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Item 7. Management’s Discussion and Analysis

2022-05-26 compared with 2021-05-27 · 283 added, 203 removed, 407 unchanged (54% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following information should be read in conjunction with our selected combined financial and operating data and the accompanying consolidated financial statements and related notes.

The following information should be read in conjunction with the accompanying consolidated financial statements and related notes.

See “Index to Consolidated Financial Statements of Hamilton Lane Incorporated.”

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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.

We are a global private markets investment solutions provider and operate our business in a single segment.

These solutions are constructed from a range of investment types, including primary investments in funds managed by third-party managers, direct 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:

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• Specialized Funds :

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

We organize, invest and manage specialized primary, secondary and direct 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 $19 billion of our AUM as of March 31, 2021.

We launched our first specialized fund in 1997.

Since then, our product offerings have grown steadily and now include evergreen offerings that invest primarily in secondaries and direct investments in equity and credit and are available to certain high-net-worth individuals.

Specialized funds comprised approximately $24 billion of our AUM as of March 31, 2022.

• Advisory Services :

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• Distribution Management :

We offer distribution management services to our clients 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 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.

We provide our clients with comprehensive reporting and investment monitoring services, usually bundled into our broader investment solutions offerings, but also on a stand-alone, fee-for-service basis.

We also provide comprehensive research and analytical services as part of our investment solutions, leveraging our large, global, proprietary and high-quality database for transparency and powerful analytics.

Our data, tracking over 47,000 funds and $19 trillion in commitments, as of March 31, 2022, as well as our benchmarking and forecasting models are accessible through our proprietary technology solution, Cobalt LP, on a stand-alone, subscription basis.

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 we offer a highly customized, flexible service, 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, Canada, Europe, the Middle East, Asia, Australia and Latin America.

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

We provide private markets solutions and services to some of the largest global pension, sovereign wealth and U.S.

state pension funds.

In addition, 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.

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Our results of operations are affected by a variety of factors, including conditions in the global financial markets and the economic and political environments, particularly in the United States, Western Europe and Asia.

As interest rates remain near historic lows and public equities are not able to meet expected returns, we see increasing investor demand for alternative investments to achieve higher yields.

As interest rates begin to rise in response to increasing inflationary pressures, along with increased public equity volatility leading to a wider range of equity returns, we see increasing investor demand for alternative investments to achieve higher and less correlated relative yields and returns on invested capital.

As a result, some investors have increased their allocation to private markets relative to other asset classes.

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• Our ability to source investments with attractive risk-adjusted returns.

An increasing part of our management fee and incentive fee revenue has been from our co-investment and secondary

investment platforms.

An increasing part of our management fee and incentive fee revenue has been from our direct investment and secondary investment platforms.

The continued growth of this revenue is dependent on our continued ability to source attractive investments and deploy the capital that we have raised or manage on behalf of our clients.

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Impact of COVID-19

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.

In March 2020, the World Health Organization declared the coronavirus (“COVID-19”) outbreak a global pandemic, the effects of which continue to cause 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.

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.

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 continues to cause disruptions in the U.S.

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

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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

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

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

See “—Critical Accounting Policies—Revenue Recognition of Incentive Fees” and Note 2 of the consolidated financial statements included in Part II, Item 8 of this Form 10-K for additional information regarding the manner in which management and advisory fees and incentive fees are generated.

See “—Critical Accounting Estimates—Revenue Recognition of Incentive Fees” and Note 2 of the consolidated financial statements included in Part II, Item 8 of this Form 10-K for additional information regarding the manner in which management and advisory fees and incentive fees are generated.

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

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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.

Management fees for certain funds are discounted based on the amount of the limited partners’ commitments, whether the limited partner commits early in the offering period 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.

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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, 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.

For each of our secondary funds, direct 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 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 recognize carried interest when it is probable that a significant reversal will not occur.

In the event that a payment is made before it can be recognized as revenue, this amount would be included as deferred incentive fee revenue on our Consolidated Balance Sheet and recognized as income in accordance with our revenue recognition policy.

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.

Incentive fees are typically only required to be returned on a net of tax basis due to a clawback.

As such, the tax-related portion of incentive fees is typically not subject to clawback and is therefore recognized as revenue immediately upon receipt.

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.

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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 stock 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 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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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.

We have general partner commitments in our specialized funds and certain customized separate accounts that invest solely in primary funds, secondary funds and direct investments, as well as those that invest across investment types.

Equity in income (loss) of investees will increase or decrease as the 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.

Since our direct 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.

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Interest income is income earned on cash and cash equivalents.

Non-operating income (loss) consists primarily of gains and losses on certain investments and other non-recurring or non-cash items.

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.

Other income (expense) of consolidated Variable Interest Entities (“VIEs”) consists primarily of the share of earnings of investments of consolidated general partner entities, which are not wholly-owned by us, in our specialized funds and certain customized separate accounts in which they have a general partner commitment and changes in fair value of liabilities of our sponsored SPAC.

Income Tax Expense

We are a corporation for U.S.

federal income tax purposes and therefore are subject to U.S.

federal and state income taxes on our share of taxable income generated by HLA.

Prior to our IPO, we operated as a partnership for U.S.

federal income tax purposes and therefore were not subject to U.S.

federal and state income taxes.

HLA is treated as a pass-through entity for U.S.

federal and state income tax purposes.

As such, income generated by HLA flows through to its limited partners, including us, and is generally not subject to U.S.

federal or state income tax at the partnership level.

subsidiaries generally operate as corporate entities in non-U.S.

jurisdictions, with certain of these entities subject to non-U.S.

income taxes.

Additionally, certain of our subsidiaries are subject to local jurisdiction income taxes at the entity level.

Accordingly, the tax liability with respect to income attributable to non-controlling interests in HLA is borne by the holders of such non-controlling interests.

Non-controlling interests

Non-controlling interests (“NCI”) reflect the portion of income or loss and the corresponding equity attributable to third-party equity holders and employees in certain consolidated subsidiaries that are not 100%

Non-controlling interests are presented as separate components in our consolidated statements of income to clearly distinguish between our interests and the economic interests of third parties and employees in those entities.

Fee-Earning AUM

Fee-earning AUM is a metric we use 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.

Our fee-earning AUM comprise assets in our customized separate accounts and specialized funds from which we derive management fees that are generally derived from applying a certain percentage to the appropriate fee base.

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.

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Annual Consolidated Results of Operations

The following is a discussion of our consolidated results of operations for each of the years in the three-year period ended March 31, 2021.

The following is a discussion of our consolidated results of operations for fiscal 2022 compared to fiscal 2021.

This information is derived from our accompanying consolidated financial statements prepared in accordance with GAAP.

Refer to Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2021 Annual Report on Form 10-K for management’s discussion and analysis of financial condition and results of operations for fiscal 2021 compared to fiscal 2020.

Year Ended March 31,

2021 2020 2019

(in thousands) 2022 2021 2020

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Net income 247,253 168,785 126,776

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

Income (loss) attributable to non-controlling interests in general partnerships 376 (250) 85

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

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

4,343 1,293 —

Net income attributable to Hamilton Lane Incorporated $ 145,986 $ 98,022 $ 60,825

Year Ended March 31,

2021 2020 2019

(in thousands) 2022 2021 2020

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Year ended March 31, 2022 compared to year ended March 31, 2021

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 $26.3 million, or 8%, to $367.9 million, for fiscal 2022 compared to fiscal 2021, due to an increase in management and advisory fees.

Management and advisory fees increased $24.8 million, or 9%, to $314.2 million for fiscal 2022 compared to fiscal 2021.

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.

Specialized funds revenue increased by $2.1 million compared to the prior year, due primarily to a $17.5 million increase in revenue from our evergreen funds and a $8.2 million increase in revenue from our latest direct equity fund, which added $1.5 billion and $1.1 billion, respectively, in fee-earning AUM year-over-year.

These increases were partially offset by a $17.8 million decrease in revenue from our latest secondary fund, which reflects $18.2 million in retroactive fees earned in fiscal 2021.

Customized separate accounts revenue increased $9.3 million in fiscal 2022 due to a $5.3 billion increase in fee-earning AUM from the addition of several new accounts and additional allocations from existing accounts during the fiscal year.

Fund reimbursement revenue increased $2.2 million for fiscal 2020 compared to fiscal 2019, due primarily to the recognition of fund reimbursements from our latest secondary fund.

Distribution management revenue increased $0.4 million due to higher stock distribution activity and the related fees earned from this business.

Incentive fees decreased $5.3 million to $29.1 million for fiscal 2020 compared to fiscal 2019, due primarily to a $9.1 million decrease in incentive fees from one of our specialized funds and a $4.7 million decrease from one of our customized separate accounts, which included the general partner catch-up in the prior year period.

This was partially offset by a $11.6 million increase from new accounts moving into a realized incentive fee position in fiscal 2020.

Reporting and other fees increased $12.2 million in fiscal 2022 due to $8.7 million in revenue added from the acquisition of 361 Capital, LLC in the current year period.

Distribution management revenue increased $3.8 million in fiscal 2022 due to increased distribution activity.

Incentive fees increased $1.5 million to $53.7 million for fiscal 2022 compared to fiscal 2021.

Year ended March 31, 2022 compared to year ended March 31, 2021

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.

Total expenses increased $12.4 million, or 7%, for fiscal 2022 compared to fiscal 2021 due to an increase in general, administrative and other expenses, partially offset by a decrease in compensation and benefits expenses.

Compensation and benefits expenses decreased $7.2 million, or 5%, to $129.2 million for fiscal 2022 compared to fiscal 2021, due primarily to a decrease in base compensation and benefits.

Base compensation and benefits decreased $8.0 million, or 7%, for fiscal 2022 compared to fiscal 2021, due primarily to a

decrease in our bonus plan accrual.

Incentive compensation increased $0.5 million for fiscal 2022 compared to fiscal 2021 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

Total expenses increased $9.7 million, or 7%, for fiscal 2020 compared to fiscal 2019 due to an increase in general, administrative and other expenses.

Compensation and benefits expenses increased $1.1 million, or 1%, to $100.1 million for fiscal 2020 compared to fiscal 2019, due to an increase in base compensation partially offset by a nonrecurring contingent compensation payment in the prior year period related to the fiscal 2018 acquisition of Real Asset Portfolio Management LLC (“RAPM”).

Base compensation and benefits increased $6 million, or 8%, for fiscal 2020 compared to fiscal 2019, due primarily to increased salary expense from additional headcount in the current year period compared to the prior year period.

Contingent compensation related to the RAPM acquisition decreased $5.1 million for fiscal 2020 compared to fiscal 2019 due to the earnout period ending in the prior year.

Incentive compensation decreased $0.6 million for fiscal 2020 compared to fiscal 2019 due to the decrease in incentive fee revenue.

Equity-based compensation increased $0.8 million for fiscal 2020 compared to fiscal 2019 as a result of the amortization of equity awards, which have increased in recent years.

General, administrative and other expenses increased $19.6 million for fiscal 2022 compared to fiscal 2021.

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.

This change consisted primarily of a $4.5 million increase related to the 361 Capital, LLC funds, a $2.9 million increase in consulting and professional fees, a $3.0 million increase in rent expense, which included expenses for our new headquarters in the current year period, a $2.2 million increase in technology related expenses driven by the growth in our reporting and analytics offering and a $1.7 million increase in third-party commissions.

Other Income (Expense)

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Year Ended March 31,

2021 2020 2019

(in thousands) 2022 2021 2020

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$ 9,016 $ 2,443 $ 2,550

Direct/co-investment funds

8,553 8,869 2,201

Direct investment funds 19,519 8,553 8,869

Secondary funds

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Year ended March 31, 2022 compared to year ended March 31, 2021

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.

Other income (expense) increased $106.6 million to $144.1 million for fiscal 2022 compared to fiscal 2021, due primarily to increases in equity in income of investees and other non-operating income.

Equity in income of investees increased $49.0 million to $79.3 million for fiscal 2022 compared to fiscal 2021.

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 in the prior year as a result of a re-measurement related to changes in state tax rate estimates.

This increase was due primarily to a $15.7 million increase in gains across our customized separate accounts, a $11.0 million increase in gains in our direct investment funds, and a $9.5 million increase in gains in our secondary fund product.

Non-operating income increased $60.9 million for fiscal 2022 compared to fiscal 2021, due primarily to $55.1 million in gains on two technology investments and a $4.3 million gain on the early extinguishment of a portion of the tax receivable liability due to termination payments to certain recipients.

Other income of consolidated VIEs increased $5.4 million for fiscal 2022 compared to fiscal 2021, due to increases in equity in income (loss) of investees discussed above and a change in fair value of the warrants of our sponsored SPAC.

Income Tax Expense

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Our effective income tax rate in fiscal 2022 and 2021 was 21.2% and 12.6%, respectively.

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.

The fiscal 2022 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.

The effective income tax rate for fiscal

2022 was higher than fiscal 2021 primarily due to less income allocated to the non-controlling interest in fiscal 2022 and an increase in the valuation allowance for deferred tax assets not expected to be realized.

Fee-Earning AUM

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Customized separate accounts contributions were $9.0 billion for fiscal 2022 due to new allocations from existing clients and new clients.

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 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

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.

Customized separate accounts fee-earning AUM increased $2.4 billion, or 11%, to $24.5 billion for fiscal 2020.

Customized separate accounts contributions were $4.9 billion for fiscal 2020 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 $4.2 billion for fiscal 2022 due to $1.6 billion from returns of capital in accounts earning fees on a net invested capital or NAV fee base, $1.5 billion from accounts moving from a committed to net invested capital fee base, and $1.1 billion from accounts reaching the end of their fund term.

Specialized funds fee-earning AUM increased $1.9 billion, or 11%, to $18.2 billion for fiscal 2022.

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.

Specialized fund contributions were $4.2 billion for fiscal 2022, due primarily to $1.3 billion from our evergreen funds and $1.1 billion from our latest direct equity fund.

Distributions were $2.6 billion for fiscal 2022, due to $1.4 billion from returns of capital in funds earning fees on a net invested capital or NAV fee base, $0.7 billion from funds reaching the end of their fund term, and $0.5 billion from accounts moving from a committed to net invested capital fee base.

Non-GAAP Financial Measures

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Adjusted EBITDA

Adjusted EBITDA is our primary internal measure of profitability.

Adjusted EBITDA is an 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.

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Fee Related Earnings

Fee Related Earnings (“FRE”) is used to highlight earnings of the Company from recurring management fees.

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.

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2022 2021 2020

(in thousands)

Net income attributable to Hamilton Lane Incorporated $ 145,986 $ 98,022 $ 60,825

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

Income (loss) attributable to non-controlling interests in general partnerships 376 (250) 85

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

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SPAC related general, administrative and other expenses 1,176 378 —

Non-operating income related compensation 1,810 — —

Interest income

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(79,296) (30,266) (20,250)

Contingent compensation related to acquisition

— — 5,100 3,399 —

Non-operating (income) loss

(8,035) (6,172) (20,915) (5,036) (83)

Non-operating income (68,954) (8,035) (6,172)

Fee Related Earnings

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SPAC related compensation — (1,686) —

Non-operating income related compensation (1,810) — —

Interest income

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$ 183,911 $ 168,239 $ 127,292

(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.

Of the $3.2 million, $2.5 million is included in net income and $0.7 million is attributable to non-controlling interests.

Incentive fees for the year ended March 31, 2018 included $40.6 million of non-cash carried interest.

Of the $40.6 million, $38.9 million is included in net income and $1.7 million is attributable to non-controlling interests.

(1) Incentive fees for the years ended March 31, 2022, 2021, and 2020 included $0.2 million, $0.8 million and $0.3 million, respectively, of non-cash carried interest attributable to non-controlling interests.

(2) 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 years ended March 31, 2019 and 2018 excludes compensation expense related to the recognition of incentive fees included in net income from one of our co-investment funds of $2.5 million and $38.9 million, respectively, as the related incentive fee compensation was recognized in fiscal 2016.

Non-GAAP Earnings Per Share

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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.

Adjusted net income is income before taxes fully taxed at our estimated statutory tax rate and excludes any impact of changes in carrying amount of our redeemable non-controlling interest.

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.

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66,423 24,417 13,968

Contingent compensation related to acquisition

Adjusted pre-tax net income

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$ 4.39 $ 2.73 $ 2.01

(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.

The 23.8% is based on a federal tax statutory rate of 21.0% and a combined state income tax rate net of federal benefits of 2.8%.

For the year ended March 31, 2020, represents corporate income taxes at our estimated statutory tax rate of 23.7% applied to adjusted pre-tax net income.

(1) For the years ended March 31, 2022 and March 31, 2021, represents corporate income taxes at our estimated statutory tax rate of 23.8% applied to adjusted pre-tax net income.

The 23.8% is based on a federal tax statutory rate of 21.0% and a combined state income tax rate net of federal benefits of 2.8%.

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(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.

For the year ended March 31, 2022, the full exchange of Class B and Class C units is already included within the GAAP Weighted-average shares of Class A common stock outstanding - diluted.

Investment Performance

The following tables present information relating to the historical performance of our specialized funds with fund families having at least two distinct vintages and most recent fund sizes of greater than $500 million per fund.

The data are presented from the date indicated through December 31, 2021 and have not been adjusted to reflect acquisitions or disposals of investments subsequent to that date.

When considering the data presented below, note that the historical results of our specialized funds 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 the 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 initially 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;

• 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.

See “—Performance Methodology” below for more information on how our returns are calculated.

Specialized Fund Performance

We organize, invest and manage specialized primary, secondary and direct 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.

Below is performance information across our various specialized funds.

Substantially all of these funds are globally focused, and they are grouped by the investment strategy utilized.

Gross Returns — Realized

Fund size ($M) Realized

invested ($M) Realized

multiple Realized

IRR (%) Realized Gross

S&P 500 PME Realized Gross

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 1,170 bps

PEF V 2003 135 133 1.7 14.2% 841 bps 950 bps

PEF VI 2007 494 499 1.7 12.2% 110 bps 444 bps

PEF VII 2010 262 245 1.7 15.5% 86 bps 489 bps

PEF VIII 2012 427 202 1.8 17.1% 196 bps 552 bps

PEF IX 2015 517 219 2.2 27.1% 1,017 bps 1,359 bps

PEF X 2018 278 N/A N/A N/A N/A N/A

Pre-Fund — — 362 1.5 17.1% 1,330 bps 1,172 bps

Secondary Fund I 2005 360 353 1.2 5.2% 113 bps 341 bps

Secondary Fund II 2008 591 596 1.5 19.9% 459 bps 875 bps

Secondary Fund III 2012 909 805 1.5 15.2% 108 bps 499 bps

Secondary Fund IV 2016 1,916 275 2.1 36.0% 1,960 bps 2,279 bps

Secondary Fund V 2019 3,929 20 2.2 134.5% 10,494 bps 10,799 bps

Direct/Co-investments

Pre-Fund — — 244 1.9 21.3% 1,655 bps 1,600 bps

Co-Investment Fund 2005 604 561 1.0 0.2% (554) bps (304) bps

Co-Investment Fund II 2008 1,195 884 2.4 21.0% 869 bps 1,248 bps

Co-Investment Fund III 2014 1,243 640 3.0 34.2% 1,846 bps 2,192 bps

Co-Investment Fund IV 2018 1,698 271 4.4 73.6% 5,306 bps 5,682 bps

Equity Opportunities Fund V 2021 1,229 N/A N/A N/A N/A N/A

year Fund size ($M) Realized

invested ($M) Realized

multiple Realized

IRR (%) Realized Gross

CS HY II PME Realized Gross

Strategic Opportunities (Tail-end secondaries and credit)

Strat Opps 2015 2015 71 62 1.3 14.5% 612 bps 911 bps

Strat Opps 2016 2016 214 155 1.3 17.7% 1,082 bps 1,276 bps

Strat Opps 2017 2017 435 322 1.3 15.6% 1,100 bps 1,163 bps

Strat Opps 2018 2018 889 434 1.2 13.8% 940 bps 1,179 bps

Strat Opps 2019 2019 762 270 1.2 19.4% 1,335 bps 1,482 bps

Strat Opps 2020 2021 898 20 1.0 11.6% 276 bps 716 bps

Gross Returns — Realized and Unrealized

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 1,170 bps 708 bps

PEF V 2003 135 133 1.7 1.6 14.2% 9.6% 841 bps 363 bps 950 bps 466 bps

PEF VI 2007 494 514 1.7 1.6 11.8% 9.0% 63 bps (181) bps 397 bps 147 bps

PEF VII 2010 262 287 1.6 1.7 13.5% 9.6% (123) bps (502) bps 277 bps (106) bps

PEF VIII 2012 427 418 1.5 1.5 11.2% 8.7% (418) bps (696) bps (63) bps (335) bps

PEF IX 2015 517 487 2.0 1.9 23.4% 21.7% 565 bps 358 bps 921 bps 717 bps

PEF X 2018 278 190 1.5 1.4 29.0% 24.4% 455 bps (165) bps 901 bps 275 bps

Pre-Fund — — 362 1.5 N/A 17.1% N/A 1,330 bps N/A 1,172 bps N/A

Secondary Fund I 2005 360 353 1.2 1.2 5.2% 3.8% 113 bps (63) bps 341 bps 157 bps

Secondary Fund II 2008 591 596 1.5 1.4 19.9% 13.5% 459 bps (191) bps 875 bps 214 bps

Secondary Fund III 2012 909 836 1.5 1.4 14.4% 12.2% 26 bps (224) bps 415 bps 171 bps

Secondary Fund IV 2016 1,916 2,033 1.7 1.7 23.6% 25.0% 409 bps 531 bps 792 bps 910 bps

Secondary Fund V 2019 3,929 2,721 1.5 1.5 60.3% 73.7% 3,263 bps 4,364 bps 3,857 bps 5,007 bps

Direct/Co-investments

Pre-Fund — — 244 1.9 N/A 21.3% N/A 1,655 bps N/A 1,600 bps N/A

Co-Investment Fund 2005 604 577 1.0 0.9 0.2% (1.3)% (570) bps (747) bps (319) bps (502) bps

Co-Investment Fund II 2008 1,195 1,157 2.0 1.7 17.8% 14.1% 528 bps 141 bps 909 bps 517 bps

Co-Investment Fund III 2014 1,243 1,262 2.1 1.9 20.8% 17.6% 490 bps 169 bps 843 bps 518 bps

Co-Investment Fund IV 2018 1,698 1,459 2.1 1.9 37.6% 36.8% 1,455 bps 1,252 bps 1,847 bps 1,649 bps

Equity Opportunities Fund V 2021 1,229 660 1.1 1.1 17.4% 23.4% (140) bps 707 bps 518 bps 1,447 bps

year Fund size ($M) Capital invested

($M) Gross multiple Net Multiple Gross IRR (%) Net

IRR (%) Gross Spread vs.

CS HY II PME Net Spread vs.

CS HY II PME Gross Spread vs.

CS LL PME Net Spread vs.

Strategic Opportunities (Tail-end secondaries and credit)

Strat Opps 2015 2015 71 68 1.3 1.2 14.1% 10.8% 552 bps 221 bps 863 bps 527 bps

Strat Opps 2016 2016 214 216 1.3 1.2 11.9% 9.4% 521 bps 282 bps 704 bps 465 bps

Strat Opps 2017 2017 435 448 1.3 1.2 13.0% 10.4% 783 bps 513 bps 889 bps 633 bps

Strat Opps 2018 2018 889 851 1.2 1.2 11.5% 9.4% 598 bps 348 bps 815 bps 565 bps

Strat Opps 2019 2019 762 694 1.2 1.1 15.1% 12.1% 812 bps 365 bps 956 bps 500 bps

Strat Opps 2020 2021 898 614 1.0 1.0 9.2% 7.8% 411 bps 249 bps 502 bps 352 bps

Performance Methodology

The indices presented for comparison are the S&P 500, MSCI World, Credit Suisse High Yield II (“CS HY II”) and Credit Suisse Leverage Loan (“CS LL”), calculated on a public market equivalent (“PME”) basis.

We believe these indices are commonly used by private markets and credit investors to evaluate performance.

The PME calculation methodology allows private markets investment performance to be evaluated against a public index and assumes that capital is being invested in, or withdrawn from, the index on the days the capital was called and distributed from the underlying fund managers.

The S&P 500 Index is a total return capitalization-weighted index that measures the performance of 500 U.S.

large cap stocks.

The MSCI World Index is a free float-adjusted market capitalization-weighted index of over 1,600 world stocks that is designed to measure the equity market performance of developed markets.

The CS HY II Index, formerly known as the DLJ High Yield Index, is designed to mirror the investable universe of the U.S.

dollar denominated high yield debt market.

Prices for the CS HY II Index are available on a weekly basis.

The CS LL Index is an index designed to mirror the investable universe of the U.S.

dollar denominated leveraged loan market.

Loans must be rated 5B or lower and the index frequency is monthly.

Our IRR represents the pooled IRR for all discretionary investments for the period from inception to December 31, 2021.

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.

Our gross IRR would decrease with the inclusion of our management fees, carried interest and expenses.

Net IRR is net of all management fees, carried interest and expenses charged by the general partners of the underlying investments, as well as by us.

Net IRR figures for our funds do not include cash flows attributable to the general partner.

Note that secondary portfolio IRRs can be initially impacted by purchase discounts (or premiums) paid at the closing of a transaction, the impact of which will diminish over time.

The “Realized IRR” represents the pooled IRR for those discretionary investments that we consider realized for purposes of our track record, which are investments where the underlying investment fund has been fully liquidated, has generated a distributions to paid-in capital ratio (“DPI”) greater than or equal to 1.0 or is older than six years and has a residual value to paid-in capital ratio (“RVPI”) less than or equal to 0.2.

Hamilton Lane Secondary Realized includes investments that have been fully liquidated, have a DPI greater than or equal to 1.0 or a RVPI less than or equal to 0.2.

Hamilton Lane Realized Direct/Co-Investment and Hamilton Lane Realized Strategic Opportunities include investments that have been fully liquidated or have a DPI greater than or equal to 1.0.

“Unrealized” includes all investments that do not meet the aforementioned criteria.

DPI represents total distributions divided by total invested capital.

RVPI represents the remaining market value divided by total invested capital.

“Capital Invested” refers to the total amount of all investments made by a fund, including commitment-reducing and non-commitment-reducing capital calls.

“Multiple” represents total distributions from underlying investments to the fund plus the fund’s market value divided by total contributed capital.

“Gross Multiple” is presented net of management fees, carried interest and expenses charged by the fund managers of the underlying investments.

Specialized fund and pre-fund performance does not include ten funds-of-funds that have investor-specific investment guidelines.

Many of our specialized funds utilize revolving credit facilities, which provide capital that is available to fund investments or pay partnership expenses and management fees.

Borrowings may be paid down from time to time with investor capital contributions or distributions from investments.

The use of a credit facility affects the fund’s return and magnifies the performance on the upside or on the downside.

Liquidity and Capital Resources

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

As of March 31, 2021 and March 31, 2020, our cash and cash equivalents, including investments in money market funds, were $87.0 million and $50.1 million, respectively.

As of March 31, 2022 and March 31, 2021, our cash and cash equivalents were $72.1 million and $87.0 million, respectively.

Our material sources of cash from our operations include:

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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.

Finally, we have used available cash and borrowings from our Loan Agreements to make strategic investments in companies that seek to offer technology-driven private markets data and wealth management solutions.

Loan Agreements

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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.

As of March 31, 2022, we had no outstanding balance 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%.

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

As of March 31, 2022, we had an outstanding balance of $100 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.

management fees.

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

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(70,487) (421,781) (49,900)

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

Effect of exchange rate changes on cash and cash equivalents

Increase in cash, cash equivalents and restricted cash

$ 37,167 $ 1,620 $ 2,207

Net cash (used in) provided by financing activities (113,216) 270,660 (64,709)

Operating Activities

Net cash provided by operating activities was $188.2 million, $116.4 million and $111.6 million during fiscal 2021, 2020 and 2019, respectively.

These operating cash flows were driven primarily by:

• 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.

Our operating activities generally reflect our earnings in the respective periods after adjusting for significant non-cash activity, including equity in income (loss) of investees, equity-based compensation, lease expense and depreciation and amortization, all of which are included in earnings.

For the years ended March 31, 2022 and 2021, our net cash provided by operating activities was driven primarily by receipts of management fees and incentive fees offset by payment of operating expenses, which includes compensation and benefits and general, administrative and other expenses.

Investing Activities

Our net cash flow used in investing activities was $421.8 million, $49.9 million and $19.2 million during fiscal 2021, 2020 and 2019, respectively.

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 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.

Our investing activities generally reflect cash used for acquisitions, fixed asset purchases and contributions to and distributions from our investments.

For the years ended March 31, 2022 and 2021, our net cash used in investing activities was driven primarily by purchases of furniture, fixtures and equipment, purchase of other investments and net contributions to our funds.

Additionally, during the year ended March 31, 2022, we received a distribution from one of our investments valued under the measurement alternative and proceeds from the sale of one of our investments valued under the measurement alternative, which was partially offset by the cash paid to acquire 361 Capital, LLC.

Financing Activities

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;

• distributions to equity holders of $34.4 million, $47.4 million and $50.6 million during fiscal 2021, 2020 and 2019, respectively.

Our financing activities generally reflect cash received from debt and equity financings, payments to owners in the form of dividends, distributions and repurchases of shares and scheduled repayments of our outstanding debt.

For the years ended March 31, 2022 and 2021, our net cash used in financing activities was driven primarily by dividends paid to stockholders, payments under the tax receivable agreement and distributions to HLA members.

Additionally, during the year ended March 31, 2022, we repaid the outstanding balance on our Revolving Loan Agreement and borrowed an additional amount under our Multi-Draw Term Loan.

Future Sources and Uses of Liquidity

We generate significant cash flows from operating activities.

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 that we will be able to continue to meet our short-term 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.

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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.

We will also continue to evaluate opportunities to make strategic investments in companies that seek to offer technology-driven private markets data and wealth management solutions.

We currently sponsor a SPAC and may 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”).

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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.

Our board of directors periodically reviews the Stock Repurchase Program, and, on December 16, 2021, re-approved it on the same terms as those approved in 2018.

We expect that our primary short-term 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 and/or exercise early termination buyout rights under the tax receivable agreement;

(5) fund capital expenditures and make strategic investments ;

(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 certain of our foreign subsidiaries and our broker-dealer subsidiary.

These net capital requirements are met by retaining cash.

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Tax Receivable Agreement

We expect that exchanges of membership units of HLA by members of HLA, as well as our initial purchase of membership units of HLA with the net proceeds from our IPO from certain existing direct and indirect HLA members, will result in increases in the tax basis in our share of the assets of HLA that otherwise would not have been available.

We expect that periodic exchanges of membership units of HLA by members of HLA will result in increases in the tax basis in our share of the assets of HLA that otherwise would not have been available.

These increases in tax basis are expected to increase our depreciation and amortization deductions and create other tax benefits and therefore may reduce the amount of tax that we would otherwise be required to pay in the future.

The tax receivable agreement will require us to pay 85% of the amount of these and certain other tax benefits, if any, that we realize (or are deemed to realize in the case of an early termination payment, a change in control or a material breach by us of our obligations under the tax receivable agreement) to the existing direct and indirect members of HLA.

Off-Balance Sheet Arrangements

We do not invest in any off-balance sheet vehicles that provide liquidity, capital resources, market or credit risk support, or engage in any activities that expose us to any liability that is not reflected in our consolidated financial statements.

Contractual Obligations, Commitments and Contingencies

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Operating leases $ 106,153 $ 7,951 $ 14,676 $ 13,253 $ 70,273

$ 101,766 $ 6,189 $ 12,999 $ 10,770 $ 71,808

Debt obligations payable (1)

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Total $ 492,213 $ 200,257 $ 34,568 $ 81,071 $ 176,317

(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.

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

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

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, 2022.

(3) 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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The tax savings achieved may be substantial and we may not have sufficient cash available to pay this liability, in which case, we might be required to incur additional debt to satisfy this liability.

Critical Accounting Policies

Critical Accounting Estimates

We prepare our consolidated financial statements in accordance with GAAP.

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If actual amounts are ultimately different from our estimates, the revisions are included in our results of operations for the period in which the actual amounts become known.

We believe the following critical accounting policies could potentially produce materially different results if we were to change underlying assumptions, estimates or judgments.

We believe the following critical accounting estimates could potentially produce materially different results if we were to change underlying assumptions, estimates or judgments.

See Note 2, “Summary of Significant Accounting Policies,” to our consolidated financial statements included in Part II, Item 8 of this Form 10-K for a summary of our significant accounting policies.

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We consolidate all entities that we control through a controlling financial interest or as the primary beneficiary of variable interest entities (“VIEs”).

Our policy is to perform an analysis to determine whether consolidation is required by determining if we have a variable interest in each entity and whether that entity is a VIE.

We perform the variable interest analysis for all entities in which we have a potential variable interest, which consist primarily of our specialized funds and customized separate accounts where we serve as the general partner or managing member, and general partner entities not wholly owned by us.

If we have a variable interest in the entity and the entity is a VIE, we will also analyze whether we are the primary beneficiary of this entity and whether consolidation is required.

We perform an analysis to determine whether consolidation is required by determining (1) whether we have a variable interest in each entity, (2) whether that entity is a VIE and (3) whether we are the primary beneficiary of this entity and consolidation is required.

In evaluating whether we hold a variable interest, we review the equity ownership to determine whether we absorb risk created and distributed by the entity, as well as whether the fees charged to the entity are customary and commensurate with the effort required to provide the services.

We consider all economic interests, including indirect interests, to determine if a fee is considered a variable interest.

For our specialized funds and customized separate accounts, our fee arrangements are not considered to be variable interests.

For those entities where we hold a variable interest, we determine whether each of these entities qualifies as a VIE and, if so, whether we are the primary beneficiary.

The assessment of whether the entity is a VIE requires an evaluation of qualitative factors and, where applicable, quantitative factors.

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(a) determining whether the equity investment at risk is sufficient to permit the entity to finance its activities without additional subordinated financial support, (b) evaluating whether the equity holders, as a group, can make decisions that have a significant effect on the economic performance of the entity, (c) determining whether two or more parties’ equity interests should be aggregated, and (d) determining whether the equity investors have proportionate voting rights to their obligations to absorb losses or rights to receive returns from an entity.

The entities that are VIEs were determined as such because the respective limited partners do not have the ability to remove the general partner or dissolve the respective fund or entity with a simple majority vote (i.e., the limited partners lack “kick out rights”).

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.

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

At each reporting date, we determine whether any reconsideration events have occurred that require us to revisit the primary beneficiary analysis, and we will consolidate or deconsolidate accordingly.

Changes to our judgments could result in a change in our consolidation conclusion for an entity.

Revenue Recognition of Incentive Fees

Incentive fees include both carried interest earned from certain specialized funds and performance fees received from certain customized separate accounts.

We recognized $53.7 million of incentive fees in fiscal 2022 and have $1.2 billion of unrecognized carried interest as of March 31, 2022.

Contracts with specialized funds and certain customized separate accounts provide incentive fees, which generally range from 5.0% to 12.5% of profits, when investment returns exceed minimum return levels or other performance targets on either an annual or inception to date basis and are generally payable after all contributed capital and the preferred return on that capital has been distributed to investors.

Incentive fees are recognized when it is probable that a significant reversal will not occur.

Incentive fees are typically only required to be returned on a net of tax basis due to a clawback.

As such, the tax-related portion of incentive fees is typically not subject to clawback and is therefore recognized as revenue immediately upon receipt.

Investment returns are highly susceptible to market factors and judgments and actions of third parties that are outside of our control.

We estimate the amount and probability of additional future capital contributions to specialized funds and customized separate accounts, which could impact the probability of a significant reversal occurring.

The additional future capital contributions relate to unfunded commitments or follow-on investment opportunities in underlying portfolio investments.

Incentive fees received by us before the revenue recognition criteria have been met are deferred and recorded as deferred incentive fee revenue in the Consolidated Balance Sheets.

Incentive Fee Compensation Expense

Incentive fee compensation expense includes compensation directly related to incentive fees.

Certain employees are granted allocations or profit-sharing interests and are thereby, as a group, entitled to a 25% portion of the incentive fees earned from certain of our specialized funds and performance fees from certain customized separate accounts, subject to vesting.

Amounts payable pursuant to these arrangements are recorded as a compensation expense when they have become probable and reasonably estimable.

Our determination of the point at which it becomes probable and reasonably estimable is based on our assessment of numerous factors, particularly those related to the profitability, realization, distribution status, investment profile and commitments or contingencies of our specialized funds or customized separate accounts that may give rise to incentive fees.

Incentive fee compensation may be expensed before the related incentive fee revenue is recognized.

We estimate the amount and probability of additional future capital contributions, both unfunded commitments or follow-on investment opportunities in underlying portfolio investments, to specialized funds and customized separate accounts, which could impact the probability of a significant reversal occurring.

Incentive fee revenue can vary significantly year over year based upon the judgments, market factors, and actions of third parties as discussed above.

We account for income taxes using the asset and liability method.

Deferred tax assets and liabilities are measured using enacted tax rates expected to be applied in the years in which temporary differences are expected to be recovered or settled.

The principal items giving rise to temporary differences are certain basis differences resulting from the acquisitions of HLA units.

Deferred income taxes are recognized for the expected future tax consequences attributable to temporary differences between the carrying amount of the existing tax assets and liabilities and their respective tax basis using enacted tax rates expected to be applied in the years in which temporary differences are expected to be recovered or settled.

As of March 31, 2022, we had gross deferred tax assets of $312.6 million primarily due to our acquisitions of HLA units.

Realization of the deferred tax assets is primarily dependent upon (1) historic earnings, (2) forecasted taxable income, (3) future tax deductions of tax basis step-ups related to our IPO and subsequent unit exchanges, (4) future tax deductions related to payments under the tax receivable agreement, and (5) our share of HLA’s temporary differences that result in future tax deductions.

Valuation allowances are established when necessary to reduce deferred tax assets to the amount more likely than not to be realized.

HLI is the sole managing member of HLA, which is organized as a limited liability company and treated as a “flow-through” entity for income taxes purposes.

As a “flow-through” entity, HLA is not subject to income taxes apart from from certain U.S.

state and local taxes 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.

As a result, we do not record income taxes on pre-tax income or loss attributable to the non-controlling interests in the general partnerships and HLA, except for 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 of HLA.

As of March 31, 2022, we had a valuation allowance of $67.6 million.

Changes in judgment as it relates to the realizability of these assets, as well as potential changes in corporate tax rates, would have the effect of significantly reducing the value of the deferred tax assets.

We analyze our tax filing positions in all of the U.S.

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We evaluate tax positions taken or expected to be taken in the course of preparing an entity’s tax returns to determine whether it is “more-likely-than-not” that each tax position will be sustained by the applicable tax authority.

Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities.

Significant judgment is required in determining tax expense and in evaluating tax positions, including evaluating uncertainties under GAAP.

We review our tax positions quarterly and adjust our tax balances as new legislation is passed or new information becomes available.

Tax Receivable Agreement

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These increases in tax basis and tax depreciation and amortization deductions are expected to reduce the amount of cash taxes that we would otherwise be required to pay in the future.

We entered into the tax receivable agreement with the other members of HLA, which requires us to pay exchanging HLA unitholders (the “TRA Recipients”) 85% of the amount of cash savings, if any, in U.S.

We entered into the tax receivable agreement with the other

members of HLA, which requires us 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 we actually realize (or, under certain circumstances, are 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 tax receivable agreement.

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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.

Changes in the projected liability resulting from the tax receivable agreement may occur based on changes in anticipated future taxable income, changes in applicable tax rates or other changes in tax attributes that may occur and could affect the expected future tax benefits to be received by us.

As of March 31, 2022, the tax receivable agreement resulted in a liability of $180.5 million.

Significant changes in the projected liability resulting from the tax receivable agreement may occur based on changes in anticipated future taxable income, changes in applicable tax rates or other changes in tax attributes that may occur and could affect the expected future tax benefits to be received by us.

Recent Accounting Pronouncements

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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