StepStone Group - Earnings Call - Q1 2026

Executive Summary

• Q1 FY2026 delivered strong fee revenue growth and expanding core profitability, but lower performance fee realization drove down adjusted EPS to $0.40 and GAAP EPS to -$0.49; total revenues were $364.3M, up 95% YoY and down 3.6% QoQ.
• Wall Street consensus for Q1 FY2026 was $238.4M revenue and $0.43 EPS; actuals came in materially above on revenue but slightly below on EPS, implying mix skew to carried interest with heightened equity-based comp and lighter realizations in the quarter* [GetEstimates Q1 2026].
• Core FRE margin was 37% and management reaffirmed modeling cash compensation ratio at ~46% going forward; quarterly dividend increased 17% to $0.28, signaling confidence in underlying fee-related earnings.
• Catalysts: a growing pipeline of deals and July closings generating nearly $35M of gross realized performance fees post-quarter, plus accelerating private wealth inflows and product expansion (indices/benchmarks partnerships), set up Q2 for stronger performance fee contribution.

What Went Well and What Went Wrong

What Went Well

• Robust fee revenue growth and expanding core margins: fee revenues rose 19% YoY to $212.7M and core FRE margin reached 37% despite lower retroactive fees; FRE increased 13% YoY to $81.2M.
• Private wealth momentum: another quarter of >$1B subscriptions with platform surpassing $10B in July; management raised the base dividend to $0.28 reflecting sustainable FRE growth.
• Strategic data/benchmarking initiatives: management highlighted the FTSE Russell framework for private asset indices and launched Kroll-StepStone Private Credit Benchmarks to enhance transparency and decision-making.
  • CEO quote: “This collaboration aims to enhance transparency and benchmarking capabilities in private markets… enabling asset owners to benchmark private market portfolios within a total portfolio framework”.

What Went Wrong

• Lower performance fees and retro fees drove down ANI per share to $0.40 vs $0.68 last quarter; gross realized performance fees fell to $24.7M from $81.2M in Q4.
• GAAP loss driven by elevated equity-based compensation and unrealized carry dynamics; GAAP diluted EPS was -$0.49 (vs -$0.24 in Q4 and -$2.61 in Q3), highlighting non-GAAP vs GAAP divergence.
• Tariff-related market pause in April impacted industry-wide wealth subscriptions and timing of realizations, with several transactions slipping to Q2; FX also added ~$2M benefit to fees offset by expense headwinds.

Transcript

Speaker 6

Good day, and thank you for standing by. Welcome to the fiscal Q1 StepStone Group 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 during the session, you will need to press *11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press *11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Seth Weiss, Head of Investor Relations. Please go ahead.

Speaker 5

Thank you, and good evening. 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 David Park, 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, contains 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 Factors section of StepStone's periodic filings. 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. 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 first quarter of fiscal 2026. Beginning with slide three, we reported a GAAP net loss attributable to StepStone Group Inc. of $38 million or $0.49 per share.

Moving to slide five, we generated fee-related earnings of $81 million, up 13% from the prior year quarter, and we generated an FRE margin of 38%. The quarter reflected retroactive fees from our Special Situation Real Estate Secondaries Fund and from our Infrastructure Secondaries Fund. Retroactive fees contributed $2.9 million to fee revenues, which compared to retroactive fees of $19.1 million in the first quarter of the prior fiscal year. We earned $48.5 million in adjusted net income for the quarter, or $0.40 per share. This is down from $57.2 million, or $0.48 per share, in the first quarter of the last fiscal year, driven by lower performance-related earnings, lower retroactive fees, but offset by higher core fee-related earnings, which represent FRE excluding the impact of retroactive fees. I'll now hand the call over to Scott.

Speaker 3

Thanks, Seth. We kicked off our fiscal year with strong financial results and continued fundraising momentum. This comes despite a volatile market backdrop to start the quarter. Through it all, our LPs remain committed to the private markets and look for a trusted partner to navigate the evolving landscape. Capital market conditions have improved over the last several months, with deal activity picking up, and our pipeline of investment opportunities appears healthy across strategies and asset classes. Reflecting on our first quarter results, total gross AUM additions were $8.7 billion, driven by strong inflows in managed accounts and balanced contributions across commingled funds in all asset classes. In private wealth, we generated another quarter of more than $1 billion in subscriptions. Market volatility surrounding tariff developments had a slight impact on industry-wide private wealth subscriptions in April, but our flows quickly snapped back in May and June.

We increased fee-earning AUM by $6 billion during the quarter, representing 5% sequential growth, bringing our balance to over $127 billion. Over the past 12 months, we have grown fee-earning AUM by $27 billion, driven by robust fundraising and deployment. Excluding retroactive fees, we generated strong fee-related earnings of $79 million and an FRE margin of 37%. On a reported basis, we generated FRE of $81 million. Retroactive fees moderated from previous levels as we largely wrapped up our real estate and private equity secondary funds in the last fiscal year. Performance fees were relatively light this quarter, due in part to the timing of transaction closes, but we have visibility for stronger performance fees in the second fiscal quarter, and we see capital market trends as supportive for performance fees going forward. David will speak to the realization environment in more detail.

Finally, in June, we were excited to announce a framework agreement with FTSE Russell to jointly develop private asset indices, data, and analytics products. Private market benchmarks have historically suffered from incomplete, out-of-date, and non-standard performance measures. Our clients are seeking reliable means to monitor performance, manage risk, and make informed decisions. This collaboration aims to enhance transparency and benchmarking capabilities in private markets. It envisions enabling asset owners to benchmark private market portfolios within a total portfolio framework. We are still in the early stages of product development, so we expect the near-term earning contributions to be modest, with revenues driven largely by licensing fees as the indices are distributed. However, we see a long-term potential for asset management offerings that reference these investable indices, servicing institutional and private wealth investors alike.

We believe private asset indices can play a critical role in evolving areas like model portfolios in private wealth and target date funds in retirement. Additionally, we believe this partnership will add to our brand equity. The forthcoming indices are expected to bring visibility to the StepStone name and help validate StepStone as a leader in private market solutions. With that, I'll turn the call over to Mike.

Speaker 7

Thanks, Scott. Turning to slide eight, we generated over $27 billion of gross AUM inflows over the last 12 months. Approximately $18 billion of these inflows came from separately managed accounts, and over $9 billion came from our commingled funds. During the quarter, we generated nearly $9 billion of gross additions, including $6.5 billion of managed account AUM inflows and over $2 billion of commingled fund inflows. Notable commingled fund additions included more than $400 million in our corporate direct lending funds, about $200 million in our Infrastructure Secondaries Fund, $100 million final cleanup close in our Special Situations Real Estate Secondaries Fund, and more than $400 million in the first close of our Multi-Strategy Global Venture Capital Fund.

We activated this Global VC Fund in July, so those dollars, which are in our undeployed capital balance as of the first quarter, will move into fee-earning capital in our second quarter. We are in market with our Private Equity Coinvestment Fund, and we anticipate a first close in our second fiscal quarter. Turning to our Evergreen Fund Platform, we generated nearly $1.2 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 nine shows our fee-earning AUM by structure and asset class. For the quarter, we increased fee-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.

Speaker 2

Thanks, Mike. Turning 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 commingled 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 vesting 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's 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.

Speaker 6

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 *11 on your telephone and wait for your name to be announced. To withdraw your question, please press *11 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 in your prepared remarks it'll take some time for this to have a more meaningful impact, but what are sort of 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 sort of on the right track?

Speaker 1

Great, great, Ben. This is Mike McCabe here. Thanks for the question. 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. 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 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. The revenue opportunity there initially will be simply the licensing revenue associated with the distribution of these indices.

We expect it 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 then we'll 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, there could very well be some asset management solutions that we will develop that reference these indices as well. I hope that answers your question, Ben.

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

Thanks.

Speaker 6

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

Hi, good afternoon. Thanks for taking the questions. First, Evergreen product's doing great. I would say spring has been the monster here. I sort of get it. Maybe talk about the appetite here for venture and growth and how and maybe why this product is doing so particularly well. Maybe CREDX seems to still be finding its footing. 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?

Speaker 1

Thanks, Ken. This is Jason. Starting with Spring, first off, I'd say this is a one-of-one product. 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 Greenspring acquisition, is a market-leading franchise that's been active in the wealth channel with closed and drawdown funds for quite some time. We're a familiar name, particularly in this space. 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.

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. CREDX, 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. 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. I think it is not 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. In terms of where we see activity from or interest from the wealth 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. We've focused a lot on ensuring that the packaging is more finely tuned.

That's why you will have seen that we lifted the accredited investor status, meaning removed the accredited investor requirement from S-Prime earlier this year and Strux earlier this year as well, to allow for easier inclusion in models, as well as easier execution within the wealth channel.

Great. Thank you very much.

Speaker 6

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

Hey, good evening as well. Thanks for the question. A couple of follow-ups related to Kevin's question around, a bit more, I guess, financially oriented. The platform's scaling really nicely. Maybe just a quick update. How much in profitability, net of non-controlling interests, does the wealth franchise contribute to StepStone right now? 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 current performance, current run rate, and whether or not you would consider reclassifying that like some of the others done in the space? Thanks.

Speaker 2

Hey, this is David. Thanks for the question. Right now in our press release, we do disclose the NCI impact of private wealth. I think it's on page 11 or 12 of the press release. It is contributing meaningfully. If you recall, the private wealth business, all the 100% 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 fee rate, so you can estimate what the revenues are. This has been a very profitable business as it continues to scale. Today, private wealth represents nearly 8% of our total fee-earning AUM. As you can imagine, going forward, you'd expect it to continue to scale, have margin expansion, and contribute more meaningfully to the bottom line.

Right. Just the fee-related performance revenue dynamic, whether or not you guys would consider moving it around?

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

Speaker 3

I think this is, yeah, Alex, you're referring to some of the incentive fees as well coming off the fund. As a bit of a reminder, here on several of our vehicles, including S-Prime and Strux, 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.

Speaker 2

December.

In December, I think we, you know, current plan is to continue to report that in a similar fashion to what we have done to date.

Speaker 3

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

Speaker 6

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

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

Speaker 2

Thanks, Mike. This is Jason. We were very happy to see the EO issue today. 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 Policy Committee for Dakota, the trade association, advocating for DC to adopt all, and the great work that Dakota did to help educate the administration on this topic. We are 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, 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 nearly 10 years now. We are 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. 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 401(k) plan. 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. 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 and assets could be reallocated into alts in like one full swoop, or do you think it's really more about go forward new flows into the retirement space?

Speaker 1

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. 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. I think you'll see a mix of both there.

Great. Thanks so much.

Speaker 6

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 you know, where are you seeing that benefit, and does it flow into management fees in the same way it does fee-earning AUM? Thanks.

Speaker 2

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 an $800 million benefit to fee-earning AUM. We do naturally have an impact on management fees as well. Most of our transactions are in U.S. dollar, but when you look 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. Our currencies are, our P&L is naturally hedged, as you would say. The net impact to FRE was actually like $200,000 unfavorable.

Got it. Very helpful. Thank you.

Speaker 6

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? The same question for the four different strategy areas.

Speaker 3

Sure. Thanks, John, for the question. From a geographic standpoint, you will recall that the business 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, again, and again, try to treat it similar, look at the current quarter and then look over the last 12 months, during the most recent quarter, the key drivers of, you know, called AUM additions, as well as fee-earning AUM growth, would have been private credit and infrastructure. You'll recall, you know, real estate had just come off a very successful fundraise for our flagship Special Situation Secondaries Fund there. In the current quarter, a bit more muted there. 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. Could we just get your comment on your outlook for capital markets activity in the second half of 2025 and into 2026, and just your expectations for improved private equity demand?

Sure. I think what I would say is that there was probably a point in time earlier this year, sort of 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. Things have clearly moderated somewhat, although we're seeing them pick back up again. 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. 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.

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.

Speaker 2

Thank you for the call.

Speaker 6

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

Speaker 3

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

Speaker 6

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