A listed private equity fund going cheap

Some of the fastest-growing businesses are unlisted. This private equity fund can help you profit from them, says David Stevenson.

I’m not usually a fan of funds of funds, largely because they cost investors so much money: funds’ fees are piled on top of each other. But when it comes to investing in private equity, there is little choice.

Listed private equity funds of funds are the best way to gain exposure to big, diversified books of fund partnerships in an easily tradable structure. And listed private equity funds’ managers work hard to minimise fee layering by negotiating with the underlying managers. 

A promising fund going cheap

Listed private equity funds in aggregate have posted good returns over the last year. In the second quarter, the LPX50 (listed private equity) index, which tracks the main players in both single and multi-manager listed funds, rose 15.7%. 

So which listed private equity fund to go with? The first decision is whether to go with a single-manager such as Hg Capital or Oakley Capital Investments, or take the multi-fund route. 

The latter leaves you with a small subset of funds: HarbourVest, trading on a near-26% discount to net asset value (NAV), ICG Enterprise (a 14% discount), Pantheon International (18%) and Standard Life Private Equity (15%). Note that those discounts haven’t fully caught up with the constant process of revising the underlying fund values.

HarbourVest Global Private Equity (LSE: HVPE) is worth a closer look, largely because of that stubborn discount. At the end of August the NAV per share was £31.20, and the share price was £23. The actual NAV could be much higher, which would push the discount even further above the sector average of 18.5%. 

It’s a big fund with total assets of $3.4bn and a market value of £1.9bn ($2.6bn). It invests in and alongside HarbourVest-managed funds as well as a long list of interesting and exciting sub-fund managers. HarbourVest’s portfolio is split between buyouts at 55% and venture-style capital at 35%. There’s a strong US bias in the portfolio; the world’s top economy accounts for 59%, with European investments worth 24%. Tech and software firms account for 30%, medical and biotech 15%. 

The portfolio’s performance over the long term is encouraging. In the last ten years the NAV’s total return has outperformed the benchmark FTSE All World index by an annualised 3.3%. NAV rose by 288% over the ten years to 31 August 2021, compared with 207% for the FTSE All World index. The share-price return in sterling was higher: 420%. No wonder many fund experts deem HarbourVest a strong buy. The highly regarded funds team at Investec, for instance, “strongly believe that the company gives investors high-quality, highly diversified and low-risk exposure to global private equity”. 

Ocean Wall, an alternative-investments house advising hedge funds, is equally enthusiastic, observing that “a 24.7% discount for a portfolio like HVPE equity with the performance too, is totally the wrong price”.

A successful summer

Most listed private equity funds have been on a roll in recent months. HarbourVest’s NAV numbers to the end of August showed positive returns of 7.2% over the month in US dollar terms, while the sterling figure was 8.4%. The current wave of mergers and acquisitions looks too exuberant, so the rate of increase in underlying funds might slow down in future. 

Governments and regulators might also eventually start to take a more jaundiced view of PE, given that the taxman appears to treat debt capital more favourably than equity. 

But for now, I think all equity investors need to think about how they’ll get their private-business exposure, and the listed private equity fund of funds are a sensible way to do so. HarbourVest’s peers are impressive, but its discount combined with that long-term record is the clincher.

Recommended

NFTs: what are they and why are they so popular?
Bitcoin & crypto

NFTs: what are they and why are they so popular?

The NFT market has been on a rollercoaster ride in 2021 starting with the $69m sale of a digital artwork backed by a cryptographic token known as an “…
8 Dec 2021
We’re at another turning point in the 100-year cycle of money – here’s what to do
Currencies

We’re at another turning point in the 100-year cycle of money – here’s what to do

Money has always moved in 100-year cycles. And we’re at another turning point now, says Dominic Frisby – money has gone from gold to government-backed…
8 Dec 2021
I wish I knew what a bond was, but I’m too embarrassed to ask
Too embarrassed to ask

I wish I knew what a bond was, but I’m too embarrassed to ask

When thinking of investing many people automatically think of the stockmarket. But there is another market – the bond market. So what exactly is a bon…
7 Dec 2021
Cryptocurrency roundup: Black Friday crypto crash
Bitcoin & crypto

Cryptocurrency roundup: Black Friday crypto crash

Bitcoin fell to a six-week low today as wider markets sold off. Saloni Sardana looks at the stories that caught our eye this week.
7 Dec 2021

Most Popular

Three safe bets on the growing online gambling sector
Share tips

Three safe bets on the growing online gambling sector

Professional investor Aaron Fischer, creator of the Fischer Sports Betting and iGaming ETF, picks three of his favourite online gambling stocks.
29 Nov 2021
Bubbles grow in global property markets as house prices continue to rise
Property

Bubbles grow in global property markets as house prices continue to rise

House prices grew by 6% in the year to mid-2021 in 25 global cities, with the German property market in particular showing signs of overheating.
3 Dec 2021
Making sense of the new minimum pension age rules
Pensions

Making sense of the new minimum pension age rules

The rules surrounding the minimum age at which you can start tapping into your retirement savings have been tweaked, but are still confusing. David Pr…
23 Nov 2021