Annual Financial Report

RNS Number : 7696D

HgCapital Trust PLC

07 March 2022

H gCapital Trust plc

Legal Entity Identifier: 213800J7QUJJBEFSIN38

ANNUAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2021

A year of significant outperformance

delivered through a continued focus on software and service businesses

London, 7 March 2022: HgCapital Trust plc ('HGT'), today announces its annual results for the year ended 31 December 2021.

HGT provides investors with a listed vehicle to invest in unquoted businesses managed by Hg, Europe's largest investor in software & service businesses.

The objective of HGT is to provide shareholders with consistent long ‑ term returns in excess of the FTSE All ‑ Share Index by investing predominantly in unquoted companies where value can be created through strategic and operational change.

Highlights over 2021 include:

¡ Strong portfolio trading resulting in robust portfolio performance with a total return NAV increase of 44% to a record high of £4.40 and net assets of more than £2 billion

¡ Record level of investment, deploying £424 million alongside Hg, Europe's largest investor in software & service businesses

¡ £271 million of returns realised on behalf of HGT and £141 million of new equity raised

¡ Significant and consistent outperformance of the FTSE All-Share

¡ Performance provided through access to Hg's investments, which would in aggregate represent the second largest and the fastest growing technology firm in Europe^¹.

An investment of £1,000 made 20 years ago in HGT would now be worth £24,134, a total return of 2,313%. An equivalent investment in the FTSE All-Share Index would be worth £3,3602 .

Jim Strang, Chairman of HGT, commented:

"As I noted in my last review, HGT and its portfolio have coped well with the challenges presented by the COVID-19 pandemic. The defensive nature of the businesses within the portfolio and the operational skill of Hg have both contributed to the success of HGT in weathering this challenging period. I am happy to report that our full-year results continue to see the portfolio delivering strong growth and excellent returns.

While 2021 has been very encouraging for HGT, we have all witnessed the recent events unfolding in Eastern Europe. Your Board remains extremely focused on ensuring that the risks inherent in managing a successful and fast-growing investment company, during such uncertain times, are fully addressed. Despite the challenges in the external environment and the volatility they may induce, the Board is confident about the future prospects for HGT."

David Toms, Head of Research at Hg, commented:

"The overarching driver of Hg's performance - digital transformation of business activity - continued apace in 2021 and the structural backdrop remains robust. Coupled with the move to a Software-as-a-Service model, we remain of the view that we are still early in a generational shift in market opportunity."

SUMMARY performance

	28 February 2022	% Total return²	31 December 2021	31 December 2020	% Total return²
NAV per share	436.7p	-0.9%	440.5p	310.3p	+43.9%
Share price	417.0p	-0.8%	420.5p	305.0p	+39.8%
FTSE All-Share Index		-0.8%			+18.3%
		YTD 2022 Movement			2021 Movement
Net Asset Value	£2.0bn	-£17m	£2.0bn	£1.3bn	+£714m

1 By Enterprise Value, Source: Hg, Factset

2 All references to total return allow for all historic dividends being reinvested

Please note: Past performance is not a reliable indicator of future results. The value of shares and the income from them can go down as well as up as a result of market and currency fluctuations and investors may not get back the amount they originally invested.

Source: Hg, Factset
Note: Hg undertakes full revaluations of the portfolio on a quarterly basis, the next process being 31 March 2022, therefore the movement in unrealised value of the portfolio to the end of February 2022 is attributable to FX only.

Performance overview

Net assets of more than £2.0 billion, with continued outperformance of the FTSE All-Share over one, three, five, ten and twenty-year periods:

- NAV per share of 440.5p, a total return of 44% to 31 December 2021.

- Share price total return of +40% over the year.

- Proposed final dividend of 5.0p per share (full year dividend of 7.0p per share).

Strong double-digit growth from the realised and unrealised portfolio:

- Revenue and EBITDA growth of 27% and 30% respectively across the top 20 investments (78% of the portfolio) over the last twelve months.

- £271 million of cash returned to HGT through realisations at uplifts to book value and refinancings.

- Valuation multiple (EV/EBITDA) of 27.4x and net debt to EBITDA ratio of 7.1x for the top 20 investments (78% of the portfolio).

Continued investment and commitments to drive future value:

- Continued investment with £424 million invested on behalf of HGT into companies that Hg (the Manager) has known for many years and have demonstrated a track record of strong performance across market cycles.

- New commitments were made to the Hg upper mid-market and HGT LP funds, totalling $975 million / £720 million, with total outstanding commitments at 31 December 2021 of £1.0 billion (December 2020: £647 million). These will be deployed over the next three to four years.

Credit facility and new equity issuance:

- In December, the Board of HGT agreed a further £50 million multi-currency revolving credit facility bringing the total facility to £250 million.

- £141 million of new equity raised over 2021 via tap issuance.

POST PERIOD EVENTS AS AT 28 FEBRUARY 2022

§ NAV of 436.7p, YTD performance of -0.9% reflecting FX movements.

§ Current net assets of £2.0 billion.

§ Share price of 417.0p, YTD performance of -0.8%.

§ Estimated £19.3 million from the partial sale of Lyniate.

§ Estimated £65 million invested by HGT, primarily into Waystone, Lyniate , Pirum and Fonds Finanz.

§ Available liquid resources (including the credit facility) post-completion of all announced transactions and the full year dividend payable in May 2022, are £432 million (22% of 28 February pro-forma NAV).

§ Outstanding commitments of £906 million (46% of 28 February pro-forma NAV). We expect these to be drawn down over the next three to four years.

Outlook

Commentary from Hg (the Manager):

The combination of the long-term nature of listed private equity investment with the types of business that Hg invests in, and robust double-digit growth in trading is expected to continue to drive long-term performance

§ Against the backdrop of COVID-19, Hg's portfolio has performed well.

§ The overall portfolio valuations were up over 52% for the year to 31 December 2021, returning over £4 billion of liquidity to Hg investors, including £271 million to HGT.

§ As highlighted previously, COVID-19 has had a limited direct impact on the portfolio, given its defensive growth characteristics and we believe our investments will continue to benefit from ongoing trends in the digitalisation of business processes, across sectors and geographies.

§ The portfolio companies remain focused on selling business-critical and non-discretionary software and services to their underlying business customers, delivering highly predictable levels of recurring revenue.

§ Across our funds, we expect further investment activity in the next 12 months to continue - cautiously and with discipline - into businesses that we have often tracked for several years.

§ Further liquidity events are expected over the next twelve months.

§ Bolt-ons and strategic M&A within the portfolio remain a key focus and across the current portfolio.

- Ends -

The Company's 2021 Annual Report and an animated presentation from Hg to accompany the results are available to view at: http://www.hgcapitaltrust.com/.

For further details:

	HgCapital Trust plc
	Laura Dixon (Senior Investor Relations Manager, Hg)		+44 (0) 78 2459 2894
Brunswick
Samantha Chiene		+44 (0)20 7404 5959

About HgCapital Trust plc

HgCapital Trust plc is an investment company whose shares are listed on the London Stock Exchange (HGT.L). HGT gives investors exposure, through a liquid vehicle, to a portfolio of high-growth unquoted companies, managed by Hg, an experienced and well-resourced private equity firm with a long-term track record of delivering superior risk-adjusted returns for its investors.

For further details, see www.hgcapitaltrust.com and www.hgcapital.com

HgCapital Trust plc

Annual report and accounts

31 December 2021

The objective of HgCapital Trust ('HGT') is to provide shareholders with consistent long-term returns in excess of the FTSE All-Share Index by investing predominantly in unquoted companies where value can be created through strategic and operational change.

HGT provides investors with unique exposure to a fast-growing portfolio of unquoted investments, primarily in the software and business services sectors, located throughout Europe and North America.

References in this annual report and accounts to HgCapital Trust plc have been abbreviated to 'HgCapital Trust' or 'HGT'. Hg refers to the trading name of Hg Pooled Management Limited and HgCapital LLP. Hg Pooled Management

Limited is the 'Manager'.

References in this annual report and accounts to 'total return' refer to a return where it is assumed that an investor has reinvested all historic dividends at the time when they were paid.

References in this annual report and accounts to pounds sterling have been abbreviated to 'sterling'.

Past performance is not a reliable indicator of future results. The value of shares and the income from them can go

down as well as up as a result of market and currency fluctuations and investors may not get back the amount they

originally invested.

Extracts from the Strategic Report

Financial and performance highlights

+43.9%¹

NAV per share (440.5p)²

31 December 2020: +24.0%

£2.0bn

Net assets

31 December 2020: £1.29bn

+39.8%¹

Share price (420.5p)

31 December 2020: +20.9%

£1.9bn

Market capitalisation

31 December 2020: £1.27bn

7.0p

Full-year dividend

31 December 2020: 5.0p

1.4%

Total ongoing charges

31 December 2020: 1.8%³

£424m

Cash invested on behalf of HGT

£271m

Cash returned to HGT

£470m

Available liquid resources
(23% of NAV)

31 December 2020: £388m

This includes a bank facility of £250m of which £99m was undrawn at 31 December.

£992m

Outstanding commitments
(49% of NAV)

31 December 2020: £647m

Commitments will be drawn down over the next three to four years (2022-26) and are likely to be financed partly by cash from future realisations.

HGT can opt out of a new investment without penalty, should it not have the cash available to invest.

Top 20 investments (78% of portfolio value)

+27%

Top 20 LTM sales growth

31 December 2020: +22%

+30%

Top 20 LTM EBITDA growth

31 December 2020: +31%

27.4x

Top 20 EV to EBITDA multiple

31 December 2020: 22.1x

7.1x

Top 20 net debt to EBITDA ratio

31 December 2020: 6.4x

¹ NAV per share and share price returns on a total return basis assuming all historical dividends have been re-invested, which is an Alternative Performance Measure ('APM').

² Please refer to note 10(b) on page 90 of the full Annual Report for further detail on the calculation of NAV per share.

³Please refer to page 114 of the full Annual Report for further detail on the calculation of ongoing charges.

Past performance is not a reliable indicator of future results. The value of shares and the income from them can go down as well as up as a result of market and currency fluctuations and investors may not get back the amount they originally invested.

The Board reviews six separate Key Performance Indicators (KPIs) to assess the success of HGT in meeting its stated objective.

The Board and Hg track progress against the identified KPIs in the manner noted below.

__________________________________________________________________________________________________________

Financial performance

NAV per Share

The value of the portfolio and liquid resources post costs and dividends paid:

5-year annualised return

+25%¹

5-year cumulative return

+200%¹

Objective

Maintaining historic levels of growth in HGT's NAV.

Activities undertaken

The Board holds regular discussions both formally and between Board and AVRC meetings in order to monitor the performance of the portfolio. These will include:

• A rigorous review of valuations

• FX and hedging

• Fees

• Cash, commitments and credit availability

Total Shareholder Return

Share price total return assuming all historical dividends have been re-invested:

5-year annualised return

+25%¹

5-year cumulative return

+208%¹

Objective

Continuing to deliver consistently strong returns to shareholders.

Activities undertaken

The Board regularly reviews the marketing and IR functions of HGT with the Manager to continue to provide transparent and clear reporting. These include:

• Shareholder views

• Market performance

• Volumes and liquidity

• Share price discount to NAV

Portfolio Performance

Trading performance of the top 20 portfolio companies (78% of total portfolio):

5-year average sales growth

+22%¹

5-year average EBITDA growth

+28%¹

Objective

Ensuring underlying portfolio companies continue to grow at attractive rates.

Activities undertaken

The Board regularly reviews the performance of the underlying portfolio companies and meets with the deal executives to focus in detail on particular businesses and 'clusters'. For further information please refer to pages 16 to 17 of the full Annual Report.

Balance sheet

Commitment Coverage Ratio:

Sum of available liquid resources (including credit facility) divided by total commitments²

5-year average

0.58x¹

Objective

Ensuring HGT's balance sheet is optimally structured to support investment activity and future growth in NAV.

Activities undertaken

The Board holds regular meetings with Hg to review the cash, commitments and availability of credit in order to optimise the balance sheet and ensure sufficient capacity to underwrite future commitments. For further information please refer to pages 16 to 17 of the full Annual Report.

Risk management and governance:

Key risks

Key risks are identified via the comprehensive risk management framework and process adopted by HGT. Overall risk management is a continuous process where principal and emerging risks are identified and suitable mitigating actions agreed and tracked by the Board.

Current key risks identified by the process are 1) Impact of inflationary pressure on cost and price levels across the portfolio, 2) Increasing threat to portfolio companies and Hg from cyber attack and 3) Elevated geopolitical risk and uncertainty. For more details see pages 16 and 17 of the full Annual Report.

Objective

Ensuring a rigorous risk management process is in place and that key risks are identified, monitored and suitable

mitigating actions are undertaken.

Activities undertaken

The HGT AVRC support the Board in the creation of a strong risk management framework to provide a robust assessment of principal and emerging risks facing HGT. For further information please refer to pages 16 to 17 of the full Annual Report.

Governance

Ensuring strong governance and operating in a socially and environmentally responsible manner

By implementing strong and transparent governance practices, the Board ensures, not only the effective and proper administration of HGT, but also that Hg, as manager, acts and behaves in a socially and environmentally responsible manner across all its operations.

Objective

Ensuring HGT is managed to the highest standards of governance and that HGTs affairs are conducted in a socially and environmentally responsible manner.

Activities undertaken

The Board recognises HGT's responsibility to its shareholders and the wider society and endorses Hg's policy to invest in a socially responsible manner. The Board meets regularly with the Head of ESG at Hg to monitor this. For further information please refer to pages 17 to 18 of the full Annual Report.

¹Alternative Performance Measure ('APM')

²HGT can opt out of a new investment without penalty, should it not have the cash available to invest.

Past performance is not a reliable indicator of future results. The value of shares and the income from them can go down as well as up as a result of

market and currency fluctuations and investors may not get back the amount they originally invested.

Historical total return performance

Both HGT's share price and net asset value per share have continued to outperform the FTSE All-Share Index.

	1 year %	3 years % p.a.	5 years % p.a.	10 years % p.a.	20 years % p.a.
NAV per share*	43.9	29.2	24.5	17.8	15.6
Share price	39.8	35.6	25.3	18.9	17.3
FTSE All-Share Index	18.3	8.3	5.4	7.7	6.2
NAV per share performance relative to the FTSE All-Share Index	25.6	20.9	19.1	10.1	9.4
Share price performance relative to the FTSE All-Share Index	21.5	27.3	19.9	11.2	11.1

*Please refer to note 10(b) on page 90 of the full Annual Report for further detail on the calculation of NAV per share.

Based on HGT's share price at 31 December 2021 and allowing for all historic dividends being reinvested, an investment of £1,000 made 20 years ago would now be worth £24,134, a total return of 2,313%. An equivalent investment in the FTSE All-Share Index would be worth £3,360.

Long-term net asset growth

2011 £7m £7m raised from subscription shares

2012 £36m £36m raised from subscription shares

2013 £18m £18m raised from subscription shares

2018 FTSE 250 Promotion to the FTSE 250

2019 10:1 10:1 share-split

2019 £75m £75m equity raised

2020 £25m £25m equity raised

2021 £141m £141m equity raised

Chairman's statement

Jim Strang, Chairman, HgCapital Trust plc

Dear Shareholder,

As I noted in my last review, HGT and its portfolio have coped well with the challenges presented by the COVID-19 pandemic. The defensive nature of the businesses within the portfolio and the operational skill of Hg have both contributed to the success of HGT in weathering this challenging period. I am happy to report that our full-year results continue to see the portfolio delivering strong growth and excellent returns.

The investment strategy that HGT follows is one of clear focus and discipline. The clarity of this strategy and the effectiveness Hg demonstrates in its execution has allowed the investment machinery of HGT to continue to function very effectively over the course of the last year. Several new companies were added to the portfolio, either as primary platform investments or as value accreting acquisitions for existing investments. As regards exit and realisation activity, again the year has been a productive one with numerous exits not only delivering material gains to HGT, but also validating the valuations placed on these assets. Exits over the last 12 months have been at an average of 34% over carrying NAV.

The strong results produced this year support HGT engaging in a new cycle of investment with Hg, which is now one of the largest European private equity managers. The Board believe that Hg continues to innovate and improve its own processes and investment strategy, ensuring its operations are at the forefront of best practice in the private equity industry, including areas such as ESG, Diversity and Inclusion.

Consequently, the Board has articulated its desires to make a series of further commitments to new Hg funds as they are raised. The first such commitment of $850 million (£628 million) was recently made to Hg's latest upper mid-market fund. A number of further commitments are anticipated to follow in the coming year as your Board looks to invest across the Hg fund family in order to continue the successful development of HGT and to support future growth. Through this programme, HGT will continue to be Hg's largest client and the most substantial investor in its funds.

Highlights in 2021 included:

• 44% NAV per share growth on a total return basis, with net assets attaining a record level of £2.0 billion;

• 40% share price growth on a total return basis, resulting in a market capitalisation of £1.9 billion;

• £424 million of new and further investments by HGT, primarily into 16 new businesses across the core investment clusters targeted by Hg;

• £271 million of proceeds returned to HGT, primarily from seven full realisations;

• More than £141 million of new equity issued.

• $975 million committed to invest alongside Hg funds over the next 3-4 years

Performance

HGT performed extremely well during 2021. The NAV per share has increased from £3.10 to £4.40, an increase of 44% on a total return basis. Strong earnings growth from the underlying portfolio companies drove this performance, as well as market support and valuation multiple increases for software investments, notably the kind of profitable, cash-flow generative businesses in which HGT is invested. Portfolio performance over the year was impressive, with the top 20 underlying companies (78% of the portfolio) generating year-on-year growth of 27% (2020: 22%) in revenue terms and 30% (2020: 31%) in EBITDA. These businesses have continued to trade successfully, despite the ongoing disruptions affecting major economies and, with their significant and predictable forward cash flows, are appropriately financed with an average net debt-to-EBITDA ratio of 7.1x. Currently, 100% of the portfolio by value is held above its original cost of acquisition. The total net assets of HGT at 31 December reached £2.0 billion, an increase of £714 million over the reported figures at 31 December 2020. These figures also reflect the dividend payments of £21.7 million in May and October 2021, as well as the proceeds from the tap issuance of shares over the year of more than £140 million.

Over 2021, HGT has seen share price performance (on a total return basis) of 39.8%, outperforming the FTSE All‑Share Index by more than 21 percentage points. The analysis of NAV movements and attribution analysis (on pages 38-39 of the full Annual Report) set out a breakdown of movements in the NAV and the underlying investment portfolio.

"While 2021 has been very encouraging for HGT, we have all witnessed the recent events unfolding in Eastern Europe. Your Board remains extremely focused on ensuring that the risks inherent in managing a successful and fast-growing investment company, during such uncertain times, are fully addressed. The Board and its sub-committees, notably the Audit, Valuations and Risk Committee, continues to develop the process and approaches used across HGT to mitigate risk and strives to ensure that governance remains at the highest possible level. Despite the challenges in the external environment and the volatility they may induce, the Board is confident about the future prospects for HGT"

Investments and realisations

Over 2021, HGT invested £424 million, primarily in 16 new investments, including insightsoftware, Howden, Benevity, Litera, Trackunit, HHAeXchange, Serrala and MMIT Evaluate. Since the year-end, a further £49 million has been invested primarily into 3 new investments, including Fonds Finanz, Pirum and Waystone. These investments all fall within Hg's eight focus 'clusters', solving workflow problems and serving the needs of similar business customer sets in comparable end markets. Hg targets businesses with compelling market positions within these clusters, and while such assets often command a full price on acquisition, the experience and capability which Hg brings help to drive these companies to realise their full potential.

It is also worth noting that HGT currently holds around 6% of NAV in co-investments; these are investments made alongside Hg funds which are free from any fees or carried interest payable to the Manager. HGT will continue to take up co-investment opportunities as they arise and will seek to maintain 10 to 15% of NAV in this strategy across different fund deployment cycles. Co-investments provide a useful mechanism to optimise the use of HGT's balance sheet capital and help reduce overall costs.

In 2021, Hg returned £271 million to HGT, primarily through the exits of Allocate, Mitratech, BrightPay, Achilles and APG. In aggregate, these realisations were at an average uplift to their December valuations of 34%, with an average multiple of cost achieved of 2.4x, reinforcing the value that buyers place on the quality of the assets within the portfolio. For further information about investments and realisations, please refer to pages 44-51 of the full Annual Report.

New commitments

Long-term shareholders will be familiar with the commitment-investment-realisation cycle which underpins the HGT investment model. Every two to four years, HGT and Hg's other institutional investors make commitments to invest in funds which seek to make investments over the following three to four years. HGT thereby enables shareholders to invest alongside the world's largest institutional investors in businesses which would otherwise be potentially inaccessible to public market investors.

In 2021, HGT committed $850 million (£628 million) to the Hg's latest upper mid-market fund, and expects to make further commitments across Hg's fund family, ensuring that HGT can continue to participate in the investments made by Hg. Further detail on all commitments to Hg funds can be found on page 42 of the Manager's Review in the full Annual Report.

The Board has additionally chosen to commit $125 million (£92.3 million) to a programme of junior debt investments organised by Hg, via HGT LP. This capital will be used to invest into the junior debt financings across the Hg portfolio over the next two to three years, alongside a group of Hg's institutional investors. These investments have an attractive risk and return profile and are a further effective means to manage liquidity on HGT's balance sheet.

Across all funds, HGT will continue to have the benefit of an 'opt‑out' from the commitment to invest in any individual new transaction, if HGT does not have sufficient funds available; this feature, which we understand is unique to HGT, is of considerable benefit to managing HGT's balance sheet efficiently.

Balance sheet

Following the new commitment programme established in 2020, the Board agreed on a revised multi-currency revolving credit facility of £200 million. In 2021 this facility was increased to £250 million in order to optimise balance sheet management and to help manage foreign exchange risk. A total of £99 million remained undrawn from this facility at 31 December 2021.

Including cash on the balance sheet, and the undrawn facility above, HGT had available liquid resources of £470 million at the end of the year.

As shares in HGT have traded at a premium to NAV over much of the year, HGT has taken the opportunity to increase balance sheet liquidity through a series of equity tap issuances, raising more than £140 million. When possible, the Board will continue to consider new equity issuance, providing that market conditions permit, offering existing and new investors the opportunity to subscribe to and increase HGT's equity base, while always bearing in mind our current shareholders' interests. The Board regularly reviews the balance sheet, commitment profile and available liquid resources at hand to optimise this mix for the benefit of HGT.

Impact and responsible investment

Your Board and the Manager continue to increase their focus on the topics of ESG and sustainability. We share a firmly held view that not only should the financial returns to you, the shareholders, be attractive, but these must be delivered in a manner which is consistent with our responsibility to society. As a technology investor, we understand the need to ensure that those businesses in which we invest reduce their carbon footprint and contribute to tackling climate change. Hg is, itself, independently certified as a carbon‑neutral company with a UNPRI assessment of Hg's approach to responsible investment of AA++ (the highest available rating). The Board of HGT meets regularly with the Hg Responsible Investment team to ensure that Hg's work is fully understood and endorsed by the Board.

As we reported in the 2020 full year accounts, Hg launched The Hg Foundation in 2020 - a charitable initiative to provide funding and operational support to schemes across Europe, the UK and the US. The Hg Foundation's goal is to have an impact on the development of those skills most required for employment within the technology industry, focusing on individuals who might otherwise experience barriers to access this education. This Foundation is funded by the Hg management company and its team members. For further information about this and the responsible investment focus at Hg, please see pages 34-37 of the Manager's Review in the full Annual Report.

Dividend

As noted previously, HGT aims to achieve growth in the net asset value per share and in the share price, rather than to achieve a specific level of dividend. Furthermore, the ability of HGT to pay dividends is very much influenced by the capital structures of the transactions entered into by Hg and by income received on any liquid resources held subject to investment. Nevertheless, HGT will continue to provide guidance as to the broad dividend objectives and, currently, the Board expects to be able to deliver modest dividend progression.

As regards the current financial year, and subject to shareholder approval, HGT will deliver a final dividend of 5.0p per share, payable in May, following the interim dividend of 2.0 pence in October, bringing the full year dividend to 7.0p per share (2020: 5.0 pence per share). The Board keeps the dividend objective of HGT under frequent review and will communicate, to shareholders, further guidance on the dividend when it is practicable to do so.

Board and corporate governance

As previously communicated, and in line with the Board's succession plan, Peter Dunscombe will be retiring from the Board at the AGM in 2022. Consequently, the Board has undertaken an externally supported search process over the last six months to find a new Non-Executive Director. This process, which is now at an advanced stage, has been informed by the results of the regular Board effectiveness review, ensuring that new joiners to the Board bring with them the most relevant skills and experience for, not only today, but for the future development of HGT. In closing, I would like to extend my sincere thanks on behalf of all my Board colleagues to Peter for his many years of service and for his significant contribution to the success of HGT.

Prospects

The last year proved to be a highly successful one for HGT, with strong growth both in assets and in share value, as HGT successfully navigated the risks and opportunities that prevailed. Turning to the future, it is clear that the risk environment will present new challenges. Not only will HGT have to deal with the impact of a rising interest rate environment for the first time in several years but also with the sharp increase in inflation witnessed around the world. Significantly, the increase in geo-political risk seems set to persist for some time and while the direct impact on HGT and its underlying investments are not currently anticipated to be material, the collateral risks and in particular the threat posed by cyber-attacks are of very real relevance for the HGT portfolio and the many cloud software businesses within it.

Despite these obvious challenges and the volatility they may induce, the Board remains optimistic about the future prospects for HGT. The assets within the portfolio provide critical solutions to their clients and reduce the costs and complexity of doing business. Notwithstanding the high multiples that these assets currently attract, the long-term value creation prospects from owning such a portfolio remains very attractive and the machinery Hg operates to continue to refresh this portfolio while optimising returns, continues to improve. The Board continues to work collaboratively with Hg to optimise the investment opportunity for HGT and shareholders, while at all times ensuring the many risks that prevail are as comprehensively and effectively managed as is

possible.

Jim Strang
Chairman
4 March 2022

"In partnership with our Hg colleagues, whose guidance and expertise has been invaluable, we have driven successful transformation at IRIS in the past two years. The Hg portfolio team helped us roll out our Quantum Programme, which has brought disparate divisions onto a single best practice set of processes and systems, enabling us to vastly improve general efficiency and effectiveness - with the benefit of also materially improving our commercial ability to cross-sell and up-sell. Thank you for helping us maximise the potential of our IRIS success."

Elona Mortimer-Zhika, CEO, IRIS

Investment objective and investment policy

The objective of HGT is to provide shareholders with consistent long-term returns in excess of the FTSE All-Share Index by investing predominantly in unquoted companies where value can be created through strategic and operational change.

During the year, the Board reviewed the Investment Policy and is submitting an amended Investment Policy for approval by shareholders at the 2022 AGM. The Board would like to recommend that:

a. on investment, no initial (rather than total) investment in a single business will exceed a maximum of 20% of gross assets. This change is proposed to allow additional flexibility in the size of investments that can be made;

b. the policy of HGT is to invest predominantly, directly or indirectly, in a portfolio of unlisted software and tech-enabled services companies and HGT holds a spread of businesses diversified by the end-markets the investee companies serve and by geographies in which they operate;

c. the Manager invests mainly in companies that have substantial business operations and opportunities in Europe, though the investee companies themselves may serve, or be present in, a variety of sectors;

d. part of HGT's portfolio is located outside of the UK, predominantly in northern Europe, and now, increasingly, in North America.

A blackline version of the investment policy, showing the proposed changes is set out at the end of the Notice of AGM on page 149 of the full Annual Report.

Investment policy

The policy of HGT is to invest, directly or indirectly, in a portfolio of unlisted companies where Hg believes that it can add value through increasing organic growth, generating operational improvements, driving margin expansion, reorganisation or acquisition - to achieve scale. HGT seeks to maximise its opportunities and reduce investment risk by holding a spread of businesses diversified by end-market and geography.

Risk management

HGT has adopted formal policies to control risk arising through excessive leverage or concentration. On investment, no investment in a single business will exceed a maximum of 20% of gross assets. HGT may invest in other listed closed-ended investment funds, up to a maximum at the time of investment of 15% of gross assets. HGT's maximum exposure to unlisted investments is 100% of the gross assets of HGT from time to time.

Sectors and markets

As HGT's policy is to invest in businesses in which Hg can play an active role in supporting management, Hg invests primarily in companies whose operations are headquartered or substantially based in Europe. These companies operate in a range of countries, but there is no policy of making allocations to specific countries or markets. Investments are made across a range of sectors where Hg believes that its skills can add value, but there is no policy of making allocations to sectors.

HGT may, from time to time, invest directly in private equity funds managed by Hg where it is more economical and practical to do so.

Leverage

Each underlying investment is usually leveraged, but no more than its own cash flow can support, in order to enhance value creation; it is impractical to set a maximum for such gearing across the portfolio as a whole. HGT commits to invest in new opportunities in order to maintain the proportion of gross assets which are invested at any time, but monitors such commitments carefully against projected cash flows.

HGT has the power to borrow and to charge its assets as security. The articles restrict HGT's ability (without shareholders' approval) to borrow to no more than twice HGT's share capital and reserves, allowing for the deduction of debit balances on any reserves.

Hedging

Part of HGT's portfolio is located outside of the UK, predominantly in northern Europe, with a further part in businesses which operate in US dollars. HGT may therefore hold investments valued in currencies other than sterling. From time to time, HGT may put in place hedging arrangements with the objective of protecting the sterling translation of a valuation in another currency. Derivatives are also used to protect the sterling value of the cost of investment made or proceeds from realising investments in other currencies, between the exchange of contracts and the completion of a transaction.

Commitment strategy

HGT employs a commitment strategy to ensure that its balance sheet is managed efficiently. The level of commitment is regularly reviewed by the Board and Hg.

Liquid funds

HGT maintains a level of liquidity to ensure, as far as can be forecast, that it can participate in all investments made by Hg throughout the investment-realisation cycle. At certain points in that cycle, HGT may hold substantial amounts of cash awaiting investment. HGT may invest its liquid funds in government or corporate debt securities, or in bank deposits, in each case with an investment grade rating, or in managed liquidity funds which hold investments of a similar quality.

If there is surplus capital and conditions for new investment appear to be unfavourable, the Board will consider returning capital to shareholders, probably through the market purchase of shares.

Any material change to HGT's investment objective and policy will be made only with the approval of shareholders in a general meeting.

Business model and risk framework

The Board has a clear view of the rationale for investing in unquoted businesses where the private equity ownership model has the potential to accelerate the growth in value creation. HGT seeks to capture this upside, whilst operating within a rigorous risk-management framework.

The Board believes that there is a convincing rationale for directly investing in well-researched private businesses where there is potential for substantial growth in value, notably where there is the ability to work with management to implement strategic or operational improvements.

HGT offers a simple and liquid means by which shareholders can invest in unquoted growth companies, while benefiting from an investment company's governance model.

Business model

To achieve HGT's investment objective and within the limits set by the investment policy, HGT is an investor in unquoted businesses managed, and in most cases controlled, by the Manager. From time to time, HGT may hold listed securities in pursuit of its investment policy.

HGT is currently invested in more than 40 companies (as set out on page 27 of the full Annual Report), ranging in size, sector and geography, providing diversification.

The Board has delegated the management of HGT's investments to Hg Pooled Management Limited (the 'Manager' or 'Hg'). Further details of the terms of the management agreement are set out on page 114 of the full Annual Report. The Manager invests predominantly in unquoted software and business service companies in expanding sectors and provides portfolio management support. Hg's review on pages 23-54 of the full Annual Report outlines how HGT's investments are managed on behalf of HGT.

Most of HGT's investments are held through special-purpose partnerships, of which it is the sole limited partner.

Periodically, HGT enters into a formal commitment to invest in businesses identified by the Manager, alongside institutional investors which invest in an Hg Limited Partnership Fund. Such commitments are normally drawn down over three to four years. The institutional investors and HGT invest on similar terms.

HGT is usually the largest investor in each business. The Board has a further objective of keeping HGT as fully invested as is practicable, while ensuring that it will have the necessary cash available when a new investment arises.

The Board, on the advice of the Manager, makes assumptions about the rate of deployment of funds into new investments and the timing and value of realisations. However, to mitigate the risk of being unable to fund any draw-down under its commitments to invest, the Board has negotiated a right to opt out, without penalty, of its obligation to fund such draw-downs, should the need arise.

HGT may also take up a co-investment in some businesses (in addition to the investment which it has committed to make).

Typically, HGT has no liability to pay fees on such co-investment and no carried interest incentive is payable to the Manager on realisation (currently 6% of HGT's NAV is in co-investments). HGT may also offer to acquire a limited partnership interest in any of Hg's funds, in the event that an institutional investor wishes to realise its partnership interest.

The Board regularly monitors progress across all of the businesses in which it is invested as well as their valuation, the development of the Manager's investment strategy and the resources and sustainability of the business model.

Investment trust status

As HGT is constituted as an investment trust and its shares are listed on the London Stock Exchange, it can take advantage of tax benefits available to investment trusts. This allows HGT to realise investments from its portfolio without liability to corporation tax. The Board intends to retain this status provided that it is in shareholders' interest to do so. This will require the Board to declare dividends so that not more than 15% of taxable income is retained each year.

Performance targets

HGT's aim is to achieve returns in excess of the FTSE All-Share Index over the long term. To this end, the Board monitors the performance indicators, as set out on pages 6 and 7 of the full Annual Report. In the year to 31 December 2021, HGT's NAV per share increased by 43.9% on a total return basis. The FTSE All-Share Index increased by 18.3% on a total return basis over the year. The year to date total return of HGT's share price was 39.8%. NAV per share has grown by 17.8% p.a. compound over the last 10 years and 15.6% p.a. compound over the last 20 years. The share price has seen broadly similar performance growing by 18.9% p.a. compound over the last 10 years and 17.3% p.a. compound over the last 20 years.

All of the above returns assume the reinvestment of all historical dividends. The Board and the Manager aim to continue to achieve consistent, long-term returns in this range.

HGT is not managed so as to achieve any short-term performance relative to any index. The Board also compares HGT's NAV and share price performance versus other comparable indices with similar characteristics.

Dividend

The Board reviews HGT's approach to dividends on a regular basis, taking into consideration feedback from shareholders and the evolving nature of HGT's income streams, which are driven by the investment structures Hg utilises in its various transactions. The Board regards the full year dividend declared in respect of 2020 (5.0 pence) as a sustainable level, absent some material shift in underlying deal structures. From time to time, the pattern of deployment and the income which may arise may allow for a higher level of dividend to be supported. The current year is an example of such a year allowing a further distribution of residual income and a higher full year dividend of 7.0 pence.

It is important to note that HGT, in order to qualify for investment trust tax status, can only retain a maximum of 15% of the income.

Going concern

HGT's business activities, together with those factors likely to affect its future development, performance and financial position are described in the Board's Strategic Report and Hg's Review. The financial position of HGT, its cash flows, liquidity and borrowing facilities are described in the Strategic Report. The Directors have considered the FRC Guidance on Risk Management, Internal Control and Related Financial and Business Reporting and believe that HGT is well placed to manage its business risks successfully. The Directors review cash flow projections regularly, including important assumptions about future realisations and the rate at which funds will be deployed into new investments. The Directors have a reasonable expectation that HGT will have adequate resources to continue in operational existence for at least the next 12‑month period from the date of approval of this Report and to be able to meet its outstanding commitments. Accordingly, they continue to adopt the going concern basis in preparing these results.

Past performance is not a reliable indicator of future results. The value of shares and the income from them can go down as well as up as a result of

market and currency fluctuations and investors may not get back the amount they originally invested.

Longer-term viability statement

In accordance with provision 36 of the AIC Code of Corporate Governance, the Directors have also assessed the prospects of HGT over a period longer than the 12 months required by the 'Going Concern' provision. The Board believes that the appropriate period over which to assess HGT's viability may vary from year to year depending on several factors: the outstanding investment commitments in particular. Therefore, the Directors evaluate and decide it on an annual basis.

The objective of HGT is to provide shareholders with consistent, long‑term and sustainable returns, and the Board believes that it should assess the viability of HGT over a minimum of five years. This year, the Directors have elected to assess HGT's viability over the five‑year period ending December 2026, because the current commitments, at year end, run until 2026.

The key assumption underpinning the strategic planning is that HGT's business model remains broadly unchanged and HGT continues to invest in unquoted businesses acquired by Hg.

Assessment of prospects

The Board has assessed HGT's prospects and longer‑term viability, taking into account:

• HGT's position with reference to the business model (a description of which can be found on pages 14 and 15 of the full Annual Report);

• the balance sheet, cash flow projections (including the key assumptions on which these are modelled), and availability of funding. During the year, the bank facility was increased from £200 million to £250 million and as at year end, including cash on the balance sheet and the undrawn facility, HGT had available liquid resources of £470 million, 23% of the NAV. More details are on page 80 of the full Annual Report.

• HGT's contractual commitments (detailed on page 101 of the full Annual Report).

• the principal risks and uncertainties, including: performance; regulatory; operational; financial; liquidity; and borrowing, detailed on pages 16 of the Strategic Report in the full Annual Report. Assessment of risks is described below.

Assessment of risks

As part of the Risk Management Framework (described on pages 14 and 15 in the full Annual Report), Principal and emerging risks and uncertainties are routinely subject to a comprehensive review by the Audit, Risk and Valuations Committee and the Board. Managing risk is fundamental to the delivery of HGT's strategy, and this is achieved by defining HGT's risk appetite and managing risks within that appetite, particularly those which would threaten its business model, future performance, solvency, valuation, liquidity or reputation. Of the identified risks, the following are the most important to the assessment of the viability: availability of capital; under-performance of underlying portfolio companies; political and macro-economic uncertainty and its impact on the markets; and associated risks to the valuations.

More details on financial risk are included on pages 95 to 99 in Note 19 to the financial statements in the full Annual Report. Principal and emerging risks and uncertainties, their potential impact on HGT, and the mitigating actions are set out in full on pages 16 and 17 of the Strategic Report in the full Annual Report.

Sensitivity analysis

The Directors of HGT regularly stress test the portfolio and its cash flows and review and challenge the sensitivity of the business model against the principal risks which are that are likely to have an adverse impact, including:

• Insufficient funds to meet commitments. A base case and downside scenarios for cash flow projections, which take into account pipeline activity, commitments, and the potential timings of new acquisitions and exits, and which model HGT's liquid resources and available borrowing are reviewed regularly. Details of HGT's financial position, including the amount of available borrowing, are on page 5 of the full Annual Report; and

• A significant economic downturn, including sensitivity to equity price risk. The impact of 1x reduction in EV to EBITDA multiple applied to unquoted investments, as well as mitigating actions, are set out on page 97 in Note 19 to the financial statements in the full Annual Report.

Assessment of viability

Based on the Board's assessment, the Directors have a reasonable expectation that HGT will be able to continue to operate and meet its liabilities, as they fall due, over a five-year period ending December 2026.

Principal and emerging risks and uncertainties

The Board uses a comprehensive Risk Management Framework as a means to assess the principal and emerging risks facing HGT. Managing risk is fundamental to the sustainable long term delivery of HGT's strategy and this Risk Management Framework provides the objective context for the decisions taken by the Board, particularly as they relate to performance, liquidity, valuation and business model.

The Risk Management Framework is dynamic and is used by the Audit, Valuations and Risk Committee to assess the probability and likely impact of principal risks, to ensure that HGT is operating within a defined risk appetite for each category of risk, and that focus is maintained upon those risks which require attention, prioritising mitigating action from both HGT and the Manager. This risk register is regularly stress tested, to provide assurance that the performance of HGT is insulated, as far as practical, from exogenous factors in the operating environment.

During 2021, the relevance and efficacy of the Risk Management Framework was thoroughly tested by the conditions of the global pandemic, where changes in the operating environment were more rapid and more pronounced than had been experienced previously. During the year, the mitigations in place ensured that principal risks remained substantially within appetite, and the resilience both of the portfolio investments and their valuations was demonstrated. Looking forward, the Board and AVRC recognise the probability of increasing interest rates, cost inflation and a tightening fiscal environment. Similarly, there is the prospect of increased operating risk from cyber-crime, wage pressure and a reducing supply of talent. Whilst the revenues and operations of Hg's portfolio companies are not reliant on the economies of Russia or Ukraine, the heightened geopolitical uncertainty in the countries of Eastern Europe is an emerging risk that could lead to broader economic impacts. The Board and AVRC ensure that the Risk Management Framework is reviewed regularly and the mitigating actions in place are appropriate to ensure keep principal risks within appetite.

HGT considers the principal risks to be in four main categories:

Investment Risk: the risk to HGT that inappropriate investment or realisation decisions reduce the returns made.

Financial Risk: the risk that HGT's valuation, liquidity or resources are insufficient to allow HGT to invest sufficiently.

Operational Risk: the risk of changing regulation, the risk of failure of Hg's processes and systems of internal control, and the underlying performance of the portfolio.

External Risk: the risk of adverse macro-economic, regulatory or geo-political change.

Potential risk	Potential impact	Mitigation Trend/Appetite

Investment
Performance Risk that underlying portfolio companies underperform.	• Reduction in NAV • Reduction in share price • Reputational damage	• Deployment of capital is a rigorous process determined by the Hg Investment Committee, operated by experienced investment professionals. • Portfolio performance is reviewed regularly by Hg's Realisation Committee comprising experienced investment professionals and the HGT AVRC. • An operational performance group interacts across the portfolio to drive performance.
Financial
Valuations Risk that inaccurate valuations would lead to a misleading NAV.	• False market in HGT shares • Reputational damage • Reduction in share price • Constrained access to capital	• Valuations are prepared in accordance with IPEV guidelines and tested against HGT's Valuation Policy. • The Manager's Valuation Committee, independently chaired, reviews and approves valuations quarterly. • The auditors of both Hg funds and HGT review the valuation and methodology as part of their audit procedures. • The AVRC reviews and cross-checks valuations against a broad range of objective valuation methodologies.
Liquidity Risk that insufficient liquid resources are available to make investments.	• Reputational damage • Reduced NAV growth • Reduced shareholder return	• Borrowing structures and cash flow forecasts are considered at each HGT Board meeting. • An additional £250 million of liquidity is available through a bank facility, which was 60% drawn at the year end. • An opt-out facility is available across all investing funds.
Commitment Risk that capacity is insufficient to underwrite future commitments to Hg funds.	• Reduced shareholder return • Reduction in share-price	• A bank facility is in place to facilitate orderly management of the balance sheet. • There is an opt-out facility across all investing funds. • A five year cash and commitment forecast is independently reviewed by the AVRC.
Operational
Regulation Risk that regulation changes affect investment trust status.	• Increased corporation tax, leading to higher fees and potential impact on valuation • Reduction in share price	• The Manager monitors investment movements, forecast income and expenditure and retained income (if any) to ensure compliance with sections 1158 and 1159 of the CTA. • Continuing investment trust status is certified by the Manager at each meeting of the Board.
Regulation Risk that other changes in legislation, regulation or government policy could influence the decisions of investors.	• Misunderstood or misreported regulation leading to reduced demand for shares • Lack of adherence to regulation leading to reputational risk	• Regular compliance and risk reviews are reported to the Board by the Manager's compliance team. • Strong shareholder engagement through: - dedicated investor relations team - corporate broker. - company secretary.
Manager internal controls and processes Risk that control weaknesses of the Manager lead to poor performance or non-compliance with regulations.	• Reputational damage • Reduced shareholder returns	• The Manager is regulated and supervised by the FCA. • The Manager has controls in place, including those related to investment decisions; portfolio reviews; recruitment, training and promotions; financial performance and payments; protection of client assets; compliance; regulation. • The Board of HGT and its auditors regularly review these processes and controls.
Cyber security Risk of cyber attack and data loss at Hg and portfolio companies.	• Loss of or lack of control over data due to cyber attacks • Reputational damage • Regulatory sanction	• A portfolio cyber security team monitors cyber security across Hg and the portfolio companies and drives improvements. • The GDPR Committee has successfully implemented mandatory training for all staff.
External
Political and macro-economic uncertainty Risk arising from geopolitical instability and conflict.	• reduction in valuation of portfolio investments • disruption to capital markets	• Hg's portfolio is diversified with a high degree of recurring revenue. • The Manager remains focused on the various issues which may need to be addressed, including: - reduced availability of credit to fund future investments - regulation, marketing, trade and foreign exchange movements • These are regularly monitored by the Board of HGT, considering a range of downturn scenarios in our business planning.
Foreign exchange Risk of foreign exchange movements affecting investments made in currencies other than Sterling.	• Reduction in shareholder returns	• The Board of HGT regularly monitors currency fluctuations. • The Hg treasury functions hedge currency exposure and actively mitigate currency risk where appropriate.
Global pandemic Risk of performance and investment disruption from current and future pandemic events.	• Portfolio companies suffer revenue declines • Earnings multiples of listed companies applied to valuations might be adversely affected	• Portfolio resilience is stress-tested against pandemic impacts. • The majority of revenues are derived from subscription-based recurring revenues for non-discretionary technology-led services. • Operational performance, valuations and investment deal flow have shown resilience to pandemic disruptions.

Environmental, social and governance matters

Socially responsible investment

The Board has endorsed Hg's policy to invest in a socially responsible manner and Hg's approach to responsible investing, including Hg's sustainable business framework and how ESG is embedded in the deal process, is described in detail on pages 34-35 of the full Annual Report) and at www.hgcapital.com/responsibility. Hg's focus is on identifying high-quality and sustainable businesses and supporting their growth for the benefit of shareholders and the wider society. The Board monitors investment activity to ensure that it is compatible with these policies.

HGT has no employees and has limited direct impact on the environment. HGT aims to conduct itself responsibly, ethically and fairly and has sought to ensure that Hg's management of investments takes account of social, environmental and ethical factors where appropriate. The sectors in which the Manager invests do not generally raise material ethical issues.

Employees, human rights and community issues

The Board recognises the requirement under section 414C of the Companies Act 2006 to provide information about employees, human rights and community issues, including information in respect of any of its policies in relation to these matters and their effectiveness. These requirements do not apply to HGT as it has no employees, all of the Directors are non-executive and it has outsourced all of its functions to third-party providers. HGT has not, therefore, reported further in respect of these provisions.

Modern slavery

HGT has no employees of its own. The Directors are satisfied that, to the best of their knowledge, Hg complies with the provisions of the UK Modern Slavery Act 2015. For further information: https://hgcapital.com/wp-content/uploads/2021/09/Hg-Modern-Slavery-Act-Statement-Sep-2021.pdf

Diversity

All financial decisions are made under conditions of uncertainty. The Board recognises the value of both identity and cognitive diversity in ensuring that varied perspectives are considered when making decisions.

The Board places value on attracting Directors with diverse outlooks and experience. The skills and experience which the current members of the Board bring to HGT's leadership are described on pages 112 and 113 of the full Annual Report and the details of the Board's Diversity and Inclusion policy are set out on page 33 of the full Annual Report. At the end of the year under review, the Board of Directors of HGT comprised four men and two women.

The Manager has an equal opportunities policy and currently employs 147 men and 135 women. Nic Humphries, Senior Partner, Hg, is a member of the Level 20 Advisory Council, a not-for-profit organisation which aims to inspire more women to join and succeed in the European private equity industry. Details of Hg's diversity and inclusion initiatives can be found on page 33 of the full Annual Report.

Climate change

Hg is a carbon neutral company and the details of Hg's efforts to offset carbon emissions, including Hg's carbon footprint for the financial year 2020/21 are described on pages 35 of the full Annual Report. Understanding and managing climate-related risks and opportunities based on the Taskforce on Climate-related Financial Disclosure´s ('TCFD') recommendations is a fundamental part of Hg's Sustainability Policy. TCFD provides a guiding framework for the Manager's investment and ownership strategy. Hg's inaugural TCFD report can be found on Hg's website https://hgcapital.com/wp-content/uploads/2021/11/Taskforce-on-Climate-related-Financial-Disclosures-Report-2021-Final.pdf

Directors' Duties

Section 172 of the Companies Act 2006

Fulfilling the duty under section 172 of the Companies Act 2006 ('the Act') naturally supports HGT in achieving its investment objective and helps to ensure that all decisions are made in a responsible and sustainable way.

To ensure that the Directors are aware of, and understand, their duties, they are provided (when they first join the Board) with a tailored induction, including details of all relevant regulatory and legal duties as a Director of a UK public limited company. They continue to receive regular and ongoing updates and training on relevant legislative and regulatory developments. They also have continued access to the advice and services of the Company Secretary and can seek independent professional advice, when required. The schedule of Matters Reserved for the Board, as well as the terms of reference of its committees is reviewed annually and further describe Directors' responsibilities and obligations, including any statutory and regulatory duties.

Purpose

The purpose of HGT is to deliver to shareholders consistent long-term returns in excess of the FTSE All-Share Index by investing predominantly in unquoted companies where value can be created through strategic and operational change. HGT provides shareholders with exposure to a fast-growing network of unquoted investments, primarily in European software and business service companies. In providing access to investments not otherwise usually available to its shareholders, HGT's values focus on transparency and clarity in its reporting, constructive challenge in maintaining a strong relationship with the Manager and mitigating avoidable risk. The Board's strategy is to work closely with its selected Manager in a long-term relationship designed to support and encourage the Manager to build and maintain the skills and resources to deliver long-term, consistent returns through a concentrated portfolio of carefully selected businesses.

Decision-making

The importance of stakeholder considerations, in particular in the context of decision-making, is regularly brought to the Board's attention by the Company Secretary and taken into account at every Board meeting, with a paper reminding Directors of the relevant matters at the start of every Board meeting. For example, the strategic planning discussions involve careful considerations of the longer-term consequences of any decisions and their implications on shareholders and other stakeholders and are supported by detailed cash flow projections based on various scenarios, including: assumptions around HGT's contractual commitments; availability of funding; borrowing; foreign currency management; wider economic conditions; market performance.

Culture

In 2020, the Directors considered and defined HGT's culture, purpose and values and, during 2021, through assessing the culture policy and reconfirming that this remained valid and discussing both the culture of the Company and its Manager at the Strategy Day. By formally identifying the important elements of HGT's culture, the Directors can assess and monitor the culture and ensure that it remains well aligned with HGT's purpose, values and strategy in the pursuance of the long-term sustainable success of HGT.

The culture of an externally managed investment trust is the product of the Board's diversity and behaviours, the values and behaviours of the Manager and the way in which the Board and the Manager interact with each other and with HGT's stakeholders.

The Directors have worked to incorporate these behaviours and processes into the annual review of the Manager, strategic planning, the annual evaluation of Board effectiveness and reporting to stakeholders - thus embedding consideration of stakeholders' interests, long-term perspective, maintaining reputation for fairness and high standards of governance, corporate reporting and business conduct more generally in HGT's culture and processes.

The Directors recognise the value in sustaining a culture which contributes to achieving the purpose of HGT in a way which is consistent with its values and strategy. Elements of culture include:

• Encouraging open and timely discussion within the Board and with the Manager, allowing time and space for original and innovative thinking.

• Ensuring that the interests of shareholders and the Manager (and its other clients) are well aligned, adopting a tone of constructive challenge, balanced when those interests are not fully congruent by robust negotiation of the Manager's terms of engagement.

• Drawing on Board Members' individual experience to support the Manager in its monitoring and change management of portfolio companies, for the benefit of all of the Manager's clients.

• Willingness to make the Board Members' experience available to support the Manager in the long-term development of its business and resources, recognising that the long-term health of the Manager is in the interests of shareholders in HGT.

• Appreciating that the asset class, as well as the individual businesses in which HGT invests, is not well understood by all shareholders, adopting a policy of maximum transparency, consistent with the commercial interests of the portfolio companies and clarity in reporting.

• Willingness to use all available means to communicate with shareholders and potential investors and to meet shareholders and consider their views.

• Acceptance that the prime purpose of HGT is to provide an efficient vehicle through which shareholders gain exposure to a well-managed, concentrated and leveraged portfolio and that the Board should not seek to add further investment risk.

A healthy corporate culture contributes to the long-term success of HGT. The following observable outcomes may be indicative of the Directors' success in embedding a healthy corporate culture in HGT's processes and policies and actively promoting it through their behaviours:

• Continued support for HGT's shares and good, consistent trading performance.

• The breadth and quality of the share register, including willingness of shareholders to maintain their holdings over the long term rather than trade them short term.

• The extent to which the partners and staff of the Manager are willing to be long-term shareholders in HGT.

• Recognition of the transparency and clarity of reporting in HGT's reports to shareholders and content disclosed on its website.

• Recognition of the quality of HGT's shares as an investment by the number of broker recommendations as a long-term hold.

Social responsibility

The Board recognises that HGT has a responsibility to its shareholders, stakeholders and the wider society. The Board endorses Hg's policy to invest HGT's funds in a socially responsible manner. This includes the desire that those businesses in which Hg invests are genuinely focused on making a positive contribution to all stakeholders including employees, customers, suppliers, shareholders and the wider society. Hg has been a signatory of the UN Principles for Responsible Investment (UNPRI) since 2012 and the Board has welcomed Hg's continuing commitment to set ambitious goals for various aspects of environmental, social and governance (ESG) matters. Further details on how Hg integrates responsible investing into the investment process can be found on page 35 of the full Annual Report.

Under listing rule 15.4.29(R), HGT, as a closed-ended investment fund, is exempt from complying with the Task Force on Climate-related Financial Disclosures; however, the Board fully recognises the impact climate change has on the environment and society and information on Hg's efforts on climate change can be found on page 35 of the full Annual Report. The Manager is committed to measuring and managing the carbon emissions associated with its business operations, as well as the portfolio companies. Therefore, Hg continues to work with the investee companies to raise awareness on climate change risks, carbon emission and energy efficiency. Hg is a certified Carbon Neutral company, committing to zero emissions by offsetting its entire carbon footprint.

The Board monitors investment activity to ensure that it is compatible with the policy and receives periodic updates from the Manager on its initiatives and performance against its ESG goals. The Hg Responsible Investment Report 2020, Hg Responsible Investment Policy 2021 and Hg 2020/21 Carbon Footprint Report can be found on Hg's website: www.hgcapital.com/responsibility.

Stakeholders

The Board seeks to understand the needs and priorities of HGT's stakeholders - and these are taken into account during its discussions and as part of its decision-making. As an externally managed investment firm, HGT does not have any employees or customers. How the Board engages with each of HGT's group of stakeholders is described in the following table:

Stakeholders	Why they are important	Board engagement
Shareholders	Continued shareholder support and engagement are critical to the continuing existence of the business and the delivery of its long-term strategy of its business. A resolution to continue the life of HGT is put to the shareholders every five years. Having last been approved by shareholders at its AGM in 2020, a similar resolution will be put to shareholders for approval at the AGM in 2025.	HGT has c. 1,000 shareholders, including institutional and retail investors. Over the years, HGT has developed various ways of engaging with its shareholders, in order to gain an understanding of their views. These include: • Annual General Meeting (AGM): Whenever possible, HGT welcomes attendance and participation from shareholders at the AGM. If attending, shareholders have the opportunity to meet the Directors and ask questions at the AGM and the Board really values the feedback and questions which it receives from shareholders. The Manager delivers a presentation and is available to answer any questions. For further information about the upcoming 2022 AGM, please see page 142 of the full Annual Report. • Publications: The annual and interim results presentations, as well as quarterly reports and factsheets, are available on HGT's website. Feedback and/or questions HGT receives from shareholders enable us to evolve our reporting which, in turn, helps to deliver transparent and understandable updates. • Shareholder communication: The Manager communicates with shareholders periodically. During the period, the Manager has held c. 90 meetings with current and potential investors including more than 400 people. All investors are offered the opportunity to meet the Chairman or other Board members. • Investor Relations updates: At every Board meeting, the Directors receive updates on the share trading activity, share price performance and any shareholders' feedback To gain a deeper understanding of the views of HGT's shareholders and potential investors, the Manager also undertakes regular Investor Roadshows . From time to time, the Board also commissions perception studies based on in-depth interviews of shareholders, analysts and other stakeholders. Their feedback is then taken into account when Directors discuss the share capital, any possible fundraisings or the dividend. The willingness of the shareholders, including the partners and staff of the Manager, to maintain their holdings over the long-term period is another way for the Board to gauge how HGT is meeting its objectives; • Working with external partners: the Board also engages some external providers, such as investor communications advisors to obtain a more detailed view on specific aspects of shareholder communications, such as developing more effective ways to communicate with investors.
The Manager	Holding HGT's shares offers investors a publicly traded investment vehicle through which they can obtain exposure to Hg's diversified portfolio of private equity investments. The Manager's performance is critical for HGT to deliver its investment strategy successfully and meet its objective to provide shareholders with consistent long-term returns in excess of the FTSE All-Share Index.	Maintaining a close and constructive working relationship with the Manager is crucial as the Board and the Manager both aim to continue to achieve consistent, long-term returns in line with HGT's investment objective. Important components in the collaboration with the Manager, consistent with the Board's culture, are: • Encouraging open discussion and adopting a tone of constructive challenge, • Drawing on Board Members' individual experience to support the Manager in its monitoring and change management of portfolio companies, for the benefit of all of the Managers' clients, • Willingness to make the Board Members' experience available to support the Manager in the sound, long-term development of its business and resources, recognising that the long-term health of the Manager is in the interests of shareholders in HGT.
The Company Secretary, the Registrar, the Depositary, the Broker, the AIFM	In order to function as an investment trust with a premium listing on the London Stock Exchange, HGT relies on a diverse range of advisers to support meeting all relevant obligations.	The Board maintains regular contact with its key external service providers, both through Board and Committee meetings, as well as outside of the regular meeting cycle. Their advice, needs and views are routinely taken into account. In addition, the Management Engagement Committee, tasked with periodic reviews of the external service providers, also holds relationship meetings and formally hears, and acts on, their feedback, as appropriate.
Lenders	Availability of funding and liquidity are crucial to HGT's ability to take advantage of investment opportunities as they arise.	Considering how important the availability of funding is, HGT aims to demonstrate to lenders that it is a well-managed business and, in particular, that the Board focuses regularly and carefully on the management of risk.
Institutional Investors and proxy advisers	The evolving practice and support of the major institutional investors and proxy adviser agencies are important to the Directors, as HGT aims to maintain its reputation for high standards of corporate governance, which contributes to the long-term sustainable success of HGT.	Recognising the principles of stewardship, as promoted by The UK Stewardship Code 2020, the Board welcomes engagement with all of its investors. The Board recognises that the views, questions from and recommendations of many institutional investors and proxy adviser agencies provide a valuable feedback mechanism and play a part in highlighting evolving shareholders' expectations and concerns.
Regulators	HGT can operate only with the approval of its regulators which have a legitimate interest in how HGT operates in the market and treats its shareholders.	HGT regularly considers how it meets various regulatory and statutory obligations and follows voluntary and best-practice guidance, while being mindful of how any governance decisions which it makes can affect its shareholders and wider stakeholders, in the short and in the long term. More detail, including HGT's engagement with the FRC, can be found in the Audit, Valuations and Risk Committee report on page 123 of the full Annual Report.

Principal Decisions in 2021

Examples of the Board's principal decisions during the year, how the Board fulfilled its duties under Section 172 of the Act and the related engagement activities are set out below:

Principal decision	Long-term impact	Stakeholder Considerations and Engagement
To make commitments into new Hg funds	Commitments made totalling $975 million across Hg's latest upper midmarket fund and junior debt to support the long term growth in the NAV of HGT and further strengthen the relationship with the Manager, Hg.	Consistent with its strategy and business model, HGT periodically enters into formal commitments to invest in certain investment vehicles raised by Hg. HGT is the largest such investor in these vehicles and shareholders benefit from the ability to deploy substantial capital in this manner in vehicles which would otherwise be inaccessible. Furthermore, HGT retains a unique 'opt-out' right associated with these investments which is further to the benefit of shareholders.
To renew and extend HGT's credit facility	In line with its approach to balance sheet management, HGT increased its multi-currency revolving credit facility from £200 million to £250 million. This provides additional flexibility to manage HGT's balance sheet to support the growth of NAV.	The Board regularly reviews HGT's cash position and commitments, taking into consideration the impact on shareholders. The revised banking facility will be used to support the long-term growth of HGT, to help facilitate the programme of investments undertaken by HGT over the coming years. This is discussed further on page 94 of the full Annual Report.
To issue new shares in HGT	Issuing new shares allows HGT to increase its liquidity in the market - an important consideration for shareholders. Furthermore, successful investment of the capital raised in new issuances will promote further growth in HGT's NAV.	The Board regularly reviews the capital structure of HGT and seeks to issue new equity when market conditions allow it and where such action would, in the view of the Board, be in the best interests of HGT. When evaluating such decisions, the Board takes full account of the impact of any such capital raising on the existing shareholder base. The Board takes into consideration the ability of HGT to deploy any additional funds in a timely and successful manner. The continued demand for HGT's shares is an important indicator from our existing and new investors.
To make new appointments to the Board of HGT and long term succession planning	Continuing to develop and evolve the Board so that it contains an appropriate mix of skills, diversity and experience is important to promote the long-term, sustainable success of HGT.	During the year, the Nomination Committee, and the Board, has frequently considered the need for a strong succession plan and the recruitment of a new Non-Executive Director following the announcement of Mr Duncombe's retirement from the Board at the 2022 AGM of HGT. During these discussions, the need to consider the long-term strategy and needs of HGT was continually taken into account. More information is available at the report of the Nomination Committee on page 127 of the full Annual Report .

For and on behalf of the Board

Jim Strang
Chairman of the Board

4 March 2022

Extracts from Hg's review

Building businesses which change how we all do business

Hg is a specialist private equity investor focused on software and business service companies.

Our business model combines deep sector specialisation with dedicated operational support.
Hg invests in growth companies in expanding sectors, primarily via leveraged buyouts in businesses with operations in or across Europe.

Hg's vision is to be the most sought-after private equity investor within our sector focus,
being a partner of choice for management teams, to provide consistent, superior returns for HGT and our other clients, while providing a rewarding environment for Hg colleagues.

References in this annual report and accounts to the 'portfolio', 'investments', 'companies' or 'businesses' refer
to a number of investments, held as:

• indirect investments by HGT through its direct investments in fund-limited partnerships (HGT LP, HGT 6 LP,
HGT 7 LP, HGT 8 LP, HGT Genesis 9 LP, HgCapital Mercury D LP ('Hg Mercury'), HGT Mercury 2 LP, HGT Mercury 3 LP, HGT Saturn LP, HGT Saturn 2 LP, and HGT Transition Capital LP) of which HGT is the sole limited partner.

• a secondary purchase of a direct interest in Hg's Genesis 6 fund through HgCapital 6 E LP ('Hg 6 E LP'), in which HGT
is a limited partner.

• direct investments in renewable energy fund limited partnerships (Asper Renewable Power Partners LP
('Asper RPP I LP'), of which HGT is a limited partner.

Hg Pooled Management Limited was authorised as an alternative investment fund manager with effect from 22 July 2014. For further details, refer to pages 114-115 of the full Annual Report.

Past performance is not a reliable indicator of future results. The value of shares and the income from them can go

down as well as up as a result of market and currency fluctuations and investors may not get back the amount they

originally invested.

About Hg

Europe's largest software and services investor with a transatlantic network

>25

years of investment

>280

employees across London, Munich and New York

>150

highly regarded institutional investors

>$40bn

funds under management

As at 31 December 2021

Overview

Hg is, itself, an entrepreneurially led, fast-growing business, 100% owned and managed by its partners.

Hg began life as Mercury Private Equity, the private equity arm of Mercury Asset Management plc. Mercury Asset Management was acquired by Merrill Lynch in 1997. In December 2000, the executives of Mercury Private Equity negotiated independence from Merrill Lynch, and Hg was established as a fully independent partnership, owned entirely by its partners and employees.

Since then, Hg has worked hard to develop a unique culture and approach - setting us apart from other investors. We are committed to building businesses which change the way we all do business, through deep sector specialisation and dedicated, strategic and operational support.

Today, Hg has more than 280 employees, representing the largest technology investment team in Europe.

We have three investment offices, which are in London, Munich and New York, with funds under management of more than $40 billion and serving more than 150 highly regarded institutional investors, including private and public pension funds, insurance companies, endowments and foundations.

HGT is the largest client of Hg, which has been contracted to manage HGT's assets since 1994 and offers investors a liquid investment vehicle, through which they can obtain exposure to Hg's diversified network of unquoted investments with minimal administrative burdens, no long-term lock up or minimum size of investment - and with the benefit of a Board of independent Directors and corporate governance. HGT's strategy is to invest in parallel with all of Hg's current funds.

Investment strategy

Hg's investments are focused primarily on defensive growth buyouts in software and business service companies operating in specific end-market 'clusters' with enterprise values ('EVs') of £100 million to over £10 billion, growing faster than the broader economy. We predominantly seek controlling equity buyout investments in businesses headquartered in Europe and North America, though such companies will often have a global footprint and customer base.

Hg's objective is to pursue investment theses supporting long-term growth, leveraging its expertise working in these sectors to implement initiatives designed to maximise organic expansion, as well as through rolling up fragmented sectors, over typical hold periods of approximately five years.

Hg has led over 170 investments in the software and service sector during the last 25 years. This focus means that we have developed an institutional expertise and a deep understanding of the markets and businesses in which we invest.

Hg applies a rigorous approach when evaluating all investment opportunities. Our objective is to invest in the most attractive businesses, rather than be constrained by a top-down asset allocation.

This flexible approach to investment means that, at any given time, the Hg portfolio is likely to comprise over 40 software and business service companies with similar characteristics, but of different sizes, end-market focus and maturity profiles.

Hg's office in New York enhances the ability to crystallise and develop transatlantic investment opportunities, manage existing investments and make bolt-on acquisitions, as well as continue to engage with - and ultimately sell - portfolio companies to North American trade buyers. As the US has the largest technology sector, this also helps to consolidate Hg's position as Europe's leading software investor.

Hg Mercury

Lower mid-market

EVs: £100m-£450m

Hg Genesis

Mid-market

EVs: £450m-£1.3bn

Hg Saturn

Upper mid-market

EVs focus: >£1.3bn

One strategy over three funds across the size range in software and service businesses

HGT has made commitments to invest on the same financial terms as all institutional investors in Hg funds, with investments made into businesses with enterprise values ranging from £100 million to over £10 billion.

The power of the portfolio

Hg has a unique approach and strategy, with a focus on achieving scale in tightly defined clusters of expertise.

As a result, we have assembled a portfolio of more than 40 companies, sharing similar characteristics, yet differing in size and maturity. This creates a natural environment for knowledge-sharing, creating a network effect to drive best practices and value-creation initiatives. This is why we believe in collaboration and the 'power of the portfolio'.

This scale and focus enable our businesses to benefit from being part of one larger organisation, while retaining their own identity with each management team, incentivised by their own success.

The Hg portfolio, if taken as one company, would be one of the fastest-growing software businesses in Europe.

The 'Hg sweet-spot' business model

Hg has a clear and robust business model, focused on long-term, consistent and defensive growth, predominantly through investment in buyouts located throughout Europe and North America. We seek companies which share similar characteristics, often providing a platform for merger and acquisition ('M&A') opportunities.

We believe that such companies have the potential for significant performance improvement.

We invest primarily in two main market sectors:

Software

Software is our largest sector of investment. We focus on businesses providing B2B vertical market application software and data, regulatory software and fintech and internet infrastructure.

We have invested in high-quality industry champions which have strong sector reputations and diverse customer bases and which feature subscription-based business models generating predictable revenues and cash flows. With more than 40 software investments in our portfolio, we bring a unique set of networks and insights to help to support value creation in our businesses.

Tech-enabled services

Our business services investments focus on companies with high levels of intellectual property, large fragmented customer bases and long-term and stable customer relationships - and businesses which provide business-critical services, preferably on a repeat or recurrent basis.

We target businesses with strong reputations within a niche and aim to grow and scale these businesses, either organically within existing markets or through acquisitions.

Deep knowledge and networks within our end-market clusters

Hg has a unique approach and strategy, with a focus on achieving scale in tightly defined clusters of expertise. This specialisation helps us to build deep know-how.

Tax & Accounting
18+ years
TeamSystem • Visma • Iris • Sovos • Azets • Silverfin • Prophix • CaseWare • BrightPay • insightsoftware • Serrala

ERP & Payroll
18+ years
TeamSystem • Visma • Iris • Access • Transporeon • P&I • Benevity • Revalize • BrightPay

Legal & Regulatory Compliance
15+ years
The Citation Group • Litera • Septeo • ProcessMap

Automation and Engineering
13+ years
MeinAuto • Trackunit • AUVESY-MDT • Geomatikk

Tech Services
12+ years
Commify • itm8 • team.blue • F24 • The Citation Group

Capital Markets & Wealth Management IT
8+ years
FE Fundinfo • Argus • SmartTrade • Gen II • Riskalyze • Pirum

Insurance
8+ years
GGW Holding • Howden Group • Fonds Finanz

Healthcare IT
7+ years

Evaluate • Medifox DAN • Lyniate • Intelerad • HHAeXchange

Note: Number of years refers to the number of years for which Hg has invested in each cluster. As at 31 December 2021.

Working together

Dawn Marriott
Partner and Head of Portfolio, Hg

Sharing Hg know-how and experience

By virtue of the fact that Hg invests repeatedly in specific business models, our dedicated portfolio team has been able to tailor a differentiated approach to driving value creation during our ownership. Following each investment, our portfolio team works with the management of our investee companies to focus on a set of operational levers which is key to performance in an 'Hg sweet‑spot' business model: growth, transformation, technology, cyber security, data analytics, ESG and talent. For each of these levers, the portfolio team has the experience and deep knowledge of best practices to help drive value creation, in collaboration with management.

Every company can access the team, yet the nature of support can take a variety of forms. Often, our portfolio team members provide direct support, taking on roles to help the business to pursue growth more quickly. Another option is for our experienced industry experts to mentor senior executives, helping them to build more scalable functions. In other instances, the support comes through introducing management teams to their counterparts in other companies in which Hg is invested, specifically those who have faced comparable challenges.

"Hg always has the long term perspective at hand. The team inspires us as leaders, supports and facilitates strategic discussions, helping us get in touch with other software-companies to learn from, both other Hg portfolio companies but also outside of their portfolio."

Merete Hverven, CEO, Visma

2021: 88

Portfolio team-led online events

5,750

total people in attendance

The Hg portfolio community

We view all our business management teams as a part of the Hg portfolio community and that means promoting a culture of working together to problem solve and innovate more rapidly. One of the most powerful ways in which we motivate change is through peer‑to‑peer collaboration, allowing management teams the opportunity to exchange ideas and insights, and learn from others across the Hg portfolio and our network of experts. In the last year, we've offered portfolio companies a full end‑to‑end digital engagement experience, by hosting virtual events and facilitating an increase in activity on the Hg online collaboration platform, Hive.

Virtual events

We have been delighted by the success of our virtual events this past year, which have continued to play a significant role in driving engagement across the entire portfolio of Hg investment companies, bringing the Hg family together during unprecedented times. Over 2021, we have had a diverse calendar of webinars, hangouts, summits and virtual networking events and, so far this year, we have hosted 51 events, reaching over 5,000 people.

Value creation

• We have over 50 senior operational experts who work with our portfolio management teams to drive impact through specific value creation projects. Additionally, we have a network of trusted third party associates and partners;

• The Portfolio team provides decades of accumulated IP on operational best practices, as well as the project execution resource to help implement them;

• We conduct value creation diagnostics upfront, comparing a company's operational maturity against our database of KPIs and best practices, to identify the highest potential projects to pursue;

• We then support the company in building a value creation plan to help achieve those enhancements.

The Hg Portfolio community

We work hard to create opportunities for connection and collaboration across the Hg portfolio. We facilitate frequent opportunities for individuals on management teams to network, share best-practice, ideas and learn from one another.

Our focus areas

From sharing best practice and resources through to tailored teams of technical experts, we work closely with the companies in which we invest to ensure that they gain the tools and guidance required for business success.

For further information, please visit: hgcapital.com/working-together

"You do a splendid job of keeping us connected and the monthly sessions are really useful. Whilst it has been an unusual year (again!), it has been great to be part of the wider Hg community. So thank you very much, it is appreciated."

Richard Hanscott, CEO Commify

Hive

Hg's online community for everyday collaboration

Hive, Hg's online portfolio engagement platform, enables collaboration at scale across the entire Hg family and plays a central role in Hg's value-add proposition to portfolio companies. Hive provides members with a space to network with peers, access Hg events and a resource to share specialist knowledge and expertise through multiple specialist communities.

Spotlight on our CEO community

Our CEO community has gone from strength to strength over the last two years. During the pandemic, we hosted weekly 'hangouts' for our CEO community to share live experiences, problem-solve and seek advice from one another. The hangouts proved so valuable that they have remained ever since and the community continues to prosper, with many referring to the trusted community as a 'group of friends'.

2021: >700

new members over the year

2,500

active members and growing!

For further information, please visit: hive.hgcapital.com

"COVID-19 has reinforced the need for us to continue to invest in our people and our expertise, especially given our focus on working with the very best management teams in our target clusters and to actively help them to build great businesses."

Steven Batchelor, Chief Operating Officer, Hg

>280

members of the team

investment offices in London, Munich and New York

Our team

Hg succeeds through the analysis and understanding of new and emerging dynamics in the clusters in which it invests. This requires profound knowledge of technology, markets and business practices. To this end, we employ diverse and exceptionally talented teams to identify and execute investment opportunities and accelerate value creation during our ownership. This specialisation - in both investment selection and portfolio management - requires significant resources, and we have built a business employing more than 280 people, including more than 160 investment and portfolio management executives and other professionals. Our investment and portfolio management executives come from a range of backgrounds and experience, including private equity, consulting, investment banking, accounting and industry specialists. Our portfolio team comprises a mix of senior operators and functional specialists, typically with substantial experience in their respective specialist operational and strategic roles. Investing primarily in European businesses, many of which have a global footprint, requires time and a deep understanding of local cultures. Accordingly, our people come from around the globe, including 16 European countries, Asia, Africa and the USA. On average, our partners have 15 years' experience in the management of private businesses.

Talent attraction and talent development

To position ourselves as a best in class recruiter, Hg's recruitment and selection processes are rigorous and agile. These, along with our strong brand, leadership, sector focus, fund performance, vibrant culture and only working with recruitment partners who ensure that their search methodology is inclusive, providing diverse talent, allow us to attract and hire the best talent in our industry.

We have enhanced our talent processes so that we can identify and accelerate the development of our top performers and high‑potential talent within the business. We believe this to be the basis of effective career and succession‑planning and to support this we have hired a Head of Talent, who joined in January this year to focus on both our Talent Acquisition and Talent Development and to continue to build and enhance our practices.

Employee engagement

Our people are highly motivated by, and committed to, delivering outstanding value to HGT, our other institutional clients and our portfolio company leadership teams. They are engaged by their work, our values and the opportunity to grow to their full potential within Hg. Our values have evolved over many years and are embodied in our working culture; these are aligned with our performance and reward structures. Hg works hard to ensure that our employees are engaged. We use independent external benchmarks to gauge levels of engagement and take appropriate actions to ensure the highest possible levels of engagement. We have a strong focus on career and personal development, providing a range of development opportunities to enable our talent to reach their full potential and perform at their best.

Developing future leaders

We are explicit about those behaviours which we wish to encourage at Hg and have aligned recruitment, training, coaching, performance and rewards to our values for everybody across the organisation, including our leadership. We know that longevity of success means doing it the right way, thinking long term and always being willing to listen and learn. These values can be seen and felt everywhere you look, around our offices and in everyday interactions - it's really what makes us Hg.

For a description of Hg's key staff please visit: hgcapital.com/our-people

"With diversity, you source and analyse deals, ask and answer questions and manage teams differently. It adds up to better investment and business decisions. The more complex the challenge at hand, the greater the returns."

Nic Humphries, Senior Partner, Hg

>160

investment and portfolio management executives

clusters of expertise

Diversity and inclusion

Hg has introduced several new policies and built on its existing ones, as part of a wider initiative around diversity and inclusion. We have an established D&I steering group, comprising a range of individuals from across the firm. Its aim is to promote a culture of inclusion which clearly values diversity in all of its forms. We have several global initiatives - gender balance, flexible working, mentoring programmes, training and awareness events - to drive internal change. We also look to support events such as Black History month, International Women's day and Mental Health Awareness week. This is also echoed and supported through our HR learning and development initiatives, including structured mentoring programmes, recruitment processes and training, embedding awareness of unconscious bias and inclusion.

Hg will maintain its commitment to industry-wide initiatives such as Level 20, a not‑for‑profit organisation aligned around a common vision to inspire more women to join the industry. Hg senior partner Nic Humphries continues his role on Level 20's advisory council.

Hg is an active participant in the Institutional Limited Partners Association's 'diversity in action' initiative, acknowledging our ongoing commitment to take concrete steps to advance diversity, equity and inclusion across our organisation and the industry more broadly.

In addition, last year we welcomed our first interns through the #10000blackinterns programme, helping black students gain experience and kick‑start their career in investment management. This year we have increased the number of interns we have recruited and expanded the number of areas of the business that they will gain experience in.

We are also excited to partner with Sponsors for Educational Opportunity (SEO) in London and New York as they help prepare talented students from ethnic minority or low socio-economic backgrounds for career success.

"At Hg, we aim to attract and maintain a team of the best-possible investment and operational talent. To do this, we need to ensure that we're building this team from the broadest range of potential employees. Having a clear strategy and committed team looking at diversity and inclusion, with full support from the firm's senior leadership team, is crucial."

Martina Sanow, Partner and Deputy Chief Operating Officer, Hg

Hg is now a member of the LGBT Great network and as part of this partnership has contributed to two of their research projects: LGBT+ investing lens: research exploring the practice of investing for financial return while also considering the benefits to those who identify as LGBT+, such as improving economic opportunities or social inclusion for the LGBT+ community.

Diversity Data: research exploring the concept of extending mandatory organisational diversity reporting beyond gender to other diversity dimensions such as ethnicity and sexuality. Hg hopes that this research will be a catalyst for positive change and are proud to be a part of it.

Responsible investment

"We recognise the importance of constantly moving forward with ESG improvements. The world does not stand still and we continually assess what we are doing on ESG to stay ahead. The pandemic has certainly accelerated everyone's - not only Hg's - focus and commitment in this space."

Caroline Löfgren, Chief Sustainability Officer, Hg

Why responsible investment is important to us

Hg engages in Responsible Investment because it sits right at the core of our Purpose.

We are trusted to improve the future of millions of investors by building sustainable businesses for tomorrow. This is our purpose statement, our reason for being - it is how we see our place in society and our contribution to it. We are totally committed to this and it is embedded in everything we do, in every decision, every day and for every individual.

What this means in practice is that we look to grow sustainable businesses which are great employers and good corporate citizens, whilst also generating strong returns for the millions of pensioners and savers who are invested with us. Everyone at Hg is ultimately pulling together towards this goal.

This commitment supports the backbone of our investment philosophy and has helped us to determine a very focused approach, which has evolved over the last 20 years. Our focus is to invest exclusively in growing software and services businesses. We look to ensure that both our time and our capital support the sustainable growth of these knowledge businesses. These businesses then contribute to society by changing and modernising how their customers work, whilst providing quality employment opportunities for thousands of people worldwide, across innovative and growing sectors.

In turn, we believe that responsible business practices help to generate superior long-term performance, captured as investment returns to our investors. In this way, all stakeholders' goals align, with contributions to investors, the businesses themselves, employees, customers, suppliers, shareholders and wider society. As with other operations and functions, we take an active interest in how our companies manage Environment, Society and Governance ('ESG') risks and opportunities. It is much more than screening processes to ensure we do not invest in certain companies.

Our sector focus and expertise also mean that we have a better understanding of which ESG metrics are most material to service and software companies. We focus on these metrics to help build world-class ESG practices across our portfolio and achieve most impact.

Finally, we actively champion this topic and talk about our approach openly both internally and externally. We want all our employees to be proud of what we do, because they should be, and we want our investors to be confident in our intentions when they commit capital to us for ten years or more.

Matthew Brockman, Managing Partner, Hg

For more information, please go to hgcapital.com/responsibility

To watch our Responsible Investing video, please go to hgcapital.com/responsibility

Responsible investment (RI) at Hg

We continue to demonstrate our commitment to RI publicly - through a number of initiatives. We have been signatories of the United Nations‑supported Principles for Responsible Investment ('UNPRI') since 2012 and are proud to have retained the top score, AA++ in their latest assessment in 2020, cementing our reputation as a leader in ESG initiatives and innovation.

We recognise that climate change is one of the most important topics in the ESG space and at the top of the agenda for society, Hg and our investors. As a result, Hg in a founding member of the UK network of the Initiative Climat International ('iCI'). Endorsed by the UNPRI, iCI is a network of Private Equity firms working collaboratively to tackle climate change in our industry. Hg is a member of the UK Operating Committee of iCI and is actively supporting the NetZero working group.

In 2021, we made some big commitments to support our ambition to help limit climate change. Hg joined over 220 asset managers in signing the Net Zero Asset Managers initiative hgcapital.com/hg-joins-leading-private-equity-investors-commit-to-net-zero/, to support the global efforts to limit warming to 1.5 degrees Celsius. Hg was also one of the first PE firms globally to have their carbon reduction targets approved by the Science Based Targets initiative, in line with their PE guidance. hgcapital.com/hg-joins-group-of-six-pioneering-firms-representing-e133bn-aum-to-combat-climate-change-by-setting-ambitious-science-based-targets-for-the-industry/

For more information about Hg's commitment to limit global climate change, please see our first TCFD report here: hgcapital.com/wp-content/uploads/2021/11/Taskforce-on-Climate-related-Financial-Disclosures-Report-2021-Final.pdf. For Hg's firm level footprint and carbon neutrality see our detailed report here: hgcapital.com/wp-content/uploads/2021/09/Hg-Carbon-Footprint-2020-2021-Report-Final.pdf

Another topic that is close to our heart is diversity, equity and inclusion (DEI). We continue to focus on DEI on a firm level and are proud to be able to say that 48% of our employees are women. Our investment team consists of 35% women, which is well above the industry average. We are engaging with our businesses on this topic too. In 2021, we created our Portfolio DEI Council, a group of 10 portfolio companies representing different regions and sizes, to collaborate on DEI. Over the next few months, the group will work together to help develop a playbook for the rest of the portfolio to learn from.

For more information and our latest DEI report please see hgcapital.com/diversity-and-inclusion/

ESG in the deal process

ESG is embedded into the entire deal process, from screening to exit. We are very clear, as outlined in our exclusion list, on the types of business in which we do not invest. During due diligence, we assess companies for compliance with relevant laws in relation to ESG, H&S, bribery and corruption.

All our businesses are assessed against our Sustainable Business Framework as part of onboarding and annually thereafter. We are confident that our assessment is one of the most comprehensive assessments on the market; it covers over 170 metrics across key areas that are most relevant to tech businesses and takes external frameworks, such as SABS, ILPA's diversity in action initiative and the ESG Data Conference project, into account.

However, our ESG onboarding is not limited to our Sustainable Business Framework. In addition we conduct separate assessments on cybersecurity, data privacy, carbon footprints and climate change risks.

Each year we review and update our Sustainable Business Framework to account for new topics, trends and regulations. In 2021, we included 20 additional questions to cover further aspects of data privacy, anti-competitive behaviour, diversity and inclusion and climate change. All portfolio companies are assigned a score from 0-10 and receive an action list to support improvement. Hg's ESG team provide support to help advance the businesses ESG performance and each business is then reassessed on an annual basis.

Hg's Sustainable Business framework

Hg's Sustainable Business framework outlines key ESG focus areas for Software and Services companies. Please see https://hgcapital.com/responsibility/ for further details about the framework.

A signatory to the UNPRI since 2012.

AA++ 2021 PRI assessment score:

'A+' for strategy and governance and

'A+' for private equity ownership

Hg is a founding member of the UK network of the Initiative Climat International (iCI)

Hg is one of the first PE firms globally to have committed to and had targets approved in line with the SBTi.

Hg is committed to report our ESG progress in line with several recognised external standards.

For more information and to watch our Responsible Investing video, please go to hgcapital.com/responsibility

The Hg Foundation

Removing barriers to education & skills in technology

The Hg Foundation aims to develop the skills required for employment within the technology industry, focusing on individuals who may otherwise experience barriers to access. The Foundation is funded by Hg through a proportion of carried interest from current and future Hg funds, a proportion of Hg's annual profits and also through charitable activities carried out across the firm. The Foundation acts independently of Hg and grant decisions are made by the Board of Trustees.

2021 saw Hg Foundation set up four more partner programmes taking the total number of partnerships to eight.

$8.5m

commited to date

Partnerships

>8,000

students directly supported

For more information, please visit the Hg Foundation's website: www.thehgfoundation.com

Year in review

Net asset value (NAV)

During the year, the NAV of HGT increased by £715 million, from £1.3 billion at 31 December 2020 to £2.0 billion at 31 December 2021.

Attribution analysis of movements in NAV

	Revenue £000	Capital £000	Total £000
Opening NAV as at 1 January 2021	19,946	1,271,070	1,291,016
Realised capital and income proceeds from investment portfolio in excess of 31 December 2020 book value	11,265	81,478	92,743
Net unrealised capital and income appreciation of investment portfolio	44,084	614,837	658,921
Net realised and unrealised gains from liquid resources	648	(5,701)	(5,053)
Share issue	-	141,231	141,231
Dividend paid	(21,660)	-	(21,660)
Expenditure	(10,797)	(1,949)	(12,746)
Taxation	192	-	192
Investment management costs:
Priority profit share - current year paid	(16,385)	-	(16,385)
Priority profit share - reallocation between capital and income	7,821	(7,821)	-
Carried interest - current year paid	-	(32,472)	(32,472)
Carried interest - current year provision	-	(90,063)	(90,063)
Closing NAV as at 31 December 2021	35,114	1,970,610	2,005,724

Analysis of NAV movements

Several underlying factors contributed to the increase in NAV. Positive impacts were the £658.9 million revaluation of the unquoted portfolio and uplifts of £92.7 million on the realisation of investments, compared with their carrying value at the start of the year. Shares issued during the year contributed a further £141.2 million.

Reductions in NAV included: the payment of £21.7 million of dividends to shareholders, carried interest paid of £32.5 million and a £90.0 million increase in the provision for future carried interest.

Past performance is not a reliable indicator of future results. The value of shares and the income from them can go down as well as up as a result

of market and currency fluctuations and investors may not get back the amount they originally invested.

Attribution analysis of movements in the value of investments

During the year, the value of the unrealised investments increased by £658.9 million, before the provision for carried interest. The majority of the increase, £611.6 million, relates to increases from profit growth in the underlying investments. An increase in valuation multiples increased the value of investments by £297.2 million.

Acquisitions net of realisations at carrying value of £213.3 million increased the value further and negative currency movements of £46.2 million reduced the value of the unrealised portfolio. An increase in net debt of £204.3 million contributed negatively to the unrealised portfolio.

Top 20 portfolio trading performance as at 31 December 2021

The top 20 investments (representing 78% of total investments by value) have delivered strong sales growth of 27% and

EBITDA growth of 30% over the last 12 months ('LTM').

This is consistent with high double-digit trading performance that the HGT portfolio has demonstrated over many years.

The business model characteristics of the companies in which we are invested give us confidence that this sustainable growth can be achieved consistently, going forward.

More than 80% by value of the top 20 businesses within the portfolio are seeing double-digit revenue growth, and more than 75% have delivered double-digit EBITDA growth over the last 12 months.

Profits continue to grow at a faster rate than revenues, in part due to the continued investment made into the cost base of several companies, for example, to finance increased sales and marketing capabilities, strengthen management and new product development, all of these continue to drive future performance.

We have seen very robust and consistent trading performance from the majority of the portfolio, with particularly strong growth from Septeo, insightsoftware, Access, Intelerad, Howden, and Transporeon. Where a company does not perform as well it is reflected in its valuation.

For further information on how individual companies have performed over 2021 - please refer to the realised and unrealised valuations table on page 39 of the full Annual Report.

Valuation and net debt analysis as at 31 December 2021

Our valuation policy is applied consistently, in accordance with the IPEV Valuation Guidelines. Each company has been valued individually, based on the trading multiples of comparable businesses and relevant and recent M&A activity; this resulted in an average EBITDA multiple for the top 20 investments of 27.4x (22.1x at 31 December 2020).

The basis of the approach continues to be to apply a relevant multiple to suitable earnings-based performance metric. We take a considered approach in determining the level of maintainable earnings to use in each valuation, in line with the IPEV Valuation Guidelines. An earnings-based valuation is most appropriate where the investment is an established business with a stream of maintainable earnings. Where the company has negative earnings or significantly depressed earnings, a revenue based valuation can be used. Most holdings have been valued using the LTM earnings, or the best available information at the reporting date. The earnings figure used may be adjusted on a pro-forma basis reflecting acquisitions, disposals or other adjustments to the extent a buyer would make such adjustments. In selecting an appropriate multiple to apply to a company's earnings, we look at a basket of comparable companies, primarily from the quoted sector, but also making use of M&A data.

We then cross-check the existing valuation against a range of other valuation techniques. We also use back testing to understand substantive differences that legitimately occur between an exit price and the previous fair value assessment to inform our valuation policy.

Our companies make appropriate use of gearing, with a weighted average net debt for the top 20 of 7.1x LTM EBITDA (6.4x at 31 December 2020). Many of our businesses have highly predictable, strong earnings growth and are very cash generative, enabling us to use debt to reduce their cost of capital and improve returns on the equity we hold.

Outstanding commitments of HGT

At 31 December 2021, HGT held liquid resources of £371 million and had outstanding commitments of £992 million, as listed below. We anticipate the majority of these outstanding commitments will be drawn down over the next three to four years (2022-26) and are likely to be partly financed by cash flows from future realisations. Additionally, to mitigate the risk of being unable to fund any draw-down under its commitments to invest alongside Hg's funds, the Board has negotiated a right to opt out, without penalty, of HGT's obligation to fund such commitments, where it does not have the funds to do so or certain other conditions exist. HGT also has access to a £250 million bank facility which was 60% drawn as at 31 December 2021.

Fund	Fund vintage	Original commitment £million	¹	Outstanding commitments as at 31 December 2021		Outstanding commitments as at 31 December 2020
Fund	Fund vintage	Original commitment £million	¹	£million	% of NAV	£million	% of NAV
HGT Saturn 3 LP	2022	627.5	²	627.5	31.3	-	-
HGT LP	Various	92.3	³	92.3	4.6	1.3	0.1
HGT Saturn 2 LP	2020	295.3	⁴	67.8	3.4	200.6	15.5
HGT Genesis 9 LP	2020	302.3	⁵	66.2	3.3	263.2	20.4
HGT Mercury 3 LP	2020	96.6	⁶	64.0	3.2	102.9	8.0
HGT 8 LP	2018	350.0		51.5	2.6	9.7	0.8
HGT Saturn LP	2018	150.0		15.9	0.8	7.9	0.6
HgCapital Mercury D LP	2011	60.0		3.3	0.2	3.3	0.3
HGT Mercury 2 LP	2017	80.0		1.8	0.1	4.7	0.4
HGT 7 LP	2013	200.0		1.0	-	1.2	0.1
Asper RPP I LP	2006	18.2	⁷	0.6	-	0.6	-
HGT Transition Capital LP	2018	75.0		-	-	49.6	3.8
HGT 6 LP	2009	285.0		-	-	2.3	0.2
Hg 6 E LP	2009	15.0	⁸	-	-	0.1	-
Total				991.9	49.5	647.4	50.2
Liquid resources				371.5	18.5	187.6	14.5
Net outstanding commitments unfunded by liquid resources				620.4	31.0	459.8	35.7

¹Excluding any co-investment participations made through HGT LP.

²Sterling equivalent of $850 million.

³Sterling equivalent of $125 million of junior debt.

⁴Sterling equivalent of $400 million.

⁵Sterling equivalent of €360 million.

⁶Sterling equivalent of €115 million.

⁷Sterling equivalent of €21.6 million.

⁸Partnership interest acquired during 2011.

Investment portfolio of HGT

Fund limited partnerships	Residual cost £000	Total valuation¹ £000	Portfolio value %
Primary buyout funds:
HGT 8 LP	270,227	739,398	38.2
HGT 8 LP - Provision for carried interest	-	(96,206)	(5.0)
HGT Saturn 2 LP	213,683	336,503	17.4
HGT Saturn LP	140,591	288,483	14.9
HGT Saturn LP - Provision for carried interest	-	(31,111)	(1.6)
HGT Genesis 9 LP	235,204	284,203	14.7
HGT Mercury 2 LP	62,471	168,055	8.7
HGT Mercury 2 LP - Provision for carried interest	-	(23,680)	(1.2)
HGT LP	108,172	153,739	7.9
HGT 7 LP	24,226	87,408	4.5
HGT 7 LP - Provision for carried interest	-	(17,477)	(0.9)
HGT Mercury 3 LP	30,978	35,117	1.8
HgCapital Mercury D LP	2,316	15,373	0.8
HgCapital Mercury D LP - Provision for carried interest	-	(3,105)	(0.2)
Total buyout funds	1,087,868	1,936,700	100.0
Renewable energy funds:
Asper RPP I	5,040	313	-
Total investments net of carried interest provision	1,092,908	1,937,013	100.0

¹Includes accrued income but before the deduction of the fund level facility.

Hg cluster by value

31% Tax & Accounting

25% ERP & Payroll

10% Healthcare IT

9% Legal & Regulatory

8% Capital Markets & Wealth Management IT

7% SME Tech & Services

5% Automation & Engineering

5% Insurance

Geographic spread by value

34% UK

26% North America

17% Germany

14% Scandinavia

9% Other Europe

Investment vintage by value

27% 2021

29% 2020

3% 2019

27% 2018

6% 2017

8% pre 2017

Investments and realisations

Investments

Over the course of the year, Hg invested a total of £5.3 billion on behalf of its clients, with HGT's share being £424 million.

The vast majority of our investments are generated by establishing and developing relationships with companies over the longer term and typically pursuing opportunities where we have a strong relationship with a founder or management team. By doing this, we believe that we can invest in the very best businesses within our chosen clusters.

We continue to look for businesses which share similar underlying business model characteristics, such as: high levels of recurring revenues; a product or service which is business critical, but typically low spend; low customer concentration and low sensitivity to market cycles. This is a theme which runs through many of our new investments - and we believe that companies with these characteristics will remain in high demand across market cycles.

New investments in the year to 31 December 2021

Insightsoftware

£55.1m invested on behalf of HGT including £7.1m in co-investment

In September 2021, Hg completed an investment in insightsoftware, a global provider of enterprise software solutions for the 'Office of the CFO'. Headquartered in Raleigh, USA, with offices around the world, insightsoftware has more than 1,000 employees serving over 600,000 global users.

Howden

£42.0m invested on behalf of HGT

In March 2021, Hg completed an investment in Howden Group Holdings (Howden Group), the international insurance intermediary. Founded in 1994 and headquartered in London, Howden Group is a leading international insurance distribution group.

Benevity

£31.6m invested on behalf of HGT, including £3.6m in co-investment

In January 2021, Hg completed an investment in Benevity Inc (Benevity), a global leader in corporate purpose cloud software. Hg led the investment, made from the Hg Saturn 2 Fund, in partnership with Benevity's current investors, General Atlantic and JMI Equity, which will remain significant investors in the business, alongside the Benevity management team.

Trackunit

£26.6m invested on behalf of HGT

In June 2021, Hg completed an investment in Trackunit, a global leader in software-led telematics solutions for off-highway vehicles and the construction market, alongside Goldman Sachs and GRO Capital. Trackunit is a driving force in the digitisation of the construction sector, serving equipment manufacturers, rental companies and contractors, connecting construction equipment and processing data to the cloud to deliver value-added insights.

HHAeXchange

£24.0m invested on behalf of HGT

In October 2021, Hg completed an investment in HHAeXchange (HHAX). HHAX offers a comprehensive software as a service (SaaS) platform to its customers that improves patient outcomes, drives operational efficiency and increases compliance across the homecare ecosystem. Its solutions are delivered through subscription-based enterprise and mobile tools and facilitate over 125 million annual visits for 675,000 caregivers across more than 44 states. Today, HHAX has offices in North America and development facilities in Europe and Asia.

MMIT Evaluate

£23.4m invested on behalf of HGT

In September 2021, Hg completed an investment in Managed Markets Insight & Technology, LLC. ('MMIT'), the trusted go-to market partner solely focused on solving the 'what and why' of market access in the pharma sector. MMIT will join forces with Evaluate Ltd a leading provider of commercial intelligence and predictive analytics to the pharmaceutical industry. Hg will share joint control of the combined business.

Serrala

23.1m invested on behalf of HGT

In November 2021, Hg completed an investment in Serrala, a fast-growing global financial automation and B2B payments software company. Founded in 1984 and based in Hamburg, Germany, Serrala provides software solutions for financial automation and B2B payments to medium-sized to large Enterprise customers globally, with a strong footprint across Europe and the US.

Revalize

£18.7m invested on behalf of HGT

In December 2021, Hg completed an investment in Revalize, a worldwide leader in sector-specific revenue operations software for manufacturers, their distributors and their specifiers. Revalize will continue to be supported by existing shareholders TA Associates, ST6, and management.

Prophix

£17.1m invested on behalf of HGT

In February 2021, Hg completed an investment in Prophix, a global leader in corporate performance management (CPM) software. Founded in 1987 and based in Ontario, Canada, Prophix is a leading provider of CPM software serving mid‑market companies across multiple industries worldwide, providing planning, budgeting and financial reporting software into the 'office of the CFO'.

Riskalyze

£15.9m invested of behalf of HGT including £6.8m in co-investment

In September 2021, Hg completed an investment in Riskalyze, Inc., an industry-leading, risk-centric wealth management platform serving financial advisors, enterprises, and asset managers. Riskalyze's industry-leading client and portfolio risk technology is rapidly emerging as an industry standard for advisor, client and portfolio risk analytics across the US wealth management ecosystem. Today, Riskalyze's platform supports tens of thousands of financial advisors who use it to manage millions of client accounts with over $400 billion in assets.

Dext

£15.6m invested on behalf of HGT including £3.9m in co-investment

In May 2021, Hg completed an investment in Dext, a leading provider of pre-accounting software which helps to automate the process of extracting and classifying data from receipts, invoices and documents (whether digital or paper) for the purposes of adding to bookkeeping / general ledger tools. Dext's software integrates with over 2,500 accounting, payroll and payment software providers, providing significant customer benefits in terms of making otherwise highly manual workflows more efficient, accurate and facilitating better and quicker data analysis and reporting.

TeamSystem

£14.3m invested on behalf of HGT

In February 2021, Hg completed an investment in TeamSystem, an Italian provider of ERP and business management software to SMEs and professionals via the Hg Genesis 8 fund. Hg has held a minority position in TeamSystem since 2015, following its majority exit to a vehicle indirectly held by Hellman & Friedman Capital Partners VII, L.P.

Geomatikk

£11.4m invested on behalf of HGT, including £4.0m in co-investment

In February 2021, Hg completed an investment in Geomatikk Group, a tech‑enabled services champion, managing critical 'check‑before‑you‑dig' safety assessments to network owners, contractors and consulting engineers within Norway, Sweden and Finland. Hg will support Geomatikk with its extensive experience in scaling tech champions across Europe. Hg will become the majority investor, with founders and management remaining as significant investors in the business.

AUVESY-MDT

£8.1m invested on behalf of HGT

In May 2021, Hg completed an investment in AUVESY-MDT ('AUVESY'). Founded in 2007 and headquartered in Germany, AUVESY is a provider of version control software for smart production machinery and other industrial Internet of Things (IoT) devices. AUVESY manages over 5 million industrial IoT devices across 45 countries, serving over 700 loyal customers.

BrightPay

£6.5m invested on behalf of HGT

In November 2021, Hg completed an investment in BrightPay and Relate Software. The two businesses will join forces to create a software champion serving payroll and accounting bureaus and SMEs across the Republic of Ireland and the United Kingdom. Hg is the majority investor in the combined business.

ProcessMap

£5.2m invested on behalf of HGT

In December 2021, Hg completed an investment in ProcessMAP Corporation ("ProcessMAP"), a leading Environmental, Health and Safety ('EHS') software platform provider. Headquartered in Florida, ProcessMAP has nearly 300 employees based in the USA, Canada, the UK, Germany and India.

Follow-on investments

Litera

£28.7m invested on behalf of HGT

Over 2021, Hg completed two further equity investments into Litera, a leading provider of innovative technology solutions to legal organisations. The first of these was to fund the acquisition of Kira, a provider of machine learning contract review and analysis software. An additional investment was made to provide Litera with the ability to expand into new areas and geographies.

FE fundinfo

£19.3m invested on behalf of HGT

In 2021, the Hg Genesis 9 Fund completed the acquisition of a stake in FE fundinfo, the global fund data and analytics business catering to asset managers and fund distributors, headquartered in London. Hg initially invested in fundinfo in January 2017 via the Hg Mercury 1 Fund, and it was later combined with F2C and Financial Express 'FE'), rebranding as FE fundinfo, an acquisition financed by an investment from the Hg Mercury 2 Fund.

Sovos

£10.1m invested on behalf of HGT

In August 2021, HGT took part in an equity refinancing to fund further M&A at Sovos, a leading global provider of tax compliance software solutions that help customers manage an increasingly complex end-to-end tax determination & regulatory reporting process. Headquartered in Boston, Massachusetts, Sovos has a significant presence in the US, Europe & Latin America and enjoys typically resilient 'Hg sweet-spot' characteristics, including more than 90% recurring revenue, high customer loyalty & strong cash generation.

Silverfin

£8.2m invested on behalf of HGT, including £4.8m in co-investment

In June 2021, the Hg Mercury team completed a further investment in Silverfin, a cloud platform for accountants that improves the efficiency, competitiveness and profitability of compliance services, and powers the development and delivery of advisory services.

GGW

£4.9m invested on behalf of HGT

In September 2021, Hg agreed a further investment in GGW, a leading Property & Casualty focused insurance broker principally serving SMEs in the DACH region. This equity will help to acquire additional high quality brokers.

Visma

£4.6m invested on behalf of HGT

In September 2021, Hg agreed to make a small follow-on investment into Visma, a leading provider of business-critical software to private and public companies in Europe. This investment was made alongside a number of new, leading institutional investors.

New Investments since the year end

Fonds Finanz

Estimated £8.0m invested on behalf of HGT

In February 2022, Hg completed an investment in Fonds Finanz, a leading tech-enabled financial intermediary pool in the German insurance sector. Founded in 1996 and headquartered in Munich, Fonds Finanz serves more than 28,000 customers including brokers, distributors, insureTechs and banks across Germany. With a comprehensive software, advisory and service offering, Fonds Finanz gives customers access to a full-service platform, comprising products from more than 500 insurance and financial product vendors in Life, Health, Property & Casualty and Investment funds.

Pirum Systems

Estimated £9.4m invested on behalf of HGT

In December 2021, Hg announced an investment in Pirum Systems, a leading provider of post-trade automation and collateral management technology for the global securities finance industry. Pirum was founded in 2000 to provide advanced, centralised and secure reconciliation services for financial market participants. Pirum's software provides a secure processing hub which seamlessly links industry participants, allowing them to process and verify key transaction details electronically. This delivers significant trade and collateral efficiency, lowers costs and enhances regulatory compliance for its network of clients. Pirum's products assist 90 of the most prestigious global financial institutions to process over $3 trillion of transactions daily. This is due to complete in June 2022.

Waystone

Estimated £31.4m invested on behalf of HGT

In January 2022, Hg announced an investment in Waystone Group, a leading provider of institutional governance, risk and compliance services to the asset management industry. This investment is via the Hg Saturn 2 fund, alongside Montagu, a leading private equity firm; Hg will join as a strategic investor and joint shareholder. Montagu first announced its investment in Waystone in July 2021. Hg's investment is subject to regulatory approval and customary closing conditions.

Follow-on investments since the year end

Lyniate

£15.0m invested on behalf of HGT, including £5.0m in co-investment

In January 2022, Hg announced an additional investment into Lyniate, a leader in healthcare data interoperability. Over 1,300 healthcare organisations around the globe rely on Lyniate interoperability solutions to connect people through increased access to data.

Realisations

Over the course of the year, Hg has returned a total of £2.3 billion to its clients, including £271 million to HGT.

Hg saw some significant exits over the year and we continue to assess further opportunities to return cash proceeds to our clients, including HGT.

Full exits in the year to 31 December 2021

Allocate

£50.5m returned to HGT

In September 2021, Hg completed the sale of Allocate, a leading workforce and people management software-as-a-service ('SaaS') provider to healthcare and government organisations, to RLDatix, the leading global provider of intelligent patient safety solutions. The sale of this investment represented an uplift of 48% to the 31 December 2020 valuation of HGT's holding.

Mitratech

£40.7m returned to HGT

In May 2021, Hg completed the sale of Mitratech, a leading provider of legal and compliance software to Ontario Teachers' Pension Plan Board. Following completion of the transaction, Hg, the majority investor in Mitratech since 2017, will retain a minority interest.

The sale of the Hg Genesis 7 stake represented an uplift of 40% to the 31 December 2020 valuation of HGT's holding.

BrightPay

£36.6m returned to HGT

In September 2021, Hg announced the sale of BrightPay, a leading provider of payroll and HR software solutions, headquartered in Ireland. The sale of this investment represented an uplift of 84% to the 31 December 2020 valuation of HGT's holding.

Achilles

£23.5m returned to HGT

In October 2021, Hg completed the sale of Achilles, a global leader and partner of choice for supply chain risk and performance management, to Bridgepoint, the international private assets fund management group. The sale of this investment represented an uplift of 33% to the 31 December 2020 valuation of HGT's holding.

APG

£21.5m returned to HGT

In March 2021, Hg completed the sale of APG, one of the UK's largest specialist insurance intermediaries, to Howden, the international insurance broking group. Hg partnered with APG in 2015, recognising the business's best‑in‑class customer success model - a personal, service‑oriented approach, leading to very high levels of customer satisfaction alongside strong organic growth. Since then, Hg has worked with management to transform APG from a predominantly branch‑based, personal lines insurance broker, to a business with a national footprint across multiple lines of business, supported by industry‑leading data and analytics capabilities.

TeamSystem

£21.4m returned to HGT
In February 2021, Hg completed the sale of TeamSystem, an Italian provider of ERP and business management software to SMEs and professionals, from the Hg Genesis 6 fund.

Trace One

£5.8m returned to HGT

In April 2021, Hg completed the sale of Trace One, the world's largest collaborative retail business platform for consumer-packaged goods (CPG), to Symphony Technology Group. Trace One enables customers to create higher quality, trusted, and compliant own-branded goods faster, delivering benefits to their consumers and the environment.

The sale of the Hg Mercury 1 stake represented an uplift of 33% to the 31 December 2020 valuation of HGT's holding.

Partial exits in the year to 31 December 2021

Litera

£32.4m returned to HGT

In November 2021, the Hg Genesis team completed the refinancing of Litera, a leading provider of innovative document technology solutions to legal, corporate and life sciences organisations.

FE fundinfo

£28.7m returned to HGT

In August 2021, Hg completed the sale of the Hg Mercury 1 Fund investment in FE fundinfo, the global fund data and analytics business catering to asset managers and fund distributors. As part of this process, the Hg Genesis 9 Fund, alongside the Hg Mercury 2 Fund, will become the collective lead investor in FE fundinfo, acquiring the Hg Mercury 1 stake.

Visma

£12.6m returned to HGT

In November 2021, the Saturn team completed the refinancing of Visma, a leading provider of business-critical software to private and public companies in Europe.

Evaluate

£11.7m returned to HGT

In September 2021, Hg completed the partial sale of Evaluate, a leading provider of commercial intelligence and predictive analytics to the pharmaceutical industry into a strategic combination with MMIT, a US-based business in complementary adjacencies. The sale of this investment represented an uplift of 94% to the 31 December 2020 valuation of HGT's holding.

team.blue

£11.4m returned to HGT

In March 2021, the Genesis team completed the refinancing of team.blue, a mass hosting provider offering web enablement solutions to SMEs across Europe, headquartered in Belgium. team.blue has now returned 0.6x the original investment.

To view our press releases, please visit www.hgcapitaltrust.com/news-and-media/press-releases/pr-2021.aspx

Summary of investment and realisation activity

Investments made during the year

Company	Cluster	Location	Cost £000
insightsoftware	Tax & Accounting	North America	55,072
Howden	Insurance	UK	42,026
Benevity	ERP & Payroll	North America	31,619
Trackunit	Automation & Engineering	Scandinavia	26,593
HHAExchange	Healthcare IT	North America	24,035
MMIT Evaluate	Healthcare IT	North America	23,367
Serrala	Tax & Accounting	North America	23,086
Revalize	ERP & Payroll	North America	18,686
Prophix	Tax & Accounting	North America	17,139
Riskalyze	Capital Markets & Wealth Management IT	North America	15,868
DEXT	Tax & Accounting	UK	15,620
TeamSystem	Tax & Accounting	Italy	14,250
Geomatikk	SME Tech & Services	Scandinavia	11,392
AUVESY-MDT	Automation & Engineering	Germany	8,133
BrightPay	ERP & Payroll	Ireland	6,532
ProcessMAP	Legal & Regulatory Compliance	North America	5,249
New investments			338,667
Litera	Legal & Regulatory Compliance	North America	28,687
FE Fundinfo	Capital Markets & Wealth Management IT	UK	19,274
Sovos	Tax & Accounting	North America	10,131
Silverfin	Tax & Accounting	Benelux	8,173
GGW	Insurance	Germany	4,870
Visma	Tax & Accounting/ERP & Payroll	Scandinavia	4,592
Other¹			9,942
Follow-on investments			85,669
Total investments on behalf of HGT			424,336

¹Other investments and realisations includes immaterial transactions in relation to the remaining portfolio.

"As a new portfolio partner to Hg within the last 6 months, I can say that the Hg value creation team has met or exceeded my expectations for engagement and collaboration. From technology to operations to finance, HR and GTM, we are already very engaged on many important initiatives to support our continued growth and scale."

Greg Strobel, CEO, HHAeXchange

Realisations made during the year

Company	Cluster	Exit route	Proceeds¹ £000
Allocate	Healthcare IT	Trade Sale	50,498
Mitratech	Legal & Regulatory Compliance	Secondary sale	40,732
BrightPay	ERP & Payroll	Secondary sale	36,623
Achilles	Legal & Regulatory Compliance	Secondary sale	23,486
APG	Insurance	Trade Sale	21,539
TeamSystem	Tax & Accounting	Secondary sale	21,373
TraceOne	Legal & Regulatory Compliance	Secondary sale	5,765
Full realisations			200,016
Litera	Legal & Regulatory Compliance	Refinancing	32,374
FE fundinfo	Capital Markets & Wealth Management IT	Secondary sale	28,729
Visma	Tax & Accounting/ERP & Payroll	Refinancing	12,582
Evaluate	Healthcare IT	Secondary sale	11,654
team.blue	SME Tech & Services	Refinancing	11,432
Other²			6,814
Partial realisations			103,585
Total proceeds from realisations			303,601
Carried interest paid to the Manager			(32,472)
Total proceeds from realisations received by HGT			271,129

¹ Includes gross revenue received of £24.1 million during the year ended 31 December 2021.

²Other investments and realisations includes immaterial transactions in relation to the remaining portfolio.

"The Hg Portfolio team has been fantastic in providing a trusted, knowledgeable additional set of eyes on a range of business problems in our business. The insight gained from independent market leading professionals considering an issue with no vested interest has been extremely valuable."

Hamish Purdey, CEO, FE fundinfo

Hg's outlook

"The overarching driver of Hg's performance - digital transformation of business activity - continued apace in 2021 and the structural backdrop remains robust. Coupled with industry's migration to a Software-as-a-Service model, we remain of the view that we are still early in a generational shift in market opportunity."

David Toms, Director of Research, Hg

Notwithstanding the geopolitical landscape, the risk of inflation and the shift to a rising interest rate environment are at the forefront of the minds both of investors, our portfolio companies, and no doubt their customers. Labour cost is highly correlated with software and services spend, and thus as global labour supply tightens and costs rise, the imperative for digitalisation becomes ever-greater. Investment in productivity enhancement becomes even more attractive, as it frees up increasingly-valuable staff for more complex tasks. Consequently, as customers experience the incremental value of software, they also accept significant price rises - for example, Microsoft has already announced that March 2022 will see 10-25% price increases for key bundles of its Office suite¹.

We are also aware that events rarely align perfectly along a timeline, and there is a risk that a combination of geopolitical events, fiscal tightening, supply chain constraints, and cost increases, cause broad economic challenges to which our portfolio's end customers may respond with temporarily lower investment, before the structural factors that drive the need for software reassert themselves. We are alert to the risks of near-term volatility in the general economic backdrop, as well as to the structural opportunities this could create for an investor like Hg with long-term horizons.

Valuation environment

2021 saw a divergence in sentiment in the public markets. For the type of profitable, well-established software and services businesses in which Hg typically invests, valuations remained relatively benign; major public software & services indices with which we are well correlated showed a very modest increase in multiples over the year. Coupled with strong earnings growth, Software & Services put in another year of excellent performance, up 26% across the year, consistent with broader US public markets, and a little ahead of European public markets.

In contrast, investor views on the more speculative, high growth/unprofitable software companies underwent a dramatic shift. For such businesses, our analysis shows that the weighted multiple for this group (measured on an EV:Sales basis, since there are no material earnings to value) fell nearly 30% over the course of 2021.

2021 valuations already feel dated given the movements in the first few weeks of 2022. The H2-21 trend of declining valuations of unprofitable, high-growth companies accelerated in January 2022 with a further 20% decline, such that valuations in these companies have, at the time of writing, broadly halved over the past twelve months. Profitable companies, more reflective of the businesses in which Hg generally invests, have seen a more moderate impact, but nonetheless, January was a challenging month and multiples fell c.10%.

Growth in earnings is our most powerful protection against declining multiples; low to mid-teens organic EBITDA growth offsets two to three turns of EV:EBITDA multiple contraction. Hg's long experience with B2B software and services companies, supported by significant investment in our portfolio team, allows us to accelerate growth, improve margins, and increase the predictability of the companies in which we invest. For example, in an inflationary environment, we work with our companies to: improve the value we add for customers, measure this better through data analytics and capture it via improved pricing and packaging models. We expect to continue to invest heavily in our portfolio team both as a crucial driver of our future growth and to protect our investment performance.

"Growth in earnings is our most powerful protection against declining multiples; low to mid-teens organic EBITDA growth offsets two to three turns of EV:EBITDA multiple contraction. Hg's long experience with B2B software and services companies, supported by significant investment in our portfolio team, allows us to accelerate growth, improve margins, and increase the predictability of the companies in which we invest."

Activity levels

Over 2021, Hg has invested more than £5 billion, primarily across 16 new software and services businesses, including £424 million on behalf of HGT. This deployment firmly cements Hg's role as one of the largest software groups in the world, whether measured as an investor, or as an industry participant.
We have commented previously that in any 12‑month period, the investment teams across Hg would aim to make between 8 and 16 new platform investments in total across the active Hg Saturn, Hg Genesis and Hg Mercury funds, and that we would also generally seek to deliver similar numbers of liquidity events (sales or partial sales of portfolio companies and refinancings) each year.

Since December 2020, we have added 16 new high quality platform investments to our portfolio, including insightsoftware, Howden, Benevity, Trackunit, HHAeXchange, Serrala and MMIT Evaluate. We believe the pace of investment should continue at broadly this level. From these investments, there is a further cascade of M&A opportunities, adding to the breadth and depth of our organic development and catalysing cross sales to existing and acquired customers. On average, our portfolio companies may acquire two to three businesses a year, meaning across a portfolio of more than 40 B2B software and services companies we would typically expect to make around 100 M&A investments each year (and to diligence and reject many more).

To give a further sense of this scale, Hg's combined portfolio enterprise value has risen from c. $60 billion in Q1 2020 to over $100 billion today; and this is despite Hg also sending back a record amount of cash proceeds - over $11 billion - to our global investor base of pension plans, endowments, charities, and HGT over the year.

¹https://www.microsoft.com/en-us/microsoft-365/blog/2021/08/19/new-pricing-for-microsoft-365/

https://www.hgcapitaltrust.com/news-insights/video-library?vid=1539

https://hgcapital.com/insight/bitesize-tech-sector-insight-from-david-toms/

Overview of the underlying investments

held through HGT's limited partnerships

Investments (in order of value)		Fund	Sector	Location	Vintage	Residual cost £000	Total valuation¹ £000	Portfolio value %	Cum. Value %
1	Access	HGT 8	ERP & Payroll	UK	2018	69,500	309,541	14.7	14.7
2	Visma	HGT 7/HGT Saturn/HGT Saturn 2/HGT	Tax & Accounting/ERP & Payroll	Scandinavia	2020	90,333	227,829	10.8	25.5
3	Litera	HGT 8/HGT 9	Legal & Regulatory Compliance	N.America	2021	28,999	102,229	4.9	30.4
4	IRIS	HGT Saturn	Tax & Accounting/ERP & Payroll	UK	2018	36,380	91,378	4.4	34.8
5	P&I	HGT 7/HGT Saturn/HGT	ERP & Payroll	Germany	2020	36,333	86,352	4.2	39.0
6	Transporeon	HGT 8/HGT	ERP & Payroll	Germany	2019	41,993	86,075	4.1	43.1
7	Sovos	HGT Saturn 2/HGT	Tax & Accounting	N.America	2020	54,456	78,553	3.7	46.8
8	MeinAuto	HGT 8	Automation & Engineering	Germany	2017	33,967	72,342	3.4	50.2
9	Howden	HGT Saturn 2	Insurance	UK	2021	42,026	69,998	3.3	53.5
10	Intelerad	HGT 8	Healthcare IT	N.America	2020	32,962	69,358	3.3	56.8
11	Septeo	HGT 9	Legal & Regulatory Compliance	France	2020	38,545	67,266	3.2	60.0
12	insightsoftware	HGT Saturn 2/HGT	Tax & Accounting	N.America	2021	55,072	66,608	3.2	63.2
13	Argus Media	HGT Saturn/HGT	Capital Mkts & Wealth Mgmt IT	UK	2020	30,220	48,435	2.3	65.5
14	FE fundinfo	Mercury 2/HGT 9	Capital Mkts & Wealth Mgmt IT	UK	2021	22,216	44,489	2.1	67.6
15	Lyniate	Mercury 2	Healthcare IT	N.America	2018	10,528	42,925	2.0	69.6
16	Azets	HGT 7/HGT	Tax & Accounting	UK	2016	20,966	40,872	1.9	71.5
17	team.blue	HGT 8/Mercury 2	SME Tech & Services	Benelux	2019	16,567	40,218	1.9	73.4
18	MMIT Evaluate	Mercury 2/HGT 9/HGT	Healthcare IT	UK	2021	24,595	37,705	1.8	75.2
19	Benevity	HGT Saturn 2/HGT	ERP & Payroll	N.America	2021	31,619	36,055	1.7	76.9
20	Caseware	HGT 8	Tax & Accounting	N.America	2020	28,612	33,956	1.6	78.5
21	Trackunit	HGT 9	Automation & Engineering	Scandinavia	2021	26,593	32,100	1.5	80.0
22	Medifox	Mercury 2/HGT	Healthcare IT	Germany	2018	11,659	32,067	1.5	81.5
23	Citation	HGT 8	SME Tech & Services	UK	2020	21,998	31,264	1.5	83.0
24	itm8	HGT 8	SME Tech & Services	Scandinavia	2018	16,069	30,134	1.4	84.4
25	Gen II	HGT 9	Capital Mkts & Wealth Mgmt IT	N.America	2020	19,921	27,352	1.3	85.7
26	Commify	Mercury/HGT	SME Tech & Services	UK	2017	4,080	26,630	1.3	87.0
27	HHAeXchange	HGT 9	Healthcare IT	N.America	2021	24,035	24,149	1.1	88.1
28	Prophix	HGT 9	Tax & Accounting	N.America	2021	17,139	23,586	1.1	89.2
29	smartTrade	Mercury 2/HGT	Capital Mkts & Wealth Mgmt IT	France	2020	18,821	22,764	1.1	90.3
30	Serrala	HGT 9	Tax & Accounting	Germany	2021	23,086	21,785	1.0	91.3
31	Project CH	HGT Saturn 2	Tax & Accounting	Germany	2021	18,647	20,027	0.9	92.2
32	Revalize	HGT 9	ERP & Payroll	N.America	2021	18,686	18,906	0.9	93.1
33	GGW	Mercury 2/Mercury 3	Insurance	Germany	2020	9,144	18,698	0.9	94.0
34	TeamSystem	HGT 8	Tax & Accounting/ERP & Payroll	Italy	2021	14,250	18,316	0.9	94.9
35	Riskalyze	Mercury 3/HGT	Capital Mkts & Wealth Mgmt IT	N.America	2021	15,868	17,990	0.9	95.8
36	DEXT	HGT Saturn/HGT	Tax & Accounting	UK	2021	15,620	17,757	0.8	96.6
37	Silverfin	Mercury 2/HGT	Tax & Accounting	Benelux	2019	11,387	14,094	0.7	97.3
38	F24	Mercury 2/HGT	SME Tech & Services	Germany	2020	10,512	13,699	0.6	97.9
39	Geomatikk	Mercury 2/HGT	SME Tech & Services	Scandinavia	2021	11,392	13,466	0.6	98.5
40	AUVESY-MDT	Mercury 3	Automation & Engineering	Germany	2021	8,133	10,198	0.5	99.0
41	Mitratech	HGT 7/HGT	Legal & Regulatory Compliance	N.America	2017	3,328	8,982	0.4	99.4
42	BrightPay	Mercury 3	ERP & Payroll	Ireland	2021	6,529	6,737	0.3	99.7
43	ProcessMAP	Mercury 3	Legal & Regulatory Compliance	N.America	2021	5,249	5,313	0.3	100.0
	Non-active investments (2)					9,833	-	-	100.0
	Total buyout investments (45)					1,087,868	2,108,198	100.0
	Currency hedges	Various	Forward sale of US$ and €			-	81	-	100.0
	Renewable energy	Asper I	Renewable energy			5,040	313	-	100.0
	Total all investments					1,092,908	2,108,592	100.0

¹Including accrued income, but before the provision for carried interest of £171,579,000 and the portfolio level facility of £156,839,000.

Non-Statutory Accounts

The financial information set out below does not constitute the Company's statutory accounts for the years ended 31 December 2020 and 2021 but is derived from those accounts. Statutory accounts for 2020 have been delivered to the Registrar of Companies, and those for 2021 will be delivered in due course. The Auditors have reported on those accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the Auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The text of the Auditors' report can be found in the Company's full Annual Report and Accounts at www.hgcapitaltrust.com

Financial statements

Income statement

for the year ended 31 December 2021

	Notes	Revenue return		Capital return		Total return
		2021	2020	2021	2020	2021	2020
		£000	£000	£000	£000	£000	£000
Gains on investments and liquidity funds	13	-	-	566,130	233,322	566,130	233,322
Losses on priority profit share calls	5(b)	-	-	(7,821)	(3,176)	(7,821)	(3,176)
Net income	4	47,433	24,682	-	-	47,433	24,682
Other expenses	6(a)	(5,703)	(4,846)	-	-	(5,703)	(4,846)
Net return before finance costs and taxation		41,730	19,836	558,309	230,146	600,039	249,982
Finance costs	6(b)	(5,094)	(3,025)	-	-	(5,094)	(3,025)
Net return before taxation		36,636	16,811	558,309	230,146	594,945	246,957
Taxation	9	192	(2)	-	-	192	(2)
Net return after taxation		36,828	16,809	558,309	230,146	595,137	246,955

Basic and diluted return per ordinary share	10(a)	8.49 p	4.11 p	128.70 p	56.30 p	137.19 p	60.41 p

The total return column of this statement represents HGT's income statement. The supplementary revenue and capital return columns are both prepared under guidance published by the Association of Investment Companies ('AIC'). All recognised gains and losses are disclosed in the revenue and capital columns of the income statement and as a consequence, no statement of comprehensive income has been presented.

The movements in reserves are set out in note 21 to the financial statements.

All revenue and capital items in the above statement derive from continuing operations.

No operations were acquired or discontinued during the year.

The following notes form part of these financial statements.

Balance sheet

as at 31 December 2021

	Notes	2021	2020
		£000	£000
Fixed asset investments
Investments at fair value through profit or loss:
Unquoted investments	12	1,678,008	1,024,116
Total fixed asset investments		1,678,008	1,024,116
Current assets - amounts receivable after one year:
Accrued income on fixed assets	14	102,166	70,953
Current assets - amounts receivable within one year:
Debtors	14	8,090	9,528
Investments at fair value through profit or loss:
Liquidity funds	15	277,049	139,470
Uninvested capital in limited partnerships	12(a)	160	26,471
Cash at bank	16	94,280	21,648
Total current assets		481,745	268,070
Creditors - amounts falling due within one year	17	(2,887)	(1,170)
Net current assets		478,858	266,900
Creditors - amounts falling due after one year	18	(151,142)	-
Net assets		2,005,724	1,291,016
Capital and reserves:
Called-up share capital	20	11,382	10,400
Share premium account	21	359,971	219,722
Capital redemption reserve	21	1,248	1,248
Capital reserve - unrealised	21	712,188	240,712
Capital reserve - realised	21	885,821	798,988
Revenue reserve	21	35,114	19,946
Total equity shareholders funds		2,005,724	1,291,016
Net asset value per ordinary share	10(b)	440.5 p	310.3 p
Ordinary shares in issue at 31 December		455,279,808	415,999,808

The financial statements of HgCapital Trust plc (registered number 01525583) on pages 78-101 of the full Annual Report were approved and authorised for issue by the Board of Directors on 4 March 2022 and signed on its behalf by:

Jim Strang, Chairman

Richard Brooman, Director

The following notes form part of these financial statements.

Statement of cash flows

for the year ended 31 December 2021

	Notes	2021	2020
		£000	£000
Net cash outflow from operating activities	7	(2,088)	(69,041)
Investing activities:
Purchase of fixed asset investments	12	(424,336)	(403,215)
Proceeds from the sale of fixed asset investments		279,628	383,025
Proceeds from fund level refinancing		90,180	58,334
Purchase of liquidity funds	15	(195,200)	(271,900)
Redemption of liquidity funds	15	57,490	318,149
Net cash (outflow)/inflow from investing activities		(192,238)	84,393
Financing activities:
Drawdown of loan facility	18	152,481	-
Servicing of finance		(5,094)	(3,025)
Equity dividends paid	11	(21,660)	(20,399)
Proceeds from issue of shares		141,231	25,162
Net cash inflow from financing activities		266,958	1,738

Increase in cash and cash equivalents in the year	16	72,632	17,090
Cash and cash equivalents at 1 January	16	21,648	4,558
Cash and cash equivalents at 31 December	16	94,280	21,648

The following notes form part of these financial statements.

Statement of changes in equity

for the year ended 31 December 2021

		Non-distributable				Distributable
	Notes	Share capital £000	Share premium account 000	Capital redemption reserve £000	Capital reserve - unrealised £000	Capital reserve - realised £000	Revenue reserve £000	Total £000
At 1 January 2020		10,186	194,774	1,248	264,953	544,601	23,536	1,039,298
Net return after taxation		-	-	-	(24,241)	254,387	16,809	246,955
Contributions of equity net of transaction costs		214	24,948	-	-	-	-	25,162
Equity dividends paid	11	-	-	-	-	-	(20,399)	(20,399)
At 31 December 2020		10,400	219,722	1,248	240,712	798,988	19,946	1,291,016

At 1 January 2021		10,400	219,722	1,248	240,712	798,988	19,946	1,291,016
Net return after taxation		-	-	-	471,476	86,833	36,828	595,137
Contributions of equity net of transaction costs		982	140,249	-	-	-	-	141,231
Equity dividends paid	11	-	-	-	-	-	(21,660)	(21,660)
At 31 December 2021		11,382	359,971	1,248	712,188	885,821	35,114	2,005,724

The following notes form part of these financial statements.

Notes to the financial statements

1. Principal activity

The principal activity of HGT is investment. HGT is an investment company as defined by section 833 of the Companies Act 2006 and an investment trust under sections 1158 and 1159 of the Corporation Tax Act 2010 ('CTA 2010') and is registered as a public company in England and Wales under number 01525583, with its registered office at 2 More London Riverside, London, SE1 2AP.

2. Basis of preparation

The financial statements have been prepared under the historical cost convention, except for the revaluation of financial instruments at fair value as permitted by the Companies Act 2006 and in accordance with applicable UK law and UK Accounting Standards ('UK GAAP'), including Financial Reporting Standard 102 - 'The Financial Reporting Standard applicable in the United Kingdom and Republic of Ireland' ('FRS 102') and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' ('SORP'), issued in April 2021. All of HGT's operations are of a continuing nature.

After making enquiries, the Directors have a reasonable expectation that HGT will have adequate resources to continue in operational existence for the next 12-month period from the date of approval of this report. Accordingly, they continue to adopt the going-concern basis in preparing these financial statements.

The same accounting policies, presentation and methods of computation are followed in these financial statements as were applied in HGT's previous annual audited report and accounts.

3. Organisational structure and accounting policies

Partnerships where HGT is the sole limited partner

HGT entered into eleven separate partnership agreements with general and founder partners in May 2003 (subsequently revised in January 2009), January 2009, July 2011, March 2013, December 2016, February 2017, January 2018, February 2018 and February 2020; at each point, an investment-holding limited partnership was established to carry on the business of an investor, with HGT being the sole limited partner in these entities.

The purpose of these partnerships, HGT LP, HGT 6 LP, HGT 7 LP, HGT 8 LP, HgCapital Mercury D LP, HGT Mercury 2 LP, HGT Saturn LP, HGT Transition Capital LP, HGT Saturn 2 LP, HGT Genesis 9 LP and HGT Mercury 3 LP (together the 'primary buyout funds'), is to hold all of HGT's investments in primary buyouts. Under the partnership agreements, HGT made capital commitments into the primary buyout funds, with the result that HGT now holds direct investments in the primary buyout funds and an indirect investment in the fixed-asset investments which are held by these funds, as it is the sole limited partner. These direct investments are included under fixed-asset investments on the balance sheet and in the table of investments on page 91 of the full Annual Report. The underlying investments which are held indirectly are included in the overview of investments on page 54 of the full Annual Report.

HGT does not have control over the operating, financial or governance activities of the limited partnerships in which it is the sole limited partner. The general partner of these partnerships has the day to day control and ultimate decision making powers over the activities of these partnerships. As a result, these limited partnerships are not consolidated in the financial statements.

Partnerships where HGT is a minority limited partner

In July 2011, HGT acquired a direct secondary investment in HgCapital 6 E LP ('Hg 6 E LP'), one of the partnerships which comprise the Hg 6 Fund, in which HGT is now a limited partner pari passu with other limited partners. This is a direct investment in the Hg 6 E LP Fund.

HGT also entered into partnership agreements with other limited partners, with the purpose of investing in renewable energy projects, by making capital commitments in Asper Renewable Power Partners LP ('Asper RPP I LP'). This is a direct investment in the renewable funds, as shown on the balance sheet and in the table of investments on page 91 of the full Annual Report.

Priority profit share and other operating expenses, payable by partnerships in which HGT is a minority limited partner, are recognised as unrealised losses in the capital return section of the income statement and are not separately disclosed within other expenses.

Priority profit share and carried interest under the primary buyout limited partnership agreements

Under the terms of the primary buyout fund limited partnership agreements ('LPAs'), each general partner (see note 5) is entitled to appropriate, as a first charge on the net income of the funds, an amount equivalent to its priority profit share ('PPS'). HGT is entitled to net income from the funds, after payment of the PPS.

In years in which these funds have not yet earned sufficient net income to satisfy the PPS, the entitlement is carried forward to the following years. The PPS is payable quarterly in advance, even if insufficient net income has been earned. Where the cash amount paid exceeds the net income, an interest-free loan is advanced to the general partner by these primary buyout funds, which is funded by a capital call from HGT. Such loan is recoverable from the general partner only by an appropriation of net income until net income is earned. At the HGT level such a call is expensed in the capital column as these amounts are not recoverable (see note 5(b)).

Furthermore, under the primary buyout funds' LPAs, each founder partner (see note 5(c)) is entitled to a carried-interest distribution, once certain preferred returns are met. The LPAs stipulate that the primary buyout funds' capital gains or net income, after payment of the carried interest, are allocated to HGT, when the right to these returns is established.

Accordingly, HGT's entitlement to net income and net capital gains is shown in the appropriate lines of the income statement. Notes 4, 5 and 10 to the financial statements disclose the gross income and gross capital gains of the primary buyout funds and also reflect the proportion of net income and capital gains in the buyout funds which has been paid to the general partner as its PPS and to the founder partner as carried interest, where applicable.

The PPS paid from net income is charged to the revenue account in the income statement, where there is insufficient income PPS is charged as an unrealised depreciation to the capital return on the income statement.

The carried-interest payments made from net income and capital gains are charged to the revenue and capital account respectively on the income statement.

Investment income and interest receivable

As stated above, all income that is recognised by the primary buyout funds, net of PPS, is allocated to HGT and recognised when the right to this income is established. Income from Hg 6 E LP and the renewable energy funds would normally consist of income distributions and these distributions are recognised as income in the financial statements of HGT when the right to such distribution is established.

The accounting policies below apply to the recognition of income by the primary buyout funds, prior to allocation between the Partners:

Interest income on non-equity shares and fixed income securities is recognised on a time apportionment basis so as to reflect the effective yield when it is probable that it will be realised. Dividends receivable on unlisted equity shares where there is no ex-dividend date and on non-equity shares are brought into account when the right to receive payment is established.

Income from listed equity investments, including taxes deducted at source, is included in revenue by reference to the date on which the investment is quoted ex-dividend. Where dividends are received in the form of additional shares rather than cash dividends, the equivalent of the cash dividend is recognised as the income in the revenue account and any excess in the value of the shares received over the amount of the cash dividend is recognised in the capital reserve - realised.

Expenses

All expenses are accounted for on an accruals basis. All administrative expenses are charged wholly to the revenue account.

Dividend

Dividend distributions to shareholders are recognised as a liability in the year that they are approved unconditionally.

Current and other non-current assets

Financial assets and financial liabilities are recognised in HGT's balance sheet when HGT becomes a party to the contractual provisions of the instrument. Trade receivables are stated at nominal value. Appropriate allowances for estimated irrecoverable amounts are recognised in the revenue return on the income statement.

Cash comprises current accounts held with banks.

Foreign currency

The functional and presentation currency is pounds sterling, reflecting the economic environment in which HGT predominantly operates. All transactions in foreign currencies are translated into sterling at the rates of exchange ruling at the dates of such transactions and the resulting exchange differences are taken to the capital reserve - realised or revenue, as appropriate. Foreign currency assets and liabilities at the balance sheet date are translated into sterling at the exchange rates ruling at that date and the resulting exchange differences are taken to the capital reserve - unrealised or revenue as appropriate.

Taxation

Income taxes represent the sum of the tax currently payable, withholding taxes suffered and deferred tax. Tax is charged or credited in the income statement. Deferred tax is recognised on all timing differences at the reporting date. These timing differences arise from the inclusion of income and expenses in tax assessments in periods different from those in which they are recognised in the financial statements.

Investments

The principle applied is that investments should be reported at 'fair value', in accordance with Sections 11 and 12 of FRS 102 and the International Private Equity and Venture Capital ('IPEV') Valuation Guidelines, December 2018 edition alongside the special issued valuation guidance in March 2020. Where relevant, HGT applies the policies stated below to the investments held by the primary buyout funds, in order to determine the fair value of its investments in these limited partnerships.

Purchases of investments are recognised on a trade date basis. Sales of investments held through the primary buyout funds are recognised at the trade date of the disposal. Sales from the investments in Hg 6 E LP and the renewable energy funds would normally consist of capital distributions and these distributions are recognised as a realisation when the right to such distribution is established. Proceeds are measured at fair value, which is regarded as the proceeds of sale less any transaction costs.

Quoted: Quoted investments are held at fair value, which is deemed to be their bid price.

Unquoted: Unquoted investments are also held at fair value and are valued using the following guidelines:

(i) the level of maintainable earnings or revenue and an appropriate earnings or revenue multiple, unless (iv) is required;

(ii) where more appropriate, investments can be valued based on other methodologies, including using their net assets or discounted cash flows, rather than on their earnings or revenue; and

(iii) appropriate fair value movements are made against all individual valuations where necessary to reflect unsatisfactory financial performance or a fall in comparable ratings.

Limited partnership funds: these are investments that are set up by a manager in which HGT has a direct investment, but is not the sole limited partner and does not hold a majority share. These investments are valued at fair value, based on the Manager's valuation after any adjustment required by the Directors.

Liquidity funds: these are short-term investments made in a combination of fixed and floating rate securities and are valued at the current fair value as determined by the manager of the fund. They can be realised at short notice.

Derivative financial instruments: derivative financial instruments are held at fair value and are valued using quoted market prices for financial instruments traded in active markets, or dealer price quotations for financial instruments that are not actively traded.

Both realised and unrealised gains and losses arising on fixed asset investments, financial assets and liabilities and derivative financial instruments, are taken to the capital reserves.

Capital reserves

Capital reserve - realised

The following are accounted for in this reserve:

(i) gains and losses on the realisation of investments;

(ii) attribution of gains to the founder partners for carried interest;

(ii) losses on investments where there is little prospect of realisation or recovering any value;

(iv) realised exchange differences of a capital nature; and

(v) expenses, together with the related taxation effect, charged to this reserve in accordance with the above policies.

Capital reserve - unrealised

The following are accounted for in this reserve:

(i) increases and decreases in the valuation of investments held at the year-end;

(ii) increases and decreases in the valuation of the loans to general partners; and

(iii) unrealised exchange differences of a capital nature.

Share capital

Ordinary shares issued are recognised based on the proceeds or fair value received, with the excess of the amount received over their nominal value being credited to the share premium account. Direct issue costs are deducted from equity.

Critical accounting estimates and key sources of estimation uncertainty

The preparation of these financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reported year. Although these estimates are based on management's best knowledge of the amount, event or actions, actual results may ultimately differ from those estimates.

The estimates and assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

The key accounting estimate is in respect of the determination of the fair value of financial assets classified as fair value through profit or loss (FVTPL). The methodology used in determining fair values is disclosed above. An attribution analysis of movements in the fair value of investments can be found on page 38 of the full Annual Report and an analysis of the trading performance and valuation and gearing analysis of the top 20 buyout investments by value can be found from pages 56 to 75 of the full Annual Report. A sensitivity analysis to equity price risk can be found in note 19.

4. Income

	Revenue return
	2021	2020
	£000	£000
Total net income comprises:
Interest	44,954	24,682
Dividend	2,479	-
Total net income	47,433	24,682

All income that is recognised by the primary buyout funds, net of PPS, is allocated to HGT and recognised when the right to this income is established. This income and PPS is analysed further below.

	Revenue return
	2021	2020
	£000	£000
Income from investments held by the primary buyout funds
Unquoted investment income	52,862	34,725
Dividend Income	2,479	-
Other investment income:
Unquoted investment income	8	-
Liquidity funds income	648	1,335
Total investment income	55,997	36,060
Total other income	-	60
Total income	55,997	36,120
Priority profit share charge against income:
Current year - HGT 8 LP	(3,946)	(5,711)
Current year - HGT Genesis 9 LP	(1,440)	-
Current year - HGT Saturn LP	(1,388)	(1,281)
Current year - HGT Mercury 2 LP	(1,154)	(2,092)
Current year - HGT 7 LP	(400)	(1,756)
Current year - HgCapital Mercury D LP	(154)	(371)
Current year - HGT Titan 1 LP	(55)	-
Current year - HGT LP	(27)	(40)
Current year - HGT Transition Capital LP	-	(187)
Current year - HGT 6 LP	-	-
Current year - HGT Saturn 2 LP	-	-
Current year - HGT Mercury 3 LP	-	-
Total priority profit share charge against income (note 5(a))	(8,564)	(11,438)
Total net income	47,433	24,682

5. Priority profit share and carried interest

	Revenue return
	2021	2020
(a) Priority profit share payable to general partners	£000	£000
Priority profit share payable:
Current year amount	16,385	14,614
Less: Current year loans advanced to general partners (note 5(b))	(8,153)	(3,922)
Add: Prior year loans recovered from general partners (note 5(b))	332	746
Current year charge against income	8,564	11,438
Total priority profit share charge against income	8,564	11,438

The priority profit share payable on the primary buyout funds rank as a first appropriation of net income from investments held in these partnerships respectively and is deducted prior to such income being attributed to HGT in its capacity as a Limited Partner. The net income of the primary buyout funds earned during the year, after the deduction of the priority profit share, is shown on the income statement. Details of these arrangements are disclosed in the Directors' report on page 114 of the full Annual Report.

The terms of the above priority profit share arrangements during 2021 were:

Primary buyout fund partnership	Priority profit share
HGT Genesis 9 LP	1.75% on the fund commitment during the investment period
HGT Mercury 3 LP	1.75% on the fund commitment during the investment period
HGT 8 LP	1.5% of original cost of investments in the fund, less the original cost of investments which have been realised or written off
HGT Mercury 2 LP	1.5% of original cost of investments in the fund, less the original cost of investments which have been realised or written off
HGT 7 LP	1.5% of original cost of investments in the fund, less the original cost of investments which have been realised or written off
HgCapital Mercury D LP	1.5% of original cost of investments in the fund, less the original cost of investments which have been realised or written off
HGT Saturn 2 LP	1.0% on the fund commitment during the investment period
HGT Saturn LP	1.0% on invested capital
HGT LP	1.0% on invested capital excluding co-investment

In addition, priority profit shares are payable on partnerships where HGT is a minority limited partner invested pari passu with other institutional investors. These amounts are initially and indirectly funded by HGT through the amounts invested in these partnerships and these amounts are recognised as unrealised losses in the capital account in the income statement.

Fund partnership	Priority profit share
Asper Renewable Power Partners LP	1.5% of original cost of investments in the fund, less the original cost of investments that have been realised or written-off.

	Capital return
	2021	2020
(b) Priority profit share loans to general partners within the underlying limited partnerships	£000	£000
Movement on loans to general partners:
Losses on current-year loans advanced to general partners	(8,153)	(3,922)
Gains on prior-year loans recovered from general partners	332	746
Total losses on priority profit share loans advanced to general partners	(7,821)	(3,176)

In years in which the funds described in note 5(a) have not yet earned sufficient net income to satisfy the priority profit share, the entitlement is carried forward to the following years. The priority profit share is payable quarterly in advance, even if insufficient net income has been earned. Where the cash amount paid exceeds the net income, an interest free loan is advanced to the general partner by these primary buyout funds, which is funded via a loan from HGT. Such loan is only recoverable from the general partner by an appropriation of net income, until sufficient net income is earned, no value is attributed to this loan and hence an unrealised capital loss is recognised and reversed if sufficient income is subsequently generated.

	Capital return
	2021	2020
(c) Carried interest to founder partners	£000	£000
Carried interest charge against capital gains:
Current year charge against realised capital gains	32,472	37,204
Current year charge against unrealised capital gains	90,063	23,429
Total carried-interest charge against capital gains	122,535	60,633

The carried interest payable ranks as a first appropriation of capital gains, after preferred return, on the investments held in the primary buyout funds, limited partnerships established solely to hold HGT's investments, and is deducted prior to such gains being paid to HGT in its capacity as a Limited Partner. The net amount of capital gains of the primary buyout funds during the year, after the deduction of carried interest, is shown in the income statement.

The details of the carried interest contracts, disclosed in the Directors' report on page 114 of the full Annual Report, state that carried interest is payable once a certain level of repayments have been made to HGT. Based on the repayments made during 2021, £32,472,000 (2020: £37,204,000) of carried interest was paid in respect of the current financial year. If the investments in HGT 7 LP, HGT 8 LP, HGT Saturn LP, HgCapital Mercury D LP and HGT Mercury 2 LP are realised at the current fair value and then distributed to Partners, an amount of £171,578,957 will be payable to the Founder Partner (2020: £81,515,738 payable to the Founder Partner) and therefore the Directors have made a provision for this amount (see note 12). No provision is required in respect of HGT's investment in the other fund limited partnerships, because they are still in their investment period.

6. Other expenses

	Revenue return
	2021	2020
(a) Operating expenses	£000	£000
Registrar, management and administration fees	1,544	1,108
Directors remuneration (note 8)	342	292
Legal and other administration costs¹	3,702	3,340
	5,588	4,740
Fees payable to HGT's auditor in relation to HGT:
Audit fees²	115	106
Total fees payable to HGT's auditor	115	106
Total other expenses	5,703	4,846

¹Includes employer's National Insurance contributions of £37,999 (2020: £34,030).

²In addition to the audit fees payable to the auditor in relation to HGT, audit fees payable to the auditor in respect of the audit of the primary buyout funds were £93,600 (2020: £69,000) inclusive of VAT.

	Revenue return
	2021	2020
(b) Finance costs	£000	£000
Interest paid	1,677	1,444
Non-utilisation fees and other expenses	2,279	717
Arrangement fees	1,138	864
Total finance costs	5,094	3,025

7. Cash flow from operating activities

Reconciliation of net return before finance costs and taxation to net cash flow from operating activities	2021	2020
	£000	£000
Net return before finance costs and taxation	600,039	249,982
Gains on investments held at fair value and liquidity funds	(657,515)	(260,351)
Carried interest paid	(32,472)	(37,204)
Increase in carried interest provision	90,063	23,429
Increase in accrued income from liquidity funds	(648)	(1,335)
Increase in accrued income and other debtors	(29,775)	(17,254)
Increase/(decrease) in creditors	1,717	(61)
Decrease/(increase) in uninvested capital	26,311	(26,245)
Taxation received/(paid)	192	(2)
Net cash outflow from operating activities	(2,088)	(69,041)

8. Directors' remuneration

The aggregate remuneration of the Directors for the year to 31 December 2021 was £341,750 (2020: £291,684). Further information on the Directors' remuneration is disclosed in the Directors' remuneration report on pages 129-131 of the full Annual Report.

9. Taxation

In the opinion of the Directors, HGT has complied with the requirements of section 1158 and section 1159 of the CTA 2010 and will, therefore, be exempt from corporation tax on any capital gains reported in the capital return during the year. To the extent possible, HGT will elect to designate all of the proposed dividend (see note 11) as an interest distribution to its shareholders. This distribution is treated as a tax deduction against taxable income in the revenue return and results in a reduction of corporation tax being payable by HGT at 31 December 2021.

The rate of corporation tax in the UK for a company was 19% during the year (2020: tax rate of 19%). However, the tax charge in the current and previous year was lower than the standard and effective tax rate, owing largely to the reduction in corporation tax from the interest distribution noted above. The effect of this and other items affecting the tax charge is shown in note 9(b) below.

	Revenue return
	2021	2020
(a) Analysis of charge in the year	£000	£000
Current tax:
UK corporation tax	6,583	2,798
Income streaming relief	(6,476)	(2,802)
Prior year adjustment	(192)	6
Tax losses brought forward	(107)	-
Current revenue tax (credit)/charge for the year	(192)	2
Deferred tax:
Reversal of timing differences	-	-
Total deferred tax charge for the year (note 9(c))	-	-
Total taxation (credit)/charge	(192)	2

	Revenue return
	2021	2020
(b) Factors affecting tax (credit)/charge for the year	£000	£000
Net revenue return before taxation	36,636	16,811
UK corporation tax charge at 19% thereon (2020: 19%)	6,961	3,194
Effects of:
Tax relief from interest distribution	(6,476)	(2,802)
Tax relief from expenses allocated to capital	(378)	(396)
Prior year tax adjustment	(192)	6
Tax losses brought forward	(107)	-
Total differences	(7,153)	(3,192)
Total taxation (credit)/charge	(192)	2

	Revenue return
	2021	2020
(c) Deferred tax	£000	£000
Deferred tax:
Movement in taxable income not recognised in revenue return	-	-
Total deferred tax charge for the year (note 9(a))	-	-
Deferred tax recoverable:
Recoverable deferred tax at 31 December	-	-
Deferred tax charge for the year	-	-
Recoverable deferred tax at end of year	-	-

Deferred tax assets of £nil were recognised at 31 December 2021 (2020: £nil at a 19% tax rate).

10. Return and net asset value per Ordinary share

	Revenue return		Capital return
(a) Basic and diluted return per ordinary share	2021	2020	2021	2020
Amount (£000):
Net return after taxation	36,828	16,809	558,309	230,146
Weighted average number of ordinary shares (000):
Weighted average number of ordinary shares in issue	433,799	408,765	433,799	408,765
Basic and diluted return per ordinary share (pence)	8.49	4.11	128.70	56.30

The basic and diluted EPS are the same as the Company does not have dilutive financial instruments.

	Capital return
(b) Net asset value per ordinary share	2021	2020
Amount (£000):
Net assets	2,005,724	1,291,016
Number of ordinary shares (000):
Number of ordinary shares in issue	455,280	416,000
Net asset value per ordinary share (pence)	440.5	310.3

11. Dividends on ordinary shares

			2021	2020
	Record date	Payment date	£000	£000
Interim Dividend of 2.0p for the year ended 31 December 2021	16 September 2021	22 October 2021	8,832	-
Final Dividend of 3.0p for the year ended 31 December 2020	29 April 2021	27 May 2021	12,828	-
Interim Dividend of 2.0p for the year ended 31 December 2020	24 September 2020	28 October 2020	-	8,176
Final Dividend of 3.0p for the year ended 31 December 2019	19 March 2020	15 May 2020	-	12,223
Total equity dividends paid			21,660	20,399

The proposed final dividend of 5.0 pence per ordinary share for the year ended 31 December 2021 is subject to approval by the shareholders at the annual general meeting and has not been included as a liability in these financial statements. The total dividends payable in respect of the financial year, which form the basis of the retention test as set out in Section 1159 of the CTA 2010, are set out below:

	2021	2020
	£000	£000
Revenue available for distribution by way of dividend for the year	36,828	16,809
Interim dividend of 2.0p for the year ended 31 December 2021 (paid on 22 October 2021)	(8,832)	(12,223)
Proposed final dividend of 5.0p for the year ended 31 December 2021 (based on 455,279,808 ordinary shares in issue at 31 December 2021)	(22,764)	(12,480)
Undistributed revenue/(distributions in excess of revenue) for Section 1159 purposes*	5,232	(7,894)

*Distributions in excess of revenue are financed by the revenue reserve

12. Fixed asset investments

	2021	2020
	£000	£000
Investments held at fair value through profit and loss:
Unquoted investments held in HGT 8 LP	697,719	431,092
Unquoted investments held in HGT Saturn 2 LP	336,397	112,992
Unquoted investments held in HGT Genesis 9 LP	281,995	57,734
Unquoted investments held in HGT Saturn LP	265,810	208,138
Unquoted investments held in HGT Mercury 2 LP	160,471	94,659
Unquoted investments held in HGT LP	141,477	71,108
Unquoted investments held in HGT 7 LP	74,914	103,527
Unquoted investments held in HGT Mercury 3 LP	34,621	-
Unquoted investments held in HgCapital Mercury D LP	12,711	30,702
Other unquoted investments held by the company	311	2,239
Unquoted investments held in HGT Transition Capital LP	-	29,126
Total fixed asset investments gross of carried interest provision	2,006,426	1,165,403
Carried interest provision (note 5(c))	(171,579)	(81,516)
Fund level facilities*	(156,839)	(59,771)
Total fixed asset investments	1,678,008	1,024,116
Total fixed asset investments consist of:
Fund limited partnerships	1,678,008	1,024,116

^*Loan facility in the underlying funds that resulted in proceeds received by HGT.

		2021	2020
		£000	£000
Opening valuation as at 1 January		1,024,116	788,013
Opening unrealised appreciation	- investments	(339,497)	(329,086)
Opening carried interest provision		81,516	58,087
Opening advanced proceeds		59,771	-
Opening book cost as at 1 January		825,906	517,014
Movements in the year:
Additions at cost		424,336	403,215
Disposals	- proceeds	(279,628)	(383,025)
	- realised gains on sales	122,294	288,702
Closing book cost of investments		1,092,908	825,906
Add: closing unrealised appreciation	- investments	913,518	339,497
Less: closing carried interest provision		(171,579)	(81,516)
Less: fund level facilities		(156,839)	(59,771)
Closing valuation of investments at 31 December		1,678,008	1,024,116

The investments above include investments in companies that are indirectly held by HGT through its investment in the primary buyout funds as set out in note 3 on page 83 in the full Annual Report, and investments in fund limited partnerships in Hg 6 E LP and Asper Renewable Power Partners LP. The net assets attributable to partners at 31 December 2020, being the date of the last audited balance sheet, of these primary buyout funds were £71,108,224 (HGT LP), £24,085,862 (HGT 6 LP), £103,527,054 (HGT 7 LP), £30,701,781 (HgCapital Mercury D LP), £431,091,918 (HGT 8 LP), £94,659,381 (HGT Mercury 2 LP), £208,138,396 (HGT Saturn LP), £29,126,013 (HGT Transition Capital LP), £112,991,806 (HGT Saturn 2 LP) and £57,733,503 (HGT Genesis 9 LP).

a) Uninvested capital in limited partnerships

Uninvested capital in the limited partnerships relates to cash held in the underlying limited partnerships as a result of timing differences before an investment or after a realisation. Cash held at the fund level at the 31 December 2021 was £0.2 million (2020: £26.5 million).

13. Gains on investments and liquidity funds

		Capital return
		2021	2020
		£000	£000
Realised:
Realised gains/(losses)	- fixed asset investments	122,294	288,702
	- liquidity funds	236	2,117
	- foreign exchange losses	(1,234)	-
	- aborted deal fees	(1,991)	548
	- loan facility	-	224
		119,305	291,591
Carried interest charge against realised capital gains (note 5(c))		(32,472)	(37,204)
Net realised gains		86,833	254,387
Unrealised:
Unrealised gains/(losses)	- fixed asset investments	574,021	10,411
	- foreign exchange on investments	1,861	(2,288)
	- liquidity funds	(1,015)	(2,238)
	- aborted deal fees	42	(2,084)
	- foreign exchange on loan facility	1,339	-
		576,248	3,801
Carried interest charge against unrealised capital gains (note 5(c))		(90,063)	(23,429)
Fund level facilities¹		(6,888)	(1,437)
Net unrealised gains / (losses)		479,297	(21,065)
Total gains		566,130	233,322

¹Loan facility in the underlying funds that resulted in proceeds received by HGT.

Page 38 of the Manager's Review in the full Annual Report contains an analysis of all material realised and unrealised movements in value of individual investments held as fixed asset investments, in accordance with paragraph 28 and 29 of the 'SORP'.

14. Debtors and accrued income

	2021	2020
	£000	£000
Amounts receivable after one year:
Accrued income on fixed assets	102,166	70,953
Amounts receivable within one year:
Prepayments and other debtors	8,090	9,528
Total amounts receivable within one year	8,090	9,528
Total debtors	110,256	80,481

The Directors consider that the carrying amount of debtors approximates their fair value.

15. Liquidity funds

	2021	2020
	£000	£000
Investments held at fair value through profit or loss:
Opening valuation	139,470	184,505
Purchases at cost	195,200	271,900
Redemptions	(57,490)	(318,149)
Movement in unrealised capital losses	(1,015)	(2,238)
Movement in accrued income	648	1,335
Realised capital gains	236	2,117
Closing valuation	277,049	139,470

16. Movement in net debt

	2021	2020
	£000	£000
Analysis and reconciliation of net funds:
Net funds at 1 January	21,648	4,558
Change in cash	72,632	17,090
Change in debt due after one year	(152,481)	(224)
Other non-cash changes	1,339	224
Net (debt)/funds at 31 December	(56,862)	21,648
Net funds comprise:
Cash	94,280	21,648
Debt due after one year	(151,142)	-

17. Creditors - amounts falling due within one year

	2021	2020
	£000	£000
Accruals	2,887	1,170
Total creditors	2,887	1,170

The Directors consider that the carrying amount of creditors approximates their fair value.

18. Bank facility

	2021	2020
	£000	£000
Opening valuation	-	-
Draw on loan facility	152,481	80,271
Repayment of loan facility	-	(80,047)
Unrealised gains	(1,339)	-
Realised gains	-	(224)
Total loan facility	151,142	-

In June 2019 HGT entered into an £80 million facility. In October 2020 this facility was repaid in full and a revised facility agreed for £200 million. In December 2021 the facility was increased to £250 million. Under the facility agreement, HGT is liable to pay interest on any drawn amount at LIBOR plus a margin of 3.25%. A commitment fee of 1.15% is liable on any undrawn commitment. The term of this facility is four years. The facility was 60% drawn as at the end of the year.

19. Financial risk

The following disclosures relating to the risks faced by HGT are provided in accordance with sections 11 and 12 of FRS 102. The reference to investments in this note is in relation to HGT's direct investments in Asper RPP I LP, Hg 6 E LP and the underlying investments in HGT LP, HGT 6 LP, HGT 7 LP, HGT 8 LP, HgCapital Mercury D LP,HGT Mercury 2 LP, HGT Saturn LP, HGT Saturn 2 LP, HGT Genesis 9 LP and HGT Transition Capital LP as described in note 3 on page 83 of the full Annual Report.

Financial instruments and risk profile

HGT's investment objective is to achieve long-term capital appreciation by indirectly investing in unquoted companies. It does this through its investments in fund partnerships, mostly in the UK and Europe. Additionally, HGT holds UK Government securities, cash, liquidity funds and items such as debtors and creditors arising directly from its operations. In pursuing its investment objective, HGT is exposed to a variety of risks that could result in either a reduction of HGT's net assets or a reduction in the profits available for distribution by way of dividends. Valuation risk, market risk (comprising currency risk and interest rate risk), liquidity risk and credit risk, and the Directors' approach to the management of them, are described below. The Board and Hg coordinate HGT's risk management. The objectives, policies and processes for managing the risks, and the methods used to manage the risks, that are set out below, have not changed from the previous accounting period.

Valuation risk

HGT's exposure to valuation risk arises mainly from movements in the value of the underlying investments (held through fund partnerships), the majority of which are unquoted. A breakdown of HGT's portfolio is given on page 43 of the full Annual Report and a breakdown of the most significant underlying investments is given on page 54. In accordance with HGT's accounting policies, the investments in fund limited partnerships are valued by reference to their underlying unquoted investments, which are valued by the Directors following the IPEV Valuation Guidelines. Page 41 of the full Annual Report includes details of the most significant assumptions included in the valuations. HGT does not hedge against movements in the value of these investments, apart from foreign exchange movements as explained below, though the borrowing arranged to fund these investments is normally denominated in the currency in which the business is operating and valued (see page 98 of the full Annual Report). HGT has exposure to interest rate movements, through bank deposits and liquidity funds.

In the opinion of the Directors, the diversified nature of HGT's investments significantly reduces the risks of investing in unquoted companies.

FRS 102 requires HGT to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:

• Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).

• Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2).

• Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).

The level in the fair value hierarchy, within which the fair value measurement is categorised in its entirety, is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that is a level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability.

The determination of what constitutes an 'observable' input requires significant judgement by the Board. The Board considers observable data relating to investments actively traded in organised financial markets, in which case fair value is generally determined by reference to stock exchange quoted market bid prices at the close of business on the balance sheet date, without adjustment for transaction costs necessary to realise the asset.

The following table analyses, within the fair value hierarchy, the fund's financial assets (by class) measured at fair value at 31 December 2021.

	Level 1	Level 2	Level 3	Total
	£000	£000	£000	£000
Investments held at fair value through profit and loss:
Unquoted investments
- Investment in HGT 8 LP	-	-	697,719	697,719
- Investment in HGT Saturn 2 LP	-	-	336,397	336,397
- Investment in HGT Genesis 9 LP	-	-	281,995	281,995
- Investment in HGT Saturn LP	-	-	265,810	265,810
- Investment in HGT Mercury 2 LP	-	-	160,471	160,471
- Investment in HGT LP	-	-	141,477	141,477
- Investment in HGT 7 LP	-	-	74,914	74,914
- Investment in HGT Mercury 3 LP	-	-	34,621	34,621
- Investment in Hg Mercury D LP	-	-	12,711	12,711
- Investment in Asper RPP I LP	-	-	311	311
- Liquidity funds	-	277,049	-	277,049
- Carried interest provision	-	-	(171,579)	(171,579)
- Fund level refinancing	-	-	(156,839)	(156,839)
- Uninvested capital in limited partnerships	-	-	160	160
As at 31 December 2021	-	277,049	1,678,168	1,955,217

	Level 1	Level 2	Level 3	Total
	£000	£000	£000	£000
Investments held at fair value through profit and loss:
Unquoted investments
- Investment in HGT 8 LP	-	-	431,092	431,092
- Investment in HGT Saturn LP	-	-	208,138	208,138
- Investment in HGT Saturn 2 LP	-	-	112,992	112,992
- Investment in HGT Saturn LP	-	-	103,527	103,527
- Investment in HGT Mercury 2 LP	-	-	94,659	94,659
- Investment in HGT LP	-	-	71,108	71,108
- Investment in HGT Genesis 9 LP	-	-	57,734	57,734
- Investment in Hg Mercury D LP	-	-	30,702	30,702
- Investment in HGT Transition Capital LP	-	-	29,126	29,126
- Investment in HGT 6 LP	-	-	24,086	24,086
- Investment in HG6 E LP	-	-	2,239	2,239
- Liquidity funds	-	139,470	-	139,470
- Carried interest provision	-	-	(81,516)	(81,516)
- Uninvested capital in limited partnerships	-	-	26,471	26,471
As at 31 December 2020	-	139,470	1,050,587	1,190,057

Investments whose values are based on quoted market prices in active markets, and therefore classified within level 1, include government securities and actively traded listed equities. HGT does not adjust the quoted bid price of these investments.

Financial instruments that trade in markets that are not considered to be active, but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs, are classified within level 2. As level 2 investments include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available market information.

Investments classified within level 3 have significant unobservable inputs. Level 3 instruments include private equity and corporate debt securities. As observable prices are not available for these securities, the Board has used valuation techniques to derive the fair value. In respect of unquoted instruments, or where the market for a financial instrument is not active, fair value is established by using recognised valuation methodologies, in accordance with IPEV Valuation Guidelines. Fair value is the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm's length transaction.

There were no transfers of assets from level 1 to level 2 or 3, level 2 to level 1 or 3 and level 3 to level 1 or 2.

The following table presents the movement in level 3 investments for the year ended 31 December 2021 by class of financial instrument.

Total investments in limited partnerships	2021	2020
	£000	£000
Unquoted investments:
Opening balance	1,024,116	788,013
Purchases	424,336	403,215
Realisations at 31 December 2020 valuation	(198,150)	94,046
Unrealised appreciation of fixed asset investments	614,837	(177,958)
Movement in net carried interest provision	(90,063)	(23,429)
Fund level refinancing	(97,068)	(59,771)
Closing unrealised valuation of level 3 investments	1,678,008	1,024,116

Equity price risk

Equity price risk is the risk of a fall in the fair value of HGT's ownership interests (comprising equities and shareholder loans) held by HGT indirectly through its direct investments in fund limited partnerships. The Board revalues each investment on a quarterly basis. The Board manages the risks inherent in HGT's investment activities by ensuring full and timely access to relevant information from Hg. The Board meets regularly and at each meeting reviews the trading performance of the principal underlying investments. If there appears to the Board to be a fair value movement in value between regular valuations, it can revalue the investment. The Board also monitors Hg's compliance with HGT's investment objective and investment policy.

For unquoted equity investments, the market risk variable is deemed to be the multiples applied to a maintainable earnings figure to calculate the individual investment valuations within each of the primary buyout funds; borrowing is then deducted to arrive at a valuation of the net equity held by HGT. These multiples are largely based on the historic trading multiples of comparable businesses and therefore there is a potential impact on the valuation of unquoted investments of a fall in global equity markets. Hg's best estimate of the effect on the net assets of HGT due to a 1x reduction in the multiples applied to calculate the enterprise value of all unquoted investments, with all other variables held constant, is as follows:

	2021		2020
	£000	NAV per ordinary share Pence	£000	NAV per ordinary share Pence
Sensitivity to equity price risk: 1x reduction in EV to EBITDA multiple applied to unquoted investments
Change in the value of unquoted investments	(129,215)	(28.4)	(59,864)	(14.7)

A fall in the value of unquoted investments could be mitigated to some degree by a reduction in the provision for carried interest (£172 million at 31 December 2021), but only in funds where an adjustment for carried interest is required (Hg Genesis 6, Hg Genesis 7, Mercury 1, Hg Genesis 8, Hg Saturn and Mercury 2, see note 5(c) or on page 87 of the full Annual Report). Hg's best estimate of the impact on the carried interest provision of the above change in value of unquoted investments is a reduction in the provision of £14,336,000, 3.1 pence per ordinary share (2020: £17,715,000, 4.3 pence per ordinary share). There are likely to be other correlations (either positive or negative) between the assumptions and other factors. Other inputs, such as the earnings of individual investments within the primary buyout funds are likely to have a significant impact on the value of unquoted investments. See page 40 of the Manager's report in the full Annual Report for an analysis of the portfolio trading performance as at 31 December 2021. The Board regularly stress tests the NAV.

Credit risk

Credit risk is the risk of financial loss in the event that any of HGT's market counterparties fail to fulfil their contractual obligations to HGT. HGT's financial assets (excluding fixed asset investments) that are subject to credit risk, were neither impaired nor overdue at the year-end. HGT's cash balances were held with the Royal Bank of Scotland International and amounts not required for day-to-day use were invested in liquidity funds managed by Royal London Asset Management which are rated AAA by Fitch. Foreign exchange forward contracts and options are held with counterparties which have credit ratings which the Board considers to be adequate. The Board regularly monitors the credit quality and financial position of these market counterparties. The credit quality of the above mentioned financial assets was deemed satisfactory.

Market risk

The fair value of future cash flows of a financial instrument held by HGT may fluctuate due to changes in market prices of comparable businesses. This market risk may comprise: currency risk (see below), interest rate risk and/or equity price risk (see above). The Board of Directors reviews and agrees policies for managing these risks. Hg assesses the exposure to market risk when making each investment decision, and monitors the overall level of market risk across all of HGT's investments on an ongoing basis.

Currency risk and sensitivity

HGT is exposed to currency risk as a result of investing in fund partnerships which invest in companies that operate and are therefore valued in currencies other than sterling. The value of these assets in sterling, being HGT's functional currency, can be significantly influenced by movements in foreign exchange rates. Borrowing raised to fund each acquisition in such companies is normally denominated in the currency in which the business is operating and valued, thus limiting HGT's exposure to the value of its investments, rather than the gross enterprise value. From time to time, HGT is partially hedged against movements in the value of foreign currency against sterling where a movement in exchange rate could affect the value of an investment, as explained below. Hg monitors HGT's exposure to foreign currencies and reports to the Board on a regular basis. The following table illustrates the sensitivity of the revenue and capital return for the year in relation to HGT's year-end financial exposure to movements in foreign exchange rates against sterling. The rates represent the range of movements against sterling over the current year for the currencies listed, and are considered the best estimate for movements looking forward.

In the opinion of the Directors, the sensitivity analysis below may not be representative of the year as a whole, since the level of exposure changes as HGT's holdings change through the purchase and realisation of investments to meet HGT's objectives.

	2021				2020
	Revenue return		Capital return		Revenue return		Capital return
		NAV per ordinary share		NAV per ordinary share		NAV per ordinary share		NAV per ordinary share
	£000	Pence	£000	Pence	£000	Pence	£000	Pence
Highest value against sterling during the year:
Danish krone	(1)	-	(15)	-	119	0.3	793	1.9
Euro	(15)	-	(197)	(0.4)	1,375	3.3	16,436	39.5
New Zealand dollar	-	-	-	-	-	-	17	-
Norwegian krone	-	-	(7,817)	(17.2)	-	-	2,262	5.4
US dollar	(147)	(0.3)	(21,296)	(46.8)	356	0.9	31,134	74.8
CAD dollar	(93)	(0.2)	(6,075)	(13.3)	6	-	3,293	7.9
	(256)	(0.5)	(35,400)	(77.7)	1,856	4.5	53,935	129.5
Lowest value against sterling during the year:
Danish krone	352	0.8	4,526	9.9	(213)	(0.5)	(1,420)	(3.4)
Euro	2,934	6.4	39,735	87.3	(2,165)	(5.2)	(25,874)	(62.2)
New Zealand dollar	-	-	-	-	-	-	(90)	(0.2)
Norwegian krone	-	-	9,653	21.2	-	-	(21,219)	(51.0)
US dollar	79	0.2	11,546	25.4	-	-	6	-
CAD dollar	56	0.1	3,652	8.0	(3)	-	(1,758)	(4.2)
	3,421	7.5	69,112	151.8	(2,381)	(5.7)	(50,355)	(121.0)

At 31 December 2021, the following rates were applied to convert foreign denominated assets into sterling: Danish krone (8.8585); euro (1.1910); New Zealand dollar (1.9783); Norwegian krone (11.9440); US dollar (1.3545) and CAD dollar (1.7109).

Hedging

At times, HGT uses derivative financial instruments such as forward foreign currency contracts and option contracts to manage the currency risks associated with its underlying investment activities. The contracts entered into by HGT are denominated in the foreign currency of the geographic areas in which HGT has significant exposure against its reporting currency. The contracts are used for hedging and the fair values thereof are recorded in the balance sheet as investments held at fair value. Unrealised gains and losses are taken to capital reserves. At the balance sheet date, there were no outstanding derivative financial instruments (2020: nil).

HGT does not trade in derivatives but may hold them from time to time to hedge specific exposures with maturities designed to match the exposures they are hedging. It is the intention to hold both the financial investments giving rise to the exposure and the derivatives hedging them until maturity and therefore no net gain or loss is expected to be realised.

Derivatives are held at fair value, which represents the replacement cost of the instruments at the balance sheet date. Movements in the fair value of derivatives are included in the income statement. HGT does not adopt hedge accounting in the financial statements.

Interest rate risk and sensitivity

HGT has exposure to interest rate movements as this may affect the fair value of funds awaiting investment, interest receivable on liquid assets and managed liquidity funds, and interest payable on borrowings. HGT has little immediate direct exposure to interest rates on its fixed assets, as the majority of the underlying investments are fixed rate loans or equity shares that do not pay interest. Therefore, HGT's revenue return is not materially affected by changes in interest rates.

However, funds awaiting investment have been invested in managed liquidity funds and, as stated above, their valuation is affected by movements in interest rates. The sensitivity of the capital return of HGT to movements in interest rates has been based on the UK base rate. With all other variables constant, a 0.25% decrease in the UK base rate should increase the capital return in a full year by about £690,000 (2020: £360,000) with a corresponding decrease if the UK base rate were to increase by 0.25%. In the opinion of the Directors, the above sensitivity analyses may not be representative of the year as a whole, since the level of exposure changes as investments are made and realised throughout the year.

Liquidity risk

Investments in unquoted companies, which form the majority of HGT's investments, may not be as readily realisable as investments in quoted companies, which might result in HGT having difficulty in meeting its obligations. Liquidity risk is currently not significant as 19% of HGT's net assets at the year-end are liquid resources and, in addition, HGT has a £250 million multi-currency bank facility which had £99 million undrawn capacity at the year end . The Board gives guidance to Hg as to the maximum amount of HGT's resources that should be invested in any one company. For further details refer to HGT's Investment Policy on page 13 of the full Annual Report.

Currency and interest rate exposure

HGT's financial assets that are subject to currency and interest rate risk are analysed below:

	2021				2020
	Fixed and floating rate	Non interest- bearing	Total	Total	Fixed and floating rate	Non interest- bearing	Total	Total
	£000	£000	£000	%	£000	£000	£000	%
Sterling	371,489	373,425	744,914	34.2	187,589	375,482	563,071	41.4
Euro	-	537,380	537,380	24.7	-	386,450	386,450	28.4
Norwegian krone	-	213,002	213,002	9.8	-	144,646	144,646	10.6
US dollar	-	454,933	454,933	20.9	-	166,018	166,018	12.2
Danish krone	-	61,627	61,627	2.8	-	21,525	21,525	1.6
New Zealand dollar	-	-	-	-	-	948	948	0.1
CAD dollar	-	165,447	165,447	7.6	-	77,678	77,678	5.7
Total	371,489	1,805,814	2,177,303	100.0	187,589	1,172,747	1,360,336	100.0

Short-term debtors and creditors, which are excluded, are mostly denominated in sterling, the functional currency of HGT. The fixed and floating rate assets consisted of cash and liquidity funds, of which the underlying investments are a combination of fixed and floating rate. The non-interest-bearing assets represent the investments held in fund limited partnerships, net of the provision for carried interest.

Capital management policies and procedures

HGT's capital management objectives are to ensure that it will be able to finance its business as a going concern and to maximise the revenue and capital return to its equity shareholders.

HGT's capital at 31 December 2021 comprised:

	2021	2020
	£000	£000
Equity:
Equity share capital	11,382	10,400
Share premium	359,971	219,722
Capital redemption reserve	1,248	1,248
Retained earnings and other reserves	1,633,123	1,059,646
Total capital	2,005,724	1,291,016

With the assistance of Hg, the Board monitors and reviews the broad structure of HGT's capital on an ongoing basis. This review covers:

• the projected level of liquid funds (including access to bank facilities);

• the desirability of buying back equity shares, either for cancellation or to hold in treasury, balancing the effect (if any) this may have on the discount at which shares in HGT are trading against the advantages of retaining cash for investment;

• the opportunity to raise funds by an issue of equity shares; and

• the extent to which revenue in excess of that which is required to be distributed should be retained, while maintaining its status under Section 1158 of the CTA 2010.

HGT's objectives, policies and processes for managing capital are unchanged from the preceding accounting period.

20. Called-up share capital

	2021		2020
	No. 000	£000	No. 000	£000
Ordinary shares of 2.5p each:
Allotted, called up and fully paid:
At 1 January	416,000	10,400	407,425	10,186
Sub-division of ordinary shares	-	-	-	-
Issues of ordinary shares	39,280	982	8,575	214
At 31 December	455,280	11,382	416,000	10,400
Total called-up share capital	455,280	11,382	416,000	10,400

While HGT no longer has an authorised share capital, the Directors will still be limited as to the number of shares they can at any time allot, as the Companies Act 2006 requires that Directors seek authority from shareholders for the allotment of new shares. Share issue costs incurred during the year were £1,426,573 (2020: £254,167). Total proceeds received from the issuance of shares during the year were £141,230,750 (2020: £25,162,000).

21. Share premium account and reserves

	Share premium account	Capital redemption reserve	Capital reserve unrealised	Capital reserve realised	Revenue reserve
	£000	£000	£000	£000	£000
As at 1 January 2021	219,722	1,248	240,712	798,988	19,946
Issues of ordinary shares	140,249	-	-	-	-
Transfer on disposal of investments	-	-	(40,816)	40,816	-
(Losses)/gains on liquidity funds	-	-	(1,015)	236	-
(Losses)/gains on aborted deal fees	-	-	42	(1,991)	-
Foreign exchange gain on loan facility	-	-	1,339	-	-
Net movement on sale of fixed asset investments	-	-	-	81,478	-
Net movement in unrealised appreciation of fixed asset investments	-	-	614,837	-	-
Foreign exchange gain/(loss) on fixed asset investments	-	-	1,861	-	-
Foreign exchange gain/(loss) on portfolio facilities	-	-	(6,888)	-	-
Foreign exchange gain/(loss) on cash balances	-	-	-	(1,234)	-
Dividends paid	-	-	-	-	(21,660)
Net revenue return	-	-	-	-	36,828
Net loans recovered from General Partners	-	-	(7,821)	-	-
Carried interest	-	-	(90,063)	(32,472)	-
As at 31 December 2021	359,971	1,248	712,188	885,821	35,114

22. Commitment in fund partnerships and contingent liabilities

Fund	Original commitment	¹	Outstanding at 31 Dec
	Original commitment		2021		2020
	£000		£000		£000
HGT Saturn 3 LP	627,538	²	627,538		-
HGT LP	92,285	³	92,285		1,300
HGT Saturn 2 LP	295,312	⁴	67,835		200,605
HGT Genesis 9 LP	302,267	⁵	66,162		263,218
HGT Mercury 3 LP	96,558	⁶	64,033		102,936
HGT 8 LP	350,000		51,499		9,700
HGT Saturn LP	150,000		15,944		7,900
HgCapital Mercury D LP	60,000	⁷	3,265		3,300
HGT Mercury 2 LP	80,000		1,849		4,700
HGT 7 LP	200,000	⁷	992		1,200
Asper RPP I LP	18,170	⁸	581	⁹	600
HGT Transition Capital LP	75,000		-		49,600
HGT 6 LP	285,029	⁷	-		2,300
Hg 6 E LP	15,000	⁷	-		100
Total outstanding commitments			991,983		647,459

¹HGT has the benefit of an opt-out provision in connection with its commitments to invest alongside Hg Genesis 8, Hg Mercury 2, Hg Saturn, Transition Capital, Hg Saturn 2, Hg Genesis 9, Hg Mercury 3 and Hg Saturn 3 allowing it to opt out of its obligation to fund draw-downs under its commitments, without penalty, where certain conditions exist.

²Sterling equivalent of $850,000,000.

³Sterling equivalent of $125,000,000 of junior debt.

⁴Sterling equivalent of $400,000,000.

⁵Sterling equivalent of €360,000,000.

⁶Sterling equivalent of €360,000,000.

⁷5.5% of the original £300 million to the HgCapital 6 Fund, 7.6% of the £60 million to the Mercury 1 Fund and 12.4% of the original £200 million to the HgCapital 7 Fund have subsequently been cancelled, as the Manager deemed that it was unlikely to be required.

⁸Sterling equivalent of €21,640,000.

⁹Sterling equivalent of €692,000 (2020: €834,000).

23. Key agreements, related party transactions and ultimate controlling party

Key agreements, related party transactions and ultimate controlling party

Hg acts as Manager of HGT through a management agreement and indirectly participates through fund limited partnership agreements as the general partners and, alongside a number of Hg's executives (past and present), as the founder partners of the fund partnerships in which HGT invests. In addition, Hg acts as Administrator of HGT.

HGT has no ultimate controlling party.

HGT's related parties are its Directors. Fees paid to HGT's Board are disclosed in the Directors' Remuneration Report on pages 129 to 131 in the full Annual Report and employer's National Insurance contributions are disclosed in note 6(a). There are no other identified related parties at the year-end, and as of 4 March 2022.

24. Post balance sheet events

Since 31 December 2021, there have been no significant post balance sheet events.

Independent auditor's report

to the members of HgCapital Trust plc

The Company's financial statements for the year ended 31 December 2021 have been audited by Grant Thornton UK LLP. The text of the Auditor's Report can be found on pages 102 to 109 of the full annual report and accounts.

Extracts from full Annual Report and Accounts

The Directors present the Annual Report and Accounts of HgCapital Trust plc (HGT) (registered number 1525583) for the year ended 31 December 2021. The Corporate Governance Report forms part of this Directors' Report. Information about future developments and important events since the year end are included in the Chairman's statement on pages 10-12 of the full Annual Report.

Results and dividend

The total return after taxation for the year was £595,137,000 (2020: £246,955,000) of which the revenue return was £36,828,000 (2020: revenue return of £16,809,000). Following payment of an interim dividend of 2.0 pence per ordinary share in October 2021, which was maintained at the same level as the previous year, the Directors recommend the payment of a final dividend of 5.0 pence per ordinary share for the year ended 31 December 2021, making a total of 7.0 pence (2020: 5.0 pence). Subject to the approval of this dividend at the forthcoming Annual General Meeting (AGM), it will be paid on 13 May 2022 to shareholders on the register of members at the close of business on 18 March 2022.

Dividend

It is important to note that HGT, in order to qualify for investment trust tax status, can only retain a maximum of 15% of the income.

Stewardship

For Hg, responsible investing means growing sustainable businesses which are great employers and good corporate citizens, whilst also generating superior risk adjusted returns for the shareholders of HGT, as well as other pensioners and savers who are invested with Hg. Hg seeks to invest HGT's funds in businesses which are well managed, with high standards of corporate governance. The Directors of HGT believe this creates the proper conditions to enhance long-term shareholder value and to achieve a high level of corporate performance.

The exercise of voting rights attached to HGT's underlying investments lies with Hg. Hg has a policy of active portfolio management and ensures that significant time and resource are dedicated to every investment, with Hg executives and Operating Partners typically being appointed to investee company Boards, in order to ensure the application of active, results-orientated corporate governance. Further information about the stewardship of investee companies by Hg can be found in their review on pages 38-43 of the full Annual Report.

Greenhouse gas emissions

HGT has no greenhouse gas emissions to report from the operations of HGT, nor does it have responsibility for any other emissions producing sources or energy consumed reportable under the Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013 or the Companies (Directors' Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018, implementing the UK Government's policy on Streamlined Energy and Carbon Reporting. Hg has been carbon neutral since 2019 and more information on our Manager's value chain carbon footprint can be found online at www.hgcapital.com/responsibility.

As an investment company, HGT also does not need to report against the TCFD framework, however, understanding and managing climate-related risks and opportunities based on the TCFD´s recommendations is a fundamental part of Hg's Sustainability Policy and Hg's inaugural TCFD report can be found on Hg's website https://hgcapital.com/wp-content/uploads/2021/11/Taskforce-on-Climate-related-Financial-Disclosures-Report-2021-Final.pdf

Risk management and objectives

HGT is subject to various risks in pursuing its objectives. The nature of these risks and the controls and policies in place used to minimise these risks are further detailed in the Strategic Report and in Note 19 to the financial statements. The work of the Audit, Valuations and Risk Committee in respect of risks management is described on page 123 of the full Annual Report.

Financial instruments

HGT had no outstanding derivative contracts at 31 December 2021. Note 19 to the financial statements describes the financial risk management objectives and HGT's exposures to credit risk and liquidity risk.

Annual General Meeting (AGM)

The AGM of HGT will be held at 2 More London Riverside, London SE1 2AP on 10 May 2022 at 11 a.m.

Details of shareholder engagement and how to vote at this year's AGM are contained in the Notice of AGM on pages 142-149 in the full Annual Report.

The Board is of the opinion that the passing of all resolutions being put to the AGM would be in the best interests of HGT and its shareholders. The Directors therefore recommend that shareholders vote in favour of all resolutions as set out in the Notice of Meeting as they intend to do in respect of their own shareholdings.

Directors' responsibility statement

in respect of the annual report and accounts

The Directors are responsible for preparing the Annual Report and Accounts in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law), including FRS 102, the Financial Reporting Standard applicable in the UK and Ireland.

Under company law the Directors must not approve the financial statements, unless they are satisfied that they give a true and fair view of the state of affairs of HGT and of the profit or loss of HGT for that period. In preparing these financial statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgements and accounting estimates that are reasonable and prudent;

• state whether applicable UK Accounting Standards have been followed;

• assess HGT's ability to continue as a going concern, disclosing, as applicable, matters relating to going concern; and

• use the going concern basis of accounting unless they either intend to liquidate HGT or to cease operations, or have no realistic alternative but to do so.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain HGT's transactions and disclose with reasonable accuracy at any time the financial position of HGT and enable them to ensure that the financial statements comply with the Companies Act 2006.

They are responsible for such internal control as they determine necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have responsibility for taking such steps as are reasonably open to them to safeguard the assets of HGT and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statements that comply with that law and those regulations.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on HGT's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Responsibility statement

The Directors of HGT, whose names are shown on pages 112-113 of the full Annual Report, each confirm to the best of their knowledge that:

• the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of HGT taken as a whole; and

• the Strategic Report and Hg's Review include a fair review of the development and performance of the business and the position of HGT, together with a description of the principal risks and uncertainties that it faces.

The Directors consider the Annual Report and Accounts, taken as a whole, are fair, balanced and understandable and the information provided to shareholders is sufficient to allow them to assess HGT's position, performance, business model and strategy.

On behalf of the Board

Jim Strang
Chairman

4 March 2022

Dividend

The final dividend proposed in respect of the year ended 31 December 2021 is 5.0 pence per share (following the interim dividend of 2.0 pence, bringing the full year dividend to 7.0 pence per share).

Ex-dividend date (date from which shares are transferred without dividend)	17 March 2022
Record date (last date for registering transfers to receive the dividend)	18 March 2022
Last date for registering DRIP instructions (see below)	21 April 2022
Dividend payment date	13 May 2022

Directors

Jim Strang

Richard Brooman

Peter Dunscombe

Pilar Junco

Guy Wakeley

Anne West

National Storage Mechanism

A copy of the Annual Report and Accounts will be submitted shortly to the National Storage Mechanism ("NSM") and will be available for inspection there, situated at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism

A copy of the Annual Report and Accounts, which includes the Notice of Annual General Meeting, will be delivered to shareholders shortly and can also be found at https://www.hgcapitaltrust.com/

END

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