HLNE - NASDAQ

Good morning, ladies and gentlemen, and welcome to the Hamilton Lane Fiscal Second Quarter 2026 Earnings Conference Call. [Operator Instructions] This call is being recorded on Tuesday, November 4, 2025. I would now like to turn the conference over to John Oh, Head of Shareholder Relations. Please go ahead.

Thank you, Danny. Good morning, and welcome to the Hamilton Lane Q2 Fiscal 2026 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 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 2025 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 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 full financial statements 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 begin with the highlights, and I'll start with our total asset footprint. At quarter end, our total asset footprint stood at just over $1 trillion and represents a 6% increase to our footprint year-over-year. While this number can and will swing quarter-to-quarter due to our AUA, it is worth noting that this is the first time the firm has crossed over the $1 trillion mark. AUM stood at $145 billion and grew $14 billion or 11% compared to the prior year period. The growth came from both our specialized funds and customized separate accounts. AUA came in at $860 billion and grew $44 billion or 5% relative to the prior year period. This stemmed primarily from market value growth and the addition of a variety of technology solutions and back-office mandates. Total management and advisory fees for the year-to-date period were up 6% year-over-year. This year-over-year change includes the impact of $20.7 million of retro fees in the prior year period versus $800,000 in the current year period. Total fee-related revenue for the period, which is the sum of management fees and fee-related performance revenue was $321.6 million and represents 23% growth year-over-year. Fee-related earnings were $160.7 million year-to-date and represent 34% growth year-over-year. We generated fiscal year-to-date GAAP EPS of $2.98 based on $124.6 million of GAAP net income and non-GAAP EPS of $2.86 based on $155.7 million of adjusted net income. We have also declared a dividend of $0.54 per share this quarter, which keeps us on track for the 10% increase over last fiscal year, equating to the targeted $2.16 per share for fiscal year 2026. With that, I'll now turn the call over to Erik.

Thank you, John, and good morning, everyone. We have had another very strong quarter. Our job is difficult but not complicated. Take care of the customer, build thoughtfully constructed portfolios, deliver strong risk-adjusted returns. We did all of those things this quarter, and the reward for that is being entrusted with more clients and more capital. Let me start here by recognizing the hard work and dedication of the entire team at Hamilton Lane. Our unrelenting focus on delivering for our clients has continued to fuel our growth and success. As I said before, we're building Hamilton Lane for the long term. Every decision we make is about positioning ourselves for sustainable growth and success well into the future. This quarter was another great example of that approach. We extended our product offerings, including the launch of additional Evergreen products. And just yesterday, we announced a significant new strategic partnership. Let me dive into some initial details on that now. Guardian Life Insurance Company of America has partnered with Hamilton Lane to be their core strategic partner within the private equity markets. Guardian is one of the nation's largest life insurers and a leading provider of employee benefits. With this partnership, Hamilton Lane will take on the management of Guardian's current and future private equity portfolio. Hamilton Lane will oversee Guardian's existing private equity portfolio of nearly $5 billion, and Guardian will also commit to invest approximately $500 million per year for the next 10 years with Hamilton Lane. This commitment maintains Guardian's typical annual contribution to the asset class and supports its general account target allocation goals. This capital will be managed by Hamilton Lane through a separately managed account and like most of our current SMAs, will include meaningful capital into our various investment funds. Part of the earlier capital deployment will be $250 million being used as seed and investment capital to help further expand and accelerate our growing global Evergreen platform. To support the partnership's shared goals of accelerating growth and driving value creation, Guardian will receive HLNE equity warrants and additional financial incentives. We will also partner with Guardian's registered broker-dealer and registered investment adviser, Park Avenue Securities, and look to deliver investment solutions for their clients and provide strategic support and education on the private equity markets for their 2,400 advisers who collectively cover approximately $58.5 billion of client assets as of December 31, 2024. In addition, the Guardian investment professionals currently supporting the private equity portfolio are expected to join Hamilton Lane after the transaction closes. Overall, we believe this partnership is a testament to our ability to provide customized solutions to the world's leading institutions. In recent years, the convergence of private market asset management and the insurance industry have taken on a variety of partnership forms. This evolving and growing opportunity set has been a focus for us as we have been scaling our insurance solutions platform to over $119 billion. In 2024, we formalized this focus when we announced the forming of a dedicated insurance solutions team. Our aim was straightforward, bring greater intentionality to how we serve insurers, deepen our expertise and relationships and elevate our ability to execute at a strategic level for this sophisticated client set. We believe the partnership with Guardian is a proof statement to these efforts. We are thrilled to have been selected by Guardian with this critical task of delivering for their policyholders with the goal that their private equity portfolio will continue to thrive. Jeff will provide some more specifics on the expected financial impact in his section shortly. Before I turn to our results, I'd like to share my perspective on the current popular narrative, that being that the industry is on some verge of a broader credit crisis. Today, we see no data to support this notion, particularly within the context of private credit. In fact, we are seeing a further reduction of what was already a very low bankruptcy rate. What we do see happening is simple. There have been a tiny number of high-profile bankruptcy filings and the broader public market has extrapolated this to believe a credit crisis is looming. I will note with some irony that some of the parties were warning about the impending doom are some of the exact same parties with losses stemming from these recent bankruptcies, seemingly saying, well, yes, I have a problem, and I'm taking a large charge-off, but I'm likely not alone. I bet others also have problems. Coming back to the data. Credit fundamentals are strong and defaults are low. Today, leverage levels remain prudent around 5x and are down a full turn from 2022. Interest coverage also remains healthy at 2.8x, having moved up 0.5 turn over the past 2 years. Today, the default rate sits at around 1%, below the historical average of 2.5% and well below the levels seen during the global financial crisis, where overall default rates peaked to near 10%. But even that statistic is noteworthy. In the midst of the global financial crisis, total bankruptcies and credit losses grew to 10%, but most of our managers were in the low single digits and still generated positive performance during that period. In fact, private credit as a whole posted positive annual returns each of the years from 2007 through 2010 at approximately 9% to 10% per annum. Top quartile private equity -- private credit managers were doing even better with returns over 12%. Private credit outperformed the S&P Leveraged Loan Index in each of those years. When we peer inside our own direct credit portfolio, we see more of the same, growing top line and cash flows, prudent leverage levels and near 0 losses on investments. This is the power of having actual data on a large segment of the industry and not living and prognosticating via anecdotes. Our database covers nearly 65,000 funds and 165,000 total private companies. We have great insight as to what is happening inside these entities. We have the visibility and we know the reality. This remains one of our strengths to customers, the ability to provide more clarity and transparency in an opaque world. Let me turn now to a few business highlights, and I'll start with fee-earning AUM. Total fee-earning AUM stood at $76.4 billion and grew $6.7 billion or 10% relative to prior year period. Net quarter-over-quarter growth was $2 billion or 3%. Fee-earning AUM growth continues to be largely driven by our specialized fund platform. Specifically, our semi-liquid Evergreen products continue to experience strong momentum. The combination of our fundraising, new product additions and strong performance has driven the growth of total fund net asset value. Our blended fee rate also continues to benefit from the shift of fee-earning AUM towards higher fee rate specialized funds, most notably our Evergreen products. Today, our blended fee rate stands at 65 basis points. This is up 8 basis points or 14% since we went public in 2017. At quarter end, customized separate account fee-earning AUM stood at $40.8 billion and grew $1.4 billion or 4% over the last 12 months. Net quarter-over-quarter growth was $517 million or 1% with the gross contribution stemming from a mix of new client wins, free-up activity from existing clients and contributions for investment activity. This was offset by returns of capital from exit activity and the timing mismatch of existing client legacy tranches rolling off and new tranches yet to come on. That said, we continue to maintain large amounts of committed and contractual dry powder to deploy, along with a strong backlog of business that has been won and is now in the contracting phase. As we've mentioned in the past, the scale and contracting dynamic in our SMA business can lead to some unpredictability as to when these dollars come on, but we simply remain focused on winning new business. And further, these quarter end numbers do not reflect the impact of the Guardian partnership I discussed earlier. Let's move now to Specialized Funds, and I'll spend a few moments and provide some updates on our closed-end fundraises and Evergreen platform. Specialized funds fee-earning AUM ended fiscal Q2 at $35.6 billion, having grown $5.3 billion over the last 12 months. This represents an increase of 17%. Quarter-over-quarter net growth was $1.5 billion or 4%. Specialized fund fee-earning AUM growth continues to be largely driven by our Evergreen platform, both in net inflows and net asset value growth, closes for certain closed-end funds in market and continued robust investment activity for those closed-end funds that derive their management fees on an invested capital basis. On the closed-end side of our lineup, we remain in market with our 6 equity opportunities funds. As a current reminder, this fund focuses on direct equity investments alongside leading general partners and offers 2 fee arrangements that either charge management fees on a committed capital basis and a 10% carry or on a net invested basis with a 12.5% -- prior direct -- the same arrangement and raised $2.1 billion. During the quarter, we held additional closes that totaled $246 million [indiscernible] and brought the total amount raised to nearly $1.6 billion. Of the $246 million [indiscernible] came in on a committed capital basis and $158 million came in on a net invested basis, which brings the total mix of capital raised to nearly 30% on committed and 70% on net invested. We have clear visibility into near-term expected closes that we expect will bring the total capital raise to over $2 billion, and we have a strong line of sight to exceed the prior fund over the coming months. Moving to our second infrastructure fund. We continue to make great progress with the second fund and have nearly doubled what was raised for our first fund. This is a good example of us launching a product, starting small, demonstrating strong performance, gaining trust from investors to support a larger product. As a quick refresher, the strategy for this product centers around direct equity and secondaries in the real assets and infrastructure space, and the fund generates management fees on a net invested basis. During the quarter, we held additional closes that totaled $270 million of LP commitments, which now brings the total raise to over $1.1 billion in and alongside the fund. Again, at this point, we have nearly doubled the size of our first infrastructure fund, which speaks to our ability to execute new product launches and scale them effectively. Capital continues to flow in, and we will look to wrap up fundraising for this fund in the coming months. This fund has also deployed meaningful capital, and we expect to be back in market sometime in late 2026 or early calendar 2027. Before I move on to Evergreen, a quick word on the secondaries front. We have just launched the fundraising effort for our next flagship secondaries fund, and we expect to have a first close in the first half of calendar 2026. We have a demonstrated track record of growing this platform by raising larger successive funds. We believe we are well positioned to continue this trend given the continued secular growth dynamics in the secondary market, underpinned by active portfolio management by both LPs and GPs and our strong investment track record with our current vintage secondaries fund having generated a net multiple of 1.4x and a net IRR of 44.1% for our investors as of June 30, 2025. We look forward to providing you with future updates on that front. Turning now to the Evergreen platform. For the quarter ending September 30, 2025, we took in over $1.6 billion in net inflows across our entire suite of Evergreen products. This was our largest quarter ever. This success came from a combination of 3 things: expanded product offerings, robust fundraising and strong performance. The $1.6 billion figure includes initial subscriptions to our newly launched Global Secondaries, Global Venture and Asia funds, all of which began accepting capital during the third calendar quarter. At quarter end, total Evergreen AUM reached $14.3 billion. At our 2024 Shareholder Day, we laid out a straightforward strategy to drive continued growth in our Evergreen platform, plan focused on expanding our then existing lineup of 3 funds and maintaining conviction in our ability to launch scalable new products. 18 months later, that vision has materialized. Our Evergreen suite has grown from 3 funds to 11 and AUM has nearly doubled to over $14 billion. We've also become more agile in bringing products to market, leveraging our scale to accelerate both launch and growth. While our initial 3 funds each took nearly 2 years to reach $500 million in AUM, our newer global infrastructure and secondary offers have already surpassed or on track to hit that milestone in under 12 months. I will also reiterate, we continue to see strong support from institutional investors for these products. Due to some of the structural advantages of Evergreen funds, we continue to see some migration away from drawdown funds and into this product line. Before I move on from Evergreen, currently, there remains over $1 billion of Evergreen AUM that is not yet earning management fees due to the timing of initial subscriptions and fee holidays that were put in place with the launch of several of our new funds over the last 12 months. And while these funds are not earning management fees yet, we are still eligible to generate performance fees for those funds that have a performance fee element. We expect that over half of that current $1 billion will move into specialized fund fee-earning AUM during the calendar fourth quarter of 2025 and the remainder to move over during calendar 2026 as the fee holidays lap for those respective funds. Now moving on to some technology updates. This quarter saw 3 recent announcements around our strategic technology balance sheet portfolio and our proprietary Hamilton Lane Private Market indices. First up is an exciting partnership regarding our proprietary private market indices and benchmarks. We are proud to announce a partnership with Bloomberg, where users now have access to a suite of Hamilton Lane Private Market indices and benchmarks via the Bloomberg Terminal and Bloomberg data license. While the revenue opportunity is in the early stages will be modest, more importantly, we now have a unique opportunity to reach a wider and increasingly growing private market audience, leveraging Bloomberg's global reach and scale. We see this as a large brand enhancer, particularly with the RIA community. Bloomberg remains a clear leader in financial news, data and analytics. Bloomberg terminals are found in nearly every corner of financial services and investment management. Bloomberg's clients range from the very largest global institutions to individuals and their advisers. The latter has served as a key segment of growth for private markets, and this partnership will now embed Hamilton Lane's brand and our indices into their workflows. They will demand better tools to measure performance across strategies, vintages and geographies. This new partnership will now be able to deliver on those demands and will raise the bar for how private markets are now benchmarked. And it will put the Hamilton Lane name and logo in front of thousands of terminal users around the globe. This marks an important and significant step in making Hamilton Lane benchmarks broadly available to this growing population of private market investors, expanding access to data and driving even greater transparency across the asset class. Let's now move on to news regarding Securitize. On October 28, Securitize announced that it had entered into a definitive business combination agreement with Cantor Equity Partners II, a special purpose acquisition company. On closing of the transaction, which is expected in the first half of 2026, Securitize will become a publicly traded company. As a refresher, Securitize builds trusted regulated technology that turns traditional financial assets into digital tokens to be issued, traded and serviced on chain. Hamilton Lane has cultivated a deep relationship with Securitize, having partnered initially in 2022 to tokenize several of our own offerings and then subsequently participating in a strategic fundraise in May of 2024 that was led by BlackRock. Together, we've shared in the vision of making the private markets more accessible to a broader set of investors. Securitize has established itself as a leader in tokenizing real-world assets, and we are proud to deepen our strategic partnership as they embark on this exciting new chapter. At the proposed pre-money valuation of the business combination, we expect to see a mark of more than 2x our initial investment. This outcome further demonstrates our ability to partner with and successfully invest our balance sheet capital into companies that we believe will transform our asset class for continued growth and scale. Wrapping up this section with an exciting announcement regarding Novata. On October 7, Novata announced a key strategic acquisition of Atlas Metrics, which expands Novata's global reach and unites 2 complementary companies to meet the growing demand from investors and corporates for trusted, efficient and scalable sustainability data solutions. The combined entity will now support more than 400 clients and over 13,000 private companies worldwide, equipping investors, banks and corporates with the tools they need to collect, report and act on sustainability data. As part of this acquisition, Hamilton Lane was proud to invest additional capital in a fundraising round in support of the acquisition and continued strategic initiatives, and we did this alongside of S&P Global, Modiv Ventures and the Ford Foundation. We continue to support efforts that increase both data transparency and analytic capabilities for our asset class and are proud to support Novata in their mission to empower private market sustainability. Novata has achieved tremendous growth since our initial investment in partnership back in 2021. The shared vision and focused execution, we believe Novata can continue to grow and scale, and we are excited for the opportunities ahead. And with that, I'll now pass the call to Jeff to cover the financials.

Thank you, Erik, and good morning, everyone. I'll begin with some commentary on our business during the first half of fiscal 2026, and then I'll provide some additional details on the Guardian Life partnership and the potential impacts for our business. For the first half of fiscal 2026, management and advisory fees were up 6% from the prior year period. However, this includes the impact of $20.7 million of retro fees from specialized funds, namely the final close for our sixth secondary fund in the prior year period versus $800,000 of retro fees in this quarter stemming from our latest direct equity fund. Total fee-related revenue was up 23%, largely driven by fee-related performance revenue recognized in the first half of fiscal 2026 versus a minimal amount during the first half of fiscal 2025. Specialized funds revenue increased by $12 million or 8% compared to the prior year period. Growth in specialized fund revenue was driven by continued growth in our Evergreen platform, which continues to be a key driver of specialized fund fee-earning AUM. Again, the year-over-year growth here was impacted by the retro fee element that I just alluded to. Moving on to customized separate accounts. Revenue increased $2 million or 3% 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 over $3 million or 21% compared to the prior year period as we continue to produce strong growth in our technology solutions offering. Lastly, the final component of our revenue is incentive fees, which totaled $91 million for the period. This amount includes fee-related performance revenues, or FRPR, stemming primarily from the quarterly crystallization of performance fees from our U.S. private assets Evergreen fund with additional contributions coming from our more recently launched evergreen funds. Let's turn now to our unrealized carry balance. The balance is up 14% from the prior year period, even while having recognized $102 million of incentive fees, excluding fee-related performance revenues during the last 12 months. The unrealized carry balance now stands at approximately $1.4 billion. Moving to expenses. Fiscal year-to-date total expenses increased $20 million or 11% compared with the prior year period. Total compensation and benefits increased $13 million or 10% due primarily to an increase in headcount and equity-based compensation. This was offset with lower incentive fee compensation due to a decrease in non-FRPR incentive fee revenue compared to the prior year period. G&A increased by $7 million. We continue to see growth in revenue-related expenses, including the third-party commissions related to our U.S. Evergreen product being offered on wirehouses that we've discussed on prior calls. We will continue to emphasize that while overall G&A expense has increased over time, the bulk of the increase stems from these revenue-related expenses, which is a good thing and can be an indicator of growth to come. We continue to successfully offset this with cost savings and expense discipline in other parts of the business where we have discretion. Let's move now to FRE. And just a quick reminder, FRE will now include the fee-related performance revenues and exclude the impact of equity-based compensation in the calculation of FRE. With that, fiscal year-to-date FRE came in at $161 million and was up 34% relative to the prior year period. FRE margin for the quarter came in at 50% compared to 46% for the prior year period and benefited from strong fee-related performance revenues in the period. Before I wrap up, I want to end with some balance sheet commentary -- before I wrap up and end with some balance sheet commentary, I wanted to take this opportunity to provide some additional detail on the Guardian Life partnership that Erik discussed earlier on. First, I'll reiterate that this partnership is a testament to our capabilities as a trusted private equity solutions provider, and we are excited to work with Guardian. As Erik highlighted, in exchange for the capital that we will be managing on behalf of Guardian, Guardian will receive HLNE equity warrants and additional financial incentives, which will primarily be revenue share arrangements related to their seed capital to advance shared objectives of growth and value creation. The revenue associated with the partnership will come in 2 forms. First, we expect to generate management fees from the capital that will be invested in our Evergreen funds more immediately, and this will get captured in specialized funds. Second, the separate account that we will manage going forward will generally mirror that of a standard institutional separate account by way of portfolio construction and fee schedule and will be captured in separate account management fees. We expect this will scale as the portfolio gets deployed over time. In both cases, we have the ability to generate performance fees commensurate with the associated strategies. As for the warrants, based on our current fully diluted share count as of September 30, 2025, the total dilution expected from the Guardian warrants is less than 1%. The warrant package will be governed by both a vesting schedule that aligns with the term of the partnership and tiered exercise prices that are based off of a reference price that was set by the HLNE 20-day volume-weighted average price as of the closing price on October 31, 2025. Additional information regarding the warrant package will be included in our 10-Q filing. I'll wrap up now with some commentary on our balance sheet. Our largest asset continues to be our investment alongside our clients in our customized separate accounts and specialized funds. Over the long term, we view these investments as an important component of our continued growth, and we expect that we will continue to invest our balance sheet capital alongside our clients. In regard to our liabilities, we continue to be modestly levered and we'll continue to evaluate utilizing our strong balance sheet in support of continued growth for the firm. With that, we will now open up the call for questions.

[Operator Instructions] Your first question comes from Alex Blostein from Goldman Sachs.

On the Guardian announcement. Maybe we could start there. I heard your comments around just the structure of the arrangements, but maybe you could help us with the actual fees that are likely to hit P&L. I heard the geography of different line items. But as you sort of think about the $5 billion that's going to come over, maybe help us with the fee structure there and also with the $500 million a year that's going to get allocated over time. So maybe we can start there.

Thanks, Alex. It's Erik. I think you should expect that the vast majority of the revenue that we're generating is on the $5 billion that will be coming in over the next 10 years because the existing $5 billion is basically a monitoring assignment. That -- those are dollars already in the ground in a variety of partnerships. And so if you look at the $5 billion that will be coming over, we clearly called out the $250 million going into Evergreen. And then the SMA portion, I think, again, hard to predict exactly what the next decade looks like. But that's going to be a mix of primary funds and a bunch of our specialized funds at whatever the prevailing fee rate is for those vehicles.

Your next question comes from Michael Cyprys of Morgan Stanley.

I wanted to ask about the Bloomberg partnership and more broadly partnerships on the data side. I was hoping you could elaborate a bit around that. What's the scope for more broadly enhanced monetization of your data sets as you look out from here as well as indices? And what's the scope for creating investable index products as you think about looking at over time?

Yes. Thanks, Mike. It's Erik. So the Bloomberg arrangement is going to be a revenue share model where that will grow over time as that installed base continues to grow and usage grows. I think we've been very tactical and selective at where we've been partnering. We view our data to be valuable. And so simply just running out and licensing it here, there and everywhere has not been part of our strategy. I think we've been thoughtful about where we see both chances for revenue and as I mentioned in my script, real chance for brand enhancement. And I think for us, this was a big opportunity for brand just given the number of RIAs who are regularly daily, minute by minute using Bloomberg terminals and Bloomberg data. And as we think about that world increasingly needing and wanting more private market benchmarks and information, we're going to be the provider of that. And we think that is a huge brand enhancer for us. I think investable indices, I don't see that as a focus. I know some have spoken of that. I haven't seen traction for that. I think trying to sort of synthetically replicate what happens inside of private market portfolios using publicly listed securities has been tried by many smart people, and generally, they've all failed. And so I don't see that as our focus today. I think it's really around data as an education tool, data as a brand enhancer and data for making better investment in portfolio selections.

Next question comes from Ken Worthington of JPMorgan.

Erik, I wanted to dig a bit further into the SMA business. Can you talk about how the pipeline is developing and at what rate that pipeline is growing? And then if we think about your sales force and the sales effort, to what extent do you have as many resources today sort of allocated to SMAs versus what you've had in the past, given the superior economics you see in Evergreen and the customized funds part of the business?

Thanks, Ken. So none of our sales team are organized by -- around SMAs, in particular, specialized funds. Think of the vast majority of the sales organization organized in geographic territories where they're owning that geography, getting to know all the respective players in that geography and figuring out what problem that customer is struggling with and then how we can be the solutions provider for that. I think what we've been finding is that given the multitude of products that we have in the market, those have been, in many cases, better solutions for a lot of customers. And so that's why you've seen such strong growth coming from that specialized funds. That said, the pipeline and even what you sort of see in kind of one but not contracted is billions of dollars. And so that will all just flow in over time as we get through contracting phase and the pipeline is robust. But from a relative market positioning today, if you think about where we were with SMAs 5 or 10 years ago, we had very few specialized funds. Today, we have a lot more specialized funds, and we're finding that those are able to meet the needs for the customer base, which, as you know, is a good thing for the business model given the superior fee model on those funds.

Okay. Great. And I don't know if I'm allowed to do a follow-up, but I'll take a shot at it. In terms of Guardian, the warrants, you mentioned that the commitments will come over the next decade. Are the warrants being awarded over the next decade? Or are they more front-end loaded? And you mentioned like a rev share. Are the warrants attached to the rev share? Or was that separate?

Ken, this is Jeff Armbrister. So the warrants are front-end loaded, but there is some period of time for additional warrants to be provided. The rev share is not tied to the warrants. They are 2 separate pieces. So that's how you should think about it.

Your next question comes from Brandon (sic) [ Brennan ] Hawken of EMO (sic) [ BMO ].

The core fee rate on specialized funds ex retro ticked up nicely quarter-over-quarter, likely benefited from the scaling of the Evergreen funds. But were there any other factors that impacted the fee rate? And how should we be thinking about that specialized fee rate going forward?

Yes, Brennan, it's Erik. I think this is just what we've been saying, which is as the mix of assets is changing and coming heavier into specialized funds, particularly Evergreen, given that, that comes at a higher fee rate, you're going to see that overall rate continue to blend up. We believe that, that will continue over time. So if you just look at relative flows and relative fee rates, stronger flows in specialized funds, both drawdown and Evergreen continues to be robust. All of those are charging at a higher fee rate than the current blended overall rate that we're showing. And so to the extent that those flows continue, that will continue to lift the overall fee rate.

[Operator Instructions] And your next question comes from Alex Bond of KBW.

Just wanted to ask about how you're thinking about sales incentives or fee holidays on a forward basis for both your more tenured evergreen funds as well as the newer funds. Curious how often this is something you all revisit and then also how this may evolve as more competing Evergreen funds enter the market? And also if you think this is something you may need to extend or enhance as competition continues to increase there?

Alex, it's Erik. Thanks for the question. I would look at it through a different lens. I see this really as when you are launching a brand-new product that's just got some Hamilton Lane balance sheet, seed capital in it, and you are trying to attract that first round of adopters, enticing them is important. It's a fund that's going to have short -- relatively short history, relatively short performance history and getting the folks in for the first, say, 6 to 12 months, which is generally the time frame you're talking about, has become more normalized where you're giving them financial incentive, which is a management [indiscernible]. As Jeff said, where that -- those are still being calculated and paid, and that was part of the driver of the FRPR that you saw this quarter. So I'm not seeing anything on the horizon that would cause us to have to go back and do that with established funds. I'm not seeing anything on the horizon that would cause us to need to do that for longer periods of time than we're already doing. I think what's happening, normal market becoming a lot more standard for that, again, as I said, that first 6 or 12 months on a brand-new offering.

Your next question is from Brennan Hawken of BMO.

It sounds like from the Guardian deal, there's also some folks from Guardian joining Hamilton Lane. Can you speak about the potential impact on the expense side from that? And then a little bit more broadly, it sounds like this deal is one where the overall economics are going to scale over time. Is that right? Is it right to think about this as probably a pretty modest impact initially? And then as you continue to build and deploy that $5 billion, things are going to scale?

Yes, Brennan, it's Erik again. So yes, to answer the second part of that question first, that's the way to think about it because we're going to be building that $500 million per year. The initial impact will be higher in that first year because a lot of that capital going into the Evergreen products and so again, higher fee rate. But yes, you're going to continue to see that stacking. And so we think that's beneficial. The team acquisition, I would say, is a de minimis add. And frankly, while we're in process of working through all the details with the team and with Guardian, I would expect and assume that really what's going to be happening is that those team members are coming over, and they're simply causing us to not need to go fulfill one of our open recs that is currently sitting on our website. So we're in growth mode. We continue to have a lot of open recs and open positions. And this is a talented group of people who are very experienced in the private markets. And so I think the more logical answer is they're coming over and taking positions that would have otherwise gone to a brand-new hire.

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

Again, thank you for the time. Thank you for the questions, and thank you for the support. Have a great day.