Hamilton Lane to make second closing of seventh fund

Fund-of-private-equity-funds specialist Hamilton Lane is on course by the end of this month to make a second closing of its seventh private equity fund of funds at $200 million. The final target amount is $500 million by the first quarter of 2011.

Hamilton Lane manages $14 billion in funds of PE funds and managed accounts and advises on a further $70 billion of PE portfolios.

This latest fund will have a 10-year tenor and targets returns of about 20% a year. It is a global fund, although investors can choose specific geographical allocation policy. There is a ‘US series’ and a ‘non-US series’. By choosing the US series, for example, your money would be invested solely into US private equity funds. If you don’t have any strong opinion, the default allocation is 60% US funds and 40% non-US.

There is just a management fee for this fund and no performance fee. The management fee starts at 50 basis points for the first year, rising to 75bp in year two and 1% in year 10.

The reason the fee is charged at a reduced level during the first couple of years is tha, with this type of long-term PE investment, profits are hard to come by in the first few years and investors don’t enjoy having to report those marks on positions (and having to pay out fees).

“As well as the stepped-fee structure, this fund offers other features that help to provide some alleviation during that initial period,” says Jackson Chan, recently appointed regional head of sales at Hamilton Lane in Hong Kong.

“We focus on that ‘J curve’ by making allocations to secondaries, where cashflows are at a more mature stage; secondly an inclusion of co-investments that are deals conducted with general partners (and on which only one level of fees get charged); and thirdly we allocated to credit and special-situation funds.”

For investors who like those particular specialities, Hamilton Lane also has a distinct fund for secondary interests in PE funds and another fund exclusively for co-investments. Both are currently closed to new investment, but new funds may be launched next year.