Q4 2020 Earnings Call

One child them placed on mute to prevent any background noise.

After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during the session simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question. Please press the pound key. Thank you John Old Investor Relations manager you May begin your conference.

Thank you Jason Good morning, and welcome to the Hamilton Lane fiscal Q4, 2020 earnings call today, I will be virtually joined by Mario Genie CEO, Eric Kirsch, Vice Chairman and a tool Varma, yet, though as we continue to work remotely from our Pennsylvania headquarters.

Before we discuss the quarter's results we want to remind you that we wouldn't making forward looking statements based on our current expectations for the business.

These statements are subject to risks and uncertainties that may cause the actual results to differ materially.

For a discussion of these risks. Please review the risk factors included in the Hamilton Lane fiscal 2019 10-K in subsequent reports we filed with the FCC.

We will also be referring to non-GAAP measures that we view it is important in assessing the performance of our business reconciliation of those non-GAAP measures to GAAP can be found in the earnings presentation materials, which we will be referencing throughout the call and will also be shown on the webcast. These materials are available on the public Investor Relations section of the Hamilton mine website, our detailed.

Financial results will be made available when our 10-K filed please note that nothing on the call represents an offer to sell or a solicitation to purchase interest in any of Hamilton mange product.

Beginning on slide three for the fiscal year, our revenue from management in advisory fees grew 12% versus the prior year is translated into full year non-GAAP EPS of $2 in one sense based on approximately $107 million of adjusted net income and GAAP EPS at $2 in 15 cents based.

On approximately $61 million <unk> GAAP net income.

Lastly, our board has approved a 13.6% increase to our annual physical dividend to one dollar and 25 cents per share or 31 point 25 cents per share per quarter with that I'll now turn the call over to Mario Thank.

Thank you John good morning.

We start as many others for me have done by simply saying. Thank you. Thank you to those in front lines like you do those putting themselves in danger to protect us. Thank you to all those making sacrifices for their go to their communities and a special. Thank you to so many of our clients whose members are part of the front lines you were all very much in our thoughts for Hemsley we've had.

Certain offices in a remote work situation since December and while some more international offices has already begun to reopen the majority of office is continue to work remotely, including our headquarters here in Pennsylvania and.

I'm pleased to report that despite the challenges we are all facing our ability to work in service. Our clients is incredibly strong, perhaps stating the obvious but our longstanding commitment to technology and data is serving us well in these times, we're leaning heavily on a combination of purchased and proprietary systems and solutions. They continue to benefit our clients.

Lastly, I'm very proud of our teams and the effort to exert everyday servicing our clients while simultaneously managing their own life and families to them I also say thank you.

While this time brings uncertainty and discomfort the health warning spirit of creativity and innovation remains strong and is keeping us close together a quick glance through our slot channels. Aside from all the work related content would find pictures of working at home with pets barbecue chips videos, a family concerts and reading suggestions, what you'd also see or weekly town halls.

New York teach by me featuring updates from various teams and employees throughout the firm ensuring that communication is frequent and transparent our already strong culture is getting even stronger through this trying time and I'm proud to be a part of this firm.

Now at this point you heard plenty of public company Ceos tell you. This environment is unprecedented and it is so rather than until that same ground. We are simply going to give you. Some of our perspective on what we know at this point and what we don't I'll start by answering some questions that we've been fielding from investors first how much of our revenue is fixed versus variable.

We continue to be a management fee heavy business, even with a strong year carried interest management and advisory fees accounted for approximately 90% of our total fiscal year 2020 revenue.

In addition, less than 3% of our management an advisory fees are based on net asset value, which protects our revenue stream from temporary mark to market moves.

Second do you expect Lps limited partners to default on their capital commitments. We don't these commitments are legally binding Carey financial penalties for defaulting in 2008, we did not nor did the industry at large experienced any meaningful level. The LP default during that entire recession Hamilton Lane only expire.

Just a single partial defaulting $1 million LP across our entire client base.

Third well the drop in plan values I, either denominator effect caused Lps to pull back from the asset class in general we think the answer here is no. Though this will partially dependent on where the markets go from here.

As of yesterday's close we simply haven't seen the drop significant enough to cause concern while there may be instances of some lps finding themselves stretch for various reasons in choosing to pullback. We believe there will also be plenty of examples of Lps, who are more determined to lean into it feels like an interesting buying opportunity and as you said before we have a number of clients who find them.

Cells way below their target allocation.

We believe that Lps have now seem the data for vintage year performance. Following pass market Downturns, 2000, 2001, and again with 2009 in 2010 and understand the following times of economic correction private markets provide a strong investment opportunity.

Fourth.

What are your expectations around carried interest payments over the next 12 months well no question they will be lower until the markets normalize, but there are few things remember about our Kerry first as I said earlier carry represented around 10% of our revenues last fiscal year second our carries incredibly diversified over 60 vehicles with thousands.

As of underlying companies it is spread across companies have different sizes industries and geographies you see some natural hazard hedging as a result of this diversity, but as you know we don't control these positions and thus we don't control the timing of the exits.

Yes.

Will you be able to achieve your same levels of historical growth. Today. This is a tough question to answer as we are essentially two months into our fiscal year in a very unstable an unprecedented environment. We remain optimistic about our ability to grow and have continued to close new business as well as re ups in the month of April and May our sales team remains active our pipeline room.

Thanks, strong, but our inability to travel to see our clients to hosted answer all challenges, while we did grow through the 2008 2009 timeframe something that should provide some additional comfort on the denominator concern is a very different environment and again, our current inability to interact with potential investors, particularly limited partners with whom we don't currently maintain relationship.

It will create some challenges.

Now, let me turn of the results for the quarter, which was strong across the board.

Beginning on slide four here, we highlight our total asset footprint, which we define as some of our UN assets under management and a way assets under advisement.

Total assets for the footprint.

For the quarter stood at approximately 503 billion us dollars and represents a 4% increase to our footprint year over year, continuing our long term growth trend.

Consistent with prior quarters, you on growth year over year, which was over 7 billion US dollars were 12% came from both our specialized funds and customize separate accounts and continues to be diversified across client type size of clients and geographic region. Our focus remains simply growing in winning across both lines of business and we are.

Pleased with the success.

Moving to anyway.

As we've seen where the UN anyway growth year over year, which came in at approximately 12 billion us dollars or 3% was from across client type of geographic region. As we mentioned on prior earnings calls anyway can fluctuate quarter to quarter for a variety of reasons, but the revenue associated with anyway does not necessarily move in lockstep with those changes.

And while this quarter saw an increase in any way dollars relative to the previous quarter. We will continue to emphasize that no direct correlation exists between the scale of you $8 and revenue generation continued growth and scale of our anyway remains an area of focus over the longer term given the advantages those dollars bring however growth in scale will not.

Supersede our disciplined approach to ensure that we are finding the appropriate match between our services and the needs as a particular client.

Let me now turn it over to Eric.

Thank you Mario and good morning.

Let me also begin by adding my thanks to those working hard to protect all of us as well as to our employees and clients.

Moving on to slide five we highlight our fee, earning AUM as a reminder fee, earning AUM is the combination of our customize separate accounts and our specialized funds with basis point driven management fees.

We will continue to emphasize that this is the most significant driver of our business as it makes it over 80% of our management and advisory fees.

Relative to the prior year period total fee, earning AUM grew $5.1 billion or 15% stemming from positive fund flows across both our specialized funds and our customize separate accounts.

Taken separately nearly $2.4 billion of net fee, earning AUM came from our customize separate accounts and over the same time period nearly $2.7 billion came from our specialized funds.

Growth continues to be driven by four key components, one re up from our existing clients to winning and adding new clients three growing our existing fund platforms and for raising new specialized funds.

But you also see here is that our fee rates continue to remain steady.

Moving to slide six.

Fee, earning AUM from our customize separate accounts stood at $24.5 billion growing approximately 11% over the last 12 months.

We continue see growth coming from a variety of avenues as you've heard us stay in the past re ups from our existing client base remains a key component of that growth.

In addition, we continue to expand our existing client base by winning and adding brand new relationships, which in turn provide a growing base for future re up opportunities.

As for our specialized funds growth was strong.

Over the past 12 months, we achieved net positive inflows of nearly 2.7 dollars, resulting in a 23% increase in our fee, earning AUM for our specialized funds.

The main driver of this growth continues to be our current secondary fund we held to close on March 30, onest that totaled over $350 million of commitments.

This now brings the total dollars closed on this product to over $1.7 billion.

We have until October 2020 to complete the fundraising.

Given that fees on this upon started in the prior quarter. This closing did generate retro fees.

The next largest drivers of at U.M. inflows were from our continued credit fund raising as well as our semi liquid product.

On the ladder the net flows for the quarter were approximately $100 million and while we do not intend to provide this level of detail on an ongoing basis. We appreciate the likely question on People's minds.

That being how were flows from April 1st through March through May 25th.

The answer is we saw inflows of $45.2 million and redemptions of only $2.4 million. We're very encouraged by this dynamic and we believe it speaks to both the trust we have engendered as well as the investment results we are generating.

However, and we will continue to stress the current market environment presents challenges that we and our distribution partners have simply never experienced and while we can't help but be encouraged by the progress to date, we simply do not know with the coming months will look like that said, we remain committed and long term focused and believes strongly in the prospects for this product.

Yeah.

Rounding out the UN growth was continued success across our various white label initiatives.

When we initially announced our evergreen product launch you heard us say that the targeted audience, where retail investors based outside the United States and principally in Australia, Europe and Asia.

This was largely due to certain regulatory hurdles that made raising a product with this type of profile more challenging here in the us.

However, we are currently pursuing the opportunity to launch an evergreen offering in the U.S. The state. The obvious this is still in the early stages in the current market will undoubtedly make this process harder and slower. Nonetheless, we are long term focused and have said before we view this as a marathon not a sprint but this is an important milestone and we are excited.

About the prospects here.

Let me now shift to two strategic topics first our lastly balance sheet investment on March 23rd Eye Capital Network announced the closing of dancing around Hamilton Lane participated in this raise and we now join a powerful group of I capital investors that include Blackrock Goldman Sachs.

Stone, yes, among others.

We believe capital has built the premier marketplace for private asset opportunities and the recently announced acquisition of our divest furthers their position of strength.

Using technology, they have democratized access to private it's been opportunities.

Net worth investors.

Making the ability to select and subscribe to investment entities simple and.

We are excited about this investment and we are equally excited about this partnership Hamilton Lane product is currently available on the odd CCAP platform.

As we've said before and will undoubtedly say again, our approach to technology investing is simple identify unique technology solution providers, who we believe can make us and the industry better and our balance sheet capital behind them.

Forming a mutually beneficial partnership I capital is another strong example of this positioning.

Lastly, I wanted to provide some insight and the progress update on our joint venture with aegis market a company called the market connect or PMC. We created this in June 2017.

At market connect was developed to help solve the existing data challenges faced by limited partners and to address the information efficiencies that exists throughout the private market.

MP focuses on scaling automating and normalizing the information flow between General partners and limited partners with the ultimate goal the providing straight through data.

PMC, primarily serves as the manage data services segment of I level, a SaaS offering in which we were in early investor and remain a key client I.

Hi level streamline data collection and drives best practice monitoring analytics valuation and reporting for all types of players in the private markets.

For some background prior to the formation of PNC Hamilton lean maintained a dedicated team focused solely on data entry and reporting as employees of Hamilton Lane. The implied cost for these back office functions was captured through compensation and benefits when the JV was form Hamilton Lane contributed this team and with that move the.

Cost of data entry and reporting to PMC. The third party service provider now captured in our DNA line.

It just market contributed technology and a salesforce linking the sales of I level with the support support provided by PMC.

The PMC offering is exclusively available to potential customers via either I Hs market for Hamilton Lane.

The economic relationship here is threefold, one we jointly owned the company with Hs market.

Two as the business scales, we benefit from a declining rate card and three as the business generates excess cash it pays out a dividend.

Since its formation in 2017, the board of PMC, which includes two executives from Hs market and to from Hamilton Mine has approved two rate card adjustments.

And a dividend payment to its shareholders.

We continue to remain encouraged with the growth we have witnessed a PMC and we feel it speaks of the power of the combined private markets presence of I Hs market and Hamilton Lane, we look forward to providing you with additional updates as they unfold and with that I will now turn the call over to a tool to cover the financials.

Thank you Eric and good morning, everyone slide eight of the presentation shows the financial highlights for fiscal year 2020.

We continue to see very solid growth in our business with management advisory fee of 12% versus the prior year.

Especially those funds revenue increased $18.7 million.

20% compared the prior year driven by over $1.7 billion raised in the latest Secretary fund.

The current fiscal year in over $200 million race between periods for our latest co investment fund.

We recognize $2.8 million inventrust fees from the co investment fund for fiscal 2020 compared to $1.7 million in fiscal 2019.

As many fewer likely aware investors that come into later closest to fundraise for many for product paid retroactive fee you, stating back to the fund first close.

Therefore, you typically see a spike in management fees related to that funds for the quarter enrich subsequent closings occurred.

Revenue from our customers separate accounts increased approximately $5.5 million compared to the prior year due to the addition of several new account and re up from existing clients.

Revenue from our advisory and reporting offerings was relatively flat compared to the prior year.

The final component for revenue is incentive fee.

Fennessy for the period were $29.1 million were approximately 11% of total revenue.

Noteworthy this year was that we saw an additional fixed ficos move into realized incentive fee position.

Which continues to show a positive trend of strong performance the increasingly diversified sources of carried interest and lastly, the overall aging Oprah carry generating vehicles.

Moving to slide nine we provide some additional detail on an unrealized carry boundless.

We saw strong growth this quarter, but the balance of 35% from the prior year.

Even as we recognized $29.1 million helps incentive fee in fiscal 2020.

As you can see from the slide the growth came from both adding new categories carry generating fund as well as appreciation in existing vehicles.

As Mario mentioned earlier, we don't control the position and we.

We don't control the timing effects it and given the current market conditions, we would expect to see distributions slowdown.

Turning to slide 10 bridge, which profiles for earnings of fee related earnings were up over 12% year over year as a result of the revenue growth we discussed earlier.

In regard to our expenses total expenses increased $9.7 million compared with the prior year.

Good day increase $8.9 million due primarily to increases in technology related expenses.

I think in professional fees and commissions from fund closings in the current year.

Total compensation and benefits increased slightly by zero point $8 million due primarily to increased salary expense from additional headcount in the current year.

Period compared to the prior year period.

This was partially offset by the nonrecurring or note expense from a real assets acquisition included in the prior year.

Moving to our balance sheet in slide 11, our largest asset on our balance sheet is investments alongside our clients in our customize separate account and specialist funds.

The growth of this asset, which increased 31% compared to the prior year reflects the growth for our business.

In regards to or liability our senior debt is our largest liability.

In March we announced a comprehensive amendment package tour existing credit facility.

We were able to successfully secured a lower interest rate extended the maturity date and increase our borrowing capacity through it added 75 million dollar fixed rate term loans, which may be drawn at our discretion up two year after closing.

And with that we thank you for joining the call and are happy to open it up for questions.

At this time, if you would like to ask a question I will remind you you to press Star then the number one on your telephone keypad, we will pause for just a moment chicken Paul Thank you and I roster.

Your first question comes from the line of Ken Worthington from JP Morgan Your line is open.

Hi, Good morning, Thank you for taking my question.

Maybe generally can you talk about the impact that state and municipal finance is as well as the need for cash and various sovereign wealth funds might have on gross inflows over the next few quarters. If not the next few years and it seems that theres, probably a couple places where at least potential.

Lee Hamilton line might have some vulnerability.

I was thinking one might be where clients just don't have the money to fund new commitments, such as governments skipping pension fund payments.

So any thoughts there and then at another might be rainy day fund, which is what many sovereign wealth funds are which would at least get drawn down or maybe just not.

Contributing to new funding so any guess on on what exposure you might have there.

Thanks.

Hi candidates it's Mario.

Let me take it in two parts in terms of the pressure on on pension funds state and local governments.

Any of that pressure would be future contributions that may or may not be made by those states are municipalities. Whatever they are I think as you look at it will be similar to what we saw in nine and 10. If you look at the pension funds, there's nothing that affects their existing book of assets. If you will.

And so from their perspective, there growth is really normally predicated on that look a bit of assets today.

And when you think about the position there in than low interest rate environment, which I assume we will be in for longer than we might have anticipated just three or four months ago. The desire the need for a higher return increases and I think alternatives really lend into that whether on the equity or on the debt side infrastructure.

Sure real assets wherever you put it so I think it if you are saying, we'll pension funds grow five or 10 years from now at the rate that we might have anticipated hard to say, but I don't think it will have any impact any three to five year timeframe in terms of the sorts of of assets they might put into into private mark.

Cuts sovereign wealth funds or are a little bit different because as you said some of them are rainy day funds and so some of the assets may come out, but if you look at most of them.

The way they are structured certainly in our client base. They have always had a portion of their assets.

Basically in cash or in more liquid investments that they knew or felt they wanted to be safe and have them put into.

To be used in situations like this.

So again that Doesnt really impact.

Anything that they are looking to put into private markets today, and I think the same dynamics that impact pension funds affect them in terms of needing a higher return so you've probably seen some of them as announced publicly that they are looking to do a little more in private markets and look at what they want to do so if you look out of three to five year timeframe I just don't think the dynamics.

Either the sovereign wealth or the pension fund are going to be impacted by by either of those plus to kind of pressures that they're feeling.

Okay, great. Thank you very much.

Your next question comes from the line of Michael at Breeze from Morgan Stanley. Your line is open.

Hey, good morning, Thanks for taking the question just curious given the environment, maybe falling on Kens question, there with some pension funds and investors it maybe a little bit more cash strapped. How are you thinking about the implications for the growth in the secondary market.

Just in terms of the potential for investors are already in the asset class to look to monetize.

And exit certain positions and potential.

Additional fund that may be raise I know, you're raising the secondary fund now.

Until October 2020, I think to complete that it just curious if any thoughts around the sizing of that raising another vehicle alongside her on top and any thoughts on the ability to extend out the timeframe on raising that fund given the environment in the work from home.

Well I think on the first question.

We had said for a while that we thought the secondary opportunity was was one of the more interesting ones just in terms of the way the market was developing even apart from a market downturn or dislocation.

And again it if history is any guide and we think is.

Market opportunity on the secondary side is is going to be a very interesting one both I think driven by limited partners that are looking to rebalance portfolios, where that might have some liquidity needs.

But also driven by general partners as they look to do things with their their own portfolios and work with limited partners around that so that whole market is growing and I think clearly when you have this kind of time period, it will generate a fair amount of deal flow.

So that remains encouraging in terms of fund raising we're in we're in the market with our fund and we.

We have pointed out in the discussion.

There there are there are challenges around going out fundraising and doing it I assume but I think investors.

Their side as I talked about with Kens question people understand the opportunities that they understand it in secondaries they understand it on the credit side and they understand that they've seen this movie before if you will in periods of dislocation they want to be investing in places, where you might be able to get assets that are better prices than you did three six months ago.

So investors are very interested in the secondary market and that for us as a as an encouraging sign.

And then just maybe as a follow up follow up question just on the Evergreen strategy look sounds like you're looking to pursue that and you asked just curious what if anything's changed was there any implication from the recent safe Act that makes it a little bit more.

Easily able to bring this to the U.S. and just any color you could share around what the structure may look like in the U.S. and these are differences versus how it looks around the rest of world.

Sure, Mike, It's Eric I'm happy to take that.

I would say there's been nothing that has been a sort of a big change I think this is just the processes in the U.S. are complicated.

And this has been just a tremendous amount of effort on the part of us and our partners to just sort of work our way through that again since we're kind of in that filing process can't give a lot of details here, but our view is that this is going to.

Pursue from an investment standpoint, something very similar to what we're pursuing outside the U.S. So we don't really see this is being fundamentally different from that perspective.

Okay. Thank you.

Your next question comes from the line of Alex Blostein from Goldman Sachs. Your line is open.

Hey, good morning. Thanks for taking the question was hoping you guys can talk a lot over a little bit about the co investment business. It's also meaningful part of what you guys do.

It sounds like activity on the secondary front could be pretty meaningful over the next couple of quarters in years, but any any changes you guys anticipated in the appetite for their co invest a piece of the model.

Sure Alex It's Eric I'll take that I think one of the nice things about our vehicles frankly, whether it's the credit vehicle co investment or secondary is that we have a tremendous amount of flexibility I think our clients have really entrusted us just sort of work with the right partners in the right deals at the right point in time. So today wall are kind of credit co investing.

He has largely been performing credit to date to.

To the extent, we start to see nonperforming credits start to emerge we have the ability to kind of move and pivot into that space same thing on kind of the equity co investments again, we've been historically investing primarily in performing buyouts in growth oriented strategies, but to the extent that the market opportunity serves us up.

Turnarounds rescue financing or the like we don't have to go create new vehicles to do that we already have the vehicles in place to do that and so we can simply pivot and adjust the investment strategies to deal with whatever the opportunity set is at that point in time and to take that one step further that also really holds true for a lot of our separate accounts the clients again have now.

Got sort of tend us into something that is very rigid in its strategic allocation policies, but rather things that can be moved in adjusted based on current market conditions. So we feel good about all of that and I think as the opportunity set continues to grow Echo what Mario said the clients are smart the clients understand what the opportunities that looks like and so we think that.

As the opportunities that grows so too does the client demand.

Got it thanks.

Maybe just a tactical question near term I'm, just curious to get your thoughts around expenses over the next couple of quarters. Given the fact, obviously there is no travel and there's some kind of national savings that are going to be running through the model. So any thoughts around the near term expense guidance will be helpful.

Alex It's Eric again, I think Thats exactly right. So I think while we view ourselves fundamentally as a growth company and continue to want to invest in that growth. So you're still seeing us continued to make good technology spend which we would say by the way is offensive spend not defensive spend we haven't had to spend capital to go get people to be able to from home. We've obviously had those systems in place for a long time.

Time, so I think the spend on those kinds of things will continue.

But some of the spend is being reduced whether we want to two or not so t. any for us is a fairly substantial part of our budget and that has obviously come way way way down.

And we expect that will start to rise again as Mario said at the beginning we have some offices that are beginning to return to.

Some level of normality certainly not all the way back to normal but.

In Asia in parts of the Middle East, we have begun to see people kind of reemerging and going and doing face to face meetings and so I think certainly in the near term, you'll see those numbers down and that will flow through the expenses. The result.

Great. Thanks very much.

Your next question comes from the line of Chris Harris from Wells Fargo. Your line is open.

Thanks, guys.

So another question on fund raising you mentioned that you're still able to get some activity done to resume and.

And other things virtually.

So I guess I'm wondering like what percent would you say of your fund raising activity is potentially being impacted by the lack of travel is it.

Is it the fund raising that you're trying to do for potentially new customers or is it a existing clients also.

Potentially being impacted by.

Not being able to have it person meetings regarding new funds.

Yeah, Chris it's Eric Thanks for that I'll start.

I think you know Mario said it we have had we have closed business.

In April we have close business in May and that has been both the combination of existing as well as new relationships I think one thing thats important to recognize is that you know in our industry. The whole dating process takes quite some time, so clients don't sort of meat you on Monday, and then sign a contract on Friday.

Big amounts of capital long term locked up relationship and so the process takes a while I think thats, both good and bad here. So I think the good is that you have a number of people in that pipeline that you have been frankly, nurturing and developing that relationship with for the last several months I.

I think the challenges so bringing them to the finish line I think our view is that for all the reasons that Mario pointed out in this macro comments feels very doable I think the challenges is that part of our growth in our business is finding in meeting brand new people.

Doing that today I think if you talk to our sales team. They would just simply say is harder you were trying to our industry had been tour typically based on I call you I introduce we agree to get together for a meeting and started dialogue and started a relationship ultimately kind of culminating in you likely coming to one of our offices doing an on site visit kind of kicking the tires.

All of that is harder that said I think if you think about what's going to be better in this environment. We would say that better brands are going to be kind of who benefits being kind of a new small party single office.

That is going to be really really tough so in a world before where things were easy and you are sometimes having much smaller competitors, who are perhaps lower cost kind of nipping at your heels I think going forward in times like this we think people are going to gravitate towards household names in the industry and we are absolutely that so we think that that is going to be the sort of.

The other benefit here, which is strength is kind of creating more strength and we think will be a beneficiary there, but again none of this is normal today.

Okay in terms of your AUM growth.

Last couple of years, you guys have had.

You know much faster growth in specialized funds at least on as it relates to FDA.

Versus separate accounts you guys look at your pipeline.

Would you say that trend will likely persist going forward or.

Might that not necessarily be the case.

Hi, Chris its Mario.

Yes is that trend persists. If you look at the trend is driven by a number of things that hasn't changed I mean, we do talk about it's harder to see people in person.

But what hasn't changed is the need for.

Testers to be in either products are separate accounts and I don't know that the nature of how they're going to invest will fundamentally change clearly the separate account is tremendously advantaged in this environment. Because you have yes, you have the client relationships.

And so.

Not at all and impediment there but.

Yes, we believe that the world is going to fundamentally shift in the way people want to invest in private markets I don't believe that.

The breakout in terms of how people look at investing in products versus separate accounts is fundamentally changing and certainly we're not seeing any of that out in the market today. So.

This there's just nothing that would lead us to say that there is a fundamental shift going on there.

Okay, great. Thank you.

Your next question comes from the line of Chris Kotowski from Oppenheimer. Your line is open.

Good morning, Thank you.

As a follow up to that last one I mean, if we think about.

Just near term during the locked down period.

If we think about your.

You I'm growth than low to mid teens.

How much of that was from new clients versus re ups from existing clients, because presumably the new clients. It could go away for a quarter or too right.

It's Eric Chris I'll take that so I mean, the bulk of our growth as we've said in the past is always coming from our existing installed base just because that installed base is so big so typically on the separate account side, you know that sort of new flows are generally about sort of 70% or so from the existing and then third a sort of 30% from from new.

I don't think you're hearing I say that we think that the new completely goes away I think Mario laid out there kind of compelling reasons as to why folks are going to need this and if you've already started or decided that you're going to make the strategic allocation to get into the asset class and we do continue to find folks that are just starting.

I don't think this is going to cause you to sort of change that in fact again as the opportunities that might be better it might cause you to accelerate and again in a low interest rate environment, where returns are hard to come by your asset allocation model tends to pivot you. So.

The bulk of our growth does come from the current installed base.

And you could certainly see scenarios, where those folks decide to do more in this environment for the reasons that we have been sort of laid out.

And then the new again, that's just on that is on us, but presumably you know we're off and not convincing people to come into the asset class were convincing them to work with us as opposed to working with somebody else. So I go back to my earlier point, if you've made a decision tactically as an LP that you want to be in the asset class now the question is simply who.

Who are you going to partner with and we would think that again kind of being the big brands. The big player in the market sort of positions us better to be the recipient of that relationship.

Okay.

Then kind of on a longer term or you know next say two year kind of timeframe. Yeah. I mean, it's I guess, it's it's reasonable to assume that in terms of.

No.

David equity investing Burger and we're going to hit an air pocket here you know I mean, just between the disruption of travel on all that to start but also just kind of.

You know the world has been Royalton valuations are upside down and the public markets are acting very differently than the private markets.

If there is a you know I don't know 18 to 24 month kind of pause in.

A major private equity investing what does that due to the fundraising dynamic.

Well.

Because as Mario.

If.

Sure. If you say that there's there's no there's no activity in the private markets or anything to 24 months, then than I think theres no urgency for anyone to be investing but I think the premise maybe questionable if you look at.

One of that one of the biggest differences from the only 910 timeframe.

Oh, even two months in is the number of deals that have been publicly disclosed and are being discussed so.

I look at the environment and say there are deals that are actively in process. There are deals that have been disclosed so.

Both general partners and limited partners see that and know that so we're not really seen anyone looking at this environment and say I don't think anything's going to happen for fourth certainly that kind of timeframe people might have a disagreement on whether something's going to happen. The next two months somebody's going to happen like six months.

There given that volume of activity in discussions going on today.

This is it doesnt seem to be a scenario, where you can say that deal activity is it's going to be fundamentally different over an 18 to 24 month timeframe.

Okay.

All right that's it for me thank you.

Thanks.

Your next question comes from the line of Robert Lee from KBW. Your line is open.

Once again your next question comes from the line of Robert Lee from KBW. Your line is open.

Sorry about that thank you.

Thanks for taking my questions going well.

Maybe sticking with the on raising theme.

Popular topic couple of questions. So.

If you think of the.

Secondaries fund.

Finally as Bob.

Just kind of first part B between now and next home or would you kind of expects to have kind of.

Closing.

Quarter.

No this quarter next quarter or you're just a one quarter and then when you move beyond that.

Your I guess your your Cowen your larger co invest fun I guess still investing you obviously be investing this.

You have branded fund in the marketplace Im just trying to get a sense say.

We ended this year into the beginning of next year.

Within the specialize phones, we should be thinking you know.

What what strategies fund raising for thinking ahead a year.

Hello.

Yes, Thanks, Rob It's Eric Let me, let me tackle that so.

So your first comment on the secondary funds so as we said in market.

End market until October 2020.

We tend to what we tend to do with those that we tend just have rolling closing. So obviously given the retrofit comment that we made that fund is up and running actively investing pursued transactions now has already invested capital will continue to be investing capital and so will that pacing and the opportunity set as will the clients to really.

We decide what kind of capital, we ultimately decide to take into that for what time period.

The other piece on the credit.

Not just remains of essentially a perpetually open vehicle because we essentially just slide from the 2020 vehicle right into the 2021 vehicle and so depending on when you as the clients want to close or can close just kind of depends on whats leave you end up going into but as you know there were kind of raising spending raising spending.

Into Mario's earlier comments the opportunity set there we think is getting increasingly more interesting and again the clients understand that so you're seeing certainly some pockets of distressed and dislocation there.

And again this market opportunity different different than that hasnt been over the past theres not sort of a lack of capital. So there is a lot of capital looking for opportunities.

And so right now you're playing the matchmaking game of matching capital basis with opportunities in terms of what happens on an ongoing basis for the rest of the year I think it's going to be sort of business as usual as we continue to finish up those fundraisings and and as again as we sort of finished deploying capital as we have in the past we will inevitably just.

Restart fundraisings for the next series of whatever that particular vehicle is.

Okay, and then maybe on the.

Separate accounts.

If we kind of maybe parse the.

Some of the trends there. So I think of re ups means is there any color you by the within existing client does free up.

Two.

Increase the size of their commitments as opposed to maybe just kind of keeping <unk> flat. So.

Much so I'm just trying to break down how much of the growth may be coming from clients upsizing.

What their committing over time.

Well, so maybe compare that how much growth maybe coming from.

Incremental new clients.

Absolutely.

Robert Mario I mean is there sorry pointed out earlier, 70% of our growth is from.

Just in client base.

Lumber.

I, just don't really see that that shifting as we yes. It's early in this process of if in two months in the market downturn, but as we have discussions with clients on.

We're not seeing any significant shift in terms of.

More of them, either increasing or staying the same is pretty much what we have seen before the beauty of a separate account is you are sitting down with the client and.

Creating a multi year.

More for how you think and they want to.

Invest in the private markets. So it would it would take a really significant event to ultra that a lot and market simply have not gone down enough to have everyone triggers that as a response to say all after revisited.

And recall many of them when they do their planning assume a market downturn at some point in the process. So.

These are illiquid assets and most of the clients into separate account world know that their liquid and so they a structure their portfolios and they are investing program around that so there just is not any fundamental change in terms of clients, saying, Oh I'm going to really alter my investing profile they may alter.

In terms of saying I'd, rather lean in more to credit because I think thats better opportunity or more secondaries or depending on that even that's that's not a fundamental shift where they go on 100% here and now 100% there.

Maybe just a follow up.

Thinking about even to trends before we.

Environment No what are you seeing us over the last two years in something counts that.

When you think clients from making commitments.

Upsizing.

Pre pre crisis and then.

Maybe the second part of that.

Maybe this is overly simplistic, but if you just kind of its big kind of fee rates.

Calculation it looks like.

In the rates than that.

Modestly year slightly trending down.

Do you how to increase fund size and competition.

Around that.

Great.

Sure Rob it's Eric.

Look I think what we have seen over the last couple of years in and it's not just us that you can look at any kind of industry data and it sort of showing you that allocation models are driving the private market allocations higher and higher.

When you think about what drives their commitment size to us it's driven by really two factors how big is theyre pool of plan assets. Obviously has also been growing pretty substantially and what does their desired allocation to this asset class look like so both of those have been causing things to be used to be rising.

On the fee side.

Certainly you have seen on the separate account side, a little bit of compression on the fee side, but again remember if we're getting 70% of our growth coming from existing clients.

Then all the the client is doing is giving us more incremental dollars and so their account and frankly their total revenue paid to us is increasing so it's not surprising it shouldn't be surprising that those folks would want to see the actual fee rate coming down.

As the pool of assets that were managing its growing from our perspective, that's a fine thing to accept and to per frankly to provide for the customer because from a.

Managing the relationship perspective.

The teams already in place the processes are already in place. The systems are already in place all we're talking about as incremental dollars flowing and as a result of that relationship and so that is from our perspective, a completely acceptable tradeoff.

Great. Thanks, taking my questions and if there's a limit there as well.

Thanks, Rob.

Your next question comes from the line of Chris Shutler from William Blair. Your line is open.

Hi, guys good morning.

Maybe first on expenses site I know, it's early days here, but.

Are there any more permanent impacts that you're thinking about I know you expense side as a result on the crisis and maybe just remind us or give us a general sense, how big the travel budget is.

Yeah, Chris It's Eric I'll start and then I'll turn to a tool for the specifics on the actual t. any so I think at a macro level.

No, we're not sort of seeing anything much more permanent around this.

We continue to believe us as frankly, we're seeing with our non U.S. offices that does the situation stabilizes people will want to return to a work environment. That's not to say that everyone will return and I certainly believe that we'll have some and an increasing part of our employee base in some sort of a work from home environment certainly for awhile.

But ultimately I think what we're seeing if our foreign offices or any gauges that people want to get back into a work environment, particularly one with a cultural like ours is highly collaborative.

So we're not seeing any real change on a permanent basis around kind of the work from home piece and as I mentioned earlier the tech pieces I mean, we've been as you know a huge investor in that.

And as Mario kind of kicked off by saying it is absolutely been paying dividends are not only from the culture and the connectivity, but again the ability to provide data to to clients in a time like this.

It's something that is enormously valuable because you continue to see a lot of misinformation around there about what is or is not happening. The fact that we actually have the granular information in the systems to provide those answers to customers who are asking them I think goes a long way to providing comfort. So I would say kind of business as usual and again, we're still in growth mode here and so worth.

Thinking about how to tactically spend capital thinking about whether we should be opening up other offices again other strategic hires we are still thinking about how to continue to grow and expand and the frankly use this market environment to our advantage for the specific piece on the T. any let me turn over to a tool to get you that answer.

Yeah, Hey, Chris tools, So I think the the way to think about team do you said, it's a little under 10% of Virginia today, and as you would expect and as you would've seen with our peers reporting.

Do you know TNT has just come down this quarter and so like Eric said it all depends on.

You know where the market goes.

It goes from here and how things helping out.

But in the overall scheme of things just not a very big number.

Okay, great. Thanks for that and then just.

One other one im just with all the dry powder that's out there in the private equity space.

Maybe just what are your updated thoughts on private equity firms, particularly more kind of middle market in small firms being able to provide self help to their portfolio companies clearly the.

A large guys will be fine, but what about some of the smaller to know marker firms. Thanks.

[noise], it's Eric I'll, I'll start and then and Mario might might chime in here.

We would say that unlike kind of prior crises, where there's been a kind of constraint on capital.

That is certainly not the issue today. So if you look at kind of dry powder across the entire asset class and across all geographies.

That number kind of round is running at about two trillion dollars of capital.

Now that doesn't mean that everybody has all of the dry powder that they want.

But as you know general partners do not lack and creativity.

And so we're seeing a variety of amendments being being requested to kind of extend or amend investment periods, where the ability to use distributions to actually create a new investment opportunities the ability to go borrow in times like this has actually been.

Relatively easy and obviously rates are very friendly. So we think that is I mean theres no question that we're going to see some some companies go away, but those are gonna be we believe not the result of an inability to access capital.

But rather a tactical decision or strategic decision.

That the fund manager makes because they think that that business model is not so viable let me stop there and see if Mario wants to add on.

Yeah, Chris did the thing I would add on is.

Yes, the skill set the tool kit that small and mid managers uses different from the larger managers, but.

[noise].

Pardon the interruption Mr O has disk.

Good.

We will attempt to reconnect.

It's Eric I'm still here I'm not sure what happened so that line must have just gone down.

So we're going to Miss Mario's add on for that my apologies I wasn't sure. If it was my liner his line. So no add on there, but if there's a follow up question I'm happy to take those.

Tom Good there.

Thanks, a lot okay. Thank you.

Your next question comes from a line of Michael Shippers from Morgan Stanley. Your line is open.

Hi, Thanks for taking the follow up Eric you had spoken earlier about the power brands and some of the challenges that smaller firms may face in the industry. So just curious how you see that impacting the opportunity set for inorganic growth and what sort of dialogue are you having on that front today versus say six or 12 months ago.

I think part of this is sort of the early stage nature of it of this again, our industry and our sales cycle is measured in months and months in months in some cases it could be measured in years. I mean, we have had prospects that again whats taken our sales team two or three years to kind of get them across the finish line because again, we're talking about very large amounts of capital and we're talking.

How about.

Contracts that again or so long dated that they just don't take those questions lightly.

So I think it's a little bit early that said.

If you think about the mechanics of what a relationship looks like and how a relationship gets formed.

In the pre covert world that was again months of dating lots of in person meetings, getting together and offices et cetera, and I think you were doing that all to kind of form a bond in the trust pattern in a post covered world you're still going to need to do that but I think our belief is that that time cycles going to get shortened up a little bit and.

Again people because they don't have a choice.

Are going to have to make decisions around okay, who else who is doing this well already for a number of institutional investors around the world as opposed to in a pre coded world. Perhaps there were some people again, perhaps driven by price, perhaps driven by you know some other strategic issue of wanting to go try something new or try that that.

Newer thing.

I think our data sort of showed in a way. We mentioned we grew through the o. eight or nine timeframe I think partly because of that sort of trusted provider in that reputation that makes it substantially easier to kind of diligence us and to get to know us. So.

A little early to actually sort of point to specific trends.

But history has sort of showing us that we think again in times of crisis people sort of flock to big brands and stability and certainty and we think that we're certainly providing that.

Great. Thanks.

There are no further questions at this time I turn the call back to the presenters for any closing comments.

This is Eric again I wanted to thank you all for taking the time to join US. We appreciate the questions. We appreciate the engagement wishing everyone a stay as well and stays healthy.

Take care, thank you very much.

That concludes today's conference call you may now disconnect.

Yeah.

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