TIDMHVPE
RNS Number : 1117A
HarbourVest Global Priv. Equity Ltd
28 May 2021
28 May 2021
RESULTS FOR THE YEARED 31 JANUARY 2021
Record net asset value ("NAV") per share growth through an
unprecedented period
HarbourVest Global Private Equity Limited ("HVPE" or the
"Company"), today announces its audited results for the year ended
31 January 2021.
Highlights - Year to 31 January 2021
-- Increase in NAV per share of 30.4% to $35.97 (31 January 2020: $27.58)
-- Largest 12-month NAV per share increase in HVPE's 13-year history
-- Strong rebound in the middle of the year recovered Q1 pandemic-driven declines
-- Weighting to venture and growth equity investments, in
particular technology, a key performance driver
-- Represents outperformance of the FTSE All World Total Return
Index of 4.0% on an annualised basis since inception
-- Net investor during period
-- A net $141.4 million cash invested (2020: $16.0 million)
-- Total of $289.5 million cash distributions received (2020: $308.2 million)
-- Total of $430.9 million capital calls paid (2020: $324.2 million)
-- Record level of calls and distributions in cash terms from
HarbourVest funds in December 2020, following strong investment and
exit activity
-- Successful navigation of COVID-19 environment
-- Commitment plan re-commenced in Q4 following pause from April 2020
-- Credit facility $120.0 million drawn at 31 January 2021, with
a further $480.0 million available as required
-- Year-end cash balance of $98.4 million (2020: $130.6 million)
-- Encouraging trends post period end as global economies begin to reopen
-- NAV per share of $36.62 at 30 April 2021, a 1.8% increase from 31 January 2021
-- Cash flows have returned to trend, while the number of
liquidity events in the portfolio has increased in recent
months
Ed Warner, Chair of HVPE, said:
"I am pleased to report that HVPE's NAV per share increased by
30.4% over 12 months, a record growth figure made even more
impressive by the turbulent backdrop. This reflects the expertise
of our Investment Manager and the robust nature of HVPE's
structure.
"I would like to thank shareholders for their support throughout
the pandemic. We now look forward with cautious optimism, confident
that HVPE is well-placed to deliver a long-term private markets
solution to investors otherwise unable to access the many
high-quality and exciting private companies that are our investment
focus."
Investor Event
There will be a presentation for institutional and retail
investors on 10 June 2021 at 11am BST. To receive registration
details for the event, please contact Liah Zusman:
hvpeevents@harbourvest.com .
Annual Report and Accounts
To view the Annual Report and Accounts please follow this link:
Annual Report - Year Ending 31 January 2021 . Page number
references in this announcement refer to pages in this report. The
Annual Report and Accounts will also shortly be available on the
National Storage Mechanism, which is located at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism .
Annual Results Presentation
HVPE will publish a new presentation on its website to
supplement the publication of the Annual Results for the 12 months
ended 31 January 2021. 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 rhickman@harbourvest.com
9847
Charlotte Edgar Tel: +44 (0)20 7399 cedgar@harbourvest.com
9826
Media
MHP Communications
Charlie Barker / Tel: +44(0)20 3128 hvpe@mhpc.com
Pete Lambie / Alex 8619
Janiaud
HarbourVest Partners
Lily Cabianca Tel: +44 (0)20 7151 lcabianca@harbourvest.com
4261
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 $76 billion
in assets under management, as of March 31, 2021. 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 700 employees, including more than 155
investment professionals across Asia, Europe, and the Americas.
This global team has committed more than $46 billion to
newly-formed funds, completed over $29 billion in secondary
purchases, and invested over $21 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) 2021 HarbourVest Global Private Equity Limited. All rights
reserved.
Strategic Report
Chair's Statement
Dear Shareholder
I am pleased to report that HVPE has delivered a NAV per share
increase of 30.4% over the financial year - the largest 12-month
increase in HVPE's 13-year history. I reflect here on how HVPE has
been able to deliver this extraordinary growth through a period of
heightened market volatility and widespread disruption to the
business environment, mindful also of the challenges that still lie
ahead for the global economy and society at large.
Financial Performance
While NAV per share finished the financial year strongly ahead,
on a monthly basis performance fluctuated more than usual.
Valuations declined in the early stages of COVID-19, but a strong
rebound in the middle of the year recovered all of these losses.
From this point, NAV per share continued to climb with a
particularly strong gain in the final quarter. This resulted in a
year-end NAV per share of $35.97 (31 January 2020: $27.58);
equivalent to more than three-and-a-half times the opening value of
$10.00 in December 2007.
Portfolio performance and the key drivers of this growth are
covered in detail in the Investment Manager's Report on pages 10 to
15. However, I am keen to remark on the resilience of the
portfolio, which I believe is testament both to HVPE's strategy and
to the quality of the Investment Manager. Our steadfast, consistent
approach to investing, and our Manager's dedication to driving
strong growth from a globally diversified private markets
portfolio, continues to deliver outperformance for HVPE's
shareholders. We believe it is HVPE's broadly spread, high-quality
exposure to opportunities worldwide which has supported robust NAV
per share growth over the last year and over the much longer
term.
Another core driver of performance has been HVPE's 36% weighting
to growth equity and venture companies, in particular the
overweight exposure to the technology sector. There have been a
number of large and high-profile Initial Public Offerings ("IPOs")
in the period, the aggregation of which contributed markedly to
overall returns. HVPE has now outperformed the FTSE AW TR Index on
an annualised basis by 4.0% since inception.
Despite this robust long-term NAV per share performance, it is
important to acknowledge the volatility in our share price during
the year. The pandemic-driven global sell-off in March 2020 drove
the share prices of most investment companies sharply lower. The
dedicated HVPE team at HarbourVest moved quickly to reassure us
that our financial position remained robust and that there was no
HVPE-specific issue driving the share price movement. I am pleased
to say that the majority of our shareholders held firm and
continued to support HVPE, helping the share price rebound sharply
to reach a new all-time high in December. While it ended the
financial year at GBP18.70, the share price has since continued to
increase and on the 21 May closed at GBP20.40 - more than double
its level of only five years ago.
Response to COVID-19
As reported in my last statement, the Board worked closely with
the Investment Manager to understand the potential impact of the
pandemic on our underlying investments, and acted swiftly to assess
any implications for the balance sheet. The insight gleaned from a
thorough portfolio risk assessment, coupled with updated financial
and NAV growth projections, fed into a set of updated forecast
scenarios which are described on page 12.
As a prudent measure given the prevailing cash flow uncertainty,
the Board drew down $200 million on its credit facility in April
2020. At the same time, the Investment Manager temporarily paused
commitments to new HarbourVest funds. With careful consideration,
the Board subsequently agreed to participate in an attractive
secondary co-investment through its existing commitment to a
secondary overflow fund. As cash flows stabilised, $80 million was
repaid on the facility in July. Please refer to the timeline below
to see the actions taken by the Board and Investment Manager during
this period. The outcome for the full year has demonstrated that
HVPE was well positioned strategically, and had the appropriate
financial provisions in place, to see it through these turbulent
times.
Balance Sheet
Careful balance sheet management is critical for a closed-ended
vehicle with variable portfolio cash flows and a multi-year
investment horizon. We took the necessary steps through the year to
ensure the balance sheet could withstand any pressure from unusual
cash flow patterns brought on by the pandemic. HVPE ended the year
with $98.4 million of cash and cash equivalents. Noting the drawn
balance on the credit facility of $120 million at 31 January 2021,
this equates to a net debt position of $21.6 million, with $480
million remaining available on the facility.
Period Post Year End
Financial Performance
Since the year end, HVPE has issued four NAV per share updates.
The latest, published on 21 May, reported an estimated NAV per
share of $36.62, an uplift of 1.8% from 31 January 2021, largely
driven by increases in the publicly held companies within the
portfolio. Further detail can be found under Recent Events on page
16.
Corporate Governance and Board Changes
The Board is alive to the fact that strong corporate governance
supports the smooth running of HVPE, whilst ensuring the highest
possible standards for its stakeholders. To help fulfil our duties
in this regard, the Board initiated the search for our first
dedicated HVPE Head of Corporate Governance and duly appointed
Alexandra Cornforth in April 2020.
The Board also maintains a robust succession planning programme
to ensure Directors hold the necessary balance of skills to deliver
the best stewardship of the assets for HVPE's shareholders. As part
of this process, I am pleased to announce the appointment of Ms
Libby Burne, who joined the Board as an independent non-executive
Director with effect from 1 March 2021. Libby brings with her 20
years' experience with PwC and we welcome her to the Board in her
first listed non-executive directorship. Libby replaces Andrew
Moore, who will step down at the Annual General Meeting ("AGM") in
July. Andrew has provided excellent service to HVPE since its
launch and he leaves with our gratitude and very best wishes.
The Board and ESG
It is with heightened focus that we consider all matters ESG at
three levels: the Board, HarbourVest and investee companies. We are
dedicated to promoting the highest standards which we believe
foster higher-quality investments and improved returns. This year
the Board has helped drive the ESG agenda and, with Carolina
Espinal's efforts as the HVPE Director responsible for ESG matters,
further increased engagement levels with HarbourVest. In addition,
we have formulated our approach to ESG, and are pleased to describe
this in more detail on pages 44 and 45. We remain impressed by the
persistent efforts by the Investment Manager in the pursuit of
continuous improvement in ESG standards at the firm level and
within the private equity managers with whom it invests on HVPE's
behalf. Details can be found on pages 13 to 15.
Annual General Meeting and Shareholder Webcast
HVPE's AGM will be held in Guernsey at 1.00 p.m. BST on 21 July
2021. Formal notice will be sent to registered shareholders in the
week commencing 21 June 2021. Given ongoing travel restrictions on
account of COVID-19, no Director other than the Guernsey residents
Mr Moore and Ms Burne will be present in person. We hope that all
registered shareholders will exercise their votes by proxy. Except
for Mr Moore who will be stepping down at this AGM, all Directors
will submit themselves for re-election. Similar to last year, in
advance of the formal AGM, HVPE will hold a webcast on 10 June 2021
at 11.00 a.m. BST. Shareholders should contact HVPE at:
hvpeevents@harbourvest.com should they wish to participate.
Outlook
As we reflect just over one year on from the onset of the
COVID-19 crisis, we cannot escape the magnitude of the situation we
are all living through. Businesses have been challenged and pushed
in new directions more rapidly than ever before; some have
struggled while others have thrived. From an investment
perspective, this year has reaffirmed the effectiveness of HVPE's
strategy. With renewed conviction we can herald the power of
diversification and further demonstrate the benefits of investing
with a high-calibre private markets manager. Our structure has
enabled, through the existing uncalled commitments to HarbourVest
funds, a steady pace of investment through the crisis. We thank
shareholders, old and new, who have supported us through the
challenging times experienced in 2020.
We look forward with cautious optimism, confident that HVPE is
well placed to deliver a long-term private markets solution to many
investors otherwise unable to access such high-quality and exciting
private companies.
Ed Warner
27 May 2021
Investment Manager's Report
Introductory Note
This report presents a summary of HVPE's performance in the 12
months to 31 January 2021. During this period, the outbreak of
COVID-19 caused widespread disruption to society and economies
around the world. While monetary and fiscal stimulus has since
supported a recovery in financial markets, as at 27 May 2021,
continued fallout from the pandemic poses ongoing challenges in
many countries. For investment companies such as HVPE, its
Investment Manager, and underlying portfolio companies, this has
been an unsettling and difficult period. Acting quickly and
decisively in the face of adversity has been paramount in order to
protect the Company's stakeholders. The timeline of actions taken
by HVPE's Board and the Investment Manager during this period can
be seen on pages 4 and 5.
Portfolio Performance
NAV per Share - 12 Months to 31 January 2021
HVPE's portfolio generated a positive NAV per share return over
the reporting period, increasing by 30.4% to $35.97 at 31 January
2021 from $27.58 at 31 January 2020.
Despite this being a record year for NAV per share growth, it is
important to note that the onset of COVID-19 did lead to increased
volatility in HVPE's monthly estimated NAV per share performance
throughout the financial year; a negative movement in May 2020,
driven by a decline in Q1 valuations, was followed by three
subsequent strongly positive quarters. The Q4 2020 valuations in
particular revealed significant gains across all strategies. It is
these Q4 2020 valuations which form the basis of the final 31
January 2021 NAV per share figure quoted in this report.
Most major equity market indices closed the year higher after
rebounding strongly from sharp declines during Q1 2020. HVPE's
public market benchmark, the FTSE AW TR Index (in US dollars),
increased by 17.4% in the 12 months to 31 January 2021. Although
HVPE's NAV per share growth of 30.4% outperformed this over the
period, public markets tend to be more volatile especially during
periods of uncertainty, and therefore short-term comparisons are
less meaningful. Longer-term comparisons through the cycle are more
reflective of HVPE's relative performance, as described on page 3
of the KPIs section.
During the 12 months ended 31 January 2021 there was a $682.3
million net gain on investments, contributing to an overall
increase in net assets of $669.8 million. Of the $682.3 million,
the majority - 84% - came from unrealised growth within the
portfolio. This compares with a $289.3 million net gain on
investments and an overall increase in net assets of $278.7 million
for the 12 months to 31 January 2020.
The higher overall net gains in this reporting period compared
with the same period last year reflect the strong performance of
the underlying portfolio, particularly in overweight exposures such
as technology and, to a lesser extent, healthcare (see the industry
diversification chart on page 15). Despite these sector
overweights, HVPE remains well diversified, as demonstrated by the
pie charts on page 14 and 15. We believe diversification remains
essential to achieving consistently strong returns, as the various
sub-sectors within the portfolio tend to outperform on a relative
basis at different stages in the cycle. At 31 January 2021, the top
100 companies in the portfolio represented 35.3% of the Investment
Portfolio and the top 1,000 companies represented 84.6%.
In percentage terms, the Primary portfolio was the best
performing strategy, delivering value growth of 33.1% over the 12
months. Geographically, the strongest gains came from the European
portfolio, which generated a value increase of 36.8%; this was
followed by the US assets, which returned 24.3%. In terms of stage,
Venture and Growth Equity was the strongest performer, growing
41.3% over the 12 months ended 31 January 2021. In the prior
financial year, the best performers by geography, strategy and
stage were the same as above. More information on the growth
drivers for the year to 31 January 2021 can be found on page
33.
As at 31 January 2021, HVPE held investments in 51 HarbourVest
funds and 10 secondary co-investments(1) (compared with 49 and
seven, respectively, at 31 January 2020). Of these, the largest
drivers of NAV per share growth during the 12 months to 31 January
2021 are described below:
-- Fund X Venture, a US-focused venture fund-of-funds, was the
largest contributor, adding $0.84 to NAV per share. With a vintage
year of 2015, this fund is in the growth phase. This growth came
predominantly from unrealised gains over the period.
-- Following closely behind this was Fund IX Venture, an earlier
fund of the same strategy, adding $0.81 to NAV per share. This is a
2011 vintage fund now entering its mature phase. Nevertheless, this
uplift was derived primarily from unrealised gains over the
period.
-- Co-Investment IV, a global direct co-investment fund, added
$0.66. This 2016 vintage fund is in the investment phase. As might
be expected at this stage of the fund's life, most of this growth
was driven by unrealised gains.
-- HIPEP VII, a 2014 vintage international fund-of-funds, was
the fourth largest contributor adding $0.50 to NAV per share over
the period.
-- Fund X Buyout, a 2015 vintage US-focused buyout fund-of-funds, added $0.46 to NAV per share.
All of the remaining HarbourVest funds in the portfolio added an
aggregate $5.34 to HVPE's NAV per share over the financial
year.
1 These include five Secondary Overflow III investments, three
Secondary Overflow IV investments; 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, $474,898
remains in escrow.
Portfolio Cash Flows and Balance Sheet
HVPE was a net investor in the 12 months to 31 January 2021,
following capital calls of $430.9 million into HarbourVest funds
(12 months to 31 January 2020: $324.2 million) and cash
distributions of $289.5 million (12 months to 31 January 2020:
$308.2 million). This resulted in net investment of $141.4 million
over the reporting period, driven by elevated capital calls during
March and April. While this capital was deployed primarily into new
opportunities, part of the total was used to support existing
investments and to fund deals closed in the preceding months.
As reported in the Company's Semi-Annual Report and Accounts
2020, elevated capital calls coincided with a sharp fall in
distributions beginning in April and May, with the result that HVPE
experienced significant cash outflow on a net basis during the
early part of the year. As a prudent measure, on 9 April 2020, HVPE
provided notice to its lenders, Credit Suisse and Mitsubishi UFJ,
to draw down $200.0 million from the Company's $600.0 million
credit facility (the "Facility"). Subsequently, based on an updated
cash flow analysis presented by the Investment Manager, the Board
approved an $80.0 million partial repayment in July. At 31 January
2021, following this repayment, the Facility was $120.0 million
drawn, leaving HVPE with access to the remaining $480.0
million.
Since September 2020, cash flows have normalised. However, in
December, HVPE received a record level of distributions from
HarbourVest funds in cash terms indicating strong exit activity.
While distributions in December were driven mostly from HarbourVest
primary funds (71%), this was followed by direct co-investments at
16%, which included proceeds received from the sale of South Korean
dry bulk and liquefied natural gas carrier H-Line Shipping (HVPE's
12th largest underlying portfolio company at 31 January 2020).
December 2020 also marked a record month for capital calls in cash
terms, excluding non-routine investments. This is partly as a
result of the larger Investment Pipeline at the beginning of 2020.
However, December is typically a strong month for calls, and in Q4
2020, investment activity accelerated.
Overall, net negative cash flow including operating expenses in
the period resulted in HVPE's cash balance declining from $130.6
million at 31 January 2020 to $98.4 million at 31 January 2021
(noting that the closing cash position includes the contribution
from the $120.0 million draw on the credit facility). The latest
cash position is reported under Recent Events on page 16.
In the reporting period, the largest HarbourVest fund capital
call ($55.0 million) came from Co-Investment V, a 2018 vintage
global direct co-investment fund. Other large capital calls
originated from Fund XI Buyout ($50.8 million) and Fund XI Venture
($48.5 million), both 2018 vintage funds currently in the
investment phase and building out their portfolios. Following these
were calls to fund investment activity from 2019 Global Fund ($30.0
million), Dover X ($28.8 million), and Fund X Buyout ($26.5
million).
Distributions in the HVPE portfolio were driven by a mix of
HarbourVest funds across all strategies, with the largest total
amount in the period ($24.8 million) received from Fund VIII
Buyout, a US-focused buyout fund-of-funds in its mature phase,
which distributed proceeds received from multiple underlying
partnerships. Fund IX Venture, a US-focused venture fund-of-funds
followed, with distributions totalling $24.1 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 (referred to as HarbourVest fund-level
borrowing) in which HVPE is a Limited Partner ("LP"). It is
important to note that HVPE has no additional liability for these
borrowings beyond its uncalled commitments to each fund. At 31
January 2021, HVPE's share of HarbourVest fund-level borrowing on a
look-through basis was $378.2 million, a net increase of $11.4
million from $366.8 million at 31 January 2020. Expressed as a
percentage of NAV, the figure decreased from 16.7% to 13.2% over
the 12-month period. In order to calculate a look-through gearing
figure, an investor should take the fund-level borrowing of $378.2
million and factor in HVPE's net cash/debt position at the Company
level (net debt $21.6 million). As at 31 January 2021, the
resulting net total borrowing figure of $399.8 million would
translate to an approximate level of look-through gearing of 13.9%.
More detail on the HarbourVest fund-level borrowing, and how we
factor this into our balance sheet management, can be found under
Managing the Balance Sheet on page 22.
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. 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 2020, the Investment
Manager presented four revised five-year model scenarios to the
Board: Optimistic, High Base, Low Base and Extreme Downside case.
In the months that followed, we saw strong NAV growth and a
recovery in the level of cash distributions, with the result that
by the end of 2020 HVPE was running well ahead of even the
Optimistic case. The four scenarios from May have since been
superseded by new five-year projections formulated as part of the
annual commitment planning process. These cover: Extreme Downside,
Low, Base and Optimistic scenarios.
Portfolio Companies
COVID-19 Portfolio Risk Assessment
In response to COVID-19, the Investment Manager embarked on two
bottom-up assessments of the likely impact of COVID-19 on HVPE's
portfolio, in April and October. Companies were assessed directly
or with the help of the applicable General Partner ("GP"), taking
into consideration headquarter 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. As at 31 May 2020, approximately 80% of the portfolio by
value had been reviewed as part of this exercise. The results
indicated that the majority of HVPE's assessed portfolio by value
had been deemed likely to experience only a limited or moderate
impact, with a relatively small proportion expected to be
materially impacted. By October 2020, the Investment Manager had
completed a further second-round portfolio risk assessment. While
broadly similar in methodology to the first, this most recent
analysis focused on the larger positions within the portfolio. This
assessment resulted in approximately 78% of HVPE's portfolio by
value being reviewed. HVPE's portfolio composition evolves over
time, so in order to make a valid comparison to the April results,
we held the October sample set constant and re-calculated the
equivalent April figures for that population, as shown below. These
figures will differ from those reported in the Company's Annual
Report on 24 June 2020. As of October, 83% of the assessed
portfolio was classified limited or moderate impact while only 6%
was identified as high risk at that point in time.
Liquidity Events
During the period, the ten largest individual company
realisations in order of HVPE's share of proceeds generated total
distributions of $74.0 million. A number of IPOs and Mergers and
Acquisitions ("M&A") transactions contributed significant
amounts to NAV per share in the 12 months to 31 January 2021. This
year, the weighted average uplift to pre-transaction carrying value
for a large sample of liquidity events in the period was 153%. This
unusually large uplift was driven by IPOs from within the venture
and growth equity portfolio. A table of the top five largest
contributors to NAV per share is displayed below. The top ten
distributions by value are listed on page 32.
Top Five M&A transactions
(by contribution to HVPE NAV per share)
Ellie Mae $0.05
----------------------------- -----
Thrive Earlier Detection $0.03
----------------------------- -----
Advanced Instruments $0.02
----------------------------- -----
KGH Customs Services $0.02
----------------------------- -----
Process Sensing Technologies $0.01
----------------------------- -----
Top Five IPOs
(by contribution to HVPE NAV per share)
Snowflake Computing $0.27
----------------------- -----
Allegro $0.20
----------------------- -----
Affirm $0.15
----------------------- -----
Yatsen Holding Limited $0.10
----------------------- -----
Zoom Information $0.06
----------------------- -----
During the 12 months ended 31 January 2021, there were 270
liquidity events, down from 336 for the 12 months to 31 January
2020. This represents a decline of 20% compared with the last
financial year. The lower volume of exit activity in 2020 resulted
from the disruption and associated uncertainty caused by COVID-19,
leading many GPs to suspend or delay exit processes. Approximately
67% (180) of the liquidity events in HVPE's portfolio were trade
sales or sponsor-to-sponsor transactions, with the remaining 33%
(90) being IPOs. Notable IPOs during the period included Snowflake,
Allegro, Affirm, Yatsen Holding Limited, and Dr. Martens.
Of HVPE's total 270 liquidity events, 168, or 62%, related to
venture-backed companies. This figure is representative of wider
market trends as there were a considerable number of
venture-related exits in the year, with the technology and
healthcare sectors dominating this activity.
HVPE Activity
New Fund Commitments
In the 12 months ended 31 January 2021, HVPE made total
commitments of $194.9 million across six HarbourVest funds (12
months to 31 January 2020: $570.0 million). This took total
unfunded commitments to $1.6 billion at 31 January 2021. The
comparatively low level of commitments made during the year was a
result of a decision by the Board and the Investment Manager to
place HVPE's commitment plan, in respect of new HarbourVest funds,
on hold for a period of seven months due to the outbreak of
COVID-19. New fund commitments re-started in Q4 2020 while
HarbourVest funds from the existing Investment Pipeline (unfunded
commitments) continued to call capital for new investments
throughout the year, enabling the Company to take advantage of
attractive opportunities.
Of the total capital committed, the largest commitments were
$50.0 million each to Dover X (a global secondary fund) and 2020
Global Fund (a global multi-strategy fund-of-funds). Other large
commitments included $40.0 million to HIPEP IX (an international
fund-of-funds) and a commitment of $37.8 million to a secondary
transaction within Secondary Overflow IV. The remaining commitments
included $12.8 million and $4.3 million to two further secondary
transactions within Secondary Overflow IV.
These commitments are in line with the Company's Strategic Asset
Allocation 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 are reviewed annually and, in November
2020, the HVPE Board decided that these targets should remain
unchanged. The current targets can be seen in the pie charts on
page 14. The next review is scheduled to take place in November
2021.
Focus on ESG
HarbourVest Partners
The prioritisation of ESG considerations and ethical business
standards within HVPE's portfolio is supported by the Investment
Manager's robust ESG due diligence and monitoring procedures which
it applies across each of its investment strategies. The Investment
Manager relies on two primary tools, its proprietary ESG Scorecard
that it uses to evaluate GPs on their ESG processes and
capabilities, and RepRisk(R) , an external database that supports
both ESG analysis in due diligence and incident-monitoring of ESG
and business conduct risks within the portfolio. HarbourVest seeks
to use its influence to improve ESG standards in the HVPE portfolio
through actively engaging with its GPs through the ESG Scorecard
assessment and feedback process and through the sharing of best
practice. Further information on how ESG analysis is integrated
into HarbourVest's investment processes is set out on pages 29.
HarbourVest's ESG policy and latest digital ESG report for 2020
can be found on the HarbourVest website here:
https://www.harbourvest.com/why-harbourvest/corporate-responsibility
. Some highlights over the year include:
-- In 2020, HarbourVest added new indicators to its proprietary
ESG Manager Scorecard to help better understand how GPs are
managing, prioritising and disclosing on ESG risks and value
creation opportunities.
-- HarbourVest was also proud to receive an A+ in governance in
its UN Principles for Responsible Investment ("PRI") rankings, and
equally proud to be recognised by the British Private Equity &
Venture Capital Association ("BVCA") with its 2020 Excellence in
ESG Award in the LP category.
-- HarbourVest updated its ESG Policy in early 2021 to reflect
evolving ESG practices, and the firm's deep commitment to
responsible investing. The new Policy includes more detailed
information on its ESG integration processes and reflects
HarbourVest's strategic commitments to climate change and diversity
and inclusion.
Climate Change Strategy
-- In last year's ESG Report, HarbourVest announced plans to
develop its climate strategy around the Task Force on
Climate-related Financial Disclosures ("TCFD") recommendations.
This year, HarbourVest is pleased to share in its ESG report its
first progress update around the TCFD's four pillars: governance,
strategy, risk management, and metrics and targets.
-- In addition to being a TCFD Supporter, HarbourVest also
became a member of the Initiative Climate International ("iCI") in
2020. The iCI is a practitioner-led initiative to develop tools and
materials that aid private equity action on climate change.
-- In 2020, for the first time, HarbourVest committed to
measuring and offsetting its carbon footprint, and is now, a
certified CarbonNeutral(R) company in accordance with CarbonNeutral
Protocol, the leading framework for carbon neutrality.
Diversity and Inclusion
-- Internally, HarbourVest's Diversity & Inclusion Council
accomplished much in 2020, taking on issues that were of most
importance to the firm. By instituting key policies and delivering
education, the Council helped the firm focus on creating more of a
shared understanding, appreciation, and commitment to diversity and
inclusion.
-- On the talent and hiring front, HarbourVest developed plans
to launch its first-ever internship programme in conjunction with
Sponsors for Educational Opportunity, which works to close the
career opportunity gap in underserved communities. It also joined
the #10000BlackInterns initiative in the UK.
Engaged Corporate Citizen
-- HarbourVest's Global Volunteering Group helped identify and
work with organisations that needed urgent help, focusing in
particular on COVID-19 driven food insecurity and poverty.
Employees donated generous amounts of both time and money - $2.4
million - to support these causes.
Market Perspectives and Outlook
Entering 2020, global private markets were in an extended period
of outperformance. However, in a span of months, there was a series
of shocks, the quantum of which might typically be seen over
decades.
Private equity has always invested in the technology, consumer,
healthcare, education, and business services areas, but the
pandemic has evolved or changed the paradigm - causing us to
consider new business models, consumer behaviours, and social
norms. This "new idea" environment is creating an investment
landscape that we believe could be ripe for value-added
investments. We expect to see continued acceleration in the
adoption of technology and in the transformation of sectors, with
GPs becoming more focused on highly technology-enabled businesses.
Also, we anticipate that certain industries will evolve differently
as a new market normal develops. For example, the restaurant, food
service, and tourism industries have been, and are likely to
continue to be, hard hit in the short term, while sectors such as
collaboration software, tele-health and home health, online
pharmacy, and telecom and internet will continue to carry this
growth momentum over the long term.
In 2021, GPs are highly focused on evaluating market risk and
are staying extra-vigilant, with many turning to their experience
from past market dislocations that continue to resonate. Despite
these defensive measures, history shows us that the industry's
strongest returns are often generated in challenging times, where
disruption creates opportunity. Going forward GPs need to be
selective when making new investments and identify attractive
return profiles in light of prevailing risk levels.
At the same time, COVID-19 has accelerated trends and reinforced
views among many high-quality GPs that the secondary market is an
important liquidity tool in their toolkits.
The current co-investment climate continues to be one of high
valuations and leverage, as well as low interest rates for
high-quality businesses. As was the case prior to COVID-19, GPs
have significant amounts of dry powder which should translate into
high investment activity in 2021 and beyond.
Challenges clearly remain, but unprecedented times can also be a
strong breeding ground for opportunity. HarbourVest's investment
teams around the globe certainly believe this to be the case for
2021 as they continue to balance ongoing risk assessment with
strategic growth investing. HVPE's ability to maintain a steady
pace of investment in HarbourVest funds should allow it to
participate in such opportunities and to emerge even more strongly
positioned in the long term.
Recent Events
New Commitments
Between 1 February 2021 and 27 May 2021, HVPE committed $188.8
million to the HarbourVest funds outlined below.
HarbourVest Fund Date Committed Commitment ($m)
------------------------ ------------------ -----------------------
Co-Investment Fund VI 31 March 2021 $25.0
------------------------ ------------------ -----------------------
Fund XII Buyout 30 April 2021 $90.0
------------------------ ------------------ -----------------------
Fund XII Micro Buyout 30 April 2021 $15.0
------------------------ ------------------ -----------------------
Fund XII Venture 30 April 2021 $45.0
------------------------ ------------------ -----------------------
Secondary Overflow Fund $13.8 (two transactions
IV 15, 16 April 2021 I & J)
------------------------ ------------------ -----------------------
Total $188.8
-------------------------------------------- -----------------------
HVPE Estimated NAV At 30 April 2021
HVPE releases an 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 21 May, HVPE published an estimated NAV per share at 30 April
2021 of $36.62 (GBP26.49), an increase of $0.65 from the final 31
January 2021 NAV (US Generally Accepted Accounting Principles
("GAAP")) figure of $35.97. This latest NAV per share is based on a
valuation breakdown of: 16% as at 30 April 2021 (representing the
public companies in the portfolio); 4% actual 31 March 2021; and
80% actual 31 December 2020. Consistent with previous estimated NAV
reports, valuations are also adjusted for foreign exchange
movements, cash flows, and any known material events to 30 April
2021.
The Investment Pipeline of unfunded commitments increased from
$1,573.2 million at 31 January 2021 to $1,639.2 million at 30 April
2021, based on the new commitments, capital funded, and taking
foreign exchange movements into account.
At the end of April HVPE's borrowing on its own credit facility
was $115.0 million. HVPE's look-through exposure to borrowing at
the HarbourVest fund level had decreased by $27.1m from 31 January
2021, to $351.1 million. The latest balance sheet ratios can be
found in the factsheet on the HVPE website: www.hvpe.com .
Share Price Since 31 January 2021
Since 31 January 2021, the share price has continued to
strengthen. During the period 1 February to 21 May 2021, the share
price increased from GBP18.70 to GBP20.40, or 9.1%.
The market capitalisation of the Company as at 21 May 2021 was
GBP1.6 billion, and as of the same date HVPE was ranked 121st in
the FTSE 250.
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. Further details on the Board's governance and oversight
can be found on pages 44 to 48.
Risk Appetite
The Board's investment risk appetite is to follow an
over-commitment policy (as explained in the Directors' Report on
page 42) 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, 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; however, at all times the Board will seek to follow best
practice and remain compliant with all applicable laws, rules and
regulations.
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 pages 52 to 54). At the start of
the year under review the Board had identified 12 main risks which
have a higher probability and a significant potential impact on
performance, strategy, reputation, or operations (Category A
risks). From these, the five risk categories 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 that there were 20 existing
or emerging risks (Category B risks), which are monitored on a
watch list.
As the pandemic took hold early in 2020, 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 a
result, the Board elevated risks relating to the Company's loan
facility, key personnel, communication with shareholders 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 has had on society
and the economy, and in turn, the Company, the principal risks
below continue to be considered through the lens of COVID-19.
Brexit was not considered likely to have a major impact on the
Company or the Investment Manager, and was deemed to be a Category
B risk by the Board. No issues for the Company actually arose when
the UK left the EU or at the end of the transition period.
Mitigation with current COVID-19
Risk Description comment
------------------- --------------------------------------------- ---------------------------------------
Balance Sheet The Company's balance sheet The size and term of the Company's
Risks strategy and its policy for credit facility helps to mitigate
the utilisation of leverage this risk. The Board has put
are described on page 43. a monitoring programme in place,
The Company continues to maintain determined with reference to
an overcommitment strategy portfolio models, in order
and may draw on its credit to mitigate against the requirement
facility to bridge periods to sell assets at a discount
of negative cash flow when during any periods of NAV decline.
capital calls on investments The monitoring programme also
are greater than distributions. considers the level of borrowing
The level of potential borrowing at the HarbourVest fund level
available under the credit which is factored into the
facility could be negatively credit facility loan-to-value
affected by declining NAVs. ratio covenants. Both the Board
In a period of declining NAVs, and the Investment Manager
reduced realisations, and will continue to monitor these
rapid substantial cash calls, metrics actively as the pandemic
the Company's net leverage progresses and will take appropriate
ratio could increase beyond action as required, such as
an appropriate level, resulting pausing further commitments,
in a need to sell assets. to attempt to mitigate these
A reduction in the availability risks. Please also see the
or utilisation of borrowing Going Concern and Viability
at the HarbourVest fund level, Statement on page 47 for information
or accelerated repayment thereof, on the scenarios that are considered
could result in an increase by the Board on an ongoing
in capital calls to a level basis.
in excess of the modelled
scenarios.
------------------- --------------------------------------------- ---------------------------------------
Popularity Investor sentiment may change Following the onset of the
of Listed towards the Listed Private pandemic, there were significant
Private Equity Equity sector, resulting falls in public markets. As
Sector in a widening of the Company's a consequence, and in common
share price discount relative with the majority of its peers,
to NAV per share. HVPE's discount to NAV per
HVPE sought to communicate share initially widened. This
the potential impact of the was partly due to negative
pandemic on private markets sentiment regarding equities
with shareholders as quickly in general but also because
as it could. the exact level and timing
of the impact that COVID-19
would have on either the global
economy as a whole or private
companies in particular was
not yet known. Subsequently,
as public markets have recovered,
and the impact of the pandemic
has become clearer, the discounts
relating to listed private
equity companies have narrowed.
------------------- ----- ---------------------------------------- --- -------------------------------------
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. While COVID-19
within the countries in which is having an impact on the
those companies carry out global economy, the severity
business. While these companies appears to vary by geography
are generally privately owned, and industry sector. HVPE's
their valuations are, in diversified fund-of-funds
most cases, influenced by portfolio has helped to mitigate
public market comparables. the effect on the Company's
In addition, approximately NAV per share.
13% of the Company's portfolio In previous downturns private
is made up of publicly traded market valuations have not
securities whose values increase been impacted as much as public
or decrease in response to markets and there has been
market movements. When global a dampened effect on volatility.
public markets decline or Public markets have returned
the economic situation deteriorates, to pre-COVID-19 levels, but
the Company's NAV is usually more uncertainty lies ahead
negatively affected. as some countries face a third
wave of the pandemic as vaccines
are rolled out.
------------------- ----- ---------------------------------------- --- -------------------------------------
Performance The Company is dependent HarbourVest has a long-term
of HarbourVest on its Investment Manager track record in managing its
and HarbourVest's investment investment portfolios through
professionals. With the exception past crises.
of ten co-investments, all As at the date of this report,
of the Company's assets, HarbourVest is continuing
save for cash balances and to operate flexible working
short-term liquid investments, arrangements with the majority
are invested in HarbourVest of staff working from home.
funds. Significant reliance HarbourVest is confident that
is placed by the Company its business continuity processes
on HarbourVest's control are robust and that they can
environment. continue to provide services
to the Company to the usual
high standard.
The Board is satisfied that
the strength and depth of
the HarbourVest team is sufficient
to manage absences of, or
turnover in, staff responsible
for HVPE.
------------------- ----- ---------------------------------------- --- -------------------------------------
Trading Liquidity Public market movements over Since the Company's shares
and Price the period under review have trade on the Main Market of
increased volatility in HVPE's the London Stock Exchange,
share price, and it is currently this provides increased liquidity
trading at a price which and accessibility to a wide
represents a discount to range of potential shareholders.
its NAV per share. Any ongoing In addition, the Board continues
discount to NAV per share to monitor the discount to
that is materially different NAV per share and will consider
to the Company's peer group appropriate solutions to address
has the potential to damage any ongoing or substantial
the Company's reputation discount to NAV per share.
and to cause shareholder The Board has overseen the
dissatisfaction. allocation of additional investor
During periods of short-term relations resource in recent
market stress, supply and years and the Company has
demand for shares can be attracted new shareholders.
impacted. If demand decreases The HVPE Board through the
or supply increases disproportionately, activities of the Investment
the bid/offer spread could Manager, HarbourVest Partners,
widen, resulting in less seeks to drive improved liquidity
attractive pricing for investors over the medium to long term
seeking to buy or sell shares by promoting the Company's
in the short term. shares to a broad range of
The five largest shareholders prospective investors. This
represent approximately 38% has continued throughout the
of the Company's shares in pandemic.
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 per share.
------------------- ----- ---------------------------------------- --- -------------------------------------
Board of Directors
Edmond ("Ed") Warner
Chair, Independent Non-Executive Director, appointed 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. He is currently Chair
of Air Partner PLC, an aviation services business, online
derivatives exchange LMAX, and the BlackRock Energy and Resources
Income Trust. Prior chairman roles include Grant Thornton UK LLP,
Standard Life Private Equity Trust, and Panmure Gordon &
Co.
Committees: Chair of the Nomination Committee and Member of the
Management Engagement and Service Provider, and Inside Information
Committees.
Francesca Barnes
Independent Non-Executive Director, appointed April 2017
Key relevant skills:
-- Extensive private equity investment experience
-- Nine 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: Chair of the Management Engagement and Service
Provider Committee and Member of the Audit and Risk, and Nomination
Committees.
Elizabeth ("Libby") Burne
Independent Non-Executive Director, appointed March 2021
Key relevant skills:
-- Chartered Certified accountant
-- Extensive audit and risk management experience
-- 20 years' experience of working with Guernsey regulated,
listed, closed-ended investment structures
Libby Burne joined the Board of Directors on 1 March 2021. Prior
to her appointment Libby was an audit director at PwC in the
Channel Islands and, previously, PwC Australia. Over her career
Libby has worked with countless global clients on strategic,
financial, risk, and corporate governance matters. As an audit
director she led the audits of investment vehicles listed on the
London Stock Exchange and Australian Stock Exchange as well as many
private alternative asset structures and insurance companies. Libby
is a Fellow of the Association of Chartered Certified Accountants,
holds a degree in Applied Accounting, and is a Guernsey resident,
as such bringing recent and relevant financial and sector
experience.
Committees: Member of the Audit and Risk, Nomination, and
Management Engagement and Service Provider Committees.
Carolina Espinal
Non-Executive Director, appointed July 2019
Key relevant skills:
-- 18 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. As a HarbourVest executive 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 M&A 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.
Committees: None (as a HarbourVest executive)
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 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.
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 provided 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
Blackstone Loan Financing Limited and Chairman of the audit and
risk committee of GCP Infrastructure Investments 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.
Steven has recent and relevant financial and sector experience.
Committees: Chair of the Audit and Risk Committee, and 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
-- 24 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.
Committees: None (as a HarbourVest executive)
Directors' Report
Annual Report and Audited Consolidated Financial Statements
The Directors present their report and the Audited Consolidated
Financial Statements (the "Financial Statements" or "Accounts") for
the year ended 31 January 2021.
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 Chair's
Statement on page 4. A description of the emerging and principal
risks and uncertainties facing the Company, together with an
indication of the Company's likely future development and the
important events that have occurred since the end of the financial
year, is also provided in the Strategic Report and referenced in
the notes to the Financial Statements. 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 quotation 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.
Cash at any time not held in such longer-term investments will,
pending such investment, be held in cash, cash equivalents, money
market instruments, government securities, asset-backed securities,
and other investment-grade securities and interests in any private
equity vehicle that is listed or traded on any securities exchange
("Temporary Investments").
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 US, 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 co-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 (see page 84 for the definition) 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, (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.
-- 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 NAV 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.
-- 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. At 31
January 2021, HVPE's drawings on the credit facility for cash
management purposes represented approximately 4% of NAV. As at 27
May 2021 the amount drawn remained at approximately 4% of NAV. The
Company may 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 26 and 27 of the Strategic Report.
Results and Dividend
The results for the financial year ended 31 January 2021 are set
out in the Consolidated Statements of Operations within the
Financial Statements on page 68. 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 40 and 41 all held office
throughout the entire reporting period, except for Ms Burne who was
appointed with effect from 1 March 2021. All Directors listed were
in place at the date of signature of this Annual Report. 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 one Director
having served more than nine years (Mr Moore) can be found on page
51, noting, however, that he will be stepping down at HVPE's
upcoming AGM.
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 2021 31 January 2020
------------------ --------------- ---------------
Francesca Barnes 4,200 2,000
------------------ --------------- ---------------
Carolina Espinal 1,696(1) 696
------------------ --------------- ---------------
Alan Hodson 30,000 30,000
------------------ --------------- ---------------
Andrew Moore 14,400 14,400
------------------ --------------- ---------------
Ed Warner 8,000 3,000
------------------ --------------- ---------------
Steven Wilderspin 1,300 1,300
------------------ --------------- ---------------
Peter Wilson 25,000 25,000
------------------ --------------- ---------------
1 Of the total shares held, 696 shares were split equally
between Carolina's three children, with Carolina holding 1,000
shares.
Ms Burne was appointed as a Director with effect from 1 March
2021. At the date of her appointment she held 786 HVPE shares; this
amount remains unchanged as at 27 May 2021.
There have been the following changes in Directors' interests
between 31 January 2021 and the date of signing of this report.
Changes to Directors' Interests in Shares
27 May 2021 31 January 2021
----------------- ----------- ---------------
Carolina Espinal 2,446(2) 1,696
----------------- ----------- ---------------
2 Of the total shares held, 1,446 shares were split equally
between Carolina's three children, with Carolina holding 1,000
shares.
Substantial Shareholders
The table that follows shows the interests of major shareholders
based on the best available information provided by the analysis of
the Company's share register, incorporating any disclosures
provided to the Company in accordance with Disclosure Guidance and
Transparency Rule ("DTR") 5 in the period under review and up to 5
May 2021.
% of Voting Rights 31 January % of Voting Rights 5 May
2021 2021
-------------------------- ----------------------------- ------------------------
Quilter PLC 12.85 12.79
-------------------------- ----------------------------- ------------------------
State Teachers Retirement
System of Ohio 9.82 7.25
-------------------------- ----------------------------- ------------------------
M&G (Prudential) 9.31 8.37
-------------------------- ----------------------------- ------------------------
City of Edinburgh Council 5.55 5.55
-------------------------- ----------------------------- ------------------------
Total 37.53 33.96
-------------------------- ----------------------------- ------------------------
Corporate Governance
The Board recognises the importance of sound corporate
governance and follows best-practice requirements wherever
possible. The Company complies with the AIC Code published in
February 2019, which is endorsed by the Financial Reporting Council
("FRC"). A Statement of Compliance with the AIC Code is provided on
page 58 and further details about how our Corporate Governance
framework operates can be found throughout this Governance
Report.
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.
Approach to ESG
The Board recognises the critical importance of ESG
considerations to many investors. It acknowledges that ESG issues
can present both opportunities and threats to long-term investment
performance and is committed to responsible and sustainable
investing. The Board also believes that HVPE will benefit from the
continued evolution of HarbourVest's ESG practices and
standards.
The Board is aware that as an investment company, its approach
to ESG matters is materially informed by the strategy of the
Investment Manager and accordingly the Board is committed to
ensuring that it has appointed an Investment Manager that applies
the highest standards of ESG practice and has the skill and vision
to respond to ongoing developments. It is confident that in
HarbourVest it has such an Investment Manager.
The Board is reliant on the Investment Manager's screening
processes, controls and priorities to address ESG matters within
the investment portfolio in both the selection and oversight of
investments. The Board believes that engagement with management of
investee companies and funds is an effective way of driving
meaningful change and takes considerable comfort from the extent of
the Investment Manager's activity in this area, which is described
on pages 13 to 15.
The Board receives regular updates from the Investment Manager
on the development and implementation of its ESG policies and
processes and the Board will continue to monitor those closely.
These updates include information on the levels of engagement with
investee companies and ESG issues in respect of their monitoring
and selection of holdings in the Company's portfolio. This provides
a valuable opportunity for the Board to confirm and challenge the
Investment Manager to demonstrate that it is continuing to apply
the highest standards of ESG practice across its investments and
operations.
The Board recognises that the Investment Manager has been a
signatory to the UN Principles for Responsible Investment ("PRI")
since 2013, that it is committed to considering the potential
impact that its investment and operational decisions could have,
and that it encourages the GPs with which it invests to adopt the
PRI. With regard to environmental and climate disclosures, the
Investment Manager has started to report annually on its progress
through its ESG report in line with the Recommendations of the
TCFD. The Board has noted that the Investment Manager is a
CarbonNeutral(R) company in accordance with The CarbonNeutral
Protocol, a leading framework for carbon neutrality. The Investment
Manager's offsetting programme delivers finance to emission
reduction projects, supporting the transition to a low carbon
economy. Finally, the Board also reviews the Investment Manager's
approach to promoting diversity, social responsibility, and
projects to combat social exclusion and enhance opportunities.
The Board is committed to incorporating ESG oversight across the
Company's outsourced providers and within its own operations. Ms
Espinal is the HVPE Director responsible for ESG matters. She helps
to promote closer monitoring and further development in this area
for the Company.
The Company's oversight of outsourced providers has been
expanded to include questions and confirmations in respect of their
ESG policies as part of its annual review of providers.
As an investment company with no direct employees, the core of
the Company's ESG initiatives is derived from its oversight of its
service providers, most importantly the Investment Manager.
However, the Board also considers the application of ESG standards
to its own activities as an Investment Company, including the
following:
-- Carbon Footprint: The Board has initiated a project to
calculate its own carbon footprint with a view to achieving Carbon
Neutral status, and will provide an update to shareholders in due
course.
-- Relations with Stakeholders: The Board will extend its
interaction with its shareholders and other stakeholders to include
a consideration of ESG matters. The Board has noted the governance
and environmental benefits of broader shareholder participation
facilitated by virtual shareholder events and will explore
continuing to offer remote access where possible.
-- Diversity and Inclusion: The Board's approach to diversity
and inclusion is set out on page 51 and is reflected in the
activities of the Nomination Committee . 43% of the Directors who
are being proposed for re-election at the AGM are female, a figure
well above the level recommended in the Hampton-Alexander Review.
While it does not have a diversity target in mind, given the range
of factors that this term necessarily covers, the Board will
consider actively prioritising diversity in its next recruitment
process.
-- Position on Modern Slavery: The Board recognises the
importance of the issues which the UK Modern Slavery Act 2015 is
designed to address. It will expand its oversight of outsourced
providers, including the Investment Manager, to include questions
relating to their policies to combat Modern Slavery.
Significant Votes Against Policy
The Directors have adopted a policy whereby should 20% or more
of votes be 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 at the 2020 AGM.
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, including the facilitation of
corporate tax evasion. 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.
-- The Company requires all its service providers and advisers
to adopt equivalent or similar principles.
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 39,
with further information disclosed in the Notes to the Financial
Statements on pages 75 to 83. 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 ("IMA")
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 AGM.
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 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 $3.9 million at 31 January 2021 and $3.7
million as at 30 April 2021, as reimbursement of the Investment
Manager's remaining unamortised IPO costs. In addition, the Company
would be required to pay a fee to the Investment Manager 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.
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.
Share Repurchase Programme
At the 2020 AGM, held on 22 July 2020, 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.
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 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 make these
assessments, as demonstrated through the GFC and the more recent
COVID-19 pandemic. The Investment Manager typically updates the
model scenarios annually in November, projecting NAV growth and
cash flow for the subsequent five-year period. As highlighted on
page 12, the onset of COVID-19 and the subsequent portfolio
assessment undertaken by the Investment Manager, led the Company to
also revise its models in May 2020. For the purpose of assessing
the Going Concern and the Viability Statements over the respective
assessment periods, the Investment Manager utilised the four model
scenarios (Extreme Downside, Low, Base and Optimistic) presented to
the Board in November 2020, which extend over the next five-year
period through to 31 December 2025, and reflect the unexpectedly
fast rebound following the initial COVID-19 shock. These were
updated to reflect actual cash flows through to December 2020.
Going Concern
After due consideration, the Directors are satisfied that it is
appropriate to continue to adopt the going concern basis in
preparing the Financial Statements. This has been concluded
following a review of the model scenarios presented by the
Investment Manager compared to actual cash flows to date, making
due enquiries of the Investment Manager, and being mindful of the
closed-ended structure of the Company with no fixed life, as well
as the nature of its investments. On this basis, the Directors
consider that the Company is able to continue in operation for 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 42 and 43 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 the UK Corporate Governance Code 2018 and the AIC
Code, the Board has assessed the viability of the Company over the
period from 31 January 2021 to 31 December 2025, which aligns with
the timing of the Investment Manager's current five-year model
scenarios. 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 currently focuses on a time period
extending through to 31 December 2025 when considering the
strategic planning of the Company, as discussed on pages 32 to 33
of this Annual Report. The strategic planning centres on building a
portfolio of long-term assets through capital allocation into a set
of rolling five-year calendar year end portfolio construction
targets defined by investment stage, geography, and strategy. 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. The Board primarily focused on two scenarios, the
Base and Extreme Downside, the latter of which is a worst-case
scenario that assumes large NAV declines and a material reduction
in realisations from the underlying investment portfolio. Based on
the unexpectedly robust recovery following the initial shock
related to COVID-19, the Board concluded that the Company's cash
balance and available credit facility would be sufficient to cover
capital requirements under even the Extreme Downside scenario. The
results of this modelling showed that the Company would be viable
in the face of these scenarios occurring over the period ending 31
December 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. 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 40 and 41,
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:
Ed Warner
Chair
27 May 2021
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 four 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 Chair 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.
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 agree the method To review the Company's
Company maintains developments which and Investment Manager
high standards of may require an immediate oversee the process and service providers
risk management, announcement by for to ensure that a
integrity, financial virtue of being the selection and good value service
reporting, and internal price sensitive recruitment of new of satisfactory
controls. information. Directors and to quality is delivered,
nominate candidates and to manage the
for appointment process
approval by the of new or replacement
Board. service providers.
------------------------ ------------------------- -------------------- ------------------------
Members Members Members Members
Chaired by: Chaired by: Chaired by: Chaired by:
Steven Wilderspin Ed Warner Ed Warner Francesca Barnes
Francesca Barnes Steven Wilderspin Francesca Barnes Alan Hodson
Alan Hodson Alan Hodson Andrew Moore
Andrew Moore Andrew Moore Steven Wilderspin
Steven Wilderspin
------------------------ ------------------------- -------------------- ------------------------
* Libby Burne was appointed post financial year end, on 1 March
2021 and sits on the following committees: Audit and Risk
Committee, Nomination Committee, Management Engagement and Service
Provider Committee, and Remuneration Committee.
The Remuneration Committee, as described on page 57, was
established after the financial year end.
Board and Committee Meetings with Director Attendance
In the financial year ended 31 January 2021, the Board held the
following meetings. Below is a summary of the Director attendance
at those meetings:
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 7/7 7/7 - 2/2 1/1
------------------------ --------- --------- ----------- ----------- ----------
Sir Michael Bunbury(1) 5/5 - 1/1 - -
------------------------ --------- --------- ----------- ----------- ----------
Ms Carolina Espinal 7/7 - - - -
------------------------ --------- --------- ----------- ----------- ----------
Mr Alan Hodson 7/7 7/7 - 2/2 1/1
------------------------ --------- --------- ----------- ----------- ----------
Mr Andrew Moore 7/7 7/7 - 2/2 1/1
------------------------ --------- --------- ----------- ----------- ----------
Mr Ed Warner 7/7 - 2/2 2/2 1/1
------------------------ --------- --------- ----------- ----------- ----------
Mr Steven Wilderspin 7/7 7/7 3/3 2/2 1/1
------------------------ --------- --------- ----------- ----------- ----------
Mr Peter Wilson 7/7 - - - -
------------------------ --------- --------- ----------- ----------- ----------
1 Sir Michael Bunbury retired in July 2020. Ms Burne was
appointed on 1 March 2021 and therefore is not included in the
table above.
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. Committee terms of reference (except for the Inside
Information Committee), the schedule of matters reserved for the
Board, the roles and responsibilities of the Chair, and the roles
and responsibilities of the Senior Independent Director are
available on the Company's website:
www.hvpe.com/shareholder-information/corporate-governance .
A Remuneration Committee was formally established on 23 March
2021. This Committee has been established to determine the policy
for Directors' remuneration, to set the remuneration of the Chair
of the Board, and to consider the need to appoint external
remuneration consultants.
All Directors received notice of the meetings, the agenda and
supporting documents and were able to comment on the matters to be
raised at the proposed meeting. During each meeting, the Chair
promoted and facilitated open constructive debate on each topic,
encouraging input from all Directors. As well as the formal
scheduled strategy meeting, the Board also received detailed
updates from the Investment Manager via update calls with
particular reference to the impact on the Company of the pandemic.
In addition to the above meetings, ad-hoc Board and Committee
meetings are often convened at short notice and, as they only
require a quorum of two Directors, there is a lower attendance than
for the scheduled meetings. If any Director is unable to attend a
meeting, they receive the papers and have the opportunity to
discuss them with the Chair. During the financial year there were
three ad-hoc Board meetings with a quorum at each.
At each scheduled Board meeting, amongst other items, the
Directors review and discuss the Investment Manager's Report,
HVPE's financial position, 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 Chair and
the Senior Independent Director as well as a schedule of matters
reserved for the Board. All of these documents are available on the
Company's website here:
https://www.hvpe.com/shareholder-information/corporate-governance
.
Board Composition
The Board demonstrates an appropriate balance of skills,
experience and length of service, and the Directors believe that
any changes to the Board's composition can be managed without undue
disruption. The refreshment of the Board remains an ongoing process
to ensure that the Board is well balanced. The Board's careful
consideration of its composition and the ongoing refreshment
process led to the addition of Ms Burne in March 2021. Further
details on the selection and appointment process can be found in
the Nomination Committee report on page 55.
All Directors are subject to annual re-election by shareholders.
When a new Director is appointed to the Board, they will
participate in a structured induction process. The Board actively
engaged with the Investment Manager and Company Secretary to ensure
that Ms Burne was given a detailed induction process comprising of
multiple meetings with the Chair of the Board and Chair of the
Audit and Risk Committee, key individuals within the Investment
Manager, and other service providers.
With specific reference to Mr Moore's tenure, which has exceeded
nine years, the Board is of the view that Directors can continue
beyond this period, 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 HVPE. The Board confirms that Mr
Moore remains independent of the Investment Manager with no other
interests or conflicts with HarbourVest Partners, notwithstanding
his years' service. This is evidenced by his continued constructive
challenge of the Investment Manager. However, Mr Moore will step
down from the Board at the upcoming AGM.
If a Director wishes to undertake additional external
appointments, approval is sought from the Chair in order to confirm
that the Director will be able to continue to dedicate sufficient
time to carry out their duties as a Director of the Company and to
assess any potential conflicts of interest and independence
issues.
Tenure Policy
When considering its composition, the Board is strongly
committed to striking the correct balance between the benefits of
continuity, experience and knowledge and those that come from the
introduction of Directors with diversity of perspectives and
skills. Since the year end the Board has adopted a Tenure Policy
confirming its intention that each Director will retire at the AGM
immediately following the completion of their ninth year on the
Board.
It is acknowledged that there could be unusual circumstances in
which a short extension of that time period could be appropriate.
In that event, a comprehensive explanation of the circumstances
would be provided to stakeholders.
Board and Committees Evaluation
The Board undertakes a formal annual evaluation of its
performance. This includes the Chair carrying out an individual
review with each Director of their performance and contribution,
and the Senior Independent Director leading an annual evaluation of
the performance of the Chair.
The annual evaluation for the year was conducted internally by
way of completion of detailed questionnaires and subsequent
one-to-one conversations between the Chair and individual Directors
and between the Senior Independent Director and the Chair. The key
recommendations arising from the annual evaluation were then
discussed at a Board meeting, and all identified actions are being
progressed.
An externally facilitated Board evaluation occurs every three
years and is next scheduled to take place in 2022.
Policy on Diversity and Inclusion
The Board and Nomination Committee actively consider the
diversity of the Board when considering future appointments. The
Board is pleased that, with the appointment of Ms Burne, it has
exceeded the Hampton-Alexander Review target for 33% female
representation on FTSE 350 company boards. The Company has no
employees. As noted last year, the Board has also achieved the
targeted ethnic diversity by the Parker Review ahead of the 2024
recommendation, with one of its seven Directors seeking re-election
at the AGM being from an ethnic minority background.
The Board also recognises that diversity includes racial,
socio-economic and other factors such as physical ability, and that
different backgrounds and experiences can bring real value to the
Company in terms of decision making. While it does not have any
specific diversity target in mind, given the range of factors that
this term necessarily covers, the Board will consider actively
prioritising diversity in its next recruitment process.
Audit and Risk Committee
About the Committee
The Audit and Risk Committee members are outlined on page 49. Ms
Barnes, Mr Hodson and Mr Moore each held senior banking roles for a
number of years as described in their biographies on pages 40 and
41. 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. Ms Burne became a member of this Committee on 1 March
2021 and is a former auditor with 20 years' experience. Members are
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
and auditor engagement. The Committee is also responsible for both
making appropriate recommendations to the Board, including that the
Financial Statements are fair, balanced, and understandable, and
for ensuring that the Company complies to the best of its ability
with applicable laws and regulations while also adhering 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. The Audit and Risk Committee does
have the power to commission third-party assurance work if it sees
fit, but did not do so in the year under review.
Activities of the Committee
Audit and Risk Committee Meetings In the financial year ended 31
January 2021, the Audit and Risk Committee met seven times. A
summary of Director attendance is included in the "Board and
Committee Meetings with Director Attendance" section on page 50. In
these meetings, the Committee considered the following matters:
Independent Auditor
The Audit and Risk Committee reviewed the effectiveness of the
external audit process during the year, including audit quality,
objectivity (level of challenge and professional scepticism), and
independence. This included 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 gone well considering the
additional problems brought by the pandemic. The extra time allowed
by authorities to complete the audit had been helpful. The
Committee was pleased with the engagement with the auditor
regarding its work to gain comfort on the Directors' statements on
going concern and viability, and the treatment of these matters in
its report. 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 partner responsible for the audit, Mr David Moore,
will rotate off HVPE following the audit of these Financial
Statements after having served five years, to comply with rotation
requirements. The Company's auditor performed the audit of the
Company's Financial Statements, prepared in accordance with
applicable law, US GAAP and audited under both relevant US
generally accepted auditing standards ("US GAAS") and International
Standards on Auditing (UK). The audit approach remained
substantially unchanged relative to the prior year.
Auditor Independence
The Audit and Risk Committee understands the importance of
auditor independence and, during the year, the 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. The auditor
reported one independence breach relating to a person closely
associated with an associate partner of EY in the UK, outside the
audit practice, holding a non-material direct financial interest in
the Company. This financial interest was disposed of immediately
after EY's compliance procedures picked the matter up. While
disappointed, the Audit and Risk Committee was satisfied that the
matter was dealt with by EY from a disciplinary and regulatory
point of view, and the circumstances of the breach did not
compromise the overall assessment that the auditor is independent.
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 previously adopted a
non-audit services policy, due to the adoption of the new Crown
Dependency audit rules and guidance. In all cases the Committee
reviews 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. This
policy was revised after the year end to reflect the fact that the
applicable provisions are now mandatory for the Company, and it now
includes a cap on the cost of any non-audit services at 70% of the
average of the previous three years' audit fees.
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 Committee considered the proposed fees for Ernst &
Young LLP's audit and interim review work of GBP212,000 for 2021.
Whilst this is an 8.7% increase on the fee quote for its 2020 work,
it is a reduction on final 2020 fees of GBP233,500. The 2020 fees
were higher than quoted due to the additional work carried out by
the auditor relating to COVD-19 factors, in particular regarding
going concern and viability. The auditor made the case that the
increase in quote for 2021 is justified because of additional
procedures due to changes in auditing standards and the ongoing
impact of COVID-19. Having been satisfied by the scope of the
engagement letter and fee proposal, the Committee recommended that
the Board should approve the fee proposal and letter of
engagement.
Internal Controls
The internal control systems (including those related to cyber
security) 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 the Private Equity Fund
Administration Report on Controls Placed in Operation and Tests of
Operating Effectiveness ("Type II SOC I Report") for the period
from 1 October 2019 to 30 September 2020 (a bridging letter covers
the period 1 October 2020 to 31 January 2021), 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 2019 to 30 September
2020 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, during
the year, the MESPC conducted a detailed review of the performance
of the Company's service providers, including the Investment
Manager and Administrator.
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, including the impact of
COVID-19 on the Company and confirmed it was satisfied that it was
appropriate for the Company's requirements. Further details of the
principal risks and uncertainties facing the Company are given on
pages 26 and 27. 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
a "deep-dive" review of balance sheet risk was presented to the
Board. The review of balance sheet risk included an analysis of the
use of HarbourVest fund-level borrowing and the structural and
policy constraints on the amount of such borrowing. Enhanced
reporting to the Board was identified and implemented. An annual
review of the Company's credit facility and lenders was also
recommended.
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.
As at 27 May 2021 $115.0 million was drawn down. Although the
Company's currency exposure is currently not hedged, the Company's
approach to hedging is kept under periodic 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, credit
risk, liquidity risk, and cash flow risk.
Regulatory Compliance
The Audit and Risk Committee has engaged with the
Administrator's 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.
Audited Financial Statements and Significant Reporting
Matters
As part of the 31 January 2021 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, and the impact of COVID-19, specifically with regard to the
Board's statements on going concern and viability.
The Audit and Risk Committee remains satisfied that the
valuation techniques used are appropriate for the Company's
investments and consistent with the requirements of US GAAP. The
Audit and Risk Committee ensures the Board is kept regularly
informed of relevant updates/changes to US GAAP that impact the
Company, including but not limited to valuation principles.
During the year the Audit and Risk Committee kept the risks
associated with the pandemic and the measures adopted by
HarbourVest and other service providers under review, to ensure
continuity of service to the Company. The Committee also reviewed
all of the Company's risks through the lens of COVID-19 and
recommended changes to the Company's risk matrix. These are
reflected in the Principal Risks and Uncertainties section on pages
26 and 27.
Corporate Governance
The Audit and Risk Committee continues to monitor the Board's
assessment of the Company's compliance with the AIC Code of
Corporate Governance for Investment Companies (the 2019 edition).
As outlined in the Chair's Statement, during the financial year the
Board initiated a search for its first dedicated HVPE Head of
Corporate Governance and Alexandra Cornforth was appointed in April
2020.
Governance and Effectiveness
On 24 February 2021 the Committee conducted an internal 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. Minor amendments to the
terms of reference were proposed and approved. The Board evaluation
process included a consideration of its Committees and concluded
that they were used effectively.
Other Matters
The Audit and Risk Committee is currently considering the UK
Government consultation on "Restoring trust in audit and corporate
governance" which contains far-reaching proposals for reform. It
will be assessing the implications of the proposals for the Company
and will submit a response in due course.
In the current financial year, the Audit and Risk Committee will
also be developing further the Company's risk management
methodology.
In presenting this report, I have set out for the Company's
shareholders the key areas that the Committee focuses on. If any
shareholders would like any further information about how the
Committee operates and its review process, I, or any of the other
members of the Audit and Risk Committee, would be pleased to meet
and discuss this with them.
Steven Wilderspin
Chair of the Audit and Risk Committee
27 May 2021
Nomination Committee
About the Committee
The Nomination Committee was established on 24 November 2015 and
is chaired by the Chair of the Company. Its members are outlined on
page 49.
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 the identification and
appointment of Directors to the Board.
Activities of the Committee
Changes to Board Composition
In accordance with the approach to succession planning outlined
below, Ms Libby Burne was appointed as a Director with effect from
1 March 2021. Sir Michael Bunbury retired in July 2020.
Approach to Succession Planning
To help facilitate an orderly succession process, the Nomination
Committee considered the composition
requirements of the Board to ensure the requisite skills,
knowledge, experience, and diversity were appropriate. Following
this it prepared a role profile for a new Director and engaged
Thomas & Dessain, recruitment consultants, to undertake the
search. The Committee reviewed a long list of candidates, selected
suitable candidates for first round interviews and proposed
successful candidates for interview by the entire Board. In
February 2021 the Committee made a formal recommendation to the
Board that Libby Burne be appointed as a Director. The Board agreed
with this recommendation and Ms Burne was appointed with effect
from 1 March 2021.
Thomas & Dessain has no connections to the Company or its
Directors.
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
About the Committee
The MESPC was established on 24 November 2015 and is chaired by
Ms Barnes. The members are outlined on page 49. 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
Due to the travel restrictions imposed by COVID-19, the annual
Investment Manager review was undertaken virtually, in July 2020,
rather than in person. As part of this review the Board received
presentations from the investment committee, as well as 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 MESPC 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. It is anticipated that when the easing of
travel restrictions allow, the Board as a whole will undertake
visits to the Investment Manager's offices in Boston and London. In
accordance with its terms of reference, the MESPC carries out a
formal review of the Investment Management Agreement every three
years and following that review will recommend any changes to the
Board for consideration.
MESPC Review
The MESPC met in November 2020 and conducted a detailed review
of the performance of all key service
providers to the Company for the year to January 2021 against
the following criteria:
-- scope of service;
-- key personnel;
-- key results achieved for the Company;
-- fees charged to the Company;
-- breaches and errors in the year under review;
-- ESG policies and initiatives;
-- cyber security and IT controls environment; and
-- General Data Protection Regulation ("GDPR") compliance.
Governance and Effectiveness
In November 2020, 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.
Remuneration Committee
About the Committee
The Remuneration Committee was established on 23 March 2021 and
will be chaired by Mr Hodson, as the Senior Independent Director of
the Company. The members are Ms Barnes, Ms Burne, Mr Moore, Mr
Warner and, Mr Wilderspin. The other Directors of the Company may
attend by invitation of the Committee.
The Remuneration Committee has delegated responsibility for
determining the policy for Directors' remuneration and setting the
remuneration of the Chair of the Board. The Committee will also
make recommendations to the Board for the Directors' remuneration
levels which shall be determined in accordance with the Company's
Articles of Association. Remuneration will not include performance
related elements. The Committee terms of reference can be found on
the HVPE website here:
www.hvpe.com/shareholder-information/corporate-governance .
The Committee will meet at least once a year. No meeting has
been held to date but will take place later in 2021.
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 UK Market Abuse Regulation ("UK
MAR"). It met three times during the year and issued two flash NAV
per share updates as a result of the meetings. The terms of
reference for this Committee were updated to reflect post-Brexit
regulation.
Directors' Remuneration Report
An ordinary resolution for the approval of this Directors'
Remuneration Report will be put to shareholders at the forthcoming
AGM to be held in 2021.
There are no long-term incentive schemes provided by the Company
and no performance fees are paid to Directors. Directors affiliated
to HarbourVest do not receive any fees.
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 2020 and 31 January 2021. 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 no changes
were made.
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 ended 31 January 2021.
Fees Paid Fees Paid
for the for the
12 12
Months Months
Ended Ended
31 January 31 January
Director Role 2021 2020
---------------------- --------------------------- ---------- ----------
Sir Michael Bunbury(1) Chair, Independent Director GBP66,703 GBP140,000
---------------------- --------------------------- ---------- ----------
Francesca Barnes Independent Director GBP54,000 GBP50,000
---------------------- --------------------------- ---------- ----------
Libby Burne(2) Independent Director n/a n/a
---------------------- --------------------------- ---------- ----------
Keith Corbin Independent Director Nil GBP22,921
---------------------- --------------------------- ---------- ----------
Carolina Espinal Director Nil Nil
---------------------- --------------------------- ---------- ----------
Alan Hodson Independent Director GBP54,000 GBP51,000
---------------------- --------------------------- ---------- ----------
Andrew Moore Independent Director GBP54,000 GBP51,000
---------------------- --------------------------- ---------- ----------
Ed Warner(1) Chair, Independent Director GBP75,127 GBP21,856
---------------------- --------------------------- ---------- ----------
Audit and Risk Committee
Steven Wilderspin Chairman GBP64,000 GBP59,750
---------------------- --------------------------- ---------- ----------
Peter Wilson Director Nil Nil
---------------------- --------------------------- ---------- ----------
Total GBP367,830 GBP397,527
---------------------- --------------------------- ---------- ----------
Director
fees payable
with effect
from
1 October
2019
Role (annualised)
--------------------------------- -------------
Chairman, Independent Director GBP100,000(3)
--------------------------------- -------------
Audit and Risk Committee Chairman GBP64,000
--------------------------------- -------------
Senior Independent Director GBP54,000
--------------------------------- -------------
Independent Director GBP54,000
--------------------------------- -------------
1 Sir Michael Bunbury was the Chair until 22 July 2020 when Mr
Ed Warner was appointed to this role.
2 Ms Burne was appointed with effect from 1 March 2021.
3 Reduced from GBP140,000 to GBP100,000 with effect from 22 July
2020.
Signed on behalf of the Board by:
Ed Warner Steven Wilderspin
Chair Chair of the Audit and Risk Committee
27 May 2021
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 aim
to comply as much as possible with the provisions of the AIC Code
published in February 2019.
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 AIC Code has been endorsed
by the Financial Reporting Council ("FRC") and the Guernsey
Financial Services Commission ("GFSC"). By reporting against the
AIC Code, the Company is meeting its obligations under the UK Code,
the 2011 GFSC Finance Sector Code of Corporate Governance and the
associated disclosure requirements set out under paragraph 9.8.6R
of the Financial Conduct Authority's ("FCA's") Listing Rules. 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 complied with all the principles and provisions of
the AIC Code during the year ended 31 January 2021 except for two
items which were resolved after the year end but prior to
publication of the Annual Accounts and an additional difference
relating to the duties of the Nomination Committee. Details on
these three exceptions are outlined below.
Policy on the Tenure of the Chair
The Board did not have a formal policy on tenure, including the
tenure of the Chair, until March 2021 when such a policy was
established.
Remuneration Committee
During the period under review, the entire Board acted as the
Remuneration Committee. The Board established a separate
Remuneration Committee on 23 March 2021. Terms of reference are
available on the Company's website.
The following item is an ongoing exception to one of the
principles of the AIC Code:
The Duties of the Nomination Committee
As set out on page 55, the Board has established a Nomination
Committee, but it has chosen to limit its remit to focus purely on
the identification and nomination of Board candidates to fill
Independent Director Board vacancies as and when they arise. Other
matters relating to the structure, size and composition of the
Board and plans in respect of tenure and succession for Independent
Directors form part of the matters reserved for the entire Board.
The Directors believe that their deliberations in relation to these
matters benefit from the input from all the Directors, including
those appointed by HarbourVest.
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
------------------------------------------ -------------------------------------
Strategy On pages 42 and 43
------------------------------------------ -------------------------------------
Values and culture On page 49
------------------------------------------ -------------------------------------
Relations with Shareholders on page
Shareholder engagement 20
------------------------------------------ -------------------------------------
Section 172 statement and sample
Stakeholder engagement key decisions on page 21
------------------------------------------ -------------------------------------
2. Division of responsibilities
------------------------------------------ -------------------------------------
Director independence Directors on pages 40 and 41
------------------------------------------ -------------------------------------
Board and Committee Meetings with
Board meetings Director Attendance on page 50
------------------------------------------ -------------------------------------
Investment Manager on page 20 and
Investment Manager's Report on pages
Relationship with Investment Manager 10 to 15
------------------------------------------ -------------------------------------
Management Engagement and Service
Management Engagement Committee Provider Committee on page 55
------------------------------------------ -------------------------------------
3. Composition, Succession, and Evaluation
------------------------------------------ -------------------------------------
Nomination Committee Nomination Committee on page 55
------------------------------------------ -------------------------------------
Board Composition on pages 50 and
Director re-election 51
------------------------------------------ -------------------------------------
Approach to Succession Planning
Use of an external search agency on page 55
------------------------------------------ -------------------------------------
Board and Committees Evaluation
Board evaluation on page 51
------------------------------------------ -------------------------------------
4. Audit, Risk, and Internal Control
------------------------------------------ -------------------------------------
Audit and Risk Committee on pages
Audit Committee 52 to 54
------------------------------------------ -------------------------------------
Principal Risks and Uncertainties
Emerging and principal risks on pages 26 and 27
------------------------------------------ -------------------------------------
Risk management and internal control Risk Management and Internal Controls
systems on page 53
------------------------------------------ -------------------------------------
Going concern statement Going Concern on page 47
------------------------------------------ -------------------------------------
Viability statement Viability Statement on page 47
------------------------------------------ -------------------------------------
5. Remuneration
------------------------------------------ -------------------------------------
Directors' Remuneration Report on page 57
------------------------------------------ -------------------------------------
Independent Auditor's Report
to the Members of HarbourVest Global Private Equity Limited
Opinion
We have audited the consolidated financial statements (the
"Financial Statements") of HarbourVest Global Private Equity
Limited (the "Company") and its subsidiaries (together the "Group")
for the year ended 31 January 2021 which comprise the Consolidated
Statements of Assets and Liabilities, the Consolidated Statements
of Operations, the Consolidated Statements of Changes in Net
Assets, the Consolidated Statement 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 2021 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. We are independent of the Group
in accordance with the ethical requirements that are relevant to
our audit of the Financial Statements, including the UK 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 going concern
In auditing the Financial Statements, we have concluded that the
Directors' use of the going concern basis of accounting in the
preparation of the Financial Statements is appropriate. Our
evaluation of the Directors' assessment of the Group's ability to
continue to adopt the going concern basis of accounting
included:
-- We discussed with the Directors their assessment of going
concern, which included four scenario analysis models, including
the 'Base Case' and 'Extreme Downside' scenarios, the 'Base Case'
being considered by the Directors to be the most likely
scenario;
-- We ascertained that the going concern assessment covered a
period up until 30 June 2022 from the date of approval of the
financial statements;
-- We reviewed the arithmetical accuracy of the 'Base Case' and
'Extreme Downside' scenario models;
-- For the 'Base Case' scenario we reviewed the working capital
documentation which supports the Directors' assessment of going
concern;
-- We considered the estimation uncertainty of the prior year's
most likely scenario by comparing it to the Group's actual
performance to date, discussed the material movements with the
Board and the Investment Manager, and obtained the required
supporting documentation;
-- For the 'Extreme Downside' scenario we challenged the
sensitivities and assumptions used in the forecast through reverse
stress testing to understand how severe the downside scenario would
have to be to result in the elimination of liquidity headroom or a
covenant breach;
-- 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 assessed whether the commitments made to underlying
investments casted significant doubt over the going concern status
of the Group and compared the historical calls made by underlying
investments as a % of the total commitments made, including a
discussion with the Investment Manager regarding the possibility
for uncalled commitments to be called;
-- We confirmed available bank facility balances to understand
the potential impact of the leverage in the underlying funds;
-- At year end, we recalculated the 3 covenant ratios applicable
to the bank facility; the 35% Total Asset Ratio, the 47% Total
Asset Ratio, and the Total Commitment Ratio (alternatively known as
the Bank Test Ratio);
-- 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; and
-- We evaluated the disclosures made in the Annual Report and
Consolidated Financial Statements regarding going concern to
ascertain that they are in accordance with US GAAP and have
complied with, or explained reasons for non-compliance, with all
the AIC Code of Corporate Governance provisions.
Based on the work we have performed, we have not identified any
material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the
Group's ability to continue as a going concern over a period from
the date of approval of the Financial Statements up until 30 June
2022.
In relation to the Group's reporting on how they have applied
the UK Corporate Governance Code, we have nothing material to add
or draw attention to in relation to the Directors' statement in the
Financial Statements about whether the Directors considered it
appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the Directors
with respect to going concern are described in the relevant
sections of this report. However, because not all future events or
conditions can be predicted, this statement is not a guarantee as
to the Group's ability to continue as a going concern.
Overview of our audit approach
Key audit matters Risk of misstatement or manipulation of the valuation
of the Group's investments in the underlying Primary or
Secondary HarbourVest funds, together the "HarbourVest
investment funds".
----------------- --------------------------------------------------------
Materiality Overall Group materiality of $57.5m which represents 2%
(2020: 2%) of net assets.
----------------- --------------------------------------------------------
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 each Company within the Group. Taken together, 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 changes in the business
environment when assessing the level of work to be performed.
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 below.
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.
Key audit matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the Financial
Statements of the current period 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 in the underlying Primary or Secondary HarbourVest
funds, together the "HarbourVest investment funds" ($2,889
million; 2020 $2,066 million).
Refer to the Accounting policies and Note 4 of the Financial
Statements.
There is a risk that the valuation of the Group's investments
at 31 January 2021, which comprise 100.6% (2020: 93.8%)
of net assets is materially misstated.
The valuation of the investments is the principal driver
of the Group's NAV and hence incorrect valuations would
have a significant impact on the NAV and performance of
the Group.
---------------- ------------------------------------------------------------------------
Our response Our response comprised the performance of the following
to the 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
2020 which, prior to adjustments, formed the basis
for the Group's carrying amount as at 31 January
2021;
* Obtained a schedule of all adjustments made to those
audited Net Asset Values between 1 January 2021 and
31 January 2021, 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
2021 to 31 January 2021;
* 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 2020, and roll forward to 31
January 2021;
* 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 2021 to 31
January 2021 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 2020 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 identify
communicated any instances of the use of inappropriate methodologies
to the Audit and that the valuation of the Group's investments in the
Committee HarbourVest investment funds were not materially misstated.
---------------- ------------------------------------------------------------------------
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 an omission or misstatement
that, individually or in the 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 materiality for the Group to be $57.5 million
(2020: $44.0 million), which is 2% (2020: 2%) of net assets. We
believe that net assets provide us with 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 the 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 2021 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 performance materiality was 75% (2020: 75%) of
our planning materiality, namely $43.1m (2020: $33.0m). 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. We have set
performance materiality at this percentage given that there is no
history of material misstatements, the likelihood of misstatement
in the future is deemed low, we have a strong understanding of the
control environment, there were no changes in circumstances (such
as a change in accounting personnel or events out of the normal
course of business) and it is not a close monitored audit, and
hence we consider 75% to be reasonable.
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 uncorrected audit differences in excess of $2.9m (2020: $2.2m),
which is set at 5% of planning materiality, as well as differences
below that threshold that, in our view, warranted reporting on
qualitative grounds.
We evaluate 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 contained within the annual report.
Our opinion on the Financial Statements does not cover the other
information and, except to the extent otherwise explicitly stated
in this report, we do not express any form of assurance conclusion
thereon.
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 course of 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 themselves. 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.
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.
Corporate Governance Statement
The Listing Rules require us to review the Directors' statement
in relation to going concern, longer-term viability and that part
of the Corporate Governance Statement relating to the Group's
compliance with the provisions of the UK Corporate Governance Code
specified for our review.
Based on the work undertaken as part of our audit, we have
concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the Financial
Statements or our knowledge obtained during the audit:
-- Directors' statement with regards to the appropriateness of
adopting the going concern basis of accounting and any material
uncertainties identified set out on page 47;
-- Directors' explanation as to its assessment of the Company's
prospects, the period this assessment covers and why the period is
appropriate set out on page 47;
-- Directors' statement on fair, balanced and understandable set out on page 48;
-- Board's confirmation that it has carried out a robust
assessment of the emerging and principal risks set out on pages 26
and 27;
-- The section of the annual report that describes the review of
effectiveness of risk management and internal control systems set
out on page 53; and
-- The section describing the work of the audit committee set out on page 52.
Responsibilities of directors
As explained more fully in the Statement of Directors'
Responsibilities set out on page 48, 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 or 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.
Explanation as to what extent the audit was considered capable
of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect irregularities,
including fraud. The risk of not detecting a material misstatement
due to fraud is higher than the risk of not detecting one resulting
from error, as fraud may involve deliberate concealment by, for
example, forgery or intentional misrepresentations, or through
collusion. The extent to which our procedures are capable of
detecting irregularities, including fraud is detailed below.
However, the primary responsibility for the prevention and
detection of fraud rests with both those charged with governance of
the Group and management. Our approach was as follows:
-- We obtained an understanding of the legal and regulatory
frameworks that are applicable to the Group and determined that the
most significant are:
-- Financial Conduct Authority ("FCA") Listing Rules;
-- Disclosure Guidance and Transparency Rules ("DTR") of the FCA;
-- The 2018 UK Corporate Governance Code;
-- The 2019 AIC Code of Corporate Governance;
-- The Companies (Guernsey) Law, 2008, as amended; and
-- The Protection of Investors (Bailiwick of Guernsey) Law 1987, as amended.
-- We understood how the Group is complying with those frameworks by:
-- Discussing the processes and procedures used by the
Directors, the Investment Manager, the Company Secretary and
Administrator to ensure compliance with the relevant
frameworks;
-- Inspecting the Group's relevant documented policies, processes and procedures; and
-- Reviewing internal reports that evidence compliance testing.
-- We assessed the susceptibility of the Group's Financial
Statements to material misstatement, including how fraud might
occur by undertaking the audit procedures set out in the Key Audit
Matters section above, and reading the Financial Statements to
check that the disclosures are consistent with the relevant
regulatory requirements; and
-- Based on this understanding we designed our audit procedures
to identify non-compliance with such laws and regulations. Our
procedures involved:
-- Having discussions with those charged with governance, the
Investment Manager, the Company Secretary and Administrator to
obtain an understanding of how instances of non-compliance with
relevant laws and regulations are identified;
-- Reviewing Board minutes and internal compliance reporting;
-- Inspecting correspondence with regulators;
-- Reviewing the Financial Statements to check that they comply
with the reporting requirements of the Group; and
-- Obtaining relevant written representations from the Board of Directors.
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/auditors
responsibilities. 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
27 May 2021
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 Auditor's 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 2021, and the related Consolidated
Statement of Operations, the 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
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 ('US 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 controls 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 2021, 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
27 May 2021
Consolidated Statements of Assets and Liabilities
At 31 January 2021 and 2020
In US Dollars 2021 2020
---------------------------------------------------- -------------- --------------
Assets
Investments (Note 4) 2,889,177,693 2,065,519,797
Cash and equivalents 98,415,503 130,616,160
Other assets 7,062,662 8,445,852
----------------------------------------------------- -------------- --------------
Total assets 2,994,655,858 2,204,581,809
Liabilities
Amounts due under the credit facility (Note 6) 120,000,000 -
Accounts payable and accrued expenses 2,072,770 1,802,505
Accounts payable to HarbourVest Advisers L.P. (Note
9) 72,500 92,281
----------------------------------------------------- -------------- --------------
Total liabilities 122,145,270 1,894,786
Commitments (Note 5)
Net assets $2,872,510,588 $2,202,687,023
Net assets consist of
Shares, unlimited shares authorised, 79,862,486
shares issued and outstanding
at 31 January 2021 and 2020, no par value 2,872,510,588 2,202,687,023
----------------------------------------------------- -------------- --------------
Net assets $2,872,510,588 $2,202,687,023
Net asset value per share $35.97 $27.58
----------------------------------------------------- -------------- --------------
The accompanying notes are an integral part of the Financial
Statements.
The Financial Statements on pages 67 to 83 were approved by the
Board on 27 May 2021 and were signed on its behalf by:
Ed Warner Steven Wilderspin
Chair Chair of the Audit and Risk Committee
Consolidated Statements of Operations
For the Years Ended 31 January 2021 and 2020
In US Dollars 2021 2020
----------------------------------------------------- ------------ ------------
Realised and unrealised gains on investments
Net realised gain on investments 107,439,061 136,310,816
Net change in unrealised appreciation on investments 574,812,458 153,005,496
------------------------------------------------------ ------------ ------------
Net gain on investments 682,251,519 289,316,312
Investment income
Interest and dividends from cash and equivalents 1,483,780 2,063,458
Expenses
Non-utilisation fees (Note 6) 4,923,153 5,916,192
Interest expense 3,012,476 -
Investment services (Note 3) 2,175,398 1,969,642
Financing expenses 1,537,832 1,488,019
Management fees (Note 3) 761,976 758,820
Professional fees 690,393 844,538
Directors' fees and expenses (Note 9) 480,244 604,289
Tax expenses 57,322 77,641
Other expenses 272,940 989,257
------------------------------------------------------ ------------ ------------
Total expenses 13,911,734 12,648,398
------------------------------------------------------ ------------ ------------
Net investment loss (12,427,954) (10,584,940)
------------------------------------------------------ ------------ ------------
Net increase in net assets resulting from operations $669,823,565 $278,731,372
------------------------------------------------------ ------------ ------------
The accompanying notes are an integral part of the Financial
Statements.
Consolidated Statements of Changes in Net Assets
For the Years Ended 31 January 2021 and 2020
In US Dollars 2021 2020
----------------------------------------------------- -------------- --------------
Increase in net assets from operations
Net realised gain on investments 107,439,061 136,310,816
Net change in unrealised appreciation 574,812,458 153,005,496
Net investment loss (12,427,954) (10,584,940)
------------------------------------------------------ -------------- --------------
Net increase in net assets resulting from operations 669,823,565 278,731,372
Net assets at beginning of year 2,202,687,023 1,923,955,651
------------------------------------------------------ -------------- --------------
Net assets at end of year $2,872,510,588 $2,202,687,023
------------------------------------------------------ -------------- --------------
The accompanying notes are an integral part of the Financial
Statements.
Consolidated Statements of Cash Flows
For the Years Ended 31 January 2021 and 2020
In US Dollars 2021 2020
----------------------------------------------------- ------------- -------------
Cash flows from operating activities
Net increase in net assets resulting from operations 669,823,565 278,731,372
Adjustments to reconcile net increase in net assets
resulting from operations
to net cash used in operating activities:
Net realised gain on investments (107,439,061) (136,310,816)
Net change in unrealised appreciation on investments (574,812,458) (153,005,496)
Contributions to private equity investments (430,949,492) (324,197,851)
Distributions from private equity investments 289,543,115 308,176,357
Other 1,633,674 652,037
------------------------------------------------------ ------------- -------------
Net cash used in operating activities (152,200,657) (25,954,397)
Cash flows from financing activities
Proceeds from borrowing on the credit facility 200,000,000 30,000,000
Repayments in respect of the credit facility (80,000,000) (30,000,000)
------------------------------------------------------ ------------- -------------
Net change in financing activities 120,000,000 -
------------------------------------------------------ ------------- -------------
Net decrease in cash and equivalents (32,200,657) (25,954,397)
Cash and equivalents at beginning of year 130,616,160 156,570,557
------------------------------------------------------ ------------- -------------
Cash and equivalents at end of year $98,415,503 $130,616,160
------------------------------------------------------ ------------- -------------
The accompanying notes are an integral part of the Financial
Statements.
Consolidated Schedule of Investments
At 31 January 2021
In US Dollars
Fair Value
Unfunded Amount Distributions Fair as a % of
US Funds Commitment Invested* Received Value Net Assets
-------------------------------- ----------- ------------- ------------- ------------- ----------
HarbourVest Partners
V-Partnership Fund
L.P. 2,220,000 46,709,079 45,924,243 923,568 0.0
--------------------------------- ----------- ------------- ------------- ------------- ----------
HarbourVest Partners
VI-Direct Fund L.P. 1,312,500 46,722,408 38,404,878 2,748,926 0.1
--------------------------------- ----------- ------------- ------------- ------------- ----------
HarbourVest Partners
VI-Partnership Fund
L.P. 5,175,000 204,623,049 237,227,087 1,096,959 0.0
--------------------------------- ----------- ------------- ------------- ------------- ----------
HarbourVest Partners
VII-Venture Partnership
Fund L.P. 2,318,750 135,290,448 192,044,076 16,399,096 0.6
--------------------------------- ----------- ------------- ------------- ------------- ----------
HarbourVest Partners
VII-Buyout Partnership
Fund L.P. 3,850,000 74,417,291 102,015,807 1,688,374 0.1
--------------------------------- ----------- ------------- ------------- ------------- ----------
HarbourVest Partners
VIII-Cayman Mezzanine
and Distressed Debt
Fund L.P. 2,000,000 48,201,553 60,039,432 4,167,599 0.1
--------------------------------- ----------- ------------- ------------- ------------- ----------
HarbourVest Partners
VIII-Cayman Buyout
Fund L.P. 7,500,000 245,258,801 367,876,685 47,829,038 1.7
--------------------------------- ----------- ------------- ------------- ------------- ----------
HarbourVest Partners
VIII-Cayman Venture
Fund L.P. 1,000,000 49,191,736 75,249,078 27,770,653 1.0
--------------------------------- ----------- ------------- ------------- ------------- ----------
HarbourVest Partners
2007 Cayman Direct
Fund L.P. 2,250,000 97,876,849 160,808,238 4,268,877 0.1
--------------------------------- ----------- ------------- ------------- ------------- ----------
HarbourVest Partners
IX-Cayman Buyout Fund
L.P. 10,472,500 60,808,226 57,469,864 62,330,014 2.2
--------------------------------- ----------- ------------- ------------- ------------- ----------
HarbourVest Partners
IX-Cayman Credit Opportunities
Fund L.P. 2,500,000 10,048,693 7,604,755 7,500,716 0.3
--------------------------------- ----------- ------------- ------------- ------------- ----------
HarbourVest Partners
IX-Cayman Venture Fund
L.P. 3,500,000 66,825,714 72,125,347 127,055,376 4.4
--------------------------------- ----------- ------------- ------------- ------------- ----------
HarbourVest Partners
2013 Cayman Direct
Fund L.P. 3,228,996 97,131,486 130,937,035 58,636,323 2.0
--------------------------------- ----------- ------------- ------------- ------------- ----------
HarbourVest Partners
Cayman Cleantech Fund
II L.P. 3,100,000 16,955,952 5,340,098 19,648,346 0.7
--------------------------------- ----------- ------------- ------------- ------------- ----------
HarbourVest Partners
X Buyout Feeder Fund
L.P. 112,140,000 139,887,552 41,110,960 182,884,604 6.4
--------------------------------- ----------- ------------- ------------- ------------- ----------
HarbourVest Partners
X Venture Feeder Fund
L.P. 29,230,000 118,823,838 27,794,065 215,230,139 7.5
--------------------------------- ----------- ------------- ------------- ------------- ----------
HarbourVest Partners
Mezzanine Income Fund
L.P. 8,155,000 42,066,579 26,148,004 35,000,885 1.2
--------------------------------- ----------- ------------- ------------- ------------- ----------
HarbourVest Partners
XI Buyout Feeder Fund
L.P. 267,750,000 82,250,000 5,790,687 107,277,453 3.7
--------------------------------- ----------- ------------- ------------- ------------- ----------
HarbourVest Partners
XI Micro Buyout Feeder
Fund L.P. 52,325,000 12,675,274 634,997 16,253,378 0.6
--------------------------------- ----------- ------------- ------------- ------------- ----------
HarbourVest Partners
XI Venture Feeder Fund
L.P. 122,550,000 67,486,139 2,036,134 93,379,746 3.3
--------------------------------- ----------- ------------- ------------- ------------- ----------
HarbourVest Adelaide
Feeder L.P. 92,625,000 57,375,000 2,799,059 78,543,038 2.7
--------------------------------- ----------- ------------- ------------- ------------- ----------
Total US Funds 735,202,746 1,720,625,667 1,659,380,529 1,110,633,108 38.7
--------------------------------- ----------- ------------- ------------- ------------- ----------
Fair
Value
as a
%
of
Unfunded Amount Distributions Fair Net
International/Global
Funds Commitment Invested* Received Value Assets
----------------------------- -------------- -------------- -------------- -------------- ------
HarbourVest International
Private Equity Partners
III-Partnership Fund
L.P. 3,450,000 147,728,557 148,439,622 442,876 0.0
------------------------------ -------------- -------------- -------------- -------------- ------
HarbourVest International
Private Equity Partners
IV-Direct Fund L.P. - 61,452,400 53,436,349 1,635,509 0.1
------------------------------ -------------- -------------- -------------- -------------- ------
HIPEP V-2007 Cayman
European Buyout Companion
Fund L.P.(--) 1,727,131 63,880,350 83,848,022 1,504,646 0.1
------------------------------ -------------- -------------- -------------- -------------- ------
Dover Street VII Cayman
L.P.(++) 4,413,862 95,586,138 128,606,761 7,518,106 0.3
------------------------------ -------------- -------------- -------------- -------------- ------
HIPEP VI-Cayman Partnership
Fund L.P.** 6,066,500 117,844,925 108,820,644 122,569,689 4.3
------------------------------ -------------- -------------- -------------- -------------- ------
HIPEP VI-Cayman Asia
Pacific Fund L.P. 2,500,000 47,687,431 41,011,086 45,060,203 1.6
------------------------------ -------------- -------------- -------------- -------------- ------
HIPEP VI-Cayman Emerging
Markets Fund L.P. - 30,059,489 8,702,301 31,787,223 1.1
------------------------------ -------------- -------------- -------------- -------------- ------
HVPE Avalon Co-Investment
L.P. 1,643,962 85,135,136 124,138,700 474,898 0.0
------------------------------ -------------- -------------- -------------- -------------- ------
Dover Street VIII Cayman
L.P. 16,200,000 163,924,389 199,884,842 71,110,782 2.5
------------------------------ -------------- -------------- -------------- -------------- ------
HVPE Charlotte Co-Investment
L.P. - 93,894,011 146,161,426 17,509,766 0.6
------------------------------ -------------- -------------- -------------- -------------- ------
HarbourVest Global
Annual Private Equity
Fund L.P. 12,300,000 87,701,202 67,209,555 114,804,290 4.0
------------------------------ -------------- -------------- -------------- -------------- ------
HIPEP VII Partnership
Feeder Fund L.P. 23,750,000 101,250,000 25,844,129 160,445,781 5.6
------------------------------ -------------- -------------- -------------- -------------- ------
HIPEP VII Asia Pacific
Feeder Fund L.P. 2,850,000 27,150,000 7,409,639 42,470,503 1.5
------------------------------ -------------- -------------- -------------- -------------- ------
HIPEP VII Emerging
Markets Feeder Fund
L.P. 4,800,000 15,200,000 2,668,611 20,099,873 0.7
------------------------------ -------------- -------------- -------------- -------------- ------
HIPEP VII Europe Feeder
Fund L.P. 16,051,959 56,716,801 17,715,296 84,559,194 2.9
------------------------------ -------------- -------------- -------------- -------------- ------
HarbourVest Canada
Parallel Growth Fund
L.P.(++++) 8,256,470 16,285,245 4,294,018 26,842,723 0.9
------------------------------ -------------- -------------- -------------- -------------- ------
HarbourVest 2015 Global
Fund L.P. 17,000,000 83,017,309 41,801,990 107,210,533 3.7
------------------------------ -------------- -------------- -------------- -------------- ------
HarbourVest 2016 Global
AIF L.P. 30,500,000 69,526,107 34,008,380 81,601,321 2.8
------------------------------ -------------- -------------- -------------- -------------- ------
HarbourVest Partners
Co-Investment IV AIF
L.P. 7,000,006 92,999,994 21,945,041 150,039,672 5.2
------------------------------ -------------- -------------- -------------- -------------- ------
Dover Street IX Cayman
L.P. 20,000,000 80,000,000 39,038,520 87,915,960 3.1
------------------------------ -------------- -------------- -------------- -------------- ------
HarbourVest Real Assets
III Feeder L.P. 7,000,000 43,000,000 5,917,231 36,451,275 1.3
------------------------------ -------------- -------------- -------------- -------------- ------
HarbourVest 2017 Global
AIF L.P. 40,000,000 60,020,959 12,204,384 84,131,975 2.9
------------------------------ -------------- -------------- -------------- -------------- ------
HIPEP VIII Partnership
AIF L.P. 114,750,000 55,250,000 6,791,735 75,751,098 2.6
------------------------------ -------------- -------------- -------------- -------------- ------
Secondary Overflow
Fund III L.P. 26,989,722 67,771,090 27,071,891 84,579,047 2.9
------------------------------ -------------- -------------- -------------- -------------- ------
HarbourVest Asia Pacific
VIII AIF Fund L.P. 23,000,000 27,005,566 2,717,733 32,503,062 1.1
------------------------------ -------------- -------------- -------------- -------------- ------
HarbourVest 2018 Global
Feeder Fund L.P. 32,200,000 37,800,000 894,925 47,740,364 1.7
------------------------------ -------------- -------------- -------------- -------------- ------
HarbourVest Partners
Co-Investment V Feeder
Fund L.P. 30,000,000 70,048,219 - 100,012,084 3.5
------------------------------ -------------- -------------- -------------- -------------- ------
HarbourVest Real Assets
IV Feeder L.P. 50,000,000 - - 1,332,836 0.0
------------------------------ -------------- -------------- -------------- -------------- ------
HarbourVest 2019 Global
Feeder Fund L.P. 65,000,000 35,006,832 216,003 45,434,644 1.6
------------------------------ -------------- -------------- -------------- -------------- ------
HarbourVest Credit
Opportunities
Fund II L.P. 33,500,000 16,500,000 - 17,158,429 0.6
------------------------------ -------------- -------------- -------------- -------------- ------
Dover Street X Feeder
Fund L.P. 116,250,000 33,768,169 3,509,063 41,769,601 1.5
------------------------------ -------------- -------------- -------------- -------------- ------
Secondary Overflow
Fund IV L.P. 35,815,786 19,063,986 3,722,088 29,757,064 1.0
------------------------------ -------------- -------------- -------------- -------------- ------
HIPEP IX Feeder Fund
L.P. 40,000,000 - - 299,496 0.0
------------------------------ -------------- -------------- -------------- -------------- ------
HarbourVest 2020 Global
Feeder Fund L.P. 45,000,000 5,001,332 - 6,020,062 0.2
------------------------------ -------------- -------------- -------------- -------------- ------
Total International/Global
Funds 838,015,398 2,007,275,637 1,368,029,985 1,778,544,585 61.9
------------------------------ -------------- -------------- -------------- -------------- ------
Total Investments $1,573,218,144 $3,727,901,304 $3,027,410,514 $2,889,177,693 100.6
------------------------------ -------------- -------------- -------------- -------------- ------
* 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 2021, the cost basis of partnership investments
is $1,890,413,031.
The accompanying notes are an integral part of the Financial
Statements.
Consolidated Schedule of Investments
At 31 January 2020
In US Dollars
Fair Value
Unfunded Amount Distributions Fair as a % of
US Funds Commitment Invested* Received Value Net 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 Fair Net
International/Global
Funds Commitment Invested* Received 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.
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. 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 2021, the Company's shares were listed on the
London Stock Exchange under the symbol "HVPE". At 31 January 2021,
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.
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 material 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 ("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 81 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
GFC. 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 Consolidated Statements of Assets and Liabilities,
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 Financial Statements have been prepared on a going
concern basis.
Basis of Presentation
The 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, 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 International Financial
Reporting Standards ("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 Topic 820 - Fair Value Measurement, 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 Topic 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 year-end date.
Generally, the partnership investments have a defined term and
cannot be transferred without the consent of the GP 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 year-end 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 Consolidated Statements of
Assets and Liabilities 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,
dividends, and interest received from certain investments due to
subsequent fund closings. Dividends are recorded when they are
declared, and interest is recorded when earned. During the year
ended 31 January 2021, the Company received $1,149,712 from
HarbourVest Adelaide L.P. related to interest received from limited
partners that participated in subsequent fund closings.
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 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 for corporate partners at the rate of
21%. 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 Topic 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 2021, 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 beginning 11 May 2018. 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, a
compliance services fee of GBP15,000 per annum, ad-hoc service
fees, and reimbursable expenses. During the years ended 31 January
2021 and 2020, fees of $171,188 and $212,459, respectively, were
incurred to BNP 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
GBP23,090, plus other miscellaneous expenses. During the years
ended 31 January 2021 and 2020, registrar fees of $46,773 and
$48,677, 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 2021 and 2020, auditor fees of
$336,394 and $256,398 were accrued, respectively, and are included
in professional fees in the Consolidated Statements of Operations.
The 31 January 2021 figure includes $201,493 relating to the 31
January 2021 annual audit fee and $47,817 relating to the prior
financial year's audit fee. The 31 January 2020 figure includes
$170,983 relating to the 31 January 2020 annual audit fee and
$6,802 relating to the prior financial year's audit fee. In
addition, the 31 January 2021 and 2020 figures include fees of
$87,084 and $78,613, respectively, for audit-related services due
to the Auditor, Ernst & Young LLP, conducting a review of the
Interim Financial Statements for each period end. There were no
other non-audit fees paid to the Auditor by the Company during the
years ended 31 January 2021 and 2020.
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 2021 and 2020, reimbursements for services
provided by the Investment Manager were $2,175,398 and $1,969,642,
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 2021 and 2020, 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 2021 and
2020. 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:
2021 2020
-------------------- -------- --------
HVPE Charlotte
Co-Investment L.P. $761,976 $758,820
--------------------- -------- --------
For the years ended 31 January 2021 and 2020, management fees on
the HVPE Charlotte Co-Investment L.P. investment were calculated
based on a weighted average effective annual rate of 0.89% and
0.90%, respectively, on capital originally committed (0.88% and
0.87%, respectively, on committed capital net of management fee
offsets) to the parallel investment.
Note 4 Investments
In accordance with the authoritative guidance on fair value
measurements and disclosures under generally accepted accounting
principles in the US, 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; and
Level 3 - Inputs that are unobservable.
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
Topic 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 2021 and 2020, the Company
made contributions of $430,949,492 and $324,197,851, respectively,
to Level 3 investments and received distributions of $289,543,115
and $308,176,357, respectively, from Level 3 investments. As of 31
January 2021, $2,889,177,693 of the Company's investments are
classified as Level 3. As of 31 January 2020, $2,065,519,797 of the
Company's investments were classified as Level 3.
The Company recognises transfers at the current value at the
transfer date. There were no transfers during the years ended 31
January 2021 and 2020. 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 32 years remaining.
As of 31 January 2021, the Company had invested $3,919,906,457,
or 71.4%, of the Company's committed capital in investments and had
received $3,239,981,084 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 2021 and 2020 in which an investment was acquired and
disposed of during the year.
Note 5 Commitments
As of 31 January 2021, the Company had unfunded investment
commitments to other limited partnerships of $1,573,218,144 which
are payable upon notice by the partnerships to which the
commitments have been made. Unfunded investment commitments of
$1,541,116,084 are denominated in US dollars, $23,845,590 are
denominated in euros, and $8,256,470 are denominated in Canadian
dollars.
As of 31 January 2020, the Company had unfunded investment
commitments to other limited partnerships of $1,806,954,923.
Unfunded investment commitments of $1,767,642,666 were denominated
in US dollars, $27,392,498 were denominated in euros, and
$11,919,759 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 $3.9 million at 31 January 2021
and $4.7 million at 31 January 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.
Note 6 Debt Facility
As of 31 January 2021, and 2020, 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
2021, there was $120 million debt outstanding against the Facility.
At 31 January 2020, there was no debt outstanding. For the years
ended 31 January 2021 and 2020, interest of $3,012,476 and $16,973,
respectively, was incurred and is included as other expenses in the
Consolidated Statements of Operations. Included in other assets at
31 January 2021 and 2020 are deferred financing costs of $6,629,115
and $7,976,171, 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 of
100 basis points per annum for the Credit Suisse commitment and 90
basis points per annum for the MUFG commitment. For the years ended
31 January 2021 and 2020, $4,923,153 and $5,916,192, respectively,
in non-utilisation fees have been incurred.
Note 7 Financial Highlights
For the Years Ended 31 January 2021 and 2020
In US Dollars 2021 2020
----------------------------------- ------- -------
Shares
Per share operating performance:
Net asset value, beginning of year $27.58 $24.09
Net realised and unrealised gains 8.54 3.62
Net investment loss (0.15) (0.13)
------------------------------------ ------- -------
Total from investment operations 8.39 3.49
Net asset value, end of year $35.97 $27.58
Market value, end of year $25.55* $24.15*
Total return at net asset value 30.4% 14.5%
Total return at market value 5.8% 28.8%
------------------------------------ ------- -------
Ratios to average net assets
Expenses 0.55% 0.61%
Net investment loss (0.49)% (0.51)%
------------------------------------ ------- -------
* 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
20 days.
Note 9 Related Party Transactions
Other amounts payable to HarbourVest Advisers L.P. of $72,500
and $92,281 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 2021 and
2020, respectively.
Board-related expenses, primarily compensation, of $480,244 and
$604,289 were incurred during the years ended 31 January 2021 and
2020, 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
2021 to 27 May 2021, the date that the Financial Statements were
issued.
On 31 March 2021, the Company committed $25 million to
HarbourVest Partners Co-Investment VI Feeder Fund L.P.
During April 2021, the Company closed an additional $13.8
million to Secondary Overflow Fund IV L.P.
On 30 April 2021, the Company committed $90 million to
HarbourVest Partners XII Buyout Feeder Fund L.P., $45 million to
HarbourVest Partners XII Venture Feeder Fund L.P., and $15 million
to HarbourVest Partners XII Micro Buyout Feeder Fund L.P.
There were no other events or material transactions subsequent
to 31 January 2021 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 10,000 individual companies in the HVPE portfolio, with no
one company comprising more than 1.6% 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 Rules, 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 2021 NAV is based on the 31 December 2020 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
2021. 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 Financial
Statements on page 80.
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. 15.2% of
underlying portfolio holdings are denominated in euros. The
euro-denominated Investment Pipeline is EUR19.7 million.
-- 2.2% 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.
-- 0.5% of underlying portfolio holdings are denominated in
Canadian dollars. The Canadian dollar-denominated Investment
Pipeline is C$10.6 million.
HVPE has exposure to foreign currency movement through foreign
currency-denominated assets within the Investment Portfolio and
through its Investment Pipeline of unfunded commitments, which are
long term in nature. The Company's most significant currency
exposure is to euros. The Company does not actively use derivatives
or other products to hedge the currency exposure.
1 Absolute, referred to as "HVPE Avalon Co-Investment L.P." in
the Audited Condensed Interim Consolidated Schedule of Investments,
has been fully realised. However, $474,898 remains in escrow.
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