StepStone Group Inc.

$2.2 billion of subscriptions in our private wealth suite of offerings, growing the platform to nearly $10 billion as of the end of June. We are thrilled to have officially crossed the $10 billion threshold in July. Additionally, we have grown our evergreen non-traded BDC, S-CRED, to greater than $1 billion in net assets. We have expanded our private wealth platform to over 550 individual distribution partners. And among our partners that have been with us on the platform for at least a year, 50% are selling more than one evergreen product. Slide 9 shows our free-earning AUM by structure and asset class. For the quarter, we increased free-earning assets by $6 billion. Our undeployed fee-earning capital, or UFEC, grew by over $4 billion from the last quarter to nearly $29 billion, driven primarily by strong managed account fundraising. The combination of fee-earning assets plus UFEC grew to $156 billion, which is up $10 billion sequentially and is up $28 billion from a year ago. This translates to a healthy 20% annual organic growth rate since fiscal 2021. Slide 10 shows our evolution of fee revenues. We generated a blended management fee rate of 64 basis points over the last 12 months, down slightly from the 65 basis points in fiscal 2025, driven by the moderation in retroactive fees. Finally, I am pleased to announce that we are raising our quarterly dividend by 17% from $0.24 per share to $0.28 per share, reflecting strong and sustainable growth in our fee-related earnings. I'll now turn the call over to David to speak to our financial highlights.

Thanks, Mike. Turn to slide 12, we earned fee revenues of $213 million, up 19% from the prior year quarter. We achieved this increase despite significantly lower retroactive fees in the current year period of $3 million versus $19 million in the prior year quarter. Excluding retroactive fees, fee revenues grew 32% year over year. The increase was driven by growth in fee-earning AUM across commercial structures, a higher blended average fee rate, and strong advisory fees. Fee-related earnings were $81 million, up 13% from a year ago. FRE margin was 38% for the quarter. Normalizing for retroactive fees, FRE was up 45% year over year, and core FRE margin was 37%, expanding by more than 300 basis points from a year ago. Shifting to expenses, adjusted cash-based compensation was $96 million. This is up from last quarter's $86 million. The increase reflected the impact of our annual merit increase, which took effect on April 1st, headcount growth, and unfavorable effects due to the weakening of the U.S. dollar. As we mentioned on the last call, the prior quarter's compensation expense included a favorable adjustment to the bonus accrual. The cash compensation ratio adjusted for retroactive fees was 46%, consistent with the expectations we set out on our last earnings call. This is a fair cash compensation ratio to model going forward, understanding that there may be variability quarter to quarter. Adjusted equity-based compensation was $4 million, up $1 million relative to the prior quarter. The increase primarily reflects the layering of a full four-year cycle of RSU investing from when we first started to issue annual equity incentive awards in 2021. General and administrative expenses were $31 million, up $5 million from the prior year quarter, but down slightly sequentially. Gross realized performance fees were $25 million for the quarter, and $13 million net of related compensation expense. This included realizations from the pipeline of deals announced in late 2024 and early 2025, which we had mentioned on the last call. Several of those transactions also closed in July, which generated nearly $35 million of gross realized performance fees since the end of the quarter. While the timing of performance fees is difficult to predict, the pipeline of transactions that will generate future performance fees continues to grow, and the market environment for dealmaking has appeared to recover from the tariff-related pause in April. Adjusted net income per share was $0.40, down from last quarter and last year, as higher core FRE was offset by lower retroactive fees and lower performance-related earnings. Moving to key items on the balance sheet on slide 13, net accrued carry finished the quarter at $783 million, up 6% from last quarter. Our net accrued carry is relatively mature. Approximately 75% are 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 $300 million. This concludes our prepared remarks. I'll now turn it back over to the operator to open the line for any questions.

Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by. Our first question comes from Ben Budish from Barclays. Please go ahead.

Hi, good evening and thank you for taking the question. I'm wondering if you could talk a little bit more about the index opportunity, the partnership with FTSE Russell. Scott, I know you mentioned your prepared remarks. It'll take some time for this to have a more meaningful impact. But what are the next steps? Are you onboarding clients that want to use your benchmarks? What are the things we should look for in the interim before there's maybe a more meaningful P&L impact to know that you're on the right track?

Great, Ben. This is Mike McCabe here. Thanks for the question. And yeah, we were really excited to announce a framework that we signed with FTSE Russell back in June, which is really going to be the beginning of a launch of a series of indices that will track the private markets across a number of different asset classes. And what's unique about the indices that we're developing with FTSE Russell is that they'll be daily indices in addition to the quarterly lagged indices that many are used to seeing. I think what you'll see is later this year will be the launch of the first of a series of these indices that will be distributed across the FTSE Russell and Stepstone client base. And the revenue opportunity there initially will be simply the licensing revenue associated with the distribution of these indices. We expected to be fairly modest at the beginning, but as the adoption rates grow, we expect it to grow as well in addition to developing other indices that go beyond maybe the first two asset classes we'll focus on might be private equity and infrastructure, and that will go from there. I think longer term, it's reasonable to expect that as these indices become market-leading and the adoption rates pick up, that there could very well be some asset management solutions that we will develop that reference these indexes as well. But I hope that answers your question,

Ben. Yeah, that was great. That's all from me. Thank you very much. Thanks.

Thank you. Our next question comes from Kenneth Worthington from JPMorgan. Please go ahead.

Hi. Good afternoon. Thanks for taking the questions. First, Evergreen products doing great. I would say Spring has been the monster here. I sort of get it. But maybe talk about the appetite here for venture and growth and how and maybe why this product is doing so particularly well. And then maybe CredEx seems to still be finding its footing. So maybe next talk about that and then I'll wrap everything into the same question. Talk about the product roadmap. Where are you seeing appetite now for the wealth channel and where is this driving you to look next in terms of product development?

Thanks, Ken. This is Jason. Starting with Spring, first off, I'd say this is a -of-one product. And so for those in the wealth channel looking for diversified exposure to venture growth, Spring is the answer in the marketplace. The reputation of our venture and growth team dating back both on the Stepstone side and pre-existing through the Green Spring acquisition is a market-leading franchise that's been active in the wealth channel with closed-end drawdown funds for quite some time. So we're a familiar name, particularly in this space. And I think that is a good reason why you're seeing the activity, particularly as overall there's a lot of attention on the innovation economy over time, whether that be AI today or other areas within the software space in prior periods. So I think that it's a pretty easy explanation as to why Spring has been such an attractive opportunity, not just with distribution partners directly, but also for inclusion in model portfolios. CredEx, if we look at the day zero comparison in terms of the organic raise there as opposed to the one secondary acquisition we did earlier in the year, the organic raise actually is tracking kind of right on top of the organic raise that we saw in the early days of S Prime and Strux and Spring. So we're happy with what's going on there, and the Syndicate is building month by month fairly well. At this point, it's on just about 50 platforms today. So I think it is kind of outperforming what we saw with the prior funds, and maybe we would have hoped for that, but it is building. Obviously, the credit landscape is a bit more competitive. We do think that the multi-manager platform and approach that we've got is differentiated relative to the direct lender BDCs, and we are confident that we'll find shelf space as things go on. In terms of the product roadmap, we do have a fund that is in registration now. It's not yet effective, so I won't go into too much detail, but we're looking at more of a pure play within the private equity arena. And in terms of where we see activity from or interest from the Well Channel overall, we believe that the suite that we've got of different products is generally responsive to the needs that we're hearing today, and we have focused a lot on ensuring that the packaging is more finely tuned. And so that's why you will have seen that we lifted the accredited investor status, meaning removed the accredited investor requirements from S-Prime earlier this year and Structs earlier this year as well to allow for easier inclusion and model as well as easier execution within the Well Channel.

Great. Thank you very much.

Thank you. Our next question comes from Alex Bloestein from Goldman Sachs. Go ahead.

Hey, good evening as well. Thanks for the question. A couple of follow-ups related to the question around wealth, a bit more, I guess, financially oriented. The platform is scaling really nicely, so maybe just a quick update. How much in profitability net of not controlling interest does the wealth branches contribute to StepStone right now? And as you sort of think about the P&L and maybe geography of some of the things, fee-related performance revenues from some of these vehicles are likely going to become a bit more needle moving as the asset base gets bigger. Can you help us maybe understand how much that contributes today at sort of current performance, current run rate, and whether or not you would consider reclassifying that like some of the others done in the space? Thanks.

This is David. Thanks for the question. So right now in our press release, we do disclose the NCI impact of private wealth. So I think it's on page 11 or 12 of the press release. So it is contributing meaningfully. And if you recall, the private wealth business, all the 100 percent of the revenues, half of it goes to the business for StepStone. Half of it stays with the private wealth business. You can track the assets, calculate the, you know, the fee rate. So you can estimate what the revenues are. But again, this has been a very profitable business as it continues to scale. Today, private wealth represents nearly 8 percent of our total earning, anyone. So, you know, as you can imagine going forward, you know, you'd expect it to continue to scale, have margin expansion and contribute more meaningfully to the bottom line.

Right. And just the fee related performance on you, Dynamica? Like whether or not you guys would consider, you know, moving it around?

Yeah. So right now, you know, we embed the fee related, I guess, the fee earning AUM within the asset classes. We don't have any plans to separate that out at this time.

I'm sorry. I think this is, Alex, you're referring to some of the incentive fees as well coming off the funds. So as a bit of a reminder, you know, here on several of our vehicles, including S Prime and Strux, you know, we're not charging performance fees today. We've obviously talked in great detail about, for example, Spring, which crystallizes some of the incentive fees. David, remind me which? In December. And I think we, you know, our current plan is to continue to report that in a similar fashion to what we have done today.

Got it. Great. All right. Thanks so much.

Thank you. Our next question comes from Mike Sipris from Morgan Stanley. Please go ahead.

Great. Thank you. Good afternoon. Just a question on retirement space with the executive order today that helps clear the path for all to be included in the 401K space. Seems like we may need some rulemaking perhaps to address some legal liability concerns here that plan sponsors have. So just curious your thoughts around this, how you see this all playing out timeframe here. Seems like target date might be the most obvious entry point. Curious your views around that. What strategies might make the most sense? To what extent might partnerships be helpful here? How you're thinking about that and evaluating potential for partnerships.

Thanks, Mike. This is Jason. We were very happy to see the EO issue today. And yes, obviously expect that to lead to rulemaking. And hopefully that will help to clarify the administration's position on fiduciary duties within the original landscape. I do want to call out and thank our partner Bob Long, the head of the Public Policy Committee for DECALSA, the trade association advocating for D.C. to adopt ALT. And the great work that DECALSA did to help educate the administration on this topic. So we're very happy to see it come into frame. In terms of the timeframe for adoption, this is going to take time for it to be meaningful. That said, just in the anticipation of activity of the administration, conversations have been much warmer, I would say, over the last four or five, six months than they were the year prior or prior to that. This is a space that we've been active in and paying attention to and having conversations and education about going on, you know, nearly 10 years now. And so we're certainly patient and doing the work required. In terms of where we expect to see activity, I think it'll be multifaceted. Certainly custom target date makes a bunch of sense. And I think that there are also other glide path structures where we'll see it come into frame, as opposed to thinking that we're going to see it as a menu item in the core lineup within a 401k plan. And then finally, you asked about partnerships. There are a number of different players and types of players in the retirement space. And we certainly would anticipate having to and desiring to partner with different members of the ecosystem in order to bring products to market. And those conversations have been going on for some time.

Great. That's helpful. One just quick follow up there. Just curious if you think existing target date funds that assets could be reallocated into alts and like one full swoop. Or do you think it's really more about go forward, new flows into the retirement space?

Yeah, I think I think when you look at flagship target date funds within the different providers, you have to look at them kind of fund by fund to see what the eligible investments are. And I think the different shops that sponsor those funds probably have differing views as to whether they need to issue a new series and move clients over or whether they can fit it within the existing product lineup. So I think you'll see a mix of both.

Great. Thanks so much.

Thank you. Our next question comes from Ben Budish from Barclays. Please go ahead.

Hi, thanks for taking my follow up. I wanted to just ask more technical detail on your fee earning AUM disclosure and management fees. Can you please explain some of the recent FX benefit? Are there any dynamics where fee earning AUM benefits from FX but management fees do not? Just curious what's, I mean, clearly there's been some weakening of the dollar lately, but where are you seeing that benefit and does it flow into management fees in the same way it does fee earning AUM? Thanks.

Hey Ben, this is David. Thanks for the question. Yeah, we do have some FX exposure. On fee earning AUM, we include that in the details in the market value and FX line. This quarter was about $800 million benefit to fee earning AUM. And we do naturally have an impact on management fees as well. We, you know, most of our transactions are in US dollar, but when you look at across currencies, the FX does impact our revenues as also our expenses. If you look at this quarter, the movement in the FX raised cost about a $2 million benefit to management fees this quarter. This was offset by slightly more than $2 million in expenses. So our currencies are, our P&L is naturally hedged, if you say. So the net impact effort was actually like $200,000 unfavorable.

Got it. Very helpful. Thank you.

Thank you. Our next question comes from John Dunn from Evercore ISI. Please go ahead.

John, are you there?

Yes, thank you. I was wondering, could you give us an update on the kind of geographical mix of fundraising and then the same question for the four different strategy areas?

Sure. Thanks, John, for the question. So from a geographic standpoint, you will recall that the business, you know, is a very global one today that continues to be the case. If I look at where we had particular success in the most recent quarter, I think the two geographies that really stood out for us would have been Australia and the Middle East. The balance across other geographies was pretty consistent with history. If you look at a slightly longer term time period, because things clearly bounce around from quarter to quarter over the last 12 months, I would have just added to those two geographies and would have mentioned Australia, Middle East, and Asia as being strong drivers there. Now, clearly, given the strength of our private wealth business, which today is pretty heavily weighted towards the U.S., that's where much of our private wealth flows are coming from at the moment. If we look across asset class, and again, try to treat it similarly, look at the current quarter and then look over the last 12 months, during the most recent quarter, the key drivers of what you call AUM additions as well as fear in AUM growth would have been private credit and infrastructure. You'll recall, you know, real estate had just come off very successful fundraise for our flagship special situations, secondaries fund there. So, you know, in the current quarter, a bit more muted there. And again, if I look over the last 12 months, very balanced across all four asset classes with all four contributing meaningfully and growing nicely year over year here.

Got it. And maybe could we just get your comment on your outlook for capital markets activity and in the second half of 25 and into 26 and just your expectations for improved private equity demand?

Sure. So, look, I think what I would say is that either it's probably a point in time earlier this year, pre-liberation day, where we would have thought that our activity levels would have probably outpaced 2024, which actually did turn out to be a fairly active year for us. It was our most active year investing across secondaries, across asset classes. It was probably our second most active year in private equity co-investments. Yet things have clearly moderated somewhat, although we're seeing them pick back up again. And now I would tell you that our investment pace looks to be generally in line with last year as opposed to outpacing it. Similarly, if I think about not just new investment activity but realization activity, you heard us mention in the comments the prepared remarks that obviously from a timing standpoint, we saw some things slip from this most recent quarter into next quarter. That's why we called out some of the realizations we've already seen come through there. We are seeing good activity on the potential exit front, but also seeing that sellers are trying to maintain discipline and not willing to sell at any price. And so we're still seeing many situations where a GP runs an exit process, and if they can't get the valuation they're looking for, they will elect to hold and continue to grow those assets. We're seeing similar trends with sellers in the secondaries market. And so I think we expect to see a recovery in activity levels, but still question marks as to whether we really see kind of breakout level of activity.

Thank you for the color.

Thank you. I'm showing no further questions at this time. I would now like to turn it back to Scott for closing remarks.

Great. We just wanted to thank everyone for your time and interest in StepStone, and we hope everyone has a great rest of summer. Look forward to connecting again next quarter. Thank you.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.