Annual Report and Accounts 2020 Accounts and Report Annual HVPE
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HVPE Annual Report and Accounts 2020 Annual Report and Accounts 31 January 2020 Building Long-term Wealth by Investing in Private Companies Introduction OUR PURPOSE HVPE exists to provide easy access to a diversified global portfolio of high-quality private companies by investing in HarbourVest-managed funds, through which we help support innovation and growth in a responsible manner, creating value for all our stakeholders. Investment into private companies requires experience, skill, funds, helps to support innovation and growth in the and expertise. Our focus is on building a comprehensive global economy whilst seeking to promote improvement global portfolio of the highest quality investments, in a in environmental, social, and governance standards. proactive yet measured way, with the strength of our We connect the everyday investor with a broad base of balance sheet underpinning everything we do. private markets experts. The result is a distinct single Our multi-layered investment approach creates access point to HarbourVest Partners, and a prudently diversification, helping to spread risk, and is fundamental to managed global private companies portfolio designed our aim of creating a portfolio that no individual investor can to navigate economic cycles as smoothly as possible replicate. Our Investment Manager, HarbourVest Partners1, whilst striving to deliver outperformance of the public is an experienced and trusted global private markets asset markets over the long term. manager. HVPE, through its investments in HarbourVest INVESTMENT OBJECTIVE 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. WHAT IS HVPE? HVPE: A COMPLETE AND FULLY-MANAGED PRIVATE HarbourVest Global Private Equity (“HVPE” or the MARKETS PROGRAMME “Company”) is a Guernsey incorporated, London listed, / Provides access to a broad range of global private FTSE 250 Investment Company with assets of $2.2 billion markets opportunities and a market capitalisation of £1.5 billion as at 31 January / Represents a distinct, high-quality private 2020 (tickers: HVPE (£)/ HVPD ($)). The Company provides markets portfolio access to investments in private companies and portfolios of / Well-diversified to limit downside risk from private companies through funds managed by HarbourVest individual holdings Partners (“HarbourVest” or the “Investment Manager”), an / Consistent and proven strategy independent, global private markets asset manager with / Maintains a prudent approach to balance more than $71 billion of assets under management2 and sheet management a long history of success. / Aims to deliver material outperformance of public markets over the long term By regularly committing capital across HarbourVest’s – Outperformance of 2.5% annualised compared primary (fund-of-funds), secondary, and direct co- to FTSE All-World Total Return (“FTSE AW TR”) investment programmes (see pages 36 and 37), HVPE has Index over the ten years to 31 January 2020 created a private markets portfolio that is diversified by geography, strategy, investment stage, vintage year, and FURTHER INFORMATION sector. As at 31 January 2020, HVPE’s portfolio was made up of 49 HarbourVest funds and seven secondary co- investments3. HVPE is structured to provide investors with p p broad exposure to a carefully selected range of exciting .10 .16 Update: Impact Business Model opportunities in private companies around the world, from of COVID technology start-ups to mature, established businesses looking for the next phase of growth. p.26 p.32 Managing the Managing the Portfolio Balance Sheet 1 Technically the Investment Manager of HVPE is HarbourVest Advisers L.P. which is an affiliate of HarbourVest Partners, LLC. However, we will refer to the Investment Manager as “HarbourVest Partners” throughout the report, being the firm’s recognised name. 2 As at 31 March 2020. 3 These include five Secondary Overflow III investments and Absolute, referred to as “HVPE Avalon Co-Investment L.P.”, and Conversus, referred to as “HVPE Charlotte Co-Investment L.P.”, in the Audited Consolidated Schedule of Investments. Absolute has been fully realised; however, $480,180 remains in escrow. Performance Snapshot Year to 31 January Strategic Report REPORT STRATEGIC NAV per Share Growth 1 Performance Snapshot 2 Chairman’s Statement NAV per Share Growth ($) 6 Investment Manager’s Report 12 Recent Events 13 Share Price Trading and Liquidity 14 KPIs and Investment Objective 16 Business Model +14.5%Financial Year (“FY”) 2019: +12.3% 18 A Deep Dive into Company FY2020 $27.58 Performance Drivers REPORT GOVERNANCE 22 Stakeholder Engagement FY2019 $24.09 24 Section 172 Statement 25 Summary of Net Assets Annualised Outperformance of FTSE AW TR 26 Managing the Balance Sheet Since Inception (2007) 30 Managing Costs 32 Managing the Portfolio 34 Principal Risks and Uncertainties Supporting Information +3.4%FY 2019: +3.8% 36 About HarbourVest 38 Our Value Creation Cycle STATEMENTS FINANCIAL 39 The Phases Total Shareholder Return 42 Manager Spotlight 44 Top Ten Direct Companies Share price ($) Governance Report 48 Board of Directors 50 Directors’ Report Independent Auditor’s Reports +28.8%FY 2019: +5.5% 68 Independent Auditor’s Report to the Members of HarbourVest Global FY2020 $24.15 SUPPLEMENTARY Private Equity Limited FY2019 $18.75 74 Independent Auditor’s Report to the Directors of HarbourVest Global Share price (£) Private Equity Limited Financial Statements 75 Audited Consolidated Financial Statements +28.8%FY 2019: +13.9% 79 Consolidated Schedule of Investments FY2020 £18.36 83 Notes to Consolidated Financial Statements FY2019 £14.26 Supplementary 92 Glossary of Private Market Terms 95 Alternative Performance Measures 98 Disclosures See pages 14 and 15 for more details on the Company’s Key Performance 100 Key Information Indicators (“KPIs”). Also refer to the Alternative Performance Measures (“APMs”) on pages 95 and 96 for calculations. HVPE has a US dollar denominated NAV. It has a sterling denominated share price (since 9 September 2015) and a US dollar-denominated share price (since 10 December 2018) – both quoted on the London Stock Exchange (“LSE”). The Total Shareholder Return KPI is measured in both currencies; the prices cited here are the LSE quoted prices in each of the currencies. HVPE Annual Report and Accounts 2020 1 Chairman’s Statement MICHAEL BUNBURY CHAIRMAN $27.58 NAV per share at 31 January 2020 14.5% NAV per share increase over year to 31 January 2020 Dear Shareholder, THE YEAR TO 31 JANUARY 2020 This Statement is the thirteenth and last Annual Chairman’s Performance and Asset Values Statement that I shall write as Chairman of HarbourVest Once again, HVPE had a very satisfactory year. Global Private Equity (“HVPE” or the “Company”) and the The Company’s functional currency is the US dollar circumstances under which I write it vie with the Global and the year to 31 January 2020 saw the seventh Financial Crisis of 2008/09 as the most challenging that consecutive year of double-digit growth in Net Asset your Company has faced since its creation in 2007. Value per share and eleventh consecutive year of positive This Statement is divided into three sections. First, routine NAV per share returns. Over the twelve months the NAV reporting on the affairs of the Company for the year to per share increased by 14.5% to $27.58. At the year end, 31 January 2020. Second, considering the profound the Company had net assets of $2.20 billion based on changes for HVPE, for all companies, individuals, and the 31 January 2020 valuations of its assets which consist societies brought about by the shock of COVID-19 which almost entirely of investments in funds managed by the hit the world in the Spring of 2020, the consequences of Company’s Investment Manager, HarbourVest Partners which have a long way to go before they are fully apparent. (“HarbourVest”). The Investment Manager’s Report, which Third, a look back at the development of HVPE over the follows this Statement, sets out in detail the performance twelve and a half years since the inception of the Company, of the Company’s assets during the year. the Board of which I have had the privilege to Chair. 2 HVPE Annual Report and Accounts 2020 I have written on previous occasions of the lag that occurs At the financial year end the Company’s borrowing facility of REPORT STRATEGIC between the movements of listed markets and the valuation $600.0 million, arranged in 2019 and committed to at least of private assets. Unlike the previous financial year, on this January 2026, and to be provided equally by Credit Suisse occasion the Company’s public market benchmark, the and Mitsubishi UFJ, was undrawn. FTSE All World Total Return Index, outpaced HVPE’s NAV As has been the case since the Company’s inception in 2007, growth, rising in US dollar terms by 16.7%. Nevertheless, the uncalled commitments shown on the Balance Sheet the NAV per share of HVPE continued to meet its goal exceeded cash and available borrowing. This has always of materially outperforming public markets over the long been as planned given the nature of most of the HarbourVest term by increasing by 2.5% per annum in excess of the funds in which HVPE is invested. Those funds take time to FTSE AW TR Index over the ten years to 31 January 2020. REPORT GOVERNANCE commit to underlying managers and it is even longer before Share Price Performance and Discount cash is drawn to invest in underlying companies. Thus the The sterling class is the most actively traded class of shares Board is satisfied that, given the particular nature of the and the majority of the Company’s shareholders are based Company’s business, the Balance Sheet is strong, and that in the United Kingdom. At 31 January 2020 the share price is confirmed at the date of signing of this Statement by the was £18.36, up from £14.26 a year earlier, an increase of Going Concern and Viability Statements contained within 28.8%.