LP Profile: Hamilton Lane

Hamilton Lane started life in 1991 advising pension funds from a base just outside of Philadelphia, Pennsylvania. The firm's head of Europe, Jim Strang, explains how it was not until the late 1990s that the team ventured into investment management, setting up its first fund-of-funds and introducing a form of hybrid model, which it still practices today. From one office and four employees, the manager now has 15 offices and approximately 340 employees, though Bala Cynwyd, Pennsylvania, remains its headquarters.

"We are a partner to investors in the private markets, across equity, credit and infrastructure," says Strang. "We are constantly bending ourselves to our clients' needs." 

"About 20 years ago it was either buyout or venture," says Ana Lei Ortiz, managing director in Hamilton Lane's relationship management and responsible investment team. "But now there are so many more options and we are continuously making sure we are up to date."

In its investment management business, Hamilton Lane had $50bn in assets under management as of 31 December 2017. Approximately $41bn of this is in separate management funds, while the remainder is in co-management and multi-strategy.

Meanwhile, the firm's advisory business had $374bn under supervision, as of the same date. On the advisory side, the client base is 42% non-US, and includes sovereign wealth funds, family offices and other institutional investor types.

In 2017, Hamilton Lane committed approximately $28bn in third-party primary fund commitments with the lion's share going into equity funds. Private equity makes up the bulk of the fund activity with venture taking up a single digit percentage.

"It isn't that we are averse to venture deals," says Strang. "It is just difficult to get the volume, given that we aim to deploy approximately $25bn a year."

The discretionary allocation to Europe is around 15% with the remainder primarily going to North America.   

The average ticket size is approximately $200m, across discretionary and advisory. However, the median is approximately $60m, with the most common ticket size roughly $50m.

European PE
Hamilton Lane has more than 50 private equity relationships in Europe (the number triples for the rest of the world), with the manager preferring to concentrate on fewer rather than a large pool of GPs, explains Strang. "We'd rather be a mile deep and an inch wide than a mile wide and an inch deep," he says. "It was our founder's mantra to pick as few deals as possible."

In 2017, there was an additional $2.2bn in transactional investments, including secondaries and co-investments.

The manager held a final closing for its fourth secondaries fund in June 2017 on $1.9bn, exceeding the original $1.25bn target, making it Hamilton Lane's largest secondaries vehicle to date.

Predecessor vehicles include: 2005-vintage HL Secondary Fund I (HLSF I), which closed on $360m and is generating a net IRR of 4.3% and a net multiple of 1.2x; 2008-vintage $590m HLSF II, which is generating a net IRR of 15.1% and a net multiple of 1.5x; and 2012-vintage HLSF III, which closed on $909m and is generating a net IRR of 18.6% and a multiple of 1.3x, as previously reported by Unquote.

Hamilton Lane also has a dedicated co-investment team, which in Europe is led by Richard Hope. There were 25 equity co-invests in 2017, with 30% of capital committed within Europe.

The firm invests alongside GPs whose investment theses and requisite skills it has researched and reviewed. Once an investment is made, Hamilton Lane monitors the company closely but generally is not as involved in the day-to-day activities.

"We look at a range of opportunities that could be anywhere from approximately $10m up to $100m or more," says Strang.  

As far as credit is concerned, the manager held a final closing for its latest credit-focused vehicle, Hamilton Lane Strategic Opportunities Fund 2017, on $435m last June. The vehicle is significantly larger than its 2016 predecessor, which closed on $214m.

Responsible investing
"In our view, European LPs have ESG at the front and centre these days, whereas in the US, it's generally only the large LPs – and therefore it's generally only the large GPs who have this on their radar," says Lei Ortiz.

The private markets and private equity are perfect for ESG because there is direct control over the investment, so we started making guidelines for LPs and GPs that included ESG considerations" – Ana Lei Ortiz, Hamilton Lane

Hamilton Lane has been a signatory of Principles for Responsible Investing (PRI) since 2008, helping to incorporate guidance in the industry, and Lei Ortiz sits on PRI's PE advisory committee.

"The private markets and private equity are perfect for ESG because there is direct control over the investment, so we started making guidelines for LPs and GPs that included ESG considerations," says Lei Ortiz. "They hadn't really thought about private markets much before."

Hamilton Lane has been rating GPs on their ESG integration efforts for several years now with the investment manager having declined groups on issues such as governance grounds before.

"ESG is now an agenda item and you can see the likelihood that down the line, people may be more likely to decline a GP because they don't have an ESG policy," says Lei Ortiz, adding that there has been a remarkable improvement in recent years.

The firm rates GPs and funds on their ESG activities and works with clients to help them implement policies. The ESG activities of a GP is now a standard part of LP due diligence and is becoming gradually closer to becoming a requirement. 

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