MMG: LPs are highly sought-after investors. What does it take to grab your attention?
AK: Hamilton Lane receives about 600 private practice memorandums (PPMs) annually, and we review every one. We’re very concentrated in our approach and generally invest in only about 2-3 percent of what we see. Because our focus is about 80 percent middle- and lower-middle market, what matters most are investors who have a tight investment strategy that differentiates them. To me, that translates as a firm that has a value-based mindset and makes investments that are proprietary and differentiated.
MMG: In your experience, what have been the top relationship killers?
AK: Lying is number one. You can lie in all sorts of ways—in the valuations, in deals that haven’t or could’ve gotten done, or in who did the deal. We spend a lot of time on due diligence, so we’re ultimately going to get the straight answers. Even if it’s not in our files or in our attribution analysis, we talk to the CEOs and management teams and discover who actually managed the deal from day-to-day. At this stage in my career, I’ve seen just about everything, including indictments. My priority is to get all of the information and dig up any skeletons. The interesting thing in private equity is, even though it’s private, there tends to be only one to two degrees of separation. Just be transparent and above board with us.