TIDMHVPE
RNS Number : 7365N
HarbourVest Global Priv. Equity Ltd
11 May 2018
11 May 2018
Results for the Year Ending 31 January 2018
NAV per share increase of 16% marks ninth consecutive year of
positive NAV growth
HarbourVest Global Private Equity Limited ("HVPE" or the
"Company"), a closed-end investment company, announces its audited
results for the year ended 31 January 2018. All figures relate to
the year ended 31 January 2018 unless otherwise stated.
Strong performance
-- Another year of double-digit net asset value ("NAV") per share growth
o Over the 12 months, 16.2% growth to $21.46 from $18.47 (year
to 31 January 2017: 10.3%)
o From inception in 2007 to 31 January 2018, NAV per share total
return in US dollars was 114.6% against 73.6% total return for the
FTSE All World Index
-- Share price up 4.8% over year to GBP12.52 from GBP11.95
-- Credit facility successfully renegotiated; extended to December 2022
-- Net cash of $257m on balance sheet, zero borrowings and $500m available facility
Active portfolio management with continued commitments:
-- $340m committed to new HarbourVest funds (2017: $425m)
-- As at 31 January 2018, $1.2bn yet-to-be funded commitments
-- Positive net cash flow trend over year:
o $405.1m distributions received (2017: $251.0m)
o $312.7m invested (2017: $270m)
-- Significant exits from top 20 companies, including Lightower
Fiber Networks, HVPE's largest portfolio company at 31 January
2017
-- $249m value growth from investment portfolio (2017: $148m)
Post year-end, strategic asset allocation targets revised:
-- Allocation for Real Assets and Mezzanine investments
increased from 5% to 10%; Buyouts reduced from 65% to 60%
-- Allocation to Direct Co-investments increased from 15% to
20%; allocation to Primaries reduced from 60% from 55%
Sir Michael Bunbury, Chairman of HVPE, said:
"I am pleased to report another year of significant progress for
HVPE, with double-digit NAV per share growth in the Company's
functional currency, the US dollar, making this the Company's ninth
consecutive year of positive NAV returns.
"During the financial year HVPE celebrated its tenth
anniversary, having built a solid 10-year track record of strong
and consistent returns for its shareholders via unique access to
HarbourVest funds and a well-managed, diversified portfolio.
"HVPE has become one of the few diversified listed private
equity companies with the liquidity and scale sufficient to be
readily available for investment by all classes of shareholders,
and I would like to welcome those new investors who purchased
shares during the year.
"With the $500 million credit facility successfully renegotiated
during the financial year and extended out to December 2022, we
look forward to the future with the confidence that the Company is
underpinned by a strong balance sheet and that investment in
private market assets will continue to deliver superior long-term
returns."
To view the Company's Annual Financial Report please follow this
link: Annual Report - Year Ending 31 January 2018. The annual
financial report will also shortly be available on the National
Storage Mechanism, which is situated at
www.morningstar.co.uk/uk/nsm.
Enquiries:
HVPE
Richard Hickman Tel: +44 (0)20 7399 rhickman@harbourvest.com
9847
Charlotte Edgar Tel: +44 (0)20 7399 cedgar@harbourvest.com
9826
HarbourVest Partners
Laura Thaxter Tel: +1 (617) 348 lthaxter@harbourvest.com
3695
MHP Communications
Charlie Barker / Tim Tel: +44(0)20 3128 hvpe@mhpc.com
Rowntree / Kelsey Traynor 8100
Notes to Editors:
About HarbourVest Global Private Equity Limited:
HarbourVest Global Private Equity Limited ("HVPE" or the
"Company") is a Guernsey-incorporated, closed-end investment
company which is listed on the Main Market of the London Stock
Exchange and is a constituent of the FTSE 250 index. HVPE is
designed to offer shareholders long-term capital appreciation by
investing in a private equity portfolio diversified by geography,
stage of investment, vintage year, and industry. The Company
invests in and alongside HarbourVest-managed funds which focus on
primary fund commitments, secondary investments and direct
co-investments in operating companies. HVPE's investment manager is
HarbourVest Advisers L.P., an affiliate of HarbourVest Partners,
LLC, an independent, global private markets asset manager with more
than 35 years of experience.
About HarbourVest Partners, LLC:
HarbourVest is an independent, global private markets asset
manager with more than 35 years of experience and more than $45
billion in assets under management. The Firm's powerful global
platform offers clients investment opportunities through primary
fund investments, secondary investments, and direct co-investments
in commingled funds or separately managed accounts. HarbourVest has
more than 400 employees, including more than 100 investment
professionals across Asia, Europe, and the Americas. This global
team has committed more than $32 billion to newly-formed funds,
completed over $18 billion in secondary purchases, and invested
over $7 billion directly in operating companies. Partnering with
HarbourVest, clients have access to customised solutions,
longstanding relationships, actionable insights, and proven
results.
This announcement is for information purposes only and does not
constitute or form part of any offer to issue or sell, or the
solicitation of an offer to acquire, purchase or subscribe for, any
securities in any jurisdiction and should not be relied upon in
connection with any decision to subscribe for or acquire any
Shares. In particular, this announcement does not constitute or
form part of any offer to issue or sell, or the solicitation of an
offer to acquire, purchase or subscribe for, any securities in the
United States or to US Persons (as defined in Regulation S under
the US Securities Act of 1933, as amended ("US Persons")). Neither
this announcement nor any copy of it may be taken, released,
published or distributed, directly or indirectly to US Persons or
in or into the United States (including its territories and
possessions), Canada, Australia or Japan, or any jurisdiction where
such action would be unlawful. Accordingly, recipients represent
that they are able to receive this announcement without
contravention of any applicable legal or regulatory restrictions in
the jurisdiction in which they reside or conduct business. No
recipient may distribute, or make available, this announcement
(directly or indirectly) to any other person. Recipients of this
announcement should inform themselves about and observe any
applicable legal requirements in their jurisdictions.
The Shares have not been and will not be registered under the US
Securities Act of 1933, as amended (the "Securities Act") or with
any securities regulatory authority of any state or other
jurisdiction of the United States and, accordingly, may not be
offered, sold, resold, transferred, delivered or distributed,
directly or indirectly, within the United States or to US Persons.
In addition, the Company is not registered under the US Investment
Company Act of 1940, as amended (the "Investment Company Act") and
shareholders of the Company will not have the protections of that
act. There will be no public offer of the Shares in the United
States or to US Persons.
This announcement has been prepared by the Company and its
investment manager, HarbourVest Advisers L.P. (the "Investment
Manager"). No liability whatsoever (whether in negligence or
otherwise) arising directly or indirectly from the use of this
announcement is accepted and no representation, warranty or
undertaking, express or implied, is or will be made by the Company,
the Investment Manager or any of their respective directors,
officers, employees, advisers, representatives or other agents
("Agents") for any information or any of the opinions contained
herein or for any errors, omissions or misstatements. None of the
Investment Manager nor any of their respective Agents makes or has
been authorised to make any representation or warranties (express
or implied) in relation to the Company or as to the truth, accuracy
or completeness of this announcement, or any other written or oral
statement provided. In particular, no representation or warranty is
given as to the achievement or reasonableness of, and no reliance
should be placed on any projections, targets, estimates or
forecasts contained in this announcement and nothing in this
announcement is or should be relied on as a promise or
representation as to the future.
Other than as required by applicable laws, the Company gives no
undertaking to update this announcement or any additional
information, or to correct any inaccuracies in it which may become
apparent and the distribution of this announcement. The information
contained in this announcement is given at the date of its
publication and is subject to updating, revision and amendment. The
contents of this announcement have not been approved by any
competent regulatory or supervisory authority.
This announcement includes statements that are, or may be deemed
to be, "forward looking statements". These forward looking
statements can be identified by the use of forward looking
terminology, including the terms "believes", "projects",
"estimates", "anticipates", "expects", "intends", "plans", "goal",
"target", "aim", "may", "will", "would", "could", "should" or
"continue" or, in each case, their negative or other variations or
comparable terminology. These forward looking statements include
all matters that are not historical facts and include statements
regarding the intentions, beliefs or current expectations of the
Company. By their nature, forward looking statements involve risks
and uncertainties because they relate to events and depend on
circumstances that may or may not occur in the future and may be
beyond the Company's ability to control or predict. Forward looking
statements are not guarantees of future performance. More detailed
information on the potential factors which could affect the
financial results of the Company is contained in the Company's
public filings and reports.
All investments are subject to risk. Past performance is no
guarantee of future returns. Prospective investors are advised to
seek expert legal, financial, tax and other professional advice
before making any investment decision. The value of investments may
fluctuate. Results achieved in the past are no guarantee of future
results.
This announcement is issued by the Company, whose registered
address is BNP Paribas House, St Julian's Avenue, St Peter Port,
Guernsey, GY1 1WA.
(c) 2018 HarbourVest Global Private Equity Limited. All rights
reserved.
Chairman's Statement
Dear Shareholder
HarbourVest Global Private Equity ("HVPE" or the "Company")
continued to make significant progress in the year to 31 January
2018. Since the main market listing in London in September 2015,
the Company has established itself as one of the few diversified
listed private equity companies with liquidity and scale sufficient
to be readily available for investment by all classes of
shareholders from large institutions through to individuals. It has
assets of over $1.7 billion, a market capitalisation of
approximately GBP1.0 billion, and shares to the value of over
GBP400,000 are regularly traded daily. It is managed by HarbourVest
who have 35 years of experience in private markets and manage in
excess of $49 billion of investors' money.
The year was one of significant further progress for the
Company's US dollar denominated Net Asset Value per share.
Performance and Asset Values
The Company's functional currency is the US dollar and the year
to 31 January 2018 saw a further year of double digit growth in NAV
per share from $18.47 to $21.46, or by 16.2%. In many years in the
past, such substantial double-digit growth would have materially
outpaced that of listed markets. However, the year to 31 January
2018 was, once again, an unusually strong one for those listed
markets. The Company benchmarks performance against the total
return on the FTSE All World Index which amounted to 28.2% for the
year.
Investment in private assets requires a long-term horizon and
the ability to live through short-term performance comparisons with
volatile listed markets. Private assets are typically revalued no
more than every three to six months and often those updated
valuations lag those of listed markets, particularly when those
listed markets are rising rapidly. Despite that lag, from inception
of the Company in 2007 to 31 January 2018 HVPE delivered NAV per
share total return in US dollars of 114.6% as against 73.6% total
return for the FTSE All World Index.
Share Price Performance
What matters to shareholders is share price performance. Since
September 2015, the Company's listing on the Main Market of the
London Stock Exchange has been quoted in sterling whilst the
Company's functional currency has remained the US dollar. 55% of
HVPE's assets consist directly of US investments and a further 23%
of assets are denominated in US dollars. In consequence, the
exchange rate between the US dollar and sterling is critical to the
translation of the US dollar NAV per share performance into
sterling and it is that sterling figure that is a key determinant
in relation to the share price.
In the year to 31 January 2018, sterling made a significant
recovery after the shock of the UK Referendum in June 2016. In
addition, the US dollar was going through a weak period with the
trade weighted index of the currency depreciating by approximately
8.2% during the year. Against sterling the US dollar moved from
$1.258 to $1.419, or an appreciation of sterling by 12.8% which
depressed the NAV per share when viewed in sterling. Consequently,
notwithstanding the substantial double-digit growth of NAV per
share in US dollars, in sterling terms that NAV per share grew by a
modest 3.0% on account of the currency movement.
The second factor influencing the share price is the discount to
NAV at which the Company's shares trade on the stock market. The
reasons for investment companies' shares trading at discounts are
many. The reality is that many companies' shares, and indeed whole
sectors, do trade regularly at discounts and movements in those
discounts are often volatile and unpredictable. For the year to 31
January 2018 the discount narrowed from 19% to 17% and the share
price rose from GBP11.95 to GBP12.52, or by 4.8%. In contrast to
the previous year, US dollar shareholders benefitted from the
appreciation of sterling with the share price, translated back into
US dollars, rising by 18.2%.
Immediately after the Company's year-end, stock markets suffered
a substantial sell-off. HVPE's shares have been trading recently at
a discount to NAV per share of some 20% and there has been
significant short-term volatility in the US dollar/sterling
exchange rate which has been reflected in some movement in the
share price. Although the strongest determinant of shareholder
value will continue to be the delivery by the Investment Manager of
superior growth in NAV per share, the Board is very mindful of the
need to aspire towards a lower discount and regularly reviews
options with the Company's corporate brokers. However, as I have
reported in earlier statements, for an ongoing company investing in
illiquid assets options that will have a long-term effect are
limited. One, though, that will have a long-term effect is
effective spreading of the story to prospective investors as to the
merits of listed private equity as an asset class, and of HVPE in
particular, and the Board and Investment Manager have dedicated
significant additional resources towards marketing and promoting
the Company in recent months.
Company Portfolio, Balance Sheet and Fees
The Investment Manager's report follows this Statement and gives
details of the Company's business and of the market in private
assets. In order to generate future growth in NAV per share, in
accordance with the strategic plan presented to and approved by the
Board annually, the Investment Manager continued to make new
commitments to HarbourVest funds. During the year $340 million was
committed and at the year end HVPE had yet-to-be funded commitments
of $1.2 billion. At every meeting the Board focuses on those
commitments and the future funding thereof, including reviewing
balance sheet models which assume both the continuation of
optimistic scenarios for markets and asset values and, importantly,
possibly more difficult times. When reviewing every model, the
Board strives to ensure that the Company will be positioned such
that it will be able to conduct its business according to plan, as
indeed it was able to do through the Global Financial Crisis of
2008/09.
The Company's balance sheet is strong. At 31 January 2018, the
Company had cash balances of $257 million and an undrawn $500
million credit facility provided by Lloyds Bank Plc and Credit
Suisse with a repayment date of December 2022. I am pleased to
report that during the year the duration of the bank facility was
extended by 12 months to 60 months and in the future it is intended
that at annual renewal there will always be at least 48 months
unexpired on the current facility. In today's climate the Company
considers that the risk of being unable to maintain a facility with
at least 48 months unexpired is low and thus it is reasonable to
continue to make significant new commitments to HarbourVest funds
and be ready to participate in any attractive opportunities that
HarbourVest might be able to source for HVPE.
I have previously reported that the Investment Manager had
expected a reduction in the substantial cash balances that the
Company had built up. In fact, in the year to 31 January 2018,
strong distributions continued and the Company ended its year with
a cash balance which had increased by over $80 million. Movements
in cash balances are the residual product of two substantial
figures. In the year the Company received distributions of $405
million and subscribed $313 million in calls and relatively small
movements in either of these factors can cause significant movement
in the cash balances.
In its report the Investment Manager reviews the trend for the
increased use of readily available debt throughout the private
equity industry. The Investment Manager has taken advantage of that
availability to increase the level of debt, particularly in the use
of short-term bridging facilities, in some of the HarbourVest funds
in which the Company is invested. That increase is directly
mirrored in the build-up of cash on the Company's balance sheet.
The Investment Manager does not expect future increases in debt to
be material and thus expects that a substantial part of the
Company's cash balance will be drawn over the next two to three
years to fund existing and future commitments.
Management fees are a continued area of focus for investors, and
the recent introduction of the Key Information Document has led to
increased disclosure with respect to the overall costs incurred in
managing investment company portfolios. HVPE continues to benefit
from a reduction in the fee rates payable on the HarbourVest funds
in which it invests, and this has contributed to a reduction in the
total ongoing management fees payable to HarbourVest as a
percentage of average NAV from 1.1% in the year ending 31 January
2017 to 1.0% in the year ending 31 January 2018.
Strategic Aim
The aim for the Company is that NAV per share should continue to
outperform that of listed markets materially over the long term. On
a number of occasions in earlier Statements I have referred to an
aim that NAV per share should outperform public markets by 5% per
annum and indeed that figure was achieved from inception in 2007 to
31 January 2016. However, the volatility of public markets makes
the calculation at any one year end an uncertain single measurement
and that was certainly the case as at 31 January 2018 which was
within a few days of several markets' all-time highs. Nevertheless,
on behalf of both the Board and the Investment Manager I reiterate
that material long-term outperformance of NAV per share as compared
with public markets will continue to be the Company's
objective.
Listed markets have been extraordinarily strong since their
nadir in March 2009 and inflation has been subdued. Business
conditions in many economies generally remain benign. However, it
is my view that investors in most risk assets, and that includes
all forms of equity shares, whether listed or not, should not
expect such strong performance over the next nine years as has been
delivered in the last nine. Interest rates in many developed
economies look set to rise. At some point in the future the
business cycle will reassert itself. Meanwhile the principal risks
to the world's economy and to markets would appear to be political,
both at a geopolitical scale and, in some countries, unpredictable
current and future political leadership.
The Board and the Investment Manager
A year ago I indicated that as some long-serving directors
reached and indeed surpassed nine years of service, phased
retirements from the Board would begin to be implemented and
further new directors appointed. Jean-Bernard Schmidt has been a
director since the formation of the Company in 2007 and, as
announced on 25 April 2018, he will retire from the Board at the
conclusion of the Annual General Meeting ("AGM") to be held on 19
July 2018. Jean-Bernard has been a leading practitioner in the
world of private equity for over 40 years. His wealth of experience
has been invaluable when guiding the Company through its early
years and I pay tribute to him for that guidance and for his many
incisive contributions to the deliberations of the Board.
In November 2017, the Company appointed external recruitment
consultants to conduct an independent search for a further
director. In anticipation of future Board changes the consultants
were asked to search for a Chartered Accountant with asset
management experience who, if possible, would be a resident of the
Channel Islands. The Nomination Committee was pleased to be able to
review a very high-quality list of candidates and, after
interviewing the four candidates who most closely met the brief,
the prospective appointment of Steven Wilderspin was announced on
25 April 2018.
It is intended that Steven will join the Board on 14 May 2018.
Steven qualified as a Chartered Accountant with PwC. He is a
resident of Jersey and has experience of entities reporting under
US GAAP, as HVPE reports, as well as UK GAAP and IFRS. He has
substantial experience of the world of private equity, including
fund-of-funds. He has recently stepped down after ten years'
service on the Board of 3i Infrastructure plc where he served as
Chairman of the Audit & Risk Committee. 3i Infrastructure is a
constituent of the FTSE 250 Index, as is HVPE. Steven is also a
director of London listed Blackstone/GSO Loan Financing. I am very
pleased that Steven has agreed to join the Board and look forward
to the Company benefitting from his expertise.
All directors are very aware of the relative lack of diversity
on the Board and this was considered carefully before the decision
was made to appoint Steven. As it has been in the case of recent
appointments, diversity will continue to be an important
consideration for the Board in all future appointments.
The relationship between the Board and the Investment Manager
remains strong and effective, and no material changes have been
made in the structure of the management of the Company. I continue
to be actively involved working closely with the team at
HarbourVest. That team is led on a day to day basis by Richard
Hickman who has recently been promoted within HarbourVest to the
rank of Principal, one rung below that of Managing Director. This
promotion is well deserved. Richard's role in relation to HVPE
continues to grow and, although in practice an employee of the
Investment Manager, his whole focus is on delivering value for the
shareholders of HVPE, of which he is one himself.
Company Secretary and Administrator
On 25 April 2018 the Company announced the appointment, with
effect from 11 May 2018, of BNP Paribas Securities Services S.C.A
("BNP"), BNP Paribas House, St Julian's Avenue, St Peter Port,
Guernsey GY1 1WA, to be Company Secretary and Administrator. BNP
succeeds the JTC Group which had been in place for a number of
years and I take this opportunity to thank the individual members
of the JTC team for their support through an eventful period in the
Company's development.
Annual General Meeting and Informal Shareholder Meeting
As in earlier years the Company's formal AGM will be held in
Guernsey on 19 July 2018. Formal notice of the meeting, the agenda
and the resolutions are expected to be despatched to shareholders
in the week commencing 4 June. In keeping with the AIC Code of
Corporate Governance, all directors, save for Jean-Bernard Schmidt
who will be retiring, will submit themselves for re-election. The
Company's constitution permits the Investment Manager, HarbourVest,
to propose two persons for election to the Board and Peter Wilson
and Brooks Zug have been duly proposed. Brooks has served on the
Board since the Company was listed in 2007. However, as one of the
founders of HarbourVest his deep knowledge of the private equity
industry and the fund-of-funds business, makes him an invaluable
member of the Board and I hope that shareholders will support both
his re-election and that of all ongoing directors.
As was the case last year, the Company has appointed a
specialist firm, Boudicca, to assist in the liaison between the
Company's registered shareholders and decision makers so as to
facilitate the process of voting at the AGM. The Company hopes that
all shareholders will exercise their votes either in person at the
AGM or, more likely, by proxy.
In advance of the formal AGM, HVPE will hold an informal meeting
for interested shareholders at Sofitel St James, 6 Waterloo Place,
London SW1Y 4AN from 8.15am on Wednesday 13 June 2018. The
Investment Manager has recently issued invitations and details by
email. Any shareholder who would like to attend, but has not yet
received an invitation, should contact cedgar@harbourvest.com.
Conclusion
On behalf of the Board and the Investment Manager I thank
shareholders for their continuing support. I look forward to being
able to report a continuation of growth in NAV per share in future
years and to see that effectively translated into an increased
share price. All the directors are shareholders and we look forward
to the future with confidence that investment in private assets
will deliver superior long-term returns.
I am always happy to receive feedback from shareholders and can
be contacted through hvpecosec@bnpparibas.com.
Michael Bunbury
Chairman
10 May 2018
Investment Manager's Review
Performance
NAV per Share
The NAV per share has grown strongly over the 12 months to 31
January 2018, increasing by 16.2%
from $18.47 to $21.46.
During the year the secondary portfolio was the best performing
strategy delivering value growth of 18.7%. Geographically, strong
gains were made in the Europe portfolio, which generated a value
increase of 21.9%, aided by foreign exchange tailwinds; this was
closely followed by the Asian assets, which returned 21.6%. Buyouts
and Growth Equity performed similarly, growing 17.0% and 16.5%
respectively. As might be expected given HVPE's substantial US
exposure, in absolute terms the US assets (55% of the Investment
Portfolio value) were again the most significant contributor to
growth in the period.
HVPE has a history of achieving NAV returns greater than those
of comparable public market indices. At the date of the 31 January
2016 Annual Report, HVPE's outperformance from inception stood at
5.0% on an annualised basis against the MSCI ACWI TR*, as quoted in
the Chairman's Statement of that year. As at 31 January 2018, the
equivalent figure stood at 2.3%. The movement in this
outperformance figure over the two-year period is due primarily to
the recent dramatic gains made by public market indices, which have
outpaced HVPE's NAV growth. Taking a longer-term view, private
equity has tended to outperform listed equity over periods of ten
years or more** and the Investment Manager continues to believe
that the portfolio it is building for HVPE will achieve a return
materially in excess of the public markets through the cycle.
As at 31 January 2018, HVPE held 42 HarbourVest funds and two
secondary co-investments in total. Of these, the five largest
drivers of NAV per share growth over the financial year are shown
individually in the chart below.
-- Fund VIII Buyout, a 2006 vintage US buyout fund-of-funds
programme, is the second largest holding in the portfolio, and is
now in the mature phase. Continued strong distributions from this
fund helped to deliver growth of 17.7% on HVPE's $137 million
holding, adding $0.31 to NAV per share.
-- Dover Street VIII, a 2012 vintage global secondary fund, is
currently in the growth phase. This fund delivered a return of
17.3% on HVPE's $130 million holding, adding $0.30 to NAV per
share.
-- HIPEP VI Partnership, a 2008 vintage international
fund-of-funds programme, is nearing the end of the growth phase and
contributed $0.22 to NAV per share.
-- The 2013 Direct Fund, now entering the growth phase, made a
solid contribution of $0.18 to NAV per share as several portfolio
companies saw strong growth during the year.
-- The first fund raised under HarbourVest's Global Fund
programme, to which HVPE made a commitment in 2014, delivered the
fifth largest increase in NAV per share for HVPE at $0.17. This
fund comprises a portfolio of primary, secondary and direct
co-investments and was conceived as an efficient vehicle to provide
global exposure across the HarbourVest platform.
Outside the top five contributors in absolute terms, several
other funds delivered very strong results. Those achieving value
growth in excess of 20% included Fund IX Buyout, a 2011 vintage US
Buyout fund, both Fund X Buyout and Fund X Venture, 2015 vintage US
buyout/venture funds, Dover Street IX, a 2016 vintage global
secondary fund, and Real Assets III, also a 2016 vintage secondary
fund.
Foreign exchange contributed significantly to NAV per share
growth in the period as the US dollar weakened against the euro and
other currencies. Translation gains arising on the 25% of the
Investment Portfolio denominated in currencies other than the US
dollar totalled $0.43 per share. Subsequent to the financial year
end, the Investment Manager has released an estimated NAV per share
for 1 March 2018 of $21.29. This represents a reduction of $0.17
from the 31 January 2018 audited figure of $21.46, driven by public
market adjustments, FX and operating expenses.
Cash Flows
In contrast to the year ending 31 January 2017, when capital
calls (investments) outpaced distributions, the 12 months to 31
January 2018 has been characterised by a positive net cash flow
trend, with HVPE receiving $405.1 million in distributions while
investing $312.7 million. This reflects the wider private equity
market, where exit activity has outpaced the rate of new
investment. The distributions represent HVPE's largest yearly total
to date in absolute terms, though as a percentage of the Investment
Portfolio this is in line with the prior record of $362.5 million
in the year to 31 January 2016.
At the date of signing of the Semi-Annual Report on 30 September
2017, the Investment Manager expected
that capital calls arising from the level of commitments then in
place would result in a large part of the cash balance being drawn
over the following two to three years. However, in the six months
ending 31 January 2018, HVPE's cash balances moved in the opposite
direction due to increased distribution flow, further supported by
proceeds from the recapitalisation of a large secondary fund, Dover
Street VIII. This, combined with the positive cash flow effect of
an increased use of credit facilities by the HarbourVest funds,
resulted in HVPE's cash balance increasing from $200 million at 31
July 2017 to $257 million as at 31 January 2018. As part of an
established annual process, the Investment Manager has factored
these developments into an updated medium-term cash flow forecast
for HVPE, based on refreshed inputs from the individual HarbourVest
funds and complemented by a top-down sensitivity analysis,
resulting in a revised base case model. Informed by the outputs
from this model, a commitment plan for calendar year 2018 has since
been agreed with the Board, with a view to ensuring that HVPE moves
closer to a fully-invested position over the next two to three
years.
In recent years, the pace of capital calls across the private
equity industry has been influenced by the growing use of bridging
and project finance by private equity fund managers including
HarbourVest. In the year ending 31 January 2018, HVPE's
look-through exposure to debt within the underlying HarbourVest
funds held by HVPE increased by $109.2 million, from $129.5 million
to $238.7 million. This had the effect of delaying capital calls
and accelerating distributions, so that, all else being equal, net
cash flow to HVPE in the period was $109.2 million greater than
would have been the case in the absence of this additional
borrowing. The trend toward increased use of bridging debt, both by
HarbourVest and by the underlying managers to which the HarbourVest
primary and secondary funds provide exposure, has implications
for HVPE's cash flow modelling, and is discussed in more detail
in the "Managing the Company" section which begins on page 20 of
the Company's Annual Report and Accounts.
In the HVPE portfolio, distributions have been driven by the US
primary funds, as well as the global secondary and direct
co-investment funds, while investments have been concentrated in
the 2016 and 2017 global funds, a recent international
fund-of-funds programme, a direct co-vestment fund and recent US
primary buyout and venture funds.
Portfolio Companies
In the year to 31 January 2018, HVPE saw a number of exits from
its top 20 companies, most notably Lightower Fiber Networks
("Lightower"), its largest portfolio company at 31 January 2017
representing 2.1% of the Investment Portfolio. Lightower, a
metrofibre network and broadband service provider in Northeastern
US markets, was sold in a trade sale to tower operator Crown Castle
International for approximately $7 billion. HVPE received proceeds
of $33.0 million in November 2017. In the same month, HVPE also
received proceeds of $8.5 million from the sale of its 14th largest
company, Securus Technologies, to Platinum Equity for $1.5 billion.
At 31 January 2017, these two companies, both held in the 2013
Direct Fund, represented a combined 2.8% of the Investment
Portfolio value. During their respective holding periods together
they added $0.37 to HVPE's NAV per share.
December was the strongest month of the year for distributions
for HVPE as it received total proceeds of
$61.0 million - a level only surpassed once before, in December
2015. Contributing to this was the sale of
Censeo Health, a home healthcare services provider and HVPE's
15th largest portfolio company at 31
January 2017. Censeo Health was sold in a secondary transaction
to New Mountain Capital, a New York-based investment firm.
During the year, the majority of exits from the HVPE portfolio
were via trade sales. Of the 455 liquidity events in the year, 389
of these (85%) were trade sales or sponsor-to-sponsor transactions
with the remaining 66 transactions being IPOs. The proportion of
exits achieved via IPO fell slightly from the prior year, from 16%
to 15%.
* Equivalent to 4.9% against the current benchmark, the FTSE All
World TR.
** Globally, private equity funds returned 12.2% annually over
the 20 years to 30 September 2017, compared with 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.
Evaluation of Absolute Investment*
In 2011, alongside HarbourVest, HVPE made an investment in
Absolute Private Equity ("Absolute"), a Swiss listed fund-of-funds
with net assets of over $1 billion. Absolute was purchased at a 30%
discount to NAV. HVPE initially took 14% of the Absolute
transaction directly, financing this through drawing $85 million
from its $500 million credit facility. It also acquired an indirect
interest in Absolute through its investment in the global secondary
fund, Dover Street VII, resulting in a total investment of $97
million.
Through the financial year, the assets of Absolute have been
fully realised. We are pleased to report the success of this
investment which delivered a gross return of 1.54x cost and a gross
Internal Rate of Return ("IRR") of 14.7% over the holding period of
six years. This has translated into a $0.55 net increase to HVPE's
NAV per share.
* Referred to as: "HVPE Avalon Co-Investment L.P." in the
consolidated schedule of investments.
Activity
Credit Facility
We are pleased to report that in December 2017 HVPE successfully
renegotiated its $500 million multi-currency credit facility with
Lloyds Bank plc and Credit Suisse AG. As part of the renewal, the
facility was extended out to five years (having been four years at
the previous renewal point) and now has an expiry date of December
2022. The lenders have provided an equal commitment of $250 million
each.
The commitment fee on the undrawn facility is unchanged at 115
basis points. The LIBOR margin applicable to the current facility
is 25 basis points lower than the previous terms at 275 basis
points for borrowings of less than $250 million; a further 30 basis
points is payable on the total sum drawn if borrowings exceed $250
million (i.e. 305 basis points). Formerly this equated to 330 basis
points.
New Fund Commitments
The Investment Manager commits capital with reference to a set
of agreed Strategic Asset Allocation ("SAA") targets (as described
on page 17). New commitments in the 12 months ending 31 January
2018 of $340 million were focused on the international
fund-of-funds programme (HIPEP VIII) and the 2017 Global Fund.
During the year, HVPE also made two commitments to deals arising
from the Secondary Overflow Fund III. In the first deal, completed
in June 2017, HVPE committed $10.2 million to participate,
alongside other HarbourVest funds, in the acquisition of a
portfolio of seven venture capital funds managed by Asia-based
venture managers. The funds in this portfolio span a range of
vintage years from 2005 to 2015. In the second deal, in December
2017, the Company committed $9.6 million to participate, alongside
other HarbourVest funds, in a secondary transaction to acquire two
remaining companies in a 2006 vintage European buyout
portfolio.
Post the financial year end, in February 2018, HVPE's SAA
targets were amended with a view to optimising NAV growth over the
long term. A review of the current portfolio composition with
reference to these targets is included on page 18 of the Company's
Annual Report and Accounts. HVPE makes commitments to new
HarbourVest funds in such a way that the portfolio composition is
expected to converge on these targets over a rolling five-year
period.
Market Environment
The private markets saw continued strong growth during 2017. A
benign fundraising environment resulted in more than $700 billion
of capital being drawn into the industry during the year,
contributing to a record $1.7 trillion in "dry powder"* i.e. funds
poised for deployment. Investment activity increased, led by Asia
where the amount of capital put to work almost doubled versus the
prior year. In the US, buyout investment remained steady while
venture investment increased sharply, supported by the trend toward
leading venture-backed companies remaining private for longer.
Consequently, while M&A was robust, IPO activity did not
increase as might have been expected given the growing pipeline of
large-cap companies with the potential to go public.
Private markets managers remain cautious in deploying capital in
the current environment, and in Europe and the US are tending to
remain net sellers of assets. Competition for deals has led to
record pricing at the top end of the US market, while pricing in
the mid-market and below is somewhat less elevated. Managers have
responded to this environment by taking a cautious approach to new
investment, focusing on value creation strategies that emphasise
buy-and-build, operational improvement and the application of new
technology in established industries. At HarbourVest, a high level
of scrutiny is applied when evaluating new investment
opportunities, with downside risk always a key focus. Continued
expansion of the HarbourVest platform into newer areas of the
private markets, such as real assets and micro-cap buyouts,
provides additional scope to deploy capital into attractive new
opportunities.
With 35 years' experience, HarbourVest has invested through
numerous market cycles and through previous
episodes of political uncertainty. HVPE commits to a variety of
HarbourVest funds which, in turn, invest over multi-year periods
thereby ensuring that capital is put to work at a measured pace in
a diverse
range of investments. This approach has delivered strong returns
for HVPE shareholders over a period of more than ten years, and the
strategy remains fundamentally unchanged.
* Bain & Company Global Private Equity Report.
Principal Risks and Uncertainties
Risk Factors and Internal Controls
The Board is responsible for the Company's risk management and
internal control systems and actively monitors the risks faced by
the Company, taking steps to mitigate and minimise these where
possible whilst continuing to achieve an attractive return for
shareholders. The Board has performed a robust assessment of
principal risks and uncertainties and, together with the Investment
Manager, has identified a number of risks to the Company's
business.
A comprehensive risk review process is undertaken on a
half-yearly basis. 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. The risks reviewed are grouped into four categories:
-- financial risk
-- operating risk
-- strategic and investor relations risk
-- governance and regulatory risk
Risks are assessed and classed according to their probability of
occurring and the likely impact upon the Company. Risks are then
categorised based on priority, being grouped into primary and
secondary risks which are subsequently reviewed.
During the financial year, the Board focused on currency risk
and how it might impact future returns, potential future liquidity
requirements based on scenario analysis by the Investment Manager,
and how to maintain the Company's NAV and share price growth.
Risk Description Mitigating Factor
-------------------------------------- -------------------------------------- --------------------------------------
Balance Sheet Risks The Company's balance sheet strategy The Board has put in place a
and its policy for the utilisation of monitoring programme with a defined
leverage are described total commitment ratio cap,
on page 62 of the Company's Annual determined with reference to portfolio
Financial Report. The Company models, in order to mitigate against
continues to maintain an the requirement
over-commitment strategy and may draw to sell assets at a discount during
on its credit facility to bridge periods of NAV decline. Further, the
periods of negative monitoring programme
cash flow when capital calls on also considers the level of debt at
investments are greater than the HarbourVest fund level. Both the
distributions. The level of potential Board and the Investment
borrowing available under the credit Manager actively monitor these metrics
facility could be negatively affected and will take appropriate action as
by declining NAVs. required to attempt
In a period of declining NAVs, reduced to mitigate these risks. Additionally,
realisations, and rapid substantial the Board intends to renew the credit
cash calls, the facility regularly
Company's net leverage ratio could with the aim that there should always
increase beyond an appropriate level, be a minimum of 48 months of unexpired
resulting in a need facility available.
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 Risk While it is currently undrawn, the The Board monitors developments in
Company depends on the availability of credit markets and intends to renew
its credit facility the credit facility
in order to operate an over-commitment regularly with the aim that there
strategy. The Company's lenders may be should always be a minimum of 48
unable or unwilling months of unexpired facility
to renew or extend the Company's available. The Board is also actively
credit facility. considering options for other sources
of financing.
-------------------------------------- -------------------------------------- --------------------------------------
Foreign Exchange Risk Approximately 22% of the value of The Board and the Investment Manager
HVPE's total assets are denominated in monitor the foreign exchange risk
non-US dollar currencies, experienced by the
primarily euros. Foreign currency Company and will consider implementing
movement affects the Company's hedging arrangements if deemed
investments, borrowings on appropriate.
the multi-currency credit facility,
and unfunded commitments.
-------------------------------------- -------------------------------------- --------------------------------------
Popularity of Listed Private Equity Investor sentiment may change towards The Board has set the Investment
Sector the Listed Private Equity Sector, Manager the objective of ensuring that
resulting in a widening the widest possible
of the Company's share price discount variety of investors are informed
to NAV. about the Company's performance and
proposition in order
to mitigate 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 Market Risks Public markets in many developed Both the Board and the Investment
countries are trading close to Manager actively monitor the Company's
all-time highs. While economic NAV, and exposure
fundamentals have improved, structural to individual public markets is
imbalances remain. The Company makes partially mitigated by the
venture capital geographical diversification of
and buyout investments in companies the portfolio. The Board notes that it
where operating performance is has limited ability to mitigate public
affected by the broader market risk.
economic environment within the Stress testing takes place as part of
countries in which those companies the portfolio composition process to
operate. While these companies model the effect
are generally privately owned, their of different macroeconomic scenarios
valuations are, in most cases, to provide comfort to the Board that
influenced by public market the balance of risk
comparables. In addition, and reward is appropriate in the event
approximately 10% of the Company's of a downturn in public markets.
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 HarbourVest The Company is dependent on its This risk is mitigated by the Board
Investment Manager and HarbourVest's monitoring the performance of the
investment professionals. Investment Manager on
With the exception of the 2011 an ongoing basis, including through
Absolute investment and 2012 Conversus regular reports and visits to the
investment, nearly all Investment Manager's
of the Company's assets, save for cash offices, which took place twice in the
balances and short-term liquid year under review. In addition, the
investments, are invested Audit Committee
in HarbourVest funds. reviewed a recent ISAE 3402 report
Additionally, HarbourVest employees from the Investment Manager to assess
play key roles in the operation and the controls environment
control of the Company. of the Investment Manager. Succession
The departure or reassignment of some planning at the Investment Manager is
or all of HarbourVest's professionals monitored by the
could prevent Board of the Company.
the Company from achieving its
investment objectives.
-------------------------------------- -------------------------------------- --------------------------------------
Trading Liquidity and Price Any ongoing or substantial discount to Since September 2015, the Company's
NAV has the potential to damage the shares have traded on the Main Market
Company's reputation of the London Stock
and to cause shareholder Exchange, which has increased the
dissatisfaction. liquidity of the shares and broadened
The five largest shareholders the appeal to a wide
represent approximately 47% of the variety of shareholders. In addition,
Company's shares in issue. the Board continues to monitor the
This may contribute to a lack of discount to NAV and
liquidity and widening discount. Also, will consider appropriate solutions to
in the event that address any ongoing or substantial
a substantial shareholder chooses to discount to NAV.
exit the share register, this may have The Board has overseen the allocation
an effect on the of additional investor relations
Company's share price and consequently resource in the year
the discount to NAV. under review. The Company has
attracted new shareholders. However,
the concentration of shares
held by the five largest shareholders
increased from 45% to 47% in the
course of the year
under review.
-------------------------------------- -------------------------------------- --------------------------------------
Board of Directors
Sir Michael Bunbury
Chairman, Independent Non-Executive Director, appointed October
2007
Sir Michael Bunbury (age 71) is an experienced director of
listed and private investment, property and financial services
companies. He is currently the Chairman of BH Global Limited, a
former Director of Foreign & Colonial Investment Trust plc
(which has been an investor in numerous HarbourVest funds,
including funds in which the Company is invested), and Director of
Invesco Perpetual Select Trust plc. Sir Michael began his career in
1968 at Buckmaster & Moore, a member of The Stock Exchange,
before joining Smith & Williamson, Investment Managers and
Chartered Accountants, in 1974 as a Partner. He later served as
Director and Chairman and retired as a consultant to the firm in
May 2017.
Committees: Chairman of both the Nomination and Management
Engagement and Service Provider Committees.
Keith B. Corbin
Senior Independent Non-Executive Director and Chairman of the
Audit Committee, appointed October 2007
Keith Corbin (age 65) is an Associate of the Chartered Institute
of Bankers (A.C.I.B.) (1976) and Member of the Society of Trust and
Estate Practitioners (T.E.P.) (1990). He has been involved in the
management of international financial services businesses in
various international centres during the last 34 years. Keith is
currently the Group Executive Chairman of Nerine International
Holdings Limited, Guernsey, which also has operations in the
British Virgin Islands, Hong Kong, India, and Switzerland. He
serves as a non-executive Director on various regulated financial
services businesses, investment funds, and other companies.
Committees: Chairman of the Audit Committee and member of the
Nomination Committee.
Francesca Barnes
Independent Non-Executive Director, appointed April 2017
Francesca Barnes (age 59) is a non-executive director of Coutts
and Company, Natwest Holdings Limited and the ringfenced banks, and
Capvis private equity. She is also the Chair of Trustees for Penny
Brohn UK, and is a member of the University of Southampton council.
Most recently Francesca sat as a non-executive director on the
Board of Electra Private Equity PLC, a FTSE 250 investment trust
specialising in private equity investments - a position she held
from 2013 to 2016. Previously, Francesca spent 16 years at UBS AG.
For the latter seven of these, she served as Global Head of Private
Equity, following on from senior positions in restructuring and
loan portfolio management. Prior to this, she spent 11 years with
Chase Manhattan UK and US, in roles spanning commodity finance,
financial institutions, and private equity.
Committees: Member of the Audit, Nomination, and Management
Engagement and Service Provider Committees.
Alan C. Hodson
Independent Non-Executive Director, appointed April 2013
Alan Hodson (age 56) is Chairman of JP Morgan Elect and a
Director of Woodford Patient Capital Trust. Alan joined Rowe and
Pitman (subsequently SG Warburg, SBC and UBS) in 1984 and worked in
a range of roles, all related to listed equity markets. He became
Global Head of Equities in April 2001 and was a member of the
Executive Committee of UBS Investment Bank and of the UBS AG Group
Managing Board. He retired from UBS in June 2005 and has since held
positions on a variety of commercial and charity Boards.
Committees: Member of the Audit, Nomination, and Management
Engagement and Service Provider Committees.
Andrew W. Moore
Independent Non-Executive Director, appointed October 2007
Andrew Moore (age 63) is Group Chairman of Cherry Godfrey
Holdings Limited, Chairman of Sumo Limited and a director of Sumo
Acquisitions Limited and Sumo Holdings Limited. Andrew joined
Williams & Glyns Bank, which subsequently became The Royal Bank
of Scotland, after obtaining a diploma in business studies. He
moved to Guernsey to establish and act as Managing Director of a
trust company for The Royal Bank of Scotland in 1985. During his
career, Andrew held a range of senior management positions,
including acting as head of corporate trust and fund administration
businesses for The Royal Bank of Scotland in Guernsey, Jersey, and
Isle of Man, which provided services to many offshore investment
structures holding a wide variety of asset classes. Andrew has over
30 years of experience as both an executive and non-executive
Director of companies including investment funds and banks.
Committees: Member of the Audit, Nomination, and Management
Engagement and Service Provider Committees.
Jean-Bernard Schmidt
Independent Non-Executive Director, appointed October 2007
Jean-Bernard Schmidt (age 72) is a former Managing Partner of
Sofinnova Partners, a leading European venture capital firm based
in Paris. Jean-Bernard joined Sofinnova in 1973 as an investment
manager. In 1981 he became President of Sofinnova Inc. in San
Francisco, managing Sofinnova's US venture capital funds until
1987, when he returned to Paris to head the Sofinnova group. He
then began focusing on Sofinnova's investments in Europe and on
technology and early stage projects in information technologies and
life sciences. In 1989, he launched the first Sofinnova Capital
fund. Jean-Bernard retired from Sofinnova group in September 2010.
He is a past and current board member of many technology companies
in the US and France. Between 1998 and 2001, he was a board member
of AFIC, the French Venture Capital Association. From June 2003 to
June 2004, he was Chairman of EVCA (the European Private Equity and
Venture Capital Association, now Invest Europe). Jean-Bernard is a
graduate of Essec Business School in Paris and holds an MBA from
Columbia University in New York.
Committees: Member of the Nomination and Management Engagement
and Service Provider Committees.
Peter G. Wilson
Non-Executive Director, appointed May 2013
Peter Wilson (age 55) joined HarbourVest's London-based
subsidiary in 1996. He is a member of HarbourVest's Executive
Management Committee and co-leads HarbourVest's secondary
investment activity in Europe. He serves on the advisory committees
for partnerships managed by Baring Vostok Capital Partners, CVC
Capital Partners, Holtzbrinck Ventures, Index Venture Management,
Nordic Capital, and Paragon Partners. Prior to joining HarbourVest,
Peter spent three years working for the European Bank for
Reconstruction and Development, where he originated and managed two
regional venture capital funds in Russia. He served as founding
Chairman of the Board of Trustees of City Year London. Peter also
spent two years at The Monitor Company, a strategy consulting firm
based in Cambridge, Massachusetts. He received a BA (with honours)
from McGill University in 1985 and an MBA from Harvard Business
School in 1990.
D. Brooks Zug
Non-Executive Director, appointed October 2007
Brooks Zug (age 72) is Senior Managing Director Emeritus of
HarbourVest Partners, LLC and a founder of HarbourVest. As Senior
Managing Director Emeritus, Brooks' continuing responsibilities
include advising the current generation of managing directors and
interacting with HarbourVest's most important global clients,
including HVPE. He joined the corporate finance department of John
Hancock Mutual Life Insurance Company in 1977, and, in 1982,
co-founded Hancock Venture Partners, which later became HarbourVest
Partners. Brooks is a past Trustee of Lehigh University and a
current Trustee of the Boston Symphony Orchestra. He received a BS
from Lehigh University in 1967 and an MBA from Harvard Business
School in 1970. Brooks received his CFA designation in 1977.
Directors' Report
The directors present their report and Audited Consolidated
Financial Statements ("Financial Statements") for the year ended 31
January 2018.
A description of important events which have occurred during the
financial year, their impact on the performance of the Company as
shown in the financial statements (beginning on page 86 of the
Company's Annual Financial Report) and a description of the
principal risks and uncertainties facing the Company, together with
an indication of important events that have occurred since the end
of the financial year and the Company's likely future development
is given in the strategic report, the Chairman's statement and the
notes to the Financial Statements and are incorporated here by
reference.
Principal Activity
The Company is a closed-ended investment company incorporated in
Guernsey on 18 October 2007 with an unlimited life. The Company has
one class of shares (the "Ordinary Shares") and its shares are
admitted to trading on the Main Market of the London Stock
Exchange.
Until 9 September 2015, the Company had two classes of shares in
issue being Class A shares of no par value ("Class A shares") and
Class B shares of no par value ("Class B shares"). On 6 December
2007 the Class A shares were admitted to listing and trading on
Euronext Amsterdam by NYSE Euronext. On 12 May 2010, the Class A
shares were admitted to trading on the Specialist Fund Market of
the London Stock Exchange. On 27 August 2015 the Company's Articles
of Incorporation ("Articles") were amended to permit the repurchase
and cancellation of all Class B shares in issue and on 9 September
2015 all Class B Shares were repurchased for a value of $1 per
Class B Share and immediately cancelled.
The transition from the Specialist Fund Market of the London
Stock Exchange to the Main Market of the London Stock Exchange took
effect on 9 September 2015 and the Company joined the FTSE 250
index on 21 December 2015.
In order to reduce administrative and legal costs and
complexity, effective 25 October 2016, the Company consolidated its
listing on the Main Market of the London Stock Exchange and its
shares were delisted from Euronext Amsterdam. Subsequent to the
delisting from Euronext, shareholders who obtained their shares
through Euronext Amsterdam will continue to be able to trade these
shares on the London Stock Exchange.
Please refer to Note 1 in the Financial Statements for
information regarding voting rights.
Investment Objective and Investment Policy
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 market
investments. The Company may also make investments in private
market assets other than private equity where it identifies
attractive opportunities.
The Company seeks to achieve its investment objective primarily
by investing in investment funds managed by HarbourVest, which
invests in or alongside third-party managed investment funds
("HarbourVest Funds"). HarbourVest Funds are broadly of three
types: (i) "Primary HarbourVest Funds", which make limited partner
commitments to underlying private market funds prior to final
closing; (ii) "Secondary HarbourVest Funds", which make purchases
of private market assets by acquiring positions in existing private
market funds or by acquiring portfolios of investments made by such
private market funds; and (iii) "Direct HarbourVest Funds", which
invest into operating companies, projects or assets alongside other
investors.
In addition, the Company may, on an opportunistic basis, make
investments (generally at the same time and on substantially the
same terms) alongside HarbourVest Funds ("Co-investments") and in
closed-ended listed private equity funds not managed by HarbourVest
("Third Party Funds"). Co-investments made by the Company may,
inter alia, include investments in transactions structured by other
HarbourVest vehicles including, but not limited to, commitments to
private market funds or operating companies in which other
HarbourVest funds have invested.
Cash, at any time not held in such longer term investments is,
pending such investment, held in cash, cash equivalents, and money
market instruments.
The Company uses an over-commitment strategy in order to remain
as fully invested as possible, consistent with the investment
guidelines. To achieve this objective, the Company has undrawn
capital commitments to HarbourVest Funds and Co-investments which
exceed its liquid funding resources, but uses its best endeavours
to maintain capital resources which, together with anticipated cash
flows, will be sufficient to enable the Company to satisfy such
commitments as they are called.
Diversification and Investment Guidelines
The Company will, by investing in a range of HarbourVest Funds,
Co-investments and Third Party Funds, seek to achieve portfolio
diversification in terms of:
-- geography: providing exposure to assets in the United States,
Europe, Asia and other markets;
-- stage of investment: providing exposure to investments at
different stages of development such as early stage, balanced and
late stage venture capital, small and middle market businesses or
projects, large capitalisation investments, mezzanine investments
and special situations such as restructuring of funds or distressed
debt;
-- strategy: providing exposure to primary, secondary and direct
investment strategies;
-- vintage year: providing exposure to investments made across
many years; and
-- industry: with investments exposed, directly or indirectly,
to a large number of different companies across a broad array of
industries.
In addition, the Company will observe the following investment
restrictions:
-- with the exception, at any time, of not more than one
HarbourVest Fund or Co-investment to which up to 40% of the
Company's Gross Assets may be committed or in which up to 40% of
the Company's Gross Assets may be invested, no more than 20% of the
Company's Gross Assets will be invested in or committed at any time
to a single HarbourVest Fund or Co-investment;
-- no more than 10% of the Company's Gross Assets will be
invested (in aggregate) in Third Party Funds;
-- the Investment Manager will use its reasonable endeavours to
ensure that no more than 20% of the Company's Gross Assets, at the
time of making the commitment, will be committed to or invested in,
directly or indirectly, whether by way of a Co-investment or
through a HarbourVest Fund, to (a) any single ultimate underlying
investment, or (b) one or more collective investment undertakings
which may each invest more than 20% of the Company's Gross Assets
in other collective investment undertakings (ignoring, for these
purposes, appreciations and depreciations in the value of assets,
fluctuations in exchange rates and other circumstances affecting
every holder of the relevant asset);
-- any commitment to a single Co-investment which exceeds 5% of
the Company's NAV (calculated at the time of making such
commitment) shall require prior Board approval, provided however
that no commitment shall be made to any single Co-investment which,
at the time of making such commitment, represents more than 10%
(or, in the case of a Co-investment that is an investment into an
entity which is not itself a collective investment undertaking (a
"Direct Investment"), 5%) of the aggregate of: (a) the Company's
NAV at the time of the commitment; and (b) undrawn amounts
available to the Company under any credit facilities;
-- the Company will not, without the prior approval of the
Board, acquire any interest in any HarbourVest Fund from a third
party in a secondary transaction for a purchase price that:
(i) exceeds 5% of the Company's NAV; or
(ii) is greater than 105% of the most recently reported net
asset value of such interest (adjusted for contributions made to
and distributions made by such HarbourVest Fund since such
date).
Save for cash awaiting investment which may be invested in
temporary investments, the Company will invest only in HarbourVest
Funds (either by subscribing for an interest during the initial
offering period of the relevant fund or by acquiring such an
interest in a secondary transaction), in Co-Investments or in Third
Party Funds.
Company's Right to Invest in HarbourVest Funds
Pursuant to contractual arrangements with HarbourVest, the
Company has the right to invest in each new HarbourVest Fund,
subject to the following conditions:
-- unless the Board agrees otherwise, no capital commitment to
any HarbourVest Fund may, at the time of making the commitment,
represent more than 35% or less than 5% of the aggregate total
capital commitments to such HarbourVest Fund from all its
investors;
-- unless HarbourVest agrees otherwise, the Company shall not
have a right to make an investment in, or a commitment to, any
HarbourVest Fund to which 10 or fewer investors (investors who are
associates being treated as one investor for these purposes) make
commitments.
Leverage
The Company does not intend to have aggregate leverage
outstanding at Company level for investment purposes at any time in
excess of 20% of the Company's NAV. The Company may, however, have
additional borrowings for cash management purposes which may
persist for extended periods of time depending on market
conditions.
Results
The results for the financial year ended 31 January 2018 are set
out in the Consolidated Statements of Operations within the
Financial Statements that begin on page 87 of the Company's Annual
Financial Report. In accordance with the investment objective of
the Company to generate superior shareholder returns through
long-term capital appreciation, the directors did not declare any
dividends during the year under review and the directors do not
recommend the payment of dividends as at the date of this
report.
Directors
The directors as shown on pages 58 to 59 of the Company's Annual
Financial Report all held office throughout the reporting period
and at the date of signature of these Financial Statements. Brooks
Zug is Senior Managing Director Emeritus of HarbourVest Partners,
LLC, an affiliate of the Investment Manager. Peter Wilson is
Managing Director of HarbourVest Partners (UK) Limited, a
subsidiary of HarbourVest Partners, LLC. Jean-Bernard Schmidt is a
former Managing Partner of Sofinnova Partners, which manages
partnerships into which HarbourVest fund-of-funds invest.
Save as disclosed in these Financial Statements, the Company is
not aware of any other potential conflicts of interest between any
duty of any of the directors owed to it and their respective
private interests. All directors, other than Mr. Zug and Mr.
Wilson, are considered to be independent. Mr. Corbin is the Senior
Independent Director.
Directors' Interests in Shares
31
31 January January
2018 2017
--------------------- ---------- --------
Sir Michael Bunbury 22,863 22,863
--------------------- ---------- --------
Keith Corbin 25,000 25,000
--------------------- ---------- --------
Alan Hodson 30,000 30,000
--------------------- ---------- --------
Andrew Moore 14,400 14,400
--------------------- ---------- --------
Jean-Bernard Schmidt 28,500 28,500
--------------------- ---------- --------
Peter Wilson 25,000 25,000
--------------------- ---------- --------
Brooks Zug 21,000 Nil
--------------------- ---------- --------
Francesca Barnes 2,000 Nil
--------------------- ---------- --------
There has been no change in Directors' interests between 31
January 2018 and the date of signing of this report.
Shareholder Information
The Company announces the estimated net asset value of an
Ordinary Share on a monthly basis together with commentary on the
investment performance provided by the Investment Manager. These
monthly statements are available on the Company's website.
The last traded price of Ordinary Shares is available on
Reuters, Bloomberg, and the London Stock Exchange.
A copy of the original Prospectus of the Company is available
from the Company's registered office and on the Company's
website.
All Ordinary Shares may be dealt in directly through a
stockbroker or professional adviser acting on an investor's behalf.
The buying and selling of Ordinary Shares may be settled through
CREST.
Relations with Shareholders
The Board recognises that it is important to maintain
appropriate contact with major shareholders to understand their
issues and concerns. Members of the Board have had the opportunity
to attend meetings with major shareholders, and the Board accesses
major shareholders' views of the Company via, among other methods,
direct face-to-face contact and analyst and broker briefings. The
Chairman and other independent directors regularly meet with
shareholders.
In addition, the Investment Manager maintains dialogue with
institutional shareholders, the feedback from which is reported to
the Board. The Company has also appointed J.P. Morgan Cazenove and
Jefferies Hoare Govett as its joint corporate brokers to enhance
communications with shareholders. Scott Harris has been engaged to
report on and to liaise with shareholders. In addition, Scott
Harris also arrange shareholder meetings for the Investment
Manager.
The Board monitors the Company's trading activity on a regular
basis.
The Company reports formally to shareholders twice a year. In
addition, current information is provided to shareholders on an
ongoing basis through the Company's website and monthly factsheet.
Shareholders may contact the directors, including the Chairman and
the Senior Independent Director through the Company Secretary.
Substantial Shareholders
In the year ending 31 January 2018, HVPE continued to see a
reduction in the proportion of its shares held by US investors,
from 30% to 24%. From the time of HVPE's listing on the Main Market
of the London Stock Exchange in September 2015, the upper limit
allowable under the prevailing regulatory regime has been 50%. As
the Company is no longer at risk of breaching this limit, the
figure is no longer reported in the monthly factsheets. The table
below shows the interests of major shareholders based on the best
available information received by the Company's share register
analysis provider, incorporating any disclosures provided to the
Company in accordance with DTR 5 in the period under review and to
9 May 2018.
% of Total % of Total
Shares 31 Shares
January 2018 9 May
2018
----------------------------------------- ------------- ----------
State Teachers Retirement System of Ohio 13.57 13.57
----------------------------------------- ------------- ----------
Old Mutual Global Investors 12.03 12.07
----------------------------------------- ------------- ----------
M&G (Prudential) 10.79 10.94
----------------------------------------- ------------- ----------
City of Edinburgh Council 5.72 5.72
----------------------------------------- ------------- ----------
Lazard Asset Management 5.66 5.30
----------------------------------------- ------------- ----------
Total 47.77% 47.60%
----------------------------------------- ------------- ----------
Corporate Responsibility
The Board of the Company considers the ongoing interests of
investors on the basis of open and regular dialogue with the
Investment Manager. The Board receives regular updates outlining
regulatory and statutory developments and responds as
appropriate.
Responsible Investment Policy
The Company delegates responsibility to its Investment Manager
for taking environmental, social and governance ("ESG") issues into
account when considering investments. The Board expects the
Investment Manager to engage with investee funds and companies on
ESG issues and to promote best practice. The Investment Manager is
a signatory to the United Nations' Principles of Responsible
Investing. Further information about this is provided on page 31 of
the Company's Annual Financial Report.
Anti-Bribery Policy
The directors have undertaken to operate the business in an
honest and ethical manner and accordingly take a zero-tolerance
approach to bribery and corruption. The key components of this
approach are implemented as follows:
-- the Board is committed to acting professionally, fairly and
with integrity in all its business dealings and relationships;
-- the Company implements and enforces effective procedures to
counter bribery; and
-- the Company requires all its service providers and advisors
to adopt equivalent or similar principles.
Zero Tolerance Policy towards the Facilitation of Tax
Evasion
Following the entry into force of the UK Criminal Finance Act
2017, the Board has reaffirmed its zero tolerance policy towards
the facilitation of corporate tax evasion.
Disclosures Required Under LR 9.8.4R
The Financial Conduct Authority's Listing Rule 9.8.4R,
pertaining to the annual report, requires that the Company includes
certain information, relating, inter alia, to arrangements made
between a controlling shareholder and the Company, waivers of
directors' fees, and long term incentive schemes in force, in a
single identifiable section of the annual report or a cross
reference table indicating where the information is set out. The
directors confirm that there are no disclosures to be made in this
regard.
Investment Manager
A description of how the Company has invested its assets,
including a quantitative analysis, may be found on pages 1 to 57 of
the Company's Annual Financial Report, with further information
disclosed in the Financial Statements and the Notes to the
Financial Statements on pages 94 to 101 of the Company's Annual
Financial Report. The Board has considered the appointment of the
Investment Manager and, in the opinion of the directors of the
Company, the continuing appointment of the Investment Manager on
the terms agreed is in the interests of its shareholders as a
whole.
In considering this appointment, the Board has reviewed the past
performance of the Investment Manager, the engagement of the
Investment Manager with shareholders and the Board, and the
strategic plan presented to the Board by the Investment
Manager.
The Investment Manager is HarbourVest Advisors L.P. and the
principal contents of the Investment Management Agreement are as
follows:
-- to manage the assets of the Company (subject always to
control and supervision by the Board and subject to both the
investment policy of the Company and any restrictions contained in
any prospectuses published by the Company);
-- to assist the Company with shareholder liaison;
-- to monitor compliance with the Investment Policy on a regular
basis;
-- to nominate up to two Board representatives for election by
shareholders at the Company's Annual General Meeting.
The Investment Manager is not entitled to any direct
remuneration (save expenses incurred in the performance of its
duties) from the Company, instead deriving its fees from the
management fees and carried interest payable by the Company on its
investments in underlying HarbourVest Funds. The investment
management agreement, which was amended and restated on 27 August
2015 (the "Investment Management Agreement"), may be terminated by
either party by giving 12 months' notice. In the event of
termination within ten years and three months of the date of the
listing on the Main Market, the Company would be required to pay a
contribution, which would have been $6.3 million at 31 January 2018
and $6.1 million as at 27 April 2018, as reimbursement of the
Investment Manager's remaining unamortised IPO costs. In addition,
the Company would be required to pay a fee equal to the aggregate
of the management fees for the underlying investments payable over
the course of the 12-month period preceding the effective date of
such termination to the Investment Manager.
Delegation of Responsibilities
Under the Investment Management Agreement, the Board has
delegated to the Investment Manager substantial authority for
carrying out the day-to-day management and operations of the
Company, including making specific investment decisions, subject at
all times to the control of, and review by, the Board. In
particular, the Investment Management Agreement provides that the
Board and the Investment Manager shall agree a strategy mandate
which sets out a five-year plan for the Company.
Directors' Indemnity
Under the Company's Articles, the directors, Secretary and
officers are indemnified out of the Company's assets and profits
from and against all actions, expenses, and liabilities which they
may incur by reason of any contract entered into, or any act in or
about the execution of their respective offices or trusts, except
as incurred by their own negligence, breach of duty or breach of
trust. The Company also maintains directors' and officers'
insurance cover on the directors' behalf.
International Tax Reporting
The Company is subject to Guernsey regulations and guidance
based on reciprocal information sharing inter-governmental
agreements which Guernsey has entered into with a number of
jurisdictions. The Board has taken the necessary actions to ensure
that the Company is compliant with Guernsey regulations and
guidance in this regard.
Risk Management
The Board has an ongoing process in place for identifying,
evaluating and managing the significant risks faced by the Company.
Further details of this process and a description of the principal
risks and uncertainties facing the Company is given on pages 27 to
29 of the Company's Annual Financial Report.
Financial Risk Management
The Company is wholly funded from equity balances, comprising
issued ordinary share capital as detailed in Note 1 to the
Financial Statements and retained earnings. The Company has access
to borrowings pursuant to the Credit Facility of up to $500
million.
The Company's financial risk management objectives and policies
are outlined in the Audit Committee report beginning on page 68 of
the Company's Annual Financial Report and the Principal Risks
section of this report beginning on page 27 of the Company's Annual
Financial Report. The Company's policy on hedging is considered
under Foreign Exchange risks in the Principal Risks section of this
report. Its approach to leverage is outlined on page 62 of the
Company's Annual Financial Report.
The Investment Manager and the Directors ensure that all
investment activity is performed in accordance with the investment
guidelines. The Company's investment activities expose it to
various types of risks that are associated with the financial
instruments and markets in which it invests. Risk is inherent in
the Company's activities and it is managed through a process of
ongoing identification, measurement and monitoring. The financial
risks to which the Company is exposed include price risk, liquidity
risk and cash flow risk and these risks are explained in greater
detail in the Principal Risks section of this report beginning on
page 27 of the Company's Annual Financial Report.
Going Concern
After making enquiries, and mindful of the closed-ended nature
of the Company with no fixed life and the nature of its
investments, the directors are satisfied that it is appropriate to
continue to adopt the going concern basis in preparing the
Financial Statements, and, after due consideration, the directors
consider that the Company is able to continue for a period of at
least the next 12 months. In addition, the Board monitors and
manages the ongoing commitments via the criteria set out on page 60
of the Company's Annual Financial Report. When considering the
criteria, the Board reviews reports from the Investment Manager
detailing ongoing commitments and the Investment Pipeline.
Furthermore, the Board, as part of its regular review of the
Consolidated Statement of Assets and Liabilities and debt position,
considers model scenario outputs that are based on a look-through
to the anticipated underlying fund and portfolio cash flows.
Board Structure and Committees
The activities of the Company are overseen by a majority
independent Board of directors. The Board meets at least five times
a year, and between these scheduled meetings there is regular
contact between directors, the Investment Manager and the
administrator and Company Secretary, including a formal strategy
meeting and scheduled Board update calls.
The directors are kept fully informed of investment and
financial controls and other matters that are relevant to the
business of the Company. Such information is brought to the
attention of the Board by the Investment Manager and by the
administrator and Company Secretary in their quarterly reports to
the Board. The directors also have access where necessary, in the
furtherance of their duties, to professional advice at the expense
of the Company. Committee terms of reference are available on the
Company's website: www.hvpe.com.
The Board of Directors
Audit Committee
Role
To oversee the Company's financial reporting and controls
framework and liaise with and evaluate the performance of the
Company's Auditor.
Nomination Committee
Role
To oversee succession planning and new director appointment and
induction.
Management Engagement and Service Provider Committee
Role
To review the Company's Investment Manager and service providers
to ensure that a good value service of satisfactory quality is
delivered and to manage the appointment process of new or
replacement service providers.
Inside Information Committee
Role
To consider any developments which may require an immediate
announcement by virtue of being price sensitive information.
Board and Committee Meetings
In the financial year ending 31 January 2018, the Board held the
following meetings:
Number of
meetings
held in the
year ending
31 January
Meeting type 2018
------------------------------------------------------- -------------
Quarterly Board Meeting 4
Board Strategy Meeting 1
Ad-hoc Board Meeting 4
Audit Committee Meeting 4
Nomination Committee Meeting 1
Management, Engagement and Service Provider Committee
Meeting 3
Inside Information Committee Meeting 0
------------------------------------------------------- -------------
Total 17
------------------------------------------------------- -------------
All directors received notice of the meetings, the agenda and
supporting documents and were able to comment on the matters to be
raised at the proposed meeting. In addition to the formal
quarterly, strategy and ad-hoc meetings, the Board also receives
detailed updates from the Investment Manager via update calls.
Director Attendance
Below is a summary of the director attendance at the quarterly
and strategic Board meetings held in the financial year:
Director Attendance
at Quarterly
and Strategic
Board Meetings
Ms. Francesca Barnes 3/4*
----------------
Sir Michael Bunbury 5/5
----------------
Mr. Keith Corbin 5/5
----------------
Mr. Alan Hodson 5/5
----------------
Mr. Andrew Moore 5/5
----------------
Mr. Jean-Bernard Schmidt 5/5
----------------
Mr. Peter Wilson 5/5
----------------
Mr. Brooks Zug 5/5
----------------
* Ms Barnes was appointed during the year under review in April
2017. She had a prior engagement which pre-dated her appointment to
the Board and hence was unable to attend one meeting.
Board Evaluation
The Board undertakes a formal annual evaluation of its
performance and the performance of the Investment Manager and the
Company Secretary. Each director's performance is reviewed annually
by the Chairman, and the performance of the Chairman is assessed by
the remaining directors by way of a performance evaluation
questionnaire and a subsequent scheduled interview. As part of the
review, succession planning, the scope of the director's role
including any committee memberships, any training and development
requirements, and the ability of the director to devote sufficient
time to the Company are considered. In addition to the annual
evaluation, in 2016 the Board commissioned an external appraisal by
Board Alpha Limited to review its operation and effectiveness.
Board Composition
The Board has a balance of skills, experience and length of
service relevant to the Company, and the directors believe that any
changes to the Board's composition can be managed without undue
disruption. With any new director appointment to the Board, the new
director will participate in an appropriate, structured induction
process.
The Board has carefully considered its composition, with
specific reference to the fact that Sir Michael Bunbury, Mr.
Corbin, Mr. Moore, Mr. Schmidt and Mr. Zug had served on the Board
for ten years in October 2017. The Board is of the view that, with
the exception of Mr Schmidt who is retiring from the Board, these
directors can continue beyond a tenure of ten years, noting that
they will be subject to continuing scrutiny as to their
effectiveness and independence, and to annual re-election. The
Board confirms that Sir Michael Bunbury, Mr. Corbin, Mr. Moore and
Mr. Schmidt remain independent of the Investment Manager,
notwithstanding their ten years service.
Audit Committee
About the Committee
The Audit Committee consists of Mr. Corbin (Chairman), Ms.
Barnes, Mr. Hodson and Mr. Moore. All committee members are deemed
by the Board to have recent and relevant financial and sector
experience. Ms. Barnes, Mr. Hodson and Mr. Moore have each held
senior banking roles for a number of years as described in their
biographies; Mr. Corbin has extensive experience as a member and
chairman of various audit committees, as well holding banking
qualifications and having acted as a senior manager of a financial
services business for more than 30 years. The terms of reference of
the Audit Committee are available on the Company's website and from
the Company Secretary on request.
The Audit Committee is responsible for the review of the
Company's accounting policies, periodic financial statements,
auditor engagement and certain regulatory compliance matters.
Additionally, the Audit Committee is responsible for making
appropriate recommendations to the Board and ensuring that the
Company complies to the best of its ability with applicable laws
and regulations and adheres to the tenet of generally-accepted
codes of conduct.
The Company does not have an internal audit department. All of
the Company's management and administration functions are delegated
to independent third parties or the Investment Manager and it is
therefore felt there is no need for the Company to have an internal
audit facility. This matter will be reviewed annually.
Activities of the Committee
Audit Committee Report
In the year under review, the Audit Committee examined the
effectiveness of the Company's internal control systems, the annual
and interim reports and financial statements, the auditor's
remuneration and engagement, as well as the auditor's independence
and any non-audit services provided. Further details about the
activities of the committee are set out over the next few
paragraphs.
Audit Committee Meetings
In the financial year ended 31 January 2018, the Audit Committee
met four times: twice on a scheduled basis, and twice on an ad-hoc
basis. The entire Audit Committee was not required to attend the
short notice ad-hoc meetings, which were convened to provide final
sign-off on the financial reports, a detailed discussion and review
having taken place at an earlier meeting. Below is a summary of
director attendance at the committee meetings held in the financial
year, compared with those for which they were eligible:
Scheduled Ad-hoc
meetings meetings
Audit Committee Member Attendance Attendance
----------------------- ----------- -----------
Mr. Keith Corbin 2/2 2/2
----------------------- ----------- -----------
Ms. Francesca Barnes* 1/1 1/1
----------------------- ----------- -----------
Mr. Alan Hodson 2/2 1/2**
----------------------- ----------- -----------
Mr. Andrew Moore 2/2 2/2
----------------------- ----------- -----------
*Ms Barnes was appointed to the Audit committee on 18 May
2017.
**As cited above the entire Audit Committee is not required to
attend the ad-hoc meetings.
Mr. Hodson had a prior engagement.
Auditor Tender
Pursuant to best practice, the Audit Committee undertook an
audit tender process during 2017 in respect of the audit of the
Company's Financial Statements for the year ending 31 January 2018
and onwards. Four audit firms were approached to participate in the
tender process and two firms met with the Audit Committee in May
2017. Following this process, the continued appointment of Ernst
and Young LLP was confirmed.
Auditors
The Audit Committee reviewed the effectiveness of the external
audit process during the year, considering performance,
objectivity, independence and relevant experience, and concluded
that Ernst & Young LLP's appointment as the Company's auditor
should be continued. The Company's auditors, Ernst & Young LLP,
have been appointed to the Company since 2007. The Company's
auditors performed an audit of the Company's financial statements
in accordance with applicable law, US Generally Accepted Auditing
Standards ("GAAS"), and International Standards on Auditing (UK).
The audit approach remained unchanged relative to the prior year
and the Audit Committee was informed that a majority of the audit
field work would be performed by Ernst & Young in Boston,
United States, under the direction and supervision of Ernst &
Young LLP Guernsey.
Auditor Independence
The Audit Committee understands the importance of auditor
independence and, during the year, the Audit Committee reviewed the
independence and objectivity of the Company's auditor, Ernst &
Young LLP. The Audit Committee received a report from the external
auditor describing its independence, controls and current practices
to safeguard and maintain auditor independence. Non-audit fees paid
to the auditor by the Company were nil. Ernst & Young was paid
non-audit fees of $103,200 by the Investment Manager, in relation
to tax services provided for the year ended 31 January 2018, which
were reimbursed by the Company. The Investment Manager has informed
the Committee that future tax services as described above will be
provided by PricewaterhouseCoopers LLP. The Audit Committee
considers all non-audit services to be provided to the Company by
the auditor prior to their appointment to ensure that the auditor
is the most appropriate party to deliver these services and to put
in place safeguards, where appropriate, to manage any threats to
auditor independence. It is the intention of the Committee that the
value of non-audit services provided to the Company will not exceed
the audit fee.
Terms of Engagement
The Audit Committee reviewed the audit scope and fee proposal
set out by the auditors in their audit planning report and
discussed the same with the auditors at an Audit Committee meeting.
The Audit Committee considered the proposed fee of $135,400 for
audit services related to the 31 January 2018 annual accounts.
Having been satisfied by the scope of the engagement letter and fee
proposal, the Committee recommended to the Board to approve the fee
proposal and letter of engagement.
Audited Financial Statements and Significant Reporting
Matters
As part of the 31 January 2018 year-end audit, the Audit
Committee reviewed and discussed the most relevant issues for the
Company, most notably the misstatement or manipulation of the
valuation of its investments in underlying HarbourVest funds, and
received a report from the auditors. The Committee concluded that
the Annual Report and Accounts were fair, balanced and
understandable.
Internal Controls
The Audit Committee reviewed the Board's processes for
evaluating risk to ensure that the systems covered all the
potential risks facing the Company and confirmed to the Board that
the risk review was both thorough and rigorous and the Company's
risk management and internal control systems were effective. The
Audit Committee confirms that there is an ongoing process for
identifying, evaluating, monitoring and managing the significant
risks faced by the Company. This process has been in place for the
year under review and up to the date of approval of this Annual
Report and Financial Statements. It is reviewed by the Board on a
regular basis and is in accordance with the internal controls:
Guidance on Risk Management, Internal Control and Related Financial
and Business Reporting.
The internal control systems are designed to meet the Company's
particular needs and the risks to which it is exposed. Accordingly,
the internal control systems are designed to manage rather than
eliminate the risk of failure to achieve business objectives and by
their nature can only provide reasonable and not absolute assurance
against misstatement and loss. The Company places reliance on the
control environment of its service providers, including its
independent administrator and the Investment Manager. In order to
satisfy itself that the controls in place at the Investment Manager
are adequate, the Audit Committee has reviewed a Type II SOC I
Report - Private Equity Fund Administration Report on Controls
Placed in Operation and Tests of Operating Effectiveness for the
period from 14 January 2017 to 30 September 2017 (a bridging letter
covers the period 1 October 2017 to 4 May 2018), detailing the
controls environment in place at the Investment Manager. There were
no significant findings disclosed in this report which warranted
further investigation by the committee. In addition, the Management
Engagement and Service Provider Committee conducted a detailed
review of the performance of the Company's service providers,
including the Company's administrator, and the Audit Committee
reviewed their findings to ensure that the Company's control
environment was operating satisfactorily.
The following sections discuss the assessments made by the Audit
Committee during the year.
Investment Valuations
The Audit Committee reviews the monthly NAV statements issued by
the Company prior to release. In the year under review members of
the Audit Committee met with operations staff of the Investment
Manager and satisfied themselves that the Company's valuations
process was conducted in accordance with the process reviewed in
detail in the prior year. The Audit Committee remains satisfied
that the valuation techniques used are accurate and appropriate for
the Company's investments and consistent with the requirements of
US GAAP.
Fees and Expenses
The Chairman of the Audit Committee reviewed the calculation of
fees and expenses paid by the Company to the Investment Manager on
a sample of four HarbourVest funds in which the Company is
currently invested. No errors or omissions were noted in these
calculations, and this was communicated to the Audit Committee.
Discussing the calculation and disclosure of fees paid to the
Investment Manager, the Audit Committee noted the enhanced
disclosures and presentation in the Annual Report and concluded
that the information was in a clear and understandable format. The
Audit Committee noted the discussions between the Board and the
Investment Manager to ensure that fees charged to the Company were
comparable with those charged to other significant investors in
HarbourVest funds. The overall percentage rate of fees and expenses
paid to the Investment Manager continues to be reduced from the
levels of previous financial years, and the Audit Committee also
reviewed the information regarding those fees contained in this
Annual Report to ensure that it was presented in a clear and
consistent manner.
Risk Management
The Audit Committee reviewed the Board's policies and procedures
regarding the identification, management, and monitoring of risks
that could affect the Company, which were in place for the year
under review and up to the date of approval of the Annual Report.
No significant failings or weaknesses were identified in the
review. The Audit Committee considers that the Board is engaged on
an ongoing basis in the process of identifying, evaluating and
managing (where possible) the principal risks facing the Company as
shown on pages 27 to 29 of the Company's Annual Financial Report.
This is in accordance with relevant best practice detailed in the
Financial Reporting Council's guidance on Risk Management, Internal
Control and Related Financial and Business Reporting. In addition,
the Audit Committee members participated in the consideration by
the Board of the viability of the Company until 31 January 2021,
details of which are shown on page 76 of the Company's Annual
Financial Report.
Corporate Governance
The Audit Committee continues to monitor the review by the Board
of the Company's compliance with the AIC Code of Corporate
Governance for Investment Companies and best practice following the
admission to trading of the Company's Ordinary Shares on the Main
Market of the London Stock Exchange which took place on 9 September
2015.
Governance and Effectiveness
On 2 May 2018 the Committee conducted a review of its activities
against its constitution and terms of reference in respect of the
year under review.
Other Matters
In presenting this report, I have set out for the Company's
shareholders the key areas that the Audit Committee focuses on. The
Audit Committee advised the Board that the Annual Report and
Accounts are fair, balanced, and understandable. If any
shareholders would like any further information about how the Audit
Committee operates and its review process, I, or any of the other
members of the Audit Committee would be pleased to meet with them
to discuss this.
Keith Corbin
Chairman of the Audit Committee
10 May 2018
Nomination Committee
About the Committee
The Nomination Committee was established on 24 November 2015 and
is chaired by the Chairman of the Company and its members are Ms.
Barnes, Mr. Corbin, Mr. Hodson, Mr. Moore and Mr. Schmidt.
All members of the committee attended all meetings held during
the year. The mandate of the Nomination Committee is to consider
issues related to Board composition and the appointment of
directors. The Terms of Reference for this committee may be found
on the Company's website www.hvpe.com.
Activities of the Committee
Changes to Board Composition
Following the decision by the Board that an orderly succession
process should take place for the retirement of those directors who
had served on the Board for longer than nine years, the committee
Chairman and members drew up a person specification cognisant of
best practice on ensuring that a diverse range of qualified
candidates should be considered and Cornforth Consulting was
appointed as external search consultants. Cornforth Consulting does
not have any other relationship with the Company. Committee members
met with a shortlist of candidates and following this independent
process, Ms. Francesca Barnes was appointed as a director of the
Company on 3 April 2017.
The members of the committee then met in September and agreed
the approach for the appointment of another director as part of the
succession process. Again a person specification was drawn up
taking into account best practice relating to non-executive
director appointments and Cornforth Consulting were engaged as
external search consultants. Committee members met with a shortlist
of candidates and it was announced on 25 April 2018 that Mr. Steven
Wilderspin would be appointed as a director of the Company
effective 14 May 2018. It was also announced that Mr. Jean-Bernard
Schmidt intended to retire at the Company's Annual General Meeting
in July 2018.
The committee also actively engaged with the Investment Manager
and Company Secretary to ensure that Ms. Barnes was given a
suitable induction process.
Induction Process and Board Effectiveness Review
The committee members reviewed the Company's induction processes
and considered matters relating to the composition of the Board,
incorporating these conclusions in the person specifications drawn
up as part of the succession process.
Governance and Effectiveness
In February 2018 the committee conducted a review of its
activities against its constitution and terms of reference in
respect of the year under review and concluded that it had
satisfactorily complied with all of its terms of reference.
Management Engagement and Service Provider Committee
About the Committee
The Management Engagement and Service Provider Committee
("MESPC") was established on 24 November 2015 and is chaired by the
Chairman of the Company. Its members are Ms. Barnes, Mr. Schmidt,
Mr. Hodson and Mr. Moore. The other directors of the Company may
attend by invitation of the committee.
The MESPC held two meetings in the year under review and all
members of the committee attended those meetings. The Terms of
Reference for this committee may be found on the Company's website
www.hvpe.com.
Activities of the Committee
In the course of the year under review, the MESPC conducted a
review of the Company's service providers to ensure the safe and
accurate management and administration of the Company's affairs and
business on terms which were competitive and reasonable for the
shareholders. As part of this process, the Committee additionally
oversaw a tender process in 2017 for the appointment of the
Company's secretary and administrator, as detailed later.
Investment Manager Review
The Board as a whole undertakes annual visits to the Investment
Manager's offices usually alternating between Boston and London. In
May and November 2017, the Board visited the Investment Manager's
London office. As part of these visits, the MESPC received
presentations from various operational teams and senior management
of the Investment Manager regarding investment strategy and other
matters relating to the Company's affairs and discussed the
conclusions of this review with the Investment Manager. The Board
was satisfied with the performance of the Investment Manager with
respect to investment returns and the overall level of service
provided to the Company.
Changes of Secretary and Administrator
The committee conducted a tender process in 2017 for the
appointment of the Company's secretary and administrator, a
shortlist of firms which had the potential to meet the requirements
identified by the committee was drawn up, and firms invited to
tender were assessed against the following criteria:
-- publicly traded company experience and client base;
-- familiarity and experience with private equity as an asset class;
-- regulatory advice and support;
-- profile of the Company Secretarial team;
-- any outsourcing arrangements to be utilised in servicing the Company;
-- proposed Service Level Agreement terms;
-- IT platform and controls environment; and
-- fees and pricing structure.
Following this review, BNP Paribas Securities Services S.C.A was
selected to provide company secretarial, compliance and
administration services effective 11 May 2018.
Management Engagement and Service Provider Review
The Committee met in September 2017 and conducted a detailed
review of the performance of all key service providers to the
Company against the following criteria for the year under
review:
-- scope of service;
-- key personnel;
-- key results achieved for the Company;
-- fees charged to the Company;
-- breaches and errors in the year under review;
-- cyber security; and
-- IT Controls environment.
Governance and Effectiveness
In February 2018 the Committee conducted a review of its
activities against its constitution and terms of reference in
respect of the year under review.
Inside Information Committee
About the Committee
The Committee was formed on 12 July 2016 to consider information
which may need to be made public in order for the Company to comply
with its obligations under the EU Market Abuse Regulation ("EU
MAR"). It had no cause to meet in the year under review since
discussion of any announcements which may have been required to be
released under EU MAR took place at the Board level.
Statement of Compliance with the AIC Code of Corporate
Governance
The directors place a large degree of importance on ensuring
that high standards of corporate governance are maintained and have
therefore chosen to comply with the provisions of the AIC Code of
Corporate Governance for Investment Companies published in July
2016 (the "AIC Code").
The Board of the Company has considered the principles and
recommendations of the AIC Code by reference to the AIC Corporate
Governance Guide for Investment Companies ("AIC Guide"). The AIC
Code, as explained by the AIC Guide, addresses all the principles
set out in the UK Corporate Governance Code April 2016 edition (the
"UK Code"), as well as setting out additional principles and
recommendations on issues that are of specific relevance to the
Company.
The Board considers that reporting against the principles and
recommendations of the AIC Code, and by reference to the AIC Guide
(which incorporates the UK Code), will provide better information
to shareholders. Copies of the AIC Code and the AIC Guide can be
found at www.theaic.co.uk.
The Board has set out compliance with the AIC Code in the table
below.
Principle
No. Principle Details of compliance
--------- ------------------------------------- --------------------------------------------
1 The Chairman should be The Chairman remains independent
independent. of the Investment Manager in line
with this provision of the AIC
Code.
--------- ------------------------------------- --------------------------------------------
2 A majority of the Board Six of the eight directors of the
should be independent Company are independent of the
of the manager. Investment Manager in accordance
with the recommendations of the
AIC Code.
--------- ------------------------------------- --------------------------------------------
3 Directors should be submitted All directors submitted themselves
for re-election at regular for re-election in the year under
intervals. Nomination review pursuant to the recommendations
for re-election should of the AIC Code.
not be assumed but be
based on disclosed procedures
and continued satisfactory
performance.
--------- ------------------------------------- --------------------------------------------
4 The Board should have The Board has not formalised a
a policy on tenure, which policy on tenure, which is not
is disclosed in the annual in accordance with the AIC code.
report. This is because the Board would
like to retain the flexibility
to consider the balance of skills
and experience of the Board as
a whole in order to manage changes
to the Board's composition in accordance
with the circumstances of the Company.
The Board has agreed to keep the
matter under review.
--------- ------------------------------------- --------------------------------------------
5 There should be full disclosure Biographies of all directors are
of information about the included in this report. All conflicts
Board. of interest and remunerated association
with any service provider have
been disclosed in this report and
the Board has a robust process
in place to ensure that conflicts
of interest are disclosed and appropriately
managed.
The Committees recommended by the
AIC Code have been established,
save for a remuneration committee.
The Board consider that given the
Company's structure it is appropriate
for these issues to be considered
by the full Board.
--------- ------------------------------------- --------------------------------------------
6 The Board should aim to The Board and Nomination Committee
have a balance of skills, considered the composition of the
experience, length of Board and committees carefully
service and knowledge in the year under review with a
of the Company. view to enhancing this further.
As a result of this, Ms. Barnes
was appointed in April 2017. The
Board remains confident that the
current balance of skills on the
Board is appropriate for the Company's
requirements.
--------- ------------------------------------- --------------------------------------------
7 The Board should undertake Details of the evaluation of the
a formal and rigorous Board's performance may be found
annual evaluation of its in the Directors' Report.
own performance and that
of its Committees and
individual Directors.
--------- ------------------------------------- --------------------------------------------
8 Director remuneration The Board considered directors
should reflect their duties, remuneration in the year under
responsibilities and the review and fees were revised effective
value of their time spent. 1 October 2017.
--------- ------------------------------------- --------------------------------------------
9 The independent Directors The independent directors of the
should take the lead in Company took the lead in the two
the appointment of new director search and selection processes
Directors and the process which took place in the year under
should be disclosed in review.
the annual report. The Board has not formalised a
policy on diversity. The Board
has renewed its commitment to appointing
the best applicant for any Board
positions becoming open and may
use external search consultants
if required to ensure that there
is a strong and varied pool of
applicants. The Board's priority
is to ensure that it is composed
of directors with a broad balance
of skills, experience and opinions.
--------- ------------------------------------- --------------------------------------------
10 Directors should be offered An induction programme was drawn
relevant training and up following the appointment of
induction. Ms. Barnes and was reviewed by
the Nomination Committee. All directors
are able to request that training
be arranged on any relevant subject
matter.
--------- ------------------------------------- --------------------------------------------
11 The Chairman (and the Not applicable in the year under
Board) should be brought review.
into the process of structuring
a new launch at an early
stage.
--------- ------------------------------------- --------------------------------------------
12 Boards and managers should The Board believes that the Investment
operate in a supportive, Manager engaged in a supportive,
co-operative and open co-operative and open way in the
environment. year under review.
--------- ------------------------------------- --------------------------------------------
13 The primary focus at regular Board meetings during the year
Board meetings should focussed on these matters.
be a review of investment
performance and associated
matters such as gearing,
asset allocation, marketing/investor
relations, peer group
information and industry
issues.
--------- ------------------------------------- --------------------------------------------
14 Boards should give sufficient A dedicated strategy meeting took
attention to overall strategy. place in November 2017.
--------- ------------------------------------- --------------------------------------------
15 The Board should regularly A dedicated MESPC meeting took
review the performance place to consider this matter,
of, and contractual arrangements the conclusions of which are detailed
with, the manager (or in this report.
executives of a self-managed
Company).
--------- ------------------------------------- --------------------------------------------
16 The Board should agree Policies are in place covering
policies with the manager key operational issues and the
covering key operational Investment Management Agreement
issues. in place between the Manager and
the Board sets out matters which
are reserved for the Board's approval.
Due to the structure of the Company
it was not necessary to put in
place policies on share trades,
votes or soft commissions.
--------- ------------------------------------- --------------------------------------------
17 Boards should monitor The Board actively monitored the
the level of the share level of the share price discount
price discount or premium to NAV in the year under review.
(if any) and, if desirable, It regularly reviews and considers
take action to reduce all options available. This is
it. in line with the recommendations
of the AIC Code.
--------- ------------------------------------- --------------------------------------------
18 The Board should monitor The Management Engagement and Service
and evaluate other service Provider Committee conducted a
providers. review of all key service providers
in the year under review. A process
is in place to conduct an in-depth
review of all the service providers,
and in particular the Investment
Manager, at least once a year.
--------- ------------------------------------- --------------------------------------------
19 The Board should regularly The Board considers this at each
monitor the shareholder quarterly meeting.
profile of the company
and put in place a system
for canvassing shareholder
views and for communicating
the Board's views to shareholders.
--------- ------------------------------------- --------------------------------------------
20 The Board should normally No major corporate issues arose
take responsibility for, in the year under review. However,
and have a direct involvement communications about major corporate
in, the content of communications issues are always approved by the
regarding major corporate Board.
issues even if the manager
is asked to act as spokesman.
--------- ------------------------------------- --------------------------------------------
21 The Board should ensure This annual report contains the
that shareholders are disclosures recommended in the
provided with sufficient AIC Code to enable shareholders
information for them to to understand this.
understand the risk/reward
balance to which they
are exposed by holding
the shares.
--------- ------------------------------------- --------------------------------------------
The UK Code includes provisions relating to:
-- the role of the chief executive;
-- executive directors' remuneration; and
-- the need for an internal audit function.
For the reasons set out in the AIC Guide, and as explained in
the UK Code, the Board considers these provisions not relevant to
the position of the Company, being an externally-managed investment
company. In particular, all of the Company's day-to-day management
and administrative functions are outsourced to third parties. As a
result, the Company has no full time executive directors, no direct
employees or internal operations. The Company has therefore not
reported further in respect of these provisions.
This statement forms part of the directors' report, starting on
page 60 of the Company's Annual Financial Report.
Viability Statement
Pursuant to provision C.2.2 of the UK Code and Principle 21 of
the AIC Code, the Board has assessed the viability of the Company
over a three-year period from 31 January 2018. Whilst the Board has
no reason to believe that the Company will not be viable over a
longer period, it has chosen this period as this falls within the
Board's strategic horizon and within the Company's expected
investment lifecycle.
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 equity
investments. The majority of the Company's investments are in
HarbourVest-managed private equity fund-of-funds, which have fund
lives of 10--14 years.
While the Company's investment lifecycle spans a time period of
ten years or more, the Board focuses on a five-year time horizon
when considering the strategic planning of the Company, as
discussed on page 17 of the Company's Annual Financial Report. The
strategic planning focuses on building a portfolio of long-term
assets through capital allocation into a set of rolling five-year
portfolio construction targets defined by investment state,
geography, and strategy. While reviewed and updated annually, this
rolling five-year process allows the Board a medium-term view of
potential growth, projected cash flow and potential future
commitments under various economic scenarios.
As part of its strategic planning, the Board considered a model
scenario that replicated the impact of the global financial crisis
on the Company's portfolio, which caused large NAV declines and a
material reduction in realisations from underlying company
investments. This severe downside scenario included projected
returns and cash flows based on certain assumptions at least as
significant as HVPE's experience during 2008 and 2009. The Board
concluded that new commitments would need to be materially reduced
under this scenario, but that the Company's cash balance and
available credit facility would be sufficient to cover any capital
requirements (as it was during the Global Financial Crisis). The
results of these model scenarios showed that the Company would be
able to withstand the impact of these scenarios occurring over the
three year period.
The Board considers that a three-year period to 31 January 2021
is a more appropriate period of time to assess the Company's
viability as this reflects greater predictability of the Company's
cash flow and new commitments over that time period, and also
reflects a typical minimum remaining term of the Company's credit
facility, which is a significant component in supporting the
Company's over commitment strategy. This three year period of time
is further supported by the Rolling Coverage Ratio metric that the
Investment Manager uses, as explained further on page 22 of the
Company's Annual Financial Report.
The Board, in assessing the viability of the Company, has also
paid particular attention to the principal risks faced by the
Company as disclosed on pages 27 to 29 of the Company's Annual
Financial Report. In addition, the Board has established a risk
management framework, reviewed on a quarterly basis, which is
intended to identify, measure, monitor, report and, where
appropriate, mitigate the risks to the Company's investment
objective, including any liquidity or solvency issues. The Board
does not consider any other risks to be principal risks as defined
in the UK Code.
Based on its review, the Board has a reasonable expectation that
the Company will be able to continue in operation and meet its
liabilities as they fall due over a three year period to 31 January
2021.
Statement of Directors' Responsibilities in Respect of the
Financial Statements
The directors are required to prepare financial statements for
each financial year which give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company
in accordance with US GAAP at the end of the financial year and of
the gain or loss for that period. In preparing those financial
statements, the directors are required to:
-- select suitable accounting policies and apply them
consistently;
-- make judgements and estimates that are reasonable and
prudent;
-- state whether applicable accounting standards have been
followed subject to any material departures disclosed and explained
in the financial statements; and
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The directors are responsible for keeping proper accounting
records which disclose with reasonable accuracy at any time the
financial position of the Company and to enable them to ensure that
the financial statements have been properly prepared in accordance
with The Companies (Guernsey) Law, 2008 (as amended). They are also
responsible for safeguarding the assets of the Company and hence
for taking reasonable steps for the prevention and detection of
fraud and other irregularities.
The directors are responsible for ensuring that the Annual
Report and Financial Statements include the information required by
the Listing Rules and the Disclosure Guidance and Transparency
Rules of the Financial Conduct Authority (together "the Rules").
They are also responsible for ensuring that the Company complies
with the provisions of the Rules which, with regard to corporate
governance, require the Company to disclose how it has applied the
principles, and complied with the provisions, of the corporate
governance code applicable to the Company.
Disclosure of Information to the Auditor
So far as each of the directors is aware, there is no relevant
audit information of which the Company's auditor is unaware, and
each has taken all the steps they ought to have taken as a director
to make themself aware of any relevant audit information and to
establish that the Company's auditor is aware of that
information.
Responsibility Statement
The Board of directors, as identified on pages 58 and 59 of the
Company's Annual Financial Report, jointly and severally confirm
that, to the best of their knowledge:
-- this report includes a fair review of the development and
performance of the business and the position of the Company and the
undertakings included in the consolidation taken as a whole,
together with a description of the principal risks and
uncertainties that they face;
-- the Financial Statements, prepared in accordance with US
GAAP, give a true and fair view of the assets, liabilities,
financial position and profits of the Company and its
undertakings;
-- the Annual Report and Financial Statements taken as a whole
are fair, balanced and understandable and provide the information
necessary for shareholders to assess the Company and its
undertaking's performance, business model and strategy; and
-- the Annual Report and Financial Statements includes
information required by the Financial Conduct Authority for the
purpose of ensuring that the Company and its undertakings comply
with the provisions of the Listing Rules and the Disclosure
Guidance and Transparency Rules of the UK Listing Authority.
By order of the Board
Michael Bunbury
Chairman
Keith Corbin
Chairman of the Audit Committee
10 May 2018
Directors' Remuneration Report
An ordinary resolution for the approval of this Directors'
Remuneration Report will be put to shareholders at the forthcoming
Annual General Meeting to be held in 2018. Due to the Company's
domicile and structure there is no requirement to include a
remuneration report and this report is provided voluntarily by the
Board of the Company.
There are no long term incentive schemes provided by the Company
and no performance fees are paid to directors.
No director has a service contract with the Company, however,
each director is appointed by a letter of appointment which sets
out the terms of the appointment.
Directors are remunerated in the form of fees, payable quarterly
in arrears, to the director personally. The table below details the
fees paid to each director of the Company for the years ended 31
January 2018 and 31 January 2017. The Company's Articles limit the
aggregate fees payable to directors to a maximum of $750,000 per
annum.
Under the Company's Articles, directors are entitled to
additional ad-hoc remuneration for project work outside of the
scope of their ordinary duties. No such payments were made in the
year ending 31 January 2018.
Fees paid for Fees paid for
the 12 months the 12 months
ended 31 January ended 31 January
Director Role 2018 2017
--------------------- ---------------------- ----------------- -----------------
Chairman, Independent
Sir Michael Bunbury Director $211,552 $260,000
--------------------- ---------------------- ----------------- -----------------
Audit Committee
Chairman, Senior
Keith B. Corbin Independent Director $68,080 $66,000
--------------------- ---------------------- ----------------- -----------------
Francesca Barnes Independent Director $46,642 Nil
--------------------- ---------------------- ----------------- -----------------
Alan C. Hodson Independent Director $62,266 $60,500
--------------------- ---------------------- ----------------- -----------------
Andrew W. Moore Independent Director $62,266 $60,500
--------------------- ---------------------- ----------------- -----------------
Jean-Bernard Schmidt Independent Director $62,266 $60,500
--------------------- ---------------------- ----------------- -----------------
D. Brooks Zug Director Nil Nil
--------------------- ---------------------- ----------------- -----------------
Peter G. Wilson Director Nil Nil
--------------------- ---------------------- ----------------- -----------------
Total $513,074 $507,500
--------------------------------------------- ----------------- -----------------
Director fees
Director fees Director fees payable from 1
payable with effect payable with effect February to 30
from 1 January from 1 October September 2017
Role 2018 (annualised)* 2017 (annualised)* (annualised)
---------------------- --------------------- --------------------- ------------------
Chairman, Independent GBP140,000 GBP160,000 $198,000 plus
Director $12,000 expenses.
---------------------- --------------------- --------------------- ------------------
Audit Committee
Chairman, Senior
Independent Director GBP55,000 GBP55,000 $66,000
---------------------- --------------------- --------------------- ------------------
Independent Director GBP50,000 GBP50,000 $60,500
---------------------- --------------------- --------------------- ------------------
* The Board resolved to pay directors' fees in sterling from 1
October 2017 onwards.
Signed on behalf of the Board by:
Michael Bunbury
Chairman
Keith Corbin
Chairman of the Audit Committee
10 May 2018
Independent Auditor's Report
To the Members of HarbourVest Global Private Equity Limited
Opinion
We have audited the Financial Statements of HarbourVest Global
Private Equity Limited (the "Company") and its subsidiaries
(together the "Group") for the year ended 31 January 2018, which
comprise the Consolidated Statement of Assets and Liabilities, the
Consolidated Statement of Operations, Consolidated Statement of
Changes in Net Assets, the Consolidated Statement of Cash Flows,
the Consolidated Schedule of Investments, and the related notes 1
to 11, including a summary of significant accounting policies. The
financial reporting framework that has been applied in their
preparation is applicable law and United States Generally Accepted
Accounting Principles ("US GAAP").
In our opinion, the Financial Statements:
-- give a true and fair view of the state of the Group's affairs
as at 31 January 2018 and of its profit for the year then
ended;
-- have been properly prepared in accordance with US GAAP;
and
-- have been properly prepared in accordance with the
requirements of the Companies (Guernsey) Law, 2008.
Basis for Opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) ("ISAs (UK)") and applicable law. Our
responsibilities under those standards are further described in the
"Auditor's responsibilities for the audit of the Financial
Statements" section of our report below. We are independent of the
Group in accordance with the ethical requirements that are relevant
to our audit of the Financial Statements in the UK, including the
FRC's Ethical Standard as applied to listed entities, and we have
fulfilled our other ethical responsibilities in accordance with
these requirements.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Use of Our Report
This report is made solely to the Company's members, as a body,
in accordance with Section 262 of the Companies (Guernsey) Law,
2008. Our audit work has been undertaken so that we might state to
the Company's members those matters we are required to state to
them in an auditor's report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company's
members as a body, for our audit work, for this report, or for the
opinions we have formed.
Conclusions Relating to Principal Risks, Going Concern and
Viability Statement
We have nothing to report in respect of the following
information in the Annual Report, in relation to which the ISAs
(UK) require us to report to you whether we have anything material
to add or draw attention to:
-- the disclosures in the Annual Report set out on pages 27 to
29 that describe the principal risks and explain how they are being
managed or mitigated;
-- the directors' confirmation set out on pages 27 to 29 in the
Annual Report that they have carried out a robust assessment of the
principal risks facing the entity, including those that would
threaten its business model, future performance, solvency or
liquidity;
-- the directors' statement set out on page 65 of the Company's
Annual Financial Report in the Financial Statements about whether
they considered it appropriate to adopt the going concern basis of
accounting in preparing them, and their identification of any
material uncertainties to the entity's ability to continue to do so
over a period of at least twelve months from the date of approval
of the Financial Statements;
-- whether the directors' statement in relation to going concern
required under the Listing Rules is materially inconsistent with
our knowledge obtained in the audit; or
-- the Directors' explanation set out on page 76 in the Annual
Report as to how they have assessed the prospects of the entity,
over what period they have done so and why they consider that
period to be appropriate, and their statement as to whether they
have a reasonable expectation that the entity will be able to
continue in operation and meet its liabilities as they fall due
over the period of their assessment, including any related
disclosures drawing attention to any necessary qualifications or
assumptions.
Overview of our Audit Approach
Risk of material misstatement:
We have determined that misstatement or manipulation of the
valuation of the Group's investments in the underlying
funds/HarbourVest Direct Investment funds is the only key audit
matter for the current year.
Audit Scope:
We have audited the Financial Statements of HarbourVest Global
Private Equity Limited (the "Company") and its subsidiaries
(together the "Group") for the year ended 31 January 2018.
The audit was led from Guernsey. The audit team mainly included
individuals from the Guernsey office of Ernst & Young LLP and
from the Boston office of Ernst & Young LLP in the US, and
utilised private equity valuation specialists from the Boston
office of Ernst & Young LLP in the US. We operated as an
integrated audit team and we performed audit procedures and
responded to the risk identified as described below.
Materiality:
Overall materiality of $33.6 million (2017: $29.5 million),
which is 2 per cent of net assets.
Key Audit Matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the Financial
Statements of the current year and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had
the greatest effect on the overall audit strategy, the allocation
of resources in the audit and directing the efforts of the
engagement team. These matters were addressed in the context of our
audit of the Financial Statements as a whole, and in our opinion
thereon, and we do not provide a separate opinion on these
matters.
Risk Misstatement or manipulation of the valuation
of the Group's investments ($1,452 million;
2017 $1,296 million).
* Risk that the valuation of the Group's investments at
31 January 2018, which comprise 84.7% (2017: 87.9%)
of net assets, is materially misstated.
* The valuation of the investments is the principal
driver of the Group's net asset value and hence
incorrect valuations would have a significant impact
on the net asset value of the Group.
---------------------------------------------------------------
Our response to Our response comprised the performance of
the risk the following procedures:
* Confirmed our understanding of the Group's processes
and methodologies, including the use of the practical
expedient per Accounting Standard Codification (ASC)
Topic 820 Fair Value Measurement, for valuing
investments held by the Group in the underlying
investee funds;
* Agreeing the individual fair values of each
HarbourVest investment fund the Group has invested
into to its underlying audited Net Asset Value in the
corresponding financial statements as at 31 December
2017 which, prior to adjustments, formed the basis
for the Group's carrying amount as at 31 January 2018
by using the practical expedient;
* Obtaining a schedule of all adjustments made to those
audited Net Asset Values between 1 January 2018 and
31 January 2018, and:
-------------------- ---------------------------------------------------------------
Verifying foreign exchange rate changes to
external third party sources, and their application
to underlying investments denominated in foreign
currencies;
Recalculating a sample of accrued management
fees in underlying investment funds and agreement
of the terms to relevant supporting documents;
Recalculating the impact of carry taken by
the GP of the underlying partnerships on the
gains and losses allocated to the Group for
the period from 1 January 2018 to 31 January
2018;
Independently sourcing third party prices
and verifying fair value changes on publicly
traded securities held in HarbourVest's underlying
investment funds; and
Verifying contributions and withdrawals made
to/from underlying HarbourVest funds to supporting
bank statements.
* Examining the valuations of underlying partnerships
and direct investments held by the Direct
Co-Investment funds the Group had invested in as at
31 December 2017 and, for adjustments made between 1
January 2018 and 31 January 2018, utilising the
procedures set out above;
* We judgementally selected a sample of direct
investments held by the Underlying HarbourVest funds
based on various factors including materiality,
complexity in valuation methodology, and sensitivity
of inputs, and:
Engaged EY valuation specialists to independently
re-value and conclude on their values as at
31 December 2017, and roll forward to 31 January
2018;
Identified key inputs to the valuations and
performed sensitivity analysis around them;
and
Reviewed for evidence of changes in market
conditions during the period 1 January 2018
to 31 January 2018 that could have had a material
impact when applied to the key sensitive inputs
to the valuations of the direct investments
of the underlying funds selected in our sample.
* Obtained and examined direct investment transaction
reports post 31 December 2017 for material changes in
the direct portfolio investments held in underlying
HarbourVest funds and in HarbourVest Direct
Co-Investments.
* Obtained the post-closing adjustments made by the
Group related to updated information provided from
the Partnership Investments to the underlying
HarbourVest funds, and validated that there were no
material changes to the Net Asset Values subsequent
to the underlying HarbourVest funds' finalized
financial reporting process.
-------------------- ---------------------------------------------------------------
Key observations
communicated to * We reported to the Audit Committee that we did not
the Audit Committee identify any instances of use of the inappropriate
methodologies and that the valuation of the Group's
investments in the underlying funds/ HarbourVest
Direct Co-Investment funds were not materially
misstated.
* We also reported to the Audit Committee that there
were no material matters arising from our audit work
on the valuation of the Group's investments in the
underlying funds/ HarbourVest Direct Co-Investment
funds that we wished to bring to their attention.
-------------------- ---------------------------------------------------------------
An Overview of the Scope of Our Audit
Tailoring the Scope
Our assessment of audit risk, our evaluation of materiality and
our allocation of performance materiality determine our audit scope
for the Group. This enables us to form an opinion on the Financial
Statements. We take into account size, risk profile, the
organisation of the Group and effectiveness of controls, including
controls and changes in the business environment when assessing the
level of work to be performed. All audit work was performed
directly by the audit engagement team.
The audit was led from Guernsey and utilised audit team members
from the Boston office of Ernst & Young LLP in the US. We
operated as an integrated audit team across the two jurisdictions
and we performed audit procedures and responded to the risk
identified as described above.
The Group comprises the Company and its five wholly owned
subsidiaries as explained in note 2 to the financial statements.
The Company, each subsidiary and the consolidation are subject to
full scope audit procedures. Other than the investments which the
Company holds directly, the subsidiaries own the investments, which
are set out in the consolidated schedule of investments, and on
which we performed our work on valuation.
Our Application of Materiality
We apply the concept of materiality in planning and performing
the audit, in evaluating the effect of identified misstatements on
the audit and in forming our audit opinion.
Materiality
"Materiality" is the magnitude of omissions or misstatements
that, individually or in aggregate, could reasonably be expected to
influence the economic decisions of the users of the Financial
Statements. Materiality provides a basis for determining the nature
and extent of our audit procedures.
We determined planning materiality for the Group to be $33.6
million (2017: $29.5 million), which is 2 per cent (2017: 2 per
cent) of net asset value. This provided a basis for determining the
nature, timing and extent of risk assessment procedures,
identifying and assessing the risk of material misstatement and
determining the nature, timing and extent of further audit
procedures. We used net asset value as a basis for determining
planning materiality because the Group's primary performance
measures for internal and external reporting are based on net asset
value.
Performance Materiality
"Performance materiality" is the application of materiality at
the individual account or balance level. It is set at an amount to
reduce to an appropriately low level the probability that the
aggregate of uncorrected and undetected misstatements exceeds
materiality.
On the basis of our risk assessments, together with our
assessment of the Group's overall control environment, our
judgement was that overall performance materiality (i.e. our
tolerance for misstatement in an individual account or balance) for
the Group should be 75 per cent of materiality, namely $25.2
million (2017: 75 per cent. of materiality, namely $22.1 million).
Our objective in adopting this approach was to ensure that total
uncorrected and undetected audit differences in the Financial
Statements did not exceed our materiality level.
Reporting Threshold
"Reporting threshold" is an amount below which identified
misstatements are considered as being clearly trivial.
We agreed with the Audit Committee that we would report to them
all audit differences in excess of $1.7 million (2017: $1.5
million) which is set at 5 per cent of planning materiality, as
well as differences below that threshold that, in our view,
warranted reporting on qualitative grounds.
We evaluated any uncorrected misstatements against both the
quantitative measures of materiality discussed above and in light
of other relevant qualitative considerations in forming our
opinion.
Other Information
The other information comprises the information included in the
Annual Report set out on pages 1 to 78 and 102 to 124, other than
the Financial Statements and our auditor's report thereon. The
directors are responsible for the other information.
In connection with our audit of the Financial Statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the Financial Statements or our knowledge obtained in the
audit or otherwise appears to be materially misstated. If we
identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a
material misstatement in the Financial Statements or a material
misstatement of the other information. If, based on the work we
have performed, we conclude that there is a material misstatement
of the other information, we are required to report that fact.
We have nothing to report in this regard.
In this context, we also have nothing to report in regard to our
responsibility to specifically address the following items in the
other information and to report as uncorrected material
misstatements of the other information where we conclude that those
items meet the following conditions:
Fair, balanced and understandable set out on page 77 of the
Company's Annual Financial Report - the statement given by the
directors that they consider the Annual Report and Financial
Statements taken as a whole is fair, balanced and understandable
and provides the information necessary for Shareholders to assess
the Group's performance, business model and strategy, is materially
inconsistent with our knowledge obtained in the audit; or
Audit committee reporting set out on pages 68 to 70 of the
Company's Annual Financial Report - the section describing the work
of the audit committee does not appropriately address matters
communicated by us to the audit committee is materially
inconsistent with our knowledge obtained in the audit; or
Directors' statement of compliance with the UK Corporate
Governance Code set out on pages 73 to 77 of the Company's Annual
Financial Report - the parts of the directors' statement required
under the Listing Rules relating to the Group's compliance with the
UK Corporate Governance Code containing provisions specified for
review by the auditor in accordance with Listing Rule 9.8.10R(2) do
not properly disclose a departure from a relevant provision of the
UK Corporate Governance Code.
Matters on which we are Required to Report by Exception
We have nothing to report in respect of the following matters in
relation to which the Companies (Guernsey) Law, 2008 requires us to
report to you if, in our opinion:
-- proper accounting records have not been kept by the Company;
or
-- the Financial Statements are not in agreement with the
Company's accounting records and returns; or
-- we have not received all the information and explanations we
require for our audit.
Responsibilities of Directors
As explained more fully in the directors' Responsibilities
Statement set out on page 77 of the Company's Annual Financial
Report, the directors are responsible for the preparation of the
Financial Statements and for being satisfied that they give a true
and fair view, and for such internal control as the directors
determine is necessary to enable the preparation of Financial
Statements that are free from material misstatement, whether due to
fraud or error.
In preparing the Financial Statements, the directors are
responsible for assessing the Group's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the Group to cease operations,
or have no realistic alternative but to do so.
Auditor's Responsibilities for the Audit of the Financial
Statements
Our objectives are to obtain reasonable assurance about whether
the Financial Statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these Financial
Statements.
A further description of our responsibilities for the audit of
the Financial Statements is located on the Financial Reporting
Council's website at
https://www.frc.org.uk/auditorsresponsibilities. This description
forms part of our auditor's report.
David Robert John Moore, ACA
For and on behalf of Ernst & Young LLP
Guernsey, Channel Islands
10 May 2018
Notes:
1. The maintenance and integrity of the Company's website is the
sole responsibility of the Directors; the work carried out by the
auditors does not involve consideration of these matters and,
accordingly, the auditor accepts no responsibility for any changes
that may have occurred to the Financial Statements since they were
initially presented on the website.
2. Legislation in Guernsey governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
Independent Auditor's Report
To the Directors of HarbourVest Global Private Equity
Limited
We have audited the accompanying consolidated financial
statements of HarbourVest Global Private Equity Limited (the
"Company") and its subsidiaries (together the "Group"), which
comprise the consolidated statement of assets and liabilities,
including the consolidated schedule of investments, as at 31
January 2018, and the related consolidated statements of
operations, changes in net assets, and cash flows for the year then
ended, and the related notes to the financial statements.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair
presentation of these financial statements in conformity with
United States Generally Accepted Accounting Principles ('US GAAP');
this includes the design, implementation, and maintenance of
internal control relevant to the preparation and fair presentation
of financial statements that are free of material misstatement,
whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit in accordance
with auditing standards generally accepted in the United States.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements
are free of material misstatement.
An audit involves performing procedures to obtain audit evidence
about the amounts and disclosures in the financial statements. The
procedures selected depend on the auditor's judgment, including the
assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the
Company's preparation and fair presentation of the financial
statements in order to design audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control.
Accordingly, we express no such opinion. An audit also includes
evaluating the appropriateness of accounting policies used and the
reasonableness of significant accounting estimates made by
management, as well as evaluating the overall presentation of the
financial statements.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our audit
opinion.
Opinion
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of HarbourVest Global Private Equity Limited at
31 January 2018, and the consolidated results of its operations,
changes in its net assets, and its cash flows for the year then
ended, in conformity with United States Generally Accepted
Accounting Principles.
Ernst & Young LLP
Guernsey, Channel Islands
10 May 2018
Consolidated Statements of Assets and Liabilities
At 31 January 2018 and 2017
In US Dollars 2018 2017
------------------------------------------------ -------------- --------------
ASSETS
Investments (Note 4) 1,452,215,345 1,295,753,465
Cash and equivalents 256,961,145 175,195,209
Other assets 6,790,179 5,275,923
------------------------------------------------ -------------- --------------
Total assets 1,715,966,669 1,476,224,597
LIABILITIES
Accounts payable and accrued expenses 1,872,066 1,119,843
Accounts payable to HarbourVest Advisers L.P.
(Note 9) 227,767 246,933
------------------------------------------------ -------------- --------------
Total liabilities 2,099,833 1,366,776
Commitments (Note 5)
NET ASSETS $1,713,866,836 $1,474,857,821
NET ASSETS CONSIST OF
Shares, Unlimited shares authorised, 79,862,486
shares issued and
outstanding at 31 January 2018 and 2017, no
par value 1,713,866,836 1,474,857,821
------------------------------------------------ -------------- --------------
NET ASSETS $1,713,866,836 $1,474,857,821
Net asset value per share $21.46 $18.47
------------------------------------------------ -------------- --------------
The accompanying notes are an integral part of the consolidated
financial statements.
The Audited Consolidated Financial Statements on pages 86 to 101
of the Company's Annual Financial Report were approved by the Board
on 10 May 2018 and were signed on its behalf by:
Michael Bunbury Keith Corbin
Chairman Chairman of the Audit Committee
Consolidated Statements of Operations
For the Years Ended 31 January 2018 and 2017
In US Dollars 2018 2017
------------------------------------------------------ ------------ ------------
REALISED AND UNREALISED GAINS (LOSSES) ON INVESTMENTS
Net realised gain (loss) on investments 157,395,016 88,816,643
Net change in unrealised appreciation (depreciation)
on investments 91,527,458 58,688,595
------------------------------------------------------ ------------ ------------
NET GAIN ON INVESTMENTS 248,922,474 147,505,238
INVESTMENT INCOME
Interest from cash and equivalents 2,068,790 982,036
EXPENSES
Non-utilisation fees (Note 6) 5,829,861 4,713,889
Investment services (Note 3) 1,457,264 1,112,274
Management fees (Note 3) 1,410,379 1,735,159
Financing expenses 1,300,594 1,237,357
Professional fees 658,745 629,155
Directors' fees and expenses (Note 9) 580,491 572,744
Tax expenses 67,636 250,546
Non-recurring listing expenses (Note 1) - 12,710
Other expenses 677,279 671,390
------------------------------------------------------ ------------ ------------
Total expenses 11,982,249 10,935,224
------------------------------------------------------ ------------ ------------
NET INVESTMENT LOSS (9,913,459) (9,953,188)
------------------------------------------------------ ------------ ------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $239,009,015 $137,552,050
------------------------------------------------------ ------------ ------------
The accompanying notes are an integral part of the consolidated
financial statements.
Consolidated Statements of Changes in Net Assets
For the Years Ended 31 January 2018 and 2017
In US Dollars 2018 2017
----------------------------------------------------- -------------- --------------
INCREASE IN NET ASSETS FROM OPERATIONS
Net realised gain (loss) on investments 157,395,016 88,816,643
Net change in unrealised appreciation (depreciation) 91,527,458 58,688,595
Net investment loss (9,913,459) (9,953,188)
----------------------------------------------------- -------------- --------------
Net increase in net assets resulting from operations 239,009,015 137,552,050
NET ASSETS AT BEGINNING OF YEAR 1,474,857,821 1,337,305,771
----------------------------------------------------- -------------- --------------
NET ASSETS AT OF YEAR $1,713,866,836 $1,474,857,821
----------------------------------------------------- -------------- --------------
The accompanying notes are an integral part of the consolidated
financial statements.
Consolidated Statements of Cashflows
For the Years Ended 31 January 2018 and 2017
In US Dollars 2018 2017
----------------------------------------------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net increase in net assets resulting from operations 239,009,015 137,552,050
Adjustments to reconcile net increase in net
assets resulting from
operations to net cash provided (used in) by
operating activities:
Net realised (gain) loss on investments (157,395,016) (88,816,643)
Net change in unrealised (appreciation) depreciation (91,527,458) (58,688,595)
Contributions to private equity investments (312,684,514) (269,770,234)
Distributions from private equity investments 405,145,108 251,009,550
Other (781,199) (516,298)
----------------------------------------------------- ------------- -------------
Net cash provided by (used in) operating activities 81,765,936 (29,230,170)
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 81,765,936 (29,230,170)
CASH AND EQUIVALENTS AT BEGINNING OF YEAR 175,195,209 204,425,379
----------------------------------------------------- ------------- -------------
CASH AND EQUIVALENTS AT OF YEAR $256,961,145 $175,195,209
----------------------------------------------------- ------------- -------------
The accompanying notes are an integral part of the consolidated
financial statements.
Consolidated Schedule of Investments
At 31 January 2018
In US Dollars
-------------------------------- ------------------- ------------- ------------- ------------ -----------
Fair Value
as a
Amount Distributions % of
US Funds Unfunded Commitment Invested* 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
-------------------------------- ------------------- ------------- ------------- ------------ -----------
HarbourVest Partners
VII-Venture Partnership
Fund L.P. 2,318,750 135,290,448 168,399,303 36,858,212 2.2
-------------------------------- ------------------- ------------- ------------- ------------ -----------
HarbourVest Partners
VII-Buyout Partnership
Fund L.P. 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 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 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
-------------------------------- ------------------- ------------- ------------- ------------ -----------
Fair Value
as a
International/Global Amount Distributions % of
Funds Unfunded Commitment Invested* 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.(--) 1,767,132 63,880,350 67,335,143 19,052,258 1.1
----------------------------- ------------------- -------------- -------------- --------------- -----------
Dover Street VII Cayman
L.P.(++) 4,413,862 95,586,138 117,193,137 21,592,038 1.3
----------------------------- ------------------- -------------- -------------- --------------- -----------
HIPEP VI-Cayman Partnership
Fund L.P.(**) 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. 43,992,113 31,319,228 3,621,363 35,531,011 2.1
----------------------------- ------------------- -------------- -------------- --------------- -----------
HarbourVest Canada
Parallel Growth Fund
L.P.(++ ++) 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 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
----------------------------- ------------------- -------------- -------------- --------------- -----------
* Includes purchase of limited partner interests for shares and
cash at the time of HVPE's IPO.
Includes ownership interests in HarbourVest Partners VII-Cayman
Partnership entities.
++ Includes ownership interest in Dover Street VII (AIV 1)
Cayman L.P.
-- Fund denominated in euros. Commitment amount is
EUR47,450,000.
** Fund denominated in euros. Commitment amount is EUR100,000,000.
Fund denominated in euros. Commitment amount is
EUR63,000,000.
++++ Fund denominated in Canadian dollars. Commitment amount is C$32,000,000.
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 consolidated
financial statements.
In US Dollars
-------------------------------- ------------------- ------------- ------------- ----------- -----------
Fair Value
as a
Amount Distributions % of
US Funds Unfunded Commitment Invested* Received Fair Value Net Assets
-------------------------------- ------------------- ------------- ------------- ----------- -----------
HarbourVest Partners
V-Partnership Fund
L.P. 2,220,000 46,709,079 45,688,697 1,617,558 0.1
-------------------------------- ------------------- ------------- ------------- ----------- -----------
HarbourVest Partners
VI-Direct Fund L.P. 1,312,500 46,722,408 38,404,878 6,541,186 0.4
-------------------------------- ------------------- ------------- ------------- ----------- -----------
HarbourVest Partners
VI-Partnership Fund
L.P. 5,175,000 204,623,049 215,470,151 24,361,699 1.7
-------------------------------- ------------------- ------------- ------------- ----------- -----------
HarbourVest Partners
VI-Buyout Partnership
Fund L.P. 450,000 8,633,048 8,760,808 686,998 0.1
-------------------------------- ------------------- ------------- ------------- ----------- -----------
HarbourVest Partners
VII-Venture Partnership
Fund L.P. 2,318,750 135,290,448 147,179,691 56,254,486 3.8
-------------------------------- ------------------- ------------- ------------- ----------- -----------
HarbourVest Partners
VII-Buyout Partnership
Fund L.P. 3,850,000 74,417,291 84,512,312 17,823,287 1.2
-------------------------------- ------------------- ------------- ------------- ----------- -----------
HarbourVest Partners
VIII-Cayman Mezzanine
and Distressed Debt
Fund L.P. 2,000,000 48,201,553 46,609,133 18,212,867 1.2
-------------------------------- ------------------- ------------- ------------- ----------- -----------
HarbourVest Partners
VIII-Cayman Buyout
Fund L.P. 15,000,000 237,758,801 232,097,301 137,212,744 9.3
-------------------------------- ------------------- ------------- ------------- ----------- -----------
HarbourVest Partners
VIII-Cayman Venture
Fund L.P. 1,000,000 49,191,736 43,534,496 37,732,362 2.6
-------------------------------- ------------------- ------------- ------------- ----------- -----------
HarbourVest Partners
2007 Cayman Direct
Fund L.P. 2,250,000 97,876,849 106,746,408 53,571,256 3.6
-------------------------------- ------------------- ------------- ------------- ----------- -----------
HarbourVest Partners
IX-Cayman Buyout Fund
L.P. 28,222,500 43,058,226 11,870,827 46,387,135 3.1
-------------------------------- ------------------- ------------- ------------- ----------- -----------
HarbourVest Partners
IX-Cayman Credit Opportunities
Fund L.P. 4,812,500 7,736,193 2,653,130 7,107,749 0.5
-------------------------------- ------------------- ------------- ------------- ----------- -----------
HarbourVest Partners
IX-Cayman Venture Fund
L.P. 12,250,000 58,075,714 14,317,235 64,720,636 4.4
-------------------------------- ------------------- ------------- ------------- ----------- -----------
HarbourVest Partners
2013 Cayman Direct
Fund L.P. 5,478,996 94,881,486 9,832,883 125,855,850 8.5
-------------------------------- ------------------- ------------- ------------- ----------- -----------
HarbourVest Partners
Cayman Cleantech Fund
II L.P. 12,750,000 7,305,952 126,588 7,435,728 0.5
-------------------------------- ------------------- ------------- ------------- ----------- -----------
HarbourVest Partners
X Buyout Feeder Fund
L.P. 230,580,000 21,447,552 - 25,047,983 1.7
-------------------------------- ------------------- ------------- ------------- ----------- -----------
HarbourVest Partners
X Venture Feeder Fund
L.P. 133,940,000 14,113,838 - 16,009,714 1.1
-------------------------------- ------------------- ------------- ------------- ----------- -----------
HarbourVest Partners
Mezzanine Income
Fund L.P. 43,655,000 6,566,579 646,022 6,891,243 0.5
-------------------------------- ------------------- ------------- ------------- ----------- -----------
Total US Funds 507,265,246 1,202,609,802 1,008,450,560 653,470,481 44.3
-------------------------------- ------------------- ------------- ------------- ----------- -----------
Fair Value
as a
International/Global Amount Distributions % of
Funds Unfunded Commitment Invested* Received Fair Value Net Assets
----------------------------- ------------------- -------------- -------------- -------------- -----------
HarbourVest International
Private Equity Partners
III-Partnership Fund
L.P. 3,450,000 147,728,557 146,925,855 2,024,086 0.1
----------------------------- ------------------- -------------- -------------- -------------- -----------
HarbourVest International
Private Equity Partners
IV- Direct Fund L.P. - 61,452,400 52,518,672 2,136,113 0.1
----------------------------- ------------------- -------------- -------------- -------------- -----------
HarbourVest International
Private Equity Partners
IV-Partnership Fund
L.P. 3,125,000 126,647,051 139,809,839 11,404,813 0.8
----------------------------- ------------------- -------------- -------------- -------------- -----------
HIPEP V - 2007 Cayman
European Buyout Companion
Fund L.P.(--) 1,537,095 63,880,348 50,056,237 31,273,616 2.1
----------------------------- ------------------- -------------- -------------- -------------- -----------
Dover Street VII Cayman
L.P.(++) 4,250,000 95,750,000 108,286,143 29,091,472 2.0
----------------------------- ------------------- -------------- -------------- -------------- -----------
HIPEP VI-Cayman Partnership
Fund L.P.(**) 15,657,100 106,947,200 36,623,365 103,919,679 7.0
----------------------------- ------------------- -------------- -------------- -------------- -----------
HIPEP VI-Cayman Asia
Pacific Fund L.P. 6,500,000 43,687,431 13,909,704 45,764,584 3.1
----------------------------- ------------------- -------------- -------------- -------------- -----------
HIPEP VI-Cayman Emerging
Markets Fund L.P. 6,225,000 23,834,490 4,818,697 20,679,116 1.4
----------------------------- ------------------- -------------- -------------- -------------- -----------
HVPE Avalon Co-Investment
L.P. 1,643,962 85,135,136 117,309,747 7,883,332 0.5
----------------------------- ------------------- -------------- -------------- -------------- -----------
Dover Street VIII Cayman
L.P. 29,700,000 150,424,390 78,069,738 130,150,150 8.8
----------------------------- ------------------- -------------- -------------- -------------- -----------
HVPE Charlotte Co-Investment
L.P. - 93,894,011 109,170,334 43,265,096 2.9
----------------------------- ------------------- -------------- -------------- -------------- -----------
HarbourVest Global
Annual Private Equity
Fund L.P. 43,300,000 56,701,202 5,586,910 62,735,835 4.3
----------------------------- ------------------- -------------- -------------- -------------- -----------
HIPEP VII Partnership
Feeder Fund L.P. 91,562,500 33,437,500 1,035,117 35,274,466 2.4
----------------------------- ------------------- -------------- -------------- -------------- -----------
HIPEP VII Asia Pacific
Feeder Fund L.P. 20,700,000 9,300,000 220,628 10,028,009 0.7
----------------------------- ------------------- -------------- -------------- -------------- -----------
HIPEP VII Emerging
Markets Feeder Fund
L.P. 15,800,000 4,200,000 152,570 4,126,230 0.3
----------------------------- ------------------- -------------- -------------- -------------- -----------
HIPEP VII Europe Feeder
Fund L.P. 47,108,975 21,646,444 1,566,975 21,397,109 1.5
----------------------------- ------------------- -------------- -------------- -------------- -----------
HarbourVest Canada
Parallel Growth Fund
L.P.(++++) 23,702,325 857,901 - 877,777 0.1
----------------------------- ------------------- -------------- -------------- -------------- -----------
HarbourVest 2015 Global
Fund L.P. 61,500,000 38,517,309 2,061,041 41,592,379 2.8
----------------------------- ------------------- -------------- -------------- -------------- -----------
HarbourVest 2016 Global
AIF L.P. 90,000,000 10,026,107 - 13,677,257 0.9
----------------------------- ------------------- -------------- -------------- -------------- -----------
HarbourVest Partners
Co-Investment IV AIF
L.P. 81,500,000 18,500,000 - 18,485,772 1.3
----------------------------- ------------------- -------------- -------------- -------------- -----------
Dover Street IX Cayman
L.P. 96,000,000 4,000,000 1,402,554 4,920,061 0.3
----------------------------- ------------------- -------------- -------------- -------------- -----------
HarbourVest Real Assets
III Feeder L.P. 50,000,000 - - 1,576,032 0.1
----------------------------- ------------------- -------------- -------------- -------------- -----------
Total International/Global
Funds 693,261,957 1,196,567,477 869,524,126 642,282,984 43.5
----------------------------- ------------------- -------------- -------------- -------------- -----------
TOTAL INVESTMENTS $1,200,527,203 $2,399,177,279 $1,877,974,686 $1,295,753,465 87.8
----------------------------- ------------------- -------------- -------------- -------------- -----------
* Includes purchase of limited partner interests for shares and
cash at the time of HVPE's IPO.
Includes ownership interests in HarbourVest Partners VII-Cayman
Partnership entities.
++ Includes ownership interest in Dover Street VII (AIV 1)
Cayman L.P.
-- Fund denominated in euros. Commitment amount is
EUR47,450,000.
** Fund denominated in euros. Commitment amount is EUR100,000,000.
Fund denominated in euros. Commitment amount is
EUR63,000,000.
++++ Fund denominated in Canadian dollars. Commitment amount is C$32,000,000.
As of 31 January 2017, the cost basis of partnership investments
is $1,226,407,488.
The accompanying notes are an integral part of the consolidated
financial statements.
Notes to Consolidated Financial Statements
Note 1 Company Organisation and Investment Objective
HarbourVest Global Private Equity Limited (the "Company" or
"HVPE") is a closed-end investment company registered with the
Registrar of Companies in Guernsey under The Companies (Guernsey)
Law, 2008 (as amended). The Company's registered office is Ground
Floor, Dorey Court, Admiral Park, St Peter Port, Guernsey, GY1
2HT.
The Company was incorporated and registered in Guernsey on 18
October 2007. HVPE is designed to offer shareholders long-term
capital appreciation by investing in a diversified portfolio of
private equity investments. The Company invests in private equity
through private equity funds and may make co-investments or other
opportunistic investments. The Company is managed by HarbourVest
Advisers L.P. (the "Investment Manager"), an affiliate of
HarbourVest Partners, LLC ("HarbourVest"), a private equity
fund-of-funds manager. The Company is intended to invest in and
alongside existing and newly-formed HarbourVest funds. HarbourVest
is a global private equity fund-of-funds manager and typically
invests capital in primary partnerships, secondary investments, and
direct investments across vintage years, geographies, industries,
and strategies.
Operations of the Company commenced on 6 December 2007,
following the initial global offering of the Class A ordinary
shares.
Share Capital
At 31 January 2018, the Company's shares were listed on the
London Stock Exchange under the symbol "HVPE". At 31 January 2018,
there were 79,862,486 shares issued and outstanding. The shares are
entitled to the income and increases and decreases in the net asset
value ("NAV") of the Company, and to any dividends declared and
paid, and have full voting rights. Dividends may be declared by the
Board of Directors and paid from available assets subject to the
directors being satisfied that the Company will, immediately after
payment of the dividend, satisfy the statutory solvency test
prescribed by The Companies (Guernsey) Law, 2008 (as amended).
Dividends will be paid to shareholders pro rata to their
shareholdings.
The shareholders must approve any amendment to the Memorandum
and Articles of Incorporation. The approval of 75% of the shares is
required in respect of any changes that are administrative in
nature, any material change from the investment strategy and/or
investment objective of the Company, or any change to the terms of
the investment management agreement.
There is no minimum statutory capital requirement under Guernsey
law.
Investment Manager, Company Secretary, and Administrator
The directors have delegated certain day-to-day operations of
the Company to the Investment Manager and the Company Secretary and
Fund Administrator, under advice to the directors, pursuant to
service agreements with those parties, within the context of the
strategy set by the Board. The Investment Manager is responsible
for, among other things, selecting, acquiring, and disposing of the
Company's investments, carrying out financing, cash management, and
risk management activities, providing investment advisory services,
including with respect to HVPE's investment policies and
procedures, and arranging for personnel and support staff of the
Investment Manager to assist in the administrative and executive
functions of the Company.
Directors
The directors are responsible for the determination of the
investment policy of the Company on the advice of the Investment
Manager and have overall responsibility for the Company's
activities. This includes the periodic review of the Investment
Manager's compliance with the Company's investment policies and
procedures and the approval of certain investments. A majority of
directors must be independent directors and not affiliated with
HarbourVest or any affiliate of HarbourVest.
Note 2 Summary of Significant Accounting Policies
The following accounting policies have been applied consistently
in dealing with items which are considered material in relation to
the Company's consolidated financial position.
Basis of Presentation
The consolidated financial statements include the accounts of
HarbourVest Global Private Equity Limited and its five wholly owned
subsidiaries: HVGPE - Domestic A L.P., HVGPE - Domestic B L.P.,
HVGPE - Domestic C L.P., HVGPE - International A L.P., and HVGPE -
International B L.P. (together "the undertakings"). Each of the
subsidiaries is a Cayman Islands limited partnership formed to
facilitate the purchase of certain investments. All intercompany
accounts and transactions have been eliminated in consolidation.
Certain comparative amounts have been reclassified to conform to
the current year presentation.
Method of Accounting
The consolidated financial statements are prepared in conformity
with US generally accepted accounting principles ("US GAAP"), The
Companies (Guernsey) Law, 2008 (as amended), and the Principal
Documents. Under applicable rules of Guernsey law implementing the
EU Transparency Directive, the Company is allowed to prepare its
financial statements in accordance with US GAAP instead of
IFRS.
The Company is an investment company following the accounting
and reporting guidance of the Financial Accounting Standards Boards
(FASB) Accounting Standards Codification ("ASC") Topic 946
Financial Services - Investment Companies.
Estimates
The preparation of the financial statements in conformity with
US GAAP requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from
those estimates.
Investments
Investments are stated at fair value in accordance with the
Company's investment valuation policy. The inputs used to determine
fair value include financial statements provided by the investment
partnerships which typically include fair market value capital
account balances. In reviewing the underlying financial statements
and capital account balances, the Company considers compliance with
ASC 820, the currency in which the investment is denominated, and
other information deemed appropriate.
The fair value of the Company's investments is primarily based
on the most recently reported NAV provided by the underlying
investment manager as a practical expedient under ASC 820. This
fair value is then adjusted for known investment operating expenses
and subsequent transactions, including investments, realisations,
changes in foreign currency exchange rates, and changes in value of
private and public securities. This valuation does not necessarily
reflect amounts that might ultimately be realised from the
investment and the difference can be material.
Securities for which a public market does exist are valued by
the Company at quoted market prices at the balance sheet date.
Generally, the partnership investments have a defined term and
cannot be transferred without the consent of the General Partner of
the limited partnership in which the investment has been made.
Foreign Currency Transactions
The currency in which the Company operates is US dollars, which
is also the presentation currency. Transactions denominated in
foreign currencies are recorded in the local currency at the
exchange rate in effect at the transaction dates. Foreign currency
investments, investment commitments, cash and equivalents, and
other assets and liabilities are translated at the rates in effect
at the balance sheet date. Foreign currency translation gains and
losses are included in realised and unrealised gains (losses) on
investments as incurred. The Company does not segregate that
portion of realised or unrealised gains and losses attributable to
foreign currency translation on investments.
Cash and Equivalents
The Company considers all highly liquid investments with an
original maturity of three months or less to be cash equivalents.
The carrying amount included in the balance sheet for cash and
equivalents approximates their fair value. The Company maintains
bank accounts denominated in US dollars, in euros, and in pounds
sterling. The Company may invest excess cash balances in highly
liquid instruments such as certificates of deposit, sovereign debt
obligations of certain countries, and money market funds that are
highly rated by the credit rating agencies. The associated credit
risk of the cash and equivalents is monitored by the Board and the
Investment Manager on a regular basis. The Board has authorised the
Investment Manager to manage the cash balances on a daily basis
according to the terms set out in the treasury policies created by
the Board.
Investment Income
Investment income includes interest from cash and equivalents
and dividends. Dividends are recorded when they are declared and
interest is recorded when earned.
Operating Expenses
Operating expenses include amounts directly incurred by the
Company as part of its operations, and do not include amounts
incurred from the operations of the investment entities.
Net Realised Gains and Losses on Investments
For investments in private equity funds, the Company records its
share of realised gains and losses as reported by the Investment
Manager including fund level related expenses and management fees,
and is net of any carry allocation. Realised gains and losses are
calculated as the difference between proceeds received and the
related cost of the investment.
Net Change in Unrealised Appreciation and Depreciation on
Investments
For investments in private equity funds, the Company records its
share of change in unrealised gains and losses as reported by the
investment manager as an increase or decrease in unrealised
appreciation or depreciation of investments and is net of any carry
allocation. When an investment is realised, the related unrealised
appreciation or depreciation is recognised as realised.
Income Taxes
The Company is registered in Guernsey as a tax exempt company.
The States of Guernsey Income Tax Authority has granted the Company
exemption from Guernsey income tax under the provision of the
Income Tax (Exempt Bodies) (Guernsey) Ordinance 1989 (as amended)
and the Company will be charged an annual exemption fee of GBP1,200
included as other expenses in the Consolidated Statements of
Operations.
Income may be subject to withholding taxes imposed by the US or
other countries which will impact the Company's effective tax
rate.
Investments made in entities that generate US source income may
subject the Company to certain US federal and state income tax
consequences. A US withholding tax at the rate of 30% may be
applied on the distributive share of any US source dividends and
interest (subject to certain exemptions) and certain other income
that is received directly or through one or more entities treated
as either partnerships or disregarded entities for US federal
income tax purposes. Furthermore, investments made in entities that
generate income that is effectively connected with a US trade or
business may also subject the Company to certain US federal and
state income tax consequences. The US requires withholding on
effectively connected income at the highest US rate (generally
35%). In addition, the Company may also be subject to a branch
profits tax which can be imposed at a rate of up to 30% of any
after-tax, effectively connected income associated with a US trade
or business. However, no amounts have been accrued.
The Company accounts for income taxes under the provisions of
ASC 740, "Income Taxes." This standard establishes consistent
thresholds as it relates to accounting for income taxes. It defines
the threshold for recognising the benefits of tax-return positions
in the financial statements as "more-likely-than-not" to be
sustained by the taxing authority and requires measurement of a tax
position meeting the more-likely-than-not criterion, based on the
largest benefit that is more than 50% likely to be realised. For
the year ended 31 January 2018, the Investment Manager has analysed
the Company's inventory of tax positions taken with respect to all
applicable income tax issues for all open tax years (in each
respective jurisdiction), and has concluded that no provision for
income tax is required in the Company's financial statements.
Shareholders in certain jurisdictions may have individual tax
consequences from ownership of the Company's shares. The Company
has not accounted for any such tax consequences in these
consolidated financial statements.
Market and Other Risk Factors
The Company's investments are subject to various risk factors
including market, credit, interest rate, and currency risk.
Investments are based primarily in the US, Europe and Asia Pacific,
and thus have concentrations in such regions. The Company's
investments are also subject to the risks associated with investing
in leveraged buyout and venture capital transactions that are
illiquid and non-publicly traded. Such investments are inherently
more sensitive to declines in revenues and to increases in expenses
that may occur due to general downward swings in the world economy
or other risk factors including increasingly intense competition,
rapid changes in technology, changes in federal, state and foreign
regulations, and limited capital investments.
The Company is subject to credit and liquidity risk to the
extent any financial institution with which it conducts business is
unable to fulfil contracted obligations on its behalf. Management
monitors the financial condition of those financial institutions
and does not anticipate any losses from these counterparties.
Note 3 Material Agreements and Related Fees
Administrative Agreement
The Company retained JTC Group ("JTC") as Company Secretary and
Administrator for the year. Fees for these services are paid as
invoiced by JTC and include an administration fee of GBP14,372 per
annum, a secretarial fee of GBP30,631 per annum, an additional
value fee equal to 1/12 of 0.005% of the net asset value of the
Company above $200 million as at the last business day of each
month, and reimbursable expenses.
During the year ended 31 January 2018, fees of $130,439 were
incurred to JTC and are included as other expenses in the
Consolidated Statements of Operations.
Registrar
The Company has retained Link Asset Services (formerly "Capita")
as share registrar. Fees for this service include a base fee of
GBP22,262, plus other miscellaneous expenses. During the year ended
31 January 2018, registrar fees of $52,608 were incurred and are
included as other expenses in the Consolidated Statements of
Operations.
Independent Auditor's Fees
For the year ended 31 January 2018, $135,400 has been accrued
for auditor's fees and is included in professional fees in the
Consolidated Statements of Operations. Non-audit fees paid to the
Auditor by the Company were nil. Ernst & Young in the US was
paid non-audit fees of $103,200 by the Investment Manager, in
relation to tax services provided for the year ended 31 January
2018, which were reimbursed by the Company.
Investment Management Agreement
The Company has retained HarbourVest Advisers L.P. as the
Investment Manager. The Investment Manager is reimbursed for costs
and expenses incurred on behalf of the Company in connection with
the management and operation of the Company. The Investment Manager
does not directly charge HVPE management fees or performance fees
other than with respect to parallel investments. However, as an
investor in the HarbourVest funds, HVPE is charged the same
management fees and is subject to the same performance allocations
as other investors in such HarbourVest funds. During the year ended
31 January 2018, reimbursements for services provided by the
Investment Manager were $1,457,264.
During the year ended 31 January 2018, HVPE had two parallel
investments: HarbourVest Acquisition S.à.r.l. (via HVPE Avalon
Co-Investment L.P.) and HarbourVest Structured Solutions II, L.P.
(via HVPE Charlotte Co-Investment L.P.). Management fees paid for
the parallel investments made by the Company were consistent with
the fees charged by the funds alongside which the parallel
investments were made during the years ended 31 January 2018 and
2017. Management fees included in the Consolidated Statements of
Operations are shown in the table below:
2018 2017
---------------------------------- ---------- ----------
HVPE Avalon Co-Investment L.P. 622,297 938,238
HVPE Charlotte Co-Investment L.P. 788,082 796,921
---------------------------------- ---------- ----------
Total Management Fees $1,410,379 $1,735,159
---------------------------------- ---------- ----------
For the period from 1 February 2017 through 30 September 2017
(termination date of fee), management fees on the HVPE Avalon
Co-Investment L.P. investment were calculated based on a weighted
average effective annual rate of 1.08% on committed capital to the
parallel investment. For the year ended 31 January 2018, management
fees on the HVPE Charlotte Co-Investment L.P. investment were
calculated based on a weighted average effective annual rate of
0.95% on capital originally committed (0.91% on committed capital
net of management fee offsets) to the parallel investment.
Note 4 Investments
In accordance with the authoritative guidance on fair value
measurements and disclosures under generally accepted accounting
principles in the United States, the Company discloses the fair
value of its investments in a hierarchy that prioritises the inputs
to valuation techniques used to measure the fair value. The
hierarchy gives the highest priority to un--adjusted quoted prices
in active markets for identical assets or liabilities (Level 1
measurements) and the lowest priority to unobservable inputs (Level
3 measurements). The guidance establishes three levels of the fair
value hierarchy as follows:
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 utilizing unobservable
inputs, and are therefore classified within Level 3.
Level 3 investments include limited partnership interests in
HarbourVest funds which report under US generally accepted
accounting principles. 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 ASC
820. The fair value is then adjusted for known investment operating
expenses and subsequent transactions, including investments,
realisations, changes 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 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 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
----------------------------- -------- ------- -------------- --------------
Balance at 31 January
2016 $- $- $1,129,487,543 $1,129,487,543
Contributions to investments 269,770,234 269,770,234
Net realised gain (loss)
on investments 29,438 88,787,205 88,816,643
Net change in unrealised
appreciation (depreciation)
on investments 58,688,595 58,688,595
Distributions received
from investments (29,438) (250,980,112) (251,009,550)
----------------------------- -------- ------- -------------- --------------
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
----------------------------- -------- ------- -------------- --------------
Net change in unrealised
gain (loss) on investments
still held at 31 January
2018 $91,527,458
----------------------------- -------- ------- -------------- --------------
The Company recognises transfers at the current value at the
transfer date. There were no transfers during the year ended 31
January 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 17 years remaining.
As of 31 January 2018, the Company had invested $2,768,586,847,
or 69.1% of the Company's committed capital in investments and had
received $2,335,668,619 in cumulative distributions (including
dividends from the formerly held investment HarbourVest Senior
Loans Europe).
There were no investment transactions during the year ended 31
January 2018 in which an investment was acquired and disposed of
during the year.
Note 5 Commitments
As of 31 January 2018, the Company has unfunded investment
commitments to other limited partnerships of $1,237,494,068 which
are payable upon notice by the partnerships to which the
commitments have been made. Unfunded investment commitments of
$1,157,772,486 are denominated in US dollars, $55,690,445 are
denominated in euros, and $24,031,137 are 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 ("Facility") for an aggregate amount up to $500 million.
As of 28 September 2015, the debt 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 debt
facility was amended to extend the facility to December 2022 and to
adjustment lender commitments. Lloyds Bank plc commitment was
amended to $250 million, and Credit Suisse 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 was 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 January 2018 and 2017, there was no
debt outstanding against the Facility. Included in other assets at
31 January 2018 are deferred financing costs of $6,364,430 related
to refinancing the facility. The deferred financing costs are
amortised on the terms of the facility. The Company is required to
pay a non-utilisation fee calculated as 90 basis points per annum
from 1 February 2016 to 22 December 2016 and 115 basis points per
annum from 23 December 2016 to 31 January 2018. For the year ended
31 January 2018, $5,829,861 in non-utilisation fees have been
incurred.
Note 7 Financial Highlights
For the Years Ended 31 January 2018 and 2017
2018 2017
-------------------------------------------------- ------- -------
Shares
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $18.47 $16.75
Net realised and unrealised gains 3.11 1.85
Net investment loss (0.12) (0.13)
-------------------------------------------------- ------- -------
Total from investment operations 2.99 1.72
Net asset value, end of year $21.46 $18.47
Market value, end of year $17.77* $15.03
Total return at net asset value 16.2% 10.3%
Total return at market value 18.2% 21.1%
-------------------------------------------------- ------- -------
RATIOS TO AVERAGE NET ASSETS
Expenses 0.75% 0.78%
Expenses-excluding non-recurring listing expenses 0.75% 0.78%
-------------------------------------------------- ------- -------
Net investment loss (0.62)% (0.71)%
-------------------------------------------------- ------- -------
PORTFOLIO TURNOVER 0.0% 0.0%
-------------------------------------------------- ------- -------
* Represents share price of GBP12.52 converted.
Does not include operating expenses of underlying
investments.
The turnover ratio has been calculated as the number of
transactions divided by the average net assets.
Note 8 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 net asset value by the number of shares in issue on
that day. The Company publishes the NAV per share of the shares as
calculated, monthly in arrears, at each month-end, generally within
15 days.
Note 9 Related party transactions
Other amounts payable to HarbourVest Advisers L.P. of $227,767
represent expenses of the Company incurred in the ordinary course
of business, which have been paid by and are reimbursable to
HarbourVest Advisers L.P. at 31 January 2018.
Board-related expenses, primarily compensation, of $580,491 were
incurred during the year ended 31 January 2018.
Note 10 Indemnifications
General Indemnifications
In the normal course of business, the Company may enter into
contracts that contain a variety of representations and warranties
and which provide for general indemnifications. The Company's
maximum exposure under these arrangements is unknown, as this would
involve future 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 these general business
indemnifications to be remote.
Directors and Officers Indemnifications
The Company's articles of incorporation provide that the
directors, managers or other officers of the Company shall be fully
indemnified by the Company from and against all actions, expenses
and liabilities which they may incur by reason of any contract
entered into or any act in or about the execution of their offices,
except such (if any) as they shall incur by or through their own
negligence, default, breach of duty or breach of trust
respectively.
Note 11 Subsequent Events
In the preparation of the financial statements, the Company has
evaluated the effects, if any, of events occurring after 31 January
2018 to 10 May 2018, the date that the financial statements were
issued.
On 26 March 2018, the Company committed $35 million to the
HarbourVest XI Buyout, $10 million to HarbourVest XI Micro Buyout
and $20 million to HarbourVest XI Venture.
On 30 March 2018, the Company committed $20 million to the
HarbourVest 2018 Global Fund.
On 30 April 2018, the Company committed $40 million to Fund XI
Buyout, $10 million to Fund XI Micro Buyout, and $20 million to
Fund XI Venture.
There were no other events or material transactions subsequent
to 31 January 2018 that required recognition or disclosure in the
financial statements.
Disclosures
Investments
The companies represented within this report are provided for
illustrative purposes only, as example portfolio holdings. There
are over 7,700 individual companies in the HVPE portfolio, with no
one company comprising more than 1.5% of the entire portfolio.
The deal summaries, general partners (managers), and/or
companies shown within the report are intended for illustrative
purposes only. While they may represent an actual investment or
relationship in the HVPE portfolio, there is no guarantee they will
remain in the portfolio in the future.
Past performance is no guarantee of future returns.
Forward-Looking Statements
This report contains certain forward-looking statements.
Forward-looking statements relate to expectations, beliefs,
projections, future plans and strategies, anticipated events or
trends and similar expressions concerning matters that are not
historical facts. In some cases, for-ward-looking statements can be
identified by terms such as "anticipate," "believe," "could,"
"estimate," "expect," "intend," "may," "plan," "potential,"
"should," "will," and "would," or the negative of those terms or
other comparable terminology. The forward-looking statements are
based on the Investment Manager's beliefs, assumptions, and
expectations of future performance and market developments, taking
into account all information currently available. These beliefs,
assumptions, and expectations can change as a result of many
possible events or factors, not all of which are known or are
within the Investment Manager's control. If a change occurs, the
Company's business, financial condition, liquidity, and results of
operations may vary materially from those expressed in
forward-looking statements.
By their nature, forward-looking statements involve known and
unknown risks and uncertainties because they relate to events, and
depend on circumstances, that may or may not occur in the future.
Forward-looking statements are not guarantees of future
performance. Any forward-looking statements are only made as at the
date of this 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.
In light of these risks, uncertainties, and assumptions, the
events described by any such forward-looking statements might not
occur. The Investment Manager qualifies any and all of its
forward-looking statements by these cautionary factors.
Please keep this cautionary note in mind while reading this
report.
Some of the factors that could cause actual results to vary from
those expressed in forward-looking statements include, but are not
limited to:
-- the factors described in this report;
-- the rate at which HVPE deploys its capital in investments and
achieves expected rates of return;
-- HarbourVest's ability to execute its investment strategy,
including through the identification of a sufficient number of
appropriate investments;
-- the ability of third-party managers of funds in which
the HarbourVest funds are invested and of funds in which the
Company may invest through parallel investments to execute their
own strategies and achieve intended returns;
-- the continuation of the Investment Manager as manager of the
Company's investments, the continued affiliation with HarbourVest
of its key investment professionals, and the continued willingness
of HarbourVest to sponsor the formation of and capital raising by,
and to manage, new private equity funds;
-- HVPE's financial condition and liquidity, including its
ability to access or obtain new sources of financing at attractive
rates in order to fund short-term liquidity needs in accordance
with the investment strategy and commitment policy;
-- changes in the values of, or returns on, investments that the
Company makes;
-- changes in financial markets, interest rates or industry,
general economic or political conditions; and
-- the general volatility of the capital markets and the market
price of HVPE's shares.
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 of each class is
calculated by dividing the net asset value of the relevant class
account by the number of shares of the relevant class in issue on
that day. The Company intends to publish the estimated NAV per
share and the NAV per share for the Ordinary shares as calculated,
monthly in arrears, as at each month-end, generally within 15
days.
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 "LPDGT 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 LPDGT 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.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SFMEFSFASEEI
(END) Dow Jones Newswires
May 11, 2018 02:00 ET (06:00 GMT)
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