London calling

Private equity giant HarbourVest Partners is preparing for a flurry of London-based activity as it plans a dual-listing in the city for HarbourVest Global Private Equity (HVPE) – a publicly traded vehicle that commits to HarbourVest-managed funds – and tees up a new company: HarbourVest Senior Loans Europe.

HVPE has been listed on Amsterdam’s Euronext exchange since December 2007 and, says chief financial officer Steve Belgrad, has made good progress in terms of diversifying its portfolio and nurturing a “fairly strong” balance sheet. “Our real challenge,” he continues, “has been that there has not been significant trading in the shares”.

Belgrad’s comments echo those of Kohlberg Kravis Roberts’ management team in 2008, when the firm announced it would delist its Amsterdam-traded feeder vehicle, KKR Private Equity Investors (KPE), combine it with the KKR management company and list the combined entity in New York. Firm founder Henry Kravis said his team had been “personally disappointed” with the stock price. It has now combined the two entities and is working towards its NYSE listing.

The hope for HVPE’s dual-listing is that it will provide access to a greater number of “typical” listed private equity investors, says Belgrad, such as UK-based wealth management and asset management firms. “As we looked at how to make ourselves more attractive to these investors, it became clear that Euronext was not their preferred exchange,” he says. Currently HVPE has a concentrated shareholder base, with US institutional investors accounting for around 60 percent.

Where is the greatest concentration of private equity investors that we haven’t yet penetrated? It is absolutely London.

Steve Belgrad

It will be listed on the Specialist Fund Market (SFM) of the London Stock Exchange, where it will join the likes of NB Private Equity Partners, a listed vehicle managed by Neuberger Berman. The liquidity achieved through NB’s 2009 listing in London gave HVPE hope that it could achieve similar results. “We looked at that and took some encouragement,” says Belgrad.

HVPE’s London listing is not a precursor to de-listing in Amsterdam. Says Belgrad: “You have two listings to appeal to two investor bases. Where is the greatest concentration of private equity investors that we haven’t yet penetrated? It is absolutely London.”

A week prior to announcing the dual-listing, HarbourVest launched HarbourVest Senior Loans Europe, a vehicle to invest in senior secured loans of up to 30 European small- and mid-market private equity-backed companies. The vehicle – also to be listed on the London Stock Exchange – is hoping to raise up to £100 million (€113 million; $155 million).

The company is not a distress play; it will target performing loans on both a primary and secondary basis. “Fundamentally this is very vanilla and simple: we are providing loan capital alongside, in partnership – not competition – with the banks to middle-market or small-cap European business, says Alex Rogers, HarbourVest managing director.  “We will be a member of a senior loans syndicate in coordination with the lead arranger, but we will never for this fund be lead arranger.”

The rationale for launching a listed vehicle to make these investments is that institutional investors and pension funds were, according to Rogers, keen for a product that is “floating rate, highly secure and provides good income”. For many of these investors, however, income portfolios must be tradable, so the best way to access these illiquid loans would be via listed fund.

“We see private equity as being private equity for all parts of the capital structure. The message we got back from LPs was that senior loans were attractive, especially in the middle market where these is a capital scarcity,” says Rogers.

Another player to see opportunity in the mid-market credit space is Haymarket Financial, a start-up business backed by two Canadian pension schemes and private equity firm TowerBrook Capital Partners (which happens to be backed by HarbourVest). Unlike HarbourVest Senior Loans Europe, Haymarket will compete with banks to provide finance, rather than partner with them.

Neuberger has since announced that it will launch another listed vehicle on the SFM to raise $150 million to buy stressed and distressed debt senior debt.