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Item 7. Management’s Discussion and Analysis

2023-05-25 compared with 2022-05-26 · 121 added, 154 removed, 536 unchanged (34% of the section changed)

17 unchanged sentences

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.

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

Specialized funds comprised approximately $27 billion of our AUM as of March 31, 2023.

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We offer investment advisory services to assist clients in developing and implementing their private markets investment programs.

Our investment advisory services include asset allocation, strategic plan creation, development of investment policies and guidelines, the screening and recommending of investments, legal negotiations, the monitoring of and reporting on investments and investment manager review and due diligence.

Our investment advisory services include asset allocation, strategic plan creation, development of investment policies and guidelines, the screening and recommending of investments, the monitoring of and reporting on investments and investment manager review and due diligence.

Our advisory clients include some of the largest and most sophisticated private markets investors in the world.

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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 data, 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 and investor base is broadly diversified by type, size and geography.

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.

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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.

Trends Affecting Our Business

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 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 interest rates rise in response to continued inflationary pressures and public equity volatility continues, 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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We believe fundraising efforts will continue to be impacted by certain fundamental asset management trends that include:

(1) the increasing importance and market share of alternative investment strategies to investors in light of an increased focus on lower-correlated and absolute levels of return;

(1) the increasing importance and market share of alternative investment strategies to investors (including smaller institutions and high-net-worth individuals) in light of an increased focus on lower-correlated and absolute levels of return;

(2) the increasing demands of the investing community, including the potential for fee compression and changes to other terms;

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We intend to use these advantages afforded to us by our proprietary databases, analytical tools and deep industry knowledge to drive our performance, provide our clients with customized solutions across private markets asset classes and continue to differentiate our products and services from those of our competitors.

Our ability to maintain our data advantage is dependent on a number of factors, including our continued access to a broad set of private market information on an on-going basis, as well as our ability to maintain our investment scale, considering the evolving competitive landscape and potential industry consolidation.

Our ability to maintain our data advantage is dependent on a number of factors, including our continued access to a broad set of private market information on an ongoing basis, as well as our ability to maintain our investment scale, considering the evolving competitive landscape and potential industry consolidation.

• Our ability to continue to expand globally .

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Global economic conditions, including political environments, financial market performance, interest rates, credit spreads or other conditions beyond our control, all of which affect the performance of the assets underlying private market investments, are unpredictable and could negatively affect the performance of our clients’ portfolios or the ability to raise funds in the future.

In addition, the cash available from our Loan Agreements (defined below) and our cash balances are exposed to the credit risks of the financial institutions at which they are held.

Events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions or the financial services industry generally, could jeopardize our ability to access existing cash, cash equivalents and investments.

• Increasing regulatory requirements .

The complex regulatory and tax environment could restrict our operations and subject us to increased compliance costs and administrative burdens, as well as restrictions on our business activities.

Impact of COVID-19

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 continues to cause disruptions in the U.S.

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

As of March 31, 2022, we have adequate liquidity with $72 million in available cash and $75 million in availability under our Loan Agreements.

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

Recent Transactions

March 2023 Offering

In March 2023, we and a selling stockholder completed a registered offering of an aggregate of 671,737 shares of Class A common stock at a price to the underwriter of $76.41 per share (the “March 2023 Offering”).

The purpose of the March 2023 Offering was to provide liquidity to significant direct and indirect owners of HLA.

The shares sold consisted of 100,000 shares held by the selling stockholder and 571,737 shares newly issued by us.

We received $43.7 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 539,237 Class B units and 32,500 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 stockholder.

Key Financial and Operating Measures

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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 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.

In these cases, we generally reduce the asset-based and/or incentive fees or carried interest 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.

The management fee during the commitment period is often charged on capital commitments and after the commitment period (or a defined anniversary of the fund’s initial closing) is typically reduced by a percentage of the management fee for the preceding year or charged on net invested capital.

The management fee during the investment period is often charged on capital commitments and after the investment period (or a defined anniversary of the fund’s initial closing) is typically reduced by a percentage of the management fee for the preceding year or charged on net invested capital or net asset value.

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, whether the limited partner commits early in the offering period 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 partners commit 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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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 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%.

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

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.

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 Sheets and recognized as income in accordance with our revenue recognition policy.

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 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 and performance 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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Interest income is income earned on cash and cash equivalents.

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.

Non-operating income (expense) 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, interest income on investments held in trust and changes in fair value of liabilities of our previously-sponsored special purpose acquisition company (“SPAC”).

Income Tax Expense

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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.

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

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.

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% owned by us.

NCI 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

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Our fee-earning AUM is equal to the amount of capital commitments, net invested capital and NAV of our customized separate accounts and specialized funds depending on the fee terms.

Substantially all of our customized separate accounts and specialized funds earn fees based on commitments or net invested capital, which are not affected by market appreciation or depreciation.

The vast majority of our customized separate accounts and specialized funds earn fees based on commitments or net invested capital, which are not affected by market appreciation or depreciation.

Therefore, revenues and fee-earning AUM are not significantly affected by changes in market value.

22 unchanged sentences

Interest income 1,789 500 1,676

Non-operating income 64,469 5,894 6,172

Non-operating (loss) income (5,243) 64,469 5,894

Consolidated variable interest entities related:

Equity in loss of investees 483 (2,123) (481)

Unrealized gains 4,485 2,141 —

Equity in income (loss) of investees 1,455 483 (2,123)

Unrealized gain 4,773 4,485 2,141

Interest expense — (4) (459)

Interest income 3,325 — —

Total other income (expense) 2,570 144,112 37,474

5 unchanged sentences

71,027 96,548 69,720

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

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

5,617 4,343 1,293

Income attributable to non-controlling interests in consolidated funds 435 — —

Net income attributable to Hamilton Lane Incorporated $ 109,120 $ 145,986 $ 98,022

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Year ended March 31, 2023 compared to year ended March 31, 2022

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.

Total revenues increased $160.8 million, or 44%, to $528.8 million, for fiscal 2023 compared to fiscal 2022, due to increases in both management and advisory fees and incentive fees.

Management and advisory fees increased $57.6 million, or 18%, to $371.9 million for fiscal 2023 compared to fiscal 2022.

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.

Specialized funds revenue increased by $46.2 million compared to the prior year, due primarily to a $19.4 million increase in revenue from our evergreen funds, a $14.8 million increase in revenue from our latest secondary fund, and an $8.4 million increase in revenue from our latest direct equity fund, which added $1.1 billion, $1.9 billion and $0.6 billion, respectively, in fee-earning AUM year-over-year.

Revenue from our latest direct equity fund included $2.4 million in retroactive fees for fiscal 2023.

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 $14.5 million in fiscal 2023 due to a $3.7 billion increase in fee-earning AUM from the addition of several new accounts and additional allocations from existing accounts during the fiscal year.

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.

Distribution management revenue decreased $7.9 million in fiscal 2023 due to decreased distribution activity.

Incentive fees increased $103.2 million to $156.9 million for fiscal 2023 compared to fiscal 2022 due primarily to increases in incentive fees from our specialized funds.

Year ended March 31, 2023 compared to year ended March 31, 2022

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.

Total expenses increased $90.4 million, or 46%, for fiscal 2023 compared to fiscal 2022, due to increases in both compensation and benefits expenses and general, administrative and other expenses.

Compensation and benefits expenses increased $69.2 million, or 54%, to $198.4 million for fiscal 2023 compared to fiscal 2022, due to increases in base compensation and benefits and incentive fee compensation.

Base compensation and benefits increased $40.9 million, or 38%, for fiscal 2023 compared to fiscal 2022, due primarily to an increase in our bonus plan accrual related to the increase in incentive fee revenue.

compensation increased $25.8 million for fiscal 2023 compared to fiscal 2022 due to the increase in incentive fee revenue.

General, administrative and other expenses increased $21.1 million for fiscal 2023 compared to fiscal 2022.

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.

This change consisted primarily of a $4.0 million increase in travel expense, a $4.0 million increase in third-party commissions, a $3.2 million increase in consulting and professional fees, a $2.5 million increase in fund reimbursement expenses, and a $2.2 million increase in conferences and marketing.

Other Income (Expense)

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(94) 25,223 9,508

Other equity method investments

9,813 3,536 588

Other funds 8,435 9,813 3,536

Total equity in income of investees

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Year ended March 31, 2023 compared to year ended March 31, 2022

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 $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.

Other income (expense) decreased $141.5 million to $2.6 million for fiscal 2023 compared to fiscal 2022, due primarily to decreases in equity in income of investees and other non-operating income.

Equity in income of investees decreased $72.8 million to $6.5 million for fiscal 2023 compared to fiscal 2022.

This was due primarily to the prior year gains from increases in public market valuations during the calendar year ended December 31, 2021.

Non-operating income decreased $69.4 million to a non-operating loss of $5.2 million for fiscal 2023 compared to fiscal 2022, due primarily to $59.6 million in gains on balance sheet investments in fiscal 2022 compared to $10.3 million in losses on balance sheet investments in fiscal 2023.

Interest expense increased $4.0 million for fiscal 2023 compared to fiscal 2022, due to the prime rate increasing 450 basis points and a $42.6 million increase in principal outstanding in fiscal 2023.

Other income of consolidated VIEs increased $4.6 million for fiscal 2023 compared to fiscal 2022, due primarily to interest income of investments held in trust of our sponsored SPAC.

Income Tax Expense

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Our effective income tax rate in fiscal 2023 and 2022 was 22.8% and 21.2%, respectively.

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.

The fiscal 2023 effective income tax rate was different from the statutory tax rate due to the portion of income allocated to NCI and change in the valuation allowance.

The effective income tax rate for fiscal 2023 was greater than fiscal 2022 due to higher other permanent tax adjustments and less income allocated to the NCI in fiscal 2023.

Fee-Earning AUM

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Balance, end of period $ 34,684 $ 22,662 $ 57,346 $ 30,938 $ 18,193 $ 49,131

(1) Contributions represent new commitments from customized separate accounts and specialized funds that earn fees on a committed capital fee base and capital contributions to underlying investments from customized separate accounts and specialized funds that earn fees on a net invested capital or NAV fee base.

(2) Distributions represent returns of capital in customized separate accounts and specialized funds that earn fees on a net invested capital or NAV fee base, reductions in fee-earning AUM from separate accounts and specialized funds that moved from a committed capital to net invested capital fee base and reductions in fee-earning AUM from customized separate accounts and specialized funds that are no longer earning fees.

(3) Foreign exchange, market value and other consists primarily of 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 and specialized funds that earn fees on a NAV fee base.

(1) Contributions represent (i) new commitments from customized separate accounts and specialized funds that earn fees on a committed capital fee base and (ii) capital contributions to underlying investments from customized separate accounts and specialized funds that earn fees on a net invested capital or NAV fee base.

(2) Distributions represent (i) returns of capital in customized separate accounts and specialized funds that earn fees on a net invested capital or NAV fee base, (ii) reductions in fee-earning AUM from separate accounts and specialized funds that moved from a committed capital to net invested capital fee base and (iii) reductions in fee-earning AUM from customized separate accounts and specialized funds that are no longer earning fees.

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

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

Year ended March 31, 2023 compared to year ended March 31, 2022

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Customized separate accounts contributions were $7.8 billion for fiscal 2023 due to new allocations from existing clients and new clients.

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.

Distributions were $4.0 billion for fiscal 2023 due to $2.1 billion from accounts moving from a committed to net invested capital fee base, $1.2 billion from returns of capital in accounts earning fees on a net invested capital or NAV fee base, and $0.7 billion from accounts reaching the end of their fund term.

Specialized funds fee-earning AUM increased $4.5 billion, or 25%, to $22.7 billion for fiscal 2023.

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.

Specialized fund contributions were $5.1 billion for fiscal 2023, due primarily to $1.9 billion from our latest secondary fund and $1.2 billion from our evergreen funds.

Distributions were $0.9 billion for fiscal 2023, due to $0.8 billion from returns of capital in funds earning fees on a net invested capital or NAV fee base and $0.1 billion from funds reaching the end of their fund term.

Non-GAAP Financial Measures

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Other companies may calculate these measures differently than we do, limiting their usefulness as a comparative measure.

Adjusted EBITDA

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.

Adjusted EBITDA represents net income excluding (a) interest expense on our outstanding debt, (b) income tax expense, (c) depreciation and amortization expense, (d) equity-based compensation expense, (e) other non-operating income and (f) certain other significant items that we believe are not indicative of our core performance.

Fee Related Earnings

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

Fee Related Earnings (“FRE”) is used to highlight 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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FRE is presented before income taxes.

Adjusted EBITDA

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.

The following table shows a reconciliation of net income attributable to Hamilton Lane Incorporated to Fee Related Earnings and Adjusted EBITDA for fiscal 2023, 2022, and 2021:

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2023 2022 2021

($ in thousands)

Net income attributable to Hamilton Lane Incorporated $ 109,120 $ 145,986 $ 98,022

2 unchanged sentences

71,027 96,548 69,720

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

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

5,617 4,343 1,293

Income attributable to non-controlling interests in consolidated funds 435 — —

Incentive fees (156,879) (53,691) (52,191)

(53,691) (52,191) (29,128)

Incentive fee related compensation (1)

2 unchanged sentences

SPAC related general, administrative and other expenses 846 1,176 378

Revenue related to consolidated funds 61 — —

Non-operating income related compensation 367 1,810 —

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Incentive fees 156,879 53,691 52,191

53,691 52,191 29,128

Incentive fees attributable to non-controlling interests (302) (228) (756)

(228) (756) (320)

Incentive fee related compensation (1)

6 unchanged sentences

$ 259,826 $ 183,911 $ 168,239

(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.

(1) Incentive fee related compensation includes incentive fee compensation expense, bonus and other revenue sharing related to carried interest that is classified as base compensation.

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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 and excludes any impact of changes in carrying amount of our redeemable non-controlling interest.

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 NCI.

Adjusted shares outstanding for the years ended March 31, 2022 and 2023 are equal to weighted-average shares of Class A common stock outstanding - diluted.

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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$ 3.34 $ 4.39 $ 2.73

(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%.

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, 2023, 2022, and 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%.

(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.

For the year ended March 31, 2023 and 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

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• 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;

• the performance of our funds is generally calculated on the basis of the 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;

2 unchanged sentences

• the performance of particular funds also will be affected by risks of the industries and businesses in which they invest;

• we may create new funds that reflect a different asset mix and new investment strategies, as well as a varied geographic and industry exposure, compared to our historical funds, and any such new funds could have different returns from our previous funds.

The historical and potential future returns of the investment funds we manage are not directly linked to returns on our Class A common stock.

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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

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Secondary Fund V 2019 3,929 3,608 1.4 1.4 30.3% 30.9% 2,945 bps 3,106 bps 3,183 bps 3,346 bps

Secondary Fund VI 2022 1,659 191 1.3 1.5 >100% 46.1% 11,099 bps 4,612 bps 11,097 bps 4,612 bps

Direct/Co-investments

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Strat Opps 2017 2017 435 448 1.3 1.2 11.7% 9.2% 809 bps 555 bps 807 bps 569 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

Strat Opps IV (Series 2018) 2018 889 863 1.2 1.2 9.5% 7.4% 660 bps 430 bps 684 bps 445 bps

Strat Opps V (Series 2019) 2019 762 704 1.2 1.1 11.4% 8.9% 1,041 bps 703 bps 793 bps 445 bps

Strat Opps VI (Series 2020) 2021 898 838 1.0 1.0 1.3% 0.5% 739 bps 552 bps 85 bps (36) bps

Strat Opps VII 2022 953 359 1.0 1.0 5.6% 2.3% 859 bps 304 bps 242 bps 1 bps

Performance Methodology

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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.

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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%.

We maintain the Term Loan Agreement, the Revolving Loan Agreement, the 2020 Multi-Draw Term Loan Agreement and the 2022 Multi-Draw Term Loan Agreement with JPMorgan, as successor to First Republic.

In early May 2023, JPMorgan announced its purchase of First Republic after that bank’s failure.

The purchase included the Loan Agreements.

The Loan Agreements are cross-collateralized and cross-defaulted and the aggregate principal amount of loans that may be outstanding under all of the Loan Agreements is subject to an aggregate cap of $325 million (the “Cap”).

The Term Loan Agreement has a maturity date of January 1, 2030 and the interest rate is a floating per annum rate equal to the prime rate minus 1.25% subject to a floor of 3.00%.

As of March 31, 2023, we had an outstanding balance of $99 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.

We are entitled to request additional uncommitted term advances not to exceed $25 million in the aggregate, subject to the Cap, through December 31, 2023.

The Revolving Loan Agreement provides that the aggregate outstanding balance will not exceed $50 million, subject to the Cap, and has a maturity date of March 24, 2025.

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, 2022, we had no outstanding balance under the Revolving Loan Agreement.

As of March 31, 2023, we had an outstanding balance of $15 million under the Revolving Loan Agreement.

The 2020 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 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 interest rate is a fixed per annum rate of 3.50%.

of March 31, 2023, we had an outstanding balance of $100 million under the 2020 Multi-Draw Term Loan Agreement.

The 2022 Multi-Draw Term Loan Agreement has a maturity date of October 1, 2029 and the interest rate is a floating per annum rate equal to the prime rate minus 1.50% subject to a floor of 3.00%.

As of March 31, 2023, we did not have an outstanding balance under the 2022 Multi-Draw Term Loan Agreement.

We are entitled to request term loans not to exceed $75 million in the aggregate, subject to the Cap, through September 30, 2025.

The Loan Agreements contain covenants that, among other things, limit HLA’s ability to incur indebtedness, transfer or dispose of assets, merge with other companies, create, incur or allow liens, make investments, pay dividends or make distributions, engage in transactions with affiliates and take certain actions with respect to management fees.

The Loan Agreements also require HLA to maintain, 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.

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As of March 31, 2023 and 2022, the principal amount of debt outstanding equaled $214.4 million and $171.8 million, respectively.

We had $110.6 million in availability under the Loan Agreements as of March 31, 2023.

Year Ended March 31,

2023 2022 2021

(in thousands)

(in millions)

Net cash provided by operating activities

$ 226.6 $ 169.5 $ 188.2

Net cash used in investing activities

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

Net cash provided by (used in) investing activities $ 177.9 $ (70.5) $ (421.8)

Net cash (used in) provided by financing activities $ (364.1) $ (113.2) $ 270.7

Operating Activities

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.

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, fair value adjustments to investments and depreciation and amortization, all of which are included in earnings.

For the years ended March 31, 2023, 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.

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For the years ended March 31, 2023, 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.

Additionally, during the years ended March 31, 2023 and 2022, we received proceeds from the sale of investments.

Financing Activities

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.

For the years ended March 31, 2023, 2022 and 2021, our net cash used in financing activities was driven primarily by dividends paid to stockholders, payments under the tax receivable agreement, distributions to HLA members and drawdowns and repayments under our revolving credit facility.

Future Sources and Uses of Liquidity

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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.

However, the availability of capital from the Loan Agreements and our cash balances are exposed to the credit risks of the financial institutions at which they are held.

If events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions or the financial services industry generally, or concerns or rumors about any such events, occur, our ability to access existing cash, cash equivalents and investments, or to access existing or enter into new banking arrangements or facilities to pay operational and other costs, may be threatened or lost.

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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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.

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.

Our board of directors periodically reviews the Stock Repurchase Program and most recently re-approved it in December 2022.

We expect that our primary short-term and long-term liquidity needs will comprise cash to:

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(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 (10) 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.

These net capital requirements are met by retaining

As a result, we may be restricted in our ability to transfer cash between different operating entities and jurisdictions.

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Contractual Obligations, Commitments and Contingencies

(in thousands) Total Less than 1 year 1-3 years 3-5 years More than 5 years

(in millions) Total Less than 1 year 1-3 years 3-5 years More than 5 years

Operating leases $ 99.2 $ 7.8 $ 14.2 $ 13.2 $ 64.0

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(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, 2022.

The future interest payments are calculated using the variable interest rate of 6.75% on our Term Loan Agreement, the fixed interest rate of 3.50% on our 2020 Multi-Draw Term Loan Agreement and the variable interest rate of 6.50% on our Revolving Loan Agreement in effect as of March 31, 2023.

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

These amounts are generally due on demand and are therefore presented in the less than one year category.

We have entered into a tax receivable agreement with our pre-IPO owners pursuant to which we will pay them 85% of the amount of tax benefits, if any, that we realize (or are deemed to realize in the case of an early termination payment by us, a change in control or a material breach by us of our obligations under the tax receivable agreement) as a result of increases in tax basis (and certain other tax benefits) resulting from purchases or exchanges of membership units of HLA.

purchases or exchanges of membership units of HLA.

Because the timing of amounts to be paid under the tax receivable agreement cannot be determined, this contractual commitment has not been presented in the table above.

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.

We offer an Employee Investment Program (“EIP”) through which certain employees are able to invest directly into certain company managed funds as individual limited partners (“LP”).

The employees also have an option to enter into a loan agreement with a third-party lender to fund committed capital.

The loan is collateralized by the underlying LP interest in the fund and return of capital distributions are utilized to pay the outstanding loan balance.

We entered into a separate arrangement with the third-party lender to backstop the employee’s performance under the loan with a commitment to purchase the LP interest from the lender at the greater of fair value or the outstanding balance of the loan in the event of default by the employee.

As of March 31, 2023, the total amount of outstanding loans under the EIP was $0.7 million and we believe the risk of default by an employee to be remote.

Critical Accounting Estimates

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Principles of Consolidation

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

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

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.

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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.

As of March 31, 2023, we had deferred tax assets of $233.9 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.

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federal, state, local and foreign tax jurisdictions where we are required to file income tax returns, as well for all open tax years in these jurisdictions.

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.

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.

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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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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