The trust and its investment manager, HarbourVest Partners, said the policy will help “optimise total shareholder returns through the cycle” by ringfencing capital, which will be then returned to shareholders.
Despite outperforming the FTSE All World Total Return index over the last ten years, HVPE said this has not been reflected in its share price, as it has traded at a “significant discount” for an extended period.
According to data from the Association of Investment Companies, HVPE is currently trading at a 41.1% discount to net asset value, one of the steepst discounts in the IT Private Equity sector.
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As a result, the trust said the updated distribution policy should help bolster returns for shareholders amid a “challenging time” for the vehicle.
Following engagement with shareholders, the trust said there was “some support” for the introduction of a dividend. However, shareholders had expressed a preference for buybacks over dividends at the current discount levels, due to the potential increase in NAV per share these offer.
This led to the creation of the distribution pool, which will accumulate on a rolling basis up to a maximum balance, set by the board, and then used for share buybacks and/or special dividends at the discretion of the board.
If the distribution pool reaches the maximum balance, HVPE said the ongoing 15% allocation from portfolio distribution “will be diverted to new investments until such time as the balance falls below the maximum”.
The updated distribution policy will come into force from today (1 February), with any cash already allocated to share buybacks rolling directly into the distribution pool.
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Ed Warner, chair of HVPE, said: “We have engaged actively with shareholders in recent months and are grateful for their feedback. I have personally spoken to a number of our shareholders and I share the concern many have with the wide discount at which the shares have traded over an extended period of time.
“The board have listened carefully and today we are pleased to announce a new distribution policy. This will make available substantial funds for deployment by the board for the direct benefit of shareholders, with the clear aim of optimising shareholder returns through the cycle while preserving balance sheet strength.”
Warner added the new policy will make a “significant difference to shareholders” as it will ensure they benefit more directly from the “strong value growth” delivered by the trust’s portfolio due to its outperformance of public market benchmarks over the long term.
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