Executive Summary / Key Takeaways

• Diversified Platform Fuels Resilient Growth: StepStone Group (STEP) leverages a globally diversified platform across private equity, infrastructure, private debt, and real estate, enabling consistent fee-earning AUM growth and record fee-related earnings despite broader industry headwinds.
• Proprietary Technology as a Core Moat: The firm's advanced data and technology platforms, including SPI Research and SPI Reporting, provide a critical information advantage, enhancing investment decisions, client solutions, and operational efficiency, thereby strengthening its competitive position.
• Private Wealth as a High-Growth Catalyst: StepStone Private Wealth is rapidly scaling, with AUM exceeding $10 billion, driven by differentiated evergreen products, expanding distribution, and the strategic use of ticker-eligible funds, significantly boosting firm-wide revenue and operating leverage.
• Strategic Capital Allocation for Accretion: Ongoing non-controlling interest (NCI) buy-ins in key asset classes are structured to be accretive to earnings, simplifying the ownership model and enhancing shareholder value without integration risk.
• Optimistic Outlook with Measured Realizations: While macroeconomic volatility persists, StepStone anticipates continued fundraising momentum and an eventual pickup in realizations, supported by a maturing accrued carry balance and a robust undeployed fee-earning capital pipeline, signaling future performance fee growth and increased shareholder distributions.

The Enduring Power of Private Markets: StepStone's Differentiated Approach

StepStone Group Inc. (STEP) stands as a global private markets investment firm, strategically positioned to offer customized investment solutions, advisory, and data services across the full spectrum of private equity, infrastructure, private debt, and real estate. Since its founding in 2007, StepStone has cultivated a business model designed for resilience and growth, emphasizing diversification across asset classes, investment strategies (primaries, secondaries, co-investments), and global geographies. This foundational strategy has allowed the firm to consistently capture a meaningful portion of the private markets' historical outperformance, even through periods of significant public market volatility.

The firm operates from 29 cities across 17 countries, employing a local staffing model that provides valuable regional insights and language proficiency. This global footprint, coupled with its multi-asset class expertise, is critical to securing a competitive edge. StepStone's client base is broad, ranging from large public and private pension funds and sovereign wealth funds to prominent endowments, foundations, family offices, and a rapidly expanding segment of high-net-worth and mass affluent individuals.

In the competitive landscape of alternative asset management, StepStone operates as a specialized contender amidst giants like Blackstone Inc. (BX), KKR & Co. Inc. (KKR), Carlyle Group Inc. (CG), and Apollo Global Management Inc. (APO). While these larger peers boast broader diversification and immense scale, StepStone differentiates itself through its agility and deep expertise in niche areas, particularly in fund-of-funds and secondary investments, and its strategic focus on emerging markets. This allows StepStone to effectively compete by offering tailored solutions and exploiting less saturated market segments. For instance, in the secondaries market, StepStone's offerings can provide greater efficiency in deal sourcing for mid-market opportunities, contrasting with the broader, often larger-scale transactions pursued by some rivals.

Technological Moats and Data-Driven Advantage

A cornerstone of StepStone's competitive differentiation is its significant investment in proprietary data and technology platforms. These aren't merely support functions; they are deeply entrenched in every aspect of the business, forming a critical moat.

The firm's core technology, embodied in StepStone Private Markets Intelligence (SPI) Research and SPI Reporting, provides tangible and quantifiable benefits. SPI Research informs investment and underwriting decisions across primaries, co-investments, and secondary investments, enabling superior due diligence and risk assessment. SPI Reporting offers clients tailored reporting packages, customized performance benchmarks, and robust compliance, administrative, and tax capabilities. As of June 30, 2025, SPI Reporting provided analytics on over $789 billion of client commitments, demonstrating its extensive reach and utility. This technological infrastructure acts as the "engine behind cash flow pacing and valuation," a crucial enabler for its rapidly expanding private wealth platform.

Beyond internal applications, StepStone actively leverages its data and technology to enhance its brand and market positioning. Insights from SPI have been featured in prominent annual industry reports, showcasing its benchmarking capabilities and data sets. Recent strategic initiatives further underscore this commitment: in July 2025, StepStone began utilizing Goji's technology to improve access and simplify the investor journey for several of its European private market evergreen funds. This move aims to streamline the complex onboarding process for investors, a direct benefit that enhances client experience and broadens market access.

For investors, this technological differentiation translates into several advantages. It contributes to StepStone's competitive moat by providing superior insights and operational efficiency, which can lead to better investment performance and client retention. The ability to offer customized, data-rich solutions supports higher client satisfaction and potentially stronger pricing power in certain segments. Moreover, the continuous investment in and leveraging of technology underpins StepStone's long-term growth strategy, enabling it to scale its offerings and penetrate new markets more effectively than less technologically advanced competitors.

A History of Strategic Evolution and Growth

StepStone's journey from its 2007 founding to its current stature as a publicly traded entity (following its 2020 IPO) is marked by strategic expansion and adaptation. Early global ventures included working with defined contribution plans internationally and establishing a Seoul office by 2014. A pivotal moment arrived in September 2021 with the acquisition of Greenspring Associates, Inc., which dramatically scaled its venture capital capabilities, more than doubling its venture capital fee-earning AUM since the acquisition's announcement. This strategic move proved prescient, as the venture capital team exceeded revenue targets for the Greenspring earn-out, a testament to its robust track record even amidst a challenging technology sector downturn from 2022-2023.

Concurrently, the launch of SPRIM, its first retail-focused evergreen fund, initiated the rapid ascent of its private wealth platform. This platform has since expanded with new evergreen funds like STRUX (infrastructure) and CredX (private credit), alongside its multi-strategy growth equity fund and the record-breaking $3.77 billion real estate secondaries fund. These initiatives highlight StepStone's commitment to product diversification and accessing new pools of capital.

Financial Performance: Records Amidst Volatility

StepStone's recent financial performance underscores the effectiveness of its diversified strategy and operational leverage. For the first quarter of fiscal year 2026 (ended June 30, 2025), total revenues surged 95% year-over-year to $364.3 million. This impressive growth was primarily driven by a significant increase in carried interest allocations and higher management and advisory fees. Management and advisory fees alone rose 19% year-over-year to $211.2 million, propelled by a 28% growth in average Fee-Earning Assets Under Management (FEAUM).

While incentive fees saw a decrease, performance fees overall were robust, with carried interest allocations reaching $113.3 million (up from $16.6 million in Q1 FY25), largely due to net unrealized appreciation in private equity funds. Investment income also saw a substantial increase of 305% to $10.5 million, reflecting positive valuation changes in underlying StepStone Funds.

However, profitability was impacted by a significant rise in expenses, with total expenses increasing 204% to $423.3 million. This was predominantly due to an 884% surge in equity-based compensation, primarily linked to liability-classified awards for the StepStone Private Wealth (SPW) profits interest. Management anticipates further increases in this expense as SPW's profitability grows. The firm reported a GAAP net loss attributable to StepStone Group Inc. of -$38.42 million for the quarter, largely a function of this non-cash accounting impact.

Despite the GAAP loss, StepStone's non-GAAP metrics highlight strong underlying operational performance. Fee-Related Earnings (FRE) for Q1 FY26 were $81.2 million, contributing to an Adjusted Net Income (ANI) of $48.5 million, or $0.40 per share. The core FRE margin (excluding retroactive fees and one-time advisory fees) reached 40% in Q4 FY25 and 37% for the trailing twelve months, marking record levels. Management views this 37% core margin as a "fair expectation as a starting point" for fiscal 2026, with a long-term trajectory for further expansion driven by operating leverage, even with planned investments in headcount and G&A.

As of June 30, 2025, StepStone managed $199 billion in AUM and $524 billion in AUA. Its FEAUM stood at $127.2 billion, up $5.8 billion from the prior quarter. The firm also boasts a record $28.7 billion in Undeployed Fee-Earning Capital (UFEC), providing a clear line of sight for future management fee growth. Liquidity remains sound, with $192 million in cash and equivalents (excluding consolidated funds) and $1.79 billion in investments, against $269.6 million in net debt obligations. The firm remains in compliance with all debt covenants.

Strategic Initiatives and Forward Outlook

StepStone's strategic roadmap is built on several pillars designed to sustain its growth trajectory and enhance shareholder value.

Private Wealth Expansion: The private wealth platform is a standout growth engine, with AUM surging from $3.4 billion at the end of fiscal 2024 to over $10.2 billion by July 31, 2025. This remarkable growth is fueled by new product launches like CredX, an expansion of its distribution network from approximately 300 to nearly 500 platforms, and the increasing adoption of ticker-eligible funds, which account for nearly 80% of eligible sales. The firm sees significant "white space" for growth in the European private wealth market and continues to innovate its product suite, aiming for differentiated multi-manager solutions.

NCI Buy-ins for Simplified Ownership: StepStone is systematically buying in the non-controlling interests (NCI) of its infrastructure, private debt, and real estate businesses. The second annual exchange, completed in May 2025, involved $10 million in cash and $161 million in equity (3.2 million shares). These transactions are "hardwired to be accretive to earnings," executed at a discount to StepStone's public market multiple, and are expected to lead to a simpler ownership model while providing positive earnings accretion without integration risk. This strategy will gradually taper off the NCI trajectory, increasing StepStone's bottom-line contribution.

Fundraising Momentum and Deployment: The firm's fundraising pipeline remains robust, particularly for separately managed accounts (SMAs), which maintain a re-up rate above 90% and average 30% growth upon re-up. Commingled funds are also seeing strong demand, with the real estate secondaries fund closing at a record $3.75 billion and the debut infrastructure co-investment fund exceeding $1 billion. The $20 billion portion of UFEC (excluding activated capital) is expected to be deployed over a three-to-five-year period, providing consistent fee-earning AUM conversion.

Realizations and Shareholder Returns: While the pace of realizations has been muted industry-wide, StepStone is seeing a slow but steady improvement. The firm's net accrued carry, at $738 million in Q4 FY25, is "relatively mature," with 75% tied to programs older than five years, indicating they are "ready to harvest." Management expects liquidity to "trend up in the coming periods as full-scale M&A and IPOs come back into the market," though the path may not be linear. This anticipated pickup in performance fees is crucial for the supplemental dividend, which is expected to increase from its "cyclical low" as market activity normalizes. The base quarterly dividend of $0.28 per share for Q1 FY26 reflects confidence in recurring fee-related earnings.

Risks and Challenges

Despite its strong positioning, StepStone faces several risks. Macroeconomic volatility, including elevated inflation, interest rate fluctuations, and geopolitical tensions, could impact financial markets and client sentiment. This environment can lead to slowdowns in fundraising and capital deployment, potentially delaying or decreasing management and performance fees. The protracted period of muted realizations, while showing signs of improvement, could continue to constrain liquidity for some LPs, affecting their ability to commit new capital.

The firm's reliance on performance fees, which are inherently volatile and subject to market conditions and hurdle rates, introduces earnings variability. The maximum contingent repayment for carried interest allocations (excluding legacy Greenspring) was an estimated $367.1 million net of tax as of June 30, 2025, highlighting a potential clawback risk, though the company views a zero-fair-value scenario as remote. Furthermore, increased competition in the private wealth space, while currently benefiting StepStone due to market expansion, could intensify, potentially pressing fee rates or market share in the long term.

Conclusion

StepStone Group's journey from its inception to its current position as a leading global private markets solutions provider is a testament to its strategic foresight and operational excellence. The firm's diversified platform, robust fundraising capabilities, and a powerful technological backbone, epitomized by its SPI platforms, provide a compelling investment thesis. These differentiators enable StepStone to thrive in a complex and evolving private markets landscape, consistently delivering value to its clients and shareholders.

With record fee-related earnings, expanding margins, and the explosive growth of its private wealth segment, StepStone is demonstrating strong operating leverage. The strategic NCI buy-ins further streamline its structure and promise accretive returns. While macroeconomic headwinds and realization timing present ongoing challenges, StepStone's proven ability to capitalize on market dislocations, coupled with its clear guidance for continued growth and shareholder distributions, positions it as a resilient and attractive investment. The firm's commitment to leveraging its information advantage and expanding its global footprint ensures it is well-equipped to capture future opportunities and solidify its enduring edge in the private markets.