Hamilton Lane Incorporated Class A Common Stock 2027 Q1 Earnings Call

Please go ahead. Thank you, Joanna.

Good morning and welcome to the Hamilton Lane Q1 fiscal year 2027 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 2026 10-K and subsequent reports we file with the SEC. These forward-looking statements are made only as of today. 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.

Let's begin with the highlights. I'll start with our total asset footprint. At quarter end, our total asset footprint stood at over $1 trillion and represents an 8% increase to our footprint year-over-year. AUM stood at $146 billion and grew $5 billion or 4% compared to the prior year period. AUA came in at $914 billion and grew $69 billion or 8% 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. For this first quarter of fiscal year 2027, total management and advisory fees were $161 million and were up 21% year-over-year. Total fee related revenue was $236 million and represents 44% growth year-over-year. Fee related earnings were $124 million and represents 49% growth year-over-year.

We generated quarterly GAAP EPS of $1.93 based on $80 million of GAAP net income and non-GAAP EPS of $1.94, based on $105 million of adjusted net income. We have also declared a dividend of $0.60 per share this quarter, which keeps us on track for the 11% increase over last fiscal year, equating to the targeted $2.40 per share for fiscal year 2027. With that, I'll now turn the call over to Erik.

Thank you, John, and good morning, everyone. In May, we celebrated Hamilton Lane's 35th anniversary. A simple AI query will tell you that few companies founded ever reach this milestone. To me, while the longevity is noteworthy, the more important point is what that milestone represents. It represents evolution, a desire to never stand still. As the world and markets have changed around us, Hamilton Lane has built and adapted and innovated, all with a focus on best serving our clients. While I'm proud of the growth and how many new investors continue to entrust us with capital, I am exceptionally proud that clients who have been with us from the beginning of this journey continue to entrust us with capital today. At the end of the day, what makes Hamilton Lane are our people.

We are looking forward to continuing to evolve, continuing to grow, and continuing to successfully serve our clients. Let me turn now to fee-earning AUM. At quarter end, total fee-earning AUM stood at $83.7 billion and grew $9.3 billion or 12% year-over-year. Net quarter-over-quarter growth was $2 billion or 3%. Our blended fee rate continues to benefit as our fee-earning AUM mix shifts towards the specialized funds part of our business. Our blended fee rate now stands at 69 basis points. Total fee-earning AUM growth continues to be driven largely by our specialized fund platform. Overall, specialized fund fee-earning AUM ended this quarter at $42.6 billion, having grown $8.5 billion over the last 12 months. This represents an increase of 25%. Quarter-over-quarter growth was $2 billion or 5%. We produced $2.4 billion of gross contributions in the quarter.

That stemmed primarily from new subscriptions to our evergreen products, along with healthy contributions from our drawdown products, namely our sixth equity opportunities fund, our second venture fund, and our second infrastructure fund. This was offset with redemptions coming primarily from two of our largest non-U.S. evergreen products, along with exit activity and drawdown funds. Evergreen platform continues to demonstrate resilience. For the quarter that ended in June, we generated nearly $640 million of net inflows across all strategies and ended the period with over $19 billion of AUM. Importantly, we did not enact gates on any of our funds, and we saw positive net inflow across 10 out of 12 funds, with our non-U.S. credit offering essentially being flat for the quarter and our non-U.S. multi-strategy equity fund showing elevated redemptions and finishing in net outflow for the quarter.

The redemptions in this fund came largely from 2 categories of investors. The first being longstanding investors who have seen their exposure grow due to strong performance. Had you invested $1 in the institutional USD share class of our non-U.S. multi-strat equity platform at inception, as of June 30th of this year, that dollar would be worth $2.32. Not surprisingly, we see clients harvesting some gains and rebalancing, with some of those funds flowing back into other Hamilton Lane products. The second category is a bit more unique. Clients housing capital in the Evergreen Fund while awaiting deployment in a separately managed account. They are redeeming to then fund the SMA. In prior times, we saw clients often just leave future private dollars in passive public equity accounts.

With the advent of Evergreens, we are seeing more institutional clients avail themselves of this alternative to temporarily house capital for future use in drawdown funds. While this inevitably results in redemptions, it still means the capital is retained by Hamilton Lane. As Evergreen market dynamics continue to evolve and mature, we expect over time that redemptions will be driven by different motivators and will need to be examined in context. All that said, we have seen a slowdown on flows on certain products and a general hesitancy with investors given the constant negative headlines. We strongly believe this is temporary and have already begun to see the swing back. For us, we continue to operate with a long-term mindset. Our Evergreen platform has been purposely built to reach investors around the world and to offer a wide variety of strategies.

Today, we are one of only a small number of Evergreen managers with both a scaled U.S. platform and a scaled non-U.S. platform. Outside the U.S., we offer seven vehicles with our multi-strategy equity, credit, and infrastructure funds, each having more than $1 billion of AUM, and our secondaries and venture offerings are fast approaching the $1 billion AUM mark. Performance across the vehicles remains strong. That same breadth is evident in the U.S. as well. We now offer five vehicles across multi-strategy equity, infrastructure, venture, secondaries, and most recently, credit, which we discussed on our last call. Today, the multi-strategy equity fund represents the majority of our U.S. Evergreen AUM, driven by strong performance since inception and continued traction in the wire house channels. The fund has just been added to another wire house, bringing distribution for that strategy to now three wire houses.

We have achieved all of this while at the same time leveling up and expanding our U.S. distribution team. This may beg a logical question. If things are going well, why would we do this? It's simple, and it's where I started earlier. A constant desire to evolve and to be better. Sales professionals are realizing that not all platforms are built the same. With an increasing amount of data available on brands, product lineups, deal flow, and performance, professionals are choosing who they believe will be the winning franchises for the next many years. Over the last 12 months, we have added six highly experienced Evergreen sales professionals to our senior ranks. They have joined from outstanding firms, J.P. Morgan, Fidelity, Morgan Stanley, BlackRock, PIMCO, and Monroe Capital.

While we are pleased with the success we've had so far, we are far more excited with what lies ahead as this team comes together. Let me turn to performance. We are now entering the phase of the Evergreen journey where track records are getting longer and are getting more scrutiny. Investors are realizing that investment approach and risk-taking are not the same across platforms. For Hamilton Lane, we are not trying to build an index, nor are we building concentrated portfolios. We are building portfolios with purposeful diversification across managers, strategies, geographies, and underlying assets, and are doing so with the benefit of deep sourcing, disciplined pacing, active task management, and rigorous portfolio construction. That matters because in private markets, manager selection and asset selection still drive outcomes in a very meaningful way, and the dispersion between top and bottom performers remains wide.