StepStone Group Stock

All right. Good morning. Welcome, everyone. Thanks for joining us for our 24th Annual Global Financial Conference. I'm Ben Budish. I cover the U.S. brokers, asset managers and exchanges. And kicking it off this morning from StepStone, we've got Mike McCabe, Head of Strategy; and Jason Ment, President and Co-COO. Gentlemen, thanks so much for being here.

Great. Thanks, Ben. Good to be here.

Maybe just to start it off, as a solutions provider, you're in a bit of a unique position to see your clients' entire portfolios. So with that in mind, how would you describe traditional LP allocations to and appetite for private markets, which asset classes are seeing greatest demand? And how would you characterize the impact of recent macro trends, stickier inflation, geopolitical uncertainty, AI-related news from over the weekend, anything like that?

Sure. Great. Thanks, Ben. As a solution provider and one of the leaders in our space, I guess I'll answer the question through a framing or a perspective that we have, which begins with, our total capital responsibility today is approximately $900 billion, so just under $1 trillion, of which $230 billion are assets under management and the remaining are assets under advisement. That gives us a broad view across the entire spectrum of private markets. And within the markets, we're deploying close to $75 billion each year.

And so when we think about what's going on with LP behavior, our perspective is real time. It's lived every day across every asset class, geography and strategy. I would say there are a couple of themes that we're seeing in the marketplace when it comes to LP behavior. I think the first theme is LPs have, at least on the public pension side, seen over the last year a denominator effect where public market recoveries have improved, but allocations are typically at or a little bit above policy targets. And as a result, some of the larger pension funds out there have been slow to deploy relative to prior years.

And then I would say the insurance industry and family offices continue to remain pretty active. Insurance typically has an allocation range of somewhere between 5% to 8%, and they're typically hovering around 7% right now. So we expect insurance industries to continue to remain active. And then the last thing I would say, the family offices and more opportunistic investors continue to be active. There's a complexity though, within LP behavior that's worth noting, and that is, it's really the theme of distributions. I think LPs are still waiting for GPs to send capital back for them to reinvest in the next fund.

When we look at our data over the last 20 years or so, distributions as a percentage of the portfolio value, considering maybe last year's net asset value have typically run around 20%, 21%, 22% of a yield. The last 3 years, we've seen that yield cut in half. And we're seeing distributions coming off of prior portfolios, existing portfolios in that 11%, 12%, 13%. So I think the LP behavior is more about distributions and less about the numerator, denominator and where they are relative to policy target.

Got it. We'll come back to maybe this macro question in a second, but maybe sticking with the traditional LPs, maybe another high-level question about StepStone. Like what does this mean for the firm? Can you talk a bit about your growth algo, your cadence of flagship funds, your historic retention and re-up rates, and kind of given what's going on, what gives you confidence that your growth can continue over the next several years?

Sure, Ben. We come off a record year of nearly $30 billion of gross AUM additions. So the demand for StepStone's work product hasn't wavered one bit. I think where we're seeing a lot of interest and demand is in the secondary market and in certain asset classes such as private credit and infrastructure continue to see strong demand. And we would expect to see the next year to be particularly positive for StepStone for 3 reasons. First, the one algorithm we've talked about in each earnings call is our separate managed account business. Our managed accounts really operate like evergreen vehicles.

These are funds of one, and our LPs have a re-up rate of roughly 3 to 5 years, and when they do re-up, we've enjoyed a 90% re-up rate and at about 120% of the size of the prior vintage vehicle. So you have this growth algorithm of a same-store sales model, if you will, of north of 100% on the managed account side of the business. The second growth algorithm is our commingled fund business. You've seen StepStone's commingled fund platform expand over the years. And as we enter the market, this particular fiscal year starting, call it, April of '26, we go forward a full year to the end of this fiscal year, March of '27, all of StepStone's flagship commingled funds are in the market.

And when we add up the prior vintage year fund sizes, that amounts to close to $17 billion, add a little bit of growth to that then, and we're seeing close to a $20 billion year starting at the beginning of the fiscal year of commingled funds. As we finished June 30 quarter, we were roughly $9 billion into that $20 billion program. So we feel we are on or a little bit ahead of target. And I suspect we'll touch on this in a minute later, Ben, but it goes without saying StepStone's wealth management platform is one of its biggest and greatest, strongest growth engines, and we don't see that slowing down.

Great. Maybe before we get to wealth, just tying back to what we talked about in the first question, the macro trends, how would you describe the near medium-term outlook for both deployment and realization? It sounds like on the deployment side, a lot of confidence. What are you seeing in terms of the potential to realize?

Well, we came into the year pretty optimistic about deployment, and we continue to remain optimistic, but it's slow. I mean what we're seeing is bid-ask spreads continue to be gapped out with the 10-year Treasury now close to 5%, we would expect to see deployment continue to really -- I would say most of the capital is going to the highest quality companies out there that are up for sale. What we're seeing statistically is the dollar amount of capital being deployed is up roughly 10% year-over-year, but the number of deals is certainly smaller. What that says is GPs are looking for larger, better operating companies, higher quality companies.

On the realization front, again, it's really a narrative of 2 tales. I think one tale is how many dollars are being realized and sent back to LPs. And then the second I alluded to earlier is what does that look like in terms of a yield relative to the size of the portfolio they're currently sitting on. The good news is dollar value of distributions or realizations back to LPs have been improving year-over-year. But as net asset value has been expanding significantly over the years as a result of a lower yield, we're seeing the yield narrative continue to be on LPs mind more so than ever right now.

So we remain cautiously optimistic about deployment and realizations. We were hoping to see the backlog of deals that have been building over the last year start to flow through. So we remain optimistic on both fronts, but fairly cautious. The StepStone view on both fronts has a little bit to do with how we manage our platform with the commercial structures that we have. I mentioned our managed accounts. Our managed accounts often charge our clients on deployed capital, invested capital. And as a result, they commit a bunch of capital to us upfront and then we'll invest it over a 3- to 5-year period.

The amount of capital that's been committed to StepStone platform but remains undeployed is roughly $40 billion. And so we expect to see, call it, $8 billion to $9 billion a year of deployment run rate and having seen over 5,000 unique investment opportunities over the last year, we don't have any concerns about deploying that capital.

Okay. Great. Let's talk about your wealth business. So maybe just setting the stage, this has been a real success for StepStone. I'd like to say you guys are really punching above your weight class. What would you say has been the key differentiator as you kind of reflect in the last few years?

When we set out to create the wealth platform, we took the exact same approach we had done for 15 years at that time in the institutional space. And that was going in, listening and not speaking for a long time. We spent a year on the road talking to the distribution channel partners to figure out what was missing, what were the problem points and designed specifically to address those aspects of the wealth channel asset management solutions. We started with SPRIM, our model portfolio, because that was clearly missing, a one-click solution for the individual investor.

As we enhanced our venture team, there was a real opportunity to bring the innovation economy to the individual investor in a truly diversified way, and SPRIM has been just a standout success. Our infrastructure, multi-asset, multi-strategy, multi-manager offering let the individual investor participate in an area of the economy where they really didn't have much experience, and we were able to bring a diversified portfolio to bear. Our private equity offering builds on a long-standing success in the PE secondaries and co-invest market.

And finally, our credit offering, which is, again, multi-manager, very differentiated from what you see in the BDC space, hyper focused on diversification, which when you've got capped upside in the direct lending market, you really need to manage the downside. And so we average about 70 basis points is our max position size. So a very different offering. All of that on the back of ease of use. We are hyper focused on ease of use. So 4 of the 5 strategies have no accreditation requirements. They're buy with a click, right, NSCC ticker. That makes the life of the adviser and the individual investor profoundly easier. 1099 tax reporting, of course.

And really, after -- the beginning of the cycle is really on education, right? Because the individual investor is new to this, the FA, the large majority of the FAs are new to this. And so really just being out there with a focus on the StepStone Academy and bringing folks through to make sure they understand what they're buying.

Maybe just talking through some of the flagship products here. So SPRIM has been a particular standout for the company. What have been the themes, the sectors that have been the key contributors to performance? What are the key selling points for investors today? I'll start with that.

Yes. So access to the innovation economy has historically blocked out the individual investor, right? And to bring them into the fold, the product design had to take into account 2 different things. One, a focus on diversification. In an early venture where you can have binary outcomes, the individual investor cannot be taking binary bets. And so there are 2,000 portfolio companies underlying SPRIM. That's a powerful message as you're thinking about venture and growth as a component of the portfolio.

The second is you still need to take into account the power law. And in venture, what that really means is a small number of companies tend to drive a vast majority of the outcomes. And so you need to take somewhat more concentrated bets even within that diversified portfolio. The venture team that we've built here at StepStone is really one of the leading allocators to the space and has been for 20 years. And as a result, the level of relationships that we've got with leading venture managers is unparalleled. That gives us access from a primary perspective into their funds, co-investments or direct investments in which we're invited in, secondaries in their funds. And where we've really taken the business over the last 10 years or so is into direct secondaries. So being invited to the port directly by management teams originally introduced by the venture managers and providing liquidity to former management, early investors and the like and allowing us to proactively create portfolios that source these power law companies.

Profound performance has been driven by exposure to the right companies in the right sectors. Clearly, everybody knows that AI has been a piece of that, both energy, defense, health care, a lot of different sectors are represented in that portfolio mix and the performance of SPRIM has been just really great over the last several years. And we talked about retention, and Mike talked about the gross and net retention on the institutional side. On the wealth side, we kind of view that as what does redemption activity look like, right? People have the opportunity to get out every quarter.

Well, in SPRIM, we -- our most recent redemption period closed a couple of weeks ago. The number will get finalized after 9/30 NAV, but we are comfortably under 1% redemption in that fund. And I'm sure a lot of people didn't think that's what we were going to be seeing. So that's just a great vote of confidence from the investor base that we've got.

Great. Your oldest fund is SPRIM, it's also continuing to show some pretty solid growth. So maybe talk about this one, about the benefits of scale, how the increasing ability to make direct investments could impact your investment opportunities, performance, liquidity, et,cetera?

Yes. So I mentioned earlier, SPRIM is our model portfolio. And really, we were out there with a private markets model portfolio with a single click before people were talking about it because that's what the wealth channel needs, right? For the vast majority of individual investors, they can't create their own diversified portfolio of private markets. It needs to be easier. The interesting part that's probably counterintuitive for many is that as you're building one of these private markets evergreen funds, let's focus on the equity strategy. So let's put credit to the side for a moment. The easiest way to create diversification, get the capital deployed and not sit on cash is to use secondaries and in particular, LP secondaries, buying interest in other funds. It gives you instant ramp of the diversification.

The interesting part is that as the fund grows, you're able to predict the pacing of cash flows much better, not just from inflows from raising capital, but coming off of the underlying portfolio. And if SPRIM, as an example, has 4,000 underlying portfolio companies and growing, we're able to use our mathematical modeling to understand how cash is going to come off that portfolio. But when you know when cash is going to be coming in, you can start to layer in other kinds of investment strategies, including fund investments, primary fund investments into third-party managers. And we have a lot of data that supports us understanding how they're going to draw capital over time.

We can marry those 2 things so that these capital commitments, which would normally create cash drag because you want to reserve cash, actually serve as a sponge to absorb the cash coming off the portfolio. The great part is fund investments are the most scalable part of the private markets, easier than co-investments or secondaries. And so, in essence, scale begets scale, and SPRIM is a great example of that.

Great. So you talked about your flagship funds. Where else across the products that are you seeing particularly strong demand? And how are you thinking about potential new products for the channel?

Yes. I think we touched on it earlier with the infrastructure space being an area of increasing attention from the wealth channel. One, they're getting more acclimated and educated as to what it represents. Also in the era of AI and data centers, it represents a picks and shovels opportunity there as well. And in -- Mike alluded to the 10-year, for those who have inflation on the mind, it also represents a defensive attribute, including a yield component that tends to come with contracted cash flows that are often CPI adjusted in the infrastructure space. So seeing a lot of attention there in building that syndicate for one of our newer funds.

The second area where we've seen increasing growth and strength is on credit. Again, probably counterintuitive to the narrative that's been out in the market for the last year or so. But that hyper focus, I kind of say, maniacal focus on diversification that we bring to credit is differentiated, the multi-manager model sourcing co-investments through a variety of different GPs around the world, including from private equity sponsors, not just from credit sponsors and allowing us to really partner with everybody in the market. It gives us a differentiated way to source and deploy.

And you look at the loss ratios in that fund better than just about everybody, look at performance in that fund better than just about everybody. And we continue to see really strong growth in the syndicate. It's showing up in flows and showing up again in really low redemption numbers. So folks are happy with what we're delivering.

Great. One kind of like in the weeds question on the wealth business. So you're in a position, I think, in a year or so to purchase the remainder of the business you don't own. Can you just kind of remind us the mechanics of that buy-in of the profits interest? How exactly does that work? I know the legacy management team now has, I believe, a put option. They have not exercised that. Any thoughts on why? And given today's stock price and your level of wealth revenues, how should investors be thinking about like what the accretion of that transaction would look like right now?

Sure. So as everyone is aware, we had -- we stood up the wealth management platform from scratch just before we took the company public in 2019, brought in a seasoned team of veterans who had decades of experience in the retail and wealth management in the alternative space, which was a nascent part of the market. And we were at $500 million of assets under management just 5 years ago. Now we're sitting north of $20 billion. It is real economic value for everyone. And I think the vision that we had when we stood our wealth management platform up was that this could be a significant part of our business.

And so to really forge an aligned interest between us and the team, we created basically a partnership where there would be a put call structure such that the success of the economics could be -- would be shared between the 2 groups for a period of time. And when that period of time expired, which is this year and next year, the teams would have the option to exercise a put or a call to bring all the economics together under one ownership. Right now, as you know, all of the economics are consolidated, but there's an NCI line that goes -- that shows the economics to flow back to the team.

The next 12 months, the team has the right to put the profits interest to StepStone. And if they don't exercise that put option, we have the right to call that interest in September of 2027. The way it works, it's very simple. You take a look at the prior 6 months fee-related earnings of the wealth management platform plus the performance-related earnings, which are spread out over the last 2 years in proportion. And then there's a multiple that gets applied to that combined FRE and that multiple starts with StepStone's trading multiple and a discount is applied to that multiple and that discounted multiple then is applied to the FRE to come up with the purchase price.

And if we were to take a look at StepStone's share price today and its trading multiple, that discount would translate to something like 30%. So you can imagine from an accretion math standpoint, the 30% discount plus the rate at which this business has grown from $500 million to $20-plus billion, we expect it to continue to grow going forward. The accretion math is pretty compelling. And for that reason, the question that you asked, what's the management team's intentions here. But we have not heard from the wealth management team that they have any intention to exercise their put. So we're signaling to our shareholders that you should expect StepStone to call the profits interest this time next year.

Okay. Great. Maybe just one last very high-level question on the wealth channel. So historically, we've seen that sentiment from retail investors can shift very quickly. It was the REITs several years ago, the BDCs more recently. So in your view, where are we today? Where are retail allocations? And how do you think about the next 5 to 10 years of growth in this channel?

Yes. To use the baseball analogy, we're still taking batting practice before the game, right? So yes, investor sentiment will vary from asset class to asset class, maybe from structure to structure. But this is all in a secular backdrop where the individual investor has asymptotically approaching no allocation to privates. The ultra-high net worth maybe are at 5% or a bit more, but the mass affluent are much closer to 0 than that. And so this is a multiyear, I think, 5-, 10-, 15-, 20-year cycle of private markets allocations coming into the individual investor portfolio. And some of that will be through product innovation, but some of it will be simply through the passage of time, education and continuing to be out there in front of advisers and individuals.

And there are a couple of secular things going on that I think will continue to give that a lot of room to grow. One, we talked about SPRIM being a model portfolio. But obviously, across traditional asset management and wealth, model portfolios in general have been thematic over the last 10 years, and I think will continue to be for quite some time due to a lot of different dynamics in the wealth channel. The products that we've brought to bear, so beyond SPRIM, so think the pure play of STPEX, the pure play of CRDEX, the pure play of STRUX with ticker, interval fund structures, they fit very well in those model portfolios. So that's going to give us a great way to participate there. And we haven't even talked about the 401(k) market yet. And obviously, it's a $15 trillion opportunity here in the U.S. with, in essence, again, asymptotically approaching 0% allocation to private markets, and we think we're just extremely well positioned.

Well, you give me a good segue into the next couple of questions here. So maybe thinking about new growth opportunities, one of them is the still emerging U.S. DC opportunity. I think earlier this year, you hired a Head of U.S. Defined Contribution. Maybe talk about what this person's mandate is? And how would you describe the goals in the next 12 to 18 months? And what would you say are StepStone's key points of differentiation to compete in this market specifically?

Yes. So we brought on, her name is Taylor Benson. She's fantastic. So shout out to Taylor. Really happy to have her on the team, and I've spent a ton of time working with her over the last several months. Her remit, it's the U.S. DC market, but it's all of the different system players, right? So she's covering record keepers. She's covering wealth managers, aggregators, target date fund managers, stable value, you name it, she's talking to them. Her calendar is tough to get on to for many, very busy. The reason we're going to win in D.C. is the same reason we're winning in wealth, which is we're bringing portfolio building blocks to the market. We're not bringing a product and trying to jam it at folks. We're just bringing the building blocks to the players that need them.

And these multi-manager diversified portfolios, whether it be STPEX for private equity or STRUX for infrastructure, CRDEX for credit, they allow a portfolio manager, so think the portfolio manager of a target date fund or the adviser who's managing an adviser managed account to pick and choose what they need, incorporate it into a managed portfolio, which in target date is a glide path. They need to be able to mix and match over the different vintages of the glide path, what kind of portfolio attributes they're trying to source. We give them a very easy way to do that. And as a result, we think we're just going to be very well positioned for all of this. Over the next 12 to 18 months, we will have solutions that are incorporated into U.S. DC, for sure.

And what about outside the U.S.? And how would you describe the private access and retirement opportunity ex U.S.? And similarly, what are you doing to access these markets?

Yes. Look, outside the United States, every country is its own country, and that really matters in the DC space. It's obviously a very regulated area of the economy. If you look at Australia, we've been active in the Australian DC market or superannuation plans basically since we started the firm, right? And these represent today some of our largest clients, and we work with most of the largest superannuation plan managers today and have for years. Their adoption of private markets into retirement is profound. You look at the largest of the Australian supers, they have like balanced portfolios or premixed portfolios, 25% allocation to private. And that's representative of really what you've seen in that market.

You look to the Mexican market closer to home, the forays there are target date funds. And they've been using privates in their target date funds for a number of years now, and we've been the Intel Inside helping them to do that. So different geographies are at different gestation points in terms of how they're going to do this. But the direction of travel globally has been from DB to DC. And the direction of travel has been from traditional assets to a total portfolio that includes private. So our global book local staffing model, we're in 31 offices around the world. We're very well positioned to be on the ground, helping people to figure out how to do this. The most recent stuff that we announced, obviously, was in the U.K. I think we talked about it a couple of quarters ago with the Aviva Trust and really happy to be partnering with a leading group there and more to come as well.

Okay. Great. Maybe a couple of the other newer growth opportunities. So your relationships across the GP universe give you unique access to data. Can you talk about how this has enabled you to strike partnerships with FTSE Russell, Kroll, PitchBook and what you're doing there?

As I mentioned early in our conversation here, StepStone is overseeing close to $1 trillion of assets around the world. And that includes data back to the 1990s and even the late '80s. As such, we're tracking nearly 20,000 general partners. We're tracking 150,000 funds and unique investment opportunities and companies across the private markets. The estuary of data at StepStone is unparalleled when you take a look at venture, buyout, infrastructure, real estate and credit.

Now we've used this data historically to drive our investment decisions. We've also used it to attract capital, whether giving access to our databases through commingled fund commitments or managed accounts. But I think the bigger enterprise value question is how can StepStone better monetize this data platform that really is so unique and large and scaled and diversified. And we realized we couldn't do it internally. We felt we needed a partner or 2 that understands how to make data available to the broader markets in a very effective way. And on the credit side, we couldn't think of a better partner than Kroll and the timing of it couldn't be better either, Ben, given all the headlines with respect to risks or perceived risks within private credit.

And so we forged a partnership with Kroll to allow LPs, GPs and service providers to take a look at loan level data to really try to measure the risks that are out there rather than some of the vernacular that's been used by certain people to describe what's going on in private credit. And we're now serving hundreds of subscribers to the Kroll StepStone partnership. The next question was, and Jason mentioned this a little bit, in the 401(k) in DC and other emerging markets, particularly in wealth, what we're seeing is a drumbeat from LPs today that is getting louder and louder.

Performance is table stakes. And I don't think that, that's in question anymore. So how to measure returns, time-weighted versus IRR, how to measure risk, how to measure volatility? What do I own? What is it worth? So all of these questions feed into sort of governance questions that our LPs are asking themselves, how do I allocate and to which? And what's the total return of my portfolio, not just the return of my privates versus publics? Oh, and by the way, there are different measurement tools used for each. These are table stakes for this asset class to continue to grow.

We could not have thought of a better partner to work with in making our data available to the broader market in a very objective, independent third-party way than FTSE Russell. FTSE Russell, of course, is one of the leaders in indices and benchmarking and data analytics, and they've been looking for a solution provider to partner with as well on the data front to add to their suite of indices. So earlier this year, we launched a number of indices with FTSE Russell, including the Global Private Markets Index. We also have private equity. We also have real estate, infrastructure and private credit. So all the asset classes are now available on the FTSE Russell and Bloomberg terminals.

And these indices provide the traditional quarterly lag returns, but we've added some technology to make those quarterly returns available on a daily basis by cash adjusting the quarterly lag number and then layering on a beta to the quarterly lag cash adjusted to provide as a daily value. And we're starting to see the FTSE Russell StepStone partnership really be embraced by the market. And last but not least, how do we serve the GPs with the data that they're basically serving us so that they can figure out ways to slice and dice their track records and market their future products, but also really analyze how their performance is on a company-by-company, not fund-by-fund basis among their peer group. And you couldn't think of a better partner to work with on that front than PitchBook, who has the largest and broadest access to the GP community when it comes to selling data services. So Kroll for credit, FTSE Russell for the broader private markets and PitchBook for the GPs in particular.

Great. And maybe just tying into the financial question. So you guys have indicated publicly several times that it's quite early. How would you frame up to, say, the medium-term P&L opportunity in the indexing space? What types of early adoption from LPs are you seeing?

Well, we're pleased with the adoption rate so far. But I'm going to borrow an analog from Jason, who mentioned how the wealth management platform went from 0 to 60 in 3 seconds, it's education. And it's going to take some time for all 3 partnerships to get out into the marketplace and educate all of the various constituents who may have an interest in subscribing to these services. In the near term, we're not expecting to see much revenue growth. In the medium term, we're expecting to see adoption rates really pick up. We're not expecting to see significant subscription revenues relative to the total platform.

Where there might be a medium or longer-term opportunity from an economic standpoint would certainly be if any of these benchmarks turn into investable indices or wrapped in some sort of asset management product, you can expect to see some real economic value grow there. And I think the DC and 401(k) market is going to be needing some sort of investable index for the individual investor across their portfolios, and we think StepStone is well positioned to lead that charge.

Great. Just a couple of questions left here. And if there are any questions in the audience, we can open it up as well. Maybe just kind of moving to capital allocation. We talked about the NCI buy-in earlier. What else are you thinking about under the capital priority umbrella?

Well, as we've said in the past, and we remind everyone each quarter, StepStone is a very capital-light business, balance sheet-light business. We don't expect that to change. And as a result, we are a high cash-generative business. The first dollar of after-tax cash flow goes back into the business for driving whatever growth opportunity that may be available. We've already touched on a few today. So the first dollar goes back into the business to drive growth. The second dollar goes back to you, our shareholders. And we have 2 dividends to support that thesis. The first is a quarterly dividend, which is tied largely to fee-related earnings, which is a very stable, predictable fee stream.

And the second is an annual dividend that we will pay out each June based on the Board's decision at the end of the fiscal year. What we do is we accumulate our performance fees throughout the year and we distribute our performance fees, think of it, a carried interest payment back to our shareholders in June each year. I would say the third would be M&A or some sort of transaction that provides strategic value to the firm. And we've built the business on a number of M&A transactions, the most recent one being the acquisition of Greenspring, which led to the SPRIM product that Jason spent some time talking about.

And whenever we've done an M&A deal, it's really been adding to something we're already doing or accelerating something that we felt was important. We feel we've built the platform out geographically, asset class-wise and strategy-wise. And in doing so, we've created these partnerships with each asset class in wealth management. And so I think the third dollar after distributions and investing for growth will go to be buying in the NCI, the profits interest from our infrastructure, real estate, private credit and wealth management. And I think it's the safest and most reliable form of M&A you can come up with given how we've lived and worked with these partners now for 5 to 10 years. So that's the safest form of M&A we can come up with.

Makes a lot of sense. Before I ask my last question, anything from the audience in the room?

All right. Okay. Last one for me here. StepStone's margins have expanded pretty meaningfully over the past several years. And we talked about capital priorities. Maybe like on the OpEx side, what are your other investment priorities? And how should investors be thinking about the longer-term margin profile of this business?

I remember being asked this question in 2020 when we took the company public because we were sitting at an FRE margin of 26.5%. And the question was your peers are in a substantially different category, do you think you could ever get there. As we sit here in 2026, we're approaching an FRE margin of close to 40%. So we've added nearly 1,200 basis points of margin expansion. I think, Ben, that speaks to the operating leverage of this business as we scale up capital. And we expect that operating leverage to be a key part of anyone's thesis in the StepStone story. As we approach 40% FRE margins, you can see wealth management has been a big driver given the margin profile of the wealth management products as well as the commingled fund products because they are at a substantially higher fee rate than the managed accounts and other activities.

So our view is we're sitting comfortably in the high 30s, close to 40% FRE margin 5, 6 years after our public offering. And frankly, we don't see any constraints to seeing further upside to margin expansion. But as we've said from the very beginning, our first priority is going to go to invest in growth. And so you will see a nonlinear development of our FRE margins as we decide to invest in future activities. We have a history of putting the cart way before the horse. And I don't think that philosophy or culture of StepStone is going to change anytime soon. So it will be nonlinear, but you'll expect to see additional margin expansion as private wealth continues to grow and we continue to add capital to a very strong foundation.

Okay. Great. We're nearly out of time, so we'll leave it there. But Mike, Jason, thank you so much for being here. Pleasure to have you.

Thanks, Ben. Thanks, everyone.

Thanks, Ben.

Ladies and gentlemen, thank you for standing by. Welcome to the First Quarter Fiscal Year 2027 StepStone Group Earnings Conference Call. [Operator Instructions] 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.

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. 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 would 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 2027. Beginning with Slide 3, we reported a GAAP net loss attributable to StepStone Group, Inc. of $116 million or $1.41 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. Retroactive fees contributed $1.1 million to revenue, which compares to retroactive fees of $2.9 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%. We earned $60 million in adjusted net income for the quarter or $0.48 per share. This is up from $49 million or $0.40 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.

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 6 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. Second, we are investing in long-term growth initiatives, including data and technology and solutions for the U.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 noncontrolling interest 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. Our Private Wealth platform generated another record quarter with $2.8 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. We believe the $1.7 billion of SPRING subscriptions this quarter include 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.

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.

During the quarter, we generated over $10 billion in gross additions, including approximately $4.5 billion of managed account additions and $5.5 billion of commingled fund inflows. Notable additions to our drawdown commingled funds included $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.

Turning to our evergreen funds. We generated $2.8 billion of subscriptions in our Private Wealth suite of offerings, growing the platform to over $21 billion as of the end of the quarter. As Scott mentioned, SPRING drove nearly $1.7 billion of these inflows in the quarter. SPRIM, 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. Additionally, we generated over $500 million of subscriptions in our evergreen non-traded BDC, SCRED, growing the fund to $2.8 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 2 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 2 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.

Consistent with our commitment to communicate forthcoming distributions out of fee-earning AUM, we anticipate an expiration of a managed account of roughly $1.5 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 noncontrolling 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.

And finally, I am pleased to announce that we are raising our quarterly dividend by 18% from $0.28 per share to $0.33 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. In total, we have executed $30 million of our $100 million repurchase authorization, buying over 710,000 shares at an average price of $41.87 since announcing the authorization in March.

I'll now turn the call over to David, to speak to our financial highlights.

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 of 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. Taken together, adjusted net income per share was $0.48, up from $0.40 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 5 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 Instructions] And the first question will come from Brennan Hawken with BMO.

So Mike, you spoke to a bunch of the moving pieces in UFEC and some -- 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.

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. But look, as we think about UFEC, that will continue to be a pipeline of future fee-earning AUM growth for us, still stands at $39 billion.

We mentioned there was about $3 billion of activations during the quarter with some of the additional fundraising right back up to $39 billion, and there's probably still about $3 billion that needs to be activated. The remaining $36 billion will be subject to deployment. And if we look at the average fee rate across that UFEC number today, it is generally in line with our overall fee rate. So as that's deployed, I wouldn't expect a major change there. But again, maybe over to David to comment on the specific quarter and the timing of some of the commingled fund activations.

Yes. I think if you look back over the last year or so, you've seen a steady, progressive increase in the average fee rate, right? And that was largely due to the mix shift from SMA to commingled funds driven by not only the fundraising for commingled funds, but the growth in Private Wealth assets.

Last quarter, we had mentioned in our prepared remarks that we did have a change in the fee structure for our PE secondaries and GP-led secondaries funds and that the impact would result in a relatively muted growth in the average fee rate. That's exactly what you're seeing right now as we raise capital and we activated the secondaries funds in June, you're going to see a little bit of fee pressure just from the lower fee rate, offset by growth in Private Wealth assets.

So I think what we had mentioned was you should expect to see the commingled fund fee rate stay relatively flattish over the next few quarters to a year as the secondaries funds continue to fundraise. And once that is fully raised, then you should see the resumption of the progress in fee rates as Private Wealth assets grow and as the fee rate steps up for the secondaries funds.

Got it. Okay. And then you touched on this a bit in your prepared remarks. The strength in SPRING is really remarkable. And you touched on some of the excitement it's tapping into, including space exploration. Now that there's a decent sized position that is public in that fund, can you walk through what we should expect as far as tracking of performance of that public equity and translation into SPRING'S performance and how maybe a little bit of extra texture around the management of that position that you touched on briefly in your prepared remarks?

Yes. Thanks. I'll start and Jason may jump in here as well. But I think the first one I'd make is, look, I think this fund SPRING is not about any one company or a small group of companies. There's over 2,000 positions in the fund. There's about 75 or so that drive 75% of the net asset value. And I think interestingly, while it was an incredibly strong year of performance in the year to June 30, even if you stripped out the performance of SpaceX was still a fund that was up in the sort of mid- to high-20s or double what we target for this fund and well above even some of the public benchmarks. So strong performance really across the board here.

With the recent trading down in that position as well as continued fundraising and markups across the portfolio, that position is now more of a mid-teens-ish position down from sort of its peak there. But to your point, as it begins to come off lockup, look, our view is as a private market investor, we are -- it's not our job to be long-term holders of public positions. And so we will look to exit in an orderly way, but trying to manage that on behalf of the investors in the fund. And so stay tuned in future quarters here, but certainly will introduce some level of volatility into the performance as a result of the public positions, but something that can be managed going forward.

And the next question is going to come from Ken Worthington with JPMorgan.

Maybe first, talk about the buyout of the profit interest in the Private Wealth business. There were a couple of short reports this quarter expressing concern about, one, the amount of stock likely to be issued to the management team; and two, the cash portion of the raise. So how do you think about the -- about managing the lockup expirations sort of in the following 3 years post the buyout? Anything you're thinking about to just make sure the stock price is sort of stable if and as those shares come to market?

And then on the cash side, clearly, you're not concerned given the special dividend, the buyback and the increase in the regular dividend. But can you talk about what you've put into place thus far, what you're thinking about in terms of managing that cash portion? Are you going to increase the size of the revolver? Are there any things that you've done in preparation that you could share with us?

Thanks, Ken. It's Mike here. Maybe I'll start with the cash portion and maybe ask Scott to talk a little bit about your first part of the question with respect to the potential overhang as the lockups expire on the equity portion of the buy-in. But in terms of capital management priorities, clearly, our near-term focus is preparing for the buy-in of the profits interest associated with the Private Wealth platform. And as a reminder, the structure provides a lot of flexibility, including the ability to fund up to 75% of the consideration in StepStone equity with the balance, as you point out, Ken, being funded in cash.

I think also it's worth revisiting more broadly that from a philosophical standpoint, our capital management approach remains unchanged. And we operate a capital-light business and our first priority is to invest in growth. Beyond that, we look to returning capital to shareholders while maintaining flexibility for strategic initiatives like this one.

I think given the upcoming cash requirement associated with the buy-in, we have a couple of options available to us, beginning with cash on hand and cash generating from the business. And as part of that, we will certainly continue to evaluate what the appropriate level is and timing of discretionary choices like the capital return and including future share repurchases.

We did certainly signal strength in the prepared remarks here with the buybacks that we have completed so far. But we're going to certainly revisit that as we prepare for the buy-in of the Private Wealth platform as well as we'll revisit all options are on the table here with respect to discretionary spend, including the annual supplemental dividend, as you know, is tied to performance fees.

And lastly, I think we also have a very strong track record in the capital markets and currently maintain an investment-grade rating from Kroll, which is supported by the debt private placement and revolver we put in place a couple of years ago. And you can expect that we will certainly reaccess the capital markets to fund the additional cash portion that is required above and beyond what we have on hand and what we can extract from our operating cash flows. And then I would just say, historically, we've taken a pretty conservative approach to leverage, and you can expect that to continue. The incremental earnings associated with the Private Wealth buy-in should provide meaningful capacity for us to fund a decent portion of the cash consideration with debt while maintaining conservative leverage ratios.

But with that, I'll maybe ask Scott to touch on how the lockups will expire and some of the thoughts around there.

Yes. No, Ken, as you mentioned, we have the ability to fund up to 75% of the purchase price in the form of stock or units there, 30% of which are tradable immediately, the remainder of which is locked up over a 3-year period. Look, in a lot of ways, it resembles the same types of lockups that the management team had at the time of the IPO, resembles the types of lockups that the management team had post the Greenspring acquisition, similar to some of the lockups that our asset class teams have as we continue the buy-in of the asset class interest. So something that has been part of our playbook, both in terms of making sure to generate alignment of incentives, but also to help in terms of the orderly potential sell-down of those interests over time. And obviously, this one has the potential to be sizable. But I think that past experience gives you a sense for the orderly fashion in which we will look to manage it going forward.

Great. And maybe just as a follow-up, Mike, you mentioned a couple of times wanting to maintain sort of a conservative leverage position. What does that mean? Like how conservative? Clearly, the more debt you use to finance this, the more accretive the buyback -- the buy-in becomes. What's your comfort zone in terms of what is a conservative leverage position?

I think the bellwether that we're looking to inform that decision really revolves around the rating that we receive. We're currently, as I mentioned, enjoying an investment-grade rating A+. And I think we're going to start that as our opening position and see how far we can go in the debt capital markets while maintaining that strong investment-grade rating. And I think that's really our starting point, Ken.

And the next question will come from Ben Budish with Barclays.

Maybe, David, in your prepared remarks, you talked a bit about distribution fees coming in from the wealth channel. As I recall in the past, when this sort of became a bigger narrative for some of the bigger public peers, you were sort of -- it didn't impact you guys as much, I think, for a variety of reasons. So I'm curious, it doesn't sound like it's anything that's accelerating, but just curious if anything has changed recently, if the mix of distribution between RIAs and Wires, or U.S. versus international has changed? And are there any other implications we should think about as we think about your longer-term margin profile? Again, it sounds like you've indicated that you kind of -- that $5 million should grow with the wealth platform, but any other things we should be thinking about from that perspective?

Yes. Happy to answer that. Look, like we said, these trail fees are largely tied to private wealth assets. We're not concentrated in any single channel. We're nicely distributed between Wires, RIAs and IBDs. So again, it's going to depend on any given period on which channel raises the assets. Some have -- carry a higher fee than others, some carry no fee. So it's really going to depend. But generally speaking, I think it's fully baked into our run rate at that $5 million we had disclosed in the prepared remarks. And so I think the best assumption is as the wealth assets grow, you can assume that, that $5 million will continue to grow along with it.

All right. Helpful. And then maybe just curious if we could check in on some of the newer kind of tech and index initiatives, the partnership with FTSE Russell, Kroll, and PitchBook. I think some of this you started monetizing around the end of last year. But just curious if you could give us an update, receptivity and uptake from clients, anything like that.

Thanks, Ben. There's no material update across the partnerships, although I'm pleased to report that we are starting to see adoption rates starting to tick up across the 3 partnerships we have in place with FTSE Russell, PitchBook, and Kroll. We're not at a certain scale yet where you'll start seeing a specific line item flow through the P&L under advisory revenue, but we're pleased with the way the outreach is going, the way the education is going in the market and the way the adoption rates are starting to tick up with subscriptions starting to flow in. We'll certainly keep you posted in the future quarters. And I think certainly by the end of this fiscal year, you might start seeing that line item in the P&L starting to reflect some of the activity in these partnerships.

And our next question will come from Mike Brown with UBS.

You guys recently adjusted the fee structure on the flagship PE secondaries fund, as you mentioned earlier. Just curious a little bit about what you're seeing in terms of feedback from LPs as you've kind of gone out there with the newer terms. Have you noticed any maybe broadening in terms of participation levels in this first close relative to prior vintages when you've been out fundraising that fund?

Yes. No, thanks for the question. This is Scott. So look, it's hard to point to any one thing in terms of what is driving the activity and the fundraise, but I would say that we are off to a very strong start there, probably ahead of expectations, certainly ahead of where we were last time around with this commingled fund. So again, whether you point to the fee rate, whether you point to the performance, the quality of the platform or the overall market opportunity, and there does continue to be significant interest in the secondaries market more broadly, hard to point to any one thing, but it is resulting in a successful fundraise for us here.

You heard Mike talk during the prepared remarks about the fact that we had activated the fund ahead of schedule, and that's across both of the flagship private equity secondaries fund as well as our GP-led secondaries fund as well here. So again, good receptivity, continued good interest. You've seen some of the first half statistics come out about the secondaries market.

The first half was another sort of record first half and on pace for what very much looks to be another record year. Yet at the same time, there's not a tremendous amount of dry powder, only about a year's worth of dry powder that's available in the market there. And so we think very well positioned there.

Just to put a couple of additional numbers on it with some smaller closings that we had during the quarter, that took the private equity secondaries fund to somewhere in the $2.5 billion range, the GP-led fund around $300 million based on what have been raised to-date and with incremental closings post quarter end, continued progress there. So making very good progress.

Okay. Great. I wanted to ask a little bit about the accrued carry here. So it's reached roughly $935 million. And I know that nobody has kind of crystal ball in the near term, but over 70% tied to programs older than 5 years. So any color about maybe how investors should think about the pace of how that will convert into realized performance revenue near term would be very helpful, but maybe just over the next couple of years would also be helpful?

Yes. So look, maybe I'll step back and just spend a few seconds on the broader realization activity that we're seeing across the market, which obviously then plays into the performance-related earnings and realized carry over time here. I think in a lot of ways, the first half of this year kind of reminded us of the first half of last year where people came into the year with high expectations. Those expectations were probably not quite met as a result of some of the macro activity that took place in the first half of the year last year with tariffs this year with AI disruption, and war in the Middle East. But there have been some positive signs of life there. Certainly, GPs are looking to generate liquidity on behalf of their LPs, but are also trying to optimize their exits.

And so one of the comments you've heard me make really probably over the last couple of years at this point is that a lot of the realization activity that you do see results in partial realizations as opposed to full realizations. And so whether that's through a continuation vehicle, a minority sale, the divestiture of a division, selling to a strategic but receiving stock in return that needs to be exited over time. There have been a number of different forms of partial realizations that we've seen. And what that can mean in some cases that it may not always translate into carry or performance fees if those funds that have a European waterfall have not returned cost plus preferred return or those vehicles with an American waterfall have not returned cost plus preferred return on that individual company. So I think we're seeing a little bit of a disconnect right now between some of the improving realization activity that hasn't yet flowed through in terms of carry.

We do think that is starting to improve. We've seen a number of announced full exits, some of which will come through in the coming quarters. I think there's a strong pipeline of that activity as well. But as you say, difficult to predict. We don't have a crystal ball, and we don't control the exits in a lot of cases. I think as you move forward a couple of years and certain vehicles that have a European waterfall move into carry-paying mode, that's when you may see a more sort of consistent flow of realized performance earnings over time.

And the next question will come from Alexander Blostein with Goldman Sachs.

This is Anthony on for Alex. Maybe just on SPRING, just given the high concentration of SpaceX, how is this kind of affecting how clients and advisers are thinking about the product today? And what are your expectations on gross flows and redemptions over the next few months?

Yes. Thanks, Anthony. Jason here. So as Scott noted earlier, concentration in SpaceX actually has muted a bit over the last quarter or so down to a mid-teens position. So clearly demonstrating our confidence in the power law where venture-backed companies select few drive the majority of the returns, but no longer what we would think of as an outsized position by any stretch.

In terms of the go-to-market, as we talk about SPRING, whether that's 2 quarters ago, a quarter ago, a year ago or tomorrow, we've never sold it as access to a single company or even a select group of companies. It's designed to be access to a diversified portfolio of venture assets, obviously, with, again, a focus on the power law and as Scott mentioned earlier, 75 companies driving 75% of the NAV.

In terms of the redemption activity, obviously, heretofore, it's been very low. And as we talk to the channel partners that are actively allocating to SPRING, have allocated in the past or contemplating onboarding it now, we continue to hear a lot of excitement, not about the names everybody knows, but really about the names that are going to be the companies of tomorrow that people are talking about. And that's consistent with the venture and growth sector for as long as we've been active in it. It's always about the companies of tomorrow, not the companies of today.

In terms of the -- so in terms of future redemption activity, we're not hearing any pent-up demand for redemption. We always, with all of the evergreen funds, plan for and manage the portfolio in anticipation of maximum redemption per quarter or biannually, depending on which fund we're talking about, so that we're prepared from a liquidity perspective. And in terms of future flows, we continue to see high activity at the top of the funnel and SPRING, in particular, adoption into additional model portfolios. So continue to be very bullish on what we'll see going forward.

Again, as we mentioned in the prepared remarks, last couple of quarters were definitely outsized. Again, we weren't marketing it as access to one or even a handful of specific companies, but you can't control activity out in the market, but interest continues to be quite strong.

Got it. That's helpful. Maybe staying on the evergreen topic. I believe the international exposure in your evergreen funds is fairly low. So how are you thinking about expanding distribution overseas?

Yes. So we have added dedicated personnel within territories that are fully focused on the wealth channel, and we've built that out over half a dozen-plus territories internationally today. The vast majority of their activity is around getting on platform as opposed to calling on advisers, right? And so as that kind of activity level balances out toward calling on advisers, rather than calling to get on platforms, we'll start to see a much more material uptake in terms of the funds.

The second point that I'd make is we have really focused on enhancing brand awareness in different markets internationally through targeted outreach, not just calling campaigns but advertising and the like.

[Operator Instructions] The next question comes from Michael Cyprys with Morgan Stanley.

Maybe just staying with private wealth. Clearly, this has become arguably one of the biggest growth engines for StepStone. So as you think out 3 to 5 years, curious what becomes the limiting factor in your view to sustaining this multibillion-dollar quarterly inflows that you've been putting up?

We don't see a limiting factor to being able to keep that multibillion pace up into the future. The TAM is quite high, penetration is very low. And these funds, in addition to being well tuned for the high net worth and mass affluent markets are also very likely going to be component parts of our solution for 401(k), which represents an equally large and less tapped market today.

Great. And then just as a follow-up question. Historically, you've monetized your investment expertise through management fees and carry. But as you broaden the business with data analytics, technology through some of the various partnerships with FTSE, Kroll, PitchBook you mentioned earlier, I guess, to what extent do you envision those becoming more meaningful business lines? Maybe you can help frame what success looks like for these data businesses? And maybe you could speak to some of your initiatives and steps you're looking to take there to help drive an inflection over the next 12 to 24 months.

Thanks, Mike. This is certainly playing a long game in many ways. But the data that StepStone is sitting on is probably the deepest, broadest and largest data set in the industry across all the asset classes and strategies. The partnerships that we put in place have really been done so with a very long-term view, starting with FTSE Russell.

In many ways, to Jason's point, as we start migrating into defined contribution, whether it's 401(k) or Scott pointed out model portfolios as another channel for us, we think benchmarking tools and analytical tools are going to be table stakes for accessing some of these markets. And we believe the FTSE Step suite of indices will become into focus and a priority for asset allocators, particularly in that segment of the market as they think about how to figure out transparency and governance and benchmarking returns, particularly in the retirement market. The industry has relied heavily over the years on this quarterly lagged benchmarking tools that I just -- we don't think are sustainable over the long term.

So I think what we're creating with FTSE Russell is very long term. But I think the big economic model that I think we're all curious to see whether or not we can unlock is if some of these indices that we're creating with FTSE Russell could have an asset management solution wrapper attached to it.

So stay tuned for more thoughts there. Certainly, the PitchBook partnership is an exciting one for us that will enable general partners and other members of the asset class to analyze performance at the deal level, not just at the fund level. So how managers can start benchmarking their returns by portfolio company in a specific GICS code or sector or geography, enterprise value or entry multiple, all of those deal level data points are now going to be available to the general partner community and other service providers to really assess how performance can be measured with transparency in the marketplace.

And last but not least, given all of the attention that private credit has received over the last year or so, the partnership that we've created with Kroll, provides a variety of users in the industry how to better understand measuring risk at the loan level, not at the fund level data points. So all 3, we think, sets StepStone up to be the leading source of truth when it comes to data and technology in the private markets.

And the next question will come from John Dunn with Evercore.

Maybe just thinking about some of the newer strategies you guys have in private wealth. Maybe can you talk about like how your early experiences are tracking towards your prior experiences and maybe kind of openness to acceptance and potential for platform expansion domestically?

Sure. Thanks, John. I think that if you look at the adoption curve, we kind of call it the day 0 asset raise curve with SPRIM going first, if I look at each of the successive funds, every single one of them is at or above the SPRIM adoption curve today and really has been from inception of each of those funds. So there is no doubt that there is a benefit in this channel of having built the brand and the trust relationship starting with SPRIM that has helped us with each of the successive funds.

If I look at our lived experience from a cross-sell perspective, multifund adoption perspective, Mike touched on it in the prepared remarks that we now average 2 funds per platform if the platform has been with us for at least a year. That number has definitely crept up over the last number of quarters. So we're very happy with the evidence of the relationship that we've built, that trust relationship we've built with each of our partners as evidenced by that. And if we look at the number of platforms, again, looking at that seasoned universe of they've been with us for more than a year, we're now over 50% of those platforms have adopted at least 2 funds with a growing number of platforms adopting 3, 4 and even 5 funds with us.

Got it. And then maybe on the institutional side, any geographies you kind of point to as seeing accelerating demand or any shifts in strategy preference?

Thanks, John. Yes. So I think if you look at it over either the last quarter or the last 12 months, a couple of things. One, U.S. stands out as an area of strength, but some of that is driven by private wealth, which we've touched on. So if I exclude private wealth and focus on what you asked about institutional, the 3 broad geographies that stand out over both the last quarter and the last 12 months are U.S., Europe and then Asia plus Australia. And those things are driven by different things.

I would say in the U.S., it's been the strong initial closings we've had on our venture secondaries and private equity secondaries funds. In Europe, it's been driven by, I'd say, mainly private credit and infrastructure, both some very strong separate account re-ups, but also strong fundraising across certain of our commingled vehicles there, things like infrastructure co-investments, things like our SCRED fund. And then if I think about Asia and Australia, there has probably been a bit more of a mix. Some of it is commingled fundraising, particularly in private equity across both co-investments and secondaries. And then in Australia, in particular, continued growth in separate accounts in areas like infrastructure.

So again, no one geography driving anything, different drivers that are resulting in those 3 broad geographic regions standing out over the last 12 months. But hopefully, some of that color is helpful there.

I am showing no further questions at this time. I would now like to turn the call back over to Scott for closing remarks.

Well, great. Well, thank you for your time today. I hope everyone enjoys the rest of their summer, and we look forward to updating you again next quarter. Thank you.

This concludes today's conference call. Thank you for participating, and you may now disconnect.

All right. We're all set to get started. Thanks for staying with us here on Day 1 of the Morgan Stanley Financials Conference. I'm Mike Cyprys, equity analyst covering brokers, asset managers and exchanges for Morgan Stanley Research. And for our next session, we're thrilled to have with us Scott Hart, the CEO of StepStone Group; and Mike McCabe, the Head of Strategy. Scott, Mike, thank you. Welcome.

Thanks for having us.

As many of you know, StepStone is a global asset manager with over $220 billion of assets under management, over $800 billion of assets of total capital responsibility and StepStone is one of the world's largest alternative investment solution providers. So thanks for making it out here today.

I thought we'd start big picture on the business model today, your business spans separate accounts, SMAs, commingled funds, wealth, data, advisory and then all the different asset classes from private debt to infrastructure and so on. And unlike some of the peers, your business model is a bit more capital-light, open architecture, data-driven. So how would you define the core differentiator of StepStone today? And where do you think the market still underappreciates the breadth and the durability of your platform?

Yes. Well, first of all, Mike, thanks for having us again this year. Always good to be here. Look, I've probably increasingly been answering questions like that by starting with our mission at StepStone, which is to be the trusted partner of choice for private market solutions globally. I think in a lot of ways, it captures not only what we do, but some of the key differentiators. If you just kind of break down the mission, a trusted partner to both our clients, given the client-centric model and to our GPs, given the scale of capital that we bring to the table. You mentioned over $800 billion of total capital responsibility. We and our clients are deploying $75 billion per year into the private markets asset classes. Private markets, diversified across private equity, venture, infrastructure, private credit, and real estate.

So for those that know our history, having started in private equity, you don't look at the firm today and see a private equity firm that just dabbles in these other asset classes. We think we've built true market-leading businesses across each of the asset classes and really one of the most comprehensive private markets platforms in the business. We're global. 31 offices around the world. We've often talked in the past about the fact that about 2/3 of our revenue are coming from clients outside of the U.S. That percentage has come down slightly in more recent years as the Wealth business, which is more concentrated in the U.S. has grown, but still an incredibly global business, diversified across a number of different end markets. And then lastly, solutions.

And I think that's probably the part of the business that has evolved the most from the early days. In the early days, we didn't talk about being a solutions provider. We talked about customized portfolios, either in the form of advisory accounts or separate accounts. Over time, came to realize that a commingled fund could certainly represent an attractive part of an overall solution. Over the last 5, 6 years, came to recognize that there was really an opportunity for us to develop funds that met the needs of an entire class of investors like the private wealth space where we operate today with close to $20 billion of AUM.

And you see it in some of the more recent hires that we've made, a new Head of Insurance Solutions, Head of Retirement Solutions. You see it in the partnership that we've entered into on the data side with our data solutions. And so in a lot of ways, we've seen that solutions model really evolve over time, and I think we will continue to evolve as we look forward. So I think that captures a lot of the differentiation, again, the scale, the comprehensive nature of the platform, the diversification of the business.

I think that's probably also the piece that may be underappreciated in the market. It's certainly easy to focus on the growth of the Wealth business or the trend behind secondaries investing today. But if you look at every quarter, every year since we've gone public, it was really a different asset class, a different strategy, a different fund that was driving some of the success of the business. And it's one of the things that gives us comfort in our ability to continue to grow going forward.

Great. Why don't we move on to growth. Fiscal '26 was a record year for capital formation, record strength in your undeployed fee-earning capital that provides visibility on growth. So as you think about the next several years, which areas would you say you're most convicted in the growth outlook?

Yes. Thanks, Mike. You're right. We had a record year, best year ever in the history of the company with a $38 billion number for the year. And that $38 billion is broken down. It's $22 billion came from managed accounts and $17 billion came from commingled funds. When we think about the year ahead, as Scott pointed out a minute ago, there isn't 1 or 2 commercial structure that we're focused on or expecting or anticipating some success. It's really success across an incredibly diversified platform where we think on the managed account front, commingled front as well as private wealth, undeployed capital and margins are all topics for maybe a minute or 2 of conversation here.

In the managed account world, StepStone's success has really been client stickiness, and we've enjoyed a 90% re-up rate with all of our managed accounts. And when they do re-up, they tend to expand the account by as much as 30%. And so when you think about the $22 billion that we raised last year in managed accounts, $8 billion of that came from new relationships or existing relationships that expanded into another asset class or strategy. And that just creates a future pipeline of re-ups. So you can see the virtuous cycle of how the managed account growth algorithm works. We understand it's tough for you guys to model it because there are over 300 of them in our platform. But that 90% re-up rate and expanded data point, I think, serves us well.

On the commingled fund side, all of StepStone's flagship funds are currently in the market across all of our asset classes, private equity, infrastructure, real estate, credit and venture capital. That adds up to roughly $20 billion of potential new capital formation just in commingled funds. And we're pleased to have said in our prepared remarks last quarter that we're off to a pretty strong start in our PE secondary fund and a few other commingled funds that are flagships. So we're excited about the re-up cycle with flagships.

And then pivoting to private wealth. Again, we had another record quarter with $2.3 billion of private wealth flows. We're enjoying a strong quarter so far. The $2 billion plus per quarter run rate in private wealth feels sustainable. And we couldn't be more excited about how we've built out such a diversified distribution platform across RIAs, wires and IBDs.

And then we add on top of those 3 commercial structures, the fact that we're now sitting on $40 billion of undeployed fee-earning capital, that provides us and you with a lot of insight and visibility into the growth algorithm going forward. As Scott has mentioned over the years, we take a very disciplined approach to deploying that capital. Roughly $6 billion of the $40 billion is going to be activated by virtue of the fact that it's sitting in commingled funds that have yet to be activated. But the balance will continue to be deployed over, call it, a 4- to 5-year investment period. We're not going to rush to put that capital to work for the sake of putting it to work. That will just affect performance. So to have that kind of visibility of $40 billion of dry powder sitting ready to be deployed is pretty exciting.

And then that leads us to the final part of our growth algorithm here, and that's operating leverage. And Mike, you were one of the first analysts in day 1 of our IPO and consistently diligent about asking StepStone about margin expansion because when we went public, our margins were around 24%. And compared to the peers, there was some room for growth there. And you are right in focusing in on that question. We're sitting at 38% today. So 1,400 basis points of margin expansion since we went public in 2020. And we think as we continue to grow our commingled funds, we continue to grow our wealth management and other fee accretive products and the operating leverage that comes with that, we feel there is more margin expansion to enjoy going forward.

Great. Why don't we dig in on private wealth, major theme for investors, for the industry and for StepStone. Recent flow trends suggest demand is broadening across a wider set of products, not just one vehicle for you guys. What is the bigger opportunity from here? Would you say it's adding new products? Is it expanding platform access amongst your existing products? Is it getting funds embedded into home office models? Like if you had a rank order, like what do you see as the bigger opportunity from here for private wealth?

Yes. Look, I think you're right to highlight that the flows have broadened across what's now a suite of 5 different fund families, very different from where we started when we launched our Wealth business. We try to take the same listen-first, solutions-oriented approach that led us to launch SPRIM, which was our single ticket solution to the private markets. And at the time, it wasn't clear if that might be our only fund. But over time, as we expanded our capabilities, as the market evolved, came to realize that there was a real opportunity for more asset class focused funds, which led to the launch of SPRING focused on venture capital, STRUX focused on infrastructure, CRDEX focused on private credit and STPEX focused on private equity. So given that suite of 5 different fund families that really, kind of, across all of our asset classes with the exception of real estate.

I would say the big opportunity is probably not further product launches. I mean we'll always keep our ears open and are heavily engaged with our partners in the channel to the extent that there are opportunities for new products where we are positioned to win. But that's probably not the bigger driver going forward. I think it's the continued expansion of the number of different platforms that we work with. Today, over 700 different partners in the channel, of which almost 500 we've been working with for over a year. Those groups that we've been working with for over a year, 54% of them have more than one of our funds on the platform.

And I think that tells me 2 things. One, there's obviously a great opportunity to cross-sell. But two, there's also further room to run there. And so we often track where are some of the newer funds like STPEX and CRDEX and STRUX at relative to where SPRIM or SPRING were at in similar point in their life. I think that's where probably the big opportunity lies is: the continued expansion of our relationships with new and existing channel partners there.

But I think beyond that, I think taking some of the technology and the strategies that we've developed and applying them to, like you said, models, eventually think there will be applications in and around retirement over time. I mentioned earlier that our Wealth business today more heavily focused on the U.S., while I think there's an international opportunity for us as well. So those are some of the different levers that we'll continue to pull as we think about growing the Wealth business.

As compared to the institutional channel, private wealth introduces a different set of operational questions as you think about monthly flows, deployment cadence, liquidity optics, education. So how are you approaching the balance there? And as the evergreen funds become a bigger part of the business, how do you maintain institutional level underwriting discipline while also serving a more retail-oriented channel?

Right. I think you summarized it well in terms of some of the differences relative to the institutional business. The comment I've often made from the early days is that the Wealth business has required that we develop certain new muscles. And you touched on the key points around monthly flows, around liquidity and diversification, around education. Fortunately, I think those were all things that we are well suited to deliver on. And if you think about even in our institutional business have always been focused on as a partner to our clients on education and training and knowledge transfer. So that's something that came very naturally to us. I think building portfolios that have sufficient liquidity requires diversification. And so our multi-manager approach, we think, is particularly well suited to deliver there.

And so I think there were a number of different reasons that we felt we were positioned to succeed in this part of the market. And it's interesting. I mean some things actually grow easier as you scale. You talked about how do you continue the institutional quality decision-making as you get larger. I'd actually argue that certain things will get easier for us as we get larger. In the early days, as there's more uncertainty and more variability in terms of the monthly flows and it creates some real challenges in terms of lining up a pipeline of opportunities that you're ready to execute on. As these funds have scaled, I think have actually grown more predictable in terms of some of the cash inflows as well as the distributions coming off the portfolio.

And as you've got increased visibility in terms of the distributions coming off the portfolio, we think certain of these funds will be well positioned to start to deploy strategies like primary commitments, whereas in the early days, we focused much more heavily on secondaries and to some extent, co-investments. The ability to work primaries into certain of these portfolios over time is actually the most scalable of our strategies. And so I think that in some ways, certain elements of managing larger funds will make things easier on our platform.

And to what extent do you see the business moving from more of a product-by-product sale to more of a B2B CIO-driven allocation sale? And how would that -- how might that change flow durability, client acquisition costs and ultimately margins?

Yes, it's a good question. I don't know if we see it moving from one to the other or if it's sort of more of a both/and. I mean I think we're certainly seeing with things like model portfolios that you're right, it does shift from more of a B2C to a B2B type of sale, and that's a welcome conversation in a lot of ways. And I think to your point around durability of flows, we would anticipate that you probably see less volatility in terms of redemptions because you're dealing with a professional investor and decision-maker and more of a CIO type.

And so that is something that we are very much preparing for. It's early days. We have funds of ours that are on 7 or 8 different models today, but the net asset value there is probably measured more in the tens of millions than the hundreds of millions of dollars today. So I do think it's early days in terms of the trend towards models.

But you've also seen us take certain steps to position us well for this opportunity. We often thought about SPRIM as really a private markets model portfolio in and of itself. But I think as we've seen the trends start to pick up with models felt the need to have more of a pure-play asset class strategy, which ultimately led to the launch of STPEX, a pure-play private equity vehicle, recognizing somebody else may pull the -- turn the dials in terms of allocations there, we wanted to be set up to have pure-play strategies across private equity, venture, private credit and infrastructure that could play meaningfully in model portfolios.

And just given the focus on private wealth in the marketplace, maybe you could talk a little bit about how flows are shaping up so far in the June quarter. I'm sure you probably would anticipate me asking that question here. And also talk -- embed in that answer, how you're envisioning sort of expanding the platform presence across the product set over the next 6, 12 months as well as you think about this potential for that flow profile to evolve from here?

Yes. Yes. So I mean, look, we continue to see strength across the platform in the current quarter. If I step back to the first calendar quarter, we mentioned during our earnings call just a few weeks ago that we had a record $2.3 billion of organic inflows into our private wealth vehicles. I can say that through April and May, we're sitting about $1.8 billion with good visibility to give us the comfort that we will see another quarter in and around that range of $2.3 billion or higher. And so continue to see strength across the platform in terms of new flows.

It's driven by a few different things. And you touched earlier on the success we're really seeing across the suite of different funds. So you've seen continued solid performance of SPRIM and STPEX. SPRING, our venture fund has continued to be a standout performer there as investors look to get high-quality access to the innovation economy. Structure -- STRUX has recently gotten on its first wire. And so it will obviously take time as we've seen with both SPRIM and SPRING before it, but I think that will be additive to flows over time.

And CRDEX coming off of $140 million month in May, driven by some rotation from other products into our vehicle where really the multi-manager platform that we operate is resonating with certain investors. And so that may not be the new run rate, but certainly, I think it's a good sign, particularly given some of the noise in the market around us. So that's what we're seeing in terms of the real-time flows here.

I think in terms of what we'll continue to expand the platform and the platform relationships. Look, we continue to add members of our private wealth team and create new territories in the U.S., which has proven helpful in the past when we've made similar types of moves and decisions, also expanding our team internationally. And so internationally had our first $100 million month and has been a continued area of focus, not only in areas like Europe, but Asia, Australia, Latin America as well. And so those are some of the different ways that we'll look to continue to expand going forward.

The first $100 million month internationally was in May?

Correct.

Okay. And today, you own about 50% of your Private Wealth business with the other 50% owned by the leadership team of the Private Wealth organization. It's a little bit different from some of the others, which has created a little bit of noise on the P&L given the NCI dynamics. So talk about how that might change as we cast forward into '27, where you have a call option on that business. How much might it cost to buy in the rest? And how accretive could this be to adjusted earnings per share?

Yes. Yes. So maybe a little different than what other managers have done in a lot of ways, very similar to what we've done in the past in terms of really bringing on large senior experienced teams the way that we have across our different asset class businesses, giving them an interest in the business they were building to align our interest and really motivate the type of behavior we wanted to see, but also recognizing that we'll reach a point in time where buying in that interest on an accretive basis would make sense. And so look, there's still variability in terms of what that purchase price might look like if we were to exercise the call option next September. That has been the case since we announced the agreement where both the trailing performance of the Wealth business as well as the then prevailing StepStone multiple will determine the ultimate purchase price there.

But that multiple will be at a discount to our then prevailing multiple. If we were at today's share price, it would be something like a 30% discount to our multiple, therefore, ensuring that it will be an accretive transaction for our shareholders. And so we really think about not only the wealth buy-in, but also the asset class buy-in that we're executing over time as the lowest risk form of accretive M&A that we could possibly do and that there's very little execution risk. These are partners we've been working with for the last, in some cases, a decade.

Why don't we talk about the DC and retirement opportunity, which appears to be coming into greater focus for the industry today with the DOL's proposed pending proposal. You recently hired a dedicated head of defined contribution. So talk about your expectations for this new dedicated team and more broadly, how you envision going after the opportunity set in D.C. and what might differentiate StepStone's approach?

Yes. Well, I think our new Head of Retirement Solutions will really work very closely with our Private Wealth team and with others within the organization who have been very focused on the retirement opportunity for many years now, given our involvement with organizations like Dakota and others, this has been a focus area for us for many years and will continue to be going forward. I think what's difficult to do is put an exact time frame on when the opportunity will really materialize. As you said, we were pleased to see the DOL guidance come out recently. We're pleased to see that it was very much focused on process and a prudent process and laid out a number of key characteristics that I think fit well with the way that we think about the opportunity, a focus on performance and fees and really net-of-fee performance as one of the main drivers. Focus on valuations and liquidity, focus on benchmarking and complexity.

And I think those are all things that when we think about StepStone's fee structures across some of our different wealth vehicles, when we think about the performance of our funds, we think about some of the partnerships we've entered into on the data and the benchmarking side, I think we are very well positioned for the same reasons that we're positioned well on the wealth side. Our anticipation here is that it will be more of a target date fund opportunity as opposed to being StepStone being an individual line item on a 401(k). And I think that's probably the way that many are thinking about it today.

But again, I think the biggest uncertainty is the exact time frame. We are encouraged, like I said, not only by the DOL guidance, but also some of the conversations that we are having, which have really picked up since Taylor joined us as Head of Retirement Solutions.

Great. Maybe shifting gears to data. Monetization there, StepStone data opportunities becoming more tangible through a number of partnerships you have with FTSE Russell, Kroll, PitchBook, and so forth. What milestones would you say you have for that part of the business over the next 12, 24 months? And how might you envision these contributing over the next several years?

Thanks. Yes. So data and technology is probably one of the most exciting parts of what we do here at StepStone. In fact, everything that we do is pretty much data-driven. And over the last year, you've heard us announce 3 partnerships, all of which do something unique and a little bit different. So maybe we start with FTSE Russell. It has been a fascinating evolution to watch how data is being used from a benchmarking standpoint, given how the markets have been calibrated to marking their books on a quarterly basis. And typically, when valuations come in, the limited partner is marking their books with a lag of almost a full quarter. And then there may be some cash adjustment to that mark.

What StepStone and FTSE Russell have created is a daily benchmark suite of indices within the private markets, starting with a global private markets index. And within it, there is all the asset classes. And then we've broken some asset classes and created a global infrastructure benchmarking index, and we've created a global private equity benchmarking index, which have daily marks based on the data feeds that we're getting in from thousands and thousands of funds.

I'll share an anecdotal story with you. I was at the World Investment Forum this past weekend hosted by the London Stock Exchange Group. And the CIO of one of our more prominent university endowments is now subscribing to the FTSE StepStone suite of indices. And I asked them, why -- what motivated you to become a user of these indices? And he said, for the first time in his 30-year career as an investor in the private markets, he's able to show his Board of Trustees a unified total return of their portfolio of both private and public investments.

Typically, it's been apples and oranges. You have a lag that's cash adjusted in the privates, but you have a real-time daily mark in the publics. Now that you have a daily mark in the privates with FTSE StepStone's partnership, it's opened up a new way for investors to really look at their total portfolio return, and he finished the conversation by saying, and I can do it on a 1-year basis for the first time in my career. So we think we're unlocking something that's new. It will take time in education and the adoption rate will be -- I think will be -- it will take time. But we are the only ones in the market with this available and being in partnership with a leader like FTSE Russell, we think, positions us to win in that space.

The second exciting partnership we announced was with Kroll. And given all the information, noise and headlines about private credit over the last year, it's great that StepStone has this private credit suite of benchmarks with Kroll that's pulling from over 15,000 unique loans, not from funds. So we're able to really slice and dice the credit quality and the risk factors associated within private credit in partnership with Kroll. And we think that, that suite of private credit indices and benchmarking tools will also see a lot of adoption over the coming years.

And then this past month, we announced the partnership with PitchBook. And what's really unique about PitchBook is, for the first time, StepStone is making its deal level data available for analytical purposes. And specifically, the TAM or the market that the PitchBook StepStone partnership is addressing, which has been otherwise unaddressed is the general partner universe. So most of the FTSE Russell and some Kroll, but most of the FTSE Russell are LP subscribed users. Here, we're going to have GP subscribed users looking to figure out how they can differentiate their track record at the deal level, how they can pitch their story as they're out fundraising and use these analytical tools that StepStone is going to enable them to use at the deal level. So we now have 3 partnerships that address all the private markets as well as the entire ecosystem of LPs, service providers and GPs.

Great. Why don't we shift gears and talk about secondaries. There's been a fair amount of attention by the media, the investor community around day 1 markups in secondaries. So what do investors, in your view, continue to misunderstand about the discount capture versus actual value creation? And why is this practice appropriate in retail vehicles in your view?

Thanks, Mike. As probably many of you heard on not just our prepared remarks in our last earnings call, but also in the Q&A section, I think the biggest misunderstanding is that there are 2 numbers that are causing some confusion. The first number is when a secondary buyer acquires an asset, the value that they report is the value that the general partner is holding on their books as a fair market value. And that fair market value is done in accordance with GAAP.

The second number is the price that they paid for that. It's really it's a fractional interest, sometimes sub-1% interest in a much larger pool of assets. And so there's a difference between the purchase price that's paid for a fractional interest and the fair market value that the general partner is holding on their books. Those are 2 different numbers. They answer 2 different questions. And oftentimes, the purchase price can be less than the fair market value, and so it's a discount.

And so there's a gain between the price that's paid and the value that's been reported, and that creates this day 1 markup. And that's been how the secondary market has been working since inception. And the seller who's selling the asset is motivated either because of liquidity needs. They're just actively managing their portfolio. It could be a competitive situation. There could be friction in terms of price. There's a number of different reasons why the price is going to differ from the value. So we're hoping that some of this confusion gets cleared up.

I don't think the secondary industry is saying we've created some magical value on day 1. They're saying, no, we have a negotiated price based on a seller's situation that's different than the value the GP is reporting. I think the real concern here is in the evergreen structures out there, just because it's an unrealized gain doesn't make it unreal. And in some cases, there's a performance fee that's coming from this unrealized gain.

And I think that's a fair concern in some cases. But I think as we look at StepStone's products in all but one, there is no performance fee. And the only performance fee that's associated with an unrealized gain is our venture product called SPRING. And that's what led us to disclose and be very transparent about what the sources of value are coming from. So when we unpack the 33% return or 38% return that SPRING created over the last year, 33 percentage points of those 38 percentage gains came from growth in the asset and a small fraction came from the buy in the form of the discount. That same analysis was disclosed on our SPRIM evergreen vehicle, where we posted an 11% return, of which 9 percentage points came from growth and just a couple of percentage points came from the buys at the discount.

So our strategy, our philosophy as a firm and a secondary investor is we buy great assets at a fair price. We're not looking to buy fair assets at a great price. I've been in this industry my entire career, and you get what you pay for in the secondary market, there is no free lunch. But the difference between value and price is, I think, what's causing some of the confusion, Mike.

Great. Why don't we talk about venture, which has become a more visible differentiator for StepStone, particularly through SPRING. StepStone has been very active in venture secondaries where lack of generally IPOs over recent years and strategic exits have created a large liquidity overhang on the industry. So how do you underwrite the market today? What have you learned about separating forced sellers with maybe good assets from forced sellers with structurally impaired assets? And how has the opportunity set evolved here with AI?

Yes. I mean, look, I think, one, that source of differentiation on the venture side and with venture secondaries really started with the Greenspring acquisition that we did back in 2021. And one of the comments that I have been making really since that acquisition is that one of the things our venture team does such a good job of is developing a view on which venture-backed assets they want to own and then finding creative ways to acquire access to those companies at the most attractive price and valuation possible.

And so to your question around how do you differentiate between forced sellers with high-quality assets and forced sellers with impaired assets, well, I think showing up with a prepared mind and knowing the assets you want to own as opposed to being reactive and trying to figure out each time an opportunity comes to market, whether it's a high-quality or an impaired asset, I think that's a big part of our advantage and the proactive nature with which our team operates, I think, is a big part of our success.

The other part is, and I think this is true of each of our asset class. And one of the reasons that rather than simply tap a private equity professional internally to go have them build out the infrastructure business or the venture business over time. But we recognize there are differences across asset classes and in terms of how you make money in each asset class.

And in venture, the power law is real, where we've seen over the last decade, something like 50% of the value creation has come from about 100 different companies. And so even more important that you are focused on trying to get access to the right companies and making sure you've got high-quality exposure to those assets in a way that's going to drive your performance over time. And so when we think about our venture secondary strategy, the mix looks quite a bit different to other asset classes. It's less of an LP secondary market. We've done much more in terms of direct secondaries, whether it's been company-led tenders or buying interest from early management teams or doing strip sales alongside of managers that we are close with, and again, it has been much more about the post-closing growth and value creation as opposed to discount, as Mike just described a moment ago.

Great. We're just about up on time. So final question. If we look out over the next few years, what do you think becomes the next biggest incremental growth driver for StepStone? Where do you think the white space is greatest today?

Yes. The thing that gives me the most comfort is not one thing, right? You talked about the diversification of the business. I made the comment earlier that any given quarter, it's been a different asset class or strategy or product that's been driving that growth. But that said, if I look -- when we look back over our 20 -- close to 20-year history now, there have been a number of key strategic decisions that we have made that have positioned us well for growth internationally, growth across the non-private equity asset classes, growth in separate accounts and with customized solutions, most recently, growth in the private wealth space. And so when you ask that question, I mean, hard not to point to the retirement opportunity as one that is very large, underallocated and underpenetrated today, where difficult to put an exact timeline on it, but certainly an opportunity that we're excited about. And as you referenced in your question earlier, one that we're starting to put real resources behind here.

Great. Well, I'm afraid we're out of time. Please join me in thanking Scott and Mike. Thank you.

Thank you.

Good day, and thank you for standing by. Welcome to the Fiscal Fourth Quarter 2026 StepStone Group Earnings Conference Call. [Operator Instructions]

Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker for today, Seth Weiss. Please go ahead.

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. 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 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 filings with the SEC.

Turning to our financial results for the fourth quarter of fiscal 2026. Beginning with Slide 3, we reported a GAAP net loss attributable to StepStone Group, Inc. of $7.8 million or $0.10 per share. As a reminder, GAAP accounting requires us to factor a change in fair value of the buying of the StepStone Private Wealth profits interest through our income statement, which drove the negative GAAP earnings result this quarter.

Moving to Slide 5. We generated fee-related earnings of $105 million, up 12% from the prior year quarter, and we generated an FRE margin of 40%. The quarter reflected retroactive fees from our infrastructure secondaries fund and our multi-strategy global venture capital fund. Retroactive fees contributed $4.4 million to revenue which compares to retroactive fees of $15.7 million in the fourth quarter of the prior fiscal year. When excluding the impact of retroactive fees, core fee-related earnings were $101 million up 28% relative to the prior year quarter, and core FRE margin remains at 40%.

We earned $69 million in adjusted net income for the quarter or $0.57 per share. This is down from $81 million or $0.68 per share in the fourth quarter of the last fiscal year, primarily due to lower performance-related earnings, partially offset by higher fee-related earnings. I'll now hand the call over to Scott.

Thank you, Seth, and good evening. In a quarter that was characterized at the macro level by geopolitical shocks, AI disruption and media scrutiny on private credit, StepStone delivered our best quarter ever of fee-related earnings, our best quarter ever of fundraising across the platform and our highest quarter ever of organic private wealth subscriptions on both a gross and net basis. This quarter's success stands from groundwork laid years ago to build a client-focused diverse private markets platform.

We are thrilled with the excellent results we continue to post, and we are just as excited about new investments we are making in our platform to drive sustainable growth. Beginning with results. We surpassed $100 million of quarterly fee-related earnings for the first time ever, driven by growth in earning assets across the platform. The robust top line growth was coupled with strong profitability as our FRE margin achieved 40%. We expect top line growth and operating leverage will continue to spur FRE growth in fiscal 2027.

Moving to fundraising. We generated a record quarter of nearly $14 billion in capital formation, which caps our best fiscal year ever of $38 billion of gross AUM additions. This is a remarkable result and highlights the stark difference between private market headlines and the reality of what we are seeing with our clients and partners.

I'd like to focus on a couple of themes. First, demand for our client-centric private wealth offerings remains strong across funds. We generated $2.3 billion of new subscriptions this past quarter against total reductions of approximately $300 million or under 2% of the total net asset value. As I mentioned in my opening, this is our best quarter for organic private wealth subscriptions, excluding the impact of new fund launches on a gross and net basis.

In fact, March and April were our 2 best months ever with over $800 million in subscription each month and May is on a similarly strong trajectory. Our venture fund spring continues to be a highlight of our private wealth platform. with subscriptions of $1.2 billion in the quarter. We see significant interest in this fund as individual investors seek a means to gain well-curated exposure to the innovation economy, and we continue to generate strong returns with 11% year-to-date performance through April, following 39% performance in 2025.

Shift for other funds, we are generating steady subscriptions in the combination of and step and accelerating subscriptions and stress, which just delivered its first $100 million month in April. FredEx, our credit interval fund is starting to see an uptick in subscriptions as some of our distribution partners rotate their clients' assets into our multi-manager credit fund, finding value in the diversification of the Cradic portfolio.

Second, and staying on the theme of credit, institutional demand for private debt is strong. approximately $3 billion of new private debt capital raised in the quarter. We are seeing success across commercial structures as fundraising was balanced between managed accounts and commingled funds, where we held a final close in our opportunistic lending fund a first close in our direct lending fund and strong flows in our Evergreen BDC and interval fund, which serve both institutional and private wealth capital.

Private credit remains well positioned in the current environment. While we expect and underwrite for default rates to increase from current low levels, underlying credit trends remain strong, spreads are attractive and our portfolios are well diversified.

Shifting gears I would like to discuss some of the investments we are making in growth opportunities. First, data and technology have always been integral parts of our business model, providing key insights for our investing activity and invaluable resource for many of our large LPs. Last fall, we began to more directly monetize our data and tech by launching a suite of private market indices with FTSE Russell and by launching a private credit benchmarking and analytics tool with Kroll.

We are thrilled to expand on this with a solution to provide deal level performance and operating measures, which we will deliver in partnership with PitchBook, a leading private markets intelligence provider. The arrangement with PitchBook leverages our SPY research and reporting platform, along with PitchBook's market data and research to provide greater transparency and benchmarking capabilities across private equity buyout, venture capital growth equity and infrastructure.

The data can be utilized by LPs to benchmark their portfolios by GPs to benchmark and market their own funds and by other service providers to the private markets industry. We will leverage PitchBook's significant reach to distribute the product.

Second, we hired our first Head of Defined Contribution solutions. We are stancebelievers that private markets have a role in 401(k) and other defined contribution retirement plans. -- provided there is appropriate allocation, diversification and liquid structures.

We were encouraged to see the Department of Labor issued a thoughtful, process-based safe harbor proposal in late March that would help enable inclusion of private markets investments in 401(k) lines. We believe this will give rise to a dramatic step forward in financial security for retirees, and we believe StepStone is incredibly well positioned to be a leading and innovative solutions provider.

With that, I'll turn it over to Mike to speak about fundraising, asset growth and capital distribution.

Thanks, Scott. Turning to Slide 8. We generated over $38 billion of gross AUM additions over this last year, our best 12-month period ever. Approximately $22 billion of these inflows came from separately managed accounts and over $16 billion came from our commingled funds, including private wealth. Of the managed account additions, $8 billion or 35% and came from a combination of new accounts or the expansion of existing accounts into new asset classes or strategies.

During the quarter, we generated over $13.5 billion in gross additions including $7 billion of managed account additions and over $6.5 billion of commingled fund inflows. Notable fund additions included a $2.2 billion first close of our private equity secondaries fund. The $200 million first close on our private equity GP-led secondaries fund, a $400 million final close in, our corporate opportunistic lending fund, the $300 million of closes on our infrastructure secondaries fund and $300 million of closes in our infrastructure co-investment fund, which was activated during the quarter, bringing that fund to over $1 billion which is already equivalent in size to the last vintage of this strategy with additional fundraising still to come.

Turning to our evergreen funds. We generated over $2.3 billion of subscriptions in our private wealth suite of offerings, growing the platform of nearly $18 billion as of the end of the quarter. Additionally, we have grown our Evergreen nontraded BDC cred to over $2 billion in net assets.

Slide 9 shows our fee-earning AUM by structure and asset class. For the quarter, we increased fee earning assets by nearly $5.5 billion, and we increased our undeployed fee-earning capital, or UFC, by $7 billion to roughly $40 billion, our highest level ever.

A healthy amount of this undeployed capital should convert to fee earning in the coming periods as management fees turn on for several notable funds. In April, we activated our PE co-invest fund, which stood at slightly more than $1 billion as of the end of the quarter. And within the next 2 quarters, we plan to activate our flagship PE secondaries fund and our GP-led private equity secondaries fund, which collectively accounted for $2.5 billion of our UTEC balance as of March 31. The combination of feeding assets plus UF grew to over $184 billion, which is up more than $12 billion sequentially and is up over $38 billion from a year ago, our strongest year of growth in our history. This translates to a 21% annual organic growth rate since fiscal 2021.

Slide 10 shows our evolution in 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, and driven by moderation in retroactive fees, but partially offset by a favorable mix shift driven by growth in our evergreen funds. One note for your modeling on fee rate.

We are making a prospective change to the fee structure for our flagship PE secondaries fund that will lower the fee rate during the investment period, but will be offset by a higher fee rate following the investment period. This will align our fee structure with recent market practices and will help mitigate the J-curve for our LPs, but is structured to ensure parity and present value between the old and new fee streams.

In isolation, when our flagship secondaries funds are fully raised and activated, the new pricing structure will have an approximate 3 to 4 basis points initial impact on the firm-wide blended commingle fund fee rate. However, we do not anticipate observable pressure as continued growth in our private wealth funds should more than offset this impact.

And as I mentioned earlier, the secondary PE rate will balance out over the life of the fund as the rate increases post the investment period. As we bring the fiscal year to a close, I would like to provide an update on capital distribution. First, we expect to conduct the third tranche of our buy-in of the noncontrolling interest of the infrastructure, private debt and real estate asset classes in the first quarter of fiscal 2027, utilizing $11 million of cash and $166 million of equity. This translates to 3.4 million issued chairs effective as of April 1.

As a reminder, the cost of each buy-in is hardwired based on StepStone's market multiple and the asset classes results. This year's buy-in will be executed on average at a 14% discount to the Step public PE multiple. We view this as a very efficient use of capital as it provides positive earnings accretion with no integration or execution risk.

Second, we are thrilled to announce that the Board has declared a $0.55 per share supplemental dividend, which is tied to our performance-related earnings. This is on top of the $0.28 per share base quarterly dividend. For the full year, we have declared $1.67 per share of dividends for our Class A common stock, up 23% over last year's dividends.

We believe this level of dividend represents a compelling value and contextualize with the over 30% annual growth rate we've achieved in fee-related earnings over the last 3 years, while also considering cash usage for accretive NCI buy-in.

Third, in March, we announced an authorization to repurchase up to $100 million in StepStone Class A common stock. The share repurchase program serves as an opportunistic means of capital distribution on top of our standing priorities of funding organic growth, paying for a quarterly dividend and paying for our annual supplemental dividend. Over the last few months, we've experienced higher than normal volatility in our stock price due to exogenous events yet we have demonstrated fundraising and operating strength and stability and have visibility for sustained growth.

We executed roughly $9 million of the share repurchase authorization in March, buying back roughly 200,000 shares at an average price of $44.77. With that, I'll hand the call over to David for our financial results.

Thanks, Mike. Turning to Slide 12. We earned fee revenues of $260 million, up 21% from the prior year quarter. Excluding retroactive fees, fee revenues grew by 29% year-over-year, reflecting growth in fee-earning AUM across commercial structures. Private Wealth, which carries a higher average fee rate continued to see strong inflows for the quarter. related earnings were $105 million, up 12% from a year ago.

Core FRU was up 28%, driven by growth in fee revenues. FRE margin was 40% for the quarter, both on a reported and core basis. This is up 280 basis points from last quarter on a core basis. We believe a rolling 12-month figure is the best gauge of our profitability, as quarterly margins may fluctuate due to normal variability and timing of revenues and expenses.

For the full year, we generated a core FRE margin of 38% and -- this is up slightly from a year ago and up more than 600 basis points from 2 years ago. This margin expansion is a result of the investments we made in our business and executing on our strategic priorities. We expect to continue to invest in our business for growth while balancing profitability. We see plenty of room for margin expansion over the long term, but the path may not be linear.

Shifting to expenses. Adjusted cash-based compensation was $111 million, representing a cash compensation ratio of 43%, lower than the roughly 45% ratio of the last 3 quarters. We expect a seasonal step-up in compensation next quarter as merit increases take effect at the start of our new fiscal year, but we believe this 43% cash compensation ratio is a fair level for the next fiscal year understanding there may be quarter-to-quarter variability.

Equity-based compensation was $6 million for the quarter, which is $1 million higher than last quarter. The increase was primarily due to the acceleration of expense for awards tied to certain retirees. With the issuance of our normal annual RSU grants in March, we anticipate equity-based compensation to approximate $6 million to $7 million per quarter for fiscal 2027.

General and administrative expenses were $38 million, down $2 million from last quarter and up $6 million from last year's fiscal 4Q. The sequential decline was primarily due to timing of client events, marketing and travel-related expenses. With the growth of our business, we have taken on additional space in several existing locations, which will add incremental expense going forward.

Gross realized performance fees were $46 million for the quarter and $18 million net of related compensation expense. This is lighter than the pace we have generated in recent quarters due to lower levels of capital market activity. Partially offsetting lower PRE was $14 million of realized investment income from our own portfolio. This includes $11 million of realized gains from 1 of our seed capital investments in our funds.

We remain optimistic that realization activity may accelerate should M&A activity pick up and IPOs reopen. LPs are increasingly focused on distribution, so secondary should continue to play a role in providing liquidity to both GPs and LPs interest rate volatility and geopolitical events add an element of uncertainty.

As a reminder, we generally do not control the timing of exits. Our ANI tax rate for the quarter was slightly elevated at 23.5% due to a true-up to reflect the full year tax rate of 22.6% and which is roughly 30 basis points higher than our blended statutory tax rate last year. The increase was driven by a shift in the mix of income to states with relatively higher tax rates.

Based on our current estimate, we would anticipate a similar blended statutory tax rate of 22.6% for fiscal 2027. Adjusted net income per share of $0.57 was down from $0.68 a year ago and $0.65 last quarter, reflecting lower performance-related earnings, offset by growth in fee-related earnings.

Moving to key items on the balance sheet on Slide 13. Net accrued carry finished the quarter at $936 million, up 7% from last quarter. Our net accrued carry is relatively mature. -- approximately 60% are tied to programs that are older than 5 years, which means that these programs are ready to harvest. Our own investment portfolio ended the quarter at $347 million, up from $33 million last quarter. This concludes our prepared remarks.

I'll now turn it back over to the operator to open the line for any questions.

[Operator Instructions]

Our first question for today will be coming from Ben Budish of Barclays.

I wanted to ask about some comments a competitor if you made a few weeks ago about secondaries. The comments suggested that the practice of day 1 markups can lead to short-term mispricing, which makes the strategies maybe less appropriate for semi-liquid wealth evergreen funds in particular. So I'm curious what your response would would be here. Why do you think secondaries are appropriate for the wealth channel in that style of vehicle? And maybe if you could give us some color on the valuation methodologies and how much of the performance over time has come from day 1 markups versus underlying asset performancen?

Thanks, Ben. This is Mike here. I think you're right. I think this is a good opportunity to address some of the concerns around accounting practices in the secondary market, which have come into focus as you point out, as evergreen vehicles have been making secondary investments to build their portfolios. So to begin, secondary buyers initial mark for an acquired fund interest is typically the sponsor's latest reported fair value. Now if that interest was bought at a discount the buyer may report a value above cost in the first period. This reflects 2 different but valid measures. The price paid for a fractional interest in an asset and the fair value of the underlying asset under a long-established GAAP framework.

Both numbers are real. They just answer different questions. The purchase price tells you what someone was willing to pay for a fractional interest in a fund or a give a moment and that can be influenced by the seller situation, whether it's liquidity, timing, negotiating power, market dynamics, transaction friction reported fair value answers a different question. What does the best informed party, typically the sponsor believe the investment is worth under GAAP.

So the point is not we created value on day 1. It's we bought a fractional interest at a discount to manage a reported fair value and under GAAP, we carry it at fair value using the managers reported value as our starting point. an immediate gain might be unrealized, but that does not make it unreal. Said differently, a discount does not prove an asset is overvalued. It simply shows that liquidity as a price.

Just as paying a premium to NAV does not by itself prove the asset is undervalued. The real question here is not whether purchase price and fair value can differ, of course, they can. The question is whether the fair value is backed by rigorous independent and transparent valuation processes. -- which is why StepStone applies its own valuation discipline to assess and corroborate manager reported fair values for primary, secondary and co-investments.

But more importantly, most of StepStone's returns from secondary investments across both Evergreen and closed-end funds have come from asset appreciation after purchase, not simply from buying at a discount to manage a reported fair value. Our approach is to buy great assets at a fair price, not fair assets at a great price.

For example, for the year ending March 31, S Prime delivered an 11% net return with about 9 points coming from asset appreciation after purchase. Spring delivered a 37% net return over the last year with about 33 points coming from post-purchase at appreciation. So I know there was a lot, Ben, but I hope it helps clear up some of these questions out there.

Yes. That was great. Maybe just 1 follow-up. You guys talked in your prepared remarks about the relationship with PitchBook and what you're doing in partnership with FTSE Russell and with Kroll, I think you mentioned that you started to monetize some of the data last fall.

Just curious, based on sales cycles based on the pipeline, how should we be thinking about maybe near to medium-term expectations for the revenue contribution from this new opportunity?

Yes, we're really excited about these partnerships with FTSE Russell, Kroll, pitch book, these are all ways and avenues for us to monetize our data advantage in the marketplace and our technologies as well. But we are -- it's been 12 months since we've begin initiating these partnerships. So I would say we're in the early stages of product development across all of these partnerships. So anticipate the near-term revenue to be modest at first, -- but the important point here is that there are no material incremental expenses associated with any of these efforts. So as revenues do start to roll in, they should be accretive to FRE margin.

And our next question is coming from the line of Kenneth Worthington of JPMorgan.

I wanted to first follow up on the secondary markup issue. To what extent is the concern that equity investors have with regard to the secondary market exposure. I think you hear is a question from either your fund investors or your distribution intermediaries. In other words, is this just an issue or a concern that public market investors have? Or is it a concern that your clients have as well?

Thanks, Ken. Jason here. So look, there's been a lot of press around that. And so whenever there's press, there are questions from clients. What I can say is that our posture around all this, as Mike articulated earlier, has carried the day to a person when we've been talking to the channel and FAs. In other words, yes, they've asked because the press has told them to ask about it, but they understand what the dynamic in the secondary market, and they appreciate that, as Mike said, the returns while unrealized are real and the performance in each of the funds over the life to date has supported that.

Okay. Fair enough. And then as a follow-up, you mentioned the hiring of a lead U.S. defined contribution higher in the quarter. Can you talk about what the customer build-out might look like? And where you stop think steps done is more likely to see early traction here? And are you starting with plan sponsors, fund managers or record keepers, -- how does the the plan look in terms of the build-out of this opportunity?

Yes. Thanks. The first, we're very excited to have Taylor join us. She started just this week. And we're going at this market in a multifaceted way as you might imagine from a group like us, and we talk about customization all the time and really responding to the channel in the way that they need us to respond. And so as a result, yes, we're talking to plan sponsors.

Yes, we're talking to the target date managers. Yes, we're talking to the DC aggregators, right? Yes, we're talking to record keepers. It's yes to all. In terms of where we expect to see traction, one, -- we do think that some of the target date managers will move, whether they decide to move early, whether that be in customized TDF or new series off the shelf, or existing series off the shelf will vary certainly by manager, but we've had positive conversations with groups across all 3 of those potential avenues.

And we are in conversations with a number of industry participants around new ways to think about attacking all of this. And so more to come there in the near term. But rest assured that the offerings that we bring, we will be taking advantage of, one, our asset class coverage and two, our focus on being able to customize our solutions for this channel.

Our next question will be coming from the line of Michael Cyprys of Morgan Stanley.

Maybe just continuing on the DC channel question. So while target date managers may move to incorporate alts, I guess there remains a question to what extent will plan sponsors embrace this.

So curious your viewpoints there, what are some of the steps you guys are taking to help support adoption from plan sponsors -- and how are you thinking about the level of safe harbor protection that is being proposed in the rule from the DOL as opposed to a more broader protection from a congressional safe harbor that, that might offer. So just curious what you're hearing around the degree of legal protection.

Yes. So taking those in reverse order, we were very pleased with the DOL proposed ruling -- it was very much in line with the position we were indirectly advocating for through our contacts in the industry and the lobbyist representing industry. We like the idea that it was process based rather than asset class specific. We don't want Washington picking winners and losers.

We just wanted a fair playing field as we've had outside the DC, not Washington, D.C., but defined contribution space, sorry, to complete there. And -- and we believe that the 6 basic criteria that DOL laid out in the proposal line up very well for the types of offerings we're going to be able to bring both in terms of the asset management solutions, but also things like benchmarking and the partnership that we've got with FTSE Russell with daily priced indices available as potential benchmarks for these kinds of products, right?

So we think we've got interest angles there. In terms of plan sponsor adoption, it's going to vary a bit, Mike, based on which of the different channels we were kind of talking about, right? If it's private markets get adopted into off-the-shelf target date, not a new series. The adoption cycle for the plan sponsor, i.e., the employer is negligible. It's 1 of education and comforting them on the inclusion if they've got questions, but the target date they've already got will now have privates included.

If it's a new series, obviously, there's a whole go-to-market that the target date managers will have to go through. In terms of our role, irrespective of all of that, we view it as one of education, and based on the experience that we've had not only over the last 6 years with the private wealth team here, but going back for a number of us over decades of dealing in the well channel, it's really the same playbook in terms of education.

Finally, to circle back to the DOL proposal versus congressional, while congressional action and legislative response would clearly be stronger in that it would stand the test of time more thoroughly. We think that the route that DOL went here by being process-based as opposed to, again, specifically picking a winner or loser has better legs, longer legs than if they had tried to pick winners and losers.

So we feel good about where they ended up. In talking to the channel, people are happy with where DOL ended up, and we're prepared to proceed on this basis and we're hearing those in the channel being willing to proceed on this basis as well.

And just as a follow-up question, maybe also just on the secondary day 1 markup topic. I guess curious your views around the scope of the industry practice potentially changing what the implications might be -- and then more broadly, in a hypothetical scenario if redemptions were to pick up in secondary vehicles, just given everything happening in the direct lending space from the private wealth channel today.

Can you just speak to remind us how you manage liquidity in the secondary private wealth vehicles, how you might navigate a hypothetical scenario to the extent redemptions were to be larger than, say, 5% requests for an extended period, 12 months or longer. I mean, arguably, the credit vehicles in the private wealth space are benefiting from principal payments -- but secondary is also generally closer to realization cycle in terms of older aged funds oftentimes. But I guess, how much of the cash flows are dependent upon a monetization cycle versus otherwise and such?

Mike, I'll take the first part of that question. I think it's pretty hard to see why GAAP would make a change here in how the accounting practices are managed in the industry. The last time there was a change was when FAS 157 was enrolled in the early 2000s. And since then, the valuation practices have been pretty consistent and they work. So it's hard to see how or why it would make a change. But to place a finer point on any change that might happen based on this notion of a markup, which we would describe as fair value being purchased at a discount, Take, for example, a fund that has 500 limited partners, and you have 10 to 20 or 30 different secondary transactions each happening at a different price for the same portfolio across these different LPs -- it's really -- it would be hard to see why the accounting rules would change to recognize all these different seller situation transactions now being the fair value or the reported value.

So -- it's really -- I think the way Gap made their changes decades ago has proven to test the time and works well. Hard to see how or why that would change.

And then -- this is Jason. Pivoting to how we manage for liquidity inside the equity-driven strategies for the evergreen funds. -- what we do, right, is we take advantage of the fact that we've got extreme diversification across lots and lots of different underlying portfolio companies directly or indirectly.

And we take advantage of the fact that with portfolios of that level of diversification, we can be much more predictive in what the cash flows are going to look like coming off of realizations. And so even in -- over the last number of years where the liquidity story has been very depressed. These funds still -- in buyout portfolios, you're still seeing double-digit cash coming off double-digit percentage cash coming off the portfolio each year, right? And so that alone can satisfy quite a bit of the liquidity demands without having to sell assets or the like.

Second, we maintain a credit facility that can be used to help satisfy liquidity. So that is all designed to have us be able to go through depressed liquidity periods with depressed fundraising and still not have to sell an asset for something like 18 months and still be able to satisfy the max 5 % liquidity requirements, the redemptions.

The only thing I would add to that is, I mean, there was a part of Ben's question earlier about why secondaries are appropriate for these types of evergreen funds. I think it's exactly what Jason just described to achieve that extreme level of diversification and do have a portfolio of assets or a varying vintage years and ages across the portfolio and thus are generating liquidity over time, we really think the secondary strategy serves that purpose incredibly well.

Our next question is coming from the line of Alex Blostein of Goldman Sachs.

This is Anthony on for Alex. I had a couple of questions on the wealth channel. I guess, first on the credit side, flows here continue to be pretty strong despite kind of the rest of the industry seeing headwinds. So maybe what are you hearing on the ground there -- and then maybe with regards to your spring product flows and performance have been very strong partially driven by a few high-profile companies, which are about IPO. So how are you thinking about the durability of flows and performance in this product once these companies look public?

Anthony, so starting with the credit flows. Look, I think one thing that's really accrued to our benefit from all of the attention on the redemption stories in the BDCs has been the power of the multi-manager approach that we take in credit, driving extreme diversification, right? So targeting under 1% positions; two, being able to deploy at scale as capital flows come in, and not have to sit on cash, not have to rely heavily on the broadly syndicated loan market or other public credit markets. That's been very powerful.

And it's driven really high performance relative to the BDC market. So what we've seen in conversations with the channel has really been a recognition of the story we've been telling all along and the relative attractiveness of that model to the direct manager BDCs. And that's what we've really seen is rotation. And particularly post the quarter end, it's picked up quite a bit, and I'm sure you've seen the flows on the screen.

But after a $50-ish million quarter, we've seen 125 plus in a month. So it's certainly picking up. I'm not saying that, that level is sustainable long term right now, right? We're still adding to the syndicate, but the flows have certainly been strong on recognition of the power of the model.

On your second question about Spring, Look, I think it would suggest that the interest and demand that we are seeing for that product is driven by more than just a few high-profile companies. And I think there is clearly incredible demand for high-quality exposure to the venture capital asset class and the innovation economy coming from the individual investor.

Two, I think there's recognition that the spring vehicle is frankly a better way for the individual investor to get access to that part of the market and to gain that curated exposure then the previously existing opportunities that one might have to invest in these pre-IPO companies. And I think there's also a recognition that spring is really a one-of-a-kind type of fund given our market-leading position in the venture asset class.

And on top of that, our venture team has clearly come to the view that there is this power law that exists in venture, something like top 100 companies have driven close to 50% of the value creation over the last decade. And as a result, we are looking to build reasonably concentrated portfolios in what we believe to be the best ideas and the biggest value drivers within the venture ecosystem.

We had done a deep dive into the 50 largest positions last quarter, those 50 positions represented something like 75% of the total value of that fund and about 75% of those companies were exposed to AI tailwinds or AI native across a variety of different parts of the market, whether space, AI, defense, tech, cybersecurity, fintech, et cetera.

So again, I think it's more than just a few high-profile companies but again, there's demand for this demand for venture and innovation economy exposure by the individual investor and recognition that Spring is a better way to access that than SPVs.

That's helpful. I guess for my follow-up, maybe just on the deployed earning capital. It stepped up quite a bit quarter-over-quarter, even excluding the kind of closes and the secondary funds. So could you kind of talk through the drivers of the sequential growth?

Sure. Yes, there were a number of drivers of the UFC balance in this quarter to this record level of $40 billion in the past, we've often tried to highlight roughly how much of that needs to be deployed over time as opposed to how much of it needs to be activated once those funds move into the activation period. Today, rough numbers, something like $6 billion is subject to activation. The biggest drivers of that have been some of the current comingled funds.

We mentioned that our private equity co-investment fund activated post quarter end. We also mentioned the sizable initial closings of the private equity secondaries fund and the private equity GP-led secondary fund. Those are both subject to activation as are a handful of different separate accounts that are currently in that balance.

So if we look at the net sort of $33 billion, $34 billion, that's subject to deployment. Again, if you look at the last 12 months, we've been deploying a roughly $8 billion pace kind of continues to keep us right in the middle of that 3- to 5-year time period that we've always talked about in terms of deploying that capital over time.

The other drivers of that balance would have been some sizable separate accounts that we had, particularly across our infrastructure and private credit business, where we had some important re-ups in our separate account business that would have been the other major drivers of the balance this quarter.

Our next question is coming from the line of Brennan Hawkin of BMO.

It's Mark on for Brennan. I wanted to ask on private wealth. It continues to be impressive, generating $2 billion in subscriptions each quarter. Given some of the vehicles are newer, EG, Step X, CredX and as the syndicate matures, what's a reasonable way to think about where this could ultimately ramp to? And maybe on what time line.

I look at the ramp that we saw in S Prime U.S. of how the monthly flows have picked up over time as a good baseline for how to think about credit and step back in terms of the ramp. Now Stepx had the initial launch month where we saw a ton of inflows. But in terms of the syndicate buildup and ramp, I use the S Prime ramp line as my kind of a similar with CredX, we had the in-kind secondary we did a couple of years back leading to an influx of assets.

But if I look at kind of the slope of the line now, it's generally in line with the S Prime ramp. So that would be -- I would look back at the S Prime ramp-up in flows and use that as your base case of how those newer funds are likely or we believe are likely to ramp rather than looking at the spring curve.

Helpful. And then with a sizable amount of accrued carry 9% tied to funds over 5 years old, understanding it's difficult in terms of the environment and timing, but what needs to change in the exit environment to drive realizations back towards more normalized levels? And kind of how should we think about the timing and cadence of monetization from here?

Yes. I mean I'll start and David jump in if you have anything to add here. I mean, always a little bit difficult to predict the timing, particularly given that we don't control it and -- but what I would say overall is both for StepStone but also for the industry, we have seen that realizations have been picking up over the last couple of years in absolute sort of dollar terms, if you will, what remains well below historic levels is sort of the yield or those distributions that's expressed as a percentage of overall net asset value, given how that net asset value grew in the 2021, 2022 time period.

So we've seen things move in the right direction. I think certainly, many of us in the industry came into calendar 2026 cautiously optimistic. I stress the word cautiously because in a lot of ways, it's built very similar to the start of 2025 when that momentum was disrupted by tariffs this year was not tariffs, but the combination of AI disruption, private credit concerns a war in the Middle East that has at least temporarily slowed down some of the exit activity.

There are still exits happening. We in recent weeks, have had a combination of full exits. We've had -- continue to have a number of partial realizations, which continues to be a trend that we see either through continuation vehicles or just managers deciding to sell a partial stake as opposed to a complete exit.

And so I think that's one of the things that we need to see come back is the return of the the sort of the full exit to really drive some of those realization numbers and carry distributions back to historic norms.

Our next question will be coming from the line of Mike Brown of UBS.

Great. Okay. I wanted to start on the SPW buy it. Can you just maybe walk us through the range of potential outcomes here when you think about maybe how you plan to fund the potential buying obligation, maybe talk through the mix of cash and equity, maybe the expected range of share issuance -- and the key levers you have to manage the liquidity and cost of capital for that transaction?

And then any color you can kind of add on the updated views on the accretion potential for shareholders.

Yes, thanks for the question. This is David. Look, -- the ultimate purchase price is going to depend on a number of factors. So it's hard to really put a range on what that ultimate price is going to be. It's going to depend on the actual performance of the Private Wealth business. the actual step trading multiple. And again -- and once you figure out the purchase price, the number of shares is a function of the step trading multiple.

Currently, the purchase price is payable in cash and up to 75% in equity. We don't have a predetermined formula on how we're going to settle this today. We'll figure that out as we get closer how we're going to fund it. Again, it can be in a combination of cash, debt, equity financing. So again, we'll figure that out as we get closer.

But again, the accretion tends to be bigger as the step multiple grows by function of the fact that the purchase price is capped at -- so whenever step is trading above 28.5% on an LTM on a multiple basis, it goes above 2.5%, it actually becomes more accretive as the transaction executes.

Sorry,. The other thing I might add is I think you should expect it to be largely equity-based consideration to maintain an important alignment of interest among the groups. That's something that we've had as a firm culturally as one of our -- I think 1 of our key drivers of success is having that shared ownership and our future outcomes.

Right, right. Of course. That makes sense. And can you just remind us, is there a kind of a lockup on that portion of the equity that would be issued?

There is -- 30% is not subject to lockup and the rest is locked up for over 3 years. It gets released at 30 a year.

Great. Okay. Just maybe 1 quick follow-up. Lots already been kind of asked and answered. But I wanted to just ask a little bit more about the FTSE opportunity. So as we think about the longer-term opportunity here, and if we dream the dream, is there a chance that there's more indexed AUM that could ultimately follow that opportunity? Or do you think there's maybe broader licensing opportunities for step as you think about that index?

Thanks, Mike. It's Mike here. I think the answer is yes and yes. I would say the longer-term vision, like you said, the dream of Dreams is an AUM play around some sort of investable index or indices across the private markets.

In many ways, the ticker is evergreen vehicles that StepStone manages, you could almost look at that as sPrime being a version 1. It's that the liquidity is available on the ticker on the buy but on the way out, there is, of course, a monthly redemption. How to create a daily tradable index is really the solve here that we're going to try to work on -- the key is, first, the adoption rate of the daily priced indices that FTSE Step are out in the marketplace with. And that will take some time.

But once those adoption rates are at a critical mass, we do think that there is a really good and compelling opportunity here to create some sort of investable products around those daily indices. And yes, by all means. We do think the licensing opportunity will only grow from here. We started out with a couple of large broad-based daily priced indices. And as those indices get adopted, we expect to get more granular over time. and issue more indices. And in fact, it's reasonable to expect customized indices to be developed over time as well that are very client specific. So we think it's a broad opportunity and yes to both questions.

Our next question comes from the line of John Dunn of Evercore.

Maybe another on Spring. You mentioned the several late-stage venture investments. But with VC secondary is becoming a bigger part of a bigger driver for you guys in the industry. Maybe could you give us a little more color kind of on the curtain as to why you think you'll be able to maintain your lead in this area like how you source these investments and kind of what makes you -- your team differentiated in terms of process?

Sure. No, happy to. And I think in addition to spring also managed the really industry-leading venture capital secondaries fund last time around raised a bit over $3 billion as a fund that's returning to market here shortly as well. Look, it's a story that very much rhymes with the story across the StepStone platform in terms of our presence and our advantages as a secondary investor, a lot of it driven by the market-leading amount of primary capital that we are deploying in the market.

And as a result, the relationships that we have with GPs, the insights that, that drives across their funds and their portfolios, the sourcing advantages that it drives across the business as well. One of the things that I've often commented on during these calls that I think our venture team has done a particularly good job of is to be very proactive about identifying those top 50, those top 100 venture-backed assets that they want to own and then finding and using a variety of different ways to go and acquire exposure to those companies in the most attractive way possible.

And that can take the form of season the primary investments, it can take the form of LP secondaries of GP-led secondaries. And 1 of the things that you heard us talk about last quarter on this call was also a significant amount of -- for example, the spring portfolio and RBC secondaries portfolio is driven by direct secondaries and have really spent the time and effort to build direct relationships with many of the companies that we're investing in, their management teams, the key the key GPs that are backing those companies, recognizing that, that is sort of required and necessary in order to get access to and exposure to some of the highest quality venture-backed assets.

So it's all of those things that are really driving our market-leading position in the venture secondary space.

Got it. And then could you tell us when the last valuation on SpaceX has done in spring.

The valuation in our fund.

Yes,

Or mass valuation at which spring invested?

The first?

We value the portfolio monthly.

And that does conclude today's Q&A session. I would like to turn the call over to Scott Hart for closing remarks. Please go ahead, Scott.

Great. Well, thank you very much, everyone, for joining today's call and for your continued interest in the StepStone story. We look forward to connecting with many of you in the days and weeks to come. Thank you.

Thank you for joining today's conference call. This concludes today's program. You may all disconnect.

Good day, and thank you for standing by. Welcome to the Q3 2026 StepStone Group Inc. Earnings Conference Call. [Operator Instructions] 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.

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.

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 third quarter of fiscal 2026. Beginning with Slide 3, we reported a GAAP net loss attributable to StepStone Group Inc. of $123 million or $1.55 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.

Moving to Slide 5. We generated fee-related earnings of $89 million, up 20% from the prior year quarter, and we generated an FRE margin of 37%. The quarter reflected retroactive fees from our infrastructure secondaries fund and our multi-strategy global venture capital fund. Retroactive fees contributed $1.1 million to revenues, which compares to retroactive fees of $9.7 million in the third quarter of the prior fiscal year. When excluding the impact of retroactive fees, core fee-related earnings were $88 million, up 35% relative to the prior year quarter, and core FRE margin remains at 37%. We earned $80 million in adjusted net income for the quarter or $0.65 per share. This is up from $53 million or $0.44 per share in the third quarter of the last fiscal year, driven by higher fee-related earnings and higher performance-related earnings.

I'll now hand the call over to Scott.

Thank you, and good evening. As Seth just highlighted, we generated strong results to cap off a very successful calendar year in 2025. Beginning with our financial performance, we delivered our best quarter ever in core fee-related earnings. We are confident of our earnings trajectory as core FRE continues to grow and as an improving capital market environment may potentially yield stronger realizations over the coming year. While realizations as a percentage of our accrued carry are still below long-term trends, the last 2 quarters have seen a pickup in activity.

When viewing performance fees inclusive of incentive fees, total performance fees were very strong, driven by over $200 million of gross incentive fees related to our SPRING Evergreen fund. The strong incentive fees are a product of growth in the fund and exceptional investment returns of 39% over the year. Notably, less than 3 percentage points of this performance came from the markup of secondary discounts with the remaining 36 points of performance coming from returns post the initial markup.

Shifting to fundraising. We generated gross AUM additions of over $8 billion in the quarter and over $34 billion for the calendar year, our best 12-month period of fundraising ever. The fundraising is balanced across commercial structure, geography and strategy. We believe our diversified mix bodes well for continued growth through market cycles. Our managed account fundraising has essentially matched our best 12-month period ever with balance across re-ups, expansions and new accounts. Re-ups have historically been our largest driver of managed account gross additions, but expansions and new accounts are critical for building the foundation for future re-ups. This past year has been our best year ever for the combination of expansions and new business.

In private wealth, we grew the platform to $15 billion and generated over $2.2 billion in new subscriptions for the quarter. Our private equity Evergreen funds continue to be standouts. We originated nearly $1 billion of subscriptions across the combination of SPRIM, our all private markets model portfolio fund and STPEX, our PE fund.

We also generated approximately $1 billion of subscriptions in SPRING, our venture and growth equity fund. As we've mentioned in prior calls, SPRING is a one-of-a-kind product that is in high demand within the private wealth community.

Momentum also continues to grow in STRUX and CRDEX, where we continue to build our syndicate of partners. The value proposition of income, yield and diversification is resonating with our investors. We are comfortably generating more than $2 billion in private wealth subscriptions each quarter. With 5 fund families in market and with an increasing effort internationally, we believe we have the balance, brand recognition and track record to continue to grow off this base.

Stepping back to the broader firm, we are thrilled with the success of the past year. As we look at our full pipeline of commingled funds, the setup for the coming year may be even more exciting. We are currently in market with our private equity co-investment fund, our private equity secondaries funds, and we just had an initial close on the second vintage of our infrastructure co-investment fund. We expect these funds to execute most of their fundraising over the coming calendar year as well as activate to fee-earning capital.

Additionally, we are now in market with our venture capital secondaries fund, and we anticipate that we will be back in market with our special situation real estate secondaries fund and our multi-strategy growth equity fund in the coming quarters. Collectively, the prior vintages of these funds represent over $16 billion of capital, and we are targeting modest growth across each of the funds.

Before I conclude, I want to highlight how StepStone is positioned for the continued evolution of artificial intelligence and the significant value creation we expect it to drive for our clients and for our firm. As a leading investor in the innovation economy, we are backing category-defining companies across the AI ecosystem from native AI platforms to the hardware companies building the compute and storage that power these tools to software companies with proprietary data that enable differentiated high-value outputs.

Furthermore, as a diversified private market solutions provider, we can invest across asset classes and capital structures, putting capital to work in essential components of the AI build-out like data centers and power generation through our infrastructure, real estate and private debt strategies.

While we anticipate AI will be a huge creator of value, it will undoubtedly be disruptive, creating winners and losers, presenting risks and opportunities. We, like all managers, will not be immune to the risks. But given our highly diversified approach to private markets investing, our track record of partnering with top managers and our data-driven insights, we expect to be well positioned on both a relative and absolute basis.

As we look forward to the coming year, we have built a solid foundation for private market solutions, and we'll continue to offer and evolve our client-centric offerings. Our results this year are a function of executing this plan, and we believe StepStone is primed to accelerate on this momentum in 2026.

I'll now turn the call over to Mike to speak through fundraising in more detail.

Thanks, Scott. Turning to Slide 8. We generated over $34 billion of gross AUM additions over the last 12 months. We had a healthy mix across commercial structure, geography and asset class as well as a balance of new versus existing clients. More than $21 billion of these inflows came from separately managed accounts and over $13 billion came from our commingled funds, including private wealth.

Looking by region, roughly 2/3 of our inflows were from outside of North America. Our international fundraising is particularly strong among institutions, where we continue to benefit from an extended runway as these LPs continue to grow their allocations to private markets.

Of the managed account additions over the last year, approximately $10 billion or nearly 50% came from a combination of new accounts or the expansion of existing accounts into new asset classes or strategies. As Scott mentioned, this was our strongest 12-month period ever for overall gross inflows as well as our best period ever for new and expanded business. Our retention rate on managed accounts continues to be over 90% with re-ups growing on average by nearly 30%. So these expansions in new accounts fuel sustainable growth.

During the quarter, we generated over $8 billion in gross additions, including more than $4 billion of managed account inflows and more than $4 billion of commingled fund inflows. Notable co-mingled fund additions included a $300 million close for our private equity co-investment fund, $100 million close for our infrastructure secondaries fund, and we were thrilled to execute a greater than $600 million close in our infrastructure co-investment fund, which is now raising its second vintage.

We anticipate our infrastructure co-investment fund and our private equity co-investment fund, which has raised approximately $900 million to date, will activate by the end of our first fiscal quarter of 2027, and we expect our flagship private equity secondaries fund and the first vintage of our GP-led private equity secondaries fund to have first closes in the coming 2 quarters with activation shortly thereafter.

Turning to our Evergreen fund platform. We generated over $2.2 billion of subscriptions in our private wealth suite of offerings, growing the platform to $15 billion as of the end of the quarter. Additionally, we have grown our Evergreen non-traded BDC SCRED to nearly $2 billion in net assets.

Slide 9 shows our fee-earning AUM by structure and asset class. For the quarter, we increased fee-earning assets by nearly $6 billion, and we increased our undeployed fee-earning capital, or UFEC, by approximately $3 billion to nearly $33 billion. The combination of fee-earning assets plus UFEC grew to over $171 billion, which is up more than $8 billion sequentially and is up over $35 billion from a year ago, our strongest 1-year growth in our history. This translates to a healthy 20% annual organic growth rate since fiscal 2021.

Slide 10 shows our evolution in fee revenues. We generated a blended management fee rate of 63 basis points over the last 12 months, down slightly from the 65 basis points in fiscal year 2025, driven by the moderation in retroactive fees, but partially offset by a favorable mix shift driven by growth in our Evergreen funds.

With that, I'll hand it over to David for our financial results.

Thanks, Mike. Turning to Slide 12. We earned fee revenues of $241 million, up 26% from the prior year quarter. Excluding retroactive fees, which were only $1 million this quarter, fee revenues grew by 32% year-over-year. This increase was driven by strong growth in fee-earning AUM across commercial structures, particularly private wealth, which carries a higher average fee rate. Fee-related earnings were $89 million, up 20% from a year ago, while core FRE was up 35%, driven by strong growth in fee revenues. FRE margin was 37% for the quarter, both on a reported and core basis, up roughly 1 percentage point from last quarter.

Shifting to expenses. Adjusted cash-based compensation was $107 million, representing a cash compensation ratio of 44%, slightly lower as compared to the last 2 quarters. General and administrative expenses were $40 million, up $6 million from last quarter. The increase was primarily driven by our StepStone 360 conference held in October. G&A will remain seasonally high in our fiscal fourth quarter, driven by a venture capital conference in February.

Gross realized performance fees were $253 million for the quarter, comprising $47 million of realized carried interest and $207 million of incentive fees. Incentive fees are seasonally strong in our fiscal third quarter, driven by the annual crystallization of our SPRING incentive fees. These fees were particularly strong this year, driven by both exceptional growth in net asset value and performance in SPRING. Total NAVs for SPRING of $5.5 billion more than tripled over the course of the year, while performance of 39% was more than double the prior year.

SPRING's investment performance was particularly strong in the back half of the year, which further benefited this year's incentive fees as those fees were calculated on a higher average asset base.

Looking forward, if we assume SPRING's investment performance achieves a mid-teens return, we would expect next year's incentive fees to moderate slightly as compared to this year as growth in asset balances would be offset by more normalized investment returns. However, results will depend on actual performance.

As a reminder, much of these incentive fees do not drop to the bottom line today as the gross revenue is shared with the investment team through compensation and with the private wealth team through the profits interest. However, shareholders should still see a meaningful benefit as about $25 million of this quarter's SPRING incentive fees flows to pretax ANI.

Consistent with past practice, we plan to pay out a supplemental dividend at the end of each fiscal year, subject to Board approval based on performance-related revenues, net of compensation, noncontrolling interest and profits interest.

Through the first 3 quarters of this fiscal year, the net PRE has already exceeded the total from all of fiscal year 2025. Furthermore, this year's strong level of performance bodes well for the longer-term earnings power of the franchise, particularly after the profits interest is bought in, at which time over 50% of the SPRING incentive fees will flow to pretax ANI.

Adjusted net income per share of $0.65 was up from $0.44 a year ago and $0.54 last quarter, driven by growth across fee-related and performance-related earnings.

Moving to key items on the balance sheet on Slide 13. Net accrued carry finished the quarter at $875 million, up 4% from last quarter. Our net accrued carry is relatively mature. Approximately 65% are tied to programs that are older than 5 years, which means that these programs are ready to harvest. Our own investment portfolio ended the quarter at $338 million.

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

[Operator Instructions] And our first question will be coming from Alex Blostein of Goldman Sachs.

So maybe starting with the topic du jour. Scott, you mentioned software obviously been important on last -- over the last couple of days. So maybe just frame the exposures you guys have to software companies across the portfolio and specifically just double-clicking into SPRING and any other retail vehicles where you might have exposure, so that might be a good place to start.

Yes. Thanks, Alex, for the question. So a couple of things. And I think you've obviously heard from others on this topic throughout the last several days as well, highlighting the fact that not all software companies traded equal, highlighting the fact that where there are risks, there are also opportunities. I think we would agree with all of that.

I think the point I really wanted to spend some time on here in response to your question is really just building upon what I mentioned in the prepared remarks around our diversified approach to private markets investing. And really 2 key points I would highlight. One, one of the things you hear us talk about here at StepStone frequently is that as investors, there's a lot that's outside of our control. There's a lot of uncertainty. The one thing that is always complete within our control is portfolio construction and diversification. And so we really look to that as something that's really the first line of defense when we encounter disruptions like this one.

Second, I just wanted to highlight the fact that our multi-manager, multi-asset class approach is, by definition, very well diversified. So if I just think, for example, about the value chain within the private markets from individual company or asset to general partner or fund that's investing in those assets through to the allocators or private or solutions players like ourselves, just a couple of comments. I mean one, if you're an individual SaaS company today that maybe lacks some of the characteristics that we're all looking for, whether it's vertical specialization, system of record, proprietary data streams, a strong AI strategy in place, that's probably an uncomfortable place to be at the moment. But like we said, not all software companies traded equal.

If you're a software-focused GP, or at least in this case, you don't have all of your eggs in one basket, you probably have some challenges in the portfolio, but at the same time, probably have some potential winners. And there's no doubt you're working very closely with your portfolio companies in a very active way to develop your AI strategy and AI product road map.

Generalist GP, similar situation, although now you're talking about only a percentage of your portfolio invested in software. But by the time you get to a group like StepStone, again, our multi-manager, multi-asset class approach, we're just very well diversified, right? Obviously, our real estate and infrastructure businesses have no software exposure. And if anything, AI has presented a bit of an opportunity and a tailwind for certain investments. Our private credit business, where we tend to focus on small and mid-market loans, which has been less heavily invested in software and where we tend to shy away from ARR loans has resulted in a situation where we've got very modest exposure to software. So for example, in a couple of the Evergreen Funds, think sort of mid- to high single-digit software exposure in private credit.

And so it really leaves us within private equity and venture as the main driver of our software exposure. And as a result, if you look across the entire business, we estimate about 11% of our total AUM that is in software investments. And if we exclude venture, that drops down to about 7% of our total AUM.

So let's then just spend another minute on venture because as you said, certainly the topic of the day, but this is not a new trend in terms of the potential threat to software companies from AI. And I think our venture team has been operating accordingly over really the last several years here. And so if you look at a fund like SPRING have probably leaned more heavily into some pure-play AI opportunities, AI infrastructure, specialized vertical software players, cybersecurity, defense tech and physical AI, all of which have had the benefit of an AI tailwind. And frankly, that's what has driven the 39% performance that we mentioned in the prepared remarks in a year where you saw public cloud software indices down close to 30% in some cases.

So I think it sort of highlights the fact that just because we are investing in venture capital and in technology more broadly, it does not mean you're making a bet on SaaS software in particular. So maybe with that, I'll stop. Hopefully, it gives you a bit of a sense, one, for the exposure across the business, but also the way that we think about this type of disruption risk.

Yes. No, that's really helpful context. And again, I agree with everything you're saying, and thanks for the color there.

My second question, just pivoting to growth. Obviously, really impressive trends in the private wealth business. I think I heard you guys talk about $2 billion in subscriptions each quarter. Awesome momentum, and it sounds like you're seeing line of sight to build on that. So I was hoping you could maybe expand on how you're thinking about the build from here in terms of scaling the existing products, any kind of near-term opportunities you see to expand distribution and any other new products that you're thinking about launching over the next, call it, 12 months?

Thanks, Alex. Jason here. In terms of expanded distribution, we're still in the very early innings from a syndicate build on STPEX. Of course, that's the newest private equity fund. And still also in very early innings with CRDEX and STRUX. Lots of positive momentum there. But through the syndicate build, we'll see flows on those funds increase over time and would expect to see growth in distribution of those funds over the course of the coming year. No announced road map for new product offerings in the coming 12 months other than, I would say, feeder funds, different geographies, specialized funds and the like, all feeding into the same portfolio, but not a new product per se as we continue to expand the international footprint and expand the fund families in that way.

Next will come from Kenneth Worthington of JPMorgan.

Let's start on SPRING. So SPRING had monster performance this year. Maybe first, given the size and the performance, how are you managing the inflows? Are you in a position where you feel like you need to kind of protect the existing investors by, in any way, sort of limiting the amount of net new assets that are coming in there and maybe chasing that good performance? Or is that not an issue?

It hasn't been an issue to date, Ken. The amount of opportunities that our venture and growth team continues to see across the innovation economy is strong, and that's driven by us having the market-leading venture and growth platform and having multiple avenues for deployment across primary fund investments, co-investments and directs as well as secondaries, which in venture specifically leans heavily into direct secondaries. The team is very proactive in identifying those companies that we want exposure to in our portfolios and sourcing that exposure through all those different avenues so that we can take advantage of the Power Law in venture. To date, we continue to see a lot of opportunities as companies stay private for longer, if not some forever. And that provides us an avenue for strong deployment.

Okay. I feel like you were prepared for that question. Okay. You mentioned a number of funds in market or coming into market in the coming quarters. I think $16 billion of AUM is what you said the prior vintages were at in terms of commitments. And yet you sort of expect maybe these next vintages to have modest growth? And I guess the question is why expectations are tempered a bit. And so from there, you mentioned that 50% of sales are coming from sort of new clients and expansion clients. Do you think that can kind of continue as you raise this next round of funds? And it would seem like if it can or can come anywhere close that unless you're really trying to throttle the size of these funds that there might be the opportunity to do better than just modest growth as these new funds come to market. So help me sort of connect the dots in terms of how you're thinking about the next vintages in and coming to market.

Yes. So I think a few comments there, Ken. And I think the expectation around modest growth in fund size is one that we have often pointed to throughout our history. And I think particularly on the back of, in some cases, having significantly increased prior fund sizes, doubling of the last secondaries fund, a significant increase in the last real estate secondaries fund. I think we wanted to just make sure to set expectations that the goal with certain of these vehicles is not necessarily to go out and double in fund size, but to grow modestly and make sure that we are a little bit to the question you just asked, Jason, matching the fundraising to the size of the opportunity. Now we do think there is a sizable opportunity, particularly given sort of the strategies we will be in market with, including secondaries across multiple asset classes here. But again, I want to just moderate expectations there.

Look, I think overall, we feel good about the lineup of funds that we have coming to market. You asked about the mix of re-ups and new, et cetera. Look, we do expect to have strong re-up activity given the performance of these vehicles historically, but also trying to create a bit of room for either net new clients to the platform, many of which find our commingled funds to be an attractive entry point and some investors that might have looked at these vehicles last time around, but missed out as we wrapped up at or close to hard caps. But also open to clients that are expanding across the areas within StepStone. So I think we're going to see growth from each of those areas, but also recognize, look, while the fundraising has been strong, and like we said, we've had a record last 12 months, it continues to be a competitive fundraising environment, and we'll have a lot on our plate in the year ahead here.

And our next question will be coming from Brennan Hawken of BMO.

Would love to drill into the discussion performance at SPRING. It's pretty remarkable that only 3 percentage points of it are coming from the markup. So -- and that definitely wouldn't -- doesn't like -- it's not perfectly intuitive how that would be the case given how well it's flowed and my sense of the discounts on those VC funds. So could you maybe help me understand that a little bit better, how we could see such a small portion of the attribution from that?

Yes. So it's really, I think, a continuation, Brennan, of the comment that Jason made when talking about the opportunity and the fact that in venture, in particular, it's really more of a direct secondaries opportunity as opposed to a pure LP secondary at a significant discount. And I think even if you were to look at some of the market statistics about the size of the secondaries market overall and look at what is supposedly coming from venture, I mean I think it vastly understates the size of the venture secondaries market because it does focus less on the direct secondaries and more on just LP secondaries. So that's going to be the biggest driver of the performance not being driven by -- purely by discounts.

Got it. So what -- I'm guessing that, that's just another way of saying the continuation vehicles, assuming that I'm on the right track there, like what has the volume breakdown been in the continuation vehicles versus LP-led for SPRING here in the past year?

Yes. So in this case, not even just referring to GP-led, although it may take the form of GP-led, but may also be direct secondaries buying out interest in individual portfolio companies, whether from prior owners, from management teams, et cetera. But I think it really just speaks to Jason's point earlier that we have a sense for which companies are going to be the major value drivers in the venture space. And then we go out and use our full toolbox of ways to acquire those interests again, whether through direct secondaries, whether through GP-led, which can take a variety of different forms as well as LP led. I don't have an exact breakdown. Maybe Jason can jump in here, but...

Yes. I would add to 34% of SPRING, and this is in the fact card, you can see it right there. The 34% of SPRING are primary directs, meaning not secondary at all, but going in on a direct basis. So think akin to co-invest alongside our venture partners, right? And then 64% of the portfolio is coming through secondaries, the vast majority of which is direct secondaries. So not really CVs, although some could be CVs, really acquiring interest directly in the interest of the underlying companies.

Interesting. I did not appreciate all the different options you had.

And our next question will be coming from Michael Cyprys of Morgan Stanley.

Maybe just coming back to your helpful commentary on software exposure and AI disruption risk. Just curious as a large allocator to the private market space, it sounds like AI disruption risk, and it's been something you've been focused on, both as a risk, but also an opportunity that you've been thinking about for some time. So as you look at managers and funds across the space, curious what you're seeing in terms of assessing and sizing the potential risk to the industry. Maybe talk a little bit more about your portfolio construction, how you've been navigating this and curious what insights you've gleaned from the data sets that you have.

Yes. So maybe a few different comments there. I mean if I look back at some of the transaction activity from, say, the 2020 to 2025 time period in, and this is going to be private equity specific, so not venture, but private equity specific. Our data would suggest that something like 27% of all private equity investments were in IT, broadly speaking, just over 20% more specifically in software. So just to give you a sense over the last 5 years, which will generally be vintage years that are less realized at this point in time.

Interesting, if you break that down by size and one of the reasons I made the comment about our small market and mid-market exposure in our credit business, if you look at small and mid-market, the software exposure based on our database, more like 13% over those last 5 years, whereas the large and global part of the market closer to 24%. So that's maybe just some helpful context around market-wide, what we're seeing, how active the GPs have been in the software space, broadly speaking. And I think some of that driven by where you have true sort of software specialists versus just generalists that are operating.

Look, it's been a diligence question that we've been asking both our GPs, but also we've been focused on through our co-investment and secondary business over a number of years, frankly, not just in software, but across the board in terms of understanding where are there AI-driven opportunities and where are there AI disruption risks. And obviously, it's a continually moving picture here, but that is something that we and I think many others have probably been focused on for a period of several years here. And I think we learn a lot from speaking with our GPs, understanding a few things. One, what they are doing internally in terms of how they operate within their own 4 walls to what are they doing with their portfolio companies. And that's part of the reason I made the comment earlier about some of the software GPs that are very actively involved and have sort of a playbook they've developed and task force that are working very closely with their companies to develop their AI strategy and product roadmap. And so those are some of the things that we're seeing and looking for in our business today.

And then to the point just around the learnings, the data, the insights, I guess when you speak with the GPs and your underwriting, doing diligence, I guess, what sort of steps can the GPs take to minimize the sort of risk? Not all software created the same, clearly, to your point, when you think through how much of that exposure could be at risk from AI disruption as you're constructing your portfolios and trying to mitigate it yourselves there. Just any thoughts around that.

Yes. Look, I think some of it probably comes down to how they have managed their existing portfolios, recognizing that some of these portfolios would have been built starting pre-COVID and the years post-COVID and who's been more active in managing the risk and strategy with their portfolio companies and/or who's been more active in looking to divest some of those companies over the last few years and really look to hold those that are best positioned to continue to grow in the current time period. And then I think it comes down to investment selection going forward. What are some of the key things that they are looking for in diligence to make sure that they are avoiding those companies that are likely to be disrupted on a go-forward basis. I mean those are the kind of 2 broad categories I'd point to is managing the existing portfolio and then it's really about new investment selection.

[Operator Instructions] Our next question will come from John Dunn of Evercore ISI.

Maybe a little more on the sourcing of subscriptions. You said 2/3 of fundraising was non-U.S. I think in the past, you've given us a kind of flavor of what regions are seeing the most demand and for what particular strategies.

Yes, John, thanks for the question. So -- it depends on the exact time period we look at. If I look at the last quarter, it has probably been Asia and Europe and broadly across whether Singapore, Japan, Korea and then within Europe, Germany and some of the Nordics that have been some of the bigger drivers. If I look over a last 12-month period, I would also -- I would include those same geographies. I would also include the Middle East as well. Look, it varies a bit by asset class.

I would say, of late, our infrastructure business has had tremendous success in the European market. Private credit has been having great success and interest in Asia and the Middle East and has had some recent wins in the U.S. market. I think interestingly, as we travel around with the private credit team, despite some of the headlines that we see related to private debt, private wealth redemptions or otherwise, that is not a major topic of conversation when we're sitting with institutions, some of which are just setting aside allocations for private credit and continue to be very interested and active in the space. And then if I think about private equity, look, I'd say the regions that we probably had the most momentum of late, probably Asia and the Middle East. So hopefully, that provides a little bit of color for you.

Yes, it does. And then on private credit in the wealth channel, maybe outside of software, has there been any like changes in discussions or interest or concerns about other exposures?

Look, I mean, there's obviously the headlines that we need to contend with. I guess in our case, we are obviously, as Jason mentioned earlier, a bit earlier in building out the syndicate for funds like CRDEX. And so we have not seen maybe the pickup in redemptions that have been talked about across the industry. But clearly, you need to contend with some of those headlines as it relates to new fundraising that you're doing. But look, I think part of what also has driven some of the interest in our private credit strategies of late is, again, our multi-manager approach and just the highly diversified portfolios we are building as a result with, again, in private credit, largest positions tend to be sub-1% positions across our evergreen vehicles.

I don't know if we lost the operator there or any additional Q&A. I'll just give you one more moment here. Okay. Well, if no other questions, we appreciate everyone's interest this quarter and look forward to connecting with you and continuing the dialogue about StepStone. Thank you.

You may now disconnect.

Hello, and welcome to StepStone Group's Q2 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to Seth Weiss, Head of Investor Relations. Please go ahead.

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 the 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 second quarter of fiscal 2026. Beginning with Slide 3, we reported a GAAP net loss attributable to StepStone Group, Inc. of $366 million or $4.66 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 to our income statement. This option is expected to be accretive to EPS, and we plan to exercise the call option as soon as it's available in September of 2027. This quarter's GAAP loss was significantly larger than prior periods and is a direct function of the progress of our Private Wealth platform, which Scott will speak to in more detail.

Moving to Slide 5. We generated fee-related earnings of $79 million, up 9% from the prior year quarter, and we generated an FRE margin of 36%. The quarter reflected retroactive fees from our infrastructure secondaries fund. Retroactive fees contributed $0.3 million to revenue, which compares to retroactive fees of $14.9 million in the second quarter of the prior fiscal year. When excluding the impact of retro fees, core fee-related earnings were $78 million, up 34% to the prior year quarter and core FRE margin remains at 36%. We earned $66.7 million in adjusted net income for the quarter or $0.54 per share. This is up from $53.6 million or $0.45 per share in the second quarter of the last fiscal year, driven by higher performance-related earnings and higher core fee-related earnings.

I'll now hand the call over to Scott.

Thank you, Seth. Our second quarter was strong on all fronts. We continue to deliver for our clients, both in the form of strong investment performance and value-added services. We produced a record quarter of subscriptions within our Private Wealth platform. We generated robust institutional fundraising within both managed accounts and focused commingled funds. We generated strong financial results, and we continue to enhance our data and technology offerings and partnerships. Starting with Private Wealth, where our momentum is nothing short of spectacular. We generated $2.4 billion of new subscriptions, a record result for StepStone and nearly double our previous highest quarter. There are several drivers of the strength this quarter.

First, we continue to generate growth in our existing suite of products. SPRING, our venture and growth fund, was a standout this quarter with over $800 million in new subscriptions. It's a true one-of-a-kind product whose popularity is continuing to grow. Second, we launched STPEX, a pure-play private equity interval fund that enables daily subscription through a ticker. We constructed STPEX to address the request of several channel partners, leading to over $700 million in gross subscriptions in the first 30 days. This is an incredible result that frankly exceeded our own expectations. While subscriptions will moderate after this initial surge, we expect STPEX to become a significant source of private wealth inflows.

Third, we are accelerating internationally as we continue to build on our syndicate, establish a track record of our international funds and grow the StepStone brand. Last month, we were thrilled to announce a partnership with Aviva to be 1 of 5 specialist managers in its U.K. trust-based pension scheme. We believe this solidifies the StepStone name as a trusted partner in private markets for retirement savings, a trend we expect to develop globally.

Moving to institutional. This was another solid quarter for fundraising within both managed accounts and commingled funds. We generated $3.8 billion in managed account gross additions in the quarter and over $10 billion for the first half of our fiscal year, continuing the momentum from our record-setting fundraising last year. Our strength in managed accounts has been a differentiator for StepStone and as a result of nearly 2 decades of investment and relationship building across the globe. We are generating a healthy mix of new mandates as well as retention and growth in existing mandates.

Over the last 12 months, more than 1/3 of our managed account inflows have come from new and expanded relationships, which not only contribute to gross inflows today, but plants the seeds for growth as those LPs re-up with us in the future. As we have consistently said since our IPO over 5 years ago, we are very proud of our success with existing clients. Our re-up rate remains above 90% and on average, those re-uped accounts have grown in each successive vintage at nearly 30%. These are incredibly strong numbers and are even more powerful when you consider the compounding growth that results when we get to the second, third and fourth re-up cycles. StepStone's success with both new and existing clients is a result of strong investment performance and the high level of service we provide.

A key means of achieving this is by placing senior and experienced professionals in the asset classes and geographies where our limited partners reside. Over the last 6 months, we have opened new offices in the Netherlands, Spain, South Korea and Saudi Arabia, representing increasing footholds for StepStone in Europe, Asia and the Middle East, and highlighting the importance of our partnership with key clients in those regions.

Pivoting to commingled funds, we generated $3.4 billion of gross additions. In addition to record private wealth subscriptions, we executed the first close of our PE co-investment fund. We're also now in the market with our PE secondaries fund, which invests in both LP and GP-led secondaries and with a first-time dedicated GP-led private equity secondaries fund. Mike will speak about these funds in more detail.

The fundraising momentum has led to continued growth in our fee-earning AUM, which is up more than $5.5 billion in the quarter to nearly $133 billion. The strong progression of fee-earning AUM translates to growing earnings power. We generated $78 million of core fee-related earnings, representing 34% year-over-year growth. On the strategic front, we are continuing to make strides in leveraging our data and technology. In September, we announced the launch of the Kroll StepStone Private Credit benchmarks. These benchmarks and analytic tools provide up-to-date data and analysis on a wide pool of loans with insights down to the loan level.

Last week, we were pleased to announce the launch of the FTSE StepStone Global Private Market Indices. We are beginning with 3 indices: a U.S. buyout index, a U.S. infrastructure Index and an all private markets index, which offer daily index performance based on comprehensive institutional grade inputs. We believe this lays the groundwork for additional indices across other sectors and asset classes and ultimately for establishing index tracking investment products.

I'll now turn the call over to Mike.

Thanks, Scott. Turning to Slide 8. We generated $29 billion of gross AUM additions over the last 12 months. $18 billion of these inflows came from separately managed accounts and $11 billion came from our commingled funds, including private wealth. During the quarter, we generated over $7 billion in gross additions, including approximately $4 billion of managed account inflows and approximately $3 billion of commingled fund inflows. Notable commingled fund additions included $150 million final close for our corporate direct lending fund, SCL III, and a $550 million close in our PE co-investment fund.

As Scott mentioned, we are now back in market with our PE secondaries fund, and we are also in market with the debut GP-led PE secondaries fund. The flagship secondaries fund will continue to invest across a diversified array of both LP-led and GP-led investments, while the dedicated GP-led fund will provide access to a more concentrated set of high-quality GP-led investments. We expect first closes in these funds by the end of our fiscal year. The GP-led dedicated fund will be smaller than the flagship secondaries fund, but we anticipate the combination of both funds will increase over the prior vintage size of $4.8 billion.

Turning to our Evergreen fund platform. We generated $2.4 billion of subscriptions in our private wealth suite of offerings, growing the platform to $12 billion as of the end of the quarter. Additionally, we have grown our Evergreen non-traded BDC SCRED to over $1.5 billion in net assets. We have expanded our Private Wealth platform to approximately 650 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 fee-earning AUM by structure and asset class. For the quarter, we increased fee-earning assets by nearly $6 billion or an annualized growth rate of 18%. Our undeployed fee-earning capital, or UFEC, grew by over $1 billion to nearly $30 billion. The combination of fee-earning assets plus UFEC grew to approximately $163 billion, which is up $7 billion sequentially and is up over $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 63 basis points over the last 12 months, down slightly from the 65 basis points in fiscal year 2025, driven by the moderation in retroactive fees. Now before turning the call over to David, I would like to briefly address recent capital market trends and client sentiment. While private market returns have stayed strong, distributions have been low for 3 consecutive years, shifting client focus from IRR to DPI. Slower exits have led to fundraising declines industry-wide, and 2025 could see another down year unless fundraising picks up in Q4.

StepStone's results, however, stand out, raising nearly $30 billion annually over the last 2 years, a significant jump from previous years. We credit this growth to our client-focused customized approach and our data-driven insights as a major market participant. Clients worldwide, including those who attended our largest ever StepStone 360 conference, have echoed this feedback. We believe current low distributions in private markets are temporary. Indicators like increased IPOs, rising investment banking activity and a major recent buyout point toward better realizations ahead.

Our analysis finds bid-ask spreads narrowing, improving sentiment and a growing pipeline of future transactions. Despite geopolitical and market challenges, we're committed to monitoring conditions and providing solutions for clients in all environments.

With that, I'll hand it over to David for our financial results.

Thanks, Mike. Turning to Slide 12. We earned fee revenues of $217 million, up 17% from the prior year quarter. Excluding retroactive fees, which were very small this quarter, fee revenues grew by 27% year-over-year. The increase was driven by growth in fee-earning AUM across commercial structures. Fee-related earnings were $79 million, up 9% from a year ago, while core FRE was up 34%. Sequentially, FRE declined slightly, driven primarily by lower retroactive fees and lower advisory fees. Advisory fees of $16 million were below the elevated $20 million level of the prior 2 quarters, which benefited from a higher-than-normal level of project-based fees.

We view this quarter as a more normalized level of advisory fees in the near term. FRE margin was 36% for the quarter, both on a reported and core basis. Core FRE margin moderated slightly as compared to last quarter due to lower project-based advisory fees.

Shifting to expenses. Adjusted cash-based compensation was $100 million, representing a cash compensation ratio of 46%, in line with the expectation we set out at the beginning of the fiscal year. General and administrative expenses were $34 million, up $2 million from last quarter. The sequential increase was driven by higher travel, IT and other general operating expenses. As a reminder, the G&A of our next 2 quarters tends to be seasonally elevated, driven by our StepStone 360 Conference in October and our Venture Capital conference in February.

Gross realized performance fees were $65 million and $34 million net of related compensation expense. We expect strong gross performance fees next quarter, driven by the annual crystallization of incentive fees in our SPRING Evergreen fund. As a reminder, a relatively small portion of SPRING incentive fees drops to the bottom line after accounting for performance fee compensation and the Private Wealth profits interest.

Adjusted net income per share of $0.54 was up from $0.45 a year ago and $0.40 last quarter, driven by growth across fee-related and performance-related earnings. Moving to key items on the balance sheet on Slide 13. Net accrued carry finished the quarter at $842 million, up 8% from last quarter. Our net accrued carry is relatively mature. Approximately 70% are tied to programs that are older than 5 years, which means that these programs are ready to harvest. Our own investment portfolio ended the quarter at $314 million.

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

[Operator Instructions] Our first question comes from the line of Alexander Blostein with Goldman Sachs.

This is Anthony on for Alex. I wanted to click into the recently launched PE product, STPEX, which saw a very strong first 30 days of fundraising. So I was curious what drove such strong demand here? And how do you think about any cannibalization risk with your existing product suite?

Thanks, Anthony. Jason here. So yes, we were ecstatic with the traction that STPEX received out of the gate. As was mentioned in the prepared remarks, the product was designed specifically in response to demand from several channel partners who highlighted a couple of things. One, they were looking for PE exclusive exposure as opposed to the model portfolio that's in SPRIM. And two, we talked about it previously, but SPRIM's ticker was not available on all custodians and certain of our channel partners over-indexed to the custodians that were not allowing the ticker for SPRIM and the ticker was very important to them.

So that was, we think, the main drivers of the initial uptake, i.e., it was developed in response to demand we knew was there. In terms of cannibalization, we did see some rotation out of SPRIM and into STPEX, and that was planned for in advance, and we knew that was coming. But we think we've seen the majority of that rotation occur already in the initial month here.

Our next question comes from the line of Kenneth Worthington from JPMorgan.

I'll continue on Wealth. So you've got 5 flagship products now. Can you talk about next steps to broaden and deepen distribution? So maybe number one, you've got 650 distribution partners. How far along are you through selling through either the biggest or your target distribution partners? Like how much room do you have to run for the big ones?

And then two, I think, Mike, to your comments, 50% of your distribution partners are selling more than one Evergreen product. I assume that the dream would be to get 650 distribution partners to sell all 5. So maybe bridge where you are today and the maybe unrealistic dream scenario of getting everybody to sell everything. How do you bridge that gap?

Don't kill our dreams, Ken. This is Jason. In terms of the 50% statistic that Mike cited during the prepared remarks, that 50% is those that have been -- that have had a product on platform for more than 1 year. And so we're always adding new partners. And so that presents additional cross-sell that will happen over time with those groups. To your point, the 50% cited is an aggregate of those selling 2, 3, 4 or 5 of the funds. As you would imagine, the number selling all 5 funds is less than that selling 2 funds, et cetera. So we've got plenty of room to run in that regard. We are also always focused on ensuring that we're meeting each channel partner exactly where they are. So we don't expect that all channel partners would want or need all 5 funds given they have different client bases, of course. As we look at the largest of our distribution partners, most of those really large groups are not selling all 5 funds for sure and are really focused on 2 or 3 funds at present. So there's still room there as well.

Our next question comes from the line of Brennan Hawken of BMO.

I believe you've made a comment about STPEX, this new product that you launched and that maybe the strong subscription rate above expectations. And it seemed like you're suggesting it's above your expectations for what the run rate is. Did those subscriptions sort of like flatter the overall SPW subscriptions in the quarter? And should we expect a pullback on the back of that? I'm just trying to get an understanding of fully contextualizing those comments.

Sure. So STPEX in the initial month was around $750 million of subscriptions. We would not expect that to be the run rate for the fund in the near term going forward. And so yes, we would expect a quarterly pullback from this past quarter due to that onetime initial subscription surge from the launch.

Great. And then G&A expenses were a little higher than we were looking for. Can you talk about maybe what drove some of that quarter-over-quarter increase? And how much of that would be expected to be durable going forward?

Yes. Thanks for the question. It's David. I think in the prepared remarks, we had mentioned that the quarter-over-quarter increase was largely driven by travel, IT and just general operating costs. And you've heard us talk about data and tech benchmarks, the new office openings we've had. So we continue to invest in our business for growth. So I think as you see top line continue to grow, we're going to continue to invest in infrastructure and other costs there.

For the next couple of quarters, like we said in the prepared remarks, you should expect a step up in the G&A costs for our StepStone 360 conference for the next quarter. In the fiscal fourth quarter, you see some costs for the VC conference there. If you look at last year, the StepStone 360 conference was actually held in September. So it's not really a good proxy. But if you look back a couple of years to fiscal '24, and you can see the step-up from fiscal 2Q to 3 and 4, that should be a better proxy of what you should expect to see in the next couple of quarters.

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

Maybe first, Scott, I think in your prepared remarks, you mentioned the partnership with Aviva that was announced maybe a month or so ago. Can you talk a little bit about what you're doing there? How big is the potential opportunity? And how do you see maybe other opportunities to participate in the retirement channel perhaps unfolding outside the U.S.?

Ben, Jason here. With respect to the U.K. opportunity, it's obviously a very big market in terms of the defined contribution market there. Aviva is one of the top 5 players. So we're ecstatic to be one of their partners. The initiation of that channel, we don't expect to see material flows this calendar year. So think of that as a calendar '26 event, and it's going to build over time. This is a new area for Aviva, and we're going to have to see how it develops as they roll it across their book. Outside of the U.K. market, we are having conversations in those geographies where it's potentially conducive to include private markets in the defined contribution space and obviously, spending a lot of time focused on the U.S. opportunity as well. But this is all very early days, obviously.

Got it. Maybe a separate follow-up just on the indexes. So it's nice to see a number of products now launched. Can you maybe talk about from here, what does the path look like to more commercial relationships? How do these get monetized? I imagine that is still far off as well. But with the products out there, just curious what next steps look like on that path.

Thanks, Ben. Mike here. Just as a reminder, our data and technology platform really revolves around our proprietary technology that we call SPI, which has 4 use cases, primarily being, one, driving our investment decisions and track record; two, enabling our existing clients to make better decisions around asset allocation and portfolio construction as well as monitoring returns. The third use case is to develop new client and LP relationships by offering SPI as a value-added service. But last but not least, relating to your question, we're using data and technology to power our benchmarking indices and analytical tools for data partnerships like the one we announced with FTSE Russell and Kroll.

To be clear, our posture toward benchmarking indices is quite a bit different than others in the marketplace. The first is we're using our data to develop and power these benchmarks from a very comprehensive database that includes venture capital, private equity, infrastructure, real estate and credit. The second is the indices that we announced with FTSE Russell are priced daily, meaning cash adjusted and market adjusted on a daily basis. And as a reminder, we've had quite a bit of experience with a daily priced product by virtue of our tickerized Evergreen product called SPRIM. The commercialization of all of this comes in lots of different forms. But as it relates to the indices, the initial revenue case is a licensing opportunity in partnership with FTSE Russell that will be shared between the 2 organizations.

Longer term, the potential use case for building asset management products around our reference benchmarks is on the come. But to be clear, not a replication strategy. Rather, we see asset management products around these indices being a much longer-term opportunity, which is why on previous calls, I've described this as more of a walk before you run approach. But we believe there is plenty of opportunity out there to develop some asset management products around these indices in the longer term.

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

Just given all the success in the Private Wealth channel, I was hoping you could speak to how you're expanding your sourcing -- deal sourcing capabilities to put all this capital to work, so it does not compromise returns for the retail customers as well as for the institutional accounts and customers that you're already managing, how you're thinking about that?

Mike, Scott here. Look, it's a great question and something that, look, whether it's driven by the growth of the Wealth business or the growth of the separate account business or the commingled fund business that we have always been very, very focused on. And it really comes down to the flywheel and the amount of capital that we are committing across the private markets ecosystem, really starting with primary fund commitments that are a big driver of ultimately the deal flow and our position in the market, also a big driver of the data and the information that we have to inform our decision-making. So one of the things that we have always had to do is to make sure that the various different elements of our deal flow remain balanced.

And one of the ways that I've often thought about that is whereas you may have some investors in the market that are looking for, for example, $1 of free co-invest for every dollar of primary capital they commit, I think we offer a very different and a more appealing ratio to our GP partners, which is that across the board, we have been allocating about $70 billion per year into the private markets. If I take just private equity, for example, represents about $35 billion with a few billion going into co-investments each year, probably $5 billion to $6 billion going into secondaries, but the rest into primary funds.

And so that, in my mind, is a very balanced approach, but I think maintaining the activity on the primary side, in particular, is one way we balance that. I would say the other thing that we keep a very close eye on is just the conversion or the approval rates across our deal flow. And so one of the ways that we have been able to invest successfully over time here is that the pipeline has been growing significantly. You think about different parts of our business, for example, private equity secondaries where we had a record year at $160 billion of volume last year, expected to grow to $200 billion this year. Our approval rates, particularly on LP secondaries is very low single-digit percentage and has kind of remained there for a period of time. So across each of our strategies, each of our asset classes, those are the types of stats that we are constantly monitoring to make sure that we have sufficient deal flow to maintain that selective ratio.

Great. And just a follow-up question on the Private Wealth channel. Curious how you're seeing and expect your product set to evolve over the next 12 to 24 months from the 5 products that you have today. What other solutions, product vehicle strategies could make sense? Maybe you could update us on some of your thoughts and progress around models in the Private Wealth channel. You've had a lot of success with ticker. Curious what might be next as you think about innovation.

So in terms of the core portfolios or products that we're putting together, we think that the ones that we have available today are the ones we'll have available for the next 12, 24 months, and it will be a doubling down on distribution, but as you alluded to, let's call it, the wrapping paper around that and models being a good example of it, but not the only one. We continue to have a very engaging dialogue on inclusion in existing model programs, most of which are in the common parlance, paper models, although some are dynamically reallocating as well and continue to have conversations with some technology innovators that are really looking to bring private markets into the model world in a really robust way, and we're one of the thought partners around how to do that operationally because it really, at this point, is more an operational challenge as opposed to a CIO challenge in the models world.

If I could, just one follow up to that point. Just curious what the time frame might be for inclusion in models and how you see some of those hurdles being overcome?

Yes. Well, we're already included, and we've seen very modest but double-digit millions of flows inception to date within the models already using our existing products. So that's not a separate portfolio. It's the existing Wealth products. It was one of the drivers for the creation of STPEX as well as to have that pure-play private equity exposure for CIOs to be able to fine-tune within a model structure. In terms of the technology developments, the systems that many of these models rely on didn't contemplate the idea of, let's call it, delayed gratification on redemption and putting the orders and having that settled later. And so there's -- that's one example of where the technology solutions need to work out the pipes, so to speak, to make that all work properly so that everything flows through.

Our next question comes from the line of John Dunn of Evercore.

I wonder if you could talk to any different areas of geographical strength and any differences between strategy preferences among the region?

John, sure. Happy to touch on the geographical areas of strength. And you heard us make a couple of comments about some of the new office openings, specifically in the Middle East and parts of Europe, and we've had some recent ones in Asia as well. Those would probably be the geographies I would call out. I mean if you look at in our earnings presentation, how the geographic mix has evolved over time, you will actually see that the U.S. is starting to represent a slightly larger percentage than historically. Part of that is driven by the growth in Wealth. But if I break it down and just focus, for example, on separately managed accounts, really over the last quarter or if I look at it over the last 12-month period, in order of size, it would have been Middle East, Asia and then pretty balanced across Europe, Australia and the U.S. So look, I think it's broad-based. It's not any one geography that is driving the success, but continued development across various different regions here.

In terms of the specific asset classes or strategies, again, it's been fairly balanced. I think the main thing I would call out, though, maybe having had the chance to travel with our private credit leadership team over the last several months, I'd say the interest that we are seeing, particularly out of Asia and some of the Asian insurance companies and in the Middle East, where certain asset owners may just be setting up a private credit allocation for the first time as opposed to managing out of other asset classes, be it fixed income, be it private equity, et cetera. And so that's maybe the one thing I would call out is just the interest we are seeing in private credit in a couple of those markets.

At this time, I'm showing no further questions in the queue. I would now like to hand it back to Scott for closing remarks.

Great. We just wanted to thank everyone for joining today and appreciate your continued interest in the StepStone story. We 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.

All right. Good morning, everyone. Welcome to our next session here. I'm Ben Budish, I cover the U.S. brokers, asset managers and exchanges. For our next fireside chat, we've got from StepStone, Scott Hart, CEO; Mike McCabe, Head of Strategy. Gentlemen, welcome. Thanks so much for being here.

Thanks for having us.

Thank you, Ben.

Maybe just to kick it off, StepStone sits in a pretty unique part of the private markets world, has a connector between LPs and GPs. So given that position, give us your current view of the world, how are LP allocations to private markets trending? Where is the room from upside? Where is there cause for concern? And how important is the upcoming realization cycle for further private markets allocations?

Yes. I think it's the right question to start off with, and you can probably imagine that over the last number of months here, we've spent a lot of time traveling around the world, sitting with our clients, sitting with potential clients and talking about this question in particular. And I think we have been encouraged that I think the appetite for private markets continues to be strong and in some cases, may be running counter to some of the headlines that you read about.

But frankly, in our conversations, you can think of very few LPs that we've interacted with, who are thinking about decreasing their long-term allocation to the private markets. Now you do have a situation where some are still over allocated relative to their targets and that may, therefore, slow down their current deployment. But in terms of the long-term trend, most of the investors we are talking to are maintaining, if not increasing their allocations. I think the asset classes where they are increasing allocations may vary. There's probably a bit more room to run in areas like private credit and infrastructure compared to some of the other private markets asset classes, but continued strong appetite there.

You asked about the realization environment. Yes, that is resulting in and contributing to why some LPs are still over allocated relative to their targets, which may result in this temporary slowdown. But overall, I feel very good about the long-term appetite for private markets allocations.

Great. And even with some questions about the upcoming realization cycle, I feel like there's still upward momentum?

Yes. Look, I think the questions are leading to innovation in the market. I think the questions are leading to certain strategies that are very much in demand today. I mean one that we've been talking about with you and others over the last several years has been secondaries space where we've seen a growing trend towards GP-led secondaries. We're even seeing more of our clients that are looking to opportunistically tap the secondaries market really is more of a portfolio construction tool than anything else. And so yes, I think it is having an impact on either which strategies are in demand or some of the innovation that's taking place across the industry, but not impacting the longer-term appetite.

Let's talk about fundraising a little bit. So the last 4 or 5 quarters saw a pretty meaningful step-up in SMA fundraising. Can you talk a bit about what's going well here? And how should investors think about the right growth algo for this business, retentions, re-ups, new clients, the like?

Look, I mean, the way we have described our growth algorithm really dating back to our IPO 5 years ago now, really started with our growth with our existing clients. On top of that, you've clearly got growth with new clients and new products around the world. Private wealth has been a strategy that's contributed significantly to the growth algorithm. Hopefully, as the business scale, there'll be opportunities to improve margins as well but it always started with the growth with existing clients.

And so yes, this past year, really coming off of a record year from a fundraising standpoint. One of the things that contribute significantly to that was our separate account business, as you referenced, and this was a year where we had a very strong pipeline of sizable separate account opportunities that were fully invested and therefore, up for an eligible for re-up. And we've been very fortunate to maintain a north of 90% re-up rate across our separate account business over time, have also been fortunate that upon re-up, our clients have tended to increase the size of those accounts by 30% on average.

And so that alone is an important part of the growth algorithm. I talk a lot about this 90% re-up rate, not only externally but even internally with our team at one of the single most, if not the single most important sort of KPI and measure of our overall level of client satisfaction that clients have with us, whether that is driven by the returns that we're generating for them, whether it's driven by the client service that we have to offer, whether it's driven by the data and technology solutions that we make available to their teams. And that 90% plus re-up rate tells us that we're doing something right.

And I think we're doing something right for our existing clients. It probably suggest that we have something attractive to offer to new clients as well. And so one of the things that contributed in this last year to us really firing on all cylinders was that in addition to the strong re-up cycle, actually, about 40% of our gross AUM flows came not from re-ups, but from new relationships or expansion of existing client relations into new strategies or asset classes.

And that, to me, is a very healthy balance of growth with your existing clients and bringing on new clients around the world. If you think back to times like COVID, that mix might have been 90% re-ups, 10% new as it was much more difficult to be out there developing relationships, working in partnership to launch new separate accounts. Today, we've got a very healthy balance across the business.

Great. Maybe just one more question on the separate accounts. Just curious what asset classes you're seeing the strongest allocations? And how do inflows compare from U.S.-based LPs to those outside the U.S.

The good news for us is a very well-diversified business that has really built market-leading practices across not only private equity and venture capital, but private debt, infrastructure and real estate. The answer is all have been contributing. And really if you look back since our IPO in any given quarter, it might be a different asset class that's driving the growth. But when you look over the long term, each has been contributing in a very meaningful way from an asset class standpoint.

We do talk a lot about our geographic mix. Today, still roughly 2/3 of our revenue that comes from clients outside of the U.S. So it is a very global business. And one of the things that we have highlighted over time is that there is more room to grow in terms of allocations with our international LPs who are starting from a lower base in some cases, still starting from no allocation to the private markets and has been a very interesting driver for us.

And the exact trends may vary from geography to geography, asset class to asset class. I give an example, I've had the opportunity to travel with the head of our private credit business in various parts of Asia over the last couple of months. And I would say there, the appetite for private credit, but also for what we have to offer has been quite strong. And so really benefiting from the diversification of our business, whether across asset class or geography right now.

Interesting. Maybe moving to the commingled business. So here, too, you've seen like a real structural step-up in fundraising over the last several quarters as more of your strategies are continuing to scale. Maybe talk a bit about the near-term fundraising pipeline. I think there was some press, maybe not from you guys, but in the media about some expectations for an upcoming PE fund. What is the next, I don't know, 12, 18 months look like on the commingled side?

Great. Thanks, Ben. Of the $200 billion of assets under management that StepStone looks after, a little over $60 billion of that comes from commingled funds. And to your point, we had a great year in the past 12 months where we raised $10 billion of commitments to our commingled funds, which is a 21% year-over-year growth. So in summary, our commingled funds business has been growing at strong and we've had a lot of first-time funds that have come back -- come to market and had a lot of success as well.

We're currently in market with products across our asset classes, which is what's unique about StepStone, every asset class whether it's venture, private equity, real estate, infrastructure or credit has its own family of commingled funds across the 3 strategies and some combination of secondary investments, co-investments and some fund investments.

Currently, in market within venture capital, we have our flagship global multi-strategy fund. It's off to a strong start. In private equity, we announced earlier that we were in market with our flagship co-investment fund. And more recently, you picked up in the press that we are back in market with our flagship secondaries fund. So excited to have both our co-investment and secondary funds in market for private equity.

In infrastructure, we enjoyed an incredible successful raise with our first time co-investment fund. We are hoping to have a similar success with our debut secondaries fund that we're currently in market with on our infrastructure platform. In private credit, we recently wrapped up our direct lending fund, but we are in market with our opportunistic fund. Real estate, we had a very successful fundraise at our secondaries product in that area as well.

Now within our total commingled funds family, we also have our private wealth products, which I suspect might be of interest to discuss here today, Ben, that's certainly come into focus largely, but we have a handful of very exciting semi-liquid evergreen products, again, across our asset classes.

Got it. So we'll certainly come back and talk about the wealth channel. Maybe one more on the commingled side. So maybe kind of a high-level question, but one of the challenges that asset managers tend to face is scale. Your funds are scaling nicely. You don't seem to be running to this law of large numbers issue. But how do you think about potential fund size given sort of the nature of what you do is kind of different from the traditional private equity drawdown strategies we see from your very, very largest peers. How do you think about the potential of your funds to scale over time? What are the sort of limits to size? How should investors be thinking about that over a very long time period?

I think there are a couple of important points here. I think the first is, I think you made reference to it, Ben, which is the fact that StepStone has not hinged its strategy on a couple of large flagship funds that are $20 billion, $30 billion in size, which frankly are hard to continue to scale and grow. Having a suite of commingled fund families that are modest in size, call it, roughly $2 billion to $6 billion across our asset classes gives us plenty of room to scale.

And frankly, we don't really see a limiting factor to our growth beyond our discipline. I think Scott talks about this every quarter that as an investment partner, we're very disciplined in how we deploy capital. And so we tend to spread out the investment period of our commingled funds to roughly 3 to 5 years. Without naming names, you can look back to the 2019 and 2020 period where GPs would deploy 100% of their capital in 18 months and then come back to market with a bigger fund size. I think that's going to be a harder and harder behavior to succeed with I think our discipline also spreads our capital out over a period of time, gives us plenty of room to grow.

Great. Before we get to the wealth, just a couple of questions on some newer opportunities. A number of your competitors are now partnering to deliver public private products and how do you think about this type of opportunity for StepStone?

Look, I think we're certainly seeing a blurring of the lines between private and public markets, whether it is the demand for investors to be able to access the private markets with increasing amounts of liquidity and daily valuations or daily subscriptions and more transparency into what they're investing in. You're seeing investors demand the ability to evaluate their portfolio at the total portfolio level.

And so as a result, I think we are seeing a blurring of these lines. That has led in a lot of ways to the launch of the semi-liquid vehicles, which, as you mentioned, we'll get into in a bit more detail here. It's leading to private markets being included in model portfolios that we're seeing more of, and it's something that plays into our thinking around some of the strategies that we launch over time here. So certainly a trend that we're mindful of and evaluating. And I think StepStone as a pure-play private markets firm, one that has a multi-manager approach that is able to build very diversified private markets portfolios and a group that is very partnership-oriented, right?

When we think about our mission to be the trusted partner of choice for private market solutions globally, you see that in how we interact with our GPs as partners, with our clients as partners, we've launched a few new partnerships in recent months on the data side. And so I think we are a logical partner for these conversations and are having a number of them. I think at the same time, as a solutions-oriented firm, we often ask ourselves, what is the challenge or the problem that these types of products might provide a solution to. And that's something that I think we and others are still evaluating. But certainly having a number of interesting conversations around the trend today.

Got it. One of the other emerging themes is retirement with the opening up of the 401(k) market. How do you see this shaking out? Is it going to be direct allocations, target date funds? What are your thoughts? And how do you think about how StepStone is positioned to participate there?

We think StepStone is well positioned to participate there for some of the reasons I just mentioned. It's a -- it's an opportunity that we've had people internally focused on for many, many years at this point. It's an opportunity that when you think about the international opportunity and defined contribution plans, whether in Australia, Mexico, Latin America, that we have been an important partner to some of the institutions there as they build out portfolios.

Again, I think all contributes to why we think we are well positioned. Our expectation is that it plays out in the form of more target date funds as opposed to single line items where you're selecting individual managers or funds. And I think in a lot of ways, some of the technology and the structures that have been developed for the wealth business will be relevant here as we think about the retirement market. And so I think for all those reasons, we think we are very well positioned. It is early days here in the U.S., obviously, encouraged by some of the progress that we see, but an opportunity that we think will play out over many years there.

Got it. Well, let's bring it to your wealth business now. This has been a pretty meaningful source of growth, as you mentioned before. Just to high level start it out, what's been going well here?

Yes. I mean the good news is a lot has been going well, and we were proud to announce in our last earnings call that we had just hit a major milestone, having reached $10 billion of AUM and have been encouraged by how much more quickly each incremental $1 billion has come then certainly in the first $1 billion took to raise. But I think when you ask the question about what's going well, it all starts with our again solutions oriented approach.

When we launched this business over 5 years ago now, we first started by spending a lot of time listening to the various different partners in the channel and understanding what was really needed to address this part of the market and understand the challenges that the individual investor faced when allocating to the private markets. I think there were a number of things that we and others could address, whether that was products that had no capital calls that had 1099 instead of K-1 tax reporting, et cetera.

But I think there were also some challenges where StepStone was pretty uniquely positioned. When you think about the individual investor who might not have either the capital or the resources to build out a diversified portfolio on their own, StepStone's ability to provide either single-ticket solution to the private markets, which is what we launched with SPRIM as our debut fund, or the ability to build a diversified portfolio in any of the areas that we have expanded, whether venture and growth, infrastructure, private credit, over time, I think we are uniquely positioned for.

And that's diversification not only across some of the metrics that Mike just talked about being a vintage year, but also underlying portfolio company strategy and by manager. And so with a StepStone product, you're not getting access to a single manager, but a diversified portfolio of very high-quality private markets investments.

Got it. And before we dig into some of the specific products, similar to the SMA discussion earlier, how would you talk -- describe your current distribution footprint? And how much exposure do you have to the wirehouse channel versus RIAs? How much is U.S. versus international and sort of under that umbrella where do you see the most opportunity to expand?

Yes. So today is largely weighted towards the U.S. with the opportunity to expand internationally. I think we were pleasantly surprised at some of the exposure and the success we had in certain international markets out of the gates in places like Latin America. We are now increasing our efforts across Europe, Asia and Australia, in particular, where we leverage not only our existing sort of institutional sales team, but have been adding some dedicated wealth-focused professionals, which is starting to pay off for us.

But if we step back and think about, again, that sort of growth algorithm that we talked about earlier, again, there's been an opportunity to grow with existing partners here. If we think about today, we have something like 550 different distribution partners that we work with, certainly by number, that's going to be heavily weighted towards the RIA channel. But in terms of the dollars being raised, will be more balanced across the wirehouses, the IBDs and the RIAs. But across those 550 different distribution partners of those that we have been working with for over a year, roughly 50% are allocated to more than one product.

And so when you think about the evolution of this strategy when we launched SPRIM, clearly, a lot of time needed to be spent explaining who StepStone was, why we were well positioned to execute on this strategy, how significant of a player we were within the private market and then you convince them why SPRIM was the right product. Today, the sort of why StepStone question is largely answered at least with these existing groups that have grown to know and grow to trust us over time. And it becomes about what is the opportunity in venturing growth in credit, in infrastructure that we're now going after with these new vehicles. And so I think that growth algorithm, adding new clients while also growing with those that have built up that knowledge and trust over time is working quite well in the wealth space.

Got it. You mentioned SPRIM a couple of times. Maybe talk about SPRING a little bit. That one is -- it's smaller, but seeing like very rapid growth. What's going on well there? Is it sort of unique access to differentiated venture exposure? What's going well?

SPRING is certainly a very exciting story for a number of different reasons. I think one, if you think about the individual investors' ability to access the venture and growth strategy historically, was limited to them trying to select individual funds or in some cases like individual venture-backed deals, which we know from being one of the most active venture investors in the industry is a pretty tough challenge. I mean I think a lot of what you're trying to do is build a diversified portfolio, make sure you have exposure to some of the key value drivers across the venture ecosystem, that's very difficult for an individual investor to do.

And so what I think has led to such significant growth in the SPRING product has been it is a very unique product in the marketplace. I think we are one of the few firms that could really execute on this strategy in the way that we do and at this scale, and much of that has been driven by the Greenspring acquisition that we completed back in 2021. And this being a great example of the synergies that have existed, bringing our firms together. This was a product that we at StepStone without the expanded venture capabilities could not have executed on with credibility and Greenspring without our distribution capabilities could not have executed on. I think as we brought that the 2 firms together really created the market leader in the venture and growth space. In addition to SPRING, manage the largest venture secondaries practice or one of the large allocators across venture managers. And those are the things that drive the significant access to deal flow and importantly, to data and information and a network of GPs that allows us to execute this strategy so successfully.

What about on the credit side? You've got CRDEX, SCRED but the competitive landscape for alternative credit products in the wealth channel, it's a lot more mature than it is for others. So how do these products, how do they stand out from the lineup of nontraded BDCs? What StepStone's right to win here?

Look, I think you're right. I mean it is a space that has more competition. When you look at the growth in the wealth business and channel overall, private credit has been the largest growth there. I think what differentiates us here is our multi-manager approach. There, I think you see far fewer competitors in the market. And when you look at the work and the analysis that we have done around the private credit space, not only for our wealth investors, but certainly for our institutional investors as well, is that in an asset class that has capped upside, the importance of diversification, the importance of downside protection becomes that much more important.

And that's diversification, again, not only across vintage year, et cetera, but diversification across manager and underlying portfolio company. And so when we look at our vehicles relative to some of the others out there in the market. I think there's probably less overlap between our fund and others. There's less concentrated positions with the largest positions being sub 1% here. And so a lot of it comes down to this question of diversification, which we think is so important in the private credit space.

Got it. So how do you feel about the current product lineup? Is there any room to add anything else?

We feel great about the current product lineup. But I think there is room for growth, and we are in the process of launching a private equity specific vehicle called [ STEPX ] and there's a couple of reasons for that. I think one of the most important though, kind of comes back to the comment I made earlier around model portfolios. We've oftentimes thought about SPRIM as sort of the private markets model portfolio but as others look to launch model portfolios that may have a different view as to what the exact asset allocation ought to look like, including within the private markets.

We wanted to make sure that we had a pure-play private equity vehicle that we had to offer to the same way that we do venture and growth with SPRING, credit with CRDEX and infrastructure with STRUX. And so I think those are some of the reasons we're seeing very good appetite for and interest in our private equity specific products. So that's next on the list for us.

Maybe just lastly on the P&L. Can you remind us how to think about any financial impact StepStone as the business grows? And how to think about your call option to buy the rest of that business in 2027?

It's a nice way to wrap up the wealth management conversation about what does it mean for our shareholders? And we have a hardwired pre-negotiated agreement with our wealth management team. Just as a reminder, for every dollar of management fee that comes in through the wealth management operation, 50% $0.50 on the dollar goes directly to the house and pretty much drops to the bottom line. So consider that marginal revenue. And that's been a large source of why our margins have been expanding as nicely as they have over the last several years. The remaining $0.50 on the dollar stays with the wealth management operation and is used to cover all of the expenses, compensation, distribution, marketing, back office.

And then what falls out from below all the expenses is what we call a profits interest. And that is really where the economic value is being I would say, is being characterized through the NCI line on our P&L. We have the contractual right to call that profits interest from the wealth management team in July of 2027. They have the right to put that profits interest to the firm in 2026. We think given the rate of which they're growing and the scale of the economics there, that it's more likely to be StepStone calling the profits interest in July of 2027.

The question is at what value, what purchase price will be buying in the profits interest. Well, if you look in our filings, we have that specified as well. There is going to be a discount applied to the after-tax cash earnings of the profits interest. And that discount is applied to the prevailing multiple that StepStone is currently trading at, at the time. So if we just look at that today as we sit here in September of 2025, StepStone is currently trading at 30x. And in the negotiations with the wealth management team, we agreed on a cap of 20x there after-tax earnings. So if the deal were to be struck today, there's 10 turns of accretion between the 20x cap and the 30x trading multiple. So I think that's a -- it's a fair way to say that this is going to be a very highly accretive buy-in of the NCI just on the record date alone, let alone what that accretion might look going forward given the rate of which we continue to see wealth management growing.

Great. Maybe switching gears now. Earlier this year, you announced a partnership with FTSE Russell to develop indices, data analytics products. And just yesterday, you announced a private credit benchmarks partnership launching -- being launched with Kroll. So maybe just to start, talk about why FTSE and Kroll chose StepStone. Why is StepStone potentially advantaged to do something like this?

Sure. We were thrilled to announce back in June, the partnership with FTSE Russell and just yesterday morning, Kroll. I think these announcements really are sending a message to the outside world that StepStone is now starting to unlock its leadership position in the private markets and unlocking the power of the data and technology that we've been accumulating over the last 15 years. FTSE Russell saw the quality of our data, the quality of our access to the private markets and our insights. And they being the market leader of manufacturing and distributing indices what better partnership than the market leader in data and the market leader in index production.

So we're very excited about that partnership, which we'll be announcing, as I mentioned on the last earnings call, the first benchmarking index later this year, probably in the private equity asset class and shortly following that would be infrastructure. I think the reality is there were 3 themes that you and Scott touched on earlier today and that those themes were innovation, the right to win and the blurred lines between the public and the private markets. We think that StepStone and FTSE Russell and Kroll will be innovating market-leading probably the industry standards when it comes to benchmarking performance of the private markets portfolios.

The blurring lines of the public and the private markets is becoming more and more into focus. Many of our clients are asking themselves, we have these liquid securities, we have these illiquid securities. How do I really measure the total performance of the portfolio and we believe that the benchmarking indices that we're creating with both Kroll and FTSE Russell will provide our clients with a solution even looking for a very long time. And we think that may just lead to further allocations to the private markets, given the increasing confidence and transparency into the underlying performance of the private markets.

Thinking longer term, what really excites us about the partnership with FTSE Russell and Kroll is the potential opportunity to take StepStone's asset management capabilities and start building out potential products that are asset management related that track these indices as they get deployed over the coming years.

You kind of got it what I was about to ask next, which is how do you think about product creation, what products you're going to be launching? Maybe just in terms of the index products that are going to be launched, who's the end consumer? What does the financial model look like? How do you go to market? And how do we think about what the financial opportunity looks like for StepStone. I assume this is the kind of thing like your wealth business years ago, it takes time to evolve and then starts to ramp, but how do you think about all those pieces?

Did you mean to get ahead of either, Ben?

I bet no worries.

You can see, Scott, I get pretty excited about this topic. It's going to be a walk before you run approach, much the way wealth management was as well. The rollout of the initial set of indices will happen later this year. And you can expect over the coming years, there'll be some number of StepStone, FTSE Russell branded indices across the private markets. And we think that the FTSE Russell and London Stock Exchange Group, broadly speaking, has a distribution -- installed distribution capability that StepStone just doesn't have with their clients. And Stepstone has its installed client base that FTSE Russell doesn't have.

And so really, it's about taking advantage of our distribution capabilities on both platforms to roll out and build up the adoption rate of these indices as I mentioned, we'll start with private equity. And then you can imagine within private equity, there could be large cap, small cap, mid-cap, you can imagine some geographically specific indices, whether it's European or whether it's North American. And then you might find sectors because our benchmarking capabilities go down to the deal level. They are not at the fund level, which is where you'll find other benchmark services available to the industry stop at the fund level and there are a quarter lag. So they're stale.

StepStone's FTSE Russell benchmarking indices will be a daily mark based on granular details at the deal level, which will give us the capability to manufacture a sector-specific index if we wanted to. It could be health care, it could be technology, it could be industrials, it could be energy, something along those lines.

And then I think once we have the private equity indices in process of being rolled out, we'll then follow that with infrastructure. And then following infrastructure, you might see something in one of the other asset classes as well, certainly, credit with Kroll. While that's a benchmarking solution, there's nothing prohibiting StepStone FTSE Russell from creating an index, specifically for private credit. And so we could expect to see that comment come as well. So much like private wealth, we have the [ scope works ], if you will, product proliferation and development that will be in partnership with these two organizations.

Great. Maybe just kind of thinking high level about StepStone, a lot of kind of -- a lot of different priorities, SMA, commingled funds, wealth. In terms of just investing in capital allocation, what are your top priorities at the moment? Where are you hiring? Where are you investing? I think some obvious spots, but what else is sort of top of mind for you as you think about other growth initiatives?

This has certainly been one of them on the data and technology side. And I think one of the things that in addition to what Mike said, that gets me excited, particularly in the very near term is just sort of the credibility and the validation that it lands. I think oftentimes, we even find this with our investors and clients when we're talking to them about the power of our data until you see it at work until you have access to our SPI database and see the power of that data information, it's hard to get that across. And so I think the validation that these partnerships provide or something that has us very excited, but data and technology has certainly been one area for investment.

The second one I would point to has been the build-out of our global business development team. And we've talked publicly about the fact that we brought on a Head of Global Business Development about 2 years ago. One of the things he was passed with early on was continuing to build out our global business development team. We feel very confident that once we are in the room, certainly once we are working with a client, our ability to bring our partnership-oriented approach to bear our ability to generate strong returns to offer a strong data and technology solution will allow us to build their trust and expand the relationship over time.

We've got to make sure that we're getting in the door in the first place, particularly in certain markets where we had maybe been underrepresented from a sales and business development standpoint. So proud to say that, that much of that work is now behind us, and we're starting to see the fruits of some of that labor. But that would be the other area I'd point to. It's just been the build-out of our global business development team.

And then maybe lastly, real quick, any thoughts on M&A. Clearly, it's been with the wealth business with some of your other infrastructure real asset -- real estate has been successful in the past. How are you thinking about where it might make sense to allocate capital that way?

StepStone has had a very successful track record in using mergers and acquisitions to build out its platform, whether it's real estate, infrastructure, credit and wealth management. And of course, Scott mentioned earlier, the impact the Greenspring acquisition had on our venture capital and total private equity program. The firm has purpose-built its platform to create this embedded M&A activity over the next 3, 5, 10 years by virtue of the agreements that we've established with our asset class heads to buy in the noncontrolling interests of each private credit, infrastructure and real estate and what I just mentioned a minute ago, is the embedded call option that we have on buying in the private wealth channel.

So we have an embedded M&A activity already underway that I think will be our top priority as it relates to capital allocation over the coming years. But to say there aren't opportunities out there that could come to us, that could augment, enhance or accelerate something we're currently doing. I think we've had a lot of success in bringing on senior teams and integrating them.

Great. Well, we're out of time there. We'll have to leave it. But gentlemen, thanks so much for being here.

Always a pleasure. Thank you.

Thanks, Ben.