As filed with the Securities and Exchange Commission on February 16, 2017.
Registration No. 333-215846
 
 
 
 
 
 
 
 
SECURITIES AND EXCHANGE COMMISSION
 
 
Washington, D.C. 20549
Amendment No. 2 to
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FORM S-1
REGISTRATION STATEMENT
 
Under
THE SECURITIES ACT OF 1933
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HAMILTON LANE INCORPORATED
 
 
(Exact name of Registrant as specified in its charter)
 
 
Delaware  
(State or other jurisdiction of
incorporation or organization)
 
6282  
(Primary Standard Industrial
Classification Code Number)
 
26-2482738
(I.R.S. Employer
Identification No.)
 
 
Hamilton Lane Incorporated
One Presidential Blvd., 4th Floor
Bala Cynwyd, PA 19004
Telephone: (610) 934-2222
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Robert W. Cleveland
General Counsel and Secretary
Hamilton Lane Incorporated
One Presidential Blvd., 4th Floor
Bala Cynwyd, PA 19004
Telephone: (610) 934-2222
(Address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
 
 
H. John Michel, Jr.
Kimberly K. Rubel
Drinker Biddle & Reath LLP
One Logan Square, Suite 2000
Philadelphia, PA 19103
Telephone: (215) 988-2700
Facsimile: (215) 988-2757
 
Richard D. Truesdell, Jr.
John Crowley
Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, NY 10017
Telephone: (212) 450-4000
Facsimile: (212) 701-5800
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Approximate date of commencement of the proposed sale of the securities to the public: As soon as practicable after the Registration Statement becomes effective.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ¨
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨                     Accelerated filer ¨
Non-accelerated filer x (Do not check if a smaller reporting company)    Smaller reporting company ¨
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CALCULATION OF REGISTRATION FEE
Title of Each Class of
Securities To Be Registered
Amount to be Registered(1)(2)
Estimated Maximum Offering Price per Share(1)
Proposed Maximum
Aggregate Offering Price(1)
Amount of
Registration Fee(3)
Class A common stock, par value $0.001 per share
13,656,250
17.00
$232,156,250
$26,906.91
(1)
Estimated solely for the purpose of determining the amount of the registration fee in accordance with Rule 457(a) under the Securities Act of 1933.
(2)
Includes shares subject to the underwriters’ option to purchase additional shares.
(3)
The Registrant previously paid $23,180 in connection with the original filing of this Registration Statement.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
 
 
 
 
 
 
 




The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted.

Subject to completion, dated February 16, 2017
Prospectus
11,875,000 shares
REGISTRATIONSTATEMENT_IMAGE1.JPG
CLASS A COMMON STOCK
_______________________________________________
We are offering 11,875,000 shares of Class A common stock of Hamilton Lane Incorporated. This is our initial public offering of Class A common stock.
Prior to this offering, there has been no public market for our Class A common stock. The estimated initial public offering price is between $15.00 and $17.00 per share. We have applied to list our Class A common stock on the NASDAQ Stock Market under the symbol “HLNE”.
At our request, the underwriters have reserved 5% of the shares of Class A common stock to be issued by us and offered by this prospectus for sale, at the initial public offering price, to directors, officers, employees and other individuals associated with our company. See “Underwriting.”
We intend to use a portion of the net proceeds of this offering to purchase membership units in Hamilton Lane Advisors, L.L.C. from certain of its existing owners, and the remaining net proceeds to purchase newly issued membership units in Hamilton Lane Advisors, L.L.C. We expect Hamilton Lane Advisors, L.L.C. to use these proceeds to repay indebtedness and for general corporate purposes. In connection with the reorganization transactions taking place contemporaneously with the closing of this offering, certain existing owners of Hamilton Lane Advisors, L.L.C. will exchange their membership interests for shares of our Class A common stock to be held directly and will cease to be members of Hamilton Lane Advisors, L.L.C.
Concurrently with the consummation of this offering, we will issue 27,935,256 shares of our Class B common stock to certain of the members of Hamilton Lane Advisors, L.L.C. (other than us). Each share of Class B common stock initially entitles the holder to ten votes while holders of our Class A common stock are entitled to one vote. The Class B stockholders will hold 94.7% of the combined voting power of our common stock immediately after this offering, and certain of them holding collectively 91.1% of the combined voting power of our common stock will enter into a stockholders’ agreement pursuant to which they will agree to vote their shares of Class A and Class B common stock together on all matters submitted to a vote of our common stockholders. See “Organizational Structure.”
Following this offering, we will be a “controlled company” within the meaning of the corporate governance rules of the NASDAQ Stock Market. See “Management.”
We are an “emerging growth company” under the federal securities laws and will be subject to reduced public company reporting requirements.
Investing in our Class A common stock involves a high degree of risk. See “Risk Factors” beginning on page 24  of this prospectus.
_______________________________________________
 
Per Share
 
Total
Initial public offering price of Class A common stock
$    
 
$    
Underwriting discount (1)
$    
 
$    
Proceeds to us, before expenses
$    
 
$    

(1)
We have also agreed to reimburse the underwriters for certain FINRA-related expenses. See “Underwriting” for a description of all compensation payable to the underwriters.
We have granted the underwriters an option for a period of 30 days to purchase up to 1,781,250 additional shares of Class A common stock on the same terms and conditions set forth above.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities that may be offered under this prospectus, nor have any of these organizations determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The underwriters expect to deliver the shares of our Class A common stock to investors on or about      , 2017.



_______________________________________________
J.P. Morgan
Morgan Stanley
 
Goldman, Sachs & Co.
Keefe, Bruyette & Woods
                  A Stifel Company
Wells Fargo Securities
 
 
 
 
Freeman & Co.
 
, 2017



Table of Contents
 
Page
Neither we nor the underwriters have authorized anyone to provide any information other than that contained in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we have referred. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that any other person may give you. We are offering to sell, and seeking offers to buy, shares of our Class A common stock only in jurisdictions where such offers and sales are permitted. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of shares of our Class A common stock. Our business, financial condition, results of operations and prospects may have changed since that date.
For investors outside the United States: We have not and the underwriters have not done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of Class A common stock and the distribution of this prospectus outside the United States. See “Underwriting.”



 
 
 

This prospectus includes certain information regarding the historical performance of our specialized funds and customized separate accounts. An investment in shares of our Class A common stock is not an investment in our specialized funds or customized separate accounts. In considering the performance information relating to our specialized funds and customized separate accounts contained herein, prospective Class A common stockholders should bear in mind that the performance of our specialized funds and customized separate accounts is not indicative of the possible performance of shares of our Class A common stock and is also not necessarily indicative of the future results of our specialized funds or customized separate accounts, even if fund investments were in fact liquidated on the dates indicated, and there can be no assurance that our specialized funds or customized separate accounts will continue to achieve, or that future specialized funds and customized separate accounts will achieve, comparable results.
 
 
 
Unless indicated otherwise, the information included in this prospectus assumes no exercise by the underwriters of the option to purchase up to an additional 1,781,250 shares of Class A common stock and that the shares of Class A common stock to be sold in this offering are sold at $16.00 per share, which is the midpoint of the price range indicated on the front cover of this prospectus.
 
 
 
We own or have rights to trademarks, service marks or trade names that we use in connection with the operation of our business. In addition, our names, logos and website names and addresses are owned by us or licensed by us. We also own or have the rights to copyrights that protect the content of our solutions. Solely for convenience, the trademarks, service marks, trade names and copyrights referred to in this prospectus are listed without the ©, ® and ™ symbols, but we will assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks, trade names and copyrights.
This prospectus may include trademarks, service marks or trade names of other companies. Our use or display of other parties’ trademarks, service marks, trade names or products is not intended to, and does not imply a relationship with, or endorsement or sponsorship of us by, the trademark, service mark or trade name owners.
 
 
 
Unless otherwise indicated, information contained in this prospectus concerning our industry and the markets in which we operate is based on information from independent industry and research organizations, other third-party sources (including industry publications, surveys and forecasts), and management estimates. Management estimates are derived from publicly available information released by independent industry analysts and third-party sources, as well as data from our internal research, and are based on assumptions made by us upon reviewing such data and our knowledge of such industry and markets that we believe to be reasonable. Although we believe the data from these third-party sources is reliable, we have not independently verified any third-party information. In addition, projections, assumptions and estimates of the future performance of the industry in which we operate and our future performance are necessarily subject to uncertainty and risk due to a variety of factors, including those described in “Risk Factors” and “Forward-Looking Statements.” These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.

ii


PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus. You should read the entire prospectus carefully before making an investment decision, including the information under the headings “Risk Factors,” “Special Note Regarding Forward-Looking Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” and the historical consolidated financial statements and the related notes thereto and unaudited pro forma financial information, each appearing elsewhere in this prospectus. The information presented in this prospectus assumes (i) an initial public offering price of $16.00 per share of Class A common stock (the midpoint of the price range set forth on the cover page of this prospectus) and (ii) unless otherwise indicated, that the underwriters do not exercise their option to purchase additional shares of Class A common stock.
Unless otherwise indicated or the context otherwise requires, all references in this prospectus to “we,” “us,” “our,” the “Company,” “Hamilton Lane” and similar terms refer (i) for periods prior to giving effect to the reorganization transactions described under “Organizational Structure,” to Hamilton Lane Advisors, L.L.C. and its consolidated subsidiaries and (ii) for periods beginning on the date of and after giving effect to such reorganization transactions, to Hamilton Lane Incorporated and its consolidated subsidiaries. As used in this prospectus, (i) the term “HLA” refers to Hamilton Lane Advisors, L.L.C. for all periods and (ii) the terms “Hamilton Lane Incorporated” and “HLI” refer solely to Hamilton Lane Incorporated, a Delaware corporation, and not to any of its subsidiaries. Also, unless otherwise indicated or the context otherwise requires, all information in this prospectus gives effect to the reorganization transactions. We are a holding company and, upon completion of this offering, we will hold substantially all of our assets and conduct substantially all of our business through Hamilton Lane Advisors, L.L.C.
We are a global private markets investment solutions provider with approximately $40 billion of assets under management (“AUM”) and approximately $292 billion of assets under advisement (“AUA”). We work with our clients to conceive, structure, build out, manage and monitor portfolios of private markets funds and direct investments, and we help them access a diversified set of such investment opportunities worldwide. Our clients are principally large, sophisticated, global investors that rely on our private markets expertise, deep industry relationships, differentiated investment access, risk management capabilities, proprietary data advantages and analytical tools to navigate the increasing complexity and opacity of private markets investing. While some maintain their own internal investment teams, our clients look to us for additional expertise, advice and outsourcing capabilities. We were founded in 1991 and have been dedicated to private markets investing for more than two decades. We currently have more than 290 employees, including over 90 investment professionals, operating in 11 offices throughout the United States and in London, Hong Kong, Rio de Janeiro, Seoul, Tel Aviv and Tokyo. More than 100 of our employees have equity interests in our Company.
We offer a variety of investment solutions to address our clients’ needs across a range of private markets, including private equity, private credit, real estate, infrastructure, natural resources, growth equity and venture capital. These solutions are constructed from a range of investment types, including primary investments in funds managed by third-party managers, direct/co-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:
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


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authority over our customized separate accounts, which comprised approximately $32 billion of our AUM as of December 31, 2016.
Specialized Funds : We organize, invest and manage specialized primary, secondary and direct/co-investment funds. Our specialized funds invest across a variety of private markets and include equity, equity-linked and credit funds offered on standard terms as well as shorter duration, opportunistically oriented funds. We launched our first specialized fund in 1997, and our product offerings have grown steadily, comprising approximately $8 billion of our AUM as of December 31, 2016.
Advisory Services : We offer 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, legal negotiations, 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 approximately $292 billion of AUA as of December 31, 2016.
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 from private equity funds. As of December 31, 2016, we have managed over $3 billion worth of private equity distributions since April 1, 2013.
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 occasionally on a stand-alone, fee-for-service basis. Private markets investments are unusually difficult to monitor, report on and administer, and our clients are able to benefit from our sophisticated infrastructure, which provides real-time access to reliable and transparent investment data, and our high-touch service approach, which allows for timely and informed responses to the multiplicity of issues that can arise. We also provide comprehensive research and analytical services as part of our investment solutions, leveraging our large, global, proprietary and high-quality database of private markets investment performance and our suite of proprietary analytical investment tools. Spanning 40 years and covering over 1,200 fund managers and over 3,200 funds, our database contains detailed information on over $3 trillion of private markets investments and over 50,000 portfolio companies.
Our client and investor base included over 350 institutions and intermediaries as of December 31, 2016 and is broadly diversified by type, size and geography. Our client base primarily comprises institutional investors that range from those seeking to make an initial investment in alternative assets to some of the largest and most sophisticated private markets investment programs. As a highly customized, flexible outsourcing partner, 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, Europe, the Middle East, Asia, Australia and Latin America. We provide private markets solutions and services to six of the world’s 20 largest pension funds, seven of the 10 largest state pension plans in the United States and four of the world’s 10 largest sovereign wealth funds. In addition, we believe we are a leading provider of private markets solutions for U.S. labor union pension plans, and we serve numerous smaller public and corporate pension plans, sovereign wealth funds, financial institutions and insurance companies, endowments and foundations, as well as family offices and selected high-net-worth individuals.
Our intermediary clients enable us to provide our investment products to an expanded range of high-net-worth individuals and families. We have a diversified revenue stream from a variety of client types in


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multiple geographic regions, with no single client representing more than 5% of management and advisory fee revenues. For the year ended March 31, 2016, our top 10 clients generated approximately 28% of management and advisory fee revenues, and our top 20 clients generated approximately 42% of management and advisory fee revenues.
A significant portion of our revenue base is recurring and is based on the long-term nature of our specialized funds and customized separate accounts, as well as long-term relationships with many of our clients, providing highly predictable cash flows. Our average customized separate account client relationship is over seven years. In addition to the stable nature of our long-term relationships, the need for our clients to continually invest additional capital to maintain or grow their private markets allocations has allowed us to grow our total customized separate account management fees from our existing client base by more than 5% for each of our last three fiscal years. This existing client base has accounted for approximately 60% of total new customized separate account management fees over the last three fiscal years with brand new relationships accounting for approximately 40%. Lastly, approximately 80% of our customized separate account clients whose first investment period (typically less than two years) has expired have allocated additional capital to us. On average, these clients with multiple allocations have provided us with approximately six total allocation allotments.
Since our inception, we have experienced consistent, strong growth, which continues to be reflected in our more recent AUM and AUA growth. As of December 31, 2016, we had AUM of approximately $40 billion, reflecting a 12% compound annual growth rate (“CAGR”), from March 31, 2012, and our AUM increased in each fiscal year during this timeframe. We had approximately $292 billion of AUA as of December 31, 2016, reflecting an 18% CAGR from March 31, 2012. Our AUA increased in each fiscal year during this timeframe, with the exception of a 1.5% decrease at March 31, 2013 compared to March 31, 2012.
Finally, we believe that our strong culture is a key factor driving our success in developing and maintaining high-quality relationships with clients, prospects, other business partners and current and potential employees. We are proud that our culture has been recognized by several prominent trade organizations and publications through numerous awards. For example, we were one of a select group of companies named as a “Best Place to Work in Money Management” in 2015 by Pensions & Investments. Our firm is the only firm in the “Alternatives Manager” category that has appeared on this list every year since Pensions & Investments initiated this category in 2012. Additionally, the firm has received accolades from publications and organizations including Inc. (Hire Power Award: 2013; Fastest-Growing Private Companies in America: 2012 and 2016), Best Companies Group (Best Places to Work in PA: 2012-16) and the Philadelphia Business Journal (Advancing Women Company Award: 2014). We believe that our culture will continue to play an important role in supporting our future growth.


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Our Market Opportunity
The alternative investing industry continues to see strong growth, with global alternative AUM reaching an all-time record of more than $7 trillion in 2014, up from approximately $1 trillion in 1999, according to the World Economic Forum’s July 2015 report Alternative Investments 2020 – The Future of Alternative Investments (“World Economic Forum Report”). PricewaterhouseCoopers, in its 2015 report Alternative Asset Management 2020 (“PwC Report”), states it expects the industry to nearly double to $13.6 trillion by 2020.
PRIVATEEQUITYANDREALASSETSCH.JPG
Source: PwC Report
In particular, private markets AUM reached an all-time high of approximately $4 trillion in 2014, with private equity (which includes buyout and venture strategies) contributing approximately $2 trillion, according to the World Economic Forum Report. This increase in assets is driven by robust investor demand as institutional and retail investors look to diversify their portfolios to generate strong returns, reduce volatility and generate reliable income. Aggregate private markets AUM has experienced, and is expected to continue to experience, significant growth.
Several trends and developments have shaped the alternative investing industry and continue to serve as the primary drivers of our growth:
Private equity proven as a performance leader. Our proprietary database demonstrates that private equity has been a stronger-performing asset class than more traditional investments over a longer investment horizon. Over the last ten years, private equity has generally outperformed other investment classes on both an absolute and risk-adjusted basis. Our proprietary database shows that as of December 31, 2015, private equity returns have surpassed public equity returns as measured by the Russell 3000 Index in six of the last ten years, by approximately 290 basis points (“bps”) over a 10-year term and by approximately 470 bps over a 20-year term, reflecting a comparably high Sharpe ratio of 0.49 and 0.51, respectively. The Sharpe ratio is a measure for calculating risk-adjusted return and equals the average return earned in excess of the risk-free rate per unit of volatility or total risk. We believe that comparing the Sharpe ratio of private equity returns against the Sharpe ratio of other asset classes demonstrates the relative attributes of the private equity market. This attractive risk-return dynamic is one of the driving forces in the growth of private equity, as the majority of targeted investors are looking to increase allocations to this asset class. The following charts show investment return and Sharpe ratio by asset class from January 1, 2006 to December 31, 2015 and from January 1, 1996 to December 31, 2015, respectively.




4


A10YEARASSET1.JPG
A20YEARASSET1.JPG
Source: Hamilton Lane (January 2016). Indices used: Hamilton Lane All Private Equity with volatility de-smoothed (de-smoothing attempts to make the volatility of private equity quarterly appraisal valuations comparable to the volatility of exchange-traded asset classes); Russell 3000 Index; MSCI World ex US Index; MSCI Emerging Markets Index; Barclays Aggregate Bond Index; Credit Suisse High Yield Index; HFRI Composite Index; FTSE/NAREIT Equity REIT Index; Dow Jones-UBS Commodities Index. Geometric mean returns in USD. Assumes risk free rate of 3.1% and 4.1%, representing average yield of the 10-year treasury over the last 10 years and 20 years, respectively.



5


Further illustrating the outperformance of private equity, the following chart shows the pooled private equity returns for each vintage year from 1985 to 2013 (as of March 31, 2016) compared to the MSCI World public market equivalent over the same time periods. As highlighted below, pooled private equity returns for the vintage years 1985 to 2013 have had an average outperformance of over 700 bps.
PEIRR.JPG
Source: Hamilton Lane Fund Investment Database, MSCI (July 2016)

Increasing demand from institutional investors for private alternative investments. Robust demand for private alternative assets is driven in large part by (a) the struggle for investors to reach commonly sought target returns in excess of 6% through typical blends of public equity and fixed income investments; (b) strong performance by private markets investments relative to other asset classes and (c) institutional investors adapting to a range of macro factors, including the aging population in developed economies and monetary policies enacted in the wake of the global financial crisis.
Institutional investors, the dominant investor type in alternative assets, are actively managing their asset allocations and seeking alternative sources of returns in order to address these dynamics. According to McKinsey & Company’s 2014 report The Trillion Dollar Convergence: Capturing the Next Wave of Growth in Alternative Investments (“McKinsey Report”), the vast majority of large institutional investors are planning to either maintain or increase their alternatives allocations across private equity, real estate, infrastructure and other real assets, as investors are increasingly embracing illiquid private markets investment strategies as a way to meet their long-term investment objectives. At the same time, smaller, less established investors are increasingly investing in private markets.
According to the World Economic Forum’s October 2015 report Alternative Investments 2020— The Future of Alternative Investments , social systems are coming under pressure as the aging baby boom population lives longer, fueling growing pension liabilities and leaving institutions to face persistent asset-liability gaps in defined benefit pension plans. In the aggregate, defined benefit plans are only 75% funded, according to the McKinsey Report, and are increasing


6


allocations into higher-yielding alternatives to achieve the returns required to meet their obligations.
Growth is also driven by expansion of the alternative investment management industry’s range of investing activities, particularly in the credit area. According to the World Economic Forum Report, this trend is driven by institutional investors in search of yield as well as a reduction in lending activity by banks in response to increasing regulation post-crisis. According to the World Economic Forum Report, non-bank financial actors, including alternative investors, are expected to replace banks in providing a projected $3 trillion of lending by 2018.
Shifting structure of the investing landscape and inherent economies of scale. As the investing landscape shifts toward private assets, investors are faced with disproportionate fragmentation of market players and a highly complex set of potential investing opportunities as compared to traditional public equity or credit investing. Further, increasing regulatory scrutiny on private capital investing is expected to increase investors’ focus on investment monitoring, internal controls and compliance. Taken together, these factors favor investment solutions providers who have sufficient scale and reach to offer comprehensive global outsourcing and advisory services to potential investors. We believe there is a high degree of complexity and increasing regulatory and government scrutiny within private market asset classes; therefore, future success in private markets investing will require excellence beyond investment performance, with a high premium placed on innovation in solution-based products, distribution, marketing and thought leadership.
Investors concentrating relationships among asset managers and advisors. According to McKinsey & Company’s 2014 report McKinsey on Investing, institutional investors, in particular, are moving towards focusing their relationships with money managers, advisors and solutions providers on fewer firms, each of which performs a broader array of services. This is driven by:
Desire to lower the expense ratio associated with investment programs.
Awareness that portfolios can be over-diversified by virtue of having too many managers.
Acknowledgment of the difficulties of building in-house resources.
The use of strategic partners to leverage additional knowledge and insights and to achieve quality extension of staff resources.
Rising demand for customized portfolio construction. In an era of heightened market volatility and economic uncertainty, institutional investors are increasingly reducing their exposure to traditional asset classes and strategies and to commingled structures where the actions or inactions of other investors can generate adverse and unanticipated effects. Instead, investors are allocating more capital toward customized products in search of risk-return optimization and specific investment outcomes. According to the McKinsey Report, investors are gravitating towards the ability to maintain investment portfolios that achieve the low-cost beta found in index strategies, as well as the alpha generated from diversified alternatives. This shift toward customized portfolio construction allows alternatives to play a more central role in the portfolio, acting to deliver a range of specific investment objectives for investors. To this point, the separate account model is becoming increasingly prevalent as this investment structure allows investors to maintain greater control over asset-level ownership, enabling specific exposures or hedges in customized portfolios.
Similar to public markets, private markets have become more diverse, attracting investors with different investment objectives. Large, sophisticated institutions often have nuanced preferences in investment priorities, capabilities and vehicle and manager types that differ from those of smaller institutions. These different investor segments also have varying product preferences even within the private markets area, with larger investors embracing more illiquid opportunities and smaller investors


7


seeking access to less illiquid alternatives. We believe the ability to create customized portfolios to address those varied needs is powerful, as it attracts more investors to the asset class and allows us to be a value-added partner.
Increasing importance of big data and sophisticated analytics in private markets. Data systems, and the attendant monitoring and analytical tools, in the private markets investing industry lag far behind those in others, especially the public investment markets. While public markets investors can access a wealth of data available electronically and on-demand and can utilize broad suites of cutting-edge investment monitoring and analytical tools, the private markets are hampered by data inefficiency, manual entry and a massive shortage of sophisticated portfolio reporting and advisory solutions. According to the Ernst & Young Report, firms with advanced data and analytics capabilities will be able to meet investors’ increasing demand for seamless, coordinated, rich and easy digital access with readily operable monitoring and analytical tools attached thereto. In addition, many investors now require the ability to respond transparently and quickly to reporting requests and demand enhanced risk management functions. This requires a firm-wide data infrastructure that identifies, extracts and aggregates financial data across multiple global sources. According to the Ernst & Young Report, most organizations do not have an adequate technology infrastructure to respond to these escalating demands. Therefore, we believe that the ability to harness proprietary private markets data with a sophisticated technology-enabled infrastructure will increasingly become a competitive advantage.
Growth in defined contribution, retail and similar pools of investable assets seeking access to private market returns. In recent years, defined contribution retirement plans in the United States and abroad and other retail-like pools of assets have grown significantly. According to the Investment Company Institute (December 2016), U.S. defined contribution plans and IRAs grew by $6.7 trillion from 2005 through the end of 2015, representing a CAGR of approximately 7%. As with more traditional/institutional pools of capital, these investors are also seeking higher-returning investment options than those generally perceived to be available in traditional asset classes. Large segments of the investor universe find it difficult to access private markets investment opportunities because of the scarcity of data, the relative lack of transparency and the lack of available liquidity mechanisms. Further, the structural complexity surrounding long fund lives with limited liquidity, lack of daily valuation and capital drawn as needed creates funding and administration challenges, as well as regulatory and structural impediments. In recent years, some progress has been made to bridge this gap via the creation of “liquid alternatives” vehicles and other programs. We expect that these types of investors will play an increasingly significant role in private markets fundraising in the coming years.
Our Competitive Strengths
Since our inception in 1991, we have grown to become a leading private markets solutions provider. We believe the following competitive strengths allow us to capitalize on industry trends and position us well for future growth:
Pioneering, industry-leading and full-service manager of customized separate accounts for private markets alternatives. We offer a comprehensive, full-service model to our clients who are seeking a customized solution to private markets investing. We believe we were pioneers in the private markets separate account business and understand well that private markets investors have varying risk-return appetites and specific needs across a wide range of private markets asset classes. Therefore, a one-size-fits-all approach is less desirable for these clients. According to the PwC Report, there will be an ongoing demand by the largest institutional investors ( e.g. , sovereign investors) for made-to-order offerings with greater customization. We believe our dedicated client teams, comprehensive full-service model and capabilities across a broad range of private markets asset classes continue to put us at the forefront of the offerings. This is reflected in our business composition, as approximately 43% of our fiscal 2016


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management and advisory fee revenues were generated from customized separate account mandates compared to 40% from specialized funds, 14% from advisory and reporting and 3% from distribution management.
We generally offer customized separate account and advisory clients a full-service, integrated approach to creating and managing private markets investment programs. These programs are unique in many ways and require specialized expertise in almost every aspect of their initiation, operation and assessment, and clients benefit from receiving a fully integrated service package. Our broad-based and deep expertise in strategic planning, structuring and setting up of investment vehicles, analysis and assessment of fund managers, portfolio construction, legal services, monitoring, reporting, benchmarking, custodial arrangements, data aggregation and customized analytics allow us to offer what essentially amounts to a “turnkey” solution to clients wishing to build private markets exposure in their investment portfolios.
Global, fully integrated and diversified private markets investment solutions. From our origins in U.S.-based buyouts and venture capital fund investing, we have expanded our capabilities over the years to encompass a full suite of private markets capabilities that span multiple countries, investment strategies and types, and risk and return profiles. This expansion has reflected our clients’ developing needs to reach more broadly across the globe and varying investment types while simultaneously focusing their relationships with asset managers on those service providers who can help them in multiple areas. In addition, the introduction of specialized funds tailored to specific geographies, to meet investors’ liquidity and risk requirements and to capitalize on certain market opportunities, has enabled investors of all sizes to broaden and, in some ways, more specifically customize their private markets portfolio.
With approximately 45% of our fiscal year 2016 management and advisory fee revenues coming from clients based outside of the United States, we are well-positioned to continue to take the lead in, and benefit from, the ongoing globalization of the alternative asset management industry in general and private markets alternatives in particular. Investors are generally more willing and able to institute and manage more complete private markets investment programs in their home countries than in foreign jurisdictions. Such investment programs feature unusual risk and return characteristics, meaningful challenges to gathering and interpreting information, obstacles to identifying and building relationships with underlying managers, and complex legal, tax, regulatory and currency aspects, among other issues, all of which are more difficult to manage at a distance. With six non-U.S. offices, we have a meaningful presence around the globe, which allows us to cover all regions that offer investable opportunities in the private markets. We serve clients and investors from over 35 countries and have deployed capital in 88 countries across a wide range of private markets investment strategies.
Demonstrated investment performance track record for our clients driven by our differentiated investment philosophy and process. Our discretionary accounts, including our specialized funds, have performed well above their benchmarks and, over the last 10 years, have outperformed the Public Market Equivalent (“PME”) by over 600 bps on a realized gross internal rate of return (“IRR”) basis. Since their inception, our discretionary accounts have generated positive returns for our clients and have outperformed the MSCI World PME every vintage year. We believe that our investment performance success is attributable to a number of factors.  These include our substantial, seasoned and dedicated investment teams, our standardized investment processes and procedures, and our global and pan-industry approach to investing, all of which leverage our significant research capabilities and our proprietary databases and analytical tools. Our teams use our leading market position, our long-standing experience in private markets investing and our vast array of relationships worldwide to source and diligence investment opportunities from around the globe and in every applicable private markets asset class. Our processes and procedures have been developed and refined over many years of experience in successful private markets investing. Our commitment to industry-agnostic measures of investment risk and global


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access to opportunities has allowed us to maintain a dispassionate perspective to which we credit the consistency of our investment performance. Finally, our research capabilities, databases and tools enable us to look at the private markets investment universe holistically, considering both macroeconomic and sector-wide trends as well as manager, geographic, industry and asset-specific factors.
Leading market position poised to capitalize on a large and growing market. We have a leading market position among the world’s largest institutional investors. Including all discretionary investments and commitments made by us, non-discretionary client commitments into our broadly recommended funds, and non-discretionary client commitments into funds for which we have written the client-specific report and have an existing relationship with the general partner or the fund, we directed or significantly influenced approximately $22.0 billion in primary private market investments, approximately $0.8 billion in private market co-investments and approximately $0.7 billion in secondary private market investments. This totals approximately $24 billion of private markets investments in 2015, which we believe is more than any other institution or intermediary in the world. Several of our advisory clients rank among the largest private markets limited partners in the world, and as a result of our significant AUM and AUA, we have strong access to the world’s leading fund managers across a multitude of investment strategies. We believe we influence more primary commitments to private equity funds globally than any other market participant. This also translates into our ability to negotiate attractive investment terms for our clients as well as unique and proprietary deal flow, which benefits our specialized fund program. Our leading market position, large capital scale, global footprint and customized investment solutions cater well to the strengthening of our market share in the alternative asset management sector.
Preeminent data and analytics capabilities driven by scale and information advantage. Our deep industry knowledge allows expert navigation of an increasingly complex menu of alternative investment options. Given our long history in the market, we believe we have developed one of the largest sets of data in the industry, reflecting nearly four decades of private markets fund investments. This contrasts with the lack of efficient data systems and sophisticated portfolio and advisory solutions in the private markets investment industry more broadly and provides us with a competitive advantage. Our extensive proprietary data and analytics drive our investment selection decisions and deliver highly customized insights and services to our clients. Our dedicated research team leverages our proprietary database to provide our clients with valuable insights by performing in-depth quantitative analysis. Covering over 1,200 fund managers and over 3,200 funds, our database contains detailed information on over $3 trillion of private markets investments and over 50,000 portfolio companies. Our ability to deploy our data advantage by providing real-time information through our technology-driven reporting and analytics infrastructure delivers our clients a differentiated set of transparent and highly valued data services. These services enhance our ability to retain clients and foster client relationships, which further supports our cross-selling efforts of tailored investment solutions.
In addition to continually expanding our own database, we develop strategic partnerships with, and opportunistically seek minority stakes in, innovative solutions providers such as iLevel (data collection and reporting), DealCloud (investment workflow management), Black Mountain (allocation software) and Bison Cobalt (benchmarking and diligence).
Well-diversified platform and client base. We have a broad set of capabilities to serve large and sophisticated institutions and smaller institutions alike, each having different needs in investment priorities and services. Our clients are well diversified by type, size and geography, and we believe that many of our clients’ programs are among the best private markets programs in the world. Our revenues stem from various asset types in multiple geographic regions, with no single client representing more than 5% of management and advisory fee revenues. For the year ended March 31, 2016, our top 10 clients generated approximately 28% of management and advisory fee revenues, and our top 20 clients generated approximately 42% of management and advisory fee revenues.


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Highly attractive financial profile with strong growth trajectory. We participate in an industry that is growing. Given our leading market position and strong reputation in investing and client service, our goal is to exceed the industry’s growth rate, driving continued expansion of our recurring fee revenue base in customized separate accounts and specialized funds. Our earnings model has been tested through different economic cycles. The long-lived, stable nature of our capital enhances the resiliency of our business model and leads to highly visible and recurring revenue streams. For example, we were able to deliver revenue and operating earnings growth throughout the 2008-2009 global financial crisis. We grew revenues from approximately $50 million for the year ended March 31, 2007 to approximately $181 million for the year ended March 31, 2016.
Seasoned management team aligned with investors and award-winning culture. We have an experienced global team of over 90 investment professionals that is focused solely on private markets investing. Our senior management team averages 23 years of investment experience, 12 years of tenure together at Hamilton Lane and over 19 years in the private markets industry. Our management and employees are aligned with investors through ownership, with approximately 85% management and employee ownership and more than 100 employees with an equity interest in our Company. We also have an award-winning corporate culture. We were one of 34 companies named as a “Best Place to Work in Money Management” in 2015 by Pensions & Investments and the only firm in the “Alternatives Manager” category that has appeared on this list every year since the category’s inception in 2012. As of December 31, 2016, approximately 40% of our employees were women. This strong representation of women in our workforce led the Forum of Executive Women to recognize us as a Top Global Company for the Professional Advancement of Women.
Business Strategy
The alternative investment industry has experienced significant and consistent growth, which we expect to continue and contribute to our future growth. Given our leading market position and strong reputation in investing and client service, our objective is to continue to leverage the following strategic advantages to exceed the industry growth rate.
Develop innovative private markets solutions . Many of our clients engage us because of our ability to create customized programs that meet their particular investment needs and provide access to a broad spectrum of private markets investment opportunities. We believe that a broad range of solutions across almost every private markets asset class enables us to remain a leader in structuring private markets investment portfolios and to continue to provide the best solutions for our existing and future clients. We intend to continue to meet our clients’ demands for alternative investments via primary, secondary and direct/co-investment opportunities, which provide attractive return characteristics, as well as innovative specialized fund products, while at the same time allowing us to benefit from economies of scale. In addition, we intend to expand into adjacent asset classes, which will allow us to further broaden our solutions capabilities, diversify our business mix and allow us to benefit from growth in private markets asset classes, such as private debt.
Expand distribution channels. We continue to build a scalable, cost-effective global institutional sales organization, which provides us with a strong local presence in several markets. Our sales organization comprises a 40-person team across our business development and product groups dedicated to marketing our services and products globally. In addition, we intend to increase our profile with influential intermediaries that advise individual and institutional clients, particularly small and medium-sized institutions and high-net-worth families and family offices. We may also enter into strategic distribution partnerships with financial institutions in certain geographical regions and market sectors to gain access to their captive client bases. As we continue to explore different ways to access alternative distribution channels, we are also acting as “sub-advisor” for financial intermediaries with significant


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distribution strength. In this role, we perform a range of investment services from portfolio construction to investment management, while the distribution partner focuses on product distribution and client service. In the context of these partnerships, the distribution partner often aims to provide its clients with products under its own brand, which we achieve by rebranding our existing offerings or by creating customized offerings carrying the distribution partner’s name. We anticipate increasing sub-advisory opportunities as we continue to target high-net-worth individuals and families.
Diversify and grow client base. We aim to continue to expand our relationships with existing clients and also intend to capitalize on significant opportunities in new client segments globally, such as smaller institutions and high-net-worth investors. We believe these investors offer an attractive opportunity to further diversify and grow our client base because many of them only recently have begun to invest in, or increase their allocations to, alternative investments.
Expand private markets solutions and products to defined contribution, retail and similar pools of investable assets. We believe we are pioneers in the creation, distribution, and management of products such as specialized secondaries, direct/co-investments and specialty credit strategies that are designed to serve defined contribution retirement plans and similar entities. Many of our defined contribution retirement plan clients are based outside of the United States, ranging across Australia, Europe, and Latin America, among other geographies. While these clients tend to have lower private markets allocations than those of defined benefit pension plans, their comfort with, interest in and allocations to private markets alternative investments have tended to increase over time, in part driven by significant advancements in the areas of private markets data and benchmarking, where we believe we play a leading role. Therefore, we intend to continue to develop, market and manage investment solutions and products specifically aimed at helping these investors create appropriately structured private markets alternatives programs.
Expand globally. During the past 15 years, we have substantially grown our global presence, both in terms of clients and investments, by expanding our international offices as well as our client presence. We have built a significant presence to serve clients in Europe, Latin America, the Middle East, Asia and Australia, and we have global offices in London, Tel Aviv, Hong Kong, Tokyo, Seoul and Rio de Janeiro. In each of these places, we serve major institutional clients, and we review and commit capital to established local private markets funds on behalf of our clients. Our aim is to continue expanding our global presence through further direct investment in personnel, development of client relationships and increased investments with, and direct and co-investments alongside, established private markets fund managers.
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. We think that investors from developing regions will increasingly seek branded multi-capability alternative investment managers with which to invest. We believe that geographically and economically diverse non-U.S. investors will require a highly bespoke approach and will demand high levels of transparency, governance and reporting. We have seen this pattern developing in many places, including Europe, the Middle East, Latin America, Australasia, Japan, South Korea, Southeast Asia and China, and have positioned ourselves to take advantage of it by establishing local presences with global investment capabilities.
We believe we are uniquely capable of pursuing the opportunities arising from increased allocations among institutional investors and the rapid wealth creation globally among high-net-worth individuals because of our strong brand recognition, multi-office resources, experienced team of investment professionals and comprehensive suite of products and services.


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Leverage proprietary databases and analytics to enhance our existing service offerings and develop new products and services. When compared to more liquid investment areas, the private markets industry is characterized by the limited availability and inconsistency of quality information. We believe that the general trend toward transparency and consistency in private markets reporting will create new opportunities for us. We intend to use the advantages afforded to us by our proprietary databases, analytical tools and deep industry knowledge to drive our performance and provide our clients with customized solutions across private markets asset classes. We expect that our data and analytical capabilities will play an important role in continuing to differentiate our products and services from those of our competitors.
Selected Risk Factors Related to our Business and Industry
Investing in our Class A common stock involves risk. You should carefully consider all the information in this prospectus prior to investing in our Class A common stock. These risks are discussed more fully in the section entitled “Risk Factors” immediately following this prospectus summary. These risks and uncertainties include, but are not limited to, the following:
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;
the success of our business depends on the identification and availability of suitable investment opportunities for our clients;
competition for access to investment funds and other investments we make for our clients is intense;
our ability to retain our senior leadership team and attract additional qualified investment professionals is critical to our success;
if the investments we make on behalf of our clients and 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 funds may be materially and adversely affected;
the substantial growth of our business in recent years may be difficult to sustain, as it may place significant demands on our resources and employees and may increase our expenses;
our international operations are subject to certain risks, which may affect our revenue; and
difficult market conditions can adversely affect our business by reducing the market value of the assets we manage or causing our customized separate account clients to reduce their investments in private markets.
Why We Are Going Public
We have decided to become a public company for the following principal reasons:
to enhance our profile and position as a global private markets investment solutions provider;
to allow us to grow on a standalone basis while maintaining our unique culture, our management team and our independent decision making processes;
to enhance our ability to provide continuing and tangible equity compensation to existing employees and attract new employees;
to provide funding for the repayment of debt and general corporate purposes, and a means to raise capital in the future; and
to provide a mechanism for eventual and ongoing liquidity management for our equity owners.


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Organizational Structure
In connection with this offering, we will undertake certain transactions as part of a corporate reorganization (the “Reorganization”) described in “Organizational Structure.” Following the Reorganization and this offering, Hamilton Lane Incorporated will be a holding company and its sole asset will be an equity interest in HLA, of which it will serve as the sole managing member. Certain of the original members of HLA will become the Class B Holders, the owners of the Class B units of HLA at the completion of this offering, and certain other original members will become the Class C Holders, the owners of the Class C units of HLA at the completion of this offering. Such interests in HLA will be reflected as minority interests on Hamilton Lane Incorporated’s consolidated financial statements. Certain other original members will become the direct HLI stockholders, who will own Class A common stock directly (the “Direct HLI Stockholders”). The diagram below depicts our organizational structure following the consummation of the Reorganization and this offering (assuming no exercise of the underwriters’ option to purchase additional shares).
UPDATEDORGCHART2A12.JPG
 
 
(1)
At the closing of this offering, the members of HLA, other than us, will be:
HLA Investments, LLC, or “HLAI” ( 15,793,179 Class B units).
HL Management Investors, LLC, or “HLMI” ( 5,357,574 Class B units, 6,255,176 Class C units). HLMI is considered a Class B Holder to the extent of its holdings of Class B units and a Class C Holder to the extent of its holdings of Class C units.


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Mario Giannini ( 6,784,503 Class B units, held directly and indirectly through a wholly owned affiliate and a trust for the benefit of family members).
Other ( 264,630 Class C units).
(2)
Each share of Class A common stock is entitled to one vote and will vote together with the Class B common stock as a single class, except as set forth in our certificate of incorporation or as required by law.
(3)
Each share of Class B common stock is entitled to ten votes prior to a Sunset. See “Organizational Structure—Voting Rights of Class A and Class B Common Stock.” After a Sunset becomes effective, each share of our Class B common stock will then entitle its holder to one vote. The economic rights of our Class B common stock are limited to the right to be redeemed at par value.
(4)
As part of the Reorganization, the Direct HLI Stockholders will exchange their ownership interests in HLA for 3,865,400 shares of Class A common stock and will hold these shares directly. Except for one investor who will continue to own a minority position in HLAI, all of the Direct HLI Stockholders will cease to be beneficial owners of HLA other than through their ownership of our Class A common stock.
(5)
We will hold all of the Class A units of HLA, which upon the completion of this offering will represent the right to receive approximately 31.4% of the distributions made by HLA. While this interest represents a minority of the economic interests in HLA, we will act as the sole manager of HLA, and as such, we will operate and control all of its business and affairs and will be able to consolidate its financial results into our financial statements.
(6)
The Class B Holders will collectively hold all of the Class B units of HLA, which upon the completion of this offering will represent the right to receive approximately 55.7% of the distributions made by HLA. The Class B Holders will not have any voting rights in HLA on account of the Class B units, except for the right to approve amendments to the HLA Operating Agreement that adversely affect their rights as holders of Class B units. Class B units (together with the corresponding shares of Class B common stock) may be exchanged for shares of our Class A common stock or, at our election, for cash, subject to certain restrictions pursuant to the exchange agreement described in “Organizational Structure—Exchange Agreement.” After a Class B unit is surrendered for exchange, it will not be available for reissuance. When a Class B unit is exchanged for a share of our Class A common stock, a corresponding share of our Class B common stock will automatically be redeemed by us at par value and canceled.
(7)
The Class C Holders will collectively hold all of the Class C units of HLA, which upon the completion of this offering will represent the right to receive approximately 12.9% of the distributions made by HLA. The Class C Holders will not have any voting rights in HLA on account of the Class C units, except for the right to approve amendments to the HLA Operating Agreement that adversely affect their rights as holders of Class C units. Class C units may be exchanged for shares of our Class A common stock or, at our election, for cash, subject to certain restrictions pursuant to the exchange agreement described in “Organizational Structure—Exchange Agreement.” After a Class C unit is surrendered for exchange, it will not be available for reissuance. We expect that substantially all of the Class C units will be held through HLMI.
Net profits and net losses of HLA will be allocated, and distributions by HLA will be made, to its members pro rata in accordance with the number of membership units they hold. Accordingly, net profits and net losses of HLA will initially be allocated, and distributions will be made, approximately 31.4% to us, approximately 55.7% to the Class B Holders and approximately 12.9% to the Class C Holders (or 33.7% , 53.7% and 12.6% , respectively, if the underwriters exercise their option to purchase additional shares of Class A common stock in full).



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Corporate Information
Hamilton Lane Incorporated was incorporated in Delaware on December 31, 2007 as a wholly owned subsidiary of HLA. It has had no business operations prior to this offering. In connection with the consummation of this offering, Hamilton Lane Incorporated will become the controlling member of HLA pursuant to the Reorganization described under “Organizational Structure—The Reorganization.” Our principal executive offices are located at One Presidential Blvd, 4th Floor, Bala Cynwyd, PA 19004, and our phone number is (610) 934-2222. Our website is www.hamiltonlane.com. Information contained on or accessible through our website is not incorporated by reference into this prospectus and should not be considered a part of this prospectus.
Implications of Being an Emerging Growth Company
As a company with less than $1 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2013 (the “JOBS Act”). For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from specified disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include:
being permitted to provide only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure;
not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting;
not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements;
reduced disclosure obligations regarding executive compensation; and
exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
We may take advantage of these provisions for up to five years or such earlier time when we are no longer an emerging growth company. We will cease to be an emerging growth company if we have more than $1 billion in annual revenue, have more than $700 million in market value of our capital stock held by non-affiliates or issue more than $1 billion of non-convertible debt over a three-year period. We may choose to take advantage of some, but not all, of the available exemptions. We have taken advantage of some reduced reporting burdens in this prospectus. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock.
The JOBS Act provides that an emerging growth company may take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerging growth company to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. However, we are irrevocably choosing to “opt out” of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption is required for non-emerging growth companies.



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The Offering
 
 
 
Class A common stock offered by Hamilton Lane Incorporated
 
 11,875,000 shares.
 
 
 
Underwriters’ option to purchase additional shares of Class A common stock from us
 
 1,781,250 shares.
 
 
 
Class A common stock to be issued to the Direct HLI Stockholders in the Reorganization
 
 3,865,400 shares.
 
 
 
Class A common stock to be issued under our 2017 Equity Incentive Plan in connection with the Reorganization and this offering
 
1,330,105 shares (consisting of 250,000 shares to be issued to non-management employees and 1,080,105 shares to be issued in replacement of current awards)
 
 
 
Class A common stock outstanding immediately after this offering
 
17,070,505 shares of Class A common stock (or 18,851,755 shares of Class A common stock if the underwriters exercise their option to purchase additional shares of Class A common stock in full). If all Class B Holders and Class C Holders immediately after this offering and the Reorganization were entitled, and if they so elected, to exchange their Class B units and Class C units for shares of our Class A common stock, 51,525,567 shares of Class A common stock would be outstanding immediately after this offering.
 
 
 
Class B common stock outstanding immediately after this offering
 
27,935,256 shares of Class B common stock. Class B common stock will be issued to holders of our Class B units in exchange for nominal payment.
 
 
 
Use of proceeds
 
We estimate that the net proceeds from the sale of shares of our Class A common stock by us in this offering, after deducting underwriting discounts and commissions but before expenses, will be approximately $176.7 million or approximately $203.2 million if the underwriters exercise their option to purchase additional shares of Class A common stock in full, based on an assumed initial public offering price of $16.00 per share (the midpoint of the price range set forth on the cover of this prospectus).We intend to use approximately $37.2 million of the net proceeds from this offering to purchase membership units in HLA from certain of its existing owners, at a per-unit price equal to the price paid by the underwriters for shares of our Class A common stock in this offering. Accordingly, we will not retain any of these proceeds. We intend to use $139.5 million of the net proceeds from this offering, or approximately $166.0 million if the underwriters exercise their option to purchase additional shares of Class A common stock in full, to purchase newly issued membership units in HLA, at a per-unit price equal to the price paid by the underwriters for shares of our Class A common stock in this offering. HLA intends to use $133.5 million of these proceeds to repay existing indebtedness and $6.0 million to pay the expenses incurred by us in connection with this offering and the Reorganization and for general corporate purposes. See “Use of Proceeds.”


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Voting rights
 
Each share of our Class A common stock will entitle its holder to one vote on all matters to be voted on by stockholders generally.
Each share of our Class B common stock will entitle its holder to ten votes until a Sunset becomes effective. After a Sunset becomes effective, each share of our Class B common stock will entitle its holder to one vote per share.
A “Sunset” is triggered by any of the following: (i) Hartley R. Rogers, Mario L. Giannini and their respective permitted transferees collectively cease to maintain direct or indirect beneficial ownership of at least 10% of the outstanding shares of Class A common stock (determined assuming all outstanding Class B units and Class C units have been exchanged for Class A common stock); (ii) Mr. Rogers, Mr. Giannini, their respective permitted transferees and employees of us and our subsidiaries cease collectively to maintain direct or indirect beneficial ownership of an aggregate of at least 25% of the aggregate voting power of our outstanding Class A common stock and Class B common stock; (iii) Mr. Rogers and Mr. Giannini both voluntarily terminate their employment and all directorships with HLA and us (other than by reason of disability, incapacity or retirement, in each case as determined in good faith by our board of directors, or death); or (iv) the occurrence of the later of March 31, 2027 or the end of the fiscal year in which occurs the fifth anniversary of the death of the second to die of Mr. Rogers and Mr. Giannini. A Sunset triggered under clauses (i), (ii) and (iii) during the first two fiscal quarters will generally become effective at the end of that fiscal year, and a Sunset triggered under clauses (i), (ii) and (iii) during the third or fourth fiscal quarters will generally become effective at the end of the following fiscal year. A Sunset pursuant to clause (iv) will become effective on the occurrence of the latest event listed in clause (iv), unless a Sunset is also triggered under clause (i) or (ii) that would result in an earlier Sunset, in which case the earlier Sunset will result.
 
 
 
 
 
Holders of our Class A common stock and Class B common stock will vote together as a single class on all matters presented to our stockholders for their vote or approval, except as set forth in our certificate of incorporation or as otherwise required by applicable law. See “Organizational Structure—Voting Rights of the Class A and Class B Common Stock.”
 
 
 


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Certain Class B Holders who are significant outside investors, members of management and significant employee owners will enter into a stockholders agreement pursuant to which they will agree to vote all shares of our voting stock, including their Class A common stock and Class B common stock, in the manner directed by HLAI on all matters submitted to a vote of our stockholders. HLAI will thus be able to exercise control over all matters requiring the approval of our stockholders, including the election of our directors and the approval of significant corporate transactions.
Exchange of Class B units and Class C units
 
We have reserved for issuance 34,455,062 shares of our Class A common stock, which is the aggregate number of shares of our Class A common stock expected to be issued over time upon the exchanges by the Class B Holders and Class C Holders, subject to the limitations set forth in the HLA Operating Agreement and an exchange agreement to be entered into in connection with this offering. See “Organizational Structure—Hamilton Lane Advisors, L.L.C. Operating Agreement” and “Organizational Structure—Exchange Agreement.”
 
 
 
Registration Rights Agreement
 
Pursuant to a registration rights agreement that we expect to enter into with certain Class B Holders who are significant outside investors, members of management and significant employee owners, we will agree to register the resale of the shares of Class A common stock issued upon exchange of Class B units and Class C units under certain circumstances.
 
 
 
Tax Receivable Agreement
 
Pursuant to a tax receivable agreement we expect to enter into with our existing owners, we will pay 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. See “Organizational Structure—Tax Receivable Agreement.”
 
 
 
Dividend policy
 
The declaration and payment by us of any future dividends to holders of our Class A common stock will be at the sole discretion of our board of directors. Following this offering and subject to funds being legally available, 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 will enter into with the existing members of HLA, and to pay our corporate and other overhead expenses.
 
 
 


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Directed Share Program
 
At our request, the underwriters have reserved 5% of the shares of Class A common stock to be issued by us and offered by this prospectus for sale, at the initial public offering price, to directors, officers, employees and other individuals associated with our company. Any shares purchased by our directors and executive officers pursuant to our directed share program will be subject to the 180-day lock-up agreements described under “Underwriting.” The number of Class A common stock available for sale to the general public will be reduced to the extent these individuals purchase such reserved shares. Any reserved shares that are not so purchased will be offered by the underwriters to the general public on the same basis as the other shares offered by this prospectus. See “Underwriting.”
 
 
 
Risk factors
 
You should read “Risk Factors” beginning on page 24       for a discussion of risks to carefully consider before deciding to purchase any shares of our Class A common stock.
 
 
 
Proposed ticker symbol
 
We have applied to list our Class A common stock on the NASDAQ Stock Market under the symbol “HLNE”.

Unless otherwise noted, Class A common stock outstanding and other information based thereon in this prospectus does not reflect any of the following:

1,781,250 shares of Class A common stock issuable upon exercise of the underwriters’ option to purchase additional shares;
233,495 shares of Class A common stock issuable upon exercise of options to purchase shares of Class A common stock that will be issued in substitution for certain existing options of HLA that the Company does not expect to be exercised prior to the closing of this offering;
5,000,000 shares of Class A common stock reserved for issuance under our 2017 Equity Incentive Plan (except that an aggregate of 250,000 shares of Class A common stock intended to be issued to non-management employees immediately after the closing of this offering and 1,080,105 shares of Class A common stock replacing outstanding awards of restricted Class C interests are included in the number of shares of Class A common stock outstanding after this offering); or
34,455,062 shares of Class A common stock reserved for issuance upon exchange of the Class B units (and corresponding shares of Class B common stock) and Class C units that will be outstanding immediately after this offering.
Unless otherwise indicated in this prospectus, all information in this prospectus assumes the completion of the Reorganization, the exercise of options to purchase 1,828,766 Class C units that the Company expects will be exercised prior to the closing of this offering, and that shares of our Class A common stock will be sold at $16.00 per share (the midpoint of the price range set forth on the cover of this prospectus).


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Throughout this prospectus, we present performance metrics and financial information regarding HLA’s business. This information is generally presented on an enterprise-wide basis. The new public stockholders will be entitled to receive a pro rata portion of the economics of HLA’s operations through their ownership of our Class A common stock. Our ownership of Class A units initially will represent a minority share of HLA. The existing owners of HLA initially will continue to hold a majority of the economic interest in its operations as non-controlling interest holders, primarily through direct and indirect ownership of Class B units and Class C units of HLA. Prospective investors should be aware that the owners of the Class A common stock initially will be entitled only to a minority economic position, and therefore should evaluate performance metrics and financial information in this prospectus accordingly. As Class B units and Class C units are exchanged for Class A common stock over time, the percentage of the economic interest in HLA’s operations to which we and the public stockholders are entitled will increase.


21


Summary Historical Consolidated Financial Information and Other Data
The following tables set forth certain summary financial information and other data on a historical basis. HLA is considered our predecessor for accounting purposes and its consolidated financial statements will be our historical financial statements following this offering. The summary historical consolidated financial information set forth below as of March 31, 2016 and 2015, and for each of the years in the three-year period ended March 31, 2016, has been derived from our audited consolidated financial statements included elsewhere in this prospectus. The summary historical consolidated financial information set forth below as of December 31, 2016 and for each of the nine-month periods ended December 31, 2016 and 2015 has been derived from our unaudited financial statements included elsewhere in this prospectus. The summary historical consolidated financial information should be read in conjunction with “Unaudited Pro Forma Consolidated Financial Information and Other Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial statements and the related notes included elsewhere in this prospectus.
Hamilton Lane Advisors, L.L.C.
 
Nine Months Ended
December 31,
 
Year Ended
March 31,
 
2016
 
2015
 
2016
 
2015
 
2014
Income Statement Data (in thousands)
 
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
 
 
Management and advisory fees
$
126,273

 
$
118,303

 
$
157,630

 
$
145,876

 
$
130,455

Incentive fees
6,868

 
21,151

 
23,167

 
9,509

 
9,309

Total revenues
133,141

 
139,454

 
180,797

 
155,385

 
139,764

 
 
 
 
 
 
 
 
 
 
Expenses
 
 
 
 
 
 
 
 
 
Compensation and benefits (1)  
53,161

 
77,193

 
92,065

 
60,157

 
55,950

General, administrative and other
22,925

 
19,273

 
26,898

 
26,865

 
24,760

Total expenses
76,086

 
96,466

 
118,963

 
87,022

 
80,710

 
 
 
 
 
 
 
 
 
 
Other income (expense)
 
 
 
 
 
 
 
 
 
Equity in income of affiliates
8,882

 
1,165

 
1,518

 
10,474

 
16,905

Interest expense
(8,780
)
 
(9,703
)
 
(12,641
)
 
(5,883
)
 
(8,503
)
Interest income
159

 
79

 
194

 
87

 
142

Other non-operating income (loss)
232

 
5,866

 
5,816

 
(1,056
)
 
(699
)
Total other income (expense)
493

 
(2,593
)
 
(5,113
)
 
3,622

 
7,845

 
 
 
 
 
 
 
 
 
 
Income before (benefit) provision for foreign income taxes
57,548

 
40,395

 
56,721

 
71,985

 
66,899

(Benefit) provision for foreign income taxes
(264
)
 
213

 
869

 
483

 
(128
)
Net income
57,812

 
40,182

 
55,852

 
71,502

 
67,027

Less: Income (loss) attributable to non-controlling interests
1,024

 
(852
)
 
(1,255
)
 
2,242

 
4,565

Net income attributable to HLA
$
56,788

 
$
41,034

 
$
57,107

 
$
69,260

 
$
62,462

Other Data (in thousands)
 
 
 
 
 
 
 
 
 
Compensation expense on deferred incentive fee revenue (1)

 
$
20,348

 
$
20,348

 

 

Adjusted EBITDA (2)
$
62,160

 
$
47,412

 
$
67,785

 
$
73,707

 
$
64,119




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As of
December 31,
 
As of
March 31,
Balance Sheet Data (in thousands)
 
2016
 
2016
 
2015
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
54,441

 
$
68,584

 
$
67,089

Investments
 
118,437

 
102,749

 
103,360

Total assets
 
201,991

 
196,636

 
201,500

 
 
 
 
 
 
 
Deferred incentive fee revenue
 
45,166

 
45,166

 
1,960

Senior secured term loan payable, net
 
241,417

 
243,317

 
107,719

Total liabilities
 
326,221

 
308,574

 
127,810

 
 
 
 
 
 
 
Non-controlling interests
 
10,509

 
11,368

 
17,452

Members’ equity (deficit)
 
(134,739
)
 
(123,306
)
 
56,238

Total liabilities and members’ equity (deficit)
 
201,991

 
196,636

 
201,500


(1)
In accordance with our accounting policy with respect to the recognition of incentive fee income, we did not recognize $41.5 million in carried interest distributions received from specialized funds in fiscal 2016, as all contingencies had not been resolved. However, incentive fee compensation expense of $20.3 million related to the receipt of this carried interest was recognized in fiscal 2016 as we believe it is probable that we will incur the expenses.  The $20.3 million is separately presented above to highlight the incentive fee compensation expense for which we did not recognize the associated incentive fee revenue.  The compensation expense on deferred incentive fee revenue comprises $9.9 million of bonus and other revenue sharing allocations classified as base compensation and $10.4 million of incentive fee compensation.  If none of the associated incentive fee revenue is recognized in a future period and we determine that its recognition is no longer probable, we will reverse the $20.3 million of previously recognized compensation expense through a clawback and a reduction in bonus payments. We incurred additional incentive fee compensation expense of $11.4 million in fiscal 2016 associated with incentive fee revenue that is not reflected in this figure.
(2)
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Adjusted EBITDA” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Interim Consolidated Results of Operations—Reconciliation of Adjusted EBITDA to Net Income Attributable to Hamilton Lane” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Annual Consolidated Results of Operations—Reconciliation of Adjusted EBITDA to Net Income Attributable to Hamilton Lane” for more information and a reconciliation of Adjusted EBITDA.





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RISK FACTORS
An investment in our Class A common stock involves risks. You should carefully consider the following information about these risks, together with the other information contained in this prospectus, before investing in our Class A common stock.
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.
In considering the performance information contained in this prospectus, prospective Class A common stockholders should be aware that 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 positive returns on an investment in our Class A common stock. However, poor performance of our specialized funds or customized separate accounts could cause a decline in our revenue, and could therefore have a negative effect on our performance and on returns on an investment in our Class A common stock.
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 net asset value 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; and
the performance of particular funds also will be affected by risks of the industries and businesses in which they invest.


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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. 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, 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. Further, there can be no assurance that the private markets funds we select will be able to identify sufficient attractive investment opportunities to meet their investment objectives.
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 co-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 co-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. 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 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 the sale or merger of a client, a change in a client’s senior management, competition from other financial advisors and financial institutions and other causes. Moreover, a number of our contracts with state government-sponsored clients are secured through such government’s request for proposal (“RFP”) process, and can be 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, our customized separate account and advisory account fees would decline materially. A significant reduction in the number of fee-paying clients 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, we increasingly confront potential conflicts of interest relating to our advisory and investment management businesses. For example, we may recommend that


25


various of our advisory clients invest in specialized funds managed by our investment management business. 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. 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 and reluctance of our existing clients to continue to do business with us.
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 our senior management and other professionals hold their economic interests through HLA, which is not subject to U.S. federal and state entity-level income taxes, and our Class A common stockholders will 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 the Class B Holders and Class C Holders of HLA, on the one hand, and the Class A stockholders of Hamilton Lane Incorporated, on the other hand.
Our ability to retain our senior leadership team and attract additional qualified investment professionals is critical to our success.
Our success depends on our ability to retain our senior leadership team and to recruit additional qualified investment, sales and other professionals. However, we may not be successful in our efforts to retain our senior leadership team, as the market for investment professionals is extremely competitive. The individuals that comprise our senior leadership team possess substantial experience and expertise and, in many cases, have significant relationships with certain of our clients. Accordingly, the loss of any one of our senior leadership team could adversely affect certain client relationships 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 commitment period if, depending on the fund, between two and eight designated members of our senior leadership team cease to devote sufficient professional time to or cease to be employed by HLA, often called a “key man event,” or in connection with certain other events. The occurrence of a key man event could also trigger an event of default under our term loans and affect investment periods under our limited partnership agreements. See “We may be unable to remain in compliance with the financial or other covenants contained in the Term Loan.” Any change to our senior leadership team could materially and adversely affect our business, financial condition and results of operations.


26


We intend to expand our business and may enter into new lines of business, 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 may grow our business by offering additional products and services and by entering into new lines of business. To the extent we enter into new lines of business, 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, the required investment of capital and other resources and the loss of clients due to the perception that we are no longer focusing on our core business. In addition, we may from time to time explore opportunities to grow our business via acquisitions, partnerships, investments or other strategic transactions. There can be no assurance that we will successfully identify, negotiate or complete such transactions, or that any completed transactions will produce favorable financial results.
Entry into certain lines of business may subject us to new laws and regulations with which we are not familiar, or from which we are currently exempt, and may lead to increased litigation and regulatory risk. In addition, certain aspects of our cost structure, such as costs for compensation, occupancy and equipment rentals, communication and information technology services, and depreciation and amortization will be largely fixed, and we may not be able to timely adjust these costs to match fluctuations in revenue related to growing our business or entering into new lines of business. If a new business generates insufficient revenue or if we are unable to efficiently manage our expanded operations, our business, financial condition and results of operations could be materially and adversely affected.
Our indebtedness may expose us to substantial risks.
We have a senior secured syndicated term loan facility (the “Term Loan”), arranged by Morgan Stanley Senior Funding, Inc., an affiliate of one of the underwriters, in the initial principal amount of $260 million, of which approximately $247 million remained outstanding as of December 31, 2016. Although we plan to use a portion of the proceeds of this offering to repay debt, we expect to continue to utilize debt to finance our operations as a public company, 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 would not be available for our operations, distributions, dividends 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. 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.
We may be unable to remain in compliance with the financial or other covenants contained in the Term Loan.
The Term Loan contains financial and other covenants that impose requirements on us and limit our ability to engage in certain transactions or activities. There can be no assurance that we will be able to maintain leverage levels in compliance with the financial covenants included in the Term Loan. Any failure to comply with these financial and other covenants, if not waived, would cause a default or event of default under the Term Loan. If such a failure were to occur, there can be no assurance that we would be able to obtain a waiver, refinance or obtain a replacement for such facility on favorable terms, or at all.


27


The Term Loan contains provisions relating to the continuing involvement of certain key persons in our business. The occurrence of certain events with respect to these key persons, including, among other events, the resignation, termination or other cessation of full-time employment with or active participation in our management, or the commission of certain bad acts by these key persons, could result in an event of default under the Term Loan. A default under the Term Loan and loss of access to capital could materially and adversely affect our business, financial condition and results of operations.
Restrictive covenants in agreements and instruments governing our debt may adversely affect our ability to operate our business.
The terms of certain of our indebtedness, including pursuant to the Term Loan, contain, and any future debt instruments may contain, various provisions that limit our and our subsidiaries’ ability to, among other things:
incur additional debt;
provide guarantees in respect of obligations of other persons;
make loans, advances and investments;
make certain payments in respect of equity interests, including, among others, 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;
enter into transactions with investment funds and affiliates;
create or incur liens;
enter into negative pledges;
sell all or any part of the business, assets or property, or otherwise dispose of assets;
make acquisitions or consolidate or merge with other persons;
enter into sale-leaseback transactions;
change the nature of our business;
change our fiscal year;
make certain modifications to organizational documents or certain material contracts;
make certain modifications to certain other debt documents; and
enter into certain agreements, including agreements limiting the payment of dividends or other distributions in respect of equity interests, the repayment of indebtedness, the making of loans or advances, or the transfer of assets.
Although we have negotiated certain exceptions to these events, these restrictions may limit our flexibility in operating our business. Furthermore, any violation of these or other covenants in the Term Loan could result in a default or event of default. Our obligations under the Term Loan 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.


28


See “—We may be unable to remain in compliance with the financial or other covenants contained in the Term Loan.”
Dependence on leverage by certain funds and portfolio companies subjects us to volatility and contractions in the debt financing markets and could adversely affect the ability of our specialized funds and customized separate accounts to achieve attractive rates of return on those investments.
Certain of the specialized funds we manage, the funds in which we invest and portfolio companies within our funds and customized separate accounts currently rely on leverage. Six of our specialized funds have an aggregate of $605 million of credit lines that are available for cash flow management in funding select investment opportunities for those vehicles. As of December 31, 2016, there was an aggregate outstanding balance of approximately $320 million on those credit lines. The total capital committed for the six funds to which the credit lines are linked is approximately $4 billion. If our specialized funds or the companies in which our specialized funds or customized separate accounts invest raise capital in the structured credit, leveraged loan and high yield bond markets, the results of their operations may suffer if such markets experience dislocations, contractions or volatility. 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.
The absence of available sources of sufficient debt financing for extended periods of time 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 those investments. Certain investments may also be financed through fund-level debt facilities, which may or may not be available for refinancing at the end of their respective terms. Finally, the interest payments on the indebtedness used to finance our specialized funds’ investments are generally deductible expenses for income tax purposes, subject to limitations under applicable tax law and policy. Any change in such tax law or policy to eliminate or substantially limit these income tax deductions, as has been discussed from time to time in various jurisdictions, would reduce the after-tax rates of return on the affected investments, which may have an adverse impact on our business, results of operations and financial condition.
Similarly, private markets fund portfolio companies regularly utilize the corporate debt markets to obtain additional financing for their operations. Leverage incurred by a portfolio company may cause the portfolio company to be vulnerable to increases in interest rates and may make it less able to cope with changes in business and economic conditions. 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 could adversely affect that fund’s operations and performance.
Our business is exposed to the risk that clients that owe us money may not pay us. If investors in our specialized funds and certain customized separate accounts default on their obligations to us, there may be adverse consequences on the investment process, and we could incur losses and be unable to meet underlying capital calls. For example, investors in most of our specialized funds make capital commitments to those funds that we are entitled to call from those investors at any time during prescribed periods. 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. 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.


29


If an investor has invested little or no capital, for instance early in the life of the fund, then the forfeiture penalty may not be as meaningful. A failure of investors to honor a significant amount of capital calls for any particular fund or funds could have a material adverse effect on the operation and performance of those funds.
Our failure to comply with investment guidelines set by our clients could result in damage awards against us or a reduction in AUM, either of which would cause our earnings to decline and adversely affect our business.
When clients retain us to manage assets on their behalf, they specify certain guidelines regarding investment allocation and strategy that we are required to observe in the management of their portfolios. 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. In addition, such guidelines may restrict our ability to pursue certain allocations and strategies on behalf of our clients that we believe are economically desirable, which could similarly result in losses to a client account or termination of the account and a corresponding reduction in assets under management. 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 our earnings to decline and materially and adversely affect our business, financial condition and results of operations.
Employee misconduct 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 could engage in misconduct that adversely affects our business. We are subject to a number of obligations and standards arising from our advisory and investment management businesses and our discretionary authority over the assets we manage. The violation of these obligations and standards by any of our employees would adversely affect our clients and us. Our business 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 were to improperly use or disclose confidential information, we could be subject to legal or regulatory action and suffer serious harm to our reputation, financial position and current and future business relationships. It is not always possible to detect or deter employee misconduct, and the extensive precautions we take to detect and prevent this activity may not be effective in all cases. If one of our employees were to engage in misconduct or were to be accused of such misconduct, our business and our reputation could be materially and adversely affected. See “—Increased government regulation, compliance failures and changes in law or regulation could adversely affect us.”
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, or carried interest, 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 will decline and make it more difficult for us to raise capital for new specialized funds or gain new customized


30


separate account clients in the future. 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. 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.
Valuation methodologies for certain assets in our specialized funds and customized separate accounts can be significantly 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.
There are no readily ascertainable market prices for a large number of the investments in our specialized funds, customized separate accounts, advisory accounts or the funds in which we invest. The value of the investments of our specialized funds and customized separate accounts is determined periodically by us based on the fair value of such investments as reported by the underlying fund managers. Our valuation of the funds in which we invest is largely dependent upon the processes employed by the managers of those funds. The fair value of investments is determined using a number of methodologies described in the particular funds’ valuation policies. These policies 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 and other recognized valuation methodologies. The methodologies we use in valuing individual investments 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. 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.
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 fund’s net asset value do not necessarily reflect the prices that would actually be obtained if such investments were sold. Realizations at values significantly lower than the values at which investments have been reflected in fund net asset values could result in losses for the applicable fund and the loss of potential incentive fees by the fund’s manager and us. Also, a situation in which asset values turn out to be materially different from values reflected in fund net asset values could cause investors to lose confidence in us and may, in turn, result in difficulties in our ability to raise additional capital, retain clients or attract new clients.
Clients may be unwilling to commit new capital to our specialized funds, customized separate accounts or advisory accounts as a result of our decision to become a public company, which could materially and adversely affect our business, financial condition and results of operations.
Some of our clients may view negatively the prospect of our becoming a publicly traded company, including concerns that as a public company we will shift our focus from the interests of our clients to those of our public stockholders. Some of our clients may believe that we will strive for near-term profit instead of superior risk-adjusted returns for our clients over time or grow our AUM for the purpose of generating additional management fees without regard to whether we believe there are sufficient investment opportunities to effectively deploy the additional capital. There can be no assurance that we will be successful in our efforts to address such concerns or to convince clients that our decision to pursue an initial public offering will not affect our longstanding priorities or the way we conduct our business. A decision by a significant number of our clients not to commit additional capital to our specialized funds, customized separate accounts or advisory accounts to cease doing business with us altogether could


31


inhibit our ability to achieve our investment objectives and may materially and adversely affect our business, financial condition and results of operations.
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 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. 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 initial public offering 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. 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.
In addition, our specialized funds directly or indirectly 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, downturns in the economy or deterioration in the condition of such business or its industry. If these 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. See “Dependence on leverage by certain funds and portfolio companies subjects us to volatility and contractions in the debt financing markets and could adversely affect the ability of our specialized funds and customized separate accounts to achieve attractive rates of return on those investments.”
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. 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 changes in currency exchange rates, exchange control regulations, risks associated with different types (and lower quality) of available information, expropriation or confiscatory taxation and adverse political developments. In addition,


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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.
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. Difficult market conditions or slowdowns affecting a particular asset class, geographic region or other category of investment could have a significant adverse impact on a given specialized fund or customized separate account if its investments are concentrated in that area, which would result in lower investment returns. Accordingly, a lack of diversification on the part of a specialized fund or customized separate account could adversely affect its investment performance and, as a result, our business, financial condition and results of operations.
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 co-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 our 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 or customized separate 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


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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, as it may place significant demands on our resources and employees and may 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. In addition, we are required to develop continuously our infrastructure 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 may 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 or attract qualified investment professionals may 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 not be able to maintain our current fee structure funds 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 risk management strategies and procedures may leave us exposed to unidentified or unanticipated risks.
Risk management applies to our investment management 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 managing 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. 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


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methods may not accurately quantify our risk exposure if circumstances arise that were not observed in our historical data. In particular, as we enter new lines of business, 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 and complex business, financial, tax, accounting, environmental and legal 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 resources available to us, including information provided by the target of the investment and, in some circumstances, third-party investigations. The due diligence investigation that we will carry out with respect to any investment opportunity may not reveal or highlight all relevant facts that are necessary or helpful in evaluating such investment opportunity. Moreover, such an investigation will not necessarily result in the investment ultimately being successful. 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 co-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.
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/co-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. 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.
Operational risks and data security breaches may disrupt our business, result in losses or limit our growth.
We rely heavily on our financial, accounting, compliance, monitoring, reporting and other data processing systems. Any failure or interruption of these systems, including the loss of data, whether caused by fire, other natural disaster, power or telecommunications failure, computer viruses, act of terrorism or war or otherwise, could result in a disruption of our business, liability to clients, regulatory intervention or reputational damage, and thus materially and adversely affect our business. Although we have back-up systems in place, including back-up data storage, our back-up procedures and capabilities in the event of a failure or interruption may not be adequate. In recent years, we have substantially upgraded and expanded the capabilities of our data processing systems and other operating technology, and we expect that we will need to continue to upgrade and expand these capabilities in the future to avoid


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disruption of, or constraints on, our operations. We may incur significant costs to further upgrade our data processing systems and other operating technology in the future. In addition, we are dependent on the effectiveness of our information security policies, procedures and capabilities to protect our computer and telecommunications systems and the data such systems contain or transmit. An external information security breach, such as a “hacker attack,” a virus or worm, or an internal problem with information protection, such as failure to control access to sensitive systems, could materially interrupt our business operations or cause disclosure or modification of sensitive or confidential information. Such a failure could result in material financial loss, regulatory actions, breach of client contracts, reputational harm or legal liability, which, in turn, could cause a decline in our earnings or stock price.
Finally, we rely on third-party service providers for certain aspects of our business, including for certain information systems and technology and administration of our specialized funds. Any interruption or deterioration in the performance of these third parties or failures of their information systems and technology could impair the quality of the funds’ operations and could affect our reputation and hence adversely affect our business, financial condition and results of operations.
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 that could result in substantial losses. Any such losses also may subject us to the risk of legal and regulatory liabilities or actions alleging negligent misconduct, 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. We may incur significant legal expenses in defending litigation. In addition, litigation or regulatory action against us may tarnish our reputation and harm our ability to attract and retain clients. 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 seriously harm our business.
Our distribution management business depends on an active market for public offerings and our ability to deliver expected investment returns.
Our distribution management business depends on active capital markets. If public offering activity is limited, there will be reduced in-kind distributions and reduced volume for our distribution management services. In addition, if our clients do not realize their expected investment returns on in-kind distributions, the performance of our distribution management business could be materially and adversely affected.


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Our international operations are subject to certain risks, which may affect our revenue.
We intend to grow our non-U.S. business, including growth into new regions with which we have less familiarity and experience, and this growth is important to our overall success. In addition, many of our larger 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:
greater difficulties in managing and staffing foreign operations;
fluctuations in foreign currency exchange rates that could adversely affect our results;
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 stable political and economic environments;
terrorism, political hostilities, war and other civil disturbances or other catastrophic events that reduce business activity;
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.
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, including exchange rate fluctuations between the U.S. dollar and the foreign currency in which the investments 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, the risks of 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


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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. 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.
Risks Related to Our Industry
The investment management business is intensely competitive.
The investment management business is intensely competitive, with competition based on a variety of factors, including investment performance, the quality of service provided to clients, 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. 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;
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 have resulted in increased competition;
if, as we expect, allocation of assets to alternative investment strategies increases, there may be increased competition for alternative investments and access to fund general partners and managers;
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 market conditions can adversely affect our business by reducing the market value of the assets we manage or causing our customized separate account clients to reduce their investments in private markets.
The future global market and economic climate may deteriorate because of many factors beyond our control, including rising interest rates or inflation, the availability of credit, changes in laws, terrorism or political uncertainty. We may not be able to or may choose not to manage our exposure to these market conditions. Market deterioration could cause us, the specialized funds and customized separate accounts we manage or the funds in which they invest to experience tightening of liquidity, reduced earnings and


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cash flow, and impairment charges, as well as challenges in raising additional capital, obtaining investment financing and making investments on attractive terms. These market conditions can also have an impact on our ability and the ability of funds in which we and our clients invest to liquidate positions in a timely and efficient manner. More costly and restrictive financing also may adversely impact the returns of our co-investments in leveraged buyout transactions and, therefore, adversely affect the results of operations and financial condition of our co-investment funds.
Our business could generate lower revenue in a general economic downturn or a tightening of global credit markets. While our revenue continued to grow during the economic downturn beginning in 2008, we may not experience a similar outcome during future downturns. A general economic downturn or tightening of global credit markets may result in reduced opportunities to find suitable investments and make it more difficult for us, or for 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. Such a decline could cause our revenue and net income to decline by causing some of our clients to reduce their investments in private markets in favor of investments they perceive as offering greater opportunity or lower risk, which would result in lower fees being paid to us.
A general economic downturn or a tightening of global credit markets may also reduce the commitments our clients are able to devote to alternative investments generally and make it more difficult for the funds in which we invest to obtain funding for additional investments at attractive rates, which would further reduce our profitability.
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. If our revenue declines without a commensurate reduction in our expenses, our net income will be reduced. Accordingly, difficult market conditions could materially and adversely affect our business, financial condition and results of operations.
Increased government regulation, compliance failures and changes in law or regulation could adversely affect us.
Governmental authorities around the world in recent years have called for or implemented 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; 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 of these 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. Additionally, legislation, including proposed legislation regarding executive compensation and taxation of carried interest, may 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 Securities and Exchange Commission (the “SEC”), the Commodity Futures Trading Commission (the “CFTC”), the Internal Revenue Service (the “IRS”) and other regulatory agencies, pursuant to, among other laws, the Investment Advisers Act of 1940 (the “Investment Advisers Act”), the Securities Act, the Internal Revenue Code of 1986, as amended, (the “Code”), the Commodity Exchange Act, and the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Any change in such


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regulation or oversight may have a material adverse impact on our operating results. Our failure to comply with applicable laws or regulations could result in fines, suspensions of personnel or other sanctions, including revocation of our registration as an investment adviser. Even if a sanction imposed against us or our personnel is small in monetary amount, the adverse publicity arising from 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.
As a result of recent highly publicized financial scandals, investors have exhibited concerns over the integrity of the U.S. financial markets, and the regulatory environment in which we operate is subject to further regulation in addition to those rules already promulgated. For example, there are a significant number of new and proposed regulations that may affect our business under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd‑Frank Act”). The SEC in particular has increased its regulation of the asset management and private equity industries in recent years, focusing on the private equity industry’s fees, allocation of expenses to funds, valuation practices, allocation of fund investment opportunities, disclosures to fund investors, the allocation of broken-deal expenses and general conflicts of interest disclosures. The SEC has also heightened its focus on the valuation processes employed by investment advisers. 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. 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. The pending exit of the United Kingdom from the European Union (“EU”) may subject us to new and increased regulations if we can no longer rely on “passporting” privileges that allow U.K. financial institutions to access the EU single market without restrictions. 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 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, a court could find that one of our co-investment funds has formed a partnership-in-fact conducting a trade or business and would therefore be jointly and severally liable for the portfolio company’s unfunded pension liabilities.
In addition, HLA is registered as an investment adviser with the SEC and is subject to the requirements and regulations of the Investment Advisers Act. 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 adviser and their advisory clients, as well as general anti-fraud prohibitions. As a registered investment adviser, HLA has fiduciary duties to its clients. A failure to comply with the obligations imposed by the Advisers Act, including recordkeeping, advertising and operating requirements, disclosure obligations and prohibitions on fraudulent activities, could result in investigations, sanctions and reputational damage, and could materially and adversely affect our business, financial condition and results of operations.


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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 trade 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 U.S. 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. 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 in all instances 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 criminal penalties, 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 European Economic Area (“EEA”), the individual member states of each of the EU and EEA, Hong Kong, Korea, Brazil and Japan, 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, the provision and filing of periodic reports, and obtaining certifications and other approvals. Across the EU, we are subject to the European Union Alternative Investment Fund Managers Directive (“AIFMD”), under which we are subject to regulatory requirements regarding, among other things, registration for marketing activities, the structure of remuneration for certain of our personnel and reporting obligations. Individual member states of the EU have imposed


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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. Because some EEA countries have not yet incorporated the AIFMD into their agreement with the EU, we may undertake marketing activities and provide services in those EEA countries only in compliance with applicable local laws. Outside the EEA, the regulations to which we are subject primarily to registration and reporting obligations.
It is expected that additional laws and regulations will come into force in the EEA, the EU, and other countries in which we operate over the coming years. These laws and regulations 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. In addition, the pending exit of the United Kingdom from the EU may have adverse economic, political and regulatory effects on the operation of our business. 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.
Volatile market, political and economic conditions can adversely affect investments made by our specialized funds, customized separate accounts and advisory accounts.
Since 2008, there has been continued volatility and disruption in the global financial markets. Volatility and disruption in the equity and credit markets could adversely affect the portfolio companies in which the private markets funds invest, which, in turn, would adversely affect the performance of our specialized funds, customized separate accounts and advisory accounts. For example, the lack of available credit or the increased cost of credit may materially and adversely affect the performance of funds that rely heavily on leverage such as leveraged buyout funds. Disruptions in the debt and equity markets may make it more difficult for funds to exit and realize value from their investments, because potential buyers of portfolio companies may not be able to finance acquisitions and the equity markets may become unfavorable for initial public offerings. In addition, the volatility will directly affect the market prices of securities issued by many companies for reasons unrelated to their operating performance and may adversely affect the valuation of the investments of our specialized funds, customized separate accounts and advisory accounts. Any or all of these factors may result in lower investment returns. Governmental authorities have undertaken, and may continue to undertake, a variety of initiatives designed to strengthen and stabilize the economy and the financial markets. However, there can be no assurance that these initiatives will be successful, and there is no way to predict the ultimate impact of the disruption or the effect that these initiatives will have on the performance of our specialized funds, customized separate accounts or advisory accounts.
Investments in many industries have experienced significant volatility over the last several years. The ability to realize investments depends not only on our investments and the investments made by the private markets funds and portfolio companies in which we invest and their respective results and prospects, but also on political and economic conditions, which are out of our control. Continued volatility in political or economic conditions, including an outbreak or escalation of major hostilities, declarations of war, terrorist actions or other substantial national or international calamities or emergencies, could have a material adverse effect on our business, financial condition and results of operations.


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Risks Related to Our Organizational Structure and This Offering
Our management has not previously managed a public company.
Our management team has historically operated our business as a privately owned company. The individuals who now constitute our management have not previously managed a publicly traded company. Compliance with public company requirements will place significant additional demands on our management and will require us to enhance our investor relations, legal, financial and tax reporting, internal audit, compliance with the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) and corporate communications functions. These additional efforts may strain our resources and divert management’s attention from other business concerns, which could adversely affect our business and profitability.
Fulfilling our public company financial reporting and other regulatory obligations will be expensive and time consuming.
As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. For example, we will be subject to the reporting requirements of the Exchange Act, and will be required to comply with the applicable requirements of the Sarbanes-Oxley Act and the Dodd-Frank Act, as well as rules and regulations subsequently implemented by the SEC and the NASDAQ Stock Market, including the establishment and maintenance of effective disclosure controls and internal controls over financial reporting and implementation of public company corporate governance practices. We expect that compliance with these requirements will increase our legal and financial compliance costs and will make some activities more time consuming and costly. The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and operating results. We will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge. We cannot predict or estimate the amount of additional costs we may incur as a result of becoming a public company or the timing of such costs.
In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and as a result, their application in practice may evolve over time as regulatory and governing bodies provide new guidance. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We will continue to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us, and our business, financial condition and results of operations could be materially and adversely affected.
As a result of disclosure of information as a public company, our business and financial condition will become more visible, which may result in threatened or actual litigation, including by competitors and other third parties. If the claims are successful, our business, financial condition and results of operations could be materially and adversely affected. Even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and adversely affect our business operations and financial results. These factors could also make it more difficult for us to attract and retain qualified colleagues, executive officers and members of our board of directors.


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We also expect that operating as a public company will make it more difficult and more expensive for us to obtain director and officer liability insurance on desired terms. As a result, it may be more difficult for us to attract and retain qualified people to serve on our board of directors or our board committees or to serve as executive officers.
We are a “controlled company” within the meaning of the NASDAQ listing standards and, as a result, will qualify for, and intend 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.
After this offering, holders of our Class B common stock will continue to control a majority of the voting power of our outstanding common stock. As a result, we will qualify as a “controlled company” within the meaning of the corporate governance standards of the NASDAQ Stock Market. 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.
Following this offering, we intend to rely on some or all of these exemptions. As a result, we will not have a majority of independent directors, our compensation committee will not consist entirely of independent directors and our directors will not be nominated or selected by independent directors. Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the NASDAQ Stock Market.
Our internal controls over financial reporting do not currently meet all of the standards contemplated by Section 404 of the Sarbanes-Oxley Act, and failure to achieve and maintain effective internal control over financial reporting in accordance with Section 404 could have a material adverse effect on our business and the price of our Class A common stock.
Our internal controls over financial reporting do not currently meet all of the standards contemplated by Section 404 of the Sarbanes-Oxley Act (“Section 404”) that we will eventually be required to meet as a public company. We are in the process of addressing our internal controls over financial reporting and are establishing formal committees to oversee our policies and processes related to financial reporting and to the identification of key financial reporting risks, assessment of their potential impact and linkage of those risks to specific areas and activities within our organization.
While we do not believe we have any material weaknesses in our internal controls, we do not currently have comprehensive documentation of our system of controls, nor do we yet fully document or test our compliance with this system on a periodic basis in accordance with Section 404. Furthermore, we have not yet fully tested our internal controls in accordance with Section 404 and, due to our lack of documentation, such a test would not be possible to perform at this time. As a result, we cannot conclude in accordance with Section 404 that we do not have a material weakness, or possibly a combination of significant deficiencies that could result in the conclusion that we have a material weakness in our internal controls in accordance with such rules.
We will begin the process of documenting and testing our internal control procedures to satisfy the requirements of Section 404, which requires annual management assessments of the effectiveness of our internal control over financial reporting and a report by our independent registered public accounting firm addressing these assessments. As a public company, we will be required to complete our initial assessment in a timely manner. Matters impacting our internal controls may cause us to be unable to


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report our financial information on a timely basis and thereby subject us to adverse regulatory consequences, including sanctions by the SEC or violations of the NASDAQ listing rules. There could also be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements. Confidence in the reliability of our financial statements is also likely to suffer if our independent registered public accounting firm reports a material weakness in our internal control over financial reporting. This could materially and adversely affect us and lead to a decline in the price of our Class A common stock. In addition, we will incur incremental costs in order to improve our internal control over financial reporting and comply with Section 404, including increased auditing and legal fees and costs associated with hiring additional accounting and administrative staff. We will need to hire additional personnel to design and apply controls to areas of significant complex transactions and technical accounting matters once we are a public company.
As an emerging growth company, our independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal controls over financial reporting pursuant to Section 404 until the later of either the year following our first annual report required to be filed with the SEC or the date we are no longer an emerging growth company. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating.
Our only material asset after completion of this offering will be our interest in HLA, and we are accordingly dependent upon distributions from HLA to pay dividends and taxes and other expenses.
Hamilton Lane Incorporated will be a holding company and will have no material assets, and other than its ownership of membership units in HLA, Hamilton Lane Incorporated 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 will enter into with the existing members of HLA, and to pay our corporate and other overhead expenses. To the extent that Hamilton Lane Incorporated 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 receive in connection with this offering and the related transactions and in connection with future acquisitions of membership units in HLA.
We intend to use a portion of the proceeds from this offering to purchase membership units in HLA from certain of the existing direct or indirect members of HLA, which is expected to result 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 or indirectly by the members of HLA other than us, including members of our senior leadership team, may in the future be exchanged for shares of our Class A common stock. Similar to our initial purchase of membership units, those exchanges are also likely to result in increases in our share of the tax basis of the assets of HLA that otherwise would not have been available. These 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.


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We will be required to pay over to existing 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 in connection with this offering and in the future and the amount of those payments could be substantial.
We will enter into a tax receivable agreement for the benefit of the existing direct and indirect members of HLA, 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. Hamilton Lane Incorporated will retain the benefit of the remaining 15% of these tax savings.
The term of the tax receivable agreement will commence upon the completion of this offering 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 existing 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 will provide that in the event that 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 existing 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. 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


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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 successfully challenged 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 will be required to make distributions to us and the existing 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 will be allocated to members, including us. Pursuant to the HLA Operating Agreement, HLA will make pro rata cash distributions, or 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 the cumulative taxable income, reduced by cumulative taxable losses. Under applicable tax rules, HLA is required to allocate net taxable income disproportionately to its members in certain circumstances. Because tax distributions will be determined based on the member who is allocated the largest amount of taxable income on a per unit basis and on an assumed tax rate that is the highest possible rate applicable to any member, but will be made pro rata based on ownership, HLA will be 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 to the extent necessary, if any, 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 will not be available for reinvestment in our business. Moreover, the tax distributions HLA will be 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 will be 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 existing owners of HLA.
As a result of potential differences in the amount of net taxable income allocable to us and to the existing owners of HLA, as well as 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 ownership of Class A common stock following an exchange of their Class B units or Class C units.


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If Hamilton Lane Incorporated were deemed an “investment company” under the Investment Company Act of 1940 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 of 1940, as amended (the “Investment Company Act”) if:
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; or
absent an applicable exemption, 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.
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 each of our businesses 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 do not believe that either Hamilton Lane Incorporated or HLA is, or following this offering will be, an “orthodox” investment company as defined in section 3(a)(1)(A) of the Investment Company Act and described in the first bullet point above. Further, following this offering, HLA will not have significant assets other than its equity interests in certain wholly owned subsidiaries, which in turn will have no significant assets other than general partner interests in the specialized funds we sponsor. These wholly owned subsidiaries will be the sole general partners of the funds and will be vested with all management and control over the funds. We do not believe the equity interests of HLA in its wholly owned subsidiaries or the general partner interests of these wholly owned subsidiaries in the funds are investment securities. Hamilton Lane Incorporated’s unconsolidated assets will consist primarily of cash, a deferred tax asset and Class A units of HLA, which represent the managing member interest in HLA. Hamilton Lane Incorporated will be the sole managing member of HLA and hold an approximately 33.1% economic interest in HLA upon completion of this offering and the Reorganization. As managing member, Hamilton Lane Incorporated will exercise complete control over HLA. As such, we do not believe Hamilton Lane Incorporated’s managing member interest in HLA is an investment security. Therefore, we believe that less than 40% of Hamilton Lane Incorporated’s total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis after this offering will comprise assets that could be considered investment securities. Accordingly, we do not believe Hamilton Lane Incorporated is, or following this offering will be, an inadvertent investment company by virtue of the 40% 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 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 us) and ability to


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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 leadership 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—Voting Rights of Class A and Class B Common Stock”), 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.
Because members of our senior leadership team will hold their economic interest through other entities, conflicts of interest may arise between them and holders of shares of our Class A common stock or us.
Members of our senior leadership team will beneficially own 60.2% of the outstanding units in HLA upon completion of this offering and the Reorganization (or 58.2% if the underwriters exercise their option in this offering to purchase additional shares of Class A common stock in full). Because they hold their economic interest in HLA directly through existing holding companies rather than through ownership of shares of our Class A common stock, the members of our senior leadership team 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 leadership team will have different tax positions from Class A common stockholders, 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.
There may not be an active trading market for shares of our Class A common stock, which may cause our Class A common stock to trade at a discount from its initial offering price and make it difficult to sell the shares you purchase.
Prior to this offering, there has been no public trading market for shares of our Class A common stock. It is possible that, after this offering, an active trading market will not develop or continue, which would make it difficult for you to sell your shares of Class A common stock at an attractive price or at all. The initial public offering price per share of our Class A common stock will be determined by agreement among us and the representatives of the underwriters and may not be indicative of the price at which the shares of our Class A common stock will trade in the public market after this offering.


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The disparity in the voting rights among the classes of our common stock and inability 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 will 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 will entitle its holder to one vote on all matters to be voted on by stockholders generally, while each share of our Class B common stock will entitle its holder to ten votes until a Sunset becomes effective. See “Organizational Structure—Voting Rights of the 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. Upon the closing of this offering, certain of the holders of our Class B common stock who are significant outside investors, members of management and significant employee owners will agree 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 the approval of our stockholders, including the election of our directors and the approval of significant corporate transactions. See “Organizational Structure—Stockholders Agreement.” 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.
The historical and pro forma financial information in this prospectus may not permit you to assess our future performance, including our costs of operations.
The historical financial information in this prospectus does not reflect the added costs we expect to incur as a public company or the resulting changes that will occur in our capital structure and operations. In preparing our pro forma financial information, we have given effect to, among other items, the Reorganization described in “Organizational Structure” and a deduction and charge to earnings of estimated taxes based on an estimated tax rate (which may be different from our actual tax rate in the future). The estimates we used in our pro forma financial information may not be similar to our actual experience as a public company. For more information on our historical financial information and pro forma financial information, see “Unaudited Pro Forma Consolidated Financial Information and Other Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the historical consolidated financial statements included elsewhere in this prospectus.
We are an emerging growth company, and reduced reporting and disclosure requirements applicable to emerging growth companies could make our Class A common stock less attractive to investors.
We are an emerging growth company and, for as long as we continue to be an emerging growth company, we may choose to continue to take advantage of exemptions from various reporting requirements applicable to other public companies but not to “emerging growth companies,” including, but not limited to, not being required to have our independent registered public accounting firm audit our internal control over financial reporting under Section 404, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We could be an emerging growth company for up to five years following the completion of this offering. We will cease to be an emerging growth company upon the earliest of: (i) the end of the fiscal year following the fifth anniversary of this offering, (ii) the first fiscal year after our annual gross revenues are $1.0 billion or more, (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt


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securities or (iv) the end of any fiscal year in which the market value of our Class A common stock held by non-affiliates exceeded $700 million as of the end of the second quarter of that fiscal year. We cannot predict if investors will find our Class A common stock less attractive if we choose to rely on these exemptions. If some investors find our Class A common stock less attractive as a result of any choices to reduce future disclosure, there may be a less active trading market for our Class A common stock, and the price of our Class A common stock may be more volatile.
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 sales of a large number of shares of Class A common stock in the market after this offering or the perception that such sales could occur. 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. After the consummation of this offering, we will have outstanding 17,070,505 shares of Class A common stock. This number includes the shares of our Class A common stock we are selling in this offering, which may be resold immediately in the public market. Shares of Class A common stock issued in the Reorganization to the Direct HLI Stockholders are “restricted securities” and their resale is subject to future registration or reliance on an exemption from registration. See “Shares Eligible for Future Sale.”
We have agreed with the underwriters not to dispose of or hedge any of our common stock, subject to specified exceptions, during the period from the date of this prospectus continuing through the date 180 days after the date of this prospectus, except with the prior written consent of J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC. Subject to this agreement, we may issue and sell additional shares of Class A common stock in the future.
Our directors and executive officers, certain of their affiliates, and certain of our stockholders have agreed with the underwriters not to dispose of or hedge any of our common stock (including any shares acquired pursuant to our directed share program), subject to specified exceptions, during the period from the date of this prospectus continuing through the date 180 days after the date of this prospectus, except with the prior written consent of J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC. After the expiration of the 180-day lock-up period, the 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, respectively, will be eligible for resale from time to time, subject to certain contractual, exchange timing and volume, and Securities Act restrictions.
We expect to enter 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, after the expiration of the 180-day lock-up period, subject to certain limitations, these persons will 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.
We may 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.
After the consummation of this offering, we may pay cash dividends to our stockholders. Our board of directors may, in its discretion, decrease the level of dividends or discontinue the payment of dividends entirely. In addition, as a holding company, we will be 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


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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 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.
The market price of our Class A common stock may be volatile, which could cause the value of your investment to decline.
Securities markets worldwide experience significant price and volume fluctuations. This market volatility, as well as general economic, market or political conditions, could reduce the market price of our Class A common stock in spite of our operating performance. In addition, our operating results could be below the expectations of public market analysts and investors, and in response, the market price of our Class A common stock could decrease significantly. You may be unable to resell your shares of our Class A common stock at or above the initial public offering price.
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 will 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 will provide that, in the event of a change of control, we will be required to make a


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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 will be 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. See “Description of Capital Stock.”
You will experience immediate and substantial dilution as a result of this offering and may experience additional dilution in the future.
We expect the initial public offering price of our Class A common stock will be substantially higher than the pro forma net tangible book value per share of our Class A common stock, after giving effect to the exchange of all outstanding Class B units and Class C units for shares of our Class A common stock as if such units were all immediately exchangeable. Therefore, investors purchasing shares of Class A common stock in this offering will pay a price per share that substantially exceeds our pro forma net tangible book value per share after this offering. As a result, investors will:
incur immediate dilution of $15.90 per share; and
contribute the total amount invested to date to fund our company, but will own only approximately 23.0% of the shares of our Class A common stock outstanding, after giving effect to the exchange of all Class B units and Class C units outstanding immediately after the Reorganization and this offering for shares of our Class A common stock as if such units were all immediately exchangeable. See “Dilution.”
Investors in this offering will experience further dilution upon the issuance of restricted shares of our Class A common stock under any equity incentive plans, including the 2017 Equity Incentive Plan. See “Compensation—Equity Compensation.”
If securities analysts do not publish research or reports about our business or if they publish negative evaluations of our Class A common stock, the price of our Class A common stock could decline.
The trading market for our Class A common stock will rely in part on the research and reports that industry or financial analysts publish about us or our business. We do not currently have and may never obtain research coverage by industry or financial analysts. If no or few analysts commence coverage of us, the trading price of our stock would likely decrease. Even if we do obtain analyst coverage, if one or more of the analysts covering our business downgrade their evaluations of our stock, the price of our Class A common stock could decline. If one or more of these analysts cease to cover our Class A common stock, we could lose visibility in the market for our stock, which in turn could cause our Class A common stock price to decline.


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FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements, which reflect our current views with respect to, among other things, future events and financial performance, our operations, strategies and expectations. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “plan” and similar expressions are intended to identify forward-looking statements. Any forward-looking statements contained in this prospectus are based upon our historical performance and on our current plans, estimates and expectations. The inclusion of this or any forward-looking information should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved. Such forward-looking statements are subject to various risks, uncertainties and assumptions, including but not limited to global and domestic market and business conditions, our successful execution of business and growth strategies and regulatory factors relevant to our business, as well as assumptions relating to our operations, financial results, financial condition, business prospects, growth strategy and liquidity. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. We believe these factors include, but are not limited to, those described under “Risk Factors.” These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this prospectus. We operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.


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ORGANIZATIONAL STRUCTURE
On December 31, 2007, we were incorporated as a Delaware corporation and a wholly owned subsidiary of Hamilton Lane Advisors, L.L.C., a Pennsylvania limited liability company. Prior to this offering, we have had no business operations. Our business is currently conducted through HLA.
Pursuant to this offering, we will issue 11,875,000 shares of our Class A common stock to the purchasers in this offering (or 13,656,250 shares if the underwriters exercise their option to purchase additional shares in full) in exchange for net proceeds of approximately $176.7  million (or approximately $203.2  million if the underwriters exercise their option to purchase additional shares in full).
Historical Ownership Structure
HLA is currently owned by an investor group and members of management and current and former employees. The investor group owns Class A interests, members of senior management own Class A interests and Class C interests, and other employees own primarily Class C interests. Class A interests have economic and voting rights; Class C interests have economic rights and no voting rights. The Class C interests were issued pursuant to our 2003 Class C Interest Plan, as amended. There are no Class B interests authorized or outstanding.
Immediately prior to the Reorganization described below, the members of HLA consist of:
Investor group, including certain members of senior management and outside equity holders, owning through HLAI (Class A interests representing a 46.2% economic interest and a 58.8% voting interest); and
Management and employees, consisting of:
HLMI (Class A interests representing a 15.4% economic interest and a 19.6% voting interest, and Class C interests representing a 20.7% economic interest);
Mario Giannini (Class A interests representing a 17.0% economic interest and a 21.6% voting interest, held directly and indirectly through a wholly owned affiliate and a trust for the benefit of family members); and
Other (Class C interests representing a 0.7% economic interest).
UPDATEDCURRENTORGCHART.JPG


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The Reorganization
The following actions will be taken in connection with the closing of this offering (collectively, the “Reorganization”):
We will amend and restate our certificate of incorporation to, among other things, provide for Class A common stock and Class B common stock. See “Description of Capital Stock.”
We will issue 11,875,000 shares of our Class A common stock to the underwriters in this offering.
We will use approximately $37.2  million of the net proceeds of this offering to purchase outstanding HLA interests from certain of our current owners, at a per-interest price equal to the price paid by the underwriters for shares of our Class A common stock in this offering. Accordingly, we will not retain any of these proceeds.
We will use approximately $139.5  million of the net proceeds of this offering to acquire 9,375,000 newly issued units in HLA at a per-interest price equal to the price per share paid by the underwriters for shares of our Class A common stock in this offering (or $166.0  million if the underwriters exercise their option to purchase additional shares in full).
We will redeem the 100 shares of our common stock that are outstanding and, as a result, HLA will become our subsidiary.
We will amend and restate the limited liability company agreement of HLA (as amended and restated, the “HLA Operating Agreement”) to, among other things, appoint the Company as the sole managing member of HLA. See “—Hamilton Lane Advisors, L.L.C. Operating Agreement.”
The HLA Operating Agreement will classify the interests acquired by us as Class A units, the voting interests held by the continuing members of HLA as Class B units, and the non-voting interests held by the continuing members of HLA as Class C units, each according to a conversion ratio, with fractional interests held by the continuing members cashed out with a portion of the net proceeds of this offering.
The Direct HLI Stockholders will exchange their HLA interests for 3,865,400 shares of Class A common stock.
We will issue to the Class B Holders one share of Class B common stock for each Class B unit that they own in exchange for nominal cash consideration.
We will replace options to purchase interests in HLA that are then outstanding on the effective date of the Reorganization with options to purchase our Class A common stock under a new equity incentive plan to be adopted by us. Outstanding awards of restricted Class C interests will be replaced by awards vesting in Class A common stock under that same equity incentive plan according to the vesting schedule in effect prior to this offering.
We will enter into an exchange agreement with the direct owners of HLA pursuant to which they will be entitled to exchange units (together with an equal number of shares of Class B common stock in the case of Class B units) for shares of Class A common stock on a one-for-one basis or, at our election, for cash. When a Class B unit is exchanged for a share of our Class A common stock, a corresponding share of our Class B common stock will automatically be redeemed by us at par value and canceled. See “—Exchange Agreement.”


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We will enter into a tax receivable agreement with the continuing members of HLA that will provide for the payment by us of 85% of the amount of benefits, if any, that we realize (or are deemed to realize as discussed below) as a result of increases in tax basis (and certain other tax benefits) resulting from purchases or exchanges of membership units of HLA. See “—Tax Receivable Agreement.”
We will enter into a stockholders agreement and a registration rights agreement with certain Class B Holders who are significant outside investors, members of management and significant employee owners, to provide for certain rights and restrictions after the offering. See “—Stockholders Agreement” and “—Registration Rights Agreement.”
Acquisition of HLA Membership Interests
Concurrently with the consummation of this offering, we will acquire approximately 31.4% of the membership interests of HLA by purchasing with the net proceeds of this offering (i) a portion of the membership interests held by the original members of HLA and (ii) newly issued membership interests of HLA. If the underwriters exercise their option to purchase additional shares of Class A common stock, we would use the additional net proceeds to acquire additional newly issued membership interests of HLA. In connection with the Reorganization, we will acquire from the Direct HLI Stockholders their membership interests in HLA in exchange for 3,865,400 shares of our Class A common stock.
Immediately after our acquisition of these membership interests in HLA, our only material asset will be our ownership of approximately 31.4% of the membership interests of HLA (or 33.7% if the underwriters exercise their option to purchase additional shares of Class A common stock in full) and our only business will be acting as its managing member. The membership interests of HLA owned by us will be classified as Class A units and the remaining approximately 68.6% of the membership units of HLA, which will continue to be held by certain of the current members of HLA, will be classified as either Class B units or Class C units, based on the class of membership interest held prior to this offering.
Pursuant to the HLA Operating Agreement and an exchange agreement that we will enter into with direct owners of HLA, each Class B or Class C unit will be exchangeable for one share of our Class A common stock or, at our election, for cash, subject to certain timing limitations specified in the exchange agreement. When a Class B unit or Class C unit is surrendered for exchange, it will not be available for reissuance. When a Class B unit is exchanged for a share of our Class A common stock, a corresponding share of our Class B common stock will automatically be redeemed by us at par value and canceled.
Our Class B Common Stock
For each membership unit of HLA that is reclassified as a Class B unit in the Reorganization, we will issue to the Class B Holder one corresponding share of our Class B common stock in exchange for the payment of its par value. Immediately following the Reorganization, we will have outstanding 27,935,256 shares of Class B common stock held of record by 39 stockholders . Each share of our Class B common stock will entitle its holder to ten votes per share until a Sunset becomes effective. After a Sunset becomes effective, each share of Class B common stock will entitle its holder to one vote per share. See “—Voting Rights of Class A and Class B Common Stock.”
Because a Sunset may not take place for some time, it is expected that the Class B common stock will continue to entitle its holders to ten votes per share, and the Class B Holders will continue to exercise voting control over the Company, for the near future. The Class B Holders will initially have 94.7% of the combined voting power of our common stock (or 94.1% if the underwriters exercise their option to purchase additional shares of Class A common stock in full). When a Class B unit is exchanged for a


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share of our Class A common stock, the corresponding share of our Class B common stock will automatically be redeemed by us at par value and canceled. We will not issue any further Class B units or shares of Class B common stock after the completion of the Reorganization, other than as described below.
Concurrently with the closing of this offering and the Reorganization, certain Class B Holders who are significant outside investors, members of management and significant employee owners will enter into a stockholders agreement pursuant to which they will agree to vote all shares of our voting stock, including the Class A and Class B common stock, then held by them together on all matters submitted to our common stockholders for a vote in favor of the nominees for our Board of Directors proposed by HLAI and otherwise in the manner directed by HLAI. It is expected that the parties to the stockholders agreement will control approximately 91.1% of the combined voting power of our common stock immediately following this offering. Therefore, upon the closing of this offering and because holders of our Class A common stock and Class B common stock will vote together as a single class on almost all matters submitted to a vote of our stockholders, HLAI will be able to exercise control over all such matters requiring the approval of our stockholders, including the election of our directors and the approval of significant corporate transactions. See “—Stockholders Agreement.”
Our current members believe that the contributions of the current ownership group and management team have been critical in HLA’s growth to date. We have a history of employee equity participation and believe that this practice has been instrumental in attracting and retaining a highly experienced team and will continue to be an important factor in maximizing long-term stockholder value following this offering. We believe that ensuring that our key decision-makers will continue to guide the direction of HLA results in a high degree of alignment with our stockholders, and that issuing to our continuing voting members the Class B common stock with ten votes per share will help maintain this continuity.
Our Class A Common Stock
The 17,070,505 shares of our Class A common stock that will be outstanding after this offering (or 18,851,755 shares if the underwriters exercise their option to purchase additional shares in full), 11,875,000 shares of which will be sold pursuant to this offering, 3,865,400 shares of which will be issued to the Direct HLI Stockholders in the Reorganization upon exchange of their HLA interests, and 1,330,105 of which will be issued to our employees under our 2017 Equity Incentive Plan as replacements for existing Class C interest awards or, for our non-management employees, as an opportunity to participate in equity ownership of us, will represent 100% of the rights of the holders of all classes of our outstanding common stock from and after this offering to share in all distributions from HLI, except for the right of Class B Holders to receive the par value of the Class B common stock upon our liquidation, dissolution or winding up or an exchange of such Class B units. The 100 shares of common stock issued to HLA in connection with our initial capitalization will be redeemed by us concurrently with the consummation of this offering.
Registration Rights
Pursuant to a registration rights agreement that we will enter into with certain Class B Holders who are significant outside investors, members of management and significant employee owners, we will grant these holders the right to require us to file registration statements in order to register the resales of the shares of our Class A common stock that are issuable upon exchange of their Class B units and Class C units. See “—Registration Rights Agreement” for a description of the timing and manner limitations on resales of these shares.


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Treatment of Outstanding Equity Awards
As part of the Reorganization, options to purchase shares of our Class A common stock will replace all outstanding options to purchase restricted Class C interests that are not exercised prior to the effective date of the Reorganization. All unvested restricted Class C interest awards will be replaced by awards vesting in Class A common stock according to the vesting schedule in effect prior to this offering.


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Post-Offering Holding Company Structure
This offering is being conducted through what is commonly referred to as an “Up-C” structure, which is often used by partnerships and limited liability companies undertaking an initial public offering. The Up-C approach provides the existing owners with the tax advantage of continuing to own interests in a pass-through structure and provides potential future tax benefits for both the public company and the existing owners when they ultimately exchange their pass-through interests for shares of Class A common stock. See “—Tax Receivable Agreement.”
Our only business following this offering will be to act as the managing member of HLA and, as such, we will operate and control all of its business and affairs and will be able to consolidate its financial results into our financial statements. The ownership interests of the Class B Holders in Class B units and Class C Holders in Class C units will be accounted for as a minority interest in our consolidated financial statements after this offering, although the Class B Holders and Class C Holders are expected to continue to hold a majority of the economic interest in HLA.
Certain of the existing owners of HLA will sell a portion of their equity interests to us in connection with this offering. Other than interests sold to us, as a result of the Reorganization, all Class A interests will be reclassified as Class B units of HLA and all Class C interests will be reclassified as Class C units of HLA. All interests acquired by us at the closing of this offering will be reclassified as Class A units of HLA. Accordingly, the owners who today hold their interests through HLAI will generally beneficially own Class B units. Senior management, who today beneficially own Class A interests and Class C interests, will beneficially own Class B units and Class C units, and employee owners who today beneficially own primarily Class C interests will beneficially own Class C units. We expect that substantially all of the Class C units will be held through HLMI. The Direct HLI Stockholders, consisting principally of non-management employee owners and non-U.S. persons, will hold Class A common stock directly after the Reorganization.
The diagram below illustrates our structure and anticipated ownership immediately after the consummation of the Reorganization and this offering (assuming no exercise of the underwriters’ option to purchase additional shares).


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Post-Offering Organizational Structure
UPDATEDORGCHART2A11.JPG
 
 
(1)
At the closing of this offering, the members of HLA, other than us, will be:
HLAI ( 15,793,179 Class B units).
HLMI ( 5,357,574 Class B units, 6,255,176 Class C units). HLMI is considered a Class B Holder to the extent of its holdings of Class B units and a Class C Holder to the extent of its holdings of Class C units.
Mario Giannini ( 6,784,503 Class B units, held directly and indirectly through a wholly owned affiliate and a trust for the benefit of family members).
Other ( 264,630 Class C units).
(2)
Each share of Class A common stock is entitled to one vote and will vote together with the Class B common stock as a single class, except as set forth in our certificate of incorporation or as required by law.
(3)
Each share of Class B common stock is entitled to ten votes prior to the occurrence of a Sunset. See “Organizational Structure—Voting Rights of Class A and Class B Common Stock.” After a Sunset becomes effective, each share of our Class B common stock will then entitle its holder to one vote. The economic rights of our Class B common stock are limited to the right to be redeemed at par value.
(4)
As part of the Reorganization, the Direct HLI Stockholders will exchange their ownership interests of HLA for 3,865,400 shares of Class A common stock and will hold these shares directly. Except for one investor who will continue to own a minority position in HLAI, all of the Direct HLI Stockholders will cease to be beneficial owners of HLA other than through their ownership of our Class A common stock.


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(5)
We will hold all of the Class A units of HLA, which upon the completion of this offering will represent the right to receive approximately 31.4% of the distributions made by HLA. While this interest represents a minority of the economic interests in HLA, we will act as the sole manager of HLA, and as such, we will operate and control all of its business and affairs and will be able to consolidate its financial results into our financial statements.
(6)
The Class B Holders will collectively hold all of the Class B units of HLA, which upon the completion of this offering will represent the right to receive approximately 55.7% of the distributions made by HLA. The Class B Holders will not have any voting rights in HLA on account of the Class B units, except for the right to approve amendments to the HLA Operating Agreement that adversely affect their rights as holders of Class B units. Class B units (together with the corresponding shares of Class B common stock) may be exchanged for shares of our Class A common stock or, at our election, for cash, subject to certain restrictions pursuant to the exchange agreement described in “Organizational Structure—Exchange Agreement.” After a Class B unit is surrendered for exchange, it will not be available for reissuance. When a Class B unit is exchanged for a share of our Class A common stock, a corresponding share of our Class B common stock will automatically be redeemed by us at par value and canceled.
(7)
The Class C Holders will collectively hold all of the Class C units of HLA, which upon the completion of this offering will represent the right to receive approximately 12.9% of the distributions made by HLA. The Class C Holders will not have any voting rights in HLA on account of the Class C units, except for the right to approve amendments to the HLA Operating Agreement that adversely affect their rights as holders of Class C units. Class C units may be exchanged for shares of our Class A common stock or, at our election, for cash, subject to certain restrictions pursuant to the exchange agreement described in “Organizational Structure—Exchange Agreement.” After a Class C unit is surrendered for exchange, it will not be available for reissuance. We expect that substantially all of the Class C units will be held through HLMI.
Net profits and net losses of HLA will be allocated, and distributions by HLA will be made, to its members pro rata in accordance with the number of membership units they hold. Accordingly, net profits and net losses of HLA will initially be allocated, and distributions will be made, approximately 31.4% to us, approximately 55.7% to the Class B Holders and approximately 12.9% to the Class C Holders (or 33.7% , 53.7% and 12.6% , respectively, if the underwriters exercise their option to purchase additional shares of Class A common stock in full).
Subject to the availability of net cash flow at the HLA level, we intend to cause HLA to distribute to us, the Class B Holders and the Class C Holders cash payments for the purposes of funding tax obligations in respect of the taxable income and net capital gain that is allocated to the members of HLA.
Assuming HLA makes distributions to its members in any given year, the determination to pay dividends, if any, to our Class A stockholders out of the portion, if any, of such distributions remaining after our payment of taxes, tax receivable agreement payments and expenses (any such portion, an “excess distribution”) will be made by our board of directors. Because our board of directors may determine to pay or not pay dividends to our Class A stockholders, our Class A stockholders may not necessarily receive dividend distributions relating to our excess distributions, even if HLA makes such distributions to us.


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Hamilton Lane Advisors, L.L.C. Operating Agreement
As a result of the Reorganization, we will operate our business through HLA and its consolidated subsidiaries. The operations of HLA, and the rights and obligations of its members, are set forth in the HLA Operating Agreement, a form of which has been filed as an exhibit to the registration statement of which this prospectus forms a part. The following is a description of certain terms of the HLA Operating Agreement.
Voting and Economic Rights of Members
HLA will issue Class A units, which may only be issued to us as managing member, Class B units and Class C units. Class B Holders and Class C Holders will have no voting rights in HLA, except for the right to approve amendments to the HLA Operating Agreement that adversely affect their rights as Class B Holders or Class C Holders, as applicable.
Class A units, Class B units and Class C units will have the same economic rights per unit. Accordingly, immediately after the consummation of the Reorganization and this offering, the holders of our Class A common stock (through us), the Class B Holders and the Class C Holders will hold approximately 31.4% , 55.7% and 12.9% , respectively, of the economic interests in our business (or 33.7% , 53.7% and 12.6% , respectively, if the underwriters exercise their option to purchase additional shares of Class A common stock in full).
As of the closing of this offering, the outstanding Class B units and Class C units will constitute all of the authorized units of those respective classes. We do not intend to cause HLA to issue additional Class B units (and consequently, we do not intend to issue additional shares of Class B common stock) or Class C units in the future, other than as described below.
Net profits and net losses of HLA will be allocated, and distributions by HLA will be made, to its members pro rata in accordance with the number of membership units of HLA they hold. HLA will agree to make distributions to the holders of its membership units, which include us, for the purpose of funding tax obligations in respect of HLA that are allocated to them. See “—Certain Tax Consequences to Us.” However, HLA may not make tax distributions to its members if doing so would violate any agreement to which it is then a party (which we do not expect to be the case upon the closing of this offering and the Reorganization).
Coordination of Hamilton Lane Incorporated and HLA
At any time we issue a share of our Class A common stock for cash, the net proceeds received by us will be promptly transferred to HLA, and HLA will issue to us a Class A unit. At any time we issue a share of our Class A common stock pursuant to any of our equity plans, we will contribute to HLA all of the proceeds that we receive (if any) and HLA will issue to us an equal number of its Class A units, having the same restrictions, if any, as are attached to the shares of Class A common stock issued under the plan. At any time we issue a share of our Class A common stock upon an exchange of a Class B unit or Class C unit, described below under “—Exchange Rights,” we will contribute the exchanged unit to HLA and HLA will issue to us a Class A unit. In the event that we issue other classes or series of our equity securities, HLA will issue to us an equal amount of equity securities of HLA with designations, preferences and other rights and terms that are substantially the same as our newly issued equity securities. Conversely, if we retire any shares of our Class A common stock (or our equity securities of other classes or series) for cash, HLA will, immediately prior to such retirement, redeem an equal number of Class A units (or its equity securities of the corresponding classes or series) held by us, upon the same terms and for the same price, as the shares of our Class A common stock (or our equity securities of such


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other classes or series) are retired. In addition, membership units of HLA, as well as our common stock, will be subject to equivalent stock splits, dividends, reclassifications and other subdivisions.
Issuances and Transfer of Units
Class A units may be issued only to us, the managing member of HLA, and are non-transferable. Class B units and Class C units may be issued only in connection with the Reorganization as described herein or to give effect to changes in our common stock as described above. The sole distinction between Class B units and Class C units is that the Class C Holders will not receive any shares of our Class B common stock in respect of their Class C units. Class B units and Class C units may not be transferred, except with our consent or to a permitted transferee, subject to such conditions as we may specify. In addition, Class B Holders may not transfer any Class B units to any person unless he, she or it transfers an equal number of shares of our Class B common stock to the same transferee.
Under the HLA Operating Agreement, we can require the holders of Class B units and Class C units to sell all of their interests in HLA into certain acquisitions of HLA and, in some circumstances, those holders may require us to include some or all of those interests in such a transaction.
Certain Tax Consequences to Us
The holders of membership units of HLA, including us, generally will incur U.S. federal, state and local income taxes on their proportionate share of any net taxable income of HLA. Net income and net losses of HLA generally will be allocated to its members pro rata in proportion to their respective membership units, though certain non-pro rata adjustments will be made to reflect depreciation, amortization and other allocations. In accordance with the HLA Operating Agreement, HLA will make pro rata distributions to the holders of its membership units for the purpose of funding their tax obligations in respect of the income of HLA that is allocated to them. Generally, these tax distributions will be computed based on our estimate of the net taxable income of HLA allocable per unit multiplied by an assumed tax rate equal to the highest combined U.S. federal and applicable state and local tax rate applicable to any natural person residing in, or corporation doing business in, New York City or San Francisco, California that is taxable on that income (taking into account the deductibility of state and local taxes for U.S. federal income tax purposes and certain other assumptions). The HLA Operating Agreement provides that HLA may elect to apply an allocation method with respect to certain HLA investment assets that are held at the time of the closing of this offering that is expected to result in the future, solely for tax purposes, in certain items of loss being specially allocated to HLI and corresponding items of gain being specially allocated to the other members of HLA. In conjunction therewith, the tax receivable agreement provides that HLI will pay over to the other HLA members 85% of the net tax savings to HLI attributable to those tax losses.
HLA will have in effect an election under Section 754 of the Code for 2016 and the election will remain in effect for each taxable year thereafter in which an exchange of membership units of HLA for shares of our Class A common stock occurs. As a result of this election, our initial acquisition of membership units, and the subsequent exchanges of membership units for shares of our Class A common stock, are expected to result in increases in our share of the tax basis of the tangible and intangible assets of HLA, which will increase the tax depreciation and amortization deductions available to us and decrease gains, or increase losses, on a sale or other taxable disposition, if any, of such assets.

Voting Rights of Class A and Class B Common Stock
Except as provided in our certificate of incorporation or by applicable law, holders of Class A common stock and Class B common stock vote together as a single class. Each share of our Class A


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common stock will entitle its holder to one vote per share. Each share of our Class B common stock will entitle its holder to ten votes until a Sunset becomes effective. After a Sunset becomes effective, each share of Class B common stock will then entitle its holder to one vote.
A “Sunset” is triggered by any of the following: (i) Hartley R. Rogers, Mario L. Giannini and their respective permitted transferees collectively cease to maintain direct or indirect beneficial ownership of at least 10% of the outstanding shares of Class A common stock (determined assuming all outstanding Class B units and Class C units have been exchanged for Class A common stock); (ii) Mr. Rogers, Mr. Giannini, their respective permitted transferees and employees of us and our subsidiaries cease collectively to maintain direct or indirect beneficial ownership of an aggregate of at least 25% of the aggregate voting power of our outstanding Class A common stock and Class B common stock; (iii) Mr. Rogers and Mr. Giannini both voluntarily terminate their employment and all directorships with HLA and us (other than by reason of disability, incapacity or retirement, in each case as determined in good faith by our board of directors, or death); or (iv) the occurrence of the later of March 31, 2027 or the end of the fiscal year in which occurs the fifth anniversary of the death of the second to die of Mr. Rogers and Mr. Giannini. A Sunset triggered under clauses (i), (ii) and (iii) during the first two fiscal quarters will generally become effective at the end of that fiscal year, and a Sunset triggered under clauses (i), (ii) and (iii) during the third or fourth fiscal quarters will generally become effective at the end of the following fiscal year. A Sunset pursuant to clause (iv) will become effective on the occurrence of the latest event listed in clause (iv), unless a Sunset is also triggered under clause (i) or (ii) that would result in an earlier Sunset, in which case the earlier Sunset will result.

If Mr. Rogers or Mr. Giannini voluntarily terminates his employment and directorships as contemplated by clause (iii) after the death of the other, then the Sunset will become effective on the timing set out in clause (iii). Otherwise, a voluntary termination as to only one of them will result in a Sunset becoming effective on the timing set out in clause (iv). Because a Sunset may not take place for some time, or at all, certain of the Class B Holders will, by virtue of their voting control of us and the stockholders agreement described below, continue to control us for the near future.

Immediately after this offering, our Class B common stockholders will collectively hold approximately 94.7% of the combined voting power of our common stock (or 94.1% if the underwriters exercise their option to purchase additional shares in full). When a Class B Holder exchanges Class B units for the corresponding number of shares of our Class A common stock or, at our option, for cash, it will result in the redemption and cancellation of the corresponding number of shares of our Class B common stock in exchange for a cash payment of the par value of such shares and, therefore, will decrease the aggregate voting power of our Class B Holders.

Stockholders Agreement
Concurrently with the closing of this offering and the Reorganization, certain of the Class B Holders will enter into a stockholders agreement with respect to all shares of voting stock held by them. Pursuant to the stockholders agreement, these Class B Holders will agree to vote all their shares of voting stock, including Class A and Class B common stock, together and in accordance with the instructions of HLAI on any matter submitted to our common stockholders for a vote. It is expected that the parties to the stockholders agreement will control approximately 91.1% of the combined voting power of our common stock immediately following this offering.
Under the stockholders agreement, those Class B Holders will agree to take all necessary action, including casting all votes such members are entitled to cast at any annual or special meeting of stockholders, so as to ensure that the composition of our board of directors and its committees complies


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with the provisions of the stockholders agreement related to the composition of our board of directors, which are discussed under “Management—Composition of the Board of Directors after this Offering.”
Following consummation of the offering (assuming the exercise in full of the underwriter’s option to purchase additional shares) HLAI will hold approximately 53.3% of the aggregate voting power of our Class A common stock and Class B common stock, and the parties to the stockholders agreement collectively will hold approximately 91.1% of the aggregate voting power of our Class A common stock and Class B common stock. The parties to the stockholders agreement have agreed to vote their voting stock, including their Class A common stock and Class B common stock, as directed by HLAI. Furthermore, the governing documents of HLAI require generally the approval of two of Messrs. Giannini, Rogers, and Sexton for those votes to be cast in favor of certain fundamental actions, including a material acquisition, an increase in our authorized capital, and an issuance of preferred stock. As a result of these arrangements, HLAI, its current members, and their permitted transferees will control the outcome of any such matters that are submitted to our stockholders for the foreseeable future.
Exchange Agreement
Concurrently with the closing of this offering and the Reorganization, we expect to enter into an exchange agreement with the direct owners of HLA that will entitle those owners (and certain permitted transferees thereof, including the indirect beneficial owners of the Class B units and Class C units) to exchange their Class C units and Class B units for shares of Class A common stock on a one-for-one basis or, at our election, for cash. When a Class B unit is exchanged for a share of our Class A common stock or, at our option, for cash, a corresponding share of our Class B common stock will automatically be redeemed at par value and canceled by us.
The exchange agreement will permit the Class B Holders and the Class C Holders to exercise their exchange rights subject to certain timing and other conditions. In particular, exchanges by our senior management and other senior employees will be subject to timing and volume limitations: no exchanges will be permitted until after the first anniversary of the closing date of this offering, and then exchanges will be limited so that at least two-thirds of their original holdings must be retained through the second anniversary of the closing date and at least one-third of their original holdings must be retained through the third anniversary of the closing date. After the third anniversary of the closing date, these limitations expire. These limitations will not apply to exchanges by our other employees who own Class B units or Class C units, subject to compliance with lock-up agreements entered into in connection with this offering and blackout periods imposed by us.
In addition, the exchange agreement is expected to provide that an owner will not have the right to exchange Class B units or Class C units if we determine that such exchange would be prohibited by law or regulation or would violate other agreements with HLA to which the owner is subject, or would adversely affect the trading market for our securities. We may impose additional restrictions on exchanges that we determine to be necessary or advisable so that HLA is not treated as a “publicly traded partnership” for U.S. federal income tax purposes.
Any Class B Holder exchanging Class B units must deliver a corresponding number of shares of Class B common stock to us for redemption and cancellation as a condition of exercising its right to exchange Class B units for shares of our Class A common stock. When a Class B unit or Class C unit is surrendered for exchange, it will not be available for reissuance.


66


Registration Rights Agreement
Concurrently with the closing of this offering and the Reorganization, we intend to enter into a registration rights agreement with certain of the Class B Holders who are significant outside investors, members of management and significant employee owners. The registration rights agreement will provide these holders with certain registration rights whereby, at any time following the first anniversary of our initial public offering, certain holders will have the right to require us to register under the Securities Act the shares of Class A common stock issuable upon exchange of Class B units or Class C units. The registration rights agreement will also provide for piggyback registration rights for the holders party thereto, subject to certain conditions and exceptions.
Tax Receivable Agreement
We will enter into a tax receivable agreement with the Class B Holders and Class C Holders that will provide for the payment by us of 85% of the amount of tax savings, 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 our acquisition of membership units of HLA. See “Related-Party Transactions—Tax Receivable Agreement.”


67


USE OF PROCEEDS
We estimate that the net proceeds from the sale of shares of our Class A common stock by us in this offering, after deducting underwriting discounts and commissions but before expenses, will be approximately $176.7 million, or approximately $203.2 million if the underwriters exercise their option to purchase additional shares of Class A common stock in full, based on an assumed initial public offering price of $16.00 per share (the midpoint of the price range set forth on the cover of this prospectus).
A $1.00 increase (decrease) in the assumed initial public offering price of $16.00  per share would increase (decrease) the net proceeds to us from this offering by approximately $11.0 million, assuming the number of shares offered by us, as set forth on the cover of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of one million shares in the number of shares of Class A common stock offered by us would increase (decrease) the net proceeds to us from this offering by approximately $14.9 million, assuming the assumed initial public offering price remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

We intend to use approximately $37.2 million of the net proceeds from this offering to purchase membership units in HLA from certain of its existing owners, at a per-unit price equal to the per-share price paid by the underwriters for shares of our Class A common stock in this offering. Accordingly, we will not retain any of these proceeds.
We intend to use approximately $139.5 million of the net proceeds from this offering (or approximately $166.0 million if the underwriters exercise their option to purchase additional shares of Class A common stock in full) to purchase newly issued membership units in HLA at a per-unit price equal to the per-share price paid by the underwriters for shares of our Class A common stock in this offering. HLA intends to use approximately $133.5 million of these proceeds to repay principal and interest under the Term Loan (or approximately $162.0 million if the underwriters exercise their option to purchase additional shares of Class A common stock in full) and approximately $6.0 million to pay the expenses incurred in connection with this offering and the Reorganization and for general corporate purposes.
The Term Loan is scheduled to mature in July 2022 and bears an interest rate of approximately 4.27% as of December 31, 2016. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Historical Liquidity and Capital Resources—Term Loan” for a description of the Term Loan.



68


DIVIDEND POLICY
Historically, HLA has had a policy of distributing an amount sufficient to pay the income tax liabilities of all of the equity owners of HLA. In order to ensure that the equity owners of HLA would be able to meet their tax liabilities, past distributions have equaled the highest marginal tax rates applicable to an individual’s ordinary income. Following this offering and subject to funds being legally available, 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 will enter into with the existing members of HLA, and to pay our corporate and other overhead expenses. The declaration and payment of any dividends by Hamilton Lane Incorporated will be at the sole discretion of our board of directors, which may change our dividend policy at any time. Our board of directors will take into account:
general economic and business conditions;
our financial condition and operating results;
our available cash and current and anticipated cash needs;
our capital requirements;
contractual, legal, tax and regulatory restrictions and implications on the payment of dividends by us to our stockholders or by our subsidiaries (including HLA) to us; and
such other factors as our board of directors may deem relevant.
Hamilton Lane Incorporated will be a holding company and will have no material assets other than its ownership of membership units in HLA, and as a consequence, our ability to declare and pay dividends to the holders of our Class A common stock will be subject to the ability of HLA to provide distributions to us. We intend to cause HLA to make distributions to Hamilton Lane Incorporated in an amount sufficient to cover dividends, if any, declared by us. If HLA makes such distributions, the Class B Holders and Class C Holders will be entitled to receive equivalent distributions from HLA. However, because we must pay taxes, make payments under the tax receivable agreement and pay our expenses, amounts ultimately distributed as dividends to holders of our Class A common stock are expected to be less than the amounts distributed by HLA to its members on a per membership interest basis.
Assuming HLA makes distributions to its members in any given year, the determination to pay dividends, if any, to our Class A common stockholders out of the portion, if any, of such distributions remaining after our payment of taxes, tax receivable agreement payments and expenses (any such portion, an “excess distribution”) will be made by our board of directors. Because our board of directors may determine to pay or not pay dividends to our Class A common stockholders, our Class A common stockholders may not necessarily receive dividend distributions relating to excess distributions, even if HLA makes such distributions to us.


69


CAPITALIZATION
The following table sets forth the cash and capitalization as of December 31, 2016 of HLA on a historical basis and Hamilton Lane Incorporated on an as adjusted basis to give effect to the Reorganization, including our issuance and sale of shares of Class A common stock in this offering at an assumed initial public offering price of $16.00 per share, the midpoint of the price range listed on the cover page of this prospectus, after (i) deducting underwriting discounts and commissions and estimated offering expenses payable by us and (ii) the application of the proceeds from this offering, as described under “Use of Proceeds.”
You should read this information together with our audited financial statements and related notes appearing elsewhere in this prospectus and the information set forth under the headings “Unaudited Pro Forma Consolidated Financial Information and Other Data,” “Selected Consolidated Financial and Other Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
 
 
As of December 31, 2016
 
(in thousands, except share amounts)
 
Actual
HLA
 
As Adjusted
HLI (unaudited)
 
Cash
 
$
54,441

 
$
60,441

 
Debt:
 
 
 
 
 
Current portion of long-term debt
 
2,600

 
2,600

 
Long-term debt, less current portion
 
244,150

 
110,650

 
Total debt
 
246,750

 
113,250

 
Total Equity:
 
 
 
 
 
Members’ equity (deficit)
 
(133,776
)
 

 
 Class A common stock (no shares authorized, issued and outstanding, actual; 300 million shares authorized, 17 million shares issued and outstanding, pro forma as adjusted)
 

 
17

 
 Class B common stock (no shares authorized, issued and outstanding, actual; 50 million shares authorized, 28 million shares issued and outstanding, pro forma as adjusted)
 

 
28

 
Preferred stock (no shares authorized, issued and outstanding, actual; 10 million shares authorized, no shares issued and outstanding, pro forma as adjusted)
 

 

 
Additional paid-in capital
 

 
6,152

 
Accumulated other comprehensive loss
 
(963
)
 
(963
)
 
Accumulated deficit
 

 
(4,885
)
 
Non-controlling interests in HLA subsidiaries
 
10,509

 
10,509

 
Total members’/stockholders’ equity (deficit)
 
(124,230
)
 
10,858

 
Non-controlling interest
 

 
(4,204
)
(1)  
Total capitalization
 
$
122,520

 
$
119,904

 
(1)     On a pro forma basis, includes the Class B and Class C units not owned by us, which represents 68.6% of HLA’s outstanding common equity. The continuing members of HLA will hold the non-controlling interest in HLA. HLI will initially hold 31.4% of the economic interests in HLA and the continuing members of HLA will hold 68.6% of the economic interests in HLA.


70


A $1.00 increase (decrease) in the assumed initial public offering price of $16.00 per share, which is the midpoint of the price range listed on the cover page of this prospectus, would increase (decrease) the as adjusted amount of each of cash, additional paid-in capital, total stockholders’ equity and total capitalization by approximately $11.0  million, assuming that the number of shares of Class A common stock offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
The table above does not include:
1,781,250 shares of Class A common stock issuable upon exercise of the underwriters’ option to purchase additional shares;

233,495 shares of Class A common stock issuable upon exercise of options to purchase shares of Class A common stock that will be issued in substitution for certain existing options of HLA that the Company does not expect to be exercised prior to the closing of this offering, at a weighted-average price of $16.00 per share;
 
5,000,000 shares of Class A common stock reserved for issuance under our 2017 Equity Incentive Plan (except that  250,000 shares of Class A common stock intended to be issued to employees immediately after the closing of this offering and 1,080,105 shares of Class A common stock replacing outstanding awards of restricted Class C interests are included in the number of shares of Class A common stock outstanding after this offering); or

34,455,062 shares of Class A common stock reserved for issuance upon exchange of the Class B units (and corresponding shares of Class B common stock) and Class C units that will be outstanding immediately after this offering.





71


DILUTION
If you invest in our Class A common stock, your interest will be diluted to the extent of the difference between the initial public offering price per share of our Class A common stock and the pro forma net tangible book value per share of our Class A common stock after this offering. Dilution results from the fact that the per share offering price of the Class A common stock is substantially in excess of the book value per share attributable to the existing equity holders.
Our pro forma net tangible book deficit as of December 31, 2016 was approximately $128.3 million, or $2.49 per share of our Class A common stock. Pro forma net tangible book value represents the amount of total tangible assets less total liabilities, and pro forma net tangible book value per share represents pro forma net tangible book value divided by the number of shares of Class A common stock outstanding, after giving effect to the Reorganization and assuming that all of the Class B Holders and Class C Holders exchanged their Class B units and Class C units outstanding immediately following the completion of the Reorganization and this offering for newly issued shares of our Class A common stock on a one-for-one basis as if such units were immediately exchangeable.
After giving effect to the Reorganization and the sale of 11,875,000 shares of Class A common stock in this offering at an assumed initial public offering price of $16.00 per share (the midpoint of the price range on the cover of this prospectus) and after deducting underwriting discounts and commissions and estimated offering expenses payable by us and assuming the exchange of all Class B units and Class C units outstanding immediately following the completion of the Reorganization and this offering for shares of our Class A common stock as if such units were immediately exchangeable, our pro forma net tangible book value would have been $5.2 million, or $0.10 per share. This represents an immediate increase in pro forma net tangible book value of $2.59 per share to existing equity holders and an immediate dilution in net tangible book value of $15.90 per share to new investors.
The following table illustrates this dilution on a per share basis assuming the underwriters do not exercise their option to purchase additional shares:
Assumed initial public offering price per share (the midpoint of the price range on the cover of this prospectus)
 
$16.00
Pro forma net tangible book value per share as of December 31, 2016
 
($2.49)
Increase in pro forma net tangible book value per share attributable to new investors
 
$2.59
Pro forma net tangible book value per share after this offering (1)    
 
$0.10
Dilution in pro forma net tangible book value per share to new investors (1)    
 
$15.90
 
 
(1)
A $1.00 increase (decrease) in the assumed initial public offering price of $16.00 per share would increase (decrease) the pro forma net tangible book value per share after this offering by $0.17 and the dilution in pro forma net tangible book value per share to new investors by $1.42 , assuming the number of shares of Class A common stock offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated expenses payable by us.
The following table summarizes, on the same pro forma basis as of December 31, 2016, the total number of shares of Class A common stock purchased from us, the total cash consideration paid to us and the average price per share paid by the existing equity holders and by new investors purchasing shares in this offering, assuming that all of the Class B Holders and Class C Holders exchanged their Class B units for shares of our Class A common stock on a one-for-one basis as if such units were immediately exchangeable.


72


 
 
Shares Purchased
 
Total Consideration (1)
 
Average Price Per Share
 
 
Number
 
Percent
 
Amount
 
Percent
 
Existing Equity Holders
 
593,750

 
5
%
 
$
9,500,000

 
5
%
 
$
16.00

New Investors
 
11,281,250

 
95
%
 
180,500,000

 
95
%
 
16.00

Total
 
11,875,000

 
100
%
 
$
190,000,000

 
100
%
 
$
16.00

 
 
(1)
A $1.00 increase (decrease) in the assumed initial public offering price of $16.00 per share, the midpoint of the range of the estimated initial public offering price set forth on the cover page of this prospectus, would increase (decrease) total consideration paid by new investors and total consideration paid by all stockholders by $11.9 million, assuming the number of shares of Class A common stock offered by us, as set forth on the cover page of this prospectus, remains the same. If the underwriters exercise their option to purchase additional shares of Class A common stock in full, the pro forma as adjusted net tangible book value per share as of December 31, 2016 would be approximately $0.65 per share of Class A common stock and the dilution in pro forma as adjusted net tangible book value per share to new holders of our Class A common stock would be $15.35 per share of Class A common stock.


73


UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
AND OTHER DATA
The following unaudited pro forma condensed consolidated statements of income for the nine months ended December 31, 2016 and the year ended March 31, 2016 present our consolidated results of operations giving effect to the Reorganization (see transactions described under “Organizational Structure”), the consummation of this offering and our intended use of all of the proceeds therefrom after deducting the underwriting discounts and commissions and other costs of this offering, as though such transactions had occurred as of March 31, 2015. The unaudited pro forma condensed consolidated balance sheet as of December 31, 2016 gives pro forma effect to the transactions described above as if they had occurred as of December 31, 2016.
The pro forma adjustments are based on available information and upon assumptions that our management believes are reasonable in order to reflect, on a pro forma basis, the impact of these transactions on the historical financial information of HLA. The unaudited pro forma condensed consolidated balance sheet and unaudited pro forma condensed consolidated statement of income may not be indicative of the results of operations or financial position that would have occurred had this offering and the related transactions taken place on the dates indicated, or that may be expected to occur in the future. The adjustments are described in the notes to the unaudited pro forma condensed consolidated statement of income and the unaudited pro forma consolidated balance sheet. The unaudited pro forma condensed consolidated financial information and other data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements of HLA and related notes included elsewhere in this prospectus.
The pro forma adjustments in the Reorganization and Offering Adjustments column principally give effect to:
the Reorganization as described in “Organizational Structure”;
the provision for corporate income taxes on the income of Hamilton Lane Incorporated that will be taxable as a corporation for U.S. federal and state income tax purposes; and
the allocation of income (loss) associated with non-controlling interests primarily relating to HLA membership units, approximately 68.6% of which are held by the original members of HLA after this offering, assuming no exercise of the underwriters’ option to purchase additional shares.
HLA is considered our predecessor for accounting purposes, and its consolidated financial statements will be our historical financial statements following this offering. Because certain of the original members of HLA will continue to control the entities that own and manage HLA after the Reorganization, we will account for the acquisition of such original members’ interests in our business, as part of the Reorganization, as a transfer of interests under common control. Accordingly, we will carry forward unchanged the value of such original members’ interests in the assets and liabilities recognized in HLA’s financial statements into our financial statements.
We have not made any pro forma adjustments relating to reporting, compliance and investor relations costs that we will incur as a public company. No pro forma adjustment has been made for these additional expenses as an estimate of such expenses is not determinable.


74


Unaudited Pro Forma Condensed Consolidated Balance Sheet
As of December 31, 2016 (in thousands)
 
HLA
Historical
 
Reorganization and Offering Adjustments
 
HLI
Pro Forma
Assets
 
 
 
 
 
Cash and cash equivalents
$
54,441

 
$
6,000

(1)(2)  
$
60,441

Restricted cash
1,795

 

 
1,795

Fees receivable
10,795

 

 
10,795

Prepaid expenses
1,777

 

 
1,777

Due from affiliates
3,205

 

 
3,205

Furniture, fixtures and equipment, net
3,959

 

 
3,959

Investments
118,437

 

 
118,437

Deferred tax asset
443

 
15,123

(3)  
15,566

Other assets
7,139

 
(3,906
)
(4)  
3,233

Total assets
$
201,991

 
$
17,217

 
$
219,208

 
 
 
 
 
 
Liabilities and Members’ Equity
 
 
 
 
 
Accounts payable
$
1,622

 
$
2,094

(4)  
$
3,716

Accrued compensation and benefits
24,765

 
2,000

(5)  
26,765

Deferred incentive fee revenue
45,166

 

 
45,166

Senior secured term loan payable
 
 
 
 
 
Principal amount
246,750

 
(133,500
)
(2)  
113,250

Less: unamortized discount and debt issuance
costs
5,333

 
(2,885
)
(2)  
2,448

Senior secured term loan payable, net
241,417

 
(130,615
)
 
110,802

Accrued members’ distributions
7,994

 

 
7,994

Due to affiliates for tax receivable agreement

 
12,854

(3)  
12,854

Other liabilities
5,257

 

 
5,257

Total liabilities
326,221

 
(113,667
)
 
212,554

Members’ equity (deficit)
(133,776
)
 
133,776

(1)  

Class A common stock

 
17

(1)  
17

Class B common stock

 
28

(6)  
28

Additional paid-in capital

 
6,152

(1)(3)(4)(6)  
6,152

Accumulated other comprehensive loss
(963
)
 

 
(963
)
Accumulated deficit

 
(4,885
)
(2)(5)  
(4,885
)
Non-controlling interest in HLA subsidiaries
10,509

 

 
10,509

Total members’/stockholders’ equity (deficit) attributable to HLI
(124,230
)
 
135,088

 
10,858

Non-controlling interest

 
(4,204
)
(7)  
(4,204
)
Total liabilities and members’/stockholders’ equity (deficit)
$
201,991

 
$
17,217

 
$
219,208




75


Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet
(1)
Reflects net proceeds of $176.7  million from this offering based on the issuance of 11,875,000 shares of Class A common stock and the assumed initial public offering price of $16.00  per share (the midpoint of the estimated offering price range set forth on the front cover of this prospectus), with a corresponding increase to total stockholders’ equity. We intend to use approximately $37.2 million of the net proceeds from this offering to purchase membership units in HLA from certain of its existing owners, at a per-unit price equal to the per-share price paid by the underwriters for shares of our Class A common stock in this offering.
(2)
Reflects the use of a portion of the proceeds from this offering to repay $133.5  million of outstanding indebtedness under the Term Loan and write-down of unamortized discount and debt issuance costs. This adjustment is non-recurring in nature and, as such, has not been included as an adjustment in the unaudited pro forma consolidated statements of operations.
(3)
As described under “Related-Party Transactions—Tax Receivable Agreement,” in connection with this offering, we will enter into a tax receivable agreement with the existing members of HLA. The agreement will require us to pay to such members (or their owners) 85% of the amount of tax savings, if any, that we realize in certain circumstances as a result of (i) increases in tax basis resulting from our acquisition of Class C units, or Class B units together with Class B common stock, in exchange for shares of our Class A common stock, (ii) tax benefits attributable to payments made under this tax receivable agreement and (iii) certain items of loss being specially allocated to us for tax purposes in connection with dispositions by HLA of certain investment assets. The deferred tax asset of $15.1  million and the $12.9  million due to affiliates for the tax receivable agreement assume: (A) only exchanges associated with this offering, (B) a share price equal to $16.00  per share (the midpoint of the price range set forth on the cover of this prospectus) less any underwriting discount, (C) a constant income tax rate of 38% , (D) no material changes in tax law, (E) the ability to utilize tax attributes, (F) no adjustment for potential remedial allocations and (G) future tax receivable agreement payments. The difference between the deferred tax asset recognized and the tax receivable agreement liability is recorded as an increase to additional paid-in-capital.
(4)
We are deferring certain costs associated with this offering, including certain legal, accounting and other related expenses, which have been recorded in other assets on our consolidated balance sheet. Upon completion of this offering, these deferred costs will be charged against the proceeds from this offering with a corresponding reduction to additional paid-in capital. We also expect to incur additional costs through the completion of this offering which are reflected in accounts payable.
(5)
Reflects payments to induce members of HLA to exchange their HLA units for HLI common stock. This adjustment is non-recurring in nature and, as such, has not been included as an adjustment in the unaudited pro forma consolidated statements of operations.
(6)
In connection with this offering, we will issue shares of Class B common stock to the continuing members of HLA, on a one-to-one basis with the number of HLA Class B units they own. Each share of our Class B common stock will entitle its holder to ten votes until a Sunset becomes effective. See “Organizational Structure—Voting Rights of the Class A and Class B Common Stock.” After a Sunset becomes effective, each share of Class B common stock will then entitle its holder to one vote.
(7)
Upon completion of the offering, we will become the sole managing member of HLA and control the operations and management of HLA. As a result, we will consolidate the financial results of HLA and will report a non-controlling interest related to the interest held by the continuing members of HLA, which will represent a majority of the economic interest in HLA, on our consolidated balance sheet. Following this offering, assuming the underwriters do not exercise their option to purchase additional shares of Class A common stock, HLI will own  31.4% of the economic interest of HLA, and the continuing members of HLA will own the remaining  68.6% .


76


Unaudited Pro Forma Condensed Consolidated Statement of Income and Other Data
For the Nine Months Ended December 31, 2016 (in thousands, except share and per share amounts)

 
HLA
Historical
 
Reorganization and Offering Adjustments
 
HLI
Pro Forma
 
Revenues
 
 
 
 
 
 
Management and advisory fees
$
126,273

 
$

 
$
126,273

 
Incentive fees
6,868

 

 
6,868

 
Total revenues
133,141

 

 
133,141

 
Expenses
 
 
 
 
 
 
Compensation and benefits
53,161

 
750

(1)  
53,911

 
General, administrative and other
22,925

 
-

 
22,925

 
Total expenses
76,086

 
750

 
76,836

 
Other income (expense)
 
 
 
 
 
 
Equity in income of affiliates
8,882

 

 
8,882

 
Interest expense
(8,780
)
 
4,600

(2)  
(4,180
)
 
Interest income
159

 

 
159

 
Other non-operating income
232

 

 
232

 
Total other income (expense)
493

 
4,600

 
5,093

 
Income before (benefit) provision for income taxes
57,548

 
3,850

 
61,398

 
(Benefit) provision for income taxes
(264
)
 
7,226

(3)  
6,962

 
Net income
57,812

 
(3,376
)
 
54,436

 
Less: Income (loss) attributable to non-controlling interest in HLA subsidiaries
1,024

 

 
1,024

 
Net income attributable to HLA
$
56,788

 
$
(3,376
)
 
$
53,412

 
Less: Income (loss) attributable to non-controlling interest


 
41,623

(4)  
41,623

 
Net income attributable to HLI


 


 
$
11,789

 
 
 
 
 
 
 
 
Pro forma net income per share data (5) :
 
 
 
 
 
 
Weighted-average shares of Class A common stock outstanding
 
 
 
 
 
 
Basic

 
 
 
15,740,400

 
Diluted

 
 
 
16,504,095

 
Net income available to Class A common stock per share
 
 
 
 
 
 
Basic

 
 
 
$
0.75

 
Diluted

 
 
 
$
0.74

 










77


Unaudited Pro Forma Condensed Consolidated Statement of Income and Other Data
For the Year Ended March 31, 2016 (in thousands, except share and per share amounts)

 
HLA
Historical
 
Reorganization and Offering Adjustments
 
HLI
Pro Forma
 
Revenues
 
 
 
 
 
 
Management and advisory fees
$
157,630

 
$

 
$
157,630

 
Incentive fees
23,167

 

 
23,167

 
Total revenues
180,797

 

 
180,797

 
Expenses


 
 
 


 
Compensation and benefits
92,065

 
1,000

(1)  
93,065

 
General, administrative and other
26,898

 
-

 
26,898

 
Total expenses
118,963

 
1,000

 
119,963

 
Other income (expense)


 
 
 


 
Equity in income of affiliates
1,518

 

 
1,518

 
Interest expense
(12,641
)
 
5,706

(2)  
(6,935
)
 
Interest income
194

 

 
194

 
Other non-operating income
5,816

 

 
5,816

 
Total other income (expense)
(5,113
)
 
5,706

 
593

 
Income before provision (benefit) for income taxes
56,721

 
4,706

 
61,427

 
Provision (benefit) for income taxes
869

 
7,366

(3)  
8,235

 
Net income
55,852

 
(2,660
)
 
53,192

 
Less: (Loss) income attributable to non-controlling interest in HLA subsidiaries
(1,255
)
 

 
(1,255
)
 
Net income attributable to HLA
$
57,107

 
$
(2,660
)
 
$
54,447

 
Less: (Loss) income attributable to non-controlling interest


 
42,430

(4)  
42,430

 
Net income attributable to HLI


 


 
$
12,017

 
 
 
 
 
 
 
 
Pro forma net income per share data (5) :
 
 
 
 
 
 
Weighted-average shares of Class A common stock outstanding
 
 
 
 
 
 
Basic

 
 
 
15,740,400

 
Diluted

 
 
 
16,384,502

 
Net income available to Class A common stock per share
 
 
 
 
 
 
Basic

 


 
$
0.76

 
Diluted

 
 
 
$
0.75

 

Notes to Unaudited Pro Forma Condensed Consolidated Statements of Income and Other Data
(1)
In connection with the offering, we will grant to certain non-management employees an aggregate of 250,000 restricted shares that vest over a four-year period. This adjustment reflects compensation expense associated with this grant had it occurred at the beginning of the period presented.
(2)
Reflects an adjustment on interest expense from repayment of $133.5 million of outstanding indebtedness under the term loan using a portion of the proceeds from this offering.


78


(3)
HLA has been and will continue to be treated as a partnership for U.S. federal and state income tax purposes. Following the offering, we will be subject to U.S. federal income taxes, in addition to state, local and foreign income taxes with respect to our allocable share of any taxable income generated by HLA that will flow through to its interest holders, including us. As a result, the unaudited pro forma consolidated statements of operations reflect adjustments to our income tax expense to reflect an effective income tax rate of  38.0% , which was calculated assuming the U.S. federal rates currently in effect and the statutory rates applicable to each state, local and foreign jurisdiction where we estimate our income will be apportioned.
(4)
Upon completion of the offering, we will become the sole managing member of HLA and control the operations and management of HLA. As a result, we will consolidate the financial results of HLA and will report a non-controlling interest related to the interest held by the continuing members of HLA on our consolidated statement of income. Following this offering, assuming the underwriters do not exercise their option to purchase additional shares of Class A common stock, HLI will own  31.4% of the economic interest of HLA, and the continuing members of HLA will own the remaining  68.6% . Net income attributable to non-controlling interest will represent  68.6% of the consolidated income before income taxes of HLI. If the underwriters exercise their option to purchase additional shares of Class A common stock in full, HLI will own  33.7% of the economic interest of HLA, the continuing members of HLA will own the remaining  66.3% , and net income attributable to non-controlling interest will represent  66.3% of the consolidated income before income taxes of HLI.
(5)
Pro forma basic net income per share is computed by dividing net income available to Class A common stockholders by the weighted-average shares of Class A common stock outstanding during the period. Pro forma diluted net income per share is computed by adjusting the net income available to Class A common stockholders and the weighted-average shares of Class A common stock outstanding to give effect to potentially dilutive securities. The calculation of diluted earnings per share excludes the 34.5 million of HLA units outstanding that are convertible into Class A common stock under the “if-converted” method as the inclusion of such shares would be antidilutive to the periods presented. Other than a right to be repaid the par value upon cancellation of shares of Class B common stock, the Class B common stock carries only a voting interest in HLI and those shares are therefore not included in the computation of pro forma basic or diluted net income per share. The following table sets forth a reconciliation of the numerators and denominators used to compute pro forma basic and diluted net income per share.



79



(in thousands, except share and per share amounts)
Nine Months Ended
December 31, 2016
 
Year Ended
March 31, 2016
 
 
 
 
Basic net income per share:
 
 
 
Numerator