What is an Investment Company?

An investment company, such as HarbourVest Global Private Equity (“HVPE” or the “Company”), is a listed company whose aim is to provide individuals and institutions with access to professionally managed investment opportunities that might otherwise be inaccessible or too complex to manage independently.

Investment companies can help investors build wealth, manage risk, and achieve their financial goals through collective investment strategies.

At their core, investment companies act as intermediaries between investors and financial markets. By aggregating the capital of many, they can take advantage of economies of scale, professional expertise, and broader asset selection.

How Investment Companies Work

Structure

Investment companies raise capital by selling shares to investors. The capital is then invested in a wide range of assets, such as stocks, bonds, real estate, or other assets, depending on the company's investment objectives and strategy.

Investment companies are “closed-ended” as they issue a fixed number of shares that are traded on stock exchanges. Share prices fluctuate based on market supply and demand, and investors buy or sell shares through the exchange rather than the company itself.

This is in contrast with open-ended funds which expand or contract depending on demand as investors move their money in or out of the fund. This means open-ended funds have to be ready to give investors their money back at any time should they wish to redeem their investments.

Portfolio managers, supported by teams of analysts and researchers, with oversight from the company’s board of directors make investment decisions on behalf of all shareholders, aiming to generate returns while managing risk.

What is a discount/premium?

An investment company has two main values: its net asset value (NAV), and share price. The NAV,  is the value of its total assets minus liabilities and its market capitalisation. The share price is the market price at which at any given time the market is buying or selling the shares at.

If the company’s assets appreciate or generate income, its NAV rises. Conversely, if the underlying assets decline in value, the NAV will decrease.

The share price moves independently from the NAV of the company. If the share price of an investment company is trading below the NAV per share this is referred to as a “discount”. Alternatively, the company is said to be trading at a “premium” if the share price exceeds the NAV.

The price of investment company shares is influenced by factors such as market sentiment, investment strategy, and asset type.

What Are the Benefits of an Investment Company Structure?

Choosing to invest through an investment company offers a range of advantages, especially for individuals seeking access to well-diversified, professionally managed portfolios. Below, we outline the key benefits of this investment structure:

Strategy flexibility

The closed end nature of investment companies provides an evergreen pool of capital that can be used to invest in illiquid assets with a long-term investment horizon, such as private equity and infrastructure.

Gearing

Closed-ended investment companies can borrow money to make investments (“gearing”). Gearing can enhance returns but also increases the risks.

Diversification

A benefit of investing through an investment company can be diversification. By pooling resources with other investors, you may gain exposure to a wider array of securities than you might  otherwise. Diversification can help spread risk across different asset classes, industries, and geographies, potentially reducing the impact of any single investment’s poor performance on your overall portfolio.

Experienced investment management

Investment companies aim to employ experienced portfolio managers who are responsible for making day to day investment decisions. These professionals have access to research, tools, and insights that individual investors may not possess. By entrusting capital to experts, investors can benefit from their judgment and experience without having to manage the complexities of investing themselves.

Corporate governance

As they are listed, investment companies have  boards of directors. The directors’ duty is to look after shareholder interests, by ensuring the trust is as successful as possible. The board of directors are responsible for selecting the fund manager and holding them to account for the performance of the company’s investment portfolio.

As shareholders, investors in investment companies are able to hold the directors to account and vote for their re-election at Annual General Meetings (“AGMs”).

Accessibility

Investment companies often offer lower minimum investment requirements, with investment available from the price of just one share, making it easier for a broader range of investors to access this investment opportunity.

These requirements can be much lower than accessing certain asset classes directly (for example private equity fund minimum commitments).

Liquidity

Investment companies are traded on exchanges, providing daily liquidity as investors can buy or sell shares at prevailing market prices during the trading day. This flexibility is useful if you need to access your funds quickly or want the ability to adjust your portfolio as your needs change.

This feature is particularly appealing for investors who want access to underlying asset classes which can otherwise take longer time periods to exit.

Transparency and Regulation

Investment companies are subject to regulatory oversight from bodies such as the Financial Conduct Authority (FCA) and are required to provide detailed reports on their holdings, fees, and performance. This level of transparency helps investors stay informed about where their money is invested and how their investments are performing. Regulatory oversight helps ensure that companies operate in investors’ best interests and adhere to ethical standards.

Economies of Scale

When you invest through an investment company, you benefit from economies of scale. Because the company is investing larger sums of money on behalf of many investors, it can negotiate lower transaction costs and access investment opportunities that may not be available to individuals.

Convenience

Investing with an investment company can simplify the process of building and maintaining a diversified portfolio. Instead of researching and overseeing various individual securities, investors have the option to choose funds that align with their objectives, with portfolio management handled by the fund manager according to the investment company’s stated goals.

Is an Investment Company Right for You?

Investment companies are designed to make investing simpler, more accessible, and more effective for individuals and institutions alike. They are particularly well-suited to investors who:

  • Seek diversification to help manage risk
  • Want a broad array of investment options, especially in alternative assets like private equity and infrastructure
  • Want access to daily liquidity through exchanges

However, as with any investment, it is important to consider your individual financial goals, investment time horizon and risk tolerance with respect to factors such as the underlying assets, manager skill, financial gearing and discounts.

Find out more

  • You can learn more about investment companies on the AIC (“Association of Investment Companies”) website using this link.
  • If you are interested in learning how to invest in HVPE shares please follow this link.

Note: The value of any investment made in the shares of HVPE and the income from any such investment can go down as well as up, and the investor may not get back the full amount invested. Past performance cannot be relied on as a guide to future performance.