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An activist investor, which successfully campaigned to overhaul the management of the Hipgnosis Song Fund last year, has taken aim at a FTSE 250 investment trust, claiming it is not delivering value for its shareholders.
London-based Metage Capital has written to the shareholders of HarbourVest Global Private Equity Limited (HVPE), demanding it revamp its strategy to close the share price’s wide 45 per cent discount to net asset value (NAV) at the end of October.
Metage argued that since chair Ed Warner took over in July 2020 the performance of the trust’s shares has trailed well behind the value of its underlying investments. The percentage difference between the value of its NAV per share and the investment trust’s share price has doubled. Closing this gap would be worth £1.3bn to shareholders.
Among Metage’s proposals are that HVPE spend more available cash on share buybacks. The activist points to a system used by the open-ended investment vehicle HarbourVest Global Private Solution SICAV SA (HGPS), designed for European markets, which launched in January 2023.
“Metage recommends that the board brings forward formal proposals to align the investment portfolio of HVPE with that of HGPS and institutes quarterly tenders for 5 per cent of the company’s outstanding shares,” wrote Tom Sharp, Metage’s chief investment officer, in the letter.
HGPS has already raised assets under management of $1.3bn as of September.
HVPE would not comment on the Metage letter. Its share price has done well for shareholders over a long period. The investment company’s NAV per share growth over the past 10 years of 242 per cent has far outpaced the 151 per cent of the FTSE All-World Total Return index.
Although the majority of private equity investment trusts trade at market prices well below their net asset values, HVPE has trailed this group. Against its peer group of listed private equity trusts, HVPE’s differential has expanded in the last three years to 12 per cent from 3 per cent, according to data from Investec.
HVPE has made efforts to close the gap with net asset value, including buying back its shares. Since the investment company started buying back shares in September 2022, it has acquired over $120mn of shares, according to the company. HVPE has a market value of £1.85bn.
Metage would like to see more cash used for buybacks and less for new private investments. HVPE has also bolstered its debt to prepare for a surge in merger and acquisition activity in the coming year. It believes the investment trust will have more opportunities to sell some of its portfolio holdings and distribute profits to its shareholders.
Some analysts see this debt level as high. “There has been a material increase in the risk profile, with the [debt relative to NAV] having increased from 6.8 per cent to 20.6 per cent in the past two years,” the highest in the sector, according to Alan Brierley at Investec. Metage disagrees with adding to this debt.
Activist investors have taken more interest in the UK investment trust sector in the past two years. Elliott Management of the US took a 5 per cent stake in Scottish Mortgage Trust, managed by Baillie Gifford, using derivatives earlier this year.
Another US fund, Saba Capital, has targeted investment trusts. Saba raised its stake this month to 29 per cent in the European Smaller Companies Trust after demanding buybacks worth as much as half of the outstanding shares.
Metage holds 342,849 shares of HVPE and another 330,000 using a share swap.
This article has been changed to reflect that Metage wrote to the shareholders of HVPE, not the board
