StepStone Group Q1 2027 Earnings Call Summary

1Key Financial Results and Metrics

GAAP Net Loss: $116 million, or $1.41 per share, primarily due to changes in fair value related to the Private Wealth profits interest.

Fee-Related Earnings (FRE): $106 million, up 30% year-over-year, with a FRE margin of 39%.

Adjusted Net Income: $60 million, or $0.48 per share, up from $49 million or $0.40 per share in the prior year.

Fee Revenue: $271 million, a 27% increase from the prior year, driven by growth in fee-earning AUM.

Accrued Carry: $935 million, up 19% from a year ago.

Dividends: Quarterly dividend increased by 18% from $0.28 to $0.33 per share.

2Strategic Updates and Business Highlights

Fundraising: Achieved $10 billion in gross inflows, with significant contributions from the Private Wealth platform ($2.8 billion) and a strong performance from the SPRING fund, which attracted $1.7 billion.

Asset Management: Total fee-earning AUM grew to approximately $193 billion, reflecting a 19% annual organic growth rate since fiscal 2022.

M&A Strategy: Plans to buy in the Private Wealth profits interest, which is expected to enhance adjusted net income and provide significant earnings per share accretion.

Technology Investments: Continued focus on data and technology initiatives to enhance offerings in the U.S. defined contribution retirement market.

3Forward Guidance and Outlook

Growth Expectations: Management expressed confidence in sustaining multibillion-dollar quarterly inflows into the Private Wealth platform, driven by a large total addressable market (TAM) and low current penetration.

Performance Fees: Anticipated strong performance fees from the SPRING fund, with returns expected to crystallize in the fiscal third quarter.

Capital Management: Plans to maintain a conservative leverage position while preparing for the cash requirements related to the buy-in of the Private Wealth profits interest.

4Bad News, Challenges, or Points of Concern

GAAP Loss: The significant GAAP net loss attributed to accounting changes raises concerns about short-term profitability.

Fee Rate Pressure: Adjustments in fee structures for certain funds may lead to muted growth in average fee rates, impacting overall revenue.

Market Volatility: Potential volatility in performance due to public market fluctuations, particularly related to the SPRING fund's exposure to SpaceX.

Lockup Expirations: Concerns regarding the management of stock overhangs following the buyout of the profits interest, which could impact share price stability.

5Notable Q&A Insights

Fee Rate Dynamics: Management clarified that the fee rate pressure is expected to stabilize as the fundraising for new funds progresses.

SPRING Fund Management: The concentration in SpaceX has decreased, and management emphasized that the fund is designed to provide diversified exposure rather than focusing on individual companies.

International Expansion: Plans to enhance distribution overseas are underway, with dedicated personnel focusing on building relationships in various territories.

Accrued Carry Realizations: Management noted that while realization activity is improving, it remains difficult to predict the timing and extent of performance fee conversions. Overall, StepStone Group reported strong operational performance with significant growth in fee-related earnings and assets under management, while also navigating challenges related to GAAP losses and market volatility. The company remains optimistic about future growth, particularly in its Private Wealth segment.