HG Capital Trust: March 2026 investment trust update

• HG, the trust’s manager, has over 30 years’ experience in the industry

• The trust invests in private software and service companies that are difficult for retail investors to access

• The trust has provided attractive levels of growth over the long term, although past performance is not a guide to future returns.

How it fits in a portfolio

The HG Capital Trust aims to provide investors with consistent long-term returns above those of the FTSE All-Share Index. It invests in a diversified mix of private software and services businesses across Europe and North America by investing in HG’s three private equity portfolios.

The trust could be an option for a diversified approach to long-term growth or provide exposure to areas of the market that are difficult to access for many investors. Investors in investment trusts should be aware the trust can trade at a discount or a premium to its net asset value (NAV).

Investors should remember that investing in just a few sectors like software and services is a higher risk approach compared to a more diversified one. We think investment trusts investing in a specific sector should usually only form a small part of a well-diversified investment portfolio.

Manager

The trust’s seven-strong independent board of directors, led by chairman Jim Strang, works as a team to approve all the trust’s investment decisions into the three HG funds. Strang became chairman in 2018 and has over 20 years’ experience in the private equity industry both as an investor and operator. Strang was previously a strategy consultant at Bain & Company, working with Bain's Private Equity Group. He has also previously worked as a UK equities fund manager, focusing on UK growth investments and assisting in the management of several investment companies.

The three funds in which this trust invests – Mercury, Genesis and Saturn - are managed by HG’s investment committee. This committee consists of nine members led by chairman Matthew Brockman. Brockman joined HG in 2010. He specialises in technology investments and is a board member for several of HG’s investment companies.

Process

HG are a private equity investor, meaning they invest in privately listed companies rather than those that are publicly listed on a stock exchange. This approach can be higher risk. Their aim is to take a controlling stake in these companies and use their expertise to support management teams to help grow the company further.

HG specialises in investing in software and service companies which can mean anything from tax & accounting firms to financial technology companies. They typically avoid the early start-up companies private equity is usually known for. Instead, the HG team are looking for more mature companies that are often led by the founder and are demonstrating resilient and recurring revenue streams.

Once HG takes a stake in a company it will be placed in one of HG’s three funds. These three funds specialise in investments of different sizes. The Mercury fund focuses on investments between €100m and €500m, the Genesis fund on investments between €500m and €1bn and finally the Saturn fund on anything above €1bn. The trust will then invest in all three of these funds with the board deciding exactly how much to invest in each of them.

The three HG funds give the trust exposure to eight different types of software and service companies. At the end of December 2025, enterprise resource planning (ERP) and payroll was the biggest sector in the trust, accounting for 28% of the portfolio. Tax and accounting made up 27% of the portfolio and legal & regulatory compliance businesses made up 20% of the portfolio. These companies may be anywhere in the world but typically are located in Europe and North America. At the end of December 2025, the UK made up 27% of the portfolio, North America 26% and Scandinavia 23%.

The trust can also make co-investments. This is where the board of the trust invests directly in a specific company in the HG trust rather than through one of HG’s three funds. It is likely that this will be done for companies which are already owned in one of HG’s funds, thus doubling up on exposure. Over the trust’s financial year this type of investment has risen to 10% of the trust from 9%. The trust typically targets a range of 10-15% co-investments.

Over the trust’s financial year to the end of December 2025, HG have found plenty of exciting new opportunities. They made four investments into new companies whilst also committing further capital to four existing companies. New investments include German ERP & Payroll company Scopevisio and North American legal and regulatory compliance company A-lign.

The trust also sold some investments over the year including a partial sale of ERP and payroll company P&I and automation and engineering company Trackunit. They sold their entire stake in technology service company Citation and tax and accounting company GTreasury.

Investors should be aware that the trust can borrow money to invest with the intention of increasing returns to shareholders (known as gearing). At the end of February 2026, the gearing level was 14.13%. Gearing could magnify losses in a falling market and increases risk.

Culture

The HG Capital Trust is a FTSE 250 listed company and was established in 1989. It is managed by HG which was founded in 1990 as Mercury Asset Management before forming part of Merrill Lynch Asset Management in the late 1990’s. In 2000 the partners created HG, a fully independent private equity firm which remains wholly owned by its partners.

HG is now one of the world’s leading software and services investors. They have an experienced team of around 400 employees including 240 investment professionals with offices in London, Munich, New York, Paris, San Francisco, & Singapore.

ESG integration

The Board and the Manager, HG, continue to increase their focus on ESG and sustainability. They share a firmly held view that not only should the financial returns to shareholders be attractive, but they must be delivered in a manner which is consistent with their responsibility to society. As a technology investor, The Board understands the need to ensure that those businesses in which they invest reduce their carbon footprint and contribute to tackling climate change.

Cost

The ongoing annual charge over the trust’s financial year to 31 December 2025 was 1.5%. This is marginally higher than it was 12 months before when the ongoing charge was 1.4%. Investors should refer to the latest annual reports and accounts and Key Information Document for details of the risks and charging structure.

We recently made some changes to the amount clients pay to invest with us. Find out more about these changes

The annual charge to hold investment trusts in the HL ISA, SIPP or Fund & Share Account is 0.35% (capped at £150 p.a. in each account) and 0.25% in the HL Lifetime ISA (capped at £45 p.a.). There are no charges from HL to hold investment trusts within the HL Junior ISA. As investment trusts trade like shares, both a buy and sell instruction will be subject to the HL share dealing charges.

Performance

The trust has delivered strong returns. Over the last 10 years the trust’s share price has grown 407.09%*. In comparison the trust’s benchmark, the FTSE All-Share, has returned 151.00%. The average trust in the AIC Private Equity sector has grown 141.52%. Over this time the trust’s Net Asset Value (NAV) has also risen 368.42%. Remember that investment trusts can trade at a premium or discount to NAV.

Over the trust’s financial year to the end of December the trust’s share price fell 4.89% compared to the FTSE All-Share which returned 24.02%, while the average trust in the AIC Private equity sector grew 13.07%. Over this time the trust’s NAV rose 4.00%.

During this period, UK ERP and Payroll company Access was the largest detractor from returns. The company has grown rapidly in recent years and become more complex. The management team are looking to refocus on underlying growth. North American legal and regulatory compliance company Litera has also fallen in value despite the company announcing strong profits and growth.

On the other hand, Scandinavian ERP and payroll company IFS performed well over the trust’s financial year. The company continues to show high growth with a key focus on investing in AI. North American healthcare IT company Intelerad continued to grow revenue and margins making it one of the world’s leading enterprise imaging platforms. HG announced the sale of the company in November for a 62% increase compared to its previous valuation.

Since the beginning of the year to the end of February, the trust’s share price has fallen by 21.50%. The software sector—where this trust has significant exposure—has declined sharply, as many investors believe recent advancements in AI could disrupt those businesses.

We have spoken to the HG team, and they believe the companies they own are performing well and should ultimately benefit from advancements in AI. However, this sentiment has not yet been reflected in the market. At the time of writing, the trust is trading on a discount of -28.97%. By comparison, at the end of February 2025, the trust’s discount was just -2.95%.

The trust’s dividend per share for 2025 (to the end of December) was 5p, slightly lower than the previous year when the dividend per share was 5.5p. The trust currently yields 1.20%, although yields are not an indication of future income and are not guaranteed.