I reckon the private equity market is attractive. According to FTSE 250 investment company HarbourVest Global Private Equity (LSE: HPVE), there are around 40 times as many private companies in the US and Europe than there are public companies listed on stock markets.
And if you want to invest in up-and-coming firms likely to disrupt older, established players, you really need to invest in unlisted companies – the private equity market in financial speak.
For the average private investor, private equity investing has historically been hard to do. But, in recent years, several public limited companies have sprung up with the objective of investing in that market. So by buying shares in the listed firm, it’s possible for the average private investor to get exposure to those unlisted companies.
That’s what Neil Woodford was dabbling in with the unlisted investments his funds held. But it seems Woodford didn’t go about it very well, probably because he had little previous experience in the field of private equity. However, it’s a different story entirely with HarbourVest Global Private Equity, which appears to run a slick, professional investment operation backed with around 36 years experience specialising in global private markets.
The firm’s performance is impressive. Over the past five years, the share price has risen around 116%, although it’s worth noting the firm doesn’t pay a dividend. Nevertheless, I’d be happy with a return like that if it can be repeated in the years to come. HPVE achieves its results by investing both in other funds and directly into unlisted companies.
Buying to sell later
I like the investment approach. Whenever it makes an investment there’s a “clear exit strategy in place from the very beginning.” That makes a great deal of sense to me because one of the things that trips up many private investors is a tendency to buy shares without a thought about selling them later. I reckon such an approach can lead to holding on for too long, which can result in the unwinding of previous returns.
Today’s half-year results report to 31 July reveals the net asset value rose 7.1% over the six-month period. Around 4% of the underlying assets are represented by UK companies with the majority mostly in the US. Let’s face it, most of the best and most dynamic new companies originate across the pond, and the firm enjoyed previous investing success with names such as Just Eat, Airbnb, Uber and Snapchat, as they grew to become the giants they are today.
With the share price at 1,706p, there’s a discount to the net asset value of around 10%, but I reckon that’s normal rather than representing a bargain. Meanwhile, the outlook will be affected by the macroeconomic trend in the US and globally and, if the pound strengthens any further, it will act as a drag on the firm’s “sterling-based share price.”
Nevertheless, I’ve got my eye on this one and would be keen to buy some of the shares on any share-price weakness we may see.
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Kevin Godbold has no position in any share mentioned. The Motley Fool UK has recommended Uber Technologies. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2019