Good morning, ladies and gentlemen, and welcome to the Hamilton Lane Fiscal Third Quarter 2024 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 Tuesday, February 6, 2024.

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 Q3 fiscal 2024 earnings call. Today, I will be joined by Erik Hirsch, Co-CEO; Juan Delgado, Co-CEO; and Jeff Armbrister, CFO. 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 2023 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 detailed financial results will be made available when our 10-Q is filed. Please note, 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. Beginning with the financial highlights.

Year-to-date, our management and advisory fee revenue grew by 19%, while our fee-related earnings grew by 16% versus the prior-year period. This translated into GAAP EPS of $2.43 based on $92 million of GAAP net income and non-GAAP EPS of $2.54 based on $137 million of adjusted net income.

We have also declared a dividend of $0.445 per share this quarter, which keeps us on track for the 11% increase over last fiscal year, equating to the targeted $1.78 per share for fiscal year 2024. With that, I'll now turn the call over to Erik..

Hello, everyone, and thank you, John. This is officially our first earnings call post the management transition on January 1st. It now sees me and my partner, Juan Delgado, as co-CEOs of this firm.

It has been a strong start to the year as you will hear shortly, but we wanted to begin by providing you an opportunity to hear directly from Juan on his background and prior roles at Hamilton Lane. With Juan living in Hong Kong, he will not be joining these calls with regularity, but as we begin, we thought it important to provide an introduction.

And so, with that, I turn it over to Juan..

Thank you, Erik, and hello, everyone. I'd like to simply begin by saying that I'm extremely excited about this next chapter. Erik and I have been friends and partners for over 19 years and I really look forward to continuing our partnership and continuing the growth and the expansion of this business.

As a bit of background, I joined Hamilton Lane in 2005 to help build out our presence in London. Prior to joining, I was an Investment Manager at Baring Private Equity Partners where I focused on mid-market investing throughout Europe. I have my B.A. and Ph.D.

from Universidad Complutense de Madrid in Spain, and I was a lecturer and Fulbright Scholar Stanford University. In joining Hamilton Lane, I have worn many hats. First, I was working to build out our investment and sales presence in Europe and the Middle East.

I was responsible for hiring the leadership team in place today in EMEA and open our Tel Aviv office. I have also managed the opening of our first Asian offices in Hong Kong and Tokyo in 2009.

As our Asia business grew, I relocated to Hong Kong with my young family of three in 2011, and since then, I have served as Head of APAC, Head of International, and overseeing the expansion and the opening of several offices, including Seoul, Singapore, Sydney, and Shanghai. In June 2019, I took on the title of Vice Chairman for Hamilton Lane.

Today, I serve on several of our investment committees. And as of January 1st, I joined the Board of HLNE. As we highlighted in our initial announcement, I will be overseeing our global clients and business development teams from Hong Kong and have joined oversight with Erik of the global investment teams.

During these 19-plus years at Hamilton Lane, I've had the privilege of witnessing growth of our non-US business. Our model of having localized teams that embrace the culture and speak their native language has allowed us to deliver best-in-class client service and strong investment results.

We utilize a truly global one-team approach with really close collaboration and access to all the teams and resources Hamilton Lane brings to bear. We've become a global leader in private markets with this strategy, and I look forward to working alongside Erik in furthering in our leadership.

Before I conclude, I want to mention that I am currently en route traveling to see clients and prospects as I'm doing quite often, and therefore, I will excuse myself from the live Q&A. And with that, I will now pass it back to Erik..

Thank you, Juan, and safe travels. Coming off of a strong calendar 2023, we are excited about 2024. The business has tremendous momentum and the employee base is excited about what is to come.

Part of that excitement stems from our culture, and I am very proud to announce that once again, Hamilton Lane has been named a Best Place to Work in Money Management by Pensions & Investments for the 12th consecutive year.

Even more impressive is the fact that we are only one of five firms who have been bestowed this distinction every single year since the awards creation. Some firms say culture doesn't matter and that it is all about results. Those firms tend not to have healthy cultures. We think a great culture aids in creating great results. Be good and do good.

Create a strong culture of excellence and collaboration, and use that to deliver for your clients and partners. Let's move on to the results for the quarter. I'll start with our total asset footprint, which we define as the sum of our AUM and AUA.

This stood at $903 billion and represents a 9% increase to our footprint year-over-year and highlights our continued and steady growth as a firm. AUM stood at $120 billion at quarter-end and grew $12 billion, or 12%. The growth came from both our specialized funds and customized separate accounts.

AUA was up $59 billion, or 8% year-over-year, primarily the result of the addition of reporting and advisory mandates. 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.

Turning now to fee-earning AUM, which continues to be the largest driver of management fees. We continue to generate strong growth in both our customized separate accounts and specialized funds. Our total fee-earning AUM stood at $63.1 billion and grew $8.2 billion, or 15% relative to the prior-year period.

Taken separately, $3.8 billion of net fee-earning AUM came from our customized separate accounts, and over the same time period, $4.4 billion came from our specialized funds. Our blended fee rate across the platform also continues to increase.

This stems from the continuing shift in the mix of our fee-earning AUM towards higher fee rate specialized funds, most notably, our Evergreen product, where growth remains strong. Moving now to additional detail on our customized separate accounts. Fee-earning AUM here stood at $36.9 billion, growing 12% over the past 12 months.

We continue to see the growth coming across type, mandate 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.

While this clearly speaks to the power of the recurring relationship model, it also tells you that with the remainder of flows, despite a very large installed base, coming from new relationships, that the market continues to offer up plenty of new opportunities. Moving to our specialized funds. Momentum here also continues to be strong.

Fee-earning AUM here stood at $26.2 billion at quarter-end. Over the past 12 months, we've achieved positive net inflows of $4.4 billion, representing an increase of 20% relative to the prior-year period.

This growth stemmed from additional closes from our funds currently in market, robust investment activity, and continued expansion of our Evergreen platform. Going into some detail around the drivers of Specialized Fund flows during the quarter's growth, I'll begin with our secondary fund that is currently in market.

During the quarter, we closed on over $485 million of LP commitments, and that generated $6.1 million of retro fees. This brings the total now raised to over $3.5 billion. As a quick reminder, we raised $3.9 billion for our prior secondary fund and we are on target to meaningfully surpass the prior fund size with this current fund.

We expect to hold the final close for these funds over the coming weeks. We continue to be encouraged with the momentum heading into the final stages, and historically, our final closes have tended to be our largest and we expect that pattern to hold true here.

Moving on to our Strategic Opportunities Fund, which is our annual direct credit fund targeting the institutional LP. As a refresher, this series of funds is effectively always in market as we raise and deploy the capital with short investment periods and charge management fees on invested capital.

We are currently in market with our eight series, and since our last update, we've closed on an additional $105 million of LP commitments. This brings the total raise for this current series to nearly $675 million.

Like many of our products, we've been granted an extension on the final close of the series to allow for additional time for investors to close into this fund. We expect to hold the final close in the coming weeks.

Again, I'd like to highlight that our direct credit platform has continued to experience strong growth over the past few years, with this annual institutional series now being complemented with other sleeves of credit-focused capital, including various separate accounts and our Evergreen funds.

Today, credit represents 15% of our total AUM and we continue to see opportunity to scale. Let's now turn to our Evergreen funds. As of December 31st, 2023, total AUM across our three offerings stood at $5.7 billion, growing 76% since the beginning of the calendar 2023.

This growth was driven by solid investment performance, which in turn drove NAV growth along with continued strong net inflows. For calendar 2023, we averaged net inflows of $160 million per month with our US private market offering making up strong progress with our two wirehouse relationships.

In less than a year of being on those platforms, we've received more than $615 million of net inflows. Our Evergreen complex continues to thrive despite an increasingly competitive marketplace. We've emerged as a real leader in this channel and we are confident that this is only the beginning of our exciting journey.

We are eager to grow our footprint in this space through additional product offerings and expansion of our distribution partnerships. Let's move now to some announcements around our most recent technology partnerships.

As you'll hear, we continue to seek out partners who share in our vision of driving increased access to the private markets for the non-institutional investor. We firmly believe that managers need to meet the retail investor where they are, and the most efficient way to accomplish that is through technology.

With that, let's start with an update on Helix, which we announced on a prior call and is our newest joint venture with one of our strategic partners, TIFIN. As a reminder, Helix is the first of its kind generative AI assistant technology solely focused on the private markets.

It is designed for future integration within wealth platforms and digital marketplaces used by advisors and investors seeking allocation to the private markets.

Helix combines TIFIN's technological expertise with Hamilton Lane's proprietary database and market analysis to provide data-centric information around private markets benchmarking, forecasting, and diligence for financial advisors. On December 7th, Helix announced that it has successfully completed its seed funding round led by FINTOP Capital.

Hamilton Lane and FINTOP have developed a successful track record of partnering and investing in leading private markets-focused companies, including DealCloud, Hazeltree, and Cobalt.

We are thrilled to partner with FINTOP Capital once again, who shares our common goal of driving technological innovation and broadening access within the private markets. Next, on January 10th, we announced our newest strategic partnership alongside Brevan Howard with Libre.

Libre is a platform that connects high-net-worth investors with alternative asset managers and wealth advisors, offering them access to the global alternatives market. Libre will leverage tokenization and smart contracts that will provide asset managers with seamless direct connectivity to the growing high-net-worth channel.

Libre makes access for distributors simple through API connectivity. This provides integration into Libre's comprehensive suite of wealth management services, data, and infrastructure. Libre is scheduled to go live during the first quarter of 2024, and has already partnered with several global distributors.

We are excited to be a strategic partner to Libre and one of the first to go live with them and we look forward to providing you with future updates on this exciting journey. And with that, I'll now turn the call over to Jeff to cover the financials..

Thank you, Erik, and good morning, everyone. Fiscal year-to-date, we achieved strong growth in our business with management and advisory fees up 19% versus the prior-year period. Our specialized funds revenue increased by $41 million, or 28% compared to the prior-year period.

This was driven primarily by a $2.2 billion increase to fee-earning AUM in our Evergreen platform in the last 12 months and over $3.5 billion raised since inception in our latest secondary fund.

Retro fees for the fiscal year-to-date included $12.8 million from our secondary fund in market versus $2.4 million from our direct equity fund 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.

We expect to generate additional retro fees as we hold the final closes for Secondary Fund VI. Moving on to customized separate accounts. Revenue increased $9 million, or 11% compared to the prior-year period due to the addition of several new accounts, re-ups from existing clients, and continued investment activity.

Revenue from our advisory, reporting, and other offerings decreased by $2 million compared to the prior-year period due primarily to the sale of the 361 Capital assets, partially offset by increases in revenue coming from our technology solutions. Lastly, the final component of our revenue is incentive fees.

Year-to-date, incentive fees totaled $49 million and are down 65% relative to the prior-year period. Recall, that last fiscal year, we generated a large amount of incentive fees due to the catch-up period that several of our carry-eligible vehicles were in. Let me now turn to some additional detail on our unrealized carry balance.

The balance is up 18% from the prior-year period, while having recognized $66 million of incentive fees during the last 12 months. The unrealized carry balance now stands at approximately $1.1 billion. Moving to expenses. Year-to-date, total expenses decreased $10 million compared with the prior-year period.

Total compensation and benefits decreased by $18 million, driven primarily by lower compensation associated with the decreased amount of incentive fees.

G&A increased $9 million, driven primarily by revenue-related expenses, which are the third-party commissions related to our US Evergreen product being offered on wirehouses that we've discussed on prior calls.

I'd like to remind you that the flows that come in through the wirehouse channel have an associated upfront fee from the dollars raised there. That payment is made and applied to the total amount when those dollars close into the fund.

However, the corresponding management fees we earn from those same dollars come in over the course of a year for as long as the client is invested in the fund. This creates a timing mismatch between the cost of bringing those dollars on and the revenue associated with those flows.

This causes our G&A to increase with the eventual offsetting revenue to come in during the subsequent quarters and years. Said more simply, we bear the full cost upfront and then receive our revenue over time.

Lastly, year-to-date fee-related earnings, or FRE, were up 16% relative to the prior-year period as a result of the management fee and fee-earning AUM growth discussed earlier. As we noted on our prior call, FRE margin for the quarter was impacted due to extending the final close for Secondary Fund VI.

Recall, that extending the timing of Secondary Fund VI's final close will extend out the timing of receiving the associated retro fees and could potentially cause interim movements in our quarterly FRE margins, which is what we witnessed this quarter.

However, for the fiscal year 2024, we expect to maintain levels consistent with fiscal 2023 and the first two quarters of fiscal 2024. I'll wrap up here with some commentary on our balance sheet. Our largest asset continues to be our investments 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'll continue to invest our balance sheet capital alongside our clients. In regard to our liabilities, we continue to be modestly levered. With that, we will now open up the call for questions..

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] First question comes from Michael Cyprys from Morgan Stanley. Please go ahead..

Hi, good morning. Thanks for taking the question. I wanted to ask about the new tokenization strategic relationship that you have. I think you had called that with Libre. Maybe you could just elaborate on that. And maybe if you can update us on some of the prior tokenization partnerships that you have to Securitize and ADDX over in Asia I think it was.

Just curious what lessons learned you take away from those relationships and how that informs your view on how you see the market developing for tokenized private market funds?.

Thanks, Mike. It's Erik. I'll take that. I think we're clearly at the very beginning of what we think is going to be a journey. How long that journey goes, I think, is a question mark. And this really goes to what is going to be the adoption of this.

In my sort of 30 years in this industry, you don't find a lot of things that are better for both the fund manager and the investor. Tokenization is one of those things. It is truly better, faster, cheaper. And so, we are big believers in the technology.

We're believers in increasing and easing the access into these products for both retail investors and, frankly, institutional investors. And so, what you're seeing us do is that it's hard to know today who's going to be a winner. I don't suspect it's going to be one winner.

And so we're building a set of strategic relationships around the globe to make sure that we are covering different kinds of exchanges in different locales, because the regulatory markets for each of those is different. What we have experienced so far is flows.

We have been receiving capital from the variety of these different partnerships coming through the token channel. Has it been massively significant amounts of capital? It has not. But I think our costs around it are modest, and our strategic investments, we believe, are panning out well.

And so, I think it's telling us that the customers are there and that they need to continue to be educated and awareness continues -- needs to continue to rise, and we think all those things are happening. And we see ourselves as a very, very clear leader in the space.

I think we believe we've got more of these strategic relationships than anybody else out there and a variety of products now sitting in these various channels..

Great. Thanks. And just a follow-up question around new customers coming to Hamilton Lane. You mentioned about 80% of the SMA contributions are from existing customers, that even as the installed base continues to grow, this is suggesting that you're still finding meaningful opportunity to bring new customers to the firm.

So maybe you could just elaborate on the opportunities that you see in the marketplace that -- where you're winning new customers coming. Maybe you can elaborate on these folks that are new the asset class or are these folks that are already invested but need a little bit more assistance? Maybe you can just help flesh that out..

Sure, Mike. Erik. I'll stick with that. So I think it's a combination, as you noted. We are continuing to see both investors that are brand new to the asset class. And again, in the SMA business, we're talking institutional investors.

So, as we kind of travel around the globe, as we continue to geographically expand, we are absolutely seeing and meeting with institutional investors who have yet to embark on their private equity journey, and we are there and ready and able to assist them. The other source of that 20% is us taking clients away from competitors.

So, there's also an aspect here of us positioning ourselves as a better service provider versus their current alternative, and we are then sort of taking clients away from another service provider. So it's really the combination of those two pieces that's really fueling that 20%..

Great. Thanks..

Thank you. The next question comes from Ken Worthington from JPMorgan. Please go ahead..

Hi. Good morning. So first on margin. So FRE margin declined in 3Q. You're still guiding to 42%, 43% FRE margins for the year, which suggests that 4Q margins has to pick way up, suggests comp is going to pull way back, all else being equal from third quarter levels.

Do I have all this right? Am I putting all these pieces together sort of correctly?.

Sure, Ken. Erik. So, I think as we said on the last earnings call, due to the sort of significant amount of retro fees and the fact that we have visibility, we opted to do what we've done historically, which is accrued compensation, and we're talking about variable compensation, on a steady basis throughout the year.

Managing to an ultimate margin, which is in line with what we have been sort of setting expectations around. That's what we did through this quarter.

And obviously, the result of less -- lower retro fees, again, because we pushed some of the closings out into the subsequent quarter, resulted in what looks like today, artificially inflated compensation ratios.

Once we get to the next quarter, our view is that compensation ratios are going to remain in line with what they've been historically and you're going to see margins in line with what we posted for the first two quarters of the year..

Okay. Great. Thank you. And then I guess, next, I would love to dig into distributions in the SMA business. So, in 2020 and '21, the pace of SMA distributions really jumped, I think at the time you mentioned there was some recycling of capital, which impacted that pace. And then in '22 and '23, that piece of distributions came way down.

So as we think about from here and going forward, maybe first, what are the factors that really go into this pace of distributions? I assume it's part contract timing, part realizations.

And as we look to this calendar year, how do we see those kind of pieces fitting together? And does -- I don't know, the pace of realizations kind of stay at these levels? Does it go up because the market is better and there's more deal activity? I don't know. There's a whole bunch of moving pieces.

Just if you could help us think about the next four quarters..

Sure, Ken. Erik. So what you saw a couple of years ago was really the impact of COVID. And as we had discussed then, it did a couple of things. That market environment changed dramatically and two things occurred. One, investment pacing increased significantly, and distributions increased significantly.

We're now in a market environment where hold periods are extending out, distribution activity is coming down. So what's happening in the SMA is really no different than what's happening in kind of the market at large. And you've seen it across a variety of the other fund managers. Hold periods are extending, exit activity is somewhat muted.

And so whether that's in specialized funds or SMAs, that's what you're seeing here. To the extent, and we sort of continue to see that the public markets and the overall economy stabilizing, and investors believing that it's kind of safe to go back in the water, our expectation is that you will see distribution activity increase.

And so that will come across SMA specialized funds, and it will also come across the carried interest line..

Great. Okay. Thank you very much..

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

Hey, thanks, guys. Good morning. Just maybe zooming out a little bit on the margin question, the FRE margin question, you guys are clearly investing in the business, that all makes a lot of sense. And the retail dynamic with the wirehouse has really masked some of the kind of embedded profitability in that channel.

As you look out a couple of years from now, how should we think about the trajectory of FRE margins for the business as a whole relative to kind of where you're likely to end up for your fiscal 2024?.

Sure, Alex. Erik. I think as you know, we are clearly investing for the future. So I think the way we look at margin is that, among our peer set, we're already posting a substantially larger margin than most, if not all. And we've been doing that with continued double-digit growth.

We see a lot of opportunity to continue to put capital back into the firm to both expand resources around institutional and retail sales, to continue that geographic footprint expansion, and to continue to invest in a variety of these technology partnerships, all of which we think are contributing to the results you're seeing on the fundraising side today.

That said, you're seeing the fee shift occurring because higher price and also, by the way, over time, higher-margin product lines.

And so, from a management standpoint, we'll have strategic decisions to make around what we want to do with the margin going forward, you mentioned a few years out, relative to continued investment back in the firm for growth versus letting those margins sort of rise up a little bit further and out.

I think our view is over the next several years we can do both..

I got you. That's helpful. And then a couple of clarifications maybe around the flagship funds. So, I heard the details on a number of them. I don't know if we got an update on infrastructure. So maybe give us a sense of where that is shaking out.

And as you sort of look beyond this quarter, next quarter and as you wrap up the secondaries fund, what else are you guys expecting to be in the market with on the specialized fund side of things?.

Sure. Alex. Erik. So infrastructure, early days. We'll get started, we'll have -- I expect you'll have multiple updates from us over the coming quarters on that fund raise as we get in and start having closes that we'll start reporting on. The other big mover will eventually be the direct equity fund, which is now officially in market.

But again, nothing to report yet because we've started the marketing process with existing investors, but we have not yet had a close..

All righty. Thank you..

Thank you. The next question comes from Adam Beatty from UBS. Please go ahead..

Thank you, and good morning. In prepared, Erik mentioned the credit business and a lot of opportunity there, currently 15%, I think you said, of AUM. So I just wanted to get some thoughts and maybe some more detail around growing that business, whether you're looking to new products, growing existing products with future vintages or what have you.

And also where you would expect that to shake out as a proportion of total AUM given growth in other areas? Thank you..

Sure, Adam. Erik. So as I mentioned in the prepared remarks, the credit piece today is growing because it has a multitude of avenues for which it can grow. So today, we have dedicated specialized funds for credit, both in institution, that's the strategic opportunities, and in retail, which is our non-U.S. credit-only Evergreen product.

So, we already have the specialized fund piece covered outside of the U.S. I think over time, we'll certainly look to have a U.S. credit Evergreen product. On the institutional side, so both again, as I noted, the specialized fund, and we have a variety of dedicated SMAs, we also have a lot of multi-strat SMAs of which credit is a portion.

And in addition to that, our sort of two flagship retail Evergreen Funds, U.S. and non-U.S., both have meaningful credit co-investment aspects to them. So, the growth has been occurring because we have lots of different buckets that are all absorbing credit opportunities today. We're continuing to invest in that team and expand those resources.

And we believe that, at 15%, it's already a very meaningful portion of AUM. But as you see in kind of a relatively high rate environment and with the kind of consolidation of sort of lending resources around the globe, particularly in the U.S.

with kind of the diminishing impact of regional banks, we see the attractiveness of private credit continuing to be there. It's been a very good performer inside of client portfolios. And so our view is we continue to lean in, we continue to see lots of opportunities, and we continue to see growth..

Sounds good. Thanks, Erik. And just one follow-up on tokenization. Just wondering whether you see that or how you see it. Now, obviously, early days.

But interacting with your existing sort of wealth management channel, do you feel as though you could actually productively introduce tokenization into some existing accounts? Or do you see it more as an avenue to kind of expand the TAM in retail and wealth management? Thanks..

Yeah, Adam. Erik. I think it's both. I think if you sort of just look at what the retail investor is going to eventually demand of this asset class, it is ease of use.

When we think about how easy it is for us to transact in the public equities world, we have apps on our phone, they're tied to funding accounts, we can very easily pull up research, and trade and transact, we can pull up views of our portfolio, all stored in one easy location. The private markets is going to need to meet the investor there.

I don't believe that the investors are going to have two wildly different expectations of what they kind of get and receive on the public equity side versus what they get and receive on the private market side. So, our view is that tokenization and digital wallets are a real move towards more replicating that public equity experience.

Single funding source, single kind of know your customer anti-money laundering aspects again, single point of portfolio management and construction. And with tokens, a much more ease of use around trading positions. And so,, we see all of that as very attractive.

And our belief is that, while in a lot of places it's the institutional investor who kind of drives change, we think here, it's going to be the opposite. We think the retail investor is going to be the one that drives change, and that the institutional investors will actually follow behind them. So we think it's an and.

We think it's both tying into some of the existing opportunities and channels and, frankly, getting clients who otherwise don't want to invest if they can't do it in the digital world..

Got it. Makes sense. Thank you very much..

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

Hey, great. Thank you for taking my questions. The Evergreen Funds have been a tremendously strong story. But I guess as you alluded to, it is becoming a bit more of a competitive market.

Can you just speak to the competitive dynamics that you're seeing? I guess on one hand, it's maybe a little tough to stand out in a crowded field with some strong brands coming into the space.

But on the other hand, I can almost envision there's like a rising tide lifts all boats dynamic for the wealth channel as you were just kind of talking to, there's maybe greater comfort for these products that will continue to make the pie grow larger.

So, I'd love to just hear how you're thinking about maybe the push and pull between those two dynamics..

Sure, Mike. Erik. I think this is probably, again, similar to my comment to Adam, it's probably an and, which is there's no question that interest in the space very high among the retail investor. And they're starting with an exposure that in most cases is basically zero. So you have a tremendously large pool of capital, both in the U.S.

and outside the U.S. that is either dramatically underexposed to this asset class or not exposed at all. And so if you see that trend more mirroring, if not exceeding, what the institutional investor is doing, then you're going to see allocation levels for the retail investor well into double digits. We're nowhere near that today.

Again, most investors today are single digits and low single digits. So the sheer amount of capital that is present and available is massive. So you're talking about a huge market. We also don't see this as a one winner.

I think if we sort of compare it to, again, the public equity world, today, you have a large group of very large, very successful asset managers controlling billions, if not trillions, of dollars of capital. It's not a single firm or a single winner. And so, we think that that's what this is going to look like over time for this asset class as well.

So, huge addressable market, massively underpenetrated, room for lots of successful product offerings. And so the way you stand out, we think, is great results, unique product offerings and great customer service.

And we think one of the reasons why we're having the success that we're having with great flows and kind of getting onto these various channels which, again, everyone is not doing, is because we're doing well across all three of those things.

And we will look to continue to make sure that that's the experience that the investors have and that we're finding ways to stand out, continue to invest in our brand, we think these various technology partners are again, additive and unique to what others are doing. And that's how we sort of see this playing out over time..

Okay. Great. And then, if I just change gears to some of your strategic partnerships and some of your tech investments. I know this is an important part of the culture and fabric of Hamilton Lane.

Can you maybe just expand on some of the -- how some of the recent investments could translate to growth for you? And maybe give us a little bit of inside baseball.

When you're considering these investments, how do you think about what the growth potential could be? Like what does the framework look like in terms of what your growth expectations are? And then maybe how much capital to deploy into these strategies on an annual basis?.

Sure, Mike. Erik. The tech investments are across a variety of different buckets. So bucket number one and, frankly, the bucket we started with and have done the most around our technology tools that make Hamilton Lane both more efficient and a better service provider to our customers.

So think about back-office reporting, data ingestion, analysis, analytics, sort of think about that as bucket one. The vast majority of those we simply use as a client, oftentimes with preferential terms or again, different unique strategic angles, or single-purpose use cases.

So, I would sort of look at that bucket as Hamilton Lane is a better and, frankly, higher-margin firm, delivering better results more efficiently to clients as a result of that bucket. Now as you remember, we have also monetized a variety of those over time with great success. So, very large significant cash multiple.

So, we've not only gotten the internal benefit, but we've gotten good return on our balance sheet capital. Bucket number two, I would sort of put around distribution. So think about that with not only the token space, but also plugging into firms that are servicing the adviser and offering product on their platforms.

So that has been a way for us to try to access a customer that we might not otherwise be able to reach, or reach a customer in a way that is more beneficial to them.

We also think that some of those, because they're much more visible and our brand is associated with them, are great ways for us to enhance the Hamilton Lane brand in a way that we see more value-added and more efficient than, say, putting our logo on a baseball uniform. And so that's been the benefit there.

Bucket one, the operational side, I think we've already seen significant meaningful results. Bucket two is where we're a little earlier.

And so as we go forward and think about what we're going to be doing or spending or deploying, we're looking at -- we're always looking at firms that are kind of occurring in both buckets to see where we think we're going to have strategic benefits. We don't have a set budget around these because they have been opportunistic to-date.

But again, we have a meaningful balance sheet, and we think this has been a very good and effective way to use it..

Great. Thank you for all that color..

Thank you. The next question comes from Finian O'Shea from Wells Fargo. Please go ahead..

Hi, everyone. Thank you. Good afternoon. Another question on wealth specifically for the newer credit Evergreen.

Are you finding that lands with wealth advisers, perhaps as a different kind of multi-manager product? Or do they tend to group it in with all of the non-traded BDCs in market? And in that context, how would you describe the addressable flow potential? Thank you..

Yeah, Finian. Erik. I think the way we've been standing out and differentiating is because of that multi-manager approach. It's no secret that our Evergreen products are co-investment oriented.

And we think one of the big advantages of that is the fact that we're providing in a single vehicle multi-manager, multi-industry, multi-size, multi-geography exposure, in a way that's harder for a single manager to do. And so that is our differentiation and that is sort of where we are targeting.

If you look at the credit flows, a number of them have come from folks that were already in one of the flagship Evergreen Funds, have had a good experience, liked the service, thought the returns were strong, and then have decided to add additional exposure to us via credit..

Okay. Thank you. And just a follow-up there, given it does seem to be one of the few products as described in market. Is it at all on the table to, say, invest more meaningfully in distribution that's likely required to pick up to the monthly flow pace that some of the leaders in the market show? That's all for me. Thanks..

Yeah. Thanks, Finian. I mean our goal is to increase flows, period. I noted that if you look at Evergreen flows kind of calendar over calendar, we're up 76%. So I think we have been doing a terrific job of that. But we're not stopping or resting on our laurels.

And so if you look at sort of future expansion plans for us, it very clearly has additional adds to sales team, other mechanisms for distribution. And all of this is designed to increase the flows, continue to maintain, and to build that brand in that space as a market leader.

So 76%, I think, calendar over calendar impressive, and our view is let's keep going..

Thank you. There are no further questions. I will now turn the call back over to Erik Hirsch for closing comments..

With that, we thank you for the time. We thank you for the questions. Wishing everyone well. And thanks for the support..

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