Harbourvest Global Private Equity (HVPE)

[perkr]

Hi all,

I'm looking to diversify a portfolio which currently consists of:

1. HYP "outsourced" to the CTY IT as I don't have the time to manage such a thing right now.
2. Global equities and some private equality, currently I use FRCL for this. I have been thinking of replacing it with SWDA (cheap accumulating ETF tracking MSCI World).
3. High-tech, SMT.
4. Property, currently TRY.
5. Smaller companies UK, currently HSL.

All in roughly even proportions and within an ISA.

I'd like to get some private equity exposure for diversification purposes but I have no experience in this area. I have been looking at Harbourvest Global Private Equity (HVPE), is there anybody here who owns it or have any experiences with it? F&C Private Equity and Standard Life could be other candidates. I am a bit concerned the discounts are so narrow and I have some fear we are approaching a downturn and private equity discounts widened massively in the 2008 turmoil.

Thanks for any feedback.

[tjh290633]

You already have a considerable exposure to Private Equity through your holding in FRCL.

Have you thought about that? They hold about 8% as PE.

TJH

[Longtermyieldman]

HVPE has performed very well in recent years. However it is heavily weighted toward the US where a combination of a strong Dollar, high company valuations and a very buoyant private equity market might all represent red warning lights.

FPEO is a great fund of funds with a decent yield (a little over 4%). That income might make it a better choice for someone in retirement now than someone saving for it (though cheap dividend reinvestment, if available from your platform provider, might mitigate this, provided it's held in a tax sheltered account.)

Another private equity fund that might work for capital growth is Pantheon International. It's a fund of funds, so more diversified than HVPE but with two layers of charges. I like its mix of investment strategies, which cuts across geographies, fund managers, deal sizes and stages. It also includes some direct/co-investment deals and a lot of secondaries (buying existing investments in PE funds from institutional investors that need an exit - these can be good value, and are lower-risk than primary investments into new schemes). Full disclosure: I hold >£100k of this in my SIPP.

[perkr]

You already have a considerable exposure to Private Equity through your holding in FRCL.

Have you thought about that? They hold about 8% as PE.

TJH

Thanks for pointing this out. I was aware FRCL had some PE but not the 8%. However, FRCL is only approximately 20% of my portfolio so the amount of PE total is still low (in addition, I believe SMT has some PE or is at least considering).

I should mention that I have a 15-20 year time horizon and my main objective is growth with no intention of any withdrawal in 15-20 years.

[perkr]

HVPE has performed very well in recent years. However it is heavily weighted toward the US where a combination of a strong Dollar, high company valuations and a very buoyant private equity market might all represent red warning lights.

FPEO is a great fund of funds with a decent yield (a little over 4%) [...]

Another private equity fund that might work for capital growth is Pantheon International [...]

Thank you for this information, it is really helpful. I am reading up on Pantheon which looks like the best option so far. I am concerned about HVPE as it is looking expensive, though I do like the fundamentals over a long-term (>5 years) horizon.

I am concerned about FPEO as its discount narrowed substantially since it adapted the new dividend policy. However, if there is another liquidity crisis like in 2008 and PE is in free-fall I am worried this dividend will be cancelled and then FPEO will suffer a double chock of its discount widening as a result of a dividend cut and at the same time the general flight from PE. If my "armchair analysis" is right then FPEO and any other PE ITs that pay dividend out of capital are carrying a higher risk for this reason. (I could be completely wrong about this obviously).

Finally, I should have mentioned that I am looking for growth over a 15-20 year perspective with no intention of any withdrawals whatsoever.

[Longtermyieldman]

If another financial crisis hit, it's true that FPEO or any other listed entity could cancel its dividend. If that happened, it could represent a great opportunity for you to add to your holding. Not only would the share price likely fall, but the company would be retaining any cash inflows from realisations and using them to acquire what would probably be distress-priced holdings in PE funds.

A dividend suspension would be a problem if you lived off the income, so you'd be wise not to be too dependent on private equity payouts when you retire. But given your comment that you're locking away the capital for 15-20 years, I don't see that this would be a deterrent for the foreseeable.

[perkr]

Thanks. I agree that a downturn in PE would be a great buying opportunity, in particular for the F&C IT. It is of course difficult to estimate when this is going to happen the next time and meanwhile I don't get to benefit from any returns. I am considering drip feeding into Pantheon and HVPE for now.

[toofast2live]

The time to buy PE is when the sh*t hits the fan, not when we are in the 8th year of a bull run.

A 20% dip in FTSE100 would mean probably 50% on PE. I picked up Electra in 2009 at a 40% discount. I'd also bought at other times and at other tasty discounts. I don't know it's IRR, but it's now a four bagger for me. OTOH, years ago, as a reckless young man I bought templeton emerging markets on a 20% premium. It took a looooooong time to get a decent return.

So how far are we from the next 20% to 30% correction? Who knows, but I bet it will be nearer 3 years than 10 years. Wait for the price to come down.

[geoff1309]

does hvpe pay a dividend, thanks for any info.
Geoff1309

[Longtermyieldman]

The time to buy PE is when the sh*t hits the fan, not when we are in the 8th year of a bull run.

A 20% dip in FTSE100 would mean probably 50% on PE. I picked up Electra in 2009 at a 40% discount. I'd also bought at other times and at other tasty discounts. I don't know it's IRR, but it's now a four bagger for me. OTOH, years ago, as a reckless young man I bought templeton emerging markets on a 20% premium. It took a looooooong time to get a decent return.

So how far are we from the next 20% to 30% correction? Who knows, but I bet it will be nearer 3 years than 10 years. Wait for the price to come down.

It's certainly true that listed PE underperformed the wider market in the GFC. However most of them had pursued very flawed business models which were expensive to correct. That work has now been done and they haven't returned to those errors. So I disagree with the implication that PE will be disproportionately affected by a future shock. On the contrary, the underlying holdings in listed PE are conservatively valued compared with the S&P 500 or UK small caps, and they benefit from the ongoing low interest rate environment, and I suspect interest rates will be lower than the historical norm for the next decade or two.

[77ss]

I'd like to get some private equity exposure for diversification purposes but I have no experience in this area. I have been looking at Harbourvest Global Private Equity (HVPE), is there anybody here who owns it or have any experiences with it? F&C Private Equity and Standard Life could be other candidates.

I have recently added a couple of Private Equity ITs to my holdings - choosing the F&C and SL ones - both offering prospective dividends of about 3.75%.

One factor you should perhaps bear in mind is geographical exposure.

HVPE is heavily weighted towards the US - 65%.
SL is heavily weighted to (non-UK) Europe - 78%
F&C is more broadly spread - 44% non-UK Europe and 37% UK.

I can't comment on which offers the better prospects; it may well depend in part on the fortunes of tech companies - HVPE has 30% in this sector.