Private Equity Cycle

How to invest in HVPE

Private Equity Life Cycle - Commitments, Investment Phase(1-4 years), Growth Phase (5-9 years), Mature Phase(10+years)

HVPE provides a complete private equity solution for public investors by managing the portfolio through four phases of the private equity cycle to create value:

  1. Commitments
  2. Investment Phase
  3. Growth Phase
  4. Mature Phase
This comprehensive solution is designed to deliver shareholders strong returns over a multi-year investment cycle.

Commitments

1. Commitments

The Investment Manager considers a number of factors before making new commitments:

  • Current commitment levels within the Investment Pipeline
  • Anticipated rate of investment
  • Future expected realisations
  • The economic environment
  • The existing credit facility
  • Commitment and coverage ratios
  • Existing portfolio and strategy

Extended Investment Period

Most listed fund-of-funds vehicles make commitments directly to newly-formed third party partnerships, which are expected to invest most of their commitments over three to five years. In contrast:

  • HVPE makes commitments to newly-formed HarbourVest funds (which typically have a seven to nine-year investment period) or to HarbourVest-led co-investments.
  • This extended investment period reflects the fact that HarbourVest funds commit capital to partnerships over a period of three to four years, which in turn build their portfolios and generally invest most capital over the next three to five years.
  • This model allows an increase in the level of commitments that HVPE can support in contrast to some of its listed peers.

Diversification of the Investment Pipeline

The mix of HVPE’s Investment Pipeline should indicate the potential evolution of the portfolio over time. HVPE’s portion of the Investment Pipeline related to the fund-of-funds portfolios is shown on a look-through basis to the underlying partnerships.

HVPE makes commitments to HarbourVest funds, which in turn make new primary, secondary, and direct investments. Once funded, the capital becomes part of the Investment Portfolio.

Allocated and Unallocated Investment Pipeline

In order to reflect the differences in expected drawdown periods appropriately, the Company divides its Investment Pipeline into “allocated” and “unallocated” segments.

All of the Company’s commitments to HarbourVest direct and secondary funds are classified as “allocated” commitments because their drawdown profiles are closer to those of third party partnerships.

The Investment Manager anticipates that the Company’s allocated commitments will be drawn down over a three to five-year period. In contrast, the commitments that have not been allocated are expected to be drawn over a longer period of up to seven to nine years.

Investment Phase

2. Investment Phase

The HarbourVest funds invest HVPE’s commitments over a period of approximately four years. It is critical to maintain a steady pipeline of new investments in order to:

  • Support continued NAV growth
  • Avoid “market timing” issues through dollar-cost averaging
  • Ensure that HVPE has access to suitable opportunities

Vintage Year Profile

HVPE’s HarbourVest funds provide access to primary, secondary, and direct investments that are diversified across a range of vintage years and years of investment. This diversification is continually evolving as more mature investments are realised and new investments enter the Investment Portfolio.

  • HVPE’s vintage year diversification is measured using the year of initial capital call for primary partnerships and direct funds and the year of formation for secondary investments.
  • Year of investment diversification is based on the year the underlying portfolio company investment was made. This is more representative when judging the level of investment during the pre-crisis period of 2005 to 2007 when pricing in the market reached a short-term peak. Investments cover vintage years back to 1988.
  • Investments cover vintage years back to 1988.

Growth Phase

3. Growth Phase

During years five to nine, most HarbourVest funds are fully invested, and managers are actively driving growth to:

  • Maximise NAV growth
  • Maintain exposure to a diversified range of investments
  • Outperform mainstream public equity markets

Portfolio Diversification

  • Diversification by Stage
    • The Investment phase outperformed the growth and mature portions of the Investment Portfolio during the financial year, driven by growth and realisations for some newer secondary and direct co-investments
  • Diversification by Geography
    • The underlying partnerships are located in 36 countries and denominated in nine different currencies
    • The underlying companies are located in 78 countries
    • Nine of HVPE’s top ten holdings are in the U.S. HVPE’s geographic diversification varies greatly across venture and buyout investments
  • Diversification by Phase
    • More than half of Investment Portfolio NAV is in the growth phase, during which time the managers are actively driving growth in order to position investments for liquidity and realisations
    • Nearly one quarter of the portfolio is in the mature phase, providing access to a steady flow of realisations that can be used to fund newer commitments and investments
  • Diversification by Strategy
    • Primary fund-of-funds represent nearly half of HVPE’s Investment Portfolio NAV

Mature Phase

4. Mature Phase

After approximately ten years, managers typically seek to realise investments:

  • Access a steady flow of realisations
  • Provide cash to fund the Investment Pipeline

Investment Portfolio IPOs and M&A Events

The positive trend for liquidity events continues. Liquidity events within the underlying portfolio enable ongoing cash realisations. The number of venture liquidity events outpaced buyouts in the M&A and IPO markets during the financial year. The ongoing and consistent liquidity demonstrates that a well-diversified portfolio can continue to generate cash.