Hamilton Lane, a PE stalwart with deep roots in venture

Hamilton Lane’s venture investment criteria is purposely broad to meet the demands and investment strategies of various clients.

When earlier in the decade Teachers Retirement Systems of Louisiana decided to increase its exposure to venture capital, it turned to Hamilton Lane, a private equity advisory and asset management firm.

The pension plan has worked with Hamilton Lane in some capacity since 2003. But starting in 2014, the Bala Cynwyd, Pennsylvania-based firm set up for Teachers a customized separate account comprised of some of the most sought-after venture capital and growth equity funds.

Since then, Hamilton Lane has managed for Teachers an annually issued separate account with $100 million in commitments every year, giving the pension exposure to such funds as Khosla Ventures, Spark Capital, ARCH Venture Partners, Lightspeed Venture Partners, GGV Capital, Drive Capital, Insight Venture Partners and IDG Capital Partners.

“Investing towards our 3 percent VC allocation through a separate account managed by Hamilton Lane really works for us,” said TRSL Deputy CIO Maurice Coleman.  As an example, the 2014 issue has produced for Louisiana Teachers a 22.71 IRR and 1.78x investment multiple.

Coleman

With $5 billion in venture capital and growth equity discretionary assets invested on behalf of 29 institutional LPs and relationships with 140 managers in the asset class, Hamilton Lane is without a doubt an important player in the venture world.

The 27-year-old publicly traded firm has deep roots in the entire private markets space. The AUMs for all the assets it manages, including buyouts, VC, private credit funds and real assets, stands at about $64 billion, while total assets under the firm’s advisory reaches $409 billion.

Although the firm does not disclose client names, it is public knowledge that it also manages VC assets for New York State Common Retirement Fund’s state-focused investment program and its Israel-based investment program, as well as $750 million in AUMs of Florida Retirement Systems’ Florida Growth Fund in addition to Teachers.

Limited partners can have Hamilton Lane invest in venture through a fund-of-funds option or a separate account, which is essentially a customizable portfolio consisting of a mix of private assets, secondaries and co-investments. “Some separate accounts we manage are 100 percent venture, but our more diversified accounts generally allocate a significantly smaller proportion of their portfolios to venture,” said Miguel Luiña, a principal who runs Hamilton Lane’s VC and growth equity primary fund investments practice.

Separate account programs have grown in popularity over the last decade as a way to not only lower fees but also give investors more control over portfolio allocation.

Although a typical separate account fee is lower than for fund of funds, Hamilton Lane sees it as a growth area. By combining the assets of multiple LPs, the asset manager can make a bigger commitment to a specific GP while also saving money on its own operating expenses.

Fund of funds work well for some types of investors. But as the asset class has grown, many investors are looking for a greater level of customization than a traditional fund of funds provides,” explained Luiña.

Client-focused VC investment strategy

Hamilton Lane’s venture investment criteria is purposely broad to meet the demands and investment strategies of various clients.

Last year, the firm reviewed almost 1,000 funds and took meetings with about one-third, Luiña said. For all its investment decisions, the asset manager relies on a large investment team, efficient due diligence process, and a proprietary portfolio construction model.

The firm’s commitments to venture funds could be as little as $5 million and as large as $100 million for growth equity partners, Luiña said. The firm also does not normally invest in managers whose fund sizes are less than $300 million, he added.

“Our GP relationships consist of a mix of more established venture names, as well as a small number of up and coming managers,” Luiña said. Although Hamilton Lane considers emerging funds, it generally invests in managers who have established themselves at another firm or on independent basis, he exlpained.

One such firm is NewView Capital, a fund that was launched last year by former New Enterprise Associates General Partner Ravi Viswanathan. NewView was formed after a secondary sale of more than two dozen portfolio companies from four of NEA’s older vintage funds in a deal designed to bring liquidity to limited partners.

Hamilton Lane was an LP in NEA and the firm became an anchor backer along with Goldman Sachs in NewView’s $1.4 billion first fund, Viswanathan told Venture Capital Journal.

“It was terrific working with Hamilton Lane,” Viswanathan said. “We started the fund-raising process mid-May and received funding commitment in August. They work like a machine and are obviously very penetrated in venture.”

NewView Capital, Ravi Viswanathan, private equity, merger, m&a
Viswanathan

While the asset manager does not necessarily target a specific IRR or return multiple for its VC managers, there is a focus on investing in best-in-class performers within their respective categories. Hamilton Lane is interested in funds that invest in AI and machine learning, continued transition to cloud for enterprise, cybersecurity, fintech, digital infrastructure and logistics, life sciences, healthcare and healthcare IT.

The firm backs managers across stages with a focus on Series A and higher. While some of Hamilton Lane’s managers invest in seed rounds, there is “more noise” and that stage is a small piece of the portfolio, Luiña said.

Although most of the firm’s venture managers are in North America, Hamilton Lane invests in a number of China-based funds, as well as some GPs operating out of Europe and Latin America. The firm leverages investment teams in London, Hong Kong and Rio de Janeiro to source venture capital managers in those geographies,  Luiña said.

Venture Capital Journal‘s review of TRSL’s separate account, for instance, shows a 75 percent exposure to North America and a 15 percent allocation to China. “By investing with us, we believe our clients can get nice geographical dispersion,” Luiña said.

As for pitching Hamilton Lane, Luiña said, “GPs look at Hamilton Lane as one entity across all our accounts. A fund should pitch us as they would any other LP, with the strength of their team, strategy and track record.”

LP Profile: Hamilton Lane

www.hamiltonlane.com

DESCRIPTION: Private equity advisory and asset management firm. Invests in venture through client customized separate accounts and fund of funds

TOTAL AUM: $64 billion

HEAD OF VENTURE PROGRAM: Miguel Luiña, a principal who runs Hamilton Lane’s VC and growth equity primary fund investments practice. Email: mluina@hamiltonlane.com

SIZE OF VC AND GROWTH EQUITY AUMs: $5 billion

DUE DILIGENCE: Last year, the firm reviewed almost 1,000 funds and took meetings with about one-third. Due diligence is a very analytical, three-step process: 1. Screen, review marketing materials. 2. Meet, go through key issues, key concerns. 3. Spend half a day with the firm. Engage the legal team to work on the LPA.

RESPONSE TIME TO A NEW RELATIONSHIP:  Due diligence timeline depends on a GP’s responsiveness. The firm can complete due diligence within a few weeks, but relationships are typically built over much longer timelines.

WHAT IT LOOKS FOR: Best-in-class performers within their respective categories

SAMPLE OF VC FUNDS: Although does not disclose funds, known to have invested in Khosla Ventures, Spark Capital, Arch Venture Partners, Lightspeed Ventures, GGV Capital, Drive Capital, New Enterprise Associates and Insight Venture Partners on behalf of public clients.

MOST RECENT COMMITMENT: Based on Venture Capital Journal’s review of TRSL’s VC separate account, Hamilton Lane invested in Spark Capital IV, Spark Capital Growth Fund III, Drive Capital Fund, Drive Capital Overdrive Fund I, Sherpa Healthcare Fund I.

FUND SIZE PREFERENCE: Over $300 million

TYPES OF FUNDS IT WON’T INVEST IN: Teams with limited investment history or one-person operations

INVESTMENT SECTOR PREFERENCE: AI and machine learning, continued transition to cloud for enterprise, cybersecurity, fintech, digital infrastructure and logistics, life sciences, healthcare and healthcare IT.

INVESTMENT STAGE PREFERENCE: Looks at all stages, but generally avoids seed.

GEOGRAPHIC PREFERENCE: Primarily North America and China, followed by Western Europe and Latin America.

TYPICAL COMMITMENT SIZE FOR VC AND GROWTH EQUITY FUND: Writing checks between as low $5 million up to $100 million. “We like to be flexible and opportunistic with check sizes,” said Luiña.

TOTAL NUMBER OF VC AND GROWTH EQUITY MANAGERS IN PORTFOLIO: Maintains relationships with 140 managers in primary and secondaries.

NUMBER OF VC AND GROWTH EQUITY FUNDS BACKED IN THE LAST FIVE YEARS: 66 discretionary primary fund investments.