Houlihan Lokey (HLI): Institutional Overhang or Strategic Opportunity?

The financial advisory firm Houlihan Lokey (NYSE: HLI) has long been a favorite among institutional investors, with 78.07% of its shares held by institutions as of June 2025. This staggering figure raises critical questions for retail investors: Does such high institutional ownership signal a contrarian buying opportunity—or a red flag? To answer this, we must dissect HLI's valuation, institutional concentration risks, and its growth catalysts in the M&A advisory space.



### The Institutional Overhang: Risks and Realities
Houlihan Lokey's top 10 institutional holders collectively control 37.7% of its shares, with BlackRock (10.45%) and Vanguard (9.87%) leading the pack. While this concentration can stabilize the stock during volatile markets, it also introduces liquidity risks. If major holders like BlackRock (which reduced its stake by 9.52% in early 2025) decide to exit, retail investors could face sharp price declines due to limited float availability.

Furthermore, the HL Voting Trust, a single entity holding 23.9% of shares, wields disproportionate influence over corporate decisions. Such concentrated control can deter smaller investors, who may feel excluded from strategic outcomes.

### Valuation: A Premium for Growth?
Houlihan Lokey's stock price has surged 32.5% year-to-date, outpacing peers like Goldman Sachs and Morgan Stanley. But is this justified?



HLI's revenue grew 25% in FY2025, driven by robust performance in corporate finance and restructuring services. Its $2.39 billion in FY2025 revenue and $400 million net income reflect strong execution in a competitive space. However, its trailing P/E ratio of 22.5x (vs. 15x for investment banks) suggests it trades at a premium. Retail investors must ask: Is this premium warranted by its growth trajectory?

### Growth Catalysts: Riding the M&A Wave
Houlihan Lokey's dominance in M&A advisory—a business it leads with 23% market share—positions it to benefit from rising global deal activity. Key catalysts include:
1. Debt-Fueled Buyouts: Low interest rates and abundant private equity capital are fueling leveraged buyouts, a core HLI strength.
2. Restructuring Demand: Rising corporate debt defaults post-pandemic are boosting demand for restructuring services, which accounted for 28% of HLI's FY2025 revenue.
3. Cross-Border Deals: Geopolitical fragmentation (e.g., China-U.S. tech decoupling) is driving cross-border M&A, where HLI's global footprint is a key asset.

### Contrarian Play or Overvalued Risk?
The contrarian case hinges on two factors:
1. Institutional Exit Risks: If top holders continue reducing stakes—Earnest Partners cut its position by 17.99%—retail investors could buy at depressed prices.
2. Valuation Discounts: Should HLI's premium compress, its 5% dividend yield (vs. 2.5% for peers) could make it attractive for income-focused investors.

However, buying now carries risks. The stock's sensitivity to institutional sentiment means it could underperform if macroeconomic headwinds (e.g., recession, M&A slowdown) materialize.

### Investment Thesis: Proceed with Caution
Houlihan Lokey is a high-risk, high-reward play for retail investors. Here's how to approach it:
- Buy on dips: Use pullbacks (e.g., after institutional sales) to accumulate shares.
- Monitor institutional flows: Track filings for shifts in major holders' positions.
- Focus on fundamentals: Prioritize HLI's M&A deal pipeline and restructuring backlog over short-term price swings.



### Final Take
Houlihan Lokey's 78% institutional ownership is both a blessing and a curse. While it reflects confidence in the firm's advisory prowess, it also magnifies liquidity risks. For retail investors, HLI is best suited as a small-position growth bet—not a core holding. Keep an eye on M&A trends and institutional activity; the next move by BlackRock or Vanguard could define its trajectory.

In short: Houlihan Lokey is no retail investor's “safe haven,” but for those willing to navigate institutional volatility, it offers upside in a consolidating advisory market.