Five Questions with Hartley Rogers of Hamilton Lane

Hartley Rogers is chairman and a member of the investment committee at Hamilton Lane.

Why did you go public? Why now?

We value our culture, client relationships and the services we’re able to bring to our clients and our people. Going public was a great branding event as it speaks to the institutional quality of our business, the industry we play in and the clients we serve. It also cements our independence, and gives us additional tools in the toolkit in terms of hiring, recruiting and retaining talent.

It allows everyone in the firm to have a sense of ownership. Prior to the IPO we had about 100 employee shareholders; now, almost everyone — approximately 300 people — are employee shareholders of the firm. One thing that distinguishes us is our culture. It’s a culture of teamwork, and the equity piece is really important to that.

We don’t think of ourselves as a private equity investment firm in the same way you might think about the existing public GPs. From our standpoint, our business is not characterized in the same way: We don’t have a high percentage of revenues coming from incentive fees or carried interest, which can sometimes create a level of volatility or unpredictability. We believe our business is more stable and more predictable.

How has the approach to PE changed over the years?

One classic pitfall some participants in this asset class have faced is: As the number of private equity funds around the world grew, their portfolios got more and more diverse. In some cases, that meant that portfolios were overly diversified. It’s very difficult to pick top-quartile managers year after year, sector after sector. As a result, portfolios became almost index-like, but without the low fee structure of an index. And some investors wound up with many more relationships than they could manage. In part because of this, institutions today tend to concentrate relationships to fewer firms who can do more.

So how does data come into play in this strategy, meaning institutional investors looking to build portfolios with fewer relationships?

Data helps investors construct portfolios based on risk and return measures and other factors beyond just aiming to pick the best managers. This really matters as PE grows in investors’ portfolios. As data continues to improve, continues to be more available, continues to be demanded by LPs, you’ll see a significant move towards ‘bigger, faster, cheaper’ in private equity. By data, I mean both company-level data as well as fund-level data. Company-level data around the portfolio companies in PE funds: How are they doing? Revenue, capital structure, cash flows and, of course, valuations — data on those metrics.

And then fund-level data: When is the fund drawing capital, charging fees, returning capital, incurring deal fees and other fees, carried interest, etc.? How does it work towards the hurdle rate and preferred return and then, ultimately, how does it roll up in the net experience for LPs?

In order to access more data, have GPs become more transparent?

Private equity is a bit in the Stone Age when it comes to data. It’s getting better — slowly, but it is getting better. And as it gets better, GPs are more willing to share information and they have systems in place for that information to be gathered and shared in a reliable manner. We believe we are playing a part to bring greater transparency to the private markets.

How does data enhance the skillset needed to pick the best managers?

Our own view is that the skillset of picking managers requires a lot of experience, a balance of data and analytical tools, together with assessments of people. It involves understanding the life cycles of PE funds and being able to extrapolate what’s likely to happen.The ability to pick managers is an important skill. It involves psychology and social dynamics. Data in and of itself is necessarily backward-looking. The commitments you’re about to make are forward-looking. You’re using historical performance data that shows where managers were good historically, but you have to make a forward-looking decision. You have to look at psychology, organizational dynamics, the maturity of the organization, macro and industry dynamics, etc. You have to be able to understand if a GP is talking about doing something different from what they’ve done well historically.

As an LP, once you’re in, you’re in. It’s hard to get out, which makes the case for combining the art of manager selection plus the science of good data and analytical tools even stronger.

Correction: An earlier version of this report misspelled Hartley Rogers’s name in the Snapshot section. The report has been updated. 

Photo of Hartley Rogers courtesy of Hamilton Lane.