StepStone Reports $106 Million in Q1 Fiscal 2027 Fee-Related Earnings

StepStone Group (NASDAQ: STEP ) released first-quarter financial results and hosted an earnings call on Thursday. Read the complete transcript below. This transcript is brought to you APIs. For real-time access to our entire catalog, please visit for a consultation.

The full earnings call is available at Summary StepStone Group reported a GAAP net loss of $116 million for Q1 fiscal 2027 due to fair value changes related to buy-ins but achieved $106 million in fee-related earnings, up 30% from the prior year. The company is focusing on strategic growth through client retention, long-term investments in data and technology, and potential M&A activities, including acquiring non-controlling interests in high-growth areas like Private Wealth. StepStone achieved $10 billion in gross inflows for the quarter and strong fundraising across managed accounts and commingled funds, with significant contributions from their Private Wealth platform.

The company raised its quarterly dividend by 18% and continued its share repurchase program, reflecting confidence in ongoing earnings growth. 7 billion in subscriptions, and noted the fund's broad investment focus beyond a single company like SpaceX. Full Transcript OPERATOR Ladies and gentlemen, thank you for standing by. Welcome to the first quarter fiscal year 2027 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 would need to press star 11 on your telephone. You will then hear an automated message that your hand is raised, and to withdraw your question, please press star 11 again.

Please be advised that today's conference is being recorded. I would like now to turn the conference over to Seth Weiss, Head of Investor Relations. Please go ahead. Seth Weiss, Head of Investor Relations Thank you.

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. com. Before we begin, I would 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 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 filing with the SEC.

41 per share. As a reminder, GAAP accounting requires us to factor the change in fair value of the buy—in of the StepStone Private Wealth profits interest through our income statement, which drove the negative GAAP earnings result this quarter. We have a put—call option agreement in place with an entity composed of members of the Private Wealth team that enables StepStone's buy—in of these profits interests. The Private Wealth team entered the put period in the June quarter and StepStone will enter into the call period in the third quarter of calendar 2027.

Moving to Slide 5. We generated fee—related earnings of $106 million, up 30% from the prior—year quarter, and we generated an FRE margin of 39%. The quarter reflected retroactive fees primarily from our Infrastructure Secondaries fund. 9 million in the first quarter of the prior fiscal year.

When excluding the impact of retroactive fees, core fee—related earnings were $105 million, up 33% relative to the prior—year quarter, and our core FRE margin remains at 39%. 48 per share. 40 per share, in the first quarter of the last fiscal year, driven primarily by higher fee—related earnings. I'll now hand the call over to Scott Hart, Chief Executive Officer Thank you, Seth, and good evening.

We kicked off our fiscal 2027 year with outstanding financial results, robust and balanced fundraising, and a healthy pipeline that gives us visibility for continued earnings growth. Beginning with results, we are comfortably generating run—rate management and advisory fees of over $1 billion per year and generating run—rate fee—related earnings of well over $400 million per year. These are numbers that we frankly could not have imagined just six short years ago as we were preparing for our IPO.

As I reflect on our progress, I am proud of both the magnitude of our results and the path we took to get here, driven by an unwavering commitment to investing for the long term in solutions that will best serve our clients and provide value for our shareholders, balanced growth across asset classes and geographies, and by pursuing selective, synergistic and highly strategic M&A. Looking forward, we continue to follow this playbook. First, we are generating consistent growth from our existing business.

Our client—centric mission leads to enviable client retention as well as extension and expansion opportunities across our advisory, managed account and commingled fund investors. S. defined contribution retirement market, where we see potential to replicate the success we are achieving in Private Wealth. And third, we may continue to pursue opportunistic M&A, with our current focus on acquiring our non—controlling interests at a material discount to our public valuation.

We now own 65% of our infrastructure, private debt and real estate asset classes, and we plan to buy in the Private Wealth profits interest as soon as we are contractually able. The Private Wealth buy—in will materially increase adjusted net income by enabling StepStone to capture the full economics of one of our highest—growth businesses at a significant discount to our prevailing multiple. We expect this will provide material earnings—per—share accretion that should only compound into the future. Shifting to fundraising, we generated another double—digit quarter with $10 billion of gross inflows split between managed accounts and commingled funds.

8 billion of subscriptions, while total Private Wealth assets surpassed $21 billion, more than doubling the net asset value over the last year. We continue to see a high persistency of investors within our funds, with total platform redemptions under 2% for the quarter. Spring, our venture and growth equity fund, continues to be a standout. Spring has tapped into the excitement of the innovation economy, investing in native artificial intelligence companies, AI infrastructure, cybersecurity, energy, aerospace and defense, and yes, even space exploration.

7 billion of Spring subscriptions this quarter included an elevated level of inflows. While the pace of subscriptions may normalize, we expect Spring will continue to generate a healthy rate of ongoing subscriptions and that our overall Private Wealth platform will generate a strong level of annual inflows consistent with the pace we highlighted at the beginning of this year. I'll now turn the call over to Mike to speak about fundraising, asset growth and shareholder distributions. Mike McCabe, Head of Strategy Thanks, Scott.

Turning to Slide 8, we generated nearly $40 billion of gross AUM additions over the last year, our best 12—month period ever. This fundraising was split evenly, with approximately $20 billion coming from each of managed accounts and commingled funds, including Private Wealth. Of the managed account additions, $9 billion, or 45%, came from a combination of new accounts or the expansion of existing accounts into new asset classes or strategies. 5 billion of commingled fund inflows.

Notable additions to our drawdown commingled funds included a $1 billion first close in our newest Venture Capital Secondaries Fund, $500 million of closes in our Infrastructure Co—Investment fund, $300 million of closes in our Private Equity Secondaries funds, and $200 million of closes in our Private Equity Co—Investment fund. We have also launched the next vintages of our Special Situations Real Estate Secondaries Fund and our Multi—Strategy Growth Equity Fund, with first closes expected in the coming quarters and activations to follow.

8 billion of subscriptions in our Private Wealth suite of offerings, growing the platform to over $21 billion as of the end of the quarter. 7 billion of these inflows. In the quarter, S Prime, our all—private—markets fund, generated over $400 million of subscriptions, while the remaining inflows were split between our private equity, credit and infrastructure evergreen funds. 8 billion.

We continue to make progress on expanding our syndicate with over 800 partners selling StepStone Private Wealth funds. Among the platforms that have been selling StepStone funds for at least a year, those distributing partners sell an average of two funds, a figure that has steadily increased over time. We view growth in the syndicate and increase in multi—fund adoption as key indicators for the health of our Private Wealth distribution and of the strength of our deep relationships with our partners in the wealth channel. Slide 9 shows our fee—earning assets by structure and asset class.

For the quarter, we increased fee—earning assets by nearly $10 billion. The drivers of our growth in fee—earning AUM included record subscriptions in Private Wealth, activations of commingled funds, new commitments to our drawdown funds, and healthy deployment by our managed accounts. We activated our two PE Secondaries funds in June, which was on the early side of our expected range, resulting in nearly $3 billion of additions to our fee—earning assets.

Even with these large activations and steady managed account deployment, we maintained a healthy balance in our undeployed fee—earning capital, or UFEC, of over $39 billion, as strong fundraising in managed accounts and the first close of our Venture Capital Secondaries fund helped to replenish the UFEC balance. The combination of fee—earning assets plus UFEC grew to approximately $193 billion, which is up $9 billion sequentially and is up $37 billion from a year ago. This translates to a 19% annual organic growth rate since fiscal 2022. 5 billion next quarter.

The mandate carries a fee rate in line with the average of our SMA fee rate, but there will be a partial offset to adjusted net income from non—controlling interest. Slide 10 shows the evolution in our fee revenues. We generated a blended management fee rate of 65 basis points over the last 12 months, consistent with the fee rate from fiscal 2025, as favorable mix shift to our evergreen funds offset a moderation in retroactive fees. 33 per share, reflecting strong, consistent and sustainable growth of our fee—related earnings.

Furthermore, we have repurchased an additional $21 million of shares since the end of fiscal 2026. 87 since announcing the authorization in March. I'll now turn the call over to David to speak to our financial highlights. David Park, Chief Financial Officer Thanks, Mike.

Turning to Slide 12, we earned fee revenue of $271 million, up 27% from the prior-year quarter. The increase was driven by growth in fee-earning AUM across the platform, with particularly strong growth in commingled funds across both drawdown and evergreen funds. Fee-related earnings were $106 million, up 30% from a year ago. FRE margin was 39% for the quarter, both on a reported and adjusted basis after normalizing for retroactive fees.

Shifting to expenses, adjusted cash-based compensation was $117 million. This is up from last quarter's $111 million. The increase reflected the impact of our annual merit increase, which took effect April 1, as well as headcount growth. The cash compensation ratio adjusted for retroactive fees was 43%.

Adjusted equity-based compensation was $7 million. Both the cash compensation ratio and adjusted equity-based compensation are in line with the expectations we set out on our year-end earnings call and are good run rates to use for the remainder of the fiscal year, understanding there could be some variability quarter to quarter. General and administrative expenses were $42 million, up $10 million from the prior-year quarter. About $3 million of the increase reflects platform distribution fees related to our private wealth funds, which are running at roughly $5 million per quarter.

These expenses are charged on a trailing basis off private wealth NAV at certain distribution partners. We expect this expense to generally grow in line with private wealth assets. Gross realized performance fees were $30 million for the quarter and $16 million net of related compensation expense. As a reminder, performance fees can be episodic quarter to quarter and we generally do not control the pace of realizations.

Our investment performance continues to be strong, supporting our growing backlog of future carry. Sticking with performance fees, we are on pace for another strong year of private wealth incentive fees driven by Spring returns. These incentive fees will be recognized in our fiscal third quarter, consistent with Spring's annual crystallization at the end of December. Spring has delivered extraordinary results over the first half of the calendar year, generating 23% net returns supported by several significant value-creation events.

While we do not view these exceptionally strong returns as typical, we believe Spring is a durable fund that benefits from our robust sourcing efforts and broader StepStone flywheel to generate attractive performance over time. As we track Spring's results, we may see more near-term volatility than usual from public market valuation movements. As private markets investors, we actively and prudently manage the exit of public positions in the ordinary course, subject to contractual lockups and market conditions.

Importantly, because Spring's performance fees crystallize annually at the end of December, investors in the fund are not charged performance fees based on intra-period movements in underlying valuations. 40 in the prior-year quarter, driven by growth in fee-related earnings. Moving to key items on the balance sheet on Slide 13, net accrued carry finished the quarter at $935 million, up 19% from a year ago. Our net accrued carry is relatively mature—over 70% 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 $363 million. This concludes our prepared remarks. I'll now turn it back over to the operator to open the line for any questions. OPERATOR Thank you.

As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. The first question will come from Brennan Hawken. Your line is open.

Brennan Hawken, Analyst Hi, thanks for taking my question. Sorry I couldn't find the mute button. So, Mike, you spoke to a bunch of the moving pieces in UFEC, but my question is, when we think about some of those moving pieces and some of those adjustments, could you walk us through what the impact would be on the fee rate here in the quarter? Given how much fundraising and how much AUM grew, the translation into base fees wasn't quite as I would expect, and I thought maybe timing might be part of it.

Mike McCabe, Head of Strategy So maybe a few different comments there. Thanks, Brennan, for the question. I'll start just kind of generally talking about UFEC, how we see that converting into fee-earning AUM and the likely fee rates there. Maybe then David can kind of comment specifically on what you saw in the quarter and maybe, if you're doing sort of a point-to-point estimate there, why it may not have looked exactly as expected.