StepStone Group Inc.

Greetings and welcome to the StepStone Fiscal Fourth Quarter 2022 Earnings Conference Call. At this time all participants are in a listen-only mode. A brief question and answer session will follow a formal presentation. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Seth Weiss, head of investor relations. Thank you, Seth. You may begin.

Thank you, and good afternoon, everyone. Joining me on the call today are Scott Hart, chief executive officer, Jason Ment, president and co-chief operating officer, Mike McCabe, head of strategy, and Johnny Randall, 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'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. 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 a number of risks or other factors that are described in the risk factor section of StepStone's most recent 10-K. 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. In addition, 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 fourth quarter of fiscal 2022, we reported GAAP net income of $103.6 million. Gap net income attributable to StepStone Group Inc. was $41.8 million. We generated fee-related earnings of $35.9 million, adjusted net income of $43.7 million, and adjusted net income per share of 38 cents. The quarter reflected retroactive fees resulting from an interim closing of StepStone's private equity co-investment fund that contributed $3.4 million to revenue and $3.0 million to fee-related earnings and pre-tax adjusted net income. This compares to retroactive fees in the fourth quarter of fiscal 2021 that contributed $0.8 million to revenue, fee-related earnings, and pre-tax adjusted net income. I'd now like to turn the call over to StepStone's Chief Executive Officer, Scott Hart.

Thank you, Seth, and good afternoon, everyone. Fiscal 2022 was a record year for StepStone. we generated our strongest year ever for fee-related revenue, total adjusted revenue, fee-related earnings, and adjusted net income per share. Our results were driven by record contributions of fee-earning assets, robust investment performance, and expanding operating margins. For the year ending March 31st, we increased fee-earning assets by over $23 billion, $12 billion of which we generated excluding the acquisition of Greenspring, ending the year with $75 billion of fee-earning AUM. We are encouraged by both the level of growth and the balance of contributions between asset classes, with over 60% of the year's organic growth coming from a combination of infrastructure, real estate, and private debt, and 40% coming from private equity, including venture capital. Over the last six months, a confluence of factors, including increasing inflation, rising interest rates, and geopolitical uncertainty, created a challenging market backdrop. However, our confidence in our ability to grow fee-earning assets and fee-related earnings remains strong. StepStone's ability to perform through market cycles is a reflection of a platform diversified by geography, asset class, and strategy, all supported by the highest caliber of professionals in the industry. While private market valuations are not immune to market pressures, the long-term nature of our investments and of our clients' capital commitments allow StepStone to invest through economic cycles and take advantage of dislocations to deliver long-term outperformance. Importantly, StepStone has experience in operating investing through turbulent markets. Our firm was founded in 2007, just prior to the onset of the global financial crisis, and we have managed through previous periods of market volatility, including the beginning of COVID. It is during periods of market turbulence that our clients rely on us most. We are in a unique position to construct diversified private market portfolios that can weather a wide range of macro conditions given the breadth of our strategies, expansive geographic reach, and depth of expertise across asset classes. This power of our platform was on full display over the last quarter. In infrastructure, we generated our strongest quarter ever of fee-earning asset growth. We have seen significant interest in inflation-linked investments such as regulated utilities and certain transportation assets. Furthermore, the rise in energy costs has accelerated trends related to energy transition and created compelling opportunities for investment. While infrastructure was clearly a standout this quarter, we are seeing positive trends across all four asset classes. Private debt has been our fastest growing asset class over the last three years, with fee-earning assets growing at a nearly 40% annualized pace. The characteristics that have made private debt desirable, such as resilient yields, low volatility, and strong credit performance, remain true today. We are also seeing increasing demand for floating rate debt securities, the centerpiece of our private debt strategy, given the rising rate environment. Subsequent to quarter end, we completed the final close on our second Senior Corporate Lending Fund, or SCL2, which raised a total of $1.3 billion. We also held the final close on our first Credit Opportunities Fund, or SCOF1, raising over $600 million. These two fund closings showcase the spectrum of our private debt offerings, with SEL2 targeting consistent returns through senior secured first lien debt, and SCOF1 targeting higher returning opportunistic and distressed assets. Both funds were met with strong demand, and both secured commitments above our targets. Moving to real estate, fundamental demand across most sectors remains strong. The downward pressure on asset prices from rising interest rates is accompanied by improving rents and increased occupancy rates, which serve as positive offsets. The combination of dislocations from the pandemic along with capital markets volatility, has introduced unique opportunities across special situations, recapitalizations, and secondaries, all areas where we are especially strong. Deployment of real estate funds has picked up significantly in the last year, has continued into our fiscal 2023, and should spur near-term re-up and fundraising activity. And finally, momentum in private equity remains strong. We generated more than $4 billion of organic, fee-earning asset growth for the full year, and we've been quite active to start the new fiscal year with several final and interim fund closings in the first two months of the quarter alone. Since the end of the fiscal year, we've held a final closing on our Venture Capital Secondaries Fund, which closed with total commitments of $2.6 billion. We believe this is currently the largest dedicated Venture Capital Secondaries Fund in the market. We also executed our first close of over $1 billion on our private equity secondaries fund. We expect our private equity secondaries fund to become active and fee-paying later in the fiscal year. We believe these two secondary funds position us extremely well for the current environment. Many LPs are taking a more active approach to portfolio management as market volatility has shifted portfolio weightings while fund distributions have slowed. We believe this will create significant volume in the secondaries market as LPs seek liquidity. We are also nearing final closings for our flagship co-invest fund, which has closed on over $2.3 billion to date, our venture capital opportunities fund, which has closed on over $800 million, and our venture capital micro fund. In total, we have closed on more than $2.5 billion of commingled funds since March 31st, which you will see in our next fiscal quarter's results split between our fee-earning and undeployed fee-earning asset balances. I would like to quickly touch on the Greenspring acquisition, which closed in September of 2021. The integration of Greenspring is progressing well, and as expected, we are seeing a number of benefits as a result of the combined platform. Our access to deal flow and differentiated due diligence insights has never been stronger. As you just heard, fundraising across our venture capital and growth equity commingled funds continues to be very successful. And we're also having multiple discussions with clients regarding venture capital-dedicated separate accounts, combining the investment prowess of the Greenspring team with the emphasis on customization for which StepStone has developed a reputation. As we head into fiscal 2023, the demand for private markets remains strong as cycle-tested investors understand that some of the best private market investments are made during periods of dislocation. However, the current fundraising environment can be challenging as some LPs find themselves at or above their target allocations, and many managers have returned to market with larger funds than before and faster than expected. In StepStone's view, this is likely to result in a fundraising market that is bifurcated between the haves and the have-nots. It will favor managers that have been disciplined in their deployment, have differentiated strategies, and have generated strong returns across market cycles. Manager selection is particularly important in this environment, and StepStone is uniquely qualified to help our clients navigate an increasingly crowded field. Furthermore, our ability to invest and underwrite alongside the best GPs in the world allows us to access attractive co-investment and secondary investment opportunities. Turning to our results on slide five, we generated $43.7 million in adjusted net income for the quarter, or 38 cents per share, up 52% from the prior fiscal year's fourth quarter on a per share basis. We generated fee-related earnings of $35.9 million, up 71% from the prior year quarter, as we produced strong organic growth and benefited from the Green Spring acquisition. Accounting for the increase in our shares outstanding, we grew fee-related earnings per share by 47%. We declared a dividend of $0.20 per share, a 33% increase over our prior dividend. Mike will speak to our capital management priorities in more detail. Before turning the call over to Mike, I want to highlight our annual ESG report, which we issued earlier this month. We believe conducting our business with consideration of ESG topics is key. We are proud to be a carbon-neutral company and are committed to advancing diversity, equity, and inclusion through our hiring, promotion, talent development, and partnership with outside organizations and nonprofits. On the investment and client side, 100% of our investments are diligence with consideration of ESG matters, a practice we are very proud to have implemented across all our asset classes and global offices. We are working to cascade these practices to our growing global community of GPs. ESG is clearly an evolving and growing topic within the private markets. We believe we are well-positioned to provide solutions for our LP's needs and look forward to expanding our engagement with our clients, general partners, portfolio companies, shareholders, and other stakeholders. I'll now turn the call over to Mike McCabe.