StepStone Group Inc. (STEP) Q2 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call highlights strong financial performance, with significant growth in adjusted net income and fee revenues. The introduction of STPEX and expansion in institutional fundraising are positive indicators. Despite concerns about increased G&A expenses, the partnership with Aviva and international expansion present growth opportunities. The Q&A reveals some uncertainties, but overall sentiment remains positive. Given the company's market cap, the stock price is likely to experience a moderate positive movement.
Key Financial Performance
GAAP Net Loss $366 million or $4.66 per share for Q2 2026. This loss was significantly larger than prior periods due to the progress of the Private Wealth platform.
Fee-Related Earnings (FRE) $79 million, up 9% year-over-year. Core FRE was $78 million, up 34% year-over-year, driven by retroactive fees and higher core fee-related earnings.
FRE Margin 36%, consistent year-over-year.
Adjusted Net Income $66.7 million or $0.54 per share, up from $53.6 million or $0.45 per share in the prior year, driven by higher performance-related and core fee-related earnings.
Private Wealth Subscriptions $2.4 billion in new subscriptions, nearly double the previous highest quarter, driven by growth in existing products, the launch of STPEX, and international expansion.
Institutional Fundraising $3.8 billion in managed account gross additions and $3.4 billion in commingled fund gross additions for the quarter, contributing to $10 billion in managed account inflows for the first half of the fiscal year.
Fee-Earning AUM Increased by $5.5 billion in the quarter to nearly $133 billion, translating to growing earnings power.
Gross AUM Additions $29 billion over the last 12 months, including $18 billion from separately managed accounts and $11 billion from commingled funds.
Fee Revenues $217 million, up 17% year-over-year. Excluding retroactive fees, fee revenues grew by 27% year-over-year.
Adjusted Cash-Based Compensation $100 million, representing a cash compensation ratio of 46%, consistent with expectations.
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Operating Highlights
SPRING Fund: Generated over $800 million in new subscriptions, showcasing its growing popularity.
STPEX Fund: Launched as a private equity interval fund with daily subscription capability, achieving over $700 million in gross subscriptions within the first 30 days.
International Expansion: Opened new offices in the Netherlands, Spain, South Korea, and Saudi Arabia, strengthening presence in Europe, Asia, and the Middle East.
Partnership with Aviva: Selected as one of five specialist managers for Aviva's U.K. trust-based pension scheme, enhancing reputation in private markets for retirement savings.
Fee-earning AUM Growth: Increased by $5.5 billion in the quarter, reaching nearly $133 billion, with a 20% annual organic growth rate since fiscal 2021.
Data and Technology Enhancements: Launched Kroll StepStone Private Credit benchmarks and FTSE StepStone Global Private Market Indices, providing advanced analytics and daily index performance.
Client Retention and Growth: Achieved a re-up rate above 90%, with re-uped accounts growing nearly 30% on average in successive vintages.
Fundraising Momentum: Generated $29 billion in gross AUM additions over the last 12 months, driven by strong client relationships and customized solutions.
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Risk or Challenges
GAAP Net Loss: The company reported a GAAP net loss of $366 million, significantly larger than prior periods, driven by the change in fair value of the buy-in of the StepStone Private Wealth profits interest. This could impact financial stability and investor confidence.
Retroactive Fees: Retroactive fees contributed only $0.3 million to revenue this quarter, a significant drop from $14.9 million in the prior year quarter. This decline could affect revenue consistency and financial performance.
Low Distributions in Private Markets: Private market distributions have been low for three consecutive years, shifting client focus from IRR to DPI. This could lead to fundraising declines and impact client sentiment and investment inflows.
Fee Revenue Growth Moderation: Fee revenue growth was driven by fee-earning AUM, but the blended management fee rate declined slightly from 65 to 63 basis points. This moderation could affect revenue growth rates.
Advisory Fees Decline: Advisory fees dropped to $16 million from $20 million in prior quarters, reflecting a normalization that could impact near-term revenue.
Geopolitical and Market Challenges: Geopolitical and market challenges, including slower exits and fundraising declines, could impact the company's ability to maintain its growth trajectory.
Increased Operating Expenses: General and administrative expenses increased to $34 million, driven by higher travel, IT, and other operating costs. This rise in expenses could pressure margins.
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Guidance & Outlook
Private Wealth Platform Growth: The company expects the newly launched STPEX private equity interval fund to become a significant source of private wealth inflows, despite an anticipated moderation in subscriptions after the initial surge. Additionally, the company is accelerating international expansion, with a focus on building syndicates, establishing track records for international funds, and growing the StepStone brand globally.
Institutional Fundraising: The company anticipates continued momentum in institutional fundraising, with a healthy mix of new mandates and growth in existing mandates. Over one-third of managed account inflows are expected to come from new and expanded relationships, which are projected to contribute to future growth as these clients re-up.
Fee-Earning AUM Growth: Fee-earning assets under management (AUM) are projected to continue growing, supported by strong fundraising momentum. The company reported an annualized growth rate of 18% in fee-earning AUM for the quarter and expects this trend to persist.
New Fund Launches: The company is in the market with a PE secondaries fund and a debut GP-led PE secondaries fund, with first closes expected by the end of the fiscal year. The combination of these funds is anticipated to exceed the prior vintage size of $4.8 billion.
Private Market Trends: The company expects current low distributions in private markets to be temporary, with indicators such as increased IPOs, rising investment banking activity, and narrowing bid-ask spreads pointing to better realizations ahead.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:What drove the strong demand for the recently launched PE product, STPEX, and is there any cannibalization risk with existing products?
A:The strong demand for STPEX was driven by demand from channel partners who wanted PE-exclusive exposure and faced limitations with SPRIM's ticker availability on certain custodians. There was some planned rotation from SPRIM to STPEX, but most of it occurred in the initial month.
Q:What are the next steps to broaden and deepen distribution for the 5 flagship products, and how much room is there to grow with distribution partners?
A:50% of distribution partners with a product on platform for more than a year are selling more than one Evergreen product. Most large distribution partners are focused on 2-3 funds, leaving room for growth. The company aims to meet channel partners' specific needs rather than expecting all partners to sell all 5 funds.
Q:Did the strong subscription rate for STPEX flatter overall SPW subscriptions in the quarter, and should a pullback be expected?
A:STPEX had $750 million in subscriptions in its initial month, which is not expected to be the run rate going forward. A quarterly pullback is expected due to the one-time initial subscription surge.
Q:What drove the quarter-over-quarter increase in G&A expenses, and how much of it is expected to be durable?
A:The increase was driven by travel, IT, and general operating costs, including investments in data, tech, and new office openings. Additional costs are expected in the next quarters due to the StepStone 360 and VC conferences.
Q:What is the partnership with Aviva about, and what is the potential opportunity in the retirement channel outside the U.S.?
A:The partnership with Aviva targets the U.K. defined contribution market, with material flows expected by calendar 2026. The company is also exploring opportunities in other geographies and the U.S. for private markets in defined contribution spaces.
Q:What is the path to more commercial relationships for the launched indexes, and how will they be monetized?
A:The indexes are powered by proprietary data and priced daily. Initial monetization will come from licensing opportunities with FTSE Russell, with longer-term potential for asset management products around the benchmarks.
Q:How is the company expanding deal sourcing capabilities to manage capital growth without compromising returns?
A:The company maintains a balanced approach by committing significant capital across private markets, including primary fund commitments, co-investments, and secondaries. They monitor deal flow and approval rates to ensure selectivity and balance.
Q:How will the product set in the Private Wealth channel evolve over the next 12-24 months?
A:The current product set will remain the same, with a focus on distribution. The company is exploring operational solutions for inclusion in model portfolios and addressing technology challenges for private markets in models.
Q:What are the geographical areas of strength and differences in strategy preferences among regions?
A:Geographical strength is broad-based, with notable growth in the Middle East, Asia, and Europe. Private credit is gaining interest in Asia and the Middle East, particularly among insurance companies setting up private credit allocations for the first time.
Q:Review of Unclear Management Responses
A:Management avoided providing specific timelines or quantitative details for certain initiatives, such as the commercialization of indexes and the operational challenges for private markets in model portfolios. Additionally, the response about geographical strategy preferences lacked detailed data or examples.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Director
Evergreen
GP fund
GP investment
Head
LP GP
Officer
PE co
PE secondary
Partner
Private
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StepStone
Wealth platform
account fund
account inflow
analysis
asset class
benchmark
core fee
distribution
fee AUM
flagship secondary
front
fund flagship
fund market
fundraising
index
loan
mandate
market PE
option
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product
secondary fund
sentiment
subscription
success client
wealth
year client
STEP Transcript
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The earnings call highlights strong financial performance with record fundraising, growth in fee-related earnings, and exceptional investment returns. Despite tempered expectations for future fund sizes, the company's diversified strategy, particularly in AI and private markets, is well-received. The Q&A indicates no significant concerns about private credit and positive sentiment towards growth in key regions. The market cap suggests a moderate reaction, leading to a positive prediction of 2% to 8% stock price increase.
StepStone Group Inc. (STEP) Q2 2026 Earnings Call Transcript
Positive11-7
The earnings call highlights strong financial performance, with significant growth in adjusted net income and fee revenues. The introduction of STPEX and expansion in institutional fundraising are positive indicators. Despite concerns about increased G&A expenses, the partnership with Aviva and international expansion present growth opportunities. The Q&A reveals some uncertainties, but overall sentiment remains positive. Given the company's market cap, the stock price is likely to experience a moderate positive movement.
STEP Slides
STEP Report
Frequently Asked Questions
Where does this earnings call transcript come from?
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