Good morning, ladies and gentlemen, and welcome to the Hamilton Lane Fiscal Fourth Quarter and Full Year 2025 Earnings Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] This call is being recorded on Thursday, May 29, 2025. I would now like to turn the conference over to John Oh, Head of Shareholder Relations. Please go ahead.

Thank you, Joanna. Good morning, and welcome to the Hamilton Lane Q4 and Fiscal Year End 2025 Earnings Call. Today, I will be joined by Erik Hirsch, Co-Chief Executive Officer; and Jeffrey Armbrister, Chief Financial Officer. Earlier this morning, we issued a press release and a 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, including our upcoming Form 10-K for fiscal 2025. 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 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-K 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 begin with the highlights, and I'll start with our total asset footprint. At fiscal year-end 2025, our total asset footprint stood at $958 billion and represents a 4% increase…

Thank you, John, and good morning, everyone. Well, we can agree on this. I'll say it certainly isn't boring out there right now. And while I will share plenty of data and results shortly, let me just say that our management team is dealing well with the market volatility and uncertainty, and in a number of cases, are actually capitalizing on opportunities being created because of it. Our results for the quarter are strong, and we remain confident in our ability to continue to deliver those results for you, shareholders and clients. Let me share some data and perspective on the markets. We look back at prior periods of heightened volatility and compare how public equity and private equity fared. We'll use the MSCI World Index given its global composition as that comparison tool. From early 2000 to late 2002, during the dotcom collapse, the MSCI was down close to 50% at its lowest point and took nearly four years to fully recover whereas private equity at its lowest, was down a little over 20%, but valuations recovered within two years of that point. A similar pattern emerged during the global financial crisis, where the MSCI was down nearly 50% versus 25% for private equity, but valuations recovered within two years for private equity versus four years for the MSCI. Our early assessment is that we will see a similar pattern here again. We believe private equity will fall far less, will be much less volatile and will recover faster from any downturn. When we look broadly at the investment environment, overall exit activity remains relatively muted while deal doing continues in a variety of sectors. 2024 deal activity witnessed a bit of a recovery from 2023 in terms of overall number of PE deals getting done and total dollars…

Thank you, Erik, and good morning, everyone. Before I go into our results, I want to expand on the changes and additions you will have noticed in our reporting for this quarter. These changes impact how we will now recognize incentive fees related to certain Evergreen funds as well as how we will now be reporting fee-related earnings going forward. Let me start with the change to incentive fees. During the quarter, with approval from shareholders of our U.S. private assets fund, we restructured the fund vehicle. This resulted in three changes. The first is a move to a high watermark methodology of performance fees, where we will be able to crystallize performance fees on a quarterly basis based on continued positive performance. The second includes on a go-forward basis, reductions in our annual management fee rate from 1.5% to 1.4% and our incentive fee rate from 12.5% to 10%. And finally, the third was the removal of the preferred return. Prior to the change, these funds would otherwise realize performance fees on a deal-by-deal basis meaning we would earn performance fees once individual deals or assets were realized, assuming they generated a positive return and satisfied all deal or asset-specific waterfalls. After we received official approval from the shareholder vote, we were then able to recognize and receive $58 million of fee-related performance revenues based on performance from inception of the fund to March 2025. Going forward, these fees will now be called fee-related performance revenues or FRPR and are included in our incentive fees. We will also be including FRPR as part of our fee-related earnings metric. The Evergreen products that will now be contributing to FRPR are U.S. Private Assets fund, U.S. Secondaries Fund, U.S. Venture and Growth Fund and LTIP. Our non-U.S. Global Private Assets Fund…

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session [Operator Instructions] The first question comes from Ken Worthington at JPMorgan. Please go ahead.

Hi. Good morning. Thanks for taking the questions. So much to ask here. Okay. Maybe starting with the margin outlook. So in the past, you've highlighted the margin outlook as being stable. As we think about the reporting changes that you're making in terms of FRPR and stock-based comp, how does the margin outlook under the new reporting regime, look relative to history? Is it still stable? Or do you see changes based on the reporting changes that you've made?

Thanks, Ken. It's Erik. So the obvious change is what Jeff highlighted, which is obviously the margin compared to the prior margin is up because we've moved things below the line. But in terms of the macro, our view on margin hasn't changed. We expect this to stay stable. You can see what's happening here is we're continuing to invest dramatically back into the business to continue to set ourselves up for future growth. So whether that is creating new Evergreen products, expanding the team, opening up offices, all of that continues, and we will expect that to continue. So we continue to sort of look for a stable margin profile in the future.

Okay. Great. So along those same lines, G&A is rising. I believe that we've got distribution fees and G&A. You've launched a ton of new product here. Are the fees to the intermediaries on new products changing versus the fees on the preexisting products like are you seeing demands change by distribution. And I think in the past, you've said that the distribution fees are -- I think it was exclusively upfront fees. Are you seeing demand for more trails or more asset-based fees pop up as you continue to launch new products and as the wealth management and Evergreen businesses continue to mature?

Ken, Erik, I'll stick with that. So where we're seeing the distribution fees is predominantly in the wires. So not all of our funds are being distributed via wires because the wires today are largely U.S.-centric. So the vast majority of our non-U.S. flows are outside of wires and therefore, outside of distribution fee. In the wires, we typically see that as being upfront. We're not seeing changes to that. Some have a very, very tiny tail. But for the vast majority, it is upfront fee, essentially taking a good portion of our first year management fee. So no real change to that.

Okay. Great. Thank you.

Thank you. The next question comes from Alex Blostein at Goldman Sachs. Please go ahead.

Thanks. Good morning. Just maybe piggybacking on Ken's question around margins, and I just would like to put some numbers around this as well. But I guess if we pull out the benefit to FRE from the pull forward in fee-related performance revenues, which I think added give or take, $40 million to the reported FRE number. The FRE margin looks to be about 40% for you guys for this quarter, for the March quarter. I guess, a, does that seem reasonable? Anything that suppress the margins in the first quarter because that feels a little bit below versus what you guys were reporting in the past. And also, as you look forward under the new methodology, what are your expectations for FRE margin?

Alex, this is Jeff. When we look back and retrace the margin for -- that we just announced versus in the past methodology, we get to about the same place in terms of about 43%. And I think what may be occurring as you're looking at it is that you're signing too much margin for the FRPR that has been put in place for this quarter. So the way that we're looking at it is that if you look at compensation less the stock-based compensation that we previously had above the line, that comp ratio should be 30% as it relates to the management advisory fee revenue and the new FRPR revenue. And so, when you back into that way, going forward, we expect that margin for FRE as we highlighted with Ken just earlier to be in the high 40%.

And Alex, it's Erik. And as we said before, I think management spends not so much time thinking about individual quarters, and we're much more managing the business on an annualized basis. So we're always going to see a little bit of seasonality. We're going to see variance in bonus accrual. So quarter-to-quarter, we're going to see that margin calculation bounce around. But I think for us, we've been -- we remain clear and steadfast on sort of the annual perspective on that.

Got it. All right. That's helpful. All right. On to the kind of business side of things, you alluded to the fact that kind of the inventory of future management fees within separate accounts, I think, is growing. The fee-paying AUM within separate accounts has been fairly range bound for three, four quarters at this point. So maybe help contextualize what gets this business to grow again in any way to size the sort of fee paying AUM that will come into the run rate upon deployment would be helpful. Thanks.

Sure. Alex. Erik, I'll stick with that. I think the separate account business for us has been the most impacted by the macro market. Investors today just don't have as much incentive to sort of get going and unlike peers, we are still maintaining largely a committed capital model. A lot of it coming with performance fee and so what we're seeing today is that investors are just kind of waiting to sort of figure out where the markets are going, dealing with volatility. They also have a lot of exposure again, a slow exit environment is not -- is causing capital to not be returned to them, thus feeling some pressure to want to redeploy. So we're sort of dealing with a couple of headwinds there that we sort of see beginning to lessen up as the market starts to head to, hopefully, a more normalized pattern. So I think when you combine sort of that with the pipeline, with the amount of capital that's sitting that I said is contracted, but hasn't flown in -- flowed in, we feel good about what the sort of the next cycle looks like for us. And you can also see very clearly that when we've had sort of an extra minute of time as a management team, we have been disproportionately allocating that to the growth of the Evergreen products. We feel like that right now is a bit of a race. We already have a leading position in the separate account world. We need to make sure that we're not losing and making sure that we're running really fast to get these products to market and continuing to establish ourselves. So part of this is also a resource allocation choice that we are making. And we think long term, that's a good resource allocation choice to be making.

Yep. Understood. Great. Thank you, guys.

Thank you. The next question comes from Mike Brown at Wells Fargo. Please go ahead.

Hi. Great. Thanks for taking my questions. So Erik, the wealth flows were tremendously strong in March, as you called out and in April as well. But I guess for April, those inflows would have generally been before Liberation Day. So what's your read on the May gross inflows and outflows? And what's your view on if there is kind of step back, where kind of the net flows will go from here? Thank you.

Yes. Thanks, Mike, Erik. So May looks very strong. We've got a lot of visibility at this point since we're basically at the end of the month. We're not seeing a change in redemption. We're not seeing kind of post sort of tariff impacts change in investor appetite. And as I said in my comments, if anything, it's allowing advisers to sit with customers, to say to them, hey, maybe we should think about reducing public equity exposure and reducing some of this volatility and making the move to the private market. So again, we're certainly not cheering for any economic issues for the country or for anywhere else around the globe. But some of this chaos, volatility, et cetera, is -- does create a fear mechanism, and it does create a chance for a conversation with advisers who are looking to move clients away from that 60-40 portfolio which I think has now been kind of definitively shown to not be the best solution. We're seeing huge correlation between equities and bonds returns in ways we haven't seen historically. All of that pushing people more into the private markets to achieve some real diversity.

Great. Thanks for that. In your prepared remarks, you had some great color on the institutional interest in the Evergreen funds. It was helpful to hear about the really broad-based growing interest there, so thanks for that color. What inning would you say that trend could be in if you have a view on that? And then when I think about some of the institutional flows, sometimes if that starts to come with bigger dollars, there's typically a bit of pressure on the fee rates. Is that something that could ultimately manifest in your funds? Do you think over time? Or the reality is that these are Evergreen funds, everyone pays the same fee rate. So that's kind of an unlikely dynamic to play out.

Mike, Erik, again. So in terms of what inning are we in, I would say that the tail end of the National Anthem note is still sort of resonating in the stadium. So we're really early. What that looks like in terms of fee compression, totally to be determined. We're just not seeing any of that today. And again, depending on how the institution is looking at this, if they're using this as an alternative to a traditional two and 20 fund, this is already substantially cheaper than that. So I think this is a question of a lot of education that needs to happen. Again, I think a lot of people have sort of just viewed this of, oh, this is for individual investors, showing them exactly what I covered in the script of the performance benefits, frankly, some of the cost benefits because not dealing with capital calls and distributions and having to maintain resources around that, also aside from less headache is a cost benefit to the client. So all of this is just beginning to happen. Most institutions have been aware of these products for only a couple of years in institutional world, that's a mere blip in the market. And so I think what we're seeing is as people get smarter, see the products as there's more products for them to look at, they're all just beginning to rethink portfolio construction. We see this as a real positive. We see this as a trend. We see this as something that will frankly also help encourage the individual investor because they're going to see very large sophisticated institutional investors directly alongside of them in the exact same product. So we think all that's good.

Great. Thank you, Erik.

Thank you. [Operator Instructions] Next question comes from Michael Cyprys of Morgan Stanley. Please go ahead.

Great. Thank you. Erik, you mentioned in your prepared remarks or alluded to that you were taking some steps or thinking about capitalizing on the opportunity here from market volatility. I was hoping maybe you could elaborate a bit on that. And then just how do you think about and frame this period of volatility versus prior, particularly as we think about implications across the private markets for elongated hold periods, perhaps reminiscent of the 2006 vintages that took many, many years to ultimately exit.

Thanks, Mike. So I'll start with what are we doing and what are we capitalizing on. I would put it into a few buckets. One deal flow, I mentioned that specifically. I just think we're continuing to position ourselves as a partner of choice. And so whether that's helping to create liquidity mechanisms via secondaries, whether helping to co-lead a deal in a co-investment environment, whether that's to provide lending dollars to people who are trying to finance a transaction. So as I said, deal flow up and deal flow up across the sub-asset classes. So that's sort of bucket one. Bucket two is talent. I think in times like this, not all of our competitors are doing great. And so if you look at sort of inbound resumes a chance for us to continue to bring in new terrific individual talent. We're continuing to hire and that is also a real chance, I think, to capitalize in this market environment. And then the third thing I would sort of point to is continuing to lean in hard on the technology side. 73 Strings is the most recent example. And if you look again along the caliber of the firms that we're kind of going into that deal alongside of these are real. We are all kind of market leaders trying to go solve real industry problems in middle office as we're all scaling is a good example of that. The fact that we have the capital and resources and the relationships and the strategic perspective to do those things, we see as all very positive. So lots of chances for us to take advantage of what's happening in the market, and we're doing that across the board. I think the hold period is a problem. I mean, I said…

Great. And then just a follow-up question, maybe just digging in a little bit on the institutional interest in Evergreen funds, I heard you mention that it has outperformed the Evergreen versus the drawdown over the past five years. But maybe you could just comment on the magnitude of that outperformance? And then I get the compounding benefits that you mentioned, but how do you think about the drawback of needing to fully deploy the capital pretty quickly in Evergreen funds after it has been received versus the appeal of drawdown when you have the ability to lean into opportunities over a multiyear investment horizon where you could be opportunistic around timing one's entry. How are institutional investors viewing that sort of push pull dynamic? And what's the sort of expectation around ultimately where we get to in terms of institutions shifting over to the Evergreen product?

So I think it's going to continue to be a mix, Mike. I think right now, what we see is institutions that are adopting it are doing it in one of two ways. They're either very, very small, as I said in my comments, they would otherwise be by utilizing a fund of funds, which has largely become kind of a thing of the past because very expensive double layer of fee, very slow to deploy a big fund of funds. And so for them, the evergreen is just much more appealing, way more cost efficient, and they're okay with the capital being fully deployed. They're willing to make that trade-off. For larger institutions, they're certainly not shifting away exclusively from drawdown funds. They're using these as tools. So maybe they want their credit exposure now. And so they're using an Evergreen fund for credit, but they're keeping their equity exposure and drawdown funds because they want that vintage year diversification. So as I said to the prior question, I think we're so early in this. We wanted to highlight it because 15% of the capital is not insignificant and 150 institutions is not insignificant. And so we're starting to see data here and starting to get feedback, but I think it's worth calling out, so we did. But I think we're still very early as to where this is all going. I think we just remain encouraged by the fact that people are willing to take a more nuanced look at the product offerings that are in front of them and trying to select what is the right tool for the problem they are solving for their portfolio and the fact that there are more tools available today is nothing but a positive thing.

Great. Thanks so much.

Thank you. We have no further questions. I will turn the call back over to Erik Hirsch for closing comments.

With that, I'll simply say thank you. Thank you for the time. Thank you for the support. Thank you for the questions and wishing everyone a wonderful and safe day. Thank you.

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