HVPE Semi-Annual Report and Accounts Six Months to 31 July 2018 July 31 to Months Six Accounts and Report Semi-Annual HVPE Semi-Annual Report and Accounts Six Months to 31 July 2018
Building Long-Term Wealth by Investing in Private Companies 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.
Why Private Markets? Globally, the opportunity set in private companies greatly exceeds that available in the listed markets. Historically, private equity has delivered strong returns, outperforming listed equity over the long term.1
Why HVPE? HarbourVest Global Private Equity (“HVPE”) provides investors with diversified access to opportunities in private markets through investing into funds managed by HarbourVest Partners, LLC (“HarbourVest”), an independent, global private markets asset manager. HVPE has a strong track record and in the 10 years ended 31 July 2018 had more than doubled its net asset value (“NAV”) per share, implying a compound annual growth rate of 8.4% in US dollar terms (equivalent to 13.0% in sterling).2
Why Now? A growing number of mainstream investment managers are now focusing on the opportunities available in private companies. Meanwhile, established specialist funds such as HVPE have been delivering strong returns for many years.
1 Globally, private equity funds returned 12.2% annually over the 20 years to 30 June 2018, compared to 6.5% for the MSCI World on a public market equivalent total return basis. Source: Burgiss. Past performance is not necessarily indicative of future returns. 2 Represents the compound annual growth rate of the NAV per share over the last 10 years from $10.22 (£5.15) at 31 July 2008 to $22.93 (£17.47) at 31 July 2018. Highlights Strategic Report
H1 2019 (six months to 31 July 2018)1
Contents per S are per S are co erte Highlights 1 Six months to 31 July 2017: +8.2% Six months to 31 July 2017: +3.0% Strategic Report What is HVPE? 2 +6.8% +15.6% The HVPE Difference 3 Why Invest in HVPE 4 Governance Report Chairman’s Statement 5 Investment Manager’s Report 8 Share Price Trading and Liquidity 12 Managing the Portfolio: Strategic Asset Allocation and Diversification 13 Managing the Company 16 Summary of Net Assets 21 Recent Events 22 Principal Risks and Uncertainties 23 S are rice co erte S are rice Investment Manager Six months to 31 July 2017: +11.6% Six months to 31 July 2017: +6.3% About HarbourVest 25 Global Private Markets: Overview H1 2018 26 Investment Portfolio –4.0% +3.8% Commitment Phase 28 Investment Phase 30 Growth Phase 32 Mature Phase 34
Top 10 Managers 36 StatementsFinancial Top 10 Direct Companies 38 Governance Report Board of Directors 42 Directors’ Report 43
e t e t ort o io ro t i tri tio rocee Interim Financial Statements Independent Review Report to HarbourVest Six months to 31 July 2017: $125.7m Six months to 31 July 2017: $148.9m Global Private Equity Limited 44 Unaudited Condensed Interim Consolidated Financial Statements 45 $121.5m $142.1m Notes to the Unaudited Condensed Interim Consolidated Financial Statements 53 Supplementary Data HVPE’s HarbourVest Fund Investments 58 Largest Companies and Managers 60 Glossary of Private Equity Terms 68 Disclosures 71
Data Supplementary
1 As stated, H1 2019 represents figures at 31 July 2018, or movement in the six months ended 31 July 2018. All other figures are as at 31 January or denoting amounts in the year to 31 January. 2 As HVPE has a US dollar denominated NAV and a sterling denominated share price (since 9 September 2015) the performance of the NAV and share price is shown in both currencies for comparative purposes. All figures have been converted at the prevailing currency conversion rate as at 31 January of each year displayed, or 31 July for each half year displayed.
HVPE Semi-Annual Report and Accounts 2018 1 What is HVPE?
HVPE (or the “Company”) is a London listed, FTSE 250 private equity investment company with assets of Owning shares in HVPE $1.8 billion and a market capitalisation of £1.0 billion as at 31 July 2018 (ticker: HVPE). The Company provides provides investors with a access to private companies and portfolios of private companies through funds managed by HarbourVest (the comprehensive and well- “Investment Manager”),1 an independent, global private markets asset manager with more than $55 billion of managed, ready-made global assets under management2 and a long history of success. By committing capital across HarbourVest’s primary, private markets programme. secondary, and direct co-investment programmes (see page 25, “About HarbourVest”), HVPE has created a private markets portfolio that is diversified by Track Record geography, strategy, stage of investment, vintage year, By following a consistent and proven investment strategy, and sector. As at 31 July 2018, HVPE’s portfolio was HVPE has delivered steady and robust NAV growth which made up of 46 HarbourVest funds and five secondary has outperformed the public markets since inception, as co-investments. HVPE is structured to provide investors measured by the FTSE All-World Total Return (“TR”) Index. with broad exposure to a carefully selected range of This has been achieved whilst running a well-diversified exciting opportunities in private companies around the strategy with relatively low volatility and maintaining a world, from technology start-ups to mature, established prudent balance sheet with ample liquidity to fund businesses looking for the next phase of growth. new investments. The Company’s structure is shown on page 16.
Building Long-Term Wealth: Steady NAV Growth Since 2009
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Past performance is not necessarily indicative of future returns. The value of investments may go down as well as up and investors may not get back any of the amount invested.
1 The Investment Manager of HVPE is HarbourVest Advisers L.P. which is an affiliate of HarbourVest Partners, LLC. 2 As at 30 June 2018.
2 HVPE Semi-Annual Report and Accounts 2018 The HVPE Difference Strategic Report
Access to a Leading Actively Managed Private Markets Manager Portfolio HarbourVest has been investing in the private markets HarbourVest believes that active management of a for over 35 years. Through HVPE’s strategy of committing diversified portfolio through the investment lifecycle is capital to HarbourVest funds, shareholders benefit the key to successful performance. With reference to its from the expertise of HarbourVest’s 100+ investment long-term Strategic Asset Allocation targets (see page 13), professionals who aim to select the leading private equity HVPE makes regular commitments to new HarbourVest managers or companies from the opportunities available funds, which in turn drive a steady pace of investment into globally. This provides shareholders with access to the new private company opportunities. These investments Governance Report best private markets opportunities in the world. See then develop and grow over a period of several years, “About HarbourVest” on page 25. before being exited. Proceeds from these then provide the fuel for new commitments and the lifecycle continues. See page 4 for more details on the value creation cycle. Access to Private Find out more online at www.hvpe.com. Companies An investment of £1,000 in HVPE, in effect, provides part-ownership of a broad range of underlying private companies, spanning early venture HVPE shares at the December to large-cap buyouts. This means that shareholders in HVPE have exposure to exciting early stage companies, 2007 IPO would have been as well as more mature, established private businesses, prior to public ownership or exit. The most successful of
worth £2,609 on 31 July StatementsFinancial these have the potential to displace established business models and become the corporate giants of tomorrow. 2018, equivalent to a compound annual growth Selective Diversification rate of 9%. HVPE is the most broadly diversified listed private equity investment company in the London market. At HarbourVest, each new fund commitment or company investment undergoes a rigorous screening process, with the aim of ensuring that the resulting investments are of the highest possible quality. The result is that HVPE’s portfolio only captures approximately 5% of the opportunities available in private markets, with a focus on
both proven and difficult to access managers, with whom Data Supplementary HarbourVest has built strong and enduring relationships through multiple fund cycles. See pages 14 and 15 for more on diversification.
HVPE Semi-Annual Report and Accounts 2018 3 Why Invest in HVPE Investing in private markets requires a considered, long-term approach. HVPE provides a complete private equity solution for public investors by managing the portfolio through four phases of the private equity cycle: Commitment, Investment, Growth, and Maturity.
Our Value Creation Cycle Commitment Phase The Investment Manager and the Board consider a number of factors before new commitments are made: / / Current unfunded commitment levels / / The economic environment (“Investment Pipeline”) / / The available credit facility / / Anticipated rate of investment (capital calls) / / Commitment and coverage ratios / / Future expected distributions (proceeds receivable) / / Existing portfolio and strategy Read more on page 28
Investment Phase The HarbourVest funds invest HVPE’s commitments over a period of approximately four years. HVPE aims for a target of 25% of NAV in this phase over the long term. Read more on page 30
Growth Phase Mature Phase During years five to nine, most Within approximately seven HarbourVest funds are fully invested, to ten years, managers are and managers are actively driving typically realising investments. growth. The majority of NAV accretion As a permanent capital vehicle, takes place during this phase, HVPE targets approximately 25% where HVPE aims to maintain 50% of NAV in this phase. of NAV over the long term. Read more on page 34 Read more on page 32
The Value We Create 9 +129% 41% Consecutive years of positive NAV per share growth Long-run average annual NAV returns since inception (US dollars)1 uplift on realisation2
1 Total return on opening NAV from $10.00 at launch on 6 December 2007 to $22.93 at 31 July 2018; 115% as at 31 January 2018. 2 Uplift on carrying value. Average of figures reported from 31 January 2012, when this analysis began; historical figures range from 30% to 53%. The figure was 40% as at 31 January 2018.
4 HVPE Semi-Annual Report and Accounts 2018 Chairman’s Strategic Report Statement
“During the six months to 31 July the Company made good progress with the NAV Governance Report per share increasing by 6.8% to $22.93.”
Dear Shareholder, On 31 January 2009 the NAV per share was $7.61. Over
the last nine and a half years the US dollar NAV per share StatementsFinancial The six months to 31 July 2018 represent a half year of has increased threefold, equivalent to annual compound further progress for your company, HarbourVest Global growth of 12.3%. Private Equity. The 2018 Annual Report published in May set out a wealth of detail on the Company’s affairs and Share Price the Investment Manager’s Report, which follows this HVPE’s shares are listed on the London Stock Exchange statement, updates shareholders on developments during in UK pounds sterling. The Company estimates that the half year. Therefore I will concentrate on highlighting some 68% of the 79.86 million shares in issue are held points which are expanded upon elsewhere in this report by UK shareholders and so the performance of the share and comment on some additional corporate matters. price in sterling is a key metric for those shareholders. Nevertheless, UK shareholders should acknowledge that Performance and NAV per Share they are invested in shares where the underlying assets As I have previously reminded shareholders, the Company’s are largely US dollar denominated. Thus, in addition to the functional currency is the US dollar. At 31 July 2018, 77% of US dollar NAV per share performance, the share price is its underlying funds are denominated in US dollars and the heavily influenced by the USD/GBP exchange rate and majority of the Company’s underlying assets are located in by the discount to NAV at which the shares trade. Data Supplementary the US. It is on the NAV per share performance in US dollars that the Board and Investment Manager focus when judging Over the six months the US dollar appreciated against the Company’s investment performance. sterling with the exchange rate moving from $1.42 to $1.31, an appreciation of 8.4%. The NAV per share During the six months to 31 July the Company made increase and the US dollar appreciation were partly good progress with the NAV per share increasing by 6.8% offset by the widening of the discount at which the to $22.93 whilst over the same period the total return of shares were trading on 31 July 2018, with the HVPE the FTSE All-World TR Index was negative at -2.7%. This share price increasing from £12.52 to £13.00, or by 3.8%. performance builds on the nine consecutive full financial years to 31 January 2018 of NAV per share growth.
HVPE Semi-Annual Report and Accounts 2018 5 Chairman’s Statement continued
The Discount to NAV per Share at Commitments, Cash and Balance Sheet which HVPE’s Shares Trade The Investment Manager’s Report sets out the When considering the level of the discount, the market commitments that have been made in the half year. It also can only react to the latest released monthly estimate of reports that the Company’s cash balance has declined NAV per share. At 31 July that latest released estimate to $192.5 million from $257.0 million at 31 January as was the end-June one of $21.79, being a sterling capital calls by HarbourVest funds exceeded distributions. equivalent of £16.63. With the share price being £13.00, The Investment Manager has been long expecting the the shares were trading at a discount to NAV per share Company’s cash balance to shrink as calls are made. of 21.8%.1 Subsequent to 31 July, the Company has Indeed it is possible that the cash balance will have released two further estimated NAVs per share, namely reduced significantly further by the year end on the end-July estimate of $21.96 and the end-August 31 January 2019. one of $22.87. The Investment Manager’s Report repeats the On account of the time lag between the Investment announcement made in the June 2018 monthly Manager calculating its estimate of NAV per share and factsheet that HVPE has committed $150.0 million to a the subsequent delivery of the relevant quarter-end new HarbourVest real assets vehicle which is intended valuations from the many managers represented within to deliver an income yield as well as capital growth. the HarbourVest funds, when finalising the Company’s The Company is a seed investor in this fund and reports for periods to 31 January and 31 July, sometimes has negotiated preferred economic arrangements in material revisions arise between the estimated NAV per recognition of its early participation in this programme. share, as announced in the monthly factsheet, and the The Company’s balance sheet remains strong, supported definitive figure shown in the reports published several by $1.6 billion of invested assets, the cash balance of weeks later. Historically almost all of those revisions have $192.5 million, and the undrawn bank facility of been upward and indeed that is the case in relation to the $500.0 million which is committed until at least December revision of the end-July 2018 estimate from $21.96 to the 2022. In addition, the Company has an Investment $22.93 now reported. The possibility of such revisions Pipeline in the shape of yet to be funded commitments to is always present given the multi-stage process through HarbourVest funds of $1.4 billion. The cash flow profile of which asset values are reported and consolidated for the a fund-of-funds company is very different from that of a Company’s formal reports at 31 January and 31 July. company investing directly into unlisted companies and The share price has responded positively to the release HVPE has nearly 11 years’ experience of the flow of funds. of the estimated end-August NAV per share of $22.87 and The Investment Manager models a number of scenarios, closed on 15 October 2018 at a price of £13.74, reflecting including one which assumes even greater stress than a discount of 21.0%. was experienced through the global financial crisis of 2008/09. The Board is satisfied that the Company has resources and options open to it to weather a change in market conditions.
1 Please refer to the reconciliation table on page 72 for more details on this calculation.
6 HVPE Semi-Annual Report and Accounts 2018 Strategic Report
Although, as I mention above, the existing bank facility Outlook provided by Lloyds Bank plc and Credit Suisse is Investment in equities should always be considered a committed for a further four years and two months it long-term commitment. That is especially so in regard to is subject to an annual negotiation to extend its maturity private equity investment. There has been much comment by a further 12 months. These negotiations are both time in recent months about the elevated valuations of private Governance Report consuming and expensive in legal fees, and the Company companies and about deals being struck at record prices. is exploring avenues by which such annual negotiations Ten years ago the world was enmeshed in the maelstrom might be rendered unnecessary whilst preserving facilities of the global financial crisis. Today many listed markets, which are at least as satisfactory as the present ones which are the predominant influence on the pricing of in regard to cost and longevity. private equity assets, are close to all-time highs. Yet there are many risks ahead of which the most dangerous look The Board to be political, both in a number of individual countries The Board is currently made up of eight directors. Two and on a geo-political scale. are non-independent, being partners in the Investment Manager, and six are considered by the Board to be The Company’s Investment Manager, HarbourVest, has independent. Of the eight directors, Brooks Zug (non- over 35 years of experience investing in private markets independent) and Keith Corbin, Andrew Moore, and through many peaks and troughs. Your Company’s myself (all considered to be independent) have served Board is made up of individuals who have experience since the inception of the Company in 2007. of those same peaks and troughs and, although there
will be Board changes ahead, it must be paramount that StatementsFinancial The Financial Reporting Council (“FRC”) has recently it should have the skills to take opportunities in good issued a revised UK Corporate Governance Code times and also guide the Company appropriately when applicable to companies with accounting years beginning testing times return. on or after 1 January 2019. Thus it will apply to HVPE for the year commencing 1 February 2019. HVPE operates under the Code issued by the Association of Investment Companies (“AIC”) but endorsed by the FRC. The revised AIC Code is out for consultation and is expected to be adopted later in the year. Once adopted, the Company Michael Bunbury will review the composition of the Board, and the plans Chairman for future changes, in the light of the revised Code. In 17 October 2018 due course the Company will make announcements as to the timing and identity of individual retirements and appointments. In making those appointments, the Board
will take account of the requirements for good corporate Data Supplementary governance and of diversity as well as always seeking to be good stewards of the shareholders’ interests.
HVPE Semi-Annual Report and Accounts 2018 7 Investment Manager’s Report
Performance During the six months ended 31 July 2018 the value of the NAV per Share Investment Portfolio grew by $121.5 million. Of this, almost The NAV per share continued to grow strongly over two thirds came from the Primary portfolio. In percentage the six months ended 31 July 2018, increasing by 6.8% terms, the Direct Co-Investment portfolio was the from $21.46 at 31 January 2018 to $22.93. Translated best-performing strategy, delivering value growth of 8.4%. into sterling, NAV per share growth was 15.6%, due Geographically, the strongest gains came from the US to the weakening of sterling against the US dollar portfolio, which generated a value increase of 9.3%; this over the reporting period. was closely followed by the Asian assets, which returned 6.8%. As might be expected given HVPE’s substantial HVPE’s public benchmark, the FTSE All-World TR Index, US exposure (56% of the Investment Portfolio value), in declined by -2.7% in the six months to 31 July 2018. absolute terms the US assets were the most significant HVPE, by contrast, grew its NAV by 6.8%, representing contributor to growth in the period. In terms of stage, outperformance of 9.5 percentage points in the period. Growth Equity was the strongest performer, growing HVPE’s objective is to achieve NAV growth materially in 11.5% over the six months ended 31 July 2018. This excess of the public markets through the cycle. Measured was followed by Real Assets which returned 7.1%. over the last 10 years, HVPE’s annualised outperformance of the FTSE All-World TR Index as of 31 July 2018 was As at 31 July 2018, HVPE held 46 HarbourVest funds 1.3% net of all costs. This outperformance has declined in and five secondary co-investments1 in total. Of these, the recent months as the starting point for the 10-year period largest drivers of NAV per share growth over the reporting is now capturing the lower levels at which the FTSE All- period are described overleaf and shown individually World TR Index traded during 2008, while HVPE’s NAV in the corresponding chart below. was still increasing at that point.
ig re a e Stro g per S are ro t i t e Si o t to it a crea e to ee o ge a per c ie t re e t
per Direct Fun Glo al nnual Dover Street Fun t er ana ement er ormance et peratin Forei n per S are at Fun artners ip uyout Fun enture ar our est Fees Fees penses urrency S are at an Fun s uly Gross Realised Gain/Value Change3
1 One of these, Absolute, referred to as “HVPE Avalon Co-Investment L.P.” in the Unaudited Condensed Interim Consolidated Schedule of Investments has been fully realised. However, $685,349 remains in escrow. 2 Realised gain/value changes from the balance of 40 other HarbourVest funds and five secondary co-investments in the Investment Portfolio. 3 Realised and unrealised gains are shown net of management fees, performance fees and foreign currency in the Unaudited Condensed Interim Consolidated Statement of Operations. 4 Management fees include management fees from HarbourVest Funds and secondary co-investments as shown in the Unaudited Condensed Interim Consolidated Statement of Operations ($395,813). 5 Operating expenses exclude management fees ($395,813) and are shown net of interest income ($1,842,239). 6 Realised and unrealised foreign currency gains and losses are included in the realised and unrealised gains (losses) on investments in the Unaudited Condensed Interim Consolidated Statement of Operations.
8 HVPE Semi-Annual Report and Accounts 2018 $142.1m +53% Distributions received during the Realised uplift on carrying value over Strategic Report six‑month period six months ended 31 July 20181 (31 July 2017: +30%)
1 See page 35 for full details.
/ / 2013 Direct, a direct co-investment fund, was the / / Dover Street VIII, a 2012 vintage global secondary fund, largest contributor to NAV per share growth, adding currently in the growth phase. $0.17 over the six month period. This was driven by Finally: significant realised gains, largely arising from the exit of TriTech Software, as well as strong valuation increases / / Fund IX Venture, a 2011 vintage fund in its growth Governance Report from the companies within the remaining portfolio. phase, added $0.10, following gains of 11% on HVPE’s $70.0 million holding. / / HIPEP VI Partnership, a 2008 vintage international fund-of-funds programme entering the mature phase, Subsequent to the reporting period end, on 20 September contributed $0.14 to NAV per share. 2018, the Investment Manager released an estimated NAV per share for 31 August 2018 of $22.87. This represents / / Fund VIII Buyout, a 2006 vintage US buyout fund-of- a reduction of $0.06 from the 31 July 2018 unaudited funds programme, is the third largest holding in the figure of $22.93. This is largely as a result of public market portfolio and is now in the mature phase. Continued adjustments, foreign exchange and operating expenses. strong distributions from this fund helped to deliver growth of 8.7% on HVPE’s $116.4 million holding, Cash Flows adding $0.13 to NAV per share. HVPE was a net investor in the six months to 31 July 2018, investing cash of $202.6 million into HarbourVest Two HarbourVest funds each added $0.12 to NAV funds (six months to 31 July 2017: $119.1 million) and per share: receiving $142.1 million in distributions (six months to
/ / Global Annual Fund 2014, the first in a programme of 31 July 2017: $148.8 million). This is consistent with StatementsFinancial funds conceived as an efficient way to provide global forecasts made at the beginning of the six-month period exposure across the HarbourVest platform. to the effect that HVPE would see a more rapid pace of investment, driven by the additional commitments
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apital calls investments Distri utions
HVPE Semi-Annual Report and Accounts 2018 9 Investment Manager’s Report continued The NAV per share has continued to grow, increasing 6.8% over the six months – this represents a threefold increase since inception.
made to HarbourVest programmes in recent years. Portfolio Companies Another contributor to capital calls in the reporting period During the period the 10 largest individual company was the net figure of $10.6 million drawn down from realisations generated total distributions of $46.0 HVPE by certain HarbourVest funds to repay part of the million, accounting for approximately one third of all outstanding bridging finance in place on those funds proceeds received. Of these 10 companies, five were in (see the 2018 Audited Consolidated Financial Statements HVPE’s top 50 portfolio companies at 31 January 2018. (“2018 Annual Report”) for a full discussion on this Further details on these follow below (ordered by size topic). As a result, the total outstanding look-through of distribution): leverage at the HarbourVest fund level (including project / / Insight Venture Partners sold TriTech Software, HVPE’s finance as well as bridging debt) fell from $238.7 million 45th largest portfolio company, to Bain Capital in the at 31 January 2018 to $228.1 million at 31 July 2018. period. HVPE received proceeds of $10.2 million from Overall, net negative cash flow in the period resulted this exit. in HVPE’s cash balance declining from $257.0 million to $192.5 million, in line with expectations. / / HVPE received proceeds of $6.6 million from Doughty Hanson & Co following the sale of TMF The largest source of capital calls in the reporting period Group, HVPE’s 17th largest portfolio company, was Fund X Venture (HarbourVest’s latest venture to CVC Capital Partners. fund): this vehicle is currently in the investment phase and building out its portfolio. Strong investment activity / / Following the continued sell down of shares in publicly was also seen across the Investment Manager’s most traded company Wayfair, HVPE’s 23rd largest position, recent co-investment fund, as it completed 10 new the Company received proceeds of $5.2 million. deals over the six months, and US fund-of-funds. / / HVPE received proceeds of $4.7 million from the sale Dover Street IX (HarbourVest’s latest secondary fund) of Secure-24, HVPE’s 34th largest portfolio company, was also particularly active in the period, funding nine to NTT Communications Corporation. new secondary projects. The single largest call was to Secondary Overflow Fund III (“SOF III”) Tranche F, to / / H-Line Shipping, HVPE’s fifth largest company at support the investment into Project Lodge, a traditional 31 January 2018, delivered proceeds of $2.8 million, secondary transaction representing the acquisition of following a bond refinancing in March. It remains 60 fund interests from a non-US public pension. The HVPE’s ninth largest company at 31 July 2018 with SOF III tranches represent secondary co-investments a value of $11.6 million. which have lower fees, thus reducing HVPE’s overall Other top 50 HVPE portfolio companies at 31 January fee rates. At 31 July 2018, HVPE had exposure to three 2018 which appeared in the largest company distributions SOF III projects, equating to $48.6 million, or 2.7% of (top 20 by value) included Ssangyong Cement Industrial, NAV. A commitment was made in August to a further CareCentrix and Uber. Proceeds from these companies secondary co-investment as highlighted on page 22. in the reporting period totalled $6.6 million. Distributions in the HVPE portfolio were driven mostly During the six months ended 31 July 2018, the majority by the primary funds, with the largest total amount of exits from the HVPE portfolio were via trade sales. in the period coming from HarbourVest VIII Buyout Of the 215 liquidity events in the period (six months to Fund, a 2006 vintage US fund in its mature phase. 31 July 2017: 207), 80% (172) of these were trade sales Strong distributions also came from the global direct or sponsor-to-sponsor transactions, with the remaining co-investment funds (both 2007 and 2013 vintages), 20% (43 transactions) being Initial Public Offerings and HIPEP VI Partnership Fund, a 2008 vintage (“IPOs”). Of these IPOs, 77% came from venture-backed international fund-of‑funds programme. companies, largely driven by an open IPO window for tech firms in the US.
10 HVPE Semi-Annual Report and Accounts 2018 Strategic Report
Activity Strategic Asset Allocation No changes have been made to the Company’s Strategic Asset Allocation (“SAA”) targets since February 2018 as presented in the 2018 Annual Report. These targets, Governance Report which are reviewed annually by the Board, continue to reflect the Investment Manager’s and Board’s current perspective on the best means of achieving long-term NAV growth for shareholders. An overview of the current portfolio composition with reference to these targets is included on page 14 of this report.
New Fund Commitments In the six months ended 31 July 2018, HVPE made new commitments of $355.0 million. These were spread across a number of HarbourVest programmes, as detailed on page 29.
In line with the SAA targets, the largest new commitment in the reporting period was $150.0 million to a new HarbourVest real assets vehicle intended to deliver StatementsFinancial a long-term income yield combined with capital growth. The Board views the real assets strategy as a complementary addition to the existing private markets programme and, as a seed investor with preferred economics, HVPE is positioned to benefit from potential upside as the platform grows.
A total commitment of $135.0 million was also made to a newly formed US-focused HarbourVest fund (Fund XI programme), split across strategies for buyout, micro buyout, and venture. Other smaller commitments were made to a global multi-strategy fund-of-funds (2018 Global Fund), a secondary co-investment through Secondary Overflow Fund III, and HarbourVest’s latest global co‑investment fund. Data Supplementary
HVPE Semi-Annual Report and Accounts 2018 11 Share Price Trading and Liquidity
HVPE’s share price continued to make steady progress share of $22.87 (sterling equivalent £17.39), the live NAV over the six months to 31 July 2018, rising by 3.8% to per share in the market as at 15 October 2018. A number £13.00. However, this increase lagged the growth of the of factors influence the share price and discount in the sterling NAV per share as the discount widened from short term. The most important of these is investor 14.5% to 21.8% over the period.1 sentiment, both towards listed private equity as a sector and across the market more generally. HVPE’s share trading volume has remained broadly consistent over the six months to 31 July 2018, with The market capitalisation of the Company as at a typical day continuing to see more than 45,000 15 October 2018 was £1.1 billion, and as of the same shares traded.2 date HVPE was ranked 162nd in the FTSE 250. Period Since 31 July 2018 In the period from 31 July 2018 to 15 October 2018 the £ share price has made significant progress, increasing 13.74 from £13.00 to £13.74, an increase of 5.7%. This equates Share Price at 15 October 2018 to a discount of 21.0% to the August estimated NAV per
S are rice a per S are o e e t ro to cto er
ul an ul an ul an ul an ul an ul ct S are price
Share price as reported by the London Stock Exchange. NAV per share converted into sterling at daily closing exchange rates (Bloomberg).
1 Discounts are calculated based on the live NAVs available in the market at 31 January 2018 and 31 July 2018, those being the 31 December 2017 and 30 June 2018 estimates of $20.79 (sterling equivalent £14.65) and $21.79 (sterling equivalent £16.63) respectively, against share prices of £12.44 at 31 December 2017 and £13.00 at 31 July 2018. A notional discount of 25.5% exists when comparing the final sterling NAV per share of £17.47, represented by these financial statements at 31 July 2018 prepared under US GAAP, with the share price of £13.00 on 31 July 2018. Please refer to the reconciliation table on page 72 for more details on this calculation. 2 Based on the average of monthly median trade volumes.
12 HVPE Semi-Annual Report and Accounts 2018 Managing Strategic Report the Portfolio Strategic Asset Allocation and Diversification
New commitments to Annual Commitment Plan Process In November each year, the HVPE Board approves a plan HarbourVest funds are made for making new commitments to HarbourVest funds over the subsequent 12 month period. This plan is prepared by with reference to HVPE’s the Investment Manager. The total commitment amount Governance Report agreed Strategic Asset for the year is informed by the Investment Manager’s base case forecast for cash flows and investment returns, while Allocation targets, reviewed the breakdown by fund is decided with reference to the annually by the Board. agreed SAA targets mentioned above. Once approved by the Board, the commitment plan is executed in such a way as to maximise the benefit of Strategic Asset Allocation Targets any early-closing fee discounts available on the selected HVPE takes a long-term view in building and maintaining HarbourVest funds, whilst also metering the pace of its private markets programme. The Board and the commitments in line with a set of agreed balance sheet Investment Manager have agreed upon a set of rolling ratios. The next commitment plan review is scheduled five-year portfolio construction targets (“Strategic Asset to take place in November 2018. Allocation” or “SAA”) defined with reference to NAV by investment stage, geography, and strategy. These reflect the Investment Manager’s and the Board’s perspective Financial StatementsFinancial on the best means of optimising long-term NAV growth. These targets are reviewed annually and were last revised in February 2018 as communicated in the Company’s 2018 Annual Report (page 17), published in May. Supplementary Data Supplementary
HVPE Semi-Annual Report and Accounts 2018 13 Managing the Portfolio continued
Diversification is essential to achieving consistently strong returns from the asset class, as the various sub-categories within private markets tend to perform at their best at different stages in the economic cycle. Furthermore, a well-diversified portfolio ensures that the downside risk arising from any single investment is very limited, whilst still offering the potential for notable gains resulting from the very best-performing deals. Careful investment selection, therefore, remains critical.
HVPE Portfolio Construction Targets (Revised at 14 February 2018) vs Actual Diversification (Underlying Partnership Level) at 31 July 2018 (by NAV)
Actual Actual Actual
Target Target Target
Stage eograp Strateg
arget arget arget uyout US 65% rimary enture an Gro t uity Europe 18% Secon ary e anine an Real ssets Asia Pacific 12% Direct o nvestment Rest of World 5% ct a ct a uyout ct a rimary enture an Gro t uity US 56% Secon ary e anine an Real ssets Europe 22% Direct o nvestment Asia Pacific 15% Rest of World 7% Stage Geography Strategy Since the beginning of the financial The composition of the portfolio HVPE continued to make new year, the breakdown by stage has by geography remains broadly commitments across all three remained broadly the same and is unchanged from 31 January 2018. strategies in the first half of the in line with the target levels. Venture Following a sustained period of financial year, and the portfolio and Growth Equity forms a key strong distributions, HVPE still construction in this respect also component of HVPE’s portfolio remains underweight the US at remained largely unchanged over at 33% and will continue to do 56%, relative to the target level of the period. The current exposure to so. Meanwhile, the relatively recent 65%. In contrast, HVPE’s allocation the Primary strategy is underweight increase in HVPE’s commitments to Asia Pacific at 31 July 2018 is at 46% following strong performance to Mezzanine and Real Assets funds, three percentage points above target from Secondary and Direct Co- intended to capture returns that are as a result of strong performance Investment. However, being core to less closely correlated to the broader from this region driven mostly from HVPE’s strategy, over the long term macroeconomic environment, has unrealised gains. Going forward, the Company is striving to move driven exposure to this stage from commitments will be made with a the Primary exposure closer to the 8% to 9% over the period. view to redressing this balance over target level of 55%. Primary investing the five-year target allocation period. remains the best way to gain exposure to high-quality managers whose funds may trade infrequently, if at all, on the secondary market.
14 HVPE Semi-Annual Report and Accounts 2018 Actual Diversification (Underlying Partnership Level) at 31 July 2018 Strategic Report
rre c a e po re tr
nvestment er i g part er ip ec So t are Gro t S ollar onsumer ature uro e ical iotec ustralian ollar Financial Sterlin usiness Services t er ana ian ollar n ustrial ransport t er ner y leantec e ia elecom Governance Report
HVPE has built a well-diversified, global portfolio of private equity assets at various stages of maturity. The portfolio is carefully selected with the aim of optimising value growth over the long term. As at 31 July 2018, the top 100 companies represented 37% of the Investment Portfolio by value ($606.6 million) and the top 1,000 represented 84% ($1,366.4 million).
Vintage Year Profile of Investment Portfolio (%)
19 19 17 15 15 Financial StatementsFinancial 12 12 10 11
8 7 8 7 7 6 7 6 4 2 4 4 3 2 1 1 2 2 2 1 0 1 0 1 0 1 1 1 0 0 0 0 0 re
inta e year ear o investment
Vintage Year (% of Investment Portfolio) Year of Investment (% of Investment Portfolio) HVPE’s vintage year diversification is measured using HVPE also measures diversification over time by the the year of the initial capital call for primary funds and year of initial investment into the underlying portfolio direct co-investment funds and the year of formation companies. This is more representative when judging Data Supplementary of underlying partnerships for secondary investments. HVPE’s real exposure to the market in a given year.
Note: The diversification by NAV analysis is based on the fair value of the underlying investments, as estimated by the Investment Manager. Diversification by stage, strategy, phase, and geography is based on the estimated NAV of partnership investments within HVPE’s fund-of-funds and company investments within HVPE’s co-investment funds. Industry diversification is based on the reported value of the underlying company investments for both fund-of-funds and co-investment funds. Some of the funds held in HVPE have not been fully invested. By phase, Investment includes vintage years 2014 to 2018, Growth includes 2009 to 2013 and Mature, pre-2009.
HVPE Semi-Annual Report and Accounts 2018 15 Managing the Company
Throughout HVPE’s ongoing cycle of Commitment, Investment, Growth, and Maturity, the Board and the Investment Manager use tools and policies to manage the risk and reward for the benefit of the Company’s shareholders.
HVPE’s Structure
46 HarbourVest Funds and 5 Secondary Co-Investments
Diversification by Strategy (Underlying Partnership Level)
Primary Secondary Direct Co-Investment 46% 31% 23%
General General General General General partner partner partner partner partner 1 2 3 4 5
Company Company Company Company Company Company
1,000+ total individual company exposures in the portfolio1
1 The top 1,000 companies represented 84% of the Investment Portfolio at 31 July 2018. In total there were 8,014 companies in the portfolio at this date.
16 HVPE Semi-Annual Report and Accounts 2018 Strategic Report
orro i g a a a a ce a i io o a at
Governance Report
an ul an ul an ul an ul an ul an ul an ul
as alance orro in s solute secon ary co investment onversus secon ary co investment StatementsFinancial
Portfolio Liquidity HarbourVest funds employ leverage to a limited extent An investor in HVPE shares should be aware that, for three main purposes: bridging capital calls and while the shares themselves are traded actively on a distributions; financing specific investment projects where daily basis, the underlying portfolio is relatively illiquid. the use of debt may be advantageous; and recapitalising The private equity fund commitments made by HVPE are funds to accelerate distributions to investors. HVPE is long term in nature, and the underlying private company exposed to this leverage on a look-through basis as a investments cannot usually be turned into cash in the result of its investments in the HarbourVest funds. As at short term. The total of the unfunded commitments made 31 July 2018, HVPE’s total look-through, or “embedded”, by HVPE forms a large Investment Pipeline. In a normal leverage was $228.1 million, a reduction of $10.6 million market environment, approximately 25% of this pipeline from the 31 January 2018 level of $238.7 million. The debt is called down to fund investments (capital calls) in a given is provided to the HarbourVest funds on attractive terms year, while approximately 20% of HVPE’s invested assets and carries a relatively low rate of interest as it is secured are converted to cash each year as a result of natural on the commitments made by investors (including HVPE) Data Supplementary exit activity in the portfolio. This cash is used through to those funds. The HVPE team monitors the embedded the year to meet the aforementioned capital calls. In some leverage and ensures that possible changes in the years the balance of distributions to capital calls is either outstanding balance are factored into the scenario strongly positive, as in recent years, or negative, as it tests conducted as part of the annual commitment was in 2008 and 2009. The Board and the Investment planning exercise. Manager seek to ensure that there is always sufficient cash or credit available to meet capital calls, whilst also striving to avoid an excessive build-up of cash on the balance sheet.
HVPE Semi-Annual Report and Accounts 2018 17 Managing the Company continued commitment capacity for new HarbourVest funds and co‑investments within a given time period.
2. Commitment Coverage Ratio HVPE and many of its listed peers utilise this metric as a measure of balance sheet risk. This ratio is calculated by taking the sum of cash and available credit, and dividing this by the total Investment Pipeline.
The Company’s listed private equity peers typically have a shorter-term Investment Pipeline than HVPE, and as a result HVPE’s Commitment Coverage Ratio may appear relatively low in comparison.
3. Rolling Coverage Ratio Credit Facility HVPE’s Investment Manager uses this third specific metric In an environment where investments exceed distributions to provide greater insight into the Company’s balance for a sustained period, it is important that HVPE is able to sheet position and a more relevant comparison to listed access cash as required to fill the gap. As at 31 July 2018 peers. This final measure reflects the sum of cash, the the Company had a cash balance of $192.5 million. Were available credit facility, and the distributions expected this to be fully invested, the Company would then have during the current year, taken as a percentage of the recourse to its $500.0 million revolving credit facility (“the forecast cash investment in HarbourVest funds over the Facility”), provided jointly by Lloyds Bank plc and Credit current year plus the next two years. The latter is based Suisse. This facility, currently unused, serves to underpin on actual commitments made, plus those currently the commitments made by HVPE to HarbourVest funds. foreseen for the next three years. In considering forecast investments over a three-year period rather than the total Under the terms of the Facility, HVPE may borrow, Investment Pipeline, this calculation enables a more useful repay, and re-borrow funds through to the expiry date comparison of HVPE’s coverage ratio relative to its peers. of the Facility in December 2022. The Company has This ratio has reduced from 85% at 31 January 2018 pledged substantially all its assets as collateral for such to 79% at 31 July 2018 due to a reduction in the cash borrowings. The costs of the Facility are outlined on page balance and a slight increase in estimated investments. 13 of the Company’s 2018 Annual Report, published in May this year. Total Commitment Ratio The Facility carries a financial covenant that limits the (Total exposure to private markets investments as Company’s indebtedness to 35% of assets (the Asset a percentage of NAV) Test Covenant), with the calculated value of the assets Investment Portfolio + Investment Pipeline $3,016.7m subject to certain diversification tests. This ratio is tested Divided by the NAV $1,831.0m and calculated on a quarterly basis. In addition, other 165% (157% at 31 January 2018) covenants confer customary limitations that restrict HVPE’s ability to make unduly concentrated commitments to funds, incur additional indebtedness or liens above Commitment Coverage Ratio (Short-term liquidity as a percentage of total the facility level, pay dividends above certain levels, Investment Pipeline) or merge, consolidate, or substantially change its business without bank approval. Cash + available credit facility $692.5m Divided by the Investment Pipeline $1,382.5m HVPE was in compliance with these covenants 50% (61% at 31 January 2018) throughout the six months to 31 July 2018 and through to the date of publication of this report. Rolling Coverage Ratio Commitment Ratios (A measure of medium-term commitment coverage) The Board and the Investment Manager make reference Cash + available credit facility (total $693m) to three key ratios when assessing the Company’s + current year estimated distributions commitment levels: ($355m) $1,047.9m 1. Total Commitment Ratio (“TCR”) Divided by the next three years’ The TCR provides a view of total exposure to private estimated investments $1,321.9m markets investments as a percentage of NAV. As such, 79% (85% at 31 January 2018) this takes the sum of the current Investment Portfolio and the Investment Pipeline as the numerator. The level of the TCR is a key determinant of the Company’s total
18 HVPE Semi-Annual Report and Accounts 2018 Total Expense Ratio (“TER”) Together, these four figures add up to give a TER, net HVPE’s TER reflects the total cost incurred by the of interest income (0.10%), of 1.23% for the six months Company in assembling and maintaining its portfolio to 31 July 2018. This reflects the cost of providing a fully of HarbourVest funds and co-investments. The figure comprehensive private equity investment programme. Strategic Report is broken down into four distinct categories of expense. It is important to note that, while the operating expenses and the management fees do not vary greatly from Firstly there is the cost of running the Company in its one year to the next, the performance fee figure will own right, encompassing items such as maintenance of vary significantly depending on the returns delivered by the Facility, Board fees and expenses, professional fees, the underlying HarbourVest funds. The TER for the six marketing, financial reporting, and compliance costs. months to 31 July 2018 (1.23%) was lower than the same These costs, totalling 0.32% of average NAV in the six period in the prior year (1.56%), largely due to a reduction months to 31 July 2018, are categorised as recurring in the performance fee component and decline in operating expenses as shown in the first line in the HarbourVest management fees. table below. HVPE’s TER has been trending downwards since Secondly, HVPE pays management fees to HarbourVest inception, with the management fee component in with respect to the funds in which it invests, and also particular having declined steadily from more than 2% for the secondary co-investment in Conversus1 made of NAV in the early years to an annualised 0.80% in the six alongside the HarbourVest funds. The total of all
months to 31 July 2018. This reflects the lower fee rates Governance Report management fees in the six months to 31 July 2018 available to HVPE on a number of HarbourVest funds, was equivalent to 0.40% of average NAV. given the size, frequency, and timing of the Company’s Thirdly, operating costs relating to the HarbourVest funds commitments to these funds. amounted to a further 0.11% of average NAV in the The annualised figure of 2.46% presented in the table six-month period. should be regarded as HVPE’s TER for comparison Finally, performance fees are charged on secondary to other investment products. It is equivalent to the investments and direct co-investments. In total this Ongoing Charges Figure (“OCF”) for UCITs (“Undertakings accounted for 0.50% of average NAV in the six months for Collective Investment in Transferable Securities”) 31 July 2018. The performance fee figure varies from funds. All performance figures quoted in this report year to year and is driven by the performance achieved are presented net of all costs except where indicated. by the relevant HarbourVest funds. Financial StatementsFinancial Six Six months to Year to months to 31 July 2018 31 January 31 July 2017 (H1 2019) 2018 (H1 2018) 8 Operating expenses2 0.32% 0.66% 0.34% HarbourVest fund operating expenses3 0.11% 0.22% 0.07% Management fees4 0.40% 1.01% 0.51% Operating expense ratio 0.83% 1.89% 0.92% Interest income5 (0.10%) (0.13%) (0.06%) Net operating expense ratio 0.73% 1.76% 0.86% Performance fees6 0.50% 1.14% 0.70% Total net expense ratio7 1.23% 2.90% 1.56%
1 Referred to as: “HVPE Charlotte Co-Investment L.P.” in the Unaudited Condensed Interim Consolidated Schedule of Investments. Data Supplementary 2 Operating expenses includes total expenses shown on the face of the Unaudited Condensed Interim Consolidated statement of Operations excluding management fees (from the secondary co-investments) which are included in the management fees in this table. 3 HVPE’s share of fund level operating expenses (professional fees and organisational costs) which are included in realised and unrealised gains (losses) on investments in the Unaudited Condensed Interim Consolidated Statement of Operations. 4 This includes fund level management fees payable to HarbourVest which are included in realised and unrealised gains (losses) on investments in the Unaudited Condensed Interim Consolidated Statement of Operations, together with the management fees relating to secondary co-investments noted in 2 above. 5 This is shown as Interest from cash and equivalents on the face of the Unaudited Condensed Interim Consolidated Statement of Operations. 6 This includes fund level performance fees payable to HarbourVest which are included in realised and unrealised gains (losses) on investments in the Unaudited Condensed Interim Consolidated Statement of Operations. 7 TERs are calculated using the average NAV over the respective periods ($1772.5 million in the six months ended 31 July 2018, $1594.4 million in the year ended 31 January 2018, and $1535.2 million in the six months ended 31 July 2017). 8 This differs to the TER reported at 31 July 2017 of 1.49% and has been updated to include HarbourVest fund operating expenses of 0.07%.
HVPE Semi-Annual Report and Accounts 2018 19 Managing the Company continued
Valuation Policy Management of Foreign Currency Exposure Valuations Represent Fair Value Under US GAAP The Investment Portfolio includes three euro-denominated HVPE’s 31 July 2018 NAV is based on the 30 June HarbourVest funds and a Canadian dollar-denominated 2018 NAV of each HarbourVest fund, Absolute,1 and fund. Conversus, adjusted for changes in the value of public / / Approximately 17% of underlying portfolio holdings securities, foreign currency, known material events, cash are denominated in euros. The euro-denominated flows, and operating expenses during July 2018. The Investment Pipeline is €42 million. valuation of each HarbourVest fund is presented on a fair value basis in accordance with US Generally Accepted / / Approximately 2% of underlying portfolio holdings Accounting Principles (“US GAAP”). See Note 4 in the are denominated in Australian dollars. There is no Notes to the Unaudited Condensed Interim Consolidated Australian dollar-denominated Investment Pipeline. Financial Statements (“Interim Financial Statements”) / / Approximately 2% of underlying portfolio holdings on page 54. are denominated in sterling. There is no sterling- The Investment Manager typically obtains financial denominated Investment Pipeline. information from 90% or more of the underlying / / Approximately 1% of underlying portfolio holdings are investments for each of HVPE’s HarbourVest funds to denominated in Canadian dollars. The Canadian dollar- calculate the NAV. For each fund, the accounting team denominated Investment Pipeline is C$24 million. reconciles investments, distributions, and unrealised/ realised gains and losses to the financial statements. HVPE has exposure to foreign currency movement The team also reviews underlying partnership through foreign currency-denominated assets within the valuation policies. 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.
From an asset perspective, via its partnership holdings at 31 July 2018, HVPE had exposure to the currencies shown below (approximate). Exposure to Foreign Currencies
et i c i g ca a ot er a et ia i itie i c i g e t e t ipe i e
S ollar S ollar uro uro ustralian ollar Sterlin Sterlin ustralian ollar ana ian ollar ana ian ollar t er t er
1 Absolute, referred to as “HVPE Avalon Co-Investment L.P.” in the Unaudited Condensed Interim Consolidated Schedule of Investments, has been fully realised. However, $685,349 remains in escrow.
20 HVPE Semi-Annual Report and Accounts 2018 Summary Strategic Report of Net Assets
31 July 31 January (In millions except per share, FX rate, and % data) 2018 2018 Investment Portfolio $1,634.2 $1,452.2 Cash $192.5 $257.0 Debt $0.0 $0.0 Governance Report Net other assets (liabilities) $4.3 $4.7 NAV $1,831.0 $1,713.9 NAV per share $22.93 $21.46 FX rate 1.3124 1.4191 NAV per share (£) £17.47 £15.12 Cash + available credit facility $692.5 $757.0
The Private Equity Cycle
Six months 12 months ended ended 31 July 31 January 2018 2018 1. Commitments New commitments to HarbourVest funds $355.0 $339.8 Investment Pipeline StatementsFinancial Allocated $1,065.5 $939.8 Unallocated $317.0 $297.7 Total Investment Pipeline $1,382.5 $1,237.5 2. Cash Invested Invested in HarbourVest funds $202.6 $312.7 % of Investment Pipeline1 15.5% 25.7% 3. Growth Investment Portfolio (beginning) $1,452.2 $1,295.8 Cash invested $202.6 $312.7 Investment Portfolio growth $121.5 $248.8 Distributions received ($142.1) ($405.1) Investment Portfolio (end) $1,634.2 $1,452.2 4. Distributions Received Cash received from HarbourVest funds $142.1 $405.1 2 % of Investment Portfolio 9.2% 29.5% Data Supplementary
1 Percentage of average Investment Pipeline (31 July 2018 and 31 January 2018). 2 Percentage of average Investment Portfolio (31 July 2018 and 31 January 2018).
HVPE Semi-Annual Report and Accounts 2018 21 Recent Events
HVPE Published Estimated NAV HVPE Committed Capital to Newly- at 31 August 2018 Formed HarbourVest Funds HVPE publishes its estimated NAV on a monthly basis. Post the reporting period end to 17 October 2018, These reports are available on the Company’s website, HVPE committed $95.0 million to the HarbourVest funds generally within 20 calendar days of the month end. outlined below.
On 20 September, HVPE published an estimated NAV Date Commitment per share at 31 August 2018 of $22.87 (£17.65). This HarbourVest Fund Committed ($m) represents a decrease of $0.06 from the 31 July 2018 Secondary Overflow Fund 24 August 15.0 unaudited figure of $22.93. This reduction was driven III L.P. (Tranche G) 2018 largely by public market adjustments and foreign 2018 Global Fund 28 September 50.0 exchange movements. 2018 The Investment Pipeline of unfunded commitments Co-investment Fund V 17 October 30.0 had reduced slightly to $1,377.6 million based largely 2018 on investments exceeding new commitments during Total new commitments the month. through to 17 October At the end of August, HVPE’s borrowing remained at zero. 2018 (latest available) $95.0m The Company’s cash balance had increased $12.7 million to $205.2 million, as distributions outweighed capital calls over the month.
22 HVPE Semi-Annual Report and Accounts 2018 Principal Risks Strategic Report and Uncertainties
Risk Factors The Company’s Board is responsible for monitoring and The Board and the Investment Manager have oversight of the risks facing the Company and conducts identified a number of risks to the Company’s business. a structured review of the risks and the associated A comprehensive risk assessment process is undertaken mitigants, on at least a quarterly basis. on a quarterly basis to evaluate the impact and Governance Report probability of each risk materialising and the financial or strategic impact of the risk. Those risks which have a higher probability and a significant potential impact on performance, strategy, reputation or operations are identified below as principal risks faced by the Company over the next six months.
Risk Description Mitigating Factor Balance The Company’s balance sheet strategy and its The Board has put in place a monitoring programme Sheet Risks policy for the utilisation of leverage are described with a defined total commitment ratio cap, determined on page 62 of the Company’s 2018 Annual Report. with reference to portfolio models, in order to mitigate The Company continues to maintain an over- against the requirement to sell assets at a discount commitment strategy and may draw on its Facility during periods of NAV decline. Further, the monitoring Financial StatementsFinancial to bridge periods of negative cash flow when capital programme also considers the level of debt at the calls on investments are greater than distributions HarbourVest fund level. Both the Board and the and available cash. The level of potential borrowing Investment Manager actively monitor these metrics available under the Facility could be negatively and will take appropriate action as required to affected by declining NAVs. In a period of declining attempt to mitigate these risks. Additionally, the Board NAVs, reduced realisations, and rapid substantial intends to renew the Facility regularly with the aim cash calls, the Company’s net leverage ratio could that there should always be a minimum of 48 months increase beyond an appropriate level, resulting in of unexpired Facility available. a need to sell assets. A reduction in the availability or utilisation of bridging debt at the HarbourVest fund level could result in an increase in capital calls to a level in excess of the base case forecast. Borrowing While it is currently undrawn, the Company depends The Board monitors developments in credit markets Risk on the availability of its Facility in order to operate an and intends to renew the Facility regularly with the aim
over-commitment strategy. The Company’s lenders that there should always be a minimum of 48 months Data Supplementary may be unable or unwilling to renew or extend the of unexpired Facility available. The Board is also Company’s Facility. actively considering options for other sources of financing. Foreign Approximately 21% of the value of HVPE’s total The Board and the Investment Manager monitor the Exchange assets are denominated in non-US dollar currencies, foreign exchange risk experienced by the Company Risk primarily euros. Foreign currency movement affects and will consider implementing hedging arrangements the Company’s investments, borrowings on the if deemed appropriate. Facility, and unfunded commitments.
HVPE Semi-Annual Report and Accounts 2018 23 Principal Risks and Uncertainties continued
Risk Description Mitigating Factor Popularity Investor sentiment may change towards the listed The Board has set the Investment Manager the of Listed private equity sector, resulting in a widening of the objective of ensuring that the widest possible variety Private Company’s share price discount to NAV. of investors are informed about the Company’s Equity performance and proposition in order to mitigate Sector against this. In addition, the Investment Manager actively participates in the marketing of the sector. The size of the Company means that its own success will contribute to the popularity of the sector as a whole. Public Public markets in many developed countries are Both the Board and the Investment Manager actively Market Risks trading close to all-time highs. While economic monitor the Company’s NAV, and exposure to fundamentals have improved, structural imbalances individual public markets is partially mitigated by the remain. The Company makes venture capital geographic diversification of the portfolio. The Board and buyout investments in companies where notes that it has limited ability to mitigate public operating performance is affected by the broader market risk. economic environment within the countries in Stress testing takes place as part of the portfolio which those companies operate. While these composition process to model the effect of different companies are generally privately owned, their macroeconomic scenarios to provide comfort to the valuations are, in most cases, influenced by public Board that the balance of risk and reward is appropriate market comparables. In addition, approximately in the event of a downturn in public markets. 10% of the Company’s portfolio is made up of publicly-traded securities whose values increase or decrease alongside public markets. Should global public markets decline or the economic situation deteriorate, it is likely that the Company’s NAV could be negatively affected. Reliance on The Company is dependent on its Investment Manager This risk is mitigated by the Board monitoring HarbourVest and HarbourVest’s investment professionals. With the the performance of the Investment Manager on exception of the 2011 Absolute investment and 2012 an ongoing basis, including through regular reports Conversus investment, nearly all of the Company’s and visits to the Investment Manager’s offices, which assets, save for cash balances and short-term liquid took place once in the six months under review. investments, are invested in HarbourVest funds. In addition, the Audit Committee reviewed the most Additionally, HarbourVest employees play key recent controls report from the Investment Manager roles in the operation and control of the Company. to assess the controls environment of the Investment The departure or reassignment of some or all of Manager. Succession planning at the Investment HarbourVest’s professionals could prevent the Manager is monitored by the Board. Company from achieving its investment objectives. Trading Any ongoing or substantial discount to NAV has the Since September 2015, the Company’s shares Liquidity potential to damage the Company’s reputation and have traded on the Main Market of the London Stock and Price to cause shareholder dissatisfaction. Exchange, which has increased the liquidity of the The five largest shareholders at 4 October 2018 shares and broadened the appeal to a wide variety (latest available) represent approximately 48% of of shareholders. In addition, the Board continues the Company’s shares in issue. This may contribute to monitor the discount to NAV and will consider to a lack of liquidity and widening discount. Also, appropriate solutions to address any ongoing or in the event that a substantial shareholder chooses substantial discount to NAV. to exit their holding, this may have an effect on the Company’s share price and consequently the discount to NAV.
24 HVPE Semi-Annual Report and Accounts 2018 About Strategic Report HarbourVest
HarbourVest is an independent, global private markets asset manager with more than 35 years of experience and more than $55 billion in assets Governance Report under management.1
Overview Direct Co-investment HarbourVest focuses exclusively on private markets. The Because of its longstanding relationships with top-tier firm’s powerful global platform offers clients investment fund managers, HarbourVest provides access to unique opportunities through primary fund investments, global opportunities through its direct co-investment secondary investments, and direct co-investments in programme. The dedicated team evaluates opportunities commingled funds or separately managed accounts. alongside leading general partners with the goal of To date, the firm has committed approximately $65 billion1 creating a well-diversified portfolio. To date, $9 billion has collectively across the US, Europe, Asia Pacific and been invested in more than 350 operating companies.1 other emerging markets through multiple private equity and market cycles. HarbourVest has deep investment Leadership HarbourVest has shown leadership in private markets experience and dedicated, on-the-ground teams in across the globe, forming one of the first fund-of-funds, key private markets across the US, Europe, Asia Pacific, StatementsFinancial purchasing some of the first secondary positions, backing and other emerging markets. It has over 400 employees, developing companies, and pioneering new markets. including more than 100 investment professionals across its Beijing, Bogotá, Boston, Hong Kong, London, Seoul, Depth of Experience Tel Aviv, Tokyo, and Toronto offices. The 47 managing directors of HarbourVest have been 2 Primary Investing with the firm for an average of 13 years. HarbourVest believes the experience and continuity of investment Primary investments have been a part of HarbourVest’s personnel provides a valuable historical base of strategy since the firm’s earliest days. The firm believes knowledge. Additionally, many of the most sought-after there is no replacement for the depth of experience that underlying fund managers are often oversubscribed comes from building relationships with and evaluating when they raise new funds, making these funds difficult fund managers continuously for three decades. Through to access for many investors. The longevity and stability these years the team has refined its knowledge and ability of the HarbourVest team has enabled the firm to cultivate to assess strong primary investments on a global basis. relationships with many of the top-tier and exclusive fund This global team has committed approximately $35 billion 1 managers, positioning HarbourVest as both a preferred to newly-formed (primary) funds. Data Supplementary prospective investor and a favoured investment partner. Secondary Investing Secondary transactions offer tremendous opportunities for investors and sellers alike. HarbourVest’s longstanding relationships and experience mean it has access to opportunities, insights, and trends that provide investors with an undeniable edge. The firm is a highly credible buyer, having committed $21 billion to secondary markets since 1986.1
1 As at 30 June 2018. 2 As at 30 September 2018.
HVPE Semi-Annual Report and Accounts 2018 25 Global Private Markets: Overview H1 2018
US Buyout and Venture On the US Venture side, managers remained active The US buyout market had normalised from a fundraising in terms of raising, deploying, and returning capital, with and investing perspective in the year to end June 2018, year-to-date metrics in each category on track to surpass as managers focused on generating liquidity against 10-year averages. For the first half of 2018, fundraising a backdrop of high valuations. US buyout fundraising was tracking ahead of 2017 activity, as firms raise larger is tracking below the 10-year average for the first half funds to reserve capital for later stage growth financings. of 2018, as several mega-cap managers completed Venture managers are on pace to invest a record amount oversubscribed fundraises in 2017. New investment of capital in 2018, surpassing the previous mark set in activity for buyout managers has remained in line with 2017. Much like the US buyout market, competition for 2017 levels, which are well below pre-crisis peaks. attractive deals has also been driven by a growing surplus However, transaction values have decreased as smaller of dry powder and new entrants to the market, such as add-on activity has been a catalyst for deal volume. SoftBank’s Vision Fund, which has led to historically high Competition for attractive deals has been driven by a pricing. Venture managers have increasingly sought to growing surplus of dry powder and new entrants to the maintain ownership of perceived winners through follow- market, leading to historically high pricing across US on financing rounds, in an effort to achieve operating private markets. Many managers have taken advantage scale, market leadership, and strong returns. Through of this pricing dynamic to generate liquidity, benefitting June, venture-focused IPOs had been resurgent after primarily from strategic acquirers that are looking to several years of muted activity. High-profile technology buy for growth, and as a way to access new markets IPOs have received strong public market valuations, and geographies. As a result, merger and acquisition inducing others to pursue liquidity via the public markets. (“M&A”) exit activity remained robust as managers seek M&A volume and valuations have also increased, as large full liquidity while favourable pricing remains. Further, incumbents have been willing to pay for growth.1 the availability of inexpensive credit has allowed these managers to generate intermittent liquidity through European Markets Private markets across Europe have shown continued dividend recapitalisations. Buyout managers have sought strength across fundraising, liquidity, and investment to create value by embracing complex transactions and activity, supported by five years of favourable market pursuing buy-and-build strategies, which can also serve dynamics. Fundraising fell by 16% during the first to dampen average purchase prices. This focus on half of 2018 compared with the same period in 2017, complex transactions, as well as a continued emphasis with just under €25 billion worth of funds raised. This on operational improvements and high growth, should was due predominantly to fewer mid-market funds continue to drive strong returns for investors.
1 Sources: Bain & Company, PitchBook Data.
26 HVPE Semi-Annual Report and Accounts 2018 being raised. As a result of strong investor demand for Australian GDP grew 3.1% over the year ended March premium quality managers, however, the best-performing 2018, exceeding market estimates. The Reserve Bank managers continue to raise heavily oversubscribed funds, of Australia (“RBA”) expects the economy to strengthen with 68% of 2017 vintage funds (globally) being raised in over the next 12 months, supported by positive business Strategic Report less than 12 months. After an exceptionally strong year conditions and an increase in both non-mining and public for liquidity in 2017, the exit environment through June infrastructure spends. Despite previous expectations of was characterised by continued interest from strategic rate hikes in 2018, the RBA has continued to hold the acquirers seeking new growth opportunities. There was, cash rate at its record low of 1.5%, citing global trade however, a 37% fall in the value of M&A exits compared tensions and record Australian household debt levels as with the first half of calendar year 2017, while more volatile key risks. Australia is still one of the most mature buyout public markets reduced the level of private equity-backed markets in Asia, where private equity fundraising has IPO issuance across Europe. Overall, the value of exits remained strong. Investments have been focused on through June was down 39% year-on-year. key sectors such as healthcare, food, agriculture, and technology.5 Managers remain cognisant of prior market cycles and have been selective in the current high-valuation India remains one of the fastest-growing economies environment by focusing on premium assets, as well as in the world on the back of rising consumption and operational and strategic improvements. Nevertheless, the ongoing digitisation of the country’s financial
transaction values in Europe increased 61% during the infrastructure. Businesses are now seeing the benefits Governance Report first half compared with the same period in 2017. This of demonetisation and tax reform, which have created a was almost entirely due to an increase in investments in more accountable and attractive corporate environment transactions with over €1 billion of enterprise value, with ahead of upcoming elections in 2019. Japan’s economy more than €58 billion worth of such deals completed has rebounded in the past year, driven by global growth during the first six months of 2018. This compares with and an increase in exports due to a weak yen. The growth a figure of €51 billion of similar-sized transactions for the outlook for South Korea is similarly positive, with an whole of 2017. The figure year through June 2018 includes anticipated rebound in investment and strong demand for sizeable headline transactions, such as Carlyle’s €10.1 its exports, especially electronics. Countries in Southeast billion acquisition of AkzoNobel Speciality Chemicals, and Asia also continue to benefit from global trade growth, KKR’s €6.8 billion acquisition of Unilever spreads. In order together with increased infrastructure spending in to generate returns in the current environment, managers countries such as Indonesia, and the Philippines.6 are increasingly focused on developing formal plans for implementing operational improvements and value creation, particularly systematic execution of commercial excellence in sales, in order to drive top-line growth and StatementsFinancial digital innovations within portfolio companies.2 Asia Pacific Markets In the year to end June 2018, Asia Pacific private markets were on pace for another record year with fundraising, investment, and exit activity all on track to eclipse 2017 figures. Fundraising activity remained strong with $44 billion raised, half of which was driven by China. Investment activity continued to increase with $75 billion invested, supported by large deals in Japan and China. Asia Pacific exit transaction value totalled $28 billion, with the largest deals coming from venture exits in China.3
China’s economy expanded 6.8% year-on-year through
June, with growth remaining stable over the last three Data Supplementary years. Tertiary industries, predominantly within the services sector, continued to drive growth, accounting for 54% of the overall economy. The government continued to deepen supply-side structural reform, which benefitted sectors such as industrials, retail, and agriculture. As the largest private equity market in Asia, consumption- related investment themes continue to be a key focus 2 Sources: Thomson Reuters, Preqin. given continued urbanisation and further growth of 3 Source: AVCJ. China’s middle class. The ongoing US–China trade 4 Source: China National Bureau of Statistics. 4 5 Source: Reserve Bank of Australia. friction continues to be a risk for the region. 6 Sources: Deloitte, Bloomberg.
HVPE Semi-Annual Report and Accounts 2018 27 Commitment Phase Investment Phase Growth Phase Mature Phase
The Investment Manager and HVPE makes commitments to HarbourVest funds, which in turn build portfolios of private companies via primary the Board consider a number funds, secondary investments, and direct co-investments. Once funded during the investment phase, the capital of factors before new becomes part of the Investment Portfolio. commitments are made. During the six months ended 31 July 2018, HVPE committed $355.0 million to newly-formed HarbourVest funds. These commitments are complementary to HVPE’s existing portfolio of HarbourVest funds and highlight the Company’s consistent and ongoing commitments to compelling investment opportunities. As detailed on the Investment Manager’s Report starting on page 8, during the six months, the largest new commitment was $150.0 million to a new HarbourVest real assets vehicle intended to deliver a long-term income yield combined with capital growth.
The HarbourVest funds in HVPE’s portfolio, in turn, commit capital to managers over a period of typically four years and call down capital from HVPE over a period of seven to nine years. This extended duration of capital calls requires that HVPE maintains an Investment Pipeline of unfunded commitments as it strives to ensure that the Company’s assets are fully invested. The Company is able to maintain a higher level of unfunded commitments than some other listed companies based on the timing, duration, and predictability of its cash flows.
28 HVPE Semi-Annual Report and Accounts 2018 e t e t ipe i e Allocated and Unallocated Commitments Made to Investment Pipeline HarbourVest Funds in the In order to reflect the differences Six Months to 31 July 2018
in expected drawdown periods Strategic Report appropriately, the Company HarbourVest Fund XI divides its Investment Pipeline (US-focused fund) ota into “allocated” and “unallocated” $135.0 million commitments. Of the Company’s 2018 Global Fund total Investment Pipeline of (Global multi-strategy fund-of-funds) $1.4 billion: $20.0 million / / 77% has been allocated HarbourVest Adelaide by HarbourVest funds to (Real assets vehicle) underlying investments. $150.0 million / / 23% has not yet been allocated by Secondary Overflow III $1,065.5m HarbourVest funds to underlying Allocated (Secondary co-investment) investments, and therefore cannot $30.0 million be drawn down in the short term. Governance Report HarbourVest Co-Invest V The Investment Manager anticipates (Global co-investment fund) that the Company’s allocated $20.0 million $317.0m commitments will be drawn down Unallocated over a three to five-year period. All of the Company’s commitments to Total: $355.0m HarbourVest direct co-investment Six months to 31 July 2017: $162.2m and secondary funds are classified $1.4bn as “allocated” commitments Total Investment Pipeline because their drawdown profiles are closer to those of third-party funds. Financial StatementsFinancial ge o t e ocate e t e t ipe i e Allocated Investment
s at uly Pipeline HVPE’s allocated commitments range across a number of vintage years. At 31 July 2018, $128.1 million of commitments (or 12% of the allocated total) are more than six ota years old, and only a small portion of this total is likely to be drawn down by the underlying managers. Approximately $277.7 million or 26% of allocated commitments are between four and six years old and years likely to be drawn down in the near
years term. The remaining $659.7 million Data Supplementary years or 62% of allocated commitments years are one to three years old and are expected to be called in the medium term. The pace of these drawdowns has been shown to be relatively predictable over time.
HVPE Semi-Annual Report and Accounts 2018 29 Commitment Phase Investment Phase Growth Phase Mature Phase
The HarbourVest funds HVPE can be thought of as a ready-made private markets programme for public market investors. To this end, the invest HVPE’s commitments Company aims to ensure a steady pace of investment into new opportunities to balance distributions received. over a period of up to four Cash is re-invested as the HarbourVest funds in HVPE’s years. HVPE aims to have portfolio call down capital. The diverse nature of HVPE’s commitments, combined with variations in activity levels approximately 25% of NAV in different parts of the private equity market, means that the profile of these new investments can change from in this phase over the one period to the next. The one constant is that HVPE long term. is always investing, helping to mitigate risk by spreading investments across multiple vintage years.
30 HVPE Semi-Annual Report and Accounts 2018 o t e te i to ar o r e t
$203m Total invested in the six months Strategic Report Six months to 31 July 2017: $119m 66% Percentage of investments into underlying primary partnerships Six months to 31 July 2017: 67%
21% Governance Report Percentage of investments into underlying secondary partnerships uly uly uly uly uly uly Six months to 31 July 2017: 24% ar our est ar our est ar our est primary un s secon ary un s co investment un s
13% op ri ar a ager o t e te Percentage of investments into direct co-investments Six months ended to July 2018 Six months to 31 July 2017: 10% In the six months ended 31 July 2018, 66% of new investment was deployed to primary partnerships. This was lower than might be expected given HarbourVest StatementsFinancial primary funds accounted for 74% of unfunded commitments at 31 July 2018. This can largely be put down to the slower pace at which the primary funds tend to deploy capital. Secondaries are tracking on target at 21% (equal to the proportion of unfunded commitments) and direct co-investments were above pace, deploying 13% against 6% of unfunded. These strategies both tend to call capital down more quickly. However, this balance will shift year to year as the mix of unfunded commitments changes over time.
HVPE’s top 10 primary fund managers (by amount invested) between them Index Harvest Invest Accel Kleiner Pamlico Spark Boyu Lightspeed Insight Ventures Partners industrial Partners Perkins Capital Capital Capital Venture Venture Supplementary Data Supplementary called down capital totalling $24 million Caufield & Partners Manage- during the six months to 31 July 2018. Byers ment The largest of these, Index Ventures, accounted for $3.5 million of capital calls, Europe US Europe US US US US Asia US US largely for investments in their 2015/2016 Venture Buyout Buyout Venture Venture Buyout Venture Venture Venture Venture funds. Seven of the top 10 managers by amount invested are venture capital specialists: Index Ventures, Accel Partners, Kleiner Perkins, Spark, Boyu, Lightspeed, and Insight.
HVPE Semi-Annual Report and Accounts 2018 31 Commitment Phase Investment Phase Growth Phase Mature Phase
During years five to nine, The foundation of long-term value creation in a private equity portfolio is the growth phase. This is the period most HarbourVest funds are in the life of a private equity fund when the majority of the investments have already been made, and the focus fully invested, and managers shifts to managing the portfolio companies. Company are actively driving growth. management teams are incentivised so that their interests are aligned with those of their private equity backers, The majority of value and a coordinated effort is made to grow and develop the companies with a view to a profitable exit. In contrast accretion takes place during to the public markets, here the focus is on executing this phase, to which HVPE a multi-year value-creation plan rather than paying undue attention to quarterly results. targets approximately 50% of NAV over the long term.
32 HVPE Semi-Annual Report and Accounts 2018 Buyout Portfolio Metrics $122m These portfolio metrics reflect an analysis of Investment Portfolio 859 buyout companies in US and international Strategic Report value growth HarbourVest funds where data is available. Six months to 31 July 2017: $126m This represents 50% of the total buyout NAV and 29% of the total NAV.2 $78m / / Weighted average EBITDA increase over previous Total growth HarbourVest year is 13%. primary funds Six months to 31 July 2017: $81m / / 79% of the underlying companies (by value) profiled here grew EBITDA during the six months ended 31 July 2018. / / Approximately 47% of these companies are
$23m Governance Report Total growth HarbourVest secondary funds1 growing earnings at a rate greater than 10% Six months to 31 July 2017: $19m per annum. / / The overall valuation multiple is 12.2x EBITDA (11.8x at prior financial year end). $18m / / The overall debt multiple is 4.9x EBITDA Total growth HarbourVest direct co-investment funds (5.2x at prior financial year end). Six months to 31 July 2017: $25m
The remaining $3m is the total growth 1 Including SOF III secondary co-investments. from Absolute and Conversus 2 The sample of portfolio companies used for this analysis changes period on period, based on the information available to the Company at the time. The figures cited above for the “prior (six months to 31 July 2017: $1m) financial year end” are based on the sample set of 694 companies, as published at the time. Financial StatementsFinancial Investment Portfolio Growth at the Partnership Level (% gain over the six months to 31 July 2018, adjusted for new investments during the period)
rimary Secon ary Direct o uyout Gro t arly Real t er inc US Europe Asia Rest of nvestment uity enture ssets e anine Pacific World
Growth by Strategy Growth by Stage Growth by Geography Direct Co-investments (23% of The Growth Equity stage (23% of The US portfolio (56% of Investment Data Supplementary Investment Portfolio NAV) were the Investment Portfolio NAV) delivered the Portfolio NAV) was the strongest strongest performer over the six months largest percentage gain over the reporting geographic region, with a 9.3% gain to 31 July 2018. Growth was driven period with an increase of 11.5%. This driven largely by buyout and mezzanine primarily by gains from TriTech Software, was driven by strong performance in direct co-investments (TriTech Software, Press Ganey Associates, Finanzcheck, the US and Asian venture markets. Real Press Ganey, Investment Metrics, and Lytx, Profi Rom Food Group, Finjan and Assets (3% of Investment Portfolio NAV) Five Star Foods) and medium buyout and Appris. This was followed by 7.6% growth followed next with a 7.1% gain, primarily growth equity primary investments. Asia from Secondaries, largely as a result driven by strong performance in US Pacific (15% of Investment Portfolio NAV) of strong performance from one of the infrastructure holdings. followed behind at 6.8%, driven by buyout companies in a European secondary co- direct co-investments (H-Line Shipping investment, as well as several other US and Ssangyong Cement Industrial) and and European secondary transactions. primary venture investments.
HVPE Semi-Annual Report and Accounts 2018 33 Commitment Phase Investment Phase Growth Phase Mature Phase
Within approximately seven Every private equity investment is made with a clear exit strategy in place from the very beginning. Once the to ten years managers are investment plan has been implemented during the growth phase, managers turn their attention to maximising the typically realising investments. value of their investment ahead of a sale. This could take As a permanent capital the form of an IPO on a public exchange, or an M&A transaction involving a trade buyer or secondary private vehicle, HVPE expects that equity investor. While IPOs tend to make the headlines, the majority of exits are achieved via trade sales. Private the remaining 25% of NAV equity managers have a key advantage over their public will be accounted for market peers in that they are better able to time a sale to maximise value. During significant market corrections, by assets in this phase. as exemplified by the global financial crisis, managers can simply delay exits and await more favourable conditions in which to realise their investments. The benefits of this are clear to see: for the last six years running, HVPE has benefitted from a long-run average uplift on realisation of 41% over carrying value.1
1 Average of figures reported from 31 July 2012, when this analysis began; historical figures range from 30% to 53%.
34 HVPE Semi-Annual Report and Accounts 2018 53% Uplift on Carrying Value at Realisation Over the Six Month Period
53% eig te a erage p i t o t e eig te a erage tip e o t e Uplift on carrying value over Strategic Report the six months carr i g a e co t o a a e tra actio Six months to 31 July 2017: 30% $142m otal uyout enture otal uyout enture Amount realised during HVPE received a total of $142.1 million Within the Venture portfolio, the six months from HarbourVest funds and co- companies achieved a weighted average Six months to 31 July 2017: $149m investments during the six months uplift of 71% and return multiple of 8.2x, ended 31 July 2018. The largest 63 M&A versus 48% for the buyout companies and IPO transactions, which represent with return multiples of 3.9x. Carrying approximately 84% of the value of known value is defined as the value at the month transactions during the reporting period, end prior to the first announcement of $99m achieved an uplift to carrying value of a transaction. Total realised from 53% at an average multiple of 5.3 times
Private company valuations are to some Governance Report cost.2 This was driven by strong multiples HarbourVest primary funds extent subjective based on observable from the IPO exits, namely from Cactus Six months to 31 July 2017: $85m inputs. The realisations experienced Wellhead, Uxin Limited, Vivo Energy, within the HVPE portfolio continue to Adyen Corporation, and DocuSign. substantially exceed carrying value. Top 10 Realisations (1 February 2018 to 31 July 2018) $12m HVPE Distributed Total realised from Company Description Value ($m)3 HarbourVest secondary funds1 TriTech Software Systems Public safety software 10.2 Six months to 31 July 2017: $26m TMF Group Outsourced business services 6.6 Wayfair Online home goods retailer 5.2 Secure-24 IT outsourcing and hosting 4.7 applications $24m Harbor Community Bank Personal and business banking 4.5 Total realised from direct Callcredit Information Group Consumer information 3.3 Financial StatementsFinancial co-investment funds management services Six months to 31 July 2017: $30m Roku Streaming video player 3.0 and services Bomgar Corporation Remote IT support solutions 2.9 Zayo Group Holdings Telecommunications 2.8 $7m H-Line Shipping Marine bulk shipping 2.8 Total Absolute and Conversus Total $46.0m
Six months to 31 July 2017: $8m 1 Including SOF III secondary co-investments. 2 This analysis represents a subset of the transactions and does not represent the portfolio as a whole. Additionally, this analysis does not reflect management fees, carried interest, and other expenses of the HarbourVest funds or the underlying managers, which will reduce returns. Past performance is not necessarily indicative of future returns. Accolade Wines, which is currently held at a blended multiple of 97.1x, represents an extraordinary return and is excluded from the analysis 172 due to the large positive impact it has on the weighted average multiples. If included, the total Number of M&A events return multiple on the sample is 7.8x and the Buyout and M&A return multiples would be 7.3x and 7.8x respectively. (76 venture, 96 buyout) 3 HVPE realised value represents HVPE’s share of primary investment, secondary investment, Six months to 31 July 2017: 207 and direct co-investment realisations received during the six month period ended 31 July 2018. Data Supplementary (94 venture, 113 buyout) Past performance is not necessarily indicative of future returns.
Rea i atio i tage ear
o realisations urin si mont s en e uly
an earlier ature p ase Gro t p ase nvestment p ase
HVPE Semi-Annual Report and Accounts 2018 35 Top 10 Managers
Top 10 Managers at 31 July 2018 held within HVPE’s underlying portfolio.
1 IDG Capital Partners 2 Thoma Bravo
Asia US Venture investment in companies located in China, with Primarily buyout investment in mid-market companies a focus on technology-enabled consumer, enterprise in the US, with a focus on the software and technology solutions, and artificial intelligence sectors. IDG has sectors. Thoma Bravo has a demonstrated capability a strong and consistent investment track record, in unlocking value through various investment types evidenced by their funding of Chinese technology with deep expertise from its focused sector approach. firms Baidu and Alibaba.
2.6% $43.0m 1.9% $30.6m % of Investment Portfolio Investment value % of Investment Portfolio Investment value at 31 July 2018 at 31 July 2018 at 31 July 2018 at 31 July 2018
3 CapVest Equity Partners 4 Insight Venture Partners
Europe US Investment in mid-market companies located in Europe, Growth equity investment primarily in companies with a particular focus on consumer food, beverage, and located in the US, with a focus on software-related healthcare sectors. HarbourVest purchased CapVest and internet sectors. Insight has a distinct sector focus, assets in a secondary deal in 2017. and consistent strong results; its portfolio companies include SolarWinds and Appriss Holdings.
1.7% $28.2m 1.6% $26.4m % of Investment Portfolio Investment value % of Investment Portfolio Investment value at 31 July 2018 at 31 July 2018 at 31 July 2018 at 31 July 2018
36 HVPE Semi-Annual Report and Accounts 2018 5 Index Ventures 6 Compass Partners Strategic Report
Europe Europe Venture and growth equity investment primarily in Secondary buyout investment in mid-to-large transaction companies located in Europe and the US, with a focus sizes, primarily in Europe, and within multiple sectors. on the disruptive technology and online marketplace Compass Partners is a specialist investor in complex sectors. Index has a strong investment track record; or special situations; its portfolio companies include its portfolio companies include Deliveroo and Rodenstock and Infinitas Learning. Funding Circle.
1.6% $26.4m 1.3% $21.8m % of Investment Portfolio Investment value % of Investment Portfolio Investment value at 31 July 2018 at 31 July 2018 at 31 July 2018 at 31 July 2018 Governance Report
7 Hellman & Friedman 8 DCM
US Asia Large buyout investment in companies primarily located Venture investments in companies located in Asia and in the US, and with a broad sector focus. Hellman & the US, with a focus on mobile, consumer-technology, Friedman has demonstrated strong performance across and software & service sectors. DCM has a global multiple economic cycles; its portfolio companies include footprint; its portfolio companies include Social Allfunds Bank and Hub International. Finance and Limebike. Financial StatementsFinancial 1.2% $20.2m 1.2% $19.1m % of Investment Portfolio Investment value % of Investment Portfolio Investment value at 31 July 2018 at 31 July 2018 at 31 July 2018 at 31 July 2018
9 The Blackstone Group 10 Pemba Capital Partners
US Asia Primarily buyout investment in companies located in Primarily secondary buyout investments in Australia and the US, but also globally, with a diverse sector-based New Zealand, and with a focus on investments in small approach. Blackstone is an industry leader, with an and medium-sized businesses (SMEs). Pemba Capital’s Data Supplementary evolving and expanding focus, and has demonstrated the portfolio companies include Device Technologies. ability to unlock value through multiple economic cycles.
1.2% $18.8m 1.0% $16.7m % of Investment Portfolio Investment value % of Investment Portfolio Investment value at 31 July 2018 at 31 July 2018 at 31 July 2018 at 31 July 2018
HVPE Semi-Annual Report and Accounts 2018 37 Top 10 Direct Companies1 Top 10 disclosable1 direct companies at 31 July 2018 held within HVPE’s underlying portfolio.
Preston Hollow Capital Stage: Small buyout Location: US
Speciality Finance Platform Speciality municipal finance merchant bank focused on niche underwriting and opportunistic investing. HarbourVest co-invested with Stone Point Capital, a finance-focused general partner (“GP”) with deep experience in the credit underwriting arena. Since initial investment, Preston Hollow Capital has demonstrated strong performance. The Investment Manager likes the investment as the company has an impressive management team track record and operates within a large, fragmented municipal bond market which presents various business opportunities. 1.3% $21.1m % of Investment Portfolio Investment value at 31 July 2018 at 31 July 2018
Press Ganey Associates Stage: Large buyout Location: US Healthcare Data Provider Provider of patient satisfaction surveys, management reports, and comparative databases for healthcare providers. HarbourVest co-invested with EQT Partners, a strong healthcare investor. Since initial investment, Press Ganey has demonstrated good performance, become the industry standard, and currently has majority market share. The Investment Manager likes the investment as the company has the most comprehensive data set of its competitors and has achieved a market-leading position built on data accuracy and quality, which are the top selection criteria for customers. 1.2% $19.8m % of Investment Portfolio Investment value at 31 July 2018 at 31 July 2018
1 Some direct holdings cannot be disclosed due to confidentiality agreements in place.
38 HVPE Semi-Annual Report and Accounts 2018 Acrisure Stage: Large buyout Location: US Strategic Report Insurance and Consulting Services Provider of insurance-related products and consulting services to personal, small and middle market clients. HarbourVest co- invested with Abry Partners, a GP with deep experience and prior success in the insurance industry. Since initial investment, Acrisure has created significant value by increasing acquisition activity, effectively integrating acquired targets, and driving organic growth. The Investment Manager likes the investment as the company is built on a differentiated acquisition platform, which is well positioned to consolidate a highly fragmented market. 1.1% $18.8m % of Investment Portfolio Investment value at 31 July 2018 at 31 July 2018 Governance Report
SolarWinds Stage: Large buyout Location: US IT Management Software Provider of easy to implement, low-cost enterprise-class IT and infrastructure management software to IT professionals. SolarWinds currently has over 250,000 customers worldwide. HarbourVest co-invested with Thoma Bravo, a GP with deep experience of the infrastructure software industry. SolarWinds’ software quickly identifies and addresses IT issues, ensuring maximum network uptime and performance, a service well positioned to benefit from technology-related mega trends within a growing market. Financial StatementsFinancial 0.8% $13.5m % of Investment Portfolio Investment value at 31 July 2018 at 31 July 2018
H-Line Shipping Stage: Large buyout Location: Asia Marine Bulk Shipping Shipping company specialising in dry bulk and liquefied natural gas delivery under long-term contracts. H-Line Shipping, headquartered in South Korea, currently has a total fleet of 50 vessels. The Investment Manager likes the investment as the company’s financial performance has demonstrated stable operating profitability levels, whilst the long- Data Supplementary term shipping contracts generate cash flows which provide significant forward visibility. 0.7% $11.6m % of Investment Portfolio Investment value at 31 July 2018 at 31 July 2018
HVPE Semi-Annual Report and Accounts 2018 39 Companies Spotlight continued
Ministry Brands Stage: Venture/growth equity Location: US
Software Provider for Faith-Based Organisations Provider of software to more than 55,000 faith-based and member- based organisations in the US. HabourVest co-invested with Insight Venture Partners, an investor with a significant understanding of the software-related and internet sectors. The Investment Manager likes Ministry Brands as the company has a market-leading position with scale that allows for further competitive advantages. It also has a unique acquisition platform, and operates within a large and growing market. 0.7% $11.1m % of Investment Portfolio Investment value at 31 July 2018 at 31 July 2018
Appriss Stage: Venture/growth equity Location: US Data and Analytics Solutions Provider Provider of data and analytics solutions to commercial and government clients to address public safety, regulatory, and compliance needs. HarbourVest co-invested with Insight Venture Partners, an investor with a significant understanding of the software-related and internet sectors. The Investment Manager likes the investment as the company has a market-leading position, a strong management team, and the company is well positioned to benefit from the expanding market of reliance on big data and a need for analytics. 0.7% $10.9m % of Investment Portfolio Investment value at 31 July 2018 at 31 July 2018
40 HVPE Semi-Annual Report and Accounts 2018 Staples Stage: Large buyout Location: US Strategic Report North American retailer North American retailer and distributor of office supplies. Staples, headquartered in the US, currently has over 1,500 stores globally. HarbourVest co-invested with Sycamore Partners, a GP with extensive experience of businesses in the consumer-retail sector. Since initial investment, the company has been reorganised into three divisions to optimise strategy and cost structure. The Investment Manager likes the investment as it contains multiple avenues for outperformance, including accretive M&A, as well as cost optimisation across businesses. 0.6% $9.9m % of Investment Portfolio Investment value at 31 July 2018 at 31 July 2018 Governance Report Ssangyong Cement Industrial Stage: Medium buyout Location: Asia
Integrated Cement Manufacturer and Distributor Largest integrated cement company by production capacity and sales volume in South Korea. Ssangyong, publicly listed on the Korean Stock Exchange, has both coastal and inland production facilities. The Investment Manager likes the investment as the company’s scale and production capabilities give it a competitive advantage in the market, there is good visibility on near-term demand, and potential for further operational improvements.
0.6% $9.9m StatementsFinancial % of Investment Portfolio Investment value at 31 July 2018 at 31 July 2018
Allfunds Bank Stage: Large buyout Location: Europe Fund Distribution Platform Institutional fund distribution platform for mutual funds. HarbourVest co-invested with Hellman & Friedman, a GP with significant experience in the financial services sector. The Investment Manager likes the investment as the company is a market leader in an industry with high barriers to entry and has the potential to create value through geographic expansion, synergistic acquisitions, Supplementary Data Supplementary and new product offerings. 0.5% $8.1m % of Investment Portfolio Investment value at 31 July 2018 at 31 July 2018
HVPE Semi-Annual Report and Accounts 2018 41 Board of Directors
Sir Michael Bunbury Francesca Barnes Chairman, Independent Non-Executive Director, appointed Independent Non-Executive Director, appointed March 2017. October 2007. Chairman of the Nomination, and Management Member of the Audit and Risk, Nomination, and Management Engagement and Service Provider Committees. Engagement and Service Provider Committees.
Keith B. Corbin Alan C. Hodson Senior Independent Non-Executive Director, appointed Independent Non-Executive Director, appointed April 2013. October 2007. Member of the Audit and Risk, and Member of the Audit and Risk, Nomination, and Management Nomination Committees. Engagement and Service Provider Committees.
Andrew W. Moore Steven Wilderspin Independent Non-Executive Director, appointed October Independent Non-Executive Director, appointed May 2018. 2007. Member of the Audit and Risk, Nomination, and Chairman of the Audit and Risk Committee and member of Management Engagement and Service Provider Committees. the Nomination, and Management Engagement and Service Provider Committees.
Peter G. Wilson D. Brooks Zug Non-Executive Director, appointed May 2013. One of Non-Executive Director, appointed October 2007. Senior two members of HarbourVest’s Executive Management Managing Director Emeritus of HarbourVest Partners, LLC Committee, which acts as the office of the CEO overseeing and a founder of HarbourVest. all aspects of HarbourVest’s business.
42 HVPE Semi-Annual Report and Accounts 2018 Directors’ Strategic Report Report
Semi-Annual Report and Accounts has adequate resources to continue in operational A description of the important events that have occurred existence for at least 12 months from the date of this report. during the first six months of the financial year and their Accordingly, they continue to adopt the going concern impact on the performance of the Company as shown basis in the preparation of this Semi-Annual Report in the financial statements are given in the Chairman’s and Accounts. Governance Report Statement, the Investment Manager’s Report, and the Notes to the Interim Financial Statements, and are Statement of Directors’ Responsibilities incorporated here by reference. in Respect of the Semi-Annual Report and Accounts The principal risks and uncertainties facing the Company The Directors are responsible for preparing the Semi- and how the Company seeks to mitigate them can be Annual Report and Accounts in accordance with found on pages 23 and 24. These remain unchanged from applicable law and regulations. those disclosed in the Company’s 2018 Annual Report. The Directors confirm that to the best of their knowledge: There were no material related party transactions which took place in the first six months of the financial year, other / / the Interim Financial Statements have been prepared than those disclosed in Note 9 to the Interim Financial in accordance with Accounting Standards Codification Statements. There have been no changes to the related (“ASC”) 270 ‘Interim Reporting’; and party transactions described in the 2018 Annual Report / / the Chairman’s Statement and Investment Manager’s that could have a material effect on the financial position Report include a fair review of the information required by: or performance of the Company in the first six months StatementsFinancial of the current financial year. (i) The Interim Financial Statements, which have been prepared in accordance with US GAAP, give a This Semi-Annual Report and Unaudited Condensed true and fair view of the assets, liabilities, financial Interim Consolidated Financial Statements for the six position and profit or loss of the Company and months ended 31 July 2018 (“Semi-Annual Report and its undertakings included in the consolidation Accounts”) has been reviewed by the Company’s auditors as a whole as required by DTR 4.2.4R. in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) (ii) DTR 4.2.7R of the Disclosure Guidance and “Review of Interim Financial Information Performed by the Transparency Rules, being an indication of Independent Auditor of the Entity” issued by the Auditing important events that have occurred during the first Practices Board (“ISRE 2410”). six months of the financial year and their impact on the Interim Financial Statements; and a description Going Concern of the principal risks and uncertainties for the The performance of the investments held by the Company remaining six months of the year; and
over the reporting period are described in Note 4 to the Data Supplementary Interim Financial Statements and the outlook for the (iii) DTR 4.2.8R of the Disclosure Guidance and future is described in the Chairman’s Statement. The Transparency Rules, being related party transactions Company’s financial position, its cash flows, and liquidity that have taken place in the first six months of the position are set out in the Interim Financial Statements financial year and that have materially affected the and the Company’s financial risk management objectives financial position and performance of the entity and policies, details of its financial instruments, and its during that period; and any changes in the related exposures to market risk, credit risk, interest rate risk, and party transactions described in the 2018 Annual currency risk, are set out in Note 2 to the Consolidated Report that could do so. Financial Statements in the Company’s 2018 Annual By order of the Board Report and are unchanged. After making due enquiries, the 17 October 2018 Directors have a reasonable expectation that the Company
HVPE Semi-Annual Report and Accounts 2018 43 Independent Review Report To HarbourVest Global Private Equity Limited
Introduction Our Responsibility We have been engaged by HarbourVest Global Private Our responsibility is to express to the Group a conclusion Equity Limited (the “Company”) and its subsidiaries on the Interim Financial Statements in the Semi-Annual (together the “Group”) to review the Unaudited Condensed Report and Accounts based on our review. Interim Consolidated Financial Statements (“Interim Financial Statements”) in the Semi-Annual Report and Scope of Review Accounts for the six months ended 31 July 2018 which We conducted our review in accordance with ISRE 2410, comprises the Unaudited Condensed Interim Consolidated “Review of Interim Financial Information Performed by Statements of Assets and Liabilities, Unaudited Condensed the Independent Auditor of the Entity” issued by the Interim Consolidated Statements of Operations, Unaudited Auditing Practices Board for use in the United Kingdom. Condensed Interim Consolidated Statements of Changes A review of interim financial information consists of making in Net Assets, Unaudited Condensed Interim Consolidated enquiries, primarily of persons responsible for financial Statements of Cash Flows, Unaudited Condensed Interim and accounting matters, and applying analytical and other Consolidated Schedule of Investments and related notes review procedures. A review is substantially less in scope 1 to 11. We have read the other information contained in than an audit conducted in accordance with International the Semi-Annual Report and Accounts and considered Standards on Auditing (UK) and consequently does not whether it contains any apparent misstatements or enable us to obtain assurance that we would become material inconsistencies with the information in the aware of all significant matters that might be identified in Interim Financial Statements. an audit. Accordingly, we do not express an audit opinion. This report is made solely to the Group in accordance Conclusion with guidance contained in International Standard on Based on our review nothing has come to our attention Review Engagements 2410 (UK and Ireland) (“ISRE 2410”) that causes us to believe that the Interim Financial “Review of Interim Financial Information Performed by the Statements in the Semi-Annual Report and Accounts Independent Auditor of the Entity” issued by the Auditing for the six months ended 31 July 2018 are not prepared, Practices Board. To the fullest extent permitted by law, in all material respects, in accordance with US GAAP we do not accept or assume responsibility to anyone and the DTR of the United Kingdom’s FCA. other than the Company, for our work, for this report, or for the conclusions we have formed. Ernst & Young LLP Directors’ Responsibilities Guernsey, Channel Islands The Semi-Annual Report and Accounts is the responsibility 17 October 2018 of, and has been approved by, the directors. The directors are responsible for preparing the Semi-Annual Report and Accounts in accordance with the Disclosure Guidance and Transparency Rules (“DTR”) of the United Kingdom’s Financial Conduct Authority (“FCA”). As disclosed in note 2, the Interim Financial Statements have been prepared by applying consistent accounting policies used in the ‘Annual Report and Accounts 2018’ of the Group, which are in accordance with US generally accepted accounting principles (“US GAAP”).
44 HVPE Semi-Annual Report and Accounts 2018 Unaudited Condensed Interim Consolidated Statements of Assets and Liabilities At 31 July 2018 and 31 January 2018 Strategic Report
31 July 31 January 2018 2018 In US Dollars (Unaudited) (Audited) ASSETS Investments (Note 4) 1,634,200,060 1,452,215,345 Cash and equivalents 192,480,401 256,961,145 Other assets 6,202,458 6,790,179 Total assets 1,832,882,919 1,715,966,669
LIABILITIES Accounts payable and accrued expenses 1,745,056 1,872,066 Accounts payable to HarbourVest Advisers L.P. (Note 9) 124,436 227,767
Total liabilities 1,869,492 2,099,833 Governance Report
Commitments (Note 5)
NET ASSETS $1,831,013,427 $1,713,866,836
NET ASSETS CONSIST OF Shares, Unlimited shares authorised, 79,862,486 shares issued and outstanding at 31 July 2018 and 31 January 2018, no par value 1,831,013,427 1,713,866,836
NET ASSETS $1,831,013,427 $1,713,866,836
NET ASSET VALUE PER SHARE $22.93 $21.46
The accompanying notes are an integral part of the Unaudited Condensed Interim Consolidated Financial Statements. Financial Statements
The Unaudited Condensed Interim Consolidated Financial Statements on pages 45 to 57 were authorised and approved for issue by the Directors on 17 October 2018 and were signed on their behalf by:
Michael Bunbury Steven Wilderspin Chairman Chairman of Audit Committee Supplementary Data Supplementary
HVPE Semi-Annual Report and Accounts 2018 45 Unaudited Condensed Interim Consolidated Statements of Operations For the Six Month Periods Ended 31 July 2018 and 2017
In US Dollars 31 July 2018 31 July 2017 REALISED AND UNREALISED GAINS (LOSSES) ON INVESTMENTS Net realised gain (loss) on investments 33,228,561 84,820,920 Net change in unrealised appreciation (depreciation) on investments 88,234,256 40,919,047
NET GAIN ON INVESTMENTS 121,462,817 125,739,967
INVESTMENT INCOME Interest from cash and equivalents 1,842,239 882,100
EXPENSES Non-utilisation fees (Note 6) 2,890,972 2,890,972 Investment services (Note 3) 837,315 679,681 Financing expenses 693,651 620,282 Professional fees 491,311 342,755 Management fees (Note 3) 395,813 859,268 Directors’ fees and expenses (Note 9) 308,997 286,580 Marketing expenses 176,846 171,075 Other expenses 363,560 229,121 Total expenses 6,158,465 6,079,734
NET OPERATING EXPENSES (4,316,226) (5,197,634)
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $117,146,591 $120,542,333
The accompanying notes are an integral part of the Unaudited Condensed Interim Consolidated Financial Statements.
46 HVPE Semi-Annual Report and Accounts 2018 Unaudited Condensed Interim Consolidated Statements of Changes in Net Assets For the Six Month Periods Ended 31 July 2018 and 2017 Strategic Report
In US Dollars 31 July 2018 31 July 2017 INCREASE IN NET ASSETS FROM OPERATIONS Net realised gain (loss) on investments 33,228,561 84,820,920 Net change in unrealised appreciation (depreciation) 88,234,256 40,919,047 Net operating expenses (4,316,226) (5,197,634) Net increase in net assets resulting from operations 117,146,591 120,542,333
NET ASSETS AT BEGINNING OF PERIOD 1,713,866,836 1,474,857,821
NET ASSETS AT END OF PERIOD $1,831,013,427 $1,595,400,154
The accompanying notes are an integral part of the Unaudited Condensed Interim Consolidated Financial Statements. Governance Report Financial Statements Supplementary Data Supplementary
HVPE Semi-Annual Report and Accounts 2018 47 Unaudited Condensed Interim Consolidated Statements of Cash Flows For the Six Month Periods Ended 31 July 2018 and 2017
In US Dollars 31 July 2018 31 July 2017 CASH FLOWS FROM OPERATING ACTIVITIES
Net increase in net assets resulting from operations 117,146,591 120,542,333 Adjustments to reconcile net increase in net assets resulting from operations to net cash (used in) provided by operating activities: Net realised (gain) loss on investments (33,228,561) (84,820,920) Net change in unrealised (appreciation) depreciation (88,234,256) (40,919,047) Contributions to private equity investments (202,633,073) (119,080,548) Distributions from private equity investments 142,111,175 148,830,481 Other 357,380 675,054 Net cash (used in) provided by operating activities (64,480,744) 25,227,353
NET (DECREASE) INCREASE IN CASH AND EQUIVALENTS (64,480,744) 25,227,353
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 256,961,145 175,195,209
CASH AND EQUIVALENTS AT END OF PERIOD $192,480,401 $200,422,562
The accompanying notes are an integral part of the Unaudited Condensed Interim Consolidated Financial Statements.
48 HVPE Semi-Annual Report and Accounts 2018 Unaudited Condensed Interim Consolidated Schedule of Investments At 31 July 2018 Strategic Report
In US Dollars Fair Value Unfunded Amount Distributions as a % of US Funds Commitment Invested1 Received Fair Value Net Assets HarbourVest Partners V-Partnership Fund L.P. 2,220,000 46,709,079 45,688,697 1,491,157 0.1 HarbourVest Partners VI-Direct Fund L.P. 1,312,500 46,722,408 38,404,878 4,894,874 0.3 HarbourVest Partners VI-Partnership Fund L.P. 5,175,000 204,623,049 234,825,827 3,905,942 0.2 HarbourVest Partners VI-Buyout Partnership Fund L.P. 450,000 8,633,048 9,355,366 72,007 0.0 Governance Report HarbourVest Partners VII-Venture Partnership Fund L.P.2 2,318,750 135,290,448 176,041,437 31,827,361 1.7 HarbourVest Partners VII-Buyout Partnership Fund L.P.2 3,850,000 74,417,291 96,314,456 7,892,222 0.4 HarbourVest Partners VIII-Cayman Mezzanine and Distressed Debt Fund L.P. 2,000,000 48,201,553 55,038,262 11,325,508 0.6 HarbourVest Partners VIII-Cayman Buyout Fund L.P. 11,250,000 241,508,801 300,639,802 103,739,531 5.7 HarbourVest Partners VIII-Cayman Venture Fund L.P. 1,000,000 49,191,736 56,641,659 32,114,301 1.8 HarbourVest Partners 2007 Cayman Direct Fund L.P. 2,250,000 97,876,849 159,156,127 7,592,070 0.4 HarbourVest Partners IX-Cayman Financial Statements Buyout Fund L.P. 17,572,500 53,708,226 30,911,059 52,259,367 2.9 HarbourVest Partners IX-Cayman Credit Opportunities Fund L.P. 4,062,500 8,486,193 4,318,119 7,935,866 0.4 HarbourVest Partners IX-Cayman Venture Fund L.P. 3,500,000 66,825,714 28,130,688 77,956,308 4.3 HarbourVest Partners 2013 Cayman Direct Fund L.P. 3,228,996 97,131,486 55,360,165 106,543,670 5.8 HarbourVest Partners Cayman Cleantech Fund II L.P. 7,800,000 12,255,952 2,557,526 11,193,017 0.6 HarbourVest Partners X Buyout Feeder Fund L.P. 194,040,000 57,987,552 7,939,113 71,179,425 3.9 HarbourVest Partners X Venture Feeder Fund L.P. 82,510,000 65,543,838 3,651,991 77,677,222 4.2
HarbourVest Partners Mezzanine Data Supplementary Income Fund L.P. 28,405,000 21,816,579 2,670,050 26,710,294 1.5 HarbourVest Partners XI Buyout Feeder Fund L.P. 75,000,000 – – 314,304 0.0 HarbourVest Partners XI Micro Buyout Feeder Fund L.P. 20,000,000 – – 55,210 0.0 HarbourVest Partners XI Venture Feeder Fund L.P. 40,000,000 – – 162,322 0.0 Total US Funds 507,945,246 1,336,929,802 1,307,645,222 636,841,978 34.8
HVPE Semi-Annual Report and Accounts 2018 49 Fair Value Unfunded Amount Distributions as a % of International/Global Funds Commitment Invested1 Received Fair Value Net Assets HarbourVest International Private Equity Partners III-Partnership Fund L.P. 3,450,000 147,728,557 148,439,622 499,072 0.0 HarbourVest International Private Equity Partners IV-Direct Fund L.P. – 61,452,400 53,436,349 3,389,611 0.2 HIPEP V – 2007 Cayman European Buyout Companion Fund L.P.3 1,664,212 63,880,350 73,759,592 12,411,382 0.7 Dover Street VII Cayman L.P.4 4,413,862 95,586,138 121,515,548 16,438,372 0.9 HIPEP VI-Cayman Partnership Fund L.P.5 9,352,800 114,404,950 59,177,370 120,998,560 6.6 HIPEP VI-Cayman Asia Pacific Fund L.P. 3,250,000 46,937,431 27,370,170 46,313,803 2.5 HIPEP VI-Cayman Emerging Markets Fund L.P. 1,350,000 28,709,489 7,122,156 27,316,557 1.5 HVPE Avalon Co-Investment L.P. 1,643,962 85,135,136 124,138,700 685,349 0.0 Dover Street VIII Cayman L.P. 20,700,000 159,424,389 160,487,254 85,601,676 4.7 HVPE Charlotte Co-Investment L.P. – 93,894,011 129,186,159 33,318,113 1.8 HarbourVest Global Annual Private Equity Fund L.P. 26,800,000 73,201,202 18,188,442 89,049,715 4.9 HIPEP VII Partnership Feeder Fund L.P. 53,437,500 71,562,500 8,104,241 83,245,784 4.6 HIPEP VII Asia Pacific Feeder Fund L.P. 9,675,000 20,325,000 2,432,924 23,238,163 1.3 HIPEP VII Emerging Markets Feeder Fund L.P. 9,400,000 10,600,000 1,381,661 10,561,374 0.6 HIPEP VII Europe Feeder Fund L.P.6 37,931,450 34,991,029 4,480,255 41,015,244 2.2 HarbourVest Canada Parallel Growth Fund L.P.7 18,390,047 6,304,078 343,759 6,073,530 0.3 HarbourVest 2015 Global Fund L.P. 36,500,000 63,517,309 9,569,115 72,378,475 4.0 HarbourVest 2016 Global AIF L.P. 51,000,000 49,026,107 7,567,332 54,269,903 3.0 HarbourVest Partners Co-Investment IV AIF L.P. 24,250,005 75,749,995 – 86,052,654 4.7 Dover Street IX Cayman L.P. 62,000,000 38,000,000 8,052,511 42,538,784 2.3 HarbourVest Real Assets III Feeder L.P. 32,000,000 18,000,000 542,545 25,731,775 1.4 HarbourVest 2017 Global AIF L.P. 66,000,000 34,020,959 1,695,205 37,856,318 2.1 HIPEP VIII Partnership AIF L.P. 155,550,000 14,450,000 – 18,920,900 1.0 Secondary Overflow III Tranche B 1,200,766 8,957,071 – 14,411,402 0.8 HarbourVest Asia Pacific VIII AIF Fund L.P. 40,000,000 10,005,566 – 10,656,017 0.6 Secondary Overflow III Tranche C 1,335,088 8,267,887 – 11,534,228 0.6 HarbourVest 2018 Global Feeder Fund L.P. 20,000,000 – – 173,950 0.0 HarbourVest Adelaide Feeder L.P. 150,000,000 – – (6,422) (0.0) HarbourVest Partners Co-Investment V Feeder Fund L.P. 20,000,000 – – – – Secondary Overflow III Tranche F 13,213,541 16,786,459 – 22,683,793 1.2 Total International/Global Funds 874,508,233 1,450,918,013 966,990,910 997,358,082 54.5 TOTAL INVESTMENTS $1,382,453,479 $2,787,847,815 $2,274,636,132 $1,634,200,060 89.3
As of 31 July 2018, the cost basis of partnership investments is $1,385,092,370. The accompanying notes are an integral part of the Unaudited Condensed Interim Consolidated Financial Statements.
1 Includes purchase of limited partner interests for shares and cash at the time of HVPE’s IPO. 2 Includes ownership interests in HarbourVest Partners VII-Cayman Partnership entities. 3 Fund denominated in euros. Commitment amount is €47,450,000. 4 Includes ownership interest in Dover Street VII (AIV 1) Cayman L.P. 5 Fund denominated in euros. Commitment amount is €100,000,000. 6 Fund denominated in euros. Commitment amount is €63,000,000. 7 Fund denominated in Canadian dollars. Commitment amount is C$32,000,000. 50 HVPE Semi-Annual Report and Accounts 2018 Unaudited Condensed Interim Consolidated Schedule of Investments continued At 31 January 2018 (Audited) Strategic Report
In US Dollars Fair Value Unfunded Amount Distributions as a % of US Funds Commitment Invested1 Received Fair Value Net Assets HarbourVest Partners V-Partnership Fund L.P. 2,220,000 46,709,079 45,688,697 1,486,620 0.1 HarbourVest Partners VI-Direct Fund L.P. 1,312,500 46,722,408 38,404,878 4,763,688 0.3 HarbourVest Partners VI-Partnership Fund L.P. 5,175,000 204,623,049 230,782,517 7,436,676 0.4 HarbourVest Partners VI-Buyout Partnership Fund L.P. 450,000 8,633,048 9,355,366 72,499 0.0 Governance Report HarbourVest Partners VII-Venture Partnership Fund L.P.2 2,318,750 135,290,448 168,399,303 36,858,212 2.2 HarbourVest Partners VII-Buyout Partnership Fund L.P.2 3,850,000 74,417,291 94,519,559 9,225,303 0.5 HarbourVest Partners VIII-Cayman Mezzanine and Distressed Debt Fund L.P. 2,000,000 48,201,553 52,087,457 14,239,625 0.8 HarbourVest Partners VIII-Cayman Buyout Fund L.P. 11,250,000 241,508,801 278,892,345 116,360,588 6.8 HarbourVest Partners VIII-Cayman Venture Fund L.P. 1,000,000 49,191,736 51,717,161 34,278,389 2.0 HarbourVest Partners 2007 Cayman Direct Fund L.P. 2,250,000 97,876,849 149,294,781 19,402,726 1.1 HarbourVest Partners IX-Cayman Financial Statements Buyout Fund L.P. 23,252,500 48,028,226 24,228,569 48,802,905 2.8 HarbourVest Partners IX-Cayman Credit Opportunities Fund L.P. 4,375,000 8,173,693 4,044,234 7,604,398 0.4 HarbourVest Partners IX-Cayman Venture Fund L.P. 8,050,000 62,275,714 23,584,475 70,025,738 4.1 HarbourVest Partners 2013 Cayman Direct Fund L.P. 3,228,996 97,131,486 42,738,888 108,043,249 6.3 HarbourVest Partners Cayman Cleantech Fund II L.P. 9,800,000 10,255,952 2,256,907 9,484,672 0.6 HarbourVest Partners X Buyout Feeder Fund L.P. 211,680,000 40,347,552 4,610,570 50,731,905 3.0 HarbourVest Partners X Venture Feeder Fund L.P 109,890,000 38,163,838 2,695,082 45,207,994 2.6
HarbourVest Partners Mezzanine Data Supplementary Income Fund L.P. 30,405,000 19,816,579 1,935,918 22,154,783 1.3 Total US Funds 432,507,746 1,277,367,302 1,225,236,707 606,179,970 35.3
HVPE Semi-Annual Report and Accounts 2018 51 Fair Value Unfunded Amount Distributions as a % of International/Global Funds Commitment Invested1 Received Fair Value Net Assets HarbourVest International Private Equity Partners III-Partnership Fund L.P. 3,450,000 147,728,557 148,029,855 921,376 0.1 HarbourVest International Private Equity Partners IV-Direct Fund L.P. – 61,452,400 52,987,714 2,258,969 0.1 HarbourVest International Private Equity Partners IV-Partnership Fund L.P. 3,125,000 126,647,051 149,535,599 1,056,828 0.1 HIPEP V – 2007 Cayman European Buyout Companion Fund L.P.3 1,767,132 63,880,350 67,335,143 19,052,258 1.1 Dover Street VII Cayman L.P.4 4,413,862 95,586,138 117,193,137 21,592,038 1.3 HIPEP VI-Cayman Partnership Fund L.P.5 9,931,200 114,404,950 49,746,150 124,237,904 7.2 HIPEP VI-Cayman Asia Pacific Fund L.P. 3,250,000 46,937,431 20,129,601 50,739,042 3.0 HIPEP VI-Cayman Emerging Markets Fund L.P. 1,950,000 28,109,489 5,391,742 28,307,075 1.7 HVPE Avalon Co-Investment L.P. 1,643,962 85,135,136 124,138,700 580,755 0.0 Dover Street VIII Cayman L.P. 22,500,000 157,624,389 155,202,765 83,810,264 4.9 HVPE Charlotte Co-Investment L.P. – 93,894,011 122,023,777 37,437,784 2.2 HarbourVest Global Annual Private Equity Fund L.P. 30,300,000 69,701,202 16,086,911 79,636,929 4.6 HIPEP VII Partnership Feeder Fund L.P. 66,562,500 58,437,500 6,039,511 66,919,157 3.9 HIPEP VII Asia Pacific Feeder Fund L.P. 14,175,000 15,825,000 1,142,380 18,738,997 1.1 HIPEP VII Emerging Markets Feeder Fund L.P. 10,700,000 9,300,000 1,091,359 9,367,236 0.5 HIPEP VII Europe Feeder Fund L.P.6 43,992,113 31,319,228 3,621,363 35,531,011 2.1 HarbourVest Canada Parallel Growth Fund L.P.7 24,031,137 1,875,322 276,418 1,753,760 0.1 HarbourVest 2015 Global Fund L.P. 47,500,000 52,517,309 6,624,772 60,923,966 3.6 HarbourVest 2016 Global AIF L.P. 61,000,000 39,026,107 5,098,503 44,884,405 2.6 HarbourVest Partners Co-Investment IV AIF L.P. 47,500,003 52,499,997 – 59,353,813 3.5 Dover Street IX Cayman L.P. 79,000,000 21,000,000 5,645,142 22,989,824 1.3 HarbourVest Real Assets III Feeder L.P. 39,000,000 11,000,000 542,545 14,755,004 0.9 HarbourVest 2017 Global AIF L.P. 71,000,000 29,020,959 – 31,654,125 1.8 HIPEP VIII Partnership AIF Fund L.P. 169,998,300 1,700 – 2,540,171 0.1 Secondary Overflow III Tranche B 1,861,025 8,296,812 – 13,041,908 0.8 HarbourVest Asia Pacific VIII AIF Fund L.P. 45,000,000 5,005,566 – 5,455,541 0.3 Secondary Overflow III Tranche C 1,335,088 8,267,887 – 8,495,235 0.5 Total International/Global Funds 804,986,322 1,434,494,491 1,057,883,087 846,035,375 49.4 TOTAL INVESTMENTS $1,237,494,068 $2,711,861,793 $2,283,119,794 $1,452,215,345 84.7
As of 31 January 2018, the cost basis of partnership investments is $1,291,341,910. The accompanying notes are an integral part of the Unaudited Condensed Interim Consolidated Financial Statements.
1 Includes purchase of limited partner interests for shares and cash at the time of HVPE’s IPO. 2 Includes ownership interests in HarbourVest Partners VII-Cayman Partnership entities. 3 Fund denominated in euros. Commitment amount is €47,450,000. 4 Includes ownership interest in Dover Street VII (AIV 1) Cayman L.P. 5 Fund denominated in euros. Commitment amount is €100,000,000. 6 Fund denominated in euros. Commitment amount is €63,000,000. 7 Fund denominated in Canadian dollars. Commitment amount is C$32,000,000.
52 HVPE Semi-Annual Report and Accounts 2018 Notes to the Unaudited Condensed Interim Consolidated Financial Statements Strategic Report
Note 1 Company Organisation The shareholders must approve any amendment to the and Investment Objective Memorandum and Articles of Incorporation. The approval HarbourVest Global Private Equity Limited (the of 75% of the shares is required in respect of any changes “Company” or “HVPE”) is a closed-end investment that are administrative in nature, any material change from company registered with the Registrar of Companies the investment strategy and/or investment objective of the in Guernsey under The Companies (Guernsey) Law, Company, or any change to the terms of the investment 2008 (as amended). The Company’s registered office management agreement. is BNP Paribas House, St Julian’s Avenue, St Peter Port, There is no minimum statutory capital requirement under Guernsey GY1 1WA. Guernsey law. The Company was incorporated and registered in Investment Manager, Company Guernsey on 18 October 2007. HVPE is designed to offer shareholders long-term capital appreciation by investing Secretary, and Administrator Governance Report The Directors have delegated certain day-to-day in a diversified portfolio of private equity investments. operations of the Company to the Investment Manager The Company invests in private equity through private and the Company Secretary and Administrator, under equity funds and may make co-investments or other advice to the Directors, pursuant to service agreements opportunistic investments. The Company is managed with those parties, within the context of the strategy set by HarbourVest Advisers L.P. (the “Investment Manager”), by the Board. The Investment Manager is responsible for, an affiliate of HarbourVest Partners, LLC (“HarbourVest”), among other things, selecting, acquiring, and disposing a private equity fund-of-funds manager. The Company of the Company’s investments, carrying out financing, is intended to invest in and alongside existing and newly- cash management, and risk management activities, formed HarbourVest funds. HarbourVest is a global providing investment advisory services, including with private equity fund-of-funds manager and typically invests respect to HVPE’s investment policies and procedures, capital in primary partnerships, secondary investments, and arranging for personnel and support staff of the and direct co-investments across vintage years, Investment Manager to assist in the administrative geographies, industries, and strategies.
and executive functions of the Company. Financial Statements Operations of the Company commenced on 6 December 2007, following the initial global offering of the Class A Directors The Directors are responsible for the determination ordinary shares. of the investment policy of the Company on the advice Share Capital of the Investment Manager and have overall responsibility At 31 July 2018, the Company’s shares were listed on for the Company’s activities. This includes the periodic the London Stock Exchange under the ticker “HVPE”. review of the Investment Manager’s compliance with the At 31 July 2018, there were 79,862,486 shares issued Company’s investment policies and procedures and the and outstanding. The shares are entitled to the income approval of certain investments. A majority of directors and increases and decreases in the net asset value must be independent directors and not affiliated with (“NAV”) of the Company, and to any dividends declared HarbourVest or any affiliate of HarbourVest. and paid, and have full voting rights. Dividends may be declared by the Board of Directors and paid from available Note 2 Summary of Significant assets subject to the Directors being satisfied that the Accounting Policies Company will, immediately after payment of the dividend, Accounting policies have been applied consistently satisfy the statutory solvency test prescribed by The as presented in the latest audited accounts. Certain Data Supplementary Companies (Guernsey) Law, 2008 (as amended). comparative amounts have been reclassified to conform to the current period’s presentation. This is the first interim Dividends will be paid to shareholders pro rata to period that has been reviewed by the Company’s auditor their shareholdings. and therefore the comparative financial information for the six month period ended 31 July 2017 was not reviewed by the auditor.
HVPE Semi-Annual Report and Accounts 2018 53 Notes to the Unaudited Condensed Interim Consolidated Financial Statements continued
Note 3 Material Agreements and does not directly charge HVPE management fees or Related Fees performance fees other than with respect to parallel investments. However, as an investor in the HarbourVest Administrative Agreement funds, HVPE is charged the same management fees and The Company retained BNP Paribas (“BNP”) as Company is subject to the same performance allocations as other Secretary and Administrator for the period from 11 May investors in such HarbourVest funds. During the periods 2018 to 31 July 2018. Fees for these services are paid ended 31 July 2018 and 2017, reimbursements paid by as invoiced by BNP and include an administration fee the Company for services provided by the Investment of £50,000 per annum, a secretarial fee of £50,000 Manager were $837,315 and $679,681, respectively. per annum, compliance services fee of £15,000 per annum, ad-hoc service fees, and reimbursable expenses. During the period ended 31 July 2018, HVPE had two The Company had previously retained JTC Group as parallel investments: HarbourVest Acquisition S.à.r.l. Company Secretary and Administrator for the period (via HVPE Avalon Co-Investment L.P.) and HarbourVest from 2 February 2017 to 10 May 2018. Structured Solutions II, L.P. (via HVPE Charlotte Co- Investment L.P.). Management fees paid for the parallel During the period ended 31 July 2018, fees of $43,726 investments made by the Company were consistent were incurred to BNP and fees of $56,655 were incurred with the fees charged by the funds alongside which the to JTC Group and are included as other expenses in the parallel investments were made during the periods ended Unaudited Condensed Interim Consolidated Statements 31 July 2018 and 2017. Management fees included in the of Operations. During the period ended 31 July 2017, Unaudited Condensed Interim Consolidated Statements fees of $64,337 were incurred to JTC and included as of Operations are shown in the table below: other expenses in the Unaudited Condensed Interim Consolidated Statements of Operations. 2018 2017 HVPE Avalon Registrar Co-Investment L.P. – 466,921 The Company has retained Link Asset Services HVPE Charlotte (formerly “Capita”) as share registrar. Fees for this service Co-Investment L.P. 395,813 392,347 include a base fee of £22,262, plus other miscellaneous Total Management Fees $395,813 $859,268 expenses. During the periods ended 31 July 2018 and 2017, registrar fees of $26,877 and $34,408, respectively, The HVPE Avalon Co-Investment L.P. management were incurred and are included as other expenses in the fee was terminated on 30 September 2017. For the Unaudited Condensed Interim Consolidated Statements period ended 31 July 2018, management fees on the of Operations. HVPE Charlotte Co-Investment L.P. investment were Independent Auditor’s Fees calculated based on a weighted average effective annual For the period ended 31 July 2018, $67,700 (31 July 2017: rate of 0.95% on capital originally committed (0.91% $67,700) has been accrued for auditor’s fees and is included on committed capital net of management fee offsets) in professional fees in the Unaudited Condensed Interim to the parallel investment. Consolidated Statements of Operations. Non-audit fees Note 4 Investments due to the auditor of $73,600 (31 July 2017: nil) have been In accordance with the authoritative guidance on fair accrued during the period, in relation to the semi-annual value measurements and disclosures under US generally review for the six months ended 31 July 2018, and are accepted accounting principles (“US GAAP”), the included in the Unaudited Condensed Interim Consolidated Company discloses the fair value of its investments Statements of Operations. Ernst & Young in the US was in a hierarchy that prioritises the inputs to valuation paid non-audit fees of nil (31 July 2017: $53,725) by the techniques used to measure the fair value. The hierarchy Investment Manager, in relation to tax services provided. gives the highest priority to unadjusted quoted prices in Investment Management Agreement active markets for identical assets or liabilities (Level 1 The Company has retained HarbourVest Advisers L.P. measurements) and the lowest priority to unobservable as the Investment Manager. The Investment Manager is inputs (Level 3 measurements). The guidance establishes reimbursed for costs and expenses incurred on behalf three levels of the fair value hierarchy as follows: of the Company in connection with the management and operation of the Company. The Investment Manager
54 HVPE Semi-Annual Report and Accounts 2018 Strategic Report
Note 4 Investments continued Level 1 – Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly, including inputs in markets that are not considered to be active.
Level 3 – Inputs that are unobservable. Generally, the majority of the Company’s investments are valued utilising unobservable inputs, and are therefore classified within Level 3.
Level 3 investments include limited partnership interests in HarbourVest funds which report under US GAAP. Inputs used to determine fair value are primarily based on the most recently reported NAV provided by the underlying investment manager as a practical expedient under Accounting Standards Codification (“ASC”) 820. The fair value is then adjusted for known investment operating expenses and subsequent transactions, including investments, realisations, changes Governance Report in foreign currency exchange rates, and changes in value of private and public securities.
Income derived from investments in HarbourVest funds is recorded using the equity pick-up method. Under the equity pick‑up-method of accounting, the Company’s proportionate share of the net income (loss) and net realised gains (losses), as reported by the HarbourVest funds, is reflected in the Unaudited Condensed Interim Consolidated Statements of Operations as net realised gain (loss) on investments. The Company’s proportionate share of the aggregate increase or decrease in unrealised appreciation (depreciation), as reported by the HarbourVest funds, is reflected in the Unaudited Condensed Interim 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.
The following table summarises the Company’s investments that were accounted for at fair value by level within the fair value hierarchy:
Level 1 Level 2 Level 3 Total Financial Statements Balance at 31 January 2017 $– $– $1,295,753,465 $1,295,753,465 Contributions to investments 312,684,514 312,684,514 Net realised gain (loss) on investments 157,395,016 157,395,016 Net change in unrealised appreciation (depreciation) on investments 91,527,458 91,527,458 Distributions received from investments (405,145,108) (405,145,108) Balance at 31 January 2018 $– $– $1,452,215,345 $1,452,215,345 Contributions to investments 202,633,073 202,633,073 Net realised gain (loss) on investments 33,228,561 33,228,561 Net change in unrealised appreciation (depreciation) on investments 88,234,256 88,234,256 Distributions received from investments (142,111,175) (142,111,175) Balance at 31 July 2018 $– $– $1,634,200,060 $1,634,200,060 Net change in unrealised gain (loss) on
investments still held at 31 July 2018 $46,011,229 Data Supplementary
The Company recognises transfers at the current value at the transfer date. There were no transfers during the period ended 31 July 2018. Investments include limited partnership interests in private equity partnerships, all of which carry restrictions on redemption. The investments are non-redeemable and the Investment Manager estimates an average remaining life of 10 years with a range of 1 to 35 years remaining.
As of 31 July 2018, the Company had invested $2,971,219,920, or 68.2% of the Company’s committed capital in investments, and had received $2,477,779,794 in cumulative distributions (including dividends from the formerly held investment HarbourVest Senior Loans Europe).
There were no investment transactions during the period ended 31 July 2018 in which an investment was both acquired and disposed of.
HVPE Semi-Annual Report and Accounts 2018 55 Notes to the Unaudited Condensed Interim Consolidated Financial Statements continued
Note 5 Commitments As of 31 July 2018, the Company has unfunded investment commitments to other limited partnerships of $1,382,453,479 which are payable upon notice by the partnerships to which the commitments have been made. Unfunded investment commitments of $1,315,114,970 are denominated in US dollars, $48,948,462 are denominated in euros, and $18,390,047 are denominated in Canadian dollars. As of 31 January 2018, the Company had unfunded investment commitments to other limited partnerships of $1,237,494,068. Unfunded investment commitments of $1,157,772,486 were denominated in US dollars, $55,690,445 were denominated in euros, and $24,031,137 were denominated in Canadian dollars. Note 6 Debt Facility On 4 December 2007, the Company entered into an agreement with Lloyds Bank plc regarding a multi-currency revolving credit facility (the “Facility”) for an aggregate amount up to $500 million. As of 28 September 2015, the Facility was amended to include Credit Suisse as an additional lender to the Company’s Facility agreement with Lloyds Bank plc. On 1 December 2017, the Facility was amended to extend to December 2022 and to adjust lender commitments. Lloyds Bank plc’s commitment was amended to $250 million, and Credit Suisse’s commitment was amended to $250 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 covenants and diversity tests applied to the Investment Portfolio of the Company. At 31 July 2018 and 31 January 2018, there was no debt outstanding against the Facility. Included in other assets at 31 July 2018 are deferred financing costs of $5,689,682 related to refinancing the Facility. The deferred financing costs are amortised over the life of the Facility. The Company is required to pay a non-utilisation fee calculated as 115 basis points per annum. For the periods ended 31 July 2018 and 2017, $2,890,972 and $2,890,972, respectively, in non-utilisation fees have been incurred. Note 7 Financial Highlights For the Six Month Periods Ended 31 July 2018 and 2017 2018 2017 Shares PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period 21.46 18.47
Net realised and unrealised gains 1.52 1.57 Net operating expenses (0.05) (0.06) Total from investment operations 1.47 1.51
Net asset value, end of period $22.93 $19.98 Market value, end of period $17.061 $16.78 Total return at net asset value 6.8% 8.2% Total return at market value (4.0%) 11.6%
RATIOS TO AVERAGE NET ASSETS Expenses2 0.35% 0.40% Net operating expenses (0.24%) (0.34%) PORTFOLIO TURNOVER3 0.0% 0.0%
1 Represents share price of £13.00 converted. 2 Does not include operating expenses of underlying investments. 3 The turnover ratio has been calculated as the number of transactions divided by the average net assets.
56 HVPE Semi-Annual Report and Accounts 2018 Strategic Report
Note 8 Publication and Calculation Directors and Officers Indemnifications of Net Asset Value The Company’s Articles of Incorporation provide The NAV of the Company is equal to the value of its that the Directors, managers or other officers of the total assets less its total liabilities. The NAV per share is Company shall be fully indemnified by the Company calculated by dividing the NAV by the number of shares from and against all actions, expenses, and liabilities in issue on that day. The Company publishes the NAV which they may incur by reason of any contract entered per share of the shares as calculated, monthly in arrears, into or any act in or about the execution of their offices, at each month end, generally within 20 days. except such (if any) as they shall incur by or through their own negligence, default, breach of duty, Note 9 Related Party Transactions or breach of trust, respectively. Other amounts payable to HarbourVest Advisers L.P. of $124,436 represent expenses of the Company incurred Note 11 Subsequent Events in the ordinary course of business, which have been paid In the preparation of the financial statements, the Governance Report by and are reimbursable to HarbourVest Advisers L.P. Company has evaluated the effects, if any, of events at 31 July 2018. occurring between 31 July 2018 and 17 October 2018, the date that the financial statements were issued. Board-related expenses, primarily compensation, of $308,997 and $286,580 were incurred during the On 24 August 2018, the Company committed $15 million periods ended 31 July 2018 and 2017, respectively. to Secondary Overflow Fund III L.P. (Tranche G). Note 10 Indemnifications On 28 September 2018, the Company committed $50 million to HarbourVest 2018 Global Fund. General Indemnifications In the normal course of business, the Company may enter On 17 October 2018, the Company committed $30 million into contracts that contain a variety of representations and to HarbourVest Partners Co-Investment Fund V. warranties and which provide for general indemnifications. There were no other events or material transactions The Company’s maximum exposure under these subsequent to 31 July 2018 that required recognition
arrangements is unknown, as this would involve future Financial Statements or disclosure in the financial statements. 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 Data Supplementary these general business indemnifications to be remote.
HVPE Semi-Annual Report and Accounts 2018 57 Supplementary Data HVPE’s HarbourVest Fund Investments at 31 July 2018
HVPE’s HarbourVest Fund investments and secondary co-investments are profiled below. Financial information at 31 July 2018 for each fund is provided in the Interim Financial Statements on pages 49 and 50.
V = Venture, B = Buyout, O = Other
P = Primary, S = Secondary, D = Direct Co-investment
HarbourVest Fund Phase Vintage Year Stage Geography Strategy Investment Phase HarbourVest Partners Co-Investment V Investment 2018 V, B, O Global D HarbourVest Real Assets Fund IV Investment 2018 B, O US, EUR, RoW S, D HarbourVest 2018 Global Fund Investment 2018 V, B, O Global P, S, D HarbourVest Partners XI Venture Investment 2018 V US P, S, D HarbourVest Partners XI Micro Buyout Investment 2018 B US P, S, D HarbourVest Partners XI Buyout Investment 2018 B US P, S, D HIPEP VIII Asia Pacific Fund Investment 2017 V, B AP P, S, D HarbourVest 2017 Global Fund Investment 2017 V, B, O Global P, S, D HIPEP VIII Partnership Fund Investment 2017 V, B EUR, AP, RoW P, S, D Secondary Overflow Fund III Investment 2017 V, B, O Global S HarbourVest Partners Co-Investment IV Investment 2016 V, B Global D Dover Street IX Investment 2016 V, B Global S HarbourVest Real Assets III Investment 2016 O Global S HarbourVest 2016 Global Fund Investment 2016 V, B, O Global P, S, D HarbourVest 2015 Global Fund Investment 2015 V, B, O Global P, S, D HarbourVest Canada Growth Fund Investment 2015 V US, CAN P, D HarbourVest Mezzanine Income Fund Investment 2015 O US D HarbourVest X Buyout Investment 2015 B US P, S, D HarbourVest X Venture Investment 2015 V US P, S, D HarbourVest Global Annual Investment 2014 V, B, O Global P, S, D Private Equity Fund HIPEP VII Asia Pacific Fund Investment 2014 V, B AP P, S, D HIPEP VII Emerging Markets Fund Investment 2014 V, B RoW P, S, D HIPEP VII Europe Fund Investment 2014 V, B EUR P, S, D HIPEP VII Partnership Fund Investment 2014 V, B EUR, AP, RoW P, S, D
58 HVPE Semi-Annual Report and Accounts 2018 Strategic Report
HarbourVest Fund Phase Vintage Year Stage Geography Strategy Growth Phase HarbourVest 2013 Direct Fund Growth 2013 V, B Global D Dover Street VIII Growth 2012 V, B Global S HarbourVest Cleantech Fund II Growth 2012 V Global P, S, D HarbourVest Partners IX Buyout Fund Growth 2011 B US P, S, D HarbourVest Partners IX Credit Growth 2011 O US P, S, D Opportunities Fund HarbourVest Partners IX Venture Fund Growth 2011 V US P, S, D Mature Phase Governance Report Conversus Capital Mature 20121 V, B, O Global S Absolute Private Equity Mature 20111 V, B, O Global S HIPEP VI Asia Pacific Fund Mature 2008 V, B AP P HIPEP VI Emerging Markets Fund Mature 2008 V, B RoW P HIPEP VI Partnership Fund Mature 2008 V, B EUR, AP, RoW P Dover Street VII Mature 2007 V, B Global S HarbourVest Partners 2007 Direct Fund Mature 2007 B Global D HIPEP V 2007 European Buyout Fund Mature 2007 B EUR P HarbourVest VIII Buyout Fund Mature 2006 B US P, S, D HarbourVest VIII Mezzanine and Mature 2006 O US P, S, D Distressed Debt Fund HarbourVest VIII Venture Fund Mature 2006 V US P, S, D Financial StatementsFinancial HarbourVest VII Buyout Fund Mature 2003 B US P, S HarbourVest VII Venture Fund Mature 2003 V US P, S HIPEP IV Direct Fund Mature 2001 V, B EUR, AP, RoW D HIPEP IV Partnership Fund Mature 2001 V, B EUR, AP, RoW P, S HarbourVest VI Buyout Fund Mature 1999 B US P, S HarbourVest VI Direct Fund Mature 1999 V, B US D HarbourVest VI Partnership Fund Mature 1999 V, B US P, S HIPEP III Partnership Fund Mature 1998 V, B EUR, AP, RoW P, S HarbourVest V Partnership Fund Mature 1996 V, B US P, S
1 Year of secondary purchase.
Vintage year is year of initial capital call. HarbourVest Fund-of-Funds typically call capital over a multi-year period. Supplementary Data Supplementary
HVPE Semi-Annual Report and Accounts 2018 59 Largest Underlying Companies at 31 July 2018
/ / No single portfolio company represented more than 1.3% of the Investment Portfolio.
/ / The five largest companies represented 5.9% of the Investment Portfolio.
/ / The 25 largest companies represented 18.0% of the Investment Portfolio.
The 25 largest portfolio company investments based on Investment Portfolio value are listed by percentage of investment value. Some companies below are held at least in part in HarbourVest direct funds (shown in bold). In most cases, HarbourVest has access to detailed financial and operating information on these companies, and in some cases, HarbourVest representatives sit on the companies’ Board of Directors.
Amount of Investment % of Value at Investment 31 July 2018 Value at Company Strategy (m) 31 July 2018 Location Status Description Undisclosed Buyout $21.3 1.30% Netherlands Private Undisclosed Preston Hollow Buyout $21.1 1.29% US Private Specialty finance platform Capital Press Ganey Buyout $19.8 1.21% US Private Patient satisfaction surveys Associates Acrisure Buyout $18.8 1.15% US Private Property and casualty insurance broker Mater Private Buyout $16.3 1.00% Ireland Private Private hospital group Healthcare SolarWinds Buyout $13.5 0.83% US Private IT management software Valeo Foods Buyout $12.9 0.79% Ireland Private Producer of branded food and beverage products Rodenstock Buyout $12.3 0.75% Germany Private Opthalmic device manufacturer H-Line Shipping Buyout $11.6 0.71% South Korea Private Marine bulk shipping Envirotainer Buyout $11.1 0.68% Sweden Private Air cargo container manufacturer International for pharmaceuticals Ministry Brands Venture $11.1 0.68% US Private Software provider for faith- based organisations Appriss Venture $10.9 0.67% US Private Data and analytics solutions provider Device Technologies Buyout $10.8 0.66% Australia Private Medical equipment distributor Australia Infinitas Learning Buyout $10.3 0.63% Netherlands Private Online education provider Staples Buyout $9.9 0.61% US Private Office supply retailer Ssangyong Cement Buyout $9.9 0.61% South Korea Public Integrated cement Industrial manufacturer and distributor Madrigal Venture $9.6 0.59% US Public Drug manufacturer Pharmaceuticals Multiasistencia Buyout $8.6 0.53% Spain Private Business process outsourcing services Allfunds Bank Buyout $8.1 0.50% Spain Private Mutual fund distribution platform
60 HVPE Semi-Annual Report and Accounts 2018 Strategic Report
Amount of Investment % of Value at Investment 31 July 2018 Value at Company Strategy (m) 31 July 2018 Location Status Description Lytx Buyout $7.9 0.49% US Private Vehicle risk management products Albany Molecular Buyout $7.9 0.48% US Private Outsourced pharmaceutical Research contract manufacturer Hub International Buyout $7.8 0.48% US Private Commercial insurance brokerage
Five Star Food Other $7.8 0.48% US Private Vending food and beverage Governance Report Service provider San Miguel Buyout $7.4 0.45% Peru Private PET bottles and preforms Industrias Verisure Holdings Buyout $7.3 0.45% Sweden Private Security solutions provider TOTAL $293.9 18.0% Financial StatementsFinancial Supplementary Data Supplementary
HVPE Semi-Annual Report and Accounts 2018 61 Largest 25 US Managers at 31 July 2018
/ / No external manager represented more than 1.9% of the Investment Portfolio.
/ / As the Investment Manager of the HarbourVest direct funds, HarbourVest Partners, LLC is the largest manager held in HVPE, although not listed here.
/ / The five largest managers represented 6.9% of the Investment Portfolio.
/ / The 25 largest managers represented 20.0% of the Investment Portfolio.
Amount of Investment % of Value at Investment 31 July 2018 Value at Manager Strategy (m) 31 July 2018 Thoma Bravo Primary $30.6 1.87% Insight Venture Management Primary $26.4 1.61% Hellman & Friedman Primary $20.2 1.23% The Blackstone Group Primary $18.8 1.15% Battery Ventures Primary $16.2 0.99% Lightspeed Venture Partners Primary $15.9 0.97% Welsh, Carson, Anderson & Stowe Secondary $15.3 0.94% Redpoint Ventures Primary $14.4 0.88% Accel Partners Primary $14.2 0.87% Spark Capital Primary $13.0 0.79% Bain Capital Ventures Primary $12.6 0.77% TPG Capital Secondary $11.3 0.69% Vista Equity Partners Primary $10.8 0.66% Berkshire Partners Primary $10.1 0.62% Andreessen Horowitz Primary $9.5 0.58% Silver Lake Management Primary $9.3 0.57% Sageview Capital Partners Secondary $9.2 0.57% Harvest Partners Primary $8.8 0.54% Bay City Capital Secondary $8.8 0.54% Kleiner Perkins Caufield & Byers Primary $8.6 0.53% Lime Rock Management Secondary $8.6 0.52% Carlyle US Buyout Secondary $8.5 0.52% Leonard Green & Partners Primary $8.4 0.51% Lee Equity Partners Secondary $8.3 0.51% GTCR Primary $8.2 0.50% TOTAL $326.2 20.0%
62 HVPE Semi-Annual Report and Accounts 2018 Largest 25 European Managers at 31 July 2018 Strategic Report
/ / No external manager represented more than 1.8% of the Investment Portfolio.
/ / As the Investment Manager of the HarbourVest direct funds, HarbourVest Partners, LLC is the largest manager held in HVPE, although not listed here.
/ / The five largest managers represented 6.2% of the Investment Portfolio.
/ / The 25 largest managers represented 14.1% of the Investment Portfolio.
Amount of Investment % of Value at Investment 31 July 2018 Value at Manager Strategy (m) 31 July 2018 Governance Report CapVest Equity Partners Secondary $28.2 1.73% Index Ventures Primary $25.0 1.53% Compass Partners Secondary $21.8 1.33% Portobello Capital Secondary $14.2 0.87% Advent International Corporation Primary $12.2 0.75% EQT Managers Primary $10.9 0.67% CVC Capital Partners Primary $10.0 0.61% Inflexion Managers Primary $8.9 0.54% Apax Partners Secondary $8.5 0.52% AAC Capital Partners Secondary $8.2 0.50% Permira Advisers Primary $8.0 0.49% Waterland Private Equity Investments Primary $7.1 0.44% Financial StatementsFinancial Holtzbrinck Ventures Primary $6.9 0.43% Investindustrial Primary $6.7 0.41% HitecVision Primary $6.4 0.39% TDR Capital Secondary $5.4 0.33% Bridgepoint Development Capital Primary $5.2 0.32% ECI Partners Primary $5.0 0.31% IK Investment Partners Primary $5.0 0.31% Chequers Partenaires Secondary $4.7 0.29% Macquarie Capital Funds Secondary $4.7 0.29% Innova Capital Secondary $4.4 0.27% CGS Management & Co Primary $4.2 0.26%
PAI Partners Secondary $4.1 0.25% Data Supplementary Christofferson Robb & Company Secondary $4.0 0.24% TOTAL $229.9 14.1%
HVPE Semi-Annual Report and Accounts 2018 63 Largest Asia Pacific/Rest of World Managers at 31 July 2018
/ / No external manager represented more than 2.7% of the Investment Portfolio.
/ / As the Investment Manager of the HarbourVest direct funds, HarbourVest Partners, LLC is the largest manager held in HVPE, although not listed here.
/ / The five largest managers represented 6.4% of the Investment Portfolio.
/ / The 25 largest managers represented 13.7% of the Investment Portfolio.
Amount of Investment % of Value at Investment 31 July 2018 Value at Manager Strategy (m) 31 July 2018 IDG Capital Partners (IDG-Accel China Capital Associates) Secondary $43.0 2.63% Pemba Capital Partners Secondary $16.7 1.02% TPG Asia Secondary $16.1 0.98% DCM Primary $15.8 0.96% Trustbridge Partners Primary $13.6 0.83% Bain Capital Partners Asia Primary $10.7 0.65% Legend Capital Primary $10.6 0.65% KKR Associates Asia Primary $9.3 0.57% Boyu Capital Primary $8.9 0.55% Advent International (Argentina) Primary $8.6 0.53% Helios Investment Partners Primary $8.2 0.50% Hahn & Company Primary $6.0 0.37% FIMI Opportunity Funds Primary $5.8 0.35% IDG Ventures Vietnam Secondary $5.3 0.32% Mid Europa Partners Secondary $5.1 0.31% Clearvue Partners Primary $4.8 0.29% Baring Vostok Capital Partners Primary $4.7 0.29% IDG Ventures India Secondary $4.6 0.28% CITIC Capital Partners Primary $4.6 0.28% Everstone Capital Management Primary $4.4 0.27% The Abraaj Group Secondary $4.1 0.25% Georgian Partners Primary $3.9 0.24% NewQuest Capital Advisors (HK) Secondary $3.5 0.21% KV Asia Capital Primary $3.4 0.21% Actera Partners Primary $3.2 0.20% TOTAL $224.6 13.7%
64 HVPE Semi-Annual Report and Accounts 2018 Largest 25 Buyout Managers at 31 July 2018 Strategic Report
/ / No external manager represented more than 1.9% of the Investment Portfolio.
/ / As the Investment Manager of the HarbourVest direct funds, HarbourVest Partners, LLC is the largest manager held in HVPE, although not listed here.
/ / The five largest managers represented 7.3% of the Investment Portfolio.
/ / The 25 largest managers represented 20.5% of the Investment Portfolio.
Amount of Investment % of Value at Investment 31 July 2018 Value at Manager Strategy (m) 31 July 2018 Governance Report Thoma Bravo Primary $30.5 1.87% CapVest Equity Partners Secondary $28.2 1.73% Compass Partners Secondary $21.8 1.33% Hellman & Friedman Primary $20.2 1.23% The Blackstone Group Primary $18.8 1.15% Pemba Capital Partners Secondary $16.7 1.02% TPG Asia Secondary $16.1 0.98% Welsh, Carson, Anderson & Stowe Secondary $15.3 0.94% Portobello Capital Secondary $14.2 0.87% Advent International Corporation Primary $12.2 0.75% TPG Capital Secondary $11.3 0.69% EQT Managers Primary $10.9 0.67% Financial StatementsFinancial Vista Equity Partners Primary $10.8 0.66% Bain Capital Partners Asia Primary $10.7 0.65% Berkshire Partners Primary $10.1 0.62% CVC Capital Partners Primary $10.0 0.61% Silver Lake Management Primary $9.3 0.57% Inflexion Managers Primary $8.9 0.54% Advent International (Argentina) Primary $8.6 0.53% Apax Partners Secondary $8.5 0.52% Carlyle U.S. Buyout Secondary $8.5 0.52% Leonard Green & Partners Primary $8.4 0.51% Lee Equity Partners Secondary $8.3 0.51%
Harvest Partners Primary $8.2 0.50% Data Supplementary GTCR Primary $8.2 0.50% TOTAL $334.7 20.5%
HVPE Semi-Annual Report and Accounts 2018 65 Largest 25 Venture Capital/Growth Equity Managers at 31 July 2018
/ / No external manager represented more than 2.7% of the Investment Portfolio.
/ / As the Investment Manager of the HarbourVest direct funds, HarbourVest Partners, LLC is the largest manager held in HVPE, although not listed here.
/ / The five largest managers represented 8.0% of the Investment Portfolio.
/ / The 25 largest managers represented 19.6% of the Investment Portfolio.
Amount of Investment % of Value at Investment 31 July 2018 Value at Manager Strategy (m) 31 July 2018 IDG Capital Partners (IDG-Accel China Capital Associates) Secondary $43.0 2.63% Insight Venture Management Primary $26.4 1.61% Index Ventures Primary $26.4 1.61% DCM Primary $19.1 1.17% Battery Ventures Primary $16.2 0.99% Lightspeed Venture Partners Primary $16.1 0.99% Accel Partners Primary $15.1 0.93% Redpoint Ventures Primary $14.4 0.88% Trustbridge Partners Primary $13.6 0.83% Spark Capital Primary $13.0 0.79% Bain Capital Ventures Primary $12.6 0.77% Legend Capital Primary $10.6 0.65% Andreessen Horowitz Primary $9.5 0.58% Sageview Capital Partners Secondary $9.2 0.57% Boyu Capital Primary $8.9 0.55% Bay City Capital Secondary $8.8 0.54% Kleiner Perkins Caufield & Byers Primary $8.6 0.53% Oak Investment Partners Primary $7.1 0.43% Holtzbrinck Ventures Primary $6.9 0.43% Information Venture Partners Secondary $6.6 0.40% Silversmith Management Primary $6.2 0.38% Granite Growth Health Partners Secondary $6.1 0.37% Summit Partners Primary $5.4 0.33% IDG Ventures Vietnam Secondary $5.3 0.32% Canaan Partners Primary $4.8 0.29% TOTAL $320.0 19.6%
66 HVPE Semi-Annual Report and Accounts 2018 Mezzanine/Real Assets/Other Managers at 31 July 2018 Strategic Report
/ / No external manager represented more than 0.5% of the Investment Portfolio.
/ / As the Investment Manager of the HarbourVest direct funds, HarbourVest Partners, LLC is the largest manager held in HVPE, although not listed here.
/ / The five largest managers represented 2.2% of the Investment Portfolio.
/ / The 12 largest managers represented 4.3% of the Investment Portfolio.
Amount of Investment % of Value at Investment 31 July 2018 Value at Manager Strategy (m) 31 July 2018 Governance Report Lime Rock Management Secondary $8.2 0.50% Gridiron Energy Management Secondary $8.0 0.49% 1901 Partners Management Secondary $7.4 0.45% Black Diamond Capital Management Secondary $6.5 0.40% Crestline Management Secondary $6.2 0.38% Highland Capital Management Secondary $6.1 0.38% Oaktree Capital Management Secondary $5.7 0.35% CIFC Asset Management Secondary $5.2 0.32% Macquarie Capital Funds Secondary $4.7 0.29% Arroyo Energy Group Secondary $4.2 0.26% Lone Star Funds Secondary $4.1 0.25% Christofferson Robb & Company Secondary $4.0 0.24% Financial StatementsFinancial TOTAL $70.3 4.3% Supplementary Data Supplementary
HVPE Semi-Annual Report and Accounts 2018 67 Glossary of Private Equity Terms
Term Definition Allocated Investments Commitments made to HarbourVest funds that have been allocated to, and can be called by, an underlying General Partner Bridge Financing An interim financing option used by private equity funds to delay or aggregate capital calls. A given investment is financed using a bridging loan, typically for a period of six to twelve months, with a capital call required only once the bridging loan is due to be repaid Buyout An investment strategy that involves acquiring controlling stakes in mature companies and generating returns by selling them at a profit after operational efficiencies, expansion and/or financial improvements Called Capital Total amount of capital called for use by the General Partner Capital Call or Drawdown A request made by the General Partner for a portion of the capital committed by a Limited Partner Carried Interest or Carry or The share of profits due to a General Partner once the Limited Partner’s commitment to a Performance Fee fund plus a defined hurdle rate is reached Co-investment A minority investment, made directly into an operating company, alongside a fund or other private equity investor Commingled Fund A fund structure that pools investments from multiple investors into a single fund Commitment Period or The period of time within which a fund can make investments as established in the Limited Investment Period Partnership Agreement Committed Capital or The capital a Limited Partner has agreed to commit to a fund across its lifespan Commitment Contributed Capital or The total amount of capital paid into a fund at a specific point in time Paid-In Capital Cost (Current, Realised, Total) Current: The cost of current underlying companies Realised: The cost of underlying companies from which the fund has fully or partially exited Total: The cost of underlying companies, both current and fully or partially exited Discount An investment company trades at a discount if the share price is lower than the net asset value per share. The discount is shown as a percentage of the net asset value Distributed or Distributions The total amount of cash and stock that has been returned to a fund and/or Limited Partners Distributed to Paid-In Capital Total distributions to a fund and/or Limited Partners divided by paid-in capital (DPI) or Realisation Multiple Dry Powder Capital that has been raised, but not yet invested Due Diligence The process undertaken to confirm the accuracy of all data relating to a fund, company, or product prior to an investment. This can also refer to the investigation of a buyer by a seller Earnings Before Interest, A measure of earnings before interest and taxes that exclude non-cash expenses. Valuation Taxes, Depreciation and methods are commonly based on a comparison of private and public companies’ value as a Amortisation (“EBITDA”) multiple of EBITDA Embedded Leverage Exposure to leverage in underlying private equity funds. In the context of HVPE, this refers to the Company’s look-through exposure to borrowings at the HarbourVest fund level Funded Capital The amount of contributed capital that has been invested by the fund, or capital invested by a fund in a third-party investment Fund-of-Funds An investment strategy of holding a portfolio of third-party private equity funds and/or other investments rather than investing directly in companies General Partner (“GP”) The manager of a fund
68 HVPE Semi-Annual Report and Accounts 2018 Strategic Report
Term Definition Growth Capital or Investment in newly-mature companies looking to raise funds, often to expand or restructure Growth Equity operations, enter new markets, or finance an acquisition Initial Public Offering (“IPO”) The first offering of stock by a company to the public on a regulated exchange Internal Rate of Return (IRR) A measure of the absolute annual rate of return of an investment that takes both the timing (Gross, Net, Realised Gross) and magnitude of cash flows into account, calculated using contributed capital, distributions, and the value of unrealised investments Gross: Without fees and carried interest taken into account Net: With fees and carried interest deducted Realised Gross: The return from underlying holdings from which the fund has already fully or partially exited, without fees and carried interest taken into account
J-Curve A term given to the typical shape adopted by the annual returns from a private equity fund Governance Report during its lifecycle when graphed. Due to the investment process, capital calls and fees precede value creation and potential distributions Limited Partner (“LP”) The investors in a Limited Partnership – the typical structure of a private equity fund. Limited Partners are not involved in the day-to-day management of a fund Limited Partnership The document which constitutes and defines a Limited Partnership, the legal structure Agreement (“LPA”) typically adopted by private equity funds Management Fee The fee paid to a fund, typically a percentage of the Limited Partner’s commitment Mergers and Acquisitions The consolidation of companies, for example, where the ownership of a company in the (“M&A”) underlying portfolio is transferred to, or combined with, another entity Mezzanine Finance/Debt An investment strategy that typically includes junior debt and senior equity, often with the option to convert debt into equity in the event of default Net Asset Value (“NAV”) The market value of all current/unrealised investments
or Current Value or StatementsFinancial Residual Value Preferred Return or A minimum annual rate of return, determined in the Limited Partnership Agreement, that a Hurdle Rate fund must achieve before the General Partner may receive carried interest Primary Fund or Primaries A private equity fund that invests directly in privately-held companies rather than in other investment vehicles Private Markets Investments made in non-public companies through privately negotiated transactions Real Assets An investment strategy that invests in physical assets that derive value and generate returns from their substance and properties, including infrastructure, real estate, agricultural land, oil and gas, and other commodities Realised Investment or Exit An underlying holding from which the General Partner has exited Realised Value or Proceeds The returns generated from the liquidation or realisation of underlying holdings Realised Value to Total Cost The returns generated from the liquidation or realisation of underlying holdings divided by the
(RV/TC) Multiple cost of all holdings, both remaining and exited Data Supplementary Recapitalisation A refinancing strategy used by private equity funds, typically involving an increase in the level of borrowing to enable an early cash distribution to investors Secondary Fund A fund that purchases pre-existing interests in private equity funds or portfolios of or Secondaries operating companies Special Situations An opportunistic investment strategy that looks to take advantage of market dislocations and unique situations to invest in private companies at discounts to their “fair” market value Total Value The fund’s total market value plus any capital distributions already made
HVPE Semi-Annual Report and Accounts 2018 69 Glossary of Private Equity Terms continued
Term Definition Total Value/Paid-In (TVPI) The fund’s total market value plus any capital distributions already made divided by the or Total Value/ Contributed amount of capital already paid into the fund by investors Multiple Total Value/Total Cost (TV/TC) The total value divided by the total cost to date Multiple Unallocated Investments Commitments made to HarbourVest funds that have not been allocated to, and cannot be called by, an underlying General Partner Unfunded The portion of investors’ capital commitment that has yet to be “drawn down” or called by a fund manager Uplift Increase in value received upon realisation of an investment relative to its carrying value prior to realisation Valuation Multiple The market value of an asset relative to a key financial metric Venture Capital An investment strategy that generates returns by backing start-up and early stage companies that are believed to have long-term growth potential Vintage Year Usually the year in which capital is first called by a particular fund, though definitions can vary based on the type of fund or investment
70 HVPE Semi-Annual Report and Accounts 2018 Disclosures Strategic Report
Investments In light of these risks, uncertainties, and assumptions, the The companies represented within this report events described by any such forward-looking statements are provided for illustrative purposes only, as example might not occur. The Investment Manager qualifies portfolio holdings. There are over 8,000 individual any and all of its forward-looking statements by these companies in the HVPE portfolio, with no one company cautionary factors. comprising more than 1.3% of the entire portfolio. Please keep this cautionary note in mind while reading The deal summaries, general partners (managers), this report. and/or companies shown within the report are intended Some of the factors that could cause actual results to for illustrative purposes only. While they may represent vary from those expressed in forward-looking statements an actual investment or relationship in the HVPE portfolio, include, but are not limited to: there is no guarantee they will remain in the portfolio in the future. / / the factors described in this report; Governance Report
Past performance is no guarantee of future returns. / / the rate at which HVPE deploys its capital in investments and achieves expected rates of return; Forward-Looking Statements This report contains certain forward-looking statements. / / HarbourVest’s ability to execute its investment strategy, Forward-looking statements relate to expectations, including through the identification of a sufficient beliefs, projections, future plans and strategies, number of appropriate investments; anticipated events or trends, and similar expressions / / the ability of third-party managers of funds in which concerning matters that are not historical facts. In some the HarbourVest funds are invested and of funds cases, forward-looking statements can be identified in which the Company may invest through parallel by terms such as “anticipate,” “believe,” “could,” investments to execute their own strategies and “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” achieve intended returns “should,” “will,” and “would,” or the negative of those terms, or other comparable terminology. The forward- / / the continuation of the Investment Manager as manager of the Company’s investments, the continued affiliation
looking statements are based on the Investment StatementsFinancial Manager’s beliefs, assumptions, and expectations of with HarbourVest of its key investment professionals, future performance and market developments, taking and the continued willingness of HarbourVest to sponsor into account all information currently available. These the formation of and capital raising by, and to manage, beliefs, assumptions, and expectations can change as new private equity funds; a result of many possible events or factors, not all of / / HVPE’s financial condition and liquidity, including its which are known or are within the Investment Manager’s ability to access or obtain new sources of financing control. If a change occurs, the Company’s business, at attractive rates in order to fund short-term liquidity financial condition, liquidity, and results of operations needs in accordance with the investment strategy may vary materially from those expressed in forward- and commitment policy; looking statements. / / changes in the values of, or returns on, investments By their nature, forward-looking statements involve known that the Company makes; and unknown risks and uncertainties because they relate to events, and depend on circumstances, that may or / / changes in financial markets, interest rates or industry, may not occur in the future. Forward-looking statements general economic or political conditions; and Data Supplementary are not guarantees of future performance. Any forward- / / the general volatility of the capital markets and the looking statements are only made as at the date of this market price of HVPE’s shares. 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.
HVPE Semi-Annual Report and Accounts 2018 71 Disclosures continued
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. Reconciliation of Share Price Discount to Net Asset Value per Share The share price discount to NAV per share will vary depending on which NAV per share figure is used. For the purpose of this report discounts have been calculated using the live NAVs per share available in the market as at 31 January 2018 and 31 July 2018, those being the 31 December 2017 and 30 June 2018 estimates of $20.79 (sterling equivalent £14.65) and $21.79 (sterling equivalent £16.63) respectively, against share prices of £12.44 at 31 December 2017 and £13.00 at 31 July 2018. The table below outlines the notional discounts to the share price at 31 July 2018, based on the NAVs per share published after this date (31 July 2018 estimate and final). Movements between the published NAVs per share for the same calendar date largely arise as further underlying fund valuations are received, and as adjustments are made for public markets, foreign exchange and operating expenses. NAV converted to sterling at 31 July exchange Share Discount NAV per rates (GBP/ price at to NAV at Date of NAV (estimate and final) share USD: 1.31) 31 July 2018 31 July 2018 Estimated NAV at 30 June 2018 $21.79 £16.63 £13.00 21.8% (published 18 July) Estimated NAV at 31 July 2018 (published 15 August) $21.96 £16.73 £13.00 22.2% Final NAV (US GAAP) at 31 July 2018 (published 18 October) $22.93 £17.47 £13.00 25.5%
Regulatory Information HVPE is required to comply with the Listing, Disclosure Guidance and Transparency Rules of the Financial Conduct Authority in the United Kingdom (the “LDGT Rules”). It is also authorised by the Guernsey Financial Services Commission as an authorised closed-ended 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.
72 HVPE Semi-Annual Report and Accounts 2018 Key Information Company Advisers
Exchanges Investment Manager Swiss Representative London Stock Exchange (Main Market) HarbourVest Advisers L.P. Hugo Fund Services SA Ticker c/o HarbourVest 6 Cours de Rive HVPE Partners, LLC 1204 Geneva One Financial Center Switzerland Listing date Boston MA 02111 9 September 2015 (LSE Main Market) Tel +1 617 348 3707 Swiss Paying Agent 2 May 2010 (LSE SFM) Banque Cantonale 6 December 2007 (Euronext – since delisted) Auditors De Genève Ernst & Young LLP 17 Quai de l’Ile Fiscal year end Royal Chambers 1211 Geneva 2 31 January St Julian’s Avenue Switzerland Base currency St Peter Port Joint Corporate US dollars Guernsey GY1 4AF Tel +44 1481 717 400 Brokers ISIN Jefferies Hoare Govett GG00BR30MJ80 Company Secretary Vintners Place 68 Upper Thames Street SEDOL and Administrator BNP Paribas Securities London EC4V 3BJ BR30MJ8 Services Tel +44 20 7029 8000 Bloomberg BNP Paribas House J.P. Morgan Cazenove* HVPE LN St Julian’s Avenue 25 Bank Street St Peter Port Reuters Canary Wharf Guernsey GY1 1WA HVPEa.L London E14 5JP Tel +44 1481 750 800 Tel +44 20 7314 7361 Common code www.bnpparibas.je 032908187 * J.P. Morgan Securities Ltd., Registrar which conducts its UK investment Investment Manager banking activities as J.P. Morgan Link Asset Services Cazenove HarbourVest Advisers L.P. The Registry (affiliate of HarbourVest Partners, LLC) 34 Beckenham Road Registration Beckenham Financial Conduct Authority Kent BR3 4TU Tel +44 (0)871 664 0300 Fund consent Tel +44 (0)20 8369 3399 Guernsey Financial Services Commission (outside UK) Outstanding shares 79,862,486 ordinary shares
2018–2019 Calendar Registered Office Monthly NAV estimate: Generally within 20 days HarbourVest Global Private Equity Limited of Month End Company Registration Number: 47907 2019 Annual Report and Audited Consolidated Financial BNP Paribas House Statements: May 2019 Saint Julian’s Avenue Saint Peter Port Guernsey GY1 1WA Tel +44 1481 750 800 HVPE Semi-Annual Report and Accounts Six Months to 31 July 2018 HarbourVest Global Private Equity Limited Registration Company 47907 Number: House Paribas BNP Avenue Julian’s Saint Saint Peter Port Guernsey 1WA GY1 +44Tel 750 1481 800 www.hvpe.com