StepStone Group Inc.

Good day, and welcome to the StepStone Group second quarter fiscal year 2024 earnings conference 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, you'll need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Seth Wise, Head of Investor Relations. Please go ahead.

Thank you. Joining me on today's call are Scott Hart, Chief Executive Officer, Jason Mett, 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, contain 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 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 accept as required we undertake no obligation to update or revise any of them. In addition, this 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 filing with the SEC. Turning to our financial results for the second quarter of fiscal 2024, beginning with slide three, we reported GAAP net income of $59.3 million. GAAP net income attributable to Stepstone Group Inc. was $26.2 million, or 42 cents per share. Moving to slide four, we generated fee-related earnings of $43.8 million, up 12% from the prior year quarter, and we generated an FRE margin of 31%. The quarter reflected retroactive fees resulting from interim closings of StepStone's Private Equity Secondaries Fund and StepStone's Multi-Strategy Global Venture Capital Fund, which in total contributed $3.7 million to revenue, $3.4 million to fee-related earnings and pre-tax adjusted net income, and 160 basis points to FRE margin. There were no retroactive fees in the second quarter of fiscal 2023. Finally, we earned $30.2 million in adjusted net income for the quarter or $0.26 per share. This is down from $37.3 million, or $0.33 per share, in the second fiscal quarter of last year, driven by lower net realizations and partially offset by higher fee-related earnings. I'll now hand the call over to StepStone CEO, Scott Hart.

Thank you, Seth, and good afternoon, everyone. Despite a number of continuing challenges in the macro environment, including volatility in asset prices, higher for longer interest rates, and heightened geopolitical risks, Stepsnow continues to generate steady results. These results are driven by the breadth of our offering, specialization of our strategies, and positive momentum in areas in which we have invested for growth. Although it is a difficult operating environment for asset managers, we believe we are well positioned in the industry and that we are setting the stage for strong continued growth in the years ahead. We remain on track to at least double our fee-related earnings within the next five years, as we laid out at our Investor Day this past June. Last month, we hosted the StepStone 360 Conference, our annual event for private markets, clients, and investors. During times like these, our clients have a strong desire to understand the real-time trends and developments that we are seeing in the market and in our portfolios. The 360 Conference gives us the opportunity to share our data and insights, present on our full suite of products and solutions, and importantly, hear directly from many of our clients and prospects. Our clients remain extremely engaged with the private markets and continue to turn to StepStone for help in meeting their long-term investing goals. Secondary is a strategy that continues to resonate with our clients in today's environment. While a general slow pace of realizations has muted the near-term market appetite for some private market investments, Demand for secondaries across asset classes remains very strong and is a key area of differentiation for StepStone. Our deep relationships with general partners supply a large pipeline of investment opportunities, and our superior data and expertise allow us to identify the best of these opportunities, enabling us to buy high-quality assets at attractive prices. we are beginning to see greater willingness of sellers to transact as they adjust to the new valuation environment and as other avenues for realizations continue to lag, which should result in an acceleration of our pace of deployment. During this most recent quarter, we executed a successful first close of approximately $1.25 billion in our Venture Capital Secondaries Fund and an interim close of nearly $400 million in our Private Equity Secondaries Fund. We expect to activate the Venture Capital Secondaries Fund in the first half of our fiscal 2025, while our Private Equity Secondaries Fund is active and currently generating fees. Shifting to real estate, our flagship commingled product is a special situations GP-led secondaries fund. As we discussed at our investor day in June, the rise in interest rates, coupled with a significant volume of expected maturities in the coming years, creates a substantial opportunity for real estate recapitalizations. We are a leader in this market and have access to a significant amount of deal flow, much of which we create ourselves. This enables our investment team to be selective in deploying capital. Encouragingly, we are seeing real estate deployment opportunities begin to accelerate. We have fully committed our prior real estate secondaries fund, and our new fund is now actively investing. This new fund will begin earning fees in the spring after a five-month fee holiday for investors that were part of the first close. To date, we have closed on approximately $1 billion in this fund. Additional fundraising is progressing well as we believe investors see our special situation strategy as an attractive means to access real estate and one that is particularly well-suited for today's environment. The timing of activations in our real estate and venture capital secondary funds result in relatively modest revenue and fearing AUM growth for this current fiscal year, but provides clear visibility into a meaningful step up in management fees, margin, and fee-related earnings in fiscal 2025. We are also seeing healthy progress in our separately managed accounts. The sales and closing cycle for SMAs can be long, with exact timing difficult to predict, but we have a large pipeline of both new SMAs as well as re-ups that is progressing well. Included in this quarter's gross additions were commitments from separately managed accounts for which we've been engaged in discussion for over two years, a testament to the deep relationship building we engage in when partnering with clients. Inclusion of a multi-strategy venture allocation among these mandates is yet another example of the synergies from our expanded venture capital capabilities and a proof point that our strategies help solve our clients' portfolio goals through market cycles. Shifting to private wealth, the fiscal second quarter was our best quarter ever, with over $350 million of new subscriptions. We've invested heavily in private wealth, and these investments are paying off. We anticipate that this will be a significant contributor to operating leverage over time. As we announced in July, S-Prime, our core private markets evergreen fund, became available for subscription daily by a ticker. This allows investment into the fund without the need for subscription documents, simplifying the onboarding process and eliminating a substantial point of friction. The ticker has contributed to the acceleration of gross inflows, but encouragingly, we are seeing traction across all of our private wealth products and four pillars of distribution. Spring, our evergreen fund for venture capital and growth equity, continues to gain momentum, and in September, we held an initial close of Structure, Stepstone's Registered Providence Infrastructure Fund, and our third evergreen private wealth family of funds. Finally, I'm pleased to announce that S-Prime has been approved on a second wire house, and Spring has been approved on its first wire house, in each case with initial inflows expected in the coming months. Another area where we continue to invest is technology, and in our data science driven portfolio management team and our software engineering team. We have spoken previously about our front-end research and back-end reporting platforms. We have rebranded our applications under one unified and interconnected suite, which we are calling SPI by StepStone. The SPI platform offers research, reporting, pacing, and benchmarking applications. This integrated suite is only possible because of the investment we have made in our technology, our people, and our relationships with both LPs and GPs. Before handing the call to Mike, I'd like to thank our CFO, Johnny Randall, for more than a decade of dedication and leadership to StepStone. Johnny will retire at the end of this year. Johnny joined StepStone in 2010 and has been responsible for building and leading a deep and talented finance team. We are thrilled to announce that David Park, our current Chief Accounting Officer, will become Chief Financial Officer on January 1st. David is already working closely with Johnny on the transition. David has been StepStone's Chief Accounting Officer since joining the company in 2019. Together with Johnny, David helped guide StepStone through our IPO and is a key leader of our finance team. Johnny, we thank you for your years of dedication, leadership, and strategic vision, and we congratulate you on your retirement. I'll now turn the call over to Mike McCabe to speak about StepStone's fundraising and fee-earning asset growth in more detail.