Hello and welcome to the Hamilton Lane Q2 Earnings Call. On the call today from the Hamilton Lane team are Hartley Rogers, Chairman; Mario Giannini, CEO; Erik Hirsch, Vice Chairman; Randy Stilman, CFO; and Karen Greene, Head of Investor Relations. Before the Hamilton Lane team discusses the quarter's results, I want to remind you that they will be making forward-looking statements based on their current expectations for the business. These statements are subject to risks and uncertainties that may cause the actual results to differ materially. For a discussion of these risks, please review the risk factors included in Hamilton Lane's fiscal 2018 10-K. Management will also be referring to non-GAAP measures that they view as important in assessing the performance of the business. Reconciliation of these non-GAAP measures to GAAP can be found in the earnings presentation materials, which are available on the IR section of the Hamilton Lane's website. Please note that nothing on this call represents an offer to sell or a solicitation to purchase interest in any of Hamilton Lane's funds or stock. The Company's detailed financial results will be made available when the 10-Q is filed. Finally, for the call this morning, the Hamilton Lane team will be referencing pages in the earnings release presentation available on the Hamilton Lane IR website and shown on the webcast version of this call. With that, I will turn the call over to Karen Greene, Head of Investor Relations.

Thank you, Sharon, and thanks everyone for joining us. For those of you who I haven't spoken with yet and are wondering where Demetrius is. I joined the Hamilton Lane team several months ago, working closely with Demetrius as he prepared to move back to a senior role on the investment team. I officially transitioned as Head of Investor Relations in early September and I look forward to working with all of you going forward. Turning to Slide 3 of the presentation which provides a summary of our financial performance for Q2 of fiscal year 2019. Year-to-date our revenue from management and advisory fees grew 6% versus the prior year period. This resulted in non-GAAP EPS year-to-date of $0.92 based on over $49 million of adjusted net income. Our GAAP net income year-to-date was approximately $20 million, which translated into GAAP diluted EPS of $0.88. Additionally as in the prior quarter, we declared a quarterly dividend of $21.25 per share, which keeps us on track for our full fiscal year target of $0.85 per share. Before we dive into a deeper review of our Q2 results, we wanted to provide our perspective on the Abraaj situation upfront. And so let me turn the call over to our CEO, Mario Giannini to do that.

Thanks Karen. Let me begin with the fact that while the Abraaj situation may be new for some of you. The private equity industry Hamilton Lane in our clients have been aware of it since early February of 2018, when stories first hit the press about potential cash management issues at Abraaj Holding Company. The Abraaj Holding Company and Management Company went into provisional liquidation in June of this year. That means this earnings call will be our third to occur while the Abraaj situation has been unfolding in the press and the second since the provisional liquidations began. Have you want the effect that Abraaj is not a new situation, because one important question being asked is, has this situation negatively impacted Hamilton Lane's business. And our response is simple. No. So why hasn't Abraaj been an item of discussion prior to today? That answers also simple and our 8-K filing last Thursday explains. This matter is simply not material to our business in any way. So let's turn to what the issue is in our Hamilton Lane is involved. It's alleged that there had been cash management issues and other financial misconduct at the Management Company. The provisional liquidators in the process of attempting to document that and unwind it if they can. There are at least three different investigations happening in/and around the Abraaj situation and none has produced anything definitive. It has also said that the holding company and the management company are insolvent, but that has to do with the condition of the holding company and the management company. Hamilton Lane and our clients are investors in certain Abraaj investment funds, not the management company, not the holding company, and that is a very important distinction as the actual investment funds themselves are not in…

Thanks Mario. Beginning with AUA. Here we saw a decrease in AUA quarter-over-quarter as we saw a single client opted to complete their transition of their asset management to be fully in-house. This client has been very public about their efforts to build out internal resources and has been transitioning towards this goal for years. As we have said before, and we'll say again, AUA is not correlated to revenue as we price based on service level, not assets. For the quarter, our advisory revenue was up slightly compared to the prior quarter despite the loss of the AUA and increased 22% from the prior year period, and no we do not see this insourcing as a trend quite the contrary. Large LPs opting to manage their programs in-house remains the true exception, not the rule. On the AUM side, we saw an increase of 21% versus same period from the prior fiscal year and an increase of 8% year-to-date. Broadly speaking, we are seeing AUM addition come from three types of clients. One, those who are brand new to the asset class; two, those who have chosen to switch service providers; and three, those who previously took an in-house approach to investing in private markets and are now seeking a partner for some or all of their program. We are also continuing to see positive fund flows across different geographies and from different types of investors as we continue to have success with both our specialized fund offerings and our customized separate account solutions. Lastly, over 40% of our revenue comes from clients outside the U.S. and given this number has remained relatively stable over the past several years. It tells you we are seeing similar growth from both inside the U.S. as well as in other markets. On…

Thank you, Erik. Slide 9 of our presentation shows the financial highlights for the quarter. As shown on this slide, we continue to see very solid growth in our business. The total revenue year-to-date up 18% versus the prior year period, management and advisory fees grew 6% versus the prior year period driven by strong results in our customized separate account and advisory and reporting offerings. Revenue from our customized separate accounts offering increased $3.1 million compared to the prior year-to-date period due to the addition of several new accounts and additional allocations from existing accounts. For our advisory and reporting management offerings, we experienced over 20% growth compared to the prior year-to-date period driven by new client adds and our advisory back office reporting and technology and analytics offerings. Our specialized funds revenue was down slightly from the prior year-to-date due to significant retroactive fees and the first half of last year from our latest secondary fund. As many of you are likely aware, investors that come into later closes of the fund raised for many of our products, pay retroactive fees dating back to that funds first close. Therefore, you typically see a spike in management fees related to that fund for the quarter and which subsequent closes occur. For the current period, we had retro fees of $800,000 from our co-investment fund currently in the market. The final component of our revenue is incentive fees. Incentive fees were up more than $11 million from the prior year period. The increase was driven by the recognition of carried interest from a customized separate account that included the GP catch-up. And, one of our co-investment funds in a cash carried position. Incentive fees for the second quarter were $2.6 million, which keeps us on pace for our fiscal year…

[Operator Instructions] Your first question comes from Ken Worthington with JPMorgan. Your line is open.

Hi. Good morning and thank you for taking my questions. Maybe first the sales pipeline in the separate account business, if possible, can you give us some color as to which asset classes or investment regions are of greatest interest to your investors right now? And if possible, highlight any deviations from the specialized fund side where we have more visibility?

Sure. Ken, it's Mario. I would say that there continues to be a strong interest on the credit side. We've noted that in the past on a number of calls. I would say that continues to be of great interest and I think with the view that interest rates are likely to rise, I think that probably is part of it. And I think what we've talked about before a number of investors are under allocated on the private credit side, given that they're trying to move more from private from public credit into private credit. But I would say that beyond that, there's no single area where there's a huge - where we look at it and go, wow, this is really more than in any other either area or geography. I would say within the client mix where we continue to see an increasing amount of interests in the high net worth channel where a lot of either ultra wealthy or very high net worth family offices that kind of profile continue to want to be invested in private markets. So I would say that is probably a continuing trend, but noticeable.

Great. Thank you. And then on Abraaj, I don't know if you can answer these, but maybe when did you stop recommending Abraaj and how many investors or maybe what level assets did you advise your clients to commit to the canceled Abraaj Fund VI? And then maybe lastly, I know you said the clients are not upset at this point as the Abraaj insolvency process continues, is there anything that could emerge that might change that sort of sanguine investor sentiment? Thank you.

Sure. Ken, it's Erik. Let me take those in pieces. So with regards to Abraaj Fund VI, as you've seen broadly reported in the press, the fund manager released the commitments, rescinded the commitments to that from investors. Our exposure to that was broken into two categories, as you would expect, both discretionary and advisory. Four clients on the discretionary side, three clients on the advisory side that we helped them do the work, although as you know, in that world, they in turn do their own diligence and make their own decision. So seven entities totaling $520 million, $370 million from advisory, $150 million from discretionary. But as again, as noted, those capital commitments at this point have been rescinded by the GP and that fundraising ended as a result of that. I think as to your second point, I wouldn't categorize I think any time when there's a manager who is troubled, certainly everyone is upset by that. So I think from the client's standpoint, they're extremely focused on the situation. They're very keenly aware of the situation and all of us are anxious to see the situation resolved as quickly as possible and making sure those assets are moving into appropriate responsible hands. That's the focus. That's been the focus. That will remain the focus until that issue was resolved. And I think that that is really where the client's heads are today is making sure that we and they are doing everything possible to ensure that happens.

Great. Thank you very much.

Your next question comes from Michael Cyprys with Morgan Stanley. Your line is open.

Hey, good morning. Thanks for taking the question. I think in the presentation you mentioned about 70% of your gross contributions in the last 12 months came from existing customers. It sounded like in your prepared remarks that you would expect that a lot of the flows to continue to come from existing clients. Just curious how that compares versus a few years ago and relative to where ideally you would like that to be and if you could also touch upon the number of products that your average customer has, how that's been trending and where you'd like that to be as well?

Sure. Mike, it's Erik. Thanks for the question. I think as we said in the comments, right now it's a 70 slash 30 ratio between that new separate account revenue coming from the current install base and then 30% coming from simply brand new relationships. I think what we would say is, frankly as the Company has been for the last several years, the install base is very big and given that basically impossible for the new clients in any particular quarter to overtake what you're seeing in terms of re-ups from the existing. So I think that's not surprising. I think what is noteworthy, which is what we highlighted is despite an incredibly high re-up rate and a lot of existing support from the current customer base, the fact that we're still able to drive really significant brand new revenue from brand new relationships, and obviously once we land them, then they move over into that install base, further driving that organic growth. So I think for us, there's not a question of targeting a particular ratio, I think what we highlighted is really what we're focused on. Number one, keep the current clients happy, keep them engaged and keep those relationships growing. And number two, make sure that we are continuing to add to that install base by going around the world and finding new relationships. The fact that those are continuing to come from different types of institutions, across different geographies and as Mario pointed out with different mandates and areas of focus. We think is all terrific as a disorder of adds to the diversification of the business. Your second point, it really ranges by customers. Obviously our top 20 customers, the bulk of them, 90% or more have a multi-revenue relationship with us. So they might have a separate account and a product or they might have a back office plus a separate account plus an advisory or some combination there in. I think for us it really goes to the fact that we're trying to make sure that we're able to provide a full array of services to our customers to make sure that we're meeting whatever needs they have. Some of the separate account clients are taking care of transactional exposures, i.e. secondaries and co-investments inside of their separate accounts and they're not finding a need to utilize the products. That's fine. They might need or want a more customized experience. But as you're seeing, as our carry base is growing that transactional exposure is just furthered adding to our diversity of carry generating dollars. So you're still seeing that growing in multiple different ways.

Great, thanks. And just as a follow-up question on abroad, just couldn't resist the question here, just is there anything that you would do differently, given hindsight today, I guess twofold, one with respect to your funds and the diligence process, were there any sort of red flags that maybe as you're kind of looking back come to mind and is there anything that you would do differently as it relates to communication more broadly, just given the volatility in your share price?

Sure. It's Erik again, Mike. Obviously for the first question, it's something that we have asked ourselves, clients have asked us and we've discussed with them. I think at this point we would say our diligence process was incredibly thorough. It was very lengthy, went on for months and resulted in the exchange of just numerous documents. I think it's difficult to answer. And so from that end, we would say we feel like we did an incredibly detailed, thorough job. I think it's hard to go further on that today given that we don't know at this point because none of the investigations or audits are completed as to what is ultimately being an alleged the deck happened or didn't happen. But at this point, I think we really stand by our diligence. We stand by the thoroughness of it. We stand by the length of time and we also stand by the fact that we were surrounded in that situation by numerous other very sophisticated investors who like us had gone through a very lengthy diligent process to go that that manager. I think as we continue to learn more about the situation, we will certainly be introspective about that and making sure that our diligence processes are - as they are today, kind of top of the line and making sure that we're holding that high standard. As to your second question, certainly in hindsight, everything looks very different. I think based on the reaction to the story last week, as we noted, this was nothing new to our customer base. We knew what our exposure was not material. We knew what the client reaction had been, which had not been negative. Again, you'd seen the earnings flow. I think the fact that certainly from the public investor standpoint, people were surprised, I think will cause us to sort of rethink and again be introspective about that in terms of how we communicate and making sure that we're being as proactive as possible going forward.

Great. Thank you.

Your next question comes from Robert Lee with KBW. Your line is open.

Great. Thanks. Thanks for taking my questions. I just wanted to maybe ask a question about the denominator effect. I mean clearly as you pointed out there's a lot of demand coming from existing clients as they kind of have to almost like chase their own applications to some degree and the relapse. But and I'm sure I know it's very idiosyncratic to each client, how do you think of the risk from the denominator effect if, you continue to have kind of a weak equity markets are weak asset values for a while and that puts some pressure on kind of a client's overall asset base. I mean, do you think there's, do you have much concern or any sense of kind of what it would take for that, for those relapse to slow, just as clients have to deal with their own allocations?

Rob, it's Mario. I'd say a couple of things on that. We did experience a decline in the 2008, 2009 timeframe and as you've seen from our financial results. The impact was fairly muted and we grew coming out of that. And I think it reflects a couple of things. There's no question that the denominator effect is real and if you have a lower denominator, you're going to be investing less because your allocation target is reduced. However, one of the big factors driving the demand private markets is that people are expanding what is private market. So as I mentioned before, private credit becomes part of it real assets. I think that what people have not finished doing in any way is shifting their allocation from this better than I do. They put a big chunk of their portfolio in passive publics and an increasingly large part of their portfolio in the liquids and that helps whether it's private equity or credit or real assets. So I think there's that factor. The other factor I think that you are beginning to see is people are not chasing their allocation targets today. They're being fairly disciplined about not doubling their commitment level to reach an allocation targets with the very clear understanding that they will continue to invest as markets move down. I think that was one of the big lessons from both and 2001 and from 2008. So as we look at that, I think the general market weakness has not translated into people continuing to invest or new entrants coming in. In fact, we've said this on prior calls. You told us the markets were going to go down for the next year. I think that it would be a very interesting environment for a lot of private investors to get better valuations. So I'm not at all pretending that it would have no impact, but I think that the impact would not be a very dramatic at all. And these other factors would drive some of the demand up.

Great. Thank you. And maybe the follow-up, I guess I had a question on how you think about sizing your specialized funds. I mean, and they know different managers have different strategies so that maybe apples to oranges, but you do hear about some other competitors raising secondary funds and at least in different places of multi billions, $3 billion, $4 billion, and $5 billion possibly of size. And clearly your fund sizes have been growing, but it's certainly are more moderate magnitude. So I mean, how do you think about that as a just kind of your comfort level with deploying the capital? Is it your current investor base? I mean, how do you kind of think about the ability to kind of really scale up over the coming years?

Thanks Rob. It's Erik. I would say this is certainly one of the things that we look at very positively as a great opportunity for us in certain market segments and it does vary by segment. In some cases we are considered one of the larger players. Certainly we are becoming one of that on kind of that credit co-investing side or even the equity co-investing side, and in other parts of the market more like the secondary space. We are a small to midsize player and so we look at that as a great opportunity and a lot of room to run. The way we think about sizing the products, I think is really a combination of we believe, again, the first thing first is to make sure we're doing a great job with the client's capital. And so I want to make sure that we're not growing ahead of either the market opportunity or our investment and capacity. But what you have seen, and I think what we expect to continue to see is those funds are sort of steadily increasing in size over time. They're just not simply massively jumping overnight. I think for us, this is again a longer build story and making sure that you're doing it in a way that you ingest that capital responsibly and deliver to the clients' superior results. And so from our perspective, that's where we're focused, but again, we look at this as great. We have a lot of room to run, a lot of interesting opportunity ahead of us. We want to make sure we do a good job exploiting that.

Great. That was it. Thanks for taking my questions.

Thank you.

Your next question comes from Alex Blostein with Goldman Sachs. Your line is open.

Hey. Good morning, guys. Couple of questions. I guess the first on the fundraising dynamic, so separate managed accounts, the gross contributions I think are up nearly 20% year-to-date versus where you are in 2017. Can you discuss what the asset allocation trends look like in those categories and how they may differ from the last 12 months?

Sure. Alex, it's Erik. Thanks. I think what you're seeing - I don't think that growth is reflecting a change in any individual customer sort of perspective on asset allocation. I think what Mario addressed earlier is what we would point to is the longer trend, which is I think you are seeing a real shift from some categories in the public markets to the private markets. I think if you look at surveys from any of the leading consulting firms, Bain, McKinsey, et cetera, what you're seeing is unexpected trend line of not only growing denominator over time and again around the world, but also an increasing allocation to the private markets. I think for us it really is a combination of - there's just a bigger pool of clients to hump from. Those clients generally have growing asset bases. Their interest in the asset class is continuing to grow. And in Mario's earlier point, which is really critical, which is that the way the asset class is defined and all the sub sectors that it incorporates is growing significantly. So if you were here 10 years ago, we wouldn't have been talking much about private credit. We would not have been talking much about infrastructure or real estate that is all now a much bigger part of the asset class, more broadly defined and that's helping to further that flow of funds.

Got it. And then just a question on the carry and incentive income, so obviously very nice buildup in the balances here and we kind of look at where that sits in terms of the maturity and the vintage responded, continues to kind of get older. I know it's tough to predict, but any sense of how we should think about the pace of that carry coming out and showing up in the earnings for you guys over the next kind of 12 months?

Yes, sure. It's Erik, again. The number that we're most focused on is what you mentioned, which is kind of watching the bill. That's frankly the part that we can control. So we can add to those carry generating dollars by adding new clients and by adding the number of investments that we're doing. And the second way we can add to that is by making sure that we're picking good investments that are appreciating on an unrealized basis. So we most focused on that because those are the pieces that we can control. As you know, we don't get to control the timing of the liquidity. But your point is spot on, which is as you see those assets age and certainly a couple of our key products are getting to that kind of average weighted - that weighted-average life of a point in time when you'd expect to see a lot of that rollover, and so historically when we've seen some quarters that are a little lighter, that would foreshadow increase going forward in the future to kind of make the math. I'll work as those dollars eventually have to come out. So I think difficult for us to predict quarter-by-quarter. I think we would say we're continuing to see liquidity. We're continuing to see money getting returned and we're continuing to see the base of that grow very nicely.

Great, thanks for taking the questions.

Your next question comes from Chris Harris with Wells Fargo. Your line is open.

Thanks guys. On Abraaj, you're drawing an important distinction here between the Holding Company and the funds, as far as you guys know, I know there's still audits going on, but our - there any as far as you know, where all the fund assets there at this point?

Yes, Chris, it's Erik. So as you said, this is a very fluid ongoing situation. The formal reporting mechanisms that we received have indicated that the assets are there. And so the focus today, as we mentioned in the sort of the prepared remarks are really around the hold co in the management company, not around the funds. The focus on the funds is that to the extent that this is obviously not going to be a viable ongoing manager, we and all the other LPs and the various Abraaj products are focused on getting in a good set of hands to make sure that those assets are being managed. That's why the LP focuses on that, whereas the regulator focus right now is disproportionately on the Holdco Management Company.

Okay. Appreciate that. And then if there ended up being some losses tied to abroad, is there any risk involving potential reimbursements to clients from that?

Yes, Chris is Erik again. That's certainly not where our head is today. I think from perspective as we said, we did our job. We work diligently. We were very thorough and at this point, I think we on all the other investors are moving forward with the notion that get these assets into the right hands and making sure those are harvested successfully, and so that's not what we think is a focus today.

Understood. Thank you.

At this time, I will turn the call over to the presenters.

Thank you for the time today. We appreciate you all dialing in. We thank you for the questions and with that, have a good day.