StepStone (US:STEP)2024-02-09 02:37Financial Data and Key Metrics Changes - The company reported a GAAP net loss of $23.4 million, with a net loss attributable to StepStone Group Incorporated of $20.2 million or $0.32 per share [82] - Fee-related earnings (FRE) increased by 19% year-over-year to $50.7 million, with an FRE margin of 33% [83][121] - Adjusted net income for the quarter was $42.1 million or $0.37 per share, up from $31.2 million or $0.27 per share in the same quarter last year [84] Business Line Data and Key Metrics Changes - Management and advisory fees rose by 18% year-over-year to $152 million, driven by growth in fee-earning AUM and $8.6 million in retroactive fees [120] - Gross realized performance fees were $33 million for the quarter, up $14 million from last year and $26 million from the prior quarter [2] - The company generated gross inflows of $6 billion in the quarter, with $4.3 billion coming from separately managed accounts (SMAs) [87] Market Data and Key Metrics Changes - The pool of performance fee eligible capital grew to over $70 billion, diversified across multiple vintage years in over 200 programs [8] - The company experienced $1.7 billion in distributions, including a significant distribution of approximately $1 billion from its infrastructure managed account [106] Company Strategy and Development Direction - The company announced agreements to acquire the remaining stakes in its infrastructure, private debt, and real estate businesses over the coming years, aiming for full ownership [86][96] - The strategy includes a gradual buy-in of non-controlling interests, structured to incentivize teams to grow their asset classes while maintaining alignment of interests [116][118] - The company aims to double fee-related earnings by fiscal 2028, leveraging a combination of separately managed accounts, commingled funds, and private wealth offerings [93] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about fundraising momentum, noting strong client relationships and a robust pipeline for future fundraising [88] - The company anticipates continued growth in FRE margins due to operating leverage and strategic cost-saving opportunities [112] - Management highlighted a positive sentiment among limited partners (LPs) regarding private markets, driven by recent public market recoveries [67] Other Important Information - The company sold its non-core subsidiary, Greenspring Back Office Solutions, which is expected to increase fee-related earnings by $2 million annually [114] - The company has launched new products, including the StepStone Private Credit Income Fund (CredEx), focusing on U.S. direct lending and specialty credit [92] Q&A Session Summary Question: Can you clarify the total asset pool migrating into fee-paying AUM over time? - Management indicated that the migration is largely driven by $21 billion of undeployed fee-earning capital, with a deployment period of three to five years [15] Question: What is the cadence of the buyout of the non-controlling interests? - The buyout will occur at a rate of one-tenth per year over the next five years, with potential acceleration after that period [16][17] Question: Can you elaborate on the incentive fee dynamics? - Incentive fees are generally tied to programs that crystallize annually, with expectations for modest fees in the upcoming quarters, particularly in the second and third fiscal quarters [22] Question: How does the minority buy-in impact the FRA margin profile over time? - Management expects margin expansion through operating leverage and efficiencies, but does not anticipate significant changes in margins directly from the buy-in [45] Question: What is the outlook for commingled fundraises? - The company is in the late stages of fundraising for several key funds, with positive sentiment from LPs and a strong pipeline for future fundraising [68]