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Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K. This filing is -0.04pp more bearish than last year's.
Why YoY instead of absolute: the LM lexicon has ~6.6× more negative words than positive (legal/risk-disclosure language is heavy on hedging), so every 10-K reads bearish on raw tone. Year-over-year change strips that bias and surfaces the actual shift in management's framing.
Tone shift by section
The two components the gauge averages: how Risk Factors and MD&A each shifted in net tone versus last year's 10-K. The headline above is their average, so a green needle over a soft section just means the other section carried it.
Risk Factors
-0.21pp
Flat
Net-tone change vs last year's 10-K.
MD&A
+0.12pp
Flat
Net-tone change vs last year's 10-K.
Per-snippet highlights
Sentence-level sentiment highlighting with category and subcategory filters is coming once the snippet-scoring pipeline lands. For now, dig into the actual section text on the Sections tab.
Language change vs prior 10-K
Risk Factors (Item 1A) - words with the biggest YoY frequency increase
Negative rising
adversely+11
adverse+9
loss+7
penalties+5
litigation+5
Positive rising
opportunities+3
successful+3
able+2
greater+2
opportunity+2
Risk Factors (Item 1A)
31,115 words
Item 1A. Risk Factors
In addition to the other information set forth in this Form 10-K, you should carefully consider the following factors, which could materially affect our business, financial condition or results of operations. The risks described below are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may negatively affect our business, financial condition or results of operations.
Risks Related to Our Business
The historical performance of our investments should not be considered as indicative of the future results of our investments or our operations or any returns expected on an investment in our Class A common stock.
Past performance of our specialized funds and customized separate accounts or the investments that we recommend to our advisory clients is not necessarily indicative of future results or of the performance of our Class A common stock. An investment in our Class A common stock is not an investment in any of our specialized funds or customized separate accounts. In addition, the historical and potential future returns of specialized funds and customized separate accounts that we manage are not directly linked to returns on our Class A common stock. Therefore, you should not conclude that continued positive performance of our specialized funds, customized separate accounts or the investments that we recommend to our advisory clients will necessarily result in returns on an investment in our Class A common stock. However, performance of our specialized funds or customized separate accounts could cause a in our revenue, and could therefore have a effect on our performance and on returns on an investment in our Class A common stock.
Language change vs prior 10-K
MD&A (Item 7) - words with the biggest YoY frequency increase
Negative rising
clawback+1
against+1
limitations+1
persisted+1
conflicts+1
Positive rising
opportunities+3
attractive+2
gain+1
favorable+1
greater+1
MD&A (Item 7)
14,227 words
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following information should be read in conjunction with the accompanying consolidated financial statements and related notes. See “Index to Consolidated Financial Statements of Hamilton Lane Incorporated.”
The following discussion may contain forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and elsewhere in this Form 10-K, particularly in “Risk Factors”, the “Summary of Risk Factors” and the “Cautionary Note Regarding Forward-Looking Information.” Unless otherwise indicated, references in this Annual Report on Form 10-K to fiscal 2026, fiscal 2025 and fiscal 2024 are to our fiscal years ended March 31, 2026, 2025 and 2024, respectively.
This section of this Form 10-K generally discusses fiscal 2026 and fiscal 2025 items and year-over-year comparisons between fiscal 2026 and fiscal 2025. A detailed discussion of fiscal 2024 items and year-over-year comparisons between fiscal 2025 and fiscal 2024 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” in Part II, Item 7. of our Annual Report on Form 10-K for the fiscal year ended March 31, 2025, as filed with the SEC on May 30, 2025.
Business Overview
We are a global private markets investment solutions provider and operate our business in a single segment. We offer a variety of investment solutions to address our clients’ needs across a range of private markets, including private equity, private credit, direct equity, real estate, infrastructure, other real assets, growth equity, venture capital and impact. These solutions are constructed from a range of investment types, including primary investments in funds managed by third-party managers, direct investments alongside such funds and acquisitions of secondary stakes in such funds, with a number of our clients utilizing multiple investment types. These solutions are offered in a variety of formats covering some or all phases of private markets investment programs:
The historical performance of our funds should not be considered indicative of the future performance of these funds or of any future funds we may raise, in part because:
• market conditions and investment opportunities during previous periods may have been significantly more favorable for generating positive performance than those we may experience in the future;
• the performance of our funds is generally calculated on the basis of NAV of the funds’ investments, including unrealized gains, which may never be realized;
• our historical returns derive largely from the performance of our earlier funds, whereas future fund returns will depend increasingly on the performance of our newer funds or funds not yet formed;
• our newly established funds may generate lower returns during the period that they initially deploy their capital;
• in recent years, there has been increased competition for investment opportunities resulting from increased amount of capital invested in the private markets, which may increase the cost and reduce the availability of suitable investments, thereby reducing our investment returns in the future;
• a fund could face a sudden, unexpected or sustained influx of redemption or repurchase requests from investors, which could result in such fund selling off assets to accommodate these requests and/or such fund having to pro rate redemption or repurchase requests (which may further constrain new subscriptions);
• the performance of particular funds will also be affected by risks of the industries and businesses in which they invest; and
• 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.
Our success largely depends on the identification and availability of suitable investment opportunities for our clients, and in particular the success of funds in which our specialized funds, customized separate accounts and advisory accounts invest. The availability of investment opportunities will be subject to market conditions and other factors outside of our control and the control of the private markets fund managers with which we invest. For example, markets in the last few years experienced meaningful headwinds, including elevated interest rates and volatile geopolitical conditions. Past returns of our specialized funds, customized separate accounts and advisory accounts have benefited from investment opportunities and general market conditions that may not continue or reoccur, including favorable borrowing conditions in the debt markets during such historical periods, and there can be no assurance that our specialized funds, customized separate accounts, advisory accounts or the underlying funds in which we invest will be able to avail themselves of comparable opportunities and conditions. There can also be no assurance that the private markets funds we select will be able to identify sufficient attractive investment opportunities to meet their investment objectives. Further, the due diligence investigations we conduct before recommending investments to our clients may not uncover all facts relevant to the suitability of such opportunities. See “—The due diligence process that we undertake in connection with investments may not reveal all facts that may be relevant in connection with an investment” for more information on the risks we face in connection with the due diligence process.
If the investments we make on behalf of our specialized funds or customized separate accounts perform poorly, we may suffer a decline in our investment management revenue and earnings, and our ability to raise capital for future specialized funds and customized separate accounts may be materially and adversely affected.
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, including carried interest and performance fees, with respect to certain of our specialized funds and customized separate accounts, and monitoring and reporting fees. In the event that our specialized funds, customized separate accounts or individual investments perform poorly, our revenues and earnings derived from incentive fees and certain management 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. 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, 2025. Decreases in public markets and credit indices as well as decreases in current or future estimated performance of underlying portfolio companies in quarters ending after that date may result in negative valuation adjustments that will be reported on a three-month lag in accordance with our accounting policy. Adverse investment valuations directly impact our investments, equity in income of investees, unrealized carried interest, AUM and AUA for the period. In addition, if carried interest that was previously distributed to us exceeds the amounts to which we are ultimately entitled, we may be required to repay that amount under a “clawback” obligation. The risk of clawback can occur as a result of diminished investment performance. If we are unable to repay the amount of the clawback, we would be subject to liability for a breach of our contractual obligations. If we are unable to raise or are required to repay capital, our business, financial condition and results of operations would be materially and adversely affected.
Finally, the portfolio companies and other investments held by our specialized funds and customized separate accounts involve significant business and financial risk. For example, portfolio companies may experience negative financial results for a variety of reasons. These include, but are not limited to: restructurings, bankruptcy, reorganization or liquidation, insolvency or related bankruptcy proceedings due to defaults on indebtedness, mismanagement, litigation, enforcement actions or fraud, which could reduce investment returns realized by our specialized funds and customized separate accounts. Portfolio companies and other investments are also subject to risks associated with general market and geopolitical conditions, such as market downturns, inflation, public health emergencies and regional instability. In addition, a fund may invest in a portfolio company with a limited operating history, and there is no guarantee that the
information or reports provided to the fund’s advisor with respect to the portfolio companies will not be fraudulent, inaccurate or incomplete, which could adversely impact the value of an investment in the fund.
A sudden and/or substantial decrease in price of one of our investments due to, for example, negative performance, could materially impair our specialized fund or customized separate account performance, an outcome that would be amplified in funds or accounts that hold no other or relatively few investments. Such events could negatively affect our operating results and reputation and could result in heightened scrutiny and criticism of our business and investments.
Competition for access to investment funds and other investments we make for our clients is intense.
We seek to maintain excellent relationships with general partners and managers of investment funds, including those in which we have previously made investments for our clients and those in which we may in the future invest, as well as sponsors of investments that might provide direct investment opportunities in portfolio companies alongside the sponsoring fund manager. However, because of the number of investors seeking to gain access to investment funds and direct investment opportunities managed or sponsored by the top performing fund managers, there can be no assurance that we will be able to secure the opportunity to invest on behalf of our clients in all or a substantial portion of the investments we select, or that the size of the investment opportunities available to us will be as large as we would desire or that the terms of the investments will be as favorable as we have come to expect. Access to secondary investment opportunities is also highly competitive and is often controlled by a limited number of general partners, fund managers and intermediaries.
Customized separate account and advisory account fee revenue is not a long-term contracted source of revenue and is subject to intense competition.
Our revenue in any given period is dependent on the number of fee-paying clients and corresponding level of AUM/AUA in such period. Our customized separate account and advisory account business operates in a highly competitive environment where typically there are no long-term contracts. While clients of our customized separate account and advisory account businesses may have multi-year contracts, many of these contracts are terminable upon 30 to 90 days’ advance notice to us. We may lose clients as a result of a change in ownership, control or senior management, a client’s decision to transition to in-house asset management rather than partner with a third-party provider such as us, competition from other financial advisors and financial institutions, changes to their investment policies and other causes. Isolated departures have occurred in the past but have not had a material impact on our business. Moreover, a number of our contracts with state government-sponsored clients are secured through such government’s mandated procurement process, and are subject to periodic renewal. If multiple clients were to exercise their termination rights or fail to renew their existing contracts and we were unable to secure new clients or maintain our levels of AUM/AUA, our customized separate account and advisory account fees would decline materially. A significant reduction in the number of fee-paying clients and/or AUM/AUA levels in any given period could reduce our revenue and materially and adversely affect our business, financial condition and results of operations.
Our failure to deal appropriately with conflicts of interest could damage our reputation and materially and adversely affect our business.
As we expand the scope of our business, as well as the investor channels through which our products are offered, we increasingly confront potential and actual conflicts of interest relating to our advisory and investment management businesses. For example, we may recommend that various advisory clients invest in specialized funds managed by us. Additionally, allocating investment opportunities appropriately frequently involves significant and subjective judgments, and the risk that allocation decisions could be challenged as inconsistent with our obligations under applicable law, governing fund agreements or our own policies cannot be eliminated. It is possible that actual, potential or perceived conflicts could give rise to investor dissatisfaction, litigation or regulatory enforcement actions. As a registered investment advisor, we owe our clients a fiduciary duty and are required to provide disinterested advice. Furthermore, as we form and launch more registered investment companies under the Investment Company Act, the risk of triggering potential issues under Section 17 of the Investment Company Act, which prohibits certain transactions between registered investment companies and their affiliates, increases. Identification of the affiliates affected by Section 17 is complex, and at times, subject to interpretive judgment. The SEC may disagree with our interpretation of these prohibitions, heightening our regulatory risks and the risk that an investor and/or a regulator could claim that a transaction violated these rules.
Appropriately dealing with conflicts of interest is complex and difficult and our reputation could be damaged if we fail, or appear to fail, to deal appropriately with one or more potential or actual conflicts of interest. Regulatory scrutiny of, or litigation in connection with, conflicts of interest could have a material adverse effect on our reputation, which could materially and adversely affect our business in a number of ways, including an inability to raise additional funds, attract new clients or retain existing clients.
We have obligations to investors in our specialized funds and customized separate accounts and may have obligations to other third parties that may conflict with your interests.
Our subsidiaries that serve as the general partners of or advisors to our specialized funds and customized separate accounts have fiduciary and contractual obligations to the investors in those funds and accounts, and some of our subsidiaries may have contractual duties to other third parties. 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. 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.
Our ability to retain our senior management team and attract additional qualified investment professionals is critical to our success.
Our success depends on our ability to retain our senior management team and to recruit and retain additional qualified investment, sales and other professionals. However, we may not be successful in our efforts, as the market for investment professionals is extremely competitive. The individuals that comprise our senior management team possess substantial experience and expertise and, in many cases, have significant relationships with certain of our clients. Accordingly, the loss or prolongedabsence of any one of our senior management team or other key personnel could adversely affect certain client relationships, reduce our productivity or limit our ability to successfully execute our investment strategies, which, in turn, could have a material adverse effect on our business, financial condition and results of operations. 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 either 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. Senior managing directors have left the firm in the past and others may do so in the future. While we cannot predict the impact that the departure of any single senior managing director will have on our ability to achieve our investment objectives, any change to our senior management team could materially and adversely affect our business, financial condition and results of operations. 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. We also expect to continue to invest both in maintaining our corporate culture and in recruitment activities that serve to increase our pipeline of qualified candidates. If we are not successful in maintaining our culture, we may not be successful in retaining our personnel, and the costs to recruit, train, and retain qualified professionals may increase and adversely impact our profitability. In addition, we may not be able to find suitable successors promptly or be successful in integrating them.
Lastly, 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.
We intend to expand our business and may formulate new business strategies, offer new products or services or enter into new geographic markets or strategic partnerships, which may result in additional risks and uncertainties in our business.
We currently generate substantially all of our revenue from asset management and advisory services. However, we have grown, and intend to continue to grow, our business by offering additional products and services, by formulating new business strategies, by entering into, or expanding our presence in, new geographic markets and by entering into strategic partnerships and corporate investments. These activities have and could continue to increase our operational costs and subject us to new laws and regulations with which we are not familiar, or from which we are currently exempt, which may lead to increased litigation and regulatory risk. For example, we have recently undertaken business initiatives to reach an increasing number of retail investors in the United States and around the world, including by offering tokenized access to certain of our funds, launching additional evergreen funds, introducing daily-priced interval funds, and establishing new vehicles intended for EEA retail investors and Asia-Pacific investors. These initiatives, as well as our tokenization and digital-distribution initiatives, exposes us to greater levels of risk, including heightened litigation, regulatory enforcement and reputational risks, while also increasing our compliance burden and requiring more complex administration and accounting operations. In addition, distribution of retail products, including through tokenization and digital distribution, whether directly or through market intermediaries, can be complex and could expose us to allegations of improper conduct and/or actions by regulators within and outside the United States with respect to, among other things, product suitability, investor classification, compliance with securities laws, conflicts of interest or the adequacy of disclosure.
To the extent distribution of our retail or other products is through new channels and markets, including through an increasing number of distributors with whom we engage, we may not be able to effectively monitor or control the manner of their distribution, which could result in claims that products distributed through such channels are distributed to customers for whom they are unsuitable or that they are distributed in an otherwise inappropriate manner. Although we engage in due diligence and onboarding procedures that seek to uncover issues relating to the third‐party channels through which individual investors access our investment products, we do not control and have limited information regarding many of these third‐party channels. Therefore, we are exposed to the risks of reputational damage, regulatory scrutiny and legal liability to the extent such third parties improperly sell our products to investors or otherwise act improperly. These risks have increased as we have increased our third-party distribution partnerships. In addition, such third-
parties could seek to modify our products or offer new products while using our name and brand without our permission, creating increased risk of reputational and brand damage.
In addition, our evergreen funds contain terms that permit investors to request redemption or repurchase of their interests on a periodic basis, subject to certain limitations, including limits on the aggregate amount of such interests that may be redeemed or repurchased in a given period. Challenging market or economic conditions, negative media coverage, changes in intermediary recommendations, increased competition from substitute products and liquidity needs could cause elevated redemption or repurchase requests from investors in such products, which can limit the amount of such redemption or repurchase requests that are fulfilled. We may redeem or repurchase fewer interests than requested or suspend redemptions or repurchases entirely. Such limitations may subject us to reputational harm and may make such vehicles less attractive to investors, which could have a material adverse effect on the cash flows of such vehicles. This may in turn negatively impact the revenues we derive from such vehicles. For more information on the risks associated with our evergreen funds, see “—The exercise of redemption or repurchase rights by investors in our evergreen funds may adversely affect our revenues.”
To the extent we introduce new types of investment structures, products or services, we will face numerous risks and uncertainties, including risks associated with the possibility that we have insufficient expertise to engage in such activities profitably or without incurring inappropriate amounts of risk, that we do not have the required investment of capital and other resources and that we could potentially lose clients due to the perception that we are no longer focusing on our core business. Further, the expansion into new geographies and strategies (including making products available on the blockchain and through tokenization and digital securities exchanges) and the launch of daily-priced vehicles has demanded greater management attention and dedication of resources to manage the increasing complexity of operations and regulatory compliance, thereby increasing the risk of litigation and regulatory enforcement actions being brought against us. Our initiatives to expand our retail investor base, including outside of the United States, requires the investment of significant time, effort and resources, including the hiring of additional personnel, upfront costs in connection with distribution through wirehouses, the implementation of new operational, technological, compliance systems and processes and the development of valuation and liquidity-management frameworks tailored to registered funds and daily-priced products. There is no assurance that our efforts to further grow the assets we manage on behalf of retail investors will be successful. Further, in light of the August 2025 Executive Order on Democratizing Access to Alternative Assets for 401(k) Investors, there may be significant future opportunity for the alternative asset management industry to increase the distribution of products to retail investors through 401(k) accounts. We are likely to face significant competition in addressing such opportunity, which could require us to spend substantial time, effort and resources, and may not ultimately be successful in increasing distribution of our products in this channel. In addition, such expansions increase various risks including the potential for litigation and regulatory scrutiny, oversight or disclosure requirements.
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 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. In the past, we have supplemented our balance sheet capital for this purpose with proceeds of privately placed debt, and we may choose to issue additional debt in the future to further supplement our capital. 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 explored, 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 or issue shares of Class A common stock to do so. There can be no assurance that we will successfully identify, negotiate or complete such transactions, that any completed transactions will produce favorable financial results or that we will be able to successfully integrate an acquired business with ours. Further, our strategic initiatives include the acquisition of minority interests in third parties, in
which case we will be subject to additional risks and uncertainties in that we may be dependent upon, and subject to liability for, losses or reputational damage relating to, systems, controls and personnel that are not under our control. In addition, if we choose to issue equity to fund an acquisition, our stockholders may experience dilution.
In addition, certain aspects of our cost structure, such as costs for compensation, occupancy leases, communication and information technology services, and depreciation and amortization are largely fixed, and we may not be able to timely adjust these costs to match fluctuations in revenue related to growing our business. If we are unable to efficiently manage our expanded operations, our business, financial condition and results of operations could be materially and adversely affected.
A decline in the pace or size of fundraising or investments made by us on behalf of our specialized funds or customized separate accounts may adversely affect our revenues.
The revenues that we earn are driven in part by the amount of capital committed by our clients for investment, our fundraising efforts and the pace at which we make investments on behalf of our specialized funds and customized separate accounts. Declines in the pace or the size of fundraising efforts or investments reduce our revenues. The private markets investing environment continues to see increased competition and elevated interest rates, which can make fundraising and the deployment of capital more difficult. In addition, many other factors cause declines in the pace of investment, including a market environment characterized by high prices or uncertainty, the unavailability of suitable opportunities for investors and clients to exit existing investments and redeploy realized capital into new investments, the inability of our investment professionals to identify attractive investment opportunities and decreased availability of financing on attractive terms or decreased availability of investor capital, including potentially as a result of a challenging fundraising environment or heightened requests for redemptions or repurchases in our evergreen funds. Further, we may fail to consummate identified investment opportunities because of business, regulatory or legal complexities or uncertainty and adverse developments in the U.S. or global economy, financial markets or geopolitical conditions, and our ability to deploy capital in certain countries may be adversely impacted by U.S. and foreign government policy changes and regulations. In addition, if we are unable to deploy capital at a pace that is sufficient to offset the pace of realizations, our fee revenues could decrease.
For our specialized funds and customized separate accounts that charge fees based on invested capital, such a decline in the pace of investments may reduce our revenue more acutely. In addition, fees based on invested capital may create an incentive to make investments earlier in the specialized fund’s or customized separate account’s life than it otherwise would if fees were charged based purely on capital commitments, which has more predictability for revenues.
Our indebtedness may expose us to substantial risks, including to the extent we fail to comply with certain covenants, and our cash balances are exposed to the credit risks of the financial institutions at which they are held.
We maintain a Term Loan and Security Agreement (as amended, the “Term Loan Agreement”), a 2020 Multi-Draw Term Loan and Security Agreement (as amended, the “2020 Multi-Draw Term Loan Agreement”), a 2022 Multi-Draw Term Loan and Security Agreement (the “2022 Multi-Draw Term Loan Agreement”) and a Revolving Loan and Security Agreement (as amended, the “Revolving Loan Agreement” and, together with the Term Loan Agreement, the 2020 Multi-Draw Term Loan Agreement and the 2022 Multi-Draw Term Loan Agreement, the “Loan Agreements”) with JPMorgan Chase & Co. (“JPMorgan”). Additionally, in 2024, we issued $100,000,000 aggregate principal amount of 5.28% senior notes due October 15, 2029 (the “Senior Notes”), pursuant to a note purchase agreement (the “Note Purchase Agreement”) in a private placement among HLA and the purchasers party thereto.
The Term Loan Agreement matures on July 1, 2029, the 2020 Multi-Draw Term Loan Agreement matures on April 1, 2030, the 2022 Multi-Draw Term Loan Agreement matures on October 1, 2029 and the Revolving Loan Agreement matures on October 7, 2027. For more information on our Loan Agreements and
Senior Notes, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Senior Notes and Loan Agreements”.
We expect to continue to utilize debt to finance and grow our business and operations, including warehousing investments for our funds, 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. Any portion of our cash flow required for debt service will not be available for our operations, distributions, dividends, stock repurchases or other purposes. Any substantial decrease in net operating cash flows or any substantial increase in expenses could make it difficult for us to meet our debt service requirements or force us to modify our operations. Further, there is no guarantee that we will be able to obtain new borrowings or refinance existing borrowings on favorable terms when they mature. Our level of indebtedness may make us more vulnerable to economic downturns and reduce our flexibility in responding to changing business, regulatory and economic conditions, which could materially and adversely affect our business, financial condition and results of operations.
The risks related to our use of indebtedness may be heightened by the dependence on leverage by certain funds, customized separate accounts and portfolio companies. 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 achieveattractive 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.”
In addition, the availability of capital from our Loan Agreements and our cash balances are exposed to the credit risks of the financial institutions at which they are held. Events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or the financial services industry generally, or concerns or rumors about any such events or other similar risks, have in the past and may in the future lead to market-wide liquidity problems or the fear of market-wide liquidity problems. Our material credit facility consists of our Loan Agreements, which are now held at JPMorgan. If any of the financial institutions at which we maintain account balances or upon which we rely for credit were to become unstable or insolvent, our ability to access existing cash, cash equivalents and investments, or to access existing or enter into new banking arrangements or facilities to pay operational and other costs, could be threatened or lost, which could have a material adverse effect on our business and financial condition. Our account balances at each institution typically exceed Federal Deposit Insurance Corporation (“FDIC”) insurance coverage of $250,000 per depositor, and, as a result, there is a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage. In some cases, we have transferred uninsured cash balances to money market mutual funds.
The Loan Agreements and the Note Purchase Agreement contain, and any future debt instruments may contain, financial and other covenants that impose requirements on us and limit our and our subsidiaries’ ability to engage in certain transactions or activities, including but not limited to: incurring additional debt; providing guarantees in respect of obligations of other persons; making loans, advances and investments; maintaining account balances at other financial institutions; making certain payments in respect of equity interests (including the payment of dividends and other distributions, redemptions and similar payments, payments in respect of warrants, options and other rights, and payments in respect of subordinated indebtedness); and entering into transactions with investment funds and affiliates. Additionally, we are required to maintain a consolidated leverage ratio within a specified range, specified amounts of management fees, a specified amount of adjusted EBITDA, and a specified minimum tangible net worth (as defined in those agreements). 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. Our obligations under the Loan Agreements are secured by substantially all of our assets. In the case of an event of default, creditors may exercise rights and remedies, including the rights and remedies of a secured party, under such agreements and applicable law, which could materially and adversely affect our business, financial condition and results of operations.
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.
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.
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 achieveattractive 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.
Certain of the specialized funds and customized separate accounts we manage, the funds in which we invest and portfolio companies within our funds and customized separate accounts currently rely on leverage and are expected to continue to do so. Certain of our specialized funds and customized separate accounts, as well as the companies in which our specialized funds or customized separate accounts invest, raise capital in structured credit, leveraged loan and high yield bond markets. If elevated interest rates persist or further increase or credit markets experience continued or increasing dislocations, contractions or volatility, the results of operations of our specialized funds and customized separate accounts, as well as the companies in which our specialized funds or customized separate accounts invest, may suffer. Any such events could adversely impact the availability of credit to businesses generally, the cost or terms on which lenders are willing to lend, or the strength of the overall economy.
Reductions in available sources of debt financing, an extended or increased tightening in credit markets, or an increase in either the general levels of interest rates or in the risk spread demanded by sources of indebtedness would make it more expensive to finance investments made by our specialized funds and customized separate accounts and, in the case of rising interest rates, decrease the value of fixed-rate debt investments made by our funds. Certain investments may also be financed through fund-level credit facilities, which may or may not be available for refinancing on favorable terms, or at all, at the end of their respective terms. Further, the cost of borrowing may not be covered by the appreciation of the assets in the investment, which could be exacerbated in difficult market conditions and adversely impact our revenues. We also make arrangements with financial institutions for loans and to hold cash balances on behalf of our clients to fund contributions to and hold distributions from investments. The availability of capital from these debt facilities and cash balances is exposed to the credit risks of the financial institutions at which they are held. Adverse developments that affect financial institutions or the financial services industry generally, or concerns or rumors about any such events or other similar risks, have in the past and may in the future lead to market-wide liquidity problems or the fear of market-wide liquidity problems. If the financial institutions at which our specialized funds’, customized separate accounts’, clients’ or investors’ credit facilities or cash account balances are held were to be placed into receivership or become insolvent, their ability to access existing cash, cash equivalents and investments, or to access existing or new banking arrangements or facilities to fund commitments, could be threatened or lost, which could have a material adverse effect on our reputation and results of operations. Account balances at these institutions typically exceed FDIC insurance coverage of $250,000 per depositor, and, as a result, there is a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage. Finally, limitations on the deductibility of interest expense on indebtedness used to finance our specialized funds’ investments reduce the after-tax rates of return on the affected investments and make it more costly to use debt financing. Any of these factors may have an adverse impact on our business, results of operations and financial condition.
In addition, we may invest in businesses with capital structures that have significant leverage. The leveraged capital structure of such businesses increases the exposure of the funds’ portfolio companies to adverse economic factors such as rising interest rates, decreases in credit availability, financial institution risks discussed above, downturns in the economy or deterioration in the condition of such business or its industry. Tighter credit conditions or higher interest rates may also make it more difficult or more expensive for portfolio companies to refinance or extend existing indebtedness, comply with financial covenants or access incremental debt financing, which could increase the risk of default or restructuring. These factors may make such companies less able to cope with changes in business and economic conditions and may impair the operations, value or sustainability of such companies. If the portfolio companies in our funds 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. Any adverse impact caused by the use of leverage by portfolio companies in which we directly or indirectly invest could in turn adversely affect the returns of our specialized funds, customized separate accounts and advisory accounts.
Defaults by clients and third-party investors in certain of our specialized funds and customized separate accounts could adversely affect that fund’s operations and performance.
Our business is exposed to the risk that clients that owe us money for our services may not pay us, and investors may default on their obligations to fund their commitments. 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. 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 many 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. We depend on investors fulfilling and honoring their commitments when we call capital from them for those funds to consummate investments and otherwise pay their obligations when due. In addition, certain of our funds and customized separate accounts utilize lines of credit to fund investments. Because interest expense and other costs of borrowings under lines of credit are an expense of the fund or account, the fund’s or account’s net multiple of invested capital may be reduced, as well as the amount of carried interest generated. Any material reduction in the amount of carried interest generated may adversely affect our revenues. We have not had clients or investors fail to honor capital calls to any meaningful extent.
Any investor that did not fund a capital call would be subject to several possible penalties, including having a meaningful amount of its existing investment forfeited in that fund. However, the impact of the penalty is directly correlated to the amount of capital previously invested by the investor in the fund. For instance, if an investor has invested little or no capital early in the life of the fund, then the forfeiturepenalty may not be as meaningful. 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.
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 as discretionary manager of a customized separate account, they specify certain guidelines regarding investment allocation and strategy that we are required to observe in the management of their portfolios. Our failure to comply with these guidelines and other limitations could result in clients terminating their investment management agreement with us, as these agreements generally are terminable without cause on 30 to 90 days’ notice. Clients could also sue us for breach of contract and seek to recover damages from us. 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. Any of these events could cause a reduction to our AUM and consequently cause our earnings to decline and 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.
There is a risk that our employees, advisors or third-party service providers could engage in misconduct that adversely affects our business. We are subject to a number of laws, obligations and standards arising from our advisory and investment management businesses and our discretionary authority over the assets we manage. The violation of these laws, obligations and standards by any of our employees, advisors or third-party service providers would adversely affect our clients and us by subjecting us to, among other things, civil and criminalpenalties or material fines, profit disgorgement, injunctions on future conduct, securities litigation, reputational damage and a general loss of investor confidence. Our business also often requires that we deal with confidential matters of great significance to companies and funds in which we may invest for our clients. If our employees, advisors or third-party service providers were to engage in fraudulent activity, violate regulatory standards or improperly use or disclose sensitive or confidential information, we could be subject to legal or regulatory action and sufferseriousharm to our reputation, financial position and current and future business relationships. The pervasiveness of social media and electronic communications and the increasing prevalence of AI 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. It is not always possible to detect or determisconduct, and the precautions we take that seek to detect and prevent undesirable activity may not be effective. 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. If one of our employees, advisors or third-party service providers were to engage in misconduct or were to be accused of misconduct, our business and our reputation could be materially and adversely affected. See “—Risks Related to Our Industry—Extensive government regulation, compliance failures and changes in law or regulation could adversely affect us.”
The timing at which we receive distributions of carried interest, an element of our revenues, can be sporadic and unpredictable, which may make it difficult for us to achieve steady earnings growth on a quarterly basis and may cause the price of our Class A common stock to decline.
Our cash flow may fluctuate significantly due to the fact that we typically receive carried interest distributions only when investments are realized and achieve a certain preferred return based on performance. It takes a substantial period of time to identify attractive investment opportunities, raise all funds needed to make an investment and then realize the cash value (or other proceeds) of an investment. Even if an investment proves to be profitable, it may be a number of years before any profits can be realized in cash (or other proceeds). In addition, carried interest distributions have in the past and may in the future decrease in difficult, volatile or uncertain economic environments as the ability of general partners to exit and realize value from existing investments may be even more limited than in more stable economic environments. We cannot predict when, or if, any realization of investments will occur, and thus, we cannot predict the timing or amounts of carried interest distributions to us. If we were to receive a distribution of carried interest in a particular quarter, it may have a significant impact on our results for that particular quarter, which may not be replicated in subsequent quarters. As a result, achieving steady growth in net income and cash flow on a quarterly basis may be difficult, which could in turn lead to large adverse movements or general increased volatility in the price of our Class A common stock.
The exercise of redemption or repurchase rights by investors in our evergreen funds may adversely affect our revenues.
Unlike traditional drawdown funds, which generally do not permit redemptions of fund interests until the liquidation of the fund upon scheduled termination dates, our evergreen funds, including our funds registered under the Investment Company Act, contain investor liquidity features that permit investors to redeem or repurchase their interests from time to time. Our evergreen funds have grown substantially in recent years and now represent a more significant portion of our AUM and our management and revenues. As these products
expand across strategies, geographies and investor types, the potential impact of material redemption or repurchase activity on our business has increased. Factors that could result in investors leaving our evergreen funds include changes in interest rates or market conditions that make other investments more attractive, changes in or rebalancing due to investors’ asset allocation policies, changes in investor perception regarding our focus or alignment of interest, unhappiness with a fund’s performance or investment strategy or liquidity profile, changes in our reputation, negative media coverage of us, our peers or the private markets more broadly, departures or changes in responsibilities of key personnel, performance and liquidity needs of fund investors and legal or regulatory issues that investors perceive to have a bearing on the fund. In a declining market, our evergreen funds, including our funds registered under the Investment Company Act, may experience declines in value, and the pace of redemptions or repurchases and consequent reduction in our assets under management could accelerate. Such declines in value may be both provoked and exacerbated by forced selling of assets, as further described below. Actions taken to meet substantial redemption requests could result in a material adverse effect on the fund’s investments, ability to make new investments or ability to achieve its investment objectives.
To the extent appropriate and permissible under a vehicle’s constituent documents and applicable law, we may limit redemptions or repurchases in such vehicle for a period of time. While the use of such tools (or “gates”) is meant to avoid forced asset sales and protect remaining investors in a fund, the use of such tools may be negatively received by investors, as well as distributors or regulators and could lead to negative publicity, which may lead to volatility in the price of our Class A common stock, regulatory inquiries or litigation. Such events 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. In addition such events could negatively impact future fundraising for our platform more broadly.
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. The investments of such funds are generally illiquid in nature and disposing of such investments within the necessary timeframe could reduce the price at which counterparties are willing to transact and require the fund to sell investments it would otherwise prefer to continue to hold. In most cases, transferring such investments requires the consent of a third-party sponsor, and, if such sponsors are unwilling to consent, a fund may need to liquidate a less desirable investment as an alternative. Such accelerated disposition could reduce or eliminate our potential carried interest associated with such investment, and the reduction in such fund’s NAV resulting from the redemption or repurchase would reduce the management fees payable to us and may reduce or eliminate any incentive fees or carried interest to which we might otherwise have been entitled.
Finally, the inclusion of redemption or repurchase rights in our evergreen funds create heightened risk of operational error, including with respect to the calculation of NAV. Any such errors could adversely affect the exercise of redemption rights and could adversely affect our revenues and profitability, including as a result of investors’ indemnification requirements, litigation and/or regulatory investigations. As we launch and scale funds that strike NAV more frequently, including those that calculate NAV on a daily basis, the complexity and frequency of these operational processes increase as do the potential consequences of any errors.
Valuation methodologies for certain assets in our specialized funds and customized separate accounts can be highly subjective, and the values of assets established pursuant to such methodologies may never be realized, which could result in significant losses for our specialized funds and customized separate accounts.
The values of our specialized funds’ and discretionary customized separate accounts’ investments are determined in accordance with the firm’s valuation policies and procedures, as then-currently in effect and approved by the operative documents for the particular specialized fund or customized separate account.
Our specialized funds, customized separate accounts, advisory accounts and the funds in which we invest generally invest in, among other things, illiquid investments or financial instruments for which there is little, if any, market activity and, accordingly, no readily available market price. We determine the value of fund investments held by our specialized funds and customized separate accounts periodically, based on the fair value of such investments as reported by the underlying fund managers to us. Thus, our valuation of the underlying funds in which we invest is largely dependent upon the processes employed by the underlying fund managers of those funds. The fair value of a fund investment’s underlying assets is determined using a number of methodologies described in the particular fund’s valuation policies, and such fund may engage a third-party valuation agent to assist with such valuation. These valuation methodologies are based on a number of factors, including the nature of the investment, the expected cash flows from the investment, the length of time the investment has been held, restrictions on transfer, local market conditions, control premiums, illiquidity discounts and other generally accepted valuation methodologies, which involve a significant degree of subjective management judgment.
The value of direct investments in portfolio companies held by our specialized funds and customized separate accounts is determined periodically by us using generally accepted valuation methodologies, and we may use independent third-party valuation firms for corroborative assistance in determining the fair value of these investments. These methodologies may include references to market multiples, valuations for comparable companies, public or private market transactions, subsequent developments concerning the companies to which the securities relate, results of operations, financial condition, cash flows, and projections of such companies made accessible to us and such other factors that we may deem relevant.
The methodologies we use in valuing individual investments held by our specialized funds and customized separate accounts are based on a variety of estimates and assumptions specific to the particular investments, and actual results related to the investment may vary materially as a result of the inaccuracy of such assumptions or estimates. For instance, it is possible that a material fact related to the target of the valuation might be inadvertentlyomitted from our or an underlying fund manager’s analysis, resulting in an inaccurate valuation. In addition, because the illiquid investments held by our specialized funds, customized separate accounts, advisory accounts and the funds in which we invest may be in industries or sectors that are unstable, in distress, or undergoing some uncertainty, such investments are subject to rapid changes in value caused by sudden company-specific or industry-wide developments.
Unforeseen market, economic and geopolitical conditions and events could significantly and abruptly impact the valuation of an investment from period to period, and valuation methodologies may change across periods. Because the valuation methodologies described herein generally only occur on a periodic basis, subsequent events that may have a material impact on those valuations may not be reflected until the next periodic valuation date. The impact of factors not accounted for in valuation models and the potential exercise of our subjective judgment in determining valuation might cause some of our investors or regulators to question our valuations or methodologies. There can be no assurance that our policies, or the policies of underlying funds, will address all necessary valuation factors, minimize uncertainty or completely eliminate potential conflicts of interest in such determinations. In addition, as we launch and scale daily-priced interval funds and other evergreen vehicles, we may increasingly rely on quantitative models, regression-based approaches and third-party data inputs to support more frequent NAV calculations. Unlike monthly or quarterly products, for which valuation procedures may be completed over a longer period of time, daily-priced vehicles require that all procedures necessary to strike a NAV be condensed into a shorter window of time, which further increases our exposure to model, data and operational risk.
Because there is significant uncertainty in the valuation of, or in the stability of the value of, illiquid investments, the fair values of such investments as reflected in a specialized fund’s or customized separate account’s NAV do not necessarily reflect the prices that would actually be obtained if such investments were sold. For example, there may be known or unknown liabilities such as tax exposures with respect to investments, especially those outside the United States, which may not be fully reflected in valuations. Realizations at values significantly lower than the values at which investments have been reflected in specialized fund or customized separate account NAVs would result in reduced gains or increased losses for the applicable fund or customized separate account, a decline in certain asset management fees and the loss of
potential incentive fees by us. A situation in which specialized fund or customized separate account asset values are overstated, whether due to error or otherwise, could result in overstated management and incentive fees for a particular period. Further, while it is unlikely that one single instance, or even multiple concurrent instances, of a misstated valuation would have a material impact on our financial condition or results of operations given our large and increasing base of assets under management, a situation in which asset values turn out to be materially different from values reflected in specialized fund or customized separate account NAVs as a result of any factor or circumstance could trigger various notification requirements, cause investors to lose confidence in us and may result in an unanticipated increase in redemption or repurchase requests for certain of our specialized funds or customized separate accounts and difficulties in our ability to raise additional capital, retain clients or attract new clients, particularly if such issues persist. NAV errors or valuation adjustments in vehicles that strike NAV daily could result in a larger number of impacted shareholders and a greater volume of subscriptions and repurchases executed at incorrect prices than in products that strike NAV monthly or quarterly, which could increase the size and frequency of any required reimbursement, re-processing or other remediation.
The SEC continues to focus on issues related to valuation of private investment vehicles, including consistent application of the methodology, disclosure and conflicts of interest, in its enforcement, examination, and rulemaking activities. Our increased use of registered interval funds and daily-priced evergreen products may subject our valuation practices to heightened scrutiny. If the SEC were to investigate and find errors in our methodologies or procedures, we and/or members of our management could be subject to penalties and fines, which could harm our reputation and our business, financial condition and results of operations could be materially and adversely affected. In addition, changes in the factors considered by the SEC in its enforcement, examination, and rulemaking activities could have a significant effect on the results of the valuation methodologies used to value our portfolio, and our reported fair values for these assets could vary materially if these factors from prior quarters were to change significantly.
Our investment management activities may involve investments in relatively high-risk, illiquid assets, and we and our clients may lose some or all of the amounts invested in these activities or fail to realize any profits from these activities for a considerable period of time.
The investments made by our specialized funds and customized separate accounts and recommended by our advisory services may include high-risk, illiquid assets. We generally have made and expect to continue to make principal investments alongside our investors, as the general partner, in our existing private markets funds and certain customized separate accounts and in any new private markets funds we may establish in the future. The private markets funds in which we invest capital generally invest in securities that are not publicly traded. Even if such securities are publicly traded, many of these funds may be prohibited by contract or applicable securities laws from selling such securities for a period of time. Such funds will generally not be able to sell these securities publicly unless their sale is registered under applicable securities laws, or unless an exemption from such registration requirements is available. Accordingly, the private markets funds in which we invest our clients’ capital may not be able to sell securities when they desire and therefore may not be able to realize the full value of such securities. This risk is magnified during times of volatile market conditions and economic and geopolitical uncertainty. The ability of private markets funds to dispose of investments is dependent in part on the public equity and debt markets, to the extent that the ability to dispose of an investment may depend upon the ability to complete an IPO of the portfolio company in which such investment is held or the ability of a prospective buyer of the portfolio company to raise debt financing to fund its purchase. The exit environment across many of our private markets strategies remains challenging and attractiveopportunities to dispose of investments may be limited. Furthermore, large holdings of publicly traded equity securities can often be disposed of only over a substantial period of time, exposing the investment returns to risks of downward movement in market prices during the disposition period. Contributing capital to these funds is risky, and we may lose some or the entire amount of our specialized funds’ and our clients’ investments.
The portfolio companies in which private markets funds have invested or may invest will sometimes involve a high degree of business and financial risk. 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 achieveattractive 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.” In addition, these portfolio companies may face intense competition, including competition from companies with greater financial resources, more extensive development, manufacturing, marketing, and other capabilities, and a larger number of qualified managerial and technical personnel. Portfolio companies in non-U.S. jurisdictions may be subject to additional risks, including tariffs and trade barriers, changes in currency exchange rates, exchange control regulations, risks associated with different types (and lower quality) of available information, less developed or efficient financial markets, expropriation or confiscatory taxation and a less developed or stable or an adverse political and regulatory environment.
In addition, during periods of difficult market conditions or slowdowns in a particular investment category, industry or region, portfolio companies may experience decreased revenues, financial losses, difficulty in obtaining access to financing and increased costs. 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. 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. 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.
We may pursue investment opportunities that involve business, regulatory, legal or other complexities.
We may pursue investment opportunities that have unusually complex business, regulatory and/or legal aspects to them. Some of our investments may be structured as an investment in which we only acquire a minority interest or in which two or more investors serve together or collectively as equity sponsors, which generally means that any governance rights must be shared with the other investors. Accordingly, decisions relating to the investment may be made by third parties, which could have a material adverse effect on the returns achieved by us on the investment. Complexity presents risks, as such transactions can be more difficult, expensive and time-consuming to finance and execute, it can be more difficult to manage or realize value from the assets acquired in such transactions and such transactions sometimes involve a higher level of regulatory scrutiny or a greater risk of contingent liabilities. Any of these risks could materially and adversely affect our business, financial condition and results of operations.
Our specialized funds and customized separate accounts may face risks relating to undiversified investments.
We cannot give assurance as to the degree of diversification that will be achieved in any of our specialized funds or customized separate accounts. In addition, certain of our specialized funds and customized separate accounts may have overlapping investment exposure. 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 and could adversely affect multiple specialized funds and customized separate accounts if they have overlapping investments. Accordingly, a lack of diversification on the part of a specialized fund or customized separate account could adversely affect its investment performance and affect our ability to raise new funds. If an overlapping investment performs poorly, becomes impaired or otherwise underperforms, the adverse effects may be felt by more than one specialized fund or customized separate account at the same time and the effect of adverse investment performance may be magnified on our business. All of these factors could, as a result, affect our business, financial condition and results of operations.
Our specialized funds and customized separate accounts make investments in funds and companies that we do not control.
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. 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. 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.
Investments by our specialized funds, customized separate accounts and advisory accounts may in many cases rank junior to investments made by other investors.
In many cases, the companies in which our specialized funds, customized separate accounts or advisory accounts invest have indebtedness or equity securities, or may be permitted to incur indebtedness or to issue equity securities, that rank senior to our clients’ investments in our specialized funds, customized separate accounts or advisory accounts. 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. 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. 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. To the extent that any assets remain, holders of claims that rank equally with our clients’ investments would be entitled to share on an equal and ratable basis in distributions that are made out of those assets. Also, during periods of financial distress or following an insolvency, our ability to influence a company’s affairs and to take actions to protect investments by our specialized funds, customized separate accounts or advisory accounts may be substantially less than that of those holding senior interests.
The substantial growth of our business in recent years may be difficult to sustain, and it may place significant demands on our resources and employees and will increase our expenses.
The substantial growth of our business has placed, and if it continues, will continue to place, significant demands on our infrastructure, our investment team and other employees, and will increase our expenses. We strive to maintain a work environment that reinforces our culture of collaboration, motivation and doing the right thing. 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 our infrastructure continuously in response to the increasingly complex investment management industry and increasing sophistication of investors. Legal and regulatory developments also contribute to the level of our expenses. The future growth of our business will depend, among other things, on our ability to maintain the appropriate infrastructure and staffing levels to sufficiently address our growth and will require us to incur significant additional expenses and commit additional senior management and operational resources. We may face significant challenges in maintaining adequate financial and operational controls as well as implementing new or updated information and financial systems and procedures. Training, managing and appropriately sizing our work force and other components of our business on a timely and cost-effective basis may also pose challenges. In addition, our efforts to retain and attract qualified investment professionals are expected to result in significant additional expenses. There can be no assurance that we will be able to manage our growing business effectively or that we will be able to continue to grow, and any failure to do so could adversely affect our ability to generate revenue and control our expenses.
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.
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. In order to maintain our desired fee structure in a competitive environment, we must be able to continue to provide clients with investment returns and service that incentivize our investors to pay our desired fee rates. We cannot assure you that we will succeed in providing investment returns and service that will allow us to maintain our desired fee structure. Fee reductions on existing or future new business could have a material adverse effect on our profit margins and results of operations.
Our operation of registered investment companies and compliance with the restrictions of the Investment Company Act or other regulations could adversely affect us.
Our business activities are subject to additional regulatory requirements that could adversely impact profitability. Certain evergreen funds we offer are registered investment companies under the Investment Company Act or are subject to other rules applicable to our evergreen funds, notably those of the Luxembourg supervisory authority, the Commission de Surveillance du Secteur Financier (the “CSSF”) with respect to our evergreen funds domiciled in Luxembourg. The Investment Company Act and the rules thereunder, the rules applicable to our evergreen funds domiciled in Luxembourg as well as applicable European legislation contain detailed parameters for the organization and operation of these evergreen funds. Among other things, the Investment Company Act and the rules thereunder limit or prohibit transactions with affiliates, impose limitations on the issuance of debt and equity securities, prohibit the issuance of stock options and impose certain governance and board independence requirements. In addition, we depend on third parties to assist us in servicing and complying with regulatory obligations with respect to our evergreen funds. These limitations, obligations and reliance on third-party service providers used to assist us in servicing our evergreen funds could materially and adversely affect our business, financial condition and results of operations.
In addition, the failure to comply with any of the regulations that we are subject to, could subject us to enforcement actions, which may materially and adversely affect our business, financial condition and results of operations.
Our risk management strategies and procedures may leave us exposed to unidentified or unanticipated risks.
Risk management applies to our operations as well as to the investments we make for our specialized funds and customized separate accounts. 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. 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. Given the large number and size of our funds, we often have large positions with a single counterparty. For example, we and most of our funds have credit lines. If the lender under one or more of those credit lines were to freeze the account in response to sanctions or become insolvent, we may have difficulty replacing the credit line and the affected fund(s) or we may face liquidity challenges, which may adversely affect our business operations or the fund’s ability to close on an investment. If that counterparty is unable to perform its obligations or performs below our standards, we, our specialized funds, customized separate accounts and other investments may be adversely affected. In addition, some of our methods for managing the risks related to our clients’ investments are based upon our analysis of historical private markets behavior. Statistical techniques are applied to these observations in order to arrive at quantifications of some of our risk exposures. Historical analysis of private markets returns requires reliance on valuations performed by fund managers, which may not be reliable measures of current valuations. These statistical methods may not accurately quantify our risk exposure if circumstances arise that were not observed in our historical data. In particular, as we introduce new types of investment structures, products or services, our historical data may be incomplete. Failure of our risk management techniques could materially and adversely affect our business, financial condition and results of operations, including our right to receive incentive fees.
The due diligence process that we undertake in connection with investments may not reveal all facts that may be relevant in connection with an investment.
Before making or recommending investments for our clients, we conduct due diligence that we deem reasonable and appropriate based on the facts and circumstances applicable to each investment. When conducting due diligence, we may be required to evaluate important, complex, and sometimes evolving, business, financial, credit, tax, accounting, technological, environmental, social, governance and legal and regulatory issues. Outside consultants, legal advisors and accountants may be involved in the due diligence process in varying degrees depending on the type of investment and the parties involved. 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 or in identifying all risks. In addition, we may not identify or foresee future developments that could have a material adverse effect on an investment, including, for example, rapidly changing fundamentals in a certain sector, geography or asset class, or technological disruption of a specific company or asset or an entire industry, including as a result of the rapid development and implementation of AI.
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. 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. Due diligence on investment opportunities in these jurisdictions is frequently more complicated because consistent and uniform commercial practices in such locations may not have developed,
and bribery, fraud, accounting irregularities and corrupt practices can be especially difficult to detect in such locations. Such misconduct may undermine our due diligence efforts with respect to such companies and could negatively affect the valuations of investments in such companies. Further, we may not identify or foresee future developments that could have a material adverse effect on an investment, such as misconduct by personnel at companies in which our specialized funds, customized separate accounts or advisory accounts invest. 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. 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. 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.
Finally, some matters covered by our due diligence process, such as responsible investing and sustainability considerations, are subject to evolving market and regulatory standards, which we may not accurately or fully anticipate. Our responsible investing and sustainability due diligence framework does not represent a universally recognized standard, as we continue to observe different frameworks and methodologies being implemented throughout the industry. Selecting and evaluating sustainability risks in connection with investing is subjective by nature. The materiality of sustainability risks and potential impacts on an individual investment or portfolio depend on many factors, including the relevant industry, country, asset class and investment strategy. There is no guarantee that the criteria utilized, or judgment exercised by us or a third-party sustainability specialist we may engage will always reflect the beliefs, values, internal policies or preferred practices of any particular client or stakeholder. Further, the nature and scope of our due diligence with respect to responsible investing and sustainability will vary based on the investment, which may present challenges in complying with a globally recognized standard, if one emerges in the future.
Restrictions on our ability to collect and analyze data regarding our clients’ investments could adversely affect our business.
Our database of private markets investments includes funds and direct investments that we monitor and report on for our specialized funds, customized separate accounts and advisory accounts. We rely on our database to provide regular reports to our clients, to research developments and trends in private markets and to support our investment processes. We depend on the continuation of our relationships with the general partners and sponsors of the underlying funds and investments in order to maintain current data on these investments and private markets activity. We also rely on the strength of our relationships to encourage voluntary data sharing and engagement on evolving topics, such as responsible investing and sustainability. The termination of such relationships or the imposition of restrictions on our ability to use the data we obtain for our reporting and monitoring services could adversely affect our business, financial condition and results of operations. We are also highly dependent upon the technology platforms within which our data is stored and analyzed, and any disruption in the services provided by such platforms, whether temporary or permanent, could have a material adverse effect on our ability to effectively continue to operate our business without interruption. See “—Operational risks may disrupt our business, damage our reputation, result in financial losses or limit our growth.”
Operational risks may disrupt our business, damage our reputation, result in financial losses or limit our growth.
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, or are disabled or fail, including the loss of or unauthorized access to data, whether caused by fire, natural disaster, power or telecommunications failure, cyberattack, ransomware, 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. 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. If any of our third-party service providers access or use our information for the purpose of competing with us or undermining our efforts, we may lose clients and opportunities, which may adversely affect our financial condition. In addition, we have experienced errors in the execution, confirmation or settlement of transactions, as well as errors in recording, evaluating and accounting for them. While these occurrences have been immaterial to our operations as a whole, the repeated occurrence of such events in the future could cause us to lose clients and opportunities. Our and our third-party service providers’ data processing systems and technology may be unable to accommodate our growth or adequately protect the information of our clients or address security risks, and the cost of maintaining and improving such systems and technology may increase from our current level. Such a failure or an increase in costs related to such information systems and technology or transaction errors, could have a material adverse effect on our results of operations, financial condition, cash flow and reputation. 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. 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. For more information on this risk, please see “—Failure to maintain the security of our information technology networks, or those of our third-party service providers, or data security breaches could result in loss of data, interruptions in our business, harm to our reputation and could have a material adverse effect on our results of operations, financial condition and cash flow.”
We are also subject to the risk that the financial institutions with which we maintain credit facilities or cash account balances fail. 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.”
Failure to maintain the security of our information technology networks, or those of our third-party service providers, or data security breaches could result in loss of data, interruptions in our business, harm to our reputation and have a material adverse effect on our results of operations, financial condition and cash flow.
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 and other sensitive information relating to our employees, our clients, our portfolio companies, in cloud applications and on our networks, as well as on systems operated by third parties on our behalf. The secure processing, maintenance and transmission of this information are critical to our operations.
We, our service providers and their vendors face a variety of security threats on a regular basis, including ongoing cybersecurity threats and attacks that are intended to gainunauthorized access to and steal our sensitive or proprietary information, destroy or corrupt data, disable, disrupt or degrade systems, divert or otherwise steal funds, or impersonate us or our employees using technologies such as generative AI and deepfakes. Cyber-attack techniques are continually evolving, may not immediately be recognized, can originate from a wide variety of sources and may be difficult to detect or fully remediate. There has been an increase in the frequency, sophistication and ingenuity of the data security threats we and our service providers face, which has been exacerbated with the advancement of AI, which malicious third parties are
using to create new, sophisticated and more frequent attacks. 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 other forms of social engineering attacks, business-email compromise and other efforts to obtain unauthorized access to data and systems, and the subject of impersonations and fraudulent requests for money and other activities. Attacks range from those common to businesses generally to those that are more advanced and persistent, and attackers 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. Attackers have in the past gainedunauthorized access to sensitive information about us, our clients and investors by attacking our systems and the systems of certain of our service providers. Such prior events, to date, have not had a material impact on our financial condition or results of operations.
Further, we allow employees to work on a hybrid schedule or remotely, which introduces operational risks, including heightened cybersecurity risk, as remote working environments can be less secure and more susceptible to hacking attacks. We are aware of unauthorized use of non-approved consumer AI tools by our employees. Such use increases the risk that confidential information, including material non-public information, trade secrets or personally identifiable information, has been or may be input into those tools, which could result in such information becoming part of a dataset that is accessible by third-party applications and users, including our competitors.
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, the data such systems contain or transmit and rely on these policies and systems to enable timely escalation of any cyberattack, assessment of materiality and, where required, regulatory and other disclosures. Measures taken to ensure the integrity of our or our third-party service providers’ systems may not provide adequate protection, may not operate as intended and may not be adequate in the face of new or unforeseenthreats, including those exploitingvulnerabilities in widely-used software, AI tools or third-party platforms. 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.
A successfulcyberattack, intrusion, compromise of credentials, ransomware event, destruction or corruption of data, loss or misuse of sensitive information or other cybersecurity incident affecting us or our service providers could result in, among other things, loss or unauthorized use or disclosure of confidential or proprietary information, operational disruptions, loss of availability or integrity of critical systems or data, inability to timely process transactions or calculate and report NAV, loss of intellectual property, theft or diversion of funds and damage to equipment and systems. Such an incident, or the perception that one has occurred, could subject us to significant costs and liabilities, including incident response, remediation and system hardening costs, restoring data and systems, legal and consulting fees, costs associated with notification to and remediation for affected individuals, responding to regulatory investigations or examinations, litigation and indemnity obligations, increased insurance premiums, coverage limitations or the unavailability of cyber insurance and reputational damage that could adversely affect our ability to attract and retain clients or raise capital for our products.
Additionally, although the prevalence and scope of applications of distributed ledger technology, digital assets, cryptocurrency and similar technologies is growing, the technology is new and may be vulnerable to cyberattacks or have other inherent technological weaknesses. We and the specialized funds and customized separate accounts we manage are exposed to risks, and may become exposed to additional risks, related to distributed ledger technology and the financial products that use it, such as blockchain, cryptocurrencies and other digital assets, or decentralized finance and related applications, including through our offering funds and other products in tokenized formats, our partnering with and reliance on companies that use, develop, or rely on distributed ledger technology and use of distributed ledger technology by third-party vendors, clients, counterparties and other financial intermediaries with who we transact. Market volatility of financial products
using distributed ledger technology may increase these risks and may also expose us to increased compliance risks.
Cybersecurity, privacy and data protection are a top priority for regulators in the United States and around the world. Many jurisdictions in which we operate have laws and regulations relating to privacy, data protection and cybersecurity, such as the General Data Protection Regulation (“GDPR”) in the EU and U.K., the Personal Information Protection Law (“PIPL”) in China, the SEC’s cybersecurity disclosure rules and the California Privacy Rights Act (“CPRA”). Some jurisdictions have also enacted laws requiring companies to notify individuals and governmental agencies of data security breaches involving certain types of personal data. These rules could increase our compliance costs and potential regulatory liability. There are substantial financial penalties for breach of the GDPR. 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. 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.”
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. In addition, we may be required to compromise protections or forego rights to technology, data and intellectual property in order to operate in or access markets in a foreign jurisdiction. We have seen limited instances of fraudulent actors in foreign jurisdictions seeking to mimic or impersonate us through software applications or the like; these actions, to date, have not had a material impact on our financial condition or results of operations. Any such direct or indirect compromise of these assets could have a material adverse impact on us.
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. Personal data is wide ranging and relates to our clients, employees, counterparties and other third parties. Any actual or perceived inability by us to adequately address privacy concerns, or comply with applicable data security or 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, disruptions to our business and operations, and a loss of client confidence and other reputational damage.
As new privacy and data protection laws and regulations are implemented, the time and resources needed for us to seek compliance with such laws and regulations continues to increase. Our compliance obligations include those relating to U.S. 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. Further, the SEC has adopted amendments to Regulation S-P requiring covered institutions, including registered investment advisors, to adopt written policies and procedures creating incident response programs to address unauthorized access to customer information, including procedures for notifying affected customers and clients within 30 days, and requiring formal policies for the oversight of service providers handling customer information.
We are also required to comply with foreign data collection and privacy laws, including the GDPR in the EU and U.K., the PIPL in China, and laws in various other jurisdictions in which we have offices or conduct business, including Switzerland, Japan, Hong Kong, Singapore, Australia, Canada, the United Arab Emirates, Chile and Mexico. Financial regulators and data protection authorities throughout the EU and U.K. have broad audit and investigatory powers under the GDPR to probe how personal data is being used and processed. Penalties for non-compliance can be material. Global laws in this area are rapidly increasing in the
scale and depth of their requirements, and are also often extra-territorial in nature. 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. These legal, regulatory and contractual obligations heighten our privacy obligations in the ordinary course of conducting our business in the United States and globally. As new data protection and privacy‐related laws and regulations are implemented, the time and resources needed for us to comply with such laws and regulations continues to increase.
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.
Technological developments in AI could disrupt the markets in which we operate and subject us to increased competition, legal and regulatory risks and compliance costs.
AI, including machine learning technology and generative and agentic AI, is rapidly evolving. While we may not be able to anticipate, prevent, mitigate or remediate all of the potential risks, challenges or impacts of such development, AI could significantly disrupt the business models and 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.
We currently use, and plan to expand our use of, AI tools and technologies in the operation of our business, including to support investment research and portfolio analytics, enhance client reporting and investor education, assist with software development and other technology workflows, and help automate certain operational, compliance and legal processes. These uses come with potential risks, including, but not limited to, generation of inaccurate, incomplete or biased results, misappropriation of our confidential information, potential cybersecurity vulnerabilities and regulatory burdens. Data in models that AI technologies use are likely to contain a degree of inaccuracy and error, which could result in flawed algorithms and the generation of incomplete, inaccurate or biased results. This could adversely impact our operations to the extent we rely on such technologies. Further if the data we, or the third parties whose services we rely on, use in connection with the application of AI technologies is incomplete, inaccurate or biased in some way, our products, services, and businesses could suffer. There is also a risk that AI tools or applications may be misused or misappropriated by our employees and/or third parties engaged by us. For example, employees may input confidential information, including material non-public information, trade secrets, or personally identifiable information, into AI technologies, resulting in such information becoming part of a dataset that is accessible by third-party AI applications and users, including our competitors. Such actions could subject us to legal and regulatory investigations and/or actions. Further, we may not be able to control how third-party AI 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. 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. In addition, errors or failures in how we design, implement, monitor, document or govern our internal use of AI tools (including with respect to training data, model selection, human oversight and recordkeeping) could result in operational disruptions, flawed analyses or recommendations, inconsistent treatment of clients or portfolio companies, or non-compliance with our own policies and procedures.
We may also be exposed to competitive risks related to the adoption of AI or other new technologies by others within our industry. If our competitors are more successful than us in the use of AI or development of services or products based on AI, or we do so at a slower pace than others, we may be at a competitive disadvantage. In addition, our investments in technology systems and AI may not deliver the benefits we expect, which could be costly for our business.
Regulators in a number of jurisdictions, including the EU, the United States and various U.S. states, have begun to adopt or consider laws and regulations governing the development and use of AI systems. These frameworks are evolving and in some cases not yet harmonized, and may impose requirements relating to risk assessment, data governance, transparency, human oversight and recordkeeping. We also face risk that our public disclosures about our use of AI tools, products or strategies could be alleged to be incomplete, inaccurate or misleading, including claims that we have overstated the capabilities or impact of AI in our business, also known as AI-washing. Any regulatory change, investigation or allegation could result in increased compliance costs, delay or limit our use of AI technologies, subject us or our portfolio companies to fines or other penalties, or otherwise adversely affect our business, reputation, financial condition and results of operations.
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.
We own or have a license to the trademarks, service marks or trade names that we use in connection with the operation of our business. In addition, our trade names, logos and website names and URL addresses are owned by us or have been licensed to us. We also own or have a license to the copyrights that protect the content of our solutions. 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, including by being registered in foreign jurisdictions by parties that are unaffiliated with Hamilton Lane, which may lead to customer confusion. We may be unable to successfullyresolveconflicts to our satisfaction. In some cases, there may be trademark owners who have prior rights to trademarks similar to ours. During trademark registration proceedings, we may receive and have in some cases received rejections of our applications. Additionally, opposition, invalidation or cancellation proceedings have been and may in the future be filed against our trademark applications or registrations, and our trademarks may not survive such proceedings. In the event that our trademarks, service marks or trade names are successfullychallenged, we could be forced to rebrand our products, services or business, which could result in loss of brand recognition and could require us to devote resources towards advertising and marketing new brands. Over the long term, if we are unable to establish name recognition based on our trademarks, service marks and trade names, then we may not be able to compete effectively. Any claims or customer confusion related to our trademarks, service marks or trade names could damage our reputation and brand and substantially harm our business, liquidity, financial condition and results of operations.
We may be required to protect our trademarks, service marks and other intellectual property rights in an increasing number of jurisdictions. The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States. Accordingly, we may choose not to seek protection in certain countries, and we will not have the benefit of protection in such countries. Moreover, any changes in, or unexpected interpretations of, intellectual property laws in any jurisdiction may compromise our ability to obtain, maintain, protect and enforce our intellectual property rights. Policing and enforcing our intellectual property rights is difficult, costly and may not always be effective.
We may face damage to our professional reputation and legal liability if our services are not regarded as satisfactory or for other reasons.
As a financial services firm, we depend to a large extent on our relationships with our clients and our reputation for integrity and high-caliber professional services to attract and retain clients. As a result, if a client is not satisfied with our services, such dissatisfaction may be more damaging to our business than to other types of businesses.
In recent years, the volume of claims and amount of damages claimed in litigation and regulatory proceedings against financial advisors has been increasing. Our asset management and advisory activities may subject us to the risk of significant legal liabilities to our clients and third parties, including our clients’
stockholders or beneficiaries, under securities or other laws and regulations for materially false or misleading statements made in connection with securities and other transactions. In our investment management business, we make investment decisions on behalf of our clients, or make investment recommendations to our clients, that could result in substantial losses. Any such losses also may subject us to the risk of legal and regulatory liabilities or actions allegingnegligentmisconduct, fraud, breach of fiduciary duty or breach of contract. These risks often may be difficult to assess or quantify, and their existence and magnitude often remain unknown for substantial periods of time. 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. 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, harm our ability to attract and retain clients, introduce volatility into the price of our Class A common stock and materially adversely affect our financial condition or results of operations. In addition, market participants have in the past, and may in the future, publish negative reports or commentary about us or our industry, including while holding short positions in our Class A common stock, which could damage our reputation, divert management attention, trigger regulatory or other scrutiny and cause the market price of our Class A common stock to decline, regardless of whether such statements contain mischaracterizations. 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. Substantial legal or regulatory liability could materially and adversely affect our business, financial condition or results of operations or cause significant reputational harm to us, which could seriouslyharm our business.
Our international operations are subject to certain risks, which may affect our revenue.
We intend to continue to grow our non-U.S. business, including growth into new regions with which we have less familiarity and experience, and we believe this growth is important to our overall success. In addition, many of our clients are non-U.S. entities seeking to invest in U.S. funds and operating companies. Our international operations carry special financial and business risks, which could include the following:
• greaterdifficulties in managing and staffing foreign operations;
• fluctuations in foreign currency exchange rates that could adversely affect our results;
• additional costs of complying with, and exposure to liability under, foreign regulatory regimes;
• unexpected changes in trading policies, regulatory requirements, tariffs and other barriers;
• longer transaction cycles;
• higher operating costs;
• local labor conditions and regulations;
• adverse consequences or restrictions on the repatriation of earnings;
• potentially adverse tax consequences, such as trapped foreign losses;
• less developed, stable or adverse political and economic environments;
• less developed and efficient financial markets;
• the absence of uniform accounting, auditing, and financial reporting standards, practices, and disclosure requirements and less government supervision and regulation;
• potentially heightened risk of theft or compromise of data and intellectual property, in particular in those jurisdictions that do not have levels comparable to the United States of protection of proprietary
information and assets such as intellectual property, trademarks, trade secrets, know-how and client information and records;
• political hostility to investments by foreign or private equity investors;
• potentially compromised protections or rights to technology, data and intellectual property due to government regulation;
• tariffs, 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; and
• difficulty collecting fees and, if necessary, enforcing judgments.
As part of our day-to-day operations outside the United States, we are required to create compensation programs, employment policies, compliance policies and procedures and other administrative programs that comply with the laws of multiple countries. We also must communicate and monitor standards and directives across our global operations. Our failure to successfully manage and grow our geographically diverse operations could impair our ability to react quickly to changing business and market conditions and to enforce compliance with non-U.S. standards and procedures. If our international business increases relative to our total business, these factors could have a more pronounced effect on our results of operations or growth prospects.
Our international investment vehicles are also subject to different reporting requirements. Information pertaining to such vehicles may be disseminated on a different cadence than the information we are required to report to our stockholders, and local regulations may require that such information be available to investors in certain jurisdictions.
A significant amount of the investments of our specialized funds, customized separate accounts and advisory accounts include private markets funds that are located outside the United States or that invest in portfolio companies located outside the United States. Such non-U.S. investments involve certain factors not typically associated with U.S. investments, including risks related to (i) currency exchange matters, such as exchange rate fluctuations between the U.S. dollar and the foreign currency in which the investments are denominated or commitments to the specialized funds or portfolio funds are denominated, and costs associated with conversion of investment proceeds and income from one currency to another, (ii) differences between the U.S. and foreign capital markets, including the absence of uniform accounting, auditing, financial reporting and legal standards, practices and disclosure requirements and less government supervision and regulation, (iii) certain economic, social and political risks, including exchange control regulations and restrictions on foreign investments and repatriation of capital, tariffs and trade barriers, the risks of war, political, economic or social instability, and (iv) the possible imposition of foreign taxes with respect to such investments or confiscatory taxation. These risks could adversely affect the performance of our specialized funds, customized separate accounts and advisory accounts that are invested in securities of non-U.S. companies, which would adversely affect our business, financial condition and results of operations.
Any payment of distributions, loans or advances to and from our subsidiaries could be subject to restrictions on or taxation of dividends or repatriation of earnings under applicable local law, monetary transfer restrictions, foreign currency exchange regulations in the jurisdictions in which our subsidiaries operate or other restrictions imposed by current or future agreements, including debt instruments, to which our non-U.S. subsidiaries may be a party. 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.
We may face increased costs, damage to our professional reputation or face regulatory scrutiny over our commitments, disclosures and practices regarding sustainability, responsible investing and related matters.
We may communicate certain initiatives, commitments and goals regarding our approach to responsible investing and sustainability in our SEC filings or in other public disclosures by us or our specialized funds, which could subject us to scrutiny.
For example, we have committed to offset our operational greenhouse gas (“GHG”) emissions going back to 2019, including our Scope 1, Scope 2 and select Scope 3 emissions, and we have established a goal to reach net zero GHG emissions across our discretionary assets under management on or before 2050. These 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 to support improvement, and we may not be able to accomplish them within the timelines we seek 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 due to cost, timing or other considerations. We may come under scrutiny for the scope or nature of our goals, and progress towards or revisions to our goals, which could lead to regulatory scrutiny or penalties, damage to our reputation, and a reduction of stakeholder trust, any of which could ultimately adversely affect our profitability. 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, or conversely, are focusing on climate change in a way that is inconsistent with fiduciary or investor obligations, 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 or change our activities in response to climate change considerations. Stakeholder views regarding sustainability- and responsible-investing matters are increasingly divergent and, in some jurisdictions, politically contested, and we may face reputational harm, loss of clients or investors, or increased scrutiny regardless of whether we are perceived as doing too much or too little with respect to such matters.
We could be scrutinized for the accuracy, adequacy or completeness of our disclosure related to our or our specialized funds’ or customized separate accounts’ responsible investing- and sustainability-related policies, practices, initiatives, commitments and goals, and associated progress. Such disclosure may be based on frameworks and standards for measuring progress that are not yet standardized and are still developing, internal controls and processes that continue to evolve, and assumptions that are subject to change in the future. Further, as part of our sustainability and responsible investing practices, we rely from time to time on third-party data, services and methodologies and such data, services and methodologies could prove to be incomplete or inaccurate. If our or such third parties’ data, processes or reporting are incomplete or inaccurate, or if we fail to achieveprogress with respect to our responsible investing- or sustainability- related goals, we may be subject to enforcement action and our reputation could be adversely affected, particularly if we were to be accused of “greenwashing” in connection with such matters.
We may publish climate-related and stewardship reports that draw on emerging disclosure frameworks in advance of any binding legal requirements. Statements we make regarding these matters may be communicated across multiple channels (including SEC filings, websites, investor presentations, marketing materials, and third-party platforms), and we may face increased risk that such statements are alleged to be inconsistent, incomplete, or misleading when viewed collectively or in hindsight. Our reporting may also be compared against third-party ratings, benchmarks or methodologies that are not uniform, may conflict with one another and may change over time. We cannot control how third parties evaluate or characterize our disclosures or practices, and adverse ratings or assessments could negatively affect our reputation or our ability to attract and retain clients and investors.
Risks Related to Our Industry
The investment management business is intensely competitive.
The investment management business is intensely competitive. Competition is 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. We expect that competition will continue to increase. A number of factors serve to increase our competitive risks:
• some of our competitors have more relevant experience, greater financial and other resources and more personnel than we do;
• if, as we expect, allocation of assets to alternative investment strategies increases, there will be increased competition for alternative investments and access to fund general partners and managers;
• some of our specialized funds and customized separate accounts or the investments that we recommend to our clients may not perform as well as competitors’ funds or other available investment products;
• there are relatively few barriers to entry impeding new asset management firms, including a relatively low cost of entering these lines of business, and the successful efforts of new entrants into our various lines of business is expected to continue to result in increased competition;
• 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;
• 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 or products targeted toward retail;
• 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, including AI technology, to service clients and address investor demand for product and strategy innovation;
• some of our competitors may have instituted, or may institute, low cost, high speed financial applications and services based on AI, and new competitors may enter the investment management space using new investment platforms based on AI;
• some of our competitors may be subject to less regulation and accordingly may have more flexibility to undertake and execute certain strategies or investments than us and/or bear less compliance expense than us;
• some of our competitors may have more flexibility than us in raising certain types of investment funds under the investment management contracts they have negotiated with their clients;
• some of our competitors may have more expertise or be regarded by investors as having more expertise in a specific strategy or geographic region;
• certain investors may prefer to invest with private partnerships; and
• other industry participants will from time to time seek to recruit our investment professionals and other employees away from us.
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.
Difficult or volatile market, economic and geopolitical conditions and catastrophic events 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.
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 and cost of credit, changes in laws, tariffs and trade barriers, sanctions and export controls, currency exchange rates, public health crises, natural disasters and other catastrophic events, climate-related events, civil unrest, trade conflicts, war or threat of war, terrorism or political uncertainty. These factors may affect the level and volatility of securities and other asset prices and the liquidity and valuations and realizable value of investments, and we may not be able to or may choose not to manage our exposure to them in a way that fully mitigates their impact.
During 2025 and early 2026, trade tension and uncertainty persisted with the imposition of tariffs by the United States against trading partners around the world and retaliatory tariffs from other countries. In addition, interest rates remain elevated relative to recent historical levels and inflation remains above target levels. Geopolitical conflicts outside of our control, including wars with Iran and in the Middle East and between Russia and Ukraine, have caused significant volatility in the global financial markets. Disruptions to global energy markets and to key shipping routes, can further increase inflationary pressures and impair economic growth. Such global market volatility and global economic uncertainty add to the various risks and uncertainties in the business environment in which we operate and may have various negative impacts on our business and results of operations, including with respect to decreased valuations of investments by our specialized funds and customized separate accounts, decreased deployments and/or realizations, and adverse impacts on our fundraising activities. Furth er, if market volatility and uncertainty were to result in a global economic recession, our performance and the performance of our specialized funds and customized separate accounts could be adversely impacted in various ways, as discussed further below.
In addition, our fundraising efforts in non-U.S. jurisdictions may be adversely impacted by negative reactions abroad to the U.S. administration’s actions on trade and other policies. For example, there is a risk that other countries, including the EU, could impose tariffs on services from the United States or put other trade barriers in place that would make it less desirable for clients in impacted jurisdictions to do business with us by effectively increasing the price of our services in such areas. We could lose existing clients and/or be unable to attract new ones in impacted jurisdictions. Further, although we are a global company, we are headquartered in the United States. An increase in anti-American sentiment globally or a deterioration in perceptions of U.S.-based financial institutions could have a negative impact on our fundraising with clients and investors outside of the United States. A decline in the pace or size of our fundraising could in turn reduce our revenues. See “—A decline in the pace or size of fundraising or investments made by us on behalf of our specialized funds or customized separate accounts may adversely affect our revenues.”
We are also affected by natural disasters or catastrophes, such as public health crises, pandemics, epidemics, security events, and weather events, any of which could have an adverse impact on our ability to conduct our business. Such events outside of our control could: limit or even materially prohibit our ability to conduct any operations or investment activities in certain locations; restrict our ability to travel and meet with prospective and current clients in person; impede our ability to market our funds and attract new business
(which may result in lower or delayed revenue growth); restrict our ability to conduct onsite due diligence (which may impede our ability to identify investment risk); cause a slowdown in fundraising activity (which could result in delayed or decreased management fees); cause a slowdown in our deployment of capital (which could adversely affect our revenues and our ability to raise capital for new funds); limit the ability of general partners to exit existing investments (which could decrease incentive fee revenue and adversely impact our liquidity and cash flows); and adversely impact our liquidity and cash flows due to declines in revenues. Further, our specialized funds and customized separate accounts could be invested in industries materially impacted by such events outside our control, and such companies in those industries could suffer materially, become insolvent or cease operations altogether, which would decrease the value of our investments and/or cause significant volatility in valuations. These events outside of our control, and actions taken in response to them, may contribute to significant volatility in the financial markets, resulting in increased volatility in equity prices (including our common stock), valuation, material interest rate changes, supply chain disruptions, such as simultaneous supply and demand shock to global, regional and national economies, and an increase in inflationary pressures. These events and the disruptions that they cause, alone or in combination, also have the potential to strain or deplete our infrastructure and response capabilities generally, and to increase costs, each of which could materially and adversely affect us.
Market deterioration has caused, and may in the future cause, us, the specialized funds and customized separate accounts we manage and the funds in which they invest and their underlying portfolio companies 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. These market conditions have also impacted our ability and the ability of funds in which we and our clients invest to liquidate positions in a timely and efficient manner. In times of economic volatility and/or downturn, there are 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. 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. More costly and restrictive financing may also adversely affect the investment returns of our specialized funds with direct investments in leveraged buyout transactions and therefore adversely affect the results of operations and financial condition of these funds. A general market downturn, or a specific market dislocation, may result in lower investment returns for our funds, which would adversely affect our revenues. Furthermore, such conditions could also increase the risk of default with respect to investments held by our funds that have significant debt investments. To the extent our specialized funds’ investments are concentrated in certain geographies or sectors experiencing periods of slowdown or challenging fundamentals, the impact on these funds may be exacerbated.
Our business could generate lower revenue in a general economic downturn or recession or a tightening of global credit markets. A general economic downturn, recession or tightening of global credit markets may cause us to write down the valuations of investments and result in reduced opportunities to find suitable investments and make it more difficult for us, or the funds in which we and our clients invest, to exit and realize value from existing investments, potentially resulting in a decline in the value of the investments held in our clients’ portfolios and a decrease in incentive fee revenue. Any reduction in the market value of the assets we manage will not likely be reported until one or more quarters after the end of the applicable performance period due to an inherent lag in the valuation process of private markets investments. This can result in a mismatch between stated valuation and current market conditions and can lead to delayed revelations of changes in performance and, therefore, delayed effects on our clients’ portfolios. If our clients reduce their investments in private markets in favor of investments they perceive as offering greateropportunity or lower risk, our revenue or net income could decline as a result of lower fees being paid to us. Further, if, due to the lag in reporting, their decision to do so is made after the initial effects of a market downturn are felt by the rest of the economy, the adverse effect we experience as a result of that decision could likewise adversely affect our results of operations on a delayed basis. In addition, adverse market or
economic conditions may cause investors in our evergreen funds to increase redemption requests, which may put pressure on the redemption limits of these funds and adversely impact our revenues, see “—The exercise of redemption or repurchase rights by investors in our evergreen funds may adversely affect our revenues.”
In addition, our ability to find high-quality investment managers with whom to invest could become more limited in deteriorating or difficult market environments. Any such occurrence could delay our ability to invest capital, lead to lower returns on invested capital and have a material adverse effect on our business, financial condition and results of operations.
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. 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.
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. For information regarding risks related to our indebtedness, 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”. Furthermore, any new or incremental regulatory measures for the U.S. financial services industry may increase costs and create regulatory uncertainty and additional competition for our products. In addition, if the United States were to default on its debt, the negative ramifications on the U.S. and global economies could be unprecedented and long-lasting and may dramatically exacerbate risks highlighted here and elsewhere in this Form 10-K.
Extensive government regulation, compliance failures and changes in law or regulation could adversely affect us.
Our business activities are subject to extensive and evolving laws, rules and regulations with which we seek to comply, and we are subject to periodic, routine and for cause examinations by governmental agencies, including the SEC, and self-regulatory organizations in the jurisdictions in which we operate. Any changes or potential changes in the regulatory framework applicable to our business may impose additional expenses or capital requirements on us, limit our fundraising activities, have an adverse effect on our results of operations, financial condition, reputation or prospects, impair employee retention or recruitment and require substantial attention by senior management. Recently adopted and currently proposed new rules and amendments to existing rules—including the SEC’s amended Marketing Rule, Form PF amendments, beneficial ownership reporting changes, the SEC’s proposal to permit optional semiannual reporting by public companies, and proposals relating to cybersecurity, the use of AI and predictive data analytics, custody, outsourcing and advisor-led secondary transactions—could significantly impact us and our operations, including by increasing compliance burdens and associated regulatory costs and complexity. In addition, new or changed 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. 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. Such reform includes, among other things, additional regulation of investment funds, as well as their managers and activities, including: compliance, risk management and anti-money laundering procedures; expense allocation policies and practices; restrictions on specific types of
investments and the provision and use of leverage; implementation of capital requirements; limitations on compensation to managers; and books and records, reporting and disclosure requirements. We cannot predict with certainty the impact on us, our specialized funds or customized separate accounts, or on private markets funds generally, of any such reforms. Any regulatory reform measures could have an adverse effect on our specialized funds’ and customized separate accounts’ investment strategies or our business model. We may incur significant expense in order to comply with such reform measures and may incur significant liabilities if regulatory authorities determine that we are not in compliance.
We could also be adversely affected by changes in applicable tax laws, regulations, or administrative interpretations thereof. In 2025, President Trump signed into law the One Big Beautiful Bill Act (the “OBBBA”), which makes significant changes to the U.S. Internal Revenue Code and other federal tax laws. Among other changes, the OBBBA made permanent many of the provisions enacted by the Tax Cuts and Jobs Act of 2017, including the tax rate brackets for individuals and capital expensing provisions. How the OBBBA will be implemented will depend on future administrative guidance and court rulings. The U.S. Congress may also pass additional tax reform legislation in the future. The timing and details of any such guidance, rulings and legislation and the impact on us are uncertain. It is unclear whether additional legislation will be enacted into law under the current administration or, if enacted, what form it would take, and it is also unclear whether there could be further regulatory or administrative action that could affect U.S. tax rules. See “—Risks Related to our Organizational Structure—In certain circumstances, HLA is required to make distributions to us and the direct and indirect owners of HLA, and the distributions that HLA will be required to make may be substantial.” Other changes that could be enacted in the future, including changes to tax laws enacted by state or local governments in jurisdictions in which we operate, could result in further changes to state and local taxation and materially adversely affect our financial position and results of operations.
In addition, our effective tax rate and tax liability are based on the application of current income tax laws, regulations and treaties. These laws, regulations and treaties are complex, and the manner in which they apply to us and our funds is sometimes open to interpretation. Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. The tax authorities could challenge our interpretation of laws, regulations and treaties, resulting in additional tax liability or adjustment to our income tax provision that could increase our effective tax rate. Changes to tax laws may also adversely affect our ability to attract and retain key personnel.
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 Internal Revenue 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.
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. If, for any reason, these exemptions were to be revoked or challenged or otherwise become unavailable to us, we could be subject to regulatory action or third-party claims, and our business could be materially and adversely affected. 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 advisor or the registration of our broker-dealer subsidiary. 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.
In recent years, the SEC has increased its regulation of the asset management and private equity industries, focusing on private advisors’ fees, allocation of expenses to funds, marketing practices, allocation of fund investment opportunities, disclosures to fund investors, the allocation of broken-deal expenses,
general conflicts of interest disclosures, valuation practices and other fiduciary obligations. The SEC has also increased its focus on investment advisors’ use of AI and predictive data analytics, custody of client assets and outsourcing to service providers. In addition, the SEC will be responsible for examining investment advisors’ compliance with a new FinCEN rule, currently scheduled to take effect on January 1, 2028, that will require certain investment advisors to adopt formal anti-money laundering programs and to file suspicious activity reports, and a related joint FinCEN-SEC customer identification program rule for investment advisors. The lack of readily ascertainable market prices for many of the investments made by our specialized funds or customized separate accounts or the funds in which we invest could subject our valuation policies and processes to increased scrutiny by the SEC. In addition, the SEC and other regulators have continued to bring enforcement actions, and to impose substantial monetary penalties, against investment advisors and broker-dealers for insufficient monitoring and preservation of “off-channel” business communications conducted on personal devices and unapproved messaging applications. We may be adversely affected as a result of new or revised legislation or regulations imposed by the SEC, other U.S. or foreign governmental regulatory authorities or self-regulatory organizations that supervise the financial markets by increasing our compliance costs, requiring changes to our policies and procedures or subjecting us to additional examination and enforcement risk. We also may be adversely affected by changes in the interpretation or enforcement of existing laws and rules by these governmental authorities and self-regulatory organizations.
To the extent that HLA is a “fiduciary” under ERISA, with respect to benefit plan clients, it is subject to ERISA, and to regulations promulgated thereunder. ERISA and applicable provisions of the Internal Revenue Code impose certain duties on persons who are fiduciaries under ERISA, prohibit certain transactions involving ERISA plan clients and provide monetary penalties for violations of these prohibitions. Our failure to comply with these requirements could have a material adverse effect on our business.
In addition, HLA is registered as an investment advisor with the SEC and is subject to the requirements and regulations of the Investment Advisers Act. Such requirements relate to, among other things, restrictions on entering into transactions with clients, maintaining an effective compliance program, incentive fees, solicitation arrangements, allocation of investments, recordkeeping and reporting requirements, disclosure requirements, limitations on agency cross and principal transactions between an advisor and their advisory clients, as well as general anti-fraud prohibitions. As a registered investment advisor, HLA has fiduciary duties to its clients. 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. 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 advisor or broker-dealer registrations or the commencement of a civil or criminal lawsuit against us or our personnel. SEC actions and initiatives can have an adverse effect on our financial results. Even if an investigation or proceeding did not result in a sanction, or the sanction imposed against us or our personnel by a regulator were small in monetary amount, the adverse publicity relating to the investigation, proceeding or imposition of these sanctions 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.
In addition, a number of jurisdictions, including the United States, have restrictions on foreign direct investment pursuant to which their respective heads of state and/or regulatory bodies have the authority to block or impose conditions with respect to certain transactions, such as investments, acquisitions and divestitures, if such transaction threatens to impair national security. 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. 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. Further, in August 2023, the prior United States presidential administration issued an executive order prohibiting certain investments by U.S. persons in advanced technology sectors in China and jurisdictions designated as “countries of concern.” In February 2025, the current United States presidential
administration issued a memorandum describing enhanced restrictions on outbound investments into China, as well as on Chinese investments in the United States. These actions could negatively impact our ability to raise capital from and deploy capital in such jurisdictions, including if the administration seeks to expand such limitations. 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. Complying with these laws imposes potentially significant costs and complex additional burdens, and any failure by us, our specialized funds, customized separate accounts or the portfolio companies in which they invest to comply with them could expose us to significant penalties, sanctions, loss of future investment opportunities, additional regulatory scrutiny, and reputational harm.
Lastly, governmental actions related to the imposition of tariffs or other trade barriers or changes to international trade agreements or policies could adversely impact our investments, deployments, realizations, fundraising, and revenues. See “—Difficult or volatile market, economic and geopolitical conditions and catastrophic events 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.”
Federal, state and foreign anti-corruption and sanctions laws create the potential for significant liabilities and penalties and reputational harm.
We are also subject to a number of laws and regulations governing payments and contributions to political persons or other third parties, including restrictions imposed by the Foreign Corrupt Practices Act (“FCPA”) as well as sanctions and export control laws administered by the Office of Foreign Assets Control (“OFAC”), the U.S. Department of Commerce and the U.S. Department of State. The FCPA is intended to prohibit bribery of foreign governments and their officials and political parties, and requires public companies in the United States to keep books and records that accurately and fairly reflect those companies’ transactions. OFAC, the U.S. Department of Commerce and the U.S. Department of State administer and enforce various export control laws and regulations, including economic and trade sanctions based on U.S. foreign policy and national security goals against targeted foreign states, organizations and individuals. These laws and regulations relate to a number of aspects of our business, including servicing existing fund investors, finding new fund investors, and sourcing new investments, as well as activities by the portfolio companies in our investment portfolio or other controlled investments.
Similar laws in non-U.S. jurisdictions, such as EU sanctions or the U.K. Bribery Act, as well as other applicable anti-bribery, anti-corruption, anti-money laundering, or sanction or other export control laws in the United States and abroad, may also impose stricter or more onerous requirements than the FCPA, OFAC, the U.S. Department of Commerce and the U.S. Department of State, and implementing them may disrupt our business or cause us to incur significantly more costs to comply with those laws. Different laws may also contain conflicting provisions, making compliance with all laws more difficult. Further, because different interpretations of current sanctions laws may exist, we could become involved in disputes with respect to actions taken in compliance with our understanding of such laws. 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. 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. 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. Any determination that we have violated the FCPA or other applicable anti-corruption, sanctions or export control laws could subject us to, among other things, civil and criminalpenalties, material fines, profit disgorgement, injunctions on future conduct, securities litigation and a general loss of investor
confidence, any one of which could adversely affect our business prospects, financial condition, results of operations or the market value of our Class A common stock.
Regulation of investment advisors outside the United States could adversely affect our ability to operate our business.
We provide investment advisory and other services and raise funds in a number of countries and jurisdictions outside the United States. In many of these countries and jurisdictions, which include the EU, the EEA, certain of the individual member states of each of the EU and EEA, Australia, Canada, Chile, China, Hong Kong, Israel, Japan, Mexico, Singapore, South Korea, Switzerland, the United Arab Emirates and the U.K., we and our operations, and in some cases our personnel, are subject to regulatory oversight and requirements. 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. Failure to maintain compliance with applicable laws and regulations in any such jurisdictions could result in regulatory intervention (including censures, fines, limits on our activities or the suspension or revocation of regulatory authorizations), could adversely affect our business or ability to provide services to our clients and could harm our reputation.
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. In 2024, the EU adopted AIFMD II, which introduces changes relating to delegation arrangements and minimum substance requirements for EU AIFMs, liquidity risk management and liquidity-management tools, supervisory reporting, the provision of depositary and custody services and the regulation of loan-originating alternative investment funds, including leverage limits and additional conditions for open-ended loan-originating funds. EU member states were required to transpose AIFMD II into national law by April 16, 2026. In parallel, the U.K. has consulted on, and begun to implement, reforms to its domestic alternative investment fund manager regime. These developments may increase the compliance, operational and reporting burdens for certain of our funds and could affect our ability to market and manage our products efficiently in these jurisdictions. Individual member states of the EU, as well as Switzerland, 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. In certain other jurisdictions, we are subject to various securities and other laws relating to fundraising and other matters. In some cases, these regimes restrict the ability of non-local firms to market funds or provide advisory services without obtaining local authorizations or complying with specific conduct and disclosure rules, and may change with limited notice. Any such changes, or any inability or perceived failure to comply with applicable local laws and regulations, could require us to alter or cease certain activities in affected jurisdictions, limit our ability to raise capital or provide services there, subject us to sanctions, fines or other penalties, or otherwise adversely affect our business or reputation.
In the EU, MiFID II requires, among other things, all MiFID II investment firms to comply with prescriptive disclosure, transparency, reporting and recordkeeping obligations and obligations in relation to the receipt of investment research, best execution, product governance and marketing communications. As we operate investment firms which are subject to MiFID II, we have implemented policies and procedures to comply with MiFID II where relevant, including where certain rules have an extraterritorial impact on us. Compliance with MiFID II has resulted in greater overall complexity, higher compliance, administration and operational costs, and less overall flexibility.
We are also subject to DORA in the EU, which took effect in 2025, and imposes requirements on financial entities, including AIFMs, relating to information and communications technology risk management, incident reporting, digital operational resilience testing and third-party risk management. In addition, certain regulatory requirements and proposals in the EU and U.K. intended to enhance protection for retail investors and impose additional obligations on the distribution of certain products to retail investors may impose additional costs on our operations and limit our ability to raise capital from retail investors in such jurisdictions.
These laws and regulations, and any changes in them, may affect our costs and manner of conducting business in one or more markets, the risks of doing business, the assets that we manage or advise, and our ability to raise capital from investors. Any failure by us to comply with either existing or new laws or regulations could have a material adverse effect on our business, financial condition and results of operations.
We are subject to shifting and divergent demands with respect to sustainability, responsible investing and related matters from our investors, regulators and other stakeholders across the jurisdictions in which we operate.
We, our specialized funds and customized separate accounts and portfolio companies in which our specialized funds and customized separate accounts invest are subject to shifting and increasingly divergent demands with respect to responsible investing and sustainability-related matters, including with respect to the role of responsible investing principles in the investment process. These expectations are evolving and are not uniform, and in some cases can be in tension with one another, including between certain U.S. jurisdictions and European jurisdictions where regulators and many investors generally expect greater consideration and disclosure of sustainability-related factors. These shifting pressures could impact us in the following ways:
• Certain investors may condition capital commitments in ways that may constrain our capital deployment opportunities, including by limiting investment opportunities in certain sectors, or taking certain actions, or refraining therefrom. These investor‑driven preferences or constraints may limit the investable universe or the actions we are able to take within a mandate and, as a result, could affect the risk and return profile of the relevant portfolios.
• As investor and client perspectives evolve and further diverge, we may not be able to adequately anticipate or successfully meet the changing needs of our clients and investors. This could lead to adverse impacts on our fundraising capabilities, exclusion from or loss of certain investment mandates, reputational harm and regulatory scrutiny.
• Certain clients and investors have also begun to request or require data and/or use third-party benchmarks and sustainability ratings to allow them to monitor the impact of their investments. Clients may also require the achievement of certain science-based targets related to climate action in their investments. We may be unable to generate the necessary data or results on the timelines or in the formats requested, or at a reasonable cost, which could negatively affect our relationships with such clients and investors.
• Adopting specific sustainability-related investment restrictions may impair our ability to access capital from certain clients and investors. In the EU, the U.K. and certain other jurisdictions, regulatory frameworks and related guidance for products classified or marketed with sustainability characteristics or objectives increasingly include requirements to limit exposure to certain sectors or activities viewed as presenting heightened sustainability or climate‑related risks (for example, thermal coal, oil sands or other high‑emitting activities). Regulators and many investors in those jurisdictions have generally encouraged or required increased consideration of sustainability factors in the investment process and in disclosures, and may expect asset managers to limit exposure to, or engage actively with, issuers in such sectors. At the same time, government authorities of certain U.S. states have requested information from, and publicly scrutinized, asset managers with respect to whether such managers have adopted sustainability or responsible investing policies that would restrict investing in certain industries or sectors, such as fossil fuel‑based energy, and have indicated that such asset managers may loseopportunities 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.
• The needs of various investors, clients, and stakeholders may also conflict, and we may be subject to increasing operational complexity and costs to meet their divergent needs or otherwise be required to
make strategic choices around our priorities. There is no guarantee we will be successful in our choices.
• Regulatory penalties and legal actions related to insufficient adaptation to or compliance with sustainability-related laws and regulations, and/or related to the clarity of our disclosures, may lead to reputational damage or financial penalties, which could adversely affect our profitability. Rapidly evolving regulations and laws increase these risks.
In addition, there is increasing scrutiny of workforce development and management programs in the United States and other jurisdictions, including through legislation, executive orders, regulatory initiatives and private litigation. Governmental authorities and private plaintiffs have signaled a willingness to challenge corporate workforce related initiatives under civil-rights and other statutes. Any such challenge involving us, our funds or portfolio companies, whether or not successful, could result in regulatory inquiries or enforcement, litigation, monetary penalties, adverse judgments or settlements, or harm to our reputation, each of which could adversely affect our business.
Climate change and associated regulations, and transitional and physical risks, could adversely affect our business and the operations of portfolio companies in which our specialized funds and customized separate accounts invest.
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 sustainability-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. These risks could impact us in many ways including by increasing our compliance costs, increasing our risk of regulatory actions, and potentially adversely impacting the returns that we are able to generate on behalf of clients and investors.
Climate change and sustainability-related regulations have resulted and are likely to continue to 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. Additionally, climate-related rules and disclosure regulations continue to evolve, leading to uncertainty over costs and creating increased complexity. We cannot guarantee that our current approach will meet future regulatory requirements, reporting frameworks or best practices. New global regulatory frameworks have detailed disclosure requirements that could impact us and/or certain of our funds and may conflict with certain of our other regulatory obligations. As a consequence, we may be unable to fully comply with some requirements of these new regimes, which could result in regulatory actions against us. Moreover, 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, on our website, or in other disclosures, which subjects us to additional risks, including the risk of being accused of “greenwashing”. 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. Certain portfolio companies in which our specialized funds and customized separate accounts invest are also subject to similar regulatory scrutiny, and many face increased costs and potential regulatory risks as it relates to their own approaches, reporting frameworks and climate disclosures. For these companies, not addressing these costs and risks adequately and successfully could adversely impact their competitive position and profitability, leading to greaterchallenges in achieving our expected returns.
Certain portfolio companies in which our specialized funds and customized separate accounts invest operate in sectors that could face risks as a result of a transition to a lower-carbon economy. 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. Changing preferences could reduce the economic viability or useful life of assets tied to carbon-intensive industries. Portfolio companies may be exposed to heightened physical climate risks, may experience rising insurance costs or reduced availability of insurance coverage. Failure to address these changed expectations could create business risks for portfolio companies, which could negatively impact the returns in our specialized funds and customized separate accounts. Further, significant chronic or acute physical effects of climate change, including extreme weather events such as hurricanes, floods or wildfires, can have an adverse impact on certain portfolio companies and investments, especially those that rely on physical factories, plants or stores located in the affected areas, or that focus on tourism or recreational travel.
Risks Related to Our Organizational Structure
We are a “controlled company” within the meaning of the Nasdaq listing standards and, as a result, qualify for, and intend to continue to rely on, exemptions from certain corporate governance requirements. You will not have the same protections afforded to stockholders of companies that are subject to such requirements.
Holders of our Class B common stock, which is not publicly traded, control a majority of the voting power of our outstanding common stock. As a result, we qualify as a “controlled company” within the meaning of the corporate governance standards of Nasdaq. 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.
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.
Our only material asset is our interest in HLA, and we are accordingly dependent upon distributions from HLA to pay dividends, taxes and other expenses.
HLI is a holding company and has no material assets other than its ownership of membership units in HLA and certain deferred tax assets. As such, HLI does not have any independent means of generating revenue. We intend to cause HLA to make pro rata distributions to its members, including us, in an amount at least sufficient to allow us to pay all applicable taxes, to make payments under the tax receivable agreement we have entered into with the direct and indirect members of HLA, and to pay our corporate and other overhead expenses. To the extent that HLI needs funds, and HLA is restricted from making such distributions under applicable laws or regulations, or is otherwise unable to provide such funds, it could materially and adversely affect our liquidity and financial condition.
The IRS might challenge the tax basis step-up we received in connection with our IPO and the related transactions and in connection with subsequent acquisitions of membership units in HLA.
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. 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. 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. The increases in tax basis may reduce the amount of tax that we would otherwise be required to pay in the future, although it is possible that the IRS might challenge all or part of that tax basis increase, and a court might sustain such a challenge. Our ability to achieve benefits from any tax basis increase will depend upon a number of factors, as discussed below, including the timing and amount of our future income.
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.
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.
The term of the tax receivable agreement commenced upon the completion of our IPO and will continue until all tax benefits that are subject to the tax receivable agreement have been utilized or have expired, unless we exercise our right to terminate the tax receivable agreement (or the tax receivable agreement is terminated due to a change of control or our breach of a material obligation thereunder), in which case, we will be required to make the termination payment specified in the tax receivable agreement. In addition, payments we make under the tax receivable agreement will be increased by any interest accrued from the due date (without extensions) of the corresponding tax return.
The actual increase in tax basis, as well as the amount and timing of any payments under the tax receivable agreement, will vary depending on a number of factors, including, but not limited to, the price of our Class A common stock at the time of the purchase or exchange, the timing of any future exchanges, the extent to which exchanges are taxable, the amount and timing of our income and the tax rates then applicable. We expect that, as a result of the increases in the tax basis of the tangible and intangible assets of HLA attributable to the exchanged HLA interests, the payments that we may make to the legacy direct or indirect members of HLA could be substantial. There may be a material negative effect on our liquidity if, as described below, the payments under the tax receivable agreement exceed the actual benefits we receive in respect of the tax attributes subject to the tax receivable agreement and/or distributions to us by HLA are not sufficient to permit us to make payments under the tax receivable agreement.
In certain circumstances, payments under the tax receivable agreement may be accelerated and/or significantly exceed the actual tax benefits we realize.
The tax receivable agreement provides that if we exercise our right to early termination of the tax receivable agreement, in whole or in part, we experience a change in control, or we materially breach our obligations under the tax receivable agreement, we will be obligated to make an early termination payment to the legacy direct or indirect members of HLA equal to the net present value of all payments that would be required to be paid by us under the tax receivable agreement. The amount of such payments will be determined on the basis of certain assumptions in the tax receivable agreement, including (i) the assumption (except in the case of a partial termination) that we would have enough taxable income in the future to fully utilize the tax benefit resulting from any increased tax basis that results from an exchange and (ii) the assumption that any units (other than those held by Hamilton Lane Incorporated) outstanding on the termination date are deemed to be exchanged for shares of Class A common stock on the termination date. We have in the past exercised our right to terminate the tax receivable agreement with respect to certain individuals who had exchanged all of their HLA units and paid the related early termination payments, and we may elect to do so with respect to other individuals in the future. Any early termination payment may be made significantly in advance of the actual realization, if any, of the future tax benefits to which the termination payment relates.
Moreover, as a result of an elective early termination, a change of control or our material breach of our obligations under the tax receivable agreement, we could be required to make payments under the tax receivable agreement that exceed our actual cash savings under the tax receivable agreement. Thus, our obligations under the tax receivable agreement could have a substantial negative impact on our liquidity and could have the effect of delaying, deferring or preventing certain mergers, asset sales, or other forms of business combinations or changes of control. There can be no assurance that we will be able to finance any such early termination payment. It is also possible that the actual benefits ultimately realized by us may be significantly less than were projected in the computation of the early termination payment.
We will not be reimbursed for any payments previously made under the tax receivable agreement if the basis increases described above are successfullychallenged by the IRS or another taxing authority. As a result, in certain circumstances, payments could be made under the tax receivable agreement in excess of our ultimate cash tax savings.
In certain circumstances, HLA is required to make distributions to us and the direct and indirect owners of HLA, and the distributions that HLA will be required to make may be substantial.
HLA is treated as a partnership for U.S. federal income tax purposes and, as such, is not subject to U.S. federal income tax. Instead, taxable income is allocated to members, including us. Pursuant to the limited liability company agreement of HLA (“HLA Operating Agreement”), HLA makes pro rata cash distributions (“tax distributions”) to the members, including us, calculated using an assumed tax rate, to help each of the members to pay taxes on such member’s allocable share of taxable income. Under applicable tax rules, HLA is required to allocate net taxable income disproportionately to its members in certain circumstances. Because tax distributions are based on an assumed tax rate that is the highest possible rate applicable to any member, HLA is required to make tax distributions that, in the aggregate, will likely exceed the amount of taxes that HLA would have paid if it were taxed on its net income at the assumed rate. The pro rata distribution amounts will also be increased if and to the extent necessary to ensure that the amount distributed to HLI is sufficient to enable HLI to pay its actual tax liabilities and its other expenses and costs (including amounts payable under the tax receivable agreement).
Funds used by HLA to satisfy its tax distribution obligations are not available for reinvestment in our business. Moreover, the tax distributions HLA is required to make may be substantial, and may exceed (as a percentage of HLA’s income) the overall effective tax rate applicable to a similarly situated corporate taxpayer. In addition, because these payments are calculated with reference to an assumed tax rate, and because of the disproportionate allocation of net taxable income, these payments will likely significantly exceed the actual tax liability for many of the legacy owners of HLA.
As a result of (i) potential differences in the amount of net taxable income allocable to us and to the direct and indirect owners of HLA, (ii) the lower tax rate applicable to corporations than individuals and (iii) the use of an assumed tax rate in calculating HLA’s distribution obligations, we may receive distributions significantly in excess of our tax liabilities and obligations to make payments under the tax receivable agreement. 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.
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.
Because many members of our senior management team hold their economic interest in HLA 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. For example, members of our senior management team have different tax positions 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.
The disparity in the voting rights among the classes of our common stock and limited ability of the holders of our Class A common stock to influence decisions submitted to a vote of our stockholders may have an adverse effect on the price of our Class A common stock.
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. 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. Certain of the holders of our Class B common stock who are significant outside investors, members of management and significant employee owners have agreed to vote all of their shares in accordance with the instructions of HLAI, and will therefore be able to exercise control over all matters requiring our stockholders’ approval, including the election of our directors, as well as any significant corporate transactions. The difference in voting rights could adversely affect the value of our Class A common stock to the extent that investors view, or any potential future purchaser of our Company views, the superior voting rights and implicit control of the Class B common stock to have value.
Our share price may decline due to the large number of shares eligible for future sale and for exchange.
The market price of our Class A common stock could decline as a result of the perception that sales of a large number of shares of Class A common stock in the market could occur and has declined as a result of such sales. 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. 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 12.3 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.
We have entered into a registration rights agreement with certain Class B Holders who are significant outside investors, members of management and significant employee owners. Under that agreement, subject to certain limitations, those persons have the ability to cause us to register the resale of shares of our Class A common stock that they acquire upon exchange of their Class B units and Class C units in HLA. Registration of these shares would result in them becoming freely tradable in the open market unless restrictions apply.
We expect to continue to pay dividends to our stockholders, but our ability to do so is subject to the discretion of our board of directors and may be limited by our holding company structure and applicable provisions of Delaware and Pennsylvania law.
Since our IPO, our board of directors has declared regular quarterly dividends on our Class A common stock. Although we expect to continue to pay cash dividends to our stockholders, our board of directors may, in its discretion, increase or decrease the level of dividends or discontinue the payment of dividends entirely. In addition, as a holding company, we are dependent upon the ability of HLA to generate earnings and cash flows and distribute them to us so that we may pay our obligations and expenses (including our taxes and payments under the tax receivable agreement) and pay dividends to our stockholders. We expect to cause HLA to make distributions to its members, including us. 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 the Note Purchase Agreement 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). If, as a consequence of these various limitations and restrictions, we are unable to generate sufficient distributions from our business, we may not be able to make, or may be required to reduce or eliminate, the payment of dividends on our Class A common stock.
Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us more difficult, limit attempts by our stockholders to replace or remove our current management and may negatively affect the market price of our Class A common stock.
Provisions in our certificate of incorporation and bylaws may have the effect of delaying or preventing a change of control or changes in our management. Our certificate of incorporation and bylaws include provisions that:
• provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum;
• establish that our board of directors is divided into three classes, with each class serving three-year staggered terms;
• require that any action to be taken by our stockholders be effected at a duly called annual or special meeting and not by written consent, except that action by written consent will be allowed for as long as we are a controlled company;
• specify that special meetings of our stockholders can be called only by our board of directors or the chairman of our board of directors;
• establish an advance notice procedure for stockholder proposals to be brought before an annual meeting, including proposed nominations of persons for election to our board of directors;
• authorize our board of directors to issue, without further action by the stockholders, up to 10,000,000 shares of undesignated preferred stock; and
• reflect two classes of common stock, as discussed above.
These and other provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management. Also, the tax receivable agreement provides that, in the event of a change of control, we will be required to make a payment equal to the present value of estimated future payments under the tax receivable agreement, which would result in a significant payment becoming due in the event of a change of control. In addition, we are a Delaware corporation and governed by the Delaware General Corporation Law (the “DGCL”). Section 203 of the DGCL generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any “interested” stockholder, in particular those owning 15% or more of our outstanding voting stock, for a period of three years following the date on which the stockholder became an “interested” stockholder. 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.
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.
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. 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.
An issuer will generally be deemed to be an “investment company” for purposes of the Investment Company Act if, absent an applicable exemption:
• it is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities (commonly referred to as the “orthodox investment company test”); or
• it owns or proposes to acquire investment securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis (commonly referred to as the “inadvertent investment company test” or “40% test”).
We believe that we are engaged primarily in the business of providing asset management services and not in the business of investing, reinvesting or trading in securities. We also believe that the primary source of income from our business is properly characterized as income earned in exchange for the provision of services. We hold ourselves out as an asset management firm and do not propose to engage primarily in the business of investing, reinvesting or trading in securities. Accordingly, we believe that Hamilton Lane Incorporated and HLA are not “orthodox” investment companies as defined in section 3(a)(1)(A) of the Investment Company Act and described in the first bullet point above. In addition, with respect to the inadvertent investment company test, we do not believe that we or HLA have significant assets that are investment securities for purposes of that test. Accordingly, we believe that Hamilton Lane Incorporated and HLA are not investment companies by virtue of the inadvertent investment company test in section 3(a)(1)(C) of the Investment Company Act as described in the second bullet point above. In addition, we believe Hamilton Lane Incorporated is not an investment company under section 3(b)(1) of the Investment Company Act because it is primarily engaged in a non-investment company business.
The Investment Company Act and the rules thereunder contain detailed parameters for the organization and operations of investment companies. Among other things, the Investment Company Act and the rules thereunder limit or prohibit transactions with affiliates, impose limitations on the issuance of debt and equity securities, prohibit the issuance of stock options, and impose certain governance requirements. We intend to continue to conduct our operations so that Hamilton Lane Incorporated will not be deemed to be an investment company under the Investment Company Act. However, if anything were to happen that would cause Hamilton Lane Incorporated to be deemed to be an investment company under the Investment Company Act, requirements imposed by the Investment Company Act, including limitations on our capital structure, ability to transact business with affiliates (including HLA) and ability to compensate key employees, could make it impractical for us to continue our business as currently conducted, impair the agreements and arrangements between and among HLA, us or our senior management team, or any combination thereof and materially and adversely affect our business, financial condition and results of operations.
A change of control of our Company, including the occurrence of a “sunset,” could result in an assignment of our investment advisory agreements.
Under the Investment Advisers Act, each of the investment advisory agreements for the funds and other accounts we manage must provide that it may not be assigned without the consent of the particular fund or other client. An assignment may occur under the Investment Advisers Act if, among other things, HLA undergoes a change of control. After a “sunset” becomes effective (as described in “Organizational Structure—Class A and Class B Common Stock—Voting Rights” and as described in further detail in our certificate of
incorporation), the Class B common stock will have one vote per share instead of ten votes per share, and the stockholders agreement will expire, meaning that the Class B Holders party thereto will no longer control the appointment of directors or be able to direct the vote on all matters that are submitted to our stockholders for a vote. These events could be deemed a change of control of HLA, and thus an assignment. 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.
• Customized Separate Accounts : We design and build customized portfolios of private markets funds and direct investments to meet our clients’ specific portfolio objectives with regard to return, risk tolerance, diversification and liquidity. We generally have discretionary investment authority over our customized separate accounts, which comprised $91.7 billion of our AUM as of March 31, 2026.
• Specialized Funds : We invest and manage commingled specialized primary, secondary, private credit, direct equity and multi-strategy investment funds across the private markets, including those that focus on specific markets or strategies such as venture capital, infrastructure, real estate and impact. Our specialized funds include both drawdown funds and evergreen funds. For more information regarding how our specialized funds are structured and other key terms, see “Business—Fees and Other Key Contractual Terms—Specialized Funds” in Part I, Item 1 of this Form 10-K. Specialized funds comprised $50.1 billion of our AUM as of March 31, 2026.
• Advisory Services : We offer non-discretionary investment advisory services to assist clients in developing and implementing their private markets investment programs. Our investment advisory services include asset allocation, strategic plan creation, development of investment policies and guidelines, the screening and recommending of investments, the monitoring of and reporting on investments, and investment manager review and due diligence. Our advisory clients include some of the largest and most sophisticated private markets investors in the world. We had $905.3 billion of AUA as of March 31, 2026.
• Distribution Management : We offer distribution management services to our clients through active portfolio management to enhance the realized value of publicly traded stock they receive as distributions in-kind from private equity funds.
• Reporting, Monitoring, Data and Analytics: We provide our clients with comprehensive reporting and investment monitoring services, usually bundled into our broader investment solutions offerings, but also on a stand-alone, fee-for-service basis. We also provide comprehensive research and analytical services as part of our investment solutions, leveraging our large, global, proprietary and high-quality database to support transparency, decision making and portfolio construction. Our data, as well as our benchmarking and forecasting models, are accessible through our proprietary technology solution, Cobalt LP, on a stand-alone, subscription basis.
Our client and investor base is broadly diversified by type, size and geography. Our client base ranges from those seeking to make an initial investment in private markets to some of the world’s largest and most sophisticated private markets investors. As we offer a highly customized, flexible service, we are equipped to provide investment services to institutional clients of all sizes and with different needs, internal resources and investment objectives. Our clients include prominent institutional investors in the United States, Canada, Europe, the Middle East, Asia, Australia and Latin America. We provide private markets solutions and services to some of the largest global pension, sovereign wealth and U.S. state pension funds, and believe we are a leading provider of private markets solutions for U.S. labor union pension plans. We also serve a growing number of smaller public and corporate pension plans, sovereign wealth funds, financial institutions and insurance companies, endowments and foundations, as well as family offices and high-net-worth individuals.
Our intermediary clients, which include registered investment advisors, enable us to provide our investment products to a growing set of high-net-worth individuals and family offices. Historically, this segment of investors has had limited options for gaining exposure to the private markets. Hamilton Lane's private wealth platform offers these investors access to private capital and its wealth creation potential. Our differentiators include a global platform, a range of risk/return offerings via both drawdown funds and semi-liquid evergreen funds and across multiple investment strategies.
Trends Affecting Our Business
Our results of operations are affected by a variety of factors, including conditions in the global financial markets and the economic and political environments, particularly in the United States, Western Europe and Asia. Interest rates remain elevated relative to recent historical levels, inflationary pressures have persisted and public equity volatility continues, contributing to a wider range of equity returns. Against this backdrop, we continue to see investor demand for alternative investments as investors seek attractive yield, return and diversification opportunities, and some investors have increased their allocation to private markets relative to other asset classes. In addition, the opportunities in private markets continue to expand as firms have created new vehicles and products in which to access private markets across different geographies and opportunity sets.
In addition to the aforementioned macroeconomic and sector-specific trends, we believe the following factors will influence our future performance:
• The extent to which investors favor alternative investments. Our ability to attract new capital is partially dependent on investors’ views of alternative assets relative to traditional publicly listed equity and debt securities. We believe fundraising efforts will continue to be impacted by certain fundamental asset management trends that include: (1) the increasing importance and market share of alternative investment strategies to investors (including smaller institutions and high-net-worth individuals) in light of an increased focus on lower-correlated and absolute levels of return; (2) the
increasing demands of the investing community, including the potential for fee compression and changes to other terms; (3) shifting asset allocation policies of institutional investors; and (4) increasing barriers to entry and growth.
• Our ability to generate strong returns. We must continue to generate strong returns for our investors through our disciplined investment diligence process in an increasingly competitive market. The ability to attract and retain clients is partially dependent on returns we are able to deliver versus our peers. The capital we are able to attract drives the growth of our AUM and AUA and the management and advisory fees we earn.
• Our ability to source investments with attractive risk-adjusted returns. An increasing part of our management fee and incentive fee revenue has been from our direct investment and secondary investment platforms. The continued growth of this revenue is dependent on our continued ability to source attractive investments and deploy the capital that we have raised or manage on behalf of our clients. Because we are selective in the opportunities in which we invest, the capital deployed can vary from year to year. Our ability to identify attractive investments and execute on those investments is dependent on a number of factors, including the general macroeconomic environment, valuation, transaction size, and expected duration of such investment opportunity. A significant decrease in the quality or quantity of potential opportunities could adversely affect our ability to source investments with attractive risk-adjusted returns.
• Our ability to maintain our data advantage relative to competitors. We believe that the general trend towards transparency and consistency in private markets reporting will create new opportunities for us to leverage our databases and analytical capabilities. We intend to use these advantages afforded to us by our proprietary databases, analytical tools and deep industry knowledge to drive our performance, provide our clients with customized solutions across private markets asset classes and continue to differentiate our products and services from those of our competitors. Our ability to maintain our data advantage is dependent on a number of factors, including our continued access to a broad set of private market information on an ongoing basis, as well as our ability to maintain our investment scale, considering the evolving competitive landscape and potential industry consolidation.
• Our ability to continue to expand globally . We believe that many institutional investors outside the United States are currently underinvested in private markets asset classes and that capturing capital inflows into private capital investing from non-U.S. global markets represents a significant growth opportunity for us. Our ability to continue to expand globally is dependent on our ability to continue building successful relationships with investors internationally and subject to the evolving macroeconomic and regulatory environment of the various countries where we operate or in which we invest.
• Increased competition to work with top private equity fund managers. There has been a trend among private markets investors to consolidate the number of general partners in which they invest. At the same time, an increasing flow of capital to the private markets has often times resulted in certain funds being oversubscribed. This has resulted in some investors, primarily smaller investors or less strategically important investors, not being able to gain access to certain funds. Our ability to invest and maintain our sphere of influence with these high-performing fund managers is critical to our investors’ success and our ability to maintain our competitive position and grow our revenue.
• Unpredictable, volatile and uncertain macroeconomic conditions . Global economic conditions, including political environments, financial market performance, tariff policies, interest rates, credit spreads or other conditions beyond our control, all of which affect the performance of the assets underlying private market investments, are unpredictable and could negatively affect the performance of our clients’ portfolios or the ability to raise funds in the future. The United States and countries around the world continue to experience elevated levels of market volatility and uncertainty driven in part by geopolitical conflicts and global trade concerns. This volatility and uncertainty adds to the risks and uncertainties in the business environment in which we operate and may have various negative impacts on our business and results of operations, including with respect to decreased valuations of investments by our specialized funds and customized separate accounts, deployments, realizations, and fundraising activities.
• Increasing regulatory requirements . The complex regulatory and tax environment could restrict our operations and subject us to increased compliance costs and administrative burdens, as well as restrictions on our business activities.
• Expansion of private markets solutions and product innovation . We believe opportunities in private markets will continue to broaden as investors seek access across a wider range of asset classes, structures and themes. Our ability to benefit from this trend will depend on our ability to develop, scale and distribute compelling products and solutions that meet evolving client objectives and remain competitive with existing and new market participants.
• Our ability to execute strategic partnerships successfully . We may seek to broaden our capabilities, expand our geographic reach, enhance our distribution channels or deepen our expertise in certain strategies through strategic partnerships, minority investments and acquisitions. The success of these efforts depends on our ability to identify attractiveopportunities and realize the expected strategic and financial benefits of such transactions.
• Artificial intelligence and technological change . AI and related technologies are evolving rapidly and are increasingly being applied across investment processes, data analysis, client service and workplace productivity. Our ability to remain competitive will depend in part on our ability to keep pace with the evolution and practical application of these technologies, invest appropriately in our systems and workflows, and adapt our operating model as the use of AI across the workplace continues to expand.
Recent Transactions
Stock Repurchases
In November 2018, we authorized a program to repurchase up to 6% of the outstanding shares of our Class A common stock, not to exceed $50 million (the “Stock Repurchase Program”). Our board of directors periodically reviews the Stock Repurchase Program, and on May 21, 2026, we announced that our board of directors had approved an increase in the authorization under the Stock Repurchase Program to permit us to purchase up to $100 million of our Class A common stock, net of amounts already repurchased under the pre-existing authorization, with no share count or duration under the limitations. During the three months ended March 31, 2026, we repurchased 199,000 shares of our Class A common stock under the Stock Repurchase Program at a weighted-average price of $100.43 per share, for an aggregate purchase price of approximately $20 million under the Stock Repurchase Program. As of May 21, 2026, the total repurchase available under the Stock Repurchase Program authorization was approximately $80.0 million.
Key Financial and Operating Measures
Our key financial measures are discussed below.
Revenues
We generate revenues primarily from management and advisory fees, and to a lesser extent, incentive fees. See “—Critical Accounting Estimates—Revenue Recognition of Incentive Fees” and Note 2 of the consolidated financial statements included in Part II, Item 8 of this Form 10-K for additional information regarding the manner in which management and advisory fees and incentive fees are generated.
Management and advisory fees comprise specialized fund and customized separate account management fees, advisory fees and reporting, monitoring data and analytic fees and distribution management fees.
Revenues from customized separate accounts are generally based on a contractual rate applied to committed capital, net invested capital and/or net asset value (“NAV”). These fees often decrease over the life of the contract due to built-in declines in contractual rates and/or as a result of lower net invested capital balances as capital is returned to clients. In certain cases, we also provide advisory and/or reporting services, and, therefore, we also receive fees for services such as monitoring and reporting on a client’s existing private markets investments. In addition, we may provide for investments in our specialized funds as part of our customized separate accounts. In these cases, we generally reduce the asset-based and/or incentive fees on customized separate accounts to the extent that assets in the accounts are invested in our specialized funds so that our clients do not pay duplicate fees.
Revenues from specialized funds are based on a percentage of limited partners’ capital commitments to, net invested capital or NAV in, our specialized funds. The management fee during the investment period is often charged on capital commitments and after the investment period (or a defined anniversary of the fund’s initial closing) is typically reduced by a percentage of the management fee for the preceding year or charged on net invested capital or NAV. In the case of certain funds, we charge management fees on capital commitments, with the management fee increasing during the early years of the fund’s term and declining in the later years. Management fees for certain funds are discounted based on the amount of the limited partners’ commitments, whether the limited partners commit early in the offering period or if the limited partners are investors in our other funds. Revenues from specialized funds that charge management fees during their fundraising periods include retroactive fees. Retroactive fees are management fees earned from investors that commit to a specialized fund after the first close of the fund and are required to pay a catch-up management fee as if they had committed to the fund at the first closing.
Revenues from advisory and reporting, monitoring, data and analytics services are generally annual fixed fees, which vary depending on the services we provide, and are recognized over the service term. In limited cases, advisory service clients are charged basis point fees annually based on the amounts they have committed to invest pursuant to their agreements with us. In other cases where our services are limited to monitoring and reporting on investment portfolios, clients are charged a fee based on the number of investments in their portfolio.
Distribution management fees are generally earned by applying a percentage to AUM or proceeds received. Certain active management clients may elect a fee structure under which they are charged an asset-based fee plus a fee based on net realized and unrealized gains and income net of realized and unrealized losses.
Incentive fees comprise carried interest earned from our specialized funds and certain customized separate accounts structured as single-client funds in which we have a commitment, and performance fees earned on certain other specialized funds and customized separate accounts.
For each of our secondary funds, direct investment funds, strategic opportunity funds and some of our evergreen funds, we generally earn carried interest equal to a fixed percentage of net profits, usually 10.0% to 12.5%, subject to a compounded annual preferred return that is generally 6.0% to 8.0%. To the extent that our primary funds also directly make secondary investments and direct investments, they generally earn carried interest on a similar basis. Furthermore, certain of our primary funds earn carried interest on their investments in other private markets funds on a primary basis that is generally 5.0% of net profits, subject to the fund’s compounded annual preferred return. We recognize carried interest when it is probable that a significant reversal will not occur.
Performance fees are based on the aggregate amount of unrealized or realized gains earned by the applicable specialized fund or customized separate account, subject to the achievement of defined minimum returns to the clients or high-water marks. Performance fees range from 5.0% to 12.5% of net profits, with some subject to a compounded annual preferred return that varies by account but is generally 6.0% to 8.0%. Performance fees are recognized when it is probable that a significant reversal will not occur.
The primary contingency regarding incentive fees is the “clawback,” or the obligation to return distributions in excess of the amount prescribed by the applicable fund or separate account documents. Incentive fees are typically only required to be returned on a net of tax basis due to a clawback. As such, the tax-related portion of incentive fees is typically not subject to clawback and is therefore recognized as revenue immediately upon receipt. In the event that a payment is made before it can be recognized as revenue, this amount would be included as deferred incentive fee revenue on our Consolidated Balance Sheets and recognized as income in accordance with our revenue recognition policy.
Expenses
Compensation and benefits is our largest expense and consists of (a) base compensation comprising salary, bonuses and benefits paid and payable to employees, (b) equity-based compensation associated with the grants of restricted stock and performance awards and (c) incentive fee compensation, which consists of carried interest and performance fee allocations. We expect to continue to experience a general rise in compensation and benefits expense commensurate with expected growth in headcount and with the need to maintain competitive compensation levels as we expand geographically and create new products and services.
Our compensation arrangements with our employees contain a significant bonus component driven by the results of our operations. Therefore, as our revenues, profitability and the amount of incentive fees earned by our customized separate accounts and specialized funds increase, our compensation costs rise.
Certain current and former employees participate in a carried interest program whereby approximately 25% of incentive fees from certain of our specialized funds and customized separate accounts are awarded to plan participants. We record compensation expense payable to plan participants as the incentive fees become estimable and collection is probable.
General, administrative and other includes travel, accounting, legal and other professional fees, commissions, placement fees, office expenses, depreciation, fund reimbursement expense and other costs associated with our operations. Our occupancy-related costs and professional services expenses, in particular, generally increase or decrease in relative proportion to the number of our employees and the overall size and scale of our business operations. Commissions and placement fees generally fluctuate based on the level and timing of fundraising activity, capital raised for our products and the extent to which we engage third-party placement agents and other distribution channels. Fund reimbursement expenses generally fluctuate in connection with the timing of new fund formations.
Other Income (Expense)
Equity in income of investees primarily represents our share of earnings from our investments in our specialized funds and certain customized separate accounts in which we have a commitment. Equity income primarily comprises our share of the net realized and unrealized gains (losses) and investment income partially offset by the expenses from these investments.
We have commitments in our specialized funds and certain customized separate accounts that invest solely in primary funds, secondary funds and direct investments, as well as those that invest across investment types. Equity in income of investees will increase or decrease as the change in underlying fund investment valuations increases or decreases. Since our direct investment funds invest in underlying portfolio companies, their quarterly and annual valuation changes are more affected by individual company movements than our primary and secondary funds that have exposures across multiple portfolio companies in underlying private markets funds. Our specialized funds and customized separate accounts invest across industries, strategies and geographies, and therefore our investments do not include any significant concentrations in a specific sector or area outside the United States.
Interest expense includes interest paid and accrued on our outstanding debt, along with the amortization of deferred financing costs, amortization of original issue discount and the write-off of deferred financing costs due to the repayment of previously outstanding debt.
Interest income is income earned on cash and cash equivalents.
Non-operating gain (loss), net consists primarily of gains and losses on certain investments, changes in liability under the tax receivable agreement and other non-recurring or non-cash items.
Other income (expense) of Consolidated Funds and Partnerships consists of earnings from consolidated funds and consolidated general partners entities, that are not wholly-owned by us, have commitments as well as interest income, unrealized gains on investments and interest expense on consolidated funds.
Income Tax Expense
We are a corporation for U.S. federal income tax purposes and therefore are subject to U.S. federal and state income taxes on our share of taxable income generated by HLA. HLA is treated as a pass-through entity for U.S. federal and state income tax purposes. As such, income generated by HLA flows through to its members and is generally not subject to U.S. federal or state income tax at the partnership level. Accordingly, the tax liability with respect to income attributable to non-controlling interests (“NCI”) in HLA is generally borne by the holders of such NCI. Our non-U.S. subsidiaries generally operate as corporate entities in non-U.S. jurisdictions and are subject to non-U.S. income taxes.
On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was signed into law in the United States. The OBBBA contains several provisions revising the U.S. federal corporate income tax by, among other things, extending many expiring provisions from the Tax Cuts and Jobs Act of 2017, modifying the international tax framework, and restoring favorable tax treatment for certain business provisions.
As of March 31, 2026, the OBBBA did not have a material impact on our income tax expense.
Non-controlling interests
NCI reflect the portion of income or loss and the corresponding equity attributable to third-party equity holders and employees in certain consolidated subsidiaries that are not 100% owned by us. NCI are presented as separate components in our Consolidated Statements of Income to clearly distinguish between our interests and the economic interests of third parties and employees in those entities.
Fee-Earning AUM
Fee-earning AUM is a metric we use to measure the assets from which we earn management fees. Our fee-earning AUM comprise assets in our customized separate accounts and specialized funds from which we derive management fees that are generally derived from applying a certain percentage to the appropriate fee base. We classify customized separate account revenue as management fees if the client is charged an asset-based fee, which includes the majority of our discretionary AUM accounts but also includes certain non-discretionary AUA accounts. Our fee-earning AUM is equal to the amount of capital commitments, net invested capital and NAV of our customized separate accounts and specialized funds depending on the fee terms. A substantial portion of our customized separate accounts and specialized funds earn management fees based on capital commitments or net invested capital, which are generally not affected by short‑term market appreciation or depreciation. However, certain of our products, earn management fees based on NAV, and accordingly, management fees and fee‑earning AUM for those products may be affected by changes in market valuations. As a result, the extent to which our revenues and fee‑earning AUM are affected by changes in market value varies based on the mix of fee structures across our products.
Our calculations of fee-earning AUM may differ from the calculations of other asset managers, and as a result, this measure may not be comparable to similar measures presented by other asset managers. Our definition of fee-earning AUM is not based on any definition that is set forth in the agreements governing the customized separate accounts or specialized funds that we manage.
Annual Consolidated Results of Operations
The following is a discussion of our consolidated results of operations for fiscal 2026 and 2025. This information is derived from our accompanying consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
Years Ended March 31,
(in thousands)
Revenues
Management and advisory fees
Incentive fees
Consolidated Funds and Partnerships:
Incentive fees
Total revenues
Expenses
Compensation and benefits
General, administrative and other
Consolidated Funds and Partnerships:
General, administrative and other
Total expenses
Other income (expense)
Equity in income of investees
Interest expense
Interest income
Non-operating gain (loss), net
Consolidated Funds and Partnerships:
Equity in income of investees
Net gain on investments
Interest expense
Interest income
Total other income (expense)
Income before income taxes
Income tax expense
Net income
Less: Income attributable to non-controlling interests in Consolidated Funds and Partnerships
Less: Income attributable to non-controlling interests in Hamilton Lane Advisors, L.L.C.
Net income attributable to Hamilton Lane Incorporated
Revenues
The following table shows our total revenues (excluding consolidated funds and general partner entities that are not wholly-owned (“Consolidated Funds and Partnerships”)):
Year Ended March 31,
(in thousands)
Total Change
Revenues
Management and advisory fees
Specialized funds
Customized separate accounts
Advisory
Reporting, monitoring, data and analytics
Distribution management
Fund reimbursement revenue
Total management and advisory fees
Incentive fees
Specialized funds
Customized separate accounts
Total incentive fees
Total revenues
Total revenues increased $42.6 million for fiscal 2026 compared to fiscal 2025, due to an increase in management and advisory fees, partially offset by a decrease in incentive fees.
Management and advisory fees increased $70.4 million for fiscal 2026 compared to fiscal 2025. Specialized funds revenue increased by $59.2 million compared to the prior year, due primarily to increases of $72.1 million in revenue from our evergreen funds and $11.9 million in revenue from our latest direct equity fund which added $7.1 billion and $0.9 billion, respectively, in fee-earning AUM year-over-year. Revenue from our specialized funds was partially offset by $20.7 million of retroactive fees from our latest secondary fund recognized during fiscal 2025 compared to $3.3 million from our latest direct equity fund during fiscal 2026. Customized separate accounts revenue increased $7.1 million compared to the prior year due primarily to a $1.6 billion increase in fee-earning AUM from the addition of new accounts, additional allocations from existing accounts and continued investment activity during the fiscal year. Reporting, monitoring, data and analytics revenue increased $6.5 million compared to the prior year due primarily to increased Cobalt LP subscriptions during fiscal 2026. Advisory revenue decreased $2.3 million in fiscal 2026 compared to the prior year due primarily to advisory agreements reaching the end of their term.
Incentive fees decreased $27.7 million for fiscal 2026 compared to fiscal 2025 due primarily to decreases in the tax-related portion of carried interest distributions and proceeds realized on the sale of underlying investments in one of our specialized funds in the prior year, partially offset by an increase in evergreen-related performance fees.
Expenses
The following table shows our total expenses (excluding Consolidated Funds and Partnerships):
Year Ended March 31,
Total Change
(in thousands)
Expenses
Compensation and benefits
Base compensation and benefits
Incentive fee compensation
Equity-based compensation
Total compensation and benefits
General, administrative and other
Total expenses
Total expenses increased $36.2 million for fiscal 2026 compared to fiscal 2025, due to increases in both compensation and benefits expenses and general, administrative and other expenses.
Compensation and benefits expenses increased $25.1 million for fiscal 2026 compared to fiscal 2025. Base compensation and benefits increased $20.4 million for fiscal 2026 compared to fiscal 2025, due primarily to an increase in salary expense from additional headcount and an increase in our bonus plan accrual related to stronger operating performance compared to the prior fiscal year. Equity-based compensation increased $19.5 million in fiscal 2026 compared to fiscal 2025, driven primarily by the performance awards granted during fiscal 2025. Incentive fee compensation decreased $14.8 million for fiscal 2026 compared to fiscal 2025 due to a decrease in incentive fee revenue in fiscal 2026.
General, administrative and other expenses increased $11.1 million for fiscal 2026 compared to fiscal 2025. This change consisted primarily of an increase of $5.6 million in consulting and professional fees, an increase of $3.8 million in third-party commissions attributed to the increase in gross subscriptions to our evergreen funds and increases in fundraising activity on our drawdown funds.
Other Income (Expense)
The following table shows our total other income (expense) (excluding Consolidated Funds and Partnerships):
Year Ended March 31,
Total Change
(in thousands)
Other income (expense)
Equity in income of investees
Primary funds
Direct investment funds
Secondary funds
Customized separate accounts
Evergreen funds
Other equity method investments
Total equity in income of investees
Interest expense
Interest income
Non-operating gain (loss), net
Total other income (expense)
Other income (expense) increased $18.5 million for fiscal 2026 compared to fiscal 2025, due primarily to an increase in equity in income of investees, partially offset by a decrease in non-operating gain (loss).
Equity in income of investees increased $22.9 million for fiscal 2026 compared to fiscal 2025 due primarily to larger increases in investment valuations due to market conditions in fiscal 2026.
Non-operating gain (loss), net decreased $6.0 million for fiscal 2026 compared to fiscal 2025, due primarily to the recognition of $10.8 million of gains on our technology investments in fiscal 2025 that did not recur in fiscal 2026, partially offset by a decrease in our liability under the tax receivable agreement in fiscal 2026.
Consolidated Funds and Partnerships
The following table shows the results of operations of Consolidated Funds and Partnerships:
Year Ended March 31,
Total Change
(in thousands)
Revenue
Incentive fees
Expenses
General, administrative and other
Other income (expense)
Equity in income of investees
Net gain on investments
Interest income
Total other income (expense)
Incentive fees increased $3.4 million for fiscal 2026 compared to fiscal 2025, due to increased carried interest from our specialized funds.
Other income (expense) of Consolidated Funds and Partnerships increased $73.7 million for fiscal 2026 compared to fiscal 2025, due primarily to a $71.8 million increase in net gain on investments held by Consolidated Funds. The increase in net gain on investments was driven by the significant increase of investment activity within our Consolidated Fund vehicles during fiscal 2026 as these funds attracted additional investor subscriptions and accelerated capital deployment into private markets investments.
Income Tax Expense
Our effective income tax rate in fiscal 2026 and 2025 was 16.3% and 13.4%, respectively. The fiscal 2026 effective income tax rate was different from the statutory tax rate primarily due to the portion of income allocated to NCI and change in valuation allowance recorded against deferred tax assets . The effective income tax rate for fiscal 2026 was higher than fiscal 2025 primarily due to changes in the valuation allowance recorded against deferred tax assets in fiscal 2025.
Non-Controlling Interests
The following table shows income attributable to NCI:
Year Ended March 31,
Total Change
(in thousands)
Income attributable to non-controlling interests in Consolidated Funds and Partnerships
Income attributable to non-controlling interests in Hamilton Lane Advisors, L.L.C.
Net income attributable to non-controlling interest
Net income attributable to NCI increased by $42.2 million in fiscal 2026 compared to fiscal 2025, due primarily to increases in overall net income.
Net income attributable to NCI in Consolidated Funds and Partnerships increased by $40.7 million due primarily to net gains on investments held by Consolidated Funds that increased investment activity during fiscal 2026 and increased NCI holder subscriptions.
Net income attributable to NCI in HLA increased by $1.5 million due primarily to an overall increase in net income.
Fee-Earning AUM
The following table provides the year to year roll-forward of our fee-earning AUM:
Year Ended March 31,
Year Ended March 31,
(in millions)
Customized Separate Accounts
Specialized Funds
Total
Customized Separate Accounts
Specialized Funds
Total
Balance, beginning of period
Contributions (1)
Distributions (2)
Foreign exchange, market value and other (3)
Balance, end of period
(1) Contributions represent (i) new commitments from customized separate accounts and specialized funds that earn fees on a committed capital fee base and (ii) capital contributions to underlying investments from customized separate accounts and specialized funds that earn fees on a net invested capital or NAV fee base.
(2) Distributions represent (i) returns of capital in customized separate accounts and specialized funds that earn fees on a net invested capital or NAV fee base, (ii) reductions in fee-earning AUM from separate accounts and specialized funds that moved from a committed capital to net invested capital fee base and (iii) reductions in fee-earning AUM from customized separate accounts and specialized funds that are no longer earning fees.
(3) Foreign exchange, market value and other consists primarily of (i) the impact of foreign exchange rate fluctuations for customized separate accounts and specialized funds that earn fees on non-U.S. dollar denominated commitments and (ii) market value appreciation (depreciation) from customized separate accounts and specialized funds that earn fees on a NAV fee base.
Year ended March 31, 2026 compared to year ended March 31, 2025
Fee-earning AUM increased $9.5 billion for fiscal 2026 compared to fiscal 2025 due to contributions from customized separate accounts and specialized funds.
Customized separate accounts fee-earning AUM increased $1.6 billion for fiscal 2026 compared to fiscal 2025. Customized separate accounts contributions were $6.2 billion for fiscal 2026 due primarily to new allocations from existing clients. Distributions were $5.0 billion for fiscal 2026 due primarily to $2.0 billion from returns of capital in accounts earning fees on a net invested capital or NAV fee base, $1.6 billion from accounts reaching the end of their fund term and $1.4 billion from accounts moving from a committed to net invested capital fee base.
Specialized funds fee-earning AUM increased $7.9 billion for fiscal 2026 compared to fiscal 2025. Specialized fund contributions were $8.8 billion for fiscal 2026, due primarily to $6.6 billion from our evergreen funds. Distributions were $2.6 billion for fiscal 2026, due primarily to $2.0 billion from returns of capital and redemptions in funds earning fees on a net invested capital or NAV fee base and $0.5 billion from accounts reaching the end of their fund term.
Non-GAAP Financial Measures
Below is a description of our unaudited non-GAAP financial measures. These are not measures of financial performance under GAAP and should not be considered a substitute for the most directly comparable GAAP measures, which are reconciled below. These measures have limitations as analytical tools, and when assessing our operating performance, you should not consider these measures in isolation or as a substitute for GAAP measures. Other companies may calculate these measures differently than we do, limiting their usefulness as a comparative measure.
Fee Related Earnings
Fee Related Earnings (“FRE”) is used to highlight earnings from revenues that are measured and received on a recurring basis. FRE represents net income excluding (a) incentive fees, net of fee related performance revenues, and related compensation, (b) equity-based compensation, (c) interest income and expense, (d) income tax expense, (e) equity in income of investees, (f) non-operating gain (loss), net and (g) certain other significant items that we believe are not indicative of our core performance. We believe FRE is useful to investors because it provides additional insight into the operating profitability of our business. FRE is presented before income taxes.
Fee related performance revenues (“FRPR”) are incentive fees expected to be measured and received from certain of our funds on a recurring basis and are not dependent on realization events of the fund’s underlying investments. FRPR includes incentive fees earned from Consolidated Funds that are eliminated under GAAP. We believe FRPR is useful to investors because it provides additional insight into our recurring revenues.
Beginning in the fourth quarter of fiscal 2025, we modified our definition of FRE to exclude equity-based compensation and include FRPR. Equity-based compensation is non-cash compensation provided to retain employees and align employee and stockholder interest. It is not directly correlated with our operating results. FRPR is expected to be received on a recurring basis depending upon performance of certain funds that pay incentive fees on a high-water mark basis. We believe that reporting non-GAAP results inclusive of these changes provides a supplemental view of our ongoing performance that is useful and relevant to our investors. As a result of the change, prior period amounts have been recast to reflect the updated presentation.
Adjusted EBITDA
Adjusted EBITDA is an internal measure of profitability. We believe Adjusted EBITDA is useful to investors because it enables them to better evaluate the performance of our core business across reporting periods. Adjusted EBITDA represents net income excluding (a) interest expense on our outstanding debt, (b) income tax expense, (c) depreciation and amortization expense, (d) equity-based compensation expense, (e) non-operating gain, net and (f) certain other significant items that we believe are not indicative of our core performance. Adjusted EBITDA also includes FRPR related to Consolidated Funds and management fees related to Consolidated Funds.
The following table shows a reconciliation of net income attributable to Hamilton Lane Incorporated to FRE and Adjusted EBITDA for fiscal 2026, 2025, and 2024:
Year Ended March 31,
(in thousands)
Net income attributable to Hamilton Lane Incorporated
Income attributable to non-controlling interests in Consolidated Funds and Partnerships
Income attributable to non-controlling interests in Hamilton Lane Advisors, L.L.C.
Incentive fees
Incentive fee related compensation (1)
Fee related performance revenues
Equity-based compensation
Consolidated Fund related general, administrative and other expenses
Management fees related to Consolidated Funds
Non-operating income related compensation
Income tax expense
Other income (expense)
Fee Related Earnings
Depreciation and amortization
Incentive fees
Incentive fees attributable to non-controlling interests
Incentive fee related compensation (1)
Fee related performance revenues
Non-operating income related compensation
Fee related performance revenues related to Consolidated Funds
Interest income
Adjusted EBITDA
(1) Incentive fee related compensation includes incentive fee compensation expense and bonus related to carried interest that is classified as base compensation.
Non-GAAP Earnings Per Share
Non-GAAP earnings per share (“EPS”) measures our per-share earnings excluding certain significant items that we believe are not indicative of our core performance and assuming all Class B and Class C units in HLA were exchanged for Class A common stock in HLI. Non-GAAP EPS is calculated as adjusted net income divided by adjusted shares outstanding. Adjusted net income is income before taxes fully taxed at our estimated statutory tax rate and excludes any impact of changes in carrying amount of our redeemable NCI. Adjusted shares outstanding for the years ended March 31, 2026 and 2024 are equal to weighted-average shares of Class A common stock outstanding - diluted. We believe adjusted net income and non-GAAP EPS are useful to investors because they enable them to better evaluate total and per-share operating performance across reporting periods.
The following table shows a reconciliation of adjusted net income to net income attributable to Hamilton Lane Incorporated and adjusted shares outstanding to weighted-average shares of Class A common stock outstanding for fiscal 2026, 2025, and 2024:
Year Ended March 31,
(in thousands, except share and per-share amounts)
Net income attributable to Hamilton Lane Incorporated
Income attributable to non-controlling interests in Hamilton Lane Advisors, L.L.C.
Income tax expense
Adjusted pre-tax net income
Adjusted income taxes (1)
Adjusted net income
Weighted-average shares of Class A common stock outstanding - diluted
Exchange of Class B and Class C units in HLA (2)
Adjusted shares outstanding (2)
Non-GAAP EPS
(1) For the years ended March 31, 2026, 2025, and 2024, represents corporate income taxes at our estimated statutory tax rate of 23.3%, 23.7%, and 23.4% respectively, applied to adjusted pre-tax income. The estimated statutory tax rates are based on federal statutory tax rate of 21.0% and a combined state income tax rate of 2.3%, 2.7%, and 2.4%, respectively.
(2) Assumes the full exchange of Class B and Class C units in HLA for Class A common stock of HLI pursuant to the exchange agreement. For the years ended March 31, 2026 and 2024, the full exchange of Class B and Class C units is already included within the GAAP weighted-average shares of Class A common stock outstanding - diluted.
Investment Performance
The following tables present information relating to the historical performance of our significant specialized funds. The data are presented from the date indicated through December 31, 2025 and have not been adjusted to reflect acquisitions or disposals of investments subsequent to that date.
When considering the data presented below, note that the historical results of our specialized funds are not indicative of the future results you should expect from such investments, from any future investment funds we may raise or from an investment in our Class A common stock, in part because:
• market conditions and investment opportunities during previous periods may have been significantly more favorable for generating positive performance than those we may experience in the future;
• the performance of our funds is generally calculated on the basis of the NAV of the funds’ investments, including unrealized gains, which may never be realized;
• our historical returns derive largely from the performance of our earlier funds, whereas future fund returns will depend increasingly on the performance of our newer funds or funds not yet formed;
• our newly-established funds may generate lower returns during the period that they initially deploy their capital;
• in recent years, there has been increased competition for investment opportunities resulting from the increased amount of capital invested in private markets alternatives and high liquidity in debt markets, and the increased competition for investments may reduce our returns in the future;
• the performance of particular funds also will be affected by risks of the industries and businesses in which they invest; and
• 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 historical and potential future returns of the investment funds we manage are not directly linked to returns on our Class A common stock. Therefore, you should not conclude that continued positive performance of the investment funds we manage will necessarily result in positive returns on an investment in our Class A common stock. As used in this discussion, internal rate of return (“IRR”) is calculated on a pooled basis using daily cash flows. See “—Performance Methodology” below for more information on how our returns are calculated.
Specialized Fund Performance
We invest and manage commingled specialized primary, secondary, private credit, direct equity and multi-strategy investment funds across the private markets, including those that focus on specific markets or strategies such as venture capital, infrastructure, real estate and impact. Below is performance information across our various specialized funds. Our specialized funds include both drawdown and evergreen funds. Substantially all of these funds are globally focused, and they are grouped by the investment strategy utilized.
Drawdown Fund Performance
Gross Returns — Realized and Unrealized
Fund
Vintage
year
Fund size ($M)
Capital invested
Gross multiple
Net Multiple
Gross IRR (%)
Net
IRR (%)
Gross Spread vs.
S&P 500 PME
Net Spread vs. S&P 500 PME
Gross Spread vs. MSCI World PME
Net Spread vs. MSCI World PME
Secondaries
Pre-Fund
1,330 bps
1,172 bps
Secondary Fund I
113 bps
(63 bps)
341 bps
157 bps
Secondary Fund II
451 bps
(190 bps)
869 bps
215 bps
Secondary Fund III
(85 bps)
(379 bps)
301 bps
13 bps
Secondary Fund IV
(95 bps)
(109 bps)
214 bps
212 bps
Secondary Fund V
102 bps
(90 bps)
315 bps
124 bps
Secondary Fund VI
899 bps
1,380 bps
957 bps
1,341 bps
Direct/Co-investments
Pre-Fund
1,655 bps
1,600 bps
Co-Investment Fund
(570 bps)
(755 bps)
(319 bps)
(510 bps)
Co-Investment Fund II
550 bps
172 bps
922 bps
539 bps
Co-Investment Fund III
(9 bps)
(302 bps)
314 bps
16 bps
Co-Investment Fund IV
743 bps
587 bps
1006 bps
844 bps
Equity Opportunities Fund V
(433 bps)
(671 bps)
(284 bps)
(530 bps)
Equity Opportunities Fund VI
268 bps
166 bps
Fund
Vintage year
Fund size ($M)
Capital invested ($M)
Gross multiple
Net Multiple
Gross IRR (%)
Net IRR (%)
Gross Spread vs DJB GI
Net Spread vs DJB GI
Gross Spread vs MSCI World Infra
Net Spread vs MSCI World Infra
Infrastructure Funds
Infrastructure Opps Fund I
807 bps
560 bps
535 bps
256 bps
Infrastructure Opps Fund II
1,265 bps
1,038 bps
866 bps
656 bps
Fund
Vintage
year
Fund size ($M)
Capital invested
Gross multiple
Net Multiple
Gross IRR (%)
Net
IRR (%)
Gross Spread vs.
ICE BofA US HY
Net Spread vs. ICE BofA US HY
Gross Spread vs. CS LL PME
Net Spread vs. CS LL PME
Strategic Opportunities (Tail-end secondaries and credit)
Strat Opps 2015
566 bps
219 bps
862 bps
513 bps
Strat Opps 2016
247 bps
11 bps
388 bps
155 bps
Strat Opps 2017
411 bps
176 bps
437 bps
218 bps
Strat Opps IV (Series 2018)
355 bps
130 bps
400 bps
166 bps
Strat Opps V (Series 2019)
850 bps
530 bps
690 bps
365 bps
Strat Opps VI (Series 2020)
441 bps
182 bps
170 bps
(48 bps)
Strat Opps VII
471 bps
202 bps
513 bps
270 bps
Strat Opps VIII
631 bps
398 bps
811 bps
579 bps
Strat Opps IX
1,243 bps
551 bps
1,459 bps
790 bps
Evergreen Fund Performance
Fund
Inception date
NAV ($M)
Total Annualized Return Since Inception (Net) (1)
Global Multi-Strategy Evergreen Fund (1)
May 2019
US Multi-Strategy Evergreen Fund (1)(2)
January 2021
Global Credit Evergreen Fund (1)(3)
January 2023
Global Infrastructure Evergreen Fund (1)(4)
February 2024
(1) Returns are presented for the institutional share class of the applicable fund(s). Performance varies by share class due to differing fee structures. Returns for other share classes may be lower due to higher management fees, distribution fees, selling commissions or other class-specific expenses.
(2) Total Annualized Return Since Inception reflects the monthly performance of the Evergreen Private Fund L.P. from September 1, 2020 through December 31, 2020, and the Fund from January 4, 2021 through the end of the reporting period. The Fund was under common management of Evergreen Private Fund L.P.
(3) The Fund’s Class I-USD Shares commenced operations on January 1, 2023. Therefore, the returns shown for the periods prior to that time are based on the returns of the Class F-USD Shares, adjusted for the higher expenses of the I-USD Shares.
(4) I-USD (Acc.) share class performance prior to September 2, 2024 reflects the performance of HL Private Infra Fund Cayman Holdings LP (“Holdings”) and is not direct past performance of the Fund.
Performance Methodology
Drawdown Fund Performance Methodology
The indices presented for comparison are the S&P 500, MSCI World, Dow Jones Brookfield Global Infrastructure (“DJB GI”), MSCI World Infrastructure (“MSCI Infra”), ICE BofA US High Yield Index (“ICE BofA US HY”) and Credit Suisse Leverage Loan (“CS LL”), calculated on a public market equivalent (“PME”) basis. We believe these indices are commonly used by private markets and credit investors to evaluate performance. The PME calculation methodology allows private markets investment performance to be evaluated against a public index and assumes that capital is being invested in, or withdrawn from, the index on the days the capital was called and distributed from the underlying fund managers. The S&P 500 Index is a total return capitalization-weighted index that measures the performance of 500 U.S. large cap stocks. The DJB GI Index includes companies domiciled globally that qualify as “pure-play” infrastructure companies, which are companies whose primary business is the ownership and operation of infrastructure assets, activities that generally generate long-term stable cash flows. The MSCI Infra Index covers mid and large cap infrastructure assets across the 23 developed market countries. The MSCI World Index is a free float-adjusted market capitalization-weighted index of over 1,600 world stocks that is designed to measure the equity market performance of developed markets. The ICE BofA HY Index tracks the performance of US dollar denominated below investment grade rated corporate debt publicly issued in the US domestic market. The ICE BofA HY Index is rebalanced monthly. The CS LL Index is an index designed to mirror the investable universe of the U.S. dollar denominated leveraged loan market. Loans must be rated 5B or lower and the index frequency is monthly.
Our IRR represents the pooled IRR for all discretionary investments for the period from inception to December 31, 2025. Gross IRR is presented net of management fees, carried interest and expenses charged by the general partners of the underlying investments, but does not include our management fees, carried interest or expenses. Our gross IRR would decrease with the inclusion of our management fees, carried interest and expenses. Net IRR is net of all management fees, carried interest and expenses charged by the general partners of the underlying investments, as well as by us. Net IRR figures for our funds do not include cash flows attributable to the general partner. Note that secondary portfolio IRRs can be initially impacted by purchase discounts (or premiums) paid at the closing of a transaction, the impact of which will diminish over time.
“Capital Invested” refers to the total amount of all investments made by a fund, including commitment-reducing and non-commitment-reducing capital calls. “Multiple” represents total distributions from underlying investments to the fund plus the fund’s market value divided by total contributed capital. “Gross Multiple” is presented net of management fees, carried interest and expenses charged by the fund managers of the underlying investments.
Specialized fund and pre-fund performance does not include ten funds-of-funds that have investor-specific investment guidelines.
Many of our specialized funds utilize revolving credit facilities, which provide capital that is available to fund investments or pay partnership expenses and management fees. Borrowings may be paid down from time to time with investor capital contributions or distributions from investments. The use of a credit facility affects the fund’s return and magnifies the performance on the upside or on the downside.
Evergreen Fund Performance Methodology
For our evergreen funds, total return is calculated on a NAV-per-unit (or per-share) basis and reflects the percentage change in NAV per unit over the applicable measurement period, inclusive of reinvested distributions and net of all management fees, incentive fees and fund-level expenses. Returns are presented for the institutional share class of the applicable funds. Total return since inception represents the annualized compounded return from the fund's inception date through December 31, 2025. Total return assumes the reinvestment of all distributions received during the period at NAV. Total return does not reflect the impact of any applicable sales charges or taxes payable by investors. Each of our evergreen funds offers multiple share classes with varying fee structures, and returns for other share classes may differ, and in some cases may be lower, due to higher management fees, distribution fees, selling commissions or other class-specific expenses.
All evergreen fund performance information is presented on a 90-day lag from our fiscal year end. Performance results presented are historical and do not guarantee future results.
Liquidity and Capital Resources
Historical Liquidity and Capital Resources
We have managed our historical liquidity and capital requirements primarily through the receipt of management and advisory fee revenues. Our primary cash flow activities involve: (1) generating cash flow from operations, which largely includes management and advisory fees; (2) realizations generated from our investment activities; (3) funding capital commitments that we have made to certain of our specialized funds and customized separate accounts; (4) making dividend payments to our stockholders and distributions to holders of HLA units; and (5) borrowings, interest payments and repayments under our outstanding debt. As of March 31, 2026 and March 31, 2025, our cash and cash equivalents were $361.0 million and $229.2 million, respectively.
Our material sources of cash from our operations include: (1) management and advisory fees, which are collected monthly or quarterly; (2) incentive fees, which are volatile and largely unpredictable as to amount and timing; and (3) fund distributions related to investments in our specialized funds and certain customized separate accounts that we manage. We use cash flow from operations primarily to pay compensation and related expenses, general, administrative and other expenses, debt service, capital expenditures and distributions to our owners and to fund commitments to certain of our specialized funds and customized separate accounts. If cash flow from operations was insufficient to fund distributions to our owners, we expect that we would suspend paying such distributions.
We have also accessed the capital markets and used proceeds from sales of our Class A common stock to settle in cash exchanges of HLA membership interests by direct and indirect owners of HLA pursuant to our exchange agreement.
Finally, we have used available cash and borrowings from our Loan Agreements (defined below) and Senior Notes (defined below) to make strategic investments in companies that seek to offer technology-driven private markets data and wealth management solutions, to seed new specialized funds and for general corporate purposes.
Senior Notes and Loan Agreements
In 2024, HLA issued $100 million aggregate principal amount of 5.28% senior notes due October 15, 2029 (the “Senior Notes”) pursuant to a note purchase agreement (the “Note Purchase Agreement”) among HLA and the institutional purchasers party thereto in a private placement transaction. Interest on the Senior Notes is payable semi-annually in arrears and commenced on April 15, 2025. Interest on the Senior Notes accrues from and including October 8, 2024. The Senior Notes will mature on October 15, 2029.
We maintain our Term Loan and Security Agreement (as amended, the “Term Loan Agreement”), Revolving Loan and Security Agreement (as amended, the “Revolving Loan Agreement”), 2020 Multi-Draw Term Loan and Security Agreement (as amended, the “2020 Multi-Draw Term Loan Agreement”), and 2022 Multi-Draw Term Loan Agreement (as amended, the “2022 Multi-Draw Term Loan Agreement” and, together with the Term Loan Agreement, the Revolving Loan Agreement, and the 2020 Multi-Draw Term Loan Agreement, the “Loan Agreements”) with JPMorgan Chase Bank, N.A. (“JPMorgan”). The Loan Agreements are cross-collateralized and cross-defaulted and the aggregate principal amount of loans that may be outstanding under all of the Loan Agreements is subject to an aggregate cap of $325 million (the “Cap”).
The Term Loan Agreement has a maturity date of July 1, 2029 and the interest rate is a floating per annum rate equal to the prime rate minus 1.25% subject to a floor of 3.00%. As of March 31, 2026, we had an outstanding balance of $84.4 million under the Term Loan Agreement.
The Revolving Loan Agreement provides that the aggregate outstanding balance will not exceed $50 million, subject to the Cap, and has a maturity date of October 6, 2027. The interest rate is a floating per annum rate equal to the prime rate minus 1.50% subject to a floor of 2.25%. As of March 31, 2026, we did not have an outstanding balance under the Revolving Loan Agreement.
The 2020 Multi-Draw Term Loan Agreement provides for a term loan in the aggregate principal amount of $100 million with a maturity date of April 1, 2030. The interest rate is a fixed per annum rate of 3.50%. As of March 31, 2026, we had an outstanding balance of $96.3 million under the 2020 Multi-Draw Term Loan Agreement.
The 2022 Multi-Draw Term Loan Agreement has a maturity date of October 1, 2029. On October 1, 2025, we amended our 2022 Multi-Draw Term Loan Agreement to, among other things, (a) change the aggregate principal amount of term loans from $75 million to $50 million, subject to the Cap, (b) change certain dates related to interest payments and repayments of the term loan thereunder, and (c) change the interest rate for borrowings thereunder to equal the greater of (i) the prime rate minus 1.35% and (ii) 3.00%. As of March 31, 2026, we did not have an outstanding balance under the 2022 Multi-Draw Term Loan Agreement. We are entitled to request term loans not to exceed $50 million in the aggregate, subject to the Cap, through October 6, 2027.
The Loan Agreements and the Note Purchase Agreement contain covenants that, among other things, limit HLA’s ability to incur indebtedness, transfer or dispose of assets, merge with other companies, create, incur or allow liens, make investments, pay dividends or make distributions, engage in transactions with affiliates and take certain actions with respect to management fees. The Loan Agreements also require HLA to maintain, among other requirements, (a) a specified amount of management fees, (b) a specified amount of adjusted EBITDA minus dividend distributions (other than tax distributions), as defined in the Loan Agreements, and (c) a specified minimum tangible net worth, during the term of each of the Loan Agreements. The Note Purchase Agreement contains certain covenants, including (a) a Consolidated Leverage Ratio (as defined in the Note Purchase Agreement) of 3.50 to 1.00 as of March 31 and September 30 of each calendar year (each, a “Test Date”), (b) a minimum annual Management Fees (as defined in the Note Purchase Agreement) covenant as of each Test Date of not less than the greater of (i) $185 million and (ii) the amount equal to 80% of the Management Fees received by HLA during the six calendar month period ended on the immediately preceding Test Date, and other customary covenants. The obligations under the Loan Agreements are secured by substantially all the assets of HLA. As of March 31, 2026 and 2025, the principal amount of debt outstanding equaled $280.6 million and $293.1 million, respectively. We had $144.4 million in availability under the Loan Agreements as of March 31, 2026.
Cash Flows
Year Ended March 31,
(in millions)
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by (used in) financing activities
Operating Activities
Our operating activities generally reflect our earnings in the respective periods after adjusting for significant non-cash activity, including equity in income (loss) of investees, equity-based compensation, lease expense, fair value adjustments to investments and depreciation and amortization, all of which are included in earnings. For the years ended March 31, 2026, 2025 and 2024, net cash provided by operating activities was driven primarily by receipts of management fees and incentive fees, partially offset by payment of operating expenses, which includes compensation and benefits and general, administrative and other expenses. During the year ended March 31, 2026, cash provided by operating activities was impacted by a change in the timing of bonus payments, with a portion paid in January 2026 and the remaining balance paid in May 2026 after fiscal year end. Additionally, the years ended March 31, 2025 and 2024 were impacted by cash relinquished upon deconsolidation of a previously consolidated fund.
Investing Activities
Our investing activities generally reflect cash used for fixed asset purchases and contributions to and distributions from our investments. For the years ended March 31, 2026, 2025 and 2024, our net cash used in investing activities was driven primarily by purchases of furniture, fixtures and equipment, purchases of investments, and net contributions to our Funds. The increase in net cash used in investing activities for the year ended March 31, 2026 compared to the prior year, was primarily driven by higher purchases of investments by our Consolidated Funds, reflecting increased investment activity in funds consolidated in the prior year that had lower levels of activity during the earlier stages of their deployment. This increase was partially offset by proceeds from the sale of a wholly owned Consolidated Fund to a related-party fund for which we serve as the investment manager.
Financing Activities
Our financing activities generally reflect cash received from debt and equity financings, payments to owners in the form of dividends, distributions and repurchases of shares and scheduled drawdowns and repayments of our outstanding debt. For the years ended March 31, 2026, 2025 and 2024, our net cash provided by (used in) financing activities was driven primarily by dividends paid to stockholders, payments under the tax receivable agreement, distributions to HLA members, repayment of our outstanding debt and contributions from NCI in Consolidated Funds. Net cash provided by (used in) financing activities for the year ended March 31, 2026 was also driven by the repurchase and retirement of shares of our Class A common stock.
Future Sources and Uses of Liquidity
We generate significant cash flows from operating activities. We believe that we will be able to continue to meet our short-term and long-term liquidity and capital requirements through our cash flows from operating activities, existing cash and cash equivalents and our ability to obtain future external financing. However, the availability of capital from the Loan Agreements and our cash balances are exposed to the credit risks of the financial institutions at which they are held. If events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions or the financial services industry generally, or concerns or rumors about any such events, occur, our ability to access existing cash, cash equivalents and investments, or to access existing or enter into new banking arrangements or facilities to pay operational and other costs, may be threatened or lost.
We will also continue to evaluate opportunities, based on market conditions, to access the capital markets for working capital or to use proceeds from sales of our Class A common stock to settle in cash exchanges of HLA membership interests by direct and indirect owners of HLA pursuant to our exchange agreement. The timing or size of any potential transactions will depend on a number of factors, including market opportunities and our views regarding our capital and liquidity positions and potential future needs. There can be no assurance that any such transactions will be completed on favorable terms, or at all.
We will also continue to evaluate opportunities to make strategic investments in companies that seek to offer technology-driven private markets data and wealth management solutions and to use cash to seed new specialized funds.
In November 2018, our board of directors authorized a program to repurchase up to 6% of the outstanding shares of our Class A common stock, not to exceed $50 million (the “Stock Repurchase Program”). Our board of directors periodically reviews the Stock Repurchase Program, and on May 21, 2026, we announced that our board of directors approved an increase in the authorization under the Stock Repurchase Program to permit us to purchase up to $100 million of our Class A common stock, net of amounts already repurchased under the pre-existing authorization, with no share count or duration limitation. As of May 21, 2026, the total repurchase capacity available under the Stock Repurchase Program authorization was approximately $80.0 million. The Stock Repurchase Program does not include specific price targets or timetables and may be suspended or terminated by us at any time. We intend to finance the purchases using available working capital and/or external financing. The amended authorization does not have an expiration date. During the three months ended March 31, 2026, we repurchased 199,000 shares of our Class A common stock under the Stock Repurchase Program at a weighted-average price of $100.43 per share, for an aggregate purchase price of approximately $20 million.
We expect that our primary short-term and long-term liquidity needs will comprise cash to: (1) provide capital to facilitate the growth of our business; (2) fund commitments to our investments; (3) pay operating expenses, including cash compensation to our employees; (4) make payments and/or exercise early termination buyout rights under the tax receivable agreement; (5) fund capital expenditures, make strategic investments and warehouse investments for our Funds; (6) pay interest and principal due on our outstanding debt; (7) pay income taxes; (8) make dividend payments to our stockholders and distributions to holders of HLA units in accordance with our distribution policy; (9) settle exchanges of HLA membership interests by direct and indirect owners of HLA pursuant to our exchange agreement from time to time; (10) settle in cash any exercises of the warrant we issued to The Guardian Life Insurance Company of America in a private placement transaction related to a maximum of 400,000 shares of our Class A common stock; and (11) fund purchases of our Class A common stock pursuant to the Stock Repurchase Program.
We are required to maintain minimum net capital balances for regulatory purposes for certain of our foreign subsidiaries and our broker-dealer subsidiary, and minimum cash balances related to our self-funded medical insurance plan put in place as of January 1, 2025. The net capital requirements are met by retaining cash. As a result, we may be restricted in our ability to transfer cash between different operating entities and jurisdictions. As of each of March 31, 2026 and March 31, 2025, we were required to maintain approximately $8.0 million and $6.3 million, respectively, in liquid net assets to meet regulatory net capital and capital adequacy requirements. We are in compliance with these regulatory requirements as of each such date.
Dividend Policy
The declaration and payment by us of any future dividends to holders of our Class A common stock is at the sole discretion of our board of directors. We intend to continue to pay a cash dividend on a quarterly basis. Subject to funds being legally available, we will cause HLA to make pro rata distributions to its members, including us, in an amount at least sufficient to allow us to pay all applicable taxes, to make payments under the tax receivable agreement, and to pay our corporate and other overhead expenses.
Tax Receivable Agreement
We expect that periodic exchanges of membership units of HLA by members of HLA will result in increases in the tax basis in our share of the assets of HLA that otherwise would not have been available. These increases in tax basis are expected to increase our depreciation and amortization deductions and create other tax benefits and therefore may reduce the amount of tax that we would otherwise be required to pay in the future. The tax receivable agreement will require us to pay 85% of the amount of these and certain other tax benefits, if any, that we realize (or are deemed to realize in the case of an early termination payment, a
change in control or a material breach by us of our obligations under the tax receivable agreement) to the pre-IPO members of HLA.
Contractual Obligations, Commitments and Contingencies
The following table represents our contractual obligations as of March 31, 2026, aggregated by type:
Contractual Obligations, Commitments and Contingencies
(in millions)
Total
Less than 1 year
1-3 years
3-5 years
More than 5 years
Operating leases
Debt obligations payable (1)
Interest on debt obligations payable (2)
Capital commitments to our investments (3)
Commitments of Consolidated Funds (4)
Total
(1) Represents scheduled debt obligation payments under our Loan Agreements and the Senior Notes.
(2) Represents interest to be paid over the maturity of the related debt obligations, which has been calculated assuming no pre-payments will be made and debt will be held until its final maturity date. The future interest payments are calculated using the variable interest rate of 5.50% on our Term Loan Agreement and the fixed interest rate of 3.50% on our 2020 Multi-Draw Term Loan Agreement.
(3) Represents commitments by us to fund a portion of each investment made by our specialized funds and certain customized separate account entities. These amounts are generally due on demand and are therefore presented in the less than one year category.
(4) Represents uncalled commitments of our Consolidated Funds, excluding our portion of uncalled commitments to the respective funds. Because capital contributions are due on demand, the above commitments have been presented as falling due within one year.
We have entered into a tax receivable agreement with our pre-IPO owners pursuant to which we will pay them 85% of the amount of tax benefits, if any, that we realize (or are deemed to realize in the case of an early termination payment by us, a change in control or a material breach by us of our obligations under the tax receivable agreement) as a result of increases in tax basis (and certain other tax benefits) resulting from purchases or exchanges of membership units of HLA. Because the timing of amounts to be paid under the tax receivable agreement cannot be determined, this contractual commitment has not been presented in the table above. The tax savings achieved may be substantial and we may not have sufficient cash available to pay this liability, in which case, we might be required to incur additional debt to satisfy this liability.
We offer an Employee Investment Program (“EIP”) through which certain employees are able to invest directly into certain company managed funds as individual limited partners (“LPs”). Our non-executive employees also have an option to enter into a loan agreement with a third-party lender to fund committed capital. The loan is collateralized by the underlying LP interest in the fund and return of capital distributions are utilized to pay the outstanding loan balance. We entered into a separate arrangement with the third-party lender to backstop the employee’s performance under the loan with a commitment to purchase the LP interest from the lender at the greater of fair value or the outstanding balance of the loan in the event of default by the employee. As of March 31, 2026 and 2025, the total amount of outstanding loans under the EIP was $1.7 million and $1.3 million, respectively, and we believe the risk of default by an employee to be remote.
Critical Accounting Estimates
We prepare our consolidated financial statements in accordance with GAAP. In applying many of these accounting principles, we need to make assumptions, estimates or judgments that affect the reported amounts of assets, liabilities, revenues and expenses in our combined and consolidated financial statements. We base our estimates and judgments on historical experience and other assumptions that we believe are reasonable under the circumstances. These assumptions, estimates or judgments, however, are both subjective and subject to change, and actual results may differ from our assumptions and estimates. If actual amounts are ultimately different from our estimates, the revisions are included in our results of operations for the period in which the actual amounts become known. We believe the following critical accounting estimates could potentially produce materially different results if we were to change underlying assumptions, estimates or judgments. See Note 2, “Summary of Significant Accounting Policies,” to our consolidated financial statements included in Part II, Item 8 of this Form 10-K for a summary of our significant accounting policies.
Consolidation
We consolidate general partnerships and subsidiaries that are wholly owned. Additionally, we consolidate funds (“Consolidated Funds”) and general partner entities that are not wholly-owned (“Partnerships”) over which we exercise control either by holding majority voting interests or as the primary beneficiary, possessing both decision making authority and the right to receive economic benefits or the obligation to absorb expected losses of the entity that could potentially be significant to the entity. The Consolidated Funds and Partnerships are included in our consolidated financial statements. The portion of the Consolidated Funds and Partnerships owned by third parties is presented as non-controlling interests in the Consolidated Balance Sheets and income attributable to non-controlling interests in the Consolidated Statements of Income.
The assets of the Partnerships represent investments in Funds and the assets of the Consolidated Funds generally represent cash and investments. The assets may only be used to settle obligations of the respective Consolidated Fund or Partnership, if any. In addition, we have no recourse for the consolidated liabilities, except for certain entities in which there could be a clawback of previously distributed carried interest. Once we no longer qualify as the primary beneficiary or hold a majority voting interest, we deconsolidate all the assets and liabilities of the respective Partnership or Consolidated Fund from the Consolidated Balance Sheets and record any remaining interest in the entity using the equity method within investments in the Consolidated Balance Sheets.
We hold variable interests in entities that are considered VIEs because limited partners lack the ability to remove the general partner or dissolve the entity without cause by simple majority vote (i.e., the limited partners do not have substantive “kick out” or “liquidation” rights). Our variable interest in such entities is in the form of direct equity interests in the Funds in which we also serve as the general partner or managing member. In our role as general partner or managing member,we generally consider ourself the sponsor of the applicable Funds and make all investment and operating decisions. We consolidate VIEs in which we are determined to be the primary beneficiary.
At each reporting date, we determine whether any reconsideration events have occurred that require us to revisit the consolidation analysis and will consolidate or deconsolidate accordingly.
Revenue Recognition of Incentive Fees
Incentive fees include both carried interest and performance fees earned from certain specialized funds and customized separate accounts. We recognized $174.8 million of incentive fees in fiscal 2026 and have $1.5 billion of unrecognized carried interest as of March 31, 2026.
Contracts with specialized funds and certain customized separate accounts provide incentive fees, which generally range from 5.0% to 12.5% of profits, when investment returns exceed minimum return levels or other performance targets. Incentive fees are generally payable after the achievement of performance targets or after all contributed capital and the preferred return on that capital has been distributed to investors.
Some incentive fees are subject to a “clawback,” or the obligation to return distributions in excess of the amount prescribed by the applicable fund or separate account documents. Incentive fees are typically only required to be returned on a net of tax basis due to a clawback. As such, the tax-related portion of incentive fees is typically not subject to clawback and is therefore recognized as revenue immediately upon receipt. Investment returns are highly susceptible to market factors and judgments and actions of third parties that are outside of our control which could impact the probability of a significant reversal occurring. Accordingly, incentive fees are not recognized until it is probable that a significant reversal will not occur.
We estimate the amount and probability of additional future capital contributions to specialized funds and customized separate accounts, which could impact the probability of a significant reversal occurring. The additional future capital contributions relate to unfunded commitments or follow-on investment opportunities in underlying portfolio investments. Incentive fees received before the revenue recognition criteria have been met are deferred and recorded within deferred incentive fee revenue in the Consolidated Balance Sheets.
Income Taxes
We account for income taxes using the asset and liability method. Deferred income taxes are recognized for the expected future tax consequences attributable to temporary differences between the carrying amount of the existing tax assets and liabilities and their respective tax basis using enacted tax rates expected to be applied in the years in which temporary differences are expected to be recovered or settled. As of March 31, 2026, we had deferred tax assets of $293.1 million due primarily to our acquisitions of HLA units. Realization of the deferred tax assets is dependent primarily upon (1) historic earnings, (2) forecasted taxable income, (3) future tax deductions of tax basis step-ups related to our IPO and subsequent unit exchanges, (4) future tax deductions related to payments under the tax receivable agreement, and (5) our share of HLA’s temporary differences that result in future tax deductions. Valuation allowances are established when necessary to reduce deferred tax assets to the amount more likely than not to be realized. As of March 31, 2026, we had a valuation allowance of $69.6 million. Changes in judgment as it relates to the realizability of these assets, as well as potential changes in corporate tax rates, would have the effect of significantly reducing the value of the deferred tax assets.
We analyze our tax filing positions in all of the U.S. federal, state, local and foreign tax jurisdictions where we are required to file income tax returns, as well for all open tax years in these jurisdictions. We evaluate tax positions taken or expected to be taken in the course of preparing an entity’s tax returns to determine whether it is “more-likely-than-not” that each tax position will be sustained by the applicable tax authority.
Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is required in determining tax expense and in evaluating tax positions, including evaluating uncertainties under GAAP. We review our tax positions quarterly and adjust our tax balances as new legislation is passed or new information becomes available.
Tax Receivable Agreement
Our purchase of HLA Class A units concurrent with the IPO, and subsequent exchanges by holders of HLA units for shares of our Class A common stock pursuant to the exchange agreement, result in increases in our share of the tax basis of the tangible and intangible assets of HLA, which increases the tax depreciation and amortization deductions that otherwise would not have been available to us. These increases in tax basis
and tax depreciation and amortization deductions are expected to reduce the amount of cash taxes that we would otherwise be required to pay in the future. We entered into the tax receivable agreement with the other members of HLA, which requires us to pay exchanging HLA unitholders (the “TRA Recipients”) 85% of the amount of cash savings, if any, in U.S. federal, state, and local income tax that we actually realize (or, under certain circumstances, are deemed to realize) as a result of the increases in tax basis in connection with exchanges by the TRA Recipients described above and certain other tax benefits attributable to payments under the tax receivable agreement. Generally, if we do not generate sufficient cumulative taxable income in the future to utilize the tax benefits, then we will not be required to make the related tax receivable agreement payments—the exception being that our obligation to make such payments may be accelerated if we elect to terminate the tax receivable agreement, in whole or in part, or if a change in control of us, or a breach of the tax receivable agreement by us, occurs. Therefore, we will generally only recognize a liability for payments under the tax receivable agreement for financial reporting purposes to the extent we determine it is probable that we will generate sufficient future taxable income to utilize the related tax benefits. Estimating and projecting future taxable income is inherently uncertain and requires judgment. Actual taxable income may differ from estimates, which could significantly affect the liability under the tax benefit arrangements and our consolidated results of operations.
Based on current projections, we anticipate having sufficient taxable income to utilize these tax attributes and receive corresponding tax deductions in future periods. As of March 31, 2026, the tax receivable agreement resulted in a liability of $235.4 million. Significant changes in the projected liability resulting from the tax receivable agreement may occur based on changes in anticipated future taxable income, changes in applicable tax rates or other changes in tax attributes that may occur and could affect the expected future tax benefits to be received by us.
Recent Accounting Pronouncements
Information regarding recent accounting developments and their impact on our results can be found in Note 2, “Summary of Significant Accounting Policies” in the notes to the consolidated financial statements included in Part II, Item 8 of this Form 10-K.
