Hamilton Lane Incorporated (HLNE) Q2 2021 Earnings Call Transcript

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Hamilton Lane Incorporated (NASDAQ:HLNE)
Q2 2021 Earnings Call
Nov 4, 2020, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen. Thank you for standing by, and welcome to the Hamilton Lane Incorporated Second Quarter Fiscal Year 2021 Earnings Conference Call. [Operator Instructions]

I would now like to turn the conference over to your speaker today, John Oh, Vice President, Investor Relations. Please go ahead.

John OhVice President, Investor Relations

Thank you, Julie. Good morning and welcome to the Hamilton Lane Q2 fiscal 2021 earnings call. Today, I will be joined virtually by Mario Giannini, CEO; Erik Hirsch, Vice Chairman; and Atul Varma, CFO.

Before we discuss the quarter’s results, we want to remind you that we will be making forward-looking statements based on our current expectations for the business. These statements are subject to risks and uncertainties that may cause the actual results to differ materially. For a discussion of these risks, please review the risk factors included in the Hamilton Lane’s fiscal 2020 10-K and subsequent reports we file with the SEC.

We will also be referring to non-GAAP measures that we view as important in assessing the performance of our business. Reconciliation of those non-GAAP measures to GAAP can be found in the earnings presentation materials made available on the public Investor Relations section of the Hamilton Lane website. Our detailed financial results will be made available when our 10-Q is filed. Please note, that nothing on this call represents an offer to sell or a solicitation to purchase interest in any of Hamilton Lane products.

Beginning on Slide 3. Year-to-date, our management and advisory fee revenue grew by nearly 12%, while our fee-related earnings grew by over 14% versus the prior year period. This translated into year-to-date GAAP EPS of $0.79 based on $25.1 million of GAAP net income and non-GAAP EPS of $0.91 based on $48.8 million of adjusted net income. We have also declared a dividend of $31.25 per share this quarter, which keeps us on track for the 13.6% increase over last fiscal year, equating to the targeted $1.25 per share for fiscal year 2021.

With that, I’ll now turn the call over to Mario.

Mario L. GianniniChief Executive Officer

Thanks, John and good morning. We had another strong quarter of growth, and I continue to be impressed by and proud of our teams for their tremendous efforts in meeting and exceeding the needs of our clients, all while their own daily life. While we continue to operate virtually across many of our global locations, we are starting to see some return to normal in several of our offices outside the US, as office and in-person meetings with clients and prospects. Across the firm productivity and output remained strong, the employee engagement is high and we continue to lean heavily on our strong technology backbone both to keep us connected and to service our clients. This has all resulted in continued growth through support from both new and existing clients.

I’ll shift gears now and turn to an update on our new headquarters build and highlight a new office, we’ve opened in Asia. A quick reminder regarding our new headquarters. We have signed a 17-year lease to occupy approximately 130,000 square feet in a newly constructed building located in suburban Philadelphia. The square footage nearly doubles our current footprint and while we envision growing into this space over time, in the near term the additional footprint allows us to provide a safe and socially distanced work environment for our employees. And to that extent, we find ourselves with enough space, we seek to sublet portions of the building. Construction continues to progress well and we anticipate relocating to the new space in the first half of 2021. In Asia, we opened a new office in Singapore which further expands our Asian presence and puts us closer to investors and investment opportunities in that region.

I’d also like to speak about a few recognitions the firm recently received. I highlight these, not only because it’s due to the first-class organization we built, it also to demonstrate what is truly important to us and our culture. I’m proud to say that, for the ninth consecutive year Hamilton Lane has been selected as the Best Place to Work in Pennsylvania, on the Central Penn Business Journal. It’s a statewide program dedicated to identify in recognizing Pennsylvania’s Best Employers.

In addition, the firm was recently designated by the private equity Women Investor Network as an International Limited Partner of the Year for 2020. This award is given annually to an outstanding institutional limited partner, who has demonstrated a commitment to encouraging and supporting female investors in the private equity industry. It’s a tremendous honor to be selected for this award and reflects the deep commitment that Hamilton Lane has for creating a diverse work environment. As caused us like many firms to again reexamine our principal and to ask whether we can do more. I answered that question is yes. We are extremely proud of the caliber of organization we have built with women and minority representing 50% of our work and 46% of our senior leadership team. And all those figures alone position us industry, we are focused on further improving and enhancing our efforts to build a truly diverse and inclusive organization. There’s not been the time in recent memory when people in organizations cared more about who they’re partnering with and we are working fine to ensure we continue to be an organization that brings pride to our clients, partners and shareholders.

Finally, before I move to cover some of the quarter’s result in detail. Let me now take a minute, and talk about what’s going on in the private markets. Similar story to the public markets, valuations, fundraising, deal activity across all sectors have rebounded. In some cases for levels higher than the initial pre-pandemic. We don’t, uniform it’s some industries and sectors such as growth in technology doing very well. All other sectors such as energy and some parts of the retail markets struggle. How limited partners and investors reacted? At no point, did we see any of the panic reaction we saw on the global financial crisis. By and large investors have maintained and more often increased their allocations and have continued investing across all parts of the private market. We’ve seen a small shift favoring growth oriented investments in some areas of the credit market and we haven’t seen any significant changes in how investors are approaching the private markets.

And now turning to some results for the quarter. Beginning on Slide 4. Here we highlight our total asset footprint, which we define as the sum of our AUM, assets under management, and AUA assets under advisement. Total asset footprint for the quarter stood at approximately $547 billion and represent a 14% increase to our footprint year-over-year, continuing our long-term growth trend. Consistent with prior quarters AUM growth year-over-year, which was approximately $7 billion, were nearly 11% came from both our specialized funds and customized separate accounts and continues to be diversified across client type, size of client and geographic region. Our focus remains simply growing and winning across both lines of business and we are pleased with the continued success. As for our AUA, similar to what we’re seeing with our AUM, growth year-over-year, which came in at over $58 billion, was approximately 48%, it’s been across client type and geographic region. As we have mentioned on prior earnings calls, AUA can fluctuate quarter-to-quarter through a variety of reasons. But the revenue associated with AUA does not necessarily move in lockstep with those changes. While this quarter saw an increase in AUA dollars relative to the previous quarter, we will continue to emphasize that no direct correlation exists between the scale of AUA dollars and revenue generation.

Let me now turn it over to Erik.

Erik R. HirschVice Chairman, Member of Board of Directors, Co-Chairman of Various Investment Committees

Thank you, Mario, and good morning. Moving on to Slide 5, we highlight our fee-earning AUM. As a reminder, fee-earning AUM is the combination of our customized separate accounts and our specialized funds with basis point driven management fees. We will continue to emphasize that this is the most significant driver of our business as it makes up over 80% of our management and advisory fees. Relative to the prior year period, total fee-earning AUM grew $3.2 billion or nearly 9% stemming from positive fund flows from across both our specialized funds and our customized separate accounts. Taken separately, nearly $1.7 billion of net fee-earning AUM came from our customized separate accounts and over the same time period, $1.5 billion came from our specialized funds. Growth in these two segments continues to be driven by four key components. One, reups from our existing clients; two, winning and adding new clients; three, growing our existing fund platforms; and four, raising new specialized funds. What you also see here is that our fee rates continue to remain steady.

Moving to Slide 6, fee-earning AUM from our customized separate accounts stood at $24.6 billion, growing approximately 7% over the past 12 months. We continue to see the growth coming across type, size, and geographic location of the clients. What you also see here is that over the last 12 months, more than 80% of the gross inflows into customized separate accounts came from existing clients. You’ve heard us say in the past that reups from our existing client base remains a key component of the growth we’ve achieved in this segment of fee-earning AUM. In addition to reups, we continue to expand our client base by winning and adding brand new relationships, which in turn provide a growing base for future reup opportunities.

Moving to our specialized funds, growth here continues to be strong. We are executing well across our existing product suite and are tactically introducing new product lines. Overall demand remains robust and like the rest of our business comes from a diversified set of investors around the globe. Over the past 12 months, we’ve achieved positive inflows of nearly $1.5 billion resulting in a nearly 11% increase in fee-earning AUM.

Turning to fund specific updates, I’ll start with our current secondary fund, which continues to be the primary driver of growth in specialized funds fee-earning AUM. During this recent quarter, we closed on approximately $250 million of LP commitments and that brings the total dollars raised for this product to approximately $2.5 billion. In prior calls, we told you that we had until October of 2020 to finish raising this fund. However, given strong demand and a strong pipeline of investment opportunities, our current investors have graciously allowed us to extend the fundraising deadline to January 2021. Lastly, similar to prior closes with this product, this closing did generate retro fees of $2.9 million in the quarter.

Next, our annual credit fund focused series continued to attract capital. To date, the current series has raised over $290 million of commitments and we have until the end of January 2021 to complete raising capital. For the benefit of those less familiar with this series, it is a relatively unique structure whereby we are continually raising and deploying dollars simultaneously. Therefore, it is less about targeting a set amount of dollars to raise as you traditionally would see across funds with a multi-year deployment period and more about ensuring that we size the product in line with the current opportunity set. This inevitably will lead to some size variability from series to series. We do however typically see commitments to this product being more calendar back-end weighted and would expect that to continue for this raise.

Next up is our direct equity fund. For those less familiar with this fund and its strategy, here, we invest directly into companies alongside leading fund managers. We have successfully raised four prior funds in this vertical with our last fund having raised approximately $1.7 billion. I am pleased to announce that on October 9th, we held the first close for our fifth fund at nearly $320 million. The fund has not yet been turned on as we are still finishing up investing our current fund and thus no fees for this period. Based on pipeline and pacing, we would anticipate that this new fund goes live starting in January 2021.

For this new fund, we made an alteration to the fee model reflecting some changing investor preferences. Our prior four funds have had a traditional 1% management fee on committed capital, which then switched to a 1% on net invested capital post the investment period. Carried interest was charged at a 10% rate over an 8% hurdle following a European waterfall method. For this new fund, we are providing investors a choice, either the traditional 1% management fee on committed capital with a 10% carry just as we have in the past or they can opt for a 1% management fee on net invested capital and that will come with a carry rate of 12.5%. The hurdle rate remains at 8% as does the European waterfall methodology.

We are seeing some investors more focused on early IRR management and thus prefer invested capital models and are willing to pay more for performance on the back end. Part of being a good partner to your clients is listening and understanding preferences and being responsive. For this first close, 33% of the capital opted for the traditional model and 67% opted for the invested capital and higher carry option. We are encouraged by the results from this first close, which was started and completed all post pandemic and we look forward to providing you with updates as we continue to raise this fund. Finally, we continue to see strength in our white label initiatives where we partner with distribution houses and provide products into those channels. Outside of the United States, we continue to see positive net inflows into our semi-liquid Evergreen Product and are encouraged with the success that we’ve achieved to date.

Before I end here, I want to take this opportunity to discuss our latest technology investment. On September 2nd, Honcho, a SaaS-oriented company focused on compliance related solutions announced the closing of a Series A financing round where Hamilton Lane invested balance sheet capital alongside a blue chip investor group that included FINTOP Capital and Peter Thiel. Our investment in Honcho was another example of us partnering with leading technology franchises to come together to solve the problem.

Not all of these solutions are commercial opportunities for Hamilton Lane. In this case, it would be odd if we announced that Hamilton Lane is now selling compliance software. They are however problems that we think need addressing because in doing so, it makes our firm along with our industry better and stronger and we believe that leads to more growth. So here with Honcho as with other similar situations, Hamilton Lane is proud to be a strategic partner and investor. And with that, I’ll turn it over to Atul to discuss the financials.

Atul VarmaChief Financial Officer and Treasurer

Thank you, Erik and good morning everyone. Slide 8 of the presentation shows the financial highlights for the first half of fiscal 2021. We continue to see solid growth in our business with management and advisory fee up nearly 12% versus the prior year period. Our specialized funds revenue increased $10 million or 19% compared to the prior year period driven by almost $1.4 billion in fee-earning AUM added from our latest secondary fund between periods. We recognized $6.1 million in retro fees from the secondary fund in the current year period compared to $2.8 million from our latest co-investment fund in the prior year period. As many of you are likely aware, investors that come into later closest to [Phonetic] fund raise for many of our products pay retroactive fee dating back to the fund’s first close. Therefore, you typically see a spike in management fee related to that fund for the quarter in which subsequent closings occur.

Revenue from our customized separate accounts increased approximately $2.9 million compared to the prior year period due to reups from existing clients and the addition of several new clients. Revenue from our advisory and reporting offerings increased approximately $2.3 million compared to the prior year period. The final component of our revenue is incentive fee. Incentive fee for the year-to-date period were $20.5 million. This fiscal year — this fiscal quarter saw strong realization activity from the second co-investment fund that materially contributed to the quarter’s carry total. That is a 2008 vintage fund that has performed well with a 2.5 multiple on realized deals contributing over $80 million in realized carry since 2018 and over $20 million in unrealized carry remaining. We remain a very diversified carry story with now over 60 vehicles in a carry position that are ultimately backed by thousands [Phonetic] of underlying companies.

Moving to Slide 9, we provide some additional detail on our unrealized carry balance. We saw a strong rebound in the marks this quarter, in line with market performance with the balance up 7% from the prior year even as we recognized $40 million of incentive fee during that period. And just to remind everyone, we don’t control these positions and thus don’t control the timing of the exit.

Turning to Slide 10 which profiles our earnings. Our fee related earnings were up 14% versus the prior year period as a result of revenue growth we discussed earlier. In regard to our expenses, total expenses increased $12 million compared with the prior year period. G&A decreased $5.6 million, due primarily to decreases in travel expense, consulting and professional fee and commissions. Total compensation and benefits increased by $17.6 million due to strong operating performance and an increase in headcount. $5.1 million of this increase however, is attributable to incentive fees related compensation. For the compensation growth in our fee related earnings, our goal has been to maintain a steady to slightly increasing fee related earnings margin, which we are on pace for this year.

Let me take a moment here to remind everyone about the rent expense associated with the headquarters move that Mario spoke about earlier in the call. While the building is likely to be fully completed sometime next year as we mentioned in the prior call, we will begin expensing the rent starting in the third fiscal quarter. We expect the impact to our G&A expense will be a runrate increase of $4 million to $5 million annually, stemming from the new lease.

Moving to our balance sheet on Slide 11. Our largest asset on the balance sheet is investments, alongside our clients, in our customized separate account and specialized funds. Similar to our unrealized carry balance, this quarter saw an increase in value relative to the prior quarter — to the previous quarter primarily due to increased valuation changes. In regard to our liabilities, we continue to be modestly levered.

And with that, we thank you for joining the call and are happy to take it up — open it up for questions.

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from the line of Ken Worthington of JP Morgan. Please go ahead.

Ken WorthingtonJP Morgan — Analyst

Hi, good morning. Thank you for taking my questions. If we look at net sales, commitments less distributions, September was a slower quarter. Commitments looked like they were in the range of historical levels, but distributions looked elevated. So what is the outlook for distributions and maybe could you walk through how you’re thinking about the different drivers, realizations versus stepdowns versus others in the fund and separate account businesses? And then if distributions are going to remain at this level, can you talk about the opportunity to drive better contributions and maybe like an outlook or a pipeline, particularly in separate accounts on the contribution side? Thank you.

Erik R. HirschVice Chairman, Member of Board of Directors, Co-Chairman of Various Investment Committees

Ken thanks it’s Erik, I’ll take that. As we said in prior calls some of this is really just timing related particularly around the separate account side. So on the separate account side, as you know we’re in a tranching mode and so we have seen some tranches that expire and we don’t always have exactly perfect matches for the new tranche to come online. But the other driver on the distributions in this time period is that we have had and secondary would be an example, some of those funds that are now at that kind of 12 year time period are basically rolling off to be non-fee earning. And so it is a combination as you know, there are really three things. Aging of the asset, two, what’s happening with actual distributions and three, the timing mismatches between reups and tranches expiring. So we would continue to point to growth continues to look strong from our end and we think some of this just becomes timing noise.

Ken WorthingtonJP Morgan — Analyst

Okay. Is there any outlook, so on the tranches expiring, you guys have good visibility into that. If we look at over the next couple of quarters, are there enough tranches expiring where we are likely to remain in this $1 billion plus distribution quarters, or is that sort of going to burn itself out and look to moderate or are you just unclear?

Erik R. HirschVice Chairman, Member of Board of Directors, Co-Chairman of Various Investment Committees

It’s a little unclear. Again, partly because the liquidity is obviously not under our control. So you can look at the aging of the assets but what we would expect to see from a pure liquidity point is a bit outside of our control.

Ken WorthingtonJP Morgan — Analyst

Okay. And then maybe a little one. The new fee structure in the co-invest fund, do you think that allows you to make that fund bigger than would otherwise be the case and attract more investors? Or was this sort of something that you needed to do to just sort of reach you’re kind of pre-existing targets?

Erik R. HirschVice Chairman, Member of Board of Directors, Co-Chairman of Various Investment Committees

I think it’s too early to tell. So I think the reason for the change was as we said, I think really just being responsive to what investors want. I think what we’re finding is that people like choice. And I think what we provided them here was a good creative solution depending on what you are more focused on. Are you more focused on kind of upfront fees or more back-ended fees? And so I think that choice I think to us innovative, strong and forward thinking. In terms of timing, remember, we’ve got 18 months from the date of the first close to complete the fundraising. So we would say, coming out of the gate was what felt like a very strong first close, particularly as noted since it was all kind of done post-pandemic. And we’ve got a long runway in front of us here from a time perspective. So I think we’ll continue to provide updates, but early innings here.

Ken WorthingtonJP Morgan — Analyst

Great, thank you very much.

Operator

And your next question comes from the line of Michael Cyprys with Morgan Stanley. Please go ahead.

Michael CyprysMorgan Stanley — Analyst

Hey, good morning. Thanks for taking the question. If we look at the fee related revenues are up around 12% year-on-year just for the quarter. If I see a year ago, while the fee related expenses up around 8% or so it looks like you guys have about 400 basis point positive operating leverage there. I’m just curious how you guys would characterize that sort of spread there all the way you’re getting a lift from the travel side. I’m just trying to think, where maybe you can provide some color and where do you think — see that gap normalizing between the revenue growth versus the expense growth on the fee related side? And any sort of quantification around the benefit or uplift you guys are seeing on the expense side from the environment that we’re in today?

Erik R. HirschVice Chairman, Member of Board of Directors, Co-Chairman of Various Investment Committees

Yeah, Mike, it’s Erik. So I think, as we noted, all the things you pointed to on the G&A side have been true. I think it’s really hard to forecast out. So while we’re seeing return to normal or at least more normal in some parts outside the US, we have offices that are open, businesses again returning to a little bit more of a normal state, we’re also not seeing big events to take part of our G&A, aside from the travel, conferences, hosting events, etc. I think it’s just too early to tell whether that truly returns to what it was or whether those numbers stay lower. The rent thing we obviously covered. So we think this is — G&A is going to be rising as that rent continues to come online. So there is no surprise there. I think we’ve been telegraphing that very clearly. But I think on the variability on G&A that’s really COVID related. I think too early to tell what a new return to normal looks like.

Michael CyprysMorgan Stanley — Analyst

Okay. And just maybe a follow-up question. You guys recently raised that impact fund, I think maybe it was last quarter or the prior quarter. So maybe just on the co-mingled specialized funds side, just curious, what sort of new funds or strategies could be making sense to bring to market, if you look out over the next couple of years, if you think about the white space that’s out there, just in terms of other sectors of sub-asset classes within the private markets. How are you approaching that? How do you think through prioritizing that versus other initiatives?

Erik R. HirschVice Chairman, Member of Board of Directors, Co-Chairman of Various Investment Committees

Yes, it certainly is a priority for us. I mean, I think we said in the past that we view ourselves as a relatively young and small player in the co-mingled product side. And we have aspirations to get that to be much bigger. You can see, that’s a big chunk of the current growth is being driven by us just improving and expanding the size of the current platforms that we’ve had. But as you know, there is a lot of white space out there in the product market. I think we’ve also been careful as you’ve seen us to not telegraph where we’re going to make sure that we’re kind of maintaining competitive advantages. So I think on the new funds, just like on impact you all are going to hear about them once we’ve actually had a closing under our belt and that the product is already launched as opposed to us proactively telling the market what we’re about to go think about raising. But we think a lot of white space, a lot of room to grow there.

Michael CyprysMorgan Stanley — Analyst

Okay, thank you.

Operator

And your next question comes from the line of Alexander Blostein with Goldman Sachs. Please go ahead.

Alexander BlosteinGoldman Sachs — Analyst

Hey, good morning everybody. Thanks for the question. I wanted to follow-up on the pricing structure change that you discussed a little bit earlier. So I guess the question is why now the J-curve mitigation efforts kind of well understood. And I feel like that was always part of the picture. So curious to see sort of why is this happening now? Are you seeing more explicit pressure from LPs on making those kind of changes to help them mitigate J-curve dynamics? Do you see that more as a Hamilton Lane dynamic? Or is that more of an industry phenomenon that’s starting to unfold? And I guess lastly, do you think we could see a similar structure spillover into other vehicles outside of the telegraph? So could we see kind of direct private equity or something like that or some of the other funds following the similar pattern from here. Thanks.

Mario L. GianniniChief Executive Officer

Alex, it’s, Mario. It’s not — I wouldn’t call it so much a pressure question as it is a question of you have investors that have different goals in the market. And so you try to reach as many investors as you can. As Erik mentioned, you have a number of investors that and as you mentioned are very J-curve sensitive and so they much prefer the lower upfront fee, but are fine paying the same relative fees if you will over the life of it, just more back ended and you have others that are indifferent to that and just want to look at what works for them.

And then for us, it’s like a question of feeling pressure and saying we have to do this as it is a question of saying, what is the market asking for? What does it want? And that’s why we’ve done it and why now? I think because as the asset class has matured, investors have said I have choices both in how I invest and I want to have choices in the price I’m paying for those investments. So I think it’s just a question of the maturity of the asset class. As to other products or other services that may have that kind of choice, I don’t know that you can say that this one is fairly clear because people look at the co-investment [Indecipherable] so I think it is a pressure for us, an issue for investors around that, but I don’t know that I’d look at it and say, oh, this means that all these other products are now going to go to that — I wouldn’t draw that conclusion.

Alexander BlosteinGoldman Sachs — Analyst

Got it. Okay, thanks. And a quick modeling follow-up, it looks like the incentive comp rate in the quarter or the comp related to increased incentive fees rather mentioned [Phonetic] a little bit better than expected. So I’m just curious to get an update of how you guys are thinking about compensation on carry related from here if we were to see maybe a bit of a pick up on the realization front. Thanks.

Atul VarmaChief Financial Officer and Treasurer

Yeah, hey, Alex, it’s Atul, I’ll take that. So as you saw in the quarter, the carry came in pretty strong and that drove the compensation up for the quarter. So as you think about there is — from quarter-to-quarter, it may bounce around a little bit based on business performance. Erik mentioned earlier in the call that we continue to hire. We’re still in growth mode. So I think quarter-to-quarter may bounce around a little bit, but when we get to the end of the year and you look back, I think it will — you’ll see the story is going to be very consistent which is that our margins are stable and moving up and to the right over a period of time.

Alexander BlosteinGoldman Sachs — Analyst

Okay, thanks.

Operator

And your next question comes from the line of Robert Lee with KBW. Please go ahead.

Robert LeeKeefe, Bruyette & Woods — Analyst

Thanks, good morning. Most of my questions were asked, but just maybe real quick one and I apologize if you already mentioned it, but what were the retro fees in the quarter. I think I heard $2.9 million and I don’t know if that referred to just the secondary fund or maybe on retro [Phonetic] fees?

Erik R. HirschVice Chairman, Member of Board of Directors, Co-Chairman of Various Investment Committees

Yeah, the $2.9 million — Rob, it’s Erik, was result of the secondary fund and that was really the primary driver of any retro fees.

Robert LeeKeefe, Bruyette & Woods — Analyst

Okay, great, thanks. And then on the — maybe back to the direct equity fund. Just want to make sure I got the detail. So when you had the first close and you basically have 18 months from the first close to finish funding raising, the current expectation is that’s not [Indecipherable] sometime in the first calendar quarter and then obviously it’s like another year of fund raising after that. Just want to make sure I’m thinking of that correctly.

Erik R. HirschVice Chairman, Member of Board of Directors, Co-Chairman of Various Investment Committees

Sure, Rob, its Erik again, I’ll take that. So what we said here is we had the first close on over $300 million. We don’t turn it live until we actually finish investing the prior, which is the current fund. Based on pipeline opportunities, our expectation is that the new fund will go live in January of 2021 assuming that again the pipeline everything else holds. The fund raising is 18 months from the date of the first close and the first close took place in October of this year.

Robert LeeKeefe, Bruyette & Woods — Analyst

Okay and maybe one kind of bigger picture environment, I think you kind of touched on this upfront, but have seen during earnings from some of the, I guess, primary funds and what not, kind of got the sense [Indecipherable] are you seeing that same thing more broad based across all your LPs or you maybe kind of touch on maybe a little haphazard [Phonetic], but kind of your general sense on that?

Mario L. GianniniChief Executive Officer

Rob, it’s Mario. I think part of it is testing it out, but I think what you are asking is whether we’re seeing M&A increases or whether we’re seeing deal activity increasing. Is that what you are asking?

Robert LeeKeefe, Bruyette & Woods — Analyst

It was mainly on the realization side. It seemed like some of the primary firms were more optimistic perhaps that they’re seeing more potential for selling assets, IPOs as well as kind of the deploying capital [Phonetic].

Mario L. GianniniChief Executive Officer

Yeah, I’d say there are two key things to that. I think as of last week, we could have expected more realization activity because of a belief that taxes in the United States will increase and so, people wanted to get deals done before year-end [Phonetic]. The election result, it is unclear whether there will be a state of push for higher taxes. So depending on how that shakes out, you will see whether activity increases solely for that reason. I suspect deals that are in process will continue that have been caused by that. I think just in general, I think what you’re hearing from them and from us is markets are strong and exit activity is good, and so certainly relative to earlier in the year, we’ve seen deal activity increasing across all geographies and across most sectors. So I don’t — unless you tell me that markets are going to correct significantly, I would expect that deal activity will remain [Phonetic] active.

Robert LeeKeefe, Bruyette & Woods — Analyst

Great, thanks for taking my questions.

Operator

And your next question comes from the line of Chris Shutler with William Blair. Please go ahead.

Chris ShutlerWilliam Blair — Analyst

Hi, everyone, good morning. How much of Hamilton Lane’s fee-paying AUM would you classify today as direct investing or co-investments and do you expect that percentage to grow over time as a percentage of the total mix and does that have any impact on how we should about comp expense trending over time?

Erik R. HirschVice Chairman, Member of Board of Directors, Co-Chairman of Various Investment Committees

Sure. It’s Erik, I’ll take that. We actually haven’t broken out the portion of that, but in the total AUM, it’s a relatively small amount when you sort of saw what the prior fund was for our last co-investment fund, which was sub $2 billion and so while we include separate accounts with that activity again, in context to total AUM, it makes up a smaller portion. That said, it’s also a very fast-growing portion of the market as more investors want access to that kind of direct equity opportunities and so to the extent that, that will certainly bring in more carry component than with that the incentive compensation will rise alongside of that.

Chris ShutlerWilliam Blair — Analyst

Got it. Okay and some of your competitors, newly publicly traded competitors have disclosed a committed not yet fee-paying AUM number. Is that something that you can provide or plan to provide going forward?

Erik R. HirschVice Chairman, Member of Board of Directors, Co-Chairman of Various Investment Committees

Yeah, good question. It’s Erik again. At this point, we really don’t plan on providing that. I think for a few — I think a few perspectives there. I think while we have seen those numbers put out as a notion of hey, growth already built in, the reality is, is that’s just normal in our industry. So we all have that to some extent. I think the reason for us of not wanting to sort of overly focus on that, again, it’s not new, it’s not novel to the industry, it’s just part of the way that a number of contracts are structured, I think from the clients perspective, it sort of sounds more like, hey, we can’t wait to spend this and we’ll spend this as fast as possible, so we start getting paid on that. That’s just never been our mindset. It’s not our orientation and so I think from our perspective we have it, we have a lot of it, but it’s not something we plan on breaking out at this point.

Chris ShutlerWilliam Blair — Analyst

Got. Okay and then lastly, just geographically, can you remind us how much of your assets today are US versus non-US clients and any updates on where, kind of, the flows are coming from or any trend that you see?

Erik R. HirschVice Chairman, Member of Board of Directors, Co-Chairman of Various Investment Committees

Sure. It’s Erik, I’ll stick with that. We said in the past that the business is essentially kind of a 60:40 business, 60% North America, 40% not. It certainly moves around, but in general, that’s a pretty good kind of guesstimation of where things stand at any point in time and that ratio has been steady since we went public. So despite I think a lot of talk about the emerging markets being growth areas and they certainly are, what this also tells you is that we’re still seeing an awful lot of growth coming out of the United States as well as coming out of Europe. So our ratio has been fairly static and we’ve been experiencing growth across both developed and non-developed markets.

Chris ShutlerWilliam Blair — Analyst

Okay, thanks very much.

Operator

And your next question comes from the line of Michael Cyprys with Morgan Stanley. Please go ahead.

Michael CyprysMorgan Stanley — Analyst

Oh, hey, thanks for taking the follow-up question. I just wanted to circle back on the credit fund strategy that you have. I was hoping you could talk a little bit about your approach to investing that capital, how you approach building a diversified portfolio there. Maybe you can give us a flavor to the types of investments that you’re making?

Erik R. HirschVice Chairman, Member of Board of Directors, Co-Chairman of Various Investment Committees

Sure, Mike, it’s Erik. I’ll stick with that. So the nice thing about that product is it’s opportunistic credit, we’ve raised that as an opportunistic vehicle, which allows us to be tactical and to toggle depending on market conditions. So today we’re focusing on performing credit because the markets are very healthy. To the extent that you saw a dislocation in the market, the advantage of that vehicle is that we could immediately move the strategy to focus on non-performing credit. So investors there have really entrusted us with getting them what we think are the best credit opportunities in the market, whatever that is kind of presently serving up.

Michael CyprysMorgan Stanley — Analyst

Great and maybe just last question from me, you mentioned at the start of the call that you guys have opened an office in Singapore, I’m just hoping you could talk through your thought process around why opening an office there right now. Any thoughts on staffing, how many folks you have over there or expect to have over time and what other geographic regions could make sense and how you approach that?

Mario L. GianniniChief Executive Officer

Sure. I guess, Mike. I mean in terms of Singapore, again, it’s recognition of an expanding Asian presence as you look at the offices we’ve opened is where we have clients, it’s where there are investments as you probably know, Singapore, certainly on the Asian venture capital side is one of the locations where a lot of channel partners are there and on the fund raising side, obviously a robust private markets environment. So that’s really the core reason in terms of the number of people there, it will start fairly small both investment and client-oriented people. Some development locations, again, it really depends on where the client and the investment activity is based off and where we think it makes sense to fit people there. As you can imagine opening an office both from a people perspective and just logistics is something you want to be careful doing. So I don’t think there’s anything planned today [Indecipherable] open an office next location and it’s again, as I said, more a question of the client and investment opportunities create a critical mass to have one.

Michael CyprysMorgan Stanley — Analyst

Great, thank you.

Operator

And there are no further questions. At this time, I will turn the call back over to the presenters for closing remarks.

Erik R. HirschVice Chairman, Member of Board of Directors, Co-Chairman of Various Investment Committees

Thank you very much. Just wanted to again thank everyone for taking the time to join us and hope everyone stays well. Take care. [Operator Closing Remarks]

Duration: 41 minutes

Call participants:

John OhVice President, Investor Relations

Mario L. GianniniChief Executive Officer

Erik R. HirschVice Chairman, Member of Board of Directors, Co-Chairman of Various Investment Committees

Atul VarmaChief Financial Officer and Treasurer

Ken WorthingtonJP Morgan — Analyst

Michael CyprysMorgan Stanley — Analyst

Alexander BlosteinGoldman Sachs — Analyst

Robert LeeKeefe, Bruyette & Woods — Analyst

Chris ShutlerWilliam Blair — Analyst

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