Good morning. My name is Brent, and I will be your conference operator today. At this time, I would like to welcome everyone to the Hamilton Lane Third Fiscal Quarter and Fiscal Year 2023 Earnings Conference Call. [Operator Instructions] At this time, I would like to turn the call over to John Oh, Investor Relations Manager. Mr. Oh, you may begin.

Thank you, Brent. Good morning, and welcome to the Hamilton Lane Q3 fiscal 2023 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 the Hamilton Lane fiscal 2022 10-K and subsequent reports we file with the SEC. We will also be referring to non-GAAP measures that we view as important in assessing the performance of 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. A portion of our presentation will mention an offering of new share classes of our private assets fund that is subject -- that is the subject of a registration statement filed with the Securities and Exchange Commission. The registration statement is not yet effective. We may not sell these securities until the registration statement is effective. This presentation is not an offer to sell or a solicitation of an offer to buy these securities in any jurisdiction where the offer for sale is not permitted. Beginning with the financial highlights, year-to-date, our management and advisory fee revenue grew by 20%, while our fee-related earnings grew by 11% versus the prior year. This translated into year-to-date GAAP EPS of $2.19 based on $78 million of GAAP net income and non-GAAP EPS of $2.38 based on $128 million of adjusted net income. We have also declared a dividend of $0.40 per share this quarter, which keeps us on track with a 14% increase over last fiscal year, equating to the targeted $1.60 per share for fiscal year 2023. With that, I'll now turn the call over to Mario.

Thanks, John, and good morning, everyone. Despite what continues to be a challenging market environment, we have posted another strong quarter of earnings and growth. We are executing well across the entirety of the business, and I remain proud of the effort put forth by the firm. Hamilton Lane continues to grow as evidenced by new office openings, 21 with new offices in Milan, Stockholm and with additional openings to come. Headcount expansion, nearly 600 employees and growing new product launches, our retail debt offering, HL scope as a recent example, and additional strategic investments and partnerships with leading technology platforms. Most recently, figure securitized [indiscernible] be net to assume that 2022 was a muted year for private market activity given the macro picture that overshadowed the year. The reality at Hamilton Lane is that we're as busy as we've ever been, particularly on the transaction side. Deal flow remained robust across the platform with secondary's direct equity and direct credit experiencing record years. We see this as a reflection of our scale, global presence and market reputation as a partner of choice. Taking a closer look at the data, the number of new primary funds coming into market in 2022 was down versus 2021. However, 2021 was a true outlier on fund volume. 2022 relative to 2020 was basically flat. Much of the decrease in 2022 was led by venturing growth equity strategies. Since 2015 and on a rolling three-year time frame, the capital collectively raised in buyout venture and growth has grown by nearly 13% on a compounded basis versus credit of less than 5% and real assets essentially down slightly. Buyout continues to represent the deepest segment of private markets with the capital raise in that strategy at least 3x larger than any other segment in private…

Thank you, Mario, and good morning, everyone. I'll start with some results for the quarter. Our total asset footprint, which we define as the sum of our AUM, assets under management, and AUA, assets under advisement, stood at approximately $832 billion and represents a 2% decrease to our footprint year-over-year. AUM growth year-over-year, which was over $9 billion or 10%, came from both our specialized funds and customized separate accounts. AUA was down $29 billion or 4% year-over-year. As a reminder, AUA can fluctuate for a variety of reasons, but the revenue associated with AUA does not necessarily move in lockstep with those changes. This was true for this period, whereby despite a reduction in AUA, revenue actually increased. Moving on to our fee earning AUM. At quarter end, total fee earning AUM stood at $54.9 billion and grew $8.8 billion or 19% relative to the prior year, stemming from positive fund flows across both our specialized funds and our customized separate accounts. Taken separately, $4.7 billion of net earning AUM came from our customized separate accounts and over the same time period, $4.1 billion came from our specialized funds. Our blended fee rate across both customized separate account and specialized funds has recently been increasing over the past few quarters. 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. Moving to customized separate accounts flows. The earning AUM from our customized separate accounts stood at $33.1 billion, growing 17% over the past 12 months. We continue to see growth coming across type, size and geographic location of the clients. Over the last 12 months, more than 80% of the gross inflows into customized separate accounts came from our existing client base, which continues to…

Thank you, Erik, and good morning, everyone. Year-to-date, we achieved strong growth in our business with management and advisory fees up 20% for the prior year period. Our specialized funds revenue increased by $36.2 million or 34% compared to the prior year. This was driven primarily by a $1.1 billion increase in fee earnings AUM in our Evergreen platform, over $1.6 billion raised through December at Secondary Fund and over $2 billion raise in total from limited partners [indiscernible] equity fund. [indiscernible] fees for the year were approximately $2.4 million, primarily from our direct equity fund versus minimal amount in the prior year period. As a reminder, investors that come into later closes during the fund raise, a retroactive fee of getting that funds [indiscernible]. We expect to generate additional revenue fees as we hold subsequent closes for Secondary Fund VI. Moving on to customized separate accounts. Revenue increased $11.9 million or 16% over the prior year period due to [indiscernible] from existing clients, the addition of several accounts and continued investment activity. Revenue from our advisory reporting and other offerings decreased $1.5 million compared to the prior year period due primarily due to a decrease in revenue from our distribution management business, partially offset by increases in fund reimbursement and reporting revenue. The final component of our revenue is incentive fees. Incentive fees year-to-date totaled $139.8 million. As we have detailed on prior calls, the increase in total incentive fees year-to-date coming the cash-option that a number for [indiscernible] in during the fiscal year. We view these results as refining and not indicative of the normalized [indiscernible] relative to our revenue. Let me now turn to some additional detail on our unrealized balance. The balance was down 11% from the prior year period, largely due to market valuations and…

[Operator Instructions] Your first question comes from the line of Michael Cyprys with Morgan Stanley.

I was hoping you could maybe comment a little bit on the fundraising backdrop. I think you were alluding to some broader challenges in the marketplace that we saw last year. But just given the turn of the calendar year here now about 6 weeks in to '23, just curious if you're seeing any sort of pickup for across the industry? Or do you think that may be more of a second half event for '23? And maybe you could also just comment around the different asset classes and channels as well just in terms of where you're seeing some relative strength versus softness.

Sure. Michael, it's Mario. I would say that fundraising environment, as we said, continues to be challenging, but it's probably a little better than what you saw at the end of last year simply because, as you know, a lot of investors have calendar year allocation. So as the new calendar year start, they had a pickup in allocations and then begin investing more. But I also have to say that the public markets have been better, so the denominator effect that everyone talks about has either stabilized, or as I said, gotten a little better. And I think the other thing, as we've commented on before, what you are seeing and continue to see is that investors are not moving away from the private markets generally. You see almost no investors reducing allocation. You see many increasing. So I'm talking about increasing the ranges going forward. So while a challenging environment, I would say, a little better than late last year and continues to be positive for the private markets. n terms of specific areas, you've seen this in the press, there's still a great deal of interest in all of the different sub asset classes, whether it's credit or buyouts. I think venture continues to be a little challenging in terms of people not quite knowing where they want to be in that space right now and how marks are going to work in future fundraising environment. And then in terms of channels, I don't see any huge change in what's happened over the last couple of years. The institutional channels still want to do private markets, and we continue, as I said before, to maintain or increase allocations there. And even in the retail space, people continue to want to explore ways to get increased access to the private. The flows have slowed a little bit as you've seen with everyone in the retail space, but they're not leaving. They still continue to figure out how they want the allocation and what types of exposures that they want.

Great. And just as a follow-up question. I think you mentioned 20% contribution to SMA capital coming from new customers. So I was hoping you could talk a little bit about the environment for new customers. What's the sort of profile of customers that you're finding out there? Any sort of color from geography or channel? And are these folks that are newer to the industry or do they have different providers in the past and they're switching? And if you could just remind us of the re-up rates on the existing customer set.

Sure, Mike. It's Erik. I'll take that. I think the 80-20 ratio has been remarkably consistent for the past several years, which, as I noted, I think speaks to the power of the platform. The fact that our installed base is as big as it is to find 20% net new flows from new entities, I think, just continues to be a testament to both the platform and the team. I think the other nice theme here is, it's really diversified. It's not a central theme or a central idea. So we're getting growth across geographies. It's one of the reasons why we're continuing to open up new offices. We're getting it across different types of entities. So there's nothing I would point out there as being particularly noteworthy. Yes, certainly, some of that 20% is coming from people that are new to the asset class, and about 20% is coming from people switching service providers, and some of that 20% is people just getting to a point in the size and scale of their program that they feel like they need outside help and resources, and we're sort of fulfilling that. Re-up breaks across the existing customer base just continues to be very strong. So that has not altered at all despite the market environment.

[Operator Instructions] Your next question is from the line of Ken Worthington with JPMorgan.

So I'll go yin and yang here. So on the 80% of the SMA contributions from your existing clients, I would love to dig a bit more into that customer base. So maybe how are you approaching growth of the 80%? And what are you seeing in terms of re-ups into existing products versus, say, the extension of investments into new SMAs and other products by this customer base? And ultimately, how much more money are these customers giving you over time with kind of each re-up and as they extend into other products?

Sure, Ken. Thanks. It's Erik. I think a good way to think about this is that there's a couple of different growth channels there. So customer -- and as we've noted before, most people are beginning their separate account relationship small. No one is coming out of the gate and saying, I want to have 10% of my total asset base in a separate account or in this private market environment and then giving all of us that capital at once. So they're beginning to think about this as tranching. So they start off with an initial tranche and then they grow that tranche over time. So that growth is multifaceted. Growth path number one is that the tranche goes from being $1 to $2 because they're continuing to lean into the asset class or continuing to move towards their target rate. Their overall plan asset base could be growing. So that would be the simplest explanation, which is one becomes two. Another growth channel is that separate account a for that customer is focused on the buyout market, and then they decide that they want to add another separate account that's focused on the credit market. So that would be one becomes two by expanding the number of separate account relationships that, that customer has with us. Path number three is that they start off with a separate account and they're doing all of the non-transactional components of the business in that separate account, and then they decide to begin to add transactional exposure. And they do that by moving dollars into our specialized fund business. So there's lots of different ways that, that client, that relationship can expand, and we're experiencing all of those.

So conceptually, it makes perfect sense. The explanation is very helpful. Any numbers you can put around it to help flesh out how each of those different, I guess, approaches are actually growing the business?

We -- I mean they're all contributing to that. And I think what you see is that it varies by client, and it's not so much a type issue, it's a where are they from a maturity standpoint. So for that customer that is in the first, say, two or three years of their private market program, you're seeing a lot more of their growth coming from that separate account just growing because they're so under allocated to the asset class. But for them, they need to keep pushing more money because they're trying to reach a target. For the client who's at allocation and is looking to maintain, obviously, they have exits coming in realization. So they have to have some level of re-up just to maintain. But for them, they're becoming more opportunistic around how they're sort of thinking about dollars in this environment. So they might decide that today, secondaries look way more attractive to them relative to other opportunities. And so for them, you might be seeing growth because they're deciding to lean into a transactional environment that they have not done before. So I would say, it's really where are they in the maturity, what's happening in the environment, but all of those levers are continuing to get pulled today.

Your next question is from the line of Chris Kotowski With Oppenheimer.

Yes. I wonder, Atul, you were going a little fast there at the end on the investment write-down, and can you go through that again? It was -- what you wrote down and what you wrote up and then the net impact on your operating ANI somewhere around $0.40, if I have that right?

Chris, let me take that. Yes. So the net write-down for the quarter is about $28 million that was saving [indiscernible] net operating line, and that includes 2 things or a couple of -- few things. So one is things that a write-down we mentioned, unrealized loss taken on the strategic relationship here at [indiscernible], that's one. But that's partially offset by some of the gains we have on some of our strategic technology investments. And so the net of that, it's the number that you will see going through a P&L on the net operating income line -- nonoperating [indiscernible].

So that's the $27.96 million or something like that, that I saw in the P&L.

Correct.

And that's basically the primary noise in this quarter's P&L?

That's correct.

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

I was just hoping you might be able to expand a bit on your outlook for expenses and FRE margin. I think in the past you've mentioned, you probably would expect limited margin expansion. Near term, so maybe you could just talk about some of the key areas that you're investing into. And I think you also mentioned that you're going to be looking to open some other offices around the world. So just curious if you can elaborate a little bit on that strategy? And any help to help quantify what sort of impact you're seeing on the business side from these office openings?

Yes. Mike, it's Erik. I'll take that. So I think what you've seen is, we had -- the margins have really normalized kind of post that sort of COVID bump that we and others were experiencing. So you're back in a much more normal operating environment, travel, events. Compensation, I think, is remaining remarkably consistent. That ratio between kind of comp management fee has stayed very steady. Also if you look at comp, I mean management is doing a really good job here of -- despite, again, a challenging hiring market that you've heard from lots of other people of maintaining a good comp ratio. Comp is essentially moving directly in line with headcount, which is moving very much in line with overall revenue to the business. So I think all of that is sort of showing you good expense discipline, good continued investment in the business. I don't think you're hearing us or anyone say that in today's environment that you'd expect to see big margin expansion. Things are expensive, whether that's buying a plane ticket, hosting an event, having a meal, everything is expensive. And so I think the fact that we're maintaining margins where they are is again, a real focus on doing just that. On the office openings, this has been just part of our geographic expansion plan, and we want to be close to customers. We want to be close to prospects. We want to be close to transactions. And so today, that footprint continues to be well developed. We see there's more regions and more parts of the globe where we see interesting opportunities. We want to be there on the ground. I think we're very, very mindful of office openings coming with business. So I think when you look at our history, we have locked the [indiscernible] office openings over the years and that hasn't resulted in us sort of saying to you, well, we had to invest in that, and therefore, that was a big set back. Usually, we find that we're in that region prior to actually opening up the office, getting business in order to justify that physical presence there, and so I would expect that to continue in the future.

There are no further questions at this time. I will now turn the call back to Mr. Erik Hirsch.

Great. Well, again, thank you for the time. Thank you for the interest, and everyone, be well.

Ladies and gentlemen, thank you for participating. This concludes today's conference call. You may now disconnect.