Investment company activist Metage Capital has demanded HarbourVest Global Private Equity (HVPE ) introduce quarterly tenders or wind-up the £3.4bn ($4.3bn) portfolio to rectify the chronically wide discount on its shares.

In an open letter to shareholders, Metage chief investment officer Tom Sharp said the capital allocation policy announced by HVPE’s chair Ed Warner in February had clearly failed with the shares standing 45% below net asset value at the end of October.

Although the discount on its dollar and sterling share classes has narrowed to around 40% since then, the activist said it had basically doubled from 22% under Warner’s four years running the board, reducing the company’s market value to £1.9bn.

This is wider than CT Private Equity (CTPE ) and Pantheon International (PIN ) which like HVPE also invest a significant amount in the funds of external private equity fund managers. Their discounts are 32% and 35%. The latter is a frustration for Pantheon which impressed investors with a £200m buyback programme last year.

‘Any fund which consistently trades at a discount of over 20% is not delivering value for its shareholders and fundamental steps need to be taken,’ said Sharp, whose firm owns 673,000 shares or 0.9% of HVPE.

He pointed out that eliminating the discount would create £1.3bn of value for the investment company’s shareholders.

HVPE’s share price performance in the nine months since it established a pool of money for share buybacks, funded by 15% of realisations or asset sales, was ‘completely insufficient’ to the task, Sharp said.

Referring to the launch by Boston-based HarbourVest Partners of a $1.3bn Global Private Solution semi-open fund, or Sicav, in Luxembourg last year, Sharp recommended that HVPE align its portfolio with the new stablemate to emulate its quarterly tender offers.

By allowing investors to redeem 5% of their holdings at asset value every three months, thereby guaranteeing a complete exit after five years, the new fund avoided trading at a discount.

To do this HarbourVest Global Private Solution  (HGPS) held fewer investments in HarbourVest private equity funds, either buying stakes in third-party funds through the secondary market or investing in unquoted companies alongside private equity managers.

Sharp said HVPE should adopt the same approach, stop making new commitments to HarbourVest funds and sell existing stakes to return capital to shareholders.

He warned: ‘If the manager and board do not believe that such a structure is deliverable, then the fund should be put into liquidation to eliminate the discount once and for all.’

Sharp criticised HarbourVest and HVPE for their policy of investing at least 85% of the Guernsey fund’s cash flow into new investments when Peter Wilson, managing director at HarbourVest Partners (HVP), had recently revealed at a conference that the group’s direct funds traded at 5%-9% discounts, while its more complex fund of funds traded 15%-18% below net asset value.

‘Two points can be deduced from this information: that every dollar invested into the HVP funds is valued by the professional secondary market at less than the cash committed and that the HVP private funds are seen as less attractive than direct investments into underlying high quality private equity funds,’ he said.

While this implied new investments in HVP funds were initially loss-making, by contrast the $45m of its cheap shares that HVPE bought back in the six months to July had added over $30m to the company’s net asset value.

In a flat UK market, HVPE shares rose 2.2%, or 53p, to £25.18. Despite the wide discount, shareholders have received a good 214% return over 10 years, which smashes the 81% of the FTSE All-Share but lags the 220% from the MSCI World index.

The problem is the underlying 306% return generated by its pool of private equity funds and co-investments is more impressive, leaving shareholders 92% short of what they should have had if the shares traded at asset value.

HVPE top shareholders include fellow activist Active Value Investors (AVI), which owns 2.3%, according to Refinitiv data. Just below it in fourth place on 1.3% is Quilter Investors which following its ‘red card’ governance report last year was among investors who pressed for the new capital allocation policy. It also pushed for improved payouts at Partners Group Private Equity (PEY ), formerly known as Princess.

The top two investors in HVPE are wealth manager Evelyn Partners on 5.5% and fund manager M&G with 4.9%.

HarbourVest Global Private Equity declined to comment.