HgCapital Trust: Growth, AI Risks and a 26% Discount to NAV

HgCapital Trust’s shares trade at a steep discount even as its portfolio reports growth in revenue and cash flow. The gap reflects uncertainty about software companies’ prospects as artificial intelligence develops, along with the way the trust’s holdings are valued. Those factors make the discount worth examining, but they don’t remove the risks that come with private equity, debt and less frequent valuations.

The UK listed company is the country’s second-largest listed technology company, with a fund valued at £2 billion. Its shares recently traded at 393p, a 26% discount to net asset value (NAV). In late 2024, they had traded at a small premium. The shift shows how quickly investors’ views of software businesses can change, even when a portfolio’s operating results remain positive.

Why the NAV can move with software sentiment

HgCapital Trust is an investment trust that invests through private equity funds managed by Hg. Its NAV is based on valuations derived from comparable listed companies. Where there is no close match, the comparison may extend to a wider group of businesses. That approach offers a way to estimate the worth of private holdings, but it also means the NAV can respond to market sentiment about companies that are only superficially similar.

That sensitivity was visible when software shares fell sharply amid concern that AI could disrupt parts of the industry. Even if a holding operates in a distinct part of the market, falling valuations among comparable businesses can influence the estimate used for its NAV. Investors therefore have to weigh both the performance of the portfolio companies and the assumptions behind their valuations.

HgCapital Trust has argued that AI could help its holdings improve their prospects rather than simply threaten them. Its interim report recorded portfolio revenue growth of 16% and net cash-flow growth of 19% over 12 months. Organic growth accounted for 11% of revenue growth and 17% of cash-flow growth. These figures suggest the businesses are expanding, although they don’t settle the question of how AI will affect their future earnings or valuations.

At the same time, the portfolio’s valuation multiple fell. Enterprise value compared with earnings before interest, tax, depreciation and amortisation (EV/EBITDA) was 22.9 times, down from 24 times. NAV declined by 4.9% over the period. The multiple had stood above 26 times at the end of 2024; that earlier level may have been high regardless of AI concerns, according to the investment case presented for the trust.

At a share price of 393p, the look-through valuation was 17 times EV/EBITDA, or 14 times using figures for the current year. Those measures offer context for the discount, but they depend on estimates of company value and earnings. They don’t guarantee that the discount will narrow or that the underlying businesses will meet expectations.

Portfolio activity brings both cash and commitments

The postponed listing of Visma is a setback because it is HgCapital Trust’s largest holding, representing 12% of the portfolio. A listing could have provided a route to a sale or a clearer public market valuation, so postponement leaves that potential event unresolved. The available information doesn’t give a new listing date.

Other portfolio activity has generated proceeds. In 2026, HgCapital Trust made three full exits, one partial exit and received money from four refinancings. The full exits averaged a 31% uplift to book value, slightly above the ten-year average. That record provides evidence that some holdings have been sold for more than their recorded value, though a small set of exits cannot establish how future sales will fare.

The trust also announced three new investments and two increases to existing holdings. Its investment commitments amount to 85% of NAV, according to Iain Scouller of Canaccord. HgCapital Trust can opt out of commitments if it chooses, which gives it some discretion over whether to proceed. Still, commitments of this size mean that future funding needs and the timing of investments deserve attention.

At mid-year, the trust had £300 million of unused debt facilities. That provides access to funding, but it’s only part of the balance-sheet picture: debt also sits within the portfolio companies and the Hg-managed funds used for investment. This layered borrowing can increase financial risk, particularly if business performance weakens or refinancing becomes harder. On the other hand, available funding may help the trust act when company valuations are lower. The balance between opportunity and debt exposure is central to judging its capacity to invest further.

AI confidence doesn’t settle the investment case

HgCapital Trust says its portfolio includes one of the largest software environments actively deploying AI at scale, and that AI is driving change within those businesses. Chair Jim Strang said investors had started to distinguish more clearly between businesses positioned to benefit from AI and those more exposed to disruption. That distinction matters: the broad label “software” can hide very different business models and levels of vulnerability.

The trust’s managers have committed to increasing their shareholding from 6% to 15%. That signals confidence from the managers, but it is one factor for readers to consider rather than a substitute for assessing the portfolio, valuation method, debt and discount. HgCapital Trust may benefit if its companies use AI to strengthen their products and operations. If AI instead weakens demand or pricing power for some holdings, the same exposure could weigh on valuations.

For anyone weighing the trust, the practical takeaway is to keep the headline discount in context. Portfolio growth, realised sale values and manager confidence are encouraging data points; the postponed Visma listing, valuation sensitivity and debt at several levels are meaningful counterweights. The next useful signs will be how portfolio companies sustain growth, how exits compare with book values, and whether AI adoption translates into lasting business results.