Hamilton Lane Incorporated

I would now like to turn the conference over to John Oh, Head of Shareholder Relations. Please go ahead.

Thank you, Julie. Good morning and welcome to the Hamilton Lane Q1 Fiscal 2025 Earnings Call. Today, I will be joined by Eric Hirsch, Co-Chief Executive Officer, Jeff Armister, Chief Financial Officer, and Griff Norville, Head of Technology Solutions. Earlier this morning, we issued a press release and slide presentation, which are available on our website. Before we discuss the quarter's results, we want to remind you that we will be making forward-looking statements. Forward-looking statements discuss our current expectations and projections relating to our financial position, results of operations, plans, objectives, future performance, and business. These forward-looking statements do not guarantee future events or performance and are subject to risks and uncertainties that may cause our actual results to differ materially from those projected. For a discussion of these risks, please review the cautionary statements and risk factors included in the Hamilton Lane Fiscal 2024 10-K and subsequent reports we file with the SEC. These forward-looking statements are made only as of today and, except as required, we undertake no obligation to update or revise any of them. We will 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 shareholder section of the Hamilton Lane website. Our detailed financial results will be made available when our 10-Q is filed. Please note that nothing on this call represents an offer to sell or a solicitation of an offer to purchase interest in any of Hamilton Lane's products. First, as a reminder for those who may have missed it, we held our second HL&E shareholder day on June 5th. where several Hamilton Lane leaders walked through business channels and growth drivers. We charted our progress since our IPO in March 2017 and discussed what we continue to see as a large and growing market in front of us. We were proud to show our strong results and our continued leadership in private markets through the depth and breadth of our offering. For those who have not had a chance to watch the presentation, a replay recording along with the accompanying slides can be found on the shareholder section of our website. Thank you to all those who joined us in person at our headquarters for the live presentation. Let's move now to some financial highlights. For this first quarter of fiscal 2025, our management and advisory fee revenue grew by 33%, while our fee-related earnings also grew by 33% versus the prior year period. This translated into GAAP EPS of $1.47, based on $59 million of GAAP net income, and non-GAAP EPS of $1.51, based on $81 million of adjusted net income. We have also declared a dividend of $0.49 per share this quarter. This keeps us on track for the targeted full fiscal 2025 dividend of $1.96 per share, which represents a 10% increase from the prior fiscal year. With that, I'll turn the call over to Eric.

Thank you, John, and good morning, everyone. We continue to experience strong momentum and have recorded another outstanding quarter. None of this happens by accident, particularly not in this market. And Juan and I are proud of the team here and their unwavering focus on delivering excellence to our customers. That focus is what results in our ability to expand our brand and continue to grow. Let's move now to our total asset footprint. This stood at $940 billion and represents a 15% increase to our footprint year over year. AUM stood at $130 billion at quarter end. and grew $13 billion, or 11%. The growth came from both our specialized funds and our customized separate accounts. AUA was up $110 billion, or 16% year over year, primarily the result of market value growth and the addition of technology solutions and back office mandates. Turning now to fee-earning AUM, we continue to generate very strong growth across our specialized fund platform and more modest growth across our separate accounts. It is worth emphasizing that increasingly we are seeing separate account mandates include meaningful allocation to our specialized funds and that AUM would get captured under specialized funds, not separate accounts. This is a good thing. Our total fee earning AUM stood at $67.7 billion and grew $8 billion or 13% relative to the prior year period. Taken separately, $2.4 billion of net fee-earning AUM came from our customized separate accounts, and over the same time period, $5.7 billion came from our specialized funds. As we detailed in our shareholder day, our blended fee rate across the platform has been steadily increasing year over year. This stems from the continuing shift in the mix of our fee-earning AUM towards higher fee-rate specialized funds, most notably our evergreen products, where growth remains impressive. When we went public in 2017, our blended fee rate was 57 basis points. Today, it stands at 61 basis points, excluding the impact from retro fees. Moving now to additional detail on our customized separate accounts. We continue here to see growth coming from clients across type, mandate, size, and geographic location. As we highlighted on our last call, our separate account business continues to grow through finding new clients, some of which have already invested in private markets, and for others, this is their first foray. The bulk of our flows continue to be driven by our existing clients who re-up with us as they look to maintain and grow their exposure to the asset class. This trend has remained steady since our IPO and remains the case through this fiscal quarter where the balance of customized separate account Net fee-earning AUM stood at $38.2 billion and grew by $2.4 billion, or 7%, over the last 12 months. Let's move now to our specialized funds, where momentum continues to be strong. Fee-earning AUM here stood at $29.5 billion at quarter end. Over the past 12 months, we achieved positive net inflows of $5.7 billion, representing an increase of 24% relative to the prior year period. This growth stemmed from additional closes for funds currently in market, robust investment activity, and continued expansion of our Evergain platform. Now moving to the drivers of specialized fund flows. Let's start with our latest secondary fund. On June 18th, we announced the final close for our sixth secondary fund with $5.6 billion in total commitments. This fund marks our largest ever institutional fundraise and represents an over 40% increase in size relative to the prior fund, which held its final close in 2021. The fund's diverse group of investors include corporate and public pension funds, Taft-Hartley plans, sovereign wealth funds, endowments, foundations, private wealth platforms, and other financial institutions. On our last call, we mentioned that we held a close in April that totaled $618 million of LP commitments and generated $11 million of retro fees. The final close for this fund ended up totaling nearly $569 million and generated another $9 million of retro fees. This brings the total raised in the quarter to nearly $1.2 billion and retro fees of nearly $21 million. The final close exceeded our expectations and was the direct result of the dogged determination of our team and the faith placed in us by clients who were enthused at how the portfolio was positioned and the pipeline of attractive deals in front of us. I am extremely proud of the work and dedication my colleagues put forth during this fundraise where we dealt with a crowded field, a choppy economic backdrop, and an unstable global geopolitical landscape. At conclusion, we took in over 228 investors across 31 countries and we appreciate their support and trust and we will strive to exceed their expectations. Investment activity remains fulsome and attractive and as of June 30th, the fund was 40% committed and we have a strong pipeline in front of us. Turning now to some first close announcements for two of our flagship products. First up is our Equity Opportunities Fund, which is our closed-end fund that co-invests alongside our fund managers in equity transactions. As a quick reminder, our fifth Equity Opportunities Fund closed in December of 2022 at approximately $2.1 billion. We are proud to announce that we held the first close for our sixth Equity Opportunities Fund on June 30th with over $523 million of LP commitments. Similar to our prior fund, this fund will have two economic arrangements for investors where management fees are based on either committed capital with a lower carried interest rate or net invested capital with a higher carried interest rate. For context, the prior fund's mix resulted in 49% of the dollars raised based on committed capital and 51% based on net invested capital. While we don't know the breakout of this next fundraise until the end, The capital raised in this first close resulted in 48% on capital committed and 52% on net invested. As we hold additional closes for this fund, we'll provide the split and associated retro fees with the committed capital option. Now, stepping back, we are pleased with the start of this raise so far. We have built a strong platform of investing directly alongside the world's leading fund managers, and we look forward to providing you with future updates as we progress through this fundraise. Let's now turn 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 net invested capital. For the benefit of those less familiar with the series, it is less about targeting a set amount of dollars to raise as you would traditionally see across funds with a multi-year deployment period and more about ensuring that we size the product in line with the current opportunity set. This inevitably will lead to some size variability from series to series. We are currently in market with our ninth series, and on June 28th, we held the first close for this latest series with nearly $150 million of commitments. Our strategic opportunities fund remains a key component of our overall private credit platform that includes our discretionary separate accounts and our evergreen platform. If you total our prior eight funds, we have raised nearly $5 billion for this program going back to 2015. Now onto our evergreen funds. During our shareholder day, we highlighted the opportunity we believe is in front of us related to continued growth of both our existing evergreen product offerings and new funds yet to launch. As of June 30th, total AUM across our three existing offerings stood at nearly $7.5 billion. Monthly net inflows remained strong as we averaged over $330 million for the second calendar quarter of 2024, which was up from $255 million for the first quarter. For our U.S. offering, in a little over a year of having two wire house relationships, we have received nearly $1.2 billion of net inflows from that channel, an impressive accomplishment, and we thank them for this successful partnership. We remain optimistic around the prospects for continued expansion of this piece of our business, and our success to date gives us confidence that we are continuing to establish ourselves as a trusted partner and solution provider. Moving on to the technology side. On June 26th, we announced the latest addition to our HL Innovations portfolio, Daphne Technologies. Daphne was founded in 2022 through a collaboration between Apollo Global Management and Motive Partners to transform the management and transmission of data between asset managers and their investors and channel partners. Daphne will allow asset managers to digitize fund data and publish it with a click of a button. It is designed to serve multiple channels, such as institutional investors, investment consultants, independent broker-dealers, and RIAs. This data can be transmitted and consumed via a web-based interface or API. As part of our partnership, Daphne has integrated with Cobalt, our proprietary private markets data analytics forecasting and diligence platform. Daphne enables straight-through data processing by which alternative asset managers can directly transmit fund information into Cobalt, thus simplifying what has traditionally been a manual and cumbersome process for both asset managers and their investors and channel partners. Daphne represents our continued efforts to make the private markets more transparent and easier to access, and we are excited for what is to come with this new partnership and investment. We are proud to be the first outside investor and strategic partner invited in, and we look forward to working closely with Apollo and Motive to drive Daphne's success. I'd like to now hand the call over to my partner, Griff Norville, to provide you with more detail around the Hamilton Lane Technology Solutions offerings. Thank you, Eric, and good morning.