HarbourVest Global Private Equity (HVPE ) hopes to finally narrow its wide share price discount after it announced plans to return more capital to shareholders and move to a fully independent board.

In response to shareholder feedback, including from wealth manager Quilter which began red-carding weak boards in September, the global private equity investor will establish a ‘distribution pool’ funded by profits on disposals that will be used for share buybacks and special dividends. 

The board and manager have agreed that 15% of cash realisations will go to the pool, which launches immediately, helped by a decision to place on hold a ‘specific’ investment commitment which releases a ‘material cash sum’.

The company has languished on a discount of around 40% since 2022, giving the £3.1bn portfolio of funds and direct company stakes, a market value of £1.8bn.

A £25m buyback plan launched last May did nothing to move the dial. HVPE has purchased £45m ($57m) worth of shares since September 2022 but expects the returns from the pool to be ‘materially greater’. As an indication, it said total annual cash proceeds received from disposals averaged $568m over the last three calendar years.

HVPE said in deciding the timing, amount and nature of distributions it would take into account the macroeconomic environment, the discount, market sentiment and ‘relative merits of distributing capital against the potential benefit of committing to new investment opportunities’.

Ed Warner, chair of HVPE, said he had ‘engaged actively’ with shareholders in coming up with the proposals and the ‘new, more flexible policy, including the potential to pay dividends for the first time since HVPE was created, will make a significant difference to shareholders’.

‘It will help ensure that they benefit more directly from the strong value growth delivered by HVPE’s high quality portfolio, which has consistently outperformed public market benchmarks over the long term,’ he added.

HVPE has delivered total underlying returns of 121% and 349% over five years and ten years respectively, compared to the MSCI World, which rose 77% and 210%. However, investors haven’t reaped all the benefit as the shares have returned 62% and 254% in the same periods.

Activity from the private equity sector has picked up in recent months after Pantheon International (PIN ) was applauded by analysts for its ‘bold’ £200m buyback plan, with the board called ‘a leader’ in the space. Earlier this month Abrdn Private Equity (APEO ) said it was planning to use proceeds from selling its stake in Dutch discount retailer Action to start a buyback programme. 

Board independence

The investment company also improved its governance structure following feedback from shareholders including wealth manager Quilter Cheviot, whose parent company Quilter is the second largest shareholder with 7.1%.

Carolina Espinal, a manging director at the investment manager, HVPE, will not stand for re-election as non-executive director at the annual general meeting in July. As a result the board will be fully independent from its investment manager.

However, she and Richard Hickman, another managing director at HVPE, will be non-voting participants of the board and join the investment committee alongside managing director John Toomey and CIO Greg Steno.

‘Board independence is an increasingly important area of focus for investors and I am confident that HVPE will be viewed as having adopted best practice in this regard,’ said Warner.

In September the wealth management firm said it was opposed to employees of a trust’s fund manager sitting on the board as a non-independent as it set out its wider expectations for boards of the sector.

Gemma Woodward, head of responsible investment at Quilter Cheviot, said she had engaged with the the private equity company on independence and was ‘really pleased to see HVPE’s board take the move to become fully independent’.

‘It is good to see the power proactive engagement can have to help get boards acting in the interests of shareholders,’ said Woodward. ‘This sets a strong example to other trusts within the sector which continue to have manager representation on the board.’              

Other large shareholders in HVPE include M&G with 7.5%, Evelyn Partners and Lothian pension fund with 5.6% apiece and Schroders with 5%.