Last year, Hamilton Lane Advisors began a metamorphosis that led to last month's expansion from a private equity adviser and private equity specialty shop to the beginnings of a multiasset-class money management firm. Chief Executive Officer Mario Giannini, who is helping to shepherd the firm through its transformation, is accustomed to change. Mr. Giannini started out as a lawyer for banks and insurance companies. He has a juris doctorate as well as a master of law degree, and he is fluent in three languages. These days, he provides client services to firm clients, markets the firm's products and services, and sits on the advisory boards of a number of clients including Thomas H. Lee Co. and Providence Equity Partners Inc. as well as on the boards for Texas Pacific Group's TPG Partners III and TPG Partners IV. Last December, the Bala Cynwyd, Pa.-based consultant finalized an agreement to sell 40% of the firm to a group of investors and restructured the firm. In November, firm executives made good on their plans to become more of a money management firm by buying a controlling stake in The Richcourt Group, a $1.5 billion New York-based hedge fund-of-funds manager. Mr. Giannini spoke with Pensions & Investments' Arleen Jacobius about Hamilton Lane's transformation, its plans to expand beyond its private equity niche to eventually include real estate and the firm's separate account focus.
Blending Niches: Face to Face with Mario Giannini
A We've been looking at the area for about a year. We were driven by two things. On the client side, a lot of clients were asking for help in their hedge fund activity or looking at hedge funds. A lot of clients were putting both hedge funds and private equity in their alternatives allocation and those worlds, private equity and hedge funds, are converging. We were also seeing a lot of hedge fund managers going into private equity deals and a lot of private equity managers going into the hedge fund space.
A In part, we were driven by the opportunity. Richcourt comes with a group of people experienced in the area and they have existing assets under management.
A To expand Richcourt's footprint, especially on the separate account side.
Q Why do you focus on separate accounts?
A The same reason we have on the private equity side. It gives us a greater opportunity to tailor a portfolio … There is more of a risk-control aspect to separate accounts. … With separate accounts you have the ability as an institution to have a discussion as to what are your specific objectives are for the portfolio, including your risk and return objectives.
A As people are investing and begin to group alternatives under one basic asset class, they will increasingly look to one manager to help with both buckets. It helps us to understand the overlap between the two.
A We saw private equity general partners looking to raise, say, $2 billion and hedge funds were willing to give $500 million and hedge funds were not asking questions. It's an attractive source of capital, but you have to ask how consistent a base that will be.
A One thing … that a couple of clients are asking for is real estate. Some are wondering if they should be in real estate or more in real estate and less in private equity. In less than five years, real estate is something we might look at. We do have a couple of (real estate) clients but it's not something we are in the market offering.
A What we've done so far is part of the overall plan. The change in December was driven by a couple of things. We looked at the time, looked at the firm, how we could create a platform where more people have equity in the firm and would want to be part of it. The strategy in December was to create that kind of platform. Since then we brought in a number of people and spread the equity much more broadly. …
A The platform is creating an independent firm that has a large presence in the alternative investment space and can compete with anyone in that space. We have to be big enough to be a presence in the market. We have to have enough talented employees that we can continue that expansion and client service. That is what we have created.
A We do all strategies: buyout, venture capital, mezzanine. We look at all stages of private equity in terms of the way we operate with the separate accounts. For some institutions we only do venture, for some buyout. In … serving our client base, we will be looking at everything from the earliest venture capital to buyout.
A We have interest in early stage, but there is more activity in the later stage than the early stage. There is more interest in companies in the more advanced stages.
A We see it increasingly focus on reducing the number of managers and increasing funding with the best-performing managers. There's more concentration in portfolio management. We continue to see an increasing desire for better information from their portfolio holdings, in what's going on with returns and where the value is coming from. U.S investors are increasingly interested in Europe.
A That remains to be one of the question marks. If you can't put money in a top-tier firm, what are you going to do? I don't have the answer to that. It will depend on the institution. Some institutions drop out. Banks were in before, then they dropped out.
A I've seen a fair amount of co-investment. Some general partners will go to limited partners rather than other general partners to do a deal.
A First, there is the certainty of the money. Second, some of these hedge funds have good deal flow and what they can bring is a set of transactions. Third, they are a reliable co-investor with capital.
A Fees are structured differently. Some private equity people are envious of the fees the hedge fund people can charge. Hedge fund people are really envious of the lockup period.