Hamilton Lane Incorporated (HLNE) Q3 2021 Earnings Call Transcript

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Hamilton Lane Incorporated (HLNE -0.13%)
Q3 2021 Earnings Call
Feb 2, 2021, 11:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by and welcome to today's Hamilton Lane Incorporated Third Quarter Fiscal Year 2021 Earnings Conference Call. At this time all participant lines are in a listen-only mode. [Operator Instructions]

I would now like to hand the conference over to your host, John Oh, Investor Relations Manager. Thank you. Please go ahead, sir.

John Oh -- Vice President Investor Relations

Thank you, Katrina. Good morning and welcome to the Hamilton Lane Q3 fiscal 2021 earnings call. Today I will be joined by Erik Hirsch Vice Chairman; Andrea Kramer, CEO of Hamilton Lane Alliance Holdings One; and Atul Varma, CFO.

Before I continue, you may notice that we have a smaller number of speakers today than normal. Unfortunately, this winter storm in the Northeast has resulted in some power and phone issues. With that, we hope that everyone who is currently affected by the weather is safely navigating the storm.

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

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

Beginning on Slide 3, year-to-date our management and advisory fee revenue grew by over 16%, while our fee related earnings grew by nearly 28% versus the prior year period. This translated into year-to-date GAAP EPS of $1.78 based on $58 million of GAAP net income and non-GAAP EPS of $1.78 based on $95 million of adjusted net income. We have also declared a dividend of $31.25 per share this quarter, which keeps us on track for the 13.6% increase over last fiscal year, equating to the targeted $1.25 per share for fiscal year 2021.

With that, I'll now turn the call over to Erik.

Erik R. Hirsch -- Vice Chairman

Thank you, John and good morning. In many ways 2020 was a year of incredible challenges, as a country, as communities, as families and as individuals, we have all seen and faced adversity in ways we simply could not have imagined a year ago. On behalf of Hamilton Lane and my partners, I'd like to offer my profound thanks to all of those helping to overcome these challenges, to protect us and to make our global community stronger.

Across the organization, our employees and their families have also faced challenges throughout this past year and continue to face them now. We are proud of how they persevere despite this and how they've been unwavering in their focus on delivering their very best to our clients. That dedication has again resulted in strong performance for the company and for our shareholders.

Over the past year, we have delivered strong growth opened new offices, hired talent across a number of strategic areas and introduced new product and services offerings. This is the result of not only our high-caliber employee base and their dedicated efforts, but it's also the result of a strong culture of support for each other and for those around us.

And before I turn to the results for the quarter, I'd like to take a moment to speak to how that culture has once again been recognized. For the ninth consecutive year, Hamilton Lane has been selected as a best place to work in money management by Pensions & Investments magazine.

We have won this distinction every year, since Pensions & Investments first began publishing the ranking in 2012. And we are only 1 of 5 organizations across the entirety of the money management landscape to have earned that distinction. We are extremely proud of this recognition and this current environment continues to remind us how essential good culture is to success.

Let me now turn to some results for the quarter. Beginning on Side 4, here we highlight our total asset footprint, which we define as the sum of our AUM, Assets Under Management and AUA Assets Under Advisement. Total asset footprint for the quarter stood at approximately $657 billion and represents a 35% increase to our footprint year-over-year, continuing our long-term growth trend. Consistent with prior quarters, AUM growth year-over-year which was $10 billion or 14%, came from both our specialized funds and customized separate accounts and continue to be diversified across client type, size of client and geographic region.

Our focus remains simply growing and winning across both lines of business and we are pleased with our ongoing success. As for our AUA, similar to what we've seen with our AUM growth year-over-year, which came in at approximately $159 billion or approximately 38%, was from across client type and geographic region. While the year-over-year AUA change is relatively large from a dollar and percentage standpoint, the majority of the increase is resulting from us being engaged on the fixed fee basis to provide back office and portfolio reporting services to a number of new clients with very large existing portfolios. As we've mentioned on prior calls, AUA can fluctuate quarter-to-quarter for a variety of reasons, but the revenue associated with AUA does not necessarily move-in lockstep with those changes, do in many cases, to the fixed fee nature of the business.

Moving on to Slide 5. We highlight our fee earning AUM. As a reminder, fee earning AUM is the combination of our customized separate accounts and our specialized funds with basis point driven management fees. We will continue to emphasize that this is the most significant driver of our business, as it makes up over 80% of our management and advisory fees. Relative to the prior year period, total fee earning AUM grew $3.4 billion or 9% stemming from positive fund flows across both our specialized funds and our customized separate accounts.

Taken separately, over $1.7 billion of net fee earning AUM came from our customized separate accounts and over the same time period, $1.6 billion came from our specialized funds. Growth in these two segments continues to be driven by 4 key components. One, reups from our existing clients; two, winning and adding new clients; three, growing our existing fund platforms; and four, raising new specialized funds. What you also see here that our fee rates continue to remain steady.

Moving to Slide 6. Fee earning AUM from our customized separate accounts stood at $25 billion growing over 7% in the past 12 months. We continue to see the growth coming across type, size and geographic location of the clients. What you also see here is that over the last 12 months more than 80% of the gross inflows into customized separate accounts, came from existing clients.

You've heard us say in the past that reups from our existing client base, remains a key component of the growth we've achieved in this segment of fee earning AUM. In addition to reups, we continue to expand our client base by winning and adding brand new relationships, which in turn provide a growing base for future reup opportunities.

Moving to our specialized funds, growth here continues to be strong. We are executing well across our existing product suite and are tactically introducing new product lines. Overall demand remains robust and like the rest of our business comes from a diverse set of investors around the globe. Over the past 12 months, we've achieved positive inflows of over $1.6 billion resulting in a 12% increase in fee earning AUM.

Turning to fund specific updates. I'll start with our current secondary fund, which continues to be the primary driver of growth in specialized fund fee earning AUM. As of January 31st, we have closed on over $3.7 billion of LP commitments. We are appreciative of all the investors who have entrusted capital to us and who have supported the growth of this platform. It is now the largest specialized fund we've ever raised.

In prior calls, we had previously mentioned that we had until the end of January to complete fundraising. However, in order to facilitate additional time for a very small number of final investors, we now expect to wrap up this fund in the coming weeks. As it relates to retro fees, similar to prior closes with this product, $575 million of LP commitments closed during this third fiscal quarter, which resulted in $7.2 million of retro fees. Subsequent to that, we closed on another $680 million of commitments on January 31st that will result in approximately $10 million of retro fees to be recognized in fiscal Q4.

Next, I will turn to our annual credit focus series. To date, the current series has raised $584 million of commitments. Similar to our secondary fund, we had previously said, we had until the end of January 2021 to complete raising capital, but again to accommodate those final investors coming into the series, we will actually hold the final close in the coming weeks.

For the benefit of those less familiar with this series, it is a relatively unique structure, whereby we are continually raising and deploying dollars simultaneously. Therefore it is less about targeting a set amount of dollars to raise, as you would traditionally see across funds with multi-year deployment period and more about ensuring that we size the product in line with the current opportunity set. This inevitably will lead to some size variability from series-to-series.

Let me now shift gears and speak about a few exciting updates on our semi-liquid evergreen business. As a quick background and for the benefit of those less familiar, this product targets the high net worth and mass affluent markets and invest almost exclusively in direct investments in both equity and credit as well as secondary's. The product offers a monthly liquidity option in an open-end evergreen structure with management fees on net asset value and a deal-by-deal performance fee.

Our first product launch in this space occurred in May of 2019 and was offered exclusively to international investors. We've continued to see interest rise and flows are strong. We posted our single largest monthly flow to date in January with over $60 million of monthly net flow. As of February 1, the fund now had a net asset value of approximately $660 million.

On a prior call, we spoke about our efforts in launching this type of product within the United States and I'm now pleased to report that we are up and running, as you may have seen with our press release announcement on January 7th. This marks an important milestone for this product and we are excited about the opportunity to offer US based qualified investors access to Hamilton Lane's global platform and unique deal flow.

Strong distribution and channel relationships are a key part of success in this space and I am also pleased to announce that we are bolstering our existing resources with an acquisition of 361 Capital. On January 28th, we announced that we plan to acquire 361 Capital with a closing expected this calendar quarter. 361 Capital was founded in 2001 with the focus on bringing actively managed alternative products to the retail space, through their strong relationships with RIAs and investment platforms around the country.

They're 16-person strong team, is based in Denver, Colorado and will remain there, furthering the Hamilton Lane geographic footprint. And aside from depth and experience in this space, 361 brings an award-winning culture. Like us, they were also recently recognized as a best places to work in money management, marking their 5th year in a row. We are excited to welcome the 361 team to Hamilton Lane and are excited about the prospects for our US retail vehicle.

And keeping with our new initiatives, as most of you now have may seen, we have recently launched our first SPAC. Hamilton Lane Alliance Holdings One, which trades on the NASDAQ under the symbol HLAHU. Joining me to provide some insights into what we believe is a unique angle in the world of SPACs, is my partner and the CEO of Hamilton Lane Alliance Holdings, Andrea Kramer.

Andrea Kramer -- Chief Executive Officer

Thank you, Eric and hello, everyone. I am excited to have the opportunity to share our thoughts around our stock offering and why we believe we are positioned for success. As with all new initiatives that Hamilton Lane, the goal is to always create long-standing business lines that have the ability to grow and scale. You will notice with this first SPAC, we have assigned the number one to it and that is purposeful as our goal is to raise additional SPACs in the future and create a new business line for Hamilton Lane.

We're HLAHU, we raised a total of $276 million of gross proceeds from a high-caliber group of investors. A number of whom are also core HLNE shareholders. We very much appreciate their support, along with the support of new investors. We view SPAC as a natural extension of our existing investment activities. Alongside our strong investment track record, we intend to bring to bear our access and deal flow via a lot -- a number of long-standing important relationships with private markets fund managers, which we believe will be vital when searching for a business combination.

Ultimately, we are seeking to partner with a reputable fund manager that owns a great company with a strong management team and is ready to begin the transition from private to public ownership. We believe our SPAC offers a compelling and elegant solution to assist in this transition. We've proven to be a great partner for fund managers and believe our SPAC will be a sought after avenue, as these managers seek to monetize their public ready assets.

Now as it relates to HLNE revenue, there are no management fees or carry associated with this SPAC in the traditional sense. The economics that Hamilton Lane will earn as the sponsor will generally take the form of promote shares and warrants and over time, we will look to monetize those shares subject to certain lock up restrictions. I'm excited to be leading this new initiative for Hamilton Lane and look forward to providing you with updates on our progress.

With that, I'll now turn it over to Atul to discuss the financial.

Atul Varma -- Chief Financial Officer

Great. Thank you, Andrea and good morning, everyone. Slide 8 of the presentation shows the year-to-date financial highlights for fiscal year 2021. We continue to see solid growth in our business with management and advisory fee, up 16% versus the prior year period. Our specialized funds revenue increased $20.4 million or 25% compared to the prior-year period, driven by $1.7 billion in fee earning AUM added from our latest secondary fund between periods. We recognized $10.8 million in retro fees from the secondary fund in the current year period compared to $2.8 million from the co-investment fund in the prior year period.

As many of you are likely aware, investors that come into later closers of the fundraise, for many of our products pay retroactive fees dating back to the fund first its close. Therefore you typically see a spike in management fees related to that fund, for the quarter in which subsequent closing occur.

Revenue from our customized separate accounts increased approximately $3.6 million compared to the prior year period, due to reups from existing clients and the addition of several new accounts. Revenue from our advisory and reporting offerings increased approximately $3.4 million compared to the prior year period. The final component of our revenue is incentive fee. Incentive fee for the year-to-date period were $29.8 million. We remain a very diversified carry story with now 70 vehicles in an unrealized carry position that are ultimately backed by a thousands of underlying companies.

Moving to Slide 9, we provide some additional detail on our unrealized carry balance. Given the continued positive trend in valuations, the balance is up 22% from the prior year. Even as we recognized $41 million of incentive fee during that period. And just to remind everyone, we don't control these positions and thus we don't control the timing effects there.

Turning to Slide 10, which profiles our earnings. Our year-to-date fee related earnings were up nearly 28% versus the prior year period and as a result of the revenue growth we discussed earlier. In regard to our expenses, total expenses increased $14.6 million compared with the prior year period. Total compensation and benefits increased by $22.3 million due to strong operating performance and an increase in head count. G&A decreased $7.8 million due primarily to decreases in travel expense, consulting, and professional fees and commissions.

Due to this decrease in G&A, along with the large increase in retro fees from our latest secondary fund, our fee related earnings margin increased meaningfully, relative to the prior year period. Given much of these positive events for more one-time in nature, we do not view this quarter's margin as a new normal. We remain committed to supporting growth initiatives for the business and we remain focused on creating continued margin improvement over time.

Let me take a moment here to remind everyone about the rent expense associated with the new headquarters move that we have spoken about during our prior calls. During this quarter, we have started to expense the rent associated with the new headquarters. As stated on prior calls, the expected impact to our G&A expense will be a run-rate increase of $45 million annually, stemming from the new lease.

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

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

Questions and Answers:

Operator

[Operator Instructions] First question, we have Ken Worthington from JPMorgan. Your line is open.

Ken Worthington -- JPMorgan -- Analyst

Hi. Good morning and thanks for taking my questions. Exciting days here. I wanted to flush out your comments on the SPAC. So a couple of questions on this. So how does the launch of the first SPAC expanded to a broader SPAC business at Hamilton Lane? And what ultimately is your vision here?

And then I guess maybe along those same lines. Can you speak to competitive advantage? How do your relationships in private markets investing positioned Hamilton Lane to be successful, both in terms of the initial SPAC and then the outlook to further grow this business. And then are you thinking about any change either by sector style or other characteristics for your SPAC business?

Andrea Kramer -- Chief Executive Officer

Thanks, Ken, for the question. This is Andreas speaking. On the first question, it is absolutely our intention to institutionalize this space and to build out a line of business, focused on providing these solutions to our partnerships. On your second question regarding differentiation and competitive nature. The key differentiation is our tremendous dataset, really layered with the tech which gives us a pre-emptive sourcing edge and long-cultivated relationships. And lastly, I would say, it's also the institutionalization of our platform, which will lead us to be successful force back one and for all future SPACs.

On your third question, it is a generalist approach that we are taking and our intention is to partner with a best-in-class general partner and to work with them on a leading, if not outperforming business as we take that company into a leaseback process.

Ken Worthington -- JPMorgan -- Analyst

Okay, thank you. And just a follow-up on competitive advantage. If the relationship is with private market investing firms. It's not so much bankers per se, it's the private markets investing firms. So you've got data on deals. How do you translate that into a competitive advantage, in terms of finding deals and making sure you're investing in the right ones? I guess link those two together.

Andrea Kramer -- Chief Executive Officer

Sure. It's a great question. This is Andrea. It is absolutely going to leverage our data analytics and the access to information. And we're not going to have to go to the banks to source. So we're going to pre-empt that process and work directly based on the relationship we have with these partners to source and engage with them on these opportunities. Now we're going to circumvent, what is traditionally done by SPACs, which has just received [Indecipherable].

Ken Worthington -- JPMorgan -- Analyst

Got it, OK. Thank you.

Operator

Next question, we have Alex Blostein from Goldman Sachs.

Alexander Blostein -- Goldman Sachs -- Analyst

Hi, guys. Good morning. I just wanted to dig a little bit deeper into the opportunity you see for Hamilton Lane in the US retail distribution. Now that you have a fund approved and launched. Can you talk, I guess, a little bit about the channels that you're looking to distribute through the kind of opportunities that you see there. Any incremental investments you need to make into distribution to kind of accelerate that growth in sort of the division for that business. Call it over the next year or two?

Erik R. Hirsch -- Vice Chairman

Thanks, Alex. It's Erik. So I think, if you take a look at what's happening on the non-US product, as we said, January was record for us month of flows with a net $60 million. I think, it may makes us incredibly optimistic about what is sort of out there, the US market on the retail side is enormous. You've seen that we've structured this product to be around qualified purchasers. And so it opens up the market to a tremendous volume of participants.

From a channel perspective, we're looking across all the channels to wirehouses to RIAs, other wealth management platforms. We think the acquisition of 361 really enhances our ability to distribute, we have existing resources. This just now nicely adds to it, to the extent that we believe in the future that adding more resources will further the growth. We're certainly open-minded to that, but I think the non-US product is showing you a path to something that is very, very scalable in a market that we think is really clamoring for access to the private markets.

Alexander Blostein -- Goldman Sachs -- Analyst

Great. And just the fee structure maybe kind of specific economics related to the retail product, kind of the blended fee rate. And as we think about investments, you guys need to making it into distribution. I guess, how should we think about that for Hamilton Lane as a whole?

Erik R. Hirsch -- Vice Chairman

Well, from a fee structure perspective, this looks sort of similar to slightly better than what our specialized funds looked like. The better part is slightly higher management fees and a deal-by-deal carry structure. So given the evergreen nature, it doesn't lend itself to anything other than a deal-by-deal carry structure. And so we think the economics here are attractive to us. But also I think when you look at the overall fee rate to the investor, we think it's a very, very attractive offering to the investor, relative to other products that are out there in the market. So we think that's a win-win.

In terms of other resources that are needed. We feel like, as I said, the 361 acquisition we think sort of fulfills a lot of the need today. But to the extent that we find that need changing in the future, we'll address it. From an investment standpoint, no resources needed. These are I think one of the other appeals to the clients here is that, they're doing deals that are the same deals that are being done across the entirety of the Hamilton Lane platform. So we're not carving out unique transactions for this product that is very different than anything our institutional clients are looking at.

Alexander Blostein -- Goldman Sachs -- Analyst

Great. Perfect. Thanks very much.

Operator

Next question, we have Chris Kotowski from Oppenheimer & Company.

Chris Kotowski -- Oppenheimer & Company -- Analyst

Good morning. Thank you. I wonder, if you can take us into the economics to Hamilton Lane from the SPAC a bit more. If this is going to become a line of business. I think I saw in HLAHU's registration that there are something like 12.5 million warrants. Is the economics to Hamilton Lane entirely from those warrants and how many of those could Hamilton Lane end up receiving?

Erik R. Hirsch -- Vice Chairman

So I think this is a question that's going to be best answered on future calls, as we are literally in the process of going through all of this with our auditors and accountants to figure out treatment. As you know, there is kind of an above the line and below the line component to this. And so we are just presently working through that. We want to frankly get the SPAC before we incurred any time and the expense on the auditors and accounting firms, so we now with the SPAC in hand, we've now turned our attention to that. We will figure that out over the next sort of coming weeks and months and we will be very transparent in our disclosure.

To Andrea's point, given that we view this as a business line going forward. We think it's going be very important for us to clearly walk folks through the economics. So that, frankly we're getting appropriate credit for that as we envision raising a series of these. So I think that's going to be a topic that we will likely address in the coming call.

Chris Kotowski -- Oppenheimer & Company -- Analyst

Okay, fair enough. And then secondly, I was a little confused by the retro fees. Because I know when we are going through your presentation earlier in the morning, kind of looking at the year-to-date retro fees in that slide and backing out what we thought was in prior quarters, we came to a number of like 4.1 million for the current quarter. And I think, Erik, you mentioned that there were 7.2 million in retro fees. So you just square that circle?

Erik R. Hirsch -- Vice Chairman

Sure. So I think what you're seeing here is that, in the script, we were -- I think kind of clearly tell you that, given we had a closing post the quarter end. We are just showing you what the future retro fees are going to be from the Jan 31. But the retro fees are at the 7 level and so then it's an addition to that what's coming from the January 31 closing that will result in additional retro fees.

Chris Kotowski -- Oppenheimer & Company -- Analyst

The additional around 10?

Erik R. Hirsch -- Vice Chairman

That's going to come in the next quarter, though, correct. And that is around $10 million.

Chris Kotowski -- Oppenheimer & Company -- Analyst

Okay, all right. Thank you. That's it from me.

Operator

Next question, we have Rob Lee from KBW. Your line is open.

Jeff Drezner -- Keefe, Bruyette & Woods -- Analyst

Hi, this is Jeff Drezner on for Rob. A question around comp expense and maybe you can give us some color and how to think about that going forward?

Erik R. Hirsch -- Vice Chairman

Sure, Jeff. It's Erik, I'll take that. So I think what we've sort of said to folks is that, we would really suggest that people look at kind of comp ratios and comp expenses on an annualized basis. The way we do some of our bonus accrual, it's not always linear and you saw that this year. And so I think what we're sort of managing to, is an overall comp ratio that is in line with what you have seen from us over the prior 3 years. I think this year will be no different than that and how we actually accrue quarter-to-quarter, it does vary a little bit, just given some of the accounting. But I think when you look at an annualized, I think, you're going to see a very consistent picture.

Jeff Drezner -- Keefe, Bruyette & Woods -- Analyst

Great, thanks. Then I was wondering, if there is any -- you have an update on dry powder or commitment by earning fees or soething, a number around that?

Erik R. Hirsch -- Vice Chairman

Yeah, not a number that we -- It's Erik again, not a number that we've disclosed. I mean, we've always said that it's the nature of the business. We have billions and billions of dollars of that, but not something that we have chosen to kind of delineate, as that number fluctuates quarter-to-quarter. And I think frankly, we've been a little resistant to -- I think we overly fixated on how quickly we're deploying capital. I think our clients trust the fact that we're sort of doing things that are in their best interest, because we find the right opportunities, not because we're anxious to deploy that capital in order to start accruing fees.

Jeff Drezner -- Keefe, Bruyette & Woods -- Analyst

Great, thanks for taking my question.

Operator

Next question, we have [Indecipherable] from William Blair. Your line is open.

Unidentified Participant

Hey, good morning guys. This is [Indecipherable] on for Chris. Just a quick one. Apologies, if you had already covered it. But could you discuss the driver for the sequential increase in non-operating income in the quarter?

Erik R. Hirsch -- Vice Chairman

Sure. It's Erik, again. I think really what you're seeing there is an unrealized gain on one of our strategic balance sheet investments. That's really driving the $6.2 million.

Unidentified Participant

Great. Got it. And then one more just, going back to the SPAC. Could you -- to the extent you can discuss where -- in the process right now in terms of developing an initial list of targets or starting to have conversations or meeting with GPs or kind of more further along than that?

Andrea Kramer -- Chief Executive Officer

Yes, we are building that target list and have been over the last week, we are having engaged and very in-depth conversations on some of those targets and are progressing very effectively. Anticipate that we will be starting to reveal a deal structuring discussions relatively stand.

Unidentified Participant

Great, thank you very much.

Operator

Last question, we have Adam Beatty from UBS. Your line is open.

Adam Beatty -- UBS -- Analyst

Hi, good morning. Thank you for taking the question. I appreciate all the detail on the fees on the fund side. Last quarter we talked a little bit about the separate account side and the charging versus reups. I just wanted to get an update on how that dynamic played out in the most recent quarter and maybe the near-term outlook? Thank you.

Erik R. Hirsch -- Vice Chairman

Sure, Alex. It's, Erik. So I think the dynamic is always in flux. I think what you saw this quarter, that was a little bit of an analogy -- an aberration was that you sort of saw that we had some meaningful amount of separate account capital going into specialized funds. And because we don't double dip on the fee that was actually generating special fund revenue, not separate account revenue. So here you were sort of seeing what looked odd, which was -- you saw the asset sort of rising on the customized separate accounts, not directly in line with the revenue and that's what's causing that discrepancy.

Other than that, I would say reup dynamics continue to be strong, you sort of noted that we put in over 80% of those new flows are coming from existing investors. So we continue to see strong reup interest and then frankly, as the public markets continue to rise, think about that kind of swelling the denominator for these clients and thus they need to continue to allocate more into the asset class and we're certainly seeing that dynamic at work right now.

Adam Beatty -- UBS -- Analyst

Excellent, thank you. Also want to ask about the meaningful increase in the performance fee accrual and just get any color or detail around what might be driving that? Thanks.

Erik R. Hirsch -- Vice Chairman

Sure. It's Erik, I'll stick with that. So I think it's really twofold. I think one, it continues to be really, really good Hamilton Lane investment selection. We are building strong portfolios, I think that strong portfolios translates into strong fundraising, particularly in the product world, where I think performance is more of a focus. And the second thing is, we're certainly getting the benefit of rising markets. So I think those two are really what's driving it.

And then what you're also seeing and you heard from a tools comments, we're simply adding more-and-more accounts that have carry components. I think the interest in LPs of having access and exposure to things like secondaries and co-investments is rising. And so that's just translates into more-and-more and more of your separate accounts, actually have transactional components and thus have a carried interest component and that's resulting in more vehicles.

Adam Beatty -- UBS -- Analyst

That's excellent. Thank you very much.

Operator

I am showing no further questions at this time, I will now turn it back to Erik Hirsch. Thank you.

Erik R. Hirsch -- Vice Chairman

Great. We appreciate everyone's time. We appreciate your interest and we wish you well. Stay safe. Thank you.

Operator

[Operator Closing Remarks]

Duration: 35 minutes

Call participants:

John Oh -- Vice President Investor Relations

Erik R. Hirsch -- Vice Chairman

Andrea Kramer -- Chief Executive Officer

Atul Varma -- Chief Financial Officer

Ken Worthington -- JPMorgan -- Analyst

Alexander Blostein -- Goldman Sachs -- Analyst

Chris Kotowski -- Oppenheimer & Company -- Analyst

Jeff Drezner -- Keefe, Bruyette & Woods -- Analyst

Unidentified Participant

Adam Beatty -- UBS -- Analyst

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