HVPE cashes in as HarbourVest embraces credit lines

The use of debt to delay capital calls saw HVPE’s distributions outweigh investments last year.

HarbourVest Global Private Equity, the listed investor in HarbourVest’s funds, has reported positive net cashflow for the year ending 31 January 2018, due partly to the growing use of subscription credit lines by the underlying funds, sister publication Private Equity International reported.

HVPE – which has $1.2 billion of unfunded commitments to selected HarbourVest funds – received $405.1 million in distributions and invested $312.7 million in the year, according to its latest annual results.

The positive net cashflow was driven in part by increased use of subscription credit lines, which serve to delay capital calls and accelerate distributions by HarbourVest.

HVPE disclosed look-through exposure to the debt within underlying HarbourVest funds of $238.7 million as of 31 January, up $109.2 million from the previous year. All else being equal, net cashflow to HVPE in the period was $109.2 million greater than would have been the case in the absence of this additional borrowing, the results noted.

“Crudely adding this increase to the investments during the year would result in a modest level of net investment,” investment bank Jeffries said in an analyst’s note on 11 May.

“While HVPE has acknowledged the implications this has for cashflow modelling, we are cognisant of the increase in risk, particularly as the LPs within the HarbourVest funds will frequently also utilise subscription lines/bridging facilities. As a result, managing the extent of their use and the terms of these facilities will be key, and, as ever, the undrawn fund-level facility offers an additional source of insurance.”

A spokeswoman for HarbourVest said the short-term nature of bridging facilities meant the increased debt at that point in time did not necessarily reflect an annual trend of increased borrowing. She also noted that the HVPE is not representative of the entire HarbourVest portfolio, as it has not committed to every fund.

HarbourVest’s 2012-vintage, $3.6 billion Dover Street VIII secondaries fund was the second strongest contributor to HVPE’s performance after its 2008-vintage buyout fund. Over the last year the fund delivered a return of 17.3 percent on HVPE’s $130 million holding, adding $0.30 to net asset value per share. NAV per share grew by 16.2 percent overall.

Secondaries funds are perfectly suited to credit lines, Secondaries Investor wrote in June 2017. GPs that employ the strategy could realistically get capital calls related to hundreds of LP interests in a short space of time. A subscription line allows them to commit the capital, without having to mine large cash reserves from their own LPs.

HVPE has committed to 45 HarbourVest vehicles, according to its results. Recent investments include a $100 million commitment to HarbourVest 2017 Global, $170 million to HIPEP VIII Partnership and $50 million to HarbourVest Asia Pacific VIII.