Ladies and gentlemen, thank you for standing by, and welcome to the Hamilton Lane Incorporated Second Quarter Fiscal Year 2022 Earnings Conference Call. At this time all attendees are in a listen-only mode. [Operator Instructions] Thank you. Now, I would like to welcome Mr. John Oh, Investor Relations Manager. Sir, please go ahead.

Thank you, Gael. Good morning, and welcome to the Hamilton Lane Q2 Fiscal 2020 Earnings Call. Today, I will be joined by Mario Giannini, CEO; Erik Hirsch, Vice Chairman; and Atul Varma, CFO. Before we discuss the quarter’s results, we want to remind you that we will be making forward-looking statements based on our current expectations for the business. These statements are subject to risks and uncertainties that may cause the actual results to differ materially. For a discussion of these risks, please review the risk factors included in Hamilton Lane’s fiscal 2021 10-K as amended in subsequent reports we filed with the SEC. 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 detailed financial results will be made available when our 10-Q is filed. 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 on Slide 3. Year-to-date, our management and advisory fee revenue grew by 12%, while our fee-related earnings grew by 24% versus the prior year period. This translated into year-to-date GAAP EPS of $2.19 based on $80 million of GAAP net income and non-GAAP EPS of $2.23 based on $120 million of adjusted net income. We have also declared a dividend of $0.35 per share this quarter. Equating to the targeted $1.40 per share for fiscal year 2022. With that, I’ll now turn the call over to Mario.

Thanks, John, and good morning. It was another strong quarter for the firm, and we are pleased with the continued growth and success. I am proud of our team members for their hard work and dedication, and I’m also pleased to welcome a number of new Hamilton Laners. Since the beginning of the calendar year, we’ve increased our employee base by more than 50, supporting our clients and the overall growth of our franchise. Let me turn to some results for the quarter. Beginning on Slide 4, here we highlight our total asset footprint, which we define as the sum of our AUM, assets under management and AUA, assets under advisement. Total asset footprint for the quarter stood at $805 billion represent [Technical Difficulty] our long-term consistent growth trend. AUM growth year-over-year, which was $23 billion or 32% came from both our specialized funds and customized separate accounts and continues to be diversified across client type, size of client and geographic region. Our focus remains growing and winning across both lines of business, and we are pleased with the continued success. As for our AUA, similar to that of our AUM growth year-over-year, which came in at $235 billion or 50% was from across client type and geographic region. As we have mentioned on prior earnings calls, AUA can fluctuate quarter-to-quarter for a variety of reasons, but the revenue associated with AUA does not necessarily move in lockstep with those changes. And while this quarter saw an increase in AUA dollars relative to the previous quarter, we will continue to emphasize that no direct correlation exists between the scale of AUA dollars and revenue generation. Let me now shift gears and talk to the continued success we are having with our evergreen platform. For the benefit of those on the…

Thank you, Mario, and good morning. Moving on to Slide 5, we highlight our fee-earning AUM. As a reminder, fee-earning AUM is the combination of our customized separate accounts and our specialized funds with basis point-driven management fees. We will continue to emphasize that this is the most significant driver of our business as it makes up 80% of our management and advisory fees. Relative to the prior year period, total fee-earning AUM grew $5.4 billion or 14%, stemming from positive fund flows across both our specialized funds and our customized separate accounts. Taken separately, $2.8 billion of net fee-earning AUM came from our customized separate accounts, and over the same time period, $2.6 billion came from our specialized funds. Growth in these two segments continue to be driven by four key components: one, re-ups from our existing clients; two, winning and adding new clients; three, growing our existing fund platforms; and four, raising new specialized funds. Additionally, our combined fee rate remains steady. Moving to Slide 6. Fee-earning AUM from our customized separate accounts stood at $27.4 billion, growing 11% over the past 12 months. We continue to see the growth coming across institution type, size and geography. 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. Re-ups from our existing client base remains a key component of the growth we’ve achieved in this segment of fee-earning AUM. In addition to re-ups, we continue to expand our client base by winning and adding brand-new relationships, which, in turn, provide a growing base for future re-up opportunities. From a geographic standpoint, we continue to expand our global footprint and seek out investors who have yet to invest in this asset class.…

Great. Thank you, Erik, and good morning, everyone. Slide 8 of the presentation shows the financial highlights for the first half of fiscal 2022. We continue to see solid growth in our business with management and advisory fee up 12% versus the prior year period. Our specialized funds revenue increased $5.8 million or 9% compared to the prior year period driven by $600 million of inflows into our evergreen platform in the current year period, along with almost $1.1 billion raise to date from our latest direct equity funds. Year-to-date, retro fees have been limited given that our latest direct equity fund was turned on in the prior quarter, relative to the prior year period will be recognized $6.1 million in retro fee from our latest secondary fund. We expect to generate additional retro fees as we hold subsequent closes of our latest direct equity fund. And just to reiterate, as many of you are likely aware, investors have come into later closes of the fund raise for many of our products pay retroactive fee dating back to the funds first close. Therefore, you typically see a spike in management fee related to that fund in the quarter in which subsequent close to incur [ph]. Revenue from our customized separate accounts increased $2.1 million compared to the prior year period due to the addition of several new accounts and re-ups from existing clients. Revenue from our reporting and other offerings increased $5.6 million compared to the prior year period driven by revenue associated with pre-existing funds managed by the 361 Capital team that we acquired in April of 2021. In addition, we saw a $3.7 million increase in revenue compared to the prior year period in our distribution management business. The final component of our revenue is incentive fee. Incentive…

[Operator Instructions] Your first question is from the line of Ken Worthington from JPMorgan. Your line is now open.

Hey guys, good morning. Thank you for taking my questions. Maybe first on FRE margins. FRE margins bumped up this quarter. Is this the new normal as the fund business continues to grow? Or do we see T&E and other costs start to normalize and weigh on margins as sort of the post-COVID environment starts to emerge? And what should normalized margins look like given the fund and T&E dynamics, say, over the next one to two years?

Thanks, Ken, it’s Erik. I’ll take that. I mean we’re clearly still operating in a non-normalized environment today. And so I think when I look about margin, I think about two things. I think, one, it is the expense piece, and I think we’re clearly experiencing some non-normality there. And so when or if that returns, I think, is still to be determined. I think the other thing that you’re starting to see and you clearly have heard from other players in the market is rising pressure on wages. And so I think while we’ve done a good job of managing that, I don’t expect that – I think our management team views that, that pressure is going to continue. And so there’s going to be some rising costs associated with continuing to hire sort of the best and the brightest out there. Now, that’s sort of what would be potentially weighing on margins on the future. The flip side is that sort of mix of asset flow as we continue to see real strength in the specialized funds. As, those are coming with both higher fee levels as well as higher margin. And so that’s helping to kind of pull the business up. I’d say, overall, I think management is doing a strong job here of managing the business, running it tightly, and I think we certainly have some wins at our back. But I would not suggest that today, we sort of see 47 as a new normal or a new benchmark for us.

Great. Thank you for that. And then as you noted, sort of bigger distributions and bigger gross sales sort of suggests that clients are re-upping. Given the seasoning of your client base, what does the pace of re-upping look like, say, over the next year or two compared to what we’ve seen and maybe the pre-COVID environment? What do you see in terms of re-upping from newer and more mature clients? Like how do their re-ups actually look? Are they committing more, they committing the same they’re committing less? Like is there sort of a rule of thumb on the different parts of that spectrum. And then ultimately, what does this mean for fees and margins as these existing clients re-up, good, bad or indifferent? Thanks.

Sure. Thanks, Ken. It’s Erik. I’ll stick with that. I think the sort of the short answer is it really is client-by-client driven. So each of our clients is in a different level of maturity around their private markets program. Some are dramatically below target; some of them are at target. And so I think you see a real mix there around pacing and how people think about re-ups that’s very dependent on their program and how their program is developing. That said, I think 1 of the macro truisms is that in a market where kind of plan assets are growing due largely to public market performance being positive, you see a growing of the denominator. And even in a world where clients want to maintain a steady state allocation to the private markets, that means the numerator needs to kind of move in lockstep with that denominator. So generally, I think it’s fair to say that in markets that are upwardly moving and rising as we’re experiencing now and have for the past few years, that tends to have a positive impact on flows. And so we are seeing that. Your question sort of on the back end is that positive from a fee rate margin perspective. You’ve heard us say before and we’ll continue to say, I mean, re-ups are a very important part of our business. The stickiness is a powerful part. And that re-up does lend itself to some margin enhancement because, again, a lot of the costs for the servicing that client have already been sort of baked in and structured. And so to the extent that, that client is providing you additional capital, that’s just providing good benefits of scale.

Great, thank you very much.

Your next question is from the line of Adam Beatty from UBS. Your line is now open.

Hi good morning. Thank you for taking the questions. Maybe just a follow-up actually on the discussion around separate accounts. Just wanted to get your sense around, if you will, maybe total addressable market and among, either among your newer clients or just in the marketplace in general, how you’re seeing allocations? Are there still large chunks of that of that institutional market that are under allocated or do you find more and more that they’ve achieved a certain level of allocation, but maybe you’re winning business from others? Or how does that stack up competitively? Thank you.

Sure. It’s Erik. And I don’t mean to dominate here. We’re having a bit of a microphone issue in our conference room. So I’ll do my best to channel Mario on this 1 because he would be the 1 taking this. I think as you kind of look across the client base, I think you see a couple of realities. One, as you’ve heard us say and we just noted on the call, there continues to be a surprising, I think, to many people, not surprising to us, but a surprising number of entities that have still not yet entered the asset class, whether that’s because they’re simply newer or whether that’s been for regulatory reasons or whatever the driver of that has been, I think we continue to be – we continue to benefit from, frankly, finding entities that are yet to come into the asset class, and we’re now helping them do that. I think as you then think about sort of the macro around addressable market and targets, I think, one the studies all show and not our studies, but market studies are sort of showing that interest in the asset class continues to rise and is forecast to do that. I think the big growth in addressable market is what we’re experiencing right now on, frankly, the evergreen product kind of getting into that wealth management channel. That, as Mario noted, is a hugely underpenetrated segment, and it’s a massive segment of the market. I don’t think it’s a situation where everyone is going to have equal access or equal success. I think you’ve got to build the right product and have the right brand and have the right ability to execute. And I think the fact that we’ve achieved the success we have in the short order, I think, sort of demonstrates that we’re clearly well positioned to do that now and to continue to do that in the future. And so there, I think we’re seeing just a tremendous amount of growth opportunities.

That’s excellent. Thank you, Mario and Erik. And then just around that in terms of the organic growth level at Hamilton Lane. I mean, over the last few quarters, we’ve seen meaningful and sustained step-ups on a year-over-year basis? And just given the success with the evergreen product the re-up rate, around and new business and separate accounts and the schedule of fund launches and additional closings. Is it reasonable for us to think about the gross level of inflows having really stepped up on a sustainable basis? Is this close or somewhere like a new run rate or trajectory? Thank you.

Sure. It’s Erik. I’ll stick there again. I think there’s a couple of factors. I mean, one is that macro that I mentioned earlier, which is you’re kind of in a rising tide environment here. Successful public markets, again, growing denominators, and that is forcing, if you will, kind of flows to be expanded across all of the other asset classes, ours including. So I think on some level, there’s a rising tide element. For us specifically, I think you are seeing a couple of pieces of the puzzle really start to kind of hit on all cylinders. But most notably, I would point to the specialized funds. I think there, as we’ve said in the past, our job is to both add new products, which we’re doing with things like impact and infrastructure. It is to expand products that we’ve already had past success with as we’ve done with our secondary franchise as an example. And now back out to try that for our sixth time. And then the third is really just to find brand-new areas for growth. And the biggest 1 I would point to there is, again, the sort of effort into the retail side. And so all of those are gaining good traction. I think we’ve done a good job of supporting all of those with this kind of data and technology. We don’t view those investments as kind of separate and apart from the business; they’re core to the business. They are what’s fueling and helping us gets traction across all of these. So these different strategic partnerships, these different investments. All of those, I think, are coming together to help sort of generate the success and propel us forward.

Got it. That’s great detail. Much appreciated. Thank you.

Your next question is from the line of Michael Cyprys from Morgan Stanley. Your line is now open.

Great, thanks. This is Mike Cypress, Morgan Stanley. I just wanted to ask about the SMAs. I think you had mentioned about 20% of the flows were coming from new clients on the SMA side. I was just hoping you could maybe elaborate a bit what the profile is of these new clients, what channels, geographies are they coming from? Just any sort of color on the size, you’re able to sort of share around these customers. I think in the past, you had mentioned that the estimate growth has been impacted by the pandemic weighing on new clients coming in the door. Just curious if that has subsided where that stands is today and how that pipeline looks for new SMA relationships as you kind of look out premier?

Mike, its Mario. I’m going to try. We are having a little technical difficulty in the conference room. So hopefully..

No, sorry, the mic just cut off again, Mike. So I’ll pick up. That was – we tried, but no success there. Mike, I would say it’s Erik. And I think the great news is there is no common denominator. I think the separate accounts are coming from different geographies, different institution types and across the institutional type, different sizes. I think to us, I would sort of point to this being emblematic of two very positive parts of the business, one, it’s an asset class that is needed and desired by institutions and NTCs of all different shapes and sizes across geographies. Two, I think this sort of speaks to the distribution network that we’ve built out internally. We continue to open up new offices. Today, we’re up to 19 around the globe. And so that geographic footprint continues to grow and expand. We continue to invest in resources. Mario mentioned that we were welcoming a number of Hamilton Laners new to the firm since the beginning of this calendar year. I think all of that is designed to continue the sort of the reach of the firm, whether that’s distribution reach, investment reach and, of course, making sure that we’re there to sort of service those customers. So I think all of that points to sort of positives for both the industry as well as for us specifically.

Great. Just a follow-up question, just maybe a little bit more on the P&L. two partner here. It looked like the SMA fee rates looked like they ticked down a little bit if I was looking at that right. Just curious any color you can share on some of the moving pieces in the SMAs, how the fee rates are evolving on the SMA side? And then just on the FRE margin. I know Ken had asked about that. But I guess my follow-up there is just around how should, we think about the incremental margin on revenue today that’s coming into SMAs versus funds. How is that trending versus history? Any sort of numbers you can help put around the incremental margins?

Sure, Mike. It’s Erik. I think on the SMA fee rate, I think what you’re seeing there is an anomaly for the quarter. We had a little bit of re-up dynamic with some existing customers that caused a little bit of a renegotiation around some tranches. I think that is simply an aberration that it’s occurring in a particular time. I think when you look at that on an annualized basis, you’re going to see that it’s business as usual, and there’s been really no change there. I think on the margin, I mean, we’ve said before, clearly, the margins are better and higher in our specialized fund business, and that’s particularly true with this evergreen retail product. And so those tend to be a higher driver of positive margin contribution than the separate accounts. But there’s nothing new happening to that, I think what you’re simply seeing is as that specialized fund business continues to grow at a very significant rate, that is helping to sort of pull some of the margin benefit across the firm.

Great. Maybe to speak another question in here, if I could. Just on the secondaries firm’s broader marketplace. We’ve seen a number of firms acquire secondary these platforms. Just curious, as you look at the landscape today, what sort of impact do you think this could happen on competition and the marketplace, particularly as other firms are perhaps looking to bring secondaries into the retail channel, and these are more funds focused firms, I don’t think they have SMAs. Just curious your fuse broadly on sort of the shift from funds into SMAs across the landscape, how you see that playing out?

Well, I think what that speaks to is the fact that secondaries are becoming an increasingly more and more important part of the overall asset class. So the growth in that space overall has been significant. But I would note, and you just said it, they’re acquiring. This is not new entrants coming into the market. These are acquiring franchises that are already there and in some cases, we’ve already had been competing with. So I think the success that we’ve achieved to date has already been in the landscape where all of those franchises exist and have continued to exist. So I think what that tells you is it’s a really big pool of capital that’s out there. We have sort of our share of that. We believe that both that pool of capital will continue to grow, and we’re hopeful that our share continues to grow. But we don’t really see the acquisitions as being all that noteworthy or impactful to the business.

Great, thank you.

Your next question is from the line of Alexander Blostein from Goldman Sachs. Your line is now open.

Hi, everybody. Good morning. Thanks for the question. I was hoping you could expand a little bit more on retail in the wealth management channel. Obviously, it’s been a topic du jour for a couple of quarters in the space for those earnings season the prior one, maybe as well. Specifically, if you guys could zone in on the U.S. opportunity set and give us some details in terms of the number of distribution platforms you’re on? What are you guys seeing on the independent broker dealer side or the wire house side, just to kind of help us frame the opportunity set you see that for yourself as you get on more platforms. So maybe we could start there. Thanks.

Sure. It’s Erik, and I’m happy to start. I mean, as we’ve noted, we’ve been basically at this for two years total, less in the U.S. And as we acquired the 361 team as an effort to kind of bolster our direct kind of to market capabilities, and we added that to the resources that we already have. I think, what I would note is that flow of funds is coming from a large number of entities. But what it’s not coming from today is it’s not coming from the big wire houses. And so the fact that we’ve already had this level of success in the scale and we have yet to sort of tap into that, I think, is a real testimony to the resources that we’ve built and the brand that we’re building. Our view here is that this is really a ground game. And so we have started with sort of that – with that sort of big ground effort, and we’ll continue to kind of work our way up into that food chain. And I think if you look at those that have come before us, I think you’d sort of see some very some similarities to how they sort of built out, and they’re now operating at a very different scale. And so that’s sort of the model that we’re following, and we feel we’re on a good path to that.

Got it. Great. And then maybe a follow-up to Mike’s question earlier. You just talked about the secondaries business, a similar lineup question from just maybe the co-invest. As we’ve seen some of the kind of, for the lack of a better term, traditional alts, I guess, some of the larger players focus more on some of the core products that do have a lot of sort of longer dated and some co-investment opportunities. How does that position you guys? Where is the competitive advantage that you see for yourself in that marketplace as you think about the co-investment fund lineup for Hamilton Lane over time?

Sure. I mean I think, look, co-investments are kind of a precious commodity that fund managers control the flow of. And I think when you think – if you think as a fund manager of what you’re looking for in a good partner, you’re looking for someone as a co-investor who can bring resources an approach that is sort of going to mirror your own team, so as to not sort of bog them down or to get in the way. And so we’ve got a tremendous direct equity team in-house. But if you look at the backgrounds and bios, a large portion of them actually come from the fund manager business. So been there, done that, very experienced deal professionals, and we think that sort of stacks up well in the market and makes us kind of a customer a choice partner of choice. But the other piece, I think, candidly, is obviously, fund managers want access to primary fund capital, and we remain one of the absolute largest allocators of primary fund capital in the world. And I think that position of sort of wielding that capital base and having that capital base as it is continuing to grow, just makes us more and more important to the market and more important to those fund managers and they’re looking to sort of further the relationship and to deepen their relationship with us.

Awesome. Thanks so much.

[Operator Instructions] Your next question is from the line of Robert Lee from KBW. Your line is now open.

Good morning. Thanks for taking my question. Most of them were asked, but maybe following-up on the competitive environment. So you talked about comp pressures. You mean things that I think everyone is seeing, but some of your competitors have been specifically skewing, changing that comp structure, skewing towards retaining as comp, larger and larger proportions of carry going down the road. So do you see any need to evolve or alter your current comp structure partly is retention, partly as some large competitors are maybe paying out larger proportions of carrying compensation if that’s having any impact?

Yes. Thanks, Rob, its Erik. Look, I think I think like every smart player in the market, we’re kind of keeping a very close eye on kind of market dynamics around what is attractive to employees to making sure that we can both attract and retain. That said, I think we run a different model than a number of other firms out there. I think what you’re sort of seeing is increasingly a model where, it is a what do you own and where a lot of the businesses are fragmented and you sort of see partial ownership across their employee bases. That’s not our model. Our model is one firm, one compensation pool, shared economics across the organization. We think that’s a very powerful advantage for us because it really aligns not only the employees with our clients, but more importantly, equally importantly, aligns with the employees with each other. And so today, we don’t see a dramatic need to kind of change our comp philosophy. I think the point we would simply make is that we do see – we are in and we are continuing to see a rising wage environment. And so we’ll need to be responsive to that. But I don’t think that sort of necessitates a wholesale change to compensation philosophy.

Great, thank you. That was my question. Appreciated.

Your next question is from the line of Michael Cyprys from Morgan Stanley. Your line is now open.

Thanks for taking a follow-up. More of a big picture question. If we look at the private markets today, growth equity and venture have been some of the fastest-growing parts of the private markets. And so I guess the question is, as we look out over the next three to five years, which subsectors and strategies within the private markets do you think are going to be amongst the fastest growing? And which ones do you think might be relatively slower growing but still within a very fast-growing part of the industry? And how does that inform your view on strategic actions and resource allocation and how [indiscernible]?

Sure, Mike. It’s Erik. I’ll stick with that. I think it’s hard to look out and predict where you’re going to see growth because I think that growth I mean take the venture and growth equity space today that’s filled by very favorable economic environments that are occurring that are allowing those spaces to operate successfully. If you tell me that 12 months from now, we have a significant market correction and downturn, I’ll tell you that things like distressed debt, which are basically nonexistent in today, all of a sudden become a much more interesting space, and they will become one of the faster-growing areas. If you tell me that you’re going to see a massive slowdown in Europe and a big explosion of growth in Asia, then you’re going to see a slowdown for European GPs and a pickup for Asian GP. So I think part of that is simply based on sort of economics and what’s happening with the economy. And so I think that makes that difficult to predict. From our perspective, however, we’ve got deep domain expertise across all of those categories and all of those channels. So if you tell us that – I mean, right now, our credit team who is a depth of doing both performing and nonperforming credit. If we go into a nonperforming credit world, that resource group just starts to toggle and spend their time elsewhere. Similarly, on the equity side or the geographic side, if this is for us of why you spend the time and the resources making your investment team as big as we have it and why you have investment resources across all of the different underlying areas as we do and why you continue to open up offices and make sure you’ve got resources across those geographic regions because you just do not know what is going to become kind of the sector du jour tomorrow versus five years from now.

Great, thanks Erik.

There are no further questions. Presenters, please continue.

Okay. Again, thanks everyone for the time, a very strong quarter from our perspective. We appreciate the support, and we’ll speak to you soon. Have a nice day.

And with that, this concludes today’s conference call. Thank you for attending. You may now disconnect.