StepStone Group Q2 Earnings Call Highlights

Key Points

• Fee-related earnings hit a record $126 million, up 61% year over year. Fee revenue rose 37% to $298 million, while adjusted net income increased to $83 million; management cautioned that the quarter’s 42% core margin should not be viewed as a run rate.
• Fundraising and private wealth continued to expand. StepStone raised more than $11 billion in the quarter and over $43 billion in the past 12 months; private wealth platform assets topped $23 billion, and fee-earning AUM reached $158 billion.
• The company reported a $71 million GAAP net loss because of an accounting adjustment tied to the planned buy-in of private wealth profits interests. StepStone plans to retain cash that otherwise would fund its supplemental dividend to help finance the buy-in; its regular $0.33 quarterly dividend remains unchanged.

StepStone Group NASDAQ: STEP reported record fee-related earnings and its strongest 12-month fundraising period in the second quarter of fiscal 2027, as growth in managed accounts and private wealth funds lifted assets and revenue.

The private markets investment firm generated $126 million in fee-related earnings, up 61% from a year earlier, and raised more than $11 billion during the quarter. Fee-earning assets under management rose by $5 billion to $158 billion.

StepStone also reported a GAAP net loss attributable to StepStone Group Incorporated of $71 million, or $0.87 per share. Head of Investor Relations Seth Weiss said a required accounting adjustment for the change in fair value of the planned buy-in of the StepStone private wealth profits interest drove the negative result.

Fee Earnings Rise, but CFO Cautions on Margins

Fee revenue increased 37% from the prior-year quarter to $298 million, driven by growth in fee-earning assets across the platform, Chief Financial Officer David Park said. Advisory fees also contributed, partly because of project-based work.

Excluding retroactive fees, core fee-related earnings rose 56% to $122 million. The core fee-related earnings margin improved by 6 percentage points from a year earlier to 42%. Adjusted net income increased to $83 million, or $0.66 per share, from $67 million, or $0.54 per share, a year earlier.

Park cautioned analysts against treating the quarterly margin as a run rate for the rest of the fiscal year. Revenue benefited from several commingled-fund closings, while the quarter reflected only part of the compensation costs for employees hired near its end. Conference expenses also tend to make the fiscal third and fourth quarters seasonally more expensive, he said.

For the full year, Park expects meaningful margin improvement over the prior year. He also said StepStone now expects a cash compensation ratio of roughly 42%, compared with its earlier indication of 43%.

Fundraising and Private Wealth Growth

StepStone raised more than $43 billion over the past 12 months, including approximately $24 billion from separately managed accounts and more than $20 billion from commingled funds, Head of Strategy Mike McCabe said. About $9 billion of managed-account additions came from new accounts or existing clients expanding into new asset classes or strategies.

The quarter’s gross additions included $7.5 billion from managed accounts and nearly $4 billion from commingled funds. CEO Scott Hart said private credit was the largest driver of managed-account activity by asset class, followed by infrastructure and private equity.

StepStone’s debut infrastructure secondaries fund closed at its $1.5 billion hard cap, making it the firm’s largest inaugural fund. A venture capital secondaries fund was activated after quarter-end and will add $1.8 billion to fee-earning assets in the fiscal third quarter, McCabe said.

Private wealth funds received $1.7 billion in subscriptions during the quarter, bringing platform assets to more than $23 billion. Redemptions were 2% across the platform. President and Co-Chief Operating Officer Jason Ment said StepStone had more than 860 syndicate partners, an increase of 40 to 50 from the prior quarter.

Ment said the firm has no immediate plans to expand its product suite. He expects announcements in the coming weeks and months involving StepStone as part of private-market solutions for 401(k) plans, while noting that adoption will take time. The company’s outlook for the retirement channel had not changed following the U.S. midterm elections, he said.

Buy-In Plans and Carry

StepStone plans to retain the capital that would otherwise fund its supplemental dividend this fiscal year as it prepares to exercise its option to buy in the private wealth profits interests. The regular quarterly dividend remains $0.33 per share, McCabe said.

He said the company can fund the transaction with cash, debt or up to 75% in StepStone equity, with the final mix to be determined based on market conditions. Retaining cash gives the firm more flexibility in financing the buy-in, he said.

Net accrued carried interest exceeded $1 billion for the first time, rising 23% from a year earlier. Park said 65% was tied to programs older than five years. Gross realized performance fees were $65 million for the quarter, or $32 million after related compensation expense.

Hart cautioned that the timing of future realizations is difficult to predict because StepStone does not fully control investment exits. Park said performance fees will continue to vary from quarter to quarter.

Private Markets Outlook

Hart said slower returns of capital and higher interest rates remain challenges for private markets, although he expects opportunities in areas including artificial intelligence, digital infrastructure and energy transformation. He said future investment returns are likely to rely more on revenue growth, margin expansion and operational execution than on leverage or rising valuation multiples.

He also expects secondaries transactions to remain an important source of liquidity as the industry manages investments that have yet to be realized. StepStone ended the quarter with more than $42 billion in undeployed fee-earning capital, which Hart said generally has been deployed over a three- to five-year period.

About StepStone Group (NASDAQ:STEP)

StepStone Group, Inc is a global investment firm focused on private markets. The company provides investment solutions and advisory services to institutional investors, family offices, and other clients seeking exposure to privately held and alternative assets.

Its activities include investments in private equity, venture capital, private debt, infrastructure, and real estate. StepStone builds customized portfolios through primary investments in funds, secondary-market transactions, and direct investments in companies and assets.

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