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 [4] - Fee-related earnings were $89 million, up 20% year-over-year, with a FRE margin of 37% [5][17] - 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 [5][20] Business Line Data and Key Metrics Changes - The company generated gross AUM additions of over $8 billion in the quarter and over $34 billion for the calendar year, marking its best 12-month fundraising period ever [7][13] - In private wealth, the platform grew to $15 billion with over $2.2 billion in new subscriptions for the quarter [8][15] - The Evergreen Funds saw nearly $1 billion in subscriptions across various offerings, indicating strong demand [8] Market Data and Key Metrics Changes - Approximately two-thirds of the 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 by nearly 30% [14] Company Strategy and Development Direction - The company is focused on a diversified approach to private markets investing, emphasizing portfolio construction and risk management [24][25] - There is a strong emphasis on artificial intelligence, with the company backing category-defining companies across the AI ecosystem [10][11] - The company plans to continue expanding its international footprint and fund families, with no new product launches expected in the next 12 months [32] 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 [6] - The company anticipates continued growth in private wealth subscriptions and a solid foundation for private market solutions [12][11] - Management acknowledged the risks and opportunities presented by AI disruption, emphasizing a diversified investment strategy [11][53] Other Important Information - The company plans to pay out a supplemental dividend at the end of the fiscal year, subject to board approval [20] - The net accrued carry finished the quarter at $875 million, up 4% from the previous quarter [21] Q&A Session Summary Question: Exposure to software companies and Spring fund performance - Management highlighted the diversified approach to private markets investing, noting that not all software companies are equal and emphasizing the importance of portfolio construction [24][25] Question: Growth in private wealth business and scaling existing products - Management indicated 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] Question: Managing inflows for the Spring fund - Management stated that they have not faced issues with inflows and continue to see strong opportunities in the venture and growth sectors [36] Question: Expectations for new fund vintages - Management tempered expectations for modest growth in fund sizes, emphasizing the importance of matching fundraising to the size of the opportunity [38] Question: Breakdown of performance attribution for Spring - Management clarified that the majority of performance is driven by direct secondaries rather than discounts, highlighting the proactive approach to sourcing investments [44][46] Question: Insights on AI disruption risk - Management discussed the importance of diligence in assessing AI risks and opportunities, focusing on how GPs manage their portfolios and select new investments [53][55] Question: Sourcing subscriptions and regional demand - Management noted that Asia and Europe have been significant drivers of demand, with infrastructure and private credit strategies performing well in these regions [60]