Executive Summary / Key Takeaways

• StepStone Group (NASDAQ:STEP) is a global private markets solutions provider leveraging a diversified, multi-asset class platform and proprietary technology to deliver customized investment and advisory services to a blue-chip client base.
• The company demonstrated robust financial performance in fiscal year 2025, achieving record fee-related earnings (FRE) and FRE margins, driven by strong fee-earning AUM growth (+29% organically in FY25) and strategic investments, including significant expansion in the private wealth channel.
• StepStone's proprietary SPI by StepStone technology platform, encompassing extensive data on managers, funds, companies, and investments, provides a significant information advantage, enhancing investment decisions, operational efficiency, and client service, forming a key competitive moat.
• Strategic initiatives, such as the accretive buy-in of non-controlling interests in core asset class businesses and the rapid scaling of the private wealth platform, are expected to drive future earnings growth and simplify the ownership structure.
• While market volatility and realization timing present potential headwinds, StepStone's diversified model, strong pipeline of undeployed fee-earning capital ($24.6 billion as of March 31, 2025), and focus on resilient strategies position it for continued growth and potential upside from performance fees as market conditions normalize.

The Architect of Private Markets Access

StepStone Group was founded in 2007 with a vision to build an integrated, full-service private markets firm centered on deep research and customized solutions. This foundational principle has guided its evolution into a global provider spanning private equity, infrastructure, private debt, and real estate. Unlike traditional fund-of-funds or pure advisory models, StepStone sought to offer a comprehensive suite of services, from primary fund commitments and secondary acquisitions to co-investments and sophisticated advisory and data analytics. This multi-faceted approach, coupled with a deliberate strategy of establishing a global footprint with strong local teams, has positioned StepStone as a trusted partner for some of the world's largest and most sophisticated investors.

The company's history is marked by strategic expansions, including the acquisition of Courtland Partners in 2018 to bolster real assets capabilities and the significant Greenspring Associates acquisition in 2021, which rapidly scaled its venture capital business. These moves, alongside organic growth and the development of its private wealth platform, underscore a commitment to building a diversified and resilient business capable of serving a broad spectrum of client needs across market cycles.

The Power of Proprietary Technology: SPI by StepStone

At the core of StepStone's operational and investment advantage lies its proprietary technology platform, SPI by StepStone. This integrated suite of tools is far more than just reporting software; it is a central nervous system for the firm's private markets intelligence and execution.

SPI Research, a key component, serves as a vast database and investment decision-making tool. As of March 31, 2025, it contained detailed information on approximately 18,000 fund managers, 49,000 funds, 122,000 companies, and 273,000 investments. This extensive, curated dataset provides StepStone's investment professionals with an unparalleled view of the private markets landscape, enabling more informed sourcing, due diligence, and portfolio construction decisions. The sheer volume and depth of this data offer a significant information advantage over firms relying on less comprehensive or disparate sources.

Complementing SPI Reporting, the firm's performance monitoring software, is critical for providing transparency, monitoring portfolio risk, and supporting the StepStone Portfolio Analytics Reporting (SPAR) team in delivering value-added services. Its capabilities enhance client experience and facilitate efficient portfolio management.

Beyond these core platforms, StepStone has developed additional proprietary tools, such as a daily valuation engine crucial for products offering periodic liquidity (like those in the private wealth channel) and a secondary pricing engine that drives operating leverage in evaluating complex transactions.

The "so what" for investors is clear: StepStone's investment in and reliance on its proprietary technology creates a tangible competitive moat. This technology enhances the firm's ability to source attractive opportunities, perform rigorous due diligence, manage complex portfolios efficiently, and provide superior reporting and analytics to clients. This operational and informational edge contributes directly to the firm's ability to generate strong investment performance for clients and drive operating leverage, ultimately supporting profitability and long-term growth. While specific, quantifiable benefits like percentage cost reductions or yield improvements directly attributable solely to the technology are not detailed, the scale of the data captured and the integration of the tools into core processes strongly indicate enhanced efficiency and decision-making quality compared to less technologically advanced peers.

A Diversified Business Model Driving Growth

StepStone's business model is built on flexibility and diversification across commercial structures and asset classes. The firm generates revenue primarily through management and advisory fees and performance fees from its Separately Managed Accounts (SMAs), Focused Commingled Funds, and Advisory and Data Services.

SMAs, representing $115 billion of AUM as of March 31, 2025, cater to large institutional clients seeking highly customized portfolios. The firm boasts a high re-up rate of over 90% for these accounts, which on average grow by approximately 30% upon renewal. This sticky client base provides a stable foundation for fee revenue.

Focused Commingled Funds, with $59 billion of AUM, allow multiple clients to invest in specific strategies or asset classes. Recent success in this area, including closing three funds over $3 billion in FY25 and the largest real estate secondaries fund ever raised ($3.77 billion), highlights the firm's ability to attract significant capital even in challenging fundraising environments.

Advisory and Data Services, encompassing $520 billion of AUA and $15 billion of AUM, provide recurring and project-based support, leveraging the firm's research and data capabilities. The high advisory client retention rate (~95%) underscores the value clients place on these services.

A key strategic growth driver is the Private Wealth platform, which more than doubled its assets in FY25 to over $8 billion. This initiative aims to bring institutional-quality private markets access to high-net-worth and mass affluent investors through innovative structures like evergreen funds (SPRIM, SPRING, STRUX, CredX). The platform's rapid growth, fueled by expanding distribution networks (nearly 500 platforms by Q4 FY25) and strong product reception (nearly 80% of eligible sales via ticker in Q4 FY25), is contributing meaningfully to AUM and driving operating leverage for the firm.

Competitive Positioning in a Crowded Arena

The private markets landscape is intensely competitive, populated by a diverse set of players ranging from large, diversified asset managers like KKR (KKR) to specialized firms focusing on specific strategies or sectors, such as General Atlantic (growth equity), Advent International (buyouts), and Silver Lake (technology). Competition is based on investment performance, service quality, brand reputation, global reach, and increasingly, technological capabilities.

StepStone positions itself as a global, multi-asset class solutions provider with a differentiated focus on secondaries and a robust data advantage. While larger firms like KKR possess greater scale and broader platforms across public and private markets, StepStone's specialized expertise in secondaries offers a distinct advantage in providing liquidity solutions, a critical need in the current market environment. Its global network, spanning 28 offices, allows for deep local insights and sourcing capabilities that can rival or exceed the reach of some peers in specific regions, particularly in emerging markets.

Compared to sector-focused firms like Silver Lake (tech) or General Atlantic (growth equity/tech/healthcare), StepStone offers broader diversification across asset classes, potentially providing greater portfolio stability for clients. However, these specialized firms may possess deeper sector-specific operational expertise or faster deal execution in their core areas. StepStone's proprietary technology, particularly its extensive data on fund managers and investments, provides an information moat that enhances its ability to identify opportunities and perform due diligence, potentially giving it an edge in manager selection and secondary deal sourcing compared to firms with less developed data infrastructure.

The competitive dynamics are also influenced by client trends, such as the desire among larger institutional investors to consolidate relationships with fewer managers. StepStone's multi-asset class capabilities and full-service approach are well-aligned with this trend, positioning it favorably to capture larger, more comprehensive mandates. In the burgeoning private wealth space, the competitive landscape is rapidly evolving with new product launches. StepStone aims to differentiate its evergreen funds through unique structures (e.g., all-private markets, multi-manager approaches) and the strategic advantage of ticker-eligible access, which has proven popular with distribution partners.

While direct, precise quantitative comparisons of operational efficiency or market share across all niche strategies are challenging to ascertain publicly, StepStone's consistent organic growth, expanding margins (even excluding retro fees), and successful fundraising in key areas like secondaries and private wealth suggest it is effectively competing and gaining market share in its chosen segments. Its strategic buy-in of non-controlling interests in core asset class businesses is also a form of internal M&A designed to be accretive and simplify the ownership structure, a strategic move not available to all competitors.

Financial Strength and Performance Trajectory

StepStone concluded fiscal year 2025 with strong financial momentum, demonstrating the resilience and operating leverage inherent in its model. Total revenues for FY25 reached $1.17 billion, a significant increase from $711.6 million in FY24, driven by robust growth in management and advisory fees, as well as a recovery in performance fees.

Management and advisory fees, net, increased by 31% to $767 million in FY25, primarily due to new client activity and a 23% increase in average fee-earning AUM. This growth was broad-based across SMAs and focused commingled funds, with a positive mix shift towards higher-fee private wealth offerings contributing to a higher blended management fee rate (0.65% in FY25 vs. 0.59% in FY24). Retroactive fees from fund closings also provided a boost, totaling $42.8 million in FY25 compared to $11.6 million in FY24.

Performance fees saw a substantial increase, totaling $407.8 million in FY25 compared to $126.5 million in FY24. This included $159.7 million in realized carried interest allocations (up 223% from FY24) and $32.3 million in incentive fees (up 27%). Unrealized carried interest allocations also saw a significant increase, reflecting a higher net increase in cumulative gains in underlying private equity funds. Legacy Greenspring carried interest allocations also turned positive in FY25 ($74.3 million) compared to a reversal in FY24 ($75.2 million), driven by appreciation in underlying fund valuations.

This top-line growth translated into record profitability. Fee-related earnings (FRE) increased by 64% to $312.2 million in FY25, with the FRE margin expanding to 40% (excluding retroactive fees) for the trailing twelve months, the highest core margin level on record. This margin expansion demonstrates the operating leverage achieved as revenue growth outpaced the increase in adjusted expenses, even as the firm continued to invest in headcount (+8% average headcount in FY25) and infrastructure.

The GAAP net loss of $179.6 million in FY25 was significantly impacted by non-cash items, particularly a $629 million increase in expenses for liability classified awards related to the SPW profits interest, reflecting the increased fair value based on the platform's strong performance expectations. However, adjusted net income (ANI), which excludes such non-cash items and reflects realized earnings, increased by 75% to $244.1 million in FY25, resulting in ANI per share of $2.05.

Liquidity remains sound, with $245.3 million in cash, cash equivalents, and restricted cash (excluding Consolidated Funds) as of March 31, 2025. The firm manages its liquidity through operating cash flows, investment realizations, and access to its revolving credit facility ($100 million outstanding as of March 31, 2025) and recently issued senior notes ($175 million outstanding). Compliance with debt covenants was maintained. The substantial balance of accrued carried interest allocations ($1495.7 million as of March 31, 2025) represents potential future cash inflows from performance fees, though timing is variable. The majority of this accrued carry (75%) is from older vintages (2019 or prior), suggesting these programs are maturing towards harvest.

Outlook and Strategic Momentum

StepStone enters fiscal year 2026 with strong momentum and a positive outlook, underpinned by a robust pipeline and strategic initiatives designed to enhance future earnings and operational efficiency. Management anticipates continued strong fundraising, driven by ongoing commingled fundraises (including the next vintages of the PE co-investment and multi-strategy global venture capital funds, and the PE secondaries fund preparing to return to market), a healthy pipeline of new and existing SMA clients, and sustained acceleration in the private wealth channel.

The record $24.6 billion in undeployed fee-earning capital as of March 31, 2025, provides significant visibility for future management fee growth as this capital is deployed or activated. Management expects to deploy this capital over a typical three-to-five-year period.

Profitability is expected to continue its upward trend. Management views the recent core FRE margin (37% for LTM FY25) as a solid starting point and anticipates further margin improvement over time, driven by operating leverage from increasing scale. While acknowledging potential quarterly variability due to factors like retroactive fees and expense timing (e.g., increased compensation in Q1 FY26 due to merit increases), the long-term trajectory for margins remains positive.

A key strategic driver is the ongoing buy-in of non-controlling interests (NCI) in the infrastructure, private debt, and real estate businesses. The second annual exchange is expected on or about May 31, 2025, following the first exchange effective April 1, 2024. These transactions are hardwired to be accretive, purchasing earnings at a discount to StepStone's public multiple, which is expected to enhance future earnings per share and simplify the ownership structure over time.

The private wealth platform is poised for continued rapid growth, fueled by the expansion of distribution networks and the launch of new products like the CredX private credit fund and the European ELTIF. The success of ticker-eligible funds is expected to further facilitate access and growth in this channel. Management expects seasonal incentive fees from the Spring fund in Q3 FY26 to be larger than the prior year, reflecting the platform's growth.

Regarding capital return, the board declared a quarterly dividend of $0.24 and a supplemental dividend of $0.40 for Q4 FY25, bringing the total FY25 dividend to $1.36 per share, up 37% year-over-year. Management intends to grow the base dividend in line with FRE and expects future supplemental dividends to increase as market activity normalizes and realized performance fees improve.

Risks and Considerations

Despite the positive momentum, StepStone faces several pertinent risks. Market volatility and economic uncertainty could impact asset valuations, affecting unrealized performance fees and potentially delaying realizations, which are crucial for converting accrued carry into cash and supporting supplemental dividends. While the pace of realizations has shown signs of recovery, it remains below historical averages, and the timing of a widespread pickup is difficult to predict.

Competition across all segments remains intense, potentially pressuring fee structures or access to attractive investment opportunities. The ability to maintain relationships with top-tier fund managers and continue sourcing differentiated deals is critical.

Regulatory changes, both in the U.S. and internationally, particularly concerning private markets, fees, conflicts of interest, and emerging areas like AI and sustainability, could increase compliance costs and complexity. The potential for anti-ESG sentiment in the U.S. or divergent global sustainability regulations could also impact fundraising or investment strategies.

Key person risk is relevant, as the loss of senior leadership could impact client relationships and trigger fund termination clauses. While the NCI buy-ins aim to align interests, the potential future cash payment for the SPW profits interest represents a significant future obligation.

The subjective nature of valuing illiquid private market investments introduces uncertainty, and actual realizations could differ materially from reported fair values, impacting performance fees and potentially triggering clawback obligations (though no material clawback liability was accrued as of March 31, 2025).

Conclusion

StepStone Group has demonstrated significant strength and resilience, culminating in a record-breaking fiscal year 2025. The company's core investment thesis, centered on providing customized private markets solutions powered by a global platform and differentiated technology, is clearly resonating with investors. The proprietary SPI by StepStone platform provides a crucial information and operational advantage, enhancing the firm's ability to source, evaluate, and manage investments across asset classes.

Looking ahead, the strategic focus on expanding the high-growth private wealth channel and executing accretive NCI buy-ins positions StepStone for continued earnings growth and increased operational efficiency. While macroeconomic uncertainty and the timing of a full recovery in private market realizations remain factors to monitor, the firm's robust pipeline of undeployed fee-earning capital, diversified business model, and commitment to returning capital via dividends provide a compelling narrative for investors seeking exposure to the private markets. The ability to navigate competitive pressures and capitalize on opportunities in areas like secondaries and private wealth, leveraging its established brand and technological edge, will be key to sustaining its growth trajectory and realizing the full potential of its platform.