Good morning, ladies and gentlemen, and welcome to the Hamilton Lane Fiscal Second Quarter Earnings Conference Call. [Operator Instructions] This call is being recorded on Wednesday, November 6, 2024. I would now like to turn the conference over to Mr. John Oh, Head of Shareholders. Please go ahead.

Thank you, Nicole. Good morning, and welcome to the Hamilton Lane Q2 Fiscal 2025 Earnings Call. Today, I will be joined by Erik Hirsch, Co-Chief Executive Officer; and Jeff Armbrister, Chief Financial Officer. Earlier this morning, we issued a press release and slide presentation, which are available on our website. Before we discuss the quarter's results, we want to remind you that we will be making forward-looking statements. Forward-looking statements discuss our current expectations and projections relating to our financial position, results of operations, plans, objectives, future performance 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. For a discussion of these risks, please review the cautionary statements and risk factors included in the Hamilton Lane fiscal 2024 10-K and subsequent reports we file with the SEC. These forward-looking statements are made only as of today, and except as required, we undertake no obligation to update or revise any of them. We will be also 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 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 GAAP EPS of $2.85 based on $114 million of GAAP net income and non-GAAP EPS of $2.58 based on $140 million of adjusted net income. We have also declared a dividend of $0.49 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 now turn the call over to 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. On September 23, HLNE was officially added to the S&P MidCap 400 Index. Throughout our 33-year history, we've 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. 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. 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 at quarter end and grew $12 billion or 10% 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. Turning now to fee earning AUM. The story here continues to be the same. Strong total growth, largely driven by our specialized fund platform, where we are adding new product lines and expanding existing ones. Our total fee-earning AUM stood at approximately $70 billion and grew $8.3 billion or 14% relative to the prior year period. Now taken separately, $3.1 billion of net fee-earning AUM came from our customized separate accounts, and over the same period, $5.2 billion came from our specialized funds. As…

Thank you, Erik, and good morning, everyone. Year-to-date for fiscal 2025, we've achieved strong growth in our business with management and advisory fees up 21% versus the prior year period. Our specialized funds revenue increased by $40 million or 33% compared to the prior year period. This was driven primarily by a $3.6 billion increase to fee-earning AUM in our Evergreen platform and $2.5 billion raised in our latest secondary fund over the last 12 months. 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. As a reminder, investors that come into later closes during a fundraise pay retroactive fees dating back to the fund's first close. For the remainder of fiscal year 2025, our current direct equity funded market will be the primary driver of quarterly retro fees now that our secondary fund has finished fundraising. Our latest secondary fund represented our largest institutional fundraise and thus generated the largest amount of retro fees in 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. Moving on to customized separate accounts. Revenue increased $4.5 million or 7% compared to the prior year period due to the addition of new accounts, re-ups from existing clients and continued investment activity. Revenue from our reporting, monitoring, data and analytics offerings increased by $2.3 million compared to the prior year period. 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. Let's now turn to our unrealized carry balance.…

[Operator Instructions] Our first question will be coming from Ken Worthington from JPMorgan.

There's a number of brokers that are looking to offer alternative products to their clients for the first time. 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 brought on, say, over the last 12 months or so?

Ken, thanks for the question. It's Erik. I'll take that. 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 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. And so I think what we're really beginning to see here is a change where you'll begin to see individual investors begin to have portfolios that more likely mirror institutional investors. 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. And so I think when you look at the amount of wealth held in individuals hands globally, 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, [indiscernible] 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.

Maybe as a 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? Or is what Hamilton Lane is being asked of essentially the same? Like are you being asked to do more on the client servicing and client management in the future versus what you've done in the past?

So, it's Erik. The answer is no. I think what people are looking for is consistent regardless of the platforms 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. 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, 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.

Our next question will be coming from Alex Blostein from Goldman Sachs.

You guys have had lots of success on the specialized funds over the last couple of quarters with the secondary business obviously coming in strongly last quarter, but maybe help us with kind of anything on the comp as you look at the lineup of specialist funds outside of the kind of Evergreen retail-oriented vehicles, call it, over the next 12 to 18 months in terms of what's coming up?

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. Impact growing nicely. Again, that was a business where when we sort of did our first one, and it was sub-$100 million, I think there were some questions of 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. And so 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, and we just have a lot of work ahead of us to make sure we do these all successfully.

I got you. 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?

Yes. We're looking at -- this is Jeff. We're looking at $30 million per year, and the awards are structured as a 5-year award. So that's the time horizon that we're thinking about.

Next is from Michael Cyprys from Morgan Stanley.

Maybe just given the change in administration here in D.C. and then the election here. Just curious if 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, 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. 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 401(k) vehicle. So I think to your question, what we're really talking about is whether we see the 401(k) market opening up. 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. 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, 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 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.

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, we hear oftentimes color from about record keeper system, 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?

Yes. I think, one, I'm not sure that will be a driver of any of the change. But if you think about how 401(k)s 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. 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's 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 into an environment where people are accustomed to having all liquid, all marked and all market-driven valuations. 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 and 401(k)s for the last couple of decades, and the answer has continued to remain no.

Next in line will be coming from Mike Brown from Wells Fargo Securities.

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 maybe just a follow-on there. How -- are 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?

Yes, Mike, Erik, thanks for the question. 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 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 proportion of assets in the private market gets bigger, your desire to analyze it and have it benchmarked and look at risk factors and think about cash flow forecasting, 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 and do benchmarking, comp comparisons, cash flow forecasting, public market equivalent calculations, et cetera. And so Northern is essentially 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 in Northern, you have an incredibly blue-chip organization that ran in a very rigorous process looking at what private market systems were out there. Obviously, there are choices to be made. And they made the choice in selecting us. We're very proud of that. We're excited about this from a brand enhancement standpoint as well as, obviously, some revenue generation. 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. And to your second point, yes, we see this as a chance to have other partnerships across the market because we believe that in Cobalt, we have built the market-leading private market analytics software system, and I think the market is recognizing that.

Okay. Great. As a follow-up question on the specialized fund side. Obviously, growth has been very impressive there. 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 there out there? And as we think about that go forward, is this quarter the right jumping off point?

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, and so again, just depending on retro closing timings and what is just happening there, you're going to see that bounce quarter-to-quarter. 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, 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 actual pattern is.

[Operator Instructions] Our last question will be coming from [Evan Hall] from KBW.

Maybe just a 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. Maybe a part of that, are you seeing more competition with products that are maybe more diversified across different asset classes. I know you -- 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?

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, whether we are getting clients in multiple Hamilton Lane products, which we are, 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. 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 industry, across size of business, across manager. And so that has been a nice anchor tool. And then it allows the financial adviser and customer to decide whether they want to 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'm sure there's going to be increased competition, but 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.

Nicole, are there any more questions?

There are no further questions at this time. I'd now like to turn the call over to Mr. Erik Hirsch, co-CEO, for final closing comments.

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.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.