Earnings call transcript Q4 2023

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Operator

Greetings. Welcome to StepStone’s Fiscal Fourth Quarter 2023 Earnings Call. At this time, all participants are in listen only mode. A question-and-answer session will follow the formal presentation [Operator Instructions]. Please note this conference is being recorded.

the to turn Weiss. host, now will conference your over Seth I

may You begin.

Seth Weiss

you. Thank

the Scott Mike Joining Officer; today Chief me call on are Strategy; Johnny President Co-Chief Financial Officer. of Jason and Hart, Operating Head Officer; McCabe, and Randel, Ment, Executive Chief

on remarks, available Investor our which prepared to presentation site will we During Relations referring Web be a is our shareholders.stepstonegroup.com. at

expected as statements I'd that for and this as Company's well everyone regarding performance like forward-looking conference certain remind this and to begin, contains future we our Before future presentation financial plans operating the dividends. call periods for

in Forward-looking statements Actual by differ those expressed reflect various due are forward-looking estimates circumstances actual for management's subject StepStone's except uncertainties will materially update of and in are from or any statements number a are we other revise Factors These forward-looking risks, and And as and may results described that made which obligation expectations no inherently to current these undertake and required, to Risk or declared of XX-K statements implied are only of risks and or changes future plans, assumptions. of factors be in upcoming and them. periods recent XX-K. uncertain dividends today. the section as our or to updated most

presentation GAAP presentation filings references our comparable included today's measures financial Reconciliations release, and directly to SEC. contains most are our addition, our to In non-GAAP financial with the measures. in the earnings

earnings retroactive compares $X and revenue earnings was from income to $XX.X net adjusted for $XX.X Incorporated fiscal contributed income that of net fourth quarter $XX.X reflected related $X.XX. of GAAP We income. GAAP fee of and This The reported fees share to $X.X of of Group global an net million the fund pretax earnings interim million. StepStone’s fee quarter XXXX and We net adjusted revenue, and contributed to retroactive $XX.X capital quarter generated million resulting million, XXXX. to in fiscal adjusted closing to attributable the income net our strategy income. fourth to venture million multi per pretax related million. Turning financial adjusted million that fee of of results fees our $X.X related net income StepStone

Before as York. Day to everyone Registration turning available I Scott, to in remind Xth, we’re capacity through In-person Day would is available will limited, New at details live possible that our soon or webcast so additional be please an attendance. Tuesday, like site. and Web register also site shareholders' Investor on-site same that holding June on Investor investorday@stepstonegroup.com. as A request to are on

hand to Executive now the call Officer, Scott Chief Stepstone I'll over Hart.

Scott Hart

you, good afternoon, everyone. Thank and Seth

in to under fee we results year by and Slide assets X, XXXX full environment by fiscal XX% Turning related strong our XX%. operating grew earnings we as fee difficult year related a amid share delivered management per

most on we AUM quarter, commercial geography. class, reflects Focusing balanced fundraising across over and structure asset recent $X additions billion. our strong of This growth generated gross

exemplifies result platform a cycles quarter's in environments. We prosper difficult that’s have across designed thrive and ability StepStone's built market diversified to this to deliberately even

We year. to of the earnings from generated Turning financial performance. quarter, the up our million the X% prior $XX for related

XX% on we appropriate for the is produced be an in fourth from last retroactive in retro from the XXXX, down per timing, heading $XX lower quarter the line We year, fees is and lower primarily view activations. adjusted income margin This XX%. a or both fees which the related the believe by driven share. of of per and prior quarter is grown dependent as period, impact timing the can in fee we uneven Excluding by million performance the and contribution revenue given the this for year's We million have $X.XX with net earnings the FRE We margins expectations into would most quarter of in full of XX% seasonality fees. of full expenses share and quarter fiscal for and $X.XX year set deployment, the growth $XX year. and earned of or

Looking forward, private are for there we present will structural markets the growth into the tailwinds opportunities well believe that future.

of are classes asset business. given runway growth wealth In drivers there continued addition, specific our our private StepStone the in within each

cycles. all Investor volatile the most clearly when during and our Day are outlook our articulating more June there on markets clients valued. StepStone and to is We grow term look assistance our detail near macro built While It to are forward headwinds, strategy in Xth. especially through need our is offerings at

For today, stakeholders as number understand they for backdrop. events StepStone of a in I'd banking across our macro industry like is better to navigating the and key messages the try recent broader to how reemphasize

activities, Bank more believe Silicon make adjustments. to examples that, we as for and has that not few propelling are growth a our But are collapse capital technologies AI development. and AUM. performance generative Themes First, stages are industry Valley of and are a was loss earning important an computing, bullish to superior had market these different which technology transition are our fee platform created across sectors. equity or affected business the cloud cycles, just in the ever, Bank of XX% the long up going that Valley exciting than directly global all drive of materially many remain portfolio. economy are software such Silicon of Like and has are on make failure of of our prospects are the and venture Venture innovations and part Great some the of the pervasive operational limited we impact on others, our beyond returns. of or had entire but transformative term our companies there energy areas we

fundraising opportunities. there returns market the a the but in are keys acknowledge market and access those challenges and We to approaches opportunities. leading capitalize positioned platform venture growth down secondaries and The StepStone differentiated come in that venture of with and and across consistent challenges these suited are insights. equity. XXXX, are to is reaping our capital with team our investment given And these experienced valuations well well with for platform and particularly strategy offering across on and are lifecycle, market diversified market today's company Two

value is reality. an First a trillion the There's The portfolio a from secondary increase within acceptance who on for valuation new secondaries. a regional of have support for and to sales more banking net in demand of the ecosystem, turmoil their venture LPs, catalyzing risk mentality, which the liquidity. liquidity growing looking than GPs and off asset magnified looking dollars companies

source current you closing this already the equity offers we to be StepStone secondaries opportunity the fund of largest of and the in a after the unique aware, We many to Greenspring well growth are shortly This a of market. secondaries which As in we acquisition, anticipate deploy unique VC successive believe strong strategy. the venture of strategy raise environment. the market the a vintages. that Demand Shifting is this private future closed backdrop in corner will for positioned is on fund offering as gross equity. is current

or rates from they leverage terms in have that rising the of tend to distinct venture positive. optionality and Growth that companies companies. typically the by from are attractive highly exit companies are are costs. equity equity buyout acquisition burning for leveraged many are They not standpoint, VC impacted Growth risks mitigate greatly buyout characteristics cash limited interest markets. financing that reliant of And facing an cash is strategies having on not providing flow IPO

in we particular, important Another reinforce pressure. our message estate. would come is estate has recent under real approach real like towards office, to Commercial

only AUM. towards top our and office instead lower office data house However, flagship estate Driven and by fund our our as total living the centers. of is down industrial, views, exposure global assets the firm XX% management real sector, in makes even under our of total X% exposure under weighted our logistics up real estate

While there high to exposure by estate the is rise rates, is our private is estate well continued underwritten be modest. real driven exposure and gross in quality pressure the valuations real on likely and

financial high dislocation. now estate typically market start market real very a investment fund investors estate to flagship fundraising. fund. commingled there off and demand over and fiscal strategy million. for recapitalizations market for capital create which in to is estate had led real our and opportunities This $XXX providing periods strong the liquidity closing The Importantly, our of through developed and quarter in in fund in is closed on the and first is was corrections of secondaries, to currently its crisis manager fourth constrained in This out vehicles coming real secondaries specializes

private And general opening retrenchment instability of further the capture a share. banks regional is lastly, the bank and lending in market for certain debt to recent door accelerating

secured classifications to a Private poised sources that deals array platform versatile nonperforming tailwinds and more we to a invest assets. StepStone's opportunistic benefit believe the in debt we be valuable asset have to market. private for senior in proven has further of are can We class clients, debt and across asset class from from very debt

distribution service to to with Joe's Joe as Business we of for further financial call to the and addition I'm investments reflective the platform expand. is scale Development. continue large to of providers. business. Head and and turning is hiring our Mike, to experience to thrilled our sales partner several StepStone's over Global the maturation I'm make Before of of as the Joe growth announce leading we of years has of representative continue excited Joe XX

I'd to Mike more about asset over and the development detail. speak now fundraising the McCabe to turn in like earning to call fee

Mike McCabe

Thanks, Scott.

billion of structure coming AUM class. X coming billion months $X commingled managed Turning We Slide XX to $XX and AUM with by accounts. the and generated our X. earning inflows from fee from asset last during our Slide shows $XX our gross billion funds

commingled fund For driven from the by our closes of classes coinvestment $X.X contributions roughly billion, accounts grew earning and fee venture our asset global we capital infrastructure across fund. assets debut managed quarter, multistrategy additional and by

from growth We just re-ups managed commingled closings activating the mentioned. fees also undeployed fee our increased billion, notable We earning of wins, in our client new on that capital, calendar $XX related end driven which to this billion nearly anticipate fund estate several near to fund account $XX and real the by generated Scott year.

We our AUM over to at $X.X steady continue earning quarter. in aggregate of the brought our which wealth billion fee end the generate platform, to growth private

fund its markets be off our SPRING, XX% a November Evergreen private return annualized our since and for to strong strong, return SPRIM, inception. equity accredited of to continues XX% performance investment Evergreen And growth in since a Our venture very launch generating investors, with fund very XXXX.

We our wealth generate monthly platform across channels million private with of subscriptions and products. over steady contributions distribution to spread in $XX continue

commingled of XX is basis due expanded over our XX fees. prior of contribution of management XXXX. venture rate capital advisory a the Slide an the mix fees management shift our the produced over from share We and advisory in toward platform. years points, X per fee evolution than shows XX% management blended a which since generated higher rate representing annual funds growth and We $X.XX last of to months.

Before share, our capital manner. which of per turning supplemental approach pleased efficient business over share am model us to by call a per will the maximizing our be quarterly addition to Johnny, enables I to our distributions to in to transparent dividend dividend. take $X.XX announce first the in normal $X.XX This of declaration shareholders of the distributed advantage

course, Future As line with to our earnings dividends net while any by uses. base be to grow of in earnings, discretionary generally capital dividend supplemental a to related related reminder, will are, subject we Board performance dividend approval. driven realized plan subject our fee

even to shareholders periods to monetization tangibly the And thrilled carrier able are soft. realization substantial approach stronger. expect is total reap when more payout our the deploy during to the We a will healthy realization is environment environment when be of allow benefits we

$XXX serves net distributions. accrued Importantly, our nearly backlog at currently million, for stand performance a as fees future which

CFO, With Johnny over I'll turn the that, our to call Randel.

Johnny Randel

to I'd turn financial attention to XX Slide Thank you, to your speak highlights. like our to Mike.

and fee driven For the continued as in quarter's quarter margin an well in below XXXX earning funds year. in was quarter up from FRE margin quarter, We of earlier XX% of by XX%. activated last earned generated revenue the of million, that as margin fourth AUM we were fees the XX% from advisor the below The increase management for commingled growth fundraising. deployment prior year $XXX fiscal and the XX%

associated seasonally retroactive March adjustments margin driven prior payroll primarily benefited be reminder, XXst the by fees. year. go a effect of US As our which period quarter annual resets The for into to quarter's from staff, tends weakest margin salary on X January tax and each year

time. which This For year, we will the base margin we anticipate a FRE expand upon strong was over full our XX%. is

to growth. continue over to as the into we margins expect profitability We sustainable long migrate term balance the with mid-XXs

may have the As past, the linear. path in commented not be we

the in $XX generally the generally remain your NCI level noncontrolling slightly will we million, annual baseline near last and quarter by but and professional around Number sequentially, performance fees modest quarter, was G&A primarily to is anticipate continued $XX headcount. grow term. realized quarters with last and quarter-to-quarter the earnings. environment. increases salary line attributable interest and by Shifting realized lower in Compensation in occupancy and driven increased incentive driven up million Gross fair related and muted to reflective with was fees move for expenses. fee of performance to forward. to generally for a in with the two of a models realization sequentially, were moving transaction line We also raises Income consistent expect fees.

was XX.X% reflecting blended XX.X% the that quarter fiscal of in Our tax our year. on in the rate from We for tax anticipate derived same rate XXXX and the expected statutory reflected fiscal tax for apportionment income. ANI state based rate full

per which fees the is per Moving X% result in XX. share of relative share. management to fees share Adjusted Slide performance up and growth XX% a fiscal offset to was in decrease by prior realized advisory the gross XX% year, a per revenue

in share XX%. driven our the fee share since advisory long profitability revenue Shifting and by year growth grew was have adjusted by earnings per We full Slide to term, XX. compounded rate fees. related management to increase annual Speaking on fiscal by grown per The we XX% XXXX.

related fiscal Looking over fee in generated term, per rate we of an XX% the annual and longer earnings have share growth XXXX.

Our long earnings in to related driven incentive fees. growth performance per robust net an is performance down and last fee by period, fees has and increased the year-to-date term rate over share ANI relative year, at driven to but annual lower both by realized XX%

from on the driven December increases approximately ended $X.X to billion, Slide by period quarter, Moving X% balance quarter Gross at valuation accrued carry underlying up the XX. sheet finished the previous the XXst. for

carry is a our balance one reported As a accrued lag. on reminder, quarter

ended to Our commitment of as $XX end. at $XXX quarter portfolio our programs own investment quarter were unfunded million the investment million,

programs is is in investment realized programs capital grown to harvest and performance their capital of or means across billion of this are which with vintages with from that Our fee vintage vehicles has unrealized of to XXXX pool these largely payable earlier, of programs. eligible $XX tie XXX sourced out of by years and with mode. diversified XX% XX% periods widely multiple exits. our waterfalls, and this deal carry unrealized and are deal meaning carry maybe carriers investment

line our any I'll open over concludes back to remarks. now the turn to prepared This the for it operator questions.

Operator

comes Instructions] from with question line Ken the [Operator our Morgan. of J.P. first Worthington And

Ken Worthington

things $X.X $XXX about build Maybe me. dollar for sure of Europe puts retail billion at recent $X the more two $X.X continues say the to there's quite be I'm and consistent build-out the a to probably takes the you to additions from I'd stable Australia? to level surface. beneath quarter-to-quarter. first, on pretty talk Can distribution, surface, billion including appear of and went And million billion. to while

sort distribution the of is newer how seasoning versus growing internationally? US and So these platforms inside

Jason Ment

approved distribution has been now over been aggregate. The private different The flows broadly US. totally fair it's got four build-out have each to platforms globally. team grow. but puts The are within there wealth and consistent also actually SPRIM Lux almost of now historically quarter-to-quarter on takes. syndicate So We're in only in characterization, for US those. and continues entirely the team we've XXX funds, Remember not SPRING

with two institutional distribution European geographies, been our largely And ground. by are have We team does outside out on driven now those local people a few that in has of the relationships dedicated BD coverage building the markets.

than of both platforms by just more say the distribution seasoning much And SPRING, flows, the stronger across driven is SPRIM of that I I continues of terms the the would just nascent. on that's US Lux In be that's and world. consistent really to efforts rest think both and

approved And seeing takes start we're it once just that to you're a therefore, flows. syndicate, to bit out so continuing build and

remember a are of you've that that a thing outside players other US market large got percentage super the The to US, bit of limited more the like relative the is number it's as out globally the to US in the platforms there.

more it RIA to type of type main. and the think akin rather IBD So wire than in the flows flows

Ken Worthington

quarter. then for what or so March of flow closes And in in guess, in the closes the just you past had believe market I terms and on funds this I -- did June? are quarter of the actually seven continuing on these the side. Which expectations funds have

Scott Hart

We of but to that had maybe market an will do I'll closings. continue marketing, And the ones funds are and all in on the that update of continue currently you that case. a with be give starting number to those have funds just interim

to to Our our multi-strategy currently are quarter multistrategy secondaries fund, well. global a million $XXX and just fund million the venture infrastructure like And bit a inaugural held roughly stands $XXX our We We shy quarter $X.X mention now during real first that at of growth $XXX estate today. co-investment equity stands which secondaries that interim end, and private as today. commitments. in mark held we closings a fund close which fund, There be others held had at capital our prepared stands fund remarks equity closings also, around market subsequent closing continue stands interim the billion. of on did million over our on currently during

Operator

Budish comes Barclays. of line Ben the from next Our question with

Ben Budish

of fiscal Investor Day any curious year, thoughts kind You for over margin in doesn't coming your priorities the top you I'm to share go can necessarily of your lumpy the what advance and tends and be mentioned up? you on if share just 'XX investment time. that immediately can up

Mike McCabe

FRE guidance was Our nearly look by at the XXX the basis XX% result strong a back the the largely for company XXXX, year. the when And we've line we with margins we have and margin points. expanded we very year took since throughout provided public in in trend,

timing fourth as teams our of and and in touched a new for predict. and as activations as in we Johnny developing we've lastly, prior existing We closings, bit the years. you were mentioned quarter, clients out this, see compensation Specifically expenses of travel step-up there did little particularly Scott also, and the Scott supporting fluctuations. as fund seen to And a tricky relationships. as mentioned, some G&A saw deployment capital the are are on quarter

any And nonlinear so past, we don't describe on at margins in the or And guidance of We mid-XXs long a just currently a long for that past has to over term really The manage to and reason margins in the to firm really been support growth profitability in the the few. basis. medium margins the the we as over we and we at conversation, either change and see our have which as look an from is really to our business term. to today's our name medium look guidance. quarter-to-quarter why don't priorities organization that and the are

we're retail franchise. our expand Jason continuing As to mentioned,

year. for And the really so globally to continue and continuing as out like seed the build as team on SPRING us developing invest new this like launches well coinvestment new our you there, fund, providing infrastructure priorities capital products we're to to products focusing can expect institutional for these investors are our developing

Ben Budish

up commingled Ken's just question you Scott, on market. the maybe of And all in overview gave the a following great funds before. then

side. say, of quarters, that levels on on you you're of over XX does next, and can the several looks increasing what color kind share maybe [SMA] contributions, last any seeing Just you look months? It like the the Like what had

Mike McCabe

approval, signing if accounts inflows that and SMA to think had taking that say similar to they to commingled ultimate the a So look, pleased the and And what characterize new are planned getting would some approval have both to of say look, or are if I space. initial trends it, place I we're between a happening. would in as we're inflows, I the during continue even help conversations have high billion new account on re-ups re-up And side, that seeing in conversations, re-ups combination the seeing separate of accounts sizable current to of say period that I investor continued new time. the they're that that AUM of and an those at taking take And we're $X but is rate. drive time that And initial the separate did quarter. the quarter those

we well. potential ahead, number have and conversations clients new look active of very to with we re-up As continue as a conversations

historic proving in these by multi-asset created we're venture in separate to strengthened class with some Greenspring are StepStone Some quite on and our where the providing combination of combined our this capabilities, new that accounts, are nature, at environment. finding be with is focus valuable

see ahead. we'll activity the SMA think I on the in front So year continued

Operator

Cyprys Stanley. Our next the Michael Morgan comes question from line with of

Unidentified Analyst

[indiscernible] is you standing venture. the want LP, in that? here looking to something to now point discussion right towards about This they're when back Is the in I share you they curious And is to it for DC, what's look attitude invested? or there to their just just stay avoid talk can on color any Mike. circle this that at is to cycle

Scott Hart

and areas it's look generalize are difficult to impact where appreciate between the It's at portfolios a go-forward of those separate different the mean the on one because bit investment I existing probably question. So very two opportunity, the I you questions. then if

the those several that so investment I'd asset to well. clearly there growing markdowns the were example, go-forward the stage heavily you And you stage have secondaries the in cloud opportunity. very portfolio. think versus compare for markdowns as look about different I remarks opportunity And challenges late excitement, Those is we impacted prepared equity opportunity, during about there the heavily say and if obviously, for with which allocated been been But years, highlighted equity. early the growth most has think as investors the growth or last

this case conversations, now seeing And lot space. the look had venture are think not historically those accessing we're the some starting on I today about that that thinking heavily quarter Now are know to a program, with cases, that, you class and doing categories In in than more hear but of calls at we've venture we years excited of as I starting asset about in valuation were investors exposed venture, said allocation in a cases of this comment an ago. this been today. we've look, investors, trouble environment the prior well the they where or we're some different a couple

again, impact often find portfolio And so forward on I myself having excitement the the go to around distinguish opportunity. the the investment existing between versus

Unidentified Analyst

And up if just follow I could quickly.

the maybe secondary that a the that not flow about help sort around bad of I can are you this you're step-up talked seeing the, it's guess, at like, numbers in where terms completions? -- not maybe deal a side, In if environment, rationalization looked on looks six this opportunities you maybe that is you of say, step-up this of think of put in what any hey, any deal opportunity or ago? well, I folks I wonder in such frame as terms pricing starting in it look and months to bad could

Scott Hart

need over also more what a in is asset have across discount, And specific gain venture. broadly. sell still value to opportunity gains embedded and look, expand assuming if I can a investment. original net venture portfolios today portfolios. is I even cases, -- those is their on a investors question the those there unrealized at in about And trillion talk dollars expand just of -- in you lock in of are an the a to there I'm overall many number might secondary might in But venture,

today. to is greater one a that is the things to that sell think I of leading willingness

market. the the our on great coming of with and led tailor environment financial crisis type senior estate experienced of secondaries a our as for secondaries can developed on the made only this real and now but and well, saw to crisis XX done around prior private potential imagine, primary strip credit space, amount you know to secondary traction where by as the market, years think Now like including where there et But sales out in about secondary of is are transactions but we us sales, in we've as fundraising significant not well, do financial factors that -- I XX, getting you cetera, the I fund, much we increasingly in an And private flow. fund I around of that's the in of coming want heard a and that largely and team calls really the talked market which on have that the other driving excitement trends in a closing deal secondaries, real to parts in make strategy infrastructure around leading of mention and GP-led the increase secondaries different sure to in highlight types number there that's think on, first of But broader you opportunity, estate, LP increasingly well. venture out equity is broader raise.

today. factors a So of number opportunity I driving there's think the overall

Operator

Hart reached question-and-answer for over now have closing session. Scott the back I'll call the we to turn And of remarks. end the

Scott Hart

Well, joining call for today. everyone, the thanks, Great.

forward the with a Day during Investor you on we as speaking our Thanks, look meantime, Just Xth. to story. everyone. reminder, your of And June the many interest I StepStone in in appreciate

Operator

you And Thank you at and may for this disconnect time. your your this concludes participation. today's lines conference,

StepStone (STEP) 24 May 232023 Q4 Earnings call transcript