Q4 2022 Hamilton Lane Inc Earnings Call

Good morning, My name is Patricia and I will be your conference operator today.

At this time I would like to welcome everyone to the Hamilton Lane's fiscal year 2022 earnings conference call.

All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.

If you would like to withdraw your question you May press the pound key.

Thank you I will now like I would now like to hand, the conference over to Mr. John <unk>.

Investor Relations manager you may begin the conference.

Thank you Patricia.

Morning, and welcome to the Hamilton Lane Q4 fiscal 2022 earnings call today, I will be joined by Mario Giannini, CEO , Erik Hirsch, Vice Chairman and a tool Dharma 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. 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 Hamilton Lane's fiscal 2021, 10-K, and subsequent reports we file with the SEC.

We will also be referring to non-GAAP measures that we view as important in assessing the performance of Allergists reconciliation of those non-GAAP measures to GAAP can be found in the earnings presentation materials made available on the shareholders section of the Hamilton Lane website.

Our detailed financial results will be made available in our 10-K and spot.

Please note that nothing on this call represents an offer to sell or a solicitation to purchase interest in any of Hamilton Lane's products.

Beginning with the financial highlights for fiscal 2022 management and advisory fee revenue grew by 9%, while our fee related earnings grew by 11% versus the prior year. This translated into a full year GAAP EPS of $3 98 based on $146 million of GAAP net income and non-GAAP .

The $4 39.

First on $235 million of adjusted net income.

Lastly, our board has approved a 14% increase to our annual fiscal dividend to $1 60 per share or <unk> 40 per share per quarter. This now marks the fifth consecutive annual dividend increase since going public in 2017, each over 10% and with an average increase of over 18%.

Our ability to consistently increase distributions to shareholders every year speak to the growth and strength of our business with that I'll now turn the call over to Mark.

Thanks, John and good morning, a few quite firm updates beginning with the partnership that we recently announced on April 5th Hamilton Lane joined ownership works, a nonprofit organization that works with companies and investors to provide all employees with the opportunity to build well through equity.

Our own belief in the importance of the equity culture. The organization was created to support public and private companies transitioning to shared ownership models by 2030 ownership works anticipation of shared ownership movement will create hundreds of thousands of new employee owners across the U S. Hamilton Lane joined a consortium of prominent organizations, including Goldman Sachs.

Thank you Dr. J P. Morgan the Ford Foundation, and the Rockefeller Foundation supporting ownership works in its mission.

I'll also be joining the board of directors on behalf of Hamilton Lane.

Shifting gears here I'll now move to an update regarding our office locations. The firm continues to expand our geographic footprint and we have opened an office in Zug, Switzerland, we've been serving clients in that region for over two decades and the New office now provides a direct base from which to continue supporting and servicing our clients and build on our momentum in the region, particularly within the private wealth space.

Our total office count now stands at 20.

Lastly, before I move on to some results for the quarter I wanted to take this opportunity to highlight the release of our 2022 market overview.

Some of you may be familiar with our market overview, but for those who are not it's an annual data driven review and analysis in the private markets powered by our own private markets database in in House research capabilities and it we conduct an in depth review of the key drivers of the asset class over the last year and provide our perspective on what may unfold in the markets going forward.

This year in addition to our narrative version of the market overview, we presented the report in a highly produced virtual format, which allowed us to reach our largest audience yet over 1500 individuals globally join the libra lease of that with many more viewing the piece on demand 65% of the attendees represented investors and the remaining 35% and fund managers in the industry.

<unk> for those who are interested in this year's market overview. Please visit our website for more information.

Let me now turn to the results for the fiscal year, which was strong across the entirety of the business. Our total asset footprint at fiscal year end, which we define as the sum of our AUM.

Assets under management and <unk>.

Assets under advisement stood at approximately 901 billion U S dollars and represents a 25% increase to our footprint year over year, continuing our long term growth trend.

AUM growth year over year, which was $19 billion or 21% came from both our specialized funds and customized separate accounts as.

As far as similar to that of our AUM growth was from across client type and geographic region and came in at 164 billion or 26% as we have mentioned on prior earnings calls.

Can fluctuate quarter to quarter for a variety of reasons, but the revenue associated with <unk> does not necessarily move in lockstep with those changes let me now turn it over to Eric.

Thank you Mario and good morning, everyone.

Let me begin with some commentary on our fee, earning AUM.

Fiscal year end total fee, earning AUM stood at $49 1 billion and grew $7 1 billion or 17% relative to the prior year. This stemmed from positive fund flows across both our specialized funds and our customized separate accounts taken separately five $3 billion of.

Net fee, earning AUM came from our customized separate accounts and over the same time period $1 $9 billion came from our specialized funds.

Our blended fee rate across both customized separate accounts and specialized funds remained steady and just to clarify last fiscal year. We benefited from a large amount of retro fees coming primarily from our fifth secondary fund and it resulted in an elevated blended fee rate for fiscal 2021 relative to <unk>.

Prior years and fiscal 2022.

Given the limited amount of retrofits in fiscal 2022, our fee rates have trended back to more normalized levels of $55 to 56 basis points.

Let's now move to the two parts that make up our fee, earning AUM and I'll start with our customized separate accounts.

<unk> AUM from our customized separate accounts stood at $39 billion growing 21% over the past 12 months, we continue to see the growth coming across type size and geographic location of the clients.

As it relates to our existing client base over the last 12 months more than 80% of the gross inflows into customized separate accounts came from this group.

Moving to our specialized funds growth here continues to be strong fee, earning AUM from our specialized funds stood at $18 $2 billion at fiscal year end over the past 12 months, we achieved positive inflows of $1 $9 billion representing.

Representing growth of 11% relative to the prior year. This growth stemmed from additional closes for funds currently in market robust investment activity and continued monthly net inflows into our evergreen platform.

Let me expand on some of the drivers from this past fiscal year and I'll start with our evergreen platform.

As a quick reminder, our evergreen platform provides private wealth channels and individual investors with direct and immediate exposure to the private markets by way of monthly subscriptions with semi liquidity.

For us it represents perpetual fee, earning AUM, where we earn management fees on net asset value and the potential for carried interest on a deal by deal basis on every investment dollar.

Our momentum here remains strong we are expanding existing channels and adding additional channels around the globe.

Pipeline for investments is robust and the existing portfolio has performed well lap.

Last quarter, we reported that the platform has surpassed the $2 billion Mark and that we were one of only a small number of managers to have a platform of this size. The growth has steadily continued in the platform now stands at nearly $2 5 billion.

Against an uncertain macro backdrop and the volatile public equity market net inflows for our evergreen platform remained resilient and averaged nearly $135 million per month from January to April of 2022.

We continue to execute well with our strategy and we remain very bullish on the future of this platform.

Moving on to our fifth direct equity fund during the quarter, we held the sixth close for the fund, which totaled $306 million of LP commitments.

This close generated $1 $4 million of retro fees for the quarter.

More recently on May 6th we held a seventh close for the fund that totaled approximately $72 million and will result in retro fees that will be recognized in Q1 of fiscal 2023.

Stepping back the combination of these two close this brings the total amount raised for the fund to nearly $1 $6 billion.

And at that level, we have essentially match the size of the prior fourth fund and we will still be in market through October 2022.

Yeah.

Next up is our annual direct credit series. We are currently raising our seventh installment of this series and last quarter, we announced that we held the largest first close in this product's history.

Momentum for the current series has continued and during the fiscal quarter. We held a second close that totaled over $107 million of LP commitments Subsys.

Subsequent to that in the month of April we held additional closes that totaled over $214 million and now brings the total raise for this current series to $531 million.

As a reminder, our credit strategy has a relatively unique structure, whereby we are continually raising and deploying dollars simultaneously and earning management fees on invested capital. Therefore, it is less about targeting a set amount of dollars as you would traditionally see across funds with a multi year deployment period and more.

About ensuring that we size the product in line with the current opportunity set which can lead to some size variability from installment to installment we expect to be in market with this installment until September of 2022, and we are continuing to see strong demand.

Let me now turn to an update on our secondaries platform.

In February of 2021, we held the final close for our fifth Secondaries Fund and we raised $3 9 billion.

That marked the largest fund Hamilton Lane has ever raised and highlights both the continued demand for the secondaries, coupled with our ability to execute and deliver strong results for our Lps.

Investment pacing has been and remains strong and as such we are back in market with our sixth fund.

On April 20 April 22nd we held the first close for this six secondary fund at over $611 million. It was a very strong start to the fundraise and we are very appreciative of all the support we will remain actively in market for 24 months from that April closing.

We look forward to providing you with updates on future closes over the coming quarters.

Lastly, let me introduce our newest strategic technology investment off our balance sheet and provide an update on an existing investment.

Start with an update on our existing relationship with Tiffany.

As a reminder, tip and operate several fintech platforms focused on meeting the evolving and technological needs of wealth managers.

And individual investors different.

This platform's utilize the power of artificial intelligence and smart learning technology to provide tools data and analytics to support the advisor or individual on their unique financial journey.

On may 12th Tiffany successfully raised a $109 million series D round that included two new lead investors Franklin Templeton and motive partners. The addition of these two investors validates the success tip and has generated thus far and the opportunity it has in front of it.

<unk> participated in the round and based on the valuation our investment inclusive of our investment in the series D has already generated a one four X multiple and only six months since our initial investment the unrealized gain generated from the round will flow through our financials next quarter.

Next I'll move to our newest balance sheet investment into a company called Alex Alex was founded in 2017 and operates a technology driven platform aimed at providing access to alternative investment opportunities or the mass affluent and retail investor base in Asia.

Alex implements blockchain and smart contract technology to automate the issuance custody and distribution of digital tokens that allows for investment minimums as low as $10000.

<unk> highlights our conviction around the attractive opportunity and providing private markets investments to the non institutional channel and with that on March 29th we successfully partnered with Alex two offered cocainize access to our global private assets bond on the <unk> platform.

With this offering Hamilton Lane joins managers, such as partners group.

Mystic and Investcorp, who have all partnered with attic in providing digital token is access to selected funds that they manage.

Subsequent to the token is offering on may 24th Alex announced its latest fundraise led by the stock exchange of Thailand.

Ultimately and participated in this round and we now join an existing group of leading institutions in the region such as the Singapore exchange to Mystic and the development Bank of Japan as investors, we view, Alex as attractively positioned within the increasingly fast growing digital security space and we look forward to providing updates on its progress in.

In 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.

For fiscal year 2022, we achieved solid growth in our business with management and advisory fees up nearly 9% versus the prior year.

Specialized funds revenue increased slightly by $2 $1 million or 1% compared to the prior year driven primarily by over $1 2 billion of net inflows into our evergreen platform alongside over $1 5 billion raised through March from later.

Equity fund.

For fiscal 2022 retrofits have been limited given that our latest direct equity fund was turned on during this fiscal year.

Relative to the prior year, where we recognized $18 $2 million in retro fees from our fifth secondary fund.

We expect to generate additional retrofitting.

He holds subsequent closes for latest direct equity fund.

As a reminder, investors that come into later closings during a fundraiser retroactive fees dating back to the Fund's first close.

Moving onto culture like separate accounts revenue increased $9 3 million or 10% compared to the prior year due to re ups from existing clients. The addition of several new accounts and continued investment activity.

Revenue from our advisory reporting and other offerings increased approximately $10 $7 million.

Better to the prior year, driven primarily by the near full year impact of revenue associated with preexisting funds managed by the 361 capital team that we acquired in April of 2021.

In addition, we saw a $3 $8 million increase from our distribution management business stemming from robust activity in the IPO market, along with strong public equity market performance throughout much of fiscal 2022.

The final component of our revenue is incentive fees.

<unk> totaled $53 7 million for fiscal 2022 and represented 15% of total revenue.

Yes.

Let me turn to some additional information on our unrealized carry balance.

Balance is up 84% from the prior year, even if we recognized $53 $7 million of incentive fees during that period.

Unrealized carry balance now stands at $1 2 billion.

And just to remind everyone. We don't control these positions and we don't control the timing of function.

I'll move now to some color on our earnings.

Our fee related earnings were up 11% versus the prior year.

Sort of the revenue growth discussed earlier, along with growth in our margin.

In regard to our expenses total expenses increased $12 $4 million compared with the prior year.

Total compensation and benefits decreased by $7 $2 million.

G&A increased $19 6 billion.

Which included the full year impact of rent expense associated with our new headquarters along with expenses from 361 capital and sales commissions.

I'll wrap up here with some commentary on our balance sheet.

Largest asset continues to be our investment.

Alongside our clients for our customized separate accounts.

Hello Fund.

Over the long term we view these investments are an important component of our continued growth and we will continue to invest our balance sheet capital alongside our clients.

In regard to our liabilities, we continue to be modestly levered and with that we thank you for joining the call and we're happy to open it up for questions.

Thank you and at this time I would like to remind everyone in order to ask a question. Please press Star then the number one on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.

Your first question comes from the line of Michael Cyprus from Morgan Stanley . Your line is open.

Oh, Hey, good morning, Thanks for taking the question.

Just wanted to come back to some of the commentary on the fund raising side I was hoping you might be able to help unpack for us how much of the fee paying AUM our asset base is from the U S pension fund community.

That's the first part and then second just to kind of help unpack some of the concerns that are out there in the marketplace just given.

Denominator effect potential risks out there around some investors, perhaps being over indexed to the private markets now given the downdraft in public markets. Just curious what youre seeing there what your perspective is on that is that coming up in conversations and if so what part of the asset owner community would you say is being more impacted there and.

If you can share any sort of color commentary around the pipeline for new SMA relationships and re upping on existing ones.

Hey, Mike It's it's Mario.

Thanks.

Things on the on the pension.

Pension fund side, it's a relatively small amount.

So it's not a part of our business to which were heavily levered or that represent sort of.

Federal amount there so.

It is one of many different features in that.

The question on the denominator effect, it's interesting one I mean, clearly whenever the markets go down and the way they have now youre in a tougher fundraising environment is just it's just natural.

Those are the assets decreases and people get a little nervous, but I think you have to look at the whole thing in context and say.

What do investors do when markets go down I mean, they can't convert everything into cash and say I'm, just going to wait until the market bottom and then move into it. It's just not realistic they don't do it.

What they do is they look at their assets and they say.

Where where do I think I'm going to get the best performance over the next cycle whenever that might be whenever it starts.

And at least historically and if you look at the data that tends to be moving into private markets, whether it's equity whether its debt infrastructure take your pick that has been what we've seen the data suggests that that's what people do.

I'll just related an anecdote we were talking to a very large fund not a client of ours and they said an interesting thing they said.

We know the mistake, we made in <unk>, we step back and we're not going to make that mistake. This time, we're going to lean into the private markets.

That's just one example, but I think people have seen these cycles play out in 2000 and they saw it play out in O aid they saw it very quickly, but a little bit in 2020, and so what we're hearing is people are pretty sanguine about what happens when markets go down and.

Arent really we're not hearing much panic around Oh, my gosh I have to get out I am hearing more panic around Oh, my gosh, what am I going to do.

What am I going to invest into the private markets and where am I going to allocate that capital.

No.

Right right now it just feels like people are looking at what <unk> seen in prior cycles.

Taking a pretty pretty careful view about it.

Great just any color commentary just around the pipeline, maybe just how that compares today versus a year ago on the SMA side, new relationships as well as our existing ones potentially re upping.

Yes, I mean, the pipeline remains remained strong I mean again I think one of the things that is important and we say it a lot and I know, it's easy to say, but it's.

The reality.

People look at it from a longer term nature and so they look at what theyre going to do in the private markets and they're not really looking quarter to quarter and they take it over a multiyear period. So we're not seeing people go Oh I made this decision a year ago to invest in private markets, where I want to look at investing but I'm going to change that.

Because of what's happening in the public markets. Today. So we have not seen any any dramatic shift in terms of people either pulling back their SMA or people pulling back SMA they have in process.

It's just that's not what we're seeing out there in the market.

Great. Thank you that's helpful and just a quick follow up question just on the Evergreen strategy I was hoping you might be able to help update us on where you guys are from a build out on the distribution front in terms of how many platforms are you on are you on the wire houses yet and maybe talk about some of the steps you're taking over the next 12 months to expand distribution.

That strategy.

Mike, It's Eric I'll jump in on that one.

I think as you've seen we have been putting up incredibly steady fund flows and I think that's what we're trying to build for we view that as very clearly, it's a marathon not a sprint as you know for our product.

We want to make sure that we're really nicely aligning the fund flows coming in with the investment opportunities. We can immediately deploy and not have cash drag. So our strategy has been one of our big ground game across the globe, but I think we're executing on that incredibly well we've added resources, we're continuing to expand our geographic presence, we're getting in more and more and more.

Channels and to date as I said, we're sitting here at $2 $5 billion without a wire house relationship.

Those are coming in the future, but we're not built to simply depend on that or the promise of that coming in the future. So we like where we are we think that there's continued growth that's exactly what channels. All kinds of channels are looking for people want the confidence that you can handle an increasing size scale and deployment in order for them to eventually put.

You into their platform whatever that platform may be.

Great. Thanks, so much for taking the questions.

Your next question comes from the line of Ken Worthington from Jpmorgan. Your line is open.

Hi, good morning, and thanks for taking my questions.

Maybe first commitments to separate accounts were particularly strong this quarter and I was hoping you could maybe give us some more color or flavor in terms of the nature of the strength that you saw in the March quarter.

If it's more diversified or more concentrated that you've been you've seen historically again any any any color would be helpful and I would say in the first quarter of 2000, when Covid was really taking hold we saw a pretty big slowdown in deployment and commitments.

And the industry sort of stopped.

And it seemed to have.

Impact on deployment.

And we're again seeing M&A slow, but particularly in the case of your results. There was no no apparent blow through permanent slowdown in.

And in deployment flowing through your numbers so.

Help me sort of understand how you would expect the challenging market conditions impact fee paying AUM.

These conditions were to persist.

Thanks, Ken It's Erik I'm happy to start with the first piece on the separate account and then Mario will jump in on the deployment.

On the separate account it is a little bit of what we said in the past, which is it can be a little bit seasonal it can be a little bit episodic.

I think generally we've seen more boards more decision makers, making those capital deployment decisions coming into end of year, and thus sort of signing contracts at the beginning of the calendar year. So I think that accounts for some of it.

But I think the diversity of that installed base and the diversity of the new flows when we keep saying well 80% from the existing customers.

But that means 20%, even given a massive installed base is still coming from brand New places. So I think that speaks to the strength of the brand the distribution relationships.

I think not a lot to read into a particular quarter I think the year over year trend lines remain very very strong with that Mario can sort of talk to the deployment pieces.

Yes.

Ken on the deployment piece.

A couple of things. The first is 2020 was there was a dramatic slowdown or stopping really and I think it. It stopped because you had a situation in order to ever seen before you had a pandemic you had economies closing you you had you had something no one really knew how to assess or how to deal with.

And no one knew how to price anything.

At any level.

That was dramatic.

In this in this environment, we are seeing a slowdown there is no question.

Does pricing discovery anytime markets move 15%, 20% the way they have youre going to have a period of price discovery, but it doesn't feel to people like 2020, it doesn't feel to people as though we've never seen this before and so while things will slow down I think there is there is a few that we have been through.

Interest rate increases that lead to economic slowdown maybe the inflation rate is higher than it was this period of that period, but this doesn't feel like.

Our new place, where no one knows how to price anything so it will slow down and we would expect some areas more than others, perhaps venture and some of the high flying growth areas will slow down more than others.

But activity.

We just don't see anything like what we saw in 2020, I think it will be more like going back much further or one or two in that period, where it was slow but there was continuing activity I think youll see that so we don't anticipate.

Assuming things are stay the way. They are today, we don't anticipate that there will be a huge change in terms of that kind of activity and again. The other thing to remember also is there is a broader range private equity private credit all of these markets cover a much broader range than they have in prior cycles and so.

If there's a slowdown as I said in venture for example is going to be stronger in credit. So there's just a better balance in terms of how portfolios are designed and in terms of our own reach into the markets.

Alright, great. Thank you and then to follow up on Michael's question on the evergreen product.

We continue to hear.

More alternative asset managers launching more products in the wealth management channel.

And I was hoping you could just maybe give us.

Your thoughts on how you see intermediaries sort of distinguishing these products.

As I go through the selection process. If there is if there has been sort of a selection process at this point how are they choosing.

Or what they are prioritizing them introducing hammer.

Hamilton Lane's product over maybe some products from other firms who are increasingly entering these channels and then how important is first mover advantage here.

Is it.

Really key to be the first the first product on the channel.

And therefore, it's hard to displace you or do you see.

Wealth managers, having enough product, where you know first mover is not really that important if you've got a great product.

Ken It's Mario.

All of those things.

Break it up into two parts of your question. The first part there are a lot of a lot of entrants into this space.

And.

For the wealth managers can probably the intermediates can answer the question probably better than we can and theyre all going to be looking at it a little bit different depending on the size of their their platforms and what their client basis looking forward, but generally what we are seeing is that groups are looking for some.

Diversified access into private markets and by diversify that means they will want some credit they will want some equities they will want some real estate.

They will want those kinds of things and so in that environment. A couple of things matter performance. Clearly so you have to have a track record. So there is an element of having been at this for some period of time, it's hard to come from I've never done a product like this to now I'm doing it. So there is to your second question a little bit of a first mover advantage in the sense that.

You have established yourself as having the track record the brand matters and again the brand in terms of both that channel and in the markets generally.

And the familiarity with those kinds of products and so to that second question does the first mover advantage I think in the shorter term it probably means something to have the size and scale, we feel pretty good with where we are on that.

Because as Eric said in his comments, we have a we have a good sized platform in that channel.

I think over time like you've seen everywhere else there will be more.

More players on the platforms, but as with everything else. If you were there first and you have the size the scale and the track record you have an enormous advantage in terms of people being comfortable with your ability to execute on behalf of clients.

Okay great.

Appreciate the commentary this morning, thank you.

Your next question comes from the line of Alexander.

From Goldman Sachs. Your line is open.

Good morning, its actually Brian on behalf of Alex.

I wanted to come back to the secondaries business.

And both the commentary around fundraising and our strong investment pace I was just wondering if you could help explain what the sources of that strong investment pays off.

Whether any of that has to do with the private equity crowding effect and the impact on cash flows for Lps, and whether thats, causing them to look for more demand for liquidity.

Hey, Ryan it's Erik I'm happy to take that I think what Youre seeing is one as this asset class has matured secondaries sort of don't simply mean one thing.

It could mean, a single fund transfer can be in our portfolio. It could mean, a GP led single assay that can mean, a lot of things, but it also means is that it doesn't represent one return stream.

And so I think theres been a greater appreciation of how secondaries can be successfully leveraged inside of your portfolio. Depending on what you are trying to do with them they've been a great driver of yield for example, so I think the market is maturing and the market is growing the number of problems that that asset class can solve is increasing and I think that's.

What's driving a chunk of that deal flow in that volume because youre just deploying dollars in different ways.

There's also a real correlation between the rise in the secondary market and the rise of the overall market for private markets as it gets bigger you would expect that you'd have more channels for liquidity.

I think all of those are kind of coming into effect here and it's driving good fundraising and its driving strong dollar deployment and I don't really expect to see any of those change in today's environment.

We're sort of getting at are we going to see a bunch of panic selling I think the answer is no off the back of Marios earlier comments youre not seeing people panicking period, I think the Lps have grown very sophisticated and are being very tactical in how they're thinking about their portfolio construction and their asset waiting and so we're not seeing them stop committing nor.

Or are we seeing them turnaround in trying to fire sale, a bunch of assets tomorrow either.

Okay, and maybe just.

P&L question for the quarter.

It looks like you're reporting another performed very well I was just wondering if we could tease out any of the drivers there.

Brian I missed the first part of that what was the beginning of the sentence.

Just a question regarding the quarter and the results for the quarter it looked like reporting and although had done.

Quite a lot better this quarter and I was just wondering if there was anything that to tease out.

Yes, Theres I think theres nothing to tease out other than what the tool highlighted in his comments, which is in the other which is youre seeing the full effect of the 361 fund revenue coming through I think what I would say at a macro level is that as.

As we kind of finalize the cobalt.

LP acquisition now for some time and have really fully integrated that into our sales model I think youre seeing us doing a better job of co mingling both software service in cobalt with traditional back office service, bringing those two together and selling that as a more complete package I think.

That has certainly helped us drive kind of that reporting revenue a little bit higher.

Got it thank you.

And your next question comes from the line of Adam.

<unk> from UBS Your line is open.

Alright, Thank you and good morning.

Wanted to ask about the outlook for expenses and margin it looks like for the fiscal year the expense growth ticked down a little bit of the margin has sort of been ratcheting higher.

Looking ahead and I know you mentioned some of the one off kind of items in G&A that might carry forward in the run rate, but just how are you thinking about both compensation and non comp expense growth ahead, and what are the big factors that might drive that higher or lower.

Hey, Adam.

Let me take that.

So if you recall FRE margin pre pandemic was.

And about <unk> <unk> and <unk>.

<unk>, we probably saw that as a bit of a COVID-19.

To our margin.

So where we are with that.

Travel starts to come back and from contract to come back.

And as you're mentioning.

We're increasing what we would say if over time the way we thought about margin increasing.

Over time, that's still hold but the but the COVID-19 blip, we fall in the last couple of years, maybe that doesn't that comes down a little bit.

So maybe the margin ticks down a little bit from here, but we don't think that's going to be a substantial change.

Okay.

Terms of comp growth should it be similar to prior years.

Yes, the comp growth is I mean, I think you guys know where the market is I think wages are increasing everywhere. We're in growth mode. We're hiring a lot of people so comp growth is going to be.

In line with what the.

The industry fee.

And what we're seeing.

Got it okay. Thank you and then just turning to.

The specialized funds kind of bigger picture.

Thinking about revenue growth you mentioned fee rates are coming in pretty stable year over year just finished.

<unk> was a little noisy just because there were so many somebody catch up fees in fiscal 'twenty, one, but looking ahead as we look at kind of the end of period point to point.

Growth and then you know a lot of the the transparency that you've given around your expected fundraising this year.

Should we think about.

Fees in that segment kind of going up you know according with via your AUM growth. Thanks.

Sure, it's Eric I can take that.

What you've seen in the specialized fund world fee rates have just been very steady. This is not a question of someone has the super cheap product and someone has an expensive product you can either have a good product with a good track record. Good brand good deal flow et cetera, and you can execute in which case you are allowed to kind of play the game, where you don't have that and so I think thats the reason.

Why are you seeing fee rates, there stay steady and we expect that to remain the case.

So for us.

Specialized fund revenue is going to be really a factor of what the specialized fund AUM due and I think for us youre seeing that we've got a really good track record here of not only introducing new products into that world, which we continue to do and are looking to continue to do.

But we're expanding the products that we already have so I think our outlook there continues to be to be strong and need to be very positive.

Excellent. Thank you Eric I appreciate it.

Thank you and again, if you would like to ask a question. Please press Star then the number one on your telephone keypad.

Your next question is from the line of Finian O'shea from Wells Fargo. Your line is open.

Hi, good morning.

<unk> for the credit series franchise.

Do you see an eventual opportunity to upstream sort of into a regular way.

In house managed direct lending product line.

Sure, It's Eric I'm happy to take that I think our business to date has really been one where we are leveraging our partnerships with other fund managers.

And I think that continues to be our focus today I think the credit space is an area, where we have sometimes done some co leading of transactions, but I think we're mindful that one of the real benefits that we have is that we go back to an earlier question around deal flow and pacing one of the reasons why our pacing stays so consistent is that we are the burner.

This year Youre seeing deals from lots and lots and lots of partners across all different shapes and sizes and geographies. That's one of the real powers of this platform and that power flows into our evergreen product, we're able to be in kind of that one stop solution provider, where we're able to give you access to credit and equity across size and shape and Gi.

Griffey et cetera, and so we think that model actually is incredibly powerful and it's even more powerful in a market like this.

Helpful. Thank you and just a follow up for in regards to this back.

Can you talk about the.

The deal environment today.

For that form of execution.

For a vehicle to bring a buyout vehicle.

And then if it.

Is there any financial impact.

If the if the vehicle lapses I think it's.

Ed.

Next January or correct me, if I'm wrong on that but just any update you can provide there.

Sure, it's Eric I'll stick with that I think we've all we all read the same things the stock market has been severely hampered by sort of.

<unk> regulations and so for US we've always said that we were trying to not be a one off spec manager, but we're trying to make the stack a real business line.

That's still our focus but.

But I think that also means that we need to be incredibly thoughtful and selective to make sure that whatever we do.

We're able to do anything in this market environment is something that sort of sets us up to be ongoing. We continue to believe that specs are an important tool. We think thats back should continue to exist, we think that they sort of served market niche.

We would also say that the stock market got kind of out of hand with kind of the low quality of manager that was able to raise them. We think we're a real difference there.

So I think at a macro level our focus on our philosophy hasn't changed we're focused on trying to make that a business line and to bring someone with our reputation in high caliber deal flow to that market. So we continue to hunt we continue to be focused there whether something happens or whether the market allows something to happen I think remains to be determined but as you know we haven't.

Until next year, just kind of cross that bridge and so right now we're just focused on whats there for us to potentially do.

Great. Thanks, so much.

We have a question from Adam <unk> from UBS. Your line is open.

Hi, again, thanks, very much for taking the follow up I appreciate it just a clarification.

I'm not sure if I misheard or what exactly but.

Earlier, you mentioned a little bit about <unk>.

Pension exposure and.

The way I heard it was sort of that that was kind of kind of minimal or what have you.

Could you just clarify that or I apologize, but just just to make sure I heard it correctly you bought your pension exposure in the United States.

Yes, Adam it's Mario.

The question Lisa.

As I understood it.

In relation to the specialized funds the exposure there.

And that in that area the exposure is.

It's not a material part of the overall.

Fund exposure, we have there in terms of clients, but certainly if you're then talking about the.

<unk> assets that is very different.

I think the question if I heard it right was related to the.

Our specialized funds.

Okay, Yes, that's right. Okay. Appreciate the clarification, thanks very much.

And there are no further questions at this time, Mr. Erik Hirsch I turn the call back over to you.

Thank you very much we appreciate the time wishing all of you a good memorial day celebration and again, we appreciate the support thank you.

Okay.

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

Goodbye.

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Okay.

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Yes.

Yes.

Okay.