HarbourVest Global Private Equity Ltd. (HVPE) Earnings Call Transcript & Summary

Good morning, everyone. Welcome to our 2022 results presentation, covering the year to the end of 31st of January. My name is Richard Hickman. I think many of you know me already. I'll be talking you through the results. But before then, we'll have an introduction from our Chair, Ed Warner. Once I finished at around 11:25, I'll hand over to Peter Wilson to give an update on the global private markets industry. Then following Peter Wilson, we'll have Scott Voss, who is an MD in our U.S. business, specializing in venture to give us a view of venture and growth equity. And then we'll have a Q&A session at roughly mid-day. Please do submit questions throughout the presentation via the Q&A box, and we'll answer everything in the Q&A session itself. So with that, I'll hand over to Ed Warner for a brief introduction.

Richard, thank you very much, and thank you, everybody, for joining us today. We're obviously here to talk about what was a record year for HVPE, but clearly, this could be like something of a period piece given all that's going on in global economics, but also global politics with the war in Ukraine in recent months. I hope through the course of the presentation, you'll get a lot of information around current circumstanting markets and our view of them. But clearly, feel free to ask questions on that, which we will pick up at the end, whether it's the HarbourVest team or me on behalf of the Board. You also have seen in the results and comments from me on behalf of the Board around discounts and how we might address that as the HVPE Directors. And again, happy to take questions on that at the end. So enjoy the next hour or so, and we look forward to building your queries at the end of that. Thank you.

Many thanks, Ed. So in the next 25 minutes, I'll take you through the results. First, a quick reminder of the progress made by HarbourVest Partners, our investment manager over the last year, we've seen continued growth in AUM now at a record high $93 [ billion ] across all strategies. We have more than 800 colleagues around the world, including 175 investment professionals. And we recently celebrated our 40-year anniversary. So the firm has 4 decades of experience managing private market assets. You'll see that we track over 1,000 managers. In reality, the number is considerably greater, and the managing directors across the firm have an average industry experience in 25 years. Now a brief view of our long-term performance of the HVPE level. We've delivered a compound annual growth rate of 15.7% in U.S. dollars over the last 10 years. in sterling, that 17.5% converted. So very strong, consistent NAV growth. That represents outperformance of 4.4 percentage points versus the FTSE all World Total Return Index, which we regard as our benchmark as that's annualized over the 10 years. And shareholders who bought 10 years ago will have achieved a return of 570% as of 31st of January. Now looking at the chart, you'll see the consistency of the annual growth, but notably the very strong outperformance in recent years. And indeed, in the last year, we delivered record NAV per share growth of 37%. The share price in green, shown by the line there, is at a discount and has been throughout the period, albeit that has varied considerably as you'll see from the numbers on the bottom of the chart. Currently, we're trading at around 40% discount. So some key numbers around our results. Again, as a reminder, these are 31st of January figures. The NAV per share, $49.11, 37% growth from the prior year. The share price, 48% higher than the prior year. Both figures new annual records clearly reflecting a very buoyant market for us. Assets now at $3.9 billion. As a reminder, at the IPO, we started with $830 million, and we paid out 2 special distributions in the meantime. So this growth is entirely organic. No new shares have been issued since the IPO. We made $1.4 billion of new commitments in the financial year, and I'll have more to say about those as we go through. portfolio cash flows were very strong. Record realizations in cash terms resulted in $320 million of positive cash flow overall. And during the year, we increased our credit facility from $600 million to $700 million to accommodate the increasing scale of HVPE notes. Now an overview of commitments and how they relate to the investment portfolio. You'll see that these bars represent in order from left to right the new commitments made in each financial year, the total investment pipeline in the middle, the light blue. And then on the right-hand side, the investment portfolio value. What's apparent and the reason we show 4 years here is that pre-COVID 2019, 2020, you can see the pipeline was close to the portfolio value, and we were making commitments of between $500 million and $700 million typically in a given year. The sum of the commitments made in 2019 and '20 was $1.3 billion. You'll then see in 2021, due to the temporary pause in commitments that year, we made only $195 million of new commitments. Leading to a pipeline that was somewhat smaller than normal, particularly when compared to the increased size of the portfolio. So then moving right to the most recent financial year, we made $1.4 billion of commitments which led to a total pipeline of just under $2.5 billion. For the 2021 and 2022 new commitments numbers some to just over $1.6 billion. So that compares to the $1.3 billion in the prior 2 years. Viewed in that sense, you see that clearly 2022 was a year of catch-up to a more normal range. In terms of cash flows, there are a few figures shown on this chart, which I'll explain. So the bars above the line are the distributions received in cash in the financial year. The light blue bars below the line are the capital calls, i.e., the investment made during the year. And the two lines, the gray line at the top is the distributions expressed as a percentage of the average portfolio value. BlackLine lower down is the capital calls as a percentage of the average pipeline to give you an idea of how the years compare in relative terms. So you see the distributions at $835 million in cash were a new record for 2022. But as a proportion of NAV, actually, they are in line with the previous high in 2015. Capital calls were elevated to some degree in cash terms, again, at $515 million that represented a fairly consistent percentage of the pipeline. A view on the diversification and regular view as well know, we have a set of 5-year strategic asset allocation targets shown in gray on the right-hand side of each of these charts. And I'll speak to just a couple of these figures that stand out. Clearly, on the left-hand side, you'll see that the venture and growth equity figure of 40% is well above target, and that is entirely due to the outperformance of that part of the portfolio, particularly in the last 2 years. Buyouts reflecting that overweight invention. Buyouts are relatively underweight of 51%. The plan that we have is to maintain those targets and simply adjust our new commitments to converge on those targets over a 5-year period. So we'll expect to see a degree of natural realizations in the venture and growth portfolio over the years ahead. And we should also point out the mezzanine and infrastructure components of the portfolio at 9% of NAV. Those investments to a significant degree, are inflation or interest rate linked. So in terms of infrastructure, many of those projects have inflation-linked returns, and in the mezzanine finance funds, known as the curinvestment funds, we see floating rate debt so that as interest rates rise, the total return on those investments should rise in proportion. I'll skip over strategy is where we'll delve into that later. But in terms of geography, we are well balanced, as you'll see, with 61% of assets in the U.S., 22% in Europe. Asia at 14% versus its newly increased target of 20%. So we have some work to do in increasing our exposure to Asia via new commitments in the years ahead. And one change we made in November 2021 was to eliminate our rest of world target. You'll see the target is now 0. It was previously 5%. We reallocated that 5% to Asia and to a lesser extent, to Europe. Now you see of the $1.4 billion of new commitments, the weighting was considerably tilted towards the primary funds. Those are U.S. international and global funds. There's also an Asia specialist fund, which we're committing to in some size in order to move our Asia exposure to the new target. But you'll see $1.3 billion of commitments were made to those primary funds. And importantly, the primary funds draw capital over a highly extended period, so a period of several years post commitment. And that is due to the fact those primary funds are making commitments over a 3- to 4-year period to underlying managers who then, in turn, make commitments over a 3- to 4-year period to the underlying companies. And so the capital calls come through very steadily and very slowly from those funds. In addition, within the primary programs, there is a small amount of secondary and direct exposure as well. In the secondaries, you'll see there are 7 specific transactions within that $73 million. Those are initiated through the secondary overflow fund, which has 0 fee and 0 carry as an attractive feature. And then finally, the direct investment fund, the $100 million committed to the latest fund that as the name suggests, is investing directly into the operating companies alongside the general partners. Now a few words on sector exposure. Clearly, this is highly topical right now in terms of the tech and software exposure being overweight relative to other sectors, that is at 31%. Other sectors are very well balanced between 11% and 13% for the next 5 sectors, which are broadly spread across different parts of the economy. And we also do have a small amount of energy exposure, which has done particularly well. But within the tech and software exposure, it's important to point out that there's a broad range of underlying companies within that part of the portfolio. On the right-hand side, we show just the top 3 by value. And many of you will know Plana, probably fewer will know Databricks, which is an online cloud data storage and data management business and Discord, which is a social media business. So even within the top 3 considerable variation in business models. And much of that tech exposure is in the more stable repeatable revenue, small ticket critical items. These typically within business is focused on accounting software, tax software, those sort of functions that are very steady in terms of revenue. Taking the next 2 sectors, medical and consumer, you'll see that in medical, the top 3 are tilted towards the more service-oriented end of the spectrum. So you have companies servicing drug discovery businesses. So they're providing the platform to test new drugs. And there's also a business there, Olink, which is focused on protein analysis. So more of a service tilt towards those companies. And finally, in Consumer, we have 3 businesses there, one of which is a Chinese online snack vending business. The other 2 are both consumer oriented towards food and cosmetics. In terms of investment portfolio growth, clearly, a record level of growth in cash terms, over $1 billion of gains in the portfolio. significantly this year, more than half of that gain came from realized profits, 54% realized and 46% unrealized. In the prior year, that split was dramatically different. 82% of the gain in the year ending January '21 was unrealized. So in the year just ended, we saw a much, much greater crystallization of value through those realizations. In these charts, we're showing the breakdown by geography stage and strategy. And in fact, there has been very little change in this pattern from the prior year. The only exception really is the geography performance, where previously Europe led the way in the year ended January 2022. We saw the U.S. regain its top spot with a significant high performance. But Venture led the way last year and continue to do up to January, while strategy in terms of strategy primaries were also the lead strategy in the prior year. So very little change in the profile. We have updated the company metrics, which I should stress are based only on a sample of the portfolio, 30% of NAV captured in the sample, 1,400 companies or from our buyout portfolio. So you should please bear in mind the venture and growth portfolio is not reflected in these figures. But we've seen very strong growth in revenue and EBITDA, particularly when set against the slightly lower growth rates we saw in the prior year when EBITDA grew by 9%. So we've seen a recovery to 20% in that growth rate. And within those 1,400 companies, 73% grew EBITDA to some degree. So it was a broad base of strong growth. And of those, the vast majority we're growing at more than 10% per annum. You'll see the debt multiple has moved slightly higher from 4.4 to 4.6x in the year, while the overall valuation multiple has remained roughly stable at 13x. A reminder of our balanced profile in terms of vintage exposures, and these are assessed as the vintage of the partnerships. We clearly have a very broad spread given the fact that we're committing and investing very steadily year-on-year. So you'll see that 2018 vintages is the largest in the current financial year-end at 15% of NAV. So unlike many more recently launched investment companies, we do have the long tail of vintage exposures, which provide fertile ground for continued realizations and cash distributions as we go forward. As illustrated by this chart here, we show the proportion of realizations from each vintage in the year ended January '21 and January 22, the gray and blue bars, respectively. And actually, one clear trend that you see from one year to the next is a shift to more recent vintages in terms of the source of realizations that we think is reflective of the rapid returns achieved particularly in the venture and growth portfolio in the year. Just staying on the theme of exits, we wanted to provide a little bit of insight into the top 5 transactions, both in terms of M&A an IPO's and also the view on the sheer number of liquidity events, more than 550 during the year, more than double the prior year total by number. And IPOs represented a relatively high proportion of exits at 27%, the typical range being 10 to 20. The buyouts and venture split actually was surprisingly roughly equal. So 50% of companies exit by businesses within that part of the portfolio and 50% were venture in growth. And looking at the top 5, you'll see that there are significant gains on a NAV per share basis from some of these individual holdings. So these green figures show the NAV per share uplift delivered by each of these exits during the financial year. The top 5 M&A transactions some of just over $0.80 of NAV the top 5 IPOs come to $1.35 of that. So there was more value add from IPOs in the top 5 than from M&A as might not be too surprising. And the obvious question, I guess, given these at 31 January numbers is to what extent have those declined since. I'm pleased to say of those top 5, the range of the declines from those figures in green is between $0.01 and $0.08 per share. So actually fairly modest headwinds on those 5 public companies. And much of the exposure has in fact been realized in the interpreting period. A figure that, again, those familiar with us will know well. the uplifts on exit that we've achieved going back to 2012 as shown in this chart. And as a reminder, these are the uplift over the carrying value that we see when a portfolio company exits, whether via M&A or IPO. The average uplift of 57% since 2012 is impressive in itself. I think you'll agree. But particularly in 2021 and '22, we saw elevated uplift premiums driven by strong demand for those companies focused on the venture and growth side in the portfolio. I'm pleased to say the expense ratio in terms of the net operating expenses continues to come down as we benefit from increased scale efficiencies in the fund. So you'll see, I won't go through all of the detail in these figures, but the row kind of 3 rows from the bottom shows you effectively the fixed costs. So the operating expenses, the management fees and other expenses to do with the HarbourVest fund admin. And you'll see from the period 3 years ago, 1.63% of NAV coming down to 1.25% in the most recent year. The total expense ratio has increased, however, driven by the carried interest element, which is second from bottom in this table. And of course, that is related to the continued outperformance of the underlying funds that will vary considerably with that performance. So with 37% NAV growth in the year, there is a small increase in the carry percentage, but still bringing down overall costs quite consistently. In terms of ESG, HVPE as a company has its own ESG policy as shown in the box on the right-hand side with the green header, those items are those that are captured within HVPE's control. So we are measuring our carbon footprint and offsetting that footprint we're striving for increased diversity. And we are focusing more and more on internal governance and the performance of service providers in relation to ESG issues. But of course, the main source of progress in ESG really is from HarbourVest Partners as the manager of the company's assets. And HarbourVest has made real significant gains across the piece in terms of environment and also is working towards ever more demanding targets across the government space. And a little bit more on HarbourVest's performance through an ESG lens. You'll see on the right the PRI ratings, particularly strong for the most recent period over which the company has been assessed. The manager has an ESG council with 12 members. So clearly prioritizing ESG issues, and you'll see from the diagram on the left, there are 3 main segments effectively to the company's ESG policy. The investment practices segment, clearly a high priority for firm, rolling out scorecards across the underlying GPs to survey their own ESG practices and strive to help improve, so bringing things right up to date, and I'm conscious I'm near the end. To 30th of April, we saw continued overall positive cash flow, albeit at somewhat reduced rate versus the full year. But you'll see our cash balance remains elevated. We have -- when combined with our credit line, we have nearly $1 billion of available liquidity to support capital goals. So that is a record level. On the right-hand side, you'll see that monthly cash flows can be volatile, which is why we do need to be flexible in the way that we maintain a significant cash balance and allow a buffer for those unexpected negative cash flow months. But overall, the picture is still relatively benign. And in terms of the balance sheet overall at 30th of April, the 3 key ratios that we monitor are well within normal limits. We have seen the TCR on the left, total commitment ratio increased with the new commitments from 148% at the half year to 167% as of the most recent figure at the end of April. That is well within the normal range and well below any limits that we worked in. And in terms of rolling coverage ratio, that has fallen with the increased commitment plan for the years ahead. And I should note that ratio captures not only the obligations we have today, but also commitments not yet made and not yet approved. If we were to exclude the impact of potential future commitments, the rolling coverage ratio would be 98%. So as a reminder, that is short-term cash and liquidity from distributions as a proportion of the expected investments over the next 3 years. So very healthy ratio on that measure. The commitment coverage ratio always tends to be lower for HVPE given our business model and the primary fund emphasis in the portfolio, which results in long drawdowns, but you'll see still 35% driven by that cash balance and large available credit line. And finally, on this slide, the HarbourVest Fund level borrowing has increased slightly from January to April in terms of the bridging finance most notably. But as a proportion of NAV, this has remained constant and very, very stable in recent years. A final note on valuations. As a reminder, we have the 30 April figures in the market as we speak. The [indiscernible] share is $47.54 I'd say, a 3.2 percentage point decline from the 31 January figure. You'll see that we have December valuations for all of the private exposures and the 10% of April -- public exposures. That 10% has come down. In July, it was 17% of NAV in public stocks. So that has come down due to realizations and of course, an element of value decline in that part of the portfolio. So in conclusion, we believe that we're well placed to continue investing over the next several years. HVPE's business model is well set up for a steady pace of investment through the cycle. So the commitments we're making today will go into the ground over the next several years. We have seen very positive cash flows. We're in a strong position in terms of the balance sheet to weather any instability that we may see in the markets. And we believe that our diversification is key to helping us prosper in the years ahead. There are always elements in our portfolio that are outperforming on a relative basis just given that the sheer breadth of opportunities that we're capturing. So with that, I will just show you the disclaimers here and hand over to Peter Wilson to give an update on the global private markets.

Thanks, Richard. Good morning, everyone. My name is Peter Wilson for those, I have not met. I'm a Managing Director in London and a member of [indiscernible] Executive Management Committee. In light of both what Richard went through and a number of other questions that we can see coming through the chat. I'm going to spend the next few minutes trying to address where we think we are in terms of the global macro environment. And in particular, our views given our history of 40 years on how we think private equity managers, the leading private equity managers that we seek to gain exposure to will adapt to the economic dislocation that we are experiencing. So let's turn first to the broader macro environment. As 2020 begain -- 2022 began, the aftershocks of COVID were impacting economies in ways that you're all familiar with, inflation, supply chain disruptions, labor market pressures. The downward -- downside pressures were balanced a little bit by some positive factors as well, not least a belief that coordinated central bank action on a global basis had a good chance of perhaps taking the steam out of inflationary pressures and that the ever reliable U.S. consumer would help sustain growth. And our overall sense is that these forces, frankly, were broadly balanced in the first part of the year. And in fact, through the end of March, as you will know, the S&P 500 and MSCI Europe were only down about 5%. However, the lengthening war in Ukraine, the drumbeat of steadily rising inflation figures crystallized a series of interlocking fears for the global economy that tip our view of the balance much more sharply negative. Beyond the extraordinary human tragedy playing out in Ukraine or as you know, exacerbates inflationary pressures as it feeds through energy, agriculture, key commodity markets, the anti-COVID lockdown policies we're witnessing in China have prevented supply chains from functioning effectively fueling trends towards a deglobalization of economies as people now refer to it. And even as the Fed kicked off its first 50 basis point rate hike in late March, the risk we feel of an overshoot leading to a potential future recession is, in fact, very real. Now on the other hand, perhaps central banks do get it right and can help engineer a softer landing in '23 and '24, and we all have to hope that volatility that we're seeing in energy markets serves as a heightened spur to decarbonization in our economies. But overall, we feel the balance does tilt to downside risk. Now turning to global economic growth, you'll be aware that the IMF in its April projection is, however, not forecasting a recession in 2023. You can see their changed view on growth versus only 4 months ago. On the right-hand side, for example, the global growth outlook is now expected to be 80 basis points lower in '22 and 20 basis points lower in '23 compared to the IMF's January outlook. Growth remains predicated on a belief of course, that Central Bank actions will be successful in curbing inflation. But as you can see from the bold dotted line, inflation is forecast to drop dramatically by year-end '23. It's important to note, however, that it will still remain if this occurs, in excess of central bank mandated target levels, suggesting that rates will need to stay elevated at least into 2024. And if you look at public equity markets, they've clearly moved distinctly bearish. The bottom chart here highlights the recent and fairly dramatic increase in 10-year treasury yields with an almost doubling since March. And that's, of course, helped fuel an accelerating decline in public market values. What was a roughly 5% drop in the S&P 500 at the end of March, for example, is now 16% as of, I think, May 4. MSCI, similarly down now 19%. As well, concerns around late cycle growth prospects and valuations in the tech sector have also hit hard. As a proxy, we highlight here, the ARC Innovation ETF down more than 55% since the start of 2022. So let's now take a deeper dive into private equity markets and review 2021 and the data so far for the first quarter of 2022. Now it's likely that you might be aware that in many institutional investor portfolios, it was an extraordinarily busy year in 2021 for fundraising. And the chart here shows that very same fact. After a 3-year -- sorry, yes, sorry, pardon me, I meant to say in fundraising itself in 2021, that actually was roughly consistent with the prior years that we had seen at roughly $600 billion. In fact, LP demand so far in the first quarter of 2022 is holding up broadly consistent with what we saw this time last year. given the high-quality names in the market. But in fact, it is the investing phase that I wanted to draw your attention to in 2021 that after a relatively steady but declining 3-year period 2018 to 2020 in terms of total investments, 2021 showed a jump of more than 75% to $1.4 trillion, which is an all-time industry high. The Q1 '22 numbers show strong early momentum, but I would be cautious. The feedback that we're hearing now from general partners suggest that this will not likely be sustained across the full year. The liquidity story that I show here on the bottom left also captures what a stunning year the industry enjoyed in 2021 with liquidity levels 70% higher than the prior 3-year average, and at $1.2 trillion of liquidity, again, an all-time industry high. The Q1 '22 numbers point to a meaningful decrease in liquidity this year compared to prior years, and we would anticipate that to sustain itself over the course of the balance of this year. The strength of the venture market that you heard Richard highlight in 2021 is also confirmed here with investment and liquidity well in excess of prior year averages. So when you look at this slide overall, it tells, we think, a particularly clear story that 2021 was a real peak for the industry with record levels of investment and liquidity, but the 2022 data is already showing signs of softening, which if you combine it with the deteriorating macro environment, gives rise, frankly, to concerns about the road ahead. Now you probably come to know us from a prior capital markets and other presentations that ultimately, we think it's our job to try and find answers to some of these tough questions. And so my next couple of slides are going to try and address this quote road ahead question, this dislocation period through both some hard data as well as qualitative input that we received from our leading general partners. So first, we went back to look at the performance of global private equity here over 31 years. As you can see in the bottom half of the chart, this time period includes 4 economic downturns. And the top half presents both median and top quartile total value to paid-in ratio. So in other words, money multiple data for each vintage year back to 1991. And we think there's a couple of points to note. First, median performance for the asset class has returned on average about 1.6x money with only 1 year 1999, falling below 1x return. Second, if you exclude the most recent call-them COVID vintages, top quartile performance has for 25 of the previous 28 years generated in excess of 2x TVPI with roughly 1/3 of those years at more than 2.5x. Now it's not a particularly new conclusion, but this data does speak to the sustainability of cash-on-cash returns if you, as an investor, secure access to top-performing GPs. We're going to turn next, however, to the more nuanced question of looking at performance during periods specifically of economic dislocation. So this next slide looks more closely at 4 economic downturns with the top half of the chart here, providing data on the macro environment for each time period. And I'd ask us, given the time period to focus on the 3 earlier downturns. So the Gulf war and the dotcom crash through 9/11 as well as the and then we'll look at PE data on the bottom half of the page, as you see here. Here, we're looking -- we're providing global private equity performance for each of these periods through both TVPI, that's the circles that you see and IRR performance versus public comps. That's the bar charts. And to me, the conclusion is that the asset class, again, for median and top quartile performers does generate very resilient outcomes. And I want to speak to that word resilient again as we move into the next few slides. So the TDPI data here reinforced the point from the earlier slide on the strength and consistency of money multiples. And the bar charts below break out top quartile and median IRR figures for private equity and compares them to the S&P 500 PME returns for matching cash flows. And hopefully, you'll see again the relatively consistent outperformance of global PE versus public markets on an IRR basis. And look, we've highlighted here, we think the resiliency of long-dated private equity performance data. And similarly, we've shown good performance in periods of stress in these last 2 slides. The next question we ask ourselves is why? Why is there this evidence of resiliency in performance over more than 20 years for if we are entering as we think we are a period again, of economic dislocation or recession, will we see this resiliency prevailing? And so to answer these questions, my team and I for our annual meeting, which we're reflecting in these slides, reached out and admittedly, it was not a scientific survey to about a dozen of our top GPs to ask them these questions. And the next 2 slides capture what they told us. So in reflecting on their responses, it became clear to me that part of the answer to this question of sustainability or resiliency of returns was down to structural advantages that this industry possesses. For example, the aligned interest between owners and Boards and managers. All the GPs I spoke to reference culture, there is simply no substitute for well tenured people through deeper contact bases, industry domain knowledge, all of that accrues through retained talent. An execution orientation the common belief that going fast in executing your plan once you own a business, derisks your investment and it brings you closer to the upside. One GP said to me, we buy, we change, we get out. And fundraising was a fourth element. It surprised me a little bit, but a common refrain from those dozen GPs was that the discipline of having to go back to LPs every 2 to 3 years and explain how you've done versus the expectations that you'd set with those investors kept GPs sharp and on their game. And underlying these ideas from the GPs was a kind of an unspoken but consistent fear that, frankly, only the paranoid survive and that it was imperative that they continuously seek to improve in order to stay ahead. And secondly, it also dawned on us that beyond structural advantages, one of the key reasons for this resilience over the last 20 years is a kind of a darwinian pressure that's felt by our best GPs. For example, most referenced the need to refine investment strategies. Several admitted that a key lesson from the GFC was the need to not step away but rather stay in the market investing and to invest consistently, you had to act in a downturn. Others spoke of a recognition that the investment strategies that had worked well for them in the '90s, more than 2000, for example, a theme of buying growth at a reasonable price, can become outdated or even fail, leading some managers after the GFC to acknowledge that they needed to pay more. And if they were going to do that, it required a much sharper focus on higher-quality business models and with a greater focus, for example, on post-acquisition M&A to drive value. All of them spoke of a more sophisticated due diligence that they conduct now compared to 10 or 20 years ago. better access to and use of data to inform decisions, deeper understanding of value drivers, better understanding of risk factor correlations between exogenous and internal events that they could or could not control. as well as the use of highly focused expert networks to advise on how they thought about concluding transactions. With variations, all of us spoke about becoming more operationally engaged with their companies. gone are the days of either industry advisers or using third-party consultants, Instead, operating partners with specific domain expertise are brought into the firm and deployed at portfolio companies. They also have portfolio support teams. Some call them change architects who have business process engineering experience that are able to go into portfolio companies to drive specific operational improvements. Many of them now have capital markets teams that they have internally used to generate better M&A opportunities. And importantly, all of the GPs confirm that these senior individuals in their operations teams participate in the carry. In other words, they have the same incentive, arguably the same status as deal team members. Further, compared to like 10 or 20 years ago, leading GPs are placing much greater emphasis on liquidity management and portfolio construction. What will it take to get to 1x distributed to paid-in capital in 3 to 4 years and then 3x over 10 years. All of these GPs have instituted what they call portfolio review committees where they effectively depersonalize some of the difficult conversations around which companies to provide follow-on capital to and which companies to look to exit earlier because you've got to run your strongest performers longer. One GP described it as a kind of portfolio money ball being very specific on what role each asset in a portfolio will play in generating the overall returns for the fund. And finally, many spoke of how they had professionalized further their IC processes now versus a dozen years ago or more where decision-making at all deal levels is less individually driven and more based on collective judgment, the franchises that win, harness the power of the team, the power of pattern recognition, the power of repeatability. Now will these resiliency factors, whether they're structural or Darwinian, fuel sustained alpha in this next period of market dislocation and we can't guarantee it, but a quote from one GP summarized the feelings of many where he said, actually, we're excited to see a little more capital destruction because -- if we invest through the cycle and our companies continue to innovate, we'll continue to generate the returns that LPs demand. So I'm going to stop there. I look forward very much to being able to address questions, and I'll pass it on to Scott Bass for the next section. Once I actually get through the disclaimer, so I apologize, let me do those to. Scott, to you.

Great. Thanks, Pete, and welcome, everyone. My name is Scott Boss. I'm a Managing Director in the Boston office, and I head up our global primary investment activity. I'm also the chair of our global primary investment committee. And we thought we would share with the group today some insights on the venture capital industry, just given some of the recent volatility that we've seen in the technology space, but also the exceptional performance that we've seen going back over the past several years. I might start off by saying if you look at private markets and you look at the different subsectors of the private markets over the last decade, Venture capital has materially outperformed other areas within the private markets. And that's not only been over that long-term period, but it's actually by vintage. And when we look at the performance in 2021, you've seen it in the HVPE results, but the industry results showed that the venture capital 1 year IRR was north of 80% compared to growth in buy-ups, which are at roughly 50%. I say that because we're obviously going through a bit of a correction right now, and it is highly likely that the industry will give back some of that great performance over the course of the year. but we're still very excited about the new company creation that's happening within the venture industry and some of the exciting technology cycles that are playing out. And I'll talk about some of those trends in this next section. So first, why venture. And if you go back over the last 50 years since Venture has been an institutional asset class, the ecosystem that's required to drive long-term performance in the sector requires 1 innovation to be happening. It requires invention, the invention of the microprocessor DNA sequencing cloud computing. And it requires entrepreneurs who recognize these innovation cycles that are happening and they choose to take risk and form companies or build companies on top of these innovation cycles. And you see some of those notable entrepreneurs on the right side of the page. And then finally, it requires value add, value-added capital, which is part of what HarbourVest delivers here. We give investors access to this intersection of the innovation and the entrepreneur through the venture capital firms that we partner with, and you see many of those logos listed on the bottom of the page. We're very excited about the innovation cycles that are playing out right now and the new company creation is going to happen as a result of entrepreneurs and venture capital partnering to build companies. Also, when you think about macro cycles and how it affects the private markets, different macroeconomic cycles affect different parts of the private markets in different ways. So if you were to look specifically at the buyout or credit private markets, you would see a high correlation between performance and where we are in an economic or business cycle and where we are in a credit cycle. And if you were to look at real assets or energy or even emerging markets, you would see a high correlation of performance tied to the commodity cycle. I say emerging markets because a lot of emerging markets and economies are directly tied to commodity and that is a big driver of returns. In Venture Capital, the cycle that is most important is innovation cycles. Is there invention happening and where can new company creation occur. And so venture provides a bit of a diversification into a portfolio relative to macroeconomic cycles that are playing out. The one cycle I don't show on here is capital market cycle, and we all know that we've just kind of lived through a fairly extreme cycle within the capital markets. And I've seen some of the questions coming in, and I'll try and address some of those as we go through the presentation. This slide is a year old, and I purposely chose a slide that was 12 months old, just to kind of put into perspective where we are today versus where we were in the recent past. The first point on this slide is these are the largest publicly traded companies in the world. They are mostly technology companies, if not all technology companies. And for the most part, they were all started with an entrepreneur and an idea and they were venture backed. And now they've grown to be $1 trillion plus companies. The market capitalizations you see here are as of March of 2021. And the reason I say that is because Apple Computer, although it achieved a $3 trillion market cap back in January, today, it's got a $2.3 trillion market cap. So it's valued at a higher mark than it was a year ago. Microsoft is the same. Amazon and Facebook have actually declined and Google is flat. But I wanted to put this up here because it kind of gives a perspective of kind of what's happened in the capital markets, where are we today versus where we were in the recent past how do we give investors access to venture capital and growth equity, the leading companies that will define markets in the future. First, I want to talk through some of the subsectors that venture capital is investing in today. You may recognize many of the logos on this page. Many of these companies exist within or have existed within the HVPE portfolio. But venture capital growth is largely innovation focused. It's largely focused on information technology and life sciences, which you see on the bottom of the page. But then there's cycles, innovation cycles playing out within these subcategories, and they include cybersecurity, given that we live in a connected world where all devices can communicate with each other. It's created risks for cyber attacks as people try to penetrate these networks. Fintech a big trend is technology is intercepting all basic industries. There's -- every industry is going through a technology transformation. I heard [Indiscernable] say, that with the digitization of industries, it becomes a winner take all or a winner take most where the firms or companies that can best technology of, call it, their businesses are best positioned to win. And the fintech industry, I think, is in the middle of this idea. And we've seen a number of companies, new entrants emerge and really disrupt the financial services industry, artificial intelligence and machine learning. We've seen how software transforms our daily lives and makes us much more efficient. But how about if you can add intelligence or a brain to that software. It only has the ability to make us that much more efficient. And so we see a number of companies in the artificial intelligence and machine learning space emerging as market leaders and market refiners. Enterprise SaaS and cloud, and Richard referenced a little earlier, some of the mature technology companies that sit in our portfolio. I think we all know in the enterprises that we exist in today, we use many different applications to manage payroll, human resources and other aspects of what we do. These SaaS software solutions have become mission-critical to our organizations. And they're very sticky. And so this is a big category within our venture capital and growth portfolio. And then finally, in the digital health and biotech space, where there's just tremendous innovation happening every day the vaccines for COVID-19 came out of venture portfolios and our biotech managers are looking to cure cancer and Alzheimer's and other the social challenges that we have on the health care front. So there's a very good social aspect to what sits within our venture and growth portfolios. And the way that we give investors access to these amazing markets high-growth markets is through the venture managers and growth equity managers that we have relationships with. If you were to look into the portfolios of the logos that you see on this page, you would see that these firms are the market-defining firms. The best companies that have come out of the venture industry have been backed by the managers that are represented on this page. And in a few slides. I'll provide some industry-related slides, and we'll show you some of the names that are identified. But firms like Excel and [indiscernible] Kleiner Perkins, they are the firms that not only recently have invested in the best companies coming out of the venture industry. But in many cases, they've been associated with the best companies in the last 2 or 3 decades that have come off of the venture industry. So I thought I would provide a few slides just on market updates that take us through year-end. But I would also want to kind of take us through present day because there's a stark contrast between what we've been living in 2022 versus this amazing year that we experienced in 2021. So first, on the fundraising front, what's 2021 was a record fundraising year for venture capital. You can see that in the bar on the left-hand side of the page. A lot of the growth that has taken place took place in the mid- to late-stage pools of capital that are raised by many of the managers that you see listed on the right side of the page. Now notably, HarbourVest is not invested in many of these firms, although they are responsible for a lot of the growth that we've seen in the industry. the 1 firm on this space that we do have a strong relationship with its flagship pioneering. Flagship is an early stage focused life sciences fund that not only seeded, but they found it the company Moderna in their offices the management partner Flagship Ventures, was the co-founder and it's the Chairman of --. So it's a very good story that sits in our venture portfolio. But you can see the scale that some of these funds are achieving on the fund rates in front. Tiger Global, raising $7 billion TCV raising $4 billion. And what's interesting, at least this far through 2022, we have not seen the fundraising abate. We do expect that it will slow as we go through the second half of the year, but it's been full steam ahead at least through the first 2 quarters of 2022. On the investment activity front, you see a similar trend. You see the scaling that happened in 2021, largely driven by the late-stage venture those pools of capital that I referenced on the prior page and you may recognize some of the largest privately valued companies that are listed on the right side of the page. SpaceX recently valued at $100 billion in December 2021 valuation strike at nearly $100 billion. The secondary market was trading strike in the secondary market at a $200 billion valuation. Notably, Strike is the highest value private company in HarbourVest portfolio right now. And I talked earlier about enterprise, the largest portion of Strike's revenue and the fastest-growing portion of stretch business exists within the enterprise. It's a digital payment solution that has become mission-critical for many companies and organizations. The last company I'll focus on is Instacart because we've seen IPO activity fall off considerably in 2022 and Instacart recently filed and could be a good proxy on what how the public markets are going to value some of these private market companies that have these valuations that are in the tens or even hundreds of billions of dollars. Now finally on to liquidity. We've -- 2021 was a record year for IPOs. We have never seen as many IPOs as we saw in 2021. And through May of 2022, IPO activity has fallen off by more than 80%. And actually, most of the IPO activity is what I call a nontraditional IPO. They were -- it was through stacks. So the traditional IPO or the direct listing have been virtually nonexistent in 2022. Coinbase is a leading company within the cryptocurrency space. It has fallen off considerably over the last month or so, there have been some challenges within the blockchain and crypto area. Notably, the investors that gave us access to coin base, we're able to sell off their positions almost completely when the company was performing extremely well. Rivian is a leading company within the electric vehicle space. So that's kind of a high-level summary of what we're seeing in the venture space. If I were to kind of summarize the messages that want people away here is one, innovation and invention is happening at a rate that we've never seen before. And that just creates a great environment for new company creation and disruptive companies to be built and backed by venture capital. The industry -- the technology industry in general is going through a massive correction led by the public markets. The private markets will lag and in some cases, we use what we see in the public market. So we don't think it will be a severe or is extreme when we look into our private market portfolios. And at least for 2022, we don't think the IPO is going to be the path to exit. But we do think the M&A market is going to pick up as large incumbency value in leading emerging companies that they can buy and will help enhance their businesses. Although it's not identical to what I just said, I think Broadcom's acquisition of VMware for $61 billion is a very good example of how we will see some consolidation take place in the technology space.

I might just hand to Richard to do a final wrap-up before we close.

Thank you, Charlotte. As Pete said, please feel free to reach out to one-on-one, if there are any follow-up questions. Thank you again very much for dialing in. We will also be running a capital market session for the broader shareholder community and others on the 15th of June, so you're aware, and we'll -- that will be an in-person and hybrid event with a little bit more content as well than we've shown today. But thank you very much for attending, and we look forward to speaking very soon.