HarbourVest Global Private Equity Private equity review

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1 HarbourVest Global Private Equity Private equity review One-stop shop HVPE is a private equity fund of funds, listed since December The management group, HarbourVest Partners, has a strong 30-year performance track record. Private equity returns are not immune from economic cycles, but continue to show a good long-term performance versus listed equities and many other asset classes. For many investors, listed private equity (LPE) is the only practical way to gain exposure to this asset class, but since the financial crisis LPE has suffered from large discounts to NAV and generally thin trading liquidity. There are signs of polarisation, with some funds deciding to effectively enter run-off mode. For others, HVPE among them, it is business as usual, continuing to invest for future growth and looking to take advantage, through the secondary market for investments, of others withdrawal. HVPE offers a well diversified exposure across geographies and strategies, with a strong performance record, and attractive (c 36%) discount to NAV. Cumulative returns Total share return (%)* Total NAV return (%)* Total return MSCI World (%)* Total return LPX 50 (%)** Total return LPX Europe (%)** Inception* (27.5) 14.1 (19.7) (46.7) (51.4) 3 years (21.6) years year (11.0) (25.8) (31.9) Note: *HVPE inception 6 December All returns calculated to. **The LPX Europe Index covers European-listed private equity companies, while the LPX 50 is a global index of listed private equity companies. Private equity has produced strong long-term performance Private equity is a long-term, illiquid investment asset that has been shown to produce attractive returns, albeit with high costs. Investors in limited partnerships must commit very large sums of money for many years. With listed private equity investors can commit as little or as much as they wish, although trading liquidity has been generally thin and share prices have not kept pace with NAV growth. In our view, discounts may be slow to close but offer attractive support to NAV growth. HVPE continues to build value Since launching in December 2007, HVPE has grown its NAV by c 14% in dollar terms (c 40% in sterling terms), but has seen its share price fall, due to a wide and persistent discount since the financial crisis. HVPE plans to continue re-investing realisation proceeds from its maturing portfolio for future growth. It is engaging with investors to explain the investment opportunity and increasing its level of disclosure in attempt to show how its NAV is conservative and benefits from ongoing realisations ahead of carrying value. It believes that this strategy is more likely to build long-term net asset value and close the discount than share buy-backs with immediate shortterm accretion to NAV per share. The continuing attractive returns from new investments that HVPE expects should also build more value over the long term than a policy of non-investment and effective run-off. In our view HVPE will look to benefit from expected increased secondary activity as others withdraw, potentially with more transactions similar to the successful Absolute acquisition. Listed private equity 21 June Price $7.25 Market cap $600m NAV $943.4m NAV per share $11.41* Discount to NAV 36%* Yield N/A * Last published NAV as at. Shares in issue 82.7m Code HVPE Primary exchange LSE Other exchanges Euronext Share price/discount performance Jun/11 Jul/11 Aug/11 Sep/11 Oct/11 Nov/11 Dec/11 Jan/12 Feb/12 Mar/12 Apr/12 May/12 HVPE LN Equity Discount Three-year cumulative perf. graph Dec/07 May/08 Oct/08 Mar/09 Aug/09 Jan/10 Jun/10 Nov/10 Apr/11 Sep/11 Feb/ DS IT Pr Eq X3I HVPE LN Equity HVPE NAV 52-week high/low $7.6 $6.1 NAV high/low $11.45 $10.91 Next events June IMS September Interim report Analysts Martyn King +44(0) Jonathan Goslin +44(0) financials@edisoninvestmentresearch.co.uk HarbourVest Global Private Equity is a research client of Edison Investment Research Limited

2 Exhibit 1: HVPE at a glance Investment objective and fund background HVPE is a Guernsey closed end investment company that aims to provide long-term capital appreciation through a private equity portfolio well diversified by vintage year, geography, industry and strategy. News in last quarter 30/05/12 Annual results for year to 31 January. Forthcoming announcements/catalysts Capital structure Fund details AGM November Est. total exp. ratio 1.42% Group HarbourVest Global Private Equity Interims September Net gearing 11.0% Manager HarbourVest Advisers L.P. Year end 31 January Annual mgmt fee See pg 8 Address PO Box 405, Anson Place Dividend N/A Performance fee See pg 8 La Charroterie, St Peter Port, Guernsey, GY1 3GF Launch date December 2007 Company life Unlimited Phone Wind-up None Loan facilities $500m Website Investment strategy (as at ) Sector breakdown (as at ) Early stage venture (12%) Balanced venture (9%) Venture/growth equity (11%) Small buy-outs (16%) Medium buy-outs (30%) Large buy-outs (16%) Other (6%) Medical/bio (14%) Other (13%) Cons'r prod's (12%) Media/telecom (10%) Industrial (9%) Software (9%) Cons'r other (8%) Financial (7%) Bus. services (6%) Tech other (6%) Tech services (4%) Cleantech (2%) Vintage year (as at ) Geographic distribution (as at ) Pre 2001 (11%) 2001 (6%) 2002 (3%) 2003 (4%) 2004 (5%) 2005 (10%) 2006 (15%) 2007 (20%) 2008 (10%) 2009 (2%) 2010 (9%) 2011 (4%) (1%) US (68%) Europe (24%) Asia Pacific (4%) RoW (4%) Source: HVPE, Edison Investment Research 2

3 Private equity has a good long-term record There is quite a lot of evidence that private equity investment returns compare well with listed equities (and many other asset classes) over the long term, but also, in some quarters, some scepticism about the robustness of reported NAVs the high cost structure of such hands-on investment. We examine these issues on page 4. At the core of the private equity model is the alignment of interest between managers and owners. In addition, freed from the glare of semi-annual or quarterly reporting, private companies are freed to pursue medium- to long-term goals, often supported by private equity knowhow and skills. The investments are illiquid, but before investing private equity investors are able to undertake due diligence, to a level not possible for investors in a listed company, and are able to strongly influence or make key strategic and management decisions afterwards. These value-add factors have been one of the historical drivers of private equity returns, along with financial gearing, and the impact of growth/listed market valuations. The private equity industry has adapted well over successive economic cycles and the immediate outlook for lower economic growth and less freely available credit suggests that investors will need to place a greater emphasis on access to managers with well defined investment strategies, the capability to deliver robust investment process and due diligence, and the resources to add value to investments. Listed private equity the only option for most investors The reality is that direct (unlisted) private equity funds, generally structured as limited partnerships, are available only to large investors who have the financial resources to make very large (c 5m), long-term investments (c 10 years), and who have the ability to manage often complicated cash-flows. Listed private equity vehicles, like HVPE, provide access with no meaningful minimum size of investment, a freely tradable security with daily mark-to-market pricing, little or no administrative burden, and the protection of listed corporate governance rules. Fees are higher and liquidity is generally thin. Since the financial crisis, discounts to NAV have been stubbornly wide. HarbourVest Global Private Equity HVPE is the listed private equity vehicle of HarbourVest, the long established fund of funds private equity manager based in Boston US. It has over 30 years experience and 240 employees and is one of the oldest private equity fund of funds managers. As well as Boston, it has operations in London, Hong Kong, Tokyo and Bogota. HarbourVest has an impressive track record of outperformance and HVPE s c 14% NAV growth (in US$ terms) since launch compares very well with peers (Exhibit 7). At year end 31 January, HVPE was invested in 26 HarbourVest unquoted private equity funds. In turn, these 26 funds were invested with 359 underlying private equity managers, as well as direct investments in private companies. Funds of funds have the disadvantage of adding an extra layer of fees, but the advantage of providing diversified exposure to the asset class. HVPE pays the same fees to HarbourVest for investing in its funds (c 100bp of exposure), and additional fees at the HVPE level are c 50bp of exposure. HVPE investors benefit from diversification and the HarbourVest funds access to successful private equity managers. We believe this is likely to be one of the main factors behind HarbourVest s track record. In our view, the HVPE investment case is that it provides a one-stop, diversified exposure to private equity, an asset class with a strong long-term performance record, at reasonable additional cost, with a successful manager. The discount to NAV provides a comforting entry point, which may well close over time, given the cyclical nature of the asset class and fluctuations in investor enthusiasm, despite the absence of more aggressive HVPE discount management measures. 3

4 The private equity performance record Because of the ownership structure of much of the $2 trillion plus private equity industry (limited partnerships, privately owned) and the long-term nature of the investment return profile, data on private equity performance is not readily available and sometimes seems contradictory. A recent and comprehensive research note by Chris Higson of the London Business School and Rudiger Stucke of the University of Oxford attempted to once and for all establish if private equity has actually outperformed public equity markets as theory would suggest. Higson and Stucke (H&S) published their research in February. They used the fund cash flow database of Cambridge Associates, a US investment consulting firm, and focused their research on US buy-out funds as this data covered some 60% of those funds by value. They added to this database by collecting data from some limited partners so that in the end they had 1,169 funds with committed capital of $1trn covering around 85% of US buy-out funds going back to Their key findings were as follows: As of June 2010 US buyout fund, with vintage years from 1980 to 2008 had outperformed the S&P by over 500bp pa. If young funds (2006 to 2008) are excluded the excess returns rise to 800bp pa. There is a downward trend in absolute returns over the 29 years under study. NAV is not an unreliable valuation measure. 60% of the funds exceed the return on the S&P 500 with the average doing much better than the median, suggesting the excess returns are mainly driven by positive outliers so partner selection is all important. Gross returns, before fees and carried interest, are 60% to 80% higher than the net returns available to investors and 12 percentage points in excess of the S&P500. Even at the gross level though, only 70% of funds beat the S&P. Taking these last two points together, it is clear that there is a wide distribution of results between funds. Some funds do very well, beating the S&P at a gross and net of fee level while others miss the benchmark, even before fees. We believe that access to good underlying managers is one of HarbourVest s key advantages. Of course, past results are not necessarily an accurate guide to the future and this study focuses on one geography (US), and one strategy (buy-outs) during a period of falling interest rates. In Exhibit 1 we show 10-year (sterling) returns for UK pension funds (WM ALL Funds Universe). According to this annual study, UK pension fund investment in private equity has outperformed a range of alternative asset classes, including public equity markets. Readers should note that the data is not completely comparable; PE data are IRRs, net of fees, whereas all other asset classes are gross timeweighted returns. 4

5 Exhibit 2: 10-year asset class performance for UK pension funds (WM All Funds Universe), % pa 16% 14% 12% 10% 8% 6% 4% 2% 0% UK equities Overseas equities UK bonds Overseas bonds Index-linked Source: BVCA Private Equity and Venture Capital Performance Measurement Survey Note: PE data are IRRs, net of fees whereas all other asset classes are gross time-weighted returns. Cash Alternatives Property UK private equity Listed PE discounts weigh on performance Investment returns for listed private equity, measured by price total return, have generally been diluted by the sector s move to a significant discount to NAV during the financial crisis and the failure for this to fully close subsequently. The initial substantial widening of industry discounts in 2009 reflected the financial crisis. In addition to concerns about the growth and earnings prospects of the underlying investee companies, many funds got into difficulties as their commitments to invest were drawn down faster than anticipated while realisations dried up. Squeezed for cash, some companies (HVPE was not one of them) sought to raise dilutive equity or sell assets at depressed prices in the secondary market. We ascribe the persistence of such large discounts to a number of factors: Some lack of trust in published NAVs and hence reported industry returns. Disappointing liquidity in shares, undermining a key element of the LPE proposition. A feeling among investors that fees are too high, especially among fund of funds. The sense that past returns were overly reliant on large amounts of low-cost debt that seems unlikely to return any time soon. The disappointing price return experience of investors who participated in new LPE issuance near the top of the credit cycle. Exhibit 3: Listed private equity (LPX Europe Index) price returns versus listed equities (Total return indices USD$) Annualised returns % Period* LPX EUR Index FTSE All Share MSCI World Pre-credit crunch Jan May % 8.4% 5.7% Credit crunch May Feb 2009 (60.6%) (37.9%) (34.1%) Recovery from credit crunch Feb May 28.7% 18.4% 17.5% Start of credit crunch to date May May (14.9%) (5.5%) (4.1%) Full period Jan May 2.5% 3.0% 2.0% Source: LPX, Thomson, Edison Investment Research In recent months there are signs of more activist shareholder participation in the sector with some funds coming under pressure to halt new investment commitments and/or adopt managed realisation strategies, and return cash to shareholders. 5

6 A fire-sale of illiquid assets is unlikely to maximise shareholder returns and the return of cash to shareholders is unlikely to improve liquidity in listed PE stock. Further M&A such as HVPE s acquisition of Swiss-listed Absolute Private Equity (at a 30% discount to NAV) in 2011 could be an alternative. In our view a consolidation would potentially create a better structure for the listed PE sector, providing an exit to investors who no longer believe in the future performance of the asset class, and creating larger, more liquid entities. HVPE: Description and strategy HarbourVest Global Private Equity Limited (HVPE) is a Guernsey-registered, closed-ended investment company, listed on the LSE specialist fund market and Euronext. HVPE seeks to provide a comprehensive private equity solution, through a fund of funds structure, diversified by geography, investment strategy and vintage year. It is committed to a strategy of continuous new investment, supported by investment realisation proceeds and supporting credit facilities. HVPE believes that to generate the strongest long-term performance the portfolio should be fully and consistently committed, regardless of the economic cycle, as the better times to invest have often been during or just after periods of recession when investments may be more attractively priced. This belief and the strategy of continuous investment differentiates HVPE from an increasing number of listed peers, which, sometimes under pressure from shareholders, are allowing portfolios to run-down and fund cash returns. The investment manager, HarbourVest, is a leading private equity manager with more than $30bn of funds under management. It is privately owned by its senior investment professionals, which has proved to be a stable and consistent structure over the years. The senior team of 24 managing directors has an average of 17 years employment with HarbourVest. In all, there are 80 investment professionals. Importantly, the team has experience of investing across successive market cycles since the late 1970s. HarbourVest s investment process strategy is to focus very much on the due diligence process within a tightly controlled environment containing many checks and balances. We believe that one of HarbourVest s key advantages is the access to good underlying private equity managers that its scale and history affords it. Exhibit 4: Investment process Sourcing Identify and track potential managers. Meet with any and all managers while pursuing targeted managers. Evaluation Selection Approval Monitoring Review investment opportunities weekly. Seek feedback across all investment disciplines and locations to refine due diligence and negotiate terms and structure. Evaluate new and existing opportunities weekly. Develop and execute a due diligence plan to evaluate sponsor, strategy and structure. Utilise consensus-driven process involving all investment disciplines. Obtain and document formal investment committee approval. Monitor and assess team, deal flow, investment strategy, portfolio development, investments and performance; manage cash flows. Participate in advisory board calls / meetings; review and process amendments as required. Source: HVPE HVPE invests in a range of HarbourVest unlisted private equity funds managed under this process, which in turn make primary, secondary, and direct private equity investments. Although the fund-offunds structure adds an additional layer of fees (c 50bp) over and above investment directly in the 6

7 HarbourVest funds, performance has been strong (see page 9) and minimises the risks associated with investment in a private equity fund directly or a listed fund that is managed by a single underlying manager. Portfolio At year end 31 January, HVPE was invested in 26 HarbourVest unquoted private equity funds. In turn, these 26 funds were invested with 359 underlying private equity managers, as well as direct investments in private companies. Exhibit 5: Portfolio structure Portfolio of commitments to multiple HarbourVest funds HV fund HV fund HV fund 26 HV funds Primary partnerships Secondary investments Direct investments 668 funds/partnerships Company Company Company Company Company Company 6,017 companies Source: HVPE HVPE had total private equity exposure at of $1,542.8m comprising the investment portfolio of $1052.4m and unfunded commitments of $490.4m. Unfunded commitments are essentially sums of money that HVPE has committed to invest in partnerships but where the money has not yet been drawn down. Most of its unfunded commitments have been actually allocated to specific partnerships but a minority have not been specifically. Net asset value was $943.4m. A key feature of HVPE is that it is well diversified by geography, type of investment, sector and vintage. Although it is exposed to c 6,000 underlying companies, the tail is very long and this exaggerates the spread of the portfolio. The top 100 represent around one-third of the portfolio. It is sometimes argued that HVPE is too diversified but we do not necessarily hold with this view. NAV performance since launch has been better than most peers and HVPE has had notable success with many high profile individual investments. The evidence does not suggest that investors in HVPE are giving up performance in return for getting a broad spread of private equity exposure. At 31 January, Facebook represented 1.25% of the investment portfolio and c 30% of this was sold in the May flotation at $38, a very substantial profit on the initial investments, made early in the life of the company, through underlying managers such as Accel Partners and Elevation Partners. Despite price weakness since the Facebook IPO, the current price of c $31-32 is similar to the written up value of the remaining HVPE holding. 7

8 Absolute acquisition In September 2011 HVPE joined with a number of HarbourVest funds in the acquisition of Absolute, a Swiss-listed private equity company with net assets of more than $1bn. HVPE acquired a 14% stake directly (utilising $85m of its $500m borrowing facility) and acquired a further c 2% indirect interest through a Harbourvest fund holding. The acquisition was made at a 30% discount to NAV and should re-pay in cash over a relatively short period as Absolute s run off strategy is continued. As at HVPE was valuing Absolute at a 34% premium to the purchase price and in the same month received its first distribution of $5.8m. By way of background, Absolute had been under pressure from some shareholders to sell assets and return liquidity. The board recommended the HarbourVest offer to shareholders and 98.7% tendered. HVPE was able to acquire relatively short duration assets at an attractive discount while shareholders were satisfied that this was a better route to liquidity than a fire-sale. We believe that more transactions of this nature are likely in the market, as it continues to polarise into companies like HVPE pursuing a continuing investment strategy and others seeking some form of runoff. Portfolio activity and financing During FY11 HVPE realised $180.6m of investments (+32% y-o-y) and invested $251.0m (+78% y-o-y) including $85m invested in Absolute. Excluding Absolute the net cash-flow of $15m compared with $11m in FY10. With 60% of investments in the vintages, market conditions permitting, HVPE has a sufficiently mature portfolio to continue to make realisations (typically with uplifts to carrying value, historically), to fund existing commitments and make new commitments. Exhibit 6: Funding position US$m Jan-11 Jan-12 May-12 Investment portfolio , ,052.4 Cash & equivalents Debt (91.0) (154.4) (122.7) Other (1.5) 0.0 (0.7) NAV Unfunded commitments Allocated Unallocated Total unfunded commitments Credit facility Cash plus remaining credit facility Commitment level ratio 155% 152% 154% Commitment coverage ratio 90% 58% 70% Source: HVPE In managing its investment resources, HVPE management monitor two main ratios. One is called the commitment level ratio. This compares existing portfolio exposure (the investment portfolio plus the allocated commitments (or pipeline of investments) with the NAV. The other is called the commitment coverage ratio and this compares cash resources plus available credit to unfunded allocated commitments. At 154% and 97% at end of May, both show a more conservative balance sheet than in the aftermath of the financial crisis and are broadly similar with pre-crisis levels. Between January and May HVPE was cash-flow positive each month, investing c $16m and receiving c $59m. 8

9 Looking at HVPE s existing unfunded commitments, these imply a gradual fall in the US share of the portfolio over time and an increase in Asia Pacific and RoW. Venture capital commitments are also lower than the existing stock. During May, HVPE made a $60m commitment to HarbourVest s most recent global secondary fund, Dover VIII. Performance Exhibit 2 shows that since launch in December 2007, HVPE has a positive NAV total return of c 14% (in US$ terms) compared with an average decline for the peer group of c 16%. Negative price total return of c 35% compared with the average decline of c 29%. The discount to NAV is slightly higher than average at c 35%. The majority of assets (68% at end May ) are US dollar denominated, as is HVPE s reporting currency, and the NAV total return since launch converted to sterling is c 40%. Because of the discount widening since launch, price total return has lagged that of the FTSE All Share Index (c -23% total return in US$) and the MSCI World Index (c -20% total return in US$). Exhibit 7: HVPE performance and peer group From To 2011 Price total return on $100 NAV total return on $100 Disc(Par) Dec Dec 2007 Direct managers Altamir Amboise (49.4) Deutsche Beteiligungs AG (16.4) Dunedin Enterprise (38.7) Electra Private Equity (33.3) GIMV NV (14.9) HBM BioVentures (32.2) HgCapital Trust (14.6) Promethean (11.7) Average direct managers (26.4) Fund of fund managers Aberdeen Private Equity (43.8) Conversus Capital (23.8) F&C Private Equity Trust (33.5) Graphite Enterprise Trust (35.2) HarbourVest Global Private (43.0) Equ J.P. Morgan Private Equity (33.9) NB Private Equity Partners (37.2) Pantheon International (34.2) Standard Life Euro Private (41.9) Eq SVG Capital (33.4) Average fund of fund managers (36.0) Source: Morningstar. Note: HarbourVest calculated on Euronext price until LSE listing. 9

10 HVPE discount management In common with the LPE sector, the discount to NAV has remained stubbornly high since the financial crisis unfolded and is currently c 36%. In the period following listing in 2007, the discount was in the range of 0-10%. During late 2008 and early 2009, the discount turned into a premium as the NAV followed listed equity valuations lower, while the share price failed to correct due to illiquidity and an absence of trading. When this technical factor corrected, and as the full extent of the crisis in financial markets became apparent, the discount to NAV was re-established, peaking at around 60%. Similar to the LPE sector, the discount has narrowed over the past three years, but remains stubbornly high, and above the sector average. HVPE is acutely aware of the unsatisfactory discount to NAV and has consulted widely with investors. It has concluded that it can best serve investors over the long term by continuing to reinvest cash-flows that emerge from the maturing portfolio, with a view to growing NAV. In this respect, although the company has authority to repurchase up to 14.99% of shares in issue, the facility is only likely to be used opportunistically, even though significantly accretive to NAV per share. However, it is taking other measures, discussed below, with a view to closing the discount over time. Exhibit 8: HVPE discount to NAV history Dec/07 Jun/08 Dec/08 Jun/09 Dec/09 Jun/10 Dec/10 Jun/11 Dec/11 Jun/12 Source: Thomson Datastream, Edison Investment Research Valuation uplift on realisations In order to build investor confidence in the reported NAV, HVPE has begun to give information on the value of realisations compared with their previous carrying value, reflected in published NAV. For the year to 31 January the top 20 realisations were achieved at weighted average uplift to carrying value of 49% and a weighted average multiple of 6.5x cost (the amount originally invested). HVPE says that the top 20 realisations represent around 75% of all realisations and it believes that this is a representative outcome for the overall portfolio. Fee transparency The hands on ownership and extensive due diligence that generally underlies successful PE investment carries higher management fees than simpler forms of investment. A 2% per annum management fee and a performance fee of 20% of the excess over an agreed hurdle rate of return is a typical rate paid by investors in a limited partnership. These fees would be faced by any investor seeking to access private equity by way of limited partnership. As a fund of funds, HVPE carries an additional layer of fees which on a look-through basis were 142bp of average private equity exposure (holdings plus commitments) or 240bp of average net assets in FY12. This needs to be viewed against the benefits of access to the asset class with no meaningful minimum size of investment, a freely tradable security with daily mark-to-market pricing, little or no administrative burden, and the 10

11 protection of listed corporate governance rules. One may also add that HVPE fund-of-funds structure provides considerable diversification across a range of geographies, strategies and vintages, and, we believe, access to good underlying private equity managers. The three main areas of expense for HVPE are management fees paid to HarbourVest funds, financing and credit facility fees, and HVPE operating expenses. Expenses in FY12 were $21.5m or $0.26 per share (FY11 $22.7m or $0.27 per share). HVPE pays the same management fees on committed capital and is subject to the same performance allocations as any other investor in those funds. For financial reporting these show as a deduction from the NAV of those funds. However, to make the charging structure more transparent, HVPE strips out and publishes this cost. For FY12 this amounted to $14.6m or 97bp of private equity exposure (FY11 $14.6m or 101bp). Finance and operating expenses were $6.9m in FY12 or 47bp of private equity exposure. Improving liquidity HVPE continues to work hard at increasing the trading liquidity in its shares. There is an observable improvement although there is still a long way to go. HVPE established a dual listing on the LSE specialist fund market in May 2010 (combined with a secondary placing) in an effort to improve liquidity. During FY11 5.3% (excluding the placing shares) of the share capital changed hands. This increased to 8.8% in FY12 and has continued to increase since. In the 12 month period to 29 May, 10.1% of shares changed hands. Exhibit 9: Share trading volume (historic 12-month volume versus current share capital, %) 100% 80% 60% 40% 20% 0% Conversus Capital JP Morgan Private Equity Aberdeen Private Equity Fund HarbourVest Global Private Equity NB Private Equity Partners Standard Life European Private Equity Graphite Enterprise Trust Pantheon International Participations F&C Private Equity Trust SVG Capital 3i Source: Thomson, Edison Investment Research Additional information Capital structure HVPE had two classes of shares, 82.7m non-voting class A shares and 101 voting class B shares, both of which are nil par value shares. The A shares are quoted on the London and Amsterdam stock exchanges, and are entitled to the income or increase and decrease in net asset value and to any dividends declared. The voting B shares are not entitled to income or any increases and decreases in the net asset value of the company or to any dividends paid or declared. They are owned by HVGPE Holdings Limited, which is a Guernsey limited liability company owned by affiliates of HarbourVest. 11

12 For investors who are attracted to the continuing, long-term investment strategy pursued by HVPE, the share structure adds stability and certainty. For those investors who would prefer a shorter-term value realisation strategy (eg run-off and cash return to emphasise closing the discount to NAV), the structure is a significant impediment. In addition to equity capital HVPE has a $500m credit facility from Bank of Scotland that extends to December This credit facility is necessary to cover the commitments that HVPE has made. At the end of May HVPE had used $122.7m of this facility so had $377.3m available and with its $14.4m of cash this meant that it had $391.7m of cash and remaining credit facility. This amounts to 80% of total commitments and 97% of commitments allocated to partnerships. The company s borrowings are limited to 40% of assets and at the end of May the amount actually borrowed was just 11.7% of total assets. Governance There HVPE board comprises five independent non-executive directors and two non-executive directors (Brooks Zug and George Anson) who are affiliated with HarbourVest. It is chaired by Sir Michael Bunbury. EDISON INVESTMENT RESEARCH LIMITED Edison Investment Research is a leading international investment research company. It has won industry recognition, with awards both in Europe and internationally. The team of 90 includes over 55 analysts supported by a department of supervisory analysts, editors and assistants. Edison writes on more than 350 companies across every sector and works directly with corporates, fund managers, investment banks, brokers and other advisers. Edison s research is read by institutional investors, alternative funds and wealth managers in more than 100 countries. Edison, founded in 2003, has offices in London, New York and Sydney and is authorised and regulated by the Financial Services Authority ( DISCLAIMER Copyright Edison Investment Research Limited. All rights reserved. This report has been commissioned by HarbourVest Global Private Equity and prepared and issued by Edison Investment Research Limited for publication in the United Kingdom. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison Investment Research Limited at the time of publication. The research in this document is intended for professional advisers in the United Kingdom for use in their roles as advisers. It is not intended for retail investors. This is not a solicitation or inducement to buy, sell, subscribe, or underwrite securities or units. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment. A marketing communication under FSA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison Investment Research Limited has a restrictive policy relating to personal dealing. Edison Investment Research Limited is authorised and regulated by the Financial Services Authority for the conduct of investment business. The company does not hold any positions in the securities mentioned in this report. However, its directors, officers, employees and contractors may have a position in any or related securities mentioned in this report. Edison Investment Research Limited or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. This communication is intended for professional clients as defined in the FSA s Conduct of Business rules (COBs 3.5). Registered in England, number Edison Investment Research is authorised and regulated by the Financial Services Authority. London +44 (0) Lincoln House, High Holborn London, WC1V 7JH, UK New York Lexington Avenue, Suite 1724 NY 10168, New York, US Sydney +61 (0) Level 33, Australia Square, 264 George St, Sydney, NSW 2000, Australia 12