Hamilton Lane Incorporated (HLNE) Earnings Call Transcript & Summary

Okay. For important disclosures, please see the Morgan Stanley research disclosure website at morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. Good afternoon, everyone. I'm Mike Cyprys, equity analyst covering brokers, asset managers and exchanges from Morgan Stanley Research. And it's my pleasure to welcome Erik Hirsch, Vice Chairman and Head of Strategic Initiatives at Hamilton Lane. As many of you know, Hamilton Lane is a global asset manager focused on the private markets with $106 billion of client assets under management and nearly $800 billion of client assets under supervision for which they exercise influence. Erik, welcome. Thanks for joining us.

Thanks Mike. Nice to be here in person.

Indeed. So why don't we start off on the fundraising topic. It's gotten a lot of attention here at this topic, at this conference. We've heard many of the alts and the space talk about a more challenging backdrop for fundraising given crowding and the denominator effect. Maybe you could tell us about your take on that? And what do you see the implications for Hamilton Lane?

Sure. I mean I think you'd always rather be in a market where there's more money than less money. But I think the crowding issue, this is where Hamilton Lane sits in the private market ecosystem, but we're not a GP. And I think that's a -- sometimes that gets a little bit lost in the nuance of it. That's not a nuanced distinction. We're fundamentally a very different business model. And so if you think about our customized separate accounts, which, as you know, is a huge part of our AUM, that is where the money enters the ecosystem. The client decides, I want to be in the asset class or not. And if they do, they give us capital for the separate account. And then we, in turn, decide which of the fund managers are going to be recipients of that capital. So we're kind of up a level, if you will, around capital allocation. And the market is crowded. But for us, who's in the business of helping people navigate complexity. More complexity actually makes the value proposition higher. Having clients overwhelmed by trying to do it themselves and us saying, we can do it for you. That's part of the story. So on some levels, more choice is better. It's better for the clients and for someone who has to get paid to navigate the choice, it's better for us.

So fewer dollars relative is worse than more dollars, but you guys sit in a different place, different industry and so you think you can navigate through that?

I do. Also I think you're in a situation here where being a capital allocator, the CIO of a pension, for example, you're trying to make sure you hit your return target. And as you're looking at your asset allocation model and as public market returns are dropping precipitously, your asset allocation model is going to keep tilting you back towards a higher returning asset class in order to hit that return target. We are the higher returning asset class. And so that asset allocation model is going to dial you more towards us. So you could see a world where the denominator is smaller, but the numerator actually grows because you could see allocations rising. I think it's early. People are not making decisions based on a really rough 5 months because these are huge ships that they're trying to steer and navigate. So we're going to need to see this play out over a longer time period before you're going to start to see people take radically different portfolio construction choices.

Yes. When we look at your stock, it's as if the market is pricing in a massive deceleration in growth relative to what you've put up over the past 5-plus years, if we look back, I think it's maybe been oscillated in a narrow range of maybe 8% to 11%, 12%, 13%. So high single, low teens organic growth. How would you say your outlook around the achievability of what you've delivered historically? Looking forward how has that evolved? Are you as confident in that as you are 12, 24, 36 months ago?

Well, we just came off of a very strong quarter, and we got asked the question about this, the pipeline was, what's in the -- the queue feel any different? And we said, no, it feels still very strong. But I also think sitting here today, I think it's -- it would be naive, given all the external things that are going on to say, I think we'll be immune from everything. I think there's just a lot of unknowns today. All I can do is look at what have we just done? Really good quarter. What are we sort of poised to do near-term based on the pipeline and what's happening? Things look -- continue to look very strong. And so based on that, I think our outlook remains very positive.

So that sort of high singles, low teens still achievable over the next couple of years on an annualized basis?

We've been in business for over 30 years. We've done that level of growth consistently over our 30-year history. And we've done that through '08 or through 2000 or other time periods that have been very, very choppy. And I think, again, I go back to you part of it's the nature of the business being a little bit different than being a GP and where those capital allocation decisions get made.

And with the dollars coming in the door and as you kind of look out, I guess, what strategies or parts of the industry could fare better in terms of capital being allocated to within the private markets?

Our client base is so diversified that they're all looking for something different. It's not one size fits all. I mean, in a rising yield environment, you could actually say, well, that's going to be better for private credit because those yields will be even higher. On the same time, that actually -- if you're getting better attractive yields or more attractive yields than you have historically on the public side, maybe that's a hedge. So I don't think this is a sector issue. I think this is a more fundamental, does the asset class help you solve the problems that you are trying to solve for your particular organization.

How do you think about extending the platform just in terms of the breadth, the reach of the platform to sort of enhance the ability to drive growth?

I mean, I think the big intention for us has been kind of the addition of a significant focus in the retail space. I know that's topic du jour. But we entered that space basically 2.5 years ago. We've got a platform today that's $2.5 billion. The growth has been strong. We had said on the earnings call that we're bringing in inflows on average about $135 million a month. And so I think having sort of just started that a couple of years ago and sort of get that to where it is, look at the new hires we've added, the acquisition we did. I think that's clearly a space where we are trying to lean in. That feels like a big growth engine for us.

And that is an area we'll come back to in just a moment on retail, I do think that's important. But when we think about your firm, I think what's a little bit different is you're a solution provider. I think sometimes maybe people are maybe not as familiar with your business model and that you're investing client money with third-party managers. So what is it that drives clients of yours to firm like Hamilton Lane instead of going direct to the GPs? What is most compelling? Can you talk about the value proposition? And how do you keep enhancing that?

Yes. I mean, the short answer is they just -- the vast, vast, vast majority are not equipped to do it themselves. We are a firm today of over 550 people, 20 offices around the globe. Last year we looked at over 1,100 fund offerings. It takes a huge resource. It takes a lot of technology. It takes a global breadth. If you're a corporate pension fund or a public pension fund or a sovereign wealth fund, you're not in the business of putting offices in 20 places around the world. And while firms like Blackstone or Apollo are not hard to find, clearly, our value proposition is not simply identifying those. That would be a very bad value proposition. So the reality is that of the 1,000-plus fund managers we're going to see, no one in this room has heard of 950 of them. You've heard of a small number of them that are the big household names. But for the clients, a big part of what drives their performance and their portfolio are the other 950, and not only sourcing those, but vetting them and deciding which ones are appropriate for the client's account is a big part of the value proposition. So if we see over 1,000 funds a year, typical client only does 10. So finding, vetting, securing access and then negotiating terms where we're actually driving lower fees because we're providing scale to the fund manager, and we get benefit from that, passing all of that back to the customer, doing the legal work, doing all the back-office work, we're really providing it all. So it is an outsourced solution. If the client wants to be involved in the decision-making, fine, they can join for that. But we are essentially an extension of staff, and that's very hard, if not impossible, for most of them to replicate.

And how do you see that value proposition evolving as you look out over the next 10 years in that space? What's going to be different? What do you have to do differently to deliver for your clients relative to 10 or 20 years ago?

Part of it is the complexity is increasing. So 10 or 20 years ago, we were navigating much smaller universe and a much more simplistic universe. So the complexity alone, I think, enhances the value proposition. If you look at the technology and tools that we are arming clients with to have better transparency, better speed of information, better ability to analyze results, better ability to integrate this asset class into the rest of their portfolio. All of that has gone up significantly. And I think you're going to continue to invest there to make sure that that goes there. But at the end of the day, our business fundamentally today is not radically different than it was 20 years ago. Sure, the tech is different, sure the firm is bigger, sure the firms are more global. But it's about treating the customer well, providing them access and information into a pretty murky complex asset class.

Great. Why don't we talk about retail? You guys have had a lot of success there with the private asset fund now over $2.5 billion of net assets. Can you talk about the product, why it's resonated with customers? And maybe just give us a little bit of a flavor of how the product works?

Sure. So we have basically 2 vehicles, one for U.S. investors and one for non. The majority of the assets today are in the non, but that vehicle also got started a year earlier due to regulatory pieces. The strategy, I think, why it's resonating is because it's a manager of manager in the sense that we are co-investing or purchasing secondaries. So there's no primary fund allocation. What does that mean? It means that we're taking in funds on a monthly basis and we are immediately deploying them into transactions. So we're managing cash drag and avoiding sitting on undeployed capital. It also means it's a fully invested vehicle. So if any one of you, and I would encourage all of you to buy it tomorrow, you come into a fully invested portfolio. There's no drawdowns. There's no capital calls. So you're getting instant exposure in a vehicle that has a monthly liquidity feature that is mark-to-market monthly. And in that one-stop shop, you're getting exposure to hundreds of companies across size and strategy and geography led by lots of different GPs. So it's a really nice diversified exposure to the industry, and it's both equity and credit.

And what sort of liquidity do you offer to the retail clients in this fund? And how do you manage around that?

So the liquidity is modest, so it's relatively easy to manage around. It's basically a 5% of net asset value on a quarterly basis. So any individual person who wants to redeem will have no problem getting out. But to the extent that there was a large desire for liquidity across the platform, that obviously has that 5% gate. We always have cash coming in because we're doing credit deals, so there could be coupon payments or there could be exits from secondary positions or something else, and we maintain lines of credit. So there's a dedicated portfolio construction team that's really responsible for managing inflows, outflows and making sure that we're staying incredibly cash efficient.

And we're seeing more managers bring these sort of evergreen products to the marketplace. How do you see this playing out from a competitive standpoint? How are you navigating around that? And what would you say is unique about yours? Maybe it's the lack of primary.

That's a huge difference. I mean I think a lot of the peers of ours that are trying to launch products have a lot of primary. And once you sort of head down the path of a lot of primary fund, by definition, you are entering a world where you can ever be fully invested because that primary fund, you're going to make a commitment, it's going to get drawn down over time. And so your ability to be cash efficient dwindles. And I think that alone is a -- it's just -- that's a big difference. I don't think that's a subtle difference. That's a huge difference.

And as you're building out the retail distribution, getting on the wealth platforms, I guess, what challenges do you face along the way? How do you think about overcoming them?

Well, I think brand is a big deal in that space. And while we'd like to think we're a household name, we recognize that we're clearly not, unfortunately. And so we also don't have a 500-person sales army. We're a 550-person firm in total. So I think the angle that we've been utilizing is partnering, and we've been partnering with technology. So if you look at our investments recently, we do a lot of strategic investing in technology firms off balance sheet. And if you look at the most recent, iCapital, very clearly going after the space, clear market leader. Among the solution providers, we're the only shareholder. TIFIN, another, we think, real winner in that wealth management space. Again, we're uniquely there alone. And we're the first firm to make a move into digitized tokenization of fund offerings, and we have both invested in and partnered with a company in Singapore that runs a digital exchange called ADDX, A-D-D-X, again, where we're a shareholder and strategic partner. So I think those partnerships and capital alignment, I think, are a big differentiator for us. And we think that they can help kind of expand our brand by leveraging off of their platforms and getting the benefit of that. So go one step deeper, iCapital. If you're using it as a financial adviser, RIA, one of the things they have aside from access to product and the sort of the systematized infrastructure around that, it's education modules. Most FAs and RIAs are not experts at private markets. Most of them have quite very little experience in that industry. And so if they're going to try to do their job well, they're going to want to be smarter for their customer, and there's a lot of educational modules available on that platform. Who are those education modules provided by? Us. And they're branded Hamilton Lane. So it's a chance for us to get a lot of eyeballs on our logo and on our content. And we think that, again, that's just a great way for us to help penetrate into that channel.

As you're thinking about expanding the number of platforms that you're on, how do you think about the risk of too much success, right? I mean clearly, $2.5 billion, you're one of the larger ones that's already out there. If you get on to some of the larger platforms, you could have $500 million, $1 billion coming at you in a short period of time. How do you deploy that and have the confidence to play that quickly enough? And how do you navigate around that?

Yes. I know it's a cliche, but I think it's -- there's never been a truer version. This is a marathon, not a sprint. I think the last thing you want when building this kind of a business is to have some ridiculous month because all of a sudden, you're like, "Oh, my god, like we got to do 12 more deals than we originally had thought." So I think you want to align with platforms that understand that and that there's good dialogue back and forth as to kind of what's happening and how the month is building so that we can match that with transactions that are sitting there. Again, this is why co-investing is a big advantage. If you had to manufacture the deal from whole cloth, and I said to you, quick, Mike, you got to buy a company in 2 weeks, get going, it doesn't really work. Having a huge pipe of deals that are kind of at our disposal makes that much more doable. So I think it's transparency. I think it's communication. I think it's having the right partners. But I think it's building into this over time.

Do you have the ability to kind of turn off the spigots from those retail platforms if you have a drought of investment opportunities or how flexible is that?

I think that's -- this is why these -- like the partnership matters.

So they understand.

You want to make sure because they don't want -- the clients have -- like one thing we're all aligned on is everyone wants to the client to have a really good experience because if they don't, they hate us, and they hate their financial adviser who put them in it. So I think the alignment there is pretty clear as to let's make sure we're all doing this in a thoughtful way.

And are there other platforms out there that maybe have a different perspective on that in the marketplace that maybe would be less inclined to turning the spigots off?

I don't know. I mean I think what I know is we're very upfront in talking to people about how to build this. I think we're also happy to look at others and learn from them. Partners Group was a good example of someone who I think also ran the marathon quite well, not the sprint, launched their platform in kind of circa 2008-ish, today $30-plus billion of assets in this. And I know they've changed sort of shapes and stripes over the years. But there was a method. And if you sort of just drew that chart of that asset growth, it was a very smooth and up into the right chart. And I think we look at that as -- that's a good example of how to do this in a way that makes sense for the long-term and to scale significantly.

Staying with the retail team. About 2 years ago you guys acquired 361 Capital that added a lot of retail distribution capabilities for you. So how is that playing out relative to expectations at the time you announced the deal? Maybe you could talk a little bit about what was unique there with what 361 brought to the table?

Yes. I think it's played, I mean, they are the preponderance of our U.S. distribution force for this platform. So the flows are largely the result of that team, who is now completely integrated. The person who runs that team is kind of co-heading our retail efforts. So it's been a really successful acquisition. I think from a deal perspective, it made sense because we thought it was the right team. We thought it was a great cultural fit. Again, we're in the business. We don't do a lot of acquisitions, but when we do, we fully integrate. So we don't have minority subsidiaries. It's a complete integration and making sure that we're driving efficiencies. They also were big believers in technology and had built some interesting technology-enabled tools off of kind of CRM platforms. And that, for us, resonates with what we like to do. And so it was a team that we sort of thought punched above their weight, if you will, because they were leveraging technology. So it was easy for them to kind of get on board with what we were doing in vice versa. And so that's all been good.

So you have a more fulsome distribution team now on the retail side, I guess.

The team also paid for themselves because they had a couple of existing products. And so, again, we're finance people, so just from a deal doing perspective, it was a way to bring on a large team without having a big kind of cost hit because there was a revenue there to offset the expenses.

Right. But how do you think about complementing your private asset funnel with other strategies? How do you think about the opportunity, the white space and how might you approach that?

So I mean, our first foray, because we thought it made most sense for our brand and position was to have a product that was very wide by definition. It can be equity, it can be credit, it can be across any strategy, in any geography. I think since that's where we started, the next logical sequence is to go more narrow. So now it's the -- well, if you want a credit overlay or if you want an infrastructure or whatever that might be, I think it will be over time introducing more specific flavors because we already offer kind of the widest version of it to begin with.

Great. Why don't we shift and talk about data. It's one of the largest investors in the private markets for many years. You have amassed an impressive proprietary data set. So how are you expanding that data set? What insights have you gleaned on the private market trends given the current macro backdrop?

Sure. I mean we have, as you said, a massive database that is both funds and their performance, but also has looked through into their underlying companies and their holdings there. And so one of the signature things we've done with that is our annual market overview. And we talked about that on the last earnings call of that product, if you will, which is really us kind of aggregating that data, providing interesting insights and analysis and sharing that was shared with a record number of people last year, over 1,000 viewers of that. That is brand enhancing, that is market building that is all of those things. And so it's an indirect monetization of that. Tying it back to the retail space. The retail space is very undereducated about our industry and our asset class. I think we've become a much more attractive partner because we can provide education, transparency and get people more comfortable with something that here too for us has been very opaque. So that's what we're doing. Direct monetization of that is being done through technology. As you know, we acquired a couple of years ago a platform called Cobalt. If you look at this last quarter, last couple of quarters, one of the things you've seen is our AUA. Revenue has been sort of rising, perhaps more than some people thought. I would say that's been largely driven by us doing a better job of combining back-office services with the Cobalt technology overlay and kind of getting a better rhythm and cadence as to how we sell that. But the Cobalt is a SaaS offering, very traditional, that is very much powered by proprietary Hamilton Lane data. So it's direct and it's direct monetization.

Great. Speaking of data information on the industry. Just be curious your concerns around any sort of industry, broader industry risk here. We've been getting some questions come up around risk in the private market, whether it's with respect to venture capital or growth where valuations maybe have been a bit high. Public market valuations have come in a lot on the more growthier tech names, some questions around, concerns around leverage in the private markets? Is there a systemic risk? So what are your thoughts on those sort of risks? What are you watching?

So we're watching all of it. I would say, in the public market, what has driven this from my feet, again, recognize you all are the public market experts. But big tech has been driving most of this. Our industry has virtually no exposure to big tech. So if I look across our portfolios and look at the fundamentals, I don't see leverage issues. I see coverage ratio is actually quite strong. I see margins very strong. I see revenues continuing to be strong. I think the question is what happens to the consumer. So downdraft in big tech has been substantial. The downdraft in the public markets has been substantial. Mike, as you know well, you look at the first quarter marks from the GPs, they were not down like the public markets were down. The companies were performing fundamentally fine. I think this is a question of what happens with the consumer. So are we heading into a recession? I don't know. Is consumer spending and erratically change. There's certainly some indication at lower income levels that starting to change, but that's not permeating up past kind of middle class and upper middle class. So you're seeing a lot of data that says there's still a lot of cash in households. Their saving rates are still pretty good. So I think our industry is more watching what's happening to spending and what's happening to fundamental economics, and we're spending a lot less time looking at what's happening to the stock market.

Great. Why don't we shift and talk about some of the technology investments that you guys have made strategic technology investments in the private market-oriented tech companies or some of them are on your balance sheet. So maybe just update us on the investments that you have, how many are on the balance sheet today? And how do they sort of tie into the business strategy?

Yes. I mean the strategy is when we start kind of big picture, the strategy has been pretty simple. We talked about kind of trying to use them to get leverage. But we're also trying to use them to make us better. And our view is, as others use them, they'll also become better as they become better, the industry becomes better and as the industry becomes better, the industry becomes bigger. And if the industry is bigger, we'll be a beneficiary of that. So we've done a wide variety of things ranging from analytics to portfolio construction, to an interesting business that's still on balance sheet called Canoe, where Blackstone and Carlyle just -- we have been in there for a while. They just joined us more recently as a shareholder. That is a massive ingestion technology of unstructured data. Our industry is awash in unstructured data because none of the GPs like to do anything alike. They all want to do it their own special way, including things like capital calls where that would be better to standardize, but they don't do it. So ingesting unstructured data is a big deal. The more recent deals we had just sort of talked about, a lot of focus on wealth management and leveraging into that platform. I think the deal that's getting some of the most press is we joined with a really interesting consortium of investors to create a brand-new company from whole cloth that we own a large portion of called Novata, N-o-v-a-t-a, .com. They're positioning themselves to try to be the leader in the collection and dissemination of private company ESG data metrics. So I think what we've looked at is the public market has probably not done in our humble opinion, the best job of ESG been a little bit of a mess. And the private markets haven't really tackled it at all and need to deal with it. And the place that we think we should start is fundamentally having a neutral entity collecting data. So along with management and Hamilton Lane, the other big shareholders are S&P Global and the Ford Foundation, along with the founder of eBay Pierre Omidyar, Omidyar, who's got his family foundation. He's been focusing a lot of his capital on ESG and ESG improvement. And so we're the anchor shareholders, the company is live up and running and back to the sort of benefit having our name associated with what is quickly becoming a very important tool that's being used by portfolio companies to flow ESG data to the GP and then on to the LP and having us on the board and a big shareholder of that great brand enhancement for us. But again, it's back to this kind of double benefit of make us better, make the industry better, hopefully, make some money along the way.

Great. Why don't we shift and talk about tokenization? You recently announced a partnership with ADDX, Singapore-based private market exchange to offer a tokenized version of your private asset funds. So can you just talk a little bit about the partnership, how it came about? And how does this product work?

Sure. I think -- who here has invested in a private fund, anybody? Like, yes, painful, horrible. And so when you describe the process to a retail investor of what institutional investors have gone through for 40 years, the institutions have gone through it for 40 years, and they're very used to it. When the retail investor sees it for the first time, they look at us like we're in the end results, and they say, "I cannot believe this process is this painful. Every time it's an AML, KYC check and every time it's new subdocs and every time you got to go hire 16 new lawyers. I think over time, I'm not sitting here predicting this is all occurring tomorrow, but I think you got to start somewhere. Digitizing assets and having a digital passport that knows who you are as the buyer, to allow you to transact in a closed environment as a known entity and having to eliminate the legal complexities and having a digital token that you can then trade, sell and move across a blockchain-enabled infrastructure, I think, sounds like a way better process than what we're doing today. It's not only -- it's, I think, rare in our industry where it's win-win. It's usually good for the GP and then bad for the LP. And if it's good for the LP, usually, the GPs don't do it. Here this is actually a case where it's good for both. It's way cheaper. So as a GP, you'll like that. And from an LP perspective, it's way less, it's way more efficient and less painful to go through that process. If you're a big institutional investor, think about how many times you have to go through KYC, AML stuff, it's been saying, why wouldn't you just do that once, have your ID registered blockchain token and then be able to transact. It's a way better place to be. So again, I think that's the future. I think it will take time, but that's what we're doing. We're going to be one of the leaders of we're tokenizing a fund. ADDX is a registered Singapore restricted. And if you look at other big shareholders are, it's mostly big Asian banks who understand that this is probably the world -- where the world is going. And Singapore is a economy has embraced this. They want to be a market leader. And so we're starting. We're starting both as an investor in the company, so we're going to see how their exchange develops. And that is also allowing us to be a key strategic partner to start putting some of our product on that platform and learning lessons from that and seeing how this develops.

And how is that operating today on this platform relative to that vision that you outlined?

Well, it operates exactly as I described it. It just operates with a very small number of users. So it's working. I mean you can open up ADDX today, go through the online registration process, attach your account to it and you can click a button and you can buy the Hamilton Lane international sleeve of our Evergreen product.

How do you think about bringing that to the rest of the world? What's that path look like?

Yes. I mean one is regulatory. So part of it is, is the U.S., is the FCC going to allow there to be digital exchanges of assets and what kinds of assets and in what environment and what structure. But I think the Singaporean government who is putting a lot of weight behind this is trying to show people that there's ways to do this. And I'm back to the simple of, you got to start somewhere. So this was a place to start.

How do you see this developing and coming to the U.S.? Is it just you kind of have some experience and success in Asia and kind of bring it to the U.S. Would you guys be going direct to the SEC and requesting approval or partnering with someone in the U.S.?

As soon as this announcement got made, our phone was ringing of either people who wanting us to come help them figure out how to do this or people looking to create an exchange or people who want us to have dialogue with people that exchanges. I think part of just being on the front of this technology piece, whatever it is, I think it just means that we've -- we're in the dialogue. We're kind of at the table because we're seen as somebody who understands this. I mean, what I'm just describing to you for 99.9% of our industry, it sounds like I'm talking a foreign language because they haven't even thought about this. They don't -- it's not on their radar at all. So I think just being early and just being more aggressive around that just kind of gets us in a better spot at the table.

And if you kind of play out this vision, 5, 10 years, let's say, it comes to the U.S., it goes to Europe as well. What implications does that have for the asset class? Does it impact returns? Does it impact how the GPs and LPs operate other than just ease of accessing the fund, but then does that change your value proposition and change the…

I mean it could impact all of those things. I think we're also trying to make sure our business is setup for generations. And if you look at people who are teenagers today and you want them to be your customer by the time they actually have some assets and that they're ready to start investing, they will have lived their entire life by buying everything by clicking a button. And the notion that as an industry, we're not going to change, so now when they're 50 and it's time to start buying, we go, "Oh, wait, here's a 1,000 pages of subdocs and you have to go hire a lawyer." They're going to not do that. So if you don't embrace, I think, where the generations are moving towards and what we're all getting accustomed to, I think you just run the risk of becoming a little bit obsolete. I think the industry needs to do this so that we're not viewed as more of a dinosaur than we already are. That to me is like, this is kind of keeping you in the game.

Why don't we see if there's any questions in the room? We have about 1.5 minutes left. Any questions from anybody? Question right up here in the front.

Shout it or you can use the microphone.

You mentioned at the beginning that we're repricing assets in public markets, it might take more time for LPs to change allocation decisions. It does feel like a lot of the tailwind to alternatives as the class has been because of a lack of return in more liquid or publicly observable instruments. What does that process look like? What is the time line by which, is there a world in which we see LPs maybe start to rotate back in the other direction, investment-grade yields 5.5% now? That's new.

It is. I mean I think it's a good question. I think part of this is people are going to need to be convinced that this is sustainable or sustained. I mean right now, we're all of a sudden seeing very fast rate hikes in reaction to solving a problem. If that problem gets solved, are we still keeping yields at, to your point, 5.5%? I don't know. But I think the capital allocators are going to be cautious to not be overly reactionary. And at the end of the day, most of them are still investing in equities, not credit. The vast majority of the industry's flows are 2 equities, and they're going to be pegging that off of what they do now, which is a public market equivalent benchmark. And so this is going to become a game of what asset class, listed equities, private equities, do they think are going to help them get to their return target and to hit their objectives. But if we're in a world where liquid credit is at a substantially higher level and if private credit doesn't move up commensurately because if liquid is at 5 and if private is at 12, they're going to still go to the 12. I mean, that's what drove them there in the first place. It was liquid was at 1 or 2 and private was at 6, and they went for private. So it's going to be a question of relative movement, I think, not absolute movement.

I'm afraid we'll have to leave it there.

Okay.

Thank you so much for your time.