Q1 2022 Hamilton Lane Inc Earnings Call
Thank you all for standing by and welcome to the Hamilton Lane incorporated first quarter fiscal year, 2020.2 earnings conference call.
All participants will be in listen only mode until the question and answer session of today's conference.
By that time to ask the question over the phone you May press the star key followed by the number 1.
I'll now turn the call over to your host mice.
Nice President of Investor Relations, John Oh, Sir you May now begin.
Thank you Jessie good morning, and welcome to the Hamilton Lane Q1 fiscal 2020.2 earnings call today, I will be joined by Mario Giannini, CEO, Erik Hirsch, Vice Chairman and of Toolbar C. F O b.
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 2021 and 10-K as amended 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 can be found and the earnings presentation materials made available on the shareholders section of the Hamilton Lane website.
Our detailed financial results will be made available when our 10-Q was filed.
Note that nothing on this call represents and offer to sell or solicitation of the purchase interest and any of Hamilton Lane's products.
Beginning on slide 3.
For the quarter, our management and advisory fee revenue grew by 10%, while our fee related earnings grew by 21% versus the prior year period. This translated into GAAP EPS of <unk> 78 cents based on $28 million of GAAP net income and non-GAAP EPS of <unk> 84 cents based on $45 million of adjusted net income.
We have also declared a dividend of <unk> 35 per share of this quarter, which keeps us on track for the 12% increase over last fiscal year equating to the targeted $1.40 per share for fiscal year, 2020.2 with that I'll now turn the call over to Mario.
Thanks, John and good morning, I'd like to begin by acknowledging and important for milestone in June we celebrated our 30 at the anniversary having started with the single advisory clients. Today, we have the privilege of serving more than 700 global institutional clients, along with our growing retail presence and our focus on innovation and growth has allowed us to meet.
And the needs of our clients within and evolving and increasingly complex of asset class I'm extremely proud of all of that we've accomplished over the past 30 years, and we look forward to continuing our leadership position end of the future.
Let me now turn to some results for the quarter beginning on slide 4 here, we highlight our total asset footprint, which we define as the sum of our AUR and assets under management and a UA assets under advisement total asset footprint for the quarter stood at $757 billion and represents a 47% increase to our footprint year over.
The year, continuing our long term consistent growth trend and so.
And with prior quarters AUM growth year over year, which was 23 billion or 34% came from both of our specialized funds and customized separate accounts and continues to be diversified across client type size of client and geographic region.
Focus remains simply growing and winning across both lines of business and we are pleased with the continued success.
And that's for a similar to what was seen with our AUM growth year over year, which came in at $218 billion of 49% was from across client type and geographic region. As we have mentioned on prior earnings call a UA can fluctuate quarter to quarter for a variety of reasons, but the revenue associated with the <unk> does not necessarily move in lockstep.
With those changes and while this quarter saw an increase and the UA dollars relative to the previous quarter. We will continue to emphasize that no direct correlation exists between the scale of a UA dollars and revenue generation.
And I'll turn it over to Eric.
Thank you Mario and good morning.
Moving on to slide 5 here, we highlight our fee, earning AUM as a reminder of the earning a U M 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.
<unk>.
Relative to the prior year period total fee, earning AUM grew $3.8 billion or 10% stemming from positive fund flows across both our specialized funds and our customized separate accounts.
Taken separately $2.1 billion of net fee, earning AUM came from our customized separate accounts and over the same time period $1.7 billion came from our specialized funds.
Growth in these 2 segments continue to be driven by for key components.
1 re ups from our existing clients, 2 winning and adding new clients 3 growing our existing fund platforms and for raising new specialized funds. Additionally, our combined the fee rate remains steady.
Moving to slide 6 fee, earning AUM from our customized separate accounts stood at $26.4 billion growing 9% over the past 12 months, we continue to see the growth coming across the institution type size and geography.
What you also see here of that over the last 12 months more than 80% 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 the segment of fee, earning AUM and.
In addition to re ups, we continue to expand our client base by winning and adding brand new relationships, which in turn provide a growing base for future re up opportunities.
Moving to our specialized fund growth here continues to be strong we are executing well across our product suite and demand remains robust coming like the rest of our business from a diversified set of investors around the globe.
Over the past 12 months, we've achieved positive inflows of $1.7 billion, resulting in an 11% increase in fee, earning AUM.
Turning to funds specific updates.
During this fiscal quarter, we held a third close for our direct equity fund, formerly known as our co investment fund the closed totaled nearly $223 million of L. P commitments and brings the total raised for this fund to over $973 million. We are pleased with the success to date and the strong demand being shown around.
And the globe for this product we have 24 months from the first closing the complete the raise for this product and so we expect to be and market through October of 2022.
Next we announced the first closing of our second impact funds on July 22nd with nearly $148 million of L. P. Commitments. This is a direct investment fund targeting impact and ESG oriented opportunities.
This first close surpasses the entirety of our first impact fund that we closed in July of 'twenty, and 'twenty with nearly $100 million of commitments given.
Given the smallest nature of that funds combined with very strong deal flow. It was deployed relatively quickly and returns to date have been very strong with the funds reporting a net IRR of almost 47% as of March 31st intra.
Interest and the space continues to grow.
And given our strong market position and early returns from the predecessor fund. We are encouraged by the demand. We are seeing from investors. We have until January of 2020.3 to complete this fundraise.
Let me now take this opportunity to introduce our newest specialized fund platform.
1 focused on infrastructure investing for.
Prior to our acquisition of wrap them for years ago, Hamilton Lane had long been active across the infrastructure and real asset space through our separate account business.
Combining our existing resources with those of wrap them, we have built a scaled operation with a long standing proven track record. The platform has grown nicely to date through our various separate account activities along with some additional advisory mandates.
Interest from investors and a dedicated Hamilton Lane product has continued to increase and as such we've launched our first dedicated infrastructure specialized funds.
At the end of July we have closed on $310 million of investor commitments in and alongside the fund the portfolio will consist of both infrastructure focused secondaries and direct equity transactions. The funds has already begun investing and deal flow is robust we have until March of 2020.
2 to complete the fundraise and we look forward to providing with additional updates and the future.
Shifting gears now to our evergreen platform day.
And for our products in the space continues to be strong we have quickly established ourselves as 1 of the leaders in the space and we are on a very small group of managers responsible for evergreen platforms that exceed $1 billion and size.
We've been very encouraged with how this platform has scaled around the globe and a relatively short amount of time on.
Our geographical reach continues to expand and we now have investors from 18 countries spanning the Americas Asia Europe, the middle East and Australia. Additionally, the product is being offered through 'twenty distribution partners with a healthy pipeline of additional park partners that we expect to come online shortly for the.
The month of July the platform saw inflows of over $78 million.
Total inflows of nearly $500 million and the first 7 months of 2021 have already exceeded the entirety of the flows for 2020.
This now all results on the platform standing at approximately $1.3 billion and a U M and a little over 2 years since the initial launch.
Overall, our continued success here confirms that our offering and strategy is resonating well with the investors in this channel we continue to be pleased with the momentum we've generated thus far and look forward to expanding even further.
Let me now take this time to provide and update on 1 of our strategic technology investments, which will highlight both our strategic approach and.
And successful investment track record.
As you've heard us say before we approached technology strategically there are some systems that we should create and own outright and we do and there are others, where partnering and collaborating with world class development teams makes more sense.
And those situations, we put our balance sheet capital behind the initiative and add our market expertise and strategic insights to create a strong company.
And 2015, we identified the need for both us and our asset class to find a CRM and the deal tracking solution that was more tailored to the intricacies of the private market.
And turn this information can be more easily consumed driving better investment and business decisions.
We invested and became a key strategic partner and customer and the company called deal cloud.
The cloud today, and it's 1 of our key technology platforms internally and is utilized by many leading private fund managers as well as several large financial institutions, including KPMG and Raymond James and.
And 2018 in tap a leading provider of cloud based software and services for the global professional and financial services industry acquired deal cloud.
The cloud represented a key component to their ability to offer a comprehensive solution to all participants and the capital markets and professional services industries.
For us the deal confirmed our view around the benefits and value of deal clouds of product offering and ultimately generated a return of over 8 ex on our initial investment.
After the acquisition, we remained and continues to be a key customer of deal cloud and the new owner and tap desired our ongoing strategic partnership as.
As a result, they provided Hamilton lane and opportunity to invest directly in and tap following the acquisition of deal cloud now coming back to the present time on June 30th Inc.
GAAP completed its IPO at $26 of share, we had invested $3 million and and tap and based on last week's closing price of $33.90 that.
And is now worth approximately 8 and a half million dollars or 2 point at $2.8 ex our investment.
We strongly believe there will continue to be continued opportunities for our balance sheet capital to work and to become key partners with future technology companies that will make this asset class better and more accessible on.
Our track record demonstrates our success our success and identifying these opportunities and we believe we will continue to be a sought after partner for these companies.
Let me now move to another 1 of our strategic Tech investments and provide an update as it relates on a recently announced financing round.
As many of you are aware back in March of 2020, Hamilton Lane and invested balance sheet capital into capital. We joined the group of Blue Chip investors that include Blackrock Goldman Sachs, and Blackstone, who share and the vision of <unk> capital and their pursuit of providing seamless and democratized access to private investment.
Opportunities to high net worth investors of.
Alongside our investment and consistent with our tech investing approach, we formed a strategic partnership with <unk> capital that includes private market education modules for their advisors and clients along with offering of number of our specialized funds on their platform today.
On July 27th.
Hi capital announced the closing the other financing round that will support the continued growth of their platform based on the valuation of the surround our original $10 million investment and our capital is now valued at $40 million generating a return of Forex and less than 18 months.
With that let me now turn it over to a tool to cover the financials.
Thank you Eric and good morning, everyone slide 8 of the presentation shows the financial highlights for the first quarter of fiscal 2022.
We continue to see solid growth and our business with management and advisory fee up 10% versus the prior year period.
Our specialized funds revenue increased $1.2 million or 4% compared to the prior year period, driven by $1 million from our latest latest direct equity fund and the current year period.
This was the first quarter, we recognized revenue for the fund.
No retro fees related to the prior period.
And the prior year period, we recognized $3.8 million and retro fees for her later of secondary fund.
As many of you are likely aware investors that come into later closes of the fundraise for many for products made retroactive fees dating back to the funds first close and.
Therefore, you typically see a spike and management fees related to that funds for the quarter in which subsequent closings occur.
Revenue from our customized separate accounts increased $1 million compared to the prior year.
Due to the addition of several new accounts and re ups from interest and client.
Revenue from our reporting and other offerings increased $2.4 million compared to the prior year period, driven by the revenue associated with the pre existing fund managed by the 361 capital team that we acquired in April of 2021 and.
In addition, we fall of $2.4 million increase the revenue compared to the prior year period from our distribution management business due to strong distribution activity in the quarter.
The final component of our revenue is incentive fees incentive fees for the period were $5.1 million or 6 percentage of total revenue.
Moving to slide 9 we provide some additional detail on our unrealized carry balance.
Given the continued positive trend and valuations and the balance is up 160% from the prior year, even if we recognized $54.8 million of incentive fees during that period and.
Many of life's carry balance now stands at the $809 million.
And just to remind everyone. We don't control of these positions and thus we don't control the timing of exit.
Turning to slide 10, which profiles of our earnings.
<unk> related earnings were up 21% versus the prior year period as the result of the revenue growth, we discussed earlier, along with growth and our margin.
In regard to and extensive total expenses increased $2.3 million compared with the prior year period.
G&A increased $6 million, which included the rent expense associated with our new headquarters along with expenses from 361 capital.
Total compensation and benefits decreased by $2.6 million.
Moving to our balance sheet on slide 11.
The largest asset on our balance sheet is investment alongside the claims and are of customized separate accounts and specialized funds.
Over the long term we view these investments and is an important component of our continued growth and will continue to invest on our balance sheet capital alongside our clients.
In regard to the liabilities, we continue to be modestly levered, even with the increase and our debt balance used to fund the Russell investment last quarter.
And with that we thank you for joining the call and are happy to open it up for questions.
Okay.
Thank you speakers participants we will now begin the question and answer session begin to ask the question over the phone.
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Yeah.
Speakers on our first question is from the line of Michael <unk> of Morgan Stanley. Your line is now open.
Great. Thanks. Good morning, Thanks for taking the question just wanted to come back to the FRE margin that you guys put up and the quarter of 45% can you just help us quantify maybe how much of that is benefiting from the COVID-19 and do savings on the <unk> line and I imagine as we kind of move forward from here.
And at some point and there should be some of that coming back and the teeny costs back into the run rate. So imagine that 45% comes down somewhat but maybe not towards the 41 per cent or so of level that you had pre COVID-19, but maybe you could just kind of help us out there on the moving pieces and then as you kind of think about moving forward what could be the partial offsets to maybe enhance the margin and kind of bring you.
Back to the <unk> 45 per cent, where it is today and how do you think about the longer term.
Margin opportunity for the business.
Sure Mike, It's Eric let me start there and take that.
I think youre right and I would really think about sort of the margin growth being driven by sort of 2 factors..1 as you noted is certainly some of the COVID-19 impact, particularly driven around sort of the reduction and <unk> as.
As we look out sort of for the for the remainder of this year I would say sort of indications are we're just not seeing a rapid return to conferences big events or significant international travel. So we'll continue to keep an eye on that but as we sit here today that all continues to look muted for the next several months.
I think the second drive of the margin is really around the mix and the business as you well know as our kind of specialized funds business and I would certainly include the evergreen platform in that continues to grow that as a higher fee higher margin more leverage of bowl.
Aspect to our business and so I think the increase in margin from the 41% to 45 is really driven by both of those components. The exact ratio of that I think hard hard to quantify but.
But I think it's there's a combo of both of those occurring as we look forward in terms of what can kind of keep it going up or what could sort of pull it back I think on the keep it going up obviously kind of continued growth as we've been experience around specialized funds evergreen all of that is a positive driver to margin on the sort of.
Of moving backwards or sort of seeing a reduction I think that would really be sort of 2 pieces I think 1 it would be seeing a kind of returned to normal or even perhaps of beyond the normal level of TNT.
And the second piece.
I think we're certainly keeping an eye on is something that you've heard other people talk about and prior earnings calls which is wage pressure.
And so we're seeing a real competition for talent across a lot of our different hiring areas. If you were to look on our website. Today you would see a number of job openings, because we continue to be growing strongly and so I think those could be potential negative impacts.
Great. Thanks for that Eric and maybe just a follow up question on the Evergreen strategy I think you've mentioned 1.3.
Billions of capital there now I was hoping you could update us a bit on the distribution strategy. How many platforms are you guys on now and the U S. How do you see that evolving as you look out of the next 12 months or so and can you talk about some of the sales resources, you're putting up against that and some of the actions you guys are taking to drive growth from here on the in the retail channel.
Thank you sure Mike, It's Eric I'll stick with that I think as we as we sit and the script right now we've got about 20 distribution partners globally, we're sort of thinking about the platform Holistically and we're attacking it holistically. So while we have the U S leave and we have of non U S. Leave I think from the firm's orientation as we had said in the past the investment strategies and even the specific.
The investment portfolios are very very similar across the 2 vehicles. There's just different structural reasons as we do and a lot of our vehicles to have.
And sort of sub entities domiciled and different areas. So here I think it's we've had really good success here and getting some distribution partners. So as we said 20 today with the strong pipeline of others coming.
We continue to build out our internal sales force so beyond the resources that Hamilton Lane had 2 years ago and we've added to that obviously the 361 acquisition has further added to that and if you look at some of the additional hires on our sales force.
<unk> of them are specifically targeted on the retail opportunity. So I think we've always looked at this as sort of a 2 pronged approach you've got to have great internal resources. We do we continue to add to that and then you really get leverage off of those internal resources by finding good distribution partners, having success and getting into their channels.
Having them no and support the product and then having them help them move that product. So when you look at sort of the country count. The 18 countries of the 20 distribution partners. The fact that we sort of view that getting over $1 billion of the very very meaningful place to be it's not a place for all of the competitors are today a lot of people are still.
Sitting and kind of that couple of hundred million dollar range I think getting the attention requires you being at scale proving to the market that you can operate there and we think kind of being at that 1.3. Today you saw a sort of put up those July flows of $78 million. We think all of that is very strong and bodes well for the future.
Great. Thank you.
Next question operating and remind them.
Ken Worthington of JP Morgan Your line is now open.
Good morning.
So I was hoping to hear more of your comments about the pace of accrued carry realization. So you mentioned in the prepared remarks, you don't control of the investments, but that aggregate of crude carry number does continue to the CRO really really smartly.
And then the mix I think of your underlying funds, there's more sort of the American carried structured products.
And complementing the the more historical European carried.
The structured products, so given the rate environment more American style funds entering the mix more European funds may be migrating towards the later life any thoughts that you can share.
The outlook for Kerry.
Carry generation.
Sure Ken It's Eric I'll dive in there I think as we look at the <unk> story, we sort of put it into the piece that we can control and the piece that we can't control I think the piece that we can control is actually doing good investments and I think when you look at the rise and the unrealized value I think that's very indicative of we're putting the money to work and a smart way our clients are very much <unk>.
Fitting from that and then us sort of aligned with them are also benefiting on the carrier side. So that piece I think growing very very nicely, it's strong and it's not only just the magnitude of those carry dollars. It's also continuing to see the number of vehicles that today. We're now over 80 different vehicles that have the carry component.
Your second part is is spot on which is I think if you think about the carry is kind of a pie chart. If you will if you went back and sort of the firm's history. The pie chart would have been almost exclusively kind of European waterfall that there would have been very little diversification and that pie chart. It would've been all of our vehicles are big flagship funds co investment secondary.
Et cetera of following that European waterfall mindset model. If you look out of sort of the other the sort of the growth and the business and other areas, where we're picking up carry generating dollars. It's really 2 places 1.
As in separate accounts that have transactional components to them.
And the growing number of those are more on the deal by deal model just given the structure of the separate account and.
And the second place that we think over time, we will continue to generate meaningful carry dollars is in this retail evergreen that is by by nature of the structure a deal by deal environment. Now. We've also said that we've only been in that business for 2 years and so the first deals that we've done and there are at or at best 2 years old and an environment.
When you look at kind of what the average exit is for a private asset and today's market and youre running about 4.5 to 5 years. So I think over time that pie mix is going to change where you will see a growing proportion of our carry coming and more of that deal by deal and American style waterfall, but.
But I think the totality of those dollars.
B, what we're focused on and I think that story continues to be very strong.
Okay, great. Thank you and then just on the secondary fund market.
What are we seeing for industry activity levels in secondaries and is the pace of deals in that and that market sort of commensurate with the level of assets that have come into secondary funds.
And just maybe talk about the competitive nature of secondaries.
You just raised 1 you're putting money to work.
And what are the things look like and that market today.
Hey, Ken it's Mario.
It's it's an interesting market as we've mentioned on prior calls I think you can look at the market in 2 pieces. There's the traditional LP interest market, which is continues to grow it has its ups and downs.
Missing.
And is pretty robust and that market today, and I would say that the number of deals continues to grow at a reasonable pace.
Where the market has really expanded.
And the GP led deals continuation funds single asset deals and that market is now I think it's something like 3 quarters of the entire secondary market is composed of that sort of true.
Transaction.
And it is 1 of the markets interestingly, where the the supply exceeds demand.
Even with all of the capital that's been raised in the secondary market the volume of deals, particularly again around that GP led transactions space really.
You can say dwarfs, but it certainly is far higher than the amount of capital. That's there. So oddly enough in today's market that is 1 of the places where do you see of supply demand imbalance.
And.
And where you if you have capital you have your choice of deals you are not really scrambling to say Oh, My gosh I've got to put money to work because there aren't enough deals.
So.
I suspect that will continue for some period of time, particularly because it's a very attractive market for general partners to effectively sell and in many cases retain interest and the companies that they really like.
And it's an area for for limited partners to invest with very attractive assets. So on.
And I think that will continue for some time.
Great well, thank you very much.
Yeah.
Next question is from the line of Alex <unk> of Goldman Sachs. Your line is now open.
Great. Thanks, Good morning, Thanks for taking the question.
A couple of on the on the revenue fee dynamics of first I was hoping to touch on the momentum in the specialized funds that you talked about earlier and.
And the impact of the management fees I guess over the next couple of quarters. So how much I guess of the co invest funds the impact on 2 and the infra is already sort of and the run rate as of this quarter, how much more should we expect I guess over the coming quarters any ideas on the sort of capacity for the sponsors you highlighted Eric that theyre going to be and the fundraising mode for.
For for a little bit of time still.
Sure Alex it's Eric I'll take that so.
It's a mix so some of those things have given where the closing occurred versus the quarter. So some of thats not baked in because of the things either just just occurred and some of that where we've been having some staggered closing some of that is there from a capacity standpoint.
We haven't sort of announced publicly targets across any of those vehicles. As we noted we do have a long time on the fundraise purposely.
And so our view is that if you think about impact if you think about infrastructure, which we're excited to add to the mix. We see those as very very scalable and then and when we think about kind of our investment deal flow of the opportunity sets that are sitting in front of us today, we see these as platforms that we can grow overtime.
Into very meaningful large contributors to sort of firm growth. So I think we sit here today excited about the fact that you know coming out of the gate within for a first close thats already kind of close to $350 million I think all of that just sort of bodes well for the future and so I think youre going to see the contribution to the.
Those vehicles occurring in the future that is not where we're set of sitting today.
Got it thanks for that and then maybe another 1 also around management fees I.
I guess on the on a slower side of things the separate accounts of the cost of my shepherding com growth has been a bit more muted kind of and the low single digit range here over the last 3 quarters, so on and on a year over year basis.
I heard your comments about 80% of the growth years coming from re ups.
Is lack of revenue growth here of function of people just re upping for the same amount and that sort of maturing and <unk>.
That's the case kind of how do you guys work through expanding the LTE network. So that growth can come back maybe closer to this double digit kind of management fee growth rate as we used to sort of thinking about for private markets. Thanks sure. Alex It's Eric I'll stick with that I think it's think of as a couple of pieces and I think 1 when you think about the size of our installed base I think in this environment.
There again, we said in the past separate account people, it's a different diligence at the different relationship kickoff there tends to be a lot more in person and time spent office visits due diligence site visits et cetera, a little harder to do that and a.
Pandemic and so the fact that we're still getting 20% of the growth coming from our new install base. We think is impressive and strong and the other piece I would just highlight is that increasingly we're finding that a number of our separate account clients.
Might find themselves beginning of the relationship.
With their first invested dollars going into a specialized funds, particularly when we've got things that are a little bit more J curve mitigation oriented like secondaries or credit.
So I think also of some of this is simply timing of flows where the first thing you are seeing when you get a new separate account is not actually separate account flows, but it's actually specialized fund flows but you have 1 of the business dollars are coming.
And they'll just come into the traditional separate account later after they've already sort of done some of the earlier strategic components, which tend to involve the specialized funds.
Got it that's helpful context, thanks for that.
If I could just squeeze in 1 more and this is really just the follow up to Mike's question I'm, just trying to understand what the message I guess ultimately is and FRE margins for you guys I guess in the past you talked about the need to invest and the business, but some of these initiatives on specialized funds and evergreens really start to scale should we be thinking about sort of more normalized FRE margin.
For Hamilton Lane, and the mid to high Forty's or should we think about the migrating back to the low forties, yes.
Yeah, Alex it's Eric again, I mean, I think it's I think both things can be true I think there is an element where from the firm's mindset. We said this clearly we'll say it again I mean, we don't wake up in the morning thinking about how can we extract.
Another penny for margin, we wake up in the morning of the management team thinking about how we count can we continue to sustain strong double digit growth across a diversified set of client base across diversified geographies and how can we do that and a sustainable scalable market leading way.
That is where our mindset is now the nature of the business is that there are things that obviously lend themselves to operating leverage and you do see some of that coming through I think what we have to sort of continue to look at and we will is what does the business need.
And what investments are required to continue the same sustained the sort of market leading position whatever that's going to require.
We've got a 30 year history of doing that.
So I think the the jump from the 41% to 45.
As I said before is clearly not all kind of pandemic created.
And.
But there are a lot of market forces that are that are sort of playing here that we're going to see how that plays out whether that's again do we believe that wage pressure is going to continue for the next several years. We don't know do you sort of think returned the travel sort of happens rapidly or not and we don't know I think those are they're going to be the balancing pieces, but theres no question that as you.
Continue to scale of specialized funds you pick up some good operating leverage as a result of that and we're benefiting from that today and I suspect. We will continue to have some benefit of that into the future.
Got it that makes sense. Thank you very much.
Next question is from the line of Margot write back of <unk>. Your line is now open.
Good morning, This is Mario <unk> filling in for John and thank.
And you for taking my question I was hoping you could talk a little bit about compensation.
And I know all down for the quarter could you talk about why that was and also I know you had mentioned.
And some wage pressure and the industry the kind of how we should think about compensation going forward.
Sure Margaret it's Erik I'm happy to jump in on that I think on the compensation and I think what I would sort of draw people's attention to is that last year's compensation was.
Sort of non normalized.
For really 2 factors 1 of it was sort of the sort of upswing and margin that was again kind of pandemic oriented the business, which is performing well and the bonus pool of crude as it should but the second bigger part of that was that recall last year. We had a lot of retro fees that is still revenue and we still occur.
<unk> bonus off of that but those are not recurring and so the base of last year's compensation should not have been sort of the base on which people were expanding this year, you've got to sort of normalize that and pull out sort of the retro fees to make it compensation on kind of a recurring revenue basis. So when you do that I think that.
Puts you on a compensation number that is more of like sort of that $26 million range and so I think that the combo of those factors is why it looks like.
Youre seeing compensation coming down.
It is but again, partly because of the compensation had gone up around more of a 1 time basis.
I think on the fee pressure I think if you talk to our hiring managers. If you. If you talk to the departmental managers. They would tell you that right now in today's market.
There are certain areas certain skill sets that are just in and high demand whether those are software development or it oriented or whether they are back off of specialist or valuation experts things that are kind of designed around people kind of continuing to grow and scale their businesses and needing operational support.
And so.
We've got a number of job openings again, you can go look at the website and see them all posted there.
And.
I think we need to be just mindful and reflective of kind of where market compensation and sort of coming out and making sure that we're putting ourself and position.
To be attractive now if you look at our history I think we have.
Our ability to attract and retain talent has not simply been the result of paying the most money it's about providing a great work experience and then things like best places to work and being of a long time winner of that I think all of those things bode well and our ability to compete well for talent and so but I think you've heard from others.
We're now hearing from US it is something that is occurring out there and we're all kind of keeping an eye on it.
Great. Thank you so much that's very helpful. And then just 1 more would you give an update on.
The committed dry powder, that's not earnings.
Yes, sure, it's Eric Margo and so that's on a number that we have posted I think what we have said in the past is.
We have a lot of it it's the nature of the business.
It's the way we're all structured it's something that we all have I think we have sort of opted to take a different tact on <unk>.
And not advertising that it's there it's substantial a lot of that as you know is sort of replacing dollars that are expiring and so not all of that by definition can be new growth and.
And I think from our and we've always preferred to simply talk about dollars that are in hand.
We are driving revenue and benefiting shareholders from 2 day as opposed to what might be coming tomorrow and the future.
Okay.
Great. Thank you.
Yeah.
Next question is from the line of Adam Beatty of UBS. Your line is now open.
Hi, Good morning, Thank you for taking the questions.
My first question is kind of draws upon your experience launching the infrastructure funds.
And just given the volume that you've seen and the the pretty brisk timeframe around it.
Was wondering given the evolution out of sort of the separate account venue what other things what other product areas you might be seeing and separate accounts that might have a similar sort of maybe pent up demand, where you could either introduced the new specialized fund or just capitalize it on the otherwise thank you.
Sure, It's Eric I'll take that I think if you look at our history.
And we've always done and separate accounts in a particular area of prior to launching of specialized funds. We have found that it's been.
1 it's sort of the demand initially comes from your and our experience from your kind of current install base. So it comes from that customer who already has the relationship with you who already trust you, who says hey can I can I ask you to now do secondaries for me or co investments or whatever that thing may be and so you start to develop and.
Track record via that separate account and you start to develop deal flow you start to develop and market reputation and then inevitably and.
And that tends to lead to kind of higher investor demand, which then leads to an ability desire of et cetera to go launch a specialized funds that's what happened for us in the credit space the.
Secondary space the co investment space, it's now what's happening for us and the impact space and the infrastructure space.
So I think we've always said that we view ourselves as a relatively small player and the specialized funds business. There are lots of areas to day that we don't offer a specialized product and some cases of the market doesn't need it or want it yet that might change over time and in some cases, we've got our hands and sort of more than full with all of the sort of successful fundraising.
As we have going on already but I think if you look out and you sort of look at what are the big areas, and which were a meaningful player and you could see demand.
You could see specialization across geography, we don't really offer geographic specialized products today I E and.
Asia Fund, we also don't off for specialized products.
And the growth equity or venture capital area. So I think we sort of still see a lot of white space out there across the specialized fund universe, and I think even and the last sort of year and a half despite being in a pandemic. We've now created 2 brand new verticals.
With the impact and with infrastructure and if you go back 2 years ago, creating the evergreen and vertical I think it sort of shows you that the firm is very focused on innovating. We've got the investment bandwidth background and track records to justify being in those spaces and I think our goal is we'll continue to innovate into the future.
Interesting, thank you and I appreciate the.
And then just.
Follow up on the distribution of the evergreen funds.
Pretty impressive in terms of the build out internationally the number of countries and.
And it sounds like you've got several platforms kind of and the pipeline as well could you comment just briefly on the mix of debt I mean, given bringing on 361 my mindset is kind of it it would be more tilted towards domestic at this point, but maybe that's not true. So anything you can say about the types of distributors and the geography would be appreciate it. Thank you.
Sure, it's Eric again, and I'll stick with that.
And remember the international product had a significant time head start so we.
We have more assets outside the U S. Today than we do inside the U S. I think largely the result of we had more than a year head start in terms of how quickly we're able to get through the regulatory environment.
And so that's sort of where we are 2 day from a sales perspective I.
I would say the resources of relatively geographically evenly split we have a number of people outside the U S exclusively focused on sort of selling this retail and we have a number of people inside the U S. Not the least of which is the 361 crew and addition to some of the existing Hamilton Lane resources.
That are sort of focused on selling the inside the U S distribution partners or again kind of across the.
Different geographies and so on our goal as we sit here today is to just continue that sort of geographic March across the globe and continue as we move along in the district distribution partners I think 1 of the points that we wanted to sort of emphasize around the size of the vehicle and why we think kind of being over the $1 billion. Mark is that there are some distribution partner.
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Who simply do not want to engage with you until you are kind of at those kinds of levels, where they feel like you can then handle.
Their flows they tend to be larger organizations and so and they don't they want to see scale. They want to see track record viability and the fact that you can prove that you can scale with more dollars and do that successfully and they want to see some longevity and the track record. So we're now running kind of at the 2 plus earmark for now over that $1 billion, Mark we think of all.
Of that is sort of boding, well for making us very attractive to those platforms.
Excellent as the.
2 year and your experience and important milestone in terms of the track record.
I don't think any of this is magical and theres nothing thats kind of hard hard set rules and I think as you go around from organization. The organization each of them had sort of some different sort of gauges that they view as important in terms of either how old the organization is or how long your vehicles and operation or how big It is of what your monthly flows are so I think.
Our point is that we're kind of looking good across any of those metrics today and.
And we think for that just continues for the future and all of that should serve us well.
Fair enough thanks, very much here.
Thank you participants I'll now turn the call back over to Erik Hirsch for final remarks.
Great and as always we appreciate the time, we know everyone's busy we know this is a particularly busy week. So we appreciate the time and the support and we wish everyone and good day.
And that concludes today's conference. Thank you all for joining you may now disconnect.
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