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Item 7. Management’s Discussion and Analysis

2021-05-27 compared with 2020-05-28 · 131 added, 142 removed, 479 unchanged (36% of the section changed)

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Our actual results could differ materially from those discussed in these forward-looking statements.

Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and elsewhere in this Form 10-K, particularly in “Risk Factors” and the “Cautionary Note Regarding Forward-Looking Information.” Unless otherwise indicated, references in this Annual Report on Form 10-K to fiscal 2020, fiscal 2019 and fiscal 2018 are to our fiscal years ended March 31, 2020, 2019 and 2018, respectively.

Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and elsewhere in this Form 10-K, particularly in “Risk Factors”, the “Summary of Risk Factors” and the “Cautionary Note Regarding Forward-Looking Information.” Unless otherwise indicated, references in this Annual Report on Form 10-K to fiscal 2021, fiscal 2020 and fiscal 2019 are to our fiscal years ended March 31, 2021, 2020 and 2019, respectively.

Business Overview

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• Specialized Funds :

We organize, invest and manage specialized primary, secondary and direct/co-investment funds.

We organize, invest and manage specialized primary, secondary, direct/co-investment funds, strategic opportunity funds and evergreen 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.

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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.

Our clients include prominent institutional investors in the United States, Canada, Europe, the Middle East, Asia, Australia and Latin America.

We believe we are a leading provider of private markets solutions for U.S.

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Impact of Covid-19

In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (“COVID-19”) a global pandemic, which continues to spread and cause significant disruption and uncertainty in the global economic markets.

In March 2020, the World Health Organization declared the coronavirus (“COVID-19”) outbreak a global pandemic, which has resulted in significant disruption and uncertainty in the global economic markets.

We are closely monitoring developments related to the COVID-19 pandemic and assessing any negative impacts to our business.

Our fiscal 2020 financial results have not been materially impacted by the COVID-19 pandemic based upon the timing of the outbreak, but our results could be adversely affected in the future if conditions do not improve.

See “Risk Factors—Risks Related to Our Industry—The COVID-19 pandemic has caused severe disruptions in the U.S.

For a description of the impact that COVID-19 has had and may in the future have on our business, see “Risk Factors—Risks Related to Our Industry—The COVID-19 pandemic has caused severe disruptions in the U.S.

and global economies and may adversely impact our financial condition and results of operations”.

As of March 31, 2021 we have adequate liquidity with $87 million in available cash and $35 million in availability under our Loan Agreements.

Given the amount of uncertainty currently regarding the scope and duration of the COVID-19 pandemic, it is currently not possible to predict the precise impact it will have on our business, but it could result in the following:

• Investment valuations may be adversely impacted due to the disruption in global economic markets either because of valuation methodologies that rely on public market comparables or as a result of decreases in current or future estimated performance of underlying portfolio companies.

Our underlying investments reflect valuations as of December 31, 2019 and, therefore, we expect our valuation adjustments will be adversely impacted in line with public markets and credit indices in the next quarter based on March 31, 2020 valuations.

The adverse investment valuations would also directly impact our investments, unrealized carried interest, AUM and AUA.

• Incentive fee revenue may decrease as the ability of general partners to exit existing investments may be limited due to uncertainty in the global economic markets.

• While the market dislocation caused by COVID-19 may present attractive investment opportunities due to increased volatility in the financial markets, we may not be able to complete those investments, which could impact revenue, particularly for specialized funds and customized separate accounts that charge fees on invested capital.

• Restrictions on travel and social distancing requirements implemented globally may challenge our ability to fundraise for new products or raise new business, which may result in lower or delayed revenue growth compared to prior periods.

Investors may also limit the amount of capital they are willing to commit given the current uncertainties in global markets and economies.

• The vast majority of our employees are working remotely.

An extended duration of remote working could lead to additional operational risks, such as greater cybersecurity threats.

COVID-19 presents a threat to our employees’ well-being and morale.

While we have implemented a business continuity plan to protect the health of our employees and have contingency plans in place for key employees or executive officers who may become sick or otherwise unable to perform their duties for an extended period of time, such plans cannot anticipate all scenarios, and we may experience potential loss of productivity or a delay in the implementation of certain strategic plans.

For more information on our Loan Agreements, see “—Liquidity and Capital Resources—Loan Agreements”.

Recent Transactions

Special Purpose Acquisition Company

In January 2021, we closed an initial public offering on our first special purpose acquisition company (“SPAC”), Hamilton Lane Alliance Holdings I, Inc.

(“HLAH”), of 27.6 million units for $276 million.

HLAH is sponsored by a wholly-owned subsidiary of HLA that will assist in identifying and effectuating a merger between HLAH and a target company.

As part of the IPO, we were issued 4.9 million Class B shares for sponsoring HLAH and purchased 5 million warrants for $7.5 million.

The shares and warrants vest or become exercisable upon a successful merger and at certain share price targets.

Our goal is to raise additional SPACs in the future, depending on market and other conditions.

March 2021 Offering

In March 2021, we and certain selling stockholders completed a registered offering of an aggregate of 1,453,110 shares of Class A common stock at a price of $87.36 per share (the “March 2021 Offering”).

The purpose of the March 2021 Offering was to provide liquidity to significant direct and indirect owners of HLA.

The shares sold consisted of (i) 94,245 shares held by the selling stockholders and (ii) 1,358,865 shares newly issued by us.

We received $118.7 million in net proceeds from the sale of our shares and used all of the proceeds to settle exchanges by certain members of HLA of a total of 1,101,365 Class B units and 257,500 Class C units.

In connection with the exchange of the Class B units, we also repurchased for par value and canceled a corresponding number of shares of Class B common stock.

We did not receive any proceeds from the sale of shares by the selling stockholders.

In March 2021, HLA invested $90 million in exchange for a minority interest in Russell Investments Group, Ltd.

(“Russell”), a leading outsourced chief investment officer provider and global investment solutions firm.

HLA and Russell intend to jointly develop and implement a strategy to engage in the global investment solutions outsourcing market.

HLA funded the investment using cash on hand and available borrowings under its Loan Agreements.

In April 2021 HLA acquired substantially all the assets of 361 Capital, LLC, a Denver, Colorado-based boutique alternative investment management firm for a total aggregate purchase price of $13 million, of which $10 million was paid in cash on the closing date of the acquisition.

The remaining $3 million will be paid in two equal installments on the first and second anniversaries of the closing.

Operating Segments

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Our key financial measures are discussed below.

On April 1, 2018, we adopted the new Accounting Standards Codification 606, Revenue from Contracts with Customers (“ASC 606”) , using the modified retrospective method.

As a result, prior period amounts continue to be reported under legacy GAAP.

The adoption did not change the historical pattern of recognizing revenue for management and advisory fees and incentive fees.

See Note 2 to our consolidated financial statements for more information on our adoption of ASC 606.

We generate revenues primarily from management and advisory fees, and to a lesser extent, incentive fees.

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Management and advisory fees comprise specialized fund and customized separate account management fees, advisory and reporting fees and distribution management fees.

Revenues from customized separate accounts are generally based on a contractual rate applied to committed capital or net invested capital under management and/or asset value.

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.

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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 and/or incentive 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.

In these cases, we generally reduce the management and/or incentive 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, net invested capital or net asset value in, our specialized funds.

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Distribution management fees are generally earned by applying a percentage to AUM or proceeds received.

Certain 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.

Certain 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.

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, credit funds and evergreen funds, we generally 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%.

For each of our secondary funds, direct/co-investment funds, strategic opportunity funds and evergreen funds, we generally 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.

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Performance fees are recognized when the risk of clawback or reversal is not probable.

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 interest awards to senior employees and (c) incentive fee compensation, which consists of carried interest and performance fee allocations.

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 to senior employees 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.

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Incentive fees 31,134 21,437 17,658

Consolidated variable interest entities related:

Incentive fees 21,057 7,691 16,748

Total revenues 341,635 274,048 252,179

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General, administrative and other 49,210 57,481 48,960

Consolidated variable interest entities related:

General, administrative and other 378 — —

Total expenses 185,907 157,619 147,955

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Non-operating income 5,894 6,172 20,915

Consolidated variable interest entities related:

Equity in loss of investees (2,123) (481) (255)

Unrealized gains 2,141 — —

Interest expense (459) — —

Total other income (expense) 37,474 24,315 25,333

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Net income 168,785 126,776 98,997

Income attributable to non-controlling interests in general partnerships 85 564 2,448

(Loss) income attributable to non-controlling interests in general partnerships (250) 85 564

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

69,720 65,866 64,860

Income attributable to non-controlling interests in Hamilton Lane Alliance Holdings I, Inc.

Net income attributable to Hamilton Lane Incorporated $ 98,022 $ 60,825 $ 33,573

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Year ended March 31, 2021 compared to year ended March 31, 2020

Total revenues increased $67.6 million, or 25%, to $341.6 million, for fiscal 2021 compared to fiscal 2020, due to increases in management and advisory fees and incentive fees.

Management and advisory fees increased $44.5 million, or 18%, to $289.4 million for fiscal 2021 compared to fiscal 2020.

Specialized funds revenue increased by $36.2 million compared to the prior year, due primarily to a $37.7 million increase in revenue from our latest secondary fund, which added $2.2 billion in fee-earning AUM in fiscal 2021.

Management fees for our latest secondary fund included $18.2 million in retroactive fees for fiscal 2021 compared to $2.8 million for our latest co-investment fund in fiscal 2020.

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 $3.2 million in fiscal 2021 due to a $1.1 billion increase in fee-earning AUM from the addition of several new accounts and additional allocations from existing accounts during the fiscal year.

Advisory and reporting fees increased $4.3 million in fiscal 2021 due to the addition of new accounts.

Distribution management revenue increased $1.8 million in fiscal 2021, due primarily to higher performance fees.

Incentive fees increased $23.1 million to $52.2 million for fiscal 2021 compared to fiscal 2020, due to a $9.7 million increase in incentive fees from one of our specialized funds and increases across our other specialized funds and customized separate accounts.

Year ended March 31, 2020 compared to year ended March 31, 2019

Total revenues increased $21.9 million, or 9%, to $274.0 million, for fiscal 2020 compared to fiscal 2019, due to an increase in management and advisory fees.

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Specialized funds revenue increased by $18.7 million compared to the prior year, due primarily to a $14.0 million increase in revenue from our latest secondary fund, which added $1.7 billion in fee-earning AUM in fiscal 2020, and a $3.3 million increase from our latest co-investment fund, which added $0.2 billion in fee-earning AUM in fiscal 2020.

Management fees for our latest co-investment fund included $2.8 million in retroactive fees for fiscal 2020 compared to $1.7 million for fiscal 2019.

Management fees for our latest co-

investment fund included $2.8 million in retroactive fees for fiscal 2020 compared to $1.7 million for fiscal 2019.

Customized separate accounts revenue increased $5.5 million in fiscal 2020 due to a $2.4 billion increase in fee-earning AUM from the addition of several new accounts and additional allocations from existing accounts during the fiscal year.

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Year ended March 31, 2021 compared to year ended March 31, 2020

Total revenues increased $8.1 million, or 3%, to $252.2 million, for fiscal 2019 compared to fiscal 2018, due to an increase in management and advisory fees.

Management and advisory fees increased $22.7 million, or 12%, to $217.8 million for fiscal 2019 compared to fiscal 2018.

Specialized funds revenue increased by $9.9 million compared to the prior year, due primarily to a $14.2 million increase in revenue from our latest co-investment fund, which added $0.8 billion in fee-earning AUM in fiscal 2019, offset by $5.8 million in retroactive fees from our latest secondary fund in fiscal 2018.

Included in our latest co-investment fund’s revenue for the year was $1.7 million in retroactive fees.

Customized separate accounts revenue increased $6.1 million in fiscal 2019 due to a $1.2 billion increase in fee-earning AUM from the addition of several new accounts and additional allocations from existing accounts during the fiscal year.

Advisory and reporting fees increased $4.6 million for fiscal 2019 compared to fiscal 2018 due primarily to the addition of new accounts as compared to the prior fiscal year.

Fund reimbursement revenue increased $2.0 million as a result of the new revenue recognition standards.

Incentive fees decreased $14.6 million to $34.4 million for fiscal 2019, due primarily to a $23.9 million decrease from one of our co-investment funds that had recognized $40.6 million of deferred

incentive fees in the prior year period.

This was partially offset by $6.4 million from one of our customized separate accounts, which included the general partner catch-up in the current year period.

Total expenses increased $28.3 million, or 18%, for fiscal 2021 compared to fiscal 2020 due to an increase in compensation and benefits expenses, partially offset by a decrease in general, administrative and other expenses.

Compensation and benefits expenses increased $36.2 million, or 36%, to $136.3 million for fiscal 2021 compared to fiscal 2020, due primarily to an increase in base compensation and benefits.

Base compensation and benefits increased $30.6 million, or 36%, for fiscal 2021 compared to fiscal 2020, due primarily to an increase in our bonus plan accrual from stronger company performance compared to the prior year period.

Incentive compensation increased $5.7 million for fiscal 2021 compared to fiscal 2020 due to the increase in incentive fee revenue.

General, administrative and other expenses decreased $7.9 million for fiscal 2021 compared to fiscal 2020.

This change consisted primarily of a $3.9 million decrease in travel expenses due to COVID-19, a $2.3 million decrease in legal related expenses, and a $1.7 million decrease in consulting expenses.

Year ended March 31, 2020 compared to year ended March 31, 2019

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General, administrative and other expenses increased $8.5 million for fiscal 2020 compared to fiscal 2019.

This change consisted primarily of a $2.5 million increase in technology and office related expenses, a $2.2 million increase in consulting and professional fees, a $1.9 million increase in commissions from fund closings in the current year period, and a $0.9 million increase in legal-related expenses.

Year ended March 31, 2019 compared to year ended March 31, 2018

Total expenses increased $26.9 million, or 22%, for fiscal 2019 compared to fiscal 2018 due to increases in base compensation and general, administrative and other expenses.

Compensation and benefits expenses increased $14.9 million, or 18%, to $97.7 million for fiscal 2019 compared to fiscal 2018, due to increased base compensation and contingent compensation related to the acquisition of RAPM in fiscal 2018.

Base compensation and benefits increased $6.3 million, or 9%, for fiscal 2019 compared to fiscal 2018, due primarily to higher bonus expense related to the increase in cash incentive fee revenue.

Contingent compensation related to the RAPM acquisition increased $1.7 million for fiscal 2019 compared to fiscal 2018.

Incentive compensation increased $6.0 million for fiscal 2019 compared to fiscal 2018 due to the increase in cash incentive fee revenue.

Equity-based compensation increased $0.8 million, or 15%, for fiscal 2019 compared to fiscal 2018 as a result of the amortization of equity awards, which have increased in recent years.

General, administrative and other expenses increased $12.0 million for fiscal 2019 compared to fiscal 2018.

This change consisted primarily of a $4.6 million increase in fund reimbursement expenses that are now recorded on a gross basis under the new revenue recognition standard and a $3.5 million increase in consulting and professional fees, which included $1.5 million in fees related to Private Market Connect (“PMC”), our joint venture, as well as increases in legal and recruiting fees.

This change consisted primarily of a $2.5 million increase in technology and office related

expenses, a $2.2 million increase in consulting and professional fees, a $1.9 million increase in commissions from fund closings in the current year period, and a $0.9 million increase in legal-related expenses.

Other Income (Expense)

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Year ended March 31, 2021 compared to year ended March 31, 2020

Other income (expense) increased $13.2 million to $37.5 million for fiscal 2021 compared to fiscal 2020, due primarily to an increase in equity in income of investees.

Equity in income of investees increased $10.0 million to $30.3 million for fiscal 2021 compared to fiscal 2020.

This increase was due primarily to a $3.8 million increase in gains across our customized separate accounts, a $3.7 million increase in gains in our secondary fund product, and a $2.9 million increase in gains in our other funds which includes our evergreen funds.

Interest income increased $1.0 million for fiscal 2021 compared to fiscal 2020, due primarily to a late closing interest on our secondary fund in market in the period.

Year ended March 31, 2020 compared to year ended March 31, 2019

Other income (expense) decreased $1.0 million to $24.3 million for fiscal 2020 compared to fiscal 2019, due primarily to a decrease in non-operating income, partially offset by an increase in equity in income of investees.

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This increase was due primarily to a $6.7 million increase in gains in our direct/co-investment fund products, a $3.4 million increase in gains across our customized separate accounts, and a $1.2 million increase in gains in our secondary fund products.

Non-operating income decreased $14.7 million to $6.2 million for fiscal 2020 compared to fiscal 2019, due primarily to a $4.6 million decrease in gains from the sale of technology investments and a $10.1 million decrease to our liability under the tax receivable agreement (“TRA liability”) in the prior year as a result of a re-measurement related to changes in state tax rate estimates.

Year ended March 31, 2019 compared to year ended March 31, 2018

Other income (expense) increased $8.7 million to $25.3 million for fiscal 2019 compared to fiscal 2018 due primarily to an increase in non-operating income and a decrease in interest expense partially offset by a decrease in gains from our investments.

Equity in income of investees decreased $9.9 million to $7.2 million for fiscal 2019 compared to fiscal 2018 due to lower overall valuation gains compared to the prior year.

This decrease was due primarily to a $4.7 million decrease in gains across our customized separate accounts, a $3.7 million decrease in gains in our direct/co-investment fund products and a $0.9 million decrease in gains in our primary fund products.

Interest expense decreased $3.0 million, or 49%, to $3.0 million for fiscal 2019 compared to fiscal 2018, due primarily to 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 our predecessor credit facility in the prior year period.

Non-operating income increased $15.9 million to $20.9 million for fiscal 2019 compared to fiscal 2018 due to $11.1 million in gains on the sales of two technology investments during the period and a $10.1 million decrease to our TRA liability as a result of a re-measurement related to changes in state tax

rate estimates.

This was partially offset by a $5.1 million decrease to the TRA liability in the prior year period due to the re-measurement related to the change in federal tax rates enacted by the Tax Act.

Non-operating income decreased $14.7 million to $6.2 million for fiscal 2020 compared to fiscal 2019, due primarily to a $4.6 million decrease in gains from the sale of technology investments and a $10.1 million decrease to our liability under the tax receivable agreement in the prior year as a result of a re-measurement related to changes in state tax rate estimates.

Income Tax Expense

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Our effective income tax rate in fiscal 2021, 2020 and 2019 was 12.6%, 9.9%, and 23.6% respectively.

The effective income tax rate in fiscal 2019 was primarily impacted by the portion of income allocated to non-controlling interests and revaluation of deferred tax assets related to changes in state income tax apportionment as well as a tax rate reduction due to the Tax Act.

The fiscal 2021 effective income tax rate was different from the statutory tax rate due to the portion of income allocated to the non-controlling interest and change in the valuation allowance recorded against deferred tax assets.

The effective income tax rate for fiscal 2021 was higher than fiscal 2020 due primarily to discrete tax adjustments that reduced the fiscal 2020 effective income tax rate.

The effective income tax rate for fiscal 2021 was less than fiscal 2019 due primarily to the revaluation of deferred tax assets related to changes in state income tax apportionment in fiscal 2019.

Fee-Earning AUM

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(3) Foreign exchange, market value and other consists primarily of the impact of foreign exchange rate fluctuations for customized separate accounts and specialized funds that earn fees on non-U.S.

dollar denominated commitments and market value appreciation (depreciation) from customized separate accounts that earn fees on a NAV fee base.

dollar denominated commitments and market value appreciation (depreciation) from customized separate accounts and specialized funds that earn fees on a NAV fee base.

Year ended March 31, 2021 compared to year ended March 31, 2020

Fee-earning AUM increased $5.1 billion, or 15%, to $38.7 billion for fiscal 2020, due primarily to new specialized funds and customized separate accounts commitments.

Fee-earning AUM increased $3.3 billion, or 9%, to $42.0 billion for fiscal 2021, due to contributions from customized separate accounts and specialized funds.

Customized separate accounts fee-earning AUM increased $1.1 billion, or 5%, to $25.7 billion for fiscal 2021.

Customized separate accounts contributions were $5.8 billion for fiscal 2021 due to new allocations from existing clients and new clients.

Distributions were $2.6 billion for fiscal 2020 due to $1.0 billion from accounts reaching the end of their account term, $0.8 billion from accounts moving from a committed capital to a net invested fee base as their investment period expired, and $0.8 billion from returns of capital in accounts earning fees on a net invested capital or NAV fee base.

Distributions were $4.9 billion for fiscal 2021 due to $2.1 billion from accounts reaching the end of their fund term, $1.9 billion from accounts moving from a committed to net invested capital fee base, and $0.8 billion from returns of capital in accounts earning fees on a net invested capital or NAV fee base.

Specialized funds fee-earning AUM increased $2.2 billion, or 16%, to $16.3 billion for fiscal 2021.

Specialized fund contributions were $3.4 billion for fiscal 2020 due primarily to $1.7 billion in new commitments to our secondary fund in market during the period, $0.2 billion from our co-investment fund in market during the period, and $0.9 billion from accounts earning fees on a net invested capital or NAV fee base.

Distributions were $0.7 billion for fiscal 2020 due to $0.4 billion from returns of capital in accounts earning fees on a net invested capital fee base and $0.3 billion from accounts moving from a committed capital to a net invested fee base as their investment period expired.

Specialized fund contributions were $3.4 billion for fiscal 2021 due primarily to $2.2 billion in new commitments to our secondary fund in market during the period.

Distributions were $1.3 billion for fiscal 2021, due to $0.7 billion from funds reaching the end of their fund term and $0.6 billion from returns of capital in funds earning fees on a net invested capital or NAV fee base.

Year ended March 31, 2020 compared to year ended March 31, 2019

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Customized separate accounts contributions were $4.9 billion for fiscal 2020 due to new allocations from existing clients and new clients.

Distributions were $3.6 billion for fiscal 2019 due to $1.3 billion from accounts moving from a committed capital to a net invested fee base as their investment period expired, $1.6 billion from accounts reaching the end of their account term and $0.7 billion from returns of capital in accounts earning fees on a net invested capital or NAV fee base.

Specialized funds fee-earning AUM increased $2.7 billion, or 23%, to $14.1 billion for fiscal 2020.

Specialized fund contributions were $2.2 billion for fiscal 2019 due primarily to $0.8 billion in new commitments to our co-investment fund in market during the period and $1.1 billion from accounts earning fees on a net invested capital fee base.

Distributions were $0.6 billion for fiscal 2019 due primarily to $0.5 billion from returns of capital in accounts earning fees on a net invested capital fee base.

Specialized fund contributions were $3.4 billion for fiscal 2020 due primarily to $1.7 billion in new commitments to our secondary fund in market during the period, $0.2 billion from our co-investment fund in market during the period, and $0.9 billion from funds earning fees on a net invested capital or NAV fee base.

Distributions were $0.7 billion for fiscal 2020 due to $0.4 billion from returns of capital in funds earning fees on a net invested capital fee base and $0.3 billion from funds moving from a committed capital to a net invested fee base as their investment period expired.

Non-GAAP Financial Measures

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Net income attributable to Hamilton Lane Incorporated $ 98,022 $ 60,825 $ 33,573 $ 17,341 $ 612

$ 60,825 $ 33,573 $ 17,341 $ 612 $ —

Income (loss) attributable to non-controlling interests in general partnerships

85 564 2,448 1,192 (1,255)

(Loss) income attributable to non-controlling interests in general partnerships (250) 85 564 2,448 1,192

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

69,720 65,866 64,860 86,508 72,634

Income attributable to non-controlling interests in Hamilton Lane Alliance Holdings I, Inc.

1,293 — — — —

Incentive fees (1)

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24,438 13,677 14,983 3,874 3,283

SPAC related compensation 1,686 — — — —

SPAC related general, administrative and other expenses 378 — — — —

Interest income

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(24,438) (13,677) (14,983) (3,874) (3,283)

SPAC related compensation (1,686) — — — —

Interest income

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$ 168,239 $ 127,292 $ 117,736 $ 132,586 $ 83,031

(1) Prior to our IPO, HLI was a wholly-owned subsidiary of HLA with no operations or assets.

(1) Incentive fees for the year ended March 31, 2021 included $0.8 million of non-cash carried interest attributable to non-controlling interests.

Incentive fees for the year ended March 31, 2020 included $0.3 million of non-cash carried interest attributable to non-controlling interests.

Incentive fees for the year ended March 31, 2019 included $3.2 million of non-cash carried interest.

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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.

We believe adjusted net income and non-GAAP earnings per share are useful to investors because they enable them to better evaluate total and per-share operating performance across reporting periods.

The following table shows a reconciliation of adjusted net income to net income attributable to Hamilton Lane Incorporated and adjusted shares outstanding to weighted-average shares of Class A common stock outstanding for fiscal 2021 , 2020 and 2019.

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24,417 13,968 30,560

Write-off of deferred financing costs (1)

Impact of Tax Act on TRA liability (2)

IPO related compensation including impact of Tax Act (3)

Contingent compensation related to acquisition

— 5,100 3,399

Adjusted pre-tax net income

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$ 2.73 $ 2.01 $ 1.91

(1) Represents write-off of debt issuance costs and realized loss on interest rate caps related to the payoff of our predecessor credit facility in the prior year period.

(2) Represents gain recorded as a result of re-measurement due to lower federal tax rates.

The gain was recorded to non-operating income in the Consolidated Statements of Income.

(3) Represents accrual of one-time payments to induce members of HLA to exchange their HLA units for HLI common stock in the Reorganization during the year ended March 31, 2017 and the change in the expense accrual due to the impact of tax rate changes pursuant to enactment of the Tax Act during the year ended March 31, 2018.

(1) For the year ended March 31, 2021, represents corporate income taxes at our estimated statutory tax rate of 23.8% applied to adjusted pre-tax net income.

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The 23.7% is based on a federal tax statutory rate of 21.0% and a combined state income tax rate net of federal benefits of 2.7%.

For the year ended March 31, 2018, represents corporate income taxes at an assumed effective tax rate of 36.7%.

The 36.7% is based on a blended federal tax statutory rate of 35.0% for 275 days and 21.0% for 90 days and a combined state income tax rate net of federal benefits of 5.1%.

For the year ended March 31, 2019, represents corporate income taxes at our estimated statutory tax rate of 23.9% applied to adjusted pre-tax net income.

The 23.9% is based on a federal tax statutory rate of 21.0% and a combined state income tax rate net of federal benefits of 2.9%.

(2) 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.

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(3) funding capital commitments that we have made to certain of our specialized funds and customized separate accounts;

(4) making distributions to HLA unitholders;

(5) paying dividends;

(4) making dividend payments to our stockholders and distributions to holders of HLA units;

and (5) borrowings, interest payments and repayments under our outstanding debt.

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and (3) fund distributions related to investments in our specialized funds and certain customized separate accounts that we manage.

We use cash flow from operations primarily to pay compensation and related expenses, general, administrative and other expenses, debt service, capital expenditures and distributions to our owners.

We also use our cash flows to fund commitments to certain of our specialized funds and customized separate accounts.

We use cash flow from operations primarily to pay compensation and related expenses, general, administrative and other expenses, debt service, capital expenditures and distributions to our owners and to fund commitments to certain of our specialized funds and customized separate accounts.

If cash flow from operations were insufficient to fund distributions to our owners, we expect that we would suspend paying such distributions.

Term Loan and Revolving Credit Facility

In August 2017, we entered into the Term Loan Agreement and the Revolving Loan Agreement with First Republic.

Proceeds from these agreements were utilized to pay off the outstanding principal amount and accrued interest of the predecessor credit facility.

In March 2020, the Company amended these agreements.

The Term Loan Agreement was amended to include an incremental term advance of approximately $9 million on the closing date of the amendment (increasing the outstanding balance to $75 million), provide for additional uncommitted term advances not to exceed $25 million in the aggregate for a period of 3 years from the closing date of the amendment, revise the principal amortization schedule beginning July 1, 2020 through the maturity date of July 1, 2027 and change the interest rate to a floating per annum rate equal to the prime rate minus 1.50% subject to a floor of 2.25%.

The Revolving Loan Agreement’s maturity date was amended to March 24, 2023 and changed the interest rate to a floating per annum rate equal to the prime rate minus 1.50% subject to a floor of 2.25%.

We have also accessed the capital markets and used proceeds from sales of our Class A common stock to settle in cash exchanges of HLA membership interests by direct and indirect owners of HLA pursuant to our exchange agreement.

Loan Agreements

We maintain the Term Loan Agreement, the Revolving Loan Agreement and the Multi-Draw Term Loan Agreement with First Republic.

The Term Loan Agreement has a maturity date of July 1, 2027 and the interest rate is a floating per annum rate equal to the prime rate minus 1.50% subject to a floor of 2.25%.

As of March 31, 2021, we had an outstanding balance of $74 million under the Term Loan Agreement.

We are entitled to request additional uncommitted term advances not to exceed $25 million in the aggregate, as well as additional committed term advances not to exceed $25 million in the aggregate through March 24, 2023.

The Revolving Loan Agreement provides that the aggregate outstanding balance will not exceed $25 million and has a maturity date of March 24, 2023.

The interest rate is a floating per annum rate equal to the prime rate minus 1.50% subject to a floor of 2.25%.

As of March 31, 2021, we had an outstanding balance of $15 million under the Revolving Loan Agreement.

The Multi-Draw Term Loan Agreement provides for a term loan in the aggregate principal amount of $100 million with a maturity date of July 1, 2030.

Advances may be drawn through March 31, 2022 and the interest rate is a fixed per annum rate of 3.50%.

As of March 31, 2021, we had an outstanding balance of $75 million under the Multi-Draw Term Loan Agreement.

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, make distributions, engage in transactions with affiliates and take certain actions with respect to management fees.

The Loan Agreements also require HLA to maintain, among other requirements, (i) a specified amount of management fees, (ii) a specified amount of adjusted EBITDA, as defined in the Loan Agreements, and (iii) a specified minimum tangible net worth, during the term of each of the Loan Agreements.

each of the Loan Agreements.

The obligations under the Loan Agreements are secured by substantially all the assets of HLA.

As of March 31, 2021 and 2020, the principal amount of debt outstanding equaled $163.6 million and $75.0 million, respectively.

Multi-Draw Term Loan Facility

In March 2020, the Company entered into a Multi-Draw Term Loan and Security Agreement (the “Multi-Draw Facility”) with First Republic, which provides for a term loan in the aggregate principal amount of $75 million that may be drawn any time during a period of one year following the closing date.

Borrowings accrue interest at a fixed per annum rate of 4% and the Multi-Draw Facility matures on July 1, 2030.

Year Ended March 31,

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(421,781) (49,900) (19,213)

Net cash used in financing activities

(64,709) (90,210) (59,671)

Net cash provided by (used in) financing activities 270,660 (64,709) (90,210)

Effect of exchange rate changes on cash and cash equivalents

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• net income of $168.8 million, $126.8 million and $99.0 million during fiscal 2021, 2020 and 2019, respectively;

• net change in operating assets and liabilities of $33.5 million, $(19.9) million and $(2.0) million during fiscal 2021, 2020 and 2019, respectively.

Investing Activities

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These amounts were driven primarily by:

• purchase of money market funds of $276.0 million during fiscal 2021 related to our consolidated SPAC entity;

• purchase of other investments of $90.5 million and $4.0 million during fiscal 2021 and 2020, respectively

• contributions to investments, net of distributions received from investments, of $38.7 million , $46.0 million and $35.4 million during fiscal 2021, 2020 and 2019, respectively;

• Proceeds from the sales of other investments of $6.4 million and $22.5 million and during fiscal 2020 and 2019, respectively;

• cash paid for the acquisition of a business of $5.2 million during fiscal 2018.

• proceeds from the sales of other investments of $6.4 million and $22.5 million during fiscal 2020 and 2019, respectively;

• purchase of furniture, fixtures and equipment of $18.6 million during fiscal 2021, mainly attributable to the build out of our new corporate headquarters location.

Financing Activities

Our net cash flow used in financing activities was $64.7 million, $90.2 million and $59.7 million during fiscal 2020, 2019 and 2018, respectively.

Cash used in financing activities was attributable primarily to:

Our net cash flow provided by (used in) financing activities was $270.7 million, $(64.7) million and $(90.2) million during fiscal 2021, 2020 and 2019, respectively.

Cash provided by (used in) financing activities was attributable primarily to:

• new debt borrowings of $90.0 million during fiscal 2021;

• net contributions from non-controlling interest holders to our consolidated SPAC of $270.0 million during fiscal 2021;

• dividends paid of $39.7 million, $29.1 million and $18.7 million during fiscal 2021, 2020 and 2019, respectively;

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We believe that we will be able to continue to meet our current and long-term liquidity and capital requirements through our cash flows from operating activities, existing cash and cash equivalents and our ability to obtain future external financing.

We believe we will also continue to evaluate opportunities, based on market conditions, to access the capital markets and use proceeds from sales of our Class A common stock to settle in cash exchanges of HLA membership interests by direct and indirect owners of HLA pursuant to our exchange agreement.

The timing or size of any potential transactions will depend on a number of factors, including market opportunities and our views regarding our capital and liquidity positions and potential future needs.

There can be no assurance that any such transactions will be completed on favorable terms, or at all.

We currently sponsor a SPAC and intend to sponsor additional SPACs in the future, depending on market and other conditions, which will require an initial investment of capital from us that we may be unable to recover if a suitable target company for the SPAC is not identified within the prescribed timeframe.

In November 2018, we authorized a program to repurchase up to 6% of the outstanding shares of our Class A common stock, not to exceed $50 million (the “Stock Repurchase Program”).

The Stock Repurchase Program does not include specific price targets or timetables and may be suspended or terminated by us at any time.

We intend to finance the purchases using available working capital and/or external financing.

The Stock Repurchase Program expires 12 months after the date of the first acquisition under the authorization.

We have not repurchased any of our Class A common stock under the Stock Repurchase Program, and therefore the full purchase authority remains available.

We expect that our primary current and long-term liquidity needs will comprise cash to (1) provide capital to facilitate the growth of our business, (2) fund commitments to our investments, (3) pay operating expenses, including cash compensation to our employees, (4) make payments under the tax receivable agreement, (5) fund capital expenditures, (6) pay interest and principal due on our outstanding debt, (7) pay income taxes (8) make dividend payments to our stockholders and distributions to holders of HLA units in accordance with our distribution policy, (9) settle exchanges of HLA membership interests by direct and indirect owners of HLA pursuant to our exchange agreement from time to time, (10) fund SPACs sponsored by us and (11) fund purchases of our Class A common stock pursuant to the Stock Repurchase Program.

We are required to maintain minimum net capital balances for regulatory purposes for our Hong Kong, United Kingdom and broker-dealer subsidiaries.

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Total $ 494,944 $ 228,820 $ 28,029 $ 44,338 $ 193,757

(1) Operating leases obligation does not include the operating lease for our new headquarters which is in process of being constructed.

Total lease payments are estimated at $92.3 million over 17 years starting at lease commencement.

(1) Operating leases obligation includes lease payments for our new headquarters that will commence when we occupy the space, which is expected to be June 2021.

(2) Represents scheduled debt obligation payments under our Loan Agreements.

(3) Represents interest to be paid over the maturity of the related debt obligations, which has been calculated assuming no pre-payments will be made and debt will be held until its final maturity date.

The future interest payments are calculated using the variable interest rate of 2.25% on our Term Loan Agreement in effect as of March 31, 2020.

The future interest payments are calculated using

the variable interest rate of 2.25% on our Term Loan Agreement and the fixed interest rate of 3.50% on our Multi-Draw Term Loan Agreement in effect as of March 31, 2021.

(4) Represents commitments by us to fund a portion of each investment made by our specialized funds and certain customized separate account entities.

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For entities that are determined to be VIEs, we are required to consolidate those entities where we have concluded that we are the primary beneficiary.

The primary beneficiary is defined as the variable interest holder with (a) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and (b) the obligation to absorb losses of the entity or the right to receive

benefits from the entity that could potentially be significant to the VIE.

In evaluating whether we are the primary beneficiary, we evaluate our economic interests in the entity held either directly or indirectly by us.

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Estimating and projecting future taxable income is inherently uncertain and requires judgment.

Actual taxable income may differ from estimates, which could significantly affect the liability under the tax benefit arrangements and our consolidated results of operations.

Actual taxable income may differ from estimates, which could

significantly affect the liability under the tax benefit arrangements and our consolidated results of operations.

Based on current projections, we anticipate having sufficient taxable income to utilize these tax attributes and receive corresponding tax deductions in future periods.

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Information regarding recent accounting developments and their impact on our results can be found in Note 2, “Summary of Significant Accounting Policies” in the notes to the consolidated financial statements included in Part II, Item 8 of this Form 10-K.

Qualitative and Quantitative Disclosures about Market Risk

In the normal course of business, we are exposed to a broad range of risks inherent in the financial markets in which we participate, including price risk, interest-rate risk, access to and cost of financing risk, liquidity risk, counterparty risk and foreign exchange-rate risk.

Potentially negative effects of these risks may be mitigated to a certain extent by those aspects of our investment approach, investment strategies, fundraising practices or other business activities that are designed to benefit, either in relative or absolute terms, from periods of economic weakness, tighter credit or financial market dislocations.

Our predominant exposure to market risk is related to our role as general partner or investment manager for our specialized funds and customized separate accounts and the sensitivities to movements in the fair value of their investments, which may adversely affect our equity in income of investees.

Since our management fees are generally based on commitments or net invested capital, our management fee and advisory fee revenue is not significantly impacted by changes in investment values.

Fair value of the financial assets and liabilities of our specialized funds and customized separate accounts may fluctuate in response to changes in the value of securities, foreign currency exchange rates, commodity prices and interest rates.

The impact of investment risk is as follows:

• Equity in income of investees changes along with the realized and unrealized gains of the underlying investments in our specialized funds and certain customized separate accounts in which we have a general partner commitment.

Our general partner investments include over 3,000 unique underlying portfolio investments with no significant concentration in any industry or country outside of the United States.

• Management fees from our specialized funds and customized separate accounts are not significantly affected by changes in fair value as the management fees are not generally based on the value of the specialized funds or customized separate accounts, but rather on the amount of capital committed or invested in the specialized funds or customized separate accounts, as applicable.

• Incentive fees from our specialized funds and customized separate accounts are not materially affected by changes in the fair value of unrealized investments because they are based on realized gains and subject to achievement of performance criteria rather than on the fair value of the specialized fund’s or customized separate account’s assets prior to realization.

We had $3.7 million of deferred incentive fee revenue on our balance sheet as of March 31, 2020.

Minor decreases in underlying fair value would not affect the amount of deferred incentive fee revenue subject to clawback.

Exchange Rate Risk

Several of our specialized funds and customized separate accounts hold investments denominated in non-U.S.

dollar currencies that may be affected by movements in the rate of exchange between the U.S.

dollar and foreign currency, which could impact investment performance.

The currency exposure related to investments in foreign currency assets is limited to our general partner interest, which is typically one percent of total capital commitments.

We do not possess significant assets in foreign countries in which we operate or engage in material transactions in currencies other than the U.S.

Therefore, changes in exchange rates are not expected to materially impact our financial statements.

Interest Rate Risk

As of March 31, 2020, we had $75.0 million in borrowings outstanding under our Loan Agreements.

The annual interest rate on the Term Loan Agreement, which is at the prime rate minus 1.50%, subject to a floor of 2.25%, was 2.25% as of March 31, 2020.

The annual interest rate on the Revolving Loan Agreement, which is at the prime rate minus 1.50%, subject to a floor of 2.25%, was 2.25% as of March 31, 2020.

Based on the floating rate component of our Loan Agreements payable as of March 31, 2020, we estimate that a 100 basis point increase in interest rates would result in increased interest expense related to the loan of $0.4 million over the next 12 months.

We are party to agreements providing for various financial services and transactions that contain an element of risk in the event that the counterparties are unable to meet the terms of such agreements.

In such agreements, we depend on the respective counterparty to make payment or otherwise perform.

We generally endeavor to minimize our risk of exposure by limiting the counterparties with which we enter into financial transactions to reputable financial institutions.

In other circumstances, availability of financing from financial institutions may be uncertain due to market events, and we may not be able to access these financing markets.

There have been no material changes in our market risk exposures since March 31, 2019.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis