly owned subsidiaries: HVGPE - Domestic A L.P.,
HVGPE - Domestic B L.P., HVGPE - Domestic C L.P., HVGPE -
International A L.P., and HVGPE - International B L.P. (together
"the undertakings"). Each of the subsidiaries is a Cayman Islands
limited partnership formed to facilitate the purchase of certain
investments. All intercompany accounts and transactions have been
eliminated in consolidation.
Method of Accounting
The Financial Statements are prepared in conformity with US
generally accepted accounting principles ("US GAAP"), The Companies
(Guernsey) Law, 2008 (as amended), and the Principal Documents.
Under applicable rules of Guernsey law implementing the EU
Transparency Directive, the Company is allowed to prepare its
financial statements in accordance with US GAAP instead of
IFRS.
The Company is an investment company following the accounting
and reporting guidance of the Financial Accounting Standards Boards
(FASB) Accounting Standards Codification ("ASC") Topic 946
Financial Services - Investment Companies.
Estimates
The preparation of the Financial Statements in conformity with
US GAAP requires management to make estimates and assumptions that
affect the amounts reported in the Financial Statements and
accompanying notes. Actual results could differ from those
estimates.
Investments
Investments are stated at fair value in accordance with the
Company's investment valuation policy. The inputs used to determine
fair value include financial statements provided by the investment
partnerships which typically include fair market value capital
account balances. In reviewing the underlying financial statements
and capital account balances, the Company considers compliance with
ASC 820, the currency in which the investment is denominated, and
other information deemed appropriate.
The fair value of the Company's investments is primarily based
on the most recently reported NAV provided by the underlying
Investment Manager as a practical expedient under ASC 820. This
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. This valuation does not necessarily
reflect amounts that might ultimately be realised from the
investment and the difference can be material.
Securities for which a public market does exist are valued by
the Company at quoted market prices at the balance sheet date.
Generally, the partnership investments have a defined term and
cannot be transferred without the consent of the General Partner of
the limited partnership in which the investment has been made.
Foreign Currency Transactions
The currency in which the Company operates is US dollars, which
is also the presentation currency. Transactions denominated in
foreign currencies are recorded in the local currency at the
exchange rate in effect at the transaction dates. Foreign currency
investments, investment commitments, cash and equivalents, and
other assets and liabilities are translated at the rates in effect
at the balance sheet date. Foreign currency translation gains and
losses are included in realised and unrealised gains (losses) on
investments as incurred. The Company does not segregate that
portion of realised or unrealised gains and losses attributable to
foreign currency translation on investments.
Cash and Equivalents
The Company considers all highly liquid investments with an
original maturity of three months or less to be cash equivalents.
The carrying amount included in the balance sheet for cash and
equivalents approximates their fair value. The Company maintains
bank accounts denominated in US dollars, in euros, and in pounds
sterling. The Company may invest excess cash balances in highly
liquid instruments such as certificates of deposit, sovereign debt
obligations of certain countries, and money market funds that are
highly rated by the credit rating agencies. The associated credit
risk of the cash and equivalents is monitored by the Board and the
Investment Manager on a regular basis. The Board has authorised the
Investment Manager to manage the cash balances on a daily basis
according to the terms set out in the treasury policies created by
the Board.
Investment Income
Investment income includes interest from cash and equivalents
and dividends. Dividends are recorded when they are declared and
interest is recorded when earned.
Operating Expenses
Operating expenses include amounts directly incurred by the
Company as part of its operations, and do not include amounts
incurred from the operations of the investment entities.
Net Realised Gains and Losses on Investments
For investments in private equity funds, the Company records its
share of realised gains and losses as reported by the Investment
Manager including fund-level related expenses and management fees,
and is net of any carry allocation. Realised gains and losses are
calculated as the difference between proceeds received and the
related cost of the investment.
Net Change in Unrealised Appreciation and Depreciation on
Investments
For investments in private equity funds, the Company records its
share of change in unrealised gains and losses as reported by the
Investment Manager as an increase or decrease in unrealised
appreciation or depreciation of investments and is net of any carry
allocation. When an investment is realised, the related unrealised
appreciation or depreciation is recognised as realised.
Income Taxes
The Company is registered in Guernsey as a tax exempt company.
The States of Guernsey Income Tax Authority has granted the Company
exemption from Guernsey income tax under the provision of the
Income Tax (Exempt Bodies) (Guernsey) Ordinance 1989 (as amended)
and the Company will be charged an annual exemption fee of GBP1,200
included as other expenses in the Consolidated Statements of
Operations. Income may be subject to withholding taxes imposed by
the US or other countries which will impact the Company's effective
tax rate.
Investments made in entities that generate US source income may
subject the Company to certain US federal and state income tax
consequences. A US withholding tax at the rate of 30% may be
applied on the distributive share of any US source dividends and
interest (subject to certain exemptions) and certain other income
that is received directly or through one or more entities treated
as either partnerships or disregarded entities for US federal
income tax purposes. Furthermore, investments made in entities that
generate income that is effectively connected with a US trade or
business may also subject the Company to certain US federal and
state income tax consequences. The US requires withholding on
effectively connected income at the highest US rate (generally
35%). In addition, the Company may also be subject to a branch
profits tax which can be imposed at a rate of up to 30% of any
after-tax, effectively connected income associated with a US trade
or business. However, no amounts have been accrued.
The Company accounts for income taxes under the provisions of
ASC 740, "Income Taxes." This standard establishes consistent
thresholds as it relates to accounting for income taxes. It defines
the threshold for recognising the benefits of tax-return positions
in the financial statements as "more-likely-than-not" to be
sustained by the taxing authority and requires measurement of a tax
position meeting the more-likely-than-not criterion, based on the
largest benefit that is more than 50% likely to be realised. For
the year ended 31 January 2020, the Investment Manager has analysed
the Company's inventory of tax positions taken with respect to all
applicable income tax issues for all open tax years (in each
respective jurisdiction), and has concluded that no provision for
income tax is required in the Company's Financial Statements.
Shareholders in certain jurisdictions may have individual tax
consequences from ownership of the Company's shares. The Company
has not included the impact of these tax consequences on the
shareholders in these Financial Statements.
Market and Other Risk Factors
The Company's investments are subject to various risk factors
including market price, credit, interest rate, liquidity, and
currency risk. Investments are based primarily in the US, Europe
and Asia Pacific, and thus have concentrations in such regions. The
Company's investments are also subject to the risks associated with
investing in leveraged buyout and venture capital transactions that
are illiquid and non-publicly traded. Such investments are
inherently more sensitive to declines in revenues and to increases
in expenses that may occur due to general downward swings in the
world economy or other risk factors including increasingly intense
competition, rapid changes in technology, changes in federal, state
and foreign regulations, and limited capital investments.
The Company is subject to credit and liquidity risk to the
extent any financial institution with which it conducts business is
unable to fulfil contracted obligations on its behalf. Management
monitors the financial condition of those financial institutions
and does not anticipate any losses from these counterparties.
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 January
2020. Fees for these services are paid as invoiced by BNP and
include an administration fee of GBP50,000 per annum, a secretarial
fee of GBP50,000 per annum, compliance services fee of GBP15,000
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 year ended 31 January 2020, fees of $212,459 were
incurred to BNP and are included as other expenses in the
Consolidated Statements of Operations. During the year ended 31
January 2019, fees of $165,428 were incurred to BNP and fees of
$56,655 were incurred to JTC Group and are included as other
expenses in the 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
GBP22,593, plus other miscellaneous expenses. During the years
ended 31 January 2020 and 2019, registrar fees of $48,677 and
$45,950, respectively, were incurred and are included as other
expenses in the Consolidated Statements of Operations.
Independent Auditor's Fees
For the years ended 31 January 2020 and 2019, fees of $256,398
and $231,550 were accrued, respectively, and are included in
professional fees in the Consolidated Statements of Operations. The
31 January 2020 figure includes $170,983, which represents the 31
January 2020 annual audit fee and $6,802 relating to prior
financial year's audit fee. In addition, the 31 January 2020 figure
includes fees of $78,613 (2019: $73,600) for audit-related services
due to the Auditor, Ernst & Young LLP, conducting a review of
the Interim Financial Statements for each period end, commencing
with the 31 July 2018 report. Other non-audit fees paid to the
Auditor by the Company were nil for the years ended 31 January 2020
and 2019.
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 years
ended 31 January 2020 and 2019, reimbursements for services
provided by the Investment Manager were $1,969,642 and $1,675,514,
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 years ended 31 January 2020 and 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 years ended 31 January 2020 and
2019. The HVPE Avalon Co-Investment L.P. management fee was
terminated on 30 September 2017.
Management fees included in the Consolidated Statements of
Operations are shown in the table below:
2020 2019
---------------------------------- ------- -------
HVPE Charlotte Co-Investment L.P. 758,820 790,612
----------------------------------- ------- -------
For the years ended 31 January 2020 and 2019, management fees on
the HVPE Charlotte Co-Investment L.P. investment were calculated
based on a weighted average effective annual rate of 0.90% on
capital originally committed (0.87% 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 generally accepted accounting
principles in the United States, 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 generally accepted
accounting principles. 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 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 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 (depreciation), as reported by the
HarbourVest funds, is reflected in the Consolidated Statements of
Operations as net change in unrealised appreciation (depreciation)
on investments.
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 years ended 31 January 2020 and 2019, the Company
made contributions of $324,197,851 and $396,172,267, respectively,
to Level 3 investments and received distributions of $308,176,357
and $306,592,993, respectively, from Level 3 investments. As of 31
January 2020, $2,065,519,797 of the Company's investments are
classified as Level 3. As of 31 January 2019, $1,760,181,991 of the
Company's investments are classified as Level 3.
The Company recognises transfers at the current value at the
transfer date. There were no transfers during the years ended 31
January 2020 and 2019. 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 10
years with a range of 1 to 33 years remaining.
As of 31 January 2020, the Company had invested $3,488,956,965,
or 65.9% of the Company's committed capital in investments and had
received $2,950,437,969 in cumulative distributions (including
dividends from the formerly held investment HarbourVest Senior
Loans Europe).
There were no investment transactions during the years ended 31
January 2020 and 2019 in which an investment was acquired and
disposed of during the year.
Note 5 Commitments
As of 31 January 2020, the Company has unfunded investment
commitments to other limited partnerships of $1,806,954,923 which
are payable upon notice by the partnerships to which the
commitments have been made. Unfunded investment commitments of
$1,767,642,666 are denominated in US dollars, $27,392,498 are
denominated in euros, and $11,919,759 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.
The Investment Manager is not entitled to any direct
remuneration (save expenses incurred in the performance of its
duties) from the Company, instead deriving its fees from the
management fees and carried interest payable by the Company on its
investments in underlying HarbourVest Funds. The Investment
Management Agreement (the "IMA"), which was amended and restated on
30 July 2019, may be terminated by either party by giving 12
months' notice. In the event of termination within ten years and
three months of the date of the listing on the Main Market on 9
September 2015, the Company would be required to pay a
contribution, which would have been $4.7 million at 31 January 2020
and $5.5 million at 31 January 2019, as reimbursement of the
Investment Manager's remaining unamortised IPO costs. In addition,
the Company would be required to pay a fee equal to the aggregate
of the management fees for the underlying investments payable over
the course of the 12-month period preceding the effective date of
such termination to the Investment Manager.
Note 6 Debt Facility
As of 31 January 2020 and 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 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 January
2020 and 2019, there was no debt outstanding against the Facility.
In the year ended 31 January 2020, the Facility had a drawdown of
$30 million for a brief period for cash management purposes. For
the year ended 31 January 2020, interest of $16,973 was incurred in
relation to this borrowing and is included as other expenses in the
Consolidated Statements of Operations. There was no interest
incurred during the period ended 31 January 2019. Included in other
assets at 31 January 2020 and 2019 are deferred financing costs of
$7,976,171 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 years ended 31 January 2020 and 2019,
$5,916,192 and $5,836,972, respectively, in non-utilisation fees
have been incurred.
Note 7 Financial Highlights
For the Years Ended 31 January 2020 and 2019
2020 2019
----------------------------------- ------- -------
Shares
----------------------------------- ------- -------
PER SHARE OPERATING PERFORMANCE:
----------------------------------- ------- -------
Net asset value, beginning of year $24.09 $21.46
------------------------------------ ------- -------
Net realised and unrealised gains 3.62 2.73
------------------------------------ ------- -------
Net investment loss (0.13) (0.10)
------------------------------------ ------- -------
Total from investment operations 3.49 2.63
------------------------------------ ------- -------
Net asset value, end of year $27.58 $24.09
------------------------------------ ------- -------
Market value, end of year $24.15* $18.75*
------------------------------------ ------- -------
Total return at net asset value 14.5% 12.3%
------------------------------------ ------- -------
Total return at market value 28.8% 5.5%
------------------------------------ ------- -------
RATIOS TO AVERAGE NET ASSETS
----------------------------------- ------- -------
Expenses 0.61% 0.67%
------------------------------------ ------- -------
Net investment loss (0.51)% (0.46)%
------------------------------------ ------- -------
* Represents the US dollar-denominated share price.
Does not include operating expenses of underlying
investments.
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 net asset value 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
15 days.
Note 9 Related party transactions
Other amounts payable to HarbourVest Advisers L.P. of $92,281
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 January 2020 and
2019, respectively.
Board-related expenses, primarily compensation, of $604,289 and
$600,347 were incurred during the years ended 31 January 2020 and
2019, 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 after 31 January
2020 to 23 June 2020, the date that the Financial Statements were
issued.
As of 31 January 2020, the World Health Organization had not yet
declared COVID-19 a "Public Health Emergency of International
Concern". Subsequent to 31 January 2020, the World Health
Organization declared COVID-19 a pandemic and many countries around
the world enacted stay-at-home orders and shut down significant
portions of their economies. As such HarbourVest conducted a
rigorous bottom-up risk assessment of the Company's portfolio,
holding discussions with underlying General Partners to assess the
likely impact of COVID-19 on the Company's investments. The
majority of HVPE's portfolio by value was deemed likely to
experience a low or moderate impact, while only a small proportion
was expected to be materially impacted. This portfolio risk
assessment was used as the basis for the creation of four revised
model scenarios with varying degrees of duration, decline in
investment value and investment distributions, with the worst being
an extreme downside scenario representing an impact to the
portfolio that is worse than that experienced during the global
financial crisis. Based on the work performed and the outcome of
the model scenarios the Investment Manager believes that HVPE has
enough resources to meet the Company's upcoming financial
obligations. However, as a prudent measure, on 9 April 2020 it
provided notice to its lenders Credit Suisse and Mitsubishi UFJ to
draw down $200.0 million of the $600.0 million credit facility (see
note 6). The Company does not expect to experience any covenant
breaches.
While the full extent of the impact to the financial performance
of the Company and its investments will depend on future
developments, including (i) the duration and spread of the
outbreak, (ii) the restrictions and advisories, (iii) the effects
on the financial markets, and (iv) the effects on the economy
overall, in the unlikely event that actual performance trends
toward the extreme downside scenario HVPE can take steps to limit
or mitigate the impact on the balance sheet, namely drawing further
on the credit facility, continuing to pause new commitments,
raising additional credit or capital, and selling assets to
increase liquidity and reduce outstanding commitments.
The impact of COVID-19 on the Company's operations is discussed
further in the Principal Risks and Uncertainties section on page
42, the Going Concern and Viability Statement on page 65, and the
Basis of Preparation section in note 2 to the Financial
Statements.
The COVID-19 pandemic is considered to be a non-adjusting post
balance sheet event and as such no adjustments have been made to
the valuation of assets and liabilities at 31 January 2020.
On 9 March 2020, the Company committed an additional $50 million
to Dover Street X Feeder Fund L.P.
Subsequently, on 17 June 2020, the HVPE Board approved a
commitment of $18.9 million to a potential transaction made
available to HVPE as a result of the Company's existing commitments
to HarbourVest funds.
On 19 June 2020, the Company announced the 31 May 2020 estimated
unaudited net asset value of $2,046.3 million.
There were no other events or material transactions subsequent
to 31 January 2020 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 1.9% 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 January 2020 NAV is based on the 31 December 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 January
2020. 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 Audited
Consolidated Financial Statements on page 88.
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.
16.5% of underlying portfolio holdings are denominated in euros.
The euro-denominated Investment Pipeline is EUR25 million.
-- 1.9% of underlying portfolio holdings are denominated in
sterling. There is no sterling-denominated Investment Pipeline.
-- 1.3% 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.
-- 0.5% 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.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR UOAARRAUNUUR
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