StepStone (STEP) - 2026 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported a GAAP net loss of $123 million or $1.55 per share for Q3 2026, primarily due to the change in fair value of the buy-in of StepStone Private Wealth profits and interests [3] - Fee-related earnings were $89 million, up 20% year-over-year, with a FRE margin of 37% [4] - Adjusted net income for the quarter was $80 million or $0.65 per share, an increase from $53 million or $0.44 per share in the same quarter last year [4][22] Business Line Data and Key Metrics Changes - Core fee-related earnings, excluding retroactive fees, were $88 million, up 35% compared to the prior year quarter [4] - The company generated gross AUM additions of over $8 billion in the quarter and over $34 billion for the calendar year, marking the best 12-month period of fundraising ever [6][13] - In private wealth, the platform grew to $15 billion with over $2.2 billion in new subscriptions for the quarter [8][16] Market Data and Key Metrics Changes - Approximately two-thirds of inflows came from outside North America, with strong fundraising in Asia and Europe [13][60] - The company reported a retention rate on managed accounts of over 90%, with reups growing on average by nearly 30% [14] Company Strategy and Development Direction - The company is focused on diversifying its fundraising across commercial structures, geographies, and strategies to ensure continued growth through market cycles [6][7] - StepStone is positioning itself to capitalize on the evolution of artificial intelligence, investing across various asset classes and capital structures [10][11] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the earnings trajectory, citing an improving capital market environment that may yield stronger realizations [5] - The company anticipates that AI will create significant value, while also presenting risks and opportunities [11] Other Important Information - The company plans to pay out a supplemental dividend at the end of each fiscal year, subject to board approval based on performance-related revenues [21] - The net accrued carry finished the quarter at $875 million, up 4% from the previous quarter [22] Q&A Session Summary Question: Exposure to software companies across the portfolio - Management highlighted the diversified approach to private markets investing, emphasizing that not all software companies are equal and that portfolio construction is a key defense against disruptions [26][28] Question: Growth in private wealth business - Management noted that they are in the early stages of building syndicates for new funds and expect to see growth in distribution over the coming year [32][33] Question: Managing inflows in Spring fund - Management stated that the venture and growth team continues to see strong opportunities, allowing for effective management of inflows without needing to limit new assets [36] Question: Expectations for next vintages of funds - Management tempered expectations for modest growth in fund sizes, emphasizing the importance of matching fundraising to the size of the opportunity [38] Question: Performance attribution in Spring fund - Management explained that the majority of performance is driven by direct secondaries rather than discounts, highlighting the proactive approach in sourcing opportunities [44][46]