Holding a 7 a.m. interview at the height of the dog days of August, Erik Hirsch of Hamilton Lane epitomizes the work ethic required of the chief investment officer of a global investment firm. Eleven-hour workdays are standard, and he’s not complaining. “I’m usually here now, and get out around 6,” he demurs.
Hirsch, 32, was born and raised in the Tarheel State-North Carolina. In high school, he was a varsity athlete in wrestling and swimming, as well as student body president of a 2,500-pupil school. He went on to the University of Virginia, where he majored in political science and philosophy. He almost had a career in music, but somewhere along the line he developed an interest in finance.
Upon graduation Hirsch was recruited by Public Finance Management to work on municipal bonds for large city projects. He jumped at the opportunity, picking up a practical education in asset securitization as he worked on projects like new stadiums built for the San Francisco Giants and Philadelphia Phillies and then moving on to property securitization projects for the likes of Puerto Rico and Washington D.C.
In 1998, Hirsch was recruited to Brown Brothers Harriman, the white-shoe Philadelphia corporate finance advisor founded in 1818, where he helped the firm initiate its work in mergers and acquisitions. After a year in the relatively repetitive world of M&A, Hirsch decided-with the help of a headhunter-to go to work for Hamilton Lane. He was the firm’s 26th employee, hired to work with a newly created investment team focusing on troubled investment partnerships. Three weeks into that job, Hamilton Lane decided not to pursue that approach with assisting troubled managers, and Hirsch was offered a chance to join a newly independent buyouts group within Hamilton Lane. By 2000, Hirsch was running the buyout group with two other staff members.
Hirsch became Hamilton Lane’s CIO in 2001, taking over for Duke De Grassi, who was elevated to president of the firm (and has since moved to Europe to expand the firm’s presence there). Hirsch runs all investment activities for the firm, overseeing the firm’s various investment teams, fund manager relationships, co-investments and secondaries. He also has strategic management responsibilities, alongside Hartley Rodgers, the firm’s chairman, and Mario Gianinni, the CEO who runs the firm’s day-to-day operations.
Big And Getting Bigger
In the six years since Hirsch joined Hamilton Lane the firm has more than doubled in size. It has gone from overseeing $20 billion in private equity investments to more than $46 billion. It employs more than 70 people in its private equity business and another 20-plus in its hedge fund practice in offices in London, Singapore, Monaco, San Francisco, New York and Bala Cynwyd (near Philadelphia).
Hamilton Lane is made up of two very large businesses: a funds advisory service and a funds investment business. It is a funds advisor for the likes of the California Public Employees’ Retirement System, New York State Common Retirement Fund, and the State of Wisconsin Investment Board, among other public pensions. In its advisory role, it helps clients deploy capital without making the actual investments. In that function, “we don’t control the investments,” Hirsch explains. “We advise our clients, perform due diligence and make recommendations.” In short, the client may agree or disagree with its advice.
The biggest part of Hamilton Lane’s business is its advisory business, where it oversees private equity investments from institutional investors totaling $38 billion. Its discretionary business manages $7 billion in private equity investments, and its hedge fund business oversees $1 billion worth of investments.
The firm has invested in more than 170 firms and more than 200 funds, and it tracks and reports on another 400 funds globally. Geographically speaking, about 70% of the firm’s commitments are in the United States, 25% are in Europe and 5% elsewhere. What about Asia and China in particular? “At some point we’ll have to include China, since we have an intent to be a global asset manager,” Hirsch says.
On the discretionary side, Hamilton Lanee builds a portfolio of investments that it controls, much like a fund of funds that matches the needs of each client. The firm controls the capital in that case. Of the $7 billion managed by the discretionary business, about 70% is invested in buyouts, 20% in special opportunities and 10% in venture capital. Sample clients include the British Postal Pension Fund, Carpenters Union, NYSCRF and Textron Corp.
One reason why Hamilton Lane’s discretionary business is growing so steadily is that the firm is large enough to offer each client a custom program, Hirsch says. “We don’t have any off-the-shelf [investment programs],” he says. “We go to each client and ask them what they want, what their goals are,” and then tailor an investment strategy for each client.
Long Road From 500 To 15
Hamilton Lane will see over 500 PPMs this year. Not only that, it will actually read and analyze each of them. After a GP submits a PPM, it is logged into a database and then assigned to a staff member for a formal review and one- to two-page summary. That formal summary is seen by three sets of eyes: the author, the author’s manager and by Hirsch himself. After that, each summary memo is discussed at a weekly investment committee meeting, attended by all of the firm’s senior members.
“In that way everyone is treated in the same way,” Hirsch says. There is no quick look at a document by someone who can say in a minute or two, We’re not going to invest.’” And all of that leads up to a decision of whether to meet with a manager. This year Hamilton Lane will see about 200 managers. It is a fairly high pass rate for the first round because “it’s hard to tell who is good from a PPM and because we want to cast a net widely, to have more stories [about firms] than fewer,” because as a firm Hamilton Lame wants to see as many fund raisers as possible. “If they’ll come to one of our offices, we’ll meet with them.” For each of the 300 or more firms that won’t be invited to a meeting this year, “each will receive a letter from us and inviting them to call us and talk about the decision if they want.”
If a GP is invited to a meeting, “we give them 60 to 90 minutes.” Three to six Hamilton Lane professionals attend each pitch meeting, all of whom are responsible for having read the summary proposal before the meeting. “We don’t want to waste time [in the meeting] going over the team, biographies and background of the firm,” Hirsch notes.
At the end of each meeting, the HL team discusses the strengths and weaknesses of a proposal and arrives at a consensus about whether or not to give the GP a formal questionnaire. “It’s not a simple process,” Hirsch says. “It may be that the decision to move ahead or not to move ahead is easy, but the interim work after a group meeting and before we decide whether to give a GP our questionnaire is a lot of work,” including reference calls, strategy research, peer analysis and portfolio performance research.
The questionnaire is only 11 pages long, but it includes about 20 more pages of attachments seeking detailed information. “We ask for a lot of information-information on each portfolio company and all cash flows and reference lists for the executives of each of the portfolio companies,” Hirsch says. “We hear from GPs that they use our form as a basis to build their due diligence preparations for other LPs.” The questionnaire typically takes several weeks to more than a month to complete.
If it likes what it sees in the questionnaire, Hamilton Lane will send out a team to visit with a general partnership for “the better part of a day or as long as it takes.” At on-site visits, “we meet with the whole [GP] team, talk about the portfolio, valuations, the investment process, the investment philosophy, troubled companies, how the portfolio was assembled. We talk about each company.” All of which helps HL learn about the deal teams at a firm, “to meet the associates, vice presidents, and the up-and-comers.”
At that point, the process still isn’t done. Once they get back to their offices, the Hamilton Lane professionals start working the phones. If they’re checking out a manager that they’ve met for the first time, “we make about 40 reference calls” with each call placed by the HL person who is most likely to obtain the most complete reference.
Almost There
Based on the reference-checking process, which generally takes about two weeks, a final due diligence memo of 10 to 20 pages is produced. Then it goes back to the investment committee for a third time. It’s the last discussion about a manager and the point at which a vote is taken by the committee.
Asked if anyone fails that at that point, Hirsch says, “Absolutely, however if they do it’s not for obvious reasons such as our not liking a strategy.”
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