Q4 2024 Hamilton Lane Inc Earnings Call
Banks are in a listen only mode. Following the presentation, we will conduct a question and answer session. If at any time. During this call you require immediate assistance. Please press star zero for the operator. This call is being recorded on Thursday May 23, 2024, I would now like to turn the conference over to John <unk> head of.
John <unk>: Shareholder relations. Please go ahead.
John <unk>: Thank you Eva good morning, and welcome to the Hamilton Lane Q4, and fiscal year end 2024 earnings call today, I will be joined by Eric Kirsch, Co Chief Executive Officer, and Jeff Armbruster, Chief Financial Officer.
John <unk>: Earlier. This morning, we issued a press release and slide presentation, which are available on our website before we discuss the quarter and year end results. We want to remind you that we will be making forward looking statements forward looking looking statements discuss our current expectations and projections relating to our financial position results of operations plans objectives future perform.
<unk> and business.
These forward looking statements do not guarantee future events or performance and are subject to risks and uncertainties that may cause our actual results to differ materially from those projected.
Hamilton Lane: For a discussion of these risks. Please review the cautionary statements and risk factors included in the Hamilton Lane's fiscal 2023, 10-K, and subsequent reports we file with the SEC, including our upcoming Form 10-K for fiscal 2020 for these forward looking statements are made only as of today and except as required we undertake no obligation to update.
Hamilton Lane: Or revise any of them.
Speaker Change: We will also be referring to non-GAAP measures that we view as important in assessing the performance of our business.
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.
Our detailed financial results will be made available when our 10-K is filed please note that nothing on this call represents an offer to sell or.
A solicitation of an offer to purchase interest in any of Hamilton Lane's products.
HL spokesperson: Before we get to the results I'd like to highlight our upcoming HL any shareholder day that will take place on June 5th both in person at our Conshohocken PA headquarters and simultaneously webcast live for those unable to join us in person the.
Speaker Change: The event will provide detailed insight into growth drivers for our business and showcase our leadership in the private markets for more information on the event. Please visit the shareholder section of the Hamilton Lane website.
Speaker Change: Let's move now to some financial highlights for fiscal year 2020 for our management and advisory fee revenue grew by 22%, while our fee related earnings also grew by 22% versus the prior year.
Speaker Change: This translated into full year GAAP EPS of $3.69.
Speaker Change: Based on $141 million of GAAP net income and non-GAAP EPS of $3 92 based on $212 million of adjusted net income.
Speaker Change: Lastly, our board has approved a 10% increase to our annual fiscal dividend to $1 96 per share or <unk> 49 per share per quarter.
Speaker Change: This marks the seventh consecutive annual double digit percentage increase to our dividend since going public in 2017.
Speaker Change: Our ability to consistently increase distributions to our shareholders every year speaks to the growth and the strength of our business with that I'll now turn the call over to Eric.
Eric: Thank you John and good morning, let's get straight to the results. It was another strong quarter I'll start with our total asset footprint. This stood at $921 billion and represents a 7% increase to our footprint year over year.
Eric: AUM stood at $124 billion at quarter end and grew $13 billion or 11% the growth came from both our specialized funds and customized separate accounts.
It was up 51 billion or 7% year over year, primarily the result of market value growth and the addition of technology solution mandates.
Speaker Change: Turning now to fee, earning AUM, which continues to be the largest driver of management fees. We continue to generate strong growth in both our customized separate accounts and specialized funds. Our total fee, earning AUM stood at 65 $7 billion and grew eight $4 billion or 15% relative to the prior year period.
Speaker Change: Taken separately $2 $9 billion of net fee, earning AUM came from our customized separate accounts and over the same period $5 $5 billion came from our specialized funds.
Speaker Change: Our blended fee rate across the platform also continues to increase this stems from the continuing shift in the mix of our fee, earning AUM towards higher fee rates specialized funds, most notably our evergreen products where growth remains strong when we went public in 2017, our blended fee rate was 57 basis points today it stands at <unk>.
Speaker Change: <unk> three basis points.
Moving now to additional detail on our customized separate accounts fee, earning AUM here. So at 37 $6 billion growing 8% over the past 12 months, we continue to see the growth coming across type mandate size and geographic location of the clients.
Speaker Change: Our customized separate accounts are built in close partnership with our clients, who look to us to create manage and invest their capital to achieve long term success. Let me give you. An example of a recent win.
Speaker Change: After months of interactions with us and I'll note here that the sales cycle can be long given length and size of the mandate, we secured a new separate account that importantly would be this Canadian based endowments first investments in the private markets.
Period, five $5 billion came from our specialized funds.
Our blended fee rate across the platform also continues to increase this stems from the continuing shift in the mix of our fee, earning AUM towards higher fee rate specialized funds, most notably our evergreen products where growth remains strong when we went public in 2017, our blended fee rate was 57 basis points today it stands at.
Speaker Change: There were several of our competitors vying for the business and we were selected due to track record breadth of service offering and the belief that we could help them grow their program over time.
Speaker Change: So while this is an institution that is brand new to the asset class. We also continue to find meaningful growth through our existing customers.
Speaker Change: Day on our fee, earning AUM basis, the average length of relationship with our separate account clients is over 10 years with several that exceed that meaningfully for example, we've had the privilege of managing the portfolio for a nationally recognized Taft Hartley organization, whose relationship started back in the early two thousands with a single private equity separate.
At 63 basis points.
Moving now to additional detail on our customized separate accounts fee, earning AUM here stood at 37 $6 billion growing 8% over the past 12 months, we continue to see the growth coming across type mandates size and geographic location of the clients.
Speaker Change: Account.
Our customized separate accounts are built in close partnership with our clients, who look to us to create manage and invest their capital to achieve long term success. Let me give you. An example of a recent win.
Fast forward to today that partnership is now on its 14th tranche and along the way we added private credit for them in 2010 and that is now on its 10th tranche and they've had multiple commitments to various secondary funds of ours.
After months of interactions with us and I'll note here that the sales cycle can be long given length and size of the mandate, we secured a new separate account that importantly would be this Canadian based endowment.
Speaker Change: This approach of finding clients, who are new to the private markets combined with expanding with our existing base has served us well as we've continued to build out our separate customized business.
<unk> investments in the private markets.
There were several of our competitors vying for the business and we were selected due to track record breadth of service offering and a belief that we could help them grow their program over time.
Speaker Change: Let's move on now to our specialized funds where momentum also continues to be strong.
Speaker Change: The earning AUM here stood at $28 $2 billion at quarter end over the past 12 months, we've achieved positive net inflows of $5 $5 billion, representing an increase of 24% relative to the prior year period. This growth stemmed from additional closes for our funds currently in market robust investment activity.
While this is an institution that is brand new to the asset class. We also continue to find meaningful growth through our existing customers today.
Today on our fee, earning AUM basis, the average length of relationship with our separate account clients is over 10 years with several that exceed that meaningfully for example, we've had the privilege of managing the portfolio for a nationally recognized Taft Hartley organization, whose relationship started back in the early two thousands with a single private equity set.
Speaker Change: Continued expansion of our evergreen platform.
Moving to the drivers of specialized funds flow, let's start with our current secondary fund.
Speaker Change: During the quarter, we held additional closes in February and March that totaled just over $800 million of investor commitments.
Current account.
Fast forward to today that partnership is now on its 14th tranche and along the way we added private credit for them in 2010 and that is now on its 10th tranche and they've had multiple commitments to various secondary funds of ours.
Speaker Change: This generated retro fees of $12 $3 million for the quarter.
Speaker Change: Subsequent to quarter end, we held an additional close in April that totaled $618 million, which generated over $11 million of retro fees that will be recognized in the quarter ending June 30th our first quarter of fiscal year 'twenty 25.
This approach of finding clients, who are new to the private markets combined with expanding with our existing base has served as well as we've continued to build out our separate customized business.
Let's move on now to our specialized funds where momentum also continues to be strong.
Speaker Change: This brings the total fund size to over $5 billion.
Speaker Change: As with prior fund raises we've received a small extension in order to accommodate the last remaining investors who were completing administrative work and expect to close the fund over the next few weeks.
The earning AUM here stood at $28 $2 billion at quarter end over the past 12 months, we've achieved positive net inflows of $5 $5 billion, representing an increase of 24% relative to the prior year period. This growth stemmed from additional closes for our funds currently in market robust investment activity.
Speaker Change: I'll note at this point the total current fund size of over $5 billion is the largest institutional fundraise in our history and represents a 30% increase to the prior fund the.
And continued expansion of our evergreen platform.
Moving to the drivers of specialized funds flow, let's start with our current secondary fund.
Speaker Change: The secondary platform is a key component of our specialized fund growth and our platform continues to expand as the overall secondaries market grows.
During the quarter, we held additional closes in February and March that totaled just over $800 million of investor commitments.
Speaker Change: The success of this fundraise as a direct result of our market leading position within the asset class as we continue to be a holistic solution powder to both GPS and lp's seeking liquidity.
This generated retro fees of $12 $3 million for the quarter.
Subsequent to quarter end, we held an additional close in April that totaled $618 million, which generated over $11 million of retro fees that will be recognized in the quarter ending June 30th our first quarter of fiscal year 'twenty 25.
Speaker Change: Let's now turn to our strategic opportunities fund, which is our annual direct credit fund targeting the institutional L. P.
Speaker Change: As a refresher the series of funds as effectively always in market as we raise and deploy the capital with short investment periods and charge management fees on invested capital during the quarter. We held the final close for our eighth series of this strategy had over $690 million of LP commitments.
This brings the total fund size to over $5 billion.
As with prior fund raises we've received a small extension in order to accommodate the last remaining investors who are completing administrative work and expect to close the fund over the next few weeks.
Speaker Change: Overall credit platform continues to scale and deal flow remains robust private credit continues to benefit and fill the void left from the continued retrenchment by traditional lending sources and those regional banks for calendar 2023 across our entire credit complex, which includes our separate accounts closed end funds and evergreen platform.
I'll note at this point the total current fund size of over $5 billion is the largest institutional fundraise in our history and represents a 30% increase to the prior fund the.
The secondary platform is a key component of our specialized fund growth and our platform continues to expand as the overall secondaries market grows.
Speaker Change: We invested more than $1 $3 billion into credit transactions, not funds, which is an increase of more than 45% versus the prior year.
The success of this fundraise as a direct result of our market leading position within the asset class as we continue to be a holistic solution powder to both GPS and lp's seeking liquidity.
Speaker Change: Before we move on to Evergreen I wanted to provide a quick update on our first dedicated specialized fund in the venture space.
Let's now turn to our strategic opportunities fund, which is our annual direct credit fund targeting the institutional L. P. As a refresher the series of funds as effectively always in market as we raise and deploy the capital with short investment periods.
Speaker Change: A call that we have been actively investing in venture since 1996 through our separate account business and are now providing investors with co mingled fund access to the venture capital market with primary secondary and co investment strategies, we announced the first closing in May of 2023 and to date, we've raised nearly 200.
And charge management fees on invested capital during the quarter, we held the final close for our eighth series of this strategy had over $690 million of L. P. Commitments overall credit platform continues to scale and deal flow remains robust private credit continues to benefit and fill the void left from the continued retrenched.
Speaker Change: $50 million L. P commitments for this first time fund and we will remain in market throughout the remainder of calendar 2024.
Speaker Change: Now onto our evergreen funds, we ended calendar 2023, with $5 7 billion of AUM, and we're averaging $160 million of monthly net inflow onto the platform.
Meant by traditional lending sources and those regional banks for calendar 2023 across our entire credit complex, which includes our separate accounts closed end funds and evergreen platform, we invested more than $1 $3 billion into credit transactions not funds, which is an increase of more than 45.
Speaker Change: As of March 31, 2024, total AUM across our three offerings stood at nearly $6 5 billion.
Speaker Change: Our goal remains simple with our evergreen platform maintained steady consistent growth and monthly flows over the longer term accomplished by expanding with current distribution relationships, while also adding new ones.
5% versus the prior year.
Before we move on to Evergreen I wanted to provide a quick update on our first dedicated specialized fund in the venture space recall that we have been actively investing in venture since 1996 through our separate account business and are now providing investors with co mingled fund access to the venture capital market with primary.
Speaker Change: We saw our average further ticked up during this first quarter of calendar 2024, where the platform averaged over $255 million of monthly net inflow.
Speaker Change: This was the result of adding additional relationships and some backlog from relationships added earlier with the latter being more one off in nature.
Secondary and co investment strategies, we announced the first closing in May of 2023 and to date, we've raised nearly $250 million L. P commitments for this first time fund and we will remain in market throughout the remainder of calendar 2024.
Speaker Change: I would also like to highlight that we continue to make great progress within our wire house channel as of the end of the first calendar quarter of 'twenty four we have taken and close to $900 million of flows as we approach the one year anniversary of getting approved and on boarded there. In addition to that non wire house flows continue to scale.
Now onto our evergreen funds, we ended calendar 2023, with $5 7 billion of AUM, and we're averaging $160 million of monthly net inflow onto the platform.
Speaker Change: Nicely and complement the wire house success.
As of March 31, 2024, total AUM across our three offerings stood at nearly $6 $5 billion. Our goal remains simple with our evergreen platform maintained steady consistent growth and monthly flows over the longer term accomplished by expanding with current distribution relationships while.
Speaker Change: We remain enthused about what we've already accomplished and very enthused about what lies ahead.
Speaker Change: Let's move on now to some announcements around our most recent technology partnerships and balance sheet investments.
Speaker Change: On February 29th we announced the launch of a newly created distributed ledger technology or D. L. T share class built on the polygon blockchain for our global private asset Evergreen fund together with Cigna Bank and apex group.
Also adding new ones.
Saw our average further tick up during this first quarter of calendar 2024, where the platform averaged over $255 million of monthly net inflow. This was the result of adding additional relationships and some backlog from relationships added earlier with the latter being more one off in nature.
Speaker Change: This first of its kind digitally native and took a nice share class marks the first entry and apex's on chain share Register this offering represents a significant breakthrough in making the private markets more broadly accessible efficient and investable via <unk>. We believe this partnership can potentially serve as a catalyst.
I would also like to highlight that we continue to make great progress within our wire house channel as of the end of the first calendar quarter of 'twenty four we have taken and close to $900 million of flows as we approach the one year anniversary of getting approved and on boarded there. In addition to that non wire house flows continued to see.
Speaker Change: For broader adoption within the banking and wealth management industry.
Speaker Change: Next on May 1st we announced our newest strategic balance sheet investment to join the Hamilton Lane innovations portfolio that being securitized.
Gail nicely and complement the wire house success.
We remain enthused about what we've already accomplished and very enthused about what lies ahead.
Speaker Change: <unk> heard us speak in the past around partnering with securitize and providing cocainize access to our products spanning strategies, such as evergreen secondaries and direct equity and we're now pleased to announce that we have further solidified this partnership by becoming an investor in the securitized.
Let's move on now to some announcements around our most recent technology partnerships and balance sheet investments.
In February 29th we announced the launch of a newly created distributed ledger technology or D. L. T share class built on the polygon blockchain for our global private asset Evergreen fund together with Cigna Bank and apex group.
Hamilton Lane: Hamilton Lane participated in the company's most recent strategic fundraise that was led by Blackrock, which recently launched their first token is money market fund in partnership with securitized surround also included investments from clarify and trade web we continue to view securitize as a pioneer and a leader in the token is Asian and digital asset space.
This first of its kind digitally native and token I share class marks the first entry and apex's on chain share Register this offering represents a significant breakthrough in making the private markets more broadly accessible efficient and investable via <unk>. We believe this partnership can potentially serve as a catalyst.
Speaker Change: And we look forward to providing updates on our journey with them in the future.
Speaker Change: Lastly on Tuesday of this week, Nevada, another strategic investment within our Hamilton Lane innovations balance sheet portfolio announced the closing of their most recent financing we called it the modest technology platform and expert services allow for the private markets to collect analyze and report on sustainability metrics.
For broader adoption within the banking and wealth management industry.
Next on my first we announced our newest strategic balance sheet investment to join the Hamilton Lane innovations portfolio that being securitized.
Speaker Change: Ultimately and participated in this financing alongside existing investors S&P global the financing also included new investors motive ventures, which is backed by affiliates of Apollo Global management.
Heard us speak in the past around partnering with securitize and providing token is access to our products spanning strategies, such as evergreen secondaries and direct equity and we're now pleased to announce that we have further solidified this partnership by becoming an investor in securitized.
Speaker Change: Since its launch in 2021, Nevada has continued to build a sophisticated platform, which enables the private markets to achieve a more sustainable and inclusive form of capitalism, and we look forward to continuing our support in their mission and with that I'll now turn the call over to Jeff to cover the financials.
Hamilton Lane participated in the company's most recent strategic fundraise that was led by Blackrock, which recently launched their first token is money market fund in partnership with securitized.
Jeff: Thank you Eric and good morning, everyone for fiscal 2024, we achieved strong growth in our business with management and advisory fees up 22% versus the prior year.
It also included investments from clarify and trade web we continue to view securitized as a pioneer and a leader in the <unk> and digital asset space and we look forward to providing updates on our journey with them in the future.
Jeff: Our specialized funds revenue increased by $64 7 million or 33% compared to the prior year.
Lastly on Tuesday of this week, Nevada, another strategic investment within our Hamilton Lane innovations balance sheet portfolio announced the closing of their most recent financing we called it the modest technology platform and expert services allow for the private markets to collect analyze and report on sustainability metrics.
Jeff: This was driven primarily by a $2 7 billion increased to fee, earning AUM and our evergreen platform in the last 12 months and over $4 $3 billion raised since inception in our latest secondary fund.
Jeff: Retrofits for the fiscal year included $19 $6 million from our secondary funded market versus $2 $4 million from our direct equity fund in the prior year.
<unk> participated in this financing alongside existing investors S&P global the financing also included new investors motive ventures, which is backed by affiliates of Apollo Global management.
Jeff: As a reminder, investors that come into later closes during a fundraise pay retroactive fees dating back to the fund's first close.
Since its launch in 2021, Nevada has continued to build a sophisticated platform, which enables the private markets to achieve a more sustainable and inclusive form of capitalism, and we look forward to continuing our support in their mission and with that I'll now turn the call over to Jeff to cover the financials.
Jeff: We expect to generate additional retro fees as we hold the final closes for a secondary fund end market.
Speaker Change: Moving on to customized separate accounts revenue increased to $11 1 million or 9% compared to the prior year period due to the addition of several new accounts re ups from existing clients and continued investment activity.
Jeff: Thank you Eric and good morning, everyone for fiscal 2024, we achieved strong growth in our business with management and advisory fees up 22% versus the prior year.
Speaker Change: Revenue from our advisory reporting and other offerings decreased slightly by less than $1 million compared to the prior year due primarily to the sale of the 361 capital assets, partially offset by increases in revenue coming from our technology solutions.
Jeff: Our specialized funds revenue increased by $64 7 million or 33% compared to the prior year.
Jeff: This was driven primarily by a $2 7 billion increased to fee, earning AUM and our evergreen platform in the last 12 months and over $4 $3 billion raised since inception in our latest secondary fund.
Speaker Change: Lastly, the final component of our revenue is incentive fees.
Speaker Change: <unk> totaled $101 9 million for fiscal 2024 and are down 35% relative to the prior year.
Jeff: Retrofits for the fiscal year included $19 $6 million from our secondary funded market versus $2 $4 million from our direct equity fund in the prior year.
Speaker Change: Call that last fiscal year, we generated a large amount of incentive fees due to the catch up period that several of our carry eligible vehicles were in.
Jeff: As a reminder, investors that come into later closes during a fund raise pay retroactive fees dating back to the fund's first close.
Speaker Change: Let's turn to our unrealized carry balance the balances up 19% from the prior year, while having recognized $101 $9 million of incentive fees during the last 12 months.
Jeff: We expect to generate additional retro fees as we hold the final closes for a secondary fund end market.
Speaker Change: The unrealized carry balance now stands at over $1 $2 billion.
Jeff: Moving onto customized separate accounts revenue increased $11 1 million or 9% compared to the prior year period due to the addition of several new accounts re ups from existing clients and continued investment activity.
Speaker Change: Moving to expenses total expenses for fiscal 2024 increased $19 $3 million compared to the prior year.
Speaker Change: Total compensation and benefits increased by $5 $6 million, driven by head count growth and partially offset by incentive fee related compensation.
Jeff: Revenue from our advisory reporting and other offerings decreased slightly by less than $1 million compared to the prior year due primarily to the sale of the 361 capital assets, partially offset by increases in revenue coming from our technology solutions.
Speaker Change: <unk> increased $13 $7 million, driven primarily by revenue related expenses, which are the third party commissions related to our U S. Evergreen product being offered on wire houses that we've discussed on prior calls.
Jeff: Lastly, the final component of our revenue is incentive fees incentive fees totaled $101 9 million for fiscal 2024 and are down 35% relative to the prior year.
Speaker Change: Lastly fee related earnings or FRE for fiscal 2024 were up 22% relative to the prior year as a result of the management fee and fee, earning AUM growth discussed earlier.
Jeff: Recall that last fiscal year, we generated a large amount of incentive fees due to the catch up period that several of our carry eligible vehicles were in.
Speaker Change: As we discussed on our prior call FRE margin for the year came in at 42, 8% with the fiscal fourth quarter's margin coming in higher and offsetting fiscal third quarters timing of related FRE margin impact stemming from the extension of our secondary fund and market.
Let's turn to our unrealized carry balance the balances up 19% from the prior year, while having recognized $101 $9 million of incentive fees. During the last 12 months the unrealized carry balance now stands at over $1 $2 billion.
Speaker Change: I'll wrap up here with some commentary on our balance sheet.
Speaker Change: Largest asset continues to be our investments alongside our clients and our customized separate accounts and specialized funds.
Jeff: Moving to expenses total expenses for fiscal 2024 increased $19 $3 million compared to the prior year.
Speaker Change: Over the long term, we view these investments as an important component of our continued growth and will continue to invest our balance sheet capital alongside of our clients.
Jeff: Total compensation and benefits increased by $5 $6 million, driven by head count growth and partially offset by incentive fee related compensation.
Speaker Change: In regard to our liabilities, we continue to should be modestly levered.
Jeff: G&A increased $13 $7 million, driven primarily by revenue related expenses, which are the third party commissions related to our U S. Evergreen product being offered on wire houses that we've discussed on prior calls.
Speaker Change: With that we'll now open up the call for questions.
Speaker Change: Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by number one on your Touchtone phone you will hear a problem. That's your hand is being raised should you. Mr decline from the polling process. Please press star followed by number two if you're using a speech.
Jeff: Lastly fee related earnings or FRE for fiscal 2024 were up 22% relative to the prior year as a result of the management fee and fee, earning AUM growth discussed earlier.
Speaker Change: Her phone please lift the handset before pressing any keys one moment. Please for your first question.
Jeff: As we discussed on our prior call FRE margin for the year came in at 42, 8% with the fiscal fourth quarter's margin coming in higher and offsetting fiscal third quarters timing of related FRE margin impact stemming from the extension of our secondary fund and market.
Speaker Change: Your first question comes from the line of Stephanie MA from Morgan Stanley. Your line is now open. Please ask your question.
Speaker Change: Hey, Good morning. This is Anthony on for Mike First question is on the retail channel I. Appreciate some of the color you gave on the flows that's coming in strong maybe you can double click into that where the momentum is building and then maybe go in Florida. As you look ahead, what's the scope for Incrementals rollouts at the existing funds and what might be out there.
Jeff: I'll wrap up here with some commentary on our balance sheet.
Jeff: Our largest asset continues to be our investments alongside our clients and our customized separate accounts and specialized funds.
Jeff: Over the long term, we view these investments as an important component of our continued growth and we will continue to invest our balance sheet capital alongside our clients.
Jeff: In regard to our liabilities, we continue to should be modestly levered.
Speaker Change: For new product launches. Thank you.
Speaker Change: Good morning, Stephanie, it's Eric I'll take that so I think we sort of break those two pieces.
Speaker Change: With that we'll now open up the call for questions.
Speaker Change: Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by number one on your Touchtone phone you will hear a problem. That's your hand is being raised should you. Mr decline from the polling process. Please press star followed by number two if you're using a speech.
Eric: On the existing side I think what you're seeing is a couple of factors. One we continue to expand our own sales resources.
Eric: And those sales resources are getting better they are building deeper relationships there.
Speaker Change: They're getting.
Speaker Change: The deeper relationships new relationships expanding the existing relationships. So all of that is working.
Speaker Change: Your phone please lift the handset before pressing any keys one moment. Please for your first question.
Speaker Change: So we continue to add new partners, we continue to add new channels and part of this is an education factor you're still you're introducing something that is for most people fundamentally new and so that process that education is something that our team is doing a fantastic job on is very focused on.
Your first question comes from the line of Stephanie MA from Morgan Stanley. Your line is now open. Please ask your question.
Stephanie Ma: Hey, Good morning. This is Stephanie on for Mike First question is on the retail channel I. Appreciate some of the color you gave on the flows that's coming in strong maybe you can double click into that where the momentum is building and then maybe going forward. As you look ahead, what's the scope for incremental rollouts at the existing funds and what might be out there with all of that.
Speaker Change: Or what might come in the future I think we said in prior calls and we will continue to expect to see that the current three offerings that we have today becomes more than that.
Speaker Change: We're looking at a variety of strategies that we think will be well received and for US again I've used the analogy of this as a marathon not a sprint we wanted to make sure we roll those out.
Speaker Change: New product launches. Thank you.
Eric: Good morning, Stephanie, it's Eric I'll take that so I think if we sort of break those two pieces.
Speaker Change: Early to make sure that the investor experience remains excellent building the brand and deepening those relationships is really our sort of main priority, we want that investor experience and the returns to be outstanding and so we want to make sure that we're managing flows managing new products, but absolutely expect three to become more than three in the future.
Eric: On the existing side I think what you're seeing is a couple of factors. One we continue to expand our own sales resources.
Eric: And those sales resources are getting better there building deeper relationships are.
Eric: They're getting.
Eric: The deeper relationships new relationships expanding the existing relationships. So all of that is working.
Speaker Change: Great. Thank you and maybe just for my follow up do you lay out on fundraising more broadly into fiscal 'twenty can you just remind us again, what funds are in the market today, where those stand and then what might make sense to come back into the market sooner as we look out over the next 12 months. Thank you.
Eric: So we continue to add new partners, we continue to add new channels and part of this is an education factor you're still you're introducing something that is for most people fundamentally new.
Eric: So that process that education is something that our team is doing a fantastic job on is very focused on.
Sure. So I think in prior calls we've talked about the sort of impact some infrastructure I mentioned today this new venture product.
Eric: In terms of what might come in the future I think we said in prior calls and we will continue to expect to see that the current three offerings that we have today becomes more than that.
Speaker Change: The other thing that we have talked about is that our the next in our sort of direct equity series is also in market.
Speaker Change: Credit perpetually in market as I noted so we've got a pretty full slate of things that we're working on and of course on top of that the evergreen.
Eric: We're looking at a variety of strategies that we think will be well received and for US again I've used the analogy of this as a marathon not a sprint we wanted to make sure we roll those out properly to make sure that the investor experience remains excellent building the brand and deepening those relationships is really our sort of main priority we want that.
Speaker Change: Okay.
Speaker Change: Thank you operator next question.
Eric: Investor experience and the returns to be outstanding and so we want to make sure that we're managing flows managing new products, but absolutely expect three to become more than three in the future.
Speaker Change: Your next question comes from the line of Ken Worthington from Jpmorgan. Your line is now open. Please ask your question.
Hi.
Speaker Change: Excuse me good morning, Alright, Thanks for taking the question talk to me about expenses what sort of.
Speaker Change: Alright, Thank you and maybe just for my follow up you may add on fund raising more broadly into your fiscal 'twenty can you just remind us again what.
Ken Worthington: Expense growth are you targeting as we think about this.
Speaker Change: During the market today, where those stand and then what might make sense to come back into the market sooner as we look out over the next 12 months. Thank you.
Speaker Change: Coming fiscal year, and what is the margins that we should expect.
Speaker Change: Given.
Speaker Change: The investment plan that you guys have in place.
Speaker Change: So I think in the prior calls we've talked about sort of impact some infrastructure I mentioned today this new venture product.
Eric: Thanks, Ken Eric I'll stick with this.
Speaker Change: So I think.
Ken Eric: Its also dependent ourselves on the back and say I think we've actually done a great job sort of managing the margin. So if you think about sort of what's what are sort of headwinds right now cost inflation. So our teams traveling a lot travel costs are up conferences are back those are more expensive we have a bigger team today than we had yesterday or certainly a year.
Speaker Change: The thing that we have talked about is that our our next in our sort of direct equity series is also in market.
Speaker Change: Credit perpetually in market as I noted so we've got a pretty full slate of things that we're working on and of course on top of that the evergreen.
Speaker Change: Okay.
Ken Eric: Year ago, and so more people more offices more activity. So that's a headwind.
Speaker Change: Thank you operator next question.
Speaker Change: Your next question comes from the line of Ken Worthington from Jpmorgan. Your line is now open. Please ask your question.
Speaker Change: What's also been a headwind is as you know as we're onboarding onto these evergreen and the flows are great and all of that's terrific.
Speaker Change: You're obviously paying to the wire houses kind of an on boarding cost in that first year. So that's a headwind so I think despite that.
Speaker Change: Hi.
Kenneth Brooks Worthington: Excuse me good morning, Alright, Thanks for taking the question talk to me about expenses what sort of.
<unk> margins are kind of coming in this year at 43%, obviously, a little higher this quarter given some of the retrofit nature that we had talked about last quarter. I think we're doing a great job of sort of managing the business the tailwind or that sort of mix shift into this higher margin business. So the specialized funds across the board.
Kenneth Brooks Worthington: Expense growth are you targeting as we think about this.
Kenneth Brooks Worthington: Coming fiscal year, and what is the margins that we should expect.
Kenneth Brooks Worthington: Given.
Kenneth Brooks Worthington: The investment plan that you guys have in place.
Eric: Thanks, Ken Eric I'll stick with this.
Speaker Change: So I also to Pat ourselves on the back and say I think we've actually done a great job sort of managing the margin. So if you think about sort of what's what are sort of headwinds right now.
Speaker Change: Is helping that I think when I sort of talk.
Speaker Change: To our to our shareholders I I say that you know the management team arrives to work every day.
Speaker Change: Cost inflation, so our teams traveling a lot travel costs are up.
Speaker Change: King about how to maintain this sort of strong double digit growth. We're not arriving at work every day thinking about how we can sort of tweak that margin a little higher.
Speaker Change: Conferences are back those are more expensive, we have a bigger team today than we had yesterday or certainly a year ago and so more people.
Speaker Change: That will come over time, as we get the benefit of scale and operating efficiencies etcetera, etcetera, etcetera, but I think that what we're delivering in the current market with what we're dealing with I think has been has been noteworthy.
Speaker Change: More offices more activity. So that's a headwind I think what's also been a headwind is as you know as we're onboarding on to these evergreen and the flows are great and all of that is terrific.
Speaker Change: Okay is it fair to say you know the growth of investments that are gross expenses that we've seen.
Speaker Change: You're obviously paying to the wire houses kind of an on boarding costs in that first year. So that's a headwind. So I think despite that fact.
Speaker Change: Over the last 12 months that sort of pacing continues for the next.
My answers I hope it does because I think that's going to indicate that were continuing to grow at certainly you you hope that the the fees and commissions can kind of continue on the wire houses and also on just on our distribution cost because again all of that's indicating strong fundraising and so I hope all of that continues.
Fact that margins are kind of coming in this year at 43%, obviously, a little higher this quarter given some of the retro fee nature that we had talked about last quarter. I think we're doing a great job of sort of managing the business the tailwind or that sort of mix shift into this higher margin business. So the specialized funds across the board.
Speaker Change: Okay, Great and then just on SMA is talk to us about the pipeline, where it stands today versus where it stood six or 12 months ago and awareness amazed youre seeing sort of the greatest interest.
Speaker Change: Is helping that.
Speaker Change: When I sort of talk.
Speaker Change: To our to our shareholders I I say that you know the management team arrives to work every day thinking about how to maintain this sort of strong double digit growth. We are not arriving at work every day thinking about how we can sort of tweak that margin a little higher I think that will come over time as we get the benefit of scale and operating efficiencies et cetera et cetera.
Speaker Change: On your clients.
Speaker Change: Yeah. Good question, it's Eric I'll stay on this.
Eric: Pipeline continues to be robust I mean, our growth rate on the SMA side has continued to be kind of high single digit and I think given sort of the breadth of the install base I think that's it.
Speaker Change: Et cetera, but I think what we're sort of delivering.
Speaker Change: In the current market with what we're dealing with I think has been has been noteworthy.
Speaker Change: Okay is it fair to say.
Eric: Good number for us to sort of shoot for we.
Speaker Change: The growth of investments that are gross of expenses that we've seen.
Speaker Change: Sort of gave the two examples in the script today and I think that sort of speaks to the opportunity set I mean, you're sort of thinking about those organizations is diametrically different from each other one literally entering the asset class for the very first time no exposure no relationships are just now the saying that they're going to enter the asset class.
Speaker Change: Over the last 12 months that sort of pacing continues for the next.
Speaker Change: My answer is I hope it does because I think that's going to indicate that we're continuing to grow at certainly you hope that the the fees and commissions can kind of continue on the wire houses and also on just on our distribution costs because again all of that's indicating strong fundraising and so I I hope all of that continues.
Speaker Change: And on the other end of the spectrum.
Speaker Change: I'm, one who has been with us for over 20 years and has.
Speaker Change: Okay, Great and then just on SMA is talk to us about the pipeline, where it stands say today versus where it stood six or 12 months ago.
Speaker Change: All the endless tranches that I that I spoke about and the fact that we're able to be appealing and attractive to both of those in two different geographies.
Speaker Change: Two different size organizations different objectives, with what theyre trying to achieve in the asset class.
Speaker Change: And wherein SMA is are you seeing sort of the greatest interest.
Speaker Change: Think says to you that you know the SMA business today is really set up to kind of address whatever needs. The customer has we talk about sort of meeting the customer where they are and that's what the SMA business is all about.
Speaker Change: From your clients.
Eric: Yeah. Good question, it's Eric I'll stay on this.
Eric: Pipeline continues to be robust I mean, our growth rate on the SMA side has continued to be kind of high single digit and I think given sort of the breadth of the installed base I think that's it can you know continued good number for us to sort of shoot for.
Speaker Change: <unk> interest has varied people are looking for venture and other people are looking for infrastructure and someone else wants a credit overlay and that's the beauty of the SMA business is that we can do all of those for all of those customers.
Eric: We sort of gave the two examples in the script today and I think that sort of speaks to the opportunity set I mean, you sort of think about those organizations is diametrically different from each other one literally entering the asset class for the very first time no exposure no relationships are just now saying that they're going to enter the asset class.
Speaker Change: Great. Thank you very much.
Speaker Change: Thank you. Your next question comes from the line of Adam Beatty of.
Adam Beatty: UBS. Your line is now open please ask your question.
Speaker Change: Alright, Thank you and good morning, you mentioned distribution fees and some of what you pay into the wealth management channel for distribution and sort of suggested that some of that was upfront just wanted to get your thoughts and commentary on the mix of those upfront fees versus.
Eric: And on the other end of the spectrum someone who has been with us for over 20 years and has.
Eric: All the enlist tranches that I that I spoke about and the fact that we're able to be appealing and attractive to both of those into different geographies to different size organizations different objectives with what they're trying to achieve in the asset class I think says to you that the SMA business today is really set up to kind of address whatever.
Speaker Change: As sort of ongoing revenue share arrangements and how that might be changing in the near term. Thank you.
Eric: Sure Adam it's Eric So for US if you think about sort of the fees I'd put them in sort of macro I'll put them in kind of two buckets. One is kind of fundraising commissions that we're paying to our internal people.
Eric: Needs. The customer has we've talked about sort of meeting the customer where they are and that's what the SMA business is all about.
Eric: Interest is varied people are looking for adventure and other people are looking for infrastructure and someone else wants a credit overlay and that's the beauty of the SMA business is that we can do all of those for all of those customers.
Speaker Change: And those are you know that is sort of on <unk>.
Eric: Internal measurement for them on sort of dollars raised in our commission structure around that.
Eric: The other piece of that is in the U S only where we're dealing with U S based wire houses.
Speaker Change: Great. Thank you very much.
Eric: Typically one time sort of upfront fees as a percentage of kind of that first year revenue and so both of those are increasing for the obvious reason that as I noted fund flows on the wire House channel continue to be strong and we're dealing with that with that upfront fee.
Speaker Change: Thank you. Your next question comes from the line of Adam Beatty of UBS. Your line is now open. Please ask your question.
Adam Quincy Beatty: Alright, Thank you and good morning, you mentioned distribution fees and some of what you pay into the wealth management channel for.
Eric: And internal sales continue to be equally strong and then we're dealing with that on a commission structure, but you should think about the the majority of that being an upfront not an ongoing.
Adam Quincy Beatty: For distribution and sort of suggested that some of that was upfront just wanted to get your thoughts and commentary on the mix of those upfront fees versus sort of ongoing revenue share arrangements and how that might be changing in the near term. Thank you.
Speaker Change: Great. That's very helpful and certainly a good problem to have for sure.
Speaker Change: Just turning to the advent of the specialized fund in VC. As you say you are you've been managing VC type assets, you know for quite some time and I know that you make these decisions carefully as to when and how to launch a specialized fund. So just wondering what went into that and how youre seeing investment investor sentiment around D. C. These days. Thank you.
Eric: Sure Adam it's Eric So for US if you think about sort of the fees I'd put them in sort of macro I'll put them in kind of two buckets. One is kind of fundraising commissions that we're paying to our internal people in there.
Eric: Yeah, Adam it's Eric So I think thank you I think youre right on both parts I mean, we've been doing and as I noted something going back to 1996, so very very long track record terrific relationships are good reputation by us as being kind of a good partner in that venture business.
Eric: Those are you know that is sort of an inter.
Eric: Internal measurement for them on sort of dollars raised in our commission structure around that.
Eric: The other piece of that is in the U S only where we're dealing with U S based wire houses.
Eric: Typically one time sort of upfront fees as a percentage of kind of that first year revenue and so both of those are increasing for the obvious reason that as I noted fund flows on the wire House channel continued to be strong and we're dealing with that with that upfront fee.
Eric: What we're seeing today is that the venture business is getting a little bit more rational and that to us feels like a better time to enter versus sort of doing something you know a couple of years ago. When things were just at an absolute frenzy pitch.
Eric: And internal sales continue to be equally strong and then we're dealing with that on a commission structure, but you should think about the the majority of that being an upfront not an ongoing.
Eric: That did not feel like a good time to us. So I think it's just reacting to market environment and what we see in our in our client base.
Eric: Is that this is a better time to be sort of getting in when prices are beginning to come down.
Speaker Change: Great. That's very helpful and certainly a good problem to have for sure.
Speaker Change: Just turning to the advent of the specialized fund in VC. As you say you are you've been managing VC type assets, you know for quite some time and I know that you make these decisions carefully as to when and how to launch a specialized fund. So just wondering what went into that and how youre seeing investment investor sentiment around D. C. These days. Thank you.
Eric: Great. Thank you Eric I appreciate it.
Eric: Yes.
Speaker Change: Once again should you have a question. Please press star followed by number one on your Touchtone phone, you'll hear a prompt that your hand is being raised should you wish to decline from the polling process. Please press star followed by number two.
Eric: Yeah, Adam it's Eric So I think thank you I think youre right on both parts I mean, we've been doing and as I noted something going back to 1996, so very very long track record terrific relationships are good reputation by us as being kind of a good partner in that venture business.
Speaker Change: You are using a speaker phone please lift the handset before pressing any keys.
Speaker Change: We do not have further questions at this time, Eric Kirsch. Please continue.
Eric: What we're seeing today is that the venture business is getting a little bit more rational and that to us feels like a better time to enter versus sort of doing something you know a couple of years ago. When things were just at an absolute frenzied pitch.
Eric Kirsch: Great well as always we appreciate the time the questions and the partnership.
Eric Kirsch: And wishing all of you a safe and healthy Memorial day weekend for those here in the U S. Thank you.
Speaker Change #101: This concludes today's conference call. Thank you for your participation you may now disconnect.
Eric: That did not feel like a good time to us. So I think it's just reacting to market environment and what we see in our in our client base.
Eric: Is that you know this is a better time to be sort of getting in when prices are beginning to come down.
Speaker Change: Great. Thank you Eric I appreciate it.
Eric: Okay.
Speaker Change: Once again should you have a question. Please press star followed by number one on your Touchtone phone you'll hear a prompt. That's your hand is being raised should you wish to decline from the polling process. Please press star followed by number two if you are using a speaker phone please lift the handset before.
Speaker Change: Pressing any keys.
Speaker Change: We do not have further questions at this time, Eric Kirsch. Please continue.
Erik R. Hirsch: Great well as always we appreciate the time the questions and the partnership and wishing all of you a safe and healthy Memorial day weekend for those here in the U S. Thank you.
Speaker Change: This concludes today's conference call. Thank you for your participation you may now disconnect.
Speaker Change: Okay.
Speaker Change: [noise].
Speaker Change: Yeah.
Speaker Change: Okay.
Okay.
Speaker Change: Okay.
Speaker Change: Okay.