Hamilton Lane (HLNE) risk factors, FY2025 10-K

Risks Related to Our Business

1. 01The 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
2. 02The success of our business depends on the identification and availability of suitable investment opportunities for our clients
3. 03Competition for access to investment funds and other investments we make for our clients is intense
4. 04Customized separate account and advisory account fee revenue is not a long-term contracted source of revenue and is subject to intense competition
5. 05Our failure to deal appropriately with conflicts of interest could damage our reputation and materially and adversely affect our business
6. 06We 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
7. 07Our ability to retain our senior management team and attract additional qualified investment professionals is critical to our success
8. 08may do so in the future. While we cannot predict the impact that the departure of any single senior managing director will have on our ability to achieve our investment objectives, any change to our senior management team could materially and adversely affect our business, financial condition and results of operations
9. 09We intend to expand our business and may formulate new business strategies or enter into new geographic markets or strategic partnerships, which may result in additional risks and uncertainties in our business
10. 10A decline in the pace or size of fundraising or investments made by us on behalf of our specialized funds or customized separate accounts may adversely affect our revenues
11. 11Our indebtedness may expose us to substantial risks, and our cash balances are exposed to the credit risks of the financial institutions at which they are held
12. 12insurance coverage of $250,000 per depositor, and, as a result, there is a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage. In some cases, we have transferred uninsured cash balances to money market mutual funds
13. 13We may be unable to remain in compliance with the financial or other covenants contained in our Loan Agreements and the Note Purchase Agreement
14. 14Defaults by clients and third-party investors in certain of our specialized funds and customized separate accounts could adversely affect that fund’s operations and performance
15. 15Our 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 adversely affect our business
16. 16Misconduct by our employees, advisors or third-party service providers could harm us by impairing our ability to attract and retain clients and subjecting us to significant legal liability and reputational harm
17. 17The timing at which we receive distributions of carried interest, an element of our revenues, can be sporadic and unpredictable, which may make it difficult for us to achieve steady earnings growth on a quarterly basis and may cause the price of our Class A common stock to decline
18. 18The exercise of redemption or repurchase rights by investors in our evergreen funds may adversely affect our revenues
19. 19Valuation methodologies for certain assets in our specialized funds and customized separate accounts can be highly 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
20. 20Our 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
21. 21We may pursue investment opportunities that involve business, regulatory, legal or other complexities
22. 22Our specialized funds and customized separate accounts may face risks relating to undiversified investments
23. 23Our specialized funds and customized separate accounts make investments in funds and companies that we do not control
24. 24Investments by our specialized funds, customized separate accounts and advisory accounts may in many cases rank junior to investments made by other investors
25. 25The substantial growth of our business in recent years may be difficult to sustain, and it may place significant demands on our resources and employees and will increase our expenses
26. 26hybrid and remote/office work, our ability to compete successfully and achieve our business objectives could be impaired, which could negatively impact our business, financial condition and results of operations
27. 27We 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
28. 28Our risk management strategies and procedures may leave us exposed to unidentified or unanticipated risks
29. 29The due diligence process that we undertake in connection with investments may not reveal all facts that may be relevant in connection with an investment
30. 30Restrictions on our ability to collect and analyze data regarding our clients’ investments could adversely affect our business
31. 31Operational risks may disrupt our business, damage our reputation, result in financial losses or limit our growth
32. 32Failure to maintain the security of our information technology networks, or those of our third-party service providers, or data security breaches could harm our reputation and have a material adverse effect on our results of operations, financial condition and cash flow
33. 33Rapidly developing and changing data security and privacy laws and regulations could increase compliance costs and subject us to enforcement risks and reputational damage
34. 34Technological developments in artificial intelligence could disrupt the markets in which we operate and subject us to increased competition, legal and regulatory risks and compliance costs
35. 35Our failure or inability to obtain, maintain, protect and enforce our trademarks, service marks, trade names and other intellectual property rights could adversely affect our business, including the value of our brands
36. 36We may face damage to our professional reputation and legal liability if our services are not regarded as satisfactory or for other reasons
37. 37Our international operations are subject to certain risks, which may affect our revenue
38. 38We may communicate certain initiatives, commitments and goals regarding environmental, diversity and other ESG-related matters in our SEC filings or in other public disclosures by us or our specialized funds, which could subject us to scrutiny
39. 39The occurrence of a pandemic or global health crisis like the COVID-19 pandemic could adversely impact our business, financial condition, results of operations, liquidity and prospects materially and exacerbate many of the other risks discussed in this Form 10-K

Risks Related to Our Industry

1. 40The investment management business is intensely competitive
2. 41Difficult or volatile market, economic and geopolitical conditions can adversely affect our business and the investments made by our specialized funds, customized separate accounts and advisory accounts in many ways, each of which could materially reduce our revenue, earnings and cash flow
3. 42Extensive government regulation, compliance failures and changes in law or regulation could adversely affect us
4. 43and the Exchange Act. Any change in such regulation or oversight may have a material adverse impact on our operating results
5. 44Federal, state and foreign anti-corruption and sanctions laws create the potential for significant liabilities and penalties and reputational harm
6. 45Regulation of investment advisors outside the United States could adversely affect our ability to operate our business
7. 46We are subject to increasing scrutiny and shifting demands with respect to ESG matters from our investors, regulators and other stakeholders
8. 47make strategic choices around our priorities. There is no guarantee we will be successful in our choices
9. 48Climate change and associated regulations, and transitional and physical risks, could adversely affect our business and the operations of portfolio companies in which our specialized funds and customized separate accounts invest

Risks Related to Our Organizational Structure

1. 49Our only material asset is our interest in HLA, and we are accordingly dependent upon distributions from HLA to pay dividends, taxes and other expenses
2. 50The IRS might challenge the tax basis step-up we received in connection with our IPO and the related transactions and in connection with subsequent acquisitions of membership units in HLA
3. 51We are required to pay over to legacy 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, and the amount of those payments could be substantial
4. 52being specially allocated to us for tax purposes in connection with dispositions by HLA of certain investment assets. HLI will retain the benefit of the remaining 15% of these tax savings
5. 53In certain circumstances, payments under the tax receivable agreement may be accelerated and/or significantly exceed the actual tax benefits we realize
6. 54In certain circumstances, HLA is required to make distributions to us and the direct and indirect owners of HLA, and the distributions that HLA will be required to make may be substantial
7. 55Because many members of our senior management team hold their economic interest in HLA through other entities, conflicts of interest may arise between them and holders of shares of our Class A common stock or us
8. 56The disparity in the voting rights among the classes of our common stock and limited ability 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
9. 57Our share price may decline due to the large number of shares eligible for future sale and for exchange
10. 58The approximately 12.7 million 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 will be eligible for resale from time to time, subject to certain exchange timing and volume and Securities Act restrictions
11. 59We expect to continue to 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
12. 60Anti-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
13. 61The provision of our certificate of incorporation requiring exclusive venue in the Court of Chancery in the State of Delaware or in the federal district courts of the United States of America for certain types of lawsuits may have the effect of discouraging lawsuits against our directors and officers
14. 62If Hamilton Lane Incorporated were deemed an “investment company” under the Investment Company Act 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
15. 63A change of control of our Company, including the occurrence of a “Sunset,” could result in an assignment of our investment advisory agreements