Hamilton Lane Inc (HLNE) 2019 Q2 法說會逐字稿

Hello, and welcome to the Hamilton Lane Q2 earnings call. On the call today from the Hamilton Lane team are Hartley Rogers, Chairman; Mario Giannini, CEO; Erik Hirsch, Vice Chairman; Randy Stilman, CFO; and Karen Greene, Head of Investor Relations.

Before the Hamilton Lane team discusses the quarter's results, I want to remind you that they will be making forward-looking statements based on their current expectations for the business. These statements are subject to risks and uncertainties that may cause the actual results to differ materially. For a discussion of these risks, please review the risk factors included in the Hamilton Lane's fiscal 2018 10-K.

Management will also be referring to non-GAAP measures that they view as important in assessing the performance of the business. Reconciliation of these non-GAAP measures to GAAP can be found in the earnings presentation materials, which are available on the IR section of the Hamilton Lane website.

Please note that nothing on this call represents an offer to sell or a solicitation to purchase interest in any of Hamilton Lane's funds or stock. The company's detailed financial results will be made available when the 10-Q is filed.

Finally, for the call this morning, the Hamilton Lane team will be referencing pages in the earnings release presentation, available on the Hamilton Lane IR website and is shown on the webcast version of this call.

With that, I will turn the call over to Karen Greene, Head of Investor Relations.

Thank you, Sharon, and thanks, everyone, for joining us. For those of you who I haven't spoken with yet and are wondering where Demetrius is, I joined the Hamilton Lane team several months ago, working closely with Demetrius as he prepared to move back to a senior role on the investment team. I essentially transitioned as Head of Investor Relations in early September, and I look forward to working with all of you going forward.

Turn to Slide 3 of the presentation, which provides a summary of our financial performance for Q2 of fiscal year 2019. Year-to-date, our revenue for management and advisory fees grew 6% versus the prior year period. This resulted in non-GAAP EPS year-to-date of $0.92, based on over $49 million of adjusted net income. Our GAAP net income year-to-date was approximately $20 million, which translated into GAAP diluted EPS of $0.88. Additionally, as in the prior quarter, we declared a quarterly dividend of $0.2125 per share, which keeps us on a track for our full fiscal year target of $0.85 per share. Before we dive into a deeper review of our Q2 results, we wanted to provide our perspective on the Abraaj situation upfront.

And so let me turn the call over to our CEO, Mario Giannini, to do that.

Thanks, Karen. Let me begin with the fact that while the Abraaj situation may be new for some of you, the private equity industry, Hamilton Lane and our clients have been aware of it since early February of 2018, when stories first hit the press about potential cash management issues at Abraaj holding company. The Abraaj holding company and management company went into provisional liquidation in June of this year. That means this earnings call will be our third to occur while the Abraaj situation has been unfolding in the press and the second since the provisional liquidations began.

[And to the] fact that Abraaj is not a new situation, because one important question being asked is, has this situation negatively impacted Hamilton Lane's business? And our response is simple, no. So why hasn't Abraaj been an item of discussion prior to today? That answer is also simple, and our 8-K filing last Thursday explains. This matter is simply not material to our business in any way. So let's turn to what the issue is and how Hamilton Lane is involved.

It's alleged that there have been cash management issues and other financial misconduct at the management company. The provisional liquidators are in the process of attempting to document that and unwind it if they can. There are at least 3 different investigations happening in and around the Abraaj situation and none has produced anything definitive. It is also said that the holding company and the management company are insolvent, but that has to do with the condition of the holding company and the management company. Hamilton Lane and our clients are investors in certain Abraaj investment funds, not the management company, not the holding company. And that is a very important distinction as the actual investment funds themselves are not in liquidation proceedings. To the extent they turn out to be financial issues at the management company, those do not necessarily translate into financial losses at the funds level. At the investment funds level, an important part of the story relates to the health of portfolio companies in which the funds are invested. On that topic, what you have seen accurately reported in the press is the fact that Hamilton Lane along with other Abraaj LPs are working closely with the provisional liquidators to facilitate a transfer of responsibility for the management of at least some of the Abraaj investment funds to new managers.

It is our understanding that a number of fund managers are interested in taking those roles and the provisional liquidators are engaging with them. While it's certainly not a common event in our industry, replacing fund managers is something that does occur for a variety of reasons. Death of the key person or a splitting up of a partnership would be examples. We can't say definitively today that the management of all the investment funds ultimately will be moved away from Abraaj, but there is an ongoing process in which Hamilton Lane is actively participating. Our full participation in this process reflects our view that any dollar at risk, regardless of materiality, is something we'll protect in whatever way we can.

Let me turn now to Slide 4, which provides some data points on the financial situation. While the company has more than $452 billion in client assets under management and advisement as of September 30, 2018, our exposure to Abraaj managed funds is less than 0.1% or $382 million. This exposure breaks down across our 2 business lines as follows: $376 million within assets under management across a large number of customized separate accounts and specialized funds and approximately $5 million within AUA, which is a combination of advised assets and our back-office monitoring activities. In closing, from a balance sheet perspective, of the $134 million in investments on our balance sheet at September 30, 2018, approximately $500,000 is invested in Abraaj managed funds.

A few noteworthy points on our exposure. This aggregate exposure is quite small in the scope of the assets we manage, and importantly, clients accounts are deliberately diversified to mitigate the impact of underperforming investments, which is always a risk in any portfolio. That in turn means that individual client exposure to these investments is small as well.

As I noted earlier, these investments are in the funds, not at the Abraaj holding company nor the management company. The value of these underlying fund assets are not directly correlated with the allegations of improper cash management practices against the management company.

Finally, I'd like to address the issue of our reputation as a trusted service provider and partner to our clients. While there's been heightened interest in scrutiny from the public investment community regarding our involvement with Abraaj over the past week, as I clarified a few moments ago, we have been dealing with this situation together with the industry and our clients since last February. During that time, we have signed new clients, renewed existing clients, including clients with Abraaj exposure, and have continued to build out pipeline of prospects all against the backdrop of media reports about this issue in a highly competitive environment.

You've heard and seen the results of our clients' success through our financial results. We've now reported 3 quarters of earnings since this story broke, and each time, we have demonstrated a growing roster of clients and a growing asset footprint. We don't take these relationships for granted and have been in frequent touch with our clients throughout this situation. We're comfortable with the endurance of our reputation and our brand, and we'll continue to work hard to earn and protect the confidence our clients have in Hamilton Lane.

With that, I'll turn the call over to Erik to review the highlights of our second quarter results.

Thanks, Mario. Beginning with AUA, here, we saw a decrease in AUA quarter-over-quarter as we saw a single client opt to complete their transition of their asset management to be fully in-house. This client has been very public about their efforts to build out internal resources and has been transitioning towards this goal for years.

As we have said before and will say again, AUA is not correlated to revenue as we price based on service level, not assets.

For the quarter, our advisory revenue was up slightly compared to the prior quarter despite the loss of the AUA and increased 22% from the prior year period. And no, we do not see this insourcing as a trend quite the contrary. Large LPs opting to manage their programs in-house remains the true expectation, not the rule.

On the AUM side, we saw an increase of 21% versus same period from the prior fiscal year and an increase of 8% year-to-date. Broadly speaking, we are seeing AUM addition come from 3 types of clients: one, those who are brand-new to the asset class. Two, those who have chosen to switch service providers. And three, those who previously took an in-house approach to investing in private markets and are now seeking a partner for some or all of their program.

We're also continue to see positive fund flows across different geographies and from different types of investors as we continue to have success with both our specialized fund offerings and our customized separate account solutions.

Lastly, over 40% of our revenue comes from clients outside the U.S. And given this number has remained relatively stable over the past several years, it tells you we are seeing similar growth from both inside the U.S. as well as in other markets.

On Slide 6, we highlight a by-product of our asset growth, that being fee-earning AUM, which is derived from our customized separate accounts and our specialized funds. As we have stated in the past, the fee-earning AUM is a significant driver of our business as it makes up approximately 85% of our management and advisory fee revenue. And as you can see on Slide 6, our total fee-earning AUM was up $2.4 billion or nearly 8% versus the prior year with solid growth across both our specialized products and our customized separate accounts.

The growth we experienced was driven by the recurring theme of separate account re-ups, coupled with new client wins. It's worth emphasizing again the embedded organic growth in our model, which for our business has been meaningful.

Across our separate account business, the vast majority of those clients, where their first tranche of capital has been committed, have re-upped for another tranche. That level of re-ups has driven over 70% of our separate account fee-earning contributions over the last 4 fiscal years.

This is in part due to a nuance of our asset class. Clients need to continually commit new capital to reach and maintain their target allocation. Our managers return the capital when they exit a deal, thus reducing a client's exposure. In order to maintain, let alone grow exposure as most investors are trying to do, clients must commit additional capital to us to deploy.

Second, as just noted, many of our clients are not yet at their targeted allocation and are still building their exposure to private markets, making significant contributions annually to new opportunities. Again, our clients are focused on growing or at least maintaining exposure levels, and in order to do that, they need to continue to deploy new, fresh capital.

In addition to the solid growth, we've also maintained attractive fee rates across our business. What the chart on Slide 6 also shows is that our fee rates have remained steady over a long period.

Moving on to Slide 7. Here, we highlight areas of focus around our AUM build, starting with our customized separate account offering. Over the last 12 months, we have added net fee-earning AUM of over $1.1 billion to our customized separate accounts. As I just mentioned, there continues to be a steady flow of new commitments from our existing clients. The balance of the fee-earning AUM growth comes from us winning new clients, which furthers the long-term organic growth potential of this part of our business. Given the sheer size of our client install base, you should expect to continue to see the majority of our new growth coming from our existing customers. The fact that we're generating around 30% of our growth from brand-new relationships tells you our focus on winning new clients remains strong and successful.

We've also experienced nice momentum for our specialized funds, which have added net fee-earning AUM of nearly $1.3 billion over the last 12 months. The growth in our specialized funds fee-earning AUM has been driven by the continued raise of our fourth coinvestment fund, which has closed on over $1 billion of commitments to date, including over $150 million closed during the second quarter as well as being driven by our fund-to-funds product, which has reached almost $170 million in commitments. We have until the spring of 2019 to wrap up fundraising on both products. So we're still actively raising over the next several months. Another important point to note is that since both of these products are already actively deploying capital, subsequent closings will result in retroactive fees.

Finally, as you may recall, our credit-oriented product, which last raised $900 million has a 1-year investment period and charges fees on invested capital. As a result, we began to see the impact to fee-earning AUM this quarter.

Let me end by touching briefly on technology. Our clients rely on us for a wide range of services and solutions around the management of their private markets portfolio. And we continue to invest in technology with a strategy that is both defensive and offensive. Defensive, in that it allows us to be even more efficient and effective in addressing our clients' needs. Offensive, in that we are finding ways to expand our addressable market and drive financial benefits. As we've discussed previously, we've been using balance sheet capital to directly invest in generally SaaS-oriented businesses as we strategically partner with them to address a need. This quarter saw money flow through as 2 of our technology investments were sold, resulting in over $11 million in gains. We're still in early days on our various technology initiatives, and we continue to explore new additional relationships, but the early results are very encouraging.

With that, let me turn the call over to Hartley, who is filling in for our CFO, Randy, who, while sitting here, is a bit under the weather and is largely without his voice. So with that, Hartley.

Thank you, Erik. Slide 9 of our presentation shows the financial highlights for the quarter. As shown on the slide, we continue to see very solid growth in our business. The total revenue year-to-date up 18% versus the prior year period. Management and advisory fees grew 6% versus the prior year period, driven by strong results in our customized separate account and advisory and reporting offerings.

Revenue from our customized separate accounts offering increased $3.1 million compared to the prior year-to-date period due to the addition of several new accounts and additional allocations from existing accounts.

For our advisory and reporting management offerings, we experienced over 20% growth compared to the prior year-to-date period, driven by new client adds in our advisory, back-office reporting and technology and analytics offerings.

Our specialized funds revenue was down slightly from the prior year-to-date due to significant retroactive fees in the first half of last year from our latest Secondary Fund. As many of you are likely aware, investors, they come into later closes of the fund raised for many of our products, pay retroactive fees dating back to that fund's first close. Therefore, you typically see a spike in management fees related to that fund for the quarter in which subsequent closes occur. For the current period, we have retro fees of $800,000 from our coinvestment fund currently in the market.

The final component of our revenue is incentive fees. Incentive fees were up more than $11 million from the prior year period. The increase was driven by the recognition of carried interest from a customized separate account that included the GP catchup and one of our coinvestment funds in a cash carry position. Incentive fees for the second quarter were $2.6 million, which keeps us on pace for our fiscal year expectation, which is at the high end of our historical trend of 5% to 10% of overall revenue.

During the quarter, we also saw strong growth in our unrealized carry balance, which is up over 10% from the prior year, even as we recognized over $60 million of incentive fees between periods. This was driven by growth in our existing carry positions as well as the continued diversification of our carried dollars, which are spread across over 50 investment vehicles and thousands of underlying investments.

Turning to Slide 10, which profiles our earnings. Our fee-related earnings year-to-date were flat versus the prior year period as a result of the retroactive fees we discussed earlier.

In regards to our expenses, total expenses increased compared with the prior year period, driven by incentive fee compensation and acquisition earnout expense. The earnout expense is related to our Real Assets acquisition last August and is based on the performance of that business for a 1-year period following the acquisition. Therefore, this will be the last quarter with earnout expense.

Total comp and benefits year-to-date were up $9.2 million compared to the prior year period due to a $4.3 million increase in incentive fee-related compensation and $4.7 million from the earnout.

G&A was up $5.9 million, driven by a $2.3 million uptick in consulting and professional fees, which included $1.1 million in fees related to Private Market Connect, our joint venture, formed in the prior year period as well as some fees related to a secondary offering in the period.

Wrapping up with our balance sheet on Slide 10. Our investments alongside clients and products, which is the largest part of our balance sheet, continue to grow, and we're up approximately 4% for the quarter, excluding the technology investments. This balance will continue to grow as capital raised grows and we invest alongside our clients.

In regards to our liabilities, our senior debt is our largest liability and we continue to be modestly levered at less than 1x LTM adjusted EBITDA. As Erik just noted, 2 of our technology investments on our balance sheet positively impacted results of this quarter. On the last 2 calls, we discussed the announcement of an acquisition of one of the technology investments on our balance sheet, Ipreo. This sale is reflected in our second quarter numbers with cash totaling $17.7 million received and a gain of $6.9 million recognized in the quarter.

In addition, we received cash proceeds of $4.8 million in the period from the sale of DealCloud, a deal flow and CRM software company, resulting in a $4.2 million gain in the quarter.

Moving to Slide 12. One final announcement this morning, our Board of Directors has authorized a program to repurchase up to $50 million or up to 6% of the outstanding shares of common stock of Hamilton Lane over a period of 12 months. The timing of purchases and the exact number of shares to be purchased will depend on market conditions. The company intends to finance the purchases using available working capital and/or debt resources.

Let me say this clearly, while we are cognizant of our long-term desire to continue to build our shareholder base and expand our presence as a public company, to the extent we believe that the market price of our stock does not reflect its value, we will act accordingly.

We are long-term believers in our business, and we are long-term supporters and advisers to our clients. As such, we're very enthusiastic about the long-term value we can build for all of our stakeholders.

With that, I will turn this over to your questions. Thank you.

(Operator Instructions) Your first question comes from Ken Worthington with JPMorgan.

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

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

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

Sure, Kenneth. It's Erik. Let me take those in pieces. So with regards to Abraaj Fund VI, as you've seen broadly reported in the press, the fund manager released the commitments, rescinded the commitments to that from investors. Our exposure to that was broken into 2 categories as you'd expect, both discretionary and advisory: 4 clients on discretionary side, 3 clients on the advisory side that we help them do the work, although as you know, in that world, they, in turn, do their own diligence and make their own decision. So 7 entities, totaling $520 million, $370 million from advisory, $150 million from discretionary. But again, as noted, those capital commitments at this point have been rescinded by the GP and that fund -- that fundraising ended as a result of that. I think, as to your second point, I wouldn't categorize, I think, anytime when there's a manager who is troubled, certainly everyone is upset by that. So I think from the clients' standpoint, they're extremely focused on the situation. They're very keenly aware of the situation. And all of us are anxious to see the situation resolved as quickly as possible and making sure those assets are moving into appropriate responsible hands. That's the focus, that's been the focus, that will remain the focus until that issue is resolved. And I think that is really where the clients' heads are today is making sure that we and they are doing everything possible to ensure that happens.

Your next question from Michael Cyprys with Morgan Stanley.

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

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

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

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

Your next question comes from Robert Lee with KBW.

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

Rob, it's Mario. I'd say a combo of things on that. We did experience a decline in the '08, '09 time frame, and as you've seen from our financial results, the impact was fairly muted and we grew coming out of that. And I think it reflects a couple of things. There is no question that the denominator effect is real, and if you have a lower denominator, you're going to be investing less because your allocation target is reduced. However, one of the big factors driving the demand in private markets is that people are expanding what is private market. So as I mentioned before, private credit becomes part of it, real assets. I think that what people have not finished doing in any way is shifting their allocation from, and you know this better than I do, they put a big chunk of their portfolio in passive publics and an increasingly large part of their portfolio in the illiquids and that helps, whether it's private equity or credit or real assets. So I think there's that factor. The other factor, I think that you are beginning to see is people are not chasing their allocation targets today. They're being fairly disciplined about not doubling their commitment level to reach an allocation target with the very clear understanding that they will continue to invest as markets move down. I think that was one of the big lessons from both '01 and from '08. So as we look at that, I think the general market weakness has not translated into people continuing to invest or new entrants coming in. In fact, we've said this on prior calls, if you told us the markets were going to go down for the next year, I think that it would be a very interesting environment for a lot of private investors to get better valuation. So I'm not at all pretending that it would have no impact, but I think that the impact would not be very dramatic at all and these other factors would drive some of the demand up.

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

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

Your next question comes from Alex Blostein with Goldman Sachs.

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

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

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

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

Your next question comes from Chris Harris with Wells Fargo.

On Abraaj, you're drawing a -- an important distinction here between the holding company and the funds. As far as you guys know, I know there are still audits going on, but are there any -- as far as you know, are all the fund assets there at this point?

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

Okay, appreciate that. And then if there end up being some losses tied to Abraaj, is there any risk involving potential reimbursements to clients from that?

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

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

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

This concludes today's conference call. You may now disconnect.