0001433642-18-000004.txt : 20180209 0001433642-18-000004.hdr.sgml : 20180209 20180209074304 ACCESSION NUMBER: 0001433642-18-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 72 CONFORMED PERIOD OF REPORT: 20171231 FILED AS OF DATE: 20180209 DATE AS OF CHANGE: 20180209 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Hamilton Lane INC CENTRAL INDEX KEY: 0001433642 STANDARD INDUSTRIAL CLASSIFICATION: INVESTMENT ADVICE [6282] IRS NUMBER: 262482738 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-38021 FILM NUMBER: 18587754 BUSINESS ADDRESS: STREET 1: ONE PRESIDENTIAL BOULEVARD STREET 2: 4TH FLOOR CITY: BALA CYNWYD STATE: PA ZIP: 19004 BUSINESS PHONE: (610) 934-2222 MAIL ADDRESS: STREET 1: ONE PRESIDENTIAL BOULEVARD STREET 2: 4TH FLOOR CITY: BALA CYNWYD STATE: PA ZIP: 19004 10-Q 1 hlne12311710q.htm 10-Q Document



 
 
 
 
 
 
 
 
UNITED STATES
 
 
SECURITIES AND EXCHANGE COMMISSION
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FORM 10-Q
 
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2017
or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________________ to ___________________________
Commission file number 001-38021
HAMILTON LANE INCORPORATED
 
(Exact name of Registrant as specified in its charter)
 
 
Delaware 
(State or other jurisdiction of
incorporation or organization)
 
 
26-2482738
(I.R.S. Employer
Identification No.)
 
 
One Presidential Blvd., 4th Floor
Bala Cynwyd, PA
(Address of principal executive offices)
 
 
19004
(Zip Code)
 
 
(610) 934-2222
(Registrant’s telephone number, including area code)
 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
Accelerated filer o
Non-accelerated filer x (Do not check if a smaller reporting company)
Smaller reporting company o
Emerging growth company x
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x 
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: As of February 5, 2018, there were 19,281,837 shares of the registrant’s Class A common stock, par value $0.001, and 27,935,255 shares of the registrant’s Class B common stock, par value $0.001, outstanding.
 
 
 
 
 
 
 




Table of Contents
 
Page
 

 
 
 
 
This Quarterly Report on Form 10-Q (“Form 10-Q”) includes certain information regarding the historical performance of our specialized funds and customized separate accounts. An investment in shares of our Class A common stock is not an investment in our specialized funds or customized separate accounts. In considering the performance information relating to our specialized funds and customized separate accounts contained herein, current and prospective Class A common stockholders should bear in mind that the performance of our specialized funds and customized separate accounts is not indicative of the possible performance of shares of our Class A common stock and is also not necessarily indicative of the future results of our specialized funds or customized separate accounts, even if fund investments were in fact liquidated on the dates indicated, and there can be no assurance that our specialized funds or customized separate accounts will continue to achieve, or that future specialized funds and customized separate accounts will achieve, comparable results.
 
 
 
We own or have rights to trademarks, service marks or trade names that we use in connection with the operation of our business. In addition, our names, logos and website names and addresses are owned by us or licensed by us. We also own or have the rights to copyrights that protect the content of our solutions. Solely for convenience, the trademarks, service marks, trade names and copyrights referred to in this Form 10-Q are listed without the ©, ® and ™ symbols, but we will assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks, trade names and copyrights.
This Form 10-Q may include trademarks, service marks or trade names of other companies. Our use or display of other parties’ trademarks, service marks, trade names or products is not intended to, and does

1


not imply a relationship with, or endorsement or sponsorship of us by, the trademark, service mark or trade name owners.
 
 
 
Unless otherwise indicated, information contained in this Form 10-Q concerning our industry and the markets in which we operate is based on information from independent industry and research organizations, other third-party sources (including industry publications, surveys and forecasts), and management estimates. Management estimates are derived from publicly available information released by independent industry analysts and third-party sources, as well as data from our internal research, and are based on assumptions made by us upon reviewing such data and our knowledge of such industry and markets that we believe to be reasonable. Although we believe the data from these third-party sources is reliable, we have not independently verified any third-party information.
 
 
 
Unless otherwise indicated or the context otherwise requires, all references in this Form 10-Q to “we,” “us,” “our,” the “Company,” “Hamilton Lane” and similar terms refer to Hamilton Lane Incorporated and its consolidated subsidiaries. As used in this Form 10-Q, (i) the term “HLA” refers to Hamilton Lane Advisors, L.L.C. and (ii) the terms “Hamilton Lane Incorporated” and “HLI” refer solely to Hamilton Lane Incorporated, a Delaware corporation, and not to any of its subsidiaries.
 
 
 
Cautionary Note Regarding Forward-Looking Information
Some of the statements in this Form 10-Q may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995. Words such as “will,” “expect,” “believe” and similar expressions are used to identify these forward-looking statements. Forward-looking statements discuss management’s current expectations and projections relating to our financial position, results of operations, plans, objectives, future performance and business. All forward-looking statements are subject to known and unknown risks, uncertainties and other important factors that may cause actual results to be materially different, including risks relating to our ability to manage growth, fund performance, risk, changes in our regulatory environment and tax status; market conditions generally; our ability to access suitable investment opportunities for our clients; our ability to maintain our fee structure; our ability to attract and retain key employees; our ability to manage our obligations under our debt agreements; defaults by clients and third-party investors on their obligations to us; our ability to comply with investment guidelines set by our clients; our ability to consummate planned acquisitions and successfully integrate the acquired business with ours; the time, expense and effort associated with being a newly public company; and our ability to receive distributions from HLA to fund our payment of dividends, taxes and other expenses.
The foregoing list of factors is not exhaustive. For more information regarding these risks and uncertainties as well as additional risks that we face, you should refer to the “Risk Factors” detailed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended March 31, 2017 (our “2017 Form 10-K”) and in our subsequent reports filed from time to time with the Securities and Exchange Commission (the “SEC”). The forward-looking statements included in this Form 10-Q are made only as of the date we filed this report. We undertake no obligation to update or revise any forward-looking statement as a result of new information or future events, except as otherwise required by law.

2


PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Hamilton Lane Incorporated
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except share and per share amounts)
 
December 31,
 
March 31,
 
2017
 
2017
Assets
 
 
 
Cash and cash equivalents
$
68,677

 
$
32,286

Restricted cash
1,787

 
1,849

Fees receivable
13,287

 
12,113

Prepaid expenses
1,584

 
2,593

Due from related parties
4,275

 
3,313

Furniture, fixtures and equipment, net
4,061

 
4,063

Investments
130,765

 
120,147

Deferred income taxes
39,766

 
61,223

Other assets
8,844

 
3,030

Total assets
$
273,046

 
$
240,617

Liabilities and Equity
 
 
 
Accounts payable
$
1,080

 
$
1,366

Accrued compensation and benefits
28,051

 
3,417

Deferred incentive fee revenue
31,422

 
45,166

Debt
84,617

 
84,310

Accrued members’ distributions
4,520

 
2,385

Dividends payable
3,172

 

Payable to related parties pursuant to tax receivable agreement
6,436

 
10,734

Other liabilities
5,730

 
6,612

Total liabilities
165,028

 
153,990

 
 
 
 
Commitments and contingencies (Note 14)


 


 
 
 
 
Preferred stock, $0.001 par value, 10,000,000 authorized, none issued

 

Class A common stock, $0.001 par value, 300,000,000 authorized; 19,287,882 and 19,151,033 issued and 19,287,882 and 19,036,504 outstanding as of December 31, 2017 and March 31, 2017, respectively
19

 
19

Class B common stock, $0.001 par value, 50,000,000 authorized; 27,935,255 issued and outstanding as of December 31, 2017 and March 31, 2017
28

 
28

Additional paid-in-capital
62,853

 
61,845

Accumulated other comprehensive loss

 
(311
)
(Accumulated deficit) retained earnings
(5,057
)
 
612

Less: Treasury stock, at cost, 114,529 shares of Class A common stock as of March 31, 2017

 
(2,151
)
Total Hamilton Lane Incorporated stockholders’ equity
57,843

 
60,042

Non-controlling interests in general partnerships
8,363

 
9,901

Non-controlling interests in Hamilton Lane Advisors, L.L.C.
41,812

 
16,684

Total equity
108,018

 
86,627

Total liabilities and equity
$
273,046

 
$
240,617

See accompanying notes to the condensed consolidated financial statements.

3

Hamilton Lane Incorporated
Condensed Consolidated Statements of Income
(Unaudited)
(In thousands, except per share amounts)

 
Three Months Ended December 31,
 
Nine Months Ended December 31,
 
2017

2016
 
2017
 
2016
Revenues
 
 
 
 
 
 
 
Management and advisory fees
$
48,344

 
$
42,009

 
$
146,326

 
$
126,273

Incentive fees
16,670

 
322

 
20,098

 
6,868

Total revenues
65,014

 
42,331

 
166,424

 
133,141

Expenses
 
 
 
 
 
 
 
Compensation and benefits
20,006

 
16,739

 
60,247

 
53,161

General, administrative and other
10,704

 
8,840

 
27,586

 
22,925

Total expenses
30,710

 
25,579

 
87,833

 
76,086

Other income (expense)
 
 
 
 
 
 
 
Equity in income of investees
2,895

 
3,085

 
13,066

 
8,882

Interest expense
(664
)
 
(2,924
)
 
(5,282
)
 
(8,780
)
Interest income
67

 
39

 
472

 
159

Other non-operating income
4,188

 
222

 
4,169

 
232

Total other income
6,486

 
422

 
12,425

 
493

Income before income taxes
40,790

 
17,174

 
91,016

 
57,548

Income tax expense (benefit)
22,957

 
111

 
29,337

 
(264
)
Net income
17,833

 
17,063

 
61,679

 
57,812

Less: Income attributable to non-controlling interests in general partnerships
768

 
64

 
1,750

 
1,024

Less: Income attributable to non-controlling interests in Hamilton Lane Advisors, L.L.C.
23,374

 
16,999

 
56,086

 
56,788

Net (loss) income attributable to Hamilton Lane Incorporated
$
(6,309
)

$

 
$
3,843

 
$

 
 
 
 
 
 
 
 
Basic (loss) earnings per share of Class A common stock (1)
$
(0.35
)
 

 
$
0.21

 

Diluted (loss) earnings per share of Class A common stock (1)
$
(0.35
)
 

 
$
0.21

 

Dividends declared per share of Class A common stock (1)
$
0.175

 

 
$
0.525

 


(1) 
There were no shares of Class A common stock outstanding prior to March 6, 2017, therefore no per-share information has been presented for any period prior to that date.
See accompanying notes to the condensed consolidated financial statements.






4

Hamilton Lane Incorporated
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
(In thousands)


 
Three Months Ended December 31,
 
Nine Months Ended December 31,
 
2017
 
2016
 
2017
 
2016
Net income
$
17,833

 
$
17,063

 
$
61,679

 
$
57,812

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Unrealized loss on cash flow hedge

 

 

 
(142
)
Amounts reclassified to net income:
 
 
 
 
 
 
 
Realized loss on cash flow hedge

 
2

 
922

 
2

Total other comprehensive income (loss), net of tax

 
2

 
922

 
(140
)
Comprehensive income
17,833

 
17,065

 
62,601

 
57,672

Less:
 
 
 
 
 
 
 
Comprehensive income attributable to non-controlling interests in general partnerships
768

 
64

 
1,750

 
1,024

Comprehensive income attributable to non-controlling interests in Hamilton Lane Advisors, L.L.C.
23,374

 
17,001

 
56,697

 
56,648

Total comprehensive (loss) income attributable to Hamilton Lane Incorporated
$
(6,309
)
 
$

 
$
4,154

 
$

See accompanying notes to the condensed consolidated financial statements.































 
5
 


Hamilton Lane Incorporated
Condensed Consolidated Statement of Stockholders' Equity
(Unaudited)
(In thousands)


 
Class A Common Stock
 
Class B Common Stock
 
Additional Paid in Capital
 
(Accumulated Deficit) Retained Earnings
 
Treasury
Stock
 
Accumulated Other
Comprehensive
Income (Loss)
 
Non-Controlling
Interests in general partnerships
 
Non-
Controlling
Interests in Hamilton Lane Advisors, L.L.C.
 
Total Equity
 
 
 
 
 
 
 
 
 
Balance at March 31, 2017
$
19

 
$
28

 
$
61,845

 
$
612

 
$
(2,151
)
 
$
(311
)
 
$
9,901

 
$
16,684

 
$
86,627

Net income

 

 

 
3,843

 

 

 
1,750

 
56,086

 
61,679

Other comprehensive loss

 

 

 

 

 
311

 

 
611

 
922

Equity-based compensation

 

 
1,519

 

 

 

 

 
2,825

 
4,344

Retirement of treasury stock

 

 
(2,151
)
 

 
2,151

 

 

 

 

Proceeds received from option exercises

 

 
108

 

 

 

 

 
205

 
313

Issuance of shares for acquisition

 

 
212

 

 

 

 

 
400

 
612

Repurchase of Class A shares for employee tax withholding

 

 
(234
)
 

 

 

 

 
(446
)
 
(680
)
Deferred tax adjustment

 

 
1,456

 

 

 

 

 

 
1,456

Dividends declared

 

 

 
(9,512
)
 

 

 

 

 
(9,512
)
Capital contributions from (distributions to) non-controlling interests, net

 

 

 

 

 

 
(3,288
)
 

 
(3,288
)
Member distributions

 

 

 

 

 

 

 
(34,455
)
 
(34,455
)
Equity reallocation between controlling and non-controlling interests

 

 
98

 

 

 

 

 
(98
)
 

Balance at December 31, 2017
$
19

 
$
28

 
$
62,853

 
$
(5,057
)
 
$

 
$

 
$
8,363

 
$
41,812

 
$
108,018

See accompanying notes to the condensed consolidated financial statements.

 
6
 


Hamilton Lane Incorporated
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)


 
Nine Months Ended December 31,
 
2017
 
2016
Operating activities:
 
 
 
Net income
$
61,679

 
$
57,812

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
1,396

 
1,440

Change in deferred income taxes
22,913

 

Change in payable to related parties pursuant to tax receivable agreement
(4,298
)
 

Amortization of deferred financing costs
153

 
661

Write-off of deferred financing costs
1,657

 

Equity-based compensation
4,272

 
3,506

Equity in income of investees
(13,066
)
 
(8,882
)
Proceeds received from investments
11,337

 
6,825

Other
1,029

 

Changes in operating assets and liabilities:
 
 
 
Fees receivable
(987
)
 
1,033

Prepaid expenses
1,016

 
(222
)
Due from related parties
(962
)
 
(353
)
Other assets
(311
)
 
(5,132
)
Accounts payable
(286
)
 
981

Accrued compensation and benefits
24,634

 
20,736

Deferred incentive fees
(13,744
)
 

Other liabilities
(1,089
)
 
(778
)
Net cash provided by operating activities
95,343


77,627

Investing activities:
 
 
 
Purchase of furniture, fixtures and equipment
(1,152
)
 
(719
)
Cash paid for acquisition of business
(5,227
)
 

Distributions received from investments
10,792

 
6,991

Contributions to investments
(19,609
)
 
(20,622
)
Net cash used in investing activities
(15,196
)

(14,350
)
Financing activities:
 
 
 
Repayments of debt
(86,569
)
 
(1,950
)
Borrowings of debt, net of deferred financing costs
85,066

 

Contributions from non-controlling interest in general partnerships
231

 
489

Distributions to non-controlling interest in general partnerships
(3,519
)
 
(2,372
)
Sale of membership interests

 
4,668

Repurchase of Class A shares for employee tax withholding
(680
)
 

Purchase of membership interests

 
(6,059
)
Proceeds received from option exercises
313

 
879

Dividends paid
(6,340
)
 

Members’ distributions
(32,320
)
 
(72,467
)
Other


(611
)
Net cash used in financing activities
(43,818
)
 
(77,423
)
Increase (decrease) in cash, cash equivalents, and restricted cash
36,329

 
(14,146
)
Cash, cash equivalents, and restricted cash at beginning of the period
34,135

 
70,382

Cash, cash equivalents, and restricted cash at end of the period
$
70,464

 
$
56,236

See accompanying notes to the condensed consolidated financial statements.

 
7
 


Hamilton Lane Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share amounts)



1. Organization

Hamilton Lane Incorporated (“HLI”) was incorporated in the State of Delaware on December 31, 2007. As of March 6, 2017, following its initial public offering (“IPO”) and related transactions (the “Reorganization”), the Company became a publicly-traded entity, and both the holding company for and sole managing member of Hamilton Lane Advisors, L.L.C. (“HLA”). Unless otherwise specified, “the Company” refers to the consolidated group of HLI and HLA and its subsidiaries throughout the remainder of these notes.

HLA is a registered investment advisor with the United States Securities and Exchange Commission (“SEC”), providing asset management and advisory services, primarily to institutional investors, to design, build and manage private markets portfolios. HLA generates revenues primarily from management fees, by managing assets on behalf of customized separate accounts, specialized fund products and distribution management accounts, and advisory fees, by providing asset supervisory and reporting services. HLA sponsors the formation, and serves as the general partner or managing member, of various limited partnerships or limited liability companies consisting of specialized funds and certain single client separate account entities (“Partnerships”) that acquire interests in third-party managed investment funds that make private equity and equity-related investments. The Partnerships may also make direct co-investments, including investments in debt, equity, and other equity-based instruments. HLA, which includes certain subsidiaries that serve as the general partner or managing member of the Partnerships, may invest its own capital in the Partnerships and generally makes all investment and operating decisions for the Partnerships. HLA operates several wholly- or majority-owned entities through which it conducts its foreign operations.

Reorganization

In connection with the IPO, the Company completed a series of transactions on March 6, 2017, which are described below:
the certificate of incorporation of HLI was amended and restated to, among other things, (i) provide for Class A common stock and Class B common stock, (ii) set forth the voting rights of the Class A common stock (one vote per share) and Class B common stock (ten votes per share) and (iii) establish a classified board of directors;
the limited liability company agreement of HLA was amended and restated to, among other things, (i) appoint HLI as the sole managing member of HLA and (ii) classify the interests that were acquired by HLI as Class A Units, the voting interests held by the continuing members of HLA as Class B Units, and the non-voting interests held by the continuing members of HLA as Class C Units;
HLA effectuated a reverse unit split of 0.68-for-1 for each unit class;
certain HLA members exchanged their HLA units for 3,899,169 shares of Class A common stock of HLI;
HLI issued to the Class B unitholders of HLA one share of Class B common stock for each Class B unit that they owned, in exchange for a payment of its par value;
certain Class B unitholders of HLA entered into a stockholders agreement pursuant to which they agreed to vote all their shares of voting stock in accordance with the instructions of HLA Investments, LLC; and
HLI entered into an exchange agreement with the direct owners of HLA pursuant to which they will be entitled to exchange HLA units for shares of HLI’s Class A common stock on a one-for-one basis (the “Exchange Agreement”).

 
8
 


Hamilton Lane Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share amounts)



Initial Public Offering

On March 6, 2017, HLI issued 13,656,250 shares of Class A common stock in the IPO at a price of $16.00 per share. The net proceeds totaled $203,205 after deducting underwriting commissions of $15,295 and before offering costs of $5,844 that were incurred by HLA. The net proceeds were used to purchase 11,156,250 newly issued Class A units in HLA for $166,005 and 2,500,000 Class A units from existing HLA owners for $37,200.

Subsequent to the IPO and Reorganization transactions, HLI is a holding company whose principal asset is a controlling equity interest in HLA. As the sole managing member of HLA, HLI operates and controls all of the business and affairs of HLA, and through HLA, conducts its business. As a result, HLI consolidates HLA’s financial results and reports a non-controlling interest related to the portion of HLA units not owned by HLI. The assets and liabilities of HLA represent substantially all of HLI’s consolidated assets and liabilities with the exception of certain deferred tax assets and liabilities, payable to related parties pursuant to a tax receivable agreement, and dividends payable. As of December 31, 2017 and March 31, 2017, HLI held approximately 34.5% and 34.2%, respectively, of the economic interest in HLA. As future exchanges of HLA units occur, the economic interest in HLA held by HLI will increase.

The Reorganization is considered a transaction between entities under common control.  As a result, the condensed consolidated financial statements for periods prior to the IPO and the Reorganization are the condensed consolidated financial statements of HLA as the predecessor to HLI for accounting and reporting purposes.  

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Management believes it has made all necessary adjustments (which consisted of only normal recurring items) so that the condensed consolidated financial statements are presented fairly and that estimates made in preparing the condensed consolidated financial statements are reasonable and prudent. Results of operations for the three and nine months ended December 31, 2017 are not necessarily indicative of the results that may be expected for the year ending March 31, 2018. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of March 31, 2017.

Fair Value of Financial Instruments

The Company utilizes a hierarchy that prioritizes fair value measurements based on the types of inputs used for the various valuation techniques (market approach, income approach, and cost approach). The levels of the hierarchy are described below:

Level 1: Values are determined using quoted market prices for identical financial instruments in an active market.

 
9
 


Hamilton Lane Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share amounts)


Level 2: Values are determined using quoted prices for similar financial instruments and valuation models whose inputs are observable.
Level 3: Values are determined using pricing models that use significant inputs that are primarily unobservable, discounted cash flow methodologies or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

The carrying amount of cash and cash equivalents, fees receivable, and accounts payable approximate fair value due to the immediate or short-term maturity of these financial instruments.

Distributions and Dividends

Distributions and dividends are reflected in the condensed consolidated financial statements when declared. Distributions to members represent amounts paid to the non-controlling interest holders of HLA. All distributions received by HLI from HLA are eliminated in the condensed consolidated financial statements.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards update (ASU) No. 2014-09, “Revenue from Contracts with Customers” (ASU 2014-09). ASU 2014-09 represents a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled to receive in exchange for those goods or services. The new standards will be effective for the Company on April 1, 2018. The standard permits the use of either a full retrospective or modified retrospective approach. The Company plans to adopt the guidance using the modified retrospective approach. The Company currently recognizes incentive fee revenue when required return levels are met and all contingencies have been resolved. Under the new standard, the Company will recognize incentive fee revenue when it concludes that it is probable that a significant reversal in the cumulative amount of incentive fee revenue will not occur. The Company is continuing to assess the impact of adoption of the new standard on other revenue-related items, including evaluating the impact of certain revenue related costs, principal versus agent reporting considerations that would affect whether certain transactions are reported gross or net in the consolidated statement of operations, as well as the additional disclosures required by the new standard.

In January 2016, the FASB issued ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities” (ASU 2016-01), which requires entities to measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value and recognize any changes in fair value in net income. The standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those years, and entities may early adopt. The Company is currently evaluating the effect that adoption will have on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, “Leases” (ASU 2016-02). The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the consolidated balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the consolidated income statement. ASU 2016-02 is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods, with early adoption permitted.


10

Hamilton Lane Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share amounts)


A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the effect that adoption will have on its consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15, “Classification of Certain Cash Receipts and Payments” (ASU 2016-15). ASU 2016-15 clarifies cash flow classification of several discrete cash flows issues including debt prepayment costs and distributions received from equity method investees. The amendments are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company will adopt ASU 2016-15 on April 1, 2018 and the adoption is not expected to have a material impact on its consolidated financial statements.

In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows - Restricted Cash” (ASU 2016-18). ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The amendments in this update are effective for years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company early adopted the standard on October 1, 2016 and retrospectively applied the amendment. Other than the change in presentation of restricted cash within the Condensed Consolidated Statements of Cash Flows, the adoption of this standard did not have a material impact on its consolidated financial statements.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation.

3. Investments

Investments consist of the following:
 
December 31,
 
March 31,
 
2017
 
2017
Equity method investments in Partnerships
$
113,485

 
$
103,141

Other equity method investments
994

 
661

Investments carried at cost
16,286

 
16,345

Total Investments
$
130,765

 
$
120,147


The Company’s equity method investments in Partnerships represent its ownership in certain specialized funds and customized separate accounts. The strategies and geographic location of investments within the Partnerships vary by fund. The Company generally has a 1% interest in each of the Partnerships, although the Company has interests in certain Partnerships ranging from 0%-7%. The Company’s other equity method investments represent its ownership in a technology company that provides benchmarking and analytics of private equity data and its ownership in a joint venture, Private Market Connect (“PMC”), that automates the collection of fund and underlying portfolio company data from general partners. The Company recognized equity method income related to its investments in Partnerships and other equity method investments of $2,895 and $13,066 for the three and nine months ended December 31, 2017, respectively, and $3,085 and $8,882 for the three and nine months ended December 31, 2016, respectively.


11

Hamilton Lane Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share amounts)



The Company evaluates each of its equity method investments to determine if any were significant pursuant to the requirements of Regulation S-X. As of December 31, 2017 and March 31, 2017, no individual equity method investment held by the Company met the significance criteria, and as a result, the Company is not required to present separate financial statements for any of its equity method investments.

The Company’s investments carried at cost include other proprietary investments that are not consolidated, over which the Company does not exert significant influence and for which fair value is not readily determinable. The Company has determined in accordance with the applicable guidance that it is impracticable to estimate the fair value of the investments carried at cost due to limited information available. As of December 31, 2017 and March 31, 2017, the Company did not identify any significant events or changes in circumstances that have a significant adverse effect on the carrying value of these investments carried at cost.

4. Variable Interest Entities

The Company consolidates certain VIEs in which it is determined that the Company is the primary beneficiary. The consolidated VIEs are general partner entities of the Partnerships, which are not wholly owned by the Company. The total assets of the consolidated VIEs are $16,710 and $19,653 as of December 31, 2017 and March 31, 2017, respectively, and are recorded in Investments in the Condensed Consolidated Balance Sheets. The consolidated VIEs had no liabilities other than deferred incentive fee revenue of $31,422 and $45,166 as of December 31, 2017 and March 31, 2017. The assets of the consolidated VIEs may only be used to settle obligations of the consolidated VIEs, if any. In addition, there is no recourse to the Company for the consolidated VIEs’ liabilities, except for certain entities in which there could be a claw back of previously distributed carried interest.

The Company holds variable interests in certain Partnerships that are VIEs, which are not consolidated, as it is determined that the Company is not the primary beneficiary. Certain Partnerships are considered VIEs because limited partners lack the ability to remove the general partner or dissolve the entity without cause, by simple majority vote (i.e. do not have substantive “kick out” or “liquidation” rights). The Company’s involvement with such entities is in the form of direct equity interests in, and fee arrangements with, the Partnerships in which it also serves as the general partner or managing member. In the Company’s role as general partner or managing member, it generally considers itself the sponsor of the applicable Partnership and makes all investment and operating decisions. As of December 31, 2017, the total commitments and remaining unfunded commitments from the limited partners and general partners to the unconsolidated VIEs are $12,591,114 and $4,744,430, respectively. These commitments are the primary source of financing for the unconsolidated VIEs.

The maximum exposure to loss represents the potential loss of assets recognized by the Company relating to these unconsolidated entities. The Company believes that its maximum exposure to loss is limited because it establishes separate limited partnerships or limited liability companies to serve as the general partner or managing member of the Partnerships.


 
12
 


Hamilton Lane Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share amounts)


The carrying amount of assets and liabilities recognized in the Condensed Consolidated Balance Sheets related to the Company’s interests in these non-consolidated VIEs and the Company’s maximum exposure to loss relating to non-consolidated VIEs were as follows:
 
December 31,
 
March 31,
 
2017
 
2017
Investments
$
70,559

 
$
60,597

Fees receivable
2,212

 
430

Due from related parties
2,792

 
1,742

Total VIE Assets
75,563

 
62,769

Deferred incentive fee revenue
31,422

 
45,166

Non-controlling interests
(8,363
)
 
(9,901
)
Maximum Exposure to Loss
$
98,622

 
$
98,034


5. Acquisition

On August 11, 2017, HLA acquired substantially all the assets of Real Asset Portfolio Management LLC (“RAPM”) for a total aggregate purchase price of approximately $5,839, of which $5,227 was paid in cash with the remainder settled in 27,240 shares of Class A common stock valued at approximately $612. An additional amount based upon an agreed upon multiple of earnings, which is currently estimated at approximately $3,485, could be payable to the principals of RAPM who are now employees of HLA if they remain employed by HLA through the expected payment date in October 2018. As the amount is contingent upon future employment, the amount will be recognized as compensation expense over the required performance period. The Company recorded approximately $2,948 of intangible assets related to the acquired investment management contracts, which assets will be amortized over eight years, and $2,874 of goodwill, which are both recorded in other assets in the Condensed Consolidated Balance Sheets. The remaining assets acquired and liabilities assumed were not material to the condensed consolidated financial statements. Revenue and net income attributable to the acquisition of RAPM were not material for the three and nine months ended December 31, 2017, and pro forma information related to this acquisition is not included because the impact on the Company’s Condensed Consolidated Statements of Income is not considered to be material.

6. Debt

On August 23, 2017, HLA entered into a Term Loan and Security Agreement (the “Term Loan Agreement”) and a Revolving Loan and Security Agreement (the “Revolving Loan Agreement” and, together with the Term Loan Agreement, the “Loan Agreements”) with First Republic Bank (“First Republic”) for $75,000 and $10,450, respectively. After expenses, the net amount of cash received was $85,066 and was utilized to pay off the outstanding principal amount and accrued interest of the predecessor credit facility. The previous unamortized deferred financing costs of $1,657 were written off and are included in interest expense in the Condensed Consolidated Statements of Income.

The Term Loan Agreement provides for a term loan facility in an aggregate principal amount of $75,000 and also contains an accordion feature that allows HLA to increase the commitment under the facility by up to $25,000 under certain conditions (the “Term Loan Facility”). Borrowings under the Term Loan Facility accrue interest at a floating per annum rate equal to the prime rate minus 1.25%, subject to a floor of 2.75%. The Term Loan Facility matures on November 1, 2024. At December 31, 2017, the Company had an outstanding balance net of deferred financing costs on the Term Loan Facility of

 
13
 


Hamilton Lane Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share amounts)


$74,167.

The Revolving Loan Agreement provides for a revolving credit facility up to an aggregate principal amount of $25,000 (the “Revolving Loan Facility”). Borrowings under the Revolving Loan Facility accrue interest at a floating per annum rate equal to the prime rate minus 1.50%, subject to a floor of 2.50%. The Revolving Loan Facility matures on August 21, 2020 and requires compliance with conditions precedent that must be satisfied prior to any borrowing. At December 31, 2017, the Company had an outstanding balance on the Revolving Loan Facility of $10,450.

The Loan Agreements contain covenants that, among other things, limit HLA’s ability to incur indebtedness, transfer or dispose of assets, merge with other companies, create, incur or allow liens, make investments, pay dividends or make distributions, engage in transactions with affiliates and take certain actions with respect to management fees. The Loan Agreements also require HLA to maintain (i) a specified amount of management fees in each fiscal year during the term of each of the Loan Agreements, (ii) adjusted EBITDA, as defined in the Term Loan Agreement, less dividend distributions on a trailing six-month basis of $12,500 or greater, tested semi-annually, and (iii) a specified tangible net worth during each fiscal year during the term of each of the Loan Agreements. The obligations under the Loan Agreements are secured by substantially all of the assets of HLA.

The fair value of the outstanding balance of the Term Loan at December 31, 2017 and predecessor credit facility at March 31, 2017 approximated par value based on then-current market rates for similar debt instruments and is classified as Level II within the fair value hierarchy.

In July 2015, the Company purchased interest rate caps through June 30, 2020 to limit exposure to fluctuations in LIBOR above 2.5% on a portion of the Company’s predecessor credit facility. In October 2016, the Company de-designated its remaining interest rate caps as cash flow hedges and discontinued hedge accounting. In August 2017, in connection with the payoff of the predecessor credit facility with the proceeds from the Loan Agreements, which accrue interest indexed to the prime rate, the amount accumulated in other comprehensive income (loss) was reclassified into earnings through interest expense in the Condensed Consolidated Statements of Income because the cash flows of future interest payments indexed to LIBOR will no longer occur. The changes in the fair value of these interest rate caps are recorded in other non-operating income in the Condensed Consolidated Statements of Income. The fair value of the interest rate caps was $84 and $194 as of December 31, 2017 and March 31, 2017, respectively, and is included in other assets in the Condensed Consolidated Balance Sheets. The fair value of the interest rate caps is determined utilizing quoted prices in active markets for the same or similar instruments and is classified as Level II within the fair value hierarchy.


 
14
 


Hamilton Lane Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share amounts)


7. Equity

The following table shows a rollforward of the Company’s common stock outstanding since March 31, 2017:
 
Class A Common Stock
 
Class B Common Stock
March 31, 2017
19,036,504

 
27,935,255

Restricted stock granted
49,357

 

Shares issued due to option exercise, net
200,244

 

Shares issued in connection with RAPM acquisition
27,240

 

Shares repurchased for employee tax withholdings
(757
)
 

Forfeitures of restricted stock
(24,706
)
 

December 31, 2017
19,287,882

 
27,935,255


During the nine months ended December 31, 2017, the Company retired 114,529 shares of Class A common stock held as treasury stock (that were outstanding as of March 31, 2017) at a total cost of $2,151 and 34,008 shares of Class A common stock at a total cost of $680, which were purchased from employees to fund statutory tax withholding requirements.

8. Equity-Based Compensation

Summary of Option Activity

A summary of option activity for the nine months ended December 31, 2017 is presented below:
 
Number of
Options
 
Weighted-
Average
Exercise
Price
Options outstanding at March 31, 2017
233,495

 
$
1.34

Options exercised
(233,495
)
 
$
1.34

Options outstanding at December 31, 2017

 
$


The intrinsic value of options exercised during the nine months ended December 31, 2017 was $4,350.


 
15
 


Hamilton Lane Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share amounts)


Restricted Stock

A summary of restricted stock activity for the nine months ended December 31, 2017 is presented below:
 
Total
Unvested
 
Weighted-
Average
Grant-Date
Fair Value of
Award
March 31, 2017
1,138,521

 
$
14.49

Granted
49,357

 
$
19.68

Vested
(1,835
)
 
$
13.76

Forfeited
(24,706
)
 
$
13.91

December 31, 2017
1,161,337

 
$
14.72


As of December 31, 2017, total unrecognized compensation expense related to restricted stock was $11,463.

9. Compensation and Benefits

The Company has recorded the following amounts related to compensation and benefits:
 
Three Months Ended December 31,
 
Nine Months Ended December 31,
 
2017
 
2016
 
2017
 
2016
Base compensation and benefits
$
17,428

 
$
15,489

 
$
53,397

 
$
47,938

Incentive fee compensation
523

 
81

 
1,380

 
1,717

Equity-based compensation
1,284

 
1,169

 
4,272

 
3,506

Contingent compensation related to acquisition
771

 

 
1,198

 

Total compensation and benefits
$
20,006

 
$
16,739

 
$
60,247

 
$
53,161


10. Income Taxes

As a result of the Reorganization and IPO, HLI became the sole managing member of HLA, which is organized as a limited liability company and treated as a “flow-through” entity for income tax purposes. As a “flow-through” entity, HLA is not subject to income taxes apart from certain local taxes assessed at the limited liability company level and foreign taxes attributable to its operations in foreign jurisdictions. Any taxable income or loss generated by HLA is passed through to and included in the taxable income or loss of its members, including HLI following the Reorganization and IPO, on a pro rata basis. As a result, the Company does not record income taxes on pre-tax income or loss attributable to the non-controlling interests in the general partnerships and HLA, except for certain local and foreign taxes discussed above. HLI is subject to U.S. federal and applicable state corporate income taxes with respect to its allocable share of any taxable income from HLA following the Reorganization and IPO.

The Company’s effective tax rate used for interim periods is based on an estimated annual effective tax rate including the tax effect of items required to be recorded discretely in the interim period in which those items occur. The effective tax rate is dependent on many factors, including the estimated amount of income

 
16
 


Hamilton Lane Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share amounts)


subject to income tax; therefore, the effective tax rate can vary from period to period.

On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was signed into law, which enacts significant changes to U.S. federal income tax laws, including a reduction of the corporate income tax rate from 35% to 21%, limitation of the tax deduction for interest expense, expensing the cost of acquired qualified property, and a one-time transition tax on accumulated, undistributed foreign earnings.

As a result of the Tax Act, the estimated annual effective tax rate was revised to reflect the change in the federal statutory rate from 35% to 21% effective January 1, 2018. Consequently, the blended federal statutory tax rate for the Company’s 2018 fiscal year is 31.55% based on the weighted average of a 35% rate for 275 days and 21% for 90 days.

The Company’s effective tax rate was 56.3% and 32.2% for the three and nine months ended December 31, 2017, respectively, and 0.6% and (0.5)% for the three and nine months ended December 31, 2016, respectively. The increase in the effective income tax rate for the three and nine months ended December 31, 2017 was due to U.S. federal and state corporate income tax expense related to HLI’s allocable share of taxable income from HLA and a provisional discrete tax expense of $21,200 related to the re-measurement of estimated deferred tax assets as of December 31, 2017 due to the tax rate change pursuant to enactment of the Tax Act.

The Tax Act also requires taxpayers to pay a one-time transition tax on accumulated, undistributed earnings of certain foreign subsidiaries. The Company recorded a provisional tax liability of $442 for certain of its foreign subsidiaries based on estimated accumulated, undistributed earnings. As a result of the transition tax estimate, the Company reversed $1,100 of a previously recorded deferred tax liability on unremitted earnings of foreign subsidiaries.

The Company has not completed its analysis of the new Global Intangible Low-Taxed Income (“GILTI”) tax law, and as a result, is not yet able to reasonably estimate the effect of this provision of the Tax Act. Therefore, the Company has not yet included any potential GILTI tax in its condensed consolidated financial statements and has not elected the related accounting policy.
  
The Company will continue to analyze the effects of the Tax Act on its consolidated financial statements. Any additional impacts from the enactment of the Tax Act will be recorded as they are identified during the measurement period.

The Company evaluates the realizability of its deferred tax asset on a quarterly basis and adjusts the valuation allowance when it is more likely than not that all or a portion of the deferred tax asset may not be realized.

As of December 31, 2017, the Company had no unrecognized tax positions.

Tax Receivable Agreement

HLI’s purchase of HLA Class A units in connection with the IPO, and the subsequent and future exchanges by holders of HLA units for shares of HLI’s Class A common stock pursuant to the Exchange Agreement, are expected to result in increases in HLI’s share of the tax basis of the tangible and intangible assets of HLA. This will increase the tax depreciation and amortization deductions that otherwise would not have been available to HLI. These increases in tax basis and tax depreciation and amortization deductions are expected to reduce the amount of cash taxes that HLI would otherwise be required to pay in the future. On

 
17
 


Hamilton Lane Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share amounts)


March 6, 2017, HLI entered into a tax receivable agreement (“TRA”) with the other members of HLA that requires HLI to pay exchanging HLA unitholders (the “TRA Recipients”) 85% of the amount of cash savings, if any, in U.S. federal, state, and local income tax that HLI actually realizes (or, under certain circumstances, is deemed to realize) as a result of the increases in tax basis in connection with exchanges by the TRA Recipients described above and certain other tax benefits attributable to payments under the TRA. The payable to related parties pursuant to the TRA decreased to $6,436 as of December 31, 2017 from $10,734 as of March 31, 2017 as a result of being re-measured due to the tax rate change enacted by the Tax Act. The change in liability was recorded to other non-operating income in the Condensed Consolidated Statements of Income. No amounts were paid to TRA Recipients during the nine months ended December 31, 2017.

11. Earnings per Share

There were no shares of Class A common stock outstanding during the three and nine months ended December 31, 2016. Therefore, no earnings per share information has been presented for that period.

Shares of the Company’s Class B common stock do not share in the earnings or losses attributable to HLI, and therefore are not participating securities. As a result, a separate presentation of basic and diluted earnings per share of Class B common stock under the two-class method has not been included. Shares of the Company’s Class B common stock are, however, considered potentially dilutive to the Class A common stock because each share of Class B common stock, together with a corresponding Class B unit, is exchangeable for a share of Class A common stock on a one-for-one basis.

The following table sets forth reconciliations of the numerators and denominators used to compute basic and diluted earnings per share of Class A common stock:
 
Three Months Ended
 
Nine Months Ended
 
December 31, 2017
 
December 31, 2017
 
Net loss attributable to HLI
 
Weighted-Average Shares
 
Per share amount
 
Net income attributable to HLI
 
Weighted-Average Shares
 
Per share amount
Basic EPS of Class A common stock
$
(6,309
)
 
18,126,532

 
$
(0.35
)
 
$
3,843

 
18,075,035

 
$
0.21

Adjustment to net income:
 
 
 
 
 
 
 
 
 
 

Assumed exercise and vesting of employee awards

 


 
 
 
87

 
 
 
 
 Effect of dilutive securities:
 
 
 
 
 
 
 
 
 
 
 
Assumed exercise and vesting of employee awards
 
 

 
 
 
 
 
628,615

 
 
Diluted EPS of Class A common stock
$
(6,309
)
 
18,126,532

 
$
(0.35
)
 
$
3,930

 
18,703,650

 
$
0.21


The calculation of diluted earnings per share for the three months ended December 31, 2017 excludes 1,161,337 shares of restricted stock under the treasury stock method, and the calculations of diluted earnings per share for the three and nine months ended December 31, 2017 excludes 34,438,669 outstanding Class B and C Units of HLA, which are exchangeable into Class A common stock under the “if-converted” method, because the inclusion of such shares would be antidilutive.


 
18
 


Hamilton Lane Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share amounts)


12. Related-Party Transactions

The Company has investment management agreements with various specialized funds and customized separate accounts that it manages. The Company earned management and incentive fees from Partnerships of $43,649 and $104,966 for the three and nine months ended December 31, 2017, respectively, and $25,503 and $82,208 for the three and nine months ended December 31, 2016, respectively.

The Company entered into a service agreement on June 1, 2017 with PMC pursuant to which it had expenses of $1,115 and $2,478 for the three and nine months ended December 31, 2017, respectively, which are included in general, administrative and other expenses in the Condensed Consolidated Statements of Income. The Company also has a payable to the joint venture of $372 as of December 31, 2017, which is included in other liabilities in the Condensed Consolidated Balance Sheets.

Due from related parties in the Condensed Consolidated Balance Sheets consists primarily of advances made on behalf of the Partnerships for the payment of certain operating costs and expenses for which the Company is subsequently reimbursed and refundable tax distributions made to members.

Fees receivable from the Partnerships were $3,412 and $918 as of December 31, 2017 and March 31, 2017, respectively, and are included in fees receivable in the Condensed Consolidated Balance Sheets.

13. Supplemental Cash Flow Information
 
Nine Months Ended December 31,
 
2017
 
2016
Non-cash investing activities:
 
 
 
Shares issued for acquisition of business
$
(612
)
 
$


14. Commitments and Contingencies

Litigation

In the ordinary course of business, the Company may be subject to various legal, regulatory, and/or administrative proceedings from time to time. Although there can be no assurance of the outcome of such proceedings, in the opinion of management, the Company does not believe it is probable that any pending or, to its knowledge, threatened legal proceeding or claim would individually or in the aggregate materially affect its condensed consolidated financial statements.


 
19
 


Hamilton Lane Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share amounts)


Incentive Fees

In connection with carried interest from the Partnerships, the Company only recognizes its allocable share of the Partnerships’ earnings to the extent that this income is not subject to continuing contingencies. Carried interest allocated to the Company from the Partnerships that is subject to continuing contingencies is not recognized in the accompanying Condensed Consolidated Balance Sheets. The Partnerships have allocated carried interest still subject to contingencies in the amounts of $300,527 and $236,857, net of amounts attributable to non-controlling interests, at December 31, 2017 and March 31, 2017, respectively, of which $31,422 and $45,166 at December 31, 2017 and March 31, 2017, respectively, has been received and deferred by the Company. The Company recognized $13,744 of incentive fee revenue during the three and nine months ended December 31, 2017 that was received and deferred in fiscal 2016. The Company previously recognized incentive fee compensation expense related to the receipts of these carried interest distributions in fiscal 2016.

If the Company ultimately receives the unrecognized carried interest, a total of $68,202 and $48,849 as of December 31, 2017 and March 31, 2017, respectively, would potentially be payable to certain employees and third parties pursuant to compensation arrangements related to carried interest profit-sharing plans. Such amounts have not been recorded in the Condensed Consolidated Balance Sheets or Condensed Consolidated Statements of Income as the payment is not yet probable.

Commitments

The Company serves as the investment manager of the Partnerships. The general partner or managing member of each Partnership is generally a separate subsidiary of the Company and has agreed to invest funds on the same basis as the limited partners in most instances. The aggregate unfunded commitment of the general partners to the Partnerships was $86,942 and $76,908 as of December 31, 2017 and March 31, 2017, respectively.

15. Management and Advisory Fees

The following presents management and advisory fee revenues by product offering:
 
Three Months Ended December 31,
 
Nine Months Ended December 31,
 
2017
 
2016
 
2017
 
2016
Customized separate accounts
$
19,860

 
$
17,826

 
$
58,253


$
52,794

Specialized funds
19,132

 
17,124

 
63,582


53,407

Advisory and reporting
7,479

 
6,021

 
20,958


17,680

Distribution management
1,873

 
1,038

 
3,533


2,392

Total management and advisory fees
$
48,344

 
$
42,009

 
$
146,326

 
$
126,273


16. Subsequent Events

On February 6, 2018, the Company declared a quarterly dividend of $0.175 per share of Class A common stock to record holders at the close of business on March 15, 2018. The payment date will be April 5, 2018.


 
20
 



Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following information should be read in conjunction with our unaudited condensed consolidated financial statements and the notes thereto included in this Form 10-Q, and our audited financial statements, notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2017 Form 10-K for a more complete understanding of our financial position and results of operations. The historical consolidated financial data discussed below reflect the historical results of operations and financial condition of HLA prior to our IPO in February 2017. The consolidated financial statements of HLA, our predecessor for accounting purposes, are our historical financial statements for this Form 10-Q.
The following discussion may contain forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in these forward-looking statements. Investors should review the “Cautionary Note Regarding Forward-Looking Information” above and the “Risk Factors” detailed in Part I, Item 1A of our 2017 Form 10-K for a discussion of those risks and uncertainties that have the potential to cause actual results to be materially different. Our results of operations for interim periods are not necessarily indicative of results to be expected for the full year or for any other period. Unless otherwise indicated, references in this Form 10-Q to fiscal 2017, fiscal 2016 and fiscal 2015 are to our fiscal years ended March 31, 2017, 2016 and 2015, respectively.
Business Overview
We are a global private markets investment solutions provider. We offer a variety of investment solutions to address our clients’ needs across a range of private markets, including private equity, private credit, real estate, infrastructure, natural resources, growth equity and venture capital. These solutions are constructed from a range of investment types, including primary investments in funds managed by third-party managers, direct/co-investments alongside such funds and acquisitions of secondary stakes in such funds, with a number of our clients utilizing multiple investment types. These solutions are offered in a variety of formats covering some or all phases of private markets investment programs:
Customized Separate Accounts: We design and build customized portfolios of private markets funds and direct investments to meet our clients’ specific portfolio objectives with regard to return, risk tolerance, diversification and liquidity. We generally have discretionary investment authority over our customized separate accounts, which comprised approximately $41 billion of our assets under management (“AUM”) as of December 31, 2017.
Specialized Funds: We organize, invest and manage specialized primary, secondary and direct/co-investment funds. Our specialized funds invest across a variety of private markets and include equity, equity-linked and credit funds offered on standard terms as well as shorter duration, opportunistically oriented funds. We launched our first specialized fund in 1997, and our product offerings have grown steadily, comprising approximately $10 billion of our AUM as of December 31, 2017.
Advisory Services: We offer investment advisory services to assist clients in developing and implementing their private markets investment programs. Our investment advisory services include asset allocation, strategic plan creation, development of investment policies and guidelines, the screening and recommending of investments, legal negotiations, the monitoring of and reporting on investments and investment manager review and due diligence. Our advisory clients include some of the largest and most sophisticated private markets investors in the world. We had approximately $374 billion of assets under advisement (“AUA”) as of December 31, 2017.

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Distribution Management: We offer distribution management services through active portfolio management to enhance the realized value of publicly traded stock they receive as distributions from private equity funds.
Reporting, Monitoring, Data and Analytics: We provide our clients with comprehensive reporting and investment monitoring services, usually bundled into our broader investment solutions offerings, but occasionally on a stand-alone, fee-for-service basis. Private markets investments are unusually difficult to monitor, report on and administer, and our clients are able to benefit from our sophisticated infrastructure, which provides clients with real time access to reliable and transparent investment data, and our high-touch service approach, which allows for timely and informed responses to the multiplicity of issues that can arise. We also provide comprehensive research and analytical services as part of our investment solutions, leveraging our large, global, proprietary and high-quality database of private markets investment performance and our suite of proprietary analytical investment tools.
Our client base primarily comprises institutional investors that range from those seeking to make an initial investment in alternative assets to some of the world’s largest and most sophisticated private markets investors. As a highly customized, flexible outsourcing partner, we are equipped to provide investment services to institutional clients of all sizes and with different needs, internal resources and investment objectives. Our clients include prominent institutional investors in the United States, Europe, the Middle East, Asia, Australia and Latin America. We believe we are a leading provider of private markets solutions for U.S. labor union pension plans, and we serve numerous smaller public and corporate pension plans, sovereign wealth funds, financial institutions and insurance companies, endowments and foundations, as well as family offices and selected high-net-worth individuals.
Key Transactions in Calendar 2017
New Term Loan and Revolving Credit Facility

On August 23, 2017, we entered into a Term Loan and Security Agreement (the “Term Loan Agreement”) and a Revolving Loan and Security Agreement (the “Revolving Loan Agreement” and, together with the Term Loan Agreement, the “Loan Agreements”) with First Republic Bank (“First Republic”) for $75.0 million and $10.5 million, respectively. After expenses, the net amount of cash received was $85.1 million and was utilized to pay off the outstanding principal amount and accrued interest of the predecessor credit facility.

Acquisition

On August 11, 2017, we acquired substantially all of the assets of Real Asset Portfolio Management LLC (“RAPM”), a Portland, Oregon-based investment management firm focused exclusively on real assets, for a total aggregate purchase price of approximately $5.8 million, of which $5.2 million was paid in cash with the remainder settled in 27,240 shares of Class A common stock valued at approximately $0.6 million. An additional amount of up to approximately $3.5 million related to compensation is payable to the principals of RAPM who are now employees and is contingent upon those individuals remaining employed through the expected payment date in October 2018.



22


Reorganization and Initial Public Offering

On March 6, 2017, we completed an initial public offering (“IPO”) pursuant to which we sold an aggregate of 13,656,250 shares of Class A common stock at a public offering price of $16.00 per share, receiving $203.2 million in net proceeds. We used $37.2 million of the net proceeds from our IPO to purchase membership units in Hamilton Lane Advisors, L.L.C. (“HLA”) from certain of its existing owners. We used $160.0 million of the net proceeds from the IPO to repay principal on our then-current credit facility and the remaining $6.0 million for IPO transaction expenses and general corporate purposes.

In connection with the IPO, we completed a series of reorganization transactions that included the following:
our certificate of incorporation was amended and restated to, among other things, (i) provide for Class A common stock and Class B common stock, (ii) set forth the voting rights of the Class A common stock (one vote per share) and Class B common stock (ten votes per share), and (iii) establish a classified board of directors;
the limited liability company agreement of HLA was amended and restated to, among other things, (i) appoint Hamilton Lane Incorporated (“HLI”) as the sole managing member of HLA and (ii) classify the interests that were acquired by HLI as Class A Units, the voting interests held by the continuing members of HLA as Class B Units and the non-voting interests held by the continuing members of HLA as Class C Units;
HLA effectuated a reverse unit split of 0.68-for-1 for each unit class;
certain HLA members exchanged their HLA units for 3,899,169 shares of Class A common stock of HLI;
HLI issued to the Class B unitholders of HLA one share of Class B common stock for each Class B unit that they owned, in exchange for a payment of its par value;
certain Class B unitholders of HLA entered into a stockholders agreement pursuant to which they agreed to vote all their shares of voting stock in accordance with the instructions of HLA Investments, LLC; and
HLI entered into an exchange agreement with the direct owners of HLA pursuant to which they will be entitled to exchange HLA units for shares of our Class A common stock on a one-for-one basis.

We refer to the above-mentioned transactions, as well as the other transactions completed in connection with the IPO, collectively as the “Reorganization.”
Operating Segments
We operate our business in a single segment, which is how our chief operating decision maker (who is our chief executive officer) reviews financial performance and allocates resources.
Key Financial and Operating Measures
Our key financial measures are discussed below.
Revenues
We generate revenues primarily from management and advisory fees, and to a lesser extent, incentive fees.
Management and advisory fees comprise specialized fund and customized separate account management fees, advisory and reporting fees and distribution management fees.


23


Revenues from customized separate accounts are generally based on a contractual rate applied to committed capital or net invested capital under management. These fees often decrease over the life of the contract due to built-in declines in contractual rates and/or as a result of lower net invested capital balances as capital is returned to clients. In certain cases, we also provide advisory and/or reporting services, and therefore we also receive fees for services such as monitoring and reporting on a client’s existing private markets investments. In addition, we may provide for investments in our specialized funds as part of our customized separate accounts. In these cases, we reduce the management fees on customized separate accounts to the extent that assets in the accounts are invested in our specialized funds so that our clients do not pay duplicate fees.
Revenues from specialized funds are based on a percentage of limited partners’ capital commitments to, or net invested capital in, our specialized funds. The management fee during the commitment period is generally charged on capital commitments and after the commitment period (or a defined anniversary of the fund’s initial closing) is reduced by a percentage of the management fee for the preceding year or charged on net invested capital. In the case of certain funds, we charge management fees on capital commitments, with the management fee increasing during the early years of the fund’s term and declining in the later years. Management fees for certain funds are discounted based on the amount of the limited partners’ commitments or if the limited partners are investors in our other funds.
Revenues from advisory and reporting services are generally annual fixed fees, which vary depending on the services we provide. In limited cases, advisory service clients are charged basis point fees annually based on the amounts they have committed to invest pursuant to their agreements with us. In other cases where our services are limited to monitoring and reporting on investment portfolios, clients are charged a fee based on the number of investments in their portfolio.
Distribution management fees are generally earned by applying a percentage to AUM or proceeds received. Distribution management clients are charged basis point fees on either the net proceeds received from the sale of their securities or the aggregate amount of a client’s managed assets and vary depending on whether the account is for managed liquidation or active management services. Alternatively, active management clients may elect a fee structure under which they are charged an asset-based fee plus a fee based on net realized and unrealized gains and income net of realized and unrealized losses. This fee is then credited to a notional account, and we are entitled to a fixed percentage of any positive balance in the notional account on an annual basis. The remaining portion of any positive balance in the notional account is carried forward to the following year. If the incentive fee calculation results in a negative amount in a given year, that amount is applied to reduce the balance in the notional account. We are not required to repay any negative amount in the notional account.
Incentive fees comprise carried interest earned from our specialized funds and certain customized separate accounts structured as single-client funds in which we have a general partner commitment, and performance fees earned on certain other customized separate accounts.
For each of our secondary funds, direct/co-investment funds and Strategic Opportunities funds, we earn carried interest equal to a fixed percentage of net profits, usually 10.0% to 12.5%, subject to a compounded annual preferred return that is generally 6.0% to 8.0%.  To the extent that our primary funds also directly make secondary investments and direct/co-investments, they generally earn carried interest on a similar basis.  Furthermore, certain of our primary funds earn carried interest on their investments in other private markets funds on a primary basis that is generally 5.0% of net profits, subject to the fund’s compounded annual preferred return.
We do not recognize carried interest until it is realized and all contingencies have been resolved. In the event that a payment is made to us before all contingencies are resolved, this amount would be


24


included as deferred incentive fee revenue on our consolidated balance sheet and recognized as income when all contingencies have been resolved. The primary contingency regarding incentive fees is the “clawback,” or the obligation to return distributions in excess of the amount prescribed by the applicable fund or separate account documents.
Performance fees, which are a component of incentive fees, are based on the aggregate amount of realized gains earned by the applicable customized separate account, subject to the achievement of defined minimum returns to the clients. Performance fees range from 5.0% to 12.5% of net profits, subject to a compounded annual preferred return that varies by account but is generally 6.0% to 8.0%. Performance fees are recognized when no contingencies exist or where the risk of clawback has been eliminated.
Expenses
Compensation and benefits is our largest expense and consists of (a) base compensation comprising salary, bonuses and benefits paid and payable to employees, (b) equity-based compensation associated with the grants of restricted stock awards and (c) incentive fee compensation which consists of carried interest and performance fee allocations. We expect to continue to experience a general rise in compensation and benefits expense commensurate with expected growth in headcount and with the need to maintain competitive compensation levels as we expand geographically and create new products and services.
Our compensation arrangements with our employees contain a significant bonus component driven by the results of our operations. Therefore, as our revenues, profitability and the amount of incentive fees earned by our customized separate accounts and specialized funds increase, our compensation costs rise.
Certain current and former employees participate in a carried interest program whereby approximately 25% of incentive fees from certain of our specialized funds and customized separate accounts are awarded to plan participants. We record compensation expense payable to plan participants as the incentive fees become estimable and collection is probable.
General, administrative and other includes travel, accounting, legal and other professional fees, commissions, placement fees, office expenses, depreciation and other costs associated with our operations. Our occupancy-related costs and professional services expenses, in particular, generally increase or decrease in relative proportion to the number of our employees and the overall size and scale of our business operations.
We expect that we will incur additional expenses as compared to prior periods as a result of becoming a public company for director and officer insurance, independent director compensation and additional personnel. This includes the cost of investor relations professionals, tax professionals, SEC reporting and Sarbanes-Oxley Act compliance professionals, and other similar expenses.
Other Income (Expense)
Equity in income (loss) of investees primarily represents our share of earnings from our investments in our specialized funds and certain customized separate accounts in which we have a general partner commitment. Equity income primarily comprises our share of the net realized and unrealized gains (losses) and investment income partially offset by the expenses from these investments.
We have general partner commitments in our specialized funds and certain customized separate accounts that invest solely in primary funds, secondary funds and direct/co-investments, as well as those that invest across investment types. Equity in income (loss) of investees will increase or decrease as the


25


change in underlying fund investment valuations increases or decreases. Since our direct/co-investment funds invest in underlying portfolio companies, their quarterly and annual valuation changes are more affected by individual company movements than our primary and secondary funds that have exposures across multiple portfolio companies in underlying private markets funds. Our specialized funds and customized separate accounts invest across industries, strategies and geographies, and therefore our general partner investments do not include any significant concentrations in a specific sector or area outside the United States.
Interest expense includes interest paid and accrued on our Term Loan Agreement and Revolving Loan Agreement and our predecessor senior secured credit facility, amortization of deferred financing costs and original issue discount, the write-down of deferred financing costs and the reclassification of unrealized loss on interest rate caps to realized loss.
Interest income is income earned on cash and cash equivalents.
Other non-operating income (loss) consists primarily of gains and losses on certain investments, changes in liability under the tax receivable agreement and other non-recurring or non-cash items.
Fee-Earning AUM
We view fee-earning AUM as a metric to measure the assets from which we earn management fees. Our fee-earning AUM comprise assets in our customized separate accounts and specialized funds from which we derive management fees. We classify customized separate account revenue as management fees if the client is charged an asset-based fee, which includes the majority of our discretionary AUM accounts but also includes certain non-discretionary AUA accounts. Our fee-earning AUM is equal to the amount of capital commitments, net invested capital and net asset value (“NAV”) of our customized separate accounts and specialized funds depending on the fee terms. Substantially all of our customized separate accounts and specialized funds earn fees based on commitments or net invested capital, which are not affected by market appreciation or depreciation. Therefore, revenues and fee-earning AUM are not significantly affected by changes in market value.
Our calculations of fee-earning AUM may differ from the calculations of other asset managers, and as a result, this measure may not be comparable to similar measures presented by other asset managers. Our definition of fee-earning AUM is not based on any definition that is set forth in the agreements governing the customized separate accounts or specialized funds that we manage.



26


Consolidated Results of Operations
The following is a discussion of our consolidated results of operations for the three and nine months ended December 31, 2017 and 2016. This information is derived from our accompanying condensed consolidated financial statements prepared in accordance with GAAP.
 
Three Months Ended December 31,
 
Nine Months Ended December 31,
($ in thousands)
2017
 
2016
 
2017
 
2016
Revenues
 
 
 
 
 
 
 
Management and advisory fees
$
48,344

 
$
42,009

 
$
146,326

 
$
126,273

Incentive fees
16,670

 
322

 
20,098


6,868

Total revenues
65,014

 
42,331

 
166,424

 
133,141

Expenses
 
 
 
 


 
 
Compensation and benefits
20,006

 
16,739

 
60,247

 
53,161

General, administrative and other
10,704

 
8,840

 
27,586

 
22,925

Total expenses
30,710

 
25,579

 
87,833

 
76,086

Other income (expense)
 
 
 
 


 
 
Equity in income of investees
2,895

 
3,085

 
13,066

 
8,882

Interest expense
(664
)
 
(2,924
)
 
(5,282
)
 
(8,780
)
Interest income
67

 
39

 
472

 
159

Other non-operating income
4,188

 
222

 
4,169

 
232

Total other income
6,486

 
422

 
12,425

 
493

Income before income taxes
40,790

 
17,174

 
91,016

 
57,548

Income tax expense (benefit)
22,957

 
111

 
29,337

 
(264
)
Net income
17,833

 
17,063

 
61,679

 
57,812

Less: Income attributable to non-controlling interests in general partnerships
768

 
64

 
1,750

 
1,024

Less: Income attributable to non-controlling interests in Hamilton Lane Advisors, L.L.C.
23,374

 
16,999

 
56,086

 
56,788

Net (loss) income attributable to Hamilton Lane Incorporated
$
(6,309
)
 
$

 
$
3,843

 
$


Revenues
 
Three Months Ended December 31,
Nine Months Ended December 31,
($ in thousands)
2017
 
2016
 
2017
 
2016
Management and advisory fees
 
 
 
 
 
 
 
Customized separate accounts
$
19,860

 
$
17,826

 
$
58,253

 
$
52,794

Specialized funds
19,132

 
17,124

 
63,582

 
53,407

Advisory and reporting
7,479

 
6,021

 
20,958

 
17,680

Distribution management
1,873

 
1,038

 
3,533

 
2,392

Total management and advisory fees
48,344

 
42,009

 
146,326

 
126,273

Incentive fees
16,670

 
322

 
20,098

 
6,868

Total revenues
$
65,014

 
$
42,331

 
$
166,424

 
$
133,141




27



Three months ended December 31, 2017 compared to three months ended December 31, 2016
Total revenues increased $22.7 million, or 54%, to $65.0 million, for the three months ended December 31, 2017 compared to the three months ended December 31, 2016, due to an increase in both management and advisory fees and incentive fees.
Management and advisory fees increased $6.3 million, or 15%, to $48.3 million for the three months ended December 31, 2017 compared to the three months ended December 31, 2016. Specialized funds revenue increased $2.0 million for the three months ended December 31, 2017 compared to the three months ended December 31, 2016, due primarily to a $2.0 million increase from our latest secondary fund, which added $0.8 billion in fee-earning AUM between periods. Customized separate accounts revenue increased $2.0 million for the three months ended December 31, 2017 compared to the three months ended December 31, 2016 due to the addition of several new accounts and additional allocations from existing accounts as compared to the prior year period. Customized separate accounts revenue for the three months ended December 31, 2017 included $0.5 million from accounts added in the RAPM acquisition. Advisory and reporting fees increased $1.5 million to $7.5 million for the three months ended December 31, 2017 compared to the three months ended December 31, 2016, due primarily to the addition of new accounts during the preceding 12 months. In addition, distribution management fees increased $0.8 million for the three months ended December 31, 2017 compared to the three months ended December 31, 2016 due to higher stock distribution activity and stock valuations.
Incentive fees increased $16.3 million to $16.7 million for the three months ended December 31, 2017 compared to the three months ended December 31, 2016, due primarily to $14.6 million recognized from one of our co-investment funds in the period. The $14.6 million recognition of carried interest did not result in cash incentive fee payments for the period as $0.8 million was attributable to non-controlling interests and $13.7 million was related to the $41.5 million of incentive fee payments that were received in fiscal 2016 but were not recognized as revenue in that period.
Nine months ended December 31, 2017 compared to nine months ended December 31, 2016
Total revenues increased $33.3 million, or 25%, to $166.4 million for the nine months ended December 31, 2017 compared to the nine months ended December 31, 2016, due primarily to higher specialized funds revenue and incentive fees.
Management and advisory fees increased $20.1 million, or 16%, to $146.3 million for the nine months ended December 31, 2017 compared to the nine months ended December 31, 2016. Specialized funds revenue increased $10.2 million for the nine months ended December 31, 2017 compared to the nine months ended December 31, 2016, due primarily to a $9.8 million increase in revenues from our latest secondary fund, which added $0.8 billion in fee-earning AUM since December 31, 2016. Included in our latest secondary fund’s revenue for the period was $5.8 million in retroactive fees compared to $1.9 million in retroactive fees in the prior year period. Retroactive fees are management fees earned in the current period from investors that commit to a specialized fund towards the end of the fundraising period and are required to pay a catch-up management fee as if they had committed to the fund at the first closing in a prior period. Customized separate accounts revenue increased $5.5 million for the nine months ended December 31, 2017 compared to the nine months ended December 31, 2016 due to the addition of several new accounts and additional allocations from existing accounts as compared to the prior year period. Customized separate accounts revenue for the nine months ended December 31, 2017 included $0.8 million from accounts added in the RAPM acquisition. Advisory and reporting fees increased $3.3 million to $21.0 million for the nine months ended December 31, 2017 compared to the nine months ended December 31, 2016, due primarily to the addition of new accounts during the


28


preceding 12 months. In addition, distribution management fees increased $1.1 million for the nine months ended December 31, 2017 compared to the nine months ended December 31, 2016 due to higher stock distribution activity and stock valuations.
Incentive fees increased $13.2 million to $20.1 million for the nine months ended December 31, 2017 compared to the nine months ended December 31, 2016, due primarily to $14.6 million recognized from the co-investment fund discussed above in the results for the quarter.
Expenses
Three months ended December 31, 2017 compared to three months ended December 31, 2016
Total expenses increased $5.1 million, or 20%, to $30.7 million for the three months ended December 31, 2017 compared to the three months ended December 31, 2016 due to increases in base compensation and general, administrative and other expenses.
Compensation and benefits expenses increased $3.3 million, or 20%, to $20.0 million for the three months ended December 31, 2017 compared to the three months ended December 31, 2016, due primarily to increased base compensation. Base compensation increased $1.9 million, or 13%, for the three months ended December 31, 2017 compared to the three months ended December 31, 2016, due primarily to increased salary expense from additional headcount in the current year period compared to the prior year period. This was partially offset by a $0.7 million reduction in expense due to the impact of tax rate changes on the $1.9 million expense accrued in fiscal 2017 to induce members of HLA to exchange their HLA units for HLI common stock in the Reorganization. This amount is expected to be paid during the third quarter of fiscal year 2019. Contingent compensation related to the RAPM acquisition was $0.8 million for the three months ended December 31, 2017. The $20.0 million of compensation expense reported above excludes compensation expense related to the $14.6 million recognition of incentive fees from one of our co-investment funds. The compensation expense related to these incentive fees was recognized in fiscal 2016 when the incentive fee payments were received. Of the $10.4 million of incentive fee compensation and the $9.9 million of base compensation and benefits recognized in advance of the associated revenue in fiscal 2016, $3.4 million and $3.3 million, respectively, was related to the $14.6 million of incentive fees recognized in this period.
General, administrative and other expenses increased by $1.9 million for the three months ended December 31, 2017 compared to the three months ended December 31, 2016. This change consisted primarily of a $1.4 million increase in consulting and professional fees, which included $1.1 million in fees related to PMC, our new joint venture, as well as increases in accounting and legal fees.
Nine months ended December 31, 2017 compared to nine months ended December 31, 2016
Total expenses increased $11.7 million, or 15%, to $87.8 million for the nine months ended December 31, 2017 compared to the nine months ended December 31, 2016 due to increases in both compensation and benefits expenses and general, administrative and other expenses.
Compensation and benefits expenses increased $7.1 million, or 13%, to $60.2 million for the nine months ended December 31, 2017 compared to the nine months ended December 31, 2016, due primarily to higher base compensation. Base compensation increased $5.5 million, or 11%, for the nine months ended December 31, 2017 compared to the nine months ended December 31, 2016, due primarily to increased salary expense from additional headcount in the current year period compared to the prior year period. This was partially offset by a $0.7 million reduction in expense due to the impact of tax rate changes on the $1.9 million expense accrued in fiscal 2017 to induce members of HLA to exchange their HLA units for HLI common stock in the Reorganization. Contingent compensation related to the RAPM


29


acquisition was $1.2 million for the nine months ended December 31, 2017. The $60.2 million of compensation expense reported above excludes compensation expense related to the $14.6 million recognition of incentive fees from the co-investment fund discussed above in the results for the quarter.
General, administrative and other expenses increased by $4.7 million for the nine months ended December 31, 2017 compared to the nine months ended December 31, 2016. This change consisted primarily of a $5.0 million increase in consulting and professional fees, which included $2.5 million in fees related to PMC, our new joint venture, as well as increases in accounting, legal and recruiting fees.
Other Income (Expense)
The following shows the equity in income of investees included in other income (expense):
 
Three Months Ended December 31,
 
Nine Months Ended December 31,
($ in thousands)
2017
 
2016
 
2017
 
2016
Equity in income of investees
 
 
 
 
 
 
 
Primary funds
$
727

 
$
560

 
$
1,779

 
$
1,299

Direct/co-investment funds
261

 
713

 
5,099

 
3,580

Secondary funds
320

 
212

 
1,428

 
486

Customized separate accounts
1,585

 
1,759

 
5,098

 
3,676

Other equity method investments
2

 
(159
)
 
(338
)
 
(159
)
Total equity in income of investees
$
2,895

 
$
3,085

 
$
13,066

 
$
8,882



Three months ended December 31, 2017 compared to three months ended December 31, 2016
Other income increased $6.1 million to $6.5 million for the three months ended December 31, 2017 compared to the three months ended December 31, 2016, due primarily to an increase in other non-operating income and a decrease in interest expense.
Interest expense decreased $2.3 million to $0.7 million for the three months ended December 31, 2017 compared to the three months ended December 31, 2016, due to a $161.8 million reduction in our debt balance between periods driven by the $160.0 million paydown using proceeds of our IPO as well as an interest rate reduction from our debt refinancing in the prior quarter.
Equity in income of investees decreased $0.2 million to $2.9 million for the three months ended December 31, 2017 compared to the three months ended December 31, 2016. This included a $0.5 million decrease in gains from our direct/co-investment funds and a $0.2 million decrease in gains from our customized separate accounts, partially offset by a $0.2 million increase in gains from our primary funds and a $0.2 million increase in gains from other equity method investments.
Other non-operating income increased $4.0 million to $4.2 million for the three months ended December 31, 2017 compared to the three months ended December 31, 2016, due primarily to a $4.2 million decrease to the TRA liability due to the re-measurement related to changes in tax rates enacted by the Tax Act.


30


Nine months ended December 31, 2017 compared to nine months ended December 31, 2016
Other income increased $11.9 million to $12.4 million for the nine months ended December 31, 2017 compared to the nine months ended December 31, 2016, due primarily to an increase in gains from our investments, an increase in other non-operating income and a decrease in interest expense.
Interest expense decreased $3.5 million to $5.3 million for the nine months ended December 31, 2017 compared to the nine months ended December 31, 2016, due to a $161.8 million reduction in our debt balance between periods driven by the $160.0 million paydown using proceeds of our IPO. Included in the $5.3 million in interest expense for the nine months ended December 31, 2017 is a $1.7 million write-off of deferred financing costs and a $0.9 million reclassification of an unrealized loss on interest rate caps to a realized loss as part of the payoff of our predecessor credit facility during the period.
Equity in income of investees increased $4.2 million to $13.1 million for the nine months ended December 31, 2017 compared to the nine months ended December 31, 2016. This included a $1.5 million increase in gains from our direct/co-investment funds, a $1.4 million increase in gains from our customized separate accounts, a $0.9 million increase in gains from our secondary funds and a $0.5 million increase in gains from our primary funds.
Interest income increased by $0.3 million for the nine months ended December 31, 2017 compared to the nine months ended December 31, 2016, due primarily to late closing interest received from one of our funds.
Other non-operating income increased $3.9 million to $4.2 million for the nine months ended December 31, 2017 compared to the nine months ended December 31, 2016, due primarily to a $4.2 million TRA liability re-measurement related to changes in tax rates enacted by the Tax Act.
Income Tax Expense
On December 22, 2017, the Tax Act was signed into law, which enacts significant changes to U.S federal income tax laws, including, but not limited to, a reduction of the corporate income tax rate from 35% to 21%, limitation of the tax deduction for interest expense, expensing the cost of acquired qualified property, and a one-time transition tax on accumulated, undistributed foreign earnings.

As a result of the Tax Act, the estimated annual effective tax rate was revised to reflect the change in the federal statutory rate from 35% to 21% effective January 1, 2018. Consequently, the blended federal statutory tax rate for our 2018 fiscal year is 31.55%.

Our effective tax rate was 56.3% and 32.2% for the three and nine months ended December 31, 2017, respectively, and 0.6% and (0.5)% for the three and nine months ended December 31, 2016, respectively. The increase in the effective income tax rate for the three and nine months ended December 31, 2017 was due to U.S. federal and state corporate income tax expense related to HLI’s allocable share of taxable income from HLA and a provisional discrete tax expense of $21,200 related to the re-measurement of deferred tax assets due to the tax rate change pursuant to enactment of the Tax Act.

The Tax Act also requires taxpayers to pay a one-time transition tax on accumulated, undistributed earnings of certain foreign subsidiaries. We recorded a provisional tax liability of $442 for certain of our foreign subsidiaries based on estimated accumulated, undistributed earnings. As a result of the transition tax estimate, we reversed $1,100 of a previously recorded deferred tax liability on unremitted earnings of foreign subsidiaries.


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We have not completed our analysis of the new GILTI tax law, and as a result, are not yet able to reasonably estimate the effect of this provision of the Tax Act. Therefore, we have not yet included any potential GILTI tax in our condensed consolidated financial statements and have not elected the related accounting policy.
  
While we are continuing to analyze the effects of the Tax Act on our consolidated financial statements, we generally expect it to have a net positive impact on our profitability and cash flows as a result of a reduction in the federal corporate income tax rate. Any additional impacts from the enactment of the Tax Act will be recorded as they are identified during the measurement period.

Fee-Earning AUM
The following table provides the period to period rollforward of our fee-earning AUM.

 
Three Months Ended December 31,
 
Nine Months Ended December 31,
($ in millions)
2017
 
2017
 
Customized Separate Accounts
Specialized Funds
Total
 
Customized Separate Accounts
Specialized Funds
Total
Balance, beginning of period
$
19,721

$
9,439

$
29,160

 
$
18,028

$
8,793

$
26,821

Contributions (1)
783

240

1,023

 
3,075

1,096

4,171

Distributions (2)
(443
)
(401
)
(844
)
 
(1,426
)
(612
)
(2,038
)
Foreign exchange, market value and other (3)
322

(4
)
318

 
706

(3
)
703

Balance, end of period
$
20,383

$
9,274

$
29,657

 
$
20,383

$
9,274

$
29,657


(1)
Contributions represent (i) new commitments from customized separate accounts and specialized funds that earn fees on a committed capital fee base and (ii) capital contributions to underlying investments from customized separate accounts and specialized funds that earn fees on a net invested capital or NAV fee base.
(2)
Distributions represent (i) returns of capital in customized separate accounts and specialized funds that earn fees on a net invested capital or NAV fee base, (ii) reductions in fee-earning AUM from separate accounts and specialized funds that moved from a committed capital to net invested capital fee base and (iii) reductions in fee-earning AUM from customized separate accounts and specialized funds that are no longer earning fees.
(3)
Foreign exchange, market value and other consists primarily of (i) the impact of foreign exchange rate fluctuations for customized separate accounts and specialized funds that earn fees on non-U.S. dollar denominated commitments, (ii) market value appreciation (depreciation) from customized separate accounts that earn fees on a NAV fee base and (iii) the addition of assets from the RAPM acquisition.

Three months ended December 31, 2017
Fee-earning AUM increased $0.5 billion, or 2%, to $29.7 billion during the three months ended December 31, 2017, due primarily to new customized separate accounts commitments.
Customized separate accounts fee-earning AUM increased $0.7 billion, or 3%, to $20.4 billion for the three months ended December 31, 2017. Customized separate accounts contributions were $0.8 billion for three months ended December 31, 2017, due to new allocations from existing clients and new clients. Distributions were $0.4 billion for the three months ended December 31, 2017, due primarily to returns of capital in accounts earning fees on a net invested capital or NAV fee base. Included in foreign exchange, market value and other for the three months ended December 31, 2017 is a $0.3 billion increase in fee-earning AUM from the RAPM acquisition.


32


Specialized funds fee-earning AUM decreased $0.2 billion, or 2%, to $9.3 billion for the three months ended December 31, 2017. Specialized fund contributions were $0.2 billion for the three months ended December 31, 2017, due primarily to contributions from accounts earning fees on a net invested capital fee base. Distributions were $0.4 billion for the three months ended December 31, 2017, due to $0.2 billion from accounts reaching the end of their term and $0.2 billion from returns of capital in funds earning fees on a net invested capital fee base.
Nine Months Ended December 31, 2017
Fee-earning AUM increased $2.8 billion, or 11%, to $29.7 billion during the nine months ended December 31, 2017, due primarily to new specialized funds and customized separate accounts commitments.
Customized separate accounts fee-earning AUM increased $2.4 billion, or 13%, to $20.4 billion for the nine months ended December 31, 2017. Customized separate accounts contributions were $3.1 billion for the nine months ended December 31, 2017, due to new allocations from existing clients and new clients. Distributions were $1.4 billion for the nine months ended December 31, 2017 due to $0.2 billion from accounts reaching the end of their account term, $0.2 billion from a client moving to an advisory relationship, $0.4 billion from accounts moving from a committed capital to a net invested fee base as their investment period expired and $0.6 billion from returns of capital in accounts earning fees on a net invested capital or NAV fee base. Included in foreign exchange, market value and other for the nine months ended December 31, 2017 is a $0.7 billion increase in fee-earning AUM from the RAPM acquisition.
Specialized funds fee-earning AUM increased $0.5 billion, or 5%, to $9.3 billion during the nine months ended December 31, 2017. Specialized fund contributions were $1.1 billion during the nine months ended December 31, 2017, due primarily to $0.5 billion in new commitments to our latest secondary fund during the period and contributions from accounts earning fees on a net invested capital fee base. Distributions were $0.6 billion for the nine months ended December 31, 2017, due primarily to returns of capital in funds earning fees on a net invested capital fee base.
Non-GAAP Financial Measures
Below is a description of our unaudited non-GAAP financial measures. These are not measures of financial performance under GAAP and should not be considered a substitute for the most directly comparable GAAP measures, which are reconciled below. These measures have limitations as analytical tools, and when assessing our operating performance, you should not consider these measures in isolation or as a substitute for GAAP measures. Other companies may calculate these measures differently than we do, limiting their usefulness as a comparative measure.
Adjusted EBITDA
Adjusted EBITDA is our primary internal measure of profitability. We believe Adjusted EBITDA is useful to investors because it enables them to better evaluate the performance of our core business across reporting periods. Adjusted EBITDA represents net income excluding (a) interest expense on our Loan Agreements and predecessor credit facility, (b) income tax expense, (c) depreciation and amortization expense, (d) equity-based compensation expense, (e) non-operating income (loss) and (f) certain other significant items that we believe are not indicative of our core performance.


33


Fee Related Earnings
Fee Related Earnings (“FRE”) is used to highlight our earnings from recurring management fees. FRE represents net income excluding (a) incentive fees and related compensation, (b) interest income and expense, (c) income tax expense, (d) equity in income of investees, (e) other non-operating income and (f) certain other significant items that we believe are not indicative of our core performance. We believe FRE is useful to investors because it provides additional insight into the operating profitability of our business. FRE is presented before income taxes.
The following table shows a reconciliation of net (loss) income attributable to HLI to Fee Related Earnings and Adjusted EBITDA for the three and nine months ended December 31, 2017 and 2016:
 
Three Months Ended December 31,
 
Nine Months Ended December 31,
($ in thousands)
2017
 
2016
 
2017
 
2016
Net (loss) income attributable to Hamilton Lane Incorporated (1)
$
(6,309
)
 
$

 
$
3,843

 
$

Income attributable to non-controlling interests in general partnerships
768

 
64

 
1,750

 
1,024

Income attributable to non-controlling interests in Hamilton Lane Advisors, L.L.C.
23,374

 
16,999

 
56,086

 
56,788

Incentive fees (2)
(16,670
)
 
(322
)
 
(20,098
)
 
(6,868
)
Incentive fee related compensation (3)
1,027

 
158

 
2,709

 
3,370

Interest income
(67
)
 
(39
)
 
(472
)
 
(159
)
Interest expense
664

 
2,924

 
5,282

 
8,780

Income tax expense (benefit)
22,957

 
111

 
29,337

 
(264
)
Equity in income of investees
(2,895
)
 
(3,085
)
 
(13,066
)
 
(8,882
)
Contingent compensation related to acquisition
771

 

 
1,198

 

Other non-operating income
(4,188
)
 
(222
)
 
(4,169
)
 
(232
)
Fee Related Earnings
$
19,432

 
$
16,588

 
$
62,400

 
$
53,557

Depreciation and amortization
486

 
467

 
1,396

 
1,440

Equity-based compensation
1,284

 
1,169

 
4,272

 
3,506

Incentive fees (2)
16,670

 
322

 
20,098

 
6,868

Incentive fees attributable to non-controlling interests (2)
(834
)
 

 
(834
)
 

Incentive fee related compensation (3)
(1,027
)
 
(158
)
 
(2,709
)
 
(3,370
)
Interest income
67

 
39

 
472

 
159

Adjusted EBITDA
$
36,078

 
$
18,427

 
$
85,095

 
$
62,160


(1)
Prior to our IPO, HLI was a wholly-owned subsidiary of HLA with no operations or assets.
(2)
Incentive fees for the three and nine months ended December 31, 2017 include $14.6 million of non-cash carry related to the $41.5 million of incentive fee payments received in fiscal 2016. Of the $14.6 million, $13.7 million is included in net income and $0.8 million is attributable to non-controlling interests.
(3)
Incentive fee related compensation includes incentive fee compensation expense, bonus and other revenue sharing related to carried interest that is classified as base compensation. Incentive fee related compensation for the three and nine months ended December 31, 2017 excludes compensation expense related to the $13.7 million recognition of incentive fees included in net income from one of our co-investment funds during the period as the related incentive fee compensation was recognized in fiscal 2016.


34


Non-GAAP Earnings Per Share
Non-GAAP earnings per share measures our per-share earnings assuming all Class B and Class C units in HLA were exchanged for Class A common stock in HLI. Non-GAAP earnings per share is calculated as adjusted net income divided by adjusted shares outstanding. Adjusted net income is income before taxes fully taxed at our estimated statutory tax rate. We believe non-GAAP earnings per share is useful to investors because it enables them to better evaluate per-share operating performance across reporting periods.
The following table shows a reconciliation of adjusted net income to net (loss) income attributable to HLI and adjusted shares outstanding to weighted-average shares of Class A common stock outstanding. The three and nine months ended December 31, 2016 are not presented below as there were no comparable diluted earnings per share of Class A common stock in those periods.
 
Three Months Ended December 31,
 
Nine Months Ended
December 31,
 
2017
 
2017
 
 
 
 
 
 
(in thousands, except share and per-share amounts)
 
 
Net (loss) income attributable to Hamilton Lane Incorporated
$
(6,309
)
 
$
3,843

 
Income attributable to non-controlling interests in Hamilton Lane Advisors, L.L.C.
23,374

 
56,086

 
Income tax expense
22,957

 
29,337

 
Write-off of deferred financing costs (1)

 
2,544

 
Impact of Tax Act on TRA liability(2)
(4,186
)
 
(4,186
)
 
Impact of Tax Act on IPO related compensation(3)
(669
)
 
(669
)
 
Contingent compensation related to acquisition
771

 
1,198

 
Adjusted pre-tax net income
35,938

 
88,153

 
Adjusted income taxes (4)
(11,450
)
 
(32,185
)
 
Adjusted net income
$
24,488

 
$
55,968

 
 
 
 
 
 
Weighted-average shares of Class A common stock outstanding - diluted
18,126,532

 
18,703,650

 
Exchange of Class B and Class C units in HLA (5)
34,438,669

 
34,438,669

 
Assumed exercise and vesting of employee awards (6)
751,764

 

 
Adjusted shares
53,316,965

 
53,142,319

 
 
 
 
 
 
Non-GAAP earnings per share
$
0.46

 
$
1.05

 
(1)
Represents write-off of debt issuance costs and realized loss on interest rate caps related to the payoff of our predecessor credit facility during the nine months ended December 31, 2017.
(2)
Represents change in payable to related parties pursuant to the TRA related to changes in tax rates enacted by the Tax Act. The change in liability was recorded to other non-operating income in the Condensed Consolidated Statements of Income.
(3)
Represents reduction in expense due to the impact of tax rate changes on the $1.9 million expense accrued in fiscal 2017 to induce members of HLA to exchange their HLA units for HLI common stock in the Reorganization.
(4)
Represents corporate income taxes at our estimated statutory tax rate of 36.51% for the nine month period ended December 31, 2017 applied to adjusted pre-tax net income. The 36.51% is based on a blended federal tax statutory rate of 35.00% for 275 days and 21.00% for 90 days and a combined state income tax rate net of federal benefits of 4.96%. The three month period ended December 31, 2017 includes an adjustment for the difference between the 39.71% estimated statutory tax rate used for the six month period ended September 30, 2017 and the 36.51% estimated statutory tax rate used for the nine month period ended December 31, 2017.


35


(5)
Assumes the full exchange of Class B and Class C units in HLA for Class A common stock of HLI pursuant to the exchange agreement.
(6)
Assumed exercise and vesting of employee awards includes 1,161,337 shares of restricted stock net of assumed vesting under the treasury stock method for the three months ended December 31, 2017. Since the inclusion of such shares would be antidilutive, they were excluded from the calculation of GAAP dilutive earnings per share of Class A common stock for the three months ended December 31, 2017.




36


Investment Performance
The following tables present information relating to the historical performance of our discretionary investment accounts. The data for these investments is presented from the date indicated through September 30, 2017 and have not been adjusted to reflect acquisitions or disposals of investments subsequent to that date.
When considering the data presented below, you should note that the historical results of our discretionary investments are not indicative of the future results you should expect from such investments, from any future investment funds we may raise or from an investment in our Class A common stock, in part because:
market conditions and investment opportunities during previous periods may have been significantly more favorable for generating positive performance than those we may experience in the future;
the performance of our funds is generally calculated on the basis of net asset value (“NAV”) of the funds’ investments, including unrealized gains, which may never be realized;
our historical returns derive largely from the performance of our earlier funds, whereas future fund returns will depend increasingly on the performance of our newer funds or funds not yet formed;
our newly established funds may generate lower returns during the period that they take to deploy their capital;
in recent years, there has been increased competition for investment opportunities resulting from the increased amount of capital invested in private markets alternatives and high liquidity in debt markets, and the increased competition for investments may reduce our returns in the future; and
the performance of particular funds also will be affected by risks of the industries and businesses in which they invest.

The historical and potential future returns of the investment funds we manage are not directly linked to returns on our Class A common stock. Therefore, you should not conclude that continued positive performance of the investment funds we manage will necessarily result in positive returns on an investment in our Class A common stock. As used in this discussion, internal rate of return (“IRR”) is calculated on a pooled basis using daily cash flows. Gross IRR is presented net of management fees, carried interest and expenses charged by the general partners of the underlying investments, but does not include our management fees, carried interest or expenses. See “—Performance Methodology” below for more information on how our returns are calculated.
Specialized Fund Performance
We organize, invest and manage primary, secondary and direct/co-investment funds. Our funds invest across a variety of private markets and include equity, equity-linked and credit funds offered on standard terms, as well as shorter duration, opportunistically oriented funds. Below is performance information across our various specialized funds. All of these funds are globally focused, and they are grouped by the investment strategy utilized.


37


Gross Returns — Realized
Fund
Vintage
year
Fund size ($M)
Realized
Capital
invested ($M)
Realized
Gross
multiple
Realized
Gross
IRR (%)
Realized Gross
Spread vs.
S&P 500 PME
Realized Gross
Spread vs.
MSCI World PME
Primaries (Diversified)
 
 
 
 
 
 
 
PEF I
1998
122
117
1.3
5.4%
378 bps
322 bps
PEF IV
2000
250
238
1.7
16.2%
1,302 bps
1,171 bps
PEF V
2003
135
127
1.7
15.2%
958 bps
1,072 bps
PEF VI
2007
494
452
1.6
12.9%
217 bps
552 bps
PEF VII
2010
262
88
1.5
17.6%
212 bps
644 bps
PEF VIII
2012
427
5
1.7
19.3%
921 bps
1,289 bps
PEF IX
2015
517
5
1.3
58.1%
4,086 bps
4,181 bps
Secondaries
 
 
 
 
 
 
 
Pre-Fund
363
1.5
17.1%
1,321 bps
1,167 bps
Secondary Fund I
2005
360
353
1.3
5.5%
138 bps
367 bps
Secondary Fund II
2008
591
523
1.6
22.6%
747 bps
1,155 bps
Secondary Fund III
2012
909
185
1.8
31.1%
1,557 bps
2,023 bps
Secondary Fund IV
2016
1,917
Co-investments
 
 
 
 
 
 
 
Pre-Fund
239
2.0
21.7%
1,716 bps
1,658 bps
Co-Investment Fund
2005
604
342
1.5
6.5%
74 bps
311 bps
Co-Investment Fund II
2008
1,195
765
2.6
23.2%
1,083 bps
1,456 bps
Co-Investment Fund III
2014
1,243
15
5.0
136.8%
12,937 bps
13,523 bps
 
 
 
 
 
 
 
 
Fund
Vintage
year
Fund size ($M)
Realized
Capital
invested ($M)
Realized
Gross
multiple
Realized
Gross
IRR (%)
Realized Gross
Spread vs.
CS HY II PME
Realized Gross
Spread vs.
ML HY II PME
Strategic Opportunities (Tail-end secondaries and credit)
 
 
 
 
 
Strat Opps 2015
2015
71
27
1.3
24.7%
1,425 bps
1,882 bps
Strat Opps 2016
2016
214
22
1.2
68.6%
5,355 bps
5,977 bps
Strat Opps 2017
2017
435


38


Gross Returns — Realized and Unrealized
Fund
Vintage
year
Fund size ($M)
Capital invested
($M)
Gross multiple
Net Multiple
Gross IRR (%)
Net
IRR (%)
Gross Spread vs.
S&P 500 PME
Net Spread vs. S&P 500 PME
Gross Spread vs. MSCI World PME
Net Spread vs. MSCI World PME
Primaries (Diversified)
 
 
 
 
 
 
 
 
 
 
 
PEF I
1998
122
117
1.3
1.2
5.4%
2.5%
378 bps
76 bps
322 bps
16 bps
PEF IV
2000
250
238
1.7
1.5
16.2%
11.2%
1,302 bps
828 bps
1,171 bps
708 bps
PEF V
2003
135
132
1.7
1.6
14.7%
10.1%
884 bps
407 bps
996 bps
513 bps
PEF VI
2007
494
507
1.6
1.6
12.3%
9.5%
140 bps
(98) bps
474 bps
230 bps
PEF VII
2010
262
269
1.4
1.4
14.5%
10.1%
38 bps
(407) bps
430 bps
(23) bps
PEF VIII
2012
427
305
1.2
1.2
11.3%
7.3%
(113) bps
(537) bps
163 bps
(268) bps
PEF IX
2015
517
236
1.2
1.2
21.2%
20.8%
555 bps
354 bps
668 bps
399 bps
Secondaries
 
 
 
 
 
 
 
 
 
 
 
Pre-Fund
363
1.5
N/A
17.1%
N/A
1,321 bps
N/A
1,167 bps
N/A
Secondary Fund I
2005
360