Hamilton Lane Incorporated

Good morning, ladies and gentlemen, and welcome to the Hamilton Lane Fiscal Second Quarter 2026 Earnings Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Tuesday, November 4th, 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 Eric Hirsch, Co-Chief Executive Officer, and Jeff Armbruster, 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 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 shareholder section of the Hamilton Lane website. Our full financial statements will be made available when our 10Q 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 Eric.

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 expanded 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 HL&E equity warrants and additional financial incentives. We will also partner with Guardian's registered broker-dealer and registered investment advisor, 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 advisors 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 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 five times and are down a full turn from 2022. Interest coverage also remains healthy at 2.8 times, having moved up a half a turn over the past two years. Today, the default rate sits at around 1%, below the historical average of 2.5%, and well below the level 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 leverage 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 in cash flows, prudent leverage levels, and near zero 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 through customers. the ability to provide more clarity and transparency in an opaque world. Speech over. Let me turn now to a few business highlights, and I'll start with the 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 eight basis points, or 14%, since we went public in 2017. At quarter end, customized separate accounts fee-earning AUMs 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 sending from a mix of new client wins, re-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 fundraisers 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 six equity opportunities funds. As a current reminder, this fund focuses on direct equity investments alongside leading general partners and offers two 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%