Q4 2021 Hamilton Lane Inc Earnings Call
And then.
Thank you for standing by and welcome to the Hamilton Lane incorporated fourth quarter fiscal year 2021 earnings Conference call.
At this time, all participants have been placed in a listen only mode and later the floor will be opened for your questions.
To ask a question at that time simply press Star then the number 1 on your telephone keypad.
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I'll now turn the call over to Jon <unk> manager of Investor Relations to begin. Please go ahead.
Thank you Maria good morning, and welcome to the Hamilton Lane and Q4 fiscal 2021 earnings call today, I will be joined by Mario Giannini, CEO, Erik Hirsch, Vice Chairman and a tool Varma CFO.
Before we discuss the quarter's results we want to remind you that we will be 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 and the Hamilton Lane fiscal 2020, 10-K, and subsequent reports we file with the SEC.
We will also be referring to non-GAAP measures that we view as important and assessing the performance of our business reconciliation of those non-GAAP measures to GAAP and can be found on the earnings presentation materials made available on the shareholder section of the Hamilton Lane website.
Our detailed financial results will be made available when our 10-K is filed.
Please note that nothing on this call represents and offer to sell or a solicitation to purchase interest and any of Hamilton Lane products.
Beginning on slide 3 for.
For the fiscal year, our management and advisory fee revenue grew by 18%, while our fee related earnings grew by 29% versus the prior year.
This translated into full year GAAP EPS of $2.81 based on $98 million on a GAAP net income and non-GAAP EPS of $2.73 based on $146 million of adjusted net income.
Lastly, our board has approved a 12% increase to our annual physical dividend to $1.40 per share or <unk> 35 per share per quarter with that I'll now turn the call over to Mario.
Thanks, John and good morning.
Fiscal year has been off to a busy start while the majority of our work force continues to work remotely. We are beginning to see a much clearer path to a return to normal and some of our employees outside of the U S are already experiencing that.
We're also seeing the return on some modest travel and the first week of May saw 2 of our senior colleagues visiting clients and prospects overseas.
We continue to monitor each region situation closely and are cautiously optimistic that along with strong vaccination numbers. This positive trend continues.
Moving to the highlights of the past few months on March 3rd our board of directors appointed Van Graves as a new independent director, which increased the size of the board to 7 directors 4 of whom are independent.
And as on accomplished brand and marketing executive and today leads the brand Center at Virginia Commonwealth University.
His lengthy career Vantiv and responsible for some of the world's most important brands, including Mastercard. The U S Army Lockheed Martin and American Airlines and addition, van has spent much of his career focused on being and Asian have changed as well as a mentor. He is a board member of about 600, and rising and the 3 per cent movement band holds degrees from Howard University.
And the Pratt Institute, Harvard University, and the University of Pennsylvania.
We continue to grow and scale, our business globally and as we look to continue our expansion into the retail channel, we will benefit from vans experience and perspective, we're very excited to welcome him to our team.
Next on March 30th we announced a strategic partnership with Russell investments Hamilton Lane will provide russell's global clients with access to our industry, leading private markets investment solutions, our investment products data driven research and innovative technology tools.
We believe that our comprehensive private markets capabilities together with Russell's leading outsourced CIO OCI on solutions will provide enhanced and integrated access to the global private markets for Russell's clients around the world. We view this partnership as mutually beneficial, bringing together 2 like minded institutions, who share our commitment to providing exceptional client service and <unk>.
Strive to offer the very best tailored and customized solutions to meet clients' goals and objectives.
Demonstrate our commitment to this partnership we invested $90 million from our balance sheet and return from minority equity stake and Russell.
We see this not as a quick win but rather is taking a long term positioning around the move to OCI O and certain parts of the market and of those partnered with 1 of the clear leaders and the space.
Let me now turn to the results for the fiscal year, which was strong across the entirety of the business.
Beginning on slide 4 here, we highlight our total asset footprint, which we define as the sum of our AUM.
Assets under management, and a way assets under advisement.
Total asset footprint for the quarter stood at approximately U S $719 billion and represents a 43% increase to our footprint year over year, continuing our long term growth trend consistent with prior quarters AUM growth year over year, which was 19 billion.
28% came from both our specialized funds and customized separate accounts and continues to be diversified across client type and size of client and geographic region. Our focus remains simply growing and winning across both lines of business and we are pleased with our ongoing success.
As for our <unk> similar to what was seen with our AUM growth year over year, which came in at approximately 197 billion or approximately 45% was from across client type and geographic region.
While the year over year, a UA changes relatively large from a dollar and percentage standpoint, the majority of the increases resulting from us being engaged on a fixed fee basis to provide back office and portfolio reporting services to a number of new clients with very large existing portfolios.
As we've mentioned on prior calls and it can fluctuate quarter to quarter for a variety of reasons, but the revenue associated with <unk> does not necessarily move in lock step with those changes do in many cases to the fixed fee nature of the business. We continue to note however that more as a positive as it expands our database and number of relationships.
Let me now turn it over to Eric.
Thank you Mario and good morning.
Moving on to slide 5 we highlight our fee, earning AUM as a reminder fee, earning AUM is the combination of our customized 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 up over 80% of our management and advisory fees.
Relative to the prior year total fee, earning AUM grew $3.3 billion or 9% stemming from positive fund flows across both our specialized funds and our customized separate accounts taken separately $1.1 billion of net fee, earning AUM came from our customized separate accounts and over the same time period.
$2.2 billion came from our specialized funds.
Growth in these 2 segments continues to be driven by 4 key components, 1 re ups from our existing clients, 2 winning and adding new clients.
3 growing our existing fund platforms and 4 raising new specialized funds. Additionally, our combined fee rate remained steady.
Moving to slide 6 the.
And the earning AUM from our customized separate accounts stood at $25.7 billion growing 5% over the past 12 months, we continue to see the growth coming across type.
Size and geographic location of these clients. What you also see here is that over the last 12 months more than 80 per cent of the gross inflows into customized separate accounts came from existing clients you've heard us say in the past that re ups from our existing client base remains a key component of the growth. We've achieved in this segment are fee, earning AUM and addition to read.
We continue to expand our client base by winning and adding brand new relationships, which in turn and provide a growing base for future re up opportunities.
Before I move on let me address a topic that still seems to be causing some confusion that being outflows related to customized separate accounts.
And when a client creates a CSA they are making a commitment on an actual funded accounts as we identify investment opportunities or as the underlying fund manager identifies opportunities capital has been called from the client to fund the opportunity further as investments are exited those proceeds are returned to the client they are not retained and the.
Hey, Doug.
Thus a healthy CSA should always have outflows. This is not the client withdrawing their funds nor shutting down their account it.
It is the result of exit activity and that is a good thing.
And not have outflows would mean that you've never exited and investment and thus have not generated any investment gain for the client not a good thing.
From a fee perspective, most of our CSA and begin on the committed fee basis. So the fee is based on the full committed them out over time that fee converts typically to a net invested amount. This results in our fee on that CSA tranche to step down ultimately going to zero as the CSA is fully liquidated and that capital has been returned to the client.
On the clients' perspective as cash is returned that is causing their exposure to the asset class to drop that returned cash is no longer private markets exposure. It is just cash so in order to maintain their allocation to the asset class and they need to redeploy those dollars. This is the re up dynamic that we often speak of they need to create and other CSA or simply.
Add another tranche of capital to their existing CSA.
The reality for most however, they are not simply looking to maintain exposure, they're seeking to increase and hence we often see re ups occurring at larger levels than their predecessors.
The timing of 1 tranche ending and the next beginning doesn't always align perfectly and in fact, it rarely does.
Each client has their own process. They undertake during contracting and given their long term focus whether it try and start to this quarter or 2 quarters from now is not a big factor for them. This can result in certain quarters, where we see a CSA and but we don't see it's replacement occur concurrently.
And this whole flow of capital is just the nature of the asset class for money comes in gets invested get the exited and the capital returned to the client, who then determines how and when to best deploy as.
As management I can tell you that while we're very focused on raising new assets that yield inflows spending a lot of time thinking about outflows that we don't control is not something that we do.
Moving to our specialized funds.
Growth here continues to be strong we are executing well across our existing product suite and our tactically introducing new product lines overall demand remains robust and like the rest of our business comes from a diversified set of investors around the globe.
Over the past 12 months, we've achieved positive inflows of over $2.2 billion, resulting and a 16% increase in fee, earning AUM.
Turning to funds specific updates on February 16th we announced the final close on our fifth secondary funds with approximately $3.9 billion of LP commitments. It is now the largest specialized funds we've ever raised and we are appreciative of all the investors who have entrusted capital to us and who have supported the growth of this platform.
As it relates to retro fees similar to prior closes with this product $862 million of LP commitments closed during this fourth fiscal quarter, which resulted in $12.9 million of retro fees.
Next up is our annual credit focus series on March 2nd we announced the final close of the sixth installment and the series at nearly $890 million of LP commitments. This marks the largest series of this and we've ever raised as a reminder, our credit strategy has a relatively unique structure, whereby we are continually raising and deploying das.
Simultaneously and earning management fees on invested capital. Therefore, it is less about targeting a set amount of dollars to raise as you would traditionally see across funds with a multi year deployment period, and it's more about ensuring that we size the product in line with the current opportunity set and that can lead to some very size variability from series. The series, we are already and the market with our.
Next series and Investor interest continues to be strong.
Moving on to our direct equity funds and to clarify any confusion here around the name. This fund was formerly called our co investment fund here, we are investing directly in equity positions and private companies, but we do this and partnership with our various private equity fund managers.
And we had previously communicated that we held the first close on our fifth fund and this strategy back in October of 2020 at nearly $320 million of LP commitments I'm pleased to announce that during this past quarter. We closed on another $433 million, which now brings the total dollars raised for this fund to over 750 million.
And LP commitments.
As we highlighted on our prior call for this fund investors were presented with the option of the traditional 1 per cent management fees on committed capital with a 10% carry or a 1% management fee on net invested capital with a carry of 12, 5%.
As it stands the management fee mix for the over $750 million raised so far is 42% committed and 58% net invested we see this is reflective that different types of investors have different areas of sensitivity and serves to confirm that we were thoughtful and our decision making to listen to the market and to provoke.
Provide that choice.
And was activated after the fiscal year and and as such there were no retro fees for the period. We are pleased with the success to date and the strong demand being shown around the globe for this product. We have 24 months from the first closing to complete the raised for this product and so we expect to be and market through October 2022.
Yeah.
Let me now shift gears and speak about our semi liquid evergreen retail product. It has been and exciting start for 2021 for the strategy as we have now officially launched our U S leave which complements our non U S offering that had been and the market for almost 2 years.
As we discussed on our last call. We acquired 361 capital to supplement the distribution efforts for the U S offering and have now officially close that transaction.
361 team has been integrated and is well underway with their efforts and marketing and distributing the U S product. While it is still early days, we are pleased with the success and momentum we've generated thus far.
Overall, we continue to see a great deal of interest and demand from the evergreen strategy. Currently the combined NAV net asset value for the 2 products now stands at over $1 billion monthly gross inflows into the strategy remains strong and we are continuing to gain traction and different regions around the world.
Let me now turn to the technology side.
I'm proud to announce and Hamilton Lane was recognized by Drexel University Lebow College of business and its annual Drexel Lebow analytics 50. This is a national competition honoring 50 organizations of all sizes and across all industries that are judged to be using data driven analytics to solve business challenges.
We are proud to be named a winner and find ourselves and outstanding company. This year with other winning firms including Pfizer.
Chewy ancestry dot com, Rackspace, Verizon Nestle and Pwc.
Our commitment to using data and technology to benefit our clients and to better inform our investment making decision, making is unrelenting and we are very proud to see and acknowledged and rewarded.
Next I want to provide and update on our joint venture with IHS Markit, a company called private market connect or PMC, we created and June of 2017.
As a quick refresher PMC focuses on scaling automating and normalizing the information flow between General partners and limited partners with the goal of providing straight through data processing fees.
M C primarily supports the L. P manage data services offering a high level of SaaS, offering and which we were and early investor and still remain a key customer.
Prior to this year the board of PNC, which includes 2 senior members from both IHS Markit and Hamilton Lane had approved 2 rate card adjustments as well as the dividend payment to its shareholders I'm pleased to say that the board has now approved a third rate card adjustment, which continues to benefit HL and <unk> shareholders by way of G&A reductions along.
On with another dividend payment stemming from excess cash generated by P&C, we look forward to continuing to provide additional updates on PMC and the future and with that I'll now turn the call over to a tool to cover the financials.
Great. Thank you, Eric and good morning, everyone.
Slide 8 of the presentation shows the financial highlights for fiscal year 2021.
We continue to see solid growth and our business with management and advisory fees up over 18% versus the prior year.
Our specialized funds revenue increased $36.2 million or <unk> 32 per cent compared to the prior year, driven by $2.2 billion and fee, earning AUM added from our latest secondary funds this year.
We recognized and $18.2 million and retrofits from the secondary fund and fiscal year 2021, compared to $2.8 million from our co investment fund and the prior year.
As many of you are likely aware investors that come into later closes the fundraise for many of our products paid retroactive fees dating back to the funds first close.
Therefore, you typically see a spike and management fees related to debt fund for the quarter in which subsequent closer to occur.
Revenue from our customized separate accounts increased $3.2 million compared to the prior year due to re ups from existing clients and the addition of several new accounts.
Revenue from and advisory and reporting offerings increased approximately $4.3 million compared to the prior year.
The final component of our revenue is incentive fees incentive fees increased $23.1 million compared to the prior year to $52.2 million due to strong realizations and continued continued diversification of both on a realized and unrealized carry.
We have nearly 80 vehicles and and unrealized carry position that are ultimately backed by thousands of underlying companies.
Moving to slide 9 we provide some additional detail on our unrealized carry balance.
Given the continued positive trend in valuations and the balance is about 47 per cent from the prior year, even though who recognized $52 million of incentive fees during that period.
And just to remind everyone. We don't control these positions and thus don't control the timing of exit.
Turning to slide 10, which profiles of our earnings.
Our fiscal year 2021 fees related earnings were up nearly 29% versus the prior year.
As a result of the revenue growth, we discussed earlier and.
In regard to our expenses total expenses increased $28.3 million compared with the prior year.
Total compensation and benefits increased $36.2 million due to strong operating performance and an increase on head count.
<unk> decreased $7.9 million due primarily to decreases in travel expense and consulting and professional fees.
Moving to slide 11 on our prior call. We highlighted our first stack Hamilton Lane Alliance Holdings..1 debt was raised this past January and totaled $276 million of growth proceeds.
We wanted to take a moment and provide more detail around the treatment of the stack as it relates to our financial statement.
There are 3 milestones and the snack lifecycle debt will impact our financials. They are the stack IPO.
The completion of a destock transaction and the monetization and marking of debt position.
Currently we have only completed the fac IPO and as a result, we now consolidate the financial results for the stack as we control the entity.
This quarter, the largest impact to our financials is on our balance sheet, primarily cash and equity.
And once we have identified and asset and complete the destock process. We will then be consolidate the facts financials as we no longer control the entity and will then mark or founders' shares and warrants to fair market value.
And this total value will then be recognized as revenue on our income statement.
And we will also be included on the balance sheet and the investments line.
Over time at our discretion and in accordance with on the Lockup agreement, we will look to monetize these shares but we will continue to mark the remaining position based on the public trading price of the shares with the change in value from 1 period to the next reflected on our income statement under the other income section.
Moving to our balance sheet on slide 12, our largest asset on the balance sheet and investment alongside our clients and our customized separate accounts and specialized funds.
This quarter saw an increase from the value relative to the previous quarter due to increased valuation changes along with the $90 million investment and Russell investments that Mario discussed earlier.
In regard to our liabilities, we continue to be modestly levered, even with the increase and our debt balance this quarter that we used to fund the rest of the investment.
And with that we thank you for joining the call and happy to open it up for questions.
Thank you and the floor is now open for questions and order.
To ask a question at this time simply press Star then the number 1 on your telephone keypad again and that is star 1.
Our first question comes from the line of Michael <unk> of Morgan Stanley.
Hey, good morning, and thanks for taking the question.
Just wanted to dive in a little bit more on the management fee growth you guys have put up some very strong numbers on management fee growth over the past 5 years and it gets around a 13% CAGR are so I guess just looking out maybe over the next 5 years, how do you see that pace persisting and you think that that 13% management and fee growth rate could persist and how do you think.
And where that could be potential for upside for that to perhaps accelerate and you know again and how do you think about any sort of downside scenario, where that may be slow and how do you think about the ups and the balance there.
Sure, Mike, It's Eric I'm happy to take that so I think if.
You've obviously, followed our story from the beginning and I think we've been very consistent and we see ourself as a double digit grower.
And I think driven by sort of 2 factors..1 we obviously have the tailwind of the industry itself as a growing asset class and 2 as a market leader and we got the benefit of just strong market position and so while the mix continues to evolve and change certainly quarter to quarter or even year to year. Obviously this past year you saw a much bigger.
Driver of specialized funds, given what we had and market at the time and now we're seeing a lot of drive coming from retail.
Our outlook remains consistent around what we can deliver there I think at a macro.
Obviously, if we're facing a tremendous headwind, but the economies and some sort of a tail spin public markets are dropping and thus the kind of overall planned value is dropping.
Not a great environment to be in but I think things remaining relatively steady and they don't study does not mean that we need the public markets to be rapidly accelerating and putting up unbelievable numbers I think gaps and any of those kind of extreme movements, our expectations of where we are remains kind of where we've been historically.
Great and just maybe a follow up just and maybe dive a little bit deeper on that but just maybe you could just elaborate on how you see the drivers of growth and of your business over the next 5 years relative to the past 5 years and terms and what the contributing pieces and we're going to be and how they may be evolving for example, you mentioned.
The retail evergreen strategy, and obviously something you didn't have on the past 5 years, but over the next I guess, how do you see that contributing among other new products and extensions.
And we could that drive some upside and acceleration to that and how do you think about the component pieces that are underpinning that.
Sure, it's Eric I'll stick with us so.
So I think much of what we're experiencing today is very similar to what we've experienced over the past 5 years that being demand for the asset class remains strong our market position within the asset class remains strong and that we're offering a very full suite of product offerings, allowing us to kind of address the totality of the market.
So what do I see for the next 5 years, 1 and I think we're continuing to expand that suite of product offerings in response to what the market is asking for it. So you see our product suite continues to widen out whether thats, new technology offerings, or whether that's adding and and.
And impact funds to our mix of products whatever that is I think that's just us addressing and reflecting kind of what the market's looking for.
The retail piece is the 1 thing that sort of truly new.
While we had certainly been playing and the family office and Ultra high net worth space over the last 5 years I think what we've moved to now with this evergreen vehicle is much more of the mass affluent and so that is opening up a completely new market channel for us.
And I think we can be nothing but exceptionally pleased with how well the launches of those of those 2 vehicles have gone I think reaching the $1 billion and mark.
At the pace at which we did is a enormous accomplishment, particularly when you think about the fact that the vast majority of those assets have all been raised during the pandemic. So I think we remain very very optimistic about what that channel can deliver for us but to use the baseball analogy, we would still say, we're and extremely early innings and what is going to be.
A very long game.
Great. Thanks, so much and I'll get back into queue.
Our next question comes from the line of Ken Worthington with Jpmorgan.
Hi, good morning, and thank you I wanted to follow up there.
So.
Why don't you can't get to speak further on the expansion and the wealth management channel.
Mentioned that you've not only close but have started the integration process with 361 capital So where does this bring your total retail sales force.
Are your salespeople also selling the $3.61 capital products alongside the $3.61 and salespeople selling.
And your evergreen product and.
And.
How far along are you in the I guess build out or the.
Where do you stand on getting the product on a retail platforms your evergreen products and retail platforms. At this point you know how much have you penetrated of your target.
Ken It's Eric and Theres a lot there let me try to unpack that so let me take this and pieces. So if you look at so youre absolutely right that the $3.61.
Sort of distribution team has been fully integrated now with the preexisting Hamilton Lane retail distribution team in the U S. As you know 361 does not operate outside of the U S. So that has happened they're now aligned under a single management structure territories have been created and the team is off to the races that.
Team is solely focused on selling the evergreen product and the U S. They are not spending any time, selling Hamilton lane and sort of separate accounts or migrating into Hamilton lane products and.
And the growth of the existing 361 products, while they are important the growth of them is not our focus today the growth and the focus of that organization is solely around the Hamilton Lane evergreen.
Outside the U S. It's a slightly different picture, while the majority of the salespeople who are focused on retail and do nothing but that that's not true in every territory. So depending on some of the territories and frankly some of the geographies outside the U S. There's a lot more benefit from having 1 person who is kind of cutting across.
Arent things that they're focused on selling so that is really kind of driven region by region. I think when you had sort of total up all of the salespeople rough numbers I think we're looking at about 15 people. So we feel like we have a good start you noted we've made some additional hires particularly outside the U S.
And we're continuing to look to grow as we see this as just a and this is a huge market segment and there's a lot of work to do in terms of platform and penetration.
Again, we would say.
And if the answer if the question is are you on all the platforms that you want to be on the answer is a resounding no.
And the fact that we're already at the $1 billion with with us being able to say that I think tells you that there is a lot of room to grow ahead here. So.
And the U S product only receive kind of its final permission ing sort of first quarter of the year calendar year and so again, it's just it's early here and we've got a lot of work to do but I think as you as you well know for a lot of people. They want you to get to a certain size before they start to contemplate larger platforms I think being at the $1 billion puts us on a good position.
Awesome, great. Thank you very much.
Yeah.
Our next question comes from Robert Lee K B W.
Okay.
To be great.
Thanks for taking my questions.
Yes, maybe first 1 is on the separate accounts.
And.
And continuing to grow that and I guess and steady pace.
And it does look like.
Moving to.
And revenues and kind of flattish now.
And routes.
And since corners.
<unk> growth.
And if you can maybe talk a little bit about that just hang on.
Are you seeing from some painted countries their adventures on the way this thing accounts on the REIT.
And how should we think of that.
On the phone.
Sure Rob it's Erik I'm happy to take that so I would really point to 2 factors and 1 we had sort of addressed on prior calls which is for us given our model and our kind of heavy client service focused we have found it.
On a relative basis easier to sell product and a pandemic world than it has been to sell completely bespoke huge fully discretionary sort.
12 year relationship kind of stuff, where our prospects and clients like to come visit us have a meal together meet the team visit some offices and that's just been hard to do so I think on a relative basis.
It's been a little easier to sort of move specialized product right now versus that the second thing I'd point out, though is that and I.
Sometimes it gets lost and it's an important point, which is if a client comes in and sort of says hey, here's a $100 million.
But I want to make sure I mitigate the J curve before I start kind of building out my primary fund exposure.
We might have 20 of that hundred going to the secondary fund or some portion of that going to the credit funds. In addition, so some of that is some of the product growth Youre seeing is the result of kind of separate account customers beginning their relationship with some product to accomplish strategic objectives and then we begin building out the more traditional Porsche.
And are there separate account later, so I think it's really the combo of those 2 things.
Okay, Great and then maybe moving away.
And expense you know question. So you had the staff compensation and the corner.
And we need and G&A.
Should we be thinking that and go forward basis.
Comp and you kind of on.
Mark.
And in every corner and we think that kind of a 1 and done.
Taking out the runway.
Trying to think and the way to think of that.
And they're coming period.
Hey, Rob, it's such a low I'll.
And I'll take that 1.
So the compensation related to the stack is a onetime thing we awarded warrants to.
Certain employees, because we wanted to align their success with the success of the facts and Thats not a recurring thing.
The other expenses. The fact, you see and the financials we broke out.
And as <unk> will on consolidate those and those expenses.
Okay, and then I guess.
And maybe related to that you know.
On the back out.
The G&A.
From new members and and you still saw this on.
Sequential step up and Thats, the kind of opening up and coming back in or.
And again when you are on the value.
Corners stage, and how should we think of kind of on G&A.
As you would consider constant school years and cheapest stock.
Knock on wood triangle, you get things open up.
Yeah, Yeah, So let me stick with that for the the rent expense, we started incurring that too.
And 2 quarters ago. So that's been our run rate and I think that will but we're not actually in that building. So if we start to come back into the building. We expect some of that expense to go up there and things like common area charges and and office expenses.
And so you would expect that the travel really.
It's a question Mark right. It it all depends on how travel comes back and and how strongly it comes back and when it comes back so that.
And that remains to be seen.
But the the big for the rent expense that we had been.
Talking about for a little while that's now baked into our base and G&A.
So this is a good run rates I think are down and.
And so the next fiscal year.
Yes, I would say, it's a decent run rate and and we have to think about travel and office expenses and on top of that if they come in.
Okay, great. Thanks for taking my question.
Our next question comes from the line of Chris Kotowski Oppenheimer.
Alright.
And I was wondering about.
What we should expect over the next couple of years from.
Your spec activity and should we expect.
I don't want to be fully day spec before Hamilton lane to comes into existence.
And I guess, just in general and I'm wondering.
And as the market and still in your view, resected, specs and and and as the pipe financing there and if.
If you try and good transactions.
Chris It's Erik Thanks for the question. So I would say, we have sort of stated pretty clearly and and I reiterate that we view this as a new business line for us.
We do not want to be what I suspect a lot of the stock market will be which is a 1 hit wonder. So I think here, we are focused on patients and making sure that we're delivering a really good particularly really good first experience.
For our first back so and.
And that's where our head is we're not and a race we want to make sure that we do something that is sensible as seen by the market as.
Befitting, what we sort of sold as a story and so I think it's unlikely that we would go launch.
Second before we kind of destock that first I think we need to prove to the market.
And that our strategy, which we believe is unique is working.
So I think from the market question I think what we see across the market is that investors are getting much more sophisticated and much more picky about who they want to be and business with as it relates to the facts. We believe that again since we're trying to institutionalize better transparency better alignment of interest and.
And a slightly novel approach that we will remain 1 of those people.
And I think if you look at the support we received and raising this back from HL and <unk> shareholders. I think that's telling you that people appreciate the institution and what we're going about doing here and so I think we remain optimistic that we will be we are today and we will be in the future well positioned to be and ongoing player and this market space.
Okay.
That's it from me thank you.
Yeah.
Our next question comes from line of Adam <unk> of UBS.
Hello, Good morning, Thank you.
Yes, just from that.
Another question on spec story I appreciate the information and the slides I just wanted to focus for a minute on sort of the middle section of the slide that you showed around the income statement impact when the spec is consummated.
Wanted to get your thoughts on the best way to think about the amount that will run through the income statement. Obviously, there was a fair value will be a piece of that maybe there are some from other ancillary revenue streams, but if you could just give us a little bit of a guidepost around how to think about that how does the transaction gets completed and thank you.
Sure Adam let me take that 1 so when we defect what'll happen is the the shares debt that are owned by Hamilton Lane and the warrants day essentially.
Get recognized as revenue.
And so if you've got a accompany destocking at let's just make it up $10 per share from or to make it easy it'll be $10 per share times. The number of shares that will be a revenue.
And then going forward what will happen is.
Yes, the price of that debt.
Security changes the mark to market the value change and value will be shown below the line and the and other income.
Got it.
Makes sense. Thank you.
And then I wanted to circle back a little bit I. Appreciate your comments around the interplay between separate accounts and specialized funds in terms of where the organizational focus is so looking and you gave some information about funds that are and the market right. Now looking ahead should we expect that Val.
<unk> you know, maybe just shift a little bit next year not sure what the fund raising pipeline looks like so maybe you can give us a sense of Broadway the longer term outlook. Thank you.
Sure Adam It's Eric I think really 2 factors there.
1 it's sort of back to the whole kind of pandemic world. So what kind of travel world that we're living in and what and what's People's comfort.
And to sort of turnover large new relationships.
And their ability to do due diligence around that so I think thats sort of piece number 1 and would that just sort of unknowable right now.
Number 2 though is that.
As we see with strong distributions that means that clients who are in this asset class. We're seeing their exposures drop so as things are getting liquidated and returned and cash it is causing that sort of numerator and their private markets exposure to be dropping so I think people don't like to be under allocated they want to stay on top of their allocation targets and so I think to.
The extent that you see these markets continue there will be some elements of sort of pressure mathematical pressure on clients to continue to maintain positive flows and order to maintain their allocation targets.
It makes total sense. Thank you first on that I appreciate it.
Again, ladies and gentlemen, if you wish.
To ask a question on simply press Star then the number 1 on your telephone keypad.
And we have a question from the line of Michael Cyprus I'm from Morgan Stanley.
Hey, Thanks for taking the follow up question just wanted to circle back on the Evergreen product I think you said it was about $1 billion NAV at the end of the March quarter, just curious where that was at the end of the December quarter, and and maybe if you could just elaborate and minus a little bit on the strategy there of the product itself and how the economics from this on.
Going to come through particularly for any incentive fees the recognition around that and how we can expect that to come through the P&L and the timing around that.
Sure Mike It's Eric So I think if memory serves me correct sort of prior quarter would've been about 600.
And so now today, we're at $1 billion, so that's sort of the where we're at.
Where are we and where are we.
And in terms of the economics on this this is sitting in the specialized funds bucket, it's gonna look into hey, like a specialized funds and has a carry component. The difference on this carry component is and it doesn't follow on European waterfall, because on a closed end fund given that it's evergreen.
Really the only way to handle carry and a situation like that is related to kind of deal by deal and so it has that element to it otherwise the management fee.
Dream is sort of generally in line with a lot of our product offerings and again, it's sitting in that same vertical.
And just to clarify the performance fees does it require.
And the underlying assets to be sold to have a realization crystallization event or does that happened and kind of annually or quarterly or something like that.
No it's not sort of it's Erik again. This is it's not based on sort of a mark or sort of a high water concept. It is a actual sale of the asset and the successful sale of the asset.
Got it great. Thank you very much.
And at this time I'm showing no further questions I'd like to turn the floor back over to management for any additional or closing remarks.
Great on behalf and Hamilton Lane team and we wanted to thank everybody for your participation and your time for those of you on the U S enjoy yourself and Memorial day weekend and again, thanks for the support.
And thank you ladies and gentlemen, this does conclude today's conference call you may now disconnect.
Okay.
Yeah.
Okay.
And.
And.
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