StepStone Group Inc.

Greetings. Welcome to StepStone's fiscal fourth quarter 2023 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded. I will now turn the conference over to your host, Seth Weiss. You may begin.

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 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.stepzonegroup.com. Before we begin, I'd like to remind everyone that this conference call, as well as this presentation, contains certain forward-looking statements regarding the company's expected operating and and financial performance for future periods and our plans for future dividends. Forward-looking statements reflect management's current plans, estimates, and expectations and are inherently uncertain and subject to various risks, uncertainties, and assumptions. Actual results for future periods and actual dividends declared 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 most recent 10-K and which will be updated in our upcoming 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 our fiscal 2023. We reported gap net income of $56.8 million. Gap net income attributable to Stepstone Group Incorporated was $28.8 million. We generated fee-related earnings of $37.8 million, adjusted net income of $27.1 million, and adjusted net income per share of 24 cents. The quarter reflected retroactive fees resulting from an interim closing of Stepstone's multi-strategy global venture capital fund that contributed $0.5 million to revenue, fee-related earnings, and pre-tax adjusted net income. This compares to retroactive fees in the fourth quarter of fiscal 2022 that contributed $3.4 million to revenue and $3.0 million to fee-related earnings and pre-tax adjusted net income. Before turning to Scott, I would like to remind everyone that we were holding an Investor Day on Tuesday, June 6th in New York. Registration and additional details are available at InvestorDay.StepstoneGroup.com. In-person capacity is limited, so please register as soon as possible to request on-site attendance. A live webcast will also be available on that same Investor Day website or through our shareholder site. I'll now hand the call over to Stepstone's Chief Executive Officer, Scott Hart.

Thank you, Seth, and good afternoon, everyone. Turning to slide five, we delivered strong results in our fiscal 2023 amid a difficult operating environment as we grew fee-related assets under management by 14% and full-year fee-related earnings per share by 19%. Focusing on our most recent quarter, we generated gross AUM additions of over $5 billion. This strong fundraising reflects balanced growth across asset class, commercial structure, and geography. We have deliberately built a diversified platform that is designed to thrive across market cycles, and this quarter's result exemplifies StepStone's ability to prosper, even in difficult environments. Turning to our financial performance, we generated fee-related earnings of $38 million for the quarter, up 5% from the prior year. Excluding the impact of retro fees in both this quarter and the prior year's period, we would have grown fee-related earnings by 13%. We produced an FRE margin of 28% for the quarter and 31% for the full fiscal 2023, which is in line with the expectations we set heading into the year. We believe a full year view of margins is most appropriate, given the seasonality of expenses and the timing of revenue, as growth can be uneven and dependent on timing of deployment and activations. We earned $27 million in adjusted net income for the quarter, or 24 cents per share. This is down from $44 million, or 38 cents per share, in the fourth quarter of last year, driven primarily by lower performance fees and lower contribution from retroactive fees. Looking forward, we believe there are structural tailwinds for the private markets that will present growth opportunities well into the future. In addition, there are StepStone-specific growth drivers, given the continued runway within each of our asset classes in our private wealth business. While there are clearly near-term macro headwinds, StepStone is built to grow through all cycles. It is during volatile markets when our clients need the most assistance, and our offerings are especially valued. We look forward to articulating our strategy and outlook in more detail at our Investor Day on June 6th. For today, I'd like to reemphasize a number of key messages for our stakeholders as they try to better understand how StepStone is navigating recent events in the banking industry and across the broader macro backdrop. First, the failure of Silicon Valley Bank was a loss for the entire industry but it had limited impact on our venture capital activities, which make up 15% of our fee-earning AUM. Like others, we had to make some operational adjustments, but beyond that, the collapse of Silicon Valley Bank has not materially or directly affected the performance of our business or our portfolio. Venture and growth equity are an important part of our platform, and we remain bullish on the long-term prospects of these sectors. Great companies are created across all market cycles. Technology and software are more pervasive than ever, and there are many exciting innovations in different stages of development. Themes such as cloud computing, energy transition, and generative AI are just a few examples of transformative technologies that are propelling the global economy and are areas that we believe are going to drive superior returns. The keys to reaping those returns are consistent investment, an experienced team, and a platform with differentiated access and insights. We acknowledge there are challenges in the venture capital market with valuations and fundraising down across the market in 2022. But with these challenges come opportunities, and given our market-leading platform and diversified offering across strategy and company lifecycle, StepStone is well-positioned to capitalize on these opportunities. Two of our approaches that are particularly well-suited for today's market are venture secondaries and growth equity. First, on secondaries, there is a growing demand for liquidity within the venture ecosystem. from GPs looking to support their portfolio companies and LPs who have more than a trillion dollars of net asset value looking for liquidity. The regional banking turmoil magnified the risk-off mentality, which is catalyzing an increase in secondary sales and an acceptance of a new valuation reality. As many of you are aware, shortly after the closing of the Greenspring acquisition, Stepstone closed on the largest venture secondaries fund in the market. We believe the current backdrop offers a unique opportunity in which to deploy this strategy. Demand for a future VC secondaries fund offering is already strong, and we anticipate this strategy will be a source of growth as we raise successive vintages. Shifting to growth equity, this is a unique corner of the private equity market that is well positioned in the current environment. Growth equity strategies are distinct from venture and buyout, having characteristics that mitigate many of the risks facing cash-burning VC companies or highly leveraged buyout companies. Growth equity companies are typically cash flow positive. They tend to have limited leverage that are not greatly impacted by rising interest rates in terms of financing costs, and they are attractive from an acquisition standpoint, providing for exit optionality that is not reliant on the IPO markets. Another important message we would like to reinforce is our approach toward real estate. Commercial real estate, office in particular, has come under recent pressure. However, our global office exposure makes up only 10% of our total real estate assets under management and under 1% of our total firm AUM. Driven by our top-down house views, the office exposure in our flagship real estate fund is even lower and is instead weighted towards the living sector, industrial, logistics, and data centers. While there is likely to be continued pressure on private real estate valuations, driven by the rise in rates, our real estate exposure is high quality and well underwritten, and the gross exposure is modest. Importantly, corrections in the real estate market create opportunities for our flagship manager-led real estate secondaries fund. This strategy was developed coming out of the financial crisis and specializes in providing capital to liquidity-constrained investment vehicles and investors through recapitalizations and secondaries, for which there is typically high demand in periods of market dislocation. This real estate commingled fund is currently in market and off to a very strong start to fundraising. The fund had its first closing in our fiscal fourth quarter and has now closed on over $900 million. And lastly, the recent instability of certain regional banks is accelerating a general retrenchment in bank lending and opening the door for private debt to further capture market share. We have a versatile private debt platform that sources deals across asset class and can invest in an array of debt classifications, from senior secured to more opportunistic non-performing assets. Private debt has proven to be a very valuable asset class for Stepstone's clients, and we believe we are poised to benefit further from tailwinds in the market. Before turning the call over to Mike, I'm thrilled to announce the hiring of Joe Linares as our Global Head of Business Development. Joe has 30 years of experience leading sales and distribution for several large financial service providers. Joe's addition is reflective of the growth and maturation of StepZone's platform and is representative of the investments we continue to make to further scale our business. I'm excited to partner with Joe as we continue to expand. I'd now like to turn the call over to Mike McCabe to speak about the fundraising and fee earning asset development in more detail.