StepStone Group (STEP) Q2 2027 Earnings Call Transcript

DATE

Thursday, Nov. 5, 2026

CALL PARTICIPANTS

• Head of Investor Relations - Seth Weiss
• Chief Executive Officer - Scott Hart
• President and Co-Chief Operating Officer - Jason Ment
• Head of Strategy - Mike McCabe
• Chief Financial Officer - David Park

TAKEAWAYS

• Fee-Related Earnings -- $126 million, up 61% year over year driven by growth in fee-earning AUM across both drawdown and evergreen funds.
• Core FRE Margin -- 42%, up 6 percentage points year over year when excluding the impact of $4.2 million in retroactive fees.
• Adjusted Net Income -- $0.66 per share, up from $0.54 per share in the prior year quarter.
• Gross Fundraising -- $11 billion during the quarter, contributing to a record $43 billion in gross AUM additions over the past 12 months.
• Fee-Earning AUM -- $158 billion, up 19% year over year reflecting strong contributions from managed accounts and commingled funds.
• Undeployed Fee-Earning Capital -- $42 billion, a record high for the company driven by robust managed account fundraising.
• Private Wealth Subscriptions -- $1.7 billion for the quarter, growing the total private wealth platform to over $23 billion.
• Private Wealth Redemptions -- 2%, indicating high persistency of assets within the retail and high net worth channels.
• Net Accrued Carry -- $1 billion, up 23% year over year and marking the first time the company has surpassed this milestone.
• Private Equity FEAUM -- $87.7 billion, representing 25% year-over-year growth.
• Private Debt FEAUM -- $27.0 billion, representing 20% year-over-year growth.
• Infrastructure FEAUM -- $31.0 billion, representing 15% year-over-year growth.
• Real Estate FEAUM -- $12.6 billion, a 6% decrease year over year.
• GAAP Net Loss -- $71 million or $0.87 per share, primarily due to fair value adjustments for private wealth profits interests.
• Cash Compensation Ratio -- 41% on an adjusted basis, with management lowering its full-year expectation to roughly 42%.
• General and Administrative Expenses -- $44 million, up from $34 million in the prior year quarter due to platform growth and distribution fees.
• Gross Realized Performance Fees -- $65 million, which management noted was significantly stronger than the pace of the previous two quarters.
• Infrastructure Secondaries Fund -- $1.5 billion in committed capital, closing at its hard cap and exceeding its original target.
• Venture Capital Secondaries Fund -- $1.8 billion expected to be added to FEAUM in the third fiscal quarter following its activation post-quarter.
• SMA Distributions -- $3.2 billion, an increase driven by the expiration of a large mandate communicated in the previous quarter.
• Investment Portfolio -- $387 million at the end of the quarter, providing a durable base for future earnings growth.

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RISKS

• Scott Hart stated, "While the absolute level of distributions is improving, distribution yields relative to the amount of capital invested remain near historic lows as capital market activity has been sluggish," noting that uncertainty regarding interest rates continues to impact exit channels.

SUMMARY

StepStone Group Inc. (NASDAQ:STEP) reported record quarterly fee-related earnings and fundraising activity, underpinned by a 19% organic growth rate in fee-earning assets since fiscal 2022. Management indicated that the firm is building cash reserves to fund a planned buy-in of private wealth profits interests due within the next 12 months, which will involve retaining capital originally intended for supplemental dividends. The company reported record net accrued carry of over $1 billion, with 65% of that balance tied to programs older than five years that are entering their harvesting phase. Management stated it is expanding into U.S. retirement and insurance solutions while deepening its specialist data and technology partnerships to drive future growth.

• CEO Hart noted that future private equity returns will rely more heavily on operational execution: "We expect returns to be driven increasingly by revenue growth, margin expansion, and operational execution, with less reliance on leverage and valuation multiple expansion."
• Management is targeting the $10 trillion to $15 trillion of unrealized private market capital by positioning its secondaries platform as a critical liquidity provider.
• The company expanded its private wealth distribution syndicate to over 860 partners, an increase of 40 to 50 platforms over the previous quarter.
• Jason Ment stated that the inclusion of private markets in 401(k) plans is a "necessary component to solving the retirement gap that we face here in the U.S."
• The firm launched SPI AI, a new addition to its suite of data products, to demonstrate the practical application of artificial intelligence across its investment platform.

INDUSTRY GLOSSARY

• FRE (Fee-Related Earnings): A measure of operating profitability that focuses on recurring management and advisory fees.
• FEAUM (Fee-Earning AUM): The portion of assets under management that serves as the basis for calculating management fees.
• UFEC (Undeployed Fee-Earning Capital): Capital commitments that have been raised but not yet invested or activated for fee generation.
• SMA (Separately Managed Account): A customized investment portfolio managed for a single institutional or high net worth client.
• Evergreen Funds: Open-ended investment vehicles that allow for ongoing subscriptions and periodic redemptions, unlike traditional closed-end funds.
• SPI (StepStone Private Intelligence): The company's proprietary data and technology suite used for private market analysis.

Full Conference Call Transcript

Operator: Good day, and thank you for standing by. Welcome to the second quarter fiscal year 2027 StepStone Group earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Seth Weiss, Head of Investor Relations. Please go ahead.

Seth Weiss: Thank you. 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.stepstonegroup.com. Before we begin, I would 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. Forward-looking statements reflect management's current plans, estimates, and expectations, 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 factor section of StepStone's periodic filings. These forward-looking statements are made only as of today, and except as required, we undertake no obligation to update or revise any of them. Today's presentation contains references to non-GAAP financial measures. 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 second quarter of fiscal 2027.

Beginning with slide four, we reported a GAAP net loss attributable to StepStone Group Incorporated of $71 million, or $0.87 per share. As a reminder, GAAP accounting requires us to factor the change in fair value of the buy-in of the StepStone private wealth profits interest through our income statement, which drove the negative GAAP earnings result this quarter. Moving to slide six, we generated fee-related earnings of $126 million, up 61% from the prior year quarter, and we generated an FRE margin of 42%. The quarter reflected retroactive fees of $4.2 million across our private equity co-investment fund, our two private equity secondaries funds, our infrastructure co-investment fund, and our infrastructure secondaries fund.

This compares to retroactive fees of $0.3 million in the second quarter of the prior fiscal year. When excluding the impact of retroactive fees, core fee-related earnings were $122 million, up 56% relative to the prior year quarter, and our core FRE margin improved to 42%, up 6 percentage points from a year ago. We earned $83 million in adjusted net income for the quarter, or $0.66 per share. This is up from $67 million, or $0.54 per share, in the second quarter of the last fiscal year, driven fully by growth in fee-related earnings. I will now hand the call over to Scott.

Scott Hart: Thank you, Seth. This was a remarkable quarter that put both the growth of our platform and the resiliency of our operating earnings on full display. I want to start by highlighting our record results. We generated fee-related earnings of $126 million, surpassing last quarter's prior high by 20%. We generated a core FRE margin, adjusted to exclude the impact of retroactive fees, of 42%, which is 2 percentage points above our previous peak.

We delivered adjusted net income per share of $0.66, our second-best quarter on record, and we raised over $11 billion of capital during the quarter and $43 billion over the past year, with balanced contributions from separate accounts, drawdown commingled funds, and our private wealth evergreen funds. This represents our strongest 12-month period of fundraising in our history. The strength of these results reflects the platform we have built over nearly 20 years. We have established significant scale and breadth across asset classes, geographies, strategies, and commercial structures. We have made strategic investments to access new markets, and just as critically, our teams have executed extraordinarily well against these opportunities.

We have delivered strong investment performance, which is key to retaining and expanding existing relationships, winning new mandates, and growing our balance of accrued carried interest and investments. Our $158 billion of fee-earning AUM, $42 billion of undeployed fee-earning capital, more than $1 billion of net accrued carry, and nearly $400 million of investments provide a substantial and durable earnings base from which we will continue to grow. We are clearly optimistic about the growth of our established businesses.

At the same time, we are pursuing new opportunities, including U.S. retirement and insurance solutions, and we are continuing to develop data and technology partnerships, all of which have the potential to create substantial avenues of additional growth over the coming years. Shifting gears, we recently hosted StepStone 360, our annual flagship conference for StepStone clients. This year's conference was our largest ever, with over 400 client participants from nearly every region of the world. The StepStone 360 conference always presents a great opportunity to connect with our clients and to showcase the strength of our data and the depth of our team.

This year, we were excited to announce the addition of SPI AI to our SPI suite of products and to demonstrate how we are using AI across the StepStone platform. Not surprisingly, we also spent a significant amount of time focused on some of the headwinds facing the private markets, including higher interest rates and slower return of capital. While these do present challenges, they also create opportunities, and managing through them plays specifically to StepStone's strengths. I'd like to share some of the insights we presented on these themes. I'll start with interest rates, which have taken another step higher in recent months as the 10-year US Treasury yield crossed 5% for the first time in nearly 20 years.

While the easy money era that characterized the 2010s is over, we believe the next decade will present attractive opportunities for private markets. However, we expect the drivers of returns to look different. Looking back at private equity investments made during the 2010s, returns benefited from a favorable and perhaps unsustainable tailwind from enterprise value multiple expansion, driven in part by low and generally declining interest rates. That environment also contributed to relatively tight dispersion across funds, making manager performance appear more uniform than it was historically. Looking ahead, we see tremendous opportunities for fundamental value creation.

Artificial intelligence, digital infrastructure, energy transformation, cybersecurity, and defense are just a few of the themes that will require significant investment across the private markets. We expect returns to be driven increasingly by revenue growth, margin expansion, and operational execution, with less reliance on leverage and valuation multiple expansion. That is an environment in which we believe underwriting and manager selection will matter more than ever, and we believe this plays directly to StepStone's strengths. Our evaluation of GPs places a premium on identifying managers with the capability to drive fundamental value creation.

Furthermore, our scale and data give us access to a broad range of opportunities across primary fund investments, co-investments, and secondaries, and critically, gives us the ability to be highly selective among them. The second dominant theme was return of capital. While the absolute level of distributions is improving, distribution yields relative to the amount of capital invested remain near historic lows as capital market activity has been sluggish. We believe that uncertainty on the direction of interest rates, rather than the level of interest rates, has been the primary driver of slower capital market activity. We expect that a stabilization of rates would help reopen traditional exit channels, including strategic M&A and sponsor-to-sponsor transactions.

However, with $10 trillion of private equity capital and roughly $15 trillion of private market capital that is invested but yet to be realized, the industry will increasingly need to utilize the full range of liquidity solutions available. LP-led and GP-led secondaries have already emerged as critical mechanisms for generating liquidity, and we expect that trend to persist. StepStone's secondaries platform is a provider of liquidity across the private markets. Our scale, investment capabilities, and depth of data give us a differentiated position, and we believe a sustainable competitive advantage as the secondaries market continues to grow across asset classes. I'll now turn the call over to Mike to speak about fundraising and asset growth.

Mike McCabe: Thanks, Scott. Turning to slide nine, we generated over $43 billion of gross AUM additions over the last year, our best 12-month period ever. This fundraising was strong across our commercial structures, with over $20 billion coming from our commingled funds and approximately $24 billion from separately managed accounts. Of the managed account additions, $9 billion, or approximately 40%, came from a combination of new accounts or the expansion of existing accounts into new asset classes or strategies. During the quarter, we generated over $11 billion in gross additions, including $7.5 billion of managed account additions and nearly $4 billion of commingled fund inflows. This was our second-largest quarter ever for managed account gross additions.

I want to highlight private debt and infrastructure, which were particularly strong for this quarter. While each managed account solution is unique, there were a few common themes underpinning our success across these asset classes. First, our institutional LPs place a significant value on the diversification, yield, and attractive risk-adjusted returns that these asset classes offer, and our scale allows us to help clients deploy significant capital across these asset classes. Second, our strength across the private markets allows StepStone to leverage firm-wide relationships to broaden our client engagements and deliver holistic private market solutions.

Shifting to commingled funds, notable additions to our drawdown funds included approximately $600 million in our private equity co-investment fund, $700 million in our private equity secondaries funds, $600 million in our venture capital secondaries fund, more than $300 million in SCRED, our institutionally focused private credit BDC, and a $300 million final close in our debut infrastructure secondaries fund. This fund closed with $1.5 billion of committed capital, surpassing its target and reaching the hard cap. This was our largest inaugural fund ever and is indicative of the strong demand we see for infrastructure investments and of StepStone's leadership in both infrastructure and secondaries.

We remain in market with our special situation real estate secondaries fund and our multi-strategy growth equity fund, with first closes expected in the new calendar year and activations to follow. Lastly, we activated our venture capital secondaries fund following the end of the quarter, which will add $1.8 billion to fee-earning AUM in our fiscal Q3. This is an exciting period of fundraising for our firm. We have essentially every flagship drawdown fund in market this year. Taken together, our prior vintage sizes, plus the addition of our infrastructure secondaries fund and our GP-led private equity secondaries fund, provide a baseline of roughly $20 billion from which to grow.

We have already raised over $11 billion across these funds and are well on pace to exceed prior vintage sizes. Turning to our evergreen funds, we generated $1.7 billion of subscriptions in our private wealth suite of offerings, growing the platforms of over $23 billion as of the end of the quarter. Looking at the last 12 months, we generated approximately $9 billion of private wealth subscriptions. The persistency of our private wealth assets remains very high, with redemptions of only 2% across the platform this past quarter. We are very excited about the long-term opportunity in private wealth.

Penetration of private markets into high net worth is in the low single digits, while mass affluent exposure to private investments is near zero. We expect to continue to market our funds to high net worth individuals. We expect access to the mass affluent to grow through both direct subscriptions as well as through allocations from model portfolios and defined contribution retirement funds. Here, we believe StepStone's diversified, multi-asset class, multi-manager platform is ideally suited. StepStone solutions are already part of several model portfolios and retirement solutions. Slide 10 shows our fee-earning assets by structure and asset class. For the quarter, we increased fee-earning assets by $5 billion to $158 billion, driven by healthy gross contributions of $8.5 billion.

Offsetting was higher-than-normal SMA distributions, driven in part by the expiration of a large SMA mandate, which we communicated last quarter. Our undeployed fee-earning capital, or UFEC, grew to over $42 billion, a new StepStone peak, driven by strong managed account fundraising. The combination of fee-earning assets plus UFEC grew to approximately $201 billion, which is up $8 billion sequentially and is up more than $38 billion from a year ago. This translates to a 19% annual organic growth rate since fiscal 2022. Slide 11 shows our evolution in our fee revenues.

We generated a blended management fee rate of 67 basis points over the last 12 months, higher than our fiscal 2025 and 2026 periods, as favorable mix shift to our evergreen funds offset a moderation in retroactive fees, which were elevated in 2025. Before turning the call over to David, I wanted to provide a quick update on our plans for shareholder distributions for this year. We are now within 12 months of our call option to buy in the private wealth profits interests. As we prepare to exercise this option, we intend to build cash by retaining the capital that would otherwise fund our supplemental dividend this fiscal year.

We have a number of options to fund the buy-in, including cash on hand, debt financing, and the ability to fund up to 75% of the consideration in StepStone equity. We will determine the ultimate financing mix based on market conditions at the time of the buy-in. Building additional cash today provides us with greater flexibility to optimize that mix and maximize the accretion of this transaction. To be clear, this does not impact our regular quarterly dividend, which remains at $0.33 per share. I'll now turn the call over to David to speak to our financial highlights.

David Park: Thanks, Mike. Turning to slide 13, we earned fee revenues of $298 million, up 37% from the prior year quarter. The increase was driven by growth in fee-earning AUM across the platform, with particularly robust growth in commingled funds across both drawdown and evergreen funds. Strong advisory fees also contributed to the revenue strength, due in part to project-based fees. Fee-related earnings were $126 million, up 61% from a year ago. FRE margin was 42% for the quarter, both on a reported basis and normalizing for retroactive fees. As Scott mentioned, this was our best quarter ever for core margins, driven by operating leverage. Shifting to expenses, total compensation was $128 million, up modestly from the $124 million last quarter.

The cash compensation ratio, adjusted for retroactive fees, was 41%. We now expect our full-year cash compensation ratio to come in at roughly 42%, better than the 43% rate we previously signaled. General and administrative expenses were $44 million, up $10 million from the prior year quarter, reflecting growth in the broader business, as well as increased private wealth platform distribution fees. As Scott mentioned earlier, we hosted our annual 360 Client Conference last month, and we will be hosting our annual venture capital event in February. Consistent with prior years, these conferences add seasonal expenses to our fiscal third and fourth quarters.

Gross realized performance fees were $65 million for the quarter and $32 million net of related compensation expense. This is considerably stronger than the pace of performance fees from the last two quarters. While the environment for realizations remains challenging, we are still seeing high-quality deals being executed, and we are seeing general partners using all available tools to harvest investments. Performance fees will continue to be episodic and will vary quarter to quarter. Adjusted net income per share was $0.66, up from $0.54 in the prior year's quarter, driven by growth and fee-related earnings. Moving to key items on the balance sheet on slide 14.

Net accrued carry finished the quarter at over $1 billion, our first time ever exceeding the billion-dollar mark, up 23% from a year ago. Our net accrued carry is relatively mature, with 65% tied to programs that are older than five years, which means that these programs are ready to harvest. Our own investment portfolio ended the quarter at $387 million. This concludes our prepared remarks. I'll now turn it back over to the operator to open the line for any questions.

Operator: Thank you. At this time, we will conduct the question-and-answer session. As a reminder, to ask a question, you'll need to press star one on your telephone and wait for your name to be announced. To withdraw your question, please press star one again. Please stand by while we compile the Q&A roster. Our first question today is from Mike Brown of UBS. Your line is open.

Mike Brown: Hi. Great. Good afternoon, guys. Wanted to start on the Evergreen side of the business. The subscriptions continue to be very strong, $1.7 billion in the quarter. The growth continues to be very impressive there. What are you seeing in terms of subscriptions and the redemption activity exiting the quarter here? How much of the future growth, as you look forward, will come from continuing deepening with your existing relationships versus adding new platforms or new products to your suite?

Jason Ment: Hi, Mike. This is Jason. Thanks for the question. Look, the good news is we are still so early in the adoption cycle with the individual investor that the answer is both, all are going to be avenues for future growth. As we think about adding syndicate partners, that continues to be very healthy quarter over quarter. We are over 860 different syndicate partners across the different fund families today, which is up 40 or 50 platforms over last quarter. In terms of the level of depth of growth with individual partners, that also continues to increase quarter over quarter.

If a platform has been distributing one of our funds for at least a year, there is a 55% of those groups are doing at least two, if not three or four funds today. Again, that has increased over time. The average number of funds they are distributing is now over two funds, at 2.1 funds. So, we are growing with the partners, and we are growing the syndicate as well.

In terms of the product suite today, we do not have immediate plans to expand, but as a reminder, in addition to the model portfolio fund of SPRIM, we have got strategy-specific offerings across private equity, infrastructure, credit, and venture growth, giving platforms the ability to create their own models or incorporate these into models and dial up or down the allocations. That is true for the individual investor and, importantly, for the defined contribution plan channel, which we expect will also be using these exact portfolios.

Mike Brown: Thanks, Jason. Appreciate all the color there. You mentioned the defined contribution channel, and I just wanted to ask about that in light of the midterm elections earlier this week. It has been an emerging growth avenue, the opportunity in the 401(k) channel for StepStone and the industry. As you guys pointed out, you have got a compelling product suite to address that. But with the midterm results now known and the scale of the blue wave perhaps larger than expected, is there a risk that this opportunity slows or runs into a bit more hurdles, maybe relative to what you were expecting a few months ago?

Jason Ment: I don't think our outlook has changed. We continue to believe that inclusion of private markets within the 401(k) offering suite is going to be a necessary component to solving the retirement gap that we face here in the U.S. In terms of the barriers to entry, we believe that the offerings that we've got available today work without any changes required from a regulatory or legislative perspective. As a reminder, the DOL, the Department of Labor, proposed regulations that were made in March are continuing to percolate. Adoption of those regulations would not require any congressional action before or after the new Congress is seated.

Mike Brown: Great. Thank you so much for taking my questions.

Operator: Thank you for your call. Our next question is from Ken Worthington with JPMorgan. Your line is open.

Ken Worthington: Hi. Good evening. Thanks for taking the questions. That was quite a quarter. Maybe to begin, this is the biggest SMA contribution number we've seen in, I think, a couple years, and despite the big contributions, UFEC grew further. Mike, maybe fleshing out your comments, can you give us a bit more on the business you're winning here, and maybe how does the pipeline look relative to the back book of business? Like, basically, where is it different, if at all, from the back book, either by, I don't know, like customer ask, class geography, like if there's differences?

Scott Hart: Hey, again, this is Scott. I will jump in there, and maybe Mike will add to what I have to say here. First, I think you are right to highlight it was a very strong quarter from a separately managed account standpoint. That was at least partially driven by some large re-ups and quite a strong quarter in the private credit asset class in particular. If I had to sort of rank by asset class, I would say private credit followed by infrastructure and then private equity were the three main drivers. That is part of the reason that Mike really highlighted the strength of private credit and infrastructure in some of the prepared remarks there.

In terms of the pipeline, look, we feel very good about the pipeline. There is quite a bit of activity at the moment. It is a good mix of new clients, existing clients looking to expand or re-up on existing opportunities. I would not say it looks terribly different than the existing sort of your back book of business. I would say there continues to be an emphasis across our teams to focus on areas like primaries, which is an important driver of the overall flywheel. Many of the opportunities we are looking at do have primaries as a key component.

But again, it does not look terribly different than what you would see in the back book of business there. Geographically speaking, you know from past conversations, it continues to be a very global business. I would say in the last quarter in particular, it was really Asia and the U.S. that drove the results. But if you look over a slightly longer time period on an LTM basis, pretty balanced across Asia, Europe, Australia, Middle East, and the U.S. here. That is how I would expect things to continue on a go-forward basis as well.

Ken Worthington: Awesome. Okay. Then just maybe quickly on margins. So margins up to 42%, even with the catch-up fees. Do you expect expenses to kind of catch up here? You got a lot of funds in market. Management fees should be on the rise. So do expenses catch up here, or is 42% something we should see more regularly in future quarters?

David Park: Hey, thanks for the question. This is David. Look, we are certainly pleased to see our margins hit 42% this quarter, but I caution you against using that as a run rate for the rest of the year. There are a couple things to consider in this quarter. First, revenues were higher this quarter due to the closings across a number of commingled funds. Second, compensation was a bit lighter, mostly due to when we hired people. We brought on a number of new hires near the end of the quarter, so you are only seeing part of their compensation costs show up in these results. Both of these will turn next quarter.

If you think about compensation, we will reflect the full cost of these new hires, so we will be a bit higher. We also, I guess, mentioned in the prepared remarks that our fiscal third and fourth quarters for G&A tend to be seasonally higher due to the two conferences. But on a full-year basis, I think it is fair to expect to see meaningful margin improvement over last year.

Ken Worthington: Wonderful. Thank you so much.

Operator: Thank you. Our next question is from Ben Budish with Barclays. Your line is open.

Ben Budish: Hi. Good morning, and thanks for taking the question. I guess maybe just following up there, I know it may be a little bit early for fiscal 2028, and there's a lot of maybe puts and takes around the wealth platform buy-in. But in terms of thinking of kind of ongoing leverage, as more revenues come onto the platform, is this sort of a 42 a good kind of baseline, or should we be thinking about kind of full-year margin expansion? Because I think we were all a bit surprised by the step-up, but just curious how to think about the next few years with that context. Thanks.

David Park: Yeah. Thanks for the question. I think that's fair. Looking at the remainder of fiscal 2027, again, I think we should expect meaningful improvement over last year. And looking out towards fiscal 2028 and beyond, post buy-in, there's no reason why not to expect margins would continue to see improvement sequentially. So, I think that's a fair point.

Ben Budish: Okay, great. Then maybe just on the SPRING crystallization, I think that comes up next quarter. I guess a lot can happen between now and the end of the year. But curious if you can give an update on what that is sort of trending towards. And I guess we're only a couple days into November, but how market moves in the next two months could impact that. Thank you.

Jason Ment: This is Jason. Thanks, Ben. Not going to comment on the exact performance fee. Obviously, there is a bit of time between here and there. Market moves in public stocks, obviously, there are some public positions in there. But more importantly, there's plenty of investment activity going on as well, and some of those will be driving value accretion within the fund. So, but probably want to refrain from speaking on exactly where performance fees will end up at 12/31.

Ben Budish: All right. Fair enough. Thank you very much.

Operator: Thank you. Our next question is from Brennan Hawken with BMO. Your line is open.

Brennan Hawken: Oh, hi. Thanks for taking my question. Curious, I believe SPRING recently made a special distribution around the mid 3% of NAV. That, I believe, hit October 1st. So, just to clarify, would that be a December quarter event, or was that in the last quarter? And do you have any stats on what proportion of the distribution was reinvested versus taken in cash, and what kind of an impact we should expect in this quarter from that?

Jason Ment: Yeah. Thanks, Brennan. The special distribution we did out of SPRING was effective 9/30, so it came out of NAV in the 9/30 quarter, and then the DRIP was about 80%, and that came back in the next day into the fund. So, net, you saw about, I think it was about $70 million leave the fund from a NAV perspective due to the distribution that left in cash.

Brennan Hawken: Perfect. That 80% of the 70 will be an inflow in the December quarter?

Jason Ment: It came back. We don't report the DRIP. When we're talking about statistics, we don't reference the DRIP. But yes, the 80% came back in October.

Brennan Hawken: Perfect. Okay, thanks for that. Thinking about penetration here, with all your distribution partners, correct me if I'm wrong, but I believe at this point it's only about half your distribution partners that are selling one or more of your evergreen products. As you continue to work through and your team continues to work with these partners, what do you find is working to deepen these relationships, and what do you expect will be able to drive that number higher, and how long do you think that'll take? Thanks.

Jason Ment: Yeah. As I noted earlier, about 55% of firms that have been with us for at least a year are doing more than one fund today. That number has increased over time. The trust that we build with our distribution partners through not only the investment performance, but the service alpha that we bring to them, the perspective that we're able to share, not only about the markets, but around other funds that they're investing in, I think is very well valued. We also try to bring education out to the field. We run StepStone Academies for advisors, in addition to regular roadshows that we do for diligence purposes.

During our 360 week, we had a number of people in town for StepStone Academies, and we run these throughout the year. Lastly, a recent announcement, we made available the allocation tool free on our website for advisors to be able to go on, plug in their client's portfolio composition, and see what would happen from a risk and return perspective by adding private markets exposure. So, those are just some examples of the ways that we build a value-added relationship for advisors beyond simply investing with us.

Brennan Hawken: Great. Thanks for taking my questions.

Operator: Thank you. The next question is from Michael Cyprys from Morgan Stanley. Your line is open.

Michael Cyprys: Great. Thanks so much for taking the question. I was hoping you could elaborate a bit on some of the newer initiatives across insurance, retirement, and the data and technology partnerships. Hoping you could talk to some of the traction you're seeing and the steps that you're planning to take as you look out to 2027, and how meaningful might these contribute to StepStone as you look out over the next several years?

Jason Ment: Sure. Thanks, Mike. I will start on the insurance and retirement front, and then kick it over to Mike to talk about data and technology. Starting with the retirement opportunity, this is a huge pool of capital that, as everyone knows, is asymptotically approaching 0% allocated to private markets. Given the savings gap that we have in this country in particular, we think that private markets are going to play a meaningful component of being able to help solve for that. We also believe that private markets will be included generally in fiduciarily managed portfolios. That means target date funds, that means advisor-managed accounts.

The conversations that we have been having with those kind of ecosystem partners has been very encouraging. We are starting to see small drips and drabs coming through into the funds directly, through our normal way sales motion to advisors. In the coming weeks and months, you should expect to see announcements including StepStone as part of the private market solution for 401(k) solutions. Now, in terms of how that is going to affect flows, in general, we expect that private markets are going to be included in new portfolios, a new series of a target date fund, as opposed to being allocated within an existing pool of capital. There will be an adoption curve.

I do not know that I would expect it to take as long for the retirement space as it is taking for the individual investor to adopt. There are a smaller number of deciders overall, and so that should lead to a faster adoption curve. Obviously, there have been impediments to adoption heretofore, but those are definitely melting away. From the insurance perspective, here, insurance already represents a meaningful portion of our revenue. What we have been focused on is, how do we adapt the packaging, the structuring of our investment engine to better align with the insurance investor? That changes depending on what geography you are talking about.

But here in the U.S. and other similarly regulated geographies, optimizing for regulatory capital treatment is something that is clearly of import to insurers, in addition to ensuring that the underlying exposures are the right kinds of exposures that they are looking to allocate to from an ALM perspective or otherwise. We have spent quite a bit of time on CLOs. We have issued a couple over time. Expect that to continue. We have issued rated notes in our private credit space. Expect that to continue. Erin Driscoll, our Head of Insurance Solutions, is spending a lot of time with U.S. and the Asian insurers today to figure out the best solutions that we can bring to bear.

The multi-manager nature of our platform is certainly something that is appealing, and the fact that we can bring collateral packages across asset classes is definitely differentiated. With that, I will turn it to Mike to talk about data and tech.

Mike McCabe: Yeah. Thanks, Jason. Yeah, Mike, we view the recent activity in this space with data partnerships as validation on the opportunity. As you know, we've taken a bit of a differentiated approach here by partnering with FTSE Russell, PitchBook, and Kroll across distinct fund, deal, and loan level applications. We've deliberately chosen three specialist partners rather than a single broad-based financial data platform. With FTSE Russell, they provide world-class index construction, and we are currently in market with a half a dozen indices with FTSE Russell. PitchBook provides deep capital, private capital workflows, and the distribution of those workflows. Lastly, Kroll contributes independent, timely private credit data.

When we combine all of those capabilities with SPI by StepStone, along with the information generated through our investment and advisory activities, I think that pretty much puts us in a leadership position across data partnerships. I would say lastly, at the end of the day, we don't think about this as having the biggest headline number in terms of funds, deals, or other sources of data. Raw databases, the counts in raw databases don't necessarily tell you whether the information is decision useful. Our objective isn't to aggregate the most number of records.

It's really to build the most relevant private markets intelligence ecosystem we can, and it's about the depth and quality of the data and whether or not it actually helps clients make better investment decisions. Most importantly, the partnerships that we've created now deal with fund level, deal level, and are available through a number of different commercial channels that serve not just our clients, asset owners, but also managers, GPs, service providers, and wealth platforms. We're really looking at data partnerships as addressing the entire ecosystem within the private markets. From a revenue generation standpoint, it's going to be a slower build.

It's a much longer-term revenue opportunity, but we've put certain stakes in the ground that we think will bode well for us in the future in a number of different ways.

Michael Cyprys: Great. Thanks so much. If I could just ask a follow-up just on the private wealth channel. Hear you on the impressive size of the 860 different syndicate partnerships that you have. That's quite a lot. Question, curious what portion of the wealth industry does that capture when you look at it from an asset standpoint? Just curious how many more substantial sizable platforms there are to go, or is it really just more small tail at this point? Just curious what your expectations are for converting some of those remaining platforms over the next year or two. Sounds like you've been adding quite a bit over the last quarter even.

Talk about what some of the hurdles and holdbacks have been, how you overcome that in terms of getting onto some of these platforms that maybe take a little while to get on.

Jason Ment: Sure. From a penetration perspective, whether it be from sheer number, it is obviously a very small number relative to the total number of wealth managers, either domestically or internationally. In terms of the large partners, we are on with two wirehouses. That leaves others there. We are on with a number of the IBDs, but not all by any stretch. In the RIA community, we have got a healthy mix of some of the largest, but also a very strong number across the mid and smaller size. There continue to be a number of the larger RIA platforms that we are not on with today and continue to focus on.

It could be education, it could be value-added services, or otherwise to help crack into those groups. We feel very good about the progress that we make and add a mix of partners each quarter. We are not adding only small platforms each quarter. Sometimes it is a mix each quarter, and a mix of new and cross-sell as well. It just takes a ground game, and we have got a 120-person strong private wealth team across the externals, internals, and dedicated FinOps folks that support that sales motion, and we just keep at it every day.

Michael Cyprys: Great. Thank you.

Jason Ment: Thank you.

Operator: Our next question is, pardon me, from Dan Webb. Please go ahead.

Dan Webb: Hi, good evening. I was wondering on the topic of sort of the AI build-out, how do you look through the underlying managers to assess your aggregate exposure to the theme across venture, private credit, infrastructure? Then how do you advise your customers on the same topic of any concentration risk, whether it is there or elsewhere?

Scott Hart: Yeah, look, it is a great question, and obviously, one of the big questions of the day here, just given how prevalent the AI trade has become and the various different touchpoints across different asset classes. Look, we do a few different things. One, we focus on some of the direct exposure that we have. We focus on, to your point, looking through to the underlying managers. This again is where our data and technology platform that you heard Mike and others comment on becomes very helpful for trying to assess that type of exposure across client portfolios.

Look, I think if you step back, I think here at StepStone, we are of the view that the AI trend is driving really a multi-year investment opportunity, and one that we continue to be excited about. Albeit in any long-term growth opportunity, we are of the view that things will not always happen in a straight line. There will be road bumps along the way, whether driven by CapEx cycles, by valuation multiples, or as we have seen in recent days, by shifting political winds here.

But I often, and we sometimes probably feel like a broken record when we talk about this here at StepStone, that anytime there is some major disruption, we kind of fall back on the diversification of the platform, not only across asset classes, but underlying managers, geographies, vintage years, for example. I think that is one of the greatest things that will provide us a good defense. I mean, across each of our asset classes today and the managers that we look to invest alongside, there is a tremendous amount of focus on trying to maintain discipline and be very selective about the new investments we are making.

There is a lot of focus on the partners that we are investing alongside, the way that they think about portfolio construction, as well as the way that we think about portfolio construction. Look, we do not pretend to have all of the answers in terms of where things are headed. I think our private credit team in particular does a good job of thinking about various different scenarios that have the potential to play out, and then thinking about how those scenarios might impact our portfolios over time. But look, it is certainly an ongoing effort.

The reality is that with diversified portfolios like ours, there will be assets that are not impacted at all by what is going on in AI. There are others that will benefit, others that will be impacted, and that will be really an ongoing effort to try to monitor over time here.

Dan Webb: Great. Thanks for all that color.

Operator: Thank you. Our next question. One moment. Our next question is from Bart Dziarski with RBC Capital Markets. Your line is open.

Bart Dziarski: Great. Thanks for taking the question. I wanted to ask around the unrealized carry. You had mentioned around 2/3 of that is from 2021 or prior vintages, ready to harvest. Just help us think through as to the cadence of when we should expect that, maybe those more mature assets to be monetized. Thanks.

Scott Hart: Yeah, maybe I'll start, and David might jump in here as well. Look, it's hard to predict given particularly the fact that we don't fully control the timing of those exits. We have certainly tried to set up a portfolio that will benefit from exit optionality in the sense that we can exit through a variety of different routes. I mean, if I look at the quarter that we just announced here today, some of the drivers of the realized performance fees and realized carry were really across private equity, particularly in some of our co-investment vehicles, venture capital, and infrastructure. But again, it is a diversified pool of accrued carry that we have today.

Also to give you a sense, if I look at We've been looking over time at how the different exit routes evolve, and what we've seen in more recent years, and you heard David, I think, make the comment during the prepared remarks, I mean, GPs really are tapping into all of the different potential exit routes. Today, if we look over really kind of the last two years of exits, it has been very balanced across IPO or secondary sales to strategics, sales to financial buyers, sales through continuation vehicles, dividend recaps. There's been no one single thing that has jumped out to drive those exits.

It's been very balanced across those routes, partially driven by the portfolio that we have set up. But again, predicting the exact timing is a bit more challenging. We've often encouraged people to look at sort of a rolling 12-month basis, knowing that any individual quarter can be quite lumpy, as we've seen over time.

Bart Dziarski: I got it. Thanks, Scott. That's very helpful. Then just a modeling question. I'm looking at slide 11 on the fee rate trajectory. In the non-PE asset classes, we're seeing a nice tick up to now. It's tracking around mid-50s. Just help us understand what's driving that, and should we expect that sort of fee rate trajectory to continue? Thanks.

David Park: Thanks for the question. Yeah, some of that is drawdown commingled funds. You have the infrastructure funds that have recently launched their co-investment and secondaries funds, which carry a higher fee rate. So that is lifting a bit more in recent periods. You also have wealth in there, so in STRUCTURE, that is lifting that as well. So I think to the extent, again, we continue to raise funds and grow assets in the private wealth channel and STRUCTURE, you should continue to see that similar mix shift towards a higher fee rate.

Bart Dziarski: Great. Thanks for taking the questions.

Operator: Thank you. As a reminder, to ask a question, you should press star 11 on your phone and wait for your name to be announced. Our next question is from John Dunn with Evercore ISI. Your line is open.

John Dunn: Thank you. The institutional side is doing well, and you mentioned re-ups, but I wanted to ask, are you seeing any changes in institutional client types, market share gains, or new relationships that you are optimistic about on that side? Then maybe just an update on the temperature of those conversations.

Scott Hart: Yeah. So, thanks, John, for the question. In terms of institution types, I would not say any major changes. I think what is interesting is maybe just where they are at in terms of the build-out of certain parts of their portfolio. So again, to keep coming back to some of the strength that we have seen in private credit and infrastructure, it may be the same institution that we are speaking to that has got a very well-established program in private equity, probably a very well-established program in real estate, but might just now be launching an infrastructure allocation or just launching a private credit allocation.

So I think we have found that we have been in the right place at the right time for many of those conversations. Given some of the success that we have had in building client relationships and then expanding those across other asset classes, I think getting that foot in the door and then creating the pipeline of future re-ups or future expansion opportunities continues to be key to what we do. I would also say that there continue to be, in some cases, quite large asset owners that are still just launching private markets programs.

I think given our experience being involved with the launch or relaunch of a number of large-scale allocations and portfolios over time, positions us well to play a role there as well. So no major change to the types of institutions, but where we are finding opportunities to have interesting conversations. Again, the focus on, I would say, partnerships. You have heard me say it in different ways over the last couple of years, but this observation that clients want more for their money than just returns, and oftentimes it comes down to a value-added partnership and the additional services that you can provide, which again, I think sets up nicely for StepStone.

John Dunn: Got it. You talked about the composition of the pipeline, but could you talk about how you're thinking about the timing of deployment and the fee rate that comes along with that? Then maybe just if you could box out how much you think gets activated over the next 12-24 months.

Scott Hart: Yeah. If I just think about the $42 billion of undeployed fee-earning capital, there's about $3 billion of that is subject to activation. The rest is subject to being deployed. I'll maybe let David comment in a minute on what's subject to activation or what that might look like. But if you look, for example, on page 17 of the earnings presentation, we talk about the $3.6 billion of undeployed fee-earning capital that was either activated or deployed during the last quarter. About $2.8 billion of that was deployment. If you think about that on an annualized basis, it's the highest it's been over the last couple of years.

It implies sort of an $11 billion run rate, which would put us right at the kind of three-and-a-half-year mark from a deployment standpoint. Very comfortably in that three-to-five-year range that we've always talked about when thinking about our UFEC. Again, historically, the fee rates on the UFEC have tended to be generally in line with the fee rates on the rest of the business over time, recognizing this tends to be heavier on the separate account side than the commingled fund side. But David, anything you'd add on just what's subject to activation in the coming quarters?

David Park: Yeah, I think, just if you look at the funds in market, we do have our PE co-investment fund that has already been activated. Infrastructure co-investment fund, that is also activated. Our PE secondaries fund, both funds activated last quarter. We do have our VC secondaries fund, which has activated post-quarter end. Real estate secondaries fund, while in market, no closings yet, so future activation likely in the next calendar year. We also have our multi-strategy growth equity fund, similar to that, likely to activate in the next calendar year.

John Dunn: Great. Thank you.

Operator: Thank you for your question. I am showing no further questions at this time, so I would now like to turn it back to Scott Hart for closing remarks.

Scott Hart: Great. Well, thanks, everyone, as always, for your time and interest in StepStone. We look forward to connecting with you again next quarter. Thank you.

Operator: This does conclude the conference. You may now disconnect.

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