StepStone Group Inc.

Welcome to the StepStone Fiscal First Quarter 2023 Earnings Call. At this time, all participants will be in a listen-only mode. Later, we will conduct question-and-answer session. If you would like to ask a question, please press star 1 on your telephone keypad. I will now turn the call over to your host, Seth Weiss, Head of Investor Relations. Mr. Weiss, 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 factors section of SEPCILM'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 first quarter of fiscal 2023. We reported a GAAP net loss of $21.5 million for the quarter ended June 30, 2022. The GAAP net loss attributable to Stepstone Group Inc. was $11.0 million. We generated fee-related earnings of $36.6 million, adjusted net income of $47.1 million, and adjusted net income per share of 41 cents. The quarter reflected retroactive fees resulting from the final closing of Stepstone's private equity co-investment fund that contributed $2.4 million to revenue and $2.2 million to fee-related earnings and pre-tax adjusted net income. This compares to retroactive fees in the first quarter of fiscal 2022 that contributed $0.9 million to revenue and $0.8 million to fee-related earnings and pre-tax adjusted net income. I now would like to turn the call over to Stepstone's chief executive officer, Scott Hart.

Thank you, Seth, and good afternoon, everyone. We delivered another robust quarter of earnings, fundraising, and growth in fee-earning assets as we kicked off our 2023 fiscal year. Our strong performance comes despite what was one of the most challenging periods for public equity and fixed-income markets in the last two decades. These results exemplify the strengths of StepStone's platform and the resilience of our business model. As I think back to our September 2020 IPO Roadshow, which took place just six months into the pandemic, the resilience of our business model was a major focal point. While there are notable differences between the current environment and the COVID-driven market correction, the stability of our model remains relevant and is largely driven by three factors. One, our exclusive focus on the private markets with a dedication to customized offerings. Two, our diversification. And three, our visibility into future earnings and growth. I'd like to touch on each of these topics. First, we are exclusively focused on the private markets, which have historically generated stronger performance and weathered volatility better than their public equivalents. As a result, private market allocations have continued to grow over time, representing a larger percentage of the overall portfolio for experienced investors, while also attracting new LPs. While we and our clients have benefited from the favorable market conditions in recent years, the value of our services become especially apparent during times of stress. Over the last several years, we operated in an environment in which investors were often rewarded simply for deploying capital into a rising market. Going forward, there will be more differentiation in performance, and we believe that disciplined portfolio and risk management, data-driven manager and investment selection, and access to cost-effective private market strategies will be the determinants of success. These are all areas that we work in partnership with our clients and where the StepStone platform is well-positioned to add value. Second, Stepson's diversification is a significant differentiator and gives us the flexibility to navigate through challenging markets and capitalize on new opportunities as they arise. Even in a shifting environment, there are a few challenges that our clients face in their private markets portfolios that we cannot help them address as a result of the comprehensive toolbox we have built over the last 15 years. Our platform spans across avenues for investment, geography, and client type. Our diversification by asset class and strategy allows us to weather economic headwinds better than more concentrated managers. For example, the inflation protection embedded in real estate and infrastructure and the liquidity offered by secondaries are in high demand in today's environment. We offer leading solutions in all three areas, which are significant drivers of LP capital inflows today. Furthermore, we are consistently investing for our clients through cycles, which produces strong vintage diversification. Experienced LPs who pulled back after the 2001 and the 2008 market dislocations are keenly aware of the value of investing through market troughs and understand that these are often the best-performing vintage years. Geographically, we have a very wide reach with nearly 70% of our last 12 months' management and advisory fees and approximately 80% of our fundraising coming from outside North America. The international market has ample room to grow as allocations are rising and new pools of capital are coming online. In addition to geography, our client roster spans a range of investor type and size, from the individual investor to some of the largest pension and sovereign wealth funds in the world. At the core of our value proposition, we recognize that each client has unique needs and portfolio goals in the private markets. While some of our clients are undoubtedly impacted by allocation limits and pressure from the denominator effect, We also have clients that are just starting to build a private market portfolio or are actively increasing allocations or accelerating the pace of deployment. Third, we have extremely strong visibility into our future earnings. The vast majority of our management fees are contractually tied to committed or invested capital and are therefore not impacted by market fluctuations. Over 80% of our management fees come from accounts that have a remaining tenor of three or more years. and over 50% come from accounts that have a remaining tenor of seven or more years. Our clients tend to be very persistent even well beyond their contractual commitments. Our re-up rate on SMA capital since inception is over 90%, with an average increase in account size of over 30% on renewal. Furthermore, we have over $17 billion of dry powder that will allow us to tactically capitalize on the more attractive pricing environment and which will contribute to our fearing assets as we deploy capital over the coming years. This undeployed capital alone represents over 20% growth potential to our current fee-earning assets. While there may be fluctuations from quarter to quarter, combined, these factors provide tremendous earnings stability and contribute to the long-term earnings power of the business without even accounting for any new business development. Moving on to our first quarter results on slide five, we generated $47 million in adjusted net income for the quarter, or 41 cents per share, which is the same as the prior fiscal year's first quarter. Looking over our trailing four quarters, we have generated $1.62 of adjusted net income per share, which is up 45% from a year ago. Included in the quarter were $74 million of gross realized performance fees and $32 million of net realized performance fees, which represents our highest gross and third highest net realized performance fees on record. Johnny will speak to carry dynamics in more detail. We generated fee-related earnings of $37 million, up 58% from the prior year quarter, as we produced strong organic growth and benefited from the Greenspring acquisition. Accounting for the increase in our share count, we grew fee-related earnings per share by 39%. The integration of Greenspring is progressing well. We continue to be strong believers in the innovation economy and the power of technology. Our ability to provide solutions across the venture lifecycle is evident through the successful recent closings of our micro fund, which has raised over $230 million to date, our VC direct fund, which has raised nearly $850 million, and the final close of our VC secondaries fund, which raised a total of $2.6 billion and is the largest venture secondaries fund in the market today. Shifting to assets under management, we produced another strong period of asset growth, finishing the quarter with approximately $137 billion of AUM and nearly $79 billion of fee-earning assets. Excluding acquired assets, we have organically grown fee-earning AUM by over $14 billion in the last 12 months, generating consistent and balanced growth across asset class and commercial structure. I'll now turn the call over to Mike McCabe to speak about our asset growth and fee-related revenue growth in more detail.