Q2 2025 Hamilton Lane Inc Earnings Call
results to differ materially from those projected.
For a discussion of these risks, please review the cautionary statements and risk factors included in the Hamilton Lane fiscal 2024-10K and subsequent reports we filed with the SEC.
These forward-looking statements are made only as of today and, except as required, we undertake no obligations of table revised any of them.
We will be also referring to non-gat measures that we view as important in assessing the performance of our business. Reconciliation of those non-gat measures to gap can be found in an earnings presentation materials made available on the shareholder section of the Hamiltonian website.
Our details financial results will be made available when our 10Q is filed.
Please note that nothing on this call represents an offer to sell or solicitation of an offer to purchase interest in any of Hamilton Lane's products.
Let's start with the highlights.
Year to date through the second quarter of fiscal 2025, our management and advisory fee revenue grew by 21% while our fee-related earnings also grew by 21% versus the prior year period.
This translated into GAPPF $2.85 based on $114 million of GAPNet income and non-GAPPF $2.58 based on $140 million of adjusted net income.
We have also declared a dividend of 49 cents per share this quarter, which keeps us on track for the 10% increase over last fiscal year, equating to the targeted $1.96 per share for fiscal year 2025. With that, I'll turn the call over to Erik.
Erik: Thank you, John, and good morning everyone. Before I go into detail on the quarter's results, I want to acknowledge a milestone that occurred for Hamilton Lane during the quarter.
Erik: and September 23rd in Cheleni was officially added to the S&P MidCap 400 Index.
Throughout our 33-year history, we had a singular focus of delivering results for our clients, recognizing that doing that well will also benefit our shareholders and employees. This simple but effective strategy continues to serve us well and being included in the S&P 400 marks another great achievement for our firm.
Erik: Both Juan and I are extremely grateful and proud of all the dedication that each Hamilton Lane professional brings to work every day and helping to serve our clients and to grow our business.
Erik: Now let's move on to the results from the quarter and I'll start with our total asset footprint. This stood at $947 billion and represents an 11% increase to our footprint year over year.
AUM stood at $131 billion, a quarter-end and grew $12 billion or 10 percent compared to the prior year period. The growth came from both our specialized funds and customized separate accounts.
AUA was up 81 billion or 11% year over year, primarily the result of market value growth and the addition of technology solution and back office mandates.
Erik: Turning now to Fierning a UM. The story here continues to be the same. Strong total growth largely to be by our specialized fun platform, where we are adding new product lines and expanding existing ones.
Erik: Our total fearing a U.M. stood at approximately $70 billion and grew $8.3 billion or 14% relative to the prior year period.
Now take inseparately $3.1 billion of net-be-earning a U.M. came from our customized separate accounts and over the same period 5.2 billion dollars came from our specialized funds.
As we detailed in our shareholder day, our blended ferret across the platform has been steadily increasing year over year. This stems from the continuing shift in the mix of our fearing AUM towards higher ferret specialized funds, most notably our evergreen products, where growth remains impressive.
Erik: When we went public in 2017, our blended Fierreit was 57 basis points. Today it stands at over 61 60 basis points, excluding the impact from retrofies.
Moving now to additional detail on our customised separate accounts.
Fearing AUM here, so that $39.4 billion and grew 9% year over year. We continue to see the growth coming from clients across type, mandate size, and geographic location.
Erik: As we noted on our last call, we continued to increasingly see separate account mandates include meaningful allocations to private market transactions, including secondaries and direct equity and credit investments.
Erik: For our separate accounts, when possible, those allocations are fulfilled with commitment to our specialized funds focused on those specific transaction types.
This results in the AUM and management fees being captured within those specific funds, not in the separate account category.
Erik: While optically, this results in more modest dollar growth in separate accounts fearing a U.M., we are simply capturing those separate account dollars in higher-fear-ate specialized funds.
Let's move now to our specialized funds, where momentum continues to be strong.
At Quarter-End, fearing a U.M. here stood at $30.4 billion. Over the past 12 months, we achieved positive net inflows of $5.2 billion, representing an increase of 21% relative to the prior year period.
Erik: This growth stem from additional poses for funds and market robust investment activity and continued expansion of our Evergreen platform.
Erik: Moving on to fundraising activity during the quarter and I'll begin here with our strategic opportunities fund, which is our annual direct credit fund targeting the institutional LP.
Erik: As a refresher, the series of funds is effectively always in market as we raise and deploy the capital with short investment periods and charge management fees on net invested capital.
Erik: After the quarter, we held additional closes that totaled $60 million, which brought the total raise for the series to nearly $210 million.
Our strategic opportunity fund remains a key component of our overall private platform that includes our discretionary separate accounts and our evergreen platform.
If you total our eight prior funds, we have raised nearly $5 billion for this program going back to 2016.
Erik: Moving now to our venture product. As a reminder, we have been actively investing in the venture space since 1996, primarily through our separate account and advisory businesses.
Erik: This new product combines our longstanding and successful track record with our strong access to top performing managers In order to provide investors with a one-stop shop to the venture space, including primary, secondary, and co-investment transactions.
I'm pleased to announce that through the most recent closing on November 5th, we've raised nearly $500 million of LP commitments for this first venture-focused fund and will look to finalize fundraising in the first calendar quarter of 2025.
Erik: We are proud of the successful fundraise and appreciate the support from investors.
Erik: Let's move now to our Impact product.
Erik: Our impacts strategy seeks to directly invest in companies, with the goal of generating returns alongside a measurable environmental and or social impact. Our two prior funds in this strategy raised nearly 95 million and $370 million respectively.
On October 16th, we held the first close for our third vintage in the strategy with nearly $110 million of LT commitments.
Erik: Like all of our specialized fund strategies, our goal is to grow and scale each product in a tactical and methodical manner. And we are pleased with the growth of the impact product thus far, and look forward to providing you updates with this latest fundraiser.
Erik: Now, onto our Evergreen funds. As of September 30, total AUM across our three existing offerings stood at nearly $8.4 billion, with the platform having grown nearly 75% over the last 12 months.
Monthly, net inflows remain strong as we averaged over $220 million for the third calendar quarter of 2024.
Erik: During our shareholder day in June, we highlighted the opportunity we believe is in front of us related to continued growth, of both our existing Evergreen product offerings and our commitment to bring new products to market.
Erik: On October 8th, we announced the launch of our newest infrastructure evergreen products, which now complement our diversified private markets and credit offerings.
Erik: These newly launched infrastructure evergreen products highlight our ability to execute on our strategic vision, and we remain active in the creation of additional new offerings.
Erik: Lastly, a key component to our ability to successfully launch new overgreen products is the ability to see these launches with balance sheet capital.
Erik: Recently, we closed on a $100 million senior notes offering. The offering was well received in the market and resulted in us both diversifying our funding sources and expanding our capital market to access.
Erik: We've already put some of this capital to work with our infrastructure, every green funds, and our overall goal and ever green remains simple. Continue to deliver high-quality products to the market, to ensure investors have access to the benefits of this asset class.
Erik: Now, before I turn the call over to Jeff to discuss the financials, I want to take a quick moment and highlight a recent announcement regarding our newest strategic technology partnership.
Erik: with Northern Trust, who was a leading provider of wealth management, asset servicing, asset management and banking services, to both institutional and individual investors.
Erik: Norther and Trust will now offer its client's access to our private markets, data analytics and tools with a key component of this partnership, centered around providing Norther and Trust institutional clients with access to cobalt, our proprietary private market data and analytic software system.
Erik: The combination of cobalt and northern trust suite of front office solutions results in a powerful and comprehensive front-to-back solution for their clients.
Erik: This strategic agreement represents yet another example of our unique ability to partner with the world's leading financial institutions and deliver our private markets expertise, access and capabilities and a mutually beneficial arrangement.
Erik: These unique partnerships help accomplish our goal of increased brand awareness through the integration of our advanced suite of technology and data solutions to an increasingly growing population of both institutional and non-institutional private market investors. We are excited to embark on this journey with Northern Trust.
Erik: and with that I'll now pass the call to Jeff who will cover the financials.
Jeff: Thank you, Erik and good morning everyone.
Jeff: Here today, for fiscal 2025, we've achieved strong growth in our business. With management and advisory fees up 21% versus a prior year period.
Jeff: Our specialized funds revenue increased by $40 million or 33% compared to the prior year period. This was driven primarily by $3.6 billion increased to fee earning AUM in our evergreen platform, and 2.5 billion dollars raised in our latest secondary fund over the last 12 months.
Jeff: Retro fees for the fiscal year were $20.7 million, primarily stemming from the final close of our most recent secondary fund versus $8.8 million from that same fund that held closes in the prior year period.
Jeff: As a reminder, investors that come into later closes during a fundraiser pay retroactive fees dating back to the funds first closed.
Jeff: For the remainder of fiscal year 2025, our current direct equity fund in market will be the primary driver of quarterly retro fees. Now that our secondary fund has finished fundraising.
Jeff: Our latest secondary fund represented our largest institutional fund raise and thus generated the largest amount of retro fees on our history during the fiscal year 2024 and the first quarter of fiscal 2025. This is expected to have some impact on the year over year specialized funds revenue growth comparison going forward.
Erik: Moving on to customized separate accounts, revenue increased $4.5 million or 7% compared to the prior period due to the addition of new accounts, re-ups from existing clients and continued investment activity.
Erik: Revenue from our reporting, monitoring, data and analytics offerings increased by $2.3 million compared to the prior year period.
Erik: Lastly, the final component of our revenue is incentive fees. Year-to-date incentive fees totaled $87 million and are up 133% relative to the prior year period.
Erik: Let's now turn to our unrealized carry balance. The balance is up 9% from the prior year period while having recognized 151.6 million dollars of incentive fees during the last 12 months. The unrealized carry balance now stands at approximately 1.3 billion dollars.
Erik: Moving to expenses, total expenses year-to-date increased 48.6 million dollars compared with the prior year period. Total compensation and benefits increased by 43.5 million dollars driven primarily by higher compensation associated with increased headcount and incentive fee related compensation relative to the prior year period.
Erik: G&A increased $5.1 million, driven primarily by revenue-related expenses, including the third-party commissions related to our U.S. Evergreen product being offered on wirehouses that we've discussed on prior calls.
Erik: Fee-related earnings, or FRE, were up 21% relative to the prior year period as a result of the management fee and fee-earning AUM growth discussed earlier. FRE margin for the quarter came in at 43%.
Erik: Fiscal 2025 year-to-date FRE margin also came in at 43%. We managed our expenses in line with overall firm growth and aim to continue investing in supporting growth initiatives while also maintaining healthy management fee profitability.
Erik: Before moving on, I'd like to take a moment to provide some details related to our performance awards.
Erik: We strongly believe in equity alignment for our leadership team and have granted performance awards to align incentives.
Erik: Each performance award is divided into three tranches, and each tranche includes two vesting conditions, a required five-year service period following the grant date, and price target thresholds for our stock.
Erik: The thresholds are $150, $190, and $230 per share.
Erik: The first price target threshold has been met, and thus the first tranche will vest at the end of the service period. The potential dilution, if all tranches of the Performance Awards vest, would be approximately 2% of our current fully diluted outstanding shares.
Erik: I'll wrap up now with some commentary on our balance sheet.
Erik: Our largest asset continues to be our investments alongside our clients in our customized separate accounts and specialized funds.
Erik: 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 our clients.
Erik: In regard to our liabilities, as Erik mentioned earlier, we recently issued $100 million of senior notes that are scheduled to mature on October 15, 2029. The interest rates on the notes is fixed at 5.28% and will be paid semi-annually.
Erik: Throughout our history, we've strategically utilized a firm's balance sheet and capital in support of our business.
Erik: The strength of our balance sheet and our ability to invest and support
Erik: Today, the largest asset on the firm's balance sheet is our GP commitments alongside our clients and seed investments into recently launched products.
Erik: something we are extremely proud of. We aim to continue supporting these growth initiatives and we have now secured new capital that will allow for this important work to continue while maintaining a conservative leverage profile. With that, we will now open up the call for questions.
Erik: Thank you.
Erik: and others. Thank you. Thank you.
Speaker Change: Thank you.
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 the number one on your touchtone phone. You will hear a prompt that your hand has been raised.
Speaker Change: Should you wish to decline from the polling process, please press the star followed by the number 2. If you are using a speakerphone, please leave the handset before pressing any keys.
Speaker Change: One moment, please, for your first question.
Speaker Change: Our first question will be coming from Ken Worthington from J.P. Morgan.
Ken Worthington: Hi, good morning. Thanks for taking the question.
Ken Worthington: There's a number of brokers that are looking to offer alternative products to their clients for the first time.
Ken Worthington: Can you talk about the opportunities ahead for you in these new distribution channels and can you sort of size what you see relative to the distribution you've brought on, say, over the last 12 months or so?
Ken Worthington: Ken, thanks for the question, it's Erik, I'll take that.
Erik: I think if we step back you're asking a pretty macro question and so I'll give you a macro response. I think at the at the widest aperture of the lens what you see is a world where the vast majority of mass affluent individuals don't have any exposure to the private markets.
Erik: And so I think what we're really beginning to see here is a change where you'll begin to see
Erik: Individual investors begin to have portfolios that more likely mirror institutional investors.
Erik: That is going to be a change that is going to take place over a long period of time. And so I continue to use the analogy of this is we're running a marathon, not a sprint here.
Erik: And so I think when you look at the amount of wealth held in an individual's hands globally,
Erik: We're talking something that's in the many, many, many trillions of dollars. And so if we think about just moving 1% of that or 3% of that or eventually 10% or 15% of that into the private markets, again, more akin to what we see in the institutional world.
Erik: We're talking about a massive amount of capital that will transform our industry as well as our business, and that will take place over a long time period. So we think we're at a great starting point for what is going to be a very long and exciting journey.
Ken Worthington: Maybe as the follow-up, is more being asked of you from these new platforms as they come online versus, say, the wirehouses or the RIAs that have come online already?
Speaker Change: You know what Hamilton Lane is being asked of essentially the same like are you being asked to do more on the You know client servicing and client management in the future versus what you've done in the past
Erik: So it's Erik. The answer is no. I think what people are looking for is consistent, regardless of the platform that they're coming through. People want education, they want transparency around the asset class, and they want an easily accessible product that has good performance.
Erik: and so I think whether that's a customer coming through a wire or a customer coming from an individual RIA that's what they're looking for and I think one of the reasons why we've been so successful is
Erik: This is a firm that has an incredibly strong client service DNA and understands how to service customers. And we're really good at the education piece because of our data and technology. And I think that's helping to sort of stand us apart.
Speaker Change: Okay, great. Thank you.
Speaker Change: Our next question will be coming from Alex Bluffstein from Goldman Sachs.
Speaker Change: Thank you for watching. See you next time.
Alex Bluffstein: Hey, Erik and everybody, good morning.
Speaker Change: You guys have had lots of success on the specialized funds over the last couple quarters with a secondary business obviously coming in strongly last quarter, but maybe Help us with kind of you know anything on the come as you look at the lineup of specialist funds outside of the kind of evergreen Retail oriented vehicles call it over the next you know 12 to 18 months in terms of what's coming up
Speaker Change: Sure Alex, it's Erik. So I think as I mentioned this is going to be about putting a variety of products in market And so that's what we are doing right now So direct equity of what we have is sort of poised to be the largest of what's currently in market
Speaker Change: impact.
Speaker Change: growing nicely. Again, that was a business where
Erik: You know, when we sort of did our first one and it was sub a hundred million dollars.
Erik: I think there were some questions of, you know, why bother? And our answer was, look, we have to start, and the goal is to start, and have success, and then scale, and we're doing that.
Erik: That is growing. I think we're really happy to finally get a venture product in market that we think has a lot of market appeal. And so coming out of the gate with that as sort of an initial fund of $500 plus million, that feels good. So I think we have a lot of products in market, a lot of closings that are kind of coming up across the board.
Erik: And we just have a lot of work ahead of us to make sure we do these all successfully.
Ken Worthington: I gotcha. Great. And then a quick clarification question. I heard your comments around equity awards. Can you just refresh us on what the total equity based comp number is going to look like from here and just the trajectory of stock-based compensation, I guess, beyond this fiscal year?
Erik: Yeah, we're looking at, this is Jeff, we're looking at $30 million per year, and the awards are structured as a five-year award, so that's the time horizon that we're thinking about.
Speaker Change: Got it. Okay, great. Thanks so much.
Speaker Change: and others. Thank you. Thank you. Thank you.
Speaker Change: Next is from Michael C. Chris from Morgan Stanley.
Erik: and many more. Thank you. Thank you.
Speaker Change: Hey, good morning. Thanks for taking the question. Maybe just given the change in administration here in DC, the election here, just curious how you see that impacting potentially helping private markets unlock access to retirement accounts. Maybe just remind us what hurdles do you see? How might those be overcome potentially with the change in administration here? And how is Hamilton Lane positioning to access the retirement space? Thanks.
Speaker Change: Thanks Mike, it's Erik. So I think like everyone, we're sort of digesting this morning and doing it amidst the earnings day, so timing perhaps a little suboptimal.
Erik: I think my macro reaction to this would be, if we're thinking about retirement, obviously a lot of the capital that we're pulling in for Evergreen now is retirement capital. It's just not housed in a 401k vehicle. So I think to your question, what we're really talking about is whether we see the 401k market opening up.
Erik: There are, as you know, sort of a multitude of regulatory changes that will need to alter in order for that to happen. I have no idea, as we sit here today, whether that's going to be a priority of this administration or not.
Erik: What I can say is to the extent that the regs alter and evergreen like products or inclusion in target date funds with a private market allocation becomes a reality.
Erik: I think what that market is looking for is exactly the same as what we're already experiencing in our current evergreen environment, which is
Erik: good trusted brand, good access, good performance, good product knowledge, and so if that market alters we feel like we're very very well positioned to participate there in a meaningful way.
Erik: John Oh, Griffith Norville, Jeffrey Armbrister, Erik Hirsch, Mario Giannini, and Jeffrey Armbrister, Erik Hirsch, and Jeffrey Armbrister.
Erik: Maybe if I could just follow up, just curious what specific changes you think would need to be, to occur in order to help sort of facilitate that? And just anything practically, you know, we hear oftentimes, Culler, from about record keepers systems, maybe not being able to accommodate. Just curious how you see that and how you might be able to help move that ball forward over time.
Speaker Change: Yeah, I think one I'm not sure that we'll be a driver of any of the change But if you think about how 401ks operate today one, they're freely tradable And so at a minimum you're going to need to address sort of the valuation component of this
Speaker Change: And then the second part is right now there are rules in place for a variety of fund vehicles that have to do with how much kind of potentially illiquid assets or less liquid assets can be included. So I think there is both legal changes, but there's a lot of just practical aspects of what putting an asset that today is not sort of mark to market second by second.
Speaker Change: into an environment where people are accustomed to having all liquid, all marked, and all market-driven valuations.
Speaker Change: So, I think the hurdles are real, and it's why we still today have been talking about whether or not we will see private markets in 401ks for the last couple of decades, and the answer has continued to remain no.
Ken Worthington: Great. Thank you.
Speaker Change: Next in line will be coming from Mike Brown from Wells Cargo Security.
Ken Worthington: and many more. Thank you. Thank you.
Mike Brown: Great. Good morning. I wanted to dive into the partnership with Northern Trust. Can you just expand a little more on that, Erik? How will Northern's clients utilize Cobalt? Can you maybe provide some examples there? And how do you kind of monetize that partnership? And then, you know, maybe just a follow-on there. Is there an opportunity to continue to expand with other financial institutions? And then, is there an opportunity to actually expand into the wealth side at Northern Trust as well? Thank you. Yeah, Mike. Erik, thanks for the question.
Erik: I think if we sort of, again, think about what Northern's institutional customer is dealing with, and I don't think there's anything unique about their individual or institutional customer.
Erik: is that they have a portion of their assets in the private markets and is that we sort of see growing across institutional customer bases, is that...
Ken Worthington: proportion of assets in the private markets gets bigger.
Ken Worthington: your desire to analyze it and have it benchmarked.
Ken Worthington: and look at risk factors and think about cash flow forecasting.
Ken Worthington: All of that becomes very necessary and desirable. And then if you sort of think about what is Cobalt, that is what Cobalt is doing. It's a data and analytics software system that allows people to import, upload their portfolio of private market holdings.
Ken Worthington: and do benchmarking, comp comparisons, cash flow forecasting, public market equivalent calculations, etc. And so, Northern is essentially...
Ken Worthington: plugging our SaaS system into their current system to kind of give, as I said, that sort of front-to-back solution for their customer base. So we're excited. We're excited, I think, largely because
Ken Worthington: In Northern, you have an incredibly blue-chip organization.
Ken Worthington: that ran in a very rigorous process looking at what private market systems were out there. Obviously, there are choices to be made.
Ken Worthington: and they made the choice in selecting us. We're very proud of that.
Ken Worthington: We're excited about this from a brand enhancement standpoint.
Ken Worthington: as well as obviously some revenue generation.
Ken Worthington: And certainly our goal is to make sure that we do the best possible job we can with Northern and that ultimately have that usage expand across not only institutional investors, but also into individual investors.
Speaker Change: Okay, great. Thank you for all that, caller.
Speaker Change: As a follow-up question, on the specialized funds side, obviously growth has been very impressive there.
Speaker Change: This quarter, the fee rate, excluding the retro fees, looks like it declined quarter over quarter. Looks like mainly on the institutional side. Anything to point out there, and as we think about that, go forward, is this quarter the right jumping off point?
Speaker Change: Thank you.
Speaker Change: So, it's Erik again. I'll stick with that. I think this is just simply noise in the numbers. The fee rates on our specialized funds are not altering.
Speaker Change: And so, again, just depending on retro closing timings.
Speaker Change: and what is just happening there, you're gonna see that bounce quarter to quarter. Where we are encouraging, and I will do so here, to have people look at this year over year, because that will take out the noise. And as we noted, if you sort of look at the year over year and look at that trend line.
Speaker Change: It has continued to be an up and to the right quarter to quarter. You're going to see some volatility but year over year I think you see what the what the actual pattern is
Speaker Change: Okay, great. Thank you for that clarification.
Speaker Change: and many more. Thank you. Thank you.
Speaker Change: John Oh, Griffith Norville, Jeffrey Armbrister, Erik Hirsch, Mario Giannini
Speaker Change: Again, if you have any questions, please press star followed by the number one on your touchtone phone.
Speaker Change: Our last question will be coming from Avon Hall from KVW.
Avon Hall: Great, thanks for taking my question. Maybe just to follow up on the Evergreen Products platform. I know it's still early days and a lot of potential growth, but I was wondering if you could kind of talk to the uptake you're seeing in the channel with clients investing in multiple products.
Speaker Change: I know part of the value-add to your offering is the diversity across different managers, but it would be great to just hear if you're seeing any change in appetite as it relates to single-asset class products versus multi-asset class products. Thank you.
Speaker Change: Thanks for the question. It's Erik. So, our visibility is going to be somewhat limited. We're going to know whether, in some cases,
Speaker Change: Whether we are getting clients in multiple Hamilton Lane products, which we are.
Speaker Change: But we wouldn't necessarily know whether they are doing a Hamilton Lane product and a product of another service provider. We wouldn't necessarily have that visibility.
Speaker Change: What I can say to you kind of anecdotally and sort of through, again, a lot of our interactions is that the appeal of our sort of diversified flagship funds is just that. They're a great anchor product to put down to give people kind of instant exposure across
Speaker Change: industry across size of business across manager and so that has been a nice anchor tool and then it allows the financial advisor and customer to decide whether they want to
Speaker Change: put an additional overweight in any particular area, whether that might be infrastructure or credit or something of the like. And so that's sort of how we're positioned today. Yes, there is competition. Yes, I am sure there's going to be increased competition.
Speaker Change: But, you know, that's the reality of a growing attractive marketplace, and we sort of see that we're well positioned, and I think the numbers really speak to that.
Speaker Change: This video is educational and is not meant to replace proper medical or therapeutic treatment advice. Although EFT is widely used as a self help technique it is still in the experimental stages. For more information visit www.sciencemedical.com
Speaker Change: Thanks for the call.
Speaker Change: Nicole, are there any more questions?
Speaker Change: Again, much appreciate the time. I suspect a lot of you like us are a little tired after spending a lot of time up last night watching too much television, so we appreciate the time. We appreciate the support. Have a great day.
Speaker Change: Goodbye. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
Speaker Change: and others. Thank you. Thank you.