Building Long-Term Wealth by Investing in Private Companies
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US HVPE Annual Report and Accounts 2018 Annual Report and Accounts 31 January 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, a leading independent global private markets asset manager. HVPE has a strong track record and in the ten years ending 31 January 2018 had more than doubled its net asset value (“NAV”) per share, implying a compound annual growth rate of 7.5% in US dollar terms (equivalent to 11.2% 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, whilst the shares continue to trade at a discount to the value of their assets. 1 Globally, private equity funds returned 12.2% annually over the 20 years to 30 September 2017, compared to 6.9% for the MSCI World on a public market equivalent (“PME”) 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 ten years from $10.39 (£5.23) at 31 January 2008 to $21.46 (£15.12) at 31 January 2018. Highlights ReportStrategic Year to 31 January 2018 Contents NAV per Share ($) NAV per Share (£, converted3) Highlights 1 2017: +10.3% 2017: +24.8% Strategic Report What is HVPE? 2 +16.2% The HVPE Difference 3 +3.0% Why Invest in HVPE 4 21.46 15.12 ReportGovernance 14.68 Chairman’s Statement 5 18.47 16.75 11.76 Investment Manager’s Review 10 15.86 10.53 Celebrating Ten Years 14 Share Price Trading and Liquidity 16 Managing the Portfolio: Strategic Asset Allocation and Diversification 17 Managing the Company 20 2015 2016 2017 2018 2015 2016 2017 2018 Summary of Net Assets 25 Recent Events 26 Share Price ($, converted3) Share Price (£) Principal Risks and Uncertainties 27 Investment Manager 2017: +21.1% 2017: +37.2% About HarbourVest 30 The HarbourVest Platform 32 +18.2% +4.8% HarbourVest Investment Committee 33 17.77 11.95 12.52 A Focus on Real Assets 34 15.03 Global Private Markets: Overview and 12.73 12.41 8.45 8.71 Outlook 36 Investment Portfolio Financial Statements Commitment Phase 38 Investment Phase 40 Growth Phase 42 2015 2016 2017 2018 2015 2016 2017 2018 Mature Phase 44 Manager Spotlight 46 Investment Portfolio Growth ($) Distribution Proceeds ($) Companies Spotlight 50 Secondaries Case Studies 54 Governance Report $248.8m $405.1m Board of Directors 58 Directors’ Report 60 248.8 405.1 Board Structure and Committees 66 355.5 362.5 Corporate Governance 73 Statement of Directors’ Responsibilities 77 147.5 251.0 128.0 Directors’ Remuneration Report 78 82.1 Financial Statements Independent Auditor’s Report to the Members of HarbourVest Global 2015 2016 2017 2018 2015 2016 2017 2018 Private Equity Limited 79 Supplementary Data Independent Auditor’s Report to the Directors of HarbourVest Global Private 3 As the Company has a US dollar denominated NAV and a sterling denominated share price Equity Limited 85 (since 9 September 2015) we have shown the performance of the NAV and share price in both Audited Consolidated Financial Statements 86 currencies for comparative purposes. All figures have been converted at the prevailing currency conversion rate as at 31 January of each year displayed. Notes to the Consolidated Financial Statements 94 Supplementary Data HVPE’s HarbourVest Fund Investments 102 Largest Companies and Managers 104 Glossary of Private Equity Terms 120 Disclosures 123 HVPE Annual Report and Accounts 2018 1 What is HVPE? What is HVPE? Owning shares in HVPE HVPE (or the “Company”) is a London listed, FTSE 250 private equity investment company with assets of provides investors with a $1.7 billion and a market capitalisation of £1.0 billion as at 31 January 2018 (ticker: HVPE). comprehensive and well- The Company provides access to private companies and managed, ready-made global portfolios of private companies through funds managed by HarbourVest (the “Investment Manager”)1, an innovative private equity programme. global private markets asset manager with more than $49 billion of assets under management2 and a long history of success. Track Record By committing capital across HarbourVest’s primary, By following a consistent and proven investment strategy, secondary, and direct co-investment programmes HVPE has delivered steady and robust NAV growth (see page 32, “The HarbourVest Platform”), HVPE has and has outperformed the public markets since inception, created a private markets portfolio that is diversified by as measured by the FTSE All-World Total Return (“TR”) geography, strategy, stage of investment, vintage year Index. This has been achieved whilst running a well- and sector. As at 31 January 2018, HVPE’s portfolio was diversified strategy with relatively low volatility and made up of 42 HarbourVest funds and two secondary maintaining a prudent balance sheet with ample co-investments. The Company’s structure is shown liquidity to fund new investments. on page 20. HVPE is structured to provide investors with broad exposure to a carefully selected range of exciting opportunities in private companies around the world, from technology start-ups to mature, established businesses looking for the next phase of growth. Building Long-term Wealth: Steady NAV Growth Since 2009 per Sare oeet at e ear As at 31 January 21.46 18.47 16.75 15.86 14.38 12.46 11.42 10.24 8.65 7.61 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Past performance is not necessarily indicative of future returns. 1 HVPE is managed by HarbourVest Advisers L.P. (the “Investment Manager”), an affiliate of HarbourVest Partners, LLC (“HarbourVest”), a private markets asset manager whose history dates back to 1982. 2 As at 31 December 2017. 2 HVPE Annual Report and Accounts 2018 The HVPE Difference ReportStrategic 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 pages professionals who aim to select the leading private equity 17 to 18), HVPE makes regular commitments to new managers or companies from the opportunities available HarbourVest funds, which in turn drive a steady pace globally. This provides shareholders with access to the of investment into new private company opportunities. ReportGovernance best private markets opportunities in the world. See These investments then develop and grow over a period “About HarbourVest” on pages 30 and 31. of several years, before being realised. Proceeds from these then provide the fuel for new commitments and the lifecycle continues. See page 4 for more details Access to Private on the value creation cycle. Companies Find out more online at www.hvpe.com HVPE, in effect, provides part-ownership of thousands of underlying private companies, spanning early venture An investment of £1,000 to large-cap buyouts. This means that shareholders in HVPE have exposure to exciting early stage companies, in HVPE shares at the as well as more mature, established private businesses, prior to public ownership or exit. The most successful of December 2007 IPO would these have the potential to displace established business Financial Statements models and become the corporate giants of tomorrow. have been worth £2,577 on 31 January 2018, equivalent Selective Diversification to a compound annual HVPE is the most diversified listed private equity investment company in the London market. However, growth rate of 10%. 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 proven managers with whom HarbourVest has built strong and enduring relationships through multiple fund Supplementary Data cycles. See pages 18 to 19 for more on diversification. HVPE 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. HVPE makes regular commitments to new HarbourVest funds, which in turn drive a steady pace of investment into new private company opportunities. These investments then develop and grow over a period of several years before being realised. Proceeds from these then provide the fuel for new commitments and the lifecycle continues. 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 / / Commitment and coverage ratios / / Future expected realisations / / Existing portfolio and strategy Read more on p38 Investment Phase The HarbourVest funds invest HVPE’s commitments over a period of approximately four years, aiming for a target of 25% of NAV in this phase over the long term.