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HarbourVest Global (HVPE)

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Wednesday 29 May, 2019

HarbourVest Global

Annual Financial Report

RNS Number : 3880A
HarbourVest Global Priv. Equity Ltd
29 May 2019
 

29 May 2019

RESULTS FOR THE YEAR ENDED 31 JANUARY 2019

Tenth consecutive year of NAV growth

HarbourVest Global Private Equity Limited ("HVPE" or the "Company"), today announces its audited results for the year ended 31 January 2019. All figures relate to the year ended 31 January 2019 and are presented in US dollars unless otherwise stated.

Another year of strong performance

·      Tenth consecutive year of growth in net asset value ("NAV") per share

In the year, 12.3% growth to $24.09

Annual compound growth of 12.2% over past decade

Since inception in 2007, NAV per share has outperformed FTSE All-World Total Return Index by 3.8% annually

$218m net gain on investments (2018: $249m)

·      Share price up 13.9% over year to £14.26 from £12.52

Since financial year end, up a further 14.2% to £16.28 (as at market close on 28 May 2019)

·      Active portfolio and balance sheet management:

$730m committed to new HarbourVest funds (2018: $340m)

Includes $150m commitment to a new HarbourVest real assets vehicle

Credit facility renegotiated, with improved financial terms

·      Net investor during the year:

$396.2m cash invested, $306.6m distributions received

Significant proceeds generated from prior year's top 50 companies including: Acrisure, Envirotainer International, Multiasistencia, TMF Group and Wayfair

·      Strong balance sheet:

Net cash of $157m (since reduced to $58m as at 30 April)

Undrawn $600m credit facility with initial term to January 2026.

Sir Michael Bunbury, Chairman of HVPE, said:

"I am pleased to report another year of strong progress for HVPE, marking the tenth year of uninterrupted growth in NAV per share.

"Through the life of the Company since it was listed in December 2007 to 31 January 2019, HVPE's NAV per share has outperformed that of the benchmark FTSE All-World Total Return Index by a compound 380 basis points, or 3.8%, per annum.

 "Our capacity to invest for further growth is supported by a strong balance sheet and an established global portfolio that is well-diversified by strategy and vintage year. We ended the year with a net cash position and have secured an increased credit facility of $600m, committed to January 2026, on finer terms. The balance sheet strength allows the Company to be well placed to continue our long-term investment performance, taking advantage of high quality opportunities in private markets, for the benefit of our shareholders."

To view the Company's Annual Financial Report and Accounts please follow this link: Annual Report - Year Ending 31 January 2019 . Page number references in this announcement refer to pages in this report. 

The Annual Financial Report and Accounts 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 9847 

[email protected]

Charlotte Edgar

Tel: +44 (0)20 7399 9826

[email protected]

 

HarbourVest Partners



Alicia Sweeney

Tel: +1 (617) 807 2945

[email protected]

 

MHP Communications

 

 

Charlie Barker / Tim Rowntree / Kelsey Traynor 

Tel: +44(0)20 3128 8100

[email protected]

 

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 over 35 years of experience and more than $58 billion in assets under management, as of March 31, 2019. 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 500 employees, including more than 125 investment professionals across Asia, Europe, and the Americas. This global team has committed more than $36 billion to newly-formed funds, completed over $21 billion in secondary purchases, and invested over $10 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.

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.

Chairman's Statement

Dear Shareholder,

The year to 31 January 2019 was the tenth consecutive year of Net Asset Value ("NAV") per share growth for your Company, HarbourVest Global Private Equity ("HVPE" or the "Company"). Ten years ago the NAV per share was $7.61. At 31 January 2019 it had grown without interruption to $24.09, an increase of 217% over the ten years, equivalent to a compound rate of growth of 12.2% per annum. Pleasing though this performance is, it should be set in the context of the extraordinary longevity of strong listed stock markets, particularly in the US, as they have recovered from their nadirs during the Global Financial Crisis.

Performance and Asset Values

The Company's functional currency is the US dollar and it is the performance of NAV per share in US dollars that is the primary focus of the Board and the Investment Manager. The year to 31 January 2019 delivered NAV per share growth from $21.46 to $24.09, an increase of 12.3%. This growth was at a slightly slower pace than the previous year but needs to be set against the performance of listed markets where the Company's benchmark of the FTSE All-World Total Return Index for the 12 months to 31 January suffered a decline of 7.1%. Thus HVPE's NAV per share outperformance against the benchmark was 19.4%.

An investment in HVPE should be seen as a long-term investment. For a number of years I have indicated that the Board and Investment Manager seek to deliver long-term NAV per share growth materially in excess of that delivered by listed markets. Through the life of the Company since it was listed in December 2007 to 31 January 2019, HVPE's NAV per share has outperformed that of the benchmark by a compound 380 basis points, or 3.8%, per annum. When considering shorter discrete periods of performance it should be noted that the detailed timing at which private equity assets are valued, being normally, at most, every three months coinciding with the calendar quarters, and the Company's year-end being at 31 January, means that sometimes there can be material short-term fluctuations, with the Company outperforming its benchmark in some years and underperforming in others.

Share Price Performance and Discount

The Company does not declare a dividend and, at present and for the foreseeable future, the return to shareholders is delivered solely through share price appreciation. The majority of shareholders are UK based and the most actively traded shares are traded in sterling. During the year to 31 January 2019 the sterling share price rose from £12.52 to £14.26, being an increase of 13.9%. Part of that increase resulted from the weakening of sterling against the US dollar, moving from $1.4191 to the pound to $1.3109 over the 12 months. Consequently the share price growth equivalent in US dollars was not as great as in sterling, being from $17.77 to $18.75 or by 5.5%.

The sterling share price is driven by three principal factors, being the movement in the US dollar NAV per share, the sterling/US dollar exchange rate and the discount to NAV at which the shares trade. The Investment Manager has prime responsibility for delivering long-term growth in NAV per share. The exchange rate is an external factor over which the Company has no control. Absent any action by the Company to influence it, the discount is set in the stock market by the activities of buyers and sellers and, very importantly, sentiment both for the Company and for the listed private equity sector. Over the 12 months to 31 January 2019 the discount to NAV at which the sterling share traded fluctuated between 16.6% and 28.8% and ended the year at 22.4% in contrast to the 17.2% discount a year earlier.

Both the absolute level of the discount and its volatility have caused the Board and Investment Manager to consider whether there is any action that the Board might take to seek to reduce the level of any substantial discount and also volatility. The consideration of the issue has been undertaken over many months. The Company's joint brokers and others were extensively consulted and the Board was mindful of, and very grateful for, the feedback from shareholders during the course of a shareholder survey undertaken in September and October 2018 by an independent company, Investor Perceptions.

The Investment Manager undertook substantial analysis of the effect that actions that other companies, both in the listed private equity space and wider, have taken in an attempt to reduce the level of discount and influence its volatility. As I have written before, HVPE's illiquid assets and substantial pipeline of yet-to-be funded commitments place it in a very different position as compared with many conventional Investment Companies. The Board and Investment Manager have to balance the see-saw of optimising NAV growth through commitments to HarbourVest managed funds, whilst at the same time seeking to be as certain as possible that the Company's balance sheet would not be unreasonably exposed in the event of a renewed financial crisis. This is a difficult balancing act and it is easy to bask in the sunshine of the performance of equity markets, both listed and private, over the last ten years whilst putting to the back of one's mind the maelstrom of 2008/9.

After rigorous analysis by the Investment Manager, the Board concluded that any action that might be considered should be confined to opportunistic share buy backs that would boost NAV per share. However, paradoxically, on the basis of the Investment Manager's "base case" projections, the short-term uplift in NAV per share that would be generated by buy backs at the current level of discount would, for long-term holders, be outweighed within a short number of years by the detrimental effect of reduced future commitments to new funds, leading to lower longer-term NAV per share growth. There is insufficient space in this statement to take shareholders through the detailed analysis, although either I or the Investment Manager would be happy to engage further with interested shareholders. However, the outcome of over six months of work and deliberations is that the Board has decided that maintaining an optimum level of future commitments, and thus, in due course, enhanced growth in NAV per share, is more important than a short-term uplift that buy backs would deliver at or close to present levels of discount. Nevertheless, the Board will seek shareholders' approval at the Annual General Meeting ("AGM") to renew the buy-back authority so that, should circumstances change, the Board would be in a position to revisit the policy.

Assets, Balance Sheet and Resources

The Strategic Report sets out in considerable detail the Company's present strategy, its assets and commitments which continue to have a very strong US focus. The Board is ever watchful of the balance sheet and has approved the policy of making significant new commitments to HarbourVest funds in accordance with the Company's investment strategy and within the balance sheet ratios that have been developed over the last ten years and which are described in the Strategic Report.

For over two years the Investment Manager has advised the Board that it expected the Company's substantial cash balance, which peaked at $257.0 million in January 2018, to be drawn down to fund existing commitments. In fact that has happened more slowly than expected as borrowings, especially bridging finance, within the HarbourVest funds have increased materially over that period and every dollar borrowed for bridging within a HarbourVest fund is matched by a dollar retained on HVPE's own balance sheet. In the year to 31 January 2019 the Company's cash balances declined steadily from $257.0 million to $156.6 million. However, after the Company's year-end in February there was a significant drawdown of $101.3 million to fund most of the Company's commitment of $150 million to a new HarbourVest real assets vehicle formed in June 2018. This is a relatively new asset class for HarbourVest and is intended to provide private equity type of returns through a combination of yield and capital appreciation. In addition, as the seed investor in the new vehicle, HVPE has negotiated preferred terms including a share of future management revenues from expansion of the programme.

As already announced, in order to have available committed support for the balance sheet in the event of a future downturn, the Company has re-negotiated its banking facilities such that it now has a facility of $600 million committed through to January 2026, subject to usual covenants, provided jointly by existing facility provider, Credit Suisse, and new provider, Mitsubishi UFJ. From January 2021 the facility will become a rolling facility subject to a minimum of five years' notice of cancellation. The Board and Investment Manager consider this long-term facility to be a prudent bulwark against future uncertainty.

Over recent years there have been significant reductions in the costs of running the company relative to its NAV as fees payable for investors in new HarbourVest funds, who qualify both through loyalty and size, have fallen. In the year to 31 January 2019, management fees of 0.83% of NAV were payable in contrast to 1.01% a year earlier. As shown on page 27, the net operating expense ratio, being all expenses save for performance fees, reduced over the year from 1.76% of NAV to 1.50%. Performance fees are always, of their nature, going to be variable and will only be payable when the relevant funds exceed their hurdle returns. So, it is on the net operating expense ratio that the Board focuses. The Board will continue to work with the Investment Manager to strive to keep the costs of operating the company on a downward trend.

Commitment fees and other costs related to the unused $600 million credit facility make up 0.40% of NAV in the net operating expense ratio and this year those charges were partially offset by interest income earned, being a 0.21% credit. In future years, as the Company's cash balance is drawn down to fund commitments, interest income is expected to decline.

Operating Expenses

Over recent years there have been significant reductions in the costs of running the Company relative to its NAV as fees payable for investors in new HarbourVest funds, who qualify both through loyalty and size, have fallen. In the year to 31 January 2019, management fees of 0.83% of NAV were payable in contrast to 1.01% a HVPE Annual Report and Accounts 2019 year earlier. As shown on page 27, the net operating expense ratio, being all expenses save for performance fees, reduced over the year from 1.76% of NAV to 1.50%. Performance fees are always, of their nature, going to be variable and will only be payable when the relevant funds exceed their hurdle returns. So, it is on the net operating expense ratio that the Board focuses. The Board will continue to work with the Investment Manager to strive to keep the costs of operating the company on a downward trend. Commitment fees and other costs related to the unused $600 million credit facility make up 0.40% of NAV in the net operating expense ratio and this year those charges were partially offset by interest income earned, being a 0.21% credit. In future years, as the Company's cash balance is drawn down to fund commitments, interest income is expected to decline.

The Board

Eleven years after the IPO of the Company on the Euronext Amsterdam Stock Exchange, and three and a half years after the pace of change quickened with the listing of the Company on the London Stock Exchange and entry into the FTSE 250 Index, significant changes in the make-up of the Board are in prospect. Messrs Zug, Corbin, Moore and I have served since the IPO and the Board is very alive to the need for regular refreshment and also for diversity.

Under the terms of the Investment Management Agreement ("IMA") negotiated in 2015, in return for HarbourVest cancelling its controlling voting shares and agreeing to enfranchise all of the investors' shares, HarbourVest has the right to put two persons forward for election as directors at each AGM. Brooks Zug, a co-founder of HarbourVest and a key architect and director of the Company since 2007, has indicated that he intends to stand down in July 2019 and will not offer himself for re-election at the AGM. It is almost impossible to overestimate Brooks' contribution to the creation of, and success of, HVPE and on behalf of the Board and all shareholders I thank him for his wisdom, energy and guidance.

Although the IMA is in the process of a routine review and revision, the Independent Directors have not sought a reduction in the number of HarbourVest nominated directors from the current number of two. It may be unusual in London for an investment company to have even one representative of the Investment Manager on the Board, let alone two. However, in the light of HVPE being one of the largest of HarbourVest's clients and also a very visible "shop window", the Independent Directors are of the view that the very closest of relationships between the Company and the Investment Manager is in the shareholders' best interests. As long as the six Independent Directors are, and remain, robustly independent I am of the view that the "partnership" between the Company and HarbourVest is best served by the presence on the Company's Board of one of the two most senior Managing Directors of HarbourVest, Peter Wilson, and also another Managing Director who is intimately involved in making investment decisions on behalf of the funds.

HarbourVest has given notice that they intend to put Carolina Espinal forward for election at the AGM to be Brooks' successor. I will be very pleased to see Carolina join the Board and hope that shareholders will support her election. Carolina is a British and Honduran national. She was educated in US schools worldwide and holds a Masters in Finance degree from the London Business School. She worked for Merrill Lynch in Houston and joined HarbourVest in 2004. She is a Managing Director in the Primary team at HarbourVest and is a member of the three-person Investment Committee which makes decisions on new commitments to primary funds worldwide. She has close connections with managers of many of those funds and represents HarbourVest on 15 advisory committees. Carolina hopes to get to know a number of the Company's shareholders over the next year or so and would be happy to see any shareholder who would like to meet her.

It is also intended that after over 11 years of service as a director, as Senior Independent Director and as chairman of the Audit Committee until July 2018, Keith Corbin will not offer himself for re-election at the AGM in July. Keith has been a rock of experience and stability as the Company developed from its beginnings in 2007 and passed through the Global Financial Crisis to emerge as one of the few large, and fully investible, private equity fund of funds companies in the London market. Keith has been a very valuable sounding board for me as Chairman and I thank him for that and for his service on behalf of all shareholders. Keith is succeeded as Senior Independent Director by Alan Hodson who, after a distinguished career at UBS, joined the HVPE Board in April 2013.

I have served as Chairman of the Company since the IPO in 2007. Although the final version of the new Association of Investment Companies' Code, which HVPE will report against for the year ending 31 January 2020, is not as prescriptive as the drafts, it retains the guideline that Chairmen should not serve materially beyond nine years. Accordingly, I have indicated to the Board that I expect to stand down as Chairman and a director of the Company no later than the AGM in July 2020. Led by the Senior Independent Director, the Nomination Committee, which comprises all of the Independent Directors, has appointed Trust Associates to seek a new director who will likely be appointed to the Board later in 2019 with the prospect of succeeding me as Chairman. That search is underway and the Company will make a further announcement in due course.

Finally, some months ago I recommended to the Board that HVPE might offer a high-flying young person a Board apprenticeship. This programme is run by the Board Apprentice organisation based in Jersey and seeks to give the next generation of future independent directors exposure to Boards in order to give the apprentice an opportunity to observe the manner in which a listed company is governed. HVPE received over 30 applicants for this apprenticeship and in March we welcomed Yvonne Bajela as HVPE's Board apprentice. Yvonne is a Chartered Financial Analyst, holds a first-class degree from Brunel University, has worked for Goldman Sachs and Mitsui and in 2016 was profiled as one of the top 30 individuals aged under 30 Future of Ghana Pioneers.

Annual General Meeting and Informal Shareholder Meeting

The Company's AGM will be held in Guernsey on 25 July 2019 and formal notice will be despatched to registered shareholders in the week commencing 24 June. The Company hopes that all registered shareholders will exercise their votes either in person or by proxy. Save for Messrs Zug and Corbin, who will not be offering themselves for re-election, all Directors will submit themselves for re-election and, as described above, shareholders will be invited to support the election of Carolina Espinal to the Board.

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 Thursday 20 June 2019. 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 Charlotte Edgar: [email protected]

Conclusion

The geopolitical scene remains very uncertain as does much of the world's economic outlook with anaemic growth in many major developed countries and interest rates, save for in the US, still nailed to the floor. Meanwhile significant quantities of capital are seeking deployment in the private company space. Successful deployment requires experience and access to top performing managers and HarbourVest's more than 35 years of experience confers the opportunity to deliver both. The valuation of some high-profile private assets looks elevated by historic standards. Nevertheless, with the Company's focus on long-term NAV growth and significant diversification by strategy and vintage year, your Board and Investment Manager look forward to the future with confidence and thank shareholders for their support.

I am always happy to receive feedback from shareholders and can be contacted through [email protected]

Michael Bunbury

Chairman

28 May 2019

Ten-Year Financial Record

At 31 January

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

NAV ($ million)

718.2

849.7

944.0

1,030.2

1,167.0

1,266.3

1,337.3

1,474.9

1,713.9

1,924.0

NAV per Share ($)

8.65

10.24

11.42

12.46

14.38

15.86

16.75

18.47

21.46

24.09

Share Price ($)

5.00

6.18

6.37

8.66

10.75

12.73

12.41

15.03

17.77

18.75

Share Price (£)

3.13

3.86

4.04

5.46

6.54

8.45

8.71

11.95

12.52

14.26

Discount to NAV

-42%

-40%

-44%

-30%

-25%

-20%

-26%

-19%

-17%

-22%

Gearing (%)

9%

9%

16%

15%

8%

0%

0%

0%

0%

0%

 

Investment Manager's Report

Portfolio Performance

NAV per Share

The year to 31 January 2019 represents another successful period for HVPE. In a year when we saw volatility return to the public markets, with sharp declines in February 2018 and again in Q4, private markets remained resilient and HVPE continued to grow NAV per share. Cash flows were close to the levels forecast at the beginning of the year as existing commitments to HarbourVest programmes were drawn down for new investment as expected, while distributions from mature funds were impacted only marginally by the prevailing nervousness in the final quarter of 2018. This serves as a helpful reminder that private markets investing is a long-term endeavour, and that HVPE makes commitments to funds with investment periods of several years. The managers of these funds are able to time investments and realisations in order to take advantage of, or shield portfolios from, short-term fluctuations in public market sentiment.

Against this backdrop, HVPE's NAV per share grew 12.3% over the year to 31 January 2019, increasing to $24.09 from $21.46 at 31 January 2018. Translated into sterling, NAV per share growth was 21.5%, as sterling weakened against the US dollar over the reporting period.

HVPE's public benchmark, the FTSE AW TR Index (US dollars), declined by 7.1% in the 12 months to 31 January 2019. HVPE's NAV per share growth of 12.3%, therefore, represents outperformance of 19.4 percentage points in the period. HVPE aims to achieve NAV per share growth materially in excess of the public markets through the cycle. Measured over the 11 years from inception in December 2007, HVPE's NAV per share has outperformed the FTSE AW TR Index by 3.8% on an annualised basis in US dollar terms.

During the 12 months ended 31 January 2019 there was a $218.4 million net gain on investments, contributing to an overall increase in net assets of $210.1 million. The $218.4 million was driven almost equally by realised and unrealised gains on the portfolio. This compares to $248.9 million growth in the prior financial year, 63% of which came from realised gains.

In percentage terms, the Direct Co-investment portfolio was the best-performing strategy, delivering strong value growth of 19.5% largely driven by companies in the US and Asia. Geographically, the strongest gains came from the US portfolio, which generated a value increase of 14.7%. As might be expected given HVPE's substantial US exposure (57% of the Investment Portfolio value), in absolute terms the US assets were the most significant contributor to growth in the period. In terms of stage, Venture and Growth Equity was the strongest performer, growing 16.2% over the 12 months ended 31 January 2019. This was followed by Buyouts which returned 11.3%. More information on the growth drivers can be found on page 37.

As at 31 January 2019, HVPE held investments in 46 HarbourVest funds and seven secondary co-investments1. Of these, the largest drivers of NAV per share growth over the reporting period are described below and shown on the corresponding chart overleaf.

·    2013 Direct, a direct co-investment fund, was the largest contributor, adding $0.36 per share over the 12-month period. This was driven almost equally by significant realised and unrealised gains, largely arising from the exits of TriTech and Acrisure and valuation gains from Appriss and Press Ganey, as well as strong valuation increases from companies within the remaining portfolio.

·    Fund X Venture was the second-largest contributor, adding $0.24 to HVPE's NAV share. This fund is a 2015 vintage currently in the investment phase. As might be expected at this stage in the fund's life, the majority of this gain came from unrealised growth following significant value increases in Sonder, Ministry Brands and Peleton, as well as some of the secondary investments.

·    Following closely behind this was another, more mature fund of the same strategy, Fund IX Venture. With a vintage year of 2011, this fund is in the growth phase of its life cycle. As such, growth derived from a mix of realised and unrealised gains.

·    Global Annual Fund 2014, the first in a programme of funds conceived as an efficient way to provide global exposure across the HarbourVest platform, added $0.21 to the NAV per share following realised gains mostly in the Direct Co-investment portfolio from the exits of Tritech and Finanzcheck, and unrealised gains from Appriss.

·    HIPEP VII Partnership, a 2014 vintage international fund-of-funds in its investment phase, contributed $0.19 to NAV per share, largely from significant unrealised gains.

Portfolio Cash Flows

HVPE was a net investor in the 12 months to 31 January 2019, investing cash of $396.2 million into HarbourVest funds (12 months to 31 January 2018: $312.7 million) and receiving $306.6 million in distributions (12 months to 31 January 2018: $405.1 million). This is consistent with forecasts made at the beginning of the period to the effect that HVPE would see a more rapid pace of investment, driven by the additional commitments made to HarbourVest programmes in recent years. Overall, net negative cash flow in the period resulted in HVPE's cash balance declining from $257.0 million to $156.6 million, in line with expectations. An historic cash flow chart can be found in the "Deep Dive into the Balance Sheet" section, starting on page 20, as well as details of the current position of the Company's total look-through, or "embedded", leverage.

In the reporting period, the largest HarbourVest fund capital call came from Fund X Buyout ($37.8 million). This was closely followed by Fund X Venture at $37.7 million. These are HarbourVest's most recently closed US-focused funds which are currently in the investment phase and building out their portfolios. Strong investment activity was also seen across the Investment Manager's most recent co-investment fund, HarbourVest Co-Investment IV, as it completed 16 new deals over the 12 months. Dover Street IX (HarbourVest's latest secondary fund) was also particularly active in the period, funding 20 new secondary projects. The single largest call was to Secondary Overflow Fund III ("SOF III") Tranche H, to support the investment into Project Fisher, a traditional secondary transaction representing the acquisition of 74 fund interests from a US endowment. The SOF III tranches represent secondary co-investments, which have lower fees, thus helping to reduce HVPE's overall fee rates. At 31 January 2019, HVPE had exposure to five SOF III projects, equating to $78.2 million, or 4.4% of NAV.

Distributions in the HVPE portfolio were driven by a mix of HarbourVest funds across all strategies, with the largest total amount in the period ($46.3 million) coming from HarbourVest VIII Buyout Fund, a 2006 vintage US fund in its mature phase. Strong distributions also came from HIPEP VI Partnership Fund, a 2008 vintage international fund-of-funds programme in its mature phase, Dover Street VIII, a 2012 vintage secondary fund, and the 2013 vintage global direct co-investment fund.

Portfolio Companies

During the period the 10 largest individual company realisations generated total distributions of $93.5 million, accounting for approximately 30% of all proceeds received. Of these 10 companies, six were in HVPE's top 50 portfolio companies at 31 January 2018. Further details are provided on these six below (ordered by size of distribution). The top 10 distributions by value are listed on page 37:

·    National retail insurance broker Acrisure was HVPE's fourth largest company at 31 January 2018. In December 2018 HVPE received proceeds of $20.0 million from the redemption of its preferred equity investment in Acrisure, a 2016 investment alongside ABRY Partners. This was HVPE's largest distribution in the financial year.

·    Envirotainer International, an air cargo container manufacturer for pharmaceuticals, and HVPE's 37th largest portfolio company, generated proceeds of $9.8 million for HVPE following its sale to private equity firm Cinven as publicly announced in July 2018.

·    HVPE received proceeds of $7.1 million from the sale of Multiasistencia, a leading multinational services company for repair-in-kind solutions for homes and businesses, to Allianz Capital Partners. This company was HVPE's 24th largest company at 31 January 2018.

·    HVPE received proceeds of $6.5 million from Doughty Hanson & Co following the sale of TMF Group, HVPE's 17th largest portfolio company, to CVC Capital Partners.

·    Following the continued sell down of shares in publicly traded company Wayfair, HVPE's 24th largest position, the Company received proceeds of $5.2 million.

During the 12 months ended 31 January 2019, there were 413 liquidity events in total, up from 389 in the year ended 31 January 2018. Approximately 84% (345) of these were trade sales or sponsor-to-sponsor transactions, with the remaining 16% (68) being Initial Public Offerings ("IPOs"). Of these IPOs, 78% were venture-backed companies, driven by favourable conditions for new technology listings in the US.

Focus on Environmental, Social and Governance ("ESG")

Strengthening its ESG programme is an ongoing strategic priority for HarbourVest Partners ("the firm"). On 31 January 2019, the firm released its 2018 ESG report, detailing the initiatives and activities it undertook in 2018 to support its longstanding commitment to being a conscientious investor and engaged corporate citizen. HarbourVest reported great progress over the year. On the investment side, it provided deeper training and strengthened its post-investment monitoring protocols. It also used its proprietary "scorecard", which assesses managers' ESG programmes on more than 20 metrics, to proactively rank the programmes of 178 General Partners ("GPs"). In addition, as a signatory of the Principles for Responsible Investment ("PRI") HarbourVest is graded in three core areas and this year it achieved its best-ever scores, with two A+, and one A, placing the firm in the top quartile of private equity managers. The full report can be found under Viewpoints in the Insights section of the HarbourVest website: www.harbourvest.com.

Company Activity

Introduction of US Dollar Quote on the London Stock Exchange

On 10 December 2018, HVPE introduced an additional US dollar market quote for the Company's shares. This operates alongside HVPE's existing sterling quotation and allows the shares to be traded in either currency.

Credit Facility

On 4 January 2019, HVPE announced the commencement of a new, lower cost, $600 million multi-currency credit facility (the "Facility"), with Mitsubishi UFJ Trust Banking Corporation ("Mitsubishi") acting through its New York Branch, joining incumbent co-lender since 2015, Credit Suisse AG London Branch ("Credit Suisse"). The lenders are providing an equal commitment of $300 million each, increasing the size of the Facility to $600 million from the previous $500 million. The new Facility is a five-year evergreen structure, with an initial two-year no-notice provision, giving it an initial term of seven years to January 2026. From January 2021, the lenders have the option to serve notice, but the notice given must be a minimum of five years. HVPE believes this is one of the leading finance packages within its peer group and that it appropriately underpins the activities of the Company supporting its unfunded commitments and future investment plans. At 31 January 2019, there were no drawings on the Facility and there was $156.6 million of cash on the balance sheet. More details, including terms, can be found on pages 20 to 21, in our "Deep Dive on the Balance Sheet".

New Fund Commitments

In the 12 months ended 31 January 2019, HVPE made new commitments of $730 million across five HarbourVest vehicles. Taken together, these vehicles cover all the strategies offered by HarbourVest in the period, as detailed on page 36. The majority of the capital, however, was committed to primary funds, which draw capital over a period of several years from the date on which the commitment is made. This helps to drive an even allocation across vintage years, reducing the risk of exposure to a single poor-performing vintage.

The largest individual commitments were made across HarbourVest's latest US buyout programme, with approximately $385 million (53%) committed to a combination of its buyout, micro buyout and venture funds. These funds are focused on creating diversified portfolios consisting predominantly of primary fund investments in the US. These commitments are therefore in line with the Company's Strategic Asset Allocation ("SAA") targets (see page 24 for more details), as it strives to reach a long-term allocation of 65% exposure to the US and 55% to Primary funds. HVPE was underweight against both targets at 31 January 2019, with actual exposure of 57% and 45% respectively.

In June 2018, HVPE committed $150 million to a new HarbourVest real assets vehicle (the "Vehicle"). The Board views the real assets strategy as a complementary addition to the existing private markets programme. In March 2019, the Vehicle's first deal was announced, and HVPE simultaneously disclosed that it stands to receive a share of third-party management fee revenue in return for having backed the vehicle as the first seed investor. Richard Hickman, Director of Investment and Operations for HVPE, provides more rationale and insight on this commitment on page 18.

Other commitments were made to a global multi-strategy fund-of-funds (2018 Global Fund), three secondary co-investments through Secondary Overflow Fund III, and HarbourVest's latest global co-investment fund.

1  These include five Secondary Overflow III investments and Absolute, referred to as "HVPE Avalon Co-Investment L.P." and Conversus, referred to as "HVPE Charlotte Co-Investment L.P.", in the Audited Consolidated Schedule of Investments. Absolute has been fully realised, however $520,072 remains in escrow.

Recent Events

HVPE Published Estimated NAV at 30 April 2019

HVPE publishes its estimated NAV on a monthly basis. These reports are available on the Company's website, generally within 20 calendar days of the month end.

On 20 May, HVPE published an estimated NAV per share at 30 April 2019 of $24.05 (£18.45). This represents a decrease of $0.04 from the 31 January 2019 audited figure of $24.09. This marginal reduction was largely as a result of operating expenses.

The Investment Pipeline of unfunded commitments reduced from $1,562.7 million at 31 January 2019 to $1,432.4 million at 30 April 2019, as investments exceeded new commitments during the three-month period.

At the end of April, HVPE's borrowing remained at zero. The Company's cash balance had decreased significantly by $98.8 million to $57.8 million, as capital calls exceeded distributions between February and the end of April. Further details on this can be found in the "Capital Calls Update" below.

HVPE Committed Capital to Newly-Formed HarbourVest Funds

Between 1 February 2019 and 28 May 2019, HVPE committed $45 million to the HarbourVest funds outlined below.

 

HarbourVest Fund

Date Committed

Commitment ($m)

2019 Global Fund

30 April

25.0

Credit Opportunities II

16 May

20.0

Total


45.0

 

Capital Calls Update

February 2019 was a record month for capital calls, with HVPE investing $111.7 million into HarbourVest funds. Of the total amount, $101.3 million was called by the new HarbourVest real assets vehicle to fund investment into a global portfolio of high quality core infrastructure assets. As anticipated, and as highlighted earlier in this section, this has significantly reduced HVPE's cash balance since 31 January 2019.

A Deep Dive into the Balance Sheet

Managing the Balance Sheet

Effective and prudent balance sheet management is critical when running a closed-ended vehicle investing into a portfolio of private market funds with varying cash flow profiles. This is particularly true for a company such as HVPE which maintains a large pipeline of unfunded commitments, i.e. the portion of capital pledged to an underlying fund, but not yet drawn down for investments. As reported on page 9, during the reporting period HVPE successfully renegotiated its credit facility, improving the terms and increasing the size by $100 million to $600 million. This section aims to clarify HVPE's approach to managing the balance sheet and explain why the new facility is a positive development for the Company and ultimately its shareholders.

Why HVPE has a $600 million credit facility

HVPE makes commitments to HarbourVest funds, which typically call capital over a period of several years. This long-duration cash flow profile necessitates a large pipeline of unfunded commitments in order to ensure that the Company remains approximately fully invested over time - this is known as an over-commitment strategy, and is critical to optimising long-term NAV per share growth. In most years, the capital called from HVPE by the HarbourVest funds is taken from the cash distributions flowing from liquidity events within the portfolio. Occasionally, however, capital calls will exceed distributions, potentially by a meaningful amount, and it may be necessary to draw on the credit facility to fund the difference. A subsequent year may see the reverse situation, with net positive cash flow used to repay the borrowing. In this way, the credit facility acts as a working capital buffer and enables HVPE to manage its commitments to the level required in order to optimise returns through the cycle.

HVPE currently has a pipeline of unfunded commitments of $1.6 billion. Historically, annual capital calls have been in the range 10% to 30% of this pipeline, while distributions have been 7% to 32% of NAV. In a highly adverse macroeconomic environment comparable to the Global Financial Crisis of 2008/9, it is conceivable that HVPE would suffer prolonged negative cash flow as these figures move toward opposite ends of their respective ranges. A large credit facility committed for an extended period (currently just under seven years) provides reassurance that the Company would be able to remain operational under such conditions, with the flexibility to continue to take advantage of attractive investment opportunities as they arise. This is a model that has worked well in the past, as shown in the chart below. HVPE's large credit facility meant that it was able to be a net investor through the period 2008 to 2011, which has helped the Company to deliver very attractive long-term returns for shareholders.

Terms of the Facility


New Facility

Prior Facility

Commitment fee (undrawn)

Blended rate of 95 basis points

115 basis points

LIBOR margin:

Borrowings <$300.0 million

250 basis points

Borrowings <$250.0 million

275 Basis points

Borrowings >$300.0 million

Additional 40 basis points on
borrowings that exceed this

Borrowings >$250.0 million

Additional 30 basis points on the entire drawn amount

Covenants

Asset Test Ratio: (1) limits the Company's indebtedness to 35% of assets, with the value of the assets subject to certain diversification tests, and (2) total indebtedness (company indebtedness and fund level indebtedness) limited to 47% of assets, with the value of assets subject to certain diversification tests.

The calculated value of the assets are subject to certain diversification tests, calculated and measured quarterly.

Customary limitations that restrict HVPE's ability to make unduly concentrated commitments to funds, incur additional indebtedness or liens above the facility level, pay dividends above certain levels, or merge, consolidate, or substantially change its business without bank approval.

HVPE was in compliance with these covenants throughout the 12 months to 31 January 2019 and through to the date of publication of this report.

 

How we model prospective cash flows

Cash flows from private equity investments can be irregular and unpredictable, and so for investors in multiple funds (such as HVPE), monitoring these is a complex and time-consuming task. When managing a closed-ended vehicle which makes large, irrevocable commitments to underlying funds, effective cash flow modelling is essential, first to ensure that the Company has sufficient capital available to honour its existing commitments, and second to inform the decisions it makes around future commitment levels. This detailed modelling is updated on an annual basis and reviewed quarterly for any changes to key assumptions. The Investment Manager builds a bottom-up forecast based on an aggregation of individual HarbourVest fund models, and then applies a sensitised top-down analysis informed by historic actual calls and distributions. Short-term broader market trends and systemic factors are also considered. Finally, a range of scenario tests are conducted, including a "Disaster Case" projection based on a more extreme version of the 2008/9 Global Financial Crisis, with a deeper valuation trough and a longer period of negative cash flow. HVPE now has an 11-year track-record in monitoring and interpreting cash flows arising from activity in the underlying portfolio. Historically the analysis has proven to be relatively accurate, albeit on the conservative side, typically over-estimating capital calls and under-estimating distributions and NAV growth.

An explanation of leverage use at the HarbourVest fund level

HarbourVest funds employ leverage to a limited extent for three main purposes: bridging capital calls and distributions; financing specific investment projects where the use of debt may be advantageous; and recapitalising funds to accelerate distributions to investors. HVPE is exposed to this leverage on a look-through basis as a result of its investments in the HarbourVest funds. As at 31 January 2019, HVPE's total look-through, or "embedded", leverage was $272.6 million, an increase of $33.9 million from the 31 January 2018 level of $238.7 million. The debt is provided to the HarbourVest funds on attractive terms and carries a relatively low rate of interest as it is secured on the commitments made by investors (including HVPE) to those funds. The HVPE team monitors the embedded leverage and ensures that possible changes in the outstanding balance are factored into the scenario tests conducted as part of the annual commitment planning exercise.

Balance Sheet Ratios

Commitment Ratios

The Board and the Investment Manager refer to three key ratios when assessing the Company's commitment levels:

1. Total Commitment Ratio ("TCR")

The TCR provides a view of total exposure to private markets investments as a percentage of NAV. As such, this takes the sum of the current Investment Portfolio and the Investment Pipeline as the numerator. The level of the TCR is a key determinant of the Company's total commitment capacity for new HarbourVest funds and co‑investments within a given time period.

2. Commitment Coverage Ratio

HVPE and many of its listed peers use this metric as a measure of balance sheet risk. This ratio is calculated by taking the sum of cash and available credit, and dividing it by the total Investment Pipeline.

The nature of HVPE's structure, whereby it commits to HarbourVest funds, which in turn invest in private equity managers, means that it typically takes longer for commitments to be drawn down compared to other listed private equity funds. As a result, to remain fully invested, it has to maintain a larger pipeline of unfunded commitments. This means that HVPE's Commitment Coverage Ratio may appear relatively low in comparison to other similar firms.

3. Rolling Coverage Ratio

HVPE's Investment Manager uses this third specific metric to provide greater insight into the Company's balance sheet position and a more relevant comparison to other listed private equity firms on the London Stock Exchange (the "peer group"). This final measure reflects the sum of cash, the available credit facility, and the distributions expected during the current year, taken as a percentage of the forecast cash investment in HarbourVest funds over the current year plus the next two years. The latter is based on actual commitments made, plus those currently foreseen for the next three years. In considering forecast investments over a three-year period rather than the total Investment Pipeline, this calculation enables a more useful comparison of HVPE's coverage ratio relative to its peers. This ratio has reduced from 85% at 31 January 2018 to 72% at 31 January 2019, due to a reduction in the cash balance and a slight increase in estimated investments.

Total Commitment Ratio

(Total exposure to private markets investments as a percentage of NAV)

Investment Portfolio + Investment Pipeline

$3,322.9m

Divided by the NAV

$1,924.0m

173% (157% at 31 January 2018)


 

Commitment Coverage Ratio

(Short-term liquidity as a percentage of total Investment Pipeline)

Cash + available credit facility

$756.6m

Divided by the Investment Pipeline

$1,562.7m

48% (61% at 31 January 2018)


 

Rolling Coverage Ratio

(A measure of medium-term commitment coverage)

Cash + available credit facility (total $756.6m) + current year estimated distributions ($423.5m)

$1,180.1m

Divided by the next three years' estimated investments

$1,643.8m

72% (85% at 31 January 2018)


 

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.

As part of the Board's thorough assessment of the effectiveness of the risk management and the internal controls, at the end of the year under review, Directors adopted a new risk management framework to govern how the Board: identifies existing and emerging risks; determines risk appetite; identifies mitigation and controls; assesses, monitors and measures risk, and; reports on risks.

The Board conducted a fresh exercise to identify risks for the Company. The Board identified 12 main risks which have a higher probability and a significant potential impact on performance, strategy, reputation, or operations. Of these, five are identified below as the principal risks faced by the Company where the combination of probability and impact is assessed as being most significant.

The Board also identified another 19 less significant existing or emerging risks which are monitored on a watch list.

Risk

Description

Mitigating Factor

Balance
Sheet Risks

The Company's balance sheet strategy and its policy for the utilisation of leverage are described on page 48 of the Company's Annual Report. The Company continues to maintain an over-commitment strategy and may draw on its credit facility to bridge periods of negative cash flow when capital calls on investments are greater than distributions. The level of potential borrowing available under the credit facility could be negatively affected by declining NAVs. In a period of declining NAVs, reduced realisations, and rapid substantial cash calls, the Company's net leverage ratio could increase beyond an appropriate level, resulting in a need 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.

The Board has put in place a monitoring programme, determined with reference to portfolio models, in order to mitigate against the requirement to sell assets at a discount during periods of NAV decline. Further, the monitoring programme also considers the level of debt at the HarbourVest fund level. Both the Board and the Investment Manager actively monitor these metrics and will take appropriate action as required to attempt to mitigate these risks. Additionally, the Board intends to renew the credit facility regularly with the aim that there should always be a minimum of 48 months of unexpired facility available.

Popularity
of Listed Private
Equity Sector

Investor sentiment may change towards the Listed Private Equity sector, resulting in a widening of the Company's share price discount to NAV.

The Board has set the Investment Manager the objective of ensuring that the widest possible variety of investors are informed 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 countries are trading close to all-time highs. While economic fundamentals have improved, structural imbalances remain. The Company makes venture capital and buyout investments in companies where operating performance is affected by the broader economic environment within the countries in which those companies operate. While these companies are generally privately owned, their valuations are, in most cases, influenced by public market comparables. In addition, approximately 9% of the Company's 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.

Both the Board and the Investment Manager actively monitor the Company's NAV, and exposure to individual public markets is partially mitigated by the geographical diversification of the portfolio. The Board notes that it has limited ability to mitigate public market risk.

Stress testing takes place as part of the portfolio composition process to model the effect of different macroeconomic scenarios to provide comfort to the Board that the balance of risk and reward is appropriate in the event of a downturn in public markets.

Performance of HarbourVest

The Company is dependent on its Investment Manager and HarbourVest's investment professionals. With the exception of the 2011 Absolute investment and 2012 Conversus investment, nearly all of the Company's assets, save for cash balances and short-term liquid investments, are invested in HarbourVest funds.

Additionally, HarbourVest employees play key roles in the operation and control of the Company. The departure or reassignment of some or all of HarbourVest's professionals could prevent the Company from achieving its investment objectives.

This risk is mitigated by the Board monitoring the performance of the Investment Manager on an ongoing basis, including through regular reports and due diligence visits to the Investment Manager's offices, which took place twice in the year under review in each of Boston and London. Succession planning at the Investment Manager is also monitored by the Board of the Company.

Trading Liquidity and Price

Any ongoing or substantial discount to NAV has the potential to damage the Company's reputation and to cause shareholder dissatisfaction.

The five largest shareholders represent approximately 48% of the Company's shares in issue. This may contribute to a lack of liquidity and widening discount. Also, in the event that a substantial shareholder chooses to exit the share register, this may have an effect on the Company's share price and consequently the discount to NAV.

Since September 2015, the Company's shares have traded on the Main Market of the London Stock Exchange, which has increased the liquidity of the shares and broadened the appeal to a wide variety of shareholders. In addition, the Board continues to monitor the discount to NAV and will consider appropriate solutions to address any ongoing or substantial discount to NAV. The Board has overseen the allocation of additional investor relations resource in the year under review. The Company has attracted new shareholders. The concentration of shares held by the five largest shareholders remained at 48%.

 

 

Board of Directors

Sir Michael Bunbury

Chairman, Independent Non-Executive Director, appointed October 2007

Sir Michael Bunbury (age 72) 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 of other investment trusts. Sir Michael began his career in 1968 at Buckmaster & Moore, a member of The London 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 the Nomination and Management Engagement and Service Provider Committees.

Francesca Barnes

Independent Non-Executive Director, appointed April 2017

Francesca Barnes (age 60) is a non-executive director of NatWest Holdings Limited, Coutts & Company and a number of RBS Group's other ring-fenced bank boards as well as Capvis private equity. She is also the chair of trustees for Penny Brohn UK, and is a member of the University of Southampton council. 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 and Risk, Nomination, and Management Engagement and Service Provider Committees.

Keith B. Corbin

Senior Independent Non-Executive Director (until 16 May 2019), appointed October 2007

Keith Corbin (age 66) 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 40 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, and Switzerland. He serves as a non-executive director on various regulated financial services businesses, investment funds, and other companies.

Committees: Member of the Audit and Risk, and Nomination Committees.

Alan C. Hodson

Senior Independent Non-Executive Director (with effect from 16 May 2019), appointed April 2013

Alan Hodson (age 57) is Chairman of JP Morgan Elect and Charity Bank. 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 and Risk, Nomination, and Management Engagement and Service Provider Committees.

Andrew W. Moore

Independent Non-Executive Director, appointed October 2007

Andrew Moore (age 64) 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 and Risk, Nomination, and Management Engagement and Service Provider Committees.

Steven P. Wilderspin

Independent Non-Executive Director, appointed May 2018

Steven Wilderspin (age 50) has more than ten years' experience as a non-executive director on the boards of private equity partnerships and listed investment companies. Steven, a qualified Chartered Accountant, has been the Principal of Wilderspin Independent Governance, which provides independent directorship services, since April 2007. He has served on a number of private equity, property and hedge fund boards as well as commercial companies. Mr Wilderspin currently serves as the chairman of the Risk Committee of London-listed Blackstone/GSO Loan Financing Limited. In December 2017 Steven stepped down from the board of 3i Infrastructure plc, where he was chairman of the audit and risk committee, after ten years' service.

From 2001 until 2007, Steven was a director of fund administrator Maples Finance Jersey Limited where he was responsible for fund and securitisation structures. Before that, from 1997, he was Head of Accounting at Perpetual Fund Management (Jersey) Limited. Steven has recent and relevant financial and sector experience.

Committees: Chairman of the Audit and Risk Committee, member of the Nomination, and Management Engagement and Service Provider Committees.

Peter G. Wilson

Non-Executive Director, appointed May 2013

Peter Wilson (age 56) joined HarbourVest's London team in 1996 and is one of two members of the Firm's Executive Management Committee. He co-leads secondary investment activity in Europe and is a member of the HarbourVest Europe Investment Committee. He serves on the advisory committees for partnerships managed by Baring Vostok Capital Partners, CVC Capital Partners, Holtzbrinck Ventures and Index Venture Management. He also served as founding chair of the board of trustees of City Year UK Limited.

Prior to joining the firm, he spent three years working for the European Bank for Reconstruction and Development, where he originated and managed two regional venture capital funds in Russia. 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 73) 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 the Company. 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 the Audited Consolidated Financial Statements ("Financial Statements" or "Accounts") for the year ended 31 January 2019.

A description of important events and principal activities which have occurred during the financial year and their impact on the performance of the Company, as shown in the Financial Statements, is given in the Strategic Report, starting with the Chairman's Statement on page 2. 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 also provided in the Strategic Report and the notes to the Financial Statements, and are incorporated here by reference.

Corporate Summary

The Company is a closed-ended investment company incorporated in Guernsey on 18 October 2007 with an unlimited life. The Company currently has one class of shares (the "Ordinary Shares") and its shares are admitted to trading on the Main Market of the London Stock Exchange.

With effect from 10 December 2018, the Company introduced an additional US dollar market quote which operates alongside the Company's existing sterling quotation, allowing shares to be traded in either currency.

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.

Capital resources not held in longer-term investments are held in cash, cash equivalents, and money market instruments pending investment.

The Company uses an over-commitment strategy in order to remain as fully invested as possible. 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; and

·    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; and

·    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 ten 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 on its balance sheet 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, or in the event of a material downturn, which may persist for extended periods of time depending on market conditions.

Results

The results for the financial year ended 31 January 2019 are set out in the Consolidated Statements of Operations within the Annual Report that begin on page 73. 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 44 to 45 all held office throughout the reporting period (with the exception of Steven Wilderspin who was appointed in May 2018) and at the date of signature of this Annual Report. Mr Jean-Bernard Schmidt retired in July 2018. 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. All Directors, other than Mr Zug and Mr Wilson, are considered to be independent. Mr Hodson is the Senior Independent Director. Further details of the Board composition and rationale for the independence of those having served for more than nine years (Sir Michael Bunbury, Mr Corbin, and Mr Moore) can be found on page 53.

Save as disclosed in this Annual Report, 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.

Directors' Interests in Shares


31 January 2019

31 January 2018

Sir Michael Bunbury

25,000

22,863

Francesca Barnes

2,000

2,000

Keith Corbin

25,000

25,000

Alan Hodson

30,000

30,000

Andrew Moore

14,400

14,400

Steven Wilderspin

1,300

Nil

Peter Wilson

25,000

25,000

Brooks Zug

85,000

21,000

 

There has been no change in Directors' interests between 31 January 2019 and the date of signing of this report.

Shareholder Information

The Company announces the estimated NAV 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 on the Company's website.

All Ordinary Shares may be dealt 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 the importance of engaging with major shareholders to fully understand their perspective, and any issues or concerns. In Autumn 2018, the Board appointed Investor Perceptions, part of Rothschild & Co, to undertake an independent and comprehensive investor perceptions study. Extensive discussions were held with a number of larger shareholders representing 56% of the Company's issued share capital (including seven top ten shareholders), and selected non-holders. In total, 33 questions spanning strategy, financial position, valuation and liquidity, management, Board, IR and communications were put to the participants. No major issues or concerns were aired by shareholders, and the overall tone was generally positive and supportive of the Company, what it has achieved and the way it operates. HVPE's NAV per share performance and diversified portfolio were highlighted as key attractions. Communication was seen as a strength and the Company received an above average rating for investor relations. The cause of HVPE's wide discount remained unclear to most investors, and consequently there was no consistent view on any specific action that the Company might take in order to reduce it over time. The Directors reviewed the report in detail and the feedback from shareholders has been used to inform and drive several discussions at subsequent Board meetings.

Members of the Board have had the opportunity to attend meetings with shareholders, and the Board accesses shareholders' views of the Company via, among other methods, direct face-to-face contact and analyst and broker briefings. The Chairman regularly meets with shareholders, and investors are also able to engage with members of the Board at HVPE's annual capital markets session or Annual General Meeting ("AGM").

The Company has appointed J.P. Morgan Cazenove and Jefferies Hoare Govett as its joint corporate brokers to enhance communications with shareholders. Scott Harris has been retained to report on and to liaise with prospective and existing shareholders, arranging meetings for the Investment Manager as appropriate.

The Company reports formally to shareholders twice a year. In addition, latest developments are provided to current and prospective investors on an ongoing basis through the Company's website, and in monthly factsheets, ad-hoc newsletters and videos. Shareholders may contact the Directors, including the Chairman and the Senior Independent Director through the Company Secretary.

The Board monitors the Company's trading activity on a regular basis.

Substantial Shareholders

The table that follows shows the interests of major shareholders based on the best available information provided 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 22 May 2019.


% of Voting Rights
31 January 2019

% of Voting Rights
22 May
2019

Quilter PLC

13.71

13.74

State Teachers Retirement System of Ohio

13.57

13.57

M&G (Prudential)

10.40

10.40

City of Edinburgh Council

5.72

5.72

Total

43.40%

43.43%

 

Corporate Responsibility

As a closed-ended investment company, HVPE does not have any employees or properties and therefore there is no direct impact. As a primary method of reviewing any indirect impacts, the Board 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 has sought to align its interests with those of its investors, business partners, personnel and communities for more than three decades through a dedicated ESG Committee. This committee (comprised of senior leaders across HarbourVest) meets monthly to discuss integration of ESG principles into all aspects of the HarbourVest's business. ESG-related risks are identified and taken into consideration as an integral part of the Investment Manager's due diligence process, so that company-specific, broader manager-level, sector-level, and regional risks can be considered when reviewing investments. The Investment Manager actively undertakes efforts to engage GPs to further adopt ESG policies by requesting the inclusion of ESG issues on advisory board agendas, through ongoing dialogue, and by leveraging its proprietary scorecard to highlight potential areas for improvement.

As a firm with a strong ethical and compliance-oriented culture, the Investment Manager strives to be transparent to all stakeholders, including its clients, around its decision-making process.

The Investment Manager is a signatory to the United Nations-supported Principles of Responsible Investing. Further information about this is provided on page 8 of the Company's Annual Report.

The Investment Manager is a firm believer in giving back to the communities in which it operates and has introduced several initiatives aimed at encouraging employees to participate and contribute to a range of charitable organisations. Since 2017, the Investment Manager has run an annual Global Volunteer Week, incorporating activities across all of its global offices to build stronger local relationships. The success of this initiative has led to the Global Volunteer Week now taking place twice a year.

Significant Votes Against Policy

The Directors have adopted a policy where if 20% or more of votes are cast against a recommendation made by the Board for a resolution, the Company shall:

·    explain, when announcing voting results, what actions it intends to take to consult shareholders in order to understand the reasons behind the result;

·    no later than six months after the shareholder meeting publish an update on the views received from shareholders and actions taken; and

·    provide a final summary in the Annual Report and, if applicable, in the explanatory notes to resolutions at the next shareholder meeting, on what impact the feedback has had on the decisions the Board has taken and any actions or resolutions proposed.

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

In accordance with 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 requires that the Company includes certain information relating to arrangements made between a controlling shareholder and the Company, waivers of Directors' fees, and long term incentive schemes in force. 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 6 to 9, with further information disclosed in the Annual Report and the Notes to the Financial Statements on pages 81 to 87. The Board has considered the appointment of the Investment Manager and, in the opinion of the Directors, 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 Advisers 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 both to 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; and

·    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 (the "IMA"), which was amended and restated on 9 September 2015, 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 $5.5 million at 31 January 2019 and $5.3 million as at 30 April 2019, 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 rolling five-year plan for the Company. The Board is responsible for the overall leadership of the Company and the setting of its values and standards. This includes setting of the investment and business strategy and ongoing review of the Company's investment objective and investment policy, along with recommending to shareholders the approval of alterations thereto. Matters reserved for the Board include areas such as the Board and Committee membership, including the review and authorisation of any conflicts of interest arising. Areas such as approval of the raising of new capital, major financing facilities and approval of contracts that are not in the ordinary course of business are also reserved for the Board, along with any governance and regulatory requirements. Any changes in relation to the capital structure of the Company, along with the allotment and issuance of shares, are the responsibility of the Board.

Directors' Indemnity

Under the Company's Articles, the Directors, company 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.

Board Structure and Committees

The activities of the Company are overseen by a majority of independent Directors. The Board meets at least five times a year, and between these scheduled meetings there is regular contact between Directors, the Investment Manager, the Administrator and the Company Secretary, including a formal strategy meeting and 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, the Administrator and the Company Secretary in their regular 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.

Audit and Risk Committee

Role

To ensure that the Company maintains high standards of risk management, integrity, financial reporting and internal controls.

Members

Steven Wilderspin (Chairman from 31 July 2018)

Keith Corbin (Chairman to 31 July 2018)

Francesca Barnes

Alan Hodson

Andrew Moore

Nomination Committee

Role

To oversee succession planning and new Director appointment and induction.

Members

Chaired by Sir Michael Bunbury

Francesca Barnes

Keith Corbin

Alan Hodson

Andrew Moore

Steven Wilderspin

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.

Members

Chaired by Sir Michael Bunbury

Francesca Barnes

Alan Hodson

Andrew Moore

Steven Wilderspin

Inside Information Committee

Role

To consider any developments which may require an immediate announcement by virtue of being price sensitive information.

Members

Chaired by Sir Michael Bunbury

Steven Wilderspin

Board and Committee Meetings with Director Attendance

In the financial year ending 31 January 2019, the Board held the following meetings. Below is a summary of the Director attendance at the meetings held in the financial year:

Director

Scheduled Board and Board Strategy Meetings

Audit and Risk Committee Meetings

Nomination Committee Meeting

Management, Engagement and Service Provider Committee Meetings

Ms Francesca Barnes

6/6

3/3

2/2

1/1

Sir Michael Bunbury

6/6

-

2/2

1/1

Mr Keith Corbin

6/6

3/3

1/2

-

Mr Alan Hodson

6/6

3/3

2/2

1/1

Mr Andrew Moore

6/6

3/3

2/2

1/1

Mr Jean-Bernard Schmidt1

3/3

-

1/1

-

Mr Steven Wilderspin2

5/5

3/3

2/2

1/1

Mr Peter Wilson

6/6

-

-

-

Mr Brooks Zug

6/6

-

-

-

1  Mr Jean-Bernard Schmidt retired in July 2018.

2  Mr Steven Wilderspin was appointed in May 2018.

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 scheduled strategy and ad-hoc meetings, the Board also receives detailed updates from the Investment Manager via update calls. The ad-hoc Board and Committee meetings are often convened at short notice and as they only require a minimum quorum of two Directors there is a lower attendance than with the scheduled meetings. During the financial year there were six ad-hoc Board meetings, three ad-hoc Audit and Risk Committee Meetings, and two ad-hoc Nomination Committee meetings, with a quorum at each. The Insider Information Committee Meeting did not meet during the period, as no circumstance arose that required it to meet.

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 carefully considers its composition and the refreshment process led to the addition of Mr Wilderspin in May 2018. With specific reference to the fact that Sir Michael Bunbury, Mr Corbin, Mr Moore and Mr Zug had served on the Board for eleven years in October 2018, the Board is of the view that these Directors can continue beyond a tenure of nine 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 and Mr Moore remain independent of the Investment Manager with no other interests or conflicts with HarbourVest Partners, notwithstanding their years' service. This is evidenced by their continued constructive challenge of the Investment Manager. Sir Michael ensures the effectiveness of the Board in all aspects of their role through his leadership as an independent Chairman of the Company. Mr Moore remains independent in character and judgement and challenges items tabled to and discussed by the Board as appropriate.

If a Director wishes to undertake additional external appointments, approval is sought from the Board.

Audit and Risk Committee

About the Committee

The Audit and Risk Committee members are outlined on page 52. Mr Corbin, Ms Barnes, Mr Hodson and Mr Moore have each held senior banking roles for a number of years as described in their biographies; Mr Wilderspin is a qualified Chartered Accountant and has over ten years' experience as an executive and non-executive Director on a number of private and listed fund boards as well as commercial companies and is deemed by the Board to have recent and relevant financial and sector experience.

The Audit and Risk Committee is responsible for the review of the Company's accounting policies, periodic financial statements, auditor engagement and certain regulatory compliance matters. The committee is also 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.

With effect from 17 October 2018, the committee's terms of reference were extended to incorporate responsibility for overseeing the Company's risk management framework and regulatory compliance. The terms of reference of the Audit and Risk Committee are available on the Company's website.

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 its own internal audit facility. This matter is reviewed annually.

Activities of the Committee

Audit and Risk Committee Report

In the year under review, the Audit and Risk Committee examined the effectiveness of the Company's internal control systems, the annual and interim reports and financial statements, and 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 and Risk Committee Meetings

In the financial year ended 31 January 2019, the Audit and Risk Committee met six times: three on a scheduled basis, and three on an ad-hoc basis. The entire Audit and Risk 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 summary of Director attendance is included in the "Board and Committee Meetings with Director Attendance" section on page 53.

Auditors

The Audit and Risk Committee reviewed the effectiveness of the external audit process during the year, considering performance, objectivity, independence and relevant experience. This included post-audit discussions with the Company's auditor, Investment Manager and Company Secretary to review how well the previous year's audit had gone. The main conclusion from this review was to improve clarity around the audit timetable and the deliverables at each stage to ensure that the audit is conducted more efficiently and effectively. Consequently, the committee 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 and were reappointed following a competitive tender process in May 2017. The Company's auditors performed an audit of the Company's financial statements, prepared in accordance with applicable law, US Generally Accepted Auditing Principles ("GAAP") under International Standards on Auditing (UK). The audit approach remained unchanged relative to the prior year and the Audit and Risk 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 in Guernsey.

Auditor Independence

The Audit and Risk Committee understands the importance of auditor independence and, during the year, the Audit and Risk Committee reviewed the independence and objectivity of the Company's auditor. The Audit and Risk Committee received a report from the external auditor describing its independence, controls, and current practices to safeguard and maintain auditor independence. Other than fees paid for conducting a review of the interim financial statements (for the first time), there were no other non-audit fees paid to the auditor by the Company. The committee has adopted a non-audit services policy that complies with the revised Ethical Standard 2016 issued by the UK FRC which determines those services that the auditor is prohibited in providing to the Company and those services that the auditor may conduct in most circumstances. In all other cases the Chairman of the Committee will review the potential engagement of the auditor in advance to ensure that the auditor is the most appropriate party to deliver the proposed services and to put in place safeguards, where appropriate, to manage any threats to auditor independence.

Terms of Engagement

The Audit and Risk 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 and Risk Committee meeting. The Audit and Risk Committee considered the proposed fee of $139,000 for audit services related to the 31 January 2019 Financial Statements. 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.

Internal Controls

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 and Risk 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  1 October 2017 to 30 September 2018 (a bridging letter covers the period 1 October 2018 to 31 January 2019), detailing the controls environment in place at the Investment Manager, as well as ISAE 3402 Reports on Fund Administration, Global and Local Custody Services, Securities Lending Services and Listed Derivatives Clearing Services for the period 1 October 2017 to 30 September 2018 detailing the controls environment in place at the Administrator and Company Secretary. In both of these reports there were findings related to IT access controls, but the committee is satisfied that the identified weaknesses were not material to the affairs of the Company, and that the respective service providers had taken action to improve controls in this area. 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 and Risk Committee reviewed their findings to ensure that the Company's control environment was operating satisfactorily.

The Investment Manager's Type II SOC I Report describes the internal controls in the HarbourVest Accounting group, which is responsible for maintaining the Company's accounting records and the production of the accounts contained in the Company's Financial Statements. The main features of the controls are: clearly documented valuation policies; detailed review of financial reporting from underlying limited partnerships and investee companies; detailed reconciliation of capital accounts in underlying limited partnerships; monthly reconciliation of bank accounts; and a multi-layered review of financial reporting to ensure compliance with accounting standards and other reporting obligations.

Risk Management

The Audit and Risk 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. At the end of the period, the Audit and Risk Committee recommended a new risk management framework to the Board and led the Board through a fresh analysis of existing and emerging risks. Further details of this process and a description of the principal risks and uncertainties facing the Company are given on pages 28 to 29. 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 and Risk Committee members participated in the consideration by the Board of the viability of the Company until 31 January 2024, details of which are shown on pages 62 to 63 of the Company's Annual Report.

Financial Risks

The Company is 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 $600 million.

The Company's policy on hedging is kept under review by the Audit and Risk Committee.

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 market risk, liquidity risk and cash flow risk.

Regulatory Compliance

Since the engagement of the new Company Secretary during the year, the Audit and Risk Committee has engaged with the Compliance team to ensure that the Company fulfils its regulatory obligations. A Compliance Monitoring Plan is in place and is regularly reviewed by the Committee. The Company is compliant with the provisions of the September 2014 Competition and Markets Authority Order.

Audited Financial Statements and Significant Reporting Matters

As part of the 31 January 2019 year-end audit, the Audit and Risk Committee reviewed and discussed the most relevant issues for the Company, most notably the risk of misstatement or manipulation of the valuation of its investments in underlying HarbourVest funds.

In the year under review, members of the Audit and Risk 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 and Risk 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.

The Committee also reviewed the following matters:

·    valuation of derivative financial instruments;

·    post balance sheet events;

·    the impact of upcoming accounting standards; and

·    other changes in presentation within the report to improve clarity for users.

The Committee concluded that the Financial Statements were fair, balanced and understandable.

Corporate Governance

The Audit and Risk Committee continues to monitor the review by the Board of the Company's compliance with the AIC Code of Corporate Governance for Investment Companies (the 2016 edition), and reviewed the forthcoming 2019 version of the AIC Code. The adoption of best practice is also reviewed following the admission to trading of the Company's Ordinary Shares on the Main Market of the London Stock Exchange.

Governance and Effectiveness

On 21 May 2019 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 and Risk Committee focuses on. If any shareholders would like any further information about how the Audit and Risk Committee operates and its review process, I, or any of the other members of the Audit and Risk Committee would be pleased to meet with them to discuss this.

Steven Wilderspin

Chairman of the Audit and Risk Committee

28 May 2019

Nomination Committee

About the Committee

The Nomination Committee was established on 24 November 2015 and is chaired by the Chairman of the Company. Its members are outlined on page 52.

There were two scheduled meetings and two ad-hoc meetings held during the year. All current members attended at least two of the meetings held. 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

Mr Steven Wilderspin was appointed as a Director of the Company effective 14 May 2018 as a result of the approach to succession planning outlined below. Mr Jean-Bernard Schmidt retired in July 2018.

The Committee also actively engaged with the Investment Manager and Company Secretary to ensure that Mr Wilderspin was given a suitable induction process.

Induction Process and Board Effectiveness Review

The Nomination 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.

Approach to Succession Planning

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 Nomination 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. Cornforth Consulting was appointed as external search consultants after review of various providers from a shortlist of suitable companies. Cornforth Consulting does not have any other relationship with the Company, neither does Conforth Consulting have any connection with individual Directors. The Nomination Committee members drafted a job specification in concert with interested parties and then met with a shortlist of candidates identified by Conforth Consulting.

In accordance with Board's decision outlined above, Mr Zug and Mr Corbin have confirmed that they will not offer themselves for re-election at the AGM in July. The Board is pleased that Carolina Espinal (Managing Director, Primary team at HarbourVest Partners) has agreed to be put forward for election at the AGM to be Mr Zug's successor. Further details are contained in the Chairman's Statement on page 4.

A sub-committee of the Nomination Committee led by Keith Corbin is leading the process for the appointment of a new Director who will be appointed with the intention of succeeding Sir Michael Bunbury as Chairman, when he retires from the board in 2020. The Nomination Committee has appointed Trust Associates to assist in the recruitment of the new Director. The sub-committee will make a recommendation for this appointment to be considered by the Nomination Committee once it has completed the recruitment process.

Board and Committees Evaluation

The Board undertakes a formal annual evaluation of its performance and the performance of the Investment Manager and the Company Secretary. An externally facilitated Board evaluation occurs every three years. The Board has commissioned an external appraisal by Board Alpha Limited to review its operation and effectiveness in 2019. Board Alpha has no connections to the Company or Directors. There are no outcomes at this stage; the results will be communicated in due course.

Policy on Diversity and Inclusion

The Board and Nomination Committee will review the diversity of the Board when considering future appointments. The Board understands the Hampton-Alexander Review target for 33% female representation on FTSE 350 company boards and intends to strive to reach this level. Board representation will at all times seek to optimise the necessary balance of skills, experience, and sector knowledge appropriate for the Company.

Governance and Effectiveness

During the year, the Nomination 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 outlined on page 52. The other Directors of the Company may attend by invitation of the committee.

The MESPC held one meeting in the year under review and all members of the committee attended the meeting. 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 under terms which were competitive and reasonable for the shareholders.

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 2018, the Board visited the Investment Manager's Boston offices, with a visit to the London office taking place in November 2018. As part of these visits, the Board 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 and Management Engagement and Service Provider Committee are 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

Following a tender process undertaken in 2017, BNP Paribas Securities Services S.C.A was selected to provide Company secretarial, compliance and administration services effective 11 May 2018.

MESPC Review

The MESPC met in November 2018 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; and

·    GDPR compliance.

Governance and Effectiveness

In November 2018, the MESPC 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.

Corporate Governance

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") and have reviewed the 2019 version of the AIC Code which comes into effect for HVPE's 2020 reporting.

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 independent.

The Chairman remains independent of the Investment Manager in line with this provision of the AIC Code.

2

A majority of the Board should be independent of the manager.

Six of the eight Directors of the Company are independent of the Investment Manager in accordance with the recommendations of the AIC Code.

3

Directors should be submitted for re-election at regular intervals. Nomination for re-election should not be assumed but be based on disclosed procedures and continued satisfactory performance.

In accordance with the recommendations of the AIC, all Directors submit themselves for annual re-election at the AGM. Director performance is reviewed on a regular basis.

4

The Board should have a policy on tenure, which is disclosed in the annual report.

The Board has not formalised a policy on tenure, which is not in accordance with the AIC code. 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. Details of Board Succession can be found on page 57 of this report.

5

There should be full disclosure of information about the Board.

Biographies of all Directors are included in this report. All conflicts 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 considers that given the Company's structure and the fact it has no executive directors, it is appropriate for these issues to be considered by the full Board.

6

The Board should aim to have a balance of skills, experience, length of service and knowledge of the Company.

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 a formal and rigorous annual evaluation of its own performance and that of its committees and individual directors.

The Board has commissioned an external appraisal by Board Alpha Limited to review its operations and effectiveness. The results of the external board appraisal by Board Alpha Limited will be communicated in due course.

8

Director remuneration should reflect their duties, responsibilities and the value of their time spent.

The Board considered Directors' remuneration in the year under review and fees were reviewed and where necessary revised in July 2018.

9

The independent directors should take the lead in the appointment of new directors and the process should be disclosed in the annual report.

The Independent Directors take the lead in new Director appointments.

The Board and Nomination Committee will review the diversity of the Board when considering future appointments. The Board understands the Hampton-Alexander Review target for 33% female representation on FTSE 350 company boards and intends to strive to reach this level. Board representation will at all times seek to optimise the necessary balance of skills, experience, and sector knowledge appropriate for the Company.

10

Directors should be offered relevant training and induction.

The induction programme was undertaken after the appointment of Mr Wilderspin. All Directors are able to request that training be arranged on any relevant subject matter. During the year Directors attended various conferences, including those run by the AIC, Numis, Rothschild, Invesco, and the Guernsey Financial Services Commission. Directors also attended updates and seminars on areas which included governance, cyber training, the role of the Board, AML/CFT and regulatory matters.

11

The Chairman (and the Board) should be brought into the process of structuring a new launch at an early stage.

Not applicable in the year under review.

12

Boards and managers should operate in a supportive, co-operative and open environment.

The Board believes that the Investment Manager engaged in a supportive, co-operative and open way in the year under review.

13

The primary focus at regular Board meetings should be a review of investment performance and associated matters such as gearing, asset allocation, marketing/investor relations, peer group information and industry issues.

Board meetings during the year focused on these matters.

14

Boards should give sufficient attention to overall strategy.

The Board focuses on aspects of strategy in all meetings.
In addition, a dedicated strategy meeting takes place annually, with the latest being held in November 2018.

15

The Board should regularly review the performance of, and contractual arrangements with, the manager (or executives of a self-managed Company).

A dedicated MESPC meeting took place to consider this matter, the conclusions of which are detailed in this report. The IMA is reviewed regularly and is currently under review.

16

The Board should agree policies with the manager covering key operational issues.

Policies are in place covering key operational issues and the Investment Management Agreement in place between the Investment 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 level of the share price discount or premium (if any) and, if desirable, take action to reduce it.

The Board actively monitored the level of the share price discount to NAV in the year under review. It regularly reviews and considers all options available. This is in line with the recommendations of the AIC Code.

18

The Board should monitor and evaluate other service providers.

The Management Engagement and Service Provider Committee conducted a 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 monitor the shareholder profile of the company and put in place a system for canvassing shareholder views and for communicating the Board's views to shareholders.

The Board considers this at each scheduled meeting. More detail is provided on pages 48 to 49 in the "Relations with Shareholders" section.

20

The Board should normally take responsibility for, and have a direct involvement in, the content of communications regarding major corporate issues even if the manager is asked to act as spokesman.

No major corporate issues arose in the year under review. However, communications about major corporate issues are always approved by the Board.

21

The Board should ensure that shareholders are provided with sufficient information for them to understand the risk/reward balance to which they are exposed by holding the shares.

This Annual Report contains the disclosures recommended in the AIC Code to enable shareholders to understand this.

 

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, and no direct employees or internal operations. The Company has therefore not reported further in respect of these provisions.

2019 AIC Code of Corporate Governance

In February 2019, the AIC published an updated Code of Corporate Governance ("2019 AIC Code") to assist member companies to meet the reporting requirements of the 2018 UK Corporate Governance Code. The 2019 AIC Code applies to accounting periods beginning on or after 1 January 2019; therefore, the Company will report against it in its 2020 Financial Statements.

The Company has undertaken a gap analysis of the 2019 AIC Code. It is satisfied that it will be able to demonstrate how the principles have been applied and where applicable be able to provide clear rationale for any areas of non-compliance along with the action the Company is undertaking.

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 from the approval date of the Financial Statements. In addition, the Board monitors and manages the ongoing commitments via the criteria set out on pages 46 to 47. 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.

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 five-year period from 31 January 2019. 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 it aligns with the Board's strategic horizon and is within the term of the Company's new credit facility.

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 markets investments. The majority of the Company's investments are in HarbourVest-managed private equity fund-of-funds, which have fund lives of 10 to 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 pages 34 to 37 of the Company's Annual 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 stage, 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 five-year period.

The Board considers that a five-year period to 31 January 2024 is now an appropriate period of time to assess the Company's viability, as the improvement to the term of the credit facility now gives the Board greater confidence to look further ahead and align the viability assessment with the strategic planning horizon of the Company. In prior reports, a three year assessment period was considered appropriate as the credit facility was renewed on an annual basis for a fixed term of three to four years with no guarantee that the annual renewal would be successful. The new credit facility is a five year evergreen structure with an initial two-year no-notice provision, giving it an initial term of seven years to January 2026. From January 2021, the lenders have the option to serve notice, but the notice given must be a minimum of five years. The credit facility is a significant component in supporting the Company's over commitment strategy and this new facility now covers the Board's five year strategic planning horizon.

 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 28 and 29 of the Company's Annual Report. In addition, the Board has established a risk management framework, 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 five-year period to 31 January 2024.

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 themselves 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 44 and 45 of the Company's Annual Report and Financial Statements, 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 undertakings' position, 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

 

Steven Wilderspin

Chairman of the Audit and Risk Committee

28 May 2019

 

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 2019.

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 2019. The Company's Articles limit the aggregate fees payable to Directors to a maximum of £550,000 per annum. The Board reviewed remuneration in the year, and where necessary this was revised in 2018.

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 2019.

Director

Role

Fees paid for the 12 months ended 31 January 2019

Fees paid for the 12 months ended 31 January 2018

Sir Michael Bunbury

Chairman, Independent Director

£140,000

$211,552

Keith B. Corbin

Audit and Risk Committee Chairman1

£52,504

$68,080

Francesca Barnes

Independent Director

£50,000

$46,642

Alan C. Hodson

Independent Director

£50,000

$62,266

Andrew W. Moore

Independent Director

£50,000

$62,266

Jean-Bernard Schmidt

Independent Director

£23,436

$62,266

Steven Wilderspin

Audit and Risk Committee Chairman

£38,237

Nil

Peter G. Wilson

Director

Nil

Nil

D. Brooks Zug

Director

Nil

Nil

Total


£404,177

$513,074

 

Role

Director fees payable with effect from 1 January 2019 (annualised)3

Director fees payable with effect from 1 January 2018 (annualised)3

Chairman, Independent Director

£140,000

£140,000

Audit and Risk Committee Chairman

£55,0002

£55,000

Independent Director

£50,000

£50,000

 

1  Mr Keith Corbin was Audit and Risk Committee Chairman until 31 July 2018 when Mr Steven Wilderspin was appointed to the role.

2  Increased to £60,000 with effect from 1 April 2019.

3  The Board resolved to pay Directors' fees in sterling from 1 October 2017 onwards.

Signed on behalf of the Board by:

Michael Bunbury      Steven Wilderspin

Chairman                   Chairman of the Audit and Risk Committee

28 May 2019

 

Independent Auditor's Report

To the Members of HarbourVest Global Private Equity Limited

Opinion

We have audited the Consolidated Financial Statements ("Financial Statements") of HarbourVest Global Private Equity Limited (the "Company") and its subsidiaries (together the "Group") for the year ended 31 January 2019, which comprise the Consolidated Statements of Assets and Liabilities, the Consolidated Statements of Operations, Consolidated Statements of Changes in Net Assets, the Consolidated Statements 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 2019 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.

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 28 to 29 that describe the principal risks and explain how they are being managed or mitigated;

·    the Directors' confirmation set out on pages 28 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 63 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 pages 63 to 64 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 the Group for the year ended 31 January 2019.

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 in the U.S., and utilised private equity valuation specialists from the Boston office of Ernst & Young in the U.S.

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 $38.5 million (2018: $33.6 million), which is 2 per cent (2018: 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 ($1,762 million; 2018 $1,452 million).

·    Risk that the valuation of the Group's investments at 31 January 2019, which comprise 91.5% (2018: 84.7%) 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 and performance of the Group.

Our response to the risk

Our response comprised the performance of the following procedures:

·    Confirmed and documented our understanding of the Group's processes and methodologies, for valuing investments held by the Group in the underlying investee funds, including the use of the practical expedient per Accounting Standard Codification (ASC) Topic 820 Fair Value Measurement;

·    Agreed 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 2018 which, prior to adjustments, formed the basis for the Group's carrying amount as at 31 January 2019;

·    Obtained a schedule of all adjustments made to those audited Net Asset Values between 1 January 2019 and 31 January 2019, and:

-    Verified foreign exchange rate changes to external third party sources, and their application to underlying investments denominated in foreign currencies;

-    Recalculated a sample of accrued management fees in underlying investment funds based on the terms of the signed management agreements and agreed terms to relevant supporting documents;

-    Recalculated 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 2019 to 31 January 2019;

-    Independently sourced third party prices and verified fair value changes on publicly traded securities held in HarbourVest's underlying investment funds; and

-    Verified contributions and withdrawals made to/from underlying HarbourVest funds to supporting bank statements.

·    Examined the valuations of underlying partnerships and direct investments held by the Direct Co-Investment funds the Group had invested in as at 31 December 2018 and, for adjustments made between 1 January 2019 and 31 January 2019, utilised the procedures set out above;

·    We judgementally selected a sample of direct investments held by the underlying HarbourVest funds based on materiality, complexity in valuation methodology, and sensitivity of inputs, and:

-    Engaged EY internal valuation specialists to independently re-value and conclude on their values as at 31 December 2018, and roll forward to 31 January 2019;

-    Identified key inputs to the valuations and performed sensitivity analysis around them; and

-    Considered whether there were changes in market conditions during the period 1 January 2019 to 31 January 2019 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 2018 for material changes in the direct portfolio investments held in underlying HarbourVest funds and in HarbourVest Direct Co-Investments; and

·    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
the Audit Committee

·    We reported to the Audit Committee that we did not identify any instances of the use of inappropriate methodologies and that the valuation of the Group's investments in the underlying funds / HarbourVest Direct Co-Investment funds were not materially misstated.

 

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 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

We determined planning materiality for the Group to be $38.5 million (2018: $33.6 million), which is 2 per cent (2018: 2 per cent) of net assets. 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 assets as a basis for determining planning materiality because the Group's primary performance measures for internal and external reporting are based on net assets.

Performance 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 $28.9 million (2018: 75 per cent. of materiality, namely $25.2 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

We agreed with the Audit Committee that we would report to them all audit differences in excess of $1.9 million (2018: $1.7 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, 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 64 - 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 54 to 56 - the section describing the work of the audit committee does not appropriately address matters communicated by us to the audit committee; or

Directors' statement of compliance with the UK Corporate Governance Code set out on pages 59 to 64 - 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 63, 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.

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.

David Robert John Moore, ACA

For and on behalf of Ernst & Young LLP

Guernsey, Channel Islands

28 May 2019

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 ("Financial Statements") of HarbourVest Global Private Equity Limited (the "Company") and its subsidiaries (together the "Group"), which comprise the Consolidated Statements of Assets and Liabilities, including the Consolidated Schedule of Investments, as at 31 January 2019, 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 2019, and the consolidated results of its operations, changes in its net assets, and its cash flows for the year then ended, in conformity with US GAAP.

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.

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.

Ernst & Young LLP

Guernsey, Channel Islands

28 May 2019

 

 

 

 

 



 

Consolidated Statements of Assets and Liabilities

At 31 January 2019 and 2018

 

In US Dollars

2019

2018

ASSETS



Investments (Note 4)

1,760,181,991

1,452,215,345

Cash and equivalents

156,570,557

256,961,145

Other assets

9,745,502

6,790,179

Total assets

1,926,498,050

1,715,966,669




LIABILITIES



Accounts payable and accrued expenses

2,403,836

1,872,066

Accounts payable to HarbourVest Advisers L.P. (Note 9)

138,563

227,767

Total liabilities

2,542,399

2,099,833




Commitments (Note 5)






NET ASSETS

$1,923,955,651

$1,713,866,836




NET ASSETS CONSIST OF



Shares, unlimited shares authorised, 79,862,486 shares issued and
outstanding at 31 January 2019 and 2018, no par value

1,923,955,651

1,713,866,836




NET ASSETS

$1,923,955,651

$1,713,866,836




Net asset value per share

$24.09

$21.46

 

The accompanying notes are an integral part of the Financial Statements.

The Financial Statements on pages 73 to 87 were approved by the Board on 28 May 2019 and were signed on its behalf by:

Michael Bunbury                  Steven Wilderspin

Chairman                               Chairman of the Audit and Risk Committee

 

 

 

 



 

Consolidated Statements of Operations

For the Years Ended 31 January 2019 and 2018

 

In US Dollars

2019

2018

REALISED AND UNREALISED GAINS (LOSSES) ON INVESTMENTS



Net realised gain on investments

108,314,099

157,395,016

Net change in unrealised appreciation on investments

110,073,273

91,527,458




NET GAIN ON INVESTMENTS

218,387,372

248,922,474




INVESTMENT INCOME



Interest from cash and equivalents

3,810,530

2,068,790




EXPENSES



Non-utilisation fees (Note 6)

5,836,972

5,829,861

Investment services (Note 3)

1,675,514

1,457,264

Financing expenses

1,356,199

1,300,594

Professional fees

932,601

658,745

Management fees (Note 3)

790,612

1,410,379

Directors' fees and expenses (Note 9)

600,347

580,491

Tax expenses

(56,126)

67,636

Other expenses

972,968

677,279

Total expenses

12,109,087

11,982,249




NET INVESTMENT LOSS

(8,298,557)

(9,913,459)




NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

$210,088,815

$239,009,015

 

The accompanying notes are an integral part of the Financial Statements.

 

 

 



 

Consolidated Statements of Changes in Net Assets

For the Years Ended 31 January 2019 and 2018

 

In US Dollars

2019

2018

INCREASE IN NET ASSETS FROM OPERATIONS



Net realised gain (loss) on investments

108,314,099

157,395,016

Net change in unrealised appreciation (depreciation)

110,073,273

91,527,458

Net investment loss

(8,298,557)

(9,913,459)

Net increase in net assets resulting from operations

210,088,815

239,009,015




NET ASSETS AT BEGINNING OF YEAR

1,713,866,836

1,474,857,821




NET ASSETS AT END OF YEAR

$1,923,955,651

$1,713,866,836

 

The accompanying notes are an integral part of the Financial Statements.

 

Consolidated Statements of Cash Flows

For the Years Ended 31 January 2019 and 2018

 

In US Dollars

2019

2018

CASH FLOWS FROM OPERATING ACTIVITIES



Net increase in net assets resulting from operations

210,088,815

239,009,015

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

(108,314,099)

(157,395,016)

Net change in unrealised (appreciation) depreciation

(110,073,273)

(91,527,458)

Contributions to private equity investments

(396,172,267)

(312,684,514)

Distributions from private equity investments

306,592,993

405,145,108

Other

(2,512,757)

(781,199)

Net cash provided by (used in) operating activities

(100,390,588)

81,765,936




NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS

(100,390,588)

81,765,936







CASH AND EQUIVALENTS AT BEGINNING OF YEAR

256,961,145

175,195,209




CASH AND EQUIVALENTS AT END OF YEAR

$156,570,557

$256,961,145

 

The accompanying notes are an integral part of the Financial Statements.

Consolidated Schedule of Investments

At 31 January 2019

 

In US Dollars






US Funds

Unfunded Commitment

Amount

Invested*

Distributions Received

Fair Value

Fair Value
as a % of
Net Assets

HarbourVest Partners V-Partnership Fund L.P.

2,220,000

46,709,079

45,924,243

1,167,969

0.1

HarbourVest Partners VI-Direct Fund L.P.

1,312,500

46,722,408

38,404,878

 5,906,149

0.3

HarbourVest Partners VI-Partnership Fund L.P.

5,175,000

204,623,049

236,003,146

2,555,875

0.1

HarbourVest Partners VI-Buyout Partnership Fund L.P.

450,000

8,633,048

9,413,708

13,891

0.0

HarbourVest Partners VII-Venture Partnership Fund L.P.

2,318,750

135,290,448

181,888,562

25,365,895

1.3

HarbourVest Partners VII-Buyout Partnership Fund L.P.

3,850,000

74,417,291

100,176,090

3,480,117

0.2

HarbourVest Partners VIII-Cayman Mezzanine and Distressed Debt Fund L.P.

2,000,000

48,201,553

57,549,040

8,203,416

0.4

HarbourVest Partners VIII-Cayman Buyout Fund L.P.

11,250,000

241,508,801

325,180,921

78,021,586

4.1

HarbourVest Partners VIII-Cayman Venture Fund L.P.

1,000,000

49,191,736

61,985,738

28,682,559

1.5

HarbourVest Partners 2007 Cayman Direct Fund L.P.

2,250,000

97,876,849

159,156,127

8,616,248

0.5

HarbourVest Partners IX-Cayman Buyout Fund L.P.

17,572,500

53,708,226

39,540,071

47,198,434

2.5

HarbourVest Partners IX-Cayman Credit Opportunities Fund L.P.

4,062,500

8,486,193

5,214,064

7,335,303

0.4

HarbourVest Partners IX-Cayman Venture Fund L.P.

3,500,000

66,825,714

31,601,329

84,121,980

4.4

HarbourVest Partners 2013 Cayman Direct Fund L.P.

3,228,996

97,131,486

62,859,121

112,064,870

5.8

HarbourVest Partners Cayman Cleantech Fund II L.P.

6,950,000

13,105,952

2,864,503

12,431,236

0.6

HarbourVest Partners X Buyout Feeder Fund L.P.

173,880,000

78,147,552

15,666,222

90,030,862

4.7

HarbourVest Partners X Venture Feeder Fund L.P.

 72,150,000

75,903,838

5,557,829

98,102,469

5.1

HarbourVest Partners Mezzanine Income Fund L.P.

19,905,000

30,316,579

6,626,953

37,278,024

1.9

HarbourVest Partners XI Buyout Feeder Fund L.P.

230,000,000

-

-

423,547

0.0

HarbourVest Partners XI Micro Buyout Feeder Fund L.P.

40,000,000

-

-

(159,969)

(0.0)

HarbourVest Partners XI Venture Feeder Fund L.P.

115,000,000

-

-

140,479

0.0

HarbourVest Adelaide Feeder L.P.

135,375,000

14,625,000

-

13,943,060

0.7

Total US Funds

853,450,246

1,391,424,802

1,385,612,545

664,924,000

34.6

International/Global Funds

Unfunded Commitment

Amount

Invested*

Distributions Received

Fair Value

Fair Value as a % of Net Assets

HarbourVest International Private Equity Partners III-Partnership Fund L.P.

3,450,000

147,728,557

148,439,622

475,230

0.0

HarbourVest International Private Equity Partners IV-Direct Fund L.P.

-

61,452,400

53,436,349

2,598,729

0.1

HIPEP V-2007 Cayman European Buyout Companion Fund L.P.§

1,629,621

63,880,350

73,759,592

12,102,112

0.6

Dover Street VII Cayman L.P.

4,413,862

95,586,138

123,800,354

13,088,465

0.7

HIPEP VI-Cayman Partnership Fund L.P.**

6,868,800

116,723,625

70,989,053

114,542,616

6.0

HIPEP VI-Cayman Asia Pacific Fund L.P.

3,000,000

47,187,431

28,848,665

44,409,179

2.3

HIPEP VI-Cayman Emerging Markets Fund L.P.

750,000

29,309,489

7,122,156

28,276,679

1.5

HVPE Avalon Co-Investment L.P.

1,643,962

85,135,136

124,138,700

520,072

0.0

Dover Street VIII Cayman L.P.

18,000,000

162,124,389

175,339,119

75,650,353

3.9

HVPE Charlotte Co-Investment L.P.

-

93,894,011

134,142,948

25,965,986

1.4

HarbourVest Global Annual Private Equity Fund L.P.

22,300,000

77,701,202

29,221,482

89,132,359

4.6

HIPEP VII Partnership Feeder Fund L.P.

47,187,500

77,812,500

11,632,994

93,009,726

4.8

HIPEP VII Asia Pacific Feeder Fund L.P.

7,125,000

22,875,000

2,889,847

27,359,288

1.4

HIPEP VII Emerging Markets Feeder Fund L.P.

8,100,000

11,900,000

1,651,661

12,755,447

0.7

HIPEP VII Europe Feeder Fund L.P.††

27,767,124

44,366,028

9,285,388

48,613,004

2.5

HarbourVest Canada Parallel Growth Fund L.P.‡ ‡

13,302,331

11,198,196

580,890

13,356,748

0.7

HarbourVest 2015 Global Fund L.P.

30,000,000

70,017,309

11,805,200

84,079,828

4.4

HarbourVest 2016 Global AIF L.P.

44,500,000

55,526,107

9,624,689

61,771,257

3.2

HarbourVest Partners
Co-Investment IV AIF L.P.

10,500,006

89,499,994

7,685,830

100,189,382

5.2

Dover Street IX Cayman L.P.

47,000,000

53,000,000

12,131,419

57,186,130

3.0

HarbourVest Real Assets III Feeder L.P.

25,000,000

25,000,000

4,721,849

28,457,740

1.5

HarbourVest 2017 Global AIF L.P.

58,000,000

42,020,959

5,933,218

42,010,519

2.2

HIPEP VIII Partnership AIF L.P.

144,500,000

 25,500,000

952,087

28,309,478

1.5

Secondary Overflow III Tranche B

1,200,766

8,957,071

-

15,793,269

0.8

HarbourVest Asia Pacific VIII AIF Fund L.P.

40,750,000

9,255,566

-

9,695,230

0.5

Secondary Overflow III Tranche C

1,335,088

8,267,887

5,372,293

6,111,251

0.3

Secondary Overflow III Tranche F

13,213,541

16,786,459

-

22,573,152

1.2

Secondary Overflow III Tranche G

2,443,597

12,556,403

-

14,103,476

0.7

Secondary Overflow III Tranche H

10,200,000

19,800,000

-

19,583,211

1.0

HarbourVest 2018 Global Feeder Fund L.P.

65,100,000

4,900,000

-

4,700,840

0.3

HarbourVest Partners
Co-Investment V Feeder Fund L.P.

50,000,000

-

-

(1,162,765)

(0.1)

Total International /Global Funds

709,281,198

1,589,962,207

1,053,505,405

1,095,257,991

56.9

TOTAL INVESTMENTS

$1,562,731,444

$2,981,387,009

$2,439,117,950

$1,760,181,991

91.5

 

* 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 €47,450,000.

** Fund denominated in euros. Commitment amount is €100,000,000.

†† Fund denominated in euros. Commitment amount is €63,000,000.

‡‡ Fund denominated in Canadian dollars. Commitment amount is C$32,000,000.

As of 31 January 2019, the cost basis of partnership investments is $1,489,235,283.

The accompanying notes are an integral part of the 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-ended investment company registered with the Registrar of Companies in Guernsey under The Companies (Guernsey) Law, 2008 (as amended). The Company's registered office is BNP Paribas House, St Julian's Avenue, St Peter Port, Guernsey, GY1 1WA.

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 2019, the Company's shares were listed on the London Stock Exchange under the symbol "HVPE". At 31 January 2019, 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 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 ("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.

Method of Accounting

The 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 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 £1,200 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 2019, 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 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.

Recent Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-13, "Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement." The Company elected to early adopt ASU 2018-13 for the year ended 31 January 2019. This guidance modifies certain disclosure requirements for fair value measurements. As a result of adopting ASU 2018-13, the roll forward of the fair value hierarchy of investments has been removed. As ASU 2018-13 provides disclosure guidance only, there was no impact on the financial position or results of the operations for the Company for the year ended 31 January 2019.

Note 3 Material Agreements and Related Fees

Administrative Agreement

The Company retained BNP Paribas ("BNP") as Company Secretary and Administrator for the period from 11 May 2018 to 31 January 2019. Fees for these services are paid as invoiced by BNP and include an administration fee of £50,000 per annum, a secretarial fee of £50,000 per annum, compliance services fee of £15,000 per annum, ad-hoc service fees, and reimbursable expenses. The Company had previously retained JTC Group as Company Secretary and Administrator for the period from 2 February 2017 to 10 May 2018.

During the year ended 31 January 2019, fees of $165,428 were incurred to BNP and fees of $56,655 were incurred to JTC Group and are included as other expenses in the Consolidated Statements of Operations. During the year ended 31 January 2018, fees of $130,439 were incurred to JTC Group.

Registrar

The Company has retained Link Asset Services (formerly "Capita") as share registrar. Fees for this service include a base fee of £22,262, plus other miscellaneous expenses. During the years ended 31 January 2019 and 2018, registrar fees of $45,950 and $52,608, respectively, were incurred and are included as other expenses in the Consolidated Statements of Operations.

Independent Auditor's Fees

For the year ended 31 January 2019, $231,550 has been accrued for auditor's fees and is included in professional fees in the Consolidated Statements of Operations. For the year ended 31 January 2018, $135,400 was accrued for auditor's fees. The increase in fees is due to the engagement of the Auditor to conduct an Interim Review of the interim financial statements each year, commencing with the 31 July 2018 interims. Other non-audit fees paid to the Auditor, Ernst & Young LLP, by the Company were nil for the years ended 31 January 2019 and 2018. Ernst & Young in the US was paid non-audit fees of $300 and $103,200, respectively, predominantly for US tax advice and compliance work. This engagement has now been transferred to PwC.

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 years ended 31 January 2019 and 2018, reimbursements for services provided by the Investment Manager were $1,675,514 and $1,457,264, respectively.

During the years ended 31 January 2019 and 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 2019 and 2018.

Management fees included in the Consolidated Statements of Operations are shown in the table below:


2019

2018

HVPE Avalon Co-Investment L.P.

-

622,297

HVPE Charlotte Co-Investment L.P.

790,612

788,082

Total Management Fees

$790,612

$1,410,379

 

The HVPE Avalon Co-Investment L.P. management fee was terminated on 30 September 2017. For the years ended 31 January 2019 and 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 unadjusted 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 utilising 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.

During the years ended 31 January 2019 and 2018, the Company made contributions of $396,172,267 and $312,684,514, respectively, to Level 3 investments and received distributions of $306,592,993 and $405,145,108, respectively, from Level 3 investments. As of 31 January 2019, $1,760,181,991 of the Company's investments are classified as Level 3. As of 31 January 2018, $1,452,215,345 of the Company's investments were classified as Level 3. There were no transfers into or out of Level 3 investments during the years ended 31 January 2019 and 2018.

The Company recognises transfers at the current value at the transfer date. There were no transfers during the years ended 31 January 2019 and 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 34 years remaining.

As of 31 January 2019, the Company had invested $3,164,759,114, or 66.9% of the Company's committed capital in investments and had received $2,642,261,612 in cumulative distributions (including dividends from the formerly held investment HarbourVest Senior Loans Europe).

There were no investment transactions during the years ended 31 January 2019 and 2018 in which an investment was acquired and disposed of during the year.

Note 5 Commitments

As of 31 January 2019, the Company has unfunded investment commitments to other limited partnerships of $1,562,731,444 which are payable upon notice by the partnerships to which the commitments have been made. Unfunded investment commitments of $1,513,163,568 are denominated in US dollars, $36,265,545 are denominated in euros, and $13,302,331 are denominated in Canadian dollars.

As of 31 January 2018, the Company had unfunded investment commitments to other limited partnerships of $1,237,494,068. Unfunded investment commitments of $1,157,772,486 were denominated in US dollars, $55,690,445 were denominated in euros, and $24,031,137 were denominated in Canadian dollars.

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 (the "IMA"), which was amended and restated on 9 September 2015, 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 $5.5 million at 31 January 2019 and $5.3 million as at 30 April 2019, 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.

Note 6 Debt Facility

On 4 December 2007, the Company entered into an agreement with Lloyds Bank plc regarding a multicurrency 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 adjust lender commitments. Lloyds Bank plc commitment was amended to $250 million, and Credit Suisse commitment was amended to $250 million. On 3 January 2019, the debt facility was further amended to extend the facility to January 2026. Lloyds Bank plc transferred its commitments to Mitsubishi UFJ Trust and Banking Corporation (MUFG). The Credit Suisse commitment was amended to $300 million, and the MUFG commitment was amended to $300 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 loan-to-value ratios, and portfolio diversity tests applied to the Investment Portfolio of the Company. At 31 January 2019 and 2018, there was no debt outstanding against the Facility. Included in other assets at 31 January 2019 are deferred financing costs of $9,264,606 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 2 January 2019. Beginning 3 January 2019, the non-utilisation fee for the Credit Suisse commitment is 100 basis points per annum, and the non-utilisation fee for the MUFG commitment is 90 basis points per annum. For the years ended 31 January 2019 and 2018, $5,836,972 and $5,829,861, respectively, in non-utilisation fees have been incurred.

Note 7 Financial Highlights

For the Years Ended 31 January 2019 and 2018


2019

2018

Shares



PER SHARE OPERATING PERFORMANCE:



Net asset value, beginning of year

$21.46

$18.47




Net realised and unrealised gains

2.73

3.11

Net investment loss

(0.10)

(0.12)

Total from investment operations

2.63

2.99




Net asset value, end of year

$24.09

$21.46

Market value, end of year

$18.69*

$17.77

Total return at net asset value

12.3%

16.2%

Total return at market value

5.2%

18.2%




RATIOS TO AVERAGE NET ASSETS



Expenses

0.67%

0.75%

Net investment loss

(0.46)%

(0.62)%

PORTFOLIO TURNOVER††

0.0%

0.0%

 

*  Represents share price of £14.26 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 $138,563 and $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 2019 and 2018, respectively.

Board-related expenses, primarily compensation, of $600,347 and $580,491 were incurred during the years ended 31 January 2019 and 2018, respectively.

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 2019 to 28 May 2019, the date that the financial statements were issued.

On 30 April 2019, the Company committed $25 million to the HarbourVest 2019 Global Fund.

On 16 May 2019, the Company committed $20 million to the HarbourVest Credit Opportunities Fund II.

There were no other events or material transactions subsequent to 31 January 2019 that required recognition or disclosure in the financial statements.

 


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