StepStone Group Q1 2025 Earnings Call Transcript

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Provided by Quartr
August 8, 2024

There are 11 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the 1st Fiscal Quarter 2025 StepStone Group, Inc. Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised today's conference is being recorded.

Operator

I would now like to hand the conference over to your speaker today, Seth Reiss, Vice President of Investor Relations. Please go ahead.

Speaker 1

Thank you and good afternoon. Joining me on today's call are Scott Hart, Chief Executive Officer Jason Ment, President and Co Chief Operating Officer Mike McCabe, Head of Strategy and David Park, Chief Financial Officer. During our prepared remarks, we will be referring to a presentation, which is available on our Investor Relations website at shareholders. Stepsonegroup.com. Before we begin, I'd like to remind everyone that this conference call as well as the presentation contains certain forward looking statements regarding the company's expected operating and financial performance for future periods.

Speaker 1

Forward looking statements reflect management's current plans, estimates and expectations and are inherently uncertain and are subject to various risks, uncertainties and assumptions. Actual results for future periods may differ materially from those expressed or implied by these forward looking statements due to changes in circumstances or a number of risks or other factors that are described in the Risk Factors section of StepStone's periodic filings. These forward looking statements are made only as of today. Except as required, we undertake no obligation to update or revise any of them. Today's presentation contains references to non GAAP financial measures.

Speaker 1

Reconciliations to the most directly comparable GAAP financial measures are included in our earnings release, our presentation and our filings with the SEC. Turning to our financial results for the Q1 of fiscal 2025. Beginning with Slide 3, we reported GAAP net income of $48,000,000 GAAP net income attributable to Step Stone Group Incorporated was $13,300,000 or $0.20 per share. Moving to Slide 5, we generated fee related earnings of $71,700,000 up 61% from the prior year quarter We generated an FRE margin of 40%. The quarter reflected retroactive fees primarily from our private equity secondaries fund, special situation real estate secondaries fund and infrastructure co investment fund.

Speaker 1

Retroactive fees contributed $19,100,000 to revenue, which compares to retroactive fees of $2,800,000 in the Q1 of fiscal 2024. Finally, we earned $57,200,000 in adjusted net income for the quarter or $0.48 per share. This is up from $29,400,000 or $0.26 per share in the 1st fiscal quarter of last year, driven by both higher fee related earnings and higher realized performance fees. I'll now hand the call over to Scott.

Speaker 2

Thanks, Beth. We carried over the momentum from last year as we entered our new fiscal period with very strong operating and financial performance. Our Q1 was a record period on several key fronts. It was our strongest period ever for fundraising, our strongest period ever for net contribution to fee earning assets, which surpassed $100,000,000,000 and our strongest period ever for net additions to undeployed fee earning capital, which reached our highest level ever of $27,600,000,000 This stepstone up for a strong fiscal 2025 and for sustained growth beyond this year. Our diverse array of offerings, supportive client base and in demand strategies and asset classes all contributed to our results.

Speaker 2

In the quarter, we generated record $12,600,000,000 of gross AUM additions. Fundraising was strong across commercial structures with commingled funds raising over $3,000,000,000 and separately managed accounts raising over $9,000,000,000 Over the last 12 months, we have raised nearly $28,000,000,000 our strongest 12 month period ever as we have successfully closed on several managed account re ups and new mandates, executed on several successful commingled fundraises, particularly in venture capital secondaries and private equity secondaries and continue to ramp our private wealth offerings. Success in raising capital is a result of years of building relationships, capabilities and track records. The last 12 months in particular are emblematic of the fruits of those efforts. While the pacing of fundraising can be episodic at times, the corresponding growth in fee earning AUM and the build and un deploy fee earning capital provides a runway for consistent top line growth.

Speaker 2

Included in this quarter's fundraising is over $800,000,000 of private wealth subscriptions, which is our strongest private wealth quarter ever. We have 4 Evergreen Private Wealth Funds in market: S Prime, our all private markets fund Spring, our venture and growth equity fund Structs, our infrastructure fund and CredX, our private credit fund for which we accepted our first subscriptions in June. I'm also pleased to announce that Spring was recently added to a second wirehouse. We are now distributing StepStone Evergreen Funds with nearly 400 partners with S Prime and Spring each on 2 wire houses. We're thrilled with the development and uptake of our Private Wealth suite of offerings and continue to see a strong runway for growth.

Speaker 2

Pivoting to our financial results, we generated $179,000,000 in management and advisory fees and $72,000,000 in fee related earnings, which are up 29% 61% year over year respectively. We generated an FRE margin of 40%, which benefited from strong retroactive fees. Excluding the impact from retro fees, our fee related revenue and fee related earnings would have increased 18% 35% year on year respectively, driven by strong growth in our fee earning AUM. The combination of robust fundraising over the past 12 months along with recent commingled fund activations has set Step Stone up to deliver strong financial performance in fiscal 2025 and positions us well to achieve the 5 year growth target of doubling fee related earnings, which we established last year at our Investor Day. Lastly, realized performance fees of $43,000,000 were the highest level in the last 2 years.

Speaker 2

As you're aware, performance fees are largely dependent on a healthy realization environment, so we anticipate some volatility quarter to quarter. While capital market activity is still relatively muted and the last week has clearly been an eventful one for the public markets, with major stock indices entering correction territory and volatility measures more than doubling, we expect realizations of performance fees to continue to trend up off the low levels of last year.

Speaker 3

To sum up, this was

Speaker 2

a very strong quarter with all key operating and financial metrics clicking. While we do not expect this pace of retroactive fees to persist, the growth of fee earning assets and undeployed fee earning capital creates a higher base for sustainable sources of earnings. We feel excellent about the accomplishments of recent periods and even more excited about the progress we are making towards our longer term goals. With that, I'll pass the call to Mike.

Speaker 4

Thanks, Scott. Turning to Slide 8, as Scott highlighted, we generated nearly $28,000,000,000 of gross AUM inflows during the last 12 months with over $18,000,000,000 coming from our separately managed accounts and over $9,000,000,000 coming from our commingled funds. In the quarter, our commingled fund additions included $800,000,000 in our private equity secondaries fund. Our PE secondaries fund has now raised over $4,000,000,000 which is the 1st Stepstone fund to reach the $4,000,000,000 mark and is well above the prior PE secondaries fund size of $2,100,000,000

Speaker 3

We expect

Speaker 4

the final close of a few $100,000,000 in this fiscal second quarter. In real estate, we raised over $400,000,000 in our special situation secondary fund. This fund has now surpassed the prior vintage's size of $1,400,000,000 and we anticipate it will remain in market through at least the end of this calendar year. While limited partners remain relatively cautious on real estate, our special situation secondary strategy remains a bright spot in the market. Other notable commingled fund additions include approximately $800,000,000 for the final close of our venture capital secondaries fund, which is consistent with the amount we discussed on our May earnings call.

Speaker 4

This brings the total fund size to $3,300,000,000 the largest venture capital secondaries fund in the history of our industry. We also generated over $800,000,000 in private wealth subscriptions and raised approximately $300,000,000 across infrastructure, private debt and other venture capital funds. As a reminder, we include a list of our major funds on Page 29 of our earnings presentation. Turning to managed accounts, we generated $9,000,000,000 of SMA additions with strength in private equity and infrastructure. 60% of the gross additions came from re ups and 40% came from a combination of new client relationships and expansion of existing client relationships.

Speaker 4

This is an exceptional result

Speaker 3

that

Speaker 4

illustrates our ability to win new accounts and grow with existing clients. Managed accounts are a core strength for StepStone and are central to the value proposition we offer as a solutions provider. Slide 9 shows our fee earning AUM by structure and asset class. For the quarter, we grew fee earning assets by $7,000,000,000 our largest quarterly addition of fee earning capital in our history. This quarter's fee earning AUM growth benefited from an activation of our venture capital secondaries fund, contributing $3,300,000,000 to the fee earning balance.

Speaker 4

Additionally, we continue to grow our undeployed fee earning capital, or UFEC, to $27,600,000,000 up $5,000,000,000 quarter over quarter. As Scott mentioned, this is our highest UFEC balance on record and as our greatest quarterly net increase in UFEC, which is notable considering the $3,300,000,000 activated from our BC secondary fund. The combination of our fee earning AUM and undeployed fee earning capital stands at $128,000,000,000 up 10% sequentially and up 23% year over year, providing us with a high degree of visibility for continued growth in management fees as capital is deployed or activated. We anticipate activating over $4,000,000,000 of capital from managed accounts by the end of this calendar year. Slide 10 shows the evolution of our management and advisory fees.

Speaker 4

We generated a blended management fee rate of 61 basis points for the last 12 months, higher than the 59 basis points from the prior year, as we benefited from retroactive fees and a higher fee rate from our private wealth offerings. Before concluding my remarks, I am pleased to announce that we are raising our quarterly dividend from $0.21 per share to $0.24 per share. This reflects our confidence in strong and sustainable growth in fee related earnings. With that, I'll turn the call over to David.

Speaker 5

Thanks, Mike. I'd like to turn your attention to Slide 12 to speak to our financial highlights. For the quarter, we earned management and advisory fees of $179,000,000 up 29% from the prior year quarter. The increase was driven by strong growth in fee earning AUM across commercial structures, a favorable impact from retroactive fees and a higher blended average fee rate. Fee related earnings were $72,000,000 for the quarter, up 61% from a year ago.

Speaker 5

We generated an FRE margin of 40% for the quarter, up 800 basis points versus the prior year quarter. Normalizing for retroactive fees, core FRE margins expanded over 300 basis points versus prior year period. Moving to expenses, cash based compensation was $78,000,000 up 5% from last quarter and up 12% from the prior year. The growth reflected higher business development revenue sharing tied to retroactive fees and the seasonal step up in the cash bonus accrual, which we signaled on the last call. Looking to the remainder of the year, we expect to see continued growth in cash compensation due to incremental hires for our new analyst class as we continue to invest in our business development team, private wealth team and other areas to support the growth in our business.

Speaker 5

Equity based compensation expense grew to $2,400,000 up from $1,700,000 in the prior quarter. This reflects the layering of the 3rd year's issuance of RSU awards. RSU is best over 4 years, so you can expect to see the impact of the final layering of RSU expenses in our 1st fiscal quarter of 2026. General and administrative expenses were $27,000,000 up $4,000,000 from a year ago and down slightly sequentially. Gross realized performance fees were $43,000,000 for the quarter and $22,000,000 net of related compensation expense, both were the highest level we've seen in 2 years.

Speaker 5

Add it all up and adjusted net income per share was $0.48 up 85% from a year ago driven by growth in fee related revenues, FME margin expansion and higher net performance fees. Moving to key items on the balance sheet on Slide 13. Net accrued carry finished the quarter at $677,000,000 up 7% from last quarter driven primarily by underlying fund valuation appreciation. As a reminder, our fund valuations are reported on a 1 quarter lag. Our own investment portfolio ended the quarter at $218,000,000 Unfunded commitments to our investment programs were $109,000,000 as of quarter end.

Speaker 5

As of June 30, we had over $80,000,000,000 of performance fee eligible capital, which is widely diversified across multiple vintage years and over 200 programs. 85% of our net unrealized carriers tied to programs with vintages of 2019 or earlier, which means that these programs are largely out of their investment periods and in harvest mode. Of this amount, 54% is sourced from vehicles with deal by deal waterfalls, meaning realized carry may be payable at the time of investment exit. This concludes our prepared remarks. I'll now turn it back over to the operator to open the line for any questions.

Operator

Thank And our first question is going to come from the line of Kenneth Worthington with JPMorgan. Your line is open. Please go ahead.

Speaker 6

Hi, good afternoon. Thanks for taking the question. I wanted to start with the innovation in Wealth Management around the tickers. So where do you see the independent advisors now in terms of the education process here around the ticker based products? And $800,000,000 of sales is sort of a strong endorsement of what you developed and sort of begs the question of what sort of feedback you're getting on the structure?

Speaker 6

Is it the ticker that you think is making the difference here? Or is it really just the performance has been good, the brand name is solid? Anything you can talk about in terms of attribution of the ticker in terms of strength of sales?

Speaker 3

Thanks, Ken. Jason here. Look, the overall goal of all these products is to sand off all the rough edges of how hard it is for the individual investor to invest in private markets. And some of these rough edges are stand off by the structure alone, right? 10.99 tax reporting versus K-1s and no capital calls, etcetera.

Speaker 3

The ticker innovation we think is probably the most material development in sanding off those rough edges because the subscription process for a private fund is lengthy. The feedback has been very supportive and we've seen the percentage for those funds that offer the ticker. We've seen those flows continue to creep up in terms of the mix between ticker versus subscription document. So it's certainly contributing, hard to quantify exactly how much it's contributing to the growth. But we're at the point now where about half of the flows we see in the U.

Speaker 3

S. Funds that offer the ticker are coming from ticker as opposed to sub doc.

Speaker 6

Perfect. You answered it better than I asked it. So I appreciate that. Moving on, you sold, I think, the Green Spring back office this quarter. I believe you acquired the non controlling interests.

Speaker 6

I think it was throughout the quarter, maybe from April to June. And hopefully I didn't miss this in your prepared remarks. What if you can take us into P and L, talk about sort of what those events did in terms of impacting the P and L this quarter And how we should if there's anything different in terms of what we should expect next quarter or the quarter after based on the timing this quarter?

Speaker 5

Yes, Ken, this is David. So I don't think you should expect anything different next quarter. Everything is fully baked in this quarter. The NCI buy in was effective April 1. The Green Spring back office sale occurred at the end of December.

Speaker 5

So again, I think what we had communicated before was we did expect to see about $2,000,000 benefit to the bottom line with the sale of the back of Green Spring back office. That was fully baked in the calendar 1Q and this 1st fiscal quarter. So again, it should all be in run rate.

Speaker 6

Okay, great. Thank you very much.

Operator

Thank you. And one moment as we move on to our next question. And our next question is going to come from the line of Alex Blostein with Goldman Sachs. Your line is open. Please go ahead.

Speaker 7

Hi, this is Anthony on for Alex. Wanted to hit on fundraising and the commingled funds. I know there's a few funds in the market right now and wanted to get an update on fund size expectations as well as which ones you expect to be generating retro fees for the rest of the fiscal year.

Speaker 2

Sure. Thanks, Anthony, for the question. So you heard Mike talk during the prepared remarks about the key commingled fund flows during the quarter. And just to recap those, there was about 800 dollars that was raised during the quarter for our private equity secondaries fund, about $800,000,000 that brought us to the final close of the Venture Capital Secondaries Fund. There was over $400,000,000 raised across our real estate special situation secondaries fund.

Speaker 2

And the remainder, if I set aside the private wealth business, the remainder was spread across a number of infrastructure, private debt and venture capital strategies. So in terms of where we get to final fund size, the Venture Capital Secondaries Fund, as I mentioned, has now had a final close at about $3,300,000,000 Mike mentioned during the call that our private equity secondary fund is now a bit over $4,000,000,000 and we expect to have a final close in the coming months of a few 100 additional $1,000,000 And again, we compared that to where the previous fund was at about 2.1 $1,000,000,000 But as it relates to the remaining funds that continue to raise, you're still in the progress of getting those completed. We mentioned that real estate would wrap up around the end of the year, but no specific guidance in terms of fund size on any of the other vehicles there.

Speaker 7

Great. Thanks. And my second follow-up is on margins. Just given the high jumping off point this quarter benefiting from retro fees, do you still expect FRE margins in the mid-30s? Or is there some upside to that number just given the retro fee dynamic for the fiscal year?

Speaker 5

Yes. This is David. So again, like with the benefit of the retro fees, we hit a 40% margin. But to your point, even with that, the retro fees margin saw a pretty healthy increase from last year. And just as Scott mentioned, the majority of the $19,000,000 of retro fees this quarter was largely related to the PE secondaries fund.

Speaker 5

And we do expect another close next quarter. So you can expect to see some level of retro fees throughout the year. But even without that, we feel like we feel pretty good about where we are today and the progress we've made to date. And we do feel, we're firmly on track to achieve the margins in the mid-30s over the medium term.

Speaker 7

Very helpful. Thank you.

Operator

Thank you. And one moment for our next question. And our next question is going to come from the line of Ben Budish with Barclays. Your line is open. Please go ahead.

Speaker 8

Hey, good evening. This is Nick Benoit on the call for Ben tonight. I just want to ask about the pipeline outlook for SMA flows. Looks like SMA has picked up over the last two quarters and we just want to think about the trajectory for the rest of the year and maybe how we should think about more normalized levels going forward?

Speaker 2

Sure. Thanks Nick for the question. So on the SMA flows, you'll have both the gross AUM flows as well as then and Mike outlined some of this, the conversion of undeployed fee earning capital into fee earning AUMs. You have the related fee earning AUM flows as well. But I would say the pipeline continues to be solid.

Speaker 2

Obviously, we're coming off of a record breaking quarter this quarter and we've always got into the fact that there will be some lumpiness from quarter to quarter. But we feel good about the continued pipeline of both REA and new opportunities, I'd say, particularly outside the U. S. And in parts of the world like Asia, Middle East and parts of Europe, quite a bit of activity. But then as it relates to the fee earning AUM flows, we talked during the prepared remarks about the fact that over $4,000,000,000 of undeployed ferrant capital is likely to activate by the end of the calendar year.

Speaker 2

On top of that, if you were to look at the presentation, we talk about fact this quarter we had about $4,100,000,000 of UFECT that converted into fearing AUM. A sizable part of that was the activation of the venture secondaries fund, but there was about $1,300,000,000 of UFEC deployment as well. And look, if we think about the current deployment environment, we've certainly seen a rebound from the lows of the first half of twenty twenty three, but still a somewhat muted environment today, albeit with a more exciting pipeline as we look out to the second half of the year here. So we generally expect to see some positive momentum as it relates to the conversion of UFEC into fearing AUM.

Speaker 8

Great. Thanks for response. And then separately, it was great to hear spring add to its 2nd wirehouse during the quarter. I just want to touch on kind the competition you're seeing on the wires and how much harder is it to get product on these various platforms compared to 12 months ago? What's all the influx of products come to the market seems like?

Speaker 8

Thanks.

Speaker 3

Thanks. Jason here. Look, the products that we've created for the wealth channel, we believe are relatively differentiated versus what the lead sponsors bring as well as the peers. Spring in particular stands out as a rather unique product in the venture growth space, multi manager. And I mean if it's getting more difficult, I would say it may be, but spring got on faster onto these two wires than we were able to get S Prime on.

Speaker 3

So I think we're going to get our share of shelf space based on the products we've developed, the performance that we're showing and the large dedicated team that we've put on the field to market these products and service the clients afterwards.

Speaker 4

Got it. Thank you.

Operator

Thank you. One moment for our next question. And our next question is going to come from the line of Michael Cyprys with Morgan Stanley. Your line is open. Please go ahead.

Speaker 9

Great. Thank you. Good afternoon. Maybe just on Private Wealth, it seems like the ticker you're getting a bit of traction with there. And curious as you think about sort of the next stage of innovation in the private wealth channel, what else can be done to remove frictions for investors coming into the private market space?

Speaker 9

One thing that comes to mind, I'm curious to get your thoughts on it is potential development of model portfolios for private markets. So curious where we are in that journey. What steps are you guys taking as you think about removing even more frictions and opening up access further? Thank you.

Speaker 3

Thanks, Mike. We do believe that model portfolios will play a part in the growth of private markets inside the portfolios of individual investors. That's for sure. We expect that the DC space will be part of that as well. And in terms of friction, the ticker in the U.

Speaker 3

S. Is now a path that people are starting to understand. We do believe that there'll be solutions outside the U. S. To help with this as well.

Speaker 3

And those different legs, I think each, will provide a lot of avenues for innovation. And we still think that there's space for innovation in the product offerings, I. E, products that we're able to bring to bear that aren't out there yet. And so those are all different avenues where I think we'll continue to innovate.

Speaker 9

Great. And just a follow-up question on the margin profile. I think you mentioned the margin would be up a couple of 100 basis points year on year, excluding the retro fees suggesting sort of an underlying margin profile of about 35%, if I have that right in the quarter. So just curious why that is not or should that be the right jumping off point as we go forward from here putting any aside any incremental retro fees? Why or why not?

Speaker 9

Is there an expectation for investment spend hiring to accelerate meaningfully that would take it a bit slower? Just curious about the moving parts there.

Speaker 5

Yes. David here. I think that's right. Like if you exclude the retroactive fees for this quarter, you're closer to about 34% margin. We do expect, like I said in the prepared remarks to invest in our business development team, private wealth team and other key support areas.

Speaker 5

So that's going to be a little bit of a drag on margins. But again, we do feel we're in a good place and we're the trajectory is still going up into the mid-30s over the medium term.

Speaker 4

Great. Thanks.

Operator

Thank you. And our next question will come from the line of Adam Beatty with UBS. Your line is open. Please go ahead.

Speaker 10

Thank you and good afternoon. Just wanted to parse out the fee rate a little bit. Obviously, some nice momentum there. And you mentioned, obviously, the catch up fees, as well as some lift from momentum in the wealth channel. So just wondering if you could maybe parse that out either on a trailing 12 month basis or for the quarter in terms of the contribution of wealth management that we should think of as sort of a positive going forward?

Speaker 10

Thanks.

Speaker 5

Yes, Adam, this is David. So if you look at our blended fee rate of 61 basis points this quarter, it certainly did benefit from retroactive fees. So if you exclude that, we're kind of right back in the high 50s. And if you look at private well, it's right around $4,200,000,000 in total assets. So it grew about $1,000,000,000 from last year.

Speaker 5

So you can see that as it continues to grow, it's going to with the higher fee rate, it will tend to lift the overall blended fee rate, but at $4,000,000,000 it's going to take a little bit of time to really move the needle. Okay.

Speaker 10

Makes sense. Thank you, David. And then just on some of the wealth management products, interesting how you mentioned that you were getting on platforms maybe at a more accelerated rate, which speaks to the relationships that you've been able to develop. So just wondering in terms of the positive flows there, what you're seeing in terms of preferences, wirehouses maybe versus other distributors, or maybe by segment in terms of the customer base? Thank you.

Speaker 3

Thanks, Adam. In terms of the syndicate that we put together for the different funds, at this point, we've got just about 100 different partners that are distributing more than one product, meaning 2 products and about half that or so that are distributing even more than that. So certainly cross sell is part of the play here as opposed to mix among the different types of platforms as different whether it be an RIA, an IBD wire or international partner have had a good experience with us with one fund. They are providing us additional shelf space as they evaluate the other products that we've got. So I think that is probably one of the interesting parts of this.

Speaker 3

In terms of the mix between the different types of channels, we still continue to be a U. S. Dominated distribution with all of the funds. We're continuing to invest in our non U. S.

Speaker 3

Distribution. And the wires are definitely a growing portion of the allocation and we're happy there, but we're equally dedicated to our other distribution partners. They all make up an important part of this ecosystem and have different needs and we're dedicated to ensuring that we meet each one of those distribution partners where they are.

Speaker 10

Super. Appreciate the detail. Thank you, Jason.

Operator

Thank you. One moment for our next question. And we have a follow-up question from the line of Michael Cyprys with Morgan Stanley. Your line is open. Please go ahead.

Speaker 9

Hey, thanks for taking the follow-up question here. Just wanted to circle back to the UFIC balance growth up substantially in the quarter. I was hoping maybe you could help unpack some of the moving pieces there. Was it like $9,000,000,000 or so added to the top of the funnel? And then just on the $4,000,000,000 of SMA capital that you expect to be activated, I believe by calendar year end.

Speaker 9

Just curious what drives the confidence around that, as I don't recall hearing that sort of commentary in the past? Thank you.

Speaker 2

Sure. So if you think about the moving pieces relative to last quarter, you're right, there were about $9,000,000,000 of SMA related AUM flows, essentially all of which flowed into that undeployed fee and capital balance. And then offsetting that was the activation of the venture capital secondaries fund. And again, that was raised at the final close was $3,300,000,000 but it was less the $800,000,000 was raised during the quarter. So it was less than that that kind of came out of the UFEC balance.

Speaker 2

So those are the main drivers together with the $1,300,000,000 of deployment that I mentioned that get us to the current balance. And I think one of the ways to think about that, it wasn't specifically related to your question, but we've always talked about our ability to deploy that UFIC over a 3 to 5 year time period. And just to kind of reiterate some of the math we walked through last quarter, if you think about the 1,300,000,000 dollars of deployment this quarter and we're to annualize that to get to about $5,200,000,000 run rate implies just over a 4 year investment period despite the fact that deployment has been somewhat muted here. But just over 4 years, once you adjust for the $4,000,000,000 plus of activations. Just as it relates to your final question on the activation, as a reminder, some of our separate accounts do in fact pay on committed capital.

Speaker 2

And so these were separate accounts that closed during the quarter, have not yet activated mostly because we are still investing the prior fund for those that were re ups. And so our confidence level comes from expectations around when we expect to be fully deployed on the prior vehicle and therefore we'll be able to activate those separate accounts.

Speaker 9

Great. And anything to be aware of on step downs on fees or fee basis on those prior vintages as you activate the next tranche?

Speaker 2

Well, yes, I mean typically when we do activate a new tranche, it will result in a step down to the fee base of the prior vehicle. These are all vehicles that we have kind of gone through re ups for in the past. So nothing we would call out as it relates to unusual step downs in fee base, which we've again committed to calling out for you going forward here.

Speaker 9

Great. Thanks so much.

Operator

Thank you. And I would now like to hand the conference back to Scott Hart for any closing remarks.

Speaker 2

Well, thanks everyone for your time and continued interest in StepStone. We appreciate the time today and hopefully you sense the level of excitement around here for both the quarter that we just achieved as well as the outlook going forward here. So we look forward to updating everyone again next quarter. Thank you.

Operator

This concludes today's conference call. Thank you for participating and you may now disconnect. Everyone have a great day.

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Key Takeaways

  • StepStone delivered strong Q1 results with fee-related earnings up 61% to $71.7 million, a 40% FRE margin, and adjusted net income of $57.2 million ($0.48 per share) versus $29.4 million ($0.26).
  • The firm achieved record‐breaking fundraising and capital growth, including $12.6 billion of gross AUM additions, over $100 billion in net fee-earning assets, and a quarterly high of $27.6 billion in undeployed fee-earning capital.
  • Key commingled fund milestones included raising over $4 billion for its private equity secondaries fund, $3.3 billion for its venture capital secondaries fund, and $400 million+ for its special situation real estate secondaries fund.
  • Private wealth offerings saw a record $800 million in subscriptions, with nearly half of U.S. fund flows via ticker-based products and expansion onto two major wirehouses with about 400 distribution partners.
  • Looking ahead, StepStone expects to deploy over $4 billion of undeployed capital by year-end, achieve mid-30s FRE margins excluding retro fees, and has raised its quarterly dividend from $0.21 to $0.24 per share.
A.I. generated. May contain errors.
Earnings Conference Call
StepStone Group Q1 2025
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