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• our newly established funds may generate lower returns during the period that they initially deploy their capital;
−Removed: • competition continues to increase for investment opportunities, which may reduce our returns in the future;
+Added: • 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;
−Removed: • 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.
+Added: • 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 than our previous funds.
The success of our business depends on the identification and availability of suitable investment opportunities for our clients.
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As a result, we may take actions with respect to the allocation of investments among our specialized funds and customized separate accounts (including funds and accounts that have different fee structures), the purchase or sale of investments in our specialized funds and customized separate accounts, the structuring of investment transactions for those specialized funds and customized separate accounts, the advice we provide or other actions in order to comply with these fiduciary and contractual obligations.
−Removed: In addition, because most of our senior management and other professionals hold most of their economic interests in us through HLA and certain of its affiliates, which are not subject to U.S.
+Added: In addition, because many of our senior management and other professionals hold their economic interests in us through HLA and certain of its affiliates, which are not subject to U.S.
federal and state entity-level income taxes, and our Class A common stockholders hold their interests through Hamilton Lane Incorporated, which is subject to entity-level taxation as a corporation in the United States, conflicts relating to the selection and structuring of investments or other matters may arise between senior management and our other professionals, on the one hand, and the Class A stockholders of Hamilton Lane Incorporated, on the other hand.
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Senior managing directors have left the firm in the past and others may do so in the future, and we cannot predict the impact that the departure of any senior managing director will have on our ability to achieve our investment objectives.
−Removed: In addition, there is no guarantee that the non-competition and non-solicitation agreements to which the majority of our personnel are subject, together with our other arrangements with them, will be enforceable or will prevent them from leaving, joining our competitors or otherwise competing with us.
+Added: In addition, given recent regulatory developments, we may be unable to enforce the non-competition agreements we have in place with the majority of our employees, and there is no guarantee that our other arrangements with our employees, such as our non-solicitation agreements, will be enforceable or will prevent our employees from leaving, joining our competitors or otherwise competing with us.
In order to retain and attract qualified investment professionals, 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, which could cause our total employee compensation and benefits expense as a percentage of our total revenue to increase and adversely affect our profitability.
However, we may not be successful in our efforts, as the market for investment professionals is extremely competitive.
−Removed: In addition, the governing agreements of our specialized funds typically require the suspension of the investment period if, depending on the fund, between two and ten designated members of our senior management team cease to devote sufficient professional time to or cease to be employed by HLA, often called a “key person event,” or in connection with certain other events.
+Added: In addition, the governing agreements of our specialized funds typically require the suspension of the investment period if, depending on the fund, between two and ten designated members of our senior management team cease to devote sufficient professional time to or cease to be employed by HLA, often called a “key person event,” or in connection
+Added: with certain other events.
Any change to our senior management team could materially and adversely affect our business, financial condition and results of operations.
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There is no assurance that our efforts to further grow the assets we manage on behalf of retail investors will be successful.
−Removed: We have and will continue to provide resources to foster the development of new product offerings and business strategies by our investment professionals and launch successor and related products, such that our new strategies achieve a level of scale and profitability.
+Added: We have and will continue to provide resources to foster the development of new product offerings and business strategies by our investment professionals and launch successor and related products, such that our
+Added: new strategies seek to achieve a level of scale and profitability.
To raise new funds and pursue new strategies, we have and expect to continue to use our balance sheet capital to warehouse seed investments, which may decrease the liquidity available for other parts of our business.
−Removed: If a new strategy or fund does not develop as
−Removed: anticipated or our balance sheet assets cease to provide adequate liquidity, we may be forced to realize losses or become limited in our ability to seed new funds or strategies or support existing ones as currently contemplated.
+Added: If a new strategy or fund does not develop as anticipated or our balance sheet assets cease to provide adequate liquidity, we may be forced to realize losses or become limited in our ability to seed new funds or strategies or support existing ones as currently contemplated.
Further, we have from time to time and intend to continue to explore opportunities to grow our business via acquisitions, partnerships, investments or other strategic transactions and have and may continue to use our balance sheet capital to do so.
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(“JPMorgan”), as successor to First Republic Bank (“First Republic”).
−Removed: In early May 2023, JPMorgan announced its purchase of First Republic after that bank’s failure.
+Added: In early May 2023, JPMorgan announced its purchase of
+Added: First Republic after that bank’s failure.
The purchase included our Loan Agreements.
−Removed: The Term Loan Agreement matures on January 1, 2030, the 2020 Multi-Draw Term Loan Agreement matures on July 1, 2030, the 2022 Multi-Draw Term Loan Agreement matures on October 1, 2029 and the Revolving Loan
−Removed: Agreement matures on March 24, 2025.
+Added: The Term Loan Agreement matures on January 1, 2030, the 2020 Multi-Draw Term Loan Agreement matures on July 1, 2030, the 2022 Multi-Draw Term Loan Agreement matures on October 1, 2029 and the Revolving Loan Agreement matures on March 24, 2025.
For more information on our Loan Agreements, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Loan Agreements”.
−Removed: We expect to continue to utilize debt to finance our operations, which will expose us to the typical risks associated with the use of leverage.
+Added: We expect to continue to utilize debt to finance and grow our operations, which will expose us to the typical risks associated with the use of leverage.
An increase in leverage could make it more difficult for us to withstand adverse economic conditions or business plan variances, to take advantage of new business opportunities, or to make necessary capital expenditures.
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In addition, if any of our clients, investors, suppliers or other parties with whom we conduct business are unable to access funds pursuant to their lending arrangements with such a financial institution, their ability to pay their obligations to us, provide services to us or enter into new commercial arrangements requiring additional payments to us could be adversely affected, which could have a material adverse effect on our operations and cash flows.
−Removed: Although the U.S.
−Removed: Department of Treasury, FDIC and Federal Reserve Board have announced a program to provide loans to financial institutions, widespread demands for customer withdrawals or other liquidity needs of financial institutions may exceed the capacity of such program.
−Removed: Additionally, there is no guarantee that the U.S.
−Removed: Department of Treasury, FDIC and Federal Reserve Board will provide access to uninsured funds in the future in the event of the closure of banks or financial institutions, or that they would do so in a timely fashion.
Although we assess our banking relationships as we believe necessary or appropriate, our access to funding sources and other credit arrangements in amounts adequate to finance or capitalize our current and projected future business operations could be significantly impaired by factors that affect our company, the financial institutions with which we have credit agreements or arrangements, including the Loan Agreements, directly, or the financial services industry or economy in general.
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These restrictions may limit our flexibility in operating our business, and any failure to comply with these financial and other covenants, if not waived, would cause a default or event of default.
−Removed: For example, in light of events earlier this year in the banking industry and concerns about liquidity risk, we took steps to more fully diversify our account balances across various financial institutions.
−Removed: If our lender under the Loan Agreements determines that such diversification efforts constitute an event of default, our operations and business could be materially and adversely affected.
Our obligations under the Loan Agreements are secured by substantially all of our assets.
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We believe that these risks increase during periods of economic uncertainty, such as in the case of difficult or volatile market and geopolitical conditions, and if the financial institutions holding cash to be used for funding commitments are in financial distress.
−Removed: If investors in our specialized funds and certain customized separate accounts default on their obligations to fund commitments, there may be adverse consequences on the investment process, and we
−Removed: could incur losses and be unable to meet underlying capital calls.
+Added: If investors in our specialized funds and certain customized separate accounts default on their obligations to fund commitments, there may be adverse consequences on the investment process, and we could incur losses and be unable to meet underlying capital calls.
For example, investors in most of our specialized funds make capital commitments to those funds that we are entitled to call from those investors at any time during prescribed periods.
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However, the impact of the penalty is directly correlated to the amount of capital previously invested by the investor in the fund.
−Removed: For instance, if an investor has invested little or no capital early in the life of the fund, then the forfeiture penalty may not be as meaningful.
−Removed: A failure of clients or investors to honor a significant amount of capital calls could have a material adverse effect on our business, financial condition and results of operations.
−Removed: Our failure to comply with investment guidelines set by our clients could result in damage awards against us or a reduction in AUM, either of which would cause our earnings to decline and adversely affect our business.
+Added: instance, if an investor has invested little or no capital early in the life of the fund, then the forfeiture penalty may not be as meaningful.
+Added: A failure of clients or investors to honor capital calls to a significant degree could have a material adverse effect on our business, financial condition and results of operations.
+Added: Our failure to comply with investment guidelines set by our clients could result in damage awards against us or a reduction in AUM, either of which would adversely affect our business.
When clients retain us to manage assets on their behalf, they specify certain guidelines regarding investment allocation and strategy that we are required to observe in the management of their portfolios.
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Clients could also sue us for breach of contract and seek to recover damages from us.
−Removed: In addition, such guidelines may restrict our ability to pursue certain allocations and strategies on behalf of our clients that we believe are economically desirable, which could similarly result in losses to a client account or termination of the account and a corresponding reduction in AUM.
Even if we comply with all applicable investment guidelines, a client may be dissatisfied with its investment performance or our services or fees, and may terminate their customized separate accounts or advisory accounts or be unwilling to commit new capital to our specialized funds, customized separate accounts or advisory accounts.
−Removed: Any of these events could cause our earnings to decline and materially and adversely affect our business, financial condition and results of operations.
+Added: Any of these events could materially and adversely affect our business.
Misconduct by our employees, advisors or third-party service providers could harm us by impairing our ability to attract and retain clients and subjecting us to significant legal liability and reputational harm.
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The pervasiveness of social media and electronic communications and the increasing prevalence of artificial intelligence could also lead to faster and wider dissemination of any adverse publicity or inaccurate information about us, making effective remediation more difficult and further magnifying the reputational risks associated with negative publicity.
−Removed: It is not always possible to detect or deter misconduct, and the precautions we take that seek to detect and prevent undesirable activity may not be
−Removed: In addition, allowing employees to work remotely has required us to develop and implement additional precautions in order to detect and prevent employee misconduct.
+Added: It is not always possible to detect or deter misconduct, and the precautions we take that seek to detect and prevent undesirable activity may not be effective.
+Added: In addition, we allow our employees to work on a hybrid schedule or remotely, which has required us to develop and implement additional precautions in order to detect and prevent employee misconduct.
Such additional precautions, which may include the implementation of security and other restrictions, may make our systems more difficult and costly to operate and may not be effective in preventing employee misconduct in a remote work environment.
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Our revenue from our investment management business is derived from fees earned for our management of our specialized funds, customized separate accounts and advisory accounts, incentive fees, or carried interest, with respect to certain of our specialized funds and customized separate accounts, and monitoring and reporting fees.
−Removed: In the event that our specialized funds, customized separate accounts or individual investments perform poorly, our revenues and earnings derived from incentive fees will decline, and it will be more difficult for us to raise capital for new specialized funds or gain new or retain current customized separate account clients in the future.
+Added: In the event that our specialized funds, customized separate accounts or individual investments perform poorly, our revenues and earnings derived from incentive fees will decline, and it will be
+Added: more difficult for us to raise capital for new specialized funds or gain new or retain current customized separate account clients in the future.
Furthermore, underlying investments within our specialized funds and customized separate accounts reflect valuations reported elsewhere in this Form 10-K that are determined as of December 31, 2023.
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To the extent appropriate and permissible under a vehicle’s constituent documents, we may limit redemptions or repurchases in such vehicle for a period of time.
−Removed: This may subject us to reputational harm, make such vehicles less attractive to investors in the future and negatively impact future subscriptions to such vehicles, which could have a material adverse effect on the cash flows of such vehicles and may negatively impact the revenues we derive from them.
+Added: This may subject us to reputational harm, make such vehicles less attractive to investors in the future and negatively impact future subscriptions to such
+Added: vehicles, which could have a material adverse effect on the cash flows of such vehicles and may negatively impact the revenues we derive from them.
In addition, multiple and sustained redemption or repurchase requests could exhaust a fund’s sources of liquidity and create pressure to dispose of investments by a fund sooner than anticipated to satisfy such requests.
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Realizations at values significantly lower than the values at which investments have been reflected in fund NAVs could result in losses for the applicable fund and the loss of potential incentive fees by the fund’s manager and us.
−Removed: Also, a situation in which asset values turn out to be materially different from values reflected in fund NAVs, whether due to misinformation or otherwise, could cause investors to lose confidence in us and may, in turn, result in difficulties in our ability to raise additional capital, retain clients or attract new clients.
+Added: Also, a situation in which asset values turn out to be materially different from values reflected in fund NAVs, whether due to error or otherwise, could cause investors to lose confidence in us and may, in turn, result in difficulties in our ability to raise additional capital, retain clients or attract new clients.
Further, we often engage third-party valuation agents to assist us with the valuations.
−Removed: It is possible that a material fact related to the target of the valuation might be inadvertently omitted from our communications with them, resulting in an inaccurate valuation.
+Added: It is possible that a material fact related to the target of the
+Added: valuation might be inadvertently omitted from our communications with them, resulting in an inaccurate valuation.
Further, the SEC has instituted enforcement actions against advisors for misleading investors about valuation.
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The portfolio companies in which private markets funds have invested or may invest will sometimes involve a high degree of business and financial risk.
−Removed: These companies may be in an early stage of development, may not have a proven operating history, may be operating at a loss or have significant variations in operating results, may be engaged in a rapidly changing business with products subject to a
−Removed: substantial risk of obsolescence, may be subject to extensive regulatory oversight, may require substantial additional capital to support their operations, to finance expansion or to maintain their competitive position, may have a high level of leverage, or may otherwise have a weak financial condition.
+Added: These companies may be in an early stage of development, may not have a proven operating history, may be operating at a loss or have significant variations in operating results, may be engaged in a rapidly changing business with products subject to a substantial risk of obsolescence, may be subject to extensive regulatory oversight, may require substantial additional capital to support their operations, to finance expansion or to maintain their competitive position, may have a high level of leverage, or may otherwise have a weak financial condition.
See “—Dependence on leverage by certain funds, customized separate accounts and portfolio companies subjects us to volatility and contractions in the debt financing markets and could adversely affect the ability of our specialized funds and customized separate accounts to achieve attractive rates of return on those investments, and cash balances maintained for investments are exposed to the credit risks of the financial institutions at which they are held.”
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During these periods, these companies may also have difficulty in expanding their businesses and operations and may be unable to pay their expenses as they become due.
−Removed: A general market downturn or a specific market dislocation may result in lower investment returns for the private markets funds or portfolio companies in which our specialized funds and customized separate accounts invest, which consequently would materially and adversely affect investment returns for our specialized funds and customized separate accounts.
+Added: A general market downturn or a specific market dislocation may result in lower investment returns for the private markets funds or portfolio companies in which our specialized funds and customized
+Added: separate accounts invest, which consequently would materially and adversely affect investment returns for our specialized funds and customized separate accounts.
Furthermore, if the portfolio companies default on their indebtedness, or otherwise seek or are forced to restructure their obligations or declare bankruptcy, we could lose some or all of our investment and suffer reputational harm.
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We cannot give assurance as to the degree of diversification that will be achieved in any of our specialized funds or customized separate accounts.
−Removed: Difficult market conditions or slowdowns affecting a particular asset class, industry, geographic region or other category of investment could have a significant adverse impact on a given specialized fund or customized separate account if its investments are concentrated in that area, which would result in lower investment returns.
+Added: Difficult market conditions or slowdowns affecting a particular asset class, industry, geographic region or other category of investment could have a significant adverse impact on a given specialized fund or customized separate account if its investments are concentrated in that area, which could result in lower investment returns.
Accordingly, a lack of diversification on the part of a specialized fund or customized separate account could adversely affect its investment performance and, as a result, our business, financial condition and results of operations.
1 unchanged sentence
Investments by most of our specialized funds and customized separate accounts will include debt instruments and equity securities of companies that we do not control.
−Removed: Our specialized funds and customized separate accounts may invest through direct investment arrangements or acquire minority equity interests and
−Removed: may also dispose of a portion of their equity investments in portfolio companies over time in a manner that results in their retaining a minority investment.
+Added: Our specialized funds and customized separate accounts may invest through direct investment arrangements or acquire minority equity interests and may also dispose of a portion of their equity investments in portfolio companies over time in a manner that results in their retaining a minority investment.
Consequently, the performance of our specialized funds and customized separate accounts will depend significantly on the investment and other decisions made by third parties, which could have a material adverse effect on the returns achieved by our specialized funds or customized separate accounts.
Portfolio companies in which the investment is made may make business, financial or management decisions with which we do not agree.
−Removed: In addition, the majority stakeholders or our management may take risks or otherwise act in a manner that does not serve our interests.
+Added: In addition, the majority stakeholders or their management may take risks or otherwise act in a manner that does not serve our interests.
If any of the foregoing were to occur, the values of our investments and the investments we have made on behalf of clients could decrease and our financial condition, results of operations and cash flow could suffer as a result.
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By their terms, these instruments may provide that their holders are entitled to receive payments of dividends, interest or principal on or before the dates on which payments are to be made in respect of our clients’ investments.
−Removed: Also, in the event of insolvency, liquidation, dissolution, reorganization or bankruptcy of a company in which one or more of our specialized funds, customized separate accounts or advisory accounts hold an investment, holders of securities ranking senior to our clients’ investments would typically be entitled to receive payment in full before distributions could be made in respect of our clients’ investments.
+Added: Also, in the event of insolvency, liquidation, dissolution, reorganization or bankruptcy of a company in which one or more of our specialized funds, customized separate accounts or advisory accounts hold an investment, holders of securities ranking senior to our clients’ investments would
+Added: typically be entitled to receive payment in full before distributions could be made in respect of our clients’ investments.
After repaying senior security holders, the company may not have any remaining assets to use for repaying amounts owed in respect of our clients’ investments.
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We strive to maintain a work environment that reinforces our culture of collaboration, motivation and doing the right thing.
−Removed: If we do not continue to develop and implement appropriate processes and tools to maintain this culture, particularly in light of rapid and significant growth in our employee population and our permitting most employees to work remotely or split their time in hybrid remote/office work, our ability to compete successfully and achieve our business objectives could be impaired, which could negatively impact our business, financial condition and results of operations.
+Added: If we do not continue to develop and implement appropriate processes and tools to maintain this culture, particularly in light of rapid and significant growth in our employee population and our permitting hybrid and remote/office work, our ability to compete successfully and achieve our business objectives could be impaired, which could negatively impact our business, financial condition and results of operations.
In addition, we are required to develop continuously our infrastructure in response to the increasingly complex investment management industry and increasing sophistication of investors.
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We may not be able to maintain our desired fee structure as a result of industry pressure from private markets investors to reduce fees, which could have a material adverse effect on our profit margins and results of operations.
−Removed: We may find it harder to retain and raise funds, and we may lose investment opportunities in the future, if we do not match the prices, structures and terms offered by our competitors.
+Added: We may find it harder to retain and raise funds, and we may lose investment opportunities in the future, if we do not offer prices, structures and terms competitive with those offered by our competitors.
We may not be able to maintain our current fee structure as a result of industry pressure from private markets investors to reduce fees.
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Our risk management strategies and procedures may leave us exposed to unidentified or unanticipated risks.
−Removed: Risk management applies to our investment management operations as well as to the investments we make for our specialized funds and customized separate accounts.
−Removed: We have developed and continue to update strategies and procedures specific to our business for managing risks, which include market risk, liquidity risk, operational risk and reputational risk.
+Added: Risk management applies to our operations as well as to the investments we make for our specialized funds and customized separate accounts.
+Added: We have developed and continue to update strategies and procedures specific to our business for identifying, assessing, managing and mitigating risks, which include market risk, liquidity risk, operational risk and reputational risk.
Management of these risks can be very complex.
−Removed: These strategies and procedures may fail under some circumstances, particularly if we are confronted with risks that we have underestimated or not identified, including those related to difficult market or geopolitical conditions.
+Added: These strategies and procedures may fail under some circumstances, particularly if we are confronted with risks that
+Added: we have underestimated or not identified, including those related to difficult market or geopolitical conditions.
Given the large number and size of our funds, we often have large positions with a single counterparty.
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Nevertheless, when conducting due diligence and making an assessment regarding an investment, we rely on the information available to us, including information provided by the target of the investment and, in some circumstances, third-party investigations, and such an investigation will not necessarily result in the investment ultimately being successful.
−Removed: Moreover, the due diligence investigation that we will carry out with respect to any investment opportunity may not reveal or highlight all relevant facts (including bribery, fraud or other illegal activities) or risks that are necessary or helpful in evaluating such investment opportunity.
−Removed: Instances of bribery, fraud,
−Removed: accounting irregularities and other improper, illegal or corrupt practices can be difficult to detect and may be more widespread in certain jurisdictions.
+Added: Moreover, the due diligence investigation that we will carry out with respect to any investment opportunity may not detect or highlight all relevant facts (including bribery, fraud or other illegal activities) or risks that are necessary or helpful in evaluating such investment opportunity.
+Added: Instances of bribery, fraud, accounting irregularities and other improper, illegal or corrupt practices can be difficult to detect and may be more widespread in certain jurisdictions.
Many of our specialized funds, customized separate accounts or advisory accounts have invested in emerging market countries that may not have established laws and regulations that are as stringent as in more developed nations, or where existing laws and regulations may not be consistently enforced.
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Isolated incidents involving such matters have occurred in the past but have not had a material impact on our financial condition or results of operations.
−Removed: Financial fraud or other deceptive practices, or failures by personnel at such companies to comply with anti-bribery, trade sanctions or other legal and regulatory requirements, could cause significant legal, reputational and business harm to us.
+Added: Financial fraud or other deceptive practices, or failures by personnel at such third-party companies to comply with anti-bribery, trade sanctions or other legal and regulatory requirements, could cause significant legal, reputational and business harm to us.
In addition, a substantial portion of our specialized funds are funds-of-funds, and therefore we are dependent on the due diligence investigation of the general partner or direct investment partner leading such investment.
We have little or no control over their due diligence process, and any shortcomings in their due diligence could be reflected in the performance of the investment we make with them on behalf of our clients.
−Removed: Poor investment performance could lead clients to terminate their agreements with us and/or result in negative reputational effects, either of which could materially and adversely affect our business, financial condition and results of operations.
+Added: Poor investment performance could lead clients to terminate their agreements with us and/or result in negative
+Added: reputational effects, either of which could materially and adversely affect our business, financial condition and results of operations.
Finally, some matters covered by our due diligence process, such as ESG, are continuously evolving and we may not accurately or fully anticipate such evolution.
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Operational risks may disrupt our business, damage our reputation, result in financial losses or limit our growth.
−Removed: We rely heavily on our and our third-party service providers’ financial, accounting, compliance, monitoring, administration, reporting and other data processing systems and technology platforms, including those of our fund administrators and AIFMs.
+Added: We rely heavily on our and our third-party service providers’ financial, accounting, compliance, monitoring, administration, reporting and other data processing systems and technology platforms, including those of our fund administrators and AIFMs, to conduct our business.
If any of these systems do not operate properly, are not operated properly or are disabled or fail, including the loss of or unauthorized access to data, whether caused by fire, natural disaster, power or telecommunications failure, computer viruses, malicious actors, negligence, acts of terrorism or war or otherwise, or if our third-party service providers fail to perform as expected, we could suffer a disruption of our business, financial loss, liability to clients, regulatory intervention or reputational damage, which could materially and adversely affect our business, financial condition and results of operations.
4 unchanged sentences
Such a failure or an increase in costs related to such information systems and technology, could have a material adverse effect on our results of operations, financial condition and cash flow.
−Removed: A disaster or a disruption in technology or infrastructure that supports our business, including a disruption involving electronic communications, cloud-based infrastructure or other services used by us, our third-party service providers or other third parties with whom we conduct business, or a disruption directly affecting our principal offices, could negatively impact our ability to continue to operate our business without interruption.
+Added: A disaster or a disruption in technology or infrastructure that supports our business, including a disruption involving electronic communications, cloud-based infrastructure or other
+Added: services used by us, our third-party service providers or other third parties with whom we conduct business, or a disruption directly affecting our principal offices, could negatively impact our ability to continue to operate our business without interruption.
Our business continuation or disaster recovery programs may not be sufficient to mitigate the harm that could result from such a disaster or disruption, and insurance and other safeguards may not reimburse us for the full amount of our losses.
1 unchanged sentence
For more information on this risk, please see “—Our indebtedness may expose us to substantial risks, and our cash balances are exposed to the credit risks of the financial institutions at which they are held.”
−Removed: Failure to maintain the security of our information and technology networks or data security breaches could harm our reputation and have a material adverse effect on our results of operations, financial condition and cash flow.
−Removed: We rely on the reasonably secure processing, storage and transmission of confidential and other sensitive information in our computer systems and networks, and those of our third-party service providers and their vendors.
+Added: Failure to maintain the security of our information technology networks, or those of our third-party service providers, or data security breaches could harm our reputation and have a material adverse effect on our results of operations, financial condition and cash flow.
+Added: We rely on the reasonably secure processing, storage and transmission of confidential and other sensitive information in our computer systems, hardware, software, technology infrastructure, online sites and networks, and those of our third-party service providers and their vendors.
In the ordinary course of our business, we collect and store a range of data, including our proprietary business information and intellectual property, and personally identifiable information of our employees, our clients and other third parties, in our cloud applications and on our networks, as well as our third-party service providers’ systems.
The secure processing, maintenance and transmission of this information are critical to our operations.
−Removed: We, our service providers and their vendors face various security threats on a regular basis, including ongoing cybersecurity threats to and attacks that are intended to gain unauthorized access to our sensitive or proprietary information, destroy data or disable, degrade or sabotage our systems.
−Removed: Cyber-incident techniques change frequently, may not immediately be recognized and can originate from a wide variety of sources.
+Added: We, our service providers and their vendors face various security threats on a regular basis, including ongoing cybersecurity threats and attacks that are intended to gain unauthorized access to our sensitive or proprietary information, destroy data or disable, degrade or sabotage our systems.
+Added: Cyber-attack techniques are continually evolving, may not immediately be recognized and can originate from a wide variety of sources.
There has been an increase in the frequency, sophistication and ingenuity of the data security threats we and our service providers face.
−Removed: Any interruption or deterioration in performance, cybersecurity incidents or failures of information systems and technology could impair the quality of our or our funds’ operations, affect our reputation and adversely affect our business, financial condition and results of operations.
+Added: Any interruption or deterioration in performance, cybersecurity breaches or failures of information systems and technology could impair the quality of our or our funds’ operations, result in significant costs to us, liability to our clients, affect our reputation and adversely affect our business, financial condition and results of operations.
We are dependent on the effectiveness of our and our service providers’ information security policies, procedures and capabilities designed to protect our and their computer, network and telecommunications systems and the data such systems contain or transmit.
−Removed: Attacks on our or their information technology
−Removed: infrastructure could enable the attackers to gain unauthorized access to and steal our sensitive or proprietary information, destroy data or disable, degrade or sabotage our systems or divert or otherwise steal funds, and attackers have in the past gained unauthorized access to sensitive information about us, our clients and investors by attacking the systems of certain of our service providers.
+Added: Measures taken to ensure the integrity of our or our third-party service providers’ systems may not provide adequate protection.
+Added: A cyberattack could persist undetected over extended periods of time and may not be mitigated in a timely manner to prevent or minimize the impact on us.
+Added: Attacks on our or our service providers’ information technology infrastructure could enable the attackers to gain unauthorized access to and steal our sensitive or proprietary information, destroy data or disable, degrade or sabotage our systems or divert or otherwise steal funds, and attackers have in the past gained unauthorized access to sensitive information about us, our clients and investors by attacking the systems of certain of our service providers.
Such prior events, to date, have not had a material impact on our operations, results of operations or financial condition.
Attacks range from those common to businesses generally to those that are more advanced and persistent, which may target us because members of our senior management team may have public profiles or because, as an alternative investment management firm, we hold a significant amount of confidential and sensitive information about our clients and potential investments.
−Removed: Our and our third-party service providers’ computer systems, software and networks may be vulnerable to unauthorized access, theft, misuse, computer viruses or other malicious code, and other events that could have a security impact.
+Added: Our and our third-party service providers’ computer systems, software and networks may be vulnerable to unauthorized access, theft, misuse, computer viruses, bugs, ransomware or other malicious code, employee, vendor or contractor error or malfeasance, and other events that could have a negative impact on the security of our technology systems and data.
We, our employees and certain of our third-party service providers have been and expect to continue to be the target of hacking attacks, “phishing” or similar forms of social engineering attacks, and the subject of impersonations and fraudulent requests for money and other forms of activities.
Such prior events, to date, have not had a material impact on our financial condition or results of operations.
−Removed: Further, the majority of our employees have the flexibility to work remotely or to split their time in hybrid remote/office work, which introduces operational risks, including heightened cybersecurity risk, as remote working environments can be less secure and more susceptible to hacking attacks.
−Removed: The costs related to cyber or other security threats or disruptions may not be fully insured or indemnified by other means.
+Added: Further, we allow for hybrid and remote/office work, which introduces operational risks, including heightened cybersecurity risk, as remote working environments can be less secure and more susceptible to
+Added: hacking attacks.
+Added: There is also a risk that artificial intelligence technologies may be misused or misappropriated by our employees and/or third parties engaged by us, which could result in our confidential information becoming part of a dataset that is accessible by third-party applications and users, including our competitors.
+Added: Breaches in security, whether malicious in nature or through inadvertent transmittal or other loss of data, could potentially jeopardize our, our employees’ or our clients’ or counterparties’ sensitive, confidential, proprietary and other information processed and stored in, and transmitted through, our computer systems and networks or those of our third-party service providers, or otherwise cause interruptions or malfunctions in our, our employees’, our clients’, our counterparties’ or third parties’ operations, which could result in material financial losses, increased costs, disruption of our business, liability to clients and other counterparties, regulatory intervention or reputational damage, which, in turn, could cause a decline in our earnings and/or stock price.
+Added: Insurance and other safeguards might only partially reimburse us for our losses, if at all.
In addition, cybersecurity has become a top priority for regulators around the world.
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If this proposal is adopted, it could increase our compliance costs and potential regulatory liability related to cybersecurity.
−Removed: See “—Rapidly developing and changing privacy laws and regulations could increase compliance costs and subject us to enforcement risks and reputational damage.” Some jurisdictions have also enacted laws requiring companies to notify individuals and governmental agencies of data security breaches involving certain types of personal data.
−Removed: Breaches in security, whether malicious in nature or through inadvertent transmittal or other loss of data, could potentially jeopardize our, our employees’ or our clients’ or counterparties’ sensitive, confidential, proprietary and other information processed and stored in, and transmitted through, our computer systems and networks or those of our third-party service providers, or otherwise cause interruptions or malfunctions in our, our employees’, our clients’, our counterparties’ or third parties’ operations, which could result in material financial losses, increased costs, disruption of our business, liability to clients and other counterparties, regulatory intervention or reputational damage, which, in turn, could cause a decline in our earnings and/or stock price.
−Removed: Furthermore, if we fail to comply with relevant laws and regulations or fail to provide the appropriate regulatory or other notifications of breach in a timely manner, it could result in regulatory investigations and material penalties, which could lead to negative publicity and may cause our clients to lose confidence in the effectiveness of our security measures and us more generally.
−Removed: In addition, insurance and other safeguards might only partially reimburse us for our losses, if at all.
+Added: See “—Rapidly developing and changing data security and privacy laws and regulations could increase compliance costs and subject us to enforcement risks and reputational damage.” Some jurisdictions have also enacted laws requiring companies to notify individuals and governmental agencies of data security breaches involving certain types of personal data.
+Added: If we fail to comply with relevant laws and regulations or fail to provide the appropriate regulatory or other notifications of breach in a timely manner, it could result in regulatory investigations and material penalties, which could lead to negative publicity and may cause our clients to lose confidence in the effectiveness of our security measures and us more generally.
Finally, our technology platforms, data and intellectual property are also subject to a heightened risk of theft or compromise to the extent we engage in operations outside the United States, in particular in those jurisdictions that do not have comparable levels of protection of proprietary information and assets such as intellectual property, trademarks, trade secrets, know-how and customer information and records.
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Any such direct or indirect compromise of these assets could have a material adverse impact on us.
−Removed: Rapidly developing and changing privacy laws and regulations could increase compliance costs and subject us to enforcement risks and reputational damage.
+Added: Rapidly developing and changing data security and privacy laws and regulations could increase compliance costs and subject us to enforcement risks and reputational damage.
We are subject to various risks and costs associated with the collection, processing, storage and transmission of personal data and other sensitive and confidential information.
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This data is wide ranging and relates to our clients, employees, counterparties and other third parties.
+Added: Any actual or perceived inability by us to adequately address privacy concerns, or comply with applicable privacy laws, regulations, policies, industry standards and guidance, contractual obligations, or other legal obligations, even if unfounded, could result in significant regulatory and third-party liability, increased costs, disruption of our business and operations, and a loss of client confidence and other reputational damage.
+Added: As new privacy-related laws and regulations are implemented, the time and resources needed for us to seek compliance with such laws and regulations continues to increase.
Many jurisdictions in which we operate have laws and regulations relating to data privacy, cybersecurity and protection of personal information, including the GDPR in the EU and U.K., China’s PIPL and the CPRA in California.
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Our compliance obligations include those relating to U.S.
−Removed: state laws and regulations, including, without limitation the CPRA, which provides for enhanced privacy protections for California residents, a private right of action for data breaches and statutory fines and damages for data breaches or other CPRA violations, as well as a requirement of “reasonable” cybersecurity.
+Added: state laws and regulations, including, without limitation the CPRA, which provides for enhanced privacy protections for
+Added: California residents, a private right of action for data breaches and statutory fines and damages for data breaches or other CPRA violations, as well as a requirement of “reasonable” cybersecurity.
We are also required to comply with foreign data collection and privacy laws in various non-U.S.
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Global laws in this area are rapidly increasing in the scale and depth of their requirements, and are also often extra-territorial in nature.
−Removed: In addition, a wide range of regulators and private actors are seeking to enforce these laws across regions and borders.
+Added: In addition, many regulators have indicated an intention to take more aggressive enforcement actions regarding data privacy and private actors are seeking to enforce these laws across regions and borders.
Furthermore, we frequently have privacy compliance requirements set forth in our contractual arrangements with counterparties.
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While we have taken various measures to help ensure that our policies, processes and systems are in compliance with our obligations, our potential liability remains, particularly given the continued and rapid development of privacy laws and regulations around the United States and the world, varied requirements from jurisdiction to jurisdiction, increased enforcement action and significant monetary penalties.
−Removed: Any inability, or perceived inability, to adequately address privacy concerns, or comply with applicable laws, regulations, policies, industry standards and guidance, contractual obligations, or other legal obligations, even if unfounded, could result in significant regulatory and third-party liability, increased costs, disruption of our business and operations, and a loss of client confidence and other reputational damage.
−Removed: Furthermore, as new privacy-related laws and regulations are implemented, the time and resources needed for us to seek compliance with such laws and regulations continues to increase.
+Added: Technological developments in artificial intelligence could disrupt the markets in which we operate and subject us to increased competition, legal and regulatory risks and compliance costs.
+Added: Technological developments in artificial intelligence, including machine learning technology and generative artificial intelligence, and their current and potential future applications, including in the private investment and financial sectors, as well as the legal and regulatory frameworks within which they operate, are rapidly evolving.
+Added: The full extent of current or future risks related thereto is not possible to predict.
+Added: Artificial intelligence could significantly disrupt the markets in which we operate and subject us to increased competition, legal and regulatory risks and compliance costs, which could have a material adverse effect on our business, financial condition and results of operations.
+Added: We intend to seek to avail ourselves of the potential benefits that are available through artificial technologies, which present a number of potential risks.
+Added: Data that artificial intelligence applications utilize are likely to contain a degree of inaccuracy and error, which could result in flawed algorithms.
+Added: This could reduce the effectiveness of artificial intelligence technologies and adversely impact us and our operations to the extent we rely on the work product of such technology in our operations.
+Added: There is also a risk that artificial intelligence tools or applications may be misused or misappropriated by our employees and/or third parties engaged by us.
+Added: For example, a user may input confidential information, including material non-public information or personal identifiable information, into artificial intelligence technologies, resulting in such information becoming part of a dataset that is accessible by third-party artificial intelligence applications and users, including our competitors.
+Added: Such actions could subject us to legal and regulatory investigations and/or actions.
+Added: Further, we may not be able to control how third-party artificial intelligence technologies that we choose to use are developed or maintained, or how data we input is used or disclosed, even where we have sought contractual protections with respect to these matters.
+Added: The misuse or misappropriation of our data could have an adverse impact on our reputation and could subject us to legal and regulatory investigations and/or actions.
+Added: In addition, we have and may continue to communicate externally regarding artificial technology-
+Added: related initiatives, including our development and use of artificial intelligence technologies, which subjects us to the risk of being accused of making inaccurate or misleading statements regarding our ability to avail ourselves of the potential benefits of artificial intelligence.
+Added: Regulations related to artificial intelligence may also impose on us certain obligations and costs related to monitoring and compliance.
Our failure or inability to obtain, maintain, protect and enforce our trademarks, service marks, trade names and other intellectual property rights could adversely affect our business, including the value of our brands.
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We also own or have the rights to copyrights that protect the content of our solutions.
−Removed: Despite our efforts to obtain, maintain, protect and enforce our trademarks, service marks, trade names and other
−Removed: intellectual property rights in the United States and other jurisdictions, there can be no assurance that these protections will be available in all cases, and our trademarks, service marks, trade names or other intellectual property rights could be challenged, invalidated, declared generic, circumvented, infringed or otherwise violated.
+Added: Despite our efforts to obtain, maintain, protect and enforce our trademarks, service marks, trade names and other intellectual property rights in the United States and other jurisdictions, there can be no assurance that these protections will be available in all cases, and our trademarks, service marks, trade names or other intellectual property rights could be challenged, invalidated, declared generic, circumvented, infringed or otherwise violated.
We may be unable to successfully resolve conflicts to our satisfaction.
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From time to time, we have been and may in the future be subject to legal action and incur significant legal expenses in defending such litigation.
−Removed: In addition, negative publicity and press speculation about us, our investment activities or the private markets in general, whether or not based in truth, or litigation or regulatory action against us or any third-party managers recommended by us or involving us may tarnish our reputation and harm our ability to attract and retain clients and materially adversely affect our financial condition or results of operations.
+Added: In addition, negative publicity and press speculation about us, our investment activities or the private markets in general, whether or not based in truth, or litigation or regulatory action against us or any third-party managers recommended by us or
+Added: involving us may tarnish our reputation and harm our ability to attract and retain clients and materially adversely affect our financial condition or results of operations.
Also, events that damage the reputation of our industry generally, such as highly publicized incidents of fraud or other scandals, could have a material adverse effect on our business, regardless of whether any of these events directly relate to our specialized funds, customized separate accounts or advisory accounts.
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We are subject to increasing scrutiny from clients, investors, regulators, elected officials, stockholders and other stakeholders with respect to ESG matters, which may constrain investment opportunities for our specialized funds, adversely affect our ability to raise capital from clients and investors and result in increased costs or otherwise adversely affect us.
−Removed: We, our specialized funds and customized separate accounts and portfolio companies in which our specialized funds and customized separate accounts invest are subject to increasing scrutiny from clients,
−Removed: investors, regulators, elected officials, stockholders and other stakeholders with respect to ESG matters.
−Removed: Conversely, concerns have been raised as to whether the incorporation of ESG factors into the investment and portfolio management process may be inconsistent with the fiduciary duty to maximize return.
−Removed: Certain investors have demonstrated increased concern with respect to existing investments, including by urging asset managers to take certain actions that could adversely affect the value of an investment, or refrain from taking certain actions that could improve the value of an investment.
+Added: We, our specialized funds and customized separate accounts and portfolio companies in which our specialized funds and customized separate accounts invest are subject to increasing scrutiny from clients, investors, regulators, elected officials, stockholders and other stakeholders with respect to ESG matters.
+Added: Conversely, concerns have been raised, primarily in the United States, as to whether the incorporation of ESG factors into the investment and portfolio management process may be inconsistent with the fiduciary duty to maximize return.
+Added: Our investment activities employ risk management tools and frameworks that seek to manage and reduce risks, including incorporating a risk management focus on ESG issues.
+Added: However, “ESG” can be interpreted under a broad range of definitions.
+Added: Certain investors have demonstrated an increased focus on ESG in their investments, including by urging asset managers to take certain actions that could adversely affect the value of an investment, or refrain from taking certain actions that could improve the value of an investment.
At times, clients and investors have limited participation in certain investment opportunities and/or conditioned future capital commitments on the taking or refraining from taking of such actions.
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For example, government authorities of certain U.S.
−Removed: states have requested information from and scrutinized certain asset managers with respect to whether such managers have adopted ESG policies that would restrict investing in certain industries or sectors, such as traditional energy.
+Added: states have requested information from and publicly scrutinized certain asset managers with respect to whether such managers have adopted ESG policies that would restrict investing in certain industries or sectors, such as traditional energy.
These authorities have indicated that such asset managers may lose opportunities to manage money belonging to these states and their pension funds to the extent the asset managers boycott or take similar actions with respect to certain industries.
−Removed: This may impair our ability to access capital from certain clients and investors, and we may in turn not be able to maintain or increase the size of our specialized funds or raise sufficient capital for new specialized funds, which may adversely impact our revenues.
+Added: Adopting specific ESG investment restrictions may impair our ability to access capital from certain clients and investors, and we may in turn not be able to maintain or increase the size of our specialized funds or raise sufficient capital for new specialized funds, which may adversely impact our revenues.
If we do not successfully manage ESG-related expectations across the varied interests of our stakeholders, including existing or potential clients and investors, our ability to access and deploy capital may be adversely impacted.
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As part of their increased focus on the allocation of their capital to environmentally sustainable economic activities, certain clients and investors have also begun to request or require data and/or use third-party benchmarks and ESG ratings to allow them to monitor the ESG impact of their investments.
−Removed: In addition, regulatory initiatives to require more disclosures regarding ESG matters are becoming increasingly common, which may further increase the number and type of clients and investors who place importance on these issues and who demand certain types of reporting from us.
+Added: Clients may also require the achievement of certain science-based targets related to climate action in their investments, and we may be unable to generate the necessary data or result.
+Added: In addition, regulatory initiatives to require more disclosures regarding ESG matters are becoming increasingly common, which may further increase the
+Added: number and type of clients and investors who place importance on these issues and who demand certain types of reporting from us.
The transition to sustainable finance accelerates existing risks and raises new risks for our business that may impact our profitability and success.
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The SEC has focused on the labeling by funds of their activities or investments as “sustainable” and examined the methodology used for determining ESG investments, with a focus on whether such labeling is misleading.
−Removed: The SEC has also proposed ESG-related rules for investment advisors that address, among other things, enhanced ESG-related disclosure requirements.
−Removed: A perception or accusation of greenwashing could damage our reputation, result in litigation or regulatory actions, and adversely impact our ability to raise capital and attract new investors.
−Removed: Outside of the United States, the European Commission adopted an action plan on financing sustainable growth, as well as initiatives at the EU level, such as the EU Sustainable Finance Disclosure Regulation (“SFDR”), which imposes disclosure requirements on us and will affect our EEA operations (including where non-EEA products are marketed to EEA investors).
−Removed: The EU regulation on the establishment of a framework to facilitate sustainable investment (“Taxonomy Regulation”) supplements SFDR’s disclosure requirements for
−Removed: certain entities and sets out a framework for classifying economic activities as “environmentally sustainable”.
−Removed: Compliance with the SFDR, Taxonomy Regulation and other ESG-related rules subjects us and our specialized funds to increased restrictions, disclosure obligations and compliance and other associated costs, as well as potential reputational harm if we do not properly comply, and there is considerable legal uncertainty about how to comply with these regimes.
−Removed: In addition, under the requirements of SFDR and other ESG-related regulations to which we may become subject, we are required to classify certain of our funds and their portfolio companies against certain criteria, some of which can be open to subjective interpretation.
−Removed: Our view on the appropriate classification may develop over time, including in response to statutory or regulatory guidance or changes in industry approach to classification.
−Removed: If regulators disagree with the procedures or standards we use for ESG or impact investing, or new regulations or legislation require a methodology of measuring or disclosing ESG impact that is different from our current practice, it could result in fines or other regulatory sanctions, which could have a material adverse effect on fundraising efforts, our business as a whole and our reputation.
+Added: The SEC has also recently adopted new climate-disclosure rules, which are applicable to us, and proposed or adopted ESG-related rules for investment advisers and for Investment Company Act funds that address, among other things, enhanced ESG-related disclosure requirements concerning the use of ESG themes in their investing practices.
+Added: This could increase the risk that we are perceived as, or accused of, “greenwashing”.
+Added: Such perception or accusation could damage our reputation, result in litigation or regulatory actions, and adversely impact our ability to raise capital and attract new investors.
+Added: Further, if regulators disagree with the procedures or standards we use for ESG or impact investing, or new regulations or legislation require a methodology of measuring or disclosing ESG impact that is different from our current practice, it could result in fines or other regulatory sanctions, which could have a material adverse effect on fundraising efforts, our business as a whole and our reputation.
+Added: See “—Climate change, climate change-related regulation and sustainability concerns could adversely affect our business and the operations of portfolio companies in which our specialized funds and customized separate accounts invest, and any actions we take or fail to take in response to such matters could damage our reputation.”
The complexity and relative nascency of the global regulatory framework with respect to ESG matters increases the risk that any act or lack thereof with respect to ESG matters will be perceived negatively by a governmental authority or regulator.
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We may also communicate certain initiatives, commitments and goals regarding environmental, diversity, and other ESG-related matters in our SEC filings or in other disclosures by us or our specialized funds.
+Added: For example, we have publicly pledged to reaching net-zero emissions by 2050 across our discretionary assets under management and to achieving carbon neutrality for our operations going back to 2019.
These initiatives, commitments and goals could be difficult and expensive to implement, the personnel, processes and technologies needed to implement them may not be cost effective and may not advance at a sufficient pace, and we may not be able to accomplish them within the timelines we announce or at all.
We could, for example, determine that it is not feasible or practical to implement or complete certain of such initiatives, commitments or goals based on cost, timing or other considerations.
−Removed: In addition, we could be criticized for the accuracy, adequacy or completeness of the disclosure related to our or our specialized funds’ or customized separate accounts’ ESG-related policies, practices, initiatives, commitments and goals, and progress against those goals, which disclosure may be based on frameworks and standards for measuring progress that are still developing, internal controls and processes that continue to evolve, and assumptions that are subject to change in the future.
−Removed: In addition, we could be criticized for the scope or nature of such initiatives or goals, or for any revisions to these goals.
+Added: In addition, we could be criticized for the accuracy, adequacy or completeness of the disclosure related to our or our specialized funds’ or customized
+Added: separate accounts’ ESG-related policies, practices, initiatives, commitments and goals, and progress against those goals, which disclosure may be based on frameworks and standards for measuring progress that are still developing, internal controls and processes that continue to evolve, and assumptions that are subject to change in the future.
+Added: We could also be criticized for the scope or nature of our initiatives or goals or for any revisions to these goals.
Further, as part of our ESG practices, we rely from time to time on third-party data, services and methodologies and such services, data and methodologies could prove to be incomplete or inaccurate.
If our or such third parties’ ESG-related data, processes or reporting are incomplete or inaccurate, or if we fail to achieve progress with respect to our goals within the scope of ESG on a timely basis, or at all, we may be subject to enforcement action and our reputation could be adversely affected, particularly if in connection with such matters we were to be accused of “greenwashing”.
−Removed: Climate change, climate change-related regulation and sustainability concerns could adversely affect our business and the operations of portfolio companies in which our specialized funds and customized
−Removed: separate accounts invest, and any actions we take or fail to take in response to such matters could damage our reputation.
+Added: Climate change, climate change-related regulation and sustainability concerns could adversely affect our business and the operations of portfolio companies in which our specialized funds and customized separate accounts invest, and any actions we take or fail to take in response to such matters could damage our reputation.
We, our specialized funds and customized separate accounts and portfolio companies in which our specialized funds and customized separate accounts invest face risks associated with climate change, including risks related to the impact of climate- and ESG-related legislation and regulation (both domestically and internationally), risks related to technology- and climate change-related business trends (such as the process of transitioning to a lower-carbon economy) and risks stemming from the physical impacts of climate change.
−Removed: New climate change-related rules and regulations or interpretations of existing laws will result in enhanced disclosure obligations, which could negatively affect us, our specialized funds and customized separate accounts and portfolio companies in which they invest and materially increase the regulatory burden and cost of compliance.
−Removed: For example, developing and acting on ESG initiatives, and collecting, measuring and reporting ESG-related information and metrics can be costly, difficult and time consuming and is subject to evolving reporting standards, including the SEC’s proposed climate-related reporting requirements, and similar proposals by other non-U.S.
−Removed: regulatory bodies.
+Added: New climate change and sustainability-related regulations or interpretations of existing laws will result in enhanced disclosure obligations, which could negatively affect us, our specialized funds and customized separate accounts and portfolio companies in which they invest and materially increase the regulatory burden and cost of compliance.
+Added: For example, in March 2024, the SEC adopted final rules regarding the enhancement and standardization of mandatory climate-related disclosures.
+Added: The new rules mandate extensive disclosure of climate-related data and risks, including financial impacts, physical and transition risks, related governance and strategy, and greenhouse gas emissions, for certain public companies.
+Added: The final rules are subject to legal challenges in the United States.
+Added: If the rules become effective in their current form, we will be required to provide the enhanced climate-related disclosures.
+Added: Further, in October 2023, California enacted climate disclosure laws, requiring certain companies that do business in California to publicly disclose their Scope 1, 2, and 3 greenhouse gas emissions and issue public reports on their climate-related financial risk and related mitigation measures.
+Added: While the full impact of these new rules and regulations on our business is still uncertain, such increased obligations may require us to incur significant additional costs to comply, including the implementation of additional internal controls, processes and procedures and increased oversight obligations on our management and board of directors.
+Added: I n the EU, the SFDR currently imposes disclosure requirements on certain of our funds and the EU Taxonomy Regulation supplements SFDR’s disclosure requirements for certain entities and sets out a framework for classifying economic activities as “ environmentally sustainable.
+Added: ” There is considerable legal uncertainty about how to comply with these regimes.
+Added: We cannot guarantee that our current approach will meet future regulatory requirements, reporting frameworks or best practices.
+Added: Collecting, measuring and reporting the information and metrics required under the various existing regulations has imposed administrative burden and increased cost on us, and such burden and cost are likely to increase as new regulations are enacted, particularly if the requirements imposed on us by various regulations lack harmonization on a global basis.
We may also communicate certain climate-related initiatives, commitments and goals in our SEC filings or in other disclosures, which subjects us to additional risks, including the risk of being accused of “greenwashing”.
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For certain of these portfolio companies, business trends related to climate change may require capital expenditures, product or service redesigns, and changes to operations and supply chains to meet changing customer expectations.
−Removed: While this can create opportunities, not addressing these changed expectations could create business risks for portfolio companies, which could negatively impact the returns in our specialized funds and customized separate accounts.
+Added: While this can create opportunities, not addressing these changed expectations could create business risks for portfolio companies, which could negatively impact the returns in our specialized
+Added: funds and customized separate accounts.
Further, advances in climate science may change society’s understanding of sources and magnitudes of negative effects on climate, which could also negatively impact portfolio company financial performance.
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In addition, our reputation may be harmed if certain stakeholders, such as our clients or stockholders, believe that we are not adequately or appropriately responding to climate change, including through the way in which we operate our business, the composition of our specialized funds’ and customized separate accounts’ existing portfolios, the new investments made by them, or the decisions we make to continue to conduct or change our activities in response to climate change considerations.
−Removed: Another pandemic or global health crisis like the COVID-19 pandemic may adversely impact our performance and results of operations.
−Removed: In response to the COVID-19 pandemic, many countries took measures to limit the spread of the virus, including instituting quarantines or lockdowns, imposing travel restrictions and vaccination mandates for certain workers or activities and limiting operations of certain non-essential businesses.
−Removed: Such restrictions adversely impacted global commercial activity and contributed to significant disruption and uncertainty in the global financial markets, resulting in increased volatility in equity prices (including our Class A common stock), supply chain disruptions and an increase in inflationary pressures, among other things.
−Removed: A widespread reoccurrence of COVID-19, or the occurrence of another pandemic or global health crisis, could increase the possibility of periods of increased restrictions on business operations, which may adversely impact our business, financial condition, results of operations, liquidity and prospects materially and exacerbate many of the other risks discussed in this Form 10-K.
−Removed: It is not possible to predict with certainty the possible future business and economic ramifications arising from a widespread reoccurrence of COVID-19 or the occurrence of another pandemic or global health crisis, but such events could:
−Removed: (i) restrict our ability to easily travel and meet with prospective and current clients in person (which inhibits building and strengthening our relationships with them);
−Removed: (ii) impede our ability to market our funds and attract new business (which may result in lower or delayed revenue growth);
−Removed: (iii) restrict our ability to conduct on-site due diligence as may be appropriate for a potential investment (which can impede the identification of investment risks);
−Removed: (iv) cause a slowdown in fundraising activity (which could result in delayed or decreased management fees);
−Removed: (v) cause a slowdown in our deployment of capital (which could adversely affect our revenues and our ability to raise capital for new or successor funds);
−Removed: (vi) limit the ability of general partners to exit existing investments (which could decrease incentive fee revenue);
−Removed: and (vii) adversely impact our liquidity and cash flows due to declines in revenues.
−Removed: Further, our specialized funds and customized separate accounts could be invested in industries that are materially impacted, and companies in those industries could suffer materially, become insolvent or cease operations altogether, any of which would decrease the value of the investments and/or cause significant volatility in valuations.
−Removed: Decreases in public markets and credit indices as well as decreases in current or future estimated performance of underlying portfolio companies may result in negative valuation adjustments that will be reported on a three-month lag in accordance with our accounting policy.
−Removed: Adverse investment valuations directly impact our investments, equity in income of investees, unrealized carried interest, AUM and AUA for the period.
−Removed: In addition, a pandemic or global health crisis may pose enhanced operational risks.
−Removed: For example, our employees may become sick or otherwise unable to perform their duties for an extended period, which may cause us to experience a loss of productivity or a delay in the implementation of strategic plans.
−Removed: In addition to any potential impact of extended illness on our operations, we may be exposed to the risk of litigation by our employees against us for, among other things, failure to take adequate steps to protect their well-being.
−Removed: Local laws may also be subject to rapid change, which can lead to confusion, make compliance with new laws uncertain and subject us to additional increased litigation risks.
−Removed: Extended public health restrictions and remote working arrangements may also impact employee morale, integration of new employees and preservation of our culture.
−Removed: Remote working environments may also be less secure and more susceptible to hacking attacks.
−Removed: Moreover, our third party service providers could be impacted by an inability to perform due to pandemic-related restrictions or by failures of, or attacks on, their technology platforms.
Our international operations are subject to certain risks, which may affect our revenue.
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• potentially compromised protections or rights to technology, data and intellectual property due to government regulation;
−Removed: • terrorism, political hostilities, war, public health crises and other civil disturbances or other catastrophic events that reduce business activity;
+Added: • terrorism, political hostilities, war, public health crises and other civil disturbances or other catastrophic events, which may reduce business activity, threaten the safety of our international offices, employees and clients, and affect our plans to expand in particular regions;
• cultural and language barriers and the need to adopt different business practices in different geographic areas;
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subsidiaries may be a party.
+Added: As a result, there is a risk that we may not be able to send capital to or receive capital from our operating subsidiaries.
Our business, financial condition and results of operations could be adversely impacted, possibly materially, if we are unable to successfully manage these and other risks of international operations in a volatile environment.
If our international business increases relative to our total business, these factors could have a more pronounced effect on our operating results or growth prospects.
+Added: A pandemic or global health crisis may adversely impact our performance and results of operations.
+Added: From 2020 to 2022, in response to the COVID-19 pandemic, many countries instituted quarantine restrictions and took other measures to limit the spread of the virus.
+Added: Such restrictions adversely impacted global commercial activity and contributed to significant disruption and uncertainty in the global financial markets, resulting in increased volatility in equity prices (including our Class A common stock), supply chain disruptions and an increase in inflationary pressures, among other things.
+Added: The occurrence of another pandemic or global health crisis, could increase the possibility of periods of increased restrictions on business operations, which may adversely impact our business, financial condition, results of operations, liquidity and prospects materially and exacerbate many of the other risks discussed in this Form 10-K.
+Added: It is not possible to predict with certainty the possible future business and economic ramifications arising from the occurrence of another pandemic or global health crisis, but such events could:
+Added: (i) restrict our ability to easily travel and meet with prospective and current clients in person (which inhibits building and strengthening our relationships with them);
+Added: (ii) impede our ability to market our funds and attract new business (which may result in lower or delayed revenue growth);
+Added: (iii) restrict our ability to conduct on-site due diligence as may be appropriate for a potential investment (which can impede the identification of investment risks);
+Added: (iv) cause a slowdown in fundraising activity (which could result in delayed or decreased management fees);
+Added: (v) cause a slowdown in our deployment of capital (which could adversely affect our
+Added: revenues and our ability to raise capital for new or successor funds);
+Added: (vi) limit the ability of general partners to exit existing investments (which could decrease incentive fee revenue);
+Added: and (vii) adversely impact our liquidity and cash flows due to declines in revenues.
+Added: Further, our specialized funds and customized separate accounts could be invested in industries that are materially impacted, and companies in those industries could suffer materially, become insolvent or cease operations altogether, any of which would decrease the value of the investments and/or cause significant volatility in valuations.
+Added: Decreases in public markets and credit indices as well as decreases in current or future estimated performance of underlying portfolio companies may result in negative valuation adjustments that will be reported on a three-month lag in accordance with our accounting policy.
+Added: Adverse investment valuations directly impact our investments, equity in income of investees, unrealized carried interest, AUM and AUA for the period.
+Added: In addition, a pandemic or global health crisis may pose enhanced operational risks.
+Added: For example, our employees may become sick or otherwise unable to perform their duties for an extended period, which may cause us to experience a loss of productivity or a delay in the implementation of strategic plans.
+Added: In addition to any potential impact of extended illness on our operations, we may be exposed to the risk of litigation by our employees against us for, among other things, failure to take adequate steps to protect their well-being.
+Added: Local laws may also be subject to rapid change, which can lead to confusion, make compliance with new laws uncertain and subject us to additional increased litigation risks.
+Added: Extended public health restrictions and remote working arrangements may also impact employee morale, integration of new employees and preservation of our culture.
+Added: Remote working environments may also be less secure and more susceptible to hacking attacks.
+Added: Moreover, our third party service providers could be impacted by an inability to perform due to pandemic-related restrictions or by failures of, or attacks on, their technology platforms.
Risks Related to Our Industry
The investment management business is intensely competitive.
−Removed: The investment management business is intensely competitive, with competition based on a variety of factors, including investment performance, the quality of service provided to clients, investor availability of
−Removed: capital and willingness to invest, investment terms and conditions (including fees and liquidity terms), brand recognition and business reputation.
+Added: The investment management business is intensely competitive, with competition based on a variety of factors, including investment performance, the quality of service provided to clients, investor availability of capital and willingness to invest, investment terms and conditions (including fees and liquidity terms), brand recognition and business reputation.
Our investment management business competes with a variety of traditional and alternative asset managers, commercial banks, investment banks and other financial institutions, and we expect that competition will continue to increase.
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• some of our competitors may have a lower cost of capital and access to funding sources that are not available to us, which may create competitive disadvantages for us with respect to our specialized funds, particularly funds that directly use leverage or rely on debt financing of their portfolio companies to generate superior investment returns;
−Removed: • some of our competitors may be more successful than us in the development of new products to address investor demand for new or different investment strategies and/or regulatory changes, including with respect to products with mandates that incorporate ESG considerations, or products that are targeted toward retail;
−Removed: • developments in financial technology (or fintech), such as a distributed ledger technology (or blockchain), have the potential to disrupt the financial industry and change the way financial institutions, as well as investment managers, do business, and could exacerbate these competitive pressures;
+Added: • some of our competitors may be more successful than us in the development of new products to address investor demand for new or different investment strategies and/or regulatory changes,
+Added: including with respect to products with mandates that incorporate ESG considerations, or products that are targeted toward retail;
+Added: • further innovations in financial technology (or fintech) have the potential to disrupt the financial industry and change the way financial institutions, as well as investment managers, do business, and could exacerbate these competitive pressures;
• some of our competitors may be more successful than us in the development and implementation of new technology to address investor demand for product and strategy innovation;
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This competitive pressure could adversely affect our ability to make successful investments and restrict our ability to raise future funds, either of which would materially and adversely impact our business, financial condition and results of operations.
−Removed: Difficult or volatile market, geopolitical and economic conditions can adversely affect our business and the investments made by our specialized funds, customized separate accounts and advisory accounts in many ways, each of which could materially reduce our revenue, earnings and cash flow.
−Removed: Our business and the performance of investments made by our specialized funds, customized separate accounts and advisory accounts can be materially affected by difficult or volatile financial market and geopolitical conditions and events in the United States or throughout the world that are outside our control, including rising interest rates, inflation, economic recession, the availability of credit, changes in laws, trade barriers, public health crises, natural disasters, civil unrest, trade conflicts, war or threat of war, terrorism or political uncertainty.
+Added: Difficult or volatile market, economic and geopolitical conditions can adversely affect our business and the investments made by our specialized funds, customized separate accounts and advisory accounts in many ways, each of which could materially reduce our revenue, earnings and cash flow.
+Added: Our business and the performance of investments made by our specialized funds, customized separate accounts and advisory accounts can be materially affected by difficult or volatile market, economic and geopolitical conditions and events in the United States or throughout the world that are outside our control, including interest rates, inflation, economic recession, the availability of credit, changes in laws, trade barriers, public health crises, natural disasters, civil unrest, trade conflicts, war or threat of war, terrorism or political uncertainty.
These factors may affect the level and volatility of securities prices and the liquidity and value of investments, and we may not be able to or may choose not to manage our exposure to them.
+Added: While inflation has decreased in the United States compared to prior years, calendar year 2023 was characterized by elevated inflation and high interest rates, which contributed to significant volatility in the debt and equity markets.
+Added: In addition, geopolitical conflicts outside of our control, including the ongoing war between Russia and the Ukraine and an evolving conflict in the Middle East, have contributed and may continue to contribute to volatility in the global financial markets, which may adversely impact our performance and the performance of our funds.
Market deterioration has caused us, the specialized funds and customized separate accounts we manage and the funds in which they invest to experience tightening of liquidity, reduced earnings and cash flow and impairment charges, as well as challenges in raising and deploying capital, obtaining investment financing and making investments on attractive terms.
We have also been required by applicable accounting rules to write down the valuations of investments.
−Removed: These market conditions can also have an impact on our ability and the ability of funds in which we and our clients invest to liquidate positions in a timely and efficient manner.
+Added: These market conditions have also impacted our ability and the
+Added: ability of funds in which we and our clients invest to liquidate positions in a timely and efficient manner.
+Added: In fiscal 2024, there were fewer IPOs and sales of the portfolio companies in our funds.
To the extent periods of volatility are coupled with a lack of realizations from clients’ existing private markets portfolios, such clients may be left with disproportionately outsized remaining commitments, which significantly limits their ability to make new commitments.
−Removed: In addition, during periods of adverse economic or geopolitical conditions, our specialized funds may have difficulty accessing financial markets, which could make it more difficult or impossible for them to obtain funding for additional investments.
+Added: In addition, during periods of adverse market, economic or geopolitical conditions, our specialized funds may have difficulty accessing financial markets, which could make it more difficult or impossible for them to obtain funding for additional investments.
A general market downturn, or a specific market dislocation, may result in lower investment returns for our funds, which would adversely affect our revenues.
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Our profitability may also be adversely affected by our fixed costs and the possibility that we would be unable to scale back other costs within a time frame sufficient to match any decreases in revenue relating to changes in market and economic conditions.
−Removed: This risk may be further exacerbated if, as a result of poor fund
−Removed: performance or difficult market and fundraising environments, investors and clients negotiate lower fees or fee concessions that are materially less favorable to us than our desired fee structure.
+Added: This risk may be further exacerbated if, as a result of poor fund performance or difficult market and fundraising environments, investors and clients negotiate lower fees or fee concessions that are materially less favorable to us than our desired fee structure.
If our revenue declines without a commensurate reduction in our expenses, our net income will be reduced.
−Removed: Volatility and disruption in the markets, whatever the cause, could also adversely affect the portfolio companies in which private markets funds invest, which, in turn, would adversely affect the performance of our specialized funds, customized separate accounts and advisory accounts.
−Removed: For example, the lack of available credit or the increased cost of credit may materially and adversely affect the performance of funds that rely heavily on leverage such as leveraged buyout funds.
−Removed: Disruptions in the debt and equity markets may make it more difficult for funds to exit and realize value from their investments, because potential buyers of portfolio companies may not be able to finance acquisitions and the equity markets may become unfavorable for IPOs.
−Removed: In addition, the volatility will directly affect the market prices of securities issued by many companies for reasons unrelated to their operating performance and may adversely affect the valuation of the investments of our specialized funds, customized separate accounts and advisory accounts.
−Removed: Any or all of these factors may result in lower investment returns.
−Removed: The global financial markets continue to experience volatility and disruption.
−Removed: In the United States, the Federal Reserve’s increase in interest rates to address record inflation have contributed to volatility in the debt and equity markets.
−Removed: Heightened competition for workers, supply chain issues and rising energy and commodity prices have contributed to increasing wages and other inputs.
−Removed: Inflation and higher input costs may put pressure on the profit margins of portfolio companies within our funds and customized separate accounts, particularly where pricing power is lacking.
−Removed: There can be no assurance that further initiatives taken by governmental authorities designed to strengthen and stabilize the economy and financial markets will be successful or whether they will lead to a recession, and there is no way to predict the ultimate impact of the disruption or the effect that these initiatives will have on the performance of our specialized funds, customized separate accounts or advisory accounts.
−Removed: Adding to strain on the economy is Russia’s continued war on Ukraine, which creates market uncertainty, and the recent failure of certain banks in the United States and elsewhere, which creates bank-specific and broader financial institution liquidity risk concerns.
+Added: In recent years, lending markets experienced challenges amid the failure of multiple regional banks in the United States and elsewhere, which created bank-specific and broader financial institution liquidity risk concerns.
Future adverse developments with respect to specific financial institutions or the broader financial services industry may lead to market-wide liquidity shortages and could have a negative impact on the economy and business activity globally, and therefore could adversely affect the performance of our business, specialized funds, customized separate accounts and advisory accounts.
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In addition, these potential rules enhance the risk of regulatory action, which could adversely impact our reputation and our fundraising efforts, including as a result of public regulatory sanctions and increased regulatory enforcement activity in the financial services industry.
−Removed: It is impossible to determine the extent of the impact of any new laws, regulations, initiatives or regulatory
−Removed: guidance that may be proposed or may become law on our business or the markets in which we operate, but they could make it more difficult for us to operate our business.
+Added: It is impossible to determine the extent of the impact of any new laws, regulations, initiatives or regulatory guidance that may be proposed or may become law on our business or the markets in which we operate, but they could make it more difficult for us to operate our business.
Governmental authorities around the world have implemented or are implementing financial system and participant regulatory reform in reaction to volatility and disruption in the global financial markets, financial institution failures and financial frauds.
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For example, the Inflation Reduction Act imposes, among other things, a new excise tax on stock repurchases.
−Removed: While the application of this new law is uncertain and we continue to evaluate its potential impact, its changes could adversely affect the amount and/or timing of tax we may be required to pay.
+Added: These and other changes could adversely affect the amount and/or timing of tax we may be required to pay.
The current administration has also proposed to increase individual ordinary and capital gains tax rates, which would increase the amount of tax distributions that HLA is required to pay to its members.
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Changes to tax laws may also adversely affect our ability to attract and retain key personnel.
−Removed: Our advisory and investment management businesses are subject to regulation in the United States, including by the SEC, the Commodity Futures Trading Commission, the Internal Revenue Service (the “IRS”), FINRA and other regulatory agencies, pursuant to, among other laws, the Investment Advisers Act, the Securities Act, the Code, the Commodity Exchange Act, the Investment Company Act and the Exchange Act.
+Added: Our advisory and investment management businesses are subject to regulation in the United States, including by the SEC, the Commodity Futures Trading Commission, the Internal Revenue Service (the
+Added: “IRS”), FINRA and other regulatory agencies, pursuant to, among other laws, the Investment Advisers Act, the Securities Act, the Code, the Commodity Exchange Act, the Investment Company Act and the Exchange Act.
Any change in such regulation or oversight may have a material adverse impact on our operating results.
−Removed: For example, the SEC has proposed new rules and amendments under the Investment Advisers Act, which, if finalized in their current forms, would prohibit the imposition or reimbursement of certain fees and expenses customarily charged to private funds or their portfolio investments.
−Removed: If we are no longer able to be reimbursed for such fees and expenses, our revenues may be adversely affected.
−Removed: In addition, we regularly rely on exemptions from various requirements of these and other applicable laws.
+Added: For example, in August 2023, the SEC adopted new rules and amendments under the Investment Advisers Act (the “Private Fund Adviser Rules”), which require registered investment advisers to distribute quarterly statements containing detailed information about, among other things, compensation, fees and expenses, investments, and performance;
+Added: obtain an annual audit for private funds;
+Added: and obtain a fairness or valuation opinion and make certain disclosures in connection with adviser-led secondary transactions.
+Added: While the full extent of the new rules’ impact cannot yet be determined, especially given a pending legal challenge, we anticipate that these new rules will increase regulatory and compliance costs, place additional burdens on our resources, including the time and attention of our personnel, and heighten the risk of regulatory action.
+Added: We regularly rely on exemptions from various applicable laws.
These exemptions are sometimes highly complex and may in certain circumstances depend on compliance by third parties whom we do not control.
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Our failure to comply with applicable laws, regulations or regulatory processes could result in fines, suspensions of personnel or other sanctions, including revocation of our registration as an investment adviser or the registration of our broker-dealer subsidiary.
−Removed: Even if an investigation does not result in sanctions, or results in a sanction imposed against us or our personnel that is small in monetary amount, the adverse publicity relating to the investigation or the imposition of sanctions
−Removed: against us by regulators could harm our reputation and cause us to lose existing clients or fail to gain new clients.
+Added: Even if an investigation does not result in sanctions, or results in a sanction imposed against us or our personnel that is small in monetary amount, the adverse publicity relating to the investigation or the imposition of sanctions against us by regulators could harm our reputation and cause us to lose existing clients or fail to gain new clients.
The requirements imposed by our regulators under the Investment Advisers Act are designed primarily to ensure the integrity of the financial markets and to protect our clients and are not designed to protect our stockholders.
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Our failure to comply with these requirements could have a material adverse effect on our business.
−Removed: In addition, a court could find that one of our direct investment funds has formed a partnership-in-fact conducting a trade or business and would therefore be jointly and severally liable for the portfolio company’s unfunded pension liabilities.
In addition, HLA is registered as an investment adviser with the SEC and is subject to the requirements and regulations of the Investment Advisers Act.
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As a registered investment adviser, HLA has fiduciary duties to its clients.
−Removed: Similarly, our subsidiary, Hamilton Lane Securities LLC, is registered as a broker-dealer with the SEC and FINRA, and it is subject to their rules and regulations.
−Removed: We regularly are subject to requests for information, inquiries and informal or formal examinations by the SEC and other regulatory authorities, with which we routinely cooperate.
+Added: Similarly, our subsidiary, Hamilton Lane Securities LLC, is registered as a broker-dealer
+Added: with the SEC and FINRA, and it is subject to their rules and regulations.
+Added: We regularly are subject to requests for information, inquiries and routine informal or formal examinations by the SEC and other regulatory authorities, with which we cooperate.
Such examinations can result in fines, suspensions of personnel, changes in policies, procedures or disclosure or other sanctions, including censure, the issuance of cease-and-desist orders, the suspension or termination of our investment adviser or broker-dealer registrations or the commencement of a civil or criminal lawsuit against us or our personnel.
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In the United States, the Committee on Foreign Investment in the United States has the authority to review and potentially block, unwind or impose conditions on certain foreign investments in U.S.
−Removed: companies or real estate, which may reduce the number of potential buyers and limit the ability of our funds to realize value from certain existing and future
−Removed: Even state regulatory agencies may impose restrictions on investments in certain types of assets, which could affect our ability to find attractive and diversified investments and to complete such investments in a timely manner.
+Added: companies or real estate, which may reduce the number of potential buyers and limit the ability of our funds to realize value from certain existing and future investments.
+Added: In addition, in August 2023, President Biden signed an Executive Order which prohibits certain investments by U.S.
+Added: persons in advanced technology sectors in China and jurisdictions designated as “countries of concern.” Even state regulatory agencies may impose restrictions on investments in certain types of assets, which could affect our ability to find attractive and diversified investments and to complete such investments in a timely manner.
Other countries continue to establish and/or strengthen their own national security investment clearance regimes, which could have a corresponding effect of limiting our ability to make investments in such countries.
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If we fail to comply with these laws and regulations, we could be exposed to claims for damages, civil or criminal financial penalties, reputational harm, incarceration of our employees, restrictions on our operations and other liabilities, which could negatively affect our business, operating results and financial condition.
−Removed: In addition, we may be subject to successor liability for FCPA violations or other acts of bribery, or violations of applicable sanctions or other export control laws committed by companies in which we or our funds invest or which we or our funds acquire.
+Added: In addition, we may be subject to successor liability for FCPA violations or other acts of bribery, or violations of applicable sanctions or
+Added: other export control laws committed by companies in which we or our funds invest or which we or our funds acquire.
While we have developed and implemented policies and procedures designed to ensure strict compliance by us and our personnel with the FCPA and other anti-corruption, sanctions and export control laws in jurisdictions in which we operate, such policies and procedures may not be effective to prevent violations.
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In general, these requirements relate to registration, licenses for our personnel, periodic inspections, marketing activities, the provision and filing of periodic reports, and obtaining certifications and other approvals.
−Removed: Across the EU and
−Removed: U.K., we are subject to the AIFMD, which regulates, among other things, registration for marketing activities, the structure of remuneration for certain of our personnel and reporting obligations.
+Added: Across the EU and U.K., we are subject to the AIFMD, which regulates, among other things, registration for marketing activities, the structure of remuneration for certain of our personnel and reporting obligations.
Certain requirements of the AIFMD and the interpretation thereof remain uncertain and may be subject to change.
+Added: Changes to AIFMD have been adopted, which are expected to come into force in late 2025.
+Added: These changes could increase the compliance burdens on certain of our funds.
Individual member states of the EU have imposed additional requirements that may include internal arrangements with respect to risk management, liquidity risks, asset valuations, and the establishment and security of depository and custodial requirements.
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Regulation (EU) 2019/2033 on the prudential requirements for investment firms (“IFR”) and Directive (EU) 2019/2034 on the prudential supervision of investment firms (“IFD”) impose a prudential regime for those of our EU investment firms that are subject to MiFID II, including general capital requirements, liquidity requirements, remuneration requirements, requirements to conduct internal capital adequacy assessments and additional requirements on disclosures and public reporting.
−Removed: The legislation could hinder our ability to deploy capital as freely as we would wish and to recruit and incentivize staff.
+Added: The legislation could hinder our ability to deploy capital as freely as we would wish and to
+Added: recruit and incentivize staff.
Different and extended internal governance, disclosure, reporting, liquidity and group “prudential” consolidation requirements (among other things) could also have a material impact on our EU-based operations.
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Under these rules, a listed company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements, including the requirement that (i) a majority of our board of directors consist of independent directors, (ii) director nominees be selected or recommended to the board by independent directors and (iii) we have a compensation committee that is composed entirely of independent directors.
−Removed: Although independent directors comprise the majority of our board of directors, we have elected to rely on these exemptions and expect to continue to do so.
−Removed: As a result, our directors are not nominated or selected by independent directors and our compensation committee does not consist entirely of independent directors.
+Added: We have elected to rely on these exemptions and expect to continue to do so.
Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of Nasdaq.
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We have used a portion of the proceeds from our IPO and from subsequent registered offerings to purchase membership units in HLA from certain of the legacy direct or indirect members of HLA, which resulted in an increase in our share of the tax basis of the assets of HLA that otherwise would not have been available.
−Removed: The HLA membership units held directly and indirectly by the members of HLA other than HLI, including members of our senior management team, may in the future be exchanged for shares of our Class A common stock or, at our election, for cash.
+Added: The HLA membership units held directly and indirectly by the members of HLA other than HLI, including members of our senior management team, may in the future be exchanged for shares of our Class A
+Added: common stock or, at our election, for cash.
These exchanges are likely to result in increases in our share of the tax basis of the assets of HLA that otherwise would not have been available.
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We are required to pay over to legacy direct or indirect members of HLA most of the tax benefits we receive from tax basis step-ups attributable to our acquisition of membership units of HLA, and the amount of those payments could be substantial.
−Removed: As part of our Reorganization, we entered into a tax receivable agreement for the benefit of the direct and indirect members of HLA other than us, pursuant to which we will pay them 85% of the amount of the tax savings, if any, that we realize (or, under certain circumstances, are deemed to realize) as a result of increases
−Removed: in tax basis (and certain other tax benefits) resulting from our acquisition of membership units or as a result of certain items of loss being specially allocated to us for tax purposes in connection with dispositions by HLA of certain investment assets.
+Added: We have entered into a tax receivable agreement for the benefit of the direct and indirect members of HLA other than us, pursuant to which we will pay them 85% of the amount of the tax savings, if any, that we realize (or, under certain circumstances, are deemed to realize) as a result of increases in tax basis (and certain other tax benefits) resulting from our acquisition of membership units or as a result of certain items of loss being specially allocated to us for tax purposes in connection with dispositions by HLA of certain investment assets.
HLI will retain the benefit of the remaining 15% of these tax savings.
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If we do not distribute such cash balances as dividends on our Class A common stock and instead, for example, hold such cash balances or lend them to HLA, the existing owners of HLA would benefit from any value attributable to such accumulated cash balances as a result of their right to acquire shares of Class A common stock or, at our election, an amount of cash equal to the fair market value thereof, in exchange for their Class B units or Class C units.
−Removed: Because most members of our senior management team hold most of their economic interest in HLA through other entities, conflicts of interest may arise between them and holders of shares of our Class A common stock or us.
−Removed: Because most members of our senior management team hold most of their economic interest in HLA directly through holding companies and other vehicles rather than through ownership of shares of our Class A common stock, they may have interests that do not align with, or conflict with, those of the holders of Class A common stock or with us.
−Removed: For example, members of our senior management team have different tax positions from Class A common stockholders and with us, which could influence their decisions regarding whether and when to dispose of assets, whether and when to incur new or refinance existing indebtedness, and whether and when we should terminate the tax receivable agreement and accelerate the obligations thereunder.
+Added: Because many members of our senior management team hold their economic interest in HLA through other entities, conflicts of interest may arise between them and holders of shares of our Class A common stock or us.
+Added: Because many members of our senior management team hold their economic interest in HLA directly through holding companies and other vehicles rather than through ownership of shares of our Class A common stock, they may have interests that do not align with, or conflict with, those of the holders of Class A common stock or with us.
+Added: For example, members of our senior management team have different tax positions
+Added: from Class A common stockholders and from us, which could influence their decisions regarding whether and when to dispose of assets, whether and when to incur new or refinance existing indebtedness, and whether and when we should terminate the tax receivable agreement and accelerate the obligations thereunder.
In addition, the structuring of future transactions and investments may take into consideration the members’ tax considerations even where no similar benefit would accrue to us.
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Holders of our Class A common stock and Class B common stock vote together as a single class on almost all matters submitted to a vote of our stockholders.
−Removed: Shares of our Class A common stock and Class B common stock entitle the respective holders to identical non-economic rights, except that each share of our Class A common stock entitles its holder to one vote on all matters to be voted on by stockholders generally, while each share of our Class B common stock entitles its holder to ten votes until a Sunset becomes
+Added: Shares of our Class A common stock and Class B common stock entitle the respective holders to identical non-economic rights, except that each share of our Class A common stock entitles its holder to one vote on all matters to be voted on by stockholders generally, while each share of our Class B common stock entitles its holder to ten votes until a Sunset becomes effective.
See “Organizational Structure—Class A and Class B Common Stock.” After a Sunset becomes effective, each share of our Class B common stock will entitle its holder to one vote.
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These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.
−Removed: Shares of Class A common stock that were issued in the Reorganization to the original members of HLA who became HLI stockholders owning our Class A common stock are “restricted securities”, and their resale is subject to future registration or reliance on an exemption from registration.
+Added: Shares of Class A common stock that were issued in connection with our IPO to the original members of HLA who became HLI stockholders are “restricted securities”, and their resale is subject to future registration or reliance on an exemption from registration.
The approximately 14.2 million shares of Class A common stock issuable upon exchange of the Class B units and Class C units that are held by Class B Holders and Class C Holders will be eligible for resale from time to time, subject to certain exchange timing and volume and Securities Act restrictions.
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We expect to cause HLA to make distributions to its members, including us.
−Removed: However, the ability of HLA to make such distributions will be subject to its operating results, cash requirements and financial condition, restrictive covenants in the Loan Agreements and applicable Pennsylvania law (which may limit the amount of funds available for distribution to its members).
+Added: However, the ability of HLA to make such
+Added: distributions will be subject to its operating results, cash requirements and financial condition, restrictive covenants in the Loan Agreements and applicable Pennsylvania law (which may limit the amount of funds available for distribution to its members).
Our ability to declare and pay dividends to our stockholders is likewise subject to Delaware law (which may limit the amount of funds available for dividends).
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While we have elected in our certificate of incorporation not to be subject to Section 203 of the DGCL, our certificate of incorporation contains provisions that have the same effect as Section 203 of the DGCL, except that they provide that HLAI, its affiliates, groups that include HLAI and certain of their direct and indirect transferees will not be deemed to be “interested stockholders,” regardless of the percentage of our voting stock owned by them, and accordingly will not be subject to such restrictions.
−Removed: The provision of our certificate of incorporation requiring exclusive venue in the Court of Chancery in the State of Delaware for certain types of lawsuits may have the effect of discouraging lawsuits against our directors and officers.
−Removed: Our certificate of incorporation requires, to the fullest extent permitted by law, that (1) any derivative action or proceeding brought on our behalf, (2) any action asserting a claim of breach of a fiduciary duty owed by any of our current or former directors, officers or stockholders to us or our stockholders, (3) any action asserting a claim arising pursuant to any provision of the DGCL or our certificate of incorporation or bylaws, (4) any action to interpret, apply, enforce or determine the validity of our certificate of incorporation or bylaws or (5) any action asserting a claim governed by the internal affairs doctrine may be brought only in the Court of Chancery in the State of Delaware.
−Removed: Although we believe this provision benefits us by providing
−Removed: increased consistency in the application of Delaware law in the types of lawsuits to which it applies, the provision may have the effect of discouraging lawsuits against our directors and officers.
+Added: The provision of our certificate of incorporation requiring exclusive venue in the Court of Chancery in the State of Delaware or in the federal district courts of the United States of America for certain types of lawsuits may have the effect of discouraging lawsuits against our directors and officers.
+Added: Our certificate of incorporation requires, to the fullest extent permitted by law, that (A) the Court of Chancery in the State of Delaware will be the sole and exclusive forum for (1) any derivative action or proceeding brought on our behalf, (2) any action asserting a claim of breach of a fiduciary duty owed by any of our current or former directors, officers or stockholders to us or our stockholders, (3) any action asserting a claim arising pursuant to any provision of the DGCL or our certificate of incorporation or bylaws, (4) any action to interpret, apply, enforce or determine the validity of our certificate of incorporation or bylaws or (5) any action asserting a claim governed by the internal affairs doctrine and (B) the federal district courts of the United States of America will be the sole and exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act.
+Added: Although we believe this provision benefits us by making us less susceptible to forum shopping and providing increased consistency in the application of law, the provision may have the effect of discouraging lawsuits against our directors and officers.
If Hamilton Lane Incorporated were deemed an “investment company” under the Investment Company Act as a result of its ownership of HLA, applicable restrictions could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business.
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If such an assignment occurs, we cannot be certain that HLA will be able to obtain the necessary consents from our funds and other clients, which could cause us to lose the management fees and performance fees we earn from such funds and other clients.
−Removed: Unresolved Staff Comments.
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.