HarbourVest is cheap and a great way to play the private equity space
Before they come to the stock market, all companies need to raise capital in order to grow and one of their options is to work with pools of private money set aside specifically for that purpose.
Investing in private equity through an investment trust is not only a good way to diversify your exposure away from publicly-quoted stocks, but it offers the possibility of ‘getting in on the ground floor’ in some of the most interesting and exciting global opportunities.
HarbourVest Global Private Equity (HVPE) is one of our preferred ways of playing this theme as you are getting exposure to an established investment trust trading below the value of its assets.
It invests in private companies directly and in portfolios of private companies managed by parent company HarbourVest, which has more than $64bn of assets and more than 35 years of experience in the field.
Its investments are purposely diversified by geography, by sector, by strategy and by stage of investment, and include more than 1,000 companies ranging from early-stage ventures to large cap buyouts.
Over five years the company’s net asset value (NAV) in dollars has increased by 70% while the share price in pounds has appreciated by 131%, yet the shares still trade at a 16% discount to NAV.
‘HarbourVest is an attractive way to gain diversified exposure to the global private equity market,’ says Numis. ‘The fund has a good track record. From inception in 2007 to 30 September 2019, NAV per share total return in US dollars was 157.3% against 74.4% total return for the FTSE All-World index.
‘The portfolio diversification provides opportunities for long-term growth, limited volatility and capital preservation,’ it adds.
On a broader basis, JPMorgan Asset Management expects private equity returns to average 8.8% per year over the next 10 to 15 years compared with 5.7% annual returns on publicly-quoted stocks in developed markets.
As a rule of thumb, if an investment increases in value by 7% a year its value will double in 10 years thanks to the power of compounding.
Private equity investors have become more adept at evaluating risk over the past decade so when the next downturn does come the more experienced players should have greater staying power.